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LAM RESEARCH CORPORATION

(LRCX)
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LAM RESEARCH CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/26/2021 | 04:09pm EST
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements, which are subject to the safe harbor
provisions created by the Private Securities Litigation Reform Act of 1995.
Certain, but not all, of the forward-looking statements in this report are
specifically identified as forward-looking, by use of phrases and words such as
"believe," "estimated," "anticipate," "expect," "probable," "intend," "plan,"
"aim," "may," "should," "could," "would," "will," "continue," and other
future-oriented terms. The identification of certain statements as
"forward-looking" does not mean that other statements not specifically
identified are not forward-looking. Forward-looking statements include but are
not limited to statements that relate to: trends and opportunities in the global
economic environment; trends and opportunities in the semiconductor industry,
including in the end markets and applications for semiconductors, and in device
complexity; growth or decline in the industry and the market for, and spending
on, wafer fabrication equipment; the anticipated levels of, and rates of change
in, margins, market share, served addressable market, capital expenditures,
research and development expenditures, international sales, revenue (actual
and/or deferred), operating expenses and earnings generally; management's plans
and objectives for our current and future operations and business focus;
volatility in our quarterly results; the makeup of our customer base; customer
and end user requirements and our ability to satisfy those requirements;
customer spending and demand for our products and services, and the reliability
of indicators of change in customer spending and demand; the effect of
variability in our customers' business plans or demand for our products and
services; our competition, and our ability to defend our market share and to
gain new market share; the success of joint development and collaboration
relationships with customers, suppliers, or others; outsourced activities; our
supply chain and the role of suppliers in our business, including the impacts of
supply chain constraints and material costs; our leadership and competency, and
our ability to facilitate innovation; our research and development programs; our
ability to create sustainable differentiation; technology inflections in the
industry and our ability to identify those inflections and to invest in research
and development programs to meet them; our ability to deliver multi-product
solutions; the resources invested to comply with evolving standards and the
impact of such efforts; changes in state, federal and international tax laws,
our estimated annual tax rate and the factors that affect our tax rates; legal
and regulatory compliance; the estimates we make, and the accruals we record, in
order to implement our critical accounting policies (including but not limited
to the adequacy of prior tax payments, future tax benefits or liabilities, and
the adequacy of our accruals relating to them); hedging transactions; debt or
financing arrangements; our investment portfolio; our access to capital markets;
uses of, payments of, and impact of interest rate fluctuations on, our debt; our
intention to pay quarterly dividends and the amounts thereof, if any; our
ability and intention to repurchase our shares; credit risks; controls and
procedures; recognition or amortization of expenses; our ability to manage and
grow our cash position; our strategic relevance with our customers; our ability
to scale our operations to respond to changes in our business; the value of our
patents; the materiality of potential losses arising from legal proceedings; the
probability of making payments under our guarantees; the impact of the COVID-19
pandemic; and the sufficiency of our financial resources or liquidity to support
future business activities (including but not limited to operations,
investments, debt service requirements, dividends, and capital expenditures).
Such statements are based on current expectations and are subject to risks,
uncertainties, and changes in condition, significance, value, and effect,
including without limitation those discussed below under the heading "Risk
Factors" within Part II Item 1A and elsewhere in this report and other documents
we file from time to time with the Securities and Exchange Commission ("SEC"),
such as our annual report on Form 10-K for the year ended June 27, 2021 (our
"2021 Form 10-K"), and our current reports on Form 8-K. Such risks,
uncertainties, and changes in condition, significance, value, and effect could
cause our actual results to differ materially from those expressed in this
report and in ways not readily foreseeable. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof and are based on information currently and reasonably known to us.
We do not undertake any obligation to release the results of any revisions to
these forward-looking statements, which may be made to reflect events or
circumstances that occur after the date of this report or to reflect the
occurrence or effect of anticipated or unanticipated events.
In November 2020, the U.S. Securities and Exchange Commission (the "SEC")
adopted the final rule under SEC Release No. 33-10890, Management's Discussion
and Analysis, Selected Financial Data, and Supplementary Financial Information,
which modernizes and simplifies certain disclosure requirements of Regulation
S-K. The final rule became effective on February 10, 2021 and must be applied in
a registrant's first fiscal year ending on or after August 9, 2021. Under the
amendments to Item 303 of Regulation S-K contained in SEC Release No. 33-10890,
we have the option, in discussing any material changes in our results of
operations for the most recently completed quarter, of using as the basis for
comparison either the corresponding quarter for the preceding fiscal year or, in
the alternative, the immediately preceding sequential quarter. We have elected
the latter alternative, as management believes that comparing current quarter
results to those of the immediately preceding quarter is more useful in
identifying current business trends and provides a more meaningful comparison.
Additionally, in the first filing after the change in the basis of comparison,
