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 MARCH 31, 1995
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
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(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 March 31, 1995 there were 27,017,724 shares of Registrant's Common Stock
outstanding.
INDEX
Page
No.
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PART I. FINANCIAL INFORMATION ................................... 1
Item 1. Financial Statements (unaudited)......................... 1
Condensed Consolidated Balance Sheets............... 1
Condensed Consolidated Statements of Income......... 2
Condensed Consolidated Statements of Cash Flows..... 3
Notes to Condensed Consolidated Financial
Statements..................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 6
Results of Operations............................... 6
Liquidity and Capital Resources..................... 7
PART II. OTHER INFORMATION........................................ 9
Item 1. Legal Proceedings........................................ 9
Item 6. Exhibits and Reports on Form 8-K......................... 9
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)
March 31, June 30,
1995 1994
(unaudited) (Note)
----------- -----------
Assets
Cash and cash equivalents $91,704 $24,092
Short-term investments -- 14,194
Accounts receivable, net 184,329 120,326
Inventories 172,085 115,569
Other current assets 30,064 23,560
----------- -----------
Total Current Assets 478,182 297,741
Equipment and leasehold improvements, net 105,124 61,749
Restricted cash 25,092 9,928
Other assets 18,310 12,079
----------- -----------
Total Assets $626,708 $381,497
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity
Trade accounts payable $83,948 $66,127
Accrued expenses and other
current liabilities 88,376 52,866
Current portion of long-term debt and
capital lease obligations 6,481 6,830
----------- -----------
Total Current Liabilities 178,805 125,823
Long-term debt and capital lease
obligations, less current portion 90,887 78,843
----------- -----------
Total Liabilities 269,692 204,666
Preferred stock: 5,000 shares authorized
none outstanding
Common Stock at par value $.001 per share
Authorized -- 90,000 shares; issued and
outstanding 27,018 shares at March 31,
1995 and 23,528 shares at June 30, 1994 27 24
Additional paid-in capital 216,918 95,513
Retained earnings 140,071 81,294
----------- -----------
Total Stockholders' Equity 357,016 176,831
----------- -----------
$626,708 $381,497
----------- -----------
----------- -----------
<FN>
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Note -- The Condensed Consolidated Balance Sheet at June 30, 1994 has
been derived from the audited financial statements at that
date.
See Notes to condensed consolidated financial statements.
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LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- -------------------------
March 31, March 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
Net sales $216,465 $125,780 $545,162 $338,701
Royalty income 2,549 1,921 8,104 5,629
------------ ------------ ------------ ------------
Total revenue 219,014 127,701 553,266 344,330
Costs and expenses:
Cost of goods sold 112,049 69,388 285,590 184,904
Research and development 31,921 19,813 84,058 54,140
Selling, general and
administrative 39,586 23,472 98,841 63,620
------------ ------------ ------------ ------------
Operating income 35,458 15,028 84,777 41,666
Other expense, net 40 548 810 2,087
------------ ------------ ------------ ------------
Income before income taxes 35,418 14,480 83,967 39,579
Income taxes 10,625 4,924 25,190 13,459
------------ ------------ ------------ ------------
Net income $24,793 $9,556 $58,777 $26,120
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share
Primary $0.89 $0.39 $2.18 $1.07
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully diluted $0.83 $0.38 $2.05 $1.05
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Number of shares used in
per share calculations
Primary 27,900 24,385 26,950 24,375
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully diluted 30,600 27,025 29,760 26,925
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
See Notes to condensed consolidated financial statements.
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LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
------------------------------
March 31, March 31,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $58,777 $26,120
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 15,360 11,012
Change in certain working capital
accounts (73,692) (37,926)
------------ ------------
Net cash provided by (used in) operating
activities 445 (794)
Cash flows from investing activities:
Capital expenditures (50,504) (15,925)
Acquisition of Drytek, Inc.,
net of cash acquired -- (5,785)
Restricted cash (2,618) (5,700)
Other (3,738) (1,603)
------------ ------------
Net cash used in investing activities (56,860) (29,013)
------------ ------------
Cash flows from financing activities:
Sale of stock, net of issuance
costs 119,669 1,414
Proceeds from long-term debt 7,711 5,951
Principal payments on long-term debt and
capital lease obligations (3,353) (4,643)
------------ ------------
Net cash provided by financing
activities 124,027 2,722
------------ ------------
Net increase (decrease) in cash and
cash equivalents 67,612 (27,085)
Cash and cash equivalents at beginning
of period 24,092 67,253
------------ ------------
Cash and cash equivalents at end of
period $91,704 $40,168
------------ ------------
------------ ------------
See Notes to condensed consolidated financial statements.
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LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(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 consolidated financial statements of Lam
Research Corporation(the "Company") for the year ended June 30, 1994, which
are included in the Annual Report on Form 10-K, File number 0-12933.
The results of operations for the three and nine months ended March 31,
1995 are not necessarily indicative of the results that may be expected for
the entire fiscal year ending June 30, 1995.
