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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________

FORM 10-Q

___________________________________________________________

(Mark One)



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

For the quarterly period ended December 23, 2018



¨	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)

(510) 572-0200

(Registrant’s telephone number, including area code)

__________________________________________________

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 x 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 x No ¨

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



Large accelerated filer	x	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 x

As of January 28, 2019, the Registrant had 152,593,454 shares of Common Stock outstanding.

Table of Contents

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 six months ended December 23, 2018, and December 24, 2017	3
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 23, 2018, and December 24, 2017	4
	Condensed Consolidated Balance Sheets as of December 23, 2018, and June 24, 2018	5
	Condensed Consolidated Statements of Cash Flows for the six months ended December 23, 2018, and December 24, 2017	6
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended December 23, 2018, and December 24, 2017	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39

	PART II. Other Information

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
Signatures		53

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						Six Months Ended
	December 23, 2018			December 24, 2017			December 23, 2018			December 24, 2017
Revenue	$	2,522,673		$	2,580,815		$	4,853,364		$	5,058,955
Cost of goods sold	1,377,640			1,375,248			2,650,133			2,704,045
Gross margin	1,145,033			1,205,567			2,203,231			2,354,910
Research and development	285,556			281,311			577,228			556,389
Selling, general, and administrative	169,098			186,885			343,873			367,928
Total operating expenses	454,654			468,196			921,101			924,317
Operating income	690,379			737,371			1,282,130			1,430,593
Other expense, net	(30,649		)	(3,152		)	(31,026		)	(8,654		)
Income before income taxes	659,730			734,219			1,251,104			1,421,939
Income tax expense	(90,875		)	(744,174		)	(148,889		)	(841,204		)
Net income (loss)	$	568,855		$	(9,955	)	$	1,102,215		$	580,735
Net income (loss) per share:
Basic	$	3.67		$	(0.06	)	$	7.10		$	3.59
Diluted	$	3.51		$	(0.06	)	$	6.73		$	3.16
Number of shares used in per share calculations:
Basic	155,022			161,135			155,340			161,638
Diluted	162,170			161,135			163,749			183,958

See Notes to Condensed Consolidated Financial Statements

Table of Contents

LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



	Three Months Ended						Six Months Ended
	December 23, 2018			December 24, 2017			December 23, 2018			December 24, 2017
Net income (loss)	$	568,855		$	(9,955	)	$	1,102,215		$	580,735
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(7,268		)	5,239			(13,529		)	13,108
Cash flow hedges:
Net unrealized gains during the period	5,122			6,930			11,988			9,992
Net gains reclassified into earnings	(5,726		)	(5,459		)	(4,578		)	(3,271		)
	(604		)	1,471			7,410			6,721
Available-for-sale investments:
Net unrealized gains (losses) during the period	585			(18,339		)	298			(20,066		)
Net (gains) losses reclassified into earnings	(51		)	84			(54		)	(39		)
	534			(18,255		)	244			(20,105		)
Defined benefit plans, net change in unrealized component	375			172			(1,368		)	(2,184		)
Other comprehensive loss, net of tax	(6,963		)	(11,373		)	(7,243		)	(2,460		)
Comprehensive income (loss)	$	561,892		$	(21,328	)	$	1,094,972		$	578,275

