UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

(Mark One)

For the transition period from ________to _________

Commission file number 0-12933

LAM RESEARCH CORPORATION

4650 Cushing Parkway
Fremont, California 94538

(510) 572-0200

     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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]

     As of April 27, 2004, there were 134,011,598 shares of Registrant’s Common Stock outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LAM RESEARCH CORPORATION

(1)

Derived from June 29, 2003 audited financial statements.

See Notes to Condensed Consolidated Financial Statements

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LAM RESEARCH CORPORATION

See Notes to Condensed Consolidated Financial Statements.

4

LAM RESEARCH CORPORATION

See Notes to Condensed Consolidated Financial Statements.

5

LAM RESEARCH CORPORATION

NOTE 1 — BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Lam Research Corporation (the Company or Lam) for the fiscal year ended June 29, 2003, which are included in the Annual Report on Form 10-K, File Number 0-12933. The Company’s Form 10-K, Forms 10-Q and Forms 8-K are available online at the Securities and Exchange Commission website on the Internet. The address of that site is http://www.sec.gov. The Company also posts the Form 10-K, Forms 10-Q and Forms 8-K on the corporate website at http://www.lamrc.com.

     The Company’s reporting period is a 52/53-week fiscal year. The Company’s current fiscal year will end June 27, 2004 and includes 52 weeks. The quarter ended March 28, 2004 and the quarter ended March 30, 2003 both included 13 weeks.

     Reclassifications: Certain amounts presented in the comparative financial statements for prior years have been reclassified to conform to the fiscal 2004 presentation.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

     Accounting for Revenue Arrangements with Multiple Deliverables: In November 2002, the Financial Accounting Standards Board’s (FASB) Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF 00-21). EITF 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple deliverables (products, services, and/or rights to use assets). The provisions of EITF 00-21 are applicable for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on the Company’s financial position or results of operations.

     Amendment of Statement 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), on Derivative Instruments and Hedging Activities: In April 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, (SFAS 149). SFAS 149 amends SFAS 133 for decisions made as part of the Derivatives Implementation Group (DIG) and changes financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. Specifically, SFAS 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS 133, (2) clarifies when a derivative contains a financing component that requires reporting as cash flows from financing activities in the statement of cash flows and (3) amends the definition of an “underlying” to correspond to the language in FASB Interpretation (FIN) Number 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including

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Indirect Indebtedness of Others.” These changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that require separate accounting. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. However, the provisions of SFAS 149 that codify the previous decisions made by the DIG are already effective and should continue to be applied in accordance with their prior respective effective dates. The adoption of SFAS 149 did not have a material impact on the Company’s financial position or results of operations.

     Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity: In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 represents a significant change in practice in the accounting for a number of financial instruments including mandatorily redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. SFAS 150 generally requires liability classification for two broad classes of financial instruments: (1) instruments that represent, or are indexed to, an obligation to buy back the issuer’s shares, regardless of whether the instrument is settled on a net-cash or gross physical basis, (2) obligations that can be settled in shares but meet one of the following conditions: (a) derive their value predominately from some other underlying, or (b) have a fixed value, or have a value to the counterparty that moves in the opposite direction as the issuer’s shares. Many of the instruments within the scope of SFAS 150 were previously classified by the issuer as equity or temporary equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective the first quarter of fiscal 2004. The adoption of SFAS 150 did not have a material impact on the Company’s financial position or results of operations.

     Revenue Recognition: In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” (SAB 104). SAB 104 updates portions of the interpretive guidance included in Topic 13 of the codification of the Staff Accounting Bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The Company believes it is following the guidance of SAB 104, and the issuance of SAB 104 did not have a material impact on the Company’s financial position or results of operations.

NOTE 3 — STOCK-BASED COMPENSATION PLANS

     The Company has adopted stock option plans that provide for the grant to employees of various equity incentive awards, including options to purchase shares of Lam common stock. In addition, the plans permit the grant of nonstatutory stock options to paid consultants and employees, and provide for the automatic grant of nonstatutory stock options to outside directors. The Company also has an employee stock purchase plan (ESPP) that allows employees to purchase its common stock.

     The Company accounts for its stock option plans and stock purchase plan under the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and Financial Accounting Standards Board Interpretation (FIN) 44, “Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion No. 25” (FIN 44). Pro forma information regarding net income (loss) and net income (loss) per share is required by SFAS No. 123, “Accounting for Stock-Based

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Compensation” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS 148) as if the Company had accounted for its stock option and stock purchase plans under the fair value method of SFAS 123 and SFAS 148. The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had accounted for its stock option and stock purchase plans under the fair value method of accounting under SFAS 123 and SFAS 148:

     For pro forma purposes, the estimated fair value of the Company’s stock-based awards is amortized over the options’ vesting period (for options) and the respective four, six, twelve, or fifteen-month purchase periods (for stock purchases under the employee stock purchase plan). The fair value of the Company’s stock options and stock purchase plans was estimated using a Black-Scholes option valuation model, which was developed for use in estimating the fair value of traded options which have no vesting restrictions and which are fully transferable. The model requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each option. The fair value of the Company’s stock-based awards granted in the three and nine-month periods of fiscal 2004 and fiscal 2003 was estimated assuming no expected dividends and the following weighted-average assumptions:

NOTE 4 — INVENTORIES

     Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of the following:

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NOTE 5 — PROPERTY AND EQUIPMENT

     Property and equipment, net, consist of the following:

NOTE 6 — LONG-TERM DEBT AND OTHER LONG-TERM LIABILITIES

     Long-term debt and other long-term liabilities consist of the following:

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     At March 28, 2004, obligations under debt financing consist of the Company’s 4% convertible subordinated notes (4% Notes). Details of the 4% Notes are:

     The carrying value of the 4% Notes has been adjusted to reflect changes in fair value attributable to changes in the benchmark interest rate in connection with the Company’s fair value hedge accomplished through the interest rate swap agreement (the swap) discussed in Note 12. At March 28, 2004, the carrying value of the 4% Notes was $312.8 million as compared to $319.3 million at June 29, 2003. The corresponding gain of $6.5 million was recorded in other income (expense), offset by a recorded loss of $6.6 million on the carrying value of the swap during the nine months ended March 28, 2004.

     Under the terms of the agreement, the Company must provide a minimum of $6.0 million of collateral plus an amount equal to the unfavorable mark-to-market exposure (fair value) on the swap. Therefore, the amount of cash collateral the Company will have to post in the future will fluctuate from quarter to quarter commensurate with the unfavorable mark-to-market exposure on the swap instrument. Generally, the required collateral will rise as interest rates rise. The Company had $6.0 million of collateral (reflected as restricted cash) recorded on the consolidated balance sheet related to this agreement as of March 28, 2004 and June 29, 2003.

     In April, 2004, the Company settled its interest rate swap agreement and announced plans to repay in full its 4% Notes in June 2004, two years prior to their maturity. Please see Note 16 for additional information.

     The Company’s 5% Convertible Subordinated Notes matured on September 2, 2002 and were repaid in full. This resulted in a cash outlay of approximately $309.8 million in the September 2002 quarter.

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NOTE 7 — DEFERRED STOCK-BASED COMPENSATION

     During the quarter ended December 29, 2002, the Company recorded $3.4 million of deferred stock-based compensation in stockholders’ equity, which was offset by a corresponding entry to additional paid-in capital in stockholders’ equity, in connection with the modification of terms of a fixed stock option award previously issued to the Company’s Chairman and Chief Executive Officer. The modification extended the contractual life of the stock option for a period of three years and modified the vesting requirements. However, no changes were made to either the number of shares of the Company’s stock subject to the option, or the option’s exercise price. Accordingly, the modification resulted in the remeasurement of compensation expense based on the option’s intrinsic value on the date of modification in accordance with the provisions of APB 25 and FIN 44. The deferred stock-based compensation balance of $3.4 million was being amortized ratably over the vesting period of the modified options, or 16 quarters. Under the terms of this modification, if the Nasdaq National Market closing price of the Company’s common stock reached or exceeded $20.00 per share, all unvested shares would immediately vest and become exercisable. In the event of such accelerated vesting, all remaining deferred compensation would immediately be recognized as compensation expense.

     During the quarter ended September 28, 2003, the Company added a second condition to the accelerated vesting provision contained in this stock option award. The second condition required the Company’s fiscal quarter net income, based on U.S. generally accepted accounting principles, to exceed $2.5 million after deducting any incremental amortization expense that resulted from acceleration of these same options. The two conditions needed not to be met simultaneously nor in a specific order. Both conditions were met during the quarter ended September 28, 2003 and, as a result, all options under this arrangement were immediately vested in full. Accordingly, the Company recognized the remaining deferred stock-based compensation balance of $2.8 million as compensation expense within selling, general and administrative expenses in the Company’s condensed consolidated statement of operations for the three months ended September 28, 2003.

NOTE 8 — OTHER INCOME (EXPENSE), NET

     The significant components of other income (expense), net, are as follow:

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NOTE 9 — NET INCOME (LOSS) PER SHARE

     Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed as though all potential common shares that are dilutive were outstanding during the period. The following table provides a reconciliation of the numerators and denominators of the basic and diluted computations for net income (loss) per share.

     For purposes of computing diluted net income (loss) per share, weighted-average common shares do not include potential dilutive securities whose exercise prices exceed the average market value of the Company’s common stock for the period. The following potential dilutive securities were excluded:

     Additionally, the following potential dilutive securities were excluded for purposes of computing diluted net income (loss) per share because the effect would have been antidilutive:

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NOTE 10 — COMPREHENSIVE INCOME (LOSS)

     The components of comprehensive income (loss) are as follows:

     The balance of accumulated other comprehensive loss is as follows:

NOTE 11 — GUARANTEES

     In November 2002, the FASB issued “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires a company that is a guarantor to make specific disclosures about its obligations under certain guarantees that it has issued. FIN 45 also requires a company (the Guarantor) to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee.

