LAM RESEARCH CORP [LRCX] Filings

10-Q 1 lrcx-20220327.htm 10-Q lrcx-20220327

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-12933

___________________________________________________________

LAM RESEARCH CORPORATION

(Exact name of registrant as specified in its charter)

___________________________________________________________


Delaware						94-2634797
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

4650 Cushing Parkway,

Fremont,

California

94538


(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (510) 572-0200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.001 Per Share	LRCX	The Nasdaq Stock Market
		(Nasdaq Global Select Market)

__________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 22, 2022, the Registrant had 138,715,027 shares of Common Stock outstanding.

LAM RESEARCH CORPORATION

TABLE OF CONTENTS


		Page No.
	PART I. Financial Information

Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations for the three and nine months ended March 2 7 , 202 2 and March 2 8 , 2021	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended March 2 7 , 202 2 , and March 2 8 , 202 1	4
	Condensed Consolidated Balance Sheets as of March 2 7 , 202 2 , and June 27, 2021	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended March 2 7 , 202 2 , and March 2 8 , 2021	6
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 2 7 , 202 2 , and March 2 8 , 2021	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	34

	PART II. Other Information

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	49
Item 6.	Exhibits	50
Signatures		51

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
Revenue	$	4,060,416	$	3,847,654	$	12,591,485	$	10,480,971
Cost of goods sold	2,243,791		2,067,523		6,820,190		5,590,866
Gross margin	1,816,625		1,780,131		5,771,295		4,890,105
Research and development	407,120		381,120		1,193,091		1,111,659
Selling, general, and administrative	217,408		203,703		675,735		612,350
Total operating expenses	624,528		584,823		1,868,826		1,724,009
Operating income	1,192,097		1,195,308		3,902,469		3,166,096
Other income (expense), net	(57,402)		(35,320)		(68,260)		(104,053)
Income before income taxes	1,134,695		1,159,988		3,834,209		3,062,043
Income tax expense	(112,917)		(88,867)		(437,857)		(298,242)
Net income	$	1,021,778	$	1,071,121	$	3,396,352	$	2,763,801
Net income per share:
Basic	$	7.34	$	7.51	$	24.17	$	19.20
Diluted	$	7.30	$	7.41	$	24.02	$	18.94
Number of shares used in per share calculations:
Basic	139,229		142,676		140,534		143,925
Diluted	140,057		144,609		141,400		145,923

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
Net income	$	1,021,778	$	1,071,121	$	3,396,352	$	2,763,801
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(14,958)		(13,701)		(28,810)		20,231
Cash flow hedges:
Net unrealized gains during the period	12,506		8,024		16,293		12,546
Net (gains) losses reclassified into net income	(5,759)		(207)		(17,205)		843
	6,747		7,817		(912)		13,389
Available-for-sale investments:
Net unrealized losses during the period	(1,333)		(1,623)		(4,523)		(3,667)
Net (gains) losses reclassified into net income	(34)		162		1,456		727
	(1,367)		(1,461)		(3,067)		(2,940)
Defined benefit plans, net change in unrealized component	58		174		(749)		234
Other comprehensive (loss) income, net of tax	(9,520)		(7,171)		(33,538)		30,914
Comprehensive income	$	1,012,258	$	1,063,950	$	3,362,814	$	2,794,715

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	March 27, 2022		June 27, 2021
	(unaudited)		(1)
ASSETS
Cash and cash equivalents	$	4,194,719	$	4,418,263
Investments	160,072		1,310,872
Accounts receivable, less allowance of $5,602 as of March 27, 2022, and $5,255 as of June 27, 2021	3,702,320		3,026,430
Inventories	3,479,332		2,689,294
Prepaid expenses and other current assets	351,658		207,528
Total current assets	11,888,101		11,652,387
Property and equipment, net	1,561,875		1,303,479
Restricted cash and investments	251,036		252,487
Goodwill	1,513,729		1,490,134
Intangible assets, net	113,306		132,365
Other assets	1,260,984		1,061,300
Total assets	$	16,589,031	$	15,892,152
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable	$	1,007,026	$	829,710
Accrued expenses and other current liabilities	1,634,917		1,719,483
Deferred profit	1,545,109		967,325
Current portion of long-term debt and finance lease obligations	7,689		11,349
Total current liabilities	4,194,741		3,527,867
Long-term debt and finance lease obligations, less current portion	5,000,657		4,990,333
Income taxes payable	916,668		948,037
Other long-term liabilities	450,475		398,727
Total liabilities	10,562,541		9,864,964
Commitments and contingencies

