Back to GetFilings.com

Table of Contents

UNITED STATES

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended June 29, 2003

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______ TO _______

Commission file number 0-12933

LAM RESEARCH CORPORATION

4650 Cushing Parkway

(510) 572-0200

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 $0.001 Per Share

(Title of Class)

     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. [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]   No [  ]

     The aggregate market value of the Registrant’s Common Stock, $0.001 par value, held by non-affiliates of the Registrant, as of December 27, 2002, the last business day of the second fiscal quarter was $914,250,412. Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock has 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 of such status for other purposes.

     As of September 16, 2003, the Registrant had 129,543,254 outstanding shares of Common Stock.

Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE

     Parts of Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on November 6, 2003 are incorporated by reference into Part III of this Form 10-K Report. (The Report of the Audit Committee, Compensation Committee, and the Comparative Stock Performance graph of the Registrant’s Proxy Statement are expressly not incorporated by reference herein.)

Table of Contents

LAM RESEARCH CORPORATION

1

Table of Contents

PART I

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. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, competitiveness, gross margins, levels of research and development (R&D), outsourcing plans and operating expenses, our management’s plans and objectives for our current and future operations, the effects of our restructurings and consolidation of operations and facilities, our ability to complete contemplated restructurings or consolidations on time or within anticipated costs, the levels of customer spending or R&D activities, general economic conditions, and the sufficiency of financial resources to support future operations 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 those discussed below and under the heading “Risk Factors” within the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other documents we file from time to time with the Securities and Exchange Commission such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and of information currently and reasonably known. 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 which occur after the date hereof or to reflect the occurrence or effect of anticipated or unanticipated events. All references to fiscal years apply to our fiscal years, which ended June 29, 2003, June 30, 2002, and June 24, 2001.

Item 1. Business

     Lam Research Corporation (Lam or the Company), a Delaware corporation, was founded in 1980 and is headquartered in Fremont, California. The mailing address for our principal executive offices is 4650 Cushing Parkway, Fremont, California 94538, and our telephone number is (510) 572-0200. Additional information about Lam is available on our web site at http://www.lamrc.com. Our Forms 10-K, Forms 10-Q, and Forms 8-K are available online at the Securities and Exchange Commission (SEC) web site on the Internet. The address of that site is http://www.sec.gov. We also make available free of charge the Forms 10-K, Forms 10-Q, and Forms 8-K and amendments to those reports on our corporate web site at http://www.lamrc.com, as soon as reasonably practicable after we electronically file the reports with, or furnish them to, the SEC.

     We design, manufacture, market, and service semiconductor processing equipment used in the fabrication of integrated circuits and are recognized as a major supplier of such equipment to the worldwide semiconductor industry. Semiconductor wafers are subjected to a complex series of process steps that result in the simultaneous creation of many individual integrated circuits. Our etch and chemical mechanical planarization (CMP) products selectively remove portions of various films from the wafer to create semiconductors. We leverage our expertise in these areas to also develop

2

Table of Contents

intellectual property (IP) for integrated processing solutions.

     Etch processes, which are repeated numerous times during the wafer fabrication cycle, are required to manufacture every type of semiconductor device produced today. Our current range of etch systems employ Lam’s TCP^® high density and Dual Frequency Confined^TM (DFC^TM) medium density plasma sources to etch device features at current generation geometries and smaller than 100 nanometers (nm) in size.

     CMP products are used to planarize the surface of the wafer to prepare it for further processing. Our Teres^® CMP products utilize a linear planarization technology for manufacturing complex integrated circuits with features 0.13 microns (130 nm) and smaller with multiple metal layers. Our 200/300-mm CMP systems provide integrated polishing and post-CMP cleaning solutions.

Etch Process

     The etch process defines linewidths and other microscopic features on integrated circuits. Plasma etching was developed to meet the demand for device geometries smaller than 3 microns. Plasma consists of ions and neutral species that react with exposed portions of the wafer surface to remove dielectric, metal, or polysilicon material and produce the finely delineated features and patterns of an integrated circuit.

