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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 APRIL 28, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-6920
APPLIED MATERIALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1655526
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3050 BOWERS AVENUE, SANTA CLARA, CALIFORNIA 95054-3299
Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (408) 727-5555
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Number of shares outstanding of the issuer's common stock as of April 28, 1996:
179,377,000
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PART I. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
- ------------------------------------------------------------------------------------------------------------------------------
April 28, April 30, April 28, April 30,
(In thousands, except per share data) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
Net sales $1,127,855 $675,439 $2,168,435 $1,181,547
Costs and expenses:
Cost of products sold 586,564 370,429 1,130,344 638,525
Research, development
and engineering 124,918 73,393 235,270 133,389
Marketing and selling 80,587 51,901 157,869 96,046
General and administrative 54,820 34,822 104,375 66,640
---------- -------- ---------- ----------
Income from operations 280,966 144,894 540,577 246,947
Interest expense 4,917 5,881 10,085 11,634
Interest income 9,829 5,040 19,426 9,983
---------- -------- ---------- ----------
Income from consolidated companies before
taxes 285,878 144,053 549,918 245,296
Provision for income taxes 100,057 50,418 192,471 85,853
---------- -------- ---------- ----------
Income from consolidated companies 185,821 93,635 357,447 159,443
Equity in net income/loss of joint venture - - - -
---------- -------- ---------- ----------
Net income $ 185,821 $ 93,635 $ 357,447 $ 159,443
---------- -------- ---------- ----------
Earnings per share $ 1.01 $ 0.54 $ 1.94 $ 0.92
---------- -------- ---------- ----------
Average common shares and
equivalents 183,699 173,406 183,921 173,010
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
- -----------------------------------------------------------------------------------------------------------------------
April 28, Oct. 29,
(In thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
ASSETS Current assets:
Cash and cash equivalents $ 199,993 $ 285,845
Short-term investments 442,405 483,487
Accounts receivable, net 1,020,737 817,730
Inventories 556,584 427,413
Deferred income taxes 196,277 198,888
Other current assets 84,227 98,250
---------- ----------
Total current assets 2,500,223 2,311,613
Property, plant and equipment, net 808,547 630,746
Other assets 25,047 23,020
---------- ----------
Total assets $3,333,817 $2,965,379
---------- ----------
LIABILITIES Current liabilities:
AND Notes payable $ 48,465 $ 61,748
STOCKHOLDERS' Current portion of long-term debt 22,497 21,064
EQUITY Accounts payable and
accrued expenses 778,886 659,572
Income taxes payable 36,099 119,347
---------- ----------
Total current liabilities 885,947 861,731
Long-term debt 282,156 279,807
Deferred income taxes and
other non-current obligations 49,611 40,338
---------- ----------
Total liabilities 1,217,714 1,181,876
---------- ----------
Stockholders' equity:
Common stock 1,794 1,792
Additional paid-in capital 747,338 760,057
Retained earnings 1,357,426 999,979
Cumulative translation adjustments 9,545 21,675
---------- ----------
Total stockholders' equity 2,116,103 1,783,503
---------- ----------
Total liabilities and
stockholders' equity $3,333,817 $2,965,379
- -----------------------------------------------------------------------------------------------------------------------
* Amounts as of April 28, 1996 are unaudited. Amounts as
of October 29, 1995 were obtained from the October 29,
1995 audited financial statements.