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 March 27, 2022 and June 27, 2021; issued and outstanding, 138,707 shares as of March 27, 2022, and 142,501 shares as of June 27, 2021	139		143
Additional paid-in capital	7,289,393		7,052,962
Treasury stock, at cost; 155,323 shares as of March 27, 2022, and 150,766 shares as of June 27, 2021	(18,616,780)		(15,646,701)
Accumulated other comprehensive loss	(97,666)		(64,128)
Retained earnings	17,451,404		14,684,912
Total stockholders’ equity	6,026,490		6,027,188
Total liabilities and stockholders’ equity	$	16,589,031	$	15,892,152

(1) Derived from audited financial statements

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Nine Months Ended
	March 27, 2022		March 28, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	3,396,352		$	2,763,801
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	245,807		228,754
Deferred income taxes	(83,451)		(5,448)
Equity-based compensation expense	189,476		163,843







Other, net	(78,325)		10,394
Changes in operating assets and liabilities	(1,014,119)		(1,009,116)
Net cash provided by operating activities	2,655,740		2,152,228
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and intangible assets	(420,288)		(244,474)

Purchases of available-for-sale securities	(567,819)		(3,242,741)
Maturities of available-for-sales securities	167,123		1,951,037
Sales of available-for-sale securities	1,543,094		956,261





Other, net	(33,898)		(35,873)
Net cash provided by (used for) investing activities	688,212		(615,790)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt	(9,857)		(40,014)





Treasury stock purchases	(2,989,574)		(2,266,449)
Dividends paid	(607,234)		(541,607)
Reissuance of treasury stock related to employee stock purchase plan	46,380		41,434
Proceeds from issuance of common stock	4,685		23,272

Other, net	197		(1,844)
Net cash used for financing activities	(3,555,403)		(2,785,208)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(13,544)		6,513
Net decrease in cash, cash equivalents, and restricted cash	(224,995)		(1,242,257)
Cash, cash equivalents, and restricted cash at beginning of period	4,670,750		5,169,083
Cash, cash equivalents, and restricted cash at end of period	$	4,445,755	$	3,926,826
Schedule of non-cash transactions:
Accrued payables for stock repurchases	4,624		5,855
Accrued payables for capital expenditures	57,930		80,215
Dividends payable	208,057		185,390
Transfers of finished goods inventory to property and equipment	62,116		59,882

Reconciliation of cash, cash equivalents, and restricted cash	March 27, 2022		March 28, 2021
Cash and cash equivalents	$	4,194,719	$	3,673,366
Restricted cash and cash equivalents	251,036		253,460
Total cash, cash equivalents, and restricted cash	$	4,445,755	$	3,926,826

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Three Months Ended
	March 27, 2022
	Common Stock Shares	Common Stock		Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Total
Balance at December 26, 2021	140,275	$	140	$	7,220,359	$	(17,294,255)	$	(88,146)	$	16,637,683	$	6,475,781
Issuance of common stock	664	1		491		—		—		—		492
Purchase of treasury stock	(2,232)	(2)		—		(1,322,525)		—		—		(1,322,527)

Equity-based compensation expense	—	—		68,543		—		—		—		68,543







Net income	—	—		—		—		—		1,021,778		1,021,778
Other comprehensive loss	—	—		—		—		(9,520)		—		(9,520)
Cash dividends declared ($1.50 per common share)	—	—		—		—		—		(208,057)		(208,057)
Balance at March 27, 2022	138,707	$	139	$	7,289,393	$	(18,616,780)	$	(97,666)	$	17,451,404	$	6,026,490

	Nine Months Ended
	March 27, 2022
	Common Stock Shares	Common Stock		Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Total
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	763	1		4,684		—		—		—		4,685
Purchase of treasury stock	(4,654)	(5)		—		(2,974,188)		—		—		(2,974,193)
Reissuance of treasury stock	97	—		42,271		4,109		—		—		46,380
Equity-based compensation expense	—	—		189,476		—		—		—		189,476









