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1
1995
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Mark one
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended OCTOBER 29, 1995
/ / 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
Address of principal executive offices (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 727-5555
SECURITIES REGISTERED PURSUANT TO
SECTION 12(b) OF THE ACT:
Title of class Name of each exchange on which registered
-------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value NASDAQ
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of December 15, 1995: $ 7,533,374,394
Number of shares outstanding of the issuer's Common Stock, $.01 par value, as of
December 15, 1995: 179,366,057
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Applied Materials 1995 Annual Report for the year ended October 29,
1995 are incorporated by reference into Parts I, II and IV of this Form 10-K.
Portions of the definitive Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on March 14, 1996 are incorporated by reference into
Part III of this Form 10-K.
Index to Exhibits appears on pages 17 through 19.
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PART I
ITEM 1: BUSINESS
Organized in 1967, Applied Materials, Inc. ("Applied Materials" or the
"Company") develops, manufactures, markets and services semiconductor wafer
fabrication equipment and related spare parts. The Company's worldwide customers
include both companies which manufacture semiconductor devices for use in their
own products and companies which manufacture semiconductor devices for sale to
others. Applied Materials operates exclusively in the semiconductor wafer
fabrication equipment industry. The Company is also a fifty percent stockholder
in Applied Komatsu Technology, Inc., which produces thin film transistor
manufacturing systems for active-matrix liquid crystal displays.
PRODUCTS
Applied Materials' products are sophisticated systems utilizing
state-of-the-art technology in wafer processing chemistry and physics,
particulate management, process control, software and automation. Many of these
technologies are complementary and can be applied across all of the Company's
products. The Company's products, which provide enabling technology,
productivity and yield enhancements to semiconductor manufacturers, are used to
fabricate semiconductor devices on a substrate of semiconductor material
(primarily silicon). A finished device consists of thin film layers which can
form anywhere from one to millions of tiny electronic components that combine to
perform desired electrical functions. The fabrication process must control film
and feature quality to ensure proper device performance while meeting yield and
throughput goals. The Company currently manufactures equipment that addresses
three major steps in wafer fabrication: deposition, etch and ion implantation.
Recently, the Company introduced a rapid thermal processing (RTP) system, which
provides versatility and broad application to many areas of semiconductor
manufacturing.
Single-wafer, multi-chamber architecture.
Recognizing the trend toward more stringent process requirements and
larger wafer sizes, Applied Materials developed a single-wafer, multi-chamber
system called the Precision 5000. The Company introduced the Precision 5000 with
dielectric chemical vapor deposition (CVD) processes in 1987, etch processes in
1988 and CVD tungsten processes (WCVD) in 1989. The Precision 5000's
single-wafer, multi-chamber architecture features several processing chambers,
each of which is attached to a central handling system, and is designed for both
serial and integrated processing. The Precision 5000's integrated processing
capability makes it possible to perform multiple process steps on a wafer
without it leaving a controlled environment, thus reducing the risk of
particulate contamination. The Company leveraged its expertise in single-wafer,
multi-chamber architecture to develop an evolutionary platform called the Endura
5500 PVD (Physical Vapor Deposition) in 1990 featuring a staged, ultra-high
vacuum (UHV) architecture for the rapid sputtering of aluminum and other metal
films used to form the circuit interconnections on advanced devices. In October
1991, the Company announced its second-generation Precision 5000 system, the
Precision 5000 Mark II, with numerous enhancements to the platform, process
chambers and remote support equipment. The Precision 5000 Mark II is used to
manufacture advanced devices, such as 16 megabit DRAMs (Dynamic Random Access
Memories), on 200mm (8-inch) wafers. In September 1992, the Company announced
its latest generation single-wafer, multi-chamber platform, the Centura, to
target the high temperature thin films market as well as future process
applications with 0.5-micron and below specifications. The Company has shipped
more than 3,000 multi-chamber platforms and 9,000 process chambers. For the
fiscal year ended October 29, 1995, sales of the Company's single-wafer,
multi-chamber systems represented approximately 92% of systems revenue.
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Deposition.
A fundamental step in semiconductor fabrication, deposition is a process
in which a layer of either electrically insulating (dielectric) or electrically
conductive material is deposited on a wafer. Deposition can be divided into
several different categories of which Applied Materials currently participates
in three: chemical vapor deposition (CVD), physical vapor deposition (PVD), and
epitaxial and polysilicon deposition.
CVD. Chemical vapor deposition is a process used in semiconductor
fabrication in which thin films (insulators, conductors and
semiconductors) are deposited from gaseous sources. In 1987, the Company
introduced the Precision 5000 CVD which, with its automated multi-chamber
architecture, provides the flexibility to perform a broad range of
deposition processes utilizing up to four individual chambers on a single
system. The Company introduced its newest generation of sub-atmospheric
process technologies on the Precision 5000 Mark II CVD platform in April
1994, addressing applications to 0.35-microns. In 1995, the Company
announced the MxP+, which provides a significant enhancement to its
Precision 5000 CVD system by improving system throughput and reducing
ownership costs. In addition, the Company announced in April 1995 its
entry into the pre-metal CVD market, using the Company's sub-atmospheric
CVD technology to deposit borophosphosilicate glass films. In July 1995,
the Company introduced the Dielectric CVD product line on the Centura
platform and launched CVD's latest chamber technology called "DxZ" on the
Centura platform. The chamber features a new, simplified design and a
resistive wafer heater.
