<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 26, 1997 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
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(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 26,
1997: 181,086,654
<PAGE> 2
PART I. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
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Three Months Ended
Jan. 26, Jan. 28,
(In thousands, except per share amounts) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 835,776 $1,040,580
Cost of products sold 464,120 543,780
---------- ----------
Gross margin 371,656 496,800
Operating expenses:
Research, development and engineering 116,492 110,352
Marketing and selling 66,271 77,282
General and administrative 59,608 49,555
Acquired in-process research and development 59,500 -
---------- ----------
Income from operations 69,785 259,611
Interest expense 5,800 5,168
Interest income 13,557 9,597
---------- ----------
Income from consolidated companies before taxes 77,542 264,040
Provision for income taxes 47,965 92,414
---------- ----------
Income from consolidated companies 29,577 171,626
Equity in net income/(loss) of joint venture - -
---------- ----------
Net income $ 29,577 $ 171,626
---------- ----------
Earnings per share $ 0.16 $ 0.93
---------- ----------
Average common shares and equivalents 185,432 184,001
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
Applied Materials, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
<TABLE>
<CAPTION>
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Jan. 26, Oct. 27,
(In thousands) 1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 369,358 $ 403,888
Short-term investments 697,081 633,744
Accounts receivable, net 765,569 822,384
Inventories 441,681 478,552
Deferred income taxes 279,254 281,586
Other current assets 67,264 72,915
------------ ------------
Total current assets 2,620,207 2,693,069
Property, plant and equipment, net 912,729 919,038
Other assets 245,549 25,880
------------ ------------
Total assets $ 3,778,485 $ 3,637,987
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 35,787 $ 77,522
Current portion of long-term debt 7,585 22,640
Accounts payable and accrued expenses 826,259 791,897
Income taxes payable 133,347 43,168
------------ ------------
Total current liabilities 1,002,978 935,227
Long-term debt 233,677 275,485
Deferred income taxes and other non-current obligations 109,636 56,850
------------ ------------
Total liabilities 1,346,291 1,267,562
------------ ------------
Stockholders' equity:
Common stock 1,811 1,802
Additional paid-in capital 798,528 763,376
Retained earnings 1,629,141 1,599,564
Cumulative translation adjustments 2,714 5,683
------------ ------------
Total stockholders' equity 2,432,194 2,370,425
------------ ------------
Total liabilities and stockholders' equity $ 3,778,485 $ 3,637,987
------------ ------------
</TABLE>
* Amounts as of January 26, 1997 are unaudited. Amounts as of October 27,
1996 were obtained from the October 27, 1996 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)
<TABLE>
<CAPTION>
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Three Months Ended
Jan. 26, Jan. 28,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 29,577 $ 171,626
Adjustments required to reconcile
net income to cash provided by operations:
Acquired in-process research & development 59,500 -
Deferred taxes 4,192 258
Depreciation and amortization 48,507 29,724
Equity in net income/(loss) of joint venture - -
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable 69,393 (127,742)
Inventories 58,157 (55,111)
Other current assets 10,321 14,692
Other assets (141) (1,399)
Accounts payable and accrued expenses 9,615 108,956
Income taxes payable 90,438 12,304
Other non-current obligations 6,509 11,560
----------- -----------
Cash provided by operations 386,068 164,868
----------- -----------
Cash flows from investing activities:
Capital expenditures, net of retirements (30,665) (117,746)
Cash paid for acquisitions, net of cash acquired (246,365) -
Proceeds from sales of short-term investments 83,976 104,962
Purchases of short-term investments (147,313) (167,200)
----------- -----------
Cash used for investing (340,367) (179,984)
----------- -----------
Cash flows from financing activities:
Short-term debt activity, net (44,508) (574)
Long-term debt activity, net (53,819) 3,660
Common stock transactions, net 18,014 (7,007)
----------- -----------
Cash used for financing (80,313) (3,921)
----------- ------------
Effect of exchange rate changes on cash 82 72
----------- -----------
Decrease in cash and cash equivalents (34,530) (18,965)
Cash and cash equivalents - beginning of period 403,888 285,845
----------- -----------
Cash and cash equivalents - end of period $ 369,358 $ 266,880
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
For the three months ended January 26, 1997, cash payments for interest were
$1,841 and net income tax refunds were $40,734. For the three months ended
January 28, 1996, cash payments for interest and income taxes were $897 and
$61,351, respectively.