Net income	—	—		—		—		—		3,396,352		3,396,352
Other comprehensive loss	—	—		—		—		(33,538)		—		(33,538)
Cash dividends declared ($4.50 per common share)	—	—		—		—		—		(629,860)		(629,860)
Balance at March 27, 2022	138,707	$	139	$	7,289,393	$	(18,616,780)	$	(97,666)	$	17,451,404	$	6,026,490

See Notes to Condensed Consolidated Financial Statements

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	Three Months Ended
	March 28, 2021
	Common Stock Shares	Common Stock		Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Total
Balance at December 26, 2020	143,205	$	143	$	6,854,681	$	(14,135,555)	$	(56,126)	$	12,839,890	$	5,503,033
Issuance of common stock	848	1		9,625		—		—		—		9,626
Purchase of treasury stock	(1,731)	(1)		—		(1,077,379)		—		—		(1,077,380)

Equity-based compensation expense	—	—		55,746		—		—		—		55,746
Effect of conversion of convertible notes	285	—		(327)		—		—		—		(327)


Reclassification from temporary to permanent equity	—	—		2,298		—		—		—		2,298

Net income	—	—		—		—		—		1,071,121		1,071,121
Other comprehensive loss	—	—		—		—		(7,171)		—		(7,171)
Cash dividends declared ($1.30 per common share)	—	—		—		—		—		(185,330)		(185,330)
Balance at March 28, 2021	142,607	$	143	$	6,922,023	$	(15,212,934)	$	(63,297)	$	13,725,681	$	5,371,616


	Nine Months Ended
	March 28, 2021
	Common Stock Shares	Common Stock		Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Total
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	1,053	1		23,271		—		—		—		23,272
Purchase of treasury stock	(4,887)	(4)		—		(2,272,218)		—		—		(2,272,222)
Reissuance of treasury stock	207	—		32,261		9,173		—		—		41,434
Equity-based compensation expense	—	—		163,843		—		—		—		163,843
Effect of conversion of convertible notes	903	1		(988)		—		—		—		(987)


Reclassification from temporary to permanent equity	—	—		7,778		—		—		—		7,778
Adoption of ASU 2018-18	—	—		—		—		—		1,157		1,157



Net income	—	—		—		—		—		2,763,801		2,763,801
Other comprehensive income	—	—		—		—		30,914		—		30,914
Cash dividends declared ($3.90 per common share)	—	—		—		—		—		(559,868)		(559,868)
Balance at March 28, 2021	142,607	$	143	$	6,922,023	$	(15,212,934)	$	(63,297)	$	13,725,681	$	5,371,616

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 27, 2022

(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 27, 2021, which are included in the Company’s Annual Report on Form 10-K as of and for the year ended June 27, 2021 (the “2021 Form 10-K”). The Company’s reports on Form 10-K, Form 10-Q and Form 8-K are available online at the Securities and Exchange Commission website on the Internet. The address of that site is www.sec.gov. The Company also posts its reports on Form 10-K, Form 10-Q and Form 8-K on its corporate website at http://investor.lamresearch.com. The content on any website referred to in this Form 10-Q is not a part of or incorporated by reference in this Form 10-Q unless expressly noted.

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 26, 2022 and includes 52 weeks. The quarters ended March 27, 2022 (the “March 2022 quarter”) and March 28, 2021 included 13 weeks.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted

The Company did not adopt any new accounting standards during the first quarter of fiscal year 2022 that had a material impact on the Company’s Condensed Consolidated Financial Statements.

Updates Not Yet Adopted or Effective

In November 2021, the Financial Accounting Standards Board issued Accounting Standards Update 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 a government (including government assistance) that are accounted for by analogizing to a grant or contribution accounting model. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted. The Company is required to adopt this standard in the first quarter of fiscal year 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 is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements.

NOTE 3 — REVENUE

Deferred Revenue

Revenue of $79.1 million and $835.8 million included in deferred revenue as of June 27, 2021 was recognized during the three and nine months ended March 27, 2022.

