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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.

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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.)

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LAM RESEARCH CORPORATION

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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

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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

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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.

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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

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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

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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

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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

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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.

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     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.

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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.

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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

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			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.

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UNAUDITED SELECTED QUARTERLY FINANCIAL DATA

(1)

Restructuring charges, net exclude restructuring charges (recoveries) included in cost of goods sold and reflected in gross margin of ($1.0) million, and $5.9 million, for the years ended June 29, 2003 and June 30, 2002, 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 these charges from the subsequent sale of a portion of such inventories. The restructuring charges (recoveries) are included as a component of cost of goods sold in accordance with EITF 96-9.

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Stock and Dividend Information:

     Our Common Stock is traded on the Nasdaq National Market under the symbol LRCX. The price range per share is the highest and lowest bid prices, as reported by the National Association of Security Dealers, Inc., on any trading day during the respective quarter.

     As of September 16, 2003, we had 608 stockholders of record.

     In fiscal 2003 and 2002 we did not declare or pay cash dividends to our stockholders. We currently have no plans to declare and pay cash dividends.

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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 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

     Lam Research Corporation (Lam or the Company) is a major supplier of semiconductor capital equipment. Our product offerings include single-wafer plasma etch systems with a wide range of applications, CMP and CMP wafer cleaning systems, and an array of services designed to optimize the utilization of these systems by our customers.

     The semiconductor industry is cyclical in nature and has historically experienced periodic downturns and upturns. Over the past 3 business cycles, their severity has increased, and today’s leading indicators of changes in customer investment patterns are no more reliable than in prior years. Demand for our equipment can fluctuate significantly from period to period as a result of various factors, including, but not limited to, economic conditions, supply, demand, and price for semiconductors, customer capacity requirements, and our ability to develop and market competitive products. For these and other reasons, our results of operations for fiscal 2003, 2002, and 2001 may not necessarily be indicative of future operating results.

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Total Revenue

     The sequential decrease in revenue for fiscal year 2003 and fiscal year 2002 compared to fiscal year 2001 reflects our customers’ response to excess capacity in the semiconductor industry, which was significantly influenced by the continued retrenchment of the global economy and levels of end-user demand for products servicing telecommunications, computer, and consumer electronics markets. Semiconductor manufacturers have selectively invested in leading-edge technology equipment through fiscal 2003 and are in the early stages of ramping these new capabilities at production volumes. Overall, demand has remained relatively flat during fiscal 2003 as reflected in the pattern of our quarterly revenues. Our current estimate for the September 2003 quarter is for revenues to be approximately at the same levels as the June 2003 quarter revenues.

     The downturn that began in the second half of fiscal 2001 resulted in decreased revenues across nearly all product lines in fiscal 2002. The reduction in revenue for fiscal 2002 compared to fiscal 2001 was due to a worldwide decline in demand for integrated circuits which resulted in excess capacity in the semiconductor industry and severe contraction in capital investments.

     We changed our revenue recognition policy in the fourth quarter of fiscal 2001, effective June 26, 2000, based on guidance provided in SEC Staff 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. Based on the guidance provided by SAB 101, we generally recognize new systems revenue upon customer acceptance. As a result, the fiscal period in which we are able to recognize systems revenue is subject to the length of time that our customers require to evaluate the performance of our equipment to agreed standards and specifications, after system installation. Systems revenue recognition generally occurs from two to seven months after the date of shipment. Spares revenues generally are recognized on the date of shipment, and service revenues are recognized generally upon performance of the activities requested by the customer, including training, upgrades, and extended warranty support.

     Regional geographic breakdown of revenue is as follows:

     The growth of Asia Pacific revenues reflects expanded foundry operations and investments by memory chip manufacturers to lower their operating costs by introducing latest-generation manufacturing equipment.

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Gross Margin

     The increase in gross margin as a percent of total revenues of 12 percentage points in fiscal 2003 compared to fiscal 2002 was accomplished with an approximate 20 percent reduction in revenues over the same periods. We have focused on implementing strategies to outsource manufacturing activities in order to lower our breakeven point to approximately $180 million in quarterly revenues at the end of fiscal 2003. Further outsourcing of manufacturing assembly activities was accomplished throughout fiscal 2003, continuing the trend toward achieving a more variable cost structure, by establishing transaction-based pricing agreements with vendors, and, additionally enabling the elimination of infrastructure costs such as facilities. The same strategy has provided opportunities to achieve lower material and assembly costs through improved systems design and leverage from a more focused supplier base.