In September 1989, the Company entered the market for WCVD with the
introduction of a system for blanket tungsten deposition, the Precision
5000 WCVD. The Company has continued to add capabilities to this system,
including integrated tungsten plug fabrication capability which combines
blanket tungsten CVD deposition and etchback capabilities in the same
system. The Company has also added tungsten silicide and titanium nitride
capabilities to further extend the Precision 5000 platform offerings.
Other product developments in WCVD include the introduction of a new
multi-platform chamber for blanket tungsten deposition on wafers up to
200mm (8-inch) in diameter and the introduction of a new CVD process for
tungsten silicide using dichlorosilane as the silicon source gas.
PVD. Physical vapor deposition sputters metals on wafers during
semiconductor fabrication to form the circuit interconnects. Unlike CVD,
the sources of the deposited materials are solid sources called targets.
Applied Materials entered the PVD market in April 1990 with the Endura
5500 PVD system. The system utilizes a modular, single-wafer,
multi-chamber platform which accommodates UHV processes like PVD, and
conventional high vacuum processes like CVD and etch. In July 1993, the
Company introduced the Endura HP (High Productivity) PVD system, an
enhanced version of the Endura PVD system. In November 1993, the Centura
HP PVD was introduced in order to offer customers a choice of platforms
using the Company's PVD technology. In November 1994, the Endura VHP (Very
High Productivity) PVD system was launched, further enhancing the wafer
transfer system to raise throughput.
Epitaxial and polysilicon deposition. Epitaxial (Epi) and
polysilicon deposition involve depositing layers of high-quality,
silicon-based compounds on the surface of a silicon wafer to change its
electrical properties and, in the case of epi, to form the base on which
the integrated circuit is built. In 1989, the Company introduced the
Precision 7700 Epi system for advanced silicon deposition. The 7700 system
extends the capabilities of radiantly-heated "barrel" technology and
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incorporates fully automated wafer handling as well as many features for
particulate control. In September 1992, the Company announced the Centura
Poly, a single-wafer, multi-chamber platform targeted at the high
temperature thin film deposition of polysilicon on wafers up to 200mm (8
inches) in diameter. The Centura Epi system, which features deposition of
epitaxial silicon, was announced in March 1993. In December 1993, the
Company launched the Centura Polycide which combines chambers for
polysilicon and tungsten silicide deposition on the Centura platform.
Etch.
Prior to etch processing, a wafer is patterned with photoresist during
photolithography. Etching then selectively removes material from areas which are
not covered by the photoresist pattern. Applied Materials entered the etch
market in 1981 with the introduction of the AME 8100 Etch system, which utilized
a batch process technology for dry plasma etching. In 1985, the Company
introduced the Precision Etch 8300, which featured improved levels of automation
and particulate control. The Company continues to sell the Precision Etch 8300
product and has shipped nearly 900 systems. Applied Materials' first
single-wafer, multi-chamber system for the dry etch market was the Precision
5000 Etch, introduced in 1988. In 1990, the Company introduced a metal etch
system based on the Precision 5000 architecture which provides single-wafer,
aluminum etch capabilities. In 1993, the Company introduced its next generation
etch platform, the Centura HDP Dielectric Etcher, designed for critical oxide
etch applications requiring sub-0.5-micron design rules and the Precision 5000
Mark II Etch MxP, a new model of the Precision 5000-series etch system with
several enhancements including process capability for 0.35-micron applications.
In July 1994, Applied Materials introduced the Metal Etch MxP Centura, which
combines sub-0.5-micron process technology with improved throughput. The Company
launched a new dielectric etch system in April 1995 combining its latest Centura
platform with an enhanced etch chamber, called MxP+. The Remote Plasma Source
(RPS) Centura, introduced in June 1995, extends the Company's range of
dielectric dry etch process technologies to several isotropic etch steps.
Ion Implantation.
During ion implantation, silicon wafers are bombarded by a high-velocity
beam of electrically charged ions. These ions are embedded within a wafer at
selected sites and change the electrical properties of the implanted area.
Applied Materials entered the high-current portion of the implant market in 1985
with the Precision Implant 9000 and introduced the Precision Implant 9200 in
1988. In 1989, the Company added enhancements to the 9200 series including a new
option for automated selection of implant angles, and new hardware/software
options that enable customers to perform remote monitoring and diagnostics. In
1991, the Company announced an enhanced version of its high-current ion
implanter and designated it the Precision Implant 9200XJ. In November 1992, the
Company introduced a new high-current ion implantation system, the Precision
Implant 9500, to address the production of high-density semiconductor devices,
such as 16 megabit and 64 megabit memory devices and advanced microprocessors.
