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| LRCX > SEC Filings for LRCX > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
With the exception of historical facts, the statements contained in this discussion are forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified. The identification of certain statements as "forward-looking" is not intended to mean that other statements not specifically identified are not forward-looking. Forward-looking statements include, but are not limited to, statements that relate to: trends in the global economic environment and the semiconductor industry; our future shipments, revenue and operating expenses generally; the future revenue value of shipments; customer requirements and our ability to satisfy those requirements; customer capital spending and their demand for our products; our ability to defend our market share and to win new market share; the level of international sales (including but not limited to as a percentage of revenue); levels of research and development expenditures; our ability to manage our expenditures and our cash position; effectiveness of restructuring activities in reducing expenses; adequacy of prior tax payments, future tax liabilities and the adequacy of our accruals relating to them; future obligations under guarantees and indemnities; estimated future lives of intangible assets; future amortization expenses; our access to capital markets; and the sufficiency of our financial resources to support future business activities (including but not limited to operations, investments, debt service requirements 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 without limitation those discussed below under the heading "Risk Factors" within Part II Item 1A and elsewhere in this report and other documents we file from time to time with the Securities and Exchange Commission (SEC), such as our annual reports on Form 10-K and our current reports on Form 8-K. 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 are based on information currently and reasonably known to us. We undertake no obligation to release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances that occur after the date hereof or to reflect the occurrence or effect of anticipated or unanticipated events.
Documents To Review In Connection With Management's Discussion and Analysis Of Financial Condition and Results Of Operations
For a full understanding of our financial position and results of operations for the three months ended September 27, 2009, this discussion should be read in conjunction with the condensed consolidated financial statements and notes presented in this Form 10-Q and the financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended June 28, 2009.
Overview
Management's Discussion and Analysis of Financial Condition and Results of Operations consists of the following sections:
Executive Summary provides a summary of key highlights of our results of operations
Results of Operations provides an analysis of operating results
Critical Accounting Policies and Estimates discusses accounting policies that reflect the more significant judgments and estimates we use to prepare our condensed consolidated financial statements
Liquidity and Capital Resources provides an analysis of cash flows, contractual obligations and financial position
EXECUTIVE SUMMARY
We design, manufacture, market, and service semiconductor processing equipment used to fabricate integrated circuits. We are recognized as a major provider of such equipment to the worldwide semiconductor industry. Semiconductor wafers undergo a complex series of process and preparation steps that result in the simultaneous creation of many individual integrated circuits. We leverage our expertise in these areas to develop integrated and standalone processing solutions that typically benefit our customers through reduced cost, lower defect rates, enhanced yields, or faster processing time as well as by facilitating their ability to meet more stringent performance and design standards.
The demand for semiconductor manufacturing equipment is cyclical in nature and has historically experienced significant periodic upturns and downturns. Demand is dependent in part on overall world economic conditions. Other factors that influence demand for our products include, but are not limited to, general supply and demand (including demand for the products that our customers manufacture), prices for semiconductors, customer capacity requirements and our ability to develop and market competitive products. For these and other reasons, our results of operations for the three months ended September 27, 2009 may not necessarily be indicative of future operating results.
Recent adverse conditions in the global economy have significantly reduced customer demand for our products in recent quarters. While our ability to predict the demand for wafer fabrication equipment in the future is limited, we believe that, over the long term, demand for our products will increase as customers' capital expenditures increase to meet demand for semiconductor devices. However, our visibility for shipment volumes over the next few quarters remains limited. As a result, any forecast about equipment spending in the near term is subject to a high degree of uncertainty.
The following summarizes certain key financial information for the periods indicated below:
Three Months Ended
September 27, June 28, September 28,
2009 2009 2008
(in thousands, except per share data
and percentages)
Revenue $ 318,548 $ 217,764 $ 440,361
Gross margin 136,770 67,757 183,110
Gross margin as a percent of total revenue 42.9 % 31.1 % 41.6 %
Net income (loss) 16,797 (88,490 ) 8,873
Diluted earnings (loss) per share $ 0.13 $ (0.70 ) $ 0.07
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Our results for the September 2009 quarter reflect continued improvement in the global business environment and in the semiconductor industry, as evidenced by improved foundry fab utilization at the leading-edge technology nodes and an increase in the rate of next-generation DRAM and NAND wafer starts by leading memory companies.
