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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
0-12933
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LAM RESEARCH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2634797
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
4650 CUSHING PARKWAY, 94538
FREMONT, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 659-0200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the average of the closing price of the Common Stock on
September 9, 1997, as reported by the Nasdaq National Market, was
approximately $1,735,438,000. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded from this computation in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of September 9, 1997, the Registrant had outstanding 36,612,676 shares of
Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended June
30, 1997 (1997 Annual Report to Stockholders) are incorporated by reference
into Parts I, II and IV of this Form 10-K Report. Except as otherwise
specifically incorporated by reference in this Form 10-K Report, the 1997
Annual Report to Stockholders is not deemed filed as part of this Form 10-K
Report.
Parts of Registrant's Proxy Statement for the Annual Meeting of Stockholders
to be held on November 7, 1997 are incorporated by reference into Parts III
and IV of this Form 10-K Report. (The Compensation Committee Report and the
stock performance graph of the Registrant's Proxy Statement are expressly not
incorporated by reference herein.)
PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements in this Report that are forward-looking are based on current
expectations and beliefs and involve numerous risks and uncertainties that
could cause actual results to differ materially. The forward-looking
statements relate to operating results, cash flows, capital expenditures and
adequacy of resources to fund operations and capital investments; the market
demand for integrated circuits and products utilizing integrated circuits;
development and market acceptance of Lam Research Corporation's (the Company
or Lam) new products; the Company's ability to manage product transitions;
ability of the Company to expand its international operations; the integration
of operations with OnTrak Systems, Inc. (OnTrak); and the Company's ability to
integrate future acquisitions. For discussion of the factors that could cause
actual results to differ materially, see the discussion of such risks and
uncertainties set forth below in this Report and in the section of the 1997
Annual Report to Stockholders entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations," incorporated by reference
in this Report.
THE COMPANY
Lam designs, manufactures, markets and services semiconductor processing
equipment used in the fabrication of integrated circuits. Lam is recognized by
its customers worldwide as a leading supplier of semiconductor production
equipment. Lam's products are used to deposit special films on silicon wafers
(deposition) and to selectively etch away portions of various films (etch) to
create an integrated circuit. Deposition and etch processes, which are
repeated numerous times during the fabrication cycle, are required to
manufacture every semiconductor device produced today. Lam's etch technology
is also used to process device features in flat panel displays (FPDs). With
the acquisition of OnTrak, consummated in August 1997, Lam has added both
chemical mechanical planarization (CMP) cleaning and polishing product lines.
CMP enables the fabrication of devices featuring design rules of 0.5 micron
and below with multiple metal layers and is currently the fastest growing
segment of the semiconductor capital equipment industry.
Lam sells a broad range of plasma (dry) etch products to address specific
applications, including the AutoEtch, Advanced Capability Rainbow, and
Transformer Coupled Plasma (TCP) product lines. Lam's TCP etchers utilize a
high density plasma process to etch device features down to 0.18 microns and
below. In the deposition market, Lam offers its DSM 9800 low pressure chemical
vapor deposition (CVD) system, a fully automated batch thermal CVD system for
pre-metal dielectric applications, and its DSM 9900 high density plasma (HDP)
CVD system, which addresses advanced intermetal dielectric applications for
logic and microprocessor integrated circuits as well as shallow trenches for
isolation in memory circuits. All current generation TCP and DSM 9900 modules
are available on Lam's Alliance multi-chamber cluster platform. Lam
2
formally entered the FPD market in calendar 1996 with the introduction of its
Continuum etch system based on Transformer Coupled Plasma technology. Through
OnTrak, the Company markets both the DSS-200 and Synergy product lines of
cleaners, which are used to remove residual slurries and other contaminants
from wafer surfaces both after CMP polishing and before and after essential
semiconductor process steps. Lam's Aurora Polishing System, currently under
development, leverages OnTrak's CMP expertise to provide the Company's first
fully integrated polishing and cleaning solutions such as CVD, etch and
photoresist removal to its customers.
On August 5, 1997, Lam acquired OnTrak, a leading manufacturer of CMP
cleaning and polishing equipment. As part of the transaction, James W. Bagley,
Chairman and Chief Executive Officer of OnTrak, became Chief Executive Officer
of Lam.
PRODUCTS
Semiconductor wafers are subjected to a complex series of process steps that
result in the simultaneous creation of many individual semiconductor circuits.
Basic steps include deposition, CMP and cleaning photolithography, etching,
assembly and testing. Lam's products are used in the deposition, etch process
and CMP steps of semiconductor device manufacturing and are available as
stand-alone systems or on the Company's Advanced Capabilities Alliance multi-
chamber cluster platform. Lam incorporates its Envision interactive control
system software for advanced production management on each of its systems.
Etch Products
The etch process defines line-widths and other micro features on integrated
circuits. Plasma etching, a dry etch technique, was developed to meet the
demand for device geometries with line-widths smaller than three microns.
