<PAGE> 1
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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 JULY 30, 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 JULY 30,
1995: 89,171,379
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PART I
ITEM 1. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- --------------------------
JULY 30, JULY 31, JULY 30, JULY 31,
1995 1994 1995 1994
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 897,684 $ 440,228 $ 2,079,231 $ 1,192,009
-------- -------- ---------- ----------
Costs and expenses:
Cost of products sold...................... 489,256 234,656 1,127,781 641,067
Research, development and engineering...... 85,789 52,494 219,178 135,386
Marketing and selling...................... 62,520 39,851 158,566 113,254
General and administrative................. 44,109 20,279 109,096 60,500
Other, net................................. 2,633 701 4,286 815
-------- -------- ---------- ----------
Income from operations....................... 213,377 92,247 460,324 240,987
Interest expense............................. 5,527 3,659 17,161 10,779
Interest income.............................. 6,323 2,946 16,306 7,214
-------- -------- ---------- ----------
Income from consolidated companies before
taxes and cumulative effect of accounting
change..................................... 214,173 91,534 459,469 237,422
Provision for income taxes................... 74,961 32,036 160,814 83,097
-------- -------- ---------- ----------
Income from consolidated companies before
cumulative effect of accounting change..... 139,212 59,498 298,655 154,325
Equity in net loss of joint venture.......... -- 1,362 -- 3,727
-------- -------- ---------- ----------
Income before cumulative effect of accounting
change..................................... 139,212 58,136 298,655 150,598
Cumulative effect of a change in accounting
for income taxes........................... -- -- -- 7,000
-------- -------- ---------- ----------
Net income................................... $ 139,212 $ 58,136 $ 298,655 $ 157,598
-------- -------- ---------- ----------
Earnings per share:
Before cumulative effect of accounting
change.................................. $ 1.57 $ 0.68 $ 3.42 $ 1.78
-------- -------- ---------- ----------
Net income................................. $ 1.57 $ 0.68 $ 3.42 $ 1.86
-------- -------- ---------- ----------
Average common shares and equivalents........ 88,877 86,033 87,399 84,654
======== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 30, OCT. 30,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 262,363 $ 160,320
Short-term investments............................................ 437,382 262,005
Accounts receivable, net.......................................... 778,113 405,813
Inventories....................................................... 391,229 245,710
Deferred income taxes............................................. 104,646 99,766
Other current assets.............................................. 84,470 56,923
---------- ----------
Total current assets................................................ 2,058,203 1,230,537
Property, plant and equipment, net.................................. 557,718 452,454
Other assets........................................................ 22,210 19,674
---------- ----------
Total assets.............................................. $ 2,638,131 $ 1,702,665
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................... $ 73,607 $ 43,081
Current portion of long-term debt................................. 25,428 15,432
Accounts payable and accrued expenses............................. 595,303 378,238
Income taxes payable.............................................. 65,625 59,682
---------- ----------
Total current liabilities........................................... 759,963 496,433
Long-term debt...................................................... 231,103 209,114
Deferred income taxes and other non-current obligations............. 39,748 30,854
---------- ----------
Total liabilities................................................... 1,030,814 736,401
---------- ----------
Stockholders' equity:
Common stock...................................................... 893 841
Additional paid-in capital........................................ 720,644 390,655
Retained earnings................................................. 844,581 545,926
Cumulative translation adjustments................................ 41,199 28,842
---------- ----------
Total stockholders' equity.......................................... 1,607,317 966,264
---------- ----------
Total liabilities and stockholders' equity................ $ 2,638,131 $ 1,702,665
========== ==========
</TABLE>
---------------
* Amounts as of July 30, 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.
