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 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 authorizing 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 24, 2018, there were a total of 10,335,291 shares available for future issuance under the Stock Plans. New shares are issued from the Company’s balance of authorized Common Stock from the 2015 Stock Incentive Plan to satisfy stock option exercises and vesting of awards.

The Company recognized the following equity-based compensation expense and benefits in the Consolidated Statements of Operations:



	Year Ended
	June 24, 2018		June 25, 2017		June 26, 2016
	(in thousands)
Equity-based compensation expense	$	172,216	$	149,975	$	142,348
Income tax benefit recognized related to equity-based compensation	$	87,505	$	38,381	$	37,814
Income tax benefit realized from the exercise and vesting of options and RSUs	$	90,297	$	92,749	$	67,756

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. In the first quarter of fiscal year 2018, the Company adopted ASU 2016-9, “Compensation – Stock Compensation,” as discussed further in Note 3 - Recent Accounting Pronouncements.

Stock Options

The following table summarizes stock option activity:



	Options Outstanding
	Number of Shares		Weighted-Average Exercise Price
June 28, 2015	835,832		$	37.44
Granted	196,167		$	75.57
Exercised	(123,726	)	$	24.92
Forfeited or expired	(862	)	$	21.43
June 26, 2016	907,411		$	47.41
Granted	90,128		$	119.67
Exercised	(389,460	)	$	33.92
Forfeited or expired	(14,020	)	$	69.81
June 25, 2017	594,059		$	66.69
Granted	63,980		$	190.07
Exercised	(166,481	)	$	55.62
Forfeited or expired	(8,630	)	$	84.44
June 24, 2018	482,928		$	86.53

Outstanding and exercisable options presented by price range at June 24, 2018, 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 Remaining Life (Years)	Weighted-Average Exercise Price
$11.09-$23.59	33,918	1.49	$	18.97	33,918	1.49	$	18.97
$28.73-$35.68	39,060	2.63	$	31.29	39,060	2.63	$	31.29
$42.61-$51.76	75,415	2.03	$	47.30	75,415	2.03	$	47.30
$75.57-$190.07	334,535	5.08	$	108.67	155,504	4.33	$	83.58
$11.09-$190.07	482,928	4.15	$	86.53	303,897	3.23	$	60.65

The fair value of the Company’s stock options granted during fiscal years 2018, 2017, and 2016 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 24, 2018		June 25, 2017		June 26, 2016
Expected volatility	34.66	%	28.85	%	33.08	%
Risk-free interest rate	2.53	%	1.92	%	1.27	%
Expected term (years)	4.74		4.75		4.79
Dividend yield	1.05	%	1.50	%	1.59	%

The year-end intrinsic value relating to stock options for fiscal years 2018, 2017, and 2016 is presented below:



	Year Ended
	June 24, 2018		June 25, 2017		June 26, 2016
	(in thousands)
Intrinsic value - options outstanding	$	43,563	$	50,551	$	31,643
Intrinsic value - options exercisable	$	34,661	$	36,396	$	29,112
Intrinsic value - options exercised	$	23,925	$	29,674	$	6,562

As of June 24, 2018, the Company had $5.4 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 2018, 2017, and 2016, the Company issued both service-based RSUs and market-based performance RSUs (“PRSUs”). 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.

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 28, 2015	4,040,947		$	60.98	913,141		$	56.37
Granted	1,771,599		72.14		459,252		70.58
Vested	(2,445,902	)	54.91		(293,802	)	46.77
Forfeited or canceled	(110,131	)	69.17		—		—
June 26, 2016	3,256,513		$	71.34	1,078,591		$	63.12
Granted	1,224,877		114.13		435,694		111.75
Vested	(1,677,318	)	69.10		(592,321	)	46.67
Forfeited or canceled	(116,466	)	76.76		(59,509	)	66.81
June 25, 2017	2,687,606		$	92.01	862,455		$	83.83
Granted	964,391		183.97		285,866		170.15
Vested	(1,362,369	)	87.80		(407,024	)	76.88
Forfeited or canceled	(96,540	)	108.67		(47,571	)	91.36
June 24, 2018	2,193,088		$	134.34	693,726		$	104.59

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.

The fair value of the Company’s market-based PRSUs granted during fiscal years 2018, 2017, and 2016 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 24, 2018		June 25, 2017		June 26, 2016
Expected volatility	34.07	%	27.48	%	29.81	%
Risk-free interest rate	2.35	%	1.55	%	0.97	%
Expected term (years)	2.92		2.92		2.92
Dividend yield	1.05	%	1.50	%	1.59	%

As of June 24, 2018, the Company had $247.7 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 Company has an employee stock purchase plan which 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. Unrecognized compensation costs associated with this plan are not considered material.