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 May 1, 1994 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-6920
APPLIED MATERIALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1655526
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3050 Bowers Avenue, Santa Clara, California 95054-3299
Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (408) 727-5555
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
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
May 1, 1994: 83,402,000
PART I. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
May 1, May 2, May 1, May 2,
(In thousands, except per share data) 1994 1993 1994 1993
Net sales $ 411,332 $ 255,692 $ 751,781 $ 471,266
Costs and expenses:
Cost of products sold 221,941 145,176 406,411 269,143
Research, development
and engineering 43,654 33,829 82,892 64,014
Marketing and selling 39,370 25,212 73,403 48,596
General and administrative 20,489 15,110 40,221 28,566
Other, net (541) 1,175 114 2,078
Income from operations 86,419 35,190 148,740 58,869
Interest expense 3,472 3,347 7,120 6,945
Interest income 2,261 1,483 4,268 3,321
Income from consolidated companies
before taxes and cumulative effect
of accounting change 85,208 33,326 145,888 55,245
Provision for income taxes 29,823 10,998 51,061 18,231
Income from consolidated companies
before cumulative effect of
accounting change 55,385 22,328 94,827 37,014
Equity in net loss of joint venture 314 - 2,365 -
Income before cumulative effect of
accounting change 55,071 22,328 92,462 37,014
Cumulative effect of a change in
accounting for income taxes - - 7,000 -
Net income $ 55,071 $ 22,328 $ 99,462 $ 37,014
Earnings per share*
Before cumulative effect of
accounting change $ 0.65 $ 0.27 $ 1.10 $ 0.45
Net income $ 0.65 $ 0.27 $ 1.18 $ 0.45
Average common shares and
equivalents* 84,761 82,034 83,979 81,814
<FN>
* Retroactively restated for a two-for-one stock split in the form
of a 100% stock dividend effective October 5, 1993.
</FN>
See accompanying notes to consolidated condensed financial statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
May 1, Oct. 31,
(In thousands) 1994 1993
ASSETS
Current assets:
Cash and cash equivalents $ 96,606 $ 119,597
Short-term investments 232,517 146,583
Accounts receivable, net 337,291 256,020
Inventories 207,189 154,597
Deferred income taxes 66,674 62,413
Other current assets 47,748 36,706
Total current assets 988,025 775,916
Property, plant and equipment, net 357,495 327,704
Other assets 15,492 16,532
Total assets $ 1,361,012 $ 1,120,152
LIABILITIES
AND
STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable $ 35,671 $ 41,645
Current portion of long-term debt 14,941 7,017
Accounts payable and
accrued expenses 331,625 282,699
Income taxes payable 38,022 49,167
Total current liabilities 420,259 380,528
Long-term debt 110,730 121,076
Deferred income taxes and
other non-current obligations 24,796 19,786
Total liabilities 555,785 521,390
Stockholders' equity:
Common stock 834 804
Additional paid-in capital 362,720 256,429
Retained earnings 424,692 325,230
Cumulative translation adjustments 16,981 16,299
Total stockholders' equity 805,227 598,762
Total liabilities and
stockholders' equity $ 1,361,012 $ 1,120,152
<FN>
Amounts as of May 1, 1994 are unaudited. Amounts as of October 31, 1993 were
obtained from the October 31, 1993 audited financial statements.
</FN>
See accompanying notes to consolidated condensed financial statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
May 1, May 2,
(In thousands) 1994 1993
Cash flows from operating activities:
Net income $ 99,462 $ 37,014
Adjustments required to reconcile
net income to cash flows
provided by operations:
Depreciation and amortization 23,878 18,011
Cumulative effect of a change in
accounting for income taxes (7,000) -
Equity in net loss of joint venture 2,365 -
Changes in assets and liabilities:
Accounts receivable (79,577) (13,779)
Inventories (52,813) (16,978)
Other current assets (11,722) (3,596)
Other assets (1,541) (761)
Accounts payable and accrued expenses 48,450 1,934
Income taxes payable (8,054) (77)
Other long-term liabilities 4,827 1,023
(81,187) (14,223)
Cash provided by operations 18,275 22,791
Cash flows from investing activities:
Capital expenditures (59,592) (33,912)
Disposition of property, plant & equipment 7,365 1,742
Proceeds from short-term investments 69,917 56,076
Purchases of short-term investments (155,851) (109,469)
Cash used for investing (138,161) (85,563)
Cash flows from financing activities:
Short-term borrowing (repayments), net (6,487) 4,677
Long-term debt repayments (2,850) (2,848)
Sales (repurchases) of common stock, net 106,321 (256)
Cash provided by financing 96,984 1,573
Effect of exchange rate changes on cash (89) (215)
Decrease in cash and cash equivalents (22,991) (61,414)
Cash and cash equivalents
at beginning of period 119,597 159,453
Cash and cash equivalents
at end of period $ 96,606 $ 98,039
<FN>
Cash payments for interest expense were $6,759 and $6,720 for the six months ended
May 1, 1994 and May 2, 1993, respectively. Cash payments for income taxes were
$39,092 and $17,116 for the six months ended May 1, 1994 and May 2, 1993,
respectively.
