Incorporated in 1980, Lam Research Corporation (“Lam Research,” “Lam,” “we,” “our,” “us,” or “the Company”the “Company”) is a Delaware corporation, headquartered in Fremont, California. We maintain a network of facilities throughout Asia, Europe, and the United States in order to meet the needs of our dynamic customer base.
Additional information about Lam Research is available on our website at www.lamresearch.com. The content on any website referred to in this Form 10-K is not a part of or incorporated by reference in this Form 10-K unless expressly noted.
Our Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Forms 8-K, Proxy Statements and all other filings we make with the SEC are available on our website, free of charge, as soon as reasonably practical after we file them with or furnish them to the SEC and are also available online at the SEC’s website at www.sec.gov.
The Lam Research logo, Lam Research, and all product and service names used in this report are either registered trademarks or trademarks of Lam Research Corporation or its subsidiaries in the United States and/or other countries. All other marks mentioned herein are the property of their respective holders.
We are a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. We have built a strong global presence with core competencies in areas like nanoscale applications enablement, chemistry, plasma and fluidics, advanced systems engineering, and a broad range of operational disciplines. Our products and services are designed to help our customers build smaller faster, and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive devices,vehicles, and data storage devices, and networking equipment. Our vision is to realize full value from natural technology extensions of our company.devices.
Our customer base includes leading semiconductor memory, foundry, and integrated device manufacturers (“IDMs”) that make products such as non-volatile memory (“NVM”), DRAMdynamic random-access memory (“DRAM”), and logic devices. We aimTheir continued success is part of our commitment to increase our strategic relevance with our customers by contributing more to their continued success.driving semiconductor breakthroughs that define the next generation. Our core technical competency is integrating hardware, process, materials, software, and process control enabling results on the wafer.
Semiconductor manufacturing, our customers’ business, involves the complete fabrication of multiple dies or integrated circuits (“ICs”) on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.
We also address processes for back-end wafer-level packaging (“WLP”), which is an alternative to traditional wire bonding and can offer a smaller form factor, increased interconnect speed and bandwidth, and lower power consumption, among other benefits. In addition, our products are well-suited for related markets that rely on semiconductor processes and require production-proven manufacturing capability, such as complementary metal-oxide-semiconductor (“CMOS”) image sensors (“CIS”) and micro-electromechanical systems (“MEMS”).
Our Customer Support Business Group (“CSBG”) provides products and services to maximize installed equipment performance, predictability, and operational efficiency. We offer a broad range of services to deliver value throughout the lifecycle of our equipment, including customer service, spares, upgrades, and refurbishment ofnew and refurbished non-leading edge products in our deposition, etch, and clean products.markets. Many of the technical advances that we introduce in our newest products are also available as upgrades, which provide customers with a cost-effective strategy for extending the performance and capabilities of their existing wafer fabrication lines. Service offerings include addressing productivity needs for our customers including, but not limited to, system uptime or availability optimization, throughput improvements, and defect reduction. Additionally, within CSBG, providesour Reliant product line offers new and refurbished previous-generation (legacy) equipmentnon-leading edge products in deposition, etch and clean markets for those applications that do not require the most advanced wafer processing capability.
Continues on next page
Lam Research Corporation 20172022 10-K4
Products
Thin Film | | | | | | | | | | | | | | | | | | | | |
| Market | | Process/Application | | Technology | | Products |
| Deposition | | Metal Films | | Electrochemical Deposition (“ECD”) (Copper & Other) | | SABRE® family
|
| | | Chemical Vapor Deposition (“CVD”)
Atomic Layer Deposition (“ALD”)
(Tungsten) | | ALTUS® family
|
| Dielectric Films | | Plasma-enhanced CVD (“PECVD”)
ALD
Gapfill High-Density Plasma CVD (“HDP-CVD”) | | VECTOR® family Striker®family SPEED® family |
| Film Treatment | | Ultraviolet Thermal Processing (“ULTP”) | | SOLA® family |
| Etch | | Conductor Etch | | Reactive Ion Etch | | Kiyo® family, Versys® Metal family |
| Dielectric Etch | | Reactive Ion Etch | | Flex® family |
| Through-silicon Via (“TSV”) Etch | | Deep Reactive Ion Etch | | Syndion® family |
| Clean | | Wafer Cleaning | | Wet Clean | | EOS®, DV-Prime®, Da Vinci®, SP Series |
| Bevel Cleaning | | Dry Plasma Clean | | Coronus® family |
| | | | | | |
In leading-edgeDeposition Processes and Product Families
Deposition processes create layers of dielectric (insulating) and metal (conducting) materials used to build a semiconductor designs, metaldevice. Depending on the type of material and structure being made, different techniques are employed. Electrochemical deposition processes face significant scaling and integration challenges. For advancedcreates the copper interconnect structures, challenges for electrochemical depositionwiring (interconnect) that links devices in an integrated circuit (“ECD”IC” or “chip”) include providing complete, void-free fill of high aspect ratio (“HAR”) structures with low defectivity and high productivity. Electroplating. Plating of copper and other metals is also used for through-silicon via (“TSV”)TSV and WLP applications, such as forming conductive bumpsapplications. Tiny tungsten connectors and redistribution layers (“RDLs”). These applications require excellent within-wafer uniformitythin barriers are made with high plating rates, minimal defects, and cost competitiveness. For tungstenthe precision of chemical vapor deposition (“CVD”)/and atomic layer deposition, (“ALD”) processes, key requirements are minimizing contact resistance to meet lower power consumption requirements and achieving void-free fill for narrow nanoscale structures. In addition, good barrier step coveragewhich adds only a few layers of atoms at reduced thicknesses relative to physical vapor deposition (“PVD”)/CVD barrier films is also needed to improve contact fill and reduce resistivity.
In dielectric deposition, high-productivity, high-quality films are needed for a number of critical patterning and gapfill applications. For example, atomic layer deposition is required for front-end-of-line (“FEOL”) transistor structures and back-end-of-line (“BEOL”) self-aligned multiple patterning schemes to deposit highly conformal and uniform films. For NVM applications, high-quality conformal films are needed to form device isolation and ensure structural integrity.time. Plasma-enhanced CVD, (“PECVD”) is used to deposit multiple dielectric films, including the alternating mold stack layers used in NVM memory and critical patterning layers for logic/foundry. These applications require excellent thickness uniformity, low defectivity, and stress control. For gapfill deposition, achieving defect-free fills while maintaining high throughput is essential. Preferred approaches are to use high-density plasma CVD, (“HDP-CVD”) either as a complete gapfill solution or as a cap over other gapfill technologiesand ALD are used to enhance process controlform the critical insulating layers that isolate and mitigate integration risks.protect all of these electrical structures. Lastly, innovative post-deposition film treatments such as ultraviolet thermal processing (“UVTP”) are being used to improve low-kdielectric film integrity and increase strain in nitride layers for improved device performance.properties.
Copper Metal Films — SABREALTUS® Product Family
The SABRE ECD product familyTungsten deposition is the industry’s leading system for copper damascene manufacturing. Electrofill® technology is designedused to provide high-throughput, void-free fill with superior defect density performance for advanced technology nodes. SABRE chemistry packages provide leading-edge fill performance for low defectivity, a wide process window, and high rates of bottom-up growth to fill the most challenging HAR features. System capabilities include deposition of copper directly on various liner materials, important for next-generation metallization schemes. The number of yielding ICs per wafer is optimized by increasing the usable die area through process edge exclusion engineering. Applications include copper deposition for both advanced logic and memory interconnect. We also offer the SABRE 3D system to address TSV and WLP applications,form conductive features such as copper pillar, RDL, high-density fanout, underbump metallization, bumping,contacts, vias, and microbumps used in post-TSV processing.
Tungsten Metal Films — ALTUS® Product Family
wordlines on a chip. These features are small, often narrow, and use only a small amount of metal, so minimizing resistance and achieving complete fill can be difficult. At these nanoscale dimensions, even slight imperfections can impact device performance or cause a chip to fail. Our ALTUS® systems combine CVD and ALD technologies to deposit the highly conformal atomic layer films needed for advanced tungsten metallization applications. The patented Multi-Station Sequential Deposition (“MSSD”) architecture enables a nucleation layer to be formed using Pulsed Nucleation Layer (“PNL”) technologyformation and bulk CVDCVD/ALD fill to be performed in the same chamber (“in situ”). PNL®, ourOur ALD technology, istechnologies are used in the deposition of tungsten nitridebarrier films to achieve high step coverage with reduced thickness at lower temperatures relative to a conventional barrier films. PNL is also used to reduce thickness and alter CVD bulk fill grain growth, lowering the overall resistivity of thin tungsten films. The advanced ExtremeFillTM CVD and LFW (low-fluorine tungsten) ALD technologies provide extendibility to fill the most challenging structures at advanced technology nodes. Applications include tungsten plug and via fill, NVM word lines, low-stress composite interconnects, and tungsten nitride barrier for via and contact metallization.process.
Continues on next pageLam Research Corporation 2017 10-K 5
PECVD Dielectric Films — VECTORSABRE® Product Family
Copper deposition lays down the electrical wiring for most semiconductor devices. Even the smallest defect - say, a microscopic pinhole or dust particle - in these conductive structures can impact device performance, from loss of speed to complete failure. The VECTORSABRE® ECD product family, of PECVD systems delivers advanced thin film quality, wafer-to-wafer uniformity, productivity,which helped pioneer the copper interconnect transition, offers the precision needed for copper damascene manufacturing in logic and low cost of ownership. The MSSD architecture combines the required film performance with both sequential and parallel processing to provide flexibility for a range of applications. VECTOR productsmemory. System capabilities include specialized systemscobalt deposition for logic applications and memorycopper deposition directly on various liner materials, which is important for next-generation metallization schemes. For advanced WLP applications, such as forming conductive bumps and redistribution layers, and for filling TSVs, the SABRE® 3D family combines Lam’s SABRE Electrofill® technology with additional innovation to deliver the high-quality films needed at high productivity. The modular architecture can be configured with multiple platform options. The Express platform offers a small footprint with four processing stations. Excel is a modular platform for advanced technology nodes where pre-and-post deposition treatments are needed. The Extreme platform accommodates up to 12 processing stations for high-throughput applications. Our Q platform accommodates up to 16 processing stations for depositing multi-stack films. Applications include deposition of oxides, nitrides,plating and carbides for hardmasks, multiple patterning films, anti-reflective layers, multi-layer stack films, and diffusion barriers.
ALD Dielectric Films — Striker® Product Family
The Striker family of ALD systems delivers highly conformal dielectric films for spacer-based patterning and liner applications in the most advanced memory and logic structures. The MSSD architecture combines the required film performance with both sequential and parallel processing modes to providepre/post-treatment cells, providing flexibility to deliver both precise controladdress a variety of critical dimensions and low cost of ownership. The unique capability to deliver tunable and high-quality films over a vast range of temperatures and process conditions allows the Striker family to deliver unique and high electrical quality films to support the most demanding logic, DRAM, NVM, and CISpackaging applications. Striker products include specialized systems for logic and memory applications, with similar multiple platform options as are available for our VECTOR products. Applications include conformal deposition of dielectric films for spacers and liners.
Gapfill Dielectric Films — SPEEDSOLA®Product Family
The SPEED HDP-CVD products areDielectric materials designed to provide void-free gapfillmeet the insulation requirements of high-quality dielectriclogic chips often have attributes that make them unusually difficult to use. These films are easily damaged and vulnerable to losing some of their insulating capability, which can lead to poor device performance. To enable these applications, some films can be stabilized - and others enhanced to improve device performance - using specialized post-deposition film treatments available with superior throughput and reliability. The unique source design provides for particle performance, while the ability to customize the deposition and in situ etching profile ensures across-wafer thickness and gapfill uniformity. Together, the chamber and plasma source designs allow large batch sizes between cleans and faster cleans to deliver superior throughput. BroadLam’s SOLA® UVTP product family. SOLA® products offer process flexibility is available on the same platform, without requiring major hardware changes. Applications include shallow trench isolation (“STI”), pre-metal dielectrics, inter-layer dielectrics, inter-metal dielectrics, and passivation layers.
Film Treatment — SOLA® Product Family
The SOLA UVTP product family is used for treatment of BEOL low-k dielectric films and FEOL silicon nitride strained films. The systems incorporate a proprietary treatment process that modifies the physical characteristics of a previously deposited film through exposure to ultraviolet light, gases and vapors, and heat. The Multi-Station Sequential Processing (“MSSP”) architecture allows independent control of temperature, wavelength, and intensity at each station of the wafer path. We believe this enables deliverypath, enabled by Multi-Station Sequential Processing architecture.
Lam Research Corporation 2022 10-K 5
SPEED® Product Family
Dielectric gapfill processes deposit critical insulation layers between conductive and/or active areas by filling openings of various aspect ratios between conducting lines and between devices. With advanced devices, the structures being filled can be very tall and narrow. As a result, high-quality dielectric films are especially important due to the ever-increasing possibility of cross-talk and device failure. Our SPEED® HDP-CVD products provide a multiple dielectric film properties,solution for high-quality gapfill with industry-leading throughput and reliability. SPEED® products have excellent particle performance, and their design allows large batch sizes between cleans and faster cleans.
Striker® Product Family
The latest memory, logic, and imaging devices require extremely thin, highly conformal dielectric films for continued device performance improvement and scaling. For example, ALD films are critical for spacer-based multiple patterning schemes where the spacers help define critical dimensions, as well as for insulating liners and gapfill in high aspect ratio features, which have little tolerance for voids and even the smallest defect. The Striker® single-wafer ALD products provide dielectric film solutions for these challenging requirements through application-specific material, process and hardware options that deliver film technology and defect performance.
VECTOR® Product Family
Dielectric film deposition processes are used to form some of the most difficult-to-produce insulating layers in a semiconductor device, including those used in the latest transistors and 3D structures. In some applications, these films require dielectric films to be exceptionally smooth and defect free since slight imperfections are multiplied greatly in subsequent layers. Our VECTOR® PECVD products are designed to provide the performance and flexibility needed to create these enabling structures within a wide range of challenging device applications. As a result of its design, VECTOR® produces superior thin film quality, along with exceptional within-wafer and wafer-to-wafer uniformity,uniformity.
Etch Processes and productivity.Product Families
Plasma Etch
As processes help create chip features by selectively removing dielectric (insulating), metal, silicon and poly silicon (conducting/semiconducting) materials that have been added during deposition. These processes involve fabricating increasingly small, complex, and narrow features using many types of materials. The primary technology, reactive ion etch, bombards the semiconductor industry continueswafer surface with ions (charged particles) to improve device performance and shrink critical feature sizes, plasma etch faces multiple challenges. These include processing smallerremove material. For the smallest features, new materials, new transistor structures, increasingly complex film stacks, and ever higher aspect ratio structures. Foratomic-layer etching (“ALE”) removes a few atomic layers of material at a time. While conductor etch requirements include delivering atomic-scale control for etching FinFET/3D gateprocesses precisely shape critical electrical components like transistors, multi-film stacks for high-k/metal gatedielectric etch forms the insulating structures and multiple patterning structures. that protect conducting parts.
Flex® Product Family
Dielectric etch processes must be ablecarves patterns in insulating materials to maintain etch profiles on increasingly HARcreate barriers between the electrically conductive parts of a semiconductor device. For advanced devices, these structures such as in NVM devices, etch new multi-layer photoresist materials and amorphous carbon hardmasks, and avoid damaging fragile low-k materials. In emerging 3D ICs, TSVs are now used to provide interconnect capability for die-to-die and wafer-to-wafer stacking. Critical factors for TSV are etching a variety of materials in situ, as well as being able to use both conventional and special techniques for deep silicon etching. For all etch processes, it is important to provide excellent profile control and across-wafer uniformity while maintaining high productivity and cost efficiency.
Continues on next pageLam Research Corporation 2017 10-K 6
Conductor Etch — Kiyo® Product Family, Versys® Metal Product Family
The Kiyo product family is designed to deliver high-performance, high-productivity, low-risk solutions for conductor etch applications. Uniformity, uniformity control, and repeatability are enabled by a symmetrical chamber design, electrostatic chuck technology, and independent tuning features. The Kiyo products deliver high productivity with low defectivity on multi-film stacks, enabled by in situ etch capability, continuous plasma, and advanced Waferless Autoclean technology. To address technology inflections in patterning, the Kiyo family offers state-of-the-art capability with our Hydra® technology, which enables extraordinary within-wafer uniformity for FEOL/BEOL process modules in NVM, DRAM and logic devices. In addition, Kiyo systems can be configured to performextremely tall and thin and involve complex, sensitive materials. Slight deviations from the target feature profile - even at the atomic layer etching (“ALE”), which delivers atomic-scale variability control to enable next-generation wafer processing. Applications include FinFET gate, fin definition, STI, high-k/metal gate, and multiple patterning. The Versys Metal product family provides a flexible platform for BEOL metal etch processes. Symmetrical chamber design and independent tuning features provide critical dimension, profile uniformity, and uniformity control for metal hardmask applications. The products’ proprietary chamber cleaning technology ensures high availability, high yield, and exceptional process repeatability for BEOL processing. Applications include metal hardmask, multiple patterning, high-density aluminum line, and aluminum pad. For both Kiyo and Versys Metal families, multiple platforms options are available to address fab productivity needs;level - can negatively affect electrical properties of the device. To precisely create these include the 2300e4challenging structures, our Flex®, 2300e5®, and 2300e6® platforms.
Dielectric Etch — FlexTM Product Family
The Flex product family offers differentiated technologies and application-focused capabilities for critical dielectric etch applications. Uniformity, repeatability, and tunability are enabled by a unique multi-frequency, small-volume, confined plasma design. The systems deliver high productivity with low defectivity, enabled byFlex® offers in situ multi-step etch and continuous plasma capability. Low-risk, cost-effective upgrades provide evolutionarycapability that delivers high productivity with low defectivity.
Kiyo® Product Family
Conductor etch helps shape the electrically active materials used in the parts of a semiconductor device. Even a slight variation in these miniature structures can degrade device performance. In fact, these structures are so tiny and sensitive that etch processes push the boundaries of the basic laws of physics and chemistry. Our Kiyo® product transitions that extend product lifefamily delivers the high-performance capabilities needed to precisely and maximize return on investment. Applications include low-kconsistently form these features precisely and ultra low-k dual damascene, mask open,with high productivity. Proprietary Hydra technology in Kiyo® products improves critical dimension (“CD”) uniformity by correcting for incoming pattern variability, and atomic-scale variability control with production-worthy throughput is achieved with plasma-enhanced ALE capability.
Syndion® Product Family
Plasma etch processes used to remove single crystal silicon and other materials deep into the wafer are collectively referred to as deep silicon etch. These may be deep trenches for CMOS image sensors, trenches for power and other devices, TSVs, and other high aspect ratio applications for DRAM capacitor cell, NVM hole, trench, and contact. In addition, Flex systems can be configured to perform ALE, which delivers atomic-scale variability control to enable next-generation wafer processing for applications such as self-aligned contacts. Multiple platformsfeatures. These are available - including 2300e4®, 2300e5®, 2300e6® - to address fab productivity needs.
TSV Etch — Syndion® Product Family
Based on our production-proven conductor etch products, the Syndion family provides low-risk, flexible solutions to address multiple TSV and CIS etch applications. The Syndion products provide a low cost of ownership due to high etch rates, excellent repeatability, and in situcreated by etching ofthrough multiple materials sequentially, where each new material involves a change in the TSV stack (silicon, dielectrics, conducting films).etch process. The Syndion® etch product family is optimized for deep silicon etch, providing the fast process switching with depth and cross-wafer uniformity control required to achieve precision etch results. The systems support both conventional single-step etch and rapidly alternating process, (“RAP”). High process flexibility, superior profile control,which minimizes damage and excellent uniformity enable successful TSV implementation for a variety of complementary metal-oxide-semiconductor 3D IC and image sensor applications. Multiple platforms are available - including 2300e4®, 2300e5®, 2300e6® - to address fab productivity needs.
Single-Wafer Clean
Wafer cleaning is a critical function that must be repeated many times during the semiconductor manufacturing process, from device fabrication through packaging. As device geometries shrink and new materials are introduced, the number of cleaning steps continues to grow. Furthermore, each step has different selectivity and defectivity requirements that add to manufacturing complexity. For next-generation devices, fragile structures need to be cleaned without being damaged. In addition, cleaning steps that target the bevel region can help eliminate the potential source of yield-limiting defects at the wafer’s edge, thereby increasing the number of good die at the wafer’s edge and improving yield.
Wet Clean — EOS®, Da Vinci®, DV-Prime®, SP Series
Single-wafer spin technology pioneered the industry transition from batch to single-wafer wet processing. These production-proven spin wet clean systems provide the productivity and flexibility needed for both high-volume manufacturing and leading-edge development across multiple technology nodes and for all device types. The products deliver process uniformity across the wafer, wafer-to-wafer, and lot-to-lot. Proprietary technologies enhance damage-free particle removal and enable wafer drying without pattern collapse or watermarks. Offering the latest in dilute chemistry and solvent systems, the products meet defectivity and material integrity requirements. Applications include particle, polymer, and residue removal; photoresist removal; wafer backside/
delivers precise depth uniformity.
Continues on next page
Lam Research Corporation 20172022 10-K 76
Versys® Metal Product Family
bevel cleaning;Metal etch processes play a key role in connecting the individual components that form an IC, such as forming wires and film removal. Our wet clean systemselectrical connections. These processes can also be used to drill through metal hardmasks that are alsoused to form the wiring for advanced devices. To enable these critical etch steps, the Versys® Metal product family provides high-productivity capability on a flexible platform. Superior CD, profile uniformity, and uniformity control are enabled by a symmetrical chamber design with independent process tuning features.
Clean Processes and Product Families
Clean techniques are used between manufacturing steps to clear away particles, contaminants, residues and other unwanted material that could later lead to defects and to prepare the wafer surface for subsequent processing. Wet processing technologies can be used for multiple wetwafer cleaning and etch and clean applications for WLP, including silicon substrate thinning, wafer stress relief, underbump metallization etch, and photoresist removal.
applications. Plasma Bevel Clean — Coronus® Product Family
The Coronus plasma-based bevel clean productscleaning is used to enhance die yield by removing particles, residues and unwanted filmsmaterials from the wafer’s edge that cancould impact the device area. The system combines
Coronus® Product Family
Bevel cleaning removes unwanted masks, residues, and films from the abilityedge of a wafer between manufacturing steps. If not cleaned, these materials become defect sources. For instance, they can flake off and re-deposit on the device area during subsequent processes. Even a single particle that lands on a critical part of a device can ruin the entire chip. By inserting bevel clean processes at strategic points, these potential defect sources can be eliminated and more functional chips produced. By combining the precise control and flexibility of plasma to selectively remove a wide variety of materials with a proprietary confinement technology that protects the active die area. High system uptime and throughput, excellent process repeatability, and efficient in situ removal of multi-material film stacks and residues ensure high productivity for increased wafer output.area, the Coronus®bevel clean family cleans the wafer’s edge to enhance die yield.The systems provide active die area protection by using plasma processing with proprietary confinement technology. Applications include post-etch, pre- and post-deposition, pre-lithography, and metal film removal to prevent arcing during plasma etch or deposition steps. It also provides
DV-Prime®,Da Vinci®,EOS®, and SP Series Product Families
Wafer cleaning is performed repeatedly during semiconductor device manufacturing and is a cost-effective bevel cleancritical process that affects product yield and reliability. Unwanted microscopic materials - some no bigger than the tiny structures themselves - need to be cleaned effectively. At the same time, these processes must selectively remove carbon-rich residues and films.
Legacy Products
For applications that do not require the most advanced wafer processing capability, semiconductor manufacturers can benefit from the proven performance of previous-generation products to increase their production capacity at a reduced economic investment. Purchasing through an original equipment manufacturer (“OEM”) like us minimizes the risks of unexpected costs and unpredictable time to production that are typically associated withchemically similar to the legacy equipment market. To meet semiconductor manufacturers’ needsdevice films. For advanced WLP, the wet clean steps used between processes that form the package and external wiring have surprisingly complex requirements. These processes are called on to completely remove specific materials and leave other fragile structures undisturbed. In IoT products that include power devices, MEMS and image sensors, there is a unique requirement for high-performance, maximum-predictability, and low-risk equipment, we provide new, refurbished, and legacy productswafer backside wet etch to customers utilizing technology nodes at and above 28 nm. These products benefit from manyuniformly thin the silicon wafer while protecting the device side of the technical advances fromwafer.
Based on our newest systems, enabling extended lifetimepioneering single-wafer spin technology, the DV-Prime® and productivity. OurDa Vinci® products also provide production-worthy, cost-effectivethe process flexibility needed with high productivity to address a wide range of wafer cleaning steps throughout the manufacturing process flow. As the latest of Lam’s wet clean products, EOS® delivers exceptionally low on-wafer defectivity and high throughput to address progressively demanding wafer cleaning applications. With a broad range of process capability, our SP Series products deliver cost-efficient, production-proven wet clean and silicon wet etch solutions for MEMS, power semiconductor, radio frequency device,challenging WLP and light emitting diode (“LED”) markets.
Products Table
|
| | | | | | |
Market | | Process/Application | | Technology | | Products |
Thin Film Deposition | | Metal Films | | ECD (Copper & Other)
CVD, ALD (Tungsten)
| | SABRE® family
ALTUS® family
|
| | Dielectric Films
| | PECVD
ALD
Gapfill HDP-CVD
| | VECTOR® family
Striker®family
SPEED® family
|
| | Film Treatment | | UVTP | | SOLA® family
|
Plasma Etch | | Conductor Etch | | Reactive Ion Etch | | Kiyo® family,
Versys® Metal family
|
| | Dielectric Etch | | Reactive Ion Etch | | FlexTM family
|
| | TSV Etch
| | Deep Reactive Ion Etch
| | Syndion® family
|
Single-Wafer Clean | | Wafer Cleaning | | Wet Clean | | EOS®, DV-Prime®,
Da Vinci®, SP Series
|
| | Bevel Cleaning | | Dry Plasma Clean | | Coronus® family
|
IoT applications.Fiscal Periods Presented
All references to fiscal years apply to our fiscal years, which ended June 25, 2017,26, 2022, June 26, 2016,27, 2021, and June 28, 2015.2020.
Research and Development
The market for semiconductor capital equipment is characterized by rapid technological change and product innovation. Our ability to achieve and maintain our competitive advantage depends in part on our continued and timely development of new products and enhancements to existing products. Accordingly, we devote a significant
Continues on next pageLam Research Corporation 2017 10-K 8
portion of our personnel and financial resources to research and development (“R&D”) programs and seek to maintain close and responsive relationships with our customers and suppliers.
Our R&D expenses during fiscal years 2017, 2016, and 2015 were $1.0 billion, $914 million, and $825 million, respectively. The majority of R&D spending over the past three years has been targeted at deposition, etch, single-wafer clean, and other semiconductor manufacturing products. We believe current challenges for customers at various points in the semiconductor manufacturing process present opportunities for us.
We expect to continue to make substantial investments in R&D to meet our customers’ product needs, support our growth strategy and enhance our competitive position.
Marketing, Sales, and Service
Our marketing, sales, and service efforts are focused on building long-term relationships with our customers and targeting product and service solutions designed to meet their needs. These efforts are supported by a team of product marketing and sales professionals as well as equipment and process engineers who work closely with individual customers to develop solutions for their wafer processing needs. We maintain ongoing service relationships with our customers and have an extensive network of service engineers in place throughout the United States, China, Europe, India, Japan, Korea, Southeast Asia, and Taiwan. We believe that comprehensive support programs and close working relationships with customers are essential to maintaining high customer satisfaction and our competitiveness in the marketplace.
Lam Research Corporation 2022 10-K 7
We provide standard warranties for our systems. The warranty provides that systems will be free from defects in material and workmanship and will conform to agreed-upon specifications. The warranty is limited to repair of the defect or replacement with new or like-new equivalent goods and is valid when the buyer provides prompt notification within the warranty period of the claimed defect or non-conformity and also makes the items available for inspection and repair. We also offer extended warranty packages to our customers to purchase as desired.
International Sales
A significant portion of our sales and operations occur outside the United States (“U.S.”) and, therefore, may be subject to certain risks, including but not limited to tariffs and other barriers; difficulties in staffing and managing non-U.S. operations; adverse tax consequences; foreign currency exchange rate fluctuations; changes in currency controls; compliance with U.S. and international laws and regulations, including U.S. export restrictions; the effects of the COVID-19 pandemic and the related governmental, public health and business responses to it; and economic and political conditions. Any of these factors may have a material adverse effect on our business, financial position, and results of operations and cash flows. For geographical reporting, revenue is attributed to the geographic location in which the customers’ facilities are located. Revenue by region was as follows:
|
| | | | | | | | | | | |
| | Year Ended |
| | June 25,
2017 | | June 26,
2016 | | June 28,
2015 |
| | (in thousands) |
| Revenue: | | | | | |
| Korea | $ | 2,480,329 |
| | $ | 1,057,331 |
| | $ | 1,406,617 |
|
| Taiwan | 2,095,669 |
| | 1,485,037 |
| | 1,084,239 |
|
| Japan | 1,041,969 |
| | 983,821 |
| | 623,575 |
|
| China | 1,023,195 |
| | 1,039,951 |
| | 661,094 |
|
| United States | 629,937 |
| | 495,123 |
| | 890,891 |
|
| Southeast Asia | 401,877 |
| | 605,236 |
| | 278,350 |
|
| Europe | 340,644 |
| | 219,394 |
| | 314,546 |
|
| Total revenue | $ | 8,013,620 |
|
| $ | 5,885,893 |
|
| $ | 5,259,312 |
|
Long-Lived Assets
Refer to
Note 1820 of our Consolidated Financial Statements, included in Part II, Item 8 of this report,2022 Form 10-K, for the attribution of revenue by geographic region.Long-lived Assets
Refer to Note 20 of our Consolidated Financial Statements, included in Part II, Item 8 of this 2022 Form 10-K, for information concerning the geographic locations of long-lived assets.
Continues on next pageLam Research Corporation 2017 10-K 9
Customers
Our customers include all of the world’s leading semiconductor manufacturers. Customers continue to establish joint ventures, alliances, and licensing arrangements which have the potential to positively or negatively impact our competitive position and market opportunities. Customers accountingRefer to Note 9 of our Consolidated Financial Statements, included in Part II, Item 8 of this report, for greater than 10% of total revenues ininformation concerning customer concentrations. Our most significant customers during the fiscal year 2017years ending June 26, 2022, June 27, 2021, and June 28, 2020 included Intel Corporation; Kioxia Corporation; Micron Technology, Inc.; Samsung Electronics Company, Ltd.; SK hynix Inc.; Taiwan Semiconductor Manufacturing Company, Ltd;Company; and Toshiba, Inc. Customers accounting for greater than 10% of total revenues in fiscal year 2016 included Micron Technology, Inc.; Samsung Electronics Company,Yangtze Memory Technologies Co., Ltd.; SK hynix Inc.; and Taiwan Semiconductor Manufacturing Company, Ltd. Customers accounting for greater than 10% of total revenues in fiscal year 2015 included Micron Technology, Inc.; Samsung Electronics Company, Ltd.; and Taiwan Semiconductor Manufacturing Company, Ltd. A material reduction in orders from our customers could adversely affect our results of operations and projected financial condition. Our business depends upon the expenditures of semiconductor manufacturers. Semiconductor manufacturers’ businesses, in turn, depend on many factors, including their economic capability, the current and anticipated market demand for ICs, and the availability of equipment capacity to support that demand.
Backlog
In general, we schedule production of our systems based upon our customers’ delivery requirements and forecasts. In order for a system to be included in our backlog, the following conditions must be met: (1) we have received a written customer request that has been accepted, (2) we have an agreement on prices and product specifications, and (3) there is a scheduled shipment within the next 12 months. In order for spares and services to be included in our backlog, the following conditions must be met: (1) we have received a written customer request that has been accepted and (2) delivery of products or provision of services is anticipated within the next 12 months. Where specific spare parts and customer service purchase contracts do not contain discrete delivery dates, we use volume estimates at the contract price and over the contract period, not to exceed 12 months, in calculating backlog amounts. Our policy is to revise our backlog for order cancellations and to make adjustments to reflect, among other things, changes in spares volume estimates and customer delivery date changes. As of June 25, 2017, and June 26, 2016, our backlog was $2.1 billion and $1.4 billion, respectively. Generally, orders for our products and services are subject to cancellation by our customers with limited penalties. Because some orders are received and shipped in the same quarter and because customers may change delivery dates and cancel orders, our backlog at any particular date is not necessarily indicative of business volumes or actual revenue levels for succeeding periods.
Manufacturing
Our manufacturing operations mainly consist of assembling and testing components, sub-assemblies, and modules that are then integrated into finished systems prior to shipment to or at the location of our customers. The assembly and testing of our products is conducted predominately in cleanroom environments.
We have agreements with third parties to outsource certain aspects of our manufacturing, production warehousing, and logistics functions. We believe that theseThese outsourcing contracts may provide us more flexibility to scale our operations up or down in a timely and cost-effective manner, enablingwith the potential to enable us to respond more quickly to any changes in our business. We believe that we have selected reputable providers and have secured their performance on terms documented in written contracts. However, it is possible that one or more of these providers could fail to perform as we expect, and such failure could have an adverse impact on our business and have a negative effect on our operating results and financial condition. Overall, we believe we have effective mechanisms to manage risks associated with our outsourcing relationships. Refer to Note 1517 of our Consolidated Financial Statements, included in Part II, Item 8 of this report, for further information concerning our outsourcing commitments.commitments, reported as a component of purchase obligations. Certain components and sub-assemblies that we include in our products may only be obtained from a single supplier. We believe that, in many cases,In response to ongoing supply chain constraints, we couldworked diligently to obtain and qualify alternative sources to supply these products. Nevertheless, anyAny prolonged inability to obtain these components could have an adverse effect on our operating results and could unfavorably impact our customer relationships.
Compliance with Government Regulations
Continues on next pageLam Research Corporation 2017 10-K 10
Environmental Matters
WeAs a public company with global operations, we are subject to a variety of governmental regulations across multiple jurisdictions, including those related to export controls, financial and other disclosures, corporate governance, anti-trust, intellectual property, privacy, anti-bribery, anti-corruption, anti-boycott, tax, labor, health and safety, conflict minerals, human trafficking, the management of hazardous materials, that we use inand carbon emissions, among others. Each of these regulations imposes costs on our business operations.and has the potential to divert our management’s time and attention from revenue-generating and other profit maximizing activities to those associated with compliance. Efforts to comply with new and changing regulations have resulted in, and are likely to continue to result in, decreased net income and increased capital expenditures. If we are alleged or found by a court or regulatory agency not to be in compliance with regulations, we may be subject to fines, restrictions on our actions, reputational damage, and harm to our
Lam Research Corporation 2022 10-K 8
competitive position, and our business, financial condition, and/or results of operations could be adversely affected. For additional details, please refer to “Legal, Regulatory and Tax Risks – We are currently not awareAre Exposed to Various Risks from Our Regulatory Environment” in Item 1A: Risk Factors. Regulations that impact trade, including tariffs, export controls, taxes, trade barriers, sanctions, the termination or modification of any pending noticestrade agreements, trade zones, and other duty mitigation initiatives, have the potential to increase our manufacturing costs, decrease margins, reduce the competitiveness of violations, fines, lawsuits,our products, or investigations arising from environmental matters that wouldinhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business. We believe that we are generally inbusiness, results of operations, or financial conditions. For additional details regarding the impacts of compliance with thesetrade laws and regulations, please refer to “Business and Operational Risks – Our Future Success Depends Heavily on International Sales and the Management of Global Operations” and “Legal, Regulatory and Tax Risks – Our Sales to Customers in China, a Region of Growing Significance to Us, Could be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S. and China” in Item 1A: Risk Factors. We are subject to income, transaction, and other taxes in the United States and various foreign jurisdictions that impact our tax rate and profitability. For additional details regarding the impacts of compliance with tax laws and regulations, please refer to “Legal, Regulatory and Tax Risks – Our Financial Results May Be Adversely Impacted by Higher than Expected Tax Rates or Exposure to Additional Tax Liabilities” in Item 1A: Risk Factors. An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, enhance our technological capabilities, or accomplish other strategic objectives. However, for regulatory reasons, we have obtained (or will obtainmay not be successful in our attempts to acquire or dispose of businesses, products, or technologies. For additional details regarding the impacts of regulations on acquisitions or dispositions we may attempt, please refer to “Business and Operational Risks – If We Choose to Acquire or Dispose of Businesses, Product Lines, and Technologies, We May Encounter Unforeseen Costs and Difficulties That Could Impair Our Financial Performance” in Item 1A: Risk Factors. We are subject to a variety of domestic and international governmental regulations related to the handling, discharge, and disposal of toxic, volatile, or otherwise addressing) all necessaryhazardous chemicals. For additional details regarding the impacts of compliance with environmental permitslaws and regulations, please refer to conduct“Legal, Regulatory and Tax Risks – A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results” in Item 1A: Risk Factors. Environmental, Social, and Governance
We strive to incorporate environmental, social and governance ("ESG") considerations into everything we do – from our business. Nevertheless, the failureoperations and workplace practices, to comply with present or future regulations could result in fines being imposed on us, require us to suspend production or cease operations, or causehow we source our customers to not acceptmaterials and design our products. These regulations could require us to alter our current operations, to acquire significant additional equipment, or to incur substantialOur ESG report for calendar year 2021 details, among other expenses to comply with environmental regulations. Our failure to control the use, sale, transport, or disposal of hazardous substances could subject us to future liabilities.
