<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[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, 1999
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) 572-0200
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, 1999 there were 38,892,688 shares of Registrant's Common Stock
outstanding.
<PAGE> 2
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............... 10
Results of Operations............................. 10
Liquidity and Capital Resources................... 15
Risk Factors...................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.............................................. 22
PART II. OTHER INFORMATION....................................... 22
Item 1. Legal Proceedings....................................... 22
Item 6. Exhibits and Reports on Form 8-K........................ 22
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31,
1999 June 30,
(unaudited) 1998
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 73,049 $ 13,509
Short-term investments 229,763 383,647
Accounts receivable, net 144,435 176,029
Inventories 179,550 220,610
Prepaid expenses and other assets 24,341 25,809
Deferred income taxes 77,485 77,485
------------ ------------
Total Current Assets 728,623 897,089
Equipment and leasehold improvements, net 102,450 144,252
Restricted cash 51,357 51,357
Other assets 54,021 58,074
------------ ------------
Total Assets $ 936,451 $ 1,150,772
============ ============
Liabilities and Stockholders' Equity
Trade accounts payable $ 49,143 $ 67,703
Accrued expenses and other
current liabilities 146,539 208,442
Current portion of long-term debt and
capital lease obligations 16,530 17,364
------------ ------------
Total Current Liabilities 212,212 293,509
Long-term debt and capital lease
obligations, less current portion 328,505 334,174
------------ ------------
Total Liabilities 540,717 627,683
Preferred stock: 5,000 shares authorized;
none outstanding
Common Stock, at par value of $0.001 per share
Authorized -- 90,000 shares; issued and
outstanding 38,893 shares at March 31,
1999 and 38,267 shares at June 30, 1998 39 38
Additional paid-in capital 387,853 381,011
Treasury Stock (9,279) 0
Accumulated other comprehensive income (loss) (362) 295
Retained earnings 17,483 141,745
------------ ------------
Total Stockholders' Equity 395,734 523,089
------------ ------------
$ 936,451 $ 1,150,772
============ ============
</TABLE>
See Notes to condensed consolidated financial statements.
3
<PAGE> 4
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,
--------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenue 152,976 240,018 437,070 822,000
Costs and expenses:
Cost of goods sold - on net sales 98,674 152,476 285,520 508,376
Cost of goods sold - restructuring
charge 19,553 -- 19,553
--------- --------- --------- ---------
Gross margin 54,302 67,989 151,550 294,071
Research and development 35,751 48,856 104,857 157,507
Selling, general and administrative 33,175 47,537 112,589 154,196
Restructuring charges -- 65,343 53,372 65,343
Purchased technology for research &
development -- 12,100 5,000 12,100
Merger costs -- -- -- 17,685
--------- --------- --------- ---------
Operating loss (14,624) (105,847) (124,268) (112,760)
Other (income) expense, net 100 (1,605) (6) (341)
--------- --------- --------- ---------
Loss before taxes (14,724) (104,242) (124,262) (112,419)
Tax benefit -- (34,178) -- (33,708)
--------- --------- --------- ---------
Net loss $ (14,724) $ (70,064) $(124,262) $ (78,711)
========= ========= ========= =========
Net loss per share
Basic $ (0.38) $ (1.84) $ (3.23) $ (2.08)
========= ========= ========= =========
Diluted $ (0.38) $ (1.84) $ (3.23) $ (2.08)
========= ========= ========= =========
Number of shares used in
per share calculations
Basic 38,674 38,025 38,430 37,930
========= ========= ========= =========
Diluted 38,674 38,025 38,430 37,930
========= ========= ========= =========
</TABLE>
See Notes to condensed consolidated financial statements.
4
<PAGE> 5
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (124,262) $ (78,711)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 38,997 48,365
Restructuring 34,141 --
Deferred income taxes -- 1,976
Technology for research and
development expense 5,000 12,100
Change in certain working capital
accounts (9,314) (7,876)
----------- -----------
Net cash used in operating activities (55,438) (24,146)
Cash flows from investing activities:
Capital expenditures, net (25,376) (30,447)
Purchase of short-term investments (2,691,166) (7,016,491)
Sale of short-term investments 2,845,050 6,915,175
Restricted cash -- (52,000)
Cash paid for acquisition of technology
for research and development (3,000) (9,000)
Other 3,163 7,934
----------- -----------
Net cash provided by (used in)
investing activities 128,671 (184,829)
----------- -----------
Cash flows from financing activities:
Repayments of borrowings under
line of credit -- (35,000)
Common stock repurchase (13,216) --
Sale of stock, net of issuance
costs 10,780 15,225
Proceeds from issuance of
long-term debt 12,076 304,517
Principal payments on long-term debt
and capital lease obligations (22,676) (22,446)
Foreign currency translation adjustment (657) (77)
----------- -----------
Net cash provided by (used in)
financing activities (13,693) 262,219
----------- -----------
Net increase in cash and
cash equivalents 59,540 53,244
Cash and cash equivalents at beginning
of period 13,509 140,872
----------- -----------
Cash and cash equivalents at end of
period $ 73,049 $ 194,116
=========== ===========
</TABLE>
See Notes to condensed consolidated financial statements.
5
<PAGE> 6
LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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 fiscal year ended June 30, 1998, which are included in the Annual
Report on Form 10-K, File Number 0-12933.
