<PAGE> 1
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 29, 1995 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 January 29,
1995: 84,203,000
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PART I. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
==================================================================================
Three Months Ended
Jan. 29, Jan. 30,
(In thousands, except per share data) 1995 1994
==================================================================================
<S> <C> <C>
Net sales $506,108 $340,449
-------- --------
Costs and expenses:
Cost of products sold 268,096 184,470
Research, development
and engineering 59,996 39,238
Marketing and selling 44,145 34.033
General and administrative 30,024 19,732
Other, net 1,794 655
-------- --------
Income from operations 102,053 62,321
Interest expense 5,582 3,648
Interest income 4,772 2,007
-------- --------
Income from consolidated companies before taxes
and cumulative effect of accounting change 101,243 60,680
Provision for income taxes 35,435 21,238
-------- --------
Income from consolidated companies before
cumulative effect of accounting change 65,808 39,442
Equity in net loss of joint venture - 2,051
-------- --------
Income before cumulative effect of accounting change 65,808 37,391
Cumulative effect of a change in accounting for
income taxes - 7,000
-------- --------
Net income $ 65,808 $ 44,391
-------- --------
Earnings per share
Before cumulative effect of accounting change $ 0.76 $ 0.45
-------- --------
Net income $ 0.76 $ 0.53
-------- --------
Average common shares and
equivalents 86,308 83,245
==================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
<TABLE>
<CAPTION>
=================================================================================================================
Jan. 29, Oct. 30,
(In thousands) 1995 1994
=================================================================================================================
<S> <C> <C> <C>
ASSETS Current assets:
Cash and cash equivalents $ 190,569 $ 160,320
Short-term investments 212,710 262,005
Accounts receivable, net 497,864 405,813
Inventories 273,780 245,710
Deferred income taxes 100,436 99,766
Other current assets 56,476 56,923
---------- ----------
Total current assets 1,331,835 1,230,537
Property, plant and equipment, net 468,430 452,454
Other assets 19,783 19,674
---------- ----------
Total assets $1,820,048 $1,702,665
---------- ----------
LIABILITIES Current liabilities:
AND Notes payable $ 57,457 $ 43,081
STOCKHOLDERS' Current portion of long-term debt 15,432 15,432
EQUITY Accounts payable and
accrued expenses 407,413 378,238
Income taxes payable 64,487 59,682
---------- ----------
Total current liabilities 544,789 496,433
Long-term debt 208,059 209,114
Deferred income taxes and
other non-current obligations 35,423 30,854
---------- ----------
Total liabilities 788,271 736,401
---------- ----------
Stockholders' equity:
Common stock 842 841
Additional paid-in capital 391,260 390,655
Retained earnings 611,734 545,926
Cumulative translation adjustments 27,941 28,842
---------- ----------
Total stockholders' equity 1,031,777 966,264
---------- ----------
Total liabilities and
stockholders' equity $1,820,048 $1,702,665
=================================================================================================================
</TABLE>
*Amounts as of January 29, 1995 are unaudited. Amounts as of October
30, 1994 were obtained from the October 30, 1994 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)
<TABLE>
<CAPTION>
================================================================================================================
Three Months Ended
--------------------------------
Jan. 29, Jan. 30,
(In thousands) 1995 1994
================================================================================================================
<S> <C> <C> <C>
Cash from operating activities:
Net income $ 65,808 $ 44,391
-------- --------
Adjustments required to reconcile
net income to net cash flow
used for operations:
Depreciation and amortization 15,604 11,477
Cumulative effect of a change in
accounting for income taxes - (7,000)
Equity in net loss of joint venture - 2,051
Changes in assets and liabilities:
Accounts receivable (92,535) (39,225)
Inventories (28,561) (23,996)
Deferred income taxes (677) -
Other current assets 180 (68)
Other assets (174) 2,240
Accounts payable and accrued expenses 29,734 (9,458)
Income taxes payable 4,992 2,887
Deferred income taxes and
other long-term liabilities 4,617 3,883
-------- --------
Cash used for operations (1,012) (14,818)
-------- --------
Cash flows from investing activities:
Capital expenditures (31,664) (22,232)
Proceeds from sales of short-term investments 62,721 45,574
Purchases of short-term investments (13,426) (26,737)
-------- --------
Cash provided by (used for) investing 17,631 (3,395)
-------- --------
Cash flows from financing activities:
Short-term borrowing, net 14,376 (6,100)
Long-term debt repayments (1,049) (593)
Sales of common stock, net 606 253
-------- --------
Cash provided by (used for) financing 13,933 (6,440)
-------- --------
Effect of exchange rate changes on cash (303) (166)
-------- --------
Increase (decrease) in cash and cash equivalents 30,249 (24,819)
Cash and cash equivalents
at beginning of period 160,320 119,597
-------- --------
Cash and cash equivalents
at end of period $190,569 94,778
================================================================================================================
</TABLE>
Cash payments for interest expense were $1,373 and $1,286
for the three months ended January 29, 1995 and January 30,
1994, respectively. Cash payments for income taxes were
$29,458 and $19,631 for the three months ended January 29,
1995 and January 30,1994, respectively.
