ANNUAL REPORT 2014
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Innovative Technology
Trusted Productivity
Fast Solutions
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94538
Phone: 1.510.572.0200
www.lamresearch.com
269172_LAM_CVR_R2.indd 1
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OUTPERFORMING THE INDUSTRY
Lam Research delivered a record year for financial performance in fiscal
2014 and is well positioned to continue outperforming the wafer fabrication
equipment industry over the next several years. Our portfolio of deposition,
etch, and clean products and complementary service offerings address the key
technology inflections facing our customers today, helping drive significant
opportunities to expand our served available market and grow our market
share. We are pursuing these opportunities by aspiring to be the industry’s
most trusted and collaborative partner for our customers and by focusing on
execution to create value for all of our stakeholders. Our performance over the
past fiscal year and our ability to continue delivering on our objectives reflect
the dedication and commitment of Lam’s global employees.
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Martin B. Anstice
President and
Chief Executive Officer
Timothy M. Archer
Executive Vice President and
Chief Operating Officer
Douglas R. Bettinger
Executive Vice President and
Chief Financial Officer
Richard A. Gottscho, Ph.D.
Executive Vice President,
Global Products
Sarah A. O’Dowd, Esq.
Senior Vice President and
Chief Legal Officer
Stephen G. Newberry
Chairman
Martin B. Anstice
President and
Chief Executive Officer
Eric K. Brandt
Executive Vice President and
Chief Financial Officer
Broadcom Corporation
Michael R. Cannon
General Partner
MRC & LBC Partners, LLC
Retired President of
Global Operations
Dell Inc.
Youssef A. El-Mansy, Ph.D.
Retired Vice President,
Director of Logic Technology
Development
Intel Corporation
Christine A. Heckart
Chief Marketing Officer
Brocade Communications Systems, Inc.
Grant M. Inman
General Partner
Inman Investment Management
Catherine P. Lego
Member
Lego Ventures, LLC
Krishna C. Saraswat, Ph.D.
Rickey/Nielsen Professor,
School of Engineering
Stanford University
William R. Spivey, Ph.D.
Retired President and
Chief Executive Officer
Luminent, Inc.
Abhijit Y. Talwalkar
Former President and
Chief Executive Officer
LSI Corporation
As of September 2, 2014
© 2014 Lam Research Corporation.
All rights reserved.
201409-01808/7K
269172_LAM_CVR_R2.indd 2
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WAFER FAB EQUIPMENT*
*Source: Gartner
(July 2014)
CY 2012
CY 2013
CY 2014F
SHIPMENTS
s
n
o
i
l
l
i
B
$40
$30
$20
$10
$0
s
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l
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M
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
FQ1’12
FQ2’12
FQ3’12
FQ4’12
FQ1’13
FQ2’13
FQ3’13
FQ4’13
FQ1’14
FQ2’14
FQ3’14
FQ4’14
REVENUE
GROS S MA RGIN
s
n
o
i
l
l
i
M
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
FQ1’12
FQ2’12
FQ3’12
FQ4’12
FQ1’13
FQ2’13
FQ3’13
FQ4’13
FQ1’14
FQ2’14
FQ3’14
FQ4’14
s
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P
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-
n
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N
$600
$500
$400
$300
$200
$100
$0
FQ1’12
FQ2’12
FQ3’12
FQ4’12
FQ1’13
FQ2’13
FQ3’13
FQ4’13
FQ1’14
FQ2’14
FQ3’14
FQ4’14
NET INCOME
$250
$200
$150
$100
$50
$0
FQ1’12
FQ2’12
FQ3’12
FQ4’12
FQ1’13
FQ2’13
FQ3’13
FQ4’13
FQ1’14
FQ2’14
FQ3’14
FQ4’14
EAR NINGS PER SH ARE
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
d
e
t
u
l
i
D
,
P
A
A
G
-
n
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N
$0.00
FQ1’12
FQ2’12
FQ3’12
FQ4’12
FQ1’13
FQ2’13
FQ3’13
FQ4’13
FQ1’14
FQ2’14
FQ3’14
FQ4’14
Data reflect financial contribution from Novellus Systems following Lam’s acquisition
on June 4, 2012. A reconciliation of U.S. GAAP results to non-GAAP results can be
found at www.lamresearch.com.
269172_LAM_NARR_R2.indd 1
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L E T T E R T O O U R S T O C K H O L D E R S
Lam Research delivered a remarkably successful fiscal 2014, securing market growth and delivering financial
performance consistent with our stated targets relative to semiconductor wafer fabrication equipment spending.
We began the fiscal year with our first-ever $1 billion revenue quarter, and we grew revenue in each consecutive
quarter of fiscal 2014. For the fiscal year, shipments and revenue increased by 23% and 28%, respectively.
These significant achievements demonstrate the value of our commitment to optimizing our portfolio of products
and services to solve our customers’ most critical challenges. In addition, the Company delivered increased
annual profitability with operating income growing more than twice the rate of revenue growth.
This strong financial performance generated cash from operations of $717 million, significantly contributing to
our targeted return of $1 billion to our stockholders by the end of fiscal 2016, while at the same time supporting
continued investment for our future growth. During the fiscal year, we repurchased 4.9 million shares of common
stock at an average share price of $52.10, and we initiated our first quarterly dividend of 18 cents per share.
Outperformance for Lam Research compared with overall spending on wafer fabrication equipment has emerged
as a major theme for our business, not just in fiscal 2014, but more importantly in our future. The devices our
customers are creating are growing increasingly more complex as feature sizes continue to shrink and new
device architectures and materials are introduced. Semiconductor manufacturing processes are correspondingly
more dependent on leading-edge equipment and support, particularly within the market segments served by
our strong portfolio of deposition, etch, and clean products, as well as our spare parts and service offerings.
Increased customer investments in these areas have already grown our served available market, and we expect
expansion in the amount of $2 billion in our annual served market over the next few years.
This market expansion results from our customers’ need to introduce new technologies to continue their
innovation. The introduction of FinFET structures in logic, advanced patterning schemes in DRAM memory and
logic, and 3D architectures in NAND memory and advanced packaging creates inflection points in the market
which we have targeted for additional market share gains. These critical applications require stringent control
of process variability to maximize customer yield and facilitate the manufacture of devices with lower power
consumption and improved semiconductor performance. Lam is investing heavily in these opportunities, and
as a result, we are innovating at perhaps the highest rate in the history of our company, with 17 new product
configurations introduced in the last 12 months. We are very excited about key product penetration successes
that, with continued execution by the Company, position us well for the upcoming market expansion:
• In deposition, customers are relying on our VECTOR ® ALD Oxide tool in multiple patterning schemes that
use atomic layer deposition to create highly conformal films to define critical pattern dimensions. In 3D
memory structures, our VECTOR ® Q Strata™ delivers ultra-smooth, uniform films with high productivity, and
our ALTUS ® Max ICEFill™ provides void-free tungsten-fill for the geometrically complex 3D NAND wordlines.
• Our market-leading performance in etch has been enhanced by the introduction of the 2300 ® Kiyo ® family with
Hydra™ technology. This technology facilitates within-process die-by-die uniformity control and also can correct
for incoming pattern non-uniformities. We also announced the introduction of an atomic layer etch capability
on the 2300 ® Kiyo ® F Series, which is the first high-volume-manufacturing-worthy atomic layer etch system
available in the market. For 3D NAND, our newly introduced 2300 ® Flex™ F Series etches high aspect ratio
structures with minimal distortion or sidewall damage.
269172_LAM_NARR_R2.indd 2
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• In wet clean, our next-generation tool is being evaluated at several of our largest customers, and we see
emerging acceptance for our broader offering. Damage-free cleans are exceptionally difficult at critical
dimensions, and our new spin clean tool has demonstrated this capability with competitive productivity.
These and other application successes support our confidence in our ability to continue growth in excess of
the pace of our industry. Over the next three years, we are targeting share gains of 4-8% in deposition, 3-5% in
etch, and 5-10% in single-wafer clean from the calendar year 2013 baseline. Overall, we estimate our technology
inflections market share to be in excess of 50% across the deposition, etch, and clean product portfolio, some
10 percentage points higher than our current baseline.
While these anticipated market share gains will drive equipment shipments and revenues over the next several
years, it is also important to recognize our growing spares and service business, which extends the life of
our installed base by offering our customers productivity and technology enhancements, as well as providing
process knowledge solutions. Our
installed base business is projected to
deliver higher revenue growth rates than
the implied number of Lam tools shipped
over the next several years, as we focus
on delivering more comprehensive,
differentiated, and configurable lifecycle
solutions to our customers.
A key differentiator in Lam’s
current success as well as our future
outperformance opportunity is
our focus on customer trust
and collaboration.
A key differentiator in Lam’s current success as well as our future outperformance opportunity is our focus on
customer trust and collaboration. We invest in collaborative research programs across our industry with our
customers, consortia, and leading educational institutions to remain broadly engaged with next-generation
process development. We partner extensively with our customers, in their research and development
laboratories as well as their manufacturing facilities, contributing to, or delivering, solutions for their most difficult
challenges as rapidly as possible. This commitment to our customers and the knowledge we develop as a result
of this collaboration serve as the foundation for our fast solution leadership at a time of ongoing consolidation in
our sector, both among equipment providers and customers.
In closing, we extend our sincere thanks to everyone who has made a commitment to our company: to our
supportive stockholders for your interest and investment in us; to our valued customers for their collaboration
and support; to our suppliers for their responsiveness and partnership; and to our global employees for their
tremendous efforts and dedication and whose contributions are fundamental to the success of our business.
Sincerely,
Martin B. Anstice
Stephen G. Newberry
President and Chief Executive Officer
Chairman of the Board
September 2, 2014
269172_LAM_NARR_R2.indd 3
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INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
San Jose, California
LEGAL COUNSEL
Jones Day
San Francisco, California
TRANSFER AGENT AND REGISTRAR
For a response to questions regarding
misplaced stock certificates, changes of
address, or the consolidation of accounts,
please contact the Company’s transfer
agent.
Computershare Investor Services
P.O. Box 30170
College Station, Texas 77842-3170
1.877.265.2630
Private Couriers/Registered Mail:
Computershare Investor Services
211 Quality Circle, Suite 210
College Station, Texas 77845
TDD for Hearing Impaired:
1.800.952.9245
Foreign Shareowners:
1.781.575.2879
Website Address:
www.computershare.com/investor
STOCK LISTING
The Company’s common stock is traded on
the NASDAQ Global Select MarketSM under
the symbol LRCX. Lam Research
is an S&P 500® company.
INVESTOR RELATIONS
Lam Research Corporation welcomes
inquiries from its stockholders and other
interested investors. For additional copies
of this report or other financial information,
please contact:
Investor Relations
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94538
1.510.572.1615
investor.relations@lamresearch.com
ANNUAL MEETING
The Annual Meeting of Stockholders
will be held at 9:30 a.m. Pacific Time
on Thursday, November 6, 2014, at the
Company’s corporate headquarters.
CAUTIONS REGARDING FORWARD-LOOKING
STATEMENTS
With the exception of historical facts, the
statements contained in this Letter to Our
Stockholders (“Letter”) and this Annual Report
(“Report”) are forward-looking statements.
Forward-looking statements are subject to the
safe harbor provisions created by the Private
Securities Litigation Reform Act of 1995.
We have identified some, but not all, of the
forward-looking statements in the Letter
and Report by use of future-oriented words
and phrases such as “emerge”, “into the
future”, “estimate”, “expect”, “to continue”,
“opportunities”, “we see”, “targeting”,“invest”,
“innovating”,“pursuing”, and “projected”.
However, our identification of certain
statements as forward-looking does not mean
that other statements not specifically identified
are not forward-looking. Forward-looking
statements include, but are not limited to,
statements that relate to: the timing and extent
of our commitment to returning capital to our
stockholders (whether in the form of share
repurchases and/or quarterly dividends);
investment in our future growth; our
expectations regarding Lam’s performance
compared to wafer fabrication equipment
spending in terms of future opportunities
for our business; the amount and timing
of the growth of our served available
market; the drivers for Lam’s technology
opportunities and extent of our investment
therein; Lam’s innovation; the potential for
our next-generation tool in wet clean; our
expectations and opportunities for market
expansion and share growth, and our
projected revenue growth from our installed
base business relative to our systems’
sales; the key differentiators in our future
performance opportunities; and our business
plans and strategies. These statements
are based on current expectations and are
subject to risks, uncertainties, and changes
in condition, significance, value and effect,
including without limitation macroeconomic
conditions, the actions of our competitors,
political disruptions such as wars and terrorist
events, government actions, technology
changes and those discussed under the
heading “Risk Factors” within Item 1A of our
fiscal 2014 Form 10-K; under the heading
“Cautionary Statement Regarding Forward-
Looking Statements” at the beginning of Part
I of the Form 10-K; and other documents we
file from time to time with the Securities and
Exchange Commission, such as our quarterly
reports on Form 10-Q and current reports
on Form 8-K. These risks, uncertainties and
changes in condition, significance, value and
effect could cause our actual results to differ
materially from those expressed in this Letter
and in ways that are not readily foreseeable.
Readers are cautioned not to place undue
reliance on these forward-looking statements,
which speak only as of the date of this Letter
and Report and are based on information
currently and reasonably known to us. We
do not undertake any obligation to update
any forward-looking statements, or to release
the results of any revisions to these forward-
looking statements, to reflect the impact
of anticipated or unanticipated events or
circumstances that occur after the date of
this Letter and Report.
TRADEMARK INFORMATION
The Lam Research logo, Lam Research,
and all Lam Research product and service
names used herein are either registered
trademarks or trademarks of Lam Research
Corporation or its subsidiaries in the United
States and/or other countries. All other marks
mentioned herein are the property of their
respective holders.
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September 23, 2014
Dear Lam Research Stockholders,
We cordially invite you to attend, in person or by proxy, the Lam Research Corporation 2014 Annual Meeting of
Stockholders. The annual meeting will be held on Thursday, November 6, 2014, at 9:30 a.m. Pacific Standard Time in
the Building CA1 Auditorium at the principal executive offices of Lam Research Corporation, which is located at 4650
Cushing Parkway, Fremont, California 94538.
At this year’s annual meeting, stockholders will be asked to elect the 11 nominees named in the attached proxy
statement as directors to serve for the ensuing year, and until their respective successors are elected and qualified, to
cast an advisory vote on the compensation of our named executive officers (“Say on Pay”) and to ratify the appointment
of the independent registered public accounting firm for fiscal year 2015. The Board of Directors recommends that you
vote in favor of all three proposals. Management will not provide a business update during this meeting; please refer to
our latest quarterly earnings report for our current outlook.
Please refer to the proxy statement for detailed information about the annual meeting and each of the proposals, as
well as voting instructions. Your vote is important, and we strongly urge you to cast your vote by the
internet, phone or mail even if you plan to attend the meeting in person.
Sincerely yours,
Lam Research Corporation
Stephen G. Newberry
Chairman of the Board
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Notice of 2014 Annual Meeting
of Stockholders
4650 Cushing Parkway
Fremont, California 94538
Telephone: 510-572-0200
Date and Time
Thursday, November 6, 2014
9:30 a.m. Pacific Standard Time
Place
Lam Research Corporation
Building CA1 Auditorium
4650 Cushing Parkway
Fremont, California 94538
Items of Business
1. Election of 11 directors to serve for the ensuing year, and until their respective successors are elected and qualified
2. Advisory vote on the compensation of our named executive officers (“Say on Pay”)
3. Ratification of the appointment of independent registered public accounting firm for fiscal year 2015
4. Transact such other business that may properly come before the annual meeting (including any adjournment or
postponement thereof)
Record Date
Only stockholders of record at the close of business on September 8, 2014, the “Record Date,” are entitled to notice of
and to vote at the annual meeting.
Voting
Please vote as soon as possible, even if you plan to attend the annual meeting in person. You have three options
for submitting your vote before the annual meeting: by the internet, phone or mail. The proxy statement and the
accompanying proxy card provide detailed voting instructions.
Internet Availability of Proxy Materials
Our Notice of 2014 Annual Meeting of Stockholders, Proxy Statement and Annual Report to Stockholders are available
on the Lam Research website at http://investor.lamresearch.com and at www.proxyvote.com.
By Order of the Board of Directors
Sarah A. O’Dowd
Secretary
This proxy statement is first being made available and/or mailed to our stockholders on or about
September 23, 2014.
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LAM RESEARCH CORPORATION
Proxy Statement for 2014 Annual Meeting of Stockholders
TABLE OF CONTENTS
Proxy Statement Summary
1
Proposal No. 1: Election of Directors
3
3
Nominees for Director .........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management ......................................................... 13
Corporate Governance ....................................................................................................................... 14
Director Compensation ........................................................................................................................ 20
Section 16(a) Beneficial Ownership Reporting Compliance...................................................................... 22
Executive Compensation and Other Information ..................................................................................... 23
Compensation Discussion and Analysis ........................................................................................... 23
23
I. Recent Changes to Our Executive Compensation Program.......................................................
24
II. Overview of Executive Compensation ...................................................................................
III. Executive Compensation Governance and Procedures ............................................................
29
IV. Primary Components of Named Executive Officer Compensation; Calendar Year 2013
31
Compensation Payouts; Calendar Year 2014 Compensation Targets and Metrics ......................
V. Tax and Accounting Considerations ......................................................................................
43
Compensation Committee Report .................................................................................................... 44
Compensation Committee Interlocks and Insider Participation ............................................................. 45
Executive Compensation Tables ...................................................................................................... 45
Securities Authorized for Issuance under Equity Compensation Plans ......................................................... 54
Proposal No. 2: Advisory Vote on the Compensation of
Our Named Executive Officers (“Say on Pay”)
55
Proposal No. 3: Ratification of the Appointment of the Independent Registered
Public Accounting Firm For Fiscal Year 2015
55
Audit Committee Report ....................................................................................................................... 56
Relationship with Independent Registered Public Accounting Firm ............................................................. 57
Certain Relationships and Related Party Transactions .............................................................................. 57
Other Matters
58
Voting and Meeting Information
58
Information Concerning Solicitation and Voting ...................................................................................... 58
Other Meeting Information ................................................................................................................... 59
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We use the terms “Lam Research,” “Lam,” the “Company,” “we,” “our,” and “us” in this proxy statement to refer to
Lam Research Corporation, a Delaware corporation.
Proposals and Voting Recommendations
Voting Matters
Proposal 1 – Election of 11 Nominees Named Herein as Directors
Proposal 2 – Advisory Vote on the Compensation of Our Named Executive Officers (“Say on Pay”)
Proposal 3 – Ratification of the Appointment of the Independent Registered Public Accounting Firm
for Fiscal Year 2015
Board Vote
Recommendation
See Page Number
For Further Information
FOR
each nominee
FOR
FOR
3
55
55
Director Nominees
You are being asked to vote on the election of these 11 directors. The following table provides summary information
about each director nominee, and their biographical information is contained in the “Proposal No. 1: Election of
Directors – Nominees for Director” section below.
Name
Martin B. Anstice
Eric K. Brandt
Michael R. Cannon
Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Catherine P. Lego
Stephen G. Newberry
Krishna C. Saraswat
William R. Spivey
Abhijit Y. Talwalkar
Age
Director
Since
Independent
AC
CC
NGC
Committee Membership
Other Current
Public Boards
47
52
61
69
48
72
57
60
67
67
50
2012
2010
2011
2012
2011
1981
2006
2005
2012
2012
2011
No
Yes
Yes
Yes
Yes
Yes
(Lead Independent Director)
Yes
No
Yes
Yes
Yes
C
M
M
M
M
M
M
C
M
C
M
M
M
Dentsply International
Adobe Systems,
Seagate Technology,
Dialog Semiconductor
Paychex
SanDisk,
Fairchild Semiconductor
International
Nanometrics,
Splunk
Cascade Microtech,
Raytheon
AC – Audit Committee
CC – Compensation Committee
NGC – Nominating and Governance Committee
C – Chairperson
M – Member
1
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Corporate Governance Highlights
Board and Other Governance Information1
Size of Board
Average Age of Directors
Average Tenure of Directors
Number of Independent Directors
Number of Directors Who Attended ≥75% of Meetings
Number of Directors on More Than Four Public Company Boards
Directors Subject to Stock Ownership Guidelines
Annual Election of Directors
Voting Standard
Plurality Voting Carveout for Contested Elections
Separate Chairman and CEO
Lead Independent Director
Independent Directors Meet Without Management Present
Board and Committee Self-Evaluations
Board Orientation/Education Program
Code of Ethics Applicable to Directors
Stockholder Ability to Act by Written Consent
Poison Pill
Publication of Corporate Social Responsibility Report
As of September 2014
11
59
6.5
9
11
0
Yes
Yes
Majority
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
1 Highlights of preferred compensation-related policies, practices and provisions are shown in the “Executive Compensation and Other Information – Overview
of Executive Compensation - Highlights of Preferred Compensation-Related Policies, Practices and Provisions” section below, and include a compensation
recovery or “clawback” policy and a prohibition of hedging and pledging.
2
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Nominees for Director
A board of 11 directors is to be elected at the 2014
annual meeting. In general, the 11 nominees who
receive the highest number of “for” votes will be elected.
However, any nominee who fails to receive affirmative
approval from holders of a majority of the votes cast in
such nominee’s election at the annual meeting, either by
proxy or in person, will not be elected to the board, even
if he or she is among the top 11 nominees in total “for”
votes. This requirement reflects the majority vote provisions
implemented by the Company in November 2009. The
term of office of each person elected as a director will
be for the ensuing year, and until his or her successor is
elected and qualified or until his or her earlier resignation
or removal.
Unless otherwise instructed, the Proxy Holders will vote
the proxies received by them for the 11 nominees named
below, each of whom is currently a director of the
Company. The proxies cannot be voted for more than 11
nominees, whether or not there are additional nominees.
If any nominee of the Company should decline or be
unable to serve as a director as of the time of the annual
meeting, and unless otherwise instructed, the proxies
will be voted for any substitute nominee designated by
the present board of directors to fill the vacancy. The
Company is not aware of any nominee who will be
unable, or will decline, to serve as a director.
The below nominees for reelection have been nominated
for election to the board of directors in accordance
with the criteria and procedures discussed below in
“Corporate Governance.”
In addition to the below biographical information
concerning each board nominee’s specific experience,
attributes, positions and qualifications and age as
of September 1, 2014, we believe that each of our
nominees, while serving as a director and/or officer of
the Company, has devoted adequate time to the board
of directors and performed his or her duties with critical
attributes such as honesty, integrity, wisdom, and an
adherence to high ethical standards. Each nominee
has demonstrated strong business acumen, an ability to
make independent analytical inquiries, to understand the
Company’s business environment and to exercise sound
judgment, as well as a commitment to the Company
and its core values. We believe the nominees have an
appropriate diversity and interplay of viewpoints, skills
and experiences that will encourage a robust decision-
making process for the board.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE “FOR” EACH OF THE DIRECTOR NOMINEES
SET FORTH BELOW.
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Martin B. Anstice
Director since 2012
Age 47
Eric K. Brandt
Director since 2010
Age 52
Board Committees:
• Audit (chair)
Public company
directorships in last
five years:
• Dentsply
International Inc.
• Vertex
Pharmaceuticals,
Inc. (former)
Martin B. Anstice has served as the Company’s President and Chief Executive Officer
since January 2012. Mr. Anstice joined the Company in April 2001 as Senior Director,
Operations Controller; was promoted to the position of Managing Director and Corporate
Controller in May 2002; and was promoted to Group Vice President, Chief Financial Officer,
and Chief Accounting Officer in June 2004. He was appointed Executive Vice President
and Chief Operating Officer in September 2008 and President in December 2010. Prior
to joining the Company, Mr. Anstice held various finance positions from 1988 to 1999 at
Raychem Corporation, a global materials science company. Subsequent to the acquisition
of Raychem by Tyco International, a global provider of engineered electronic components,
network solutions and wireless systems, he assumed responsibilities supporting mergers and
acquisition activities of Tyco Electronics. Mr. Anstice is an Associate member of the Institute
of Chartered Management Accountants in the United Kingdom.
The board has concluded that Mr. Anstice is qualified to serve as a director of the Company
because of his experience in the semiconductor equipment industry including as current
President, Chief Executive Officer and a director of the Company, past President and Chief
Operating Officer, and past Chief Financial Officer of the Company; his international
experience; and his strong leadership and experience as a corporate executive.
Eric K. Brandt serves as Executive Vice President and Chief Financial Officer of Broadcom
Corporation, a global supplier of semiconductor devices, a role in which he has served since
joining Broadcom in March 2007. From September 2005 to March 2007, Mr. Brandt served
as President and Chief Executive Officer of Avanir Pharmaceuticals, Inc., a pharmaceutical
company. Prior to Avanir Pharmaceuticals, Mr. Brandt was Executive Vice President-Finance
and Technical Operations and Chief Financial Officer of Allergan Inc., a global specialty
pharmaceutical company, where he also held a number of other senior positions following his
arrival there in May 1999.
Mr. Brandt has served as a member of the board of directors and a member of the committee
responsible for compensation of Dentsply International, Inc., a manufacturer and distributor of
dental product solutions, since 2004.
He previously served on the board of directors of Vertex Pharmaceuticals, Inc., a
pharmaceutical company, where he was chair of the audit committee, from 2002 to 2009;
and Avanir Pharmaceuticals from 2005 to 2007.
Mr. Brandt received a B.S. degree in chemical engineering from the Massachusetts Institute of
Technology and an M.B.A. degree from the Harvard Graduate School of Business.
The board has concluded that Mr. Brandt is qualified to serve as a director of the Company
because of his financial expertise including as an active chief financial officer of a publicly
traded company that is a customer of our customers; his experience in the semiconductor
industry; his experience with mergers and acquisitions; and his service on other boards of
directors of public companies, including as an audit committee chair.
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Michael R. Cannon
Director since 2011
Age 61
Board Committees:
• Audit
• Nominating and
Governance
Public company
directorships in last
five years:
• Adobe Systems Inc.
• Seagate Technology
Public Limited
• Dialog
Semiconductor
• Elster Group
SE (former)
Michael R. Cannon is the General Partner of MRC & LBC Partners, LLC, a private
management consulting company. From February 2007 until his retirement in January 2009,
Mr. Cannon served as President of Global Operations of Dell Inc., a computer systems
manufacturer and services provider; and from January 2009 to January 2011, he served as
a consultant to Dell. Prior to joining Dell, he was President and Chief Executive Officer of
Solectron Corporation, an electronic manufacturing services company, from January 2003 to
February 2007. From July 1996 to January 2003, Mr. Cannon served as President and Chief
Executive Officer of Maxtor Corporation, a disk drive and storage systems manufacturer.
Prior to joining Maxtor, Mr. Cannon held senior management positions at International
Business Machines Corp. (IBM), a global services, software and systems company.
Mr. Cannon has served as a member of the board of directors of Adobe Systems Inc.,
a diversified software company, since 2003, where he has been a member of the audit
committee and was the chair of the compensation committee; Seagate Technology Public
Limited, a disk drive and storage solutions company, since February 2011, where he has been
a member of the nominations and governance committee and finance committee; and Dialog
Semiconductor, a mixed signal integrated circuits company, since February 2013, where he
has been a chair of the remuneration committee and a member of the nomination committee.
Mr. Cannon previously served on the board of directors of Elster Group SE, a precision
metering and smart grid technology company, from October 2010 until the company was
acquired in August 2012; Solectron Corporation, an electronic manufacturing services
company, from January 2003 to January 2007; and Maxtor Corporation, a disk drive and
storage solutions company, from July 1996 until Seagate acquired Maxtor in May 2006.
He studied mechanical engineering at Michigan State University and completed the
Advanced Management Program at the Harvard Graduate School of Business.
The board has concluded that Mr. Cannon is qualified to serve as a director of the Company
because of his extensive experience as a director on other public company boards, including
on an audit committee, compensation or remuneration committees and nominations and
governance committees; his experience in leadership roles at a public corporation that is
a customer of our customers; his 20 years of international management and leadership
experience; his experience with marketing, mergers, acquisitions and related transactions;
and his industry knowledge.
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Youssef A. El-Mansy
Director since 2012
Age 69
Board Committees:
• Compensation
Public company
directorships in last
five years:
• Novellus Systems,
Inc. (former)
• Zygo Corporation
(former)
Youssef A. El-Mansy is the retired Vice President, Director of Logic Technology Development,
at Intel Corporation, a leading producer of microchips, computing and communications
products, where he was responsible for managing technology development, the processor
design center for Intel’s Technology and Manufacturing Group and two wafer manufacturing
facilities. Dr. El-Mansy joined Intel in 1979 and led microprocessor technology development
at Intel for 20 years.
Dr. El-Mansy previously served on the board of directors of Novellus Systems, Inc., from
April 2004 until the company was acquired by Lam Research in June 2012; and Zygo
Corporation, an optical system designer and manufacturer, from July 2004 to June 2009.
Dr. El-Mansy is a Fellow of the Institute of Electrical and Electronics Engineers, or “IEEE,” and
has been awarded the 2004 IEEE Frederik Philips Award for leadership in developing state-
of-the-art logic technologies and the 2013 IEEE Robert Noyce Medal for establishing a highly
effective Research-Development-Manufacturing methodology that led to industry leadership in
logic technology.
Dr. El-Mansy holds B.S. and M.S. degrees in electronics and communications from
Alexandria University in Egypt and a Ph.D. degree in electronics from Carleton University in
Ottawa, Canada.
The board has concluded that Dr. El-Mansy is qualified to serve as a director of the
Company because of his more than 30 years of industry experience as an executive
focused on the manufacturing of technological devices and components for a major
semiconductor manufacturer; his understanding of the Company’s technologies; and his past
public company experience at other companies as a director and member and chair of a
compensation committee.
Christine A. Heckart has served as the Chief Marketing Officer of Brocade Communications
Systems, Inc., a networking solution company, since March 2014. Immediately prior to
joining Brocade, she was the Executive Vice President, Strategy, Marketing, People and
Systems since May 2013 and the Chief Marketing Officer from July 2012 until May 2013 at
ServiceSource International Inc., a service revenue management company. From February
2010 to May 2012, she was the Chief Marketing Officer at NetApp, Inc., a data storage
and management solutions provider. Ms. Heckart served as General Manager for the TV,
video and music business of Microsoft Corporation, a developer of software, services,
and hardware, from 2005 to 2010; and led global marketing at Juniper Networks, Inc.,
a provider of network infrastructure solutions, from 2002 to 2005. She was President at
TeleChoice, Inc., a consulting firm specializing in business and marketing strategies, from
1995 to 2002.
Ms. Heckart holds a B.A. degree in economics from the University of Colorado at Boulder.
The board has concluded that Ms. Heckart is qualified to serve as a director of the Company
because of her experience in leadership roles at public corporations; her knowledge of the
electronics industry, including networks and big data; and her strong marketing background.
Christine A. Heckart
Director since 2011
Age 48
Board Committees:
• Compensation
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Grant M. Inman
Lead Independent
Director
Director since 1981
Age 72
Board Committees:
• Compensation
• Nominating and
Governance (Chair)
Public company
directorships in last
five years:
• Paychex, Inc.
Grant M. Inman is the founder and General Partner of Inman Investment Management,
a venture investment firm formed in 1998. Prior to 1998, he co-founded and served as
General Partner of Inman & Bowman, a venture capital firm formed in 1985. Mr. Inman was
a general partner of the investment banking firm Hambrecht & Quist from 1980 to 1985.
Mr. Inman has served as a member of the board of directors of Paychex, Inc., a payroll
and human resources outsourcing services company, since 1983, where he serves as a
member of the audit committee and the governance and compensation committee and is the
chairman of the investment committee. He is also a Trustee of The University of California,
Berkeley Foundation.
He previously served on the board of directors of Wind River Systems, Inc., a developer
of operating systems, middleware and software development tools, from June 1999 to
July 2009.
Mr. Inman holds a B.A. degree in economics from the University of Oregon and an M.B.A.
degree from the University of California, Berkeley.
The board has concluded that Mr. Inman is qualified to serve as a director of the Company
because of his prior service as a director of the Company since its inception; his deep
industry knowledge; his extensive experience on other boards (including as chairman of
audit, compensation and nominating and governance committees) and the resulting corporate
governance expertise he has developed; and the diverse perspective he brings from his
investment experience.
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Catherine P. Lego
Director since 2006
Age 57
Board Committees:
• Audit
• Nominating and
Governance
Public company
directorships in last
five years:
• SanDisk Corporation
• Fairchild
Semiconductor
International Inc.
Catherine P. Lego is the founder of Lego Ventures LLC, a consulting services firm for early
stage electronics companies, formed in 1992. From December 1999 to December 2009,
she was the General Partner of The Photonics Fund, LLP, an early stage venture capital
investment firm focused on investing in components, modules and systems companies for
the fiber optics telecommunications market, which she founded. Ms. Lego was a general
partner at Oak Investment Partners, a venture capital firm, from 1981 to 1992. Prior to Oak
Investment Partners, she practiced as a Certified Public Accountant with Coopers & Lybrand,
an accounting firm.
Ms. Lego has served as a member of the board of directors and as the chair of the audit
committee of SanDisk Corporation, a global developer of flash memory storage solutions,
since May 2004 and as a director from 1989 to 2002. She has also served as a member
of the board of directors, the nominating and governance committee and the compensation
committee of Fairchild Semiconductor International Inc., a fabricator of power management
devices, since August 2013.
She previously served on the board of directors of the following public companies: ETEC
Corporation, a producer of electron beam lithography tools, from 1991 through 1997;
Uniphase Corporation (presently JDS Uniphase Corporation), a designer and manufacturer of
components and modules for the fiber optic based telecommunications industry and laser-
based semiconductor defect examination and analysis equipment, from 1994 until 1999,
when it merged with JDS-Fitel; Zitel Corporation, an information technology company, from
1995 to 2000; and Micro Linear Corporation, a fabless analog semiconductor company.
Ms. Lego also served as a member of the board of directors of the Cosworth Group, a
private United Kingdom-based precision engineering products and services company,
from March 2011 to June 2013, and as the chair of the audit committee; StrataLight
Communications, Inc., a private fiber transmission subsystems developer, from September
2007 to January 2009; and WJ Communications, Inc., a broadband communications
company, from October 2004 to May 2008.
She received a B.A. degree in economics and biology from Williams College and an M.S.
degree in accounting from the New York University Leonard N. Stern School of Business.
The board has concluded that Ms. Lego is qualified to serve as a director of the Company
because of her experience on our board; her substantial accounting and financial expertise;
her knowledge of the electronics and semiconductor industries and the perspective
of companies that are customers of our customers; her experience with mergers and
acquisitions; and her experience on other boards, including her current service as chairman
of an audit committee and member of a nominating and governance committee.
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Stephen G. Newberry
Chairman of the Board
Director since 2005
Age 60
Public company
directorships in last
five years:
• Nanometrics
Incorporated
• Splunk Inc.
• Amkor Technology,
Inc. (former)
Stephen G. Newberry has served as the Chairman of the Company’s board since November
2012. He served as the Company’s Vice Chairman from December 2010 to November
2012, Chief Executive Officer from June 2005 to January 2012 and President from July 1998
to December 2010. Mr. Newberry joined the Company in August 1997 as Executive Vice
President, a role in which he served until July 1998, and Chief Operating Officer, a role in
which he served until June 2005. Prior to joining the Company, Mr. Newberry held various
executive positions at Applied Materials, Inc. during his 17-year tenure there, including as
Group Vice President of Global Operations and Planning.
Mr. Newberry has also served as a member of the board of directors of Nanometrics
Incorporated, a provider of process control metrology and inspection systems, since May
2011, and as a chair of the compensation committee and member of the nominating
and governance committee; and Splunk Inc., a software platform company for real-time
operational intelligence, since January 2013, where he chairs the compensation committee.
Mr. Newberry previously served on the board of directors of Amkor Technology, Inc., a
provider of outsourced semiconductor packaging assembly and test services, from March
2009 to May 2011, where he served as a member of the compensation committee; Nextest
Systems Corporation, a developer of automated test equipment systems for the semiconductor
industry, from 2000 to 2008, where he served as a member of the audit, compensation
and nominating and corporate governance committees; and Semiconductor Equipment and
Materials International, or “SEMI,” a global semiconductor equipment trade association, from
July 2004 to July 2014.
Mr. Newberry received a B.S. degree in ocean engineering from the U.S. Naval Academy
and graduated from the Program for Management Development at the Harvard Graduate
School of Business.
The board has concluded that Mr. Newberry is qualified to serve as a director of the
Company because of his 30 years’ experience in the semiconductor equipment industry;
his comprehensive understanding of the Company and its products, markets, and strategies
gained through his role as an executive of our Company, including as our former Chief
Executive Officer; his marketing experience; his previous role, including as a director, at
SEMI, our industry’s leading trade association; his public company board experience,
including on the audit committee, compensation committees and nominating and governance
committees of other companies; and his strong leadership and operations expertise.
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Krishna C. Saraswat
Director since 2012
Age 67
Krishna C. Saraswat has served as the Rickey/Nielsen Professor in the School of Engineering
of Stanford University since 2004. He has also served as a Professor of Electrical Engineering
and a Professor of Material Science and Engineering at Stanford University since 1983.
Board Committees:
• Nominating and
Governance
Public company
directorships in last
five years:
• Novellus Systems,
Inc. (former)
Dr. Saraswat previously served on the board of directors of Novellus Systems, Inc. from
February 2011 until the company was acquired by Lam Research in June 2012.
Dr. Saraswat, an IEEE Life Fellow, received a B.E. degree in electronics in 1968 from the Birla
Institute of Technology and Science in Pilani, India, and M.S. and Ph.D. degrees in electrical
engineering in 1969 and 1974, respectively, from Stanford University. At Stanford University,
he has been engaged in research on new and innovative materials, structures, and process
technology of silicon, germanium and III-V devices and interconnects for VLSI, nanoelectronics
and solar cells.
The board has concluded that Dr. Saraswat is qualified to serve as a director of the
Company because of his diverse and extensive experience in research and development of
materials, structures and process technology directly related to our industry; his experience as
a professor studying and teaching electrical engineering in those areas; his strong academic
credentials, including his recognition as a recipient of numerous awards and his publication
of more than 650 technical papers; and his past experience as a director of Novellus.
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William R. Spivey
Director since 2012
Age 67
Board Committees:
• Audit
• Nominating and
Governance
Public company
directorships in last
five years:
• Cascade Microtech,
Inc.
• Raytheon Company
• Novellus Systems,
Inc. (former)
• Laird PLC (former)
• ADT
Telecommunications
Inc. (former)
William R. Spivey was President and Chief Executive Officer of Luminent, Inc., a producer
of fiber optic components, from July 2000 to September 2001. From October 1997 to July
2000, he was Group President, Network Products Group of Lucent Technologies, a producer
of world-wide communications products. Previously he held senior executive positions
at AT&T Microelectronics, a communications company, and Tektronix, Inc., a provider of
communications network management and diagnostic solutions.
Dr. Spivey has served as chairman of the board of directors of Cascade Microtech, Inc., a
developer of precision electrical measurement and test of advanced semiconductor devices,
since April 2014, as a member of the board of directors since 1998, and as the chair of the
nominating and governance committee, a member of the audit committee and the former
chairman of the management development and compensation committee; and as a member
of the board of directors of Raytheon Company, a prime contractor on a broad portfolio of
defense and related programs for government customers, since 1999, where he chairs the
management development and compensation committee and is a member of the governance
and nominating committee, a former member of the audit committee and former chair of the
public affairs committee.
He previously served on the board of directors of Novellus Systems, Inc. from May 1998 until
the company was acquired by Lam Research in June 2012, where he was lead independent
director and chairman of the nominating and governance committee and a member of the
audit committee; Laird PLC, a global provider of products and technology solutions, from
2002 to 2012, where he was a member of the audit committee and the compensation
committee; ADT Telecommunications Inc., a supplier of networking products and systems,
from 2004 to 2010, where he served as lead independent director and on the audit and
governance committees; and Lyondell Chemical Company, a raw materials and technology
coatings industry supplier, from 2000 until 2007, where he served as chairman of the
governance committee and a member of the compensation committee.
Dr. Spivey holds a B.S. degree in physics from Duquesne University, an M.S. in physics
from Indiana University of Pennsylvania and a Ph.D. degree in management from Walden
University.
The board has concluded that Dr. Spivey is qualified to serve as a director of the Company
because of his managerial experience at several technology companies; his experience in
marketing, international matters and mergers and acquisitions; his service as a director of
multiple other public companies, including as a lead independent director, a chairman of the
board, and a member of audit, compensation, and nominating and governance committees.
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Abhijit Y. Talwalkar
Director since 2011
Age 50
Board Committees:
• Compensation
(Chair)
Public company
directorships in last
five years:
• LSI Corporation
(former)
Abhijit Y. Talwalkar is the former President and Chief Executive Officer of LSI Corporation,
a leading provider of silicon, systems and software technologies for the storage and
networking markets, a position he held from May 2005 until the completion of LSI’s merger
with Avago Technologies in May 2014. From 1993 to 2005, Mr. Talwalkar was employed
by Intel Corporation, a microprocessor manufacturer. At Intel, he held a number of senior
management positions, including as Corporate Vice President and Co-General Manager
of the Digital Enterprise Group, which is comprised of Intel’s business client, server, storage
and communications business, and as Vice President and General Manager for the Intel
Enterprise Platform Group, where he focused on developing, marketing, and supporting
Intel business strategies for enterprise computing. Prior to joining Intel, Mr. Talwalkar held
senior engineering and marketing positions at Sequent Computer Systems, a multiprocessing
computer systems design and manufacturer that is currently a part of IBM; Bipolar Integrated
Technology, Inc., a VLSI bipolar semiconductor company; and Lattice Semiconductor
Inc., a service driven developer of programmable design solutions widely used in
semiconductor components.
Mr. Talwalkar previously served as a member of the board of directors of LSI from May 2005
to May 2014 and the U.S. Semiconductor Industry Association, a semiconductor industry
trade association from May 2005 to May 2014. He was additionally a member of the U.S.
delegation for World Semiconductor Council proceedings.
He has a B.S. degree in electrical engineering from Oregon State University.
The board has concluded that Mr. Talwalkar is qualified to serve as a director of the
Company because of his experience in the semiconductor industry, including as the
former chief executive officer of a semiconductor company and his previous role in the
semiconductor industry’s trade association; his leadership roles at other semiconductor
companies that include a customer of ours; and his mergers and acquisitions and
marketing experience.
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Security Ownership of Certain Beneficial Owners and Management
The table below sets forth the beneficial ownership of
shares of Lam common stock by: (i) each person or entity
who we believe based on our review of filings made with
the United States Securities and Exchange Commission, or
the “SEC” beneficially owned as of September 8, 2014,
more than 5% of Lam’s common stock on the date set
forth below; (ii) each current director of the Company;
(iii) each named executive officer identified below in the
“Compensation Discussion and Analysis” section; and
(iv) all current directors and current executive officers as
a group. With the exception of 5% owners, and unless
otherwise noted, the information below reflects holdings
as of September 8, 2014, which is the Record Date for
the 2014 annual meeting and the most recent practicable
date for determining ownership. For 5% owners, holdings
are as of the dates of their most recent ownership reports
filed with the SEC, which are the most practicable dates
for determining their holdings. The percentage of the
class owned is calculated using 162,441,177 as the
number of shares of Lam common stock outstanding on
September 8, 2014.
Name of Person or Identity of Group
5% Stockholders
JPMorgan Chase & Co.
270 Park Avenue
New York, NY 10017
Ameriprise Financial, Inc.
145 Ameriprise Financial Center
Minneapolis, MN 55474
Columbia Management Investment Advisers, LLC,
225 Franklin St.
Boston, MA 02110
The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, PA 19355
BlackRock Inc.
40 East 52nd Street
New York, NY 10022
Directors
Martin B. Anstice (also a Named Executive Officer)
Eric K. Brandt
Michael R. Cannon
Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Catherine P. Lego
Stephen G. Newberry
Krishna C. Saraswat
William R. Spivey
Abhijit Y. Talwalkar
Named Executive Officers (“NEOs”)
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
All current directors and executive officers as a group (15 people)(6)
* Less than 1%.
Shares
Beneficially
Owned (#)(1)
Percentage
of Class
16,319,204(2)
10.0%
11,702,044(3)
7.2%
11,166,924(4)
6.9%
8,347,903(5)
5.1%
46,098
14,542
10,967
18,873
7,699
81,648
37,648
25,447
15,306
54,026
11,417
71,796(6)
1,078
15,109
28,493
440,147
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
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(1)
Includes shares subject to outstanding stock options that are now exercisable or will become exercisable within 60 days after September 8, 2014, as well as
restricted stock units, or “RSUs,” that will vest within that time period, as follows:
Martin B. Anstice
Eric K. Brandt
Michael R. Cannon
Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Catherine P. Lego
Stephen G. Newberry
Krishna C. Saraswat
William R. Spivey
Abhijit Y. Talwalkar
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
All current directors and executive officers as a group (15 people)
Shares
0
4,888
3,590
3,590
3,590
3,590
3,590
3,590
3,590
3,590
3,590
0
0
0
0
37,198
As discussed in “Director Compensation” below, the employee chairman and non-employee directors receive an annual equity grant as part of their
compensation. These grants generally vest on October 31, 2014, subject to continued service on the board as of that date, with immediate delivery of the
shares upon vesting. For 2014, Drs. El-Mansy, Saraswat and Spivey; Messrs. Brandt, Cannon, Inman, Newberry and Talwalkar; and Mses. Heckart and Lego
each received grants of 3,590 RSUs. These RSUs are included in the tables above.
(2) All information regarding JPMorgan Chase & Co., or “JPMorgan Chase,” is based solely on information disclosed in amendment number five to Schedule 13G
filed by JPMorgan Chase with the SEC on January 17, 2014 as a parent holding company on behalf of JPMorgan Chase and its wholly-owned subsidiaries:
JPMorgan Chase Bank, National Association; J.P. Morgan Investment Management Inc.; JPMorgan Asset Management (UK) Ltd.; J.P. Morgan Trust Company
of Delaware; and JPMorgan Asset Management (Canada) Inc. According to the Schedule 13G/A filing, of the 16,319,204 shares of Lam common stock
reported as beneficially owned by JPMorgan Chase as of December 31, 2013, JPMorgan Chase had sole voting power with respect to 14,825,269 shares, had
shared voting power with respect to 167,429 shares, had sole dispositive power with respect to 16,080,252 shares and shared dispositive power with respect
to 238,952 shares of Lam common stock reported as beneficially owned by JPMorgan Chase as of that date.
(3) All information regarding Ameriprise Financial, Inc., or “Ameriprise,” and Columbia Management Investment Advisers, LLC, or “Columbia,” is based solely
on information disclosed in amendment number one to Schedule 13G filed by Ameriprise and Columbia with the SEC on February 13, 2014. According to the
Schedule 13G filing, of the 11,702,044 shares of Lam common stock reported as beneficially owned by Ameriprise and Columbia as of December 31, 2013,
Ameriprise and Columbia did not have sole voting power with respect to any shares, and had shared voting power with respect to 1,104,682 shares, did not
have sole dispositive power with respect to any other shares and shared dispositive power with respect to 11,702,044 shares of Lam common stock reported
as beneficially owned by Ameriprise and Columbia as of that date. According to the Schedule 13G filing, Ameriprise, as the parent company of Columbia, may
be deemed to beneficially own the shares reported by Columbia in the Schedule 13G filing. Accordingly, the shares reported by Ameriprise in the Schedule
13G filing include those shares separately reported therein by Columbia.
(4) All information regarding The Vanguard Group, Inc., or “Vanguard,” is based solely on information disclosed in amendment number one to Schedule 13G filed
by Vanguard with the SEC on February 11, 2014. According to the Schedule 13G filing, of the 11,166,924 shares of Lam common stock reported as beneficially
owned by Vanguard as of December 31, 2013, Vanguard had sole voting power with respect to 267,999 shares, did not have shared voting power with respect
to any other shares, had sole dispositive power with respect to 10,919,725 shares and shared dispositive power with respect to 247,199 shares of Lam
common stock reported as beneficially owned by Vanguard as of that date. The 10,540,294 shares of Lam common stock reported as beneficially owned by
Vanguard include 208,699 shares beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, as a result of it serving as
investment manager of collective trust accounts, and 97,800 shares beneficially owned by Vanguard Investments Australia, Ltd., a wholly–owned subsidiary of
Vanguard, as a result of it serving as investment manager of Australian investment offerings.
(5) All information regarding BlackRock Inc., or “BlackRock,” is based solely on information disclosed in amendment number six to Schedule 13G filed by
BlackRock with the SEC on January 29, 2014 on behalf of BlackRock and its subsidiaries: BlackRock (Luxembourg) S.A.; BlackRock (Netherlands) B.V.;
BlackRock Advisors (UK) Limited; BlackRock Advisors, LLC; BlackRock Asset Management Canada Limited; BlackRock Asset Management Ireland
Limited; BlackRock Financial Management, Inc.; BlackRock Fund Advisors; BlackRock Fund Management Ireland Limited; BlackRock Fund Managers Ltd,
BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Investment Management (Australia) Limited; BlackRock Investment
Management (UK) Ltd; BlackRock Investment Management, LLC; BlackRock Japan Co Ltd; and BlackRock Life Limited. According to the Schedule 13G
filing, of the 8,347,903 shares of Lam common stock reported as beneficially owned by BlackRock as of December 31, 2013, BlackRock had sole voting power
with respect to 6,898,386 shares, did not have shared voting power with respect to any other shares, had sole dispositive power with respect to 8,347,903
shares and did not have shared dispositive power with respect to any other shares of Lam common stock reported as beneficially owned by BlackRock as of
that date.
Includes 4,238 shares of common stock held indirectly in a 401(k) plan and 501 shares of common stock held by Mr. Archer’s spouse in her 401(k) plan over
which he may be deemed to have beneficial ownership.
(6)
T
Corporate Governance
Our board of directors and members of management
are committed to responsible corporate governance to
manage the Company for the long-term benefit of its
stockholders. To that end, the board and management
periodically review and update, as appropriate, the
Company’s corporate governance policies and practices.
As part of that process, the board and management
consider the requirements of federal and state law,
including rules and regulations of the SEC; the listing
standards for the NASDAQ Global Select Market, or
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“NASDAQ;” published guidelines and recommendations
of proxy advisory firms; and published guidelines of
other selected public companies. A list of key corporate
governance practices is provided in the “Proxy Statement
Summary” above.
Corporate Governance Policies
We have instituted a variety of policies and procedures
to foster and maintain responsible corporate governance,
including the following:
Board committee charters. Each of the board’s audit,
compensation and nominating and governance
committees has a written charter adopted by the
board that establishes practices and procedures for the
committee in accordance with applicable corporate
governance rules and regulations. Each committee
reviews its charter annually and recommends changes
to the board, as appropriate. Each committee charter
is available on the investors’ page of our web site at
http://investor.lamresearch.com/corporate-governance.cfm.
Please also refer to “Board Committees” below, for a
description of responsibilities of these board committees.
Corporate governance guidelines. We adhere to written
corporate governance guidelines, adopted by the
board and reviewed annually by the nominating and
governance committee and the board. Selected provisions
of the guidelines are discussed below, including in the
“Board Nomination Policies and Procedures,” “Director
Independence Policies” and “Other Governance
Practices” sections below. The corporate governance
guidelines are available on the investors’ page of our
web site at http://investor.lamresearch.com/corporate-
governance.cfm.
Corporate code of ethics. We maintain a code of ethics
that applies to all employees, officers, and members
of the board. The code of ethics establishes standards
reasonably necessary to promote honest and ethical
conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and
professional relationships, and full, fair, accurate, timely,
and understandable disclosure in the periodic reports we
file with the SEC and in other public communications. We
will promptly disclose to the public any amendments to,
or waivers from, any provision of the code of ethics to the
extent required by applicable laws. We intend to make
this public disclosure by posting the relevant material on
our web site, to the extent permitted by applicable laws.
A copy of the code of ethics is available on the investors’
page of our web site at http://investor.lamresearch.com/
corporate-governance.cfm.
Global standards of business conduct policy. We
maintain written standards of appropriate conduct in a
variety of business situations that apply to employees
worldwide. Among other things, these global standards
of business conduct address conflicts of interest,
safeguarding of Company assets, protection of
confidential information and anti-corruption.
Insider trading policy. Our insider trading policy restricts
the trading of Company stock by our directors, officers,
and employees, and includes provisions addressing
insider blackout periods and prohibiting hedges and
pledges of Company stock.
Board Nomination Policies and
Procedures
Board membership criteria. Under our corporate
governance guidelines, the nominating and governance
committee is responsible for assessing the appropriate
balance of experience, skills and characteristics required
for the board and for recommending director nominees to
the independent directors.
The guidelines direct the committee to consider all
factors it considers appropriate. The committee need
not consider all of the same factors for every candidate.
Factors to be considered may include, but are not limited
to: experience; business acumen; wisdom; integrity;
judgment; the ability to make independent analytical
inquiries; the ability to understand the Company’s
business environment; the candidate’s willingness and
ability to devote adequate time to board duties; specific
skills, background or experience considered necessary
or desirable for board or committee service; specific
experiences with other businesses or organizations that
may be relevant to the Company or its industry; diversity
with respect to any attribute(s) the board considers
desirable; and the interplay of a candidate’s experiences
and skills with those of other board members.
Prior to recommending that an incumbent non-employee
director be nominated for reelection to the board,
the committee reviews the experiences, skills and
qualifications of the directors to assess the continuing
relevance of the directors’ experiences, skills and
qualifications to those considered necessary or desirable
for the board at that time. Board members may not serve
on more than four boards of public companies (including
service on the Company’s board). To be nominated, the
candidate must agree to tender, promptly following the
annual meeting at which they are elected or re-elected
as directors, an irrevocable conditional resignation that
will be effective upon (i) the director’s failure to receive
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the required majority vote at the next annual meeting at
which the nominee faces re-election and (ii) the board’s
acceptance of such resignation. In addition, no director,
after having attained the age of 75 years, may be
nominated for re-election or reappointment to the board.
Nomination procedure. The nominating and governance
committee identifies, screens, evaluates and recommends
qualified candidates for appointment or election to
the board. The committee considers recommendations
from a variety of sources, including search firms,
board members, executive officers and stockholders.
Nominations for election by the stockholders are made by
the independent members of the board.
Certain provisions of our bylaws apply to the nomination
or recommendation of candidates by a stockholder.
Information regarding the nomination procedure is
provided in the “Voting and Meeting Information – Other
Meeting Information – Stockholder-Initiated Proposals and
Nominations for 2015 Annual Meeting” section below.
Director Independence Policies
Board independence requirements. Our corporate
governance guidelines require that at least a majority
of the board members be independent. No director will
qualify as “independent” unless the board affirmatively
determines that the director qualifies as independent
under the NASDAQ rules and has no relationship that
would interfere with the exercise of independent judgment
as a director. In addition, no non-employee director may
serve as a consultant or service provider to the Company
without the approval of a majority of the independent
directors (and any such director’s independence must be
reassessed by the full board following such approval).
Board member independence. The board has determined
that all current directors, other than Messrs. Anstice
and Newberry, are independent in accordance with
NASDAQ criteria for director independence.
Board committee independence. All members of the
board’s audit, compensation, and nominating and
governance committees must be non-employee or
outside directors and independent in accordance with
applicable NASDAQ criteria as well as, in the case of
the compensation committee, applicable rules under
section 162(m) of the Internal Revenue Code of 1986, as
amended, the “Code,” and Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, or the “Exchange
Act.” See “Board Committees” below for a description of
the responsibilities of these board committees.
Lead independent director. Our corporate governance
guidelines authorize the board to designate a lead
independent director from among the independent board
16
members. The lead independent director is responsible for
coordinating the activities of the independent directors,
consulting with the chairman regarding matters such as
schedules of and agendas for board meetings and the
retention of consultants who report directly to the board,
and developing the agenda for and moderating executive
sessions of the board’s independent directors. Mr. Inman
has served as the lead independent director since his
reelection at the 2012 annual meeting.
Executive sessions of independent directors. The board
and its audit, compensation, and nominating and
governance committees hold meetings of the independent
directors and committee members, without management
present, as part of each regularly scheduled meeting
and at any other time at the discretion of the board or
committee, as applicable.
Board access to independent advisors. The board as
a whole, and each of the board standing committees
separately, has the complete authority to retain, at the
Company’s expense, and terminate, in their discretion,
any independent consultants, counselors, or advisors
as they deem necessary or appropriate to fulfill
their responsibilities.
Leadership Structure of the Board
The current leadership structure of the board consists
of a chairman and a lead independent director. The
chairman, Mr. Newberry, served as chief executive
officer of the Company from June 2005 to January 2012.
The board believes that this is the appropriate board
leadership structure at this time. Lam and its stockholders
benefit from having Mr. Newberry as its chairman, as
he brings to bear his experience as CEO as well as his
other qualifications in carrying out his responsibilities as
chairman. The Company and its stockholders also benefit
from having a lead independent director to provide
independent board leadership.
Other Governance Practices
In addition to the principal policies and procedures
described above, we have established a variety of other
practices to enhance our corporate governance, including
the following:
Board and committee assessments. At least bi-annually,
the board conducts a self-evaluation, overseen by the
nominating and governance committee. In recent years
the board has conducted this assessment annually. To the
extent the board requests, the committee also oversees
evaluations of the board’s standing committees.
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Director resignation or notification of change in
executive officer status. Under our corporate governance
guidelines, any director who is also an executive officer
of the Company must offer to submit his or her resignation
as a director to the board if the director ceases to be
an executive officer of the Company. The board may
accept or decline the offer, in its discretion. The corporate
governance guidelines also require a non-employee
director to notify the nominating and governance
committee if the director changes or retires from his or her
executive position at another company. The nominating
and governance committee reviews the appropriateness
of the director’s continuing board membership under
the circumstances, and the director is expected to act
in accordance with the nominating and governance
committee’s recommendations.
Director and executive stock ownership. Under the
corporate governance guidelines, each director is
expected to own at least the lesser of five times the
value of the annual cash retainer (not including any
committee chair or other supplemental retainers for
directors) or 5,000 shares of Lam common stock, by the
fifth anniversary of his or her initial election to the board.
Guidelines for stock ownership by designated members
of the executive management team are described
below under “Compensation Discussion and Analysis.”
All of our directors and designated members of our
executive management team were in compliance with
the Company’s applicable stock ownership guidelines
at the end of fiscal year 2014 or have a period of time
remaining under the program to do so.
Communications with board members. Any stockholder
who wishes to communicate directly with the board
of directors, with any board committee or with any
individual director regarding the Company may write to
the board, the committee or the director c/o Secretary,
Lam Research Corporation, 4650 Cushing Parkway,
Fremont, California 94538. The secretary will forward all
such communications to the appropriate director(s).
Any stockholder, employee, or other person may
communicate any complaint regarding any accounting,
internal accounting control, or audit matter to the
attention of the board’s audit committee by sending
written correspondence by mail (to Lam Research
Corporation, Attention: Board Audit Committee,
P.O. Box 5010, Fremont, California 94537-5010)
or by phone (855-208-8578) or internet (through
the Company’s third party provider web site at
www.lamhelpline.ethicspoint.com). The audit committee
has established procedures to ensure that employee
complaints or concerns regarding audit or accounting
matters will be received and treated anonymously (if the
complaint or concern is submitted anonymously).