3
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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
JULY 30, JULY 31,
1995 1994
--------- ---------
<S> <C> <C>
Cash from operating activities:
Net income........................................................... $ 298,655 $ 157,598
--------- ---------
Adjustments required to reconcile net income to net cash flow
provided by operations:
Depreciation and amortization...................................... 54,047 42,223
Cumulative effect of a change in accounting for income taxes....... -- (7,000)
Equity in net loss of joint venture................................ -- 3,727
Changes in assets and liabilities:
Accounts receivable............................................. (354,523) (125,005)
Inventories..................................................... (136,241) (81,181)
Deferred income taxes........................................... (3,111) --
Other current assets............................................ (26,282) (6,353)
Other assets.................................................... (1,380) (3,399)
Accounts payable and accrued expenses........................... 195,272 57,860
Income taxes payable............................................ 7,015 (3,799)
Deferred income taxes and other long-term liabilities........... 7,185 4,441
--------- ---------
Cash provided by operations.......................................... 40,637 39,112
--------- ---------
Cash flows from investing activities:
Capital expenditures............................................... (144,569) (121,363)
Proceeds from sales of short-term investments...................... 165,244 115,114
Purchases of short-term investments................................ (340,620) (183,034)
--------- ---------
Cash used for investing.............................................. (319,945) (189,283)
--------- ---------
Cash flows from financing activities:
Short-term debt borrowings (repayments), net....................... 25,401 236
Long-term borrowings, including current portion.................... 33,040 --
Long-term debt repayments.......................................... (5,130) (3,863)
Sales of common stock, net......................................... 330,041 106,861
--------- ---------
Cash provided by financing........................................... 383,352 103,234
--------- ---------
Effect of exchange rate changes on cash.............................. (2,001) 849
--------- ---------
Increase (decrease) in cash and cash equivalents..................... 102,043 (46,088)
Cash and cash equivalents at beginning of period..................... 160,320 119,597
--------- ---------
Cash and cash equivalents at end of period........................... $ 262,363 $ 73,509
========= =========
</TABLE>
Cash payments for interest expense were $13,696 and $8,355 for the nine
months ended July 30, 1995 and July 31, 1994, respectively. Cash payments for
income taxes were $145,573 and $63,264 for the nine months ended July 30, 1995
and July 31, 1994, respectively.
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JULY 30, 1995
(IN THOUSANDS)
1) BASIS OF PRESENTATION
In the opinion of management, the unaudited consolidated condensed 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 nine months ended July 31, 1994
have been reclassified to conform with the current period'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>
JULY 30, 1995 OCTOBER 30, 1994
------------- ----------------
<S> <C> <C>
Customer service spares.................................. $ 126,747 $ 75,860
Systems raw materials.................................... 93,669 56,309
Work-in-process.......................................... 127,324 81,389
Finished goods........................................... 43,489 32,152
-------- --------
$ 391,229 $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 July 30, 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 July 30, 1995, the
fair value of the Company's short-term investments approximated cost.
5
<PAGE> 6
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Short-term investments at July 30, 1995 are comprised of the following:
<TABLE>
<S> <C>
Obligations of States and Political Subdivisions.......................... $ 97,025
U.S. Commercial Paper, Corporate Bonds, and Medium Term Notes............. 92,238
Bank Certificates of Deposit.............................................. 105,017
U.S. Treasury Securities.................................................. 125,688
Other Debt Securities..................................................... 17,414
--------
$437,382
========
</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
three or nine month periods ended July 30, 1995.
Information about the contractual maturities of short-term investments at
July 30, 1995 is as follows:
<TABLE>
<S> <C>
Due in one year or less................................................... $319,572
Due after one year through three years.................................... 38,169
Due after three years..................................................... 79,641
--------
$437,382
========
</TABLE>
5) DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into forward exchange contracts to hedge certain firm
commitments denominated in foreign currencies and purchases currency option
contracts to hedge certain anticipated, but not yet committed, transactions
expected to be denominated in foreign currencies. The purpose of the Company's
foreign currency management activity is to protect the Company from the risk
that the eventual cash flows from foreign currency denominated transactions may
be adversely affected by changes in exchange rates. The term of the currency
instruments used is consistent with the timing of the committed or anticipated
transactions being hedged. The Company does not hold or issue financial
instruments for trading or speculative purposes.
Deferred results of option and forward contracts are recognized in income
when the related transactions being hedged are recognized. At July 30, 1995,
premiums on purchased option contracts which have been deferred were $5,410.