we are required to disclose a comparison of the results for the current quarter
and the corresponding quarter of the preceding fiscal year. Accordingly, we have
compared the results for the three months
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ended September 26, 2021 with the results for the three months ended June 27,
2021, and September 27, 2020, where applicable, throughout this Management's
Discussion and Analysis.
Documents To Review In Connection With Management's Discussion and Analysis Of
Financial Condition and Results Of Operations
For a full understanding of our financial position and results of operations for
the three months ended September 26, 2021, and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations below,
you should also read the Condensed Consolidated Financial Statements and notes
presented in this Form 10-Q and the financial statements and notes in our 2021
Form 10-K.
EXECUTIVE SUMMARY
Lam Research Corporation is a global supplier of innovative wafer fabrication
equipment and services to the semiconductor industry. We have built a strong
global presence with core competencies in areas like nanoscale applications
enablement, chemistry, plasma and fluidics, advanced systems engineering and a
broad range of operational disciplines. Our products and services are designed
to help our customers build smaller and better performing devices that are used
in a variety of electronic products, including mobile phones, personal
computers, servers, wearables, automotive vehicles, and data storage devices.
Our customer base includes leading semiconductor memory, foundry, and integrated
device manufacturers that make products such as non-volatile memory, dynamic
random-access memory, and logic devices. Their continued success is part of our
commitment to driving semiconductor breakthroughs that define the next
generation. Our core technical competency is integrating hardware, process,
materials, software, and process control, enabling results on the wafer.
Semiconductor manufacturing, our customers' business, involves the complete
fabrication of multiple dies or integrated circuits on a wafer. This involves
the repetition of a set of core processes and can require hundreds of individual
steps. Fabricating these devices requires highly sophisticated process
technologies to integrate an increasing array of new materials with precise
control at the atomic scale. Along with meeting technical requirements, wafer
processing equipment must deliver high productivity and be cost-effective.
Demand from cloud computing, the Internet of Things, and other markets is
driving the need for increasingly powerful and cost-efficient semiconductors. At
the same time, there are growing technical challenges with traditional
two-dimensional scaling. These trends are driving significant inflections in
semiconductor manufacturing, such as the increasing importance of vertical
scaling strategies like three-dimensional architecture as well as multiple
patterning to enable shrinks.
We believe we are in a strong position with our leadership and competency in
deposition, etch, and clean to facilitate some of the most significant
innovations in semiconductor device manufacturing. Our Customer Support Business
Group provides products and services to maximize installed equipment
performance, predictability, and operational efficiency. Several factors create
opportunity for sustainable differentiation for us: (i) our focus on research
and development, with several on-going programs relating to sustaining
engineering, product and process development, and concept and feasibility; (ii)
our ability to effectively leverage cycles of learning from our broad installed
base; (iii) our collaborative focus with semi-ecosystem partners; and (iv) our
ability to identify and invest in the breadth of our product portfolio to meet
technology inflections; and (v) our focus on delivering our multi-product
solutions with a goal to enhance the value of Lam's solutions to our customers.
In calendar year 2021, there continues to be higher investment in wafer
fabrication equipment spending driven by increasing device manufacturing
complexity and the robust secular demand for semiconductors in a number of
markets including artificial intelligence, 5G networks, high-performance
computing, and Internet of Things. During the quarter-ended September 26, 2021,
customer demand remained strong, and we continued to increase our production
output levels with capacity additions and improvements in our operations.
However, we have experienced, and expect continued near-term, supply chain
constraints and increased materials, freight and logistics costs. Risks and
uncertainties related to the COVID-19 pandemic remain, which may continue to
negatively impact our revenue and gross margin. Over the longer term, we believe
that secular demand for semiconductors will continue to drive sustainable growth
for our products and services, and that technology inflections in our industry,
including 3D device scaling, multiple patterning, process flow, and advanced
packaging chip integration, will lead to an increase in the served addressable
market for our products and services in the deposition, etch, and clean
businesses.
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The following table summarizes certain key financial information for the periods
indicated below:
                                                                     Three Months Ended
                                                  September 26,              June 27,           September 27,
                                                      2021                     2021                 2020
                                                   (in thousands, except per share data and percentages)
Revenue                                       $       4,304,465           $ 4,145,179          $  3,177,080
Gross margin                                  $       1,976,754           $ 1,915,201          $  1,506,179
Gross margin as a percent of total revenue                 45.9   %              46.2  %               47.4  %
Total operating expenses                      $         604,521           $   599,274          $    545,115
Net income                                    $       1,179,744           $ 1,144,657          $    823,451
Diluted net income per share                  $            8.27           $ 

