<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 JULY 26, 1998 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 July 26, 1998:
367,557,208
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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July 26, July 27, July 26, July 27,
(In thousands, except per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 884,491 $1,057,241 $3,368,492 $2,793,879
Cost of products sold 490,102 558,345 1,790,373 1,509,310
---------- ---------- ---------- ----------
Gross margin 394,389 498,896 1,578,119 1,284,569
Operating expenses:
Research, development and engineering 154,044 143,880 518,310 392,345
Marketing and selling 79,896 81,191 250,974 222,427
General and administrative 69,667 60,569 212,180 179,794
Restructuring 35,000 -- 35,000 --
Bad debt expense -- 16,318 -- 16,318
Acquired in-process research and
development -- -- 32,227 59,500
---------- ---------- ---------- ----------
Income from operations 55,782 196,938 529,428 414,185
Income from litigation settlement -- 80,000 80,000 80,000
Interest expense 11,282 4,851 35,031 15,586
Interest income 18,868 15,038 58,377 43,193
---------- ---------- ---------- ----------
Income from consolidated companies
before taxes 63,368 287,125 632,774 521,792
Provision for income taxes 15,851 100,494 215,143 203,453
---------- ---------- ---------- ----------
Income from consolidated companies 47,517 186,631 417,631 318,339
Equity in net income/(loss) of joint venture -- -- -- --
---------- ---------- ---------- ----------
Net income $ 47,517 $ 186,631 $ 417,631 $ 318,339
---------- ---------- ---------- ----------
Earnings per share: *
Basic $ 0.13 $ 0.51 $ 1.14 $ 0.88
Diluted $ 0.13 $ 0.49 $ 1.10 $ 0.85
Weighted average number of shares: *
Basic 366,942 364,012 366,584 362,662
Diluted 378,072 379,218 378,808 375,540
</TABLE>
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* Amounts for the three and nine months ended July 27, 1997 have been
retroactively restated to reflect a two-for-one stock split in the form of a
100 percent stock dividend, effective October 13, 1997.
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
July 26, Oct. 26,
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 387,057 $ 448,043
Short-term investments 1,215,710 1,094,912
Accounts receivable, net 814,883 1,110,885
Inventories 632,513 686,451
Deferred income taxes 324,144 324,568
Other current assets 208,871 105,498
----------- -----------
Total current assets 3,583,178 3,770,357
Property, plant and equipment, net 1,234,151 1,066,053
Other assets 222,427 234,356
----------- -----------
Total assets $ 5,039,756 $ 5,070,766
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 153 $ 55,943
Current portion of long-term debt 6,444 10,563
Accounts payable and accrued expenses 933,434 1,157,808
Income taxes payable 117,314 177,774
----------- -----------
Total current liabilities 1,057,345 1,402,088
Long-term debt 611,812 623,090
Deferred income taxes and other liabilities 110,396 103,417
----------- -----------
Total liabilities 1,779,553 2,128,595
----------- -----------
Stockholders' equity:
Common stock 3,676 3,672
Additional paid-in capital 769,263 850,902
Retained earnings 2,515,669 2,098,038
Cumulative translation adjustments (28,405) (10,441)
----------- -----------
Total stockholders' equity 3,260,203 2,942,171
----------- -----------
Total liabilities and stockholders' equity $ 5,039,756 $ 5,070,766
</TABLE>
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* Amounts as of July 26, 1998 are unaudited. Amounts as of October 26, 1997 are
from the October 26, 1997 audited financial statements.
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Nine Months Ended
July 26, July 27,
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 417,631 $ 318,339
Adjustments required to reconcile net income
to cash provided by operations:
Acquired in-process research and development expense 32,227 59,500
Bad debt expense -- 16,318
Depreciation and amortization 211,133 162,540
Deferred income taxes (2,363) 1,280
Equity in net income/(loss) of joint venture -- --
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable 244,892 (121,282)
Inventories 43,603 (109,784)
Other current assets (105,076) (27,684)
Other assets (8,844) (2,736)
Accounts payable and accrued expenses (175,530) 170,598
Income taxes payable (56,169) 163,852
Other liabilities 11,441 10,022
--------- ---------
Cash provided by operations 612,945 640,963
--------- ---------
Cash flows from investing activities:
Capital expenditures, net of retirements (375,435) (183,937)
Cash paid for licensed technology (32,227) --
Cash paid for acquisitions, net of cash acquired -- (246,276)
Proceeds from sales of short-term investments 618,324 460,899
Purchases of short-term investments (739,122) (717,814)
--------- ---------
Cash used for investing (528,460) (687,128)
--------- ---------
Cash flows from financing activities:
Short-term debt activity, net (55,239) (57,568)
Long-term debt activity, net (7,117) (57,365)
Common stock transactions, net (81,635) (28,285)
--------- ---------
Cash used for financing (143,991) (143,218)
--------- ---------
Effect of exchange rate changes on cash (1,480) (1,441)
--------- ---------
Decrease in cash and cash equivalents (60,986) (190,824)
Cash and cash equivalents - beginning of period 448,043 403,888
--------- ---------
Cash and cash equivalents - end of period $ 387,057 $ 213,064
</TABLE>
- --------------------------------------------------------------------------------
For the nine months ended July 26, 1998, cash payments for interest and income
taxes were $23,524 and $257,417, respectively. For the nine months ended July
27, 1997, cash payments for interest and income taxes were $10,534 and $41,788,
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 26, 1998
1) Basis of Presentation
In the opinion of management, the unaudited consolidated condensed
financial statements of Applied Materials, Inc. (the Company) included
herein have been prepared on a consistent basis with the October 26, 1997
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
consolidated financial statements should be read in conjunction with the
October 26, 1997 audited consolidated financial statements and notes
thereto. The Company's results of operations for the three and nine months
ended July 26, 1998 are not necessarily indicative of future operating
results.
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) Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share," in the first fiscal quarter of 1998.
Under the provisions of SFAS 128, primary earnings per share has been
replaced by basic earnings per share, which does not include the dilutive
effect of stock options in its calculation. In addition, fully diluted
earnings per share has been replaced by diluted earnings per share. All
prior period earnings per share amounts have been restated to reflect the
requirements of SFAS 128. Basic earnings per share has been computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per share has been computed using the weighted average
number of common shares and equivalents (representing the dilutive effect
of stock options) outstanding during the period. Net income has not been
adjusted for any period presented for purposes of computing basic or
diluted earnings per share.
For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise
price that exceeds the average fair market value of the Company's common
stock for the period. For the three months ended July 26, 1998, options to
purchase approximately 5,520,000 shares of common stock at an average price
of $35.96 were excluded from the computation, and for the nine months ended
July 26, 1998, options to purchase approximately 3,677,000 shares of common
stock at an average price of $37.43 were excluded from the computation.
5
<PAGE> 6
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 (in thousands):
<TABLE>
<CAPTION>
July 26, 1998 October 26, 1997
------------- ----------------
<S> <C> <C>
Customer service spares $250,404 $207,938
Raw materials 94,732 106,406
Work-in-process 183,671 256,737
Finished goods 103,706 115,370
-------- --------
$632,513 $686,451
======== ========
</TABLE>
4) Other Assets
The components of other assets are as follows (in thousands):
<TABLE>
<CAPTION>
July 26, 1998 October 26, 1997
------------- ----------------
<S> <C> <C>
Purchased technology, net $167,100 $186,127
Goodwill, net 12,042 13,438
Other 43,285 34,791
-------- --------
$222,427 $234,356
======== ========
</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 periodically
analyzes these assets to determine whether an impairment in carrying value
has occurred.
5) Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses are as follows (in
thousands):
<TABLE>
<CAPTION>
July 26, 1998 October 26, 1997
------------- ----------------
<S> <C> <C>
Accounts payable $ 190,490 $ 347,584
Compensation and benefits 170,873 219,384
Installation and warranty 209,218 216,962
Other 362,853 373,878
---------- ----------
$ 933,434 $1,157,808
========== ==========
</TABLE>
6
<PAGE> 7
6) Restructuring
During the third fiscal quarter of 1998, in response to continued
reductions in capital spending by semiconductor manufacturers, the Company
completed a voluntary separation plan and developed plans to consolidate
certain facilities. In connection with these actions, a pre-tax
restructuring charge of $35 million, or $0.06 per diluted share after tax,
was recorded.
Restructuring activity in the third fiscal quarter of 1998 was as follows
(in thousands):
<TABLE>
<CAPTION>
Severance
and Benefits Facilities
------------ ----------
<S> <C> <C>
Provision $ 24,812 $ 10,188
Amount utilized (5,925) (435)
-------- --------
Balance, July 26, 1998 $ 18,887 $ 9,753
======== ========
</TABLE>
The provision for severance and benefits relates primarily to employees who
accepted the Company's voluntary separation offer. The majority of these
employees were based in Santa Clara, California and Austin, Texas, and all
activities of the Company were impacted. The provision for facilities
includes net operating costs associated with subleased buildings. The
majority of the remaining cash outlays of approximately $29 million are
expected to occur during the fourth fiscal quarter of 1998.
