STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

We account for stock-based compensation in accordance with the applicable authoritative guidance, which requires the measurement of stock-based compensation on the date of grant based on the fair value of the award, and the recognition of the expense over the requisite service period for the employee. Compensation related to RSUs is the intrinsic value on the date of grant, which is the closing price of our common stock less the employee exercise price, if any. Compensation related to stock options is determined using a stock option valuation model.

Valuation Assumptions

We use the Black-Scholes valuation model to determine the fair value of stock options. The Black-Scholes model requires the input of highly subjective assumptions, which are summarized in the table below for the three and six months ended June 30, 2013 and July 1, 2012:

	Three Months Ended		Six Months Ended
	June 30, 2013	July 1, 2012	June 30, 2013	July 1, 2012
Expected dividend yield	—	—	—	—
Expected stock price volatility	83%	81%	83%	81%
Risk-free interest rate	0.9%	0.7%	0.8%	0.8%
Expected life of options in years	4.4	5.0	4.4	5.0

We estimate the expected life of options based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the option. Expected volatility is based on the historical volatility of our common stock; and the risk-free interest rate is the rate on a U.S. Treasury Bill, with a maturity approximating the expected life of the option. We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, the expected dividend yield is zero.

Our stock-based compensation for the three and six months ended June 30, 2013 and July 1, 2012 was as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30, 2013		July 1, 2012		June 30, 2013		July 1, 2012
Stock-based compensation by type of award:
Stock options	$	309	$	343	$	666	$	732
Restricted stock units	32		4		47		15
Employee stock purchase plan	5		5		10		10
	$	346	$	352	$	723	$	757
Stock-based compensation by category of expense:
Cost of sales	$	9	$	17	$	26	$	32
Research, development and engineering	70		74		145		147
Selling, general and administrative	267		261		552		578
	$	346	$	352	$	723	$	757

We did not capitalize any stock-based compensation as inventory in the six months ended June 30, 2013 and July 1, 2012, as such amounts were immaterial. As of June 30, 2013, we had $2.1 million in unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock options which will be recognized over a weighted-average period of 2.2 years. As of June 30, 2013, we had $0.4 million in unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested RSUs which will be recognized over a weighted-average period of 3.6 years.