===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 2-69114
A: Full title of the plan and the address of the plan, if different from that
of the issuer named below:
APPLIED MATERIALS, INC. EMPLOYEE SAVINGS AND RETIREMENT PLAN
B: Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
APPLIED MATERIALS, INC.
3050 Bowers Avenue
Santa Clara, California 95054-3299
Page 1 of 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrative Committee has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
Date: June 28, 1999 By /s/ Seitaro Ishii
--------------------------------------
Seitaro Ishii
Group Vice President, Global Human
Resources
2
APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
Table of Contents
Page number
-----------
Independent Accountants' Report .............................. 4
Financial Statements:
Statements of Net Assets Available for Plan Benefits ..... 5
Statement of Changes in Net Assets Available for Benefits
with Fund Information .................................... 6
Notes to Financial Statements ............................ 7
Consent of Independent Accountants (Exhibit 23.1) ............ 13
3
INDEPENDENT ACCOUNTANTS' REPORT
To the Participants and Administrative Committee of the
Applied Materials, Inc. Employee Savings and Retirement Plan:
We have audited the statement of net assets available for plan benefits
of the Applied Materials, Inc. Employee Savings and Retirement Plan (the
Plan) as of December 31, 1998, and the related statement of changes in
net assets available for plan benefits with fund information for the
year then ended. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on
these financial statements based on our audit. Other auditors were
engaged to audit the statement of net assets available for plan benefits
of the Plan as of December 31, 1997, and in their report dated May 29,
1998, they expressed an unqualified opinion on that statement.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by the Plan's management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for plan
benefits of the Plan as of December 31, 1998 and the changes in net
assets available for plan benefits for the year then ended, in
conformity with generally accepted accounting principles.
Our audit was performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The fund information in the
statement of changes in net assets available for plan benefits is
presented for purposes of additional analysis rather than to present the
changes in net assets available for plan benefits for each fund. The
fund information has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ MOHLER, NIXON & WILLIAMS
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 9, 1999
4
APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, December 31,
1997 1998
- -------------------------------------------- -------------- --------------
Investments, at fair value ................. $500,031,171 $726,390,954
-------------- --------------
Assets held for investment purposes ...... 500,031,171 726,390,954
Forfeitures payable ........................ (50,718) (218,380)
-------------- --------------
Net assets available for plan benefits...... $499,980,453 $726,172,574
============== ==============
See independent accountants' report
and accompanying notes to financial statements.
5
APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
WITH FUND INFORMATION
YEAR ENDED DECEMBER 31, 1998
Fidelity
--------------------------------------------
Retirement
Government Equity Intermediate
Money Market Income Bond
Fund Fund Fund
- ------------------------------------ -------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1997 .... $24,917,145 $33,398,857 $7,500,712
Employer's contributions ............ 21,285 28,933 9,065
Participants' contributions ......... 2,927,272 4,945,882 1,505,179
Withdrawals and distributions ....... (7,060,879) (2,039,805) (900,821)
Dividends and interest .............. 1,968,613 2,332,221 631,364
Net appreciation/(depreciation) in
fair value of investments ........ 0 1,580,705 87,105
Net loan activities ................. (270,519) (163,678) (80,966)
Transfers in/(out) .................. 23,903,210 (1,033,780) 4,007,639
-------------- -------------- -------------
Increase in net assets 21,488,982 5,650,478 5,258,565
-------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1998 .... $46,406,127 $39,049,335 $12,759,277
============== ============== =============
Fidelity
-------------------------------------------
Spartan
US Equity
Magellan Index
Fund Contrafund Fund
- ------------------------------------ -------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1997 .... $43,743,360 $4,857,207 $5,973,691
Employer's contributions ............ 36,063 16,492 15,240
Participants' contributions ......... 7,987,748 2,128,882 2,261,237
Withdrawals and distributions ....... (2,752,569) (647,672) (476,715)
Dividends and interest .............. 3,363,967 788,223 250,076
Net appreciation/(depreciation) in
fair value of investments ........ 12,969,216 1,291,499 2,143,864
Net loan activities ................. (514,725) (118,675) (2,351)
Transfers in/(out) .................. 4,681,038 2,273,646 4,638,219
-------------- -------------- -------------
Increase in net assets 25,770,738 5,732,395 8,829,570
-------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1998 .... $69,514,098 $10,589,602 $14,803,261
============== ============== =============
Applied
Materials, Inc. PBHG
Common Emerging Janus
Stock Growth Worldwide
Fund Fund Fund
- ------------------------------------ -------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1997 .... $352,068,164 $5,106,124 $10,055,542
Employer's contributions ............ 20,446,343 4,848 33,914
Participants' contributions ......... 25,897,236 1,541,059 3,031,803
Withdrawals and distributions ....... (14,034,858) (122,258) (1,204,707)
Dividends and interest .............. 674,742 35,811 102,276
Net appreciation/(depreciation) in
fair value of investments ........ 151,888,008 84,982 2,619,824
Net loan activities ................. (809,098) 26,836 (79,495)
Transfers in/(out) .................. (41,840,240) (876,396) 3,244,802
-------------- -------------- -------------
Increase in net assets 142,222,133 694,882 7,748,417
-------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1998 .... $494,290,297 $5,801,006 $17,803,959
============== ============== =============
Invesco
Total
Return Participant
Fund Loans Total
- ------------------------------------ -------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1997 .... $1,591,155 $10,768,496 $499,980,453
Employer's contributions ............ 7,524 0 20,619,707
Participants' contributions ......... 688,615 0 52,914,913
Withdrawals and distributions ....... (83,375) (1,157,183) (30,480,842)
Dividends and interest .............. 170,152 0 10,317,445
Net appreciation/(depreciation) in
fair value of investments ........ 155,695 0 172,820,898
Net loan activities ................. (29,286) 2,041,957 0
Transfers in/(out) .................. 1,001,862 0 0
-------------- -------------- -------------
Increase in net assets 1,911,187 884,774 226,192,121
-------------- -------------- -------------
Net assets available for plan
benefits at December 31, 1998 .... $3,502,342 $11,653,270 $726,172,574
============== ============== =============
See independent accountants' report
and accompanying notes to financial statements.