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED JANUARY 26, 1997
(IN THOUSANDS)
1) Basis of Presentation
In the opinion of management, the unaudited consolidated condensed
financial statements included herein have been prepared on a
consistent basis with the October 27, 1996 audited consolidated
financial statements and include all material adjustments, consisting
of normal recurring adjustments, necessary to fairly present the
information set forth therein. These interim financial statements
should be read in conjunction with the October 27, 1996 audited
consolidated financial statements and notes thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
materially from those estimates.
2) Acquisitions
During the first quarter of fiscal 1997, the Company acquired two
companies (Opal, Inc. and Orbot Instruments, Ltd.) in separate
transactions for approximately $293 million, consisting primarily of
cash. Opal, Inc. ("Opal") is a supplier of CD- SEM (critical
dimension scanning electron microscope) systems for use in
semiconductor manufacturing. Orbot Instruments, Ltd. ("Orbot")
supplies wafer and reticle inspection systems for use in the
production of semiconductors. The acquisitions were completed by the
early part of January 1997, and have been accounted for using the
purchase method of accounting; accordingly, the Company's consolidated
results of operations for the quarter include the operating results of
Opal and Orbot subsequent to their acquisition dates.
In connection with the acquisitions, the Company incurred a $59.5
million pre-tax charge, or $0.32 per share after tax, for acquired
in-process research and development. The Company also recorded
approximately $219 million of net intangible assets (see note 5) and
$46 million of deferred tax liabilities. With the exception these
items, the Company's financial condition and results of operations for
the quarter ended January 26, 1997 were not materially impacted by the
acquisitions.
The Company's pro forma net sales, income from operations, net income
and earnings per share, assuming the acquisitions occurred at the
beginning of the quarter, would not have been materially different
from the actual amounts reported for the quarter.
3) Earnings Per Share
Earnings per share has been computed using the weighted average number
of common shares and equivalents outstanding during the period.
5
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4) 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 26, 1997 October 27, 1996
---------------- ----------------
<S> <C> <C>
Customer service spares $ 178,376 $ 182,320
Systems raw materials 64,243 70,959
Work-in-process 144,778 140,964
Finished goods 54,284 84,309
----------- -----------
$ 441,681 $ 478,552
=========== ===========
</TABLE>
5) Other Assets
The components of other assets are as follows:
<TABLE>
<CAPTION>
January 26, 1997 October 27, 1996
---------------- ----------------
<S> <C> <C>
Purchased technology, net $ 204,255 $ -
Goodwill, net 14,844 -
Other 26,450 25,880
----------- -----------
$ 245,549 $ 25,880
=========== ===========
</TABLE>
Purchased technology and goodwill are presented at cost, net of
accumulated amortization, and are being amortized using the
straight-line method over their estimated useful lives of eight years.
The Company will periodically analyze these assets to determine
whether an impairment in carrying value has occurred.
6) Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses are as
follows:
<TABLE>
<CAPTION>
January 26, 1997 October 27, 1996
---------------- ----------------
<S> <C> <C>
Accounts payable $ 207,190 $ 192,607
Compensation and benefit 135,475 170,881
Installation and warranty 187,260 187,873
Other 296,334 240,536
----------- -----------
$ 826,259 $ 791,897
=========== ===========
</TABLE>
7) Early Retirement of Debt
During the first quarter of fiscal 1997, the Company repaid its
unsecured senior notes prior to their scheduled maturities. The
noteholders received approximately $56 million, representing principal,
accrued interest and prepayment charges, on December 19, 1996. The
prepayment charge was not material.
6
<PAGE> 7
APPLIED MATERIALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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ACQUISITIONS
During the first quarter of fiscal 1997, the Company acquired Opal,
Inc. ("Opal") and Orbot Instruments, Ltd. ("Orbot") in separate
transactions for approximately $293 million, consisting primarily of
cash. Opal is a supplier of CD-SEM (critical dimension scanning
electron microscope) systems for use in semiconductor manufacturing.