     The manufacturing assembly outsourcing model has required fundamental changes within the supply chain and within our business processes. One objective of this strategy is to minimize certain costs related to holding inventories and managing product lifecycles. Specifically related to this point, in fiscal 2002, we incurred incremental excess and obsolete inventory charges of $24.1 million in the second fiscal quarter of 2002, and in addition we incurred $5.9 million of inventory restructuring expenses, contributing to approximately a 450 basis points improvement in the gross margin percentage compared to fiscal 2003. The charges in fiscal 2002 reflected the known and anticipated impact of the downturn on our business at that point in time. The reduction in excess and obsolete inventory costs in fiscal 2003 reflects more stability in quarter on-quarter business levels during the year and other inventory management efforts. Our current outlook for the September 2003 quarter is for essentially flat gross margin as a percentage of revenues compared to the June 2003 quarter.

     Approximately 500 basis points of the improvement in gross margin as a percentage of revenues for fiscal 2003 compared to the corresponding period a year ago is a result of $38.8 million of charges to cost of goods sold related to a patent litigation settlement in fiscal 2002. In the second fiscal quarter of 2002, we signed a final settlement agreement in connection with a patent infringement claim by Varian Semiconductor Equipment Associates, Inc. (Varian). We agreed to pay Varian $20.0 million in cash and issued Varian a warrant to purchase 2,000,000 shares of our common stock with a fair value of $21.5 million. In connection with this settlement, we recorded a charge of $38.8 million, and the remaining amount of the settlement, $2.7 million, represented the value of future licensed use of patents we received. The $2.7 million relating to the license will continue to be amortized ratably over the subsequent 10 quarters as a charge to cost of goods sold. Accumulated amortization as of the end of fiscal 2003 was $1.6 million.

     Additionally, our restructuring plans, combined with ongoing cost management activities have supported improved utilization rates in our manufacturing operations, contributing to the improvement in gross margin as a percentage of revenue in fiscal 2003 over fiscal 2002.

     The decrease in gross margin percentage in fiscal 2002 compared to fiscal 2001 stems from

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patent litigation settlement charges and obsolete inventory charges within cost of goods sold as well as unabsorbed manufacturing overhead costs due to lower production volumes. In the second fiscal quarter of 2002, we recorded a charge for excess and obsolete inventory of $24.1 million. We recorded the charge based on the results of our customary quarterly analysis of inventories and their net realizable value based on current market conditions and forecasted customer demand for related products. This analysis highlighted limited anticipated consumption of our older generation equipment due to accelerated technological and product design changes.

Research and Development

     The reduction in absolute dollars in fiscal 2003, compared to fiscal 2002, illustrates ongoing efforts to focus expenditures primarily on the development of critical next-generation products. Spending in fiscal 2003 decreased compared to fiscal 2002 and included a reduction in employee-related expenses and supplies expenses of approximately $6 million, and lower infrastructure costs, principally reflected in reduced depreciation and amortization of another $6 million. Additionally, R&D expenses in fiscal 2002 of approximately $5 million related to impairment charges and write-downs in the value of selected laboratory equipment, which was determined to be no longer useful due to technological changes. The increase in R&D expenses as a percentage of revenues in fiscal 2003 compared to fiscal 2002 is the result of the lower sales volume in fiscal 2003.

     The decrease in R&D expenses in absolute dollars in fiscal 2002 compared to fiscal 2001 results from alignment of spending on general R&D programs with the downturn in the business cycle.

     Approximately, 60% of fiscal 2003 systems revenues are derived from products introduced over the previous two years. We believe that in order to remain competitive, we must continue to invest substantially in engineering and technology development. Accordingly, we devote a significant portion of our personnel and financial resources to these programs, which will result in sizeable levels of investment in next-generation products and enhancement of existing products.

Selling, General and Administrative

     The reduction in Selling, General and Administrative (SG&A) expenses in fiscal 2003, compared to the prior year, reflects the structural change in the targeted administrative functions that have been outsourced. Reduced salaries and benefits and supply costs have been significantly substituted with variable, largely transaction-based pricing from selected providers.