Plasma etching uses ionized gases that react with exposed portions of the
wafer to produce finely delineated features and patterns of the integrated
circuit. Today, manufacturers of advanced integrated circuits require etch
systems that can produce line-widths as small as 0.25 micron (approximately
1/300 the thickness of a human hair), and in the future are expected to
require systems capable of producing devices with feature sizes smaller than
0.1 micron. In addition, advanced manufacturing facilities are producing
integrated circuits on silicon wafers of 200 mm (8 inches) in diameter, and a
transition in wafer diameters is expected to increase to 300 mm (12 inches)
starting in calendar year 1998. To accommodate these decreasing line-widths
and increasing wafer diameters, manufacturers increasingly require more
precise control over the etching process.
Lam's family of etch systems incorporates plasma technologies designed to
meet both current and future device requirements.
AutoEtch. The AutoEtch family was Lam's initial product line, with the first
AutoEtch etcher sold in January 1982. The AutoEtch product line includes the
490, 590, 690 and 790 series for etching polysilicon, oxide, aluminum and
tungsten film, respectively. Although the AutoEtch series is more than fifteen
years old, continued improvements in both reliability and performance have
enabled Lam to continue to offer it as a suitable product for applications
involving line widths of 0.8 micron or greater and wafer sizes of six inches
or smaller. In addition, Lam offers the service of refurbishing and
remanufacturing AutoEtch systems.
Rainbow. The first Rainbow etch system was introduced in 1987. The Rainbow
series of products addresses processes that utilize wafer sizes up to 200 mm
and feature sizes as small as 0.35 micron. The Rainbow product line, also
available on the Alliance platform, includes the Rainbow 4400, 4500, 4600 and
4700 series for etching polysilicon, oxide, aluminum and tungsten films,
respectively. These systems are designed to accommodate evolving customer
needs through hardware and process enhancements.
The Rainbow product line incorporates a number of unique features that offer
semiconductor manufacturers improved etch capability, reliability and
performance. These features include a patented wafer handling system, a
proprietary source for generating stable plasma, and an overall product design
for which Lam has received industry awards for quality and reliability. These
and other Rainbow product features enable the semiconductor
3
manufacturer to reduce wafer particle contamination to a level that exceeds
industry standards and to improve etch selectivity and uniformity while
maintaining profile control and process flexibility.
TCP. Lam's TCP product line of high density, low pressure etch systems,
which was introduced in late 1992, incorporates the Company's patented
Transformer Coupled Plasma source technology for etching 0.35 micron and
smaller geometries. The Company currently offers the TCP 9600SE and TCP
9600PTX for metal etch applications, the TCP 9400SE for polysilicon and
polycide etch applications and the TCP 9100 for oxide etch applications. These
systems are currently used to produce a broad range of advanced logic and
memory devices, and the Company believes these products offer technological
capability to enable manufacturers to produce the next generations of advanced
devices. The TCP series etch systems operate at lower pressures for improved
pattern transfer control and higher plasma density for higher etch rates with
independent power control to the lower electrode, which improves etch results
across a wider process window. Lam's TCP systems are designed to offer
customers a reliable, lower cost of ownership solution to their advanced
needs. The TCP systems are available as stand-alone, single wafer tools or on
the Alliance multi-chamber cluster platform.
Deposition Products
CVD involves the deposition of thin films on a silicon wafer by exposing the
wafer to various reactant gases containing the materials to be deposited.
Insulating films are deposited to form dielectric layers on integrated
circuits. The metal interconnect layer is typically deposited on the wafer
surface by a sputtering process to provide electrical connection between the
various circuit elements. The dielectric layer is deposited over the
interconnects and subsequent metal layer to provide electrical insulation
between the interconnect layers. To increase circuit functionality,
manufacturers have designed circuits with multilevel interconnections (stacked
levels of wiring separated by insulating dielectric layers) using lower
resistivity materials for improved device performance. Multiple levels of
interconnects allow device manufacturers to increase the density and
complexity of the integrated circuit. Current state-of-the-art devices may
have as many as five interconnect and dielectric layers on the integrated
circuit. Lam currently manufactures two dielectric deposition products, the
DSM 9800 and DSM 9900, to address advanced device requirements.
DSM 9800. The DSM 9800 utilizes a patented integrated process design for
flowing gases rapidly over the wafer, forming films that are highly uniform
and planar at a lower thermal budget to provide improved device performance.
The DSM 9800 has been installed worldwide and is currently being used for
production of semiconductor devices at 0.35 micron and below.
DSM 9900. Lam introduced its first DSM 9900 HDP CVD system in November 1995.