</FN>
See accompanying notes to consolidated condensed financial statements.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
SIX MONTHS ENDED MAY 1, 1994
(In thousands)
1) Basis of Presentation
In the opinion of management, the unaudited consolidated condensed interim
financial statements included herein have been prepared on the same basis as
the October 31, 1993 audited consolidated financial statements and include all
adjustments, consisting of only normal recurring adjustments,necessary to fairly
state the information set forth therein. Certain amounts in the consolidated
statement of cash flows for the six months ended May 2, 1993 have been
reclassified to conform with the current period's presentation.
2) Earnings Per Share
Earnings per share is computed on the basis of the weighted average number of
common shares and common equivalent shares from dilutive stock options.
3) Inventories
Inventories are stated at the lower of cost or market, with cost determined on
the basis of first-in, first-out (FIFO).
The components of inventories are as follows:
May 1, 1994 October 31, 1993
Customer service spares $ 53,345 $ 45,584
Systems raw materials 42,998 32,294
Work-in-process 68,768 57,526
Finished goods 42,078 19,193
$207,189 $154,597
4) Income Taxes
Effective November 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." The Company adopted SFAS 109 prospectively.
The adoption of SFAS 109 changes the Company's method of accounting for income
taxes from the deferred method, pursuant to APB 11, to an asset and liability
approach. Under APB 11, deferred taxes are recognized for income
and expense items that are reported in different years for financial
reporting purposes. Under the asset and liability approach of SFAS 109,
deferred assets and liabilities are recognized for the future consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their existing tax bases.
The cumulative effect of adopting SFAS 109 resulted in a one-time credit of
$7,000, or $0.08 per share, and is reported separately in the
Consolidated Condensed Statement of Operations for the six
month period ended May 1, 1994.
Deferred tax assets (liabilities) at November 1, 1993 relate to the following:
Deferred tax assets:
Financial accruals not currently tax deductible:
Inventory $ 13,454
Warranty and installation 21,022
Other 19,458
State income taxes 8,135
Other 4,344
Total deferred tax assets 66,413
Deferred tax liabilities:
Depreciation and other (7,193)
Net deferred tax assets $ 59,220
APPLIED MATERIALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the second quarter of fiscal 1994 Applied Materials, Inc. reported
record net sales of $411.3 million. New orders of $456.5 million were received
during the quarter, driven by increased demand for the Company's Physical
Vapor Deposition (PVD) systems, Ion Implant systems and customer support and
spares and continued strong demand for Etch and Chemical Vapor Depositions
(CVD) systems. Backlog at May 1, 1994 was $498.8 million.