Meeting Attendance
All of the directors attended at least 75% of the
aggregate number of board meetings and meetings of
board committees on which they served during their
board tenure in fiscal year 2014. Our board of directors
held a total of eight meetings during fiscal year 2014.
We expect our directors to attend the annual meeting of
stockholders each year. All individuals who were directors
as of the 2013 annual meeting of stockholders attended
the 2013 annual meeting of stockholders.
Board Committees
The board of directors has three standing committees:
an audit committee, a compensation committee, and a
nominating and governance committee. The purpose,
membership and charter of each are described below.
Current Committee Memberships
Name
Eric K. Brandt
Michael R. Cannon
Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Catherine P. Lego
Krishna C. Saraswat
William R. Spivey
Abhijit Y. Talwalkar
Total Number of Meetings
Held in FY2014
Audit
Chair1
x
x2
x
8
Compensation
Nominating
and
Governance
x
x
x
Chair
5
x
Chair
x2
x
x
4
(1) Mr. Brandt was appointed as chair of the audit committee effective
February 2014.
(2) Ms. Lego was appointed as a member of the audit and nominating and
governance committees effective February 2014. Until that time, she
served as chair of the audit committee.
Audit committee. The purpose of the audit committee
is to oversee the Company’s accounting and financial
reporting processes and the audits of our financial
statements, including the system of internal controls.
The board concluded that all audit committee members
are non-employee directors who are independent in
accordance with the NASDAQ listing standards and SEC
rules for audit committee member independence and
that each audit committee member is able to read and
understand fundamental financial statements as required
by the NASDAQ listing standards. The board also
determined that Mr. Brandt and Ms. Lego, both members
of the committee, are “financial experts” as defined in
SEC rules.
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The audit committee’s responsibilities include (but are not
limited to) the following:
• Appoint and provide for the compensation for the
Company’s independent registered public accounting
firm, the “Accounting Firm;” approve, in accordance
with and in a manner consistent with the laws, rules
and regulations applicable to the Company, all
professional services to be provided to Lam Research
by the Accounting Firm; and provide management
with guidelines for the fees payable to the Accounting
Firm and approve any fees in excess of the guidelines
• Oversee the work and independence, and evaluate
the performance, of the Accounting Firm, and
if so determined by the committee, replace the
Accounting Firm
• Meet with management and the Accounting Firm
to discuss the annual financial statements and the
Accounting Firm’s report on the financial statements
prior to the filing of the Company’s annual report
on Form 10-K with the SEC, and to discuss the
adequacy of internal control over financial reporting;
following such discussions, if so determined by the
committee, recommend to the board that the annual
financial statements be included in the Company’s
annual report
• Meet quarterly with management and the Accounting
Firm to discuss the quarterly financial statements prior
to the filing of the Company’s quarterly report on
Form 10-Q with the SEC
• At least annually, review and reassess the internal
audit charter and, if appropriate, recommend
proposed changes; review the scope, results and
analysis of internal audits (if any); evaluate the
performance of the internal auditors (if any) and
review internal audit performance with the chief
financial officer
• Review and oversee, on an ongoing basis, for
potential conflict of interest situations, all transactions
required to be disclosed pursuant to item 404 of
Regulation S-K and any other transaction involving an
executive or board member
• Establish a procedure for receipt, retention and
treatment of any complaints received by the Company
about its accounting, internal accounting controls
or auditing matters, and for the confidential and
anonymous submission by employees of concerns
regarding questionable accounting or auditing matters
Compensation committee. The purpose of the
compensation committee is to discharge certain
responsibilities of the board relating to executive
compensation, to oversee incentive, equity-based plans
and other compensatory plans in which the Company’s
executive officers and/or directors participate and to
produce an annual report on executive compensation
for inclusion as required in the Company’s annual
proxy statement.
The compensation committee is authorized to delegate
such of its authority and responsibilities as the committee
deems proper and consistent with legal requirements
to members of the committee or to any other committee
of the board. The committee may also authorize one or
more officers of the Company to designate employees to
be recipients of rights or options created by the Company
and to determine the number of such rights or options
to be received by such employees in accordance with
the provisions of the Delaware General Corporation
Law; provided, however, that the Committee must
approve grants of any such options or rights made to
executive officers.
The board concluded that all members of the
compensation committee are non-employee directors who
are independent in accordance with Rule 16b-3 of the
Exchange Act and the NASDAQ criteria for director and
compensation committee member independence and who
are outside directors for purposes of section 162(m) of
the Code.
The compensation committee’s responsibilities include (but
are not limited to) the following:
• Review and approve the Company’s executive officer
compensation philosophy, objectives and strategies
and the appropriate peer group companies for
purposes of evaluating the Company’s compensation
competitiveness
• Cause the board to conduct a periodic performance
evaluation of the chief executive officer; recommend to
the independent members of the board (as determined
under both the NASDAQ listing standards and
Section 162(m) of the Code) corporate goals and
objectives under the Company’s compensation plans,
compensation packages and compensation payouts
for the CEO
• Review and monitor the Company’s investment
• Review and recommend for appropriate board action
policy and its investment portfolio performance and
associated risks, including but not limited to annual
review and recommendation to the full board of
management’s treasury strategy committee charter;
appoint and remove members of the management
committee for treasury strategy matters
all cash, equity-based and other compensation
packages and compensation payouts applicable to
the chairman, vice-chairman and other members of
the board
• Annually review with the CEO the performance of
the Company’s other executive officers in light of
the Company’s executive compensation goals and
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objectives and approve the compensation packages
and compensation payouts for other executive officers
• Establish stock ownership guidelines applicable to
executive officers, and recommend for approval by
the independent members of the board guidelines
for the chairman, the vice-chairman and all other
directors
• Review and approve, subject to stockholder or board
approval as required, the creation or amendment
of any equity-based compensatory plans and other
compensatory plans as the board designates, and
administer such plans
• Oversee management’s determination as to whether
the Company’s compensation policies and practices
create risks that are reasonably likely to have a
material adverse effect on the Company
• Recommend to the board the frequency of “say
on pay” votes, review the results of “say on pay”
votes, and consider whether any adjustments to the
Company’s executive compensation program are
appropriate as a result of such votes
• Appoint and oversee reasonable compensation
of and the work of any compensation consultants,
independent counsel and advisors retained by
the committee
• Prepare the committee report required by the
SEC rules for inclusion in the Company’s annual
proxy statement; meet with management and any
independent compensation consulting advisers to
discuss the compensation discussion and analysis to
be included in the Company’s annual proxy statement
and then recommend to the Board whether the
compensation and discussion and analysis should be
included in the Company’s proxy statement
Nominating and governance committee. The purposes of
the nominating and governance committee are to identify
individuals qualified to serve as members of the board
of the Company, to recommend nominees for election
as directors of the Company, to oversee self-evaluations
of the board’s performance, to develop and recommend
corporate governance guidelines to the board, and to
provide oversight with respect to corporate governance.
The board concluded that all nominating and governance
committee members are non-employee directors who are
independent in accordance with the NASDAQ criteria for
director independence.
The nominating and governance committee’s
responsibilities include (but are not limited to) the
following:
• Identify, screen, evaluate, and recommend to the
independent members of the board nominees for
election as directors of the Company at the next
annual or special meeting of stockholders at which
directors are to be elected; and identify, screen,
evaluate and recommend to the board individuals to
fill any vacancies or newly created directorships that
may occur between stockholder meetings
• Make recommendations to the board annually after
consultation with the chairman of the board and the
lead independent director, if any, with respect to
assignment of board members to committees and as
committee chairs
• Cause to be prepared and recommend to the board
the adoption of corporate governance guidelines, and
from time to time review and assess the guidelines and
recommend changes for approval by the board
• Review and assess, from time to time, the governing
documents of the Company and, if appropriate,
propose changes to the board
• Oversee on a bi-annual basis a self-evaluation of the
board and, to the extent that the board requests, the
board committees in accordance with the Company’s
corporate governance guidelines and the committee
charters and conduct from time to time a self-
evaluation of its performance, which may be part of
the board’s self-evaluation
• Ensure that the board reviews CEO succession
planning and that the CEO reports to the board
regarding organization status on an appropriate basis
The nominating and governance committee will
consider for nomination persons properly nominated
by stockholders in accordance with the Company’s
bylaws and other procedures described in the “Voting
and Meeting Information – Other Meeting Information
– Stockholder - Initiated Proposals and Nominations for
2015 Annual Meeting” section below. Subject to then-
applicable law, stockholder nominations for director
will be evaluated by the Company’s nominating and
governance committee in accordance with the same
criteria as is applied to candidates identified by the
nominating and governance committee or other sources.
Board’s Role in Risk Oversight
The board is actively engaged in risk oversight.
Management regularly reports to the board on its risk
assessments and risk mitigation strategies for the major
risks of our business. Generally the board exercises its
oversight responsibility directly; however, in specific
cases, responsibility has been delegated to board
committees. Committees that have been charged with
risk oversight regularly report to the board on those risk
matters within their areas of responsibility. Risk oversight
responsibility has been delegated to board committees
as follows:
• Our audit committee oversees risks related to the
Company’s accounting and financial reporting,
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internal controls, and the auditing of our annual
financial statements. The audit committee also
oversees risks related to our independent registered
public accounting firm and our internal audit function.
• Our compensation committee oversees risks related to
the Company’s equity, and executive compensation
programs and plans.
• Our nominating and governance committee
oversees risks related to director independence,
board and board committee composition and CEO
succession planning.
Director Compensation
Our director compensation is designed to attract and
retain high caliber directors and to align director interests
with those of stockholders. Director compensation
is reviewed and determined annually by the board
(in the case of Messrs. Newberry and Anstice,
by the independent members of the board), upon
recommendation from the compensation committee. Non-
employee director compensation and Mr. Newberry’s
compensation are described below. Mr. Anstice,
whose compensation as CEO is described below under
“Executive Compensation and Other Information –
Compensation Discussion and Analysis,” does not receive
additional compensation for his service on the board.
Annual Retainers
Non-employee Director
Lead Independent Director
Audit Committee – Chair
Audit Committee – Member
Compensation Committee – Chair
Compensation Committee – Member
Nominating and Governance Committee – Chair
Nominating and Governance Committee – Member
Assessment of Compensation Risk
Management conducted a compensation risk assessment
in 2014 and concluded that the Company’s current
employee compensation programs are not reasonably
likely to have a material adverse effect on the
Company’s business.
Non-employee director compensation. Non-employee
directors receive annual cash retainers and equity
awards. Committee chairs, the lead independent
director and committee members receive additional cash
retainers. Non-employee directors who join the board or
a committee midyear receive prorated cash retainers. Our
non-employee director compensation plans are based
on service during the calendar-year; however, SEC rules
require us to report compensation in this proxy statement
on a fiscal-year basis. Cash compensation paid to non-
employee directors for the fiscal year ended June 29,
2014 is shown in the table below, together with the
annual cash compensation program components in effect
for calendars years 2013 and 2014.
Calendar
Year 2014
Calendar
Year 2013
Fiscal
Year 2014
$60,000
$20,000
$25,000
$12,500
$20,000
$10,000
$10,000
$ 5,000
$60,000
$20,000
$25,000
$12,500
$20,000
$10,000
$10,000
$ 5,000
$60,000
$20,000
$25,000
$12,500
$20,000
$10,000
$10,000
$ 5,000
Each non-employee director also receives an annual
equity grant on the first Friday following the annual
election (or, if the designated date falls within a blackout
window under applicable Company policies, on the
first business day such grant is permissible under those
policies) with a targeted grant value equal to $190,000
(the number of RSUs subject to the award is determined
by dividing $190,000 by the closing price of a share
of Company common stock as of the date of grant,
rounded down to the nearest 10 shares). These grants
generally vest on October 31 in the year following the
grant and are subject to the terms and conditions of the
Company’s 2007 Stock Incentive Plan, as amended, or
“2007 Plan,” and the applicable award agreements.
These grants immediately vest in full: (i) if a non-employee
director dies or becomes subject to a “disability” (as
determined pursuant to the 2007 Plan), (ii) upon the
occurrence of a “Change in Control” (as defined in the
2007 Plan), or (iii) on the date of the annual meeting if
the annual meeting during the year in which the award
was expected to vest occurs prior to the vest date and
the non-employee director is not re-elected or retires
or resigns effective immediately prior to the annual
meeting. Non-employee directors who commence service
after the annual award has been granted receive a
pro-rated grant based on the number of regular board
meetings remaining in the year as of the date of the
director’s election.
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On November 8, 2013, each director other than
Mr. Anstice received a grant of 3,590 RSUs for
services during calendar year 2014. Unless there is
an acceleration event, these RSUs will vest in full on
October 31, 2014, subject to the director’s continued
service on the board.
Chairman compensation. Mr. Newberry, who served as
vice-chairman from December 7, 2010 until November 1,
2012 and since such date has served as chairman, has
a different compensation arrangement than the other
directors. Mr. Newberry entered into an employment
agreement with the Company commencing on January 1,
2012 and expiring on December 31, 2014, subject to
the right of earlier termination in certain circumstances.
The agreement provides for annual compensation of
$500,000, subject to adjustment at the discretion of
the independent members of the board. For calendar
year 2014 his annual compensation was adjusted to
$530,000. His annual compensation for calendar year
2013 was paid partly in equity and partly in cash as
follows: he received an RSU grant (equal to one-half
of the grant value of the annual non-employee director
award) and a cash retainer on the same terms as non-
employee directors’ annual equity grants and cash
retainers, and he received the remainder of his annual
compensation in cash. His annual compensation for
calendar year 2014 is paid partly in equity and partly in
cash as follows: he receives an RSU grant (equal to the
grant value of the annual non-employee director award)
and a cash retainer on the same terms as non-employee
directors’ annual equity grants and cash retainers, and
he receives the remainder of his annual compensation
in cash. Mr. Newberry is eligible to participate in the
Company’s Elective Deferred Compensation Plan that
is generally applicable to executives of the Company,
subject to the general terms and conditions of such plan.
Under his contract, if there is an involuntary termination
(including an involuntary termination in connection with
a change in control), a death or disability (as each term
is defined in Mr. Newberry’s agreement), Mr. Newberry
will be entitled to (i) a lump-sum cash payment equal to
12 months of Mr. Newberry’s base compensation (less,
in the case of death, of certain insurance payments);
(ii) certain medical benefits; and (iii) vesting of
certain stock option and restricted stock unit awards. If
Mr. Newberry voluntarily resigns, he will be entitled to
no additional benefits (except as he may be eligible for
under the Retiree Health Plans). Unvested RSUs will be
cancelled on the date of termination.
The following table shows compensation for fiscal year 2014 for directors other than Mr. Anstice:
Director Compensation for Fiscal Year 2014
Name
Stephen G. Newberry
Eric K. Brandt
Michael R. Cannon
Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Catherine P. Lego
Krishna C. Saraswat
William R. Spivey
Abhijit Y. Talwalkar
Fees
Earned
or Paid
in Cash
($)
382,154(3)
85,000(4)
77,500(5)
70,000(6)
70,000(7)
100,000(8)
77,500(9)
65,000(10)
77,500(11)
80,000(12)
Stock
Awards
($)(1)(13)
All Other
Compensation
($)(2)
189,732
189,732
189,732
189,732
189,732
189,732
189,732
189,732
189,732
189,732
19,094
0
0
21,434
0
21,434
20,309
0
21,434
0
Total
($)
590,979
274,732
267,232
281,166
259,732
311,166
287,540
254,732
288,666
269,732
(1) The amounts shown in this column represent the grant date fair value of unvested restricted stock unit awards granted during fiscal year 2014 in accordance
with Financial Accounting Standards Board Accounting Standards Codification 718, Compensation — Stock Compensation, or “ASC 718.” However, pursuant
to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of the restricted
stock units in fiscal year 2014 are set forth in Note 11 to the Consolidated Financial Statements of the Company’s annual report on Form 10-K for the fiscal year
ended June 29, 2014.
(2) Represents the portion of medical, dental and vision premiums paid by the Company.
(3) Mr. Newberry received $382,154, representing his $60,000 annual retainer as a director and the remainder of his annual cash compensation under his
employment agreement.
(4) Mr. Brandt received $85,000, representing his $60,000 annual retainer and $25,000 as the chair of the audit committee.
(5) Mr. Cannon received $77,500, representing his $60,000 annual retainer, $5,000 as a member of the nominating and governance committee and $12,500 as a
member of the audit committee.
(6) Dr. El-Mansy received $70,000, representing his $60,000 annual retainer and $10,000 as a member of the compensation committee.
(7) Ms. Heckart received $70,000, representing her $60,000 annual retainer and $10,000 as a member of the compensation committee.
(8) Mr. Inman received $100,000, representing his $60,000 annual retainer, $20,000 as lead independent director, $10,000 as a member of the compensation
committee and $10,000 as the chair of the nominating and governance committee.
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(9) Ms. Lego received $77,500, representing her $60,000 annual retainer, $12,500 as a member of the audit committee and $5,000 as a member of the nominating
and governance committee.
(10) Dr. Saraswat received $65,000, representing his $60,000 annual retainer and $5,000 as a member of the nominating and governance committee.
(11) Dr. Spivey received $77,500, representing his $60,000 annual retainer, $12,500 as a member of the audit committee and $5,000 as a member of the nominating
and governance committee.
(12) Mr. Talwalkar received $80,000, representing his $60,000 annual retainer and $20,000 as chair of the compensation committee.
(13) On November 8, 2013, Mr. Newberry and each non-employee director who was on the board received an annual grant of 3,590 RSUs based on the $52.85
closing price of Lam’s common stock and the target value of $190,000, rounded down to the nearest 10 shares.
Other benefits. In addition, any members of the board
enrolled in the Retiree Health Plans as of or prior to
December 31, 2012 can continue to participate even
after retirement from the board in the Company’s Retiree
Health Plans. The board eliminated this benefit for any
person who became a director after December 31,
2012. The most recent valuation of the Company’s
accumulated post-retirement benefit obligation under
Accounting Standards Codification 715, Compensation-
Retirement Benefits (“ASC 715”), as of June 29, 2014, for
eligible former directors and the current directors who
may become eligible is shown below. Factors affecting
the amount of post-retirement benefit obligation include
age at enrollment, age at retirement, coverage tier (e.g.,
single, plus spouse, plus family), interest rate, and length
of service.
Director Compensation for Fiscal Year 2014
Name
Stephen G. Newberry
Eric K. Brandt
Michael R. Cannon
Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Catherine P. Lego
Krishna C. Saraswat
William R. Spivey
Abhijit Y. Talwalkar
Accumulated Post-Retirement
Benefit Obligation,
as of June 29, 2014
($)
560,000
0
0
502,000
0
398,000
443,000
0
713,000
0
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive
officers, directors, and people who own more than 10%
of a registered class of our equity securities to file an
initial report of ownership (on a Form 3) and reports
on subsequent changes in ownership (on Forms 4 or
5) with the SEC by specified due dates. Our executive
officers, directors, and greater-than-10% stockholders
are also required by SEC rules to furnish us with copies
of all Section 16(a) forms they file. We are required
to disclose in this proxy statement any failure to file
any of these reports on a timely basis. Based solely on
our review of the copies of the forms that we received
from the filers, and on written representations from
certain reporting persons, we believe that all of these
requirements were satisfied during fiscal year 2014, with
the exception of one late Form 4 for Martin B. Anstice
filed on February 20, 2014 to report the withholding of
18,251 shares of Lam Research common stock to cover
the taxes due on vesting of a restricted stock unit award
on February 7, 2014.
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Executive Compensation and Other Information
Compensation Discussion and Analysis
This Compensation Discussion and Analysis, or “CD&A,” describes our executive compensation program. It is organized
as follows:
Section I………….. Recent Changes to Our Executive
Compensation Program
Section II…………. Overview of Executive
Compensation (Including Our
Philosophy and Program Design)
Section III………… Executive Compensation
Governance and Procedures
Section IV………….. Primary Components of Named
Executive Officer Compensation;
Calendar Year 2013
Compensation
Payouts; Calendar Year 2014
Compensation Targets
and Metrics
Section V…………... Tax and Accounting
Considerations
Our CD&A discusses compensation earned by our fiscal year 2014 “Named Executive Officers,” or “NEOs,” who are
as follows:
Figure 1. FY2014 NEOs
Named Executive Officer
Position(s)
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, Global Products
Senior Vice President, Chief Legal Officer
I. RECENT CHANGES TO OUR EXECUTIVE COMPENSATION PROGRAM
The compensation committee has made a number of changes to our executive compensation program that are described
in more detail in subsequent sections. During fiscal year 2014, these actions included the following:
Figure 2. Recent Executive Compensation Program Changes
Topic
Action
Rationale
Long-Term Incentive
Program or “LTIP”
Components
Effective with the 2014 LTIP, replaced the cash
component (50% of total) with a program entirely
composed of equity
LTIP – Equity Vehicles
and Metric
See “Long-Term Incentive Program – Design” below for
additional information regarding the impact of this change
to the Company’s “Summary Compensation Table”
Effective with the 2014 LTIP, introduced a new LTIP equity
vehicle – Market-Based Performance Restricted Stock
Units, or “Market–Based PRSUs” – designed to reward
eligible participants based on the performance of our
stock price relative to the Philadelphia Semiconductor
Sector Index (SOX)
Use equity to facilitate an effective program design for compensation
measured in part by relative stock performance (versus the prior
cash program, which was designed to be effective in the face of high
volatility across business cycles); further align executive interests more
directly with stockholders
Establish a performance-based vehicle to further support our strategy
of linking executive rewards to the creation of stockholder value
LTIP – Performance Period
Effective with the 2014 LTIP, extended the performance
period for the program from two to three years
Align our executive officers’ interests with those of our stockholders
over a longer period; increase retention value for our executive officers
Note: In conjunction with extending the performance
period, a one-time two-year LTIP award of the same
equity vehicles under comparable terms (see Figure 16
below for further details) was made under the calendar
year 2014 LTIP called the “Gap Year Award”
See “Long-Term Incentive Program – Design” below
for additional information regarding the impact of
these changes to the employee and the Company’s
“Executive Compensation Tables”
Ensure that participants are not left without any long-term plan
payments in calendar year 2016 as a result of the transition from a
two- to three-year LTIP
Annual Incentive Plan
or “AIP” – Goal Setting
Effective with the 2014 AIP, goal setting for the metrics
underlying the program is now done on an annual basis
Annual goal setting aligns to our business planning cycle and is
possible given that volatility has lessened across business cycles
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II. OVERVIEW OF EXECUTIVE COMPENSATION
To align with stockholders’ interests, our executive
compensation program is designed to foster a pay-
for-performance culture and achieve the executive
compensation objectives set forth in “Executive
Compensation Philosophy and Program Design –
Figure 3. FY2009-FY2014 CEO Pay for Performance
Executive Compensation Philosophy” below. We have
structured our compensation program and payouts to
reflect these goals. Our CEO’s compensation in relation to
our revenue and net income is shown in Figure 3 below.
CEO Pay for Performance
CEO Total Compensation(1)
Revenue
Net income (loss)
)
s
d
n
a
s
u
o
h
t
n
i
(
n
o
i
t
a
s
n
e
p
m
o
C
l
a
t
o
T
$14,000
$12,000
$10,000
$8,000
$6,000
$4,275
$4,000
$2,000
$0
CEO Transition(2)
$11,935(3)
$9,393
$6,210
$5,572
$3,841
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
)
s
d
n
a
s
u
o
h
t
n
i
(
e
m
o
c
n
I
t
e
N
d
n
a
e
u
n
e
v
e
R
-$1,000,000
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
(1) “CEO Total Compensation” consists of base salary, annual incentive payments, accrued values of the cash payments under the long-term incentive
program and grant date fair values of equity based awards under the long-term incentive program, and all other compensation as reported in the “Summary
Compensation Table” below.
(2) The CEO Total Compensation for fiscal year 2012 reflects Mr. Anstice’s succession of Mr. Newberry as our President and CEO as of January 1, 2012.
(3) The CEO Total Compensation for fiscal year 2014 reflects an award covering a three-year performance period as compared to the two-year period in all prior
fiscal years. The one-time Gap Year Award, with a value of $3,074,271 reflected in the “Summary Compensation Table” below, is not included in fiscal year
2014 CEO Total Compensation in order to allow readers to more easily compare compensation in prior and future periods and better reflect the compensation
payable in any fiscal year following the transition. See “Long-Term Incentive Program – Design” for additional information regarding the impact of the Gap
Year Award.
To understand our executive compensation program fully, we feel it is important to understand:
• Our business, our industry environment and our financial performance; and
• Our executive compensation philosophy and program design.
Our Business, Our Industry Environment and Our Financial Performance
Lam Research has been an innovative supplier of wafer
fabrication equipment and services to the semiconductor
industry for more than 30 years. Our customers include
semiconductor manufacturers that make memory,
microprocessors, and other logic integrated circuits for
a wide range of consumer and industrial electronics;
including cell phones, computers, memory storage
devices, and networking equipment.
Our market-leading products are designed to help
our customers build the smaller, faster and more
power-efficient devices that are necessary to power
the capabilities required by end users. The process of
integrated circuits fabrication consists of a complex series
of process and preparation steps and Lam’s product
offerings in deposition, etch and clean address a number
of the most critical steps in the fabrication process. We
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leverage our expertise in semiconductor processing
to develop technology and productivity solutions that
typically benefit our customers through lower defect rates,
enhanced yields, faster processing time, and reduced
cost as well as by facilitating their ability to meet more
stringent performance and design standards.
The semiconductor capital equipment industry has been
highly competitive and subject to business cycles that
historically have been characterized by rapid changes
in demand that necessitate adjusting spending and
managing capital allocation prudently across business
cycles. Figure 4 below shows year-over-year changes
in revenue growth for each of the electronics industry,
the semiconductor industry, and the wafer fabrication
equipment segment of the semiconductor equipment
industry from 2001 to the present. The semiconductor
industry has historically been a highly cyclical industry,
Figure 4. Revenue Growth by Industry
with fluctuations responding to changes in the demand for
semiconductor devices. The wafer fabrication equipment
segment in which we participate has historically exhibited
more extreme volatility during these demand cycles
as illustrated by the graph below. More recently with
consolidation in the customer base, the cyclical behavior
in the industry appears to have diminished somewhat.
With a reduced number of customers, the volatility in the
industry has lessened but our results are more dependent
on the spending of any individual customer over certain
periods. As a result of such changes, our executive
compensation program has been adjusted as described
in “I. Recent Changes to Our Executive Compensation
Program” above and in further detail in the below
sections. However, previous programs in place with
payouts in the current and next fiscal year were designed
to respond to such significant volatility in our results.
Electronics Revenue Growth
Semiconductor Revenue Growth
Wafer Fab Equipment (WFE) Spend Growth
140%
120%
100%
)
Y
Y
/
(
e
g
n
a
h
C
%
80%
60%
40%
20%
0%
-20%
-40%
Sources: SEMI; World Semiconductor Trade Statistics, Inc. (WSTS); Gartner, Inc.; Lam Research Corporation
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Although we have a June fiscal year end, our executive
compensation program is designed and oriented on a
calendar-year basis to correspond with our calendar-
year-based business planning. This CD&A reflects a
calendar-year orientation, as shown in Figure 5 below.
The Executive Compensation Tables at the end of this
CD&A are based on our fiscal year, as required by
SEC regulations.
Figure 5. Executive Compensation Calendar-Year Orientation
Fiscal Year 2014
Relevant for executive
compensation tables
Calendar Year 2013
Calendar Year 2014
Relevant for compensation program design and
performance evaluation
1/1/2013
1/1/2014
1/1/2015
6/30/2013
6/29/2014
In calendar year 2013, demand for semiconductor
equipment improved slightly relative to calendar year
2012, as device manufacturers invested in leading edge
production capacity to support healthy demand for
mobile electronics. Against this backdrop, Lam delivered
record financial performance and successfully completed
the integration of Novellus Systems, Inc., or “Novellus,”
executing all target integration commitments on or ahead
of schedule.
Highlights for calendar year 2013:
• Achieved record revenues of approximately $4 billion
for the calendar year, representing a 25% increase
over calendar year 2012;
• Generated operating cash flow of $458 million,
which represents approximately 12% of revenues;
• Repurchased approximately 7.2 million shares of
common stock under the board of directors-approved
$1.6 billion and $250 million authorizations, returning
approximately $317 million to stockholders; and
• Fully executed on-schedule targeted cost and
revenue synergies resulting from the 2012 acquisition
of Novellus, including delivering $100 million in
annualized cost savings and approximately $130
million in revenue synergies from the merger by the
end of calendar year 2013.
Investments for wafer fabrication equipment spending
have remained healthy in the first half of calendar
year 2014 as customers transition to next generation
devices, which are increasingly complex and more costly
to produce.
Lam has continued to generate solid operating income
and cash generation with revenues of $2.5 billion and
cash flows from operations of $536 million earned
from the March and June 2014 quarters combined. In
April 2014, we announced a $1 billion capital return
program, including the initiation of the Company’s first
ever quarterly dividend (with future dividend payments
subject to board review and approval), reflecting the
Board’s confidence in future cash generation and Lam’s
commitment to enhancing stockholder value.
Executive Compensation Philosophy and Program Design
Executive Compensation Philosophy
The philosophy of our compensation committee that
guided this year’s awards and payout decisions is that our
executive compensation program should:
• optimize value to employees while maintaining cost-
effectiveness to the Company
• create stockholder value over the long term
• align annual plan to short-term performance and long-
• provide competitive compensation to attract and
term plan to longer-term performance
retain top talent
• provide compensation that is fair to employees and
rewards corporate, organizational and individual
performance
• align pay with business objectives while driving
exceptional performance throughout fluctuating
business cycles
26
• recognize that a long-term, high-quality management
team is a competitive differentiator for Lam,
enhancing customer trust/market share and, therefore,
stockholder value
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Our compensation committee’s executive compensation
objectives are to motivate:
To achieve these objectives, our compensation committee
authorized the following strategies:
• performance that creates long-term stockholder value
• outstanding performance at the corporate,
organization and individual levels
• retention of a long-term, high-quality management team
Program Design
Our program design uses a mix of short- and long-
term components, and a mix of cash and equity
components. Our executive compensation program
includes base salary, an annual incentive program or
“AIP,” and a long-term incentive program or “LTIP,” as
well as stock ownership guidelines and a compensation
recovery, or “clawback,” policy. Historically, our LTIP
had a cash and equity component. In February 2014,
our compensation committee approved a new LTIP
Figure 6. NEO Compensation Target Pay Mix Averages1
• reference appropriate market data
• respond to fluctuating business cycle changes
• use a mix of equity award types (restricted stock
units, stock options and market-based performance
restricted stock units)
• provide an appropriate mix of short-term and long-
term rewards
• balance these strategies to reach an optimal result
under existing circumstances
design in which the cash component was replaced with
equity. Details of the program are explained under
“Long-Term Incentive Program – Design” in section III
below. As illustrated in Figure 6 below, our program
design is weighted towards performance and stockholder
value. The performance-based program components
include AIP cash payouts and market-based equity and
stock option awards under the LTIP.
Calendar Year 2014
Average NEO Target Pay Mix
58% Performance Based(2)
Calendar Year 2013
Average NEO Target Pay Mix
68% Performance Based
Calendar Year 2012
Average NEO Target Pay Mix
50% Performance Based
Stock
Options
7.2%
Base
Salary
13.4%
Annual
Cash
Incentive
14.9%
Service-
Based
RSUs
28.7%
Service-
Based
RSUs
17.6%
Base
Salary
14.2%
Stock
Options
17.6%
Base
Salary
16.7%
Annual Cash
Incentive
16.1%
Annual
Cash
Incentive
15.4%
Service-
Based
RSUs
33.6%
Long-
Term
Cash
Incentive
33.6%
Performance-
Based RSUs
35.8%
Long-Term
Incentive Cash
Incentive
35.2%
Performance-Based Compensation(3)
Non-Performance-Based Compensation
(1) Data in Figure 6 for the calendar year 2014, 2013 and 2012 charts is for the then-applicable NEOs (i.e., fiscal year 2012 NEOs are represented in the calendar
year 2012 chart, etc.).
(2) The one-time Gap Year Awards are not included in 2014 target pay in order to allow readers to more easily compare pay mixes relative to prior periods. See
“Long-Term Incentive Program – Design” below for additional information regarding the impact of the Gap Year Award.
(3) For purposes of this illustration, we include performance-based RSUs and stock options as performance based, but do not classify service-based RSUs as
performance based.
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Our stock ownership guidelines for our NEOs are shown
in Figure 7 below. The requirements are specified in
the alternative of shares or dollars to allow for stock
price volatility. Ownership levels as shown below must
be achieved within five years of appointment to one
of the below positions. Increased requirements due
Figure 7. Executive Stock Ownership Guidelines
Position
Chief Executive Officer
Executive Vice Presidents
Senior Vice Presidents
Compensation Recovery, or “Clawback” Policy
to promotions must be achieved within three years of
promotion. At the end of fiscal year 2014, all of the
then-employed NEOs were in compliance with our stock
ownership guidelines or have a period of time remaining
under the guidelines to do so.
Guidelines (lesser of)
3x base salary or 65,000 shares
2x base salary or 20,000 shares
1x base salary or 10,000 shares
Our executive officers covered by Section 16 of the
Exchange Act, or “Section 16 officers,” are subject to the
Company’s compensation recovery, or “clawback,” policy.
The clawback policy was adopted in August 2014 and will
enable us to recover the excess amount of cash incentive-
based compensation issued starting in calendar year
2015 to covered individuals when a material restatement
of financial results are required within 36 months of the
issuance of the original financial statements. A covered
individual’s fraud must have materially contributed to the
need to issue restated financial statements in order for the
clawback policy to apply to that individual. The recovery
of compensation is not the exclusive remedy available in
the event that the clawback policy is triggered.
Highlights of Preferred Compensation-Related Policies, Practices and Provisions
We maintain preferred policies, practices and provisions related to or in our compensation program, which include
the following:
Figure 8. Preferred Compensation-Related Policies, Practices and Provisions
What We Do
Pay for Performance (Pages 27, 32-33, 37) – A majority of our executive officer compensation is not guaranteed, but rather tied to key financial performance
metrics and to changes in the performance of our stock relative to the performance of an industry index
Three Year Performance Period for Long-term Incentive Program (Pages 35-36) – Our current long-term incentive program is designed to pay for
performance over a period of three years
Absolute and Relative Performance Metrics (Pages 32-33, 35, 37) – Our annual incentive program for executive officers includes the use of absolute
performance factors and our long-term incentive program for executive officers includes the use of both absolute and relative performance factors
Balance of Annual and Long-term Incentives – Our incentive programs provide a balance of annual and longer-term incentives
Different Performance Metrics for Annual and Long-Term Incentive Programs (Pages 32-33, 35, 37) – Our annual and long-term incentive programs use
different performance metrics
Capped Amounts (Pages 32, 36-38) – Amounts that can be earned under the annual and long-term incentive programs are capped
Compensation Recovery/Clawback Policy (Page 28) – We have a policy in which we can recover the excess amount of cash incentive-based compensation
granted and paid to our Section 16 officers
Prohibit Option Repricing – Our stock incentive plans prohibits option repricing without stockholder approval
Hedging and Pledging Policy (Page 15) – We have a policy applicable to our NEOs and members of our board that prohibits pledging, “short sales,” purchasing
or selling “put” or “call” options (other than stock options issued under our equity plans) and other hedging transactions with respect to our equity securities.
Stock Ownership Guidelines (Pages 17, 28) – We have stock ownership guidelines for each of our executive officers and certain other senior executives; each
of our NEOs has met his or her individual ownership level under the current program or has a period of time remaining under the guidelines to do so
Independent Compensation Advisor (Page 29) - The compensation committee benefits from its utilization of an independent compensation advisor retained
directly by the committee that provides no other services to the Company
Stockholder Engagement – We engage with stockholders and stockholder advisory firms to obtain feedback concerning our compensation program
What We Don’t Do
Tax “Gross-Ups” for Perquisites, Other Benefits or upon a Change in Control (Pages 45-46, 50-54) – Our executive officers do not receive tax “gross-ups”
for perquisites, other benefits or upon a change in control (1)
Single-trigger Change in Control Provisions (Pages 50-52) – None of our executive officers have single-trigger change in control agreements
(1) Our executive officers may receive tax gross-ups in connection with relocation benefits that are widely available to all of our employees.
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III. EXECUTIVE COMPENSATION GOVERNANCE AND PROCEDURES
Role of the Compensation Committee
Our board of directors has delegated certain
responsibilities to the compensation committee, or the
“committee,” through a formal charter. The committee1
oversees the compensation programs in which our chief
executive officer and his direct reports (including all other
NEOs) participate. The independent members of our
board of directors approve the compensation packages
and payouts for our CEO. The CEO is not present for
any decisions regarding his compensation packages and
payouts. A copy of the committee’s charter can be viewed
at http://investor.lamresearch.com.
Committee responsibilities include, but are not limited
to: reviewing and approving the Company’s executive
compensation philosophy, objectives and strategies;
reviewing and approving the appropriate peer group
companies for purposes of evaluating the Company’s
compensation competitiveness; causing the board of
directors to perform a periodic performance evaluation
of the CEO; recommending to the independent members
of the board of directors (as determined under both
NASDAQ’s listing standards and Section 162(m) of the
Internal Revenue Code of 1986, as amended) corporate
goals and objectives under the Company’s compensation
plans, compensation packages (e.g., annual base
salary level, annual cash incentive award, long-term
incentive award and any employment agreement,
severance arrangement, change-in-control arrangement,
equity grant, or special or supplemental benefits, and
any material amendment to any of the foregoing) as
applicable to the CEO and compensation payouts for the
CEO; annually reviewing with the CEO the performance
of the Company’s other executive officers in light of
the Company’s executive compensation goals and
objectives and approving the compensation packages
and compensation payouts for such individuals; and
reviewing, and approving where appropriate, equity-
based compensation plans. For additional information
on the committee’s responsibilities, see “Corporate
Governance: Board Committees” above.
In order to carry out these responsibilities, the committee
receives and reviews information, analysis and proposals
prepared by our management and by the committee’s
compensation consultant (see “Role of Committee
Advisors” below).
Role of Committee Advisors
The committee is authorized to engage its own
independent advisors to assist in carrying out its
responsibilities. The committee has engaged the services
of Compensia, Inc., a national compensation consulting
firm, or “Compensia,” as the committee’s compensation
consultant. Compensia provides the committee with
independent and objective guidance regarding the
amount and types of compensation for our chairman
and executive officers and how these amounts and
types of compensation compare to other companies’
compensation practices, as well as guidance on market
trends, evolving regulatory requirements, compensation of
our independent directors, peer group composition and
other matters as requested by the committee.
Representatives of Compensia regularly attend
committee meetings (including executive sessions without
management present), communicate with the committee
chair outside of meetings, and assist the committee
with the preparation of metrics and goals. Compensia
reports to the committee, not to management. At the
committee’s request, Compensia meets with members of
management to gather and discuss information that is
relevant to advising the committee. The committee may
replace Compensia or hire additional advisors at any
time. Compensia has not provided any other services to
the committee or to our management and has received
no compensation from us other than with respect to
the services described above. The committee assessed
the independence of Compensia pursuant to SEC rules
and NASDAQ listing standards, including the following
factors: (1) the absence of other services provided by it
to the Company; (2) the fees paid to it by the Company
as a percentage of its total revenue; (3) its policies
and procedures to prevent conflicts of interest; (4) the
absence of any business or personal relationships with
committee members; (5) the fact that it does not own any
Lam common stock; and (6) the absence of any business
or personal relationships with our executive officers.
The committee assessed this information and concluded
that the work of Compensia has not raised any conflict
of interest.
1 For purposes of this CD&A, a reference to a compensation action or decision by the committee with respect to our chairman and our president and chief
executive officer, means an action or decision by the independent members of our board of directors upon the recommendation of the committee and, in the
case of all other NEOs, an action or decision by the compensation committee.
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Role of Management
Our CEO, with support from our human resources and
finance organizations, develops recommendations for the
compensation of our other executive officers. Typically,
these recommendations cover base salaries, annual
incentive program target award opportunities, long-term
incentive program target award opportunities and the
criteria upon which these award opportunities may be
earned, as well as actual payout amounts under annual
and long-term incentive programs.
The committee considers the CEO’s recommendations
within the context of competitive compensation data, the
Company’s compensation philosophy and objectives,
current business conditions, the advice of Compensia,
and any other factors it considers relevant. At the request
of the committee, our chairman also provides input to
the committee.
Our CEO frequently attends committee meetings at the
request of the committee, but leaves the meeting for
any deliberations related to and decisions regarding
his own compensation, when the committee meets in
executive session, and at any other time requested by
the committee.
Peer Group Practices and Survey Data
In establishing the total compensation levels of our
executive officers as well as the mix and weighting of
individual compensation elements, the committee monitors
compensation data from a group of comparably sized
companies in the technology industry, or the “Peer
Group,” which may differ from peer groups used by
stockholder advisory firms. The committee selects the
companies constituting our Peer Group based on their
comparability to our lines of business and industry,
annual revenue, and market capitalization, and our belief
that we are likely to compete with them for executive
talent. Our Peer Group is focused on U.S. based,
public semiconductor, semiconductor equipment and
materials companies, and similarly sized high-technology
equipment and hardware companies. Figure 9 below
summarizes how the Peer Group companies compare to
the Company:
Figure 9. 2014 Peer Group Revenue and Market Capitalization
Metric
Revenue (last completed four quarters as of July 31, 2013)
Market Capitalization (30-day average as of July 31, 2013)
Lam Research
($M)
Target for
Peer
Group
Peer Group
Median
($M)
3,599
7,753
0.5 to 2 times Lam
0.33 to 3 times Lam
4,390
10,742
Based on these criteria, the Peer Group and targets
may be modified from time to time. Our Peer Group
was reviewed in August 2013 and retained without
change for calendar year 2014 compensation decisions.
Our Peer Group consisted of the companies listed in
Figure 10 below.
Figure 10. CY2014 Peer Group Companies
Advanced Micro Devices, Inc.
Agilent Technologies, Inc.
Analog Devices, Inc.
Applied Materials, Inc.
Avago Technologies
Broadcom Corporation
Corning Incorporated
Juniper Networks, Inc.
KLA-Tencor Corporation
LSI Corporation
Marvell Technology Group Ltd
Maxim Integrated Products, Inc.
Micron Technology, Inc.
NetApp, Inc.
NVIDIA Corporation
ON Semiconductor Corporation
SanDisk Corporation
Xilinx, Inc.
We derive revenue, market capitalization and NEO
compensation data for the Peer Group companies
from their public filings with the SEC, other publicly
available sources and Radford Technology Survey data.
The committee reviews compensation practices and
selected data on base salary, bonus targets, total cash
compensation, equity awards, and total compensation
drawn from the Peer Group companies primarily as a
reference to ensure compensation packages are consistent
with market norms.
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Base pay levels for each executive officers are generally
set with reference to the middle of the market range
(40th-60th percentile), and variable pay target award
opportunities for each executive officer are generally
designed to deliver at or above market median
(50th-75th percentile) compensation for target performance.
For those executive officers new to their roles, their variable
pay target award opportunities may generally be designed
to deliver below market compensation. However, the
committee does not “target” pay at any specific percentile.
Rather, individual pay positioning depends on a variety
of factors, such as prior job performance, job scope and
responsibilities, skill set, prior experience, time in position,
internal comparisons of pay levels for similar skill levels or
positions, our goals to attract and retain executive talent,
Company performance and general market conditions.
2013 Say on Pay Voting Results; Company Response
We evaluate our executive compensation program
annually. Among other things, we consider the outcome
of our most recent Say on Pay vote and any feedback we
receive from our stockholders. In 2013, our stockholders
voted to approve our 2013 advisory vote on executive
compensation, with 82.44% of the votes cast in favor
of the advisory proposal. Based on its evaluation, the
committee decided to make changes to our executive
compensation program described in section I above to
further strengthen our pay for performance alignment and
to bring certain aspects of our long-term incentive program
more in line with evolving market practices. Additionally,
we have continued efforts to further enhance our disclosure
regarding our compensation program and practices.
IV. PRIMARY COMPONENTS OF NAMED EXECUTIVE OFFICER COMPENSATION; CALENDAR YEAR 2013
COMPENSATION PAYOUTS; CALENDAR YEAR 2014 COMPENSATION TARGETS AND METRICS
This section describes the components of our executive
compensation program. It also describes, for each
component, the payouts to our NEOs for calendar year
2013 and the forward-looking actions taken with respect
to our NEOs in calendar year 2014.
Base Salary
We believe the purpose of base salary is to provide
competitive compensation to attract and retain top talent
and to provide compensation to employees, including our
NEOs, with a fixed and fair amount of compensation for
the jobs they perform. Accordingly, we seek to ensure that
our base salary levels are competitive in reference to Peer
Group practice and market survey data. Adjustments to
base salary are generally considered by the committee
each year in February.
For calendar years 2014 and 2013, base salaries for
then-employed NEOs other than our CEO in 2013 were
determined by the committee in February of each year
Figure 11. NEO Annual Base Salaries
Named Executive Officer
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
and became effective on March 31 of that year, based
on the factors described above. The base salary for Mr.
Anstice for calendar year 2014 was increased effective
March 31, 2014 to a more competitive level relative to our
Peer Group. The base salary of Dr. Gottscho for calendar
year 2014 was also increased effective March 31, 2014
based on his performance, internal pay comparisons, and
the importance of his position to our ongoing business
success. Other NEO changes were due to individual
performance. The base salaries of the NEOs for calendar
years 2014 and 2013 are as follows:
Annual
Base Salary
as of
March 31, 2014
($)
Annual
Base Salary
as of
March 31, 2013
($)
900,000
600,000
525,000
525,000
415,000
775,000
575,000
485,000(1)
460,000
406,000
(1) Mr. Bettinger commenced employment with Lam on March 11, 2013. Mr. Bettinger’s base salary for calendar year 2013 was determined by the committee in
January 2013.
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Annual Incentive Program
Design
Our annual incentive program is designed to provide
short-term, performance-based compensation that:
(i) is based on the achievement of pre-set annual
financial, strategic and operational objectives aligned
with outstanding performance throughout fluctuating
business cycles, and (ii) will allow us to attract and retain
top talent, while maintaining cost-effectiveness to the
Company. The committee establishes individual target
award opportunities for each NEO as a percentage of
base salary. Specific target award opportunities are
determined based on job scope and responsibilities, as
well as an assessment of Peer Group data. Awards have
a maximum payment amount defined as a multiple of the
target award opportunity. The maximum award for 2014
was set at 2.25 times target, consistent with prior years.
Annual incentive program components
Annual incentive program components, each of
which plays a role in determining actual payments
made, include:
• a Funding Factor,
• a Corporate Performance Factor, and
• various Organization/Individual Performance Factors.
The Funding Factor is set by the committee to create a
maximum payout amount from which annual incentive
program payouts may be made. The committee may
exercise negative (but not positive) discretion against the
Funding Factor result, and generally the entire funded
amount is not paid out. Achievement of a minimum
level of performance against the Funding Factor goals
is required to fund any program payments. In February
2013, for calendar year 2013, the committee set non-
GAAP operating income2 as a percentage of revenue as
the metric for the Funding Factor, with the following goals:
• a minimum achievement of 7.5% non-GAAP operating
income as a percentage of revenue was required to
fund any program payments, and
• performance greater than or equal to 20% would
result in the maximum payout potential of 225%
of target,
• with actual funding levels interpolated between
those points.
The committee selected non-GAAP operating income
because it believes that operating income is the
performance metric that best reflects core operating
results. Non-GAAP operating income is considered useful
to investors for analyzing business trends and comparing
performance to prior periods. By excluding certain costs
and expenses that are not indicative of core results,
non-GAAP results are more useful for analyzing business
trends over multiple periods.
As a guide for using negative discretion against the
Funding Factor results and for making payout decisions,
the committee primarily tracks the results of the following
two components that are weighted equally in making
payout decisions, and against which discretion may be
applied in a positive or negative direction, provided the
Funding Factor result is not exceeded:
• the Corporate Performance Factor is based on
corporate-wide metrics and stretch goals that apply to
all NEOs, and
• the Organization/Individual Performance Factors,
which are based on organization-specific metrics and
stretch goals and individual performance, apply to
each individual NEO.
The specific metrics and goals, and their relative
weightings, for the Corporate Performance
Factor are determined by the committee based
upon the recommendation of our CEO, and the
Organization/Individual Performance Factors are
determined by our CEO, or in the case of the CEO, by
the committee.
The metrics and goals for the Corporate and
Organization/Individual Performance Factors are set
annually or semi-annually: annually for Corporate and
Organization/Individual Performance Factor for 2014,
annually for Organization/Individual Performance Factor
for 2013 and semi-annually for Corporate Performance
Factor for 2013. Goals are set depending on the
business environment, to ensure that they are stretch
goals regardless of changes in the business environment.
Accordingly, as business conditions improve, goals are set
to require better performance, and as business conditions
deteriorate, goals are set to require stretch performance
under more difficult conditions. Although the Corporate
2 Non-GAAP results are designed to provide information about performance without the impact of certain non-recurring and other non-operating line items.
Non-GAAP operating income is derived from GAAP results, with charges and credits in the following line items excluded from GAAP results for applicable
quarters during fiscal years 2014 and 2013, restructuring charges, integration-related costs, costs associated with rationalization of certain product
configurations, amortization related to intangible assets acquired in the Novellus transaction, acquisition-related inventory fair value impact, expenses
associated with the synthetic lease impairment, impairment of a long-lived asset, and costs associated with the disposition of business.
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Performance Factor metrics and goals were set on a semi-
annual basis in 2013, they remained the same throughout
the entire calendar 2013 performance period. Beginning
in calendar year 2014, metrics and goals are set on an
annual basis.
We believe that, over time, outstanding business results
create stockholder value. Consistent with this belief,
multiple performance-based metrics (non-GAAP operating
income, product market share, and strategic operational
and organizational metrics) are established for our NEOs
as part of the Corporate and Organization/Individual
Performance Factors.
We use organization-specific metrics because we believe
these motivate our NEOs and the organizations they lead.
We believe the metrics and goals set under this program,
together with the exercise of discretion by the committee
as described above, have been effective to achieve pay-
for-performance results.
Figure 12. Annual Incentive Program Payouts
Calendar Year
2013
2012
2011
Average NEO’s Annual
Incentive Payout as %
of Target Award
Opportunity
Business Environment
105
93
99
Healthy demand for semiconductor equipment with stable economic conditions and
favorable supply demand conditions; delivered on annualized cost savings targets defined in
integration plans.
Demand for semiconductor equipment declined slightly year-over-year as global economic
conditions remained weak; positive execution against integration objectives
Healthy semiconductor demand under weakening economic conditions; business conditions
deteriorated in the second half of calendar year 2011
Calendar year 2013 annual incentive program parameters and payout decisions
In February 2013, the committee set the calendar year
2013 target award opportunity, the metrics and goals for
the Funding Factor, the metrics and semi-annual goals
(revisited in August 2013) for the Corporate Performance,
and the metrics and goals for the Organization/Individual
Performance Factors for each then-employed NEO were
established. In February 2014, the committee considered
the actual results under these factors and made payout
decisions for the calendar year 2013 program, all as
described below.
2013 Annual Incentive Program Target Award
Opportunities. The annual incentive program target
award opportunities for calendar year 2013 for each
NEO were as set forth in Figure 13 below in accordance
with the principles set forth above under “Peer Group
Practices and Survey Data.”
2013 Annual Incentive Program Corporate Performance
Factor. In February 2013, the committee set non-GAAP
operating income as a percentage of revenue as the
metric for the first half of calendar year 2013 Corporate
Performance Factor, and set:
• a goal of 18% of revenue for the first half of the
year, which was designed to be a stretch goal, and
which would result in a Corporate Performance
Factor of 1.00,
• a minimum Corporate Performance Factor of
0.20, and
• a maximum Corporate Performance Factor of 1.50.
In August 2013, the committee revisited and retained the
same metric and goal for the Corporate Performance
Factor for the second half of the year. These goals were
designed to be stretch goals. Actual non-GAAP operating
income percentage was 11.8% of revenue for the first half
of calendar year 2013 (resulting in a factor of 0.69 for
the first half) and 17.5% of revenue for the second half
(resulting in a factor of 0.975 for the second half). This
performance resulted in a total Corporate Performance
Factor for calendar year 2013 of 0.833.
2013 Annual Incentive Program Organization/Individual
Performance Factor. For 2013, the organization-
specific performance metrics and goals for each NEO’s
Organization/Individual Performance Factor were set
on an annual basis, and were designed to be stretch
goals. The Organization/Individual Performance Factor
for Mr. Anstice for calendar year 2013 was based on
the average of the Organization/Individual Performance
Factors of all of the organizations reporting to him. For
all other NEOs, their respective Organization/Individual
Performance Factors were based on market share and/or
strategic, operational and organizational performance
goals specific to the organizations they managed, as
described in more detail below.
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The committee considered the accomplishment of actual
organizational performance against the established goals
described below during 2013.
• Mr. Archer’s Organization/Individual Performance
Factor for calendar year 2013 was based on
the accomplishment of market share, strategic,
operational and organizational development goals for
the global sales organization, the customer support
business group and global operations.
• Mr. Bettinger’s Organization/Individual Performance
Factor for calendar year 2013 was based on the
accomplishment of strategic, operational and
organizational development goals for finance, global
information systems and investor relations.
• Dr. Gottscho’s Organization/Individual Performance
Factor for calendar year 2013 was based on
the accomplishment of market share, strategic,
operational and organizational development goals
for the product groups for which he had responsibility,
deposition, etch, and clean.
• Ms. O’Dowd’s Organization/Individual Performance
Factor for calendar year 2013 was based on the
accomplishment of strategic, operational and
organizational development goals for legal.
Figure 13. CY2013 Annual Incentive Program Payouts
The committee’s consideration of the above
accomplishments resulted in the following
Organization/Individual Performance Factors for
our NEOs: Mr. Anstice, 0.997; Mr. Archer, 1.050;
Mr. Bettinger, 1.000; Dr. Gottscho, 1.000 and
Ms. O’Dowd, 0.980.
2013 Annual Incentive Program Payout Decisions. In
addition to considering the Corporate Performance Factor
and Organization/Individual Performance Factors, the
committee considered the strong performance of the
Company and exercised discretion to increase payouts
for those NEOs who were employed with the Company
at the commencement of calendar year 2013 and still
employed as of the payment date as follows: $132,000
to Mr. Anstice, $54,000 to Mr. Archer, $133,000 to
Dr. Gottscho and $28,000 to Ms. O’Dowd. In February
2014, in light of the Funding Factor results and based on
the above results and decisions, the committee made the
following payouts for calendar year 2013 for each NEO,
which, including the above discretion, were substantially
less than the maximum payout available under the
Funding Factor:
Named Executive Officer(1)
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Target Award
Opportunity
(% of Base Salary)
150
110
85
85
80
Target Award
Opportunity
($)(2)
1,118,078
625,096
325,043
385,908
320,546
Maximum Payout under
Funding Factor
(178% of Target
Award Opportunity)
($)(3)
Actual
Payouts
($)
1,990,178
1,155,041
1,112,671
578,577
686,916
570,573
642,528
297,902
386,685
318,575
(1) Mr. Bettinger’s employment with Lam commenced March 11, 2013. His target award opportunity reflects a pro-rated eligible earnings amount of $382,404.
(2) Calculated by multiplying each NEO’s eligible earnings for the calendar year 2013 annual incentive program performance period (Mr. Anstice: $745,385;
Mr. Archer: $568,269; Mr. Bettinger: $382,404; Dr. Gottscho: $454,009; and Ms. O’Dowd: $400,683) by their respective target award opportunity percentage.
(3) The Funding Factor resulted in a potential payout of up to 178% of target award opportunity for the calendar year (based on the actual non-GAAP operating
income percentage results detailed under “Annual Incentive Program – Calendar year 2013 annual incentive program parameters and payout decisions – 2013
Annual Incentive Program Corporate Performance Factor” above and the specific goals set forth in the second paragraph under “Annual Incentive Program –
Annual incentive program components” above).
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Calendar year 2014 annual incentive program parameters
In February 2014, the committee set the target award
opportunity for each NEO as a percentage of base
salary, and consistent with prior years set a cap
on payments equal to 2.25 times the target award
opportunity. The target award opportunity for each NEO
is shown in Figure 14 below.
Figure 14. CY2014 Annual Incentive Program Target Award Opportunities
Named Executive Officer
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Target Award
Opportunity
(% of Base Salary)
150
110
90
90
80
The committee also approved the annual metric for the
Funding Factor and for the Corporate Performance Factor
as non-GAAP operating income as a percentage of
revenue, and set the annual goals for the Funding Factor
and also the Corporate Performance Factor. Consistent
with program design, the Corporate Performance Factor
goal is more difficult to achieve than the Funding Factor
goal. Organization/Individual Performance Factor
metrics and goals were also established for each NEO.
These include strategic and operational performance
goals specific to individual business organizations
and individuals. As a result, each NEO has multiple
performance metrics and goals under this program. All
goals were designed to be stretch goals.
Long-Term Incentive Program
Design
Our long-term incentive program, or “LTIP,” is designed
to attract and retain top talent, provide competitive
levels of compensation, align pay with achievement of
business objectives and stock performance over a multi-
year period, reward our NEOs for outstanding Company
performance and create stockholder value over the long
term. Our LTIP was redesigned in February 2014 to further
those objectives by: (i) replacing the cash component with
a program entirely composed of equity, (ii) introducing
a new LTIP vehicle, a Market-Based PRSU, designed to
reward eligible participants based on our stock price
performance relative to the Philadelphia Semiconductor
Sector Index (SOX); (iii) differentiating the metric in our
LTIP from the absolute operational performance metrics
used for the Annual Incentive Program, and (iv) extending
the performance period for the program from two to three
years.
As a result, the LTIP now operates on overlapping three-
year cycles, whereas prior to calendar year 2014, it
operated on overlapping two-year cycles. This change
would have left participants with a gap in long term
incentive vesting opportunity in 2016. To ensure that
participants receive a long-term award that vests in
calendar year 2016, the committee also awarded a
one-time gap year award with a two-year performance
period, or the “Gap Year Award”. The target amount
awarded under the Gap Year Award is equal to 50% of
the target award opportunity under the regular three-year
LTIP award. While the impact on the employee from the
extended performance period and the Gap Year Award,
assuming performance and target opportunities are the
same year after year, was to normalize the received
compensation in any year, the accounting impact on the
Company from such normalization (visible in the “Summary
Compensation Table” and the “Grants of Plan-Based
Awards for Fiscal Year 2014” table below), was a higher
grant-based compensation expense in fiscal year 2014.
This is in addition to the continuing impact upon the
total compensation figures in the Company’s “Summary
Compensation Table” in fiscal years 2014 and 2015 from
the long-term cash awards under the previously designed
programs for our performance during the relevant periods.
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As shown in the chart below, because each performance
period during fiscal year 2014 covers performance in two
or three calendar years, three performance cycles affect
compensation during each fiscal year (including the Gap
Year Award).
Figure 15. FY2014 LTIP Programs
Fiscal Year 2014
2012/ 2013 LTIP
$V
2013/ 2014 LTIP
$V
1
2014/ 2016 LTIP
2, 3
$V
$V3
$V3
1/ 1/ 2012
1/ 1/ 2013
1/ 1/ 2014
1/ 1/ 2015
1/ 1/ 2016
1/ 1/ 2017
“$V” Reflects timing of cash payment and/or vesting of equity awards.