The DSM 9900 represents the next generation in HDP CVD technology. First
introduced as the Epic system, the DSM 9900 has a smaller footprint, higher
reliability and improved throughput. The DSM 9900 is well suited for the
demanding requirements of high production environments. Like the Epic, the DSM
9900 makes use of electron cyclotron resonance (ECR) technology to form a high
density, low pressure plasma. ECR enables remote plasma coupling that
minimizes particulate contamination and maximizes throughput while filling
gaps as small as 0.18 microns with aspect ratios as high as 3:1. The inter-
metal dielectric films created by simultaneously depositing and etching are
planarized more easily by chemical and mechanical polishing than films that
are repeatedly deposited and etched by conventional techniques. The DSM 9900,
available on Lam's Alliance platform, has been installed at several customer
sites and is being qualified for production of quarter and sub-quarter-micron
logic, microprocessor and memory integrated circuits.
CMP Products
Cleaning Systems
OnTrak's DSS-200 cleaning systems have a number of features that distinguish
them from alternative cleaning methods. A double-sided design permits
simultaneous scrubbing of both sides of the wafer while limiting wafer
handling contact, which can contaminate the backside of the wafer. For
selected applications, its
4
brush cleaning systems provide significant advantages over traditional batch
wet bench cleaning systems, including improved cleaning efficiency, reduced
chemical usage, a smaller footprint, lower operating costs, and greater
process flexibility. In addition, the single wafer design minimizes the risks
inherent in processing wafers in batches. OnTrak works with its customers to
incorporate a customer's unique requirements in its cleaning systems.
CMP Polisher
Aurora. Lam is developing the Aurora CMP polishing system based on a
technological approach different from that of conventional polishers which
utilize a rotating table and rotating polishing heads. Lam has developed a
proprietary linear polishing method and has designed its polishing system to
be installed in a Class 1 clean room environment to planarize patterned films
on wafers, and to polish wafers at higher rates and achieve the uniformity and
planarity that is necessary to manufacture advanced semiconductor devices.
When released, Aurora will possess unique advantages by being the Company's
first fully integrated CMP polisher and cleaner system. Aurora is currently
under development and is expected to be launched in early calendar 1998.
Flat Panel Display Products
The Company formally entered the FPD market in calendar 1996 with the
introduction of its Continuum etch system, based upon the Transformer Coupled
Plasma technology also used in semiconductor fabrication.
TRADEMARKS
Lam, Lam Research, Transformer Coupled Plasma, TCP, Aurora, DSM, Rainbow,
Advanced Capability Rainbow, Continuum, Alliance and Envision are trademarks
of Lam Research Corporation. AutoEtch and Epic are registered trademarks of
Lam Research Corporation
OnTrak and Synergy are trademarks and DSS-200 is a registered trademark of
OnTrak Systems, Inc.
RESEARCH AND DEVELOPMENT
The market for semiconductor capital equipment is characterized by rapid
technological change. The Company believes that continued and timely
development of new products and enhancements to existing products are
necessary for it to maintain its competitive position. Accordingly, the
Company devotes a significant portion of its personnel and financial resources
to research and development (R&D) programs and seeks to maintain close
relationships with its customers to be responsive to their product needs.
The Company's net R&D expenses during fiscal 1997, 1996 and 1995, were
approximately $170.6 million, $173.0 million, and $127.8 million,
respectively, and represented 17.0%, 13.6%, and 15.8% of total revenue,
respectively. Such R&D expenses were net of third party funding from industry
consortia, and customers, representing approximately $1.2 million, $3.4
million, and $2.6 million during fiscal 1997, 1996 and 1995, respectively.
Such expenditures were used for the development of new products and film
applications, and the continued enhancement of existing products. Current
projects include the development of advanced etch and deposition products.
In June 1994, the Company received a multi-year contract from the United
States Display Consortium (USDC) for the development of a FPD etch system,
based on the Company's Transformer Coupled Plasma technology. The Continuum
etch system is designed for use in the manufacture of large scale FPDs for
several new technologies including active matrix liquid crystal displays
(AMLCDs) and field emission displays (FEDs). Included in the $1.2 million,
$3.4 million, and $2.6 million of third party funded R&D for fiscal 1997,
1996, and 1995 was $1.2 million, $3.2 million, and $1.2 million from the USDC.
The Company expects to continue to make substantial investments in R&D. The
Company also must manage product transitions successfully, as introductions of
new products could adversely affect sales of existing
5
products. There can be no assurance that future technologies, processes or
product developments will not render the Company's product offerings obsolete
or that the Company will be able to develop and introduce new products or
enhancements to its existing products and processes in a timely manner which
satisfy customer needs or achieve market acceptance. The failure to do so
could adversely affect the Company's business. Furthermore, if the Company is
not successful in the development of advanced process equipment for
manufacturers with whom it has formed strategic alliances, its ability to sell
its products to those manufacturers would be adversely affected. In addition,
in connection with the development of the Company's new products, the Company
invests in material levels of pre-production inventory, and the failure to
complete development and commercialization of these new products in a timely
manner could result in inventory obsolescence, which could adversely affect
the Company's financial results.