7) Licensed Technology and Acquisitions
During the first fiscal quarter of 1998, the Company entered into an
agreement with Trikon Technologies, Inc. for a non-exclusive, worldwide,
perpetual license of MORI(TM) plasma source and Forcefill(TM) deposition
technology. The Company recognized pre-tax acquired in-process research and
development expense of approximately $32.2 million, including transaction
costs, in connection with the execution of this agreement.
During the first fiscal quarter of 1997, the Company acquired Opal, Inc.
and Orbot Instruments, Ltd. in separate transactions for approximately $293
million, consisting primarily of cash. In connection with these
acquisitions, the Company recorded a non-tax deductible charge of $59.5
million for acquired in-process research and development. With the
exception of this item, the Company's results of operations were not
materially affected by these acquisitions for the nine months ended July
27, 1997.
8) Bad Debt Expense
During the third fiscal quarter of 1997, the Company determined that its
outstanding accounts receivable balance from Thailand-based Submicron
Technology PCL ("SMT") was not collectible. Therefore, the Company
repossessed systems previously sold to SMT and recorded $16.3 million of
bad debt expense.
7
<PAGE> 8
9) Litigation Settlement
During the first fiscal quarter of 1998, the Company settled all
outstanding litigation with ASM International N.V. (ASM) and recorded $80
million of pre-tax non-operating income. As a result of this settlement,
ASM is also required to pay ongoing royalties for certain system shipments
subsequent to the date of the settlement. Ongoing royalties have not been,
and are not expected to be, material.
During the third fiscal quarter of 1997, the Company settled certain
outstanding litigation with Novellus Systems, Inc. In connection with this
settlement, the Company received $80 million in damages from Novellus for
past patent infringement. Novellus is also required to pay ongoing
royalties for certain system shipments subsequent to the date of the
settlement. Ongoing royalties have not been, and are not expected to be,
material.
10) New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board (the FASB)
issued Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132).
SFAS 132 does not change the measurement or recognition of such plans, but
does standardize the disclosure requirements for pensions and other
postretirement benefits to the extent practicable. SFAS 132 also requires
disclosure of additional information on changes in the benefit obligations
and fair values of plan assets, and eliminates certain other disclosures
that were previously required. The Company will be required to adopt SFAS
132 in fiscal 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). SFAS 133 establishes new standards of accounting and reporting
for derivative instruments and hedging activities. SFAS 133 requires that
all derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either in
the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. The Company has
not yet determined the effect of adopting SFAS 133, which will be effective
for the Company's fiscal 2000.
11) Subsequent Events
On August 25, 1998, the Company announced that it expects to initiate and
complete a restructuring plan by the end of the fourth fiscal quarter of
1998. As part of this restructuring plan, approximately 2,000 positions, or
15 percent of the Company's global workforce, were eliminated. Of these
positions, approximately 750 were eliminated in California and 600 in
Texas. The majority of the remaining positions will be eliminated from
other locations worldwide by the end of the fourth fiscal quarter. The
restructuring plan has not yet been finalized; therefore, the Company
cannot quantify the associated costs at this time. However, as a result of
non-recurring charges associated with the restructuring plan, the Company
expects to incur a net loss for its fourth fiscal quarter ending October
25, 1998.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical statements, this Quarterly Report on Form 10-Q
contains forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
stated. These forward-looking statements reflect management's opinions only
as of the date hereof, and Applied Materials, Inc. (the Company) assumes no
obligation to update this information. Risks and uncertainties include, but
are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Trends, Risks and Uncertainties." Other risks and uncertainties are disclosed
in the Company's SEC filings, including the Company's Annual Report on Form
10-K for the fiscal year ended October 26, 1997 and Quarterly Reports on Form
10-Q for the first and second fiscal quarters of 1998 ended January 25, 1998
and April 26, 1998, respectively.
EVENTS SUBSEQUENT TO QUARTER END
On August 25, 1998, the Company announced that it expects to initiate and
complete a restructuring plan by the end of the fourth fiscal quarter of
1998. As part of this restructuring plan, approximately 2,000 positions, or
15 percent of the Company's global workforce, were eliminated. Of these
positions, approximately 750 were eliminated in California and 600 in Texas.
The majority of the remaining positions will be eliminated from other
locations worldwide by the end of the fourth fiscal quarter. The
restructuring plan has not yet been finalized; therefore, the Company cannot
quantify the associated costs at this time. However, as a result of
non-recurring charges associated with the restructuring plan, the Company
expects to incur a net loss for its fourth fiscal quarter ending October 25,
1998.
RESULTS OF OPERATIONS
The Company received new orders of $608 million for the third fiscal quarter
of 1998, versus $1.0 billion for the second fiscal quarter of 1998 and $1.3
billion for the first fiscal quarter of 1998. The significant decrease in new
orders was broad-based, as customers in all regions reacted to further
business difficulties by delaying equipment deliveries and investments in
capacity and strategic programs. The semiconductor industry downturn that
began during the first fiscal quarter of 1998 continued to deepen during the
third fiscal quarter of 1998 as a result of poor economic conditions in Asia,
industry overcapacity and a movement to sub-$1,000 PCs. There is a high
degree of uncertainty regarding the length and severity of the current
industry downturn, and therefore, for this and other reasons, the Company's
results of operations for the three and nine months ended July 26, 1998 are
not necessarily indicative of future operating results.
9
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New orders by region were as follows (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended
------------------
July 26, 1998 April 26, 1998
($) (%) ($) (%)
----- ----- ----- -----
<S> <C> <C> <C> <C>
North America 270 45 430 42
Europe 70 11 164 16
Japan 110 18 155 15
Korea 28 5 41 4
Taiwan 124 20 111 11
Asia-Pacific 6 1 126 12
----- ----- ----- -----
Total 608 100 1,027 100
===== ===== ===== =====
</TABLE>
The Company's backlog at July 26, 1998 was $1.0 billion, versus $1.4 billion
at April 26, 1998 and $1.6 billion at January 25, 1998. The decline in
backlog from April 26, 1998 to July 26, 1998 was a result of net sales in
excess of new orders, as well as $125 million of cancellations and debookings
during the third fiscal quarter of 1998.
The Company's net sales for the three months ended July 26, 1998 decreased
16.3 percent from the corresponding period of fiscal 1997. Results for the
three months ended July 26, 1998 were significantly impacted by the industry
downturn discussed above, whereas during the corresponding period of fiscal
1997, the industry was beginning to recover from the 1996 downturn. The
Company's net sales for the nine months ended July 26, 1998 increased 20.6
percent from the corresponding period of fiscal 1997. Although the third
fiscal quarter of 1998 was negatively impacted by industry conditions, the
first and second fiscal quarters of 1998 posted relatively strong results.
During the corresponding period of fiscal 1997, the Company was affected by a
downturn in the semiconductor industry that began in 1996 and started to
improve in the third fiscal quarter of 1997. Net sales by region were as
follows (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 26, 1998 July 27, 1997 July 26, 1998 July 27, 1997
($) (%) ($) (%) ($) (%) ($) (%)
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America 332 38 447 42 1,268 38 1,092 39
Europe 193 22 124 12 548 16 450 16
Japan 129 14 195 18 555 17 455 16
Korea 47 5 71 7 129 4 223 8
Taiwan 156 18 196 19 717 21 440 16
Asia-Pacific 27 3 24 2 151 4 134 5
----- ----- ----- ----- ----- ----- ----- -----
884 100 1,057 100 3,368 100 2,794 100
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
10
<PAGE> 11
The Company's gross margin for the three and nine month periods ended July
26, 1998 was 44.6 percent and 46.8 percent, respectively, compared to 47.2
percent and 46.0 percent, respectively, for the corresponding periods of
fiscal 1997. The fluctuations in gross margin for the periods presented were
primarily caused by changes in business volume.
Excluding non-recurring charges for restructuring, acquired in-process
research and development and bad debt, operating expenses as a percentage of
net sales for the three and nine months ended July 26, 1998 were 34.3 and
29.1 percent, respectively, versus 27.0 and 28.4 percent, respectively, for
the corresponding periods of fiscal 1997. The increase as a percentage of net
sales for the three month periods is primarily attributable to slightly
higher operating expense levels and decreased business volume. The increase
for the nine month periods is primarily attributable to increased research,
development and engineering expenses in fiscal 1998 for new product
development.