NOTE B -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
March 31, June 30,
(in thousands) 1999 1998
- ---------------------------------------------------------
<S> <C> <C>
Raw materials $137,965 $147,794
Work-in-process 37,409 52,374
Finished goods 4,176 20,442
- ---------------------------------------------------------
$179,550 $220,610
=========================================================
</TABLE>
NOTE C -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
March 31, June 30,
(in thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Equipment $ 120,723 $ 139,358
Furniture & fixtures 53,000 60,353
Leasehold improvements 89,165 95,075
- ---------------------------------------------------------------------------
262,888 294,786
Accumulated depreciation and
amortization (160,438) (150,534)
- ---------------------------------------------------------------------------
$ 102,450 $ 144,252
===========================================================================
</TABLE>
6
<PAGE> 7
NOTE D -- OTHER (INCOME) EXPENSE, NET
The significant components of other (income) expense, net are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(in thousands) March 31, March 31,
- -------------------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $ 5,202 $ 5,263 $ 15,194 $ 13,281
Interest income (5,579) (6,647) (17,364) (16,126)
Other 477 (221) 2,164 2,504
- -------------------------------------------------------------------------------------
$ 100 $ (1,605) $ (6) $ (341)
=====================================================================================
</TABLE>
NOTE E -- NET LOSS PER SHARE
All net loss amounts for all periods have been presented to conform to
the FAS 128 requirements. Basic net loss per share is calculated using the
weighted average number of shares of common stock outstanding during the period.
The assumed conversion of the employee stock options and the convertible
subordinated notes to common shares was excluded from diluted net loss per share
because its effect would have been antidilutive. Options were outstanding during
the three and nine month periods ended March 31, 1999 and March 31, 1998,
respectively, but were excluded from the computation of diluted net loss per
share because the effect in periods with a net loss would have been
antidilutive. The Company's basic and diluted net loss per share amounts, as
calculated in accordance with FAS 128, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic net loss per share $ (14,724) $ (70,064) $(124,262) $ (78,711)
- -------------------------------------------------------------------------------------------------------------------------------
Numerator for diluted net loss per share $ (14,724) $ (70,064) $(124,262) $ (78,711)
- -------------------------------------------------------------------------------------------------------------------------------
Denominator:
Basic net loss per share - average shares outstanding 38,674 38,025 38,430 37,930
- -------------------------------------------------------------------------------------------------------------------------------
Effect of potential dilutive securities:
Convertible subordinated notes -- -- -- --
Employee stock options -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total potential dilutive common shares -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Diluted net loss per share - average
shares outstanding and other potential
common shares 38,674 38,025 38,430 37,930
===============================================================================================================================
Basic net loss per share $ (0.38) $ (1.84) $ (3.23) $ (2.08)
===============================================================================================================================
Diluted net loss per share $ (0.38) $ (1.84) $ (3.23) $ (2.08)
===============================================================================================================================
</TABLE>
7
<PAGE> 8
NOTE F -- COMPREHENSIVE LOSS
As of July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS 130"). FAS
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net loss or stockholders' equity. FAS 130 requires that unrealized
gains or losses on available-for-sale securities and foreign currency
translation adjustments are to be included in other comprehensive loss. Prior to
adoption, unrealized gains and losses and foreign currency translation
adjustments were reported by the Company as a separate component of
stockholders' equity.
The components of comprehensive loss, net of tax, are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(in thousands) March 31, March 31,
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net loss $ (14,724) $ (70,064) $(124,262) $ (78,711)
Foreign currency translation adjustment
(94) 89 (657) (77)
--------- --------- --------- ---------
Comprehensive loss $ (14,818) $ (69,975) $(124,919) $ (78,788)
========= ========= ========= =========
</TABLE>
Accumulated other comprehensive loss presented on the accompanying
consolidated condensed balance sheets consists of the accumulated foreign
currency translation adjustment.
NOTE G -- RESTRUCTURING
During the quarter ended December 31, 1998, in response to continued
declines in the semiconductor equipment market, the Company announced plans to
further reduce its workforce and eliminate additional facilities and fixed
assets. The Company recorded a restructuring charge of $53.4 million, relating
primarily to severance compensation and benefits, the write-off of facilities
and fixed assets and other restructuring charges. At March 31, 1999, $8.9
million of the charge remained accrued on the Company's consolidated balance
sheet. During the nine months ended March 31, 1999, the Company made
approximately $10.3 million of cash payments relating primarily to severance and
benefits. At March 31, 1999, the Company has approximately $8.9 million of
remaining future cash payments relating to the restructuring charge taken during
the second quarter of fiscal 1999. There will be further charges against the
restructuring reserves established during the second quarter of fiscal 1999
during the remainder of fiscal 1999 and into fiscal 2000, as the Company
completes this restructuring program.
During the quarters ended March 31, 1998 and June 30, 1998, the Company
announced plans to restructure its operations to focus more on its core etch and
Chemical Mechanical Planarization ("CMP") product groups, and to exit its Flat
Panel Display ("FPD") and Chemical Vapor Deposition ("CVD") operations. As a
result of these restructurings, the Company reduced its global workforce by
approximately 28% and downsized and consolidated its manufacturing operations
and facilities. During fiscal 1998, the Company recorded a total restructuring
charge of $148.9 million for severance compensation and benefits, the write-off
8
<PAGE> 9
of facilities, fixed assets and excess and obsolete inventory and other exit
costs. At March 31, 1999, $25.6 million of the charge remains accrued on the
Company's consolidated balance sheet. During the nine month period ended March
31, 1999, the Company made approximately $22.1 million of cash payments in
connection with those fiscal 1998 charges, relating primarily to severance
benefits and rent on idle facilities. At March 31, 1999, the Company has
approximately $23.3 million of future cash payments relating to the fiscal 1998
restructurings. There will be further charges against the restructuring reserves
established in fiscal 1998 during the remainder of fiscal 1999 and into fiscal
2000, as the Company completes these restructuring programs.
