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 31, 1999
| [ ] |
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.
| 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:
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. [X]
Aggregate market value of the voting stock held by nonaffiliates of the registrant as of January 2, 2000: $48,488,897,603
Number of shares outstanding of the issuer’s Common Stock, $.01 par value, as of January 2, 2000: 385,753,585
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Applied Materials 1999 Annual Report for the year ended October 31, 1999 are incorporated by reference into Parts I, II and IV of this Form 10-K.
Portions of the definitive Proxy Statement for Applied Materials’ Annual Meeting of Stockholders to be held on March 21, 2000 are incorporated by reference into Part III of this Form 10-K.
Certain of the information contained or incorporated by reference
in this Annual Report on Form 10-K is forward-looking in
nature. All statements included or incorporated by reference in
this Annual Report on Form 10-K or made by management of
Applied Materials, Inc. and its subsidiaries (Applied Materials),
other than statements of historical fact, are forward-looking
statements. Examples of forward-looking statements include
statements regarding Applied Materials’ future financial
results, operating results, product successes, business
strategies, projected costs, future products, competitive
positions and plans and objectives of management for future
operations. In some cases, forward-looking statements can be
identified by terminology such as “may,”
“will,” “should,” “would,”
“expects,” “plans,” “anticipates,”
“believes,” “estimates,”
“predicts,” “potential,”
“continue,” or the negative of these terms or other
comparable terminology. Any expectations based on these
forward-looking statements are subject to risks and uncertainties
and other important factors, including those discussed in the
section entitled “Management’s Discussion and
Analysis — Trends, Risks and Uncertainties” in the
Applied Materials 1999 Annual Report, which section is
incorporated herein by reference. These and many other factors
could affect the future financial and operating results of
Applied Materials, and could cause actual results to differ
materially from expectations based on forward-looking statements
made in this document or elsewhere by or on behalf of Applied
Materials. All references to fiscal year apply to Applied
Materials’ fiscal year, which ends on the last Sunday in
October.
PART I
Item 1:
Business
Organized in 1967, Applied Materials develops, manufactures,
markets and services semiconductor wafer fabrication equipment
and related spare parts for the worldwide semiconductor industry.
Customers for these products include semiconductor wafer
manufacturers and semiconductor integrated circuit (IC or chip)
manufacturers, who either use the ICs they manufacture in their
own products or sell them to other companies. These ICs are the
key components in most advanced electronic products such as
computers, telecommunications devices, automotive engine
management systems and electronic games.
Building a chip requires the deposition of a series of film
layers. The deposition of these film layers is interspersed with
numerous other processes that create circuit patterns, remove
portions of the film layers, and perform other functions such as
heat treatment, measurement and inspection. Advanced chip designs
require well over 300 individual steps, and many of these
processes are performed multiple times. Most chips are built on a
base of silicon, called a wafer, and consist of two main
structures. The lower structure is made up of components,
typically transistors or capacitors, and the upper structure
consists of the “interconnect” circuitry that connects
the components. Applied Materials currently manufactures
equipment that performs most of the primary steps in the chip
fabrication process, including: physical and chemical deposition,
electroplating, etch, ion implantation, rapid thermal processing
(RTP), chemical mechanical polishing (CMP), metrology and
wafer/reticle inspection.
The architecture of most semiconductor manufacturing equipment is
either batch type, which processes many wafers at once, or
single-wafer type, which processes each wafer individually. Many
of Applied Materials’ single-wafer systems are designed to
accept multiple (two or more) individual processing chambers on a
platform and process wafers in each of the chambers
simultaneously. Single-wafer, multi-chamber systems provide
precision and control, as well as productivity and integration
capabilities. Applied Materials has four major single-wafer,
multi-chamber platforms: the Precision 5000®, the
Centura®, the Endura® and the Producer™. These
platforms currently support physical and chemical deposition,
etch and RTP technologies.
In fiscal 1999, Applied Materials began developing integrated
processing capabilities for its customers in the form of a
Process Module™ approach, to optimize sets of two to four
systems to work together as a unit. Applied Materials expects
this concept to save customers critical development and fab
start-up time, enabling them to more quickly bring new chip
technologies to market.
During fiscal 1999, Applied Materials purchased the remaining
50 percent of Applied Komatsu Technology, Inc.
(AKT) that it did not previously own. AKT supplies equipment
for fabricating flat panel displays (FPDs) that are used in
notebook PCs, desktop monitors, TVs and other applications.
Applied Materials also acquired Consilium, Inc. (Consilium), a
provider of manufacturing facility (fab) management software
to the semiconductor and FPD industries. For further details,
see the section below entitled “Acquisitions.”
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Products
Deposition
Deposition is a fundamental step in fabricating an IC. During
deposition, a layer of either electrically conductive (material
used to carry current) or dielectric (material used as insulation
between conductors) film is deposited or grown on a wafer.
Applied Materials currently provides equipment to perform the
three main types of deposition: chemical vapor deposition,
physical vapor deposition and electroplating. Applied Materials
also offers certain types of dielectric deposition processes
using its RTP systems.
Chemical Vapor Deposition (CVD)
CVD is used by chipmakers to deposit dielectric films
(insulators) and metal films (conductors) on a wafer. During the
CVD process, gases that contain atoms of the material to be
deposited react on the wafer surface, forming a thin film of
solid material. The most common films deposited by CVD are
silicon dioxide (often called oxide), silicon nitride,
polysilicon and tungsten. Applied Materials offers the following
products and technologies to address CVD steps typically used in
chipmaking:
Producer
— The Producer CVD platform was
launched in June 1998 and features Twin-Chamber™ modules
that have two single-wafer process chambers per unit. Up to three
Twin-Chamber modules can be mounted on each Producer platform,
giving it a maximum capacity of six wafers at a time for high
throughput manufacturing. Many of Applied Materials’
dielectric CVD film processes can be performed on this platform.
Ultima HDP-CVD
™
Centura
—
High-density plasma CVD (HDP-CVD) is used to fill very small,
deep spaces with dielectric film. One of the processes offered on
the system is fluorinated silicate glass (FSG), a material that
has better insulating capability than conventional oxide
materials. These types of films are referred to as low dielectric
constant (“low k”) materials, an electrical
characteristic whereby a reduced “k” value indicates
greater insulating efficiency. These low k films absorb less
electric charge and allow higher current to flow through more
closely spaced metal wires, thus enabling denser and faster IC
performance. In fiscal 1999, a number of major customers used FSG
deposition for manufacturing, making it the first low k
dielectric film to be used for production chipmaking.
Other Low k
Dielectric Films
— Throughout
fiscal 1999, Applied Materials accelerated its programs for
developing dielectric films with lower “k” values to
complement the trend of using copper material for even faster
chip speeds. Applied Materials has introduced several low k
dielectric materials using its established CVD technologies.
Black Diamond™, a silicon-based low k dielectric film
launched in early fiscal 1999, is designed for copper-based
interconnect structures. A second low k dielectric introduced in
July 1999, called BLOk™ (Barrier Low k), provides a low k
solution for critical barrier layers in semiconductor devices,
enabling the complete, multi-layer dielectric chip structure to
benefit from low k technology.
Epitaxial Deposition
— Epitaxial silicon
(epitaxy or epi), used in some semiconductor devices, is a layer
of pure silicon grown in a uniform crystalline structure on the
wafer to form a high quality base for the device circuitry.
Applied Materials has manufactured epitaxial deposition systems
for more than 30 years. In addition to silicon applications,
Applied Materials offers an Epi Centura system for
silicon-germanium (SiGe) epi process technology, which can reduce
power usage and increase speed in certain kinds of advanced ICs.
Polysilicon Deposition
— Polysilicon is a type
of silicon used to form portions of the transistor structure
within the semiconductor device. Applied Materials’ Poly
Centura is a single-wafer, multi-chamber system that deposits
thin polysilicon films at high temperatures. A variant of the
system, the Polycide Centura, combines chambers for polysilicon
and tungsten silicide deposition on the Centura platform in an
integrated process to create the polycide structures found in
advanced semiconductors. The process control provided by the
single-wafer approach is superior to batch processing, and is
expected to become increasingly important as transistor
structures shrink to smaller dimensions and as chipmakers move to
larger wafer diameters.
Applied Materials introduced a new high-temperature system to
deposit silicon nitride film in July 1999 called the SiNgen™
Centura. This system operates at a lower deposition temperature
than conventional methods to minimize the amount of time the
wafer is exposed to high temperatures and to reduce particles
while improving many areas of operating cost and productivity in
critical transistor nitride layers for sub-0.18 micron devices.
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Physical Vapor Deposition (PVD)
PVD, also called sputtering, is a physical process in which atoms
of a heavy gas such as argon are accelerated at a target of pure
metal. The metal atoms chip off, or sputter away, and are then
deposited on the wafer. The Endura PVD platform offers a broad
range of advanced deposition processes, including aluminum,
titanium/titanium nitride (Ti/TiN), tantalum/tantalum nitride and
copper (Cu). The Endura’s highly flexible, multi-chamber
architecture allows the integration of multiple PVD processes or
combinations of metal CVD and PVD technologies on the same
system. The Endura’s PVD Ti technology can be coupled with
either CVD TiN or PVD TiN processes to form the critical lining
layers of interconnect structures. These structures are
subsequently bulk-filled with tungsten, aluminum or other film
materials.
Copper-Based Devices
— A majority of process
steps used in chipmaking are performed to build the interconnect,
a complex matrix of microscopic wires that carry electrical
signals to connect the transistor and capacitor components of the
IC. Chipmakers have traditionally used aluminum as the main
conducting material for the interconnect circuitry. However, the
trend of fabricating smaller and denser ICs requires a new
material that can carry more current in a smaller area. After
years of development, copper is beginning to be used as a new
circuit material in semiconductors. Copper has lower resistance
than aluminum and allows chipmakers to continue making faster and
more powerful chips.
Applied Materials is a leading supplier of systems for
copper-based chipmaking, with systems that perform deposition of
the barrier and seed layers (Endura Electra Cu™
Barrier & Seed), copper bulk-fill by electroplating
(Electra Cu ECP), and copper planarization by CMP (Mirra®
CMP). In addition, Applied Materials makes a full line of systems
for depositing and etching the dielectric layers used in the
copper interconnect, and for inspection and metrology.
The Endura Electra Cu Barrier & Seed system, launched at the
end of 1997, continues to be used by chipmakers for fabricating
copper-based ICs. Using PVD technology, the system sequentially
deposits the critical layers that prevent copper material from
entering other areas of the device and prime the structure for
subsequent deposition of bulk copper material by electroplating.
Electroplating
Electroplating is a process by which metal atoms are removed from
a chemical fluid (the electrolyte) and deposited on the surface
of an object immersed in the electrolyte. Electroplating is one
of the newest technologies used in chipmaking. Its main
application is to deposit copper in circuit wiring structures
following the deposition of barrier and seed layers.
Launched in April 1999, the Electra Cu ECP (ElectroChemical
Plating) is Applied Materials’ first system to use
electroplating technology. The Electra Cu ECP system offers the
first completely automated ECP chemical management technology to
the industry and provides process control and productivity not
available in manually controlled systems. The Electra Cu
ECP’s high-throughput system architecture features two
twin-cell modules that allow the simultaneous processing of four
wafers.
Etch
Etching is used many times throughout the semiconductor
manufacturing process to selectively remove material from the
surface of a wafer. Before etching begins, the wafer is coated
with a light-sensitive film called photoresist and exposed to a
circuit pattern during a photolithography process step, which
projects the circuit pattern onto the wafer. Etching removes
material only from areas dictated by the photoresist pattern.
Applied Materials offers systems for etching three basic types of
materials: metal, silicon and dielectric. Applied
Materials’ Dielectric Etch IPS™ Centura is used for
etching the dielectric films used in many critical chip
structures, especially in the formation of copper interconnects.
Applied Materials also continued to extend an established etch
technology, called reactive ion etch, into the 0.18 micron
generation of semiconductors, in which it operates with high
productivity and low cost of ownership in high-volume production
environments. The Dielectric Etch Super e Centura was introduced
in mid-1999 as an extension of Applied Materials’ MxP+
process chamber. Applied Materials’ Metal Etch and Silicon
Etch DPS™ Plus Centura systems have been enhanced in fiscal
1999 with new features for greater productivity and increased
technical capability in etching smaller metal and silicon
structures on the chip.
Ion Implantation
During ion implantation, silicon wafers are bombarded by a
high-velocity beam of ions, called dopants, that penetrate
(“implant”) the film surface to a desired depth.
Implantation, which occurs in the transistor structure, changes
the properties of the material in which the dopants are implanted
to achieve a particular electrical performance.
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Fiscal 1999 saw an acceleration of an industry trend toward a
type of implant technology called low-energy implantation, which
enables the fabrication of smaller structures and thus
contributes to faster transistor performance. Applied
Materials’ 1996 introduction of an implant system called the
xR LEAP (low-energy advanced processing) made commercial
production of low-energy implantation possible, enabling the
throughput necessary for manufacturing. Using an enhanced system
called the Quantum™ LEAP, introduced in fiscal 1999, this
technology has found growing acceptance by many chipmakers to
create thinner transistor structures. The Quantum LEAP has also
been optimized to be used with Applied Materials’ RTP
technology for high technical performance and productivity.
Rapid Thermal Processing (RTP)
RTP subjects a wafer to a very brief burst of intense heat that
can take the wafer from room temperature to more than 1,000
degrees Celsius in less than 10 seconds. RTP is used mainly for
modifying the properties of deposited films, using processes such
as annealing, which activates dopant atoms in the device after
implantation. Applied Materials’ RTP systems, which include
the RTP Xe
plus
™ and Radiance™ Centura products,
offer advances in temperature and ramp rate control as well as
other features aimed at providing leading-edge capability for
sub-0.18 micron generations. Recently, these single-wafer systems
have also gained increasing acceptance for growing high quality
oxide and oxynitride films, deposition steps that have
traditionally been assigned to furnaces. This trend to
single-wafer processing versus batch furnaces is expected to
continue as the industry transitions to larger 300mm wafers.
Chemical Mechanical Polishing (CMP)
CMP removes material from uneven topography on a wafer surface
until a flat (planarized) surface is created. This allows
subsequent photolithography patterning steps to take place with
greater accuracy and enables film layers to build up with minimal
height variations. CMP is performed primarily in the
interconnect structure of the chip, where it is used multiple
times, and is especially crucial to fabricating copper-based ICs
to define the circuit wires that create the interconnect.
Throughout fiscal 1999, the Mirra CMP system continued to expand
its portfolio of technologies and added a polysilicon film
process that is used in the transistor portion of the device. The
requirement to use polysilicon CMP has been increasing due to
the growing need to control the topography of the transistor and
capacitor structures as chip dimensions shrink. During fiscal
1999, another process was introduced to polish copper that
enabled Applied Materials to complete its set of systems for
building copper interconnects.
In June 1999, the Mirra CMP was enhanced with a cleaning
capability that is integrated into the system to act in a fully
automated CMP/cleaning mode. This system, called the Mirra
Mesa™, can be used with all of the Mirra’s CMP process
technologies.
In October 1999, Applied Materials acquired Obsidian, Inc.
(Obsidian), a developer of slurry-free (i.e., does not use wet
abrasive material) CMP technology. This developing technology may
be attractive to customers because it offers potentially lower
operating costs and enhanced precision processing.
Metrology and Wafer/ Reticle Inspection
Applied Materials produces several types of products that are
used to inspect the wafer during various stages of the
fabrication process. Applied Materials also supplies a system to
photomask manufacturers that is used to detect defects on quartz
plates, called reticles. These reticles (also called masks) are
used by photolithography systems to transfer microscopic circuit
designs onto wafers. The reticle must be defect-free with perfect
image fidelity because any imperfection will be replicated on
the wafer.
Critical Dimension and Defect Review Scanning
Electron Microscopes (CD-SEMs and DR-SEMs)
Scanning electron microscopes (SEMs) use an electron beam to form
images of microscopic features on a semiconductor wafer at
extremely high magnification. Applied Materials provides
chipmakers with operator-free automation, along with the high
accuracy and sensitivity needed for measuring advanced-generation
feature sizes. Introduced in February 1999, the new
VeraSEM™ extends CD-SEM technology beyond critical dimension
measurement to also enable the monitoring of multiple process
parameters.
DR-SEMs review defects on the wafer (i.e., particles, scratches
or residues) that are first located by other detection systems
and then classify the defects to identify their source. The
high-throughput, fully automatic technology of Applied
Materials’ SEMVision™ DR-SEM, launched in May 1998,
marked a major advance over conventional, manually operated
systems. With the SEMVision, customers are using DR-SEM
technology as an integral part of their production lines, rather
than using it off-line to occasionally
5
sample wafers. The enhanced SEMVision cX model introduced in
fiscal 1999 added higher throughput, automatic material
classification and color imaging to its list of features.
Patterned Wafer Inspection
Using laser-based technology, Applied Materials’ WF-736
system detects defects on patterned wafers (wafers with circuit
images printed on them) as they move between processing steps.
Defects may include particles, open circuit lines, shorts between
lines or other problems. In fiscal 1999, Applied Materials
introduced the enhanced WF-736 XS system, offering greater
sensitivity for 0.15 micron and below devices.
Reticle Inspection
Introduced in early fiscal 1999, the ARIS-i™ system is an
automated, ultraviolet wavelength-based advanced inspection
system for reticles used in 0.18 micron and below generation
devices. The system features enhanced image acquisition
technology, data handling capabilities and sensitivity for the
most advanced mask designs.
Flat Panel Displays (FPDs)
The most advanced FPDs are manufactured using technologies
similar to those for making semiconductors. One difference is the
vastly larger area of the substrate (panel). Compared to
today’s largest wafers (300mm diameter), the panels can be
up to seven times larger. Applied Materials began development of
FPD process technology in 1990, beginning with a CVD process. In
September 1993, Applied Materials and Komatsu, Ltd. (Komatsu)
formed a joint venture company, Applied Komatsu Technology, Inc.
(AKT), to develop, market and manufacture FPD systems for the
global market. In October 1999, Applied Materials acquired
Komatsu’s 50 percent ownership interest in AKT, making
AKT a wholly-owned subsidiary. For further details, see
Note 4 of Notes to Consolidated Financial Statements
contained in the Applied Materials 1999 Annual Report, which note
is incorporated herein by reference.
Factory Management Software
In December 1998, Applied Materials acquired Consilium, a
provider of manufacturing execution systems software and services
to the global semiconductor industry. Consilium’s software
products, WorkStream™ and FAB300™, are designed for
semiconductor and FPD manufacturers to control and optimize their
facility operations.
Transition to 300mm Wafers
Throughout its history, the semiconductor industry has migrated
to increasingly larger wafer sizes, from one-inch wafers to the
200mm (eight inches) standard predominant today. To gain the
economic advantages of a larger surface area, the industry has
begun using 300mm (12 inches) wafers as the next wafer size.
The surface area of a 300mm wafer is more than two times that of
a 200mm wafer. Entirely new hardware is needed to process 300mm
wafers, although some recently introduced systems, called bridge
tools, have dual 200mm-300mm capabilities.
Applied Materials has been actively developing a complete line of
300mm systems in its core process technologies, covering more
than 60 applications. Applied Materials has shipped several 300mm
systems to customers and to industry consortia, including
Semiconductor 300 in Dresden, Germany. All of Applied
Materials’ mainstream process technologies are being readied
for 300mm wafer sizes. To meet the increased interest in 300mm
process technology, Applied Materials significantly expanded its
demonstration and development capability for these systems in
fiscal 1999.
Customer Service and Support
Applied Materials’ customer service organization plays a
unique and critical role in Applied Materials’ ability to
satisfy its customers’ production requirements. Over 2,500
highly trained customer engineers and process support engineers
are deployed in more than a dozen countries. These engineers are
usually located at or near the customers’ fab sites and
service more than 11,000 Applied Materials’ systems.
In fiscal 1999, Applied Materials introduced a new line of
service products, called Total Service Solutions™ (TSS),
which offers a novel approach to maintaining and servicing
Applied Materials’ equipment in the fab. In one part of the
TSS program, called Total Parts Management™ (TPM), Applied
Materials is responsible for the spare parts used in its
equipment at a customer’s fab site. Under TPM, chipmakers no
longer need to own or manage Applied Materials’ inventory.
A second product, called Total Support Package™
6
(TSP), is a comprehensive equipment service solution that
includes parts inventory management and maintenance, with
operating cost reduction and system performance improvement
guarantees for Applied Materials’ equipment.
Backlog
Applied Materials’ backlog increased from $917 million
at October 25, 1998 to $1.7 billion at October 31,
1999. Applied Materials schedules production of its systems
based on 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 may delay delivery of products or cancel
orders suddenly and without sufficient notice, subject to
cancellation penalties. Due to possible customer changes in
delivery schedules and cancellations of orders, Applied
Materials’ backlog at any particular date is not necessarily
indicative of actual sales for any succeeding period. Delays in
delivery schedules and/or a reduction of backlog during any
particular period could have, and in the past have had, a
material adverse effect on Applied Materials’ business and
results of operations.
Manufacturing, Raw Materials and Supplies
Applied Materials’ manufacturing activities consist
primarily of assembling various commercial and proprietary
components into finished systems, principally in the United
States, with additional operations in Taiwan, Japan, Israel and
the United Kingdom. Production requires some raw materials and a
wide variety of mechanical and electrical components that are
manufactured to Applied Materials’ specifications. Applied
Materials uses numerous vendors to supply parts, components and
subassemblies (collectively, “parts”) for the
manufacture and support of its products. Although Applied
Materials makes reasonable efforts to ensure that parts are
available from multiple suppliers, this is not always possible;
accordingly, some key parts may be obtained only from a single
supplier or a limited group of suppliers. Applied Materials 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 Applied Materials’
results of operations will not be materially and adversely
affected if, in the future, Applied Materials does not receive in
a timely and cost-effective manner a sufficient quantity of
parts to meet its production requirements.
Research, Development and Engineering (RD&E)
Applied Materials’ long-term growth strategy requires
continued development of new semiconductor and flat panel display
manufacturing technology. Applied Materials’ significant
investment in RD&E has generally enabled it to deliver new
products and technologies before the emergence of strong demand,
thus allowing customers to incorporate these products into their
manufacturing plans at an early stage in the technology selection
cycle. Applied Materials works closely with its global customers
to design systems that meet their planned technical and
production requirements. Engineering organizations are located in
the United States, the United Kingdom, Israel and Japan, with
process support and customer demonstration laboratories in the
United States, the United Kingdom, Israel, Japan, Korea and
Taiwan.
In fiscal 1999, Applied Materials invested $682 million, or
14 percent of net sales, in RD&E for product development
and engineering programs to improve or sustain existing product
lines. During fiscal 1997 and 1998, RD&E expenses were
$568 million (14 percent of net sales) and
$644 million (16 percent of net sales), respectively.
Applied Materials has spent an average of 13 percent of net
sales on RD&E over the last five years. In addition to
RD&E for specific product technologies, Applied Materials
maintains ongoing programs in software, automation control
systems, materials research, microcontamination and environmental
control that have applications to its products. Key activities
during fiscal 1999 involved development of wafer fabrication
equipment for smaller feature sizes, copper-based devices and
300mm wafers.
Marketing and Sales
Because of the highly technical nature of its products, Applied
Materials markets its products worldwide through a direct sales
force, with sales and service offices in the United States,
Taiwan, Japan, Europe, Korea, and Asia-Pacific. For the fiscal
year ended October 31, 1999, net sales to customers in North
America (primarily the United States), Taiwan, Japan, Europe,
Korea, and Asia-Pacific were 34 percent, 20 percent,
17 percent, 16 percent, 7 percent and
6 percent, respectively, of Applied Materials’ total
net sales. Applied Materials’ business is usually not
seasonal in nature, but it is cyclical based on the capital
equipment investment patterns of major
7
semiconductor manufacturers. These expenditure patterns are based
on many factors, including anticipated market demand for
integrated circuits, the development of new technologies and
global and regional economic conditions.
Applied Materials has operations and sites located throughout the
world to support its sales and services to the global
semiconductor industry. 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,
and in the past have caused, capital equipment investment
patterns to vary significantly from period to period. Periodic
economic downturns, trade balance issues, political instability
and fluctuations in interest and foreign currency exchange rates
are among the many risks associated with operating a global
business that could materially and adversely affect demand for
Applied Materials’ products (including systems and related
services).