Deferred gains and losses on forward contracts were not material. At July 30,
1995, the Company had forward exchange contracts to sell U.S. dollars for
foreign currency with notional amounts of $261,758 and forward exchange
contracts to buy U.S. dollars for foreign currency with notional amounts of
$500,160. At July 30, 1995, the Company had purchased currency option contracts,
with gross notional amounts of $447,619. All currency forward and option
contracts have maturities of less than two years and are primarily to buy or
sell Japanese yen in exchange for U.S. dollars. Management believes that these
forward contracts and purchased option contracts should not subject the Company
to undue risk due to foreign exchange movements because gains and losses on
these contracts should offset gains and losses on the assets, liabilities and
transactions being hedged. The Company is exposed to credit-related losses in
the event of nonperformance by counterparties to financial instruments, but it
does not expect any counterparties to fail to meet their obligations, given
their credit ratings.
6) STOCKHOLDERS' EQUITY
In July 1995, the Company sold 4,025 shares of common stock in a public
offering at a price of $82.75 per share prior to underwriters' commission.
Proceeds after underwriters' commission and other estimated offering costs were
$321,242.
6
<PAGE> 7
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
7) LONG-TERM DEBT
On August 24, 1995, the Company commenced a program to offer from time to
time up to $266,931 in medium-term notes. On September 5, 1995, the Company
issued $53 million in medium-term notes due in five and ten years at interest
rates ranging from 6.65 to 7.0 percent. The remaining notes may be issued at
fixed or floating interest rates, as determined at the time of issuance. The
notes contain certain financial covenants that include limitations on additional
borrowings by U.S. subsidiaries, liens placed on assets, and sale and leaseback
transactions.
7
<PAGE> 8
PART I
ITEM 2.
APPLIED MATERIALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the third quarter of fiscal 1995 Applied Materials, Inc. reported net
sales of $898 million. New orders of $1.01 billion were received during the
third quarter of fiscal 1995, and backlog at July 30, 1995 was $1.35 billion, up
from $1.22 billion at the end of the second quarter.
RESULTS OF OPERATIONS
The Company's worldwide net sales for the three and nine month periods
ended July 30, 1995 increased by 104 percent and 74 percent, respectively, from
the corresponding periods in fiscal 1994. This growth can be primarily
attributed to increased unit sales of the Company's single-wafer, multi-chamber
systems for all the regions served by the Company and increases in customer
support revenues. Compared with the nine months ended July 31, 1994, sales for
fiscal 1995 for each of the Company's product lines and customer support were up
significantly. Regionally, 70 percent of the Company's net sales for the third
quarter of fiscal 1995 were to customers located outside North America compared
to 61 percent in the comparable 1994 period. Sales to customers located outside
North America represented 66 percent for the nine months ended July 30, 1995
compared to 62 percent in the comparable period in fiscal 1994. Fiscal 1995 year
to date sales to customers located in Asia-Pacific increased 197 percent from
the prior year and accounted for 28 percent of the Company's fiscal 1995 year to
date sales, an increase from 16 percent in the comparable fiscal period in 1994.
This increase was driven primarily by revenue from systems shipped in response
to large orders placed by Korean customers. As a percentage of the Company's
fiscal 1995 year to date sales, both Europe and Japan decreased to 14 percent
and 24 percent, respectively, compared to 19 percent and 27 percent for the
comparable fiscal 1994 period. While sales in all regions increased for the nine
month period ended July 30, 1995 from the comparable period in the previous
year, the percentage of total sales in each region was impacted by the
significant sales growth in Asia-Pacific.