     Advanced integrated circuit manufacturing requires etch systems capable of creating 0.13-micron features for current-generation products and below 100 nm for future semiconductor products. The trend toward feature sizes in the 100-nm range accompanies a transition from aluminum to copper conductive lines for faster device processing speeds. Subsequent feature size reductions below 100 nm will begin to integrate more fragile insulating dielectric materials (low k and porous low k) in between conductive lines. In addition to continually shrinking feature sizes, advanced manufacturing facilities are now producing integrated circuits on 200-mm (8-inch) silicon wafers as well as on wafer diameters of 300 mm (12 inch). To accommodate these decreasing linewidths and increasing wafer diameters, semiconductor manufacturers will continue to require more precise control over the etching process.

     Several of our etch products are available as standalone (one chamber) systems or as clusters (multi-chamber systems) using the Alliance^® or 2300^TM Etch Series platforms.

Dielectric Etch Products

     4520 Series Systems. The 4520 system processes wafer sizes up to 200 mm.

     4520XLE^TM System. The 4520XLE system introduced Lam’s proprietary DFC plasma technology, which reduces plasma volume and sidewall polymer accumulation for cleaner, low-cost operation. Additionally, it offers a wider process window than the 4520 system with capability to etch geometries below 0.18 microns.

     Exelan^®, Exelan^® High Performance, Exelan^® HPT, and 2300 Exelan^® Systems. The Exelan family of products extends DFC technology to create smaller feature sizes and mixes sequential etch process steps in the same chamber. These integrated capabilities developed by Lam improve productivity and lower the cost of ownership for our customers. Exelan was introduced in July 1999 to define the structures required for manufacturing copper conductive lines in semiconductors utilizing traditional insulating dielectric films. Exelan High Performance, introduced in 2001, extends Exelan’s capabilities for etching newer low k insulating dielectric films. Exelan HPT, introduced early in 2002, targets sub-0.13 micron geometries.

     The 2300 Exelan system addresses process requirements down to sub-65 nm for 200-mm and 300-mm wafer sizes. Process chambers can be converted within our customers’ fabrication

3

Table of Contents

facilities from 200 mm to 300 mm, which has the advantage of providing greater flexibility and lowering costs. This capability, combined with an overall system footprint comparable to 200-mm systems, allows semiconductor manufacturers to develop integrated circuits using 200-mm wafers instead of expensive 300-mm wafers and later scale up to 300-mm wafer processing.

Conductor Etch Products

     TCP^® 9400 and TCP^® 9600 Series and 2300 Versys^TM Series Systems. The first TCP products were introduced in late 1992. They use Lam’s patented Transformer Coupled Plasma source technology, a high-density, low-pressure plasma source that can etch features well below 100 nm. For 200-mm wafer sizes, we offer the TCP^® 9400PTX and TCP^® 9400DFM for silicon etch applications and the TCP^® 9600PTX and TCP^® 9600DFM for metal etch applications. These systems are used in the production of a broad range of advanced logic and memory devices with feature sizes below 0.13 microns.

     The 2300 Versys system for etching silicon and metal films employs a scaled design of TCP technology to address leading-edge device structure requirements. The 2300 Versys system has the capability to process 200- or 300-mm wafer sizes. The 2300 Versys Star^TM silicon etch system enables sequential step tuning of gas flow and wafer temperature, which provides the critical dimension uniformity required for geometries down to sub-65 nm.

CMP and CMP Wafer Cleaning Processes

     With increasingly smaller geometries, more layers are required to connect the individual devices of an integrated circuit. Each additional layer exaggerates the uneven topography of the previous ones. This effect creates a depth-of-focus problem for subsequent photolithographic steps, which diminishes the precision of the linewidth dimensions. The CMP process removes excess material from the wafer surface by a combination of chemical and abrasive actions to provide a flatter surface, improving photolithography results. Additionally, CMP processes are required for the creation of copper conductive lines. Removing the residue of the abrasive and chemical materials used in CMP requires special cleaning techniques following processing.