Results of Operations
The Company's worldwide net sales for the three and six month periods ended May
1, 1994 increased by 61 percent and 60 percent, respectively, from the
corresponding periods in fiscal 1993. This growth can be primarily
attributed to increased unit sales of the Company's single-wafer,
multi-chamber systems and increases in customer support revenues for all
of the regions served by the Company. Compared with the six months ended
May 2, 1993, PVD, metal Chemical Vapor Deposition (MCVD), Etch and Ion Implant
sales were all up significantly. Regionally, 66 percent of the Company's net
sales for the second quarter of fiscal 1994 were to customers located
outside North America compared to 57 percent in the first quarter of 1994 and
67 percent in the comparable 1993 period. Sales to customers located outside
North America represented 62 percent in the first half of 1994
compared to 61 percent in the first half of 1993. Fiscal 1994 year to date
sales to customers located in Asia/Pacific (excluding Japan) increased 82
percent from the prior year and accounted for 18 percent of the Company's
fiscal 1994 year to date sales, an increase from 15 percent in the
comparable fiscal period in 1993. This increase was driven primarily by
revenue from systems shipped in the first half of fiscal 1994 in response to a
$80 million Hyundai Electronics Co., Ltd. order. Sales to customers in Japan
during the three and six month periods ended May 1, 1994 showed significant
increases over the comparable periods in fiscal 1993 as DRAM manufacturers
began expansions of new eight-inch lines. Sales in Japan represented
27 percent of total 1994 year to date sales compared to 25 percent of
fiscal 1993 year to date sales. Fiscal 1994 year to date sales to customers in
Europe increased 36 percent over fiscal 1993 year to date sales due to
increasing demand for capacity to produce advanced telecommunication devices.
The bookings to net sales ratio in the second quarter of fiscal 1994 has
declined from the first quarter of fiscal 1994, which was unusually high
due to the $80 million order from Hyundai. The Company anticipates that
the bookings to net sales ratio will remain positive during the remainder
of fiscal 1994.
Gross margin as a percentage of sales for the three and six month periods ended
May 1, 1994 increased approximately three percentage points from the
corresponding periods in fiscal 1993. The continued improvement
in gross margin percentage primarily reflects economies of scale in
manufacturing and service and support operations as net sales have reached
record levels. Past margin trends are not necessarily indicative of future
margin performance.
Operating expenses for the three and six month periods ended May 1, 1994
decreased 4.5 and 4.2 percentage points as a percentage of sales,
respectively, compared to the corresponding periods in fiscal 1993. This
improvement is driven primarily by the Company's record sales levels.
The Company intends to invest significant funds for facilities expansion,
information systems technology and personnel to support higher volumes of
business and thus there can be no assurance that the Company will be
successful in maintaining or improving future operating expenses as a
percentage of sales.
The Company's effective tax rate for the first quarter and first half of fiscal
1994 was 35 percent, up from 33 percent in fiscal 1993. This increase
is due to recently enacted U.S. tax legislation as well as variations in the
Company's worldwide income mix and foreign taxes. Management anticipates the
35 percent effective tax rate will continue through the end of fiscal 1994.
Net income for the first half of fiscal 1994 of $99.5 million includes the
favorable impact of an accounting change of $7.0 million, or $0.08
per share, from the cumulative effect of the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"(SFAS 109).
The Company adopted SFAS 109 prospectively and the cumulative accounting
change is reported separately in the Consolidated Condensed Statement of
Operations.
The market served by the Company is characterized by rapid technological change,
increasingly precise customer specifications and global service requirements.
The Company's future operating results may be affected inherent uncertainties
characteristic of the worldwide semiconductor equipment include, but are not
limited to, the development of new technologies, the anticipated transition to
a new generation of microprocessors, competitive pricing pressures,
global economic conditions, and the availability of needed components.
Accordingly, recent historical operating results should be only one factor
in evaluating the future financial performance of the Company.
Financial Condition, Liquidity and Capital Resources
The Company's financial condition at May 1, 1994 remained strong. Total current
assets exceeded total current liabilities by 2.4 times, compared to 2.0
at October 31, 1993. During the first two quarters of fiscal 1994, cash,
cash equivalents, and short-term investments increased $62.9 million, due
primarily to the Company's sale of 2.3 million shares of common stock in
the second quarter of fiscal 1994. Cash provided by operations since October
31, 1993 totaled $18.3 million, resulting primarily from net income and
increases in accounts payable and accrued expenses, partially offset by
increased inventory and accounts receivable levels. The increase in accounts
receivable was due to increased net sales over the prior period. Inventory
levels have increased in order to fulfill customer orders scheduled for
delivery in the third quarter of fiscal 1994. Other uses of cash include
investments in facilities and capital equipment of $59.6 million and
borrowing reductions of $9.3 million. Capital expenditures are expected to be
approximately $180 million for fiscal year 1994. This amount has increased
due to greater than anticipated growth requiring additional funds for
facilities expansion, investments in demonstration and test equipment,
information systems and other capital expenditures. The Company must continue
to manage its manufacturing capacity to ensure that customer demands will be
met.