1 Gap Year Awards with cliff vesting of equity awards as in CY2014/2016 LTIP but over two-year performance periods are excluded.
2 Market-Based PRSUs cliff vest at the end of the performance period.
3 RSUs and Stock Options vest on an annual basis over three years.
Under the current long-term incentive program, at the
beginning of each multi-year performance period, target
award opportunities (expressed as a U.S. dollar value)
and performance metrics are established for the program.
Of the total target award opportunity, 50% is awarded
in Market-Based Performance Restricted Stock Units,
or “Market-Based PRSUs,” and the remaining 50% is
awarded in a combination of service-based RSUs and
stock options with at least 10% of the award in each of
these two vehicles. The specific percentage of service-
based RSUs and stock options are reviewed annually to
determine whether service-based RSUs or stock options
are the more appropriate form for the major part of the
award based on criteria such as the current business
environment and the potential value to motivate and
retain the executives. We consider performance-based
RSUs and stock options as performance-based, but do
not classify service-based RSUs as performance-based.
This means that if options constitute 10% of the total target
award opportunity, the long-term incentive program will
be 60% performance-based. If options constitute 40% of
the total target award opportunity, the long-term incentive
program will be 90% performance-based.
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Equity Vehicles
The equity vehicles used in our calendar year 2014 long-term incentive program (including the Gap Year Award with
any differences in terms set forth as footnotes) are the following:
Figure 16. CY2014/2016 LTIP Program Equity Vehicles
Equity Vehicles
Market-Based PRSUs
% of Target Award
Opportunity
50
Stock Options
RSUs
10
40
Terms
• Awards cliff vest three years from the February 18, 2014 grant date, or “Grant Date,”
subject to satisfaction of minimal performance requirement and continued employment.
Cliff, rather than annual, vesting provides for both retention and for aligning NEOs with
longer-term stockholder interests.(1)
• Performance period for Market-Based PRSUs is three years from the Grant Date.(2)
• The number of shares represented by the Market-Based PRSUs that can be earned
over the performance periods is based on our stock price performance compared to
the market price performance of the Philadelphia Semiconductor Sector Index (SOX),
subject to the below-referenced ceiling. The stock price performance or market price
performance is measured using the closing price for the 50-trading days prior to the
dates the performance period begins and ends. The target number of shares represented
by the Market-Based PRSUs is increased by 2% of target for each 1% that Lam’s stock
price performance exceeds the market price performance of the SOX index; similarly,
the target number of shares represented by the Market-Based PRSUs is decreased by
2% of target for each 1% that Lam’s stock price performance trails the market price
performance of the SOX index. The result of the vesting formula is rounded down to the
nearest whole number. A table reflecting the potential payouts depending on various
comparative results is reflected in Figure 17 below.
• There is a ceiling but no floor to the number of shares represented by the Market-Based
PRSUs that may be earned: cannot exceed 150% of target (requiring a percentage
change in the Company’s stock price performance compared to that of the market price
performance of the SOX index equal to or greater than positive 25 percentage points) and
can be as little as 0% of target (requiring a percentage change in the Company’s stock
price performance compared to that of the market price performance of the SOX index
equal to or lesser than negative 50 points).
• The number of Market-Based PRSUs granted was determined by dividing 50% of the
target opportunity by the closing price of our common stock on the Grant Date, $51.76,
rounded down to the nearest share.
• Awards that vest at the end of the performance period are distributed in shares of our
common stock.
• Awards vest one-third on the first, second and third anniversaries of the February 18,
2014 grant date, or “Grant Date,” subject to continued employment.(1)
• The number of stock options granted is determined by dividing 10% of the target
opportunity by the closing price of our common stock on the Grant Date, $51.76,
rounded down to the nearest share and multiplying the result by three. The ratio of three
options for every RSU is based on a Black Scholes fair value accounting analysis.
• Awards are exercisable upon vesting.
• Expiration is on the seventh anniversary of the grant date.
• Awards vest one-third on the first, second and third anniversaries of the February 18,
2014 grant date, or “Grant Date,” subject to continued employment.(1)
• The number of RSUs granted is determined by dividing 40% of the target opportunity by
the closing price of our common stock on the Grant Date, $51.76, rounded down to the
nearest share.
• Awards are distributed in shares of our common stock upon vesting.
(1) Gap Year Awards cliff vest two years from the Grant Date
(2) The performance period for Gap Year Awards of Market-based PRSUs is two years from the Grant Date
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Figure 17. Market-Based PRSU Vesting Summary
% Change in
Lam’s Stock Price Performance
Compared to % Change in
SOX Index Market Price Performance
+ 25% or more
+ 10%
0% (equal to index)
- 10%
- 25%
- 50% or less
Market-Based PRSUs
That Can Be Earned
(% of Target)
150%
120%
100%
80%
50%
0%
Target Award Opportunity
Under the long-term incentive program, the committee sets a target award opportunity for each participant based
on the NEO’s position and responsibilities and an assessment of competitive compensation data. The target award
opportunities for each participant are expressed in a US dollar value. The target amounts for each NEO under the
program cycles affecting fiscal year 2014 are as follows:
Figure 18. LTIP Target Award Opportunities
Named Executive Officer(1)
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Long-Term
Incentive Program
Performance Period
Target Award
Opportunity
($)
CY2014/2016(2)
CY2013/2014
CY2012/2013
CY2014/2016(2)
CY2013/2014
CY2012/2013
CY2014/2016(2)
CY2013/2014
CY2014/2016(2)
CY2013/2014
CY2012/2013
CY2014/2016(2)
CY2013/2014
CY2012/2013
6,500,000
5,000,000
3,500,000
3,000,000
3,000,000
2,500,000
2,500,000
2,000,000
2,500,000
2,075,000
1,600,000
1,300,000
1,258,000
1,250,000
(1) Mr. Bettinger did not participate in the CY2012/2013 long-term incentive program because his employment with Lam commenced March 11, 2013.
(2) The CY2014/2015 Gap Year Award target award opportunities for each participant of 50% of his/her calendar year 2014/2016 LTiP target award
opportunity are not included.
CY2014 Awards
Calendar year 2014 decisions for the calendar
year 2014/2016 long-term incentive program. On
February 18, 2014, the committee made a grant under
the calendar year 2014/2016 long-term incentive
program, as well as a Gap Year Award, of Market-Based
PRSUs, stock options and RSUs on the terms set forth in
Figure 16 above with a combined value equal to the
NEO’s total target award amount, as shown in Figures 19
and 20 below.
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Figure 19. CY2014/2016 LTIP Awards
Named Executive Officer
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Target Award
Opportunity
($)
Market-Based
Performance Restricted
Stock Units Award(1)
(#)
Stock Options
Award
(#)
Service-based
Restricted Stock
Units Award
(#)
6,500,000
3,000,000
2,500,000
2,500,000
1,300,000
62,789
28,979
24,149
24,149
12,557
37,671
17,385
14,487
14,487
7,533
50,231
23,183
19,319
19,319
10,046
(1) The number of Market-Based PRSUs Awarded is reflected at target. The final number of shares that may be earned will be 0 to 150% of target.
Figure 20. CY2014/2015 Gap Year Awards
Named Executive Officer
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Target Award
Opportunity
($)
Market-Based
Performance Restricted
Stock Units Award(1)
(#)
Stock Options
Award
(#)
Service-based
Restricted Stock
Units Award
(#)
3,250,000
1,500,000
1,250,000
1,250,000
650,000
31,394
14,489
12,074
12,074
6,278
18,834
8,691
7,242
7,242
3,765
25,115
11,591
9,659
9,659
5,023
(1) The number of Market-Based PRSUs Awarded is reflected at target. The final number of shares that may be earned will be 0 to 150% of target.
CY2012/2013 LTIP Payouts and CY2013/2014 LTIP Grants
The calendar year 2012/2013 LTIP payouts were awarded, and the calendar year 2013/2014 grants were made,
pursuant to the previous design of the long-term incentive program.
Historic LTIP Design
The long-term incentive programs prior to calendar year
2014 were comprised of two components:
• Cash Incentive Component
• Equity Incentive Component
50% of such prior long-term incentive programs were
expressed in performance-based cash awards and the
other 50% were awarded in equity. Such programs
were designed to be 75% performance-based and 25%
service-based (i.e., 50% of the equity component was
performance-based and 50% was service-based). The
cash incentive component of the programs was entirely
performance-based, and the equity incentive component
had typically been half performance-based and half
service-based. A modified long-term program design was
utilized in 2012 as a result of the acquisition of Novellus.
The transaction had been announced, but had not been
concluded, when compensation decisions were made in
February 2012 and, as a result, management had not
set long-term goals for the combined organization by
that time. As a result, and also to aid retention during
the integration period, for the calendar year 2012/2013
long-term incentive program, the pay components were
50% performance-based and 50% service-based. Since
this was a deviation from the historical program design
in effect for all other periods prior to calendar year
2014, we refer to our historic 75% performance-based
mix in describing the program design. As referenced
above, we consider goal-based RSUs and stock options
as performance-based, but do not classify service-based
RSUs as performance-based.
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Cash Incentive Component
The cash component of the prior programs was 100%
performance-based and was designed to:
• motivate outstanding performance at the corporate
levels and to create long-term stockholder value,
• attract and retain top talent, and
• optimize value to employees while maintaining cost-
effectiveness to the Company.
The committee set performance metrics under each
two-year performance period on an annual basis. Goals
against the metrics were set every six months to allow the
committee to react to changes in the external business
environment. When business conditions improved, goals
were set to require stronger performance, and when
business conditions deteriorated, goals were set to ensure
stretch performance under more difficult conditions. We
believed this flexibility motivated exceptional performance
and delivered stockholder value throughout the applicable
fluctuating business cycles we experienced.
Results determined based on performance against
the pre-set goals are adjusted to reflect stock price
appreciation occurring during the performance period,
Figure 21. CY2012/2013 Long-Term Cash Payouts
aligning results under the program with results realized
by our stockholders. The adjustment is made quarterly
referencing a ratio of (x) the market price of our common
stock over a 50-trading-day period to (y) the market
price of our common stock over a 200-trading-day
period, if the ratio was greater than one. Thus the final
payout amount is determined by achievement against
the performance goals adjusted by this stock price
appreciation metric, and subject to the cap the committee
set and any negative discretion the committee chose
to exercise.
For each two-year performance period, the awards were
subject to cliff vesting and payouts have been made
following the end of the second year to those participants
who remain employed on the award determination date.
The cliff vesting, rather than annual vesting, has assisted
with both retention and aligning NEOs with longer-term
stockholder interests.
We believed this program has been effective in achieving
pay-for-performance results, as shown in Figure 21 below.
Long-Term Cash Cycle
CY2012/2013
Average Long-Term
Cash Payout as
% of Target
Award Opportunity
109
Business Environment
2013: Healthy demand for semiconductor equipment with stable economic conditions and
favorable supply demand discipline; delivered on annualized cost savings targets defined in
integration plans.
CY2011/2012
CY2010/2011
2012: Demand for semiconductor equipment declined slightly year-over-year as global
economic conditions remained weak; positive execution against integration objectives
84
2012: Demand for semiconductor equipment declined slightly year-over-year as global
economic conditions remained weak; positive execution against integration objectives
2011: Healthy semiconductor demand under weakening economic conditions; business
conditions deteriorated in the second half of calendar year 2011
165
2011: Healthy semiconductor demand under weakening economic conditions; business
conditions deteriorated in the second half of calendar year 2011
2010: Strong operating performance supported by semiconductor industry demand growth
Payout decisions under the calendar year 2012/2013
long-term cash program. In February 2014, the committee
determined payouts for the calendar year 2012/2013
performance cycle. The starting price for determination
of the stock price appreciation metric for calendar year
2012 was $43.45, which was based on a 200-day
moving average as of December 23, 2011 and for
calendar year 2013 was $36.93, which was based on a
200-day moving average as of December 21, 2012. The
performance metric for both years of the program was
non-GAAP operating income, with it being reflected as a
dollar value in calendar year 2012 and as a percentage
of revenue for calendar year 2013, and goals were
set semi-annually and measured on a quarterly basis.
During the performance period, these goals ranged from
$115.2 million per quarter to $140 million per quarter
during calendar year 2012 and were 15.0% per quarter
during calendar year 2013, reflecting stretch goals during
calendar year 2012 and retentive goals during calendar
year 2013 under then-prevailing business conditions.
Actual quarterly performance of non-GAAP operating
income during all eight quarters ranged from 29% to
137% of goal. Without regard to stock price appreciation,
the resulting payout would have been 85% of target for
the entire period. However, the stock price appreciation
metric served to increase the payouts to 109% of target.
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Payouts for the eligible NEOs were awarded at 109% of target, as shown in Figure 22 below.
Figure 22. CY2012/2013 Long-Term Cash Payouts
Named Executive Officer(1)
Martin B. Anstice
Timothy M. Archer
Richard A. Gottscho
Sarah A. O’Dowd
Cash Target Award
Opportunity
($)
1,750,000
1,250,000
800,000
625,000
Cash Payout
($)
1,901,749
1,358,392
869,371
679,196
(1) Mr. Bettinger did not participate because his employment with Lam commenced March 11, 2013.
Calendar year 2013 and 2014 decisions under
the calendar year 2013/2014 long-term cash
program. Target award amounts were set in February
2013 for the calendar year 2013/2014 program, and
are shown in Figure 23 below. At that time, the committee
also set non-GAAP operating income as the performance
metric for the 2013 calendar year portion of the two year
program and set the starting price for measuring stock
price appreciation for the 2013 calendar year at $36.93,
the 200-day moving average as of December 21, 2012.
In February 2014, the committee retained non-GAAP
operating income as a percentage of revenue as the
performance metric and retained $36.93, the 200-day
moving average as of December 21, 2012, as the
starting price for measuring stock price appreciation
for the calendar year 2014 portion of the program.
Specific goals against the non-GAAP operating income
metric were set in February 2013 for the first half of
calendar year 2013, in August 2013 for the second half
of calendar year 2013, and in February 2014 on an
annual basis for calendar year 2014, and in each case
were designed to be retentive goals. Payouts for the
calendar year 2013/2014 program will be determined
and made in February 2015 to eligible NEOs, subject
to continued employment.
Figure 23. CY2013/2014 Long-Term Cash Target Award Opportunities
Named Executive Officer
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Equity Incentive Component
Cash Target Award
Opportunity
($)
2,500,000
1,500,000
1,000,000
1,037,500
629,000
Similar to the current program, the long-term equity
incentive component was historically designed to attract
and retain top talent, provide competitive levels of
compensation and to reward our NEOs for outstanding
Company performance and long-term stock price
appreciation. Historically, half of the equity award (25%
of the total long-term incentive award opportunity) had
been performance-based (including stock options),
delivered in either performance-vested RSUs or stock
options. The remaining half of the equity award (25% of
the total long-term incentive award opportunity) had been
delivered through service-vested RSUs. The performance-
based equity component of the long-term program was
reviewed annually to determine whether performance-
based RSUs or stock options were the most appropriate
form for the award based on criteria such as the current
business environment and the perceived potential value
to motivate and retain the NEOs. Awards cliff vest two
years after the grant date, depending on continued
employment and, in the case of performance-based RSUs,
on performance against specified metrics and goals.
The cliff vesting, rather than annual vesting, provides for
both retention and for aligning NEOs with longer-term
stockholder interests.
Vesting and performance results under the calendar
year 2012/2013 long-term equity program. Under the
calendar year 2012/2013 long-term equity program,
the committee made a grant to each NEO other than
Messrs. Archer and Bettinger, who were not then
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employees, of service-based RSUs with a grant date of
February 7, 2012 and a combined value equal to 50%
of the NEO’s total target award amount, as shown in
Figure 24. The committee made a comparable grant, as
shown in Figure 24, for Mr. Archer on August 3, 2012.
To determine the number of service-based RSUs, 50%
of the NEO’s long-term equity target dollar amount was
divided by $43.38, the closing price of our common stock
on February 7, 2012 for all NEOs other than Mr. Archer,
and $34.57, the closing price of our common stock on
August 3, 2012 for Mr. Archer. The award determination
date was February 7, 2014, subject to continued
employment through such date. On that date, the service-
based awards vested due to the passage of time.
Figure 24. CY2012/2013 Long-Term Equity Awards
Named Executive Officer(1)
Martin B. Anstice
Timothy M. Archer
Richard A. Gottscho
Sarah A. O’Dowd
Equity Target Award
Opportunity
($)
Service-based
Restricted Stock
Units Award
(#)
1,750,000
1,250,000
800,000
625,000
40,341
36,158
18,441
14,407
(1) Mr. Bettinger did not participate because his employment with Lam commenced March 11, 2013.
Awards under the calendar year 2013/2014 long-term
equity program. On February 8, 2013, the committee
made a grant under the calendar year 2013/2014
long-term equity program to each NEO expected to
continue as such (other than Mr. Bettinger, who was not
then an employee of the Company), of stock options
and service–based RSUs with a combined value equal
to 50% of the NEO’s total target award amount, as
shown in Figure 25. The committee made a comparable
grant for Mr. Bettinger effective as of March 11, 2013,
the date he joined the Company. The number of shares
of our common stock into which the stock options are
exercisable, determined based on a Black Scholes value
Figure 25. CY2013/2014 Long-Term Equity Awards
analysis, is three times the number of the RSUs granted.
The options have a term of seven years and cliff vest
on February 8, 2015, subject to continued employment.
To determine the number of RSUs, 50% of the NEO’s
long-term equity target dollar amount was divided
by $42.61, the closing price of our common stock on
February 8, 2013 for all NEOs other than Mr. Bettinger,
and $42.41, the closing price of our common stock on
March 11, 2013, for Mr. Bettinger. The number of shares
underlying the stock options issued for the other 50% of
the target dollar amount was determined as described
above. The RSUs also cliff vest on February 8, 2015,
subject to continued employment.
Named Executive Officer
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Employment/Change in Control Arrangements
Equity Target Award
Opportunity
($)
Service-based
Restricted Stock
Units Award
(#)
Stock Options
Award
(#)
2,500,000
1,500,000
1,000,000
1,037,500
629,000
29,335
17,601
11,789
12,174
7,380
88,005
52,803
35,367
36,522
22,140
The Company has amended its employment agreements
with Messrs. Anstice, Archer and Bettinger and
Dr. Gottscho, and change in control agreement with
Ms. O’Dowd, during the fiscal year to account for the
issuance of a new type of equity award, Market-Based
PRSUs and the corresponding severance terms associated
therewith. The Company enters into employment/change
in control agreements to help attract and retain our
NEOs and believes that these agreements help facilitate
a smooth transaction and transition in connection with
a change-in-control event. The employment agreements
generally provide for designated payments in the event
of an involuntary termination of employment, death or
disability, as such terms are defined in the applicable
agreements. The employment agreements, and also the
change in control agreements, generally provide for
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designated payments in the case of a change in control
when coupled with an involuntary termination (i.e., a
double trigger is required before payment is made due
to a change in control), as such terms are defined in the
applicable agreements.
Other Benefits Not Available to All Employees
Elective Deferred Compensation Plan. The Company
maintains an elective deferred compensation plan that
allows eligible employees (including all of the NEOs)
to voluntarily defer receipt of all or a portion of base
salary and certain incentive compensation payments until
a date or dates elected by the participating employee.
This allows the employee to defer taxes on designated
compensation amounts. In addition, the Company
provides a limited Company contribution to the plan for
all eligible employees.
Supplemental Health & Welfare. We provide certain
health and welfare benefits not generally available to
other employees, including the payment of premiums
for supplemental long-term disability insurance and
Company-provided coverage in the amount of $1 million
for both life and accidental death and dismemberment
Figure 26. Post-Retirement Benefit Obligations
For additional information about these arrangements
and detail about post-termination payments under
these arrangements, see the “Potential Payments upon
Termination or Change in Control” section below.
insurance for all NEOs. Until January 1, 2013, the
Company also provided an executive medical, dental,
and vision reimbursement program that reimbursed NEOs’
cost of medical, dental, and vision expenses in excess of
the regular employee plans through the end of 2012.
We also provide post-retirement medical and dental
insurance coverage for eligible former executive officers
under our Retiree Health Plans, subject to certain
eligibility requirements. The program was closed to new
executive officers as of January 1, 2013. We have an
independent actuarial valuation of this post-retirement
benefit conducted annually in accordance with generally
accepted accounting principles. The most recent valuation
was conducted in June 2014 and reflected the following
retirement benefit obligation for the NEOs:
Named Executive Officer
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger(1)
Richard A. Gottscho
Sarah A. O’Dowd
As of
June 2014
$335,000
$386,000
$
0
$544,000
$439,000
(1) Mr. Bettinger was not eligible to participate because he was not an employee of the Company prior to the termination of the program.
V. TAX AND ACCOUNTING CONSIDERATIONS
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986,
as amended, or the “Code,” imposes limitations on
the deductibility for federal income tax purposes of
compensation in excess of $1 million paid to our chief
executive officer, and any of our three other most
highly compensated executive officers (other than our
chief financial officer) in a single tax year. Generally,
compensation in excess of $1 million may only be
deducted if it is “performance-based compensation”
within the meaning of the Code.
When we design our executive compensation programs,
we take into account whether a particular form of
compensation will be considered “performance-based”
compensation for purposes of section 162(m).
To facilitate the deductibility of compensation payments
under section 162(m), in fiscal year 2004, we initially
adopted the Executive Incentive Plan, or “EIP,” and
obtained stockholder approval for the EIP at that time.
We most recently amended this plan and obtained
stockholder approval for the amendment in calendar
year 2010. Both the Annual Incentive Program and the
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Long-term Incentive Program are administered under the
EIP. The annual program awards and the long-term cash
awards to our NEOs generally qualify for deductibility
under section 162(m) to the extent practicable.
Consistent with the EIP and the regulations under section
162(m), compensation income realized upon the exercise
of stock options granted under our long-term incentive
program generally will be deductible because the
awards are granted by a committee whose members
are outside directors and the other conditions of the EIP
are satisfied. However, compensation associated with
RSUs granted under the long-term incentive program
may not be deductible unless vesting is based on specific
performance goals and the other conditions of the EIP are
satisfied. Therefore, compensation income realized upon
the vesting of service-based RSUs or upon the vesting of
equity awards not meeting the conditions required by the
EIP is not deductible to the Company to the extent that the
threshold is exceeded.
We did not provide any of our executive officers, any
director, or any other service provider with a “gross-up”
or other reimbursement payment for any tax liability that
the individual might owe as a result of the application
of sections 280G or 4999 during fiscal year 2014, and
we have not agreed and are not otherwise obligated to
provide any individual with such a “gross-up” or other
reimbursement as a result of the application of sections
280G and 4999.
Internal Revenue Code Section 409A
Section 409A of the Code imposes significant additional
taxes on an executive officer, director, or service provider
that receives non-compliant “deferred compensation” that
is within the scope of section 409A. Among other things,
section 409A potentially applies to the cash awards
under the long-term incentive program, the Elective
Deferred Compensation Plan, certain equity awards, and
severance arrangements.
The committee monitors the application of section 162(m)
and the associated Treasury regulations and considers the
advisability of qualifying our executive compensation for
deductibility of such compensation. The committee’s policy
is to qualify our executive compensation for deductibility
under applicable tax laws to the extent practicable and
where the committee believes it is in the best interests of
the Company and its stockholders.
To assist our employees in avoiding additional taxes
under section 409A, we have structured the long-term
incentive program, the Elective Deferred Compensation
Plan, and our equity awards in a manner intended to
qualify them for exclusion from, or compliance with,
section 409A.
Accounting for Stock-Based Compensation
Taxation of “Parachute” Payments
Sections 280G and 4999 of the Code provide that
“disqualified individuals” within the meaning of the Code
(which generally includes certain officers, directors and
employees of the Company) may be subject to additional
taxes if they receive payments or benefits in connection
with a change in control of the corporation that exceed
certain prescribed limits. The corporation or its successor
may also forfeit a deduction on the amounts subject to this
additional tax.
We follow Financial Accounting Standards Board
Accounting Standards Codification Topic 718, or “ASC
718,” for accounting for our stock options and other
stock-based awards. ASC 718 requires companies
to calculate the grant date “fair value” of their stock
option grants and other equity awards using a variety of
assumptions. This calculation is performed for accounting
purposes. ASC 718 also requires companies to recognize
the compensation cost of stock option grants and other
stock-based awards in their income statements over the
period that an employee is required to render service in
exchange for the option or other equity award.
Compensation Committee Report
The compensation committee has reviewed and discussed
with management the Compensation Discussion and
Analysis required by Item 402(b) of Regulation S-K.
Based on this review and discussion, the compensation
committee has recommended to the board of directors
that the Compensation Discussion and Analysis be
included in this proxy statement and the Company’s
annual report on Form 10-K.
This Compensation Committee Report shall not be
deemed “filed” with the SEC for purposes of federal
securities law, and it shall not, under any circumstances,
44
be incorporated by reference into any of the Company’s
past or future SEC filings. The report shall not be deemed
soliciting material.
MEMBERS OF THE COMPENSATION COMMITTEE
Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Abhijit Y. Talwalkar (Chair)
JOB TITLE LAM Research Combo
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Compensation Committee Interlocks and Insider Participation
None of the compensation committee members has
ever been an officer or employee of Lam Research. No
interlocking relationship exists as of the date of this proxy
statement or existed during fiscal year 2014 between
any member of our compensation committee and any
member of any other company’s board of directors or
compensation committee.
Executive Compensation Tables
The following tables show compensation information for our named executive officers.
Name and
Principal Position
Martin B. Anstice
President and
Chief Executive Officer
Timothy M. Archer
Executive Vice President and
Chief Operating Officer(4)
Douglas R. Bettinger
Executive Vice President and
Chief Financial Officer(5)
Richard A. Gottscho
Executive Vice President,
Global Products
Sarah A. O’Dowd
Senior Vice President,
Chief Legal Officer
Summary Compensation Table
Fiscal
Year
Salary
($)
2014
803,846
2013
776,904(6)
2012
605,288
Bonus
($)
0
0
0
Stock
Awards
($)(1)
8,298,569
Option
Awards
($)(2)
897,137
1,249,964
1,150,947
1,749,993
0
2014
580,769
1,000,000(7)
3,830,003
414,012
1,999,961(8)
690,568
Non-Equity
Incentive Plan
Compensation
($)
4,978,689(10)
2,376,731(11)
1,463,810(12)
3,034,681(13)
1,738,388(14)
All Other
Compensation
($)(3)
Total
($)
30,977
15,009,218
17,106
22,337
30,521
5,571,653
3,841,428
8,889,985
124,204
5,127,434
2013
574,313(6)
2014
494,231
2013
149,231(6)
2014
475,000
2013
487,735(6)
2012
427,942
2014
408,077
2013
432,782(6)
2012
377,596
0
0
0
0
500(23)
5,609(24)
0
0
0
3,191,636
344,994
1,484,487(15)
22,961
5,538,309
2,499,942(9)
459,159
272,269(16)
2,529
3,383,130
3,191,636
518,734
799,971
1,659,629
314,462
624,976
441,128
613,299
0
229,365
371,788
0
2,109,623(17)
1,098,839(18)
905,832(19)
1,371,075(20)
808,050(21)
774,526(22)
23,059
15,786
19,959
26,364
12,427
15,355
6,240,446
2,734,893
2,159,312
3,694,509
1,939,509
1,792,453
(1) The amounts shown in this column represent the value of RSU awards, under the LTIP (for fiscal year 2014, this includes the calendar year 2014/2016 LTIP
award and the Gap Year Award) except as described in footnotes 8 and 9 below, granted in accordance with ASC 718. However, pursuant to SEC rules, these
values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of the RSUs in fiscal year 2014 are set
forth in Note 11 to the Consolidated Financial Statements of the Company’s annual report on Form 10-K for the fiscal year ended June 29, 2014. For additional
details regarding the grants see “Grants of Plan Based Awards for Fiscal Year 2014” table below.
(2) The amounts shown in this column represent the value of the stock option awards granted, under the LTIP (for fiscal year 2014, this includes the calendar year
2014/2016 LTIP award and the Gap Year Award) except as described in footnotes 8 and 9 below, in accordance with ASC 718. However, pursuant to SEC rules,
these values are not reduced by an estimate for the probability of forfeiture. The assumption used to calculate the fair value of stock options in fiscal year 2014
are set forth in Note 11 to the Consolidated Financial Statements of the Company’s annual report on Form 10-K for the fiscal year ended June 29, 2014. For
additional details regarding the grants see “Grants of Plan Based Awards for Fiscal Year 2014” table below.
(3) Please refer to the “All Other Compensation Table For Fiscal Year 2014,” which immediately follows this table, for additional information.
(4) Mr. Archer was appointed Executive Vice President and Chief Operating Officer on June 4, 2012.
(5) Mr. Bettinger was appointed Executive Vice President and Chief Financial Officer on March 11, 2013.
(6)
Includes non-recurring/one time vacation payouts at the end of the program in which all vice presidents were entitled to accrue paid vacation time of $71,615
for Mr. Anstice; $7,485 for Mr. Archer; $36,005 for Dr. Gottscho; and $34,167 for Ms. O’Dowd.
(7) Represents a retention bonus pursuant to the terms of his employment agreement (effective June 4, 2012), or “Archer Employment Agreement,” entered into in
connection with the acquisition of Novellus.
(8) Represents grants of service-based RSUs: under the calendar year 2012/2013 equity portion of the Long-Term Incentive Program, or “LTIP-Equity,”
granted August 3, 2012 in accordance with the terms of the Archer Employment Agreement; and under the calendar year 2013/2014 LTIP-Equity, granted
February 8, 2013.
(9) Represents grant of service-based RSUs under the calendar year 2013/2014 LTIP-Equity and a new hire grant of service-based RSUs with a dollar value equal
to $2,000,000 in accordance with the terms of his employment agreement.
(10) Represents $1,155,041 earned by and paid to Mr. Anstice under the calendar year 2013 Annual Incentive Program, or “AIP,” $857,253 accrued on Mr. Anstice’s
behalf for the performance during fiscal year 2014 under the calendar year 2012/2013 cash portion of the Long-Term Incentive Program, or “LTIP-Cash,”
and $2,966,462 accrued on Mr. Anstice’s behalf for the performance during fiscal year 2014 under the calendar year 2013/2014 LTIP-Cash. Mr. Anstice has
received the amount accrued under the calendar year 2012/2013 LTIP-Cash, and will be eligible to receive the amounts accrued under the calendar year
2013/2014 LTIP-Cash program if he remains employed by Lam through the award determination date in February 2015.
(11) Represents $771,640 earned by and paid to Mr. Anstice under the calendar year 2012 AIP, $183,446 accrued on Mr. Anstice’s behalf for the performance
during fiscal year 2013 under the calendar year 2011/2012 LTIP-Cash, $740,974 accrued on Mr. Anstice’s behalf for the performance during fiscal year 2013
under the calendar year 2012/2013 LTIP-Cash, and $680,671 accrued on Mr. Anstice’s behalf for the performance during fiscal year 2013 under the calendar
year 2013/2014 LTIP-Cash. Mr. Anstice has received the amounts accrued under the calendar year 2011/2012 and 2012/2013 LTIP-Cash programs, and will
be eligible to receive the amount accrued under the calendar year 2013/2014 LTIP-Cash program if he remains employed by the Company through the award
determination date in February 2015.
(12) Represents $521,125 earned by and paid to Mr. Anstice under the calendar year 2011 AIP, $233,936 accrued on Mr. Anstice’s behalf for the performance during
fiscal year 2012 under the calendar year 2010/2011 LTIP-Cash, $405,171 accrued on Mr. Anstice’s behalf for the performance during fiscal year 2012 under
the calendar year 2011/2012 LTIP-Cash, and $303,578 accrued on Mr. Anstice’s behalf for the performance during fiscal year 2012 under the calendar year
2012/2013 LTIP-Cash. Mr. Anstice has received the amounts accrued under the calendar year 2010/2011, 2011/2012, and 2012/2013 LTIP-Cash programs.
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(13) Represents $642,528 earned by and paid to Mr. Archer under the calendar year 2013 AIP, $612,276 accrued on Mr. Archer’s behalf for the performance during
fiscal year 2014 under the calendar year 2012/2013 LTIP-Cash, and $1,779,877 accrued on Mr. Archer’s behalf for the performance during fiscal year 2014
under the calendar year 2013/2014 LTIP-Cash. Mr. Archer has received the amount accrued under the calendar year 2012/2013 LTIP-Cash, and will be eligible
to receive the amounts accrued under the calendar year 2013/2014 LTIP-Cash program if he remains employed by Lam through the award determination date
in February 2015.
(14) Represents $263,492 earned by and paid to Mr. Archer under the calendar year 2012 AIP, $360,804 earned by Mr. Archer and paid in February 2013 in
accordance with the terms of his employment agreement under the 2012 Novellus Executive Bonus Program for performance during the second half of fiscal
year 2012, $705,689 accrued on Mr. Archer’s behalf for the performance during the first half of fiscal year 2013 under the calendar year 2012/2013 LTIP-
Cash, and $408,403 accrued on Mr. Archer’s behalf for the performance during fiscal year 2013 under the calendar year 2013/2014 LTIP-Cash. Mr. Archer
has received the amount accrued under the calendar year 2012/2013 LTIP-Cash program. Mr. Archer will be eligible to receive the amount accrued under the
calendar year 2013/2014 LTIP-Cash program if he remains employed by the Company through the award determination date in February 2015.
(15) Represents $297,902 earned by and paid to Mr. Bettinger under the calendar year 2013 AIP, and $1,186,585 accrued on Mr. Bettinger’s behalf for the
performance during fiscal year 2014 under the calendar year 2013/2014 LTIP-Cash. Mr. Bettinger will be eligible to receive the amounts accrued under the
calendar year 2013/2014 LTIP-Cash program if he remains employed by Lam through the award determination date in February 2015.
(16) Represents $272,269 accrued on Mr. Bettinger’s behalf for the performance during fiscal year 2013 under the calendar year 2013/2014 LTIP-Cash.
Mr. Bettinger will be eligible to receive the amount accrued under the calendar year 2013/2014 LTIP-Cash program if he remains employed by the Company
through the award determination date in February 2015.
(17) Represents $486,685 earned by and paid to Dr. Gottscho under the calendar year 2013 AIP, $391,857 accrued on Dr. Gottscho’s behalf for the performance
during fiscal year 2014 under the calendar year 2012/2013 LTIP-Cash, and $1,231,082 accrued on Dr. Gottscho’s behalf for the performance during fiscal
year 2014 under the calendar year 2013/2014 LTIP-Cash. Dr. Gottscho has received the amount accrued under the calendar year 2012/2013 LTIP-Cash, and
will be eligible to receive the amounts accrued under the calendar year 2013/2014 LTIP-Cash program if he remains employed by Lam through the award
determination date in February 2015.
(18) Represents $355,332 earned by and paid to Dr. Gottscho under the calendar year 2012 AIP, $122,297 accrued on Dr. Gottscho’s behalf for the performance
during fiscal year 2013 under the calendar year 2011/2012 LTIP-Cash, $338,731 accrued on Dr. Gottscho’s behalf for the performance during fiscal year 2013
under the calendar year 2012/2013 LTIP-Cash, and $282,479 accrued on Dr. Gottscho’s behalf for the performance during fiscal year 2013 under the calendar
year 2013/2014 LTIP-Cash. Dr. Gottscho has received the amounts accrued under the calendar year 2011/2012 and 2012/2013 LTIP-Cash programs, and will
be eligible to receive the amount accrued under the calendar year 2013/2014 LTIP-Cash program if he remains employed by the Company through the award
determination date in February 2015.
(19) Represents $339,032 earned by and paid to Dr. Gottscho under the calendar year 2011 AIP, $157,907 accrued on Dr. Gottscho’s behalf for the performance
during fiscal year 2012 under the calendar year 2010/2011 LTIP-Cash, $270,114 accrued on Dr. Gottscho’s behalf for the performance during fiscal year
2012 under the calendar year 2011/2012 LTIP-Cash, and $138,779 accrued on Dr. Gottscho’s behalf for the performance during fiscal year 2012 under the
calendar year 2012/2013 LTIP-Cash. Dr. Gottscho has received the amounts accrued under the calendar year 2010/2011, 2011/2012, and 2012/2013 LTIP-Cash
programs.
(20) Represents $318,575 earned by and paid to Ms. O’Dowd under the calendar year 2013 AIP, $306,138 accrued on Ms. O’Dowd’s behalf for the performance
during fiscal year 2014 under the calendar year 2012/2013 LTIP-Cash, and $746,362 accrued on Ms. O’Dowd’s behalf for the performance during fiscal
year 2014 under the calendar year 2013/2014 LTIP-Cash. Ms. O’Dowd has received the amount accrued under the calendar year 2012/2013 LTIP-Cash, and
will be eligible to receive the amounts accrued under the calendar year 2013/2014 LTIP-Cash program if she remains employed by Lam through the award
determination date in February 2015.
(21) Represents $276,615 earned by and paid to Ms. O’Dowd under the calendar year 2012 AIP, $95,545 accrued on Ms. O’Dowd’s behalf for the performance
during fiscal year 2013 under the calendar year 2011/2012 LTIP-Cash, $264,633 accrued on Ms. O’Dowd’s behalf for the performance during fiscal year 2013
under the calendar year 2012/2013 LTIP-Cash, and $171,257 accrued on Ms. O’Dowd’s behalf for the performance during fiscal year 2013 under the calendar
year 2013/2014 LTIP-Cash. Ms. O’Dowd has received the amounts accrued under the calendar year 2011/2012 and 2012/2013 LTIP-Cash programs, and will
be eligible to receive the amount accrued under the calendar year 2013/2014 LTIP-Cash program if she remains employed by the Company through the award
determination date in February 2015.
(22) Represents $308,868 earned by and paid to Ms. O’Dowd under the calendar year 2011 AIP, $146,210 accrued on Ms. O’Dowd’s behalf for the performance
during fiscal year 2012 under the calendar year 2010/2011 LTIP-Cash, $211,027 accrued on Ms. O’Dowd’s behalf for the performance during fiscal year 2012
under the calendar year 2011/2012 LTIP-Cash and $108,421 accrued on Ms. O’Dowd’s behalf for the performance during fiscal year 2012 under the calendar
year 2012/2013 LTIP-Cash. Ms. O’Dowd has received the amounts accrued under the calendar year 2010/2011, 2011/2012 and 2012/2013 LTIP-Cash programs.
(23) Represents a patent award.
(24) Represents a patent award and a bonus equal to the additional income tax due to section 409A for certain stock option awards.
All Other Compensation Table for Fiscal Year 2014
Company Matching
Contribution to the
Company’s Section
401(k) Plan
($)
Company Paid
Long-Term
Disability Insurance
Premiums(1)
($)
Company
Paid Life
Insurance
Premiums(2)
($)
Company Paid
Healthcare
Insurance
Premiums(3)
($)
7,545
7,089
5,267
8,280
7,474
1,420
1,420
1,420
1,420
1,420
0
0
14
66
255
19,512
19,512
16,260
13,293
14,715
Company
Contribution
to the Elective
Deferred
Compensation
Plan
($)
Total
($)
2,500 30,977
2,500 30,521
0 22,961
0 23,059
2,500 26,364
Name
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
(1) Represents the portion of supplemental long-term disability insurance premiums paid by Lam.
(2) Represents the portion of life insurance premiums paid by Lam.
(3) Represents the portion of executive healthcare insurance premiums paid by Lam.
46
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Grants of Plan-Based Awards for Fiscal Year 2014
Estimated Future
Payouts Under
Non-Equity Incentive
Plan Awards
Estimated Future
Payouts Under
Equity Incentive
Plan Awards
Name
Award Type
Grant
Date
Approval
Date
Target
($)(1)
Maximum
($)(1)
Target
(#)(2)
Maximum
(#)(2)
Annual Incentive Program
N/A 2/11/2014 1,350,000 3,037,500
Martin B. Anstice
Timothy M. Archer
LTIP-Equity:
Market-Based PRSUs
2/18/2014 2/18/2014
Service-Based RSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Stock Options
2/18/2014 2/18/2014
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Annual Incentive Program
N/A 2/11/2014
660,000 1,485,000
LTIP-Equity:
Market-Based PRSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Service-Based RSUs
2/18/2014 2/18/2014
Stock Options
2/18/2014 2/18/2014
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Annual Incentive Program
N/A 2/11/2014
472,500 1,063,125
Douglas R. Bettinger
LTIP-Equity:
Market-Based PRSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Service-Based RSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Stock Options
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Annual Incentive Program
N/A 2/11/2014
472,500 1,063,125
Richard A. Gottscho
LTIP-Equity:
Market-Based PRSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Service-Based RSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Stock Options
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Annual Incentive Program
N/A 2/11/2014
332,000
747,000
Sarah A. O’Dowd
LTIP-Equity:
Market-Based PRSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Service-Based RSUs
2/18/2014 2/18/2014
2/18/2014 2/18/2014
Stock Options
2/18/2014 2/18/2014
2/18/2014 2/18/2014
62,789(4)
94,184(4)
31,394(5)
47,091(5)
28,979(4)
43,469(4)
14,489(5)
21,734(5)
24,149(4)
36,224(4)
12,074(5)
18,111(5)
24,149(4)
36,224(4)
12,074(5)
18,111(5)
12,557(4)
18,836(4)
6,278(5)
9,417(5)
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/sh)
Grant
Date Fair
Value of
Stock and
Option
Awards
($)(3)
50,231(6)
25,115(7)
23,183(6)
11,591(7)
19,319(6)
9,659(7)
19,319(6)
9,659(7)
10,046(6)
5,023(7)
0
2,930,363
1,468,297
2,599,957
1,299,952
37,671(8)
18,834(9)
51.76
51.76
591,115
306,022
1,352,450
677,651
1,199,952
599,950
272,797
141,215
1,127,034
564,701
999,951
499,950
227,323
117,671
1,127,034
564,701
999,951
499,950
292,858
148,270
586,035
293,622
519,981
259,990
152,281
77,083
17,385(8)
8,691(9)
51.76
51.76
14,487(8)
7,242(9)
51.76
51.76
14,487(8)
7,242(9)
51.76
51.76
7,533(8)
3,765(9)
51.76
51.76
(1) The AIP target and maximum estimated future payouts reflected in this table were calculated using the base salary approved in February 2014, effective as of
April 2014. Actual target and maximum future payouts under the AIP are calculated based on actual eligible base earnings.
(2) The amounts reported in the Estimated Future Payouts Under Equity Incentive Plan Awards columns represent the target and maximum number (150%
of target) of Market-Based PRSUs that may be paid out to the NEOs on the terms described in the “Executive Compensation and Other Information –
Compensation Discussion and Analysis” above.
(3) The amounts shown in this column represent the value of service-based and market-based performance RSU and stock option awards granted during
fiscal year 2014 in accordance with ASC 718. However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture.
The assumptions used to calculate the fair value of the service-based or market-based performance RSU in fiscal year 2014 are set forth in Note 11 to the
Consolidated Financial Statements of the Company’s annual report on Form 10-K for the fiscal year ended June 29, 2014.
(4) The Market-Based PRSUs vest on February 18, 2017, subject to continued employment.
(5) The Market-Based PRSUs granted as part of the Gap Year Award vest on February 18, 2016, subject to continued employment.
(6) The service-based RSUs vest 33.3% on February 18, 2015, 33.3% on February 18, 2016 and 33.3% on February 18, 2017, subject to continued employment.
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(7) The service-based RSUs granted as part of the Gap Year Award vest 100% on February 18, 2016, subject to continued employment.
(8) Represents stock options with a seven-year term, of which 33.3% vest on February 18, 2015, 33.3% vest on February 18, 2016 and 33.3% vest on February 18,
2017, subject to continued employment.
(9) Represents stock options with a seven-year term granted as part of the Gap Year Award, of which 100% vest on February 18, 2016, subject to continued employment.
Outstanding Equity Awards at 2014 Fiscal Year-End
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)(1)
Name
Martin B. Anstice
37,671(3)
51.76
2/18/2021
18,834(6)
51.76
2/18/2021
88,005(8)
42.61
2/8/2020
17,385(3)
51.76
2/18/2021
Timothy M. Archer
8,691(6)
51.76
2/18/2021
52,803(8)
42.61
2/8/2020
30,375(10)
10,125(10)
29.34 12/16/2020
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
14,487(3)
51.76
2/18/2021
7,242(6)
51.76
2/18/2021
35,367(11)
42.41
3/11/2020
14,487(3)
51.76
2/18/2021
7,242(6)
51.76
2/18/2021
36,522(8)
42.61
2/8/2020
7,533(3)
51.76
2/18/2021
3,765(6)
51.76
2/18/2021
22,140(8)
42.61
2/8/2020
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
(#)
Equity Incentive
Plan Awards:
Market or Payout
Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)(1)
62,789(2)
4,203,724
31,394(5)
2,101,828
28,979(2)
1,940,144
14,489(5)
970,039
24,149(2)
1,616,776
12,074(5)
808,354
24,149(2)
1,616,776
12,074(5)
808,354
12,557(2)
840,691
6,278(5)
420,312
50,231(4)
3,362,965
25,115(7)
1,681,449
29,335(9)
1,963,978
23,183(4)
1,552,102
11,591(7)
776,017
17,601(9)
1,178,387
19,319(4)
1,293,407
9,659(7)
646,670
11,789(12)
789,274
19,319(4)
1,293,407
9,659(7)
646,670
12,174(9)
815,049
10,046(4)
672,580
5,023(7)
336,290
7,380(9)
494,091
(1) Calculated by multiplying the number of unvested shares by $66.95, the closing price per share of our common stock on June 27, 2014.
(2) Market-Based PRSUs are shown at their target amount. The actual conversion of the Market-Based PRSUs into shares of Lam common stock following
the conclusion of the three-year performance period will range from 0% to 150% of that target amount, depending upon Lam’s stock price performance
compared to the market price performance of the SOX Index over the applicable three-year performance period. The Market-Based PRSUs were granted on
February 18, 2014. On February 18, 2017, the Market-Based PRSUs will vest provided that the person remains an employee on such date.
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(3) Stock options were granted on February 18, 2014. On February 18, 2015, February 18, 2016 and February 18, 2017, 33.3% of the stock options will become
exercisable provided that the person remains an employee on such date.
(4) RSUs were granted on February 18, 2014. On February 18, 2015, February 18, 2016 and February 18, 2017, 33.3% of the RSUs will vest provided that the
person remains an employee on such date.
(5) Market-Based PRSUs are shown at their target amount. The actual conversion of the Market-Based PRSUs into shares of Lam common stock following the
conclusion of the two-year performance period will range from 0% to 150% of that target amount, depending upon Lam’s stock price performance compared
to the market price performance of the SOX Index over the applicable two-year performance period. The Market-Based PRSUs were granted as part of the
Gap Year Award on February 18, 2014. On February 18, 2016, the Market-Based PRSUs will vest provided that the person remains an employee on such date.
(6) Stock options were granted as part of the Gap Year Award on February 18, 2014. On February 18, 2016, 100% of the stock options will become exercisable
provided that the person remains an employee on such date.
(7) RSUs were granted as part of the Gap Year Award on February 18, 2014. On February 18, 2016, 100% of the RSUs will vest provided that the person remains
an employee on such date.
(8) Stock options were granted on February 8, 2013. On February 8, 2015, 100% of the stock options will become exercisable provided that the person remains an
employee on such date.
(9) RSUs were granted on February 8, 2013. On February 8, 2015, 100% of the RSUs will vest provided that the person remains an employee on such date.
(10) Stock options were granted on December 16, 2010. As of the 2014 fiscal year-end, 75% of the stock options granted on December 16, 2010 had become
exercisable. On December 16, 2014, the remaining 25% of unvested stock options will become exercisable provided that Mr. Archer remains an employee on
such date.
(11) Stock options were granted on March 11, 2013. On February 8, 2015, 100% of the stock options will become exercisable provided that Mr. Bettinger remains
an employee on such date.
(12) RSUs were granted on March 11, 2013. On February 8, 2015, 100% of the RSUs will vest provided that Mr. Bettinger remains an employee on such date.
Option Exercises and Stock Vested for Fiscal Year 2014(1)
Name
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Option Awards
Stock Awards
Number of
Shares Acquired
on Exercise
(#)
29,120
292,500
0
0
Value
Realized on
Exercise
($)
867,916
8,321,204
0
0
38,658
1,102,913
Number of
Shares Acquired
on Vesting
(#)
Value
Realized on
Vesting
($)
40,341
73,497
35,369
18,441
14,407
2,091,681
3,781,695
1,869,607
956,166
747,003
(1) The table shows all stock options exercised and the value realized upon exercise, and all stock awards vested and the value realized upon vesting, by the NEOs
during fiscal year 2014, which ended on June 29, 2014.
Non-Qualified Deferred Compensation for Fiscal Year 2014
Name
Martin B. Anstice
Timothy M. Archer
Douglas R. Bettinger
Richard A. Gottscho
Sarah A. O’Dowd
Executive
Contributions
in FY14
($)(1)
Registrant
Contributions
in FY14
($)(2)
Aggregate
Earnings in
FY14
($)(3)
92,010
795,638
98,951
0
2,500
2,500
0
0
1,155,666
2,500
678,453
143,161
4,132
103,850
551,067
Aggregate
Balance at
FYE14
($)(4)
4,414,152
1,425,455
103,083
1,800,510
3,730,425
(1) The entire amount of each executive’s contributions in fiscal year 2014 is reported in each respective NEO’s compensation in our fiscal year 2014 “Summary
Compensation Table.”
(2) Represents the amount that Lam credited to the Elective Deferred Compensation Plan, the “EDCP,” which is 3% of Executive Contribution during calendar
year 2013, to a maximum benefit of $2,500. These amounts are included in the “Summary Compensation Table” and “All Other Compensation Table For Fiscal
Year 2014.”
(3) The NEOs did not receive above-market or preferential earnings in fiscal year 2014.
(4) The fiscal year-end balance includes $3,641,189 for Mr. Anstice, $484,156 for Mr. Archer, $0 for Mr. Bettinger, $1,696,660 for Dr. Gottscho, and $2,021,192 for
Ms. O’Dowd that were previously reported in our “Summary Compensation Table” in prior years’ proxy statements.
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Potential Payments upon Termination or Change in Control
The following is a summary of the employment agreements of our named executive officers.
Executive Employment Agreements
Martin B. Anstice. The Company and Mr. Anstice entered
into an employment agreement, effective January 1, 2012
and amended on January 30, 2014, for a term of three
years, subject to the right of the Company or Mr. Anstice,
under certain circumstances, to terminate the agreement
prior to such time.
Under the terms of the agreement, Mr. Anstice receives a
base salary, which is reviewed annually and potentially
adjusted. It was initially set at $660,000. Mr. Anstice
is also entitled to participate in any short-term or long-
term variable compensation programs offered by the
Company to its executive officers generally, subject to
the applicable terms and conditions of those programs
and the approval of the independent members of the
board, and to participate in the Company’s Elective
Deferred Compensation Plan. Mr. Anstice receives other
benefits, such as health insurance, vacation, and benefits
under other plans and programs generally applicable to
executive officers of the Company.
If an Involuntary Termination (as defined in Mr. Anstice’s
agreement) of Mr. Anstice’s employment occurs, other
than in connection with a Change in Control (as defined
in Mr. Anstice’s agreement), Mr. Anstice will be entitled
to: (1) a lump-sum cash payment equal to 18 months of
his then-current base salary, plus an amount equal to
the average of the last five annual payments made to
Mr. Anstice under the short term variable compensation or
any predecessor or successor programs (the “Short Term
Program,” and such average, the “Five Year Average
Amount”), plus an amount equal to the pro-rata amount
he would have earned under the Short Term Program for
the calendar year in which his employment is terminated
had his employment continued until the end of such
calendar year, such pro-rata portion to be calculated
based on the performance results achieved under the
Short Term program and the number of full months
elapsed prior to the termination date; (2) payment of any
amounts accrued as of the date of termination under any
long-term, cash-based variable-compensation programs
of the Company (the “Long Term Cash Programs”);
(3) certain medical benefits; (4) a cash payment equal
to a product of (x) a pro rata portion (based on time
of service as of the date of termination) of the unvested
Market-Based PRSU awards granted to Mr. Anstice as
adjusted for the Company’s performance (calculated as
set forth in the award agreements) over the time of service
and (y) the closing stock price on the date of termination;
and (5) vesting, as of the date of termination, of a pro
rata portion of the unvested stock option or RSU awards
that are not Market-Based PRSUs granted to Mr. Anstice
at least 12 months prior to the termination date.
If a Change in Control of the Company (as defined in
Mr. Anstice’s agreement) occurs during the period of
Mr. Anstice’s employment, and if there is an Involuntary
Termination of Mr. Anstice’s employment either in
contemplation of or within the 12 months following the
Change in Control, Mr. Anstice will be entitled to: a lump-
sum cash payment equal to 18 months of Mr. Anstice’s
then-current base salary, plus an amount equal to the
Five Year Average Amount, plus an additional amount
equal to the amount he would have earned under the
Short Term Program for the calendar year in which his
employment is terminated multiplied by the number of full
months worked in that calendar year divided by twelve;
certain medical benefits; conversion of any Market-Based
PRSUs outstanding as of the Change in Control into a
cash award payable at time of termination equal to the
sum of: (x) a pro rata portion (based on time of service
as of the date of termination) of the unvested Market-
Based PRSU awards granted to Mr. Anstice as adjusted
for the Company’s performance (calculated as set forth
in the award agreements) over the time of service and
(y) the remainder of the pro-rata portion of unvested
Market-Based PRSU awards at target; vesting, as of the
date of termination, of the unvested stock option or RSU
awards that are not Market-Based PRSUs granted to
Mr. Anstice prior to the Change in Control; and payment
of any amounts accrued as of the Change in Control
under the Long Term Cash Programs, plus an amount
equal to the remaining target amount under the Long Term
Cash Programs.
If Mr. Anstice’s employment is terminated due to disability
or in the event of his death, Mr. Anstice (or his estate)
will be entitled to: (1) the pro rata amount he would have
earned under the Short Term Program for the calendar
year in which his employment is terminated had his
employment continued until the end of such calendar
year, such pro rata portion to be calculated based on
the performance results achieved under the Short Term
Program and the number of full months elapsed prior to
the termination date; (2) payment of any amounts accrued
as of the date of termination under the Long Term Cash
Programs; (3) certain medical benefits; (4) vesting, as of
the date of termination, of at least 50% of the unvested
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stock option, RSU or Market-Based PRSU (as adjusted
for the Company’s performance during the service
period) awards granted to Mr. Anstice prior to the date
of termination (or a pro rata amount, based on period of
service, if greater than 50%).
If Mr. Anstice voluntarily resigns, he will be entitled to
no additional benefits (except as he may be eligible for
under the Company’s Retiree Health Plans), stock options,
RSUs and Market-Based PRSUs will cease to vest on the
termination date, and stock options will be cancelled
unless they are exercised within ninety days after the
termination date. All RSUs and Market-Based PRSUs will
be cancelled on the termination date.
Mr. Anstice’s agreement also subjects Mr. Anstice to
customary confidentiality and non-competition obligations
during the term of the agreement, and non-solicitation
obligations for a period of six months following the
termination of his employment. The agreement also
requires Mr. Anstice to execute a release in favor of the
Company to receive the payments described above.
Timothy M. Archer. The Company and Mr. Archer
entered into an employment agreement, effective
June 4, 2012 and amended on January 30, 2014,
for a term of three years, subject to the right of the
Company or Mr. Archer, under certain circumstances,
to terminate the agreement prior to such time. The terms
of Mr. Archer’s agreement are substantively similar to
those of Mr. Anstice’s agreement, with the following
material differences: (i) Mr. Archer’s initial base salary
was set at $550,000, (ii) he was entitled to continue to
participate in the Novellus annual incentive plan for the
first half of calendar year 2012, (iii) he was entitled to
participate in the Company’s annual incentive program
for the second half of calendar year 2012, and (iv) his
agreement includes a retention bonus of $1,000,000
payable in cash, which vested on December 31, 2013,
subject to continued employment and relocation to the
San Francisco Bay Area.
The severance terms of Mr. Archer’s agreement are
generally similar to those of Mr. Anstice’s agreement,
provided that (1) Mr. Archer will receive 12-months base
salary instead of 18 months in the event of his Involuntary
Termination; and (2) instead of a payment of the Five Year
Average Amount, he will receive a payment of 50% of the
Five Year Average Amount. The Change in Control terms
of Mr. Archer’s agreement are generally similar to those
of Mr. Anstice’s agreement, provided that Mr. Archer will
receive 12-months base salary instead of 18 months in the
event of his Involuntary Termination.
Douglas R. Bettinger. The Company and Mr. Bettinger
entered into an employment agreement with a term
commencing on March 11, 2013 and ending on
July 17, 2015, subject to the right of the Company or
Mr. Bettinger, under certain circumstances, to terminate
the agreement prior to July 17, 2015. The employment
agreement was amended on January 30, 2014. The terms
of Mr. Bettinger’s agreement are substantively similar
to those of Mr. Archer’s agreement, with the following
material differences: Mr. Bettinger’s initial base salary
was set at $485,000 and his agreement includes a
special bonus grant of RSUs with a dollar value (as of
such date) equal to $2,000,000 that vested in equal
tranches subject to continued employment on a quarterly
basis over the year following the effective date of
the agreement.
In the event that Mr. Bettinger’s employment terminates
due to a “voluntary resignation” (as defined in his
agreement) prior to March 11, 2015, he will be required
to repay to the Company (in cash or vested RSU shares)
a pro rata portion of the shares granted as part of
the special bonus. In the event that Mr. Bettinger’s
employment terminates within the first year of the
employment period for any reason other than a voluntary
resignation or a termination for “cause” (as defined
in Mr. Bettinger’s agreement), the unvested portion
of all RSUs shall accelerate their vesting as of the
termination date.
The severance terms of Mr. Bettinger’s agreement are
generally similar to those of Mr. Archer’s agreement,
provided that in computing the Five Year Average
Amount any partial year short-term plan payments
in any year shall be annualized, and if employed for
less than five years, then computed based on such
fewer number of years. The Change in Control terms of
Mr. Bettinger’s agreement are generally similar to those of
Mr. Archer’s agreement.
Richard A. Gottscho. The Company and Dr. Gottscho
entered into an employment agreement, effective July 18,
2012 and amended on January 30, 2014, for a term
of three years, subject to the right of the Company
or Dr. Gottscho, under certain circumstances, to
terminate the agreement prior to such time. The terms of
Dr. Gottscho’s agreement are substantively similar to those
of Mr. Archer’s employment agreement with the following
material difference: under Dr. Gottscho’s agreement,
his initial base salary was set at $438,000. The
severance and Change in Control terms of Dr. Gottscho’s
agreement are also generally similar to those of
Mr. Archer’s agreement.
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Other Executive Agreements
The Company entered into a change in control agreement
with Ms. O’Dowd, effective July 18, 2012 and amended
on January 30, 2014, for a term of three years, subject
to the right of the Company or Ms. O’Dowd, under
certain circumstances, to terminate the agreement prior
to such time. The agreement provides that if a change
in control (as defined as in Ms. O’Dowd’s agreement)
of the Company occurs during the period of her
employment under the change in control agreement,
and there is an Involuntary Termination (as defined as in
her agreement) of her employment, Ms. O’Dowd will be
entitled to payments and benefits substantively similar
to those contained in the change in control provisions of
Mr. Archer’s agreement.