During calendar year 2009, we maintained our investments in new product research and development ("R&D") and continued our focus on improving customer productivity in our installed base and on delivering continuously improved high-performance, lower-cost designs for our products. We have also focused on defending application-based market share and winning new application share.
While conditions in our industry have clearly improved, we cannot predict the robustness of the macroeconomic recovery. The electronics and semiconductor industries remain very linked to worldwide GDP and consumer spending, and while we will continue to use our operational flexibility and rapid response capabilities to meet the shipment needs of our customers, we will remain cautious with the level of our expenditures. Going forward, we plan to continue our strong focus on managing and growing our cash position.
Our results during the quarter ended September 27, 2009 reflected growth in customer requirements for new capacity and an increase in our installed-base business through higher utilization levels. Despite the sequential upturn, revenue for the September 2009 quarter was still well below revenue for the quarter ended September 28, 2008, due to adverse conditions in the global economy during late 2008 and the first half of 2009.
In the quarter ended September 27, 2009, gross margin as a percent of revenues increased to 42.9% compared to 31.1% in the quarter ended June 28, 2009. This improvement was primarily due to improved factory utilization as a result of increased business volume and a more favorable product mix. Additionally, we recorded a credit of $5 million in the September 2009 quarter related to a partial settlement of matters associated with our 409A expenses from the 2007 options review.
Operating expenses in the September 2009 quarter decreased $25 million sequentially primarily due to a partial settlement of matters associated with our 409A expenses from the 2007 options review. Additionally, we recorded a charge of $7 million in the June 2009 quarter for goodwill impairment related to our Clean Product Group.
Our cash and cash equivalents, short-term investments, and restricted cash and investments totaled approximately $761 million as of September 27, 2009 compared to $758 million as of June 28, 2009. Net cash provided by operating activities was approximately $3 million during the September 2009 quarter compared to net cash used for operating activities of $58 million during the June 2009 quarter and net cash provided by operating activities of $43 million during the September 2008 quarter.
RESULTS OF OPERATIONS
Shipments
Three Months Ended
September 27, June 28, September 28,
2009 2009 2008
Shipments (in millions) $ 355 $ 246 $ 345
North America 10 % 16 % 15 %
Europe 6 % 8 % 11 %
Japan 18 % 17 % 18 %
Korea 24 % 16 % 29 %
Taiwan 31 % 30 % 16 %
Asia Pacific 11 % 13 % 11 %
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Shipments for the September 2009 quarter met our anticipated range and increased 44% compared to the June 2009 quarter and 3% year over year. During the September 2009 quarter, 300 millimeter applications represented approximately 95% of total systems shipments, and 94% of total systems shipments were for applications at less than or equal to the 65 nanometer technology node. We classify total systems shipments market segmentation for the September quarter as Memory at approximately 58%, Integrated Device Manufacturers and Logic at 14%, and Foundry at 28%.
Revenue
Three Months Ended
September 27, June 28, September 28,
2009 2009 2008
Revenue (in thousands) $ 318,548 $ 217,764 $ 440,361
North America 9 % 18 % 15 %
Europe 7 % 10 % 10 %
Japan 18 % 17 % 17 %
Korea 23 % 14 % 27 %
Taiwan 29 % 29 % 14 %
Asia Pacific 14 % 12 % 17 %
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Revenue for September 2009 exceeded our expectations and increased 46% compared to the June 2009 quarter and decreased 28% year over year. Our revenue levels are correlated to the amount of our shipments and installation and acceptance timelines. The overall Asia region continues to account for a significant portion of our revenues as a substantial amount of the worldwide capacity additions for semiconductor manufacturing continues to occur in this region. Our deferred revenue balance increased to $89.7 million as of September 27, 2009 compared to $64.7 million as of June 28, 2009. Our deferred revenue balance does not include shipments to Japanese customers, to whom title does not transfer until customer acceptance. Shipments to Japanese customers are classified as inventory at cost until the time of acceptance. The anticipated future revenue value from shipments to Japanese customers was approximately $23 million as of September 27, 2009 compared to $13 million as of June 28, 2009.
Gross Margin
Three Months Ended
September 27, June 28, September 28,
2009 2009 2008
(in thousands, except percentages)
Gross Margin $ 136,770 67,757 183,110
Percent of total revenue 42.9 % 31.1 % 41.6 %
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Gross margin as a percent of revenue for the September 2009 quarter was 42.9%. The gross margin during the September 2009 quarter increased compared to the June 2009 quarter due to improved factory utilization and a more favorable product mix as the proportion of revenue attributed to systems increased. Additionally, we recorded a credit of $5 million in the September 2009 quarter related to a partial settlement of matters associated with our 409A expenses from the 2007 options review. The reduction in gross margin dollars in the three months ended September 27, 2009 compared with the same period in the prior year was primarily due to lower customer utilization of their factories associated with the deteriorating economic environment. Additionally, September 2008 gross margin included restructuring and asset impairment charges of $3 million.