Information on net sales to unaffiliated customers and long-lived
assets attributable to Applied Materials’ geographic
regions is included in Note 12 of Notes to Consolidated Financial
Statements contained in the Applied Materials 1999 Annual
Report, which note is incorporated herein by reference. For
fiscal 1997 and 1998, no individual customer accounted for more
than 10 percent of Applied Materials’ net sales. For
fiscal 1999, Intel Corporation accounted for more than
10 percent of Applied Materials’ net sales.
Competition
The global semiconductor equipment industry is highly competitive
and is characterized by increasingly rapid technological
advancements and demanding worldwide service requirements.
Applied Materials’ ability to compete depends on its ability
to continually improve its products, processes and services, as
well as its ability to develop new products that meet constantly
evolving customer requirements. Significant competitive factors
for succeeding in the semiconductor manufacturing equipment
market include the equipment’s technical capability,
productivity and cost-effectiveness, overall reliability, ease of
use and maintenance, contamination and defect control, and the
level of technical service and support provided by the vendor.
The importance of each of these factors varies depending on the
specific customer’s needs and criteria, including
considerations such as the customer’s process application,
product requirements, timing of the purchase and particular
circumstances of the purchasing decision. The pace of
technological change is rapid, with customers continually moving
to smaller critical dimensions and larger wafer sizes and
adopting new materials for use in semiconductor manufacturing.
Sometimes, existing technology can be adapted to the new
requirements; however, the new requirements sometimes create the
need for an entirely new technical approach. The rapid pace of
technological change continually creates new opportunities for
existing competitors and start-ups, and can quickly diminish the
value of existing technologies.
Substantial competition exists for each of Applied
Materials’ products. Competitors range from small, agile
companies that compete with a single innovative product, to
companies with a large and diverse line of semiconductor
processing products, and to large multinationals. Many of Applied
Materials’ competitors compete with Applied Materials for
sales of more than one product. For example, one competitor sells
CVD, electroplating and PVD equipment, while another competitor
sells etch and CMP equipment. Competitors in a given technology
tend to have different degrees of market presence in the various
regional markets. Management believes that Applied
Materials’ competitive position is based on the ability of
its products and services to continue to address customer
requirements. Success for Applied Materials will require a
continued high level of investment in research, development and
engineering and in sales and marketing. Management believes that
Applied Materials is a strong competitor with respect to its
products and services. However, new products, pricing pressures,
rapid changes in technology and other competitive actions from
both new and existing competitors could materially and adversely
affect Applied Materials’ market position.
Acquisitions
On December 11, 1998, Applied Materials acquired Consilium,
a supplier of integrated semiconductor and electronics
manufacturing execution systems and services, in a
stock-for-stock merger accounted for as a pooling of interests.
Due to the immateriality of Consilium’s financial position
and results of operations in relation to those of Applied
Materials, Applied Materials’ prior period financial
statements have not been restated. Applied Materials issued
1.7 million shares of its common stock to complete this
transaction, and recorded $5 million of transaction costs as
a one-time operating expense. The Consilium acquisition did not
have a material effect on Applied Materials’ financial
condition or results of operations for fiscal 1999. For further
details, see Note 14 of Notes to Consolidated Financial
Statements contained in the Applied Materials 1999 Annual Report,
which note is incorporated herein by reference.
8
On October 5, 1999, Applied Materials acquired Obsidian, a
developer of fixed-abrasive chemical mechanical polishing
solutions for the semiconductor industry, by issuing shares of
common stock having a market value of $150 million. The Obsidian
acquisition was accounted for as a purchase business combination.
The purchase price in excess of the fair value of
Obsidian’s net tangible assets was allocated to intangible
assets and in-process research and development expense. Except
for in-process research and development expense of
$35 million, the Obsidian acquisition did not have a
material effect on Applied Materials’ financial condition or
results of operations. For further details, see Note 14 of
Notes to Consolidated Financial Statements contained in the
Applied Materials 1999 Annual Report, which note is incorporated
herein by reference.
In September 1993, Applied Materials and Komatsu formed AKT, a
joint venture corporation that developed, manufactured, marketed
and serviced thin film transistor manufacturing systems for FPDs.
Because Applied Materials and Komatsu each owned 50 percent
of the AKT joint venture, Applied Materials accounted for its
interest in the joint venture using the equity method. During the
fourth fiscal quarter of 1998, Applied Materials decided to
discontinue the operations of AKT over a 12-month period. As a
result of this decision, Applied Materials recorded a
$40 million provision for discontinued operations,
consisting of $19 million primarily for immediate headcount
reductions and lease terminations, and $21 million for net
expenses and other obligations expected to be incurred during, or
at completion of, the 12-month wind-down period. In addition to
the above amounts, Applied Materials also recorded its
$18 million share of AKT’s operating losses as a
component of discontinued operations. In late fiscal 1999, an
overall improvement in demand for FPDs enhanced AKT’s
financial condition and improved its business outlook. This
change caused Applied Materials to reassess its decision to
discontinue AKT’s operations. Based on this reassessment,
Applied Materials reversed its decision to discontinue the
operations of AKT and acquired Komatsu’s 50 percent
interest in AKT for $87 million in cash on October 29,
1999. As a result, the $21 million provision established in
fiscal 1998 for net expenses and other obligations expected to be
incurred during the wind-down of AKT’s operations was
reversed into income in fiscal 1999, and all prior period amounts
relating to AKT’s continuing operations were reclassified
from discontinued operations to continuing operations. These
reclassifications had no effect on Applied Materials’ net
income for any period affected, and were recorded in accordance
with Emerging Issues Task Force Issue No. 90-16,
“Accounting for Discontinued Operations Subsequently
Retained.” The acquisition of AKT was accounted for as a
purchase business combination. The purchase price in excess of
the fair value of AKT’s net tangible assets was allocated to
intangible assets and in-process research and development
expense. For further details, see Note 4 of Notes to Consolidated
Financial Statements contained in the Applied Materials 1999
Annual Report, which note is incorporated herein by reference.
Subsequent Events
On January 12, 2000, Applied Materials announced that it
entered into an agreement to acquire Etec Systems, Inc. (Etec), a
supplier of mask patterning generating equipment for the
worldwide semiconductor and electronics industries, in a
stock-for-stock merger that will be accounted for as a pooling of
interests. The closing of the transaction is subject to approval
from Etec’s shareholders and clearance by regulatory
authorities. Each share of Etec’s stock will be exchanged
for 0.649 of a share of Applied Materials’ common stock.
Applied Materials expects to issue approximately 14 million
shares of its common stock to complete this transaction.
Patents and Licenses
Management believes that Applied Materials’ competitive
position is significantly dependent upon skills in engineering,
production and marketing, rather than its patent position.
However, protection of Applied Materials’ technology assets
by obtaining and enforcing patents is important. Therefore,
Applied Materials has an active program to file patent
applications in the United States and other countries for
inventions that Applied Materials considers significant. Applied
Materials 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, Applied Materials also possesses other proprietary
intellectual property, including trademarks, know-how, trade
secrets and copyrights.
Applied Materials enters into patent and technology licensing
agreements with other companies when management determines that
it is in Applied Materials’ best interest to do so. Applied
Materials pays royalties under existing patent license agreements
for the use, in several of its products, of certain patented
technologies that are licensed to Applied Materials for the life
of the patents. Applied Materials also receives royalties from
licenses granted to third parties. Royalties received from third
parties have not been, and are not expected to be, material.
9
In the normal course of business, Applied Materials from time to
time receives and makes inquiries regarding possible patent
infringement. In dealing with such inquiries, it may become
necessary or useful for Applied Materials to obtain or grant
licenses or other rights. However, there can be no assurance that
such licenses or rights will be available to Applied Materials
on commercially reasonable terms. Although there can be no
assurance about the outcome of patent infringement inquiries,
Applied Materials believes it is unlikely that their resolution
will have a material adverse effect on its financial condition or
results of operations.
Environmental Matters
Two of Applied Materials’ locations have been designated as
Superfund sites by the United States Environmental Protection
Agency since 1987. Applied Materials has been designated a
“Responsible Party” by the U.S. Environmental
Protection Agency with respect to one site and a
“Potentially Responsible Party” with respect to the
other site. However, 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 Applied Materials’ capital expenditures, financial
condition, results of operations or competitive position.
Employees
At October 31, 1999, Applied Materials employed 12,755
regular employees. In the high-technology industry, competition
for highly-skilled employees is intense. Applied Materials
believes that its future success is highly dependent upon on its
continued ability to attract and retain qualified employees.
There can be no assurance that Applied Materials will be able to
attract, hire, assimilate and retain a sufficient number of
qualified people. None of Applied Materials’ employees are
represented by a trade union, and management considers its
relations with employees to be good.
10
Item 2:
Properties
Information concerning Applied Materials’ principal
properties at October 31, 1999 is set forth below:
Applied Materials also leases office space for sales and service
offices in 70 locations throughout the world: 22 in North
America (primarily the United States), 2 in Taiwan, 23 in Japan,
12 in Europe, 6 in Korea and 5 in Asia-Pacific.
Applied Materials currently owns 167,000 square feet of
manufacturing and other operating facilities in California that
have not yet been completed and placed in service. An 80,000
square foot owned facility is currently under construction in
Taiwan.
Applied Materials also owns 121 acres of buildable land in
Austin, Texas, 43 acres of buildable land in Santa Clara,
California and 9 acres of buildable land in Narita, Japan. The
Austin, Santa Clara and Narita land can accommodate approximately
1,845,000, 1,247,000 and 766,000 square feet, respectively, of
additional building space to help satisfy Applied Materials’
current and future needs.
Applied Materials considers the above facilities suitable and
adequate to meet its requirements.
11
Item 3:
Legal Proceedings
AST and AG
In April 1997, Applied Materials initiated separate lawsuits in
the Northern District of California against AST Electronik GmbH
and AST Electronik USA, Inc. (collectively “AST”) and
AG Associates, Inc. (AG), alleging infringement of certain
patents concerning rapid thermal processing technology (case
no. C-97-20375-RMW). In October 1997, AST and AG each filed
counterclaims alleging infringement by Applied Materials of
patents concerning related technology. In addition, on
August 5, 1998, AG filed a lawsuit in California against
Applied Materials alleging infringement of another patent
relating to rapid thermal processing technology (case
no. C-98-20833-RMW), and, on August 13, 1998, AG filed
a lawsuit in Delaware against Applied Materials alleging
infringement of two other patents concerning related technology.
The Delaware case was subsequently transferred to California
(case no. C-99-20432). In February 1999, Applied Materials
and AST resolved their dispute on mutually acceptable terms and
conditions. In addition, in December 1999, all disputes between
Applied Materials and AG were resolved on mutually acceptable
terms and conditions, and each of the three cases has been
dismissed.
KLA
As a result of Applied Materials’ acquisition of Orbot
Instruments, Ltd. (Orbot), Applied Materials 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, Applied Materials 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
Applied Materials’ 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. Applied Materials
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
Applied Materials in violation of antitrust laws. On
June 23, 1997, Novellus filed a separate lawsuit against
Applied Materials captioned Novellus Systems, Inc. v.
Applied Materials, Inc. (case no. C-97-20551-EAI), alleging
infringement by Applied Materials of three patents concerning PVD
technology that were formerly owned by Varian. On July 8, 1997,
Varian filed a separate lawsuit against Applied Materials
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. On July 16, 1999, Varian was
granted permission to file a First Amended Complaint in that
action. On November 8, 1999, the Court granted in part
Applied Materials’ partial motion to dismiss the First
Amended Complaint. On December 10, 1999, Varian filed its
Second Amended Complaint and Applied Materials has answered.
Discovery has commenced in these actions. The Court has scheduled
trial of all patent claims for April 2001. No other 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 Applied Materials’ subsidiary, Applied
Materials Japan (AMJ), in Tokyo District Court in Japan, alleging
that AMJ is obligated to indemnify OKI for patent license
payments OKI made to a third party. Several hearings have been
held, but no trial date has been set. Applied Materials does not
expect the final case resolution to have a material effect on its
financial condition or results of operations.
Applied Materials 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 other legal matters will have a material
adverse effect on Applied Materials’ financial condition or
results of operations.
None.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and notes thereto identify and set forth
information about Applied Materials’ five executive
officers:
PART II
Item 5:
Market for Registrant’s Common
Equity and Related Stockholder Matters
“Stock Price History” on page 54 of the Applied
Materials 1999 Annual Report is incorporated herein by reference.
Applied Materials’ common stock is traded on the Nasdaq
over-the-counter market. As of January 2, 2000, there were
approximately 5,347 holders of record of the common stock.
To date, Applied Materials has not declared or paid cash
dividends to its stockholders. Applied Materials has no plans to
declare and pay cash dividends in the near future.
Item 6:
Selected Consolidated Financial Data
The selected consolidated financial data for the five years ended
October 31, 1999, which appears on page 21 of the
Applied Materials 1999 Annual Report, is incorporated herein by
reference.
13
“Management’s Discussion and Analysis” on pages 22
through 32 of the Applied Materials 1999 Annual Report is
incorporated herein by reference.
Item 7a:
Quantitative and Qualitative
Disclosures about Market Risk
“Market Risk Disclosure” on pages 31 through 32 of the
Applied Materials 1999 Annual Report is incorporated herein by
reference.
Item 8:
Financial Statements and Supplementary
Data
The consolidated financial statements, together with the report
thereon of PricewaterhouseCoopers LLP dated November 17,
1999, and appearing on pages 33 through 52 and page 54
of the Applied Materials 1999 Annual Report, are incorporated
herein by reference.
Item 9:
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
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 Applied Materials’ Proxy Statement to be filed with the
Commission in connection with the 2000 Annual Meeting of
Stockholders (“the Proxy Statement”).
Item 10:
Directors and Executive Officers of the
Registrant
(a) Information concerning directors of Applied Materials
appears in Applied Materials’ 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 Annual Report on Form 10-K.
Item 11:
Executive Compensation
Information concerning executive compensation appears in Applied
Materials’ Proxy Statement, under Item 1 —
“Election of Directors.” This portion of the Proxy
Statement 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 Applied
Materials’ Proxy Statement, under Item 1 —
“Election of Directors.” This portion of the Proxy
Statement is incorporated herein by reference.
Item 13:
Certain Relationships and Related
Transactions
Information concerning certain relationships and related
transactions appears in Applied Materials’ Proxy Statement,
under Item 1 — “Election of Directors.”
This portion of the Proxy Statement is incorporated herein by
reference.
14
Square
Location
Type
Principal Use
Footage
Ownership
Santa Clara, CA
Office, plant &
Headquarters, Marketing,
1,047,000
owned
warehouse
Manufacturing, Distribution, Research and Engineering
2,928,000
(1)
leased
Austin, TX
Office, plant &
Manufacturing
1,154,000
owned
warehouse
228,000
leased
Horsham, England
Office, plant & warehouse
Manufacturing, Research and Engineering
122,000
leased
Narita, Japan
Office, plant & warehouse
Manufacturing, Research and Engineering
222,000
(2)
owned
Chunan, Korea
Office, plant & warehouse
Research and Engineering
107,000
owned
Hsinchu, Taiwan
Office, plant &
Manufacturing, Research and
89,000
owned
warehouse
Engineering
114,000
leased
Rehovot, Israel
Office, plant & warehouse
Manufacturing, Research and Engineering
271,000
owned
Nes Ziona, Israel
Office, plant & warehouse
Manufacturing, Research and Engineering
72,000
leased
Yavne, Israel
Office, plant & warehouse
Manufacturing, Research and Engineering
68,000
leased
(1)
Includes approximately 941,000 square feet that is
either currently being subleased or is being marketed for
sublease.
(2)
Subject to loans of $41 million, secured by
property and equipment having an approximate net book value of
$64 million at October 31, 1999.
Item 4:
Submission of Matters to a Vote of Security Holders in
Fourth Fiscal Quarter of 1999
Name of Individual
Capacities in which Served
James C. Morgan(1)
Chairman of the Board of Directors and Chief Executive Officer
Dan Maydan(2)
Director and President
Joseph R. Bronson(3)
Senior Vice President, Office of the President, Chief Financial
Officer and Chief Administrative Officer
Sasson Somekh(4)
Senior Vice President, Office of the President
David N.K. Wang(5)
Senior Vice President, Office of the President
(1)
Mr. Morgan, age 61, has been Chief Executive Officer since
1977 and Chairman of the Board of Directors since 1987.
Mr. Morgan also served as President of Applied Materials
from 1976 to 1987.
(2)
Dr. Maydan, age 64, was appointed President of Applied
Materials in December 1993 and has been a member of the Board of
Directors since 1992. 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.
(3)
Mr. Bronson, age 51, was appointed Senior Vice President,
Office of the President, Chief Financial Officer and Chief
Administrative Officer in January 1998. Mr. Bronson served
as Group Vice President from April 1994 to January 1998. Prior to
that, Mr. Bronson had been Vice President since November
1990. Mr. Bronson joined Applied Materials in September 1984
as Corporate Controller.
(4)
Dr. Somekh, age 53, was appointed to the Office of the
President in January 1998, and was appointed Senior Vice
President of Applied Materials 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.
(5)
Dr. Wang, age 53, was appointed to the Office of the
President in January 1998, and was appointed Senior Vice
President of Applied Materials 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.
Item 7:
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
PART IV
(a) The following documents are filed as part of this
Annual Report on Form 10-K:
(b) Applied Materials did not file a report on
Form 8-K during its fourth fiscal quarter of 1999.
Schedules not listed above have been omitted because they are not
applicable or the required information is included in the
consolidated financial statements or notes thereto.
15
INDEX TO EXHIBITS
These Exhibits are numbered in accordance with the
Exhibit Table of Item 601 of Regulation S-K:
16
17
18
19
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.
Dated: January 31, 2000
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.
Representing a majority of the members of the Board of Directors.
20
REPORT OF INDEPENDENT ACCOUNTANTS ON
To the Board of Directors of Applied Materials, Inc.
Our audits of the consolidated financial statements referred to
in our report dated November 17, 1999, appearing in the 1999
Annual Report to Stockholders 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)(2) 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/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
21
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
22
Item 14:
Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(1)
Financial Statements:
*
Incorporated herein by reference from the indicated pages of the
Applied Materials 1999 Annual Report. With the exception of the
pages listed above and the portion of such report referred to in
items 1, 5, 6, 7, 7a and 8 of this Annual Report on
Form 10-K, the Applied Materials 1999 Annual Report is not
to be deemed filed as part of this report.
(2)
Financial Statement Schedule:
Form 10-K
Page Number
Report of Independent Accountants on Financial Statement Schedule
21
Schedule II — Valuation and Qualifying Accounts
22
(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.
Exhibit No.
Description
2.1
Agreement and Plan of Merger, by and among Applied Materials,
Inc., Orion Corp. I, and Opal, Inc. dated as of
November 24, 1996, previously filed with Applied
Materials’ Annual Report on Form 10-K for the year
ended October 27, 1996, and incorporated herein by
reference.
2.2
Stock Purchase Agreement dated as of November 24, 1996 by
and among Applied Materials, Inc., Orbot Instruments, Ltd. and
the Stockholders of Orbot Instruments, Ltd., previously filed
with Applied Materials’ Annual Report on Form 10-K for
the year ended October 27, 1996, and incorporated herein by
reference.
2.3
Agreement and Plan of Merger And Reorganization between Applied
Materials, Inc. and Consilium, Inc., previously filed with
Applied Materials’ Form S-4A dated November 6,
1998, and incorporated herein by reference.
2.4
Agreement and Plan of Reorganization, dated as of January
12, 2000, by and among Applied Materials, Inc., Boston
Acquisition Sub Inc. and Etec Systems, Inc., previously filed
with Applied Materials’ Schedule 13D on
January 24, 2000, and incorporated herein by reference.
3(i)
Certificate of Incorporation of Applied Materials, Inc., a
Delaware corporation, as amended to March 18, 1996,
previously filed with Applied Materials’ Annual Report on
Form 10-K for the year ended October 27, 1996, and
incorporated herein by reference.
3(i)(a)
Amendment to Articles of Incorporation dated March 27, 1998,
previously filed with Applied Materials’ Form 10-Q for
the quarter ended July 26, 1998, and incorporated herein by
reference.
3(i)(b)
Articles of Incorporation (as amended to March 27, 1998),
previously filed with Applied Materials’ Form 10-Q for
the quarter ended July 26, 1998, and incorporated herein by
reference.
3(i)(c)
Certificate of Designation, Preferences and Rights of the Terms
of the Series A Junior Participating Preferred Stock of
Applied Materials, Inc., dated as of July 7, 1999,
previously filed with Applied Materials’ Form 10-Q for
the quarter ended August 1, 1999, and incorporated herein by
reference.
3(ii)
Bylaws of Applied Materials, Inc., as amended and restated
through December 7, 1999.
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 Rights Certificate and Form of Summary of
Rights to Purchase Common Stock, previously filed with Applied
Materials’ 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
Applied Materials’ Form 8-K on August 17, 1994,
and incorporated herein by reference.
4.3
Rights Agreement, dated as of July 7, 1999, between Applied
Materials, Inc. and Harris Trust and Savings Bank, as Rights
Agent, previously filed as Exhibit 1 with Applied
Materials’ Registration Statement on Form 8-A dated
July 9, 1999, and incorporated herein by reference.
10.1*
The 1976 Management Stock Option Plan, as amended to
October 5, 1993, previously filed with Applied
Materials’ 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 Applied
Materials’ Form 10-K for fiscal year 1981, and
incorporated herein by reference.
Exhibit No.
Description
10.3*
Amendment to Supplemental Income Plan, dated July 20, 1984,
previously filed with Applied Materials’ Form 10-K for
fiscal year 1984, and incorporated herein by reference.
10.4*
The Applied Materials Employee Financial Assistance Plan,
previously filed with Applied Materials’ 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 Applied Materials’ Form 10-K for fiscal
year 1985, and incorporated herein by reference.
10.6*
Amendment 1 to the 1985 Stock Option Plan for Non-Employee
Directors dated June 14, 1989, previously filed with Applied
Materials’ 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 the Participation Agreement
with James C. Morgan, previously filed with Applied
Materials’ Form 10-K for fiscal year 1988, and
incorporated herein by reference.
10.8
License Agreement dated January 1, 1992 between Applied
Materials and Varian Associates, Inc., previously filed with
Applied Materials’ 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 Applied
Materials’ 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 Applied Materials’ 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 Applied Materials’ Form 10-K for
fiscal year 1993, and incorporated herein by reference.
(Confidential treatment has been granted for certain portions of
the agreement).
10.12*
Amendment No. 2 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated September 10, 1992,
previously filed with Applied Materials’ Form 10-K for
fiscal year 1993, and incorporated herein by reference.
10.13*
Amendment No. 3 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated October 5, 1993,
previously filed with Applied Materials’ Form 10-K for
fiscal year 1993, and incorporated herein by reference.
10.14*
Amendment No. 2 to the Applied Materials, Inc. Executive
Deferred Compensation Plan, dated May 9, 1994, previously
filed with Applied Materials’ Form 10-Q for the quarter
ended May 1, 1994, and incorporated herein by reference.
10.15*
Amendment No. 4 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated December 8, 1993,
previously filed with Applied Materials’ Form 10-Q for
the quarter ended May 1, 1994, and incorporated herein by
reference.
10.16*
Applied Komatsu Technology, Inc. 1994 Executive Incentive Stock
Purchase Plan, together with forms of Promissory Note, 1994
Executive Incentive Stock Purchase Agreement, and Loan and
Security Agreement, previously filed with Applied Materials’
Form 10-Q for the quarter ended July 31, 1994, and
incorporated herein by reference.
10.17*
The Applied Materials, Inc. 1995 Equity Incentive Plan, dated
April 5, 1995, previously filed with Applied Materials’
Form 10-Q for the quarter ended April 30, 1995, and
incorporated herein by reference.
10.18*
The Applied Materials, Inc. Senior Executive Bonus Plan, dated
September 23, 1994, previously filed with Applied
Materials’ Form 10-Q for the quarter ended
April 30, 1995, and incorporated herein by reference.
10.19*
The Applied Materials, Inc. Executive Deferred Compensation Plan,
as amended and restated on April 1, 1995, previously filed
with Applied Materials’ Form 10-Q for the quarter ended
April 30, 1995, and incorporated herein by reference.
