EQUITY-BASED COMPENSATION PLANS

The Lam Research Corporation 2015 Stock Incentive Plan, as amended (the “2015 Plan”), provides for the grant of non-qualified equity-based awards of the Company’s Common Stock to eligible employees and non-employee directors, including stock options, restricted stock units (“RSUs”), and market-based performance RSUs (“market-based PRSUs”). 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 market-based PRSUs contain both a market condition and a service condition. The Company’s options, RSU, and market-based PRSU awards typically vest over a period of three 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 (including expense related to the employee stock purchase plan) and related income tax benefit in the Condensed Consolidated Statements of Operations:



	Three Months Ended				Nine Months Ended
	March 25, 2018		March 26, 2017		March 25, 2018		March 26, 2017
	(in thousands)
Equity-based compensation expense	$	41,095	$	35,323	$	125,002	$	106,173
Income tax benefit recognized related to equity-based compensation expense	$	46,366	$	9,954	$	77,842	$	29,674

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. In the first quarter of fiscal year 2018, the Company adopted ASU 2016-9, “Compensation – Stock Compensation,” as discussed further in Note 2.

Stock Options

The fair value of the Company’s stock options granted during the nine months ended March 25, 2018 was estimated using a Black-Scholes options valuation model, which requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each award.

The following table summarizes stock option activity:



	Options Outstanding
	Number of Shares		Weighted- Average Exercise Price
June 25, 2017	594,059		$	66.69
Granted	63,980		$	190.07
Exercised	(125,918	)	$	52.69
Expired or forfeited	—		$	—
March 25, 2018	532,121		$	84.83

Restricted Stock

The Company granted both service-based RSUs and market-based PRSUs during the nine months ended March 25, 2018. The fair value of the Company’s service-based RSUs was calculated based on the fair market value of the Company’s stock at the grant date, discounted for dividends. The fair value of the Company’s market-based PRSUs was calculated using a Monte Carlo simulation model at the date of the grant. 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.

The following table summarizes restricted stock activity:



	Service-based RSUs Outstanding				Market-based RSUs Outstanding
	Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value
June 25, 2017	2,687,606		$	92.01	862,455		$	83.83
Granted	930,160		$	183.93	285,866		$	170.15
Vested	(1,302,294	)	$	86.87	(407,024	)	$	76.88
Expired or Forfeited	(51,227	)	$	100.62	(6,802	)	$	82.48
March 25, 2018	2,264,245		$	132.53	734,495		$	103.94

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. Typically, each offering period lasts up to twelve months and comprises two interim purchase dates. In 2017, the ESPP plan transitioned from three to two purchases per year. These purchases occur in six month increments on the last trading days of April and October.

During the nine months ended March 25, 2018, a total of 412,469 shares of the Company’s Common Stock were sold to employees under the 1999 ESPP. No shares of Common Stock were sold to employees during the three months ended March 25, 2018.

Purchase rights under the 1999 ESPP were valued using the Black-Scholes option valuation model and the following weighted-average assumptions for the nine months ended March 25, 2018 and three and nine months ended March 26, 2017; there were no ESPP purchase rights issued in the three months ended March 25, 2018:



	Three Months Ended		Nine Months Ended
	March 26, 2017		March 25, 2018		March 26, 2017
Expected stock price volatility	27.24	%	29.13	%	31.80	%
Risk-free interest rate	0.52	%	0.82	%	0.41	%
Expected term (years)	0.78		0.77		0.73
Dividend yield	1.00	%	0.89	%	1.10	%