SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 8-K/A
AMENDMENT #1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) August 5, 1997
--------------
LAM RESEARCH CORPORATION
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 000-12701 94-2634797
- --------------------------------------------------------------------------------
(State or Other (Commission File Number) (IRS Employer
Jurisdiction Identification Number
of Incorporation)
4650 Cushing Parkway, Fremont, California, 94538
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code. (510) 659-0200
-------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
INFORMATION TO BE INCLUDED
This Form 8-K/A amends Item 7 of that certain Form 8-K filed with the
Securities and Exchange Commission on August 15, 1997 by including the financial
information referred to below.
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA INFORMATION.
The following financial statements are filed as part of this Report, where
indicated.
(a) Pro Forma Financial Information
Unaudited Pro Forma Combined Balance Sheet at June 30, 1997.
Unaudited Pro Forma Combined Statement of Operations for the year
ended June 30, 1997.
Notes to Unaudited Pro Forma Combined Financial Statements.
(b) Audited Financial Statements of Business Acquired
Audited Consolidated Balance Sheet at June 30, 1997 and 1996.
Audited Consolidated Statement of Operations for the years ended June
30, 1997, 1996 and 1995.
Audited Consolidated Statement of Stockholders' Equity for the years
ended June 30, 1997, 1996 and 1995.
Audited Consolidated Statement of Cash Flows for the years ended June
30, 1997, 1996 and 1995.
Notes to Audited Financial Statements.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Statements of Lam
Research Corporation ("Lam") have been prepared to give effect to the merger
between Lam and OnTrak Systems, Inc. ("OnTrak") (the "Merger"), using the
pooling-of-interests method of accounting.
The Unaudited Pro Forma Combined Balance Sheet at June 30, 1997 gives
effect to the Merger as if it had occurred on June 30, 1997, and combines the
consolidated balance sheets of
2
<PAGE>
Lam and of OnTrak at June 30, 1997. The Unaudited Pro Forma Combined Statement
of Operations combines the historical consolidated statements of operations of
Lam and OnTrak for the year ended June 30, 1997 as if the Merger had occurred at
the beginning of the fiscal year.
Such unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
Merger occurred at the beginning of the period presented, nor is it necessarily
indicative of the future financial position or results of operations of the
combined company. These unaudited Pro Forma Combined Financial Statements are
derived from the respective historical consolidated financial statements of Lam
and OnTrak and should be read in conjunction with the consolidated financial
statements and notes thereto of Lam previously filed and the consolidated
financial statements and notes thereto of OnTrak included herein.
3
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<CAPTION>
Assets Lam OnTrak Combined
----------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents $125,725 $15,147 $ 140,872
Short-term investments 38,520 16,301 54,821
Accounts receivable, net 217,723 14,350 232,073
Inventories 253,762 7,976 261,738
Prepaid expenses and other assets 36,547 1,160 37,707
Deferred income taxes 73,761 2,174 75,935
----------------------------------------
Total current assets 746,038 57,108 803,146
Equipment and leasehold improvements, net 184,500 12,492 196,992
Other assets 34,911 - 34,911
----------------------------------------
$965,449 $69,600 $1,035,049
========================================
Liabilities and Stockholders' Equity
Trade accounts payable $113,661 $3,502 $ 117,163
Accrued expenses and other liabilities 159,604 8,081 185,385
Line of credit borrowings 35,000 - 35,000
Current portion of long-term debt and capital
lease obligations 20,841 286 21,127
----------------------------------------
Total current liabilities 329,106 11,869 358,675
Long-term debt and capital lease obligations, less
current portion 45,706 886 46,592
Commitments and contingencies - - -
Common stock 31 1 37
Additional paid-in capital 312,644 48,462 361,101
Retained earnings 277,962 8,382 268,644
----------------------------------------
Total stockholders' equity 590,637 56,845 629,782
----------------------------------------
$965,449 $69,600 $ 1,035,049
========================================
<FN>
See Notes to Unaudited Pro Forma Combined Financial Statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Lam OnTrak Combined
-----------------------------------------
<S> <C> <C> <C>
Net sales $ 989,742 $70,793 $1,060,535
Royalty income 12,662 - 12,662
-----------------------------------------
Total revenue 1,002,404 70,793 1,073,197
Costs and expenses:
Cost of goods sold 689,459 33,945 723,404
Research and development 170,624 21,630 192,254
Selling, general and administrative 197,089 12,205 209,294
Restructuring charge 9,021 - 9,021
-----------------------------------------
1,066,193 67,780 1,133,973
-----------------------------------------
Operating income (loss) (63,789) 3,013 (60,776)
-----------------------------------------
Other (income) expense: 1,489 (1,406) 83
-----------------------------------------
Income (loss) before income taxes (65,278) 4,419 (60,859)
Income tax expense (benefit) (31,644) 1,461 (30,183)
-----------------------------------------
Net income (loss) $ (33,634) $ 2,958 $ (30,676)
=========================================
Net income (loss) per share:
Primary $(1.10) $0.36 $(0.83)
Fully diluted $(1.10) $(0.83)
Number of shares used in per share:
calculations
Primary 30,600 8,304 36,919
Fully diluted 30,600 36,919
<FN>
See Notes to Unaudited Pro Forma Combined Financial Statements
</FN>
</TABLE>
5
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
The unaudited Pro Forma Financial Information reflects the
issuance of 6,444,120 shares of Lam Common Stock in exchange for an aggregate of
7,764,000 shares of OnTrak Common Stock outstanding as of June 30, 1997 in
conjunction with the Merger based on an Exchange Ratio of 0.83 of a share of Lam
Common Stock for each outstanding share of OnTrak Common Stock.