Orbot supplies wafer and reticle inspection systems for use in the
production of semiconductors. These acquisitions marked the Company's
entry into the metrology and inspection semiconductor equipment
markets. The acquisitions were completed by the early part of January
1997, and have been accounted for using the purchase method of
accounting; accordingly, the Company's consolidated results of
operations for the quarter include the operating results of Opal and
Orbot subsequent to their acquisition dates. In connection with the
acquisitions, the Company recorded a one-time, pre-tax charge of $59.5
million, or $0.32 per share after tax, for acquired in-process
research and development. With the exception of this charge, the
acquisitions did not materially impact the Company's results of
operations for the first fiscal quarter of 1997.
RESULTS OF OPERATIONS
During the latter half of the Company's fiscal 1996, the semiconductor
industry began a period of transition during which sharply lower
memory device prices and excess production capacity caused the
Company's customers to reduce their purchases of semiconductor
manufacturing equipment and push out delivery of previously ordered
systems. The Company's results of operations for the last two
quarters of fiscal 1996 and the first quarter of fiscal 1997 were
negatively impacted by this transition. However, in the first quarter
of fiscal 1997, new orders received by the Company of $905 million
exceeded revenues for the quarter, and also exceeded new orders of
$683 million received in the fourth quarter of fiscal 1996. The
Company expects that quarterly revenues will grow modestly during the
remainder of fiscal 1997, and that new orders will exceed revenues for
the remainder of fiscal 1997.
7
<PAGE> 8
New orders of $905 million were received during the first quarter of
fiscal 1997, versus new orders of $683 million in the fourth quarter
of fiscal 1996. The significant increase in new orders resulted from
selected strategic purchases by customers in Japan, Korea and Taiwan
of the Company's leading-edge technology in multi-level interconnect
structures. North America new orders decreased to $252 million from
$288 million; Europe decreased to $94 million from $115 million; Japan
increased to $214 million from $175 million; Korea increased to $135
million from $35 million; and Asia-Pacific (Taiwan, China and
Southeast Asia) increased to $210 million from $70 million. Backlog
at January 26, 1997 was $1,448 million, versus $1,423 million at
October 27, 1996.
The Company's net sales for the three months ended January 26, 1997
decreased 19.7 percent from the corresponding period of fiscal 1996.
Sales in all regions except Asia-Pacific decreased in the first
quarter of fiscal 1997 when compared to sales in the corresponding
period of fiscal 1996. Sales by region as a percentage of total sales
were as follows:
<TABLE>
<CAPTION>
Three Months Ended
Jan. 26, Jan. 28,
1997 1996
------------------------------
<S> <C> <C>
North America 35% 38%
Europe 24% 21%
Japan 15% 21%
Korea 6% 8%
Asia-Pacific 20% 12%
--- ---
100% 100%
</TABLE>
The Company's gross margin for the first quarter of fiscal 1997 was
44.5 percent, compared to 47.7 percent for the corresponding quarter
of fiscal 1996. This decrease can be attributed primarily to reduced
business volume and product pricing pressures associated with reduced
demand for semiconductor manufacturing equipment.
Excluding acquired in-process research and development costs incurred
in connection with the acquisitions of Opal and Orbot, operating
expenses as a percentage of sales for the three months ended January
26, 1997 were 29.0 percent, versus 22.8 percent for the three months
ended January 28, 1996. This increase is primarily attributable to
reduced business volume, research and development costs for 300mm
wafer technology and costs incurred for the protection of intellectual
property rights.
8
<PAGE> 9
Significant operations of the Company are conducted in foreign
currencies, primarily Japanese yen. Forward exchange contracts and
options are purchased to hedge certain existing firm commitments and
foreign currency denominated transactions expected to occur during the
next year. Gains and losses on hedge contracts are reported in income
when the related transactions being hedged are recognized. Because
the impact of movements in currency exchange rates on foreign exchange
contracts generally offsets the related impact on the underlying items
being hedged, these financial instruments are not expected to subject
the Company to risks that would otherwise result from changes in
currency exchange rates. Exchange gains and losses did not have a
significant effect on the Company's results of operations for the
three months ended January 26, 1997 or January 28, 1996.
The Company's effective income tax rate for the first quarter of
fiscal 1997 was higher than the expected rate of 35 percent, due to
the non-deductible nature of the $59.5 million acquisition related
charge discussed above. Management anticipates that the Company's
effective income tax rate for the remainder of fiscal 1997 will be 35
percent.