During the third fiscal quarter of 1998, the Company completed a voluntary
separation plan and developed plans to consolidate certain facilities. These
actions were in response to continued reductions in capital spending by
semiconductor manufacturers. In connection with these actions, the Company
recorded a pre-tax restructuring charge of $35 million, or $0.06 per diluted
share after tax. The restructuring charge consisted of approximately $25
million for severance and benefits and $10 million for facility
consolidations. During the third fiscal quarter of 1998, $6 million of cash
was used for restructuring costs. The majority of the remaining cash outlays
of approximately $29 million are expected to occur during the fourth fiscal
quarter of 1998 (see footnote 6 to the consolidated condensed financial
statements).
During the third fiscal quarter of 1997, the Company determined that its
outstanding accounts receivable balance from Thailand-based Submicron
Technology PCL ("SMT") was not collectible. Therefore, the Company
repossessed systems previously sold to SMT and recorded $16.3 million of bad
debt expense.
During the first fiscal quarter of 1998, the Company entered into an
agreement with Trikon Technologies, Inc. for a non-exclusive, worldwide,
perpetual license of MORI(TM) plasma source and Forcefill(TM) deposition
technology. In connection with this transaction, the Company recognized
approximately $32.2 million of acquired in-process research and development
expense, including transaction costs. During the first fiscal quarter of
1997, the Company acquired two companies, Opal, Inc. and Orbot Instruments,
Ltd. (Orbot), in separate transactions and recognized $59.5 million of
acquired in-process research and development expense. With
11
<PAGE> 12
the exception of these charges, the transactions did not have a material
effect on the Company's results of operations for the nine months ended July
26, 1998 or July 27, 1997.
During the first fiscal quarter of 1998, the Company settled all outstanding
litigation with ASM International N.V. (ASM) and recorded $80 million of
pre-tax non-operating income. As a result of this settlement, ASM is also
required to pay ongoing royalties for certain system shipments subsequent to
the date of the settlement. Ongoing royalties have not been, and are not
expected to be, material.
During the third fiscal quarter of 1997, the Company settled certain
outstanding litigation with Novellus Systems, Inc. In connection with this
settlement, the Company received $80 million in damages from Novellus for
past patent infringement. Novellus is also required to pay ongoing royalties
for certain system shipments subsequent to the date of the settlement.
Ongoing royalties have not been, and are not expected to be, material.
Interest expense for the three and nine months ended July 26, 1998 was $11
million and $35 million, respectively, compared to $5 million and $16
million, respectively, for the corresponding periods of fiscal year 1997. The
increases are primarily due to interest expense associated with $400 million
of debt issued by the Company during the fourth fiscal quarter of 1997.
Interest income for the three and nine months ended July 26, 1998 was $19
million and $58 million, respectively, compared to $15 million and $43
million, respectively, for the corresponding periods of fiscal 1997. The
increases resulted primarily from higher average cash, cash equivalents and
short-term investment balances.
The Company changed its effective income tax rate for fiscal 1998 from 35
percent to 34 percent. The effect of recording this change in the third
fiscal quarter of 1998 was a favorable $5.7 million, or $0.02 per diluted
share. The 34 percent effective income tax rate is attributable to several
factors, including a shift in the geographic composition of pre-tax income to
entities operating in countries with lower tax rates and the enactment of
favorable tax legislation in certain jurisdictions in which the Company has
significant operations. Management anticipates that the Company's effective
income tax rate can be sustained at 34 percent going forward. The Company's
effective income tax rate for the nine months ended July 27, 1997 was
affected by the non-deductible $59.5 million charge for acquired in-process
research and development.
The Company has a 50 percent ownership interest in Applied Komatsu
Technology, Inc. (AKT), a joint venture corporation that develops thin film
transistor manufacturing systems for Active-Matrix Liquid Crystal Displays
(AMLCDs). The AMLCD market currently includes screens for laptop, notebook
and palmtop computers, desktop monitors, digital/video cameras, portable
televisions and instrument displays and may eventually include High
Definition Television. The Company accounts for the joint venture using the
equity method. AKT's operating results did not impact the Company's statement
of operations for the third fiscal quarter of 1998. Due primarily to slower
growth in the AMLCD market and the effect of difficult Asian business and
banking conditions on customers' investment decisions, AKT's results of
operations and financial condition have deteriorated significantly such that
the Company and its joint venture partner may have to provide additional
financing in the form of loans or loan guarantees. Accordingly, during the
fourth fiscal quarter of 1998, the Company expects to record a loss of
approximately $8 million, or $0.02 per diluted share, representing its share
of AKT's net loss from operations.
Significant operations of the Company are conducted in foreign currencies,
primarily Japanese yen. Forward exchange and currency option contracts are
purchased to hedge certain existing firm commitments and foreign currency
denominated transactions expected to occur during the next year. Gains and
losses on these contracts are recognized in income when the related
transactions being hedged are recognized. Because the effect of movements in
currency
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<PAGE> 13
exchange rates on forward exchange and currency option contracts generally
offsets the related effect 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. Net foreign
currency gains and losses did not have a significant effect on the Company's
results of operations for the three and nine months ended July 26, 1998 or
July 27, 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at July 26, 1998 improved, with a ratio of
current assets to current liabilities of 3.4:1, compared to 2.7:1 at October
26, 1997. The Company ended the quarter with cash, cash equivalents and
short-term investments of $1.6 billion.
The Company generated approximately $613 million of cash from operations
during the first nine months of fiscal 1998. The primary sources of cash from
operations were net income (plus non-cash charges for depreciation,
amortization and acquired in-process research and development expense) of
$661 million, a decrease in accounts receivable of $245 million and a
decrease in inventories of $44 million. These sources were partially offset
by an increase in other current assets of $105 million, a decrease in
accounts payable and accrued expenses of $176 million, and a decrease in
income taxes payable of $56 million.
Cash used for investing activities during the first nine months of fiscal
1998 was approximately $528 million, consisting primarily of net purchases of
property, plant and equipment ($375 million) and short-term investments ($121
million), as well as the acquisition of licensed technology ($32 million).
Cash used for financing activities during the first nine months of fiscal
1998 was approximately $144 million, consisting of stock repurchases of $143
million and net debt repayments of $62 million, which were partially offset
by proceeds from stock issuances of $61 million.
In response to the current industry downturn, the Company has reduced its
estimated capital expenditures for fiscal 1998 to approximately $500 million,
consisting primarily of investments in manufacturing and research facilities.
The Company is authorized to systematically repurchase shares of its common
stock in the open market to reduce the dilution resulting from its
stock-based employee benefit and incentive plans. This authorization is
effective until the March 2001 Annual Meeting of Stockholders. The Company
repurchased 4,453,000 shares of its common stock, at an average price of
$32.11 per share, during the nine months ended July 26, 1998, for a total
cash outlay of approximately $143 million.
As of July 26, 1998, the Company's principal sources of liquidity consisted
of $1.6 billion of cash, cash equivalents and short-term investments and
approximately $500 million of available
13
<PAGE> 14
credit facilities. The Company's liquidity is affected by many factors, some
of which are based on the normal ongoing operations of the business, and
others of which relate to the uncertainties of the semiconductor and
semiconductor equipment industries and global economies. Although the
Company's cash requirements will fluctuate based on the timing and extent of
these factors, management believes that cash generated from operations,
together with the liquidity provided by existing cash balances and borrowing
capability, will be sufficient to satisfy the Company's liquidity
requirements for the next twelve months.
TRENDS, RISKS AND UNCERTAINTIES
INDUSTRY VOLATILITY
The semiconductor industry has historically been cyclical and subject to
sudden and sharp changes in supply and demand. The timing, length and
severity of these cycles are difficult to predict. During periods of reduced
and declining demand, the Company must be able to quickly and effectively
align its cost structure with prevailing market conditions, and motivate and
retain key employees. During periods of rapid growth, the Company must be
able to acquire and/or develop sufficient manufacturing capacity to meet
customer demand, and hire and assimilate a sufficient number of qualified
people.
In response to the current industry downturn, the Company has taken a number
of actions intended to align its cost structure with prevailing market
conditions. Most recently, on August 25, 1998, the Company announced that it
will initiate and complete a restructuring plan during the fourth fiscal
quarter of 1998. As part of the restructuring plan, approximately 2,000
positions, or 15 percent of the Company's global workforce, were eliminated.
The Company expects to incur a net loss for its fourth fiscal quarter ending
October 25, 1998 as a result of non-recurring charges associated with the
restructuring plan (see section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Events Subsequent
to Quarter End" for further details). Also, during the third fiscal quarter
of 1998, the Company completed a voluntary separation plan and developed
plans to consolidate certain facilities (see section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations" for further details). The Company has also
significantly restricted new hiring and utilized mandatory shutdown days.
