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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 September 26, 2021
or 
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, Par Value $0.001 Per ShareLRCXThe 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 October 22, 2021, the Registrant had 140,798,697 shares of Common Stock outstanding.




LAM RESEARCH CORPORATION
TABLE OF CONTENTS
 
  Page No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


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
September 26,
2021
September 27,
2020
Revenue$4,304,465 $3,177,080 
Cost of goods sold2,327,711 1,670,901 
Gross margin1,976,754 1,506,179 
Research and development382,327 355,367 
Selling, general, and administrative222,194 189,748 
Total operating expenses604,521 545,115 
Operating income1,372,233 961,064 
Other expense, net(28,857)(38,792)
Income before income taxes1,343,376 922,272 
Income tax expense(163,632)(98,821)
Net income$1,179,744 $823,451 
Net income per share:
Basic$8.32 $5.67 
Diluted$8.27 $5.59 
Number of shares used in per share calculations:
Basic141,743 145,267 
Diluted142,612 147,248 











See Notes to Condensed Consolidated Financial Statements

3



LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

 
Three Months Ended
September 26,
2021
September 27,
2020
Net income$1,179,744 $823,451 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment(4,032)12,124 
Cash flow hedges:
Net unrealized losses during the period(9,005)(350)
Net (gains) losses reclassified into net income(3,542)767 
(12,547)417 
Available-for-sale investments:
Net unrealized losses during the period(2,405)(1,400)
Net losses reclassified into net income1,145 402 
(1,260)(998)
Defined benefit plans, net change in unrealized component199 (4)
Other comprehensive (loss) income, net of tax(17,640)11,539 
Comprehensive income $1,162,104 $834,990 
See Notes to Condensed Consolidated Financial Statements
4

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
September 26,
2021
June 27,
2021
(unaudited)(1)
ASSETS
Cash and cash equivalents$4,042,151 $4,418,263 
Investments569,472 1,310,872 
Accounts receivable, less allowance of $5,361 as of September 26, 2021, and $5,255 as of June 27, 2021
3,397,180 3,026,430 
Inventories2,872,141 2,689,294 
Prepaid expenses and other current assets263,738 207,528 
Total current assets11,144,682 11,652,387 
Property and equipment, net1,372,533 1,303,479 
Restricted cash and investments251,448 252,487 
Goodwill1,489,945 1,490,134 
Intangible assets, net125,014 132,365 
Other assets1,181,930 1,061,300 
Total assets$15,565,552 $15,892,152 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable$837,708 $829,710 
Accrued expenses and other current liabilities1,633,729 1,719,483 
Deferred profit931,415 967,325 
Current portion of long-term debt and finance lease obligations6,368 11,349 
Total current liabilities3,409,220 3,527,867 
Long-term debt and finance lease obligations, less current portion4,988,964 4,990,333 
Income taxes payable881,325 948,037 
Other long-term liabilities466,000 398,727 
Total liabilities9,745,509 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 September 26, 2021 and June 27, 2021; issued and outstanding, 140,811 shares as of September 26, 2021, and 142,501 shares as of June 27, 2021
141 143 
Additional paid-in capital7,111,803 7,052,962 
Treasury stock, at cost; 152,503 shares as of September 26, 2021, and 150,766 shares as of June 27, 2021
(16,863,573)(15,646,701)
Accumulated other comprehensive loss(81,768)(64,128)
Retained earnings15,653,440 14,684,912 
Total stockholders’ equity5,820,043 6,027,188 
Total liabilities and stockholders’ equity$15,565,552 $15,892,152 
(1) Derived from audited financial statements

See Notes to Condensed Consolidated Financial Statements
5

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Three Months Ended
September 26,
2021
September 27,
2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income1,179,744 $823,451 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization79,874 72,912 
Deferred income taxes(13,023)(1,850)
Equity-based compensation expense58,099 55,988 
Other, net(8,690)4,339 
Changes in operating assets and liabilities(838,480)(312,329)
Net cash provided by operating activities457,524 642,511 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and intangible assets(136,427)(62,806)
Purchases of available-for-sale securities(25,297)(1,750,188)
Maturities of available-for-sales securities106,836 597,252 
Sales of available-for-sale securities656,504 415,862 
Other, net(4,923)(1,786)
Net cash provided by (used for) investing activities596,693 (801,666)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt(6,338)(19,173)
Treasury stock purchases(1,236,753)(448,581)
Dividends paid(185,431)(167,129)
Proceeds from issuance of common stock742 5,538 
Other, net188 (2,140)
Net cash used for financing activities(1,427,592)(631,485)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(3,776)4,082 
Net decrease in cash, cash equivalents, and restricted cash(377,151)(786,558)
Cash, cash equivalents, and restricted cash at beginning of period4,670,750 5,169,083 
Cash, cash equivalents, and restricted cash at end of period$4,293,599 $4,382,525 
Schedule of non-cash transactions:
Accrued payables for stock repurchases126 18,599 
Accrued payables for capital expenditures66,117 37,733 
Dividends payable211,216 188,046 
Transfers of finished goods inventory to property and equipment15,518 29,019 
Reconciliation of cash, cash equivalents, and restricted cashSeptember 26,
2021
September 27,
2020
Cash and cash equivalents$4,042,151 $4,129,067 
Restricted cash and cash equivalents251,448 253,458 
Total cash, cash equivalents, and restricted cash$4,293,599 $4,382,525 
See Notes to Condensed Consolidated Financial Statements
6