6
APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1998
Note 1 - Significant Accounting Policies
The following description of the Applied Materials, Inc. (the Company)
Employee Savings and Retirement Plan (the Plan) provides only very
general information. Participants seeking detailed information about the
Plan should refer to the Plan document and the Summary Plan
Description/Prospectus for the Plan.
The Plan is a defined contribution plan that the Company established in
1981 to provide benefits to eligible employees. The Plan covers all
eligible U.S. or expatriate employees of the Company and Applied Komatsu
Technology America, Inc. (AKTA). Eligible employees of the Company and
AKTA may enroll in the Plan after receipt of their first paycheck.
The Plan is intended to comply with the applicable requirements of the
Internal Revenue Code (the Code) and the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
Administration
The Company is the designated administrator of the Plan for purposes of
ERISA. The Company's Board of Directors has appointed an Administrative
Committee (the Committee) to manage the day-to-day operation and
administration of the Plan. The Company has contracted with Fidelity
Institutional Retirement Services Company (Fidelity) to maintain
individual participant accounts, and with the Fidelity Management Trust
Company (Fidelity Trust) to act as the custodian and trustee. The
Company currently pays administrative expenses on behalf of the Plan,
except for loan fees paid by Plan participants who elect to receive a
Plan loan. Brokerage commissions and other charges incurred in
connection with investment transactions are paid from Plan assets.
Investments
Investments of the Plan are held by Fidelity Trust and invested in the
investment options available in the Plan based solely upon instructions
received from Plan participants or as provided in the Plan document. The
Plan's investments are valued at fair value, as measured by quoted
market prices, as of the last day of the Plan year.
Income taxes
The Plan is intended to qualify for favorable federal and state income
tax treatment accorded to plans that qualify under Section 401(a) of the
Code. The Plan has been amended subsequent to receipt of its most
recent Internal Revenue Service favorable determination letter dated May
22, 1996. The Company intends to submit the Plan as amended for a new
favorable determination letter, which is expected to be received in due
course.
7
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
Risks and uncertainties
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds and other
investment securities. Investment securities are exposed to various risk
factors, such as those associated with interest rates, market conditions
and credit worthiness of the securities' issuers. Due to the level of
risk associated with certain investment securities, it is possible that
changes in these risk factors in the near-term could materially affect
participants' account balances and the amounts reported in the financial
statements.
Note 2 - Participation and Benefits
Participant contributions
Participants may elect to contribute to the Plan up to 12 percent of
their eligible pre-tax compensation, subject to a dollar limit
established by the Code. For participants who elect to contribute a
portion of their compensation to the Plan, taxable compensation is
reduced by the amount contributed. Participant salary deferral
contributions are invested in various funds in one percent increments
according to the participant's direction.
Participants are also allowed to make rollover contributions of amounts
received from other tax-qualified employer-sponsored retirement plans or
conduit IRA's. Such contributions are deposited in the appropriate
investment funds in accordance with the participant's direction and the
Plan's provisions.
8
Company & AKTA contributions
Participants in the Plan become eligible for Company and AKTA matching
contributions immediately upon enrolling in the Plan. Matching
contributions are invested in the Applied Materials, Inc. Common Stock
Fund, and cannot be transferred to other investment funds until a
participant has completed 10 years of service or is fully vested and age
50. The Company and AKTA match 100 percent of participant contributions
up to the first 3 percent of compensation contributed, and 50 percent of
every dollar between 4 percent and 6 percent of compensation
contributed. The Company's and AKTA's contributions are made bi-weekly,
and may be in the form of cash, shares of the Company's common stock or
any combination thereof. Fidelity Trust will use cash contributions to
purchase shares of the Company's common stock on the open market (at the
then prevailing market price), directly from the Company, or from other
persons in private transactions. The Company can change the matching
contribution rate, subject to the limits of the Plan and the Code. No
changes in the matching contribution rate were made during 1997 or 1998.