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 29, 1995
(IN THOUSANDS)
1) Basis of Presentation
In the opinion of management, the unaudited consolidated interim financial
statements included herein have been prepared on the same basis as the
October 30, 1994 audited consolidated financial statements and include all
adjustments, consisting of only normal recurring adjustments, necessary to
fairly state the information set forth therein. Certain amounts in the
consolidated statement of cash flows for the quarter ended January 30, 1994
have been reclassified to conform with the current quarter's presentation.
2) Earnings Per Share
Earnings per share is computed on the basis of the weighted average number
of common shares and common equivalent shares from dilutive stock options.
3) Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the basis of first-in, first-out (FIFO).
The components of inventories are as follows:
<TABLE>
<CAPTION>
January 29, 1995 October 30, 1994
---------------- ----------------
<S> <C> <C>
Customer service spares $ 82,270 $ 75,860
Systems raw materials 68,205 56,309
Work-in-process 87,389 81,389
Finished goods 35,916 32,152
-------- --------
$273,780 $245,710
======== ========
</TABLE>
4) Short-Term Investments
Effective October 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments
in Debt and Equity Securities. In accordance with SFAS 115, prior year
financial statements have not been restated to reflect the change in
accounting method. There was no cumulative effect as a result of adopting
SFAS 115 in fiscal 1995.
SFAS 115 requires investment securities to be classified as either held to
maturity, trading or available for sale. Management determines the
appropriate classification of its investments in debt securities at the time
of purchase and reevaluates such determination at each balance sheet date.
The Company reviewed its portfolio as of January 29, 1995 and determined its
short-term investment portfolio to be available for sale. Under SFAS 115,
investments classified as available for sale are required to be recorded at
fair value and any temporary difference between an investment's cost and its
fair value is required to be recorded as a separate component of
stockholders' equity. At January 29, 1995, the fair value of the Company's
short-term investments approximated cost.
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4) Short-Term Investments, continued,
Short-term investments at January 29, 1995 are comprised of the following:
<TABLE>
<S> <C>
Obligations of States and
Political Subdivisions $ 73,696
U.S. Commercial Paper,
Corporate Bonds, and
Medium Term Notes 51,769
Bank Certificates of Deposit 42,894
U.S. Treasury Securities 27,836
Other Debt Securities 16,515
--------
$212,710
========
</TABLE>
Gross unrealized holding gains and losses and gross realized gains and
losses on sales of short-term investments were not significant as of or for
the quarter ended January 29, 1995.
Information about the contractual maturities of short-term investments at
January 29, 1995 is as follows:
<TABLE>
<S> <C>
Due in one year or less $113,812
Due after one year through three years 46,305
Due after three years 52,593
--------
$212,710
========
</TABLE>
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APPLIED MATERIALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
===============================================================================
During the first quarter of fiscal 1995, Applied Materials, Inc. reported record
net sales of $506 million, up 49 percent from first quarter fiscal 1994 sales of
$340 million. Worldwide new orders of $740 million, including a large order from
Hyundai Electronics Ind. Co., Ltd., were received during the quarter, an
increase of 69 percent from first quarter fiscal 1994 new orders of $438
million. The record net sales and orders were the result of customers investing
in semiconductor manufacturing equipment capacity to meet increasing worldwide
demand for advanced logic, microprocessor and memory devices. Backlog at January
29, 1995 was $950 million, up from $715 million at October 30, 1994.