Restructuring activity:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Facilities
Severance and Excess and
and Fixed Obsolete Other Exit
(in thousands) Benefits Assets Inventory Costs Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restructuring provision $ 40,317 $ 64,339 $ 31,933 $ 12,269 $ 148,858
Spending and charges 9,766 48,859 31,933 9,857 100,415
- -------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $ 30,551 $ 15,480 $ -- $ 2,412 $ 48,443
Additional restructuring provision 16,521 29,266 -- 7,585 53,372
Spending and charges 29,902 31,039 -- 6,374 67,315
- -------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $ 17,170 $ 13,707 $ -- $ 3,623 $ 34,500
==============================================================================================================================
</TABLE>
NOTE H -- DEBT
During the quarter ended September 30, 1998, the Company renegotiated a
replacement facility for a Yen1.7 billion yen-denominated loan ($12.6 million),
reducing the amount of available borrowings to Yen1.4 billion ($11.9 million at
March 31, 1999). Principal payments on the new facility are due annually on
September 30 through September 30, 2001. The new facility was renegotiated at
terms which were more favorable than the previous yen-denominated loan.
During the quarter ended March 31, 1999, the Company amended its Credit
Agreement. Under the Loan Agreement between ABN AMRO BANK, N.V. and the Company,
UNION BANK was substituted for ABN AMRO BANK, N.V., as the lender.
NOTE I -- LITIGATION
See Part II, Item 1 for discussion of litigation.
NOTE J -- SHARE REPURCHASE
In the third quarter of fiscal 1999, the Company announced a share
repurchase program of up to 2 million shares of the Company's common stock. The
shares repurchased under this authorization will be used to reduce dilution
caused by the issuance of shares reserved under the Company's stock option and
employee stock purchase plan.
During the nine months ended March 31, 1999, the Company repurchased
290,000 shares of common stock. These share repurchases had no material impact
on the net loss per share amounts for the period.
9
<PAGE> 10
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 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, and are subject to the Safe Harbor provisions created by that statute.
Such forward-looking statements include, but are not limited to, statements that
relate to the Company's future revenue, product development, demand, acceptance
and market share, competitiveness, royalty income, gross margins, levels of
research and development and operating expenses, management's plans and
objectives for current and future operations of the Company, the effects of the
Company's on-going restructuring and consolidation of operations and facilities,
the ability of the Company to complete restructurings or consolidations on time
or within anticipated costs, and the sufficiency of financial resources to
support future operations and capital expenditures. Such statements are based on
current expectations and are subject to risks, uncertainties, and changes in
condition, significance, value and effect, including those discussed below under
the heading Risk Factors, and other documents the Company files from time to
time with the Securities and Exchange Commission, specifically the Company's
last filed Annual Report on the Form 10-K. Such risks, uncertainties and changes
in condition, significance, value and effect could cause actual results to
differ materially from those expressed herein and in ways not readily
foreseeable. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof and of
information currently and reasonably known. The Company undertakes no obligation
to release any revisions to these forward-looking statements which may be made
to reflect events or circumstances which occur after the date hereof or to
reflect the occurrence or effect of anticipated or unanticipated events. This
discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and Notes presented thereto on pages 3 to 9 of this Form
10-Q for a full understanding of the Company's financial position and results of
operations for the three and nine month periods ended March 31, 1999.
Results of Operations
Total revenue for the three and nine month periods ended March 31, 1999
decreased 36% and 47%, respectively, compared to the comparable periods of the
prior fiscal year as the Company experienced decreased revenues for all of its
product lines.
Geographic breakdown of revenue is as follows:
<TABLE>
<CAPTION>
Three months ended Nine Months ended
March 31, March 31,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
North America 40% 43% 49% 45%
Europe 26% 22% 23% 17%
Asia Pacific 23% 29% 19% 31%
Japan 11% 6% 9% 7%
</TABLE>
During fiscal 1998 and into the first and second quarters of fiscal 1999, the
global semiconductor industry experienced a worldwide slowdown in equipment
demand which was brought on by depressed DRAM
10
<PAGE> 11
pricing, production overcapacity as well as uncertainty in the worldwide
financial markets. However, in line with the modest improvement in the
semiconductor equipment industry, the Company's net sales increased in the third
quarter by approximately 8%, compared with the second quarter of fiscal 1999.
The Company anticipates increased demand for systems, as semiconductor
manufacturers ramp capacity in their most advanced lines, and expects its net
sales to increase sequentially in the fourth quarter of fiscal 1999.
Gross margin percentage decreased to 35.5% in the third quarter of
fiscal 1999, compared with 36.5% (net of restructuring charge of $19.6 million)
for the year-ago quarter. For the nine months ended March 31, 1999, the gross
margin percentage declined to 34.7%, compared with 38.2% (net of restructuring
charge of $19.6 million) for the year-ago period. For the three and nine month
periods ended March 31, 1999, the decrease in gross margin percentage is a
result of competitive pricing pressures and the Company's lower volume of sales
in fiscal 1999. However, during the third quarter of fiscal 1999, the gross
margin percentage increased from 33.2% in the second quarter of fiscal 1999. The
improvement over the prior fiscal quarter reflects continued cost reductions and
lower overcapacity levels in manufacturing due to higher volume.
Research and development ("R&D") expenses for the three and nine month
periods ended March 31, 1999 decreased by 26.8% and 33.4%, respectively,
compared with the comparable year-ago periods. As a percentage of total revenue,
R&D expenses for the three and nine month periods ended March 31, 1999 increased
to 23.4% and 24.0%, respectively, compared to 20.4% and 19.2%, respectively, of
total revenue for the comparable year-ago periods. The increase in R&D expenses
as a percentage of total revenue is primarily a result of reduced revenue in
fiscal 1999 compared to the prior fiscal year, as the Company has continued to
invest in strategic R&D programs and initiatives in etch and CMP, partially
offset by the reductions in its FPD and CVD operations.
Selling, general and administrative ("SG&A") expenses decreased by 30.2%
and 27.0%, respectively, for the three and nine month periods of fiscal 1999
when compared to the year-ago periods. The decrease in SG&A expenses is a result
of the Company's restructurings and cost management programs in both fiscal 1998
and 1999.