     In March and June of 2003, the Company transferred certain lease agreements relating to various properties at its Fremont, California campus to a new lessor. These agreements require the Company to guarantee residual values of the leased properties to the lessor at the end of the lease terms in fiscal 2008 (in the case that the leases are not renewed, the Company does not exercise the purchase options and the lessor sells the properties and the sale price is less than the lessor’s costs) of up to $98.7 million ($48.4 million and $50.3 million, respectively). The terms of the guarantees are equal to the remaining terms of the related lease agreements. Under the accounting provisions of FIN 45, the Company recognized a liability of approximately $1.0 million ($0.5 million in March 2003 and $0.5 million in June 2003) for the related residual value guarantees under the leases. The value of these guarantees was determined by computing the estimated present value of the respective probability-weighted cash flows that might be expended under the guarantees over the respective leases’ term, discounted using the Company’s risk adjusted borrowing rate of approximately 2%. The values of these respective guarantees have been recorded as prepaid rent, with the offset recorded as a liability, and the amounts are being amortized to income (for the liability) and to expense (for the prepaid rent) on a ratable basis over the five-year period of the leases.

     The Company has issued certain indemnifications to its lessors under certain of its operating lease agreements, such as, indemnification for certain environmental matters. The Company has entered into certain insurance contracts to minimize its exposure related to such

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indemnifications. As of March 28, 2004, the Company has not recorded any liability on its financial statements in connection with these indemnifications, as the Company does not believe, based on information available, that it is probable that any amounts will be paid under these guarantees.

     The Company has agreements with two financial institutions that guarantee payment of its Japanese subsidiary’s overdraft protection obligation. The maximum potential amount of future payments the Company could be required to make under these agreements at March 28, 2004, is approximately $5.6 million. As of March 28, 2004, the Company’s Japanese subsidiary did not owe any amounts under this agreement. The Company has not recorded any liability in connection with these guarantees, as the Company does not believe, based on information available, that it is probable that any amounts will be paid under these guarantees.

     The Company has an agreement with a financial institution to sell to the institution certain U.S. Dollar-denominated receivables generated from the sale of its systems, subject to recourse provisions. The Company insures these sold receivables for approximately 90% of their value and guarantees payment of the remaining uninsured receivable value in the event that the payment obligation is not satisfied. Based on historical payment patterns, the Company has experienced negligible default on payment obligations and therefore, believes the risk of loss from default is minimal. The terms of these guarantees are from 90 days past the due date of the receivable, until collected. At March 28, 2004 the maximum potential amount of future payments the Company could be required to make under this agreement is approximately $5.0 million. As of March 28, 2004, the Company has not recorded any liability in connection with these guarantees, as the Company does not believe, based on information available, that it is probable that any amounts will be paid under these guarantees.

     Generally, the Company indemnifies, under pre-determined conditions and limitations, its customers for infringement of third-party intellectual property rights by its products or services. The Company seeks to limit its liability for such indemnity to an amount not to exceed the sales price of the products or services. The Company does not believe, based on information available, that it is probable that any material amounts will be paid under these guarantees.

     The Company provides standard warranties on its systems that run generally for a period of 12 months from system acceptance, not to exceed 14 months from the date of shipment of the system to the customer. The liability amount is based on actual historical warranty spending activity by type of system, customer, and geographic region, modified for any known differences such as the impact of system reliability improvements.

     Changes in the Company’s product warranty reserves during the nine months ended March 28, 2004, were as follows:

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NOTE 12 — DERIVATIVE INSTRUMENTS AND HEDGING

     The Company carries derivative financial instruments (derivatives) on the balance sheet at their fair values. The Company has acquired and holds derivative financial instruments to hedge a variety of risks and exposures including interest rate fluctuation risks associated with its long-term debt, foreign currency exchange rate fluctuations on the value of expected cash flows from forecasted revenue transactions denominated in Japanese Yen and foreign currency denominated assets. Changes in the fair value of derivatives that are not designated or that do not qualify as hedges under SFAS 133 are recognized in earnings immediately. The Company does not use derivatives for trading or speculative purposes.

     The Company has a policy to minimize, where possible and practical, the impact of interest rate exposure associated with its interest rate sensitive investments and debt obligations. To limit the impact relating to interest rate exposure associated with its fixed rate 4% Notes, the Company is a party to an interest rate swap agreement (the swap) with a notional amount of $300.0 million. Under the terms of the swap, the Company exchanges the fixed interest payments on its 4% Notes for variable interest payments based on the London Interbank Offered Rate (LIBOR). The swap is accounted for as a fair value hedge under the provisions of SFAS 133. Fluctuations in the fair value of the 4% Notes, resulting from changes in the LIBOR interest rate sensitive component, are recorded in earnings, and generally offset by changes in the fair value of the swap, which are also recorded in earnings.

     Fluctuations in the carrying value of the 4% Notes included in long-term debt and other long-term liabilities were as follows:

Fluctuations in the fair value of the swap, included in long-term assets, were as follows:

The corresponding losses, net, resulting from hedge ineffectiveness related to differences in changes in the fair value of the swap and changes in the fair value of the 4% Notes for the three and nine-month periods are recorded in other income (expense), net and were:

     In April, 2004, the Company settled its interest rate swap agreement and announced plans to repay in full its 4% Notes in June 2004, two years prior to their maturity. Please see Note 16 for additional information.

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     The Company’s policy is to attempt to minimize short-term business exposure to foreign exchange risks using the most effective and efficient methods to eliminate or reduce such exposures. In the normal course of business, the Company’s financial position is routinely subjected to market risk associated with foreign currency rate fluctuations. To protect against the reduction in value of forecasted Japanese Yen-denominated cash flows resulting from sales in Japanese Yen, the Company will, at times, institute foreign currency cash flow hedging programs. The Company has previously entered into foreign currency forward exchange contracts that generally expired within 12 months, and no later than 24 months. These foreign currency forward exchange contracts were designated as cash flow hedges and carried on the Company’s balance sheet at fair value with the effective portion of the contracts’ gains or losses included in accumulated other comprehensive income (loss) and subsequently recognized in earnings in the same period the hedged revenue was recognized.