The Company's results of operations for the three months ended January
26, 1997 are not necessarily indicative of future operating results.
9
<PAGE> 10
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at January 26, 1997,
with a ratio of current assets to current liabilities of 2.6:1,
compared to 2.9:1 at October 27, 1996. The Company ended the quarter
with cash and short-term investments of $1.1 billion, slightly above
the amount at the end of fiscal 1996, despite significant outflows
related to the aforementioned acquisitions and early retirement of
certain debt. This can be attributed primarily to the Company's
continued focus on asset management, which, excluding assets acquired
in connection with the acquisitions, resulted in decreases in accounts
receivable and inventories of 9.8 percent and 12.6 percent,
respectively.
The Company generated $386 million of cash from operations in the
first quarter of fiscal 1997. This resulted primarily from net income
(plus non-cash charges for depreciation, amortization and acquired
in-process research and development) of $138 million, decreases in
accounts receivable and inventory of $69 million and $58 million,
respectively, and an increase in income taxes payable of $90 million.
Cash used for investing activities of $340 million was primarily for
acquisitions ($246 million, net of cash acquired), net purchases of
short-term investments ($63 million) and net property, plant and
equipment acquisitions ($31 million).
Cash used for financing activities of $80 million was primarily for
the early retirement of certain long-term debt and net short-term debt
repayments.
At January 26, 1997, the Company's principal sources of liquidity
consisted of $1,066 million of cash, cash equivalents and short-term
investments, $194 million of unissued notes registered under the
Company's medium-term note program and $340 million of available
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 existing sources of liquidity, will be sufficient to
satisfy the Company's liquidity requirements for the remainder of the
fiscal year.
Capital expenditures are expected to approximate $250 million in
fiscal 1997. This amount includes funds for the continuation and
completion of facilities improvement and investments in demonstration
and test equipment, information systems and other capital equipment.
10
<PAGE> 11
As of January 26, 1997, the Company is authorized to repurchase
additional shares of its common stock in the open market through
February 1999 in amounts that will substantially offset the dilution
resulting from its stock-based employee benefit and incentive plans.
No shares were repurchased in the first quarter of fiscal 1997.
TRENDS, RISKS AND UNCERTAINTIES
The semiconductor industry has historically been cyclical and subject
to periodic downturns associated with changes in supply and demand.
During 1996, the semiconductor industry weakened, principally as a
result of excess memory capacity and significant memory price
reductions. This excess capacity and weakness in memory pricing in
turn led to product pricing pressures and reduced demand for the
Company's products and services. The Company's ability to predict
customer investment decisions is impaired by the continuing
uncertainty within the semiconductor industry. It is possible that a
continued industry downturn and further reductions or delays in
semiconductor manufacturers' capital spending and investment could
further increase pricing pressures, decrease orders, and adversely
affect the Company's revenue and operating results.
The Company ended the quarter with a backlog of approximately $1,448
million as of January 26, 1997, consistent with approximately $1,423
million as of October 27, 1996. The Company schedules production of
its systems based upon order backlog and customer commitments. The
backlog includes orders for which written authorizations have been
accepted and shipment dates within 12 months have been assigned.
During the current industry downturn, semiconductor manufacturers
have rescheduled or canceled certain orders. Due to possible customer
changes in delivery schedules and cancellation of orders, the
Company's backlog at any particular date is not necessarily indicative
of actual sales for any succeeding period. A reduction of backlog
during any particular period could adversely affect the Company's
results of operations.
The Company's results of operations are subject to significant
fluctuations from period to period, in part because of the cyclical
nature of the semiconductor industry and its changes in supply and
demand. Moreover, each region in the global semiconductor equipment
market exhibits unique characteristics which cause capital equipment
investment patterns to vary from period to period. While
international markets provide the Company with significant growth
opportunities, periodic economic downturns, trade balance issues,
political instability and fluctuations in interest and foreign
currency exchange rates are all risks which could affect global
product and service demand. Although the Company actively manages its
exposure to
11
<PAGE> 12
changes in foreign currency exchange rates, there can be no assurance
that future changes in foreign currency exchange rates will not have a
material effect on its results of operations or financial condition.