During the quarter ended December 31, 1998, in response to continued
declines in the semiconductor equipment market, the Company announced plans to
further reduce its workforce and eliminate additional facilities and fixed
assets. The Company recorded a restructuring charge of $53.4 million, relating
primarily to severance compensation and benefits, the write-off of facilities
and fixed assets and other restructuring charges. At March 31, 1999, $8.9
million of the charge remained accrued on the Company's consolidated balance
sheet. During the nine months ended March 31, 1999, the Company made
approximately $10.3 million of cash payments relating primarily to severance and
benefits. At March 31, 1999, the Company has approximately $8.9 million of
remaining future cash payments relating to the restructuring charge taken during
the second quarter of fiscal 1999. There will be further charges against the
restructuring reserves established during the second quarter of fiscal 1999
during the
11
<PAGE> 12
remainder of fiscal 1999 and into fiscal 2000, as the Company completes this
restructuring program.
During the quarters ended March 31, 1998 and June 30, 1998, the Company
announced plans to restructure its operations to focus more on its core etch and
CMP product groups, and to exit its FPD and CVD operations. As a result of the
restructurings, the Company reduced its global workforce by approximately 28%
and downsized and consolidated its manufacturing operations and facilities.
During fiscal 1998, the Company recorded a total restructuring charge of $148.9
million for severance compensation and benefits, the write-off of facilities,
fixed assets and excess and obsolete inventory and other exit costs. At March
31, 1999, $25.6 million of the charge remains accrued on the Company's
consolidated balance sheet. During the nine month period ended March 31, 1999,
the Company made approximately $22.1 million of cash payments in connection with
those fiscal 1998 charges, relating primarily to severance benefits and rent on
idle facilities. At March 31, 1999, the Company has approximately $23.3 million
of future cash payments relating to the restructurings. There will be further
charges against the restructuring reserves established in fiscal 1998 during the
remainder of fiscal 1999 and into fiscal 2000, as the Company completes these
restructuring programs.
Other (income) and expense, net decreased $1.7 million and $0.3 million,
respectively, during the three and nine month periods of fiscal 1999, compared
to the year-ago periods. During the first quarter of fiscal 1998, the Company
issued $310.0 million of convertible subordinated notes ("the Notes") bearing
interest at 5% which are due to mature on September 1, 2002. During the nine
months ended March 31, 1999, the Company had a lower rate of return on its
investments than during the comparable year-ago period, consistent with the
lower interest rates prevailing in the U.S. market. In addition, during the
third quarter of fiscal 1999, the Company incurred foreign currency translation
losses compared to translation gains during the comparable year-ago period.
Due to tax benefits from the Company's significant tax loss and credit
carryovers being recorded in prior periods, Lam did not record any tax benefit
during the first nine months of fiscal 1999.
The Company established a team to address issues raised by the
introduction of the Single European Currency ("Euro") for initial implementation
as of January 1, 1999, and through the transition period to January 1, 2002. Lam
met all related legal requirements by January 1, 1999, and expects to meet all
legal requirements through the transition period. Lam does not expect the cost
of any system modifications to be material and does not currently expect that
introduction and use of the Euro will materially affect its foreign exchange and
hedging activities or will result in any material increase in transaction costs.
The Company will continue to evaluate the impact over time of the introduction
of the Euro; however, based on currently available information management does
not believe that the introduction of the Euro will have a material adverse
impact on the Company's financial condition or the overall trends in results of
its operations.
The Company relies heavily on its existing application software and
operating systems. The Year 2000 compliance issue (in which systems do not
properly recognize date sensitive information when the year changes to 2000)
creates risks for the Company: if internal data
12
<PAGE> 13
management, accounting and/or manufacturing or operational software and systems
do not adequately or accurately process or manage day or date information beyond
the year 1999, there could be an adverse impact on the Company's operations. To
address the issue, the Company has assembled a task force to review and assess
internal software, data management, accounting, and manufacturing and
operational systems to ensure that they do not malfunction as a result of the
Year 2000 date transition. The review and corrective measures are proceeding in
parallel. These reviews and corrective measures are intended to encompass all
significant categories of internal systems used by the Company, including data
management, accounting, manufacturing, sales, human resources and operational
software and systems. The Company is also working with its significant suppliers
of products and systems to assure that the products and systems supplied to the
Company, and the products the Company supplies to its customers, are Year 2000
compliant.
With respect to internal systems, the Company has identified all
critical systems necessary to the Company's operations and has asked suppliers
to provide assurances that such systems are Year 2000 compliant, or to identify
replacement or upgrade systems. In many instances, the Company has developed
upgrades internally which will assure Year 200 compliance of these systems. With
respect to suppliers' systems, the Company has received and is in the process of
evaluating and assessing the adequacy of responses received, and requesting
further responses and assurances where appropriate. This process is expected to
be completed prior to the end of calendar 1999.
The Company's next-generation enterprise resource planning and
information system will replace many of the system operations currently being
performed by existing internal system software. Implementation of this
next-generation system is on schedule for completion during the second half of
calendar 1999, and the Company has received assurances that it will be Year 2000
compliant. As a contingency, in the event implementation of the next generation
system is delayed or experiences problems, the Company's internal system
encompassing core manufacturing, service, sales, inventory and warranty
operations, which will be replaced by the next-generation system, is currently
Year 2000 compliant and can continue to support the Company's significant
operational systems, if needed. Many of the Company's cash management and
payroll operations are handled on an out-sourced basis, and the Company has
received assurances that the systems providing these outsourced services are
Year 2000 compliant. As separate internal systems affecting individual and
group-level company operations are replaced or upgraded over time in the
ordinary course of business, all such replacement or upgrade systems will be
Year 2000 compliant. Such separate individual and group level internal systems
are not believed to affect material operations of the Company and the cost to
replace or upgrade such individual or group level internal systems in the
ordinary course of business, though not fully known at this time, is not
expected to be material. The Company does not track the internal costs incurred
in connection with the Year 2000 compliance project. Substantially all such
expenses have been, or will be, included in the operational expenditures of the
effected groups.