10.20
Applied Materials, Inc. Medium-Term Notes, Series A
Distribution Agreement, dated August 24, 1995, previously
filed with Applied Materials’ Form 10-K for fiscal year
1995, and incorporated herein by reference.
Exhibit No.
Description
10.21*
Resolution pertaining to the Amendment of the Applied Materials,
Inc. 1995 Equity Incentive Plan, adopted by the Stock Option and
Compensation Committee of the Board of Directors of Applied
Materials on December 12, 1996, previously filed with
Applied Materials’ Form 10-Q for the quarter ended
April 27, 1997, and incorporated herein by reference.
10.22
Participation Agreement dated as of April 30, 1997 among
Applied Materials, Inc. (as Lessee and Construction Agent),
Credit Suisse Leasing 92A, L.P., (as Lessor and Borrower),
Greenwich Funding Corporation (as CP Lender), The Persons Named
on Schedule I (as Eurodollar Lenders) and Credit Suisse
First Boston (acting through its New York Branch, as Agent),
previously filed with Applied Materials’ Form 10-Q for
the quarter ended April 27, 1997, and incorporated herein
by reference.
10.23
Appendix 1 to Participation Agreement, Master Lease
Agreement and Loan Agreement, dated as of April 30, 1997
(Definitions and Interpretation) for Applied Materials, Inc.,
previously filed with Applied Materials’ Form 10-Q for
the quarter ended April 27, 1997, and incorporated herein by
reference.
10.24
Loan Agreement dated as of April 30, 1997 among Credit
Suisse Leasing 92A, L.P. (as Borrower), Greenwich Funding
Corporation (as CP Lender), The Persons Named on Schedule I
(as Eurodollar Lenders) and Credit Suisse First Boston (acting
through its New York Branch, as Agent) for Revolving Commercial
Paper, Eurodollar Credit and Base Rate Program, previously filed
with Applied Materials’ Form 10-Q for the quarter ended
April 27, 1997, and incorporated herein by reference.
10.25
Real Estate and Equipment Facility Master Lease dated as of
April 30, 1997 between Credit Suisse Leasing 92A, L.P.
(as Lessor), and Applied Materials, Inc. (as Lessee), previously
filed with Applied Materials’ Form 10-Q for the quarter
ended April 27, 1997, and incorporated herein by reference.
10.26
Underwriting Agreement between Applied Materials, Inc. and Morgan
Stanley & Co. Incorporated dated October 9, 1997,
previously filed with Applied Materials’ Form S-3 dated
October 9, 1997, and incorporated herein by reference.
10.27
Prospectus Supplement for Applied Materials’
$400 million Senior Notes dated October 9, 1997,
previously filed with Applied Materials’ Form S-3 dated
October 9, 1997, and incorporated herein by reference.
10.28
$250,000 Five Year Credit Agreement and $250,000 364-Day Credit
Agreement, each dated as of March 13, 1998 among Applied
Materials, Inc., Morgan Guaranty Trust Company of New York, as
Documentation Agent and Administrative Agent, and Citicorp
Securities, Inc., as Syndication Agent, previously filed with
Applied Materials’ Form 10-Q for the quarter ended
April 26, 1998, and incorporated herein by reference.
10.29*
Amendment No. 1 to the Applied Materials, Inc. Executive
Deferred Compensation Plan dated August 1, 1997, previously
filed with Applied Materials’ Form 10-Q for the quarter
ended July 26, 1998, and incorporated herein by reference.
10.30*
Amendment No. 2 to the Applied Materials, Inc. Executive
Deferred Compensation Plan dated December 1, 1997,
previously filed with Applied Materials’ Form 10-Q for
the quarter ended July 26, 1998, and incorporated herein by
reference.
10.31*
Applied Materials, Inc. 1995 Equity Incentive Plan, as amended on
March 17, 1998, previously filed with Applied
Materials’ Preliminary Proxy Statement dated
January 27, 1998, and incorporated herein by reference.
10.32
Letters of Guarantee dated October 28, 1998 between Applied
Materials, Inc. and Bank of Tokyo-Mitsubishi, Ltd., Sanwa Bank,
Ltd., Sakura Bank, Ltd. and Sumitomo Bank, Ltd. on behalf of
Applied Komatsu Technology, Inc.
10.33
Promissory Note dated December 15, 1998 between Applied
Materials, Inc. and Applied Komatsu Technology America, Inc.
10.34
Receivables Purchase Agreement dated October 22, 1998
between Applied Materials, Inc. and Deutsche Financial Services
Corporation.
10.35*
Amendment No. 1 to the Applied Materials, Inc. Senior
Executive Bonus Plan dated September 2, 1998.
Exhibit No.
Description
10.36*
Applied Materials, Inc. Employees’ Stock Purchase Plan (as
amended and restated December 10, 1998), previously filed as
Appendix A to Applied Materials’ Definitive Proxy
Statement dated February 22, 1999, and incorporated herein
by reference.
10.37
Amendment dated January 26, 1999 to Receivables Purchase
Agreement dated October 22, 1998 between Applied Materials,
Inc. and Deutsche Financial Services Corporation, previously
filed with Applied Materials’ Form 10-Q for the quarter
ended January 31, 1999, and incorporated herein by
reference.
10.38
Receivables Purchase Agreement dated January 26, 1999
between Applied Materials, Inc. and Deutsche Financial Services
(UK) Limited, previously filed with Applied Materials’
Form 10-Q for the quarter ended January 31, 1999, and
incorporated herein by reference.
10.39
Second Amendment dated April 28, 1999 to Receivables
Purchase Agreement dated October 22, 1998 between Applied
Materials, Inc. and Deutsche Financial Services Corporation,
previously filed with Applied Materials’ Form 10-Q for
the quarter ended May 2, 1999, and incorporated herein by
reference. (Confidential treatment has been granted for certain
portions of the agreement).
10.40
Amendment dated April 28, 1999 to Receivables Purchase
Agreement dated January 26, 1999 between Applied Materials,
Inc. and Deutsche Financial Services Corporation (UK) Limited,
previously filed with Applied Materials’ Form 10-Q for
the quarter ended May 2, 1999, and incorporated herein by
reference. (Confidential treatment has been granted for certain
portions of the agreement).
10.41
$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, previously filed with
Applied Materials’ Form 10-Q for the quarter ended
May 2, 1999, and incorporated herein by reference.
10.42*
Amendment No. 2 to the Applied Materials, Inc. 1995 Equity
Incentive Plan, dated June 9, 1999, previously filed with
Applied Materials’ Form 10-Q for the quarter ended
May 2, 1999, and incorporated herein by reference.
10.43*
Applied Materials, Inc. Nonqualified Stock Option Agreement
related to the 1995 Equity Incentive Plan, previously filed with
Applied Materials’ Form 10-Q for the quarter ended
May 2, 1999, and incorporated herein by reference.
10.44
Form of Indemnification Agreement between Applied Materials, Inc.
and Non-Employee Directors, dated June 11, 1999.
10.45
Form of Indemnification Agreement between Applied Materials, Inc.
and James C. Morgan and Dan Maydan, dated June 11,
1999.
10.46
Form of Indemnification Agreement between Applied Materials, Inc.
and Joseph R. Bronson, Sasson Somekh and David N.K.
Wang, dated November 2, 1999.
12.1
Ratio of Earnings to Fixed Charges.
13
Applied Materials 1999 Annual Report for the fiscal year ended
October 31, 1999 (to the extent expressly incorporated by
reference).
21
Subsidiaries of Applied Materials, Inc.
23
Consent of Independent Accountants.
24
Power of Attorney.
27
Financial Data Schedule: filed electronically.
*
Indicates, as required by Item 14(a)3, a management contract
or compensatory plan or arrangement.
APPLIED MATERIALS, INC.
By
/s/ JAMES C. MORGAN
James C. Morgan
Chairman of the Board and Chief Executive Officer
Title
Date
/s/ JAMES C. MORGAN
James C. Morgan
Chairman of the Board and Chief Executive Officer
January 28, 2000
/s/ JOSEPH R. BRONSON
Joseph R. Bronson
Senior Vice President, Office of the President Chief Financial
Officer and Chief Administrative Officer (Principal Financial
Officer)
January 28, 2000
/s/ PATRICK CROM
Patrick Crom
Vice President, Global Controller and Chief Accounting Officer
(Principal Accounting Officer)
January 28, 2000
Directors:
*
Dan Maydan
Director
January 28, 2000
*
Michael H. Armacost
Director
January 28, 2000
*
Deborah A. Coleman
Director
January 28, 2000
*
Herbert M. Dwight, Jr.
Director
January 28, 2000
*
Philip V. Gerdine
Director
January 28, 2000
*
Tsuyoshi Kawanishi
Director
January 28, 2000
*
Paul R. Low
Director
January 28, 2000
*
Alfred J. Stein
Director
January 28, 2000
*By
/s/ JAMES C. MORGAN
James C. Morgan
Attorney-in-Fact**
**
By authority of the power of attorney filed herewith.
Balance at
Additions —
Balance
Fiscal Year
Beginning of Year
Charged to Income
Deductions
at End of Year
1997
$
4,169
$
2,433
$
(1,024
)
$
5,578
1998
$
5,578
$
—
$
(4,948
)
$
630
1999
$
630
$
2,112
$
(868
)
$
1,874
EXHIBIT 3(ii)
BYLAWS
OF
APPLIED MATERIALS, INC.
(As amended to December 7, 1999)
TABLE OF CONTENTS
i
ii
BYLAWS
OF
APPLIED MATERIALS, INC.
ARTICLE I
OFFICES
1.1
Registered Office.
The registered office of
the corporation in the State of Delaware shall be Corporation
Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of the registered agent of the
corporation at such location is The Corporation Trust Company.
1.2
Other Offices.
The corporation may also
have offices at such other places both within and without the
State of Delaware as the board of directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS
2.1
Place of Meetings.
Meetings of stockholders
shall be held at such place, either, within or without the State
of Delaware, as may be designated by the board of directors. In
the absence of any such designation, stockholders’ meetings
shall be held at the corporation’s principal executive
offices.
2.2
Annual Meeting.
The annual meeting of
stockholders shall be held each year on a date and at a time
designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3
Special Meeting.
Special meetings of the
stockholders may be called at any time by the board of directors,
or by the chairman of the board, or by the president of the
corporation.
If a special meeting is called by any person or persons other
than the board of directors, the request shall be in writing,
specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the
president, any vice president, or the secretary of the
corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer
receiving the request shall cause notice to be promptly given to
the stockholders entitled to vote, in accordance with the
provisions of Sections 4 and 5 of this Article II, that
a meeting will be held at the time requested by the person or
persons calling the meeting, not less than 35 nor more than 60
days after the receipt of the request. If the notice is not given
within 20 days after the receipt of the request, the person
or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 3 shall be
construed as limiting, fixing, or affecting the time when a
meeting of stockholders called by action of the board of
directors may be held.
2.4
Notice of Stockholders’ Meetings.
All
notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with
Section 2.5 of these bylaws not less than 10 nor more than
60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is
called.
2.5
Advance Notice of Stockholder Nominees.
No
nominations for director of the corporation by any person other
than the board of directors shall be presented to any meeting of
stockholders unless the person making the nomination is a record
stockholder and shall have delivered a written notice to the
secretary of the corporation no later than the close of business
forty-five days prior to the month and day of mailing the prior
year’s proxy statement. Such notice shall (i) set forth
the name and address of the person advancing such nomination and
the nominee, together with such information concerning the
person making the nomination
No proposal by any person other than the board of directors shall
be submitted for the approval of the stockholders at any regular
or special meeting of the stockholders of the corporation unless
the person advancing such proposal shall have delivered a
written notice to the secretary of the corporation no later than
the close of business forty-five days prior to the month and day
of mailing the prior year’s proxy statement. Such notice
shall set forth the name and address of the person advancing the
proposal, any material interest of such person in the proposal,
and such other information concerning the person making such
proposal and the proposal itself as would be required by the
appropriate Rules and Regulations of the Securities and Exchange
Commission to be included in a proxy statement soliciting proxies
for the proposal.
2.6
Manner of Giving Notice; Affidavit of Notice.
Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the
records of the corporation. An affidavit of the secretary or an
assistant secretary or of the transfer agent of the corporation
that the notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
2.7
Quorum.
The holders of a majority of the
stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the
certificate of incorporation. Except as otherwise required by
law, the certificate of incorporation or these bylaws, the
affirmative vote of the majority of such quorum shall be deemed
the act of the stockholders. If, however, such quorum is not
present or represented at any meeting of the stockholders, then
either (i) the chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such
adjourned meeting at which a quorum is present or represented,
any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.8
Adjourned Meeting; Notice.
When a meeting
is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.9
Conduct of Business.
The chairman of any
meeting of stockholders shall determine the order of business and
the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.10
Voting.
Except as may be otherwise
provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock
held by such stockholder. Voting may be by voice or by ballot as
the presiding officer of the meeting of the stockholders shall
determine. On a vote by ballot, each ballot shall be signed by
the stockholder voting, or by such stockholder’s proxy, and
shall state the number of shares voted.
2.11
Waiver of Notice.
Whenever notice is
required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of
notice unless so required by the certificate of incorporation or
these bylaws.
2
2.12
Record Date for Stockholder Notice; Voting;
Giving Consents.
In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may
fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
If the board of directors does not so fix a record date:
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
2.13
Proxies.
Each stockholder entitled to vote
at a meeting of stockholders may authorize another person or
persons to act for him by a written proxy, signed by the
stockholder and filed with the secretary of the corporation, but
no such proxy shall be voted or acted upon after one year from
its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder’s name is placed
on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the stockholder or the
stockholder’s attorney-in-fact. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. A proxy may be made irrevocable
regardless of whether the interest with which it is coupled is
an interest in the stock itself or an interest in the corporation
generally.
ARTICLE III
DIRECTORS
3.1
Powers.
The business and affairs of the
corporation shall be managed by or under the direction of the
board of directors, except as otherwise provided in the General
Corporation Law of the State of Delaware or in the certificate of
incorporation.
3.2
Number of Directors.
The board of directors
shall consist of ten (10) persons until changed by a proper
amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director’s term
of office expires.
3.3
Election, Qualification and Term of Office of
Directors.
Except as provided in Section 3.4 of these
bylaws, directors shall be elected at each annual meeting of
stockholders. Directors need not be stockholders. Each director,
including a director elected to fill a vacancy, shall hold office
until his successor is elected and qualified or until his
earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4
Resignation and Vacancies.
Any director may
resign at any time upon written notice to the attention of the
secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a
majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the
filling of other vacancies.
3
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of
the stockholders having the right to vote as a single class may
be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director.
Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and
newly created directorships of such class or classes or series
may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any
officer or any stockholder or an executor, administrator, trustee
or guardian of a stockholder, or other fiduciary entrusted with
like responsibility for the person or estate of a stockholder,
may call a special meeting of stockholders in accordance with the
provisions of the certificate of incorporation or these bylaws,
or may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the
General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a
majority of the whole board (as constituted immediately prior to
any such increase), then the Court of Chancery may, upon
application of any stockholder or stockholders holding at least
ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies
or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211
of the General Corporation Law of Delaware as far as applicable.
The stockholders may elect a director at any time to fill any
vacancy not filled by the directors.
If a vacancy is the result of action taken by the shareholders
under Section 3.13 of these bylaws, then the vacancy shall
be filled by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.5
Place of Meetings; Meetings by Telephone.
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of
Delaware.
Members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the
board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this bylaw shall
constitute presence in person at the meeting.
3.6
Regular Meetings.
Regular meetings of the
board of directors may be held without notice at such time and at
such place as shall from time to time be determined by the
board.
3.7
Special Meetings; Notice.
Special meetings
of the board of directors for any purpose or purposes may be
called at any time by the chairman of the board, the president,
any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
first-class mail or telegram, charges prepaid, addressed to each
director at that director’s address as it is shown on the
records of the corporation. If the notice is mailed, it shall be
deposited in the United States mail at least four days before the
time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least
48 hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the
director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not
specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the
corporation.
3.8
Quorum.
At all meetings of the board of
directors, a majority of the authorized number of directors shall
constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors,
except as may be otherwise
4
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if
any action taken is approved by at least a majority of the
required quorum for that meeting.
3.9
Waiver of Notice.
Whenever notice is
required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need
be specified in any written waiver of notice unless so required
by the certificate of incorporation or these bylaws.
3.10
Board Action by Written Consent Without a
Meeting.
Any action required or permitted to be taken at any
meeting of the board of directors, or of any committee thereof,
may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11
Fees and Compensation of Directors.
The
board of directors shall have the authority to fix the
compensation of directors.
3.12
Approval of Loans to Officers.
The
corporation may lend money to, or guarantee any obligations of,
or otherwise assist any officer or other employee of the
corporation or any of its subsidiaries, including any officer or
employee who is a director of the corporation or any of its
subsidiaries, whenever, in the judgment of the directors, such
loan, guaranty or assistance, or an employee benefit or employee
financial assistance plan adopted by the board of directors or
any committee thereof authorizing any such loan, guaranty or
assistance, may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such a
manner as the board of directors shall approve, including,
without limitation, a pledge of shares of stock of the
corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of
the corporation at common law or under any statute.
3.13
Removal of Directors.
Any director or the
entire board of directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote
at an election of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such
director’s term of office.
3.14
Chairman of the Board of Directors.
The
corporation may also have, at the discretion of the board of
directors, a chairman of the board of directors who may be
considered an officer of the corporation.
3.15
Retirement of Directors.
No member of the
board of directors shall stand for reelection to membership on
the board of directors after attaining age 70. The provisions of
Section 3.15 of these bylaws may be waived under
extraordinary circumstances as to specific members by action of
the board of directors.
ARTICLE IV
COMMITTEES
4.1
Committees of Directors.
The board of
directors may, by resolution passed by a majority of the whole
board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or
5
4.2
Committee Minutes.
Each committee shall
keep regular minutes of its meetings and report the same to the
board of directors when required.
4.3
Meetings and Action of Committees.
Meetings
and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of
these bylaws, Section 3.5 (place of meetings and meetings by
telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8
(quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting), with such changes
in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of
directors or by resolution of the committee, that special
meetings of committees may also be called by resolution of the
board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1
Officers.
The officers of the corporation
shall be a president, a chief financial officer (who may be a
vice president or treasurer of the corporation) and a secretary.
The corporation may also have, at the discretion of the board of
directors, a chairman of the board of directors, one or more
senior vice presidents and one or more other officers. One or
more officers may be appointed in accordance with the provisions
of Section 5.3 of these bylaws. Any number of offices may be
held by the same person.
5.2
Election of Officers.
The officers of the
corporation, except such officers as may be appointed in
accordance with the provisions of Sections 5.3 or 5.5 of
these bylaws, shall be elected by the board of directors.
5.3
Appointed Officers.
The chief executive
officer of the corporation, or such other officer as the board of
directors shall select, may appoint, or the board of directors
may appoint, such officers and agents of the corporation as, in
his or their judgment, are necessary to conduct the business of
the corporation. Each such officer shall hold office for such
period, have such authority, and perform such duties as are
provided in these bylaws or as the board of directors or the
chief executive officer may from time to time determine.
6
5.4
Removal and Resignation of Officers.
Any
officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any
regular or special meeting of the board or, except in the case
of an officer elected by the board of directors, by the chief
executive officer or such other officer upon whom such power of
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in
that notice; and, unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer
is a party.
5.5
Vacancies in Offices.
Any vacancy occurring
in any office of the corporation shall be filled by the board of
directors, except for vacancies in the offices of subordinate
officers which may be filled pursuant to Section 5.3 hereof.
5.6
Chairman of the Board.
The chairman of the
board, if such an officer be elected, shall, if present, preside
at meetings of the board of directors and the stockholders and
exercise and perform such other powers and duties as may be from
time to time assigned by the board of directors or prescribed by
the bylaws.
5.7
President.
Subject to such supervisory
powers, if any, as may be given by the board of directors to the
chairman of the board, the president shall be the chief executive
officer of the corporation and shall, subject to the control of
the board of directors, have general supervision, direction, and
control of the business and the officers of the corporation. In
the absence or nonexistence of a chairman of the board, he shall
preside at all meetings of the stockholders and at all meetings
of the board of directors. He shall have the general powers and
duties of management usually vested in the office of president of
a corporation and shall have such other powers and duties as may
be prescribed by the board of directors or these bylaws.
5.8
Senior Vice Presidents and Vice Presidents.
In the absence or disability of the president, the vice
presidents, if any, in order of their rank as fixed by the board
of directors or, if not ranked, a vice president designated by
the board of directors, shall perform all the duties of the
president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them
respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9
Secretary.
The secretary shall keep or
cause to be kept, at the principal executive office of the
corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes
shall show the time and place of each meeting, the names of
those present at directors’ meetings or committee meetings,
the number of shares present or represented at stockholders’
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the
corporation’s transfer agent or registrar, as determined by
resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares,
and the number and date of cancellation of every certificate
surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors
required to be given by law or by these bylaws. He shall keep the
seal of the corporation, if one be adopted, in safe custody and
shall have such other powers and perform such other duties as may
be prescribed by the board of directors or by these bylaws.
5.10
Chief Financial Officer.
The chief
financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital retained
earnings, and shares. The books of account shall at all
reasonable times be open to inspection by any director.
7
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with
such depositories as may be designated by the board of directors.
He shall disburse the funds of the corporation as may be ordered
by the board of directors, shall render to the president and
directors, whenever they request it, an account of all his
transactions as chief financial officer and of the financial
condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the board of
directors or the bylaws.
5.11
Representation of Shares of Other
Corporations.
The chairman of the board, the president, any
vice president, the treasurer, the secretary or assistant
secretary of this corporation, or any other person authorized by
the board of directors or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this
corporation. The authority granted herein may be exercised either
by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person
having the authority.
5.12
Authority and Duties of Officers.
In
addition to the foregoing authority and duties, all officers of
the corporation shall respectively have such authority and
perform such duties in the management of the business of the
corporation as may be designated from time to time by the board
of directors.
ARTICLE VI
RECORDS AND REPORTS
6.1
Maintenance and Inspection of Records.
The
corporation shall, either at its principal executive offices or
at such place or places as designated by the board of directors,
keep a record of its stockholders listing their names and
addresses and the number and class of shares held by each
stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose
thereof, have the right during the usual hours for business to
inspect for any proper purpose the corporation’s stock
ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper
purpose shall mean a purpose reasonably related to such
person’s interest as a stockholder. In every instance where
an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing that authorizes the attorney
or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the corporation at its
registered office in Delaware or at its principal place of
business.
6.2
Inspection by Directors.
Any director shall
have the right to examine the corporation’s stock ledger, a
list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The
Court of Chancery is hereby vested with the exclusive
jurisdiction to determine whether a director is entitled to the
inspection sought. The Court may summarily order the corporation
to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe
any limitations or conditions with reference to the inspection,
or award such other and further relief as the Court may deem just
and proper.
ARTICLE VII
GENERAL MATTERS
7.1
Execution of Corporate Contracts and
Instruments.
The board of directors, except as otherwise
provided in these bylaws, may authorize any officer or officers,
or agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation; such
authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or
within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit
or to render it liable for any purpose or for any amount.
8
7.2
Stock Certificates; Partly Paid Shares.
The
shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may
provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by
the board of directors, every holder of stock represented by
certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in
the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice president, and
by the chief financial officer, the treasurer, or an assistant
treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of
issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the
consideration to be paid therefor. Upon the face or back of each
stock certificate issued to represent any such partly paid
shares, or upon the books and records of the corporation in the
case of uncertificated partly paid shares, the total amount of
the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully
paid shares, the corporation shall declare a dividend upon partly
paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
7.3
Special Designation on Certificates.
If the
corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the
designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of
such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the
corporation shall issue to represent such class or series of
stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue
to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who
so requests the powers, the designations, the preferences, and
the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
7.4
Lost Certificates.
The corporation may
issue a new certificate of stock or uncertificated shares in the
place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed, and the corporation may
require the owner of the lost, stolen or destroyed certificate,
or his legal representative to give the corporation a bond
sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate
or uncertified shares.
7.5
Construction; Definitions.