<TABLE>
The following table provides the share issuance in connection with
the Merger as if the Merger had occurred as of June 30, 1997.
<S> <C>
Number of shares of OnTrak Common Stock outstanding at June 30, 1997......................7,764,000
Exchange Ratio............................................................................0.83:1.00
----------
Number of shares of Lam Common Stock exchanged............................................6,444,120
Number of shares of Lam Common Stock outstanding at June 30, 1997........................30,890,000
----------
Number of shares of Lam Common Stock outstanding after completion of the Merger..........37,334,120
==========
</TABLE>
2. PRO FORMA NET LOSS PER SHARE
The unaudited pro forma combined net loss per share is based upon
the combined weighted average number of common shares outstanding of Lam and
OnTrak reflecting an exchange ratio of 0.83 a share of Lam Common Stock for each
share of OnTrak Common Stock.
3. TRANSACTION COSTS
Lam and OnTrak incurred costs associated with the Merger of
approximately $17.7 million which will be charged to operations of the combined
company, in the quarter ending September 30, 1997. Such costs include investment
advisory fees, legal and accounting fees, financial printing costs and other
merger related expenses. The Pro Forma Combined Balance Sheet gives effect to
such non-recurring costs as if they had been incurred as of June 30, 1997, but
the Pro Forma Combined Statement of Operations does not give effect to such
non-recurring costs.
4. CONFORMING ADJUSTMENTS
No adjustments were required to conform the accounting policies
of Lam and OnTrak.
6
<PAGE>
AUDITED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of OnTrak Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of OnTrak
Systems, Inc. and its subsidiaries at June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
July 24, 1997, except for Note 2,
which is as of August 5, 1997
7
<PAGE>
<TABLE>
ONTRAK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, 1997 1996
- ----------------------------------------------------------------------------------------------------------------
In Thousands, Except per Share Data
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,147 $ 24,217
Short-term investments 16,301 12,372
Accounts receivable, less allowance for
doubtful accounts of $400 14,350 8,918
Inventory 7,976 6,892
Prepaid expenses and other assets 3,334 2,440
- ----------------------------------------------------------------------------------------------------------------
Total current assets 57,108 54,839
Property and equipment, net 12,492 7,293
- ----------------------------------------------------------------------------------------------------------------
$ 69,600 $ 62,132
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 286 $ 283
Accounts payable 3,502 3,124
Accrued liabilities 8,081 5,462
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 11,869 8,869
Long-term obligations 886 1,173
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 12,755 10,042
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Undesignated Preferred Stock, $.0001 par value, 3,000 shares authorized;
none issued or outstanding - -
Common Stock, $.0001 par value, 30,000 shares authorized;
7,764 and 7,518 shares issued and outstanding 1 1
Capital in excess of par value 48,462 46,665
Retained earnings 8,382 5,424
- ----------------------------------------------------------------------------------------------------------------
Total Stockholders' equity 56,845 52,090
- ----------------------------------------------------------------------------------------------------------------
$ 69,600 $ 62,132
================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
ONTRAK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Year Ended June 30, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
In Thousands, Except per Share Data
<S> <C> <C> <C>
Net revenue $ 70,793 $ 55,829 $ 26,024
Cost of revenue 33,945 26,334 10,889
- ----------------------------------------------------------------------------------------------------------------
Gross profit 36,848 29,495 15,135
- ----------------------------------------------------------------------------------------------------------------
Operating expenses:
Research, development and engineering 21,630 13,886 6,828
Selling, general and administrative 12,205 9,689 5,504
Charge for past royalties - - 1,250
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 33,835 23,575 13,582
- ----------------------------------------------------------------------------------------------------------------
Income from operations 3,013 5,920 1,553
Interest and other income (expense), net 1,406 1,442 (27)
- -----------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 4,419 7,362 1,526
Provision for income taxes 1,461 2,575 458
