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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 2, 1999 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
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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
May 2, 1999: 375,438,435
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APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------- -------------------------
(In thousands, except per April 26, May 2, April 26, May 2,
share amounts) 1998 1999 1998 1999
- ---------------------------------- ------------ ------------ ------------ ------------
Net sales.......................... $1,176,316 $1,117,626 $2,484,001 $1,860,103
Cost of products sold.............. 622,027 600,385 1,300,271 1,021,759
------------ ------------ ------------ ------------
Gross margin....................... 554,289 517,241 1,183,730 838,344
Operating expenses:
Research, development and
engineering................... 181,937 166,144 364,266 307,351
Marketing and selling........... 84,689 77,200 171,078 147,933
General and administrative...... 76,745 80,885 142,513 142,479
Non-recurring items ............ -- -- 32,227 5,000
------------ ------------ ------------ ------------
Income from operations............. 210,918 193,012 473,646 235,581
Income from litigation settlement.. -- -- 80,000 20,000
Interest expense................... 11,885 11,594 23,749 23,064
Interest income.................... 18,230 23,856 39,509 49,402
------------ ------------ ------------ ------------
Income before taxes................ 217,263 205,274 569,406 281,919
Provision for income taxes......... 76,042 63,635 199,292 87,395
------------ ------------ ------------ ------------
Net income......................... $141,221 $141,639 $370,114 $194,524
============ ============ ============ ============
Earnings per share:
Basic........................... $0.39 $0.38 $1.01 $0.52
Diluted......................... $0.37 $0.36 $0.98 $0.50
Weighted average number of shares:
Basic........................... 365,936 374,300 366,555 372,379
Diluted......................... 379,247 395,724 379,320 392,242
See accompanying notes to consolidated condensed financial statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
Oct. 25, May 2,
(In thousands) 1998 1999
- ---------------------------------------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................... $575,205 $518,564
Short-term investments...................... 1,188,351 1,499,076
Accounts receivable, net.................... 764,472 920,464
Inventories................................. 555,881 577,917
Deferred income taxes....................... 337,906 337,016
Other current assets........................ 97,140 107,845
------------ ------------
Total current assets........................... 3,518,955 3,960,882
Property, plant and equipment, net............. 1,261,520 1,209,177
Other assets................................... 149,217 153,447
------------ ------------
Total assets................................... $4,929,692 $5,323,506
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................... $644 $8,994
Current portion of long-term debt........... 7,367 6,846
Accounts payable and accrued expenses....... 1,041,341 1,024,418
Income taxes payable........................ 68,974 199,672
------------ ------------
Total current liabilities...................... 1,118,326 1,239,930
Long-term debt................................. 616,572 613,336
Deferred income taxes and other liabilities.... 74,173 84,435
------------ ------------
Total liabilities.............................. 1,809,071 1,937,701
------------ ------------
Stockholders' equity:
Common stock................................ 3,679 3,754
Additional paid-in capital.................. 792,145 876,718
Retained earnings........................... 2,328,940 2,523,464
Accumulated other comprehensive income/(loss (4,143) (18,131)
------------ ------------
Total stockholders' equity..................... 3,120,621 3,385,805
------------ ------------
Total liabilities and stockholders' equity..... $4,929,692 $5,323,506
============ ============
* Amounts as of May 2, 1999 are unaudited. Amounts as of October 25, 1998
are from the October 25, 1998 audited financial statements.
See accompanying notes to consolidated condensed financial statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
--------------------------
April 26, May 2,
(In thousands) 1998 1999
- --------------------------------------------------- ------------ ------------
Cash flows from operating activities:
Net income...................................... $370,114 $194,524
Adjustments required to reconcile net income
to cash provided by operations:
Acquired in-process research and
development expense.......................... 32,227 --
Depreciation and amortization................. 136,604 141,542
Deferred income taxes......................... (932) 1,117
Changes in assets and liabilities, net of
amounts acquired:
Accounts receivable........................ (139,716) (153,596)
Inventories................................ (32,451) (26,255)
Other current assets....................... (100,728) (7,063)
Other assets............................... (2,563) (12,879)
Accounts payable and accrued expenses...... (87,000) (16,123)
Income taxes payable....................... (44,311) 128,742
Other liabilities.......................... 10,294 8,635
------------ ------------
Cash provided by operations....................... 141,538 258,644
------------ ------------
Cash flows from investing activities:
Capital expenditures, net of retirements........ (293,605) (93,113)
Cash paid for licensed technology............... (32,227) --
Proceeds from sales of short-term investments... 520,318 423,515
Purchases of short-term investments............. (332,207) (734,240)
------------ ------------
Cash used for investing........................... (137,721) (403,838)
------------ ------------
Cash flows from financing activities:
Short-term debt activity, net................... (23,939) 8,857
Long-term debt activity, net.................... (3,801) (5,506)
Common stock transactions, net.................. (114,974) 86,207
------------ ------------
Cash provided by/(used for) financing............. (142,714) 89,558
------------ ------------
Effect of exchange rate changes on cash........... 218 (1,005)
------------ ------------
Decrease in cash and cash equivalents............. (138,679) (56,641)
Cash and cash equivalents - beginning of period... 448,043 575,205
------------ ------------
Cash and cash equivalents - end of period......... $309,364 $518,564
============ ============
For the six months ended April 26, 1998, cash payments for interest and
income taxes were $22,532 and $237,043, respectively. For the six months ended
May 2, 1999, cash payments for interest were $21,701 and net income tax
refunds were $52,128.