Unless the
context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation
Law shall govern the construction of these bylaws. Without
limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and
the term “person” includes both a corporation and a
natural person.
7.6
Dividends.
The directors of the
corporation, subject to any restrictions contained in the General
Corporation Law of Delaware or the certificate of incorporation,
may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares
of the corporation’s capital stock.
The directors of the corporation may set apart out of any of the
funds of the corporation available for dividends a reserve or
reserves for any proper purpose and may abolish any such reserve.
7.7
Fiscal Year.
The fiscal year of the
corporation shall be fixed by resolution of the board of
directors and may be changed by the board of directors.
9
7.8
Seal.
The board of directors may adopt a
corporate seal, and may use the same by causing it or a facsimile
thereof, to be impressed or affixed or in any other manner
reproduced.
ARTICLE VIII
AMENDMENTS
8.1
Amendments.
The bylaws of the corporation
may be altered, amended or repealed or new bylaws may be adopted
by either the (i) board of directors or
(ii) stockholders upon the affirmative vote of the holders
of not less than a majority of the total voting power of all
issued and outstanding shares of stock in this corporation
entitled to vote thereon.
Page
ARTICLE I
OFFICES
1
1.1
Registered Office
1
1.2
Other Offices
1
ARTICLE II
STOCKHOLDERS
1
2.1
Place of Meetings
1
2.2
Annual Meeting
1
2.3
Special Meeting
1
2.4
Notice of Stockholders’ Meetings
1
2.5
Advance Notice of Stockholder Nominees
1
2.6
Manner of Giving Notice; Affidavit of Notice
2
2.7
Quorum
2
2.8
Adjourned Meeting; Notice
2
2.9
Conduct of Business
2
2.10
Voting
2
2.11
Waiver of Notice
2
2.12
Record Date for Stockholder Notice; Voting; Giving Consents
3
2.13
Proxies
3
ARTICLE III
DIRECTORS
3
3.1
Powers
3
3.2
Number of Directors
3
3.3
Election, Qualification and Term of Office of Directors
3
3.4
Resignation and Vacancies
3
3.5
Place of Meetings; Meetings by Telephone
4
3.6
Regular Meetings
4
3.7
Special Meetings; Notice
4
3.8
Quorum
4
3.9
Waiver of Notice
5
3.10
Board Action by Written Consent Without a Meeting
5
3.11
Fees and Compensation of Directors
5
3.12
Approval of Loans to Officers
5
3.13
Removal of Directors
5
3.14
Chairman of the Board of Directors
5
3.15
Retirement of Directors
5
ARTICLE IV
COMMITTEES
5
4.1
Committees of Directors
5
4.2
Committee Minutes
6
4.3
Meetings and Action of Committees
6
Page
ARTICLE V
OFFICERS
6
5.1
Officers
6
5.2
Election of Officers
6
5.3
Appointed Officers
6
5.4
Removal and Resignation of Officers
7
5.5
Vacancies in Offices
7
5.6
Chairman of the Board
7
5.7
President
7
5.8
Senior Vice Presidents and Vice Presidents
7
5.9
Secretary
7
5.10
Chief Financial Officer
7
5.11
Representation of Shares of Other Corporations
8
5.12
Authority and Duties of Officers
8
ARTICLE VI
RECORDS AND REPORTS
8
6.1
Maintenance and Inspection of Records
8
6.2
Inspection by Directors
8
ARTICLE VII
GENERAL MATTERS
8
7.1
Execution of Corporate Contracts and Instruments
8
7.2
Stock Certificates; Partly Paid Shares
9
7.3
Special Designation on Certificates
9
7.4
Lost Certificates
9
7.5
Construction; Definitions
9
7.6
Dividends
9
7.7
Fiscal Year
9
7.8
Seal
10
ARTICLE VIII
AMENDMENTS
10
8.1
Amendments
10
(i) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at
the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting
is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on
which the board of directors adopts the resolution relating
thereto.
10
EXHIBIT 10.44
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”), made as of this day of , 1999, by and between Applied Materials, Inc., a Delaware corporation (the “Company”), and (the “Indemnitee”), a director of the Company.
WHEREAS, the Indemnitee is currently serving as a director of the Company and in such capacity has rendered and will render valuable services to the Company;
WHEREAS, the Company has investigated the availability and sufficiency of directors’ and officers’ liability insurance and Delaware statutory indemnification provisions to provide its directors and officers with adequate protection against various legal risks and potential liabilities to which such individuals are subject due to their positions with the Company and the Company has concluded that such insurance and statutory provisions may provide inadequate and unacceptable protection to certain individuals requested to serve as its directors and officers; and
WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to continue to serve as directors of the Company, the Board of Directors has determined, after due consideration and investigation of the terms and provisions of this Agreement and the various other alternatives available to the Company and the Indemnitee in lieu hereof, that this Agreement is not only reasonable and prudent, but necessary to promote and ensure the best interests of the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and other good and valuable consideration, including, without limitation, the continued service of the Indemnitee, the receipt of which hereby is acknowledged, and in order to induce the Indemnitee to continue to serve as a director of the Company, the Company and the Indemnitee hereby agree as follows:
1. Definitions . As used in this Agreement:
| (a) “Change in Control” shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar or successor schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred (irrespective of the applicability of the initial clause of this definition) if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act, but excluding any trustee or other fiduciary holding securities pursuant to an employee benefit or welfare plan or employee stock plan of the Company or any subsidiary of the Company, or any entity organized, appointed, established or holding securities of the Company with voting power for or pursuant to the terms of any such plan) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the Continuing Directors (as defined below) in office immediately prior to such person’s attaining such interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which Continuing Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors of the Company (or any successor entity) thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) (such directors being referred to herein as “Continuing Directors”) cease for any reason to constitute at least a majority of the Board of Directors of the Company. |
| (b) “Disinterested Director” with respect to any request by the Indemnitee for indemnification or advancement of expenses hereunder shall mean a director of the Company who neither is nor was a party to the Proceeding (as defined below) in respect of which indemnification or advancement is being sought by the Indemnitee. | |
| (c) The term “Expenses” shall mean, without limitation, expenses of Proceedings, including attorneys’ fees, disbursements and retainers, accounting and witness fees, expenses related to the preparation or service as a witness, travel and deposition costs, expenses of investigations, judicial or administrative proceedings and appeals, amounts paid in settlement of a Proceeding by or on behalf of the Indemnitee, costs of attachment or similar bonds, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, under this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise, and reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or action for indemnification for which the Indemnitee is not otherwise compensated by the Company or any third party. The term “Expenses” shall not include the amount of judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually levied against or sustained by the Indemnitee to the extent sustained after final adjudication. | |
| (d) The term “Independent Legal Counsel” shall mean any firm of attorneys selected by lot from a list consisting of firms which meet minimum size criteria and other reasonable criteria established by the Board of Directors of the Company, so long as such firm has not represented the Company, the Indemnitee, any entity controlled by the Indemnitee, or any party adverse to the Company, within the preceding five years. Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s right to indemnification or advancement of expenses under this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise. | |
| (e) The term “Proceeding” shall mean any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, or any other proceeding (including, without limitation, an appeal therefrom), formal or informal, whether brought in the name of the Company or otherwise, whether of a civil, criminal, administrative or investigative nature, and whether by, in or involving a court or an administrative, other governmental or private entity or body (including, without limitation, an investigation by the Company or its Board of Directors), by reason of (i) the fact that the Indemnitee is or was a director of the Company, or is or was serving at the request of the Company as an agent of another enterprise, whether or not the Indemnitee is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement is to be provided under this Agreement, (ii) any actual or alleged act or omission or neglect or breach of duty, including, without limitation, any actual or alleged error or misstatement or misleading statement, which the Indemnitee commits or suffers while acting in any such capacity, or (iii) the Indemnitee attempting to establish or establishing a right to indemnification or advancement of expenses pursuant to this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise. | |
| (f) The phrase “serving at the request of the Company as an agent of another enterprise” or any similar terminology shall mean, unless the context otherwise requires, (i) serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, and (ii) serving as a director, officer, employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation. The phrase “serving at the request of the Company” shall include, without limitation, any service as a director or officer of the Company which imposes duties on, or involves services by, such director or officer with respect to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic. In the event that the Indemnitee shall be a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign |
2
| or domestic, 40% or more of the common stock, combined voting power or total equity interest of which is owned by the Company or any subsidiary or affiliate thereof, then it shall be presumed conclusively that the Indemnitee is so acting at the request of the Company. |
2. Services by the Indemnitee . The Indemnitee agrees to continue to serve as a director of the Company at the will of the Company for so long as the Indemnitee is duly elected and qualified, appointed or until such time as the Indemnitee tenders a resignation in writing or is removed as a director; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or other obligation imposed by operation of the law).
3. Proceeding Other Than a Proceeding By or In the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company to procure a judgment in its favor), by reason of the fact that the Indemnitee is or was a director of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with such a Proceeding, to the fullest extent permitted by applicable law; provided, however, that any settlement of a Proceeding must be approved in advance in writing by the Company.
4. Proceedings By or In the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such a Proceeding, to the fullest extent permitted by applicable law.
5. Indemnification for Costs, Charges and Expenses of Witness or Successful Party . Notwithstanding any other provision of this Agreement (except as set forth in subparagraph 9(a) hereof), and without a requirement for determination as required by Paragraph 8 hereof, to the extent that the Indemnitee (a) has prepared to serve or has served as a witness in any Proceeding in any way relating to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic, or anything done or not done by the Indemnitee as a director of the Company, as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, or as a director, officer, employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise, at the request of such predecessor corporation, or (b) has been successful in defense of any Proceeding or in defense of any claim, issue or matter therein, on the merits or otherwise, including the dismissal of a Proceeding without prejudice or the settlement of a Proceeding without an admission of liability, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith to the fullest extent permitted by applicable law.
6. Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount of the Indemnitee’s Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, then the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, interest penalties or excise taxes to which the Indemnitee is entitled.
7. Advancement of Expenses . The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by applicable law; provided, however, that the Indemnitee shall
3
8. Indemnification Procedure; Determination of Right to Indemnification .
(a) Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee shall, if a claim for indemnification or advancement of Expenses in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof in writing. The omission to so notify the Company will not relieve the Company from any liability which the Company may have to the Indemnitee under this Agreement unless the Company shall have lost significant substantive or procedural rights with respect to the defense of any Proceeding as a result of such omission to so notify.
(b) The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct, if any, as defined by applicable law, for indemnification pursuant to this Agreement and shall be absolutely entitled to such indemnification, unless a determination by clear and convincing evidence is made that the Indemnitee has not met such standards by (i) the Board of Directors by a majority vote of a quorum thereof consisting of Disinterested Directors, (ii) the stockholders of the Company by majority vote of a quorum thereof consisting of stockholders who are not parties to the Proceeding due to which a claim for indemnification is made under this Agreement, (iii) Independent Legal Counsel as set forth in a written opinion (it being understood that such Independent Legal Counsel shall make such determination only if the quorum of Disinterested Directors referred to in clause (i) of this subparagraph 8(b) is not obtainable or if the Board of Directors of the Company by a majority vote of a quorum thereof consisting of Disinterested Directors so directs), or (iv) a court of competent jurisdiction; provided, however, that if a Change of Control shall have occurred and the Indemnitee so requests in writing, such determination shall be made only by a court of competent jurisdiction.
(c) If a claim for indemnification or advancement of Expenses under this Agreement is not paid by the Company within 30 days after receipt by the Company of written notice thereof, the rights provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be made de novo . The burden of proving by clear and convincing evidence that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the directors or stockholders of the Company or Independent Legal Counsel to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, if any, nor an actual determination by the directors or stockholders of the Company or Independent Legal Counsel that the Indemnitee has not met the applicable standard of conduct shall be a defense to an action by the Indemnitee or create a presumption for the purpose of such an action that the Indemnitee has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself (i) create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in the best interests of the Company and/or its stockholders, and, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or advancement of Expenses under this Agreement, except as may be provided herein. The Company shall not oppose the Indemnitee’s right or entitlement to indemnification or advancement of Expenses in any such judicial proceeding or appeal therefrom. The Company further agrees to stipulate in any such judicial proceeding that the Company is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.
(d) If a court of competent jurisdiction shall determine that the indemnitee is entitled to any indemnification or advancement of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such adjudication (including, but not limited to, any appellate proceedings). The Indemnitee’s Expenses incurred in connection with any Proceeding concerning
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(e) With respect to any Proceeding for which indemnification or advancement of Expenses is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any Expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than as provided below. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee’s written consent. The Indemnitee shall have the right to employ his own counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense of the Proceeding shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a proceeding, in each of which cases the fees and expenses of the Indemnitee’s counsel shall be advanced by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has concluded that there may be a conflict of interest between the Company and the Indemnitee.
9. Limitations on Indemnification . No payments pursuant to this Agreement shall be made by the Company:
| (a) To indemnify or advance funds to the Indemnitee for Expenses with respect to (i) Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law or (ii) Expenses incurred by the Indemnitee in connection with preparing to serve or serving, prior to a Change in Control, as a witness in cooperation with any party or entity who or which has threatened or commenced any action or proceeding against the Company, or any director, officer, employee, trustee, agent, representative, subsidiary, parent corporation or affiliate of the Company, but such indemnification or advancement of Expenses in each such case may be provided by the Company if the Board of Directors finds it to be appropriate; | |
| (b) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, and sustained in any Proceeding for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; | |
| (c) To indemnify the Indemnitee for any Expenses, judgments, fines, expenses or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any federal, state or local statute or regulation; | |
| (d) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement; | |
| (e) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, on account of the Indemnitee’s conduct if such conduct shall be finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct, including, without limitation, breach of the duty of loyalty; or | |
| (f) If a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful. |
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10. Continuation of Indemnification . All agreements and obligations of the Company contained herein shall continue during the period that the Indemnitee is a director of the Company (or is or was serving at the request of the Company as an agent of another enterprise, foreign or domestic) and shall continue thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was a director of the Company or serving in any other capacity referred to in this Paragraph 10.
11. Indemnification Hereunder Not Exclusive . The indemnification provided by this Agreement shall not be deemed to be exclusive of any other rights to which the Indemnitee may be entitled under the Company’s Certificate of Incorporation, as amended, the Company’s Bylaws, as amended, any agreement, vote of stockholders or vote of Disinterested Directors, provisions of applicable law, or otherwise, both as to action or omission in the Indemnitee’s official capacity and as to action or omission in another capacity on behalf of the Company while holding such office.
12. Extension of Indemnification Rights to Indemnitee’s Associates . If the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by reason of the fact that the Indemnitee is or was a director of the Company, and if any Associate of the “Indemnitee” (as defined in Rule 12b-2 under the Act) is also involved in such Proceeding primarily as a result of actions taken or omitted by the Indemnitee as a director of the Company or while serving at the request of the Company as an agent of another enterprise, foreign or domestic, such Associate of the Indemnitee shall also be entitled to indemnification under this Agreement in the same manner as the Indemnitee, but only to the extent that the claims against such Associate are based upon or directly attributable to actions taken or omitted by the Indemnitee.
13. Successors and Assigns .
(a) This Agreement shall be binding upon, and shall inure to the benefit of, the Indemnitee and the Indemnitee’s heirs, executors, administrators and assigns, whether or not the Indemnitee has ceased to be a director, and the Company and its successors and assigns. Upon the sale of all or substantially all of the business, assets or capital stock of the Company to, or upon the merger of the Company into or with, any corporation, partnership, joint venture, trust or other person, this Agreement shall inure to the benefit of and be binding upon both the Indemnitee and such purchaser or successor person. Subject to the foregoing, this Agreement may not be assigned by either party without the prior written consent of the other party hereto.
(b) If the Indemnitee is deceased and is entitled to indemnification under any provision of this Agreement, the Company shall indemnify the Indemnitee’s estate and the Indemnitee’s spouse, heirs, executors, administrators and assigns against, and the Company shall, and does hereby agree to assume, any and all Expenses actually and reasonably incurred by or for the Indemnitee or the Indemnitee’s estate, in connection with the investigation, defense, appeal or settlement of any Proceeding. Further, when requested in writing by the spouse of the Indemnitee, and/or the Indemnitee’s heirs, executors, administrators and assigns, the Company shall provide appropriate evidence of the Company’s agreement set out herein to indemnify the Indemnitee against and to itself assume such Expenses.
14. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
15. Severability . Each and every paragraph, sentence, term and provision of this Agreement is separate and distinct so that if any paragraph, sentence, term or provision thereof shall be held to be invalid, unlawful or unenforceable for any reason, such invalidity, unlawfulness or unenforceability shall not affect the validity, unlawfulness or enforceability of any other paragraph, sentence, term or provision hereof. To the extent required, any paragraph, sentence, term or provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law.
16. Savings Clause . If this Agreement or any paragraph, sentence, term or provision hereof is invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect
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17. Interpretation; Governing Law . This Agreement shall be construed as a whole and in accordance with its fair meaning. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed and interpreted in accordance with the laws of the State of Delaware without regard to the conflict of laws principles thereof.
18. Amendments . No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by the party against whom enforcement is sought. The indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Certificate of Incorporation, Bylaws or by other agreements, including directors’ and officers’ liability insurance policies, of the Company.
19. Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other.
20. Notices . Any notice required to be given under this Agreement shall be directed to Applied Materials, Inc., 2881 Scott Boulevard M/ S 2064, Santa Clara, California 95050, Attention: Vice President, Legal Affairs and Intellectual Property, and to the Indemnitee at Applied Materials, Inc., 3050 Bowers Avenue M/ S 2064, Santa Clara, California 95054 or to such other address as either shall designate to the other in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnification Agreement as of the date first written above.
| INDEMNITEE | |
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| Name: | |
| APPLIED MATERIALS, INC. |
| By: |
_______________________________________ Name: Title: |
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INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”), made as of this day of , 1999, by and between Applied Materials, Inc., a Delaware corporation (the “Company”), and (the “Indemnitee”), a director and officer of the Company.
WHEREAS, the Indemnitee is currently serving as a director and officer of the Company and in such capacity has rendered and will render valuable services to the Company;
WHEREAS, the Company has investigated the availability and sufficiency of directors’ and officers’ liability insurance and Delaware statutory indemnification provisions to provide its directors and officers with adequate protection against various legal risks and potential liabilities to which such individuals are subject due to their positions with the Company and the Company has concluded that such insurance and statutory provisions may provide inadequate and unacceptable protection to certain individuals requested to serve as its directors and officers; and
WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to continue to serve as directors and officers of the Company, the Board of Directors has determined, after due consideration and investigation of the terms and provisions of this Agreement and the various other alternatives available to the Company and the Indemnitee in lieu hereof, that this Agreement is not only reasonable and prudent, but necessary to promote and ensure the best interests of the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and other good and valuable consideration, including, without limitation, the continued service of the Indemnitee, the receipt of which hereby is acknowledged, and in order to induce the Indemnitee to continue to serve as a director and officer of the Company, the Company and the Indemnitee hereby agree as follows:
1. Definitions . As used in this Agreement:
| (a) “Change in Control” shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar or successor schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred (irrespective of the applicability of the initial clause of this definition) if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act, but excluding any trustee or other fiduciary holding securities pursuant to an employee benefit or welfare plan or employee stock plan of the Company or any subsidiary of the Company, or any entity organized, appointed, established or holding securities of the Company with voting power for or pursuant to the terms of any such plan) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the Continuing Directors (as defined below) in office immediately prior to such person’s attaining such interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which Continuing Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors of the Company (or any successor entity) thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) (such directors being referred to herein as “Continuing Directors”) cease for any reason to constitute at least a majority of the Board of Directors of the Company. |
| (b) “Disinterested Director” with respect to any request by the Indemnitee for indemnification or advancement of expenses hereunder shall mean a director of the Company who neither is nor was a party to the Proceeding (as defined below) in respect of which indemnification or advancement is being sought by the Indemnitee. | |
| (c) The term “Expenses” shall mean, without limitation, expenses of Proceedings, including attorneys’ fees, disbursements and retainers, accounting and witness fees, expenses related to the preparation or service as a witness, travel and deposition costs, expenses of investigations, judicial or administrative proceedings and appeals, amounts paid in settlement of a Proceeding by or on behalf of the Indemnitee, costs of attachment or similar bonds, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, under this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise, and reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or action for indemnification for which the Indemnitee is not otherwise compensated by the Company or any third party. The term “Expenses” shall not include the amount of judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually levied against or sustained by the Indemnitee to the extent sustained after final adjudication. | |
| (d) The term “Independent Legal Counsel” shall mean any firm of attorneys selected by lot from a list consisting of firms which meet minimum size criteria and other reasonable criteria established by the Board of Directors of the Company, so long as such firm has not represented the Company, the Indemnitee, any entity controlled by the Indemnitee, or any party adverse to the Company, within the preceding five years. Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s right to indemnification or advancement of expenses under this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise. | |
| (e) The term “Proceeding” shall mean any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, or any other proceeding (including, without limitation, an appeal therefrom), formal or informal, whether brought in the name of the Company or otherwise, whether of a civil, criminal, administrative or investigative nature, and whether by, in or involving a court or an administrative, other governmental or private entity or body (including, without limitation, an investigation by the Company or its Board of Directors), by reason of (i) the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, whether or not the Indemnitee is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement is to be provided under this Agreement, (ii) any actual or alleged act or omission or neglect or breach of duty, including, without limitation, any actual or alleged error or misstatement or misleading statement, which the Indemnitee commits or suffers while acting in any such capacity, or (iii) the Indemnitee attempting to establish or establishing a right to indemnification or advancement of expenses pursuant to this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise. | |
| (f) The phrase “serving at the request of the Company as an agent of another enterprise” or any similar terminology shall mean, unless the context otherwise requires, (i) serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, and (ii) serving as a director, officer, employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation. The phrase “serving at the request of the Company” shall include, without limitation, any service as a director or officer of the Company which imposes duties on, or involves services by, such director or officer with respect to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic. In the event that the Indemnitee shall be a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign |
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| or domestic, 40% or more of the common stock, combined voting power or total equity interest of which is owned by the Company or any subsidiary or affiliate thereof, then it shall be presumed conclusively that the Indemnitee is so acting at the request of the Company. |
2. Services by the Indemnitee. The Indemnitee agrees to continue to serve as a director and officer of the Company at the will of the Company for so long as the Indemnitee is duly elected and qualified, appointed or until such time as the Indemnitee tenders a resignation in writing or is removed as a director or officer; provided, however, that the Indemnitee may at any time and for any reason resign from either or both of such positions (subject to any other contractual obligation or other obligation imposed by operation of law).
3. Proceeding Other Than a Proceeding By or In the Right of the Company. The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company to procure a judgment in its favor), by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with such a Proceeding, to the fullest extent permitted by applicable law; provided, however, that any settlement of a Proceeding must be approved in advance in writing by the Company.
4. Proceedings By or In the Right of the Company. The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such a Proceeding, to the fullest extent permitted by applicable law.
5. Indemnification for Costs, Charges and Expenses of Witness or Successful Party. Notwithstanding any other provision of this Agreement (except as set forth in subparagraph 9(a) hereof), and without a requirement for determination as required by Paragraph 8 hereof, to the extent that the Indemnitee (a) has prepared to serve or has served as a witness in any Proceeding in any way relating to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic, or anything done or not done by the Indemnitee as a director or officer of the Company, as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, or as a director, officer, employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise, at the request of such predecessor corporation, or (b) has been successful in defense of any Proceeding or in defense of any claim, issue or matter therein, on the merits or otherwise, including the dismissal of a Proceeding without prejudice or the settlement of a Proceeding without an admission of liability, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith to the fullest extent permitted by applicable law.
6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount of the Indemnitee’s Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, then the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, interest penalties or excise taxes to which the Indemnitee is entitled.
7. Advancement of Expenses. The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by applicable law; provided, however, that the Indemnitee shall
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8. Indemnification Procedure; Determination of Right to Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee shall, if a claim for indemnification or advancement of Expenses in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof in writing. The omission to so notify the Company will not relieve the Company from any liability which the Company may have to the Indemnitee under this Agreement unless the Company shall have lost significant substantive or procedural rights with respect to the defense of any Proceeding as a result of such omission to so notify.