Year to date fiscal 1995 new orders increased in all geographic regions
when compared to the comparable period in fiscal 1994. New orders received from
Asia-Pacific customers represented 27 percent of the total orders received in
the nine months ended July 30, 1995, as compared to 21 percent in the comparable
fiscal period in 1994, as dynamic random access memory (DRAM) manufacturers
continued placing large orders for new eight-inch equipment to be used for 16
Mbit production and 64 Mbit pilot lines. Asia-Pacific customers are expected to
continue to account for a high share of the Company's sales in the near term
driven by the high 1995 order levels. New orders received during the nine months
ended July 30, 1995 in North America, Europe and Japan were 32, 16 and 25
percent of total orders received, respectively, compared to 37, 17 and 25
percent in the comparable period of fiscal 1994. The global semiconductor
equipment market remains strong, yet each region exhibits unique investment
patterns causing regional order rates to vary from quarter to quarter. The
combined orders from North America, Europe, Japan and Asia-Pacific appear to be
sustainable at current levels during the remainder of fiscal 1995.
Gross margin as a percentage of sales for the three and nine month periods
ended July 30, 1995 was 46 percent, and has remained consistent when compared to
the gross margins of 47 percent and 46 percent for the respective three and nine
month periods ended July 31, 1994. The ramp in shipments during the second and
third quarters of fiscal 1995 resulted in slight production inefficiencies and
costs which reduced the gross margin by one percentage point when comparing the
three month period ended July 30, 1995 to the corresponding period in 1994. Past
margin trends are not necessarily indicative of future margin performance.
Operating expenses as a percentage of sales for the three and nine month
periods ended July 30, 1995 improved to 22 percent and 24 percent, respectively,
compared to 26 percent for both corresponding periods in fiscal 1994. This
improvement is driven primarily by the Company's record sales levels and the
Company's efforts to grow operating expenses at a lower rate than revenues. The
Company intends to continue to invest
8
<PAGE> 9
significant funds for facilities expansion, information systems technology and
personnel to support higher volumes of business. Thus there can be no
assurance that the Company will be successful in maintaining or improving future
operating expenses as a percentage of sales.
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 two
years. 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. While not significant, the continued strength of the Japanese yen
relative to the U.S. dollar has resulted in a favorable impact to the Company's
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 three and nine month periods ended
July 30, 1995 was 35 percent, consistent with fiscal 1994. Management
anticipates that the 35 percent effective tax rate will continue through the end
of fiscal 1995.
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 semiconductor
devices, 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.
On August 15, 1995, the Company announced that James W. Bagley, Vice
Chairman and Chief Operating Officer, will transition out of his role as Chief
Operating Officer. This transition will take place at the end of fiscal 1995. He
will continue to serve as Vice Chairman of the Board of Directors and will
remain an active executive of the Company focusing on long-term global
initiatives and strategies.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at July 30, 1995 remained strong. Total
current assets exceeded total current liabilities by 2.7 times, compared to 2.5
at October 30, 1994. During the nine month period ended July 30, 1995, cash,
cash equivalents, and short-term investments increased by $277 million. This
increase is primarily attributable to the sale of 4,025,000 shares of common
stock in July 1995. The Company raised $321 million, net of underwriters'
commissions and other estimated offering costs. Cash provided by operations
since October 30, 1994 totaled $41 million resulting primarily from net income
and increases in accounts payable and accrued expenses offset by increases in
accounts receivable and inventory. The increase in accounts receivable was due
to increased sales volumes over the prior period. Inventory levels have
increased primarily to fulfill customer orders scheduled for delivery in the
last quarter of fiscal 1995 and early fiscal 1996. Other sources of cash include
short and long-term borrowings of $25 and $33 million, respectively, offset by
$5 million of borrowing reductions. Uses of cash include investments in
facilities and capital equipment of $145 million. Capital expenditures are
expected to be approximately $265 million for fiscal year 1995. This amount
includes funds for global facilities expansion, investments in demonstration and
test equipment, information systems and other capital expenditures.
