Lam Research Corporation

Lam Research Corporation Reports Financial Results for the Quarter Ended December 29, 2013

FREMONT, CA -- (Marketwired) -- 01/29/14 -- Lam Research Corp. (NASDAQ: LRCX) today announced financial results for the quarter ended December 29, 2013.

Highlights for the December 2013 quarter were as follows:

Lam Research Corporation
Financial Highlights for the Quarters Ended December 29, 2013 and September 29, 2013
(in thousands, except per share data and percentages)
U.S. GAAP
December 2013 September 2013 Change Q/Q
Revenue $ 1,116,061 $ 1,015,059 +10 %
Gross margin as percentage of revenue 43.7 % 42.5 % +120 bps
Operating margin as percentage of revenue 14.7 % 10.4 % +430 bps
Diluted EPS $ 0.87 $ 0.50 +74 %
Non-GAAP
December 2013 September 2013 Change Q/Q
Revenue $ 1,116,061 $ 1,015,059 +10 %
Gross margin as percentage of revenue 45.8 % 45.0 % +80 bps
Operating margin as percentage of revenue 18.7 % 16.2 % +250 bps
Diluted EPS $ 1.10 $ 0.81 +36 %

GAAP Financial Results
Revenue for the period was $1,116 million, gross margin was $487.8 million, or 43.7% of revenue, operating expenses were $323.3 million, and net income was $149.0 million, or $0.87 per diluted share on a GAAP basis. This compares to revenue of $1,015 million, gross margin of $431.9 million, or 42.5% of revenue, operating expenses of $326.5 million, and net income of $85.5 million, or $0.50 per diluted share, for the September 2013 quarter.

Non-GAAP Financial Results
Non-GAAP gross margin was $510.8 million, or 45.8% of revenue, non-GAAP operating expenses were $302.1 million, and non-GAAP net income was $188.7 million, or $1.10 per diluted share. This compares to non-GAAP gross margin of $456.7 million, or 45.0% of revenue, non-GAAP operating expenses of $291.9 million, and non-GAAP net income of $139.2 million, or $0.81 per diluted share, for the September 2013 quarter.

"Calendar 2013 was an extraordinary year for Lam Research, highlighted by strong operating and financial performance. Our December quarter results closed the year with record shipments, record revenues and earnings that exceeded our expectations," stated Martin Anstice, Lam Research's president and chief executive officer. "Our outlook for continued healthy levels of wafer fab equipment spending in 2014 reflects our customers' planned investments in key technology inflections tempered by their focus on maintaining balanced supply and demand. Against this industry back drop, we are further strengthening our emphasis on customer trust and improving competitiveness to reinforce the opportunities for future growth and enhanced financial performance of Lam."

Balance Sheet and Cash Flow Results
Cash and cash equivalents, short-term investments, and restricted cash and investment balances increased to $2.7 billion at the end of the December 2013 quarter compared to $2.6 billion at the end of the September 2013 quarter. This increase was primarily the result of approximately $129 million in cash flows from operating activities during the December 2013 quarter, partially offset by $48 million of stock repurchases.

Deferred revenue and deferred profit balances at the end of the December 2013 quarter increased to $405.0 million and $224.4 million, respectively, as compared to $334.0 million and $188.4 million, respectively, at the end of the September 2013 quarter. Lam's 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 from shipments to Japanese customers was approximately $53.5 million as of December 29, 2013.

Geographic Distribution
The geographic distribution of shipments and revenue during the December 2013 quarter is shown in the following table:

Region Shipments Revenue
North America 9% 13%
Europe 7% 5%
Japan 13% 17%
Korea 24% 19%
Taiwan 22% 28%
Asia Pacific 25% 18%

Outlook

For the March 2014 quarter, Lam is providing the following guidance on a non-GAAP basis:

Use of Non-GAAP Financial Results
In addition to U.S. GAAP results, this press release also contains non-GAAP financial results. The Company's non-GAAP results for both the December 2013 and September 2013 quarters exclude costs associated with the fair-value impact of acquisition-related inventory, amortization related to intangible assets acquired in the Novellus transaction, certain integration-related costs, rationalization of certain product configurations, the impairment of a long-lived asset, the amortization of convertible note discounts, and the tax benefit on successful resolution of certain tax matters. Additionally, the December 2013 quarter non-GAAP results exclude the gain on sale of an investment and the September 2013 quarter non-GAAP results excluded certain restructuring charges and the tax expense associated with legal-entity integration.

