<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11- K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) Annual report pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended DECEMBER 31, 1997
or
( ) Transition report pursuant to Section 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from ___________ to ___________
Commission file number 2-69114
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Applied Materials, Inc. Employee Savings and Retirement Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
APPLIED MATERIALS, INC.
3050 Bowers Avenue
Santa Clara, California 95054
Page 1 of 15
<PAGE> 2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrative Committee has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
Date: June 18, 1998 By /s/Seitaro Ishii
--------------------------------------
Seitaro Ishii
Group Vice President, Global Human
Resources
2
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
Table of Contents
<TABLE>
<CAPTION>
Page number
-----------
<S> <C>
Report of Independent Accountants 4
Financial Statements
Statements of Net Assets Available for Benefits -
December 31, 1997 and 1996 5
Statement of Changes in Net Assets Available for Benefits with Fund
Information - year ended December 31, 1997 6
Notes to Financial Statements 7-14
Consent of Independent Accountants (Exhibit 23.1) 15
</TABLE>
3
<PAGE> 4
Report of Independent Accountants
To the Administrative Committee of the Applied Materials, Inc.
Employee Savings and Retirement Plan:
In our opinion, the financial statements listed in the accompanying table of
contents present fairly, in all material respects, the net assets available for
benefits of the Applied Materials, Inc. Employee Savings and Retirement Plan at
December 31, 1997 and 1996, and the changes in net assets available for benefits
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Administrative Committee; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Fund Information in the statement of
changes in net assets available for benefits is presented for purposes of
additional analysis rather than to present the changes in net assets available
for benefits of each fund. The Fund Information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
May 29, 1998
4
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Investments, at fair value:
In shares of registered investment companies:
Fidelity Retirement Government Money Market Portfolio $ 24,967,863 $ 10,956,875
Fidelity Equity-Income Fund 33,398,857 24,580,294
Fidelity Intermediate Bond Fund 7,500,712 6,179,619
Fidelity Magellan Fund 43,743,360 38,643,670
Fidelity Contrafund 4,857,207 1,407,318
Spartan U.S. Equity Index Fund * 5,973,691 1,118,592
PBHG Emerging Growth Fund 5,106,124 3,301,389
Janus Worldwide Fund 10,055,542 2,671,446
INVESCO Total Return Fund 1,591,155 181,190
Applied Materials, Inc. Common Stock 348,827,529 202,475,438
Fidelity Institutional Cash Portfolio Money Market 3,240,635 2,288,803
Participant notes receivable 10,768,496 7,767,076
------------ ------------
500,031,171 301,571,710
LIABILITIES
Forfeited matching contributions 50,718 249,072
------------ ------------
Net assets available for benefits $499,980,453 $301,322,638
============ ============
</TABLE>
* This fund was formerly called Fidelity U.S. Equity Index Portfolio.
See accompanying notes to financial statements.
5
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FUND A FUND B FUND C FUND D FUND E
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Interest and dividends $ 1,114,726 $ 1,847,046 $ -- $ 437,972 $ 2,897,817
Loan interest -- -- -- -- --
Net realized and unrealized
appreciation in fair value
of investments -- 6,012,516 137,181,866 64,015 7,080,661
------------- ------------- ------------- ------------- -------------
1,114,726 7,859,562 137,181,866 501,987 9,978,478
Participant contributions 3,218,050 5,093,604 20,436,554 1,370,131 7,378,908
Company and AKTA contributions -- -- 15,985,861 -- --
------------- ------------- ------------- ------------- -------------
Total additions 4,332,776 12,953,166 173,604,281 1,872,118 17,357,386
Deductions from net assets attributed to:
Benefits paid to participants (3,934,827) (1,409,382) (13,916,456) (794,232) (2,244,486)
------------- ------------- ------------- ------------- -------------
Net increase prior to loans
and transfers 397,949 11,543,784 159,687,825 1,077,886 15,112,900
Net loans issued (301,140) (250,270) (1,713,988) (29,756) (242,488)
Interfund transfers 14,050,694 (2,533,817) (10,669,914) 212,373 (9,999,150)
Transfer in from Opal 401(k)
Plan and Trust 61,839 58,866 -- 60,590 228,428
------------- ------------- ------------- ------------- -------------
Net increase 14,209,342 8,818,563 147,303,923 1,321,093 5,099,690
Net assets available for benefits:
Beginning of year 10,707,803 24,580,294 204,764,241 6,179,619 38,643,670
------------- ------------- ------------- ------------- -------------
End of year $ 24,917,145 $ 33,398,857 $ 352,068,164 $ 7,500,712 $ 43,743,360
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FUND F FUND G FUND H FUND I FUND J
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Interest and dividends $ 440,155 $ 115,815 $ 29 $ 690,746 $ 54,622
Loan interest -- -- -- -- --
Net realized and unrealized
appreciation in fair value
of investments 437,391 937,906 70,101 510,699 151,666