     The Company recognized no gains or losses during the quarter ended March 28, 2004 and a net loss of $0.1 million for the three months ended March 30, 2003, for cash flow hedges that had been discontinued, because the original forecasted transactions did not or were not expected to occur. The Company recognized net gains of $0.3 million for the nine months ended March 28, 2004 and a net loss of $0.1 million during the nine months ended March 30, 2003 related to the discontinued cash flow hedges. The losses and gains are recorded in other income (expense) in the condensed consolidated statements of operations.

     The Company also enters into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of Japanese Yen-denominated intercompany receivables. Under SFAS 133, these forward contracts are not designated hedges. Therefore, the change in fair value of these derivatives is recorded into earnings as a component of other income (expense) and offsets the change in fair value of the foreign currency denominated intercompany receivables.

NOTE 13 — RESTRUCTURING ACTIVITIES

     The Company has developed plans and incurred restructuring charges to respond to the high level of volatility and, at times, depressed levels of capital investment by the semiconductor industry. The Company systematically reviews its revenue outlook and forecasts and assesses their impact on required employment levels, facilities utilization, and outsourcing activities scope. Based on these evaluations, senior management of the Company committed to cost reduction and exit activities in the quarters ended March 28, 2004 (the March 2004 Plan), December 28, 2003 (the December 2003 Plan), September 28, 2003 (the September 2003 Plan), June 29, 2003 (the June 2003 Plan), March 30, 2003 (the March 2003 Plan), December 29, 2002 (the December 2002 Plan), December 30, 2001 (the December 2001 Plan), and September 23, 2001 (the September 2001 Plan). Prior to the end of each quarter noted above, management with the proper level of authority approved specific actions under the respective Plan and communicated the severance packages to potentially impacted employees in enough detail such that the employees could determine their type and amount of benefit. The termination of the affected employees occurred as soon as practical after the restructuring plans were announced. The amount of remaining future lease payments for facilities the Company ceased to use and included in the restructuring charges is based on management’s estimates using known prevailing real estate market conditions at that time based, in part, on the opinions of independent real estate experts. Leasehold improvements relating to the vacated buildings were written off, as these items will have no future economic benefit to the Company and have been abandoned. The Company distinguishes 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

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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.

     As of March 28, 2004, the overall restructuring reserve balance consisted of approximately $2.5 million related to restructurings implemented during fiscal 2004, $7.6 million related to restructurings implemented during fiscal 2003, $5.0 million related to restructurings implemented during fiscal 2002, and $1.4 million related to restructurings implemented prior to fiscal 2002. These same balances consisted of approximately $0.8 million of severance and benefits-related costs anticipated to be utilized by the end of the 2004 calendar year and $15.7 million primarily related to lease payments on vacated buildings anticipated to be utilized by the end of fiscal year 2008.

Fiscal 2004 Restructuring Activities

     The Company recorded a net restructuring charge during the quarter ended March 28, 2004, of approximately $1.0 million. Charges for the March 2004 Plan consisted of expenses for the cancellation of a lease agreement related to one of the Company’s facilities in Japan of $1.0 million, and the write-off of related leasehold improvements of $2.1 million. Charges during the quarter were partially offset by recovery of approximately $1.5 million, net, of facilities-related expenses primarily due to costs previously accrued for the Japan facility for which the Company entered into a lease cancellation agreement discussed above. Additional offsetting items include recovery of approximately $0.3 million due to lower than previously estimated employee severance and benefits costs. Recovered inventory from unanticipated sales to the Company’s installed base of certain portions of inventory previously written off as part of the Company’s September 2001 restructuring resulted in a $0.3 million credit to cost of goods sold.

     The Company recorded a net restructuring charge during the nine months ended March 28, 2004 of approximately $6.7 million, consisting of severance and benefits for involuntarily terminated employees of $1.2 million, charges for the present value of remaining lease payments on vacated facilities of $2.8 million, and the write-off of related leasehold improvements of $1.6 million. The Company also recorded a charge of approximately $1.0 million due to the cancellation of a lease agreement related to one of its facilities in Japan and $2.1 million for the write-off of leasehold improvements associated with this facility. Additionally, the Company recognized $1.9 million of additional facilities-related expenses due to changes in estimates of restructuring plans initiated prior to fiscal 2004. Charges during the nine-month period were partially offset by recovery of $1.5 million, net, of facilities-related expenses primarily due to costs previously accrued for the Japan facility for which the Company entered into a lease cancellation agreement during the quarter ended March 28, 2004. Additional offsetting items include recovery of $0.7 million due to lower than previously estimated employee severance and benefits costs and $1.7 million of recovered inventory from unanticipated sales to the Company’s installed base of certain portions of inventory previously written off as part of the Company’s September 2001 restructuring. The inventory recovery was recorded as a credit in cost of goods sold.

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March 2004 Plan

     The Company began carrying out the announced restructuring activities prior to March 28, 2004, and recorded a restructuring charge during the quarter ended March, 2004 of approximately $3.0 million, consisting of charges for the cancellation of a lease agreement related to one of the Company’s facilities in Japan, deemed to be no longer useful to the Company’s operations, of $1.0 million, and the write-off of related leasehold improvements of $2.1 million.