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
Six Months Ended
April 28, April 30,
(In thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 357,447 $ 159,443
Adjustments required to reconcile
net income to cash provided by operations:
Deferred taxes 1,404 (2,437)
Depreciation and amortization 63,143 35,570
Equity in net income/loss of joint venture - -
Changes in assets and liabilities:
Accounts receivable (228,277) (143,272)
Inventories (136,132) (82,565)
Other current assets 12,963 (8,274)
Other assets (2,047) (677)
Accounts payable and accrued expenses 139,295 101,914
Income taxes payable (81,332) (27,028)
Other long-term liabilities 10,325 4,772
--------- ---------
Cash provided by operations 136,789 37,446
--------- ---------
Cash flows from investing activities:
Capital expenditures, net (249,206) (81,309)
Proceeds from sales of short-term investments 328,489 133,769
Purchases of short-term investments (287,407) (105,370)
--------- ---------
Cash used for investing (208,124) (52,910)
--------- ---------
Cash flows from financing activities:
Short-term debt activity, net (9,568) (5,531)
Long-term debt activity, net 8,506 29,110
Common stock transactions, net (12,717) 4,460
--------- ---------
Cash provided by (used for) financing (13,779) 28,039
--------- ---------
Effect of exchange rate changes on cash (738) (2,141)
--------- ---------
Increase (decrease) in cash and cash equivalents (85,852) 10,434
Cash and cash equivalents
at beginning of period 285,845 160,320
--------- ---------
Cash and cash equivalents
at end of period $ 199,993 $ 170,754
- ---------------------------------------------------------------------------------------------------------------
For the six months ended April 28, 1996, cash payments for
interest and income taxes were $12,053 and $253,118,
respectively, and for the six months ended April 30, 1995,
cash payments for interest and income taxes were $11,746 and
$105,700, respectively.
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED APRIL 28, 1996
(IN THOUSANDS)
1) Basis of Presentation
In the opinion of management, the unaudited consolidated condensed
financial statements included herein have been prepared on a consistent
basis with the October 29, 1995 audited consolidated financial statements
and include all material adjustments, consisting of normal recurring
adjustments, necessary to fairly present the information set forth therein.
Certain amounts in the consolidated condensed financial statements for the
periods ended April 30, 1995 have been reclassified to conform to the
current presentation.
2) Earnings Per Share
Earnings per share has been computed using the weighted average number of
common shares outstanding and common equivalent shares from dilutive stock
options.
3) Inventories
Inventories are stated at the lower of cost or market, with cost determined
on a first-in, first-out (FIFO) basis. The components of inventories are
as follows:
April 28, 1996 October 29, 1995
-------------- ----------------
Customer service spares $180,551 $131,411
Systems raw materials 148,155 118,627
Work-in-process 174,309 139,537
Finished goods 53,569 37,838
-------- --------
$556,584 $427,413
======== ========
4) Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses are as follows:
April 28, 1996 October 29, 1995
-------------- ----------------
Accounts payable $229,659 $244,014
Compensation and benefits 132,627 109,388
Installation and warranty 176,357 133,035
Other 240,243 173,135
-------- --------
$778,886 $659,572
======== ========
5) Stockholders' Equity
During the second quarter of fiscal 1996, the Board of Directors authorized
a plan which allows the Company to repurchase up to 5 million shares of its
Common Stock in the open market during the next three years. The purpose of
this plan is to acquire shares to fund the Company's stock-based employee
benefit and incentive programs, including the employee stock purchase plan
and the stock option plan. The Company repurchased 230,000 shares of its
common stock during the second quarter of fiscal 1996 at an average price
of $35.35 per share.
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APPLIED MATERIALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net sales for the three and six month periods ended April 28,
1996 increased 67 and 84 percent, respectively, over the corresponding
periods of fiscal 1995. Record net sales resulted from increased demand for
the Company's advanced wafer process technology, multi-chamber equipment and
installed base support services. The increased demand for the Company's
advanced wafer processing technology and multi-chamber equipment reflects the
semiconductor industry's need for the technical capability to fabricate
advanced device structures and the continued investment in systems capable of
performing processes required for smaller device geometries. The increase in
installed base support services revenue is attributable to a larger installed
systems base and our global customers' requirements for high reliability and
uptime.