Management uses non-GAAP gross margin, operating income, operating expenses, operating margin, net income, and net income per diluted share to evaluate the Company's operating and financial results. The Company believes the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing the investors' ability to view the Company's results from management's perspective. Tables presenting reconciliations of non-GAAP results to U.S. GAAP results are included at the end of this press release and on the Company's web site at http://investor.lamresearch.com.

Caution Regarding Forward-Looking Statements
Statements made in this press release that are not of historical fact are forward-looking statements and are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, but are not limited to, the anticipated revenue from shipments to Japanese customers, our opportunities for growth, our financial performance, our wafer fab equipment spending outlook, the expected rate of investment in key technology inflections, the success of our strategies for maintaining customer trust and improving competitiveness, the support from our customers, and our guidance for shipments, revenue, gross margin, operating margin, and earnings per share. Some factors that may affect these forward-looking statements include: business conditions in the consumer electronics industry, the semiconductor industry and the overall economy; the strength of the financial performance of our existing and prospective customers; the introduction of new and innovative technologies; the occurrence and pace of technology transitions and conversions; the actions of our competitors, consumers, semiconductor companies and key suppliers and subcontractors; and the success of research and development and sales and marketing programs. These forward-looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed by us with the Securities and Exchange Commission, including specifically our report on Form 10-K for the year ended June 30, 2013 and Form 10-Q for the three months ended September 29, 2013. These uncertainties and changes could cause actual results to vary from expectations. The Company undertakes no obligation to update the information or statements made in this press release.

About Lam Research
Lam Research Corp. (NASDAQ: LRCX) is a trusted global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Lam's broad portfolio of market-leading etch, deposition, strip, and wafer cleaning solutions help customers achieve success on the wafer by enabling device features that are 1,000 times smaller than a grain of sand, resulting in smaller, faster, and more power-efficient chips. Through collaboration, continuous innovation and delivering on commitments, Lam is transforming atomic-scale engineering and enabling our customers to shape the future of technology. Based in Fremont, Calif., Lam Research is an S&P 500 ® company whose common stock trades on the NASDAQ Global Select Market under the symbol LRCX. For more information, please visit http://www.lamresearch.com .

Consolidated Financial Tables Follow.

