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 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 exercise 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 three 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
		Number of Shares				Weighted- Average Exercise Price				Number of Shares				Weighted- Average Fair  Market Value at Grant
June 27, 2010			885,425			$	21.61				2,740,762			$	30.50
Granted			—			$	—				922,210			$	50.11
Exercised			(572,182	)		$	21.68
Canceled			(3,310	)		$	20.35				(154,185	)		$	32.20
Vested restricted stock											(1,177,447	)		$	27.03
June 26, 2011			309,933			$	21.50				2,331,340			$	39.90
Awards assumed in Novellus acquisition			3,932,143			$	25.17				1,291,808			$	35.99
Granted			—			$	—				2,336,283			$	41.23
Exercised			(74,615	)		$	23.70
Canceled			(265,384	)		$	21.71				(120,070	)		$	40.91
Vested restricted stock											(1,507,883	)		$	35.47
June 24, 2012			3,902,077			$	25.14				4,331,478			$	41.01
Granted			288,867			$	42.59				2,563,670			$	38.76
Exercised			(1,546,028	)		$	25.47
Canceled			(73,993	)		$	26.24				(299,079	)		$	39.70
Vested restricted stock											(1,754,273	)		$	42.52
June 30, 2013			2,570,923			$	26.87				4,841,796			$	39.32

Outstanding and exercisable options presented by price range at June 30, 2013 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
$9.44-$20.82			447,220				3.32			$	15.99				437,715			$	15.94
$21.04-$25.68			777,248				4.33			$	22.37				615,744			$	22.58
$26.11-29.68			828,487				4.91			$	29.29				633,083			$	29.32
$30.48-$37.11			229,101				2.99			$	34.78				174,641			$	35.56
$42.41-$42.61			288,867				6.62			$	42.59				—
$9.44-$42.61			2,570,923				4.48			$	26.87				1,861,183			$	24.53

The Lam Research Corporation 2007 Stock Incentive Plan and 2011 Stock Incentive Plan (collectively the “Stock Plans”) provide 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. As of June 30, 2013 there were a total of 7,412,719 shares subject to options and restricted stock units issued and outstanding under the Company’s Stock Plans. As of June 30, 2013, there were a total of 13,302,712 shares available for future issuance under the Stock Plans.

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. The Plan Administrator (the Compensation Committee of the Board) is authorized to set a limit on the number of shares a plan participant can purchase on any single plan exercise date. Prior to August 27, 2012, the ESPP provided for an automatic annual increase in the number of shares in the plan reserve available for issuance. These increases occurred 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 had repurchased, and designated 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. Subsequent to August 27, 2012, increases in shares available for issuance under the ESPP must be specifically authorized by the Plan Administrator. During fiscal year 2013 there was no increase to the number of shares of Lam Research Common Stock reserved for issuance under the 1999 ESPP. During fiscal years 2012 and 2011 the number of shares of Lam Research Common Stock reserved for issuance under the 1999 ESPP increased by 1.8 million and 1.9 million, respectively.

During fiscal year 2013, a total of 1,072,396 shares of the Company’s Common Stock were sold to employees under the 1999 ESPP. At June 30, 2013 9,574,207 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 the following equity-based compensation expenses and benefits during the fiscal years noted:

 

		Year Ended
		June 30,				June 24,				June 26,
		2013				2012				2011
		(in millions)
Equity-based compensation expense		$	99.3			$	81.6			$	53.0
Income tax benefit recognized in the Consolidated Statement of Operations related to equity-based compensation		$	17.6			$	12.2			$	8.6
Tax benefit realized from the exercise and vesting of options and RSUs		$	21.6			$	11.8			$	16.3

Stock Options and Restricted Stock Units

Stock Options

The fair value of the Company’s stock options granted during fiscal year 2013 and fiscal year 2012, in connection with the acquisition of Novellus, was estimated using a Black-Scholes option valuation model. The Company did not grant any stock options during fiscal year 2011. This model requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each award:

 

		Year Ended
		June 30,				June 24,
		2013				2012
Expected volatility			36.60	%			38.04	%
Risk-free interest rate			0.81	%			0.55	%
Expected term (years)			4.79				3.89
Dividend yield			0	%			0	%

 

The year-end intrinsic value relating to stock options for fiscal years 2013, 2012, and 2011 is presented below:

 

		Year Ended
		June 30,				June 24,				June 26,
		2013				2012				2011
		(millions)
Intrinsic value - options outstanding		$	44.9			$	49.9			$	6.7
Intrinsic value - options exercisable		$	36.9			$	30.1			$	6.7
Intrinsic value - options exercised		$	25.4			$	1.3			$	16.7

As of June 30, 2013, there was $7.4 million of total unrecognized compensation cost related to unvested stock options granted and outstanding; that cost is expected to be recognized over a weighted average remaining vesting period of 1.4 years.

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 30, 2013, there was $126.3 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 1.9 years.

ESPP

ESPP rights were valued using the Black-Scholes model. During fiscal years 2013, 2012, and 2011 ESPP was valued assuming the following weighted-average assumptions:

 

		Year Ended
		June 30,				June 24,				June 26,
		2013				2012				2011
Expected life (years)			0.64				0.72				0.68
Expected stock price volatility			32.42	%			44.22	%			42.25	%
Risk-free interest rate			0.15	%			0.11	%			0.61	%
Dividend yield			0	%			0	%			0	%

As of June 30, 2013, there was $2.2 million of total unrecognized compensation cost related to the ESPP that is expected to be recognized over a remaining vesting period of 2 months.