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, of the Company’s Common Stock. An option is a right to purchase Common Stock at a set price. An RSU award is an agreement to issue a set number of 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. 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 benefits in the Consolidated Statements of Operations:



	Year Ended
	June 25, 2017		June 26, 2016		June 28, 2015
	(in thousands)
Equity-based compensation expense	$	149,975	$	142,348	$	135,354
Income tax benefit recognized related to equity-based compensation	$	38,381	$	37,814	$	23,660
Income tax benefit realized from the exercise and vesting of options and RSUs	$	92,749	$	67,756	$	40,401

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

Stock Options and RSUs

The Lam Research Corporation 2007 Stock Incentive Plan, as amended and restated, 2011 Stock Incentive Plan, as amended and restated, and the 2015 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. The 2015 Stock Incentive Plan was approved by shareholders on November 4, 2015, and authorizes up to 18,000,000 shares available for issuance under the plan. Additionally, 1,232,068 shares that remained available for grants under the Company’s 2007 Stock Incentive Plan were added to the shares available for issuance under the 2015 Stock Incentive Plan. As of June 25, 2017, there were a total of 11,893,338 shares available for future issuance under the Stock Plans.

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 29, 2014	1,331,886		$	32.20	5,635,469		$	45.83
Granted	76,659		$	80.60	1,804,937		$	79.74
Exercised	(564,558	)	$	31.05	N/A		N/A
Canceled	(8,155	)	$	29.32	(174,879	)	$	50.16
Vested restricted stock	N/A		N/A		(2,311,439	)	$	41.17
June 28, 2015	835,832		$	37.44	4,954,088		$	60.13
Granted	196,167		$	75.57	2,230,851		$	71.87
Exercised	(123,726	)	$	24.92	N/A		N/A
Canceled	(862	)	$	21.43	(110,131	)	$	69.17
Vested restricted stock	N/A		N/A		(2,739,704	)	$	54.04
June 26, 2016	907,411		$	47.41	4,335,104		$	69.30
Granted	90,128		$	119.67	1,660,571		$	113.75
Exercised	(389,460	)	$	33.92	N/A		N/A
Canceled	(14,020	)	$	69.81	(175,975	)	$	73.31
Vested restricted stock	N/A		N/A		(2,269,639	)	$	63.24
June 25, 2017	594,059		$	66.69	3,550,061		$	90.03

As of June 25, 2017, there were a total of 4,144,120 shares subject to options and RSUs issued and outstanding under the Company’s Stock Plans.

Outstanding and exercisable options presented by price range at June 25, 2017, were as follows:



Range of Exercise Prices	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
$11.09-$23.59	57,020	3.62	$	18.04	57,020	$	18.04
$28.73-$35.68	52,606	3.63	$	31.18	52,606	$	31.18
$42.61-$51.76	150,539	3.37	$	49.21	150,539	$	49.21
$75.57-$119.67	333,894	5.75	$	88.46	94,399	$	77.77
$11.09-$119.67	594,059	4.63	$	66.69	354,564	$	49.13

Stock Options

The fair value of the Company’s stock options granted during fiscal years 2017, 2016, and 2015 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:



	Year Ended
	June 25, 2017		June 26, 2016		June 28, 2015
Expected volatility	28.85	%	33.08	%	34.45	%
Risk-free interest rate	1.92	%	1.27	%	1.46	%
Expected term (years)	4.75		4.79		4.80
Dividend yield	1.50	%	1.59	%	0.89	%

The year-end intrinsic value relating to stock options for fiscal years 2017, 2016, and 2015 is presented below:



	Year Ended
	June 25, 2017		June 26, 2016		June 28, 2015
	(in thousands)
Intrinsic value - options outstanding	$	50,551	$	31,643	$	37,961
Intrinsic value - options exercisable	$	36,396	$	29,112	$	33,360
Intrinsic value - options exercised	$	29,674	$	6,562	$	26,806

As of June 25, 2017, the Company had $4.7 million of total unrecognized compensation expense related to unvested stock options granted and outstanding which is expected to be recognized over a weighted-average remaining period of 2.2 years.

Restricted Stock Units

During the fiscal years 2017, 2016, and 2015, the Company issued both service-based RSUs and market-based performance RSUs (“PRSUs”).

The fair value of the Company’s service-based RSUs was calculated based on fair market value of the Company’s stock at the date of grant, discounted for dividends, using the following assumptions:



	Year Ended
	June 25, 2017		June 26, 2016		June 28, 2015
Risk-free interest rate	1.51	%	0.98	%	0.97	%
Expected term (years)	2.97		3.00		2.83
Dividend yield	1.48	%	1.59	%	0.89	%

Market-based PRSUs generally vest three years from the grant date if certain performance criteria are achieved and require continued employment. Based upon the terms of such awards, the number of shares that can be earned over the performance periods is based on the Company’s Common Stock price performance compared to the market price performance of the Philadelphia Semiconductor Sector Index (“SOX”), ranging from 0% to 150% of target. The stock price performance or market price performance is measured using the closing price for the 50-trading days prior to the dates the performance period begins and ends. The target number of shares represented by the market-based PRSUs is increased by 2% of target for each 1% that Common Stock price performance exceeds the market price performance of the SOX index. The result of the vesting formula is rounded down to the nearest whole number. Total stockholder return is a measure of stock price appreciation in this performance period. As of June 25, 2017, 862,455 of the 3,550,061 RSU’s outstanding are market-based PRSUs.

The fair value of the Company’s market-based PRSUs granted during fiscal years 2017, 2016, and 2015 was calculated using a Monte Carlo simulation model at the date of the grant. This model requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each award:



	Year Ended
	June 25, 2017		June 26, 2016		June 28, 2015
Expected volatility	27.48	%	29.81	%	27.93	%
Risk-free interest rate	1.55	%	0.97	%	1.05	%
Expected term (years)	2.92		2.92		2.98
Dividend yield	1.50	%	1.59	%	0.89	%

As of June 25, 2017, the Company had $245.7 million of total unrecognized compensation expense related to all unvested RSUs granted which is expected to be recognized over a weighted-average remaining period of 2.2 years.

ESPP

The 1999 Employee Stock Purchase Plan (the “1999 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 fourteen months and comprises two 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. During fiscal years 2017, 2016, and 2015, there was no increase to the number of shares of Lam Research Common Stock reserved for issuance under the 1999 ESPP.

During fiscal year 2017, a total of 825,486 shares of the Company’s Common Stock were sold to employees under the 1999 ESPP. At June 25, 2017, 5,672,571 shares were available for purchase under the 1999 ESPP.

The 1999 ESPP rights were valued using a Black-Scholes option valuation model. During fiscal years 2017, 2016, and 2015, the 1999 ESPP was valued using the following weighted-average assumptions:



	Year Ended
	June 25, 2017		June 26, 2016		June 28, 2015
Expected term (years)	0.73		0.67		0.67
Expected stock price volatility	31.74	%	35.48	%	27.60	%
Risk-free interest rate	0.41	%	0.29	%	0.07	%
Dividend yield	1.09	%	1.18	%	0.69	%

As of June 25, 2017, the Company had $6.5 million of total unrecognized compensation cost related to the 1999 ESPP which is expected to be recognized over a remaining period of four months.