LAM RESEARCH CORP 10-Q

ITEM 1. Financial Statements LAM RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended September 24, 2023 September 25, 2022 Revenue $ 3,482,062 $ 5,074,121 Cost of goods sold 1,819,420 2,737,286 Restructuring charges, net - cost of goods sold 7,940 — Total cost of goods sold 1,827,360 2,737,286 Gross margin 1,654,702 2,336,835 Research and development 422,629 433,375 Selling, general, and administrative 207,023 205,620 Restructuring charges, net - operating expenses 2,021 — Total operating expenses 631,673 638,995 Operating income 1,023,029 1,697,840 Other income (expense), net 2,601 ( 43,095 ) Income before income taxes 1,025,630 1,654,745 Income tax expense ( 138,232 ) ( 228,866 ) Net income $ 887,398 $ 1,425,879 Net income per share: Basic $ 6.69 $ 10.42 Diluted $ 6.66 $ 10.39 Number of shares used in per share calculations: Basic 132,584 136,891 Diluted 133,166 137,208 See Notes to Condensed Consolidated Financial Statements Lam Research Corporation 2024 Q1 10-Q 3 Table of Contents LAM RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended September 24, 2023 September 25, 2022 Net income $ 887,398 $ 1,425,879 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 20,678 ) ( 33,609 ) Cash flow hedges: Net unrealized gains during the period 8,598 18,803 Net gains reclassified into net income ( 8,917 ) ( 9,297 ) ( 319 ) 9,506 Available-for-sale investments: Net unrealized gains during the period 182 80 Net gains reclassified into net income ( 10 ) ( 53 ) 172 27 Defined benefit plans, net change in unrealized component 181 293 Other comprehensive loss, net of tax ( 20,644 ) ( 23,783 ) Comprehensive income $ 866,754 $ 1,402,096 See Notes to Condensed Consolidated Financial Statements Lam Research Corporation 2024 Q1 10-Q 4 Table of Contents LAM RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) September 24, 2023 June 25, 2023 (unaudited) (1) ASSETS Cash and cash equivalents $ 5,126,150 $ 5,337,056 Investments 30,557 37,641 Accounts receivable, less allowance of $ 5,255 as of September 24, 2023, and $ 5,344 as of June 25, 2023 2,810,953 2,823,376 Inventories 4,747,781 4,816,190 Prepaid expenses and other current assets 278,121 214,149 Total current assets 12,993,562 13,228,412 Property and equipment, net 2,110,511 1,856,672 Goodwill 1,626,382 1,622,489 Intangible assets, net 157,618 168,454 Other assets 1,650,384 1,905,616 Total assets $ 18,538,457 $ 18,781,643 LIABILITIES AND STOCKHOLDERS’ EQUITY Trade accounts payable $ 528,163 $ 470,702 Accrued expenses and other current liabilities 2,120,055 2,010,637 Deferred profit 1,595,098 1,695,221 Current portion of long-term debt and finance lease obligations 3,861 8,358 Total current liabilities 4,247,177 4,184,918 Long-term debt and finance lease obligations, less current portion 4,980,460 5,003,183 Income taxes payable 780,511 882,084 Other long-term liabilities 482,979 501,286 Total liabilities 10,491,127 10,571,471 Commitments and contingencies (refer to Note 13) 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 September 24, 2023 and June 25, 2023; issued and outstanding, 132,072 shares as of September 24, 2023, and 133,297 shares as of June 25, 2023 132 133 Additional paid-in capital 7,879,031 7,809,002 Treasury stock, at cost; 162,646 shares as of September 24, 2023, and 161,380 shares as of June 25, 2023 ( 22,365,872 ) ( 21,530,353 ) Accumulated other comprehensive loss ( 121,350 ) ( 100,706 ) Retained earnings 22,655,389 22,032,096 Total stockholders’ equity 8,047,330 8,210,172 Total liabilities and stockholders’ equity $ 18,538,457 $ 18,781,643 (1) Derived from audited financial statements See Notes to Condensed Consolidated Financial Statements Lam Research Corporation 2024 Q1 10-Q 5 Table of Contents LAM RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended September 24, 2023 September 25, 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 887,398 $ 1,425,879 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 90,479 75,751 Deferred income taxes ( 24,238 ) ( 133,616 ) Equity-based compensation expense 67,211 71,110 Other, net ( 150 ) ( 2,751 ) Changes