|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous: ALPHA 1 BIOMEDICALS INC, SC 13D, 2000-11-07 |
Next: LAM RESEARCH CORP, 10-Q, EX-10.72, 2000-11-07 |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2000 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 000-12933
LAM RESEARCH CORPORATION (Exact name of registrant as specified in its charter)
|
|
|
|
|
|
4650 Cushing Parkway
Fremont, California 94538
(Address of principal executive offices including zip code)
(510) 659-0200
(Registrant's telephone number, including area code)
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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ],
As of September 24, 2000 there were 124,658,731 shares of Registrant's Common Stock outstanding.
LAM RESEARCH CORPORATION
TABLE OF CONTENTS
| PART I. Financial Information | Page No. |
| Item 1. Financial Statements (unaudited): |
|
|
Condensed Consolidated Balance Sheets as of September 24, 2000 and June 25, 2000 |
|
|
Condensed Consolidated Statements of Income for the three months ended September 24, 2000 and September 26, 1999. |
|
|
Condensed Consolidated Statements of Cash Flows for the three months ended September 24, 2000 and September 26, 1999. |
|
| Notes to Condensed Consolidated Financial Statements |
|
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
|
| PART II. Other Information |
|
| Item 1. Legal Proceedings |
|
| Item 4: Submission of Matters to Vote of Security Holders |
|
| Item 6. Exhibits and Reports on Form 8-K |
|
| Signatures |
|
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 24, June 25,
2000 2000
------------ ------------
(unaudited)
Assets
Cash and cash equivalents............................ $ 74,453 $ 70,056
Short-term investments............................... 299,316 301,666
Accounts receivable, net............................. 387,784 323,935
Inventories.......................................... 255,452 227,169
Prepaid expenses and other assets.................... 21,363 22,001
Deferred income taxes................................ 76,508 76,508
------------ ------------
Total Current Assets....................... 1,114,876 1,021,335
Property and Equipment,net........................... 122,800 119,192
Restricted cash...................................... 60,348 60,348
Deferred income taxes................................ 12,317 12,317
Other assets......................................... 33,179 31,645
------------ ------------
Total Assets............................... $ 1,343,520 $ 1,244,837
============ ============
Liabilities and Stockholders' Equity
Trade accounts payable............................... $ 83,381 $ 76,648
Accrued expenses and other
current liabilities............................... 222,390 203,476
Current portion of long-term debt and
capital lease obligations......................... 9,168 7,632
------------ ------------
Total Current Liabilities.................. 314,939 287,756
Long-term debt and capital lease
obligations, less current portion................. 320,819 321,657
------------ ------------
Total Liabilities.......................... 635,758 609,413
Preferred stock: 5,000 shares authorized;
none outstanding.................................. -- --
Common Stock, at par value of $0.001 per share
Authorized -- 400,000 shares; issued and
outstanding 124,659 shares at September 24, 2000
and 124,389 shares at June 25, 2000............. 125 124
Additional paid-in capital........................... 442,056 441,949
Treasury stock....................................... (16,181) (26,438)
Accumulated other comprehensive loss................. (4,962) (7,501)
Retained earnings.................................... 286,724 227,290
------------ ------------
Total Stockholders' Equity................. 707,762 635,424
------------ ------------
Total Liabilities and Stockholders' Equity. $ 1,343,520 $ 1,244,837
============ ============
See Notes to Condensed Consolidated Financial Statements.
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended
--------------------------
September 24, September 26,
2000 1999
------------ ------------
Total revenue................ $ 432,041 $ 241,582
Cost of goods sold......... 232,795 140,771
------------ ------------
Gross margin 199,246 100,811
Research and development... 56,531 39,264
Selling, general and
administrative........... 52,941 34,500
------------ ------------
Operating income ............ 89,774 27,047
Other income, net............ 4,639 378
------------ ------------
Income before taxes.......... 94,413 27,425
Income tax expense........... 28,324 2,743
------------ ------------
Net income................... $ 66,089 $ 24,682
============ ============
Net income per share
Basic..................... $ 0.53 $ 0.21
============ ============
Diluted................... $ 0.48 $ 0.19
============ ============
Number of shares used in
per share calculations:
Basic..................... 124,477 117,252
============ ============
Diluted................... 144,320 127,752
============ ============
See Notes to Condensed Consolidated Financial Statements.
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
--------------------------
September 24, September 26,
2000 1999
------------ ------------
Cash flows from operating activities:
Net income........................................ $ 66,089 $ 24,682
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization..................... 13,260 11,354
Change in working capital
accounts........................................ (66,234) (32,329)
------------ ------------
Net cash provided by operating
activities........................................ 13,115 3,707
------------ ------------
Cash flows from investing activities:
Capital expenditures, net......................... (15,956) (5,541)
Purchases of short-term investments............... (215,387) (782,695)
Sales/maturities of short-term investments........ 217,737 799,328
Other, net........................................ (1,824) 1,273
------------ ------------
Net cash provided by (used in) investing activities. (15,430) 12,365
------------ ------------
Cash flows from financing activities:
Treasury stock repurchases........................ (3,515) (5,146)
Reissuance of treasury stock...................... 7,117 8,421
Sale of stock, net of issuance costs.............. 108 5,160
Principal payments on long-term debt
and capital lease obligations................... (674) (8,521)
Net proceeds from the issuance of short and
long term debt.................................. 3,441 8,685
------------ ------------
Net cash provided by financing activities........... 6,477 8,599
------------ ------------
Effect of exchange rate changes on cash........... 235 (5,587)
------------ ------------
Net increase in cash and
cash equivalents.................................. 4,397 19,084
Cash and cash equivalents at beginning of period.... 70,056 37,965
------------ ------------
Cash and cash equivalents at end of period.......... $ 74,453 $ 57,049
============ ============
See Notes to Condensed Consolidated Financial Statements.
LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 2000
(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 25, 2000, which are included in the Annual Report on Form 10-K, File Number 0-12933. All prior year shares amounts have been adjusted to reflect three for one stock split.
NOTE B -- RECENT ACCOUNTING PRONOUNCEMENTS
Revenue Recognition: Sales of the Company's products are generally recorded upon shipment. Estimated costs to be incurred by the Company related to product installation and warranty fulfillments are accrued at the date of shipment. Service revenue is recognized when services are provided. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements." SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements of all public registrants. SAB 101 may require that some or all of that revenue not be recognized until the product is actually accepted by the customers, an event, which generally does not happen until sometime after shipment has occurred. Compliance with SAB 101 therefore might delay our recognition of revenue, compared to our current practice, for one or more quarters, causing an adverse impact on our operating results during the quarters in which product has been shipped, but not yet accepted by the customer.
Changes in the Company's revenue recognition policy resulting from the interpretation of SAB 101 would be reported as a change in accounting principle. The impact of this change, if any, on previously recognized revenue would result in a cumulative adjustment to retained earnings as of the beginning of the fiscal year the Company adopts SAB 101. The SEC has delayed the required implementation date, which for the Company, will be the fourth quarter of fiscal 2001. Previously reported unaudited fiscal year 2001 quarterly operating results would be restated to reflect the impact, if any, of SAB 101 on the Company's revenue recognition policy. The Company is still in the process of assessing the impact of SAB 101 on its consolidated reported results of operations based on the SEC's most recently issued guidance.
Derivative Instruments and Hedging.. On July 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for derivatives used for hedging activities. It requires that all derivatives be recognized either as an asset or liability, and measures them at fair value. The adoption of FAS 133 did not have a material impact on the Company's consolidated financial position or overall trends in results of operations.
Employee Stock Plans: In March 2000, the FASB issued FASB Interpretation No.44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25". FIN 44 is intended to clarify the application of APB Opinion No. 25 by providing guidance regarding among other issues: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's consolidated financial position or results of operations.