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



	December 23, 2018			June 24, 2018
	(unaudited)			(1)
ASSETS
Cash and cash equivalents	$	3,359,793		$	4,512,257
Investments	275,670			437,338
Accounts receivable, less allowance for doubtful accounts of $5,308 as of December 23, 2018, and $5,343 as of June 24, 2018	1,868,842			2,176,936
Inventories	1,703,307			1,876,162
Prepaid expenses and other current assets	148,233			147,218
Total current assets	7,355,845			9,149,911
Property and equipment, net	1,013,306			902,547
Restricted cash and investments	255,292			256,301
Goodwill	1,484,570			1,484,904
Intangible assets, net	251,898			317,836
Other assets	407,547			367,979
Total assets	$	10,768,458		$	12,479,478
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable	$	343,942		$	510,983
Accrued expenses and other current liabilities	1,203,577			1,309,209
Deferred profit	432,216			720,086
Current portion of convertible notes, capital leases, and commercial paper	187,102			610,030
Total current liabilities	2,166,837			3,150,308
Long-term debt and capital leases, less current portion	1,813,190			1,806,562
Income taxes payable	859,232			851,936
Other long-term liabilities	87,827			90,629
Total liabilities	4,927,086			5,899,435
Commitments and contingencies
Temporary equity, convertible notes	57,009			78,192
Stockholders’ equity:
Preferred stock, at par value of $0.001 per share; authorized, 5,000 shares, none outstanding	—			—
Common stock, at par value of $0.001 per share; authorized, 400,000 shares; issued and outstanding, 153,961 shares at December 23, 2018, and 156,892 shares at June 24, 2018	154			157
Additional paid-in capital	6,256,942			6,144,425
Treasury stock, at cost; 128,920 shares at December 23, 2018, and 119,679 shares at June 24, 2018	(9,573,486		)	(7,846,476		)
Accumulated other comprehensive loss	(64,692		)	(57,449		)
Retained earnings	9,165,445			8,261,194
Total stockholders’ equity	5,784,363			6,501,851
Total liabilities and stockholders’ equity	$	10,768,458		$	12,479,478

(1) Derived from audited financial statements

See Notes to Condensed Consolidated Financial Statements

Table of Contents

LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)



	Six Months Ended
	December 23, 2018			December 24, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,102,215		$	580,735
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	161,599			159,040
Deferred income taxes	(62,704		)	(228,274		)
Equity-based compensation expense	89,149			83,907
Amortization of note discounts and issuance costs	2,276			9,127
Other, net	848			5,461
Changes in operating assets and liabilities	69,322			277,014
Net cash provided by operating activities	1,362,705			887,010
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and intangible assets	(162,021		)	(144,757		)
Business acquisition, net of cash acquired	—			(115,697		)
Purchases of available-for-sale securities	(785,188		)	(2,251,486		)
Sales and maturities of available-for-sale securities	945,828			1,928,011
Other, net	(4,019		)	(14,996		)
Net cash used for investing activities	(5,400		)	(598,925		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt	(86,271		)	(349,249		)
Net (repayments) proceeds from issuance of commercial paper	(359,604		)	798,947
Proceeds from borrowings on revolving credit facility	—			750,000
Repayments of borrowings on revolving credit facility	—			(750,000		)
Treasury stock purchases	(1,737,414		)	(1,266,835		)
Dividends paid	(342,279		)	(145,865		)
Reissuance of treasury stock related to employee stock purchase plan	32,920			34,057
Proceeds from issuance of common stock	109			4,115
Other, net	(13,207		)	4
Net cash used for financing activities	(2,505,746		)	(924,826		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(5,032		)	4,159
Net decrease in cash, cash equivalents, and restricted cash	(1,153,473		)	(632,582		)
Cash, cash equivalents, and restricted cash at beginning of period	4,768,558			2,633,739
Cash, cash equivalents, and restricted cash at end of period	$	3,615,085		$	2,001,157
Schedule of non-cash transactions:
Accrued payables for stock repurchases	4			1,073
Accrued payables for capital expenditures	36,582			29,031
Dividends payable	171,196			79,743
Transfers of inventory to property and equipment, net	33,723			29,977

Reconciliation of cash, cash equivalents, and restricted cash	December 23, 2018			December 24, 2017
Cash and cash equivalents	$	3,359,793		$	1,745,173
Restricted cash and investments	255,292			255,984
Total Cash, cash equivalents, and restricted cash	$	3,615,085		$	2,001,157

