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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 31, 1997
Commission File No. 0-12933
LAM RESEARCH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2634797
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4650 CUSHING PARKWAY, FREMONT, CALIFORNIA 94538
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 659-0200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
As of December 31, 1997 there were 37,985,846 shares of Registrant's Common
Stock outstanding.
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INDEX
Page
No.
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PART I. FINANCIAL INFORMATION............................................... 3
Item 1. Financial Statements(unaudited)..................................... 3
Condensed Consolidated Balance Sheets............ 3
Condensed Consolidated Statements of Operations.. 4
Condensed Consolidated Statements of Cash Flows.. 5
Notes to Condensed Consolidated Financial
Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
Results of Operations............................ 11
Liquidity and Capital Resources.................. 13
Risk Factors..................................... 14
PART II. OTHER INFORMATION.................................................. 17
Item 1. Legal Proceedings.................................................. 17
Item 4. Results of Votes of Stockholders................................... 17
Item 6. Exhibits and Reports on Form 8-K................................... 18
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ITEM 1. FINANCIAL STATEMENTS
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
1997 June 30,
(unaudited) 1997
---------- ----------
Assets
Cash and cash equivalents $ 21,058 $ 140,872
Short-term investments 425,660 54,821
Accounts receivable, net 235,382 232,073
Inventories 258,104 261,738
Prepaid expenses and other assets 26,115 37,707
Deferred income taxes 75,509 75,935
---------- ----------
Total current assets 1,041,828 803,146
Equipment and leasehold improvements, net 193,059 196,992
Other assets 40,959 34,911
---------- ----------
Total assets $1,275,846 $1,035,049
========== ==========
Liabilities and Stockholders' Equity
Trade accounts payable $ 83,449 $ 117,163
Accrued expenses and other
current liabilities 174,553 167,685
Line of credit borrowings -- 35,000
Current portion of long-term debt and
capital lease obligations 18,584 21,127
---------- ----------
Total current liabilities 276,586 340,975
Long-term debt and capital lease
obligations, less current portion 346,314 46,592
Preferred stock: 5,000 shares authorized;
none outstanding
Common stock at par value of $.001 per share
Authorized -- 90,000 shares; issued and
outstanding 37,986 shares at December 31,
1997 and 37,334 shares at June 30, 1997 38 37
Additional paid-in capital 375,211 361,101
Retained earnings 277,697 286,344
---------- ----------
Total stockholders' equity 652,946 647,482
---------- ----------
$1,275,846 $1,035,049
========== ==========
- --------------------------------------------
See Notes to condensed consolidated financial statements.
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LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
------------------------- --------------------------
December 31, December 31,
------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales $ 291,291 $ 253,354 $ 580,683 $ 546,041
Royalty income 765 4,710 1,299 11,269
--------- --------- --------- ---------
Total revenue 292,056 258,064 581,982 557,310
Costs and expenses:
Cost of goods sold 178,960 161,185 355,900 336,731
Research and development 54,474 43,909 108,651 90,039
Selling, general and administrative 53,455 48,568 106,659 100,132
Merger costs -- -- 17,685 --
Restructuring charge -- -- -- 9,021
--------- --------- --------- ---------
Operating income (loss) 5,167 4,402 (6,913) 21,387
Other expense, net 466 184 1,264 309
--------- --------- --------- ---------
Income (loss) before taxes 4,701 4,218 (8,177) 21,078
Income taxes 1,176 941 470 6,053
--------- --------- --------- ---------
Net income (loss) $ 3,525 $ 3,277 $ (8,647) $ 15,025
========= ========= ========= =========
Net income (loss) per share
Basic $ 0.09 $ 0.09 $ (0.23) $ 0.41
========= ========= ========= =========
Diluted $ 0.09 $ 0.09 $ (0.23) $ 0.40
========= ========= ========= =========
Number of shares used in
per share calculations
Basic 38,000 36,709 37,800 36,619
========= ========= ========= =========
Diluted 38,600 37,593 37,800 37,439
========= ========= ========= =========
See Notes to condensed consolidated financial statements.
