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, 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
- ----------------------------------------------------------------------------
(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, 1995 there were 27,402,323 shares of Registrant's Common
Stock outstanding.
1
INDEX
Page
No.
------
PART I. FINANCIAL INFORMATION ..................................... 3
Item 1. Financial Statements (unaudited)........................... 3
Condensed Consolidated Balance Sheets............ 3
Condensed Consolidated Statements of Income...... 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................... 8
Results of Operations............................ 8
Liquidity and Capital Resources.................. 10
PART II. OTHER INFORMATION.......................................... 11
Item 1. Legal Proceedings.......................................... 11
Item 4. Results of Vote of Stockholders............................ 12
Item 6. Exhibits and Reports on Form 8-K........................... 13
2
ITEM 1. FINANCIAL STATEMENTS
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
December 31, June 30,
1995 1995
(Unaudited) (Note)
------------ --------
Assets
Cash and cash equivalents $ 17,785 $ 43,675
Short-term investments 91,807 57,334
Accounts receivable, net 228,597 195,682
Inventories 220,151 171,401
Prepaid expenses and other assets 11,768 25,263
Deferred income taxes 34,428 32,778
-------- --------
Total Current Assets 604,536 526,133
Equipment and leasehold improvements, net 130,243 117,571
Restricted cash 24,124 25,024
Other assets 19,554 13,921
-------- --------
Total Assets $778,457 $682,649
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Trade accounts payable $ 99,717 $ 82,542
Accrued expenses and other
current liabilities 115,418 98,633
Current portion of long-term debt and
capital lease obligations 6,983 7,572
-------- --------
Total Current Liabilities 222,118 188,747
Long-term debt and capital lease
obligations, less current portion 93,420 95,928
Deferred income taxes 2,712 2,712
-------- --------
Total Liabilities 318,250 287,387
Preferred stock: 5,000 shares authorized;
none outstanding
Common Stock at par value of $.001 per share
Authorized -- 90,000 shares; issued and
outstanding 27,402 shares at December 31,
1995 and 27,275 shares at June 30, 1995 27 27
Additional paid-in capital 225,729 224,730
Retained earnings 234,451 170,505
-------- --------
Total Stockholders' Equity 460,207 395,262
-------- --------
$778,457 $682,649
-------- --------
-------- --------
- -------------------
Note -- The Condensed Consolidated Balance Sheet at June 30, 1995 has
been derived from the audited financial statements at that
date.
See Notes to condensed consolidated financial statements.
3
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------------ ----------------------
December 31, December 31,
------------ ------------
1995 1994 1995 1994
-------- -------- -------- -------
Net sales $284,195 $169,777 $541,942 $328,697
Royalty income 6,322 2,962 11,819 5,555
-------- -------- -------- --------
Total revenue 290,517 172,739 553,761 334,252
Costs and expenses:
Cost of goods sold 148,507 88,851 283,214 173,541
Research and development 39,054 26,813 75,037 52,137
Selling, general and
administrative 52,578 30,136 100,162 59,255
-------- -------- -------- --------
Operating income 50,378 26,939 95,348 49,319
Other expense/(income), net 1,145 (106) 1,317 770
-------- -------- -------- --------
Income before income taxes 49,233 27,045 94,031 48,549
Income taxes 15,754 8,114 30,085 14,565
-------- -------- -------- --------
Net income $ 33,479 $ 18,931 $ 63,946 $ 33,984
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share
Primary $1.18 $0.68 $2.26 $1.29
-------- -------- -------- --------
-------- -------- -------- --------
Fully diluted $1.12 $0.64 $2.12 $1.22
-------- -------- -------- --------
-------- -------- -------- --------
Number of shares used in
per share calculations
Primary 28,300 27,935 28,350 26,350
-------- -------- -------- --------
-------- -------- -------- --------
Fully diluted 30,875 30,575 31,000 28,990
-------- -------- -------- --------
-------- -------- -------- --------
See Notes to condensed consolidated financial statements.
