<PAGE>
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, 1997
Commission File No. 0-12933
LAM RESEARCH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2634797
--------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4650 CUSHING PARKWAY, FREMONT, CALIFORNIA 94538
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 659-0200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [_]
As of March 31, 1997 there were 30,664,502 shares of Registrant's Common Stock
outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION ................................ 3
Item 1. Financial Statements (unaudited)...................... 3
Condensed Consolidated Balance Sheets............. 3
Condensed Consolidated Statements of Operations... 4
Condensed Consolidated Statements of Cash Flows... 5
Notes to Condensed Consolidated Financial
Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Results of Operations............................. 10
Liquidity and Capital Resources................... 12
Risk Factors...................................... 13
PART II. OTHER INFORMATION...................................... 21
Item 1. Legal Proceedings...................................... 21
Item 6. Exhibits and Reports on Form 8-K....................... 22
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(Unaudited) (Note)
----------------------- --------------------
<S> <C> <C>
Assets
Cash and cash equivalents ................................... $ 9,344 $ 62,879
Short-term investments ...................................... 153,866 67,605
Accounts receivable, net .................................... 207,984 256,767
Inventories ................................................. 233,075 322,366
Prepaid expenses and other assets ........................... 40,222 17,193
Deferred income taxes ....................................... 53,140 50,035
........ ........
Total Current Assets ........................ 697,631 776,845
Equipment and leasehold improvements, net ................... 191,777 170,839
Other assets ................................................ 33,053 21,681
........ ........
Total Assets ................................ $922,461 $969,365
======== ========
Liabilities and Stockholders' Equity
Trade accounts payable ...................................... $100,916 $112,883
Accrued expenses and other
current liabilities ...................................... 147,892 155,874
Line of credit borrowings ................................... 15,000 25,000
Current portion of long-term debt and
capital lease obligations ................................ 13,843 12,896
........ ........
Total Current Liabilities ................... 277,651 306,653
Long-term debt and capital lease
obligations, less current portion ........................ 57,294 52,926
........ ........
Total Liabilities ........................... 334,945 359,579
Preferred stock: 5,000 shares authorized;
none outstanding
Common stock at par value of $.001 per share
Authorized -- 90,000 shares; issued and
outstanding 30,665 shares at March 31,
1997 and 30,266 shares at June 30, 1996 .................. 31 30
Additional paid-in capital .................................. 307,565 298,160
Retained earnings ........................................... 279,920 311,596
........ ........
Total Stockholders' Equity .................. 587,516 609,786
........ ........
$922,461 $969,365
======== ========
</TABLE>
- --------------------------------------------
Note -- The Condensed Consolidated Balance Sheet at June 30, 1996 has been
derived from the audited financial statements at that date. See Notes
to condensed consolidated financial statements.
<PAGE>
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- ---------------------
1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales $ 214,938 $342,335 $ 727,784 $884,277
Royalty income 664 4,304 11,933 16,123
--------- -------- --------- --------
Total revenue 215,602 346,639 739,717 900,400
Costs and expenses:
Cost of goods sold 204,160 178,669 525,045 461,883
Research and development 43,845 46,861 124,216 121,898
Selling, general and
administrative 48,096 63,354 142,664 163,516
Restructuring charge - - 9,021 -
--------- -------- --------- --------
Operating income (loss) (80,499) 57,755 (61,229) 153,103
Other expense, net 155 922 1,217 2,239
--------- -------- --------- --------
Income (loss) before income taxes (80,654) 56,833 (62,446) 150,864
Income tax expense (benefit) (35,875) 18,184 (30,770) 48,269
Net income (loss) $(44,779) $ 38,649 $(31,676) $102,595
======== ======== ======== ========
Net income (loss) per share
Primary $ (1.46) $ 1.37 $ (1.04) $ 3.63
======== ======== ======== ========
Fully diluted $ (1.46) $ 1.28 $ (1.04) $ 3.40
======== ======== ======== ========
Number of shares used in
per share calculations
Primary 30,600 28,200 30,500 28,300
======== ======== ======== ========
Fully diluted 30,600 30,850 30,500 30,950
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
---------------------
March 31, March 31,
1997 1996
-------- ----------
Cash flows from operating activities:
Net income (loss) ($31,676) $ 102,595
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 42,825 23,287
Deferred income taxes (3,105) -
Change in certain working capital
accounts 94,315 (68,806)
-------- ---------
Net cash provided by operating
activities 102,359 57,076
Cash flows from investing activites:
Capital expenditures (43,542) (52,114)
Purchase of short-term investments (474,556) (332,065)
Sale of short-term investments 388,295 271,097
Restricted cash - 25,024
Proceeds from sales of securities - 12,038
Purchases of other assets (11,479) (12,694)
-------- ---------
Net cash used in investing activities (141,282) (88,714)
-------- ---------
Cash flows from financing activities:
Sale of stock, net of issuance
costs 9,406 4,733
Proceeds from borrowings under line
of credit 60,000 15,000
Repayment of borrowings under line
of credit (70,000) -
Proceeds from long-term debt 1,632 -
Principal payments on long-term debt
and capital lease obligations (15,650) (8,959)
Other - (1,628)
-------- ---------
Net cash provided by (used in)
financing activities (14,612) 9,146
-------- ---------
Net decrease in cash and
cash equivalents (53,535) (22,492)
Cash and cash equivalents at beginning
of period 62,879 43,675
-------- ---------
Cash and cash equivalents at end of
period $ 9,344 $ 21,183
======== =========
See notes to condensed consolidated financial statements.
5
<PAGE>
LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of Lam Research Corporation (the "Company" or
"Lam") for the year ended June 30, 1996, which are included in the Annual Report
on Form 10-K, File number 0-12933.
The results of operations for the three and nine month periods ended March
31, 1997 are not necessarily indicative of the results that may be expected for
the entire fiscal year ending June 30, 1997.
NOTE B -- INVENTORIES
Inventories consist of the following:
March 31, June 30,
1997 1996
--------- --------
(in thousands)
Raw materials $124,324 $167,513
Work-in-process 78,581 122,828
Finished goods 30,170 32,025
-------- --------
$233,075 $322,366
======== ========
NOTE C -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
March 31, June 30,
1997 1996
--------- --------
(in thousands)
Equipment $144,904 $120,770
Furniture & fixtures 53,495 45,740
Leasehold improvements 97,420 88,131
-------- --------
295,819 254,641
Accumulated depreciation and
amortization (104,042) (83,802)
-------- --------
$191,777 $170,839
======== ========
6
<PAGE>
NOTE D -- OTHER EXPENSE, NET
The significant components of other expense, net are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
------------------ -------------------
<S> <C> <C> <C> <C>
Interest Expense $1,267 $ 1,926 $ 4,074 $ 6,026
Interest Income (834) (1,655) (3,269) (4,393)
Other (278) 651 412 606
------ ------- ------- -------
$ 155 $ 922 $ 1,217 $ 2,239
====== ======= ======= =======
</TABLE>
NOTE E -- LINE OF CREDIT
During fiscal 1996, the Company entered into a syndicated bank line of
credit totaling $210.0 million, which expires in December 1998. At March 31,
1997, the Company had outstanding borrowings of $15.0 million against the line
of credit. The Company received amendments or waivers for certain of its
financial covenants which would have otherwise been breached by the net loss
reported by the Company for the three and nine month periods ended March 31,
1997.
NOTE F -- NET INCOME (LOSS) PER SHARE
For the three and nine month periods ended March 31, 1997, net loss per
share is calculated using the weighted average number of shares of common stock
outstanding during the period. For the three and nine month periods ended March
31, 1996, 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. The
convertible subordinated debentures are not deemed to be common stock
equivalents and, accordingly, are excluded from the calculation of primary net
income per share. Fully diluted net income per share for the three and nine
month periods ended March 31, 1996 reflects the assumed conversion of the
Company's convertible subordinated debentures at the beginning of that period,
and also adjusts net income to reflect the exclusion of net interest expense and
net amortization expense of the debt issuance cost related to the debentures.
The convertible subordinated debentures were called by the Company during the
quarter ended June 30, 1996.