See accompanying notes to consolidated condensed financial statements.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
SIX MONTHS ENDED MAY 2, 1999
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 25, 1998 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 condensed
financial statements should be read in conjunction with the October 25, 1998
audited consolidated financial statements and notes thereto included in the
Company's 1998 Annual Report, which is incorporated by reference in the
Company's Form 10-K for the fiscal year ended October 25, 1998. The
Company's results of operations for the three and six months ended May 2,
1999 are not necessarily indicative of future operating results.
The Company's fiscal year ends on the last Sunday in October of each year.
Fiscal 1998 contained 52 weeks, whereas fiscal 1999 will contain 53 weeks.
For fiscal 1999, the first quarter contains 14 weeks, and all other quarters
contain 13 weeks.
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
Basic earnings per share is determined using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
determined using the weighted average number of common shares and
equivalents (representing the dilutive effect of stock options) outstanding
during the period. The Company's net income has not been adjusted for any
period presented for purposes of computing basic and 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
May 2, 1999, options to purchase approximately 500,000 shares of
common stock at an average exercise price of $65.49 were excluded
from the computation, and for the six months ended May 2, 1999,
options to purchase approximately 834,000 shares of common stock at
an average exercise price of $62.15 were excluded from the
computation.
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):
October 25, May 2,
1998 1999
------------ ------------
Customer service spares............ $239,139 $223,542
Raw materials...................... 98,180 113,774
Work-in-process.................... 126,533 160,155
Finished goods..................... 92,029 80,446
------------ ------------
$555,881 $577,917
============ ============
4) Other Assets
The components of other assets are as follows (in thousands):
October 25, May 2,
1998 1999
------------ ------------
Purchased technology, net.......... $91,218 $83,820
Goodwill, net...................... 11,614 10,642
Other.............................. 46,385 58,985
------------ ------------
$149,217 $153,447
============ ============
Purchased technology and goodwill are presented at cost, net of accumulated
amortization, and are being amortized over their estimated useful lives of
eight years using the straight-line method. 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):
October 25, May 2,
1998 1999
------------ ------------
Accounts payable................... $182,616 $290,445
Compensation and benefits.......... 185,391 195,579
Installation and warranty.......... 179,742 166,058
Restructuring...................... 91,781 26,857
Other.............................. 401,811 345,479
------------ ------------
$1,041,341 $1,024,418
============ ============
6) Accrued Restructuring Costs
Restructuring activity was as follows (in thousands):
Severance
and
Benefits Facilities Total
------------ ------------ ------------
Balance, October 25, 1998.......... $35,286 $56,495 $91,781
Amount utilized.................... (27,792) (22,829) (50,621)
------------ ------------ ------------
Balance, January 31, 1999.......... $7,494 $33,666 $41,160
Amount utilized.................... (1,584) (12,719) (14,303)
------------ ------------ ------------
Balance, May 2, 1999............... $5,910 $20,947 $26,857
============ ============ ============
During the second fiscal quarter of 1999, $11 million of cash was used for
restructuring costs. The majority of the remaining cash outlays of $27
million is expected to occur before the end of fiscal 1999.
7) Non-recurring Items
Acquisition
The Company's results of operations for the first fiscal quarter of 1999
include $5 million of pre-tax operating expenses incurred in connection with
the acquisition of Consilium, Inc., which was completed on December 11,
1998.
Licensed Technology
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. Because the development of this technology had not yet reached
technological feasibility at the time of its acquisition and had no
alternative future use for the Company, the Company recognized $32 million,
including transaction costs, of acquired in-process research and development
expense at the time of its acquisition.
8) Litigation Settlements
During the first fiscal quarter of 1998, the Company settled all outstanding
litigation with ASM International, N.V. (ASMI). As a result of this
settlement, the Company received a convertible note for $80 million, against
which $15 million was collected in November 1997. In the fourth fiscal
quarter of 1998, the Company determined, based on facts and circumstances
known at the time, that collection of the remaining note balance was
doubtful. Based on this determination, the Company recorded a $65 million
pre-tax, non-operating charge during its fourth fiscal quarter of 1998 to
fully reserve the outstanding note balance.
During the first fiscal quarter of 1999, and subsequent to the original
maturity date of the note, the Company received a $20 million payment from
ASMI and recorded the amount as pre-tax, non-operating income. ASMI's
payment was made in accordance with a restructuring of ASMI's obligations
under the November 1997 litigation settlement agreement. Pursuant to the
new agreement, ASMI agreed to pay $20 million upon completion of the
restructuring, $10 million on November 2, 1999 and $35 million no later than
November 2, 2000. The Company will recognize non-operating income related
to the remaining balance of the note receivable upon receipt of cash.
Certain other obligations of ASMI were also modified under the new
agreement; however, these modifications are not expected to be material to
the Company's financial condition or results of operations. Royalties
received from ASMI pursuant to the settlement agreement have not been, and
are not expected to be, material.
9) Stockholders' Equity
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
(SFAS 130), "Reporting Comprehensive Income," in the first fiscal quarter of
1999. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components, but does not impact net income or
total stockholders' equity. The components of comprehensive income, on an
after-tax basis, are as follows (in thousands):
Three Months Ended Six Months Ended
------------------------- -------------------------
April 26, May 2, April 26, May 2,
1998 1999 1998 1999
------------ ------------ ------------ ------------
Net income......................... $141,221 $141,639 $370,114 $194,524
Foreign currency translation
adjustments...................... 1,897 (10,027) (6,752) (13,988)
------------ ------------ ------------ ------------
Comprehensive income............... $143,118 $131,612 $363,362 $180,536
============ ============ ============ ============
Accumulated other comprehensive income/(loss) presented in the accompanying
consolidated condensed balance sheets consists entirely of accumulated
foreign currency translation adjustments.