Research and Development
Three Months Ended
September 27, June 28, September 28,
2009 2009 2008
(in thousands, except percentages)
Research & Development (R&D) $ 71,199 $ 67,491 $ 81,563
Percent of total revenue 22.4 % 31.0 % 18.5 %
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We continue to invest significantly in R&D focused on plasma etch, single wafer clean and new products. The increase in R&D expenses during the September 2009 quarter compared to the June 2009 quarter is mainly due to an increase of $2 million in supplies and outside services and $3 million in benefits and other employee compensation.
The decline in R&D expenses for the three months ended September 27, 2009 compared to the same period in the prior year was mainly due to an approximately $2 million reduction in salary and benefits related to cost savings measures and a $7 million decline in outside services and supplies.
Selling, General and Administrative
Three Months Ended
September 27, June 28, September 28,
2009 2009 2008
(in thousands, except percentages)
Selling, General & Administrative (SG&A) $ 52,199 $ 47,248 $ 68,299
Percent of total revenue 16.4 % 21.7 % 15.5 %
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The sequential increase in SG&A expenses during the September 2009 quarter was primarily due to increases of approximately $2 million in employee compensation and $2 million in outside services and supplies.
The decrease in SG&A expenses for the three months ended September 27, 2009 compared to the same period in the prior year was driven by reductions of approximately $11 million in employee-related expenses associated with prior restructuring activities and other cost reduction activities, a decrease of $2 million in rent and utilities due to lower interest rates on certain leases, and a reduction of approximately $2 million in outside services.
Restructuring and Asset Impairments
During the June 2008 quarter we incurred restructuring expenses and asset impairment charges related to the integration of SEZ and overall streamlining of our combined Clean Product Group ("June 2008 Plan"). We incurred additional expenses under the June 2008 Plan during the quarter ended September 28, 2008. The charges during the June 2008 quarter included severance and related benefits costs, excess facilities-related costs and certain asset impairments associated with our initial product line integration road maps. The charges during the September 2008 quarter primarily included severance and related benefits costs and certain asset impairments associated with our product line integration road maps.
During the December 2008 quarter we incurred restructuring expenses and asset impairment charges designed to better align our cost structure with our business opportunities in consideration of market and economic uncertainties ("December 2008 Plan"). The charges during the December 2008 quarter consisted primarily of severance and related benefits costs as well as certain facilities related costs and asset impairments. We incurred additional expenses under the December 2008 Plan during the September 2009 quarter consisting of severance and related benefits costs.
During the March 2009 quarter we incurred restructuring expenses and asset impairment charges designed to align our cost structure with our outlook for the current economic environment and future business opportunities ("March 2009 Plan"). The charges during the March 2009 quarter consisted primarily of severance and related benefits costs as well as certain facilities related costs and asset impairments. We incurred additional expenses under the March 2009 Plan during the September 2009 quarter. The charges during the September 2009 quarter consisted of severance and related benefits costs as well as certain facilities related costs.
Prior to the end of each quarter noted above, we initiated the announced restructuring activities and management, with the proper level of authority, approved specific actions under the June 2008 Plan, December 2008 Plan, and March 2009 Plan. Severance packages to affected employees were communicated in enough detail such that the employees could determine their type and amount of benefit. The termination of the affected employees occurred as soon as practical after the restructuring plans were announced. The amount of remaining future lease payments for facilities we ceased to use and included in the restructuring charges is based on management's estimates using known prevailing real estate market conditions at that time based, in part, on the opinions of independent real estate experts. Leasehold improvements relating to the vacated buildings were written off, as these items will have no future economic benefit to the Company and have been abandoned.
Accounting for restructuring activities, as compared to regular operating cost management activities, requires an evaluation of formally committed and approved plans. Restructuring activities have comparatively greater strategic significance and materiality and may involve exit activities, whereas regular cost containment activities are more tactical in nature and are rarely characterized by formal and integrated action plans or exiting a particular product, facility, or service.
