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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 JANUARY 25, 1998 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
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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 January
25, 1998: 366,266,123
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PART I. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended
Jan. 25, Jan. 26,
(In thousands, except per share amounts) 1998 1997
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Net sales $1,307,685 $ 835,776
Cost of products sold 678,244 464,120
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Gross margin 629,441 371,656
Operating expenses:
Research, development and engineering 182,329 116,492
Marketing and selling 86,389 66,271
General and administrative 65,768 59,608
Acquired in-process research and development 32,227 59,500
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Income from operations 262,728 69,785
Income from litigation settlement 80,000 --
Interest expense 11,864 5,800
Interest income 21,279 13,557
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Income from consolidated companies before taxes 352,143 77,542
Provision for income taxes 123,250 47,965
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Income from consolidated companies 228,893 29,577
Equity in net income/(loss) of joint venture -- --
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Net income $ 228,893 $ 29,577
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Earnings per share: *
Basic $ 0.62 $ 0.08
Diluted $ 0.60 $ 0.08
Weighted average number of shares: *
Basic 366,894 361,408
Diluted 379,101 370,864
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* Amounts for the quarter ended January 26, 1997 have been retroactively
restated to reflect a two-for-one stock split in the form of a 100 percent
stock dividend, effective October 13, 1997.
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
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Jan. 25, Oct. 26,
(In thousands) 1998 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 328,313 $ 448,043
Short-term investments 1,070,513 1,094,912
Accounts receivable, net 1,158,629 1,110,885
Inventories 745,426 686,451
Deferred income taxes 324,183 324,568
Other current assets 179,754 105,498
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Total current assets 3,806,818 3,770,357
Property, plant and equipment, net 1,151,327 1,066,053
Other assets 228,429 234,356
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Total assets $5,186,574 $5,070,766
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 52,568 $ 55,943
Current portion of long-term debt 9,267 10,563
Accounts payable and accrued expenses 1,085,261 1,157,808
Income taxes payable 209,142 177,774
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Total current liabilities 1,356,238 1,402,088
Long-term debt 618,343 623,090
Deferred income taxes and other liabilities 107,909 103,417
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Total liabilities 2,082,490 2,128,595
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Stockholders' equity:
Common stock 3,663 3,672
Additional paid-in capital 792,580 850,902
Retained earnings 2,326,931 2,098,038
Cumulative translation adjustments (19,090) (10,441)
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Total stockholders' equity 3,104,084 2,942,171
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Total liabilities and stockholders' equity $5,186,574 $5,070,766
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* Amounts as of January 25, 1998 are unaudited. Amounts as of October 26, 1997
are from the October 26, 1997 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)
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Three Months Ended
Jan. 25, Jan. 26,
(In thousands) 1998 1997
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Cash flows from operating activities:
Net income $ 228,893 $ 29,577
Adjustments required to reconcile
net income to cash provided by operations:
Acquired in-process research and development expense 32,227 59,500
Depreciation and amortization 66,889 48,507
Equity in net income/(loss) of joint venture -- --
Deferred income taxes (383) 4,192
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable (77,545) 69,393
Inventories (65,223) 58,157
Other current assets (74,662) 10,321
Other assets (1,572) (141)
Accounts payable and accrued expenses (47,182) 9,615
Income taxes payable 33,332 90,438
Other liabilities 8,437 6,509
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Cash provided by operations 103,211 386,068
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Cash flows from investing activities:
Capital expenditures, net of retirements (152,636) (30,665)
Cash paid for licensed technology (32,227) --
Cash paid for acquisitions, net of cash acquired -- (246,365)
Proceeds from sales of short-term investments 252,429 83,976
Purchases of short-term investments (228,030) (147,313)
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Cash used for investing (160,464) (340,367)
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Cash flows from financing activities:
Short-term debt activity, net (1,943) (44,508)
Long-term debt activity, net (1,399) (53,819)
Common stock transactions, net (58,331) 18,014
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Cash used for financing (61,673) (80,313)
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Effect of exchange rate changes on cash (804) 82
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Decrease in cash and cash equivalents (119,730) (34,530)
Cash and cash equivalents - beginning of period 448,043 403,888
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Cash and cash equivalents - end of period $ 328,313 $ 369,358
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For the three months ended January 25, 1998, cash payments for interest and
income taxes were $870 and $86,300, respectively. For the three months ended
January 26, 1997, cash payments for interest were $1,841 and net income tax
refunds were $40,734.