Employees
As of August 10, 2017, we had approximately 9,400 regular employees globally. Although we have employment-related agreements withitems, a number of key employees, these agreements doESG goals. One such goal is to achieve net zero emissions by 2050, which we intend to achieve in part by meeting a number of interim targets related to our environmental impact. There have been no material impacts to capital expenditures or our results of operations associated with this goal, and there are no material cash commitments associated with the goal as of fiscal year ended June 26, 2022.
Information contained on our website or in our annual ESG Report is not guarantee continued service. Eachincorporated by reference into this or any other report we file with the Securities and Exchange Commission, or the SEC. Refer to “Item 1A. Risk Factors” for a discussion of our employees is requiredrisks and uncertainties we face related to comply with our policies relating to maintaining the confidentiality of our non-public information.
In the semiconductor and semiconductor capital equipment industries, competition for highly skilled employees is intense. Our future success depends, to a significant extent, upon our continued ability to attract and retain qualified employees, particularly in the R&D and customer support functions.ESG.
Competition
The semiconductor capital equipment industry is characterized by rapid change and is highly competitive throughout the world. To compete effectively, we invest significant financial resources targeted to strengthen and enhance our product and services portfolio and to maintain customer service and support locations globally. Semiconductor manufacturers evaluate capital equipment suppliers in many areas, including but not limited to process performance, productivity, defect control, customer support, and overall cost of ownership, which can be affected by many factors such as equipment design, reliability, software advancements, and similar factors. Our ability to succeed in the marketplace depends upon our ability to manufacture and ship products on a timeline that meets our customers’ needs, maintain existing products, and introduce product enhancements and new products that meet customer requirements on a timely basis. In addition, semiconductor manufacturers must make a substantial investment to qualify and integrate new capital equipment into semiconductor production lines. As a result, once a semiconductor manufacturer has selected a particular supplier’s equipment and qualified it for production, the manufacturer generally maintains that selection for that specific production application and technology node as long as the supplier’s products demonstrate performance to specification in the installed base. Accordingly, we may experience difficulty in selling to a given customer if that customer has qualified a competitor’s equipment. We must also continue to meet the expectations of our installed base of customers through the delivery of high-quality and cost-efficient spare parts in the presence of competition from third-party spare parts providers.
We face significant competition with all of our products and services. Our primary competitor in the tungsten CVD, PECVD, HDP-CVD, ECD,dielectric and PVD marketsmetals deposition market is Applied Materials, Inc. In theFor ALD and PECVD, market, in addition to Applied Materials, Inc., we also compete against ASM International and Wonik IPS. In the etch market, our primary competitors are Applied Materials, Inc., Hitatchi,; Hitachi, Ltd.,; and Tokyo Electron, Ltd., and Ourour primary competitors in the wet clean market are Screen Holding Co., Ltd.; Semes Co., Ltd.; and Tokyo Electron, Ltd.
Lam Research Corporation 2022 10-K 9
We face competition from a number of established and emerging companies in the industry. We expect our competitors to continue to improve the design and performance of their current products and processes, to introduce new products and processes with enhanced price/performance characteristics, and to provide more comprehensive offerings of products. If our competitors make acquisitions or enter into strategic relationships with leading semiconductor manufacturers, or other entities, covering products similar to those we sell, our ability to sell our products to those customers could be adversely affected. Strategic investments to encourage local semiconductor manufacturing and supply chain in China could increase competition from domestic equipment manufacturers in China. There can be no assurance that we will continue to compete successfully in the future.
Continues on next pageLam Research Corporation 2017 10-K 11
Patents and Licenses
Our policy is to seek patents on inventions relating to new or enhanced products and processes developed as part of our ongoing research, engineering, manufacturing, and support activities. We currently hold a number of U.S. and foreign patents and applications covering various aspects of our products and processes. We believe that the duration of our patents generally exceeds the useful life of the technologies and processes disclosed and claimed in them. Our patents, which cover material aspects of our past and present core products, have current durations ranging from approximately one to twenty years. We believe that, although the patents we own and may obtain in the future will be of value, they alone will not determine our success. Our success depends principally upon our research and development, engineering, marketing, support, and delivery skills. However, in the absence of patent protection, we may be vulnerable to competitors who attempt to imitate our products, manufacturing techniques, and processes.processes and may be more limited in our ability to exclude competitors than would otherwise be the case. In addition, other companies and inventors may receive patents that contain claims applicable or similar to our products and processes. The sale of products covered by patents of others could require licenses that may not be available on terms acceptable to us, or at all. For further discussion of legal matters, see Item 3, “Legal Proceedings,” of this report.
Executive Officers ofHuman Capital
We endeavor to be a great place to work globally by investing in a multi-faceted strategy that is rooted in building an inclusive and diverse workplace. To support our employees, we tailor our programs to meet the Companyunique cultural needs and priorities within different regions around the world.
As of August 22, 2022, we had approximately 17,700 regular full-time employees, of which over 26% were engaged in research and development. Approximately 50% of our regular full-time employees are located in the United States, 44% in Asia, and 6% in Europe.
Inclusion and Diversity
To achieve their full potential, we believe it is important for every employee to feel valued, included, and empowered. We embrace inclusion and diversity (“I&D”) and proactively create opportunities to attract, retain, develop, and reward our employees. I&D is one of our strategic focus areas for the company. The three core pillars of our strategy include fostering inclusion, increasing diversity, and sharing our progress. We employ an executive leader of I&D who is responsible for driving our I&D strategy, building partnerships, and aligning with best practices.
Employment, Recruitment and Development
Our talented people are what makes our success possible. Many of our recruitment efforts are carried out through partnerships with key universities. In fact, many of our senior executives began their careers with us right out of college, demonstrating that programs that recruit university students have the potential to contribute to our leadership pipeline. To tap into the best and brightest students, we prioritize core initiatives including an internship program, new college graduate rotation program, campus events, and thesis awards and scholarships. We accelerate employee development, broaden career opportunities, and expand professional networks for employees through our mentorship, coaching, and rotation programs. Additionally, we offer leadership development programs which are designed to scale leadership across our business by guiding managers to motivate, inspire, and lead employees through change.
Employee Engagement
Employee engagement (i.e. satisfaction) and voice are critical to Lam’s culture. We conduct a global survey at a regular cadence to gather input from employees on culture, I&D, career opportunity, and manager effectiveness. We also solicit employee feedback through in-person and online employee forums, engagement sessions, all-employee meetings, conversations with
managers, and our Human Resource Support and Employee Relations programs.
Total Rewards
Our Total Rewards program incorporates a comprehensive compensation and benefits package aimed at supporting employees’ financial, physical, and mental well-being. We conduct an annual review of salaries and benefits packages using third-party benchmarking surveys to ensure that our offerings are aligned with the marketplace and attractive to top talent. We offer our employees a competitive 401(k) benefit, an employee stock purchase plan, and annual cash bonuses. Stock awards are offered to executives and select employees.
We recognize the importance of time away from work for personal reasons, and we offer annual paid holidays and time off. Additionally, several financial benefits were added to support our employees through the pandemic, including, but not limited to, pay
Lam Research Corporation 2022 10-K 10 2017,
continuity for those affected by closures, expanded medical and family care leave options for employees with COVID-19 related absences, and funding for home office provisions.
Employee Health and Safety, Pandemic Response
Prioritizing the health, safety, and well-being of our employees is critical to our ongoing success. We invest in education, awareness, monitoring, and prevention programs to help recognize and control safety hazards. Our goal is to apply our environmental health and safety (“EHS”) policies, programs, and response plans to anywhere we operate and to extend them to anyone who works on our sites with the intent to provide a safe environment during both routine and extraordinary circumstances. People managers in field support, manufacturing, R&D, warehouse, and logistics operations undergo formal safety leadership training biannually to enhance their skills in safety management and communication. We screen contractors’ safety performance and require contractor compliance with specified safety standards.
We monitor our safety performance at the enterprise, regional, and site levels. By using our global incident tracking system, our corporate EHS team can assess and monitor safety trends to report to business units and executive leadership as a part of quarterly reviews. We maintain multi-site certifications for ISO 45001, the globally recognized standard for occupational health and safety management systems.
We have taken a holistic approach in response to the COVID-19 pandemic, safeguarding our employees and caring for our communities by implementing strict procedures consistent with medical guidelines and best practices for the health and safety of on-site workers; enabling staff to work remotely; and providing enhanced employee benefits to support physical and mental health.
Information about our Executive Officers
As of August 22, 2022, the executive officers of Lam Research were as follows:
|
| | | | | | | | | | | | | |
| Name | | Age | | Title |
Martin B. AnsticeTimothy M. Archer | | 5055 | | President and Chief Executive Officer |
Timothy M. Archer | | 50 | | Executive Vice President and Chief Operating Officer |
| Douglas R. Bettinger | | 5055 | | Executive Vice President, Chief Financial Officer, and Chief Accounting Officer |
| Richard A. Gottscho | | 6570 | | Executive Vice President, Corporate Chief Technology Officer |
| Patrick J. Lord | | 5156 | | GroupExecutive Vice President, Customer Support Business Group (“CSBG”)CSBG and Global Operations |
Sarah A. O’DowdAva M. Hahn | | 6749 | | Senior Vice President, Chief Legal Officer and Secretary |
| Scott G. Meikle | | 60 | | Senior Vice President, Global Customer Operations |
| Vahid Vahedi | | 5156 | | GroupSenior Vice President and General Manager, Etch Business Unit |
SeshaSeshasayee (Sesha) Varadarajan | | 4247 | | GroupSenior Vice President and General Manager, Deposition Business Unit |
| | | | |
Martin B. AnsticeTimothy M. Archer has been our president and chief executive officer since January 2012. Mr. Anstice joined us in April 2001December 2018. Prior to this, he served as senior director, operations controller, was promoted to the position of managing director and corporate controller in May 2002, and was promoted to group vice president and chief financial officer in June 2004. He was appointed executive viceour president and chief operating officer, in September 2008 and president in December 2010. Priorfrom January 2018 to joining us, he held various finance positions from 1988 to 1999 at Raychem Corporation, a global materials science company. Subsequent to the acquisition of Raychem by Tyco International, a global provider of engineered electronic components, network solutions, and wireless systems, he assumed responsibility for supporting mergers and acquisitions activities of Tyco Electronics.November 2018. Mr. Anstice is an Associate member of the Institute of Chartered Management Accountants in the United Kingdom.
Timothy M. Archer joined us in June 2012 as our executive vice president, chief operating officer. Prior to joining us, he spent 18 years at Novellus Systems, Inc., (“Novellus”) in various technology development and business leadership roles, including most recently as chief operating officer from January 2011 to June 2012; executive vice president of Worldwide Sales, Marketing, and Customer Satisfaction from September 2009 to January 2011; and executive vice president of the PECVD and Electrofill Business Units from November 2008 to September 2009. His tenure at Novellus also included assignments as senior director of technology for Novellus Systems Japan from 1999 to 2001 and senior director of technology for the Electrofill Business Unit from April 2001 to April 2002. He started his career in 1989 at Tektronix, where he was responsible for process development for high-speed bipolar ICs. Mr. Archer currently serves on the International Board of Directors for SEMI, the global industry association representing the electronics manufacturing and design supply chain. From 2020 to 2022, Mr. Archer served as chairman of the board for the National GEM Consortium, a nonprofit organization that is dedicated to increasing the participation of underrepresented groups at the master’s and doctoral levels in engineering and science. Mr. Archer completed the Program for Management Development at the Harvard Graduate School of Business and earned a B.S. degree in applied physics from the California Institute of Technology.
Douglas R. Bettinger is our executive vice president, chief financial officer, and chief accounting officer with responsibility for finance, tax, treasury, information technology,Finance, Tax, Treasury, Information Technology, and investor relations.Investor Relations. Prior to joining the Company in 2013, Mr. Bettinger served as senior vice president and chief financial officer of Avago Technologies
Continues on next pageLam Research Corporation 2017 10-K 12
from 2008 to 2013. From 2007 to 2008, he served as vice president of Finance and corporate controller at Xilinx, Inc., and from 2004 to 2007, he was chief financial officer at 24/7 Customer, a privately held company. Mr. Bettinger worked at Intel Corporation from 1993 to 2004, where he held several senior-level finance positions, including corporate planning and reporting controller and Malaysia site operations controller. Mr. Bettinger currently serves on the SEMI Board of Industry Leaders and the Industrial Advisory Board of the University of Wisconsin School of Engineering. Mr. Bettinger earned an M.B.A. degree in finance from the University of Michigan and a B.S. degree in economics from the University of Wisconsin in Madison.
Richard A. Gottscho is our executive vice president, corporate chief technology officer, a position he has held since May 2017. Prior to that time, he had beenDr. Gottscho previously served as executive vice president, Global Products Group beginning in August 2010; and group vice president and
Lam Research Corporation 2022 10-K 11
general manager, Etch Businesses beginning in March 2007. He joined us in January 1996 and has served atheld various director and vice president levels in support ofroles spanning across deposition, etch, products, CVD products, and corporate research.clean products. Prior to joining us, he was a member of Bell Laboratories for 15 years, where he started his career working in plasma processing. During his tenure at Bell, he headed research departments in electronics materials, electronics packaging, and flat panel displays. In 2016, Dr. Gottscho was elected to the U.S. National Academy of Engineering; and in 2020, he was named a semiconductor all-star by VLSI Research. He is the authorrecipient of numerous papers, patents, and lectures in plasma processing and process control. He is a recipient ofmany awards, including the American Vacuum Society’s Peter Mark Memorial Award, andthe Plasma Science and Technology Division Prize, the Gaseous Electronics Conference Foundation Lecturer, the Dry Process Symposium Nishizawa Award, and the Tegal Thinker Award. He is a fellow of the American Physical and American Vacuum Societies,Societies. He has authored numerous papers, patents, and lectures, and has served on numerous editorial boards of refereedpeer-reviewed technical publications and program committees for major conferences in plasma science and engineering, and wasengineering. He served as vice-chair of a National Research Council study on plasma science in the 1980s. In 2016, Dr. Gottscho was elected to the U.S. National Academy of Engineering.science. Dr. Gottscho earned Ph.D. and B.S. degrees in physical chemistry from the Massachusetts Institute of Technology and Pennsylvania State University, respectively.
Patrick J. Lord is our groupexecutive vice president of CSBG and Global Operations, a position he has held since September 2020. Dr. Lord was senior vice president and general manager of the Customer Support Business Group, a position he has held sinceCSBG from December 2016. Previously,2016 to September 2020. Prior to that , Dr. Lord held the position of group vice president and deputy general manager of the Global Products Group from September 2013 to December 2016. He served as the head of the Direct Metals, GapFill, Surface Integrity Group, and Integrated Metals (“DGSI”) Business Units between June 2012 and September 2013. Prior to theour acquisition of Novellus in June 2012, Dr. Lord was senior vice president and general manager of the DGSI Business Units at Novellus. Additionally, Dr. Lord held the position of senior vice president of Business Development and Strategic Planning. He joined Novellus in 2001 and held a number of other positions, including executivesenior vice president and general manager of the CMP Business Unit, senior director of Business Development, senior director of Strategic Marketing, and acting vice president of Corporate Marketing. Before joining Novellus, Dr. Lord spent six years at KLA-Tencor Corporation (“KLA-Tencor”) in various product marketing and management roles. He earned his Ph.D., M.S., and B.S. degrees in mechanical engineering from the Massachusetts Institute of Technology.
Sarah A. O’DowdAva M. Hahn is our senior vice president, chief legal officer and secretary.officer. She joined us in September 2008 as group vice presidentJanuary 2020 and chief legal officer,is responsible for generalglobal legal matters, intellectual property and ethics and compliance. In addition to her Legal function, in April 2009 she was appointed vice president of Human Resourcescompliance, and served in this dual capacity through May 2012.government affairs. Prior to joining us, she wasMs. Hahn served as executive vice president, chief compliance officer, general counsel and secretary of CA Technologies, an enterprise software company, from February 2019 to November 2019 (until its acquisition by Broadcom Corp.), general counsel and secretary of Aruba Networks from April 2013 to June 2016 (until its acquisition by Hewlett Packard Enterprise), general counsel and secretary of ShoreTel, Inc. from 2007 to 2013, and general counsel for FibroGen, Inc.,and secretary of Genesis Microchip from February 2007 until September 2008. Until February 2007,2002 to 2007. Ms. O’Dowd was a shareholder inHahn also served as general counsel of venture capital firms Kleiner Perkins and Felicis Ventures. She started her career at the law firm of Heller Ehrman LLP for more than 20 years, practicing in the areas ofWilson Sonsini Goodrich & Rosati, where she practiced corporate and securities governance, and mergers and acquisitions forlaw. Ms. Hahn earned a variety of clients, principally publicly traded high-technology companies. She served in a variety of leadership and management roles at Heller Ehrman, including managing partner of the Silicon Valley and San Diego offices, member of the firm’s Policy Committee, and, as head of the firm’s business practice groups, a member of the firm’s Executive Committee. Ms. O’Dowd earned her J.D. and M.A. degrees in communications from StanfordColumbia Law School and Stanforda B.A. in history from the University of California at Berkeley.
Scott G. Meikle is our senior vice president of Global Customer Operations, a position he has held since September 2017. Before joining us, he was an independent consultant for a year and director, special projects at Micron Technology, Inc. for seven months. Prior to that time, he spent over five and a half years at Inotera Memories, Inc., most recently as its president from August 2012 to December 2015. Dr. Meikle started his career in process R&D and advanced to various leadership roles in business operations across multiple geographies for Micron Technology, and has over 25 years of experience in the memory devices sector of the semiconductor industry. He earned his Ph.D. and M. Eng. degrees in engineering physics from Shizuoka University and McMaster University, respectively, and her B.A.a B.S. degree in mathematicsphysics from Immaculata College.the University of Calgary.
Vahid Vahedi is our groupsenior vice president and general manager of the Etch Business Unit, a position he has held since February 2018. Prior to that time, he was group vice president of the Etch product group since March 2012. Previously, he served as vice president of Etch Business Product Management and Marketing, vice president of Dielectric Etch, vice president of Conductor and 3DIC Etch, and director of Conductor Etch Technology Development. He joined us in 1995. He earned his Ph.D., M.S., and B.S. degrees in electrical engineering and computer science from the University of California at Berkeley.
Sesha Varadarajan is our groupsenior vice president and general manager of the Deposition Business Unit, a position he has held since February 2018. Prior that time, he was group vice president of the Deposition product group since September 2013. Previously, he served as the head of the PECVD/Electrofill Business Unit between June 2012
Continues on next pageLam Research Corporation 2017 10-K 13
and September 2013. Prior to joining us,our acquisition of Novellus in June 2012, Mr. Varadarajan was senior vice president and general manager of Novellus’ PECVD and Electrofill Business Units. He joined Novellus in 1999 as a process engineer with the Electrofill Business Unit and held various roles in that business unit before being appointed director of technology in 2004. Between 2006 and 2008, he worked in the PECVD Business Unit, initially as director of technology, until being promoted to product general manager. In 2009, he returned to the Electrofill Business Unit as vice president and general manager. In mid-2011, he was promoted to senior vice president and general manager, where he was also responsible for the PECVD Business Unit. Mr. Varadarajan earned an M.S. degree in manufacturing engineering and material science from Boston University and a B.S. degree in mechanical engineering from the University of Mysore.
Item 1A. Risk Factors
In addition to the other information in this Annual Report on Form 10-K (“20172022 Form 10-K”), the following risk factors should be carefully considered in evaluating the Companyus and itsour business because such factors may significantly impact our business, operating results, and financial condition. Many of the following risk factors have been, and could be further, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. As a result of these risk factors, as well as other
Lam Research Corporation 2022 10-K 12
risks discussed in our other SEC filings, our actual results could differ materially from those projected in any forward-looking statements. No priority or significance is intended by, nor should be attached to, the order in which the risk factors appear.
INDUSTRY AND CUSTOMER RISKS
The Semiconductor Capital Equipment Industry Is Subject to Variability and Periods of Rapid Growth or Decline; We Therefore Face Risks Related to Our Strategic Resource Allocation Decisions
The semiconductor capital equipment industry has historically been characterized by rapid changes in demand. The industry environment has moved toward being more characterized by variability across segments and customers, accentuated by consolidation within the industry. Variability in our customers’ business plans may lead to changes in demand for our equipment and services, which could negatively impact our results. The variability in our customers’ investments during any particular period is dependent on several factors, including but not limited to electronics demand, economic conditions (both general and in the semiconductor and electronics industries), industry supply and demand, prices for semiconductors, and our customers’ ability to develop and manufacture increasingly complex and costly semiconductor devices. The changes in demand may require our management to adjust spending and other resources allocated to operating activities.
During periods of rapid growth or decline in demand for our products and services, we face significant challenges in maintaining adequate financial and business controls, management processes, information systems, and procedures for training, assimilating, and managing our workforce, and in appropriately sizing our supply chain infrastructure and facilities, work force, and other components of our business on a timely basis. If we do not adequately meet these challenges during periods of increasing or declining demand, our gross margins and earnings may be negatively impacted. For example, the COVID-19 pandemic has impacted and could further impact our ability to meet the demand for our products due to production, sourcing, logistics and other challenges resulting from quarantines, shelter in place or “stay at home” orders, facility closures, workforce challenges, and travel and logistics restrictions in connection with the pandemic.
We continuously reassess our strategic resource allocation choices in response to the changing business environment. If we do not adequately adapt to the changing business environment, we may lack the infrastructure and resources to scale up our business to meet customer expectations and compete successfully during a period of growth, or we may expand our capacity and resources too rapidly and/or beyond what is appropriate for the actual demand environment, resulting in excess fixed costs.
Especially during transitional periods, resource allocation decisions can have a significant impact on our future performance, particularly if we have not accurately anticipated industry changes. Our success will depend, to a significant extent, on the ability of our executive officers and other members of our senior management to identify and respond to these challenges effectively.
Continues on next pageLam Research Corporation 2017 10-K 14
Future Declines in the Semiconductor Industry, and the Overall World Economic Conditions on Which It Is Significantly Dependent, Could Have a Material Adverse Impact on Our Results of Operations and Financial Condition
Our business depends on the capital equipment expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits. With the consolidation of customers within the industry, the semiconductor capital equipment market may experience rapid changes in demand driven both by changes in the market generally and the plans and requirements of particular customers. The economic, political, and business conditions occurring nationally, globally, or in any of our key sales regions, which are often unpredictable, have historically impacted customer demand for our products and normal commercial relationships with our customers, suppliers, and creditors. Additionally, in times of economic uncertainty, our customers’ budgets for our products, or their ability to access credit to purchase them, could be adversely affected. This would limit their ability to purchase our products and services. As a result, changing businesseconomic, political or economicbusiness conditions can cause material adverse changes to our results of operations and financial condition, including but not limited to:
•a decline in demand for our products or services;
•an increase in reserves on accounts receivable due to our customers’ inability to pay us;
•an increase in reserves on inventory balances due to excess or obsolete inventory as a result of our inability to sell such inventory;
•valuation allowances on deferred tax assets;
•restructuring charges;
•asset impairments including the potential impairment of goodwill and other intangible assets;
•a decline in the value of our investments;
•exposure to claims from our suppliers for payment on inventory that is ordered in anticipation of customer purchases that do not come to fruition;
•a decline in the value of certain facilities we lease to less than our residual value guarantee with the lessor; and
•challenges maintaining reliable and uninterrupted sources of supply.
Fluctuating levels of investment by semiconductor manufacturers may materially affect our aggregate shipments, revenues, operating results, and earnings. Where appropriate, we will attempt to respond to these fluctuations with cost management programs aimed at aligning our expenditures with anticipated revenue streams, which sometimes result in restructuring charges. Even during periods of
Lam Research Corporation 2022 10-K 13
reduced revenues, we must continue to invest in R&D and maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our profitability and other financial results.
Our Quarterly Revenues and Operating Results Are Variable
Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, not all of which are in our control. We manage our expense levels based in part on our expectations of future revenues. Because our operating expenses are based in part on anticipated future revenues, and a certain amount of those expenses are relatively fixed, a change in the timing of recognition of revenue and/or the level of gross profit from a small number of transactions can unfavorably affect operating results in a particular quarter. Factors that may cause our financial results to fluctuate unpredictably include but are not limited to:
economic conditions in the electronics and semiconductor industries in general and specifically the semiconductor equipment industry;
the size and timing of orders from customers;
consolidation of the customer base, which may result in the investment decisions of one customer or market having a significant effect on demand for our products or services;
procurement shortages;
the failure of our suppliers or outsource providers to perform their obligations in a manner consistent with our expectations;
manufacturing difficulties;
customer cancellations or delays in shipments, installations, and/or customer acceptances;
the extent that customers continue to purchase and use our products and services in their business;
our customers’ reuse of existing and installed products, to the extent that such reuse decreases their need to purchase new products or services;
Continues on next pageLam Research Corporation 2017 10-K 15
changes in average selling prices, customer mix, and product mix;
our ability to develop, introduce, and market new, enhanced, and competitive products in a timely manner;
our competitors’ introduction of new products;
legal or technical challenges to our products and technologies;
transportation, communication, demand, information technology, or supply disruptions based on factors outside our control, such as strikes, acts of God, wars, terrorist activities, and natural or man-made disasters;
legal, tax, accounting, or regulatory changes (including but not limited to change in import/export regulations) or changes in the interpretation or enforcement of existing requirements;
changes in our estimated effective tax rate;
foreign currency exchange rate fluctuations; and
the dilutive impact of our Convertible Notes (as defined below) and related warrants on our earnings per share.
We May Incur Impairments to Goodwill or Long-Lived Assets
We review our long-lived assets, including goodwill and other intangible assets, for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Negative industry or economic trends, including reduced market prices of our Common Stock, reduced estimates of future cash flows, disruptions to our business, slower growth rates, or lack of growth in our relevant business units, could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets. If, in any period, our stock price decreases to the point where our fair value, as determined by our market capitalization, is less than the book value of our assets, this could also indicate a potential impairment, and we may be required to record an impairment charge in that period, which could adversely affect our result of operations.
Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance. We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual results. Additionally, if our analysis indicates potential impairment to goodwill in one or more of our business units, we may be required to record additional charges to earnings in our financial statements, which could negatively affect our results of operations.
Our Leverage and Debt Service Obligations and Potential Note Conversion or Related Hedging Activities May Adversely Affect Our Financial Condition, Results of Operations, and Earnings per Share
We have $2.9 billion in aggregate principal amount of senior unsecured notes and convertible note instruments outstanding. Additionally, we have $750 million available to us in revolving credit arrangements, with an option for us to request an increase in the facility of up to an additional $250 million, for a potential total commitment of $1.0 billion. We may, in the future, decide to borrow amounts under the revolving credit agreement, or to enter into additional debt arrangements.
In addition, we have entered, and in the future may enter, into derivative instrument arrangements to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. We could be exposed to losses in the event of nonperformance by the counterparties to our derivative instruments.
Our indebtedness could have adverse consequences, including:
risk associated with any inability to satisfy our obligations;
a portion of our cash flows that may have to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions, or general corporate or other purposes; and
impairing our ability to obtain additional financing in the future.
Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory, and other factors. Furthermore, our operations may not generate sufficient cash flows, particularly in the United States, to enable us to meet our expenses and service our debt. As a result, we may need to enter into new financing arrangements to obtain the necessary funds. If we
Continues on next pageLam Research Corporation 2017 10-K 16
determine it is necessary to seek additional funding for any reason, we may not be able to obtain such funding or, if funding is available, obtain it on acceptable terms. If we fail to make a payment on our debt, we could be in default on such debt, and this default could cause us to be in default on our other outstanding indebtedness.
Conversion of our Convertible Notes and the exercise of the related warrants may cause dilution to our stockholders and to our earnings per share. The number of shares of our Common Stock into which the Convertible Notes are convertible and for which related warrants are exercisable for may be adjusted from time to time, including increases in such rates as a result of dividends that we pay to our stockholders. Upon conversion of any Convertible Notes, we will deliver cash in the amount of the principal amount of the Convertible Notes and, with respect to any excess conversion value greater than the principal amount of the Convertible Notes, shares of our Common Stock, which would result in dilution to our stockholders. This dilution may not be completely mitigated by the hedging transactions we entered into in connection with the sale of certain Convertible Notes or through share repurchases. Prior to the maturity of the Convertible Notes, if the price of our Common Stock exceeds the conversion price, U.S. generally accepted accounting principles require that we report an increase in diluted share count, which would result in lower reported earnings per share. The price of our Common Stock could also be affected by sales of our Common Stock by investors who view the Convertible Notes as a more attractive means of equity participation in our company and also by hedging activity that may develop involving our Common Stock by holders of the Convertible Notes.
Our Credit Agreements Contain Covenant Restrictions That May Limit Our Ability to Operate Our Business
We may be unable to respond to changes in business and economic conditions, engage in transactions that might otherwise be beneficial to us, or obtain additional financing because our debt agreements contain, and any of our other future similar agreements may contain, covenant restrictions that limit our ability to, among other things:
incur additional debt, assume obligations in connection with letters of credit, or issue guarantees;
create liens;
enter into transactions with our affiliates;
sell certain assets; and
merge or consolidate with any person.
Our ability to comply with these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. In addition, our failure to comply with these covenants could result in a default under the Senior Notes, the Convertible Notes, or our other debt, which could permit the holders to accelerate such debt. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt, which could materially and negatively affect our financial condition and results of operation.
We Have a Limited Number of Key Customers
Sales to a limited number of large customers constitute a significant portion of our overall revenue, shipments, cash flows, collections, and profitability. As a result, the actions of even one customer may subject us to variability in those areas that is difficult to predict. In addition, large customers may be able to negotiate requirements that result in decreased pricing, increased costs, and/or lower margins for us; compliance with specific environmental, social, and corporate governance standards; and limitations on our ability to share jointly developed technology with others. Similarly, significant portions of our credit risk may, at any given time, be concentrated among a limited number of customers so that the failure of even one of these key customers to pay its obligations to us could significantly impact our financial results.
Continues on next pageLam Research Corporation 2017 10-K 17
We Depend on Creating New Products and Processes and Enhancing Existing Products and Processes for Our Success. Consequently, We Are Subject to Risks Associated with Rapid Technological Change
Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances that enable those processes. We believe that our future success depends in part upon our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products or existing products have reliability, quality, design, or safety problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. We may be unable to develop and manufacture products successfully, or products that we introduce may fail in the marketplace. For more than 25 years, the primary driver of technology advancement in the semiconductor industry has been to shrink the lithography that prints the circuit design on semiconductor chips. That driver could be approaching its technological limit, leading semiconductor manufacturers to investigate more complex changes in multiple technologies in an effort to continue technology development. In the face of uncertainty on which technology solutions will become successful, we will need to focus our efforts on developing the technology changes that are ultimately successful in supporting our customer requirements. Our failure to develop and offer the correct technology solutions in a timely manner with productive and cost-effective products could adversely affect our business in a material way. Our failure to commercialize new products in a timely manner could result in loss of market share, unanticipated costs, and inventory obsolescence, which would adversely affect our financial results.
In order to develop new products and processes and enhance existing products and processes, we expect to continue to make significant investments in R&D, to investigate the acquisition of new products and technologies, to invest in or acquire such business or technologies, and to pursue joint development relationships with customers, suppliers, or other members of the industry. Our investments and acquisitions may not be as successful as we may expect, particularly as we seek to invest or acquire product lines and technologies that are new to us. We may find that acquisitions are not available to us, for regulatory or other reasons, and that we must therefore limit ourselves to collaboration and joint venture development activities, which do not have the same benefits as acquisitions. Pursuing development through collaboration and/or joint development activities rather than through an acquisition poses substantial challenges for management, including those related to aligning business objectives, sharing confidential information and intellectual property, sharing value with third parties, and realizing synergies that might have been available in an acquisition but are not available through a joint development project. We must manage product transitions and joint development relationships successfully, as the introduction of new products could adversely affect our sales of existing products and certain jointly developed technologies may be subject to restrictions on our ability to share that technology with other customers, which could limit our market for products incorporating those technologies. Future technologies, processes, or product developments may render our current product offerings obsolete, leaving us with non-competitive products, obsolete inventory, or both. Moreover, customers may adopt new technologies or processes to address the complex challenges associated with next-generation devices. This shift may result in a reduction in the size of our addressable markets or could increase the relative size of markets in which we either do not compete or have relatively low market share.
We Are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification
We derive a substantial percentage of our revenues from a limited number of products. Our products are priced up to approximately $10 million per system. As a result, the inability to recognize revenue on even a few systems can cause a significantly adverse impact on our revenues for a given quarter, and, in the longer term, the continued market acceptance of these products is critical to our future success. Our business, operating results, financial condition, and cash flows could therefore be adversely affected by:
a decline in demand for even a limited number of our products,
a failure to achieve continued market acceptance of our key products,
export restrictions or other regulatory or legislative actions that could limit our ability to sell those products to key customers or customers within certain markets,
an improved version of products being offered by a competitor in the markets in which we participate,
increased pressure from competitors that offer broader product lines,
technological changes that we are unable to address with our products, or
a failure to release new or enhanced versions of our products on a timely basis.
Continues on next pageLam Research Corporation 2017 10-K 18
In addition, the fact that we offer limited product lines creates the risk that our customers may view us as less important to their business than our competitors that offer additional products and/or product capabilities. This may impact our ability to maintain or expand our business with certain customers. Such product concentration may also subject us to additional risks associated with technology changes. Our business is affected by our customers’ use of our products in certain steps in their wafer fabrication processes. Should technologies change so that the manufacture of semiconductors requires fewer steps using our products, this could have a larger impact on our business than it would on the business of our less concentrated competitors.
Strategic Alliances and Customer Consolidation May Have Negative Effects on Our Business
Increasingly, semiconductor manufacturing companies are entering into strategic alliances or consolidating with one another to expedite the development of processes and other manufacturing technologies and/or achieve economies of scale. The outcomes of such an alliance can be the definition of a particular tool set for a certain function and/or the standardization of a series of process steps that use a specific set of manufacturing equipment, while the outcomes of consolidation can lead to an overall reduction in the market for semiconductor manufacturing equipment as customers’ operations achieve economies of scale and/or increased purchasing power based on their higher volumes. In certain instances, this could work to our disadvantage if a competitor’s tools or equipment become the standard equipment for such functions or processes. Additional outcomes of such consolidation may include our customers re-evaluating their future supplier relationships to consider our competitors’ products and/or gaining additional influence over the pricing of products and the control of intellectual property.
Similarly, our customers may partner with, or follow the lead of, educational or research institutions that establish processes for accomplishing various tasks or manufacturing steps. If those institutions utilize a competitor’s equipment when they establish those processes, it is likely that customers will tend to use the same equipment in setting up their own manufacturing lines. Even if they select our equipment, the institutions and the customers that follow their lead could impose conditions on acceptance of that equipment, such as adherence to standards and requirements or limitations on how we license our proprietary rights, that increase our costs or require us to take on greater risk. These actions could adversely impact our market share and financial results.
We Depend on a Limited Number of Key Suppliers and Outsource Providers, and We Run the Risk That They Might Not Perform as We Expect
Outsource providers and component suppliers have played and will continue to play a key role in our manufacturing operations, field installation and support, and many of our transactional and administrative functions, such as information technology, facilities management, and certain elements of our finance organization. These providers and suppliers might suffer financial setbacks, be acquired by third parties, become subject to exclusivity arrangements that preclude further business with us, or be unable to meet our requirements or expectation due to their independent business decisions or force majeure events that could interrupt or impair their continued ability to perform as we expect.
Although we attempt to select reputable providers and suppliers and we attempt to secure their performance on terms documented in written contracts, it is possible that one or more of these providers or suppliers could fail to perform as we expect, or fail to secure or protect intellectual property rights, and such failure could have an adverse impact on our business. In some cases, the requirements of our business mandate that we obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. Where practical, we endeavor to establish alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our business, but this is not feasible in all circumstances. There is therefore a risk that a prolonged inability to obtain certain components or secure key services could impair our ability to manage operations, ship products, and generate revenues, which could adversely affect our operating results and damage our customer relationships.
We Face Risks Related to the Disruption of Our Primary Manufacturing Facilities
Our manufacturing facilities are concentrated in just a few locations. These locations are subject to disruption for a variety of reasons, such as natural or man-made disasters, terrorist activities, disruptions of our information technology resources, and utility interruptions. Such disruptions may cause delays in shipping our products,
Continues on next pageLam Research Corporation 2017 10-K 19
which could result in the loss of business or customer trust, adversely affecting our business and operating results.
Once a Semiconductor Manufacturer Commits to Purchase a Competitor’s Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase That Competitor’s Equipment, Making It More Difficult for Us to Sell Our Equipment to That Customer
Semiconductor manufacturers must make a substantial investment to qualify and integrate wafer processing equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier’s processing equipment, the manufacturer generally relies upon that equipment for that specific production line application for an extended period of time, especially for customers that are more focused on tool reuse. Accordingly, we expect it to be more difficult to sell our products to a given customer if that customer initially selects a competitor’s equipment for the same product line application.