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Infrastructure rationalization, including reduced facilities, has contributed the majority of the annual cost reduction from fiscal 2002 to fiscal 2003. In addition, SG&A expenses in fiscal 2002 included a $4.2 million impairment charge related to the write-down in value of certain demonstration equipment used in sales and marketing activities, which was determined to be no longer useful due to technological changes.

     In the quarter ended December 29, 2002, we modified the contractual life of and added additional vesting requirements to one of our Chairman and Chief Executive Officer’s stock option awards. As a result of the modification, we recorded deferred stock-based compensation of $3.4 million, which is being amortized ratably over the vesting period of the modified options, or 16 quarters. As of June 29, 2003, approximately $2.8 million remained in deferred compensation within stockholders’ equity. As modified, the option award provided for accelerated vesting triggered when the Nasdaq National Market closing price of our common stock reaches or exceeds $20.00 per share. At such time when vesting is accelerated, all unvested shares will immediately vest and become exercisable, and all remaining deferred compensation would then be recognized as compensation expense within SG&A. In the quarter ended September 2003 we modified the vesting requirements to this same option award by adding a second condition to the accelerated vesting provision. Refer to the subsequent event discussion included in this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

     The decrease in absolute dollars of SG&A expenses in fiscal 2002 compared to fiscal 2001 was largely due to manpower reductions, lower incentive payments to employees, shutdown days, and other cost reduction programs in response to the contraction in our levels of revenue. The increase in SG&A expenses as a percentage of revenue for the same periods comparison was primarily the result of lower sales volume in fiscal 2002.

Restructuring Charges

     We have developed and implemented restructuring plans in response to changes in business outlook with the intent to align our cost structure with anticipated revenue levels. The frequency of our restructuring plans has been driven by the unpredictable and substantial changes in the semiconductor industry as a whole and the market for semiconductor processing equipment in particular. These dynamic changes in the semiconductor industry and our business have required multiple integrated responses, including those activities within our restructuring plans, based on the best information and industry-expert forecasts available at that point in time. Although management makes every attempt to consolidate all known restructuring activities into one plan, the extreme nature of our industry’s business cycles and the rapidly changing forecasting environment places practical limitations on achieving this objective. The implementation of restructuring activities and recognition of their impact in our financial statements does not preclude similar but unrelated actions from being necessary in future periods. We distinguish regular operating cost management activities from restructuring activities. Accounting for restructuring activities requires an evaluation of formally committed and approved plans. Restructuring activities have comparatively greater strategic significance and materiality and may involve exit activities, whereas regular cost containment activities are more tactical in nature and are rarely characterized by formal and integrated action plans or exiting a particular product, facility, or service.

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     During fiscal 2003, we incurred $14.9 million of restructuring charges, net, associated with our fiscal 2003, 2002, and 2001 restructuring plans. As of June 29, 2003, the remaining restructuring reserve consisted of approximately $11.0 million related to restructurings implemented during fiscal 2003 and approximately $8.3 million related to restructurings implemented during fiscal 2002.

Fiscal 2003 Restructuring Activities

     We have developed programs and incurred restructuring charges in response to the depressed levels of capital investment by the semiconductor industry. This situation has caused us to evaluate our revenue outlook and forecasts, employment levels, facilities utilization and outsourcing activities and the impact on manufacturing and administrative facilities. Based on these evaluations, our senior management committed to cost reduction and exit activities in the quarters ended June 29, 2003 (the June 2003 Plan), March 30, 2003 (the March 2003 Plan), and December 29, 2002 (the December 2002 Plan). Prior to the end of the June 29, 2003, March 30, 2003, and December 29, 2002 quarters, management with the proper level of authority approved specific actions under the respective Plans and communicated the severance packages to potentially impacted employees in enough detail such that the employees could determine their type and amount of benefits. None of the severance payments were contingent on employee’s future service to the Company. The termination of the impacted employees occurred as soon as practical after the restructuring plans were announced. The amount of remaining future lease payments for facilities we ceased to use and included in the restructuring charges are based on management’s estimates using known prevailing real estate market conditions at that time. Leasehold improvements relating to the vacated buildings were written off, as these items will have no future economic benefit to us and have been abandoned.

