Q1 2001 10Q DOC

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LkapfT+iFAeNR53fb2lO4F3Owu8MYBIGtyRZjrdDB7+/TW+WVkko1pk+q/SkjWkG /miC5lSmVtnJHJ0TOYGncg== /in/edgar/work/0000707549-00-500013/0000707549-00-500013.txt : 20001108 0000707549-00-500013.hdr.sgml : 20001108 ACCESSION NUMBER: 0000707549-00-500013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000924 FILED AS OF DATE: 20001107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAM RESEARCH CORP CENTRAL INDEX KEY: 0000707549 STANDARD INDUSTRIAL CLASSIFICATION: [3559 ] IRS NUMBER: 942634797 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12933 FILM NUMBER: 754535 BUSINESS ADDRESS: STREET 1: 4650 CUSHING PKWY CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5106590200 MAIL ADDRESS: STREET 1: 4650 CUSHING PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 10-Q 1 body10q.htm BODY Q1 2001 10Q DOC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 24, 2000 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 000-12933

LAM RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 94-2634797

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

4650 Cushing Parkway
Fremont, California 94538
(Address of principal executive offices including zip code)

(510) 659-0200
(Registrant's telephone number, including area code)

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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ],

As of September 24, 2000 there were 124,658,731 shares of Registrant's Common Stock outstanding.

LAM RESEARCH CORPORATION
TABLE OF CONTENTS

PART I. Financial Information Page No.



Item 1. Financial Statements (unaudited):



       Condensed Consolidated Balance Sheets
         as of September 24, 2000 and June 25, 2000 3



       Condensed Consolidated Statements of Income
         for the three months ended September 24, 2000 and September 26, 1999. 4



       Condensed Consolidated Statements of Cash Flows
         for the three months ended September 24, 2000 and September 26, 1999. 5



       Notes to Condensed Consolidated Financial Statements 6



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16



Item 3. Quantitative and Qualitative Disclosures about Market Risk 34



PART II. Other Information



Item 1. Legal Proceedings 35



Item 4: Submission of Matters to Vote of Security Holders 36



Item 6. Exhibits and Reports on Form 8-K 37



Signatures 38

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)


                                                       September 24,   June 25,
                                                           2000          2000
                                                       ------------  ------------
                                                        (unaudited)
Assets

Cash and cash equivalents............................ $     74,453  $     70,056
Short-term investments...............................      299,316       301,666
Accounts receivable, net.............................      387,784       323,935
Inventories..........................................      255,452       227,169
Prepaid expenses and other assets....................       21,363        22,001
Deferred income taxes................................       76,508        76,508
                                                       ------------  ------------
          Total Current Assets.......................    1,114,876     1,021,335
Property and Equipment,net...........................      122,800       119,192
Restricted cash......................................       60,348        60,348
Deferred income taxes................................       12,317        12,317
Other assets.........................................       33,179        31,645
                                                       ------------  ------------
          Total Assets............................... $  1,343,520  $  1,244,837
                                                       ============  ============
Liabilities and Stockholders' Equity

Trade accounts payable............................... $     83,381  $     76,648
Accrued expenses and other
   current liabilities...............................      222,390       203,476
Current portion of long-term debt and
   capital lease obligations.........................        9,168         7,632
                                                       ------------  ------------
          Total Current Liabilities..................      314,939       287,756
Long-term debt and capital lease
   obligations, less current portion.................      320,819       321,657
                                                       ------------  ------------
          Total Liabilities..........................      635,758       609,413
Preferred stock:  5,000 shares authorized;
   none outstanding..................................         --            --
Common Stock, at par value of $0.001 per share
   Authorized -- 400,000 shares; issued and
     outstanding 124,659 shares at September 24, 2000
     and 124,389 shares at June 25, 2000.............          125           124
Additional paid-in capital...........................      442,056       441,949
Treasury stock.......................................      (16,181)      (26,438)
Accumulated other comprehensive loss.................       (4,962)       (7,501)
Retained earnings....................................      286,724       227,290
                                                       ------------  ------------
          Total Stockholders' Equity.................      707,762       635,424
                                                       ------------  ------------
          Total Liabilities and Stockholders' Equity. $  1,343,520  $  1,244,837
                                                       ============  ============

See Notes to Condensed Consolidated Financial Statements.

LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)


                                   Three Months Ended
                               --------------------------
                               September 24, September 26,
                                  2000          1999
                               ------------  ------------
Total revenue................ $    432,041  $    241,582

  Cost of goods sold.........      232,795       140,771
                               ------------  ------------
Gross margin                       199,246       100,811
  Research and development...       56,531        39,264
  Selling, general and
    administrative...........       52,941        34,500
                               ------------  ------------
Operating income ............       89,774        27,047
Other income, net............        4,639           378
                               ------------  ------------
Income before taxes..........       94,413        27,425
Income tax expense...........       28,324         2,743
                               ------------  ------------
Net income................... $     66,089  $     24,682
                               ============  ============
Net income per share
   Basic..................... $       0.53  $       0.21
                               ============  ============
   Diluted................... $       0.48  $       0.19
                               ============  ============
Number of shares used in
  per share calculations:
   Basic.....................      124,477       117,252
                               ============  ============
   Diluted...................      144,320       127,752
                               ============  ============

See Notes to Condensed Consolidated Financial Statements.

LAM RESEARCH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


                                                          Three Months Ended
                                                      --------------------------
                                                      September 24, September 26,
                                                          2000          1999
                                                      ------------  ------------
Cash flows from operating activities:

  Net income........................................ $     66,089  $     24,682
  Adjustments to reconcile net income
    to net cash provided by (used in)
    operating activities:
  Depreciation and amortization.....................       13,260        11,354
  Change in working capital
    accounts........................................      (66,234)      (32,329)
                                                      ------------  ------------
Net cash provided by operating
  activities........................................       13,115         3,707
                                                      ------------  ------------

Cash flows from investing activities:

  Capital expenditures, net.........................      (15,956)       (5,541)
  Purchases of short-term investments...............     (215,387)     (782,695)
  Sales/maturities of short-term investments........      217,737       799,328
  Other, net........................................       (1,824)        1,273
                                                      ------------  ------------
Net cash provided by (used in) investing activities.      (15,430)       12,365
                                                      ------------  ------------

Cash flows from financing activities:

  Treasury stock repurchases........................       (3,515)       (5,146)
  Reissuance of treasury stock......................        7,117         8,421
  Sale of stock, net of issuance costs..............          108         5,160
  Principal payments on long-term debt
    and capital lease obligations...................         (674)       (8,521)
  Net proceeds from the issuance of short and
    long term debt..................................        3,441         8,685
                                                      ------------  ------------
Net cash provided by financing activities...........        6,477         8,599
                                                      ------------  ------------
  Effect of exchange rate changes on cash...........          235        (5,587)
                                                      ------------  ------------
Net increase in cash and
  cash equivalents..................................        4,397        19,084
Cash and cash equivalents at beginning of period....       70,056        37,965
                                                      ------------  ------------
Cash and cash equivalents at end of period.......... $     74,453  $     57,049
                                                      ============  ============

See Notes to Condensed Consolidated Financial Statements.

LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 2000
(Unaudited)

NOTE A -- 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 25, 2000, which are included in the Annual Report on Form 10-K, File Number 0-12933. All prior year shares amounts have been adjusted to reflect three for one stock split.

NOTE B -- RECENT ACCOUNTING PRONOUNCEMENTS

Revenue Recognition: Sales of the Company's products are generally recorded upon shipment. Estimated costs to be incurred by the Company related to product installation and warranty fulfillments are accrued at the date of shipment. Service revenue is recognized when services are provided. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements." SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements of all public registrants. SAB 101 may require that some or all of that revenue not be recognized until the product is actually accepted by the customers, an event, which generally does not happen until sometime after shipment has occurred. Compliance with SAB 101 therefore might delay our recognition of revenue, compared to our current practice, for one or more quarters, causing an adverse impact on our operating results during the quarters in which product has been shipped, but not yet accepted by the customer.

Changes in the Company's revenue recognition policy resulting from the interpretation of SAB 101 would be reported as a change in accounting principle. The impact of this change, if any, on previously recognized revenue would result in a cumulative adjustment to retained earnings as of the beginning of the fiscal year the Company adopts SAB 101. The SEC has delayed the required implementation date, which for the Company, will be the fourth quarter of fiscal 2001. Previously reported unaudited fiscal year 2001 quarterly operating results would be restated to reflect the impact, if any, of SAB 101 on the Company's revenue recognition policy. The Company is still in the process of assessing the impact of SAB 101 on its consolidated reported results of operations based on the SEC's most recently issued guidance.

Derivative Instruments and Hedging.. On July 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for derivatives used for hedging activities. It requires that all derivatives be recognized either as an asset or liability, and measures them at fair value. The adoption of FAS 133 did not have a material impact on the Company's consolidated financial position or overall trends in results of operations.

Employee Stock Plans: In March 2000, the FASB issued FASB Interpretation No.44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25". FIN 44 is intended to clarify the application of APB Opinion No. 25 by providing guidance regarding among other issues: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's consolidated financial position or results of operations.

NOTE C -- INVENTORIES

Inventories consist of the following at:

                                  September 24,   June 25,
                                      2000          2000
                                  ------------  ------------
                                      (in thousands)
Raw materials................... $    175,050  $    153,721
Work-in-process.................       61,480        53,221
Finished goods..................       18,922        20,227
                                  ------------  ------------
                                 $    255,452  $    227,169
                                  ============  ============

NOTE D -- PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

                                  September 24,   June 25,
                                      2000          2000
                                  ------------  ------------
                                      (in thousands)
Equipment....................... $    140,103  $    137,526
Leasehold improvements..........       85,612        79,162
Furniture and fixtures..........       69,718        64,694
                                  ------------  ------------
                                      295,433       281,382
Less allowance for depreciation
  and amortization..............     (172,633)     (162,190)
                                  ------------  ------------
                                 $    122,800  $    119,192
                                  ============  ============

NOTE E -- OTHER INCOME, NET

The significant components of other income, net are as follows:


                                      Three Months Ended
                                  --------------------------
                                  September 24, September 26,
                                     2000          1999
                                  ------------  ------------
                                      (in thousands)
Interest expense................ $     (4,109) $     (4,845)
Interest income.................        9,208         5,475
Other...........................         (460)         (252)
                                  ------------  ------------
                                 $      4,639  $        378
                                  ============  ============

NOTE F -- NET INCOME PER SHARE

Basic net income per share is calculated using the weighted average number of shares of Common Stock outstanding during the period. For the quarter ended September 24, 2000, diluted net income per share includes the assumed exercise of employee stock options and the assumed conversion of the convertible subordinated notes to common shares. For the quarter ended September 26, 1999, diluted net income per share includes the assumed exercise of employee stock options; the assumed conversion of the convertible subordinated notes to common shares was excluded from diluted net income per share because its effect would have been antidilutive.