There can be no assurance that the objectives of these cost reduction
programs will be achieved.
INDUSTRY OVERCAPACITY AND DEMAND SHIFTS IN THE PC INDUSTRY
The semiconductor industry is currently characterized by excess production
capacity for the majority of device types, which has caused semiconductor
manufacturers to further decrease their capital spending. In the PC market, a
shift in demand from more expensive, high performance
14
<PAGE> 15
products to lower-priced products (sub-$1,000 PCs) has resulted in reduced
profitability for semiconductor manufacturers, thereby delaying or decreasing
their purchases of the Company's products. Continued overcapacity and
strengthening demand for sub-$1,000 PCs could cause further delays or
decreased demand for the Company's products.
ASIAN ECONOMIES
Asian countries, particularly Japan and Korea, continue to experience
banking, currency and other difficulties that are contributing to economic
slowdowns or recessions in those countries. The region does not appear to be
responding quickly to significant efforts to stimulate its economies. If
Asian economies remain stagnant or continue to deteriorate, capital
investment by Asian customers could decrease from current levels. Customers
in Japan and Korea have already canceled and delayed a significant amount of
orders for the Company's products and may cancel or delay additional orders
in the future. New orders and net sales to customers located in Asian
countries for the third fiscal quarter of 1998 were 44 percent and 40
percent, respectively, of the Company's totals.
GLOBAL BUSINESS
Managing global operations and sites located throughout the world presents
challenges associated with cultural diversities and organizational alignment.
Moreover, each region in the global semiconductor equipment market exhibits
unique characteristics that can cause capital equipment investment patterns
to vary significantly from period to period. Although 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 that could affect
global product and service demand.
APPLIED KOMATSU TECHNOLOGY, INC. JOINT VENTURE
The Company has a 50 percent ownership interest in Applied Komatsu
Technology, Inc. (AKT), a joint venture corporation that develops thin film
transistor manufacturing systems for Active-Matrix Liquid Crystal Displays
(AMLCDs). The AMLCD market currently includes screens for laptop, notebook
and palmtop computers, desktop monitors, digital/video cameras, portable
televisions and instrument displays and may eventually include High
Definition Television. The Company accounts for the joint venture using the
equity method. AKT's financial condition and results of operations have
deteriorated as a result of weaker demand for AMLCD fabrication equipment and
difficult business conditions in Asia. Further deterioration could negatively
affect the Company's results of operations.
BACKLOG
The Company's backlog was $1.0 billion as of July 26, 1998, compared to $1.4
billion as of April 26, 1998 and $1.6 billion as of January 25, 1998. The
Company schedules production of its systems based upon order backlog and
customer commitments. Backlog includes only orders for which written
authorizations have been accepted and shipment dates within 12 months have
been assigned. 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.
YEAR 2000
The Company has a formal Year 2000 Program Office focusing on four key
readiness areas: 1) Internal Infrastructure Readiness, addressing internal
hardware and software, and non-information technology systems; 2) Supplier
Readiness, addressing the preparedness of those suppliers providing material
incorporated into the Company's products; 3) Product Readiness,
15
<PAGE> 16
addressing product functionality; and 4) Customer Readiness, addressing
customer support and transactional activity.
For each readiness area, the Company is systematically performing a global
risk assessment, conducting testing and remediation (renovation and
implementation), developing contingency plans to mitigate unknown risk, and
communicating with employees, suppliers, customers and other third party
business partners to raise awareness of the Year 2000 problem.
Internal Infrastructure Readiness Program: The Company, assisted by a third
party, is conducting an assessment of internal applications and computer
hardware. Some software applications have been made Year 2000 compliant, and
resources have been assigned to address other applications based on their
criticality and the time required to make them Year 2000 compliant. All
software remediation is scheduled to be completed no later than July 1999.
The Year 2000 compliance evaluation of hardware, including hubs, routers,
telecommunication equipment, workstations and other items, is nearing
completion.
In addition to applications and information technology hardware, the Company
is testing and developing remediation plans for embedded systems, facilities
and other operations, such as financial and banking systems.
Supplier Readiness Program: This program focuses on minimizing the risks
associated with suppliers in two areas: 1) a supplier's business capability
to continue providing products and services; and, 2) a supplier's product
integrity. The Company has identified and contacted key suppliers based on
their relative risks in these two areas. To date, the Company has received
responses, most of which indicate that the suppliers are in the process of
developing remediation plans, from the majority of its key suppliers. Based
on the Company's assessment of each supplier's progress to adequately address
the Year 2000 issue, the Company will develop a supplier action list and
contingency plans. Supplier readiness issues that potentially affect the
Company's product retrofit program discussed below are targeted to be
addressed by December 1998.
Product Readiness Program: This program focuses on identifying and resolving
Year 2000 issues existing in the Company's products. The program encompasses
a number of activities including testing, evaluation, engineering, and
manufacturing implementation. The Company has adopted the Sematech Year 2000
Readiness Testing Scenarios as the baseline for product testing. Customers
are being notified of known risk areas and proposed remediation plans. The
Company plans to make Year 2000 retrofits available to customers during the
first calendar quarter of 1999, and to have retrofits installed in the field
by June 1999. A contingency team will be available after June 1999 to assist
customers experiencing difficulties with the Company's products.
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<PAGE> 17
Customer Readiness Program: This program focuses on customer support,
including the coordination of retrofit activity, testing existing customer
electronic transaction capability, and developing contingency plans where
appropriate. The program is in the process of being developed.
The Company estimates that total Year 2000 costs will range from $30 million
to $50 million, with the majority of costs to be incurred during the next six
fiscal quarters. The Company is continuing its assessments and developing
alternatives that will necessitate refinement of this estimate over time.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, the programs described in this section.
Since the programs described in this section are ongoing, all potential Year
2000 complications have not yet been identified. Therefore, the potential
impact of these complications on the Company's financial condition and
results of operations cannot be determined at this time. If computer systems
used by the Company or its suppliers, the product integrity of products
provided to the Company by suppliers, or the software applications used in
systems manufactured and sold by the Company, fail or experience significant
difficulties related to the Year 2000, the Company's results of operations
and financial condition could be materially affected.
FOREIGN CURRENCY
Significant operations of the Company are conducted in foreign currencies,
primarily Japanese yen. The Company actively manages its exposure to changes
in foreign currency exchange rates, but there can be no assurance that future
changes in foreign currency exchange rates will not have a material effect on
results of operations or financial condition.
TECHNOLOGICAL ADVANCES
The Company operates in a highly competitive industry characterized by
increasingly rapid technological changes. The Company's future success is
therefore dependent on its ability to develop new products, to qualify new
products with its customers, to successfully introduce new 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. 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 affected.
LITIGATION
The Company is currently involved in litigation regarding patents and other
intellectual property rights (see Part II, Item 1) 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
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<PAGE> 18
regard to possible patent infringement, and is subject to various other legal
proceedings and claims, either asserted or unasserted. Any such claims,
whether with or without merit, could be time-consuming and expensive to
defend and could divert management's attention and resources. There can be no
assurance regarding the outcome of current or future litigation or patent
infringement inquiries.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has performed an analysis to assess the potential effect of
reasonably possible near-term changes in interest and foreign currency
exchange rates. The effect of such rate changes is not expected to be
material to the Company's results of operations, cash flows or financial
condition. Net foreign currency gains and losses were not material for the
three or nine months ended July 26, 1998.
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<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1997, the Company filed suit against AST Electronik GmbH and AST
Electronik USA, Inc. (collectively AST), and AG Associates, Inc. (AG) in the
United States District Court for the Northern District of California (case
no. C-97-20375RWM), alleging infringement of several of the Company's patents
relating to rapid thermal processing. Discovery has commenced and trial has
been set for March 1999. In October 1997, AST and AG each filed counterclaims
against the Company alleging patent infringement concerning related
technology. Recently, AG filed additional counterclaims, alleging
infringement of several patents. These additional counterclaims were
dismissed by the court in July 1998. In response, in August 1998, AG filed
two separate patent infringement lawsuits based on these same patents, one in
the United States District Court for the Northern District of California
(case no. C98-03044WHO) and one in the United States District Court for the
District of Delaware (civil action no. 98-479). The Company believes it has
meritorious claims and defenses, and intends to pursue them vigorously.
As a result of the Company's acquisition of Orbot, the Company is involved in
a lawsuit captioned KLA Instruments Corporation (KLA) v. Orbot (case no.
C93-20886-JW) in the United States District Court for the Northern District
of California. KLA alleges that the Company infringes one patent regarding
equipment for the inspection of masks and reticles, and seeks an injunction,
damages and such other relief as the Court may find appropriate. There has
been discovery, but no trial date has been set. Management believes that it
has meritorious defenses and intends to pursue them vigorously.