in operating assets and liabilities ( 69,537 ) ( 246,785 ) Net cash provided by operating activities 951,163 1,189,588 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures and intangible assets ( 76,992 ) ( 140,063 ) Proceeds from maturities of available-for-sales securities 7,275 14,695 Other, net ( 4,966 ) ( 2,435 ) Net cash used for investing activities ( 74,683 ) ( 127,803 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on debt, including finance lease obligations ( 253,109 ) ( 1,854 ) Treasury stock purchases ( 843,238 ) ( 109,779 ) Dividends paid ( 230,332 ) ( 205,615 ) Proceeds from issuance of common stock 2,818 6,796 Other, net ( 2,151 ) ( 489 ) Net cash used for financing activities ( 1,326,012 ) ( 310,941 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 11,031 ) ( 16,925 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 460,563 ) 733,919 Cash, cash equivalents, and restricted cash at beginning of period (1) 5,587,372 3,773,535 Cash, cash equivalents, and restricted cash at end of period (1) $ 5,126,809 $ 4,507,454 Schedule of non-cash transactions: Accrued payables for stock repurchases $ 37,768 $ 88 Accrued payables for capital expenditures 38,668 79,173 Dividends payable 265,040 235,980 Transfers of finished goods inventory to property and equipment 18,014 20,798 Reconciliation of cash, cash equivalents, and restricted cash September 24, 2023 September 25, 2022 Cash and cash equivalents $ 5,126,150 $ 4,256,499 Restricted cash and cash equivalents (1) 659 250,955 Total cash, cash equivalents, and restricted cash $ 5,126,809 $ 4,507,454 (1) Restricted cash is reported within Other assets, in the Condensed Consolidated Balance Sheets See Notes to Condensed Consolidated Financial Statements Lam Research Corporation 2024 Q1 10-Q 6 Table of Contents LAM RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) Three Months Ended September 24, 2023 Common Stock Shares Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Loss Retained Earnings Total Balance at June 25, 2023 133,297 $ 133 $ 7,809,002 $ ( 21,530,353 ) $ ( 100,706 ) $ 22,032,096 $ 8,210,172 Issuance of common stock 41 — 2,818 — — — 2,818 Purchase of treasury stock ( 1,266 ) ( 1 ) — ( 835,519 ) — — ( 835,520 ) Equity-based compensation expense — — 67,211 — — — 67,211 Net income — — — — — 887,398 887,398 Other comprehensive loss — — — — ( 20,644 ) — ( 20,644 ) Cash dividends declared ($ 2.00 per common share) — — — — — ( 264,105 ) ( 264,105 ) Balance at September 24, 2023 132,072 $ 132 $ 7,879,031 $ ( 22,365,872 ) $ ( 121,350 ) $ 22,655,389 $ 8,047,330 Three Months Ended September 25, 2022 Common Stock Shares Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Loss Retained Earnings Total Balance at June 26, 2022 136,975 $ 137 $ 7,414,916 $ ( 19,481,429 ) $ ( 109,982 ) $ 18,454,724 $ 6,278,366 Issuance of common stock 85 — 6,796 — — — 6,796 Purchase of treasury stock ( 686 ) ( 1 ) — ( 109,820 ) — — ( 109,821 ) Equity-based compensation expense — — 71,110 — — — 71,110 Net income — — — — — 1,425,879 1,425,879 Other comprehensive loss — — — — ( 23,783 ) — ( 23,783 ) Cash dividends declared ($ 1.725 per common share) — — — — — ( 235,980 ) ( 235,980 ) Balance at September 25, 2022 136,374 $ 136 $ 7,492,822 $ ( 19,591,249 ) $ ( 133,765 ) $ 19,644,623 $ 7,412,567 See Notes to Condensed Consolidated Financial Statements Lam Research Corporation 2024 Q1 10-Q 7 Table of Contents LAM RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 24, 2023 (Unaudited) NOTE 1 — BASIS OF PRESENTATION The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of Lam Research Corporation (“Lam Research” or the “Company”) for the fiscal year ended June 25, 2023, which are included in the Company’s Annual Report on Form 10-K as of and for the year ended June 25, 2023 (the “2023 Form 10-K”). The condensed consolidated financial statements include the accounts of Lam Research and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s reporting period is a 52/53-week fiscal year. The Company’s current fiscal year will end June 30, 2024 and includes 53 weeks. The quarters ended September 24, 2023 (the “September 