The Company's basic and diluted net income per share amounts is as follows:


                                                              Three Months Ended
                                                          --------------------------
                                                          September 24, September 26,
                                                             2000          1999
                                                          ------------  ------------
                                                        (in thousands, except per share data)

Numerator:
  Numerator for basic net income per share.............. $     66,089  $     24,682
  Add: Interest expense on convertible
     subordinated notes, net of taxes...................        3,025            --
                                                          ------------  ------------
  Numerator for diluted net income per share............       69,114        24,682
                                                          ============  ============
Denominator:
  Basic net income per share -- average
     shares outstanding.................................      124,477       117,252
     Effect of potential dilutive securities:
     Convertible subordinated notes.....................       10,587            --
     Employee stock plans...............................        9,256        10,500
                                                          ------------  ------------
  Diluted net income per share -- average
     shares outstanding and other potential
     common shares......................................      144,320       127,752
                                                          ------------  ------------
Basic net income per share..............................        $0.53         $0.21
                                                          ============  ============
Diluted net income per share............................        $0.48         $0.19
                                                          ============  ============

NOTE G -- COMPREHENSIVE INCOME

The components of comprehensive income, net of tax, are as follows:

                                      Three Months Ended
                                  --------------------------
                                  September 24, September 26,
                                     2000          1999
                                  ------------  ------------
                                      (in thousands)
Net income ..................... $     66,089  $     24,682
Foreign currency translation
  adjustment....................        2,453        (5,587)
Derivatives - cash flow hedging
  adjustment......................         86           -
                                  ------------  ------------
Comprehensive income ........... $     68,628  $     19,095
                                  ============  ============

Accumulated other comprehensive income presented on the accompanying consolidated condensed balance sheets consists of the accumulated foreign currency translation adjustment and the activity related to derivatives classified as cash flow hedges held by the Company from June 26, 2000 through September 24, 2000.

NOTE H -- DERIVATIVE INSTRUMENTS AND HEDGING

On July 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings (fair value hedges) or recognized in other comprehensive income until the hedged item is recognized in earnings (cash flow hedges). The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. The adoption of SFAS 133 did not have a material impact on the Company's consolidated financial position or operating results.

The Company conducts its business in a number of foreign countries and sells its systems and spare parts directly to customers in Japan through its Japanese subsidiary. These sales are generally denominated in the local country's currency. Therefore, in the normal course of business, the Company's financial position is routinely subjected to market risk associated with foreign currency rate fluctuations. The Company's policy is to ensure that material business exposure to foreign exchange risks are identified, measured and minimized using the most effective and efficient methods to eliminate or reduce such exposures. To protect against the reduction in value of forecasted Yen denominated cash flows resulting from sales by the Company's Japanese subsidiary to third-party customers, the Company has instituted a foreign currency cash flow hedging program. The Company purchases foreign currency forward contracts generally expiring within 12 months, and no later than 24 months, to hedge portions of its forecasted revenue denominated in Japanese Yen. These foreign currency forward contracts are carried on the Company's balance sheet at fair value with the effective portion of the contracts' gain or loss recorded in other comprehensive income (a component of stockholders' equity) and subsequently recognized in earnings in the same period the hedged forecasted transaction (i.e. the forecasted Japanese subsidiary sale) affects earnings. The Company does not use derivatives for trading purposes.

The effectiveness test for these currency forward contracts is determined by using the foreign currency spot rate versus current balance sheet spot rate comparison. SFAS 133 permits the exclusion from the effectiveness assessment of the time value portion of the change in value of the currency forward contract. The change in fair value of the time value portion of the derivative is considered by the Company to be inherently ineffective and is immediately adjusted through earnings as a component of other income and expense each accounting period. During the three month period ended September 24, 2000, the Company recognized a net gain of $735,000 related to this portion of the hedging instrument excluded from the assessment of hedge effectiveness.

At September 24, 2000, the Company expects to reclassify the amount accumulated in other comprehensive income to earnings during the next twelve months due to the recognition of revenue by the Company's Japanese subsidiary.

If a cash flow hedge should be discontinued because it is probable that the original forecasted transaction will not occur, the net gain or loss in accumulated other comprehensive income will be reclassified into earnings as a component of other income and expense. No such amounts were recorded in earnings during the three-month period ended September 24, 2000.

The following table summarizes activity in other comprehensive income related solely to derivatives classified as cash flow hedges held by the Company during the period from June 26, 2000 through September 24, 2000.


                                                                        (in thousands)
                                                                        ------------
Cumulative effect of adopting FAS 133...................               $        494
Reclassified into income from other comprehensive income                       (471)
Changes in fair value of derivatives, net...............                         63
                                                                        ------------
     Other comprehensive income,net ....................               $         86
                                                                        ============

Additionally, the Company enters into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of foreign currency denominated intercompany receivables recorded on Lam U.S. books into the U.S. dollar functional currency. These derivatives do not qualify for hedge accounting and therefore, the change in fair value of these derivatives are adjusted to fair value through income as a component of other income and expense as an offset to the change in fair value of the foreign currency denominated intercompany receivables.

NOTE I -- RESTRUCTURING

During the Company's first fiscal 1997 quarter ended September 30, 1996, the Company projected and announced that revenues would be lower than previous quarters due to a projected 20% general market decline. The Company's revenues during that quarter fell to $299.2 million, a decrease of 24% from the prior quarter. The Company assessed that market conditions would remain depressed and, therefore, that its revenues would continue to be adversely affected. Accordingly, and as announced on August 26, 1996, the Company organizationally restructured its business units into a more centralized structure and cut its workforce by approximately 11%.

The Company's quarterly revenue would eventually decline to $233.3 million in the March 1997 quarter, 40% lower than the peak reached in the quarter ended June 1996. Subsequently, in the latter part of calendar 1997, the industry rebounded quickly and entered into what eventually became a short-lived upturn cycle. During the June 1997 quarter, the Company's revenues grew back to $282.6 million and reached $292.1 million by the December 1997 quarter. However, the Company's outlook in late January 1998 was that the industry was again entering into a steep downturn brought on by depressed DRAM pricing and the Asia financial crisis. The Company therefore announced a further set of restructuring activities in a news release on February 12, 1998. At that time, the Company's assessment of industry conditions was that its revenues for the March and June 1998 quarters would decline by approximately 20%. The Company's restructuring plans aligned its cost structure to this level of revenues by exiting part of its Chemical Vapor Deposition ("CVD") business and all of its Flat Panel Display ("FPD") business, consolidating its manufacturing facilities and substantially reducing its remaining infrastructure and workforce. The Company's actual June 1998 revenues were in line with those expectations; however, by the mid-June 1998 time-frame the industry conditions further deteriorated and the outlook for future quarters significantly worsened. The Company projected revenues to drop to a run rate of approximately $180 million per quarter and determined it needed once more to reduce its cost structure in line with the projected reductions in revenue. Accordingly, another separate restructuring plan was developed and announced in June 1998 and the Company exited the remainder of its CVD operations. As a result of the restructurings in fiscal 1998, the Company reduced its global workforce by approximately 28%.

The Company's revenue outlook in June 1998 was based on its projection that the worldwide wafer fabrication industry would deteriorate from a quarterly revenue amount of $4.2 billion to $3.2 billion, or a 25% decline. The semiconductor equipment market contracted beyond what was anticipated, to quarterly revenues of $2.6 billion as reported by Dataquest, an independent industry analysis firm. The Company's shortfall of revenues during the September 1998 quarter declined in line with the industry as a whole, and resulted in lower than anticipated revenues, falling to $142.2 million. At that point in time, the Company projected that its quarterly revenues would remain closer to the $140-$150 million level for at least the next several quarters. This necessitated another restructuring plan and further cost reductions via employee terminations, facilities consolidation and a contraction of operating activities, all of which resulted in the additional write-off of plant-related assets. This plan was announced and publicly communicated on November 12, 1998. As a result of the fiscal 1999 restructuring, the Company further reduced its global workforce by approximately 15%.

Beginning in late fiscal 1999, there were indications of a recovery in the semiconductor industry. On a global basis, semiconductor makers began adding new capacity to address an increase in the demand for semiconductors. In addition to new capacity, the semiconductor industry accelerated a migration to new materials such as copper and the new interconnect processes required to implement them. In early calendar year 2000, the Company determined that the upturn would be sustainable and that is was likely to continue through the end of the calendar year.

During the third quarter of fiscal 2000, the Company completed certain elements of its restructuring activities in accordance with its previously established and announced plans. As a result of the stronger than anticipated recovery of the semiconductor capital equipment market, the Company was able to recover approximately $18.9 million of the restructuring charges recorded in prior periods. Of this amount $1.4 million was recovered due to outplacement services guaranteed by the Company for terminated employees and other exit costs not being utilized. Another $5.6 million was recovered because the Company was able to reoccupy or successfully sublease certain manufacturing and administrative facilities under long term operating leases. The Company also recovered $3.1 million through the sale of its previously abandoned and written off facility in Korea. Additionally, the Company will utilize leasehold improvements of $5.5 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business. Approximately $0.8 million was recovered from the salvage of CVD inventories previously segregated and written off due to requests from former customers to purchase certain piece parts. The remaining $2.5 million was recovered due to certain customers not utilizing system return credits they requested and which were issued as a result of the decision to exit the CVD and FPD businesses.

As a result of the continued growth of the semiconductor capital equipment market, the Company recovered an additional $17.0 million of restructuring charges during the fourth quarter of fiscal 2000 at which time the Company completed the remaining elements of its restructuring plan. Of this amount, $9.5 million was recovered due to lower severance and termination costs than the Company had planned for certain employees and executives. Another $3.9 million was recovered from successful subleasing or occupancy of certain manufacturing and administrative facilities due to the aforementioned faster and more robust than anticipated industry recovery. The Company also recovered approximately $1.4 million from the sale of more of the aforementioned CVD and FPD inventory. Another $1.9 million was recovered as a result of customers not utilizing system return credits they had originally requested. Additionally, the Company will utilize leasehold improvements of $0.3 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business.

Below is a table summarizing restructuring activity relating to the fiscal 1999 restructuring:


                                           Lease                Credits
                              Severance  Payments   Abandoned     on
                                 and     on Vacated   Fixed    Returned
                              Benefits   Facilities  Assets    Equipment    Total
                              ---------  ---------  ---------  ---------  ---------
                                                   (in thousands)
Fiscal year 1999 provision.. $  16,521  $   1,125  $  28,141  $   7,585  $  53,372
Cash payments...............   (11,663)      (440)       --        (258)   (12,361)
Non-cash charges............       --          --    (28,141)    (1,959)   (30,100)
                              ---------  ---------  ---------  ---------  ---------
Balance at June 30, 1999....     4,858        685        --       5,368     10,911
Recovery of assets..........       --         171      4,258        --       4,429
Cash payments...............    (1,831)      (680)       --        (275)    (2,786)
Non-cash charges............       --         --         --        (806)      (806)
Reversal of retructuring
  charges...................    (3,027)      (176)    (4,258)    (2,586)   (10,047)
                              ---------  ---------  ---------  ---------  ---------
Balance at June 25, 2000....       --         --         --       1,701      1,701
Cash payments...............       --         --         --         --         --
Non-cash charges............       --         --         --        (633)      (633)
                              ---------  ---------  ---------  ---------  ---------
Balance at
  September 24, 2000........ $     --   $     --   $     --   $   1,068  $   1,068
                              =========  =========  =========  =========  =========

Severance and Benefits relates to the salary and fringe benefit expense for involuntarily terminated employees representing approximately 15% of the global workforce. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed the Company to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The termination of employees occurred shortly after the plan of restructuring was finalized.

Lease Payments on Vacated Facilities relates to 24 months of rent and common area maintenance expense for the vacated facilities. The Company also estimated given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease its vacated facilities in Fremont, California.

The Company wrote-off all leasehold improvements used in the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.

Credits on Returned Equipment relate to the charge associated with the requirement by certain of the Company's customers to return their previously purchased CVD systems and spare parts. The majority of the Credit on the Returned Equipment reserve balance of $1.1 million as of September 24, 2000 is expected to be utilized by the end of the current calendar year 2000.