The Company operates in a highly competitive industry characterized by
increasingly rapid technological changes. The Company's competitive
advantage and future success are therefore dependent on its ability to
develop new products, to qualify these new products with its
customers, to successfully introduce these products to the marketplace
on a timely basis, to commence production to meet customer demands and
to develop new markets in the semiconductor industry for its products
and services. The successful introduction of new technology and
products is increasingly difficult. If the Company is unable, for
whatever reason, to develop and introduce new products in a timely
manner in response to changing market conditions or customer
requirements, its results of operations could be adversely impacted.
To better address the issues and opportunities presented by the
industry downturn that began in 1996, the Company has implemented a
number of programs to reduce costs and improve productivity, primarily
through increased manufacturing efficiencies, reduced cycle times and
material cost reductions. The inability to satisfactorily achieve the
goals of these cost reduction and productivity programs could
adversely affect the Company's results of operations.
The Company has entered the metrology and inspection semiconductor
equipment market with its acquisitions of Opal and Orbot. If the
Company is, for any reason, unable to successfully integrate these two
companies within the desired time frame, the results of its operations
could be adversely affected.
The Company is currently involved in litigation regarding patents and
other intellectual property rights and could become involved in
additional litigation in the future. In the normal course of
business, the Company from time to time receives and makes inquiries
with regard to possible patent infringement. There can be no
assurance about the outcome of current or future litigation or patent
infringement inquiries.
When used in this Management's Discussion and Analysis, the words
"anticipate," "estimate," "expect" and similar expressions are
intended to identify forward-looking statements. These statements are
subject to risks and uncertainties that could cause actual results to
differ materially from those projected. Such risks and uncertainties
include, but are not limited to,
12
<PAGE> 13
delays (especially in the personal computer market) in increased
demand for semiconductors, which could result in delayed or reduced
equipment purchases by the Company's customers; continuation of
semiconductor device price declines; product pricing pressures and
other challenges from the Company's competition; insufficient Company
cost reduction programs; and the inability of the Company to
assimilate the two companies it acquired during the first quarter of
fiscal 1997. The Company undertakes no obligation to update the
information, including the forward-looking statements, in this Form
10-Q.
13
<PAGE> 14
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 or sale of the atmospheric versions of ASM Epsilon I in the United
States. On October 28, 1996, the U.S. Court of Appeals for the
Federal Circuit decided ASM's appeal of this decision, affirming the
trial court's judgment that one of the Company's patents is valid and
infringed. A permanent injunction is now effective which prohibits
ASM's use and sale of its epitaxial reactors in the United States.
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
reduced pressure versions of ASM's Epsilon I epitaxial reactors. ASM
appealed this decision. On December 17, 1996, the U.S. Court of
Appeals for the Federal Circuit rejected ASM's appeal, and affirmed
the District Court's ruling. A permanent injunction was entered on
March 7, 1996 prohibiting ASM's manufacture, use or sale of reduced
pressure versions of its Epsilon I epitaxial reactors within the
United States. Trial in the District Court has been set for July 28,
1997 to determine ASM's liability, damages and willfulness, for both
case no. C- 91-20061-RMW and C-92-20643-RMW.
In 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), the Court granted three motions for summary judgment
in favor of the Company which eliminate the Company's liability on
this patent. ASM has not indicated whether it intends to appeal this
matter. The Company's counterclaims against ASM for inequitable
conduct were tried by the Court in July 1996. The Company is awaiting
a decision. A separate action severed from ASM's case, captioned ASM
America, Inc. v. Applied Materials, Inc. (case no. C-95-20169-RMW),
involves one United States patent which relates to the Company's
Precision 5000 product. A previously set trial date has been vacated;
no trial date is currently set. In these cases, ASM seeks injunctive
relief, damages and such other relief as the Court may find
appropriate.
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<PAGE> 15
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. No trial date has been set. On April 10, 1996, the
Court denied ASM's motion for summary judgment and granted the
Company's motion for summary judgment finding several independent
grounds why the Company's reactors do not literally infringe ASM's
patent. With this ruling, the Company's liability has been
substantially eliminated on this patent. ASM has not indicated
whether it intends to appeal this decision. On July 7, 1996, 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 is proceeding, and no trial date has been set.