At July 30, 1995, the Company's principal sources of liquidity consisted of
$700 million of cash, cash equivalents and short-term investments and $189
million in available U.S. and foreign credit facilities. In addition, the
Company filed a shelf registration with the Securities and Exchange Commission
during the third quarter of fiscal 1995 for the sale of common stock and
issuance of debt securities. The sale of 4,025,000 shares of common stock
occurred in July 1995 raising approximately $333 million before underwriters'
commission and other estimated offering costs. Additionally, the Company
registered approximately $267 million in medium-term notes on August 24,
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<PAGE> 10
1995. These notes may be issued from time to time, at fixed or floating interest
rates, as determined at the time of issuance (see also footnote 7 of the notes
to consolidated condensed financial statements). The Company's liquidity is
affected by many factors, some based on the typical on-going operations of the
business and others related to the uncertainties of the industry and global
economies. Management believes that cash generated from operations, together
with the liquidity provided by existing cash balances and current borrowing
arrangements, will be sufficient to support operations through the fiscal year.
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 on April 26, 1994, ruled that ASM's Epsilon I infringes
certain of the Company's United States patents and issued an injunction against
ASM's use and sale of the ASM Epsilon I epitaxial reactor in the United States.
ASM has appealed the decision and the injunction has been stayed, as it concerns
ASM products other than those offered for sale as of April 1994, pending the
appeal. The stay order 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 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. Although the matter is under
consideration based on the evidence at trial, the Court has no scheduled date
for a decision.
ASM's separate lawsuit 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), is currently scheduled for
trial in February 1996. ASM has requested a stay of these proceedings pending
its separate request for further proceedings regarding this patent in the U.S.
Patent and Trademark Office. The Court tentatively denied this request for stay,
and the case is proceeding through discovery and pretrial preparation. A
separate action severed from ASM's case, captioned ASM America Inc. v. Applied
Materials Inc. (case no. C-95-20169-RWM), involves one patent which relates to
the Company's Precision 5000 product line. No trial date has been set. Discovery
and pretrial investigation is proceeding.
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 patent be held invalid and not infringed by the Company's single
wafer epitaxial product line. Discovery and pretrial investigation is
proceeding. No trial date has been set. Finally, on July 7, 1995, ASM filed a
lawsuit, captioned ASM America Inc. v. Applied Materials Inc. (case no.
C95-02458-VRW), concerning susceptors in chemical vapor deposition chambers.
Investigation has just commenced. No discovery has been pursued as yet. And no
trial date has been set.
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
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. This lawsuit is currently in discovery
and no trial date has been set.
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
10
<PAGE> 11
Novellus' Concept One and Concept Two systems infringe the Company's U.S. patent
relating to 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. Damages have been bifurcated for separate trial.
A jury trial has been set for May 6, 1996, before the Honorable Maxine M.
Chesney.
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 5. OTHER INFORMATION
The ratio of earnings to fixed charges for the nine months ended July 30,
1995 and July 31, 1994 and each of the five years in the period ended October
30, 1994 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------- FISCAL YEAR
JULY 30, JULY 31, -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
16.43x 13.04x 13.37x 7.61x 3.63x 3.02x 5.89x
========= ====== ====== ====== ===== ===== =====
</TABLE>
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:
10.25 -- Employment Agreement with James Bagley, dated August 15, 1995
12.1 -- Ratio of Earnings to Fixed Charges
27.0 -- Financial Data Schedule: filed electronically
b) No reports on Form 8-K were filed by the Company during the quarter
ended July 30, 1995.
11
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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.
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)
September 11, 1995
12
<PAGE> 13
INDEX TO EXHIBITS
Exhibits are number in accordance with the Exhibit Table of Item 601 of
Regulation S-K:
<TABLE>
<S> <C> <C>
10.25 -- Employment Agreement with James Bagley, dated August 15, 1995
12.1 -- Ratio of Earnings to Fixed Charges
27.0 -- Financial Data Schedule: filed electronically
</TABLE>
13
<PAGE> 1
EXHIBIT 10.25
CONFIDENTIAL
EMPLOYMENT AGREEMENT
This AGREEMENT, made effective as of August 15, 1995, between
Applied Materials, Inc., a Delaware corporation (the "Company"), a corporation
having its principal office at 3050 Bowers Avenue, Santa Clara, California, and
James W. Bagley ("Executive").