NOTE C -- INVENTORIES
Inventories consist of the following at:
September 24, June 25,
2000 2000
------------ ------------
(in thousands)
Raw materials................... $ 175,050 $ 153,721
Work-in-process................. 61,480 53,221
Finished goods.................. 18,922 20,227
------------ ------------
$ 255,452 $ 227,169
============ ============
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
September 24, June 25,
2000 2000
------------ ------------
(in thousands)
Equipment....................... $ 140,103 $ 137,526
Leasehold improvements.......... 85,612 79,162
Furniture and fixtures.......... 69,718 64,694
------------ ------------
295,433 281,382
Less allowance for depreciation
and amortization.............. (172,633) (162,190)
------------ ------------
$ 122,800 $ 119,192
============ ============
NOTE E -- OTHER INCOME, NET
The significant components of other income, net are as follows:
Three Months Ended
--------------------------
September 24, September 26,
2000 1999
------------ ------------
(in thousands)
Interest expense................ $ (4,109) $ (4,845)
Interest income................. 9,208 5,475
Other........................... (460) (252)
------------ ------------
$ 4,639 $ 378
============ ============
NOTE F -- NET INCOME PER SHARE
Basic net income per share is calculated using the weighted average number of shares of Common Stock outstanding during the period. For the quarter ended September 24, 2000, diluted net income per share includes the assumed exercise of employee stock options and the assumed conversion of the convertible subordinated notes to common shares. For the quarter ended September 26, 1999, diluted net income per share includes the assumed exercise of employee stock options; the assumed conversion of the convertible subordinated notes to common shares was excluded from diluted net income per share because its effect would have been antidilutive.
The Company's basic and diluted net income per share amounts is as follows:
Three Months Ended
--------------------------
September 24, September 26,
2000 1999
------------ ------------
(in thousands, except per share data)
Numerator:
Numerator for basic net income per share.............. $ 66,089 $ 24,682
Add: Interest expense on convertible
subordinated notes, net of taxes................... 3,025 --
------------ ------------
Numerator for diluted net income per share............ 69,114 24,682
============ ============
Denominator:
Basic net income per share -- average
shares outstanding................................. 124,477 117,252
Effect of potential dilutive securities:
Convertible subordinated notes..................... 10,587 --
Employee stock plans............................... 9,256 10,500
------------ ------------
Diluted net income per share -- average
shares outstanding and other potential
common shares...................................... 144,320 127,752
------------ ------------
Basic net income per share.............................. $0.53 $0.21
============ ============
Diluted net income per share............................ $0.48 $0.19
============ ============
NOTE G -- COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows:
Three Months Ended
--------------------------
September 24, September 26,
2000 1999
------------ ------------
(in thousands)
Net income ..................... $ 66,089 $ 24,682
Foreign currency translation
adjustment.................... 2,453 (5,587)
Derivatives - cash flow hedging
adjustment...................... 86 -
------------ ------------
Comprehensive income ........... $ 68,628 $ 19,095
============ ============
Accumulated other comprehensive income presented on the accompanying consolidated condensed balance sheets consists of the accumulated foreign currency translation adjustment and the activity related to derivatives classified as cash flow hedges held by the Company from June 26, 2000 through September 24, 2000.
NOTE H -- DERIVATIVE INSTRUMENTS AND HEDGING
On July 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings (fair value hedges) or recognized in other comprehensive income until the hedged item is recognized in earnings (cash flow hedges). The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. The adoption of SFAS 133 did not have a material impact on the Company's consolidated financial position or operating results.
The Company conducts its business in a number of foreign countries and sells its systems and spare parts directly to customers in Japan through its Japanese subsidiary. These sales are generally denominated in the local country's currency. Therefore, in the normal course of business, the Company's financial position is routinely subjected to market risk associated with foreign currency rate fluctuations. The Company's policy is to ensure that material business exposure to foreign exchange risks are identified, measured and minimized using the most effective and efficient methods to eliminate or reduce such exposures. To protect against the reduction in value of forecasted Yen denominated cash flows resulting from sales by the Company's Japanese subsidiary to third-party customers, the Company has instituted a foreign currency cash flow hedging program. The Company purchases foreign currency forward contracts generally expiring within 12 months, and no later than 24 months, to hedge portions of its forecasted revenue denominated in Japanese Yen. These foreign currency forward contracts are carried on the Company's balance sheet at fair value with the effective portion of the contracts' gain or loss recorded in other comprehensive income (a component of stockholders' equity) and subsequently recognized in earnings in the same period the hedged forecasted transaction (i.e. the forecasted Japanese subsidiary sale) affects earnings. The Company does not use derivatives for trading purposes.
The effectiveness test for these currency forward contracts is determined by using the foreign currency spot rate versus current balance sheet spot rate comparison. SFAS 133 permits the exclusion from the effectiveness assessment of the time value portion of the change in value of the currency forward contract. The change in fair value of the time value portion of the derivative is considered by the Company to be inherently ineffective and is immediately adjusted through earnings as a component of other income and expense each accounting period. During the three month period ended September 24, 2000, the Company recognized a net gain of $735,000 related to this portion of the hedging instrument excluded from the assessment of hedge effectiveness.
At September 24, 2000, the Company expects to reclassify the amount accumulated in other comprehensive income to earnings during the next twelve months due to the recognition of revenue by the Company's Japanese subsidiary.
If a cash flow hedge should be discontinued because it is probable that the original forecasted transaction will not occur, the net gain or loss in accumulated other comprehensive income will be reclassified into earnings as a component of other income and expense. No such amounts were recorded in earnings during the three-month period ended September 24, 2000.
The following table summarizes activity in other comprehensive income related solely to derivatives classified as cash flow hedges held by the Company during the period from June 26, 2000 through September 24, 2000.
(in thousands)
------------
Cumulative effect of adopting FAS 133................... $ 494
Reclassified into income from other comprehensive income (471)
Changes in fair value of derivatives, net............... 63
------------
Other comprehensive income,net .................... $ 86
============
Additionally, the Company enters into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of foreign currency denominated intercompany receivables recorded on Lam U.S. books into the U.S. dollar functional currency. These derivatives do not qualify for hedge accounting and therefore, the change in fair value of these derivatives are adjusted to fair value through income as a component of other income and expense as an offset to the change in fair value of the foreign currency denominated intercompany receivables.
NOTE I -- RESTRUCTURING
During the Company's first fiscal 1997 quarter ended September 30, 1996, the Company projected and announced that revenues would be lower than previous quarters due to a projected 20% general market decline. The Company's revenues during that quarter fell to $299.2 million, a decrease of 24% from the prior quarter. The Company assessed that market conditions would remain depressed and, therefore, that its revenues would continue to be adversely affected. Accordingly, and as announced on August 26, 1996, the Company organizationally restructured its business units into a more centralized structure and cut its workforce by approximately 11%.
The Company's quarterly revenue would eventually decline to $233.3 million in the March 1997 quarter, 40% lower than the peak reached in the quarter ended June 1996. Subsequently, in the latter part of calendar 1997, the industry rebounded quickly and entered into what eventually became a short-lived upturn cycle. During the June 1997 quarter, the Company's revenues grew back to $282.6 million and reached $292.1 million by the December 1997 quarter. However, the Company's outlook in late January 1998 was that the industry was again entering into a steep downturn brought on by depressed DRAM pricing and the Asia financial crisis. The Company therefore announced a further set of restructuring activities in a news release on February 12, 1998. At that time, the Company's assessment of industry conditions was that its revenues for the March and June 1998 quarters would decline by approximately 20%. The Company's restructuring plans aligned its cost structure to this level of revenues by exiting part of its Chemical Vapor Deposition ("CVD") business and all of its Flat Panel Display ("FPD") business, consolidating its manufacturing facilities and substantially reducing its remaining infrastructure and workforce. The Company's actual June 1998 revenues were in line with those expectations; however, by the mid-June 1998 time-frame the industry conditions further deteriorated and the outlook for future quarters significantly worsened. The Company projected revenues to drop to a run rate of approximately $180 million per quarter and determined it needed once more to reduce its cost structure in line with the projected reductions in revenue. Accordingly, another separate restructuring plan was developed and announced in June 1998 and the Company exited the remainder of its CVD operations. As a result of the restructurings in fiscal 1998, the Company reduced its global workforce by approximately 28%.
The Company's revenue outlook in June 1998 was based on its projection that the worldwide wafer fabrication industry would deteriorate from a quarterly revenue amount of $4.2 billion to $3.2 billion, or a 25% decline. The semiconductor equipment market contracted beyond what was anticipated, to quarterly revenues of $2.6 billion as reported by Dataquest, an independent industry analysis firm. The Company's shortfall of revenues during the September 1998 quarter declined in line with the industry as a whole, and resulted in lower than anticipated revenues, falling to $142.2 million. At that point in time, the Company projected that its quarterly revenues would remain closer to the $140-$150 million level for at least the next several quarters. This necessitated another restructuring plan and further cost reductions via employee terminations, facilities consolidation and a contraction of operating activities, all of which resulted in the additional write-off of plant-related assets. This plan was announced and publicly communicated on November 12, 1998. As a result of the fiscal 1999 restructuring, the Company further reduced its global workforce by approximately 15%.
