Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

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Index to Consolidated Financial Statements


	Page
Consolidated Statements of Operations — Years Ended June 28, 2015, June 29, 2014, and June 30, 2013		49
Consolidated Statements of Comprehensive Income — Years Ended June 28, 2015, June 29, 2014, and June 30, 2013		50
Consolidated Balance Sheets — June 28, 2015 and June 29, 2014		51
Consolidated Statements of Cash Flows — Years Ended June 28, 2015, June 29, 2014, and June 30, 2013		52
Consolidated Statements of Stockholders’ Equity — Years Ended June 28, 2015, June 29, 2014, and June 30, 2013		54
Notes to Consolidated Financial Statements		55
Reports of Independent Registered Public Accounting Firm		89

LAM RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Year Ended
	June 28, 2015			June 29, 2014			June 30, 2013
Revenue	$	5,259,312		$	4,607,309		$	3,598,916
Cost of goods sold		2,974,976			2,599,828			2,195,857

Gross margin		2,284,336			2,007,481			1,403,059
Research and development		825,242			716,471			683,688
Selling, general and administrative		591,611			613,341			601,300
Goodwill impairment		79,444			—			—

Total operating expenses		1,496,297			1,329,812			1,284,988

Operating income		788,039			677,669			118,071
Gain on sale of real estate		—			83,090			—
Other expense, net		(47,189	)		(37,396	)		(51,413	)

Income before income taxes		740,850			723,363			66,658
Income tax (expense) benefit		(85,273	)		(91,074	)		47,221

Net income	$	655,577		$	632,289		$	113,879

Net income per share:
Basic	$	4.11		$	3.84		$	0.67

Diluted	$	3.70		$	3.62		$	0.66

Number of shares used in per share calculations:
Basic		159,629			164,741			168,932

Diluted		177,067			174,503			173,430

See Notes to Consolidated Financial Statements

LAM RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	Year Ended
	June 28, 2015			June 29, 2014			June 30, 2013
Net income	$	655,577		$	632,289		$	113,879

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		(22,139	)		4,192			5,303
Cash flow hedges:
Net unrealized gains during the period		1,595			8,004			10,607
Net gains reclassified into earnings		(4,388	)		(10,892	)		(7,573	)

		(2,793	)		(2,888	)		3,034
Available-for-sale investments:
Net unrealized gains (losses) during the period		(5,389	)		1,407			(3,844	)
Net losses reclassified into earnings		71			165			4,137

		(5,318	)		1,572			293
Defined benefit plans, net change in unrealized component		1,109			(2,838	)		(3,505	)

Other comprehensive income (loss), net of tax		(29,141	)		38			5,125

Comprehensive income	$	626,436		$	632,327		$	119,004

See Notes to Consolidated Financial Statements

LAM RESEARCH CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	June 28, 2015			June 29, 2014
ASSETS
Cash and cash equivalents	$	1,501,539		$	1,452,677
Short-term investments		2,574,947			1,612,967
Accounts receivable, less allowance for doubtful accounts of $4,890 as of June 28, 2015 and $4,962 as of June 29, 2014		1,093,582			800,616
Inventories		943,346			740,503
Prepaid expenses and other current assets		157,435			176,899

Total current assets		6,270,849			4,783,662
Property and equipment, net		621,418			543,496
Restricted cash and investments		170,969			146,492
Goodwill		1,387,509			1,466,225
Intangible assets, net		728,140			894,078
Other assets		185,763			159,353

Total assets	$	9,364,648		$	7,993,306

LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable	$	300,203		$	223,515
Accrued expenses and other current liabilities		649,438			604,296
Deferred profit		322,070			235,923
Current portion of convertible notes and capital leases		1,359,650			518,267

Total current liabilities		2,631,361			1,582,001
Senior notes, convertible notes, and capital leases, less current portion		1,001,382			817,202
Income taxes payable		202,930			258,357
Other long-term liabilities		184,023			122,662

Total liabilities		4,019,696			2,780,222
Commitments and contingencies
Temporary equity, convertible notes		241,808			183,349
Stockholders’ equity:
Preferred stock, at par value of $0.001 per share; authorized - 5,000 shares, none outstanding		—			—
Commmon stock, at par value of $0.001 per share; authorized - 400,000 shares; issued and outstanding - 158,531 shares at June 28, 2015 and 162,350 shares at June 29, 2014		159			162
Additional paid-in capital		5,366,773			5,239,567
Treasury stock, at cost, 99,562 shares at June 28, 2015 and 92,867 shares at June 24, 2014		(4,302,847	)		(3,757,076	)
Accumulated other comprehensive loss		(57,796	)		(28,655	)
Retained earnings		4,096,855			3,575,737

Total stockholders’ equity		5,103,144			5,029,735

Total liabilities and stockholders’ equity	$	9,364,648		$	7,993,306

See Notes to Consolidated Financial Statements

LAM RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended
	June 28, 2015			June 29, 2014			June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	655,577		$	632,289		$	113,879
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		277,920			292,254			304,116
Deferred income taxes		5,551			7,537			(70,155	)
Impairment of long-lived assets		9,821			11,632			—
Impairment of investment		—			—			3,711
Equity-based compensation expense		135,354			103,700			99,330
Income tax benefit (expense) on equity-based compensation plans		11,316			5,973			(483	)
Excess tax (benefit) expense on equity-based compensation plans		(11,398	)		(6,065	)		539
Amortization of note discounts and issuance costs		37,550			35,482			33,920
Gain on sale of business		(7,431	)
Gain on sale of real estate		—			(83,090	)		—
Goodwill impairment		79,444			—			—
Other, net		12,656			12,669			37,201
Changes in operating asset and liability accounts:
Accounts receivable, net of allowance		(294,155	)		(201,549	)		162,634
Inventories		(207,462	)		(190,058	)		76,351
Prepaid expenses and other assets		(52,496	)		(11,923	)		518
Trade accounts payable		76,617			18,704			(58,081	)
Deferred profit		86,146			10,886			60,205
Accrued expenses and other liabilities		(29,507	)		78,608			(43,752	)

Net cash provided by operating activities		785,503			717,049			719,933

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and intangible assets		(198,265	)		(145,503	)		(160,795	)
Business acquisitions, net of cash acquired		(1,137	)		(30,227	)		(9,916	)
Purchases of available-for-sale securities		(3,086,808	)		(1,312,244	)		(1,097,956	)
Sales and maturities of available-for-sale securities		2,137,068			1,028,278			1,039,551
Purchase of other investments		(2,500	)		—			—
Issuance (repayment) of notes receivable		3,978			10,000			(10,000	)
Proceeds from sale of assets		—			156,397			660
Proceeds from sale of business		41,212			—			—
Transfer of restricted cash and investments		356			28,085			(181	)

Net cash used for investing activities		(1,106,096	)		(265,214	)		(238,637	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations		(1,515	)		(1,658	)		(2,234	)
Net proceeds from issuance of long-term debt		992,225			—			—
Excess tax benefit (expense) on equity-based compensation plans		11,398			6,065			(539	)
Treasury stock purchases		(573,240	)		(244,859	)		(955,661	)
Dividends paid		(116,059	)		—			—
Reissuances of treasury stock related to employee stock purchase plan		48,803			42,926			31,265
Proceeds from issuance of common stock		17,520			34,791			39,379
Other		(660	)		—			—

Net cash provided by (used for) financing activities		378,472			(162,735	)		(887,790	)


	Year Ended
	June 28, 2015			June 29, 2014		June 30, 2013
Effect of exchange rate changes on cash and cash equivalents	$	(9,017	)	$	1,104	$	4,215
Net increase (decrease) in cash and cash equivalents		48,862			290,204		(402,279	)
Cash and cash equivalents at beginning of year		1,452,677			1,162,473		1,564,752