     Below is a table summarizing activity relating to the March 2004 Plan:

December 2003 Plan

     The Company began carrying out the announced restructuring activities prior to December 28, 2003, by reducing its workforce by less than 20 employees, primarily in North America and by vacating a facility located also in North America deemed to be no longer useful to the Company’s operations. The employees included in the Plan were from a range of functions and at different levels of the organization. The Company recorded a restructuring charge during the quarter ended December 28, 2003 of approximately $4.2 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements.

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

September 2003 Plan

     The Company began carrying out the announced restructuring activities prior to September 28, 2003, by reducing its workforce primarily in North America and Europe by approximately 20 people and by vacating selected facilities located in North America and Asia deemed to be no longer necessary to the Company’s operations. The employees included in the Plan were from a range of functions and at multiple levels of the organization, with the majority of the reductions in North America. The Company recorded a restructuring charge during the quarter ended September 28, 2003 of approximately $1.2 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities,

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and the write-off of associated leasehold improvements.

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

Fiscal 2003 Restructuring Activities

June 2003 Plan

     The Company began carrying out the announced restructuring activities prior to June 29, 2003, by reducing its workforce in North America, Europe, and Asia by approximately 30 people and by vacating selected sales and administrative facilities located in North America, Europe, and Asia deemed to be no longer required for the Company’s operations. The employees included in the Plan were from a broad range of functions and at multiple levels of the organization, with the majority of the reductions in North America. The Company recorded a restructuring charge during the quarter ended June 29, 2003, of approximately $7.6 million, consisting of severance and benefits for involuntarily terminated employees, charges for the present value of remaining lease payments on vacated facilities, a loss on the fair value of a vacated facility and the write-off of related leasehold improvements. In June 2003, a lease covering one of the Company’s vacated facilities at its Fremont, California campus was amended, combined, restated, and transferred to a new lessor under a single lease structure. 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:

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March 2003 Plan

     The Company began carrying out these restructuring activities prior to March 30, 2003, by reducing its workforce in North America and Europe by approximately 50 people and by vacating selected sales and administrative facilities located in North America deemed to be no longer required for the Company’s operations. The employees included in the Plan were from a broad range of functions and at multiple levels of the organization, with the majority of the reductions in North America. The Company recorded a restructuring charge during the quarter ended March 30, 2003, of approximately $4.7 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements. $0.1 million and $0.2 million were recovered during the three months ended March 28, 2004 and December 28, 2003, respectively, due to a change in estimates related to the Company’s facilities. Additionally, during the quarter ended September 28, 2003, $0.3 million were recovered due to lower than previously estimated employee severance and benefits costs.

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

December 2002 Plan

     The Company began carrying out these restructuring activities prior to December 29, 2002 by reducing its workforce in North America, Europe, and Asia by approximately 120 employees and by vacating selected sales and administrative facilities located in North America, Europe and Asia deemed to be no longer necessary for the Company’s operations. The employees included in the Plan were from a broad range of functions and at multiple levels of the organization, with approximately 65% from North America and approximately 35% from Asia and Europe locations. The Company recorded a restructuring charge of $5.7 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements. During the quarter ended March 28, 2004, the Company recovered $0.1 million due to the difference between the costs previously accrued and actual costs to terminate a lease agreement related to a facility in Japan.

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

Fiscal 2002 Restructuring Activities

December 2001 Plan

     During the second fiscal quarter of 2002, the Company began implementing restructuring activities which included reducing its workforce by approximately 470 employees in North America, Europe, and Asia, vacating selected administrative and warehouse facilities at the Company’s Fremont, California campus deemed to be no longer required for the Company’s operations, and the closure of certain offices in Asia. The employees included in the Plan were from a broad range of functions and at multiple levels throughout the organization with approximately 80% from North America and approximately 20% from Asia and Europe locations. The Company recorded a restructuring charge of $33.8 million relating to severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities and the write-off of related leasehold improvements and fixed assets.

     During fiscal 2004, the Company recorded approximately $0.4 million of additional restructuring charges due to revision in estimates for one of its vacated facilities. During fiscal 2004, the Company recovered approximately $1.4 million, net, due to the difference between the costs previously accrued and actual costs to terminate a lease agreement for a facility in Japan during the quarter ended March 28, 2004. During fiscal 2003, the Company recovered approximately $3.8 million of restructuring charges originally accrued under the December 2001 Plan, $2.1 million for benefits offered that were not utilized by the terminated employees and approximately $1.7 million related to a revision to the net amount of lease payments remaining on the vacated facilities. In addition, during fiscal 2003, the Company recorded approximately $3.0 million of additional restructuring charges of which $2.5 million were due to revisions the Company made in sublease assumptions for two of its vacated buildings in Fremont, California and approximately $0.1 million due to additional facility restoration costs. Additionally, the Company revised its estimates for employee termination costs and recorded $0.4 million of additional expenses.