Stock Repurchase Program
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. Subject to the criteria used by the
Company in executing its systematic share repurchase program, the
Company did not repurchase any shares of its common stock in the
open market during the six months ended May 2, 1999, and
repurchased 4,453,000 shares for a total cash outlay of $143
million during the six months ended April 26, 1998.
10) New Accounting Pronouncements
In May 1999, the Financial Accounting Standards Board (FASB) issued an
Exposure Draft entitled "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." The
Exposure Draft would amend Statement of Financial Accounting Standards No.
133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities," to defer its effective date to all fiscal quarters of all
fiscal years beginning after June 15, 2000. The Company is in the process
of determining the effect of adopting SFAS 133, which will be effective for
the first fiscal quarter of 2001 if the Exposure Draft becomes effective.
11) Subsequent Event
On May 28, 1999, the Company announced that it entered into an
agreement to acquire Obsidian, Inc. (Obsidian), a leading
independent developer of fixed-abrasive chemical mechanical
polishing solutions to the semiconductor industry, in a stock-for-
stock merger. The acquisition is expected to be closed by the end
of June 1999, subject to regulatory approval and certain other
conditions, and will be accounted for as a purchase. The Company
expects to issue approximately 2.5 million shares of its common
stock to complete this transaction. The purchase price in excess
of the fair value of Obsidian's net assets is expected to be
significant and will be allocated between intangible assets and in-
process research and development expense.
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 or implied. Forward-looking statements are those that use words such
as "expects," "anticipates," "believes," "may," "will," "estimates" or similar
expressions. 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 below and in the section entitled
"Trends, Risks and Uncertainties." Other risks and uncertainties are
disclosed in the Company's prior SEC filings, including its Annual Report on
Form 10-K for the fiscal year ended October 25, 1998 and its Quarterly Report
on Form 10-Q for the first fiscal quarter ended January 31, 1999.
Results of Operations
Demand for the Company's products can change significantly from period to
period as a result of: 1) changes in the global economic environment,
2) demand for semiconductors, 3) memory device prices and 4) the advanced
technology requirements of semiconductor manufacturers. For this and other
reasons, the Company's results of operations for the three and six months
ended May 2, 1999 may not necessarily be indicative of future operating
results.
A severe semiconductor equipment industry downturn began during the first half
of the Company's fiscal 1998 as a result of the convergence of several
factors: an economic crisis in Asia; semiconductor industry overcapacity
(particularly DRAM devices); and reduced profitability for semiconductor
manufacturers resulting from a movement among end users to sub-$1,000 personal
computers (PCs). These factors caused semiconductor manufacturers to
significantly reduce and delay investment in manufacturing equipment during
fiscal 1998. During the Company's first fiscal quarter of 1999, the industry
began to recover from this downturn, and the Company was able to achieve a
record level of quarterly new orders for its second fiscal quarter of 1999.
New Orders and Backlog
The Company received record new orders of $1.4 billion for the second fiscal
quarter of 1999, versus $1.0 billion for the first fiscal quarter of 1999
and $684 million for the fourth fiscal quarter of 1998.
New orders by region were as follows (dollars in millions):
Three Months Ended
-----------------------------------
January 31, 1999 May 2, 1999
---------------- ----------------
($) (%) ($) (%)
------- ------- ------- -------
North America*..................... 391 38 417 30
Europe............................. 178 17 199 14
Japan.............................. 206 20 237 17
Korea.............................. 64 6 104 7
Taiwan............................. 142 14 347 25
Asia-Pacific....................... 48 5 85 7
------- ------- ------- -------
Total............................ 1,029 100 1,389 100
======= ======= ======= =======
*Primarily the United States
The increase in new orders from the first fiscal quarter of 1999 reflects an
overall improvement in the health of the global economy and accelerating
demand for semiconductors used in PCs and communications applications. The
most significant regional increase occurred in Taiwan, as 0.25 micron foundry
capacity utilization continues to increase to support accelerating demand for
logic devices. The Company's backlog at May 2, 1999 was $1.4 billion, versus
$1.2 billion at January 31, 1999 and $917 million at October 25, 1998.
Net Sales
The Company's net sales for the second fiscal quarter of 1999 increased 51
percent from the first fiscal quarter of 1999 primarily as a result of an
improvement in the overall semiconductor equipment business and market size
from the depressed levels of the past three fiscal quarters. The Company
benefited from this improvement because of its strong product position in
advanced applications for 0.25 and 0.18 micron device production. Net sales
for the second fiscal quarter of 1999 decreased 5 percent from the second
fiscal quarter of 1998. Net sales for the six months ended May 2, 1999
decreased 25 percent from the corresponding period of fiscal 1998 due to low
business volume in the first fiscal quarter of 1999 as semiconductor
manufacturers continued to limit capital spending because of difficult
industry conditions that began in early-to-mid 1998.