Cash and cash equivalents at end of year	$	1,501,539		$	1,452,677	$	1,162,473

Schedule of noncash transactions
Accrued payables for stock repurchases	$	3,255		$	3,392	$	—

Supplemental disclosures:
Cash payments for interest	$	26,393		$	26,489	$	26,635

Cash payments for income taxes, net	$	114,512		$	18,157	$	7,695

See Notes to Consolidated Financial Statements

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 24, 2012		186,656		$	187		$	4,943,539		$	(2,636,936	)	$	(33,818	)	$	2,858,809		$	5,131,781

Sale of common stock		3,301			3			39,377			—			—			—			39,380
Purchase of treasury stock		(28,157	)		(28	)		—			(934,780	)		—			—			(934,808	)
Income tax benefits on equity-based compensation plans		—			—			(483	)		—			—			—			(483	)
Reissuance of treasury stock		1,073			1			(622	)		31,886			—			—			31,265
Equity-based compensation expense		—			—			99,310			—			—			—			99,310
Reclassification from temporary to permanent equity		—			—			3,423			—			—			—			3,423
Net income		—			—			—			—			—			113,879			113,879
Other comprehensive income		—			—			—			—			5,125			—			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		3,140			3			34,788			—			—			—			34,791
Purchase of treasury stock		(4,860	)		(5	)		—			(253,180	)		—			—			(253,185	)
Income tax benefits on equity-based compensation plans		—			—			5,973			—			—			—			5,973
Reissuance of treasury stock		1,197			1			6,991			35,934			—			—			42,926
Equity-based compensation expense		—			—			103,700			—			—			—			103,700
Reclassification from temporary to permanent equity		—			—			3,571			—			—			—			3,571
Net income		—			—			—			—			—			632,289			632,289
Other comprehensive income		—			—			—			—			38			—			38
Cash dividends declared ($.18 per common share)		—			—			—			—			—			(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

Sale of common stock		2,876			4			17,519			—			—			—			17,523
Purchase of treasury stock		(7,638	)		(8	)		—			(573,096	)		—			—			(573,104	)
Income tax benefits on equity-based compensation plans		—			—			11,316			—			—			—			11,316
Reissuance of treasury stock		943			1			21,477			27,325			—			—			48,803
Equity-based compensation expense		—			—			135,354			—			—			—			135,354
Reclassification to temporary from permanent equity, net		—			—			(58,460	)		—			—			—			(58,460	)
Net income		—			—			—			—			—			655,577			655,577
Other comprehensive income		—			—			—			—			(29,141	)		—			(29,141	)
Cash dividends declared ($.84 per common share)		—			—			—			—			—			(134,459	)		(134,459	)

Balance at June 28, 2015		158,531		$	159		$	5,366,773		$	(4,302,847	)	$	(57,796	)	$	4,096,855		$	5,103,144

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 28, 2015

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/or reduced cost.

The Company sells its products and services primarily to companies involved in the production of semiconductors in United States, Europe, Taiwan, Korea, Japan, China, and Southeast Asia.

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 2015, 2014, and 2013 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 it believes to be applicable, and evaluates 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 its 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, the Company recognizes revenue 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. The Company allocates revenue from multiple-element arrangements among the separate elements using their relative selling prices based on the Company’s best estimate of selling price. The Company’s 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. The Company generally recognizes revenue related to sales of spare parts and system upgrade kits upon shipment. The Company generally recognizes revenue related to services upon completion of the services requested by a customer order. The Company recognizes 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 deferred revenue and deferred costs are recognized in deferred profit on the 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. 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 at the physical transfer of the products to the freight carriers. Transfer of title for shipments to Japanese customers occurs at the time of customer acceptance.

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, and possible alternative uses. 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 goods sold in the period in which the revision is made.

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. The Company provides standard warranties for its systems. The Company records a provision for estimated warranty expenses to cost of sales for each system when it recognizes revenue. The Company does not maintain general or unspecified reserves; all warranty reserves are related to specific systems. 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 compensation expense. The Company determines the fair value of its restricted stock units (“RSUs”), excluding market-based performance RSUs, based upon the fair market value of Company’s common stock at the date of grant, discounted for dividends. The Company estimates the fair value of its market-based performance RSUs using a Monte Carlo simulation model at the date of the grant. The Company estimates the fair value of its stock options and ESPP awards 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 Company amortizes the fair value of equity-based awards over the vesting periods of the award and the Company has elected to use the straight-line method of amortization.

The Company makes quarterly assessments of the adequacy of its tax credit pool related to equity-based compensation to determine if there are any deficiencies that it is required to recognize in the Company’s Condensed Consolidated Statements of Operations. The Company will only recognize a benefit from equity-based compensation in paid-in-capital if it realizes an incremental tax benefit after all other tax attributes currently available to us have been utilized. In addition, the Company has elected to account for the indirect benefits of equity-based compensation on the research tax credit through the income statement rather than through paid-in-capital. The Company 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. The Company tracks 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. 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 our net deferred tax 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 our net deferred tax assets, an adjustment would be charged to earnings in the period such determination is made. Likewise, if the Company 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.

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. The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense.

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 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 Company amortizes intangible assets with estimable useful lives 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. If certain events or indicators of impairment occur between annual impairment tests, the Company would perform an impairment test at that date. In testing for a potential impairment of goodwill, the Company: (1) allocates goodwill to its 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. 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 R&D and developed technology. Only after this process is completed can the amount of goodwill impairment, if any, be determined. In the Company’s goodwill impairment process it 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 Company 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 performed the most recent annual goodwill impairment analysis as of the first day of its fourth quarter of fiscal year 2015, March 30, 2015, resulted in an impairment charge on the Company’s single-wafer clean reporting unit of approximately $79.4 million. The Company did not record any goodwill impairment in fiscal years 2014 or 2013.

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 an income approach. 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, 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 its reporting units. 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, and to the extent 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.

The Company reviews indefinite-lived intangible assets for an impairment annually, or when events or circumstances indicate the carrying value may not be recoverable. Factors that may be a change in circumstances, indicating the carrying value of amortizable intangible assets may not be recoverable, include a reduced future cash flow estimate, and slower growth rates in the industry segment in which the Company participates. 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. 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 Company recognized a $4.0 million impairment charge related to indefinite-lived intangible asset during the year ended June 29, 2014. The Company did not record an impairment charge on indefinite-lived intangible assets during the years ended June 28, 2015 or June 30, 2013.

Impairment of Long-Lived Assets (Excluding Goodwill and indefinite-lived 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. 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 recorded a $9.8 million and $7.6 million impairment loss on long-lived assets during the years ended June 28, 2015 and June 29, 2014, respectively. The Company did not record any impairment loss in the year ended June 30, 2013.

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 28, 2015, June 29, 2014, and June 30, 2013 and included 52 weeks, 52 weeks, and 53 weeks, respectively.

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.

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.

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 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. 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. Accordingly, all balance sheet accounts of these local functional currency subsidiaries are translated into U.S. dollars at the fiscal period-end exchange rate, and income and expense accounts are translated into U.S. dollars 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 adopted this standard during the fiscal year without significant impact on its financial position, results of operations, or cash flows.

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 adopted this standard during the fiscal year without significant impact on its financial position, results of operations, or cash flows.

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. The Company is required to adopt this standard starting in the first quarter of fiscal year 2019 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 has not yet selected a transition method, and is in the process of determining the impact that the new standard will have on its Consolidated Financial Statements.

In April 2015, the FASB released Accounting Standards Update 2015-3 “Interest — Imputation of Interest.” The amendment requires that debt issuance costs related to recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company is required to adopt this standard starting in the first quarter of fiscal year 2017, and does not anticipate the adoption will have a material impact on its Consolidated Financial Statements.

Note 4: Reclassifications

Certain amounts in fiscal years 2014 and 2013 financial statements have been reclassified to conform to the fiscal year 2015 presentation.

