Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LRCX > SEC Filings for LRCX > Form 10-Q on 1-Nov-2012All Recent SEC Filings

Show all filings for LAM RESEARCH CORP

Form 10-Q for LAM RESEARCH CORP


1-Nov-2012

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 as forward-looking, by use of phrases and words such as "we believe," "we anticipate," "we expect," "may," "should," "could" and other future-oriented terms. 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; the anticipated levels of, and rates of change in, future shipments, margins, market share, capital expenditures, revenue and operating expenses generally; volatility in our quarterly results; 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 gain new market share; anticipated growth in the industry and the total market for wafer-fabrication equipment and our growth relative to such growth; levels of research and development ("R&D") expenditures; the estimates we make, and the accruals we record, in order to implement our critical accounting policies (including but not limited to the adequacy of prior tax payments, future tax liabilities and the adequacy of our accruals relating to them); our access to capital markets; our ability to manage and grow our cash position; 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 report on Form 10-K for the year ended June 24, 2012 (our "2012 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 in this report 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 23, 2012, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations below, you should also read the Condensed Consolidated Financial Statements and notes presented in this Form 10-Q and the financial statements and notes in our 2012 Form 10-K.

Overview

Management's Discussion and Analysis of Financial Condition and Results of Operations consists of the following sections:

Executive Summary provides an overview of the Company's operations and a summary of certain 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 and financial position

EXECUTIVE SUMMARY

We design, manufacture, market, refurbish, and service semiconductor processing equipment used in the fabrication of integrated circuits and are recognized as a major provider of such equipment to the worldwide semiconductor industry. Our customers include semiconductor manufacturers that make DRAM, flash memory, microprocessors, and other logic integrated circuits for a wide range of consumer and industrial electronics. Semiconductor wafers are subjected to a complex series of process and preparation steps that result in the simultaneous creation of many individual integrated circuits. We leverage our expertise in semiconductor processing to develop technology and productivity solutions that typically benefit our customers through lower defect rates, enhanced yields, faster processing time, and reduced cost as well as by facilitating their ability to meet more stringent performance and design standards.

The semiconductor capital equipment industry is cyclical in nature and has historically experienced periodic and pronounced changes in customer demand resulting in industry downturns and upturns. Today's leading indicators of change in customer investment patterns, such as electronics demand, memory pricing, and foundry utilization rates, may not be any more reliable than in prior years. Demand for our equipment can vary significantly from period to period as a result of various factors, including, but not limited to, economic conditions (both general and in the semiconductor and electronics industries), supply, demand, prices for semiconductors, customer capacity requirements, and our ability to develop, acquire, and market competitive products. For these and other reasons, our results of operations during any particular fiscal period are not necessarily indicative of future operating results.


Table of Contents

Demand for our products has declined during this calendar year as certain semiconductor device manufacturers, particularly memory manufacturers, reduced their investments in capital equipment in response to weaker macroeconomic conditions. We believe that, over the long term, demand for our products will increase as customers' capital expenditures rise to address the increasing complexity of semiconductor device manufacturing and meet growing demand for semiconductor devices, particularly in the mobility space.

The following table summarizes certain key financial information for the periods indicated below (in thousands, except percentage and per share data):

                                                               Three Months Ended
                                             September 23,          June 24,           September 25,
                                                 2012                 2012                 2011
Revenue                                     $       906,888         $ 741,814         $       680,436
Gross margin                                $       333,886         $ 298,213         $       283,883
Gross margin as a percent of revenue                   36.8 %            40.2 %                  41.7 %
Total operating expenses                    $       317,174         $ 265,543         $       184,484
Net income                                  $         2,768         $  18,069         $        71,838
Diluted net income per share                $          0.02         $    0.13         $          0.58

In the quarter ended September 23, 2012, revenue increased as compared to the quarter ended June 24, 2012 reflecting the first full quarter of operations post-acquisition of Novellus Systems, Inc. ("Novellus"). Gross margin as a percent of revenues decreased in the September 2012 quarter as compared to the June 2012 quarter as a result of the first full quarter of acquisition-related inventory fair value adjustments and amortization of acquired intangible assets. Operating expenses in the September 2012 quarter increased as compared to the quarter ended June 2012, primarily reflecting a full quarter of post-acquisition activity as a combined company.