Beginning in late fiscal 1999, there were indications of a recovery in the semiconductor industry. On a global basis, semiconductor makers began adding new capacity to address an increase in the demand for semiconductors. In addition to new capacity, the semiconductor industry accelerated a migration to new materials such as copper and the new interconnect processes required to implement them. In early calendar year 2000, the Company determined that the upturn would be sustainable and that is was likely to continue through the end of the calendar year.
During the third quarter of fiscal 2000, the Company completed certain elements of its restructuring activities in accordance with its previously established and announced plans. As a result of the stronger than anticipated recovery of the semiconductor capital equipment market, the Company was able to recover approximately $18.9 million of the restructuring charges recorded in prior periods. Of this amount $1.4 million was recovered due to outplacement services guaranteed by the Company for terminated employees and other exit costs not being utilized. Another $5.6 million was recovered because the Company was able to reoccupy or successfully sublease certain manufacturing and administrative facilities under long term operating leases. The Company also recovered $3.1 million through the sale of its previously abandoned and written off facility in Korea. Additionally, the Company will utilize leasehold improvements of $5.5 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business. Approximately $0.8 million was recovered from the salvage of CVD inventories previously segregated and written off due to requests from former customers to purchase certain piece parts. The remaining $2.5 million was recovered due to certain customers not utilizing system return credits they requested and which were issued as a result of the decision to exit the CVD and FPD businesses.
As a result of the continued growth of the semiconductor capital equipment market, the Company recovered an additional $17.0 million of restructuring charges during the fourth quarter of fiscal 2000 at which time the Company completed the remaining elements of its restructuring plan. Of this amount, $9.5 million was recovered due to lower severance and termination costs than the Company had planned for certain employees and executives. Another $3.9 million was recovered from successful subleasing or occupancy of certain manufacturing and administrative facilities due to the aforementioned faster and more robust than anticipated industry recovery. The Company also recovered approximately $1.4 million from the sale of more of the aforementioned CVD and FPD inventory. Another $1.9 million was recovered as a result of customers not utilizing system return credits they had originally requested. Additionally, the Company will utilize leasehold improvements of $0.3 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business.
Below is a table summarizing restructuring activity relating to the fiscal 1999 restructuring:
Lease Credits
Severance Payments Abandoned on
and on Vacated Fixed Returned
Benefits Facilities Assets Equipment Total
--------- --------- --------- --------- ---------
(in thousands)
Fiscal year 1999 provision.. $ 16,521 $ 1,125 $ 28,141 $ 7,585 $ 53,372
Cash payments............... (11,663) (440) -- (258) (12,361)
Non-cash charges............ -- -- (28,141) (1,959) (30,100)
--------- --------- --------- --------- ---------
Balance at June 30, 1999.... 4,858 685 -- 5,368 10,911
Recovery of assets.......... -- 171 4,258 -- 4,429
Cash payments............... (1,831) (680) -- (275) (2,786)
Non-cash charges............ -- -- -- (806) (806)
Reversal of retructuring
charges................... (3,027) (176) (4,258) (2,586) (10,047)
--------- --------- --------- --------- ---------
Balance at June 25, 2000.... -- -- -- 1,701 1,701
Cash payments............... -- -- -- -- --
Non-cash charges............ -- -- -- (633) (633)
--------- --------- --------- --------- ---------
Balance at
September 24, 2000........ $ -- $ -- $ -- $ 1,068 $ 1,068
========= ========= ========= ========= =========
Severance and Benefits relates to the salary and fringe benefit expense for involuntarily terminated employees representing approximately 15% of the global workforce. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed the Company to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The termination of employees occurred shortly after the plan of restructuring was finalized.
Lease Payments on Vacated Facilities relates to 24 months of rent and common area maintenance expense for the vacated facilities. The Company also estimated given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease its vacated facilities in Fremont, California.
The Company wrote-off all leasehold improvements used in the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.
Credits on Returned Equipment relate to the charge associated with the requirement by certain of the Company's customers to return their previously purchased CVD systems and spare parts. The majority of the Credit on the Returned Equipment reserve balance of $1.1 million as of September 24, 2000 is expected to be utilized by the end of the current calendar year 2000.
Below is a table summarizing restructuring activity relating to the fiscal 1998 restructuring:
Lease Excess Credits
Severance Payments Abandoned and on Other
and on Vacated Fixed Obsolete Returned Exit
Benefits Facilities Assets Inventory Equipment Costs Total
--------- --------- --------- --------- --------- --------- ---------
(in thousands)
Fiscal year 1998 provision.. $ 40,317 $ 16,998 $ 47,341 $ 31,933 $ 6,547 $ 5,722 $ 148,858
Cash payments............... (9,766) (1,518) -- -- -- -- (11,284)
Non-cash charges............ -- -- (47,341) (31,933) (4,135) (5,722) (89,131)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1998.... 30,551 15,480 -- -- 2,412 -- 48,443
Adjustment.................. -- -- -- -- 1,528 -- 1,528
Cash payments............... (19,777) (3,039) -- -- (2,150) -- (24,966)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1999.... 10,774 12,441 -- -- 1,790 -- 25,005
Recovery of assets.......... -- -- 4,656 2,249 -- -- 6,905
Cash payments............... (1,228) (2,234) -- -- -- -- (3,462)
Reversal of retructuring
charges................... (7,683) (9,277) (4,656) (2,249) (1,790) -- (25,655)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 25, 2000.... 1,863 930 -- -- -- -- 2,793
Recovery of assets............ -- -- -- 242 -- -- 242
Cash payments............... (194) (95) -- -- -- -- (289)
Reversal of retructuring
charges................... -- -- -- (242) -- -- (242)
--------- --------- --------- --------- --------- --------- ---------
Balance at
September 24, 2000........ $ 1,669 $ 835 $ -- $ -- $ -- $ -- $ 2,504
========= ========= ========= ========= ========= ========= =========
Severance and Benefits relates to the salary and fringe benefit expense of the involuntarily terminated employees of the CVD and FPD operations which were exited, the shutdown of the Wilmington, Massachusetts manufacturing facility, and the employees impacted by the overall across the board reduction of the employee base. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed the Company to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The restructuring plans resulted in the Company reducing its global workforce by approximately 28%. The termination of employees occurred shortly after the plan of restructuring was finalized.
The Severance and Benefits reserve balance of $1.7 million as of September 24, 2000 will be utilized to make scheduled fixed cash payments through the remainder of those former employees' separation contracts.
Lease Payments on Vacated Facilities, which were included in the restructuring charge, related to remaining rent and common area maintenance on the closed Wilmington, Massachusetts manufacturing facility. The Company also estimated, given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease its excess facilities in Fremont, California. Therefore, the Company included 24 months of rent and common area maintenance expense related to excess facilities in its restructuring charge. Subsequently, the Company has subleased its excess facilities, and the remainder represents fixed commitments that will be utilized.
The Company wrote-off all fixed assets relating to the operations which were exited, leasehold improvements for the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees and other assets deemed to have no future use as a result of the restructuring.
The inventory write-off, which was included in the restructuring charge, related to inventory from the operations which were exited. The inventory write-off included raw materials on hand and inventory scheduled to be purchased under non-cancelable commitments from suppliers, spare parts, work-in-process and finished goods related to the products from the exited operations.
Credits on Returned Equipment relates to the charge associated with the requirement by certain of the Company's customers to return their previously purchased CVD systems and spare parts. During fiscal 1999, the Company recorded an adjustment to the restructuring reserve of $1.5 million for the sale of a previously written-off machine. The remainder of the reserve was reversed during fiscal 2000.
Other Exit Costs relates to the net book value of licensing and manufacturing agreements related to the restructured operations which, as a direct result of the restructuring plan, has no future economic benefit to us.
