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LAM RESEARCH CORP Annual Report, Year Ended Jun 25, 2006

Filing Date
Filed August 17, 2006
Period End
June 25, 2006
Security
LRCX
In the record · 2016–202610-K1110-Q328-K128

LRCX filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 128 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Oct ’16Oct ’16
  2. FY2019 annual report10-K · Aug ’19Aug ’19
  3. Leadership change8-K · Nov ’21Nov ’21
  4. Leadership change8-K · Nov ’25Nov ’25

01—Abstract

Summary

Summary of the 10-K filed August 17, 2006. Cited figures are marked; the original filing is the authoritative source.

Lam Research (LRCX) closed fiscal 2006 (ended June 25, 2006) with a strong year: revenue rose 9% to $1.642 billiona, gross margin held above 50% for a second straight year at 50.4%, and net income reached $335.8 million, or $2.34 diluted EPS, up from $2.10.

Operating income grew about 4% to $406.3 millionb, though operating expenses rose 13%, driven mainly by R&D (up 18% to $228.9 million, or 13.9% of revenue), SG&A, and the first full year of expensing equity-based compensation under SFAS 123R ($22.8 million). Order momentum was the most forward-looking positive: new orders rose 31% year over year and backlog climbed to roughly $521 million from $351 million, and management guided September-quarter revenue to $580–600 million with gross margin near 51.5%. The balance sheet changed meaningfully.

Cash, short-term investments and restricted cash reached about $1.5 billionc, helped by a $350 million five-year credit facility that funded a $500 million repatriation of foreign earnings under the American Jobs Creation Act. That repatriation cost a $24.2 million tax provision, and the effective tax rate was 23.9% (18.4% excluding the discrete item). The company also repurchased about $251 million of stock during the year and has $331.7 million left under its authorizations.

Accounts receivable rose sharply to $407 milliond, and working capital ran about $1.14 billion. Key risks remain typical for capital equipment: revenue depends on a small number of high-priced systems and on a few large customers (Samsung about 15% and Toshiba about 12% of revenue), roughly 86% of sales are outside the U.S., and the business is cyclical and concentrated in etch, with competition from Tokyo Electron and Applied Materials.

Management also disclosed a $75 million residual value guarantee on Fremont facility leases due in fiscal 2008. The company said its internal control over financial reporting was effective, and a $15.8 million California court judgment in its favor is expected to be recorded in the September 2006 quarter.

02—Key points

Key Highlights

  1. Revenue grew 9% to $1.642 billion in FY2006, with strong gains in Japan ($358 million, up 61%) and Korea ($367 million, up 31%)
  2. Net income rose 12% to $335.8 million, and diluted EPS reached $2.34 versus $2.10 in FY2005
  3. Gross margin was 50.4%, above 50% for a second consecutive year, though slightly down from 50.9% because of SFAS 123R expense
  4. New orders rose 31% and backlog reached about $521 million, up from $351 million a year earlier, which supports the outlook
  5. Guidance for the September 2006 quarter is revenue of $580–600 million and gross margin of about 51.5%
  6. Cash and investments reached about $1.5 billion after a $350 million credit facility funded a $500 million foreign earnings repatriation under the AJCA
  7. Customer concentration is high: Samsung (about 15%) and Toshiba (about 12%) accounted for roughly 27% of FY2006 revenue

03—Questions

Frequently Asked Questions

  1. How profitable was Lam Research in fiscal 2006 and what drove the results?

    Lam earned $335.8 million, or $2.34 per diluted share, on $1.642 billion of revenue. Growth came from higher customer demand for etch systems, along with market share gains in dielectric and conductor etch. Operating income rose to $406.3 million, although operating expenses grew 13% from higher R&D, equity compensation under SFAS 123R, and headcount. The effective tax rate was 23.9%, but it was pushed up by a one-time $24.2 million provision tied to the foreign earnings repatriation.

  2. Is demand for Lam's equipment improving, and what does the backlog indicate?

    Demand improved through the year. New orders increased 31% compared with FY2005, and growth occurred in all regions. Backlog ended at about $521 million, up from $351 million. Management expects new orders for the September 2006 quarter to rise 5–10% over June 2006 levels. Backlog is cancellable with limited penalties, so it is not a guaranteed revenue figure.

  3. What are the main risks for investors?

    The main risks are cyclicality in semiconductor capital spending, reliance on a small number of high-priced systems and large customers, and heavy international exposure (about 86% of sales). Lam also faces competition from Tokyo Electron and Applied Materials, export license requirements, and yen exchange-rate exposure, which it partly hedges. Its Fremont facilities concentrate operational risk, and it guarantees up to $75 million of residual values on those leases at the end of fiscal 2008.

  4. How did Lam change its capital structure and shareholder returns in FY2006?

    Lam took on $350 million of variable-rate debt through a credit facility, maturing in June 2011, to fund a $500 million repatriation of foreign earnings under the AJCA. It repurchased about 7.0 million shares for $251.2 million and still had $331.7 million available under its Board authorizations, which run through 2008. The company pays no cash dividends and has no plans to start.

04—Continue

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