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Three Months Ended
September 26, 2021
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Balance at June 27, 2021142,501 $143 $7,052,962 $(15,646,701)$(64,128)$14,684,912 $6,027,188 
Issuance of common stock47  742 — — — 742 
Purchase of treasury stock(1,737)(2)— (1,216,872)— — (1,216,874)
Equity-based compensation expense— — 58,099 — — — 58,099 
Net income— — — — — 1,179,744 1,179,744 
Other comprehensive loss— — — — (17,640)— (17,640)
Cash dividends declared ($1.50 per common share)
— — — — — (211,216)(211,216)
Balance at September 26, 2021140,811 $141 $7,111,803 $(16,863,573)$(81,768)$15,653,440 $5,820,043 
Three Months Ended
September 27, 2020
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Balance at June 28, 2020145,331 $145 $6,695,858 $(12,949,889)$(94,211)$11,520,591 $5,172,494 
Issuance of common stock105  5,538 — — — 5,538 
Purchase of treasury stock(1,360)(1)— (467,097)— — (467,098)
Equity-based compensation expense— — 55,988 — — — 55,988 
Effect of conversion of convertible notes517 1 (527)— — — (526)
Reclassification from temporary to permanent equity— — 4,688 — — — 4,688 
Adoption of ASU 2018-18— — — — — 1,157 1,157 
Net income— — — — — 823,451 823,451 
Other comprehensive income— — — — 11,539 — 11,539 
Cash dividends declared ($1.30 per common share)
— — — — — (188,046)(188,046)
Balance at September 27, 2020144,593 $145 $6,761,545 $(13,416,986)$(82,672)$12,157,153 $5,419,185 
See Notes to Condensed Consolidated Financial Statements
7

LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 26, 2021
(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 September 26, 2021 (the “September 2021 quarter”) and September 27, 2020 (the “September 2020 quarter”) 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
There are no new accounting pronouncements not yet adopted or effective that are expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 3 — REVENUE
Deferred Revenue
Revenue of $565.7 million included in deferred revenue as of June 27, 2021 was recognized during the three months ended September 26, 2021.
The following table summarizes the transaction price for contracts that have not yet been recognized as revenue as of September 26, 2021 and when the Company expects to recognize the amounts as revenue:
Less than 1 Year1-3 YearsMore than 3 YearsTotal
(In thousands)
Deferred revenue$951,080 $158,546 
(1)
$ $1,109,626 
(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.
8


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 26,
2021
September 27,
2020
(In thousands)
System revenue$2,924,883 $2,148,241 
Customer support-related revenue and other1,379,582 1,028,839 
$4,304,465 $3,177,080 
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.
The following table presents the Company’s revenues disaggregated by geographic region:
Three Months Ended
September 26,
2021
September 27,
2020
(In thousands)
China$1,607,710 $1,174,669 
Korea918,137 756,257 
Taiwan638,066 446,091 
Japan468,731 392,526 
Southeast Asia365,248 203,339 
United States228,211 137,892 
Europe78,362 66,306 
$4,304,465 $3,177,080 
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 26,
2021
September 27,
2020
Memory64 %58 %
Foundry25 %36 %
Logic/integrated device manufacturing11 %6 %
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.
9


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 26,
2021
September 27,
2020
(in thousands)
Equity-based compensation expense$58,099 $55,988 
Income tax benefit recognized related to equity-based compensation expense$8,208 $9,877 

NOTE 5 — OTHER EXPENSE, NET
The significant components of other expense, net, are as follows:
Three Months Ended
September 26,
2021
September 27,
2020
(in thousands)
Interest income$4,678 $6,959 
Interest expense(45,056)(52,115)
Gains on deferred compensation plan-related assets, net7,437 12,927 
Foreign exchange losses, net(17)(1,375)
Other, net4,101 (5,188)
$(28,857)$(38,792)
NOTE 6 — INCOME TAX EXPENSE
The Company’s provision for income taxes and effective tax rate are as follows:
Three Months Ended
September 26,
2021
September 27,
2020
(in thousands, except percentages)
Income tax expense$163,632 $98,821 
Effective tax rate12.2 %10.7 %
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 26, 2021 and the three months ended September 27, 2020 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 September 26, 2021, 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 $8.0 million.
10


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 26,
2021
September 27,
2020
(in thousands, except per share data)
Numerator:
Net income$1,179,744 $823,451 
Denominator:
Basic average shares outstanding141,743 145,267 
Effect of potential dilutive securities:
Employee stock plans869 1,112 
Convertible notes 869 
Diluted average shares outstanding142,612 147,248 
Net income per share - basic$8.32 $5.67 
Net income per share - diluted$8.27 $5.59 

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 26, 2021 and September 27, 2020.