In March 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS
128"), which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary net income per share (basic earnings per share), the
dilutive effect of stock options will be excluded. The Company's basic and
diluted earnings (loss) per share as calculated according to FAS 128 would be
follows:
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
------------------ -----------------
<S> <C> <C> <C> <C>
Basic $(1.46) $1.41 $(1.04) $3.75
Diluted $(1.46) $1.28 $(1.04) $3.40
</TABLE>
NOTE G -- RESTRUCTURING
During the first quarter of fiscal 1997, the Company restructured its
operations by consolidating its previous business unit structure into a more
centralized functional organization. As a result of the restructuring, and in
response to industry and market conditions, the Company reduced its work force
by approximately 11%. The Company recorded a restructuring charge of $9.0
million for costs related primarily to severance compensation and consolidation
of facilities. At March 31, 1997, $2.2 million remains in accrued liabilities
relating primarily to executive severance and lease payments remaining on
unused facilities. As of March 31, 1997, the Company has made $5.8 million of
cash payments relating to the restructuring.
NOTE H -- SHAREHOLDER RIGHTS PLAN
On January 23, 1997, the Company adopted a Shareholder Rights Plan (the
"Rights Plan"). Pursuant to the Rights Plan, rights were distributed as a
dividend at the rate of one right for each share of common stock, par value
$0.001 per share ("Right"), of the Company held by stockholders of record as of
the close of business on January 31, 1997. The Rights will expire on January 31,
2007, unless redeemed or exchanged. Under the Rights Plan, each Right initially
will entitle the registered holder to buy one unit of a share of preferred stock
for $250.00. The Rights will become exercisable only if a person or group
(other than stockholders currently owning 15 percent of the Company's common
stock) acquires beneficial ownership of 15 percent or more of the Company's
common stock or commences a tender or exchange offer upon consummation of which
such person or group would beneficially own 15 percent or more of the Company's
common stock.
NOTE I -- PROPOSED ACQUISITION OF ONTRAK SYSTEMS, INC.
On March 24, 1997, the Company announced the signing of a definitive
Agreement and Plan of Merger (the "Merger Agreement") with OnTrak Systems, Inc.
("OnTrak") and Omega Acquisition Corporation (the "Sub"), a wholly-owned
subsidiary of the Company. Under the Merger Agreement, the Sub will be merged
with and into OnTrak and OnTrak will become a wholly-owned subsidiary of the
Company (the "Merger"). OnTrak's common stock, par value of $0.0001 (the "OnTrak
common stock"), and options to acquire OnTrak common stock will be exchanged
into 0.83 of a share(("Exchange Ratio") or, in the case of options to acquire
shares of OnTrak common stock, for options to purchase 0.83 of a share) of the
Company's common stock, subject to adjustments as set forth in the Merger
Agreement. The transaction is intended be accounted for as a pooling of
interests and is structured to qualify as a tax-free reorganization. The
transaction is contingent on the approval of both companies' stockholders and
other customary closing conditions. The Company was granted early termination of
the waiting period under the Hart Scott Rodino Act on April 15, 1997.
8
<PAGE>
NOTE J -- LITIGATION
See Part II, item 1 for discussion of litigation.
ITEM 2. Management's Discussion and Analysis of Financial
--------------------------------------------------
Condition and Results of Operations
-----------------------------------
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, including, but not limited to,
future revenue, royalty income and gross margins, the anticipated decline in
operating expenses and the sufficiency of financial resources to support
operations, and are subject to the Safe Harbor provisions created by that
statute. Such statements are based on current expectations that involve risks
and uncertainties, including those discussed below and under the heading Risk
Factors, that could cause actual results to differ materially from those
expressed. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. This discussion should be read in conjunction with the
Consolidated Financial Statements and Notes presented on pages 3 to 8 of this
Quarterly Report for a full understanding of the Company's financial position
and results of operations.
The components of the Company's statements of operations, expressed as a
percentage of total revenue, are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
---------------- -----------------
(%) (%) (%) (%)
<S> <C> <C> <C> <C>
Net sales 99.7 98.8 98.4 98.2
Royalty income 0.3 1.2 1.6 1.8
----- ----- ----- ------
100.0 100.0 100.0 100.0
Cost of goods sold 94.7 51.5 71.0 51.3
Research and development 20.3 13.5 16.8 13.5
Selling, general
& administrative 22.3 18.3 19.3 18.2
Restructuring charge - - 1.2 -
----- ----- ----- ------
Operating income (loss) (37.3) 16.7 (8.3) 17.0
Other expense, net 0.1 0.3 0.1 0.2
----- ----- ----- ------
Income(loss)before income taxes (37.4) 16.4 (8.4) 16.8
Income tax expense (benefit) (16.6) 5.2 (4.1) 5.4
----- ----- ----- ------
Net income(loss) (20.8) 11.2 (4.3) 11.4
===== ===== ===== ======
</TABLE>
9
<PAGE>
Results of Operations
- ---------------------
Total revenue for the three month period ended March 31, 1997, was 11% and
38% lower, respectively, compared to the immediately preceding period and year-
ago period. Total revenue for the nine month period ended March 31, 1997 was
$739.7 million, a decrease of $160.7 million from the year-ago period. Overall,
revenue was down due to the reduced demand for the Company's equipment based on
its customers' reduced production capacity requirements in response to the
slowdown in the semiconductor market. During the first nine months of fiscal
1997, the Company's product mix shifted towards a higher percentage of sales of
Alliance(TM) cluster etch systems and chemical vapor deposition ("CVD") systems,
with a significantly lower percentage of sales of Rainbow(TM) etch systems. The
percentage of sales of Transformer Coupled Plasma ("TCP(TM)") etch systems
remained approximately flat over the nine month period. Total foreign sales
decreased to 50% of total revenue during the third quarter of fiscal 1997
compared to 63% and 60%, respectively, of total revenue for the preceding period
and the year-ago period and accounted for 75% of the decline in total revenue.
All foreign regions experienced declines in total revenue for the three month
period compared to the year-ago period with the Asia Pacific and Japan regions,
respectively, accounting for 32% and 31% of the total decline in foreign sales.
Total spares and service revenue also decreased for both the three and nine
month periods ended March 31, 1997 compared with the same periods of the prior
year.
During the first nine months of fiscal 1997, the Company's revenue was
adversely affected by the worldwide slowdown in the semiconductor market. While
the Company anticipates that, based on current customer order rates, sales for
the fourth quarter of fiscal year 1997 will be higher than the third quarter,
revenue levels through calendar 1997 are likely to remain lower than the revenue
levels achieved for the comparable prior year periods.
Royalty income for the three month period ended March 31, 1997 decreased
85% from the year-ago quarter. Royalty income also decreased 26% for the first
nine months of fiscal 1997 compared to the year-ago period. The reduction in
royalty income is due primarily to the lower royalty rate effective January 1,
1997 under the recently extended royalty agreement with Tokyo Electron Limited.
The agreement, set to expire on December 31, 1996 was renegotiated at a reduced
royalty rate (5% to 1%). The Company expects that this reduced level of royalty
income will continue in subsequent quarters.
The Company's gross margin percentage declined to 5.3% and 29.0%,
respectively, for the three and nine month periods ended March 31, 1997 compared
with 48.5% and 48.7% for comparable periods of the prior fiscal year. During the
third quarter of fiscal 1997, the Company's product mix continued to shift to a
higher percentage of the newer, lower margin, Alliance cluster etch and CVD
products, as compared to fiscal 1996 when the Company sold a higher percentage
of the higher margin Rainbow etch products. As a result of the faster than
anticipated customer transition from the single-chamber to the multi-chamber
etch platform, and continuing revisions to the design and features of such
multi-chamber products, the Company established additional reserves of
approximately $42 million during the third quarter for excess and obsolete
manufacturing and spares inventory and inventory-related commitments. In
addition, due primarily to the increased customer demand for the Company's
Alliance cluster and CVD tools, which are more expensive to install and complete
warranty obligations, the Company re-evaluated its warranty and installation
reserves and determined that additional provisions of approximately $15
10
<PAGE>
million were needed. Furthermore, as a result of reduced manufacturing volumes,
the Company experienced excess manufacturing capacity during the three and nine
month periods of fiscal 1997 which also contributed to a decline of
approximately 3% in gross margin for both periods. Also contributing to the
decline in gross margin on a year-to-date basis were restocking charges of
approximately $2 million incurred in connection with the Company's inventory
reduction program involving the return of certain material to suppliers. In
addition, during the first nine months of fiscal 1997, the Company also incurred
lower gross margins on its spares and service revenue due a decrease in pricing
and a shift in mix between lower margin service and higher margin spares. While
the Company expects gross margins in the fourth quarter of fiscal 1997 and the
remaining quarters of calendar 1997 to exceed those in the three and nine month
periods ended March 31, 1997, the Company anticipates that the slowdown in the
worldwide semiconductor industry and the Company's related excess manufacturing
capacity will continue to adversely affect its gross margins for the remainder
of calendar 1997.
