LAM RESEARCH CORP 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk Investments We maintain an investment portfolio of various holdings, types, and maturities. As of June 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 other 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 Table of Contents 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. As of June 26, 2022, our fixed income securities total $135.7 million. Market changes with hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (“BPS”), 100 BPS, and 150 BPS, with a minimum interest rate of zero BPS, are not significant. 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. Long-Term Debt As of June 26, 2022, we had $5.0 billion in principal amount of fixed-rate long-term debt outstanding, with a fair value of $4.5 billion. The fair value of our Notes is subject to interest rate risk and market risk. Generally, the fair value of Notes will increase as interest rates fall and decrease as interest rates rise. 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. As of June 26, 2022, our publicly traded securities total $95.2 million. Potential fluctuations in the price of each security in the portfolio of plus or minus 10%, 15%, or 25% are not significant. 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 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. To protect against adverse movements in value of anticipated 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 26, 2022, are shown in the table below. This table also shows the change in fair value of these cash flow hedges 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 Table of Contents 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 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 Lam Research Corporation 2022 10-K 37 Table of Contents