We Face a Challenging and Complex Competitive Environment
We face significant competition from multiple competitors, and with increased consolidation efforts in our industry, as well as the emergence and strengthening of new, regional competitors, we may face increasing competitive pressures. Other companies continue to develop systems and/or acquire businesses and products that are competitive to ours and may introduce new products and product capabilities that may affect our ability to sell and support our existing products. We face a greater risk if our competitors enter into strategic relationships with leading semiconductor manufacturers covering products similar to those we sell or may develop, as this could adversely affect our ability to sell products to those manufacturers.
We believe that to remain competitive we must devote significant financial resources to offer products that meet our customers’ needs, to maintain customer service and support centers worldwide, and to invest in product and process R&D. Technological changes and developing technologies, have required, and are expected to continue to require, new and costly investments. Certain of our competitors, including those that are created and financially backed by foreign governments, have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer service and support resources than we do and therefore have the potential to offer customers a more comprehensive array of products and/or product capabilities and to therefore achieve additional relative success in the semiconductor equipment industry. These competitors may deeply discount or give away products similar to those that we sell, challenging or even exceeding our ability to make similar accommodations and threatening our ability to sell those products. We also face competition from our own customers, who in some instances have established affiliated entities that manufacture equipment similar to ours. In addition, we face competition from companies that exist in a more favorable legal or regulatory environment than we do, allowing the freedom of action in ways that we may be unable to match. In many cases speed to solution is necessary for customer satisfaction and our competitors may be better positioned to achieve these objectives. For these reasons, we may fail to continue to compete successfully worldwide.
In addition, our competitors may be able to develop products comparable or superior to those we offer or may adapt more quickly to new technologies or evolving customer requirements. In particular, while we continue to develop product enhancements that we believe will address future customer requirements, we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive. Accordingly, competition may intensify, and we may be unable to continue to compete successfully in our markets, which could have a material adverse effect on our revenues, operating results, financial condition, and/or cash flows.
Once a Semiconductor Manufacturer Commits to Purchase a Competitor’s Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase That Competitor’s Equipment, Making It More Difficult for Us to Sell Our Equipment to That Customer
Semiconductor manufacturers must make a substantial investment to qualify and integrate wafer processing equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier’s processing equipment, the manufacturer generally relies upon that equipment for that specific production line application for an extended period of time, especially for customers that are more focused on tool reuse. Accordingly, we expect it to be more difficult to sell our products to a given customer for a product line application if that customer initially selects a competitor’s equipment for the same product line application.
We Depend on Creating New Products and Processes and Enhancing Existing Products and Processes for Our Success; Consequently, We Are Subject to Risks Associated with Rapid Technological Change
Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances that enable those processes. We believe that our future success depends in part upon our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products or existing products have reliability, quality, design, or safety problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. We may be unable to develop and manufacture products successfully, or products that we introduce may fail in the marketplace. For more than 25 years, the primary driver of technology advancement in the semiconductor industry has been to shrink the lithography that prints the circuit design on semiconductor chips. That driver could be approaching its technological limit, leading semiconductor manufacturers to investigate more complex changes in multiple technologies in an effort to continue technology development. In addition, the emergence of “big data” and new tools such as machine learning and artificial intelligence that capitalize on the availability of large data sets is leading semiconductor manufacturers and equipment manufacturers to pursue new products and approaches that exploit
Lam Research Corporation 2022 10-K 14
those tools to advance technology development. In the face of uncertainty on which technology solutions will become successful, we will need to focus our efforts on developing the technology changes that are ultimately successful in supporting our customer requirements. Our failure to develop and offer the correct technology solutions in a timely manner with productive and cost-effective products could adversely affect our business in a material way. Our failure to commercialize new products in a timely manner could result in loss of market share, unanticipated costs, and inventory obsolescence, which would adversely affect our financial results.
In order to develop new products and processes and enhance existing products and processes, we expect to continue to make significant investments in R&D, to investigate the acquisition of new products and technologies, to invest in or acquire such business or technologies, and to pursue joint development relationships with customers, suppliers, or other members of the industry. Our investments and acquisitions may not be as successful as we may expect, particularly in the event that we invest in or acquire product lines and technologies that are new to us. We may find that acquisitions are not available to us, for regulatory or other reasons, and that we must therefore limit ourselves to collaboration and joint venture development activities, which do not have the same benefits as acquisitions. Pursuing development through collaboration and/or joint development activities rather than through an acquisition poses substantial challenges for management, including those related to aligning business objectives; sharing confidential information, intellectual property and data; sharing value with third parties; and realizing synergies that might have been available in an acquisition but are not available through a joint development project. We must manage product transitions and joint development relationships successfully, as the introduction of new products could adversely affect our sales of existing products and certain jointly developed technologies may be subject to restrictions on our ability to share that technology with other customers, which could limit our market for products incorporating those technologies. Future technologies, processes, or product developments may render our current product offerings obsolete, leaving us with non-competitive products, obsolete inventory, or both. Moreover, customers may adopt new technologies or processes to address the complex challenges associated with next-generation devices. This shift may result in a reduction in the size of our addressable markets or could increase the relative size of markets in which we either do not compete or have relatively low market share.
Strategic Alliances and Customer Consolidation May Have Negative Effects on Our Business
Increasingly, semiconductor manufacturing companies are entering into strategic alliances or consolidating with one another to expedite the development of processes and other manufacturing technologies and/or achieve economies of scale. The outcomes of such an alliance can be the definition of a particular tool set for a certain function and/or the standardization of a series of process steps that use a specific set of manufacturing equipment, while the outcomes of consolidation can lead to an overall reduction in the market for semiconductor manufacturing equipment as customers’ operations achieve economies of scale and/or increased purchasing power based on their higher volumes. In certain instances, this could work to our disadvantage if a competitor’s tools or equipment become the standard equipment for such functions or processes. Additional outcomes of such consolidation may include our customers re-evaluating their future supplier relationships to consider our competitors’ products and/or gaining additional influence over the pricing of products and the control of intellectual property or data.
Similarly, our customers may partner with, or follow the lead of, educational or research institutions that establish processes for accomplishing various tasks or manufacturing steps. If those institutions utilize a competitor’s equipment when they establish those processes, it is likely that customers will tend to use the same equipment in setting up their own manufacturing lines. Even if they select our equipment, the institutions and the customers that follow their lead could impose conditions on acceptance of that equipment, such as adherence to standards and requirements or limitations on how we license our proprietary rights, that increase our costs or require us to take on greater risk. These actions could adversely impact our market share and financial results.
BUSINESS AND OPERATIONAL RISKS
The COVID-19 Pandemic Has Adversely Impacted, and May Continue to Adversely Impact, Our Business, Operations, and Financial Results
The COVID-19 pandemic and efforts by national, state and local governments worldwide to control its spread have resulted in widespread measures aimed at containing the disease such as quarantines, travel bans, shutdowns, and shelter in place or “stay at home” orders, which collectively have significantly restricted the movement of people and goods and the ability of businesses to operate. These restrictions and measures, incidents of confirmed or suspected infections within our workforce or those of our suppliers or other business partners, and our efforts to act in the best interests of our employees, customers, and suppliers, have affected and are affecting our business and operations by, among other things, causing facility closures, production delays and capacity limitations; disrupting production by our supply chain; disrupting the transport of goods from our supply chain to us and from us to our customers; requiring modifications to our business processes; requiring the implementation of business continuity plans; requiring the development and qualification of alternative sources of supply; requiring the implementation of social distancing measures that require changes to existing manufacturing processes; disrupting business travel; disrupting our ability to staff our on-site manufacturing and research and development facilities; delaying capital expansion projects; and necessitating teleworking by a large proportion of our workforce. These impacts have caused and are expected to continue to cause delays in product shipments and product development, increases in costs, and decreases in revenue, profitability and cash from operations, which have caused and are expected to cause an adverse effect on our results of operations that may be material. The potential duration and impact of the pandemic on the global economy and on our business are difficult to predict and cannot be estimated with any degree of certainty, but the pandemic has resulted in significant disruption of global financial markets, increases in levels of unemployment, and economic uncertainty, which has adversely impacted our business and may continue to do so, and may lead to significant negative
Lam Research Corporation 2022 10-K 15
impacts on customer spending, demand for our products, the ability of our customers to pay, our financial condition and the financial condition of our suppliers, and our access to external sources of financing to fund our operations and capital expenditures.
Our Revenues and Operating Results Are Variable
Our revenues and operating results may fluctuate significantly from quarter to quarter or year to year due to a number of factors, not all of which are in our control. We manage our expense levels based in part on our expectations of future revenues. Because our operating expenses are based in part on anticipated future revenues, and a certain amount of those expenses are relatively fixed, a change in the timing of recognition of revenue and/or the level of gross profit from a small number of transactions can unfavorably affect operating results in a particular quarter or year. Factors that may cause our financial results to fluctuate unpredictably include but are not limited to:
•economic conditions in the electronics and semiconductor industries in general and specifically the semiconductor equipment industry;
•the size and timing of orders from customers;
•changes in our deferred revenue balance, including as a result of factors such as volume purchase agreements, multi-year service contracts, back orders, and down payments toward purchases;
•consolidation of the customer base, which may result in the investment decisions of one customer or market having a significant effect on demand for our products or services;
•procurement shortages;
•the failure of our suppliers or outsource providers to perform their obligations in a manner consistent with our expectations;
•manufacturing difficulties;
•customer cancellations or delays in shipments, installations, customer payments, and/or customer acceptances;
•the extent that customers continue to purchase and use our products and services in their business;
•our customers’ reuse of existing and installed products, to the extent that such reuse decreases their need to purchase new products or services;
•changes in average selling prices, customer mix, and product mix;
•our ability to develop, introduce, and market new, enhanced, and competitive products in a timely manner;
•our competitors’ introduction of new products;
•legal or technical challenges to our products and technologies;
•transportation, communication, demand, information technology, or supply disruptions based on factors outside our control, such as strikes, acts of God, wars, terrorist activities, widespread outbreak of illness, natural or man-made disasters, or climate change;
•legal, tax, accounting, or regulatory changes (including but not limited to changes in import/export regulations and tariffs) or changes in the interpretation or enforcement of existing requirements;
•changes in our estimated effective tax rate; and
•foreign currency exchange rate fluctuations.
For example, the COVID-19 pandemic has impacted and could further impact our ability to meet the demand for our products due to production, sourcing, logistics and other challenges resulting from quarantines, shelter in place or “stay at home” orders, facility closures, workforce challenges, and travel and logistics restrictions in connection with the pandemic.
Disruptions to Our Supply Chain and Outsource Providers Could Impact Our Ability to Meet Demand, Increase Our Costs, and Adversely Impact Our Revenue and Operating Results
Our supply chain has played and will continue to play a key role in our product development, manufacturing operations, field installation and support. Our business depends on our timely supply of products and services to meet the demand from our customers, which depends in significant part on the timely delivery of parts, materials and services, including components and subassemblies, from our direct suppliers to us, and to our direct suppliers by other companies. In addition, outsource providers have played and will continue to play a key role both in the manufacturing and customer-focused operations described above, and in many of our transactional and administrative functions, such as information technology, facilities management, and certain elements of our finance organization. These providers and suppliers might suffer financial setbacks, be acquired by third parties, become subject to exclusivity arrangements that preclude further business with us, or be unable to meet our requirements or expectation due to their independent business decisions or force majeure events that could interrupt or impair their continued ability to perform as we expect. We may also experience significant interruptions of our manufacturing operations, delays in our ability to deliver or install products or perform services or to recognize revenue, increased costs or customer order cancellations as a result of:
•the failure or inability to accurately forecast demand and obtain sufficient quantities of quality parts on a cost-effective basis;
•volatility in the availability and cost of parts, materials or services, including increased costs due to rising inflation or interest rates or other market conditions;
•difficulties or delays in obtaining required import or export approvals;
•shipment delays and increased costs of shipment due to transportation interruptions, capacity constraints, or fuel shortages;
•shortages of semiconductor or other components or materials as a result of increases in demand;
Lam Research Corporation 2022 10-K 16
•information technology or infrastructure failures, including those of a third-party supplier or service provider; and
•transportation or supply disruptions based on factors outside our control, such as strikes, acts of God, wars, terrorist activities, widespread outbreak of illness, natural or man-made disasters, or climate change.
Demand for electronic products and other factors, such as the COVID-19 pandemic and the conflict in Ukraine, have resulted in, and may continue to result in, a shortage of parts, materials and services needed to manufacture, deliver and install our products, as well as delays in and unpredictability of shipments due to transportation interruptions. Such shortages, delays and unpredictability have adversely impacted, and may continue to adversely impact, our suppliers’ ability to meet our demand requirements. Difficulties in obtaining sufficient and timely supply of parts, materials or services, and delays in and unpredictability of shipments due to transportation interruptions, have adversely impacted, and may continue to adversely impact, our manufacturing operations and our ability to meet customer demand. In addition, difficulties in obtaining parts, materials or services necessary to deliver or install products or perform services have adversely impacted, and may continue to adversely impact, our ability to recognize revenue, our gross margins on the revenue we recognize, and our other operating results. Although we are endeavoring to pass along some of the impact of increased costs to our customers to counteract adverse impacts to our gross margins and other operating results, such measures could be unsuccessful, or could have the effect of reducing demand, which would adversely impact our revenue.
Although we attempt to select reputable providers and suppliers and we attempt to secure their performance on terms documented in written contracts, it is possible that one or more of these providers or suppliers could fail to perform as we expect, or fail to secure or protect intellectual property rights, and such failure could have an adverse impact on our business. In some cases, the requirements of our business mandate that we obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. Where practical, we endeavor to establish alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our business, but this is not feasible in all circumstances. Some key parts are subject to long lead-times or available only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the countries where we conduct our manufacturing. There is therefore a risk that a prolonged inability to obtain certain components or secure key services could impair our ability to manage operations, ship products, and generate revenues, which could adversely affect our operating results and damage our customer relationships. For example, the COVID–19 pandemic has impacted and could further impact our manufacturing operations, supply chain, and customer support due to production, sourcing, logistics and other challenges resulting from quarantines, "stay at home" orders, facility closures, workforce challenges, and travel and logistics restrictions in connection with the pandemic.
Our Business Relies on Technology, Data, Intellectual Property and Other Sensitive Information That is Susceptible to Cybersecurity and Other Threats or Incidents
Our business is dependent upon the use and protection of technology, data, intellectual property and other sensitive information, which may be owned by, or licensed to, us or third parties, such as our customers and vendors. We maintain and rely upon certain critical information systems for the creation, transmission, use and storage of much of this information, and for the effective operation of our business. These information systems include but are not limited to, telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, (some of which may be integrated into the products that we sell or be required in order to provide the services that we offer), network communications, and email. These information systems may be owned and maintained by us, our outsourced providers, or third parties such as vendors, contractors, customers and Cloud providers. In addition, we make use of Software-as-a-Service (SaaS) products for certain important business functions that are provided by third parties and hosted on their own networks and servers, or third-party networks and servers, all of which rely on networks, email and/or the Internet for their function.
The technology, data, intellectual property and other sensitive information we seek to protect are subject to loss, release, misappropriation or misuse, and the information systems containing or transmitting such technology, data, intellectual property and other sensitive information are subject to disruption, breach or failure, in each case as a result of various possible causes. Such causes may include mistakes or unauthorized actions by our employees or contractors, phishing schemes and other third-party attacks, and degradation or loss of service or access to data due to viruses, malware, denial of service attacks, destructive or inadequate code, power failures, or physical damage to computers, hard drives, communication lines, or networking equipment. Such causes may also include the use of techniques that change frequently or may be disguised or difficult to detect, or designed to remain dormant until a triggering event, or that may continue undetected for an extended period of time.
We have experienced cybersecurity and other threats and incidents in the past. Although past threats and incidents have not resulted in a material adverse effect, we may incur material losses related to cybersecurity and other threats or incidents in the future. If we were subject to a cybersecurity or other incident, it could have a material adverse effect on our business. Such adverse effects might include:
•loss of (or inability to access, e.g. through ransomware) confidential and/or sensitive information stored on these critical information systems or transmitted to or from those systems;
•the disruption of the proper function of our products, services and/or operations;
•the failure of our or our customers’ manufacturing processes;
•errors in the output of our work or our customers’ work;
•the loss or public exposure of the personal or other confidential information of our employees, customers or other parties;
•the public release of customer financial and business plans, customer orders and operational results;
•exposure to claims from our employees or third parties who are adversely impacted by such incidents;
Lam Research Corporation 2022 10-K 17
•misappropriation or theft of our or a customer’s, supplier’s or other party’s assets or resources, including technology data, intellectual property or other sensitive information and costs associated therewith;
•reputational damage;
•diminution in the value of our investment in research, development and engineering; or
•our failure to meet, or violation of, regulatory or other legal obligations, such as the timely publication or filing of financial statements, tax information and other required communications.
While we have implemented ISO 27001 compliant security procedures and virus protection software, intrusion prevention systems, identity and access control, and emergency recovery processes, and we carefully select our third-party providers of information systems, to mitigate risks to the information systems that we rely on and to the technology, data, intellectual property and other sensitive information we seek to protect, those security procedures and mitigation and protection systems cannot be guaranteed to be fail-safe, and we may still suffer cybersecurity and other incidents. It has been difficult and may continue to be difficult to hire and retain employees with substantial cybersecurity acumen. In addition, there have been and may continue to be instances of our policies and procedures not being effective in enabling us to identify risks, threats and incidents in a timely manner, or at all, or to respond expediently, appropriately and effectively when incidents occur and repair any damage caused by such incidents, and such occurrences could have a material adverse effect on our business.
Our Future Success Depends Heavily on International Sales and the Management of Global Operations
Non-U.S. sales, as reflected in Part 1II Item 1. Business,7. Results of Operation of this 2022 Form 10-K, accounted for approximately 92%, 92%94%, and 83%92% of total revenue in fiscal years 2017, 2016,2022, 2021, and 2015,2020, respectively. We expect that international sales will continue to account for a substantial majority of our total revenue in future years.
We are subject to various challenges related to international sales and the management of global operations including, but not limited to:
•domestic and international trade regulations, policies, practices, relations, disputes and issues;
trade balance issues;
•domestic and international tariffs, export controls and other barriers;
•developing customers and/or suppliers, who may have limited access to capital resources;
•global or national economic and political conditions;
•changes in currency controls;
Continues on next pageLam Research Corporation 2017 10-K 20
•differences in the enforcement of intellectual property and contract rights in varying jurisdictions;
•our ability to respond to customer and foreign government demands for locally sourced systems, spare parts, and services and develop the necessary relationships with local suppliers;
•changes in and compliance with U.S. and international laws and regulations affecting foreign operations, including U.S. and international trade restrictions and sanctions, anti-bribery, anti-corruption, anti-boycott, environmental, tax, and labor laws;
•fluctuations in interest and foreign currency exchange rates;
our ability to repatriate cash in a tax-efficient manner;
•the need for technical support resources in different locations; and
•our ability to secure and retain qualified people, and effectively manage people, in all necessary locations for the successful operation of our business.
Certain international sales depend onFor example, the COVID-19 pandemic has impacted and could further impact our abilitymanufacturing operations, supply chain, and customer support due to obtain export licensesproduction, sourcing, logistics and other challenges resulting from quarantines, stay at home orders, facility closures, workforce challenges, and travel and logistics restrictions in connection with the U.S. government. Our failure or inability to obtain such licenses would substantially limit our markets and severely restrict our revenues. Many of the challenges noted above are applicable in China, which is a fast developing market for the semiconductor equipment industry and therefore an area of potential significant growth for our business. As the business volume between China and the rest of the world grows, therepandemic.
There is inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the United States, that political, diplomatic and diplomaticnational security influences might lead to trade disruptions.disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry. This would adversely affect our business with China, Japan, Korea, and/or Taiwan and perhaps the entire Asia Pacific region.region or global economy. A significant trade dispute, impact and/or disruption in these areasany area where we do business could have a materially adverse impact on our future revenue and profits.
Tariffs, export controls, additional taxes, trade barriers, sanctions, or the termination or modification of trade agreements, trade zones, and other duty mitigation initiatives, may increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions. Certain of our international sales depend on our ability to obtain export licenses from the U.S. or foreign governments, and our inability to obtain such licenses, or an expansion of the number or kinds of sales for which export licenses are required, could potentially limit the market for our products and adversely impact our revenues. As is discussed below under the heading “Our Sales to Customers in China, a Region of Growing Significance to Us, Could be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S. and China,” the U.S. government has recently expanded export license requirements that impact trade with China. In addition, the U.S. government is in the process of assessing technologies that may be subject to new or additional export controls, and it is possible that such controls, if and when imposed, could adversely impact our ability to sell our products outside the U.S. Furthermore, there are risks that the Chinese governmentforeign governments may, among other things, insist on the use of local suppliers; compel companies that do business in China to partner with local companies to design and supply equipment on a local basis, requiring the transfer of intellectual property rights and/or local manufacturing; utilize their influence over their judicial systems to
Lam Research Corporation 2022 10-K 18
respond to intellectual property disputes or issues; and provide special incentives to government-backed local customers to buy from local competitors, even if their products are inferior to ours; all of which could adversely impact our revenues and margins.
We are exposed to potentially adverse movements in foreign currency exchange rates. The majority of our sales and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange rate fluctuations primarily related to revenues denominated in Japanese yen and expenses denominated in euro, Korean won, Malaysian ringgit, and Korean won.Indian rupee. Currently, we hedge certain anticipated foreign currency cash flows, primarily anticipated revenues denominated in Japanese yen and expenses dominated in euro, Korean won, Malaysian ringgit, and Korean won.Indian rupee. In addition, we enter into foreign currency hedge contracts to minimize the short-term impact of the foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily third-party accounts receivables, accounts payables, and intercompany receivables and payables. We believe these are our primary exposures to currency rate fluctuation. We expect to continue to enter into hedging transactions, for the purposes outlined, for the foreseeable future. However, these hedging transactions may not achieve their desired effect because differences between the actual timing of the underlying exposures and our forecasts of those exposures may leave us either over or under hedged on any given transaction. Moreover, by hedging these foreign currency denominated revenues, expenses, monetary assets, and liabilities, we may miss favorable currency trends that would have been advantageous to us but for the hedges. Additionally, we are exposed to short-term foreign currency exchange rate fluctuations on non-U.S. dollar-denominated monetary assets and liabilities (other than those currency exposures previously discussed), and currently we do not enter into foreign currency hedge contracts against these exposures. Therefore, we are subject to potential unfavorable foreign currency exchange rate fluctuations to the extent that we transact business (including intercompany transactions) in these currencies.
The magnitude of our overseas business also affects where our cash is generated. Certain uses of cash, such as share repurchases, payment of dividends, or the repayment of our notes, can usually only be made with onshore cash balances. Since the majority of our cash is generated outside of the United States, this may impact certain business decisions and outcomes.
We Face Risks Related to the Disruption of Our Primary Manufacturing and R&D Facilities
While we maintain business continuity plans, our manufacturing and R&D facilities are concentrated in a limited number of locations. These locations are subject to disruption for a variety of reasons, such as natural or man-made disasters, widespread outbreaks of illness, terrorist activities, political or governmental unrest or instability, disruptions of our information technology resources, utility interruptions, the effects of climate change, or other events beyond our control. Such disruptions may cause delays in developing or shipping our products, in engaging with customers on new product applications, or in supporting customers, which could result in the loss of business or customer trust, adversely affectaffecting our business outcomes.and operating results. For example, the COVID-19 pandemic has impacted and could further impact our manufacturing operations, supply chain, R&D and customer support due to production, sourcing, logistics and other challenges resulting from quarantines, “stay at home” orders, facility closures, workforce challenges, and travel and logistics restrictions in connection with the pandemic.
We Are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification
We derive a substantial percentage of our revenues from a limited number of products. Our products are priced up to the tens of millions of dollars per system. As a result, the inability to recognize revenue on even a few systems can cause a significantly adverse impact on our revenues for a given quarter, and, in the longer term, the continued market acceptance of these products is critical to our future success. Our business, operating results, financial condition, and cash flows could therefore be adversely affected by:
•a decline in demand for even a limited number of our products;
•a failure to achieve continued market acceptance of our key products;
•export restrictions or other regulatory or legislative actions that could limit our ability to sell those products to key customers or customers within certain markets;
•an improved version of products being offered by a competitor in the markets in which we participate;
•increased pressure from competitors that offer broader product lines;
•increased pressure from regional competitors;
•technological changes that we are unable to address with our products; or
•a failure to release new or enhanced versions of our products on a timely basis.
In addition, the fact that we offer limited product lines creates the risk that our customers may view us as less important to their business than our competitors that offer additional products and/or product capabilities, including new products that take advantage of “big data” or other new technologies such as machine learning and artificial intelligence. This may impact our ability to maintain or expand our business with certain customers. Such product concentration may also subject us to additional risks associated with technology changes. Our business is affected by our customers’ use of our products in certain steps in their wafer fabrication processes. Should technologies change so that the manufacture of semiconductors requires fewer steps using our products, this could have a larger impact on our business than it would on the business of our less concentrated competitors.
We May Fail to Protect Our Critical Proprietary Technology Rights, Which Could Affect Our Business
Our success depends in part on our proprietary technology and our ability to protect key components of that technology through patents, copyrights, trade secrets and other forms of protection. Protecting our key proprietary technology helps us achieve our goals of developing technological expertise and new products and systems that give us a competitive advantage; increasing market penetration and growth of our installed base; and providing comprehensive support and service to our customers. As part of our
Lam Research Corporation 2022 10-K 19
strategy to protect our technology, we currently hold a number of U.S. and foreign patents and pending patent applications, and we keep certain information, processes, and techniques confidential and/or as trade secrets. However, other parties may challenge or attempt to invalidate or circumvent any patents the U.S. or foreign governments issue to us; these governments may fail to issue patents for pending applications; or we may lose trade secret protection over valuable information due to our or third parties’ intentional or unintentional actions or omissions or even those of our own employees. Additionally, intellectual property litigation can be expensive and time-consuming and even when patents are issued, or trade secret processes are followed, the legal systems in certain of the countries in which we do business might not enforce patents and other intellectual property rights as rigorously or effectively as the United States or may favor local entities in their intellectual property enforcement. The rights granted or anticipated under any of our patents, pending patent applications, or trade secrets may be narrower than we expect or, in fact, provide no competitive advantages. Moreover, because we selectively file for patent protection in different jurisdictions, we may not have adequate protection in all jurisdictions based on such filing decisions. Any of these circumstances could have a material adverse impact on our business.
Our Ability to Attract, Retain, and Motivate Key Employees Is Critical to Our Success
Our ability to compete successfully depends in large part on our ability to attract, retain, and motivate key employees with the appropriate skills, experiences and competencies. This is an ongoing challenge due to intense competition for top talent, fluctuations in industry or business economic conditions, as well as increasing geographic expansion, thatand these factors in combination may requireresult in cycles of hiring activity and workforce reductions. Our success in hiring
Continues on next pageLam Research Corporation 2017 10-K 21
depends on a variety of factors, including the attractiveness of our compensation and benefit programs, global economic or political and industry conditions, our organizational structure, global competition for talent and the availability of qualified employees, the availability of career development opportunities, the ability to obtain necessary authorizations for workers to provide services outside their home countries, and our ability to offer a challenging and rewarding work environment. We periodically evaluate our overall compensation and benefit programs and make adjustments, as appropriate, to maintain or enhance their competitiveness. If we are not able to successfully attract, retain, and motivate key employees, we may be unable to capitalize on market opportunities and our operating results may be materially and adversely affected.
We Rely upon Certain Critical Information Systems for the Operation of Our Business That Are Susceptible to Cybersecurity and Other Threats or Incidents
We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include, but are not limited to, telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, network communications, and email. These information systems may be owned and maintained by us, our outsourced providers, or third parties such as vendors, contractors, and Cloud providers. Many of these information systems and outsourced service providers, including certain hosted software applications that we use for storage of confidential data and data processing (e.g., company-related, whether intellectual property or not; customer-related; supplier-related; and/or employee-related), employ Cloud technology for such storage and data processing (which refers to an information technology hosting and delivery system in which data is not stored or processed within the user’s physical infrastructure but instead is delivered to and consumed by the user as an Internet-based service). All of these information systems are subject to disruption, breach or failure from sources including but not limited to attacks, degradation, and failures resulting from potential sources, including viruses, malware, denial of service, destructive or inadequate code, power failures, and physical damage to computers, hard drives, communication lines, and networking equipment. Confidential and/or sensitive information stored on these information systems or transmitted to or from Cloud storage could be intentionally or unintentionally compromised, lost, and/or stolen. While we have implemented ISO 27001 compliant security procedures and virus protection software, intrusion prevention systems, access control, and emergency recovery processes to mitigate the outlined risks with respect to information systems that are under our control, they cannot be guaranteed to be fail-safe and may be breached. Our inability to use or access these information systems at critical points in time, or unauthorized releases of proprietary or confidential information, could unfavorably impact the timely and efficient operation of our business, including our results of operations, and our reputation.
We have experienced cyber attacks. Although past attacks have not resulted in a material adverse effect, we may incur material losses related to cyber attacks in the future. The insurance we carry may not fully compensate us for the effects of potential losses arising from a cyber-related incident. Cyber-related incidents could result in:
disruptions to our operations;
misappropriation or theft of Company, customer, supplier, or other’s assets or resources, including intellectual property and confidential information, and costs associated therewith;
litigation with, or claims of damages arising from, our employees, customers, suppliers, or other third parties which whom we collaborate; or
adverse impact to our results of operations, as a result of associated remediation costs such as those related to responding to potential regulatory inquiries, to rebuild the effected information systems, and those associated with improving our security and internal control environment.
Our Financial Results May Be Adversely Impacted by Higher than Expected Tax Rates or Exposure to Additional Tax Liabilities
As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. We are subject to income taxes in the United States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. Our effective tax rate could be adversely affected by changes in the split of earnings between countries with differing statutory tax rates, in the valuation allowance of deferred tax assets, in tax laws, by material audit assessments, or changes in or expirations of agreements with tax authorities. These factors could affect our profitability. In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent
Continues on next pageLam Research Corporation 2017 10-K 22
on our ability to generate future taxable income in the United States. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability.
A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results
We are subject to a variety of domestic and international governmental regulations related to the handling, discharge, and disposal of toxic, volatile, or otherwise hazardous chemicals. Failure to comply with present or future environmental regulations could result in fines being imposed on us, require us to suspend production, and/or cease operations, or cause our customers to not accept our products. These regulations could require us to alter our current operations, acquire significant additional equipment, incur substantial other expenses to comply with environmental regulations, or take other actions. Any failure to comply with regulations governing the use, handling, sale, transport, or disposal of hazardous substances could subject us to future liabilities that may adversely affect our operating results, financial condition, and ability to operate our business.
If We Choose to Acquire or Dispose of Businesses, Product Lines, and Technologies, We May Encounter Unforeseen Costs and Difficulties That Could Impair Our Financial Performance
An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our technological capabilities.capabilities, or accomplish other strategic objectives. As a result, we may seek to make acquisitions of complementary companies, products, or technologies, or we may reduce or dispose of certain product lines or technologies that no longer fit our long-term strategies. For regulatory or other reasons, we may not be successful in our attempts to acquire or dispose of businesses, products, or technologies, resulting in significant financial costs, reduced or lost opportunities, and diversion of management’s attention. Managing an acquired business, disposing of product technologies, or reducing personnel entails numerous operational and financial risks, including difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, diversion of management’s attention away from other business concerns, amortization of acquired intangible assets, adverse customer reaction to our decision to cease support for a product, and potential loss of key employees or customers of acquired or disposed operations. There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel, or that our management, personnel, or systems will be adequate to support continued operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, financial condition, and/or cash flows.
In addition, any acquisition could result in changes such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the amortization of related intangible assets, and goodwill impairment charges, any of which could materially adversely affect our business, financial condition, results of operations, cash flows, and/or the price of our Common Stock.
LEGAL, REGULATORY AND TAX RISKS
Our Sales to Customers in China, a Region of Growing Significance to Us, Could be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S. and China.
China represents a large and fast-developing market for the semiconductor equipment industry and therefore is important to our business. Revenue in China, which includes global customers and domestic Chinese customers with manufacturing facilities in China, represented approximately 31%, 35%, and 31% of our total revenue for fiscal years 2022, 2021, and 2020, respectively. The Market for Our Common Stock Is Volatile, Which May Affect Our Ability to Raise Capital or Make Acquisitions or May Subject Our Business to Additional Costs
TheU.S. and China have historically had a complex relationship that has included actions that have impacted trade between the two countries. Recently, these actions have included an expansion of export license requirements imposed by the U.S. government, which have limited the market price for our Common Stock is volatileproducts, adversely impacted our revenues, and has fluctuated significantly overincreased our exposure to foreign competition, and could potentially do so to an even greater extent in the past years. The trading pricefuture. For example, since the start of calendar year 2020, the U.S. Department of Commerce enacted a new rule that expanded export license requirements for U.S. companies to sell certain items to companies and other end-users in China that are designated as military end-users or have operations that could support military end-uses, added additional Chinese companies to its restricted entity list under suspicions of military-civil fusion, support of Russia, or other factors associated with a broadening scope of national security concerns (including Semiconductor Manufacturing International
Lam Research Corporation 2022 10-K 20
Corporation, or SMIC, and related entities), and expanded an existing rule (referred to as the foreign direct product rule) in a manner that could cause foreign-made wafers, chipsets, and certain related items produced with many of our Common Stock could continueproducts to be highly volatilesubject to U.S. licensing requirements if Huawei Technologies Co. Ltd (“Huawei”) or its affiliates are parties to a transaction involving the items. These rules have required and fluctuate widelymay require us to apply for and obtain additional export licenses to supply certain of our products to specified customers in China, such as SMIC (where those products would not otherwise require an export license to China), and there is no assurance that we will be issued licenses that we apply for on a timely basis or at all. In addition, our customers (including but not limited to Chinese customers) may require U.S. export licenses for the use of our products in order to manufacture products, including semiconductor wafers and integrated circuits, for those of their customers (i.e. Huawei and its affiliates) that are subject to the expanded foreign direct product rule, which may adversely impact the demand for our products. The U.S. Department of Commerce could in the future add additional Chinese companies to its restricted entity list or take other actions that could expand licensing requirements or otherwise impact the market for our products and our revenue. The implementation, interpretation and impact on our business of these rules and other regulatory actions taken by the U.S. government is uncertain and evolving, and these rules, other regulatory actions or changes, and other actions taken by the governments of either the U.S. or China, or both, that have occurred and may occur in the future could materially and adversely affect our results of operations.
We Are Exposed to Various Risks from Our Regulatory Environment
We are subject to various risks related to (1) new, different, inconsistent, or even conflicting laws, rules, and regulations that may be enacted by legislative or executive bodies and/or regulatory agencies in the countries that we operate; (2) disagreements or disputes related to international trade; and (3) the interpretation and application of laws, rules, and regulations. As a public company with global operations, we are subject to the laws of multiple jurisdictions and the rules and regulations of various governing bodies, including those related to export controls, financial and other disclosures, corporate governance, privacy, anti-corruption, such as the Foreign Corrupt Practices Act and other local laws prohibiting corrupt payments to governmental officials, anti-boycott compliance, conflict minerals or other social responsibility legislation, immigration or travel regulations, antitrust regulations, and laws or regulations relating to carbon emissions, as well as other laws or regulations imposed in response to a varietyclimate change concerns, among others. Each of factors, many of which are not withinthese laws, rules, and regulations imposes costs on our control or influence. These factors include but are not limited to the following:
general market, semiconductor, or semiconductor equipment industry conditions;
economic or political events, trends,business, including financial costs and unexpected developments occurring nationally, globally, or in anypotential diversion of our key sales regions;management’s attention associated with compliance, and may present risks to our business, including potential fines, restrictions on our actions, and reputational damage if we do not fully comply.
variations in our quarterly operating resultsTo maintain high standards of corporate governance and financial condition, including our liquidity;
variations in our revenues, earnings, or other business and financial metrics from forecasts by us or securities analysts or from those experienced by other companies in our industry;
announcements of restructurings, reductions in force, departure of key employees, and/or consolidations of operations;
government regulations;
developmentspublic disclosure, we intend to invest appropriate resources to comply with evolving standards. Changes in or claims relatingambiguous interpretations of laws, regulations, and standards may create uncertainty regarding compliance matters. Efforts to patent or other proprietary rights;
Continues on next pageLam Research Corporation 2017 10-K 23
technological innovations and the introduction of new products by us or our competitors;
commercial success or failure of ourcomply with new and existing products;
disruptionschanging regulations have resulted in, and are likely to continue to result in, reduced operating income, and a diversion of relationships with key customers or suppliers; or
dilutive impacts of our Convertible Notesmanagement’s time and related warrants.
In addition, the stock market experiences significant price and volume fluctuations. Historically, we have witnessed significant volatility in the price of our Common Stock due in partattention from revenue-generating activities to the price of and markets for semiconductors. These and other factors have and may again adversely affect the price of our Common Stock, regardless of our actual operating performance. In the past, following volatile periods in the price of their stock, many companies became the object of securities class action litigation.compliance activities. If we are suedfound by a court or regulatory agency not to be in a securities class action, wecompliance with the laws and regulations, our business, financial condition, and/or results of operations could incur substantial costs, and it could divert management’s attention and resources and have an unfavorable impact on our financial performance and the price for our Common Stock.be adversely affected.