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED JANUARY 25, 1998
1) Basis of Presentation
In the opinion of management, the unaudited consolidated condensed
financial statements of Applied Materials, Inc. (the Company) included
herein have been prepared on a consistent basis with the October 26, 1997
audited consolidated financial statements and include all material
adjustments, consisting of normal recurring adjustments, necessary to
fairly present the information set forth therein. These interim financial
statements should be read in conjunction with the October 26, 1997 audited
consolidated financial statements and notes thereto. The Company's results
of operations for the first fiscal quarter of 1998 are not necessarily
indicative of future operating results.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ materially from those
estimates.
2) Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share," in the first fiscal quarter of 1998.
Under the provisions of SFAS 128, primary earnings per share has been
replaced by basic earnings per share, which does not include the dilutive
effect of stock options in its calculation. In addition, fully diluted
earnings per share has been replaced by diluted earnings per share. All
prior period earnings per share amounts have been restated to reflect the
requirements of SFAS 128. Basic earnings per share has been computed using
the weighted average number of common shares outstanding during the
period. Diluted earnings per share has been computed using the weighted
average number of common shares and equivalents (representing the dilutive
effect of stock options) outstanding during the period. Net income has not
been adjusted for any period presented for purposes of computing basic and
diluted earnings per share.
For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise
price that exceeds the average fair market value of the Company's common
stock for the period. For the first fiscal quarter of 1998, options to
purchase approximately 1,999,000 shares of common stock at an average
price of $41.14 were excluded from the computation.
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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 (in thousands):
January 25, 1998 October 26, 1997
---------------- ----------------
Customer service spares $213,488 $207,938
Systems raw materials 135,303 106,406
Work-in-process 282,072 256,737
Finished goods 114,563 115,370
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$745,426 $686,451
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4) Other Assets
The components of other assets are as follows (in thousands):
January 25, 1998 October 26, 1997
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Purchased technology, net $179,646 $186,127
Goodwill, net 12,969 13,438
Other 35,814 34,791
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$228,429 $234,356
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Purchased technology and goodwill are presented at cost, net of
accumulated amortization, and are being amortized using the straight-line
method over their estimated useful lives of eight years. The Company
periodically analyzes these assets to determine whether an impairment in
carrying value has occurred.
5) Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses are as follows (in
thousands):
January 25, 1998 October 26, 1997
---------------- ----------------
Accounts payable $ 321,479 $ 347,584
Compensation and benefits 161,520 219,384
Installation and warranty 232,952 216,962
Other 369,310 373,878
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$1,085,261 $1,157,808
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6) Licensed Technology and Acquisitions
During the first fiscal quarter of 1998, the Company entered into an
agreement with Trikon Technologies, Inc. for a non-exclusive, worldwide,
perpetual license of MORI(TM) plasma source and Forcefill(TM) deposition
technology. The Company recognized pre-tax acquired in-process research
and development expense of approximately $32.2 million, including
transaction costs, in connection with this transaction.
During the first fiscal quarter of 1997, the Company acquired Opal, Inc.
and Orbot Instruments, Ltd. in separate transactions for approximately
$293 million, consisting primarily of cash. In connection with these
acquisitions, the Company recorded a non-tax
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deductible charge of $59.5 million for acquired in-process research and
development. The Company also recorded approximately $219 million of net
intangible assets and $46 million of deferred tax liabilities. With the
exception of these items, the Company's results of operations and
financial condition for the first fiscal quarter of 1997 were not
materially impacted by these acquisitions.
7) Litigation Settlement
During the first fiscal quarter of 1998, the Company settled all
outstanding litigation with ASM International N.V. (ASM) and recorded $80
million of pre-tax non-operating income. As a result of this settlement,
ASM is also required to pay ongoing royalties for certain system shipments
subsequent to the date of the settlement. The Company does not expect
ongoing royalties to be material.