RECITALS
The Company desires to retain the services and employment of
Executive for the period provided in this Agreement, and Executive is willing to
continue employment by the Company on a full-time basis for such period, upon
the terms and conditions hereinafter set forth.
The execution of this Agreement has been duly authorized by the
Board of Directors of the Company ("Board"), and the terms of compensation
contained herein have been approved by the Stock Option And Compensation
Committee ("Committee") of the Board.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive and
Executive agrees to accept employment by the Company, for the period stated in
paragraph 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. Until October 30, 1995,
Executive agrees to serve the Company and the Company shall employ Executive as
a member of and Vice Chairman of the Board, Chief Operating Officer of the
Company and member of the Office of the Chief Executive Officer ("OCEO") of the
Company. From October 30, 1995, through July 31, 1996, Executive agrees to serve
the Company, and the Company shall employ Executive as a member of and Vice
Chairman of the Board, and as an advisor to the Board and its Chairman on
business, management and performance issues related to the Company.
3. Terms and Duties.
(a) Terms of Employment. The initial period of
Executive's employment under this Agreement shall commence on the date of this
Agreement, and shall continue through October 29, 1995 (the "Initial Term") and
the second period of Executive's employment under this agreement shall commence
October 30, 1995 and continue through July 31, 1996 (the "Second Term").
(b) Duties. During the period of his employment
hereunder and except for illness and reasonable vacation periods, Executive
shall devote his best efforts and
<PAGE> 2
skills to the business and affairs of the Company and its affiliated companies,
as such business and affairs now exist and as they may be hereafter changed or
added to, under and pursuant to the general direction of the Chairman of the
Company; provided, however, that Executive may serve, or continue to serve, on
the boards of directors of and hold any other offices or positions in, companies
or organizations which will not present any conflict of interest with the
Company or any of its subsidiaries or affiliates or divisions, or materially
affect the performance of Executive's duties pursuant to this Agreement. The
Company shall retain full direction and control of the means and methods by
which Executive performs the services for which he is employed hereunder.
Executive's services are to be rendered in the State of Texas, or in such other
place or places in the United States or elsewhere as may be determined from time
to time by the Board. Executive shall not be required to perform duties or
represent the Company in a manner which he reasonably believes would impair or
jeopardize his position or reputation within the semiconductor and semiconductor
equipment industries or the financial community.
4. Compensation and Reimbursement of Expenses; Other Benefits.
(a) Compensation. The Company shall compensate
Executive during the period of employment under this Agreement as follows:
(i) Base Salary. An annualized base salary
("Base Salary"), of not less than $439,950;
(ii) Bonuses. As a member of OCEO, the Executive's
bonus for fiscal year 1995 shall be determined using the same
formula and parameters as the other members of the OCEO and
will be deferred pursuant to Executive's election under the
Executive Deferred Compensation Plan. An additional bonus (not
payable under the Senior Executive Bonus Plan) shall be awarded
to Executive in December 1996 using the same formula and
parameters as were used to compute the fiscal year 1996 OCEO
bonuses. The bonus for fiscal year 1996 will be computed on the
salary earned (both paid and deferred) for fiscal 1996 and, if
the Executive elects in accordance with the Executive Deferred
Compensation Plan, will be deferred in accordance with the
Executive's election;
(iii) Other Benefits. During the period of employment
under this Agreement, Executive shall be entitled to receive
all other benefits of employment generally available to other
members of the Company's management and those benefits for
which key executives are or shall become eligible;
(iv) Administrative Assistant. During both the Initial
Term and Second Term of this Agreement, the Company will retain
a person selected by Executive as his administrative assistant,
and will provide such person with compensation and other
benefits no less than those compensation and benefits in effect
for the Executive's administrative assistant on July 10, 1995.
Travel expenses for Executive and his administrative assistant,
as Executive deems
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<PAGE> 3
appropriate for the fulfillment of his duties, will be authorized in a
manner consistent with the Company's current practices.