With respect to compliance of the products the Company supplies to its
customers, the Company intends to adhere to Year 2000 test case scenarios
established by SEMATECH, an industry group comprised of US
13
<PAGE> 14
semiconductor manufacturers. The Company's compliance efforts and review and
identification of corrective measures and contingency planning (where necessary)
are substantially complete. The application systems and software of a
significant number of the products currently supplied to the Company's customers
are Year 2000 compliant, with the remainder expected to be so by the end of
fiscal 1999. With respect to certain of the Company's products already installed
in the field, the Company has determined that in most instances where the
application systems and software are not Year 2000 compliant, there is either no
appreciable effect or the effect during the product's operation is limited to
certain aspects of the product's ability to report data concerning its
operational parameters. However, the product's operation, manufacturing
capabilities or quality are not affected. The Company is in the process of
identifying and offering to customers product upgrades by the end of fiscal
1999, with the goal of resolving all material programs and systems prior to the
Year 2000 date transition. In this regard, the Company is incurring, and will
continue to incur throughout fiscal 1999, various costs to provide customer
support regarding Year 2000 issues. Through the end of this third fiscal
quarter, these costs have totaled less than $3 million, with total program costs
estimated going forward and through completion to be less than $5 million. The
Company estimates that most of these estimated costs going forward will be
off-set by revenues from product upgrades and customer service and support.
Accordingly, the full cost of these activities is not expected to be material
and, to the extent will be borne by the Company, have already in large part been
incurred by the Company.
In connection with its review and implementation of corrective measures,
both to ensure that its internal products and systems, and the application
systems accompanying the products sold to its customers are Year 2000 compliant,
the Company expects both to replace some software and systems and to upgrade
others where appropriate. As a contingency with respect to products the Company
currently offers to its customers, the Company may replace all non-compliant
application systems and software with systems and software demonstrated to be
Year 2000 compliant. With respect to products and systems supplied to the
Company for use internally, the Company may upgrade all non-compliant products
and systems and, where necessary or where no reasonable upgrade is available,
replace such non-compliant products and systems with products and systems
demonstrated to be Year 2000 compliant.
The Company's failure to ensure, at all or in a timely or reasonable
manner, that its products are Year 2000 compliant may cause disruption in the
ability of the Company's customers to derive expected productivity from those
products or to integrate the products fully and functionally into certain
automated manufacturing environments. With respect to products and systems the
Company purchases for use internally, failure to ensure Year 2000 compliance may
cause disruption in the Company's automated accounting, financial planning, data
management and manufacturing operations which could have a material effect on
the Company's short-term ability to manage its day-to-day operations in an
efficient, cost-effective and reliable manner.
The Company believes that its Year 2000 compliance project will be
completed on a timely basis, and in advance of the Year 2000 date transition and
will not have a material adverse effect on the Company's financial condition or
overall trends in the results of operations. However, there can be no assurance
that unexpected delays or problems,
14
<PAGE> 15
including the failure to ensure Year 2000 compliance by systems or products
supplied to the Company by a third party, will not have an adverse effect on the
Company, its financial performance, or the competitiveness or customer
acceptance of its products. Further, the Company's current understanding of
expected costs is subject to change as the project progresses, and does not
include potential costs related to actual customer claims or the cost of
internal software and hardware replaced in the normal course of business (whose
installation otherwise in the normal course of business may be accelerated to
provide solutions to Year 2000 compliance issues).
Liquidity and Capital Resources
As of March 31, 1999, the Company had $354.2 million in cash, cash
equivalents, short-term investments and restricted cash, compared with $448.5
million at June 30, 1998. The Company has a total of $100.0 million available
under a syndicated bank line of credit which is due to expire in April 2001.
Borrowings under the line of credit bear interest at the bank's prime rate or
0.55% to 0.95% over the applicable London Interbank Offered Rate. As of March
31, 1999, the Company has not borrowed against this line of credit.
Net cash used in operating activities was $55.4 million for the nine
months ended March 31, 1999. The Company used $9.3 million of working capital.
Cash payouts relating to the fiscal 1998 and 1999 restructurings were
approximately $32.4 million. Decreases in accounts payable and accrued
liabilities were offset by decreases in accounts receivable and inventory,
resulting in a use of cash of $9.3 million. Cash provided by investing
activities was $128.7 million, which was primarily from the net sales of
short-term investments. Capital expenditures, net of retirements, for the nine
month period ended March 31, 1999 were $25.4 million. The Company used $13.7
million in financing activities from the principal payments of long-term debt
and capital lease obligations of $22.7 million and the repurchase of common
stock through the Company's employee stock purchase program of $13.2 million,
offset by proceeds from the issuance of long-term debt of $12.1 million and
proceeds from the issuance of common stock of $10.8 million. During the first
quarter of fiscal 1999, the Company renegotiated a replacement facility for a
Yen1.7 billion yen-denominated loan ($12.6 million), reducing the amount of
available borrowing to Yen1.4 billion ($11.9 million at March 31, 1999).
The Company's cash, cash equivalents, short-term investments and
available lines of credit at the end of the third quarter of fiscal 1999 are
considered adequate to support current levels of operations for at least the
next twelve months.
Risk Factors
Fluctuations in Quarterly Revenues and Operating Results
The Company's quarterly revenues have fluctuated in the past and may
fluctuate in the future. The Company's revenues are dependent on many factors,
including, but not limited to, the economic conditions in the semiconductor
industry generally, and equipment industry specifically, 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
15
<PAGE> 16
develop, introduce and market new, enhanced and competitive products, at all and
on a timely basis, the introduction of new products by its competitors,
challenges to the Company's products and technology, 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 $150,000 to over $2.5 million per unit. The sale of fewer
systems than anticipated in any quarter may have a substantial negative impact
on the Company's 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 that 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. Further, as a result of the continuing consolidation of
manufacturing operations and capacity at the Company's Fremont, California
facility, natural, physical or other events affecting the facility, including
labor disruptions, could adversely impact the Company's operations and revenue.