MARKETING, SALES AND SERVICE
The Company's marketing and sales efforts are focused on building long-term
relationships with its customers. These efforts are supported by a team of
product marketing managers, sales personnel, equipment engineers and process
engineers that works closely with individual customers to find solutions to
their process needs. After-sales support is an essential element of the
Company's marketing and sales program. The Company maintains an ongoing
support relationship with its customers and has an extensive network of field
service personnel in place across the United States, Europe, Japan and Asia
Pacific. In addition, the Company maintains an in-house group of highly
skilled application engineers to respond to customer process needs worldwide
when a higher level of technical expertise is required. The Company believes
that its extensive support programs and close working relationships with its
customers give it a competitive advantage.
The Company has more than 40 sales and support centers located throughout
the United States, Europe, Japan and Asia Pacific, through which direct sales
personnel and independent sales representatives sell and service the Company's
products. The Company has increased that effort by furthering its direct sales
and service capability in Japan to directly market and support its advanced
products. The Company offers its customers a comprehensive warranty package on
all released products with 24 hour, seven days a week service.
In Japan, the Company has licensing arrangements with Sumitomo Metal
Industries, Ltd. (Sumitomo) and Tokyo Electron Limited (TEL). Sumitomo
manufactures, sells and distributes certain of the Company's Rainbow products
to specific customers in Japan under an exclusive license agreement with Lam.
TEL has a non-exclusive license to sell products incorporating certain
features of Lam's proprietary etch technology. In June 1991, the Company
opened the Lam Technology Center near Tokyo, Japan, to establish a presence in
Japan and to assist Sumitomo in serving Japanese customers. In May 1993, Lam
completed its advanced development and demonstration laboratory in Sagamihara,
Japan, which allows customers to evaluate the Company's recently introduced
advanced technology products. During fiscal 1996, the Company expanded in
Japan by building a third floor on this existing building. In fiscal 1997, the
Company completed construction of a second facility in Sagamihara.
Export sales accounted for approximately 41%, 41%, and 38% of net sales in
fiscal 1997, 1996, and 1995, respectively. Export sales consist of sales from
the Company's U.S. operating subsidiary to nonaffiliated customers in foreign
countries. The Company expanded its international operations, including
expansion of its Japan operations, the opening of a manufacturing facility in
Korea in July 1995 and the relocation and expansion of the Taiwan facility to
a technology development center. As a result, a significant portion of the
Company's sales and operations will be subject to certain risks, including
tariffs and other barriers, difficulties in staffing and managing foreign
subsidiary and branch operations, difficulties in managing distributors,
potentially adverse tax consequences and the possibility of difficulty in
accounts receivable collection. There can be no assurance that any of these
factors will not have a material adverse effect on the Company's business,
financial position, results of operations and cash flows.
6
CUSTOMERS
The Company's customers include most of the world's leading semiconductor
manufacturers. In fiscal 1997 and 1996, no individual customer accounted for
more than 10% of Lam's total revenue. Revenue from Intel Corporation accounted
for 11% of total revenue for fiscal 1995.
The Company's business depends upon the capital expenditures of
semiconductor manufacturers, which in turn depend on the current and
anticipated market demand for integrated circuits and products utilizing
integrated circuits. The semiconductor industry has been experiencing a
slowdown in terms of overcapacity and product pricing. This has caused
semiconductor manufacturers to exercise caution in making their capital
equipment purchase decisions and in certain cases customers have either
rescheduled or canceled capital equipment purchases. No assurance can be given
that the Company's revenue and operating results will not be further adversely
affected if downturns in the semiconductor industry continue to occur.
BACKLOG
The Company schedules production of its systems based upon order backlog and
customer commitments. Included in backlog for the Company are orders for which
written authorizations have been accepted and shipment dates have been
assigned. As of June 30, 1997 and 1996, the Company's order backlog was
approximately $272.1 million and $328.0 million, respectively. During fiscal
1997, the semiconductor market experienced volatility in terms of product
demand and product pricing. This has caused certain semiconductor
manufacturers to exercise caution in making their capital equipment purchase
decisions and in certain cases to reschedule or cancel capital equipment
purchases. All orders are subject to cancellation by the customer, in some
cases with limited penalty. Because some orders are received for systems to be
shipped in the same quarter and because of possible customer changes in
delivery schedules and cancellations of orders, the Company's backlog at any
particular date is not necessarily indicative of actual sales for any
succeeding period.
MANUFACTURING
The Company maintains multiple facilities in Fremont and San Jose,
California and one location in Wilmington, Massachusetts for the manufacture
of its etch, deposition and CMP products. In addition, in July 1995, the
Company completed a manufacturing facility in CheonAn, Korea. The Company's
Korean manufacturing facility may experience difficulties in management,
procurement, production and staffing. There can be no assurances that these
factors will not have an adverse effect on the Company's business, financial
condition and results of operations.
The Company's manufacturing activities consist of assembling and testing
components and subassemblies that are then integrated into finished systems.