CMP with Integrated Clean Products

     Teres and 200/300-mm CMP systems. We offer 200-mm Teres and 200/300-mm CMP systems with integrated Synergy^TM based cleaning systems. These tools target advanced copper/low k and shallow trench isolation (STI) applications as well as high-productivity interlayer dielectric (ILD) processes. The systems incorporate our Linear Planarization Technology^TM (LPT^TM), which uses a high-speed belt combined with patented air-bearing platen capability. These features achieve uniformity control across the wafer surface by changing the shape of the belt (pad) using air pressure. Independent zones can be adjusted to change the pad pressure instead of bending the wafer backside so that expensive 300-mm wafers and fragile multi-layer low k film stacks are not unnecessarily stressed during processing.

Standalone Clean Products

     Synergy. Synergy products combine DSS^® technology and Chemical Mechanical Cleaning^TM (CMC^TM) technology to perform mechanical and chemical cleaning in a single-step process. The Synergy Integra^TM incorporates Synergy’s cleaning technology with a platform that can be integrated with other suppliers’ polishing systems. Certain integrated systems in the industry are the result of development relationships between Lam and other polishing vendors. In addition to handling the clean step following CMP applications, the Synergy standalone clean system is used to clean wafers both before and after a range of semiconductor processing steps.

4

Table of Contents

Lam, 2300, 4520XLE, Chemical Mechanical Cleaning, CMC, DFC, Dual Frequency Confined, Lam Research, Linear Planarization Technology, LPT, Synergy, Synergy Integra, Transformer Coupled Plasma, Versys, and Versys Star are trademarks of Lam Research Corporation. 2300 Exelan, Alliance, DSS, Exelan, Exelan High Performance, Exelan HPT, the Lam Research logo, TCP, TCP 9400, TCP 9400DFM, TCP 9400PTX, TCP 9600, TCP 9600DFM, TCP 9600PTX, and Teres are registered trademarks of Lam Research Corporation.

Research and Development

     The market for semiconductor capital equipment is characterized by rapid technological change and product innovation. Our ability to maintain competitive advantage depends in part on our continued and timely development of new products and enhancements to existing products. Accordingly, we devote a significant portion of our personnel and financial resources to R&D programs and seek to maintain close relationships with our customers and be responsive to their wafer processing needs.

     Our R&D expenses during fiscal 2003, 2002, and 2001 were $160.5 million, $179.2 million, and $227.2 million, respectively, and represented 21.3%, 19.0%, and 15.0% of total revenue, respectively. Expenditures are targeted at continued development of advanced etch, CMP and post-CMP clean applications and enhancements to our existing products, including developing the technology necessary to support our customers’ transition to smaller feature sizes, (90 nm and 65 nm), new materials, copper-based devices, and 300-mm wafers.

     We expect to continue to make substantial investments in R&D to meet our customers’ product needs and enhance our competitive position.

Marketing, Sales, and Service

     Our marketing and sales efforts are focused on building long-term relationships with our customers. These efforts are supported by a team of product marketing and sales professionals as well as equipment and process engineers that work closely with individual customers to develop solutions to their processing needs. We maintain ongoing support relationships with our customers and have an extensive network of field service personnel in place throughout the United States, Europe, Japan, and Asia Pacific. We believe that comprehensive support programs and close working relationships with customers are essential to maintaining high customer satisfaction and our competitiveness in the marketplace. We have 37 sales and support centers around the world, through which technical personnel sell and/or service our products.