Net sales by region were as follows (dollars in millions):
Three Months Ended Six Months Ended
------------------------------ -----------------------------
April 26, May 2, April 26, May 2,
1998 1999 1998 1999
-------------- -------------- -------------- --------------
($) (%) ($) (%) ($) (%) ($) (%)
------- ------ ------- ------ ------- ------ ------- ------
North America*. 465 40 418 37 936 38 742 40
Europe......... 159 13 132 12 355 14 267 14
Japan.......... 204 17 211 19 426 17 332 18
Korea.......... 30 3 120 11 82 3 150 8
Taiwan......... 273 23 181 16 561 23 277 15
Asia-Pacific... 45 4 56 5 124 5 92 5
------- ------ ------- ------ ------- ------ ------- ------
Total ....... 1,176 100 1,118 100 2,484 100 1,860 100
======= ====== ======= ====== ======= ====== ======= ======
*Primarily the United States
Gross Margin
The Company's gross margin was 46.3 percent for the second fiscal quarter
of 1999, compared to 47.1 percent for the second fiscal
quarter of 1998 and 43.2 percent for the first fiscal quarter
of 1999. The Company's gross margin decreased from 47.7 percent
for the six months ended April 26, 1998 to 45.1 percent for
the six months ended May 2, 1999. The decreases from the three and six months
ended April 26, 1998 were caused primarily by lower business volume, since
fixed manufacturing costs generally cannot be reduced at a rate commensurate
with the change in business volume. The increase in
gross margin from the first fiscal quarter of 1999 is
due to increased business volume and improved operating leverage in
manufacturing and materials management that was achieved as a
result of restructuring actions taken during fiscal 1998.
Operating Expenses (Excluding Non-Recurring Items)
Excluding non-recurring items, operating expenses as a percentage of net sales
were 29 percent for both the three months ended April 26, 1998 and the three
months ended May 2, 1999, and 27 percent for the six months ended April 26,
1998 versus 32 percent for the six months ended May 2, 1999. In terms of
absolute dollars, operating expenses for the three and six month periods ended
May 2, 1999 were lower than those for the comparable periods of fiscal 1998 as
a result of lower business volume, costs savings achieved from the
restructuring actions taken during the second half of fiscal 1998, and the
Company's cost reduction efforts that began during the last half of fiscal
1998 and have continued into fiscal 1999.
Non-Recurring Items
See Note 7 of Notes to Consolidated Condensed Financial Statements.
Litigation Settlements
See Note 8 of Notes to Consolidated Condensed Financial Statements.
Interest Expense
Interest expense was $12 million for each of the three-month periods ended
April 26, 1998 and May 2, 1999. Interest expense decreased slightly from $24
million for the six months ended April 26, 1998 to $23 million for the six
months ended May 2, 1999. The Company's outstanding weighted average
interest-bearing obligations and interest rates did not change significantly
from period to period.
Interest Income
Interest income increased from $18 million for the three months ended April
26, 1998 to $24 million for the three months ended May 2, 1999, and from $40
million for the six months ended April 26, 1998 to $49 million for the six
months ended May 2, 1999. The increases resulted primarily from higher
average cash, cash equivalents and short-term investment balances.
Provision for Income Taxes
The Company's effective income tax rate for the second fiscal quarter of 1999
was 31 percent, versus 35 percent for the second fiscal quarter of 1998. The
reduced rate primarily reflects the reinstatement of the federal research and
development (R&D) tax credit and favorable California income tax legislation
with respect to R&D and manufacturers investment tax credits.
Subsequent Event
On May 28, 1999, the Company announced that it entered into an
agreement to acquire Obsidian, Inc. (Obsidian), a leading independent
developer of fixed-abrasive chemical mechanical polishing solutions
to the semiconductor industry, in a stock-for-stock merger. The
acquisition is expected to be closed by the end of June 1999, subject
to regulatory approval and certain other conditions, and will be
accounted for as a purchase. The Company expects to issue
approximately 2.5 million shares of its common stock to complete this
transaction. The purchase price in excess of the fair value of
Obsidian's net assets is expected to be significant and will be
allocated between intangible assets and in-process research and
development expense.
Financial Condition, Liquidity and Capital Resources
At May 2, 1999, the Company's ratio of current assets to current liabilities
was 3.2:1, compared to 3.1:1 at October 25, 1998. The Company ended the
quarter with cash, cash equivalents and short-term investments of $2.0
billion.
The Company used $57 million of cash during the first six months of fiscal
1999. The primary sources of cash were net income plus non-cash charges for
depreciation and amortization expense of $336 million, an increase in income
taxes payable of $129 million and $90 million of cash from financing
activities, primarily as a result of stock option exercises by, and stock
purchase plan sales to, employees. The primary uses of cash were increases in
accounts receivable and inventories of $154 million and $26 million,
respectively, and net purchases of property, plant and equipment and short-
term investments of $93 million and $311 million, respectively. During the
first six months of 1999, approximately $402 million of trade notes and
accounts receivable were sold at a discount to financial institutions.
As of May 2, 1999, the Company's principal sources of liquidity consisted of
$2.0 billion of cash, cash equivalents and short-term investments and
approximately $600 million of existing 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 global economies and the semiconductor and semiconductor
equipment industries. 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 12 months.
Trends, Risks and Uncertainties
Industry Volatility
The semiconductor equipment industry has historically been cyclical and
subject to sudden 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. There can be no assurance that the Company will be able to achieve
these objectives in a timely manner during these industry cycles.
DRAM Prices
DRAM device prices improved during early fiscal 1999 to levels that enabled
DRAM manufacturers to operate profitably and invest in new equipment, but then
decreased during the second fiscal quarter of 1999. If DRAM prices continue
to decline and reach levels that do not allow manufacturers to operate
profitably, existing backlog for DRAM products may be canceled, and demand for
the Company's products could be materially and adversely affected.