------------- ------------- ------------- ------------- -------------
877,546 1,053,721 70,130 1,201,445 206,288
Participant contributions 1,302,424 1,065,547 1,800,539 2,461,196 362,551
Company and AKTA contributions -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total additions 2,179,970 2,119,268 1,870,669 3,662,641 568,839
Deductions from net assets attributed to:
Benefits paid to participants (119,555) (59,522) (148,893) (280,371) (47,563)
------------- ------------- ------------- ------------- -------------
Net increase prior to loans
and transfers 2,060,415 2,059,746 1,721,776 3,382,270 521,276
Net loans issued (9,872) (45,435) (8,452) (42,521) 2,047
Interfund transfers 1,243,560 2,840,788 (14,085) 4,044,347 825,204
Transfer in from Opal 401(k)
Plan and Trust 155,786 -- 105,496 -- 61,438
------------- ------------- ------------- ------------- -------------
Net increase 3,449,889 4,855,099 1,804,735 7,384,096 1,409,965
Net assets available for benefits:
Beginning of year 1,407,318 1,118,592 3,301,389 2,671,446 181,190
------------- ------------- ------------- ------------- -------------
End of year $ 4,857,207 $ 5,973,691 $ 5,106,124 $ 10,055,542 $ 1,591,155
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
NOTES TOTAL
------------- -------------
<S> <C> <C>
Additions to net assets
attributed to:
Investment income:
Interest and dividends $ -- $ 7,598,928
Loan interest 751,944 751,944
Net realized and unrealized
appreciation in fair value
of investments -- 152,446,821
------------- -------------
751,944 160,797,693
Participant contributions -- 44,489,504
Company and AKTA contributions -- 15,985,861
------------- -------------
Total additions 751,944 221,273,058
Deductions from net assets attributed to:
Benefits paid to participants (392,399) (23,347,686)
------------- -------------
Net increase prior to loans
and transfers 359,545 197,925,372
Net loans issued 2,641,875 --
Interfund transfers -- --
Transfer in from Opal 401(k)
Plan and Trust -- 732,443
------------- -------------
Net increase 3,001,420 198,657,815
Net assets available for benefits:
Beginning of year 7,767,076 301,322,638
------------- -------------
End of year $ 10,768,496 $ 499,980,453
============= =============
</TABLE>
See accompanying notes to financial statements.
6
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Applied Materials, Inc. Employee Savings and
Retirement Plan (the Plan) are prepared using the accrual method of
accounting.
Investment Valuation
The Plan's investments are stated at fair value. The value per unit of $1.00
for the Fidelity Retirement Government Money Market Portfolio (Fund A) and
the Fidelity Institutional Cash Portfolio Money Market (included in Fund C)
have been certified by the Plan Trustee. The closing market share price as
of December 31 is used to value shares of registered investment companies
and shares of the Company's stock included in Fund C.
Participant notes receivable are valued at cost, which approximates fair
value.
Payment of Benefits
Benefits are recorded when paid.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Plan administrator and trustee
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
2. The Plan
General
The Plan is a defined contribution plan covering primarily all U.S.
employees of Applied Materials, Inc. (the Company) and Applied Komatsu
Technology America, Inc. (AKTA). Employees of the Company and AKTA are
eligible to participate in the Plan after receipt of their first paycheck.
The Plan provides for retirement benefits to participants, is subject to the
Employee Retirement Income Security Act of 1974 (ERISA) and is intended to
qualify for favorable tax treatment granted to plans that meet the
requirements of sections 401(a) and (k) of the Internal Revenue Code. As a
result of favorable tax treatment, participant
7
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
salary deferral contributions, Company and AKTA matching contributions and
any net earnings on these contributions generally will not be taxable to the
participant until they are distributed or withdrawn in accordance with the
terms of the Plan.
Administrative Committee
The Plan's Administrative Committee has been appointed by the Stock Option
and Compensation Committee of the Board of Directors of the Company to
oversee the Plan and its performance on behalf of the Company. The
Administrative Committee consists of certain officers and employees of the
Company.
Plan Administrator and Trustee
Fidelity Institutional Retirement Services Company has been appointed by the
Administrative Committee to maintain individual participant accounts in
which participant contributions, Company and AKTA matching contributions and
investment results attributable to each participant are recorded. For
purposes of ERISA, the Company is the "plan administrator". The assets of
the Plan are held by Fidelity Management Trust Company (the trustee).
Termination of the Plan
The Company currently expects to continue the Plan indefinitely and to
continue to make contributions under the Plan. However, there is no
contractual commitment requiring the Company to continue to make these
contributions to the Plan. The Company's Board of Directors has the right to
alter or terminate the Plan at any time and for any reason, subject to the
provisions of ERISA. In the event of Plan termination, participants will
become 100 percent vested in their accounts.