Intellectual Property, Indemnity, and Other Claims Against Us Can Be Costly and We Could Lose Significant Rights That Are Necessary to Our Continued Business and Profitability
Third parties may assert infringement, misappropriation, unfair competition, product liability, breach of contract, or other claims against us. From time to time, other persons send us notices alleging that our products infringe or misappropriate their patent or other intellectual property rights. In addition, law enforcement authorities may seek criminal charges relating to intellectual property or other issues. We also face risks of claims arising from commercial and other relationships. In addition, our bylaws and other indemnity obligations provide that we will indemnify officers and members of our Board of Directors against losses that they may incur in legal proceedings resulting from their service to us. From time to time, in the normal course of business, we indemnify third parties with whom we enter into contractual relationships, including customers and suppliers, with respect to certain matters. We have agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that our products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. In such cases, it is our policy either to defend the claims or to negotiate licenses or other settlements on commercially reasonable terms. However, we may be unable in the future to negotiate necessary licenses or reach agreement on other settlements on commercially reasonable terms, or at all, and any litigation resulting from these claims by other parties may materially and adversely affect our business and financial results, and we may be subject to substantial damage awards and penalties. Moreover, although we have insurance to protect us from certain claims and cover certain losses to our property, such insurance may not cover us for the full amount of any losses, or at all, and may be subject to substantial exclusions and deductibles.
Our Financial Results May Be Adversely Impacted by Higher than Expected Tax Rates or Exposure to Additional Tax Liabilities
We May Failare subject to Protectincome, transaction, and other taxes in the United States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. The amount of taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability. As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. Our Critical Proprietary Technology Rights, Which Could Affect Our Business
Our success dependseffective tax rate could be adversely affected by changes in partthe split of earnings between countries with differing statutory tax rates, in the valuation allowance of deferred tax assets, in tax laws, by material audit assessments, or by changes in or expirations of agreements with tax authorities. These factors could affect our profitability. In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent on our proprietary technology and our ability to protect key componentsgenerate future taxable income in the United States.
Lam Research Corporation 2022 10-K 21
On August 16, 2022, the U.S. or foreign governments issue to us; these governments may fail to issue patents for pending applications; or we may lose trade secret protection over valuable information due toInflation Reduction Act (the “IRA”) was signed into law. In general, the intentional or unintentional actions or omissions of third parties, of ours, or even of our own employees. Additionally, intellectual property litigation can be expensive and time-consuming and even when patents are issued or trade secret processes are followed, the legal systems in certainprovisions of the countriesIRA will be effective beginning with our fiscal year 2024, with certain exceptions. The IRA includes a new 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases applicable to repurchases after December 31, 2022. We are in whichthe process of evaluating the potential impacts of the IRA. While we do business do not enforce patentscurrently expect the IRA to have a material impact on our effective tax rate, our analysis is ongoing and other intellectual property rights as rigorously asincomplete, and it is possible that the United States. The rights granted or anticipated under any of our patents, pending patent applications, or trade secrets may be narrower than we expect or, in fact, provide no competitive advantages. Moreover, because we determine the jurisdictions in which to file patents at the time of filing, we may not have adequate protection in the future based on such previous decisions. Any of these circumstancesIRA could have a material adverse effect on our tax liability.
Recommendations made by the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project have the potential to lead to changes in the tax laws in numerous countries. In addition, President Joseph Biden has made several corporate income tax proposals, including a significant increase to the U.S. corporate income tax rate and changes in the taxation of non-U.S. income. If enacted, such changes could have a material impact on our business.effective tax rate.
Continues on next pageLam Research Corporation 2017 10-K 24
We Are ExposedA Failure to Various Risks fromComply with Environmental Regulations May Adversely Affect Our Regulatory EnvironmentOperating Results
We are subject to various risksa variety of domestic and international governmental regulations related to (1) new, different, inconsistent,the handling, discharge, and disposal of toxic, volatile, or even conflicting laws, rules, andotherwise hazardous chemicals. Failure to comply with present or future environmental regulations could result in fines being imposed on us, require us to undertake remediation activities, suspend production, and/or cease operations, or cause our customers to not accept our products. These regulations could require us to alter our current operations, acquire significant additional equipment, incur substantial other expenses to comply with environmental regulations, or take other actions. Any failure to comply with regulations governing the use, handling, sale, transport, or disposal of hazardous substances could subject us to future liabilities that may adversely affect our operating results, financial condition, and ability to operate our business.
Our Bylaws Designate the Court of Chancery of the State of Delaware as the Sole and Exclusive Judicial Forum for Certain Legal Actions Between the Company and its Stockholders, Which May Discourage Lawsuits with Respect to Such Claims
Our bylaws provide that, unless we consent otherwise, the Court of Chancery of the State of Delaware will be enactedthe sole and exclusive forum for lawsuits asserting certain stockholder claims (including claims asserted derivatively for our benefit), such as claims against directors and officers for breach of a fiduciary duty, claims arising under any provision of the General Corporation Law of Delaware or our certificate of incorporation or our bylaws, or claims governed by legislative bodiesthe internal affairs doctrine. This is a general summary of the bylaw provision; you should refer to the language of the bylaws for details. While the forum provision does not generally apply to direct claims arising under the Securities Exchange Act of 1934 or the Securities Act of 1933, derivative lawsuits that assert legal claims arising under these statutes could fall within the provision, as recent court decisions have held.
As a Delaware corporation, Delaware law controls issues of our internal affairs, including duties that our directors, officers, employees, and others owe to the Company and its stockholders. We believe that our exclusive forum provision benefits us, and our stockholders, by permitting relatively prompt resolution of lawsuits concerning our internal affairs, promoting consistent application of Delaware law in these lawsuits, and reducing the possibility of duplicative, costly, multi-jurisdictional litigation with the potential for inconsistent outcomes. However, the forum provision limits a stockholder’s ability to bring a claim in a judicial forum that it believes may be more favorable than Delaware, and this could discourage the filing of such lawsuits.
FINANCIAL, ACCOUNTING AND CAPITAL MARKETS RISKS
The Market for Our Common Stock Is Volatile, Which May Affect Our Ability to Raise Capital or Make Acquisitions or May Subject Our Business to Additional Costs
The market price for our Common Stock is volatile and has fluctuated significantly over the past years. The trading price of our Common Stock could continue to be highly volatile and fluctuate widely in response to a variety of factors, many of which are not within our control or influence. These factors include but are not limited to the following:
•general market, semiconductor, or semiconductor equipment industry conditions;
•economic or political events, trends, and unexpected developments occurring nationally, globally, or in any of our key sales regions;
•variations in our quarterly operating results and financial condition, including our liquidity;
•variations in our revenues, earnings, or other business and financial metrics from forecasts by us or securities analysts or from those experienced by other companies in our industry;
•announcements of restructurings, reductions in force, departure of key employees, and/or regulatory agenciesconsolidations of operations;
•margin trading, short sales, hedging and derivative transactions involving our Common Stock;
•government regulations;
•developments in, or claims relating to, patent or other proprietary rights;
•technological innovations and the introduction of new products by us or our competitors;
•commercial success or failure of our new and existing products; or
•disruptions of relationships with key customers or suppliers.
In addition, the stock market experiences significant price and volume fluctuations. Historically, we have witnessed significant volatility in the countries that we operate; (2) disagreements or disputes between national or regional regulatory agencies related to international trade; and (3) the interpretation and applicationprice of laws, rules, and regulations. As a public company with global operations, we are subjectour Common Stock due in part to the lawsprice of multiple jurisdictionsand markets for semiconductors. These and other factors have adversely affected and may again adversely affect the price of our Common Stock, regardless of our actual operating performance. In the past, following volatile periods in the price of their stock, many companies became the object of securities class action litigation. If we are
Lam Research Corporation 2022 10-K 22
sued in a securities class action, we could incur substantial costs, and it could divert management’s attention and resources and have an unfavorable impact on our financial performance and the rules and regulationsprice for our Common Stock.
We May Incur Impairments to Goodwill or Long-lived Assets
We review our goodwill identified in business combinations for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of various governing bodies,these assets may exceed the fair value. We review all other long-lived assets, including those related to financialfinite-lived intangible assets, whenever events or changes in circumstance indicate that these assets may not be recoverable. The process of evaluating the potential impairment of goodwill and other disclosures, corporate governance, privacy, anti-corruption, such as the Foreign Corrupt Practices Act and other local laws prohibiting corrupt payments to governmental officials, conflict mineralslong-lived assets requires significant judgement. Negative industry or other social responsibility legislation, immigration or travel regulations, and antitrust regulations, among others. Each of these laws, rules, and regulations imposes costs on our business,economic trends, including financial costs and potential diversionreduced market prices of our management’s attention associated with compliance, and may present risksCommon Stock, reduced estimates of future cash flows, disruptions to our business, slower growth rates, or lack of growth in our relevant business units, could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets.
When evaluating goodwill, if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed and we may be required to record an impairment charge in that period, which could adversely affect our result of operations.
When evaluating other long-lived assets, if we conclude that the estimated undiscounted cash flows attributable to the assets are less than their carrying value, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values, which could adversely affect our results of operations.
Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance. We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual results. Additionally, if our analysis indicates potential fines, restrictionsimpairment, we may be required to record additional charges to earnings in our financial statements, which could negatively affect our results of operations.
Our Leverage and Debt Service Obligations May Adversely Affect Our Financial Condition, Results of Operations, and Earnings per Share
We have $5.0 billion in aggregate principal amount of senior unsecured notes outstanding. Additionally, we have funding available to us under our $1.5 billion commercial paper program and our $1.5 billion revolving credit facility, which serves as a backstop to our commercial paper program. Our revolving credit facility also includes an option to increase the amount up to an additional $600.0 million, for a potential total commitment of $2.1 billion. We may, in the future, decide to enter into additional debt arrangements.
In addition, we have entered, and in the future may enter, into derivative instrument arrangements to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. We could be exposed to losses in the event of nonperformance by the counterparties to our derivative instruments.
Our indebtedness could have adverse consequences, including:
•risk associated with the alternative reference rate reform (e.g. LIBOR transition);
•risk associated with any inability to satisfy our obligations;
•a portion of our cash flows that may have to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions, or general corporate or other purposes; and
•impairment of our ability to obtain additional financing in the future.
Our ability to meet our expenses and debt obligations will depend on our actions,future performance, which will be affected by financial, business, economic, regulatory, and reputational damageother factors. Furthermore, our operations may not generate sufficient cash flows, to enable us to meet our expenses and service our debt. As a result, we may need to enter into new financing arrangements to obtain the necessary funds. If we determine it is necessary to seek additional funding for any reason, we may not be able to obtain such funding or, if funding is available, obtain it on acceptable terms. If we arefail to make a payment on our debt, we could be in default on such debt, and this default could cause us to be in default on our other outstanding indebtedness.
Our Credit Agreements Contain Covenant Restrictions That May Limit Our Ability to Operate Our Business
We may be unable to fully comply.respond to changes in business and economic conditions, engage in transactions that might otherwise be beneficial to us, or obtain additional financing because our debt agreements contain, and any of our other future similar agreements may contain, covenant restrictions that limit our ability to, among other things:
To maintain high standards•incur additional debt, assume obligations in connection with letters of corporate governancecredit, or issue guarantees;
•create liens;
•enter into transactions with our affiliates;
•sell certain assets; and public disclosure, we intend to invest all reasonably necessary resources
•merge or consolidate with any person.
Lam Research Corporation 2022 10-K 23
Our ability to comply with all evolving standards. Changes in or ambiguous interpretationsthese covenants is dependent on our future performance, which will be subject to many factors, some of laws, regulations, and standards may create uncertainty regarding compliance matters. Effortswhich are beyond our control, including prevailing economic conditions. In addition, our failure to comply with new and changing regulations have resulted in, and are likely to continue tothese covenants could result in increased selling, general,a default under the Senior Notes, or our other debt, which could permit the holders to accelerate such debt. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt, which could materially and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If we are found by a court or regulatory agency not to be in compliance with the laws and regulations,negatively affect our business, financial condition and/orand results of operations could be adversely affected.operation.
There Can Be No Assurance That We Will Continue to Declare Cash Dividends or Repurchase Our Shares at All or in Any Particular Amounts
Our Board of Directors has declared quarterly dividends since April 2014. Our intent to continue to pay quarterly dividends and to repurchase our shares is subject to capital availability and in the case of dividends, periodic determinations by our Board of Directors that cash dividends and share repurchases are in the best interest of our stockholders and are in compliance with all laws and agreements applicable to the declaration and payment of cash dividends or the repurchasing of shares by us. Future dividends and share repurchases may also be affected by, among other factors, our views on potential future capital requirements for investments in acquisitions and the funding of our research and development; legal risks; changes in federal, state, and state incomeinternational tax laws or corporate laws; contractual restrictions, such as financial or operating covenants in our debt arrangements; availability of onshore cash flow; and changes to our business model. Our dividend payments and share repurchases may change from time to time, and we cannot provide assurance that we will continue to declare dividends or repurchase shares at all or in any particular amounts. A reduction or suspension in our dividend payments or share repurchases could have a negative effect on the price of our Common Stock.
| |
Item 1B. | Unresolved Staff Comments |
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our executive offices and principal operating and R&D facilities are located in Fremont and Livermore, California; Tualatin, Oregon; Yongin, Gyeonggi Province, Korea; and Villach, Austria. The majority of the Fremont and Livermore facilities are held under operating leases expiring in 2020 and 2021. The Villach facilities are held under capital leases expiring in calendar year 2021. Our Fremont, Livermore, and Villach leases include options to renew or purchase the facilities. In addition, we lease or own properties for our service, technical support, and sales personnel throughout the United States, China, Europe, India, Japan, Korea, Southeast Asia, and Taiwan and lease or own manufacturing facilities located in California, Ohio, Oregon, Austria, Korea, Malaysia, and Korea.Taiwan. In July 2021, our new advanced technology production facility in Malaysia began production. The Company owns two properties in Fremont, as well as the majority of the Tualatin facilities. The majority of the Fremont and Livermore facilities are held under finance leases expiring in September 2027. Our Fremont, Livermore, and Villach leases include options to renew or purchase the facilities. Our facilities lease obligations are subject to periodic increases. We believe that our existing facilities are well-maintained and in good operating condition.
Continues on next pageLam Research Corporation 2017 10-K 25
While we are not currently partyItem 3. Legal Proceedings
Please refer to any legal proceedings that we believe are material, we are either a defendant or plaintiff in various actions that have arisen from time to time in the normal course of business, including intellectual property claims. We accrue for a liability when it is both probable that a liability has been incurredsubsection entities “Legal Proceedings” within Note 17: Commitments and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. These accruals are reviewed at least quarterly and adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, we believe that the amount of any such additional loss would be immaterialContingencies to our business, financial condition, and resultsConsolidated Financial Statements included in Part II, Item 8 of operations.this 2022 Form 10-K. | |
Item 4. | Mine Safety Disclosures |
Item 4. Mine Safety Disclosures
Not applicable.
Continues on next pageLam Research Corporation 20172022 10-K 2624
PART II
| |
Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Information
Our Common Stock is traded on the Nasdaq Global Select MarketSM under the symbol “LRCX.” As of August 10, 2017,22, 2022, we had 440462 stockholders of record. In
Dividends
Our Board of Directors has declared quarterly dividends since April 2014. Our intent to continue to pay quarterly dividends is subject to capital availability and periodic determinations by our Board of Directors that cash dividends are in the second fiscal quarterbest interest of 2017 we increased our stockholders and are in compliance with all laws and agreements applicable to the declaration and payment of cash dividends by us. During fiscal year 2022, our quarterly dividend to $0.45declared was $1.50 per share; previous to that quarter of fiscal year 2017 and throughout fiscal year 2016, quarterly dividends of $0.30 per share were paid. The table below sets forth the high and low prices of our Common Stock as reported by the Nasdaq Stock Market, for the period indicated:share.
|
| | | | | | | |
| | 2017 |
| High | | Low |
| First quarter | $ | 95.77 |
| | $ | 79.15 |
|
| Second quarter | $ | 108.60 |
| | $ | 90.56 |
|
| Third quarter | $ | 129.35 |
| | $ | 105.30 |
|
| Fourth quarter | $ | 167.05 |
| | $ | 124.91 |
|
| | 2016 |
| High | | Low |
| First quarter | $ | 84.13 |
| | $ | 61.20 |
|
| Second quarter | $ | 80.85 |
| | $ | 61.65 |
|
| Third quarter | $ | 81.29 |
| | $ | 63.10 |
|
| Fourth quarter | $ | 87.19 |
| | $ | 72.00 |
|
RepurchaseRepurchases of Company Shares
In November 2016,May 2022, the Board of Directors authorized usmanagement to repurchase up to $1.0an additional $5.0 billion of our Common Stock, which includedStock; this authorization supplements the remaining value available under ourbalance from any prior authorization. These repurchases can be conducted on the open market or as private purchases and may include the use of derivative contracts with large financial institutions, in all cases subject to compliance with applicable law. Repurchases may be funded using our onshore cash and onshore cash generation, or our available debt instruments. This repurchase program has no termination date and may be suspended or discontinued at any time. As part of our share repurchase program, we may from time to time enter into structured share repurchase arrangements with financial institutions using general corporate funds.
Accelerated Share Repurchase Agreements
On April 19, 2017,June 2, 2022, we entered into two separatean accelerated share repurchase agreements (collectively, the “ASR”agreement (the "June 2022 ASR") with two financial institutions to repurchase a total of $500 million of our Common Stock. We took an initial delivery of approximately 2,570,000717 thousand shares, which represented 70%75% of the prepayment amount divided by our closing stock price on April 19, 2017.June 2, 2022. The total number of shares to be received under the June 2022 ASR iswill be based upon the average daily volume weighted average price of our Common Stock during the repurchase period, less an agreed upon discount. FollowingFinal settlement of the June 2022 ASR will occur between August 18, 2022 and November 4, 2022.
On February 15, 2022, we entered into an accelerated share repurchase agreement (the "February 2022 ASR") with two financial institutions to repurchase a total of $600 million of Common Stock. We took an initial delivery of approximately 758 thousand shares, which represented 75% of the prepayment amount divided by our fiscal year end,closing stock price on February 15, 2022. The total number of shares received under the counterparties designated June 30, 2017, asFebruary 2022 ASR was based upon the termination date, ataverage daily volume weighted average price of our Common Stock during the repurchase period, less an agreed upon discount. Final settlement of the February 2022 ASR occurred in May 2022, resulting in the receipt of approximately 438 thousand additional shares, which time we settled the ASR. Approximately 780,000 shares were received at final settlement, which representedyielded a weighted-average share price of approximately $149.16$502.06 for the transaction period.
On August 31, 2021, we entered into an accelerated share repurchase agreement (the “August 2021 ASR") with two financial institutions to repurchase a total of $650 million of Common Stock. We took an initial delivery of approximately 806 thousand shares, which represented 75% of the prepayment amount divided by our closing stock price on August 31, 2021. The total number of shares received under the August 2021 ASR was based upon the average daily volume weighted average price of our Common Stock during the repurchase period, less an agreed upon discount. Final settlement of the August 2021 ASR occurred in January 2022, resulting in the receipt of approximately 265 thousand additional shares, which yielded a weighted-average share price of $606.71 for the transaction period.
Continues on next page
Lam Research Corporation 20172022 10-K 2725
Share repurchases, including those under the repurchase program, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of Shares Repurchased (1) | | Average Price Paid per Share(2) | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | Amount
Available
Under
Repurchase
Program |
| | (in thousands, except per share data) |
| Available balance as of June 27, 2021 | | | | | | | $ | 4,222,220 | |
| Quarter ended September 26, 2021 | 1,737 | | | $ | 608.89 | | | 1,725 | | | 3,012,476 | |
| Quarter ended December 26, 2021 | 685 | | | $ | 634.51 | | | 677 | | | 2,582,493 | |
| Quarter ended March 27, 2022 | 2,231 | | | $ | 597.66 | | | 2,007 | | | 1,382,287 | |
| March 28, 2022 - April 24, 2022 | 3 | | | $ | 482.67 | | | — | | | 1,382,287 | |
| Board authorization, $5.0 billion, May 2022 | — | | | $ | — | | | — | | | 6,382,287 | |
| April 25, 2022 - May 22, 2022 | 903 | | | $ | 470.86 | | | 900 | | | 6,164,869 | |
| May 23, 2022 - June 26, 2022 | 1,015 | | | $ | 507.47 | | | 1,012 | | | 5,514,636 | |
| Total | 6,574 | | | $ | 485.14 | | (3) | 6,321 | | | $ | 5,514,636 | |
| | | | | | | |
(1)During the fiscal year ended June 26, 2022, we acquired 253 thousand shares at a total cost of $138.1 million which we withheld through net share settlements to cover minimum tax withholding obligations upon the vesting of restricted stock unit awards granted under our equity compensation plans. The shares retained by us through these net share settlements are not a part of the Board-authorized repurchase program but instead are authorized under our equity compensation plan.
(2)Average price paid per share excludes the effect of accelerated share repurchases. See additional disclosure above regarding our accelerated share repurchase activity during the fiscal year.
(3)Average price paid per share presented is for the quarter ended June 26, 2022.
|
| | | | | | | | | | | | | |
| Period | Total Number of Shares Repurchased (1) | | Average Price Paid per Share(2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Amount Available Under Repurchase Program |
| | (in thousands, except per share data) |
| Available balance as of June 26, 2016 | | | | | | | $ | 229,094 |
|
| Quarter ended September 25, 2016 | 20 |
| | $ | 90.53 |
| | — |
| | 229,094 |
|
| Board-approved increase (November 2016) | | | | | | | 1,000,000 |
|
| Quarter ended December 25, 2016 | 735 |
| | $ | 103.43 |
| | 619 |
| | 934,986 |
|
| Quarter ended March 26, 2017 | 1,826 |
| | $ | 115.12 |
| | 1,223 |
| | 795,226 |
|
| March 27, 2017 - April 23, 2017 | 2,682 |
| | $ | 128.27 |
| | 2,672 |
| | 282,141 |
|
| April 24, 2017 - May 21, 2017 | 5 |
| | $ | 150.58 |
| | — |
| | 282,141 |
|
| May 22, 2017 - June 25, 2017 | 55 |
| | $ | 154.92 |
| | — |
| | 282,141 |
|
| Total | 5,323 |
| | $ | 137.39 |
| | 4,514 |
| | $ | 282,141 |
|
__________________________________
| |
(1) | In addition to shares repurchased under the Board-authorized repurchase program, the Company acquired 809,427 shares at a total cost of $93.8 million which we withheld through net share settlements to cover minimum tax withholding obligations upon the vesting of restricted stock unit awards granted under our equity compensation plans. The shares retained through these net share settlements are not a part of the Board-authorized repurchase program, but instead are authorized under our equity compensation plans. |
| |
(2) | Average price paid per share excludes effect of accelerated share repurchases, see additional disclosure above regarding our accelerated share repurchase activity during the fiscal year. |
Continues on next pageLam Research Corporation 20172022 10-K 2826
Cumulative Five-Year Return
The graph below compares Lam Research Corporation’s cumulative five-year total shareholder return on Common Stock with the cumulative total returns of the Philadelphia Semiconductor Sector Total Return Index, the Nasdaq Composite Total Return index, and the Standard & Poor’s (“S&P”) 500 index, and the Philadelphia Semiconductor Sector Index.(TR) index. The graph tracks the performance of a $100 investment in our Common Stock and in each of the indices (with the reinvestment of all dividends) fromfor the five years ended June 30, 2012, to June 30, 2017.
|
| | | | | | | | | | |
| COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* |
| Among Lam Research Corporation, the Philadelphia Semiconductor Sector Total Return Index, the Nasdaq Composite Total Return Index, and the S&P 500 Index, and the Philadelphia Semiconductor Index(TR) Index. | |
*$100 invested on 6/30/2012June 25, 2017 in stock or June 30, 2017 in index, including reinvestment of dividends. Fiscal years ending June 30.
Indexes calculated on month-end basis.
Copyright© 20172022 Standard & Poor’s, a division of S&P Global. All rights reserved.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 25, 2017 | | June 24, 2018 | | June 30, 2019 | | June 28, 2020 | | June 27, 2021 | | June 26, 2022 |
| Lam Research Corporation | $ | 100.00 | | | $ | 116.63 | | | $ | 128.74 | | | $ | 211.10 | | | $ | 444.69 | | | $ | 321.08 | |
| Philadelphia Semiconductor Sector Total Return Index | $ | 100.00 | | | $ | 129.11 | | | $ | 146.29 | | | $ | 203.84 | | | $ | 346.16 | | | $ | 267.91 | |
| Nasdaq Composite Total Return Index | $ | 100.00 | | | $ | 123.60 | | | $ | 133.22 | | | $ | 169.11 | | | $ | 245.60 | | | $ | 188.07 | |
| S&P 500 (TR) Index | $ | 100.00 | | | $ | 114.37 | | | $ | 126.29 | | | $ | 135.77 | | | $ | 191.15 | | | $ | 170.86 | |
Continues on next page
Lam Research Corporation 20172022 10-K 2927
Item 6. [Reserved]
|
| | | | | | | | | | | | | | | | | |
| | 6/12 | | 6/13 | | 6/14 | | 6/15 | | 6/16 | | 6/17 |
| Lam Research Corporation | 100.00 |
| | 117.49 |
| | 179.56 |
| | 218.44 |
| | 229.31 |
| | 391.30 |
|
| Nasdaq Composite Index | 100.00 |
| | 117.69 |
| | 155.50 |
| | 177.19 |
| | 173.36 |
| | 221.11 |
|
| S&P 500 Index | 100.00 |
| | 120.60 |
| | 150.27 |
| | 161.43 |
| | 167.87 |
| | 197.92 |
|
| Philadelphia Semiconductor Sector Index | 100.00 |
| | 116.96 |
| | 156.62 |
| | 161.36 |
| | 173.61 |
| | 241.00 |
|
| |
Item 6. | Selected Financial Data |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended | |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | | June 29,
2014 | | June 30,
2013 | |
| | (in thousands, except per share data) | |
| OPERATIONS: | | | | | | | | | | |
| Revenue | $ | 8,013,620 |
| | $ | 5,885,893 |
| | $ | 5,259,312 |
| | $ | 4,607,309 |
| | $ | 3,598,916 |
| |
| Gross margin | 3,603,359 |
| | 2,618,922 |
| | 2,284,336 |
| | 2,007,481 |
| | 1,403,059 |
| |
Goodwill impairment (1) | — |
| | — |
| | 79,444 |
| | — |
| | — |
| |
| Restructuring charges, net | — |
| | — |
| | — |
| | — |
| | 1,813 |
| |
| Operating income | 1,902,132 |
| | 1,074,256 |
| | 788,039 |
| | 677,669 |
| | 118,071 |
| |
| Net income | 1,697,763 |
| | 914,049 |
| | 655,577 |
| | 632,289 |
| | 113,879 |
| |
| Net income per share: | | | | | | | | | | |
| Basic | $ | 10.47 |
| | $ | 5.75 |
| | $ | 4.11 |
| | $ | 3.84 |
| | $ | 0.67 |
| |
| Diluted | $ | 9.24 |
| | $ | 5.22 |
| | $ | 3.70 |
| | $ | 3.62 |
| | $ | 0.66 |
| |
| Cash dividends declared per common share | $ | 1.65 |
| | $ | 1.20 |
| | $ | 0.84 |
| | $ | 0.18 |
| | $ | — |
| |
| BALANCE SHEET: | | | | | | | | | | |
| Working capital | $ | 6,192,383 |
| | $ | 6,795,109 |
| | $ | 3,639,488 |
| | $ | 3,201,661 |
| | $ | 2,389,354 |
| |
| Total assets | 12,122,765 |
| | 12,264,315 |
| (2) | 9,358,904 |
| (2) | 7,986,998 |
| (2) | 7,241,645 |
| (2) |
| Long-term obligations, less current portion | 2,185,338 |
| | 3,744,205 |
| (2) | 1,386,536 |
| (2) | 1,191,913 |
| (2) | 1,161,378 |
| (2) |
| Current portion of long-term debt and capital leases | 908,439 |
| | 947,733 |
| (2) | 1,355,705 |
| (2) | 518,267 |
| | 514,655 |
| |
__________________________________
| |
(1) | Goodwill impairment analysis during fiscal year 2015 resulted in a non-cash impairment charge to our Single-Wafer Clean reporting unit, extinguishing the goodwill ascribed to the reporting unit. |
| |
(2) | Adjusted for effects of retrospective implementation of ASU 2015-3, see Notes 3 and 13 to the Consolidated Financial Statements contained in Part II, Item 8. |
Continues on next pageLam Research Corporation 2017 10-K 30
|
| | | | | | | | | | | | | | | |
| | Three Months Ended (1) |
June 25,
2017 | | March 26,
2017 | | December 25,
2016 | | September 25,
2016 |
| | unaudited (in thousands, except per share data) |
| QUARTERLY FISCAL YEAR 2017: | | | | | | | |
| Revenue | $ | 2,344,907 |
| | $ | 2,153,995 |
| | $ | 1,882,299 |
| | $ | 1,632,419 |
|
| Gross margin | 1,068,961 |
| | 971,404 |
| | 846,797 |
| | 716,197 |
|
| Operating income | 607,939 |
| | 538,418 |
| | 439,828 |
| | 315,947 |
|
| Net income | 526,424 |
| | 574,713 |
| | 332,791 |
| | 263,835 |
|
| Net income per share | | | | | | | |
| Basic | $ | 3.25 |
| | $ | 3.52 |
| | $ | 2.05 |
| | $ | 1.64 |
|
| Diluted | $ | 2.82 |
| | $ | 3.10 |
| | $ | 1.81 |
| | $ | 1.47 |
|
| Number of shares used in per share calculations: | | | | | | | |
| Basic | 162,213 |
| | 163,408 |
| | 162,659 |
| | 160,607 |
|
| Diluted | 186,427 |
| | 185,094 |
| | 183,543 |
| | 180,017 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended (1) |
June 26,
2016 | | March 27,
2016 | | December 27,
2015 | | September 27,
2015 |
| | unaudited (in thousands, except per share data) |
| QUARTERLY FISCAL YEAR 2016: | | | | | | | |
| Revenue | $ | 1,546,261 |
| | $ | 1,314,055 |
| | $ | 1,425,534 |
| | $ | 1,600,043 |
|
| Gross margin | 698,784 |
| | 571,265 |
| | 626,510 |
| | 722,363 |
|
| Operating income | 309,241 |
| | 190,753 |
| | 238,834 |
| | 335,428 |
|
| Net income | 258,939 |
| | 143,451 |
| | 222,980 |
| | 288,679 |
|
| Net income per share | | | | | | | |
| Basic | $ | 1.62 |
| | $ | 0.90 |
| | $ | 1.41 |
| | $ | 1.82 |
|
| Diluted | $ | 1.46 |
| | $ | 0.82 |
| | $ | 1.28 |
| | $ | 1.66 |
|
| Number of shares used in per share calculations: | | | | | | | |
| Basic | 159,862 |
| | 159,039 |
| | 158,424 |
| | 158,352 |
|
| Diluted | 177,649 |
| | 174,373 |
| | 174,242 |
| | 174,374 |
|
__________________________________
| |
(1) | Our reporting period is a 52/53-week fiscal year. The fiscal years ended June 25, 2017, and June 26, 2016, included 52 weeks. All quarters presented above included 13 weeks. |
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations contains forward-looking statements, which are subject to risks, uncertainties, and changes in condition, significance, value, and effect. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in “Risk Factors” and elsewhere in this 20172022 Form 10-K and other documents we file from time to time with the Securities and Exchange Commission. (See “Cautionary Statement Regarding Forward-Looking Statements” in Part I of this 20172022 Form 10-K.)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a description of our results of operations and should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this 20172022 Form 10-K. MD&A consists of the following sections: Executive Summary provides a summary of the key highlights of our results of operations and our management’s assessment of material trends and uncertainties relevant to our business.
Results of Operations provides an analysis of operating results.
Continues on next pageLam Research Corporation 2017 10-K 31
Critical Accounting Policies and Estimates discusses accounting policies that reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.
Liquidity and Capital Resources provides an analysis of cash flows, contractual obligations, and financial position.
Executive Summary
Lam Research has been an innovativeCorporation is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry for more than 35 years. Our vision is to realize full value from natural technology extensionsindustry. We have built a strong global presence with core competencies in areas like nanoscale applications enablement, chemistry, plasma and fluidics, advanced systems engineering and a broad range of our company. Our customer base includes leading semiconductor memory, foundry, and IDMs that make products such as NVM, DRAM memory, and logic devices. We aim to increase our strategic relevance with our customers by contributing more to their continued success. Our core technical competency is integrating hardware, process, materials, software, and process control enabling results on the wafer.
operational disciplines. Our products and services are designed to help our customers build smaller, faster, and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive devices,vehicles, and data storage devices,devices.
Our customer base includes leading semiconductor memory, foundry, and networking equipment.integrated device manufacturers that make products such as NVM, DRAM, and logic devices. Their continued success is part of our commitment to driving semiconductor breakthroughs that define the next generation. Our core technical competency is integrating hardware, process, materials, software, and process control enabling results on the wafer.
Semiconductor manufacturing, our customers’ business, involves the complete fabrication of multiple dies or integrated circuits on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.
Demand from cloud computing, the Cloud, IoT, and other markets is driving the need for increasingly powerful and cost-efficient semiconductors. At the same time, there are growing technical challenges with traditional two-dimensional scaling. These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical scaling strategies like 3D architecturesthree-dimensional architecture as well as multiple patterning to enable shrinks.
We believe we are in ana strong position with our leadership and competencyexpertise in deposition, etch, and single-wafer clean to facilitate some of the most significant innovations in semiconductor device manufacturing. Our Customer Support Business Group provides products and services to maximize installed equipment performance, predictability and operational efficiency. Several factors create opportunity for sustainable differentiation for us: (i) our focus on research and development, with a breadth ofseveral on-going programs acrossrelating to sustaining engineering, product and process development, and concept and feasibility; (ii) our ability to effectively leverage cycles of learning from our broad installed base; and(iii) our collaborative focus with ecosystem partners.semi-ecosystem partners; (iv) our ability to identify and invest in the breadth of our product portfolio to meet technology inflections; and (v) our focus on delivering our multi-product solutions with a goal to enhance the value of Lam’s solutions to our customers.
DuringWafer fabrication equipment spending was strong throughout the most recent2022 fiscal year driven by increasing device manufacturing complexity and the robust secular demand for semiconductors for NAND, DRAM, and foundry logic markets. Over the longer term, we believe that secular demand for semiconductors will continue to drive sustainable growth for our products improved as semiconductor device manufacturers, particularly non volatile memory and foundry customers, made capacityservices, and that technology investments. Technology inflections in our industry, including NVM,3D device scaling, multiple patterning, FinFETprocess flow, and advanced packaging have ledchip integration, will lead to an increase in ourthe served addressable market for our products and services in the deposition, etch, single-waferand clean businesses. During fiscal year 2022, customer demand remained solid; however, ongoing supply chain constraints broadened during the period and customer service business. We believe that demand forimpacted our productsability to fulfill demand. While we have seen improvements in both our operations and services should increase faster than overall spending on wafer fabrication equipment,those of our suppliers, we expect supply shortages as well as inflationary cost pressures to persist in at least the proportion of customers’ capital expenditures rises in these technology inflection areas,near term. Risks and we continue to gain market share.
In October 2015, we entered into an Agreement and Plan of Merger and Reorganization with KLA-Tencor. On October 5, 2016, we announced that the parties mutually agreed to terminate that agreement.
Continues on next page
Lam Research Corporation 20172022 10-K 3228
uncertainties related to the COVID-19 pandemic, broadening supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin.
The following table summarizes certain key financial information for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Change |
June 26,
2022 | | June 27,
2021 | | June 28,
2020 | | FY22 vs. FY21 | | FY21 vs. FY20 |
| | | | | | | | | | | | | |
| | (in thousands, except per share data and percentages) |
| Revenue | $ | 17,227,039 | | | $ | 14,626,150 | | | $ | 10,044,736 | | | $ | 2,600,889 | | | 17.8 | % | | $ | 4,581,414 | | | 45.6 | % |
| Gross margin | $ | 7,871,807 | | | $ | 6,805,306 | | | $ | 4,608,693 | | | $ | 1,066,501 | | | 15.7 | % | | $ | 2,196,613 | | | 47.7 | % |
| Gross margin as a percent of total revenue | 45.7 | % | | 46.5 | % | | 45.9 | % | | (0.8)% | | 0.6% |
| Total operating expenses | $ | 2,489,985 | | | $ | 2,323,283 | | | $ | 1,934,891 | | | $ | 166,702 | | | 7.2 | % | | $ | 388,392 | | | 20.1 | % |
| Net income | $ | 4,605,286 | | | $ | 3,908,458 | | | $ | 2,251,753 | | | $ | 696,828 | | | 17.8 | % | | $ | 1,656,705�� | | | 73.6 | % |
| Net income per diluted share | $ | 32.75 | | | $ | 26.90 | | | $ | 15.10 | | | $ | 5.85 | | | 21.7 | % | | $ | 11.80 | | | 78.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | | FY17 vs. FY16 | | FY16 vs. FY15 |
| | (in thousands, except per share data and percentages) |
| Revenue | $ | 8,013,620 |
| | $ | 5,885,893 |
| | $ | 5,259,312 |
| | $ | 2,127,727 |
| | 36.1 | % | | $ | 626,581 |
| | 11.9 | % |
| Gross margin | $ | 3,603,359 |
| | $ | 2,618,922 |
| | $ | 2,284,336 |
| | $ | 984,437 |
| | 37.6 | % | | $ | 334,586 |
| | 14.6 | % |
| Gross margin as a percent of total revenue | 45.0 | % | | 44.5 | % | | 43.4 | % | | 0.5 | % | | | | 1.1 | % | | |
| Total operating expenses | $ | 1,701,227 |
| | $ | 1,544,666 |
| | $ | 1,496,297 |
| | $ | 156,561 |
| | 10.1 | % | | $ | 48,369 |
| | 3.2 | % |
| Net income | $ | 1,697,763 |
| | $ | 914,049 |
| | $ | 655,577 |
| | $ | 783,714 |
| | 85.7 | % | | $ | 258,472 |
| | 39.4 | % |
| Net income per diluted share | $ | 9.24 |
| | $ | 5.22 |
| | $ | 3.70 |
| | $ | 4.02 |
| | 77.0 | % | | $ | 1.52 |
| | 41.1 | % |
Revenues in fiscalFiscal year 20172022 revenue increased 36%over 17% compared to fiscal year 2016, and revenues in fiscal year 2016 increased 12% compared to fiscal year 2015,2021, reflecting a continuous increase in technology and capacity investments by our customers.