Research and development ("R&D") expenses for the three and nine month
periods ended March 31, 1997 decreased 6% and increased 2%, respectively, when
compared to the year-ago periods. During the first quarter of fiscal 1997, the
Company implemented a restructuring of its operations which eliminated the prior
business unit structure. As a result, the Company centralized its R&D activities
and eliminated certain duplicate functions, which resulted in reduced headcount.
During fiscal 1996, the Company's R&D expenses grew significantly from quarter
to quarter, and therefore the impact of the restructuring on a nine month
comparative basis is not as significant as compared to the impact of the
restructuring on the three month comparative basis. The Company continues to
invest in advanced etch applications, CVD technologies, flat panel display
technology ("FPD") and continued enhancements of the Alliance and TCP products.
While the Company has reduced its discretionary spending, particularly in areas
such as outside consulting and supplies, this reduction was partially offset by
an adjustment of approximately $3 million during the third quarter to write-off
certain R&D related fixed assets. The Company believes that in order to remain
competitive it must continue to invest substantially in R&D.
Selling, general and administrative ("SG&A") expenses decreased 24% and
13%, respectively, during the three and nine month periods ended March 31, 1997
compared to the same periods of the prior fiscal year. During fiscal 1996, the
Company added new employees in all areas to accommodate the increase in sales
volume. However, as a result of the slowdown in the industry, and the need to
keep costs in line with demand, the Company implemented a restructuring of its
operations during the first quarter of fiscal 1997, and implemented programs,
including a reduction in workforce, to reduce expenses and capital spending.
During the second and third quarters of fiscal 1997, the Company's operating
expenses decreased due to the effects of this restructuring, execution of cost
containment programs, and a significant reduction in capital purchases.
Partially offsetting the overall reduction in SG&A spending was an adjustment of
approximately $3 million, during the third fiscal quarter, for the write-off of
certain obsolete customer evaluation systems.
During the first quarter of fiscal 1997, and as part of the restructuring,
the Company recorded a charge of $9.0 million related primarily to severance
compensation and consolidation of facilities. The Company expects that operating
expenses may continue to decline on
11
<PAGE>
a dollar basis in fiscal 1997 compared to fiscal 1996 but may be slightly higher
as a percentage of total revenue.
The effective tax benefit rate for the fiscal 1997 nine month period is
49.3% compared to the effective tax provision rate of 32.0% for the prior year
period, due primarily to the benefit of net operating losses and research tax
credits.
Liquidity and Capital Resources
- -------------------------------
Despite a net loss for the nine month period ended March 31, 1997, net cash
provided by operating activities was $102.4 million for the period. The decline
in system shipments contributed to decreases in receivables, inventory and
accounts payable. Substantially all of the third quarter asset and reserve
adjustments discussed in the Results of Operations above were of a non-cash
nature. In addition, contributing to the decrease in inventory was the impact of
a Company-wide inventory reduction program. During the first nine months of
fiscal 1997, an additional $50.6 million of cash was provided from the sale of
yen-denominated Japanese receivables to a bank (under an amended agreement
whereby the Company increased the amount of yen-denominated Japanese receivables
it may sell to the bank from 6 billion yen to 9 billion yen). At March 31, 1997,
$21.0 million of the total receivables sold under this agreement remained
uncollected by the bank and subject to recourse provisions. Capital expenditures
for the nine month period ended March 31, 1997 were $43.5 million, primarily due
to capitalization of Alliance demonstration systems, and the completion of
facility leasehold improvements and furnishings. Also contributing to the cash
used in investing activities were net purchases of short-term investments of
$86.3 million. Net cash used in financing was $14.6 million due primarily to net
repayments of borrowings under the line of credit of $10.0 million and net
principal debt payments of $14.0 million offset by proceeds from the sale of
common stock under the employee stock purchase and option plans.
As of March 31, 1997, the Company had $163.2 million in cash, cash
equivalents and short-term investments compared with $130.5 million at June 30,
1996. The Company has a total of $210.0 million available under a syndicated
bank line of credit which is due to expire in December 1998. Borrowings under
the line of credit bear interest at the bank's prime rate or 0.7% to 0.9% over
London Interbank Offered Rate and are subject to the Company's compliance with
financial and other covenants. The Company amended or received waivers for
certain of its financial covenants in anticipation of the net loss reported for
the three and nine month periods ended March 31, 1997. At March 31, 1997 the
Company had borrowings against the syndicated bank line of credit of $15.0
million.
The Company's cash, cash equivalents, short-term investments and available
lines of credit at the end of the third quarter of fiscal 1997 are considered
adequate to support current and anticipated future levels of operations for at
least the next twelve months.
12
<PAGE>
RISK FACTORS
RISKS RELATED TO BUSINESS AND OPERATIONS
- ----------------------------------------
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have fluctuated in the past and may
fluctuate in the future. The Company's operating results are dependent on many
factors, including but not limited to the economic conditions in the
semiconductor industry, customer capacity requirements, the size and timing of
the receipt of orders from customers, customer cancellations or delays of
shipments, the Company's ability to develop, introduce and market new and
enhanced products on a timely basis, the introduction of new products by its
competitors, changes in average selling prices and product mix, and exchange
rate fluctuations, among others. The Company's expense levels will be based, in
part, on expectations of future revenues. If revenue levels in a particular
quarter do not meet expectations, operating results could be adversely affected.
The Company derives its revenue primarily from the sale of a relatively small
number of high-priced systems. The Company's systems can range in price from
approximately $300,000 to over $3 million per unit. The sale of fewer systems
than anticipated in any quarter may have a substantial negative impact on the
operating results for the quarter. The Company's results of operations for a
particular quarter could be adversely affected if anticipated orders are not
received in time to enable shipment during such quarter, if anticipated
shipments are delayed or canceled by one or more customers, or if shipments are
delayed due to procurement shortages or manufacturing difficulties. The slowdown
in the semiconductor industry and in the construction of new wafer fabrication
facilities has resulted in the Company experiencing a reduction in new orders as
well as rescheduled and canceled orders. There can be no assurance that this
slowdown will not continue. The Company generally realizes a higher margin on
sales of its mature etch products, such as Rainbow etch systems, and on revenue
from service and spare parts than on sales of Alliance, CVD, FPD and newly
released TCP products. Newer products usually have lower margins in the initial
phase of production. The impact of these and other factors on the Company's
revenues and operating results in any future period is difficult for the Company
to forecast. There can be no assurance that these and other factors will not
materially adversely affect the Company's future business and financial results.
CURRENT SLOWDOWN AND VOLATILITY IN THE SEMICONDUCTOR EQUIPMENT INDUSTRY
The business of the Company will depend on the capital equipment expenditures
of semiconductor manufacturers, which in turn depend on the current and
anticipated market demand for integrated circuits and products utilizing
integrated circuits. The semiconductor industry has been cyclical in nature and
historically has experienced periodic downturns. The semiconductor industry is
presently experiencing a slowdown of product demand and volatility in product
pricing. This slowdown and volatility have caused the semiconductor industry to
reduce or delay purchases of semiconductor manufacturing equipment and
construction of new fabrication facilities. These conditions have adversely
affected and may continue to adversely affect the Company's aggregate bookings,
revenues and operating results, and no assurance can be given that the Company's
bookings, revenue and operating results will not be adversely affected by future
downturns in the semiconductor
13
<PAGE>
industry. Even during periods of reduced revenues, in order to remain
competitive, the Company will be required to continue to invest in R&D and to
maintain extensive ongoing worldwide customer service and support capability,
which could adversely affect its financial results.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES; RAPID TECHNOLOGICAL CHANGE
Rapid technological changes in semiconductor manufacturing processes subject
the semiconductor manufacturing equipment industry to increased pressure to
maintain technological parity with deep submicron process technology. The
Company believes that the future success of the Company will depend in part upon
its ability to develop, manufacture and successfully introduce new products and
product lines with improved capabilities and to continue to enhance existing
products. Due to the risks inherent in transitioning to new products, the
Company will be required to accurately forecast demand for new products while
managing the transition from older products. If new products have reliability or
quality problems, reduced orders, higher manufacturing costs, delays in
acceptance of and payment for new products and additional service and warranty
expenses may result. In the past, the Company has experienced some delays as
well as reliability and quality problems in connection with product
introductions, resulting in some of these consequences. There can be no
assurance that the Company will successfully develop and manufacture new
products, or that new products introduced by the Company will be accepted in the
marketplace. If the Company does not successfully introduce new products, the
Company's results of operations will be materially adversely affected.
