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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 28, 1996 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-6920
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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
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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 28,
1996: 179,442,000
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PART I. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
========================================================================================================================
Three Months Ended
Jan. 28, Jan. 29,
(In thousands, except per share data) 1996 1995
========================================================================================================================
<S> <C> <C>
Net sales $ 1,040,580 $ 506,108
Costs and expenses:
Cost of products sold 543,780 268,096
Research, development
and engineering 110,352 59,996
Marketing and selling 77,282 44,145
General and administrative 49,555 31,818
------------- -------------
Income from operations 259,611 102,053
Interest expense 5,168 5,582
Interest income 9,597 4,772
------------- -------------
Income from consolidated companies before taxes 264,040 101,243
Provision for income taxes 92,414 35,435
------------- -------------
Income from consolidated companies 171,626 65,808
Equity in net income/loss of joint venture - -
------------- -------------
Net income $ 171,626 $ 65,808
------------- -------------
Earnings per share $ 0.93 $ 0.38
------------- -------------
Average common shares and
equivalents 184,001 172,616
========================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
<TABLE>
<CAPTION>
================================================================================================================
Jan. 28, Oct. 29,
(In thousands) 1996 1995
================================================================================================================
<S> <C> <C> <C>
ASSETS Current assets:
Cash and cash equivalents $ 266,880 $ 285,845
Short-term investments 545,725 483,487
Accounts receivable, net 932,297 817,730
Inventories 479,662 427,413
Deferred income taxes 196,783 198,888
Other current assets 83,330 98,250
------------- -------------
Total current assets 2,504,677 2,311,613
Property, plant and equipment, net 713,730 630,746
Other assets 24,104 23,020
------------- -------------
Total assets $ 3,242,511 $ 2,965,379
------------- -------------
LIABILITIES Current liabilities:
AND Notes payable $ 58,844 $ 61,748
STOCKHOLDERS' Current portion of long-term debt 22,492 21,064
EQUITY Accounts payable and
accrued expenses 757,063 659,572
Income taxes payable 131,174 119,347
------------- -------------
Total current liabilities 969,573 861,731
Long-term debt 279,576 279,807
Deferred income taxes and
other non-current obligations 50,162 40,338
------------- -------------
Total liabilities 1,299,311 1,181,876
------------- -------------
Stockholders' equity:
Common stock 1,794 1,792
Additional paid-in capital 753,048 760,057
Retained earnings 1,171,605 999,979
Cumulative translation adjustments 16,753 21,675
------------- -------------
Total stockholders' equity 1,943,200 1,783,503
------------- -------------
Total liabilities and
stockholders' equity $ 3,242,511 $ 2,965,379
================================================================================================================
</TABLE>
*Amounts as of January 28, 1996 are unaudited. Amounts as of
October 29, 1995 were obtained from the October 29, 1995
audited financial statements.
See accompanying notes to consolidated condensed financial statements.
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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
========================================================================================================================
Three Months Ended
Jan. 28, Jan. 29,
(In thousands) 1996 1995
========================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income $ 171,626 $ 65,808
Adjustments required to reconcile
net income to cash provided by operations:
Deferred taxes 258 (677)
Depreciation and amortization 29,724 15,604
Equity in net income/loss of joint venture - -
Changes in assets and liabilities:
Accounts receivable (127,742) (92,535)
Inventories (55,111) (28,561)
Other current assets 14,692 180
Other assets (1,399) (174)
Accounts payable and accrued expenses 108,956 29,734
Income taxes payable 12,304 4,992
Other long-term liabilities 11,560 4,617
------------- -------------
Cash provided by (used for) operations 164,868 (1,012)
------------- --------------
Cash flows from investing activities:
Capital expenditures, net (117,746) (31,664)
Proceeds from sales of short-term investments 104,962 62,721
Purchases of short-term investments (167,200) (13,426)
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Cash provided by (used for) investing (179,984) 17,631
-------------- -------------
Cash flows from financing activities:
Short-term debt activity, net (574) 14,376
Long-term debt activity, net 3,660 (1,049)
Common stock transactions, net (7,007) 606
-------------- -------------
Cash provided by (used for) financing (3,921) 13,933
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Effect of exchange rate changes on cash 72 (303)
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Increase (decrease) in cash and cash equivalents (18,965) 30,249
Cash and cash equivalents
at beginning of period 285,845 160,320
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Cash and cash equivalents
at end of period $ 266,880 $ 190,569
========================================================================================================================
</TABLE>
For the three months ended January 28, 1996, cash payments for
interest and income taxes were $897 and $61,351, respectively,
and for the three months ended January 29, 1995, cash payments
for interest and income taxes were $1,373 and $29,458,
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 28, 1996
(IN THOUSANDS)
1) Basis of Presentation
In the opinion of management, the unaudited consolidated interim financial
statements included herein have been prepared on a consistent basis with
the October 29, 1995 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 29, 1995
have been reclassified to conform to the current quarter's presentation.