- ----------------------------------------------------------------------------------------------------------------
Net income $ 2,958 $ 4,787 $ 1,068
================================================================================================================
Net income per share $ 0.36 $ 0.59 $ 0.17
Weighted average common and
common equivalent shares 8,304 8,167 6,134
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
ONTRAK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Capital in
Common Stock Excess of Retained
Shares Amount Par Value Earnings Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In Thousands
Balance at June 30, 1994 3,130 $ - $ 137 $ 1,747 $ 1,884
Repurchase of Common Stock (760) - (23) (2,178) (2,201)
Sale of Common Stock 4 - 10 - 10
Net issuance under employee stock plans 286 - 75 - 75
Net income - - - 1,068 1,068
- ------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 2,660 - 199 637 836
Net proceeds from Initial Public Offering 2,690 1 41,403 - 41,404
Conversion of Preferred Stock 1,790 - 3,072 - 3,072
Net issuance under employee stock plans 378 - 770 - 770
Tax benefit of stock option transactions - - 1,221 - 1,221
Net income - - - 4,787 4,787
- ------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 7,518 1 46,665 5,424 52,090
Net issuance under employee stock plans
and exercise of warrants 276 - 1,422 - 1,422
Common Stock exchanged for assets of subsidiary (30) - (318) - (318)
Tax benefit of stock option transactions - - 693 - 693
Net income - - - 2,958 2,958
- ------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 7,764 $ 1 $48,462 $ 8,382 $ 56,845
==================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
ONTRAK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended June 30, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,958 $ 4,787 $ 1,068
Adjustments to reconcile net income to
net cash provided by (used for) operating activities:
Depreciation and amortization 2,585 1,564 486
Allowance for doubtful accounts - 344 56
Tax benefit of stock option transactions 693 1,221 -
Deferred income taxes (595) (1,028) (88)
Changes in assets and liabilities:
Accounts receivable (5,497) (3,982) (3,805)
Inventory (1,223) (2,344) (3,136)
Prepaid expenses and other assets (413) 420 (630)
Accounts payable 378 548 2,001
Accrued liabilities 2,619 921 2,070
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 1,505 2,451 (1,978)
- -----------------------------------------------------------------------------------------------------------------
Cash used for investing activities:
Net purchases of short-term investments (3,929) (12,372) -
Investment in property and equipment (7,784) (6,059) (1,700)
- -----------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (11,713) (18,431) (1,700)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 1,422 770 85
Net proceeds from Initial Public Offering - 41,404 -
Borrowings under long-term obligations - 1,170 -
Repayments of long-term obligations (284) (1,464) (205)
Repurchase of outstanding Common Stock - - (2,201)
Proceeds from (redemption of) Mandatorily
Redeemable Preferred Stock - (3,450) 6,522
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,138 38,430 4,201
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (9,070) 22,450 523
Cash and cash equivalents at beginning of year 24,217 1,767 1,244
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 15,147 $ 24,217 $ 1,767
================================================================================================================
Supplemental cash flow disclosures:
Income taxes paid $ 1,036 $ 2,719 $ 745
Interest paid 112 164 134
Supplemental non-cash investing and financing disclosures:
Common Stock exchanged for assets of subsidiary 318 - -
Conversion of Mandatorily Redeemable Preferred
Stock into Common Stock - 3,072 -
Equipment financing - - 1,035
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
11
<PAGE>
ONTRAK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OnTrak Systems, Inc. ("the Company") was incorporated in California in June
1985, and was reincorporated in Delaware in November 1996. The reincorporation
was accomplished through the exchange of each outstanding share of no par value
Common Stock of the California corporation for one share of $.0001 par value
Common Stock of the newly formed Delaware corporation. The Company's
Stockholders Equity accounts have been restated to reflect the change to OnTrak
Delaware Common Stock, $.0001 par value, for all periods presented. The Company
is a leading provider of semiconductor capital equipment for chemical mechanical
planarization and operates in a single industry segment.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements of the Company include the financial
statements of OnTrak Systems, Inc. and its wholly-owned subsidiaries. All
significant intercompany accounts and balances have been eliminated.