In November 1994, the 9500xR model was introduced, further extending the range
of the 9500 system into the traditional medium-current area with enhanced
low-dose, low-energy implant performance. In October 1995, Applied Materials
introduced its latest implant system, the Precision Implant xR80. This system
features low-energy and small square footage requirements while maintaining high
throughput.
RTP.
In June 1995, Applied Materials introduced a new system, the Rapid Thermal
Processing (RTP) Centura, into the emerging RTP market. RTP uses very rapid
heating cycles to perform high-temperature processes traditionally done by
slower-heating batch furnace technologies. The new system is designed to solve
the limiting technical issues - temperature measurement and control, uniformity
and process repeatability - that have historically kept RTP from becoming a
production technology. The RTP Centura's
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metal implant annealing processes offer chipmakers improved device performance,
with demonstrated potential for significant yield improvements and faster
factory cycle time.
CUSTOMER SERVICE AND SUPPORT
The demand for improved production yields of integrated circuits requires
that semiconductor wafer processing equipment operate reliably, with maximum
uptime and within very precise tolerances. Applied Materials installs its
equipment and provides warranty service worldwide through offices located in the
North America, Japan, Europe (including Israel), Korea and the Asia-Pacific
(Taiwan, China and Singapore) regions. Applied Materials maintains 62
sales/service offices worldwide, with 21 offices in North America, 21 offices in
Japan, 10 offices in Europe, 6 offices in Korea, and 4 offices in the
Asia-Pacific region. The Company offers a variety of service contracts to
customers for maintenance of installed equipment and provides a comprehensive
training program for all customers.
BACKLOG
At October 29, 1995, the Company's backlog totaled $1.5 billion, compared
to $715.2 million at October 30, 1994. The Company expects to fill the present
backlog of orders during fiscal 1996.
MANUFACTURING, RAW MATERIALS AND SUPPLIES
The Company's manufacturing activities consist primarily of assembling
various commercial and proprietary components into finished systems, principally
in the United States, with additional operations in England and Japan.
Production requires some raw materials and a wide variety of mechanical and
electrical components, which are manufactured to the Company's specifications.
Multiple commercial sources are available for most components. The Company has
consolidated the number of sources for several key purchased items for purposes
of improving its position with suppliers, resulting in improved on-time
delivery, lower inventory levels and better pricing to the Company. There have
been no significant delays in receiving components from sole source suppliers;
however, the unavailability of any of these components could disrupt scheduled
deliveries to customers.
MARKETING AND SALES
Because of the highly technical nature of its products, the Company
markets its products worldwide through a direct sales force, with sales, service
and spare parts offices in the North America, Japan, Europe, Korea and
Asia-Pacific regions. For the fiscal year ended October 29, 1995, sales to
customers in North America, Japan, Korea, Europe, and Asia-Pacific were
approximately 32%, 26%, 17%, 15%, and 10%, respectively, of the Company's net
sales. For the fiscal year ended October 30, 1994, sales to customers in North
America, Japan, Korea, Europe, and Asia-Pacific were approximately 37%, 27%,
12%, 18%, and 6%, respectively, of the Company's net sales. The Company's
business is not seasonal in nature, but it is subject to the capital equipment
expenditure patterns of major semiconductor manufacturers which are based on
many factors including anticipated market demand for integrated circuits, the
development of new technologies and global economic conditions.
RESEARCH AND DEVELOPMENT
The market served by the Company is characterized by rapid technological
change. The Company's research and development efforts are global in nature.
Engineering organizations are located in the United States, England, Israel and
Japan, with process support and customer demonstration laboratories in the
United States, England and Japan. In 1991, the Company announced the opening of
an expanded technology center in Narita, Japan. The Company is currently
building, and intends to operate in fiscal 1996, technology centers in South
Korea and Taiwan. The Company also operates a technology center in Israel to
develop controller configuration and software tools for its semiconductor
processing systems.
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Applied Materials' research and development activities are primarily directed
toward the development of new wafer processing systems and new process
applications for existing products. The Company is currently investing in the
development of new products in conjunction with the semiconductor industry's
move to the next-generation 300 mm wafer size. Applied Materials works closely
with its global customers to design systems that meet its customers' planned
technical and production requirements.
COMPETITION
The global semiconductor equipment industry is highly competitive and is
characterized by rapid technological advancements and demanding worldwide
service requirements. Each of the Company's products competes in markets defined
by the particular wafer fabrication process it performs. There are several
companies that compete with Applied Materials in each of these markets.
Competition is based on many factors, primarily technological advancements,
productivity and cost-effectiveness, customer support, contamination control,
and overall product quality. Management believes that the Company's competitive
advantage in each of its served markets is based on the ability of its products
and services to address customer requirements as they relate to these
competitive factors.
Applied Materials is a principal supplier in each of its served markets.