September 2001 Plan

     During the first quarter of fiscal 2002, the Company began implementing restructuring activities which included a reduction of approximately 550 employees in North America, Europe and Asia, vacating selected facilities at the Company’s headquarters in Fremont, California deemed to be no longer required for the Company’s operations and discontinuance of the manufacture of specific products within the Company’s etch product lines. The employees were from a broad range of functions and at multiple levels of the organization, with approximately

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85% from North America and 15% from Asia and Europe locations. The Company recorded a restructuring charge of $21.0 million which included severance and benefits for involuntarily terminated employees, charges for remaining lease payments, write-offs of leasehold improvements on vacated facilities, and inventory write-downs. The inventory charge of approximately $7.6 million related to the Company’s decision to discontinue manufacture of specific systems within the Company’s etch product lines. The Company recovered approximately $0.3 million and $1.7 million during the three and nine months ended March 28, 2004 and $1.7 million during fiscal years 2003 and 2002, respectively, from unanticipated subsequent sales to the Company’s installed base of these items. In addition, the Company physically disposed of approximately $1.0 million of this inventory during the nine months ended March 28, 2004 and $2.7 million during fiscal 2003 and 2002.

     During fiscal 2003, approximately $0.9 million was recovered due to lower employee severance and termination costs of $0.6 million and actual expenses being lower than estimated for vacated facility leases of $0.3 million. In addition, in the second quarter of fiscal 2003, the Company recorded additional charges for the September 2001 Plan based on a revised estimate of the length of time required to sublease one of its vacated buildings in Fremont, California. Based on prevailing market conditions, the Company extended the accrual for lease payments to the end of the lease in June 2004 and recorded an additional $0.6 million expense.

     During fiscal 2002, the Company 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 planned expenses relating to a vacated facility lease of $0.3 million.

Fiscal 2001 Restructuring Plans

     During the second quarter of fiscal 2003, the Company completed the remaining elements of its restructuring activities under the June 2001 Plan. A final $1.1 million of restructuring charges was recovered due to lower than estimated employee termination costs.

NOTE 14 — EQUITY DERIVATIVE CONTRACTS IN COMPANY STOCK

     The Company’s equity derivatives have included certain put and call options indexed to its own stock. Application of EITF 00-19, “Determination of Whether Share Settlement is Within the Control of the Issuer”, for the purposes of applying EITF Issue No. 96-13, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, required these instruments purchased in June 1999 to be recorded at their fair value at the end of each reporting period, commencing in June 2001, with the change in fair value recorded as a gain or loss in the Company’s statement of operations. The Company’s equity derivatives were collateralized by restricted cash of $9.1 million and could not be settled in unregistered shares.

     On August 23, 2002, the Company settled its outstanding equity derivative contracts by purchasing approximately 3.5 million shares of Lam common stock at an average price of $11.19 per share for a total cash payment of $39.1 million. By settling the equity derivative contracts, the Company was able to repurchase the shares recording a life-to-date gain of $8.4 million ($2.41 per share) from their then market value. As a result of this transaction, the Company recognized an increase in treasury stock of $47.6 million and a $16.4 million reduction in the equity derivative contracts’ fair value which was recorded as a non-taxable loss in other income (expense), net, during the three months ended September 29, 2002.

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NOTE 15 — RELATED PARTY TRANSACTIONS

     During fiscal year 2001, the Company’s President and Chief Operating Officer (COO) signed a promissory note with the Company entitling him to borrow up to $1.0 million from the Company at 6.75% simple interest. The Company’s President and COO had previously been advanced the $1.0 million and repaid the entire amount of $1.0 million, plus accrued interest, during the quarter ended December 28, 2003.

NOTE 16 — SUBSEQUENT EVENTS

     On April 1, 2004, the Company settled its interest rate swap agreement (the swap) which had been used to minimize the impact of interest rate exposure associated with the Company’s fixed rate convertible subordinated 4% notes (4% Notes) as discussed in Note 12. This settlement resulted in an increase in cash of approximately $11 million and, in addition, a transfer of $6 million from restricted cash to cash balances during the quarter ending June 27, 2004.

     On April 14, 2004, the Company announced plans to repay in full its 4% Notes in June 2004, two years prior to their maturity. The Company has set June 5, 2004 as the redemption date for the 4% Notes. Noteholders may redeem their 4% Notes for cash including the redemption price and interest accrued from June 1, 2004 through June 4, 2004. Alternatively, prior to 5:00 p.m. Eastern Time, on June 4, 2004, noteholders may convert their 4% Notes into shares of the Company’s common stock at a price of approximately $44.93 per share, or 22.2568 shares of the Company’s common stock per $1,000 principal amount. Any 4% Notes that are not converted will be automatically redeemed on June 5, 2004, and after June 4, 2004, no further interest will accrue on the 4% Notes. The redemption price plus unpaid accrued interest will be payable on June 7, 2004. The repayment of the 4% Notes is expected to result in a cash outlay of approximately $303 million, including a redemption premium of $3 million and accrued and unpaid interest as of the redemption date. Additionally, the Company will write off approximately $3.5 million of unamortized offering expenses as of June 7, 2004.

     The Company has a deferred gain of approximately $11 million recorded on the balance sheet related to the swap. As a result of the settlement of the swap and the redemption of the 4% Notes, the Company expects to record a net gain of approximately $4 million included in other income, net during the quarter ending June 27, 2004. The net gain is comprised of the deferred gain noted above, less the redemption premium, write-off of unamortized offering expenses, and transaction-related costs.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 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 last filed Annual Report on Form 10-K for the fiscal year ended June 29, 2003, our quarterly report on Form 10-Q for the quarter ended December 28, 2003, and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our 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 are based on information currently and reasonably known to us. 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.