Below is a table summarizing restructuring activity relating to the fiscal 1997 restructuring:
Lease
Severance Payments Abandoned
and on Vacated Fixed
Benefits Facilities Assets Total
--------- --------- --------- ---------
(in thousands)
Balance at June 30, 1997.... $ 578 $ 1,086 $ -- $ 1,664
Adjustment.................. 1,086 (1,086) -- --
Cash payments............... (406) -- -- (406)
--------- --------- --------- ---------
Balance at June 30, 1998.... 1,258 -- -- 1,258
Cash payments............... (409) -- -- (409)
--------- --------- --------- ---------
Balance at June 30, 1999.... 849 -- -- 849
Reversal of retructuring
charges................... (238) -- -- (238)
Cash payments............... (183) -- -- (183)
--------- --------- --------- ---------
Balance at June 25, 2000.... 428 -- -- 428
Cash payments............... (47) -- -- (47)
--------- --------- --------- ---------
Balance at
September 24, 2000........ $ 381 $ -- $ -- $ 381
========= ========= ========= =========
Severance and Benefits relates to the salary and fringe benefit expense for the involuntarily terminated employees, which represented approximately 11% of the global workforce. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed the Company to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The actual termination of employees occurred shortly after the plan of restructuring was finalized. During fiscal 1998, the Company revised its estimate relating to severance and benefits and transferred the excess balance of remaining lease payments on vacated facilities of $1.1 million to severance and benefits.
The Severance and Benefits reserve balance of $0.4 million as of September 24, 2000 will be utilized through the remainder of those former employees' separation contracts.
Lease Payments on Vacated Facilities relate to rent and common area maintenance expense for the vacated facilities.
During fiscal 1997 the Company wrote-off all leasehold improvements used in the vacated facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.
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 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 our future revenue, product development, demand, acceptance and market share, competitiveness, royalty income, gross margins, levels of research and development and operating expenses, our management's plans and objectives for our current and future operations, 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 we may file from time to time with the Securities and Exchange Commission, specifically our last filed Annual Report on Form 10-K for the fiscal year ended June 25, 2000. Such risks, uncertainties and changes in condition, significance, value and effect could cause our 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. We undertake 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 6 to 16 of this Form 10-Q and the financial statements and notes in our last filed Annual Report on Form 10K for a full understanding of our financial position and results of operations for the quarterly period ended September 24, 2000.
RESULTS OF OPERATIONS
Total Revenue
Our total revenue for the quarter ended September 24, 2000 was $432.0 million, 79% higher than the corresponding first quarter in fiscal 2000 of $241.6 million. We experienced increased revenue from all of our product lines.
The geographic breakdown of revenue is as follows:
Three Months Ended
--------------------------
September 24, September 26,
2000 1999
------------ ------------
North America....... 34% 40%
Europe.............. 24% 18%
Asia Pacific........ 29% 28%
Japan............... 13% 14%
Gross Margin
Our gross margin percentage increased to 46.1% for the quarterly period ending September 24, 2000 compared to 41.7% for the same period in the prior fiscal year. The increase in our gross margin percentage was mainly due to the favorable impact of higher sales volume, the efficiencies of "lean" manufacturing techniques, and continued material cost reductions.
Research and Development
Research and Development ("R&D") expenses for the quarter ended September 24, 2000, were $56.5 million, 44.0% higher than the corresponding first quarter in fiscal 2000. However, as a percentage of revenue, R&D expenses were 13.1% of total revenue for the first quarter of fiscal 2001, compared to 16.3% of total revenue for the corresponding quarter in fiscal 2000. The decrease in R&D expenses as a percent of revenue is mainly due to the significant increase in revenue for the first quarter of fiscal 2001. The increase in R&D expenses in absolute dollars was a result of our continued investments in advanced etch and CMP applications and enhancements to our existing products, including developing the technology necessary to support smaller feature size, copper based devices and 300 mm wafers. We believe that in order to remain competitive, we must continue to invest substantially in R&D.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses were 12.3% of total revenue for the first quarter of fiscal 2001, as compared to 14.3% of total revenue in the first quarter of fiscal 2000, but increased in absolute dollars from $34.5 million in September 1999 to $52.9 million in September 2000. SG&A expenses decreased as a percent of revenue mainly due to the significant increase in revenue for the quarter ended September 24, 2000. The increase in SG&A expenses in absolute dollars was largely a result of increased headcount related to higher sales, marketing and administrative support for our expanding business as well as increased incentive payments to our employees.
New Accounting Pronouncements
FAS 133. On July 1, 2000, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for derivatives used for hedging activities. It requires that all derivatives be recognized either as an asset or liability, and measures them at fair value. The adoption of FAS 133 did not have a material impact on our consolidated financial position or overall trends in results of operations.
FIN 44. In March 2000, the FASB issued FASB Interpretation No.44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25". FIN 44 is intended to clarify the application of APB Opinion No. 25 by providing guidance regarding among other issues: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000. The adoption of FIN 44 did not have a material impact on our consolidated financial position or results of operations.
Restructuring Charge
During our first fiscal 1997 quarter ended September 30, 1996, we projected and announced that revenues would be lower than previous quarters due to a projected 20% general market decline. Our revenues during that quarter fell to $299.2 million, a decrease of 24% from the prior quarter. We assessed that market conditions would remain depressed and, therefore, that our revenues would continue to be adversely affected. Accordingly, and as announced on August 26, 1996, we organizationally restructured our business units into a more centralized structure and cut our workforce by approximately 11%.
Our quarterly revenue would eventually decline to $233.3 million in the March 1997 quarter, 40% lower than the peak reached in the quarter ended June 1996. Subsequently, in the latter part of calendar 1997, the industry rebounded quickly and entered into what eventually became a short-lived upturn cycle. During the June 1997 quarter, our revenues grew back to $282.6 million and reached $292.1 million by the December 1997 quarter. However, our outlook in late January 1998 was that the industry was again entering into a steep downturn brought on by depressed DRAM pricing and the Asia financial crisis. We therefore announced a further set of restructuring activities in a news release on February 12, 1998. At that time, our assessment of industry conditions was that our revenues for the March and June 1998 quarters would decline by approximately 20%. Our restructuring plans aligned our cost structure to this level of revenues by exiting part of our CVD business and all of our FPD business, consolidating our manufacturing facilities and substantially reducing our remaining infrastructure and workforce. Our actual June 1998 revenues were in line with those expectations; however, by the mid-June 1998 time-frame the industry conditions further deteriorated and the outlook for future quarters significantly worsened. We projected revenues to drop to a run rate of approximately $180 million per quarter and determined we needed once more to reduce our cost structure in line with the projected reductions in revenue. Accordingly, another separate restructuring plan was developed and announced in June 1998 and we exited the remainder of our CVD operations. As a result of the restructurings in fiscal 1998, we reduced our global workforce by approximately 28%.
Our revenue outlook in June 1998 was based on our projection that the worldwide wafer fabrication industry would deteriorate from a quarterly revenue amount of $4.2 billion to $3.2 billion, or a 25% decline. The semiconductor equipment market contracted beyond what was anticipated, to quarterly revenues of $2.6 billion as reported by Dataquest, an independent industry analysis firm. Our shortfall of revenues during the September 1998 quarter declined in line with the industry as a whole, and resulted in lower than anticipated revenues, falling to $142.2 million. At that point in time, we projected that our quarterly revenues would remain closer to the $140-$150 million level for at least the next several quarters. This necessitated another restructuring plan and further cost reductions via employee terminations, facilities consolidation and a contraction of operating activities, all of which resulted in the additional write-off of plant-related assets. This plan was announced and publicly communicated on November 12, 1998. As a result of the fiscal 1999 restructuring, we further reduced our global workforce by approximately 15%.
Beginning in late fiscal 1999, there were indications of a recovery in the semiconductor industry. On a global basis, semiconductor makers began adding new capacity to address an increase in the demand for semiconductors. In addition to new capacity, the semiconductor industry accelerated a migration to new materials such as copper and the new interconnect processes required to implement them. In early calendar year 2000, we concluded that the upturn would be sustainable and that it was likely to continue through the end of the calendar year.