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LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
------------------------------
December 31, December 31,
1997 1996
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (8,647) $ 15,025
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 32,111 24,436
Deferred income taxes 1,976 (1,085)
Change in certain working capital
accounts (17,559) 52,942
----------- -----------
Net cash provided by operating activities 7,881 91,318
Cash flows from investing activities:
Capital expenditures (22,851) (40,881)
Purchase of short-term investments (5,573,042) (387,294)
Sale of short-term investments 5,202,203 307,325
Other (1,295) (6,642)
----------- -----------
Net cash used in investing activities (394,985) (127,492)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings under
line of credit -- 45,000
Repayments of borrowings under
line of credit (35,000) (60,000)
Sale of stock, net of issuance
costs 14,111 7,379
Proceeds from issuance of
long-term debt 301,000 184
Principal payments on long-term debt
and capital lease obligations (12,821) (9,454)
----------- -----------
Net cash provided by (used in)
financing activities 267,290 (16,891)
----------- -----------
Net decrease in cash and cash equivalents (119,814) (53,065)
Cash and cash equivalents at beginning
of period 140,872 87,096
----------- -----------
Cash and cash equivalents at end of period $ 21,058 $ 34,031
=========== ===========
See Notes to condensed consolidated financial statements.
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LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the audited
supplemental consolidated financial statements of Lam Research Corporation (the
"Company" or "Lam") for the year ended June 30, 1997, which are included on Form
S-3 File number 333-39167.
The prior period amounts have been restated to reflect the Company's
merger with OnTrak Systems, Inc. ("OnTrak"), accounted for as a pooling of
interests. The results of operations for the three and six month periods ended
December 31, 1997 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 30, 1998.
NOTE B - - MERGER WITH ONTRAK
On August 5, 1997, the stockholders of each of Lam and OnTrak approved
the merger of Lam and OnTrak (the "Merger") and the issuance of Lam common
stock, par value $0.001 per share ("Lam Common Stock") under the Agreement and
Plan of Merger between Lam and OnTrak. The Company issued approximately 6.5
million shares of Lam Common Stock and options and rights to acquire
approximately two million shares of Lam Common Stock in connection with the
Merger. The transaction has been accounted for as a pooling of interests and was
structured to qualify as a tax-free reorganization. Costs associated with the
Merger were approximately $17.7 million, including investment advisory fees,
legal and accounting fees, financial printing costs and other merger related
costs. Such costs associated with the Merger negatively impacted the results of
operations for the quarter ended September 30, 1997.
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NOTE C -- INVENTORIES
Inventories consist of the following:
Dec. 31, June 30,
1997 1997
-------- --------
(in thousands)
Raw materials $156,458 $136,698
Work-in-process 67,967 93,057
Finished goods 33,679 31,983
-------- --------
$258,104 $261,738
======== ========
NOTE D -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
Dec. 31, June 30,
1997 1997
--------- ---------
(in thousands)
Equipment $ 174,361 $ 158,475
Furniture & fixtures 60,531 58,642
Leasehold improvements 105,298 100,222
--------- ---------
340,190 317,339
Accumulated depreciation and
amortization (147,131) (120,347)
--------- ---------
$ 193,059 $ 196,992
========= =========
NOTE E -- OTHER EXPENSE, NET
The significant components of other expense, net are as follows (in
thousands):
Three Months Ended Six Months Ended
---------------------- -----------------------
December 31, December 31,
1997 1996 1997 1996
------- ------- ------- -------
Interest expense $ 5,302 $ 1,271 $ 8,018 $ 2,807
Interest income (6,280) (1,316) (9,479) (2,435)
Other 1,444 229 2,725 (63)
------- ------- ------- -------
$ 466 $ 184 $ 1,264 $ 309
======= ======= ======= =======
NOTE F -- NET INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("FAS 128"). FAS 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings
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per share. All net income (loss) amounts for all periods have been presented,
and where necessary, restated to conform to the FAS 128 requirements. Basic net
income (loss) per share is calculated using the weighted average number of
shares of common stock outstanding during the period. Diluted net income per
share for the three month periods ended December 31, 1997 and 1996 and the six
month period ended December 31, 1996 is calculated using the weighted average
number of shares of common stock and the potential common shares that were
dilutive and outstanding during the period. The potential common shares include
shares issuable upon the assumed exercise of stock options reflected under the
treasury stock method. The conversion of the convertible subordinated notes to
potential common shares was excluded from the diluted earnings per share
calculation for the three month period ended December 31, 1997, because its
effect was antidilutive. Diluted net loss per share for the six months ended
December 31, 1997 is calculated using the weighted average number of shares of
common stock outstanding during the period. The Company's basic and diluted net
income (loss) per share as calculated according to FAS 128 are as follows:
(in thousands, except per share data)
------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
NUMERATOR:
Net income $ 3,525 $ 3,277 ($ 8,647) $ 15,025
-------- -------- -------- --------
Numerator for basic and diluted
net income (loss) per share $ 3,525 $ 3,277 ($ 8,647) $ 15,025
======== ======== ======== ========
DENOMINATOR:
Basic net income (loss) per share -
average shares outstanding 38,000 36,709 37,800 36,619
Effect of potential dilutive securities:
Employee stock options 600 884 -- 820
-------- -------- -------- --------
Potential dilutive common shares 600 884 -- 820
Denominator for diluted net income
(loss) per share - average shares
outstanding and assumed conversions 38,600 37,593 37,800 37,439
======== ======== ======== ========
Basic net income (loss) per share $ 0.09 $ 0.09 ($ 0.23) $ 0.41
======== ======== ======== ========
Diluted net income (loss) per share $ 0.09 $ 0.09 ($ 0.23) $ 0.40
======== ======== ======== ========
NOTE G -- APPROVAL OF LAM RESEARCH CORPORATION 1997 STOCK INCENTIVE PLAN
On August 5, 1997 the stockholders of the Company approved the Lam
Research Corporation 1997 Stock Incentive Plan, which provides for the grant of
stock options, restricted stock, deferred stock and
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performance share awards to participating officers, directors, employees,
consultants and advisors of the Company and its subsidiaries. Initially,
3,000,000 shares were reserved for issuance. The number of shares to be issued
will automatically be increased each calendar quarter subject to certain
provisions and restrictions, but in no event shall exceed 5,000,000 shares.
NOTE H -- CONVERTIBLE SUBORDINATED NOTES
During August 1997, Lam completed an offering of $310.0 million of
Convertible Subordinated Notes (the "Notes"). The Notes bear interest at five
percent, mature on September 1, 2002 and are convertible into shares of Lam's
Common Stock at $87.77 per share. Expenses associated with the offering of
approximately $9.0 million were deferred and are included in other assets. Such
deferred costs will be amortized ratably over the term of the Notes.
NOTE I -- SUBSEQUENT EVENT
On February 12, 1998, the Company announced a restructuring of its
operations, which is expected to include an approximately 14% reduction in its
global workforce. The reorganization plan will allow the Company to focus more
on its core etch and Chemical Mechanical Planarization ("CMP") product groups
and reduce its flat panel display and thermal Chemical Vapor Deposition ("CVD")
operations. Manufacturing operations will be downsized and consolidated. As a
result, the Company expects to take a pre-tax restructuring charge in the range
of $80 million to $85 million in the third quarter of fiscal 1998 for costs
related to severance compensation and closure of certain of its facilities as
well as write-offs of assets utilized in affected operations. The restructuring
is in response to the lower industry demand for semiconductor equipment as a
result of the recent financial crisis in Asia and the continued depressed
pricing environment for DRAM devices.