2023 quarter”) and September 25, 2022 included 13 weeks. Reclassification: Certain amounts for the June 25, 2023 Condensed Consolidated Balance Sheet and notes to the financial statements have been reclassified to conform to the current period presentation. NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted or Effective The Company has not adopted any new accounting standards during the first quarter of fiscal year 2024 that have a material impact on the Company’s Condensed Consolidated Financial Statements. Updates Not Yet Effective There are no new accounting standards not yet adopted or effective that are expected to have a material impact on the Company’s Condensed Consolidated Financial Statements. NOTE 3 — REVENUE Disaggregation of Revenue The Company operates in one reportable business segment: manufacturing and servicing of wafer processing semiconductor manufacturing equipment. The Company’s material operating segments qualify for aggregation due to their customer base and similarities in economic characteristics, nature of products and services, and processes for procurement, manufacturing, and distribution. The Company operates in seven geographic regions: United States, China, Europe, Japan, Korea, Southeast Asia, and Taiwan. For geographical reporting, revenue is attributed to the geographic location in which the customers’ facilities are located. The Company serves three primary markets: memory, foundry, and logic/integrated device manufacturing. The following table presents the Company’s revenues disaggregated between system and its customer support-related revenue: Three Months Ended September 24, 2023 September 25, 2022 (In thousands) Systems revenue $ 2,056,655 $ 3,181,987 Customer support-related revenue and other 1,425,407 1,892,134 $ 3,482,062 $ 5,074,121 Systems 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 Company’s Reliant product line. Lam Research Corporation 2024 Q1 10-Q 8 Table of Contents The following table presents the Company’s revenues disaggregated by geographic region: Three Months Ended September 24, 2023 September 25, 2022 (In thousands) China $ 1,687,311 $ 1,530,475 Korea 547,945 855,378 Japan 324,520 458,693 United States 282,224 304,977 Taiwan 242,490 1,120,946 Europe 238,469 262,588 Southeast Asia 159,103 541,064 $ 3,482,062 $ 5,074,121 The following table presents the percentages of leading- and non-leading-edge equipment and upgrade revenue to each of the primary markets the Company serves: Three Months Ended September 24, 2023 September 25, 2022 Memory 38 % 52 % Foundry 36 % 34 % Logic/integrated device manufacturing 26 % 14 % Deferred Revenue Revenue of $ 561.8 million included in deferred profit at June 25, 2023 was recognized during the three months ended September 24, 2023, representing 31 % of the $ 1,837.9 million of deferred revenue as of June 25, 2023. The following table summarizes the transaction price for contracts that have not yet been recognized as revenue as of September 24, 2023 and when 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 $ 1,421,440 $ 226,972 (1) $ 42,035 (1) $ 1,690,447 (1) This amount is reported in Deferred profit on the Company's Condensed Consolidated Balance Sheets as the customers can demand the liability to be performed at any time. NOTE 4 — EQUITY-BASED COMPENSATION PLANS The Lam Research Corporation 2015 Stock Incentive Plan, as amended, provides for the grant of non-qualified equity-based awards of the Company’s Common Stock to eligible employees and non-employee directors, including stock options, restricted stock units (“RSUs”), and market-based performance RSUs (“market-based PRSUs”). An option is a right to purchase Common Stock at a set price. An RSU award is an agreement to issue a set number of shares of Common Stock at the time of vesting. The Company’s market-based PRSUs contain both a market condition and a service condition. The Company’s option, RSU, and market-based PRSU awards typically vest over a period of three years . The Company also has an employee stock purchase plan that allows employees to purchase its Common Stock at a discount