Our cash and cash equivalents, short-term investments, and restricted cash and investments balances totaled approximately $2.9 billion as of September 23, 2012 compared to $3.0 billion as of June 24, 2012. Cash generated by operations was approximately $249 million during the September 2012 quarter. We used cash during the September 2012 quarter to repurchase $355 million of our shares and purchase $44 million of property and equipment. Employee headcount was approximately 6,600 as of both September 23, 2012 and June 24, 2012.

RESULTS OF OPERATIONS

Shipments



                                                Three Months Ended
                                 September 23,       June 24,        September 25,
                                     2012              2012              2011
      Shipments (in millions)   $           935      $     816      $           580
      Taiwan                                 29 %           29 %                 10 %
      Asia Pacific                           22 %           12 %                 15 %
      North America                          18 %           15 %                 22 %
      Korea                                  16 %           31 %                 27 %
      Japan                                   8 %            7 %                 16 %
      Europe                                  7 %            6 %                 10 %

Shipments for the September 2012 quarter increased 15% compared to the June 2012 quarter and increased 61% year over year, reflecting the first full quarter of operations post-acquisition of Novellus. During the September 2012 quarter, applications below the 40 nanometer technology node were 81% of total systems shipments. The system shipments in the memory, foundry, and logic/integrated device manufacturing markets were approximately 42%, 48% and 10%, respectively.


Table of Contents

Revenue



                                               Three Months Ended
                                September 23,       June 24,        September 25,
                                    2012              2012              2011
       Revenue (in millions)   $           907      $     742      $           680
       Taiwan                               28 %           24 %                 13 %
       Korea                                24 %           38 %                 25 %
       North America                        18 %           13 %                 19 %
       Asia Pacific                         15 %           11 %                 14 %
       Japan                                 8 %            7 %                 18 %
       Europe                                7 %            7 %                 11 %

Revenue for the September 2012 quarter increased 22% compared to the June 2012 quarter and 33% as compared to the September 2011 quarter, reflecting the first full quarter of operations post-acquisition of Novellus. Our deferred revenue balance increased to $364 million as of September 23, 2012 compared to $335 million as of June 24, 2012. 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 $21 million as of September 23, 2012 compared to $23 million as of June 24, 2012.

Gross Margin



                                             Three Months Ended
                              September 23,       June 24,        September 25,
                                  2012              2012              2011
                                     (in thousands, except percentages)
        Gross margin         $       333,886      $ 298,213      $       283,883
        Percent of revenue              36.8 %         40.2 %               41.7 %

The decrease in gross margin as a percentage of revenue during the September 2012 quarter as compared to the June 2012 quarter is primarily due to the first full quarter of Novellus acquisition-related inventory fair value adjustments, which increased from approximately $6 million to $44 million, and amortization of acquired Novellus intangible assets, which increased from approximately $5 million to $21 million.

The decrease in gross margin as a percentage of revenue during the September 2012 quarter as compared to the September 2011 quarter is primarily due to acquisition-related inventory fair value adjustments of approximately $44 million and amortization of acquired intangible assets of approximately $21 million, which did not occur in the September 2011 quarter.

Research and Development



                                                    Three Months Ended
                                     September 23,       June 24,        September 25,
                                         2012              2012              2011
                                            (in thousands, except percentages)
 Research and development ("R&D")   $       163,311      $ 124,528      $       102,559
 Percent of revenue                            18.0 %         16.8 %               15.1 %

We continue to make significant R&D investments focused on leading-edge plasma etch, single-wafer clean, deposition, and other semiconductor manufacturing requirements. The increase in R&D expenses during the September 2012 quarter compared to the June 2012 quarter was primarily a reflection of the full quarter impact of combined operations with Novellus and included a $19 million increase in employee compensation and benefits, a $5 million increase in depreciation and amortization, and a $4 million increase in supplies and facilities costs.