NOTE J -- LITIGATION
See Part II, item 1 for discussion of litigation.
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ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
With the exception of historical facts, the statements contained in
this discussion are forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and are subject to the Safe
Harbor provisions created by that statute. Such forward-looking statements
include, but are not limited to, statements that relate to the Company's future
revenue, royalty income, gross margins, levels of research and development and
operating expenses, management's plans and objectives for future operations of
the Company, the sufficiency of financial resources to support future operations
and capital expenditures and the Company's application and software systems.
Such statements are based on current expectations that involve risks and
uncertainties, including those discussed below and under the heading Risk
Factors, as well as those disclosed in the Company's most recent Annual Report
on Form 10-K which are herein incorporated by reference, that could cause actual
results to differ materially from those expressed. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. This discussion should be read in
conjunction with the Condensed Consolidated Financial Statements and Notes
presented thereto on pages 3 to 9 of this Form 10-Q for a full understanding of
the Company's financial position and results of operations for the quarter ended
December 31, 1997.
RESULTS OF OPERATIONS
All financial data of the Company included herein reflect the
combination of the historical financial information of both Lam and OnTrak as
described in Note A.
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The following table sets forth, for the fiscal periods indicated,
certain income and expense items as a percentage of total revenue:
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------------------
1997 1996 1997 1996
----- ----- ----- -----
Net sales 99.7% 98.2% 99.8% 98.0%
Royalty income 0.3 1.8 0.2 2.0
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of goods sold 61.3 62.5 61.2 60.4
Research and development 18.6 17.0 18.7 16.2
Selling, general
& administrative 18.3 18.8 18.3 18.0
Merger costs -- -- 3.0 --
Restructuring charge -- -- -- 1.6
----- ----- ----- -----
Operating income (loss) 1.8 1.7 (1.2) 3.8
Other expense, net 0.2 0.1 0.2 --
----- ----- ----- -----
Income (loss) before taxes 1.6 1.6 (1.4) 3.8
Income tax expense 0.4 0.3 0.1 1.1
----- ----- ----- -----
Net income (loss) 1.2% 1.3% (1.5%) 2.7%
===== ===== ===== =====
Results of Operations
Total revenue for the three and six month periods ended December 31, 1997 was
13% and 4% higher, respectively, compared to the year ago periods. The Company
continues to experience a shift in its product sales from single-chamber to
multi-chamber products. Increased sales of the Company's Alliance(TM) cluster
system, which utilizes from one to four TCP etch chambers each, were partially
offset by a decrease in stand-alone TCP system sales for both the three and six
month periods ended December 31, 1997 compared to the year ago periods. Sales of
the Company's advanced capability Rainbow(TM), CMP cleaning systems were higher
than the year ago periods. The Company's revenues will decrease due to the
reduction of its flat panel display and CVD operations as well as the result of
unfavorable market conditions for other products. Total international sales were
56% and 54%, respectively, for the three and six month periods ended December
31, 1997 compared with 65% and 66% for the year ago periods. Regionally, the
Company experienced increases in revenues for its North America, Korea and
Taiwan regions for both the three and six month periods ended December 31, 1997
compared to the year ago periods. All other regions experienced decreases in net
sales for both the three and six month periods ended December 31, 1997. The
Asian regions are currently experiencing uncertainty surrounding their financial
markets and economies. The
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Company anticipates that its revenues for the current calendar year will be
adversely affected by the uncertainty in the Asian regions, particularly in
Korea, which has historically comprised a significant portion of the Company's
revenue base. Total spares and service revenue increased 33% and 22%,
respectively, during the three and six month periods ended December 31, 1997
compared to the year ago periods due primarily to the Company's increasing
installed base. Service revenue represented approximately 5% of total revenue
for both the three and six month periods of fiscal 1998.