The Company faces strong competition throughout the world from other
semiconductor equipment manufacturers as well as semiconductor manufacturers who
design and produce fabrication equipment for their own internal uses and, in
some cases, for resale. Management believes that the Company is a strong
competitor with respect to its products, services and resources. However, new
products, pricing pressures, and other competitive actions from both new and
existing competitors could adversely affect the Company's market position.
JOINT VENTURE
In September 1991, the Company announced its plans to develop thin film
transistor (TFT) manufacturing systems for Active-Matrix Liquid Crystal Displays
(AMLCDs). The AMLCD market currently includes screens for laptop, notebook and
palmtop computers and instrument displays, and the Company believes that this
market in the future may include flat panel monitors for desktop computers,
high-resolution workstations and television. In September 1993, a joint venture
company was formed with Applied Materials, Inc. and Komatsu Ltd. of Japan
sharing a 50-50 ownership of the joint venture. The joint venture, Applied
Komatsu Technology, Inc. (AKT), is accounted for using the equity method. The
Company's management believes that systems developed by AKT have the potential
to lower the manufacturing costs of AMLCDs as well as provide new process
technologies to enhance flat panel capabilities. The Company has granted to AKT
an exclusive license to use the Company's intellectual property to develop,
manufacture, and sell products for the manufacture of flat panel displays, in
exchange for royalties in respect thereof. AKT has been, and will continue
through 1996, accelerating its investment in product technologies for CVD, PVD
and Etch in addition to expanding the substrate size capacity of its products.
PATENTS AND LICENSES
Management believes that the Company's competitive position is primarily
dependent upon skills in engineering, production, and marketing rather than its
patent position. However, protection of the Company's technology assets by
obtaining and enforcing patents is increasingly important. Consequently, the
Company has an active program to file applications in the United States and
other countries on inventions which the Company considers significant. The
Company has a number of patents in the United States and other countries and
additional applications are pending for new developments in its equipment and
processes. In addition to patents, the Company also possesses other proprietary
intellectual property, including trademarks, know-how, trade secrets and
copyrights.
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The Company enters into patent and technology licensing agreements with
others when management determines that it is in the Company's best interest to
do so. The Company pays royalties under existing patent license agreements for
the use, in several of its products, of certain patents which are licensed to
the Company for the life of the patents.
The Company has made its technology, including patents, available to AKT
through a license arrangement which permits AKT to use the Company's technology
to develop, manufacture and sell equipment for the flat panel display industry.
In the normal course of business, the Company from time to time receives
and makes inquiries with regard to possible patent infringement. In dealing with
such inquiries, it may become necessary or useful for the Company to obtain and
grant licenses or other rights. However, there can be no assurance that such
license rights will be available to the Company on commercially reasonable
terms. While there can be no assurance about the outcome of such inquiries, the
Company believes that it is unlikely that their resolution will have a material
adverse effect on its financial position or results of operations.
ENVIRONMENTAL MATTERS
Although one of the Company's locations has been designated as a Superfund
site by the U.S. Environmental Protection Agency, neither compliance with
Federal, State and local provisions regulating discharge of materials into the
environment, nor remedial agreements or other actions relating to the
environment, has had or is expected to have a material effect on the Company's
capital expenditures, results of operations or competitive position.
EMPLOYEES
At October 29, 1995, the Company employed 10,537 regular full-time
employees. In the high technology industry, competition for highly skilled
employees is intense. The Company believes that a great part of its future
success depends on its continued ability to attract and retain qualified
employees. None of the Company's employees are represented by a trade union.
Management considers its relations with its employees to be good.
The following portions of the Company's 1995 Annual Report are
incorporated herein by reference: "Management's Discussion and Analysis of
Financial Condition and Results of Operations," pages 27 through 30, and the
Consolidated Financial Statements and accompanying notes thereto, pages 31
through 46.
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ITEM 2: PROPERTIES
Certain information concerning the Company's principal properties at October 29,
1995 is set forth below:
Square
Location Type Principal use Footage Ownership
-------- ---- ------------- ------- ---------
Santa Clara, CA Office, plant Headquarters, Marketing, 497,500 owned
& warehouse Manufacturing, Research 1,351,600 leased
and Engineering
Austin, TX Office, plant Manufacturing 352,000 owned
& warehouse 184,600 leased
Horsham, England Office, plant Manufacturing, Research
& warehouse and Engineering 74,000 leased
Narita, Japan Office, plant Manufacturing, Research
& warehouse and Engineering 218,500 owned*
Tel Aviv, Israel Office Research and Engineering 15,000 leased
The Company also leases office space for 62 sales and service offices
throughout the world: 21 offices are located in the United States, 21 offices
are in Japan, 10 offices are in Europe, 6 offices in Korea, and 4 offices are
located in the Asia-Pacific region.
The Company is currently constructing manufacturing and other operating
facilities in California, Texas, Korea and Taiwan. Upon completion of these
facilities, an additional 833,000 square feet of production and operating
capacity will be available.