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APPLIED MATERIALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
Applied Materials, Inc. (the Company) received new orders of $1,290 million
for the first fiscal quarter of 1998, versus $1,374 million for the fourth
fiscal quarter of 1997. The decrease in new orders is primarily attributable
to softening demand for the Company's equipment from DRAM manufacturers
located in Asia. The continued weakness in DRAM prices, driven by excess
capacity, and recent financing difficulties in Korea and Japan, are causing
many of the Company's DRAM customers to defer their capital spending. New
orders by region were as follows (dollars in millions):
Three Months Ended
Jan. 25, 1998 Oct. 26, 1997
($) (%) ($) (%)
----- ----- ----- -----
North America 402 31 403 29
Europe 237 19 217 16
Japan 169 13 242 18
Korea 82 6 101 7
Taiwan 369 29 317 23
Asia-Pacific 31 2 94 7
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Total 1,290 100 1,374 100
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New order levels for Taiwan reflected continued investments by foundry
companies. New orders for North America and Europe remained strong as a
result of logic and microprocessor manufacturers' equipment requirements for
their 0.25 micron applications. The Company's backlog at January 25, 1998 was
$1,636 million, versus $1,722 million at October 26, 1997.
Although the Company's results of operations for the first fiscal quarter of
1998 were not affected by the factors discussed above, there is a high degree
of uncertainty regarding the near-term economic health of Asian countries,
particularly Korea and Japan, and the related effect on the demand for
semiconductor capital equipment. For these and other reasons, the Company's
results of operations for the first fiscal quarter ended January 25, 1998 are
not necessarily indicative of future operating results.
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The Company achieved record net sales of $1,308 million for the first fiscal
quarter of 1998, an increase of 56.5 percent from $836 million for the
corresponding period of fiscal 1997. During the corresponding period of
fiscal 1997, the Company's results of operations were negatively affected by
a downturn in the semiconductor industry that began in 1996. Industry
conditions improved during the latter half of the Company's fiscal 1997, and
the Company achieved record new orders for the fourth fiscal quarter of 1997,
driven by strengthening demand for leading-edge capability from logic and
microprocessor device manufacturers, foundry capacity investments by
customers located primarily in Taiwan, and selected strategic investments in
0.25 micron technology by DRAM manufacturers. As a result of the strong new
orders level for the second half of fiscal 1997, the Company was able to
achieve record net sales for the first fiscal quarter of 1998. Net sales by
region were as follows (dollars in millions):
Three Months Ended
Jan. 25, 1998 Jan. 26, 1997
($) (%) ($) (%)
----- ----- ----- -----
North America 471 36 293 35
Europe 196 15 201 24
Japan 222 17 125 15
Korea 52 4 50 6
Taiwan 288 22 109 13
Asia-Pacific 79 6 58 7
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Total 1,308 100 836 100
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The Company's gross margin for the first fiscal quarter of 1998 was 48.1
percent, compared to 44.5 percent for the corresponding quarter of fiscal
1997. During fiscal 1997, the Company focused on improving manufacturing
efficiencies, reducing cycle times and lowering material costs. These
continuing efforts, combined with increased business volume, resulted in a
higher gross margin for the first fiscal quarter of 1998.
During the first fiscal quarter of 1998, the Company entered into an
agreement with Trikon Technologies, Inc. for a non-exclusive, worldwide,
perpetual license of MORI(TM) plasma source and Forcefill(TM) deposition
technology. In connection with this transaction, the Company recognized
approximately $32.2 million of acquired in-process research and development
expense, including transaction costs, in the first fiscal quarter of 1998.
During the first fiscal quarter of 1997, the Company acquired two companies,
Opal, Inc. and Orbot Instruments, Ltd. (Orbot), in separate transactions and
recognized $59.5 million of acquired in-process research and development
expense. With the exception of this charge, these acquisitions did not have a
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material effect on the Company's results of operations for the first fiscal
quarter of 1998 or 1997.
Excluding acquired in-process research and development expense, operating
expenses as a percentage of net sales for the three months ended January 25,
1998 and January 26, 1997 were 25.6 percent and 29.0 percent, respectively.
The decrease is primarily attributable to increased business volume.
Research, development and engineering expense as a percentage of net sales
for the first fiscal quarter of 1998 remained unchanged at 14 percent when
compared to the first fiscal quarter of 1997, primarily due to increased
investment in the development of 300mm products and systems for 0.25 micron
and below device production.
Significant operations of the Company are conducted in foreign currencies,
primarily Japanese yen. Forward exchange and currency option contracts are
purchased to hedge certain existing firm commitments and foreign currency
denominated transactions expected to occur during the next year. Gains and
losses on these contracts are recognized in income when the related
transactions being hedged are recognized. Because the impact of movements in
currency exchange rates on forward exchange and currency option contracts
generally offsets the related impact on the underlying items being hedged,
these financial instruments are not expected to subject the Company to risks
that would otherwise result from changes in currency exchange rates. Exchange
gains and losses did not have a significant effect on the Company's results
of operations for the three months ended January 25, 1998 or January 26,
1997.