The increase in grosscontinued strong customer demand for semiconductor equipment. Gross margin as a percentage of revenue fordecreased due to inflationary cost pressures that led to higher spending on material costs, freight and logistics, and labor-related expenses, as well as unfavorable customer and product mix, partially offset by decreased variable compensation. The increase in operating expenses in fiscal year 20172022 compared to fiscal year 20162021 was primarily due tomainly driven by higher revenueemployee-related costs as a result of increased headcount, supplies expense, rent, repair and improved factory utilization resulting from higher production volume.utilities expense, and outside services spending, partially offset by lower deferred compensation plan-related costs.
Fiscal year 2016 gross2021 revenue increased approximately 46% compared to fiscal year 2020, reflecting stronger customer demand for semiconductor equipment. Gross margin as a percentage of revenue increased primarily due to customer and product mix, partially offset by higher costs incurred in freight and logistics as well as start-up expenses for our new Malaysia manufacturing facility. The increase in operating expenses in fiscal year 2021 compared to fiscal year 2015 improved primarily due to a more favorable customer and product mix.
Operating expenses in fiscal year 2017 increased as compared to fiscal year 2016 primarily2020 was mainly driven by higher employee-related costs as a result of continued investments in researchincreased headcount and development including the effect of increased employee headcount,outsourcing services, deferred compensation plan-related costs, and supplies, partially offset by a decrease in acquisition-related costs associated with the terminated agreement with KLA-Tencor.
Operatinglower travel expenses in fiscal year 2016 increased as compared to fiscal year 2015 primarily as a result of continued investments in research and development and increased employee headcount. Fiscal year 2016 also included $51 million of acquisition-related costs associated with the terminated agreement with KLA-Tencor.miscellaneous costs.
Our cash and cash equivalents, investments, and restricted cash and investments balances totaled approximately $6.3 billion as of June 25, 2017, compared to $7.1$3.9 billion as of June 26, 2016.2022, compared to $6.0 billion as of June 27, 2021. Cash flow provided from operating activities was $2.0$3.1 billion for fiscal year 20172022 compared to $1.4$3.6 billion for fiscal year 2016.2021. Cash flow provided from operating activities in fiscal 2017year 2022 was primarily used for $1.7$3.9 billion of principal payments on debt instruments, $812 million in treasury stock purchases, $243including net share settlement on employee stock-based compensation; $815 million in dividends paid to our stockholders,stockholders; and $157$546 million of capital expenditures and areexpenditures. These cash outflows were partially offset by $73$114 million of treasury stock reissuance and Common Stock issuance resulting from our employee equity-based compensation programs.
Results of Operations
Shipments and BacklogRevenue
Shipments for | | | | | | | | | | | | | | | | | |
| | Year Ended |
June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| Revenue (in millions) | $ | 17,227 | | | $ | 14,626 | | | $ | 10,045 | |
| China | 31 | % | | 35 | % | | 31 | % |
| Korea | 23 | % | | 27 | % | | 24 | % |
| Taiwan | 17 | % | | 14 | % | | 19 | % |
| Japan | 9 | % | | 9 | % | | 9 | % |
| United States | 8 | % | | 6 | % | | 8 | % |
| Southeast Asia | 8 | % | | 6 | % | | 6 | % |
| Europe | 4 | % | | 3 | % | | 3 | % |
Revenue increased in fiscal year 2017 were approximately $8.6 billion, an increase of 46%2022 compared to fiscal year 2016. Shipments for fiscal year 2016 were approximately $5.9 billion, an increase of 8% compared to fiscal year 2015. The increase in shipments during the fiscal year 2017 as comparedyears 2021 and 2020, primarily due to the last two fiscal years is related to continued strengthening of customer demand for semiconductor equipment.
Continues on next pageLam Research Corporation 2017 10-K 33
|
| | | | | | | | | | | |
| | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 |
| Shipments (in millions) | $ | 8,586 |
| | $ | 5,901 |
| | $ | 5,472 |
|
| Korea | 32 | % | | 17 | % | | 26 | % |
| Taiwan | 24 | % | | 25 | % | | 22 | % |
| Japan | 15 | % | | 16 | % | | 14 | % |
| China | 13 | % | | 20 | % | | 12 | % |
| United States | 8 | % | | 8 | % | | 15 | % |
| Southeast Asia | 4 | % | | 11 | % | | 5 | % |
| Europe | 4 | % | | 3 | % | | 6 | % |
The percentage of total Lam semiconductor processing system shipments to each of the markets we serve were as follows for fiscal years 2017, 2016, and 2015.
|
| | | | | | | | |
| | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 |
| Memory | 67 | % | | 68 | % | | 58 | % |
| Foundry | 27 | % | | 23 | % | | 30 | % |
| Logic/integrated device manufacturing | 6 | % | | 9 | % | | 12 | % |
Our shipments to memory customers during fiscal year 2017 was largely unchanged compared to fiscal year 2016. Foundry spending increased due to higher investments at leading-edge process nodes.
Unshipped orders in backlog as of June 25, 2017, were approximately $2.1 billion, an increase from approximately $1.4 billion as of June 26, 2016. Our unshipped orders backlog includes orders for systems, spares, and services. Please refer to “Backlog” in Part I Item 1, “Business” of this report for a description of our policies for adding to and adjusting backlog.
Revenue
|
| | | | | | | | | | | |
| | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 |
| Revenue (in millions) | $ | 8,014 |
| | $ | 5,886 |
| | $ | 5,259 |
|
| Korea | 31 | % | | 18 | % | | 27 | % |
| Taiwan | 26 | % | | 25 | % | | 21 | % |
| Japan | 13 | % | | 17 | % | | 12 | % |
| China | 13 | % | | 18 | % | | 12 | % |
| United States | 8 | % | | 8 | % | | 17 | % |
| Southeast Asia | 5 | % | | 10 | % | | 5 | % |
| Europe | 4 | % | | 4 | % | | 6 | % |
The revenue increases in fiscal year 2017 compared to the last two fiscal years and in fiscal year 2016 compared to fiscal year 2015, reflect an increase in technology and capacity investmentsinvestment by our customers. Ourcustomers in semiconductor capital equipment as well as higher revenue levels are generally correlated to the amount of shipmentsfrom our Customer Support Business Group for spares, services, upgrades and our installation and acceptance timelines.mature node equipment. The overall Asia region continuescontinued to account for a majority of our revenues as a substantial amount of the worldwide capacity additionsinvestments for semiconductor manufacturing continuescontinued to occur in this region. Our
The deferred revenue balance was $966 million as of June 25, 2017, compared to $566 million$2.2 billion as of June 26, 2016. Our deferred revenue balance does not include shipments2022 compared to Japanese customers, to whom title does not transfer until customer acceptance. Shipments to Japanese customers are classified as inventory at cost until the time of customer acceptance. The anticipated future revenue value from shipments to Japanese customers was approximately $397 million$1.1 billion as of June 25, 2017, compared27, 2021, driven by additional deferrals related to $132 million astools pending full delivery and future servicing of June 26, 2016.
our existing installed base.
Continues on next page
Lam Research Corporation 20172022 10-K 3429
The following table presents our revenue disaggregated between system and customer support-related revenue:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| (in thousands) |
| Systems Revenue | $ | 11,322,271 | | | $ | 9,764,845 | | | $ | 6,625,130 | |
| Customer support-related revenue and other | 5,904,768 | | | 4,861,305 | | | 3,419,606 | |
| $ | 17,227,039 | | | $ | 14,626,150 | | | $ | 10,044,736 | |
| | | | | |
Please refer to Note 4: Revenue of our Consolidated Financial Statements in Part II, Item 8 of this 2022 Form 10-K for additional information regarding the composition of the two categories into which revenue has been disaggregated. The percentage of leading- and non-leading-edge equipment and upgrade revenue from each of the markets we serve was as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| Memory | 60 | % | | 61 | % | | 58 | % |
| Foundry | 26 | % | | 32 | % | | 31 | % |
| Logic/integrated device manufacturing | 14 | % | | 7 | % | | 11 | % |
Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Change |
June 26,
2022 | | June 27,
2021 | | June 28,
2020 | FY22 vs. FY21 | | FY21 vs. FY20 |
| | | | | | | | | | | | | |
| | (in thousands, except percentages) |
| Gross margin | $ | 7,871,807 | | | $ | 6,805,306 | | | $ | 4,608,693 | | | $ | 1,066,501 | | | 15.7 | % | | $ | 2,196,613 | | | 47.7 | % |
| Percent of revenue | 45.7 | % | | 46.5 | % | | 45.9 | % | | (0.8)% | | 0.6% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | | | |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | FY17 vs. FY16 | | FY16 vs. FY15 |
| | (in thousands, except percentages) |
| Gross margin | $ | 3,603,359 |
| | $ | 2,618,922 |
| | $ | 2,284,336 |
| | $ | 984,437 |
| | 37.6 | % | | $ | 334,586 |
| | 14.6 | % |
| Percent of total revenue | 45.0 | % | | 44.5 | % | | 43.4 | % | | 0.5 | % | | | | 1.1 | % | | |
The increase in gross margin as a percentage of revenue for fiscal year 20172021 compared to fiscal year 20162020 was primarily duerelated to higher revenue and improved factory utilization resulting from higher production volume.
The increase in gross margin as a percentage of revenue for fiscal year 2016 compared to fiscal year 2015 was due to a more favorable customer mix and product mix. Additionally, there was a $10 million impairment charge of a long-lived assetmix, partially offset by increased spending on freight and logistics due in fiscal year 2015.significant part to COVID-19 disruptions, start-up expenses for our Malaysia manufacturing facility, and deferred compensation plan-related costs.
Research and Development
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Change |
June 26,
2022 | | June 27,
2021 | | June 28,
2020 | FY22 vs. FY21 | | FY21 vs. FY20 |
| | | | | | | | | | | | | |
| | (in thousands, except percentages) |
| Research & development | $ | 1,604,248 | | | $ | 1,493,408 | | | $ | 1,252,412 | | | $ | 110,840 | | | 7.4 | % | | $ | 240,996 | | | 19.2 | % |
| Percent of revenue | 9.3 | % | | 10.2 | % | | 12.5 | % | | (0.9)% | | (2.3)% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | | | |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | FY17 vs. FY16 | | FY16 vs. FY15 |
| | (in thousands, except percentages) |
| Research & development | $ | 1,033,742 |
| | $ | 913,712 |
| | $ | 825,242 |
| | $ | 120,030 |
| | 13.1 | % | | $ | 88,470 |
| | 10.7 | % |
| Percent of total revenue | 12.9 | % | | 15.5 | % | | 15.7 | % | | (2.6 | )% | | | | (0.2 | )% | | |
We continued to make significant R&D investments focused on leading-edge deposition, plasma etch, single wafer clean, and other semiconductor manufacturing requirements.processes. The increase inin R&D expense during fiscal year 20172022 compared to fiscal year 20162021 was primarilymainly driven by an increase of $89 million in employee-related costs due to an $80 million increase in employee compensation and benefits relatedpart to increased headcount and $43 million in spending for supplies, partially offset by a $20decrease of $44 million increase in depreciation and lab maintenance, a $9 million increase in outside services, and a $7 million increase in supplies.deferred compensation plan-related costs.
The increase in R&D expense during fiscal year 20162021 compared to fiscal year 20152020 was primarilymainly driven by an increase of $137 million in employee-related costs due to a $36 million increase in employee compensation and benefits relatedpart to increased headcount, a $14$49 million increase in facilityoutside service costs, $32 million in deferred compensation plan-related costs, and information technology related$27 million in spending a $14 million increase infor supplies a $12 million increase in depreciation and lab maintenance, and an $8 million increase in costs associated with campus consolidation.
Lam Research Corporation 2022 10-K 30
Selling, General, and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Change |
June 26,
2022 | | June 27,
2021 | | June 28,
2020 | FY22 vs. FY21 | | FY21 vs. FY20 |
| | | | | | | | | | | | | |
| | (in thousands, except percentages) |
| Selling, general, and administrative ("SG&A") | $ | 885,737 | | | $ | 829,875 | | | $ | 682,479 | | | $ | 55,862 | | | 6.7 | % | | $ | 147,396 | | | 21.6 | % |
| Percent of revenue | 5.1 | % | | 5.7 | % | | 6.8 | % | | (0.6)% | | (1.1)% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | | | |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | FY17 vs. FY16 | | FY16 vs. FY15 |
| | (in thousands, except percentages) |
| Selling, general, and administrative | $ | 667,485 |
| | $ | 630,954 |
| | $ | 591,611 |
| | $ | 36,531 |
| | 5.8 | % | | $ | 39,343 |
| | 6.7 | % |
| Percent of total revenue | 8.3 | % | | 10.7 | % | | 11.2 | % | | (2.4 | )% | | | | (0.5 | )% | | |
The increase in selling, general, and administrative (“SG&A”)&A expense during fiscal year 20172022 compared to fiscal year 20162021 was primarily driven by an increase of $28 million in outside service costs, $28 million in spending for rent, repair and utilities, and $26 million in employee-related costs due to a $36 million increase in employee compensation and benefits frompart to increased headcount, a $15 million gain from sale of assets in fiscal year 2016, and a $14 million increase in outside services,partially offset by a $41decrease of $29 million decrease in acquisition-related costs associated with the terminated agreement with KLA-Tencor.
Continues on next pageLam Research Corporation 2017 10-K 35
deferred compensation plan-related costs.
The increase in SG&A expense during fiscal year 20162021 compared to fiscal year 20152020 was primarily due to $51 million of KLA-Tencor acquisition-related costs and a $3$97 million increase in restructuring charges. This increase wasemployee-related costs due in part to increased headcount, $37 million in outside service costs, and $21 million in deferred compensation plan-related costs, partially offset by a $15$9 million gain on sale of assets, net of associated exitdecrease in travel and entertainment costs.
Goodwill Impairment
Our annual goodwill impairment analysis for fiscal year 2015 resulted in a non-cash impairment charge upon our Single-Wafer Clean reporting unit of $79 million, extinguishing the goodwill ascribed to the reporting unit. Uncertainty surrounding future revenue growth in certain products resulted in the estimated discounted cash flow falling below the carrying value of the goodwill balance. There were no impairment charges in fiscal year 2017 or 2016.
Other Expense,Income (Expense), Net
Other expense,income (expense), net, consisted of the following:
| | | | | | | | | | | | | | | | | | Year Ended | | Change |
| | Year Ended | | | | | | | | | June 26,
2022 | | June 27,
2021 | | June 28,
2020 | FY22 vs. FY21 | | FY21 vs. FY20 |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | | FY17 vs. FY16 | | FY16 vs. FY15 | | | | |
| | (in thousands) | | | | | | | | | | (in thousands, except percentages) |
| Interest income | $ | 57,858 |
| | $ | 29,512 |
| | $ | 19,268 |
| | $ | 28,346 |
| | 96.0 | % | | $ | 10,244 |
| | 53.2 | % | Interest income | $ | 15,209 | | | $ | 19,687 | | | $ | 85,433 | | | $ | (4,478) | | | (22.7) | % | | $ | (65,746) | | | (77.0) | % |
| Interest expense | (117,734 | ) | | (134,773 | ) | | (73,682 | ) | | $ | 17,039 |
| | (12.7 | )% | | $ | (61,091 | ) | | 82.9 | % | Interest expense | (184,759) | | | (208,597) | | | (177,440) | | | $ | 23,838 | | | (11.4) | % | | $ | (31,157) | | | 17.6 | % |
| Gains (losses) on deferred compensation plan related assets, net | 17,880 |
| | (3,995 | ) | | 9,071 |
| | $ | 21,875 |
| | (547.6 | )% | | $ | (13,066 | ) | | (144.0 | )% | |
| Loss on extinguishment of debt, net | (36,252 | ) | | — |
| | — |
| | $ | (36,252 | ) | | (100.0 | )% | | $ | — |
| | — | % | |
| (Losses) gains on deferred compensation plan related assets, net | | (Losses) gains on deferred compensation plan related assets, net | (38,053) | | | 61,838 | | | 5,999 | | | $ | (99,891) | | | (161.5) | % | | $ | 55,839 | | | 930.8 | % |
| | Foreign exchange (losses) gains, net | (569 | ) | | 308 |
| | 2,331 |
| | $ | (877 | ) | | (284.7 | )% | | $ | (2,023 | ) | | (86.8 | )% | Foreign exchange (losses) gains, net | (723) | | | (6,962) | | | (3,317) | | | $ | 6,239 | | | (89.6) | % | | $ | (3,645) | | | 109.9 | % |
| Other, net | (11,642 | ) | | (5,191 | ) | | (4,177 | ) | | $ | (6,451 | ) | | 125.7 | % | | $ | (1,014 | ) | | 24.3 | % | Other, net | 19,618 | | | 22,815 | | | (9,499) | | | $ | (3,197) | | | (14.0) | % | | $ | 32,314 | | | (340.2) | % |
| | $ | (90,459 | ) | | $ | (114,139 | ) | | $ | (47,189 | ) | | $ | 23,680 |
| | (20.7 | )% | | $ | (66,950 | ) | | 141.9 | % | | $ | (188,708) | | | $ | (111,219) | | | $ | (98,824) | | | $ | (77,489) | | | 69.7 | % | | $ | (12,395) | | | 12.5 | % |
|
Interest income decreased in fiscal year 2022 compared to fiscal year 2021 as a result of lower cash balances. Interest income decreased in fiscal year 2021 compared to fiscal year 2020 as a result of lower yield.
Interest expense decreased in fiscal year 2022 compared to fiscal year 2021 primarily due to the payoff of $800 million of our notes in June 2021. Interest expense increased in fiscal year 2017 compared to fiscal years 2016 and 2015 primarily as a result of higher average cash and investment balances, as well as higher yield.
The decrease in interest expense during fiscal year 20172021 compared to fiscal year 2016 was2020 primarily due to the retirementfull-year impact of the 2016 Convertible Note. The increaseissuance of $2.0 billion senior notes in interest expense during fiscal year 2016 compared to fiscal year 2015 was primarily due to the $1.0 billion Senior Note issuance in March 2015, combined with the note issuance cost amortization related to the October 2015 bridge financing arrangement.2020.
The gaingains or losses on deferred compensation plan related assets, net in fiscal year 2017, compared to a loss in fiscal year 2016years 2022, 2021 and gain in fiscal year 2015 was2020 were driven by a rallyfluctuations in the fair market value of the underlying funds at year end.funds.
Loss on extinguishment of debt duringThe variation in other, net for the fiscal year 2017 related2022 compared to fiscal years 2021 and 2020 was primarily driven by fluctuations in the special mandatory redemptionfair market value of our 2023 and 2026 Notes, as well as the termination of the Amended and Restated Term Loan Agreement following the termination of the Agreement and Plan of Merger and Reorganization with KLA-Tencor.
Continues on next pageLam Research Corporation 2017 10-K 36
equity investments.
Income Tax Expense
Our provision for income taxes and effective tax rate for the periods indicated were as follows: | | | | | | | | | | | | | | | | | | Year Ended | | Change |
| | Year Ended | | | | | | | | | June 26,
2022 | | June 27,
2021 | | June 28,
2020 | FY22 vs. FY21 | | FY21 vs. FY20 |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | | FY17 vs. FY16 | | FY16 vs. FY15 | | | | |
| | (in thousands, except percentages) | | | | | | | | | | (in thousands, except percentages) |
| Income tax expense | $ | 113,910 |
| | $ | 46,068 |
| | $ | 85,273 |
| | $ | 67,842 |
| | 147.3 | % | | $ | (39,205 | ) | | (46.0 | )% | Income tax expense | $ | 587,828 | | | $ | 462,346 | | | $ | 323,225 | | | $ | 125,482 | | | 27.1 | % | | $ | 139,121 | | | 43.0 | % |
| Effective tax rate | 6.3 | % | | 4.8 | % | | 11.5 | % | | | | 1.5 | % | | | | (6.7 | )% | Effective tax rate | 11.3 | % | | 10.6 | % | | 12.6 | % | | 0.7% | | (2.0)% |
The increase in the effective tax rate in fiscal year 20172022 as compared to fiscal year 20162021 was primarily due to the change in the mixlevel and proportion of income offset by the recognitionin higher and lower tax jurisdictions.
Lam Research Corporation 2022 10-K 31
The decrease in the effective tax rate in fiscal year 20162021 as compared to fiscal year 20152020 was primarily due to thea cumulative income tax benefit of the Altera court ruling (discussed in more detail below), higher income in lower tax jurisdictions, and an increased federal tax benefitreversal due to a retroactive and permanent extension of federal research and development tax creditcourt ruling in fiscal year 2016.
2020, as outlined below.
In July 2015,November 2019, the U.S. Tax Court (the “Court”of Appeals for the Ninth Circuit (“Ninth Circuit”) issued an opinion favorable torejected the en banc appeal petitioned by Altera Corporation (“Altera”) with respect toin July 2019. In that quarter, we evaluated the impact of the decision and viewed the denial as an indication that Altera’s litigation with the Internal Revenue Service (“IRS”). The litigation relates to the treatmentposition of excluding stock-based compensation expense in an intercompany cost-sharing arrangement was unlikely to be sustained upon further litigation. As a result, we reversed $75 million of net tax assets associated with Altera’s foreign subsidiary. In its opinion,stock-based compensation benefits related to previous years in the Court accepted Altera’s position ofCondensed Consolidated Financial Statements in the three months ended December 29, 2019 and we no longer reflected a net tax benefit within our financial statements related to excluding stock-based compensation from itsour intercompany cost-sharing arrangement. However,In February 2020, Altera petitioned the U.S. DepartmentSupreme Court of the Treasury has not withdrawnUnited States ("SCOTUS") to hear their case. In June 2020, the requirement to include stock-based compensation from its regulations. We have evaluatedSCOTUS denied the opinion and as a result of such evaluation have recorded a tax benefit of $88 million related to reimbursement of cost share payments for the previously shared stock-based compensation costs. We have also recorded a tax benefit of $11 million related to stock-based compensation expense. In addition, we have recorded a tax liability of $74 million for the U.S. tax cost of potential repatriation of the associated contingent foreign earnings because at this time we cannot reasonably conclude that we have the ability and the intent to indefinitely reinvest these contingent earnings. We will continue to monitor this matter and related potential impacts to our consolidated financial statements.petition.
International revenues account for a significant portion of our total revenues, such that a material portion of our pre-tax income is earned and taxed outside the United States at rates that are generally lower thanStates. International pre-tax income is taxable in the United States.States at a lower effective tax rate than the federal statutory tax rate. Please refer to Note 67 of our Consolidated Financial Statements.Statements in Part II, Item 8 of this 2022 Form 10-K. A provision enacted as part of the 2017 Tax Cuts & Jobs Act requires companies to capitalize research and experimental expenditures for tax purposes in tax years beginning after December 31, 2021 (our fiscal year 2023). If this provision is not repealed or deferred, we expect our fiscal year 2023 cash tax payments to increase significantly compared to our fiscal year 2022.
On August 16, 2022, the Inflation Reduction Act was signed into law. In general, the provisions of the IRA will be effective beginning with our fiscal year 2024, with certain exceptions. The IRA includes a new 15% corporate minimum tax. We are in the process of evaluating the potential impacts of the IRA. The impact on income taxes due to changes in legislation is required under the authoritative guidance of Accounting Standard Codification (“ASC”) 740, Income Taxes, to be recognized in the period in which the law is enacted. While we do not currently expect the IRA to have a material impact on our effective tax rate, our analysis is ongoing and incomplete, and it is possible that the IRA could have a material adverse effect on our tax liability. We will continue to monitor issuance of additional guidance.
Deferred Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. Our gross deferred tax assets were $546$1,103 million and $465$772 million at the end of fiscal years 20172022 and 2016,2021, respectively. These gross deferred tax assets were offset by gross deferred tax liabilities of $585$234 million and $429$187 million and a valuation allowance representing our entire California deferred tax asset balance due to the single sales factor apportionment resulting in lower taxable income in California of $309 million and $277 million at the end of fiscal years 20172022 and 2016, respectively, and a valuation allowance of $114 million and $102 million at the end of fiscal years 2017 and 2016,2021, respectively. The change in the gross deferred tax assets, gross deferred tax liabilities, and valuation allowance between fiscal year 20172022 and 20162021 is primarily due to an increase related to allowancesincreases in gross deferred tax assets for outside basis differences of foreign subsidiaries and reservestax credits and an increaseincreases in gross deferred tax liabilities related to an accrual for future tax liabilities due to the expected repatriation of foreign earnings of certain foreign subsidiaries.
As of our fiscal year end of June 25, 2017, we continue to record a valuation allowance to offset the entire California deferred tax asset balance due to the single sales factor apportionment election resulting in lower taxable income in California. We also recorded a valuation allowance on certain state tax credits and continue to record valuation allowances on certain foreign entities’ net operating losses. The valuation allowances were $114 million and $102 million at the end of fiscal years 2017 and 2016, respectively.
capital assets.
We evaluate if the deferred tax assets are realizable on a quarterly basis and will continue to assess the need for changes in valuation allowances, if any.
Continues on next pageLam Research Corporation 2017 10-K 37
Uncertain Tax Positions
We re-evaluate uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, and effectively settled issues under audit. Such aaudit, and new audit activity. Any change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
Critical Accounting Policies and Estimates
A critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make certain judgments, estimates and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on historical experience and on various other assumptions we believe to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results could differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition. Our critical accounting estimates include:
•the recognition and valuation of revenue from multiple-element arrangements with multiple performance obligations which impacts revenue;
•the valuation of inventory, which impacts gross margin;
•the valuation of warranty reserves, which impacts gross margin;
the valuation of equity-based compensation expense, including forfeiture estimates, which impacts both gross margin and operating expenses;
•the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions, which impact our provision for income tax expenses; and
Lam Research Corporation 2022 10-K 32
•the valuation and recoverability of long-lived assets, which impacts gross margin and operating expenses when we record asset impairments or accelerate their depreciation or amortization.
We believe that the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements regarding the critical accounting estimates indicated above. See Note 2, “Summary of Significant Accounting Policies,” of our Consolidated Financial Statements in Part II, Item 8 of this 2022 Form 10-K for additional information regarding our accounting policies. Revenue Recognition: We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred and title has passedpromised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as we satisfy a performance obligation, as further described below.
Identify the contract with a customer. We generally consider documentation of terms with an approved purchase order as a customer contract, provided that collection is considered probable, which is assessed based on the creditworthiness of the customer as determined by credit checks, payment histories, and/or other circumstances.
Identify the performance obligations in the contract. Performance obligations include sales of systems, spare parts, and services. In addition, our customer contracts contain provisions for installation and training services which have been rendered,deemed immaterial in the selling price is fixed or determinable, collectioncontext of the receivablecontract.
Determine the transaction price. The transaction price for our contracts with customers consists of both fixed and variable consideration provided it is reasonably assured,probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for discounts and we have received customer acceptancecredits for future usage which are based on contractual terms outlined in volume purchase agreements and other factors known at the time. We generally invoice customers at shipment and for professional services either as provided or upon meeting certain milestones. Customer invoices are otherwise released from our customer acceptance obligations. If terms of the sale provide for a lapsing customer acceptance period, we recognize revenue upon the expiration of the lapsing acceptance period or customer acceptance, whichever occurs first. If the practices of a customer do not provide for a written acceptance or the terms of salegenerally due within 30 to 90 days after issuance. Our contracts with customers typically do not include significant financing components as the period between the transfer of performance obligations and timing of payment are generally within one year.
Allocate the transaction price to the performance obligations in the contract. For contracts that contain multiple performance obligations, we allocate the transaction price to the performance obligations in the contract on a lapsing acceptance provision, we recognizerelative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to historical discounting trends for products and services and pricing practices in different geographies.
Recognize revenue when it can be reliably demonstrated that the delivered system meets all of the agreed-to customer specifications. In situations with multiple deliverables,or as we recognize revenuesatisfy a performance obligation. Revenue for systems and spares are recognized at a point in time, which is generally upon the delivery of the separate elements to the customer and when we receive customer acceptanceshipment or delivery. Revenue from services is recognized over time as services are otherwise released from our customer acceptance obligations. We allocate revenue from multiple-element arrangements among the separate elements using their relative selling prices, based on our best estimate of selling price. Our sales arrangements do not include a general right of return. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items. We generally recognize revenue related to sales of spare parts and system upgrade kits upon shipment. We generally recognize revenue related to services upon completion of the services requested by a customer order. We recognize revenue for extended maintenance service contracts with a fixed payment amount on a straight-line basiscompleted or ratably over the termcontractual period of the contract. When goodsgenerally one year or services have been delivered to the customer, but all conditions for revenue recognition have not been met, deferred revenue and deferred costs are recorded in deferred profit on our Consolidated Balance Sheet.less.
Inventory Valuation: Our policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods, and spare parts in each reporting period. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated marketnet realizable value if less than
Continues on next pageLam Research Corporation 2017 10-K 38
cost. Estimates of market value include but are not limited to management’s forecasts related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, general semiconductor market conditions, and possible alternative uses. If future customer demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of goods sold in the period in which we make the revision.revision is made.
Warranty: We record a provision for estimated warranty expenses to cost of sales for each system when we recognize revenue. We periodically monitor the performance and cost of warranty activities, if actual costs incurred are different than our estimates, we may recognize adjustments to provisions in the period in which those differences arise or are identified. We do not maintain general or unspecified reserves; all warranty reserves are related to specific systems.
Equity-based Compensation: Employee Stock Purchase Plan (“ESPP”) and Employee Stock Plans: We determine the fair value of our restricted stock units (“RSUs”), excluding market-based performance RSUs, based upon the fair market value of our Common Stock at the date of grant, discounted for dividends. We estimate the fair value of our market-based performance RSUs using a Monte Carlo simulation model at the date of the grant. We estimate the fair value of our stock options and ESPP awards 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. We amortize the fair value of equity-based awards over the vesting periods of the award and we have elected to use the straight-line method of amortization. We estimate expected equity award forfeitures based on historical forfeiture rate activity and expected future employee turnover. We recognize the effect of adjustments made to the forfeiture rate, if any in the period that we change the forfeiture estimate.
Income Taxes: Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event that we determine that we wouldwill not be able to realize all or part of our net deferred tax assets, an adjustment wouldwill be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets wouldwill be realized, then the previously provided valuation allowance wouldwill be reversed.
We recognize the benefit from a tax position only if it is more likely than not that the position wouldwill be sustained upon audit based solely on the technical merits of the tax position. Our policy is to include interest and penalties related to unrecognizeduncertain tax benefitspositions as a component of income tax expense.
Lam Research Corporation 2022 10-K 33
Long-lived assets:Assets: We review goodwill at least annually for impairment. Ifimpairment during the fourth quarter of each fiscal year and if certain events or indicators of impairment occur between annual impairment tests, we will perform an impairment test at that date. In testing for atests. The process of evaluating the potential impairment of goodwill we: (1) allocaterequires significant judgment. When reviewing goodwill for impairment, we first perform a qualitative assessment to the reporting units to which the acquired goodwill relates; (2) estimate the fair value of our reporting units; and (3) determine whether it is more likely than not that the carrying value (book value) of those reporting units. Prior to this allocation of the assets to the reporting units, we assess long-lived assets for impairment. Furthermore, if the estimated fair value of a reporting unit is less than theits carrying value, we must estimate the fair value of all identifiable assets and liabilities of that reporting unit, in a manner similar to a purchase price allocation for an acquired business. This can require independent valuations of certain internally generated and unrecognized intangible assets such as in-process R&D and developed technology. Only after this process is completed can the amount of goodwill impairment, if any, be determined.value. In our goodwill impairment process we first assess qualitative factors to determine whether it is necessary to perform a quantitative analysis. We do not calculate the fair value of a reporting unit unless we determine, based onperforming a qualitative assessment, we consider business conditions and other factors including, but not limited to (i) adverse industry or economic trends, (ii) restructuring actions and lower projections that may impact future operating results, (iii) sustained decline in share price, and (iv) overall financial performance and other events affecting the reporting units. If we conclude that it is more likely than not that the reporting unit’s fair value of a reporting unit is less than its carrying amount.amount, then a quantitative impairment test is performed by estimating the fair value of the reporting unit and comparing it to its carrying value, including goodwill allocated to that reporting unit.
The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. We determine the fair value of our reporting units by using an income approach. Under the income approach, we determine fair value based on estimated future cash flows of each reporting unit,
Continues on next pageLam Research Corporation 2017 10-K 39
discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.
In estimating the fair value of a reporting unit, we make estimates and judgments about the future cash flows of our reporting units, including estimated growth rates and assumptions about the economic environment. Although our cash flow forecasts are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying businesses, there is significant judgment involved in determining the cash flows attributable to a reporting unit. In addition, we make certain judgments about allocating shared assets to the estimated balance sheets of our reporting units. Changes in judgment on these assumptions and estimates could result in a goodwill impairment charge.
As a result, several factors could result in an impairmentIf after completing the quantitative assessment the carrying value of a material amount of our goodwill balance in future periods, including but not limited to: (1) weakening of the global economy, weakness in the semiconductor equipment industry, or our failure to reach internal forecasts, which could impact our ability to achieve our forecasted levels of cash flows and reduce the estimated discounted cash flow value of our reporting units; and (2) a decline in our Common Stock price and resulting market capitalization, to the extent we determine that the decline is sustained and indicates a reduction in theunit exceeds its fair value, of our reporting units below their carrying value. Further, the value assigned to intangible assets, other than goodwill, is based on estimates and judgments regarding expectations such as the success and lifecycle of products and technology acquired. If actual product acceptance differs significantly from the estimates, we may be required towould record an impairment charge equal to write down the assetexcess of the carrying value of the reporting unit over its fair value, up to its realizable value.
the amount of the goodwill assigned to the reporting unit.
For other long-lived assets, we routinely consider whether indicatorsreview them whenever events or changes in circumstances indicate the carrying value of impairment are present.an asset or asset group may not be recoverable. If such indicators are present, we determine whether the sum of the estimated undiscounted cash flows attributable to the assets is less than their carrying value. If the sum is less, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. We recognize an impairment charge to the extent the present value of anticipated net cash flows attributable to the asset areis less than the asset’s carrying value. The fair value of the asset then becomes the asset’s new carrying value, which we depreciate over the remaining estimated useful life of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value. In addition, for fully amortized intangible assets, we de-recognize the gross cost and accumulated amortization in the period we determine the intangible asset no longer enhances future cash flows.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 3, “Recent Accounting Pronouncements,” of our Consolidated Financial Statements, included in Part II, Item 8 of this report.2022 Form 10-K. Liquidity and Capital Resources
Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $6.3$3.9 billion at the end of fiscal year 20172022 compared to $7.1$6.0 billion at the end of fiscal year 2016.2021. This decrease was primarily due to the redemption ofCommon Stock repurchases in connection with our Senior Notes with contractual maturities in 2023stock repurchase program, dividends paid, and 2026. Approximately $4.8 billion and $3.1 billion of our totalcapital expenditures, partially offset by cash and investments as June 25, 2017, and June 26, 2016, respectively, was held outside the United States in our foreign subsidiaries, the majority of which is held in U.S. dollars, and substantially all of which would be subject to tax at U.S. rates if it were to be repatriated. Refer to Note 6 of our Consolidated Financial Statements, included in Item 8 of this report, for information concerning the potential tax impact of repatriating earnings of certain non-U.S. subsidiaries that are permanently reinvested outside the United States.
Continues on next pageLam Research Corporation 2017 10-K 40
provided by operating activities.