7.98 $ 5.59



In the September 2021 quarter, revenue increased 4% compared to the June 2021
quarter, driven primarily by an increase in systems revenue, reflective of a
strong wafer fabrication equipment environment. The decrease in gross margin as
a percentage of revenue in the September 2021 quarter compared to the June 2021
quarter was primarily driven by higher levels of manufacturing-related spending
as well as unfavorable changes in customer and product mix, partially offset by
decreases in deferred compensation plan-related costs. The increase in operating
expenses in the September 2021 quarter compared to the June 2021 quarter was
mainly driven by increases in spending for supplies and outside services,
partially offset by decreases in deferred compensation plan-related costs.
Our cash and cash equivalents, investments, and restricted cash and investments
balances decreased to $4.9 billion at the end of the September 2021 quarter
compared to $6.0 billion at the end of the June 2021 quarter. This decrease was
primarily the result of $1.2 billion of share repurchases, including net share
settlement on employee stock-based compensation; $185.4 million of dividends
paid to stockholders; and $136.4 million of capital expenditures, partially
offset by $457.5 million of cash generated from operating activities. Employee
headcount as of September 26, 2021 was approximately 15,400.
RESULTS OF OPERATIONS
Revenue
                                       Three Months Ended
                         September 26,      June 27,      September 27,
                             2021             2021            2020
Revenue (in millions)   $      4,304       $ 4,145       $      3,177
China                             37  %         37  %              37  %
Korea                             21  %         30  %              24  %
Taiwan                            15  %         13  %              14  %
Japan                             11  %          9  %              12  %
Southeast Asia                     8  %          3  %               7  %
United States                      6  %          5  %               4  %
Europe                             2  %          3  %               2  %

Revenue for the September 2021 quarter increased 4% from the June 2021 quarter, reflecting increased customer spending on capital equipment. The following table presents our revenue disaggregated between system and customer support-related revenue:

                                                                                Three Months Ended
                                                            September 26,            June 27,            September 27,
                                                                2021                   2021                  2020
                                                                                  (In thousands)
System revenue                                            $    2,924,883          $ 2,763,877          $    2,148,241
Customer support-related revenue and other                     1,379,582            1,381,302               1,028,839
                                                          $    4,304,465          $ 4,145,179          $    3,177,080


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Please refer to Note 3, "Revenue," to the Condensed Consolidated Financial
Statements of this Form 10-Q for additional information regarding the
composition of the two categories into which revenue has been disaggregated.
The following table presents the percentages of leading- and non-leading-edge
equipment and upgrade revenue to each of the primary markets we serve:
                                                                                      Three Months Ended
                                                              September 26,             June 27,                September 27,
                                                                  2021                    2021                       2020
Memory                                                                  64  %                   59  %                        58  %
Foundry                                                                 25  %                   35  %                        36  %
Logic/integrated device manufacturing                                   11  %                    6  %                         6  %


Gross Margin
                                      Three Months Ended
                      September 26,        June 27,        September 27,
                          2021               2021              2020
                              (in thousands, except percentages)
Gross margin         $  1,976,754       $ 1,915,201       $  1,506,179
Percent of revenue           45.9  %           46.2  %            47.4  %