     We provide standard warranties for our systems that run generally for a period of 12 months from system acceptance, not to exceed 14 months from shipment of the system to the customer. The warranty provides that systems shall be free from defects in material and workmanship and conform to our published specifications. The warranty is limited to repair of the defect or replacement with new or like-new equivalent goods and is valid when the buyer provides prompt notification within the warranty period of the claimed defect or non-conformity and also makes the items available for inspection and repair. We make comprehensive warranty packages on all released products available to our customers.

Export Sales

     Export sales accounted for approximately 47%, 44%, and 50% of our net sales in fiscal 2003, 2002, and 2001, respectively. Export sales consist of sales from any of our U.S. operating subsidiaries to non-affiliated customers outside the U.S. As a result, a significant portion of our sales and operations may be subject to certain risks, including tariffs and other barriers, difficulties

5

Table of Contents

in staffing and managing non-U.S. subsidiary and branch operations, potentially adverse tax consequences, exchange rate fluctuations, and the potential for difficulty in accounts receivable collection. There can be no assurance that any of these factors will not have a material adverse effect on our business, financial position, and results of operations and cash flows. Refer to Note 20 of our Consolidated Financial Statements, included in Item 8 herein, for further information concerning export sales.

Customers

     Our customers include many of the world’s leading semiconductor manufacturers. In fiscal year 2003, revenues from Samsung Electronics Company, Ltd., accounted for approximately 15% of total revenues, and, in fiscal year 2001, revenues from STMicroelectronics accounted for approximately 15% of our total revenue. No individual customer accounted for more than 10% of our total revenue in fiscal 2002.

     A material reduction in orders from several of our customers, due to market or business conditions in the semiconductor industry could adversely affect our results of operations and projected financial condition. Our 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. Beginning in the second half of fiscal 2001, a slowing U.S. economy and worldwide decline in demand for integrated circuits resulted in excess capacity in the semiconductor industry and a severe contraction of the manufacturing equipment market. Our customers reduced their level of capital expenditures, which caused a steep decline in demand for our products in fiscal 2002, and demand has remained relatively flat during fiscal 2003 due to our customers’ continuing cautious posture about their levels of capital expenditures.

Backlog

     Company backlog includes orders for systems, spares, and services where written customer requests have been accepted and the delivery of products or provision of services is anticipated within the next 12 months. Our policy is to make adjustments to our backlog to reflect, among other things, customer delivery date changes as well as order cancellations. We schedule production of our systems based upon purchase orders in backlog and our customers’ delivery requirements. Included in our systems backlog are orders for which written requests have been accepted, prices have been agreed upon, and shipment of systems is expected within one year. The spares and services backlog includes customer orders for products that have not yet shipped and for services that have not yet been provided. Where specific customer service and spare parts purchase contracts do not contain specific delivery dates, we use volume estimates at the contract price and over the contract period, not exceeding 12 months, in calculating backlog amounts.

     As of June 29, 2003 and June 30, 2002, our backlog was approximately $239 million and $287 million, respectively. Generally, orders for our products and services are subject to cancellation by our customers with limited penalties. Because some orders are received for shipments in the same quarter and due to possible customer changes in delivery dates and cancellations of orders, our backlog at any particular date is not necessarily indicative of actual revenues for succeeding periods.

Manufacturing

     Our manufacturing operations consist mainly of assembling and testing components and modules that are then integrated into finished systems. We are seeing the effects of our outsourcing programs, as certain system assemblies and modules are now received by us from third

6

Table of Contents

party providers to be incorporated by us into system builds. Most of the assembly and testing of our products is conducted in cleanroom environments. Although infrequent, prior to shipping a completed system, customer representatives may perform system acceptance tests at our facility.