During the first fiscal quarter of 1998, the Company settled all outstanding
litigation with ASM International N.V. (ASM) and recorded $80 million of
pre-tax non-operating income. As a result of this settlement, ASM is also
required to pay ongoing royalties for certain system shipments subsequent to
the date of the settlement. The Company does not expect ongoing royalties to
be material.
Interest expense for the three months ended January 25, 1998 and January 26,
1997 was $11.9 million and $5.8 million, respectively. This increase is
primarily due to interest expense associated with $400 million of debt issued
by the Company during the fourth fiscal quarter of 1997.
Interest income for the three months ended January 25, 1998 and January 26,
1997 was $21.3 million and $13.6 million, respectively. This increase
resulted from higher average cash and investment balances.
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The Company's effective income tax rate for the first fiscal quarter of 1998
was 35 percent. The Company's effective income tax rate for the first fiscal
quarter of 1997 was higher than the expected rate of 35 percent, due to the
non-deductible nature of the $59.5 million charge for acquired in-process
research and development. Management anticipates that the Company's effective
income tax rate will be 35 percent for the remainder of fiscal 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at January 25, 1998, with a
ratio of current assets to current liabilities of 2.8:1, compared to 2.7:1 at
October 26, 1997. The Company ended the quarter with cash, cash equivalents
and short-term investments of $1,399 million.
The Company generated approximately $103 million of cash from operations in
the first fiscal quarter of 1998. Sources of cash from operations included
net income, plus non-cash charges for depreciation, amortization and acquired
in-process research and development expense, of $328 million and an increase
in income taxes payable of $33 million. These sources of cash were partially
offset by increases in accounts receivable, inventories and other current
assets of $78 million, $65 million and $75 million, respectively, and a
decrease in accounts payable and accrued expenses of $47 million.
Cash used for investing activities in the first fiscal quarter of 1998 of
approximately $160 million was primarily for purchases of property, plant and
equipment ($153 million, net) and licensed technology ($32 million), which
were partially offset by $24 million of proceeds from net sales of short-term
investments.
Cash used for financing activities in the first fiscal quarter of 1998 of
approximately $62 million consisted primarily of stock repurchases of $80
million, which were partially offset by $21 million of proceeds from the
exercise of stock options.
At January 25, 1998, the Company's principal sources of liquidity consisted
of $1,399 million of cash, cash equivalents and short-term investments and
$302 million of available credit facilities. The Company may from time to
time raise additional cash in the debt and equity markets to better balance
its capital structure or support long-term business growth. 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 the liquidity provided by existing cash balances and borrowing
capability, will be sufficient to satisfy the Company's liquidity
requirements for the next twelve months.
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Capital expenditures are estimated to be approximately $650 million in fiscal
1998, consisting primarily of investments in manufacturing and research
laboratory facilities for advanced 300mm technology.
The Company is authorized to repurchase shares of its common stock in the
open market in amounts intended to reduce the dilution resulting from its
stock-based employee benefit and incentive plans. This authorization is
effective until the March 2001 Annual Meeting of Stockholders. The Company
repurchased 2,653,500 shares of its common stock during the first fiscal
quarter of 1998, for a total cash outlay of approximately $80 million.
TRENDS, RISKS AND UNCERTAINTIES
When used in this Management's Discussion and Analysis, the words
"anticipate," "estimate," "expect" and similar expressions are intended to
identify forward-looking statements. These statements are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected. These risk and uncertainties include, but are not limited
to, those discussed below.
The semiconductor industry has historically been cyclical and subject to
sudden and sharp changes in supply and demand. The timing, length and
severity of these cycles are difficult to predict. During periods of reduced
and declining demand, the Company must be able to quickly align its cost
structure with the expected size of its future operating levels, and to
motivate and retain key employees. During periods of rapid growth, the
Company must be able to acquire and/or develop sufficient manufacturing
capacity to meet customer demand and hire and assimilate an adequate number
of qualified people.
The Company's backlog was approximately $1,636 million as of January 25,
1998, compared to $1,722 million as of October 26, 1997. The Company
schedules production of its systems based upon order backlog and customer
commitments. Backlog includes only orders for which written authorizations
have been accepted and shipment dates within 12 months have been assigned.