The change in control agreements contain confidentiality,
non-competition, and non-solicitation terms that
are substantively similar to those of Mr. Anstice’s,
Mr. Archer’s, Mr. Bettinger’s and Dr. Gottscho’s
agreements, and require Ms. O’Dowd to execute a
release in favor of the Company to receive the payments
described in the previous paragraph.
Equity Plans
In addition to the above, certain of our stock plans
provide for accelerated benefits after certain events.
While the applicable triggers under each plan vary, these
events generally include: (i) a merger or consolidation
in which the Company is not the surviving entity,
(ii) a sale of substantially all of the Company’s assets,
including a liquidation or dissolution of the Company,
or (iii) a change in the ownership of more than 50%
of our outstanding securities by tender offer or similar
transaction. After a designated event, the vesting of
some or all of awards granted under these plans may be
immediately accelerated in full, or certain awards may
be assumed, substituted, replaced or settled in cash by a
surviving corporation or its parent. The specific treatment
of awards in a particular transaction will be determined
by the board and/or the terms of the applicable
transaction documents.
Potential Payments to Named Executive Officers upon Termination or Change in Control
The tables below summarize the potential payments to
our NEOs, assuming a change in control of the Company
as of the end of fiscal year 2014. These amounts are
calculated assuming that the employment termination or
change in control occurs on the last day of fiscal year
2014, June 29, 2014. The closing price per share of
our common stock on June 27, 2014, which was the last
trading day of fiscal year 2014, was $66.95. The short-
term incentive plan pro-rata amounts are calculated by
multiplying the applicable pro-rata percentage by the
target. Actual performance will not be known until the end
of calendar year 2014.
Potential Payments to Mr. Anstice upon Termination or Change in Control as of June 29, 2014
Executive Benefits and Payments upon Termination
Compensation
Severance
Short-term Incentive (5-year average)
Short-term Incentive (pro rata)
Long-term Incentives:
2013-2014 LTIP-Cash
Stock Options (Unvested and Accelerated)
Service-Based Restricted Stock Units (Unvested and Accelerated)
Performance-Based Restricted Stock Units (Unvested and Accelerated)
Benefits and Perquisites
Health Benefit Continuation/COBRA Benefit
Total
Involuntary Termination
Voluntary
Termination
($)
Disability or
Death
($)
For
Cause
($)
Not for
Cause
($)
Change in
Control
($)
—
—
—
—
—
—
—
—
—
—
—
675,000
3,642,816
1,857,183
3,831,526
3,278,887
24,911
13,310,324
—
—
—
—
—
—
—
—
—
1,350,000
1,350,000
672,915
675,000
672,915
336,457
3,642,816
1,428,028
1,309,319
914,815
4,267,816
3,000,353
7,008,393
6,340,737
24,911
24,911
10,017,804
23,001,582
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Potential Payments to Mr. Archer upon Termination or Change in Control as of June 29, 2014
Executive Benefits and Payments upon Termination
Compensation
Severance
Short-term Incentive (5-year average)
Short-term Incentive (pro rata)
Long-term Incentives:
2013-2014 LTIP-Cash
Stock Options (Unvested and Accelerated)
Service-Based Restricted Stock Units (Unvested and Accelerated)
Performance-Based Restricted Stock Units (Unvested and Accelerated)
Benefits and Perquisites
Health Benefit Continuation/COBRA Benefit
Total
Involuntary Termination
Voluntary
Termination
($)
Disability or
Death
($)
For
Cause
($)
Not for
Cause
($)
Change in
Control
($)
—
—
—
—
—
—
—
—
—
—
—
330,000
2,185,690
1,054,864
1,949,651
1,513,295
24,911
7,058,411
—
—
—
—
—
—
—
—
—
600,000
274,886
330,000
600,000
549,772
274,886
2,185,690
2,560,690
856,817
785,591
422,211
1,681,319
3,506,506
2,926,421
24,911
24,911
5,480,106
12,124,506
Potential Payments to Mr. Bettinger upon Termination or Change in Control as of June 29, 2014
Executive Benefits and Payments upon Termination
Compensation
Severance
Short-term Incentive (5-year average)
Short-term Incentive (pro rata)
Long-term Incentives:
2013-2014 LTIP-Cash
Stock Options (Unvested and Accelerated)
Service-Based Restricted Stock Units (Unvested and Accelerated)
Performance-Based Restricted Stock Units (Unvested and Accelerated)
Benefits and Perquisites
Health Benefit Continuation/COBRA Benefit
Total
Involuntary Termination
Voluntary
Termination
($)
Disability or
Death
($)
For
Cause
($)
Not for
Cause
($)
Change in
Control
($)
—
—
—
—
—
—
—
—
—
—
—
236,250
1,457,127
731,058
1,484,782
1,261,068
24,911
5,195,195
—
—
—
—
—
—
—
—
—
525,000
169,985
236,250
525,000
339,970
169,985
1,457,127
1,707,127
566,026
514,744
351,839
1,197,970
2,729,351
2,438,662
24,911
24,911
3,845,881
9,132,975
Potential Payments to Dr. Gottscho upon Termination or Change in Control as of June 29, 2014
Executive Benefits and Payments upon Termination
Compensation
Severance
Short-term Incentive (5-year average)
Short-term Incentive (pro rata)
Long-term Incentives:
2013-2014 LTIP-Cash
Stock Options (Unvested and Accelerated)
Service-Based Restricted Stock Units (Unvested and Accelerated)
Performance-Based Restricted Stock Units (Unvested and Accelerated)
Benefits and Perquisites
Health Benefit Continuation/COBRA Benefit
Total
Involuntary Termination
Voluntary
Termination
($)
Disability or
Death
($)
For
Cause
($)
Not for
Cause
($)
Change in
Control
($)
—
—
—
—
—
—
—
—
—
236,250
1,511,769
757,662
1,513,405
1,261,068
—
—
—
—
—
—
—
525,000
191,173
236,250
525,000
382,346
191,173
1,511,769
1,771,144
592,630
543,366
351,839
1,219,009
2,755,126
2,438,662
544,000
544,000
544,000
544,000
544,000
544,000
5,824,153
544,000
4,496,028
9,826,461
53
Lam Research Corporation 2014 Proxy StatementContinues on next page JOB TITLE LAM Research Combo
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OPERATOR MARiAnB
Potential Payments to Ms. O’Dowd upon Termination or Change in Control as of June 29, 2014
Executive Benefits and Payments upon Termination
Compensation
Severance
Short-term Incentive (5-year average)
Short-term Incentive (pro rata)
Long-term Incentives:
2013-2014 LTIP-Cash
Stock Options (Unvested and Accelerated)
Service-Based Restricted Stock Units (Unvested and Accelerated)
Performance-Based Restricted Stock Units (Unvested and Accelerated)
Benefits and Perquisites
Health Benefit Continuation/COBRA Benefit
Total
Involuntary Termination
Voluntary
Termination
($)
Disability or
Death
($)
For
Cause
($)
Not for
Cause
($)
Change in
Control
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
415,000
318,797
159,398
1,073,783
710,504
1,502,961
1,268,040
439,000
439,000
439,000
439,000
439,000
439,000
439,000
439,000
439,000
5,887,482
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of June 29,
2014, regarding securities authorized for issuance
under the Company’s equity compensation plans. The
equity compensation plans of the Company include the
1999 Employee Stock Purchase Plan, the 2007 Stock
Incentive Plan, and the 2011 Stock Incentive Plan, each as
amended and as may be amended.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options,
Warrants,
and Rights
(a)
4,477,999(2)
2,489,356(4)
6,967,355
Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants,
and Rights(1)
(b)
$45.26
$26.44
$32.20
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities reflected
in column (a))
(c)
10,711,854(3)
6,855,086(5)
17,566,940
(1) Does not include RSUs.
(2)
Includes 4,477,999 shares issuable upon RSU vesting or stock option exercises under the Company’s 2007 Stock Incentive Plan, as amended, the “2007 Plan.”
The 2007 Plan was adopted by the board in August 2006, approved by Lam’s stockholders in November 2006, and amended by the board in November 2006
and May 2013. The term of the 2007 Plan is 10 years from the last date of any approval, amendment, or restatement of the Plan by the Company’s
stockholders. The 2007 Plan reserves for issuance up to 15,000,000 shares of the Company’s common stock.
Includes 2,334,276 shares available for future issuance under the 2007 Plan and 8,377,578 shares available for future issuance under the 1999 Employee Stock
Purchase Plan, as amended, the “1999 ESPP.” The 1999 ESPP was adopted by the board in September 1998, approved by Lam’s stockholders in November
1998, amended by stockholder approval in November 2003, and most recently amended by the board in November 2012. The term of the 1999 ESPP is 20
years from its effective date of September 30, 1998, unless otherwise terminated or extended in accordance with its terms.
Includes 2,489,356 shares issuable upon RSU vesting or stock option exercises under the Company’s 2011 Stock Incentive Plan, as amended, the “2011
Plan.” As part of the acquisition of Novellus, Lam assumed the Novellus Systems, Inc. 2011 Stock Incentive Plan. The 2011 Plan was approved by Novellus
shareholders before the merger but has not been approved by a separate vote of Lam stockholders. The 2011 Plan was amended by the board in July 2012.
The term of the 2011 Plan is 10 years from its effective date of May 10, 2011, unless otherwise terminated or extended in accordance with its terms.
Includes 6,855,086 shares available for future issuance under the 2011 Plan.
(3)
(4)
(5)
54
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The Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, or the “Dodd-Frank Act,” enables
the Company’s stockholders to vote to approve, on an
advisory or non-binding basis, the compensation of
our named executive officers, as disclosed in this proxy
statement in accordance with SEC rules. Although the
vote is advisory and is not binding on us or on our
board of directors, our compensation committee and,
as appropriate, our board, will take into account the
outcome of the vote when considering future executive
compensation decisions and will evaluate whether any
actions are necessary to address stockholder concerns.
We believe that our compensation philosophy has
allowed us to attract, retain, and motivate qualified
executive officers who have contributed to our success.
For more information regarding the compensation of our
named executive officers, our compensation philosophy,
our 2013 Say on Pay results and Company response,
we encourage you to read the section of this proxy
statement entitled “Executive Compensation and Other
Information — Compensation Discussion and Analysis,”
the compensation tables, and the narrative following the
compensation tables for a more detailed discussion of our
compensation policies and practices.
We are asking for stockholder approval, on an advisory
or non-binding basis, of the compensation of our named
executive officers, as disclosed in accordance with SEC
rules (including section 14A of the Exchange Act) in the
“Compensation Discussion and Analysis” section, the
compensation tables and any related narrative disclosure
included in this proxy statement. This vote is not intended
to address any specific item of compensation, but rather
the overall compensation of our named executive officers
and the policies and practices described in this proxy
statement.
We provide for annual advisory votes to approve
the compensation of our named executive officers.
Unless modified, the next advisory vote to approve the
compensation of our named executive officers will be at
the 2015 annual meeting.
Stockholder approval of Proposal No. 2 requires the
affirmative vote of a majority of the shares present and
cast on the matter, in person or by proxy, at the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” THE APPROVAL, ON AN ADVISORY OR
NON-BINDING BASIS, OF THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS.
Proposal No. 3: Ratification of the Appointment
of the Independent Registered Public Accounting
Firm For Fiscal Year 2015
Stockholders are being asked to ratify the appointment
of Ernst & Young LLP as the Company’s independent
registered public accounting firm for fiscal year 2015.
Ernst & Young LLP has been the Company’s independent
registered public accounting firm (independent auditor)
since fiscal year 1981.
Approval of Proposal No. 3 will require the affirmative
vote of a majority of the outstanding shares of common
stock present or represented and voting on the proposal
at the annual meeting. Each proxy received by the
Proxy Holders will be voted “FOR” the ratification of the
appointment of Ernst & Young LLP, unless the stockholder
provides other instructions.
Our audit committee meets periodically with Ernst &
Young LLP to review both audit and non-audit services
performed by Ernst & Young LLP, as well as the fees
charged for those services. Among other things, the
committee examines the effect that the performance
of non-audit services, if any, may have upon the
independence of the independent registered public
55
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accounting firm. All professional services provided by
Ernst & Young LLP, including non-audit services, if any, are
subject to approval by the audit committee in accordance
with applicable securities laws, rules, and regulations.
For more information, see the “Audit Committee Report”
and the “Relationship with Independent Registered Public
Accounting Firm” sections below in this proxy statement.
A representative of Ernst & Young LLP is expected to
be present at the annual meeting and will have an
opportunity to make a statement if he or she so desires.
The representative will also be available to respond to
appropriate questions from the stockholders.
Audit Committee Report
Stockholder approval of Proposal No. 3 requires the
affirmative vote of a majority of the shares present and
cast on the matter, in person or by proxy, at the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE “FOR” THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR FISCAL
YEAR 2015.
The Company’s management, audit committee and
independent registered public accounting firm (Ernst &
Young LLP) have specific but different responsibilities
relating to Lam’s financial reporting. Lam’s management is
responsible for the financial statements and for the system
of internal control and the financial reporting process.
Ernst & Young LLP has the responsibility to express an
opinion on the financial statements and the system of
internal control over financial reporting, based on the
audit they conducted in accordance with the standards of
the Public Company Accounting Oversight Board (U.S.).
The audit committee is responsible for monitoring and
overseeing these processes.
In this context and in connection with the audited financial
statements contained in the Company’s Annual Report on
Form 10-K for the fiscal year ended June 29, 2014, the
audit committee took the following actions:
• Reviewed the written disclosures and the letter from
Ernst & Young LLP, required by Rule 3526 of the
PCAOB, “Communication with Audit Committees
Concerning Independence,” and discussed with Ernst
& Young LLP its independence.
• Based on the foregoing reviews and discussions,
recommended to the board of directors that the
audited financial statements be included in the
Company’s 2014 Annual Report on Form 10-K for
the fiscal year ended June 29, 2014 for filing with
the SEC.
This Audit Committee Report shall not be deemed “filed”
with the SEC for purposes of federal securities law, and
it shall not, under any circumstances, be incorporated by
reference into any of the Company’s past or future SEC
filings. The report shall not be deemed soliciting material.
MEMBERS OF THE AUDIT COMMITTEE
• Reviewed and discussed the audited financial
statements with Company management.
• Discussed with Ernst & Young LLP the matters required
to be discussed by applicable auditing standards of
the Public Company Accounting Oversight Board, or
the “PCAOB.”
Eric K. Brandt (Chair)
Michael R. Cannon
Catherine P. Lego
William R. Spivey
56
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Relationship with Independent Registered Public Accounting Firm
Ernst & Young LLP has audited the Company’s consolidated financial statements since the Company’s inception.
Fees Billed by Ernst & Young LLP
The table below shows the fees billed by Ernst & Young LLP for audit and other services provided to the Company in
fiscal years 2014 and 2013.
Services Rendered / Type of Fee
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees
All Other Fees(3)
TOTAL
Fiscal Year
2014
Fiscal Year
2013
$4,584,117
$4,901,106
$
8,975
$ 260,000
$ 119,055
$ 162,066
$
1,535
$
1,995
$4,713,682
$5,325,167
(1) Audit fees represent fees for professional services provided in connection with the audits of annual financial statements. Audit fees also include reviews of
quarterly financial statements, audit services related to other statutory or regulatory filings or engagements, and fees related to Ernst & Young LLP’s audit of
the effectiveness of the Company’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act.
(2) Audit-related fees consist of assurance and related services that are reasonably related to the audit or review of the Company’s financial statements and are
not reported above under “Audit Fees” and include fees related to services provided to support the Company’s disposition of the Peter Wolters industrial
applications group.
(3) All other fees represent subscription fees to Ernst & Young LLP’s accounting research service.
The audit committee reviewed summaries of the services
provided by Ernst & Young LLP and the related fees during
fiscal year 2014 and has determined that the provision
of non-audit services was compatible with maintaining
the independence of Ernst & Young LLP as the Company’s
independent registered public accounting firm. The audit
committee approved 100% of the services and related
fee amounts for services provided by Ernst & Young LLP
during fiscal year 2014.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services
It is the responsibility of the audit committee to approve,
in accordance with Sections 10A(h) and (i) of the
Exchange Act and the rules and regulations of the SEC,
all professional services, to be provided to us by our
independent registered public accounting firm, provided
that the audit committee shall not approve any non-audit
services proscribed by Section 10A(g) of the Exchange
Act in the absence of an applicable exemption.
It is our policy that the audit committee pre-approves all
audit and permissible non-audit services provided by our
independent registered public accounting firm, consistent
with the criteria set forth in the audit committee charter
and applicable laws and regulations. The committee has
delegated to the chair of the committee the authority to
pre-approve such services, provided that the chair shall
report any decisions to pre-approve such services to the
full audit committee at its next regular meeting. These
services may include audit services, audit-related services,
tax services, and other services. Our independent
registered public accounting firm and our management
are required to periodically report to the audit committee
regarding the extent of services provided by our
independent registered public accounting firm pursuant to
any such pre-approval.
Certain Relationships and Related Party Transactions
No family relationships exist as of the date of this proxy
statement or existed during fiscal year 2014 among any
of our directors and executive officers. No related party
transactions occurred during fiscal year 2014.
57
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We are not aware of any other matters to be submitted
at the annual meeting. If any other matters properly
come before the annual meeting, the Proxy Holders
intend to vote the shares they represent as the board of
directors may recommend or, if the board does not make
a recommendation, as the Proxy Holders decide in their
reasonable judgment.
It is important that your stock holdings be represented at
the meeting, regardless of the number of shares you hold.
We urge you to complete and return the accompanying
proxy card in the enclosed envelope, or vote your shares
by telephone or internet, as described in the materials
accompanying this proxy statement.
Voting and Meeting Information
Information Concerning Solicitation and Voting
Our board of directors solicits your proxy for the 2014
Annual Meeting of Stockholders and any adjournment or
postponement of the meeting, for the purposes described
in the “Notice of 2014 Annual Meeting of Stockholders.”
The sections below show important details about the
annual meeting and voting.
Record Date
Only stockholders of record at the close of business on
September 8, 2014, the “Record Date,” are entitled to
receive notice of and to vote at the annual meeting.
Shares Outstanding
162,441,177 shares of common stock were outstanding
as of the Record Date.
Quorum
A majority of shares outstanding on the Record Date
constitutes a quorum. A quorum is required to transact
business at the annual meeting.
Inspector of Elections
The Company will appoint an inspector of elections to
determine whether a quorum is present. The inspector
will also tabulate the votes cast by proxy or at the
annual meeting.
Effect of Abstentions and
Broker Non-Votes
Shares voted “abstain” and broker non-votes (shares
held by brokers that do not receive voting instructions
from the beneficial owner of the shares, and do not
have discretionary authority to vote on a matter) will be
counted as present for purposes of determining whether
we have a quorum. For purposes of voting results,
abstentions will not be counted with respect to the election
of directors but will have the effect of “no” votes with
respect to other proposals, and broker non-votes will not
be counted with respect to any proposal.
Voting by Proxy
Stockholders may vote by internet, phone, or mail, per the
instructions on the accompanying proxy card.
Voting at the Meeting
Stockholders can vote in person during the meeting.
Stockholders of record will be on a list held by the
inspector of elections. Each beneficial owner (an owner
who is not the record holder of their shares) must obtain
a proxy from the beneficial owner’s brokerage firm,
bank, or the stockholder of record holding such shares
for the beneficial owner, and present it to the inspector of
elections with a ballot. Voting in person by a stockholder
as described here will replace any previous votes of that
stockholder submitted by proxy.
58
Other Matters JOB TITLE LAM Research Combo
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Voting and Meeting Information
Information Concerning Solicitation and Voting
Changing Your Vote
Stockholders of record may change their votes by
revoking their proxies. This may be done at any time
before the polls close by (a) submitting a later-dated
proxy by the internet, telephone or mail, or (b) submitting
a vote in person at the annual meeting. Before the annual
meeting, stockholders of record may also deliver voting
instructions to our Secretary, Lam Research Corporation,
4650 Cushing Parkway, Fremont, California 94538.
If a beneficial owner holds shares through a bank or
brokerage firm, or another stockholder of record, the
beneficial owner must contact the stockholder of record in
order to revoke any prior voting instructions.
Voting Instructions
If a stockholder completes and submits proxy voting
instructions, the people named on the proxy card as
proxy holders, the “Proxy Holders,” will follow the
stockholder’s instructions. If a stockholder submits proxy
voting instructions but does not include voting instructions
for each item, the Proxy Holders will vote as the board
recommends on each item for which the stockholder did
not include an instruction. The Proxy Holders will vote
on any other matters properly presented at the annual
meeting in accordance with their best judgment.
Voting Results
We will announce preliminary results at the annual
meeting. We will report final voting results at
http://investor.lamresearch.com and in a Form 8-K to be
filed shortly after the annual meeting.
Availability of Proxy Materials
Beginning on September 23, 2014, this proxy statement
and the accompanying proxy card and 2014 Annual
Report to Stockholders will be mailed to stockholders
entitled to vote at the annual meeting who have designated
a preference for a printed copy. Stockholders who
previously chose to receive proxy materials electronically
were sent an email with instructions on how to access this
year’s proxy materials and the proxy voting site.
Other Meeting Information
Annual Meeting Admission
All stockholders entitled to vote as of the Record Date
are entitled to attend the annual meeting. Admission of
stockholders will begin at 9:15 a.m. Pacific Standard
We have also provided our stockholders access
to our proxy materials over the internet in
accordance with rules and regulations adopted
by the SEC. These materials are available on our
website at http://investor.lamresearch.com and
at www.proxyvote.com. We will furnish, without
charge, a printed copy of these materials and our
2014 Annual Report (including exhibits) on request
by phone (510-572-1615), by mail (to Investor
Relations, Lam Research Corporation, 4650 Cushing
Parkway, Fremont, California 94538), or by email
(to investor.relations@lamresearch.com).
A Notice of Internet Availability of Proxy Materials will
be mailed beginning on September 23, 2014 to all
stockholders entitled to vote at the meeting. The notice will
have instructions for stockholders on how to access our
proxy materials through the internet and how to request
that a printed copy of the proxy materials be mailed to
them. The notice will also have instructions on how to
elect to receive all future proxy materials electronically
or in printed form. If you choose to receive future proxy
materials electronically, you will receive an email each
year with instructions on how to access the proxy
materials and proxy voting site.
Proxy Solicitation Costs
The Company will bear the cost of all proxy solicitation
activities. Our directors, officers and other employees
may solicit proxies personally or by telephone, email
or other communication means, without any cost to Lam
Research. In addition, we have retained D.F. King & Co.,
Inc. to assist in obtaining proxies by mail, facsimile or
email from brokers, bank nominees and other institutions
for the annual meeting. The estimated cost of such
services is $12,000 plus out-of-pocket expenses. D.F. King
& Co, Inc. may be contacted at 48 Wall Street, New
York, 10005. We are required to request that brokers
and nominees who hold stock in their names furnish our
proxy materials to the beneficial owners of the stock,
and we must reimburse these brokers and nominees for
the expenses of doing so in accordance with statutory
fee schedules.
Time on November 6, 2014. Any stockholders interested
in attending the annual meeting should be prepared to
present government-issued photo identification, such as
a valid driver’s license or passport, and verification of
ownership of Company common stock or proxy status
59
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as of the Record Date for admittance. For stockholders
of record as of the Record Date, proof of ownership as
of the Record Date will be verified prior to admittance
into the annual meeting. For stockholders who were
not stockholders as of the Record Date but hold shares
through a bank, broker or other nominee holder, proof of
beneficial ownership as of the Record Date, such as an
account statement or similar evidence of ownership, will
be verified prior to admittance into the annual meeting.
For proxy holders, proof of valid proxy status will also
be verified prior to admittance into the annual meeting.
Stockholders and proxy holders will be admitted to the
annual meeting if they comply with these procedures.
Information on how to obtain directions to attend the
annual meeting and vote in person is available on the
Lam Research website at http://investor.lamresearch.com.
Voting on Proposals
Pursuant to Proposal No. 1, board members will be
elected at the annual meeting to fill 11 seats on the board
to serve for the ensuing year, and until their respective
successors are elected and qualified, under a “majority
vote” standard. The majority voting standard means that,
even though there are 11 nominees for the 11 board
seats, a nominee will be elected only if he or she receives
an affirmative “for” vote from stockholders owning, as of
the Record Date, at least a majority of the shares present
and voted at the meeting in such nominee’s election
by proxy or in person. If an incumbent fails to receive
the required majority, his or her previously submitted
resignation will be promptly considered by the board.
Each stockholder may cast one vote (“for” or “withhold”),
per share held, for each of the 11 nominees. Stockholders
may not cumulate votes in the election of directors.
Each share is entitled to one vote on Proposals No. 2
and 3. Votes may be cast “for,” “against” or “abstain” on
those Proposals.
If a stockholder votes by means of the proxy solicited
by this proxy statement and does not instruct the Proxy
Holders how to vote, the Proxy Holders will vote: “FOR”
all individuals nominated by the board; “FOR” approval,
on an advisory basis, of the compensation of our named
executive officers; and “FOR” the ratification of Ernst &
Young LLP as the Company’s independent registered
public accounting firm for fiscal year 2015.
If you choose to vote in person, you will have an
opportunity to do so at the annual meeting. You may
either bring your proxy card to the annual meeting, or
if you do not bring your proxy card, the Company will
pass out written ballots to anyone who was a stockholder
as of the Record Date. As noted above, if you are a
beneficial owner (an owner who is not the record holder
of their shares), you will need to obtain a proxy from
your brokerage firm, bank, or the stockholder of record
holding shares on your behalf.
Voting by 401(k) Plan Participants
Employee participants in Lam’s Savings Plus Plan,
Lam Research 401(k) and the Novellus Systems, Inc.
(“Novellus“) 401(k) Plan, or the “401(k) Plans,” who
held Lam common stock in their personal 401(k) Plan
accounts as of the Record Date will receive this proxy
statement, so that each participant may vote, by proxy,
his or her interest in Lam’s common stock as held by the
401(k) Plans. The 401(k) Plan trustees, or the Company’s
Savings Plus Plan, Lam Research 401(k) Committee as the
administrator of the 401(k) Plans, will aggregate and vote
proxies in accordance with the instructions in the proxies
of employee participants that they receive.
Stockholder Accounts Sharing the
Same Last Name and Address;
Stockholders Holding Multiple Accounts
To reduce the expense of delivering duplicate proxy
materials to stockholders who may have more than one
account holding Lam Research stock but who share
the same address, we have adopted a procedure
approved by the SEC called “householding.” Under this
procedure, stockholders of record who have the same
address and last name will receive only one copy of
our proxy statement and annual report unless one of the
stockholders notifies our investor relations department that
one or more of them want to receive separate copies.
This procedure reduces duplicate mailings and therefore
saves printing and mailing costs, as well as natural
resources. Stockholders who participate in householding
will continue to have access to all proxy materials at
http://investor.lamresearch.com, as well as the ability to
submit separate proxy voting instructions for each account
through the internet or by phone.
Stockholders holding multiple accounts of Lam common
stock may request separate copies of the proxy materials
by contacting us by phone (510-572-1615), by mail (to
Investor Relations, Lam Research Corporation, 4650
Cushing Parkway, Fremont, California 94538) or by email
(to investor.relations@lamresearch.com). Stockholders
may also contact us by phone, mail or email to request
consolidation of proxy materials mailed to multiple
accounts at the same address.
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Stockholder-Initiated Proposals and
Nominations for 2015 Annual Meeting
Proposals submitted under SEC rules for inclusion in
the Company’s proxy statement. Stockholder-initiated
proposals (other than director nominations) may be
eligible for inclusion in our proxy statement for next
year’s 2015 annual meeting (in accordance with SEC
Rule 14a-8) and for consideration at the 2015 annual
meeting. The Company must receive a stockholder
proposal no later than May 26, 2015 for the proposal
to be eligible for inclusion. Any stockholder interested in
submitting a proposal or nomination is advised to contact
legal counsel familiar with the detailed securities law
requirements for submitting proposals or nominations for
inclusion in a company’s proxy statement.
Proposals and nominations under Company
bylaws. Stockholders may also submit proposals for
consideration and nominations of director candidates
for election at the annual meeting by following certain
requirements set forth in our bylaws. The current
applicable provisions of our bylaws are described
below. Proposals will not be eligible for inclusion in
the Company’s proxy statement for the 2015 annual
meeting unless they are submitted in compliance with then
applicable SEC rules; however, they will be presented
for discussion at the annual meeting if the requirements
established by our bylaws for stockholder proposals and
nominations have been satisfied. Under current SEC rules,
stockholder nominations for directors are not eligible for
inclusion in the Company’s proxy materials.
Our bylaws establish requirements for stockholder
proposals and nominations not included in our proxy
statement to be discussed at the annual meeting. Assuming
that the 2015 annual meeting takes place at roughly the
same date next year as the 2014 annual meeting (and
subject to any change in our bylaws—which would be
publicly disclosed by the Company—and to any provisions
of then-applicable SEC rules), the principal requirements for
the 2015 annual meeting would be as follows:
For proposals and for nominations:
• A stockholder of record, or “the Stockholder,” must
submit the proposal or nomination in writing; it must be
received by the secretary of the Company no earlier
than July 10, 2015, and no later than August 9, 2015;
• For each Stockholder and beneficial owner of
Company common stock, “Beneficial Owner,” if any,
on behalf of whom the proposal or nomination is being
made the Stockholder’s notice to the secretary of a
proposal or nomination must state:”
• the name and record address of the Stockholder and
the Beneficial Owner;
• the class, series and number of shares of capital stock
of the Company that are owned beneficially or of
record by the Stockholder and the Beneficial Owner;
• a description of any options, warrants, convertible
securities, or similar rights held by the Stockholder or
the Beneficial Owner with respect to the Company’s
stock, and any other opportunities by the Stockholder
or the Beneficial Owner to profit or share, directly
or indirectly, in any profit derived from any increase
or decrease in the value of shares of the Company,
including through a general or limited partnership or
ownership interest in a general partner;
• a description of any proxies, contracts, or other
voting arrangements to which the Stockholder or
the Beneficial Owner is a party concerning the
Company’s stock;
• a description of any short interest held by the
Stockholder or the Beneficial Owner in the
Company’s stock;
• a description of any rights to dividends separated or
separable from the underlying shares of the Company
to which the Stockholder or the Beneficial Owner
are entitled;
• any other information relating to the Stockholder
or the Beneficial Owner that would be required to
be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of
proxies for, as applicable, the proposal and/or for the
election of directors in a contested election pursuant
to Section 14 of the Exchange Act and the rules and
regulations pursuant thereto; and
• a statement whether or not the Stockholder or the
Beneficial Owner will deliver a proxy statement and
form of proxy to holders of, in the case of a proposal,
at least the percentage of voting power of all of the
shares of capital stock of the Company required under
applicable law to carry the proposal or, in the case of
nominations, at least the percentage of voting power
of all of the shares of capital stock of the Company
reasonably believed by the Stockholder or the
Beneficial Owner, as the case may be, to be sufficient
to elect the nominee or nominees proposed to be
nominated by the Stockholder or Beneficial Owner
under a majority voting standard.
Additionally, for proposals, the notice must set forth
a brief description of such business, the reasons for
conducting such business at the meeting and any
material interest in such business of such Stockholder
and the Beneficial Owner, if any, on whose behalf the
proposal is made.
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Additionally, for nominations, the notice must:
• set forth, as to each person whom the Stockholder
proposes to nominate for election or reelection as
a director, all information relating to such person as
would be required to be disclosed in solicitations of
proxies for the election of such nominees as directors
pursuant to Regulation 14A under the Exchange Act;
• be accompanied by a written consent of each proposed
nominee to be named as a nominee and to serve as a
director if elected; and
• be accompanied by a statement whether such person,
if elected, intends to tender, promptly following
such person’s election or reelection, an irrevocable
conditional resignation effective upon such person’s
failure to receive the required vote for reelection or to
be renominated by the board at the next meeting at
which such person would face reelection and upon
acceptance of such resignation by the board, in
accordance with our corporate governance guidelines.
For a full description of the requirements for submitting
a proposal or nomination, see the Company’s bylaws.
Submissions or questions should be sent to: Secretary,
Lam Research Corporation, 4650 Cushing Parkway,
Fremont, California 94538
By Order of the Board of Directors,
Sarah A. O’Dowd
Secretary
Fremont, California
Dated: September 23, 2014
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 29, 2014
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
(State or other jurisdiction of
incorporation or organization)
4650 Cushing Parkway
Fremont, California
(Address of principal executive offices)
94-2634797
(I.R.S. Employer
Identification No.)
94538
(Zip code)
Registrant’s telephone number, including area code: (510) 572-0200
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common Stock, Par Value $0.001 Per Share
Name of exchange on which registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No È
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 È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
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. (Check one):
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Accelerated filer
‘
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No È
The aggregate market value of the Registrant’s Common Stock, $0.001 par value, held by non-affiliates of the Registrant, as of
December 29, 2013, the last business day of the most recently completed second fiscal quarter with respect to the fiscal year covered
by this Form 10-K, was $6,184,276,734. Common Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock has been excluded from this computation in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive determination of such status for other purposes.
As of August 20, 2014, the Registrant had 162,075,237 outstanding shares of Common Stock.
Parts of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders expected to be held on or about November 6,
2014 are incorporated by reference into Part III of this Form 10-K. (However, the Reports of the Audit Committee and
Compensation Committee are expressly not incorporated by reference herein.)
Documents Incorporated by Reference
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LAM RESEARCH CORPORATION
2014 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Part I.
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Item 4.
Part II.
Item 5.
Item 6.
Item 7.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part IV.
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
3
14
26
26
26
26
27
30
32
45
47
47
48
48
49
49
49
49
49
50
96
99
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PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical facts, the statements contained in this discussion are forward-looking
statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform
Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified as
forward-looking, by use of phrases and words such as “believe,” “anticipate,” “expect,” “may,” “should,”
“could” and other future-oriented terms. The identification of certain statements as “forward-looking” is not
intended to mean that other statements not specifically identified are not forward-looking. Forward-looking
statements include, but are not limited to, statements that relate to: trends and opportunities in the global
economic environment and the semiconductor industry; the anticipated levels of, and rates of change in,
future shipments, margins, market share, capital expenditures, international sales, revenue and operating
expenses generally; management’s plans and objectives for our current and future operations and business
focus; volatility in our quarterly results; customer requirements and our ability to satisfy those requirements;
customer capital spending and their demand for our products, and the reliability of indicators of change in
customer spending and demand; hedging transactions; our ability to defend our market share and to gain new
market share; our ability to obtain and qualify alternative sources of supply; factors that affect our tax rates;
anticipated growth in the industry and the total market for wafer-fabrication equipment and our growth
relative to such growth; levels of research and development expenditures and joint development relationships
with customers, suppliers or other industry members; outsourced activities; the role of component suppliers in
our business; the resources invested to comply with all evolving standards and the impact of such efforts; the
estimates we make, and the accruals we record, in order to implement our critical accounting policies
(including but not limited to the adequacy of prior tax payments, future tax liabilities and the adequacy of our
accruals relating to them); our access to capital markets; our intention to pay quarterly dividends and the
amounts thereof, if any; our intention to repurchase our shares; our ability to manage and grow our cash
position; and the sufficiency of our financial resources to support future business activities (including but not
limited to operations, investments, debt service requirements and capital expenditures). Such statements are
based on current expectations and are subject to risks, uncertainties, and changes in condition, significance,
value, and effect, including without limitation those discussed below under the heading “Risk Factors” within
Item 1A and elsewhere in this report and other documents we file from time to time with the Securities and
Exchange Commission (“SEC”), such as our quarterly reports on Form 10-Q for the quarters ended
September 29, 2013, December 29, 2013 and March 30, 2014, and our current reports on Form 8-K. Such
risks, uncertainties and changes in condition, significance, value, and effect could cause our actual results to
differ materially from those expressed in this report and in ways not readily foreseeable. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date
hereof and are based on information currently and reasonably known to us. We do not undertake any
obligation to release the results of any revisions to these forward-looking statements, which may be made to
reflect events or circumstances that occur after the date of this report or to reflect the occurrence or effect of
anticipated or unanticipated events.
Item 1.
Business
Incorporated in 1980, Lam Research Corporation (“Lam Research,” “Lam,” “we,” or the “Company”) is a
Delaware corporation, headquartered in Fremont, California. We maintain a network of facilities throughout
Asia, Europe, and the United States of America in order to meet the needs of our dynamic customer base.
Additional information about Lam Research is available on our website at www.lamresearch.com.
Our Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Forms 8-K, and
any amendments to those reports are available on our website as soon as reasonably practical after we file them
with or furnish them to the SEC and are also available online at the SEC’s website at www.sec.gov.
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The Lam Research logo, Lam Research, and all product and service names used in this report are either
registered trademarks or trademarks of Lam Research Corporation or its subsidiaries in the United States and/or
other countries. All other marks mentioned herein are the property of their respective holders.
Lam Research is a global supplier of innovative wafer fabrication equipment and services to the
semiconductor industry. We design, manufacture, market, refurbish, and service semiconductor processing
systems that are used in the fabrication of integrated circuits (“ICs”). Our market-leading products are designed
to help our customers build smaller, faster, and more power-efficient devices that are used in a variety of
electronic products, including cell phones, tablets, computers, storage devices, and networking equipment.
The Company’s customer base includes leading semiconductor memory, foundry, and integrated device
manufacturers (“IDMs”) that make products such as DRAM, NAND memory, and logic devices. Semiconductor
manufacturing, our customers’ business, involves the complete fabrication of multiple die, or ICs, on a wafer.
This involves the repetition of a set of core processes and can require hundreds of individual steps. On a silicon
wafer, a tiny, intricate pattern is precisely replicated across the wafer surface to create identical miniature
devices, where features can be 1,000 times smaller than a grain of sand. Fabricating these devices requires highly
sophisticated process technologies and precision control at the atomic scale. Along with meeting technical
requirements, wafer processing equipment must deliver high productivity and be cost-effective.
At Lam Research, we leverage our expertise in semiconductor device processing to develop enabling
technology and productivity solutions that typically benefit our customers through lower defect rates, enhanced
yields, faster processing time, and/or reduced cost. We offer a broad portfolio of complementary products that
are used in several areas of the semiconductor manufacturing process flow, including thin film deposition,
plasma etch, and wafer cleaning. These processes, which are repeated numerous times during the wafer
fabrication cycle, are utilized to manufacture every type of semiconductor device.
Our products are used primarily in front-end wafer processing, which involves the steps that create the
active components of a device (transistor, capacitor) and their wiring (interconnect). Market demand for ever-
smaller IC designs is driving the development of and migration to new fabrication strategies, such as three-
dimensional (“3D”) architectures and multiple patterning. We also address processes for back-end wafer-level
packaging (“WLP”), which is an alternative to traditional two dimensional packaging and can offer a smaller
form factor, increased interconnect speed and bandwidth, and lower power consumption, among other benefits.
In addition, our products are well-suited for related markets that rely on semiconductor processes and require
production-proven manufacturing capability, such as micro-electromechanical systems (“MEMS”).
The Company’s high-productivity thin film deposition systems form a device’s sub-microscopic layers of
conducting (metal) or insulating (dielectric) materials. Lam is the market leader in plasma etch, a highly critical
process step that selectively removes materials from the wafer to create the features and patterns of a device. Our
photoresist strip systems remove the photoresist mask before a wafer proceeds to the next processing step. Lam’s
wet spin clean and plasma-based bevel clean products remove particles, residues and film from the wafer surface
before or after adjacent processes.
Our Customer Support Business Group (“CSBG”) provides products and services to maximize installed
equipment performance and operational efficiency. We offer a broad range of services to deliver value
throughout the lifecycle of our equipment, including customer service, spares, upgrades, and refurbishment of
our deposition, etch, photoresist strip, and clean products. Many of the technical advances that we introduce in
our newest products are also available as upgrades, which provide customers with a cost-effective strategy for
extending the performance and capabilities of their existing wafer fabrication lines. CSBG also offers refurbished
and newly built previous-generation (legacy) equipment for those applications that do not require the most
advanced wafer processing capability.
Silfex Inc. (“Silfex”) is a wholly-owned subsidiary of Lam. Silfex is a leading provider of high-purity custom
silicon components and assemblies that serve technology markets such as semiconductor equipment. Peter Wolters
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was a wholly-owned subsidiary of Lam until we sold substantially all of Peter Wolters on July 2, 2014. Peter
Wolters designs and manufactures high-precision grinding, lapping, polishing, and deburring systems used in the
automotive, aerospace, medical, semiconductor manufacturing and other industries.
Products
Thin Film Deposition
In leading-edge semiconductor designs, metal deposition processes face significant scaling and integration
challenges. For advanced copper interconnect structures, challenges for electrochemical deposition (“ECD”)
include providing complete, void-free fill of high aspect ratio (“HAR”) structures with low defectivity and high
productivity. Electroplating of copper and other metals is also used for through-silicon via (“TSV”) and WLP
applications, such as forming conductive bumps and redistribution layers (“RDLs”). These applications require
excellent within-wafer uniformity at high plating rates, minimal defects, and cost competitiveness. For tungsten
chemical vapor deposition (“CVD”)/atomic layer deposition (“ALD”) processes, key requirements are
minimizing contact resistance to meet lower power consumption requirements and achieving void-free fill for
narrow nanoscale structures. In addition, good barrier step coverage at reduced thicknesses relative to physical
vapor deposition/CVD barrier films is also needed to improve contact fill and reduce resistivity.
In dielectric deposition, high-productivity, high-quality films are needed for a number of critical process
steps. For example, next-generation FinFET transistor structures and back-end-of-line (“BEOL”) self-aligned
double patterning require highly conformal film deposition and atomic-scale control of film dimensions to ensure
device performance. The numerous alternating film layers used in new 3D NAND designs require exceptional
stress and defectivity control and ultra-smooth film deposition. Plasma-enhanced CVD (“PECVD”) is often used
for these applications, as well as for advanced WLP, where depositing high-quality films without exceeding
thermal budgets is essential. In addition, ALD processes are often used to deposit very thin, highly conformal
films for applications such as multiple patterning. For gapfill deposition, achieving defect-free fills while
maintaining high throughput is essential. Preferred approaches are to use high-density plasma CVD (“HDP-
CVD”) either as a complete gapfill solution or as a cap over other gapfill technologies to enhance process control
and mitigate integration risks. Lastly, innovative post-deposition film treatments such as ultraviolet thermal
processing (“UVTP”) are being used to improve low-k film integrity and increase strain in nitride layers for
improved device performance.
Copper Metal Films — SABRE ® Product Family
The SABRE ECD product family is the industry’s productivity-leading platform for copper damascene
manufacturing. Electrofill ® technology provides high-throughput, void-free fill with superior defect density
performance for advanced technology nodes. SABRE chemistry packages provide leading-edge fill performance
for the lowest defectivity, widest process window, and highest rates of bottom-up growth to fill the most
challenging HAR features. System capabilities include deposition of copper directly on various liner materials,
important for next-generation metallization schemes. The number of yielding ICs per wafer has also been
improved by increasing the usable die area through industry-leading process edge exclusion engineering.
Applications include copper deposition for both advanced logic and memory interconnect. We also offer the
SABRE 3D system to address TSV and WLP applications, such as copper pillar, RDL, underbump metallization,
bumping, and microbumps used in post-TSV processing.
Tungsten Metal Films — ALTUS ® Product Family
Lam’s market-leading ALTUS systems deposit highly conformal atomic layer films for advanced tungsten
metallization applications. The patented Multi-Station Sequential Deposition (“MSSD”) architecture enables a
nucleation layer to be formed using Pulsed Nucleation Layer (“PNL”) technology and bulk CVD fill to be
performed in situ. PNL, Lam’s ALD technology, is used in the deposition of tungsten nitride films to achieve
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high step coverage with reduced thickness relative to conventional barrier films. PNL is also used to reduce
thickness and alter CVD bulk fill grain growth, lowering the overall resistivity of thin tungsten films. The
advanced ExtremeFill CVD tungsten technology provides extendibility to fill the most challenging structures at
advanced technology nodes. Applications include tungsten plug and via fill, 3D NAND wordlines, low-stress
composite interconnects, and tungsten nitride barrier for via and contact metallization.
PECVD Dielectric Films — VECTOR ® Product Family
Lam’s VECTOR family of PECVD/ALD systems delivers superior thin film quality, wafer-to-wafer
uniformity, productivity, and low cost of ownership. The MSSD architecture enables industry-leading
performance with both sequential processing and parallel processing to provide broad process flexibility for a
range of applications. VECTOR products offer specialized systems for logic and memory applications. VECTOR
Express offers a small footprint with four processing stations. VECTOR Excel is a modular tool for advanced
technology nodes where pre-and-post film deposition treatments are needed. VECTOR Extreme accommodates
up to 12 processing stations for high-throughput memory processes. Applications include deposition of ashable
hardmasks, multiple patterning films, oxides, nitrides, carbides, anti-reflective layers, multi-layer stack films,
diffusion barriers, and spacer films.
Gapfill Dielectric Films — SPEED ® Product Family
Lam’s SPEED HDP-CVD products provide void-free gapfill of high-quality dielectric films with superior
throughput and reliability. The unique source design provides excellent particle performance, while the ability to
customize the deposition and in situ etching profile ensures best-of-breed across-wafer thickness and gapfill
uniformity. Together, the chamber and plasma source designs allow large batch sizes between cleans and faster
cleans to deliver superior throughput. Broad process flexibility is available on the same platform, without
requiring major hardware changes. Applications include STI, pre-metal dielectrics, inter-layer dielectrics, inter-
metal dielectrics, and passivation layers.
Film Treatment — SOLA ® Product Family
The SOLA UVTP product family is used for treatment of BEOL low-k dielectric films and front-end-of-line
(“FEOL”) silicon nitride strained films. The systems incorporate a proprietary treatment process that modifies the
physical characteristics of a previously deposited film through exposure to ultraviolet light, gases and vapors, and
heat. The Multi-Station Sequential Processing (“MSSP”) architecture allows independent control of temperature,
wavelength, and intensity at each station of the wafer path. This enables delivery of best-in-class film properties,
within-wafer and wafer-to-wafer uniformity, and productivity.
Plasma Etch
As the semiconductor industry continues to improve device performance and shrink critical feature sizes,
plasma etch faces multiple challenges. These include processing smaller features, new materials, new transistor
structures, increasingly complex film stacks, and ever higher aspect ratio structures. For conductor etch,
requirements include delivering atomic-scale control for etching FinFET/3D gate transistors, multi–film stacks
for high-k/metal gate structures, and multiple patterning structures. Dielectric etch processes must be able to
maintain etch profiles on increasingly HAR structures such as in 3D NAND devices, etch new multi-layer
photoresist materials and amorphous carbon hardmasks, and avoid damaging fragile low-k materials. In
emerging 3D integrated circuits (“3D ICs”), TSVs are now used to provide interconnect capability for die-to-die
and wafer-to-wafer stacking. Critical factors for TSV are etching a variety of materials in the same chamber ( in
situ ), as well as being able to use both conventional and special techniques for deep silicon etching. For all etch
processes, it is important to provide excellent profile control and across-wafer uniformity while maintaining high
productivity and cost efficiency.
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Conductor Etch — 2300 ® Kiyo ® Product Family, 2300 ® Versys ® Metal Product Family
The 2300 Kiyo product family delivers high-performance, high-productivity, low-risk solutions for
conductor etch applications. Superior uniformity, uniformity control, and repeatability are enabled by a
symmetrical chamber design, leading electrostatic chuck technology, and independent tuning features. The Kiyo
products deliver high productivity with low defectivity on multi-film stacks, enabled by in situ etch capability,
continuous plasma, and advanced Waferless Autoclean technology. In addition, Kiyo systems can be configured
to perform atomic layer etch (“ALE”), which delivers atomic-scale variability control to enable next-generation
wafer processing. Applications include FinFET and tri-gate, shallow trench isolation (“STI”), high-k/metal gate
and multiple patterning. The 2300 Versys metal product family provides a flexible platform for BEOL metal etch
processes. Symmetrical chamber design and independent tuning features provide critical dimension, profile
uniformity, and uniformity control for metal hardmask applications. The products’ proprietary chamber cleaning
technology ensures high availability, high yield, and exceptional process repeatability for aluminum etching.
Applications include metal hardmask, multiple patterning, high-density aluminum line, and aluminum pad.
Dielectric Etch — 2300 ® Flex™ Product Family
The 2300 Flex product family offers differentiated technologies and application-focused capabilities for
critical dielectric etch applications. Exceptional uniformity, repeatability, and tunability are enabled by a unique
multi-frequency, small-volume, confined plasma design. The systems deliver high productivity with low
defectivity, enabled by in situ multi-step etch and continuous plasma capability. Low-risk, cost-effective
upgrades provide evolutionary product transitions that extend product life and maximize return on investment.
Applications include low-k and ultra low-k dual damascene, self-aligned contacts, capacitor cell, mask open, 3D
NAND HAR hole, trench, and contact.
TSV Etch — 2300 ® Syndion ® Product Family
Based on Lam’s production-proven conductor etch products, the 2300 Syndion TSV etch family provides
low-risk, flexible solutions to address multiple TSV etch applications. The Syndion products provide a low cost
of ownership due to high etch rates, excellent repeatability, and in situ etching of multiple materials in the TSV
stack (silicon, dielectrics, conducting films). The systems support both conventional single-step etch and rapidly
alternating process (“RAP”). High process flexibility, superior profile control, and excellent uniformity enable
successful TSV implementation for a variety of CMOS 3D IC and image sensor applications.
Photoresist Strip
With the semiconductor industry’s migration to ultra-shallow junctions, multiple patterning, ultra low-k
dielectrics, and 3D architectures, photoresist strip processes need to manage more complex device structures. At
the transistor level, small changes can affect junction resistivity, junction depth, and dopant activation, thereby
affecting device performance. For interconnect structures, unwanted changes in the properties of low-k dielectrics
can also impact performance. These concerns are driving the development of new photoresist strip processes for
advanced technology nodes. Challenges include removing residues, minimizing oxidation and silicon loss, and
providing damage-free results, while at the same time delivering high throughput and low cost of ownership.
Photoresist Strip — G400 ® ,GxT ® ,G3D ®
Lam’s photoresist strip systems are based on our production-proven MSSP platform. The MSSP architecture
provides multiple process stations, where both temperature and chemistry may be independently controlled,
allowing bulk strip, high-dose implant strip (“HDIS”), and dry clean processes to be performed all on the same
platform. The high-productivity G400 is targeted for bulk strip and HDIS applications, primarily in large DRAM
and NAND memory fabs. Enhanced source technology combined with faster wafer heating provides high
throughput for bulk strip and implant strip applications. The GxT system is designed for critical logic device
manufacturing process steps that demand low silicon loss and ultra-low defectivity.
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Single-Wafer Clean
Wafer cleaning is a critical function that must be repeated many times during the semiconductor
manufacturing process, from device fabrication through packaging. As device geometries shrink and new
materials are introduced, the number of cleaning steps continues to grow. Furthermore, each step has different
selectivity and defectivity requirements that add to manufacturing complexity. For next-generation devices,
fragile structures need to be cleaned without causing damage. In addition, cleaning steps that target the bevel
region can help eliminate the potential source of yield-limiting defects at the wafer’s edge, as well as, increase
the number of good die at the wafer’s edge to improve yield.
Wet Clean — DV-Prime ® ,Da Vinci ® ,SP Series
Lam’s single-wafer spin technology pioneered the industry transition from batch to single-wafer wet
processing. These production-proven spin wet clean systems provide the productivity and flexibility needed for
both high-volume manufacturing and leading-edge development across multiple technology nodes and for all
device types. The products deliver excellent process uniformity across the wafer, wafer-to-wafer, and lot-to-lot.
Proprietary technologies enhance damage-free particle removal and enable wafer drying without pattern collapse
or watermarks. Offering the latest in dilute chemistry and solvent systems, the products meet defectivity and
material integrity requirements. Applications include particle, polymer, and residue removal; photoresist
removal; and wafer backside/bevel cleaning. Our wet clean systems are also used for multiple wet etch and clean
applications for WLP, including silicon substrate thinning, wafer stress relief, underbump metallization etch, and
photoresist removal.
Plasma Bevel Clean — 2300 ® Coronus ® Product Family
The 2300 Coronus plasma-based bevel clean products enhance die yield by removing particles, residues and
unwanted films from the wafer’s edge that can impact the device area. The system combines the ability of plasma
to selectively remove a wide variety of materials with a proprietary confinement technology that protects the die
area. High system uptime and throughput, excellent process repeatability, and efficient in situ removal of multi-
material film stacks and residues ensure high productivity for increased wafer output. Applications include post-
etch, pre- and post-deposition, pre-lithography, and metal film removal to prevent arcing during plasma etch or
deposition steps. It is also the industry’s only bevel clean product that removes amorphous-carbon films and
carbon-rich residues.
Legacy Products
For applications that do not require the most advanced wafer processing capability, semiconductor
manufacturers can benefit from the proven performance of previous-generation products to increase their
production capacity at a reduced economic investment. Purchasing through an original equipment manufacturer
(“OEM”) like Lam Research minimizes the risks of unexpected costs and unpredictable time to production that
are typically associated with used systems purchases. To meet semiconductor manufacturers’ needs for high-
performance, maximum-predictability, and low-risk equipment, Lam provides refurbished and newly built legacy
products. Our products also provide production-worthy, cost-effective solutions for the MEMS and light emitting
diode (“LED”) markets.
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Products Table
Segment
Process/Application
Technology
Products
Thin Film Deposition
Metal Films
ECD (Copper & Other)
CVD, ALD (Tungsten)
SABRE® family
ALTUS® family
Plasma Etch
Strip & Clean
Dielectric Films
Film Treatment
Conductor Etch
Dielectric Etch
TSV Etch
PECVD, ALD
Gapfill HDP-CVD
UVTP
Reactive Ion Etch
Reactive Ion Etch
Deep Reactive Ion Etch
Photoresist Strip
Wafer Cleaning
Bevel Cleaning
Dry Strip
Wet Clean
Dry Plasma Clean
VECTOR® family
SPEED® family
SOLA® family
2300® Kiyo® family,
2300® Versys® metal
family
2300® Flex™ family
2300® Syndion® family
G400®, GxT®, G3D®
DV-Prime®, Da Vinci®,
SP Series
2300® Coronus® family
Fiscal Periods Presented
All references to fiscal years apply to our fiscal years, which ended June 29, 2014, June 30, 2013,
and June 24, 2012. In all sections of this document, the fiscal 2012 information presented reflects 20 days of
Novellus related activity, as Novellus was purchased on June 4, 2012. There is no Novellus related activity
reflected in periods prior to fiscal year 2012.
Research and Development
The market for semiconductor capital equipment is characterized by rapid technological change and product
innovation. Our ability to achieve and maintain our competitive advantage depends in part on our continued and
timely development of new products and enhancements to existing products. Accordingly, we devote a
significant portion of our personnel and financial resources to research and development (“R&D”) programs and
seek to maintain close and responsive relationships with our customers and suppliers.
Our R&D expenses during fiscal years 2014, 2013, and 2012 were $716.5 million, $683.7 million, and
$444.6 million, respectively. The majority of R&D spending over the past three years has been targeted at
deposition, etch, single-wafer clean, and other semiconductor manufacturing products. We believe current
challenges for customers at various points in the semiconductor manufacturing process present opportunities for
us.
We expect to continue to make substantial investments in R&D to meet our customers’ product needs,
support our growth strategy, and enhance our competitive position.
Marketing, Sales, and Service
Our marketing, sales, and service efforts are focused on building long-term relationships with our customers
and targeting product and service solutions designed to meet their needs. These efforts are supported by a team of
product marketing and sales professionals as well as equipment and process engineers who work closely with
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individual customers to develop solutions for their wafer processing needs. We maintain ongoing service
relationships with our customers and have an extensive network of service engineers in place throughout the
United States, Europe, Taiwan, Korea, Japan, and Asia Pacific. We believe that comprehensive support programs
and close working relationships with customers are essential to maintaining high customer satisfaction and our
competitiveness in the marketplace.
We provide standard warranties for our systems. The warranty provides that systems shall be free from
defects in material and workmanship and conform to agreed-upon specifications. The warranty is limited to
repair of the defect or replacement with new or like-new equivalent goods and is valid when the buyer provides
prompt notification within the warranty period of the claimed defect or non-conformity and also makes the items
available for inspection and repair. We also offer extended warranty packages to our customers to purchase as
desired.
International Sales
A significant portion of our sales and operations occur outside the United States and, therefore, may be
subject to certain risks, including but not limited to tariffs and other barriers, difficulties in staffing and managing
non-U.S. operations, adverse tax consequences, foreign currency exchange rate fluctuations, changes in currency
controls, compliance with U.S. and international laws and regulations, including U.S. export restrictions, and
economic and political conditions. Any of these factors may have a material adverse effect on our business,
financial position, and results of operations and cash flows. For geographical reporting, revenue is attributed to
the geographic location in which the customers’ facilities are located. Revenue by region was as follows:
June 29,
2014
Revenue:
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast Asia . . . . . . . . . . . . . . . . . . . . . . .
$1,127,406
1,049,214
634,131
623,408
622,022
303,730
247,398
Year Ended
June 30,
2013
(in thousands)
$ 603,821
1,026,548
368,095
319,282
734,324
292,432
254,414
June 24,
2012
$ 893,549
467,922
308,189
143,769
458,531
244,038
149,194
Total revenue . . . . . . . . . . . . . . . . . . . .
$4,607,309
$3,598,916
$2,665,192
Long-Lived Assets
Refer to Note 17 of our Consolidated Financial Statements, included in Item 15 of this report, for
information concerning the geographic locations of long-lived assets.
Customers
Our customers include all of the world’s leading semiconductor manufacturers. Customers continue to
establish joint ventures, alliances and licensing arrangements which have the potential to positively or negatively
impact our competitive position and market opportunities. In fiscal years 2014, 2013, and 2012, three customers,
Samsung Electronics Company, Ltd., SK Hynix Inc., and Taiwan Semiconductor Manufacturing Company, Ltd.,
each individually represented greater than 10% of total revenues.
A material reduction in orders from our customers could adversely affect our results of operations and
projected financial condition. Our business depends upon the expenditures of semiconductor manufacturers.
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Semiconductor manufacturers’ businesses, in turn, depend on many factors, including their economic capability,
the current and anticipated market demand for integrated circuits and the availability of equipment capacity to
support that demand.
Backlog
In general, we schedule production of our systems based upon our customers’ delivery requirements and
forecasts. In order for a system to be included in our backlog, the following conditions must be met: 1) we have
received a written customer request that has been accepted, 2) we have an agreement on prices and product
specifications, and 3) there is a scheduled shipment within the next 12 months. In order for spares and services to
be included in our backlog, the following conditions must be met: 1) we have received a written customer request
that has been accepted and (2) delivery of products or provision of services is anticipated within the next
12 months. Where specific spare parts and customer service purchase contracts do not contain discrete delivery
dates, we use volume estimates at the contract price and over the contract period, not to exceed 12 months, in
calculating backlog amounts. Our policy is to revise our backlog for order cancellations and to make adjustments
to reflect, among other things, changes in spares volume estimates and customer delivery date changes. At
June 29, 2014 and June 30, 2013, our backlog was approximately $866 million and $764 million, respectively.
