STOCK-BASED COMPENSATION

We recognize compensation expense in our statement of operations related to all share-based awards, including grants of stock options and restricted stock awards, 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 were as follows (assumptions are not applicable for the years ended July 1, 2017 and July 2, 2016, as there were no stock options granted during this period):



	Year Ended
	July 1, 2017	July 2, 2016	June 27, 2015
Stock options:
Expected life	N/A	N/A	5.3 years
Risk-free interest rate	N/A	N/A	1.6%
Volatility	N/A	N/A	76.9%
Dividend yield	N/A	N/A	—

The amounts included in cost of revenues, operating expenses and net income (loss) for stock-based compensation expenses were as follows:



	Year Ended
	July 1, 2017			July 2, 2016		June 27, 2015
	(Thousands)
Stock-based compensation by category of expense:
Cost of revenues	$	1,885		$	1,883	$	1,801
Research and development	2,290			1,689		1,515
Selling, general and administrative	7,020			4,629		2,848
	$	11,195		$	8,201	$	6,164
Stock-based compensation by type of award:
Stock options	$	134		$	213	$	390
Restricted stock awards	11,670			7,876		5,670
Inventory adjustment to cost of revenues	(214		)	112		104
Adjustment for development of internal use software	(395		)	—		—
	$	11,195		$	8,201	$	6,164

As of July 1, 2017 and July 2, 2016, we capitalized $0.6 million and $0.3 million, respectively, of stock-based compensation in inventory. As of July 1, 2017, we also capitalized $0.4 million of stock-based compensation in connection with the development of internal use software.

Included in stock-based compensation for the years ended July 1, 2017, July 2, 2016 and June 27, 2015, is approximately $3.2 million, $1.4 million and $0.3 million, respectively, in stock-based compensation cost related to the issuance of PSUs. 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 July 1, 2017, we determined that the achievement of the performance conditions associated with the PSUs issued in August 2016 is probable at the 100 percent target level. On July 25, 2017, the compensation committee of our board of directors certified that the performance condition for these PSUs was achieved.

As of July 1, 2017, we had $0.1 million, respectively, 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 1.0 year, and $20.5 million in unrecognized stock-based compensation expense related to unvested time-based and performance-based restricted stock awards, net of estimated forfeitures, that will be recognized over a weighted-average period of 2.3 years.