Cash Flow from Operating Activities
Net cash provided by operating activities of $2.0$3.1 billion during fiscal year 20172022 consisted of (in millions)thousands):
|
| | | |
| Net income | $ | 1,698 |
|
| Non-cash charges: | |
| Depreciation and amortization | 307 |
|
| Equity-based compensation expense | 150 |
|
| Deferred income taxes | 105 |
|
| Loss on extinguishment of debt, net | 36 |
|
| Amortization of note discounts and issuance costs | 25 |
|
| Changes in operating asset and liability accounts | (311 | ) |
| Other | 19 |
|
| | $ | 2,029 |
|
| | | | | |
| Net income | $ | 4,605,286 | |
| Non-cash charges: | |
| Depreciation and amortization | 333,739 | |
| Deferred income taxes | (257,438) | |
| Equity-based compensation expense | 259,064 | |
| |
| |
| Changes in operating asset and liability accounts | (1,796,226) | |
| Other | (44,751) | |
| $ | 3,099,674 | |
| |
Significant changes in operating asset and liability accounts, net of foreign exchange impact, included the following uses of cash: increases in accounts receivable of $411 million,$1.3 billion, inventories of $308 million,$1.4 billion, and prepaid expenses and other assets of $27 million,$53 million; partially offset by the following sources of cash: increases in deferred profit of $605 million, accounts payable of $127 million, deferred profit of $258$168 million, and accrued expenses and other liabilities of $50$123 million.
Lam Research Corporation 2022 10-K 34
Cash Flow from Investing Activities
Net cash used forprovided by investing activities during fiscal year 20172022 was $2.1 billion,$612 million, primarily consisting of net purchasessales/maturities of available-for-saleavailable for sale securities of $1.9$1.2 billion, andpartially offset by capital expenditures of $157$546 million.
Cash Flow from Financing Activities
Net cash used byfor financing activities during fiscal year 20172022 was $2.6$4.6 billion, primarily consisting of $1.7$3.9 billion of cash paid for debt extinguishment, $812 million in treasury stockCommon Stock repurchases, including net share settlement on employee stock-based compensation; and $243$815 million of dividends paid,paid; partially offset by $73$114 million of stock issuance and treasury stock reissuances associated with our employee stock-based compensation plans.
Liquidity
Given that the semiconductor industry is highly competitive and has historically experienced rapid changes in demand, we believe that maintaining sufficient liquidity reserves is important to support sustaining levels of investment in R&D and capital infrastructure. Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash, cash equivalents, and short-term investments as of June 25, 2017,26, 2022, are expected to be sufficient to support our anticipated levels of operations, investments, debt service requirements, capital expenditures, capital redistributions, and dividends through at least the next 12twelve months. However, uncertainty in the global economy and the semiconductor industry, as well as disruptions in credit markets, have in the past, and could in the future, impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers, and creditors.
In the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on demand for our products and services. While we have substantial cash balances, in
the United States and offshore, we may require additional funding and need or choose to raise the required funds through borrowings or public or private sales of debt or equity securities. We believe that, if necessary, we will be able to access the capital markets on terms and in amounts adequate to meet our objectives. However, given the possibility of changesongoing COVID-19 pandemic has in market conditions or other occurrences,the past caused disruption in the capital markets, and were it to do the same in the future, that could make any financing more challenging, and there can be no certaintyassurance that such fundingwe will be available in needed quantitiesable to obtain such financing on commercially reasonable terms or on terms favorable to us.at all.
Continues on next pageLam Research Corporation 2017 10-K 41
Off-Balance Sheet Arrangements and Contractual Obligations
We have certain obligations to make future payments under various contracts, some of which are recorded on our balance sheet and some of which are not. ObligationsCertain obligations that are recorded on our balance sheet in accordance with GAAP include our long-term debt, which is outlined in the following table. Our off-balance sheet arrangements are presented as operating leases and purchase obligations in the table. Our contractual obligationsfinance leases; refer to Notes 14 and commitments as of June 25, 2017, relating to these agreements and our guarantees are included in the following table based on their contractual maturity date. The amounts in the table below exclude $120 million of liabilities related to uncertain tax benefits as we are unable to reasonably estimate the ultimate amount or time of settlement. See Note 615 of our Consolidated Financial Statements in Part II, Item 8 of this 2022 Form 10-K for further discussion. The amounts in the table below also exclude $19 million associated with funding commitments related to non-marketable equity investments as we are unable to make a reasonable estimate regarding the timing of capital calls. |
| | | | | | | | | | | | | | | | | | | |
| | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 years |
| | (in thousands) |
| Operating leases | $ | 156,845 |
| | $ | 50,798 |
| | $ | 60,453 |
| | $ | 19,639 |
| | $ | 25,955 |
|
| Capital leases | 7,201 |
| | 744 |
| | 1,457 |
| | 5,000 |
| | — |
|
| Purchase obligations | 284,804 |
| | 274,574 |
| | 6,942 |
| | 3,061 |
| | 227 |
|
Long-term debt and interest expense (1) | 3,518,070 |
| | 523,401 |
| | 634,822 |
| | 888,114 |
| | 1,471,733 |
|
Other long-term liabilities (2) | 280,186 |
| | 3,487 |
| | 2,728 |
| | 10,246 |
| | 263,725 |
|
| Total | $ | 4,247,106 |
| | $ | 853,004 |
| | $ | 706,402 |
| | $ | 926,060 |
| | $ | 1,761,640 |
|
__________________________________
| |
(1) | The conversion period for the Convertible Notes was open as of June 25, 2017, and as such the net carrying value of the Convertible Notes is included within current liabilities on our Consolidated Balance Sheet. The principal balances of the Convertible Notes are reflected in the payment period in the table above based on the contractual maturity assuming no conversion. See Note 13 of our Consolidated Financial Statements for additional information concerning the Convertible Notes and associated conversion features. |
| |
(2) | Certain tax-related liabilities and post-retirement benefits classified as other non-current liabilities on the consolidated balanceOur off-balance sheet are included in the “more than five years” category due to the uncertainty in the timing and amount of future payments. Additionally, the balance excludes contractual obligations recorded in our consolidated balance sheet as current liabilities. |
Operating Leases
We lease most of our administrative, R&D, and manufacturing facilities; regional sales/service offices; and certain equipment under non-cancelable operating leases. Certain of our facility leases for buildings located in Fremont and Livermore, California, and certain other facility leases provide us with an option to extend the leases for additional periods or to purchase the facilities. Certain of our facility leases provide for periodic rent increases based on the general rate of inflation. In addition to amounts included in the table above, we have guaranteed residual values for certain of our Fremont and Livermore facility leases of up to $250 million. See Note 15 to our Consolidated Financial Statements for further discussion.
Capital Leases
Capital leases reflect building and office equipment lease obligations. The amounts in the table above include the interest portion of payment obligations.
Purchase Obligations
Purchase obligations consist of significant contractual obligations either on an annual basis or over multi-year periods related to our outsourcing activities or other material commitments, including vendor-consigned inventories. The contractual cash obligations and commitments table presented above contains our minimum obligations at June 25, 2017, under these arrangements and
others. Forour transition tax liability are presented as purchase obligations,
with cancellation provisions, the amounts included in the preceding table were limitedrefer to
the non-cancelable portionNote 17 of the agreement terms or the minimum cancellation fee. Actual expenditures will vary based on the volume of transactions and length of contractual service provided.
Continues on next pageLam Research Corporation 2017 10-K 42
Long-Term Debt
In May 2011, we issued and sold $450.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due May 2018 (the “2018 Notes”) at par. We pay cash interest on the 2018 Notes at an annual rate of 1.25%, on a semi-annual basis. Concurrently with the issuance of the 2018 Notes, we purchased convertible note hedges and sold warrants, which were structured to reduce the potential future economic dilution associated with the conversion of the 2018 Notes.
The 2018 Notes may be converted into our Common Stock, under certain circumstances, based on a conversion rate of 16.5702 shares of our Common Stock per $1,000 principal amount of Notes, which is equal to a conversion price of approximately $60.35 per share of our Common Stock. The conversion price will be subject to adjustment for certain corporate events, including dividends on our Common Stock.
In June 2012, with the acquisition of Novellus, we assumed $700 million in aggregate principal amount of 2.625% Convertible Senior Notes due May 2041 (the “2041 Notes”). We pay cash interest on the 2041 Notes at an annual rate of 2.625%, on a semi-annual basis. The 2041 Notes may be converted, under certain circumstances, into our Common Stock based on a conversion rate of 29.7371 shares of Common Stock per $1,000 principal amount of notes, which represents a conversion price of approximately $33.63 per share of Common Stock. The conversion price will be subject to adjustment for certain events, including dividends on our Common Stock.
During the quarter-ended June 25, 2017, the market value of our Common Stock was greater than or equal to 130% of the 2018 Notes and 2041 Notes conversion prices for 20 or more trading days of the 30 consecutive trading days preceding the quarter end. As a result, the 2018 Notes and the 2041 Notes are convertible at the option of the holder and are classified as current liabilities in our Consolidated Balance Sheets for fiscal year 2017.
On March 12, 2015, we completed a public offering of $500 million aggregate principal amount of Senior Notes due March 15, 2020 (the “2020 Notes”) and $500 million aggregate principal amount of Senior Notes due March 15, 2025 (the “2025 Notes”). We pay interest at an annual rate of 2.75% and 3.80%, respectively, on the 2020 Notes and 2025 Notes, on a semi-annual basis on March 15 and September 15 of each year.
We may redeem the 2020 Notes and 2025 Notes at a redemption price equal to 100% of the principal amount of such series (“par”), plus a “make whole” premium as described in the indenture in respect to the 2020 Notes and 2025 Notes and accrued and unpaid interest before February 15, 2020, for the 2020 Notes and before December 15, 2024, for the 2025 Notes. We may redeem the 2020 Notes and 2025 Notes at par, plus accrued and unpaid interest, at any time on or after February 15, 2020, for the 2020 Notes and on or after December 24, 2024, for the 2025 Notes. In addition, upon the occurrence of certain events, as described in the indenture, we will be required to make an offer to repurchase the 2020 Notes and 2025 Notes at a price equal to 101% of the principal amount of the respective note, plus accrued and unpaid interest.
On June 7, 2016, we completed a public offering of $800.0 million aggregate principal amount of Senior Notes due June 15, 2021, (the “2021 Notes”), $600.0 million aggregate principal amount of Senior Notes due June 15, 2023 (the “2023 Notes”) and $1.0 billion aggregate principal amount of Senior Notes due June 15, 2026 (the “2026 Notes”, together with the 2020 Notes, and 2021 Notes, the “Senior Notes”, and collectively with the Convertible Notes, the “Notes”). We pay interest at an annual rate of 2.80% on the 2021 Notes on a semi-annual basis on June 15 and December 15 of each year.
As a result of the October 5, 2016, termination of the Agreement and Plan of Merger and Reorganization with KLA-Tencor, the 2023 Notes and the 2026 Notes were redeemed on October 13, 2016, under the special mandatory redemption terms of the indenture governing these Notes. We were required to redeem all of the 2023 Notes and the 2026 Notes then outstanding, on October 13, 2016, at a special mandatory redemption price equal to 101% of the aggregate principal amount of such notes, plus accrued and unpaid interest from the date of initial issuance.
We may redeem the 2021 Notes at a redemption price equal to 100% of the principal amount of such series (“par”), plus a “make whole” premium as described in the respective indenture, and accrued and unpaid interest before May 15, 2021. We may redeem the 2021 Notes at par, plus accrued and unpaid interest at any time on or after May 15, 2021. In addition, upon the occurrence of certain events, as described in the indenture, we will be
Continues on next pageLam Research Corporation 2017 10-K 43
required to make an offer to repurchase the 2021 Notes, at a price equal to 101% of the principal amount of the respective note, plus accrued and unpaid interest.
On May 13, 2016, we entered into an Amended and Restated Term Loan Agreement (the “Amended and Restated Term Loan Agreement”), which amends and restates the Term Loan Agreement we entered into on November 10, 2015, with a syndicate of lenders. The Amended and Restated Term Loan Agreement provides for a commitment of $1,530.0 million senior unsecured term loan facility composed of two tranches (the “Commitments”): (1) a $1,005.0 million tranche of three-year senior unsecured loans and (2) a $525.0 million tranche of five-year senior unsecured loans. The Commitments automatically terminated on October 5, 2016, upon termination of the Agreement and Plan of Merger and Reorganization with KLA-Tencor Corporation.
During fiscal year 2017, 2016, and 2015, we made $1.7 billion, $451 million, and $2 million, respectively, in principal payments on long-term debt and capital leases.
Revolving Credit Arrangements
On November 10, 2015, we entered into an Amendment and Restatement Agreement (as amended on April 26, 2016, by Amendment No.1 to Amended and Restated Credit Agreement and as further amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the “Amended and Restated Credit Agreement”), which amends and restates our prior unsecured Credit Agreement, dated March 12, 2014 (as amended by Amendment No. 1, dated March 5, 2015). The Amended and Restated Credit Agreement provides for an increase to our revolving unsecured credit facility, from $300 million to $750 million with a syndicate of lenders. It includes an expansion option, subject to certain requirements, for us to request an increase in the facility of up to an additional $250 million, for a potential total commitment of $1.0 billion. Proceeds from the credit facility can be used for general corporate purposes. The facility matures on November 10, 2020.
Interest on amounts borrowed under the credit facility is, at our option, based on (1) a base rate, defined as the greatest of (a) prime rate, (b) Federal Funds rate plus 0.5%, or (c) one-month London Interbank Offered Rate (“LIBOR”) plus 1.0%, plus a spread of 0.0% to 0.5%, or (2) LIBOR multiplied by the statutory reserve rate, plus a spread of 0.9% to 1.5%, in each case as the applicable spread is determined based on the rating of our non-credit enhanced, senior unsecured long-term debt. Principal and any accrued and unpaid interest is due and payable upon maturity. Additionally, we will pay the lenders a quarterly commitment fee that varies based on our credit rating. The Amended and Restated Credit Agreement contains affirmative covenants, negative covenants, financial covenants, and events of default that are substantially similar to those in the Amended and Restated Term Loan Agreement. As of June 25, 2017, we had no borrowings outstanding under the credit facility and were in compliance with all financial covenants.
Other Guarantees
We have issued certain indemnifications to our lessors for taxes and general liability under some of our agreements. We have entered into certain insurance contracts that may limit our exposure to such indemnifications. As of June 25, 2017, we had not recorded any liability on our Consolidated Financial Statements in connection with these indemnifications, as we do not believe, based on information available, that it is probable that we will pay any amounts under these guarantees.Part II, Item 8 of this 2022 Form 10-K for further discussion.
Generally, we indemnify, under pre-determined conditions and limitations, our customers for infringement of third-party intellectual property rights by our products or services. We seek to limit our liability for such indemnity to an amount not to exceed the sales price of the products or services subject to our indemnification obligations. We do not believe, based on information available, that it is probable that we will pay any material amounts under these guarantees.
We provide guarantees and standby letters of credit to certain parties as required for certain transactions initiated during the ordinary course of business. As of June 25, 2017, the maximum potential amount of future payments that we could be required to make under these arrangements and letters of credit was $16 million. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid.
Continues on next pageLam Research Corporation 2017 10-K 44
| |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Investments
We maintain an investment portfolio of various holdings, types, and maturities. As of June 25, 2017,26, 2022, our mutual funds are classified as trading securities. Investments classified as trading securities are recorded at fair value based upon quoted market prices. Any material differences between the cost and fair value of trading securities is recognized as “Otherother income (expense)”, net in our Consolidated Statement of Operations. All of our other investments are classified as available-for-sale and consequently are recorded in the Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income, net of tax.
Lam Research Corporation 2022 10-K 35
Interest Rate Risk
Fixed-Income Securities
Our investments in various interest-earning securities carry a degree of market risk for changes in interest rates. At any time, a sharp rise in interest rates could have a material adverse impact on the fair value of our fixed-income investment portfolio. Conversely, declines in interest rates could have a material adverse impact on interest income for our investment portfolio. We target to maintain a conservative investment policy, which focuses on the safety and preservation of our capital by limiting default risk, market risk, reinvestment risk, and concentration risk. The following table presents the hypothetical fair valuesAs of fixed-incomeJune 26, 2022, our fixed income securities that would result from selected potential decreases and increases in interest rates.total $135.7 million. Market changes reflect immediatewith hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (“BPS”), 100 BPS, and 150 BPS. The hypothetical fair values asBPS, with a minimum interest rate of June 25, 2017,were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Valuation of Securities Given an Interest Rate Decrease of X Basis Points | | Fair Value as of | | Valuation of Securities Given an Interest Rate Increase of X Basis Points |
| | June 25, 2017 | |
| (150 BPS) | | (100 BPS) | | (50 BPS) | | —% | | 50 BPS | | 100 BPS | | 150 BPS |
| | (in thousands) |
| Time deposit | $ | 640,666 |
| | $ | 640,666 |
| | $ | 640,666 |
| | $ | 640,666 |
| | $ | 640,666 |
| | $ | 640,666 |
| | $ | 640,666 |
|
| Municipal notes and bonds | 197,037 |
| | 196,890 |
| | 195,918 |
| | 194,876 |
| | 193,834 |
| | 192,792 |
| | 191,751 |
|
| U.S. Treasury and agencies | 821,172 |
| | 813,220 |
| | 804,147 |
| | 795,049 |
| | 785,862 |
| | 776,677 |
| | 767,493 |
|
| Government-sponsored enterprises | 25,355 |
| | 25,069 |
| | 24,783 |
| | 24,496 |
| | 24,210 |
| | 23,924 |
| | 23,638 |
|
| Foreign government bonds | 65,205 |
| | 64,482 |
| | 63,752 |
| | 63,022 |
| | 62,292 |
| | 61,563 |
| | 60,833 |
|
| Bank and corporate notes | 2,494,798 |
| | 2,475,500 |
| | 2,455,967 |
| | 2,436,436 |
| | 2,416,907 |
| | 2,397,381 |
| | 2,377,857 |
|
| Mortgage backed securities - residential | 105,825 |
| | 104,728 |
| | 103,543 |
| | 102,358 |
| | 101,171 |
| | 99,984 |
| | 98,797 |
|
| Mortgage backed securities - commercial | 68,710 |
| | 67,719 |
| | 66,729 |
| | 65,739 |
| | 64,750 |
| | 63,761 |
| | 62,773 |
|
| Total | $ | 4,418,768 |
| | $ | 4,388,274 |
| | $ | 4,355,505 |
| | $ | 4,322,642 |
| | $ | 4,289,692 |
| | $ | 4,256,748 |
| | $ | 4,223,808 |
|
We mitigate default risk by investing in high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to achieve portfolio liquidity and maintain a prudent amount of diversification.
Continues on next pageLam Research Corporation 2017 10-K 45
Long-Term Debt
As of June 25, 2017,26, 2022, we had $2.9$5.0 billion in principal amount of fixed-rate long-term debt outstanding, with a fair value of $5.8$4.5 billion. The fair value of our Notes is subject to interest rate risk and market risk, and other factors due to the convertible feature, as applicable.risk. Generally, the fair value of Notes will increase as interest rates fall and decrease as interest rates rise. Additionally, the fair value of the Convertible Notes will increase as our Common Stock price increases and decrease as our Common Stock price decreases. The interest and market value changes affect the fair value of our Notes but do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligations. We do not carry the Notes at fair value but present the fair value of the principal amount of our Notes for disclosure purposes.
Equity Price Risk
Publicly Traded Securities
The values of our investments in publicly traded securities, including mutual funds related to our obligations under our deferred compensation plans, are subject to market price risk. The following table presents the hypothetical fair valuesAs of June 26, 2022, our publicly traded securities that would result from potential decreases and increases in the price of each security in the portfolio.total $95.2 million. Potential fluctuations in the price of each security in the portfolio of plus or minus 10%, 15%, or 25% were selected based on potential near-term changes in those security prices. The hypothetical fair values as of June 25, 2017, were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Valuation of Securities Given an X% Decrease in Stock Price | | Fair Value as of | | Valuation of Securities Given an X% Increase in Stock Price |
| | June 25, 2017 | |
| (25)% | | (15)% | | (10)% | | —% | | 10% | | 15% | | 25% |
| | (in thousands) |
| Mutual funds | $ | 42,191 |
| | $ | 47,816 |
| | $ | 50,629 |
| | 56,254 |
| | $ | 61,879 |
| | $ | 64,692 |
| | $ | 70,318 |
|
Foreign Currency Exchange (“FX”) Risk
We conduct business on a global basis in several major international currencies. As such, we are potentially exposed to adverse as well as beneficial movements in foreign currency exchange rates. The majority of our revenues and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange rate fluctuations primarily related to revenues denominated in Japanese yen and euro-denominated and Korean won-denominated expenses.on non-U.S dollar transactions or cash flows.
We enter into foreign currency forward contracts to minimize the short-term impact of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily cash, third-party accounts receivable, accounts payable, and intercompany receivables and payables. In addition, we hedge certain anticipated foreign currency cash flows, primarily on revenues denominated in Japanese yen and expenses denominated in euro and Korean won.flows.
To protect against the reductionadverse movements in value of anticipated revenues denominated in Japanese yen and expenses denominated in euro and Korean won,non-U.S. dollar transactions or cash flows, we enter into foreign currency forward and option contracts that generally expire within 12 months and no later than 24 months. The option contracts include collars, an option strategy that is comprised of a combination of a purchased put option and a written call option with the same expiration dates and notional amounts but with different strike prices. These foreign currency hedge contracts are designated as cash flow hedges and are carried on our balance sheet at fair value, with the effective portion of the contracts’ gains or losses included in accumulated other comprehensive income (loss) and subsequently recognized in earnings in the same period the hedged revenue and/or expense is recognized. We also enter into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of certain non-U.S.-dollar denominated monetary assets and liabilities, primarily cash, third-party accounts receivable, accounts payable, and intercompany receivables and payables. The change in fair value of these balance sheet hedge contracts is recorded into earnings as a component of other income (expense), net, and offsets the change in fair value of the foreign currency denominated monetary assets and liabilities also recorded in other income (expense), net, assuming the hedge contract fully covers the hedged items. The notional amount and unrealized gain of our outstanding forward and option contracts that are designated as cash flow hedges, as of June 25, 2017,26, 2022, are shown in the table below. This table also shows the change in fair value of these cash flow hedges
Continues on next pageLam Research Corporation 2017 10-K 46
assuming a hypothetical foreign currency exchange rate movement of plus or minus 10 percent and plus or minus 15 percent.
Lam Research Corporation 2022 10-K 36
|
| | | | | | | | | | | | | | | | | |
| | Notional Amount | | Unrealized FX Gain/(Loss) | | Valuation of FX Contracts Given an X% Increase (+)/Decrease(-) in Each |
| June 25, 2017 | = +/- (10%) | | = +/- (15%) |
| | (in millions) |
| Forward contracts | | | | | | | |
| Sell | Japanese yen | $ | 670.2 |
| | $ | (1.4 | ) | | $ | 66.4 |
| | $ | 99.6 |
|
| Buy | Euro | 58.9 |
| | 2.7 | | | 6.1 |
| | 9.1 |
|
| Buy | Korean won | 22.0 |
| | — | | | 2.2 |
| | 3.3 |
|
| | | | | $ | 1.3 | | | $ | 74.7 |
| | $ | 112.0 |
|
| Option contracts | | | | | | | | |
| Buy put | Japanese yen | $ | 36.0 |
| | $ | 1.0 | | | $ | 3.2 |
| | $ | 4.5 |
|
Buy put de-designated (1) | Japanese yen | 26.5 |
| | 0.2 | | | 2.0 |
| | 3.0 |
|
Sell put (2) | Japanese yen | 26.5 |
| | (0.2 | ) | | 1.9 |
| | 3.0 |
|
| | | | | $ | 1.0 | | | $ | 7.1 |
| | $ | 10.5 |
|
(1) Contracts were entered into and designated as cash flow hedges under ASC 815 during the fiscal year as part of our cash flow hedge program. The contracts were subsequently de-designated during the year ended June 25, 2017. Changes in fair market value subsequent to de-designation affect current earnings.
(2) Contracts were entered into to offset the de-designated buy put contracts, and while not designated as a cash flow hedge they are considered to be part of our cash flow hedge program. Changes in fair market value effect current earnings. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional
Amount | | Unrealized FX
Gain/(Loss) | | Valuation of FX Contracts Given an X%
Increase (+)/Decrease(-) in Each |
June 26,
2022 | = +/- (10%) | | = +/- (15%) |
| | (in thousands) |
| Forward contracts, cash flow hedges | | | | | | | |
| Sell | Japanese yen | $ | 541,999 | | | $ | 27,396 | | | $ | 50,808 | | | $ | 76,213 | |
| Buy | Euro | 150,020 | | | (9,365) | | | 13,927 | | | 20,891 | |
| Buy | Indian rupee | 70,768 | | | (630) | | | 7,109 | | | 10,663 | |
| Buy | Korean won | 57,220 | | | (4,110) | | | 5,287 | | | 7,930 | |
| Buy | Malaysian ringgit | 28,203 | | | 133 | | | 2,793 | | | 4,189 | |
| | | | $ | 13,424 | | | $ | 79,924 | | | $ | 119,886 | |
| | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
The notional amount and unrealized loss of our outstanding foreign currency forward contracts that are designated as balance sheet hedges, as of June 25, 2017,26, 2022, are shown in the table below. This table also shows the change in fair value of these balance sheet hedges, assuming a hypothetical foreign currency exchange rate movement of plus or minus 10 percent and plus or minus 15 percent. These changes in fair values would be offset in other income (expense), net, by corresponding change in fair values of the foreign currency denominated monetary assets and liabilities, assuming the hedge contract fully covers the intercompany and trade receivable balances.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional
Amount | | Unrealized FX
Gain/(Loss) | | Valuation of FX Contracts Given an X%
Increase (+)/Decrease(-) in Each |
| June 26,
2022 | = +/- (10%) | | = +/- (15%) |
| | (in thousands) |
| Forward contracts, balance sheet hedges | | | | | | |
| Sell | Korean won | $ | 322,808 | | | $ | 6 | | | $ | 32,261 | | | $ | 48,391 | |
| Buy | Chinese renminbi | 64,434 | | | 12 | | | 6,447 | | | 9,671 | |
| Buy | Euro | 43,321 | | | (18) | | | 4,324 | | | 6,486 | |
| Buy | Taiwan dollar | 33,752 | | | (33) | | | 3,360 | | | 5,041 | |
| Buy | British pound | 20,983 | | | (2) | | | 2,097 | | | 3,146 | |
| Buy | Singapore dollar | 12,243 | | | (1) | | | 1,224 | | | 1,836 | |
| Buy | Swiss francs | 8,841 | | | (3) | | | 883 | | | 1,324 | |
| Sell | Indian rupee | 3,060 | | | (4) | | | 307 | | | 460 | |
| Sell | Malaysian ringgit | 908 | | | — | | | 91 | | | 136 | |
| Buy | Japanese yen | 736 | | | — | | | 74 | | | 111 | |
| | | | $ | (43) | | | $ | 51,068 | | | $ | 76,602 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Notional Amount | | Unrealized FX Gain/(Loss) | | Valuation of FX Contracts Given an X% Increase (+)/Decrease(-) in Each |
| | June 25, 2017 | = +/- (10%) | | = +/- (15%) |
| | (in millions) |
| Forward contracts, balance sheet hedge | | | | | | |
| Sell | Japanese yen | $ | 269.5 |
| | $ | — | | | $ | 26.9 |
| | $ | 40.4 |
|
| Sell | Korean won | 34.1 |
| | 0.2 | | | 3.4 |
| | 5.1 |
|
| Buy | Euro | 18.4 |
| | — | | | 1.9 |
| | 2.7 |
|
| Buy | Taiwan dollar | 11.2 |
| | — | | | 1.1 |
| | 1.7 |
|
| Buy | Swiss francs | 8.7 |
| | — | | | 0.9 |
| | 1.3 |
|
| Buy | Chinese renminbi | 7.2 |
| | — | | | 0.7 |
| | 1.1 |
|
| | | | | $ | 0.2 | | | $ | 34.9 |
| | $ | 52.3 |
|
Continues on next page
Lam Research Corporation 20172022 10-K 4737
Interest Rate Contracts
Interest rate risk is present with both fixed- and floating-rate debt. Interest rate swap agreements designated as fair value hedges are used to mitigate our exposure to changes in the fair value of fixed-rate debt resulting from fluctuations in benchmark interest rates. Accordingly, benchmark interest rate fluctuations impact the fair value of our fixed-rate debt, which are offset by corresponding changes in the fair value of the swap agreements. Interest rate swaps may also be used to adjust interest rate exposures when appropriate, based on market conditions, and for qualifying hedges, the interest differential of swaps is included in interest expense. During the fiscal year ended June 26, 2016, we entered into a series of interest rate contracts with a total notional value of $400 million where we received fixed rates and paid variable rates based on certain benchmark interest rates. Such interest rate swap arrangements were designated as fair value hedges of the fair value of the underlying debt instrument.
The following table shows the change in fair value of these fair value hedges, assuming a hypothetical benchmark interest rate movement of plus or minus 10 BPS and plus or minus 15 BPS.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Valuation of Fair Value Hedge Given an Interest Rate Increase of X Basis Points
| | Fair Value as of | | Valuation of Fair Value Hedge Given an Interest Rate Decrease of X Basis Points
|
| | | | June 25, 2017 | |
| | | 10 BPS | | 15 BPS | | —% | | (10 BPS) | | (15 BPS) |
| | | (in millions) |
| Interest Rate Contracts | | $ | 7.3 |
| | $ | 5.9 |
| | $ | 10.1 |
| | $ | 12.9 |
| | $ | 14.3 |
|
Interest rate risk is also present on anticipated issuances of debt. We manage our interest rate exposure on anticipated issuances of debt through forward-starting interest rate swap agreements. Forward-starting interest rate swap agreements designated as cash flow hedges are used to mitigate our exposure to changes in future interest payments that results from fluctuations in benchmark interest rates prior to the issuance of the debt. Accordingly, benchmark interest rate fluctuations impact the interest cash flows of the Company’s anticipated debt issuances, which are offset by corresponding changes in the fair value of the forward-starting interest rate swap agreements. During the fiscal year ended June 26, 2016, we entered into and settled a series of forward-starting interest rate swap agreements with a total notional value of $600 million, associated with our June 2016 debt offering. Such forward-starting interest rate swap agreements were designated as hedges of the cash flows associated with benchmark interest rates underlying future interest payments on the June 2016 debt issuances.
Continues on next pageLam Research Corporation 2017 10-K 48
| |
Item 8. | Financial Statements and Supplementary Data |
Item 8. Financial Statements and Supplementary Data
There were no retrospective changes to the Consolidated Statements of Operation for any quarters in the two most recent fiscal years that would require disclosure under Item 302 of Regulation S-K.
Index to Consolidated Financial Statements
|
| | | | |
| Page |
Consolidated Statements of Operations — Years Ended June 25, 2017,26, 2022, June 26, 2016,27, 2021, and June 28, 20152020 | |
Consolidated Statements of Comprehensive Income — Years Ended June 25, 2017,26, 2022, June 26, 2016,27, 2021, and June 28, 20152020 | |
Consolidated Balance Sheets — June 25, 2017,26, 2022, and June 26, 201627, 2021 | |
Consolidated Statements of Cash Flows — Years Ended June 25, 2017,26, 2022, June 26, 2016,27, 2021, and June 28, 20152020 | |
Consolidated Statements of Stockholders’ Equity — Years Ended June 25, 2017,26, 2022, June 26, 2016,27, 2021, and June 28, 20152020 | |
| Notes to Consolidated Financial Statements | |
| Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42) | |
| |
Continues on next page
Lam Research Corporation 20172022 10-K 4938
LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | | | Year Ended | | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| Revenue | $ | 8,013,620 |
| | $ | 5,885,893 |
| | $ | 5,259,312 |
| Revenue | $ | 17,227,039 | | | $ | 14,626,150 | | | $ | 10,044,736 | |
| Cost of goods sold | 4,410,261 |
| | 3,266,971 |
| | 2,974,976 |
| Cost of goods sold | 9,355,232 | | | 7,820,844 | | | 5,436,043 | |
| Gross margin | 3,603,359 |
| | 2,618,922 |
| | 2,284,336 |
| Gross margin | 7,871,807 | | | 6,805,306 | | | 4,608,693 | |
| Research and development | 1,033,742 |
| | 913,712 |
| | 825,242 |
| Research and development | 1,604,248 | | | 1,493,408 | | | 1,252,412 | |
| Selling, general, and administrative | 667,485 |
| | 630,954 |
| | 591,611 |
| Selling, general, and administrative | 885,737 | | | 829,875 | | | 682,479 | |
| Goodwill impairment | — |
| | — |
| | 79,444 |
| |
| Total operating expenses | 1,701,227 |
| | 1,544,666 |
| | 1,496,297 |
| Total operating expenses | 2,489,985 | | | 2,323,283 | | | 1,934,891 | |
| Operating income | 1,902,132 |
| | 1,074,256 |
| | 788,039 |
| Operating income | 5,381,822 | | | 4,482,023 | | | 2,673,802 | |
| Other expense, net | (90,459 | ) | | (114,139 | ) | | (47,189 | ) | |
| Other income (expense), net | | Other income (expense), net | (188,708) | | | (111,219) | | | (98,824) | |
| Income before income taxes | 1,811,673 |
| | 960,117 |
| | 740,850 |
| Income before income taxes | 5,193,114 | | | 4,370,804 | | | 2,574,978 | |
| Income tax expense | (113,910 | ) | | (46,068 | ) | | (85,273 | ) | Income tax expense | (587,828) | | | (462,346) | | | (323,225) | |
| Net income | $ | 1,697,763 |
| | $ | 914,049 |
| | $ | 655,577 |
| Net income | $ | 4,605,286 | | | $ | 3,908,458 | | | $ | 2,251,753 | |
| Net income per share: | | | | | | Net income per share: | | | | | |
| Basic | $ | 10.47 |
| | $ | 5.75 |
| | $ | 4.11 |
| Basic | $ | 32.92 | | | $ | 27.22 | | | $ | 15.55 | |
| Diluted | $ | 9.24 |
| | $ | 5.22 |
| | $ | 3.70 |
| Diluted | $ | 32.75 | | | $ | 26.90 | | | $ | 15.10 | |
| Number of shares used in per share calculations: | | | | | | Number of shares used in per share calculations: | | | | | |
| Basic | 162,222 |
| | 158,919 |
| | 159,629 |
| Basic | 139,899 | | | 143,609 | | | 144,814 | |
| Diluted | 183,770 |
| | 175,159 |
| | 177,067 |
| Diluted | 140,628 | | | 145,320 | | | 149,090 | |
|
See Notes to Consolidated Financial Statements
Continues on next pageLam Research Corporation 20172022 10-K 5039
LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | Year Ended | | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| Net income | $ | 1,697,763 |
| | $ | 914,049 |
| | $ | 655,577 |
| Net income | $ | 4,605,286 | | | $ | 3,908,458 | | | $ | 2,251,753 | |
| Other comprehensive income (loss), net of tax: | | | | | | Other comprehensive income (loss), net of tax: | | | | | |
| Foreign currency translation adjustment | (2,843 | ) | | (4,403 | ) | | (22,139 | ) | Foreign currency translation adjustment | (50,342) | | | 14,398 | | | (6,441) | |
| Cash flow hedges: | | | | | | Cash flow hedges: | |
| Net unrealized gains (losses) during the period | 5,841 |
| | (17,725 | ) | | 1,595 |
| Net unrealized gains (losses) during the period | 30,849 | | | 22,139 | | | (30,603) | |
| Net losses (gains) reclassified into earnings | 8,971 |
| | 4,961 |
| | (4,388 | ) | |
| Net (gains) losses reclassified into net income | | Net (gains) losses reclassified into net income | (29,054) | | | (3,468) | | | 2,137 | |
| | 14,812 |
| | (12,764 | ) | | (2,793 | ) | | 1,795 | | | 18,671 | | | (28,466) | |
| Available-for-sale investments: | | | | | | Available-for-sale investments: | |
| Net unrealized (losses) gains during the period | (3,789 | ) | | 9,028 |
| | (5,389 | ) | Net unrealized (losses) gains during the period | (4,638) | | | (4,098) | | | 1,842 | |
| Net (gains) losses reclassified into earnings | (1 | ) | | (371 | ) | | 71 |
| |
| Net losses reclassified into net income | | Net losses reclassified into net income | 1,390 | | | 786 | | | 935 | |
| | (3,790 | ) | | 8,657 |
| | (5,318 | ) | | (3,248) | | | (3,312) | | | 2,777 | |
| Defined benefit plans, net change in unrealized component | (546 | ) | | (3,027 | ) | | 1,109 |
| Defined benefit plans, net change in unrealized component | 5,941 | | | 326 | | | 1,949 | |
| Other comprehensive income (loss), net of tax | 7,633 |
| | (11,537 | ) | | (29,141 | ) | Other comprehensive income (loss), net of tax | (45,854) | | | 30,083 | | | (30,181) | |
| Comprehensive income | $ | 1,705,396 |
| | $ | 902,512 |
| | $ | 626,436 |
| Comprehensive income | $ | 4,559,432 | | | $ | 3,938,541 | | | $ | 2,221,572 | |
|
See Notes to Consolidated Financial Statements
Continues on next pageLam Research Corporation 20172022 10-K 5140
LAM RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
| | | | | | | | |
| | June 25,
2017 | | June 26,
2016 | |
| | | | | |
| ASSETS: | | | | |
| Cash and cash equivalents | $ | 2,377,534 |
| | $ | 5,039,322 |
| |
| Investments | 3,663,628 |
| | 1,788,612 |
| |
| Accounts receivable, less allowance for doubtful accounts of $5,103 as of June 25, 2017 and $5,155 as of June 26, 2016 | 1,673,398 |
| | 1,262,145 |
| |
| Inventories | 1,232,916 |
| | 971,911 |
| |
| Prepaid expenses and other current assets | 195,022 |
| | 151,160 |
| (1) |
| Total current assets | 9,142,498 |
| | 9,213,150 |
| |
| Property and equipment, net | 685,595 |
| | 639,608 |
| |
| Restricted cash and investments | 256,205 |
| | 250,421 |
| |
| Goodwill | 1,385,673 |
| | 1,386,276 |
| |
| Intangible assets, net | 410,995 |
| | 564,921 |
| |
| Other assets | 241,799 |
| | 209,939 |
| (1) |
| Total assets | $ | 12,122,765 |
| | $ | 12,264,315 |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | | | | |
| Trade accounts payable | $ | 464,643 |
| | $ | 348,199 |
| |
| Accrued expenses and other current liabilities | 969,361 |
| | 772,910 |
| |
| Deferred profit | 607,672 |
| | 349,199 |
| |
| Current portion of convertible notes and capital leases | 908,439 |
| | 947,733 |
| (1) |
| Total current liabilities | 2,950,115 |
| | 2,418,041 |
| |
| Senior notes, convertible notes, and capital leases, less current portion | 1,784,974 |
| | 3,378,129 |
| (1) |
| Income taxes payable | 120,178 |
| | 231,514 |
| |
| Other long-term liabilities | 280,186 |
| | 134,562 |
| |
| Total liabilities | 5,135,453 |
| | 6,162,246 |
| |
| Commitments and contingencies |
| |
| |
| Temporary equity, convertible notes | 169,861 |
| | 207,552 |
| |
| Stockholders’ equity: | | | | |
| Preferred stock, at par value of $0.001 per share; authorized - 5,000 shares, none outstanding | — |
| | — |
| |
| Common stock, at par value of $0.001 per share; authorized - 400,000 shares; issued and outstanding 161,723 shares at June 25, 2017, and 160,201 shares at June 26, 2016 | 162 |
| | 160 |
| |
| Additional paid-in capital | 5,845,485 |
| | 5,572,898 |
| |
| Treasury stock, at cost, 105,569 shares at June 25, 2017, and 101,071 shares at June 26, 2016 | (5,216,187 | ) | | (4,429,317 | ) | |
| Accumulated other comprehensive loss | (61,700 | ) | | (69,333 | ) | |
| Retained earnings | 6,249,691 |
| | 4,820,109 |
| |
| Total stockholders’ equity | 6,817,451 |
| | 5,894,517 |
| |
| Total liabilities and stockholders’ equity | $ | 12,122,765 |
| | $ | 12,264,315 |
| |
(1) Adjusted for effects of retrospective implementation of ASU 2015-3; see Note 3 and Note 13 for additional information.