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The following table summarizes the transaction price for contracts that have not yet been recognized as revenue as of March 27, 2022 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	$	1,876,645	$	173,845	(1)	$	18,934	(1)	$	2,069,424

(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.

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				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
	(In thousands)
System revenue	$	2,650,842	$	2,545,306	$	8,315,898	$	7,000,968
Customer support-related revenue and other	1,409,574		1,302,348		4,275,587		3,480,003
	$	4,060,416	$	3,847,654	$	12,591,485	$	10,480,971

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 Company’s Reliant product line.

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The following table presents the Company’s revenues disaggregated by geographic region:


	Three Months Ended				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
	(In thousands)
China	$	1,277,502	$	1,217,427	$	3,966,185	$	3,600,281
Korea	961,300		1,195,711		2,947,657		2,664,493
Taiwan	663,494		545,719		2,074,681		1,576,109
Southeast Asia	378,481		260,360		1,108,111		829,157
Japan	342,329		262,913		1,324,996		999,462
United States	309,161		184,887		782,170		460,271
Europe	128,149		180,637		387,685		351,198
	$	4,060,416	$	3,847,654	$	12,591,485	$	10,480,971

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				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
Memory	66	%	62	%	62	%	62	%
Foundry	21	%	31	%	26	%	31	%
Logic/integrated device manufacturing	13	%	7	%	12	%	7	%

NOTE 4 — EQUITY-BASED COMPENSATION PLANS

The Lam Research Corporation 2015 Stock Incentive Plan, as amended (the “2015 Plan”), 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.

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				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
	(in thousands)
Equity-based compensation expense	$	68,543	$	55,746	$	189,476	$	163,843
Income tax benefit recognized related to equity-based compensation expense	$	23,933	$	44,077	$	41,155	$	63,866

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NOTE 5 — OTHER INCOME (EXPENSE), NET

The significant components of other income (expense), net, are as follows:


	Three Months Ended				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
	(in thousands)
Interest income	$	1,938	$	4,209	$	8,988	$	15,964
Interest expense	(46,710)		(52,236)		(138,531)		(156,902)
(Losses) gains on deferred compensation plan-related assets, net	(13,118)		7,520		(5,737)		44,654


Foreign exchange gains (losses), net	943		541		1,657		(4,597)
Other, net	(455)		4,646		65,363		(3,172)
	$	(57,402)	$	(35,320)	$	(68,260)	$	(104,053)

Other, net includes an unrealized gain totaling $63.6 million associated with an equity investee that became publicly traded during the nine months ended March 27, 2022. Refer to Note 8 - Financial Instruments for additional information regarding the Company’s investments.

NOTE 6 — INCOME TAX EXPENSE

The Company’s provision for income taxes and effective tax rate are as follows:


	Three Months Ended						Nine Months Ended
	March 27, 2022			March 28, 2021			March 27, 2022			March 28, 2021
	(in thousands, except percentages)
Income tax expense	$	112,917		$	88,867		$	437,857		$	298,242
Effective tax rate	10.0		%	7.7		%	11.4		%	9.7		%

The difference between the U.S. federal statutory tax rate of 21% and the Company’s effective tax rate for the three and nine months ended March 27, 2022 and March 28, 2021 was primarily due to income in lower tax jurisdictions.

The Company transferred its international sales operations from Switzerland to Malaysia, effective from fiscal year 2022. Through fiscal year 2036, the Company expects to operate under various tax incentives in Malaysia which provide exemptions on foreign income earned and are contingent upon meeting certain conditions.

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 March 27, 2022, 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 $11.3 million.

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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				Nine Months Ended
	March 27, 2022		March 28, 2021		March 27, 2022		March 28, 2021
	(in thousands, except per share data)
Numerator:
Net income	$	1,021,778	$	1,071,121	$	3,396,352	$	2,763,801
Denominator:
Basic average shares outstanding	139,229		142,676		140,534		143,925
Effect of potential dilutive securities:
Employee stock plans	828		1,415		866		1,273
Convertible notes	—		518		—		725

Diluted average shares outstanding	140,057		144,609		141,400		145,923
Net income per share - basic	$	7.34	$	7.51	$	24.17	$	19.20
Net income per share - diluted	$	7.30	$	7.41	$	24.02	$	18.94

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 and nine months ended March 27, 2022 and March 28, 2021.