Sales increased in the second quarter and first half of fiscal 1996 in all
regions and across all of the Company's product groups when compared to sales
in the corresponding periods of fiscal 1995, with the exception of second
quarter sales in Korea. Sales by region as a percentage of total sales were
as follows:
Three Months Ended Six Months Ended
April 28, April 30, April 28, April 30,
1996 1995 1996 1995
-----------------------------------------------------------------------
North America 32% 33% 35% 37%
Europe 15% 10% 18% 12%
Japan 23% 20% 22% 22%
Korea 14% 25% 11% 18%
Asia-Pacific 16% 12% 14% 11%
New orders of $1,323 million were received during the second quarter of
fiscal 1996, versus $1,329 million in the first quarter of fiscal 1996. North
American orders decreased to $250 million from $490 million; Europe increased
to $203 million from $127 million; Japan decreased to $319 million from $393
million; Korea increased to $337 million from $81
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million; and Asia-Pacific decreased to $214 million from $238 million. North
American orders decreased as customers reduced capital investment in response
to changing market conditions, including price declines on memory devices,
while Korean orders increased significantly as customers in that region
continued to make strategic investments in leading-edge 0.35-micron and
below device technologies. Each region in the global semiconductor equipment
market exhibits unique investment patterns which cause regional order growth
rates to vary from quarter to quarter. Backlog at April 28, 1996 was $1,901
million, versus $1,768 million at January 28, 1996 and $1,509 million at
October 29, 1995.
For the three and six months ended April 28, 1996, the Company's gross margin
as a percentage of sales was 48.0 and 47.9 percent, respectively, up from
45.2 and 46.0 percent for the corresponding periods of fiscal 1995. These
improvements resulted primarily from reduced cycle times, improved
manufacturing efficiencies and increased unit volume.
Operating expenses as a percentage of sales for the three and six months
ended April 28, 1996 were 23.1 and 22.9 percent, respectively, which compare
favorably to 23.7 and 25.1 percent for the three and six months ended April
30, 1995. These improvements resulted primarily from the Company's
accelerated revenue growth coupled with its management of the growth of
operating expenses.
Significant operations of the Company are conducted in Japanese yen, British
pounds sterling and other foreign currencies. Forward exchange contracts and
options are purchased to hedge certain existing firm commitments and foreign
currency denominated transactions expected to occur during the next year.
Gains and losses on hedge contracts are reported as a component of the
related transaction. Because the impact of movements in currency exchange
rates on foreign exchange contracts offsets the related impact on the
underlying items being hedged, these financial instruments do not subject the
Company to speculative risk that would otherwise result from changes in
currency exchange rates. To date, exchange gains and losses have not had a
significant effect on the Company's results of operations.
The Company's effective tax rate for the second quarter and first half of
fiscal 1996 was 35 percent, consistent with the corresponding periods of
fiscal 1995. Management anticipates that a 35 percent effective tax rate will
continue throughout fiscal 1996.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at April 28, 1996 remained strong. The
ratio of current assets to current liabilities was 2.8:1, compared to 2.7:1
at October 29, 1995. During the first half of fiscal 1996, cash, cash
equivalents and short-term investments decreased $127 million. The principal
use of cash was for net property, plant and equipment acquisitions of $249
million, the majority of which relate to facilities expansion. Cash provided
by operations of $137 million resulted primarily from net income of $357
million and increases in accounts payable and accrued expenses of $139
million, offset by increases in accounts receivable and inventories of $364
million and a decrease in income taxes payable of $81 million.
At April 28, 1996, the Company's principal sources of liquidity consisted of
$642 million of cash, cash equivalents and short-term investments, $194
million of unissued notes registered under the Company's medium-term note
program and $309 million of available credit facilities. The Company's
liquidity is affected by many factors, some of which are based on the normal
on-going operations of the business and others of which relate to the
uncertainties of the industry and global economies. Although the Company's
cash requirements will fluctuate based on the timing and extent of these
factors, management believes that cash generated from operations, together
with its existing sources of liquidity, will be sufficient to satisfy its
liquidity requirements for the remainder of the fiscal year.
Capital expenditures are expected to approximate $600 million for fiscal
1996. This amount includes funds for the continuation and completion of
facilities expansion and investments in demonstration and test equipment,
information systems and other capital equipment.
DISCLOSURE PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this Management's Discussion and Analysis, the words
"anticipate," "estimate" and similar expressions are intended to identify
forward-looking statements. These statements are subject to certain risks and
uncertainties, including slowing growth in the demand for semiconductors and
challenges from the Company's competition, that could cause actual results to
differ materially from those projected. Additional risks and uncertainties
are discussed in a Form 8-K filed with the SEC on February 13, 1996.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the first of two lawsuits filed by the Company, captioned Applied
Materials, Inc. v. Advanced Semiconductor Materials America, Inc., Epsilon
Technology, Inc. (doing business as ASM Epitaxy) and Advanced Semiconductor
Materials International N.V. (collectively "ASM") (case no. C-91-20061-RMW),
Judge William Ingram of the United States District Court for the Northern
District of California ruled on April 26, 1994 that ASM's Epsilon I epitaxial
reactor infringed three of the Company's United States patents and issued an
injunction against ASM's use and sale of the ASM Epsilon I in the United
States. ASM has appealed the decision and the injunction has been stayed
pending the appeal only as to ASM products offered for sale as of April 1994.