2) Earnings Per Share
Earnings per share has been computed using 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 a first-in, first- out (FIFO) basis.
The components of inventories are as follows:
<TABLE>
<CAPTION>
January 28, 1996 October 29, 1995
---------------- ----------------
<S> <C> <C>
Customer service spares $ 157,286 $ 131,411
Systems raw materials 125,834 118,627
Work-in-process 164,903 139,537
Finished goods 31,639 37,838
----------- -----------
$ 479,662 $ 427,413
=========== ===========
</TABLE>
4) Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses are as follows:
<TABLE>
<CAPTION>
January 28, 1996 October 29, 1995
---------------- ----------------
<S> <C> <C>
Accounts payable $ 236,965 $ 244,014
Compensation and employee benefits 97,171 109,388
Installation and warranty 158,868 133,035
Other 264,059 173,135
----------- -----------
$ 757,063 $ 659,572
=========== ===========
</TABLE>
5) Stockholders' Equity
During the first quarter of fiscal 1996, the Company repurchased 200,000
shares of its common stock at an average price of $37.76 per share for a
total of $7.6 million. These shares will be used in conjunction with the
Stock Purchase Plan For Offshore Employees.
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APPLIED MATERIALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
The Company's net sales in the first quarter of fiscal 1996 of $1,041 million
increased 106 percent from first quarter of fiscal 1995 net sales of $506
million. Record net sales resulted from increased demand for the Company's
advanced wafer process technology, multi-chamber equipment and installed base
support services. The increased demand for the Company's multi-chamber equipment
reflects strong demand for advanced semiconductor devices and the industry's
continued investment in systems capable of performing processes required for
smaller device geometries, as well as the complex multi-level metal structures
of the most advanced semiconductor devices. The increase in installed base
support services revenue is attributable to a larger installed systems base and
our global customers' requirements for high reliability and uptime
specifications.
Sales increased in the first quarter of fiscal 1996 in all regions and across
all of the Company's product groups when compared to sales in the first quarter
of 1995. These increases reflect the continuing globalization of the
semiconductor industry and our customers' needs to increase capacity to meet the
demand resulting from the more pervasive use of semiconductors in consumer
products. Sales to North American customers comprised 38 percent of the
Company's total net sales in the first quarter of fiscal 1996, versus 42 percent
for the same period in fiscal 1995. Sales in Japan decreased to 21 percent in
the first quarter of fiscal 1996 from 25 percent in the first quarter of fiscal
1995; sales in Europe increased to 21 percent from 15 percent; sales in
Asia-Pacific increased to 12 percent from 10 percent; and sales in Korea
remained at 8 percent of the Company's total net sales.
New orders of $1,329 million were received during the first quarter of fiscal
1996, an increase of 80 percent from first quarter of 1995 new orders of $740
million. New orders in North America, Japan and Asia-Pacific were 37, 29 and 18
percent, respectively, of the Company's total new orders in the first quarter of
fiscal 1996, compared to 23, 19 and 15 percent in the comparable period of
fiscal 1995. New orders in Korea were 6 percent in the first quarter of 1996
compared to 32 percent for the comparable prior year period. It is anticipated
that new orders in Korea for the second quarter of fiscal 1996 will increase
significantly. New orders remained relatively consistent for Europe at 10
percent compared to 11 percent in the comparable period of fiscal 1995. The
global semiconductor equipment market remains strong, yet each region exhibits
unique investment patterns causing regional order growth
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rates to vary from quarter to quarter. Backlog at January 28, 1996 was $1,768
million, versus $1,509 million at October 29, 1995.