Note 5: Equity-Based Compensation Plans

The Company has stock plans that provide for grants of equity-based awards to eligible participants, including stock options and restricted stock units (“RSUs”), of Lam Research common stock (“Common Stock”). An option is a right to purchase Common Stock at a set price. An RSU award is an agreement to issue a set number of shares of Common Stock at the time of vesting. The Company’s options and RSU awards typically vest over a period of three years or less, although awards assumed in connection with the acquisition of Novellus Systems, Inc. (“Novellus”), have vesting terms up to four years. The Company also has an employee stock purchase plan that allows employees to purchase its Common Stock at a discount through payroll deductions.

The Company recognized the following equity-based compensation expense and benefits in the Condensed Consolidated Statements of Operations:


	Year Ended
	June 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
Equity-based compensation expense	$	135,354	$	103,700	$	99,310
Income tax benefit recognized in the related to equity-based compensation	$	23,660	$	16,937	$	17,647
Income tax benefit realized from the exercise and vesting of options and RSUs	$	40,401	$	31,993	$	21,625

The estimated fair value of the Company’s equity-based awards, less expected forfeitures, is amortized over the awards’ vesting term on a straight-line basis.

Stock Options and RSUs

The Lam Research Corporation 2007 Stock Incentive Plan, as amended and restated, and 2011 Stock Incentive Plan, as amended and restated (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. A summary of stock plan transactions is as follows:


	Options Outstanding					Restricted Stock Units Outstanding
	Number of Shares			Weighted-Average Exercise Price		Number of Shares			Weighted-Average Fair Market Value at Grant
June 24, 2012		3,902,077		$	25.14		4,331,478		$	41.01
Granted		288,867		$	42.59		2,563,670		$	38.76
Exercised		(1,546,028	)	$	25.47		N/A			N/A
Canceled		(73,993	)	$	26.24		(299,079	)	$	39.70
Vested restricted stock		N/A			N/A		(1,754,273	)	$	42.52

June 30, 2013		2,570,923		$	26.87		4,841,796		$	39.32
Granted		166,455		$	51.76		2,811,602		$	53.21
Exercised		(1,403,019	)	$	24.75		N/A			N/A
Canceled		(2,473	)	$	30.21		(281,476	)	$	41.16
Vested restricted stock		N/A			N/A		(1,736,453	)	$	40.39

June 29, 2014		1,331,886		$	32.20		5,635,469		$	45.83
Granted		76,659		$	80.60		1,804,937		$	79.74
Exercised		(564,558	)	$	31.05		N/A			N/A
Cancelled		(8,155	)	$	29.32		(174,879	)	$	50.16
Vested restricted stock		N/A			N/A		(2,311,439	)	$	41.17

June 28, 2015		835,832		$	37.44		4,954,088		$	60.13

Outstanding and exercisable options presented by price range at June 28, 2015 were as follows:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options Outstanding		Weighted-Average Remaining Life (Years)		Weighted-Average Exercise Price		Number of Options Exercisable		Weighted-Average Exercise Price
$9.44-$19.05		130,682		0.52	$	12.94		130,682	$	12.94
$21.04-$25.60		89,907		0.30	$	22.13		86,845	$	22.08
$26.87-$29.68		193,978		0.86	$	29.26		190,025	$	29.32
$31.45-$35.68		30,042		0.21	$	32.94		30,042	$	32.94
$42.41-$80.60		391,223		2.53	$	53.54		185,101	$	43.58

$9.44-$51.76		835,832		4.42	$	37.44		622,695	$	29.29

As of June 28, 2015, there were a total of 5,789,920 shares subject to options and RSUs issued and outstanding under the Company’s Stock Plans. As of June 28, 2015, there were a total of 6,572,350 shares available for future issuance under the Stock Plans.

Stock Options

The fair value of the Company’s stock options granted during fiscal years 2015, 2014, and 2013, 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:


	Year Ended
	June 28, 2015		June 29, 2014		June 30, 2013
Expected volatility		34.45%		35.28%		36.60%
Risk-free interest rate		1.46%		1.39%		0.81%
Expected term (years)		4.80		4.78		4.79
Dividend yield		0.89%		—		—

The year-end intrinsic value relating to stock options for fiscal years 2015, 2014, and 2013 is presented below:


	Year Ended
	June 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
Intrinsic value - options outstanding	$	37,961	$	46,283	$	44,919
Intrinsic value - options exercisable	$	33,360	$	31,653	$	36,870
Intrinsic value - options exercised	$	26,806	$	41,379	$	25,430

As of June 28, 2015, there was $2.9 million of total unrecognized compensation expense related to unvested stock options granted and outstanding; that expense is expected to be recognized over a weighted-average remaining vesting period of 2.1 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, discounted for dividends. As of June 28, 2015, there was $197.6 million of total unrecognized compensation expense related to all unvested RSUs granted; that expense is expected to be recognized over a weighted-average remaining vesting period of 2.1 years.

During the fiscal years 2015 and 2014, the Company issued certain 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 the Company’s 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 28, 2015, 0.9 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 $13.5 million and $3.8 million for the years ended June 28, 2015 and June 29, 2014, respectively. No market-based PRSUs were awarded in earlier periods.

The fair value of the Company’s market-based PRSUs granted during fiscal years 2015 and 2014, was calculated using a Monte Carlo simulation model at the date of the grant. This model requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each award:


	Year Ended
	June 28, 2015		June 29, 2014
Expected volatility		27.93%		29.27%
Risk-free interest rate		1.05%		0.55%
Expected term (years)		2.98		2.67
Dividend yield		0.89%		—

ESPP

The 1999 Employee Stock Purchase Plan (the “1999 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 2015, 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 2015, a total of 943,055 shares of the Company’s Common Stock were sold to employees under the 1999 ESPP. At June 28, 2015, 7,434,523 shares were available for purchase under the 1999 ESPP.

The 1999 ESPP rights were valued using the Black-Scholes model. During fiscal years 2015, 2014, and 2013, the 1999 ESPP was valued using the following weighted-average assumptions:


	Year Ended
	June 28, 2015		June 29, 2014		June 30, 2013
Expected term (years)		0.67		0.68		0.64
Expected stock price volatility		27.60%		30.24%		32.42%
Risk-free interest rate		0.07%		0.07%		0.15%
Dividend Yield		0.69%		—		—

As of June 28, 2015, there was $2.6 million of total unrecognized compensation cost related to the 1999 ESPP that is expected to be recognized over a remaining vesting period of 2 months.

Note 6: Other Income (Expense), Net

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


	Year Ended
	June 28, 2015			June 29, 2014			June 30, 2013
	(in thousands)
Interest income	$	19,268		$	12,540		$	14,737
Interest expense		(73,682	)		(61,692	)		(60,408	)
Gains on deferred compensation plan related assets, net		9,071			9,559			9,764
Foreign exchange gains (losses), net		2,331			1,529			(6,808	)
Other, net		(4,177	)		668			(8,698	)

	$	(47,189	)	$	(37,396	)	$	(51,413	)

Note 7: Income Taxes

The components of income (loss) before income taxes were as follows:


	June 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
United States	$	72,728	$	78,076	$	(46,392	)
Foreign		668,122		645,287		113,050

	$	740,850	$	723,363	$	66,658

Significant components of the provision (benefit) for income taxes attributable to income before income taxes were as follows:


	June 28, 2015			June 29, 2014			June 30, 2013
	(in thousands)
Federal:
Current	$	16,795		$	31,762		$	(1,096	)
Deferred		12,115			10,692			(60,172	)

	$	28,910		$	42,454		$	(61,268	)

State:
Current	$	1,376		$	3,192		$	3,332
Deferred		158			(869	)		(6,351	)

	$	1,534		$	2,323		$	(3,019	)