September 2012 reflects a full quarter impact of combined operations with Novellus, while 2011 reflects Lam standalone. The increase in R&D expenses during the September 2012 quarter compared to the same period in the prior year was primarily due to a $31 million increase in employee compensation and benefits, mainly as a result of higher headcount, an $8 million increase in supplies and facilities costs, a $7 million increase in depreciation and amortization, and a $5 million increase in outside services.


Table of Contents

Selling, General and Administrative



                                                               Three Months Ended
                                             September 23,          June 24,           September 25,
                                                 2012                 2012                 2011
                                                       (in thousands, except percentages)
Selling, general and administrative
("SG&A")                                    $       153,863         $ 141,015         $        80,200
Percent of revenue                                     17.0 %            19.0 %                  11.8 %

The increase in SG&A expenses during the September 2012 quarter compared to the June 2012 quarter was primarily due to the full quarter impact of combined operations with Novellus, including a $33 million increase in employee compensation and benefits, a $15 million increase in intangible asset amortization, and an $8 million increase in supplies and facilities costs; offset by a $33 million reduction in integration and acquisition-related costs.

The increase in SG&A expenses in the September 2012 quarter compared to the same period in the prior year was primarily due to a $46 million increase in employee compensation and benefits, a $19 million increase in intangible asset amortization related to a full quarter impact of combined operations with Novellus, and $12 million in costs associated with integration activities.

Restructuring and Asset Impairments

There were no restructuring and asset impairment charges during the three months ended September 23, 2012 or June 24, 2012. During the three months ended September 25, 2011, the Company incurred an asset impairment charge of $1.7 million related to a decline in the market value of certain facilities, which was recorded in operating expenses within the Consolidated Statements of Operations.

Other Income (Expense), Net

Other income (expense), net consisted of the following:



                                                              Three Months Ended
                                             September 23,         June 24,          September 25,
                                                 2012                2012                2011
                                                                (in thousands)
Interest income                             $         3,800        $   4,121        $         2,589
Interest expense                                    (15,144 )        (10,934 )               (9,260 )
Gains (losses) on deferred compensation
plan related assets                                   2,741           (1,418 )               (1,865 )
Foreign exchange gain (loss)                           (368 )            961                 (1,090 )
Other, net                                             (967 )         (2,619 )               (2,447 )

                                            $        (9,938 )      $  (9,889 )      $       (12,073 )

Interest expense increased in the September 2012 quarter as compared to the June 2012 and September 2011 quarters due to the 2041 Notes assumed in June 2012 in connection with the Novellus acquisition.

In the September 2012 quarter, we recognized gains on assets which are related to obligations under our deferred compensation plan, whereas during the June 2012 and September 2011 quarters we recognized losses on assets due to changes in the market value of securities in this portfolio.

Income Tax Expense

Our tax expense for the three months ended September 23, 2012 and September 25, 2011 were $4.0 million and $15.5 million based on effective income tax rates of 59.1% and 17.7% of pre-tax income. The increase in the effective tax rate for the three months ended September 23, 2012 compared to the three months ended September 25, 2011 was primarily due to the reduced level of income and an increase in the percentage of profits in jurisdictions with higher tax rates and the treatment of integration expenses as a discrete event in determining the effective tax rate. In addition, the U.S. federal research and development tax credit expired as of December 31, 2011 and no tax benefit has been included in the calculation of the annual effective tax rate for the fiscal year ending June 30, 2013. The effective tax rate of 59.1% for the three months ended September 23, 2012 includes the tax impact of discrete items which primarily consisted of the effective tax rate impact of $17 million of integration expenses for which little tax benefit is derived and a tax expense of $1.5 million of interest related to uncertain tax positions. The effective tax rate of 17.7% for the three months ended September 25, 2011 includes the tax impact of the following discrete items which are recorded in the period in which they occur: (1) a tax expense of $1.6 million related to the filing of prior year foreign tax returns and state amended tax returns and (2) a tax expense of $0.9 million of interest related to uncertain tax positions.