Royalty income for the three and six month periods ended December 31,
1997 decreased 84% and 88%, respectively, from the year ago periods. The
reduction in royalty rate is due to the extended royalty agreement with Tokyo
Electron Limited which reduced the previous royalty rate from 5% to 1%,
effective January 1, 1997. Fiscal 1998 will be the first full year with royalty
income calculated at the reduced royalty rate of 1%.
The Company's gross margin percentage increased to 38.7% in the second
quarter of fiscal 1998 compared with 37.5% for the year ago quarter. Gross
margin percentage was 38.8% for the first six months of fiscal 1998 compared
with 39.6% for the year ago period. Gross margin percentage for the three month
period ended December 31, 1997 as compared to the year ago period was favorably
impacted by improved utilization of manufacturing capacity and product mix.
Offsetting the increase in gross margin percentage for the three month period
was a decrease in royalty income. The decrease in gross margin percentage for
the six month period ended December 31, 1997 was due to a shift in product mix
as the Company continued to sell a higher percentage of its Alliance cluster
tools and the decrease in royalty income.
Research and development ("R&D") expenses for the three and six month
periods ended December 31, 1997 were 24.1% and 20.7%, respectively, higher than
the year ago periods. The Company believes that in order to remain competitive,
it must continue to invest substantially in R&D. The Company continues to
develop its CMP polishing system, to invest in advanced etch applications and to
make enhancements to its Alliance and TCP products, including developing the
technology necessary to incorporate 300mm wafer processing capabilities into its
products. As discussed in Note I, the Company has announced plans to
significantly reduce R&D efforts relating to flat panel display and thermal CVD.
Selling, general and administrative ("SG&A") expenses for the three and
six month periods ended December 31, 1997 were 10.1% and 6.5%, respectively,
higher than the year ago periods. However as a percentage of total revenue, SG&A
expenses remained flat for both the three and six month periods ended December
31, 1997 as compared to the year ago periods. The Company continues to closely
monitor expenditures and capital additions relative to revenue levels. SG&A
expenses are expected to be lower throughout calendar 1998, as a result of the
restructuring described in Note I.
During the first quarter of fiscal 1998, the Company recorded costs of
$17.7 million relating to the merger with OnTrak. Such expenses relate to
investment advisory fees, legal and accounting fees, financial printing costs
and other merger-related costs.
During the first quarter of fiscal 1997, the Company restructured its
operations by consolidating its previous business unit structure
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into a centralized functional organization. As a result, the Company recorded a
restructuring charge of $9.0 million for costs related primarily to severance
compensation and consolidation of facilities.
Other expenses increased $1.0 million to $1.3 million during the first
six months of fiscal 1998 compared to the first six months of fiscal 1997.
During the first quarter of fiscal 1998, the Company issued $310.0 million of
Notes bearing interest at 5% which are due to mature on September 1, 2002. The
Company anticipates that interest expense will increase as a result of the Notes
and interest income will increase as a result of the additional invested cash
realized from the sale of the Notes. Also, in the three month period ended
December 31, 1997, the Company recognized higher foreign currency translation
losses, primarily due to exchange rate fluctuations in Korea and Taiwan.
The Company recorded a relatively small provision for income taxes
despite a pre-tax loss for the fiscal 1998 six month period. A significant
portion of the Merger charge recorded in the first quarter of fiscal 1998
consists of non tax-deductible expenses.
As the year 2000 approaches, an issue impacting all companies has
emerged regarding how existing application software programs and operating
systems can accommodate the year 2000 date value. The Company has assembled a
task force to review all internal software, and systems to ensure that they do
not malfunction as a result of the year 2000. The Company expects to both
replace some software and systems and upgrade others. The task force is also
reviewing the operating systems the Company sells with its machines to ensure
that they are year 2000 compliant. The Company has not fully evaluated the
potential future financial impact of the year 2000 compliance.