During the third quarter of fiscal 2000 we completed certain elements of our restructuring activities in accordance with our previously established and announced plans. As a result of the stronger than anticipated recovery of the semiconductor capital equipment market, we were able to recover approximately $18.9 million of the restructuring charges recorded in prior periods. Of this amount, $1.4 million was recovered due to outplacement services guaranteed by us for terminated employees and other exit costs not being utilized. Another $5.6 million was recovered because we were able to reoccupy or successfully sublease certain manufacturing and administrative facilities under long term operating leases. We also recovered $3.1 million through the sale of our previously abandoned and written off facility in Korea. Additionally, we will utilize leasehold improvements of $5.5 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business. Approximately $0.8 million was recovered from the salvage of CVD inventories previously segregated and written off due to requests from former customers to purchase certain piece parts. The remaining $2.5 million was recovered due to certain customers not utilizing system return credits they requested and which were issued as a result of the decision to exit the CVD and FPD businesses.
As a result of the continued growth of the semiconductor capital equipment market, we recovered an additional $17.0 million of restructuring charges during the fourth quarter of fiscal 2000 at which time we completed the remaining elements of our restructuring plan. Of this amount, $9.5 million was recovered due to lower severance and termination costs than we had planned for certain employees and executives. Another $3.9 million was recovered from successful subleasing or occupancy of certain manufacturing and administrative facilities due to the aforementioned faster and more robust than anticipated industry recovery. We also recovered approximately $1.4 million from the sale of more of the aforementioned CVD and FPD inventory. Another $1.9 million was recovered as a result of customers not utilizing system return credits they had originally requested. Additionally, we will utilize leasehold improvements of $0.3 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business.
Below is a table summarizing activity relating to the fiscal 1999 restructuring:
Lease Credits
Severance Payments Abandoned on
and on Vacated Fixed Returned
Benefits Facilities Assets Equipment Total
--------- --------- --------- --------- ---------
(in thousands)
Fiscal year 1999 provision.. $ 16,521 $ 1,125 $ 28,141 $ 7,585 $ 53,372
Cash payments............... (11,663) (440) -- (258) (12,361)
Non-cash charges............ -- -- (28,141) (1,959) (30,100)
--------- --------- --------- --------- ---------
Balance at June 30, 1999.... 4,858 685 -- 5,368 10,911
Recovery of assets.......... -- 171 4,258 -- 4,429
Cash payments............... (1,831) (680) -- (275) (2,786)
Non-cash charges............ -- -- -- (806) (806)
Reversal of retructuring
charges................... (3,027) (176) (4,258) (2,586) (10,047)
--------- --------- --------- --------- ---------
Balance at June 25, 2000.... -- -- -- 1,701 1,701
Cash payments............... -- -- -- -- --
Non-cash charges........... -- -- -- (633) (633)
--------- --------- --------- --------- ---------
Balance at
September 24, 2000........ $ -- $ -- $ -- $ 1,068 $ 1,068
========= ========= ========= ========= =========
Severance and Benefits relates to the salary and fringe benefit expense for involuntarily terminated employees representing approximately 15% of the global workforce. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed us to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The termination of employees occurred shortly after the plan of restructuring was finalized.
Lease Payments on Vacated Facilities relates to 24 months of rent and common area maintenance expense for the vacated facilities. We also estimated given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease our vacated facilities in Fremont, California.
We wrote-off all leasehold improvements used in the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.
Credits on Returned Equipment relate to the charge associated with the requirement by certain of our customers to return their previously purchased CVD systems and spare parts. The majority of the Credit on the Returned Equipment reserve balance of $1.1 million as of September 24, 2000 is expected to be utilized by the end of the current calendar year 2000.
Below is a table summarizing activity relating to the fiscal 1998 restructuring:
Lease Excess Credits
Severance Payments Abandoned and on Other
and on Vacated Fixed Obsolete Returned Exit
Benefits Facilities Assets Inventory Equipment Costs Total
--------- --------- --------- --------- --------- --------- ---------
(in thousands)
Fiscal year 1998 provision.. $ 40,317 $ 16,998 $ 47,341 $ 31,933 $ 6,547 $ 5,722 $ 148,858
Cash payments............... (9,766) (1,518) -- -- -- -- (11,284)
Non-cash charges............ -- -- (47,341) (31,933) (4,135) (5,722) (89,131)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1998.... 30,551 15,480 -- -- 2,412 -- 48,443
Adjustment.................. -- -- -- -- 1,528 -- 1,528
Cash payments............... (19,777) (3,039) -- -- (2,150) -- (24,966)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1999.... 10,774 12,441 -- -- 1,790 -- 25,005
Recovery of assets.......... -- -- 4,656 2,249 -- -- 6,905
Cash payments............... (1,228) (2,234) -- -- -- -- (3,462)
Reversal of retructuring
charges................... (7,683) (9,277) (4,656) (2,249) (1,790) -- (25,655)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 25, 2000.... 1,863 930 -- -- -- -- 2,793
Recovery of assets............ -- -- -- 242 -- -- 242
Cash payments............... (194) (95) -- -- -- -- (289)
Reversal of retructuring
charges................... -- -- -- (242) -- -- (242)
--------- --------- --------- --------- --------- --------- ---------
Balance at
September 24, 2000........ $ 1,669 $ 835 $ -- $ -- $ -- $ -- $ 2,504
========= ========= ========= ========= ========= ========= =========
Severance and Benefits relates to the salary and fringe benefit expense of the involuntarily terminated employees of the CVD and FPD operations which were exited, the shutdown of the Wilmington, Massachusetts manufacturing facility, and the employees impacted by the overall across the board reduction of the employee base. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed us to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The 1998 restructuring plans resulted in our reducing our global workforce by approximately 28%. The termination of employees occurred shortly after the plan of restructuring was finalized.
The Severance and Benefits reserve balance of $1.7 million as of September 24, 2000 will be utilized to make scheduled cash payments through the remainder of those former employees' separation contracts.
Lease Payments on Vacated Facilities, which were included in the restructuring charge relates to remaining rent and common area maintenance on the closed Wilmington, Massachusetts manufacturing facility. We also estimated, given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease our excess facilities in Fremont, California. Therefore, we included 24 months of rent and common area maintenance expense related to excess facilities in our restructuring charge. Subsequently, we have subleased our excess facilities, and the remainder represents fixed commitments that will be utilized.
We wrote-off all fixed assets relating to the operations which were exited, leasehold improvements for the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees and other assets deemed to have no future use as a result of the restructuring.
The inventory write-off, which was included in the restructuring charge, related to inventory from the operations which were exited. The inventory write-off included raw materials on hand and inventory scheduled to be purchased under non-cancelable commitments from suppliers, spare parts, work-in-process and finished goods related to the products from the exited operations.
Credits on Returned Equipment relates to the charge associated with the requirement by certain of our customers to return their previously purchased CVD systems and spare parts. During fiscal 1999, we recorded an adjustment to the restructuring reserve of $1.5 million for the sale of a previously written-off machine. The remainder of the reserve was reversed during fiscal 2000.
Other Exit Costs relates to the net book value of licensing and manufacturing agreements related to the restructured operations which, as a direct result of the restructuring plan has no future economic benefit to us.
Below is a table summarizing activity relating to the fiscal 1997 restructuring:
Lease
Severance Payments Abandoned
and on Vacated Fixed
Benefits Facilities Assets Total
--------- --------- --------- ---------
(in thousands)
Balance at June 30, 1997.... $ 578 $ 1,086 $ -- $ 1,664
Adjustment.................. 1,086 (1,086) -- --
Cash payments............... (406) -- -- (406)
--------- --------- --------- ---------
Balance at June 30, 1998.... 1,258 -- -- 1,258
Cash payments............... (409) -- -- (409)
--------- --------- --------- ---------
Balance at June 30, 1999.... 849 -- -- 849
Reversal of retructuring
charges................... (238) -- -- (238)
Cash payments............... (183) -- -- (183)
--------- --------- --------- ---------
Balance at June 25, 2000.... 428 -- -- 428
Cash payments............... (47) -- -- (47)
--------- --------- --------- ---------
Balance at
September 24, 2000........ $ 381 $ -- $ -- $ 381
========= ========= ========= =========
Severance and Benefits relates to the salary and fringe benefit expense for the involuntarily terminated employees, which represented approximately 11% of the global workforce. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed the Company to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The actual termination of employees occurred shortly after the plan of restructuring was finalized. During fiscal 1998, the Company revised its estimate relating to severance and benefits and transferred the excess balance of remaining lease payments on vacated facilities of $1.1 million to severance and benefits.
The Severance and Benefits reserve balance of $0.4 million as of September 24, 2000 will be utilized to make scheduled periodic cash payments through the remainder of those former employees' separation contracts.