Foreign:
Current	$	61,551		$	49,273		$	20,640
Deferred		(6,722	)		(2,976	)		(3,574	)

	$	54,829		$	46,297		$	17,066

Total Provision (Benefit) for Income Taxes	$	85,273		$	91,074		$	(47,221	)

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 28, 2015			June 29, 2014
	(in thousands)
Deferred tax assets:
Tax carryforwards	$	129,234		$	170,028
Allowances and reserves		131,079			126,895
Equity-based compensation		21,086			18,019
Inventory valuation differences		15,167			16,257
Other		13,942			12,661

Gross deferred tax assets		310,508			343,860
Valuation allowance		(85,620	)		(74,439	)

Net deferred tax assets		224,888			269,421
Deferred tax liabilities:
Intangible Assets		(64,725	)		(87,329	)
Convertible debt		(130,991	)		(117,112	)
Temporary differences for captial assets		(37,635	)		(32,350	)
Amortization of goodwill		(12,502	)		(11,409	)
Unremitted earnings of foreign subsidiaries		(66,412	)		(40,286	)
Other		(6,100	)		(5,673	)

Gross deferred tax liabilities		(318,365	)		(294,159	)

Net deferred tax liabilities	$	(93,477	)	$	(24,738	)

The change in the gross deferred tax assets, gross deferred tax liabilities and valuation allowance between fiscal year 2015 and 2014 is primarily due to the reclassification of deferred tax assets as a result of the adoption of Accounting Standards Updated 2013-11, accrual for future tax liabilities due to the expected repatriation of foreign earnings of certain foreign subsidiaries for 2015, and convertible debt accretion, offset by a decrease in deferred tax liabilities related to amortization of intangible assets. 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 $85.6 million primarily related to California and certain foreign deferred tax assets.

The provisions related to the tax accounting for equity-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 equity-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 equity-based compensation such as the research and development tax credit through the Consolidated Statement of Operations.

At June 28, 2015, the Company had federal net operating loss carryforwards of approximately $126.3 million. The majority of these losses will begin to expire in fiscal year 2019, and are subject to limitations on their utilization.

As of June 28, 2015, the Company had state net operating loss carryforwards of approximately $36.7 million. If not utilized, the net operating loss carryforwards will begin to expire in fiscal year 2016, and are subject to limitations on their utilization.

At June 28, 2015, the Company had federal tax credit carryforwards of approximately $134.3 million, of which $19.2 million will begin to expire in fiscal year 2017 and $113.3 million will begin to expire in fiscal year 2030. The remaining balance of $1.8 million of credits may be carried forward indefinitely. The tax benefits relating to approximately $20.3 million of federal tax credit carryforwards will be credited to additional paid-in-capital when recognized.

At June 28, 2015, the Company had state tax credit carryforwards of approximately $236.4 million. Substantially all state tax credit carryforwards may be carried forward indefinitely.

At June 28, 2015, the Company had federal and state capital loss carryforwards of approximately $12.0 million, which will begin to expire in fiscal year 2020.

At June 28, 2015, the Company had foreign net operating loss carryforwards of approximately $31.2 million, of which approximately $10.2 million may be carried forward indefinitely and $21.0 million will begin to expire in fiscal year 2016.

A reconciliation of income tax expense provided at the federal statutory rate (35% in fiscal years 2015, 2014, and 2013) to actual income tax expense (benefit) is as follows:


	June 28, 2015			June 29, 2014			June 30, 2013
	(in thousands)
Income tax expense computed at federal statutory rate	$	259,297		$	253,177		$	23,332
State income taxes, net of federal tax benefit		(8,611	)		1,884			(13,588	)
Foreign income taxed at different rates		(175,581	)		(164,130	)		(40,255	)
Tax credits		(24,416	)		(15,650	)		(42,593	)
State valuation allowance, net of federal tax benefit		8,594			(1,707	)		11,538
Equity-based compensation		28,845			23,167			20,318
Other permanent differences and miscellaneous items		(2,855	)		(5,667	)		(5,973	)

	$	85,273		$	91,074		$	(47,221	)

Effective from fiscal year 2014 through June 2023, the Company has a 10 year tax ruling in Switzerland for one of its foreign subsidiaries. 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 taxes by approximately $4.8 million, $7.4 million and $10.8 million for fiscal years 2015, 2014 and 2013, respectively. The benefit of the tax ruling on diluted earnings per share was approximately $0.03 in fiscal year 2015, $ 0.04 in fiscal year 2014 and $0.06 in fiscal year 2013.

Unremitted earnings of the Company’s foreign subsidiaries included in consolidated retained earnings aggregated to approximately $3.3 billion at June 28, 2015. 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 $859.0 million at current statutory rates. The Company’s federal income tax provision includes U.S. income taxes on certain foreign-based income.

As of June 28, 2015, the total gross unrecognized tax benefits were $363.6 million compared to $352.1 million as of June 29, 2014 and $333.1 million as of June 30, 2013. During fiscal year 2015, gross unrecognized tax benefits

increased by approximately $11.4 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $276.8 million, $269.4 million and $257.7 million, as of June 28, 2015, June 29, 2014 and June 30, 2013 respectively. The aggregate changes in the balance of gross unrecognized tax benefits were as follows:


	(in thousands)
Balance as of June 24, 2012	$	343,837
Settlements and effective settlements with tax authorities		(3,422	)
Lapse of statute of limitations		(51,422	)
Increases in balances related to tax positions taken during prior periods		11,352
Decreases in balances related to tax positions taken during prior periods		(11,281	)
Increases in balances related to tax positions taken during current period		35,170
Tax positions assumed in Novellus transaction		8,880

Balance as of June 30, 2013		333,114
Lapse of statute of limitations		(16,048	)
Increases in balances related to tax positions taken during prior periods		6,225
Decreases in balances related to tax positions taken during prior periods		(4,182	)
Increases in balances related to tax positions taken during current period		33,003

Balance as of June 29, 2014		352,112
Settlements and effective settlements with tax authorities		(2,108	)
Lapse of statute of limitations		(9,376	)
Increases in balances related to tax positions taken during prior periods		3,729
Decreases in balances related to tax positions taken during prior periods		(12,615	)
Increases in balances related to tax positions taken during current period		31,810

Balance as of June 28, 2015	$	363,552

The Company recognizes interest expense and penalties related to the above unrecognized tax benefits within income tax expense. The Company had accrued $35.5 million, $29.5 million and $25.5 million cumulatively, for gross interest and penalties as of June 28, 2015, June 29, 2014 and June 30, 2013, respectively.

The Company is 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 28, 2015, tax years 2004-2014 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 8: 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 28, 2015		June 29, 2014		June 30, 2013
	(in thousands, except per share data)
Numerator:
Net income	$	655,577	$	632,289	$	113,879

Denominator:
Basic average shares outstanding		159,629		164,741		168,932
Effect of potential dilutive securities:
Employee stock plans		3,193		2,864		2,558
Convertible notes		13,530		6,898		1,940
Warrants		715		—		—

Diluted average shares outstanding		177,067		174,503		173,430

Net income per share - basic	$	4.11	$	3.84	$	0.67

Net income per share - diluted	$	3.70	$	3.62	$	0.66

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 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
Number of options and RSUs excluded		330		78		534

Diluted shares outstanding include the effect of the Convertible Notes. Diluted shares outstanding do not include any effect resulting from note hedges associated with the Company’s 2016 or 2018 Notes (as described in Note 14) as their impact would have been anti-dilutive.

Note 9: 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.

The Company’s primary financial instruments include cash and 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 and cash equivalents, 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 14 to the Consolidated Financial Statements for additional information regarding the fair value of the Company’s Convertible Notes and Senior Notes.