PC Demand
Further shifts in demand from more expensive, high-performance products to
lower-priced products (sub-$1,000 PCs), or lower overall demand for PCs, could
result in reduced profitability for, and lower capital spending by,
semiconductor manufacturers. This could materially and adversely affect
demand for the Company's products.
Highly Competitive Industry and Rapid Technological Change
The Company operates in a highly competitive industry characterized by
increasingly rapid technological changes. The Company's competitive advantage
and future success depend on its ability to develop new products and
technologies, to develop new markets in the semiconductor industry for its
products and services, to introduce new products to the marketplace in a
timely manner, to qualify new products with its customers and to commence and
change production to meet customer demands.
New products and technologies include those for copper interconnect,
processing of 300mm wafers and production of 0.18 micron and below devices.
The introduction of new products and technologies grows increasingly complex
over time. If the Company does not develop and introduce new products and
technologies in a timely manner in response to changing market conditions or
customer requirements, its financial condition and results of operations could
be materially and adversely affected.
The Company seeks to develop new technologies from both internal and external
sources. As part of this effort, the Company may make acquisitions of, or
significant investments in, businesses with complementary products, services
and/or technologies. Acquisitions involve numerous risks, including, but not
limited to: difficulties and increased costs in connection with integration of
the operations, technologies, and products of the acquired companies; possible
write-downs of impaired assets; diversion of management's attention from other
operational matters; and the potential loss of key employees of the acquired
companies. The inability to effectively manage these risks could materially
and adversely affect the Company's business, financial condition and results
of operations.
Asian Economies
Although Asian economies have stabilized to some degree compared to early-
to-mid fiscal 1998, and certain countries such as Taiwan have relatively
healthy economies, the Company remains cautious about general macroeconomic
developments in Asia, and Japan in particular. Japan's economy is important
to the overall financial health of the region and if it remains
stagnant or deteriorates further, the economies of other countries,
particularly those in Asia, could also be negatively affected. Negative
economic developments in Asia could have a material adverse effect on demand
for the Company's products.
Global Business
The Company sells systems and provides services to customers located
throughout the world. Managing global operations and sites located throughout
the world presents challenges associated with, among other things, 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. Periodic economic downturns, trade balance issues, political
instability and fluctuations in interest and currency exchange rates are all
risks that could materially and adversely affect demand for the Company's
products and services.
Dependence Upon Key Suppliers
The Company uses numerous vendors to supply parts, components and
subassemblies (collectively "parts") for the manufacture and support of its
products. Although the Company makes reasonable efforts to ensure that parts
are available from multiple suppliers, this is not always possible;
accordingly, certain key parts may be obtained only from a single supplier or
a limited group of suppliers. These suppliers are, in some cases, thinly
capitalized, independent companies that generate significant portions of their
business from the Company and/or a small group of other companies in the
semiconductor industry. The Company has sought, and will continue to seek, to
minimize the risk of production and service interruptions and/or shortages of
key parts by: 1) selecting and qualifying alternative suppliers for key parts;
2) monitoring the financial stability of key suppliers; and 3) maintaining
appropriate inventories of key parts. There can be no assurance that the
Company's results of operations will not be materially and adversely affected
if, in the future, the Company does not receive sufficient parts to meet its
requirements in a timely and cost-effective manner.
Backlog
The Company's backlog increased from $917 million at October 25,
1998 to $1.4 billion at May 2, 1999. 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. However, customers generally may delay
delivery of products or cancel orders. Due to possible customer
changes in delivery schedules and cancellation of orders, the
Company's backlog at any particular date is not necessarily
indicative of actual sales for any succeeding period. A reduction
of backlog during any particular period could have a material
adverse effect on the Company's business, financial condition and
results of operations.
Year 2000 Readiness
The Company has established a Year 2000 Program Office to address certain Year
2000 issues. This office focuses on four key readiness programs: 1) Internal
Infrastructure Readiness, addressing internal hardware and software, including
both information technology and non-information technology systems; 2)
Supplier Readiness, addressing the preparedness of suppliers providing
material incorporated into the Company's products; 3) Product Readiness,
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 Year 2000
information to employees, suppliers, customers and other third parties. The
information provided below is a "Year 2000 Readiness Disclosure" for purposes
of the Year 2000 Information and Readiness Disclosure Act.
Internal Infrastructure Readiness Program
This program is intended to encompass all major categories of hardware and
applications in use by the Company, including those used for manufacturing,
engineering, sales, finance and human resources. The Company, assisted by a
third party, completed an inventory of applications and information technology
hardware and categorized them as either "mission critical" or "non-mission
critical" based upon certain factors, such as whether a failure of the
application or hardware could cause personal injury or significant disruption
to any portion of the Company's business. Substantially all mission critical
applications have been remediated and tested as appropriate, and determined to
be Year 2000 ready. The Year 2000 compliance evaluation of hardware,
including hubs, routers, telecommunication equipment, workstations and other
items, is complete, and corrective actions for mission critical items are
scheduled to be completed by July 1, 1999. The Company has also completed its
compliance evaluation of desktop computers and is in the process of replacing
non-compliant computers.
In addition to applications and information technology hardware, the Company
has assessed its non-information technology systems, including embedded
systems, facilities and other operations, such as financial, banking, security
and utility systems. Remediation activity has begun and is scheduled for
completion by July 1, 1999. A contingency plan to address the impact of
unknown risks as related to the Company's internal infrastructure is expected
to be created by June 30, 1999 and will continue to be revised and developed
during the remainder of calendar 1999.