(b) Reimbursement of Expenses. The Company shall pay
or reimburse Executive for all reasonable expenses incurred by Executive in
performing his duties under this Agreement. The Company furthers agrees to
furnish Executive with his current or equivalent office and conference room
facilities, together with such assistance and accommodations as shall be
suitable to the character of Executive's position with the Company and adequate
for the performance of his duties hereunder.
5. Obligations of Executive During and After Employment.
(a) Executive agrees that during the term of his
employment under this Agreement, he will engage in no other business activities,
directly or indirectly, which are or may be competitive with or which might
place him in a competing position to that of the Company, or any affiliated
company, without the written consent of the Board.
(b) Executive realizes that during the course of his
employment he will have produced and/or have access to confidential information,
records, notebooks, data, formulae, specifications, trade secrets, customer
lists, inventions and processes of Company and its affiliated companies.
Therefore, during and subsequent to his employment by the Company, or by an
affiliated company, Executive agrees to hold in confidence and not directly or
indirectly to disclose or use or copy or make lists of any such information,
except to the extent authorized by the Company in writing. All records, files,
drawings, documents, equipment, and the like, or copies thereof, relating to the
Company's business, or the business of an affiliated company, which Executive
shall prepare, or use, or come into contact with, shall be and remain the sole
property of Company, or of an affiliated company, and shall not be removed from
the Company's or the affiliated Company's premises without its written consent,
and shall be promptly returned to the Company upon termination of the
Executive's employment with the Company and its affiliated companies.
6. Termination By Company.
(a) Termination For Cause. The Company may terminate
the employment of Executive "for Cause" at any time upon written notice to
Executive specifying the cause of termination. If terminated pursuant to this
Section 6(a), the then current Base Salary shall be paid on a prorated basis to
the date of termination. For purposes of this Agreement, "for Cause" shall mean
the discharge resulting from a determination by the Company that Executive (i)
has been convicted of a crime involving moral turpitude, including fraud, theft
or embezzlement, (ii) has failed or refused (in a material respect) to follow
reasonable policies or directives established by the Board which failure or
refusal continues for thirty (30) days following written notice thereof to
Executive, or (iii) has willfully and persistently failed to attend to material
duties or obligations imposed on him under this Agreement. A termination by the
Company under this Section 6(a) shall not prejudice any remedy to which the
Company may be entitled either at law, in equity, or under this Agreement.
Page 3 of 7
<PAGE> 4
(b) Termination Without Cause. The Company may terminate the
employment of Executive without cause at any time after October 29, 1995, upon
written notice to Executive; provided, however, that the Company shall be
obligated to pay Executive, as severance, an amount equal to the Base Salary for
the balance of the Second Term. Executive shall also be paid a cash bonus for
fiscal 1996, by action of the Committee, equivalent to the bonus which he would
have received had his term of employment continued through July 31, 1996. In
addition, the Company, by action of the Committee, shall accelerate the exercise
dates of all stock options held by Executive which would have become exercisable
by July 31, 1996, to the date of his termination.
7. Termination by Executive.
(a) Termination For Good Reason. If Executive
terminates his employment hereunder for Good Reason (as hereinafter defined), he
shall be entitled to the benefits set forth herein applicable to termination
without Cause as set forth in Section 6(b) hereof. For the purposes of this
Agreement, "Good Reason" shall mean:
(i) reduction by the Company in the Executive's Base
Salary;
(ii) assignment to the Executive of duties
inconsistent with his responsibilities as set forth in this
Agreement, a substantial alteration in the title of Executive
(so long as the existing corporate structure of the Company is
maintained), or substantial alteration in the status of
Executive in the Company organization;
(iii) failure by the Company to continue in effect,
without substantial change, any benefit plan or arrangement in
which Executive was participating or the taking of any action
by the Company which would adversely affect the Executive's
participation in or materially reduce his benefits under any
benefit plan, unless all other key executives are similarly
affected;
(iv) relocation of the Company's principal executive
offices or the Executive's relocation to any place other than
the principal executive offices of the Company except for
required travel on Company business; or
(v) any material breach by the Company of any
provision of this Agreement without the Executive having
committed any material breach of his obligations hereunder.