     We applied the accounting provisions of Statement of Financial Accounting Standards No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (FAS 146) to the fiscal 2003 restructuring activities as we early-adopted FAS 146 during the December 2002 quarter. Under the provisions of FAS 146, the restructuring charges for the remaining contractual lease payments, computed as the present value of remaining contractual payments less estimated sublease income, on vacated facilities were recognized in the quarter in which the Company ceased to use the facility. As a result of the fiscal 2003 restructuring activities, we expect quarterly savings in total expenses of approximately $1.0 million from the June 2003 Plan, $1.0 million from the March 2003 Plan, and $3.0 million from the December 2002 Plan. These estimated savings from the Plans’ discrete actions are primarily related to lower employee payroll, facilities, and depreciation expenses. Actual savings may vary from anticipated savings, depending upon future events and circumstances, such as differences in actual sublease income versus estimated amounts. Through June 29, 2003, we believe actual savings are largely consistent with estimated savings. However, other activities and factors may significantly

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influence our future cost structure and may offset savings from the Plans.

June 2003 Plan

     During the fourth quarter of fiscal 2003, we reduced our workforce in North America, and Europe by approximately 30 people and vacated selected sales and office facilities located in North America, Europe, and Asia determined to be no longer critical to our operations. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with approximately 80% from North America and approximately 20% from our European locations. We recorded a restructuring charge of approximately $7.6 million, consisting of $0.8 million of severance and benefits for involuntarily terminated employees, $5.7 million of charges for the present value of remaining lease payments on vacated facilities, a $1.0 million loss on the fair value of a vacated facility, and $0.2 million for the write-off of related leasehold improvements. In June 2003, two lease agreements covering four properties were amended, combined, restated, and transferred to a new lessor under a single lease structure. One of the transferred leases covered one of our vacated facilities at our Fremont, California campus. At the time of the amendment, the leased facility’s fair value was less than its original cost by approximately $1.0 million. Accordingly, this amount was recorded as a loss on the fair value of the vacated facility and included in the $6.7 million facility-related restructuring charge.

     Below is a table summarizing activity relating to the June 2003 Plan:

     The remainder of the Severance and Benefits reserve balance of $0.4 million as of June 29, 2003, is anticipated to be utilized by the end of the 2003 calendar year. The remainder of the reserve balance for Lease Payments on Vacated Facilities of $6.3 million as of June 29, 2003, is anticipated to be utilized by the end of fiscal 2008.

March 2003 Plan

     During the third quarter of fiscal 2003, we reduced our workforce in North America and Europe by approximately 50 people and vacated selected sales and office facilities located in North America determined to be no longer critical to our operations. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with the majority of the reductions in North America. We recorded a restructuring charge of approximately $4.7 million, consisting of $1.6 million of severance and benefits for involuntarily terminated employees, $2.9 million of charges for remaining lease payments on vacated facilities, and $0.2 million for the write-off of related leasehold improvements.

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Below is a table summarizing activity relating to the March 2003 Plan:

     The remainder of the Severance and Benefits reserve balance of $0.6 million as of June 29, 2003, is anticipated to be utilized by the end of the 2003 calendar year. The remainder of the reserve balance for Lease Payments on Vacated Facilities of $2.2 million as of June 29, 2003 is anticipated to be utilized by the end of fiscal 2007.

December 2002 Plan

     During the second quarter of fiscal 2003, we reduced our workforce in North America, Europe, and Asia by approximately 120 employees and vacated selected sales and office facilities located in North America, Europe, and Asia determined to be no longer critical to our operations. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company with approximately 65% from North America and approximately 35% from Asia and Europe locations. We recorded a restructuring charge of approximately $5.7 million, consisting of $3.3 million of severance and benefits for involuntarily terminated employees, $1.9 million of charges for remaining lease payments on vacated facilities, and $0.5 million for the write-off of related leasehold improvements.

     Below is a table summarizing activity relating to the December 2002 Plan:

     The remainder of the Severance and Benefits reserve balance of $0.1 million as of June 29, 2003, is anticipated to be utilized by the end of the 2003 calendar year. The remainder of the reserve balance for Lease Payments on Vacated Facilities of $1.4 million as of June 29, 2003, is anticipated to be utilized by the end of calendar year 2004.