Expenses of the Plan
Expenses incurred in the administration of the Plan, including legal and
trustee fees, are currently paid by the Company, and therefore are not
reflected in the financial statements of the Plan. Brokerage commissions and
other charges incurred in connection with investment transactions are paid
from fund assets.
8
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
3. Contributions
General guidelines with respect to participant and Company and AKTA matching
contributions are described below. Participants, the Company and AKTA are
subject to certain Internal Revenue Code rules and regulations that may
further limit the contributions allowable.
Participant Contributions
Each participant may elect to defer from 1% to 12% of compensation (defined
as base pay plus overtime), and may change their contribution percentage as
often as they desire. Salary deferral contributions are invested at the
direction of the participant and share in the earnings and gains or losses
of each investment fund selected. Participants are always 100% vested in
salary deferral accounts.
The maximum annual salary deferral contribution was $9,500 for 1997 and will
be $10,000 for 1998. This limitation applies in the aggregate for all
elective deferrals to all 401(k) plans made by the participant during the
year. Accordingly, new participants who have made contributions to 401(k)
plans with their prior employer must aggregate all contributions for
purposes of the limit.
Company and AKTA Contributions
Participants in the Plan become eligible for Company and AKTA matching
contributions immediately upon enrolling in the Plan. All matching
contributions are invested in the Applied Materials, Inc. Common Stock Fund
(Fund C), and cannot be transferred to other investment funds until a
participant is 100% vested and age 50, or 100% vested and has completed 10
years of service. The Company and AKTA match 100% of participant
contributions up to the first 3% of compensation contributed, and 50% of
every dollar between 4% and 6% of compensation contributed. The Company's
and AKTA's contributions are made bi-weekly, and may be in the form of cash,
shares of the Company's common stock or any combination thereof. The trustee
will use cash contributions to purchase shares of the Company's common stock
on the open market (at the then prevailing market price), directly from the
Company, or from other persons in private transactions. The Company and AKTA
can change the matching contribution rate, subject to the limits of the Plan
and the Internal Revenue Code. No changes in the matching contribution rate
were made during 1997 or 1996.
9
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
Participants become fully vested in the portion of Company or AKTA matching
contributions allocated to their accounts if employed by the Company or AKTA
upon a) normal retirement (age 65 or older), b) permanent disability, c)
death, or d) after a designated time period according to the following
vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
Less than three years 0%
Three but less than four years 20%
Four but less than five years 40%
Five but less than six years 60%
Six but less than seven years 80%
Seven or more years 100%
</TABLE>
If a participant leaves the Company or AKTA prior to retirement, the portion
of his or her matching account which is not vested will be forfeited.
Forfeitures can be used to offset the Company's or AKTA's matching
contribution, as applicable. Forfeitures in 1997 and 1996 were $2,565,518
and $1,033,170, respectively.
The Plan contains a rehire provision whereby if a participant leaves the
Company or AKTA and is rehired before being separated from service for five
consecutive years, the forfeited portion of his or her account will be
restored as of the date of rehire.
4. Investments
The Plan permits participants to direct their prospective salary deferrals
and their existing salary deferral account balances to any of the available
investment funds, or to allocate the amounts to multiple investment funds.
10
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
Certain information with respect to the ten investment funds available
during 1997 is as follows:
Fund A: "Fidelity Retirement Government Money Market Portfolio" (RGMMP)
- seeks to preserve capital and liquidity while producing
reasonable interest income. Investments are in units of the
Fidelity RGMMP. RGMMP's assets are invested only in obligations
issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities.
Fund B: "Fidelity Equity-Income Fund" - seeks reasonable income with the
potential for capital appreciation by investing in income-producing
equity securities. The Fund invests in securities of varying
quality, but the Fund does not expect to purchase securities of
companies without proven earnings or credit. The Fund diversifies
investments among a variety of industries to help reduce overall
investment risk.
Fund C: "Company Stock Fund" - invests primarily in the Company's common
stock. The Fund also buys a small amount of money market
investments so that exchanges, withdrawals and distributions can be
more readily handled.
Fund D: "Fidelity Intermediate Bond Fund" - seeks a high level of current
income by investing in corporate debt obligations, mortgage
securities, U.S. government obligations and obligations of U.S.
banks, including certificates of deposit and banker's acceptances.
The average portfolio maturity ranges from three to ten years.
Fund E: "Fidelity Magellan Fund" - seeks long-term capital appreciation
by investing in the stocks of both well-known and lesser-known
companies with above average growth potential. Securities may be of
foreign, domestic or multinational companies. The Fund diversifies
investments among a variety of industries and sectors within the
market to reduce overall investment risk.