Below is a table summarizing restructuring activity relating to the fiscal 1998 restructuring:



                                           Lease                Excess     Credits
                              Severance  Payments   Abandoned     and        on        Other
                                 and     on Vacated   Fixed    Obsolete   Returned     Exit
                              Benefits   Facilities  Assets    Inventory  Equipment    Costs      Total
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                             (in thousands)
Fiscal year 1998 provision.. $  40,317  $  16,998  $  47,341  $  31,933  $   6,547  $   5,722  $ 148,858
Cash payments...............    (9,766)    (1,518)        --         --         --         --    (11,284)
Non-cash charges............        --         --    (47,341)   (31,933)    (4,135)    (5,722)   (89,131)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at June 30, 1998....    30,551     15,480         --         --      2,412         --     48,443
Adjustment..................        --         --         --         --      1,528         --      1,528
Cash payments...............   (19,777)    (3,039)        --         --     (2,150)        --    (24,966)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at June 30, 1999....    10,774     12,441         --         --      1,790         --     25,005
Recovery of assets..........        --         --      4,656      2,249         --         --      6,905
Cash payments...............    (1,228)    (2,234)        --         --         --         --     (3,462)
Reversal of retructuring
  charges...................    (7,683)    (9,277)    (4,656)    (2,249)    (1,790)        --    (25,655)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at June 25, 2000....     1,863        930         --         --         --         --      2,793
Recovery of assets............      --         --         --        242         --         --        242
Cash payments...............      (194)       (95)        --         --         --         --       (289)
Reversal of retructuring
  charges...................        --         --         --       (242)        --         --       (242)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at
  September 24, 2000........ $   1,669  $     835  $      --  $      --  $      --  $      --  $   2,504
                              =========  =========  =========  =========  =========  =========  =========

Severance and Benefits relates to the salary and fringe benefit expense of the involuntarily terminated employees of the CVD and FPD operations which were exited, the shutdown of the Wilmington, Massachusetts manufacturing facility, and the employees impacted by the overall across the board reduction of the employee base. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed the Company to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The restructuring plans resulted in the Company reducing its global workforce by approximately 28%. The termination of employees occurred shortly after the plan of restructuring was finalized.

The Severance and Benefits reserve balance of $1.7 million as of September 24, 2000 will be utilized to make scheduled fixed cash payments through the remainder of those former employees' separation contracts.

Lease Payments on Vacated Facilities, which were included in the restructuring charge, related to remaining rent and common area maintenance on the closed Wilmington, Massachusetts manufacturing facility. The Company also estimated, given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease its excess facilities in Fremont, California. Therefore, the Company included 24 months of rent and common area maintenance expense related to excess facilities in its restructuring charge. Subsequently, the Company has subleased its excess facilities, and the remainder represents fixed commitments that will be utilized.

The Company wrote-off all fixed assets relating to the operations which were exited, leasehold improvements for the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees and other assets deemed to have no future use as a result of the restructuring.

The inventory write-off, which was included in the restructuring charge, related to inventory from the operations which were exited. The inventory write-off included raw materials on hand and inventory scheduled to be purchased under non-cancelable commitments from suppliers, spare parts, work-in-process and finished goods related to the products from the exited operations.

Credits on Returned Equipment relates to the charge associated with the requirement by certain of the Company's customers to return their previously purchased CVD systems and spare parts. During fiscal 1999, the Company recorded an adjustment to the restructuring reserve of $1.5 million for the sale of a previously written-off machine. The remainder of the reserve was reversed during fiscal 2000.

Other Exit Costs relates to the net book value of licensing and manufacturing agreements related to the restructured operations which, as a direct result of the restructuring plan, has no future economic benefit to us.

Below is a table summarizing restructuring activity relating to the fiscal 1997 restructuring:


                                           Lease
                              Severance  Payments   Abandoned
                                 and     on Vacated   Fixed
                              Benefits   Facilities  Assets      Total
                              ---------  ---------  ---------  ---------
                                         (in thousands)
Balance at June 30, 1997.... $     578  $   1,086  $     --   $   1,664
Adjustment..................     1,086     (1,086)       --         --
Cash payments...............      (406)        --        --        (406)
                              ---------  ---------  ---------  ---------
Balance at June 30, 1998....     1,258         --        --       1,258
Cash payments...............      (409)        --        --        (409)
                              ---------  ---------  ---------  ---------
Balance at June 30, 1999....       849         --        --         849
Reversal of retructuring
  charges...................      (238)        --        --        (238)
Cash payments...............      (183)        --        --        (183)
                              ---------  ---------  ---------  ---------
Balance at June 25, 2000....       428         --        --         428
Cash payments...............       (47)        --        --         (47)
                              ---------  ---------  ---------  ---------
Balance at
  September 24, 2000........ $     381  $      --  $     --   $     381
                              =========  =========  =========  =========

Severance and Benefits relates to the salary and fringe benefit expense for the involuntarily terminated employees, which represented approximately 11% of the global workforce. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed the Company to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The actual termination of employees occurred shortly after the plan of restructuring was finalized. During fiscal 1998, the Company revised its estimate relating to severance and benefits and transferred the excess balance of remaining lease payments on vacated facilities of $1.1 million to severance and benefits.

The Severance and Benefits reserve balance of $0.4 million as of September 24, 2000 will be utilized through the remainder of those former employees' separation contracts.

Lease Payments on Vacated Facilities relate to rent and common area maintenance expense for the vacated facilities.

During fiscal 1997 the Company wrote-off all leasehold improvements used in the vacated facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.

NOTE J -- LITIGATION

See Part II, item 1 for discussion of litigation.

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

Operations

With the exception of historical facts, the statements contained in this discussion are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are subject to the Safe Harbor provisions created by that statute. 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, royalty income, gross margins, levels of research and development and operating expenses, our management's plans and objectives for our current and future operations, 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, and other documents we may file from time to time with the Securities and Exchange Commission, specifically our last filed Annual Report on Form 10-K for the fiscal year ended June 25, 2000. 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 of information currently and reasonably known. We undertake no obligation to release 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. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes presented thereto on pages 6 to 16 of this Form 10-Q and the financial statements and notes in our last filed Annual Report on Form 10K for a full understanding of our financial position and results of operations for the quarterly period ended September 24, 2000.

RESULTS OF OPERATIONS

Total Revenue

Our total revenue for the quarter ended September 24, 2000 was $432.0 million, 79% higher than the corresponding first quarter in fiscal 2000 of $241.6 million. We experienced increased revenue from all of our product lines.

The geographic breakdown of revenue is as follows:

                          Three Months Ended
                      --------------------------
                      September 24, September 26,
                         2000          1999
                      ------------  ------------
North America.......           34%           40%
Europe..............           24%           18%
Asia Pacific........           29%           28%
Japan...............           13%           14%

Gross Margin

Our gross margin percentage increased to 46.1% for the quarterly period ending September 24, 2000 compared to 41.7% for the same period in the prior fiscal year. The increase in our gross margin percentage was mainly due to the favorable impact of higher sales volume, the efficiencies of "lean" manufacturing techniques, and continued material cost reductions.

Research and Development

Research and Development ("R&D") expenses for the quarter ended September 24, 2000, were $56.5 million, 44.0% higher than the corresponding first quarter in fiscal 2000. However, as a percentage of revenue, R&D expenses were 13.1% of total revenue for the first quarter of fiscal 2001, compared to 16.3% of total revenue for the corresponding quarter in fiscal 2000. The decrease in R&D expenses as a percent of revenue is mainly due to the significant increase in revenue for the first quarter of fiscal 2001. The increase in R&D expenses in absolute dollars was a result of our continued investments in advanced etch and CMP applications and enhancements to our existing products, including developing the technology necessary to support smaller feature size, copper based devices and 300 mm wafers. We believe that in order to remain competitive, we must continue to invest substantially in R&D.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses were 12.3% of total revenue for the first quarter of fiscal 2001, as compared to 14.3% of total revenue in the first quarter of fiscal 2000, but increased in absolute dollars from $34.5 million in September 1999 to $52.9 million in September 2000. SG&A expenses decreased as a percent of revenue mainly due to the significant increase in revenue for the quarter ended September 24, 2000. The increase in SG&A expenses in absolute dollars was largely a result of increased headcount related to higher sales, marketing and administrative support for our expanding business as well as increased incentive payments to our employees.

New Accounting Pronouncements

FAS 133. On July 1, 2000, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for derivatives used for hedging activities. It requires that all derivatives be recognized either as an asset or liability, and measures them at fair value. The adoption of FAS 133 did not have a material impact on our consolidated financial position or overall trends in results of operations.

FIN 44. In March 2000, the FASB issued FASB Interpretation No.44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25". FIN 44 is intended to clarify the application of APB Opinion No. 25 by providing guidance regarding among other issues: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000. The adoption of FIN 44 did not have a material impact on our consolidated financial position or results of operations.

Restructuring Charge

During our first fiscal 1997 quarter ended September 30, 1996, we projected and announced that revenues would be lower than previous quarters due to a projected 20% general market decline. Our revenues during that quarter fell to $299.2 million, a decrease of 24% from the prior quarter. We assessed that market conditions would remain depressed and, therefore, that our revenues would continue to be adversely affected. Accordingly, and as announced on August 26, 1996, we organizationally restructured our business units into a more centralized structure and cut our workforce by approximately 11%.

Our quarterly revenue would eventually decline to $233.3 million in the March 1997 quarter, 40% lower than the peak reached in the quarter ended June 1996. Subsequently, in the latter part of calendar 1997, the industry rebounded quickly and entered into what eventually became a short-lived upturn cycle. During the June 1997 quarter, our revenues grew back to $282.6 million and reached $292.1 million by the December 1997 quarter. However, our outlook in late January 1998 was that the industry was again entering into a steep downturn brought on by depressed DRAM pricing and the Asia financial crisis. We therefore announced a further set of restructuring activities in a news release on February 12, 1998. At that time, our assessment of industry conditions was that our revenues for the March and June 1998 quarters would decline by approximately 20%. Our restructuring plans aligned our cost structure to this level of revenues by exiting part of our CVD business and all of our FPD business, consolidating our manufacturing facilities and substantially reducing our remaining infrastructure and workforce. Our actual June 1998 revenues were in line with those expectations; however, by the mid-June 1998 time-frame the industry conditions further deteriorated and the outlook for future quarters significantly worsened. We projected revenues to drop to a run rate of approximately $180 million per quarter and determined we needed once more to reduce our cost structure in line with the projected reductions in revenue. Accordingly, another separate restructuring plan was developed and announced in June 1998 and we exited the remainder of our CVD operations. As a result of the restructurings in fiscal 1998, we reduced our global workforce by approximately 28%.

Our revenue outlook in June 1998 was based on our projection that the worldwide wafer fabrication industry would deteriorate from a quarterly revenue amount of $4.2 billion to $3.2 billion, or a 25% decline. The semiconductor equipment market contracted beyond what was anticipated, to quarterly revenues of $2.6 billion as reported by Dataquest, an independent industry analysis firm. Our shortfall of revenues during the September 1998 quarter declined in line with the industry as a whole, and resulted in lower than anticipated revenues, falling to $142.2 million. At that point in time, we projected that our quarterly revenues would remain closer to the $140-$150 million level for at least the next several quarters. This necessitated another restructuring plan and further cost reductions via employee terminations, facilities consolidation and a contraction of operating activities, all of which resulted in the additional write-off of plant-related assets. This plan was announced and publicly communicated on November 12, 1998. As a result of the fiscal 1999 restructuring, we further reduced our global workforce by approximately 15%.

Beginning in late fiscal 1999, there were indications of a recovery in the semiconductor industry. On a global basis, semiconductor makers began adding new capacity to address an increase in the demand for semiconductors. In addition to new capacity, the semiconductor industry accelerated a migration to new materials such as copper and the new interconnect processes required to implement them. In early calendar year 2000, we concluded that the upturn would be sustainable and that it was likely to continue through the end of the calendar year.