Lease Payments on Vacated Facilities relate to rent and common area maintenance expense for the vacated facilities.
During fiscal 1997 we wrote- off all leasehold improvements used in vacated facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.
Tax Expenses
Income tax was recorded using a 30% tax rate assumption based on our current revenue and profit outlook for fiscal 2001.
Transition to Single European Currency
During fiscal 1999, we 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. We met all related legal requirements by January 1, 1999, and we expect to meet all legal requirements through the transition period. We do not expect the cost of any related system modifications to be material and do not currently expect that the introduction and use of the Euro will materially affect our foreign exchange and hedging activities, or will result in any material increase in transaction costs. We will continue to evaluate the impact of the introduction of the Euro; however, based on currently available information, management does not believe that the introduction of the Euro has or will have a material adverse impact on our financial condition or results of our operations.
Year 2000 Issues
To date, we have not experienced any material Year 2000 related issues, and we expect only minimal future Year 2000 issues, if any, based on the performance to date of internal systems that we use and the products we supply to our customers.
LIQUIDITY AND CAPITAL RESOURCES
As of September 24, 2000, we had $434.1 million in cash, cash equivalents, short-term investments, and restricted cash compared with $432.1 million at June 25, 2000. We had a total of $100.0 million available under a syndicated bank line of credit, which is due to expire in April 2001. Borrowings are subject to our compliance with financial and other covenants set forth in the credit documents. During fiscal 1999, we amended the syndicated bank line of credit with respect to certain applicable covenant requirements and amended the line of credit borrowing rates to a range of 0.55% to 1.25% over LIBOR. At September 24, 2000, we were in compliance with all our financial and other covenants.
Net cash provided by operating activities was $13.1 million for the quarter ending September 24, 2000. This primarily resulted from net income of $66.1 million and non-cash charges for depreciation of $13.3 million and sales of accounts receivables of $57.5 million, offset by net uses of working capital of $123.8 million. Increases in accounts receivable and inventory resulted from the increase in sales volume and were partially offset by the increase in accounts payable and accrued liabilities.
Net cash used in investing activities during the first quarter of fiscal 2001 was $15.4 million, which stemmed primarily from the net purchase of short-term investments of $2.4 million and net capital expenditures of $16.0 million.
Net cash flows provided by financing activities during the quarter ended September 24, 2000 were $6.5 million. We made principal payments on long-term debt and capital lease obligations of $0.7 million offset by proceeds from the issuance of short-term debt of $3.4 million. We repurchased $3.5 million of common stock and reissued $7.1million of our treasury stock through our employee option and stock purchase programs.
During fiscal 1999, we entered into certain option transactions with independent third parties (the "third parties") for the purchase and sale of our common stock. Our Board of Directors authorized us to acquire from the third parties options to purchase up to 10.5 million shares of our common stock. These call options were acquired in order to offset the anticipated dilutive effect of a potential conversion into common stock of the Convertible Subordinated Notes (the "Notes") previously issued by us, and due September 2, 2002. As part of the program, the Board of Directors also authorized us to enter into put options with the same third parties covering up to 15.75 million shares of our common stock. We anticipated that the premiums we would receive over the course of the program from the sale of the put options to the third parties would offset in full the premium cost of our purchase of the call options from those same third parties. Consequently, we do not expect to exchange cash over the course of the program with the third parties in conjunction with our purchase of the call options.
Pursuant to this authorization described above, we have as of September 24, 2000 acquired call options to purchase 3.72 million shares of our Common Stock; the weighted average exercise price of these options is $11.29. The call options provide that our maximum benefit at expiration is $17.97 per option share (the difference between $29.26, which is the conversion price of the Notes, and the weighted average exercise price of the call options). We have also entered into put options with the same third parties covering 5.58 million shares of our common stock, giving those third parties the right to sell to us shares of our Common Stock at a weighted average price of $9.48 per share.
The call and put options are European style options exercisable upon expiration; all of the options expire no later than September 3, 2002, which is the business day following the date on which the Notes must either be converted or retired. Upon option exercise, we have the ability, at our option, to permit the options to be physically settled (i.e., shares would be delivered to us against payment of the exercise price), settled in cash (i.e., by a payment from one party to the other of the value of the option being exercised) or "net settled" in shares (i.e., by delivery of a number of shares of common stock having a value equal to the value of the option being exercised). We can also terminate the options prior to expiration for a settlement value determined from time to time by the appropriate third Party. While the options are only exercisable at expiration, the terms of the contracts with the third parties provide for early termination and settlement of the options upon the occurrence of certain events (in a form determined by us which includes net settlement of shares), including without limitation our material breach of the agreement, default on certain indebtedness or covenants relating to our financial condition, reduction in our S&P credit rating below B or a drop in the price of our Common Stock to less than $1.67 per share.
If the average stock price is below $9.48 during any period, the required number of shares to net settle the Company's obligation under the put option agreement would be considered dilutive securities in our dilutive earnings per share ("EPS") calculation.
Given the cyclical nature of the semiconductor equipment industry, we believe that maintenance of sufficient liquidity reserves is important to ensure our ability to maintain levels of investment in R&D and capital infrastructure through ensuing business cycles. Based upon our current business outlook, our cash, cash equivalents, short-term investments, restricted cash and available lines of credit at September 24, 2000 are expected to be sufficient to support our current anticipated levels of operations and capital expenditures through at least the next 12 months.
RISK FACTORS
Our Quarterly Revenues and Operating Results are Unpredictable
Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, not all of which are in our control. These factors include:
We manage our expense levels in part on our expectations of future revenues. If revenue levels in a particular quarter do not meet our expectations, our operating results are adversely affected.
We derive our revenue primarily from the sale of a relatively small number of high-priced systems. Our systems can range in price from approximately $400,000 to $4 million per unit. Our operating results for a quarter may suffer substantially if:
Our ability to recognize revenues might be delayed due to changes in accounting rules. SAB No. 101 "Revenue Recognition in Financial Statements" provides new guidance on the recognition, presentation and disclosure of revenue in financial statements of all public registrants. Currently, we generally recognize revenue on products upon shipment to our customers. The adoption of SAB 101 may require that some or all of that revenue not be recognized until the product is actually accepted by the customers, an event, which generally does not happen until sometime after shipment has occurred. Compliance with SAB 101 therefore might delay our recognition of revenue, compared to our current practice, for one or more quarters, causing an adverse impact on our operating results during the quarters in which product has been shipped, but not yet accepted by the customer. The SEC has delayed the required implementation date of SAB 101, which for us, will be the fourth quarter of fiscal 2001. In October 2000, the SEC issued implementation guidance in the form of "Frequently Asked Questions". We are still in the process of assessing the impact of SAB 101 on our consolidated results of operations based upon the SEC's most recently issued guidance.
Further, because of our continuing consolidation of manufacturing operations and capacity at our Fremont, California facility, natural, physical, logistical or other events or disruptions affecting this facility (including labor disruptions) could adversely impact our financial performance.
We May Experience Difficulty Transitioning to our New Enterprise Resource System
We implemented a new next-generation enterprise resource planning and information system during fiscal 2000. It replaced most of the transactional systems utilized in the past, including core manufacturing, finance, service, sales, shipping, inventory and warranty operations and other significant operational systems. To date the implementation has been successful however, delays in our ability to transition to this new planning and information system, or disruptions in our internal operations or systems caused by the transition or the need to free up additional support and resources in order to ensure our timely transition, could temporarily disrupt certain of our operations. This could include a temporary delay in our ability to manufacture and ship equipment and/or spare parts to our customers, which could cause a near-term short-fall in quarterly operating results, including revenues and earnings.
The Semiconductor Equipment Industry is Volatile, which Affects Our Revenues and Financial Results
Our business 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 using integrated circuits. The semiconductor industry is cyclical in nature and historically experiences periodic downturns. During the past two years the semiconductor industry has experienced severe swings of product demand and volatility in product pricing. In early fiscal 1998 and fiscal 1999, the semiconductor industry reduced or delayed significantly purchases of semiconductor manufacturing equipment and construction of new fabrication facilities because of an industry downturn. However, beginning in late fiscal 1999, we saw indications of a recovery, which is expected to extend through calendar 2000. Fluctuating levels of investment by the semiconductor manufacturers and pricing volatility will continue to materially affect our aggregate bookings, revenues and operating results. Even during periods of reduced revenues, we must continue to invest in research and development and to maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our financial results.