In addition, the Company expects to continue to make significant investments
in R&D. The Company also must manage product transitions successfully, as
introduction of new products could adversely affect sales of existing products.
There can be no assurance that future technologies, processes or product
developments will not render the Company's current product offerings obsolete or
that the Company will be able to develop and introduce new products or
enhancements to existing products which satisfy customer needs in a timely
manner or achieve market acceptance. The failure to do so could adversely affect
the Company's business. Furthermore, if the Company is not successful in the
marketing and selling of advanced processes or equipment to customers with whom
the Company has formed strategic alliances, the results of operations of the
Company to sell its products to those customers could be adversely affected. In
addition, in connection with the development of the Company's new products, the
Company will invest in high levels of preproduction inventory, and the failure
to complete development and commercialization of these new products in a timely
manner could result in inventory obsolescence, which could have an adverse
effect on the Company's financial results.
PRODUCT CONCENTRATION; LACK OF PRODUCT REVENUE DIVERSIFICATION
A substantial percentage of the Company's revenues to date have been derived
from a limited number of products, and such products are expected to continue to
account for a substantial percentage of the Company's revenues in the near term.
Collective sales of the Company's two primary products, Alliance multi-chamber
etch cluster tools and TCP single-chamber etch systems, accounted for
approximately 69% of the Company's net revenues for the nine months ended March
31, 1997. Continued market acceptance of the Company's primary products is
therefore critical to the future success of the Company. Any decline in demand
for or failure to achieve continued market acceptance of such products or any
new version of these products, if any, as a result of
14
<PAGE>
competition, technological change, failure of the Company to timely release new
versions of these products, or otherwise, could have a material adverse effect
on the business, operating results, financial condition and cash flows of the
Company. During the quarter ended March 31, 1997, the Company experienced a
faster than anticipated transition from its single-chamber etch products to its
next generation, multi-chamber etch cluster tools, which has resulted in the
need for higher-than-anticipated reserve provisions for excess and obsolete
manufacturing and spare parts inventories and additional provisions for
installation and warranty costs. These factors, among others, have resulted in
the Company reporting a loss for the three and nine month periods ended March
31, 1997.
DEPENDENCE UPON KEY SUPPLIERS AND KEY DISTRIBUTORS
Certain of the components and subassemblies included in the products of the
Company are obtained from a single supplier or a limited group of suppliers. The
Company believes that alternative sources could be obtained and qualified to
supply these products. Nevertheless, a prolonged inability to obtain certain
components could have an adverse effect on the Company's operating results and
damage customer relationships.
HIGHLY COMPETITIVE INDUSTRY
The semiconductor processing industry is highly competitive. The Company
expects to continue to face substantial competition throughout the world. A
substantial investment is required by semiconductor manufacturers to install and
integrate capital equipment into a semiconductor production line. The Company
believes that as a result, once a semiconductor manufacturer has selected a
particular supplier's capital equipment, the manufacturer generally relies upon
that equipment for the specific production line application and frequently will
attempt to consolidate its other capital equipment requirements with the same
supplier. Accordingly, the Company would expect to experience difficulty in
selling to a given customer if that customer had initially selected or selects a
competitor's capital equipment. The Company believes that to remain competitive,
the Company will require significant financial resources in order to offer a
broad range of products, to maintain customer service and support centers
worldwide, and to invest in product and process research and development.
The Company intends to continue to invest substantial resources to increase
sales of its systems to Japanese semiconductor manufacturers, who represent a
substantial portion of the worldwide semiconductor market and whose market is
difficult for non-Japanese equipment companies to penetrate. The Company
believes that the semiconductor equipment industry is becoming increasingly
dominated by large manufacturers who have the resources to support customers on
a worldwide basis, and certain of its competitors have substantially greater
financial resources and more extensive engineering, manufacturing, marketing and
customer service and support capabilities than the Company. In addition, there
are smaller emerging semiconductor equipment companies that provide innovative
technology that may have performance advantages over systems offered by the
Company.
The Company faces significant competitive factors in the etch equipment market
which include etch quality, repeatability, process capability and flexibility
and overall cost of ownership, including reliability, software automation,
throughput, customer support and system price. Although the Company believes
that it competes favorably
15
<PAGE>
with respect to each of these factors, the Company's ability to compete
successfully in this market will depend upon its ability to introduce product
enhancements and new products on a timely basis. There can be no assurance that
the Company will continue to compete successfully in the future. In the etch
equipment market, the Company's primary competitors are Applied Materials, Inc.,
Tokyo Electron Limited and Hitachi Ltd.
The Company faces significant competitive factors in the deposition equipment
market which include film quality, flow uniformity, contamination control,
temperature control and overall cost of ownership, including throughput, system
reliability, cost of consumables, system price and customer support. In the
deposition equipment market, the principal suppliers of equipment are Applied
Materials, Inc., Canon Sales Co. Inc., Novellus Systems, Inc. and Watkins-
Johnson Company.
The Company expects its competitors to continue to improve the design and
performance of their current products and processes and to introduce new
products and processes with improved price and performance characteristics. If
the Company's competitors enter into strategic relationships with leading
semiconductor manufacturers covering etch or CVD products similar to those sold
by the Company, its ability to sell its products to those manufacturers could be
adversely affected. No assurance can be given that the Company will continue to
compete successfully in the United States or worldwide.
Present or future competitors may be able to develop products comparable or
superior to those offered by the Company or adapt more quickly to new
technologies or evolving customer requirements. In particular, while the Company
currently is developing additional product enhancements that it believes
addresses customer requirements, there can be no assurance that the development
or introduction of these additional product enhancements will be successfully
completed on a timely basis or that these product enhancements will achieve
market acceptance. Accordingly, there can be no assurance that the Company will
be able to continue to compete effectively in its markets, that competition will
not intensify or that future competition will not have a material adverse effect
on the business, operating results, financial condition and cash flows of the
Company.
INTERNATIONAL OPERATIONS AND EXPANSION
International sales accounted for 64%, 54%, and 48%, respectively, of the
Company's net revenues in the fiscal years 1996, 1995 and 1994. The Company
anticipates that international sales will continue to account for a significant
portion of net sales. Additionally, the Company intends to continue expansion of
international operations, including expansion of facilities in the Asia Pacific
region. As a result, a significant portion of the Company's sales and
operations will be subject to certain risks, including tariffs and other
barriers, difficulties in staffing and managing foreign subsidiary and branch
operations, difficulties in managing distributors, potentially adverse tax
consequences and the possibility of difficulties in accounts receivable
collection.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on an
international level, such as unexpected changes in regulatory requirements,
political instability, fluctuations in currency exchange rates, and seasonal
reductions in business activity during summer months in Europe and certain other
parts of the world, any of which could have an adverse impact on the success of
international operations. Sales of products by the Company currently
16
<PAGE>
are denominated principally in U.S. dollars. Accordingly, any increase in the
value of the U.S. dollar as compared to currencies in the Company's principal
overseas markets would increase the foreign currency-denominated cost of the
Company's products, which may negatively affect the Company's sales in those
markets. The Japanese yen has decreased in value relative to the U.S. dollar in
recent months. In addition to the potential impact on the pricing of the Company
products, this decline will likely lower the rate of dollar revenue growth.
Currently, the Company enters into foreign currency forward contracts to
minimize the impact of exchange rate fluctuations on the value of the yen-
denominated assets and liabilities, and the Company will enter into such hedging
transactions in the future. In addition, effective patent, copyright, trademark
and trade secret protection may be limited or unavailable under the laws of
certain foreign jurisdictions. There can be no assurance that one or more of
such factors will not have a material adverse effect on the Company's
international operations and, consequently, on the business, operating results,
financial condition and cash flows of the Company.
POTENTIAL ANTI-TAKEOVER EFFECTS
On January 23, 1997, the Company adopted a Shareholder Rights Plan (the
"Rights Plan") in which rights were distributed as a dividend at the rate of one
right for each share of common stock, par value $.001 per share, of the Company
held by stockholders of record as of the close of business on January 31, 1997.