(b) The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct, if any, as defined by applicable law, for indemnification pursuant to this Agreement and shall be absolutely entitled to such indemnification, unless a determination by clear and convincing evidence is made that the Indemnitee has not met such standards by (i) the Board of Directors by a majority vote of a quorum thereof consisting of Disinterested Directors, (ii) the stockholders of the Company by majority vote of a quorum thereof consisting of stockholders who are not parties to the Proceeding due to which a claim for indemnification is made under this Agreement, (iii) Independent Legal Counsel as set forth in a written opinion (it being understood that such Independent Legal Counsel shall make such determination only if the quorum of Disinterested Directors referred to in clause (i) of this subparagraph 8(b) is not obtainable or if the Board of Directors of the Company by a majority vote of a quorum thereof consisting of Disinterested Directors so directs), or (iv) a court of competent jurisdiction; provided, however, that if a Change of Control shall have occurred and the Indemnitee so requests in writing, such determination shall be made only by a court of competent jurisdiction.
(c) If a claim for indemnification or advancement of Expenses under this Agreement is not paid by the Company within 30 days after receipt by the Company of written notice thereof, the rights provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be made de novo . The burden of proving by clear and convincing evidence that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the directors or stockholders of the Company or Independent Legal Counsel to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, if any, nor an actual determination by the directors or stockholders of the Company or Independent Legal Counsel that the Indemnitee has not met the applicable standard of conduct shall be a defense to an action by the Indemnitee or create a presumption for the purpose of such an action that the Indemnitee has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself (i) create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in the best interests of the Company and/or its stockholders, and, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or advancement of Expenses under this Agreement, except as may be provided herein. The Company shall not oppose the Indemnitee’s right or entitlement to indemnification or advancement of Expenses in any such judicial proceeding or appeal therefrom. The Company further agrees to stipulate in any such judicial proceeding that the Company is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.
(d) If a court of competent jurisdiction shall determine that the Indemnitee is entitled to any indemnification or advancement of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such adjudication (including, but not limited to, any appellate proceedings). The Indemnitee’s Expenses incurred in connection with any Proceeding concerning
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(e) With respect to any Proceeding for which indemnification or advancement of Expenses is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any Expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than as provided below. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee’s written consent. The Indemnitee shall have the right to employ his own counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense of the Proceeding shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a proceeding, in each of which cases the fees and expenses of the Indemnitee’s counsel shall be advanced by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has concluded that there may be a conflict of interest between the Company and the Indemnitee.
9. Limitations on Indemnification . No payments pursuant to this Agreement shall be made by the Company:
| (a) To indemnify or advance funds to the Indemnitee for Expenses with respect to (i) Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law or (ii) Expenses incurred by the Indemnitee in connection with preparing to serve or serving, prior to a Change in Control, as a witness in cooperation with any party or entity who or which has threatened or commenced any action or proceeding against the Company, or any director, officer, employee, trustee, agent, representative, subsidiary, parent corporation or affiliate of the Company, but such indemnification or advancement of Expenses in each such case may be provided by the Company if the Board of Directors finds it to be appropriate; | |
| (b) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, and sustained in any Proceeding for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; | |
| (c) To indemnify the Indemnitee for any Expenses, judgments, fines, expenses or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any federal, state or local statute or regulation; | |
| (d) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement; | |
| (e) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, on account of the Indemnitee’s conduct if such conduct shall be finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct, including, without limitation, breach of the duty of loyalty; or | |
| (f) If a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful. |
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10. Continuation of Indemnification . All agreements and obligations of the Company contained herein shall continue during the period that the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as an agent of another enterprise, foreign or domestic) and shall continue thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to in this Paragraph 10.
11. Indemnification Hereunder Not Exclusive . The indemnification provided by this Agreement shall not be deemed to be exclusive of any other rights to which the Indemnitee may be entitled under the Company’s Certificate of Incorporation, as amended, the Company’s Bylaws, as amended, any agreement, vote of stockholders or vote of Disinterested Directors, provisions of applicable law, or otherwise, both as to action or omission in the Indemnitee’s official capacity and as to action or omission in another capacity on behalf of the Company while holding such office.
12. Extension of Indemnification Rights to Indemnitee’s Associates . If the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by reason of the fact that the Indemnitee is or was a director or officer of the Company, and if any Associate of the “Indemnitee” (as defined in Rule 12b-2 under the Act) is also involved in such Proceeding primarily as a result of actions taken or omitted by the Indemnitee as a director or officer of the Company or while serving at the request of the Company as an agent of another enterprise, foreign or domestic, such Associate of the Indemnitee shall also be entitled to indemnification under this Agreement in the same manner as the Indemnitee, but only to the extent that the claims against such Associate are based upon or directly attributable to actions taken or omitted by the Indemnitee.
13. Successors and Assigns .
(a) This Agreement shall be binding upon, and shall inure to the benefit of, the Indemnitee and the Indemnitee’s heirs, executors, administrators and assigns, whether or not the Indemnitee has ceased to be a director and/ or officer, and the Company and its successors and assigns. Upon the sale of all or substantially all of the business, assets or capital stock of the Company to, or upon the merger of the Company into or with, any corporation, partnership, joint venture, trust or other person, this Agreement shall inure to the benefit of and be binding upon both the Indemnitee and such purchaser or successor person. Subject to the foregoing, this Agreement may not be assigned by either party without the prior written consent of the other party hereto.
(b) If the Indemnitee is deceased and is entitled to indemnification under any provision of this Agreement, the Company shall indemnify the Indemnitee’s estate and the Indemnitee’s spouse, heirs, executors, administrators and assigns against, and the Company shall, and does hereby agree to assume, any and all Expenses actually and reasonably incurred by or for the Indemnitee or the Indemnitee’s estate, in connection with the investigation, defense, appeal or settlement of any Proceeding. Further, when requested in writing by the spouse of the Indemnitee, and/ or the Indemnitee’s heirs, executors, administrators and assigns, the Company shall provide appropriate evidence of the Company’s agreement set out herein to indemnify the Indemnitee against and to itself assume such Expenses.
14. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
15. Severability . Each and every paragraph, sentence, term and provision of this Agreement is separate and distinct so that if any paragraph, sentence, term or provision thereof shall be held to be invalid, unlawful or unenforceable for any reason, such invalidity, unlawfulness or unenforceability shall not affect the validity, unlawfulness or enforceability of any other paragraph, sentence, term or provision hereof. To the extent required, any paragraph, sentence, term or provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law.
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16. Savings Clause . If this Agreement or any paragraph, sentence, term or provision hereof is invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are incurred with respect to any Proceeding to the fullest extent permitted by any (a) applicable paragraph, sentence, term or provision of this Agreement that has not been invalidated or (b) applicable provision of Delaware law.
17. Interpretation; Governing Law . This Agreement shall be construed as a whole and in accordance with its fair meaning. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed and interpreted in accordance with the laws of the State of Delaware without regard to the conflict of laws principles thereof.
18. Amendments . No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by the party against whom enforcement is sought. The indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Certificate of Incorporation, Bylaws or by other agreements, including directors’ and officers’ liability insurance policies, of the Company.
19. Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other.
20. Notices . Any notice required to be given under this Agreement shall be directed to Applied Materials, Inc., 2881 Scott Boulevard M/ S 2064, Santa Clara, California 95050, Attention: Vice President, Legal Affairs and Intellectual Property, and to the Indemnitee at Applied Materials, Inc., 3050 Bowers Avenue M/ S 2064, Santa Clara, California 95054 or to such other address as either shall designate to the other in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnification Agreement as of the date first written above.
| INDEMNITEE | |
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| Name: | |
| APPLIED MATERIALS, INC. |
| By: |
_______________________________________ Name: Title: |
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EXHIBIT 10.46
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”), made as of this day of , 1999, by and between Applied Materials, Inc., a Delaware corporation (the “Company”), and (the “Indemnitee”), an officer of the Company.
WHEREAS, the Indemnitee is currently serving as an officer of the Company and in such capacity has rendered and will render valuable services to the Company;
WHEREAS, the Company has investigated the availability and sufficiency of directors’ and officers’ liability insurance and Delaware statutory indemnification provisions to provide its directors and officers with adequate protection against various legal risks and potential liabilities to which such individuals are subject due to their positions with the Company and the Company has concluded that such insurance and statutory provisions may provide inadequate and unacceptable protection to certain individuals requested to serve as its directors and officers; and
WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to continue to serve as officers of the Company, the Board of Directors has determined, after due consideration and investigation of the terms and provisions of this Agreement and the various other alternatives available to the Company and the Indemnitee in lieu hereof, that this Agreement is not only reasonable and prudent, but necessary to promote and ensure the best interests of the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and other good and valuable consideration, including, without limitation, the continued service of the Indemnitee, the receipt of which hereby is acknowledged, and in order to induce the Indemnitee to continue to serve as an officer of the Company, the Company and the Indemnitee hereby agree as follows:
1. Definitions . As used in this Agreement:
| (a) “Change in Control” shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar or successor schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred (irrespective of the applicability of the initial clause of this definition) if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act, but excluding any trustee or other fiduciary holding securities pursuant to an employee benefit or welfare plan or employee stock plan of the Company or any subsidiary of the Company, or any entity organized, appointed, established or holding securities of the Company with voting power for or pursuant to the terms of any such plan) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the Continuing Directors (as defined below) in office immediately prior to such person’s attaining such interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which Continuing Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors of the Company (or any successor entity) thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) (such directors being referred to herein as “Continuing Directors”) cease for any reason to constitute at least a majority of the Board of Directors of the Company. |
| (b) “Disinterested Director” with respect to any request by the Indemnitee for indemnification or advancement of expenses hereunder shall mean a director of the Company who neither is nor was a party to the Proceeding (as defined below) in respect of which indemnification or advancement is being sought by the Indemnitee. | |
| (c) The term “Expenses” shall mean, without limitation, expenses of Proceedings, including attorneys’ fees, disbursements and retainers, accounting and witness fees, expenses related to the preparation or service as a witness, travel and deposition costs, expenses of investigations, judicial or administrative proceedings and appeals, amounts paid in settlement of a Proceeding by or on behalf of the Indemnitee, costs of attachment or similar bonds, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, under this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise, and reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or action for indemnification for which the Indemnitee is not otherwise compensated by the Company or any third party. The term “Expenses” shall not include the amount of judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually levied against or sustained by the Indemnitee to the extent sustained after final adjudication. | |
| (d) The term “Independent Legal Counsel” shall mean any firm of attorneys selected by lot from a list consisting of firms which meet minimum size criteria and other reasonable criteria established by the Board of Directors of the Company, so long as such firm has not represented the Company, the Indemnitee, any entity controlled by the Indemnitee, or any party adverse to the Company, within the preceding five years. Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s right to indemnification or advancement of expenses under this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise. | |
| (e) The term “Proceeding” shall mean any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, or any other proceeding (including, without limitation, an appeal therefrom), formal or informal, whether brought in the name of the Company or otherwise, whether of a civil, criminal, administrative or investigative nature, and whether by, in or involving a court or an administrative, other governmental or private entity or body (including, without limitation, an investigation by the Company or its Board of Directors), by reason of (i) the fact that the Indemnitee is or was an officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, whether or not the Indemnitee is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement is to be provided under this Agreement, (ii) any actual or alleged act or omission or neglect or breach of duty, including, without limitation, any actual or alleged error or misstatement or misleading statement, which the Indemnitee commits or suffers while acting in any such capacity, or (iii) the Indemnitee attempting to establish or establishing a right to indemnification or advancement of expenses pursuant to this Agreement, the Company’s Certificate of Incorporation or Bylaws, applicable law or otherwise. | |
| (f) The phrase “serving at the request of the Company as an agent of another enterprise” or any similar terminology shall mean, unless the context otherwise requires, (i) serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, and (ii) serving as a director, officer, employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation. The phrase “serving at the request of the Company” shall include, without limitation, any service as an officer of the Company which imposes duties on, or involves services by, such officer with respect to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic. In the event that the Indemnitee shall be a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, 40% or |
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| more of the common stock, combined voting power or total equity interest of which is owned by the Company or any subsidiary or affiliate thereof, then it shall be presumed conclusively that the Indemnitee is so acting at the request of the Company. |
2. Services by the Indemnitee . The Indemnitee agrees to continue to serve as an officer of the Company at the will of the Company for so long as the Indemnitee is duly elected and qualified, appointed or until such time as the Indemnitee tenders a resignation in writing or is removed as an officer; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or other obligation imposed by operation of law).
3. Proceeding Other Than a Proceeding By or In the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company to procure a judgment in its favor), by reason of the fact that the Indemnitee is or was an officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with such a Proceeding, to the fullest extent permitted by applicable law; provided, however, that any settlement of a Proceeding must be approved in advance in writing by the Company.
4. Proceedings By or In the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was an officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such a Proceeding, to the fullest extent permitted by applicable law.
5. Indemnification for Costs, Charges and Expenses of Witness or Successful Party . Notwithstanding any other provision of this Agreement (except as set forth in subparagraph 9(a) hereof), and without a requirement for determination as required by Paragraph 8 hereof, to the extent that the Indemnitee (a) has prepared to serve or has served as a witness in any Proceeding in any way relating to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic, or anything done or not done by the Indemnitee as an officer of the Company, as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, or as a director, officer, employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise, at the request of such predecessor corporation, or (b) has been successful in defense of any Proceeding or in defense of any claim, issue or matter therein, on the merits or otherwise, including the dismissal of a Proceeding without prejudice or the settlement of a Proceeding without an admission of liability, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith to the fullest extent permitted by applicable law.
6. Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount of the Indemnitee’s Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, then the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, interest penalties or excise taxes to which the Indemnitee is entitled.
7. Advancement of Expenses . The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by applicable law; provided, however, that the Indemnitee shall
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8. Indemnification Procedure; Determination of Right to Indemnification .
(a) Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee shall, if a claim for indemnification or advancement of Expenses in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof in writing. The omission to so notify the Company will not relieve the Company from any liability which the Company may have to the Indemnitee under this Agreement unless the Company shall have lost significant substantive or procedural rights with respect to the defense of any Proceeding as a result of such omission to so notify.
(b) The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct, if any, as defined by applicable law, for indemnification pursuant to this Agreement and shall be absolutely entitled to such indemnification, unless a determination by clear and convincing evidence is made that the Indemnitee has not met such standards by (i) the Board of Directors by a majority vote of a quorum thereof consisting of Disinterested Directors, (ii) the stockholders of the Company by majority vote of a quorum thereof consisting of stockholders who are not parties to the Proceeding due to which a claim for indemnification is made under this Agreement, (iii) Independent Legal Counsel as set forth in a written opinion (it being understood that such Independent Legal Counsel shall make such determination only if the quorum of Disinterested Directors referred to in clause (i) of this subparagraph 8(b) is not obtainable or if the Board of Directors of the Company by a majority vote of a quorum thereof consisting of Disinterested Directors so directs), or (iv) a court of competent jurisdiction; provided, however, that if a Change of Control shall have occurred and the Indemnitee so requests in writing, such determination shall be made only by a court of competent jurisdiction.
(c) If a claim for indemnification or advancement of Expenses under this Agreement is not paid by the Company within 30 days after receipt by the Company of written notice thereof, the rights provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be made de novo . The burden of proving by clear and convincing evidence that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the directors or stockholders of the Company or Independent Legal Counsel to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, if any, nor an actual determination by the directors or stockholders of the Company or Independent Legal Counsel that the Indemnitee has not met the applicable standard of conduct shall be a defense to an action by the Indemnitee or create a presumption for the purpose of such an action that the Indemnitee has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself (i) create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in the best interests of the Company and/or its stockholders, and, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or advancement of Expenses under this Agreement, except as may be provided herein. The Company shall not oppose the Indemnitee’s right or entitlement to indemnification or advancement of Expenses in any such judicial proceeding or appeal therefrom. The Company further agrees to stipulate in any such judicial proceeding that the Company is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.
(d) If a court of competent jurisdiction shall determine that the Indemnitee is entitled to any indemnification or advancement of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such adjudication (including, but not limited to, any appellate proceedings). The Indemnitee’s Expenses incurred in connection with any Proceeding concerning
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(e) With respect to any Proceeding for which indemnification or advancement of Expenses is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any Expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than as provided below. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee’s written consent. The Indemnitee shall have the right to employ his own counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense of the Proceeding shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a proceeding, in each of which cases the fees and expenses of the Indemnitee’s counsel shall be advanced by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has concluded that there may be a conflict of interest between the Company and the Indemnitee.
9. Limitations on Indemnification . No payments pursuant to this Agreement shall be made by the Company:
| (a) To indemnify or advance funds to the Indemnitee for Expenses with respect to (i) Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law or (ii) Expenses incurred by the Indemnitee in connection with preparing to serve or serving, prior to a Change in Control, as a witness in cooperation with any party or entity who or which has threatened or commenced any action or proceeding against the Company, or any director, officer, employee, trustee, agent, representative, subsidiary, parent corporation or affiliate of the Company, but such indemnification or advancement of Expenses in each such case may be provided by the Company if the Board of Directors finds it to be appropriate; | |
| (b) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, and sustained in any Proceeding for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; | |
| (c) To indemnify the Indemnitee for any Expenses, judgments, fines, expenses or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any federal, state or local statute or regulation; | |
| (d) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement; | |
| (e) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, on account of the Indemnitee’s conduct if such conduct shall be finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct, including, without limitation, breach of the duty of loyalty; or | |
| (f) If a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful. |
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10. Continuation of Indemnification . All agreements and obligations of the Company contained herein shall continue during the period that the Indemnitee is an officer of the Company (or is or was serving at the request of the Company as an agent of another enterprise, foreign or domestic) and shall continue thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was an officer of the Company or serving in any other capacity referred to in this Paragraph 10.
11. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed to be exclusive of any other rights to which the Indemnitee may be entitled under the Company’s Certificate of Incorporation, as amended, the Company’s Bylaws, as amended, any agreement, vote of stockholders or vote of Disinterested Directors, provisions of applicable law, or otherwise, both as to action or omission in the Indemnitee’s official capacity and as to action or omission in another capacity on behalf of the Company while holding such office.
12. Extension of Indemnification Rights to Indemnitee’s Associates. If the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by reason of the fact that the Indemnitee is or was an officer of the Company, and if any Associate of the “Indemnitee” (as defined in Rule 12b-2 under the Act) is also involved in such Proceeding primarily as a result of actions taken or omitted by the Indemnitee as an officer of the Company or while serving at the request of the Company as an agent of another enterprise, foreign or domestic, such Associate of the Indemnitee shall also be entitled to indemnification under this Agreement in the same manner as the Indemnitee, but only to the extent that the claims against such Associate are based upon or directly attributable to actions taken or omitted by the Indemnitee.
13. Successors and Assigns.
(a) This Agreement shall be binding upon, and shall inure to the benefit of, the Indemnitee and the Indemnitee’s heirs, executors, administrators and assigns, whether or not the Indemnitee has ceased to be a director and/or officer, and the Company and its successors and assigns. Upon the sale of all or substantially all of the business, assets or capital stock of the Company to, or upon the merger of the Company into or with, any corporation, partnership, joint venture, trust or other person, this Agreement shall inure to the benefit of and be binding upon both the Indemnitee and such purchaser or successor person. Subject to the foregoing, this Agreement may not be assigned by either party without the prior written consent of the other party hereto.
(b) If the Indemnitee is deceased and is entitled to indemnification under any provision of this Agreement, the Company shall indemnify the Indemnitee’s estate and the Indemnitee’s spouse, heirs, executors, administrators and assigns against, and the Company shall, and does hereby agree to assume, any and all Expenses actually and reasonably incurred by or for the Indemnitee or the Indemnitee’s estate, in connection with the investigation, defense, appeal or settlement of any Proceeding. Further, when requested in writing by the spouse of the Indemnitee, and/or the Indemnitee’s heirs, executors, administrators and assigns, the Company shall provide appropriate evidence of the Company’s agreement set out herein to indemnify the Indemnitee against and to itself assume such Expenses.
14. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
15. Severability. Each and every paragraph, sentence, term and provision of this Agreement is separate and distinct so that if any paragraph, sentence, term or provision thereof shall be held to be invalid, unlawful or unenforceable for any reason, such invalidity, unlawfulness or unenforceability shall not affect the validity, unlawfulness or enforceability of any other paragraph, sentence, term or provision hereof. To the extent required, any paragraph, sentence, term or provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law.
16. Savings Clause. If this Agreement or any paragraph, sentence, term or provision hereof is invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect
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17. Interpretation; Governing Law. This Agreement shall be construed as a whole and in accordance with its fair meaning. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed and interpreted in accordance with the laws of the State of Delaware without regard to the conflict of laws principles thereof.
18. Amendments. No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by the party against whom enforcement is sought. The indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Certificate of Incorporation, Bylaws or by other agreements, including directors’ and officers’ liability insurance policies, of the Company.
19. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other.
20. Notices. Any notice required to be given under this Agreement shall be directed to Applied Materials, Inc., 2881 Scott Boulevard M/S 2064, Santa Clara, California 95050, Attention: Vice President, Legal Affairs and Intellectual Property, and to the Indemnitee at Applied Materials, Inc., 3050 Bowers Avenue M/S 2064, Santa Clara, California 95054 or to such other address as either shall designate to the other in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnification Agreement as of the date first written above.
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INDEMNITEE
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_________________________________________
Name: |
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APPLIED MATERIALS, INC.
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| By: |
_______________________________________ Name: Title: |
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EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
| Fiscal Year | ||||||||||||||||||||||
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| 1995 | 1996 | 1997 | 1998 | 1999 | ||||||||||||||||||
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| Income before taxes and fixed charges (net of capitalized interest): | ||||||||||||||||||||||
| Income from continuing operations before taxes and equity in net income/(loss) of joint venture | $ | 698,543 | $ | 922,436 | $ | 798,921 | $ | 437,833 | $ | 1,021,790 | ||||||||||||
| Add fixed charges net of capitalized interest(1) | 34,504 | 42,819 | 44,161 | 69,543 | 68,425 | |||||||||||||||||
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| Total income before taxes and fixed charges | $ | 733,047 | $ | 965,255 | $ | 843,082 | $ | 507,376 | $ | 1,090,215 | ||||||||||||
|
|
|
|
|
|
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| Fixed charges: | ||||||||||||||||||||||
| Interest expense | $ | 21,401 | $ | 20,733 | $ | 20,705 | $ | 45,309 | $ | 47,093 | ||||||||||||
| Capitalized interest | — | 5,108 | 750 | 4,268 | 6,000 | |||||||||||||||||
| Interest component of rent expense(2) | 13,103 | 22,086 | 23,013 | 23,720 | 20,752 | |||||||||||||||||
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|
|
|
|
|
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| Total fixed charges | $ | 34,504 | $ | 47,927 | $ | 44,468 | $ | 73,297 | $ | 73,845 | ||||||||||||
|
|
|
|
|
|
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| Ratio of earnings to fixed charges | 21.25x | 20.14x | 18.96x | 6.92x | 14.76x | |||||||||||||||||
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| (1) | Capitalized interest includes interest capitalized during the period, less the amount of previously capitalized interest that was amortized during the period. |
| (2) | The interest factor is estimated at one-third of total rent expense for the applicable period, which management believes represents a reasonable approximation of the interest factor. |
EXHIBIT 13
APPLIED MATERIALS, INC.