     Beginning in fiscal 2002 and continuing in fiscal 2003, we entered into agreements with third parties to outsource certain elements of our manufacturing, production warehousing, and logistics functions. We believe that entering into these outsourcing contracts will provide us more flexibility to scale our operations up and down in a more timely and cost effective manner, enabling us to respond to the cyclical nature of our business. We believe that we have selected reputable providers and are securing their performance on terms documented in written contracts. However, it is possible that one or more of these providers could fail to perform as we expect, and such failure could have an adverse impact on our business. In addition, the expanded role of outsource providers has required us to implement changes to our existing supply chain management operations and to adopt new procedures to manage effectively the performance of those outsource providers. We believe that we have implemented adequate oversight procedures. Even so, any delay or failure in the implementation of our operational changes could adversely affect our customer relationships and have a negative effect on our operating results and financial condition. Refer to Note 17 of our Consolidated Financial Statements, included in Item 8 herein, for further information concerning our outsourcing commitments.

     As is often the case in the high technology industry, due to limited availability of suppliers of certain proprietary or patented technologies, certain of the components and subassemblies included in our products are obtained from a single supplier or a limited group of suppliers. We believe that, in many cases, alternative sources could be obtained and qualified to supply these products. Nevertheless, a prolonged inability to obtain certain components could have an adverse short-term effect on our operating results and could unfavorably impact our customer relationships.

Environmental Matters

     We are subject to a variety of governmental regulations related to the management of hazardous materials. We are currently not aware of any pending notices of violation, fines, lawsuits, or investigations arising from environmental matters that would have any material effect on our business. We believe that we are in general compliance with these regulations and that we have obtained (or will obtain or are otherwise addressing) all necessary environmental permits to conduct our business. Nevertheless, the failure to comply with present or future regulations could result in fines being imposed on us, suspension of production, cessation of our operations or reduction in our customers’ acceptance of our products. These regulations could require us to alter our current operations, to acquire significant equipment, or to incur substantial other expenses to comply with environmental regulations. Our failure to control the use, sale, transport or disposal of hazardous substances could subject us to future liabilities.

Employees

     As of September 16, 2003, we had approximately 2,100 regular full-time employees.

     Each of our employees signs an agreement to maintain the confidentiality of our proprietary information, and most of our employees have stock or stock option arrangements with us that generally provide for the vesting of their options over multiple years.

     In the semiconductor and semiconductor equipment industries, competition for highly skilled employees is intense. Our future success depends to a significant extent upon our continued ability to attract and retain qualified employees, particularly in the R&D and customer support functions. We believe that the ability to offer compensation in the form of stock options is an

7

Table of Contents

important component of our key-employee retention programs.

Competition

     The semiconductor capital equipment industry is characterized by rapid change and is highly competitive throughout the world. In order to compete effectively, we must invest significant financial resources to offer a broad range of products, to maintain customer service and support centers globally, and to develop enhanced product capabilities. Semiconductor manufacturers will evaluate equipment suppliers in many areas, including, but not limited to, process performance, productivity, customer support, defect control, and overall cost of ownership, which can be affected by many factors such as equipment design, reliability, software automation, etc. Our ability to succeed in the marketplace will depend upon our ability to introduce product enhancements and new products on a timely basis. In addition, semiconductor manufacturers must make a substantial investment to qualify and integrate new processing equipment into a semiconductor production line. As a result, once a semiconductor manufacturer has selected a particular supplier’s tool set and qualified it for production, the manufacturer generally maintains that selection for that specific production application. Accordingly, we may experience difficulty in selling to a given customer if that customer has qualified a competitor’s system.

     We face significant competition with all of our products. Certain of our existing and potential competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer service and support organizations. We expect our competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with enhanced price performance characteristics. If our competitors make acquisitions or enter into strategic relationships with leading semiconductor manufacturers covering etch or products similar to those we sell, our ability to sell our products to those customers could be adversely affected. There can be no assurance that we will continue to compete successfully in the future. Our primary competitors in the etch market are Applied Materials, Inc. and Tokyo Electron Limited. Our CMP integrated polishing system faces significant competition from Applied Materials, Inc., Ebara Corp., and Novellus Systems, Inc.