The Company also owns 108 acres in Austin, Texas, and 30 acres in Santa
Clara, California, of buildable land. The Austin and Santa Clara land can
accommodate approximately 2,400,000 and 800,000 square feet, respectively, of
additional building space to help satisfy the Company's current and future
needs.
Management considers the above facilities suitable and adequate to meet
the Company's requirements.
* Subject to loans totaling $60 million secured by property and equipment having
an approximate net book value of $81 million at October 29, 1995.
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ITEM 3: LEGAL PROCEEDINGS
In the first of two lawsuits filed by the Company, captioned Applied
Materials Inc. v. Advanced Semiconductor Materials America, Inc., Epsilon
Technology, Inc. (doing business as ASM Epitaxy) and Advanced Semiconductor
Materials International N.V. (collectively "ASM") (case no. C-91-20061-RMW),
Judge William Ingram of the United States District Court for the Northern
District of California on April 26,1994, ruled that ASM's Epsilon I epitaxial
reactor infringes certain of the Company's United States patents and issued an
injunction against ASM's use and sale of the ASM Epsilon I in the United States.
ASM has appealed the decision and the injunction has been stayed pending the
appeal only as to ASM products offered for sale as of April 1994. The stay
order requires that ASM pay a fee, as security for the Company's interest, for
each Epsilon I system sold by ASM in the United States after the date of the
injunction. Judge Ronald M. Whyte of the same Court ruled that proceedings to
resolve the issues of damages, willful infringement and ASM's counterclaims,
which had been bifurcated for separate trial, will also be stayed pending the
appeal of Judge Ingram's decision. Oral arguments regarding this appeal were
completed on June 5, 1995, before the Court of Appeals for the Federal Circuit.
The trial of the Company's second patent infringement lawsuit against ASM,
captioned Applied Materials Inc. v. ASM (case no. C-92-20643-RMW), was concluded
before Judge Whyte in May 1995. On November 1, 1995, the Court issued its
judgment holding that the Company's patents were valid and infringed by ASM's
reduced pressure epitaxial reactors and stated that a permanent injunction will
be entered. A hearing is scheduled for February, 1996 to determine the scope of
the injunction and whether the injunction will be stayed pending ASM's appeal.
A separate lawsuit filed by ASM against the Company involving one patent
relating to the Company's single wafer epitaxial product line, captioned ASM
America Inc. v. Applied Materials Inc. (case no. C-93-20853-RMW), has been
delayed by the Court sua sponte. The case is proceeding through final discovery
and pretrial preparation, and is the subject of three motions by the Company for
summary judgment set for hearing in February 1996. A separate action severed
from ASM's case, captioned ASM America Inc. v. Applied Materials Inc. (case no.
C-95-20169-RWM), involves one patent which relates to the Company's Precision
5000 product line. No trial date has been set. Discovery and pretrial
investigation is proceeding. In these cases, ASM seeks injunctive relief,
damages and such other relief as the Court may find appropriate.
Further, the Company has filed a Declaratory Judgment action against ASM,
captioned Applied Materials, Inc. v. ASM (case no. C-95-20003-RMW), requesting
that an ASM patent be held invalid and not infringed by the Company's single
wafer epitaxial product line. Discovery and pretrial investigation is
proceeding. No trial date has been set. On July 7, 1995, ASM filed a lawsuit,
captioned ASM America Inc. v. Applied Materials Inc. (case no. C95-20586-RMW),
concerning susceptors in chemical vapor deposition chambers. Investigation has
just commenced. No discovery has occurred as yet, and no trial date has been
set.
In September 1994, General Signal Corporation filed a lawsuit against the
Company (case no. 94-461-JJF) in the United States District Court, District of
Delaware. General Signal alleges that the Company infringes five of General
Signal's United States patents by making, using, selling or offering for sale
multi-chamber wafer fabrication equipment, including for example, the Precision
5000 series machines. General Signal seeks an injunction, multiple damages and
costs, including reasonable attorneys' fees and interest, and such other relief
as the court may deem appropriate. This lawsuit is currently in discovery and no
trial date has been set.
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In January 1995, the Company filed a lawsuit against Novellus Systems,
Inc. in the United States District Court, Northern District of California (case
no. C-95-0243-MMC). This lawsuit alleges that Novellus' Concept One, Concept
Two, and Maxxus FTEOS systems infringe the Company's U.S. patent relating to the
TEOS-based, plasma enhanced CVD process for silicon oxide deposition. The
lawsuit seeks an injunction, multiple damages and costs, including reasonable
attorneys' fees and interest, and such other relief as the court may deem just
and proper. Damages and counterclaims have been bifurcated for separate trial. A
jury trial has been scheduled for August 1996, before the Honorable Maxine M.
Chesney. On September 15, 1995, the Company filed another lawsuit against
Novellus alleging Novellus' newly announced blanket tungsten interconnect
process infringes the Company's U.S. patent relating to a tungsten CVD process.