1999 ANNUAL REPORT
FISCAL YEAR ENDED OCTOBER 31, 1999
SELECTED CONSOLIDATED FINANCIAL DATA
| Fiscal year ended* | |||||||||||||||||||||
|
|
|||||||||||||||||||||
| 1995 | 1996 | 1997 | 1998** | 1999 | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||||
| Net sales | $ | 3,061,881 | $ | 4,144,817 | $ | 4,074,275 | $ | 4,041,687 | $ | 4,859,136 | |||||||||||
| Gross margin | $ | 1,409,848 | $ | 1,949,739 | $ | 1,900,925 | $ | 1,863,156 | $ | 2,321,843 | |||||||||||
| (% of net sales) | 46.0 | 47.0 | 46.7 | 46.1 | 47.8 | ||||||||||||||||
| Research, development and engineering | $ | 329,676 | $ | 481,394 | $ | 567,612 | $ | 643,852 | $ | 681,797 | |||||||||||
| (% of net sales) | 10.8 | 11.6 | 13.9 | 15.9 | 14.0 | ||||||||||||||||
| Marketing, selling, general and administrative | $ | 386,240 | $ | 539,694 | $ | 566,595 | $ | 593,715 | $ | 657,985 | |||||||||||
| (% of net sales) | 12.6 | 13.0 | 13.9 | 14.7 | 13.5 | ||||||||||||||||
| Income from continuing operations before taxes and equity in net income/(loss) of joint venture | $ | 698,543 | $ | 922,436 | $ | 798,921 | $ | 437,833 | $ | 1,021,790 | |||||||||||
| Effective tax rate (%) | 35.0 | 35.0 | 37.6 | 34.0 | 32.3 | ||||||||||||||||
| Income from continuing operations*** | $ | 454,053 | $ | 599,585 | $ | 498,474 | $ | 251,898 | $ | 725,653 | |||||||||||
| (% of net sales) | 14.8 | 14.5 | 12.2 | 6.2 | 14.9 | ||||||||||||||||
| Net income*** | $ | 454,053 | $ | 599,585 | $ | 498,474 | $ | 230,902 | $ | 746,649 | |||||||||||
| Earnings per diluted share: | |||||||||||||||||||||
| Continuing operations | $ | 1.28 | $ | 1.63 | $ | 1.32 | $ | 0.67 | $ | 1.84 | |||||||||||
| Discontinued operations | $ | — | $ | — | $ | — | $ | (0.06 | ) | $ | 0.05 | ||||||||||
| Total | $ | 1.28 | $ | 1.63 | $ | 1.32 | $ | 0.61 | $ | 1.89 | |||||||||||
| Weighted average common shares and equivalents (in thousands) | 354,696 | 367,214 | 377,838 | 378,508 | 396,043 | ||||||||||||||||
|
|
|||||||||||||||||||||
| Order backlog | $ | 1,508,800 | $ | 1,422,800 | $ | 1,721,711 | $ | 916,767 | $ | 1,662,270 | |||||||||||
| Working capital | $ | 1,449,882 | $ | 1,757,842 | $ | 2,368,269 | $ | 2,400,629 | $ | 3,391,068 | |||||||||||
| Current ratio | 2.7 | 2.9 | 2.7 | 3.1 | 3.0 | ||||||||||||||||
| Long-term debt | $ | 279,807 | $ | 275,485 | $ | 623,090 | $ | 616,572 | $ | 584,357 | |||||||||||
| Stockholders’ equity | $ | 1,783,503 | $ | 2,370,425 | $ | 2,942,171 | $ | 3,120,621 | $ | 4,336,602 | |||||||||||
| Book value per share | $ | 4.97 | $ | 6.58 | $ | 8.01 | $ | 8.48 | $ | 11.33 | |||||||||||
| Total assets | $ | 2,965,379 | $ | 3,637,987 | $ | 5,070,766 | $ | 4,929,692 | $ | 6,706,504 | |||||||||||
| Capital expenditures, net | $ | 265,557 | $ | 452,535 | $ | 339,364 | $ | 448,607 | $ | 203,980 | |||||||||||
| Regular full-time employees | 10,537 | 11,403 | 13,924 | 12,060 | 12,755 | ||||||||||||||||
| 1995 | 1996 | 1997 | 1998 | 1999 | ||||||||||||||||
|
|
|
|
|
|
||||||||||||||||
| Graphical information: | ||||||||||||||||||||
| Stockholders’ equity (in millions) | 1,784 | 2,370 | 2,942 | 3,121 | 4,337 | |||||||||||||||
| Return on assets **** (percent) | 19.4 | 18.2 | 11.4 | 5.0 | 12.5 | |||||||||||||||
| Debt to capital ratio (percent) | 16.9 | 13.7 | 19.0 | 16.7 | 12.6 | |||||||||||||||
| * | Each fiscal year ended on the last Sunday in October. |
| ** | Certain amounts have been reclassified. See Note 4 of Notes to Consolidated Financial Statements. |
| *** | Income from continuing operations included net one-time expenses, on an after-tax basis, of: $16,315 for fiscal 1996, $25,257 for fiscal 1997, $165,093 for fiscal 1998 and $22,194 for fiscal 1999. In addition to the net one-time expenses included in income from continuing operations, net income also included an after-tax expense of $20,996 from discontinued operations in fiscal 1998 and after-tax income from discontinued operations of $20,996 in fiscal 1999. |
| **** | Based on income from continuing operations. |
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
In addition to historical statements, this Annual Report, including this Management’s Discussion and Analysis, contains forward-looking statements. Forward-looking statements contain words such as “expects,” “anticipates,” “believes,” “may,” “will,” “estimates,” or similar expressions. These forward-looking statements represent the opinions of the management of Applied Materials, Inc. and its subsidiaries (Applied Materials) only as of the date hereof, and Applied Materials assumes no obligation to update this information. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied. Risks and uncertainties include, but are not limited to, those discussed below, particularly in the section entitled “Trends, Risks and Uncertainties.”
Results of Operations
Applied Materials is the world’s largest supplier of semiconductor manufacturing equipment to the global semiconductor industry. Demand for Applied Materials’ products can change significantly from period to period as a result of numerous factors, including, but not limited to, changes in: 1) global economic conditions; 2) supply and demand for semiconductors; 3) the profitability of semiconductor manufacturers resulting from memory device price fluctuations; and 4) advanced technology and/or capacity requirements of semiconductor manufacturers. For this and other reasons, Applied Materials’ results of operations for fiscal 1997, 1998 and 1999 may not necessarily be indicative of future operating results.
Net Sales
Applied Materials’ business was subject to cyclical industry
conditions in fiscal 1997, 1998 and 1999. As a result of these
conditions, there were significant fluctuations in Applied
Materials’ quarterly new orders and net sales, both within
and across fiscal years. Demand for semiconductor manufacturing
equipment has historically been volatile as a result of sudden
changes in semiconductor supply and demand, as well as rapid
technological advances in both semiconductor devices and wafer
fabrication processes. Information with respect to quarterly new
orders and net sales is as follows:
Quarter
Fiscal
First
Second
Third
Fourth
Year
(In millions)
1997:
New orders
$
905
$
1,014
$
1,240
$
1,374
$
4,533
Net sales
$
836
$
901
$
1,057
$
1,280
$
4,074
1998:
New orders
$
1,290
$
1,027
$
608
$
684
$
3,609
Net sales
$
1,308
$
1,176
$
885
$
673
$
4,042
1999:
New orders
$
1,029
$
1,389
$
1,459
$
1,645
$
5,522
Net sales
$
742
$
1,118
$
1,434
$
1,565
$
4,859
Each region in the global semiconductor equipment market exhibits
unique characteristics that can cause, and in the past have
caused, capital equipment investment patterns to vary
significantly from period to period. Information with respect to
net sales by geographic region is as follows:
1997
1998
1999
(In millions)
North America*
$
1,501
$
1,549
$
1,666
Taiwan
696
817
997
Japan
750
678
818
Europe
600
645
765
Korea
333
167
317
Asia-Pacific
194
186
296
Total
$
4,074
$
4,042
$
4,859
| * | Primarily the United States. |
22
During 1996, the semiconductor industry experienced a slowdown as a result of excess production capacity and sharply decreasing memory device prices. This slowdown caused semiconductor manufacturers to reduce and delay their investments in semiconductor manufacturing equipment, thus negatively affecting Applied Materials’ results of operations for the second half of fiscal 1996 and first half of fiscal 1997.
During Applied Materials’ third fiscal quarter of 1997, the semiconductor industry began to recover from this slowdown, and Applied Materials was able to achieve higher levels of quarterly new orders and net sales for its fourth fiscal quarter of 1997. These new orders and net sales levels were driven by strengthening demand for leading-edge technology from logic and microprocessor device manufacturers, increased manufacturing capacity requirements of foundry customers located primarily in Taiwan, and selected strategic investments in 0.25 micron technology by Dynamic Random Access Memory (DRAM) manufacturers.
A semiconductor industry downturn began during the first half of Applied Materials’ fiscal 1998. This downturn was much more sudden and severe than the industry slowdown in 1996, and resulted from the convergence of several factors: an economic crisis in Asia; semiconductor industry overcapacity (particularly for DRAM devices); and reduced profitability for semiconductor manufacturers resulting from declining semiconductor prices and a movement among end users to sub-$1,000 PCs. This downturn caused a rapid decline in quarterly net sales throughout fiscal 1998 as semiconductor manufacturers significantly reduced and delayed their purchases of semiconductor manufacturing equipment during the last three fiscal quarters of 1998.
For fiscal 1999, Applied Materials was able to achieve record levels of new orders, net sales and net income as a result of a semiconductor industry recovery. During Applied Materials’ fiscal 1999, the semiconductor industry rapidly recovered from the 1998 downturn and transitioned to a period of capacity expansion and advanced technology investment. This industry recovery and expansion in customer investment levels was driven primarily by strong demand for communications and electronic products, improved economic conditions in Asia, better pricing for memory chips and tightening supply of key semiconductor products. Applied Materials was able to benefit from the increased volume generated by the industry recovery and transition.
Gross Margin
Gross margin as a percentage of net sales was 46.7 percent
for fiscal 1997, 46.1 percent for fiscal 1998 and
47.8 percent for fiscal 1999. The decrease in gross margin
as a percentage of net sales from fiscal 1997 to fiscal 1998 was
the result of lower overall business volume, combined with
underutilization of manufacturing resources during the second
half of fiscal 1998, as business volume dropped significantly.
The increase in gross margin as a percentage of net sales from
fiscal 1998 to fiscal 1999 was due primarily to higher business
volume, reduced manufacturing cycle times and the favorable
effects of operational programs emphasizing productivity
improvements and cost reduction.
Research, Development and Engineering
Applied Materials’ future operating results depend, to a
considerable extent, on its ability to maintain a competitive
advantage in the products and services it provides. Applied
Materials believes that it is critical to continue to make
substantial investments in research and development to ensure the
availability of innovative technology that meets the current and
projected requirements of its customers’
1997
1998
1999
Graphical information:
Sales by geographic region
See page 22
RD&E expenses (in millions)
568
644
682
23
most advanced chip designs. Research, development and engineering (RD&E) expenses increased for each of the last three years, from $568 million for fiscal 1997, to $644 million for fiscal 1998 and to $682 million for fiscal 1999. As a percentage of net sales, RD&E expenses increased from 13.9 percent for fiscal 1997 to 15.9 percent for fiscal 1998, and then decreased to 14.0 percent for fiscal 1999. The decrease as a percentage of net sales in fiscal 1999 was due to higher net sales for fiscal 1999.
Applied Materials increased its absolute spending from fiscal 1997 to fiscal 1998 to address the shrinking of semiconductor device feature sizes, the beginning of a shift to the use of new materials, such as copper, and the expected transition from 200mm wafer processing to 300mm wafer processing. Applied Materials was able to offer, or achieve advanced stages of development for, numerous significant new products in fiscal 1998 for fabricating smaller design features and copper-based semiconductor devices. The accelerated shrinking of design features can be demonstrated by the fact that orders for systems capable of fabricating devices with design feature sizes at or below 0.25 micron, more advanced than the previous industry production standard of 0.35 micron, increased from fiscal 1997 to fiscal 1998. Applied Materials’ 300mm product development efforts were reduced significantly during the course of fiscal 1998 as a result of the semiconductor industry’s decision to delay migration to 300mm wafer processing.
During fiscal 1999, Applied Materials continued its extensive development of wafer fabrication equipment for smaller feature sizes and copper-based devices. For fiscal 1999, orders for systems capable of fabricating devices with design feature sizes at or below 0.25 micron continued to increase as a percentage of total systems orders. Applied Materials’ investment in research and development for copper-based devices resulted in a broad line of copper-based products being available for sale by the end of fiscal 1999. Additionally, Applied Materials completed development of, and began to offer, numerous advances to its existing products and technologies in fiscal 1999. Development efforts for 300mm products increased significantly in the second half of fiscal 1999 in response to some early customer requests for evaluation systems and in anticipation of expected customer requirements for this capability in fiscal 2000.
Marketing, Selling, General and Administrative
Marketing, selling, general and administrative (MSG&A) expenses increased from $567 million for fiscal 1997, to $594 million for fiscal 1998 and to $658 million for fiscal 1999. The increase from fiscal 1997 to fiscal 1998 was due to increased costs for regional infrastructure, information systems, advertising and protection of intellectual property rights. The increase from fiscal 1998 to fiscal 1999 was primarily caused by higher costs of incentive and benefit programs, increased investments in various information technology programs, including the implementation of a new enterprise resource planning system and Year 2000 compliance, and increased costs to support higher net sales. As a percentage of net sales, MSG&A expenses increased from 13.9 percent for fiscal 1997 to 14.7 percent for fiscal 1998, because net sales declined rapidly in fiscal 1998 before MSG&A expenses could be reduced accordingly. MSG&A expenses as a percentage of net sales decreased to 13.5 percent for fiscal 1999 due primarily to higher net sales during fiscal 1999.
Non-recurring Items
Non-recurring operating expense items for fiscal 1997 consisted of $60 million of acquired in-process research and development expense incurred in connection with two acquisitions and $16 million of bad debt expense. Non-recurring items for fiscal 1998 consisted of $32 million of acquired in-process research and development expense for the acquisition of licensed technology, an expense of $70 million for impairment in the value of purchased technology from a prior period acquisition, and restructuring charges of $135 million for costs associated with headcount reductions and consolidation of facilities. Non-recurring items for fiscal 1999 consisted of $5 million of merger expenses and $43 million of acquired in-process research and development expense incurred in connection with the acquisitions discussed below. For further details, see Note 7 of Notes to Consolidated Financial Statements.
Non-recurring Income, Net
Net non-recurring income of $69 million for fiscal 1997 resulted from litigation settlements with Novellus Systems, Inc. ($80 million of income) and General Signal Corporation ($11 million of expense). Net non-
recurring income of $15 million for fiscal 1998 was from a litigation settlement with ASM International, N.V. (ASMI). Net non-recurring income of $30 million for fiscal 1999 was from payments received from ASMI associated with the 1998 litigation settlement. For further details, see Note 8 of Notes to Consolidated Financial Statements.
Interest Expense
Interest expense was $21 million for fiscal 1997, $45 million for fiscal 1998 and $47 million for fiscal 1999. The increase from fiscal 1997 to fiscal 1998 was primarily the result of interest expense associated with $400 million of debt issued by Applied Materials during the fourth fiscal quarter of 1997. There was no significant change in interest expense from fiscal 1998 to fiscal 1999 because Applied Materials’ outstanding interest-bearing obligations and their respective interest rates did not change significantly during these periods.
24
Interest Income
Interest income was $60 million for fiscal 1997, $80 million for fiscal 1998 and $105 million for fiscal 1999. The increases from year to year can be attributed primarily to increasing cash and investment balances over the three-year period.
Provision for Income Taxes
Applied Materials’ effective income tax rate was 37.6 percent for fiscal 1997, 34 percent for fiscal 1998 and 32.3 percent for fiscal 1999. The 37.6 percent effective income tax rate for fiscal 1997 was higher than Applied Materials’ expected rate of 35 percent due to the non-tax deductible nature of $60 million of acquired in-process research and development expense. The reduction to a 34 percent effective income tax rate for fiscal 1998 was attributable to several factors, including reduced state income taxes, reinstatement or enactment of U.S.-based income tax credits and a shift in the geographic composition of Applied Materials’ pre-tax income to entities operating in countries with lower tax rates. Applied Materials expected an effective income tax rate of 31 percent for fiscal 1999, which decreased from the fiscal 1998 effective rate due primarily to the reinstatement of the U.S. federal research and development (R&D) tax credit and favorable California income tax legislation with respect to R&D and manufacturers investment tax credits. However, Applied Materials’ actual effective income tax rate for fiscal 1999 was 32.3 percent due to the non-tax deductible nature of $43 million of acquired in-process research and development expense. Applied Materials’ future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of Applied Materials’ pre-tax income, non-tax deductible expenses incurred in connection with acquisitions and the effectiveness of its tax planning strategies.
AKT
In September 1993, Applied Materials and Komatsu, Ltd. (Komatsu) formed Applied Komatsu Technology, Inc. (AKT), a joint venture corporation that developed, manufactured and marketed thin film transistor manufacturing systems for Flat Panel Displays (FPDs). Because Applied Materials and Komatsu each owned 50 percent of the AKT joint venture, Applied Materials accounted for its interest in the joint venture using the equity method. During the fourth fiscal quarter of 1998, Applied Materials decided to discontinue the operations of AKT over a 12-month period. As a result of this decision, Applied Materials recorded a $40 million provision for discontinued operations, consisting of $19 million primarily for immediate headcount reductions and lease terminations, and $21 million for net expenses and other obligations expected to be incurred during, or at completion of, the 12-month wind-down period. In addition to the above amounts, Applied Materials also recorded its $18 million share of AKT’s operating losses as a component of discontinued operations. In late fiscal 1999, an overall improvement in demand for FPDs enhanced AKT’s financial condition and improved its business outlook. This change caused Applied Materials to reassess its decision to discontinue AKT’s operations. Based on this reassessment, Applied Materials reversed its decision to discontinue the operations of AKT and acquired Komatsu’s 50 percent interest in AKT for $87 million in cash. As a result, the $21 million provision established in fiscal 1998 for net expenses and other obligations expected to be incurred during the wind-down of AKT’s operations was reversed into income in fiscal 1999, and all prior period amounts relating to AKT’s continuing operations were reclassified from discontinued operations to continuing operations. These reclassifications had no effect on Applied Materials’ net income for any period affected, and were recorded in accordance with Emerging Issues Task Force Issue No. 90-16, “Accounting for Discontinued Operations Subsequently Retained.” The acquisition of AKT was accounted for as a purchase business combination. The purchase price in excess of the fair value of AKT’s net tangible assets was allocated to intangible assets and in-process research and development expense. For further details, see Note 4 of Notes to Consolidated Financial Statements.
Acquisitions
On December 11, 1998, Applied Materials acquired Consilium, Inc. (Consilium), a supplier of integrated semiconductor and electronics manufacturing execution systems and services, in a stock-for-stock merger accounted for as a pooling of interests. Due to the immateriality of Consilium’s financial position and
results of operations in relation to those of Applied Materials, Applied Materials’ prior period financial statements have not been restated. Applied Materials issued 1.7 million shares of its common stock to complete this transaction, and recorded $5 million of transaction costs as a one-time operating expense. The Consilium acquisition did not have a material effect on Applied Materials’ financial condition or results of operations for fiscal 1999. On October 5, 1999, Applied Materials acquired Obsidian, Inc. (Obsidian), a developer of fixed-abrasive chemical mechanical polishing solutions for the semiconductor industry, by issuing shares of common stock having a market value of $150 million. The Obsidian acquisition was accounted for as a purchase business combination. The purchase price in excess of the fair value of Obsidian’s net tangible assets was allocated to intangible assets and in-process research and development expense. Except for in-process research and development expense of $35 million, the Obsidian acquisition did not have a material effect on Applied Materials’ financial condition or results of operations. Additionally, as
25
discussed above, Applied Materials acquired the remaining 50 percent of AKT on October 29, 1999. For further details, see Note 14 of Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 137 (SFAS 137), “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133.” SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities, and SFAS 137 defers its effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. Applied Materials will adopt SFAS 133 in the first fiscal quarter of 2001, and does not expect the adoption to have a material effect on its financial condition or results of operations.
Financial Condition, Liquidity and Capital Resources
Applied Materials increased its cash, cash equivalents and short-term investments from $1.8 billion at October 25, 1998 to $2.8 billion at October 31, 1999. Applied Materials’ financial condition remained strong, with a ratio of current assets to current liabilities of 3.1:1 and 3.0:1 at October 25, 1998 and October 31, 1999, respectively.
Applied Materials has been able to generate cash from continuing operations in each of the last three fiscal years. The primary source of cash from continuing operations has been income from continuing operations, as adjusted to exclude the effect of non-cash items such as depreciation and amortization, intangible asset write-downs, and acquired in-process research and development expense. Income from continuing operations, adjusted to exclude the effect of non-cash items, for each of the last three fiscal years was: $741 million for 1997; $626 million for 1998; and $1.0 billion for 1999. The other source or use of cash from continuing operations has been changes in assets and liabilities other than those assets and liabilities resulting from investing and financing activities. Net changes in assets and liabilities tend to represent a use of cash during periods of revenue growth because Applied Materials generally incurs costs and expends cash in advance of receiving cash from its customers. Likewise, during periods of declining revenue, net changes in assets and liabilities tend to represent a source of cash because expenditures for inventory and other purchases decrease while receivables from prior periods, which were higher revenue periods, are collected. The cash effect of changes in assets and liabilities for each of the last three fiscal years was: a $39 million use in 1997; a $190 million source in 1998; and an $88 million use in 1999.
In addition to being a function of revenue performance, the cash effect of changes in assets and liabilities is subject to operational efficiency and productivity. For example, earlier collection of accounts receivable and increased inventory turnover both have a positive effect on cash flow. Applied Materials steadily improved its collection of accounts receivable and inventory turnover over the three-year period from fiscal 1997 through fiscal 1999. In addition to earlier collection of accounts receivable, Applied Materials also utilized programs to sell accounts receivable of $303 million in fiscal 1997, $488 million in fiscal 1998 and $945 million in fiscal 1999. These receivable sales had the effect of increasing cash and reducing accounts receivable and days sales outstanding. For further details regarding accounts receivable sales, see Note 13 of Notes to Consolidated Financial Statements.
Graphical information:
1997
1998
1999
Capital expenditures, net (in millions)
Land, buildings and improvements
158
172
174
Other
181
277
30
Total
339
449
204
Working capital (in millions)
2,368
2,401
3,391
26
Applied Materials used $1.0 billion of cash for investing activities in fiscal 1997, $574 million in fiscal 1998 and $989 million in fiscal 1999. Investing activities typically consist of purchases of short-term investments, purchases of capital assets to support long-term growth and acquisitions of technology or other companies to allow access to new market segments or emerging technology.
Applied Materials generated $391 million of cash from financing activities in fiscal 1997, used $123 million in fiscal 1998 and generated $301 million in fiscal 1999. Financing activities typically include sales and repurchases of Applied Materials’ common stock, as well as borrowings and repayments of debt. Net debt activity contributed $318 million of cash in fiscal 1997, and required $64 million of cash in fiscal 1998 and $17 million of cash in fiscal 1999. During fiscal 1997, net common stock activity contributed $72 million of cash as sales of common stock to Applied Materials’ employees through stock option and stock purchase plans exceeded Applied Materials’ open market repurchases of its own common stock. During fiscal 1998, net common stock activity required $59 million of cash as stock repurchases increased and sales to employees decreased significantly, reflecting Applied Materials’ lower average stock price in fiscal 1998. During fiscal 1999, net common stock activity generated $317 million of cash as a result of a significant decrease in stock repurchases and a significant increase in stock sales to employees, reflecting Applied Materials’ higher average stock price in 1999. Since March 1996, Applied Materials has systematically repurchased shares of its common stock in the open market to partially fund its stock-based employee benefit and incentive plans.
At October 31, 1999, Applied Materials’ principal sources of liquidity consisted of $2.8 billion of cash, cash equivalents and short-term investments, and approximately $650 million of available credit facilities. Applied Materials has a $250 million revolving line of credit agreement that expires in March 2000, but is expected to be renewed, and a $250 million credit agreement that expires in March 2003; no amounts were outstanding under these agreements at the end of any fiscal year presented. The remaining credit facilities of $150 million are primarily with Japanese banks at rates indexed to their prime reference rate. No material amounts were outstanding under these credit facilities at the end of any fiscal year presented. In addition to cash and available credit facilities, Applied Materials may from time to time raise additional capital in the debt and equity markets. Applied Materials’ 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 cash requirements will fluctuate based on the timing and extent of these factors, Applied Materials’ management believes that cash generated from operations, together with the liquidity provided by existing cash balances and borrowing capability, will be sufficient to satisfy Applied Materials’ liquidity requirements for the next 12 months.
Trends, Risks and Uncertainties
The industry that Applied Materials serves is highly volatile and unpredictable.