Investments

The following table sets forth the Company’s cash, cash equivalents, short-term investments, restricted cash and investments, and other assets measured at fair value on a recurring basis as of June 28, 2015 and June 29, 2014:


	June 28, 2015
										(Reported Within)
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Restricted Cash & Investments		Other Assets
	(in thousands)
Cash	$	276,663	$	—	$	—		$	276,663	$	271,452	$	—	$	5,211	$	—
Level 1:
Time Deposit		177,567		—		—			177,567		44,738		—		132,829		—
Money Market Funds		1,177,875		—		—			1,177,875		1,177,875		—		—		—
US Treasury and Agencies		349,009		72		(861	)		348,220		—		315,291		32,929		—
Mutual Funds		30,584		2,926		(47	)		33,463		—		—		—		33,463

Level 1 Total	$	1,735,035	$	2,998	$	(908	)	$	1,737,125	$	1,222,613	$	315,291	$	165,758	$	33,463

Level 2:
Municipal Notes and Bonds		659,550		429		(335	)		659,644		7,474		652,170		—		—
US Treasuries and Agencies		4,007		—		(4	)		4,003		—		4,003		—		—
Government-Sponsored Enterprises		53,612		2		(249	)		53,365		—		53,365		—		—
Foreign Government Bonds		50,336		31		(161	)		50,206		—		50,206		—		—
Corporate Notes and Bonds		1,329,587		685		(3,797	)		1,326,475		—		1,326,475		—		—
Mortgage Backed Securities - Residential		32,231		72		(292	)		32,011		—		32,011		—		—
Mortgage Backed Securities - Commercial		141,988		44		(606	)		141,426		—		141,426		—		—

Level 2 Total	$	2,271,311	$	1,263	$	(5,444	)	$	2,267,130	$	7,474	$	2,259,656	$	—	$	—

Total	$	4,283,009	$	4,261	$	(6,352	)	$	4,280,918	$	1,501,539	$	2,574,947	$	170,969	$	33,463


	June 29, 2014
										(Reported Within)
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Restricted Cash & Investments		Other Assets
	(in thousands)
Cash	$	285,031	$	—	$	—		$	285,031	$	279,126	$	—	$	5,905	$	—
Level 1:
Time Deposit		132,549		—		—			132,549		—		—		132,549		—
Money Market Funds		1,168,261		—		—			1,168,261		1,168,261		—		—		—
US Treasury and Agencies		212,436		178		(27	)		212,587		—		204,549		8,038		—
Mutual Funds		18,784		2,974		—			21,758		—		—		—		21,758

Level 1 Total	$	1,532,030	$	3,152	$	(27	)	$	1,535,155	$	1,168,261	$	204,549	$	140,587	$	21,758

Level 2:
Municipal Notes and Bonds		334,329		1,108		(4	)		335,433		5,290		330,143		—		—
Government-Sponsored Enterprises		27,666		41		(15	)		27,692		—		27,692		—		—
Foreign Government Bonds		35,438		57		(28	)		35,467		—		35,467		—		—
Corporate Notes and Bonds		874,540		2,034		(335	)		876,239		—		876,239		—		—
Mortgage Backed Securities - Residential		27,067		59		(182	)		26,944		—		26,944		—		—
Mortgage Backed Securities - Commercial		112,642		100		(809	)		111,933		—		111,933		—		—

Level 2 Total	$	1,411,682	$	3,399	$	(1,373	)	$	1,413,708	$	5,290	$	1,408,418	$	—	$	—

Total	$	3,228,743	$	6,551	$	(1,400	)	$	3,233,894	$	1,452,677	$	1,612,967	$	146,492	$	21,758

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 in fiscal year 2013. There were no other-than-temporary impairment charges in fiscal year 2015 or 2014. Additionally, gross realized gains/(losses) from sales of investments were $2.8 million and $(2.1) million in fiscal year 2015, $1.5 million and $(2.0) million in fiscal year 2014, and $1.6 million and $(1.5) million in fiscal year 2013, respectively.

The following is an analysis of the Company’s cash, cash equivalents, short-term investments, and restricted cash and investments in unrealized loss positions:


	June 28, 2015
	Unrealized Losses Less Than 12 Months					Unrealized Losses 12 Months or Greater					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in thousands)
Municipal Notes and Bonds	$	272,388	$	(335	)	$	—	$	—		$	272,388	$	(335	)
US Treasury & Agencies		296,237		(865	)		—		—			296,237		(865	)
Retail Funds		3,532		(47	)		—		—			3,532		(47	)
Government-Sponsored Enterprises		49,184		(249	)		—		—			49,184		(249	)
Foreign Government Bonds		34,882		(161	)		—		—			34,882		(161	)
Corporate Notes and Bonds		889,064		(3,750	)		16,586		(47	)		905,650		(3,797	)
Mortgage Backed Securities - Residential		20,913		(196	)		2,190		(96	)		23,103		(292	)
Mortgage Backed Securities - Commercial		100,388		(431	)		19,729		(175	)		120,117		(606	)

	$	1,666,588	$	(6,034	)	$	38,505	$	(318	)	$	1,705,093	$	(6,352	)

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	$	1,651,592	$	1,651,673
Due after one year through five years		1,944,674		1,940,529
Due in more than five years		379,496		378,590

	$	3,975,762	$	3,970,792

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, it does 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 and Korean won-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 flows through a foreign currency cash flow hedging program, using foreign currency forward contracts that generally expire within twelve 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.

In addition, during the twelve months ended June 28, 2015, the Company entered into and settled a series of forward-starting interest rate swap agreements, with a total notional value of $375 million, to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. These instruments were designated as cash flow hedges at inception and were settled in conjunction with the issuance of debt during the three months ended March 29, 2015. The effective portion of the contracts’ loss is included in accumulated other comprehensive (loss) and will amortize into income as the hedged item impacts earnings.

At inception and at each quarter end, hedges are tested prospectively and retrospectively for effectiveness using regression analysis. Changes in the fair value of the forward contracts due to changes in time value are excluded from the assessment of effectiveness and are recognized in revenue or expense 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 material gains or losses during the twelve months ended June 28, 2015 or June 29, 2014 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. As of June 28, 2015, the Company had losses of $2.9 million accumulated in other comprehensive income, net of tax, including, $0.2 million gains related to foreign exchange which it expects to reclassify from other comprehensive income into earnings over the next 12 months and $3.1 million losses related to interest rate contracts which it expects to reclassify from other comprehensive income into earnings over the next 9.7 years.

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).

As of June 28, 2015, the Company had the following outstanding foreign currency forward contracts that were entered into under its cash flow and balance sheet hedge program:


	Derivatives Designated as Hedging Instruments:				Derivatives Not Designated as Hedging Instruments:
	(in thousands)
Foreign Currency Forward Contracts
	Buy Contracts		Sell Contracts		Buy Contracts		Sell Contracts
Japanese yen	$	—	$	18,946	$	—	$	49,924
Swiss franc		—		—		—		3,346
Euro		34,377		—		4,049		—
Korean won		7,269		—		8,945		—
Taiwan dollar		—		—		33,239		11,162

	$	41,646	$	18,946	$	46,233	$	64,432

The fair value of derivatives instruments in the Company’s consolidated balance sheet as of June 28, 2015 and June 29, 2014 were as follows:


	June 28, 2015						June 29, 2014
	Fair Value of Derivative Instruments (Level 2)						Fair Value of Derivative Instruments (Level 2)
	Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in thousands)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expense and other assets	$	3,388	Accrued liabilities	$	957	Prepaid expense and other assets	$	483	Accrued liabilities	$	805
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expense and other assets		8	Accrued liabilities		960	Prepaid expense and other assets		1,109	Accrued liabilities		118

Total derivatives		$	3,396		$	1,917		$	1,592		$	923

Under the master agreements with the respective counterparties to the Company’s foreign exchange contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. However, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in the Company’s balance sheet. As of June 28, 2015, 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 $1.9 million, resulting in a net derivative asset of $1.5 million. 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. The Company is not required to pledge, nor is the Company entitled to receive, cash collateral related to these derivative transactions.