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data and percentages)
(unaudited)
Three Months Ended Six Months Ended
December 29, September 29, December 23, December 29, December 23,
2013 2013 2012 2013 2012
Revenue $ 1,116,061 $ 1,015,059 $ 860,886 $ 2,131,120 $ 1,767,774
Cost of goods sold 628,272 583,201 545,472 1,211,473 1,118,474
Gross margin 487,789 431,858 315,414 919,647 649,300
Gross margin as a percent of revenue 43.7 % 42.5 % 36.6 % 43.2 % 36.7 %
Research and development 174,477 170,567 165,951 345,044 329,262
Selling, general and administrative 148,838 155,883 145,421 304,721 299,284
Total operating expenses 323,315 326,450 311,372 649,765 628,546
Operating income 164,474 105,408 4,042 269,882 20,754
Operating margin as a percent of revenue 14.7 % 10.4 % 0.5 % 12.7 % 1.2 %
Other expense, net (3,837 ) (14,262 ) (13,390 ) (18,099 ) (23,328 )
Income before income taxes 160,637 91,146 (9,348 ) 251,783 (2,574 )
Income tax expense (benefit) 11,645 5,640 (15,756 ) 17,285 (11,750 )
Net income $ 148,992 $ 85,506 $ 6,408 $ 234,498 $ 9,176
Net income per share:
Basic net income per share $ 0.92 $ 0.52 $ 0.04 $ 1.44 $ 0.05
Diluted net income per share $ 0.87 $ 0.50 $ 0.04 $ 1.37 $ 0.05
Number of shares used in per share calculations:
Basic 162,305 162,896 170,699 162,603 175,314
Diluted 171,757 171,363 173,027 171,592 177,490
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 29, September 29, June 30,
2013 2013 2013
(unaudited) (unaudited) (1)
ASSETS
Cash and cash equivalents $ 1,132,555 $ 1,156,184 $ 1,162,473
Short-term investments 1,389,735 1,300,031 1,334,745
Accounts receivable, net 909,720 713,524 602,624
Inventories 661,572 614,790 559,317
Deferred income taxes 17,095 29,090 27,674
Other current assets 138,359 110,633 106,996
Total current assets 4,249,036 3,924,252 3,793,829
Property and equipment, net 546,193 564,845 603,910
Restricted cash and investments 166,395 166,385 166,536
Goodwill and intangible assets 2,453,066 2,484,900 2,526,541
Other assets 141,108 149,963 159,499
Total assets $ 7,555,798 $ 7,290,345 $ 7,250,315
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 1,522,572 $ 1,402,890 $ 1,404,475
Long-term debt, convertible notes, and capital leases $ 803,276 $ 796,373 $ 789,256
Income taxes payable 248,996 248,462 246,479
Other long-term liabilities 129,710 129,306 134,313
Total liabilities 2,704,554 2,577,031 2,574,523
Senior convertible notes 185,154 186,042 186,920
Stockholders' equity (2) 4,666,090 4,527,272 4,488,872
Total liabilities and stockholders' equity $ 7,555,798 $ 7,290,345 $ 7,250,315
(1) Derived from audited financial statements
(2) Common shares issued and outstanding were 162,169 shares as of December 29, 2013, 162,217 shares as of September 29, 2013 and 162,873 shares as of June 30, 2013.
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
December 29, September 29, December 23, December 29, December 23,
2013 2013 2012 2013 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,992 $ 85,506 $ 6,408 $ 234,498 $ 9,176
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 73,552 74,331 78,388 147,883 153,204
Deferred income taxes 12,457 - (7,320 ) 12,457 (19,337 )
Impairment of long-lived asset 628 7,004 - 7,632 -
Equity-based compensation expense 23,046 23,235 24,027 46,281 48,441
Amortization of convertible note discount 8,217 8,122 7,843 16,339 15,595
Other, net (2,428 ) 4,115 14,694 1,687 25,744
Changes in operating assets and liabilities: (135,441 ) (150,388 ) 69,186 (285,829 ) 209,665
Net cash provided by operating activities 129,023 51,925 193,226 180,948 442,488
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and intangible assets (38,323 ) (23,778 ) (38,924 ) (62,101 ) (82,889 )
Cash paid for business acquisition (18,388 ) - (8,716 ) (18,388 ) (8,716 )
Net sales/maturities (purchases) of available-for-sale securities (88,754 ) 42,567 (23,250 ) (46,187 ) (39,888 )
(Issuance) repayments of notes receivable 10,000 - - 10,000 -
Proceeds from sale of assets 21,635 - 660 21,635 660
Transfer of restricted cash and investments - 150 33 150 179
Net cash provided by (used for) investing activities (113,830 ) 18,939 (70,197 ) (94,891 ) (130,654 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations (719 ) (88 ) (115 ) (807 ) (780 )