The Company's gross margin as a percentage of sales increased from 47 percent in
the first quarter of fiscal 1995 to 48 percent in the first quarter of fiscal
1996. The improved margin is attributable to higher sales volumes and increased
production efficiencies.
Operating expenses as a percentage of sales improved to 23 percent for the first
quarter of fiscal 1996, compared to 27 percent in the first quarter of fiscal
1995. This improvement resulted primarily from the Company's accelerated revenue
growth coupled with its management of the growth of operating expenses.
Significant operations of the Company are conducted in Japanese yen, British
pounds sterling and other 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. To date, exchange
gains and losses have not had a significant effect on the Company's results of
operations.
The Company's effective tax rate for the first quarter of fiscal 1996 was 35
percent, consistent with fiscal 1995. Management anticipates that a 35 percent
effective tax rate will continue throughout fiscal 1996.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at January 28, 1996 remained strong. Current
assets exceeded current liabilities by 2.6 times, compared to 2.7 times at
October 29, 1995. During the first quarter of fiscal 1996, the Company increased
cash, cash equivalents and short-term investments by $43 million. Cash provided
by operations since October 29, 1995 was $165 million, resulting primarily from
net income and increases in accounts payable and accrued expenses, offset by
increased inventory and accounts receivable levels. The increase in accounts
receivable was primarily due to increased sales volumes and increases in
collection time in North America, Japan and Korea. Other uses of cash included
investments in facilities and capital equipment of $118 million. Capital
expenditures are expected to approximate $550 million for fiscal 1996. This
amount includes funds for the continuation and/or completion of facilities
expansion and investments in demonstration and test equipment, information
systems and other capital equipment.
At January 28, 1996, the Company's principal sources of liquidity consisted of
$813 million of cash, cash equivalents and short-term investments, $194 million
of unissued notes registered under the Company's medium-term note program and
$187 million of 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 sources, will be sufficient to satisfy
commitments for capital expenditures and other cash requirements for the
remainder of the fiscal year.
DISCLOSURE PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this Management's Discussion and Analysis, the words "anticipate",
"estimate" and similar expressions are intended to identify forward-looking
statements. These statements are subject to certain risks and uncertainties,
including those discussed in this document and in the Form 8-K filed on February
13, 1996 with the SEC, that could cause actual results to differ materially from
those projected.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the first of two lawsuits filed by the Company, captioned Applied Materials
Inc. v. Advanced Semiconductor Materials America, Inc., Epsilon Technology, Inc.
(doing business as ASM Epitaxy) and Advanced Semiconductor Materials
International N.V. (collectively "ASM") (case no. C-91-20061-RMW), Judge William
Ingram of the United States District Court for the Northern District of
California ruled on April 26, 1994 that ASM's Epsilon I epitaxial reactor
infringed three of the Company's United States patents and issued an injunction
against ASM's use and sale of the ASM Epsilon I in the United States. ASM has
appealed the decision and the injunction has been stayed pending the appeal only
as to ASM products offered for sale as of April 1994. The 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 Company is
awaiting the decision of the Court of Appeals. The trial of the Company's second
patent infringement lawsuit against ASM, captioned Applied Materials Inc. v. ASM
(case no. C-92-20643-RMW), was concluded before Judge Whyte in May 1995. On
November 1, 1995, the Court issued its judgment holding that two of the
Company's United States patents were valid and infringed by ASM's reduced
pressure epitaxial reactors and stated that a permanent injunction will be
entered. A hearing was held in February, 1996 to determine the scope of the
injunction and whether the injunction will be stayed pending an appeal by ASM,
if any. The Company is awaiting the decision of the Court.
A separate lawsuit filed by ASM against the Company involving one patent
relating to the Company's single wafer epitaxial product line, captioned ASM
America Inc. v. Applied Materials Inc. (case no. C-93-20853-RMW), has been
scheduled for trial in July, 1996. The case is proceeding through final
discovery and pretrial preparation, and is the subject of three motions by the
Company for summary judgment set for hearing in February and March 1996. A
separate action severed from ASM's case, captioned ASM America Inc. v. Applied
Materials Inc. (case no. C-95-20169-RWM), involves one United States patent
which relates to the Company's Precision 5000 product line. Trial has been
scheduled for October, 1996,
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and discovery is proceeding. In these cases, ASM seeks injunctive relief,
damages and such other relief as the Court may find appropriate.