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
	December 23, 2018
	Common Stock Shares		Common Stock			Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at September 23, 2018	153,384		$	153		$	6,195,024		$	(9,582,409	)	$	(57,729	)	$	8,767,786		$	5,322,825
Sale of common stock	47		—			109			—			—			—			109
Purchase of treasury stock	(1,683	)	(1		)	—			(1,360		)	—			—			(1,361		)
Reissuance of treasury stock	273		—			22,637			10,283			—			—			32,920
Equity-based compensation expense	—		—			38,806			—			—			—			38,806
Effect of conversion of convertible notes	141		—			(1,435		)	—			—			—			(1,435		)
Exercise of warrants	1,799		2			(2		)	—			—			—			—
Reclassification from temporary to permanent equity	—		—			1,803			—			—			—			1,803
Net income	—		—			—			—			—			568,855			568,855
Other comprehensive loss	—		—			—			—			(6,963		)	—			(6,963		)
Cash dividends declared ($1.10 per common share)	—		—			—			—			—			(171,196		)	(171,196		)
Balance at December 23, 2018	153,961		$	154		$	6,256,942		$	(9,573,486	)	$	(64,692	)	$	9,165,445		$	5,784,363

	Six Months Ended
	December 23, 2018
	Common Stock Shares		Common Stock			Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at June 24, 2018	156,892		$	157		$	6,144,425		$	(7,846,476	)	$	(57,449	)	$	8,261,194		$	6,501,851
Sale of common stock	79		—			109			—			—			—			109
Purchase of treasury stock	(9,491	)	(9		)	—			(1,737,293		)	—			—			(1,737,302		)
Reissuance of treasury stock	273		—			22,637			10,283			—			—			32,920
Equity-based compensation expense	—		—			89,149			—			—			—			89,149
Effect of conversion of convertible notes	2,103		2			(20,549		)	—			—			—			(20,547		)
Exercise of warrants	4,105		4			(12		)	—			—			—			(8		)
Reclassification from temporary to permanent equity	—		—			21,183			—			—			—			21,183
Adoption of ASU 2014-09⁽¹⁾	—		—			—			—			—			139,355			139,355
Adoption of ASU 2016-16⁽¹⁾	—		—			—			—			—			(443		)	(443		)
Adoption of ASU 2018-02⁽¹⁾	—		—			—			—			(2,227		)	2,227			—
Net income	—		—			—			—			—			1,102,215			1,102,215
Other comprehensive loss	—		—			—			—			(5,016		)	—			(5,016		)
Cash dividends declared ($2.20 per common share)	—		—			—			—			—			(339,103		)	(339,103		)
Balance at December 23, 2018	153,961		$	154		$	6,256,942		$	(9,573,486	)	$	(64,692	)	$	9,165,445		$	5,784,363

(1) Refer to Note 2 - Recent Accounting Pronouncements for more information regarding these FASB Accounting Standard Updates.

See Notes to Condensed Consolidated Financial Statements

Table of Contents



	Three Months Ended
	December 24, 2017
	Common Stock Shares		Common Stock			Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at September 24, 2017	162,144		$	162		$	5,891,549		$	(5,375,920	)	$	(52,787	)	$	6,808,174		$	7,271,178
Sale of common stock	398		—			3,073			—			—			—			3,073
Purchase of treasury stock	(3,807	)	(4		)	—			(1,108,169		)	—			—			(1,108,173		)
Reissuance of treasury stock	413		—			20,402			13,655			—			—			34,057
Equity-based compensation expense	—		—			42,124			—			—			—			42,124
Effect of conversion of convertible notes	670		1			(3,774		)	—			—			—			(3,773		)
Effect of bond hedge, cash in lieu of shares	(367	)	—			—			—			—			—			—
Reclassification from temporary to permanent equity	—		—			6,571			—			—			—			6,571
Adoption of ASU 2016-09	—		—			—			—			—			(855		)	(855		)
Net income	—		—			—			—			—			(9,955		)	(9,955		)
Other comprehensive loss	—		—			—			—			(11,373		)	—			(11,373		)
Cash dividends declared ($0.50 per common share)	—		—			—			—			—			(79,743		)	(79,743		)
Balance at December 24, 2017	159,451		$	159		$	5,959,945		$	(6,470,434	)	$	(64,160	)	$	6,717,621		$	6,143,131


