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 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 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 26, 2016		June 28, 2015		June 29, 2014
	(in thousands)
Equity-based compensation expense	$	142,348	$	135,354	$	103,700
Income tax benefit recognized related to equity-based compensation	$	37,814	$	23,660	$	16,937
Income tax benefit realized from the exercise and vesting of options and RSUs	$	67,756	$	40,401	$	31,993

The estimated fair value of the Company’s equity-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, 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.

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 30, 2013	2,570,923		$	26.87	4,841,796		$	39.32
Granted	166,455		$	51.76	2,811,602		$	53.21
Exercised	(1,403,019	)	$	24.75	N/A		N/A
Canceled	(2,473	)	$	30.21	(281,476	)	$	41.16
Vested restricted stock	N/A		N/A		(1,736,453	)	$	40.39
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

Outstanding and exercisable options presented by price range at June 26, 2016 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
$9.44-$19.05	112,372	0.30	$	13.18	112,372	$	13.18
$21.28-$23.59	40,623	0.17	$	21.88	40,623	$	21.88
$26.87-$29.68	147,427	0.50	$	29.24	147,427	$	29.24
$32.04-$35.68	27,795	0.15	$	33.02	27,795	$	33.02
$42.61-$80.60	579,194	3.31	$	61.16	294,929	$	49.38
$9.44-$80.60	907,411	4.43	$	47.41	623,146	$	35.56

As of June 26, 2016, there were a total of 5,242,515 shares subject to options and RSUs issued and outstanding under the Company’s Stock Plans. As of June 26, 2016, there were a total of 14,758,224 shares available for future issuance under the Stock Plans.

Stock Options

The fair value of the Company’s stock options granted during fiscal years 2016, 2015, and 2014, 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 26, 2016		June 28, 2015		June 29, 2014
Expected volatility	33.08	%	34.45	%	35.28	%
Risk-free interest rate	1.27	%	1.46	%	1.39	%
Expected term (years)	4.79		4.80		4.78
Dividend yield	1.59	%	0.89	%	—

The year-end intrinsic value relating to stock options for fiscal years 2016, 2015, and 2014 is presented below:



	Year Ended
	June 26, 2016		June 28, 2015		June 29, 2014
	(in thousands)
Intrinsic value - options outstanding	$	31,643	$	37,961	$	46,283
Intrinsic value - options exercisable	$	29,112	$	33,360	$	31,653
Intrinsic value - options exercised	$	6,562	$	26,806	$	41,379

As of June 26, 2016, there was $4.8 million of total unrecognized compensation expense related to unvested stock options granted and outstanding; that expense is expected to be recognized over a weighted-average remaining vesting period of 2.4 years.

Restricted Stock Units

The fair value of the Company’s RSUs was calculated based upon the fair market value of the Company’s stock at the date of grant, discounted for dividends. As of June 26, 2016, there was $221.3 million of total unrecognized compensation expense related to all unvested RSUs granted; that expense is expected to be recognized over a weighted-average remaining vesting period of 2.2 years.

During the fiscal years 2016, 2015 and 2014, the Company issued certain RSUs with both a market condition and a service condition (market-based performance RSUs, or “market-based PRSUs”). 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 26, 2016, 1.1 million market-based PRSUs were outstanding. These market-based PRSUs generally vest two or three years from the grant date and require continued employment. Stock compensation expense for the market-based PRSUs was $19.6 million, $13.5 million and $3.8 million for the years ended June 26, 2016, June 28, 2015 and June 29, 2014, respectively.

The fair value of the Company’s market-based PRSUs granted during fiscal years 2016, 2015 and 2014, 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 26, 2016		June 28, 2015		June 29, 2014
Expected volatility	29.81	%	27.93	%	29.27	%
Risk-free interest rate	0.97	%	1.05	%	0.55	%
Expected term (years)	2.92		2.98		2.67
Dividend yield	1.59	%	0.89	%	—

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 twelve 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. During fiscal years 2016, 2015, and 2014, there was no increase to the number of shares of Lam Research Common Stock reserved for issuance under the 1999 ESPP.

During fiscal year 2016, a total of 936,466 shares of the Company’s Common Stock were sold to employees under the 1999 ESPP. At June 26, 2016, 6,498,057 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 2016, 2015, and 2014, the 1999 ESPP was valued using the following weighted-average assumptions:



	Year Ended
	June 26, 2016		June 28, 2015		June 29, 2014
Expected term (years)	0.67		0.67		0.68
Expected stock price volatility	35.48	%	27.60	%	30.24	%
Risk-free interest rate	0.29	%	0.07	%	0.07	%
Dividend Yield	1.18	%	0.69	%	—

As of June 26, 2016, there was $3.1 million of total unrecognized compensation cost related to the 1999 ESPP that is expected to be recognized over a remaining vesting period of 2 months.