The effect of derivative instruments designated as cash flow hedges, before tax, on the Company’s Consolidated Statements of Operations was as follows:


			Year Ended June 28, 2015												Year Ended June 29, 2014
	Location of Gain (Loss) Recognized in or Reclassified into Income		Effective Portion								Ineffective Portion and Amount Excluded from Effectiveness				Effective Portion						Ineffective Portion and Amount Excluded from Effectiveness
Derivatives Designated as Hedging Instruments		Gain (Loss) Reconginzed in AOCI				Gain (Loss) Reclassified from AOCI into Income				Gain (Loss) Recognized in Income				Gain Recognized in AOCI			Gain Reclassified from AOCI into Income			Gain (Loss) Recognized in Income
			(in thousands)												(in thousands)
Foreign Exchange Contracts	Revenue		$	13,678			$	11,375			$	258			$	7,939		$	9,027		$	277
Foreign Exchange Contracts	Cost of goods sold			(6,318	)			(4,349	)			(75	)			812			2,393			(52	)
Foreign Exchange Contracts	Selling, general, and administrative			(2,579	)			(2,618	)			(39	)			318			1,087			(23	)
Interest Rate Contracts	Other expense, net			(5,071	)			(112	)			(231	)			—			—			—

			$	(290	)		$	4,296			$	(87	)		$	9,069		$	12,507		$	202

The effect of derivative instruments not designated as cash flow hedges on the Company’s Consolidated Statement of Operations was as follows:


		Year Ended
		June 28, 2015		June 29, 2014
Derivatives Not Designated as Hedging Instruments:	Location of Gain Recognized in Income	Gain Recognized in Income		Gain Recognized in Income
		(in thousands)
Foreign Exchange Contracts	Other income	$	1,784	$	8,205

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, ae 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.

As of June 28, 2015, four customers accounted for approximately 17%, 13%, 12%, and 11% of accounts receivable. As of June 29, 2014, four customers accounted for approximately 15%, 13%, 12%, and 12% of accounts receivable. No other customers accounted for more than 10% of accounts receivable.

Note 10: Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market. System shipments to Japanese customers, for which title does not transfer until customer acceptance, are classified as finished goods inventory and carried at cost until title transfers. Inventories consist of the following:


	June 28, 2015		June 29, 2014
	(in thousands)
Raw materials	$	566,645	$	449,623
Work-in-process		141,264		126,564
Finished goods		235,437		164,316

	$	943,346	$	740,503

Note 11: Property and Equipment

Property and equipment, net, consist of the following:


	June 28, 2015			June 29, 2014
	(in thousands)
Manufacturing, engineering and office equipment	$	717,788		$	612,688
Computer equipment and software		137,623			131,184
Land		53,391			52,784
Buildings		238,631			199,544
Leasehold improvements		81,899			80,569
Furniture and fixtures		21,629			20,026

		1,250,961			1,096,795
Less: accumulated depreciation and amortization		(629,543	)		(553,299	)


	$	621,418		$	543,496

Depreciation expense, including amortization of capital leases, during fiscal years 2015, 2014, and 2013, was $120.3 million, $129.1 million, and $126.5 million, respectively. During the fiscal year 2015, the Company invested $12.7 million to purchase a commercial building in Fremont, California.

During the fiscal year 2014, the Company recorded an $83.1 million gain on sale of real estate in the Consolidated Statement of Operations in fiscal year 2014. No significant gains on sale were realized in fiscal year 2015 or 2013.

Note 12: Goodwill and Intangible Assets

Goodwill

The balance of Goodwill decreased to $1.4 billion as of June 28, 2015, as compared to, $1.5 billion as of June 29, 2014. The primarily cause of the decrease was recognition of a $79.4 million impairment on the Company’s single-wafer clean reporting unit during the quarter ended June 28, 2015. Uncertainty surrounding future revenue growth in certain products resulted in the estimated discounted cash flows falling below the carrying value of the goodwill balance. Following fiscal year 2015’s impairment, there is no remaining balance of the Company’s goodwill attributable to the single-wafer clean systems reporting unit.

Of the $1.4 billion goodwill balance, $61.1 million is tax deductible and the remaining balance is not tax deductible due to purchase accounting and applicable foreign law.

Intangible Assets

The following table provides the Company’s intangible assets, other than goodwill, as of June 28, 2015:


	Gross		Accumulated Amortization			Net
			(in thousands)
Customer relationships	$	615,490	$	(234,968	)	$	380,522
Existing technology		643,919		(313,071	)		330,848
Patents		33,553		(26,431	)		7,122
Other intangible assets		35,914		(35,366	)		548

Intangible assets subject to amortization		1,328,876		(609,836	)		719,040
Development rights		9,100					9,100

Intangible assets not subject to amortization		9,100					9,100

Total intangible assets	$	1,337,976	$	(609,836	)	$	728,140

The following table provides details of the Company’s intangible assets, other than goodwill, as of June 29, 2014:


	Gross		Accumulated Amortization			Net
			(in thousands)
Customer relationships	$	615,618	$	(169,162	)	$	446,456
Existing technology		643,922		(224,246	)		419,676
Patents		32,253		(24,407	)		7,846
Other intangible assets		35,270		(35,270	)		—

Intangible assets subject to amortization		1,327,063		(453,085	)		873,978
In process research and development		11,000					11,000
Development rights		9,100					9,100

Intangible assets not subject to amortization		20,100					20,100

Total intangible assets	$	1,347,163	$	(453,085	)	$	894,078

The Company recognized $157.7 million, $163.2 million, and $177.6 million in intangible asset amortization expense during fiscal years 2015, 2014, and 2013, respectively. The Company recognized a $9.8 million impairment of existing technology during the fiscal year 2015, resulting from current market demand for the technology. 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 28, 2015 was as follows:


Fiscal Year	Amount
	(in thousands)
2016	$	156,074
2017		154,122
2018		152,918
2019		114,846
2020		49,700
Thereafter		91,380

	$	719,040

Note 13: Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


	June 28, 2015		June 29, 2014
	(in thousands)
Accrued compensation	$	314,516	$	311,054
Warranty reserves		93,209		68,324
Income and other taxes payable		39,275		93,934
Dividend payable		47,659		29,240
Other		154,779		101,744

	$	649,438	$	604,296

Note 14: Long Term Debt and Other Borrowings

Convertible Senior Notes

In May 2011, the Company issued and sold $450 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 million in aggregate principal amount of 1.25% Convertible Senior Notes due May 2018 (the “2018 Notes”) at par. The Company pays cash interest at an annual rate of 0.5% and 1.25%, respectively, on the 2016 Notes and the 2018 Notes, on a semi-annual basis on May 15 and November 15 of each year.

In June 2012, with the acquisition of Novellus, the Company assumed $700 million in aggregate principal amount of 2.625% Convertible Senior Notes due May 2041 (the “2041 Notes,” collectively with the 2016 Notes and the 2018 Notes, the “Convertible Notes”). The Company pays cash interest at an annual rate of 2.625%, on a semi-annual basis on May 15 and November 15 of each year on the 2041 Notes. The 2041 Notes also have a contingent interest payment provision that may require the Company to pay additional interest, up to 0.60% per year, based on certain thresholds, beginning with the semi-annual interest payment on May 15, 2021, and upon the occurrence of certain events, as outlined in the indenture governing the 2041 Notes.

The Company separately accounts for the liability and equity components of the Convertible Notes. The initial liability components of the Convertible Notes were valued based on the present value of the future cash flows using the Company’s borrowing rate at the date of the issuance or assumption for similar debt instruments without the conversion feature, which equals the effective interest rate on the liability component disclosed in the following

table, respectively. The equity component was initially valued equal to the principle value of the notes, less the present value of the future cash flows using the Company’s borrowing rate at the date of the issuance or assumption for similar debt instruments without a conversion feature, which equated to the initial debt discount.