RESULTS OF OPERATIONS
The Company's worldwide net sales growth for the three month period ended
January 29, 1995 can be attributed primarily to increased unit sales of the
Company's single-wafer, multi-chamber systems. Compared with the first quarter
of fiscal 1994, Physical Vapor Deposition (PVD), Metal Chemical Vapor Deposition
(MCVD) and Ion Implantation sales were all up significantly. Regionally, 58
percent of the Company's net sales for the first quarter of fiscal 1995 were to
customers located outside North America which is consistent with the comparable
fiscal 1994 period. However, the sales percentages among the regions outside of
North America have shifted from that of the first quarter of fiscal 1994. The
Asia-Pacific region sales increased to 18 percent for the first quarter of
fiscal 1995 compared to 12 percent in the first quarter of fiscal 1994. The
sales percentages in both Europe and Japan decreased to 15 percent and 25
percent, respectively, compared to 17 percent and 29 percent for the comparable
fiscal 1994 period. While sales in all regions increased in the first quarter of
fiscal 1995 from the comparable period in the previous year, the percentage of
sales in each region was impacted by the significant sales growth in the
Asia-Pacific region.
Asia-Pacific customers are expected to continue to account for a
substantially higher share of the Company's sales for the near term than the
historical pattern. New orders received from Asia-Pacific customers represented
47 percent of the total orders received in the first quarter of fiscal 1995, as
compared to 30 percent in the first quarter of fiscal 1994 as dynamic random
access memory (DRAM) manufacturers placed large orders for new eight-inch
equipment to be used for 16 Mbit production and 64 Mbit pilot lines. New
orders during the first quarter of fiscal 1995 in North America, Europe and
Japan were 23, 11 and 19 percent, respectively, compared to 29, 22 and 19
percent in the comparable period of fiscal 1994. The global semiconductor
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equipment market remains strong, yet each region exhibits unique investment
patterns causing regional order growth rates to vary from quarter to quarter.
Orders in the Asia-Pacific region are expected to remain strong during the
second quarter; as this new capacity is brought on line, such orders should
moderate in the second half of fiscal 1995 and return to order levels achieved
during periods within the last two years not having significant Korean
investment. The combined orders from North America, Europe and Japan appear
sustainable at current levels during the remainder of fiscal 1995.
The Company's gross margin as a percent of sales increased from 46 percent in
the first quarter of fiscal 1994 to 47 percent in the first quarter of fiscal
1995. The improved margin reflects higher sales volumes and a sales mix of
higher margin systems. However, past margin trends are not necessarily
indicative of future margin performance.
Operating expenses as a percentage of sales improved to 27 percent for the first
quarter of fiscal 1995 compared to 28 percent in the first quarter of fiscal
1994 driven primarily by the Company's record sales levels. The Company intends
to continue to accelerate its investment in marketing, sales and administrative
support and new management information systems to address the dramatic growth
of the Company during the last two years.
Significant operations of the Company are conducted in Japanese yen, British
pounds sterling and other European currencies. Forward exchange contracts and
options are purchased to hedge certain existing firm commitments and anticipated
foreign currency denominated transactions over 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. With the strengthening
of the Japanese yen relative to the U.S. dollar when comparing the first quarter
of fiscal 1995 to the first quarter of fiscal 1994, the Company experienced a
slight favorable impact to its results of operations after the effects of the
foreign currency hedging activities. To date, exchange gains and losses
resulting from translation of foreign currencies into U.S. dollars have not had
a significant effect on the Company's results of operations.
The Company's effective tax rate for the first quarter of fiscal 1995 was 35
percent, consistent with fiscal 1994. Management anticipates the 35 percent
effective tax rate will continue throughout fiscal 1995.
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The market served by the Company is characterized by rapid technological change,
increasingly precise customer specifications and global service requirements.