On June 13, 1997, the Company filed a lawsuit against Varian Associates, Inc.
captioned Applied Materials, Inc. v. Varian Associates, Inc. (Varian) (case
no. C-97-20523-RMW), alleging infringement of several of the Company's
patents concerning physical vapor deposition (PVD) technology. The complaint
was later amended on July 7, 1997 to include Novellus Systems, Inc.
(Novellus) as a defendant as a result of Novellus' acquisition of Varian's
thin film systems PVD business. The Company seeks damages for past
infringement, a permanent injunction, treble damages for willful
infringement, pre-judgment interest and attorneys' fees. Varian answered the
complaint by denying all allegations, counterclaiming for declaratory
judgment of invalidity and unenforceability and alleging conduct in violation
of antitrust laws. On June 23, 1997, Novellus filed a separate lawsuit
against the Company captioned Novellus Systems, Inc. v. Applied Materials,
Inc. (case no. C-97-20551-EAI), alleging infringement by the Company of three
patents concerning PVD technology that were formerly owned by Varian. On July
8, 1997, Varian filed a separate lawsuit against the Company captioned Varian
Associates, Inc. v. Applied Materials, Inc. (case no. C-97-20597-PVT),
alleging a broad range of conduct in violation of federal antitrust laws and
state unfair competition and business practice laws. Discovery has
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<PAGE> 20
commenced in these actions, but no trial dates have been set. Management
believes that it has meritorious claims and defenses and intends to pursue
these matters vigorously.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business.
Although the outcome of these claims cannot be predicted with certainty,
management does not believe that any of these legal matters will have a
material adverse effect on the Company's financial condition or results of
operations.
ITEM 5. OTHER INFORMATION
The ratio of earnings to fixed charges for the nine months ended July 26,
1998 and July 27, 1997, and for each of the last five fiscal years, was as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
------------------------- Fiscal Year
July 26, July 27, ----------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
12.39x 16.78x 18.96x 20.14x 21.25x 13.37x 7.61x
====== ====== ====== ====== ====== ====== ======
</TABLE>
Stockholder proposals related to the Company's 1999 Annual Meeting of
Stockholders, but submitted outside the processes of Rule 14a-8 under the
Securities Exchange Act of 1934, must be received by the Company prior to
December 26, 1998 in order to withhold authority of management proxies to use
their discretionary voting authority with respect to any such proposal.
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:
<TABLE>
<S> <C>
3(i)(a) Amendment to Articles of Incorporation dated March 27, 1998
3(i)(b) Articles of Incorporation (as amended to March 27, 1998)
10.1 Amendment No. 1 to the Applied Materials, Inc. Executive
Deferred Compensation Plan
10.2 Amendment No. 2 to the Applied Materials, Inc. Executive
Deferred Compensation Plan
27.0 Financial Data Schedule for the nine months ended July 26, 1998: filed
electronically
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
27.1 Restated Financial Data Schedules for the fiscal years ended
October 26, 1997, October 27, 1996, and October 29, 1995, respectively:
filed electronically
27.2 Restated Financial Data Schedules for the nine, six, and three month
periods ended July 27, 1997, April 27, 1997, and January 26, 1997,
respectively: filed electronically
27.3 Restated Financial Data Schedules for the nine, six, and three month
periods ended July 28, 1996, April 28, 1996, and January 28, 1996,
respectively: filed electronically
</TABLE>
b) The Company did not file a report on Form 8-K during its third
fiscal quarter of 1998.
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<PAGE> 22
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.
September 9, 1998 By: /s/ Joseph R. Bronson
------------------------------
Joseph R. Bronson
Senior Vice President,
Office of the President,
Chief Financial Officer and
Chief Administrative Officer
(Principal Financial Officer)
By: /s/ Michael K. O'Farrell
------------------------------
Michael K. O'Farrell
Vice President,
Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer)
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3(i)(a) Amendment to Articles of Incorporation dated March 27, 1998
3(i)(b) Articles of Incorporation (as amended to March 27, 1998)
10.1 Amendment No. 1 to the Applied Materials, Inc. Executive
Deferred Compensation Plan
10.2 Amendment No. 2 to the Applied Materials, Inc. Executive
Deferred Compensation Plan
27.0 Financial Data Schedule for the nine months ended July 26, 1998:
filed electronically
27.1 Restated Financial Data Schedules for the fiscal years ended
October 26, 1997, October 27, 1996, and October 29, 1995, respectively:
filed electronically
27.2 Restated Financial Data Schedules for the nine, six, and three month
periods ended July 27, 1997, April 27, 1997, and January 26, 1997,
respectively: filed electronically
27.3 Restated Financial Data Schedules for the nine, six, and three month
periods ended July 28, 1996, April 28, 1996, and January 28, 1996,
respectively: filed electronically
</TABLE>
<PAGE> 1
EXHIBIT 3(i)(a)
APPLIED MATERIALS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
The undersigned, James C. Morgan and Donald A. Slichter, hereby certify
that:
(1) They are the Chairman of the Board of Directors and Secretary,
respectively, of Applied Materials, Inc., a Delaware corporation.
(2) The Certificate of Incorporation of this corporation is amended by
deleting Section 1 of Article Fifth in its entirety and adding a new Section 1
of Article Fifth to such Certificate, to read as follows:
1. The corporation is authorized to issue two classes of shares to be
designated, respectively, "Preferred Stock" and "Common Stock." The number of
shares of Preferred Stock authorized to be issued is One Million (1,000,000) and
the number of shares of Common Stock authorized to be issued is One Billion One
Hundred Million (1,100,000,000). The stock, whether Preferred Stock or Common
Stock, shall have a par value of $.01 per share.
The amendment of the Certificate of Incorporation was duly adopted by
the Board of Directors on December 11, 1997 and by the stockholders of the
corporation on March 17, 1998, in accordance with the provisions of Section 242
of the General Corporation law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seal this 26th day of March 1998.
APPLIED MATERIALS, INC.
By: /s/ James C. Morgan
--------------------
James C. Morgan
Attest: /s/ Donald A. Slichter
-----------------------
Donald A. Slichter
<PAGE> 1
EXHIBIT 3(i)(b)
CERTIFICATE OF INCORPORATION
OF
APPLIED MATERIALS, INC.
(as amended to March 27, 1998)
FIRST: The name of the corporation is Applied Materials, Inc.
SECOND: The address of the corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The name and mailing address of the incorporator of the
corporation is:
Donald A. Slichter
Orrick, Herrington & Sutcliffe
55 Almaden Boulevard
San Jose, California 95113
FOURTH: The nature of the business or purposes to be conducted or
promoted by the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FIFTH:
1. The corporation is authorized to issue two classes of shares to be
designated, respectively, "Preferred Stock" and "Common Stock." The number of
shares of Preferred Stock authorized to be issued is One Million (1,000,000) and
the number of shares of Common Stock authorized to be issued is One Billion One
Hundred Million (1,100,000,000). The stock, whether Preferred Stock or Common
Stock, shall have a par value of $.01 per share.
2. The shares of Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is authorized, by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof, including but not
limited to the fixing or alteration of the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued series of shares of Preferred Stock; and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
<PAGE> 2
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend and
repeal from time to time any or all of the bylaws of the corporation, including
bylaw amendments increasing or reducing the authorized number of directors.
SEVENTH: No action shall be taken by the stockholders except at an
annual or special meeting of stockholders. No action shall be taken by
stockholders by written consent.
EIGHTH: Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
NINTH:
1. The affirmative vote of the holders of not less than sixty-six and
sixty-seven hundredths percent (66.67%) of the outstanding shares of "Voting
Stock" (as hereinafter defined) shall be required for the approval or
authorization of any "Business Combination" (as hereinafter defined) of this
corporation or any subsidiary of this corporation with any "Related Person" (as
hereinafter defined), notwithstanding the fact that no vote may be required or
that a lesser percentage may be specified by law, in any agreement with any
national securities exchange or otherwise; provided, however, that the sixty-six
and sixty-seven hundredths percent (66.67%) voting requirement shall not be
applicable and such Business Combination shall require only such affirmative
vote as is required by law, any agreement with any national securities exchange
or otherwise if:
(a) The "Continuing Directors" (as hereinafter defined) of this
corporation by at least a majority vote have expressly approved such Business
Combination either in advance of or subsequent to such Related Person becoming a
Related Person; or
(b)All of the following conditions are met:
(i)The cash or "Fair Market Value" (as hereinafter defined) as of
the date of the consummation of the Business Combination (the
"Combination Date") of the property, securities or other
consideration to be received per share by holders of a particular
class or series of capital stock, as the case may be, of this
corporation in the Business Combination is not less than the
highest of:
(A) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by
or on behalf of the Related Person in acquiring beneficial
ownership of any of its holdings of such class or series of
capital stock of this corporation (i) within the two-year period
immediately prior to the Combination Date or (ii) in the
transaction or series of transactions in which the Related Person
became a Related Person, whichever is higher; or
(B) the Fair Market Value per share of the shares of
capital stock being acquired in the Business Combination (i) as
of the Combination Date or (ii) the date on which the Related
Person became a Related Person, whichever is higher; or
2
<PAGE> 3
(C) in the case of Common Stock, the per share book value
of the Common Stock as reported at the end of the fiscal quarter
immediately prior to the Combination Date, and in the case of
Preferred Stock, the highest preferential amount per share to
which the holders of shares of such class or series of Preferred
Stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the corporation, regardless of whether the Business
Combination to be consummated constitutes such an event.