through payroll deductions. Lam Research Corporation 2024 Q1 10-Q 9 Table of Contents The Company recognized the following equity-based compensation expense (including expense related to the employee stock purchase plan) and related income tax benefit in the Condensed Consolidated Statements of Operations: Three Months Ended September 24, 2023 September 25, 2022 (in thousands) Equity-based compensation expense $ 67,211 $ 71,110 Income tax benefit recognized related to equity-based compensation expense $ 9,564 $ 11,528 NOTE 5 — OTHER INCOME (EXPENSE), NET The significant components of other income (expense), net, are as follows: Three Months Ended September 24, 2023 September 25, 2022 (in thousands) Interest income $ 56,564 $ 15,056 Interest expense ( 45,331 ) ( 46,052 ) (Losses) gains on deferred compensation plan-related assets, net ( 2,901 ) ( 12,726 ) Foreign exchange gains (losses), net 1,269 6,821 Other, net ( 7,000 ) ( 6,194 ) $ 2,601 $ ( 43,095 ) NOTE 6 — INCOME TAX EXPENSE The Company’s provision for income taxes and effective tax rate are as follows: Three Months Ended September 24, 2023 September 25, 2022 (in thousands, except percentages) Income tax expense $ 138,232 $ 228,866 Effective tax rate 13.5 % 13.8 % The difference between the U.S. federal statutory tax rate of 21% and the Company’s effective tax rate for the three months ended September 24, 2023 and September 25, 2022 was primarily due to income in lower tax jurisdictions. On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law. In general, the provisions of the IRA are effective beginning with the Company’s fiscal year 2024, with certain exceptions. The IRA includes a new 15% corporate minimum tax. The Company has evaluated the potential impacts of the IRA and does not expect it to have a material impact on the effective tax rate. However, the Company expects future guidance from the Treasury Department and will further analyze when the guidance is issued. The Internal Revenue Service (“IRS”) is examining the Company’s U.S. federal income tax returns for the fiscal years ended June 30, 2019, and June 28, 2020. To date, no significant adjustments have been proposed by the IRS. The Company is unable to make a reasonable estimate as to when cash settlements, if any, with the IRS will occur. 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 uncertain tax positions as a result of tax examinations or lapses of statutes of limitation. The change in uncertain tax positions as a result of lapses of statutes of limitation may range up to $ 9.8 million. Lam Research Corporation 2024 Q1 10-Q 10 Table of Contents NOTE 7 — NET INCOME PER SHARE 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. The following table reconciles the inputs to the basic and diluted computations for net income per share. Three Months Ended September 24, 2023 September 25, 2022 (in thousands, except per share data) Numerator: Net income $ 887,398 $ 1,425,879 Denominator: Basic average shares outstanding 132,584 136,891 Effect of potential dilutive securities: Employee stock plans 582 317 Diluted average shares outstanding 133,166 137,208 Net income per share - basic $ 6.69 $ 10.42 Net income per share - diluted $ 6.66 $ 10.39 For purposes of computing diluted net income per share, weighted-average common shares do not include potentially dilutive securities that are anti-dilutive under the treasury stock method. The impact from potentially dilutive securities, including options and RSUs, was not material for the three months ended September 24, 2023 and September 25, 2022. NOTE 8 — FINANCIAL INSTRUMENTS The Company’s investment strategies and investment and fair value policies are unchanged from those disclosed in Note 9, “Financial Instruments,” to our Consolidated Financial Statements in Part II, Item 8 of our 2023 Form 10-K. The financial statement impacts to the Condensed Consolidated Statement of Operations from debt and equity investments were not material as of and for the three months ended September 24, 2023 and September 25, 2022. Debt and Equity Investments measured at fair value on a recurring basis The