The Company also sought a declaration that a Novellus U.S. patent for a gas
purge mechanism is not infringed by the Company and/or is invalid. Novellus
answered by denying the allegations and counterclaimed by alleging that the
Company's plasma enhanced TEOS CVD systems infringe a Novellus U.S. patent
concerning a gas debubbler mechanism. Novellus also filed a new lawsuit as a
plaintiff before the same court which contains the same claims and patents as
those stated in the Company's September 15 lawsuit. Discovery and investigation
is beginning. No trial date has been set.
In the normal course of business, the Company from time to time receives
and makes inquiries with regard to possible patent infringement. Management
believes that it is unlikely that the outcome of these lawsuits or of the patent
infringement inquiries will have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS IN FOURTH QUARTER
OF FISCAL 1995
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and notes thereto identify and set forth information
about the Company's seven executive officers:
Name of Individual Capacities in which Served
- ------------------ --------------------------
James C. Morgan (1) Chairman of the Board of Directors and Chief Executive
Officer
James W. Bagley (2) Vice Chairman of the Board of Directors
Dan Maydan (3) President of the Company and Co-Chairman of Applied Komatsu
Technology, Inc.
Gerald F. Taylor (4) Senior Vice President and Chief Financial Officer
Sasson Somekh (5) Senior Vice President
David N.K. Wang (6) Senior Vice President
Keisuke Yawata (7) Senior Vice President of the Company and President and
Chief Executive Officer of Applied Materials Japan, Inc.
(1) Mr. Morgan, age 57, has been Chief Executive Officer since 1977 and Chairman
of the Board of Directors since 1987. Mr. Morgan also served as President of
the Company from 1976 to 1987.
(2) Mr. Bagley, age 56, was appointed Vice Chairman of the Board of Directors in
December 1993. Mr. Bagley was Chief Operating Officer of the Company from
1987 through October 1995, and served as President of the Company from
December 1987 to December 1993. Prior to that, Mr. Bagley served as Senior
Vice President of the Company since 1981. Mr. Bagley is a director of
Kulicke and Soffa Industries, Inc. and Tencor Instruments.
(3) Dr. Maydan, age 60, was appointed President of the Company in December 1993.
Dr. Maydan served as Executive Vice President from 1990 to December 1993.
Prior to that, Dr. Maydan had been Group Vice President since February 1989.
Dr. Maydan joined Applied Materials in 1980 as a Director of Technology. Dr.
Maydan is a director of Opal, Inc.
(4) Mr. Taylor, age 55, has been Chief Financial Officer of the Company since
1984. Mr. Taylor has also been a Senior Vice President of the Company since
1991 and was previously Vice President of Finance from 1984 to 1991.
(5) Dr. Somekh, age 49, was appointed Senior Vice President of the Company in
December 1993. Dr. Somekh served as Group Vice President from 1990 to 1993.
Prior to that, Dr. Somekh had been a divisional Vice President. Dr. Somekh
joined Applied Materials in 1980 as a Project Manager.
(6) Dr. Wang, age 49, was appointed Senior Vice President of the Company in
December 1993. Dr. Wang served as Group Vice President from 1990 to 1993.
Prior to that, Dr. Wang had been a divisional Vice President. Dr. Wang
joined Applied Materials in 1980 as a Manager, Process Engineering and
Applications.
(7) Mr. Yawata, age 61, was appointed President and Chief Executive Officer of
Applied Materials Japan, effective January 1, 1995. From 1985 through 1994,
Mr. Yawata was a Vice President, and from 1993 through 1994, he was
Executive Advisor to the Chairman, of LSI Logic Corp. From 1985 through
1992, Mr. Yawata was President, and from 1992 through 1993, he was Chairman,
of LSI Logic K.K.
11
12
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
"Stock Price History" on page 48 of the Applied Materials' 1995 Annual Report
is incorporated herein by reference.
The Company's common stock is traded on the NASDAQ over-the-counter market.
As of December 15, 1995 there were approximately 2,068 holders of record of the
common stock.
To date, the Company has paid no cash dividends to its stockholders. The
Company has no plans to pay cash dividends in the near future.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
"Selected Consolidated Financial Data" on page 26 of the Applied Materials
1995 Annual Report is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" on pages 27 through 30 of the Applied
Materials 1995 Annual Report is incorporated herein by reference.
12
13
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
Price Waterhouse LLP, Independent Accountants, dated November 22, 1995 appearing
on pages 31 through 48 of Applied Materials 1995 Annual Report are incorporated
by reference in this Form 10-K Annual Report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
14
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the Commission
in connection with the 1995 Annual Meeting of Stockholders ("the Proxy
Statement").
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information concerning directors of the Company appears in the Company's
Proxy Statement, under Item 1 - "Election of Directors." This portion of
the Proxy Statement is incorporated herein by reference.