The provision of this paragraph l(b)(i) shall be required to be met with
respect to every class or series of outstanding capital stock, whether or not
the Related Person has previously acquired any shares of a particular class or
series of capital stock. In all of the above instances, appropriate adjustments
shall be made for recapitalizations and for stock dividends, stock splits and
like distributions; and
(ii) The consideration to be received by holders of a particular
class or series of capital stock shall be in cash or in the same
form as previously has been paid by or on behalf of the Related
Person in connection with its direct or indirect acquisition of
beneficial ownership of shares of such class or series of stock.
If the consideration so paid for any such shares varied as to
form, the form of consideration for such shares shall be either
cash or the form used to acquire beneficial ownership of the
largest number of shares of such class or series of capital stock
previously acquired by the Related Person; and
(iii)After such Related Person has become a Related Person and
prior to the consummation of such Business Combination: (a)
except as approved by a majority of the Continuing Directors,
there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or
not cumulative) on the outstanding Preferred Stock; (b) there
shall have been (1) no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a
majority of the Continuing Directors, and (2) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Continuing Directors; and
(c) such Related Person shall have not become the beneficial
owner of any additional shares of Voting Stock except as part of
the transaction which results in such Related Person becoming a
Related Person; and
(iv) After such Related Person has become a Related Person, such
Related Person shall not have received the benefit, directly or
indirectly (except as proportionately as a stockholder), of any
loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by
3
<PAGE> 4
the corporation, whether in anticipation of or in connection with
such Business Combination or otherwise; and
(v) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed to public stockholders of
the corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such
Act or subsequent provisions).
2. For purposes of this Article NINTH:
(a) The term "Business Combination" shall mean any (i) merger or
consolidation of this corporation or a Subsidiary (as hereinafter defined) of
this corporation with a Related Person or any other corporation which is or
after such merger or consolidation would be an "Affiliate" or "Associate" (as
hereinafter defined) of a Related Person, (ii) sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one transaction or a series of
transactions) with any Related Person or any Affiliate or Associate of any
Related Person, of all or any "Substantial Part" (as hereinafter defined) of the
assets of this corporation or of a Subsidiary of this corporation to a Related
Person or any Affiliate or Associate of any Related Person, (iii) adoption of
any plan or proposal for the liquidation or dissolution of this corporation
proposed by or on behalf of a Related Person or any Affiliate or Associate of
any Related Person, (iv) sale, lease, exchange or other disposition, including
without limitation a mortgage or other security device, of all or any
Substantial Part of the assets of a Related Person or any Affiliate or Associate
of any Related Person to this corporation or a Subsidiary of this corporation,
(v) issuance or pledge of securities of this corporation or a Subsidiary of this
corporation to or with a Related Person or any Affiliate or Associate of any
Related Person, (vi) reclassification of securities (including any reverse stock
split) or recapitalization of this corporation or any other transaction that
would have the effect, either directly or indirectly, of increasing the
proportionate share of any class of equity or convertible securities of this
corporation or any Subsidiary of this corporation which is directly or
indirectly beneficially owned by any Related Person or any Affiliate or
Associate of any Related Person, and (vii) agreement, contract or other
arrangement providing for any of the transactions described in this definition
of Business Combination.
(b) The term "person" shall mean any individual, firm,
corporation or other entity and shall include any group comprised of any person
and any other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or indirectly,
for the purpose of acquiring, holding, voting or disposing of Voting Stock of
this corporation.
(c) The term "Related Person" shall mean any person (other than
this corporation, or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of this corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity) who or which:
4
<PAGE> 5
(i) is the beneficial owner (as hereinafter defined) of fifteen
percent (15%) or more of the Voting Stock;
(ii) is an Affiliate or Associate of this corporation and at any
time within the two-year period immediately prior to the date in
question was the beneficial owner of fifteen percent (15%) or
more of the Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were at
any time within the two-year period immediately prior to such
time beneficially owned by any Related Person, if such assignment
or succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering within
the meaning of the Securities Act of 1933.
(d) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly,
(ii) which such person or any of its Affiliates or Associates
has, directly or indirectly, (a) the right to acquire (whether
such right is exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any
shares of Voting Stock.
(e) For the purposes of determining whether a person is a Related
Person pursuant to subparagraph (c) of this paragraph 2, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of subparagraph (d) of this paragraph 2 but shall not include any
other shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(f)The terms "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on January
12, 1987.
(g) The term "Subsidiary" means any corporation of which a
majority of any class of equity securities is owned, directly or indirectly, by
this corporation; provided, however, that for the purposes of the definition of
Related Person set forth in subparagraph (c) of this
5
<PAGE> 6
paragraph 2, the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity securities is owned, directly or indirectly, by
this corporation.
(h) The term "Continuing Director" means any member of the Board
of Directors, while such person is a member of the Board of Directors, who is
not an Affiliate, Associate or a representative of the Related Person involved
in a proposed Business Combination and was a member of the Board of Directors
prior to the time that the Related Person became a Related Person, and any
successor of a Continuing Director, while such successor is a member of the
Board of Directors, who is not an Affiliate, Associate or a representative of
the Related Person and is recommended or elected to succeed a Continuing
Director by a majority of Continuing Directors. Each initial director of this
corporation elected by the incorporator of this corporation shall be a
Continuing Director for purposes of this Article NINTH.
(i) The term "Substantial Part" shall mean more than twenty
percent (20%) of the Fair Market Value, as determined by a
majority of the Continuing Directors, of the total consolidated
assets of this corporation and its Subsidiaries taken as a whole
as of the end of its most recent fiscal year ended prior to the
time the determination is being made.
(j) For the purposes of paragraph l(b)(i) of this Article NINTH,
the term "other consideration to be received" shall include, without limitation,
capital stock retained by the shareholders.
(k) The term "Voting Stock" shall mean all of the outstanding
shares of Common Stock and the outstanding shares of Preferred Stock entitled to
vote on each matter on which the holders of record of Common Stock shall be
entitled to vote, and each reference to a proportion of shares of Voting Stock
shall refer to such proportion of the votes entitled to be cast by such shares
voting as one class.
(l) The term "Fair Market Value" means (i) in case of capital
stock, the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the Composite Tape
for the New York Stock Exchange Listed Stocks, or, if such stock is not quoted
on the Composite Tape, on the New York Stock Exchange, or if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Act of 1934 on which such stock is listed, or,
if such stock is not listed on any such stock exchange, the highest closing sale
price with respect to a share of such stock during the 30-day period preceding
the date in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any successor system then in use, or if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined in good faith by a majority of the Continuing
Directors; and (ii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined in good
faith by a majority of the Continuing Directors.
(m) A Related Person shall be deemed to have acquired a share of
the Voting Stock of this corporation at the time when such Related Person became
the beneficial owner thereof. If a majority of the Continuing Directors is not
able to determine the price at which a
6
<PAGE> 7
Related Person has acquired a share of Voting Stock of this corporation, such
price shall be deemed to be the Fair Market Value of the shares in question at
the time when the Related Person became the beneficial owner thereof. With
respect to shares owned by Affiliates, Associates or other persons whose
ownership is attributed to a Related Person under the foregoing definition of
Related Person, the price deemed to be paid therefor by such Related Person
shall be the price paid upon the acquisition thereof by such Affiliate,
Associate or other person, or, if such price is not determinable by a majority
of the Continuing Directors, the Fair Market Value of the shares in question at
the time when the Affiliate, Associate or other such person became the
beneficial owner thereof.
3. The fact that any Business Combination complies with the provisions
of paragraph l(b) of this Article NINTH shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or any
member thereof, to approve such Business Combination or recommend its adoption
or approval to the shareholders of this corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
4. A majority of the Continuing Directors of the corporation shall have
the power and duty to determine for the purposes of this Article NINTH, on the
basis of information known to them after reasonable inquiry, (A) whether a
person is a Related Person, (B) the number of shares of Voting Stock
beneficially owned by any person, and (C) whether a person is an Affiliate or
Associate of another. A majority of the Continuing Directors of the corporation
shall have the further power to interpret all of the terms and provisions of
this Article NINTH.