following tables set forth the Company’s cash, cash equivalents, investments, and other assets measured at fair value on a recurring basis as of September 24, 2023, and June 25, 2023: September 24, 2023 (Reported Within) Cost Unrealized Gain Unrealized (Loss) Fair Value Cash and Cash Equivalents Investments Other Assets (in thousands) Level 1: Money market funds $ 1,657,890 $ — $ — $ 1,657,890 $ 1,657,890 $ — $ — Mutual funds 100,113 16,826 ( 1,973 ) 114,966 — — 114,966 Level 1 Total 1,758,003 16,826 ( 1,973 ) 1,772,856 1,657,890 — 114,966 Level 2: Corporate notes and bonds 30,727 2 ( 172 ) 30,557 — 30,557 — Level 2 Total 30,727 2 ( 172 ) 30,557 — 30,557 — Total subject to fair value hierarchy $ 1,788,730 $ 16,828 $ ( 2,145 ) $ 1,803,413 Cash $ 1,772,866 $ 1,772,207 $ — $ 659 Time deposits 1,696,053 1,696,053 — — Total $ 5,272,332 $ 5,126,150 $ 30,557 $ 115,625 Lam Research Corporation 2024 Q1 10-Q 11 Table of Contents June 25, 2023 (Reported Within) Cost Unrealized Gain Unrealized (Loss) Fair Value Cash and Cash Equivalents Investments Other Assets (in thousands) Level 1: Money market funds $ 2,223,642 $ — $ — $ 2,223,642 $ 2,223,642 $ — $ — Mutual funds 96,646 12,092 ( 2,069 ) 106,669 — — 106,669 Level 1 Total 2,320,288 12,092 ( 2,069 ) 2,330,311 2,223,642 — 106,669 Level 2: Corporate notes and bonds 38,033 — ( 392 ) 37,641 — 37,641 — Level 2 Total 38,033 — ( 392 ) 37,641 — 37,641 — Total subject to fair value hierarchy $ 2,358,321 $ 12,092 $ ( 2,461 ) $ 2,367,952 Cash $ 2,132,811 $ 2,132,522 $ — $ 289 Time deposits 1,230,919 980,892 — 250,027 Total $ 5,731,682 $ 5,337,056 $ 37,641 $ 356,985 The following is an analysis of the Company’s investments in unrealized loss positions: September 24, 2023 Unrealized Losses Less than 12 Months Unrealized Losses 12 Months or Greater Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss (in thousands) Mutual funds $ 599 $ ( 6 ) $ 21,788 $ ( 1,967 ) $ 22,387 $ ( 1,973 ) Corporate notes and bonds 5,378 ( 1 ) 17,834 ( 171 ) 23,212 ( 172 ) $ 5,977 $ ( 7 ) $ 39,622 $ ( 2,138 ) $ 45,599 $ ( 2,145 ) The amortized cost and fair value of cash equivalents, investments, and restricted investments with contractual maturities as of September 24, 2023 are as follows: Cost Fair Value (in thousands) Due in one year or less $ 3,384,670 $ 3,384,500 Due after one year through five years — — $ 3,384,670 $ 3,384,500 The Company has the ability, if necessary, to liquidate its investments in order to meet the Company’s liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than 12 months from the date of purchase nonetheless are classified as short-term on the accompanying Condensed Consolidated Balance Sheets. Derivative Instruments and Hedging The Company’s hedging strategies and policies are unchanged from those disclosed in Note 9, “Financial Instruments,” to our Consolidated Financial Statements in Part II, Item 8 of our 2023 Form 10-K. As of September 24, 2023 and June 25, 2023 the fair value of outstanding cash flow and balance sheet hedges were not material. The financial statement impacts to the Condensed Consolidated Statement of Operations from derivative instruments and hedging activities were not material as of and for the three months ended September 24, 2023 and September 25, 2022. Lam Research Corporation 2024 Q1 10-Q 12 Table of Contents Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk and the Company’s mitigation strategies are unchanged from those disclosed in Note 9, “Financial Instruments,” to our Consolidated Financial Statements in Part II, Item 8 of our 2023 Form 10-K. NOTE 9 — INVENTORIES Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. System shipments to customers in Japan, for which title does not transfer until customer acceptance, are classified as finished goods inventory and carried at cost until title transfers. Inventories consist of the following: September 24, 2023 June 25, 2023 (in thousands) Raw materials $ 3,202,468 $ 3,196,988 Work-in-process 300,408 325,611 Finished goods 1,244,905 1,293,591 $ 4,747,781 $ 4,816,190 NOTE 10 — GOODWILL AND INTANGIBLE ASSETS Goodwill The balance of goodwill is