Although the Company believes it is feasible to complete its evaluation and
remediation efforts according to its current schedule, there can be no
assurance that all such activities will be completed on time, or that such
efforts will be successful. If these efforts are not successful, the Company
may experience significant unanticipated problems and material costs related
to its internal infrastructure, and the Company's financial condition and
results of operations could therefore be materially and adversely affected.
Supplier Readiness Program
This program focuses on minimizing two areas of risk associated with
suppliers: 1) a supplier's product integrity; and 2) a supplier's ability to
continue providing products and services in accordance with the Company's
standards and requirements. The Company has identified and contacted key
suppliers regarding their relative risks in these two areas. To date, the
Company has received responses from over 95 percent of its key suppliers, most
of which indicate that the suppliers, and the products provided to the
Company, are either Year 2000 compliant or will be made Year 2000 compliant
before the year 2000. The Company has engaged an external consultant to
conduct onsite audits of approximately 230 key suppliers. To date, 175 audits
have been completed with no material issues identified. The remaining audits
are scheduled for completion by July 1, 1999. Based on the results of these
audits and the Company's assessment of each supplier's Year 2000 readiness,
the Company will develop a supplier action list and contingency plan for
suppliers that do not appear to be making sufficient progress towards Year
2000 readiness and compliance.
In addition to these activities, the Company relies on commercial or
governmental suppliers for services related to the Company's infrastructure,
including utilities, transportation, financial, governmental, communications
and other services. These suppliers pose an undetermined risk to the
Company's facilities and operations worldwide. The Company is developing a
readiness plan based upon the geographic location of the Company's facilities
and the infrastructure suppliers used to support those facilities. This plan
will include information on current suppliers, and alternate suppliers, if
available, to better enable continuation of services in these worldwide
locations. In some cases, alternate suppliers of these services, such as
electrical utilities, are unavailable, and failure by a supplier could impact
the Company. The severity of the impact would be greatest if the Company's
manufacturing facilities in the United States were affected. This readiness
plan will incorporate a contingency plan focused on those countries in which
the Company believes the Year 2000 issue may most severely affect suppliers of
infrastructure services.
There can be no assurance as to whether suppliers will sufficiently address
their Year 2000 issues, thus enabling them to continue to provide products and
services to the Company in a timely manner, or whether the Company's
contingency plans will effectively address such issues. As a result, the
Company's ability to fulfill customer orders or meet other requirements could
be affected, and the Company's financial condition and results of operations
could therefore also be materially and adversely affected.
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 completed a Year 2000 readiness evaluation for its current
generation of released products based upon a series of industry-recognized
testing scenarios. In connection with the Company's Year 2000 readiness
evaluation, the Company identified Year 2000 issues in two major categories,
machine control software and product embedded processors, and performed impact
studies for each product based on a representative configuration. In
addition, by focusing on the Company's parts most likely to include embedded
processors with date-related functions, the Company narrowed the number of
parts requiring further evaluation from several thousand to approximately 600.
These 600 parts were evaluated further and tested as required.
The Company's evaluation indicated that no human or equipment safety impacts
or product process control impacts are expected due to the Year 2000 problem,
but that certain screen displays, log files and interface programs may be
affected. The Company has taken corrective action to address these affected
displays, files and programs, and has remediated any affected embedded
processors. In addition, the Company has informed customers of certain
potential product-specific impacts of the Year 2000 on the Company's products.
Testing and engineering activity for the Company's current generation of
products is complete, and unless otherwise requested by a customer, all
products that shipped on or after January 1, 1999 were Year 2000 ready. There
can be no assurance that product testing has identified all Year 2000 related
issues or that the Company will effectively address every failure of its
products resulting from Year 2000 issues. Among other risks, such failures
could result in claims against the Company or customers could choose to
convert to Year 2000 ready products of other suppliers, either of which could
materially and adversely affect the Company's financial condition and results
of operations.
Customer Readiness Program
This program focuses on customer support issues, including the coordination of
retrofit activity for older generation products, testing existing customer
electronic transaction capability and providing other services to the
Company's customers. The Company, in cooperation with its customers, has
completed an inventory and assessment of products in use at substantially all
of its customers' sites. The Company is offering different upgrade packages
for its products, including various parts, software and services in the form
of "Year 2000 ready kits." As of April 30, 1999, upgrades for systems that
shipped after January 1, 1997 are more than 70 percent complete. The Company
believes that substantially all remaining upgrades will be completed by June
30, 1999, contingent upon specific customer requirements and schedules. The
area at highest risk to meet the June 30 date is Japan, as the Company
continues to work with those customers where the upgrade path has not been
finalized. For systems that shipped prior to January 1, 1997, the upgrade
schedule is determined based on customer requirements. The Company plans to
make a contingency team available to customers experiencing difficulty with
the Company's products. There can be no assurance, however, that these
activities will prevent or effectively address the occurrence of Year 2000
related problems in the Company's products in use at customer sites. Any such
problems could result in increased warranty or service costs, claims against
the Company, or delay or loss of revenue, any of which could materially and
adversely affect the Company's financial condition and results of operations.
