STOCK-BASED COMPENSATION

We recognize compensation expense in our statement of operations related to all share-based awards, including grants of stock options and purchase rights under our ESPP, based on the grant date fair value of such share-based awards. Estimating the grant date fair value of such share-based awards requires us to make judgments in the determination of inputs into the Black-Scholes stock option pricing model which we use to arrive at an estimate of the grant date fair value for such awards. This model requires assumptions to be made related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. While the risk-free interest rate is a less subjective assumption, typically based on factual data derived from public sources, the expected stock price volatility and option life assumptions require a greater level of judgment, which makes them critical accounting estimates. We have not issued and do not anticipate issuing dividends to stockholders and accordingly use a zero percent dividend yield assumption for all Black-Scholes stock option pricing calculations. We use an expected stock-price volatility assumption that is based on an implied and historical realized volatility of our underlying common stock during a period of time. With regard to the weighted-average option life assumption, we evaluate the exercise behavior of past grants and comparison to industry peer companies as a basis to predict future activity.

The weighted-average assumptions used in this model to value stock option grants and purchase rights under the ESPP for the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 were as follows:



	Year Ended
	June 28, 2014		June 29, 2013		June 30, 2012
Stock options:
Expected life	5.3 years		5.1 years		4.8 years
Risk-free interest rate	1.6	%	0.7	%	1.0	%
Volatility	77.3	%	82.9	%	91.6	%
Dividend yield	—		—		—
Purchase rights under ESPP:
Expected life	N/A		0.5 years		0.5 years
Risk-free interest rate	N/A		0.1	%	0.1	%
Volatility	N/A		67.0	%	87.0	%
Dividend yield	N/A		—		—

The amounts included in cost of revenues, operating expenses and net loss for stock-based compensation expenses for the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 were as follows:



	Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
	(Thousands)
Stock-based compensation by category of expense:
Cost of revenues	$	1,001		$	1,627		$	1,401
Research and development	1,039			1,488			1,283
Selling, general and administrative	3,983			2,984			3,251
Restructuring, acquisition and related costs	—			277			—
	$	6,023		$	6,376		$	5,935
Stock-based compensation by type of award:
Stock options	$	983		$	2,450		$	3,068
Restricted stock awards	5,206			3,424			2,645
Purchase rights under ESPP	—			531			206
Inventory adjustment to cost of revenues	(166		)	(29		)	16
	$	6,023		$	6,376		$	5,935

As of June 28, 2014 and June 29, 2013, we capitalized $0.4 million and $0.4 million, respectively, of stock-based compensation in inventory.

Included in stock-based compensation for the year ended June 28, 2014, is approximately $2.0 million in compensation cost related to the grant of 0.8 million RSUs to our chief executive officer on February 10, 2014, which vested in full on the grant date. Also included in stock-based compensation for the years ended June 28, 2014 and June 29, 2013, is approximately $0.1 million and $0.3 million, respectively, in compensation cost related to the issuance of PSUs from July 2011 and March 2014. The amount of stock-based compensation expense recognized in any one period related to PSUs can vary based on the achievement or anticipated achievement of the performance conditions. If the performance conditions are not met or not expected to be met, no compensation cost would be recognized on the underlying PSUs, and any previously recognized compensation expense related to those PSUs would be reversed. As of June 28, 2014, we determined that the achievement of the performance conditions associated with the PSUs issued in July 2012 are improbable. We have not recorded any compensation cost associated with these PSUs.

As of June 28, 2014, we had $1.4 million in unrecognized stock-based compensation expense related to unvested stock options, net of estimated forfeitures, that will be recognized over a weighted-average period of 1.9 years, and $8.5 million in unrecognized stock-based compensation expense related to unvested restricted stock awards, net of estimated forfeitures, that will be recognized over a weighted-average period of 2.0 years.