approximately $ 1.6 billion as of September 24, 2023 and June 25, 2023. As of September 24, 2023 and June 25, 2023, $ 65.4 million of the goodwill balance is tax deductible and the remaining balance is not tax deductible due to purchase accounting and applicable foreign law. Intangible Assets The following table provides the Company’s intangible assets, other than goodwill: September 24, 2023 June 25, 2023 Gross Accumulated Amortization Net Gross Accumulated Amortization Net (in thousands) Customer relationships $ 644,103 $ ( 632,279 ) $ 11,824 $ 644,138 $ ( 631,420 ) $ 12,718 Existing technology 734,885 ( 677,619 ) 57,266 717,331 ( 674,549 ) 42,782 Patents and other intangible assets 201,215 ( 125,134 ) 76,081 199,532 ( 116,659 ) 82,873 Intangible assets subject to amortization 1,580,203 ( 1,435,032 ) 145,171 1,561,001 ( 1,422,628 ) 138,373 In process research and development 12,447 — 12,447 30,081 — 30,081 Total intangible assets $ 1,592,650 $ ( 1,435,032 ) $ 157,618 $ 1,591,082 $ ( 1,422,628 ) $ 168,454 The Company recognized $ 14.0 million and $ 11.6 million in intangible asset amortization expense during the three months ended September 24, 2023 and September 25, 2022, respectively. Lam Research Corporation 2024 Q1 10-Q 13 Table of Contents The estimated future amortization expense of intangible assets as of September 24, 2023, is reflected in the table below. The table excludes $ 18.8 million of capitalized costs for intangible assets that have not been placed into service. Fiscal Year Amount (in thousands) 2024 (remaining 9 months) $ 32,556 2025 30,544 2026 20,100 2027 15,360 2028 11,842 Thereafter 15,928 $ 126,330 NOTE 11 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: September 24, 2023 June 25, 2023 (in thousands) Accrued compensation $ 485,419 $ 481,354 Warranty reserves 240,550 256,781 Income and other taxes payable (1) 587,410 460,630 Dividend payable 265,040 231,267 Restructuring 3,095 8,014 Other 538,541 572,591 $ 2,120,055 $ 2,010,637 (1) The balance in income and other taxes payable includes an accrual of $ 180.0 million related to federal estimated taxes for which payment is deferred until our quarter ending December 24, 2023, under the IRS Federal tax relief for California disaster area taxpayers. NOTE 12 — LEASES The Company elected to exercise purchase options available under its finance leases for certain improved properties in Fremont and Livermore, California (the “California Facility Leases”) in the three months ended September 24, 2023. As a result, the Company released cash collateral in an aggregate of approximately $ 250.0 million of restricted cash that is reported in Other assets in the Company’s Condensed Consolidated Balance Sheet. Additionally, guarantees made to the lessor that each property would have a certain minimum residual value totaling $ 298.4 million as of June 25, 2023 in the aggregate were eliminated with the extinguishment of the California Facilities Leases. As a result of the purchase of the improved properties, $ 250.5 million of additions were made to Property and Equipment, Net in the Company’s Condensed Consolidated Balance Sheets primarily comprised of land ($ 40.5 million) and buildings and improvements ($ 210.0 million). NOTE 13 — COMMITMENTS AND CONTINGENCIES Guarantees The Company has issued certain indemnifications to its lessors for taxes and general liability under some of its agreements. The Company has entered into insurance contracts that are intended to limit its exposure to such indemnifications. As of September 24, 2023, the Company had not recorded any liability on its Condensed Consolidated Financial Statements in connection with these indemnifications, as it does not believe that it is probable that any material amounts will be paid under these guarantees. Generally, the Company indemnifies, under pre-determined conditions and limitations, its customers for infringement of third-party intellectual property rights by the Company’s products or services. The Company seeks to limit its liability for such indemnity to an amount not to exceed the sales price of the products or services subject