Consilium
In conjunction with the Company's due diligence examination of Consilium,
which was acquired in December 1998, the Company conducted a limited
evaluation of Consilium's Year 2000 readiness. Since then, the Company has
further evaluated certain areas related to Consilium's internal information
technology, suppliers and products. Most of Consilium's Year 2000 programs
related to internal infrastructure and suppliers are either modeled after, or
fully integrated into, the Company's Internal Infrastructure and Supplier
Readiness Programs. Consilium's internal applications and hardware are in the
process of being upgraded and/or converted to the Company's Year 2000
standards. This process is expected to be complete by September 30, 1999, and
the estimated costs have been included in the Company's overall Year 2000
Program projection. The current generation of Consilium's products are Year
2000 compliant when used in accordance with related documentation and provided
that the underlying operating systems of the host machine and any other
software used in conjunction with Consilium's products are also Year 2000
compliant. Certain prior versions of Consilium's products require an upgrade
to become Year 2000 compliant. These upgrades are available to Consilium
customers as a standard component of Consilium's maintenance program.
Consilium has contacted or attempted to contact all customers that are
believed to have received a non-Year 2000 compliant version of its product,
and has personnel available to assist its customers in their Year 2000
remediation efforts.
Consilium has received information from its suppliers regarding Year 2000
issues, but has not specifically tested software obtained from its suppliers
or software that is incorporated into its products at the specific request of
its customers. Consilium is in the process of evaluating situations in which
it installed such software, testing certain software it believes may be
affected by the Year 2000 issue and communicating with customers regarding
these activities, as applicable.
Despite Consilium's testing, and whatever assurances Consilium may receive
from developers of products incorporated into its products, Consilium's
products may contain undetected errors or defects associated with the Year
2000 issue. Further, prior versions of its products, and certain software
provided by third parties or its customers and incorporated into Consilium's
products, may not be Year 2000 compliant. These situations, and other known
or unknown errors or defects in Consilium's products, could result in
diversion of development resources or increases in service, warranty or other
costs, either of which could materially and adversely affect the Company's
financial condition and results of operations.
Estimated Costs to Address the Year 2000 Issue
The Company estimates that total Year 2000 costs will range from $30 million
to $50 million, the majority of which will be incurred by January 2000. To
date, costs incurred directly for Year 2000 activities have totaled $12
million. This amount includes costs to support customer satisfaction programs
and services and other internal costs, but does not include the cost of
internal hardware and software that was to be replaced in the normal course of
business but has been accelerated because of Year 2000 capability concerns.
The Company is continuing its assessments and developing alternatives that may
require changes to 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.
Known Risks
This discussion broadly addresses the Company's efforts to identify and
address its and applicable third parties' Year 2000 issues with respect to the
Company's four readiness programs. The programs described in this section are
ongoing and, as such, the Company may not yet have identified all potential
Year 2000 complications. The Company cannot determine the potential impact of
these complications and contingencies on the Company's financial condition and
results of operations. If computer systems used by the Company, its
suppliers, or its customers, 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 financial condition and
results of operations could be materially and adversely affected. Significant
litigation regarding the Year 2000 issue is possible, especially as it relates
to software companies such as Consilium. It is uncertain whether, or to what
extent, the Company may be affected by such litigation. Further, the Year
2000 issue may have widespread national and international effects, including
governmental agencies, utilities, telecommunications, informational and
financial networks, and other service providers, that, if not remedied, could
have a materially adverse impact on the Company's financial condition and
results of operations.
Foreign Currency
Significant operations of the Company are conducted in foreign currencies,
primarily Japanese yen. The Company actively manages its exposure to changes
in currency exchange rates, but there can be no assurance that future changes
in currency exchange rates will not have a material and adverse effect on the
Company's financial condition or results of operations.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between each of their existing sovereign
currencies and the Single European Currency (the "euro"). The participating
countries adopted the euro as their common legal currency on that date, with a
transition period through January 1, 2002 regarding certain elements of the
euro change. In early January, the Company implemented changes to its
internal systems to make them euro capable. The cost of systems modifications
to date has not been material, nor are future systems modifications expected
to be material. The Company does not expect the transition to, or use of, the
euro to materially and adversely affect its business, financial condition or
results of operations.
Litigation
The Company is currently involved in litigation regarding patent infringement,
intellectual property rights, antitrust and other matters (see Part II, Item
1), and could become involved in additional litigation in the future. The
Company from time to time receives and makes inquiries regarding 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
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 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 were not material for the three or six
months ended April 26, 1998 or May 2, 1999.
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 cash flows, financial condition or results of
operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
AST and AG
In April 1997, the Company initiated separate lawsuits against STEAG AST
Electronik GmbH and STEAG AST Electronik USA, Inc. (collectively "AST"), and
AG Associates, Inc. (AG) (case no. C-97-20375-RMW) in the United States
District Court for the Northern District of California, alleging infringement
of certain patents concerning rapid thermal processing (RTP) technology. In
October 1997, AST and AG each filed counterclaims against the Company alleging
patent infringement concerning related technology.
In February 1999, the Company announced that it had reached a settlement of
patent litigation with AST. Under the settlement, patent suits and
countersuits concerning RTP technologies were dismissed, certain technology
was cross-licensed, and the Company agreed not to sue AST on its illuminator
patents if AST does not use a particular RTP lamp array. The settlement is
not expected to have a material effect on the Company's financial condition or
results of operations.
Discovery in the Company's case against AG has commenced, and trial has been
set for September 1999. In addition, in August 1998, AG filed two separate
patent infringement lawsuits against the Company, one in the United States
District Court for the Northern District of California (case no. C-98-03044-
WHO) and one in the United States District Court for the District of Delaware
(civil action no. 98-479). On February 2, 1999, the Delaware District Court
issued an order transferring that case to the Northern District of California
(case no. C-98-20883-RMW). No trial dates have been set in these actions.
The Company continues to believe it has meritorious claims and defenses
against AG and intends to pursue them vigorously.