Documents To Review In Connection With Management’s Analysis Of Financial Condition and Results Of Operations

     This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes presented in this Form 10-Q and the financial statements and notes in our last filed Annual Report on Form 10-K and Form 10-Q for the three and six months ended December 28, 2003 for a full understanding of our financial position and results of operations for the three and nine-month periods ended March 28, 2004.

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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, Chemical Mechanical Planarization (CMP) and Post-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 three business cycles, the severity of these fluctuations has increased, and today’s leading indicators of changes in customer investment patterns may not be any more reliable than in prior years. Demand for our equipment can vary 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 the three and nine months ended March 28, 2004 may not necessarily be indicative of future operating results.

Revenue

     Revenues for the quarter ended March 28, 2004 increased $44.1 million, or 23.6% from the same period in the prior year, reflective of the early stages of the current cycle recovery. Revenues during the nine-month period ended March 28, 2004 as compared to the prior year increased by $37.2 million, or 6.5%. Our market environment has continued to improve through the March 2004 quarter, evidenced by expanded levels of capital investments by semiconductor manufacturers. The overall increase in revenues is influenced by increased demand, shorter system installation cycles and faster customer acceptances.

     Regional geographic breakdown of revenue is as follows:

     We expect revenues for the June 2004 quarter to increase to approximately $300 million based upon higher shipments combined with customer acceptance patterns similar to the quarter just ended.

     Based on the guidance provided by Securities and Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements”, as amended by Securities and Exchange Commission Staff Accounting Bulletin No. 104 (SAB 104), “Revenue Recognition”, we generally recognize new systems revenue when we receive customer acceptance or are otherwise released from our customer acceptance obligations. Refer to our discussion of “Critical Accounting Policies” within this document for additional information about our revenue recognition policy. Where customer acceptance provisions exist, the fiscal period in which we are able to recognize systems revenue is typically determined based on the length of time that our customers require to evaluate the performance of our equipment to agreed standards and specifications. On average, revenue recognition for systems normally occurs from two to five months after the date of shipment. Spares and system upgrade revenues are generally recognized on the date of shipment, and service revenues are generally recognized upon performance of the activities requested by the customer, including training and extended warranty support.

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Gross Margin

     We have maintained focus on designing our systems to achieve more efficient purchasing and installation processes, and supporting the latest achievement of gross margin as a percent of revenue of 45.9%. This performance represents the fifth successive quarter of positive gross margin progression. The improved outcome for the three and nine months ended March 28, 2004 as compared to the prior year is additionally due to better utilization of factory and field resources combined with expense management programs. These cost reductions were partially offset by increases in employment expenses due to salary adjustments and the triggering of profit-related variable incentive-based compensation. During the three and nine months ended March 28, 2004, we recovered and recorded in cost of goods sold $0.3 million and $1.7 million, respectively, from unanticipated sales of certain inventories previously written off as part of our September 2001 restructuring.

     During the June 2004 quarter, we expect gross margin as a percent of revenues to continue to improve, reaching approximately 47%.

Research and Development

     To remain competitive, we have continued to invest significantly in research and development aiming at strengthening of our product and services portfolio. The increase in absolute dollars for the three months ended March 28, 2004 as compared to the same period in the prior fiscal year is due primarily to salary adjustments and benefits increases triggered by profit-related incentive-based compensation. Expense levels remained relatively flat for the nine-month period ended March 28, 2004 as compared to the prior year as increases in payroll costs were largely offset by lowered costs of supplies and reductions in facilities-related expenses due to infrastructure rationalization. The decrease in expenses as a percent of revenues for both periods is reflective of continued focus on improving our productivity, as expenses increased by less than half of our revenue growth rate.

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Selling, General and Administrative

     The primary reasons for the dollar uptick in SG&A expenses for the quarter ending March 28, 2004 as compared with the prior year are increased compensation costs as discussed above, partially offset by reduced facilities expenditures. The growth in the nine-month period of fiscal 2004 over fiscal 2003 is the result of increased compensation costs, selective investments in customer support efforts, and the charges related to the accelerated vesting of a stock option award as discussed in Note 7 to the Condensed Consolidated Financial Statements. Reductions in facilities costs resulting from a smaller infrastructure, partially offset the higher level of expenses described above. The decrease in expenses as a percent of revenues for the quarter ended March, 2004 is reflective of the leverage in our business model as expenses increased by approximately half that of our revenue growth rate. The slight increase in expenses as a percent of revenues during the nine months ended March 28, 2004 is primarily a result of the charge related to the stock option award accelerated vesting discussed above.

     We expect total operating expenses to increase during the June 2004 quarter as we plan to undertake the implementation of various information technology and research and development-related projects designed to improve productivity across the Company.