We Depend on New Products and Processes for Our Success. For this Reason, We Are Subject to Risks Associated with Rapid Technological Change.
Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances enabling such processes. We believe that our future success depends in part upon our ability to develop, manufacture and successfully introduce new products with improved capabilities and to continue to enhance our existing products. Due to the risks inherent in transitioning to new products, we must forecast accurately demand for new products while managing the transition from older products. If new products have reliability or quality problems our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. In the past, product introductions caused some delays and reliability and quality problems. We may be unable to develop and manufacture new products successfully, or new products that we introduce may fail in the marketplace, which would materially and adversely affect our results from operations.
We expect to continue to make significant investments in research and development and to pursue joint development relationships with customers or other members of the industry. We must manage product transitions and joint development relationships successfully, as introduction of new products could adversely affect our sales of existing products. Future technologies, processes or product developments may render our current product offerings obsolete, or we may be unable in a timely manner to develop and introduce new products or enhancements to our existing products which satisfy customer needs or achieve market acceptance. Furthermore, if we are unsuccessful in the marketing and selling of advanced processes or equipment to customers with whom we have strategic alliances, we may be unsuccessful in selling existing products to those customers. In addition, in connection with the development of new products, we will invest in significant levels of initial production inventory. Our failure in a timely manner to complete commercialization of these new products could result in inventory obsolescence, which would adversely affect our financial results.
We Are Subject to Risks Associated with the Introduction of New Products
Once new products are introduced, we expect to face significant competition from multiple current and future competitors. We believe that other companies are developing systems and products that are competitive to ours and are planning to introduce new products to this market, which may affect our ability to sell our new products. Furthermore, new products represent significant investments of our resources and their success, or lack thereof, could have a material affect on our financial results.
We Are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification
We derive a substantial percentage of our revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our revenues in the near term. Continued market acceptance of our primary products is, therefore, critical to our future success. Our business, operating results, financial condition and cash flows could therefore be adversely affected by:
We are Dependent Upon a Limited Number of Key Suppliers
We obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. Each of our key suppliers has a one year blanket purchase contract under which we may issue purchase orders. We may renew these contracts periodically. Each of these suppliers sold us products during at least the last four years, and we expect that we will continue to renew these contracts in the future or that we will otherwise replace them with competent alternative source suppliers. Nevertheless, a prolonged inability to obtain certain components could adversely affect our operating results and result in damage to our customer relationships.
We May Encounter Difficulties Obtaining Sufficient Personnel, Components and Other Resources to Meet Current Demands
The semiconductor equipment industry is currently experiencing significant demand for its products. This demand has increased our requirements for qualified management, technical and engineering personnel needed for our business operations. Competition for adequate personnel, particularly in the San Francisco Bay Area, is intense, and we have experienced difficulty in identifying and hiring such personnel. The loss of the services of key management or technical and engineering employees could have a material adverse effect on our business, operating results, financial condition, cash flows, market perceptions and price of our common stock.
We might also experience shortages in components and other resources of all types required to satisfy customer demand for our products. If we are unable to satisfy customer demand, we might drive them to purchase products elsewhere, which might have a material adverse affect on our operating results and could result in damage to our customer relationships.
Once a Semiconductor Manufacturer Commits to Purchase a Competitor's Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase that Competitor's Equipment, Making it More Difficult for Us to Sell our Equipment to that Customer
Semiconductor manufacturers must make a substantial investment to install and integrate capital equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier's capital equipment, the manufacturer generally relies upon that equipment for that specific production line application. Accordingly, we expect it to be more difficult to sell to a given customer if that customer initially selects a competitor's equipment. We believe that to remain competitive we will require significant financial resources 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.
We May Lack the Financial Resources or Technological Capabilities of Certain of Our Competitors Needed to Capture Increased Market Share
Certain of our competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer service and support resources than we do and therefore are increasingly dominating the semiconductor equipment industry. In addition, there are smaller emerging semiconductor equipment companies that may provide innovative technology that may have performance advantages over systems we currently, or expect to, offer.
We expect our competitors 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 our competitors enter into strategic relationships with leading semiconductor manufacturers covering products similar to those we sell or may develop, it could adversely affect our ability to sell products to those manufacturers. In addition, competitors with higher levels of financial resources than us may continue to deeply discount products similar to those we sell. For these reasons, we may fail to continue to compete successfully worldwide.
Our present or future competitors may be able to develop products comparable or superior to those we offer or that adapt more quickly to new technologies or evolving customer requirements. In particular, while we currently are developing additional product enhancements that we believe will address customer requirements, we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive. Accordingly, we may be unable to continue to compete effectively in our markets, competition may intensify or future competition may have a material adverse effect on our revenues, operating results, financial condition and cash flows.
Our Future Success Depends on International Sales
International sales accounted for approximately 71% of our total revenue in fiscal 2000, 54% in fiscal 1999, and 55% in fiscal 1998. We expect that international sales will continue to account for a significant portion of our total revenue in future years. International sales are subject to risks, including, but not limited to:
We currently enter into foreign currency forward contracts to minimize the short term impact of exchange rate fluctuations on yen- denominated sales and assets, and will continue to enter into hedging transactions in the future.
A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results
We are subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals. We believe that we are in general compliance with these regulations and that we have obtained (or will obtain or are otherwise addressing) all necessary environmental permits to conduct our business. These 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 us, suspension of production, cessation of our operations or reduction in our customers' acceptance of our products. These regulations could require us to alter our current operations, to acquire significant equipment or to incur substantial other expenses to comply with environmental regulations. Our failure to control the use, sale, transport or disposal of hazardous substances could subject us to future liabilities.
Our Ability to Manage Potential Growth; Integration of Potential Acquisitions and Potential Disposition of Product Lines and Technologies Creates Risks for Us
Our management may face significant challenges in improving financial and business controls, management processes, information systems and procedures on a timely basis, and expanding, training and managing our work force if we experience additional growth. There can be no assurance that we will be able to perform such actions successfully. In the future, we may make acquisitions of complementary companies, products or technologies, or we may reduce or dispose of certain product lines or technologies, which no longer fit our long-term strategy. Managing an acquired business or disposing of product technologies entails numerous operational and financial risks, including difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, diversion of management's attention to other business concerns, amortization of acquired intangible assets and potential loss of key employees or customers of acquired or disposed operations. Our success will depend, to a significant extent, on the ability of our executive officers and other members of our senior management to identify and respond to these challenges effectively. There can be no assurance that we will be able to achieve and manage effectively any such growth, integration of potential acquisitions or disposition of product lines or technologies, or that our management, personnel or systems will be adequate to support continued operations. Any such inabilities or inadequacies would have a material adverse effect on our business, operating results, financial condition and cash flows.
An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our technological capabilities. We may acquire additional businesses, products or technologies in the future. Any acquisitions could result in changes such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and the amortization expense related to goodwill and other intangible assets, any of which could materially adversely affect our business, financial condition and results of operations and/or the price of our Common Stock.
The Market for Our Common Stock is Volatile, which May Affect our Ability to Raise Capital or Make Acquisitions
The market price for our Common Stock is volatile and has fluctuated significantly over the past years. The trading price of our Common Stock could continue to be highly volatile and fluctuate widely in response to factors, including the following:
In addition, the stock market has, in recent years, experienced increasing significant price and volume fluctuations. Recent volatility in the price of our Common Stock was tied in part to the actual or anticipated movement in interest rates and the price of and markets for semiconductor stock generally. These broad market and industry factors may adversely affect the price of our Common Stock, regardless of our actual operating performance. In the past, following volatile periods in the price of stock, many companies become the object of securities class action litigation. If we are sued in a securities class action, we could incur substantial costs and it could divert management's attention and resources and have an unfavorable impact in the price for our Common Stock.
Risk Associated with Our Call and Put Options
We have entered into third party option transactions for the purchase and sale of our stock. The option positions will be of value to us if our stock price exceeds the exercise price of the call options at the time the options are exercised. Conversely, our stock price could also decline. If our stock price on the exercise date of the options were below the put option exercise price, we would have to settle the put obligation by paying cash or the equivalent value of our Common Stock obligation.