| | | | | | | | | | | |
| June 26,
2022 | | June 27,
2021 |
| ASSETS: | | | |
| Cash and cash equivalents | $ | 3,522,001 | | | $ | 4,418,263 | |
| Investments | 135,731 | | | 1,310,872 | |
| Accounts receivable, less allowance of $5,606 as of June 26, 2022 and $5,255 as of June 27, 2021 | 4,313,818 | | | 3,026,430 | |
| Inventories | 3,966,294 | | | 2,689,294 | |
| Prepaid expenses and other current assets | 347,391 | | | 207,528 | |
| Total current assets | 12,285,235 | | | 11,652,387 | |
| Property and equipment, net | 1,647,587 | | | 1,303,479 | |
| Restricted cash and investments | 251,534 | | | 252,487 | |
| Goodwill | 1,515,113 | | | 1,490,134 | |
| Intangible assets, net | 101,850 | | | 132,365 | |
| Other assets | 1,394,313 | | | 1,061,300 | |
| Total assets | $ | 17,195,632 | | | $ | 15,892,152 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | | | |
| Trade accounts payable | $ | 1,011,208 | | | $ | 829,710 | |
| Accrued expenses and other current liabilities | 1,974,272 | | | 1,719,483 | |
| Deferred profit | 1,571,898 | | | 967,325 | |
| Current portion of long-term debt and finance lease obligations | 7,381 | | | 11,349 | |
| Total current liabilities | 4,564,759 | | | 3,527,867 | |
| Long-term debt and finance lease obligations, less current portion | 4,998,449 | | | 4,990,333 | |
| Income taxes payable | 931,117 | | | 948,037 | |
| Other long-term liabilities | 422,941 | | | 398,727 | |
| Total liabilities | 10,917,266 | | | 9,864,964 | |
| Commitments and contingencies | 0 | | 0 |
| | | |
| Stockholders’ equity: | | | |
| Preferred stock, at par value of $0.001 per share; authorized - 5,000 shares, none outstanding | — | | | — | |
| Common stock, at par value of $0.001 per share; authorized 400,000 shares as of June 26, 2022 and June 27, 2021; issued and outstanding 136,975 shares as of June 26, 2022, and 142,501 shares as of June 27, 2021 | 137 | | | 143 | |
| Additional paid-in capital | 7,414,916 | | | 7,052,962 | |
| Treasury stock, at cost, 157,087 shares as of June 26, 2022, and 150,766 shares as of June 27, 2021 | (19,481,429) | | | (15,646,701) | |
| Accumulated other comprehensive loss | (109,982) | | | (64,128) | |
| Retained earnings | 18,454,724 | | | 14,684,912 | |
| Total stockholders’ equity | 6,278,366 | | | 6,027,188 | |
| Total liabilities and stockholders’ equity | $ | 17,195,632 | | | $ | 15,892,152 | |
| | | |
See Notes to Consolidated Financial Statements
Continues on next pageLam Research Corporation 20172022 10-K 5241
LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended |
June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 4,605,286 | | | $ | 3,908,458 | | | $ | 2,251,753 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 333,739 | | | 307,151 | | | 268,525 | |
| Deferred income taxes | (257,438) | | | (151,477) | | | (17,777) | |
| Equity-based compensation expense | 259,064 | | | 220,164 | | | 189,197 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other, net | (44,751) | | | (17,392) | | | 6,628 | |
| Changes in operating asset and liability accounts: | | | | | |
| Accounts receivable, net of allowance | (1,287,680) | | | (928,928) | | | (641,827) | |
| Inventories | (1,351,344) | | | (792,591) | | | (411,608) | |
| Prepaid expenses and other assets | (53,121) | | | (59,189) | | | (14,354) | |
| Trade accounts payable | 167,884 | | | 184,615 | | | 208,478 | |
| Deferred profit | 604,573 | | | 508,008 | | | 76,207 | |
| Accrued expenses and other liabilities | 123,462 | | | 409,344 | | | 211,229 | |
| Net cash provided by operating activities | 3,099,674 | | | 3,588,163 | | | 2,126,451 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Capital expenditures and intangible assets | (546,034) | | | (349,096) | | | (203,239) | |
| | | | | |
| Purchases of available-for-sale securities | (567,819) | | | (3,389,388) | | | (2,897,627) | |
| Proceeds from maturities of available-for-sale securities | 190,269 | | | 2,381,758 | | | 1,647,379 | |
| Proceeds from sales of available-for-sale securities | 1,543,434 | | | 1,472,152 | | | 1,235,248 | |
| | | | | |
| | | | | |
| | | | | |
| Other, net | (7,575) | | | (42,155) | | | (25,845) | |
| Net cash provided by (used for) investing activities | 612,275 | | | 73,271 | | | (244,084) | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 1,697,763 |
| | $ | 914,049 |
| | $ | 655,577 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 306,905 |
| | 291,028 |
| | 277,920 |
|
| Deferred income taxes | 104,936 |
| | (49,003 | ) | | 5,551 |
|
| Impairment of long-lived assets | — |
| | — |
| | 9,821 |
|
| Equity-based compensation expense | 149,975 |
| | 142,348 |
| | 135,354 |
|
| Income tax benefit (expense) on equity-based compensation plans | 38,747 |
| | (1,023 | ) | | 11,316 |
|
| Excess tax (benefits) expense on equity-based compensation plans | (38,635 | ) | | 1,020 |
| | (11,398 | ) |
| Loss on extinguishment of debt, net | 36,252 |
| | — |
| | — |
|
| Amortization of note discounts and issuance costs | 25,282 |
| | 70,522 |
| | 37,550 |
|
| Gain on sale of business | — |
| | — |
| | (7,431 | ) |
| Gain on sale of assets | (163 | ) | | (15,223 | ) | | — |
|
| Goodwill impairment | — |
| | — |
| | 79,444 |
|
| Other, net | 19,052 |
| | 48,788 |
| | 12,656 |
|
| Changes in operating asset and liability accounts: | | | | | |
| Accounts receivable, net of allowance | (411,287 | ) | | (169,034 | ) | | (294,155 | ) |
| Inventories | (307,875 | ) | | (66,371 | ) | | (207,462 | ) |
| Prepaid expenses and other assets | (27,269 | ) | | (46,664 | ) | | (52,496 | ) |
| Trade accounts payable | 126,819 |
| | 41,645 |
| | 76,617 |
|
| Deferred profit | 258,473 |
| | 27,129 |
| | 86,146 |
|
| Accrued expenses and other liabilities | 50,307 |
| | 161,066 |
| | (29,507 | ) |
| Net cash provided by operating activities | 2,029,282 |
| | 1,350,277 |
| | 785,503 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Capital expenditures and intangible assets | (157,419 | ) | | (175,330 | ) | | (198,265 | ) |
| Business acquisitions, net of cash acquired | — |
| | — |
| | (1,137 | ) |
| Purchases of available-for-sale securities | (4,581,851 | ) | | (874,998 | ) | | (3,086,808 | ) |
| Sales and maturities of available-for-sale securities | 2,697,965 |
| | 1,673,826 |
| | 2,137,068 |
|
| Purchase of other investments | — |
| | — |
| | (2,500 | ) |
| Proceeds from sale of assets | 1,291 |
| | 79,730 |
| | — |
|
| Proceeds from sale of business | — |
| | — |
| | 41,212 |
|
| Transfer of restricted cash and investments | (5,784 | ) | | (112,381 | ) | | 356 |
|
| Other, net | (12,815 | ) | | 1,636 |
| | 3,978 |
|
| Net cash (used by) provided by investing activities | (2,058,613 | ) | | 592,483 |
| | (1,106,096 | ) |
Continues on next pageLam Research Corporation 20172022 10-K 5342
| | | | Year Ended | | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | |
| Principal payments on long-term debt and capital lease obligations and payments for debt issuance costs | (1,688,313 | ) | | (451,497 | ) | | (1,515 | ) | |
| Principal payments on long-term debt and finance lease obligations and payments for debt issuance costs | | Principal payments on long-term debt and finance lease obligations and payments for debt issuance costs | $ | (11,889) | | | $ | (862,060) | | | $ | (667,537) | |
| Net proceeds from issuance of long-term debt | — |
| | 2,338,144 |
| | 992,225 |
| Net proceeds from issuance of long-term debt | — | | | — | | | 1,974,651 | |
| Excess tax benefits (expense) on equity-based compensation plans | 38,635 |
| | (1,020 | ) | | 11,398 |
| |
| | Proceeds from borrowings on revolving credit facility | | Proceeds from borrowings on revolving credit facility | — | | | — | | | 1,250,000 | |
| Repayment of borrowings on revolving credit facility | | Repayment of borrowings on revolving credit facility | — | | | — | | | (1,250,000) | |
| | Treasury stock purchases | (811,672 | ) | | (158,389 | ) | | (573,240 | ) | Treasury stock purchases | (3,865,663) | | | (2,697,704) | | | (1,369,649) | |
| Dividends paid | (243,495 | ) | | (190,402 | ) | | (116,059 | ) | Dividends paid | (815,290) | | | (726,992) | | | (656,838) | |
| Reissuances of treasury stock related to employee stock purchase plan | 59,663 |
| | 55,992 |
| | 48,803 |
| Reissuances of treasury stock related to employee stock purchase plan | 108,178 | | | 97,764 | | | 85,439 | |
| Proceeds from issuance of common stock | 12,913 |
| | 3,405 |
| | 17,520 |
| Proceeds from issuance of common stock | 5,682 | | | 24,123 | | | 8,084 | |
| Other, net | (125 | ) | | (488 | ) | | (660 | ) | Other, net | 45 | | | (2,113) | | | 1,920 | |
| Net cash (used for) provided by financing activities | $ | (2,632,394 | ) | | $ | 1,595,745 |
| | $ | 378,472 |
| |
| Effect of exchange rate changes on cash and cash equivalents | $ | (63 | ) | | $ | (722 | ) | | $ | (9,017 | ) | |
| Net (decrease) increase in cash and cash equivalents | (2,661,788 | ) | | 3,537,783 |
| | 48,862 |
| |
| Cash and cash equivalents at beginning of year | 5,039,322 |
| | 1,501,539 |
| | 1,452,677 |
| |
| Cash and cash equivalents at end of year | $ | 2,377,534 |
| | $ | 5,039,322 |
| | $ | 1,501,539 |
| |
| Net cash used for financing activities | | Net cash used for financing activities | (4,578,937) | | | (4,166,982) | | | (623,930) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (30,227) | | | 7,215 | | | (2,750) | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | (897,215) | | | (498,333) | | | 1,255,687 | |
| Cash, cash equivalents and restricted cash at beginning of year | | Cash, cash equivalents and restricted cash at beginning of year | 4,670,750 | | | 5,169,083 | | | 3,913,396 | |
| Cash, cash equivalents and restricted cash at end of year | | Cash, cash equivalents and restricted cash at end of year | $ | 3,773,535 | | | $ | 4,670,750 | | | $ | 5,169,083 | |
| Schedule of non-cash transactions | | | | | | Schedule of non-cash transactions | | | | | |
| Accrued payables for stock repurchases | $ | — |
| | $ | — |
| | $ | 3,255 |
| Accrued payables for stock repurchases | $ | 46 | | | $ | 20,005 | | | $ | 82 | |
| Accrued payables for capital expenditures | 17,285 |
| | 27,953 |
| | 22,436 |
| Accrued payables for capital expenditures | 80,296 | | | 61,392 | | | 37,812 | |
| Dividends payable | 72,738 |
| | 48,052 |
| | 47,659 |
| Dividends payable | 205,615 | | | 185,431 | | | 167,129 | |
| Transfers of finished goods inventory to property and equipment, net | 46,855 |
| | 37,822 |
| | 4,547 |
| |
| Transfers of finished goods inventory to property and equipment | | Transfers of finished goods inventory to property and equipment | 75,068 | | | 80,252 | | | 51,694 | |
| Supplemental disclosures: | | | | | | Supplemental disclosures: | |
| Cash payments for interest | $ | 104,619 |
| | $ | 58,810 |
| | $ | 26,393 |
| Cash payments for interest | $ | 175,528 | | | $ | 203,932 | | | $ | 171,889 | |
| Cash payments for income taxes, net | 28,104 |
| | 39,745 |
| | 114,512 |
| Cash payments for income taxes, net | 807,669 | | | 518,567 | | | 222,909 | |
| | Reconciliation of cash, cash equivalents, and restricted cash | | Reconciliation of cash, cash equivalents, and restricted cash | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| Cash and cash equivalents | | Cash and cash equivalents | $ | 3,522,001 | | | $ | 4,418,263 | | | $ | 4,915,172 | |
| Restricted cash and cash equivalents | | Restricted cash and cash equivalents | 251,534 | | | 252,487 | | | 253,911 | |
| Total cash, cash equivalents, and restricted cash | | Total cash, cash equivalents, and restricted cash | $ | 3,773,535 | | | $ | 4,670,750 | | | $ | 5,169,083 | |
|
See Notes to Consolidated Financial Statements
Continues on next page
Lam Research Corporation 20172022 10-K 5443
LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)thousands, except per common share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock
Shares | | Common
Stock | | Additional
Paid-in
Capital | | Treasury
Stock | | Accumulated
Other
Comprehensive
Income(Loss) | | Retained
Earnings | | Total |
| Balance at June 30, 2019 | 144,433 | | | $ | 144 | | | $ | 6,409,405 | | | $ | (11,602,573) | | | $ | (64,030) | | | $ | 9,930,919 | | | $ | 4,673,865 | |
| Issuance of common stock | 1,288 | | | 1 | | | 8,083 | | | — | | | — | | | — | | | 8,084 | |
| Purchase of treasury stock | (5,371) | | | (5) | | | — | | | (1,369,697) | | | — | | | — | | | (1,369,702) | |
| Reissuance of treasury stock | 513 | | | 1 | | | 63,057 | | | 22,381 | | | — | | | — | | | 85,439 | |
| Equity-based compensation expense | — | | | — | | | 189,197 | | | — | | | — | | | — | | | 189,197 | |
| Effect of conversion of convertible notes | 4,468 | | | 4 | | | (12,328) | | | — | | | — | | | — | | | (12,324) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Reclassification from temporary to permanent equity | — | | | — | | | 38,444 | | | — | | | — | | | — | | | 38,444 | |
| Adoption of ASU 2016-02 | — | | | — | | | — | | | — | | | — | | | 3,018 | | | 3,018 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 2,251,753 | | | 2,251,753 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (30,181) | | | | | (30,181) | |
| Cash dividends declared ($4.60 per common share) | — | | | — | | | — | | | — | | | — | | | (665,099) | | | (665,099) | |
| Balance at June 28, 2020 | 145,331 | | | 145 | | | 6,695,858 | | | (12,949,889) | | | (94,211) | | | 11,520,591 | | | 5,172,494 | |
| Issuance of common stock | 1,089 | | | 1 | | | 24,122 | | | — | | | — | | | — | | | 24,123 | |
| Purchase of treasury stock | (5,819) | | | (5) | | | — | | | (2,717,622) | | | — | | | — | | | (2,717,627) | |
| Reissuance of treasury stock | 484 | | | — | | | 76,954 | | | 20,810 | | | — | | | — | | | 97,764 | |
| Equity-based compensation expense | — | | | — | | | 220,164 | | | — | | | — | | | — | | | 220,164 | |
| Effect of conversion of convertible notes | 1,416 | | | 2 | | | 24,869 | | | — | | | — | | | — | | | 24,871 | |
| | | | | | | | | | | | | |
| Reclassification from temporary to permanent equity | — | | | — | | | 10,995 | | | — | | | — | | | — | | | 10,995 | |
| | | | | | | | | | | | | |
| Adoption of ASU 2018-18 | — | | | — | | | — | | | — | | | — | | | 1,157 | | | 1,157 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 3,908,458 | | | 3,908,458 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 30,083 | | | — | | | 30,083 | |
| Cash dividends declared ($5.20 per common share) | — | | | — | | | — | | | — | | | — | | | (745,294) | | | (745,294) | |
| Balance at June 27, 2021 | 142,501 | | | 143 | | | 7,052,962 | | | (15,646,701) | | | (64,128) | | | 14,684,912 | | | 6,027,188 | |
| Issuance of common stock | 795 | | | $ | 1 | | | $ | 5,681 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,682 | |
| Purchase of treasury stock | (6,574) | | | (7) | | | — | | | (3,845,697) | | | — | | | — | | | (3,845,704) | |
| Reissuance of treasury stock | 253 | | | — | | | 97,209 | | | 10,969 | | | — | | | — | | | 108,178 | |
| Equity-based compensation expense | — | | | — | | | 259,064 | | | — | | | — | | | — | | | 259,064 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | 4,605,286 | | | 4,605,286 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (45,854) | | | — | | | (45,854) | |
| Cash dividends declared ($6.00 per common share) | — | | | — | | | — | | | — | | | — | | | (835,474) | | | (835,474) | |
| Balance at June 26, 2022 | 136,975 | | | $ | 137 | | | $ | 7,414,916 | | | $ | (19,481,429) | | | $ | (109,982) | | | $ | 18,454,724 | | | $ | 6,278,366 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock
Shares | | Common
Stock | | Additional
Paid-in
Capital | | Treasury
Stock | | Accumulated
Other
Comprehensive
Income(Loss) | | Retained
Earnings | | Total |
| Balance at June 29, 2014 | 162,350 |
| | $ | 162 |
| | $ | 5,239,567 |
| | $ | (3,757,076 | ) | | $ | (28,655 | ) | | $ | 3,575,737 |
| | $ | 5,029,735 |
|
| Sale of common stock | 2,876 |
| | 4 |
| | 17,519 |
| | — |
| | — |
| | — |
| | 17,523 |
|
| Purchase of treasury stock | (7,638 | ) | | (8 | ) | | — |
| | (573,096 | ) | | — |
| | — |
| | (573,104 | ) |
| Income tax benefits on equity-based compensation plans | — |
| | — |
| | 11,316 |
| | — |
| | — |
| | — |
| | 11,316 |
|
| Reissuance of treasury stock | 943 |
| | 1 |
| | 21,477 |
| | 27,325 |
| | — |
| | — |
| | 48,803 |
|
| Equity-based compensation expense | — |
| | — |
| | 135,354 |
| | — |
| | — |
| | — |
| | 135,354 |
|
| Reclassification from temporary to permanent equity | — |
| | — |
| | (58,460 | ) | | — |
| | — |
| | — |
| | (58,460 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 655,577 |
| | 655,577 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | (29,141 | ) | | — |
| | (29,141 | ) |
| Cash dividends declared ($0.84 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (134,459 | ) | | (134,459 | ) |
| Balance at June 28, 2015 | 158,531 |
| | 159 |
| | 5,366,773 |
| | (4,302,847 | ) | | (57,796 | ) | | 4,096,855 |
| | 5,103,144 |
|
| Sale of common stock | 2,863 |
| | 2 |
| | 3,403 |
| | — |
| | — |
| | — |
| | 3,405 |
|
| Purchase of treasury stock | (2,130 | ) | | (2 | ) | | — |
| | (155,132 | ) | | — |
| | — |
| | (155,134 | ) |
| Income tax benefits on equity-based compensation plans | — |
| | — |
| | (1,023 | ) | | — |
| | — |
| | — |
| | (1,023 | ) |
| Reissuance of treasury stock | 937 |
| | 1 |
| | 27,329 |
| | 28,662 |
| | — |
| | — |
| | 55,992 |
|
| Equity-based compensation expense | — |
| | — |
| | 142,348 |
| | — |
| | — |
| | — |
| | 142,348 |
|
| Effect of conversion of convertible notes | — |
| | — |
| | (188 | ) | | — |
| | — |
| | — |
| | (188 | ) |
| Reclassification from temporary to permanent equity | — |
| | — |
| | 34,256 |
| | — |
| | — |
| | — |
| | 34,256 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 914,049 |
| | 914,049 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | (11,537 | ) | | — |
| | (11,537 | ) |
| Cash dividends declared ($1.20 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (190,795 | ) | | (190,795 | ) |
| Balance at June 26, 2016 | 160,201 |
| | 160 |
| | 5,572,898 |
| | (4,429,317 | ) | | (69,333 | ) | | 4,820,109 |
| | 5,894,517 |
|
| Sale of common stock | 2,661 |
| | 3 |
| | 12,910 |
| | — |
| | — |
| | — |
| | 12,913 |
|
| Purchase of treasury stock | (5,322 | ) | | (5 | ) | | — |
| | (811,667 | ) | | — |
| | — |
| | (811,672 | ) |
| Income tax benefits on equity-based compensation plans | — |
| | — |
| | 38,747 |
| | — |
| | — |
| | — |
| | 38,747 |
|
| Reissuance of treasury stock | 825 |
| | 1 |
| | 34,865 |
| | 24,797 |
| | — |
| | — |
| | 59,663 |
|
| Equity-based compensation expense | — |
| | — |
| | 149,975 |
| | — |
| | — |
| | — |
| | 149,975 |
|
| Effect of conversion of convertible notes, net of income tax benefit | 1,388 |
| | 1 |
| | (1,596 | ) | | — |
| | — |
| | — |
| | (1,595 | ) |
| Exercise of warrants | 1,970 |
| | 2 |
| | (5 | ) | | — |
| | — |
| | — |
| | (3 | ) |
| Reclassification to temporary from permanent equity, net | — |
| | — |
| | 37,691 |
| | — |
| | — |
| | — |
| | 37,691 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 1,697,763 |
| | 1,697,763 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 7,633 |
| | — |
| | 7,633 |
|
| Cash dividends declared ($1.65 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (268,181 | ) | | (268,181 | ) |
| Balance at June 25, 2017 | 161,723 |
| | $ | 162 |
| | $ | 5,845,485 |
| | $ | (5,216,187 | ) | | $ | (61,700 | ) | | $ | 6,249,691 |
| | $ | 6,817,451 |
|
See Notes to Consolidated Financial Statements
Continues on next pageLam Research Corporation 20172022 10-K 5544
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 25, 201726, 2022
Note 1: Company and Industry Information
The Company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. Semiconductor manufacturing, our customers’ business, involves the complete fabrication of multiple dies or integrated circuits on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.
The Company sells its products and services primarily to companies involved in the production of semiconductors in the United States, China, Europe, Japan, Korea, Southeast Asia, and Taiwan.
The semiconductor industry is cyclical in nature and has historically experienced periodic downturns and upturns. Today’s leading indicators of changes in customer investment patterns, such as electronics demand, memory pricing, and foundry utilization rates, may not be any more reliable than in prior years. Demand for the Company’s equipment can vary significantly from period to period as a result of various factors including, but not limited to economic conditions; supply, demand, and prices for semiconductors; customer capacity requirements; and the Company’s ability to develop and market competitive products. For these and other reasons, the Company’s results of operations for fiscal years 2017, 2016,2022, 2021, and 20152020 may not necessarily be indicative of future operating results.
Reclassification: Certain amounts for the fiscal year 2021 footnotes have been reclassified to conform to the fiscal year 2022 presentation. Note 2: Summary of Significant Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience and on various other assumptions it believes to be applicable and evaluates them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results could differ significantly from those estimates.
Revenue Recognition:The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred and title has passedpromised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
Identify the contract with a customer. The Company generally considers documentation of terms with an approved purchase order as a customer contract provided that collection is considered probable, which is assessed based on the creditworthiness of the customer as determined by credit checks, payment histories, and/or other circumstances.
Identify the performance obligations in the contract. Performance obligations include sales of systems, spare parts, and services. In addition, customer contracts contain provisions for installation and training services which have been rendered,deemed immaterial in the selling price is fixed or determinable, collectioncontext of the receivablecontract.
Determine the transaction price. The transaction price for the Company’s contracts with its customers consists of both fixed and variable consideration provided it is reasonably assured,probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for discounts and credits for future usage which are based on contractual terms outlined in volume purchase agreements and other factors known at the time. The Company has received customer acceptancegenerally invoices customers at shipment and for professional services either as provided or is otherwise released from its customer acceptance obligations. If terms of the sale provide for a lapsing customer acceptance period, the Company recognizes revenue upon the expiration of the lapsing acceptance period or customer acceptance, whichever occurs first. If the practices of a customer do not provide for a written acceptance or the terms of salemeeting certain milestones. Customer invoices are generally due within 30 to 90 days after issuance. The Company’s contracts with customers typically do not include a lapsing acceptance provision,significant financing components as the period between the transfer of performance obligations and timing of payment are generally within one year.
Allocate the transaction price to the performance obligations in the contract. For contracts that contain multiple performance obligations, the Company recognizesallocates the transaction price to the performance obligations on a relative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to historical discounting trends for products and services and pricing practices in different geographies.
Recognize revenue when it can be reliably demonstrated that the delivered system meets all of the agreed-to customer specifications. In situations with multiple deliverables,or as the Company recognizes revenuesatisfies a performance obligation. Revenue for systems and spares are recognized at a point in time, which is generally upon the delivery of the separate elements to the customer and when the Company receives customer acceptanceshipment or delivery. Revenue from services is otherwise released from its customer acceptance obligations. The Company allocates revenue from multiple-element arrangements among the separate elements using their relative selling prices based on the Company’s best estimate of selling price. The Company’s sales arrangements do not include a general right of return. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items. The Company generally recognizes revenue related to sales of spare parts and system upgrade kits upon shipment. The Company generally recognizes revenue related toover time as services upon completion of the services requested by a customer order. The Company recognizes revenue for extended maintenance service contracts with a fixed payment amount on a straight-line basisare completed or ratably over the termcontractual period of the contract. When goodsgenerally one year or services have been delivered to the customer but all conditions for revenue recognition have not been met, deferred revenue and deferred costs are recognized in deferred profit on the Consolidated Balance Sheet.less.
Lam Research Corporation 2022 10-K 45
Inventory Valuation:Inventories are stated at the lower of cost or marketnet realizable value using standard costs that approximate actual costs on a first-in, first-out basis. Finished goods are reported as inventories until the point of title transfer
Continues on next pageLam Research Corporation 2017 10-K 56
to the customer. Unless specified in the terms of sale, title generally transfers at the physical transfer of the products to the freight carriers. Transfer of title for shipments to Japanese customers occurs at the time of customer acceptance.
Management evaluates the need to record adjustments for impairment of inventory at least quarterly. The Company’s policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods, and spare parts in each reporting period. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated market value if less than cost. Estimates of market value include but are not limited to management’s forecasts related to the Company’s future manufacturing schedules, customer demand, technological and/or market obsolescence, general semiconductor market conditions, and possible alternative uses. If future customer demand or market conditions are less favorable than the Company’s projections, additional inventory write-downs may be required and would be reflected in cost of goods sold in the period in which the revision is made.
Warranty:Typically, the sale of semiconductor capital equipment includes providing parts and service warranties to customers as part of the overall price of the system. The Company provides standard warranties for its systems. The Company records a provision for estimated warranty expenses to cost of sales for each system when it recognizes revenue. The Company does not maintain general or unspecified reserves; all warranty reserves are related to specific systems. All actual or estimated parts and labor costs incurred in subsequent periods are charged to those established reserves on a system-by-system basis.
While the Company periodically monitors the performance and cost of warranty activities, if actual costs incurred are different than its estimates, the Company may recognize adjustments to provisions in the period in which those differences arise or are identified. In addition to the provision of standard warranties, the Company offers customer-paid extended warranty services. Revenues for extended maintenance and warranty services with a fixed payment amount are recognized on a straight-line basis over the term of the contract. Related costs are recorded as incurred.
Equity-BasedEquity-based Compensation — Employee Stock Purchase Plan and Employee Stock Plans:The Company recognizes the fair value of equity-based compensation expense. The Company determines the fair value of its RSUs, excluding market-based performance RSUs, based upon the fair market value of Company’s Common Stock at the date of grant, discounted for dividends. The Company estimates the fair value of its market-based performance RSUs using a Monte Carlo simulation model at the date of the grant. The Company estimates the fair value of its stock options and ESPP awards 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. The Company amortizes the fair value of equity-based awards over the vesting periods of the award, and the Company has elected to use the straight-line method of amortization.
The Company makes quarterly assessments of the adequacy of its tax credit pool related to equity-based compensation to determine if there are any deficiencies that it is required to recognize in the Company’s Consolidated Statements of Operations. The Company will only recognize a benefit from equity-based compensation in paid-in-capital if it realizes an incremental tax benefit after all other tax attributes currently available have been utilized. In addition, the Company has elected to account for the indirect benefits of equity-based compensation on the research tax credit through the income statement rather than through paid-in-capital. The Company also elected to net deferred tax assets and the associated valuation allowance related to net operating loss and tax credit carryforwards for the accumulated stock award tax benefits for income tax footnote disclosure purposes. The Company tracks these stock award attributes separately and will only recognize these attributes through paid-in-capital.
Income Taxes:Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more-likely-than-notmore likely than not to be realized. Realization of ourits net deferred tax assets is dependent on future taxable income. The Company believes it is more-likely-than-notmore likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event that the Company determines that it wouldwill not be able to realize all or part of ourits net deferred tax assets, an adjustment wouldwill be charged to earnings in the period such determination is made. Likewise, if the Company later determines that it is more-likely-than-notmore likely than not that the deferred tax assets wouldwill be realized, then the previously provided valuation allowance wouldwill be reversed.
Continues on next pageLam Research Corporation 2017 10-K 57
The Company recognizes the benefit from a tax position only if it is more-likely-than-notmore likely than not that the position wouldwill be sustained upon audit based solely on the technical merits of the tax position. The Company’s policy is to include interest and penalties related to unrecognizeduncertain tax benefitspositions as a component of income tax expense.
Goodwill and Intangible Assets:Assets:The valuation of intangible assets acquired in a business combination requires the use of management estimates including but not limited to estimating future expected cash flows from assets acquired and determining discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates. Estimates associated with the accounting for acquisitions may change as additional information becomes available. The Company amortizes intangible assets with estimable useful lives over their respective estimated useful lives.
Goodwill represents the amount by which the purchase price in each business combination exceeds the fair value of the net tangible and identifiable intangible assets acquired. Each component of the Company for which discrete financial information is available and for which management regularly reviews the results of operations is considered a reporting unit. All goodwill acquired in a business combination is assigned to one or more reporting units as of the acquisition date. Goodwill is assigned to the Company’s reporting units that are expected to benefit from the synergies of the combination. The goodwill assigned to a reporting unit is the difference between the acquisition consideration assigned to the reporting unit on a relative fair value basis and the fair value of acquired assets and liabilities that can be specifically attributed to the reporting unit. The Company tests goodwill and identifiable intangible assets with indefinite useful lives for impairment at least annually. The Company amortizes intangible assets with estimable useful lives over their respective estimated useful lives, and the Company reviews for impairment whenever events or changes in circumstances indicate that the carrying amount
Lam Research Corporation 2022 10-K 46
The Company reviews goodwill at least annually for impairment. Ifimpairment during the fourth quarter of each fiscal year and if certain events or indicators of impairment occur between annual impairment tests,tests. The process of evaluating the Company would perform an impairment test at that date. In testing for a potential impairment of goodwill requires significant judgment. When reviewing goodwill for impairment, the Company (1) allocates goodwillfirst performs a qualitative assessment to its reporting units to whichdetermine whether it is more likely than not that the acquired goodwill relates, (2) estimates the fair value of its reporting units, and (3) determines the carrying value (book value) of those reporting units. Furthermore, if the estimated fair value of a reporting unit is less than its carrying value. In performing a qualitative assessment, it considers business conditions and other factors including, but not limited to (i) adverse industry or economic trends, (ii) restructuring actions and lower projections that may impact future operating results, (iii) sustained decline in share price, and (iv) overall financial performance and other events affecting the carrying value,reporting units. If the Company must estimate the fair value of all identifiable assets and liabilities ofconcludes that reporting unit, in a manner similar to a purchase price allocation for an acquired business. This can require independent valuations of certain internally generated and unrecognized intangible assets such as in-process R&D and developed technology. Only after this process is completed can the amount of goodwill impairment, if any, be determined. In the Company’s goodwill impairment process, it first assesses qualitative factors to determine whether it is necessary to perform a quantitative analysis. The Company doesmore likely than not calculatethat the fair value of a reporting unit unless the Company determines, based on a qualitative assessment, that it is more-likely-than-not that its fair value is less than its carrying amount. The Company performs an annual goodwillamount, then a quantitative impairment analysis astest is performed by estimating the fair value of the first day ofreporting unit and comparing it to its fourth fiscal quarter.carrying value, including goodwill allocated to that reporting unit. The Company did not record impairments of goodwill during the years ended June 25, 2017, and26, 2022, June 26, 2016. For the year ended27, 2021, or June 28, 2015, the Company recorded an impairment charge on its Single-Wafer Clean reporting unit of approximately $79.4 million.2020.
The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. The Company determines the fair value of its reporting units by using an income approach. Under the income approach, the Company determines fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.
In estimating the fair value of a reporting unit, the Company makes estimates and judgments about the future cash flows of its reporting units, including estimated growth rates and assumptions about the economic environment. Although the Company’s cash flow forecasts are based on assumptions that are consistent with the plans and estimates it is using to manage the underlying businesses, there is significant judgment involved in determining the cash flows attributable to a reporting unit. In addition, the Company makes certain judgments about allocating shared assets to the estimated balance sheets of its reporting units. Changes in judgment on these assumptions and estimates could result in a goodwill impairment charge.
As a result, several factors could result in impairmentIf after completing the quantitative assessment the carrying value of a material amount of the Company’s goodwill balance in future periods, including but not limited to: (1) weakening of the global economy, weakness in the semiconductor equipment industry, or failure ofreporting unit exceeds its fair value, the Company to reach its internal forecasts, which could impact the Company’s ability to achieve its forecasted levels of cash flows and reduce the estimated discounted cash flow value of its
Continues on next pageLam Research Corporation 2017 10-K 58
reporting units and (2) a decline in the Company’s stock price and resulting market capitalization and to the extent the Company determines that the decline is sustained and indicates a reduction in the fair value of the Company’s reporting units below their carrying value. Further, the value assigned to intangible assets, other than goodwill, is based on estimates and judgments regarding expectations such as the success and lifecycle of products and technology acquired. If actual product acceptance differs significantly from the estimates, the Company may be required towould record an impairment charge equal to write down the asset to its realizable value.
The Company reviews indefinite-lived intangible assets for an impairment annually or when events or circumstances indicate the carrying value may not be recoverable. Factors that may be a change in circumstances, indicating the carrying value of intangible assets subject to amortization may not be recoverable, include a reduced future cash flow estimate and slower growth rates in the industry segment in which the Company participates. The Company determines whether the sum of the estimated undiscounted cash flows attributable to the assets is less than their carrying value. If the sum is less, the Company recognizes an impairment loss based on the excess of the carrying amountvalue of the assetsreporting unit over their respectiveits fair values. Fair value, is determined by discounted future cash flows, appraisals, or other methods. up to the amount the goodwill assigned to the reporting unit.