Once the manufacturing department has completed final testing of all
electronic and electromechanical subassemblies that make up one of the
Company's products, the completed system is process tested. Stringent
cleanliness controls are present throughout the manufacturing, process and
testing areas of these facilities to reduce particle contamination. Much of
the assembly and testing of the Company's products is conducted in cleanroom
environments where personnel are properly attired to reduce particulate
contamination. Prior to shipping a completed system, the customer's engineers
may perform acceptance tests at Lam's facility, using the customer's own
wafers. After passing the acceptance test, the system is vacuum-bagged in a
cleanroom environment and prepared for shipment.
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile or otherwise hazardous chemicals
used in the manufacturing process. The Company believes that it is in
compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its 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 the
Company, suspension of production or cessation of operations. Such regulations
could require the Company to acquire significant equipment or to incur
substantial other expenses to comply with environmental regulations. Any
failure by the
7
Company to control the use of, or adequately restrict the discharge or
disposal of, hazardous substances could subject the Company to future
liabilities.
EMPLOYEES
As of September 9, 1997, the Company had approximately 4,800 full-time
employees. None of the Company's employees are represented by a union and the
Company has never experienced a work stoppage. Management considers its
employee relations to be good.
In addition, each employee of the Company has signed agreements to maintain
the confidentiality of the Company's proprietary information, and most key
employees have stock or stock option arrangements with the Company that
provide for the vesting of their interests over several years.
COMPETITION
The semiconductor processing equipment industry is highly competitive. The
Company faces substantial competition throughout the world. The Company
believes that to remain competitive, it 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 R&D. Certain of
the Company's existing and potential competitors have substantially greater
financial resources, more extensive engineering, manufacturing, marketing and
customer service and support organizations. The Company expects its
competitors to continue to improve the design and performance of their current
products and processes and to introduce new products and processes with
improved price and performance characteristics. If the Company's competitors
enter into strategic relationships with leading semiconductor manufacturers
covering etch, deposition or CMP products similar to those sold by the
Company, its ability to sell its products to those manufacturers could be
adversely affected. No assurance can be given that the Company will continue
to compete successfully in the United States or worldwide.
The Company faces significant competitive factors in the etch equipment
market including etch quality, repeatability, process capability and
flexibility and overall cost of ownership, including reliability, software
automation, throughput, customer support and system price. Although the
Company believes that it competes favorably with respect to each of these
factors, the Company's ability to compete successfully in this market will
depend upon its ability to introduce product enhancements and new products on
a timely basis. There can be no assurance that the Company will continue to
compete successfully in the future. In the etch equipment market, the
Company's primary competitors are Applied Materials, Inc., TEL and Hitachi
Ltd.
The Company faces significant competitive factors in the deposition
equipment market including film quality, flow uniformity, contamination
control, temperature control and overall cost of ownership, including
throughput, system reliability, cost of consumables, system price and customer
support. In the deposition equipment market, the principal suppliers of
equipment are Applied Materials, Inc., Canon Sales Co. Inc., Novellus Systems,
Inc. and Watkins-Johnson Company.
The CMP polishing system under development by the Company is expected to
face significant competition from multiple current and future competitors.
Companies currently offering polishing systems include Applied Materials,
Inc., Cybeq Systems, Ebara Corporation, Integrated Process Equipment Corp.
(IPEC), SpeedFam Corp., Strasbaugh and Sumitomo. IPEC currently has the
largest installed base of CMP polishers and also offers an integrated CMP
polishing and cleaning system. Lam believes that other companies are
developing polishing systems and are planning to introduce new products to
this market before or during the same time frame as the Company's planned
introduction of its CMP polishing system.
In CMP slurry removal and cleaning applications, OnTrak's principal
competitor is Dainippon Screen Manufacturing Co. Ltd. (Dainippon Screen).
OnTrak expects that it will face increased competition from IPEC, which
currently offers a slurry removal system, and SpeedFam, as well as others as
the CMP market continues to develop. In general cleaning applications, OnTrak
competes against Dainippon Screen and others.
8
RECENT EVENTS
OnTrak Merger
On August 5, 1997, the stockholders of the Company approved the issuance of
Lam Common Stock under the Agreement and Plan of Merger with OnTrak (the
Merger). The Company is in the process of issuing approximately 8,759,000
shares of Lam Common Stock for all the outstanding common stock and options
and rights to purchase common stock on the basis of 0.83 of a share of Lam
Common Stock for one share of OnTrak common stock. The transaction was
accounted for as a pooling of interests and is structured to qualify as a tax-
free reorganization. The anticipated financial impact of the conforming
accounting methods is not expected to be material to the financial position of
the Company. The Company estimates that costs associated with the Merger were
approximately $17.7 million. Such expenses include investment advisory fees,
legal and accounting fees, financial printing costs and other Merger related
costs. Such costs associated with the Merger will negatively impact the
results of operations in the fiscal quarter ended September 30, 1997.