Liquidity and Capital Resources
Net cash provided by operating activities was $7.9 million for the six
months ended December 31, 1997. Non-cash depreciation and amortization charges
of $32.1 million, increases in accrued liabilities and decreases in inventory
were offset by decreases in accounts payable of $33.7 million and increases in
accounts receivable of $3.3 million. Cash used in investing activities was
$395.0 million derived primarily by net purchases of short-term investments of
$370.8 million. Capital expenditures for the six month period ended December 31,
1997 were $22.9 million. During the first quarter of fiscal 1998, the Company
received approximately $301.0 million of net cash from the issuance of the
Notes. The Company incurred $9.0 million of debt issuance costs which will be
amortized over the life of the Notes. The Company repaid $35.0 million of
borrowings under its syndicated line of credit.
As of December 31, 1997, the Company had $446.7 million in cash, cash
equivalents and short-term investments compared with $195.7 million at June 30,
1997. The Company has a total of $210.0 million available under a syndicated
bank line of credit which was due to expire in December 1998 but has been
extended to December 2000. Borrowings under the line of credit bear interest at
the bank's prime rate or 0.55% to 0.75% over London Interbank Offered Rate.
Borrowings under the line of credit are subject to the Company's compliance
with
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financial covenants. At December 31, 1997, the Company was in compliance with
the financial covenants.
The Company's cash, cash equivalents, short-term investments and
available lines of credit at the end of the second quarter of fiscal 1998 are
considered adequate to support current levels of operations for at least the
next twelve months.
RISK FACTORS
Fluctuations in Quarterly Revenues and Operating Results
The Company's quarterly revenues have fluctuated in the past and may
fluctuate in the future. The Company's revenues are dependent on many factors,
including but not limited to the economic conditions in the semiconductor
industry, customer capacity requirements, the size and timing of the receipt of
orders from customers, customer cancellations or delays of shipments, the
Company's ability to develop, introduce and market new and enhanced products on
a timely basis, the introduction of new products by its competitors, changes in
average selling prices and product mix, and exchange rate fluctuations, among
others. The Company's expense levels will be based, in part, on expectations of
future revenues. If revenue levels in a particular quarter do not meet
expectations, operating results could be affected.
The Company derives its revenue primarily from the sale of a relatively
small number of high-priced systems. The Company's systems can range in price
from approximately $150,000 to over $3 million per unit. The sale of fewer
systems than anticipated in any quarter may have a substantial negative impact
on the operating results for the quarter. The Company's results of operations
for a particular quarter could be adversely affected if anticipated orders are
not received in time to enable shipment during such quarter, if anticipated
shipments are delayed or canceled by one or more customers, or if shipments are
delayed due to procurement shortages or manufacturing difficulties.
The Company generally realizes a higher margin on sales of its mature
products, such as Rainbow etch systems and CMP cleaning systems, than on sales
of Alliance, CVD, FPD, and newly released TCP products. Newer products usually
have lower margins in the initial phase of production.
International Sales
International sales accounted for 57%, 63%, 53%, 54% and 66%
respectively, of the Company's net revenues in the fiscal years 1997, 1996 and
1995 and the first six months of fiscal 1998 and 1997. Historically, sales to
the Asian regions have accounted for a substantial portion of international
sales. Recent banking and currency problems in the Asian regions, however, will
have an adverse impact on the Company's revenue and operations.
Sales of products by the Company currently are denominated in United
States dollars. In Korea, devaluation of the Won and difficulties in obtaining
credit have curtailed semiconductor
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equipment investment and have recently and may continue to lead to cancellation
or delay of orders for the Company's products.
In Japan, the Company's sales are denominated in the Japanese yen. A
weakening of the value of the Japanese yen as compared to the U.S. dollar could
negatively impact operating margins. Currently, the Company enters into foreign
currency forward contracts to minimize the impact of exchange rate fluctuations
on the value of the yen-denominated assets and liabilities, and the Company will
enter into such hedging transactions in the future.
The impact of these and other factors on the Company's revenues and
operating results in any future period is difficult for the Company to forecast.
There can be no assurance that these and other factors will not materially
adversely affect the Company's future business and financial results.