In connection with the adoption of the Rights Plan, the Board of Directors also
adopted a number of amendments to the Company's Bylaws, including amendments
requiring advance notice of stockholder nominations of directors, stockholder
proposals, actions by written consent by stockholders and a stockholder's
intention to cumulate votes. The Bylaw amendments also eliminate the right of
stockholders to call special meetings of stockholders.
The Rights Plan may have certain anti-takeover effects. The Rights Plan will
cause substantial dilution to a person or group that attempts to acquire the
Company in certain circumstances. Accordingly, the existence of the Rights Plan
and the issuance of the related rights may deter certain acquirers from making
takeover proposals or tender offers. The Rights Plan, however, is not intended
to prevent a takeover but rather is designed to enhance the ability of the Board
of Directors to negotiate with a potential acquirer on behalf of all of the
stockholders.
In addition, certain of the provisions of the Bylaw amendments may have the
effect of delaying or deferring a change in control of the Company.
INTELLECTUAL PROPERTY MATTERS
- -----------------------------
From time to time, the Company has received notices from third parties
alleging infringement of such parties' patent rights by the Company's products.
In such cases, it is the policy of the Company to defend against the claims or
negotiate licenses on commercially reasonable terms where considered
appropriate. However, no assurance can be given that the Company will be able to
negotiate necessary licenses on commercially reasonable terms, or at all, or
that any litigation resulting from such claims would not have a material adverse
effect on the Company's business and financial results.
In October 1993, Varian Associates, Inc. ("Varian") brought suit against the
Company in the United States District Court, for the
17
<PAGE>
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 and has been reassigned to a new
judge. The trial date has been set for March 1998. 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 Lam 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
operating results or the Company's financial position.
The Company's success depends in part on its proprietary technology. While the
Company attempts to protect its proprietary technology through patents,
copyrights and trade secret protection, it believes that the success of the
Company will depend upon more technological expertise, continuing the
development of new systems, market penetration and growth of its installed base
and the ability to provide comprehensive support and service to customers. There
can be no assurance that the Company will be able to protect its technology or
that competitors will not be able to develop similar technology independently.
The Company currently has a number of United States and foreign patents and
patent applications. There can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented or that the rights
granted thereunder will provide competitive advantages to the Company.
ENVIRONMENTAL REGULATIONS
The Company will be subject to a variety of governmental regulations related
to the discharge or disposal of toxic, volatile, or otherwise hazardous
chemicals used in the manufacturing process. The Company believes that it is
in general compliance with these regulations and that it has obtained (or
otherwise addressed) all necessary environmental permits to conduct its
business, which permits generally relate to the disposal of hazardous wastes.
Nevertheless, the failure to comply with present or future regulations could
result in fines being imposed on the Company, suspension of production or
cessation of operations. Such regulations could require the Company to acquire
significant equipment or to incur substantial other expenses to comply with
environmental regulations. Any failure by the Company to control the use of, or
adequately restrict the discharge or disposal of, hazardous substances could
subject the Company to future liabilities.
RISKS RELATED TO THE MERGER
- ---------------------------
INTEGRATION OF OPERATIONS
The realization of the benefits sought from the Merger depends on the ability
of the combined company following the Effective Time (as defined below) to
effectively utilize the joint product development capabilities, sales and
marketing capabilities, administrative organizations and facilities of the two
companies. There can be no assurance that these benefits will be achieved or
that the activities of Lam and OnTrak will be integrated in a coordinated,
timely and efficient manner. The combination of the two organizations also will
require the dedication of management resources, which will detract such persons'
attention from the day-to-day business of the combined
18
<PAGE>
company. There can be no assurance that the integration will be completed
without disrupting the Company's business. The inability of Lam and OnTrak to
effectively utilize resources and to achieve integration in a timely and
coordinated fashion could result in a material adverse effect on the combined
company's financial condition, operating results and cash flows. There can be no
assurance that the combined company will retain and successfully integrate its
key management, technical, sales and customer support personnel, or that it will
obtain any of the anticipated benefits of the Merger.
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER
Lam and OnTrak anticipate that they will incur costs associated with the
Merger of approximately $12 million. Such expenses include investment advisory
fees, legal and accounting fees, financial printing costs and other Merger
related costs. Although the companies do not believe that the costs will exceed
the aforementioned amount, there can be no assurance that the companies'
estimate is correct or that unanticipated contingencies will not occur that will
substantially increase the costs of combining the operations of the two
companies. In any event, costs associated with the Merger are expected to
negatively impact results of operations in the fiscal period in which the Merger
is consummated.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO
Under the terms of the Merger Agreement, each share of OnTrak common stock
issued and outstanding upon the filing of the Certificate of Merger or at a
later time specified in writing by Lam, OnTrak and the Merger Sub and specified
in the Certificate of Merger (the "Effective Time") will be converted into the
right to receive 0.83 of a share of Lam common stock, subject to adjustment at
the election of Lam if the Lam Closing Value (defined as the average of the
daily sales price per share of the Lam common stock as reported on the Nasdaq
National Market on the ten trading days ending the eighth trading day preceding
the special meeting of the stockholders of OnTrak) falls below certain
thresholds specified in the Merger Agreement. In the event that Lam elects to
adjust the Exchange Ratio, additional shares of Lam common stock will be issued
in exchange for shares of OnTrak common stock. The issuance of additional shares
of Lam common stock would result in the further dilution of the equity interests
of Lam stockholders. If, however, Lam determines not to adjust the Exchange
Ratio in those circumstances, OnTrak has the option to terminate the Merger
Agreement. Whether or not there is an adjustment to the Exchange Ratio, the
value of the consideration to be received by stockholders of OnTrak in the
Merger will depend in large part on the market price of the Lam common stock at
the Effective Time. In the event that the market price of Lam common stock
decreases or increases prior to the Effective Time, the market value at the
Effective Time of the common stock to be received by OnTrak stockholders in the
Merger would correspondingly decrease or increase. There can be no assurance
that the market price of the Lam common stock at and after the Effective Time
will not be higher or lower than such price.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS
Although the Lam and OnTrak believe that beneficial synergies will result from
the Merger, there can be no assurance that combining the two companies'
businesses, even in an efficient, effective and timely
19
<PAGE>
manner, will result in combined results of operations and financial condition
superior to what would have been achieved by each company independently, or as
to the period of time required to achieve such result. The issuance of Lam
common stock in connection with the Merger may have the effect of reducing the
combined company's net income per share from levels otherwise expected for Lam
and could reduce the market price of the Lam common stock following the
Effective Time unless revenue growth or cost savings and other business
synergies sufficient to offset the effect of such issuance can be achieved.
DEPENDENCE ON KEY PERSONNEL AND DIFFICULTY OF IDENTIFYING AND HIRING CERTAIN
PERSONNEL
The future performance of the combined company is substantially dependent on
the performance of its executive officers and key employees. The loss of the
services of any of the executive officers or other key employees of Lam or
OnTrak for any reason could have a material adverse effect on the business,
operating results, financial condition and cash flows of the combined company
after the Merger.
The future success of the combined company also depends on its continuing
ability to identify, hire, train and retain other highly qualified technical and
managerial personnel. Competition for such personnel is intense, and Lam and
OnTrak have experienced difficulty in identifying and hiring qualified
engineering personnel. There can be no assurance that the combined company will
be able to attract, assimilate or retain highly qualified technical and
managerial personnel in the future. The inability to attract and retain the
necessary technical and managerial personnel could have a material adverse
effect on the combined company's business, operating results, financial
condition and cash flows.
MANAGEMENT TRANSITION
In recent years, both Lam and OnTrak have experienced expansion of their
operations that have placed significant demands on their respective
administrative, operational and financial resources, the demands of which are
expected to intensify as a result of the Merger. James Bagley, the Chairman and
Chief Executive Officer of OnTrak, will become the Chief Executive Officer of
Lam following the Merger. In addition, Lam hired a new Chief Financial Officer,
Mercedes Johnson, in April 1997. There can be no assurance that such management
transitions can be accomplished in an efficient manner without business
disruption.
MANAGEMENT OF POTENTIAL GROWTH; INTEGRATION OF POTENTIAL ACQUISITIONS
To manage future growth, if any, new management of the Company will face
significant challenges in improving financial and management controls,
management processes, business and management information systems and procedures
on a timely basis and expanding, training and managing its work force. There can
be no assurance that the Company will be able to perform such actions
successfully. In the future, the Company may make additional acquisitions of
complementary companies, products or technologies. Managing an acquired business
entails numerous operational and financial risks, including difficulties in
assimilating acquired operations, diversion of management's attention to other
business concerns, amortization of acquired intangible assets and potential loss
of key employees or customers of acquired operations. The Company's success will
depend, to a significant extent, on the ability of its executive officers and
other members of senior management to respond to these challenges effectively.