4
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
-------------------------------------
December 31, December 31,
1995 1994
---------------- ----------------
Cash flows from operating activities:
Net income $63,946 $33,984
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 14,803 9,790
Change in certain working capital
accounts (47,898) (52,135)
---------------- ----------------
Net cash provided by (used in)
operating activities 30,851 (8,361)
Cash flows from investing activites:
Capital expenditures (22,736) (25,187)
Purchase of short-term investments (191,932) --
Sale of short-term investments 157,459 --
Restricted cash 900 (2,618)
Proceeds from sales of securities 12,038 --
Other (5,633) (4,282)
---------------- ----------------
Net cash used in investing activities (49,904) (32,087)
---------------- ----------------
Cash flows from financing activities:
Sale of stock, net of issuance
costs 999 116,971
Principal payments on long-term debt
and capital lease obligations (7,155) (4,484)
Other (681) --
---------------- ----------------
Net cash provided by (used in)
financing activities (6,837) 112,487
---------------- ----------------
Net increase (decrease) in cash and
cash equivalents (25,890) 72,039
Cash and cash equivalents at beginning
of period 43,675 24,092
---------------- ----------------
Cash and cash equivalents at end of
period $17,785 $96,131
---------------- ----------------
---------------- ----------------
See Notes to condensed consolidated financial statements.
5
LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 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, 1995, which
are included in the Annual Report on Form 10-K, File number 0-12933.
The results of operations for the three and six month periods ended
December 31, 1995 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 30, 1996.
NOTE B -- INVENTORIES
Inventories consist of the following:
December 31, June 30,
1995 1995
------------ --------------
(in thousands)
Raw materials $99,349 $80,910
Work-in-process 96,333 73,183
Finished goods 24,469 17,308
------------ --------------
$220,151 $171,401
------------ --------------
------------ --------------
NOTE C -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
December 31, June 30,
1995 1995
------------ --------------
(in thousands)
Equipment $91,836 $80,910
Furniture & fixtures 32,791 25,372
Leasehold improvements 72,707 64,707
------------ --------------
197,334 170,989
Accumulated depreciation and
amortization (67,091) (53,418)
------------ --------------
$130,243 $117,571
------------ --------------
------------ --------------
6
NOTE D -- OTHER EXPENSE/(INCOME), NET
The significant components of other expense, net are as follows (in
thousands):
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
------- ------- ------- -------
Interest Expense $2,131 $1,572 $4,099 $3,008
Interest Income (1,364) (1,593) (2,739) (2,090)
Other 378 (85) (43) (148)
------- ------- ------- -------
$1,145 $(106) $1,317 $770
------- ------- ------- -------
------- ------- ------- -------
NOTE E -- INVESTMENTS
In November, 1995, the Financial Accounting Standards Board staff issued
a Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities". In accordance with
provisions in that Special Report, the Company elected to reclassify all of its
held-to-maturity securities to available-for-sale. At December 31, 1995, the
amortized cost of those securities (included in restricted cash on the Company's
condensed balance sheet) was $24,124,000, which approximates the fair value.
NOTE F -- NET INCOME PER SHARE
For the three and six month periods ended December 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
period. 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 for use in the fully diluted
calculation.
NOTE G -- LINE OF CREDIT
During the quarter ended December 1995, the Company entered into a
syndicated bank line of credit totaling $210.0 million, which expires in
December 1998.