(b) For information with respect to Executive Officers, see Part I of this
Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
Information concerning executive compensation appears in the Company's
Proxy Statement, under the caption "Executive Compensation," and is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the security ownership of certain beneficial
owners and management appears in the Company's Proxy Statement, under Item 1 -
"Election of Directors," and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
appears in the Company's Proxy Statement, under Item 1 - "Election of
Directors," and is incorporated herein by reference.
14
15
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index to
financial statements and financial statement schedules are
filed or incorporated by reference as part of this annual
report on Form 10-K.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying
index to financial statements and financial statement
schedules is filed as part of this annual report on Form 10-K.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are
filed or incorporated by reference as part of this annual
report on Form 10-K.
(b) Report on Form 8-K was filed on August 24, 1995. The Report
contains the Company's press release, dated August 15, 1995,
with respect to its financial results for the period ended
July 30, 1995.
15
16
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14 (a))
Annual Report
(1) Financial Statements Page Number
-----------
Consolidated Statements of Operations for the
Fiscal Years ended October 29, 1995,
October 30, 1994 and October 31, 1993 31
Consolidated Balance Sheets at October 29, 1995
and October 30, 1994 32
Consolidated Statements of Cash Flows for the
Fiscal Years ended October 29, 1995,
October 30, 1994 and October 31, 1993 33
Notes to Consolidated Financial Statements 34 - 46
Report of Independent Accountants 48
Form 10-K
(2) Financial Statement Schedule Page Number
-----------
Report of Independent Accountants on Financial
Statement Schedule 21
Schedule II - Valuation and Qualifying Accounts 22
Schedules not listed above have been omitted because they are not required or
the information required to be set forth therein is included in the Consolidated
Financial Statements or Notes to Consolidated Financial Statements.
The consolidated financial statements listed in the above index which are
included in the Company's Annual Report to Stockholders are hereby incorporated
by reference. With the exception of the pages listed in the above index and the
portion of such report referred to in items 1, 5, 6, 7 and 8 of this Form 10-K,
the 1995 Annual Report to Stockholders is not to be deemed filed as part of this
report.
16
17
INDEX TO EXHIBITS
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K:
Page
----
3.1 Certificate of Incorporation of Applied Materials, Inc., a
Delaware corporation, as amended to March 14, 1989, March 24,
1993, and March 22, 1994, previously filed with the Company's
Form 10-K for fiscal year 1994, and incorporated herein by
reference.
3.2 Bylaws of Applied Materials, Inc., as amended to December 7,
1994, previously filed with the Company's Form 10-K for
fiscal year 1994, and incorporated herein by reference.
4.1 Rights Agreement, dated as of June 14, 1989, between Applied
Materials, Inc. and Bank of America NT&SA, as Rights Agent,
including Form of Right Certificate and the Form of Summary
of Rights to Purchase Common Stock, previously filed with the
Company's report on Form 8-K dated June 14, 1989, and
incorporated herein by reference.
4.2 Form of Indenture (including form of debt security) dated as
of August 24, 1994 between Applied Materials, Inc. and Harris
Trust Company of California, as Trustee, previously filed
with the Company's Form 8-K on August 17, 1994, and
incorporated herein by reference.
10.1 The 1976 Management Stock Option Plan, as amended to October
5, 1993, previously filed with the Company's Form 10-K for
fiscal year 1993, and incorporated herein by reference.
10.2 Applied Materials, Inc., Supplemental Income Plan, as
amended, including Participation Agreements with James C.
Morgan, Walter Benzing, and Robert Graham, previously filed
with the Company's Form 10-K for fiscal year 1981, and
incorporated herein by reference.
10.3 Amendment to Supplemental Income Plan, dated July 20, 1984,
previously filed with the Company's Form 10-K for fiscal year
1984, and incorporated herein by reference.
10.4 The Applied Materials Employee Financial Assistance Plan,
previously filed with the Company's definitive Proxy
Statement in connection with the Annual Meeting of
Shareholders held on March 5, 1981, and incorporated herein
by reference.
10.5 The 1985 Stock Option Plan for Non-Employee Directors,
previously filed with the Company's Form 10-K for fiscal year
1985, and incorporated herein by reference.
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18
Page
----
10.6 Amendment 1 to the 1985 Stock Option Plan for Non-Employee
Directors dated June 14, 1989, previously filed with the
Company's Form 10-K for fiscal year 1989, and incorporated
herein by reference.
10.7 Applied Materials, Inc. Supplemental Income Plan as amended
to December 15, 1988, including participation agreement with
James C. Morgan, previously filed with the Company's Form
10-K for fiscal year 1988, and incorporated herein by
reference.
10.8 License agreement dated January 1, 1992 between the Company
and Varian Associates, Inc., previously filed with the
Company's Form 10-K for fiscal year 1992, and incorporated
herein by reference.
10.9 Amendment dated December 9, 1992 to Applied Materials, Inc.
Supplemental Income Plan dated June 4, 1981 (as amended to
December 15, 1988), previously filed with the Company's Form
10-K for fiscal year 1993, and incorporated herein by
reference.