Introduction of New Product
The CMP polishing system to be launched by the Company is expected to
face significant competition from multiple current and future competitors.
Companies currently offering polishing systems include Applied Materials, Inc.,
Cybeq Systems, Ebara Corporation, Integrated Process Equipment Corp. ("IPEC"),
SpeedFam Corp., Strasbaugh and Sumitomo Metals Limited. IPEC currently has the
largest installed base of CMP polishers and also offers an integrated CMP
polishing and cleaning system. Lam believes that other companies are developing
polishing systems and are planning to introduce new products to this market
before or during the same time frame as the Company's planned introduction of
its CMP polishing system.
Potential Volatility Common Stock Price
The market price for Lam Common Stock has been volatile. The market
price of Lam Common Stock could be subject to significant fluctuations in
response to variations in quarterly operating results, shortfalls in revenues or
earnings from levels expected by securities analysts and other factors such as
announcements of the restructuring, technological innovations or new products by
the Company or by the Company's competitors, government regulations,
developments in patent or other proprietary rights. In addition, the stock
market has in recent years experienced significant price fluctuations. These
fluctuations often have been unrelated to the operating performance of the
specific companies whose stocks are traded. Recent fluctuations have been tied
to the Asian financial crisis and the price of semiconductors. Broad market
fluctuations, as well as economic conditions generally in the semiconductor
industry, may adversely affect the market price of Lam Common Stock.
Intellectual Property Matters
From time to time, the Company has received notices from third parties
alleging infringement of such parties' patent rights by the Company's products.
In such cases, it is the policy of the Company to defend against the claims or
negotiate licenses on commercially reasonable terms where considered
appropriate. However, no assurance
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can be given that the Company will be able to negotiate necessary licenses on
commercially reasonable terms, or at all, or that any litigation resulting from
such claims would not have a material adverse effect on the Company's business
and financial results.
The Company's success depends in part on its proprietary technology.
While the Company attempts to protect its proprietary technology through
patents, copyrights and trade secret protection, it believes that the success of
the Company will depend on more technological expertise, continuing the
development of new systems, market penetration and growth of its installed base
and the ability to provide comprehensive support and service to customers. There
can be no assurance that the Company will be able to protect its technology or
that competitors will not be able to develop similar technology independently.
The Company currently has a number of United States and foreign patents and
patent applications. There can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented or that the rights
granted thereunder will provide competitive advantages to the Company.
Year 2000 Computer Problem
The Company relies heavily on the Company's existing application
software programs and operating systems. In order to assess and minimize the
year 2000 computer problem (in which systems do not properly recognize date
sensitive information when the year changes to 2000), the Company has formed a
task force to review all software and systems. The Company expects both to
replace some software and systems and upgrade others. In addition, the task
force is reviewing the operating systems the Company sells with its machines to
ensure they are year 2000 compliant. While the Company has incurred and will
continue to incur internal staff costs as well as consulting and other expenses
as a result of year 2000 issues, it has not fully evaluated the potential
financial impacts of the year 2000 compliance project. The Company believes that
its year 2000 compliance project will be completed on a timely basis. However,
there can be no assurance that unexpected delays or problems will not have an
adverse effect on the Company.
Restructuring of Operations
As stated in Note I, the Company announced a restructuring of its
operations in February 1998. Implementation of this restructuring involves
several risks, including the risk that by simplifying and modifying its product
line the Company will increase its dependence on fewer products and potentially
reduce overall sales.
Although the Company believes that the actions it is taking in
connection with the restructuring, including the reduction in workforce, the
consolidation of manufacturing operations and reduction of flat panel display
and thermal CVD operations, should help align the Company with its business
outlook, there can be no assurance that
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such actions will enable the Company to achieve its objectives of reducing
costs and maintaining sustainable profitability. In addition, there can be no
assurance that the size of the restructuring charge will not exceed the
Company's estimates. The Company's future consolidated operating results and
financial condition could be adversely affected should it encounter difficulty
in effectively managing the restructuring.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In October 1993, Varian Associates, Inc. ("Varian") brought suit
against the Company in the United States District Court, Northern District of
California, seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by Varian. The lawsuit
was reassigned a new judge and no trial date has been set. The Company has
asserted defenses of invalidity and unenforceability of the patents that are the
subject of the lawsuit, as well as noninfringement of such patents by the
Company's products.