During the third quarter of fiscal 2000 we completed certain elements of our restructuring activities in accordance with our previously established and announced plans. As a result of the stronger than anticipated recovery of the semiconductor capital equipment market, we were able to recover approximately $18.9 million of the restructuring charges recorded in prior periods. Of this amount, $1.4 million was recovered due to outplacement services guaranteed by us for terminated employees and other exit costs not being utilized. Another $5.6 million was recovered because we were able to reoccupy or successfully sublease certain manufacturing and administrative facilities under long term operating leases. We also recovered $3.1 million through the sale of our previously abandoned and written off facility in Korea. Additionally, we will utilize leasehold improvements of $5.5 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business. Approximately $0.8 million was recovered from the salvage of CVD inventories previously segregated and written off due to requests from former customers to purchase certain piece parts. The remaining $2.5 million was recovered due to certain customers not utilizing system return credits they requested and which were issued as a result of the decision to exit the CVD and FPD businesses.

As a result of the continued growth of the semiconductor capital equipment market, we recovered an additional $17.0 million of restructuring charges during the fourth quarter of fiscal 2000 at which time we completed the remaining elements of our restructuring plan. Of this amount, $9.5 million was recovered due to lower severance and termination costs than we had planned for certain employees and executives. Another $3.9 million was recovered from successful subleasing or occupancy of certain manufacturing and administrative facilities due to the aforementioned faster and more robust than anticipated industry recovery. We also recovered approximately $1.4 million from the sale of more of the aforementioned CVD and FPD inventory. Another $1.9 million was recovered as a result of customers not utilizing system return credits they had originally requested. Additionally, we will utilize leasehold improvements of $0.3 million in certain manufacturing and administration facilities under operating leases which have been reoccupied as a result of the stronger than anticipated rebound in business.

Below is a table summarizing activity relating to the fiscal 1999 restructuring:


                                           Lease                Credits
                              Severance  Payments   Abandoned     on
                                 and     on Vacated   Fixed    Returned
                              Benefits   Facilities  Assets    Equipment    Total
                              ---------  ---------  ---------  ---------  ---------
                                                   (in thousands)
Fiscal year 1999 provision.. $  16,521  $   1,125  $  28,141  $   7,585  $  53,372
Cash payments...............   (11,663)      (440)       --        (258)   (12,361)
Non-cash charges............       --          --    (28,141)    (1,959)   (30,100)
                              ---------  ---------  ---------  ---------  ---------
Balance at June 30, 1999....     4,858        685        --       5,368     10,911
Recovery of assets..........       --         171      4,258        --       4,429
Cash payments...............    (1,831)      (680)       --        (275)    (2,786)
Non-cash charges............       --         --         --        (806)      (806)
Reversal of retructuring
  charges...................    (3,027)      (176)    (4,258)    (2,586)   (10,047)
                              ---------  ---------  ---------  ---------  ---------
Balance at June 25, 2000....       --         --         --       1,701      1,701
Cash payments...............       --         --         --         --         --
Non-cash  charges...........       --         --         --        (633)      (633)
                              ---------  ---------  ---------  ---------  ---------
Balance at
  September 24, 2000........ $     --   $     --   $     --   $   1,068  $   1,068
                              =========  =========  =========  =========  =========

Severance and Benefits relates to the salary and fringe benefit expense for involuntarily terminated employees representing approximately 15% of the global workforce. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed us to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The termination of employees occurred shortly after the plan of restructuring was finalized.

Lease Payments on Vacated Facilities relates to 24 months of rent and common area maintenance expense for the vacated facilities. We also estimated given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease our vacated facilities in Fremont, California.

We wrote-off all leasehold improvements used in the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.

Credits on Returned Equipment relate to the charge associated with the requirement by certain of our customers to return their previously purchased CVD systems and spare parts. The majority of the Credit on the Returned Equipment reserve balance of $1.1 million as of September 24, 2000 is expected to be utilized by the end of the current calendar year 2000.

Below is a table summarizing activity relating to the fiscal 1998 restructuring:



                                           Lease                Excess     Credits
                              Severance  Payments   Abandoned     and        on        Other
                                 and     on Vacated   Fixed    Obsolete   Returned     Exit
                              Benefits   Facilities  Assets    Inventory  Equipment    Costs      Total
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                             (in thousands)
Fiscal year 1998 provision.. $  40,317  $  16,998  $  47,341  $  31,933  $   6,547  $   5,722  $ 148,858
Cash payments...............    (9,766)    (1,518)        --         --         --         --    (11,284)
Non-cash charges............        --         --    (47,341)   (31,933)    (4,135)    (5,722)   (89,131)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at June 30, 1998....    30,551     15,480         --         --      2,412         --     48,443
Adjustment..................        --         --         --         --      1,528         --      1,528
Cash payments...............   (19,777)    (3,039)        --         --     (2,150)        --    (24,966)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at June 30, 1999....    10,774     12,441         --         --      1,790         --     25,005
Recovery of assets..........        --         --      4,656      2,249         --         --      6,905
Cash payments...............    (1,228)    (2,234)        --         --         --         --     (3,462)
Reversal of retructuring
  charges...................    (7,683)    (9,277)    (4,656)    (2,249)    (1,790)        --    (25,655)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at June 25, 2000....     1,863        930         --         --         --         --      2,793
Recovery of assets............      --         --         --        242         --         --        242
Cash payments...............      (194)       (95)        --         --         --         --       (289)
Reversal of retructuring
  charges...................        --         --         --       (242)        --         --       (242)
                              ---------  ---------  ---------  ---------  ---------  ---------  ---------
Balance at
  September 24, 2000........ $   1,669  $     835  $      --  $      --  $      --  $      --  $   2,504
                              =========  =========  =========  =========  =========  =========  =========

Severance and Benefits relates to the salary and fringe benefit expense of the involuntarily terminated employees of the CVD and FPD operations which were exited, the shutdown of the Wilmington, Massachusetts manufacturing facility, and the employees impacted by the overall across the board reduction of the employee base. Prior to the date of the financial statements, management, with the proper level of authority, approved and committed us to a plan of termination and determined the benefits the employees being terminated would receive. Prior to the financial statement date, the expected termination benefits were communicated to employees in enough detail that they could determine their type and amount of benefit. The 1998 restructuring plans resulted in our reducing our global workforce by approximately 28%. The termination of employees occurred shortly after the plan of restructuring was finalized.

The Severance and Benefits reserve balance of $1.7 million as of September 24, 2000 will be utilized to make scheduled cash payments through the remainder of those former employees' separation contracts.

Lease Payments on Vacated Facilities, which were included in the restructuring charge relates to remaining rent and common area maintenance on the closed Wilmington, Massachusetts manufacturing facility. We also estimated, given the then-current real estate market conditions, that it would take approximately 24 months to sub-lease our excess facilities in Fremont, California. Therefore, we included 24 months of rent and common area maintenance expense related to excess facilities in our restructuring charge. Subsequently, we have subleased our excess facilities, and the remainder represents fixed commitments that will be utilized.

We wrote-off all fixed assets relating to the operations which were exited, leasehold improvements for the excess facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees and other assets deemed to have no future use as a result of the restructuring.

Credits on Returned Equipment relates to the charge associated with the requirement by certain of our customers to return their previously purchased CVD systems and spare parts. During fiscal 1999, we recorded an adjustment to the restructuring reserve of $1.5 million for the sale of a previously written-off machine. The remainder of the reserve was reversed during fiscal 2000.

Below is a table summarizing activity relating to the fiscal 1997 restructuring:


                                           Lease
                              Severance  Payments   Abandoned
                                 and     on Vacated   Fixed
                              Benefits   Facilities  Assets      Total
                              ---------  ---------  ---------  ---------
                                         (in thousands)
Balance at June 30, 1997.... $     578  $   1,086  $     --   $   1,664
Adjustment..................     1,086     (1,086)       --         --
Cash payments...............      (406)        --        --        (406)
                              ---------  ---------  ---------  ---------
Balance at June 30, 1998....     1,258         --        --       1,258
Cash payments...............      (409)        --        --        (409)
                              ---------  ---------  ---------  ---------
Balance at June 30, 1999....       849         --        --         849
Reversal of retructuring
  charges...................      (238)        --        --        (238)
Cash payments...............      (183)        --        --        (183)
                              ---------  ---------  ---------  ---------
Balance at June 25, 2000....       428         --        --         428
Cash payments...............       (47)        --        --         (47)
                              ---------  ---------  ---------  ---------
Balance at
  September 24, 2000........ $     381  $      --  $     --   $     381
                              =========  =========  =========  =========

The Severance and Benefits reserve balance of $0.4 million as of September 24, 2000 will be utilized to make scheduled periodic cash payments through the remainder of those former employees' separation contracts.

Lease Payments on Vacated Facilities relate to rent and common area maintenance expense for the vacated facilities.

During fiscal 1997 we wrote- off all leasehold improvements used in vacated facilities, computer equipment, furniture and fixtures related to the involuntarily terminated employees, and other assets deemed to have no future use as a result of the restructuring.

Tax Expenses

Income tax was recorded using a 30% tax rate assumption based on our current revenue and profit outlook for fiscal 2001.

Transition to Single European Currency

During fiscal 1999, we established a team to address issues raised by the introduction of the Single European Currency ("Euro") for initial implementation as of January 1, 1999, and through the transition period to January 1, 2002. We met all related legal requirements by January 1, 1999, and we expect to meet all legal requirements through the transition period. We do not expect the cost of any related system modifications to be material and do not currently expect that the introduction and use of the Euro will materially affect our foreign exchange and hedging activities, or will result in any material increase in transaction costs. We will continue to evaluate the impact of the introduction of the Euro; however, based on currently available information, management does not believe that the introduction of the Euro has or will have a material adverse impact on our financial condition or results of our operations.

Year 2000 Issues

To date, we have not experienced any material Year 2000 related issues, and we expect only minimal future Year 2000 issues, if any, based on the performance to date of internal systems that we use and the products we supply to our customers.

LIQUIDITY AND CAPITAL RESOURCES

As of September 24, 2000, we had $434.1 million in cash, cash equivalents, short-term investments, and restricted cash compared with $432.1 million at June 25, 2000. We had a total of $100.0 million available under a syndicated bank line of credit, which is due to expire in April 2001. Borrowings are subject to our compliance with financial and other covenants set forth in the credit documents. During fiscal 1999, we amended the syndicated bank line of credit with respect to certain applicable covenant requirements and amended the line of credit borrowing rates to a range of 0.55% to 1.25% over LIBOR. At September 24, 2000, we were in compliance with all our financial and other covenants.

Net cash provided by operating activities was $13.1 million for the quarter ending September 24, 2000. This primarily resulted from net income of $66.1 million and non-cash charges for depreciation of $13.3 million and sales of accounts receivables of $57.5 million, offset by net uses of working capital of $123.8 million. Increases in accounts receivable and inventory resulted from the increase in sales volume and were partially offset by the increase in accounts payable and accrued liabilities.

Net cash used in investing activities during the first quarter of fiscal 2001 was $15.4 million, which stemmed primarily from the net purchase of short-term investments of $2.4 million and net capital expenditures of $16.0 million.

Net cash flows provided by financing activities during the quarter ended September 24, 2000 were $6.5 million. We made principal payments on long-term debt and capital lease obligations of $0.7 million offset by proceeds from the issuance of short-term debt of $3.4 million. We repurchased $3.5 million of common stock and reissued $7.1million of our treasury stock through our employee option and stock purchase programs.