Generally, orders for our products and services are subject to cancellation by our customers with limited
penalties. Because some orders are received and shipped in the same quarter and because customers may change
delivery dates and cancel orders, our backlog at any particular date is not necessarily indicative of business
volumes or actual revenue levels for succeeding periods.
Manufacturing
Our manufacturing operations consist mainly of assembling and testing components, sub-assemblies, and
modules that are then integrated into finished systems prior to shipment to or at the location of our customers.
Most of the assembly and testing of our products is conducted in cleanroom environments.
We have agreements with third parties to outsource certain aspects of our manufacturing, production
warehousing, and logistics functions. We believe that these outsourcing contracts provide us more flexibility to
scale our operations up or down in a timely and cost effective manner, enabling us to respond quickly to any
changes in our business. We believe that we have selected reputable providers and have secured their
performance on terms documented in written contracts. However, it is possible that one or more of these
providers could fail to perform as we expect, and such failure could have an adverse impact on our business and
have a negative effect on our operating results and financial condition. Overall, we believe we have effective
mechanisms to manage risks associated with our outsourcing relationships. Refer to Note 14 of our Consolidated
Financial Statements, included in Item 15 of this report, for further information concerning our outsourcing
commitments.
Certain components and sub-assemblies that we include in our products may only be obtained from a single
supplier. We believe that, in many cases, we could obtain and qualify alternative sources to supply these
products. Nevertheless, any prolonged inability to obtain these components could have an adverse effect on our
operating results and could unfavorably impact our customer relationships.
Environmental Matters
We are subject to a variety of governmental regulations related to the management of hazardous materials
that we use in our business operations. We are currently not aware of any pending notices of violation, fines,
lawsuits, or investigations arising from environmental matters that would have a material effect on our business.
We believe that we are generally in compliance with these regulations and that we have obtained (or will obtain
or are otherwise addressing) all necessary environmental permits to conduct our business. Nevertheless, the
failure to comply with present or future regulations could result in fines being imposed on us, require us to
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suspend production or cease operations or cause our customers to not accept our products. These regulations
could require us to alter our current operations, to acquire significant additional equipment, or to incur substantial
other expenses to comply with environmental regulations. Our failure to control the use, sale, transport or
disposal of hazardous substances could subject us to future liabilities.
Employees
As of August 19, 2014, we had approximately 6,500 regular employees globally. Although we have
employment-related agreements with a number of key employees, these agreements do not guarantee continued
service. Each of our employees is required to comply with our policies relating to maintaining the confidentiality
of our non-public information.
In the semiconductor and semiconductor equipment industries, competition for highly skilled employees is
intense. Our future success depends, to a significant extent, upon our continued ability to attract and retain
qualified employees particularly in the R&D and customer support functions.
Competition
The semiconductor capital equipment industry is characterized by rapid change and is highly competitive
throughout the world. To compete effectively, we invest significant financial resources to continue to strengthen
and enhance our product and services portfolio and to maintain customer service and support locations globally.
Semiconductor manufacturers evaluate capital equipment suppliers in many areas, including, but not limited to,
process performance, productivity, defect control, customer support, and overall cost of ownership, which can be
affected by many factors such as equipment design, reliability, software advancements, and similar factors. Our
ability to succeed in the marketplace depends upon our ability to maintain existing products and introduce
product enhancements and new products that meet customer requirements on a timely basis. In addition,
semiconductor manufacturers must make a substantial investment to qualify and integrate new capital equipment
into semiconductor production lines. As a result, once a semiconductor manufacturer has selected a particular
supplier’s equipment and qualified it for production, the manufacturer generally maintains that selection for that
specific production application and technology node as long as the supplier’s products demonstrate performance
to specification in the installed base. Accordingly, we may experience difficulty in selling to a given customer if
that customer has qualified a competitor’s equipment. We must also continue to meet the expectations of our
installed base of customers through the delivery of high-quality and cost-efficient spare parts in the presence of
third-party spare parts provider competition.
We face significant competition with all of our products and services. Our primary competitors in the etch
market are Tokyo Electron, Ltd. and Applied Materials, Inc. Our primary competitors in the single-wafer wet
clean market are Dainippon Screen Manufacturing Co. Ltd., Semes, and Tokyo Electron, Ltd. In the tungsten
CVD, PECVD, HDP-CVD, ECD and PVD markets, our primary competitor is Applied Materials, Inc. In the
PECVD market, we also compete against ASM International and Wonik IPS.
Certain of our existing and potential competitors have substantially greater financial resources and larger
engineering, manufacturing, marketing, and customer service and support organizations than we do. In addition,
we face competition from a number of emerging companies in the industry. We expect our competitors to
continue to improve the design and performance of their current products and processes and to introduce new
products and processes with enhanced price/performance characteristics. If our competitors make acquisitions or
enter into strategic relationships with leading semiconductor manufacturers, or other entities, covering products
similar to those we sell, our ability to sell our products to those customers could be adversely affected. There can
be no assurance that we will continue to compete successfully in the future.
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Patents and Licenses
Our policy is to seek patents on inventions relating to new or enhanced products and processes developed as
part of our ongoing research, engineering, manufacturing, and support activities. We currently hold a number of
United States and foreign patents covering various aspects of our products and processes. We believe that the
duration of our patents generally exceeds the useful life of the technologies and processes disclosed and claimed
in them. Our patents, which cover material aspects of our past and present core products, have current durations
ranging from approximately one to twenty years. We believe that, although the patents we own and may obtain in
the future will be of value, they alone will not determine our success. Our success depends principally upon our
engineering, marketing, support, and delivery skills. However, in the absence of patent protection, we may be
vulnerable to competitors who attempt to imitate our products, manufacturing techniques, and processes. In
addition, other companies and inventors may receive patents that contain claims applicable or similar to our
products and processes. The sale of products covered by patents of others could require licenses that may not be
available on terms acceptable to us, or at all. For further discussion of legal matters, see Item 3, “Legal
Proceedings,” of this report.
EXECUTIVE OFFICERS OF THE COMPANY
As of August 26, 2014, the executive officers of Lam Research were as follows:
Name
Age
Title
Martin B. Anstice . . . . . 47
Timothy M. Archer . . . . 47
Douglas R. Bettinger . . . 47
Richard A. Gottscho . . . 62
Sarah A. O’Dowd . . . . . 64
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President, Chief Financial Officer and Chief Accounting Officer
Executive Vice President, Global Products Group
Senior Vice President, Chief Legal Officer
Martin B. Anstice is President and Chief Executive Officer of Lam Research. Mr. Anstice joined the
Company in April 2001 as Senior Director, Operations Controller. He was promoted to Chief Financial Officer in
June 2004, appointed Executive Vice President and Chief Operating Officer in September 2008, and promoted to
President in December 2010. In January 2012, Mr. Anstice was appointed Chief Executive Officer and in
February 2012, appointed to the Lam Research Corporation board of directors. He began his career at Raychem
Corporation where, during his 13-year tenure, he held numerous finance roles of increasing responsibility in
Europe and North America. After Tyco International, Ltd. acquired Raychem in 1999, Mr. Anstice assumed
responsibility for supporting mergers and acquisitions at Tyco Electronics Corporation. Mr. Anstice is an
associate member of the Chartered Institute of Management Accountants in the United Kingdom.
Timothy M. Archer joined Lam Research in June 2012 as the Company’s Executive Vice President, Chief
Operating Officer. Prior to Lam Research, Mr. Archer spent 18 years at Novellus Systems in various technology
development and business leadership roles, including most recently as Chief Operating Officer from January
2011 to June 2012, Executive Vice President Worldwide Sales, Marketing, and Customer Satisfaction from
September 2009 to January 2011, and Executive Vice President of the PECVD and Electrofill Business Units
from November 2008 to September 2009. Mr. Archer’s tenure at Novellus Systems also included assignments as
Senior Director of Technology for Novellus Systems Japan from 1999 to 2001 and Senior Director of
Technology for the Electrofill Business Unit from April 2001 to April 2002. Mr. Archer started his career in
1989 at Tektronix where he was responsible for process development for high-speed bipolar integrated
circuits. Mr. Archer completed the Program for Management Development at Harvard Graduate School of
Business and holds a Bachelor of Science degree in Applied Physics from the California Institute of Technology.
Douglas R. Bettinger is Executive Vice President, Chief Financial Officer of Lam Research. Prior to joining
the company, Mr. Bettinger served as Senior Vice President and Chief Financial Officer of Avago Technologies
from August 2008 to February 2013. From 2007 to 2008, he served as Vice President of Finance and Corporate
Controller at Xilinx, Inc., and from 2004 to 2007, he was Chief Financial Officer at 24/7 Customer, a privately
held company. Mr. Bettinger worked at Intel Corporation from 1993 to 2004, where he held several senior-level
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finance and manufacturing operations positions, including Corporate Planning and Reporting Controller and
Malaysia Site Operations Controller. He earned a master’s degree in business administration in finance from the
University of Michigan and has a bachelor of science degree in economics from the University of Wisconsin in
Madison.
Richard A. Gottscho is the Company’s Executive Vice President, Global Products Group, a position he has
held since August 2010. Prior to that time, he had been Group Vice President and General Manager, Etch
Businesses since March 2007. Dr. Gottscho joined the Company in January 1996 and has served at various
Director and Vice President levels in support of etch products, CVD products, and corporate research. Prior to
joining Lam Research, Dr. Gottscho was a member of Bell Laboratories for 15 years where he started his career
working in plasma processing. During his tenure at Bell, he headed research departments in electronics materials,
electronics packaging, and flat panel displays. Dr. Gottscho is the author of numerous papers, patents, and
lectures in plasma processing and process control. He is a recipient of the American Vacuum Society’s Peter
Mark Memorial Award and Plasma Science and Technology Division Prize, the Gaseous Electronics Conference
Foundation Lecturer, the Dry Process Symposium Nishizawa Award, and the Tegal Thinker Award. He is a
fellow of the American Physical and American Vacuum Societies and has served on numerous editorial boards of
refereed technical publications, program committees for major conferences in plasma science and engineering,
and was vice-chair of a National Research Council study on plasma science in the 1980s. Dr. Gottscho earned
Ph.D. and B.S. degrees in physical chemistry from the Massachusetts Institute of Technology and the
Pennsylvania State University, respectively.
Sarah A. O’Dowd is the Senior Vice President, Chief Legal Officer of the Company. Ms. O’Dowd joined
Lam Research in September 2008 as Group Vice President and Chief Legal Officer, responsible for general legal
matters, intellectual property and ethics & compliance. In addition to her Legal function, in April 2009 she was
appointed Vice President of Human Resources and served in this dual capacity from April 2009 through May
2012. Prior to joining Lam Research, Ms. O’Dowd was Vice President and General Counsel for FibroGen, Inc.
from February 2007 until September 2008. Until February 2007, Ms. O’Dowd was a shareholder in the law firm
of Heller Ehrman LLP for more than twenty years, practicing in the areas of corporate securities, governance and
mergers and acquisitions for a variety of clients, principally publicly traded high technology companies. She
served in a variety of leadership and management roles at Heller Ehrman, including Managing Partner of the
Silicon Valley and San Diego offices, member of the firm’s Policy Committee and, as head of the firm’s business
practice groups, a member of the firm’s Executive Committee. Ms. O’Dowd earned her J.D. and M.A. in
communications from Stanford Law School and Stanford University, respectively, and her bachelor of arts
degree in mathematics from Immaculata College.
Item 1A. Risk Factors
In addition to the other information in this 2014 Form 10-K, the following risk factors should be carefully
considered in evaluating the Company and its business because such factors may significantly impact our business,
operating results, and financial condition. As a result of these risk factors, as well as other risks discussed in our
other SEC filings, our actual results could differ materially from those projected in any forward-looking statements.
No priority or significance is intended, nor should be attached, to the order in which the risk factors appear.
The Semiconductor Equipment Industry is Subject to Fluctuations and, as a Result, We Face Risks Related to
Our Strategic Resource Allocation Decisions
The business cycle in the semiconductor equipment industry has historically been characterized by frequent
periods of rapid change in demand that challenge our management to adjust spending and other resources allocated
to operating activities. During periods of rapid growth or decline in demand for our products and services, we face
significant challenges in maintaining adequate financial and business controls, management processes, information
systems, procedures for training and managing our work force, and in appropriately sizing our supply chain
infrastructure, work force, and other components of our business on a timely basis. If we do not adequately meet
these challenges during periods of demand decline, our gross margins and earnings may be negatively impacted.
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We continuously reassess our strategic resource allocation choices in response to the changing business
environment. If we do not adequately adapt to the changing business environment, we may lack the infrastructure
and resources to scale up our business to meet customer expectations and compete successfully during a period
of growth, or we may expand our capacity too rapidly and/or beyond what is appropriate for the actual demand
environment.
Especially during transitional periods, resource allocation decisions can have a significant impact on our
future performance, particularly if we have not accurately anticipated industry changes. Our success will depend,
to a significant extent, on the ability of our executive officers and other members of our senior management to
identify and respond to these challenges effectively.
Future Declines in the Semiconductor Industry, and the Overall World Economic Conditions on Which it is
Significantly Dependent, Could Have a Material Adverse Impact on Our Results of Operations and Financial
Condition
Our business depends on the capital equipment expenditures of semiconductor manufacturers, which in turn
depend on the current and anticipated market demand for integrated circuits. The semiconductor industry is
cyclical in nature and experiences periodic downturns. Global economic and business conditions, which are often
unpredictable, have historically impacted customer demand for our products and normal commercial
relationships with our customers, suppliers, and creditors. Additionally, in times of economic uncertainty our
customers’ budgets for our products, or their ability to access credit to purchase them, could be adversely
affected. This would limit their ability to purchase our products and services. As a result, economic downturns
can cause material adverse changes to our results of operations and financial condition including, but not limited
to:
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a decline in demand for our products or services;
an increase in reserves on accounts receivable due to our customers’ inability to pay us;
an increase in reserves on inventory balances due to excess or obsolete inventory as a result of our
inability to sell such inventory;
valuation allowances on deferred tax assets;
restructuring charges;
asset impairments including the potential impairment of goodwill and other intangible assets;
a decline in the value of our investments;
exposure to claims from our suppliers for payment on inventory that is ordered in anticipation of
customer purchases that do not come to fruition;
a decline in the value of certain facilities we lease to less than our residual value guarantee with the
lessor; and
challenges maintaining reliable and uninterrupted sources of supply.
Fluctuating levels of investment by semiconductor manufacturers may materially affect our aggregate
shipments, revenues, operating results and earnings. Where appropriate, we will attempt to respond to these
fluctuations with cost management programs aimed at aligning our expenditures with anticipated revenue
streams, which sometimes result in restructuring charges. Even during periods of reduced revenues, we must
continue to invest in R&D and maintain extensive ongoing worldwide customer service and support capabilities
to remain competitive, which may temporarily harm our profitability and other financial results.
Our Quarterly Revenues and Operating Results Are Variable
Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of
factors, not all of which are in our control. We manage our expense levels based in part on our expectations of
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future revenues. Because our operating expenses are based in part on anticipated future revenues, and a certain
amount of those expenses are relatively fixed, a change in the timing of recognition of revenue and/or the level of
gross profit from a small number of transactions can unfavorably affect operating results in a particular quarter.
Factors that may cause our financial results to fluctuate unpredictably include, but are not limited to:
•
•
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economic conditions in the electronics and semiconductor industries in general and specifically the
semiconductor equipment industry;
the size and timing of orders from customers;
procurement shortages;
the failure of our suppliers or outsource providers to perform their obligations in a manner consistent
with our expectations;
• manufacturing difficulties;
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customer cancellations or delays in shipments, installations, and/or customer acceptances;
the extent that customers continue to purchase and use our products and services in their business;
our customers’ reuse of existing and installed products, to the extent that such reuse decreases their
need to purchase new products or services;
changes in average selling prices, customer mix, and product mix;
our ability in a timely manner to develop, introduce and market new, enhanced, and competitive
products;
our competitors’ introduction of new products;
legal or technical challenges to our products and technology;
transportation, communication, demand, information technology or supply disruptions based on factors
outside our control such as strikes, acts of God, wars, terrorist activities, and natural disasters;
legal, tax, accounting, or regulatory changes (including but not limited to change in import/export
regulations) or changes in the interpretation or enforcement of existing requirements;
changes in our estimated effective tax rate;
foreign currency exchange rate fluctuations; and
the dilutive impact of our convertible notes and related warrants on our earnings per share.
We May Incur Impairments to Goodwill or Long-Lived Assets
We review our long-lived assets, including goodwill and other intangible assets, for impairment annually or
whenever events or changes in circumstances indicate that the carrying amount of these assets may not be
recoverable. Negative industry or economic trends, including reduced market prices of our Common Stock,
reduced estimates of future cash flows, disruptions to our business, slower growth rates, or lack of growth in our
relevant business segments, could lead to impairment charges against our long-lived assets, including goodwill
and other intangible assets. If, in any period, our stock price decreases to the point where our fair value, as
determined by our market capitalization, is less than the book value of our assets, this could also indicate a
potential impairment, and we may be required to record an impairment charge in that period, which could
adversely affect our result of operations.
Our valuation methodology for assessing impairment requires management to make judgments and
assumptions based on historical experience and to rely heavily on projections of future operating performance.
We operate in a highly competitive environment and projections of future operating result and cash flows may
vary significantly from actual results. Additionally, if our analysis indicates potential impairment to goodwill one
or more of our business segments, we may be required to record additional charges to earnings in our financial
statements, which could negatively affect our results of operations. As a result of historical performance and
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growth potential, our single-wafer clean systems reporting unit may be at greater risk for goodwill impairment
than our other reporting units if our actual results for this reporting unit differ from our projections.
Our Leverage and Debt Service Obligations and Potential Note Conversion or Related Hedging Activities May
Adversely Affect Our Financial Condition, Results of Operations and Earnings Per Share
As a result of the sale of our 2016 and 2018 convertible notes and the assumption of the 2041 convertible
notes in connection with our acquisition of Novellus Systems, Inc. (collectively the “Notes”), we have a greater
amount of debt than we have maintained in the past. Our maintenance of higher levels of indebtedness could
have adverse consequences including:
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impacting our ability to satisfy our obligations;
increasing the portion of our cash flows that may have to be dedicated to interest and principal
payments and may not be available for operations, working capital, capital expenditures, expansion,
acquisitions or general corporate or other purposes; and
impairing our ability to obtain additional financing in the future.
Our ability to meet our expenses and debt obligations will depend on our future performance, which will be
affected by financial, business, economic, regulatory and other factors. Furthermore, our operations may not
generate sufficient cash flows to enable us to meet our expenses and service our debt. As a result, we may need to
enter into new financing arrangements to obtain the necessary funds. If we determine it is necessary to seek
additional funding for any reason, we may not be able to obtain such funding or, if funding is available, obtain it
on acceptable terms. If we fail to make a payment on our debt, we could be in default on such debt, and this
default could cause us to be in default on our other outstanding indebtedness.
Conversion of our Notes may cause dilution to our shareholders and to our earnings per share. Upon
conversion of any Notes, we will deliver cash in the amount of the principal amount of the Notes and, with
respect to any excess conversion value greater than the principal amount of the Notes, shares of our Common
Stock, which would result in dilution to our shareholders. This dilution may be mitigated to some extent by the
hedging transactions we entered into in connection with the sale of the 2016 and 2018 Notes or through share
repurchases. Prior to the maturity of the Notes, if the price of our Common Stock exceeds the conversion price,
U.S. generally accepted accounting principles require that we report an increase in diluted share count, which
would result in lower reported earnings per share. The price of our Common Stock could also be affected by
sales of our Common Stock by investors who view the Notes as a more attractive means of equity participation in
our company and also by hedging activity that may develop involving our Common Stock by holders of the
Notes.
Our Credit Agreements Contain Covenant Restrictions That May Limit Our Ability To Operate Our Business.
We may be unable to respond to changes in business and economic conditions, engage in transactions that
might otherwise be beneficial to us, or obtain additional financing, because our debt agreements contain, and any
of our other future similar agreements may contain, covenant restrictions that limit our ability to, among other
things:
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incur additional debt, assume obligations in connection with letters of credit, or issue guarantees;
create liens;
enter into transactions with our affiliates;
sell certain assets; and
• merge or consolidate with any person.
Our ability to comply with these covenants is dependent on our future performance, which will be subject to
many factors, some of which are beyond our control, including prevailing economic conditions. In addition, our
failure to comply with these covenants could result in a default under the Notes or our other debt, which could
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permit the holders to accelerate such debt. If any of our debt is accelerated, we may not have sufficient funds
available to repay such debt, which could materially and negatively affect our financial condition and results of
operation.
We Have a Limited Number of Key Customers
Sales to a limited number of large customers constitute a significant portion of our overall revenue,
shipments, cash flows, collections and profitability. As a result, the actions of even one customer may subject us
to variability in those areas that are difficult to predict. In addition, large customers may be able to negotiate
requirements that result in decreased pricing; increased costs and/or lower margins for us; compliance to specific
environmental, social and corporate governance standards; and limitations on our ability to share jointly
developed technology with others. Similarly, significant portions of our credit risk may, at any given time, be
concentrated among a limited number of customers, so that the failure of even one of these key customers to pay
its obligations to us could significantly impact our financial results.
We Depend on New Products and Processes for Our Success. Consequently, We are Subject to Risks
Associated with Rapid Technological Change
Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to
develop technological advances that enable those processes. We believe that our future success depends in part
upon our ability to develop and offer new products with improved capabilities and to continue to enhance our
existing products. If new products have reliability, quality, or design problems, our performance may be
impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products,
and additional service and warranty expenses. We may be unable to develop and manufacture new products
successfully, or new products that we introduce may fail in the marketplace. The expected industry transition to a
450mm platform represents an emerging challenge for our business, and our failure to address that transition in a
timely manner with productive and cost-effective products could adversely affect our business in a material way.
Our failure to commercialize new products in a timely manner could result in loss of market share, unanticipated
costs, and inventory obsolescence, which would adversely affect our financial results.
In order to develop new products and processes, we expect to continue to make significant investments in
R&D and to pursue joint development relationships with customers, suppliers or other members of the industry.
We must manage product transitions and joint development relationships successfully, as the introduction of new
products could adversely affect our sales of existing products and certain jointly developed technologies may be
subject to restrictions on our ability to share that technology with other customers, which could limit our market
for products incorporating those technologies. Future technologies, processes or product developments may
render our current product offerings obsolete, leaving us with non-competitive products, or obsolete inventory, or
both. Moreover, customers may adopt new technologies or processes to address the complex challenges
associated with next generation devices. This shift may result in a reduction in the size of our addressable
markets or could increase the relative size of markets in which we either do not compete or have relatively low
market share.
We are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification
We derive a substantial percentage of our revenues from a limited number of products. System sales
constitute a significant portion of our total revenue. Our systems are priced up to approximately $9 million per
system, and our revenues in any given quarter are dependent upon customer acceptance of a limited number of
systems. As a result, the inability to recognize revenue on even a few systems can cause a significantly adverse
impact on our revenues for a given quarter, and, in the longer term, the continued market acceptance of these
products is critical to our future success. Our business, operating results, financial condition, and cash flows
could therefore be adversely affected by:
•
a decline in demand for even a limited number of our products;
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•
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•
a failure to achieve continued market acceptance of our key products;
export restrictions or other regulatory or legislative actions that could limit our ability to sell those
products to key customer or market segments;
an improved version of products being offered by a competitor in the market in which we participate;
increased pressure from competitors that offer broader product lines;
technological changes that we are unable to address with our products; or
a failure to release new or enhanced versions of our products on a timely basis.
In addition, the fact that we offer limited product lines creates the risk that our customers may view us as
less important to their business than our competitors that offer additional products. This may impact our ability to
maintain or expand our business with certain customers. Such product concentration may also subject us to
additional risks associated with technology changes. Our business is affected by our customers’ use of our
products in certain steps in their wafer fabrication processes. Should technologies change so that the manufacture
of semiconductors requires fewer steps using our products, this could have a larger impact on our business than it
would on the business of our less concentrated competitors.
Strategic Alliances and Customer Consolidation May Have Negative Effects on Our Business
Increasingly, semiconductor manufacturing companies are entering into strategic alliances or consolidating
with one another to expedite the development of processes and other manufacturing technologies and/or achieve
economies of scale. The outcomes of such an alliance can be the definition of a particular tool set for a certain
function and/or the standardization of a series of process steps that use a specific set of manufacturing
equipment; while the outcomes of consolidation can lead to an overall reduction in the market for semiconductor
manufacturing equipment as customers’ operations achieve economies of scale and/or increased purchasing
power based on their higher volumes. In certain instances this could work to our disadvantage if a competitor’s
tools or equipment become the standard equipment for such functions or processes. Some semiconductor
manufacturing companies are also consolidating. Additional outcomes of such consolidation may include our
customers: (i) re-evaluating their future supplier relationships to consider other competitors’ products and/or
(ii) gaining additional influence over the pricing of products and the control of intellectual property.
Similarly, our customers may partner with, or follow the lead of, educational or research institutions that
establish processes for accomplishing various tasks or manufacturing steps. If those institutions utilize a
competitor’s equipment when they establish those processes, it is likely that customers will tend to use the same
equipment in setting up their own manufacturing lines. Even if they select our equipment, the institutions and the
customers that follow their lead could impose conditions on acceptance of that equipment, such as adherence to
standards and requirements or limitations on how we license our proprietary rights that increase our costs or
require us to take on greater risk. These actions could adversely impact our market share and financial results.
We Depend On a Limited Number of Key Suppliers and Outsource Providers, and We Run the Risk That They
Might Not Perform as We Expect
Outsource providers and component suppliers have played and will continue to play a key role in our
manufacturing operations and in many of our transactional and administrative functions, such as information
technology, facilities management, and certain elements of our finance organization. These providers and
suppliers might suffer financial setbacks, be acquired by third parties, become subject to exclusivity
arrangements that preclude further business with us or suffer force majeure events that could interrupt or impair
their continued ability to perform as we expect.
Although we attempt to select reputable providers and suppliers, and we attempt to secure their performance
on terms documented in written contracts, it is possible that one or more of these providers or suppliers could fail
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to perform as we expect, and such failure could have an adverse impact on our business. In some cases, the
requirements of our business mandate that we obtain certain components and sub-assemblies included in our
products from a single supplier or a limited group of suppliers. Where practical, we endeavor to establish
alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our
business, but this is not feasible in all circumstances. There is therefore a risk that a prolonged inability to obtain
certain components or secure key services could impair our ability to manage operations, ship products and
generate revenues, which could adversely affect our operating results and damage our customer relationships.
We Face Risks Related to the Disruption of Our Primary Manufacturing Facilities
Our manufacturing facilities are concentrated in just a few locations. These locations are subject to
disruption for a variety of reasons such as natural disasters, terrorist attacks, disruptions of our information
technology resources and utility interruptions. Such disruptions may cause delays in shipping our products which
could result in the loss of business or customer trust, adversely affecting our business and operating results.
Once a Semiconductor Manufacturer Commits to Purchase a Competitor’s Semiconductor Manufacturing
Equipment, the Manufacturer Typically Continues to Purchase that Competitor’s Equipment, Making it More
Difficult for Us to Sell Our Equipment to that Customer
Semiconductor manufacturers must make a substantial investment to qualify and integrate wafer processing
equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a
particular supplier’s processing equipment, the manufacturer generally relies upon that equipment for that
specific production line application for an extended period of time. Accordingly, we expect it to be more difficult
to sell our products to a given customer if that customer initially selects a competitor’s equipment for the same
product line application.
We Face a Challenging and Complex Competitive Environment
We face significant competition from multiple competitors and with the pending merger of two of our
largest competitors we may face increasing competitive pressures. Other companies continue to develop systems
and products that are competitive to ours and may introduce new products, which may affect our ability to sell
our existing products. We face a greater risk if our competitors enter into strategic relationships with leading
semiconductor manufacturers covering products similar to those we sell or may develop, as this could adversely
affect our ability to sell products to those manufacturers.
We believe that to remain competitive we must devote significant financial resources to offer a broad range
of products, to maintain customer service and support centers worldwide, and to invest in product and process
R&D. Certain of our competitors, including those that are created and financially backed by foreign
governments, have substantially greater financial resources and more extensive engineering, manufacturing,
marketing, and customer service and support resources than we do and therefore have the potential to offer
customers a more comprehensive array of products and to therefore increasingly dominate the semiconductor
equipment industry. These competitors may deeply discount or give away products similar to those that we sell,
challenging or even exceeding our ability to make similar accommodations and threatening our ability to sell
those products. We also face competition from our own customers, who in some instances have established
affiliated entities that manufacture equipment similar to ours. For these reasons, we may fail to continue to
compete successfully worldwide.
In addition, our competitors may be able to develop products comparable or superior to those we offer or
may adapt more quickly to new technologies or evolving customer requirements. In particular, while we continue
to develop product enhancements that we believe will address future customer requirements, we may fail in a
timely manner to complete the development or introduction of these additional product enhancements
successfully, or these product enhancements may not achieve market acceptance or be competitive. Accordingly,
competition may intensify, and we may be unable to continue to compete successfully in our markets, which
could have a material adverse effect on our revenues, operating results, financial condition, and/or cash flows.
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Our Future Success Depends Heavily on International Sales and the Management of Global Operations
Non-U.S. sales accounted for approximately 86% of total revenue in fiscal 2014, 80% of total revenue in
fiscal year 2013, and 83% of total revenue in fiscal year 2012. We expect that international sales will continue to
account for a substantial majority of our total revenue in future years.
We are subject to various challenges related to international sales and the management of global operations
including, but not limited to:
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trade balance issues;
global economic and political conditions;
changes in currency controls;
differences in the enforcement of intellectual property and contract rights in varying jurisdictions;
our ability to respond to customer and foreign government demands for locally sourced systems, spare
parts and services and develop the necessary relationships with local suppliers;
compliance with U.S. and international laws and regulations affecting foreign operations, including
U.S. and international export restrictions and foreign labor laws;
fluctuations in interest and foreign currency exchange rates;
our ability to repatriate cash in a tax-efficient manner;
the need for technical support resources in different locations; and
our ability to secure and retain qualified people in all necessary locations for the successful operation
of our business.
Certain international sales depend on our ability to obtain export licenses from the U.S. government. Our
failure or inability to obtain such licenses would substantially limit our markets and severely restrict our
revenues. Many of the challenges noted above are applicable in China, which is a fast developing market for the
semiconductor equipment industry and therefore an area of potential significant growth for our business. As the
business volume between China and the rest of the world grows, there is inherent risk, based on the complex
relationships among China, Taiwan, Japan, South Korea, and the United States, that political and diplomatic
influences might lead to trade disruptions. This would adversely affect our business with China, Taiwan, Japan,
and/or South Korea and perhaps the entire Asia Pacific region. A significant trade disruption in these areas could
have a materially adverse impact on our future revenue and profits.
We are potentially exposed to adverse as well as beneficial movements in foreign currency exchange rates.
The majority of our sales and expenses are denominated in U.S. dollars. However, we are exposed to foreign
currency exchange rate fluctuations primarily related to revenues denominated in Japanese yen and expenses
denominated in euro. Currently, we enter into foreign currency forward contracts to minimize the short-term
impact of the foreign currency exchange rate fluctuations on certain foreign currency monetary assets and
liabilities; primarily third party accounts receivables, accounts payables and intercompany receivables and
payables. In addition, we hedge certain anticipated foreign currency cash flows, primarily anticipated revenues
denominated in Japanese yen and euro-denominated expenses. We believe these are our primary exposures to
currency rate fluctuation. We expect to continue to enter into hedging transactions, for the purposes outlined, for
the foreseeable future. However, these hedging transactions may not achieve their desired effect because
differences between the actual timing of the underlying exposures and our forecasts of those exposures may leave
us either over-or under-hedged on any given transaction. Moreover, by hedging these foreign currency
denominated revenues, expenses, monetary assets and liabilities with foreign currency forward contracts, we may
miss favorable currency trends that would have been advantageous to us but for the hedges. Additionally, we are
exposed to short-term foreign currency exchange rate fluctuations on non-U.S. dollar-denominated monetary
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assets and liabilities (other than those currency exposures previously discussed) and currently we do not enter
into foreign currency hedge contracts against these exposures. Therefore, we are subject to both favorable and
unfavorable foreign currency exchange rate fluctuations to the extent that we transact business (including
intercompany transactions) for these currencies.
The magnitude of our overseas business also affects where our cash is generated. Certain uses of cash, such
as share repurchases or the repayment of our convertible notes, can usually only be made with cash balances and
cash generated on-shore. Since the majority of our cash is generated outside of the United States, this may limit
certain business decisions and adversely affect business outcomes.
Our Ability to Attract, Retain and Motivate Key Employees Is Critical to Our Success
Our ability to compete successfully depends in large part on our ability to attract, retain and motivate key
employees. This is an ongoing challenge due to intense competition for top talent, as well as fluctuations in
industry economic conditions that may require cycles of hiring activity and workforce reductions. Our success in
hiring depends on a variety of factors, including the attractiveness of our compensation and benefit programs and
our ability to offer a challenging and rewarding work environment. We periodically evaluate our overall
compensation programs and make adjustments, as appropriate, to maintain or enhance their competitiveness. If
we are not able to successfully attract, retain and motivate key employees, we may be unable to capitalize on
market opportunities and our operating results may be materially and adversely affected.
We Rely Upon Certain Critical Information Systems for the Operation of Our Business
We maintain and rely upon certain critical information systems for the effective operation of our business.
These information systems include telecommunications, the internet, our corporate intranet, various computer
hardware and software applications, network communications, and e-mail. These information systems may be
owned and maintained by us, our outsourced providers or third parties such as vendors and contractors. Many of
these outsourced service providers, including certain hosted software applications that we use for confidential
data storage, employ “cloud computing” technology for such storage (which refers to an information technology
hosting and delivery system in which data is not stored within the user’s physical infrastructure but instead are
delivered to and consumed by the user as an Internet-based service). All of these information systems are subject
to attacks, failures, and access denials from a number of potential sources including viruses, destructive or
inadequate code, power failures, and physical damage to computers, hard drives, communication lines, and
networking equipment. Confidential and/or sensitive information stored on these information systems could be
intentionally or unintentionally compromised, lost and/or stolen. While we have implemented security
procedures, such as virus protection software and emergency recovery processes, to mitigate the outlined risks
with respect to information systems that are under our control, they cannot be guaranteed to be failsafe and our
inability to use or access these information systems at critical points in time, or unauthorized releases of
confidential information, could unfavorably impact the timely and efficient operation of our business.
Our Financial Results May be Adversely Impacted by Higher than Expected Tax Rates or Exposure to
Additional Tax Liabilities
As a global company, our effective tax rate is highly dependent upon the geographic composition of
worldwide earnings and tax regulations governing each region. We are subject to income taxes in the United
States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax
liabilities. Our effective tax rate could be adversely affected by changes in the split of earnings between countries
with differing statutory tax rates, in the valuation of deferred tax assets, in tax laws, by material audit
assessments, or changes in or expirations of agreements with tax authorities. These factors could affect our
profitability. In particular, the carrying value of deferred tax assets, which are predominantly in the United States,
is dependent on our ability to generate future taxable income in the United States. In addition, the amount of
income taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a
governing tax authority could affect our profitability.
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A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results
We are subject to a variety of governmental regulations related to the handling, discharge, and disposal of
toxic, volatile or otherwise hazardous chemicals. We believe that we are generally in compliance with these
regulations and that we have obtained (or will obtain or are otherwise addressing the need for) all environmental
permits necessary to conduct our business. These permits generally relate to the handling and disposal of
hazardous wastes. Nevertheless, the failure to comply with present or future regulations could result in fines
being imposed on us, require us to suspend production, or cease operations or cause our customers to not accept
our products. These regulations could require us to alter our current operations, to acquire significant additional
equipment or to incur substantial other expenses to comply with environmental regulations. Any failure to
comply with regulations governing the use, handling, sale, transport or disposal of hazardous substances could
subject us to future liabilities.
If We Choose to Acquire or Dispose of Businesses, Product Lines and Technologies, We May Encounter
Unforeseen Costs and Difficulties That Could Impair Our Financial Performance
An important element of our management strategy is to review acquisition prospects that would complement
our existing products, augment our market coverage and distribution ability, or enhance our technological
capabilities. As a result, we may make acquisitions of complementary companies, products or technologies, or
we may reduce or dispose of certain product lines or technologies that no longer fit our long-term strategies.
Managing an acquired business, disposing of product technologies or reducing personnel entail numerous
operational and financial risks, including difficulties in assimilating acquired operations and new personnel or
separating existing business or product groups, diversion of management’s attention away from other business
concerns, amortization of acquired intangible assets, adverse customer reaction to our decision to cease support
for a product, and potential loss of key employees or customers of acquired or disposed operations. There can be
no assurance that we will be able to achieve and manage successfully any such integration of potential
acquisitions, disposition of product lines or technologies, or reduction in personnel or that our management,
personnel, or systems will be adequate to support continued operations. Any such inabilities or inadequacies
could have a material adverse effect on our business, operating results, financial condition, and cash flows.
In addition, any acquisition could result in changes such as potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, the amortization of related intangible assets, and
goodwill impairment charges, any of which could materially adversely affect our business, financial condition,
and results of operations and/or the price of our Common Stock.
The Market for Our Common Stock is Volatile, Which May Affect Our Ability to Raise Capital, Make
Acquisitions, or Subject Our Business to Additional Costs
The market price for our Common Stock is volatile and has fluctuated significantly over the past years. The
trading price of our Common Stock could continue to be highly volatile and fluctuate widely in response to a
variety of factors, many of which are not within our control or influence. These factors include but are not
limited to the following:
•
•
•
•
•
•
general market, semiconductor, or semiconductor equipment industry conditions;
economic or political events and trends occurring globally or in any of our key sales regions;
variations in our quarterly operating results and financial condition, including our liquidity;
variations in our revenues, earnings or other business and financial metrics from forecasts by us or
securities analysts, or from those experienced by other companies in our industry;
announcements of restructurings, reductions in force, departure of key employees, and/or
consolidations of operations;
government regulations;
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•
•
•
•
•
developments in, or claims relating to, patent or other proprietary rights;
technological innovations and the introduction of new products by us or our competitors;
commercial success or failure of our new and existing products;
disruptions of relationships with key customers or suppliers; or
dilutive impacts of our Notes and related warrants.
In addition, the stock market experiences significant price and volume fluctuations. Historically, we have
witnessed significant volatility in the price of our Common Stock due in part to the price of and markets for
semiconductors. These and other factors have and may again adversely affect the price of our Common Stock,
regardless of our actual operating performance. In the past, following volatile periods in the price of their stock,
many companies became the object of securities class action litigation. If we are sued in a securities class action,
we could incur substantial costs, and it could divert management’s attention and resources and have an
unfavorable impact on our financial performance and the price for our Common Stock.
Intellectual Property, Indemnity and Other Claims Against Us Can be Costly and We Could Lose Significant
Rights That are Necessary to Our Continued Business and Profitability
Third parties may assert infringement, unfair competition, product liability, breach of contract, or other
claims against us. From time to time, other parties send us notices alleging that our products infringe their patent
or other intellectual property rights. In addition, law enforcement authorities may seek criminal charges relating
to intellectual property or other issues. We also face risks of claims arising from commercial and other
relationships. In addition, our Bylaws and other indemnity obligations provide that we will indemnify officers
and directors against losses that they may incur in legal proceedings resulting from their service to us. From time
to time, in the normal course of business, we indemnify third parties with whom we enter into contractual
relationships, including customers and suppliers, with respect to certain matters. We have agreed, under certain
conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of
representations or covenants, other third party claims that our products when used for their intended purposes
infringe the intellectual property rights of such other third parties, or other claims made against certain parties. In
such cases, it is our policy either to defend the claims or to negotiate licenses or other settlements on
commercially reasonable terms. However, we may be unable in the future to negotiate necessary licenses or
reach agreement on other settlements on commercially reasonable terms, or at all, and any litigation resulting
from these claims by other parties may materially adversely affect our business and financial results, and we may
be subject to substantial damage awards and penalties. Moreover, although we have insurance to protect us from
certain claims and cover certain losses to our property, such insurance may not cover us for the full amount of
any losses, or at all, and may be subject to substantial exclusions and deductibles.
We May Fail to Protect Our Critical Proprietary Technology Rights, Which Could Affect Our Business
Our success depends in part on our proprietary technology and our ability to protect key components of that
technology through patents, copyrights and trade secret protection. Protecting our key proprietary technology
helps us to achieve our goals of developing technological expertise and new products and systems that give us a
competitive advantage; increasing market penetration and growth of our installed base; and providing
comprehensive support and service to our customers. As part of our strategy to protect our technology we
currently hold a number of U.S. and foreign patents and pending patent applications, and we keep certain
information, processes and techniques as trade secrets. However, other parties may challenge or attempt to
invalidate or circumvent any patents the United States or foreign governments issue to us, these governments
may fail to issue patents for pending applications, or we may lose trade secret protection over valuable
information due to the intentional or unintentional actions or omissions of third parties, of ours or even our own
employees. Additionally, intellectual property litigation can be expensive and time-consuming and even when
patents are issued or trade secret processes are followed, the legal systems in certain of the countries in which we
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do business do not enforce patents and other intellectual property rights as rigorously as the United States. The
rights granted or anticipated under any of our patents, pending patent applications or trade secrets may be
narrower than we expect or, in fact, provide no competitive advantages. Moreover, because we determine the
jurisdictions in which to file patents at the time of filing, we may not have adequate protection in the future based
on such previous decisions. Any of these circumstances could have a material adverse impact on our business.
We Are Exposed to Various Risks from Our Regulatory Environment
We are subject to various risks related to (i) new, different, inconsistent or even conflicting laws, rules and
regulations that may be enacted by legislative bodies and/or regulatory agencies in the countries that we operate;
(ii) disagreements or disputes between national or regional regulatory agencies related to international trade; and
(iii) the interpretation and application of laws, rules and regulations. As a public company with global operations,
we are subject to the laws of multiple jurisdictions and the rules and regulations of various governing bodies,
including those related to financial and other disclosures, corporate governance, privacy, anti-corruption, such as
the Foreign Corrupt Practices Act and other local laws prohibiting corrupt payments to governmental officials,
and antitrust regulations, among others. One of these laws imposes new disclosure requirements regarding the
use of certain minerals, which may have originated from the Democratic Republic of the Congo and adjoining
countries in our products. This new requirement could affect the pricing, sourcing and availability of minerals
used in the manufacture of components we use in our products. In addition, there will be additional costs
associated with complying with the disclosure requirements, such as costs related to determining the source of
any of the covered minerals used in our products. Our supply chain is complex, and we may be unable to verify
the origins for all metals used in our products. Financial reform legislation and the regulations enacted under
such legislation have also added costs to our business by, among other things, requiring advisory votes on
executive compensation and on severance packages upon a change in control.
To maintain high standards of corporate governance and public disclosure, we intend to invest all
reasonably necessary resources to comply with all evolving standards. Changes in or ambiguous interpretations
of laws, regulations and standards may create uncertainty regarding compliance matters. Efforts to comply with
new and changing regulations have resulted in, and are likely to continue to result in, increased general and
administrative expenses and a diversion of management’s time and attention from revenue generating activities
to compliance activities. If we are found by a court or regulatory agency not to be in compliance with the laws
and regulations, our business, financial condition, and results of operations could be adversely affected.
There Can Be No Assurance That We Will Continue To Declare Cash Dividends Or Repurchase Our Shares
At All Or In Any Particular Amounts.
Our Board of Directors announced its plans to declare a quarterly dividend on April 29, 2014, with the first
dividend payment paid on July 2, 2014. In addition, on April 29, 2014, we announced that our Board of Directors
has authorized the Company to repurchase up to $850 million of common stock, which includes the remaining
value available under the prior authorization of $250 million. Our intent to continue to pay quarterly dividends
and to repurchase our shares is subject to capital availability and, in the case of dividends, periodic
determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are
in compliance with all laws and agreements applicable to the declaration and payment of cash dividends by us.
Future dividends and share repurchases may also be affected by, among other factors: our views on potential
future capital requirements for investments in acquisitions and the funding of our research and development;
legal risks; stock repurchase programs; changes in federal and state income tax laws or corporate laws; and
changes to our business model. Our dividend payments and share repurchases may change from time to time, and
we cannot provide assurance that we will continue to declare dividends or repurchase shares at all or in any
particular amounts. A reduction or suspension in our dividend payments or share repurchase activity could have a
negative effect on our stock price.
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Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
Our executive offices and principal operating and R&D facilities are located in Fremont, Livermore, and
San Jose, California, Tualatin, Oregon, and Villach, Austria. The Fremont and Livermore facilities are held under
operating leases expiring in 2020, the San Jose and Tualatin facilities are owned by the Company, and the
Villach facilities are held under capital leases expiring in 2016. Our Fremont, Livermore, and Villach leases
generally include options to renew or purchase the facilities. In addition, we lease or own properties for our
service, technical support and sales personnel throughout the United States, Europe, Taiwan, Korea, Japan, and
Asia Pacific and lease or own manufacturing facilities located in Illinois, Ohio, Germany, and Korea. Our
facilities lease obligations are subject to periodic increases. We believe that our existing facilities are well-
maintained and in good operating condition.
Item 3.
Legal Proceedings
The Company is either a defendant or plaintiff in various actions that have arisen from time to time in the
normal course of business, including intellectual property claims. The Company accrues for a liability when it is
both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Significant judgment is required in both the determination of probability and the determination as to whether a
loss is reasonably estimable. These accruals are reviewed at least quarterly and adjusted to reflect the effects of
negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a
particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already
accrued, the Company believes that the amount of any such additional loss would be immaterial to the
Company’s business, financial condition, and results of operations.
Item 4.
Mine Safety Disclosures
Not applicable.
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PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Stock Information
Our Common Stock is traded on the NASDAQ Global Select Market under the symbol LRCX. As of
August 20, 2014 we had 490 stockholders of record. In fiscal year 2014, we announced the initiation of a
quarterly dividend and declared a dividend of $0.18 per share to our stockholders payable in the first quarter of
fiscal year 2015. In fiscal year 2013 we did not declare or pay cash dividends to our stockholders. The table
below sets forth the high and low prices of our Common Stock as reported by The NASDAQ Stock Market LLC,
for the period indicated:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$52.31
$55.48
$57.16
$67.85
$44.11
$49.54
$48.45
$50.54
2014
High
Low
First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37.99
$38.14
$43.92
$49.13
$31.93
$31.17
$35.32
$39.94
2013
High
Low
Repurchase of Company Shares
On April 22, 2013, the Board of Directors authorized the repurchase of up to $250 million of Common
Stock. In addition, on April 29, 2014, the Board of Directors authorized the Company to repurchase up to $850
million of common stock, which includes the remaining value available under the Company’s prior authorization
of $250 million. These repurchases can be conducted on the open market or as private purchases and may include
the use of derivative contracts with large financial institutions, in all cases subject to compliance with applicable
law. Repurchases will be funded using the Company’s on-shore cash and on-shore cash generation. This
repurchase program has no termination date and may be suspended or discontinued at any time.
As part of our share repurchase program, we may from time-to-time enter into structured share repurchase
arrangements with financial institutions using general corporate funds. Such arrangements entered into or settled
during the year ended June 29, 2014 included the following:
Collared Accelerated Share Repurchases
During the year ended June 29, 2014, the Company entered into and settled a collared accelerated share
repurchase (“ASR”) transaction under a master repurchase arrangement. Under the ASR, the Company made an
up-front cash payment of $75 million, in exchange for an initial delivery of 1.2 million shares of its Common
Stock and a subsequent delivery of 0.3 million shares following the initial hedge period.
The number of shares to ultimately be repurchased by us is based generally on the volume-weighted average
price (“VWAP”) of the Common Stock during the term of the ASR minus a pre-determined discount set at
inception of the ASR, subject to collar provisions that provide a minimum and maximum number of shares that
we could repurchase under the agreements. The minimum and maximum thresholds for the transaction were
established based on the average of the VWAP prices for the Common Stock during an initial hedge period. At
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the conclusion of the ASR, we could have received additional shares based on the VWAP of the Common Stock
during the term of the agreement minus the pre-determined fixed discount; however the total number of shares
received under the ASR would not exceed the maximum of 1.7 million shares.
The counterparty designated October 28, 2013 as the termination date, at which time we settled the ASR.
No additional shares were received at final settlement, which represented a weighted-average share price of
approximately $50.40 for the transaction period.
The Company accounted for the ASR as two separate transactions: (a) as shares of Common Stock acquired
in a treasury stock transaction recorded on the acquisition date and (b) as a forward contract indexed to its own
Common Stock and classified in stockholders’ equity. As such, the Company accounted for the shares that we
received under the ASR as a repurchase of our Common Stock for the purpose of calculating earnings per
common share. We had determined that the forward contract indexed to the Common Stock met all of the
applicable criteria for equity classification in accordance with the Derivatives and Hedging topic of the FASB
Accounting Standards Codification, and, therefore, the ASR was not accounted for as a derivative instrument. As
of June 29, 2014, the aggregate repurchase price of $75 million was reflected as Treasury stock, at cost, in the
Consolidated Balance Sheet.
Share repurchases, including those under the repurchase program, were as follows:
Period
Total Number of
Shares
Repurchased (1)
Average Price
Paid Per Share*
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
(in thousands, except per share data)
Amount Available
Under
Repurchase
Program
Amount available at June 30, 2013 . . .
Quarter ending September 29, 2013 . . .
Quarter ending December 29, 2013 . . .
Quarter ended March 30, 2014 . . . . . . .
March 31, 2014 - April 27, 2014 . . . . .
Authorization of $850 million -
April 29, 2014 . . . . . . . . . . . . . . . . .
April 28, 2014 - May 25, 2014 . . . . . . .
May 26, 2014 - June 29, 2014 . . . . . . .
2,093
967
1,036
298
—
404
62
Total . . . . . . . . . . . . . . . . . . . . . . .
4,860
$48.39
$52.11
$53.07
$54.51
$ —
$57.47
$66.12
$52.10
1,935
762
930
285
—
288
51
4,251
$250,000
$153,538
$113,738
$ 64,324
$ 48,786
$850,000
$834,287
$830,895
$830,895
* Average price paid per share excludes accelerated share repurchases for which cost was incurred during the
September 2013 quarter, but that did not settle until the December 2013 quarter. See Collared Accelerated
Share Repurchases section above for details regarding average price associated with these transactions.
(1)
In addition to shares repurchased under Board authorized repurchase programs, included in this column are
608,695 shares acquired at a total cost of $32.0 million which the Company withheld through net share
settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards granted
under the Company’s equity compensation plans. The shares retained by the Company through these net
share settlements are not a part of the Board-authorized repurchase program but instead are authorized under
the Company’s equity compensation plans.
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Cumulative 5-year Return
The graph below compares Lam Research Corporation’s cumulative 5-year total shareholder return on
Common Stock with the cumulative total returns of the NASDAQ Composite index and the Research Data
Group, Incorporated (“RDG”) Semiconductor Composite index. The graph tracks the performance of a $100
investment in our Common Stock and in each of the indices (with the reinvestment of all dividends) from
June 30, 2009 to June 30, 2014.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Lam Research Corporation, the NASDAQ Composite Index, the S&P 500 Index,
and the RDG Semiconductor Composite Index
$300
$250
$200
$150
$100
$50
$0
6/09
6/10
6/11
6/12
6/13
6/14
Lam Research Corporation
S&P 500
NASDAQ Composite
RDG Semiconductor Composite
*$100 invested on 6/30/09 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2014 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Lam Research Corporation . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RDG Semiconductor Composite . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
100.00
146.38
117.06
114.43
112.38
170.31
154.79
149.55
147.90
145.15
167.05
157.70
144.72
170.54
197.48
190.18
161.77
260.64
259.41
236.98
220.24
6/09
6/10
6/11
6/12
6/13
6/14
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Item 6.
Selected Financial Data (derived from audited financial statements)
Year Ended
June 29,
2014 (1)
June 30,
2013 (1)
June 24,
2012 (1)
June 26,
2011
June 27,
2010
(in thousands, except per share data)
OPERATIONS:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,607,309 $3,598,916 $2,665,192 $3,237,693 $2,133,776
969,935
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges, net (2) . . . . . . . . . . . . . . . . .
21,314
(38,590)
409A expense (3)
. . . . . . . . . . . . . . . . . . . . . . . . . .
425,410
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
346,669
Net income per share:
1,084,069
1,725
—
237,733
168,723
1,497,232
11,579
—
804,285
723,748
1,403,059
1,813
—
118,071
113,879
2,007,481
—
—
677,669
632,289
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash dividends declared per common share . . . . . . $
BALANCE SHEET:
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,201,661 $2,389,354 $2,988,181 $2,592,506 $1,198,004
2,487,392
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,600
Long-term obligations, less current portion . . . . . .
5.86 $
5.79 $
— $
3.84 $
3.62 $
0.18 $
1.36 $
1.35 $
— $
0.67 $
0.66 $
— $
4,053,867
903,263
8,004,652
1,255,600
7,993,306
1,198,221
7,250,315
1,170,048
2.73
2.71
—
(1) Fiscal years 2014 and 2013 amounts include operating results of Novellus. Fiscal year 2012 amounts
include 20 days of operating results of Novellus from the acquisition date of June 4, 2012. The Novellus
acquisition was accounted for as a business combination in accordance with the applicable accounting
guidance.
(2) Restructuring charges, net exclude restructuring charges (releases) included in cost of goods sold and
reflected in gross margin of ($1.0) million, and $3.4 million for fiscal years 2012 and 2010, respectively.
(3) 409A expense excludes a credit included in cost of goods sold and reflected in gross margin of $5.8 million
in fiscal year 2010 related to a reversal of accrued liabilities due to final settlement of matters associated
with our Internal Revenue Code Section 409A (“409A”) expenses from the 2007 voluntary independent
stock option review. Following a voluntary independent review of its historical stock option granting
process, the Company considered whether Section 409A of the Internal Revenue Code of 1986, as amended
(“IRC”), and similar provisions of state law, applied to certain stock option grants as to which, under the
applicable accounting guidance, intrinsic value was deemed to exist at the time of the options’ measurement
dates. If, under applicable tax principles, an employee stock option is not considered as granted with an
exercise price equal to the fair market value of the underlying stock on the grant date, then the optionee may
be subject to federal and state penalty taxes under Section 409A (collectively, “Section 409A
liabilities”). On March 30, 2008, the Board of Directors authorized the Company (i) to assume potential
Section 409A Liabilities, inclusive of applicable penalties and interest, of current and past employees arising
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from the exercise in 2006 and 2007 of Company stock options that vested after 2004, and (ii) if necessary, to
compensate such employees for additional tax liability associated with that assumption.
QUARTERLY FISCAL YEAR 2014:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share
Three Months Ended (1)
June 29,
2014
March 30,
2014
December 29,
2013
September 29,
2013
(in thousands, except per share data)
$1,248,797
557,036
215,850
233,395
$1,227,392
530,798
191,937
164,396
$1,116,061
487,789
164,474
148,992
$1,015,059
431,858
105,408
85,506
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.44
1.35
$
$
1.01
0.96
$
$
0.92
0.87
$
$
0.52
0.50
Number of shares used in per share calculations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,215
173,345
162,238
171,636
162,305
171,757
162,896
171,363
QUARTERLY FISCAL YEAR 2013
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges, net - operating expenses . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share
Three Months Ended (1)
June 30,
2013
March 31,
2013
December 23,
2012
September 23,
2012
(in thousands, except per share data)
$ 986,214
413,927
792
86,498
85,707
$ 844,928
339,832
—
10,819
18,996
$ 860,886
315,414
1,021
4,042
6,408
$ 906,888
333,886
—
16,712
2,768
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.53
0.50
$
$
0.12
0.11
$
$
0.04
0.04
$
$
0.02
0.02
Number of shares used in per share calculations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,520
169,722
163,034
168,504
170,699
173,027
179,928
181,926
(1) Our reporting period is a 52/53-week fiscal year. The fiscal years ended June 29, 2014 and June 30, 2013
included 52 and 53 weeks, respectively. All quarters presented above included 13 weeks, except the quarter
ended March 31, 2013, which included 14 weeks.
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JOB TITLE LAM Research Combo
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DATE Friday, September 19, 2014
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PAGE NO. 95
OPERATOR JoeLF
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations contains forward-looking
statements, which are subject to risks, uncertainties and changes in condition, significance, value and effect. Our
actual results could differ materially from those anticipated in the forward-looking statements as a result of certain
factors, including but not limited to those discussed in “Risk Factors” and elsewhere in this 2014 Form 10-K and
other documents we file from time to time with the Securities and Exchange Commission. (See “Cautionary
Statement Regarding Forward-Looking Statements” in Part I of this 2014 Form 10-K).
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a
description of our results of operations and should be read in conjunction with our Consolidated Financial Statements
and accompanying Notes to Consolidated Financial Statements included in this 2014 Form 10-K. MD&A consists of
the following sections:
Executive Summary provides a summary of the key highlights of our results of operations and our management’s
assessment of material trends and uncertainties relevant to our business.
Results of Operations provides an analysis of operating results.
Critical Accounting Policies and Estimates discusses accounting policies that reflect the more significant
judgments and estimates used in the preparation of our consolidated financial statements.
Liquidity and Capital Resources provides an analysis of cash flows, contractual obligations and financial position.
Executive Summary
Lam Research has been an innovative supplier of wafer fabrication equipment and services to the semiconductor
industry for more than 30 years. Our customers include semiconductor manufacturers that make memory,
microprocessors, and other logic integrated circuits for a wide range of electronics; including cell phones, computers,
storage devices and networking equipment.
Our market-leading products are designed to help our customers build the smaller, faster and more power-efficient
devices that are necessary to power the capabilities required by end users. The process of integrated circuits fabrication
consists of a complex series of process and preparation steps and Lam’s product offerings in deposition, etch and clean
address a number of the most critical steps in the fabrication process. We leverage our expertise in semiconductor
processing to develop technology and productivity solutions that typically benefit our customers through lower defect
rates, enhanced yields, faster processing time, and reduced cost as well as by facilitating their ability to meet more
stringent performance and design standards.
The semiconductor capital equipment industry has been highly competitive and subject to business cycles that
historically have been characterized by rapid changes in demand. More recently with consolidation in the customer
base, the cyclical behavior appears to have diminished somewhat. With a reduced number of customers, variability in
their business plans may lead to changes in demand for Lam’s equipment and services over certain periods. The
variability in our customers’ investments during any particular period is dependent on several factors including but not
limited to electronics demand, economic conditions (both general and in the semiconductor and electronics industries),
industry supply and demand, prices for semiconductors, and our customers’ ability to develop and manufacture
increasingly complex and costly semiconductor devices.
Demand for our products increased steadily throughout fiscal year 2014 as semiconductor device manufacturers
made capacity and technology investments. Technology inflections have been in industry inflection points that include
FinFET transistors, 3-D NAND and multiple patterning. These technology inflections have led to an increase in the
deposition, etch and clean market size. This increase, as well as market share gains in these inflections, have
contributed to the increased revenue in fiscal 2014. We believe that, over the longer term, demand for our products
should increase as the proportion of customers’ capital expenditures rise in these technology inflection areas, and we
continue to gain market share.
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JOB TITLE LAM Research Combo
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The following summarizes certain key annual financial information for the periods indicated below:
June 29,
2014
Year Ended
June 30.