KLA
As a result of the Company's acquisition of Orbot Instruments, Ltd. (Orbot),
the Company is involved in a lawsuit captioned KLA Instruments Corporation
(KLA) v. Orbot (case no. C-93-20886-JW) in the United States District Court
for the Northern District of California. KLA alleges that Orbot infringes a
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 limited discovery, but no trial date has been
set. Management believes it has meritorious defenses and intends to pursue
them vigorously.
Varian and Novellus
On June 13, 1997, the Company filed a lawsuit against Varian Associates, Inc.
(Varian) captioned Applied Materials, Inc. v. Varian Associates, Inc. (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 by the Company 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 commenced in these actions, but no
trial dates have been set. Management believes it has meritorious claims and
defenses and intends to pursue them vigorously.
OKI
In November 1997, OKI Electric Industry Co., Ltd. (OKI) filed suit against one
of the Company's wholly-owned subsidiaries, Applied Materials Japan (AMJ), in
Tokyo District Court in Japan, alleging that AMJ is obligated to indemnify OKI
for a portion of patent license royalties paid by OKI to Texas Instruments,
Inc. Several hearings have been held, but no trial date has been set.
Management believes it has meritorious defenses and intends to pursue them
vigorously.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, that 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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on March 31, 1999 in Santa Clara,
California. Nine incumbent directors were re-elected without opposition to
serve another one-year term in office. The results of this election were as
follows:
Name of Director Votes For Votes Withheld
James C. Morgan 330,503,719 shares 1,145,413 shares
Dan Maydan 330,497,749 shares 1,151,383 shares
Michael H. Armacost 330,538,828 shares 1,110,304 shares
Deborah A. Coleman 330,489,394 shares 1,159,738 shares
Herbert M. Dwight, Jr. 330,298,438 shares 1,350,694 shares
Philip V. Gerdine 330,541,218 shares 1,107,914 shares
Tsuyoshi Kawanishi 328,723,652 shares 2,925,480 shares
Paul R. Low 330,516,927 shares 1,132,205 shares
Alfred J. Stein 330,371,237 shares 1,277,895 shares
On a proposal to an increase of 8,000,000 in the number of shares authorized
for issuance under the Company's Employee Stock Purchase Plan, there were
314,176,211 votes cast in favor, 12,673,900 votes cast against, 1,355,937
abstentions and 3,443,084 broker non-votes. On a proposal to amend the
Company's Bylaws to require stockholder approval to adopt a new stockholder
rights plan or to renew its existing rights plan, there were 127,474,292 votes
cast in favor, 142,302,246 votes cast against, 6,894,274 abstentions and
54,978,320 broker non-votes.
Item 5. Other Information
The ratio of earnings to fixed charges for the six months ended
April 26, 1998 and May 2, 1999, and for each of the last
five fiscal years, was as follows:
Six Months Ended
Fiscal Year ----------------------
------------------------------------------------ Apr. 26, May 2,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ---------- ----------
13.37x 21.25x 20.14x 18.96x 6.92x 16.27x 8.74x
======== ======== ======== ======== ======== ========== ==========
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:
10.1 Second Amendment dated April 28, 1999 to Receivables Purchase
Agreement dated October 22, 1998 between Applied Materials,
Inc. and Deutsche Financial Services Corporation.*
10.2 Amendment dated April 28, 1999 to Receivables Purchase
Agreement dated January 26, 1999 between Applied Materials,
Inc. and Deutsche Financial Services (UK) Limited.*
10.3 $250,000,000 364-Day Credit agreement dated March 12, 1999
among Applied Materials, Inc., Citicorp USA, Inc. as Agent,
and Bank of America NT&SA as Co-Agent.
10.4 Amendment No. 2 to the Applied Materials, Inc. 1995 Equity
Incentive Plan, dated June 9, 1999.
10.5 Applied Materials, Inc. Nonqualified Stock Option Agreement
related to the 1995 Equity Incentive Plan.
27.0 Financial Data Schedule for the six months ended May 2, 1999:
filed electronically.
b) The Company did not file a report on Form 8-K during its second
fiscal quarter of 1999.
* Confidential treatment has been requested with respect to portions of this
exhibit.
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 15, 1999 By: /s/ Joseph R. Bronson
------------------------------
Joseph R. Bronson
Senior Vice President,
Chief Financial Officer,
Chief Administrative Officer,
and Member, Office of
the President
By: /s/ Michael K. O'Farrell
------------------------------
Michael K. O'Farrell
Vice President,
Global Controller and
Principal Accounting Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
10.1 Second Amendment dated April 28, 1999 to Receivables Purchase
Agreement dated October 22, 1998 between Applied Materials, Inc.
and Deutsche Financial Services Corporation.*
10.2 Amendment dated April 28, 1999 to Receivables Purchase Agreement
dated January 26, 1999 between Applied Materials, Inc. and
Deutsche Financial Services (UK) Limited.*
10.3 $250,000,000 364-Day Credit Agreement dated March 12, 1999
among Applied Materials, Inc., Citicorp USA, Inc. as Agent,
and Bank of America NT&SA as Co-Agent.
10.4 Amendment No. 2 to the Applied Materials, Inc. 1995 Equity
Incentive Plan, dated June 9, 1999.
10.5 Applied Materials, Inc. Nonqualified Stock Option Agreement
related to the 1995 Equity Incentive Plan.
27.0 Financial Data Schedule for the six months ended
May 2, 1999: filed electronically.
* Confidential treatment has been requested with respect to portions of
this exhibit.