10.10 The Applied Materials, Inc. Executive Deferred Compensation
Plan dated July 1, 1993 and as amended on September 2, 1993,
previously filed with the Company's Form 10-Q for the quarter
ended August 1, 1993, and incorporated herein by reference.
10.11 Joint Venture Agreement between Applied Materials, Inc. and
Komatsu Ltd. dated September 14, 1993 and exhibits thereto,
previously filed with the Company's Form 10-K for fiscal year
1993, and incorporated herein by reference. (Confidential
treatment has been requested for certain portions of the
agreement.)
10.12 $125,000,000 Credit agreement dated as of September 8, 1994
between Applied Materials and a group of seven banks,
previously filed with the Company's Form 10-K for fiscal year
1994, and incorporated herein by reference.
10.13 Amendment No. 2 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated September 10, 1992,
previously filed with the Company's Form 10-K for fiscal year
1993, and incorporated herein by reference.
10.14 Amendment No. 3 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated October 5, 1993,
previously filed with the Company's Form 10-K for fiscal year
1993, and incorporated herein by reference.
18
19
Page
----
10.15 Amendment No. 2 to the Applied Materials, Inc. Executive
Deferred Compensation Plan, dated May 9, 1994, previously
filed with the Company's Form 10-Q for the quarter ended May
1, 1994, and incorporated herein by reference.
10.16 Amendment No. 4 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated December 8, 1993,
previously filed with the Company's Form 10-Q for the quarter
ended May 1, 1994, and incorporated herein by reference.
10.17 Applied Komatsu Technology, Inc. 1994 Executive Incentive
Stock Purchase Plan, together with forms of Promissory Note,
1994 Executive Incentive Stock Purchase Agreement, Loan and
Security Agreement, previously filed with the Company's Form
10-Q for the quarter ended July 31, 1994, and incorporated
herein by reference.
10.18 The Applied Materials, Inc. 1995 Equity Incentive Plan, dated
April 5, 1995, previously filed with the Company's Form 10-Q
for the quarter ended April 30, 1995, and incorporated herein
by reference.
10.19 The Applied Materials, Inc. Senior Executive Bonus Plan,
dated September 23, 1994, previously filed with the Company's
Form 10-Q for the quarter ended April 30, 1995, and
incorporated herein by reference.
10.20 The Applied Materials, Inc. Executive Deferred Compensation
Plan, as amended and restated on April 1, 1995, previously
filed with the Company's Form 10-Q for the quarter ended
April 30, 1995, and incorporated herein by reference.
10.21 Employment Agreement with James Bagley, dated August 15,
1995, previously filed with the Company's Form 10-Q for the
quarter ended July 30, 1995, and incorporated herein by
reference.
10.22 Applied Materials, Inc. Medium-Term Notes, Series A
Distribution Agreement, dated August 24, 1995. 23
12.1 Ratio of Earnings to Fixed Charges. 76
13. Applied Materials 1995 Annual Report for the fiscal year
ended October 29, 1995 (to the extent expressly incorporated
by reference). 77
21. Subsidiaries of Applied Materials, Inc. 102
23. Consent of Independent Accountants. 103
24. Power of Attorney. 104
27. Financial Data Schedule: filed electronically.
19
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/James C. Morgan
------------------
James C. Morgan
Chairman of the Board and
Chief Executive Officer
Dated: January 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Title Date
----- ----
/s/James C. Morgan Chairman of the Board and January 12, 1996
- ----------------------------- Chief Executive Officer
James C. Morgan
/s/Gerald F. Taylor Senior Vice President and January 12, 1996
- ----------------------------- Chief Financial Officer
Gerald F. Taylor (Principal Financial Officer)
/s/Michael K. O'Farrell Corporate Controller January 12, 1996
- ----------------------------- (Principal Accounting Officer)
Michael K. O'Farrell
Directors:
James C. Morgan Director January 12, 1996
James W. Bagley* Director
Dan Maydan* Director
Michael H. Armacost* Director
Herbert M. Dwight, Jr.* Director
George B. Farnsworth* Director
Philip V. Gerdine* Director
Tsuyoshi Kawanishi* Director
Paul R. Low* Director
Alfred J. Stein* Director
*By /s/James C. Morgan January 12, 1996
------------------
James C. Morgan
Attorney-in-fact
A majority of the members of the Board of Directors.
20
21
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of Applied Materials, Inc.
Our audits of the consolidated financial statements referred to in our report
dated November 22, 1995 appearing on page 48 of the 1995 Annual Report of
Applied Materials, Inc., (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Jose, California
November 22, 1995
21
22
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands)
----------------------------------------------------------------------
Balance at Additions- Balance
beginning Charged Deductions- at end
of year to income Recoveries of year
----------------------------------------------------------------------
As of:
October 29, 1995 $ 1,089 $ 2,138 $ (210) $ 3,017
October 30, 1994 $ 487 $ 875 $ (273) $ 1,089
October 31, 1993 $ 1,171 $ 663 $(1,347) $ 487
22