Table of Contents

Deferred Income Taxes

We had gross deferred tax assets, related primarily to reserves and accruals that are not currently deductible and tax credit carryforwards, of $342.4 million and $253.7 million as of September 23, 2012 and June 24, 2012, respectively. The gross deferred tax assets were offset by deferred tax liabilities of $362.6 million and a valuation allowance of $55.2 million as of September 23, 2012. The gross deferred tax assets were offset by deferred tax liabilities of $285.6 million and a valuation allowance of $55.2 million as of June 24, 2012.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more-likely-than-not to be realized. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more-likely-than-not that the deferred tax assets would be realized, then the previously provided valuation allowance would be reversed.

We evaluate the realizability of the deferred tax assets quarterly and will continue to assess the need for changes in valuation allowances, if any.

Uncertain Tax Positions

We reevaluate uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make certain judgments, estimates and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We based our estimates and assumptions on historical experience and on various other assumptions we believed to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results could differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition.

We believe that the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition: We recognize all revenue when persuasive evidence of an arrangement exists, delivery has occurred and title has passed or services have been rendered, the selling price is fixed or determinable, collection of the receivable is reasonably assured, and we have received customer acceptance, completed our system installation obligations, or are otherwise released from our installation or customer acceptance obligations. If terms of the sale provide for a lapsing customer acceptance period, we recognize revenue upon the expiration of the lapsing acceptance period or customer acceptance, whichever occurs first. If the practices of a customer do not provide for a written acceptance or the terms of sale do not include a lapsing acceptance provision, we recognize revenue when it can be reliably demonstrated that the delivered system meets all of the agreed-to customer specifications. In situations with multiple deliverables, we recognize revenue upon the delivery of the separate elements to the customer and when we receive customer acceptance or are otherwise released from our customer acceptance obligations. We allocate revenue from multiple-element arrangements among the separate elements based on their relative selling prices, provided the elements have value on a stand-alone basis. Our sales arrangements do not include a general right of return. The maximum revenue we recognize on a delivered element is limited to the amount that is not contingent upon the delivery of additional items. We generally recognize revenue related to sales of spare parts and system upgrade kits upon shipment. We generally recognize revenue related to services upon completion of the services requested by a customer order. We recognize revenue for extended maintenance service contracts with a fixed payment amount on a straight-line basis over the term of the contract. When goods or services have been delivered to the customer but all conditions for revenue recognition have not been met, we record deferred revenue and/or deferred costs of sales in deferred profit on our Consolidated Balance Sheet.

Inventory Valuation: Inventories are stated at the lower of cost or market using standard costs that generally approximate actual costs on a first-in, first-out basis. We maintain a perpetual inventory system and continuously record the quantity on-hand and standard cost for each product, including purchased components, subassemblies, and finished goods. We maintain the integrity of perpetual inventory records through periodic physical counts of quantities on hand. Finished goods are reported as inventories until the point of title transfer to the customer. Generally, title transfer is documented in the terms of sale. Unless specified in the terms of sale, title generally transfers when we complete physical transfer of the products to the freight carrier. Transfer of title for shipments


Table of Contents

to Japanese customers generally occurs at the time of customer acceptance. We eliminate all intercompany profits related to the sales and purchases of inventory between our legal entities from our Consolidated Financial Statements.

Management evaluates the need to record adjustments for impairment of inventory at least quarterly. Our policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods, and spare parts in each reporting period. Obsolete inventory or inventory in excess of management's estimated usage requirements over the next 12 to 36 months is written down to its estimated market value if less than cost. Estimates of market value include, but are not limited to, management's forecasts related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, general semiconductor market conditions, and possible alternative uses. If future customer demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of goods sold in the period in which we make the revision.

Warranty: Typically, the sale of semiconductor capital equipment includes providing parts and service warranty to customers as part of the overall price of the system. We provide standard warranties for our systems. When appropriate, . . .

  Add LRCX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LRCX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.