NOTE 8 — FINANCIAL INSTRUMENTS

The Company maintains an investment portfolio of various holdings, types, and maturities. The Company’s mutual funds, which are related to the Company’s obligations under the deferred compensation plan, are classified as trading securities. 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 other income (expense), net in the Condensed Consolidated Statements of Operations. All of the Company’s debt securities are classified as available-for-sale and consequently are recorded in the Condensed Consolidated Balance Sheets at fair value with unrealized gains or losses associated with market valuation changes, unrelated to credit losses, reported as a separate component of accumulated other comprehensive income (loss), net of tax; and credit losses, if any, recognized as other income (expense), net in the Condensed Consolidated Statements of Operations.

The Company periodically invests in equity securities. For equity investments that do not have a readily determinable fair value, the Company records them using either 1) the measurement alternative which measures the equity investments at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes; or 2) the equity method whereby the Company recognizes its proportional share of the income or loss from the equity method investment on a one-quarter lag. The equity method is utilized when the Company does not have the ability to control the investee but is deemed to have the ability to exercise significant influence over the investee’s operating or financial policies. For equity investments that have a readily determinable fair value, the Company records them at fair market value on a recurring basis based upon quoted market prices. Realized and unrealized gains and losses resulting from application of the measurement alternative, the impact of the application of the equity method to the Company’s equity investments, and recognition of changes in fair market value, as applicable, are recognized as other income (expense), net in the Condensed Consolidated Statements of Operations.

Fair Value

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.

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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 not active, 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.

The Company engages with pricing vendors to provide fair values for a majority of its Level 1 and Level 2 investments. The vendors provide either a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Significant observable inputs include interest rates and yield curves observable at commonly quoted intervals, volatility and credit risks. The fair value of derivative contracts is determined using observable market inputs such as the foreign currency rates, forward rate curves, currency volatility and interest rates and considers nonperformance risk of the Company and its counterparties.

The Company’s primary financial instruments include its cash, cash equivalents, investments, restricted cash and investments, long-term investments, accounts receivable, accounts payable, long-term debt and leases, and foreign currency related derivative instruments. The estimated fair value of cash, accounts receivable, and accounts payable approximates their carrying value due to the short period of time to their maturities. The estimated fair values of lease obligations approximate their carrying value as the majority of these obligations have interest rates that adjust to market rates on a periodic basis. Refer to Note 12 - Long-Term Debt and Other Borrowings for additional information regarding the fair value of the Company’s senior notes.

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Investments

Equity Investments measured at fair value on a non-recurring basis

As of March 27, 2022, and June 27, 2021, equity investments of $121.8 million and $117.3 million, respectively, were recognized in other assets in the Condensed Consolidated Balance Sheets.

With the exception of one equity investee that became publicly traded during the nine months ended March 27, 2022, net gains resulting from the application of the measurement alternative to the Company’s equity investments were immaterial for the three and nine months ended March 27, 2022, and March 28, 2021. Refer to Note 5 - Other Income (Expense), net for additional information regarding the gain associated with an equity investee that became publicly traded in the nine months ended March 27, 2022. Additionally, following the equity investee becoming publicly traded, the Company began measuring the investment at fair market value on a recurring basis in the category corporate equities.

Debt and Equity Investments measured at fair value on a recurring basis

The following tables set forth the Company’s cash, cash equivalents, investments, restricted cash and investments, and other assets measured at fair value on a recurring basis as of March 27, 2022, and June 27, 2021:


	March 27, 2022
									(Reported Within)
	Cost		Unrealized Gain		Unrealized (Loss)		Fair Value		Cash and Cash Equivalents		Investments		Restricted Cash & Investments		Other Assets
	(in thousands)
Cash	$	1,217,415	$	—	$	—	$	1,217,415	$	1,216,406	$	—	$	1,009	$	—
Time deposits	2,228,391		—		—		2,228,391		1,978,364		—		250,027		—
Level 1:
Money market funds	999,949		—		—		999,949		999,949		—		—		—

Corporate equities