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 expense, net in the Condensed Consolidated Statements of Operations. All of the Company’s other investments 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 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.
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.
11


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.
Investments
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 September 26, 2021, and June 27, 2021:
September 26, 2021
(Reported Within)
CostUnrealized
Gain
Unrealized
(Loss)
Fair ValueCash and
Cash
Equivalents
InvestmentsRestricted
Cash &
Investments
Other
Assets
(in thousands)
Cash$1,063,562 $— $— $1,063,562 $1,062,142 $ $1,420 $ 
Time deposits1,920,427 — — 1,920,427 1,670,399  250,028  
Level 1:
Money market funds1,309,610   1,309,610 1,309,610    
U.S. Treasury and agencies1,850  (1)1,849  1,849   
Mutual funds81,576 19,389 (27)100,938    100,938 
Level 1 Total1,393,036 19,389 (28)1,412,397 1,309,610 1,849  100,938 
Level 2:
Foreign government bonds15,119 14  15,133  15,133   
Corporate notes and bonds535,888 766 (271)536,383  536,383   
Mortgage backed securities — commercial16,164 1 (58)16,107  16,107   
Level 2 Total567,171 781 (329)567,623  567,623   
Total$4,944,196 $20,170 $(357)$4,964,009 $4,042,151 $569,472 $251,448 $100,938 
 
12


June 27, 2021
(Reported Within)
CostUnrealized
Gain
Unrealized
(Loss)
Fair ValueCash and
Cash
Equivalents
InvestmentsRestricted
Cash &
Investments
Other
Assets
(in thousands)
Cash$875,738 $— $— $875,738 $873,278 $ $2,460 $ 
Time deposits1,548,874 — — 1,548,874 1,298,847  250,027  
Level 1:
Money market funds2,246,138   2,246,138 2,246,138    
U.S. Treasury and agencies204,743 96 (47)204,792  204,792   
Mutual funds80,694 15,510 (33)96,171    96,171 
Level 1 Total2,531,575 15,606 (80)2,547,101 2,246,138 204,792  96,171 
Level 2:
Government-sponsored enterprises3,498 7  3,505  3,505   
Foreign government bonds32,995 21 (4)33,012  33,012   
Corporate notes and bonds1,043,308 2,247 (457)1,045,098  1,045,098   
Mortgage backed securities — residential5,623 54  5,677  5,677   
Mortgage backed securities — commercial18,830 17 (59)18,788  18,788   
Level 2 Total1,104,254 2,346 (520)1,106,080  1,106,080   
Total$6,060,441 $17,952 $(600)$6,077,793 $4,418,263 $1,310,872 $252,487 $96,171 
The Company accounts for its investment portfolio at fair value. Realized gains (losses) for investment sales are specifically identified. Management assesses the fair value of investments in debt securities that are not actively traded through consideration of interest rates and their impact on the present value of the cash flows to be received from the investments.
The Company evaluates its investments with fair value less than amortized cost by first considering whether the Company has the intent to sell the security or whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. 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 loss 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. All other differences between fair value and amortized cost are recognized in other comprehensive income. No such losses were recognized through the income statement during the three months ended September 26, 2021 and September 27, 2020.
Gross realized gains/(losses) from sales of investments were insignificant in the three months ended September 26, 2021 and September 27, 2020.
The following is an analysis of the Company’s cash, cash equivalents, investments, and restricted cash and investments in unrealized loss positions:
September 26, 2021
Unrealized Losses
Less than 12 Months
Unrealized Losses
12 Months or Greater
Total
Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
(in thousands)
U.S. Treasury and agencies$1,848 $(1)$ $ $1,848 $(1)
Municipal notes and bonds2,082 (27)  2,082 (27)
Corporate notes and bonds155,500 (229)7,673 (42)163,173 (271)
Mortgage backed securities — commercial14,988 (58)  14,988 (58)
$174,418 $(315)$7,673 $(42)$182,091 $(357)