to its indemnification obligations. The Company does not believe that it is probable that any material amounts will be paid under these guarantees. Lam Research Corporation 2024 Q1 10-Q 14 Table of Contents The Company provides guarantees and standby letters of credit to certain parties as required for certain transactions initiated during the ordinary course of business. As of September 24, 2023, the maximum potential amount of future payments that the Company could be required to make under these arrangements and letters of credit was $ 197.9 million. The Company does not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid. In addition, the Company has entered into indemnification agreements with its directors, officers, and certain other employees, consistent with its Bylaws and Certificate of Incorporation; and under local law, the Company may be required to provide indemnification to its employees for actions within the scope of their employment. Although the Company maintains insurance contracts that cover some of the potential liability associated with these indemnification agreements, there is no guarantee that all such liabilities will be covered. The Company does not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid under such indemnification agreements or statutory obligations. Warranties The Company provides standard warranties on its systems. The liability amount is based on actual historical warranty spending activity by type of system, customer, and geographic region, modified for any known differences such as the impact of system reliability improvements. As of September 24, 2023, warranty reserves totaling $ 24.8 million were reported in other long-term liabilities, the remainder were included in accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets. Changes in the Company’s product warranty reserves were as follows: Three Months Ended September 24, 2023 September 25, 2022 (in thousands) Balance at beginning of period $ 286,663 $ 256,258 Warranties issued during the period 44,519 88,213 Settlements made during the period ( 52,236 ) ( 64,896 ) Changes in liability for warranties issued during the period ( 50 ) ( 1,269 ) Changes in liability for pre-existing warranties ( 13,522 ) 5,208 Balance at end of period $ 265,374 $ 283,514 Legal Proceedings While the Company is not currently a party to any legal proceedings that it believes material, the Company is 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. The Company accrues for a liability when it is both probable that a liability has been incurred 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. Based on current information, the Company does not believe that a material loss from known matters is probable and therefore has not recorded an accrual of any material amount for litigation or other contingencies related to existing legal proceedings. NOTE 14 — STOCK REPURCHASE PROGRAM In May 2022, the Board of Directors authorized the Company to repurchase up to an additional $ 5.0 billion of Common Stock; this authorization supplements the remaining balances from any prior authorizations. 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. This repurchase program has no termination date and may be suspended or discontinued at any time. Lam Research Corporation 2024 Q1 10-Q 15 Table of Contents Repurchases under the repurchase program were as follows during the periods indicated: Period Total Number of Shares Repurchased Total Cost of Repurchase (2) Average Price Paid Per Share (1,2) Amount Available Under Repurchase Program (in thousands, except per share data) Available balance as of June 25, 2023 $ 3,537,217 Quarter ended September 24, 2023 1,257 $ 829,874 $ 660.01 $ 2,707,343 (1) Average price paid per share excludes the effect of accelerated share repurchase activities. (2) The Company’s net share repurchases are subject to a 1% excise tax under the Inflation Reduction Act. Excise tax incurred reduces the amount available under the repurchase program, as applicable, and is included in the cost of shares repurchased in the Condensed Consolidated Statement of Stockholders’ Equity and the calculation of the average price paid per share. In addition to the shares repurchased under the Board-authorized repurchase program shown above, during the three months ended September 24, 2023, the Company acquired 9 thousand shares at a total cost of $ 5.5 million, which the Company withheld through net settlements to cover minimum tax withholding obligations upon the vesting of restricted stock unit awards granted under the Company’s equity compensation plans. The shares retained by the Company through these net share settlements are not a part of the Board-authorized repurchase program but instead are authorized under the Company’s equity compensation plan. NOTE 15 — RESTRUCTURING CHARGES, NET The Company records employee severance and separation costs that meet the requirements for recognition in accordance with the relevant guidance of ASC 420, Exit or Disposal Cost Obligations, or ASC 712, Compensation - Non-retirement Post-employment Benefits, as applicable. For involuntary termination benefits that are not provided under the terms of an ongoing benefit arrangement, the liability for the current fair value of expected future costs associated with a management-approved restructuring plan is recognized in the period in which the plan is communicated to the employees and the plan is not expected to change significantly. For ongoing benefit arrangements, inclusive of statutory requirements, employee termination costs are accrued when the existing situation or set of circumstances indicates that an obligation has been incurred, it is probable the benefits will be paid, and the amount can be reasonably estimated. Termination benefits associated with employees that elected to voluntarily terminate as part of the restructuring plan are recorded when the employee irrevocably accepts the offer and the amount can be reasonably estimated. If applicable, the Company records such costs into operating expense over the terminated employees’ future service period beyond any minimum or legally required retention period. The majority of restructuring charges that have been incurred but not yet paid are recorded in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. In the fiscal year ended June 25, 2023, the Company initiated a restructuring plan designed to better align the Company’s cost structure with its outlook for the economic environment and business opportunities. Under the plan the Company terminated approximately 1,650 employees, incurring expenses related to employee severance and separation costs. Employee severance and separation costs primarily relate to severance, non-cash severance, including equity award compensation expense, pension and other termination benefits. Additionally, the Company made a strategic decision to relocate certain manufacturing activities to pre-existing facilities and incurred charges to move inventory and equipment and exit selected supplier arrangements. During the three months ending September 24, 2023, net restructuring costs of $ 7.9 million and $ 2.0 million were recorded in restructuring charges, net - cost of goods sold, and restructuring charges, net - operating expenses, respectively, in the Condensed Consolidated Statements of Operations. No restructuring charges were recognized during the three months ending September 25, 2022. The cumulative cost of the restructuring plan as of September 24, 2023 was $ 130.3 million. The Company anticipates the restructuring plan to be substantially complete by December 24, 2023, and estimates that incremental restructuring charges totaling approximately $ 7 million will be incurred in the fiscal quarter ending December 24, 2023. The following table is a summary of the activity related to the restructuring plan: Severance and Benefits Other Total (in thousands) Restructuring liability as of June 25, 2023 $ 7,989 $ 246 $ 8,235 Restructuring expense 5,474 4,487 9,961 Cash payments ( 10,525 ) ( 4,262 ) ( 14,787 ) Non-cash activities 54 16 70 Restructuring liability as of September 24, 2023 $ 2,992 $ 487 $ 3,479 Lam Research Corporation 2024 Q1 10-Q 16 Table of Contents