Restructuring Activities

     We have developed plans and incurred restructuring charges to respond to the high level of volatility and, at times, depressed levels of capital investment by the semiconductor industry. We systematically review our revenue outlook and forecasts and assess their impact on required employment levels, facilities utilization, and outsourcing activities scope. Based on these evaluations, our senior management committed to cost reduction and exit activities in the quarters ended March 28, 2004 (the March 2004 Plan), December 28, 2003 (the December 2003 Plan), September 28, 2003 (the September 2003 Plan), June 29, 2003 (the June 2003 Plan), March 30, 2003 (the March 2003 Plan), December 29, 2002 (the December 2002 Plan), December 30, 2001 (the December 2001 Plan), and September 23, 2001 (the September 2001 Plan). Prior to the end of each quarter noted above, management with the proper level of authority approved specific actions under the respective Plan and communicated the severance packages to potentially impacted employees in enough detail such that the employees could determine their type and amount of benefit. The termination of the affected 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 is based on management’s estimates using known prevailing real estate market conditions at that time based, in part, on the opinions of independent real estate experts. 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 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

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service.

     As of March 28, 2004, the overall restructuring reserve balance consisted of approximately $2.5 million related to restructurings implemented during fiscal 2004, $7.6 million related to restructurings implemented during fiscal 2003, $5.0 million related to restructurings implemented during fiscal 2002, and $1.4 million related to restructurings implemented prior to fiscal 2002. These same balances consisted of approximately $0.8 million of severance and benefits-related costs anticipated to be utilized by the end of the 2004 calendar year and $15.7 million primarily related to lease payments on vacated buildings anticipated to be utilized by the end of fiscal year 2008.

     Fiscal 2004 Restructuring Activities

     We recorded a net restructuring charge during the quarter ended March 28, 2004, of approximately $1.0 million. Charges for the March 2004 Plan consisted of expenses for the cancellation of a lease agreement related to one of our facilities in Japan of $1.0 million, and the write-off of related leasehold improvements of $2.1 million. Charges during the quarter were partially offset by recovery of approximately $1.5 million, net, of facilities-related expenses primarily due to costs previously accrued for the Japan facility for which we entered into a lease cancellation agreement discussed above. Additional offsetting items include recovery of approximately $0.3 million due to lower than previously estimated employee severance and benefits costs. Recovered inventory from unanticipated sales to our installed base of certain portions of inventory previously written off as part of our September 2001 restructuring resulted in a $0.3 million credit to cost of goods sold.

     We recorded a net restructuring charge during the nine months ended March 28, 2004 of approximately $6.7 million, consisting of severance and benefits for involuntarily terminated employees of $1.2 million, charges for the present value of remaining lease payments on vacated facilities of $2.8 million, and the write-off of related leasehold improvements of $1.6 million. We also recorded a charge of approximately $1.0 million due to the cancellation of a lease agreement related to one of our facilities in Japan and $2.1 million for the write-off of related leasehold improvements. Additionally, we recognized $1.9 million of additional facilities-related expenses due to changes in estimates of restructuring plans initiated prior to fiscal 2004. Charges during the nine-month period were partially offset by recovery of $1.5 million, net, of facilities-related expenses primarily due to costs previously accrued for the Japan facility for which we entered into a lease cancellation agreement during the quarter ended March 28, 2004. Additional offsetting items include recovery of $0.7 million due to lower than previously estimated employee severance and benefits costs and $1.7 million of recovered inventory from unanticipated sales to our installed base of certain portions of inventory previously written off as part of our September 2001 restructuring. The inventory recovery was recorded as a credit in cost of goods sold.

     As a result of the fiscal 2004 restructuring activities, we expect quarterly savings in total expenses of approximately $0.1 million from the March 2004 Plan, $0.7 million from the December 2003 Plan and $0.5 million from the September 2003 Plan. The majority of the savings are expected to be realized within Operating Expenses, mainly Selling, General and Administrative expenses. These estimated savings from the Plans’ discrete actions are primarily related to lower employee payroll, facilities, and depreciation expenses. Actual savings may vary from these forecasts, depending upon future events and circumstances, such as differences in actual sublease income versus estimated amounts. Through March 28, 2004, we believe actual savings from the December 2003 and September 2003 Plans are largely consistent with original

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estimated quarterly savings.

March 2004 Plan

     We began carrying out the announced restructuring activities prior to March 28, 2004, and recorded a restructuring charge during the quarter ended March, 2004 of approximately $3.0 million, consisting of charges for the cancellation of a lease agreement related to one of our facilities in Japan, deemed to be no longer useful to the Company’s operations, of $1.0 million, and the write-off of related leasehold improvements of $2.1 million.

     Below is a table summarizing activity relating to the March 2004 Plan:

December 2003 Plan

     We began carrying out the announced restructuring activities prior to December 28, 2003, by reducing our workforce by less than 20 employees, primarily in North America and by vacating a facility located also in North America deemed to be no longer useful to our operations. The employees included in the Plan were from a range of functions and at different levels of the organization. We recorded a restructuring charge during the quarter ended December 28, 2003 of approximately $4.2 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements.

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

September 2003 Plan

     We began carrying out the announced restructuring activities prior to September 28, 2003, by reducing our workforce primarily in North America and Europe by approximately 20 people and by vacating selected facilities located in North America and Asia deemed to be no longer necessary to our operations. The employees included in the Plan were from a range of functions and at multiple levels of the organization, with the majority of the reductions in North America. We recorded a restructuring charge during the quarter ended September 28, 2003 of approximately $1.2 million, consisting of severance and benefits for involuntarily terminated

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employees, charges for remaining lease payments on vacated facilities, and the write-off of associated leasehold improvements.

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