2013
June 24,
2012
FY14 vs. FY13
FY13 vs. FY12
(in thousands, except per share data and percentages)
$4,607,309
$2,007,481
$3,598,916
$1,403,059
$2,665,192
$1,084,069
$1,008,393
$ 604,422
28.0% $933,724
43.1% $318,990
35.0%
29.4%
43.6%
39.0%
40.7%
4.6%
-1.7%
$1,329,812
$ 632,289
$1,284,988
$ 113,879
$ 846,336
$ 168,723
44,824
$
$ 518,410
3.5% $438,652
455.2% $ (54,844)
51.8%
-32.5%
Revenue . . . . . . . . . . . . . .
Gross margin . . . . . . . . . .
Gross margin as a percent
of total revenue . . . . . .
Total operating
expenses . . . . . . . . . . . .
Net income . . . . . . . . . . . .
Diluted net income per
share . . . . . . . . . . . . . . .
$
3.62
$
0.66
$
1.35
$
2.96
448.5% $
(0.69)
-51.1%
On June 4, 2012, we completed our acquisition of Novellus Systems, Inc (“Novellus”). Results for fiscal
years 2014 and 2013 include Novellus operations. Results for fiscal year 2012 include Novellus operations from
the acquisition date through June 24, 2012. Lam’s primary reasons for this acquisition were to complement
existing product offerings and to provide opportunities for revenue growth and cost synergies.
Fiscal year 2014 revenues increased 28% compared to fiscal year 2013, reflecting the increase in technology
inflections’ spending, as well as, incremental market share gains. The increase in gross margin as a percentage of
revenue for the fiscal year 2014 compared to fiscal year 2013 was due primarily to a decrease in Novellus
acquisition-related inventory fair value adjustments, improved business volumes and product mix. Operating
expenses in fiscal year 2014 increased as compared to fiscal year 2013 primarily related to continued investments
in the next-generation research and development and customer facing activities.
Our cash and cash equivalents, short-term investments, and restricted cash and investments balances totaled
approximately $3.2 billion as of June 29, 2014 compared to $2.7 billion as of June 30, 2013. This increase was
primarily the result of $717 million of cash flows from operating activities, offset by $245 million in share
repurchases. This compares to $720 million in cash provided by operating activities during fiscal year 2013.
Results of Operations
Shipments and Backlog
June 29,
2014
Year Ended
June 30,
2013
June 24,
2012
Shipments (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,551
$3,714
$2,672
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24%
21%
13%
15%
15%
7%
5%
16%
29%
11%
9%
20%
8%
7%
36%
18%
10%
6%
17%
8%
5%
Shipments for fiscal year 2014 were approximately $4.6 billion and increased by 23% compared to fiscal
year 2013. Shipments for fiscal year 2013 were approximately $3.7 billion and increased by 39% compared to
fiscal year 2012. The increase in shipments during fiscal year 2014 as compared to fiscal year 2013 related to
continued strengthening of customer demand through fiscal year 2014. The increase in shipments during fiscal
year 2013 as compared to fiscal year 2012 related to having a full year of combined operations with Novellus and
the strengthening of customer demand in the second half of fiscal year 2013.
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The percentage of total semiconductor processing system shipments to each of the market segments we
serve were as follows for fiscal years 2014, 2013, and 2012.
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
Memory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foundry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Logic/integrated device manufacturing . . . . . . . . . . . . . . . . .
60%
30%
10%
36%
49%
15%
45%
46%
9%
During fiscal year 2014, memory customer demand was higher due to node transitions in memory
manufacturing, stable pricing for memory, and tight industry supply.
Unshipped orders in backlog as of June 29, 2014 were approximately $866 million and increased from
approximately $764 million as of June 30, 2013. Our unshipped orders backlog includes orders for systems,
spares, and services. Please refer to “Backlog” in Part I Item 1, “Business” of this report for a description of our
policies for adding to and adjusting backlog.
Revenue
June 29,
2014
Year Ended
June 30,
2013
June 24,
2012
Revenue (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,607
$3,599
$2,665
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24%
23%
14%
14%
13%
7%
5%
17%
29%
10%
9%
20%
8%
7%
33%
18%
12%
5%
17%
9%
6%
The revenue increase in fiscal year 2014 as compared to fiscal year 2013 reflected increased customer and
industry demand. The revenue increase in fiscal year 2013 as compared to fiscal year 2012 reflected a full fiscal
year of operations post-acquisition of Novellus. Our revenue levels are generally correlated to the amount of
shipments and our installation and acceptance timelines. The overall Asia region continues to account for a
majority of our revenues as a substantial amount of the worldwide capacity additions for semiconductor
manufacturing continues to occur in this region. Our deferred revenue balance was $361.6 million as of June 29,
2014 compared to $389.2 million as of June 30, 2013. Our deferred revenue balance does not include shipments
to Japanese customers, to whom title does not transfer until customer acceptance. Shipments to Japanese
customers are classified as inventory at cost until the time of customer acceptance. The anticipated future
revenue value from shipments to Japanese customers was approximately $34 million as of June 29, 2014
compared to $70 million as of June 30, 2013.
Gross Margin
June 29,
2014
Year Ended
June 30,
2013
June 24,
2012
FY14 vs. FY13
FY13 vs. FY12
(in thousands, except percentages)
Gross margin . . . . . . . . . . . . . . . . .
Percent of total revenue . . . . . . . . .
$2,007,481
$1,403,059
$1,084,069
$604,422
43.1% $318,990
29.4%
43.6%
39.0%
40.7%
4.6%
-1.7%
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JOB TITLE LAM Research Combo
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The increase in gross margin as a percentage of revenue for fiscal year 2014 compared to fiscal year 2013
was due to higher business volumes as well as a more favorable product mix. Additionally, the Novellus
acquisition related inventory fair value impact and cost associated with rationalization of certain product
configurations decreased by $78 million and $15 million, respectively, in fiscal year 2014 as compared to fiscal
year 2013.
The decrease in gross margin as a percentage of revenue for fiscal year 2013 compared to fiscal year 2012
was due primarily to higher Novellus acquisition-related inventory fair value adjustments of approximately $77
million, amortization of acquired intangible assets of approximately $78 million, and $16 million of costs
associated with rationalization of certain product configurations. Offsetting these higher Novellus acquisition and
product configuration-related expenses was a favorable change in gross margin as a result of increased business
volume.
Research and Development
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
FY14 vs. FY13
FY13 vs. FY12
(in thousands, except percentages)
Research & development (“R&D”) . . . . . .
Percent of total revenue . . . . . . . . . . . . . . .
$716,471
$683,688
$444,559
$32,783
4.8% $239,129
53.8%
15.6%
19.0%
16.7%
-3.4%
2.3%
We continued to make significant R&D investments focused on leading-edge deposition, plasma etch,
single-wafer clean and other semiconductor manufacturing requirements. The increase in R&D expense during
fiscal year 2014 compared to fiscal year 2013 was primarily due to a $41 million increase in salaries and benefits
related to higher headcount and higher incentive and equity compensation offset by a reduction of $7 million in
supplies.
The increase in R&D spending during fiscal year 2013 compared to fiscal year 2012 reflects a full year of
combined operations with Novellus. Increased R&D expense included $111 million in salary and benefits mainly
due to higher headcount, $46 million in supplies, $26 million in depreciation and amortization due to new
product development, $15 million in outside services, and an additional $12 million in rent, utilities and repairs.
Selling, General and Administrative
June 29,
2014
Year Ended
June 30,
2013
June 24,
2012
FY14 vs. FY13
(in thousands, except percentages)
FY13 vs. FY12
Selling, general & administrative
(“SG&A”) . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenue . . . . . . . . . . . . . . .
$613,341
$601,300
$401,777
$12,041
2.0% $199,523
49.7%
13.3%
16.7%
15.1%
-3.4%
1.6%
The increase in SG&A expense during fiscal year 2014 compared to fiscal year 2013 was due primarily to a
net increase of $11 million in salaries, benefits and incentive compensation, $20 million increase in marketing
expenses and outside services, $7 million in costs associated with rationalization of certain product
configurations, $8 million of impairment of a long lived asset, and a $5 million cost related to the renewal of our
Fremont and Livermore buildings’ operating leases. This increase was offset by a $34 million reduction in
integration costs and a $10 million reduction in amortization of intangible assets related to the Novellus
integration.
The increase in SG&A expense during fiscal year 2013 compared to fiscal year 2012 was due primarily to
the impact of combined operations with Novellus. Increased expense includes $108 million in salary and benefits
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due to a higher headcount, $73 million of intangible asset amortization, $29 million in integration cost, and
$14 million in rent/repair/utilities, all offset by a $47 million decrease in Novellus acquisition-related cost.
Gain on Sale of Real Estate
During the fiscal year 2014, we sold our interest in nonessential property in Palo Alto, California, resulting
in $135 million in net proceeds and a realized gain of $83 million from the transaction.
Other Expense, Net
Other expense, net, consisted of the following:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on deferred compensation plan related
assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gains (losses), net . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
$ 12,540
(61,692)
(in thousands)
$ 14,737
(60,408)
$ 12,141
(38,962)
9,559
1,529
668
9,764
(6,808)
(8,698)
(914)
(397)
(5,183)
$(37,396)
$(51,413)
$(33,315)
The increase in interest expense during fiscal year 2013 as compared with fiscal year 2012 was primarily
due to the 2041 convertible notes assumed in June 2012 in connection with the Novellus acquisition.
Foreign exchange gains in fiscal year 2014 and losses in fiscal years 2013 and 2012 were related to un-
hedged portions of the balance sheet exposures.
Other income realized during fiscal year 2014 was primarily due to a gain on the disposition of a private
equity investment. Other expenses during fiscal year 2013 included a $4 million other-than-temporary
impairment of a public equity investment recognized during the March 2013 quarter. Other expenses during
fiscal year 2012 included a $2 million other-than temporary impairment of a private equity investment
recognized during the September 2011 quarter.
Income Tax Expense (benefit)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$91,074
12.6%
June 29,
2014
Year Ended
June 30,
2013
(in thousands)
$(47,221)
-70.8%
June 24,
2012
$35,695
17.5%
The increase in the effective tax rate in fiscal year 2014 as compared to fiscal year 2013 was primarily due
to the change in the level of income and geographic mix of income between higher and lower tax jurisdictions,
U.S. income and applicable foreign withholding taxes on undistributed foreign earnings of certain of our foreign
subsidiaries for 2014, reduced tax benefit in fiscal year 2014 due to the expiration of the federal research and
development tax credit as of December 31, 2013, and tax benefits in fiscal year 2013 related to the recognition of
previously unrecognized tax benefits due to the lapse of the statute of limitations and successful resolution of
certain tax matters. The decrease in the effective tax rate in fiscal year 2013 as compared to fiscal year 2012 was
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primarily due to the level of income, tax benefits related to the recognition of previously unrecognized tax
benefits due to the lapse of the statute of limitations and successful resolution of certain tax matters, the change
in geographical mix of income between higher and lower tax jurisdictions, and tax benefit due to the retroactive
reinstatement of the federal research and development tax credit in January 2013.
International revenues account for a significant portion of our total revenues, such that a material portion of
our pre-tax income is earned and taxed outside the United States at rates that are generally lower than in the
United States. Please refer to Note 15 to Consolidated Financial Statements.
Deferred Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as
the tax effect of carryforwards. Our gross deferred tax assets, composed primarily of reserves and accruals that
are not currently deductible and tax credit carryforwards, were $343 million and $318 million at the end of fiscal
years 2014 and 2013, respectively. These gross deferred tax assets were offset by deferred tax liabilities of $294
million and $259 million at the end of fiscal years 2014 and 2013, respectively, and a valuation allowance of $74
million and $77 million at the end of fiscal years 2014 and 2013, respectively. The change in the gross deferred
tax assets and deferred tax liabilities between fiscal year 2014 and 2013 is primarily due to accrual for future tax
liability due to the expected repatriation of foreign earnings of certain of our foreign subsidiaries for 2014 and
amortization of convertible debt, offset by increase in deferred tax assets related to accounting allowances and
reserves.
Our fiscal years 2014 and 2013 valuation allowance of $74 million and $77 million primarily relate to
California and certain foreign deferred tax assets.
At our fiscal year end of June 29, 2014 we continue to record a valuation allowance to offset the entire
California deferred tax asset balance due to the impact of the single sales factor apportionment election resulting
in lower taxable income in California. We also continue to record valuation allowance on certain foreign entities’
net operating losses.
We evaluate the realizability of the deferred tax assets quarterly and will continue to assess the need for
changes in valuation allowances, if any.
Uncertain Tax Positions
We reevaluate uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but
not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and
new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit
or an additional charge to the tax provision.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make certain judgments, estimates and assumptions that could affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. We based our estimates and assumptions on historical
experience and on various other assumptions we believed to be applicable and evaluate them on an ongoing basis
to ensure they remain reasonable under current conditions. Actual results could differ significantly from those
estimates.
The significant accounting policies used in the preparation of our financial statements are described in
Note 2 of our Consolidated Financial Statements. Some of these significant accounting policies are considered to
be critical accounting policies. A critical accounting policy is defined as one that has both a material impact on
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our financial condition and results of operations and requires us to make difficult, complex and/or subjective
judgments, often regarding estimates about matters that are inherently uncertain.
We believe that the following critical accounting policies reflect the more significant judgments and
estimates used in the preparation of our consolidated financial statements.
Recognition: We recognize all revenue when persuasive evidence of an arrangement exists, delivery has
occurred and title has passed or services have been rendered, the selling price is fixed or determinable, collection
of the receivable is reasonably assured, and we have received customer acceptance or are otherwise released from
our customer acceptance obligations. If terms of the sale provide for a lapsing customer acceptance period, we
recognize revenue upon the expiration of the lapsing acceptance period or customer acceptance, whichever
occurs first. If the practices of a customer do not provide for a written acceptance or the terms of sale do not
include a lapsing acceptance provision, we recognize revenue when it can be reliably demonstrated that the
delivered system meets all of the agreed-to customer specifications. In situations with multiple deliverables, we
recognize revenue upon the delivery of the separate elements to the customer and when we receive customer
acceptance or are otherwise released from our customer acceptance obligations. We allocate revenue from
multiple-element arrangements among the separate elements based on their relative selling prices, provided the
elements have value on a stand-alone basis. Our sales arrangements do not include a general right of return. The
maximum revenue we recognize on a delivered element is limited to the amount that is not contingent upon the
delivery of additional items. We generally recognize revenue related to sales of spare parts and system upgrade
kits upon shipment. We generally recognize revenue related to services upon completion of the services
requested by a customer order. We recognize revenue for extended maintenance service contracts with a fixed
payment amount on a straight-line basis over the term of the contract. When goods or services have been
delivered to the customer but all conditions for revenue recognition have not been met, we record deferred
revenue and/or deferred costs of sales in deferred profit on our Consolidated Balance Sheet.
Inventory Valuation: Inventories are stated at the lower of cost or market using standard costs that
approximate actual costs on a first-in, first-out basis. We maintain a perpetual inventory system and continuously
record the quantity on-hand and standard cost for each product, including purchased components, subassemblies,
and finished goods. We maintain the integrity of perpetual inventory records through periodic physical counts of
quantities on hand. Finished goods are reported as inventories until the point of title transfer to the customer.
Unless specified in the terms of sale, title generally transfers when we complete physical transfer of the products
to the freight carrier. Transfer of title for shipments to Japanese customers generally occurs at the time of
customer acceptance.
Management evaluates the need to record adjustments for impairment of inventory at least quarterly. Our
policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process,
finished goods, and spare parts in each reporting period. Obsolete inventory or inventory in excess of
management’s estimated usage requirement is written down to its estimated market value if less than cost.
Estimates of market value include, but are not limited to, management’s forecasts related to our future
manufacturing schedules, customer demand, technological and/or market obsolescence, general semiconductor
market conditions, and possible alternative uses. If future customer demand or market conditions are less
favorable than our projections, additional inventory write-downs may be required and would be reflected in cost
of goods sold in the period in which we make the revision.
Warranty: Typically, the sale of semiconductor capital equipment includes providing parts and service
warranties to customers as part of the overall price of the system. We provide standard warranties for our
systems. We record a provision for estimated warranty expenses to cost of sales for each system when we
recognize revenue. We do not maintain general or unspecified reserves; all warranty reserves are related to
specific systems. The amount recorded is based on an analysis of historical activity that uses factors such as type
of system, customer, geographic region, and any known factors such as tool reliability trends. All actual or
estimated parts and labor costs incurred in subsequent periods are charged to those established reserves on a
system-by-system basis.
38
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 100
OPERATOR JoeLF
While we periodically monitor the performance and cost of warranty activities, if actual costs incurred are
different than our estimates, we may recognize adjustments to provisions in the period in which those differences
arise or are identified. In addition to the provision of standard warranties, we offer customer-paid extended
warranty services. Revenues for extended maintenance and warranty services with a fixed payment amount are
recognized on a straight-line basis over the term of the contract. Related costs are recorded as incurred.
Equity-based Compensation — Employee Stock Purchase Plan (“ESPP”) and Employee Stock Plans:
GAAP requires us to recognize the fair value of equity-based compensation in net income. We determine the fair
value of our restricted stock units (“RSUs”), excluding market-based performance RSUs, based on the fair
market value of Company stock at the date of grant. We estimate the fair value of our market-based performance
RSUs using a Monte Carlo simulation model at the date of the grant. We estimate the fair value of our stock
options and ESPP awards using the Black-Scholes option valuation model. This model requires us to input highly
subjective assumptions, including expected stock price volatility and the estimated life of each award. We
amortize the fair value of equity-based awards over the vesting periods of the awards, and we have elected to use
the straight-line method of amortization.
We make quarterly assessments of the adequacy of our tax credit pool related to equity-based compensation
to determine if there are any deficiencies that we are required to recognize in our Consolidated Statements of
Operations. We will only recognize a benefit from stock-based compensation in paid-in-capital if we realize an
incremental tax benefit after all other tax attributes currently available to us have been utilized. In addition, we
have elected to account for the indirect benefits of stock-based compensation on the research tax credit through
the income statement (continuing operations) rather than through paid-in-capital. We have also elected to net
deferred tax assets and the associated valuation allowance related to net operating loss and tax credit
carryforwards for the accumulated stock award tax benefits for income tax footnote disclosure purposes. We will
track these stock award attributes separately and will only recognize these attributes through paid-in-capital.
Income Taxes: Deferred income taxes reflect the net tax effect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes, as well as the tax effect of carryforwards. We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. Realization of our net deferred tax assets is
dependent on future taxable income. We believe it is more-likely-than-not that such assets will be realized;
however, ultimate realization could be negatively impacted by market conditions and other variables not known
or anticipated at the time. In the event that we determine that we would not be able to realize all or part of our net
deferred tax assets, an adjustment would be charged to earnings in the period such determination is made.
Likewise, if we later determine that it is more-likely-than-not that the deferred tax assets would be realized, then
the previously provided valuation allowance would be reversed.
We recognize the benefit from a tax position only if it is more-likely-than-not that the position would be
sustained upon audit based solely on the technical merits of the tax position. Our policy is to include interest and
penalties related to unrecognized tax benefits as a component of income tax expense. Please refer to Note 15 to
the Consolidated Financial Statements for additional information.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more-likely-than-not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and
subjective to estimate such amounts, as this requires us to determine the probability of various possible
outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors
including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues
under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition
of a tax benefit or an additional charge to the tax provision in the period such determination is made.
39
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 103
OPERATOR JoeLF
Goodwill and Intangible Assets: The valuation of intangible assets acquired in a business combination requires
the use of management estimates including but not limited to estimating future expected cash flows from assets
acquired and determining discount rates. Management’s estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may
differ from estimates. Estimates associated with the accounting for acquisitions may change as additional
information becomes available.
Goodwill represents the amount by which the purchase price in each business combination exceeds the fair
value of the net tangible and identifiable intangible assets acquired. Each component of the Company for which
discrete financial information is available and for which segment management regularly reviews the results of
operations is considered a reporting unit. All goodwill acquired in a business combination is assigned to one or
more reporting units as of the acquisition date. Goodwill is assigned to the Company’s reporting units that are
expected to benefit from the synergies of the combination. The goodwill assigned to a reporting unit is the
difference between the acquisition consideration assigned to the reporting unit on a relative fair value basis and
the fair value of acquired assets and liabilities that can be specifically attributed to the reporting unit. We test
goodwill and identifiable intangible assets with indefinite useful lives for impairment at least annually. We
amortize intangible assets with estimable useful lives over their respective estimated useful lives, and we review
for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible
asset may not be recoverable and the carrying amount exceeds its fair value.
We review goodwill at least annually for impairment. If certain events or indicators of impairment occur
between annual impairment tests, we would perform an impairment test at that date. In testing for a potential
impairment of goodwill, we: (1) allocate goodwill to our reporting units to which the acquired goodwill relates;
(2) estimate the fair value of our reporting units; and (3) determine the carrying value (book value) of those
reporting units, as some of the assets and liabilities related to those reporting units are not held by those reporting
units but by a corporate function. Prior to this allocation of the assets to the reporting units, we assess long-lived
assets for impairment. Furthermore, if the estimated fair value of a reporting unit is less than the carrying value,
we must estimate the fair value of all identifiable assets and liabilities of that reporting unit, in a manner similar
to a purchase price allocation for an acquired business. This can require independent valuations of certain
internally generated and unrecognized intangible assets such as in-process R&D and developed technology. Only
after this process is completed can the amount of goodwill impairment, if any, be determined. In our goodwill
impairment analysis we first assess qualitative factors to determine whether it is necessary to perform a
quantitative analysis. We do not calculate the fair value of a reporting unit unless the entity determines, based on
a qualitative assessment, that it is more-likely-than-not that its fair value is less than its carrying amount. Our
most recent annual goodwill impairment analysis, which was performed as of the first day of our fourth quarter,
March 31, 2014, did not result in a goodwill impairment charge, nor did we record any goodwill impairment in
fiscal 2013 or 2012. As a result of historical performance and growth potential, our single-wafer Clean systems
reporting unit may be at greater risk for goodwill impairment than our other reporting units if our actual results
for this reporting unit differ from our projections.
The process of evaluating the potential impairment of goodwill is subjective and requires significant
judgment at many points during the analysis. We determine the fair value of our reporting units by using a
weighted combination of both a market and an income approach, as this combination is deemed to be the most
indicative of fair value in an orderly transaction between market participants.
Under the market approach, we use information regarding the reporting unit as well as publicly available
industry information to determine various financial multiples to value our reporting units. Under the income
approach, we determine fair value based on estimated future cash flows of each reporting unit, discounted by an
estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and
the rate of return an outside investor would expect to earn.
In estimating the fair value of a reporting unit for the purposes of our annual or periodic analyses, we make
estimates and judgments about the future cash flows of our reporting units, including estimated growth rates and
40
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 102
OPERATOR JoeLF
assumptions about the economic environment. Although our cash flow forecasts are based on assumptions that
are consistent with the plans and estimates we are using to manage the underlying businesses, there is significant
judgment involved in determining the cash flows attributable to a reporting unit. In addition, we make certain
judgments about allocating shared assets to the estimated balance sheets of our reporting units. We also consider
our market capitalization and that of our competitors on the date we perform the analysis. Changes in judgment
on these assumptions and estimates could result in a goodwill impairment charge.
As a result, several factors could result in impairment of a material amount of our goodwill balance in future
periods, including, but not limited to: (1) weakening of the global economy, weakness in the semiconductor
equipment industry, or our failure to reach our internal forecasts, which could impact our ability to achieve our
forecasted levels of cash flows and reduce the estimated discounted cash flow value of our reporting units; and
(2) a decline in our stock price and resulting market capitalization, if we determine that the decline is sustained
and indicates a reduction in the fair value of our reporting units below their carrying value. In addition, the value
we assign to intangible assets, other than goodwill, is based on our estimates and judgments regarding
expectations such as the success and life cycle of products and technology acquired. If actual product acceptance
differs significantly from our estimates, we may be required to record an impairment charge to write down the
asset to its realizable value.
Recent Accounting Pronouncements
In July 2013, the FASB released Accounting Standards Update 2013-11 “Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward
Exists.” The new standard requires that an unrecognized tax benefit should be presented as a reduction of a
deferred tax asset for a net operating loss carryforward or other tax credit carryforward when settlement in this
manner is available under the tax law. We are required to adopt this standard starting in fiscal year 2015 and are
currently in the process of determining the impact, if any, on our financial position.
In April 2014, the FASB released Accounting Standards Update 2014-8 “Presentation of Financial
Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosure of Disposals
of Components of an Entity.” The new standard re-defines discontinued operations and requires only those
disposals of components of an entity, including classifications as held for sale, that represent a strategic shift that
has, or will have, a major effect on an entity’s operations and financial results to be reported as discontinued
operations. In addition, the new standard expands the disclosure requirements of discontinued operations. We are
required to adopt this standard starting in fiscal year 2015 and are currently in the process of determining the
impact, if any, on our financial position.
In May 2014, the FASB released Accounting Standards Update 2014-9 “Revenue from Contracts with
Customers” to supersede nearly all existing revenue recognition guidance under GAAP. 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 new standard defines a
five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may
be required within the revenue recognition process than required under existing GAAP including identifying
performance obligations in the contract, estimating the amount of variable consideration to include in the
transaction price and allocating the transaction price to each separate performance obligation. We are required to
adopt this standard starting in the first quarter of fiscal 2018 using either of two methods: (i) retrospective to each
prior reporting period presented with the option to elect certain practical expedients as defined within the
standard; or (ii) retrospective with the cumulative effect of initially applying the standard recognized at the date
of initial application and providing certain additional disclosures as defined per the standard. We are currently
evaluating the impact of our pending adoption of this standard on our financial position.
41
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 105
OPERATOR JoeLF
Liquidity and Capital Resources
Total gross cash, cash equivalents, short-term investments, and restricted cash and investments balances
were $3.2 billion at the end of fiscal year 2014 compared to $2.7 billion at the end of fiscal year 2013. This
increase was primarily the result of $717 million of cash flow from operating activities. Approximately $2.2
billion and $2.0 billion of our total cash and investments as of June 29, 2014 and June 30, 2013, respectively,
were held outside the U.S. in our foreign subsidiaries, the majority of which would be subject to tax at U.S. rates
if it were to be repatriated. Refer to Note 15 of our Consolidated Financial Statements, included in Item 15 of this
report, for information concerning the potential tax impact of repatriating earnings for certain non-U.S.
subsidiaries that are permanently reinvested outside the U.S.
Cash Flows from Operating Activities
Net cash provided by operating activities of $717 million during fiscal year 2014 consisted of (in millions):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash charges:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of convertible note discount
. . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating asset and liability accounts . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ 632
292
104
8
33
12
(83)
(293)
12
$ 717
Significant changes in operating asset and liability accounts, net of foreign exchange impact, included the
following uses of cash: increases in accounts receivable of $201.5 million, inventories of $190.1 million, and
prepaid expenses and other assets of $9.5 million, partially offset by the following sources of cash: increases in
accounts payable of $18.7 million, deferred profit of $10.9 million and accrued liabilities of $78.6 million.
Cash Flows from Investing Activities
Net cash used for investing activities during fiscal year 2014 was $265.2 million, which was primarily due
to net purchases of available-for-sale securities of $284.0 million, and capital expenditures of $145.5 million,
partially offset by cash proceeds on the sale of assets of $156.7 million.
Cash Flows from Financing Activities
Net cash used for financing activities during fiscal year 2014 was $162.7 million, which was primarily due
to $244.9 million in treasury stock repurchases, partially offset by net proceeds from issuance of Common Stock
related to employee equity-based plans of $77.7 million.
Liquidity
Given the cyclical nature of the semiconductor equipment industry, we believe that maintaining sufficient
liquidity reserves is important to support sustaining levels of investment in R&D and capital infrastructure. Based
upon our current business outlook, we expect that our levels of cash, cash equivalents, and short-term
investments at June 29, 2014 will be sufficient to support our presently anticipated levels of operations,
investments, debt service requirements, and capital expenditures, through at least the next 12 months.
42
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 104
OPERATOR JoeLF
In the longer term, liquidity will depend to a great extent on our future revenues and our ability to
appropriately manage our costs based on demand for our products and services. While we have substantial cash
balances in the United States and offshore, we may require additional funding and need to raise the required
funds through borrowings or public or private sales of debt or equity securities. We believe that, if necessary, we
will be able to access the capital markets on terms and in amounts adequate to meet our objectives. However,
given the possibility of changes in market conditions or other occurrences, there can be no certainty that such
funding will be available in needed quantities or on terms favorable to us.
Off-Balance Sheet Arrangements and Contractual Obligations
We have certain obligations to make future payments under various contracts, some of which are recorded
on our balance sheet and some of which are not. Obligations that are recorded on our balance sheet in accordance
with GAAP include our long-term debt which is outlined in the following table. Our off-balance sheet
arrangements are presented as operating leases and purchase obligations in the table. Our contractual obligations
and commitments as of June 29, 2014, relating to these agreements and our guarantees are included in the
following table. The amounts in the table below exclude $258 million of liabilities related to uncertain tax
benefits as we are unable to reasonably estimate the ultimate amount or time of settlement. See Note 15 to the
Consolidated Financial Statements for further discussion.
Total
Less than
1 year
1-3 years
3-5 years
(in thousands)
More than
5 years
Sublease
Income
Operating Leases . . . . . . . . . . . . . . . . . . . . . . . $
Capital Leases . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Obligations . . . . . . . . . . . . . . . . . . . .
Long-term Debt and Interest Expense* . . . . . .
45,242 $ 15,109 $ 19,748 $
1,857
12,321
185,450
205,696
26,248
2,119,729
1,829
12,148
499,965
5,578 $
8,635
5,170
491,665
5,482 $(675)
—
—
2,928 —
1,101,851 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,382,988 $228,664 $533,690 $511,048 $1,110,261 $(675)
* As noted above, the conversion period for the 2041 Notes opened as of June 30, 2013 and remains open as of
June 29, 2014. As such, the net carrying value of the 2041 Notes is included within current liabilities on our
Consolidated Balance Sheet. The $700 million principal balance of the 2041 Notes has been included in the
more than 5 years payment period in the table above, which reflects the contractual maturity assuming no
conversion. See Note 13 to our Consolidated Financial Statements, included in Item 15 of this report, for
additional information concerning the 2041 Notes and associated conversion feature.
Operating Leases
We lease most of our administrative, R&D and manufacturing facilities, regional sales/service offices and
certain equipment under non-cancelable operating leases. Certain of our facility leases for buildings located at
our Fremont, California headquarters, Livermore facilities, and certain other facility leases provide us with an
option to extend the leases for additional periods or to purchase the facilities. Certain of our facility leases
provide for periodic rent increases based on the general rate of inflation. In addition to amounts included in the
table above, we have guaranteed residual values for certain of our Fremont and Livermore facility leases of up to
$191 million. See Note 14 to the Consolidated Financial Statements for further discussion.
Capital Leases
Capital leases reflect building and office equipment lease obligations. The amounts in the table above
include the interest portion of payment obligations.
Purchase Obligations
Purchase obligations consist of significant contractual obligations either on an annual basis or over multi-
year periods related to our outsourcing activities or other material commitments, including vendor-consigned
43
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 107
OPERATOR JoeLF
inventories. The contractual cash obligations and commitments table presented above contains our minimum
obligations at June 29, 2014 under these arrangements and others. For obligations with cancellation provisions,
the amounts included in the preceding table were limited to the non-cancelable portion of the agreement terms or
the minimum cancellation fee. Actual expenditures will vary based on the volume of transactions and length of
contractual service provided.
Long-Term Debt
On May 11, 2011, we issued and sold $450.0 million in aggregate principal amount of 0.5% convertible
notes due 2016 (the “2016 Notes”) and $450.0 million in aggregate principal amount of 1.25% convertible notes
due 2018 (the “2018 Notes,” and collectively with the “2016 Notes”, the “Notes”). The 2016 Notes were issued
at par and pay interest at a rate of 0.5% per annum and the 2018 Notes were issued at par and pay interest at a
rate of 1.25% per annum. The Notes may be converted into our Common Stock, under certain circumstances,
based on a conversion rate of 15.9128 shares of our Common Stock per $1,000 principal amount of Notes, which
is equal to a conversion price of approximately $62.84 per share of our Common Stock. The conversion price
will be subject to adjustment in some events but will not be adjusted for accrued interest. Concurrently with the
issuance of the Notes, we purchased convertible note hedges for $181.1 million and sold warrants for $133.8
million. The separate convertible note hedges and warrant transactions are structured to reduce the potential
future economic dilution associated with the conversion of the Notes.
In June 2012, with the acquisition of Novellus, we assumed $700 million in aggregate principal amount of
2.625% Convertible Senior Notes due May 2041 (the “2041 Notes”). The 2041 Notes were issued at par and pay
interest at a rate of 2.625% per annum. The 2041 Notes may be converted, under certain circumstances, into our
Common Stock based on a conversion rate of 28.5572 shares of Common Stock per $1,000 principal amount of
notes, which represents a conversion price of approximately $35.02 per share of Common Stock.
During fiscal year 2014, 2013, and 2012 we made $1.7 million, $2.2 million, and $5.3 million, respectively,
in principal payments on long-term debt and capital leases, respectively.
Revolving Credit Arrangements
On March 12, 2014, we entered into a $300 million revolving unsecured credit facility with a syndicate of
lenders that matures on March 12, 2019. The facility includes an option for us to, subject to certain requirements,
request an increase in the facility of up to an additional $200 million, for a potential total commitment of $500
million. Proceeds from the credit facility can be used for general corporate purposes. Interest on amounts
borrowed under the credit facility is, at our option, based on (i) a base rate, defined as the greatest of (a) prime
rate, (b) Federal Funds rate plus 0.5%, or (c) one-month LIBOR plus 1.0%, plus a spread of 0.0% to 0.5% or
(ii) LIBOR plus a spread of 0.9% to 1.5%, in each case the applicable spread is determined based on the rating of
our non-credit enhanced, senior unsecured long-term debt. Principal, and any accrued and unpaid interest, is due
and payable upon maturity. Additionally, we will pay the lenders a quarterly commitment fee that varies based
on our rating described above. The credit facility contains certain restrictive covenants including maintaining a
consolidated debt to total capitalization ratio of no more than 0.5 to 1.0 and maintaining unrestricted or
unencumbered cash and investments, of no less than $1.0 billion. As of June 29, 2014, we had no borrowings
outstanding under the credit facility and were in compliance with all financial covenants.
Other Guarantees
We have issued certain indemnifications to our lessors for taxes and general liability under some of our
agreements. We have entered into certain insurance contracts that may limit our exposure to such
indemnifications. As of June 29, 2014, we had not recorded any liability on our Consolidated Financial
Statements in connection with these indemnifications, as we do not believe, based on information available, that
it is probable that we will pay any amounts under these guarantees.
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JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 106
OPERATOR JoeLF
Generally, we indemnify, under pre-determined conditions and limitations, our customers for infringement of
third-party intellectual property rights by our products or services. We seek to limit our liability for such indemnity to
an amount not to exceed the sales price of the products or services subject to its indemnification obligations. We do not
believe, based on information available, that it is probable that we will pay any material amounts under these
guarantees.
We provide guarantees and standby letters of credit to certain parties as required for certain transactions initiated
during the ordinary course of business. As of June 29, 2014, the maximum potential amount of future payments that we
could be required to make under these arrangements and letters of credit was $20.6 million. We do not believe, based
on historical experience and information currently available, that it is probable that any amounts will be required to be
paid.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Investments
We maintain an investment portfolio of various holdings, types, and maturities. As of June 29, 2014, our mutual
funds are classified as trading securities. Investments classified as trading securities are recorded at fair value based
upon quoted market prices. Any material differences between the cost and fair value of trading securities is recognized
as “Other income (expense)” in our Consolidated Statement of Operations. All of our other short-term investments are
classified as available-for-sale and consequently are recorded in the Consolidated Balance Sheets at fair value with
unrealized gains or losses reported as a separate component of accumulated other comprehensive income, net of tax.
Interest Rate Risk
Fixed Income Securities
Our investments in various interest earning securities carry a degree of market risk for changes in interest rates. At
any time, a sharp rise in interest rates could have a material adverse impact on the fair value of our fixed income
investment portfolio. Conversely, declines in interest rates could have a material adverse impact on interest income for
our investment portfolio. We target to maintain a conservative investment policy, which focuses on the safety and
preservation of our capital by limiting default risk, market risk, reinvestment risk, and concentration risk. The
following table presents the hypothetical fair values of fixed income securities that would result from selected potential
decreases and increases in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield
curve of plus or minus 50 basis points (“BPS”), 100 BPS, and 150 BPS. The hypothetical fair values as of June 29,
2014 were as follows:
Valuation of Securities
Given an Interest Rate
Decrease of X Basis Points
Fair Value as of
June 29, 2014
Valuation of Securities
Given an Interest Rate
Increase of X Basis Points
(150 BPS)
(100 BPS)
(50 BPS)
0.00%
50 BPS
100 BPS
150 BPS
(in thousands)
Municipal Notes and Bonds . . . $ 336,959 $ 336,951 $ 336,716 $ 335,433 $ 333,555 $ 331,677 $ 329,799
US Treasury & Agencies . . . . .
207,177
Government-Sponsored
214,385
208,980
214,018
214,373
210,783
212,587
Enterprises . . . . . . . . . . . . . .
27,850
35,764
Foreign Government Bond . . .
Corporate Notes and Bonds . . . 1,019,017 1,018,062 1,014,386
Mortgage Backed Securities -
27,894
35,928
27,894
35,925
27,692
35,467
1,008,788
27,503
35,159
1,003,035
27,315
34,852
997,284
27,126
34,546
991,533
Residential . . . . . . . . . . . . . .
27,603
27,421
27,189
26,944
26,703
26,460
26,216
Mortgage Backed Securities -
Commercial
. . . . . . . . . . . . .
113,661
113,210
112,585
111,933
111,281
110,629
109,977
Total . . . . . . . . . . . . . . . . . . . . . $1,775,447 $1,773,836 $1,768,508 $1,758,844 $1,748,019 $1,737,197 $1,726,374
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We mitigate default risk by investing in high credit quality securities and by positioning our portfolio to
respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The
portfolio includes only marketable securities with active secondary or resale markets to achieve portfolio
liquidity and maintain a prudent amount of diversification.
Long-Term Debt
As of June 29, 2014, we had $1.6 billion in principal amount of fixed-rate long-term debt outstanding, with
a fair value of $2.6 billion. The fair value of our Notes is subject to interest rate risk, market risk and other
factors due to the convertible feature. Generally, the fair value of Notes will increase as interest rates fall and/or
our Common Stock price increases, and decrease as interest rates rise and/or our Common Stock price decreases.
The interest and market value changes affect the fair value of our Notes but do not impact our financial position,
cash flows, or results of operations due to the fixed nature of the debt obligations. We do not carry the Notes at
fair value, but present the fair value of the principal amount of our Notes for disclosure purposes.
Equity Price Risk
Publicly Traded Securities
The values of our investments in publicly traded securities, including mutual funds related to our obligations
under our deferred compensation plans, are subject to market price risk. The following table presents the
hypothetical fair values of our publicly traded securities that would result from potential decreases and increases
in the price of each security in the portfolio. Potential fluctuations in the price of each security in the portfolio of
plus or minus 10%, 15%, or 25% were selected based on potential near-term changes in those security prices.
The hypothetical fair values as of June 29, 2014 were as follows:
Valuation of Securities
Given an X% Decrease
in Stock Price
(15%)
(25%)
(10%)
Mutual Funds . . . . . . . . . . . . . . . .
$16,319
$18,494
$19,582
Foreign Currency Exchange (“FX”) Risk
Fair Value as of
June 29, 2014
0.00%
(in thousands)
$21,758
Valuation of Securities
Given an X% Increase
in Stock Price
15%
25%
10%
$23,934
$25,022
$27,198
We conduct business on a global basis in several major international currencies. As such, we are potentially
exposed to adverse as well as beneficial movements in foreign currency exchange rates. The majority of our
revenues and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange
rate fluctuations primarily related to revenues denominated in Japanese yen and euro-denominated expenses.
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency
exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily
third party accounts receivables, accounts payables and intercompany receivables and payables. In addition, we
hedge certain anticipated foreign currency cash flows, primarily on Japanese yen-denominated revenues and
euro-denominated expenses.
To protect against the reduction in value of anticipated revenues denominated in Japanese yen-and euro-
denominated expenses, we enter into foreign currency forward contracts that generally expire within 12 months,
and no later than 24 months. These foreign currency forward contracts are designated as cash flow hedges and
are carried on our balance sheet at fair value, with the effective portion of the contracts’ gains or losses included
in accumulated other comprehensive income (loss) and subsequently recognized in earnings in the same period
the hedged revenue and/or expense is recognized. We also enter into foreign currency forward contracts to hedge
the gains and losses generated by the remeasurement of certain non-U.S.-dollar denominated monetary assets and
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liabilities, primarily third party accounts receivables, accounts payables and intercompany receivables and
payables. The change in fair value of these balance sheet hedge contracts is recorded into earnings as a
component of other income (expense), net and offsets the change in fair value of the foreign currency
denominated monetary assets and liabilities also recorded in other income (expense), net, assuming the hedge
contract fully covers the intercompany and trade receivable balances. The notional amount and unrealized gain of
our outstanding forward contracts that are designated as cash flow hedges, as of June 29, 2014 are shown in the
table below. This table also shows the change in fair value of these cash flow hedges assuming a hypothetical
foreign currency exchange rate movement of plus-or-minus 10 percent and plus-or-minus 15 percent.
Notional
Amount
Unrealized FX
Gain / (Loss)
June 29, 2014
Valuation of Fx Contracts Given an X%
Increase (+)/Decrease(-) in Each Fx Rate
+ / - (10%)
+ / - (15%)
(in $ Millions)
Cash Flow Hedge
Sell
. . . . . . . . . . . .
Buy . . . . . . . . . . . .
Japanese Yen
Euro
$98.5
93.9
$ 0.5
(0.6)
($ 0.1)
$ 9.8
9.3
$19.1
$14.7
14.0
$28.7
The notional amount and unrealized loss of our outstanding foreign currency forward contracts that are
designated as balance sheet hedges, as of June 29, 2014 are shown in the table below. This table also shows the
change in fair value of these balance sheet hedges, assuming a hypothetical foreign currency exchange rate
movement of plus-or-minus 10 percent and plus-or-minus 15 percent. These changes in fair values would be
offset in other income (expense), net, by corresponding change in fair values of the foreign currency
denominated monetary assets and liabilities, assuming the hedge contract fully covers the intercompany and trade
receivable balances.
Notional
Amount
Unrealized FX
Gain / (Loss)
June 29, 2014
Valuation of Fx Contracts Given an X%
Increase (+)/Decrease(-) in Each Fx Rate
+ / - (10%)
+ / - (15%)
(in $ Millions)
. . . . . . . . . . . . . . . .
Balance Sheet Hedge
Japanese Yen
Sell
Buy . . . . . . . . . . . . . . . . Korean Won
Buy . . . . . . . . . . . . . . . . Swiss Francs
Buy . . . . . . . . . . . . . . . . Taiwan Dollar
Buy . . . . . . . . . . . . . . . . Euro
$30.3
19.5
7.0
32.9
0.5
$ 0.0
0.0
0.0
(0.5)
0.0
($ 0.5)
$3.0
2.0
0.7
3.3
0.1
$9.1
$ 4.6
2.9
1.1
5.0
0.1
$13.7
Item 8.
Financial Statements and Supplementary Data
The Consolidated Financial Statements required by this Item are set forth on the pages indicated in
Item 15(a). The unaudited quarterly results of our operations for our two most recent fiscal years are incorporated
in this Item by reference under Item 6, “Selected Financial Data” above.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
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Item 9A. Controls and Procedures
Design of Disclosure Controls and Procedures and Internal Control over Financial Reporting
We maintain disclosure controls and procedures and internal control over final reporting that are designed to
comply with Rule 13a-15 of the Exchange Act. In designing and evaluating the controls and procedures
associated with each, management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and that the
effectiveness of controls cannot be absolute because the cost to design and implement a control to identify errors
or mitigate the risk of errors occurring should not outweigh the potential loss caused by the errors that would
likely be detected by the control. Moreover, we believe that a control system cannot be guaranteed to be 100%
effective all of the time. Accordingly, a control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system’s objectives will be met.
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of June 29, 2014, we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e). Based upon that
evaluation, our Chief Executive Officer and our Chief Financial Officer each concluded that our disclosure
controls and procedures are effective at the reasonable assurance level.
We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on
an ongoing basis and to correct any material deficiencies that we may discover. Our goal is to ensure that our
senior management has timely access to material information that could affect our business.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during our most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate “internal control over financial
reporting”, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management has used the
framework set forth in the 1992 report entitled “Internal Control — Integrated Framework” published by the
Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the
Company’s internal control over financial reporting. Based on that evaluation, management has concluded that
the Company’s internal control over financial reporting was effective as of June 29, 2014 at providing reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Company’s internal
control over financial reporting, as stated in their report, which is included in Part IV, Item 15 of this 2014
Form 10-K.
Effectiveness of Controls
While we believe the present design of our disclosure controls and procedures and internal control over
financial reporting is effective at the reasonable assurance level, future events affecting our business may cause
us to modify our disclosure controls and procedures or internal controls over financial reporting.
Item 9B. Other Information
None.
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PART III
We have omitted from this 2014 Form 10-K certain information required by Part III because we, as the
Registrant, will file a definitive proxy statement with the SEC within 120 days after the end of our fiscal year,
pursuant to Regulation 14A, as promulgated by the SEC, for our Annual Meeting of Stockholders expected to be
held on or about November 6, 2014 (the “Proxy Statement”), and certain information included in the Proxy
Statement is incorporated into this report by reference. (However, the Reports of the Audit Committee and
Compensation Committee in the Proxy Statement are expressly not incorporated by reference into this report.)
Item 10.
Directors, Executive Officers, and Corporate Governance
For information regarding our executive officers, see Part I, Item 1 of this 2014 Form 10-K under the
caption “Executive Officers of the Company,” which information is incorporated into Part III by reference.
The information concerning our directors required by this Item is incorporated by reference to our Proxy
Statement under the heading “Nominees for Directors.”
The information concerning our audit committee and audit committee financial experts required by this Item
is incorporated by reference to our Proxy Statement under the heading “Corporate Governance - Board
Committees — Audit Committee.”
The information concerning compliance by our officers, directors and 10% shareholders with Section 16 of
the Exchange Act required by this Item is incorporated by reference to our Proxy Statement under the heading
“Section 16(a) Beneficial Ownership Reporting Compliance.”
The Company has adopted a Corporate Code of Ethics that applies to all employees, officers, and directors
of the Company. Our Code of Ethics is publicly available on the investor relations page of our website at http://
investor.lamresearch.com. To the extent required by law, any amendments to, or waivers from, any provision of
the Code of Ethics will promptly be disclosed to the public. To the extent permitted by applicable legal
requirements, we intend to make any required public disclosure by posting the relevant material on our website in
accordance with SEC rules.
Item 11.
Executive Compensation
The information required by this Item is incorporated by reference to our Proxy Statement under the heading
“Executive Compensation and Other Information.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated by reference to our Proxy Statement under the
headings “Proposal No. 1 — Election of Directors,” “Executive Compensation and Other Information —
Compensation Committee Interlocks and Insider Participation,” “Executive Compensation and Other Information
— Compensation Committee Report,” “Security Ownership of Certain Beneficial Owners and Management” and
“Securities Authorized for Issuance Under Equity Compensation Plans.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to our Proxy Statement under the
headings “Certain Relationships and Related Transactions” and “Corporate Governance”.
Item 14.
Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to our Proxy Statement under the heading
“Relationship with Independent Registered Public Accounting Firm.”
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PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K
1. Index to Financial Statements
Consolidated Balance Sheets — June 29, 2014 and June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations — Years Ended June 29, 2014, June 30, 2013, and June 24,
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income — Years Ended June 29, 2014, June 30, 2013,
and June 24, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows — Years Ended June 29, 2014, June 30, 2013, and
June 24, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity — Years Ended June 29, 2014, June 30, 2013,
and June 24, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Index to Financial Statement Schedules
Page
51
52
53
54
55
56
94
Schedule II — Valuation and Qualifying Accounts
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
Schedules, other than those listed above, have been omitted since they are not applicable/not
required, or the information is included elsewhere herein.
3. See (b) of this Item 15, which is incorporated herein by reference.
(b) The list of Exhibits follows page 99 of this 2014 Annual Report on Form 10-K and is incorporated
herein by this reference.
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LAM RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $4,962 as of June 29,
2014 and $5,448 as of June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 29,
2014
June 30,
2013
$ 1,452,677
1,612,967
$ 1,162,473
1,334,745
800,616
740,503
176,899
4,783,662
543,496
146,492
1,466,225
894,078
159,353
602,624
559,317
134,670
3,793,829
603,910
166,536
1,452,196
1,074,345
159,499
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,993,306
$ 7,250,315
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt, convertible notes, and capital leases . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, convertible notes, and capital leases . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
223,515
604,296
235,923
518,267
1,582,001
817,202
258,357
122,662
$
200,254
464,528
225,038
514,655
1,404,475
789,256
246,479
134,313
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,780,222
2,574,523
Commitments and contingencies
Senior convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 - 162,350 shares at June 29, 2014 and 162,873 shares at June 30,
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost, 92,867 shares at June 29, 2014 and 89,205 shares at June 30,
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
183,349
186,920
—
—
162
5,239,567
163
5,084,544
(3,757,076)
(28,655)
3,575,737
(3,539,830)
(28,693)
2,972,688
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,029,735
4,488,872
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,993,306
$ 7,250,315
See Notes to Consolidated Financial Statements
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LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
June 29,
2014
Year Ended
June 30,
2013
June 24,
2012
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,607,309
2,599,828
$3,598,916
2,195,857
$2,665,192
1,581,123
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,007,481
1,403,059
1,084,069
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
716,471
613,341
683,688
601,300
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,329,812
1,284,988
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
677,669
83,090
(37,396)
118,071
—
(51,413)
444,559
401,777
846,336
237,733
—
(33,315)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
723,363
66,658
204,418
Income tax expense (benefit)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,074
(47,221)
35,695
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 632,289
$ 113,879
$ 168,723
Net income per share:
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.84
3.62
$
$
0.67
0.66
$
$
1.36
1.35
Number of shares used in per share calculations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,741
168,932
124,176
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174,503
173,430
125,233
See Notes to Consolidated Financial Statements
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LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$632,289
$113,879
$168,723
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
Cash flow hedges:
. . . . . . . . . . . . . . . . . . . . . . . . . .
4,192
5,303
(37,332)
Net unrealized gains (losses) during the period . . . . . . . . . . . . . . . . .
Net losses (gains) reclassified into earnings . . . . . . . . . . . . . . . . . . .
8,004
(10,892)
10,607
(7,573)
Available-for-sale investments:
Net unrealized gains (losses) during the period . . . . . . . . . . . . . . . . .
Net losses (gains) reclassified into earnings . . . . . . . . . . . . . . . . . . .
Defined benefit plans, net change in unrealized component . . . . . . . . . . .
(2,888)
3,034
1,407
165
1,572
(2,838)
(3,844)
4,137
293
(3,505)
(9,342)
8,549
(793)
(204)
(849)
(1,053)
(4,401)
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . .
38
5,125
(43,579)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$632,327
$119,004
$125,144
See Notes to Consolidated Financial Statements
53
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 117
OPERATOR JoeLF
LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
June 29,
2014
Year Ended
June 30,
2013
June 24,
2012
$
632,289
$
113,879
$ 168,723
100,825
42,446
—
1,724
81,559
1,510
(2,686)
27,028
—
11,743
66,064
73,987
43,171
12,145
(9,236)
(119,975)
499,028
(107,272)
418,681
(883,429)
841,440
(10,740)
8,375
2,677
(6)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit on equity-based compensation plans . . . . . . . . . . . . . . . . .
Excess tax benefit on equity-based compensation plans . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of convertible note discount
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating asset and liability accounts:
Accounts receivable, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
292,254
7,537
11,632
—
103,700
5,973
(6,065)
33,063
(83,090)
12,669
(201,549)
(190,058)
(9,504)
18,704
10,886
78,608
304,116
(70,155)
—
3,711
99,330
(483)
539
31,558
—
37,201
162,634
76,351
2,880
(58,081)
60,205
(43,752)
719,933
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . .
717,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash acquired in (paid for) business acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of equity method and other investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Receipt of loan payments (loans made) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of restricted cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(145,503)
(30,227)
(1,312,244)
1,028,278
—
10,000
156,397
28,085
(160,795)
(9,916)
(1,097,956)
1,039,551
—
(10,000)
660
(181)
Net cash (used for) provided by investing activities . . . . . . . . . . . . .
(265,214)
(238,637)
269,726
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations . . . . . . . . . . . . .
Excess tax benefit on equity-based compensation plans . . . . . . . . . . . . . . . . . . . . . .
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash received in settlement of stock repurchase contracts . . . . . . . . . . . . . . . . .
Reissuances of treasury stock related to employee stock purchase plan . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,658)
6,065
(244,859)
—
42,926
34,791
(2,234)
(539)
(955,661)
—
31,265
39,379
(5,265)
2,686
(772,663)
55,194
25,525
1,776
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . .
(162,735)
(887,790)
(692,747)
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,104
290,204
1,162,473
4,215
(402,279)
1,564,752
(3,387)
72,620
1,492,132
Cash and cash equivalents at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,452,677
$ 1,162,473
$1,564,752
Schedule of noncash transactions
Accrued payables for stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosures:
Cash payments for interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments for income taxes, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
3,392
26,489
18,157
$
$
$
— $
20,853
26,635
7,695
$
$
8,246
29,113
See Notes to Consolidated Financial Statements
54
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 116
OPERATOR JoeLF
LAM RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Income(Loss)
Retained
Earnings
Total
Balance at June 26, 2011 . . .
. . . .
123,579
$124
$1,531,465 $(1,761,591)
$ 9,761
$2,690,086 $2,469,845
Sale of common stock . . . . . . . . .
Purchase of treasury stock . . . . . .
Income tax benefit on equity-
based compensation plans . . . .
Reissuance of treasury stock . . . .
Equity-based compensation
1,513
(21,946)
1
(22)
1,767
158,673
—
(896,971)
—
821
—
1
1,510
3,899
—
21,626
expense . . . . . . . . . . . . . . . . . .
—
—
81,559
Shares issued as acquisition
consideration . . . . . . . . . . . . . .
82,689
83
3,026,905
Acquisition of convertible
debt
. . . . . . . . . . . . . . . . . . . . .
Exercise of convertible note . . . .
Net income . . . . . . . . . . . . . . . . . .
Other comprehensive income . . .
—
—
—
—
—
—
—
—
137,783
(22)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,768
— (738,320)
—
—
—
1,510
25,526
81,559
— 3,026,988
—
—
—
(43,579)
—
—
168,723
—
137,783
(22)
168,723
(43,579)
Balance at June 24, 2012 . . . . . . . 186,656
187
4,943,539
(2,636,936)
(33,818)
2,858,809
5,131,781
Sale of common stock . . . . . . . . .
Purchase of treasury stock . . . . . .
Income tax benefit on equity-
based compensation plans . . . .
Reissuance of treasury stock . . . .
Equity-based compensation
expense . . . . . . . . . . . . . . . . . .
Shares issued as acquisition
consideration . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . .
Other comprehensive income . . .
3,301
(28,157)
3
(28)
39,377
—
—
(934,780)
—
1,073
—
1
(483)
(622)
—
31,886
—
—
—
—
—
—
—
—
99,310
3,423
—
—
—
—
—
—
—
—
—
—
—
39,380
—
— (934,808)
—
—
—
(483)
31,265
99,310
—
—
5,125
—
113,879
—
3,423
113,879
5,125
Balance at June 30, 2013 . . . . . . . 162,873
163
5,084,544
(3,539,830)
(28,693)
2,972,688
4,488,872
Sale of common stock . . . . . . . . .
Purchase of treasury stock . . . . . .
Income tax benefit on equity-
based compensation plans . . . .
Reissuance of treasury stock . . . .
Equity-based compensation
expense . . . . . . . . . . . . . . . . . .
Reclassification from temporary
to permanent equity . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . .
Other comprehensive income . . .
Cash dividends declared ($.18 per
common share) . . . . . . . . . . . . .
3,140
(4,860)
3
(5)
34,788
—
—
(253,180)
—
1,197
—
1
5,973
6,991
—
35,934
—
—
—
—
—
—
—
—
—
—
103,700
3,571
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38
—
—
34,791
— (253,185)
—
—
—
—
632,289
—
5,973
42,926
103,700
3,571
632,289
38
(29,240)
(29,240)
Balance at June 29, 2014 . . . . . . . 162,350
$162
$5,239,567 $(3,757,076)
$(28,655)
$3,575,737 $5,029,735
See Notes to Consolidated Financial Statements
55
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 119
OPERATOR JoeLF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 2014
Note 1: Company and Industry Information
The Company designs, manufactures, markets, refurbishes and services semiconductor processing
equipment used in the fabrication of integrated circuits. Semiconductor wafers are subjected to a complex series
of process and preparation steps that result in the simultaneous creation of many individual integrated circuits.
The Company leverages its expertise in the areas of deposition, etch, and single-wafer clean to develop
processing solutions that are designed to benefit its customers through lower defect rates, enhanced yields, faster
processing time, and reduced cost.
The Company sells its products and services primarily to companies involved in the production of
semiconductors in North America, Europe, Taiwan, Korea, Japan, and other countries in Asia Pacific.
The semiconductor industry is cyclical in nature and has historically experienced periodic downturns and
upturns. Today’s leading indicators of changes in customer investment patterns, such as electronics demand,
memory pricing, and foundry utilization rates, may not be any more reliable than in prior years. Demand for the
Company’s equipment can vary significantly from period to period as a result of various factors, including, but
not limited to, economic conditions, supply, demand, and prices for semiconductors, customer capacity
requirements, and the Company’s ability to develop and market competitive products. For these and other
reasons, the Company’s results of operations for fiscal years 2014, 2013, and 2012 may not necessarily be
indicative of future operating results.
Note 2: Summary of Significant Accounting Policies
The preparation of financial statements, in conformity with U.S. Generally Accepted Accounting Principles
(“GAAP”), requires management to make judgments, estimates, and assumptions that could affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. The Company bases its estimates and assumptions on historical experience
and on various other assumptions we believed to be applicable, and evaluated them on an on-going basis to
ensure they remain reasonable under current conditions. Actual results could differ significantly from those
estimates.
Revenue Recognition: The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred and title has passed or services have been rendered, the selling price is fixed or
determinable, collection of the receivable is reasonably assured, and the Company has received customer
acceptance, or is otherwise released from our customer acceptance obligations. If terms of the sale provide for a
lapsing customer acceptance period, the Company recognizes revenue upon the expiration of the lapsing
acceptance period or customer acceptance, whichever occurs first. If the practices of a customer do not provide
for a written acceptance or the terms of sale do not include a lapsing acceptance provision, the Company
recognizes revenue when it can be reliably demonstrated that the delivered system meets all of the agreed-to
customer specifications. In situations with multiple deliverables, revenue is recognized upon the delivery of the
separate elements to the customer and when the Company receives customer acceptance or is otherwise released
from its customer acceptance obligations. Revenue from multiple-element arrangements is allocated among the
separate elements based on their relative selling prices, provided the elements have value on a stand-alone basis.