Further, the Company has filed a Declaratory Judgment action against ASM,
captioned Applied Materials, Inc. v. ASM (case no. C-95-20003-RMW), requesting
that an ASM United States patent be held invalid and not infringed by the
Company's single wafer epitaxial product line. Discovery is proceeding, and no
trial date has been set. On July 7, 1995, ASM filed a lawsuit, captioned ASM
America Inc. v. Applied Materials Inc. (case no. C95-20586-RMW), concerning
alleged infringement of a United States patent by susceptors in chemical vapor
deposition chambers. Discovery has commenced and no trial date has been set. ASM
filed a motion for summary judgment on one of its patents in this suit and a
hearing on this motion is set for April, 1996.
In September 1994, General Signal Corporation filed a lawsuit against the
Company (case no. 94-461-JJF) in the United States District Court, District of
Delaware. General Signal alleges that the Company infringes five of General
Signal's United States patents by making, using, selling or offering for sale
multi-chamber wafer fabrication equipment, including for example, the Precision
5000 series machines. General Signal seeks an injunction, multiple damages and
costs, including reasonable attorneys' fees and interest, and such other relief
as the court may deem appropriate. This lawsuit is currently in discovery. A
trial date has been set for January 20, 1997.
In January 1995, the Company filed a lawsuit against Novellus Systems, Inc. in
the United States District Court, Northern District of California (case no.
C-95-0243-MMC). This lawsuit alleges that Novellus' Concept One, Concept Two,
and Maxxus FTEOS systems infringe the Company's United States patent relating to
the TEOS-based, plasma enhanced CVD process for silicon oxide deposition. The
lawsuit seeks an injunction, multiple damages and costs, including reasonable
attorneys' fees and interest, and such other relief as the court may deem
appropriate. Damages and counterclaims have been bifurcated for separate trial.
A jury trial has been scheduled for September 1996, before Judge Charles A.
Legge. On September 15, 1995, the Company filed another lawsuit against Novellus
alleging that Novellus' newly announced blanket tungsten interconnect process
infringes the Company's United States patent relating to a tungsten CVD process.
The Company also sought a declaration that a Novellus United States patent for a
gas purge mechanism is not infringed by the Company and/or is invalid. Novellus
answered by denying the allegations and counterclaimed by alleging that the
Company's plasma enhanced TEOS CVD systems infringe a Novellus United States
patent concerning a gas debubbler mechanism. Novellus also filed a new lawsuit
as a plaintiff before the same court which contains the same claims
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and patents as those stated in the Company's September 15 lawsuit. Discovery is
beginning, and no trial date has been set.
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 three months ended January 28,
1996 and January 29, 1995 and each of the five years in the period ended October
29, 1995 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
January 28, January 29, Fiscal Year
---------- ---------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
23.33x 11.68x 21.25x 13.37x 7.61x 3.63x 3.02x
===== ===== ===== ===== ==== ==== ====
</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:
27.0 Financial Data Schedule: filed electronically
b) Report on Form 8-K was filed on December 21, 1995. The report contains the
Company's press release, dated November 28, 1995, with respect to its
financial results for the period ended October 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 1, 1996 By: \s\Gerald F. Taylor
------------------------------
Gerald F. Taylor
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: \s\Michael K. O'Farrell
------------------------------
Michael K. O'Farrell
Corporate Controller
(Principal Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JANUARY 28, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-END> JAN-28-1996
<CASH> 266,880
<SECURITIES> 545,725
<RECEIVABLES> 935,632
<ALLOWANCES> 3,335
<INVENTORY> 479,662
<CURRENT-ASSETS> 2,504,677
<PP&E> 965,040
<DEPRECIATION> 251,309
<TOTAL-ASSETS> 3,242,511
<CURRENT-LIABILITIES> 969,573
<BONDS> 302,068
0
0
<COMMON> 1,794
<OTHER-SE> 1,941,406
<TOTAL-LIABILITY-AND-EQUITY> 3,242,511
<SALES> 1,040,580
<TOTAL-REVENUES> 1,040,580
<CGS> 543,780
<TOTAL-COSTS> 543,780
<OTHER-EXPENSES> 111,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,168
<INCOME-PRETAX> 264,040
<INCOME-TAX> 92,414
<INCOME-CONTINUING> 171,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171,626
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
