Note 11: Equity-Based Compensation Plans

The Company has adopted stock plans that provide for the grant to employees of equity-based awards, including stock options and restricted stock units ("RSUs"), of Lam Research Common Stock. In addition, these plans permit the grant of nonstatutory equity-based awards to consultants and outside directors. An option is a right to purchase the Company's stock at a set price. An RSU award is an agreement to issue shares of the Company's stock at the time of vesting. Pursuant to the plans, the equity-based award price is determined by the Board of Directors or its designee, the plan administrator, but in no event will the exercise price for any option be less than the fair market value of the Company's Common Stock on the date of grant. Equity-based awards granted under the plans vest over a period determined by the Board of Directors or the plan administrator, typically over a period of two years or less. The Company also has an ESPP that allows employees to purchase shares of its Common Stock through payroll deduction at a discounted price. A summary of stock plan transactions is as follows:


				Options Outstanding					Restricted Stock Units Outstanding
	Available For Grant			Number of Shares			Weighted- Average Exercise Price		Number of Shares			Weighted- Average FMV at Grant
June 29, 2008		15,839,806			2,606,694		$	21.60		1,696,224		$	46.51
Granted		(2,592,679	)		476,094		$	20.21		2,116,585		$	27.29
Exercised					(731,934	)	$	16.42
Canceled		981,297			(760,538	)	$	24.97		(220,759	)	$	43.98
Expired		(3,516,323	)
Vested restricted stock										(1,071,987	)	$	47.26

June 28, 2009		10,712,101			1,590,316		$	22.10		2,520,063		$	30.32
Granted		(1,383,941	)		—		$	—		1,383,941		$	34.71
Exercised					(642,861	)	$	20.91
Canceled		259,579			(62,030	)	$	41.36		(197,549	)	$	33.23
Vested restricted stock										(965,693	)	$	35.29

June 27, 2010		9,587,739			885,425		$	21.61		2,740,762		$	30.50
Granted		(922,210	)		—		$	—		922,210		$	50.11
Exercised					(572,182	)	$	21.68
Canceled		157,495			(3,310	)	$	20.35		(154,185	)	$	32.20
Expired		(68,869	)
Vested restricted stock										(1,177,447	)	$	27.03

June 26, 2011		8,754,155			309,933		$	21.50		2,331,340		$	39.90

Outstanding and exercisable options presented by price range at June 26, 2011 are as follows:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options Outstanding		Weighted- Average Remaining Life (Years)		Weighted- Average Exercise Price		Number of Options Exercisable		Weighted- Average Exercise Price
$16.14-$19.25		10,315		0.18	$	16.52		10,315	$	16.52
$20.21-$22.79		220,258		2.63	$	20.23		220,258	$	20.23
$23.61-$24.69		51,200		0.18	$	24.00		51,200	$	24.00
$25.98-$26.19		3,060		0.23	$	26.02		3,060	$	26.02
$27.79-$29.06		25,100		3.45	$	29.05		25,100	$	29.05

$16.14-$29.06		309,933		2.26	$	21.50		309,933	$	21.50

The 2007 Stock Incentive Plan provides for the grant of non-qualified equity-based awards to eligible employees, consultants and advisors, and non-employee directors of the Company and its subsidiaries. Additional shares are reserved for issuance pursuant to awards previously granted under the Company's 1997 Stock Incentive Plan and its 1999 Stock Option Plan. As of June 26, 2011 there were a total of 2,641,273 shares subject to options and restricted stock units issued and outstanding under the Company's Stock Plans. As of June 26, 2011, there were a total of 8,754,155 shares available for future issuance under the 2007 Stock Incentive Plan.

The ESPP allows employees to designate a portion of their base compensation to be deducted and used to purchase the Company's Common Stock at a purchase price per share of the lower of 85% of the fair market value of the Company's Common Stock on the first or last day of the applicable purchase period. Typically, each offering period lasts 12 months and comprises three interim purchase dates. Key provisions of the ESPP include (i) an annual increase in the number of shares available for issuance under the plan by a specific amount on a one-for-one basis with shares of Common Stock that the Company repurchases for such purpose and (ii) authorization of the Plan Administrator (the Compensation Committee of the Board) to set a limit on the number of shares a plan participant can purchase on any single plan exercise date. The automatic annual increase provides that the number of shares in the plan reserve available for issuance shall be increased on the first business day of each calendar year commencing with 2004, on a one-for-one basis with each share of Common Stock that the Company repurchases, and designates for this purpose, by a number of shares equal to the lesser of (i) 2,000,000, (ii) one and one-half percent (1.5%) of the number of shares of all classes of Common Stock of the Company outstanding on the first business day of such calendar year, or (iii) a lesser number determined by the Plan Administrator. During fiscal years 2011, 2010, and 2009, the number of shares of Lam Research Common Stock reserved for issuance under the 1999 ESPP increased by 1.9 million each year.

During fiscal year 2011, a total of 679,406 shares of the Company's Common Stock were sold to employees under the 1999 ESPP. At June 26, 2011, 9,672,531 shares were available for purchase under the 1999 ESPP.

The estimated fair value of the Company's stock-based awards, less expected forfeitures, is amortized over the awards' vesting period on a straight-line basis. The Company recognized or realized the following equity-based compensation expenses and benefits during the fiscal years noted:


	Year Ended
	June 26, 2011		June 27, 2010		June 28, 2009
	(in millions)
Equity-based compensation expense	$	53.0	$	50.5	$	53.0
Income tax benefit recognized in the Consolidated Statement of Operations related to equity-based compensation	$	8.6	$	8.3	$	9.1
Tax benefit realized from the exercise and vesting of options and RSUs	$	16.3	$	11.1	$	8.1

Stock Options and Restricted Stock Units

Stock Options

The Company did not grant any stock options during fiscal years 2011 or 2010. The fair value of the Company's stock options granted during fiscal year 2009 was estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each award. The Company assumed no expected dividends and the following assumptions were used to value these stock options:


Expected term	4.0	years
Expected volatility	46.9	%
Risk-free interest rate	2.07	%

The year-end intrinsic value relating to stock options for fiscal years 2011, 2010, and 2009 is presented below:


	Year Ended
	June 26, 2011		June 27, 2010		June 28, 2009
	(millions)
Intrinsic value — options outstanding	$	6.73	$	16.50	$	6.70
Intrinsic value — options exercisable	$	6.73	$	6.96	$	4.50
Intrinsic value — options exercised	$	16.70	$	9.98	$	7.20

As of June 26, 2011, all stock options outstanding are fully vested and all related compensation expense has been recognized. Cash received from stock option exercises was $12.4 million, $13.4 million, and $12.0 million during fiscal years 2011, 2010, and 2009, respectively.

Restricted Stock Units

The fair value of the Company's restricted stock units was calculated based upon the fair market value of the Company's stock at the date of grant. As of June 26, 2011, there was $58.7 million of total unrecognized compensation cost related to unvested restricted stock units granted; that cost is expected to be recognized over a weighted average remaining vesting period of 1.3 years.

ESPP

ESPP rights were valued using the Black-Scholes model. During fiscal years 2011, 2010, and 2009 ESPP was valued assuming no expected dividends and the following weighted-average assumptions:


	Year Ended
	June 26, 2011			June 27, 2010			June 28, 2009
Expected life (years)		0.68			0.78			0.68
Expected stock price volatility		42.25	%		59.07	%		74.00	%
Risk-free interest rate		0.61	%		0.61	%		0.41	%

As of June 26, 2011, there was $1.2 million of total unrecognized compensation cost related to the ESPP that is expected to be recognized over a remaining vesting period of 2 months.