Our sales arrangements do not include a general right of return. The maximum revenue recognized on a delivered
element is limited to the amount that is not contingent upon the delivery of additional items. Revenue related to
sales of spare parts and system upgrade kits is generally recognized upon shipment. Revenue related to services
is generally recognized upon completion of the services requested by a customer order. Revenue for extended
maintenance service contracts with a fixed payment amount is recognized on a straight-line basis over the term of
the contract. When goods or services have been delivered to the customer but all conditions for revenue
recognition have not been met, the Company defers revenue recognition until customer acceptance and records
the deferred revenue and/or deferred costs of sales in deferred profit on the Consolidated Balance Sheet.
56
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 118
OPERATOR JoeLF
Inventory Valuation: Inventories are stated at the lower of cost or market using standard costs which
approximate actual costs on a first-in, first-out basis. The Company maintains a perpetual inventory system and
continuously records the quantity on-hand and standard cost for each product, including purchased components,
subassemblies, and finished goods. The Company maintains the integrity of perpetual inventory records through
periodic physical counts of quantities on hand. Finished goods are reported as inventories until the point of title
transfer to the customer. Transfer of title for shipments to Japanese customers generally occurs at time of
customer acceptance.
Standard costs are reassessed as needed but annually at a minimum, and reflect acquisition costs.
Acquisition costs are generally based on the most recent vendor contract prices for purchased parts, normalized
assembly and test labor utilization levels, methods of manufacturing, and normalized overhead. Manufacturing
labor and overhead costs are attributed to individual product standard costs at a level planned to absorb spending
at average utilization volumes.
Management evaluates the need to record adjustments for impairment of inventory at least quarterly. The
Company’s policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-
process, finished goods, and spare parts in each reporting period. Obsolete inventory or inventory in excess of
management’s estimated usage requirement is written down to its estimated market value if less than cost.
Estimates of market value include, but are not limited to, management’s forecasts related to the Company’s
future manufacturing schedules, customer demand, technological and/or market obsolescence, general
semiconductor market conditions, possible alternative uses, and ultimate realization of excess inventory. If future
customer demand or market conditions are less favorable than the Company’s projections, additional inventory
write-downs may be required and would be reflected in cost of sales in the period the revision is made.
Warranty: Typically, the sale of semiconductor capital equipment includes providing parts and service
warranty to customers as part of the overall price of the system. The Company provides standard warranties for
its systems. The Company records a provision for estimated warranty expenses to cost of sales for each system
upon revenue recognition. The amount recorded is based on an analysis of historical activity which uses factors
such as type of system, customer, geographic region, and any known factors such as tool reliability trends. All
actual or estimated parts and labor costs incurred in subsequent periods are charged to those established reserves
on a system-by-system basis.
While the Company periodically monitors the performance and cost of warranty activities, if actual costs
incurred are different than its estimates, the Company may recognize adjustments to provisions in the period in
which those differences arise or are identified. In addition to the provision of standard warranties, the Company
offers customer-paid extended warranty services. Revenues for extended maintenance and warranty services with
a fixed payment amount are recognized on a straight-line basis over the term of the contract. Related costs are
recorded as incurred.
Equity-based Compensation — Employee Stock Purchase Plan (“ESPP”) and Employee Stock Plans: The
Company recognizes the fair value of equity-based awards as employee compensation expense. The fair value of
the Company’s RSUs, excluding market-based performance RSUs, was calculated based on the fair market value
of Company stock at the date of grant. The fair value of the Company’s market-based performance RSUs was
calculated using a Monte Carlo simulation model at the date of the grant. The fair value of the Company’s stock
options and ESPP awards was estimated using a Black-Scholes option valuation model. This model requires the
input of highly subjective assumptions, including expected stock price volatility and the estimated life of each
award. The fair value of equity-based awards is amortized over the vesting period of the award and the Company
has elected to use the straight-line method of amortization.
Income Taxes: Deferred income taxes reflect the net effect of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as
well as the tax effect of carryforwards. The Company records a valuation allowance to reduce its deferred tax
assets to the amount that is more-likely-than-not to be realized. Realization of the Company’s net deferred tax
57
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 121
OPERATOR JoeLF
assets is dependent on future taxable income. The Company believes it is more-likely-than-not that such assets
will be realized; however, ultimate realization could be negatively impacted by market conditions and other
variables not known or anticipated at the time. In the event that the Company determines that it would not be able
to realize all or part of its net deferred tax assets, an adjustment would be charged to earnings in the period such
determination is made. Likewise, if the Company later determined that it is more-likely-than-not that the deferred
tax assets would be realized, then the previously provided valuation allowance would be reversed.
The Company recognizes the benefit from a tax position only if it is more-likely-than-not that the position
would be sustained upon audit based solely on the technical merits of the tax position. Our policy is to include
interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company
must make certain estimates and judgments in determining income tax expense for financial statement purposes.
These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the
calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to
these uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our
tax provision in a subsequent period.
In addition, the calculation of the Company’s tax liabilities involves uncertainties in the application of
complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on the two-step
process. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more-likely-than-not that the position will be sustained on tax audit, including
resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and
measure the tax benefit as the largest amount that is more-likely-than-not to be realized upon ultimate settlement.
It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability
of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. This
evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law,
effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would
result in the recognition of a tax benefit or an additional charge to the tax provision in the period such
determination is made.
Goodwill and Intangible Assets: The valuation of intangible assets acquired in a business combination
requires the use of management estimates including but not limited to estimating future expected cash flows from
assets acquired and determining discount rates. Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result,
actual results may differ from estimates. Estimates associated with the accounting for acquisitions may change as
additional information becomes available.
Goodwill represents the amount by which the purchase price of a business combination exceeds the fair
value of the net tangible and identifiable intangible assets acquired. Each component of the Company for which
discrete financial information is available and for which segment management regularly reviews the results of
operations is considered a reporting unit. All goodwill acquired in a business combination is assigned to one or
more reporting units as of the acquisition date. Goodwill is assigned to the Company’s reporting units that are
expected to benefit from the synergies of the combination. The goodwill assigned to a reporting unit is the
difference between the acquisition consideration assigned to the reporting unit on a relative fair value basis and
the fair value of acquired assets and liabilities that can be specifically attributed to the reporting unit. The
Company tests goodwill and identifiable intangible assets with indefinite useful lives for impairment at least
annually. The value intangible assets with estimable useful lives is amortized over their respective estimated
useful lives, and the Company reviews for impairment whenever events or changes in circumstances indicate that
the carrying amount of the intangible asset may not be recoverable and the carrying amount exceeds its fair
value.
The Company reviews goodwill at least annually for impairment. Should certain events or indicators of
impairment occur between annual impairment tests, the Company would perform an impairment test at that date.
58
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 120
OPERATOR JoeLF
In testing for a potential impairment of goodwill, the Company: (1) allocates goodwill to our reporting units to
which the acquired goodwill relates; (2) estimates the fair value of its reporting units; and (3) determines the
carrying value (book value) of those reporting units. Prior to this allocation of the assets to the reporting units,
the Company is required to assess long-lived assets for impairment. Furthermore, if the estimated fair value of a
reporting unit is less than the carrying value, the Company must estimate the fair value of all identifiable assets
and liabilities of that reporting unit, in a manner similar to a purchase price allocation for an acquired business.
This can require independent valuations of certain internally generated and unrecognized intangible assets such
as in-process research and development and developed technology. Only after this process is completed can the
amount of goodwill impairment, if any, be determined. The Company first assesses qualitative factors to
determine whether it is necessary to perform a quantitative analysis. The Company does not calculate the fair
value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more-likely-
than-not that its fair value is less than its carrying amount. The Company did not record impairments of goodwill
during the years ended June 29, 2014, June 30, 2013, or June 24, 2012.
The process of evaluating the potential impairment of goodwill is subjective and requires significant
judgment at many points during the analysis. The Company determines the fair value of its reporting units by
using a weighted combination of both a market and an income approach, as this combination is deemed to be the
most indicative of our fair value in an orderly transaction between market participants.
Under the market approach, the Company utilizes information regarding the reporting unit as well as
publicly available industry information to determine various financial multiples to value our reporting units.
Under the income approach, the Company determines fair value based on estimated future cash flows of each
reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of
inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.
In estimating the fair value of a reporting unit for the purposes of the Company’s annual or periodic
analyses, the Company makes estimates and judgments about the future cash flows of its reporting units,
including estimated growth rates and assumptions about the economic environment. Although the Company’s
cash flow forecasts are based on assumptions that are consistent with the plans and estimates it is using to
manage the underlying businesses, there is significant judgment involved in determining the cash flows
attributable to a reporting unit. In addition, the Company makes certain judgments about allocating shared assets
to the estimated balance sheets of our reporting units. The Company also considers its market capitalization and
that of its competitors on the date it performs the analysis. Changes in judgment on these assumptions and
estimates could result in a goodwill impairment charge.
As a result, several factors could result in impairment of a material amount of the Company’s goodwill
balance in future periods, including, but not limited to: (1) weakening of the global economy, weakness in the
semiconductor equipment industry, or failure of the Company to reach its internal forecasts, which could impact
the Company’s ability to achieve its forecasted levels of cash flows and reduce the estimated discounted cash
flow value of its reporting units; and (2) a decline in the Company’s stock price and resulting market
capitalization, if the Company determines that the decline is sustained and indicates a reduction in the fair value
of the Company’s reporting units below their carrying value. Further, the value assigned to intangible assets,
other than goodwill, is based on estimates and judgments regarding expectations such as the success and life
cycle of products and technology acquired. If actual product acceptance differs significantly from the estimates,
the Company may be required to record an impairment charge to write down the asset to its realizable value.
Fiscal Year: The Company follows a 52/53-week fiscal reporting calendar, and its fiscal year ends on the
last Sunday of June each year. The Company’s most recent fiscal years ended on June 29, 2014 and June 24,
2012 and included 52 weeks. The fiscal year ended June 30, 2013 included 53 weeks. The Company’s next fiscal
year, ending on June 28, 2015 will include 52 weeks.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
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Cash Equivalents and Short-Term Investments: Investments purchased with an original maturity of three
months or less are considered cash equivalents. The Company also invests in certain mutual funds, which include
equity and fixed income securities, related to its obligations under its deferred compensation plan, and such
investments are classified as trading securities on the consolidated balance sheets. All of the Company’s other
short-term investments are classified as available-for-sale at the respective balance sheet dates. The Company
accounts for its investment portfolio at fair value. 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)” in the Consolidated Statement of Operations. The investments classified
as available-for-sale are recorded at fair value based upon quoted market prices, and difference between the cost
and fair value of available-for-sale securities is presented as a component of accumulated other comprehensive
income (loss). Unrealized losses on available-for-sale securities are charged against “Other income (expense)”
when a decline in fair value is determined to be other-than-temporary. The Company considers several factors to
determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the extent to
which the fair value is less than cost basis, (ii) the financial condition and near term prospects of the issuer,
(iii) the length of time a security is in an unrealized loss position and (iv) the Company’s ability to hold the
security for a period of time sufficient to allow for any anticipated recovery in fair value. The Company’s
ongoing consideration of these factors could result in additional impairment charges in the future, which could
adversely affect its results of operation. An other-than-temporary impairment is triggered when there is an intent
to sell the security, it is more-likely-than-not that the security will be required to be sold before recovery, or the
security is not expected to recover the entire amortized cost basis of the security. Other-than-temporary
impairments attributed to credit losses are recognized in the income statement. The specific identification method
is used to determine the realized gains and losses on investments.
Allowance for Doubtful Accounts: The Company evaluates its allowance for doubtful accounts based on a
combination of factors. In circumstances where specific invoices are deemed to be uncollectible, the Company
provides a specific allowance for bad debt against the amount due to reduce the net recognized receivable to the
amount it reasonably believes will be collected. The Company also provides allowances based on its write-off
history.
Property and Equipment: Property and equipment is stated at cost. Equipment is depreciated by the straight-
line method over the estimated useful lives of the assets, generally three to five years. Furniture and fixtures are
depreciated by the straight-line method over the estimated useful lives of the assets, generally five years.
Software is amortized by the straight-line method over the estimated useful lives of the assets, generally three to
five years. Buildings are depreciated by the straight-line method over the estimated useful lives of the assets,
generally twenty-five years. Leasehold improvements are generally amortized by the straight-line method over
the shorter of the life of the related asset or the term of the underlying lease. Amortization of capital leases is
included with depreciation expense.
Impairment of Long-Lived Assets (Excluding Goodwill and Intangibles): The Company routinely considers
whether indicators of impairment of long-lived assets are present. If such indicators are present, the Company
determines whether the sum of the estimated undiscounted cash flows attributable to the assets is less than their
carrying value. If the sum is less, the Company recognizes an impairment loss based on the excess of the carrying
amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows,
appraisals or other methods. If the assets determined to be impaired are to be held and used, the Company
recognizes an impairment charge to the extent the present value of anticipated net cash flows attributable to
the asset are less than the asset’s carrying value. The fair value of the asset then becomes the asset’s new carrying
value, which the Company depreciates over the remaining estimated useful life of the asset. Assets to be disposed
of are reported at the lower of the carrying amount or fair value. The Company did not record impairments of
long lived assets held for use during fiscal years 2014, 2013, or 2012.
Derivative Financial Instruments: In the normal course of business, the Company’s financial position is
routinely subjected to market risk associated with foreign currency exchange rate fluctuations. The Company’s
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PAGE NO. 122
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policy is to mitigate the effect of these exchange rate fluctuations on certain foreign currency denominated
business exposures. The Company has a policy that allows the use of derivative financial instruments to hedge
foreign currency exchange rate fluctuations on forecasted revenue and expenses and net monetary assets or
liabilities denominated in various foreign currencies. The Company carries derivative financial instruments
(derivatives) on the balance sheet at their fair values. The Company does not use derivatives for trading or
speculative purposes. The Company does not believe that it is exposed to more than a nominal amount of credit
risk in its interest rate and foreign currency hedges, as counterparties are large, global and well-capitalized
financial institutions. The Company’s exposures are in liquid currencies (Japanese yen, Swiss francs, euros,
Taiwanese dollars, and Korean won), so there is minimal risk that appropriate derivatives to maintain the
Company’s hedging program would not be available in the future.
To hedge foreign currency risks, the Company uses foreign currency exchange forward contracts, where
possible and prudent. These forward contracts are valued using standard valuation formulas with assumptions
about future foreign currency exchange rates derived from existing exchange rates, interest rates, and other
market factors.
The Company considers its most current forecast in determining the level of foreign currency denominated
revenue and expenses to hedge as cash flow hedges. The Company combines these forecasts with historical
trends to establish the portion of its expected volume to be hedged. The revenue and expenses are hedged and
designated as cash flow hedges to protect the Company from exposures to fluctuations in foreign currency
exchange rates. If the underlying forecasted transaction does not occur, or it becomes probable that it will not
occur, the related hedge gains and losses on the cash flow hedge are reclassified from accumulated other
comprehensive income (loss) to other income (expense), net on the consolidated statement of operations at that
time.
Guarantees: The Company has certain operating leases that contain provisions whereby the properties
subject to the operating leases may be remarketed at lease expiration. The Company has guaranteed to the lessor
an amount approximating the lessor’s investment in the property. The Company has recorded a liability for
certain guaranteed residual values related to these specific operating lease agreements. Also, the Company’s
guarantees generally include certain indemnifications to its lessors under operating lease agreements for
environmental matters, potential overdraft protection obligations to financial institutions related to one of the
Company’s subsidiaries, indemnifications to the Company’s customers for certain infringement of third-party
intellectual property rights by its products and services, and the Company’s warranty obligations under sales of
its products.
Foreign Currency Translation: The Company’s non-U.S. subsidiaries that operate in a local currency
environment, where that local currency is the functional currency, primarily generate and expend cash in their
local currency. Billings and receipts for their labor and services are primarily denominated in the local currency,
and the workforce is paid in local currency. Accordingly, all balance sheet accounts of these local functional
currency subsidiaries are translated at the fiscal period-end exchange rate, and income and expense accounts are
translated using average rates in effect for the period, except for costs related to those balance sheet items that are
translated using historical exchange rates. The resulting translation adjustments are recorded as cumulative
translation adjustments and are a component of accumulated other comprehensive income (loss). Translation
adjustments are recorded in other income (expense), net, where the U.S. dollar is the functional currency.
Note 3: Recent Accounting Pronouncements
In July 2013, the FASB released Accounting Standards Update 2013-11 “Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward
Exists.” The new standard requires that an unrecognized tax benefit should be presented as a reduction of a
deferred tax asset for a net operating loss carryforward or other tax credit carryforward when settlement in this
manner is available under the tax law. The Company is required to adopt this standard starting in fiscal year 2015
and is currently in the process of determining the impact, if any, on its financial position.
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PAGE NO. 125
OPERATOR JoeLF
In April 2014, the FASB released Accounting Standards Update 2014-8 “Presentation of Financial
Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosure of Disposals
of Components of an Entity.” The new standard re-defines discontinued operations and requires only those
disposals of components of an entity, including classifications as held for sale, that represent a strategic shift that
has, or will have, a major effect on an entity’s operations and financial results to be reported as discontinued
operations. In addition, the new standard expands the disclosure requirements of discontinued operations. The
Company is required to adopt this standard starting in fiscal year 2015 and is currently in the process of
determining the impact, if any, on its financial position.
In May 2014, the FASB released Accounting Standards Update 2014-9 “Revenue from Contracts with
Customers” to supersede nearly all existing revenue recognition guidance under GAAP. 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 new standard defines a
five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may
be required within the revenue recognition process than required under existing GAAP including identifying
performance obligations in the contract, estimating the amount of variable consideration to include in the
transaction price and allocating the transaction price to each separate performance obligation. We are required to
adopt this standard starting in the first quarter of fiscal 2018 using either of two methods: (i) retrospective to each
prior reporting period presented with the option to elect certain practical expedients as defined within the
standard; or (ii) retrospective with the cumulative effect of initially applying the standard recognized at the date
of initial application and providing certain additional disclosures as defined per the standard. The Company is
currently evaluating the impact of its pending adoption of this standard on its financial position.
Note 4: Financial Instruments
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.
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.
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PAGE NO. 124
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The following table sets forth the Company’s financial assets and liabilities measured at fair value on a
recurring basis:
Fair Value Measurement at June 29, 2014
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(In thousands)
Assets
Short-Term Investments
Money Market Funds . . . . . . . . . . . . . . . . . . . . . $1,168,261
335,433
Municipal Notes and Bonds . . . . . . . . . . . . . . . .
212,587
US Treasury and Agencies . . . . . . . . . . . . . . . . .
27,692
Government-Sponsored Enterprises . . . . . . . . . .
35,467
Foreign Government Bonds . . . . . . . . . . . . . . . .
1,008,788
Corporate Notes and Bonds . . . . . . . . . . . . . . . .
26,944
. . . . .
Mortgage Backed Securities - Residential
111,933
. . . .
Mortgage Backed Securities - Commercial
Total Short-Term Investments
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives Assets . . . . . . . . . . . . . . . . . . . . . . .
$2,927,105
21,758
1,592
$1,168,261
—
212,587
—
—
132,549
—
—
$1,513,397
21,758
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,950,455
$1,535,155
$
—
335,433
—
27,692
35,467
876,239
26,944
111,933
$1,413,708
—
1,592
$1,415,300
$—
—
—
—
—
—
—
—
$—
—
—
$—
Liabilities
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . .
$
929
$
—
$
923
$
6
The amounts in the table above are reported in the consolidated balance sheet as of June 29, 2014 as
follows:
Total
(Level 1)
(Level 2)
(Level 3)
(In thousands)
Reported As:
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Investments . . . . . . . . . . . . . . . . . .
Restricted Cash and Investments . . . . . . . . . . . .
Prepaid Expenses and Other Current Assets . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,173,551
1,612,967
140,587
1,592
21,758
$1,168,261
204,549
140,587
—
21,758
$
5,290
1,408,418
—
1,592
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,950,455
$1,535,155
$1,415,300
$—
—
—
—
—
$—
Accrued Expenses and Other Current
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Non-current Liabilities . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$
$
923
6
929
$
$
—
—
—
$
$
923
—
923
$—
6
$
6
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PAGE NO. 127
OPERATOR JoeLF
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a
recurring basis:
Fair Value Measurement at June 30, 2013
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(In thousands)
Assets
Short-Term Investments
Money Market Funds . . . . . . . . . . . . . . . . . . . . .
Municipal Notes and Bonds . . . . . . . . . . . . . . . .
US Treasury and Agencies . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . .
Foreign Government Bonds . . . . . . . . . . . . . . . .
Corporate Notes and Bonds . . . . . . . . . . . . . . . .
. . . . .
Mortgage Backed Securities - Residential
. . . .
Mortgage Backed Securities - Commercial
Total Short-Term Investments
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives Assets . . . . . . . . . . . . . . . . . . . . . . .
$ 725,311
268,746
155,293
54,805
24,972
860,492
27,365
107,958
$2,224,942
7,096
18,216
4,929
$ 725,311
—
155,293
—
—
164,885
—
—
$1,045,489
7,096
18,216
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,255,183
$1,070,801
$
—
268,746
—
54,805
24,972
695,607
27,365
107,958
$1,179,453
—
—
4,929
$1,184,382
$—
—
—
—
—
—
—
—
$—
—
—
—
$—
Liabilities
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . .
$
1,815
$
—
$
1,620
$195
The amounts in the table above are reported in the consolidated balance sheet as of June 30, 2013 as
follows:
Total
(Level 1)
(Level 2)
(Level 3)
(In thousands)
Reported As:
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Investments . . . . . . . . . . . . . . . . . . . . . .
Restricted Cash and Investments . . . . . . . . . . . . . . . .
Prepaid Expenses and Other Current Assets . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 725,311
1,334,746
164,885
4,929
25,312
$ 725,311
155,293
164,885
—
25,312
$
—
1,179,453
—
4,929
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,255,183
$1,070,801
$1,184,382
Accrued Expenses and Other Current Liabilities . . .
Other Non-current Liabilities . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,620
195
1,815
$
$
— $
—
— $
1,620
—
1,620
$—
—
—
—
—
$—
$—
195
$195
The Company’s primary financial instruments include its cash, cash equivalents, short-term investments,
restricted cash and investments, long-term investments, accounts receivable, accounts payable, long-term debt
and capital leases, and foreign currency related derivatives. 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 capital lease obligations approximate their carrying value as the substantial majority of
these obligations have interest rates that adjust to market rates on a periodic basis. Refer to Note 13 to the
Consolidated Financial Statements for additional information regarding the fair value of the Company’s
convertible notes.
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JOB TITLE LAM Research Combo
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DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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PAGE NO. 126
OPERATOR JoeLF
Investments
The following tables summarize the Company’s investments (in thousands):
June 29, 2014
June 30, 2013
Cost
Unrealized
Gain
Unrealized
(Loss)
Fair Value
Cost
Unrealized
Gain
Unrealized
(Loss)
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . $ 285,031
Fixed Income Money Market
Funds . . . . . . . . . . . . . . . . . . 1,168,261
334,329
212,436
Municipal Notes and Bonds . .
US Treasury and Agencies . . .
Government-Sponsored
27,666
Enterprises . . . . . . . . . . . . . .
Foreign Government Bonds . .
35,438
Corporate Notes and Bonds . . 1,007,089
Mortgage Backed Securities -
Residential . . . . . . . . . . . . . .
27,067
Mortgage Backed Securities -
Commercial . . . . . . . . . . . . .
112,642
Total Cash and Short -
$ —
$ — $ 285,031 $ 438,813
$ —
$ — $ 438,813
—
1,108
178
41
57
2,034
59
100
— 1,168,261
335,433
212,587
(4)
(27)
(15)
(28)
(335)
27,692
35,467
1,008,788
725,311
268,390
155,648
54,835
24,950
861,109
(182)
26,944
27,618
(809)
111,933
108,204
—
805
18
65
47
1,328
29
426
—
(449)
(373)
(95)
(25)
(1,945)
725,311
268,746
155,293
54,805
24,972
860,492
(282)
27,365
(672)
107,958
Term Investments . . . $3,209,959
$3,577
$(1,400) $3,212,136 $2,664,878
$2,718
$(3,841) $2,663,755
Publicly Traded Equity
Securities . . . . . . . . . . . . . . . $
Private Equity Securities . . . . .
Mutual Funds . . . . . . . . . . . . .
— $ —
—
—
2,974
18,784
$ — $
—
—
— $
—
21,758
5,610
5,000
16,611
$1,486
—
1,619
$ — $
—
(14)
7,096
5,000
18,216
Total Financial
Instruments . . . . $3,228,743
$6,551
$(1,400) $3,233,894 $2,692,099
$5,823
$(3,855) $2,694,067
As Reported
Cash and Cash Equivalents . . . $1,452,677
Short-Term Investments . . . . . 1,610,790
Restricted Cash and
$ —
3,577
$ — $1,452,677 $1,162,473
1,612,967 1,335,868
(1,400)
$ —
2,718
$ — $1,162,473
1,334,745
(3,841)
Investments . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . .
146,492
18,784
—
2,974
—
—
146,492
21,758
166,536
27,222
—
3,105
—
(14)
166,536
30,313
Total . . . . . . . . $3,228,743
$6,551
$(1,400) $3,233,894 $2,692,099
$5,823
$(3,855) $2,694,067
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 also considers whether changes in the credit ratings of the issuer
could impact the assessment of fair value. Net realized gains (losses) on investments included other-than-
temporary impairment charges of $3.7 million, and $1.7 million in fiscal years 2013, and 2012, respectively.
There were no other-than-temporary impairment charges in fiscal year 2014. Additionally, gross realized gains/
(losses) from sales of investments were approximately $1.5 million and $(2.0) million in fiscal year 2014, $1.6
million and $(1.5) million in fiscal year 2013, and $1.4 million and $(1.0) million in fiscal year 2012,
respectively.
65
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 129
OPERATOR JoeLF
The following is an analysis of the Company’s fixed income securities in unrealized loss positions (in
thousands):
June 29, 2014
Unrealized Losses
Less Than 12 Months
Unrealized Losses
12 Months or Greater
Total
Gross
Unrealized
Loss
Fair Value
Gross
Unrealized
Loss
Fair Value
Gross
Unrealized
Loss
Fair Value
$
5,464
57,932
$
(4)
(27)
$ —
—
$ —
—
$
5,464
57,932
$
(4)
(27)
10,235
14,999
180,834
(15)
(28)
(293)
—
—
6,973
—
—
(42)
10,235
14,999
187,807
(15)
(28)
(335)
Fixed Income Securities
Municipal Notes and Bonds . . . . . . . .
US Treasury and Agencies . . . . . . . .
Government-Sponsored
Enterprises . . . . . . . . . . . . . . . . . . .
Foreign Government Bonds . . . . . . . .
Corporate Notes and Bonds . . . . . . . .
Mortgage Backed Securities -
Residential . . . . . . . . . . . . . . . . . . .
7,993
(87)
7,656
(95)
15,649
(182)
Mortgage Backed Securities -
Commercial . . . . . . . . . . . . . . . . . .
71,848
(533)
25,316
(276)
97,164
(809)
Total Fixed Income . . . . . . . . . . . . . . . . . $349,305
$(987)
$39,945
$(413)
$389,250
$(1,400)
The amortized cost and fair value of cash equivalents, short-term investments, and restricted cash and
investments with contractual maturities are as follows:
Cost
Estimated Fair
Value
(in thousands)
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . .
Due in more than five years . . . . . . . . . . . . . . . . . . .
$1,464,736
1,146,839
313,353
$1,465,185
1,149,380
312,540
$2,924,928
$2,927,105
Management has the ability, if necessary, to liquidate any of its cash equivalents and short-term investments
in order to meet the Company’s liquidity needs in the next 12 months. Accordingly, those investments with
contractual maturities greater than one year from the date of purchase nonetheless are classified as short-term on
the accompanying Consolidated Balance Sheets.
Derivative Instruments and Hedging
The Company carries derivative financial instruments (“derivatives”) on its Consolidated Balance Sheets at
their fair values. The Company enters into foreign currency forward contracts with financial institutions with the
primary objective of reducing volatility of earnings and cash flows related to foreign currency exchange rate
fluctuations. The counterparties to these foreign currency forward contracts are large global financial institutions
that the Company believes are creditworthy, and therefore, we do not consider the risk of counterparty
nonperformance to be material.
Cash Flow Hedges
The Company’s financial position is routinely subjected to market risk associated with foreign currency
exchange rate fluctuations on non-US dollar transactions or cash flows, primarily from Japanese yen-
denominated revenues and euro-denominated expenses. 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
66
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 128
OPERATOR JoeLF
flows through a foreign currency cash flow hedging program, using foreign currency forward contracts that
generally expire within 12 months and no later than 24 months. These foreign currency forward 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 are recognized.
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 currency forward contracts due to changes in time
value are excluded from the assessment of effectiveness and are recognized in revenue in the current period. The
change in time value related to these contracts was not material for all reported periods. To qualify for hedge
accounting, the hedge relationship must meet criteria relating both to 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. There were no gains or losses during the twelve months ended
June 29, 2014 or June 30, 2013 associated with ineffectiveness or forecasted transactions that failed to occur.
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, with
the exception of excluded time value and hedge ineffectiveness recognized, 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 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 income immediately. At June 29, 2014, the Company had losses of $0.1 million in accumulated
Other Comprehensive Income (“AOCI”), which it expects to reclassify from Other Comprehensive Income into
earnings over the next 12 months.
Balance Sheet Hedges
The Company also enters into foreign currency forward contracts to hedge fluctuations associated with
foreign currency denominated monetary assets and liabilities, primarily third party accounts receivables, accounts
payables and intercompany receivables and payables. These foreign currency forward contracts are not
designated for hedge accounting treatment. Therefore, the change in fair value of these derivatives is recorded as
a component of other income (expense) and offsets the change in fair value of the foreign currency denominated
assets and liabilities, which are also recorded in other income (expense).
67
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 131
OPERATOR JoeLF
As of June 29, 2014, the Company had the following outstanding foreign currency forward contracts that
were entered into under its cash flow and balance sheet hedge program:
Foreign Currency Forward
Contracts
Japanese Yen . . . . . . . . . .
Swiss Franc . . . . . . . . . . .
Euro . . . . . . . . . . . . . . . . .
Korean Won . . . . . . . . . . .
. . . . . . . . .
Taiwan Dollar
Derivatives Designated as
Hedging Instruments:
Derivatives Not Designated as
Hedging Instruments:
(in thousands)
Buy Contracts
Sell Contracts
Buy Contracts
Sell Contracts
$ —
—
93,872
—
—
$93,872
$98,501
—
—
—
—
$98,501
$ —
7,023
543
19,537
99,601
$126,704
$30,342
—
—
—
66,746
$97,088
The fair value of derivatives instruments in the Company’s consolidated balance sheet as of June 29, 2014
and June 30, 2013 were as follows:
June 29, 2014
Fair Value of Derivative Instruments
June 30, 2013
Fair Value of Derivative Instruments
Asset Derivatives
Balance Sheet
Location
Fair
Value
Liability Derivatives
Balance Sheet
Location
Asset Derivatives
Balance Sheet
Location
Fair
Value
(in thousands)
Fair
Value
Liability Derivatives
Balance Sheet
Location
Fair
Value
Derivatives designated as hedging
instruments:
Foreign exchange forward
contracts . . . . . . . . . . . . . . . . . . .
Derivatives not designated as hedging
instruments:
Prepaid expense
and other assets $ 483 Accrued liabilities $805
Prepaid expense
and other assets $4,858 Accrued liabilities $1,577
Foreign exchange forward
contracts . . . . . . . . . . . . . . . . . . .
Prepaid expense
and other assets 1,109 Accrued liabilities 118
Prepaid expense
and other assets
71 Accrued liabilities
43
Total derivatives
$1,592
$923
$4,929
$1,620
Under the master agreements with the respective counterparties to our foreign exchange contracts, subject to
applicable requirements, we are allowed to net settle transactions of the same currency with a single net amount
payable by one party to the other. However, we have elected to present the derivative assets and derivative
liabilities on a gross basis in our balance sheet. As of June 29, 2014, the potential effect of rights of set-off
associated with the above foreign exchange contracts would be an offset to both assets and liabilities by $0.5
million, resulting in a net derivative asset of $1.1 million. As of June 30, 2013, the potential effect of rights of
set-off associated with the above foreign exchange contracts would be an offset to both assets and liabilities by
$1.6 million, resulting in a net derivative asset of $3.3 million. We are not required to pledge, nor are we entitled
to receive, cash collateral related to these derivative transactions
68
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 130
OPERATOR JoeLF
The effect of derivative instruments designated as cash flow hedges, before tax, on the Company’s
Consolidated Statements of Operations was as follows:
Twelve Months Ended June 29, 2014
Twelve Months Ended June 30, 2013
Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing
Effective Portion
Gain (Loss)
Recognized
in Income
Gain (Loss)
Recognized
in AOCI
$277
(52)
(23)
—
$ 8,322
2,443
1,154
—
Gain (Loss)
Reclassified
from AOCI
into Income
(in thousands)
$10,036
(1,229)
(416)
—
Effective Portion
Gain (Loss)
Recognized
in AOCI
$7,939
812
Gain (Loss)
Reclassified
from AOCI
into Income
(in thousands)
$ 9,027
2,393
318
—
1,087
—
$9,069
$12,507
$202
$11,919
$ 8,391
Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing
Gain (Loss)
Recognized
in Income
$ 376
(271)
(130)
(8)
$ (33)
Location of Gain (Loss) Recognized in or
Reclassified into Income
Revenue . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . .
Selling, general, and
administrative . . . . . . . . . . . . .
Other income (expense) . . . . . . . .
The effect of derivative instruments not designated as cash flow hedges on the Company’s Consolidated
Statement of Operations was as follows:
Derivatives Not Designated as Hedging Instruments:
Location of Gain (Loss) Recognized
in Income
Twelve Months Ended
June 29, 2014
Gain
Recognized in
Income
June 30, 2013
Loss
Recognized in
Income
(in thousands)
Foreign Exchange Contracts . . . . . . . . . . . . . . . . . . . .
Other income (expense)
$8,205
($1,585)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, short term investments, restricted cash and investments, trade accounts
receivable, and derivative financial instruments used in hedging activities. Cash is placed on deposit in large
global financial institutions. Such deposits may be in excess of insured limits. Management believes that the
financial institutions that hold the Company’s cash are creditworthy and, accordingly, minimal credit risk exists
with respect to these balances.
The Company’s over-all portfolio of available-for-sale securities must maintain an average minimum rating
of “AA-” or “Aa3” as rated by Standard and Poor’s or Moody’s Investor Services, respectively. To ensure
diversification and minimize concentration, the Company’s policy limits the amount of credit exposure with any
one financial institution or commercial issuer.
The Company is exposed to credit losses in the event of nonperformance by counterparties on the foreign
currency forward contracts that are used to mitigate the effect of exchange rate fluctuations and on contracts
related to structured share repurchase agreements. These counterparties are large global financial institutions and,
to date, no such counterparty has failed to meet its financial obligations to the Company.
Credit risk evaluations, including trade references, bank references and Dun & Bradstreet ratings, are
performed on all new customers and the Company monitors its customers’ financial statements and payment
performance. In general, the Company does not require collateral on sales.
69
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 133
OPERATOR JoeLF
As of June 29, 2014, four customers accounted for approximately 15%, 13%, 12% and 12% of accounts
receivable. As of June 30, 2013, two customers accounted for approximately 22% and 14% of accounts
receivable.
Note 5: Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market. Shipments to Japanese
customers, to whom title does not transfer until customer acceptance, are classified as inventory and carried at
cost until title transfers. Inventories consist of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$449,623
126,564
164,316
$312,484
101,530
145,303
$740,503
$559,317
June 29,
2014
June 30,
2013
(in thousands)
Note 6: Property and Equipment
Property and equipment, net, consist of the following:
June 29,
2014
June 30,
2013
(in thousands)
Manufacturing, engineering and office equipment . . .
Computer equipment and software . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . .
$ 612,688
131,184
52,784
199,544
80,569
20,026
$ 521,047
120,144
65,360
249,126
76,225
21,110
Less: accumulated depreciation and amortization . . .
1,096,795
(553,299)
1,053,012
(449,102)
$ 543,496
$ 603,910
Depreciation expense, including amortization of capital leases, during fiscal years 2014, 2013, and 2012,
was $129.1 million, $126.5 million, and $74.0 million, respectively.
During the fiscal year 2014, the Company sold its interest in property and equipment with a net book value
of $82.6 million. These assets consist primarily of buildings and land, resulting in the decrease to those asset
categories above. The Company realized a $7.1 million impairment on the sale of an interest in building and
associated land and an $83.1 million gain on sale of a separate interest in buildings and land in the Consolidated
Statement of Operations in fiscal year 2014. No significant impairment or gain on sale were realized in fiscal
years 2013 or 2012.
70
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 132
OPERATOR JoeLF
Note 7: Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
June 29,
2014
June 30,
2013
(in thousands)
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income and other taxes payable . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$311,054
68,324
93,934
29,240
101,744
$254,795
52,252
39,420
—
118,061
$604,296
$464,528
Note 8: Other Income (Expense), Net
The significant components of other income (expense), net, were as follows:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on deferred compensation plan related
assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gains (losses), net . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
$ 12,540
(61,692)
(in thousands)
$ 14,737
(60,408)
$ 12,141
(38,962)
9,559
1,529
668
9,764
(6,808)
(8,698)
(914)
(397)
(5,183)
$(37,396)
$(51,413)
$(33,315)
Note 9: 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 (“RSUs”), and convertible notes. The following table
reconciles the numerators and denominators of the basic and diluted computations for net income per share.
Year Ended
June 24,
June 30,
June 29,
2014
2012
2013
(in thousands, except per share data)
Numerator:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$632,289
$113,879
$168,723
Denominator:
Basic average shares outstanding . . . . . . . . . . . . .
Effect of potential dilutive securities:
164,741
168,932
124,176
Employee stock plans . . . . . . . . . . . . . . . . . .
Convertible notes . . . . . . . . . . . . . . . . . . . . .
2,864
6,898
2,558
1,940
910
147
Diluted average shares outstanding . . . . . . . . . . .
174,503
173,430
125,233
Net income per share - basic . . . . . . . . . . . . . . . . . . . .
Net income per share - diluted . . . . . . . . . . . . . . . . . . .
$
$
3.84
3.62
$
$
0.67
0.66
$
$
1.36
1.35
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JOB TITLE LAM Research Combo
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JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 135
OPERATOR JoeLF
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 following potentially
dilutive securities were excluded:
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
Number of options and RSUs excluded . . . . . . . . . . . . . . . . .
78
(in thousands)
534
382
Diluted shares outstanding include only the effect of the 2041 Notes. Diluted shares outstanding do not
include any effect resulting from warrants, assumed conversion of the notes, or note hedges associated with the
Company’s 2016 or 2018 Notes (as described in Note 13) as their impact would have been anti-dilutive.
Note 10: Comprehensive Income (Loss)
The components of accumulated other comprehensive loss, net of tax at the end of the period, as well as the
activity during the period, were as follows:
Accumulated
foreign currency
translation
adjustment
Accumulated
unrealized holding
gain (loss) on cash
flow hedges
Balance as of June 30, 2013 . . . . . . .
Other comprehensive income (loss)
$(17,178)
$ 2,822
Accumulated
unrealized holding
gain (loss) on
available-for-sale
investments
(in thousands)
$ (15)
Accumulated
unrealized
components of
defined benefit plans
Total
$(14,322)
$(28,693)
before reclassifications . . . . . . . . .
4,976
8,004
1,407
(2,838)
11,549
Losses (gains) reclassified from
accumulated other comprehensive
income to net income . . . . . . . . . .
Net current-period other
(784)
(10,892) (1)
165 (2)
—
(11,511)
comprehensive income (loss)
. . . .
$ 4,192
Balance as of June 29, 2014 . . . . . . .
$(12,986)
$ (2,888)
$
(66)
$1,572
$1,557
$ (2,838)
$
38
$(17,160)
$(28,655)
(1) Amount of after tax gains reclassified from accumulated other comprehensive income into net income
located in revenue: $8,009; cost of goods sold: $2,057; and selling, general and administrative expenses:
$826.
(2) Amount of loss reclassified from accumulated other comprehensive income into net income located in other
expense, net
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PAGE NO. 134
OPERATOR JoeLF
Tax related to the components of other comprehensive income during the period were as follows:
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
(in thousands)
Tax benefit (expense) on change in unrealized gains/
losses on cash flow hedges:
Tax expense on unrealized gains/losses arising
during the period . . . . . . . . . . . . . . . . . . . . . . . .
$(1,065)
$(1,312)
$ —
Tax expense on gains/losses reclassified to
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit (expense) on change in unrealized gains/
losses on available-for-sale investments:
Tax benefit (expense) on unrealized gains/losses
arising during the period . . . . . . . . . . . . . . . . . .
Tax (benefit) expense on gains/losses reclassified
to earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,615
550
818
(494)
—
—
(735)
1,428
493
(242)
(2,026)
(598)
233
474
707
944
Tax benefit on change in unrealized components of
defined benefit plans . . . . . . . . . . . . . . . . . . . . . . . . .
1,895
586
Tax benefit (expense) on other comprehensive
income(loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,203
$ (506)
$1,651
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JOB TITLE LAM Research Combo
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PAGE NO. 137
OPERATOR JoeLF
Note 11: Equity-Based Compensation Plans
The Company has adopted stock plans that provide for the grant to employees of equity-based awards,
including stock options and RSUs, of Lam Research Common Stock. In addition, these plans permit the grant of
nonstatutory equity-based awards to consultants and outside directors. An option is a right to purchase the
Company’s stock at a set price. An RSU award is an agreement to issue shares of the Company’s stock at the
time of vesting. Pursuant to the plans, the equity-based award exercise price is determined by the Board of
Directors or its designee, the plan administrator, but in no event will the exercise price for any option be less than
the fair market value of the Company’s Common Stock on the date of grant. Equity-based awards granted under
the plans vest over a period determined by the Board of Directors or the plan administrator, typically over a
period of three years or less. The Company also has an ESPP that allows employees to purchase shares of its
Common Stock through payroll deduction at a discounted price. A summary of stock plan transactions is as
follows:
Options Outstanding
Restricted Stock Units Outstanding
June 26, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards assumed in Novellus acquisition . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . .
June 24, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
Weighted-
Average
Exercise
Price
309,933
3,932,143
$21.50
$25.17
— $ —
$23.70
$21.71
(74,615)
(265,384)
3,902,077
288,867
(1,546,028)
(73,993)
$25.14
$42.59
$25.47
$26.24
2,570,923
166,455
(1,403,019)
(2,473)
$26.87
$51.76
$24.75
$30.21
Number of
Shares
2,331,340
1,291,808
2,336,283
(120,070)
(1,507,883)
4,331,478
2,563,670
(299,079)
(1,754,273)
4,841,796
2,811,602
(281,476)
(1,736,453)
June 29, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,331,886
$32.20
5,635,469
Weighted-
Average
Fair Market Value
at Grant
$39.90
$35.99
$41.23
$40.91
$35.47
$41.01
$38.76
$39.70
$42.52
$39.32
$53.21
$41.16
$40.39
$45.83
Outstanding and exercisable options presented by price range at June 29, 2014 were as follows:
Range of Exercise Prices
Options Outstanding
Weighted-
Average
Remaining
Life
(Years)
Weighted-
Average
Exercise
Price
Number of
Options
Outstanding
Options Exercisable
Number of
Options
Exercisable
Weighted-
Average
Exercise
Price
$9.44-$19.05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21.04-$25.60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26.87-29.68 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31.45-$35.68 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$42.41-$51.76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
152,182
201,958
476,518
45,906
455,322
$9.44-$51.76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,331,886
4.41
2.86
4.21
6.77
6.00
4.73
$13.09
$22.46
$29.26
$32.63
$45.94
$32.20
152,182
192,569
377,573
19,446
—
741,770
$13.09
$22.42
$29.28
$33.09
—
$24.28
74
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 136
OPERATOR JoeLF
The Lam Research Corporation 2007 Stock Incentive Plan, as amended, and 2011 Stock Incentive Plan, as
amended, (collectively the “Stock Plans”) provide for the grant of non-qualified equity-based awards to eligible
employees, consultants and advisors, and non-employee directors of the Company and its subsidiaries. As of
June 29, 2014 there were a total of 6,967,355 shares subject to options and RSUs issued and outstanding under
the Company’s Stock Plans. As of June 29, 2014, there were a total of 9,189,362 shares available for future
issuance under the Stock Plans.
The ESPP allows employees to designate a portion of their base compensation to be deducted and used to
purchase the Company’s Common Stock at a purchase price per share of the lower of 85% of the fair market
value of the Company’s Common Stock on the first or last day of the applicable purchase period. Typically, each
offering period lasts 12 months and comprises three interim purchase dates. The Plan Administrator (the
Compensation Committee of the Board) is authorized to set a limit on the number of shares a plan participant can
purchase on any single plan exercise date. During fiscal years 2014 and 2013, there was no increase to the
number of shares of Lam Research Common Stock reserved for issuance under the 1999 ESPP. During fiscal
year 2012 the number of shares of Lam Research Common Stock reserved for issuance under the 1999 ESPP
increased by 1.8 million.
During fiscal year 2014, a total of 1,196,629 shares of the Company’s Common Stock were sold to
employees under the 1999 ESPP. At June 29, 2014, 8,377,578 shares were available for purchase under the 1999
ESPP.
The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized over
the awards’ vesting period on a straight-line basis. The Company recognized the following equity-based
compensation expenses and benefits during the fiscal years noted:
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit recognized in the Consolidated Statement of Operations related
Year Ended
June 30,
2013
(in millions)
$99.3
June 29,
2014
$103.7
to equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit realized from the exercise and vesting of options and RSUs . . . . . . . . . .
$ 16.9
$ 32.0
$17.6
$21.6
June 24,
2012
$81.6
$12.2
$11.8
Stock Options
The fair value of the Company’s stock options granted during fiscal years 2014, 2013 and fiscal year 2012,
in connection with the acquisition of Novellus, was estimated using a Black-Scholes option valuation model.
This model requires the input of highly subjective assumptions, including expected stock price volatility and the
estimated life of each award:
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.28% 36.60% 38.04%
0.55%
0.81%
1.39%
3.89
4.79
4.78
0%
0%
0%
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
75
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 139
OPERATOR JoeLF
The year-end intrinsic value relating to stock options for fiscal years 2014, 2013, and 2012 is presented
below:
Intrinsic value - options outstanding . . . . . . . . . . . . . . . . . . . .
Intrinsic value - options exercisable . . . . . . . . . . . . . . . . . . . .
Intrinsic value - options exercised . . . . . . . . . . . . . . . . . . . . .
$46.3
$31.7
$41.4
June 29,
2014
Year Ended
June 30,
2013
(millions)
$44.9
$36.9
$25.4
June 24,
2012
$49.9
$30.1
$ 1.3
As of June 29, 2014, there was $4.7 million of total unrecognized compensation cost related to unvested
stock options granted and outstanding; that cost is expected to be recognized over a weighted average remaining
vesting period of 1.5 years.
Restricted Stock Units
The fair value of the Company’s RSUs was calculated based upon the fair market value of the Company’s
stock at the date of grant. As of June 29, 2014, there was $179.3 million of total unrecognized compensation cost
related to unvested RSUs granted; that cost is expected to be recognized over a weighted average remaining
vesting period of 2.0 years.
During the fiscal year 2014, the Company issued RSUs with both a market condition and a service condition
(market-based performance RSUs, or “market-based PRSUs”). Based upon the terms of such awards, the number
of shares that can be earned over the performance periods is based on our Common Stock price performance
compared to the market price performance of the Philadelphia Semiconductor Sector Index (“SOX”), ranging
from 0% to 150% of target. The stock price performance or market price performance is measured using the
closing price for the 50-trading days prior to the dates the performance period begins and ends. The target
number of shares represented by the market-based PRSUs is increased by 2% of target for each 1% that Common
Stock price performance exceeds the market price performance of the SOX index. The result of the vesting
formula is rounded down to the nearest whole number. Total stockholder return is a measure of stock price
appreciation in this performance period. As of June 29, 2014 0.6 million market-based PRSUs were outstanding.
These market-based PRSUs generally vest two or three years from the grant date and require continued
employment. Stock compensation expense for the market-based PRSUs was $3.8 million for the year ended
June 29, 2014. No market-based PRSUs were awarded in earlier periods. The total unrecognized compensation
expense and weighted-average remaining life for these awards is included in the preceding disclosure.
ESPP
ESPP rights were valued using the Black-Scholes model. During fiscal years 2014, 2013, and 2012 ESPP
was valued assuming the following weighted-average assumptions:
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
Expected life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.72
0.64
0.68
30.24% 32.42% 44.22%
0.11%
0.15%
0.07%
0%
0%
0%
As of June 29, 2014, there was $2.4 million of total unrecognized compensation cost related to the ESPP
that is expected to be recognized over a remaining vesting period of 2 months.
76
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 138
OPERATOR JoeLF
Note 12: Retirement and Deferred Compensation Plans
Employee Savings and Retirement Plan
The Company maintains a 401(k) retirement savings plan for its full-time employees in the United States.
Each participant in the plan may elect to contribute from 1% to 75% of annual eligible earnings to the plan,
subject to statutory limitations. The Company makes matching employee contributions in cash to the plan at the
rate of 50% of the first 6% of earnings contributed. Employees participating in the 401(k) retirement savings plan
are fully vested in the Company matching contributions, and investments are directed by participants. The
Company made matching contributions of $10.2 million, $8.7 million, and $5.8 million, in fiscal years 2014,
2013, and 2012, respectively.
Deferred Compensation Arrangements
The Company has an unfunded, non-qualified deferred compensation plan whereby certain executives may
defer a portion of their compensation. Participants earn a return on their deferred compensation based on
their allocation of their account balance among measurement funds. The Company controls the investment of
these funds and the participants remain general creditors of the Company. Participants are able to elect the
payment of benefits on a specified date at least three years after the opening of a deferral subaccount or upon
retirement. Distributions are made in the form of lump sum or annual installments over a period of up to 20 years
as elected by the participant. If no alternate election has been made, a lump sum payment will be made upon
termination of a participant’s employment with the Company. As of June 29, 2014 and June 30, 2013 the liability
of the Company to the plan participants was $93.8 million and $79.7 million, respectively, which was recorded in
accrued expenses and other current liabilities on the Consolidated Balance Sheets. As of June 29, 2014 and
June 30, 2013 the Company had investments in the aggregate amount of $116.7 million and $98.1 million,
respectively, that correlate to the deferred compensation obligations, which were recorded in other assets on the
Consolidated Balance Sheets.
Postretirement Healthcare Plan
The Company maintains a postretirement healthcare plan for certain executive and director retirees.
Coverage continues through the duration of the lifetime of the retiree or the retiree’s spouse, whichever is longer.
The benefit obligation was $29.0 million and $21.4 million as of June 29, 2014 and June 30, 2013, respectively.
Note 13: Long Term Debt and Other Borrowings
The following table reflects the carrying value of the Company’s convertible notes and other long-term debt
as of June 29, 2014 and June 30, 2013:
0.50% Notes due 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Unamortized interest discount . . . . . . . . . . . . . . . . . .
Net carrying amount of 0.50% Notes due 2016 . . . . .
1.25% Notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Unamortized interest discount . . . . . . . . . . . . . . . . . .
Net carrying amount of 1.25% Notes due 2018 . . . . .
2.625% Notes due 2041 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Unamortized interest discount . . . . . . . . . . . . . . . . . .
Net carrying amount of 2.625% Notes due 2041 . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion of debt . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
77
June 29,
2014
June 30,
2013
(in millions)
$ 450.0
(30.4)
419.6
$ 450.0
(45.7)
404.3
450.0
(62.7)
387.3
699.9
(183.3)
516.6
1,323.5
(516.6)
$ 806.9
450.0
(76.9)
373.1
699.9
(186.9)
513.0
1,290.4
(513.0)
$ 777.4
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 141
OPERATOR JoeLF
Convertible Senior Notes
In May 2011, the Company issued and sold $450.0 million in aggregate principal amount of 0.50%
Convertible Senior Notes due May 2016 (the “2016 Notes”) at par. At the same time, the Company issued and
sold $450.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due May 2018 (the
“2018 Notes”) at par. The 2016 Notes and the 2018 Notes may be converted, under certain circumstances, based
on a conversion rate of 15.9128 shares of Common Stock per $1,000 principal amount of notes (which represents
a conversion price of approximately $62.84 per share of Common Stock). The applicable conversion rate is
adjusted in certain circumstances, including the declaration and payment of cash dividends. The net proceeds to
the Company from the sale of the 2016 Notes and the 2018 Notes were $835.5 million. The Company pays cash
interest at an annual rate of 0.5% and 1.25%, respectively, on the 2016 Notes and the 2018 Notes, payable semi-
annually on May 15 and November 15 of each year.
In June 2012, with the acquisition of Novellus Systems, Inc., the Company assumed $700.0 million in
aggregate principal amount of 2.625% Convertible Senior Notes due May 2041 (the “2041 Notes,” and
collectively with the 2016 Notes and the 2018 Notes, the “Notes”). The 2041 Notes may be converted, under
certain circumstances, based on a conversion rate of 28.5572 shares of Common Stock per $1,000 principal
amount of notes (which represents a conversion price of approximately $35.02 per share of Common Stock). The
applicable conversion rate is adjusted in certain circumstances, including the declaration and payment of cash
dividends. The Company pays cash interest at an annual rate of 2.625%, payable semi-annually on May 15 and
November 15 of each year. The 2041 Notes also have a contingent interest payment provision that may require us
to pay additional interest based on certain thresholds, beginning with the semi-annual interest payment
commencing on May 15, 2021, and upon the occurrence of certain events, as outlined in the indenture governing
the 2041 Notes. The maximum amount of the contingent interest will accrue at a rate of 2.1% per annum,
excluding any potential impact from dividends deemed payable to holders of the 2041 Notes. The contingent
interest payment provision has been identified as an embedded derivative, to be accounted for separately, and is
recorded at fair value at the end of each reporting period in other non-current liabilities, with any gains and losses
recorded in interest expense, within the Consolidated Statements of Operations.
The Company separately accounts for the liability and equity components of the Notes. The initial debt
components of the 2016 Notes, the 2018 Notes, and the 2041 Notes were valued at $373.8 million,
$345.1 million, and $509.5 million, respectively, based on the present value of the future cash flows using
discount rates of 4.29%, 5.27%, and 4.28%, respectively, the Company’s borrowing rate at the date of the
issuance or assumption for similar debt instruments without the conversion feature. The carrying values of the
equity components of the 2016 Notes, the 2018 Notes, and the 2041 Notes were $76.2 million, $104.9 million,
and $328.1 million, respectively as of June 29, 2014. The effective interest rates on the liability components of
the 2016 Notes, the 2018 Notes, and the 2041 Notes for the year ended June 29, 2014 were 4.29%, 5.27%, and
4.28% respectively. The following table presents the amount of interest cost recognized relating to both the
contractual interest coupon and amortization of the discount on the liability component of the Notes during the
years ended June 29, 2014, June 30, 2013, and June 24, 2012.
Contractual interest coupon . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of interest discount . . . . . . . . . . . . . . . . . . . . . .
Amortization of issuance costs . . . . . . . . . . . . . . . . . . . . . . . .
Total interest cost recognized . . . . . . . . . . . . . . . . . . . . .
June 29,
2014
$26.2
33.1
2.4
$61.7
June 30,
2013
(in millions)
$26.2
31.6
2.4
$60.2
June 24,
2012
$ 9.2
27.0
2.4
$38.6
The remaining bond discount of the 2016 Notes, the 2018 Notes, and the 2041 Notes of $30.4 million,
$62.7 million, and $183.3 million, respectively, as of June 29, 2014 will be amortized over their respective
remaining lives of approximately 1.9 years, 3.9 years, and 26.9 years. As of June 29, 2014, the if-converted value
of the 2016, 2018 and 2041 Notes exceeded the aggregate principal amount by $29 million, $29 million and $638
million, respectively.
78
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 140
OPERATOR JoeLF
2016 Notes
The 2016 Notes may be converted at any time prior to the close of business on the business day immediately
preceding February 15, 2016, at the option of the holder, only under the following circumstances: 1) during the
five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the
trading price per $1,000 principal amount of 2016 Notes for each day of such measurement period was less than
98% of the product of the last reported sale price of the Company’s Common Stock and the applicable
conversion rate on each such trading day; 2) during any fiscal quarter commencing after the fiscal quarter ending
September 25, 2011, if the last reported sale price of the Company’s Common Stock for 20 or more trading days
in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding
fiscal quarter is greater than or equal to 130% of the conversion price in effect on the last trading day of the
immediately preceding fiscal quarter; or 3) upon the occurrence of specified corporate events. On and after
February 15, 2016 until the close of business on the second scheduled trading day immediately preceding the
maturity date of May 15, 2016, holders may convert their notes at any time, regardless of the foregoing
circumstances.
Upon conversion, a holder will receive the conversion value of the 2016 Notes to be converted equal to the
conversion rate multiplied by the volume weighted average price of the Company’s Common Stock during a
specified period following the conversion date. The conversion value of each 2016 Note will be paid in: 1) cash
equal to the principal amount of the note and 2) to the extent the conversion value exceeds the principal amount
of the note, Common Stock (plus cash in lieu of any fractional shares of Common Stock). The conversion price
will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon a “fundamental
change” at any time, as defined, the Company will in some cases increase the conversion rate for a holder who
elects to convert its 2016 Notes in connection with such fundamental change. In addition, the holders may require
the Company to repurchase for cash all or a portion of their notes upon a “designated event” at a price equal to
100% of the principal amount of the notes being repurchased plus accrued and unpaid interest, if any.
Concurrently with the issuance of the 2016 Notes, the Company purchased a convertible note hedge and
sold warrants. The separate convertible note hedge and warrant transactions are collectively structured to reduce
the potential future economic dilution associated with the conversion of the 2016 Notes and to increase the
effective conversion price to $71.14 per share. Each of these components is discussed separately below:
Convertible Note Hedge. Counterparties agreed to sell to the Company up to approximately 7.1 million
shares of the Company’s Common Stock, which is the number of shares issuable upon conversion of the
2016 Notes in full, at a price of $62.84 per share. The convertible note hedge transaction will be settled in
net shares and will terminate upon the earlier of the maturity date of the 2016 Notes or the first day none of
the 2016 Notes remains outstanding due to conversion or otherwise. Settlement of the convertible note
hedge in net shares, based on the number of shares issued upon conversion of the 2016 Notes, on the
expiration date would result in the Company receiving net shares equivalent to the number of shares
issuable by the Company upon conversion of the 2016 Notes. Should there be an early unwind of the
convertible note hedge transaction, the number of net shares potentially received by the Company will
depend upon 1) the then existing overall market conditions, 2) the Company’s stock price, 3) the volatility
of the Company’s stock, and 4) the amount of time remaining before expiration of the convertible note
hedge. The convertible note hedge transaction cost of $76.2 million has been accounted for as an equity
transaction. The Company initially recorded approximately $28.2 million in stockholders’ equity from the
net deferred tax asset related to the convertible note hedge at inception of the transaction.
Sold Warrants. The Company received $57.6 million from the same counterparties from the sale of warrants
to purchase up to approximately 7.1 million shares of the Company’s Common Stock at an exercise price of
$71.14 per share. The warrants expire on a series of dates between August 15, 2016 and October 21, 2016.