Approval of Lam Research Corporation Stock Incentive Plan
On August 5, 1997, the stockholders of the Company approved the Lam Research
Corporation 1997 Stock Incentive Plan, which will provide for a grant of stock
options, restricted stock, deferred stock and performance share awards to
participating officers, directors, employees, consultants and advisors of the
Company and its subsidiaries. Initially, 3,000,000 shares were reserved for
issuance. The number of shares will automatically be increased each quarter
subject to certain provisions and restrictions and shall in no event exceed
5,000,000 shares.
Convertible Subordinated Notes
During August 1997, Lam completed an offering of $310.0 million of
Convertible Subordinated Notes (the Notes). The Notes bear interest at five
percent, mature on September 1, 2002 and are convertible into shares of Lam
Common Stock at $87.77 per share. Expenses associated with the offering of
approximately $9.0 million will be deferred and will be included in other
assets. Such expenses will be amortized to interest expense over the term of
the Notes.
In connection with the issuance of Notes, the Company received consents and
waivers with respect to certain financial and other covenants contained in
agreements relating to certain existing financial arrangements. In addition,
as a consequence of the Merger with OnTrak as well as issuance of the Notes,
the Company on or prior to the end of the fiscal quarter ending September 30,
1997, would be out of compliance with certain other covenants unless
appropriate amendments or waivers are completed prior to that time. The
Company is currently in discussions with lenders that are parties to these
agreements. Based on these discussions, the Company believes that appropriate
amendments or waivers will be obtained prior to fiscal quarter end on terms no
less favorable to the Company than the existing terms. In the event any such
amendments or waivers are not obtained by fiscal quarter end, the Company
could be required to terminate the revolving credit facility, purchase certain
of its leased facilities, purchase sold receivables and pay certain of the
Japanese term loans.
PATENTS AND LICENSES
The Company has a policy of seeking patents on inventions governing new
products and processes developed as part of its ongoing research, engineering
and manufacturing activities. The Company holds United States patents and
corresponding foreign patents covering various aspects of its products. The
Company believes that the duration of its patents generally exceeds the life
cycles of the technologies disclosed and claimed therein. The Company believes
that although the patents it holds and may obtain will be of value, they will
not determine the Company's success, which depends principally upon its
engineering, marketing, service and manufacturing skills. However, in the
absence of patent protection, the Company may be vulnerable to competitors who
attempt to imitate the Company's products, manufacturing techniques and
processes. In addition, other companies and inventors may receive patents that
contain claims applicable to the Company's products and processes. The sale
9
of the Company's products covered by such patents could require licenses that
may not be available on acceptable terms, or at all.
From time to time, the Company is notified that it may be in violation of
certain patents. In such cases, the Company's policy is to defend against
claims or negotiate licenses where considered appropriate. However, no
assurance can be given that it will be able to obtain necessary licenses on
commercially reasonable terms, or at all. In October 1993, Varian Associates,
Inc. (Varian) brought suit against the Company in the United States District
Court, Northern District of California, seeking monetary damages and
injunctive relief based on the Company's alleged infringement of certain
patents held by Varian. See "Item 3. Legal Proceedings."
In December 1986, the Company entered into a non-exclusive license agreement
with TEL, licensing the Company's AutoEtch technology and chamber design. This
license expired in December 1991, and, in January 1992, the Company entered
into a new five year license agreement with TEL on substantially similar terms
which was originally set to expire in December 1996 but was renegotiated to a
reduced royalty rate of 1% from 5%. The Company expects that royalty income
for fiscal 1998 will be significantly lower than fiscal 1997 as 1998 will be
the first full fiscal year with royalty income from TEL computed at the
reduced rate.
The Company has two license agreements with Sumitomo. Under one agreement,
Lam granted Sumitomo an exclusive license for the manufacture and sale of
certain Rainbow etch systems in the Japanese market. Under the other
agreement, Sumitomo granted the Company an exclusive license for the
manufacture and sale of Sumitomo's ECR systems in North America and Europe.
ITEM 2. PROPERTIES
The Company's executive offices and principal manufacturing and R&D
facilities are located in over 20 buildings in Fremont, San Jose and Milpitas,
California occupying over 1,600,000 square feet under leases expiring from
1998 to 2020. As a result of the restructuring of operations, the Company has
excess capacity and has consolidated and subleased most of its idle facilities
in Fremont, California. The Company also operates a research and manufacturing
facility in Wilmington, Massachusetts.
In addition, the Company leases office space for its service and sales
personnel throughout the United States, Europe, Japan and Asia Pacific. In
July 1995, the Company completed, construction of a 40,000 square foot
manufacturing, sales and service facility in CheonAn, South Korea. In fiscal
1996, the Company expanded its current facility in Sagamihara, Japan by
building a third floor on an existing building and in fiscal 1997 completed
the construction of the second facility.
The Company's fiscal 1997 rental payments for the facilities occupied as of
June 30, 1997 aggregated approximately $45.7 million and are subject to
periodic increases. The Company believes that its existing facilities are well
maintained and in good operating condition.