Under certain circumstances, the Convertible Notes may be converted into shares of the Company’s Common Stock. The number of shares each debenture is convertible into is based on conversion rates, disclosed in the following table. The conversion rates are adjusted for certain corporate events, including dividends on the Company’s Common Stock. At June 28, 2015, the market value of the Company’s Common Stock was greater than 130% of the Convertible Notes conversion prices for 20 or more of the 30 consecutive trading days preceding the quarter end. As a result, the Convertible Notes are convertible at the option of the bondholder. The carrying amount of the Convertible Notes was classified in current liabilities and a portion of the equity component, representing the unamortized debt discount, was classified in temporary equity on the Company’s Consolidated Balance Sheets. Upon closure of the conversion period, the 2018 and 2041 Notes not converted will be reclassified back into noncurrent liabilities, the 2016 Notes will remain in current liabilities due to its scheduled maturity, and the temporary equity will be reclassified into permanent equity. At June 29, 2014 the 2041 Notes were convertible at the option of the bondholder.

As of June 28, 2015 and June 29, 2014, the Convertible Notes consisted of the following:


	June 28, 2015						June 29, 2014
	2016 Notes		2018 Notes		2041 Notes		2016 Notes		2018 Notes		2041 Notes
	(in thousands, except years, percentages, conversion rate, and conversion price)
Carrying value, long-term	$	—	$	—	$	—	$	419,561	$	387,338	$	—
Carrying value, current portion		435,493		402,320		520,313		—		—		516,586
Unamortized discount		14,507		47,680		179,622		30,439		62,662		183,349

Principal amount	$	450,000	$	450,000	$	699,935	$	450,000	$	450,000	$	699,935

Carrying amount of permanent equity component, net of tax	$	61,723	$	57,215	$	148,487	$	76,230	$	104,895	$	144,760
Carrying amount of temporary equity component, net of tax	$	14,507	$	47,679	$	179,622	$	—	$	—	$	183,349
Remaining amortization period (years)		0.9		2.9		25.9
Effective interest rate on liability component		4.29%		5.27%		4.28%
Fair Value of Notes (Level 2)	$	604,004	$	643,500	$	1,679,844
Conversion rate (shares of common stock per $1,000 principal amount of notes)		16.0806		16.0806		28.8585
Conversion price (per share of common stock)	$	62.19	$	62.19	$	34.65
If-converted value in excess of par value	$	149,598	$	149,598	$	973,758

Convertible Note Hedges and Warrants

Concurrent with the issuance of the 2016 Notes and 2018 Notes, the Company purchased a convertible note hedge and sold warrants. At expiration, the Company may, at its option, elect to settle the warrants on a net share basis. As of June 28, 2015, the warrants had not been exercised and remained outstanding. The exercise price is adjusted for certain corporate events, including dividends on the Company’s Common Stock.

In conjunction with the convertible note hedge, counterparties agreed to sell to the Company shares of Common Stock equal to the number of shares issuable upon conversion of the 2016 Notes and 2018 Notes in full. The

convertible note hedge transactions will be settled in net shares and will terminate upon the earlier of the maturity date or the first day none of the respective notes remain 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 and 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 2016 Notes and 2018 Notes. The exercise price is adjusted for certain corporate events, including dividends on the Company’s Common Stock.

The following table presents the details of the warrants and convertible note hedge arrangements as of June 28, 2015:


	2016 Notes	2018 Notes
	(shares in thousands)
Warrants:
Number of shares to be delivered upon exercise	7,236	7,236
Exercise price	$70.40	$75.10
Expiration date range	August 15 - October 21, 2016	August 15 - October 23, 2018
Convertible Note Hedge:
Number of shares available from counterparties	7,236	7,236
Exercise price	$62.19	$62.19

Senior Notes

On March 12, 2015, the Company completed a public offering of $500 million aggregate principal amount of the Company’s Senior Notes due March 2020 (the “2020 Notes”) and $500 million aggregate principal amount of the Company’s Senior Notes due March 2025 (the “2025 Notes”, together with the 2020 Notes, the “Senior Notes”). The Company will pay interest at an annual rate of 2.75% and 3.80%, respectively, on the 2020 Notes and 2025 Notes, on a semi-annual basis on March 15 and September 15 of each year, beginning September 15, 2015.

The Company may redeem the Senior Notes at a redemption price equal to 100% of the principal amount of such series (“par”), plus a “make whole” premium as described in the indenture in respect of the Senior Notes and accrued and unpaid interest before February 15, 2020, for the 2020 Notes and before December 15, 2024, for the 2025 Notes. The Company may redeem the Senior Notes at par, plus accrued and unpaid interest at any time on or after February 15, 2020 for the 2020 Notes and on or after December 24, 2024 for the 2025 Notes. In addition, upon the occurrence of certain events, as described in the indenture, the Company will be required to make an offer to repurchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest.

As of June 28, 2015 the Senior Notes consisted of the following:


	June 28, 2015
	2020 Notes		2025 Notes
	(in thousands, except years)
Carrying value, long-term	$	497,053	$	496,907
Unamortized discount		2,947		3,093

Principal amount	$	500,000	$	500,000

Remaining amortization period (years)		4.7		9.7
Fair Value of Notes (Level 2)	$	497,805	$	492,945

Interest Cost

The following table presents the amount of interest cost recognized relating to both the contractual interest coupon and amortization of the debt discount, issuance costs, and effective portion of interest rate contracts with respect to the Senior Notes and the Convertible Notes during the twelve months ended June 29, 2015, June 28, 2014, and June 30, 2013.


	Twelve Months Ended
	June 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
Contractual interest coupon	$	36,074	$	26,248	$	26,248
Amortization of interest discount		34,886		33,065		31,560
Amortization of issuance costs		2,435		2,362		2,362
Amortization of interest rate contract		113		—		—

Total interest cost recognized	$	73,508	$	61,675	$	60,170

Revolving Credit Facility

On March 12, 2014, the Company entered into a $300 million revolving unsecured credit facility with a syndicate of lenders. The facility 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 as 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 total consolidated indebtedness to consolidated 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 28, 2015, the Company had no borrowings outstanding under the credit facility and was in compliance with all financial covenants.

Contractual Obligations

The Company’s contractual cash obligations relating to its Convertible Notes and other long-term debt as of June 28, 2015 were as follows:


	Long-term Debt
	(in thousands)
Payments due by period:
2016*	$	1,599,935
2017		—
2018		—
2019		—
2020		500,000
Thereafter		500,000

Total		2,599,935
Current portion of long-term debt		1,599,935

Long-term debt	$	1,000,000

*	As noted above, the conversion periods for the Convertible Notes are open as of June 28, 2015. As there is the potential for conversion at the option of the holder, the principal balance of the 2018 and 2041 Notes have been included in the one year payment period. As of August 6, 2015, none of the Convertible Notes have been converted during fiscal year 2015 or 2014.

Note 15: Retirement and Deferred Compensation Plans

Employee Savings and Retirement Plan

The Company maintains a 401(k) retirement savings plan for its eligible 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 $11.8 million, $10.2 million, and $8.7 million, in fiscal years 2015, 2014, and 2013, 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 various mutual 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 28, 2015 and June 29, 2014 the liability of the Company to the plan participants was $113.4 million and $93.8 million, respectively, which was recorded in accrued expenses and other current liabilities on the Consolidated Balance Sheets. As of June 28, 2015 and June 29, 2014 the Company had investments in the aggregate amount of $138.9 million and $116.7 million, respectively, which 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 $30.2 million and $29.0 million as of June 28, 2015 and June 29, 2014, respectively.