During fiscal 1999, we entered into certain option transactions with independent third parties (the "third parties") for the purchase and sale of our common stock. Our Board of Directors authorized us to acquire from the third parties options to purchase up to 10.5 million shares of our common stock. These call options were acquired in order to offset the anticipated dilutive effect of a potential conversion into common stock of the Convertible Subordinated Notes (the "Notes") previously issued by us, and due September 2, 2002. As part of the program, the Board of Directors also authorized us to enter into put options with the same third parties covering up to 15.75 million shares of our common stock. We anticipated that the premiums we would receive over the course of the program from the sale of the put options to the third parties would offset in full the premium cost of our purchase of the call options from those same third parties. Consequently, we do not expect to exchange cash over the course of the program with the third parties in conjunction with our purchase of the call options.

Pursuant to this authorization described above, we have as of September 24, 2000 acquired call options to purchase 3.72 million shares of our Common Stock; the weighted average exercise price of these options is $11.29. The call options provide that our maximum benefit at expiration is $17.97 per option share (the difference between $29.26, which is the conversion price of the Notes, and the weighted average exercise price of the call options). We have also entered into put options with the same third parties covering 5.58 million shares of our common stock, giving those third parties the right to sell to us shares of our Common Stock at a weighted average price of $9.48 per share.

The call and put options are European style options exercisable upon expiration; all of the options expire no later than September 3, 2002, which is the business day following the date on which the Notes must either be converted or retired. Upon option exercise, we have the ability, at our option, to permit the options to be physically settled (i.e., shares would be delivered to us against payment of the exercise price), settled in cash (i.e., by a payment from one party to the other of the value of the option being exercised) or "net settled" in shares (i.e., by delivery of a number of shares of common stock having a value equal to the value of the option being exercised). We can also terminate the options prior to expiration for a settlement value determined from time to time by the appropriate third Party. While the options are only exercisable at expiration, the terms of the contracts with the third parties provide for early termination and settlement of the options upon the occurrence of certain events (in a form determined by us which includes net settlement of shares), including without limitation our material breach of the agreement, default on certain indebtedness or covenants relating to our financial condition, reduction in our S&P credit rating below B or a drop in the price of our Common Stock to less than $1.67 per share.

If the average stock price is below $9.48 during any period, the required number of shares to net settle the Company's obligation under the put option agreement would be considered dilutive securities in our dilutive earnings per share ("EPS") calculation.

Given the cyclical nature of the semiconductor equipment industry, we believe that maintenance of sufficient liquidity reserves is important to ensure our ability to maintain levels of investment in R&D and capital infrastructure through ensuing business cycles. Based upon our current business outlook, our cash, cash equivalents, short-term investments, restricted cash and available lines of credit at September 24, 2000 are expected to be sufficient to support our current anticipated levels of operations and capital expenditures through at least the next 12 months.

RISK FACTORS
Our Quarterly Revenues and Operating Results are Unpredictable

Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, not all of which are in our control. These factors include:

economic conditions in the semiconductor industry generally, and the equipment industry specifically;

customer capacity requirements;

the size and timing of orders from customers;

customer cancellations or delays in our shipments;

our ability in a timely manner to develop, introduce and market new, enhanced and competitive products;

our competitors' introduction of new products;

legal or technical challenges to our products and technology;

changes in average selling prices and product mix; and

exchange rate fluctuations.

We manage our expense levels in part on our expectations of future revenues. If revenue levels in a particular quarter do not meet our expectations, our operating results are adversely affected.

We derive our revenue primarily from the sale of a relatively small number of high-priced systems. Our systems can range in price from approximately $400,000 to $4 million per unit. Our operating results for a quarter may suffer substantially if:

we sell fewer systems than we anticipate in any quarter;

we do not receive anticipated orders in time to enable actual shipment during that quarter;

one or more customers delay or cancel anticipated shipments; or

shipments are delayed by procurement shortages or manufacturing difficulties.

Our ability to recognize revenues might be delayed due to changes in accounting rules. SAB No. 101 "Revenue Recognition in Financial Statements" provides new guidance on the recognition, presentation and disclosure of revenue in financial statements of all public registrants. Currently, we generally recognize revenue on products upon shipment to our customers. The adoption of SAB 101 may require that some or all of that revenue not be recognized until the product is actually accepted by the customers, an event, which generally does not happen until sometime after shipment has occurred. Compliance with SAB 101 therefore might delay our recognition of revenue, compared to our current practice, for one or more quarters, causing an adverse impact on our operating results during the quarters in which product has been shipped, but not yet accepted by the customer. The SEC has delayed the required implementation date of SAB 101, which for us, will be the fourth quarter of fiscal 2001. In October 2000, the SEC issued implementation guidance in the form of "Frequently Asked Questions". We are still in the process of assessing the impact of SAB 101 on our consolidated results of operations based upon the SEC's most recently issued guidance.

Further, because of our continuing consolidation of manufacturing operations and capacity at our Fremont, California facility, natural, physical, logistical or other events or disruptions affecting this facility (including labor disruptions) could adversely impact our financial performance.

We May Experience Difficulty Transitioning to our New Enterprise Resource System

We implemented a new next-generation enterprise resource planning and information system during fiscal 2000. It replaced most of the transactional systems utilized in the past, including core manufacturing, finance, service, sales, shipping, inventory and warranty operations and other significant operational systems. To date the implementation has been successful however, delays in our ability to transition to this new planning and information system, or disruptions in our internal operations or systems caused by the transition or the need to free up additional support and resources in order to ensure our timely transition, could temporarily disrupt certain of our operations. This could include a temporary delay in our ability to manufacture and ship equipment and/or spare parts to our customers, which could cause a near-term short-fall in quarterly operating results, including revenues and earnings.

The Semiconductor Equipment Industry is Volatile, which Affects Our Revenues and Financial Results

Our business depends on the capital equipment expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits and products using integrated circuits. The semiconductor industry is cyclical in nature and historically experiences periodic downturns. During the past two years the semiconductor industry has experienced severe swings of product demand and volatility in product pricing. In early fiscal 1998 and fiscal 1999, the semiconductor industry reduced or delayed significantly purchases of semiconductor manufacturing equipment and construction of new fabrication facilities because of an industry downturn. However, beginning in late fiscal 1999, we saw indications of a recovery, which is expected to extend through calendar 2000. Fluctuating levels of investment by the semiconductor manufacturers and pricing volatility will continue to materially affect our aggregate bookings, revenues and operating results. Even during periods of reduced revenues, we must continue to invest in research and development and to maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our financial results.

We Depend on New Products and Processes for Our Success. For this Reason, We Are Subject to Risks Associated with Rapid Technological Change.

Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances enabling such processes. We believe that our future success depends in part upon our ability to develop, manufacture and successfully introduce new products with improved capabilities and to continue to enhance our existing products. Due to the risks inherent in transitioning to new products, we must forecast accurately demand for new products while managing the transition from older products. If new products have reliability or quality problems our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. In the past, product introductions caused some delays and reliability and quality problems. We may be unable to develop and manufacture new products successfully, or new products that we introduce may fail in the marketplace, which would materially and adversely affect our results from operations.

We expect to continue to make significant investments in research and development and to pursue joint development relationships with customers or other members of the industry. We must manage product transitions and joint development relationships successfully, as introduction of new products could adversely affect our sales of existing products. Future technologies, processes or product developments may render our current product offerings obsolete, or we may be unable in a timely manner to develop and introduce new products or enhancements to our existing products which satisfy customer needs or achieve market acceptance. Furthermore, if we are unsuccessful in the marketing and selling of advanced processes or equipment to customers with whom we have strategic alliances, we may be unsuccessful in selling existing products to those customers. In addition, in connection with the development of new products, we will invest in significant levels of initial production inventory. Our failure in a timely manner to complete commercialization of these new products could result in inventory obsolescence, which would adversely affect our financial results.

We Are Subject to Risks Associated with the Introduction of New Products

Once new products are introduced, we expect to face significant competition from multiple current and future competitors. We believe that other companies are developing systems and products that are competitive to ours and are planning to introduce new products to this market, which may affect our ability to sell our new products. Furthermore, new products represent significant investments of our resources and their success, or lack thereof, could have a material affect on our financial results.

We Are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification

We derive a substantial percentage of our revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our revenues in the near term. Continued market acceptance of our primary products is, therefore, critical to our future success. Our business, operating results, financial condition and cash flows could therefore be adversely affected by:

a decline in demand for our products;

a failure to achieve continued market acceptance of our products;

an improved version of products being offered by a competitor in the market we participate in;

technological change that we are unable to match in our products; and

a failure to release new enhanced versions of our products on a timely basis.

We are Dependent Upon a Limited Number of Key Suppliers

We obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. Each of our key suppliers has a one year blanket purchase contract under which we may issue purchase orders. We may renew these contracts periodically. Each of these suppliers sold us products during at least the last four years, and we expect that we will continue to renew these contracts in the future or that we will otherwise replace them with competent alternative source suppliers. Nevertheless, a prolonged inability to obtain certain components could adversely affect our operating results and result in damage to our customer relationships.

We May Encounter Difficulties Obtaining Sufficient Personnel, Components and Other Resources to Meet Current Demands

The semiconductor equipment industry is currently experiencing significant demand for its products. This demand has increased our requirements for qualified management, technical and engineering personnel needed for our business operations. Competition for adequate personnel, particularly in the San Francisco Bay Area, is intense, and we have experienced difficulty in identifying and hiring such personnel. The loss of the services of key management or technical and engineering employees could have a material adverse effect on our business, operating results, financial condition, cash flows, market perceptions and price of our common stock.

We might also experience shortages in components and other resources of all types required to satisfy customer demand for our products. If we are unable to satisfy customer demand, we might drive them to purchase products elsewhere, which might have a material adverse affect on our operating results and could result in damage to our customer relationships.

Once a Semiconductor Manufacturer Commits to Purchase a Competitor's Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase that Competitor's Equipment, Making it More Difficult for Us to Sell our Equipment to that Customer

Semiconductor manufacturers must make a substantial investment to install and integrate capital equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier's capital equipment, the manufacturer generally relies upon that equipment for that specific production line application. Accordingly, we expect it to be more difficult to sell to a given customer if that customer initially selects a competitor's equipment. We believe that to remain competitive we will require significant financial resources to offer a broad range of products, to maintain customer service and support centers worldwide, and to invest in product and process research and development.

We May Lack the Financial Resources or Technological Capabilities of Certain of Our Competitors Needed to Capture Increased Market Share

Certain of our competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer service and support resources than we do and therefore are increasingly dominating the semiconductor equipment industry. In addition, there are smaller emerging semiconductor equipment companies that may provide innovative technology that may have performance advantages over systems we currently, or expect to, offer.

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 performance characteristics. If our competitors enter into strategic relationships with leading semiconductor manufacturers covering products similar to those we sell or may develop, it could adversely affect our ability to sell products to those manufacturers. In addition, competitors with higher levels of financial resources than us may continue to deeply discount products similar to those we sell. For these reasons, we may fail to continue to compete successfully worldwide.

Our present or future competitors may be able to develop products comparable or superior to those we offer or that adapt more quickly to new technologies or evolving customer requirements. In particular, while we currently are developing additional product enhancements that we believe will address customer requirements, we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive. Accordingly, we may be unable to continue to compete effectively in our markets, competition may intensify or future competition may have a material adverse effect on our revenues, operating results, financial condition and cash flows.

Our Future Success Depends on International Sales

International sales accounted for approximately 71% of our total revenue in fiscal 2000, 54% in fiscal 1999, and 55% in fiscal 1998. We expect that international sales will continue to account for a significant portion of our total revenue in future years. International sales are subject to risks, including, but not limited to:

foreign exchange risks;

foreign trade disputes; and

economic, political, banking and currency problems in the relevant region.

We currently enter into foreign currency forward contracts to minimize the short term impact of exchange rate fluctuations on yen- denominated sales and assets, and will continue to enter into hedging transactions in the future.