Gross margin as a percentage of revenue was lower in the September 2021 quarter
compared to the June 2021 quarter primarily as a result of higher levels of
manufacturing-related spending as well as unfavorable changes in customer and
product mix, partially offset by decreases in deferred compensation plan-related
costs.
The decrease in gross margin as a percentage of revenue in the September 2021
quarter compared to the same period in the prior year was primarily driven by
increased manufacturing-related spending as a result of COVID-19 disruptions and
by unfavorable changes in customer and product mix.
Research and Development
                                                  Three Months Ended
                                  September 26,        June 27,       September 27,
                                       2021              2021              2020
                                          (in thousands, except percentages)

Research & development ("R&D") $ 382,327 $ 381,749 $ 355,367 Percent of revenue

                         8.9  %          9.2  %             11.2  %


We continued to make significant R&D investments in the September 2021 quarter
focused on leading-edge deposition, etch, clean and other semiconductor
manufacturing processes. The increase in R&D expense in the September 2021
quarter compared to the June 2021 quarter was primarily driven by an increase in
spending for supplies, mostly offset by decreases in employee-related expenses
and deferred compensation plan-related costs.
The increase in R&D expense in the September 2021 quarter compared to the same
period in the prior year was primarily driven by an increase of $28 million in
employee-related expenses as a result of increased headcount, slightly offset by
decreases in deferred compensation plan-related costs.
Selling, General, and Administrative
                                                                                   Three Months Ended
                                                                September 26,           June 27,          September 27,
                                                                     2021                 2021                 2020
                                                                           (in thousands, except percentages)
Selling, general, and administrative ("SG&A")                  $     222,194          $ 217,525          $     189,748
Percent of revenue                                                       5.2  %             5.2  %                 6.0  %


SG&A expense during the September 2021 quarter increased in comparison to the
June 2021 quarter, primarily driven by an increase in spending for outside
services, partially offset by a decrease in deferred compensation plan-related
costs.
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SG&A expense during the September 2021 quarter increased compared to the same
period in the prior year, primarily driven by an increase of $13 million in
employee-related expenses from increased headcount and $19 million in spending
for outside services.
Other Expense, Net
Other expense, net consisted of the following:
                                                                                 Three Months Ended
                                                               September 26,          June 27,           September 27,
                                                                   2021                 2021                 2020
                                                                                   (in thousands)
Interest income                                              $        4,678          $  3,723          $        6,959
Interest expense                                                    (45,056)          (51,695)                (52,115)
Gains on deferred compensation plan-related assets, net               7,437            17,184                  12,927

Foreign exchange losses, net                                            (17)           (2,365)                 (1,375)
Other, net                                                            4,101            25,987                  (5,188)
                                                             $      (28,857)         $ (7,166)         $      (38,792)


Interest income increased in the September 2021 quarter compared to the June
2021 quarter as a result of realized investment gains. The decrease in interest
income in the September 2021 quarter compared to the same period in the prior
year was as a result of lower interest rates and lower cash balances.
Interest expense decreased in the September 2021 quarter compared to the June
2021 and September 2020 quarters due to the payoff of the 2021 Senior Notes.
The gains on deferred compensation plan-related assets in the September 2021,
June 2021, and September 2020 quarters were driven by fluctuation in the fair
market value of the underlying funds.
Foreign exchange fluctuations were primarily due to currency movements against
portions of our unhedged balance sheet exposures.
The gains in other, net for the September 2021 and June 2021 quarters compared
to losses in the September 2020 quarter were primarily driven by improvements in
the fair market value of private equity investments; the June 2021 quarter
included an individually significant gain on one such equity investment.
Income Tax Expense
Our provision for income taxes and effective tax rate for the periods indicated
were as follows:
                                      Three Months Ended
                      September 26,        June 27,       September 27,
                           2021              2021              2020
                              (in thousands, except percentages)
Income tax expense   $     163,632       $ 164,104       $      98,821
Effective tax rate            12.2  %         12.5  %             10.7  %