Patents and Licenses

     Our policy is to seek patents on inventions relating to new or enhanced products and processes developed as part of our ongoing research, engineering, manufacturing, and support activities. We hold United States patents and corresponding non-U.S. patents covering various aspects of our products and processes. We believe that the duration of our patents generally exceeds the useful life of the technologies and processes disclosed and claimed therein. Our patents, which cover material aspects of our past and present core products, have current durations ranging from approximately 6 to 17 years. We believe that, although the patents we own and may obtain in the future will be of value, they will not alone determine our success, which depends principally upon our engineering, marketing, support, and delivery skills. However, in the absence of patent protection, we may be vulnerable to competitors who attempt to imitate our products, manufacturing techniques, and processes. In addition, other companies and inventors may receive patents that contain claims applicable or similar to our products and processes. The sale of products covered by patents of others could require licenses that may not be available on acceptable terms, or at all.

     From time to time, we have received notices from third parties alleging infringement of such parties’ patent or other intellectual property rights by our products. In such cases, it is our policy to defend the claims, or if considered appropriate, negotiate licenses on commercially reasonable terms. However, no assurance can be given that we will be able, in the future, to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from

8

Table of Contents

such claims would not have a material adverse effect on our business and financial results. For further discussion of legal matters, see Item 3, “Legal Proceedings,” of this Form 10-K.

Other Cautionary Statements

     See the discussion of risks in the section of this report entitled Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

EXECUTIVE OFFICERS OF THE COMPANY

     As of September 16, 2003, the executive officers of Lam, who are elected by and serve at the discretion of the Board of Directors, were as follows:

     James W. Bagley became Chief Executive Officer and a Director of Lam upon consummation of the merger with OnTrak Systems, Inc., in 1997. Effective September 1, 1998, Mr. Bagley was appointed Chairman of the Board of Lam. Mr. Bagley currently is a director of Teradyne, Inc., Micron Technology, Inc., and Wind River Systems, Inc. From June 1996 to August 1997, Mr. Bagley served as Chairman of the Board and Chief Executive Officer of OnTrak Systems, Inc. He was formerly Chief Operating Officer and Vice Chairman of the Board of Applied Materials, Inc., where he also served in other senior executive positions during his 15-year tenure. Mr. Bagley held various management positions at Texas Instruments, Inc., before he joined Applied Materials, Inc.

     Stephen G. Newberry joined the Company in August 1997 as Executive Vice President and Chief Operating Officer. In July 1998, Mr. Newberry was promoted to President of Lam. Mr. Newberry currently is a director on the board of Nextest Systems Corporation. 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 activities in that region. 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 and was appointed Chief Financial Officer in May 1997. She was formerly Vice President and Worldwide Operations Controller of Applied Materials, Inc., where she also served in several senior financial management positions since 1986. Prior to joining Applied Materials, Inc., Ms. Johnson held managerial and controller positions at Nanometrics, Inc., NCR Corporation, and Hewlett-Packard Company.

9

Table of Contents

     Nicolas J. Bright joined the Company in May 1998 as Vice President of Technology and Engineering. He currently holds the position of Senior Vice President and General Manager, Global Products. Prior to joining Lam, Mr. Bright was employed by Applied Materials, Inc. During his 16-year tenure at that firm, Mr. Bright held senior management positions in engineering and technology within etch, ion implant, and automation business units. He has also held positions at General Electric Co. in the United Kingdom and ABB in Sweden. Mr. Bright holds numerous patents in semiconductor manufacturing disciplines.

     Steven A. Lindsay, Vice President of Global Field Operations and Corporate Marketing since November 2001, joined the Company in September 1999 as Vice President of Corporate Marketing. Previously, Mr. Lindsay was employed by Applied Materials, Inc., where, during his 22-year tenure, he held numerous senior management positions in sales and marketing. Most recently, he was President, Applied Materials North America and Group Vice President, Applied Materials, Inc. He has also held sales management positions at Fairchild Semiconductor and ITT Semiconductor.