Revenue recognition
Revenue related to systems and parts sales is generally recognized upon
shipment. Customers are not given the right to return systems; however,
occasionally customers are provided with an evaluation system, and since
customers can return such systems at any time with limited or no penalty, the
Company does not recognize the associated revenue until the system is accepted
by the customer. A provision for the cost of system installation and warranty is
recorded at the time revenue is recognized. Service and maintenance revenue is
recognized ratably over the period of the related service contract.
Cash equivalents and short-term investments
For purposes of the financial statement presentation, the Company considers all
highly liquid investments with remaining maturities of three months or less when
purchased to be cash equivalents. Cash equivalents generally consist of treasury
notes and money market deposits. Short-term investments consist of treasury
notes and municipal bonds purchased with remaining maturities greater than three
months. The Company has classified its short-term investments as "available for
sale".
Inventory
Inventory is stated at the lower of standard cost, which approximates actual
cost (on a first-in, first-out basis), or market.
12
<PAGE>
Property and equipment
Property and equipment is stated at historical cost, less accumulated
depreciation and amortization. Depreciation of property and equipment is
computed using the straight-line method based upon the useful lives of the
assets, which range from three to seven years. Leasehold improvements are
amortized over the useful lives of the improvements or the lease term, whichever
is shorter.
Income taxes
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts.
Concentration of credit risk
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash and cash equivalents, short-term investments, and
trade accounts receivable. The Company limits the amount of credit exposure to
any one financial institution or commercial issuer. A majority of the Company's
accounts receivable are derived from sales to large multinational semiconductor
manufacturers and semiconductor equipment distributors. At June 30, 1997,
receivables from two customers represented 25% and 15% of accounts receivable.
At June 30, 1996, receivables from the same two customers represented 25% and
18% of accounts receivable. Concentrations of credit risk with respect to
accounts receivable are considered to be limited due to the quality of the
Company's customer base and the diversity of its geographical sales areas. The
Company performs ongoing credit evaluations of its customers' financial
condition and requires collateral, such as letters of credit and security
agreements, whenever deemed necessary. The Company maintains an allowance for
potential credit losses but has not experienced significant losses to date.
Net income per share
Net income per share for the periods prior to June 30, 1996 was determined using
the treasury stock method, and since then has been determined using the modified
treasury stock method, since the number of options outstanding exceeded 20% of
the outstanding stock. Under the treasury stock method, earnings per share is
computed by dividing net income by the weighted average number of common and
common equivalent shares outstanding during the period, including the assumed
net shares issuable upon exercise of dilutive stock options. Under the modified
treasury stock method, all stock options are assumed exercised whether dilutive
or not, and the proceeds from the assumed exercise are applied in steps. First,
stock is assumed to be repurchased up to a maximum of 20% of the actual
outstanding shares. Any remaining proceeds are assumed to be used to reduce
debt, and then to acquire U.S. Government securities. For purposes of this
calculation, net income is adjusted by the after tax interest effect related to
such assumed transactions. The result of the two step approach is aggregated
and, if dilutive, enters into the earnings per share calculation. The modified
treasury stock method can result in different earnings per share than those
calculated using the treasury stock method. For the years ended June 30, 1997
and 1996, there was no significant impact from applying the modified treasury
stock method.
<TABLE>
In March 1997, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards (SFAS) 128, "Earnings Per Share," which changes
the manner in which the Company will compute earnings per share beginning in the
second quarter of fiscal year 1998. SFAS 128 requires retroactive presentation
of all earnings per share amounts. Pro forma basic and diluted earnings per
share required to be disclosed under SFAS 128 are presented below.
<CAPTION>
Year Ended June 30, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma basic earnings per share $ 0.39 $ 0.66 $ 0.23
Pro forma diluted earnings per share $ 0.36 $ 0.59 $ 0.17
</TABLE>
13
<PAGE>
Stock based compensation
In Fiscal Year 1997, the Company adopted SFAS 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS 123, the Company has
elected to apply the intrinsic valuation method for stock based compensation as
prescribed by APB Opinion 25 and its related interpretations, and provide pro
forma and other disclosures required by SFAS 123. Note 8 to the Consolidated
Financial Statements contains a summary of the pro forma effects to reported net
income and earnings per share for the years ended June 30, 1997 and 1996 as if
the Company had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS 123.
NOTE 2 - MERGER
In March 1997, the Company signed a definitive agreement to be acquired by Lam
Research Corporation ("Lam") in a transaction expected to be a tax free
reorganization and to constitute a pooling of interests for accounting purposes,
in which each share of the Company's Common Stock would be exchanged for 0.83
shares of Lam Common Stock, subject to potential adjustment under certain
conditions. The merger was completed on August 5, 1997, at which time each
outstanding share of Common Stock and option to acquire Common Stock was
exchanged for 0.83 shares of Lam Common Stock or options to acquire Lam Common
Stock, respectively.