NOTE H -- LITIGATION
See Part II, item 1 for discussion of litigation.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and is subject to the Safe Harbor created by that statute. Such statements are
subject to certain risks and uncertainties, including those discussed below,
that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
The components of the Company's statements of income, expressed as a percentage
of total revenue, are as follows:
Three Months Six Months
Ended Ended
December 31, December 31,
1995 1994 1995 1994
--------------- --------------
Net Sales 97.8% 98.3% 97.9% 98.3%
Royalty income 2.2 1.7 2.1 1.7
--------------- --------------
100.0 100.0 100.0 100.0
Cost of goods sold 51.1 51.4 51.1 51.9
Research and development 13.5 15.6 13.6 15.6
Selling, general
& administrative 18.1 17.4 18.1 17.7
--------------- --------------
Operating income 17.3 15.6 17.2 14.8
Other expense/(income), net 0.4 (0.1) 0.2 0.3
--------------- --------------
Income before income taxes 16.9 15.7 17.0 14.5
Income taxes 5.4 4.7 5.4 4.3
--------------- --------------
Net income 11.5% 11.0% 11.6% 10.2%
--------------- --------------
--------------- --------------
RESULTS OF OPERATIONS
Net sales for the three and six month periods ended December 31, 1995 increased
by 67% and 65%, respectively, over the comparable prior year periods. Increased
unit sales of Transformer Coupled Plasma-TM- (TCP-TM-) and Rainbow-TM- systems
accounted for approximately 61% of the sales increase for the second quarter of
fiscal year 1996 as compared to the comparable prior year period. The Company's
Rainbow 4500 oxide etch and TCP 9600 metal etch products experienced the highest
net sales increase during the quarter ended December 31, 1995 compared to the
prior year quarter. Sales to foreign customers increased to 59% and 60%,
respectively, of net sales, for the three and six months ended December 31,
1995, from 45% and 47%, respectively, of net sales for the same periods of the
prior year. Increased sales of all Lam product lines in Europe accounted for
28% of the overall net sales increase during the quarter ended December 31,
1995; net sales in Japan and Asia Pacific were also much stronger than in
8
the year-ago period. In addition, service and spares revenue which
represented approximately 21% of total revenue, increased 67% as compared to
the same period of the prior fiscal year, as a result of increases in the
Company's installed machine base.
Royalty income increased by 113% from the year-ago quarter due to continued
improvement in the Japanese semiconductor market which resulted in increased
sales of products incorporating the Company's technology being licensed by Tokyo
Electron Limited (TEL) and Sumitomo Metal Industries, Ltd. (SMI).
The Company's gross margin percentage improved to 48.9% for both the three and
six months periods ended December 31, 1995 as compared to 48.6 and 48.1%,
respectively, in the comparable periods of fiscal 1995. The improvement in gross
margin percentage resulted from increased shipments of Rainbow machines with a
higher margin during the quarter ended December 31, 1995 as compared to the
comparable period in the prior year. A favorable product mix within spares
during the quarter ended December 31, 1995 also contributed to the increase in
gross margin.
Research and development (R&D) expense increased for the three and six month
periods ended December 31, 1995 by 46% and 44% over the prior year periods, but
as a percentage of total revenue was lower than the comparable prior year
period. The increased expense was due to continued expenditures on advanced
etch applications, continued development of CVD technologies including Deep
SubMicron (DSM-TM-) 9800 (formerly Integrity-Registered Trademark-) and Deep
SubMicron(DSM-TM-) 9900 (formerly Epic-TM-), further enhancements of the TCP,
Alliance and Rainbow products and continued development of the Company's Flat
Panel Display technology. Although the Company has significantly increased
engineering headcount and spending, these expenditures have increased at a
slightly slower rate than the Company's revenue. The Company believes it is
critical to continue to make investments in R&D programs. During the quarter
ended December 31, 1995, construction began on a new engineering facility at the
Company's Fremont campus which the Company will occupy under an operating lease.
This facility is expected to be operational by the end of the current fiscal
year.
Selling, general and administrative (S,G&A) expenses for the three and six month
periods ended December 31, 1995 increased by 74% and 69%, respectively, over the
prior year periods. The Company has added employees in all customer support,
sales and administration areas to accommodate the increased sales volume. SG&A
expenditures by the Company's foreign subsidiaries increased at a rate higher
than that in the United States. The increase in the foreign expenditures for
SG&A was needed to accommodate the increase in sales in all foreign regions. The
Company opened a new manufacturing facility in Korea in July 1995 and is
expanding its facilities at in Japan and Taiwan. The Company therefore projects
that SG&A expenses in Asia Pacific and Japan will continue to increase over the
remainder of the fiscal year.