The semiconductor industry has historically been cyclical because of sudden changes in supply and demand for semiconductors. Although semiconductors are used in many different products, the markets for those products are interrelated to various degrees. The timing, length and severity of these cycles are difficult to predict. The health of the semiconductor manufacturing equipment industry is affected by these semiconductor industry cycles. During periods of declining demand for semiconductor manufacturing equipment, Applied Materials must be able to quickly and effectively align its cost structure with prevailing market conditions, to manage its inventory levels in order to reduce the possibility of future inventory write-downs resulting from obsolescence, and to motivate and retain key employees. During periods of rapid growth, Applied Materials must be able to acquire and/or develop sufficient manufacturing capacity and inventory to meet customer demand, and to attract, hire, assimilate and retain a sufficient number of qualified people. The inability of Applied Materials to achieve its objectives in a timely manner during these industry cycles could have a material adverse effect on its financial condition and results of operations.
27
| Applied Materials operates in a highly competitive industry characterized by increasingly rapid technological changes. |
Applied Materials’ competitive advantage and future success depend on its ability to successfully develop new products and technologies, develop new markets in the semiconductor industry for its products and services, introduce new products to the marketplace in a timely manner, qualify new products with its customers, and commence and adjust production to meet customer demands. There can be no assurance that Applied Materials will be able to conduct these activities as successfully in the future as it has in the past.
New products and technologies include those for new materials, including copper and low-k dielectrics, 300mm wafers and 0.18 micron and below devices. The introduction of new products and technologies grows increasingly complex over time. If Applied Materials 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.
Applied Materials is exposed to the risks of operating a global business.
Applied Materials has operations and sites located throughout the world to support its sales and services to the global semiconductor industry. 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, and in the past have caused, 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 among the many risks associated with operating a global business that could materially and adversely affect demand for Applied Materials’ products (systems and related services).
Deterioration in the health of Asian economies could negatively affect Applied Materials’ business.
Applied Materials generates a significant portion of its revenue from customers in Asian countries. Although Asian economies have stabilized to some degree since early to mid-fiscal 1998, Applied Materials remains cautious about general macroeconomic developments in Asia, particularly in Japan and Taiwan. The economies of Japan and Taiwan are important to the overall financial health of the Asian region, and if they deteriorate, the economies of other countries, particularly those in Asia, could also be negatively affected. Negative economic developments in Asia could have, and in the past have had, a material adverse effect on demand for Applied Materials’ products.
Shifting or lower overall demand for PCs may result in decreased demand for Applied Materials’ products.
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 have, and in the past has had, a material and adverse effect on demand for Applied Materials’ products.
| DRAM prices are volatile, and a decrease in DRAM prices may result in customers canceling orders for, or delaying delivery of, Applied Materials’ products. |
If DRAM prices decline to levels that do not allow manufacturers to operate profitably, these manufacturers may cancel or delay orders for Applied Materials’ products, which could have, and in the past has had, a material and adverse effect on Applied Materials’ financial condition and results of operations.
Applied Materials is exposed to risks associated with acquisitions.
Applied Materials 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: 1) difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired companies; 2) diversion of management’s attention from other operational matters;
3) the potential loss of key employees of acquired companies; 4) lack of synergy, or inability to realize expected synergies, resulting from the acquisition; and 5) acquired assets becoming impaired as a result of technological advancements or worse-than-expected performance of the acquired company. For example, in fiscal 1998, Applied Materials recorded a $70 million pre-tax expense for the write-down of purchased technology acquired in a previous year that became impaired because of rapid changes in technology and deteriorating business conditions. The inability to effectively manage acquisition risks could materially and adversely affect Applied Materials’ business, financial condition and results of operations.
28
| Failure of critical suppliers to deliver sufficient quantities of product in a timely and cost-effective manner could negatively affect Applied Materials’ business. |
Applied Materials uses numerous vendors to supply parts, components and subassemblies (collectively “parts”) for the manufacture and support of its products. Although Applied Materials makes reasonable efforts to ensure that parts are available from multiple suppliers, this is not always possible; accordingly, some key parts may be obtained only from a single supplier or a limited group of suppliers. Applied Materials 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 Applied Materials’ results of operations will not be materially and adversely affected if, in the future, Applied Materials does not receive in a timely and cost-effective manner a sufficient quantity of parts to meet its production requirements.
| Applied Materials’ order backlog may be reduced by customer cancellations or delays, which could have a negative effect on Applied Materials’ future sales. |
Applied Materials’ backlog increased from $917 million at October 25, 1998 to $1.7 billion at October 31, 1999. Applied Materials 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 may delay delivery of products or cancel orders, subject to penalties. Due to possible customer changes in delivery schedules and cancellations of orders, Applied Materials’ backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. Delays in delivery schedules and/or a reduction of backlog during any particular period could have, and in the past has had, a material adverse effect on Applied Materials’ business and results of operations.
| Applied Materials is subject to the risk of business interruptions from implementing a new enterprise resource planning system. |
Applied Materials recently implemented a new enterprise resource planning system that replaced substantially all order fulfillment and manufacturing applications. Significant interruption of Applied Materials’ business resulting from post-implementation issues such as system response time, vendor software application code errors, or system design and configuration problems could result in delayed product deliveries or manufacturing inefficiencies, which could materially and adversely affect Applied Materials’ financial condition and results of operations.
Applied Materials’ business is subject to the risk of interruptions from natural disasters such as earthquakes.
Business interruptions can be caused by natural disasters or other unplanned catastrophic events. Several offices and facilities of Applied Materials and its customers and suppliers are located near major earthquake faults in the United States and in certain foreign countries. In the event of significant interruption to Applied Materials’ business, or the businesses of its customers or suppliers, resulting from a natural disaster or other catastrophic event, Applied Materials’ financial condition and results of operations could be materially and adversely affected.
Applied Materials is subject to risks associated with non-compliance of environmental regulations.
Applied Materials is subject to environmental regulations related to the disposal of hazardous wastes used in the development, manufacturing and demonstration of its products. Applied Materials strives to exceed the requirements of applicable environmental regulations and believes it is in full compliance with such regulations. However, failure or inability to comply with existing or future environmental regulations could result in significant remediation liabilities, the imposition of fines and/or the suspension or termination of production, each of which could have a material adverse effect on Applied Materials’ financial condition and results of operations.
| Applied Materials is exposed to the risk that third parties may violate its proprietary rights or accuse Applied Materials of infringing upon their proprietary rights. |
Applied Materials’ success is dependent upon the protection of its proprietary rights. In the high-tech industry, intellectual property is an important asset that is always at risk of infringement. Applied Materials incurs costs to file for patents and defend its intellectual property and relies upon the laws of the United States and of foreign countries in which Applied Materials develops, manufactures or sells its products to protect its proprietary rights. However, there can be no assurance that these proprietary rights will provide competitive advantages, or that other parties will not challenge, invalidate or circumvent these rights. Infringement upon Applied Materials’ proprietary rights by a third party could result in uncompensated lost market and revenue opportunities for Applied Materials.
29
Other parties may assert that Applied Materials’ products, systems, processes or other technology infringe upon their patents or other intellectual property rights. In such cases, Applied Materials evaluates its position and considers the available alternatives, which may include seeking licenses to use the technology in question on commercially reasonable terms or defending its position. However, if Applied Materials is not able to negotiate the necessary licenses on commercially reasonable terms or successfully defend its position, Applied Materials’ financial condition and results of operations could be materially and adversely affected.
Applied Materials is exposed to various litigation risks.
Applied Materials is currently involved in litigation regarding patent infringement, intellectual property rights, antitrust and other matters (see Note 13 of Notes to Consolidated Financial Statements), and could become involved in additional legal proceedings or claims in the future. These proceedings and 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 legal proceedings or claims.
Applied Materials is exposed to exchange rate fluctuations.
Significant operations of Applied Materials are conducted in foreign currencies, primarily Japanese yen. Applied Materials 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 Applied Materials’ financial condition or results of operations.
Applied Materials is subject to risks from Year 2000 issues.
The information provided herein is a “Year 2000 Readiness Disclosure” for purposes of the Year 2000 Information and Readiness Disclosure Act.
Applied Materials established a Year 2000 Program Office to address Year 2000 issues through four key readiness programs. A brief description of the activities under these programs is as follows:
Internal Infrastructure Readiness Program This program encompassed all major categories of applications and hardware in use by Applied Materials. Under this program, Applied Materials completed an inventory of applications and information technology and non-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 Applied Materials’ business. All mission critical applications and hardware were tested and remediated as appropriate. Applied Materials has not experienced any significant Year 2000 issues associated with its mission critical systems.
Supplier Readiness Program This program focused 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 Applied Materials’ standards and requirements. In addition to products and services from key suppliers that are used in manufacturing its products, Applied Materials relies on commercial or governmental suppliers for infrastructure-related services, including utilities, transportation, financial, governmental, communications and other services. As of January 10, 2000, Applied Materials has not been affected by the Year 2000 issue associated with these suppliers.
Product Readiness Program This program focused on identifying and resolving Year 2000 issues existing in Applied Materials’ products. Among other activities, Applied Materials completed a Year 2000 readiness evaluation of its current generation of released products based on a series of industry-recognized testing scenarios and, as appropriate, addressed the Year 2000 issues associated with any component of its products. Unless otherwise requested by a customer, all products that shipped on or after January 1, 1999 were Year 2000 ready. As of January 10, 2000, Applied Materials was not aware of any significant Year 2000 issues directly related to a failure of its products to be Year 2000 ready.
Customer Readiness Program This program focused on customer support issues, including the coordination of retrofit activities for older generation products, testing existing customer electronic transaction capability and providing other services to Applied Materials’ customers. This program also included establishing a Year 2000 Customer Response Center to support customers on and around January 1, 2000. This program will continue to make customer support teams available through Applied Materials’ second fiscal quarter of 2000 to assist customers who have chosen not to upgrade Applied Materials’ products or who experience any Year 2000 issues, including those associated with the leap year.
30
Year 2000 Issues of Acquired Companies During fiscal 1999, Applied Materials acquired Consilium, Obsidian and AKT. For the most part, the Year 2000 programs of these companies were modeled after, or fully integrated into, Applied Materials’ four key readiness programs. As of January 10, 2000, Applied Materials was not aware of any significant Year 2000 issues associated with any of these companies or their products. However, as a software company, Consilium is assisting customers in evaluating Year 2000 issues that may relate to Consilium’s products, and will continue to assist its customers in their Year 2000 efforts after January 1, 2000.
Estimated Costs Applied Materials estimates that total Year 2000 costs will range from $30 million to $40 million, with $27 million spent as of October 31, 1999. 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 was accelerated because of Year 2000 capability concerns. The remaining costs are for customer support programs and program office management, which are planned to continue through Applied Materials’ second fiscal quarter of 2000.
Most Likely Worst-Case Scenario and Risks Associated with the Year 2000 Issue The year 2000 is a leap year, and February 29, 2000 is a date frequently associated with the Year 2000 issue. In addition, some Year 2000 issues may not be discovered until well after January 1, 2000. Therefore, Applied Materials believes risks associated with the Year 2000 issue may continue to exist after January 1, 2000. Applied Materials believes its most likely worst-case scenarios after January 1, 2000 will relate to undiscovered problems associated with its products, due to the inability to anticipate every possible Year 2000 problem, or due to problems associated with the interaction between Applied Materials’ products and its customers’ applications. A failure in Applied Materials’ products could result in claims against Applied Materials, increased warranty or service costs, or a delay or loss of revenue, any of which could materially and adversely affect Applied Materials’ financial condition and results of operations. Finally, Applied Materials believes it has taken steps to identify and remediate Year 2000 issues under its various readiness programs. However, if efforts to identify and address Year 2000 issues in Applied Materials’ products, customer and supply base, or infrastructure were not successful, including those issues associated with the leap year, Applied Materials may experience unanticipated problems that could materially and adversely affect its financial condition and results of operations.
Market Risk Disclosure
Interest Rate Risk
At October 31, 1999, Applied Materials’ investment portfolio includes fixed-income securities with a fair value of approximately $2.2 billion. These securities are subject to interest rate risk, and will decline in value if interest rates increase. Due to the short duration of Applied Materials’ investment portfolio, an immediate 10 percent increase in interest rates is not expected to have a material effect on Applied Materials’ near-term financial condition or results of operations.
Applied Materials’ long-term debt bears interest at fixed rates; therefore, Applied Materials’ results of operations would only be affected by interest rate changes to the extent that variable rate short-term notes payable are outstanding. Due to the short-term nature and insignificant amount of Applied Materials’ short-term notes payable, an immediate 10 percent change in interest rates is not expected to have a material effect on Applied Materials’ near-term results of operations.
Foreign Currency Exchange Rate Risk
Significant operations of Applied Materials are conducted in foreign currencies, primarily Japanese yen. Forward exchange and currency option contracts are purchased to hedge a portion of, but not all, existing firm commitments and foreign currency denominated transactions expected to occur within 12 months. Gains and losses on these contracts are recognized in the Consolidated Statements of Operations at the time that 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 Applied Materials to risks that would otherwise result from changes in currency exchange rates. Applied Materials does not use derivative financial instruments for trading or speculative purposes. Net foreign currency gains and losses did not have a material effect on Applied Materials’ results of operations for fiscal 1997, 1998 or 1999.
31
Forward exchange contracts are denominated in the same currency as the underlying transactions (primarily Japanese yen and British pounds), and the terms of the forward foreign exchange contracts generally match the terms of the underlying transactions. At October 31, 1999, the majority of Applied Materials’ outstanding forward exchange contracts are marked to market (see Note 2 of Notes to Consolidated Financial Statements), as are the related underlying transactions being hedged; therefore, the effect of exchange rate changes on forward contracts is expected to be substantially offset by the effect of these changes on the underlying transactions. The effect of an immediate 10 percent change in exchange rates on forward exchange contracts and the underlying hedged transactions denominated in Japanese yen and British pounds is not expected to be material to Applied Materials’ near-term financial condition or results of operations. Applied Materials’ downside risk with respect to currency option contracts (Japanese yen) is limited to the premium paid for the right to exercise the option. Premiums paid for options outstanding at October 31, 1999 were not material.
32
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal year ended
1997
1998
1999
(In thousands, except per share amounts)
Net sales
$
4,074,275
$
4,041,687
$
4,859,136
Cost of products sold
2,173,350
2,178,531
2,537,293
Gross margin
1,900,925
1,863,156
2,321,843
Operating expenses:
Research, development and engineering
567,612
643,852
681,797
Marketing and selling
314,381
321,606
325,498
General and administrative
252,214
272,109
332,487
Non-recurring items
75,818
237,227
48,400
Income from operations
690,900
388,362
933,661
Non-recurring income, net
69,000
15,000
30,000
Interest expense
20,705
45,309
47,093
Interest income
59,726
79,780
105,222
Income from continuing operations before taxes and equity in net
income/(loss) of joint venture
798,921
437,833
1,021,790
Provision for income taxes
300,447
148,863
329,930
Income from continuing operations before equity in net
income/(loss) of joint venture
498,474
288,970
691,860
Restructuring charges from joint venture
—
(18,423
)
3,677
Equity in net income/(loss) of joint venture
—
(18,649
)
30,116
Income from continuing operations
498,474
251,898
725,653
Provision for discontinuance of joint venture
—
(20,996
)
20,996
Net income
$
498,474
$
230,902
$
746,649
Earnings per share:
Basic — continuing operations
$
1.37
$
0.69
$
1.93
Basic — discontinued operations
—
(0.06
)
0.06
Total basic
$
1.37
$
0.63
$
1.99
Diluted — continuing operations
$
1.32
$
0.67
$
1.84
Diluted — discontinued operations
—
(0.06
)
0.05
Total diluted
$
1.32
$
0.61
$
1.89
Weighted average number of shares:
Basic
363,542
366,849
375,393
Diluted
377,838
378,508
396,043
See accompanying Notes to Consolidated Financial Statements.
33
CONSOLIDATED BALANCE SHEETS
Fiscal year ended
1998
1999
(In thousands, except per share
amounts)
ASSETS
Current assets:
Cash and cash equivalents
$
575,205
$
823,272
Short-term investments
1,188,351
1,937,179
Accounts receivable, less allowance for doubtful accounts of $630
in
1998 and $1,874 in 1999
764,472
1,198,069
Inventories
555,881
632,717
Deferred income taxes
337,906
324,024
Other current assets
97,140
145,200
Total current assets
3,518,955
5,060,461
Property, plant and equipment, net of accumulated depreciation
1,261,520
1,227,737
Other assets
149,217
418,306
Total assets
$
4,929,692
$
6,706,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable
$
644
$
5,789
Current portion of long-term debt
7,367
36,484
Accounts payable and accrued expenses
1,041,341
1,388,806
Income taxes payable
68,974
238,314
Total current liabilities
1,118,326
1,669,393
Long-term debt
616,572
584,357
Deferred income taxes
11,341
33,172
Other liabilities
62,832
82,980
Total liabilities
1,809,071
2,369,902
Commitments and contingencies
—
—
Stockholders’ equity:
Preferred stock; $.01 par value per share; 1,000 shares
authorized; no shares issued
—
—
Common stock; $.01 par value per share; 1,100,000 shares
authorized; 367,864 shares outstanding in 1998 and 382,666 shares
outstanding
in 1999
3,679
3,827
Additional paid-in capital
792,145
1,257,512
Retained earnings
2,328,940
3,075,589
Accumulated other comprehensive income/(loss)
(4,143
)
(326
)
Total stockholders’ equity
3,120,621
4,336,602
Total liabilities and stockholders’ equity
$
4,929,692
$
6,706,504
See accompanying Notes to Consolidated Financial Statements.
34
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Common Stock
Additional
Other
Paid-In
Retained
Comprehensive
Shares
Amount
Capital
Earnings
Income/(Loss)
Total
(In thousands)
Balance at October 27, 1996
360,470
$
3,605
$
761,573
$
1,599,564
$
5,683
$
2,370,425
Components of comprehensive income:
Net income
—
—
—
498,474
—
498,474
Translation adjustments
—
—
—
—
(16,124
)
(16,124
)
Comprehensive income
482,350
Net issuance under stock plans, including tax benefits of $82,543
9,434
94
167,499
—
—
167,593
Stock repurchases
(2,654
)
(27
)
(78,170
)
—
—
(78,197
)
Balance at October 26, 1997
367,250
3,672
850,902
2,098,038
(10,441
)
2,942,171
Components of comprehensive income:
Net income
—
—
—
230,902
—
230,902
Translation adjustments
—
—
—
—
6,298
6,298
Comprehensive income
237,200
Net issuance under stock plans, including tax benefits of $26,112
5,477
55
94,527
—
—
94,582
Stock repurchases
(4,863
)
(48
)
(153,284
)
—
—
(153,332
)
Balance at October 25, 1998
367,864
3,679
792,145
2,328,940
(4,143
)
3,120,621
Components of comprehensive income:
Net income
—
—
—
746,649
—
746,649
Translation adjustments
—
—
—
—
3,817
3,817
Comprehensive income
750,466
Net issuance under stock plans, including tax benefits of
$159,844
12,137
121
359,044
—
—
359,165
Issuance for acquisitions
3,215
32
148,408
—
—
148,440
Stock repurchases
(550
)
(5
)
(42,085
)
—
—
(42,090
)
Balance at October 31, 1999
382,666
$
3,827
$
1,257,512
$
3,075,589
$
(326
)
$
4,336,602
See accompanying Notes to Consolidated Financial Statements.
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
1997
1998
1999
(In thousands)
Cash flows from operating activities:
Net income
$
498,474
$
230,902
$
746,649
Provision for discontinuance of joint venture
—
20,996
(20,996
)
Adjustments required to reconcile income from continuing
operations to cash provided by continuing operations:
Equity in net (income)/loss and restructuring charges of joint
venture
—
37,072
(33,793
)
Acquired in-process research and development expense
59,500
32,227
43,400
Write-down of intangible asset
—
70,000
—
Bad debt expense
16,318
—
—
Depreciation and amortization
219,435
284,500
275,364
Deferred income taxes
(52,543
)
(49,400
)
10,340
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable
(332,047
)
332,249
(377,309
)
Inventories
(171,201
)
133,791
(48,436
)
Other current assets
(29,041
)
(9,478
)
(38,094
)
Other assets
(8,525
)
(9,366
)
(12,714
)
Accounts payable and accrued expenses
352,540
(159,471
)
212,845
Income taxes payable
137,560
(106,142
)
164,607
Other liabilities
11,242
8,504
11,486
Cash provided by continuing operations
701,712
816,384
933,349
Cash flows from investing activities:
Capital expenditures, net of retirements
(339,364
)
(448,607
)
(203,980
)
Cash paid for acquisitions, net of cash acquired
(246,333
)
—
(36,466
)
Cash paid for licensed technology
—
(32,227
)
—
Proceeds from sales of short-term investments
664,194
779,356
961,866
Purchases of short-term investments
(1,125,362
)
(872,795
)
(1,710,694
)
Cash used for investing
(1,046,865
)
(574,273
)
(989,274
)
Cash flows from financing activities:
Short-term debt activity, net
(21,731
)
(54,811
)
4,849
Long-term debt borrowings
407,568
—
—
Long-term debt repayments
(67,372
)
(9,422
)
(21,380
)
Issuance of common stock under stock plans
150,446
94,582
359,165
Repurchases of common stock
(78,197
)
(153,332
)
(42,090
)
Cash provided by/(used for) financing
390,714
(122,983
)
300,544
Effect of exchange rate changes on cash
(1,406
)
8,034
3,448
Increase in cash and cash equivalents
44,155
127,162
248,067
Cash and cash equivalents — beginning of year
403,888
448,043
575,205
Cash and cash equivalents — end of year
$
448,043
$
575,205
$
823,272
See accompanying Notes to Consolidated Financial Statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting
Policies
Principles of Consolidation and Basis of
Presentation
The consolidated financial statements
include the accounts of Applied Materials, Inc. and its
subsidiaries (Applied Materials) after elimination of
intercompany balances and transactions.
Applied Materials’ fiscal year ends on the last Sunday in
October of each year. Fiscal 1999 contained 53 weeks,
whereas fiscal 1997 and 1998 contained 52 weeks. The
inclusion of an additional week in fiscal 1999 did not have a
material effect on Applied Materials’ financial condition or
results of operations.
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 consolidated financial statements and accompanying notes.
Actual results could differ materially from those estimates.
Cash Equivalents and Short-Term Investments
All
highly-liquid investments with a remaining maturity of three
months or less at the time of purchase are considered to be cash
equivalents. All of Applied Materials’ short-term
investments are classified as available-for-sale at the balance
sheet dates. Investments classified as available-for-sale are
recorded at fair value and any material temporary difference
between the cost and fair value of an investment is presented as
a separate component of accumulated other comprehensive income/
(loss).
Inventories
Inventories are stated at the lower
of cost or market, with cost determined on a first-in, first-out
(FIFO) basis.
Property, Plant and Equipment
Property, plant
and equipment is stated at cost. Depreciation is provided over
the estimated useful lives of the assets using the straight-line
method. Estimated useful lives for financial reporting purposes
are as follows: buildings and improvements, five to
33 years; demonstration and manufacturing equipment, three
to five years; and furniture, fixtures and other equipment, three
to 15 years. Land improvements are amortized over the
shorter of 15 years or the useful life. Leasehold
improvements are amortized over the shorter of five years or the
lease term.
Intangible Assets
Purchased technology and
goodwill are presented at cost, net of accumulated amortization,
and are amortized over their estimated useful lives of five to
10 years using the straight-line method.
Long-Lived Assets
Applied Materials reviews
long-lived assets and identifiable intangible assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable.
Applied Materials assesses these assets for impairment based on
estimated future cash flows from these assets.
Revenue Recognition
Systems and spares revenue
is generally recognized upon shipment. A provision for the
estimated cost of system installation and warranty is recorded
when revenue is recognized. Service revenue is generally
recognized ratably over the period of the related contract.