Volatility in the Semiconductor Equipment Industry
The business of the Company depends 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
has historically experienced periodic downturns. During the past twelve months
the semiconductor industry has been experiencing a severe slowdown of product
demand and extreme volatility in product pricing. This slowdown and volatility
caused the semiconductor industry to reduce or delay significantly purchases of
semiconductor manufacturing equipment and construction of new fabrication
facilities. This slowdown and volatility is expected to continue throughout
fiscal 1999; however, the Company has seen indications of a modest recovery. As
previously described, lower levels of investment by the semiconductor
manufacturers and pricing volatility will continue to affect materially the
Company's aggregate bookings, revenues and operating results. Even during
periods of reduced revenues, in order to remain competitive the Company will
continue to invest in R&D and to maintain extensive ongoing worldwide customer
service and support capabilities, 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 equipment industry to increased pressure to maintain
technological parity with deep submicron process technology. The Company
believes that its future success will depend in part upon its ability to
develop, manufacture and introduce successfully new products and product lines
with improved capabilities and to continue to enhance existing products. Due to
16
<PAGE> 17
the risks inherent in transitioning to new products, the Company will be
required to forecast accurately 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.
There can be no assurance that the Company will successfully develop and
manufacture new products, or that new products introduced by it will be accepted
in the marketplace. If Lam does not successfully introduce new products, the
Company's results from operations will be materially adversely affected.
The Company expects to continue to make significant investments in R&D
and to pursue joint development relationships with customers or other members of
the industry. The Company must manage product transitions or joint development
relationships 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 it has formed strategic alliances, selling of
its existing 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 its financial results.
Introduction of New Product
During the second quarter of fiscal 1999, Lam began shipping units of
its Teres(TM) CMP system, for which no revenue was recorded and that is expected
to face significant competition from multiple current and future competitors.
Among the companies currently offering polishing systems are Applied Materials,
Inc., Ebara Corporation, IPEC, SpeedFam Corp. and Strasbaugh. Lam believes that
other companies are developing polishing systems and are planning to introduce
new products to this market.
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 large percentage of the Company's revenues in the near
term. Continued market acceptance of its 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 such
products, if any, as a result of competition, technological change, failure of
the Company to release new versions of these
17
<PAGE> 18
products on time, or otherwise, could have a material adverse effect on the
business, operating results, financial condition and cash flows of the Company.
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's key suppliers include Bullen Ultrasonics, Inc., which supplies
electrodes, Edwards High Vacuum Inc., Lam's supplier of chillers, Brooks
Automation, Inc., Lam's supplier of transport modules and robotics, Coors
Technical Ceramics Company, which supplies ceramics, Dorsey Guage, Inc., which
supplies electrostatic chucks, and Advanced Energy Industries, Lam's RF
generator supplier. The Company purchases in excess of $500,000 of supplies on a
monthly basis from these suppliers. Each of these suppliers has a one year
blanket purchase contract under which Lam may issue purchase orders. These
contracts may be renewed periodically. Each of these suppliers has sold products
to Lam during at least the last four years, and there is no reason to expect
that these contracts will not continue to be renewed in the future or otherwise
replaced with competent alternative source suppliers. Management 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 could result in damage to
customer relationships.
Highly Competitive Industry
The semiconductor equipment 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. Accordingly, Lam
would expect to experience difficulty in selling to a given customer if that
customer had initially selected or selects a competitor's equipment. The Company
believes that to remain competitive, significant financial resources are
required in order to offer a broad range of products, to maintain customer
service and support centers worldwide, and to invest in product and process R&D.
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 Lam's competitors have substantially greater
financial resources and more extensive engineering, manufacturing, marketing and
customer service and support. In addition, there are smaller emerging
semiconductor equipment companies that provide innovative technology that may
have performance advantages over systems offered by the Company.
Competitors are expected to continue to improve the design and
performance of their current products and processes and to introduce new
products and processes with enhanced performance characteristics. If competitors
enter into strategic relationships
18
<PAGE> 19
with leading semiconductor manufacturers covering products similar to those sold
or being developed by the Company, its ability to sell products to those
manufacturers could be adversely affected. No assurance can be given that Lam
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 Lam
currently is developing additional product enhancements that it believes will
address customer requirements, there can be no assurance that the development or
introduction of these additional product enhancements will be successfully
completed, at all or on a timely basis, or that these product enhancements will
achieve market acceptance or be competitive. 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 Sales
International sales accounted for 51% and 55%, respectively, of net
revenues for the first nine months of fiscal 1999 and 1998, and 55%, 57% and
63%, respectively, of net revenues for fiscal years 1998, 1997 and 1996.
Historically, sales to the Asian regions have accounted for a substantial
portion of international sales. Recent economic, banking and currency problems
in the Asian regions have had and will continue to have a significant adverse
impact on the Company's revenue and operations, including specifically revenues
and operations for the remainder of fiscal 1999.
Sales of products throughout the world are primarily denominated in
United States dollars. In Korea, devaluation of the Won and difficulties by
customers in obtaining credit have curtailed semiconductor equipment investment
and have led to cancellation or delay of orders by the Company's customers.
In Japan, the Company's sales are denominated in Japanese Yen. A
weakening of the value of the Japanese Yen as compared to the U.S. dollar could
negatively impact operating margins. Currently, the Company enters into foreign
currency forward contracts to minimize the impact of exchange rate fluctuations
on yen-denominated assets and liabilities and will continue to enter into such
hedging transactions in the future.