Fund F: "Fidelity Contrafund" - seeks long-term capital appreciation by
investing in securities of companies believed to be out of favor or
undervalued. The Fund invests in domestic and foreign common stocks
and securities convertible into common stock, but may also purchase
other securities with potential for capital appreciation.
11
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
Fund G: "Spartan U.S. Equity Index Fund" (formerly called "Fidelity U.S.
Equity Index Portfolio") - seeks current income and capital
appreciation by attempting to duplicate the composition and total
return of the Standard and Poor's 500 Index.
Fund H: "PBHG Emerging Growth Fund" - seeks long-term capital
appreciation primarily by investing in common stocks of micro and
small-sized U.S. companies with market capitalization or annual
revenues up to $500 million. The fund may invest up to 10% of
assets in securities of foreign issuers traded outside the United
States and Canada. It may also invest in American depositary
receipts.
Fund I: "Janus Worldwide Fund" - seeks long-term capital appreciation by
investing primarily in common stocks of foreign and domestic
companies of all sizes. Typically, the Fund invests in issuers from
at least five different countries (including the United States),
but may be concentrated in fewer than five countries or even a
single country at any point in time.
Fund J: "INVESCO Total Return Fund" - seeks capital growth and current
income. The Fund typically invests 30% in stocks and 30% in fixed
and variable rate debt securities (bonds), with the remaining 40%
allocated between stocks and bonds depending on current market
conditions. Investments may include stocks and securities of
foreign issuers. The dollar-weighted average maturity of the Fund's
fixed-income component normally varies between three and fifteen
years.
Presently, Funds A, B, D, E, F and G are invested in Fidelity mutual fund
and money market shares bearing the name of the respective Funds
(collectively the "Fidelity Funds"). Funds H, I and J are invested in PBHG,
Janus and INVESCO mutual fund shares, respectively. Fidelity, PBHG, Janus
and INVESCO Funds are open-end, diversified investment companies, which
offer mutual funds, the shares of which are publicly held.
12
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
The Company Stock Fund (Fund C) includes the Company's common stock and a
small amount of money market investments. In order to allocate the fair
market value of these components to participants, the fund assigns units of
participation. At December 31, 1997 and 1996, the Fund contained 27,123,896
and 26,353,184 participation units, respectively, with a net asset value of
$12.98 and $7.77, respectively. The net asset value per unit reported on the
1997 participant account statements dated March 31, June 30 and September 30
was $10.00, $15.22 and $20.42, respectively. The net asset value per unit
reported on the 1996 participant account statements dated March 31, June 30
and September 30 was $7.54, $6.60 and $5.98, respectively.
None of the investment funds described above carries a guarantee of
principal or rate of return.
5. Loans to Plan Participants
Participants may borrow up to 50% of their vested account balance, subject
to minimum and maximum loan amounts of $1,000 and $50,000, respectively.
Certain participants, as required by law, have lower maximum permitted loan
amounts. Loans are secured by the participant's account balance and bear a
fixed rate of interest at prime plus 1% at the time of the borrowing.
Interest rates on loans outstanding at December 31, 1997 range from 7% to
10%. Loan repayments are made by bi-weekly payroll deductions in equal
installments over the life of the loan, which can be a minimum of one year
and a maximum of five years. Loans are payable in full upon the
participant's termination of employment from the Company or AKTA, or the
occurrence of certain other events.
13
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APPLIED MATERIALS, INC.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
6. Federal Income Tax Status of the Plan
The Company received a favorable determination letter from the Internal
Revenue Service (IRS) dated May 1996 regarding the Plan and amendments
thereto through February 1996. The Plan has been amended since the last
favorable determination letter was received, but the Company believes that
the Plan continues to constitute a qualified plan that is being operated in
compliance with the applicable requirements of the Internal Revenue Code and
that the trust, which forms a part of the Plan, is exempt from income tax.
Prior to the end of the applicable remedial amendment period, the Company
expects to submit the plan, as then amended, for a new favorable
determination letter, and the Company expects to receive such a letter in
due course. The Company is not aware of any subsequent event which could
adversely affect the Plan's tax qualification. Accordingly, no provision for
Federal or State income taxes has been made in the financial statements of
the Plan. The tax qualification of the Plan is determined by the IRS and
ultimately, the courts.
7. Transfer of Plan Assets
The Company acquired Opal, Inc. (Opal) in January 1997. At the time of
purchase, Opal maintained the Opal, Inc. 401(k) Plan and Trust (Opal Plan),
a defined contribution plan that provided for employee deferrals and
employer matching contributions. The participants in the Opal Plan who
became employees of the Company were eligible to participate in the Plan
subsequent to the date of acquisition. The assets of the Opal Plan were
transferred to the Plan on June 30, 1997.
14
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-52072 and No. 333-31289) of Applied Materials,
Inc. of our report dated May 29, 1998 which appears on page 4 of this Form 11-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
June 18, 1998