NOTE B -- INVENTORIES
Inventories consist of the following:
March 31, June 30,
1995 1994
------------ ------------
(in thousands)
Raw materials $78,315 $52,018
Work-in-process 75,780 50,189
Finished goods 17,990 13,362
------------ ------------
$172,085 $115,569
------------ ------------
------------ ------------
NOTE C -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
March 31, June 30,
1995 1994
------------ ------------
(in thousands)
Equipment $76,629 $65,653
Furniture & fixtures 22,014 14,815
Leasehold improvements 59,302 32,237
------------ ------------
157,945 112,705
Accumulated depreciation and
amortization (52,821) (50,956)
------------ ------------
$105,124 $61,749
------------ ------------
------------ ------------
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NOTE D -- INVESTMENT IN EQUITY SECURITIES
During the third quarter of fiscal 1995, the Company exercised warrants
it held to purchase the common stock of another company. That company
consummated the initial public offering of its common stock during the third
quarter, and the shares held by Lam are now freely tradable. The Company is
classifying its investment in these marketable equity securities as available
for sale in accordance with Statement of Financial Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities". An
unrealized gain of $3.4 million related to this investment is included as a
separate component of stockholders' equity (combined with Additional Paid in
Capital on the condensed consolidated balance sheet at March 31, 1995).
The Company has determined that all other securities held at March 31,
1995 are classified as held to maturity. The following is a summary of all
securities held at that date:
Gross Estimated
Amortized Unrealized Fair
Cost Gain (Loss) Value
--------- ----------- -----------
HELD TO MATURITY SECURITIES
Current
Commercial Paper $84,573 -- $84,573
Long-term
U.S. Treasury Bills and Notes $25,092 $(1,412) $23,680
AVAILABLE FOR SALE SECURITIES
Long Term
Marketable Equity Securities $ 800 $ 3,395 $ 4,195
-------- ---------- ----------
NOTE E -- SALE OF COMMON STOCK
During the first quarter of fiscal year 1995, the Company completed an
additional underwritten public offering of its Common Stock, selling a total
of 3.1 million shares at a price of $38.75 per share. In September 1994, the
Company received $103.4 million in net proceeds from the offering. The
balance of the net proceeds were received in October 1994.
NOTE F -- OTHER EXPENSE, NET
The significant components of other expense, net are as follows (in
thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Interest Expense $1,794 $1,361 $4,804 $4,171
Interest Income (1,518) (682) (3,607) (1,614)
Other (236) (131) (387) (470)
---------- ---------- ---------- ----------
$40 $548 $810 $2,087
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NOTE G -- NET INCOME PER SHARE
For the three and nine month periods ended March 31, 1995 and 1994,
primary net income per share is calculated using the weighted average number
of shares of common stock and common stock equivalents outstanding during the
periods. The common stock equivalents include shares issuable upon the
assumed exercise of stock options reflected under the treasury stock method.
In addition, fully diluted net income per share reflects the assumed
conversion of the Company's convertible subordinated debentures at the
beginning of each period, and also adds the interest expense incurred on the
debentures, net of income tax effect, to the net income amount used in the
fully diluted calculation.
NOTE H -- 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
The components of the Company's statements of income, expressed as a percentage
of total revenue, are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Net Sales 98.8% 98.5% 98.5% 98.4%
Royalty income 1.2 1.5 1.5 1.6
---------- ---------- ---------- ----------
100.0 100.0 100.0 100.0
Cost of goods sold 51.2 54.3 51.6 53.7
Research and development 14.6 15.5 15.2 15.7
Selling, general
& administrative 18.0 18.4 17.9 18.5
---------- ---------- ---------- ----------
Operating income 16.2 11.8 15.3 12.1
Other expense, net -- 0.4 0.1 0.6
---------- ---------- ---------- ----------
Income before taxes 16.2 11.4 15.2 11.5
Income taxes 4.9 3.9 4.6 3.9
---------- ---------- ---------- ----------
Net income 11.3% 7.5% 10.6% 7.6%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS
Net sales for the three and nine month periods ended March 31, 1995 increased
by 72% and 61%, respectively, over the comparable prior year periods.
Increased unit sales of Rainbow and Transformer Coupled Plasma (TCP)etch
systems accounted for approximately 60% of the sales increase for the third
quarter of fiscal year 1995 as compared to the comparable prior year period,
as the Company has continued to benefit from the strong semiconductor market.
In addition, the Company completed its first multiple-unit shipments of its
Alliance cluster tool during the third quarter of fiscal year 1995, and
approximately 18% of the net sales increase as compared to the prior year
quarter was related to these shipments. No Alliance machines were shipped in
the prior year quarter. Export sales for the third quarter of fiscal year 1995
represented approximately 60% of total revenue for the quarter (compared to
an average of 45% for the previous six quarters) due primarily to increased
sales in Korea, and (to a lesser extent) Europe. The remainder of the net
increase was due to higher spare parts and service revenue (89% higher than
the comparable prior year quarter and 86% higher than the comparable prior
year nine month period) related to the Company's increased installed machine
base.