9
The effective tax rate for the three month and six month fiscal 1996 periods is
32% compared to 30% for the prior year periods due primarily to the expiration
of the federal research and development credit.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $30.9 million for the six months
ended December 31, 1995, derived from income before depreciation and
amortization expenses totaling $78.7 million, offset by the increases in
inventories and accounts receivable related to the sales volume increase. In
addition, $47.7 million was provided from the sale of yen-denominated Japanese
receivables to a bank (under an agreement entered into during fiscal 1995
whereby the Company may sell up to $50.0 million of yen-denominated Japanese
receivables to the bank). The Company is currently renegotiating the agreement
to sell yen-denominated Japanese receivables in an effort to increase the amount
of receivables it may sell. Capital expenditures for the current three month
period were $22.7 million, primarily for new facility leasehold improvements,
and furnishings at both the Fremont campus, Japan facility and the new
manufacturing facility in Korea. The Company had net purchases of short-term
investments of $34.5 million. Cash receipts from investing activities of $12.0
million were provided from the sale of Brooks Automation, Inc. securities. In
addition, contributing to the overall use of cash were payments of $7.2 million
relating to long-term debt and capital lease obligations.
As of December 31, 1995, the Company had $109.6 million in cash, cash
equivalents and short-term investments compared with $101.0 million at June 30,
1995. The Company has a total of $210.0 million available under a syndicated
bank line of credit which expires in December 1998. There were no borrowings on
the line at December 31, 1995. The Company is currently renegotiating its pledge
agreement in an effort to reduce the amount of restricted investments ($24.1
million) under a long term facility lease.
The Company estimates that its cash, cash equivalents, short-term investments
and available line of credit at the end of the second quarter of fiscal 1996 are
adequate to support current levels of operations for at least the next twelve
months.
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.
10
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. 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
statements.
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.
11
ITEM 4. Results of Vote of Stockholders
The Annual Meeting of Stockholders of Lam Research Corporation was held
at the principle office of the Company at 4650 Cushing Parkway, Fremont,
California 94538 on October 26, 1995.
Out of 27,320,607 shares of Common Stock entitled to vote at such
meeting, there were present in person or by proxy 25,140,610 shares.
The vote for nominating directors, to serve for the ensuing year, and
until their successors are elected, was as follows:
NOMINEE IN FAVOR WITHHELD
- ------- -------- --------
Roger D. Emerick 24,822,827 317,783
David G. Arscott 24,823,473 317,137
Jack R. Harris 24,822,576 318,034
Grant M. Inman 24,825,726 314,884
Osamu Kano 24,822,565 318,045
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
150,000 shares to 1,337,500:
BROKER
IN FAVOR OPPOSED WITHHELD NON-VOTES
---------- ------- -------- ---------
24,546,652 209,190 24,589 360,179
(b) Approval of amendment of the Company's Amended 1991 Incentive Stock Option
Plan to increase the number of shares reserved for issuance thereunder by
1,000,000 shares to 3,875,000:
BROKER
IN FAVOR OPPOSED WITHHELD NON-VOTES
---------- --------- -------- ---------
17,803,219 6,871,323 32,823 433,245
(c) Approval of the Performance-Based Restricted Stock Plan and the number of
shares reserved for issuance thereunder by 150,000:
BROKER
IN FAVOR OPPOSED WITHHELD NON-VOTES
---------- ------- -------- ---------
23,748,464 996,066 35,901 360,179
(d) Ratification of appointment of Ernst & Young LLP as independent auditors
for the Company for the fiscal year ending June 30, 1996:
BROKER
IN FAVOR OPPOSED WITHHELD NON-VOTES
---------- ------- -------- ---------
25,101,818 17,583 21,209 none
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.3 Amended 1984 Employee Stock Purchase Plan
Exhibit 4.4 Amended 1991 Stock Option Plan
Exhibit 10.29 Credit Agreement dated December 20, 1995
between Lam Research Corporation and ABN AMRO
Bank N.V.
Exhibit 11.1 Statement Re: Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during
the quarter ended December 31, 1995.
13
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, 1996
LAM RESEARCH CORPORATION
By: \s\ Henk J. Evenhuis
----------------------
Henk J. Evenhuis, Executive Vice
President, Finance & Chief
Financial Officer
10