NOTE 3 - FINANCIAL INSTRUMENTS
Investments
<TABLE>
Investments at June 30, 1997 consisted of the following:
<CAPTION>
Due in three Due in more
months or less than three months Total
- ------------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C>
Money market funds $ 329 $ - $ 329
U.S. Government notes and bonds 5,539 - 5,539
Municipal notes and bonds 8,748 16,301 25,049
- ------------------------------------------------------------------------------------------------
$ 14,616 $ 16,301 $ 30,917
================================================================================================
</TABLE>
At June 30, 1997, approximately $14.6 million of investments were included in
cash and cash equivalents on the consolidated balance sheet, and the remainder
were classified as short-term investments. At June 30, 1997, approximately $3.4
million of the short-term investments due in more than three months had a
maturity date greater than one year. The difference between the cost and fair
market value of the Company's short-term investments was not significant at June
30, 1997. The Company manages its cash equivalents and short-term investments as
a single portfolio of highly marketable securities, all of which are intended to
be available to meet the Company's current cash requirements.
Fair Value of Financial Instruments
The Company has evaluated the estimated fair value of its financial instruments
using available market quotes and other relevant information. The amounts
reported for financial instruments, including cash equivalents, short-term
investments, and long-term obligations, reasonably estimate their fair value.
14
<PAGE>
<TABLE>
NOTE 4 - BALANCE SHEET COMPONENTS
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C>
Inventory:
Raw materials $ 2,703 $ 3,338
Work-in-process 4,644 3,481
Finished goods 629 73
- ------------------------------------------------------------------------------------------
$ 7,976 $ 6,892
==========================================================================================
Property and equipment:
Machinery and equipment $ 11,783 $ 6,269
Furniture and fixtures 2,408 1,337
Leasehold improvements 2,959 1,760
Less: accumulated depreciation and amortization (4,658) (2,073)
- ------------------------------------------------------------------------------------------
$ 12,492 $ 7,293
==========================================================================================
Accrued liabilities:
Employee compensation $ 3,260 $ 1,443
Warranty and installation 2,425 1,822
Accrued commissions 1,146 417
Other 1,250 1,780
- ------------------------------------------------------------------------------------------
$ 8,081 $ 5,462
==========================================================================================
NOTE 5 - BORROWING AGREEMENTS AND OTHER LIABILITIES
Long-term obligations consist of the following:
June 30, 1997 1996
- ------------------------------------------------------------------------------------------
In Thousands
Notes payable $ 852 $ 1,091
Deferred compensation 320 365
- -------------------------------------------------------------------------------------------
1,172 1,456
Less: current portion (286) (283)
- -------------------------------------------------------------------------------------------
$ 886 $ 1,173
===========================================================================================
</TABLE>
15
<PAGE>
The Company has a note payable to a bank which is secured by all of the assets
of the Company, bears interest at the bank's prime rate (8.5% at June 30, 1997),
and is payable in monthly installments of principal and interest through
February 2000. The Company also has a $10.0 million line of credit agreement
with the bank which expires in November 1997; borrowings under the agreement
bear interest at the bank's prime rate. No borrowings were outstanding under the
agreement at June 30, 1997. The note payable and line of credit agreements each
contain restrictive covenants relating to profitability and various financial
ratios. The Company was in compliance with these covenants at June 30, 1997.
The Company has an agreement for deferred compensation to a former officer of
the Company for past services which requires annual payments of $72,500 through
January 2003. The future obligations under the agreement have been discounted
using an interest rate of 8%.
Future principal payments under long-term obligations are as follows:
Year Ending June 30,
- --------------------------------------------------------------------------------
In Thousands
1998 $ 286
1999 290
2000 295
2001 200
2002 66
Thereafter 35
- --------------------------------------------------------------------------------
$ 1,172
================================================================================
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company received financial advisory services under an agreement with a
consulting firm, a principal of which became a director in April 1995. The
agreement, which was terminated in February 1996, provided for a consulting fee
of $10,000 per month. A total of $80,000 and $125,000 was paid to the consulting
firm under this agreement during the years ended June 30, 1996 and 1995,
respectively. In November 1994, the Company paid $288,000 to the consulting firm
as a finder's fee and issued warrants to purchase 98,000 shares of Common Stock
of the Company at an exercise price of $3.542 per share in consideration of
services related to a preferred stock financing. These warrants were exercised
using a net exercise provision in March 1997, resulting in the issuance of
85,462 shares of Common Stock with no net proceeds.