There can be no
20
<PAGE>
assurance that the Company will be able to effectively achieve and manage any
such growth, or that its management, personnel or systems will be adequate to
support the Company's operations. Any such inabilities or inadequacies would
have a material adverse effect on the Company's business, operating results,
financial condition and cash flows.
An important element of Lam management's strategy is to review acquisition
prospects that would complement the Company's existing products, augment its
market coverage and distribution ability or enhance its technological
capabilities. While Lam has no current agreements or negotiations underway with
respect to any new acquisitions other than the Merger, Lam may acquire
additional businesses, products or technologies in the future. Future
acquisitions by the Company could result in changes similar to those that will
be incurred in connection with the Merger, potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expense related to goodwill and other intangible assets, any of
which could materially adversely affect the Company's business, financial
condition and results of operations and/or the price of the Lam common stock.
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 and was reassigned to a new judge. The trial
date has been set for March 1998. 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.
21
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
Exhibit 10.35(1) Agreement and Plan of Merger by and among Lam Research
Corporation, Omega Acquisition Corporation and OnTrak
Systems, Inc., dated as of March 24, 1997 including
exhibits thereto.
Exhibit 10.36(2) Registrant's Press Release, dated March 24, 1997.
Exhibit 10.37 Second Amendment to Credit Agreement between Lam Research
Corporation and ABN AMRO Bank N.V., San Francisco
International Branch dated March 30, 1997.
Exhibit 10.38 Consent and Waiver Agreement between Lam Research
Corporation and IBJTC Leasing Corporation-BSC, The
Industrial Bank of Japan, Limited, Wells Fargo Bank,
N.A., The Bank of Nova Scotia and the Nippon Credit Bank,
LTD. dated March 28, 1997.
Exhibit 10.39 Waiver Agreement between Lam Research Co., Ltd. and The
Sakura Bank dated March 30, 1997.
Exhibit 10.40 Amendment to Continuing Guaranty between Lam Research
Corporation and The Sakura Bank dated March 30, 1997.
Exhibit 11.1 Statement Re: Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on March 31, 1997, reporting that on March 24,
1997 the Company had entered into an Agreement and Plan of Merger (the "Merger
Agreement") with OnTrak Systems, Inc. ("OnTrak") and Omega Acquisition
Corporation ("Sub"), a wholly-owned subsidiary of the Company.
Pursuant to the terms of the Agreement, (a) Sub will be merged with and
into OnTrak and OnTrak will become a wholly-owned subsidiary of the Company, and
(b) all outstanding shares, and options to acquire shares, of OnTrak common
stock will be exchanged for 0.83 of a share (or, in the case of options to
acquire shares of OnTrak common stock, for options to purchase 0.83 of a share)
of the Company's common stock, subject to adjustments as set forth in the Merger
Agreement.
(1) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed by the Company on March 24, 1997.
(2) Incorporated herein by reference to Exhibit 99.9 to the Company's.
Current Report on Form 8-K filed by the Company on March 24, 1997.
22
<PAGE>
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 14, 1997
LAM RESEARCH CORPORATION
By:/s/ Mercedes Johnson
----------------------
Mercedes Johnson, Vice
President and Chief
Financial Officer
23
<PAGE>
EXHIBIT 10.37
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
---------
March 30, 1997, is entered into by and among:
(1) LAM RESEARCH CORPORATION, a Delaware corporation ("Borrower");
--------
(2) Each of the financial institutions currently listed in Schedule I
----------
to the Credit Agreement referred to in Recital A below (collectively, the
----------------------- ---------
"Lenders"); and
--------
(3) ABN AMRO BANK N.V., San Francisco International Branch, as agent
for the Lenders (in such capacity, "Agent").
-----
RECITALS
--------
A. Borrower, the Lenders and Agent are parties to a Credit Agreement
dated as of December 20, 1995, as amended by a First Amendment to Credit
Agreement dated as of January 22, 1997 (as so amended, the "Credit Agreement").
----------------
B. Borrower has requested the Lenders and Agent to (1) amend the Credit
Agreement in certain respects and (2) consent to (a) Borrower's acquisition of
and merger with OnTrak Systems, Inc. (the "OnTrak Acquisition") and (b)
------------------
Borrower's distribution of Equity Securities to OnTrak Systems, Inc. in
connection with the OnTrak Acquisition (the "OnTrak Distribution").
-------------------
C. The Lenders and Agent are willing so to amend the Credit Agreement and
to provide such consent upon the terms and subject to the conditions set forth
below.
1
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Lenders and Agent hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and
---------------------------
elsewhere in this Amendment shall be used herein as so defined. Unless
otherwise defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
-----------------------
Agreement shall, to the extent not inconsistent with the terms of this
- ---------
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. Amendments to Credit Agreement. Subject to the satisfaction of the
conditions set forth in paragraph 5 below, the Credit Agreement is hereby
amended as follows:
(a) Paragraph 1.01 is amended by adding thereto, in the appropriate
alphabetical order, a definition of the term "1997 Inventory Charge" to
read in its entirety as follows:
"1997 Inventory Charge" shall mean a non-recurring charge, not
---------------------
exceeding $74,000,000 (pre-tax), taken by Borrower in the quarter ending
March 30, 1997 as a result of write-offs of excess and obsolete inventory,
additional warranty expenses and other miscellaneous charges.
(b) Paragraph 1.01 is further amended by changing the definition of
--------------
"EBIT" set forth therein by adding at the end thereof a new sentence to
read in its entirety as follows:
In determining EBIT of Borrower for any period which includes the
quarter ending March 30, 1997, the net income of Borrower and its
subsidiaries before provision for income taxes for such period
(clause (a)) shall be calculated without deduction of the 1997
Inventory Charge.
2
<PAGE>
(c) Paragraph 1.01 is further amended by changing the definition of
--------------
"Interest Coverage Ratio" set forth therein to read in its entirety as
follows:
"Interest Coverage Ratio" shall mean, with respect to any
-----------------------
Person for any period, the ratio, determined on a consolidated basis
in accordance with GAAP where applicable, of:
(a) EBIT of such Person and its Subsidiaries for such period;
to
--
(b) All Interest Expenses of such Person and its
Subsidiaries for such period.
(d) Subparagraph 4.01(j) is amended to read in its entirety as
--------------------
follows:
(j) Equity Securities. As of the Closing Date, the authorized
-----------------
Equity Securities of Borrower consist of ninety million (90,000,000) shares
of common stock. All outstanding Equity Securities of Borrower are duly
authorized, validly issued, fully paid and non-assessable. All Equity
Securities of Borrower have been offered and sold in compliance with all
federal and state securities laws and all other Requirements of Law.
(e) Subparagraph 5.02(l) is amended by changing clause (ii) thereof
to read in its entirety as follows:
(ii) Borrower shall not permit its Interest Coverage Ratio for
each period set forth below to be less than the ratio set forth opposite such
period below:
Each consecutive four quarter
period ending December 31, 1995,
March 31, 1996, June 30, 1996,
September 30, 1996, and December
31, 1996........................... 5.00;
3
<PAGE>
The consecutive four quarter
period ending March 30, 1997....... 6.00;
Each consecutive four quarter
period ending June 30, 1997
and September 30, 1997............. 2.00;
The consecutive four quarter
period ending December 31, 1997.... 4.00;
Each consecutive four quarter
period ending on the last day
of each quarter thereafter......... 6.00.
(f) Subparagraph 5.02(l) is further amended by (i) changing the date
"June 30, 1995" appearing in clause (v) thereof to "March 30, 1997" and
(ii) changing the amount "$375,000,000" appearing in subclause (A) of
clause (v) thereof to "$538,000,000".
(g) Subparagraph 5.02(l) is further amended by adding at the end
thereof a new sentence to read in its entirety as follows:
In determining the net income of Borrower for purposes of clauses (v)
and (vi) of this Subparagraph 5.02(l) for any period which includes
the quarter ending March 30, 1997, the net income of Borrower before
provision for income taxes for such period shall be calculated without
deduction of the 1997 Inventory Charge (and the provision for income
taxes for such period shall be increased as appropriate in light of
such expense reduction).