(b) Termination Without Good Reason. If Executive
terminates his employment hereunder without Good Reason his then current Base
Salary shall be paid on a prorated basis to the date of termination, but no
bonus not earned and payable under the terms of the Company's Senior Executive
Bonus Plan shall be payable for the year in which such termination takes place.
8. Arbitration. Any dispute, controversy or claim
arising under or in connection with this Agreement, or the breach hereof, shall
be settled exclusively by
Page 4 of 7
<PAGE> 5
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof. Any
arbitration held pursuant to this Section 8 shall take place in Santa Clara
County, California.
9. Notice. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Applied Materials, Inc.
3050 Bowers Avenue
Santa Clara, CA 95054
Attention: James C. Morgan, Chairman
If to the Executive:
James W. Bagley
101 Firebird Cove
Austin, TX 78734
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
10. Non-Waiver. Complete Agreement, Governing Law. No
provisions of this Agreement may be modified, waived or discharged except in
writing signed by both parties. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
11. Severability. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to by an original but all of which
together shall constitute one and the same instrument.
Page 5 of 7
<PAGE> 6
13. Publicity. A press release containing text satisfactory to
both parties hereto will be issued concurrently with the execution of this
Agreement.
IN WITNESS WHEREOF, the Executive and the Company (pursuant to
a resolution of its Board adopted at a duly constituted meeting) have executed
this Agreement, effective as of the date first above written.
APPLIED MATERIALS, INC.,
a Delaware corporation
By /s/James C. Morgan
-----------------------------
James C. Morgan
Chairman of the Board
THE EXECUTIVE
/s/James W. Bagley
-----------------------------
James W. Bagley
Page 6 of 7
<PAGE> 1
EXHIBIT 12.1 RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
July 30, July 31, Fiscal Year
-------- ------- ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from consolidated companies
before provision for income taxes
and cumulative effect of accounting
change $459,469 $237,422 $334,497 $153,558 $58,925 $40,355 $54,084
Fixed charges:
Interest expense 17,161 10,779 15,962 14,206 15,207 13,969 6,717
Interest component of rent expense (1) 12,622 8,943 11,070 9,021 7,197 5,968 4,344
-------- -------- -------- -------- ------- ------- -------
Total fixed charges 29,783 19,722 27,032 23,227 22,404 19,937 11,061
Earnings from consolidated companies
before income taxes, cumulative effect
of accounting change and fixed charges $489,252 $257,144 $361,529 $176,785 $81,329 $60,292 $65,145
-------- -------- -------- -------- ------- ------- -------
Ratio of earnings to fixed charges 16.43x 13.04x 13.37x 7.61x 3.63x 3.02x 5.89x
======== ======== ======== ======== ======= ======= =======
</TABLE>
(1) For leases where the interest factor can be specifically identified, the
actual interest factor was used. For all other leases, the interest factor
is estimated at one-third of total rent expense for the applicable period,
which management believes represents a reasonable approximation of the
interest factor. Amounts exclude the Company's proportional share of the
earnings and fixed charges of the joint venture, which are insignificant.
7 of 7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JULY 30, 1995.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-29-1995
<PERIOD-END> JUL-30-1995
<CASH> 262,363
<SECURITIES> 437,382
<RECEIVABLES> 779,383
<ALLOWANCES> 1,270
<INVENTORY> 391,229
<CURRENT-ASSETS> 2,058,203
<PP&E> 783,126
<DEPRECIATION> 225,408
<TOTAL-ASSETS> 2,638,131
<CURRENT-LIABILITIES> 759,963
<BONDS> 256,531
<COMMON> 893
0
0
<OTHER-SE> 1,606,424
<TOTAL-LIABILITY-AND-EQUITY> 2,638,131
<SALES> 897,684
<TOTAL-REVENUES> 897,684
<CGS> 489,256
<TOTAL-COSTS> 489,256
<OTHER-EXPENSES> 85,789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,527
<INCOME-PRETAX> 214,173
<INCOME-TAX> 74,961
<INCOME-CONTINUING> 139,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,212
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
</TABLE>