In Europe, sales following January 1, 1999 are subject to certain
provisions governing the transition of commercial transactions to the Euro. Lam
met the related legal requirements by January 1, 1999, and expects to be able to
meet the related legal requirements through the transition period. The Company
does not currently expect that introduction and use of the Euro will materially
affect its foreign exchange and hedging activities or will result in any
material increase in transaction costs. Lam will continue to evaluate the impact
over time of the introduction of the Euro. Based on currently available
information management does not believe that the introduction of the Euro will
have a material
19
<PAGE> 20
adverse impact on Lam's financial condition or the overall trends in results of
operations.
The impact of these and other factors on the Company's revenues and
operating results in any future period is difficult to forecast. There can be no
assurance that these and other factors relating to international sales and
operations by the Company will not adversely affect future business and
financial results.
Potential Volatility of Common Stock Price
The market price for Lam Common Stock has been volatile and it could
continue to be subject to significant fluctuations in response to market or
industry conditions generally, or specific variations in quarterly operating
results, shortfalls in revenues or earnings from levels expected by securities
analysts and other factors such as announcements of restructurings,
technological innovations, reductions in force, departure of key employees,
consolidations of operations or introduction of new products by the Company or
by the Company's competitors, government regulations, developments in patent or
other proprietary rights, disruptions with key customers or the occurrence of
political, economic or environmental events globally or in key sales regions. In
addition, the stock market has in recent years experienced significant price
fluctuations. These fluctuations often have been unrelated to the operating
performance of the specific companies whose stocks are traded. Recent
fluctuations affecting Lam Common Stock have been tied in part to the Asian and
Russian financial crises, actual or anticipated fluctuations in interest rates,
and the price of and market for semiconductors. Broad market fluctuations, as
well as economic conditions in the semiconductor industry, may adversely affect
the market price of Lam Common Stock.
Intellectual Property Matters
From time to time, Lam has received notices from third parties alleging
infringement of such parties' patent or other intellectual property rights by
the Company's products. In such cases, it is the policy of the Company to defend
the claims or negotiate licenses on commercially reasonable terms, where
considered appropriate. However, no assurance can be given that Lam will be able
in the future 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
Lam in the United States District Court for the Northern District of California,
seeking monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Varian. The Company has asserted
defenses of invalidity and unenforceability of the patents that are the subject
of the lawsuit, as well as non-infringement of such patents by the Company's
products. No trial date is currently scheduled. 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
20
<PAGE> 21
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 Lam attempts to protect its proprietary technology through patents,
copyrights and trade secret protection, it believes that its success will depend
on more technological expertise, continuing the development of new systems,
market penetration and growth of its installed base and the ability to provide
comprehensive support and service to customers. There can be no assurance that
the Company will be able to protect its technology or that competitors will not
be able to develop similar or more competitive technology independently. Lam
currently holds a number of United States and foreign patents and patent
applications pending. There can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented, that pending
applications will be issued or that the rights granted or anticipated thereunder
will provide competitive advantages.
Year 2000 Compliance
See discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 10 to 15.
Restructurings and Consolidation of Operations
The Company substantially restructured and consolidated its operations
during the quarters ended March 31, 1998, June 30, 1998 and December 31, 1998.
Implementation of these restructurings and consolidations involves several
risks, including that of simplifying and modifying the Company's product line
offerings, which will increase its dependence on fewer products and reduce
overall sales.
Although the Company believes that the actions it has taken and
contemplates taking in connection with the restructurings and consolidations,
including the reduction in workforce, the consolidation of manufacturing sales
and service operations and the exiting from FPD and CVD operations, should help
more closely align Lam with its business outlook, there can be no assurance that
such actions will enable the Company to achieve its objectives of reducing
costs, or can be accomplished at specific or optimum values or on time or as
intended. In addition, there can be no assurance that the size of the
restructuring charges will not exceed current estimates. The Company's future
consolidated operating results and financial condition could be adversely
affected should it encounter difficulty in effectively and timely managing and
completing the restructurings and consolidations.
21
<PAGE> 22
ITEM 3. Quantitative And Qualitative Disclosures about Market Risk
For financial market risks related to changes in interest rates and
foreign currency exchange rates, refer to Part II, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, in the Company's Annual Report on
Form 10-K for the year ended June 30, 1998.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
See discussion in Intellectual Property Matters on pages 20 to 21.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.66 Substitution Certificate for Loan Agreement dated
September 30, 1998 between ABN AMRO BANK, N.V. and Lam
Research Corporation, dated March 19, 1999.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on March 4, 1999 making an Item 5
disclosure to announce the Company's plan to repurchase up to
2,000,000 shares of its common stock.
22
<PAGE> 23
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 26, 1999
LAM RESEARCH CORPORATION
By: /s/ Mercedes Johnson
-------------------------------------
Mercedes Johnson, Vice President,
Finance and Chief Financial Officer
23
<PAGE> 24
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
10.66 Substitution Certificate for Loan Agreement dated September 30, 1998
between ABN AMRO BANK, N.V. and Lam Research Corporation, dated March
19, 1999.
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.66
SUBSTITUTION CERTIFICATE
To: ABN AMRO Bank, N.V., Tokyo Branch
13F, Shiroyama JT Mori Building
4-3-1, Toranomon, Minato-ku
Tokyo 105, Japan
Date: March 19, 1999
Attention: [_________________________]
Substitution Certificate
This Substitution Certificate relates to (a) a Loan Agreement dated
September 30, 1998 (as amended by that certain Supplemental Agreement dated
December 25, 1998) (the "Agreement") between (1) Lam Research Co., Ltd. as
Borrower, (2) the banks and financial institutions whose respective names and
addresses are set out in schedule 1 thereto as Lenders and (3) ABN AMRO Bank
N.V., Tokyo Branch as Agent; and (b) the Guaranty as defined in the Agreement.