     Ernest Maddock, Vice President of the Customer Support Business Group, joined the Company in November 1997. Mr. Maddock’s previously held positions include Managing Director, Global Logistics and Repair Services Operations, and Chief Financial Officer, Software Products Division, of NCR Corporation. He has also held a variety of executive roles in finance and operations in several industries ranging from commercial real estate to telecommunications.

Item 2. Properties

     Our executive offices and principal operating and R&D facilities are located in Fremont, California, and are under operating leases expiring from 2003 to 2008. As a result of the restructuring of our operations, we have subleased some of our idle facilities, (refer to Note 21 of our Consolidated Financial Statements, included in Item 8 herein, for further information concerning our property leases). In addition, we lease properties for our service, technical support and sales personnel throughout the United States, Europe, Japan, and Asia Pacific. Our fiscal 2003 rental payments for the space occupied during that period aggregated approximately $12.7 million, net of sublease income of $1.6 million. Our facilities lease obligations are subject to periodic increases, and we believe that our existing facilities are well maintained and in good operating condition.

Item 3. Legal Proceedings

     In September 1999, Tegal Corporation (Tegal) brought suit against us seeking monetary damages and injunctive relief based on our alleged infringement of certain patents held by Tegal. Specifically, Tegal identified our 4520XLE and Exelan products as infringing the patents Tegal is asserting. On our motion, the case was transferred to the United States District Court for the Northern District of California (the Court). In August of 2002, Tegal voluntarily dismissed its claims asserted against the 4520XLE. In January of 2003, the Court granted summary judgment on Tegal’s remaining claim asserted against the Exelan. On June 17, 2003, the Court entered a final judgment in this case, dismissing Tegal’s Exelan claim. The time for filing an appeal of the decision has now passed, and neither party filed an appeal.

     From time to time, we have received notices from third parties alleging infringement of such parties’ patent or other intellectual property rights by our products. In such cases it is our policy to defend the claims, or if considered appropriate, negotiate licenses on commercially reasonable terms. However, no assurance can be given that we will be able to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse effect on our consolidated financial position, liquidity, operating results, or our consolidated financial statements taken as a whole.

10

Table of Contents

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 from Item 6, “Selected Consolidated Financial Data,” below.

11

Table of Contents

Item 6. Selected Consolidated Financial Data

(1)

We changed our revenue recognition policy in the fourth quarter of fiscal 2001, effective June 26, 2000, based on guidance provided in Securities and Exchange Commission Staff

12

Table of Contents

			Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements.” Refer to our discussion of “Critical Accounting Policies” for additional information about our revenue recognition policy and see item (4) below.
	(2)		Restructuring charges, net exclude restructuring charges (recoveries) included in cost of goods sold and reflected in gross margin of ($1.0) million, $5.9 million, $4.0 million, and ($2.2) million, for the years ended June 29, 2003, June 30, 2002, June 24, 2001, and June 25, 2000, respectively. These amounts relate to the write-off of selected, older product line inventories in connection with our restructuring plans and the partial recovery of the charges from the subsequent sale of a portion of such inventories. These restructuring charges/(recoveries) are included as a component of cost of goods sold in accordance with Emerging Issues Task Force 96-9, “Classification of Inventory Markdowns and Other Costs Associated with a Restructuring” (EITF 96-9).
	(3)		We recorded a non-cash gain of $33.1 million (no related tax), or $0.25 per diluted share, to reflect the cumulative effect of the accounting change as of June 24, 2001, related to the adoption of Emerging Issues Task Force 00-19, “Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (EITF 00-19).
	(4)		We recorded a non-cash charge of $122.1 million, after reduction for income tax benefits of $81.4 million, or ($0.92) per diluted share, to reflect the cumulative effect of the accounting change as of June 26, 2000, related to the adoption of SAB 101.

13

Table of Contents

UNAUDITED SELECTED QUARTERLY FINANCIAL DATA