The effective tax rate for the September 2021 quarter compared to the June 2021
quarter remained consistent.
The increase in the effective tax rate for the September 2021 quarter compared
to the same period in the prior year was primarily due to the change in level
and proportion of income in higher and lower tax jurisdictions.
We transferred our international sales operations from Switzerland to Malaysia,
effective from fiscal year 2022. Through fiscal year 2036, we expect to operate
under various tax incentives in Malaysia which provide exemptions on foreign
income earned and are contingent upon meeting certain conditions.
International revenues account for a significant portion of our total revenues,
such that a material portion of our pre-tax income is earned and taxed outside
the United States. International pre-tax income is taxable in the United States
at a lower effective tax rate than the federal statutory tax rate. Please refer
to Note 7, "Income Taxes," to our Consolidated Financial Statements in Part II,
Item 8 of our 2021 Form 10-K for additional information.
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We re-evaluate uncertain tax positions on a quarterly basis. This evaluation is
based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and
new audit activity. Any change in recognition or measurement would result in the
recognition of a tax benefit or an additional charge to the tax provision.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to our "Critical Accounting Policies and Estimates" included in Part II,
Item 7 of our 2021 Form 10-K for a discussion of our critical accounting
policies and estimates.
Recent Accounting Pronouncements
There are no new accounting pronouncements not yet adopted or effective that are
expected to have a material impact on our Condensed Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
Total gross cash, cash equivalents, investments, and restricted cash and
investments balances were $4.9 billion at September 26, 2021 compared to $6.0
billion as of June 27, 2021. This decrease was primarily driven by $1.2 billion
of share repurchases, including net share settlement on employee stock-based
compensation, $185.4 million in dividends paid, and $136.4 million of capital
expenditures, partially offset by $457.5 million of cash generated from
operating activities.
Cash Flow from Operating Activities
Net cash provided by operating activities of $457.5 million during the three
months ended September 26, 2021, consisted of (in thousands):
Net income                                            $ 1,179,744
Non-cash charges:
Depreciation and amortization                              79,874
Equity-based compensation expense                          58,099

Deferred income taxes                                     (13,023)