Note 16: 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 $202.9 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 7 of the 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 28, 2015 were as follows:


	Capital Leases
	(in thousands)
Payments due by period:
2016	$	1,630
2017		7,223
2018		77
2019		77
2020		70

Total		9,077
Interest on capital leases		131

Current portion of capital leases		1,524

Long-term portion of capital leases	$	7,422

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 2015, 2014, and 2013 was approximately $15 million, $12 million, and $14 million, respectively.

The Company has operating leases regarding certain improved properties in Fremont and Livermore, California (the “Operating Leases”). The Company is required to maintain cash collateral in an aggregate of approximately $132.5 million in separate interest-bearing accounts, and marketable securities collateral in an aggregate of approximately $32.9 million, as security for the Company’s obligations. These amounts are recorded with other restricted cash and investments in the Company’s Consolidated Balance Sheet as of June 28, 2015.

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 $219.0 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 $249.9 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 28, 2015 were as follows:


	Operating Leases
	(in thousands)
Payments due by period:
2016	$	17,593
2017		14,004
2018		6,544
2019		5,223
2020		4,847
thereafter		10,811
Less: Sublease Income		(478	)

Total	$	58,544

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 insurance contracts that are intended to limit its exposure to such indemnifications. As of June 28, 2015, the Company had not recorded any liability on its Consolidated Financial Statements in connection with these indemnifications, as it does not believe 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 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 28, 2015, the maximum potential amount of future payments that the Company could be required to make under these arrangements and letters of credit was $15.5 million. The Company does 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 non-cancelable significant contractual obligations either on an annual basis or over multi-year periods. The contractual cash obligations and commitments table presented below contains the Company’s minimum obligations at June 28, 2015 under these arrangements and others. For obligations with 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 28, 2015 were as follows:


	Purchase Obligations
	(in thousands)
Payments due by period:
2016	$	189,955
2017		980
2018		980
2019		970
2020		970

Total	$	193,855

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:


	Year Ended
	June 28, 2015			June 29, 2014
	(in thousands)
Balance at beginning of period	$	69,385		$	58,078
Warranties issued during the period		119,119			87,922
Settlements made during the period		(100,196	)		(80,280	)
Changes in liability for pre-existing warranties		4,901			3,665

Balance at end of period	$	93,209		$	69,385

Legal Proceedings

While the Company is not currently a party to any legal proceedings that it believes material, the Company is either a defendant or plaintiff in various actions that have arisen from time to time in the normal course of business, including intellectual property claims. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. 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.

Note 17: Stock Repurchase Program

On April 29, 2014, the Board of Directors authorized the repurchase of up to $850 million of Common Stock. 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 are 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 29, 2014							$	830,895
Quarter ended September 28, 2014		3,818	$	296,721	$	70.01	$	534,174
Quarter ended December 28, 2014		869	$	45,694	$	77.31	$	488,480
Quarter ended March 29, 2015		1,434	$	112,477	$	78.45	$	376,003
Quarter ended June 28, 2015		754	$	59,416	$	78.80	$	316,587

*	Average price paid per share excludes accelerated share repurchases for which cost was incurred during the September 2014 quarter, but that did not settle until the December 2014 quarter. See the section below for discussion regarding average price associated with the transaction.

In addition to shares repurchased under the Board-authorized repurchase program shown above, the Company acquired 761,883 shares at a total cost of $58.8 million, during the twelve months ended June 28, 2015, which the Company withheld through net share settlements to cover minimum tax withholding obligations upon the vesting of restricted stock unit awards granted under the Company’s equity compensation plans. The shares retained by the Company through these net share settlements are not a part of the Board-authorized repurchase program but instead are authorized under the Company’s equity compensation 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.

During the three months ended September 28, 2014, the Company entered into a collared accelerated share repurchase (“ASR”) transaction under a master repurchase arrangement. Under the ASR, the Company made an up-front cash payment of $250 million, in exchange for an initial delivery of approximately 3.2 million shares of its Common Stock.

The number of shares to ultimately be repurchased by the Company was 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 provided 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. The ASR was scheduled to end at any time on or after October 8, 2014 and on or before December 8, 2014.

The counterparty designated October 9, 2014 as the termination date, at which time the Company settled the ASR. Approximately 0.3 million shares were received at final settlement, which represented a weighted-average share price of approximately $72.90 for the transaction period.

Note 18: 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			Accumulated unrealized holding gain (loss) on available-for-sale investments			Accumulated unrealized components of defined benefit plans			Total
	(in thousands)
Balance as of June 29, 2014	$	(12,986	)	$	(66	)	$	1,557		$	(17,160	)	$	(28,655	)
Other comprehensive income (loss) before reclassifications		(18,438	)		1,595			(5,389	)		1,109			(21,123	)
(Gains) losses reclassified from accumulated other comprehensive income (loss) to net income		(3,701	)		(4,388	)(1)		71	(2)		—			(8,018	)

Net current-period other comprehensive income (loss)	$	(22,139	)	$	(2,793	)	$	(5,318	)	$	1,109		$	(29,141	)

Balance as of June 28, 2015	$	(35,125	)	$	(2,859	)	$	(3,761	)	$	(16,051	)	$	(57,796	)

(1)	Amount of after tax gain reclassified from accumulated other comprehensive income into net income located in revenue: $10,136 gain, cost of goods sold: $3,704 loss, selling, general and administrative expenses: $1,974 loss, and other income and expense: $70 Loss

(2)	Amount of after tax gain reclassified from accumulated other comprehensive income into net income located in other expense, net

Tax related to the components of other comprehensive income during the period were as follows:


	Year Ended
	June 28, 2015			June 29, 2014			June 30, 2013
	(in thousands)
Tax benefit (expense) on change in unrealized gains/losses on cash flow hedges:
Tax benefit (expense) on unrealized gains/losses arising during the period	$	1,885		$	(1,065	)	$	(1,312	)
Tax (benefit) expense on gains/losses reclassified to earnings		(92	)		1,615			818

		1,793			550			(494	)

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		1,796			(735	)		1,428
Tax (benefit) expense on gains/losses reclassified to earnings		31			493			(2,026	)

		1,827			(242	)		(598	)

Tax benefit (expense) on change in unrealized components of defined benefit plans		(871	)		1,895			586

Tax benefit (expense) on other comprehensive income(loss)	$	2,749		$	2,203		$	(506	)

Note 19: 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:


	Year Ended
	June 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
Revenue:
Korea	$	1,406,617	$	1,127,406	$	603,821
Taiwan		1,084,239		1,049,214		1,026,548
United States		890,891		622,022		734,324
China		661,094		623,408		319,282
Japan		623,575		634,131		368,095
Europe		314,546		303,730		292,432
Southeast Asia		278,350		247,398		254,414

Total revenue	$	5,259,312	$	4,607,309	$	3,598,916


	June 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
Long-lived assets:
United States	$	505,814	$	429,548	$	484,273
Europe		86,779		89,221		109,934
Korea		18,230		18,776		991
Taiwan		8,908		4,259		2,953
China		960		846		2,291
Japan		378		454		680
Southeast Asia		349		392		2,788

	$	621,418	$	543,496	$	603,910

In fiscal year 2015, three customers accounted for approximately 28%, 12%, and 11% of total revenues. 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. No other customers accounted for more than 10% of total revenues.

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 28, 2015 and June 29, 2014, 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 28, 2015. 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 28, 2015 and June 29, 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 28, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

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 28, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 13, 2015 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

August 13, 2015

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Lam Research Corporation

We have audited Lam Research Corporation’s internal control over financial reporting as of June 28, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Lam Research Corporation’s 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 Management’s Report on Internal Control Over Financial Reporting. 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 28, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2015 Consolidated Financial Statements of Lam Research Corporation and our report dated August 13, 2015 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

August 13, 2015

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