TENTH: A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
ELEVENTH:
1. Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director, officer, employee or agent, of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such
7
<PAGE> 8
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in paragraph 2 hereof, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the corporation. The right to indemnification conferred in this Article shall be
a contract right.
2. If a claim under paragraph 1 of this Article is not paid in full by
the corporation within 30 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed.
3. The right to indemnification conferred in this Article shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
4. The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
TWELFTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in Articles NINTH, TENTH, ELEVENTH and
TWELFTH may not be amended or repealed in any respect unless such amendment or
repeal is approved by the affirmative vote of not less than sixty-six and
sixty-seven hundredths percent (66.67%) of the total voting power of all
outstanding shares of stock in this corporation entitled to vote thereon.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware Corporation Law, does hereby
make and file this Certificate.
8
<PAGE> 9
/s/ Donald A. Slichter
-----------------------------------------
Donald A. Slichter
9
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 1 TO THE
APPLIED MATERIALS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
APPLIED MATERIALS, INC., having adopted the Applied Materials,
Inc. Executive Deferred Compensation Plan (the "Plan") effective as of July 1,
1993, and having amended and restated the Plan effective as of April 1, 1995,
hereby further amends the Plan as follows:
1. Effective as of August 1, 1997, Section 1.11 is amended in its
entirety to read as follows:
1.11 "Eligible Employee" shall mean an employee of an Employer
who holds office at the level of Managing Director or above.
2. Effective as of January 1, 1998, Section 3.3 is amended to
read in its entirety as follows:
3.3 Deemed Interest on Accounts. Each Participant's Account shall
be credited with deemed interest as of the end of each pay period. The
rate for crediting deemed interest as of the end of any pay period shall
be equal to one twenty-sixth (1/26th) of the "Deferral Interest Rate"
for that Plan Year. The Deferral Interest Rate for a particular Plan
Year shall apply to all amounts then credited to the Participant's
Account, without regard to when the amounts (whether attributable to
Compensation Deferrals or deemed interest) originally were credited to
the Account. The Deferral Interest Rate for a particular Plan Year is
the sum of (a) the yield-to-maturity of five-year U.S. Treasury notes as
of the first business day of the December immediately preceding such
Plan Year, plus (b) 1.50%. The exact amount to be credited as deemed
interest to any Participant's Account shall be determined by the
Committee under such formulae (consistent with this Section 3.3) as the
Committee, in its discretion, shall adopt from time to time.
3. Effective as of August 1, 1997, the last sentence of Section
3.4 is amended to read in its entirety as follows:
A Participant's election as to the form of payment shall apply to all
amounts credited to the Participant's Account for the Plan Year with
respect to which the election is made, and except to the limited extent
provided in Section 3.6, shall be irrevocable.
4. Effective as of August 1, 1997, new Sections 3.5 and 3.6 are
added to read in their entirety as follows:
3.5 TERM OF DEFERRAL. Each Participant shall indicate on his or
her deferral election made pursuant to Section 3.1 the time for payment
for Compensation Deferrals
<PAGE> 2
(and deemed interest thereon) made pursuant to such election. Pursuant
to such procedures as the Committee (in its discretion) may adopt from
time to time, a Participant may elect a term of deferral equal to any
whole number (not less than one) of calendar years specified in his or
her deferral election or the occurrence of a specific event (for
example, the attainment of age 50). The procedures adopted by the
Committee may (in the discretion of the Committee) restrict a
Participant's ability to elect multiple terms of deferral under the
Plan. A Participant's election as to the term of deferral shall apply to
all amounts credited to the Participant's Account for the Plan Year with
respect to which the election is made, and except to the limited extent
provided in Section 3.6, shall be irrevocable.
3.6 CHANGES IN ELECTIONS AS TO TERM AND FORM FOR PAYMENT. A
Participant may change his or her election under Section 3.4 and/or
Section 3.5 for amounts credited to the Participant's Account for any
Plan Year, provided that any such election will be effective only if (a)
such election is made at least two Plan Years prior to the Plan Year in
which payment of such amounts is scheduled to commence (without giving
effect to such election), (b) the newly elected scheduled payment
commencement date is not earlier than the second Plan Year after the
Plan Year in which such election is made, and (c) payment of such
amounts has not actually commenced. For example, if a Participant
initially elected to receive payment of his or her Account in a lump sum
to be paid during the 2003 Plan Year, the Participant instead may elect
to receive payment in the form of ten annual installments commencing
during the 2004 Plan Year, provided that such election is made on or
before December 31, 2001. (i.e., not less than two Plan Years prior to
the Plan Year in which payment of such amounts previously was scheduled
to commence, and with a newly elected scheduled payment commencement
date which is not earlier than the second Plan Year after the Plan Year
in which such election is made).
5. Effective as of August 1, 1997, Section 5.1 is amended to read
in its entirety as follows:
5.1 Normal Time for Distribution.
5.1.1 General Rule. Subject to this Section 5.1 and
Sections 5.2, 5.3, and 5.8, distribution of the balance credited to a
Participant's Account shall commence as soon as administratively
practicable after the end of the term(s) of deferral elected by the
Participant under Section 3.5, in accordance with the following rules.
If, pursuant to Section 3.4, the Participant elected to receive annual
installment payments, his or her first installment shall be equal to the
balance then credited to his or her Account, divided by the number of
installments to be made. Each subsequent annual installment shall be
paid to the Participant as near as administratively practicable to each
anniversary of the first installment payment. The amount of each
subsequent installment shall be equal to the balance then credited to
the Participant's Account, divided by the number of installments
remaining to be made. While a Participant's Account is in installment
payout status, the unpaid balance credited to the Participant's Account
shall continue to be credited with deemed interest under Section 3.3.
5.1.2 Special Rule re Deductibility. Notwithstanding any
contrary provision of Section 5.1.1, any payment scheduled for a
particular Plan Year shall not be made in such Plan Year to the extent
necessary to avoid application of the deductibility limitation of
section 162(m) of the Code. (For this purpose, deductibility shall be
determined by adding such payment to all other compensation paid by the
Company and
2
<PAGE> 3
its Affiliates to the Participant during the Plan Year.) If, pursuant to
the foregoing sentences, any amounts are not paid when originally
scheduled, such amounts shall be paid in the first subsequent taxable
year in which such payments would not be subject to the deductibility
limitation of section 162(m) of the Code. During any such delay in
payment, unpaid amounts shall continue to be credited with deemed
interest under Section 3.3. Notwithstanding the foregoing, distribution
of a Participant's Account shall be made without regard to the
deductibility limitation of section 162(m) of the Code if the time for
distribution is accelerated pursuant to Section 5.2 or Section 5.3.
5.1.3 Latest Permissible Distribution Commencement Date.
Notwithstanding any contrary provision of this Section 5.1.1, if
distribution of any portion of a Participant's Account has not commenced
on the date on which the Participant terminates employment with the
Company and all of its Affiliates, such distribution shall commence
within 90 days of the date of such termination.
6. Effective as of August 1, 1997, Section 7.4 is amended by
deleting the word "and" at the end of subsection (l), replacing the "." at the
end of subsection (m) with "; and", and adding a new subsection (n) in its
entirety to read as follows:
(n) To determine the manner and form for making elections under
the Plan.
IN WITNESS WHEREOF, Applied Materials, Inc., by its duly
authorized officer, has executed this Amendment No. 1 on the date indicated
below.
APPLIED MATERIALS, INC.
Dated: August 27, 1998 By /s/ SEITARO ISHII
--------------------------------------
SEITARO ISHII
Group Vice President,
Global Human Resources
3
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 2 TO THE
APPLIED MATERIALS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
APPLIED MATERIALS, INC., having adopted the Applied Materials,
Inc. Executive Deferred Compensation Plan (the "Plan") effective as of July 1,
1993, and having amended and restated the Plan effective as of April 1, 1995,
hereby further amends the Plan, effective as of December 1, 1997, by amending
Section 2.1.4 in its entirety to read as follows:
2.1.4 Separate Election to Defer Bonuses. Each Eligible Employee
who makes an election under this Section 2.1 shall make a separate
Compensation Deferral election with respect to the bonus portion of his
or her Compensation. An Eligible Employee's Compensation Deferral
election with respect to his or her bonus shall be made no later than
December 31 of the Company's fiscal year during which the Eligible
Employee will perform the services for which a bonus may be paid.
IN WITNESS WHEREOF, Applied Materials, Inc., by its duly
authorized officer, has executed this Amendment No. 2 on the date indicated
below.
APPLIED MATERIALS, INC.