At May 1, 1994, the Company's principal sources of liquidity consisted of
$329.1 million of cash and short-term investments and $130.4 million
in available U.S. and foreign credit facilities. In addition, the Company
filed a shelf registration with the Securities and Exchange
Commission during the second quarter of fiscal 1994 for the
sale of common stock and issuance of debt securities. The sale of 2.3 million
shares of common stock occurred in the second quarter of fiscal 1994
and no assurances can be given that the sale of debt securities will occur.
The Company's liquidity is affected by many factors, some based on the typical
on-going operations of the business and others related to the uncertainties
of the industry and global economies. 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 current borrowing
arrangements, will be sufficient to support operations through fiscal year
1994.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the first of two lawsuits filed by the Company against Advanced
Semiconductor Materials, Inc., Epsilon Technology, Inc. (doing business as ASM
Epitaxy) and Advanced Semiconductor Materials International
N.V. (the defendants, together, hereafter referred to as "ASM"), described
in the Company's Annual Report on Form 10-K for its fiscal year
ended October 31, 1993, Judge William Ingram of the United States District
Court for the Northern District of California in San Jose
issued his decision from the trial which had concluded in August 1993.
Judge Ingram found that, of the five patents which the Company
had asserted against the ASM Epsilon One epitaxial reactor, three patents are
infringed, one is not infringed, and one is invalid. Of the patents
which the court found are infringed, two remain effective until 2002
and 2005, respectively, and one is expired. The Company is seeking an
injunction against further sales of the Epsilon One by ASM. ASM is expected
to appeal the Court's decision and seek a stay of any injunction which
may be issued. The damages to which the Company is entitled
as a result of ASM's infringement, as well as ASM's counterclaims,
will be decided at a later date in separate proceedings. The Company
believes that ASM's counterclaims are not meritorious in view of the Court's
decision that the Company's patents are infringed.
In the second of the two suits filed by the Company against ASM described
in the Company's 10-K for fiscal year 1993, the Company was successful in
obtaining an order of the Court dismissing, striking,
or eliminating from the suit, certain affirmative defenses and
counterclaims asserted by ASM. The dismissed defenses and counter claims
alleged that the Company obtained the patent which it is asserting against ASM
in this suit by "inequitable conduct." The Court ruled as a matter of law
that the Company did not engage in inequitable conduct.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Annual Meeting of Stockholders was held March 3, 1994 in Santa Clara,
California. All nine incumbent directors were re-elected without
opposition to serve another one year term in office. In addition,
Michael Armacost was elected to the Board of Directors. The result
of this election was as follows:
Name of Director Votes For Votes Withheld
James C. Morgan 56,627,066 279,874
James W. Bagley 56,627,282 279,658
Dan Maydan 56,627,262 279,678
Michael Armacost 56,627,282 279,658
Herbert M. Dwight, Jr. 56,627,282 279,658
George B. Farnsworth 56,626,694 280,246
Philip V. Gerdine 56,627,282 279,658
Paul R. Low 56,624,682 282,258
Alfred J. Stein 56,627,182 279,758
Hiroo Toyoda 56,627,282 279,658
On a proposal to amend the Company's Certificate of Incorporation to increase
the number of authorized Common Shares to 200,000,000,
there were 53,917,924 votes cast in favor of this measure and 2,725,660
votes cast against it. There were 263,356 abstentions and no
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K:
10.16 The 1985 Stock Option Plan for Non-Employee Directors, as amended
to December 8, 1993.
10. 17 Amendment No. 2 to the Applied Materials, Inc. Executive Deferred
Compensation Plan, dated May 9, 1994.
b) No reports on Form 8-K were filed by the Company during the quarter
ended May 1, 1994.
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.
June 2, 1994 By:/s/Gerald F. Taylor____
Gerald F. Taylor
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By:/s/Michael K O'Farrell___
Michael K. O'Farrell
Corporate Controller
(Principal Accounting Officer)
INDEX TO EXHIBITS
Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K:
10.16 The 1985 Stock Option Plan for Non-Employee Directors, as
amended to December 8, 1993. 14
10.17 Amendment No. 2 to the Applied Materials, Inc. Executive Deferred
Compensation Plan, dated May 9, 1994. 30