Terms defined in the Agreement shall have the same meaning in this Substitution
Certificate.
1 ABN AMRO Bank N.V., Tokyo Branch (the "Existing Lender") (a) confirms
the accuracy of the summary of its participation in the Loan set out in
the schedule hereto; and (b) requests Union Bank of California, N.A.,
Tokyo Branch (the "Substitute") to accept by way of transfer the
portion of that participation specified in the schedule hereto by
counter-signing and delivering this Substitution Certificate to the
Agent at its address for the service of notices specified in the
Agreement.
2 The Substitute hereby requests the Agent (on behalf of itself, the
Borrower and the Lenders) to accept this Substitution Certificate as
being delivered to the Agent pursuant to
<PAGE> 2
and for the purposes of Clause 15.4 of the Agreement and Subparagraph
8(e) of the Guaranty, so as to take effect in accordance with the
respective terms thereof on March [__], 1999 (the "Effective Date") or
on such later date as may be determined in accordance with the terms
thereof.
3 The Agent (for itself and the other Lenders) confirms the transfer
effected by this Substitution Certificate pursuant to and for the
purposes of Clause 15.4 of the Agreement and Subparagraph 8(e) of the
Guaranty so as to take effect in accordance with the terms thereof.
4 The Substitute confirms:
(a) that it has received a copy of the Agreement and the Guaranty
and all other documentation and information required by it in
connection with the transactions contemplated by this
Substitution Certificate;
(b) that it has made and will continue to make its own assessment
of the validity, enforceability and sufficiency of the
Agreement, the Guaranty and this Substitution Certificate and
has not relied and will not rely on the Existing Lender, the
Arranger or the Agent or any statements made by any of them in
that respect;
(c) that it has made and will continue to make its own credit
assessment of the Borrower and has not relied and will not
rely on the Existing Lender, the Arranger or the Agent or any
statements made by either of them in that respect; and
(d) accordingly, none of the Existing Lender, the Arranger nor the
Agent shall have any liability or responsibility to the
Substitute in respect of any of the foregoing matters.
5 Execution of this Substitution Certificate by the Substitute
constitutes its representation to the Existing Lender and all other
parties to the Agreement that it has power to become party to the
Agreement as a Lender on the terms herein and therein set out and has
taken all necessary steps to authorize execution and delivery of this
Substitution Certificate.
6 The Existing Lender makes no representation or warranty and assumes no
responsibility with respect to the legality, validity, effectiveness,
adequacy or enforceability of the
2
<PAGE> 3
Agreement, the Guaranty or any document relating thereto and assumes no
responsibility for the financial condition of the Borrower or the
Guarantor or any other party to the Agreement or the Guaranty or for
the performance and observance by the Borrower or any other such party
of any of its obligations under the Agreement, the Guaranty or any
document relating thereto and any and all such conditions and
warranties, whether express or implied by law or otherwise, are hereby
excluded.
7 The Substitute hereby undertakes to the Existing Lender, the Borrower
and Agent that it will perform in accordance with their terms all those
obligations which by the respective terms of the Agreement will be
assumed by it after acceptance of this Substitution Certificate by the
Agent.
8 Upon the effectiveness of this Substitution Certificate, Clause 10.1(h)
of the Agreement shall be deemed deleted in its entirety and of no
further force and effect, and Borrower shall be relieved of any further
obligation or liability thereunder.
9 This Substitution Certificate and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with
the laws of Japan.
Note: This Substitution Certificate is not a security, bond, note, debenture,
investment or similar instrument.
Executed by the authorized signatories of the parties on the date appearing
below.
3
<PAGE> 4
The Schedule
<TABLE>
<CAPTION>
- ---------------------- -------------------
Amount of Contribution Portion transferred
(Y) (Y)
- ---------------------- -------------------
<S> <C>
(Y)850,000,000 (Y)850,000,000
- ---------------------- -------------------
</TABLE>
Administrative Details of Substitute
------------------------------------
Lending office: Union Bank of California, N.A., Tokyo Branch
Hatchobori Center Building
6-1 Hatchobori, 4-Chome
Chou-ku, Tokyo 104 Japan
Account for payments: Bank of Tokyo-Mitsubishi, Ltd. Head Office
0019151209
Telephone: 81-3-554-30352
Telefax: 81-3-554-30356
Attention Tsutomu Aruga:
4
<PAGE> 5
<TABLE>
<S> <C>
Existing Lender: ABN AMRO BANK N.V., Substitute: UNION BANK OF
TOKYO BRANCH CALIFORNIA, N.A.,
TOKYO BRANCH
By: __________________________________ By: __________________________________
Title: __________________________________ Title: __________________________________
Date: __________________________________ Date: __________________________________
Arranger: UNION BANK OF CALIFORNIA, N.A.
By: __________________________________
Title: __________________________________
Date: __________________________________
Agent: ABN AMRO BANK N.V., TOKYO BRANCH
By: __________________________________
Title: __________________________________
Date: __________________________________
Consented to:
Borrower: LAM RESEARCH CO., LTD.
By: __________________________________
Title: __________________________________
Date: __________________________________
</TABLE>
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 73,049
<SECURITIES> 229,763
<RECEIVABLES> 149,383
<ALLOWANCES> 4,948
<INVENTORY> 179,550
<CURRENT-ASSETS> 728,623
<PP&E> 262,888
<DEPRECIATION> 160,438
<TOTAL-ASSETS> 936,451
<CURRENT-LIABILITIES> 212,212
<BONDS> 310,000
0
0
<COMMON> 39
<OTHER-SE> 395,695
<TOTAL-LIABILITY-AND-EQUITY> 936,451
<SALES> 437,070
<TOTAL-REVENUES> 437,070
<CGS> 285,520
<TOTAL-COSTS> 561,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,194
<INCOME-PRETAX> (124,262)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,262)
<EPS-BASIC> (3.23)
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</TABLE>