ITEM 3. LEGAL PROCEEDINGS
In October 1993, Varian Associates, Inc. (Varian) brought suit against the
Company in the United States District Court, for the Northern District of
California, seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by Varian. The lawsuit
is in the late stages of discovery and has been reassigned to a new judge. The
trial date has been set for March 1998. The Company has asserted defenses of
invalidity and unenforceability of the patents that are the subject of the
lawsuit, as well as noninfringement of such patents by the Company's products.
While litigation is subject to inherent uncertainties and no assurance can be
given that the Company will prevail in such litigation or will obtain a
license under such patents on commercially reasonable terms, or at all, if
such patents are held valid and infringed by the Company's products, the
Company believes that the Varian lawsuit will not have a material adverse
effect on the Company's consolidated financial statements.
10
In addition, the Company is from time to time notified by various parties
that it may be in violation of certain patents. In such cases, it is the
Company's intention to seek negotiated licenses where it is considered
appropriate. The outcome of these matters will not, in management's opinion,
have a material impact on the Company's consolidated financial position,
operating results or cash flow statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the
Company's 1997 Annual Report to Stockholders under the heading "Selected
Financial Data" on page 12.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
Company's 1997 Annual Report to Stockholders under the heading "Selected
Financial Data" on page 12.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
Company's 1997 Annual Report to Stockholders under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 13-21.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements required by this Item are incorporated
by reference to pages 22-36 of the Company's 1997 Annual Report to
Stockholders. The unaudited quarterly results of operations are incorporated
by reference to page 12 of the Company's 1997 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the Proxy Statement)
for its Annual Meeting of Stockholders to be held November 7, 1997, and
certain information included therein is incorporated herein by reference. (The
Compensation Committee Report and the stock performance graph of the
Registrant's Proxy Statement are expressly not incorporated by reference
herein.)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to "Election of Directors" in the Company's Proxy
Statement.
11
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, are as follows:
Roger D. Emerick joined the Company in 1982 as President, Chief Executive
Officer and a Director. In 1984, he was elected Chairman of the Board. Mr.
Emerick is currently a director of Electroglas, Inc., Brooks Automation, Inc.,
and Semiconductor Equipment and Materials International. From 1980 to 1982, he
was Senior Vice President of Optical Specialties, Inc., which markets
automated visual wafer inspection equipment for the semiconductor industry.
James W. Bagley became Chief Executive Officer and a Director of Lam upon
consummation of the Merger. Mr. Bagley currently is a director of KLA-Tencor
Corporation, Teradyne, Inc., Kulicke & Soffe Industries, Inc. and Micron
Technology, Inc. From June 1996 to August 1997, Mr. Bagley served as Chairman
of the Board and Chief Executive Officer of OnTrak. Prior to joining OnTrak,
Mr. Bagley was employed by Applied Materials, Inc. for 15 years in various
senior management positions, most recently as Chief Operating Officer and Vice
Chairman of the Board. Mr. Bagley held various management positions at Texas
Instruments, Inc. before he joined Applied Materials, Inc.
Hsui-Sheng (Way) Tu joined the Company in 1983 and has held various
positions with the Company. In 1996, Mr. Tu was named President of Lam. In
1994, Mr. Tu was named Vice President of the Oxide Etch Business Unit. In
1992, he was named Vice President of Asian Operations. Before joining the
Company, Mr. Tu was Process Engineering Supervisor for Fairchild
Semiconductor.
Stephen G. Newberry joined the Company in August 1997 as Executive Vice
President and Chief Operating Officer. Previously, he was employed by Applied
Materials, Inc. for 17 years, most recently as Group Vice President of Global
Operations and Planning. From 1990 to 1992, Mr. Newberry served as Vice
President of Applied Materials Japan and was responsible for Customer Service,
Engineering and Manufacturing. Upon his return to the United States, Mr.
Newberry served in a variety of executive management positions at Applied
Materials, Inc.
Mercedes Johnson joined the Company in April 1997. She was formerly Vice
President and Worldwide Operations Controller of Applied Materials, Inc. where
she also served as Division Controller of Etch Products Division, Manager of
International Treasury, Director and Senior Controller for CVD and Etch
Technologies Group, and Senior Director and Worldwide Business Operations
Controller. Prior to joining Applied Materials, Inc., Ms. Johnson held senior
finance and controller positions at Nanometrics, Inc., NCR Corporation and
Hewlett-Packard Company.
Alexander M. Voshchenkov, Ph.D. joined the Company in 1993 as Vice President
and Chief Technical Officer. Before joining the Company and since 1972, Dr.
Voshchenkov was a Member of the Technical Staff at
12
AT&T Bell Labs, serving in various research and managerial positions. His most
recent position was as Supervisor of the High Speed Electronics Department.
Raymond L. Degner, Ph.D. joined the Company in 1984 as Vice President of
Engineering. In April 1997, Dr. Degner became the senior executive in charge
of Lam's Flat Panel Display Division. In August 1996, he was named Senior Vice
President of Etch Products. In 1992, Dr. Degner was appointed Vice President
of the Poly Etch Business Unit. In 1989, he was named Vice President of
Research and Development. From 1983 to 1984, he served as Director of
Development for Silicon Valley Group, a semiconductor equipment manufacturer.