Treasury stock purchases (47,910 ) (104,285 ) (355,010 ) (152,195 ) (710,089 )
Reissuances of treasury stock related to employee stock purchase plan (35 ) 15,154 - 15,119 9,925
Proceeds from issuance of common stock 8,449 12,574 6,583 21,023 7,534
Net cash used for financing activities (40,215 ) (76,645 ) (348,542 ) (116,860 ) (693,410 )
Effect of exchange rate changes on cash 1,393 (508 ) 4,236 885 7,013
Net decrease in cash and cash equivalents (23,629 ) (6,289 ) (221,277 ) (29,918 ) (374,563 )
Cash and cash equivalents at beginning of period 1,156,184 1,162,473 1,411,466 1,162,473 1,564,752
Cash and cash equivalents at end of period $ 1,132,555 $ 1,156,184 $ 1,190,189 $ 1,132,555 $ 1,190,189
Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
Three Months Ended Three Months Ended
December 29, September 29,
2013 2013
Revenue $ 1,116,061 $ 1,015,059
Gross margin $ 510,769 $ 456,709
Gross margin as percentage of revenue 45.8 % 45.0 %
Operating expenses $ 302,103 $ 291,887
Operating income $ 208,666 $ 164,882
Operating margin as a percentage of revenue 18.7 % 16.2 %
Net income $ 188,745 $ 139,227
Net income per diluted share $ 1.10 $ 0.81
Shares used in per share calculation - diluted 171,757 171,363
Reconciliation of U.S. GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)
(unaudited)
Three Months Ended Three Months Ended
December 29, September 29,
2013 2013
U.S. GAAP net income $ 148,992 $ 85,506
Pre-tax non-GAAP items:
Amortization related to intangible assets acquired in Novellus transaction - cost of goods sold 21,491 21,480
Acquisition-related inventory fair value impact - cost of goods sold 1,225 2,047
Integration costs - cost of goods sold 264 1,324
Integration costs - operating expenses 2,785 8,063
Amortization related to intangible assets acquired in Novellus transaction - operating expenses 16,953 16,947
Restructuring charges - operating expenses - 1,705
Costs associated with rationalization of certain product configurations - operating expenses 846 844
Impairment of long lived asset - operating expenses 628 7,004
Amortization of convertible note discount, Lam notes - other expense, net 7,329 7,243
Amortization of convertible note discount, Novellus assumed notes - other expense, net 762 859
Gain on sale of investment - other expense, net (4,813 ) -
Net tax benefit on non-GAAP items (6,404 ) (11,646 )
Net tax benefit on successful resolution of certain tax matters (1,313 ) (2,286 )
Tax expense associated with legal-entity integration - 137
Non-GAAP net income $ 188,745 $ 139,227
Non-GAAP net income per diluted share $ 1.10 $ 0.81
Number of shares used for diluted per share calculation 171,757 171,363
Reconciliation of U.S. GAAP Gross Margin, Operating Expenses and Operating Income to Non-GAAP Gross Margin, Operating Expenses and Operating Income
(in thousands, except percentages)
(unaudited)
Three Months Ended Three Months Ended
December 29, September 29,
2013 2013
U.S. GAAP gross margin $ 487,789 $ 431,858
Pre-tax non-GAAP items:
Amortization related to intangible assets acquired in Novellus transaction - cost of goods sold 21,491 21,480
Acquisition-related inventory fair value impact - cost of goods sold 1,225 2,047
Integration costs - cost of goods sold 264 1,324
Non-GAAP gross margin $ 510,769 $ 456,709
U.S. GAAP gross margin as a percentage of revenue 43.7 % 42.5 %
Non-GAAP gross margin as a percentage of revenue 45.8 % 45.0 %
U.S. GAAP operating expenses $ 323,315 $ 326,450
Pre-tax non-GAAP items:
Integration costs - operating expenses (2,785 ) (8,063 )
Amortization related to intangible assets acquired in Novellus transaction - operating expenses (16,953 ) (16,947 )
Restructuring charges - operating expenses - (1,705 )
Costs associated with rationalization of certain product configurations - operating expenses (846 ) (844 )
Impairment of long lived asset - operating expenses (628 ) (7,004 )
Non-GAAP operating expenses $ 302,103 $ 291,887
Non-GAAP operating income $ 208,666 $ 164,822
Non-GAAP operating margin as a percent of revenue 18.7 % 16.2 %

Lam Research Corporation Contacts:
Shanye Hudson
Investor Relations
phone: 510-572-4589
e-mail: shanye.hudson@lamresearch.com

Source: Lam Research Corporation

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