We recorded net restructuring charges during the three months ended September 27, 2009 of approximately $2.1 million, consisting of severance and benefits for involuntarily terminated employees of $0.6 million and charges for the present value of remaining lease payments, net of sublease income, on vacated facilities of $1.5 million. The $2.1 million restructuring charge was recorded in operating expenses in our condensed consolidated statement of operations.
We recorded net restructuring charges and asset impairments during the September 2008 quarter of approximately $19.0 million, consisting of severance and benefits for involuntarily terminated employees of $12.5 million. We also recorded additional asset impairments related to product line integration road maps of $6.5 million. Of the total $19.0 million in charges, $3.0 million was recorded in cost of goods sold and $16.0 million was recorded in operating expenses in our consolidated statement of operations for the three months ended September 28, 2008.
Below is a table summarizing activity relating to the June 2008 Plan:
Severance
and Benefits Facilities Total
(in thousands)
Balance at June 28, 2009 $ 567 $ 26 $ 593
Cash payments (525 ) - (525 )
Balance at September 27, 2009 $ 42 $ 26 $ 68
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Below is a table summarizing activity relating to the December 2008 Plan:
Severance
and Benefits Total
(in thousands)
Balance at June 28, 2009 $ 684 $ 684
Fiscal year 2010 expense 105 105
Cash payments (285 ) (285 )
Balance at September 27, 2009 $ 504 $ 504
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Below is a table summarizing activity relating to the March 2009 Plan:
Severance
and Benefits Facilities Total
(in thousands)
Balance at June 28, 2009 $ 3,925 $ 437 $ 4,362
Fiscal year 2010 expense 479 1,510 1,989
Cash payments (2,765 ) (1,421 ) (4,186 )
Balance at September 27, 2009 $ 1,639 $ 526 $ 2,165
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The severance and benefits-related balances are anticipated to be paid by the end of fiscal year 2010. The facilities balance consists primarily of lease payments, net of sublease income, on vacated buildings and is expected to be paid by the end of fiscal year 2015.
409A Expense
Following the voluntary independent review of our historical option grant
process, we considered whether Section 409A ("Section 409A") of the Internal
Revenue Code of 1986, as amended ("IRC") and similar provisions of state law
would apply to certain stock option grants that were found to have intrinsic
value at the time of their respective measurement dates. If a stock option is
not considered as issued with an exercise price of at least the fair market
value of the underlying stock, it may be subject to penalty taxes under
Section 409A and similar provisions of state law. In such a case, such taxes may
be assessed not only on the intrinsic value increase, but on the entire stock
option gain as measured at various times. On March 30, 2008, the Board of
Directors of the Company authorized the Company to assume potential tax
liabilities of certain employees, including our Chief Executive Officer and
certain other executive officers, relating to options that might be subject to
Section 409A and similar provisions of state law. The assumed Section 409A
liability was $53.7 million as of June 28, 2009.
During the quarter ended September 27, 2009, we finalized a portion of the
Section 409A liabilities which resulted in a reduction of the liability and net
credits recognized in the statements of operations of $(5.5) million recorded in
cost of goods sold and $(17.9) million recorded in operating expenses . The
remaining assumed Section 409A liability, including accrued legal fees, at
September 27, 2009 was $30.0 million. The determinations from the voluntary
independent stock option review are more fully described in Note 3, "Restatement
of Consolidated Financial Statements" to Consolidated Financial Statements in
Item 8 of our 2007 Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 of our 2007 Form 10-K.
Other Income (Expense), Net
Other income (expense), net consisted of the following:
Three Months Ended
September 27, June 28, September 28,
2009 2009 2008
(in thousands)
Interest income $ 2,048 $ 2,995 $ 7,796
Interest expense (189 ) (316 ) (2,553 )
Foreign exchange gains (losses) (1,794 ) 310 3,266
Other, net (433 ) (118 ) 508
$ (368 ) $ 2,871 $ 9,017
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Interest income decreased during the three months ended September 27, 2009 and June 28, 2009 compared with the three months ended September 28, 2008 and was primarily attributable to decreases in interest rate yields and decreases in our average cash and investment balances used to fund operating needs.
During the three months ended September 27, 2009, our interest expense decreased compared with the corresponding three month period ended September 28, 2008 primarily as a result of our $250.0 million loan payment to ABN AMRO during the 2009 fiscal year and to a lesser extent decreases in interest rates.
Included in foreign exchange loss during the three months ended September 27, 2009 was $1.7 million of losses associated with the Company's foreign currency . . .
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