Due to possible customer changes in delivery schedules and cancellation of
orders, the Company's backlog at any particular date is not necessarily
indicative of actual sales for any succeeding period. A reduction of backlog
during any particular period could adversely affect the Company's future
results of operations.
The Company sells systems and provides services to customers located
throughout the world. Managing global operations and sites located throughout
the world presents challenges associated with cultural diversities and
organizational alignment. Moreover, each region in the
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global semiconductor equipment market exhibits unique characteristics that
can cause capital equipment investment patterns to vary from period to
period. Although international markets provide the Company with significant
growth opportunities, periodic economic downturns, trade balance issues,
political instability and fluctuations in interest and foreign currency
exchange rates are all risks which could affect global product and service
demand. The Company actively manages its exposure to changes in foreign
currency exchange rates, but there can be no assurance that future changes in
foreign currency exchange rates will not have a material effect on its
results of operations or financial condition.
The Company operates in a highly competitive industry characterized by
increasingly rapid technological changes. The Company's future success is
therefore dependent on its ability to develop new products (including those
for 300mm technology and 0.25 micron and below production), to qualify these
new products with its customers, to successfully introduce these products to
the marketplace on a timely basis, to commence production to meet customer
demands and to develop new markets in the semiconductor industry for its
products and services. The successful introduction of new technology and
products is increasingly complex. If the Company is unable, for whatever
reason, to develop and introduce new products in a timely manner in response
to changing market conditions or customer requirements, its results of
operations could be adversely impacted.
Many Asian countries are currently experiencing banking and currency
difficulties that could lead to economic recession in those countries.
Specifically, the decline in value of the Korean currency, together with
difficulties in obtaining credit, has resulted in a decline in the purchasing
power of the Company's Korean customers. This has resulted in some
cancellations or delays of orders for the Company's products from Korean
customers and may result in additional cancellations or delays in the future.
In addition, if Japan's economy remains stagnant or weakens further, other
economies could be adversely affected and capital equipment investments by
Japanese customers could decrease. Net sales to customers located in Korea
and Japan for the first fiscal quarter of 1998 were 4 percent and 17 percent,
respectively, of the Company's total net sales.
The DRAM market continues to be characterized by excess capacity and low
device prices. Despite this, the Company's new order levels for the past
several fiscal quarters have included a significant amount of strategic
investments by DRAM manufacturers. If DRAM customers decrease their strategic
investments in manufacturing equipment, the Company's results of operations
could be adversely affected.
The Company completed acquisitions of Opal and Orbot in the first fiscal
quarter of 1997. These acquisitions marked the Company's entrance into the
metrology and inspection
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semiconductor manufacturing equipment markets. To date, the Company's results
of operations have not been materially affected as a result of the
acquisitions, except for a one-time charge for acquired in-process research
and development. However, the Company expects the acquired companies to
contribute significantly to its results of operations in the future. If the
Company is not able to successfully integrate the operations of these newly
acquired companies or expand their customer bases, the Company's expectations
for its future results of operations may not be met. Also, to the extent that
there is an impairment, for whatever reason, in the value of intangible
assets recorded in connection with the acquisitions, the Company's results of
operations could be adversely affected.
The Company has commenced, for its information systems, a year 2000 date
conversion project to address all necessary changes, testing and
implementation. The "Year 2000 Issue" creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with
whom the Company deals on financial and operational transactions worldwide.
At present, the Company's internal systems, the ability of the Company's
suppliers to address the "Year 2000 Issue", and the impact of the "Year 2000
Issue" on the programs which operate the Company's products have been
identified as the primary areas of risk to the Company from the "Year 2000
Issue". Management continues to assess Year 2000 compliance issues.
Significant difficulties with, or failure of, the Company's and/or third
parties' computer systems could have a material effect on the Company's
ability to conduct its business.
The Company is currently involved in litigation regarding patents and other
intellectual property rights and could become involved in additional
litigation in the future. In the normal course of business, the Company from
time to time receives and makes inquiries with regard to possible patent
infringement. There can be no assurance about the outcome of current or
future litigation or patent infringement inquiries.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
During the first fiscal quarter of 1998, the Company resolved all outstanding
legal disputes with Advanced Semiconductor Materials International N.V.,
Epsilon Technology Inc. (doing business as ASM Epitaxy) and Advanced
Semiconductor Materials America Inc. (collectively ASM). The settlement
included ASM's payment of $80 million, a cross license of certain patented
technologies held by Applied Materials and ASM, certain covenants not to sue
for potential patent infringement of existing commercially available systems
and processes offered by each company and a dismissal with prejudice of all
pending litigation between the companies. The settlement also included
ongoing royalties payable by ASM on shipments of systems for epitaxial and
plasma TEOS technologies. ASM's payment of $80 million was in the form of a
convertible note, against which the Company received a payment of $15 million
in November 1997.