16
<PAGE>
NOTE 7 - INCOME TAXES
The provision for income taxes consisted of the following:
Year Ended June 30, 1997 1996 1995
- --------------------------------------------------------------------------------
In Thousands
Current:
Federal $ 1,807 $ 3,157 $ 466
State 249 446 80
- --------------------------------------------------------------------------------
2,056 3,603 546
- --------------------------------------------------------------------------------
Deferred:
Federal (595) (883) (66)
State - (145) (22)
- --------------------------------------------------------------------------------
(595) (1,028) (88)
- --------------------------------------------------------------------------------
Provision for income taxes $ 1,461 $ 2,575 $ 458
================================================================================
<TABLE>
The following is a reconciliation of the federal income taxes at statutory rates
to the provision for income taxes:
<CAPTION>
Year Ended June 30, 1997 1996 1995
- -------------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C>
Federal income taxes at statutory rate of 34% $ 1,502 $ 2,502 $ 519
State income taxes, net of federal tax benefits 314 414 124
Tax exempt interest income (381) - -
Nontaxable FSC income (41) (174) (51)
Research and development and other credits (157) (203) (153)
Other 224 36 19
- -------------------------------------------------------------------------------------------------
Provision for income taxes $ 1,461 $ 2,575 $ 458
=================================================================================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
June 30, 1997 1996
- ------------------------------------------------------------------------------
In Thousands
Deferred tax assets:
Warranty and installation accrual $ 805 $ 731
Deferred state taxes 191 80
Deferred compensation 146 147
Depreciation 129 -
Reserves not currently deductible and other 903 696
- ------------------------------------------------------------------------------
2,174 1,654
Deferred tax liabilities:
Depreciation - (75)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 2,174 $ 1,579
==============================================================================
17
<PAGE>
NOTE 8 - STOCKHOLDERS' EQUITY
Initial public offering
The Company completed an initial public offering of 2,690,078 shares of the
Company's Common Stock in July 1995, resulting in a net increase to equity of
$41.4 million.
Split off of Teleparts subsidiary
In September 1996, the Company distributed all of the shares of Teleparts
International, Inc. ("Teleparts"), its former wholly-owned subsidiary, to the
Company's former CEO in exchange for 30,000 shares of the Company's Common
Stock. The book value of the net assets of Teleparts at the date of distribution
was approximately $318,000 and the fair value of the 30,000 shares of the
Company's common stock was approximately $420,000. The revenues and earnings of
Teleparts prior to the split off are included in the Company's consolidated
results of operations, but were not significant. Because of the significant
ownership in the Company by the former CEO (approximately 9%, prior to the
redemption) the transaction was recorded at the book value of the assets
exchanged and no gain was recorded.
Stock option plans
The Company has adopted incentive and nonstatutory stock option plans (the
"Employee Plans") for which 4,000,000 shares of Common Stock have been reserved
for issuance. Incentive stock option and nonstatutory stock option grants under
the Employee Plans must be at prices of at least 100% of the fair market value
of the stock on the date of grant. The options generally vest 25% per year.
The Company has also adopted a director stock option plan (the "Director Plan")
and reserved 125,000 shares of Common Stock for issuance thereunder. The
Director Plan provides for the grant of nonstatutory stock options to
nonemployee directors of the Company pursuant to an automatic, nondiscretionary
grant mechanism.
During fiscal year 1996, the Company issued an option to purchase 800,000 shares
of Common Stock to the Company's Chief Executive Officer at an exercise price of
$17.25 per share. In November 1996, following the approval of the 1996 Equity
Incentive Plan by the Company's stockholders, this option was canceled and
reissued with identical terms.
18
<PAGE>
<TABLE>
The following table summarizes the combined activity under the Employee and
Director Plans:
<CAPTION>
Shares Options Option
available outstanding price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In thousands, except option prices
Balance at June 30, 1994 102 770 $ 0.15 - $ 2.00
Shares authorized 1,253 - -
Options granted (838) 838 $ 2.00 - $10.20
Options exercised - (286) $ 0.23
- --------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 517 1,322 $ 0.15 - $10.20
Options granted (483) 483 $ 14.00 - $30.75
Options canceled 243 (243) $ 6.00 - $30.75
Options exercised - (363) $ 0.15 - $10.20
- --------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 277 1,199 $ 0.23 - $30.75
Shares authorized 2,000 - -
Options granted (1,108) 1,108 $ 13.75 - $29.00
Options canceled 127 (127) $ 2.50 - $30.75
Options exercised - (147) $ 0.23 - $26.00
- --------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 1,296 2,033 $ 0.23 - $30.75
========================================================================================================
</TABLE>
At June 30, 1997, a total of 950,000 options were exercisable under the Employee
and Director Plans.