The Court recently ruled that ASM's announced redesign of its reduced
pressure epitaxial reactors is not subject to the stay order. The stay order
further requires that ASM pay a fee, as security for the Company's interest,
for each Epsilon I system sold by ASM in the United States after the date of
the injunction. Judge Ronald M. Whyte of the same Court ruled that
proceedings to resolve the issues of damages, willful infringement and ASM's
counterclaims, which had been bifurcated for separate trial, will also be
stayed, pending the appeal of Judge Ingram's decision. Oral arguments
regarding this appeal were completed on June 5, 1995 before the Court of
Appeals for the Federal Circuit. The Company is awaiting the decision of the
Court of Appeals. The trial of the Company's second patent infringement
lawsuit against ASM, captioned Applied Materials, Inc. v. ASM (case no.
C-92-20643-RMW), was concluded before Judge Whyte in May 1995. On November 1,
1995, the Court issued its judgment holding that two of the Company's United
States patents were valid and infringed by ASM's reduced pressure epitaxial
reactors. A permanent injunction was entered on March 7, 1996 prohibiting
ASM's use or sale of its ribbed quartz epitaxial reactors within the United
States effective June 15, 1996. ASM is allowed to continue service and
maintenance of its installed base, including the sale of replacement chambers
upon payment of a fee to the Company.
A separate lawsuit filed by ASM against the Company involving one patent
relating to the Company's single wafer epitaxial product line, captioned ASM
America, Inc. v. Applied Materials, Inc. (case no. C-93-20853-RMW), has been
scheduled for trial in July 1996. The Court recently granted three motions
for summary judgment filed by the Company, thus eliminating the Company's
liability on this patent, and leaving only the Company's claims against ASM
for trial in July. ASM has not indicated whether it intends to appeal this
matter. A separate action severed from ASM's case, captioned ASM America,
Inc. v. Applied
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Materials, Inc. (case no. C-95-20169-RMW), involves one United States patent
which relates to the Company's Precision 5000 product line. Trial has been
scheduled for October 1996, and discovery is proceeding. In these cases, ASM
seeks injunctive relief, damages and such other relief as the Court may find
appropriate.
Further, the Company has filed a Declaratory Judgment action against ASM,
captioned Applied Materials, Inc. v. ASM (case no. C-95-20003-RMW),
requesting that an ASM United States patent be held invalid and not infringed
by the Company's single wafer epitaxial product line. Discovery is
proceeding, and no trial date has been set. On July 7, 1995, ASM filed a
lawsuit, captioned ASM America, Inc. v. Applied Materials, Inc. (case no.
C95-20586-RMW), concerning alleged infringement of a United States patent by
susceptors in chemical vapor deposition chambers. Discovery has commenced and
no trial date has been set. On April 10, 1996, the Court denied ASM's motion
for summary judgment and granted the Company's motion for summary judgment,
finding, on several independent grounds, that the Company's reactors do not
literally infringe this patent. With this ruling, the Company's potential
liability has been substantially reduced on this patent. ASM has not
indicated whether it intends to appeal this decision.
In September 1994, General Signal Corporation filed a lawsuit against the
Company (case no. 94-461-JJF) in the United States District Court, District
of Delaware. General Signal alleges that the Company infringes five of
General Signal's United States patents by making, using, selling or offering
for sale multi-chamber wafer fabrication equipment, including for example,
the Precision 5000 series machines. General Signal seeks an injunction,
multiple damages and costs, including reasonable attorneys' fees and
interest, and such other relief as the Court may deem appropriate. This
lawsuit is currently in active discovery, and a trial has been set for
January 20, 1997.