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Royalty income increased by 33% from the year-ago quarter and 44% on a fiscal
year-to-date basis, due to continued improvement in the Japanese
semiconductor market which resulted in increased sales of products
incorporating the Company's technology by Tokyo Electron Limited (TEL) and
Sumitomo Metal Industries (SMI).
The Company's gross margin improved to 48.8% in the third quarter of fiscal
1995 as compared to 45.7% in the comparable quarter of fiscal 1994, and to
48.4% for the nine months ended March 31,1995 as compared to 46.3% in the
nine months ended March 31,1994. The improvement in gross margin percentage
during the three month period ended March 31, 1995 over the comparable prior
year period was due in approximately equal measure to lower average unit
costs on Rainbow machines (due to fewer custom engineered options being
requested by customers) and decreased warranty and installation costs as a
percentage of net sales (as a result of warranty cost reduction programs
instituted by the Company). These improvements were partially offset by the
increased shipments of Alliance machines at lower margins. The improvement
in the nine month period gross margin percentage was slightly less than the
improvement for the three month period but for similar reasons.
Research and development (R&D) expense increased for the three and nine month
periods ended March 31, 1995 by 61% and 55%, respectively, over the prior
year periods, but as a percentage of total revenue was lower than the
comparable prior year periods. The increased expense was due to continued
expenditures on advanced etch applications, continued development of CVD
technologies including EPIC and Integrity, as well as reduced levels of
funding from third parties on joint development programs. The Company's new
research and development facility at its Fremont campus, which the Company
began occupying in the first quarter of fiscal 1995 is now complete and fully
operational.
Selling, general and administrative (S,G&A) expenses for the three and nine
month periods ended March 31, 1995 increased by 69% and 55%, respectively,
over the prior year periods but were lower than the prior year periods
as a percentage of revenue. The Company has added employees in all customer
support, sales and administration areas to accommodate the increased sales
volume which accounted for approximately 50% of the increase from the prior
year quarter. To support the growth in headcount and business volume,
additional expenses related to increasing the Company's facilities and
information systems infrastructures have also been incurred accounting for
approximately 25% of the increase. The remainder of the increase was due
primarily to expenses incurred by the Company's foreign subsidiaries,
particularly in Asia, where the Company has significantly increased its
resources over the prior year.
The effective tax rate for the fiscal 1995 periods was 30% compared to 34%
for the prior year periods due to an increase in estimated business tax
credits available for use in the current year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $0.4 million for the nine
months ended March 31, 1995. Net income and non-cash depreciation and
amortization expenses totaling $74.1 million were nearly completely offset by
increases in accounts receivable related to increased sales activity since
the end of the prior fiscal year, as well as increased inventory to meet
production demands. Capital expenditures for the current nine month period
were $50.5 million, primarily for new facility leasehold improvements and
furnishings and additional equipment used in new process development and
demonstration.
During the first quarter of fiscal year 1995, the Company completed an
additional underwritten public offering of its Common Stock, selling a
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total of 3.1 million shares at a price of $38.75 per share; the Company
received $114.7 million in net proceeds from the offering during the first
half of fiscal 1995.
Under the terms of its new R&D facility lease, the Company has set aside
$25.1 million of restricted investments in a collateral fund. The cash set
aside will not be available to the Company over the term of the lease, and is
therefore classified as a long-term asset on the Company's March 31, 1995
balance sheet. The lease expires in September, 2004 and is being accounted
for as an operating lease.
As of March 31, 1995, the Company had $91.7 million in cash and cash
equivalents compared with $24.1 million at June 30, 1994. The Company has a
total of $50.0 million available under four bank lines of credit which expire
between June and October 1995. There were no borrowings on any of the lines
at March 31, 1995.
During the third quarter of fiscal year 1995, the Company sold approximately
$14.0 million of Japanese yen-denominated accounts receivable. The Company
is currently negotiating an additional $50.0 million worth of accounts
receivable sales and expects to complete such negotiations in the fourth
quarter of fiscal year 1995.
New long-term borrowings during fiscal year 1995 have primarily been
yen-denominated borrowings by the Company's Japanese subsidiary and have
totalled $7.7 million.
The Company's cash and cash equivalents and available line of credit at the
end of the third quarter of fiscal 1995 are considered adequate to support
current levels of operations for at least the next twelve months.
-8-
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 is in the late stages of discovery. A trial date has been set for
November 28,1995. 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 Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.24 Receivables Purchase Agreement between Lam
Research Corporation and ABN-AMRO Bank N.V.,
Cayman Islands Branch.
Exhibit 11.1 Statement Re: Computation of Earnings Per Share
(b) No reports on Form 8-K were filed by the Registrant during
the quarter ended March 31, 1995.
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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: May 11, 1995
LAM RESEARCH CORPORATION
By:/s/Henk J. Evenhuis
-----------------------------------
Henk J. Evenhuis, Senior Vice
President, Chief Financial Officer
and Secretary (Principal Financial
and Principal Accounting Officer).
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