While litigation is subject to inherent uncertainties and no assurance
can be given that the Company will prevail in such litigation or will obtain a
license under such patents on commercially reasonable terms or at all if such
patents are held valid and infringed by the Company's products, the Company
believes that the Varian lawsuit will not have a material adverse effect on the
Company's consolidated financial position, operating results or cash flows.
In addition, the Company is from time to time notified by various
parties that it may be in violation of certain patents. In such cases, it is the
Company's intention to seek negotiated licenses where it is considered
appropriate. The outcome of these matters will not, in management's opinion,
have a material impact on the Company's consolidated financial position,
operating results or cash flows.
ITEM 4. Results of the Votes of Stockholders
The Annual Meeting of Stockholders of Lam Research Corporation was held
at the principal office of the Company at 4650 Cushing Parkway, Fremont,
California 94538 on November 7, 1997.
Out of 36,612,676 shares of Common Stock entitled to vote at the
meeting, 32,440,146 shares were present in person or by proxy.
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The vote for nominated directors, to serve for the ensuing year, and
until their successors are elected, was as follows:
NOMINEE IN FAVOR WITHHELD
Roger D. Emerick 32,213,144 227,002
James W. Bagley 32,227,524 212,622
David G. Arscott 32,253,093 187,053
Richard J.Elkus,Jr 32,256,255 183,891
Jack R. Harris 32,137,660 302,486
Grant M. Inman 32,124,022 316,124
Osamu Kano 32,226,664 213,482
The results of voting on the following items were as set forth below:
(a) Approval of amendment of the Company's 1984 Employee Stock Purchase
Plan to increase the number of shares reserved for issuance thereunder
by 350,000 shares.
IN FAVOR OPPOSED ABSTAIN
32,098,681 280,163 61,302
(b) Ratification of appointment of Ernst & Young LLP as independent
auditors for the Company for the fiscal year ending June 30, 1998:
IN FAVOR OPPOSED ABSTAIN
32,369,068 41,539 29,539
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.46 Receivables Purchase Agreement between Lam Research Co., LTD.
and ABN AMRO Bank N.V., Tokyo Branch, dated December 26, 1997.
10.47 Third Amendment to Term Loan between Lam Research Co., Ltd.,
and The Sakura Bank, dated December 19, 1997.
10.48 Second Amendment to Continuing Guaranty between Lam Research
Corporation and The Sakura Bank, dated December 19, 1997.
10.49 Guaranty to the Receivables Purchase Agreement between Lam
Research Co., LTD. and ABN AMRO Bank N.V., Tokyo Branch, dated
December 26, 1997.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the quarter ended
December 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 13, 1998
LAM RESEARCH CORPORATION
By:/s/ MERCEDES JOHNSON
-----------------------------
Mercedes Johnson, Vice
President, Finance & Chief
Financial Officer
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EXHIBIT INDEX
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10.46 Receivables Purchase Agreement between Lam Research Co., LTD.
and ABN AMRO Bank N.V., Tokyo Branch, dated December 26, 1997.
10.47 Third Amendment to Term Loan between Lam Research Co., Ltd.,
and The Sakura Bank, dated December 19, 1997.
10.48 Second Amendment to Continuing Guaranty between Lam Research
Corporation and The Sakura Bank, dated December 19, 1997.
10.49 Guaranty to the Receivables Purchase Agreement between Lam
Research Co., LTD. and ABN AMRO Bank N.V., Tokyo Branch, dated
December 26, 1997.
27 Financial Data Schedule