(12) STOCK-BASED COMPENSATION

The Company's stock-based compensation plans include the 2006 Share Incentive Plan, as amended and restated on March 22, 2010 (2006 Share Incentive Plan) and the ESPP. These plans are administered by the Compensation Committee of the Company's Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award. See Note 18 to the Company's Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010, for additional information related to these stock-based compensation plans.

Determining the Fair Value of Stock Options and Stock Purchase Rights

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the tables below. The expected life of options is based on observed historical exercise patterns. Groups of employees that have similar historical exercise patterns were considered separately for valuation purposes, but none were identified that had distinctly different exercise patterns as of September 30, 2011. The expected volatility of stock options is based upon proportionate weightings of the historical volatility of the Company's common stock and the implied volatility of traded options on the Company's common stock for fiscal periods in which there is sufficient trading volume in options on the Company's common stock. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future. The assumptions used to estimate the per share fair value of stock options granted under the 2006 Share Incentive Plan were as follows:

	0000000000	0000000000	0000000000	0000000000
	Three Months Ended September 30,		Nine Months Ended September 30,
Stock Option Valuation Assumptions	2011	2010	2011	2010
Expected volatility	47%	52%	47 – 50%	52%
Dividend yield	0.0%	0.0%	0.0%	0.0%
Expected life	6.4 years	6.2 years	6.3 – 6.4 years	6.2 years
Risk-free interest rate	1.3%	1.8%	1.3– 2.7%	1.8 – 2.7%
Weighted average fair value of common stock per share	$29.08	$21.70	$27.54	$21.39

During the nine months ended September 30, 2011, the Company granted 3.6 million options with a weighted average option value of $13.49 per option.

The Company did not grant any new stock purchase rights under the ESPP during the three months ended September 30, 2011.

Restricted Stock Units with Service-Based Vesting Conditions

Restricted stock units (RSUs) are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse. During the nine months ended September 30, 2011, the Company granted 0.3 million RSUs with a weighted average fair market value of $27.46 per share.

Restricted Stock Unit Awards with Performance and Market Vesting Conditions

On June 1, 2011, pursuant to the Board of Directors approval, the Company granted RSU awards under the 2006 Stock Incentive Plan to certain executive officers that provide for a base award of 875,000 RSUs (Base RSUs), with a grant date fair value of $32.61. The number of RSUs that could potentially vest from the Base RSUs granted is contingent upon achievement of specific performance goals and will be multiplied by the Total Shareholder Return (TSR) multiplier which could range from 75% to 125% to determine the number of earned RSU's.

Stock-based compensation expense for this award will be recognized over the service period beginning in the period the Company determines the strategic performance goal or goals is probable of achievement. Accordingly because the Company's management has not yet determined the goals are probable of achievement as of September 30, 2011, no compensation expense has been recognized for these awards for the three and nine months ended September 30,2011.

Compensation expense included in the Company's Condensed Consolidated Statements of Operations for all stock-based compensation arrangements was as follows:

		000000000000		000000000000		000000000000		000000000000
	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Cost of sales	$	1,334	$	1,044	$	3,864	$	2,852
Research and development		4,372		3,621		12,070		10,244
Selling, general and administrative		5,912		5,292		16,673		14,578

Total stock-based compensation expense	$	11,618	$	9,957	$	32,607	$	27,674

During the nine months ended September 30, 2011 and 2010, stock-based compensation of $4.0 million and $3.7 million was capitalized into inventory, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.