Robert C. Fink joined the Company in 1993 as Vice President and Chief
Operating Officer. In August 1997, he was named Senior Vice President,
Administration. Between 1993 and 1997, Mr. Fink held various senior management
positions within Lam. Mr. Fink is currently a Director of SEMI/SEMATECH,
Uniphase Corporation and Consilium Inc. Prior to joining Lam, Mr. Fink held
various senior management positions in the semiconductor industry, including
serving as President of Drytek, Inc. from 1988 to 1993.
Thomas O. Yep, Ph.D. joined the Company in 1985 as Director of Process
Technology. In August 1996, Dr. Yep was named Senior Vice President of the CVD
Products and Japan. In 1992, he was named Vice President of the Metal Etch
Business Unit. In 1989, Dr. Yep was named Vice President of Process
Technology. Before joining the Company and since 1980, he served as Manager
for the plasma etch and thin film program at Intel Corporation. From 1969 to
1980, Dr. Yep served as a solid-state physicist at Varian Central Research.
George R. Canavan joined the Company in December 1994 as Director of
Business Development for the Oxide Etch Business Unit. In August 1996, he was
named Vice President of Marketing. In December 1995, he was promoted to Vice
President of Oxide Etch Business Unit. Prior to joining Lam, Mr. Canavan spent
three years at Applied Materials, Inc. as global marketing manager and two
years as Vice President of Sales and Marketing at ADVANTAGE Production
Technology Inc. Prior to that he held various marketing positions at Applied
Materials, Inc., and engineering and operations positions at Amdahl
Corporation and National Semiconductor Corp.
Rick P. Friedman joined the Company in 1993 as Director of Strategic
Development in Lam's Wilmington, Massachusetts facility. In February 1996, he
was promoted to Vice President of Worldwide Sales and Service. In 1995, Mr.
Friedman was promoted to Vice President of North America Sales and Service.
Prior to that he was Director of Western Region Sales and Service. Before
joining Lam, he held various positions at Drytek, Inc. His most recent
position at Drytek, Inc. was North American sales manager.
Richard H. Lovgren joined the Company in 1995 as Vice President, General
Counsel and Corporate Secretary. Before joining the Company and since 1979,
Mr. Lovgren held various legal positions at Advanced Micro Devices, Inc. His
most recent position at Advanced Micro Devices, Inc. was Director and Deputy
General Counsel.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation and Other
Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Election of Directors" and
"Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Relationships and Related
Transactions."
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14
LAM RESEARCH CORPORATION
INDEX TO FINANCIAL STATEMENTS
--------
* Incorporated by reference to the Company's 1997 Annual Report to
Stockholders.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Lam Research Corporation
/s/ Roger D. Emerick
By___________________________________
Roger D. Emerick,
Chairman of the Board
Dated: September 26, 1997
16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roger D. Emerick and Mercedes Johnson, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report of Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF
OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Roger D. Emerick Chairman of the September 26,
------------------------------------- Board 1997
ROGER D. EMERICK
/s/ James W. Bagley Chief Executive September 26,
------------------------------------- Officer, Director 1997
JAMES W. BAGLEY
/s/ Mercedes Johnson Vice President, September 26,
------------------------------------- Finance and Chief 1997
MERCEDES JOHNSON Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ David G. Arscott Director September 26,
------------------------------------- 1997
DAVID G. ARSCOTT
/s/ Richard J. Elkus, Jr. Director September 26,
------------------------------------- 1997
RICHARD J. ELKUS, JR.
/s/ Jack R. Harris Director September 26,
------------------------------------- 1997
JACK R. HARRIS
/s/ Grant M. Inman Director September 26,
------------------------------------- 1997
GRANT M. INMAN
/s/ Osamu Kano Director September 26,
------------------------------------- 1997
OSAMU KANO
17
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
LAM RESEARCH CORPORATION
--------
(1) Included in the Balance Sheet under the caption "Other assets." Represents
allowance relating to the write-off of certain at-risk receivables.
(2) Represents write-off of bad debt relating to certain at-risk receivables.
(3) Represents related installation and warranty.
(4) Represents specific customer accounts written-off.
18
LAM RESEARCH CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
EXHIBIT INDEX
19
--------
(1) Incorporated by reference to Post Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-8 (No. 33-32160) filed with
the Securities and Exchange Commission on May 10, 1990.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 3, 1988.
(3) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1989.
(4) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1991.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995.
(7) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1995.
(8) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
(9) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(10) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996
(11) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
(12) Incorporated by reference to Registrant's Report on Form 8-K dated
February 4, 1997.
(13) Incorporated by reference to Registrant's Report on Form 8-K dated March
31, 1997.
(14) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(15) Incorporated by reference to Registrant's Report on Form S-4 dated July
1, 1997.
20