Employee Stock Purchase Plan
In May 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 200,000 shares of Common Stock for issuance
thereunder. The Purchase Plan enables eligible employees to contribute up to 10%
of their compensation towards the purchase of shares of the Company's common
stock at 85% of the lower of the fair market value at the beginning of each
two-year offering period or the end of each six-month purchase period. The
Purchase Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the U.S. Internal Revenue Code. During fiscal year 1997,
approximately 44,000 shares were issued under the Purchase Plan. At June 30,
1997, approximately 141,000 shares of Common Stock were reserved for future
issuance under the Purchase Plan.
19
<PAGE>
<TABLE>
Stock based compensation
In accordance with the provisions of SFAS 123, the Company applies APB Opinion
25 and related interpretations in accounting for its stock option and stock
purchase plans. Accordingly, the Company does not recognize compensation cost
because the exercise price of the stock options equals the market price of the
underlying stock on the date of grant. If the Company had elected to recognize
compensation cost based on the estimated fair value of the options granted as
prescribed by SFAS 123, net income and earnings per share would have been
reduced to the pro forma amounts shown below:
<CAPTION>
Year ended June 30, 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands, except per share amounts)
Net income - as reported $ 2,958 $ 4,787
Net income (loss) - pro forma $ (712) $ 832
Net income per share - as reported $ 0.36 $ 0.59
Net income (loss) per share - pro forma $ (0.09) $ 0.10
</TABLE>
<TABLE>
Compensation cost for the fair value of each stock option grant is estimated
using the Black-Scholes option valuation model for the multiple option approach
with the following weighted average assumptions:
<CAPTION>
Year ended June 30, 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected dividend yield - -
Expected stock price volatility 0.62 0.62
Risk-free interest rate 5.9% 5.7%
Expected life of options (from vesting date) 0.8 years 1.1 years
</TABLE>
The weighted average grant date fair value of stock options in the years ended
June 30, 1997 and 1996 was approximately $7.93 and $9.37, respectively.
<TABLE>
Compensation cost for the estimated fair value of the employee stock purchase
plan rights is estimated using the Black-Scholes option valuation model with the
following weighted average assumptions:
<CAPTION>
Year ended June 30, 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected dividend yield - -
Expected stock price volatility 0.62 0.62
Risk-free interest rate 5.2% 5.1%
Expected life of stock purchase plan rights (from grant date) 0.5 years 0.5 years
</TABLE>
The weighted average grant date fair value of employee stock purchase plan
rights in the years ended June 30, 1997 and 1996 was approximately $5.51 and
$5.09, respectively.
20
<PAGE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock volatility. Because the
Company's employee stock options and employee stock purchase plan rights have
characteristics significantly different from those of publicly traded options,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of the Company's
employee stock options and employee stock purchase plan rights. In addition,
because SFAS 123 is applicable only to options granted beginning in fiscal year
1996, its pro forma effect will not be fully reflected until approximately
fiscal year 1999.
The following summarizes additional information about stock options outstanding
at June 30, 1997: (amounts in thousands, except contractual life and exercise
price)
Options Outstanding
- -------------------
Number Weighted-Average Weighted-
Range of Outstanding Remaining Contractual Average
Exercise Prices at 6/30/97 Life (years) Exercise Price
- --------------------------------------------------------------------------------
$ 0.23 - $ 2.50 291 4.5 $ 1.04
$ 6.00 - $ 10.20 325 3.5 $ 7.67
$ 13.75 - $ 16.38 127 4.3 $ 15.01
$ 16.50 - $ 21.88 1,171 5.8 $ 17.75
$ 22.88 - $ 27.06 94 6.3 $ 24.06
$ 29.00 - $ 30.75 25 6.0 $ 29.44
- --------------------------------------------------------------------------------
$ 0.23 - $ 30.75 2,033 5.2 $ 14.01
================================================================================
Options Exercisable
- -------------------
Number Weighted-
Range of Exercisable Average
Exercise Prices at 6/30/97 Exercise Price
- ------------------------------------------------------------
$ 0.23 - $ 2.50 225 $ 0.67
$ 6.00 - $ 10.20 158 $ 7.63
$ 13.75 - $ 16.38 7 $ 15.63
$ 16.50 - $ 21.88 556 $ 17.53
$ 22.88 - $ 27.06 2 $ 25.63
$ 29.00 - $ 30.75 2 $ 30.75
- ------------------------------------------------------------
$ 0.23 - $ 30.75 950 $ 11.90
============================================================
21
<PAGE>
Other employee benefit plans
The Company maintains an employee savings and retirement plan (the "Plan")
qualified under Section 401(k) of the Internal Revenue Code. The Plan allows
participants to contribute up to 14% of the total compensation that would
otherwise be paid to them by the Company, not to exceed the maximum allowed by
the applicable Internal Revenue Service guidelines. The Company matches 100% of
the salary deferral contributions made by each participating employee, up to a
maximum of 6% of total employee compensation. Company contributions are 25%, 50%
and 100% vested after an employee's second year, third year and fourth year of
service, respectively. The Company contributed $788,000, $459,000 and $264,000
to the Plan during the years ended June 30, 1997, 1996 and 1995, respectively.