Dated: August 27, 1998 By /s/ SEITARO ISHII
---------------------------------------
SEITARO ISHII
Group Vice President,
Global Human Resources
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JULY 26, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-25-1998
<PERIOD-END> JUL-26-1998
<CASH> 387,057
<SECURITIES> 1,215,710
<RECEIVABLES> 814,883<F1>
<ALLOWANCES> 0
<INVENTORY> 632,513
<CURRENT-ASSETS> 3,583,178
<PP&E> 1,884,702
<DEPRECIATION> 650,551
<TOTAL-ASSETS> 5,039,756
<CURRENT-LIABILITIES> 1,057,345
<BONDS> 611,812
0
0
<COMMON> 3,676
<OTHER-SE> 3,256,527
<TOTAL-LIABILITY-AND-EQUITY> 5,039,756
<SALES> 884,491
<TOTAL-REVENUES> 884,491
<CGS> 490,102
<TOTAL-COSTS> 490,102
<OTHER-EXPENSES> 154,044<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,282
<INCOME-PRETAX> 63,368
<INCOME-TAX> 15,851
<INCOME-CONTINUING> 47,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,517
<EPS-PRIMARY> 0.13<F3>
<EPS-DILUTED> 0.13
<FN>
<F1>ITEM IS SHOWN NET OF ALLOWANCE, CONSISTENT WITH BALANCE SHEET PRESENTATION.
<F2>ITEM CONSISTS OF RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES.
<F3>ITEM CONSISTS OF BASIC EARNINGS PER SHARE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> OCT-26-1997 OCT-27-1996 OCT-29-1995
<PERIOD-END> OCT-26-1997 OCT-27-1996 OCT-29-1995
<CASH> 448,043 403,888 285,845
<SECURITIES> 1,094,912 633,744 483,487
<RECEIVABLES> 1,116,463 826,553 820,747
<ALLOWANCES> 5,578 4,169 3,017
<INVENTORY> 686,451 478,552 427,413
<CURRENT-ASSETS> 3,770,357 2,693,069 2,311,613
<PP&E> 1,565,755 1,265,646 859,663
<DEPRECIATION> 499,702 346,608 228,917
<TOTAL-ASSETS> 5,070,766 3,637,987 2,965,379
<CURRENT-LIABILITIES> 1,402,088 935,227 861,731
<BONDS> 623,090 275,485 279,807
0 0 0
0 0 0
<COMMON> 3,672 3,605<F2> 3,584<F2>
<OTHER-SE> 2,938,499 2,366,820<F2> 1,779,919<F2>
<TOTAL-LIABILITY-AND-EQUITY> 5,070,766 3,637,987 2,965,379
<SALES> 4,074,275 4,144,817 3,061,881
<TOTAL-REVENUES> 4,074,275 4,144,817 3,061,881
<CGS> 2,173,350 2,195,078 1,652,033
<TOTAL-COSTS> 2,173,350 2,195,078 1,652,033
<OTHER-EXPENSES> 567,612<F5> 481,394<F5> 329,676<F5>
<LOSS-PROVISION> 2,433 1,548 2,138
<INTEREST-EXPENSE> 20,705 20,733 21,401
<INCOME-PRETAX> 798,921 922,436 698,543
<INCOME-TAX> 300,447 322,851 244,490
<INCOME-CONTINUING> 498,474 599,585 454,053
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 498,474 599,585 454,053
<EPS-PRIMARY> 1.37<F1> 1.67<F1><F2> 1.32<F1><F2>
<EPS-DILUTED> 1.32 1.63<F2> 1.28<F2>
<FN>
<F1>ITEM CONSISTS OF BASIC EARNINGS PER SHARE.
<F2>ITEM RETROACTIVELY RESTATED TO REFLECT A TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100 PERCENT STOCK DIVIDEND,
EFFECTIVE OCTOBER 13, 1997.
<F5>ITEM CONSISTS OF RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> OCT-26-1997 OCT-26-1997 OCT-26-1997
<PERIOD-END> JUL-27-1997 APR-27-1997 JAN-26-1997
<CASH> 213,064 202,660 369,358
<SECURITIES> 890,659 872,190 697,081
<RECEIVABLES> 942,306<F3> 807,181<F3> 765,569<F3>
<ALLOWANCES> 0 0 0
<INVENTORY> 608,988 507,632 441,681
<CURRENT-ASSETS> 3,045,519 2,751,310 2,620,207
<PP&E> 967,181<F4> 900,041<F4> 912,729<F4>
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 4,249,419 3,891,861 3,778,485
<CURRENT-LIABILITIES> 1,231,363 1,051,072 1,002,978
<BONDS> 228,095 227,808 233,677
0 0 0
0 0 0
<COMMON> 3,646<F2> 3,630<F2> 3,622<F2>
<OTHER-SE> 2,669,953<F2> 2,501,750<F2> 2,428,572<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,249,419 3,891,861 3,778,485
<SALES> 2,793,879 1,736,638 835,776
<TOTAL-REVENUES> 2,793,879 1,736,638 835,776
<CGS> 1,509,310 950,965 464,120
<TOTAL-COSTS> 1,509,310 950,965 464,120
<OTHER-EXPENSES> 392,345<F5> 248,465<F5> 116,492<F5>
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 15,586 10,735 5,800
<INCOME-PRETAX> 521,792 234,667 77,542
<INCOME-TAX> 203,453 102,959 47,965
<INCOME-CONTINUING> 318,339 131,708 29,577
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 318,339 131,708 29,577
<EPS-PRIMARY> 0.88<F1><F2> 0.36<F1><F2> 0.08<F1><F2>
<EPS-DILUTED> 0.85<F2> 0.35<F2> 0.08<F2>
<FN>
<F1>ITEM CONSISTS OF BASIC EARNINGS PER SHARE.
<F2>ITEM RETROACTIVELY RESTATED TO REFLECT A TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100 PERCENT STOCK DIVIDEND,
EFFECTIVE OCTOBER 13, 1997.
<F3>ITEM SHOWN NET OF ALLOWANCE, CONSISTENT WITH THE BALANCE SHEET PRESENTATION.
<F4>ITEM SHOWN NET OF DEPRECIATION, CONSISTENT WITH THE BALANCE SHEET PRESENTATION.
<F5>ITEM CONSISTS OF RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> OCT-27-1996 OCT-27-1996 OCT-27-1996
<PERIOD-END> JUL-28-1996 APR-28-1996 JAN-28-1996
<CASH> 238,848 199,993 266,880
<SECURITIES> 548,736 442,405 545,725
<RECEIVABLES> 973,984<F3> 1,020,737<F3> 932,297<F3>
<ALLOWANCES> 0 0 0
<INVENTORY> 533,331 556,584 479,662
<CURRENT-ASSETS> 2,578,333 2,500,223 2,504,677
<PP&E> 881,318<F4> 808,547<F4> 713,730<F4>
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 3,485,253 3,333,817 3,242,511
<CURRENT-LIABILITIES> 859,414 885,947 969,573
<BONDS> 280,499 282,156 279,576
0 0 0
0 0 0
<COMMON> 3,596<F2> 3,588<F2> 3,588<F2>
<OTHER-SE> 2,289,108<F2> 2,112,515<F2> 1,939,612<F2>
<TOTAL-LIABILITY-AND-EQUITY> 3,485,253 3,333,817 3,242,511
<SALES> 3,283,859 2,168,435 1,040,580
<TOTAL-REVENUES> 3,283,859 2,168,435 1,040,580
<CGS> 1,713,792 1,130,344 543,780
<TOTAL-COSTS> 1,713,792 1,130,344 543,780
<OTHER-EXPENSES> 363,532<F5> 235,270<F5> 110,352<F5>
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 14,897 10,085 5,168
<INCOME-PRETAX> 810,019 549,918 264,040
<INCOME-TAX> 283,506 192,471 92,414
<INCOME-CONTINUING> 526,513 357,447 171,626
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 526,513 357,447 171,626
<EPS-PRIMARY> 1.47<F1><F2> 1.00<F1><F2> 0.48<F1><F2>
<EPS-DILUTED> 1.43<F2> 0.97<F2> 0.47<F2>
<FN>
<F1>ITEM CONSISTS OF BASIC EARNINGS PER SHARE.
<F2>ITEM RETROACTIVELY RESTATED TO REFLECT A TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100 PERCENT STOCK DIVIDEND,
EFFECTIVE OCTOBER 13, 1997.
<F3>ITEM SHOWN NET OF ALLOWANCE, CONSISTENT WITH THE BALANCE SHEET PRESENTATION.
<F4>ITEM SHOWN NET OF DEPRECIATION, CONSISTENT WITH THE BALANCE SHEET PRESENTATION.
<F5>ITEM CONSISTS OF RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES.
</FN>
</TABLE>