The Company's future operating results may be affected by inherent uncertainties
characteristic of the worldwide semiconductor equipment industry. Such
uncertainties include, but are not limited to, the development of new
technologies, the anticipated transition to a new generation of microprocessors,
competitive pricing pressures, global economic conditions, and the availability
of needed components. Accordingly, recent historical operating results should be
only one factor in evaluating the future financial performance of the Company.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at January 29, 1995 remains strong. Total
current assets exceeded total current liabilities by 2.4 times compared to 2.5
at October 30, 1994. During the first quarter of fiscal 1995 the Company reduced
cash and cash equivalents and short-term investments by $19 million. Cash used
for operations since October 30, 1994 totaled $1 million resulting primarily
from increased inventory and accounts receivable levels, offset by increases in
accounts payable, accrued expenses and net income. The increase in accounts
receivable was primarily due to increased sales volumes and increases in
collection time in Europe, Japan and Asia-Pacific. Other uses of cash include
investments in facilities and capital equipment of $32 million. Capital
expenditures are expected to be approximately $195 million for fiscal year 1995.
This amount includes funds for the continuation and/or completion of facilities
expansion, investments in demonstration and test equipment, information systems
and other capital expenditures.
At January 29, 1995 the Company's principal sources of liquidity consisted of
$403 million of cash and short-term investments and $190 million in available
U.S. and foreign 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 the liquidity provided by existing cash
balances and current borrowing arrangements, will be sufficient to satisfy
commitments for capital expenditures and other cash requirements through the
fiscal year.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the first of two lawsuits filed by the Company against Advanced
Semiconductor Materials, Inc., Epsilon Technology, Inc. (doing business
as ASM Epitaxy) and Advanced Semiconductor Materials International N.V.
(the defendants, together, hereafter referred to as "ASM"), described
in the Company's Annual Report on Form 10-K for its fiscal year ended
October 30, 1994, Judge William Ingram of the United States District
Court for the Northern District of California ruled that ASM's Epsilon
I infringes certain of the Company's United States patents and issued
an injunction against ASM's sale and use of the ASM Epsilon I epitaxial
reactor in the United States. ASM has appealed the decision and the
injunction has been stayed pending the appeal. The stay order requires
that ASM pay a fee, as a security for the Company's interest, for each
Epsilon I system sold by ASM in the U.S. after the date of the
injunction. Judge Whyte of the same Court separately ruled that the
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 appeal of Judge Ingram's decision. The second of
the Company's patent infringement lawsuits against ASM is currently set
for trial in May, 1995. Trial of ASM's patent infringement lawsuit
against the Company has now been severed into two parts. ASM's claim
involving one patent relating to the Company's single wafer epitaxial
product line is currently scheduled for trial in May, 1995, and ASM has
requested a stay of these proceedings pending its separate request for
further proceedings regarding this patent in the Patent and Trademark
Office. No trial date has been set with respect to ASM's claim
involving one patent which relates to the Company's Precision 5000
product lines. Finally, the Company has filed a Declaratory Judgment
action against ASM requesting that an ASM patent be held invalid and
not infringed by the Company's single wafer epitaxial product line.
10
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In September, 1994, General Signal Corporation filed a lawsuit against
the Company 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 multichamber 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 just and
proper.
In January 1995, the Company filed a lawsuit against Novellus Systems,
Inc. in the United States District Court, Northern District of
California. This lawsuit alleges that Novellus' Concept One and Concept
Two systems infringe the Company's U.S. patent relating to the
TEOS-based, plasma enhanced CVD process for silicon oxide deposition.
The lawsuit seeks an injunction, multiple damages and costs, including
reasonable attorneys' fees and interest, and such other relief as the
court may deem just and proper.
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 effect on the Company's financial position or results
of operations.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended January 29, 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.
March 2, 1995 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)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JANUARY 29, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-29-1995
<PERIOD-END> JAN-29-1995
<CASH> 190,569
<SECURITIES> 212,710
<RECEIVABLES> 499,102
<ALLOWANCES> 1,238
<INVENTORY> 273,780
<CURRENT-ASSETS> 1,331,835
<PP&E> 652,113
<DEPRECIATION> 183,683
<TOTAL-ASSETS> 1,820,048
<CURRENT-LIABILITIES> 544,789
<BONDS> 223,491
<COMMON> 842
0
0
<OTHER-SE> 1,030,935
<TOTAL-LIABILITY-AND-EQUITY> 1,820,048
<SALES> 506,108
<TOTAL-REVENUES> 506,108
<CGS> 268,096
<TOTAL-COSTS> 268,096
<OTHER-EXPENSES> 61,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,582
<INCOME-PRETAX> 101,243
<INCOME-TAX> 35,435
<INCOME-CONTINUING> 65,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,808
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>