In April 1997, the Company filed suit against AST Electronik GmbH and AST
Electronik USA, Inc. (collectively AST), and AG Associates, Inc. (AG) in the
United States District Court for the Northern District of California (case
no. C-97-20375RWM), alleging infringement of several of the Company's patents
relating to rapid thermal processing. In October 1997, AST and AG each
brought counterclaims alleging that the Company infringes patents concerning
related technology. Discovery is commencing and trial has been set for March
1999.
As a result of the Company's acquisition of Orbot, the Company is involved in
a lawsuit captioned KLA Instruments Corporation (KLA) v. Orbot (case no.
C93-20886-JW) in the United States District Court for the Northern District
of California. KLA alleges that the Company infringes one patent regarding
equipment for the inspection of masks and reticles, and KLA seeks an
injunction, damages and such other relief as the Court may find appropriate.
There has been discovery, but no trial date has been set.
On June 13, 1997, the Company filed a patent infringement lawsuit against
Varian Associates, Inc. captioned Applied Materials, Inc. v. Varian
Associates, Inc. (Varian) (case no. C-97-20523-RMW), alleging infringement of
several of the Company's patents concerning physical vapor deposition (PVD)
technology. The complaint was later amended on July 7, 1997 to include
Novellus as a defendant as a result of Novellus' acquisition of the Varian
thin film PVD business unit. The Company seeks damages for past infringement,
a permanent injunction, treble damages for willful infringement, pre-judgment
interest and attorneys fees. Varian answered the complaint by denying all
allegations, counterclaiming for declaratory
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judgment of invalidity and unenforceability and alleging conduct by Applied
Materials in violation of antitrust laws. On June 23, 1997, Novellus filed a
separate patent infringement lawsuit against the Company captioned Novellus
Systems, Inc. v. Applied Materials, Inc. (case no. C-97-20551-EAI), alleging
infringement by the Company of three patents concerning PVD technology which
were formerly owned by Varian. On July 8, 1997, Varian filed a separate
lawsuit against the Company captioned Varian Associates, Inc. v. Applied
Materials, Inc. (case no. C-97-20597-PVT), alleging a broad range of conduct
in violation of federal antitrust laws and state unfair competition and
business practice laws. Discovery has commenced in these actions. No trial
dates have been set. Management believes that it has meritorious claims and
defenses and intends to vigorously pursue these matters.
The Company is subject to various other legal proceedings and claims,
asserted and unasserted, which arise in the ordinary course of business. Any
such claims, whether with or without merit, could be time-consuming and
expensive to defend and could divert management's attention and resources.
The outcome of these claims and their effect on the Company's results of
operations cannot be predicted with certainty.
16
17
Item 5. Other Information
The ratio of earnings to fixed charges for the first fiscal quarter ended
January 25, 1998 and January 26, 1997, and for each of the last five fiscal
years, was as follows:
Three Months Ended
------------------ Fiscal Year
Jan. 25, Jan. 26, -----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
20.10x 7.56x 18.96x 20.14x 21.25x 13.37x 7.61x
====== ===== ====== ====== ====== ====== =====
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) No report on Form 8-K was filed during the first fiscal
quarter of 1998.
17
18
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.
March 11, 1998 By: \s\ Joseph R. Bronson
--------------------------------
Joseph R. Bronson
Senior Vice President,
Chief Financial Officer and
Chief Administrative Officer
(Principal Financial Officer)
By: \s\ Michael K. O'Farrell
--------------------------------
Michael K. O'Farrell
Vice President and
Corporate Controller
(Principal Accounting Officer)
18
5
1,000
3-MOS
OCT-25-1998
JAN-25-1998
328,313
1,070,513
1,164,148
5,519
745,426
3,806,818
1,712,640
561,313
5,186,574
1,356,238
618,343
0
0
3,663
3,100,421
5,186,574
1,307,685
1,307,685
678,244
678,244
182,329
0
11,864
352,143
123,250
228,893
0
0
0
228,893
0.62
0.60