3. Consent. The Lenders hereby consent to the OnTrak Acquisition and the
-------
OnTrak Distribution, provided that (a) Borrower will be the surviving entity in
any merger between Borrower and OnTrak Systems, Inc., (b) such acquisition
occurs on or prior to September 30, 1997, (c) the purchase price paid by
Borrower for such acquisition consists of shares of Borrower's common stock
having an aggregate market value not exceeding $250,000,000, (d) the OnTrak
Acquisition is the only Investment made by Borrower and its Subsidiaries under
clause (ii)(B) of Subparagraph 5.02(e) of the Credit Agreement during the fiscal
- --------------------------------------------------------------
4
<PAGE>
year in which the OnTrak Acquisition occurs, and (e) no Default or Event of
Default has occurred and is continuing at the time of such acquisition or will
occur as a result of such acquisition.
4. Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to Agent and the Lenders that the following are true and correct on the
date of this Amendment and that, after giving effect to the amendments set forth
in paragraph 2 and the consents set forth in paragraph 3 above, the following
----------- -----------
will be true and correct on the Effective Date (as defined below):
(a) The representations and warranties of Borrower set forth in
Paragraph 4.01 of the Credit Agreement and in the other Credit Documents
are true and correct in all material respects;
(b) No Default or Event of Default has occurred and is continuing;
and
(c) Each of the Credit Documents is in full force and effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
paragraph 4 that, on and after the date hereof, such term includes this
Amendment.)
5. Effective Date. The amendments effected by paragraph 2 above shall
--------------
become effective on March 30, 1997 (the "Effective Date"), subject to receipt by
Agent and the Lenders on or prior to the Effective Date of the following, each
in form and substance satisfactory to Agent, the Required Lenders and their
respective counsel:
(a) This Amendment duly executed by Borrower and the Required
Lenders;
(b) A favorable written opinion of Jan Kang, counsel to Borrower,
as to such matters as Agent may reasonably request;
(c) An amendment fee for each Lender that executes and delivers this
Amendment to Agent on or prior to the
5
<PAGE>
Effective Date in an amount equal to five hundredths of one percent (0.05%)
of such Lender's Commitment on the Effective Date; and
(d) Such other evidence as Agent or any Lender may reasonably
request to establish the accuracy and completeness of the representations
and warranties and the compliance with the terms and conditions contained
in this Amendment and the other Credit Documents.
6. Effect of this Amendment. On and after the Effective Date, each
------------------------
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and
confirmed and (b) the execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any
provision of the Credit Agreement or any other Credit Document.
7. Miscellaneous.
-------------
(a) Counterparts. This Amendment may be executed in any number of
------------
identical counterparts, any set of which signed by all the parties hereto
shall be deemed to constitute a complete, executed original for all
purposes.
(b) Headings. Headings in this Amendment are for convenience of
--------
reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of California without
reference to conflicts of law rules.
[The signature pages follow.]
6
<PAGE>
IN WITNESS WHEREOF, Borrower, Agent and the Lenders executing this
Amendment have caused this Amendment to be executed as of the day and year
first above written.
BORROWER: LAM RESEARCH CORPORATION
By:___________________________
Name:_______________________
Title:______________________
AGENT: ABN AMRO BANK, N.V., SAN FRANCISCO
INTERNATIONAL BRANCH
By:___________________________
Name:_______________________
Title:______________________
LENDERS: ABN AMRO BANK, N.V., SAN FRANCISCO
INTERNATIONAL BRANCH
By:___________________________
Name:_______________________
Title:______________________
By:___________________________
Name:_______________________
Title:______________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
7
<PAGE>
By:___________________________
Name:_______________________
Title:______________________
BANQUE NATIONALE DE PARIS,
SAN FRANCISCO BRANCH
By:___________________________
Name:_______________________
Title:______________________
By:___________________________
Name:_______________________
Title:______________________
COMERICA BANK-CALIFORNIA
By:___________________________
Name:_______________________
Title:______________________
WELLS FARGO BANK, N.A.
By:___________________________
Name:_______________________
Title:______________________
By:___________________________
Name:_______________________
Title:______________________
8
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By:___________________________
Name:_______________________
Title:______________________
UNION BANK OF CALIFORNIA, N.A.
By:___________________________
Name:_______________________
Title:______________________
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
SAN FRANCISCO AGENCY
By:___________________________
Name:_______________________
Title:______________________
9
<PAGE>
Exhibit 10.38
CONSENT AND WAIVER AGREEMENT
----------------------------
THIS CONSENT AND WAIVER AGREEMENT (this "Consent and Waiver") is made as of
March 28, 1997, by and among LAM RESEARCH CORPORATION, a Delaware corporation
------------------------
("Lessee"), IBJTC LEASING CORPORATION-BSC, a New York Corporation, THE
----------------------------- ---
INDUSTRIAL BANK OF JAPAN, LIMITED, WELLS FARGO BANK, N.A., THE BANK OF NOVA
- --------------------------------- ---------------------- ----------------
SCOTIA and THE NIPPON CREDIT BANK, LTD. (collectively, "Participants"),
- ------ ----------------------------
W I T N E S S E T H:
WHEREAS, the parties hereto, along with The Industrial Bank of Japan,
Limited, acting as agent, are also parties to that certain Participation
Agreement dated as of March 27, 1996, and amended as of September 27, 1996 (as
amended, the "Participation Agreement"); and
WHEREAS, Section 10.2 of the Participation Agreement requires Lessee to
comply with all covenants contained in Section 5.02 of the Credit Agreement, and
any amendment to Section 5.02 of the Credit Agreement, or any waiver of the
covenants of such section, requires the prior written consent of the Required
Participants; and
WHEREAS, the parties hereto desire to consent to the amendments to the
Credit Agreement and to waive certain covenants contained in the Credit
Agreement, all as set forth below;
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. Capitalized terms used herein and not defined herein
-----------
shall have the meanings assigned to such terms in Appendix A to the
Participation Agreement.
2. Consent. Each of the Participants hereby consents to the amendments
-------
to Section 5.02 of the Credit Agreement, as set forth in the form of amendment
to the Credit Agreement attached hereto as Exhibit A.
-1-
<PAGE>
3. Waiver. Each of the Participants hereby waives on a one-time basis
------
the requirements of Section 5.02(e)(ii)(B) of the Credit Agreement in order to
allow Lessee to acquire all of the capital stock of Ontrak Systems, Inc. In
addition, each of the Participants hereby consents to the waiver of such
section by each of the lenders under the Credit Agreement.
4. Effect. Except as expressly modified by this Consent and Waiver,
------
all terms of the Participation Agreement and the Credit Agreement shall remain
unchanged and in full force and effect.
5. Governing Law. This Consent and Waiver shall in all respects be
-------------
governed by and construed in accordance with the laws of the State of
California applicable to agreements made and to be entirely within such state,
including all matters of construction, validity and performance.
6. Counterpart Execution. This Consent and Waiver may be executed in any
---------------------
number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the same
instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Consent and
Waiver to be duly executed by an officer thereunto duly authorized as of the day
and year first above written.
LAM RESEARCH CORPORATION, as Lessee,
Construction Agent and Guarantor
By _________________________________
Title ______________________________
-2-
<PAGE>
IBJTC LEASING CORPORATION-BSC,
as Lessor and Participation Agent
By _________________________________
Title ______________________________
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
as Tranche A Lender and Tranche B Lender
By _________________________________
Title ______________________________
WELLS FARGO BANK, N.A., as Tranche A
Lender and Tranche B Lender
By _________________________________
Title ______________________________
THE BANK OF NOVA SCOTIA, as Tranche A
Lender and Tranche B Lender
By _________________________________
Title ______________________________
-3-
<PAGE>
THE NIPPON CREDIT BANK, LTD., as
Tranche A Lender and Tranche B Lender
By _________________________________
Title ______________________________
-4-
<PAGE>
EXHIBIT A
---------
See Attached.
-1-
<PAGE>
EXHIBIT 10.39
-------------
WAIVER AGREEMENT
----------------
THIS WAIVER AGREEMENT (this "Amendment") is made as of March 30, 1997,
by and between Lam Research Co., Ltd., a Japanese corporation ("Borrower"), and
The Sakura Bank, a Japanese banking corporation ("Lender").