A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results

We are subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals. 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. These permits generally relate to the disposal of hazardous wastes. 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.

Our Ability to Manage Potential Growth; Integration of Potential Acquisitions and Potential Disposition of Product Lines and Technologies Creates Risks for Us

Our management may face significant challenges in improving financial and business controls, management processes, information systems and procedures on a timely basis, and expanding, training and managing our work force if we experience additional growth. There can be no assurance that we will be able to perform such actions successfully. In the future, we may make acquisitions of complementary companies, products or technologies, or we may reduce or dispose of certain product lines or technologies, which no longer fit our long-term strategy. Managing an acquired business or disposing of product technologies entails numerous operational and financial risks, including difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, diversion of management's attention to other business concerns, amortization of acquired intangible assets and potential loss of key employees or customers of acquired or disposed operations. Our success will depend, to a significant extent, on the ability of our executive officers and other members of our senior management to identify and respond to these challenges effectively. There can be no assurance that we will be able to achieve and manage effectively any such growth, integration of potential acquisitions or disposition of product lines or technologies, or that our management, personnel or systems will be adequate to support continued operations. Any such inabilities or inadequacies would have a material adverse effect on our business, operating results, financial condition and cash flows.

An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our technological capabilities. We may acquire additional businesses, products or technologies in the future. Any acquisitions could result in changes such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and the amortization expense related to goodwill and other intangible assets, any of which could materially adversely affect our business, financial condition and results of operations and/or the price of our Common Stock.

The Market for Our Common Stock is Volatile, which May Affect our Ability to Raise Capital or Make Acquisitions

The market price for our Common Stock is volatile and has fluctuated significantly over the past years. The trading price of our Common Stock could continue to be highly volatile and fluctuate widely in response to factors, including the following:

general market or semiconductor industry conditions;

variations in our quarterly operating results;

variations in our revenues or earnings from levels securities analysts expect;

announcements of restructurings, technological innovations, reductions in force, departure of key employees, consolidations of operations or introduction of new products;

government regulations;

developments in or claims relating to patent or other proprietary rights;

disruptions with key customers; or

political, economic or environmental events occurring globally or in our key sales regions.

In addition, the stock market has, in recent years, experienced increasing significant price and volume fluctuations. Recent volatility in the price of our Common Stock was tied in part to the actual or anticipated movement in interest rates and the price of and markets for semiconductor stock generally. These broad market and industry factors may adversely affect the price of our Common Stock, regardless of our actual operating performance. In the past, following volatile periods in the price of stock, many companies become the object of securities class action litigation. If we are sued in a securities class action, we could incur substantial costs and it could divert management's attention and resources and have an unfavorable impact in the price for our Common Stock.

Risk Associated with Our Call and Put Options

We have entered into third party option transactions for the purchase and sale of our stock. The option positions will be of value to us if our stock price exceeds the exercise price of the call options at the time the options are exercised. Conversely, our stock price could also decline. If our stock price on the exercise date of the options were below the put option exercise price, we would have to settle the put obligation by paying cash or the equivalent value of our Common Stock obligation.

If settlement were to occur prior to option expiration because of the occurrence of an event giving the third parties the right to terminate the transactions, we will be required both to pay to the third parties the value of their position (which would depend on a number of factors, including the time remaining to expiration and the volatility of Lam Common Stock) which could be greater or lesser than the difference between the options' exercise prices and the then market price of Lam Common Stock, as well as any costs or expenses incurred by the third parties as a result of unwinding the transactions.

The Potential Anti-Takeover Effects of Our Bylaws Provisions and the Rights Plan We Have in Place May Affect Our Stock Price and Inhibit a Change of Control Desired by Some of Our Stockholders

On January 23, 1997, we adopted a Rights Plan (the "Rights Plan") in which rights were distributed as a dividend at the rate of one right for each share of our Common Stock, held by stockholders of record as of the close of business on January 31, 1997, and thereafter. In connection with the adoption of the Rights Plan, our Board of Directors also adopted a number of amendments to our Bylaws, including amendments requiring advance notice of stockholder nominations of directors and stockholder proposals.

The Rights Plan may have certain anti-takeover effects. The Rights Plan will cause substantial dilution to a person or group that attempts to acquire Lam in certain circumstances. Accordingly, the existence of the Rights Plan and the issuance of the related rights may deter certain acquirers from making takeover proposals or tender offers. The Rights Plan, however, is not intended to prevent a takeover. Rather it is designed to enhance the ability of our Board of Directors to negotiate with a potential acquirer on behalf of all of our stockholders.

In addition, our Certificate of Incorporation authorizes issuance of 5,000,000 shares of undesignated Preferred Stock. Our Board of Directors, without further stockholder approval, may issue this Preferred Stock on such terms as the Board of Directors may determine, which also could have the effect of delaying or preventing a change in control of Lam. The issuance of Preferred Stock could also adversely affect the voting power of the holders of our Common Stock, including causing the loss of voting control. Our Bylaws and indemnity agreements with certain officers, directors and key employees provide that we will indemnify officers and directors against losses that they may incur in legal proceedings resulting from their service to Lam. Moreover, Section 203 of the Delaware General Corporation Law restricts certain business combinations with "interested stockholders", as defined by that statute.

Intellectual Property and Other Claims Against Us Can Be Costly and Could Result in the Loss of Significant Rights which are Necessary to our Continued Business and Profitability

Other parties may assert infringement, unfair competition or other claims against us. Additionally, from time to time, other parties send us notices alleging that our products infringe their patent or other intellectual property rights. In such cases, it is our policy either to defend the claims or to negotiate licenses on commercially reasonable terms. However, we may be unable in the future to negotiate necessary licenses on commercially reasonable terms, or at all, and any litigation resulting from these claims by other parties may materially adversely affect our business and financial results.

In October 1993, Varian Associates, Inc. sued us in the United States District Court for the Northern District of California, seeking monetary damages and injunctive relief based on our alleged infringement of certain patents Varian held. We asserted defenses that the subject patents are invalid and unenforceable, and that our products do not infringe these patents. Litigation is inherently uncertain and we may fail to prevail in this litigation. However, we believe that the Varian lawsuit will not materially adversely affect our operating results or financial position. See Part II Item 2of this Form 10-Q for a discussion of the Varian lawsuit.

Additionally, in September 1999, Tegal Corporation sued us in the United States District Court for the Eastern District of Virginia, seeking monetary damages and injunctive relief based on our alleged infringement of certain patents Tegal holds. Specifically, Tegal identified our 4520XLeÔ and ExelanÔ products as infringing the patents Tegal is asserting. Litigation is inherently uncertain and we may fail to prevail in this litigation. However, we believe that the Tegal lawsuit will not materially adversely affect our operating results or financial position. See Part II Item 1 of this Form 10-Q for a discussion of the Tegal lawsuit.

We May Fail to Protect Our Proprietary Technology Rights, which Would Affect Our Business

Our success depends in part on our proprietary technology. While we attempt to protect our proprietary technology through patents, copyrights and trade secret protection, we believe that our success also depends on increasing our technological expertise, continuing our development of new systems, increasing market penetration and growth of our installed base, and providing comprehensive support and service to our customers. However, we may be unable to protect our technology in all instances, or our competitors may develop similar or more competitive technology independently. We currently hold a number of United States and foreign patents and pending patent applications. However, other parties may challenge or attempt to invalidate or circumvent any patents the United States or foreign governments issue to us or these governments may fail to issue pending applications. In addition, the rights granted or anticipated under any of these patents or pending patent applications may be narrower than we expect or in fact provide no competitive advantages.

YEAR 2000 COMPLIANCE

See the discussion of our risks in connection with Year 2000 compliance in the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations".

ITEM 3. Quantitative And Qualitative Disclosures about Market Risk

For financial market risks related to changes in interest rates and foreign currency exchange rates, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Company's Annual Report on Form 10-K for the year ended June 25, 2000.

During fiscal 1999, we entered into third party option transactions for the purchase and sale of our Common Stock, in order to offset the dilutive effect of a potential conversion into Common Stock of the Convertible Subordinated Notes we previously issued and which are due September 2, 2002. We have as of September 24, 2000 acquired call options to purchase 3.72 million shares of our Common Stock. The weighted average exercise price of these options is $11.29. The call options provide that our maximum benefit at expiration is $17.97 per option share (the difference between $29.26, which is the conversion price of the Notes, and the weighted average exercise price of the call options). We have also entered into put options with the same third parties covering 5.58 million shares of our Common Stock, giving those third parties the right to sell to us shares of our Common Stock at a weighted average price of $9.48 per share.

Below is a table showing, at assumed exercise prices for the put and call options and market prices for our Common Stock, our gain or (loss) under the put and call options upon exercise or upon maturity of the options transaction.

                           At
                      September 24,      At
                          2000        Maturity
                      ------------  ------------
                          (in thousands)
         Stock Value
              $5.00  $    (21,872) $    (24,996)
             $15.00         8,155        13,815
             $25.00        24,630        51,030
             $35.00        34,571        66,877
             $45.00        40,970        66,877
             $55.00  $     45,291  $     66,877

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In October 1993, Varian Associates, Inc. ("Varian") brought suit against us in the United States District Court, for the Northern District of California, seeking monetary damages and injunctive relief based on our alleged infringement of certain patents held by Varian. By order of the Court, those proceedings were bifurcated into an initial phase to determine the validity of the Varian patents and our infringement (if any), and a secondary phase to determine damages to Varian (if any) and whether our infringement (if shown) was willful. On April 13, 1999, the Court issued an interlocutory order construing the meaning of the terms of the patent claims at issue in the action. In September 1999, a hearing was held on a summary judgment motion which might dispose of a number of Varian's claims, but the Court has not yet issued a final ruling on that motion. Accordingly, to date, there has been no determination as to the actual scope of those claims, or whether our products have infringed or are infringing Varian's patents. A trial date previously scheduled for March 2000 was vacated, pending the court's decision of certain motions. There have been no findings in the action, which have caused us reasonably to believe that any infringement, if found, or any damages, if awarded, would have a material adverse effect on our operating results or our financial position.

In September 1999, Tegal Corporation ("Tegal") brought suit against us in the United States District Court for the Eastern District of Virginia, 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, this case was transferred to California and is now pending in the United States District Court for the Northern District of California. To date, however, there has been no determination as to the actual scope of those claims, or whether our products have infringed or are infringing Tegal's patents. No trial date is currently scheduled in the action. Furthermore, there have been no findings in the action, which have caused us reasonably to believe that any infringement, if found, or any damages, if awarded, could have a material adverse effect on our operating results or our financial position.

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 negotiate licenses on commercially reasonable terms, where considered appropriate. 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 such claims would not have a material adverse effect on our consolidated financial position or operating results.

ITEM 4. Submission of Matters to Vote of Security Holders

Not applicable.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit

10.72

Employment Agreement for Mercedes Johnson, dated December 1,1999

Exhibit

27

Financial Data Schedule

(b) Reports on Form 8-K

We did not file any reports on Form 8-K during the quarter ended September 24, 2000.

LAM RESEARCH CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 7, 2000

LAM RESEARCH CORPORATION

(Registrant)

By: /s/ Mercedes Johnson

Mercedes Johnson

Vice President, Finance & Chief Financial Officer

(Principal Financial Officer)

EXHIBIT INDEX

Exhibit

10.72

Employment Agreement for Mercedes Johhnson, dated December 1, 1999.

Exhibit

27

Financial Data Schedule

EX-10.72 2 empcont.htm EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

Exhibit 10.72

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement"), with an Effective Date of December 1, 1999, is made and entered into between Mercedes Johnson (the "Executive") and Lam Research Corporation, a Delaware corporation (the "Company").