Vesting
Participants are immediately vested in their salary deferral, rollover
contributions and any related earnings. After three years of credited
service, participants begin to vest 20 percent each year in the
Company's and AKTA's matching contributions allocated to their accounts,
and are fully vested after seven years of credited service. Participants
become fully vested upon death, total disability, attainment of normal
retirement age or termination of the Plan. Certain former employees of
Opal, Inc. have different vesting schedules according to their original
vesting schedules and years of service with their former employer. If a
participant leaves the Company or AKTA prior to retirement, the unvested
portion of his or her matching account will be forfeited. Forfeitures
can be used to offset the Company's or AKTA's matching contributions, as
applicable. Forfeitures in 1997 and 1998 were $2,565,518 and $2,294,791,
respectively.
Participant accounts
Each participant's account is credited with the participant's
contributions, his or her portion of Company and AKTA contributions and
Plan earnings or losses.
Payment of benefits
Upon termination, a participant or beneficiary generally will receive a
lump-sum cash distribution, but may elect to receive whole shares of
Company stock for any portion of his or her vested account balance in
the Company stock fund. The Plan provides for automatic lump-sum
distribution, upon participant termination of employment, of account
balances that do not exceed $3,500.
9
Loans to participants
The Plan allows participants to borrow up to the lesser of $50,000 or 50
percent of their vested account balances (excluding Company matching
contributions). Loans are secured by the participants' vested account
balances, bear interest at prime plus one percent at the time of
borrowing and must be repaid to the Plan via bi-weekly payroll
deductions over the loan term, which will be a minimum of one year and a
maximum of five years. Loans are payable in full upon a participant's
termination of employment from the Company or AKTA, or the occurrence of
certain other events. Specific loan terms and conditions are established
by the Committee.
Note 3 - Party in Interest Transactions
As allowed by the Plan, participants may elect to invest in common stock
of the Company. In addition, Company and AKTA matching contributions are
invested in the Company stock fund. Aggregate investment in Company
common stock at December 31, 1997 and 1998 was as follows:
Number of shares Fair Value Cost
- --------- --------------- ------------- -------------
1997 11,579,337 $348,827,529 $176,979,509
1998 11,424,502 $487,683,429 $201,625,739
The Applied Materials, Inc. Common Stock Fund invests primarily in the
Company's common stock. The remainder of the Fund is invested in the
Fidelity Institutional Cash Portfolio Money Market to allow for timely
handling of exchanges, withdrawals and distributions.
Note 4 - Plan Termination and/or Modification
The Company intends to continue the Plan indefinitely for the benefit of
its participants and their beneficiaries; however, it reserves the right
to terminate and/or modify the Plan at any time by resolution of its
Board of Directors and subject to the provisions of ERISA. In the event
the Plan is terminated, participants would become fully vested in their
accounts.
10
Note 5 - Investments
The following table includes the fair values of investments and
investment funds that represent 5% or more of the Plan's net assets at
December 31:
1997 1998
- ------------------------------------------- -------------- --------------
Fidelity:
Retirement Government Money Market Fund .. $24,967,863 $46,624,507
Equity Income Fund ....................... 33,398,857 39,049,335
Intermediate Bond Fund ................... 7,500,712 12,759,277
Magellan Fund ............................ 43,743,360 69,514,098
Contrafund ............................... 4,857,207 10,589,602
Spartan U.S. Equity Index Fund ........... 5,973,691 14,803,261
Applied Materials, Inc. Common Stock Fund .. 352,068,164 494,290,297
PBHG Emerging Growth Fund .................. 5,106,124 5,801,006
Janus Worldwide Fund ....................... 10,055,542 17,803,959
Invesco Total Return Fund .................. 1,591,155 3,502,342
Participant Loans .......................... 10,768,496 11,653,270
-------------- --------------
500,031,171 726,390,954
Forfeitures payable ........................ (50,718) (218,380)
-------------- --------------
Net assets available for plan benefits ..... $499,980,453 $726,172,574
============== ==============
Note 6 - Subsequent Events
Effective January 1, 1999, the maximum participant salary deferral
percentage was increased from 12 percent to 15 percent.
Effective January 1999, the maximum account balance for which the Plan
allows automatic lump-sum distribution upon termination was increased
from $3,500 to $5,000.
In December 1998, the Company purchased Consilium, Inc. (Consilium), and
eligible employees of Consilium started to contribute to the Plan in
March 1999. Certain former employees of Consilium have different vesting
schedules according to their original vesting schedules and years of
service with their former employer. Consilium's plan assets are expected
to be transferred into the Plan during 1999.
11
Note 7 - Year 2000 Compliance (Unaudited)
The Company primarily uses third-party service providers to administer
the Plan. These third-party service providers have represented to the
Company that they are either Year 2000 compliant or will be Year 2000
compliant before the year 2000. However, the Company cannot provide any
assurance that Year 2000 complications will not arise or have a material
adverse effect on the Plan.
12
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-52072 and No. 333-31289) of Applied
Materials, Inc. of our report dated June 9, 1999 which appears on
page 4 of this Form 11-K.
/s/ MOHLER, NIXON & WILLIAMS
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 25, 1999
13