If settlement were to occur prior to option expiration because of the occurrence of an event giving the third parties the right to terminate the transactions, we will be required both to pay to the third parties the value of their position (which would depend on a number of factors, including the time remaining to expiration and the volatility of Lam Common Stock) which could be greater or lesser than the difference between the options' exercise prices and the then market price of Lam Common Stock, as well as any costs or expenses incurred by the third parties as a result of unwinding the transactions.
The Potential Anti-Takeover Effects of Our Bylaws Provisions and the Rights Plan We Have in Place May Affect Our Stock Price and Inhibit a Change of Control Desired by Some of Our Stockholders
On January 23, 1997, we adopted a Rights Plan (the "Rights Plan") in which rights were distributed as a dividend at the rate of one right for each share of our Common Stock, held by stockholders of record as of the close of business on January 31, 1997, and thereafter. In connection with the adoption of the Rights Plan, our Board of Directors also adopted a number of amendments to our Bylaws, including amendments requiring advance notice of stockholder nominations of directors and stockholder proposals.
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 Lam 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. Rather it is designed to enhance the ability of our Board of Directors to negotiate with a potential acquirer on behalf of all of our stockholders.
In addition, our Certificate of Incorporation authorizes issuance of 5,000,000 shares of undesignated Preferred Stock. Our Board of Directors, without further stockholder approval, may issue this Preferred Stock on such terms as the Board of Directors may determine, which also could have the effect of delaying or preventing a change in control of Lam. The issuance of Preferred Stock could also adversely affect the voting power of the holders of our Common Stock, including causing the loss of voting control. Our Bylaws and indemnity agreements with certain officers, directors and key employees provide that we will indemnify officers and directors against losses that they may incur in legal proceedings resulting from their service to Lam. Moreover, Section 203 of the Delaware General Corporation Law restricts certain business combinations with "interested stockholders", as defined by that statute.
Intellectual Property and Other Claims Against Us Can Be Costly and Could Result in the Loss of Significant Rights which are Necessary to our Continued Business and Profitability
Other parties may assert infringement, unfair competition or other claims against us. Additionally, from time to time, other parties send us notices alleging that our products infringe their patent or other intellectual property rights. In such cases, it is our policy either to defend the claims or to negotiate licenses on commercially reasonable terms. However, we may be unable in the future to negotiate necessary licenses on commercially reasonable terms, or at all, and any litigation resulting from these claims by other parties may materially adversely affect our business and financial results.
In October 1993, Varian Associates, Inc. sued us in the United States District Court for the Northern District of California, seeking monetary damages and injunctive relief based on our alleged infringement of certain patents Varian held. We asserted defenses that the subject patents are invalid and unenforceable, and that our products do not infringe these patents. Litigation is inherently uncertain and we may fail to prevail in this litigation. However, we believe that the Varian lawsuit will not materially adversely affect our operating results or financial position. See Part II Item 2of this Form 10-Q for a discussion of the Varian lawsuit.
Additionally, in September 1999, Tegal Corporation sued us in the United States District Court for the Eastern District of Virginia, seeking monetary damages and injunctive relief based on our alleged infringement of certain patents Tegal holds. Specifically, Tegal identified our 4520XLeÔ and ExelanÔ products as infringing the patents Tegal is asserting. Litigation is inherently uncertain and we may fail to prevail in this litigation. However, we believe that the Tegal lawsuit will not materially adversely affect our operating results or financial position. See Part II Item 1 of this Form 10-Q for a discussion of the Tegal lawsuit.
We May Fail to Protect Our Proprietary Technology Rights, which Would Affect Our Business
Our success depends in part on our proprietary technology. While we attempt to protect our proprietary technology through patents, copyrights and trade secret protection, we believe that our success also depends on increasing our technological expertise, continuing our development of new systems, increasing market penetration and growth of our installed base, and providing comprehensive support and service to our customers. However, we may be unable to protect our technology in all instances, or our competitors may develop similar or more competitive technology independently. We currently hold a number of United States and foreign patents and pending patent applications. However, other parties may challenge or attempt to invalidate or circumvent any patents the United States or foreign governments issue to us or these governments may fail to issue pending applications. In addition, the rights granted or anticipated under any of these patents or pending patent applications may be narrower than we expect or in fact provide no competitive advantages.
YEAR 2000 COMPLIANCE
See the discussion of our risks in connection with Year 2000 compliance in the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations".
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 25, 2000.
During fiscal 1999, we entered into third party option transactions for the purchase and sale of our Common Stock, in order to offset the dilutive effect of a potential conversion into Common Stock of the Convertible Subordinated Notes we previously issued and which are due September 2, 2002. We have as of September 24, 2000 acquired call options to purchase 3.72 million shares of our Common Stock. The weighted average exercise price of these options is $11.29. The call options provide that our maximum benefit at expiration is $17.97 per option share (the difference between $29.26, which is the conversion price of the Notes, and the weighted average exercise price of the call options). We have also entered into put options with the same third parties covering 5.58 million shares of our Common Stock, giving those third parties the right to sell to us shares of our Common Stock at a weighted average price of $9.48 per share.
Below is a table showing, at assumed exercise prices for the put and call options and market prices for our Common Stock, our gain or (loss) under the put and call options upon exercise or upon maturity of the options transaction.
At
September 24, At
2000 Maturity
------------ ------------
(in thousands)
Stock Value
$5.00 $ (21,872) $ (24,996)
$15.00 8,155 13,815
$25.00 24,630 51,030
$35.00 34,571 66,877
$45.00 40,970 66,877
$55.00 $ 45,291 $ 66,877
PART II. OTHER INFORMATION
In October 1993, Varian Associates, Inc. ("Varian") brought suit against us in the United States District Court, for the Northern District of California, seeking monetary damages and injunctive relief based on our alleged infringement of certain patents held by Varian. By order of the Court, those proceedings were bifurcated into an initial phase to determine the validity of the Varian patents and our infringement (if any), and a secondary phase to determine damages to Varian (if any) and whether our infringement (if shown) was willful. On April 13, 1999, the Court issued an interlocutory order construing the meaning of the terms of the patent claims at issue in the action. In September 1999, a hearing was held on a summary judgment motion which might dispose of a number of Varian's claims, but the Court has not yet issued a final ruling on that motion. Accordingly, to date, there has been no determination as to the actual scope of those claims, or whether our products have infringed or are infringing Varian's patents. A trial date previously scheduled for March 2000 was vacated, pending the court's decision of certain motions. There have been no findings in the action, which have caused us reasonably to believe that any infringement, if found, or any damages, if awarded, would have a material adverse effect on our operating results or our financial position.
In September 1999, Tegal Corporation ("Tegal") brought suit against us in the United States District Court for the Eastern District of Virginia, seeking monetary damages and injunctive relief based on our alleged infringement of certain patents held by Tegal. Specifically, Tegal identified our 4520XLe and Exelan products as infringing the patents Tegal is asserting. On our motion, this case was transferred to California and is now pending in the United States District Court for the Northern District of California. To date, however, there has been no determination as to the actual scope of those claims, or whether our products have infringed or are infringing Tegal's patents. No trial date is currently scheduled in the action. Furthermore, there have been no findings in the action, which have caused us reasonably to believe that any infringement, if found, or any damages, if awarded, could have a material adverse effect on our operating results or our financial position.
From time to time, we have received notices from third parties alleging infringement of such parties' patent or other intellectual property rights by our products. In such cases, it is our policy to defend the claims or negotiate licenses on commercially reasonable terms, where considered appropriate. However, no assurance can be given that we 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 our consolidated financial position or operating results.
ITEM 4. Submission of Matters to Vote of Security Holders
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
|
Exhibit |
10.72 |
Employment Agreement for Mercedes Johnson, dated December 1,1999 |
|
Exhibit |
27 |
Financial Data Schedule |
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the quarter ended September 24, 2000.
LAM RESEARCH CORPORATION
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: November 7, 2000
| LAM RESEARCH CORPORATION |
| (Registrant) |
| By: | /s/ Mercedes Johnson |
|
| |
| Mercedes Johnson | |
| Vice President, Finance & Chief Financial Officer | |
| (Principal Financial Officer) |
EXHIBIT INDEX
|
Exhibit |
10.72 |
Employment Agreement for Mercedes Johhnson, dated December 1, 1999. |
|
Exhibit |
27 |
Financial Data Schedule |
|
|