Fiscal 2002 Restructuring Activities

     In response to the deterioration in semiconductor sales in the first half of fiscal 2002, which resulted in a contraction in outlook for the wafer fabrication equipment market and, therefore, in our revenues, our senior management committed to cost reduction and exit activities in the quarters ended December 30, 2001 (the December 2001 Plan), and September 23, 2001 (the September 2001 Plan). Prior to the end of the December 30, 2001 and September 23, 2001

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quarters, management, with the proper level of authority, approved specific actions of the respective Plans and communicated the severance packages to potentially impacted employees in enough detail such that the employees could determine their type and amount of benefits. The termination of the impacted employees occurred as soon as practical after the plans of restructuring were announced. Lease payments on vacated facilities are based on management’s estimates using prevailing real estate market conditions. We initially estimated under the plans that, given prevailing real estate market conditions at that time, it would take approximately 24 months to sublease our vacated facilities. We revised the original estimates for lease payments on vacated facilities if prevailing real estate market conditions were different than the initial estimate. Leasehold improvements and certain fixed assets relating to the vacated buildings were written off as these items have no future economic benefit to us and have been abandoned.

December 2001 Plan

     During the second fiscal quarter of 2002, we began implementing restructuring activities that included reducing our workforce by approximately 470 employees in North America, Europe, and Asia, vacating selected office and warehouse facilities at our Fremont, California campus determined to be no longer critical to our operations, and the closure of certain offices in Asia. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company with approximately 80% from North America and approximately 20% from Asia and Europe locations. We recorded a restructuring charge of approximately $33.8 million, consisting of $14.2 million of severance and benefits for involuntarily terminated employees, $9.6 million of charges for remaining lease payments on vacated facilities, and $9.9 million for the write-off of related leasehold improvements and fixed assets.

     During fiscal 2003, we recovered approximately $3.8 million of restructuring charges originally accrued under the December 2001 Plan, $2.1 million for benefits and services that were not utilized by the terminated employees, and $1.7 million related to a revision to the net amount of lease payments remaining to be paid on the vacated facilities. In addition, during fiscal 2003, we recorded approximately $3.0 million of additional restructuring charges of which $2.5 million was due to revisions we made for the length of time required to sublease two of our vacated buildings in Fremont, California that were included in the December 2001 Plan and approximately $0.1 million due to additional facility restoration costs incurred to fulfill our contractual obligations under the terms of a lease agreement. Additionally, we revised our estimates related to employee termination costs and recorded $0.4 million of additional employee termination costs.

Below is a table summarizing activity relating to the December 2001 Plan:

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     The remainder of the Severance and Benefits reserve balance as of June 29, 2003, is anticipated to be utilized by the end of the 2003 calendar year. The remainder of the reserve balance for Lease Payments on Vacated Facilities of $7.5 million as of June 29, 2003, is anticipated to be utilized by the end of fiscal 2008.

September 2001 Plan

     During the first quarter of fiscal 2002, we began implementing restructuring activities which included a reduction of approximately 550 employees in North America, Europe and Asia, vacating selected facilities at our headquarters in Fremont, California determined to be no longer critical to our operations and discontinuance of the manufacture of specific products within our etch product lines. The employees were from a broad range of organizations and at multiple levels throughout the Company, with approximately 85% from North America and 15% from Asia and Europe locations. We recorded a restructuring charge of approximately $21.0 million consisting of $10.8 million of severance and benefits for involuntarily terminated employees, $1.7 million of charges for remaining lease payments on vacated facilities, $7.6 million for discontinued inventory charges related to our decision to discontinue manufacture of specific products within our etch product lines and $0.9 million for the write-off of related leasehold improvements and fixed assets. In fiscal 2003 and 2002, we recovered approximately $1.7 million from unanticipated subsequent sales to our installed base of customers of certain portions of the inventory. In addition, in fiscal 2003 and 2002, we physically disposed of approximately $2.7 million of this inventory. We plan to disposition the remaining quantities of this discontinued, obsolete inventory by the end of the 2003 calendar year.

     During fiscal 2002, we also recovered approximately $1.0 million of the September 2001 Plan charge due to lower than estimated employee termination costs of $0.7 million and lower than estimated expenses relating to a vacated facility lease of $0.3 million. During fiscal 2003, approximately $0.9 million was recovered due to $0.6 million of lower than previously estimated employee severance and termination costs and $0.3 million was recovered due to actual expenses being lower than estimated for vacated facility leases. In addition, during fiscal 2003, we recorded additional charges for the September 2001 Plan based on a revision of our estimate of the length of time required to sublease one of our vacated buildings in Fremont, California. Based on prevailing market conditions, we extended the accrual for lease payments to the end of the lease in June 2004 and recorded an additional $0.6 million relating to these remaining lease payments.

     Below is a table summarizing activity relating to the September 2001 Plan:

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