In January 1995, the Company filed a lawsuit against Novellus Systems, Inc.
in the United States District Court, Northern District of California (case
no. C-95-0243-MMC). This lawsuit alleges that Novellus' Concept One, Concept
Two, and Maxxus F TEOS systems infringe the Company's United States patent
relating to the TEOS-based, plasma enhanced CVD process for silicon oxide
deposition. The lawsuit seeks an injunction, damages and costs, including
reasonable attorneys' fees and interest, and such other relief as the court
may deem appropriate. Damages and counterclaims have been bifurcated for
separate trial. A jury trial has been scheduled for November 1996, before
Judge Charles A. Legge. On September 15, 1995, the Company filed another
lawsuit against Novellus alleging that Novellus' then newly announced blanket
tungsten interconnect process infringes the Company's United States patent
relating to a tungsten CVD process. The Company also sought a declaration
that a Novellus United States
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patent for a gas purge mechanism is not infringed by the Company and/or is
invalid. Novellus answered by denying the allegations and counterclaimed by
alleging that the Company's CVD systems infringe Novellus' United States
patents concerning gas purge and gas debubbler mechanisms. Novellus also
filed a new lawsuit as a plaintiff before the same Court which contains the
same claims and patents as those stated in the Company's September 15, 1995
lawsuit. Both cases have been assigned to the same judge. Discovery has
commenced, and trial has been set for August 1997.
In the normal course of business, the Company from time to time receives and
makes inquiries with regard to possible patent infringement. Management
believes that it is unlikely that the outcome of these lawsuits or of the
patent infringement inquiries will have a material adverse affect on the
Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders was held on March 14, 1996 in Santa Clara,
California. Ten incumbent directors were re-elected without opposition to
serve another one-year term in office. The results of this election were as
follows:
Name of Director Votes For Votes Withheld
----------------------------------------------------------------------------
James C. Morgan 147,065,457 1,019,089
James W. Bagley 147,023,029 1,061,517
Dan Maydan 147,050,315 1,034,231
Michael H. Armacost 147,040,189 1,044,357
Herbert M. Dwight, Jr. 147,068,162 1,016,384
George B. Farnsworth 147,066,460 1,018,086
Philip V. Gerdine 147,077,297 1,007,249
Tsuyoshi Kawanishi 147,056,091 1,028,455
Paul R. Low 147,081,928 1,002,618
Alfred J. Stein 147,064,785 1,019,761
On a proposal to amend the Company's Certificate of Incorporation to increase
the number of shares of Common Stock authorized to be issued from 200,000,000
to 500,000,000, there were 133,729,973 votes cast in favor, 12,452,196 votes
cast against, 1,902,377 abstentions and zero broker non-votes.
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Item 5. Other Information
The ratio of earnings to fixed charges for the six months ended April 28,
1996 and April 30, 1995, and for each of the five years in the period ended
October 30, 1995 was as follows:
Six Months Ended
---------------- Fiscal Year
April 28, April 30, ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
24.66x 14.16 x 21.25x 13.37x 7.61x 3.63x 3.02x
====== ======= ====== ====== ===== ===== =====
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K:
27.0 Financial Data Schedule: filed electronically
b) Report on Form 8-K was filed on February 13, 1996. The report
contains the Company's press release, dated February 13, 1996,
with respect to its financial results for the period ended
January 28, 1996, as well as information with respect to risks
and uncertainties pursuant to the Private Securities
Litigation Reform Act of 1995.
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SIGNATURE
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.
APPLIED MATERIALS, INC.
June 4, 1996 By:\s\Gerald F. Taylor
--------------------------------
Gerald F. Taylor
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: \s\Michael K. O'Farrell
--------------------------------
Michael K. O'Farrell
Corporate Controller
(Principal Accounting Officer)
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1000
YEAR
OCT-27-1996
APR-28-1996
199,993
442,405
1,020,737
0
556,584
2,500,223
1,085,980
277,433
3,333,817
885,947
282,156
0
0
1,794
2,114,309
3,333,817
1,127,855
1,127,855
586,564
586,564
124,918
0
4,917
285,878
100,057
185,821
0
0
0
185,821
1.01
1.01