R E C I T A L S

A. The Company and Executive desire to enter into this Agreement to confirm the terms and conditions with respect to the Executive's continuing employment with the Company.

B. Certain capitalized terms used in the Agreement are defined in Section 5 below.

In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Executive by the Company, the parties agree as follows:

1. Duties and Scope of Employment.

(a) Position. During the Employment Period (as defined in Section 2 (a) below), Executive shall serve as Vice President and the Chief Financial Officer of the Company. The duties and responsibilities of Executive shall include the duties and responsibilities for Executive's corporate offices and positions as set forth in the Company's Bylaws from time to time in effect and as are customary for such corporate offices and positions, and such other duties and responsibilities as the Chief Executive Officer and the Board of Directors of the Company (the "Board") may, from time to time, reasonably assign to Executive, in all cases to be consistent with Executive's corporate offices and positions.

(b) Obligations. Executive shall comply with all of Lam's policies and procedures governing employment. During the Employment Period, Executive shall devote her full business efforts and time to the Company. The foregoing, however, shall not preclude the Executive from engaging in such activities and services as do not interfere or conflict with her responsibilities to the Company.

2. Employment Period.

(a) Term. This Agreement shall begin upon the Effective Date and shall continue until December 31, 2002, unless earlier terminated as set forth herein (the "Employment Period"). Except as otherwise provided herein, the Employment Period shall end on the Termination Date.

(b) Termination.

(i) By the Company. The Company may terminate Executive's employment for Cause (as defined in Section 5(a) below), by giving the Executive thirty (30) days' advance written notice, subject, however, to the cure provisions of such Section. The Company may terminate the Executive's employment with the Company other than for Cause by giving the Executive ninety (90) days' advance notice in writing. Any waiver of notice shall be valid only if it is made in writing and expressly refers to the applicable notice requirement of this Section 2(b).

(ii) By the Executive. Executive may terminate her employment with the Company in response to her Involuntary Termination (as defined in Section 5(c) below) by giving the Company thirty (30) days' advance written notice, subject, however, to the cure provisions of such Section. Executive may terminate her employment with the Company at any time for any other reason ("Voluntary Resignation") by giving the Company ninety (90) days' advance written notice. Any waiver of notice shall be valid only if it is made in writing and expressly refers to the applicable notice requirement of this Section 2(b).

(c) Death. Executive's employment shall terminate immediately in the event of her death. The Company shall pay to the Executive's estate any earned but unpaid salary and vacation pay accrued to the date of her death.

(d) Disability. The Company may terminate Executive's employment for Disability (as defined in Section 5(b) below) by giving Executive ninety (90) days' advance notice in writing. In the event Executive resumes the performance of substantially all of her duties hereunder before the termination of her employment under this Section 2(d) becomes effective, the notice of termination shall automatically be deemed to have been revoked.

(e) Priority of Rights and Obligations upon Termination Events. If any event leading to or permitting Termination of this Agreement, or providing notice thereof, occurs at approximately the same time as any other Early Termination event or during any Termination notice period, and those events invoke different notice periods or different severance or other benefit arrangements, the deadlines, obligations, rights and benefits applicable to the Termination event having the highest priority shall control. The priority of Termination events (from highest to lowest priority) is as follows: (1) Termination for Cause; (2) Voluntary Resignation; (3) Involuntary Termination; (4) Disability; and (5) death. For example, if Executive gives notice of her Voluntary Resignation and, before the 90 day notice period has expired, she is subject to an Involuntary Termination, only the rights and benefits available to her for Voluntary Resignation apply since the provisions governing Voluntary Resignation have a higher priority than those applicable to Involuntary Termination. Similarly, if Executive has been subject to an Involuntary Termination and dies during the notice period, she shall have the rights and benefits available to her estate as one subject to an Involuntary Termination. Expiration of this Agreement prevails over all termination events.

3. Compensation and Benefits.

(a) Base Compensation. During the term of this Agreement, the Company shall pay the Executive as compensation for services a base salary. The Board, at least annually, will review such base salary for possible increase, reasonably taking into account Executive's performance and prevailing compensation for executives at similar levels in similar-sized companies in the industry. Such salary shall be paid periodically in accordance with normal Company payroll. The annual compensation specified in this Section 3(a) is referred to in this Agreement as "Base Compensation."

(b) Stock Options As of the Effective Date, the Executive has been granted the following non-qualified stock options to purchase shares of the Company's common stock, par value $.001 per share (the "Common Stock"):

Grant dated April 30, 1997, to purchase 75,000 shares of Common Stock;, at an exercise price of $29.0625.
Grant dated April 16, 1998, to purchase 30,000 shares of Common Stock, at an exercise price of $29.875.
Grant dated November 5, 1998, to purchase 80,000 shares of Common Stock, at an exercise price of $14.4688.

Collectively, these grants shall be referred to herein as the "Incentive Options."

(c) Deferred Compensation. Executive shall be entitled to participate in the Company's Executive Deferred Compensation Plan pursuant to the terms thereof.

(d) Benefits. During the Employment Period, Executive shall be eligible to participate in the benefit plans and compensation programs maintained by the Company of general applicability to other key executives of the Company, including (without limitation) retirement plans, automobile allowances, savings or profit-sharing plans, deferred compensation plans, supplemental retirement or excess-benefit plans, stock option, life, disability, health, accident and other insurance programs, paid vacations (but accruing at not less than three weeks per year), sabbatical programs, and similar plans or programs, but excluding any performance bonus plans, subject in each case to the generally applicable terms and conditions of the plan or program in question and to the determination of the Board or any committee administering such plan or program.

(e) Reimbursement of Business Expenses. The Company shall reimburse Executive for all reasonable and necessary business expenses incurred by Executive in the performance of her duties hereunder upon proper submission of expense reports in accordance with Company policies regarding such reimbursement.

(f) Section 162(m). Executive and the Company agree to use reasonable good faith efforts, to the extent reasonably practicable and not materially adverse to Executive, to structure payment of all amounts of Executive's compensation from the Company so as to avoid non-deductibility of any such amounts under Section 162(m) of the Internal Revenue Code (the "Code") or any successor provision.

(g) Loan Repayment through Bonuses. In or about April 1997, the Company made Executive a loan in the amount of $150,000. The loan bears no interest and is payable in equal annual installments over a 4-year period. On each of the first four anniversaries of Executive's initial employment, the Company agrees to pay Executive a bonus in the amount of $37,500, which bonus amount Executive understands and agrees may be used by the Company to offset the loan principal. In the event Executive terminates her employment with the Company, she will be required to pay the outstanding balance of the loan principal in accordance with its terms. Further, the Company is not obligated to pay Executive any bonus, and Executive understands and agrees that all unpaid loan principal shall become immediately due and owing, upon (i) the Company providing notice of termination of Executive's employment for cause, or (ii) Executive providing notice of her Voluntary Resignation. The Company understands and agrees that all unpaid loan principal due and owing as of the date of any Involuntary Termination of the Executive, which is not cured by Company, shall be forgiven. Executive understands and agrees that she is solely responsible and liable for all employment and other taxes arising out of any such bonus payments or loan forgiveness.

4. Severance Benefits.

(a) Severance Benefits. Executive is not entitled to severance benefits of any kind due to the expiration of this Agreement or benefits or compensation of any kind upon termination of her employment for any reason, except as expressly provided herein. If Executive's employment with the Company terminates prior to the expiration of this Agreement, then the Executive shall be entitled to receive severance benefits as follows:

Involuntary Termination. If Executive's employment terminates as a result of her Involuntary Termination, then Executive will be placed on a one year Leave of Absence from the Company beginning on the Termination Date the ("LOA"). During the LOA, Executive will continue to make herself available for such special projects as are delegated to her by the Company's Chief Executive Officer. During such LOA period, Executive will continue to receive (A) her annual Base Compensation and targeted bonus (if any) less withholdings and deductions, (B) all executive benefits (except those available only to those employees actually working on Lam's premises), (C) the annual bonus identified in 3(g) above. Further, all Stock Options granted as of the Termination Date shall continue to vest and be exercisable during the LOA (subject to termination of any such option provided in the terms of grant). At the conclusion of the LOA, Executive shall be entitled to no further compensation, severance pay or vesting of Stock Options.

Voluntary Resignation; Disability; Death; Termination for Cause. If, at any time during the term of this Agreement, (A) Executive's employment terminates by reason of Executive's (i) vVoluntary rResignation (and is not the result of an Involuntary Termination), (ii) Disability or (iii) death, or (B) Executive's employment is terminated by the Company for Cause, then unless as otherwise expressly provided in Section 4(b) Executive shall not be entitled to receive severance or other benefits beyond the Termination Date except for those (if any) as may then be established (and applicable) under the Company's then- existing severance and benefits plans and policies at the time of such termination.

(b) Benefits; Miscellaneous. In the event of any termination of Executive's employment at any time during the term of this Agreement, (i) the Company shall pay Executive any unpaid Base Compensation due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive's accrued and unused vacation through the Termination Date; and (iii) following submission of proper expense reports by Executive (or her Estate), the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by Executive in connection with the business of the Company. These payments shall be made promptly and within the period of time mandated by law.

(c) Acceleration of Vesting of Incentive Options upon a Change in Control. If a Change in Control (as defined in this Agreement), occurs which is followed by any of the events described in paragraphs (i) through (vi) of the Involuntary Termination clause, below, including, specifically, the Company imposing upon Executive a corporate office or position of materially reduced authority or responsibility than Executive held immediately preceding such Change of Control, then any unvested portion of the Incentive Options shall automatically be accelerated in full so as to become completely vested and immediately exercisable by Executive. However, no such acceleration will occur if the Change in Control or offer or imposition of reduced authority or responsibility occurs after Executive has (i) given notice of Voluntary Resignation (ii) been given notice of Termination for Cause by the Company (unless that notice is subsequently withdrawn in writing by the Company and Executive's employment does not terminate as a result of such notice), or (iii) this Agreement has terminated. The Chief Executive Officer of the Company shall, in his or her reasonable discretion, following consultations with Executive and, if necessary, the Board, determine whether any corporate office or position offered or imposed on Executive position is of materially reduced authority or responsibility for the purposes of this paragraph.

(d) Post-Termination Exercisability of Options. If, during the term of this Agreement, Executive's employment with the Company is terminated for any reason, other than for cause, Executive may exercise any Stock Options vested as of the Termination Date for a period of one (1) year s following either (i) the Termination Date or (ii) conclusion of Executive's LOA following an Involuntary Termination, whichever is later, after which all such Stock Options shall terminate and no longer be exercisable. In all other instances, including termination for cause, Executive may exercise any and all stock options vested as of any termination of her employment within ninety (90) days of such termination, after which all such stock options shall terminate and no longer be exercisable. However, nothing in this Agreement shall extend the term of the any stock option granted at any time to Executive set forth in the terms and conditions of grant or the Company's stock plan under which the stock option was originally granted.

5. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Cause. "Cause" shall mean (i) a willful act of personal dishonesty knowingly taken by Executive in connection with her responsibilities as an employee and intended to result in her substantial personal enrichment, (ii) a willful and knowing act by Executive which constitutes gross professional misconduct, (iii) any refusal by Executive to comply with a reasonable written directive of the Board or established policy, procedure or terms of employment of the Company, (iv) a willful breach by Executive of a material provision of this Agreement, or (v) a material and willful violation of a federal or state law or regulation applicable to the business of the Company or Executive's continuing employment. No act, or failure to act, by Executive shall be considered "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the Company's best interest. Termination for Cause shall not be deemed to have occurred unless, by the affirmative vote of all of the members of the Board (excluding Executive, if applicable), at a meeting called and held for that purpose (after reasonable notice to Executive and her counsel and after allowing Executive and her counsel to be heard before the Board), a resolution is adopted finding that in the good faith opinion of such Board members Executive was guilty of conduct set forth in (i), (ii), (iii), (iv) or (v), specifying the particulars thereof; provided, however, that in the case of conduct set forth in (iii), (iv) or (iv), Executive shall have the opportunity to cure same within 30 days following Executive's receipt of written notice thereof.