Changes in operating asset and liability accounts (838,480) Other

                                                      (8,690)
                                                      $   457,524


Significant changes in operating asset and liability accounts, net of foreign
exchange impact, included the following uses of cash: increases in accounts
receivable of $370.7 million, inventory of $198.4 million, and prepaid expense
and other assets of $55.3 million, along with decreases in accrued expenses and
other liabilities of $180.9 million and deferred profit of $35.9 million. The
uses of cash are offset by the following source of cash: increases in trade
accounts payable of $2.7 million.
Cash Flow from Investing Activities
Net cash provided by investing activities during the three months ended
September 26, 2021, was $596.7 million, primarily consisting of net proceeds
from sales of available-for-sale securities of $738.0 million, partially offset
by capital expenditures of $136.4 million.
Cash Flow from Financing Activities
Net cash used for financing activities during the three months ended
September 26, 2021, was $1.4 billion, primarily consisting of $1.2 billion in
treasury stock repurchases, including net share settlement on employee
stock-based compensation, $185.4 million in dividends paid, and $6.3 million of
cash paid for debt repayment.
Liquidity
Given that the semiconductor industry is highly competitive and has historically
experienced rapid changes in demand, we believe that maintaining sufficient
liquidity reserves is important to support sustaining levels of investment in
R&D and capital infrastructure. Anticipated cash flows from operations based on
our current business outlook, combined with our current levels of cash, cash
equivalents, and short-term investments as of September 26, 2021, are expected
to be sufficient to support our anticipated levels of operations, investments,
debt service requirements, capital expenditures, capital redistributions, and
dividends through at least the next twelve months. However, uncertainty in the
global economy and the semiconductor industry, as well as disruptions in credit
markets, have in the past, and could in the future, impact customer demand for
our products, as well as our ability to manage normal commercial relationships
with our customers, suppliers, and creditors.
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In the longer term, liquidity will depend to a great extent on our future
revenues and our ability to appropriately manage our costs based on demand for
our products and services. While we have substantial cash balances, we may
require additional funding and need or choose to raise the required funds
through borrowings or public or private sales of debt or equity securities. We
believe that, if necessary, we will be able to access the capital markets on
terms and in amounts adequate to meet our objectives. However, the ongoing
COVID-19 pandemic has in the past caused disruption in the capital markets and
were it to do the same in the future, that could make any financing more
challenging, and there can be no assurance that we will be able to obtain such
financing on commercially reasonable terms or at all.
ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk
For financial market risks related to changes in interest rates, marketable
equity security prices, and foreign currency exchange rates, refer to Part II,
Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in our
2021 Form 10-K. Other than as noted below, our exposure related to market risk
has not changed materially since June 27, 2021. All of the potential changes
noted below are based on sensitivity analysis performed on our financial
position as of September 26, 2021. Actual results may differ materially.
Fixed Income Securities
Our investments in various interest earning securities carry a degree of market
risk for changes in interest rates. At any time, a sharp rise in interest rates
could have a material adverse impact on the fair value of our fixed income
investment portfolio. Conversely, declines in interest rates could have a
material adverse impact on interest income for our investment portfolio. We
target to maintain a conservative investment policy, which focuses on the safety
and preservation of our capital by limiting default risk, market risk,
reinvestment risk, and concentration risk.
The following table presents the hypothetical fair values of fixed income
securities that would result from selected potential decreases and increases in
interest rates. Market changes reflect immediate hypothetical parallel shifts in
the yield curve of plus or minus 50 basis points ("BPS"), 100 BPS, and 150 BPS
with a minimum interest rate of zero BPS. The hypothetical fair values as of
September 26, 2021, were as follows:
                                                                                          Fair Value
                                             Valuation of Securities                         as of                        Valuation of Securities
                                              Given an Interest Rate                     September 26,                     Given an Interest Rate
                                            Decrease of X Basis Points                       2021                        Increase of X Basis Points
                                 (150 BPS)          (100 BPS)           (50 BPS)             0.00%              50 BPS            100 BPS            150 BPS
                                                                                        (in thousands)
U.S. Treasury and agencies      $   1,855          $   1,855          $   1,855          $    1,849          $   1,835          $   1,821          $   1,807

Foreign government bonds           15,169             15,169             15,169              15,133             15,079             15,025             14,971
Corporate notes and bonds         538,813            538,771            538,501             536,383            533,707            531,031            528,355

Mortgage backed securities -
commercial                         16,289             16,287             16,228              16,107             15,985             15,863             15,741
Total                           $ 572,126          $ 572,082          $ 571,753          $  569,472          $ 566,606          $ 563,740          $ 560,874


We mitigate default risk by investing in high credit quality securities and by
positioning our portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer or guarantor. The portfolio includes
only marketable securities with active secondary or resale markets to achieve
portfolio liquidity and maintain a prudent amount of diversification.
ITEM 4.  Controls and Procedures
Design of Disclosure Controls and Procedures and Internal Control over Financial
Reporting
We maintain disclosure controls and procedures and internal control over final
reporting that are designed to comply with Rule 13a-15 of the Exchange Act. In
designing and evaluating the controls and procedures associated with each,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and that the effectiveness of controls cannot be
absolute because the cost to design and implement a control to identify errors
or mitigate the risk of errors occurring should not outweigh the potential loss
caused by the errors that would likely be detected by the control. Moreover, we
believe that a control system cannot be guaranteed to be 100% effective all of
the time. Accordingly, a control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system's objectives will be met.
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Disclosure Controls and Procedures
As required by Exchange Act Rule 13a-15(b), as of September 26, 2021, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rule 13a-15(e). Based upon that
evaluation, our Chief Executive Officer, along with our Chief Financial Officer,
concluded that our disclosure controls and procedures are effective at the
reasonable assurance level.
We intend to review and evaluate the design and effectiveness of our disclosure
controls and procedures on an ongoing basis and to correct any material
deficiencies that we may discover. Our goal is to ensure that our senior
management has timely access to material information that could affect our
business.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during
our most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Effectiveness of Controls
While we believe the present design of our disclosure controls and procedures
and internal control over financial reporting is effective, future events
affecting our business may cause us to modify our disclosure controls and
procedures or internal control over financial reporting.

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