Impairment of Long-lived Assets (Excluding Goodwill):The Company recognizes an impairment charge toreviews intangible assets whenever events or circumstances indicate that the extent the presentcarrying value of anticipated net cash flows attributable to thean asset are less than the asset’s carrying value. The Company didor asset group may not record any impairment charge on indefinite-lived assets during the years ended June 25, 2017, June 26, 2016, or June 28, 2015.
Impairment of Long-Lived Assets (Excluding Goodwill and Indefinite-Lived Intangibles): The Company routinely considers whether indicators of impairment of long-lived assets are present.be recoverable. If such indicators are present, the Company determines whether the sum of the estimated undiscounted cash flows attributable to the assets is less than their carrying value. If the sum is less, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals, or other methods. The Company recognizes an impairment charge to the extent the presentfair value of anticipated net cash flows attributable to the asset are less than the asset’s carrying value. The fair value of the asset then becomes the asset’s new carrying value, which the Company depreciates over the remaining estimated useful life of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value. The Company did not record an For the periods presented, there was noimpairment lossof long-lived assets. In addition, for fully amortized intangible assets, we derecognize the gross cost and accumulated amortization in the years ended June 25, 2017, or June 26, 2016. The Company recorded a $9.8 million impairment loss on long-lived assets duringperiod we determine the year ended June 28, 2015.intangible asset no longer enhances future cash flows.
Fiscal Year: The Company follows a 52/53-week fiscal reporting calendar, and its fiscal year ends on the last Sunday of June each year. The Company’s most recent fiscal years ended on June 25, 2017, June 26, 2016,2022, June 27, 2021, and June 28, 2015,2020, and each included 52 weeks.
Principles of Consolidation:The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents and Investments:Investments purchased with an original maturity of three months or less are considered cash equivalents. The Company also invests in certain mutual funds, which include equity and fixed- incomefixed-income securities, related to its obligations under its deferred compensation plan, and such investments are classified as trading securities on the consolidated balance sheets. All of the Company’s other investments are classified as available-for-sale at the respective balance sheet dates. The Company accounts for its investment portfolio at fair value. Investments classified as trading securities are recorded at fair value based upon quoted market prices. Differences between the cost and fair value of trading securities are recognized as “Otherother income (expense)”, net in the Consolidated Statement of Operations. The investments classified as available-for-sale are recorded at fair value based upon quoted market prices, and difference between the cost and fair value of available-for-sale securities is presented as a component of accumulated other comprehensive income (loss). Unrealized losses on available-for-sale securities are charged against other income (expense) when a decline inFollowing the fiscal year 2021 adoption of Accounting Standard Codification Topic 326, under Subtopic 326-30, the Company evaluates its investments with fair value is determined to be other than temporary. The Company considers several factors to determine whether a loss is other than temporary. These factors include but are not limited to (1) the extent to which the fair value is less than amortized cost basis, (2)by first considering whether the financial condition and near-term prospects ofCompany has the issuer, (3) the length of time a security is in an unrealized loss position, and (4) the Company’s ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The Company’s ongoing consideration of these factors could result in additional impairment charges in the future, which could adversely affect its results of operation. An other-than-temporary impairment is triggered when there is an intent to sell the security or whether it is more-likely-than-notmore likely than not that the securityCompany will be required to be soldsell the security before recovery or the security is not expected to
Continues on next pageLam Research Corporation 2017 10-K 59
recover the entireits amortized cost basisbasis. In either such situation, the difference between fair value and amortized cost is recognized as a loss in the income statement. Where such sales are not likely to occur, the Company considers whether a portion of the security. Other-than-temporary impairments attributed toloss is the result of a credit loss. To the extent such losses are the result of credit losses, those amounts are recognized in the income statement. The specific identification method is used to determineAll other differences between fair value and amortized cost are recognized in other comprehensive income. No such losses were recognized through the realized gainsincome statement during the years ended June 26, 2022 and losses on investments.June 27, 2021. No other-than-temporary impairment charges were recognized during the year ended June 28, 2020.
Lam Research Corporation 2022 10-K 47
Allowance for Doubtful Accounts:Expected Credit Losses: The Company maintains an allowance for expected losses resulting from the inability of its customers to make required payments. The Company evaluates its allowance for doubtful accountsexpected credit losses based on a combination of factors. In circumstances where specific invoices are deemed to be uncollectible, the Company provides a specific allowance for bad debt against the amount due to reduce the net recognized receivable to the amount it reasonably believes will be collected. The Company also provides allowances based on its write-off history. Bad debt expense was not material for fiscal years ended June 26, 2022, June 27, 2021, and June 28, 2020.
Property and Equipment:Property and equipment is stated at cost. Equipment is depreciated by the straight-line method over the estimated useful lives of the assets, generally three to five years. Furniture and fixtures are depreciated by the straight-line method over the estimated useful lives of the assets, generally five years. Software is amortized by the straight-line method over the estimated useful lives of the assets, generally three to five years. Buildings are depreciated by the straight-line method over the estimated useful lives of the assets, generally twenty-five years. Leasehold improvements are generally amortized by the straight-line method over the shorter of the life of the related asset or the term of the underlying lease. Amortization of capitalfinance leases is included with depreciation expense.
Derivative Financial Instruments:In the normal course of business, the Company’s financial position is routinely subjected to market risk associated with interest rate and foreign currency exchange rate fluctuations. The Company’s policy is to mitigate the effect of theseinterest rate fluctuations on certain proposed debt instruments and exchange rate fluctuations on certain foreign currency denominated business exposures. The Company has a policy that allows the use of derivative financial instruments to hedge foreign currency exchange rate fluctuations on forecasted revenue and expenses and net monetary assets or liabilities denominated in various foreign currencies. The Company carries derivative financial instruments (derivatives) on the balance sheet at their fair values. The Company does not use derivatives for trading or speculative purposes. The Company does not believe that it is exposed to more than a nominal amount of credit risk in its interest rate and foreign currency hedges, as counterparties are large, global and well-capitalized financial institutions. The Company’s exposures are in liquid currencies (Japanese yen, Swiss francs, euros, Taiwanese dollars, Chinese renminbi, Singapore dollars,Company maintains an active currency hedging program and Korean won), sobelieves there is minimal risk that appropriate derivatives to maintain the Company’s hedging program would not be available in the future.
To hedge foreign currency risks, the Company uses foreign currency exchange forward and option contracts, where possible and prudent. These hedge contracts are valued using standard valuation formulas with assumptions about future foreign currency exchange rates derived from existing exchange rates, interest rates, and other market factors.
The Company considers its most current forecast in determining the level of foreign currency denominated revenue and expenses to hedge as cash flow hedges. The Company combines these forecasts with historical trends to establish the portion of its expected volume to be hedged. The revenue and expenses are hedged and designated as cash flow hedges to protect the Company from exposures to fluctuations in foreign currency exchange rates. If the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge are reclassified from accumulated other comprehensive income (loss) to other income (expense), net on the Consolidated Statement of Operations at that time.
Leases:Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company includes renewals and terminations in the calculation of the right-of-use asset and liability when the provision is reasonably certain to be exercised. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments when the rate implicit in the lease is unknown.
The Company has elected the following practical expedients and accounting policy elections for accounting under ASC 842: (i) leases with an initial lease term of 12 months or less are not recorded on the balance sheet; and (ii) lease and non-lease components of a contract are accounted for as a single lease component.
Guarantees: The Company has certain operatingfinance leases that contain provisions whereby the properties subject to the operatingfinance leases may be remarketed at lease expiration. The Company has guaranteed to the lessor an amount approximating the lessor’s investment in the property. Also, the Company’s guarantees generally include certain indemnifications to its lessors under operating lease agreements for environmental matters, potential overdraft protection obligations to financial institutions related to one of the Company’s subsidiaries, indemnifications to the Company’s customers for certain infringement of third-party intellectual property rights by its products and services, indemnifications for its officers and directors, and the Company’s warranty obligations under sales of its products.
Foreign Currency Translation:The Company’s non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, primarily generate and expend cash in their local currency. Accordingly, all balance sheet accounts of these local functional currency subsidiaries are translated into U.S. dollars at the fiscal period-end exchange rate, and income and expense accounts are translated into U.S. dollars using average rates in effect for the period, except for costs related to those balance
Continues on next pageLam Research Corporation 2017 10-K 60
sheet items that are translated using historical exchange rates. The resulting translation adjustments are recorded as cumulative translation adjustments and are a component of accumulated other comprehensive income (loss). TranslationRemeasurement adjustments are recorded in other income (expense), net, where the U.S. dollar is the functional currency.
Lam Research Corporation 2022 10-K 48
Note 3: Recent Accounting Pronouncements
Recently Adopted or Effective
In April 2015, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) 2015-3, “Interest – Imputation of Interest.” The amendment requires that debt issuance costs related to recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this standard starting in the first quarter of fiscal 2017, with retrospective application to the June 26, 2016 Consolidated Balance Sheet. The adoption did not haveadopt any new accounting standards during fiscal year 2022 that had a material impact toon the Consolidated Financial Statements.
In September 2015, the FASB released ASU 2015-16, “Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments,” which eliminates the requirement to restate prior period financial statements for measurement period adjustments. Instead, the cumulative impact of measurement period adjustments, including the impact on prior periods, is required to be recognized in the reporting period in which the adjustment is identified. The Company adopted this standard in the first quarter of fiscal 2017, with no impact to theCompany’s Consolidated Financial Statements.
Updates Not Yet Effective
In May 2014,November 2021, the FASB released ASU 2014-9, “Revenue from ContractsFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” which requires business entities to make annual disclosures, including the nature of transactions and the related accounting policy used to account for the transactions, significant terms and conditions, and line items affected, about transactions with Customers,”a government (including government assistance) that are accounted for by analogizing to supersede nearly all existing revenue recognitiona grant or contribution accounting model. The guidance under GAAP. The FASB issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within ASU 2015–14, ASU 2016–08, ASU 2016–10, ASU 2016–12 and ASU 2016–20, respectively.The core principle of the standard is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be receivedeffective for those goods or services. The new standard defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation.
The Company is required to adopt these standards starting in the first quarter of fiscal year 2019 using either of two methods: (1) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the standard or (2) retrospective with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined per the standard. The Company has not yet selected a transition method. The Company is continuing its evaluation of the impact that the new standard will have on its Consolidated Financial Statements and disclosures, business processes, systems, and controls. While the Company’s evaluation of the impact of the standard on its financial statements issued for annual periods beginning after December 15, 2021, with respect to its spare parts and service revenue has not been completed, the Company believes that the timing of revenue recognition for certain of its systems will generally be earlier than under existing revenue recognition guidance. The Company continues to evaluate the impact to our revenues related to our pendingearly adoption of these standards and our preliminary assessments are subject to change.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” This ASU amends existing guidance to require that deferred income tax assets and liabilities be classified as non-current in a classified balance sheet and eliminates the prior guidance which required an entity to separate deferred tax assets and liabilities into a current amount and a non-current amount in a classified balance sheet. The amendments in this ASU are effective for the Company beginning in its first quarter of fiscal year 2018. Additionally, the new guidance may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company plans to adopt the guidance prospectively in its first quarter of fiscal year 2018 with an anticipated reclassification from current assets and liabilities to non-current assets and liabilities on its Consolidated Balance Sheet.
Continues on next pageLam Research Corporation 2017 10-K 61
In January 2016, the FASB released ASU 2016-1, “Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendment changes the accounting for and financial statement presentation of equity investments, other than those accounted for under the equity method of accounting or those that result in consolidation of the investee. The amendment provides clarity on the measurement methodology to be used for the required disclosure of fair value of financial instruments measured at amortized cost on the balance sheet and clarifies that an entity should evaluate the need for a valuation allowance on deferred tax assets related to available-for-sale securities in combination with the entity’s other deferred tax assets, among other changes. The Company is required to adopt this standard starting in the first quarter of fiscal year 2019 and does not anticipate that implementation will have a material impact on its Consolidated Financial Statements.
In January 2016, the FASB released ASU 2016-2, “Leases.” The amendment requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The amendment offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company is required to adopt this standard starting in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements.
In March 2016, the FASB released ASU 2016-9, “Compensation – Stock Compensation.” Key changes in the amendment include:
entities will be required to recognize all excess tax benefits or deficiencies as an income tax benefit or expense in the income statement, eliminating additional paid in capital (“APIC”) pools;
entities will no longer be required to delay recognition of excess tax benefits until they are realized;
entities will be required to classify the excess tax benefits as an operating activity in the statement of cash flows;
entities will be allowed to elect an accounting policy to either estimate the number of forfeitures or account for forfeitures as they occur; and
entities can withhold up to the maximum individual statutory tax rate without classifying the awards as a liability, the cash paid to satisfy the statutory income tax withholding obligations shall be classified as a financing activity in the statement of cash flows.
The Company is required to adopt this standard in the first quarter of fiscal year 2018.2023 for the annual reporting period ending June 25, 2023. The guidance may be applied either prospectively to all in-scope transactions at the date of initial application or retrospectively. The Company expects the provisions for the change in the recognitiondoes not expect adoption of future excess tax benefits or deficiencies and statement of cash flow changes regarding the same measure will be adopted prospectively, and the provisions for the change in recognition of excess tax benefits for all years priorthis standard to the year of adoption will be applied usinghave a modified retrospective approach with a cumulative adjustment to retained earnings. The Company plans to continue to estimate the number of forfeitures. The Company is currently in the process of evaluating thematerial impact of adoption on its Consolidated Financial Statements.
In June 2016,2022, the FASB releasedissued ASU 2016-13, “Financial Instruments – Credit Losses.2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” The amendment reviseswhich clarifies that a contractual restriction on the impairment model to utilizesale of an expected loss methodology in placeequity security is not considered part of the currently used incurred loss methodology, which will resultunit of account of the equity security and, therefore, is not considered in more timely recognitionmeasuring fair values; it also requires additional disclosures, including the nature and remaining duration of losses onsuch restrictions. The guidance is effective for financial instruments, including but not limited to available-for-sale debt securities and accounts receivable.statements issued for annual periods beginning after December 15, 2023, with early adoption permitted. The Company is required to adopt this standard startingprospectively in the first quarter of fiscal year 2021. Early adoption is permitted.2025 for the annual reporting period ending June 29, 2025. The Company is currently in the processdoes not expect adoption of evaluating thethis standard to have a material impact of adoption on its Consolidated Financial Statements.
In August 2016,
Note 4: Revenue
Deferred Revenue
Revenue of $908.7 million included in deferred profit at June 27, 2021 was recognized during fiscal year 2022.
The following table summarizes the FASB released ASU 2016-15, “Statementtransaction price for contracts that have not yet been recognized as revenue as of Cash Flows – Classification of Certain Cash ReceiptsJune 26, 2022 and Cash Payments.” The amendment provides and clarifies guidancewhen the Company expects to recognize the amounts as revenue:
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 1 Year | | 1-3 Years | | More than 3 Years | | Total |
| (in thousands) |
| Deferred revenue | $ | 2,014,210 | | | $ | 160,266 | | (1) | $ | 23,623 | | (1) | $ | 2,198,099 | |
| | | | | | | |
(1) This amount is reported in Deferred profit on the classificationCompany's Consolidated Balance Sheets as the customers can demand the liability to be performed at any time.
Disaggregation of certain cash receiptsRevenue
The following table presents the Company’s revenue disaggregated between system and cash paymentsits customer-support related revenue:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| (in thousands) |
| Systems Revenue | $ | 11,322,271 | | | $ | 9,764,845 | | | $ | 6,625,130 | |
| Customer support-related revenue and other | 5,904,768 | | | 4,861,305 | | | 3,419,606 | |
| $ | 17,227,039 | | | $ | 14,626,150 | | | $ | 10,044,736 | |
| | | | | |
System revenue includes sales of new leading-edge equipment in deposition, etch and clean markets.
Customer support-related revenue includes sales of customer service, spares, upgrades, and non-leading-edge equipment from the statement of cash flows to eliminate diversity in practice. Company’s Reliant product line.
The Company is requiredoperates in 1 reportable business segment: manufacturing and servicing of wafer processing semiconductor manufacturing equipment. Refer to adopt the standard update in the first quarter of fiscal year 2020, with a retrospective transition method required. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements.
additional information
Continues on next page
Lam Research Corporation 20172022 10-K 6249
regarding the Company’s evaluation of reportable business segments and the disaggregation of revenue by the geographic regions in which the Company operates.
transfersAdditionally, the Company serves 3 primary markets: memory, foundry, and logic/integrated device manufacturing. The following table presents the percentages of assets other than inventory. Early adoption is permitted. Theleading- and non-leading-edge equipment and upgrade revenue to each of the primary markets the Company is required to adopt the standard in the first quarter of fiscal year 2019. The Company is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements.serves:
In November 2016, the FASB released ASU 2016-18, “Statement of Cash Flows – Restricted Cash.” This standard update requires that restricted cash and restricted cash equivalents be included in cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. The Company is required to adopt this standard in the first quarter of fiscal year 2019, with a retrospective transition method required. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements. | | | | | | | | | | | | | | | | | |
| Year Ended |
| June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| Memory | 60 | % | | 61 | % | | 58 | % |
| Foundry | 26 | % | | 32 | % | | 31 | % |
| Logic/integrated device manufacturing | 14 | % | | 7 | % | | 11 | % |
Note 4: Equity-Based5: Equity-based Compensation PlansPlan
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 2015 Stock Incentive Plan (the “Plan”) was approved by the stockholders and provides for the grant of non-qualified equity-based awards to eligible employees, consultants, advisors, and non-employee directors of the Company and its subsidiaries. As of the date of stockholder approval 19,232,068 authorized shares were available for issuance under the Plan; as of June 26, 2022, 8,038,265 shares remain available for future issuance 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 | | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| | (in thousands) | | (in thousands) |
| Equity-based compensation expense | $ | 149,975 |
| | $ | 142,348 |
| | $ | 135,354 |
| Equity-based compensation expense | $ | 259,064 | | | $ | 220,164 | | | $ | 189,197 | |
| Income tax benefit recognized related to equity-based compensation | $ | 38,381 |
| | $ | 37,814 |
| | $ | 23,660 |
| Income tax benefit recognized related to equity-based compensation | $ | 37,466 | | | $ | 49,313 | | | $ | 36,135 | |
| Income tax benefit realized from the exercise and vesting of options and RSUs | $ | 92,749 |
| | $ | 67,756 |
| | $ | 40,401 |
| Income tax benefit realized from the exercise and vesting of options and RSUs | $ | 72,564 | | | $ | 97,275 | | | $ | 67,060 | |
|
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.
Continues on next pageLam Research Corporation 2017 10-K 63
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 |
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 | % |
Continues on next pageLam Research Corporation 2017 10-K 64
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, 2016,2022, 2021, and 2015,2020, the Company issued both service-based RSUs and market-based performance RSUs (“PRSUs”).
The fair value Service-based RSUs typically vest over a period 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 | % |
3 years or less. 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”),a designated benchmark index, ranging from 0% to 150% of target. The designated benchmark index was the Philadelphia Semiconductor Total Return Index (“XSOX”). 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 SOXdesignated benchmark index. Market-based PRSUs utilize the XSOX, which index gives effect to the reinvestment of dividends paid on its constituent holdings, as the benchmark; and accordingly, the Company's Common Stock price performance was adjusted for the reinvestment of dividends on Common Stock on the ex-dividend date. 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
Lam Research Corporation 2022 10-K 50
The following table summarizes the Company’s combined service-based RSUs and market-based PRSUs:
| | | | | | | | | | | |
| Number of
Shares
(in thousands) | | Weighted-Average
Grant Date Fair Value |
| Outstanding, June 27, 2021 | 1,306 | | | $ | 345.70 | |
| Granted | 606 | | | 518.45 | |
| Vested | (747) | | | 261.38 | |
| Forfeited or canceled | (64) | | | 404.08 | |
| Outstanding, June 26, 2022 | 1,101 | | | $ | 475.33 | |
| | | |
Of the 1.1 million shares outstanding at June 25, 2017, 862,45526, 2022, 904.0 thousand are service-based RSUs and 196.6 thousand are market-based PRSUs. The fair value of the 3,550,061 RSU’s outstanding are market-based PRSUs.
Company’s service-based RSUs was calculated based on the 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 2017, 2016,2022, 2021, and 20152020 was calculated using a Monte Carlo simulation model at the date of the grant. This model requires the inputgrant, resulting in a weighted average grant-date fair value per share of highly subjective assumptions, including expected stock price volatility$488.68, $640.69, and the estimated life$320.69, respectively. The total fair value of each award:service-based RSUs and market-based RSUs that vested during fiscal years 2022, 2021, and 2020 was $195.1 million, $177.4 million, and $166.9 million, respectively.
|
| | | | | | | | |
| | 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, 2017,26, 2022, the Company had $245.7$418.8 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 approximately 2.2 years.
Stock Options
Continues on next pageLam Research Corporation 2017 10-K 65
executive officers during fiscal years 2022, 2021, and 2020. Stock options typically vest over a period of three years or less. The Company had 207.0 thousand options outstanding at June 26, 2022 with a weighted-average exercise price of $269.50 per share, of which 143.8 thousand were exercisable with a weighted-average exercise price of $189.59 per share. As of June 26, 2022, the Company had $7.8 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 2.3 years.
ESPP
The 1999 Employee Stock Purchase PlanCompany has an employee stock purchase plan (the “1999 ESPP”“ESPP”) 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. Typically, each offering period lasts fourteen12 months and comprises twocontains one 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 825,4862022, approximately 253 thousand shares of the Company’s Common Stock were sold to employees under the 1999 ESPP. At June 25, 2017, 5,672,57126, 2022, approximately 5.7 million 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$32.3 million of total unrecognized compensation cost, related to the 1999 ESPP which is expected to be recognized over a remaining period of four months.less than one year.
Note 5:6: Other Income (Expense), Net
The significant components of other income (expense), net, were as follows:
| | | | Year Ended | | Year Ended |
June 25,
2017 | | June 26,
2016 | | June 28,
2015 | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| | (in thousands) | | (in thousands) |
| Interest income | $ | 57,858 |
| | $ | 29,512 |
| | $ | 19,268 |
| Interest income | $ | 15,209 | | | $ | 19,687 | | | $ | 85,433 | |
| Interest expense | (117,734 | ) | | (134,773 | ) | | (73,682 | ) | Interest expense | (184,759) | | | (208,597) | | | (177,440) | |
| Gains (losses) on deferred compensation plan related assets, net | 17,880 |
| | (3,995 | ) | | 9,071 |
| |
| Loss on extinguishment of debt, net | (36,252 | ) | | — |
| | — |
| |
| (Losses) gains on deferred compensation plan related assets, net | | (Losses) gains on deferred compensation plan related assets, net | (38,053) | | | 61,838 | | | 5,999 | |
| | Foreign exchange (losses) gains, net | (569 | ) | | 308 |
| | 2,331 |
| Foreign exchange (losses) gains, net | (723) | | | (6,962) | | | (3,317) | |
| Other, net | (11,642 | ) | | (5,191 | ) | | (4,177 | ) | Other, net | 19,618 | | | 22,815 | | | (9,499) | |
| | $ | (90,459 | ) | | $ | (114,139 | ) | | $ | (47,189 | ) | | $ | (188,708) | | | $ | (111,219) | | | $ | (98,824) | |
|
Interest income in the year ended June 25, 2017, increased compared to the years ended June 26, 2016, and June 28, 2015, primarily as a result of higher average cash and investment balances and higher yield. Interest expense in the year ended June 25, 2017,2022, decreased compared to the year ended June 26, 2016,27, 2021, primarily dueas a result of lower cash balances. Interest income decreased in the year ended June 27, 2021, compared to the retirementyear ended June 28, 2020, as a result of the 2016 Convertible Note. lower yield.
Lam Research Corporation 2022 10-K 51
Interest expense in the year ended June 26, 2016, increased2022, decreased compared to the year ended June 27, 2021, primarily due to the payoff of $800 million of senior notes in June 2021. The increase in interest expense in the year ended June 27, 2021, compared to the year ended June 28, 2015,2020, primarily due to interest expense associated with the $1.0full year impact of the issuance of the $2.0 billion Senior Note issuancesenior notes in March 2015 and the amortization of bridge loan financing issuance costs of approximately $31.9 million in thefiscal year ended June 26, 2016.2020.
The gaingains or losses on deferred compensation plan related assets, net in fiscal year 2017, compared to a loss in fiscal year 2016years 2022, 2021 and gain in fiscal year 2015 was2020 were driven by a rallyfluctuations in the fair market value of the underlying funds at year end.funds.
Continues on next pageLam Research Corporation 2017 10-K 66
Net loss on extinguishment of debt realizedThe variation in other, net for the year ended June 25, 2017, is26, 2022 compared to the years ended June 27, 2021 and June 28, 2020 were primarily a resultdriven by fluctuations in the fair market value of the special mandatory redemption of the Senior Notes due 2023 and 2026, as well as the termination of the Term Loan Agreement (refer to Note 13 and Note 19 for additional information regarding the Company’s debt redemptions and termination).equity investments.
Note 6:7: Income Taxes
The components of income (loss) before income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| | (in thousands) |
| United States | $ | 87,933 | | | $ | 120,161 | | | $ | 44,739 | |
| Foreign | 5,105,181 | | | 4,250,643 | | | 2,530,239 | |
| $ | 5,193,114 | | | $ | 4,370,804 | | | $ | 2,574,978 | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended |
| | June 25,
2017 | | June 26,
2016 | | June 28,
2015 |
| | (in thousands) |
| United States | $ | 7,553 |
| | $ | (113,607 | ) | | $ | 72,728 |
|
| Foreign | 1,804,120 |
| | 1,073,724 |
| | 668,122 |
|
| | $ | 1,811,673 |
| | $ | 960,117 |
| | $ | 740,850 |
|
Significant components of the provision (benefit) for income taxes attributable to income before income taxes were as follows:
| | | | Year Ended | | Year Ended |
| | June 25,
2017 | | June 26,
2016 | | June 28,
2015 | | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| | (in thousands) | | (in thousands) |
| Federal: | | | | | | Federal: | |
| Current | $ | (70,858 | ) | | $ | 1,426 |
| | $ | 16,795 |
| Current | $ | 620,344 | | | $ | 437,525 | | | $ | 216,513 | |
| Deferred | 99,700 |
| | (38,616 | ) | | 12,115 |
| Deferred | (226,895) | | | (139,531) | | | (18,458) | |
| | 28,842 |
| | (37,190 | ) | | 28,910 |
| | 393,449 | | | 297,994 | | | 198,055 | |
| State: | | | | | | State: | | | | | |
| Current | (963 | ) | | 2,892 |
| | 1,376 |
| Current | 20,759 | | | 13,560 | | | 4,724 | |
| Deferred | (2,246 | ) | | (7,600 | ) | | 158 |
| Deferred | (19,096) | | | (8,324) | | | 6,524 | |
| | (3,209 | ) | | (4,708 | ) | | 1,534 |
| | 1,663 | | | 5,236 | | | 11,248 | |
| Foreign: | | | | | | Foreign: | | | | | |
| Current | 85,479 |
| | 90,752 |
| | 61,551 |
| Current | 204,163 | | | 162,738 | | | 119,766 | |
| Deferred | 2,798 |
| | (2,786 | ) | | (6,722 | ) | Deferred | (11,447) | | | (3,622) | | | (5,844) | |
| | 88,277 |
| | 87,966 |
| | 54,829 |
| | 192,716 | | | 159,116 | | | 113,922 | |
| Total provision for income taxes | $ | 113,910 |
| | $ | 46,068 |
| | $ | 85,273 |
| Total provision for income taxes | $ | 587,828 | | | $ | 462,346 | | | $ | 323,225 | |
|
Continues on next page
Lam Research Corporation 20172022 10-K 6752
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. Significant components of the Company’s net deferred tax assets and liabilities were as follows:
| | | | | | | | | | | |
| June 26,
2022 | | June 27,
2021 |
| | (in thousands) |
| Deferred tax assets: | | | |
| Tax carryforwards | $ | 315,396 | | | $ | 281,022 | |
| Allowances and reserves | 194,410 | | | 165,335 | |
| Equity-based compensation | 8,845 | | | 7,322 | |
| Inventory valuation differences | 52,323 | | | 28,877 | |
| | | |
| Outside basis differences of foreign subsidiaries | 421,056 | | | 193,734 | |
| Operating lease liabilities | 50,294 | | | 37,562 | |
| Finance lease assets | 35,754 | | | 35,600 | |
| Intangible assets | 889 | | | — | |
| Other | 23,955 | | | 22,575 | |
| Gross deferred tax assets | 1,102,922 | | | 772,027 | |
| Valuation allowance | (308,724) | | | (277,133) | |
| Net deferred tax assets | 794,198 | | | 494,894 | |
| Deferred tax liabilities: | | | |
| Intangible assets | — | | | (3,113) | |
| Capital assets | (114,644) | | | (81,412) | |
| Amortization of goodwill | (13,789) | | | (13,161) | |
| | | |
| Right-of-use assets | (50,294) | | | (37,562) | |
| Finance lease liabilities | (52,379) | | | (50,683) | |
| Other | (2,395) | | | (1,369) | |
| Gross deferred tax liabilities | (233,501) | | | (187,300) | |
| Net deferred tax assets | $ | 560,697 | | | $ | 307,594 | |
| | | |
|
| | | | | | | |
| | June 25,
2017 | | June 26,
2016 |
| | (in thousands) |
| Deferred tax assets: | | | |
| Tax carryforwards | $ | 175,595 |
| | $ | 176,767 |
|
| Allowances and reserves | 170,752 |
| | 128,416 |
|
| Equity-based compensation | 25,828 |
| | 29,414 |
|
| Inventory valuation differences | 19,602 |
| | 17,178 |
|
| Prepaid cost sharing | 133,831 |
| | 88,522 |
|
| Other | 20,175 |
| | 24,540 |
|
| Gross deferred tax assets | 545,783 |
| | 464,837 |
|
| Valuation allowance | (114,011 | ) | | (101,689 | ) |
| Net deferred tax assets | 431,772 |
| | 363,148 |
|
| Deferred tax liabilities: | | | |
| Intangible assets | (30,944 | ) | | (46,774 | ) |
| Convertible debt | (153,047 | ) | | (151,483 | ) |
| Capital assets | (72,727 | ) | | (61,845 | ) |
| Amortization of goodwill | (15,582 | ) | | (14,176 | ) |
| Unremitted earnings of foreign subsidiaries | (302,663 | ) | | (146,459 | ) |
| Other | (9,844 | ) | | (8,594 | ) |
| Gross deferred tax liabilities | (584,807 | ) | | (429,331 | ) |
| Net deferred tax liabilities | $ | (153,035 | ) | | $ | (66,183 | ) |
The change in the gross deferred tax assets, gross deferred tax liabilities, and valuation allowance between fiscal years 2017year 2022 and 20162021 is primarily due to an increase related to allowancesincreases in gross deferred tax assets for outside basis differences of foreign subsidiaries and reservestax credits, and an increaseincreases in gross deferred tax liabilities for capital assets.
The Company previously made an accounting policy election to record deferred taxes related to an accrual for future tax liabilities due to the expected repatriation of earnings of certain foreign subsidiaries.Global Intangible Low-Taxed Income (“GILTI”).
Realization of the Company’s net deferred tax assets is based upon the weighting of available evidence, including such factors as the recent earnings history and expected future taxable income. The Company believes it is more-likely-than-notmore likely than not that such deferred tax assets will be realized with the exception of $114.0$308.7 million primarily related to California certain state, and certain foreign deferred tax assets.
The provisions related to the tax accounting for equity-based compensation prohibit the recognition of a deferred tax asset for an excess benefit that has not yet been realized. As a result, the Company will only recognize an excess benefit from equity-based compensation in additional paid-in-capital if an incremental tax benefit is realized after all other tax attributes currently available to us have been utilized. In addition, At June 26, 2022, the Company continued to electrecord a valuation allowance to account foroffset the indirect benefits of equity-based compensation such asentire California deferred tax asset balance due to the research and development tax credit through the Consolidated Statement of Operations.single sales factor apportionment resulting in lower taxable income in California.
At June 25, 2017,26, 2022, the Company had federal net operating loss carryforwards of approximately $109.0$16.0 million. The majority ofIf not utilized, these losses will begin to expire in fiscal year 2019,2023, and are subject to limitationslimitation on their utilization.
At June 25, 2017,26, 2022, the Company had state net operating loss carryforwards of approximately $85.4$144.7 million. If not utilized, the net operating loss carryforwardsthese losses will begin to expire in fiscal year 20202023 and are subject to limitationslimitation on their utilization.
Continues on next pageLam Research Corporation 2017 10-K 68
At June 25, 2017, the Company had federal tax credit carryforwards of approximately $236.2 million, of which $33.2 million of foreign tax credit will begin to expire in fiscal year 2018 and $201.2 million of research and development tax credit will begin to expire in fiscal year 2030. The remaining balance of $1.8 million of alternative minimum tax credit may be carried forward indefinitely.
At June 25, 2017,26, 2022, the Company had state tax credit carryforwards of approximately $296.0$467.5 million. Substantially all state tax credit carryforwardsof these credits can be carried forward indefinitely.
At June 25, 2017, the Company had foreign net operating loss carryforwards
Lam Research Corporation 2022 10-K 53
A reconciliation of income tax expense provided at the federal statutory rate (35%(21% in fiscal years 2017, 2016,2022, 2021, and 2015)2020) to actual income tax expense is as follows:
| | | | Year Ended | | Year Ended |
| | June 25,
2017 | | June 26,
2016 | | June 28,
2015 | | June 26,
2022 | | June 27,
2021 | | June 28,
2020 |
| | (in thousands) | | (in thousands) |
| Income tax expense computed at federal statutory rate | $ | 634,086 |
| | $ | 336,041 |
| | $ | 259,297 |
| Income tax expense computed at federal statutory rate | $ | 1,096,692 | | | $ | 917,869 | | | $ | 540,745 | |
| State income taxes, net of federal tax benefit | (11,973 | ) | | (14,070 | ) | | (8,611 | ) | State income taxes, net of federal tax benefit | (35,584) | | | (33,478) | | | (28,046) | |
| Foreign income taxed at different rates | (352,860 | ) | | (265,123 | ) | | (175,581 | ) | Foreign income taxed at different rates | (407,989) | | | (365,886) | | | (146,023) | |
| Settlements and reductions in uncertain tax positions | (144,519 | ) | | — |
| | — |
| Settlements and reductions in uncertain tax positions | (51,227) | | | (13,613) | | | (12,854) | |
| Tax credits | (37,713 | ) | | (48,277 | ) | | (24,416 | ) | Tax credits | (96,440) | | | (86,709) | | | (88,762) | |
| State valuation allowance, net of federal tax benefit | 12,070 |
| | 17,948 |
| | 8,594 |
| State valuation allowance, net of federal tax benefit | 43,502 | | | 39,477 | | | 30,923 | |
| Equity-based compensation | 13,187 |
| | 12,366 |
| | 28,845 |
| Equity-based compensation | (13,168) | | | (45,764) | | | (23,248) | |
| Other permanent differences and miscellaneous items | 1,632 |
| | 7,183 |
| | (2,855 | ) | Other permanent differences and miscellaneous items | 52,042 | | | 50,450 | | | 50,490 | |
| | $ | 113,910 |
| | $ | 46,068 |
| | $ | 85,273 |
| |
| | | $ | 587,828 | | | $ | 462,346 | | | $ | 323,225 | |
|
Earnings of the Company’s foreign subsidiaries included in consolidated retained earnings that are indefinitely reinvested in foreign operations aggregated to approximately $5.4 billion$894.8 million at June 25, 2017.26, 2022. If these earnings were remitted to the United States, they would be subject to U.S. and foreign withholding taxes of approximately $1.6 billion$137.0 million at the current statutory rates. The potential tax expense associated with these foreign withholding taxes would be offset by $109.6 million of foreign tax credits that would be generated in the United States upon remittance.
The Company is subject to audits by state and foreign tax authorities. The Company is unable to make a reasonable estimate as to when cash settlements, if any, with the relevant taxing authorities will occur.
The Company files U.S. federal, U.S. state, and foreign income tax returns. As of June 25, 2017,26, 2022, tax years 2004-20162004-2022 remain subject to examination in the jurisdictions where the Company operates. The Internal Revenue Service (“IRS”) is examining the Company’s U.S. federal income tax return for the fiscal year ended June 24, 2018. As of June 26, 2022, the IRS has proposed adjustments resulting in a tax liability increase of approximately $50.0 million. If the Company agrees to the proposed adjustments, cash settlements with respect to the increased liabilities will be made accordingly.
The Company is in various stages of examinations in connection with all of its tax audits worldwide, and it is difficult to determine when these examinations will be settled. It is reasonably possible that over the next 12-month period the Company may experience an increase or decrease in its unrecognizeduncertain tax benefitspositions as a result of tax examinations or lapses of statutestatutes of limitations.limitation. The change in unrecognizeduncertain tax benefits is not expectedpositions may range up to be material.$20.0 million.
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the treasury stock method, for dilutive stock options, restricted stock units, and Convertible Notes.convertible notes.
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value. The level of an asset or liability in the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities with sufficient volume and frequency of transactions.
Level 2: Valuations based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are notless active for identical assets or liabilities, or model-derived valuations techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Valuations based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities and based on non-binding, broker-provided price quotes and may not have been corroborated by observable market data.
