STOCK-BASED COMPENSATION EXPENSE

The effect of recording stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):



	Years Ended December 31,
	2017			2016			2015
Cost of revenue	$	—		$	—		$	—
Research, development and other related costs	13,277			7,104			4,005
Selling, general and administrative	20,185			13,997			7,512
Total stock-based compensation expense	33,462			21,101			11,517
Tax effect on stock-based compensation expense	(5,296		)	(6,314		)	(3,107		)
Net effect on net income	$	28,166		$	14,787		$	8,410

Stock-based compensation expense categorized by various equity components for the years ended December 31, 2017, 2016 and 2015 is summarized in the table below (in thousands):



	Years Ended December 31,
	2017		2016		2015
Employee stock options	$	1,980	$	3,249	$	2,676
Restricted stock awards and units	28,909		17,024		8,232
Employee stock purchase plan	2,573		828		609
Total stock-based compensation expense	$	33,462	$	21,101	$	11,517

During the years ended December 31, 2017, 2016 and 2015, the Company granted stock options covering 70,000, zero and 84,000 shares, respectively. In December 2016, the Company assumed and granted stock awards covering 682,000 shares in connection with the DTS acquisition. The 2017, 2016 and 2015 estimated per share fair value of those grants was $4.62, $15.87 and $8.57, respectively, before estimated forfeitures.

The total fair value of restricted stock awards vested during the years ended December 31, 2017, 2016 and 2015 was $22.7 million, $15.9 million and $7.7 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $3.6 million, $5.5 million and $9.3 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

As of December 31, 2017, the unrecognized stock-based compensation balance after estimated forfeitures related to unvested stock options was $0.7 million to be recognized over an estimated weighted average amortization period of 1.8 years and $48.8 million related to restricted stock awards and units, including performance-based awards and units, to be recognized over an estimated weighted average amortization period of 2.4 years.

As of December 31, 2016, the unrecognized stock-based compensation balance after estimated forfeitures related to unvested stock options was $2.2 million to be recognized over an estimated weighted average amortization period of 1.2 years and $33.7 million related to restricted stock awards and units, including performance-based awards and units, to be recognized over an estimated weighted average amortization period of 2.4 years.

The Company uses the Black-Scholes option pricing model to determine the estimated fair value of options. The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis. The assumptions used in the model include expected life, volatility, risk-free interest rate, and dividend yield. The Company’s determinations of these assumptions are outlined below.

Expected life – The expected life assumption is based on analysis of the Company’s historical employee exercise patterns. The expected life of options granted under the ESPP represents the offering period of two years.

Volatility – Volatility is calculated using the historical volatility of the Company’s common stock for a term consistent with the expected life. Historical volatility of the Company’s common stock is also utilized for the ESPP.

Risk-free interest rate – The risk-free interest rate assumption is based on the U.S. Treasury rate for issues with remaining terms similar to the expected life of the options.

Dividend yield – Expected dividend yield is calculated based on cash dividends declared by the Board for the previous four quarters and dividing that result by the average closing price of the Company’s common stock for the quarter. Cash dividends are not paid on options, restricted stock units or unvested restricted stock awards.

In addition, the Company estimates forfeiture rates. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Historical data is used to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

The following assumptions were used to value the awards granted:



	Years Ended December 31,
	2017		2016		2015
Expected life (in years)	4.7		3.8		3.8
Risk-free interest rate	1.8	%	1.7	%	1.1 - 1.4%
Dividend yield	2.9	%	2.4	%	2.1 - 2.9%
Expected volatility	29.8	%	29.0	%	34.0 - 35.6%

The following assumptions were used to value the ESPP shares:



	Years Ended December 31,
	2017	2016		2015
Expected life (years)	2.0	2.0		2.0
Risk-free interest rate	1.2 - 1.3%	0.5 - 0.8%		0.4 - 0.7%
Dividend yield	2.0 - 2.5%	2.4 - 3.0%		2.1 - 3.4%
Expected volatility	28.3 - 30.8%	30.0	%	29.7 - 30.0%

For the years ended December 31, 2017, 2016 and 2015, an aggregate of 164,000, 89,000 and 77,000 common shares, respectively, were purchased pursuant to the ESPP.

Modifications

From time to time, the Company enters into consulting agreements with its departing employees. Some of these agreements may include continued vesting of the departing employees’ stock awards and an extension of the exercise period from the standard 90 days from employment termination date to the termination of the consulting agreement. As a result of modifications related to former employees, the Company incurred stock-based compensation expense of $0.3 million for the year ended December 31, 2015. There were no modifications in 2016. In 2017, the impact on the Company's financial statements as a result of one modification was not material.