NOTE 3 — EQUITY-BASED COMPENSATION PLANS

The Company has stock plans that provide for grants of equity-based awards to eligible participants, including stock options and restricted stock units (“RSUs”), of Lam Research common stock (“Common Stock”). An option is a right to purchase Common Stock at a set price. An RSU award is an agreement to issue shares of Common Stock at the time of vesting. The Company’s options and RSU awards typically vest over a period of three years or less, although awards assumed in connection with the acquisition of Novellus Systems, Inc. (“Novellus”), have vesting terms up to four years. The Company also has an employee stock purchase plan that allows employees to purchase its Common Stock at a discount through payroll deductions.

The Company recognized the following equity-based compensation expense and related income tax benefit in the Condensed Consolidated Statements of Operations:


	Three Months Ended				Nine Months Ended
	March 30,		March 31,		March 30,		March 31,
	2014		2013		2014		2013
	(in millions)
Equity-based compensation expense	$	24.3	$	25.6	$	70.6	$	74.1
Income tax benefit related to equity-based compensation expense	$	4.1	$	4.3	$	11.7	$	13.3

The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized over the awards’ vesting term on a straight-line basis.

Stock Options and RSUs

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 March 30, 2014, there was a total of 6,395,328 shares reserved to cover options and RSUs issued and outstanding under the Plans. As of March 30, 2014, there were an additional 11,008,283 shares reserved and available for future equity-based awards under the Plans.

A summary of stock option activity under the Plans as of March 30, 2014 and changes during the nine months then ended is presented below:


Options	Shares (in thousands)			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value as of March 30, 2014 (in thousands)
Outstanding at June 30, 2013		2,571		$	26.87		4.48
Granted		166		$	51.76
Exercised		(1,065	)	$	24.50
Forfeited or expired		(1	)	$	29.71

Outstanding at March 30, 2014		1,671		$	30.86		4.78	$	39,501

Exercisable at March 30, 2014		1,066		$	24.62		3.86	$	31,840

The fair value of the Company’s stock options was estimated using a Black-Scholes option valuation model. The total intrinsic value of options exercised during the three months ended March 30, 2014 and March 31, 2013 was $7.1 million and $8.0 million, respectively. The total intrinsic value of options exercised during the nine months ended March 30, 2014 and March 31, 2013 was $29.3 million and $12.7 million, respectively. As of March 30, 2014, there was $5.9 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 1.7 years.

A summary of the Company’s RSUs as of March 30, 2014 and changes during the nine months then ended is presented below:


	Shares			Average Grant-
Unvested Restricted Stock Units	(in thousands)			Date Fair Value
Unvested at June 30, 2013		4,842		$	39.32
Granted		1,376		$	49.47
Vested		(1,313	)	$	39.84
Forfeited		(181	)	$	39.48

Unvested at March 30, 2014		4,724		$	42.12

The fair value of the Company’s RSUs was calculated based upon the fair market value of Common Stock at the date of grant. As of March 30, 2014, there was $130.3 million of total unrecognized compensation expense related to unvested RSUs granted; that expense is expected to be recognized over a weighted-average remaining period of 1.9 years.

During the three months ended March 30, 2014, the Company issued restricted stock units with both a market condition and a service condition (market-based performance RSUs “market-based PRSUs”). Based upon the terms of such awards, the number of shares of Common Stock to be issued at vesting will range from 0% to 150% of the target amount, based on the total stockholder return (“TSR”) of Common Stock measured against the benchmark TSR of the Philadelphia Semiconductor Sector Index over a two and three year period, and continued employment. TSR is a measure of stock price appreciation in this performance period. As of March 30, 2014, 0.6 million market-based PRSUs were outstanding. These market-based performance restricted stock units generally vest two or three years from the grant date. Stock compensation expense for the market-based PRSUs was $1.2 million for the three and nine months ended March 30, 2014. No market-based PRSUs were awarded in earlier periods. The total unrecognized compensation expense and weighted-average remaining life for these awards is included in the above table.

ESPP

The 1999 Employee Stock Purchase Plan, as amended and restated (the “1999 ESPP”), allows employees to designate a portion of their base compensation to be withheld through payroll deductions and used to purchase Common Stock at a purchase price per share equal to the lower of 85% of the fair market value of Common Stock on the first or last day of the applicable purchase period. Each offering period generally lasts up to 12 months and includes up to three interim purchase dates. As of March 30, 2014, there was a total of 8,741,208 shares available for issuance under the 1999 ESPP.

Purchase rights under the 1999 ESPP were valued using the Black-Scholes option valuation model assuming no expected dividends and the following weighted-average assumptions for the three and nine months ended March 30, 2014:


	Three Months Ended			Nine Months Ended
	March 30,			March 30,
	2014			2014
Expected term (years)		0.51			0.68
Expected stock price volatility		28.89	%		30.24	%
Risk-free interest rate		0.09	%		0.07	%

As of March 30, 2014, there was $5.7 million of unrecognized compensation expense related to the 1999 ESPP, which is expected to be recognized over a remaining period of approximately 5 months.