On January 13, 1997, the Company filed a patent infringement suit
against ASM's newly announced Epsilon 2000 reactor. Discovery has not
yet commenced.
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 active discovery and pre-trial preparation. A previously set trial
date has been vacated; no trial date is currently 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
Novellus' Concept One, Concept Two, and Maxxus F TEOS 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, 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 is scheduled for March 24, 1997 before Judge Charles A.
Legge. The Court recently ruled on a number of substantive motions
finding, on the issues raised, that the Company's patent in suit is
valid and definite. On September 15, 1995, the Company filed another
lawsuit against Novellus alleging that Novellus' then newly announced
blanket tungsten interconnect process infringes the Company's United
States patent relating to a tungsten CVD process. The Company also
sought
15
<PAGE> 16
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 systems infringe Novellus' United States patents
concerning gas purge and gas debubbler mechanisms. Novellus also
filed a separate lawsuit as a plaintiff before the same court which
contains the same claims as those stated in Novellus' defense of the
Company's lawsuit. Both cases have been assigned to Judge Legge.
Discovery has commenced, and trial which had been scheduled for August
1997 has been postponed and will be rescheduled.
As a result of the Company's acquisition of Orbot, the Company is
involved in a lawsuit captioned KLA Instruments Corporation v. Orbot
(case no. C93-20886-JW) in the United States District Court, Northern
District of California, alleging infringement of one patent regarding
equipment for the inspection of masks or reticles, and seeking an
injunction, damages and such other relief as the Court may find
appropriate. There has been discovery, but 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 has meritorious defenses
and intends to vigorously pursue these matters.
16
<PAGE> 17
Item 5. Other Information
The ratio of earnings to fixed charges for the three months ended January 26,
1997 and January 28, 1996, and for each of the last five fiscal years, was as
follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------- Fiscal Year
Jan. 26, Jan. 28, ---------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
7.56x 23.33x 20.14x 21.25x 13.37x 7.61x 3.63x
===== ====== ====== ====== ====== ===== =====
</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:
2.1 Agreement and Plan of Merger, by and among Applied
Materials, Inc., Orion Corp. I, and Opal, Inc. dated
as of November 24, 1996, previously filed with the
Company's Annual Report on Form 10-K for the year
ended October 27, 1996, and incorporated herein by
reference.
2.2 Stock Purchase Agreement dated as of November 24, 1996
by and among Applied Materials, Inc., Orbot
Instruments, Ltd. and the Stockholders of Orbot
Instruments, Ltd., previously filed with the Company's
Annual Report on Form 10-K for the year ended October
27, 1996, and incorporated herein by reference.
3(ii) Bylaws of Applied Materials, Inc., as amended to
December 13, 1996, previously filed with the Company's
Annual Report on Form 10-K for the year ended October
27, 1996, and incorporated herein by reference.
27.0 Financial Data Schedule: filed electronically
17
<PAGE> 18
b) Report on Form 8-K was filed on February 11, 1997. The report
contained the Company's financial statements for the period
ended January 26, 1997, as attached to its press release dated
February 11, 1997.
18
<PAGE> 19
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 10, 1997 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
Vice President and
Corporate Controller
(Principal Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
Exhibit
No. Document
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the quarter ended January 26, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-26-1996
<PERIOD-END> JAN-26-1997
<EXCHANGE-RATE> 1
<CASH> 369,358
<SECURITIES> 697,081
<RECEIVABLES> 765,569
<ALLOWANCES> 0
<INVENTORY> 441,681
<CURRENT-ASSETS> 2,620,207
<PP&E> 1,312,144
<DEPRECIATION> 399,415
<TOTAL-ASSETS> 3,778,485
<CURRENT-LIABILITIES> 1,002,978
<BONDS> 233,677
0
0
<COMMON> 1,811
<OTHER-SE> 2,430,383
<TOTAL-LIABILITY-AND-EQUITY> 3,778,485
<SALES> 835,776
<TOTAL-REVENUES> 835,776
<CGS> 464,120
<TOTAL-COSTS> 464,120
<OTHER-EXPENSES> 301,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,800
<INCOME-PRETAX> 77,542
<INCOME-TAX> 47,965
<INCOME-CONTINUING> 29,577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,577
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