At expiration, the Company may, at its option, elect to settle the warrants on a net share basis. As of
June 29, 2014, the warrants had not been exercised and remained outstanding. The value of the warrants was
initially recorded in equity and continues to be classified as equity.
79
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 143
OPERATOR JoeLF
2018 Notes
The 2018 Notes may be converted at any time prior to the close of business on the business day immediately
preceding February 15, 2018, at the option of the holder only under the following circumstances: 1) during the
five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the
trading price per $1,000 principal amount of 2018 Notes for each day of such measurement period was less than
98% of the product of the last reported sale price of the Company’s Common Stock and the applicable
conversion rate on each such trading day; 2) during any fiscal quarter commencing after the fiscal quarter ending
September 25, 2011, if the last reported sale price of the Company’s Common Stock for 20 or more trading
days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal
quarter is greater than or equal to 130% of the conversion price in effect on the last trading day of the
immediately preceding fiscal quarter; or 3) upon the occurrence of specified corporate events. On and after
February 15, 2018 until the close of business on the second scheduled trading day immediately preceding the
maturity date of May 15, 2018, holders may convert their notes at any time, regardless of the foregoing
circumstances.
Upon conversion, a holder will receive the conversion value of the 2018 Notes to be converted equal to the
conversion rate multiplied by the volume weighted average price of the Company’s Common Stock during a
specified period following the conversion date. The conversion value of each 2018 Notes will be paid in: 1) cash
equal to the principal amount of the note and 2) to the extent the conversion value exceeds the principal amount
of the note, Common Stock (plus cash in lieu of any fractional shares of Common Stock). The conversion price
will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon a “fundamental
change” at any time, as defined, the Company will in some cases increase the conversion rate for a holder who
elects to convert its 2018 Notes in connection with such fundamental change. In addition, the holders may require
the Company to repurchase for cash all or a portion of their notes upon a “designated event” at a price equal to
100% of the principal amount of the notes being repurchased plus accrued and unpaid interest, if any.
Concurrently with the issuance of the 2018 Notes, the Company purchased a convertible note hedge and
sold warrants. The separate convertible note hedge and warrant transactions are collectively structured to reduce
the potential future economic dilution associated with the conversion of the 2018 Notes and to increase the
effective conversion price to $75.89 per share. Each of these components is discussed separately below:
Convertible Note Hedge. Counterparties agreed to sell to the Company up to approximately 7.1 million
shares of the Company’s Common Stock, which is the number of shares issuable upon conversion of the
2018 Notes in full, at a price of $62.84 per share. The convertible note hedge transaction will be settled in
net shares and will terminate upon the earlier of the maturity date of the 2018 Notes or the first day none of
the 2018 Notes remains outstanding due to conversion or otherwise. Settlement of the convertible note
hedge in net shares, based on the number of shares issued upon conversion of the 2018 Notes, on the
expiration date would result in the Company receiving net shares equivalent to the number of shares
issuable by the Company upon conversion of the 2018 Notes. Should there be an early unwind of the
convertible note hedge transaction, the number of net shares potentially received by the Company will
depend upon 1) the then existing overall market conditions, 2) the Company’s stock price, 3) the volatility
of the Company’s stock, and 4) the amount of time remaining before expiration of the convertible note
hedge. The convertible note hedge transaction cost of $104.9 million has been accounted for as an equity
transaction. The Company initially recorded approximately $38.8 million in stockholders’ equity from the
net deferred tax asset related to the convertible note hedge at inception of the transaction.
Sold Warrants. The Company received $76.3 million from the same counterparties from the sale of warrants
to purchase up to approximately 7.1 million shares of the Company’s Common Stock at an exercise price of
$75.89 per share. The warrants expire on a series of dates between August 15, 2018 and October 23, 2018.
At expiration, the Company may, at its option, elect to settle the warrants on a net share basis. As of
June 29, 2014, the warrants had not been exercised and remained outstanding. The value of the warrants was
initially recorded in equity and continues to be classified as equity.
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2041 Notes
The 2041 Notes may be converted at any time prior to the close of business on the business day immediately
preceding February 15, 2041, at the option of the holder only under the following circumstances: 1) during the
five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the
trading price per $1,000 principal amount of 2041 Notes for each day of such measurement period was less than
98% of the product of the last reported sale price of the Company’s Common Stock and the applicable
conversion rate on each such trading day; 2) during any fiscal quarter, if the last reported sale price of the
Company’s Common Stock for 20 or more trading days in a period of 30 consecutive trading days ending on the
last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion
price in effect on the last trading day of the immediately preceding fiscal quarter; or 3) upon the occurrence of
specified corporate events. On and after February 15, 2041 until the close of business on the third scheduled
trading day immediately preceding the maturity date of May 15, 2041, holders may convert their notes at any
time, regardless of the foregoing circumstances.
Upon conversion, a holder will receive the conversion value of the 2041 Notes to be converted equal to the
conversion rate multiplied by the volume weighted average price of the Company’s Common Stock during a
specified period following the conversion date. The conversion value of each 2041 Note will be paid in: 1) cash
equal to the principal amount of the note and 2) to the extent the conversion value exceeds the principal amount
of the note, Common Stock (plus cash in lieu of any fractional shares of Common Stock). The conversion price
will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon a “fundamental
change” at any time, as defined, the Company will in some cases increase the conversion rate for a holder who
elects to convert its 2041 Notes in connection with such fundamental change. In addition, the holders may require
the Company to repurchase for cash all or a portion of their notes upon a “designated event” at a price equal to
100% of the principal amount of the notes being repurchased plus accrued and unpaid interest, if any.
On or after May 21, 2021, we may redeem all or part of the 2041 Notes for the principal plus any accrued
and unpaid interest if the closing price of our Common Stock has been at least 150% of the conversion price then
in effect for at least 20 trading days during any period of 30 consecutive trading days prior to the date on which
we provide notice of redemption.
Conversion Period
During the fiscal quarter ended June 30, 2013, and each consecutive quarter through June 29, 2014, the
Company’s Common Stock for 20 or more trading days of the 30 consecutive trading days preceding the quarter
end was greater than or equal to 130% of the 2041 Note conversion price. As a result, the 2041 Notes became
convertible at the option of the holder anytime during the fiscal quarter ending September 29, 2013 and continue
to be convertible through September 28, 2014. However, there have been no conversions of the 2041 Notes as of
August 25, 2014.
In connection with the acquisition of Novellus in June 2012, the 2041 Notes could have been converted into
the Company’s Common Stock at any time from and after the later of (1) the date that was 30 scheduled trading
days immediately prior to the anticipated closing date of the merger and (2) the date on which we delivered to the
note holders notice of the merger, until 35 business days after the actual closing date of the merger, or July 24,
2012. During the period ending June 24, 2012, 65 of the 2041 Notes, with a total par value of $65,000, were
converted at the note holders’ option. In conjunction with the conversion, 137 shares of Common Stock were
issued.
As a result of the open conversion period, the carrying amount of the 2041 Notes was classified in current
liabilities in our Consolidated Balance Sheet as of June 29, 2014 and June 30, 2013. The excess of the amount of
cash payable, if converted, over the carrying amount of the 2041 Notes was classified as temporary equity as of
June 29, 2014 and June 30, 2013. Upon closure of a conversion period, all 2041 Notes not converted are
reclassified back to noncurrent liabilities and the temporary equity is reclassified to permanent equity.
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Fair Value of Notes
As of June 29, 2014, the face values of the 2016 Notes, 2018 Notes, and 2041 Notes were $450.0 million,
$450.0 million, and $699.9 million, respectively. As of June 29, 2014, the fair values of the 2016 Notes, 2018
Notes, and 2041 Notes, which includes the debt and equity components, were approximately $556.3 million,
$600.8 million, and $1,397.4 million respectively, based on quoted market prices (level 1 inputs within the fair
value hierarchy).
Contractual Obligations
The Company’s contractual cash obligations relating to its convertible notes and other long-term debt as of
June 29, 2014 were as follows:
Payments due by period:
One year* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Four years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Current portion of long-term debt
Long-term
Debt
(in thousands)
$ 699,935
450,000
—
450,000
—
—
1,599,935
699,935
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 900,000
* As noted above, the conversion period for the 2041 Notes opened as of December 29, 2013, and remains open
as of June 29, 2014. As there is the potential for conversion at the option of the holder, the principal balance of
the 2041 Notes has been included in the one year payment period. As of August 25, 2014, none of the 2041
Notes had been converted during the conversion period beginning December 29, 2013.
Revolving Credit Facility
On March 12, 2014, the Company entered into a $300 million revolving unsecured credit facility with a
syndicate of lenders that matures on March 12, 2019. The facility includes an option, subject to certain
requirements, for the Company to request an increase in the facility of up to an additional $200 million, for a
potential total commitment of $500 million. Proceeds from the credit facility can be used for general corporate
purposes.
Interest on amounts borrowed under the credit facility is, at the Company’s option, based on (i) a base rate,
defined as the greatest of (a) prime rate, (b) Federal Funds rate plus 0.5%, or (c) one-month LIBOR plus 1.0%,
plus a spread of 0.0% to 0.5%, or (ii) LIBOR plus a spread of 0.9% to 1.5%, in each case the applicable spread is
determined based on the rating of the Company’s non-credit enhanced, senior unsecured long-term debt.
Principal, and any accrued and unpaid interest, is due and payable upon maturity. Additionally, the Company will
pay the lenders a quarterly commitment fee that varies based on the Company’s rating described above. The
credit facility contains certain restrictive covenants including maintaining a consolidated debt to total
capitalization ratio of no more than 0.5 to 1.0 and maintaining unrestricted or unencumbered cash and
investments of no less than $1.0 billion. As of June 29, 2014, we had no borrowings outstanding under the credit
facility and were in compliance with all financial covenants.
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Note 14: Commitments and Contingencies
The Company has certain obligations to make future payments under various contracts, some of these are
recorded on its balance sheet and some are not. Obligations that are recorded on the Company’s balance sheet
include the Company’s capital lease obligations. Obligations that are not recorded on the Company’s balance
sheet include contractual relationships for operating leases, purchase obligations, and certain guarantees. The
Company’s commitments relating to capital leases and off-balance sheet agreements are included in the tables
below. These amounts exclude $258.4 million of liabilities related to uncertain tax benefits because the Company
is unable to reasonably estimate the ultimate amount or time of settlement. See Note 15 of Notes to Consolidated
Financial Statements for further discussion.
Capital Leases
Capital leases reflect building and office equipment leases. The Company’s contractual cash obligations
relating to its existing capital leases, including interest, as of June 29, 2014 were as follows:
Payments due by period:
One year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on capital leases . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of capital leases . . . . . . . . . . . . . . . . . . . .
Capital
Leases
(in thousands)
$ 1,857
1,829
8,635
12,321
338
1,681
Long-term portion of capital leases . . . . . . . . . . . . . . . . . .
$10,302
Operating Leases and Related Guarantees
The Company leases the majority of its administrative, R&D and manufacturing facilities, regional sales/
service offices and certain equipment under non-cancelable operating leases. Certain of the Company’s facility
leases for buildings located at its Fremont, California headquarters and certain other facility leases provide the
Company with options to extend the leases for additional periods or to purchase the facilities. Certain of the
Company’s facility leases provide for periodic rent increases based on the general rate of inflation. The
Company’s rental expense for facilities occupied during fiscal years 2014, 2013, and 2012 was approximately
$12 million, $14 million, and $11 million, respectively.
On December 31, 2013, the Company extinguished its two operating leases regarding certain improved
properties in Livermore, California and its four amended and restated operating leases regarding certain
improved properties in Fremont, California and entered into six amended operating leases (the “Operating
Leases”) regarding certain improved properties at the Company’s headquarters in Fremont, California and certain
other improved properties in Livermore, California.
The Operating Leases have a term of approximately seven years ending on December 31, 2020. The
Company may, at its discretion and with 30 days’ notice, elect to purchase the property that is the subject of the
Operating Leases for an amount approximating the sum required to pay the amount of the lessor’s investment in
the property and any accrued but unpaid rent.
As of June 29, 2014, the Company was required, pursuant to the terms of the Operating Leases, to maintain
cash collateral in an aggregate of approximately $132.5 million in separate interest-bearing accounts and
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marketable securities collateral in an aggregate of approximately $8.0 million as security for the Company’s
obligations under the Operating Leases. These amounts are recorded as restricted cash and investments in the
Company’s Consolidated Balance Sheet as of June 29, 2014.
During the term of the Operating Leases and when the terms of the Operating Leases expire, the property
subject to those Operating Leases may be remarketed. The Company has guaranteed to the lessor that each
property will have a certain minimum residual value. The aggregate guarantee made by the Company under the
Operating Leases is generally no more than approximately $191.2 million; however, under certain default
circumstances, the guarantee with regard to an Operating Lease may be 100% of the lessor’s aggregate
investment in the applicable property, which in no case will exceed $220.0 million, in the aggregate.
The Company’s contractual cash obligations with respect to operating leases, excluding the residual value
guarantees discussed above, as of June 29, 2014 were as follows:
Payments due by period:
One year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Four years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Sublease Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating
Leases
(in thousands)
$15,109
11,047
8,701
3,029
2,549
5,482
(675)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45,242
Other Guarantees
The Company has issued certain indemnifications to its lessors for taxes and general liability under some of
its agreements. The Company has entered into certain insurance contracts that may limit its exposure to such
indemnifications. As of June 29, 2014, the Company had not recorded any liability on its Consolidated Financial
Statements in connection with these indemnifications, as it does not believe, based on information available, that
it is probable that any amounts will be paid under these guarantees.
Generally, the Company indemnifies, under pre-determined conditions and limitations, its customers for
infringement of third-party intellectual property rights by the Company’s products or services. The Company
seeks to limit its liability for such indemnity to an amount not to exceed the sales price of the products or services
subject to its indemnification obligations. The Company does not believe, based on information available, that it
is probable that any material amounts will be paid under these guarantees.
The Company provides guarantees and standby letters of credit to certain parties as required for certain
transactions initiated during the ordinary course of business. As of June 29, 2014, the maximum potential amount
of future payments that we could be required to make under these arrangements and letters of credit was
$20.6 million. We do not believe, based on historical experience and information currently available, that it is
probable that any amounts will be required to be paid.
Purchase Obligations
Purchase obligations consist of significant contractual obligations either on an annual basis or over multi-
year periods related to the Company’s outsourcing activities or other material commitments, including vendor-
consigned inventories. The contractual cash obligations and commitments table presented below contains the
Company’s minimum obligations at June 29, 2014 under these arrangements and others. For obligations with
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cancellation provisions, the amounts included in the following table were limited to the non-cancelable portion of
the agreement terms or the minimum cancellation fee. Actual expenditures will vary based on the volume of
transactions and length of contractual service provided.
The Company’s commitments related to these agreements as of June 29, 2014 were as follows:
Payments due by period:
One year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Four years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase
Obligations
(in thousands)
$185,450
8,279
3,869
2,585
2,585
2,928
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$205,696
Warranties
The Company provides standard warranties on its systems. The liability amount is based on actual historical
warranty spending activity by type of system, customer, and geographic region, modified for any known
differences such as the impact of system reliability improvements.
Changes in the Company’s product warranty reserves were as follows:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranties issued during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements made during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in liability for pre-existing warranties . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
June 29,
2014
June 30,
2013
(in thousands)
$ 58,078
87,922
(80,280)
3,665
$ 70,161
74,779
(92,456)
5,594
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 69,385
$ 58,078
Legal Proceedings
The Company is either a defendant or plaintiff in various actions that have arisen from time to time in the
normal course of business, including intellectual property claims. The Company accrues for a liability when it is
both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Significant judgment is required in both the determination of probability and the determination as to whether a
loss is reasonably estimable. To the extent there is a reasonable possibility that the losses could exceed the
amounts already accrued, the Company believes that the amount of any such additional loss would be immaterial
to the Company’s business, financial condition, and results of operations.
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Note 15: Income Taxes
The components of income (loss) before income taxes were as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78,076
645,287
June 29,
2014
Year Ended
June 30,
2013
(in thousands)
$ (46,392)
113,050
June 24,
2012
$ (6,950)
211,368
$723,363
$ 66,658
$204,418
Significant components of the provision (benefit) for income taxes attributable to income before income
taxes were as follows:
Year Ended
June 29,
2014
June 30,
2013
June 24,
2012
(in thousands)
Federal:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,762
10,692
$ (1,096)
(60,172)
$ 5,038
(1,033)
$42,454
$(61,268)
$ 4,005
State:
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,192
(869)
$ 3,332
(6,351)
$ 1,297
336
$ 2,323
$ (3,019)
$ 1,633
Foreign:
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49,273
(2,976)
$ 20,640
(3,574)
$33,871
(3,814)
$46,297
$ 17,066
$30,057
Total Provision (Benefit) for Income Taxes . . . . . . .
$91,074
$(47,221)
$35,695
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Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes, and the amounts used for income tax purposes, as well as
the tax effect of carryforwards. Significant components of the Company’s net deferred tax assets and liabilities
were as follows:
June 29,
2014
June 30,
2013
(in thousands)
Deferred tax assets:
Tax carryforwards . . . . . . . . . . . . . . . . . .
Allowances and reserves . . . . . . . . . . . .
Equity-based compensation . . . . . . . . . .
Inventory valuation differences . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 170,028
126,895
18,019
16,257
12,065
$ 169,371
94,720
19,586
22,833
11,286
Gross deferred tax assets . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . .
343,264
(74,439)
317,796
(76,594)
Net deferred tax assets . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Intangible Assets . . . . . . . . . . . . . . . . . . .
Convertible debt . . . . . . . . . . . . . . . . . . .
Temporary differences for capital
assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill . . . . . . . . . . . .
Unremitted earnings of a foreign
subsidiary . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
268,825
241,202
(87,329)
(117,112)
(94,836)
(98,482)
(32,350)
(11,409)
(41,470)
(9,950)
(34,346)
(11,017)
(2,936)
(11,645)
Gross deferred tax liabilities . . . . . . . . . . . . . .
(293,563)
(259,319)
Net deferred tax assets . . . . . . . . . . . . . . . . . .
$ (24,738)
$ (18,117)
The change in the gross deferred tax assets, gross deferred tax liabilities and valuation allowance between
fiscal year 2014 and 2013 is primarily attributable to accrual for future tax liability due to the expected
repatriation of foreign earnings and amortization of convertible debt, offset by an increase in deferred tax assets
related to allowances and reserves. Realization of the Company’s net deferred tax assets is based upon the
weighting of available evidence, including such factors as the recent earnings history and expected future taxable
income. The Company believes it is more-likely-than-not that such deferred tax assets will be realized with the
exception of $74.4 million primarily related to California and certain foreign deferred tax assets.
The provisions related to the tax accounting for stock-based compensation prohibit the recognition of a
deferred tax asset for an excess benefit that has not yet been realized. As a result, the Company will only
recognize an excess benefit from stock-based compensation in additional paid-in-capital if an incremental tax
benefit is realized after all other tax attributes currently available to us have been utilized. In addition, the
Company continued to elect to account for the indirect benefits of stock-based compensation such as the research
and development tax credit through the consolidated statement of operations.
At June 29, 2014, the Company had federal net operating loss carryforwards of approximately
$134.5 million. The majority of these losses will begin to expire in the year 2019, and are subject to limitations
on their utilization.
As of June 29, 2014, the Company had state net operating loss carryforwards of approximately
$31.9 million. If not utilized, the net operating loss carryforwards will begin to expire in the year 2015, and are
subject to limitations on their utilization. The tax benefits relating to approximately $5.0 million of state net
operating loss carryforwards will be credited to additional paid-in-capital when recognized.
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At June 29, 2014, the Company had federal tax credit carryforwards of approximately $107.8 million, of
which $17.9 million will begin to expire in fiscal year 2017 and $87.1 million will begin to expire in fiscal year
2030. The remaining balance of $2.8 million of credits may be carried forward indefinitely. The tax benefits
relating to approximately $13.0 million of federal tax credit carryforwards will be credited to additional paid-in-
capital when recognized.
At June 29, 2014, the Company had state tax credit carryforwards of approximately $212.0 million.
Substantially all state tax credit carryforwards may be carried forward indefinitely. The tax benefits relating to
approximately $37.0 million of the state tax credit carryforwards will be credited to additional paid-in-capital
when recognized.
At June 29, 2014, the Company had foreign net operating loss carryforwards of approximately
$60.3 million, of which approximately $38.5 million may be carried forward indefinitely and $21.9 million will
begin to expire in fiscal year 2015.
A reconciliation of income tax expense provided at the federal statutory rate (35% in fiscal years 2014,
2013, and 2012) to actual income expense is as follows:
Income tax expense computed at federal statutory rate . . . . . . . .
State income taxes, net of federal tax benefit
. . . . . . . . . . . . . . .
Foreign income taxed at different rates . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State valuation allowance, net of federal tax benefit . . . . . . . . . .
Equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other permanent differences and miscellaneous items . . . . . . . .
June 29,
2014
$ 253,177
1,884
(164,130)
(15,650)
(1,707)
23,167
—
(5,667)
Year Ended
June 30,
2013
(in thousands)
$ 23,332
(13,588)
(40,255)
(42,593)
11,538
20,318
—
(5,973)
June 24,
2012
$ 71,546
(4,895)
(51,425)
(5,791)
5,862
14,123
5,683
592
$ 91,074
$(47,221)
$ 35,695
Effective fiscal year 2014 through June 2023, the Company obtained a new tax ruling for one of its foreign
subsidiaries in Switzerland. In the prior years, the Company had a tax holiday in Switzerland which was effective
from fiscal year 2003 through June 2013. The impact of the tax ruling decreased income taxes by approximately
$7.4 million, $10.8 million and $22.3 million for fiscal years 2014, 2013 and 2012, respectively. The benefit of
the tax ruling on diluted earnings per share was approximately $0.04 in fiscal year 2014, $0.06 in fiscal year
2013 and $0.18 in fiscal year 2012.
Unremitted earnings of the Company’s foreign subsidiaries included in consolidated retained earnings
aggregated to approximately $2.9 billion at June 29, 2014. These earnings are indefinitely reinvested in foreign
operations. If these earnings were remitted to the United States, they would be subject to U.S. and foreign
withholding taxes of approximately $697.5 million at current statutory rates. The Company’s federal income tax
provision includes U.S. income taxes on certain foreign-based income.
88
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 150
OPERATOR JoeLF
As of June 29, 2014, the total gross unrecognized tax benefits were $352.1 million compared to
$333.1 million as of June 30, 2013, and $343.8 million as of June 24, 2012. During fiscal year 2014, gross
unrecognized tax benefits increased by approximately $19.0 million. The amount of unrecognized tax benefits
that, if recognized, would impact the effective tax rate was $269.4 million, $257.7 million, and $278.2 million as
of June 29, 2014, June 30, 2013, and June 24, 2012, respectively. The aggregate changes in the balance of gross
unrecognized tax benefits were as follows:
Balance as of June 26, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements and effective settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in balances related to tax positions taken during prior periods . . . . . . . . . . . . . . .
Decreases in balances related to tax positions taken during prior periods . . . . . . . . . . . . . .
Increases in balances related to tax positions taken during current period . . . . . . . . . . . . . .
Tax positions assumed in Novellus transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 24, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements and effective settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in balances related to tax positions taken during prior periods . . . . . . . . . . . . . . .
Decreases in balances related to tax positions taken during prior periods . . . . . . . . . . . . . .
Increases in balances related to tax positions taken during current period . . . . . . . . . . . . . .
Tax positions assumed in Novellus transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in balances related to tax positions taken during prior periods . . . . . . . . . . . . . . .
Decreases in balances related to tax positions taken during prior periods . . . . . . . . . . . . . .
Increases in balances related to tax positions taken during current period . . . . . . . . . . . . . .
(in millions)
$ 181.5
(0.2)
(6.6)
1.4
(4.3)
22.3
149.7
343.8
(3.4)
(51.4)
11.3
(11.3)
35.2
8.9
333.1
(16.0)
6.2
(4.2)
33.0
Balance as of June 29, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 352.1
The Company recognizes interest expense and penalties related to the above unrecognized tax benefits
within income tax expense. The Company had accrued $29.5 million, $25.5 million, and $25.2 million,
cumulatively, for gross interest and penalties as of June 29, 2014, June 30, 3013, and June 24, 2012, respectively.
The Internal Revenue Service (“IRS”) has contacted the Company for a limited scope audit of Novellus’
U.S. income tax return for the years 2010, 2011, and 2012. In addition, the Company is also subject to audits by
state and foreign tax authorities. The Company is unable to make a reasonable estimate as to when cash
settlements, if any, with the relevant taxing authorities will occur.
The Company files U.S. federal, U.S. state, and foreign income tax returns. As of June 29, 2014, tax years
2004-2013 remain subject to examination in the jurisdictions where the Company operates.
The Company is in various stages of the 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
twelve-month period the Company may experience an increase or decrease in its unrecognized tax benefits. It is
not possible to determine either the magnitude or the range of any increase or decrease at this time.
Note 16: Goodwill and Intangible Assets
Goodwill
There were no significant changes in the goodwill balance during the twelve months ended June 29, 2014.
Of the $1.5 billion goodwill balance, $61 million is tax deductible and the remaining balance is not tax
deductible due to purchase accounting and applicable foreign law.
89
JOB TITLE LAM Research Combo
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SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 153
OPERATOR JoeLF
Intangible Assets
The following table provides the Company’s intangible assets as of June 29, 2014:
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Existing technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets subject to amortization . . . . . . . . . . . . . . . .
In process research and development
. . . . . . . . . . . . . . . . . .
Development rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated
Amortization
(in thousands)
$(169,162)
(224,246)
(24,407)
(35,270)
(453,085)
Gross
$ 615,618
643,922
32,253
35,270
1,327,063
11,000
9,100
Intangible assets not subject to amortization . . . . . . . . . . . . .
20,100
Net
$446,456
419,676
7,846
—
873,978
11,000
9,100
20,100
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,347,163
$(453,085)
$894,078
The following table provides details of the Company’s intangible assets as of June 30, 2013:
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Existing technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets subject to amortization . . . . . . . . . . . . . .
In process research and development . . . . . . . . . . . . . . . . .
Development rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated
Amortization
(in thousands)
$(103,519)
(139,894)
(22,036)
(10,000)
(34,889)
(310,338)
Gross
$ 624,686
653,628
32,053
10,000
35,216
1,355,583
20,000
9,100
Intangible assets not subject to amortization . . . . . . . . . . .
29,100
Net
$ 521,167
513,734
10,017
—
327
1,045,245
20,000
9,100
29,100
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,384,683
$(310,338)
$1,074,345
The Company recognized $163.2 million, $177.6 million, and $26.9 million, in intangible asset amortization
expense during fiscal years 2014, 2013, and 2012, respectively. The Company recognized a $4.0 million
impairment of in process research and development during fiscal year 2014, due to the cancellation of a project.
The estimated future amortization expense of intangible assets, excluding those with indefinite lives, as of
June 29, 2014 was as follows:
Fiscal Year
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
90
Amount
(in thousands)
$156,719
154,215
152,494
151,398
120,254
138,898
$873,978
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 152
OPERATOR JoeLF
Intangible assets acquired during the 2014 fiscal year were as follows:
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
Existing technology . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$1,800
7,228
200
Total acquired intangible assets . . . . . . . . . . . . . . .
$9,228
Weighted-
Average Useful
Life
(Years)
7
6
5
6
Note 17: Segment, Geographic Information and Major Customers
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, Europe, Japan, Korea, Taiwan, China
and Southeast Asia. For geographical reporting, revenue is attributed to the geographic location in which the
customers’ facilities are located while long-lived assets are attributed to the geographic locations in which the
assets are located.
Revenues and long-lived assets by geographic region were as follows:
June 29,
2014
Revenue:
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast Asia . . . . . . . . . . . . . . . . . . . . . . .
$1,127,406
1,049,214
634,131
623,408
622,022
303,730
247,398
Year Ended
June 30,
2013
(in thousands)
$ 603,821
1,026,548
368,095
319,282
734,324
292,432
254,414
June 24,
2012
$ 893,549
467,922
308,189
143,769
458,531
244,038
149,194
$4,607,309
$3,598,916
$2,665,192
June 29,
2014
June 30,
2013
June 24,
2012
(in thousands)
Long-lived assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$429,548
89,221
18,776
4,259
846
454
392
$484,273
109,934
991
2,953
2,291
2,788
680
$463,156
107,893
993
3,169
3,673
4,644
1,068
$543,496
$603,910
$584,596
91
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 155
OPERATOR JoeLF
In fiscal year 2014, three customers accounted for approximately 23%, 15%, and 14% of total revenues. In
fiscal year 2013, three customers accounted for approximately 19%, 15%, and 11% of total revenues. In fiscal
year 2012, three customers accounted for approximately 30%, 12%, and 10% of total revenues.
Note 18: Stock Repurchase Program
On April 22, 2013, the Board of Directors authorized the repurchase of up to $250 million of Company
Common Stock. The Company completed the repurchase of approximately $202 million available under this
share repurchase authorization in the year ended June 29, 2014.
On April 29, 2014, the Board of Directors authorized the repurchase of up to $850 million of Company
Common Stock, including the unutilized value from the April 22, 2013 authorization. These repurchases can be
conducted on the open market or as private purchases and may include the use of derivative contracts with large
financial institutions, in all cases subject to compliance with applicable law. Repurchases will be funded using
the Company’s on-shore cash and on-shore cash generation. This repurchase program has no termination date
and may be suspended or discontinued at any time.
Repurchases under the repurchase program were as follows during the periods indicated:
Period
Total Number of
Shares
Repurchased
Total Cost of
Repurchase
Average Price Paid
Per Share*
Amount Available
Under Repurchase
Program **
(in thousands, except per share data)
Available balance as of June 30, 2013 . . . . . . . . . .
Quarter ended September 29, 2013 . . . . . . . . . . . .
Quarter ended December 29, 2013 . . . . . . . . . . . . .
Quarter ended March 30, 2014 . . . . . . . . . . . . . . . .
Authorization of new $850 million - April 2014 . .
Quarter ended June 29, 2014 . . . . . . . . . . . . . . . . .
1,935
762
930
$96,462
$39,800
$49,414
$48.06
$52.20
$53.13
624
$35,486
$56.89
$250,000
$153,538
$113,738
$ 64,324
$850,000
$830,895
*
Average price paid per share excludes accelerated share repurchases for which cost was incurred during the
September 2013 quarter, but that did not settle until the December 2013 quarter. See Collared Accelerated
Share Repurchases section below for details regarding average price associated with the transaction.
** During the quarter ended June 29, 2014, approximately $16.4 million of repurchases were prior to the new
$850 million authorization.
In addition to shares repurchased under Board authorized repurchase program shown above, during the year
ended June 29, 2014, the Company acquired 608,695 shares at a total cost of $32.0 million which the Company
withheld through net share settlements to cover minimum tax withholding obligations upon the vesting of RSU
awards granted under the Company’s equity compensation plans. The shares retained by the Company through
these net share settlements are not a part of the Board-authorized repurchase program but instead are authorized
under the Company’s equity compensation plans.
As part of its share repurchase program, the Company may from time-to-time enter into structured share
repurchase arrangements with financial institutions using general corporate funds. Such arrangements entered
into and settled during the year ended June 29, 2014 included the following:
Collared Accelerated Share Repurchases
During the fiscal year ended June 29, 2014, the Company entered into and settled a collared accelerated
share repurchase (“ASR”) transaction under a master repurchase arrangement. Under the ASR, the Company
made an up-front cash payment of $75 million, in exchange for an initial delivery of 1.2 million shares of its
Common Stock and a subsequent delivery of 0.3 million shares following the initial hedge period.
92
JOB TITLE LAM Research Combo
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DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
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TYPE
PAGE NO. 154
OPERATOR JoeLF
The number of shares to ultimately be repurchased by the Company is based generally on the volume-weighted
average price (“VWAP”) of the Common Stock during the term of the ASR minus a pre-determined discount set at
inception of the ASR, subject to collar provisions that provide a minimum and maximum number of shares that the
Company could repurchase under the agreements. The minimum and maximum thresholds for the transaction were
established based on the average of the VWAP prices for the Common Stock during an initial hedge period. At the
conclusion of the ASR, the Company could have receive additional shares based on the VWAP of the Common
Stock during the term of the agreement minus the pre-determined fixed discount; however, the total number of
shares received under the ASR would not exceed the maximum of 1.7 million shares.
The counterparty designated October 28, 2013 as the termination date, at which time the Company settled
the ASR. No additional shares were received at final settlement, which represented a weighted-average share
price of approximately $50.40 for the transaction period.
The Company accounted for the ASR as two separate transactions: (a) as shares of Common Stock acquired
in a treasury stock transaction recorded on the acquisition date and (b) as a forward contract indexed to the
Company’s own Common Stock and classified in stockholders’ equity. As such, the Company accounted for the
shares that it received under the ASR as a repurchase of its Common Stock for the purpose of calculating
earnings per common share. The Company has determined that the forward contract indexed to the Common
Stock met all of the applicable criteria for equity classification in accordance with the Derivatives and Hedging
topic of the FASB Accounting Standards Codification, and, therefore, the ASR was not accounted for as a
derivative instrument. As of June 29, 2014, the aggregate repurchase price of $75 million was reflected as
Treasury stock, at cost, in the Consolidated Balance Sheet.
Note 19: Subsequent Events
On July 2, 2014, the Company sold substantially all of Peter Wolters, a wholly owned subsidiary acquired
as part of the Novellus acquisition, with net proceeds on sale of approximately $59 million. The pre-tax gain on
sale is estimated at approximately $6 million.
93
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
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DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 157
OPERATOR JoeLF
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Lam Research Corporation
We have audited the accompanying consolidated balance sheets of Lam Research Corporation as of June 29,
2014 and June 30, 2013, and the related consolidated statements of operations, comprehensive income,
stockholders’ equity and cash flows for each of the three years in the period ended June 29, 2014. Our audits also
included the financial statement schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Lam Research Corporation at June 29, 2014 and June 30, 2013, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended June 29,
2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Lam Research Corporation’s internal control over financial reporting as of June 29, 2014, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) and our report dated August 26, 2014 expressed
an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
August 26, 2014
94
JOB TITLE LAM Research Combo
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REVISION 5
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DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 156
OPERATOR JoeLF
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Lam Research Corporation
We have audited Lam Research Corporation internal control over financial reporting as of June 29, 2014,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework). Lam Research Corporation management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying [title of management’s
report]. Our responsibility is to express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Lam Research Corporation maintained, in all material respects, effective internal control
over financial reporting as of June 29, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the 2014 consolidated financial statements of Lam Research Corporation and our report dated
August 26, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
August 26, 2014
95
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OPERATOR JoeLF
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LAM RESEARCH CORPORATION
By /s/ Martin B. Anstice
Martin B. Anstice
President and Chief Executive Officer
Dated: August 26, 2014
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POWER OF ATTORNEY AND SIGNATURES
By signing this Annual Report on Form 10-K below, I hereby appoint each of Martin B. Anstice and
Douglas R. Bettinger, jointly and severally, as my attorney-in-fact to sign all amendments to this Form 10-K on
my behalf, and to file this Form 10-K (including all exhibits and other related documents) with the Securities and
Exchange Commission. I authorize each of my attorneys-in-fact to (1) appoint a substitute attorney-in-fact for
himself and (2) perform any actions that he believes are necessary or appropriate to carry out the intention and
purpose of this Power of Attorney. I ratify and confirm all lawful actions taken directly or indirectly by my
attorneys-in-fact and by any properly appointed substitute attorneys-in-fact.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Principal Executive Officer
/s/ Martin B. Anstice
Martin B. Anstice
Principal Financial Officer and Principal
Accounting Officer
/s/ Douglas R. Bettinger
Douglas R. Bettinger
Other Directors
/s/ Stephen G. Newberry
Stephen G. Newberry
/s/ Eric K. Brandt
Eric K. Brandt
/s/ Michael R. Cannon
Michael R. Cannon
/s/ Youssef A. El-Mansy
Youssef A. El-Mansy
/s/ Christine Heckart
Christine Heckart
/s/ Grant M. Inman
Grant M. Inman
/s/ Catherine P. Lego
Catherine P. Lego
/s/ Krishna Saraswat
Krishna Saraswat
/s/ William R. Spivey
William R. Spivey
/s/ Abhi Talwalkar
Abhi Talwalkar
Title
Date
President, Chief Executive Officer
and Director
August 26, 2014
Executive Vice President, Chief
Financial Officer, and
Chief Accounting Officer
August 26, 2014
Chairman
August 26, 2014
Director
Director
Director
Director
Director
Director
Director
Director
Director
97
August 26, 2014
August 26, 2014
August 26, 2014
August 26, 2014
August 26, 2014
August 26, 2014
August 26, 2014
August 26, 2014
August 26, 2014
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LAM RESEARCH CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description
Balance at
Beginning of Period
Charged to Costs
and Expenses
Write-offs, Net of
Recoveries (1)
Balance at End of
Period
(in thousands)
Additions
YEAR ENDED JUNE 29, 2014
Deducted from asset accounts:
Allowance for doubtful accounts . . .
$5,448
$ 14
$(500)
$4,962
YEAR ENDED JUNE 30, 2013
Deducted from asset accounts:
Allowance for doubtful accounts . . .
$5,248
$200
$ —
$5,448
YEAR ENDED JUNE 24, 2012
Deducted from asset accounts:
Allowance for doubtful accounts . . .
$4,720
$403
$ 125
$5,248
(1) During fiscal year 2012, write-off, net of recoveries represents $0.1 million of recoveries against previously
written-off balances
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Exhibit
3.1(2)
LAM RESEARCH CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 29, 2014
EXHIBIT INDEX
Description
Certificate of Incorporation of the Registrant, dated September 7, 1989; as amended by the
Agreement and Plan of Merger, Dated February 28, 1990; the Certificate of Amendment dated
October 28, 1993; the Certificate of Ownership and Merger dated December 15, 1994; the Certificate
of Ownership and Merger dated June 25, 1999 and the Certificate of Amendment effective as of
March 7, 2000; and the Certificate of Amendment effective as of November 5, 2009.
3.2(28)
Bylaws of the Registrant, as amended, dated May 17, 2013.
3.3(2)
4.1(29)
4.2(29)
Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock
dated January 27, 1997.
Indenture (including Form of Notes), dated as of May 11, 2011, by and between Lam Research
Corporation, and The Bank of New York Mellon Trust Company, N.A, as trustee, with respect to the
2016 Notes
Indenture (including Form of Notes), dated as of May 11, 2011, by and between Lam Research
Corporation, and The Bank of New York Mellon Trust Company, N.A, as trustee, with respect to the
2018 Notes
4.3(3)*
Amended and restated 1999 Stock Option Plan.
4.4(19)* Lam Research Corporation 1999 Employee Stock Purchase Plan, as amended.
4.5(6)*
Lam Research Corporation 2004 Executive Incentive Plan, as amended.
4.6(23)* Lam Research Corporation 2007 Stock Incentive Plan, as amended.
4.7(10)* Lam Research Corporation Elective Deferred Compensation Plan.
4.8(10)* Lam Research Corporation Elective Deferred Compensation Plan II.
4.9(13)
Indenture between Novellus Systems, Inc. as Issuer and The Bank of New York Mellon Trust
Company, N.A. as Trustee, dated as of May 10, 2011, including the form of 2.625% Senior
Convertible Notes due 2041.
4.10(9)
Supplemental Indenture among the Registrant, as Guarantor, Novellus Systems, Inc. as Issuer and
The Bank of New York Mellon Trust Company, N.A. as Trustee, dated as of June 4, 2012.
10.1(1)*
Form of Indemnification Agreement.
10.2(4)*
Form of Restricted Stock Unit Award Agreement (U.S. Agreement) — Lam Research Corporation
2007 Stock Incentive Plan
10.3(5)
10.4(5)
Form of Restricted Stock Unit Award Agreement — Outside Directors (U.S. Agreement) — Lam
Research Corporation 2007 Stock Incentive Plan.
Form of Restricted Stock Unit Award Agreement — Outside Directors (non-U.S. Agreement) —
Lam Research Corporation 2007 Stock Incentive Plan.
10.5(7)*
Form of Indemnification Agreement.
10.6(7)*
Reformation of Stock Option Agreement.
10.7(8)*
Stock Option Amendment and Special Bonus Agreement.
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10.8(11)*
Employment Agreement with Stephen G. Newberry, dated November 30, 2011.
10.9(11)*
Employment Agreement with Martin B. Anstice, dated November 30, 2011.
10.10(12)* Employment Agreement with Timothy M. Archer, dated March 6, 2012.
10.11(9)*
Form of Indemnification Agreement.
10.12(14)* Form of Novellus Directors and Officers Indemnification Agreement.
10.13(15)
10.14(16)
Lease Guaranty between Novellus and Phoenix Industrial Investment Partners, L.P. dated
January 21, 2003.
Binding Memorandum of Understanding between Novellus, and Applied Materials, Inc., effective
as of September 3, 2004. Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
10.15(17)* Novellus Amended Executive Voluntary Deferred Compensation Plan, as amended.
10.16(18)* Novellus Accelerated Stock Vesting Retirement Plan Summary.
10.17(20)* Novellus Systems, Inc. 2011 Stock Incentive Plan, as amended July 18, 2012.
10.18(23)* Forms of Nonstatutory Stock Option Agreement under the Novellus 2011 Stock Incentive Plan.
10.19(20)* Forms of restricted stock unit award agreement under the Novellus 2011 Stock Incentive Plan.
10.20(21)* Employment Agreement with Douglas R. Bettinger, dated February 25, 2013.
10.21(23)* Form of Nonstatutory Stock Option Agreement — Lam Research Corporation 2007 Stock Incentive
Plan.
10.22(22)* Employment Agreement with Ernest E. Maddock, dated September 7, 2012.
10.23(22)* Employment Agreement with Richard A. Gottscho, dated September 7, 2012.
10.24(22)* Form of Change in Control Agreement.
10.25(25)* Form of Restricted Stock Unit Award Agreement (U.S. Participants) — Lam Research Corporation
2007 Stock Incentive Plan
10.26(24)* Form of Restricted Stock Unit Award Agreement (International Participants) — Lam Research
Corporation 2007 Stock Incentive Plan
10.27(24)* Form of Nonstatutory Stock Option Award Agreement (U.S. Participants) — Lam Research
Corporation 2007 Stock Incentive Plan
10.28(24)* Form of Nonstatutory Stock Option Award Agreement (International Participants) — Lam
Research Corporation 2007 Stock Incentive Plan
10.29(24)* Form of Restricted Stock Unit Award Agreement (U.S. Participants) — Lam Research Corporation
(Novellus Systems, Inc.) 2011 Stock Incentive Plan (As Amended)
10.30(24)* Form of Restricted Stock Unit Award Agreement (International Participants) — Lam Research
Corporation (Novellus Systems, Inc.) 2011 Stock Incentive Plan (As Amended)
10.31(24)* Form of Nonstatutory Stock Option Award Agreement (U.S. Participants) — Lam Research
Corporation (Novellus Systems, Inc.) 2011 Stock Incentive Plan (As Amended)
10.32(24)* Form of Nonstatutory Stock Option Award Agreement (International Participants) — Lam
Research Corporation (Novellus Systems, Inc.) 2011 Stock Incentive Plan (As Amended)
10.33(24)
Participation Agreement between Lam Research Corporation and BTMU Capital Leasing &
Finance, Inc, dated December 31, 2013
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10.34(24)
10.35(24)
10.36(24)
10.37(24)
10.38(24)
10.39(24)
10.40(24)
10.41(24)
10.42(24)
10.43(24)
10.44(24)
10.45(24)
10.46(24)
Amended and Restated Lease Agreement (1 Portola Avenue Building) between Lam Research
Corporation and BTMU Capital Leasing & Finance, Inc, dated December 31, 2013
Pledge Agreement (1 Portola Avenue Building) between Lam Research Corporation and BTMU
Capital Leasing & Finance, Inc, dated December 31, 2013
Amended and Restated Lease Agreement (101 Portola Avenue Building) between Lam Research
Corporation and BTMU Capital Leasing & Finance, Inc, dated December 31, 2013
Pledge Agreement (101 Portola Avenue Building) between Lam Research Corporation and BTMU
Capital Leasing & Finance, Inc, dated December 31, 2013
Amended and Restated Lease Agreement (Fremont Building #1) between Lam Research
Corporation and BTMU Capital Leasing & Finance, Inc, dated December 31, 2013
Pledge Agreement (Fremont Building #1) between Lam Research Corporation and BTMU Capital
Leasing & Finance, Inc, dated December 31, 2013
Amended and Restated Lease Agreement (Fremont Building #3) between Lam Research
Corporation and BTMU Capital Leasing & Finance, Inc, dated December 31, 2013
Pledge Agreement (Fremont Building #3) between Lam Research Corporation and BTMU Capital
Leasing & Finance, Inc, dated December 31, 2013
Amended and Restated Lease Agreement (Fremont Building #3E) between Lam Research
Corporation and BTMU Capital Leasing & Finance, Inc, dated December 31, 2013
Pledge Agreement (Fremont Building #3E) between Lam Research Corporation and BTMU Capital
Leasing & Finance, Inc, dated December 31, 2013
Amended and Restated Lease Agreement (Fremont Building #4) between Lam Research
Corporation and BTMU Capital Leasing & Finance, Inc, dated December 31, 2013
Pledge Agreement (Fremont Building #4) between Lam Research Corporation and BTMU Capital
Leasing & Finance, Inc, dated December 31, 2013
Construction Agency Agreement (Fremont Building #3E) between Lam Research Corporation and
BTMU Capital Leasing & Finance, Inc, dated December 31, 2013
10.47(24)* Form of Amendment to Employment Agreement
10.48(24)* Form of Amendment to Change in Control Agreement
10.49(25)* Form of Market-Based Performance Restricted Stock Unit Award Agreement (U.S. Participants) —
Lam Research Corporation 2007 Stock Incentive Plan
10.50(25)* Form of Market-Based Performance Restricted Stock Unit Award Agreement (International
Participants) — Lam Research Corporation 2007 Stock Incentive Plan
10.51(25)* Form of Market-Based Performance Restricted Stock Unit Award Agreement (U.S. Participants) —
Lam Research Corporation (Novellus Systems, Inc.) 2011 Stock Incentive Plan (As Amended)
10.52(25)* Form of Market-Based Performance Restricted Stock Unit Award Agreement (International
Participants) — Lam Research Corporation (Novellus Systems, Inc.) 2011 Stock Incentive Plan (As
Amended)
10.53(26)
Credit Agreement dated March 12, 2014 among Lam Research Corporation and the lenders party
thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as
syndication agent, BNP Paribas, Barclays Bank PLC, Citibank, N.A. and Deutsche Bank Securities
Inc., as co-documentation agents, and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as joint bookrunners and joint lead arrangers
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20.1(27) Notice of Adjustment of Conversion Rate pursuant to the Indentures dated May 11, 2011, by and
between Lam Research Corporation and The Bank of New York Mellon Trust Company, N.A. as
Trustee with respect to the 0.5% Senior Convertible Notes Due 2016 and the 1.25% Senior
Convertible Notes Due 2018, and Notice of Adjustment of Conversion Rate pursuant to the indenture
dated May 10, 2011, by and between Novellus Systems Incorporated and The Bank of New York
Mellon Trust company, N.A. as Trustee with respect to the 2.625% Senior Convertible Notes Due
2041.
21
23.1
24
31.1
31.2
32.1
32.2
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (See Signature page)
Rule 13a — 14(a) / 15d — 14(a) Certification (Principal Executive Officer)
Rule 13a — 14(a) / 15d — 14(a) Certification (Principal Financial Officer)
Section 1350 Certification — (Principal Executive Officer)
Section 1350 Certification — (Principal Financial Officer)
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(1)
(2)
(3)
(4)
(5)
(6)
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 3,
1988.
Incorporated by reference to Registrant’s Amendment No. 2 to its Annual Report on Form 10K/A for the
fiscal year ended June 25, 2000, and Registrant’s Current Report on Form 8-K filed on November 10, 2009.
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 29, 2002.
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 24, 2006.
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 25,
2007.
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 27,
2010.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on November 13, 2008.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on May 8, 2008.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on June 4, 2012.
(7)
(8)
(9)
(10) Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 26,
2011.
(11) Incorporated by reference to Registrant’s Current Report on Form 8-K filed on December 5, 2011.
(12) Incorporated by reference to Registrant’s Amendment No. 1 to Registration Statement on Form S-4, filed on
March 6, 2012.
(13) Incorporated by reference to Novellus’ Current Report on Form 8-K filed on May 10, 2011 (SEC
File No. 000-17157).
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(14) Incorporated by reference to Novellus’ Current Report on Form 10-Q filed on August 13, 2002 (SEC
File No. 000-17157).
(15) Incorporated by reference to Novellus’ Annual Report on Form 10-K filed on March 5, 2003 (SEC
File No. 000-17157).
(16) Incorporated by reference to Novellus’ Current Report on Form 8-K filed on September 24, 2004 (SEC
File No. 000-17157).
(17) Incorporated by reference to Novellus’ Report on Form 10-Q filed on November 5, 2008 (SEC
File No. 000-17157).
(18) Incorporated by reference to Novellus’ Quarterly Report on Form 10-Q filed on November 2, 2010 (SEC
File No. 000-17157).
(19) Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 23, 2012.
(20) Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 24,
2012.
(21) Incorporated by reference to Registrant’s Current Report on Form 8-K filed on February 26, 2013.
(22) Incorporated by reference to Registrant’s Current Report on Form 8-K filed on September 10, 2012.
(23) Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30,
2013
(24) Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 29, 2013
(25) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 18, 2014.
(26) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on March 13, 2014.
(27) Incorporated by reference to the Registrant’s Current Form 8-K filed on June 10, 2014.
(28) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on May 22, 2013.
(29) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on May 11, 2011.
*
Indicates management contract or compensatory plan or arrangement in which executive officers of the
Company are eligible to participate.
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SUBSIDIARY
STATE OR OTHER JURISDICTION OF OPERATION
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
Lam Research AG
Lam Research Management GmbH
Novellus Systems Export, Inc.
IPEC FSC Ltd
IPEC International Sales FSC Ltd
Novellus Systems, Inc.
Novellus Systems International, LLC
Angstron Systems, Inc.
Gamma Precision Technology
Lam Research International Holdings Ltd.
Lam Research (Shanghai) Co., Ltd.
Lam Research Service Co., Ltd.
Novellus Systems Semiconductor Equipment Shanghai Co. Ltd.
Novellus Systems International Trading (Shanghai) Co. Ltd.
Lam Research International Holding Company
Metryx, Inc.
Novellus International Holdco, LLC.
SpeedFam-IPEC International Services, LLC
Tmation Inc.
Novellus Development Company, LLC
Silfex, Inc.
Lam Research SAS
Lam Research GmbH
Lam Research (H.K.) Limited
Novellus Systems Service (Hong Kong) Limited
Lam Research Illionois IAG, Inc
Lam Research (India) Private Ltd.
Lam Research (Ireland) Limited
Novellus Systems Ireland Ltd.
Lam Research (Israel) Ltd.
Lam Research Services Ltd.
GaSonics Israel Ltd.
Novellus Systems International BV, Israel Branch
Lam Research S.r.l.
Novellus Systems Italy SRL (in liquidation)
Lam Research Co., Ltd.
Lam Research Luxembourg S.à.r.l.
SpeedFam IPEC (Malaysia) Sdn. Bhd.
Lam Research Malaysia Sdn. Bhd.
LAM Research B.V.
Lam Research International B.V.
Peter Wolters International Holding Company B.V.
Novellus Systems International B.V.
Voumard, Inc.
Lam Research Korea Limited
Austria
Austria
Barbados
Barbados
Barbados
California, United States
California, United States
California, United States
California, United States
Cayman Islands
China
China
China
China
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
France
Germany
Hong Kong
Hong Kong
Illinois, United States
India
Ireland
Ireland
Israel
Israel
Israel
Israel
Italy
Italy
Japan
Luxembourg
Malaysia
Malaysia
Netherlands
Netherlands
Netherlands
Netherlands
New York, United States
Republic of Korea
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SUBSIDIARY
STATE OR OTHER JURISDICTION OF OPERATION
Lam Research Korea LLC YH
Novellus Singapore Pte. Ltd., Korea Branch
Corus Manufacturing Ltd.
Lam Research Singapore Pte Ltd
Novellus Systems International BV, Singapore Branch
Novellus Singapore Pte. Ltd.
Novellus Singapore Holdings Pte. Ltd.
Lam Research Holding GmbH
Lam Research International Sàrl
Novellus Systems (Schweiz) Holding GmbH
Voumard Machines Co SARL
Lam Research Co., Ltd.
Lam Research (H.K.) Limited, Taiwan Branch
Novellus Systems Service (Hong Kong) Limited, Taiwan Branch
Lam Research Ltd.
Metryx, Ltd.
Lam Research IAG (U.K.) Ltd
Novellus Systems UK Limited
Republic of Korea
Republic of Korea
Republic of Korea
Singapore
Singapore
Singapore
Singapore
Switzerland
Switzerland
Switzerland
Switzerland
Taiwan
Taiwan
Taiwan
United Kingdom
United Kingdom
United Kingdom
United Kingdom
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
1. Registration statement (Form S- 4 No. 333- 30545) of Lam Research Corporation and in the related
Prospectus
2. Registration statement (Form S-4 No. 333- 179267) of Lam Research Corporation and in the related
Prospectus
3. Registration Statement (Form S-8 No. 333-66833) pertaining to the 1999 Employee Stock Purchase Plan
4. Registration Statement (Form S-8 No. 333- 72751) pertaining to the Lam Research Corporation 1999 Stock
Option Plan
5. Registration Statement (Form S-8 No. 333- 93115) pertaining to the Lam Research Corporation 1999 Stock
Option Plan
6. Registration Statement (Form S-8 No. 333- 74500) pertaining to the 1999 Stock Option Plan, As Amended
7. Registration Statement (Form S-8 No. 333- 84638) pertaining to the Savings Plus Plan, Lam Research
401(K)
8. Registration Statement (Form S-8 No. 333- 127936) pertaining to the 1997 Stock Incentive Plan, as
amended, 1999 Stock Option Plan, as amended, 1999 Employee Stock Purchase Plan, as amended
9. Registration Statement (Form S-8 No. 333- 138545) pertaining to the 2007 Stock Incentive Plan, as
amended
10. Registration Statement (Form S-8 No. 333- 156335) pertaining to the 1999 Employee Stock Purchase Plan,
as amended
11. Registration Statement (Form S-8 No. 333- 181878) pertaining to the Novellus Systems, Inc. 2011 Stock
Incentive Plan (the “2011 Novellus Plan”) Novellus Systems, Inc. Retirement Plan (the “Retirement Plan”)
Lam Research Corporation 1999 Employee Stock Purchase Plan, as amended (the “ESPP”)
12. Registration Statement (Form S-8 No. 333- 185641) pertaining to the Savings Plus Plan, Lam Research
401(k).
Of our reports dated August 26, 2014, with respect to the consolidated financial statements and schedule of Lam
Research Corporation and the effectiveness of internal control over financial reporting of Lam Research
Corporation included in this Annual Report (Form 10- K) of Lam Research Corporation for the year ended
June 29, 2014, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Jose, California
August 26, 2014
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Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION (PRINCIPAL EXECUTIVE OFFICER)
I, Martin B. Anstice, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Lam Research Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
August 26, 2014
/s/ Martin B. Anstice
Martin B. Anstice
President and Chief Executive Officer
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
269172
TYPE
PAGE NO. 171
OPERATOR JoeLF
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION (PRINCIPAL FINANCIAL OFFICER)
I, Douglas R. Bettinger, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Lam Research Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
August 26, 2014
/s/ Douglas R. Bettinger
Douglas R. Bettinger
Executive Vice President, Chief Financial Officer
and Chief Accounting Officer
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
JOB NUMBER 269172
TYPE
PAGE NO. 170
OPERATOR JoeLF
Exhibit 32.1
SECTION 1350 CERTIFICATION (PRINCIPAL EXECUTIVE OFFICER)
In connection with the Annual Report of Lam Research Corporation (the “Company”) on Form 10-K for the
fiscal period ending June 29, 2014 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Martin B. Anstice, President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
August 26, 2014
/s/ Martin B. Anstice
Martin B. Anstice
President and Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, and will not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that
section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Exchange Act, except to the extent that Lam Research Corporation specifically
incorporates it by reference.
JOB TITLE LAM Research Combo
REVISION 5
SERIAL
DATE Friday, September 19, 2014
Exhibit 32.2
SECTION 1350 CERTIFICATION (PRINCIPAL FINANCIAL OFFICER)
In connection with the Annual Report of Lam Research Corporation (the “Company”) on Form 10-K for the
fiscal period ending June 29, 2014 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Douglas R. Bettinger, Executive Vice President, Chief Financial Officer and Chief Accounting
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
August 26, 2014
/s/ Douglas R. Bettinger
Douglas R. Bettinger
Executive Vice President, Chief Financial Officer
and Chief Accounting Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, and will not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that
section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Exchange Act, except to the extent that Lam Research Corporation specifically
incorporates it by reference.
OUTPERFORMING THE INDUSTRY
Lam Research delivered a record year for financial performance in fiscal
2014 and is well positioned to continue outperforming the wafer fabrication
equipment industry over the next several years. Our portfolio of deposition,
etch, and clean products and complementary service offerings address the key
technology inflections facing our customers today, helping drive significant
opportunities to expand our served available market and grow our market
share. We are pursuing these opportunities by aspiring to be the industry’s
most trusted and collaborative partner for our customers and by focusing on
execution to create value for all of our stakeholders. Our performance over the
past fiscal year and our ability to continue delivering on our objectives reflect
the dedication and commitment of Lam’s global employees.
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Martin B. Anstice
President and
Chief Executive Officer
Timothy M. Archer
Executive Vice President and
Chief Operating Officer
Douglas R. Bettinger
Executive Vice President and
Chief Financial Officer
Richard A. Gottscho, Ph.D.
Executive Vice President,
Global Products
Sarah A. O’Dowd, Esq.
Senior Vice President and
Chief Legal Officer
Stephen G. Newberry
Chairman
Martin B. Anstice
President and
Chief Executive Officer
Eric K. Brandt
Executive Vice President and
Chief Financial Officer
Broadcom Corporation
Michael R. Cannon
General Partner
MRC & LBC Partners, LLC
Retired President of
Global Operations
Dell Inc.
Youssef A. El-Mansy, Ph.D.
Retired Vice President,
Director of Logic Technology
Development
Intel Corporation
Christine A. Heckart
Chief Marketing Officer
Brocade Communications Systems, Inc.
Grant M. Inman
General Partner
Inman Investment Management
Catherine P. Lego
Member
Lego Ventures, LLC
Krishna C. Saraswat, Ph.D.
Rickey/Nielsen Professor,
School of Engineering
Stanford University
William R. Spivey, Ph.D.
Retired President and
Chief Executive Officer
Luminent, Inc.
Abhijit Y. Talwalkar
Former President and
Chief Executive Officer
LSI Corporation
As of September 2, 2014
© 2014 Lam Research Corporation.
All rights reserved.
201409-01808/7K
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ANNUAL REPORT 2014
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Innovative Technology
Trusted Productivity
Fast Solutions
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94538
Phone: 1.510.572.0200
www.lamresearch.com
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