13


The amortized cost and fair value of cash equivalents, investments, and restricted investments with contractual maturities are as follows as of September 26, 2021:
Cost
Fair
Value
(in thousands)
Due in one year or less$3,367,984 $3,368,163 
Due after one year through five years404,834 405,155 
Due in more than five years26,240 26,191 
$3,799,058 $3,799,509 
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 carries derivative financial instruments (“derivatives”) on its Condensed Consolidated Balance Sheets at their fair values. The Company enters into foreign currency forward contracts and foreign currency options with financial institutions with the primary objective of reducing volatility of earnings and cash flows related to foreign currency exchange rate fluctuations. In addition, the Company enters into interest rate swap arrangements to manage interest rate risk. The counterparties to these derivatives are large global financial institutions that the Company believes are creditworthy, and therefore, it does not consider the risk of counterparty nonperformance to be material.
Under the master netting agreements with the respective counterparties to the Company’s derivative contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. However, the Company has elected to present the derivative assets and derivative liabilities on a gross basis on its balance sheet. As of September 26, 2021 and June 27, 2021, the potential effect of rights of offset associated with the above foreign exchange and interest rate contracts would be immaterial to the Condensed Consolidated Balance Sheets.
Cash Flow Hedges
The Company’s financial position is routinely subjected to market risk associated with foreign currency exchange rate fluctuations on non-U.S. dollar transactions or cash flows. The Company’s policy is to mitigate the foreign exchange risk arising from the fluctuations in the value of these non-U.S. dollar denominated transactions or cash flows through a foreign currency cash flow hedging program, using forward contracts and foreign currency options that generally expire within 12 months and no later than 24 months. These hedge contracts are designated as cash flow hedges and are carried on the Company’s 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 revenue/expense in the same period the hedged items affect earnings.
In addition, the Company has entered into interest rate swap agreements to hedge against the variability of cash flows due to changes in certain benchmark interest rates on fixed rate debt. These instruments are designated as cash flow hedges at inception and are settled in conjunction with the issuance of debt. The effective portion of the contracts’ gains or losses is included in accumulated other comprehensive income (loss) and is amortized into income as the hedged item affects earnings.
At inception and at each quarter-end, hedges are tested prospectively and retrospectively for effectiveness using regression analysis. Changes in the fair value of foreign exchange contracts due to changes in time value are included in the assessment of effectiveness. To qualify for hedge accounting, the hedge relationship must meet criteria relating to both the derivative instrument and the hedged item. These criteria include identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows will be measured.
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be tested to demonstrate an expectation of providing highly effective offsetting changes to future cash flows on hedged transactions. When derivative instruments are designated and qualify as effective cash flow hedges, the Company recognizes effective changes in the fair value of the hedging instrument within accumulated other comprehensive income (loss) until the hedged exposure is realized. Consequently, the Company’s results of operations are not subject to fluctuation as a result of changes in the fair value of the derivative instruments. If hedges are not highly effective or if the Company does not believe that the underlying hedged forecasted transactions will occur, the Company may not be able to account for its derivative
14


instruments as cash flow hedges. If this were to occur, future changes in the fair values of the Company’s derivative instruments would be recognized in earnings. Additionally, related amounts previously recorded in other comprehensive income would be reclassified to earnings immediately.
As of September 26, 2021 and June 27, 2021, the fair value of outstanding cash flow hedges was not material. Additionally, as of September 26, 2021, the Company had an immaterial net gain or loss accumulated in other comprehensive income, net of tax, related to foreign exchange cash flow hedges and interest rate contracts which it expects to reclassify from other comprehensive income into earnings over the next 12 months.
The following table provides the total notional value of cash flow hedge instruments outstanding as of September 26, 2021:
September 26,
2021
(In thousands)
Buy Contracts$307,590 
Sell Contracts565,342 
The effect of derivative instruments designated as cash flow hedges on the Company’s Condensed Consolidated Statements of Operations, including accumulated other comprehensive income (“AOCI”), was as follows:
Three Months Ended
September 26, 2021
Location of 
Gain or (Loss)
Recognized in or Reclassified into Net Income
Loss
Recognized
in AOCI
Gain (Loss)
Reclassified
from AOCI
into Net Income
Derivatives in Cash Flow Hedging Relationships(in thousands)
Foreign Exchange ContractsRevenue$(5,936)$5,263 
Foreign Exchange ContractsCost of goods sold(3,761)(643)
Foreign Exchange ContractsResearch and Development(1,249) 
Foreign Exchange ContractsSelling, general, and administrative(1,314)(26)
Interest Rate ContractsOther expense, net (1,051)
$(12,260)$3,543 
Three Months Ended
September 27, 2020
Location of 
Gain or (Loss)
Recognized in or Reclassified into Income
(Loss) Gain
Recognized
in AOCI
(Loss) Gain
Reclassified
from AOCI
into Net Income
Derivatives in Cash Flow Hedging Relationships(in thousands)
Foreign Exchange ContractsRevenue$(3,281)$(835)
Foreign Exchange ContractsCost of goods sold1,093