WHEREAS, the parties hereto have entered into that certain Term Loan
Agreement, dated as of June 26, 1996, and amended on January 22, 1997 (as
amended, the "Loan Agreement"), pursuant to which Lender agreed to lend to
Borrower and Borrower agreed to borrow from Lender a certain sum, subject to the
terms and conditions contained in the Agreement; and
WHEREAS, the parties hereto desire to waive certain covenants contained
in the Loan Agreement, as set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained in the Agreement, the parties hereto hereby agree as
follows:
1. Waiver. Lender hereby waives on a one-time basis the requirements
------
of Section 6.5(ii)(b) of the Loan Agreement in order to allow Guarantor to
acquire all of the capital stock of OnTrak Systems, Inc. Borrower acknowledges
and agrees that Lender has made no agreement to make any other waiver under the
Loan Agreement, including any future waiver of the requirements of Section
6.5(ii)(b).
2. No Waiver of Event of Default. By execution of this Waiver,
-----------------------------
Lender does not waive any Event of Default, whether known or unknown.
3. Governing Law. This Waiver shall in all respects be governed by
-------------
and construed in accordance with the laws of the State of California applicable
to agreements made and to be performed entirely within such
<PAGE>
state, including all matters of construction, validity and performance.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
LENDER:
The Sakura Bank, Limited
a Japanese banking corporation
By: ___________________________
Name:
Title:
BORROWER:
Lam Research Co., Ltd.,
a Japanese corporation
By: ___________________________
Name:
Title:
-2-
<PAGE>
EXHIBIT 10.40
-------------
AMENDMENT TO CONTINUING GUARANTY
--------------------------------
THIS AMENDMENT TO CONTINUING GUARANTY (this "Amendment") is made as of
March 30, 1997, by and between Lam Research Corporation, a Delaware corporation
("Borrower"), and The Sakura Bank, a Japanese banking corporation ("Lender").
WHEREAS, the parties hereto have entered into that certain Continuing
Guaranty ("Guaranty") dated as of June 26, 1996 with respect to the Term Loan
Agreement of even date therewith and amended on January 22, 1997 (as amended,
the "Loan Agreement"), pursuant to which Lender agreed to lend to Lam Research
Co., Ltd., a Japanese corporation, ("Borrower") and Borrower agreed to borrow
from Lender a certain sum, subject to the terms and conditions contained in the
Loan Agreement; and
WHEREAS, the parties hereto mutually desire to amend the Guaranty, as
set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained in the Loan Agreement and Guaranty, the parties
hereto hereby agree as follows:
1. Amendments to Guaranty. The Guaranty is hereby amended as follows:
----------------------
(a) Section 3.1.1 is amended by adding thereto, in the appropriate
-------------
alphabetical order, a definition of the term "1997 Inventory Charge" to
read in its entirety as follows:
"1997 Inventory Charge" shall mean a non-recurring charge, not
---------------------
exceeding $74,000,000 (pre-tax), taken by Guarantor in the quarter
ending March 30, 1997 as a result of write-offs of excess and obsolete
inventory, additional warranty expenses and other miscellaneous
charges.
(b) Section 3.1.1 is further amended by changing the definition of
-------------
"EBIT" set forth therein by adding at
1
<PAGE>
the end thereof a new sentence to read in its entirety as follows:
In determining EBIT of Guarantor for any period which includes the
quarter ending March 30, 1997, the net income of Guarantor and its
subsidiaries before provision for income taxes for such period (clause
(a)) shall be calculated without deduction of the 1997 Inventory
Charge.
(c) Section 3.1.1 is further amended by changing the definition of
-------------
"Interest Coverage Ratio" set forth therein to read in its entirety as
follows:
"Interest Coverage Ratio" shall mean, with respect to any Person
-----------------------
for any period, the ratio, determined on a consolidated basis in
accordance with GAAP where applicable, of:
(a) EBIT of such Person and its Subsidiaries for such
period;
to
--
(b) All Interest Expenses of such Person and its
Subsidiaries for such period.
(d) Section 3.1.2(b) is amended to read in its entirety as follows:
----------------
(ii) Guarantor shall not permit its Interest Coverage Ratio for
each period set forth below to be less than the ratio set forth
opposite such period below:
Each consecutive four quarter
period ending December 31, 1995,
March 31, 1996, June 30, 1996,
September 30 1996, and December
31, 1996 . . . . . . . . . . . . 5.00;
The consecutive four quarter
period ending March 30, 1997 . . 6.00;
Each consecutive four quarter
period ending June 30, 1997
2
<PAGE>
and September 30, 1997 . . . . . 2.00;
The consecutive four quarter
period ending December 31, 1997. 4.00;
Each consecutive four quarter
period ending on the last day
of each quarter thereafter . . . 6.00.
(f) Section 3.1.2(e) is further amended by (i) changing the date "June
----------------
30, 1995" to "March 30, 1997" and (ii) changing the amount "$375,000,000"
appearing in subclause (i) thereof to "$538,000,000".
-------------
(g) Section 3.1.2 is further amended by adding at the end thereof a
-------------
new sentence to read in its entirety as follows:
In determining the net income of Guarantor for purposes of Sections
--------
3.1.2(e) and (f) for any period which includes the quarter ending
----------------
March 30, 1997, the net income of Guarantor before provision for
income taxes for such period shall be calculated without deduction of
the 1997 Inventory Charge (and the provision for income taxes for such
period shall be increased as appropriate in light of such expense
reduction).
2. Balance of Agreement Unaffected. Except as expressly set forth herein,
-------------------------------
the Guaranty shall not be affected hereby and shall remain in full force and
effect in accordance with its terms.
3. Reaffirmation of Obligations. Guarantor hereby reaffirms all
----------------------------
obligations under the Guaranty, as amended by this Amendment.
4. Governing Law. This Amendment shall in all respects be governed by and
-------------
construed in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely within such state, including all
matters of construction, validity and performance.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
LENDER:
The Sakura Bank, Limited
a Japanese banking corporation
By: ___________________________
Name:
Title:
GUARANTOR:
Lam Research Corporation,
a Delaware corporation
By: ___________________________
Name:
Title:
4
<PAGE>
EXHIBIT 11.1
LAM RESEARCH CORPORATION
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
(in thousands except per share data)
---------------------------------------------
March 31, March 31,
1997 1996
--------------------- ---------------------
Fully Fully
Primary Diluted Primary Diluted
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net income (loss) ................. ($44,799) ($44,799) $ 38,649 $ 38,649
Add interest expense on convertible
subordinated debentures, net of
income tax effect ............... 880
======== ======== ========== ========
($44,799) ($44,799) $ 38,649 $ 39,529
======== ======== ========== ========
Average shares outstanding ....... 30,600 30,600 27,335 27,325
Net effect of dilutive
stock options ................... 865 885
Assumed conversion of convertible
subordinated debentures ......... 2,640
======== ======== ========== ========
30,600 30,600 28,200 30,850
======== ======== ========== ========
Net income (loss) per share ....... ($ 1.46) ($ 1.46) $ 1.37 $ 1.28
======== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
(in thousands except per share data)
---------------------------------------------
March 31, March 31,
1997 1996
--------------------- ---------------------
Fully Fully
Primary Diluted Primary Diluted
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net income (loss) ................. ($ 31,676) ($ 31,676) $102,595 $ 102,595
Add interest expense on convertible
subordinated debentures, net of
income tax effect ............... 2,628
========= ========= ======== =========
($ 31,676) ($ 31,676) $102,595 $ 105,223
========= ========= ======== =========
Average shares outstanding ....... 30,500 30,500 27,327 27,327
Net effect of dilutive
stock options ................... 973 983
Assumed conversion of convertible
subordinated debentures ......... 2,640
========= ========= ======== =========
30,500 30,500 28,300 30,950
========= ========= ======== =========
Net income (loss) per share ....... ($ 1.04) ($ 1.04) $ 3.63 $ 3.40
========= ========= ======== =========
</TABLE>
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 9,344
<SECURITIES> 153,866
<RECEIVABLES> 209,987
<ALLOWANCES> 2,003
<INVENTORY> 233,075
<CURRENT-ASSETS> 697,631
<PP&E> 295,819
<DEPRECIATION> 104,042
<TOTAL-ASSETS> 922,461
<CURRENT-LIABILITIES> 277,651
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 587,485
<TOTAL-LIABILITY-AND-EQUITY> 922,461
<SALES> 727,784
<TOTAL-REVENUES> 739,717
<CGS> 525,045
<TOTAL-COSTS> 800,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,074
<INCOME-PRETAX> (62,446)
<INCOME-TAX> (30,770)
<INCOME-CONTINUING> (31,676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,676)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