In March 1994, the Company approved a profit-sharing plan, whereby an aggregate
amount of 5% of the Company's operating profits, as defined, is paid to
employees semi-annually beginning July 1, 1994. The Company recorded
compensation expense of $176,000, $345,000 and $187,000 under the profit sharing
plan during the years ended June 30, 1997, 1996 and 1995, respectively.
NOTE 9 - GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
<TABLE>
Substantially all of the Company's revenues and expenses are denominated in U.S. dollars. The Company has one
manufacturing facility located in the U.S. and has no significant assets located outside of the U.S.
<CAPTION>
Net revenues from export sales were as follows:
Year Ended June 30, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In Thousands
Pacific Rim $ 20,684 $ 7,939 $ 3,207
Europe 14,674 10,102 3,880
- ----------------------------------------------------------------------------------------------------------------
$ 35,358 $ 18,041 $ 7,087
================================================================================================================
Percentage of total net revenue 50.0% 32.3% 27.2%
</TABLE>
22
<PAGE>
For the purposes of determining sales to significant customers, the Company
includes sales to customers through its distributors, and excludes the
distributors as significant customers. For the year ended June 30, 1997, sales
to one customer represented 19% of net revenues. For the year ended June 30,
1996, sales to the same customer represented 21% of net revenues.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company occupies its facilities under noncancelable operating lease
agreements which expire at various dates through March 2001 and which require
payment of property taxes, insurance, maintenance and utilities. Total rent
expense related to these operating leases was $1,072,000, $776,000 and $319,000
for the years ended June 30, 1997, 1996 and 1995, respectively.
Future minimum lease payments under noncancelable leases at June 30, 1997 are as
follows:
Year Ending June 30,
- --------------------------------------------------------------------------------
In Thousands
1998 $ 1,043
1999 1,047
2000 1,041
2001 426
- --------------------------------------------------------------------------------
$ 3,557
================================================================================
In the normal course of business, the Company receives and makes inquiries with
regard to possible patent infringement and other legal matters. Where deemed
advisable, the Company may seek to enter into or extend licenses or negotiate
settlements. Outcomes of such negotiations may not be determinable at any one
point in time; however, management does not believe that the outcome of pending
legal matters will have a material effect on the Company's financial position or
results of operations.
In June 1995, the Company entered into a worldwide, nonexclusive patent and
license agreement with a manufacturer of semiconductor capital equipment. The
license agreement resulted from a disputed claim by the licensor that the
Company's products infringed a patent owned by the licensor. Although the
Company believed that the patent would not have been enforceable against it, the
Company negotiated the license agreement to avoid the inherent risks and costs
of litigation. Under the license agreement, the Company made a $1.5 million
payment upon the closing of the Company's initial public offering for past
royalties through October 1, 1995. Additionally, the Company is obligated for
royalties equal to 1.5% of covered sales of the Company's cleaning systems,
until an additional $1.5 million has been paid. The Company charged $1.25
million to expense in the nine months ended March 31, 1995 for the royalty
related to prior periods. Royalty expense of $ 891,000 and $719,000 for the
years ended June 30, 1997 and 1996 and $125,000 for the three month period ended
June 30, 1995 was charged to cost of sales. At June 30, 1997, the remaining
obligation under the royalty agreement was approximately $15,000.
23
<PAGE>
SIGNATURE
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.
LAM RESEARCH CORPORATION
(Registrant)
Dated: October 3, 1997 By: /s/ Mercedes Johnson
--------------------
Name: Mercedes Johnson
Title: Vice President, Finance and
Chief Financial Officer.
24