(b) Disability. "Disability" shall mean that Executive has been or will be unable to substantially perform her duties under this Agreement for a period of six or more consecutive months due to illness, accident or other physical or mental incapacity.

(i) the continued assignment to Executive of any duties or the continued significant change in Executive's duties, either of which is substantially inconsistent with Executive's duties immediately prior to such assignment or change for a period of thirty (30) days after notice thereof from Executive to the Board setting forth in reasonable detail the respects in which Executive believes such assignments or duties are significantly inconsistent with the Executive's prior duties;

(ii) a material reduction in Executive's Base Compensation, other than any such reduction which is part of, and generally consistent with, a general reduction of corporate officers' salaries;

(iii) a material reduction by the Company in the kind or level of employee benefits (other than salary) to which Executive is entitled immediately prior to such reduction with the result that Executive's overall benefits package (other than salary) is substantially reduced (other than any such reduction applicable to officers of the Company generally);

(iv) the relocation of the Company's principal executive office to a location more than fifty (50) miles from its present location;

(v) any purported termination of Executive's employment by the Company other than for Cause, Disability or Death;

(vi) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 6 below; or

(vii) any material breach by the Company of any material provision of this Agreement;

provided, however, that none of the foregoing shall constitute Involuntary Termination to the extent Executive has agreed thereto; and provided, further, however, that the foregoing shall constitute Involuntary Termination only if and to the extent that (i) Executive provides written notice to the Company setting forth in reasonable detail such facts which Executive believes constitute Involuntary Termination and (ii) any circumstances constituting Involuntary Termination remain uncured for a period of thirty (30) days following the Company's receipt of such written notice.

(d) Termination Date. "Termination Date" shall mean (i) the last day of the applicable notice period set forth in Section 2(b) or 2(d) above (except for any Involuntary Termination Notice, given by the Executive, which is cured by the Company, or a Termination for Disability Notice which is revoked by the Executive resuming the performance of her duties), (ii) the date as of which such notice is waived in accordance with the terms of Section 2(b), (iii) the date of Executive's employment termination pursuant to this Agreement if notice of the same is not required under Section 2, or (iv) the date upon which this Agreement expires. If more than one Termination Date may apply, then the priority provisions of section 2(e) of this Agreement shall determine which Termination Date controls.

(e) Change in Control. "Change in Control" shall mean the occurrence of any of the following events:

any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but excluding any person or group as such term is used in Rule 13d-1(b) under the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule13-d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power represented by the Company's then outstanding voting securities; or
the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets (other than to a subsidiary or subsidiaries).

6. Successors.

(a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the Company's obligations under this Agreement and agrees expressly to perform such obligations in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Executive's Successors. The terms of this Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

7. Notice.

(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of Executive, mailed notices shall be addressed to her at the home address which she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

(b) Notice of Termination. Any termination by the Company for Cause or by Executive as a result of a vVoluntary rResignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 7(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date in accordance with Section 2(b) or 2(d) Subject to the second provision to Section 5(d), the failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing her rights hereunder.

8. Non-Compete; Non-Solicit.

(a) The parties hereto recognize that Executive's services are special and unique and that her level of compensation and the provisions herein for compensation upon Involuntary Termination are partly in consideration of and conditioned upon Executive's not competing with the Company, and that the covenant on her part not to compete and not to solicit as set forth in this Section 8 is essential to protect the business and goodwill of the Company.

(b) Executive agrees that prior to the Termination Date and during any LOA following Involuntary Termination, the Executive will not either directly or indirectly, whether as a director, officer, consultant, employee or advisor or in any other capacity (i) render any planning, marketing or other services respecting the creation, design, manufacture or sale of semiconductor manufacturing equipment and/or software to any business, agency, partnership or entity ("Restricted Business") other than the Company, or (ii) make or hold any investment in any Restricted Business in the United States other than the Company, whether such investment be by way of loan, purchase of stock or otherwise, provided that there shall be excluded from the foregoing the ownership of not more than 2% of the listed or traded stock of any publicly held corporation. For purposes of this Section 8, the term "Company" shall mean and include the Company, any subsidiary or affiliate of the Company, any successor to the business of the Company (by merger, consolidation, sale of assets or stock or otherwise) and any other corporation or entity of which the Executive may serve as a director, officer or employee at the request of the Company or any successor of the Company.

(c) Prior to the Termination Date and during any LOA following Involuntary Termination, and for the period extending six (6) months thereafter(other than upon expiration of the two-year Employment Period without early termination thereof), Executive will not, directly or indirectly, induce or attempt to influence any employee of the Company to leave its employ, and Executive will not, directly or indirectly, involve herself in decisions to hire any employee who has left the Company's employ within the three-month period preceding the Executive's cessation of employment or the three-month period following her cessation of employment.

(d) Executive agrees that the Company would suffer an irreparable injury if she were to breach the covenants contained in subparagraphs (b) or (c) and that the Company would by reason of such breach or threatened breach be entitled to injunctive relief in a court of appropriate jurisdiction, and Executive hereby stipulates to the entering of such injunctive relief prohibiting her from engaging in such breach.

(e) If any of the restrictions contained in this Section 8 shall be deemed to be unenforceable by reason of the extent, duration or geographical scope or other provisions thereof, then the parties hereto contemplate that the court shall reduce such extent, duration, geographical scope or other provisions hereof (but only to the extent necessary to render such restrictions enforceable) and then enforce this Section 8 in its reduced form for all purposes in the manner contemplated hereby.

9. Existing Confidentiality and Non-Compete Agreements. Executive represents and warrants (i) that prior to the date hereof she has provided the Company with true and complete copies of any and all written confidentiality and/or non-compete agreements to which Executive is a party as of the date hereof (together with a written description of any such oral agreements), and (ii) to the best of Executive's knowledge, full compliance with the terms of each such agreement will not materially interfere with Executive's duties hereunder (except to the extent that Executive reasonably may determine to absent herself from certain Company meetings and communication during the first year of the Employment Period). Executive further covenants that she will not willfully and knowingly fail to fully abide by the terms of any and all such agreements and will work in good faith with the Company to avoid any breach thereof.

10. Arbitration. At the option of either party, any and all disputes or controversies whether of law or fact and of any nature whatsoever arising from or respecting this Agreement shall be decided by arbitration by the American Arbitration Association in accordance with the rules and regulations of that Association with the exception of any claim for temporary, preliminary or permanent injunctive relief arising from or respecting this Agreement which may be brought by the Company in any court of competent jurisdiction irrespective of Executive's desire to arbitrate such a claim.

The arbitrator shall be selected as follows. In the event the Company and Executive agree on one arbitrator, the arbitration shall be conducted by such arbitrator. In the event the Company and Executive do not so agree, the Company and Executive shall each select one independent, qualified arbitrator and the two arbitrators so selected shall select the third arbitrator. The Company reserves the right to object to any individual arbitrator who shall be employed by or affiliated with a competing organization.

Arbitration shall take place in San Jose, California, or any other location mutually agreeable to the parties. At the request of either party, arbitration proceedings will be conducted in the utmost secrecy; in such case all documents, testimony and records shall be received, heard and maintained by the arbitrators in secrecy under seal, available for the inspection only by the Company and Executive and their respective attorneys and their respective experts who shall agree in advance and in writing to receive all such information confidentially and to maintain such information in secrecy unless and until such information shall become generally known. The arbitrator, who, if more than one, shall act by majority vote, shall have the power and authority to decree any and all relief of an equitable nature including, but not limited to, such relief as a temporary restraining order, a temporary and/or permanent injunction, and shall also have the power and authority to award damages, with or without an accounting and costs, provided, that punitive damages shall not be awarded, and provided, further, that Executive shall be entitled to reimbursement for her reasonable attorney's fees to the extent she prevails as to the material issues in such dispute. The decree or judgment of an award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

Reasonable notice of the time and place of arbitration shall be given to all persons, other than the parties, as shall be required by law, in which case such persons or those authorized representatives shall have the right to attend and/or participate in all the arbitration hearings in such a manner as the law shall require.

11. Miscellaneous Provisions.

(a) No Duty to Mitigate. Provided that Executive fully performs her obligations under this Agreement, Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.

(b) Waiver. No provisions of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(c) Whole Agreement. This Agreement and the documents expressly referred to herein represent the entire agreement of the parties with respect to the matters set forth herein. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly referred to herein have been made or entered into by either party with respect to the subject matter hereof. Nothing herein affects the continued enforceability of that certain pre-existing indemnification letter between the parties.Nothing herein affects the continued enforceability of the Employment, Confidential Information and Invention Assignment Agreement previously executed by the Executive.

(d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed and enforced by the laws of the State of California.

(e) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect If any provision of this Agreement is determined to be invalid or unenforceable, the Agreement shall remain in full force and effect as to the remaining provisions, and the parties shall replace the invalid or unenforceable provision with one which reflects the parties' original intent in agreeing to the invalid/unenforceable one..

(f) No Assignment of Benefits. Except as otherwise provided herein, the rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection (f) shall be void.

(g) Employment Taxes. All payments made pursuant to this Agreement by Company shall be subject to withholding of applicable income and employment taxes.

(h) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company, provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term "Company" when used in a section of this Agreement shall mean the corporation that actually employs the Executive.

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(i) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

(j) Survival of Obligations. The obligations of paragraphs 4, 7, 8, 9, 10 and 11 shall survive termination of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement.

LAM RESEARCH CORPORATION

By: /s/ James W. Bagley
James W. Bagley
Its: Chairman and Chief Executive Officer

Dated: December 1, 1999

Dated: December 17, 1999

By: /s/ Richard H. Lovgren
Richard Lovgren
Its: Vice President, General Counsel and Secretary

Dated: December 17, 1999

/s/ Mercedes Johnson
Mercedes Johnson

EX-27.1 3 lam_q101fds.xfd FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 24, 2000. 1,000 3-MOS Jun-26-2000 Jun-24-2001 Sep-24-2000 74,453 299,316 392,589 4,805 255,452 1,114,876 295,433 172,633 1,343,520 314,939 309,763 0 0 125 707,637 1,343,520 432,041 432,041 232,795 342,267 0 0 4,109 94,413 28,324 66,089 0 0 0 66,089 0.53 0.48

~~-----END PRIVACY-ENHANCED MESSAGE-----~~

Delaware	94-2634797
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

PART I. Financial Information	Page No.

Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of September 24, 2000 and June 25, 2000	3

Condensed Consolidated Statements of Income for the three months ended September 24, 2000 and September 26, 1999.	4

Condensed Consolidated Statements of Cash Flows for the three months ended September 24, 2000 and September 26, 1999.	5

Notes to Condensed Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3. Quantitative and Qualitative Disclosures about Market Risk	34

PART II. Other Information

Item 1. Legal Proceedings	35

Item 4: Submission of Matters to Vote of Security Holders	36

Item 6. Exhibits and Reports on Form 8-K	37

Signatures	38

Exhibit	10.72	Employment Agreement for Mercedes Johnson, dated December 1,1999
Exhibit	27	Financial Data Schedule



	Mercedes Johnson
	Vice President, Finance & Chief Financial Officer
	(Principal Financial Officer)

Exhibit	10.72	Employment Agreement for Mercedes Johhnson, dated December 1, 1999.
Exhibit	27	Financial Data Schedule