	Six Months Ended
	December 24, 2017
	Common Stock Shares		Common Stock			Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at June 25, 2017	161,723		$	162		$	5,845,485		$	(5,216,187	)	$	(61,700	)	$	6,249,691		$	6,817,451
Sale of common stock	466		—			4,115			—			—			—			4,115
Purchase of treasury stock	(5,597	)	(6		)	—			(1,267,902		)	—			—			(1,267,908		)
Reissuance of treasury stock	413		—			20,402			13,655			—			—			34,057
Equity-based compensation expense	—		—			83,907			—			—			—			83,907
Effect of conversion of convertible notes	4,906		5			(33,406		)	—			—			—			(33,401		)
Effect of bond hedge, cash in lieu of shares	(2,460	)	(2		)	6			—			—			—			4
Reclassification from temporary to permanent equity	—		—			39,436			—			—			—			39,436
Adoption of ASU 2016-09	—		—			—			—			—			40,065			40,065
Net income	—		—			—			—			—			580,735			580,735
Other comprehensive loss	—		—			—			—			(2,460		)	—			(2,460		)
Cash dividends declared ($0.95 per common share)	—		—			—			—			—			(152,870		)	(152,870		)
Balance at December 24, 2017	159,451		$	159		$	5,959,945		$	(6,470,434	)	$	(64,160	)	$	6,717,621		$	6,143,131

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 23, 2018

(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 24, 2018, which are included in the Company’s Annual Report on Form 10-K as of and for the year ended June 24, 2018 (the “2018 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 30, 2019 and includes 53 weeks. The quarters ended December 23, 2018 (the “December 2018 quarter”) and December 24, 2017 (the “December 2017 quarter”) included 13 weeks.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted

In May 2014, the FASB released ASU 2014-09, “Revenue from Contracts with Customers,” to supersede nearly all existing revenue recognition guidance under GAAP. The FASB issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within ASU 2015–14, ASU 2016–08, ASU 2016–10, ASU 2016–12 and ASU 2016–20, respectively; all of which in combination with ASU 2014-09 were codified as Accounting Standard Codification Topic 606 (“ASC 606”). The core principle of the standard is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company adopted ASC 606 on the first day of the current fiscal year, June 25, 2018, under the modified retrospective approach, applying the amendments to prospective reporting periods. Results for reporting periods beginning on or after June 25, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under ASC 605. In conjunction with the adoption of ASC 606, the Company’s revenue recognition policy has been amended, refer to Note 3 - Revenue for a description of the amendments.

The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheet as of June 25, 2018 for the adoption of ASC 606 to all contracts with customers that were not completed as of June 24, 2018 was recorded as an adjustment to retained earnings as of the adoption date as follows:



	June 24, 2018					June 25, 2018
	As reported		Adjustments			As Adjusted
	(In thousands)
Total assets	$	12,479,478	$	12,955		$	12,492,433
Deferred profit	$	720,086	$	(160,695	)	$	559,391
Total liabilities	$	5,899,435	$	(126,400	)	$	5,773,035
Stockholders' equity	$	6,501,851	$	139,355		$	6,641,206

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Upon adoption, the Company recorded a cumulative effect adjustment of $139.4 million, net of tax adjustment of $21.0 million, which increased the June 25, 2018 opening retained earnings balance on the Condensed Consolidated Balance Sheet, primarily as a result of changes in the timing of recognition of system sales. Under ASC 606, the Company recognizes revenue from sales of systems when the Company determines that control has passed to the customer which is generally (1) for products that have been demonstrated to meet product specifications prior to shipment upon shipment or delivery; (2) for products that have not been demonstrated to meet product specifications prior to shipment, revenue is recognized upon completion of installation and receipt of customer acceptance; (3) for transactions where legal title does not pass upon shipment or delivery and the Company does not have a right to payment, revenue is recognized when legal title passes to the customer and the Company has a right to payment, which is generally at customer acceptance.

The impact of adoption of ASC 606 on the Company's Condensed Consolidated Statement of Operations and Condensed Consolidated Balance Sheet was as follows:



	Three months ended						Six Months Ended
	December 23, 2018						December 23, 2018
	As Reported		Without adoption of ASC 606		Effect of Change Higher/(Lower)		As Reported		Without adoption of ASC 606		Effect of Change Higher/(Lower)
	(In thousands)
Revenue	$	2,522,673	$	2,405,781	$	116,892	$	4,853,364	$	4,488,178	$	365,186
Cost of goods sold	$	1,377,640	$	1,324,493	$	53,147	$	2,650,133	$	2,491,351	$	158,782