Derivative Financial Instruments
Applied
Materials uses financial instruments such as forward exchange
contracts to hedge a portion, but not all, of its firm
commitments denominated in foreign currencies, and uses currency
option contracts to hedge a portion, but not all, of its
anticipated and uncommitted transactions expected to be
denominated in foreign currencies. The terms of currency
instruments used for hedging purposes are generally consistent
with the timing of the committed or anticipated transactions
being hedged. The purpose of Applied Materials’ foreign
currency management is to minimize the effect of exchange rate
changes on actual cash flows from foreign currency denominated
transactions. Gains and losses on forward exchange and currency
option contracts are deferred and recognized in the Consolidated
Statements of Operations when the related transactions being
hedged are recognized. If the underlying transaction being hedged
fails to occur, or occurs prior to the maturity of the financial
instrument, Applied Materials immediately recognizes the gain or
loss on the associated financial instrument. Those forward
exchange contracts that have been marked to market are included
in accounts payable and accrued expenses
on Applied Materials’ Consolidated Balance Sheets. To date,
premiums paid for currency option contracts have not been
material. Applied Materials does not use derivative financial
instruments for trading or speculative purposes.
Foreign Currency Translation
Applied
Materials’ subsidiaries located in Japan and Europe operate
primarily using local functional currencies. Accordingly, all
assets and liabilities of these subsidiaries are translated using
exchange rates in effect at the end of the period, and revenues
and costs are translated using average exchange rates for the
period. The resulting translation adjustments are presented as a
separate component of accumulated other comprehensive income/
(loss).
37
Applied Materials’ subsidiaries located in Ireland, Italy,
Israel, Korea, Taiwan, Southeast Asia and China primarily use the
U.S. dollar as their functional currency. Accordingly, assets
and liabilities of these subsidiaries are translated using
exchange rates in effect at the end of the period, except for
non-monetary assets, such as inventories and property, plant and
equipment, that are translated using historical exchange rates.
Revenues and costs are translated using average exchange rates
for the period, except for costs related to those balance sheet
items that are translated using historical exchange rates. The
resulting translation gains and losses are included in the
Consolidated Statements of Operations as they are incurred.
Employee Stock Plans
As permitted by Statement
of Financial Accounting Standards No. 123 (SFAS 123),
“Accounting for Stock-Based Compensation,” Applied
Materials elected to continue to apply the provisions of
Accounting Principles Board’s Opinion No. 25
(APB 25), “Accounting for Stock Issued to
Employees,” and related interpretations in accounting for
its employee stock option and stock purchase plans. Applied
Materials is generally not required under APB 25 and related
interpretations to recognize compensation expense in connection
with its employee stock option and stock purchase plans. Applied
Materials is required by SFAS 123 to present, in the notes
to the consolidated financial statements, the pro forma effects
on reported net income and earnings per share as if compensation
expense had been recognized based on the fair value method of
accounting prescribed by SFAS 123.
Concentrations of Credit Risk
Financial
instruments that potentially subject Applied Materials to
significant concentrations of credit risk consist principally of
cash equivalents, short-term investments, trade accounts
receivable and derivative financial instruments used in hedging
activities.
Applied Materials invests in a variety of financial instruments
such as certificates of deposit, corporate and municipal bonds,
and U.S. Treasury and agency securities, and, by policy, limits
the amount of credit exposure with any one financial institution
or commercial issuer.
Applied Materials’ customers consist of semiconductor
manufacturers located throughout the world. Applied Materials
performs ongoing credit evaluations of its customers’
financial condition and generally requires no collateral to
secure accounts receivable. Applied Materials maintains a reserve
for potentially uncollectible accounts receivable based on an
assessment of the collectibility of accounts receivable.
Applied Materials is exposed to credit-related losses in the
event of nonperformance by counterparties to derivative financial
instruments, but does not expect any counterparties to fail to
meet their obligations.
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. Net income has not been adjusted
for any period presented for purposes of computing basic or
diluted earnings per share.
For purposes of computing diluted earnings per share, weighted
average common share equivalents do not include stock options
with an exercise price that exceeds the average fair market value
of Applied Materials’ common stock for the period. For
fiscal 1999, options to purchase approximately 10,041,000 shares
of common stock at an average exercise price of $74.34 were
excluded from the computation, since this average exercise price
exceeded the average fair market value of Applied Materials’
common stock during fiscal 1999.
Reclassifications
Certain prior year amounts
have been reclassified to conform to the fiscal 1999 presentation
or in accordance with applicable accounting requirements (see
Note 4 of Notes to Consolidated Financial Statements).
Recent Accounting Pronouncements
In June 1999,
the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137
(SFAS 137), “Accounting for Derivative Instruments and
Hedging Activities — Deferral of the Effective Date of
FASB Statement No. 133.” SFAS 133 establishes new
standards of accounting and reporting for derivative instruments
and hedging activities, and SFAS 137 defers its effective
date to all fiscal quarters of all fiscal years beginning after
June 15, 2000. Applied Materials will adopt SFAS 133 in
the first fiscal quarter of 2001, and does not expect the
adoption to have a material effect on its financial condition or
results of operations.
Note 2 — Financial Instruments
Investments
At October 25, 1998 and
October 31, 1999, the fair value of Applied Materials’
short-term investments approximated cost. Accordingly, temporary
differences between the short-term investment portfolio’s
fair value and its cost have not been presented as a separate
component of accumulated other comprehensive income/ (loss).
Information about short-term investments is as follows:
38
Investments in debt and equity securities of $183 million
are included in cash and cash equivalents at both
October 25, 1998 and October 31, 1999.
Information about the contractual maturities of short-term
investments at October 31, 1999 is as follows:
Gross unrealized holding gains and losses were not material at
October 25, 1998 or October 31, 1999. Gross realized
gains and losses on sales of short-term investments were not
material for the years ended October 26, 1997,
October 25, 1998 or October 31, 1999. Applied Materials
manages its cash equivalents and short-term investments as a
single portfolio of highly marketable securities that is intended
to be available to meet Applied Materials’ current cash
requirements.
Derivative Financial Instruments
The notional
amounts of derivative financial instruments at October 25,
1998 and October 31, 1999 were as follows:
All forward exchange and currency option contracts outstanding at
October 31, 1999 have remaining maturities of less than one
year. Management believes that these contracts should not
subject Applied Materials to undue risk from foreign exchange
movements because gains and losses on these contracts generally
offset gains and losses on the underlying assets, liabilities and
transactions being hedged.
39
Fair Value of Financial Instruments
For Applied
Materials’ financial instruments, including cash, cash
equivalents, short-term investments, accounts receivable, notes
payable, accounts payable and accrued expenses, the carrying
amounts approximate fair value due to the short maturities of
these financial instruments. Consequently, these financial
instruments are not contained in the following table that
provides information about the carrying amounts and estimated
fair values of other financial instruments, including those
financial instruments that are not carried on Applied
Materials’ Consolidated Balance Sheets:
The estimated fair value of long-term debt is based primarily on
quoted market prices for the same or similar issues. The fair
value of forward exchange and currency option contracts is based
on quoted market prices for comparable instruments.
Note 3 — Balance Sheet Detail
40
Note 4 — AKT
In September 1993, Applied Materials entered into an agreement
with Komatsu, Ltd. (Komatsu) to form Applied Komatsu Technology,
Inc. (AKT), a joint venture corporation that developed,
manufactured and marketed systems used to produce Flat Panel
Displays (FPDs). The FPD market currently includes screens for
laptop, notebook and palmtop computers, desktop monitors,
digital/video cameras, portable televisions and instrument
displays. Because Applied Materials and Komatsu each owned
50 percent of the AKT joint venture, Applied Materials
accounted for its interest in the joint venture using the equity
method.
During the fourth fiscal quarter of 1998, Applied Materials
decided to discontinue the operations of AKT over a 12-month
period. As a result of this decision, Applied Materials recorded
a $40 million provision for discontinued operations,
consisting of $19 million primarily for immediate headcount
reductions and lease terminations, and $21 million for net
expenses and other obligations expected to be incurred during, or
at completion of, the 12-month wind-down period. In addition to
the above amounts, Applied Materials also recorded its
$18 million share of AKT’s operating losses as a
component of discontinued operations.
AKT began to wind down its operations by ceasing development
efforts on new and next-generation systems and technology and by
no longer offering physical vapor deposition and etch systems for
sale. During the wind-down period, customer orders were accepted
only for chemical vapor deposition systems. In late fiscal 1999,
an overall improvement in the FPD industry enhanced AKT’s
financial condition and improved its business outlook. This
change caused Applied Materials to reassess its decision to
discontinue AKT’s operations. Based on this reassessment,
Applied Materials decided that AKT’s operations should not
be discontinued, and agreed to acquire Komatsu’s
50 percent interest in AKT for $87 million in cash.
The AKT acquisition was completed on October 29, 1999 and
was accounted for as a purchase business combination. The
allocation of the purchase price resulted in acquired in-process
research and development expense of $8 million, a purchased
technology asset of $75 million and a goodwill asset of
$35 million. Purchased technology and goodwill will be
amortized to expense over five years and 10 years,
respectively. Because of the decision to continue AKT’s
operations, Applied Materials reclassified AKT’s prior
period operating results from discontinued operations to
continuing operations, and reversed into income in fiscal 1999
the $21 million provision for discontinued operations
recorded in fiscal 1998, which was no longer required. The
reclassifications did not change Applied Materials’
previously reported net income or earnings per share amounts, and
were recorded in accordance with Emerging Issues Task Force
Issue No. 90-16, “Accounting for Discontinued
Operations Subsequently Retained.” Because the acquisition
was completed on the last business day of Applied Materials’
fiscal year and was accounted for as a purchase business
combination, AKT’s balance sheet accounts at that date have
been included in Applied Materials’ Consolidated Balance
Sheet at October 31, 1999. Beginning November 1, 1999,
AKT will operate as a wholly-owned subsidiary of Applied
Materials, and will be fully consolidated in Applied
Materials’ Balance Sheet and Statement of Operations.
41
Note 5 — Notes Payable
Applied Materials has credit facilities for unsecured borrowings
in various currencies up to approximately $650 million, of
which $500 million is comprised of two revolving credit
agreements in the United States with a group of banks. One
agreement is a $250 million line of credit that expires in
March 2000, but is expected to be renewed, and the other is a
$250 million line of credit that expires in March 2003. The
agreements provide for borrowings at various rates, including the
lead bank’s prime reference rate, and include financial and
other covenants with which Applied Materials was in compliance
at October 31, 1999. No amount was outstanding under these
agreements at the end of any fiscal year presented. The remaining
credit facilities of $150 million are primarily with
Japanese banks at rates indexed to their prime reference rate.
Amounts outstanding under Japanese credit facilities at
October 25, 1998 and October 31, 1999 were not
material.
Note 6 — Long-Term Debt
Information with respect to Applied Materials’ long-term
debt outstanding at October 25, 1998 and October 31,
1999 is as follows:
At October 31, 1999, $41 million of Japanese debt was
secured by property and equipment having a net book value of
approximately $64 million.
Applied Materials has debt agreements that contain financial and
other covenants. These covenants place restrictions on additional
borrowings by U.S. subsidiaries of Applied Materials, liens
against Applied Materials’ assets and certain sale and
leaseback transactions. At October 31, 1999, Applied
Materials was in compliance with all covenants.
At October 31, 1999, aggregate debt maturities were as
follows: $36 million in fiscal 2000; $12 million in
fiscal 2001; $5 million in fiscal 2002; $5 million in
fiscal 2003; $105 million in fiscal 2004; and
$458 million thereafter.
42
Note 7 — Non-Recurring Items
Non-recurring operating expense items do not include items
associated with the fiscal 1998 decision by Applied Materials to
discontinue the operations of AKT or non-recurring income (see
Note 4 and Note 8 of Notes to Consolidated Financial
Statements). Non-recurring operating expense items for fiscal
1997, 1998 and 1999 included the following:
Acquired In-Process Research and Development
Expense
During fiscal 1997, Applied Materials
acquired two companies, Opal, Inc. (Opal) and Orbot Instruments,
Ltd. (Orbot), in separate transactions that totaled $293 million,
consisting primarily of cash, and recognized $60 million of
acquired in-process research and development expense. With the
exception of this charge, the transactions did not have a
material effect on Applied Materials’ results of operations
for fiscal 1997. During fiscal 1998, Applied Materials determined
that a purchased technology asset recorded in connection with
these acquisitions was impaired (see “Write-Down of Impaired
Asset” below).
During fiscal 1998, Applied Materials entered into an agreement
with Trikon Technologies, Inc. for a non-exclusive, worldwide,
perpetual license of MORI™ plasma source and Forcefill™
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
Applied Materials, Applied Materials recognized $32 million,
including transaction costs, of acquired in-process research and
development expense at the time of its acquisition.
During the fourth fiscal quarter of 1999, Applied Materials
recorded $35 million of acquired in-process research and
development expense in connection with its acquisition of
Obsidian, Inc. (Obsidian). With the exception of this charge, the
Obsidian acquisition did not have a material effect on Applied
Materials’ results of operations. For further details
regarding this acquisition, see Note 14 of Notes to
Consolidated Financial Statements. Also during the fourth fiscal
quarter of 1999, Applied Materials recorded $8 million of
acquired in-process research and development expense in
connection with its acquisition of AKT. For further details
regarding this acquisition, see Note 4 of Notes to
Consolidated Financial Statements.
Write-Down of Impaired Asset
During the fourth
fiscal quarter of 1998, Applied Materials determined that the
carrying value of a certain purchased technology asset exceeded
its net realizable value. This occurred because of rapid changes
in technology and significant changes in business conditions,
both of which resulted in a reduced demand outlook for products
incorporating the purchased technology. Applied Materials’
determination was supported by the results of an independent
analysis prepared by a nationally-recognized valuation firm. In
accordance with Statement of Financial Accounting Standards
No. 121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of,” Applied
Materials recorded a pre-tax charge of $70 million for this
impairment in asset value.
Restructuring Charges
During fiscal 1998,
Applied Materials recorded pre-tax restructuring charges of
$135 million, consisting of $75 million for headcount
reductions and $60 million for consolidation of facilities
and related fixed assets. These restructuring actions occurred in
Applied Materials’ third and fourth fiscal quarters, and
were taken to align Applied Materials’ cost structure with
prevailing market conditions and to create a more flexible and
efficient organization that would be better positioned for an
industry recovery. Headcount reductions consisted of a voluntary
separation plan during the third fiscal quarter of 1998 and a
reduction in force during the fourth fiscal quarter of 1998. The
voluntary separation plan resulted in a headcount reduction of
approximately 800 employees, or approximately six percent of
Applied Materials’ global workforce, for a cost of
$25 million. The reduction in force eliminated approximately
2,000 additional positions, or approximately 15 percent of
Applied Materials’ global workforce, for a cost
43
of $50 million. The majority of these positions were
eliminated in California and Texas, with the remainder being
eliminated from other locations worldwide.
Total cash outlays for fiscal 1998 restructuring activities are
expected to be $105 million. The remaining $30 million
of restructuring costs consisted of non-cash charges primarily
for asset write-offs. During fiscal 1998 and 1999,
$42 million and $47 million, respectively, of cash was
used for restructuring costs. The majority of the remaining cash
outlays of $16 million are expected to occur in fiscal 2000.
Restructuring activity for fiscal 1998 and 1999 was as follows:
Bad Debt Expense
During fiscal 1997, Applied
Materials determined that its outstanding accounts receivable
balance from Thailand-based Submicron Technology PCL
(SMT) was not collectible. Therefore, Applied Materials
repossessed systems previously sold to SMT which had not been
fully paid for, and recorded $16 million of bad debt
expense.
Acquisition Expenses
During the first fiscal
quarter of 1999, Applied Materials recorded a $5 million
pre-tax, operating expense for costs incurred in connection with
its acquisition of Consilium Inc. (Consilium). For further
details regarding this acquisition, see Note 14 of Notes to
Consolidated Financial Statements.
Note 8 — Non-Recurring Income, Net
During fiscal 1997, Applied Materials settled certain outstanding
litigation with Novellus Systems, Inc. (Novellus) and General
Signal Corporation (GSC). In connection with the Novellus
settlement, Applied Materials received $80 million in
damages for past patent infringement, and was awarded the right
to receive ongoing royalties for certain system shipments
subsequent to the date of the settlement. Royalties from Novellus
have not been, and are not expected to be, material. In
connection with the GSC settlement, Applied Materials paid
$11 million and acquired ownership from GSC of certain
patents and patent applications regarding “cluster
tool” architecture. The net effect of the Novellus and GSC
settlements was $69 million of pre-tax, non-operating
income.
During the first fiscal quarter of 1998, Applied Materials
settled all outstanding litigation with ASM International N.V.
(ASMI). As a result of this settlement, Applied Materials
received a convertible note for $80 million and recorded the
amount as pre-tax, non-recurring income. Applied Materials
collected $15 million against the note in November 1997.
During the fourth fiscal quarter of 1998, Applied Materials
determined, based on facts and circumstances known at that time,
that collection of the remaining note balance was doubtful, and
recorded a $65 million pre-tax, non-recurring charge to
fully reserve the outstanding note balance. The net effect of the
ASMI settlement for fiscal 1998 was $15 million of pre-tax,
non-recurring, non-operating income.
During the first fiscal quarter of 1999, subsequent to the
original maturity date of the ASMI note and in accordance with a
restructured agreement, Applied Materials received a
$20 million payment from ASMI and recorded the amount as
non-recurring income. During the fourth fiscal quarter of 1999,
Applied Materials received another payment from ASMI of
$10 million and also recorded the amount as non-recurring
income. Pursuant to the restructured agreement, ASMI’s
remaining payment of $35 million is due in the first fiscal
quarter of 2001. Applied Materials will recognize non-recurring
income related to the remaining balance of
the note receivable upon receipt of cash. Other obligations of
ASMI, including royalty payments, were also modified under the
restructured agreement and new provisions were added. Royalties
received from ASMI pursuant to the settlement agreement have not
been, and are not expected to be, material. Other modifications
and provisions have not in the past had, but may in the future
have, a material favorable effect on Applied Materials’
results of operations.
44
Note 9 — Stockholders’ Equity
Comprehensive Income
Applied Materials 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. See the Consolidated Statements of
Stockholders’ Equity for the components of comprehensive
income, which are presented net of tax. Accumulated other
comprehensive income/(loss) presented in the accompanying
Consolidated Balance Sheets consists entirely of foreign currency
translation adjustments.
Stock Repurchase Program
Since March 1996,
Applied Materials has systematically repurchased shares of its
common stock in the open market to partially fund its stock-based
employee benefit and incentive plans. In fiscal 1997,
2,654,000 shares were repurchased at an average price of
$29.46 per share. In fiscal 1998, 4,863,000 shares were
repurchased at an average price of $31.53 per share. In fiscal
1999, 550,000 shares were repurchased at an average price of
$76.53 per share.
Stockholder Rights Plan
In July 1999, after
expiration of Applied Materials’ stockholder rights plan,
the Board of Directors of Applied Materials (the Board) adopted a
new stockholder rights plan. Under the new plan, the Board
distributed one preferred stock purchase right (a
“Right”) for each share of Applied Materials’
common stock outstanding on July 18, 1999, and authorized
the distribution of one Right for each subsequently issued common
share. Each Right entitles the holder to purchase one
ten-thousandth of a share of a new series of preferred stock at a
price of $375. The Board authorized the issuance of 110,000
preferred shares under this plan, none of which have been issued.
The Rights will be exercisable only if a person or group
acquires 20 percent or more of Applied Materials’
outstanding common stock, or announces a tender offer for
20 percent or more of Applied Materials’ outstanding
common stock. In the event that any such acquiring person or
group triggers the exercise provisions (other than as a result of
a tender offer or exchange offer for all outstanding common
stock at a price determined by the Board to be fair and adequate
to the stockholders, and otherwise in the best interests of
Applied Materials and its stockholders), each Right will entitle
its holder to purchase, for $375, a number of shares of Applied
Materials’ common stock having a market value of $750. In
such event, any Rights held by the acquiring person or group will
become null and void. A Board committee composed of independent
directors will review the new rights plan at least every three
years. This committee will communicate its conclusions, including
any recommendation as to whether the plan should be modified or
the Rights redeemed, to the full Board after each review. Unless
earlier redeemed, the Rights will expire on July 6, 2009.
Note 10 — Employee Benefit Plans
Stock Options
Applied Materials grants options
to key employees and non-employee directors to purchase shares of
its common stock, at future dates, at the fair market value on
the date of grant. Options generally vest over one to four years,
and generally expire no later than seven years from the date of
grant. There were 12,445,000, 12,762,000 and 1,758,000 shares
available for grant at the end of fiscal 1997, 1998 and 1999,
respectively. At the March 2000 Annual Meeting of Stockholders,
Applied Materials will ask
stockholders to approve additional shares for issuance under its
stock option plan. Stock option activity was as follows:
45
The following table summarizes information with respect to
options outstanding and exercisable at October 31, 1999:
During the first fiscal quarter of 1998, Applied Materials
granted each employee (excluding officers) an option to purchase
200 shares of Applied Materials’ common stock, for a
total grant of approximately 2,900,000 shares. This grant was
made in recognition of Applied Materials’ 30th anniversary.
Also, later in fiscal 1998, Applied Materials granted each
employee (excluding officers and other executives) an option to
purchase 200 shares of Applied Materials’ common stock,
for a total grant of approximately 2,500,000 shares. This grant
was made to address employee morale and retention concerns in
light of the industry downturn and necessary restructuring
actions taken by Applied Materials. Neither of these grants
required stockholder approval.
Employee Stock Purchase Plan
Applied Materials
sponsors two employee stock purchase plans (ESPP) for the benefit
of U.S. and international employees. The U.S. plan is qualified
under Section 423 of the Internal Revenue Code. Under the
ESPP, substantially all employees may purchase Applied
Materials’ common stock through payroll deductions at a
price equal to 85 percent of the lower of the fair market
value at the beginning or end of each six-month offering period.
Stock purchases under the ESPP are limited to 10 percent of
an employee’s eligible compensation, up to a maximum of
$12,750, in any plan year. During fiscal 1997, 1998 and 1999,
1,697,000, 1,436,000 and 1,411,000 shares, respectively, were
issued under the ESPP. In fiscal 1999, stockholders approved an
additional 8,000,000 shares for issuance under the ESPP. At
October 31, 1999, 10,684,000 shares were reserved for future
issuance under the ESPP.
Stock-Based Compensation
Applied Materials has adopted the
disclosure-only provisions of SFAS 123. Accordingly, no
compensation expense has been recognized for Applied
Materials’ stock option and purchase plan activity. If
compensation expense had been determined based on the grant date
fair value for awards in fiscal 1997, 1998 and 1999 in accordance
with the provisions of SFAS 123, Applied Materials’
net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
The pro forma effects of applying SFAS 123 will not be fully
reflected until fiscal 2000 since SFAS 123 is applicable only to
stock options granted subsequent to December 15, 1995.
46
In calculating pro forma compensation, the fair value of each
stock option grant and stock purchase right is estimated on the
date of grant using the Black-Scholes option-pricing model and
the following weighted average assumptions:
According to the Black-Scholes option-pricing model, the weighted
average estimated fair value of employee stock option grants was
$10.96 for fiscal 1997, $13.54 for fiscal 1998 and $34.13 for
fiscal 1999. The weighted average estimated fair value of
purchase rights granted under the ESPP was $7.31 for fiscal 1997,
$9.61 for fiscal 1998 and $10.16 for fiscal 1999.
Employee Bonus Plans
Applied Materials has various
employee bonus plans. A profit sharing plan provides for the
distribution of a percentage of pre-tax profits to substantially
all Applied Materials employees not eligible for other
performance-based incentive plans, up to a maximum percentage of
compensation. Other plans award annual bonuses to Applied
Materials’ executives and key contributors based on the
achievement of profitability and other specific performance
criteria. Applied Materials also has agreements with key
technical employees that provide for additional compensation
related to the success of new product development and achievement
of specified profitability criteria. Charges to expense under
these plans were $126 million for fiscal 1997,
$111 million for fiscal 1998 and $204 million for
fiscal 1999.
Employee Savings and Retirement Plan
The Employee Savings
and Retirement Plan is qualified under Sections 401(a) and
(k) of the Internal Revenue Code. Applied Materials
contributes a percentage of each participating employee’s
salary deferral contributions. Company matching contributions are
invested in Applied Materials’ common stock and become
20 percent vested at the end of an employee’s third
year of service, and vest 20 percent per year of service
thereafter until becoming fully vested at the end of seven years
of service. Applied Materials’ matching contributions under
this plan were $13 million in fiscal 1997, $18 million
in fiscal 1998 and $15 million in fiscal 1999.
Defined Benefit Plans of Foreign Subsidiaries
Several of
Applied Materials’ foreign subsidiaries have defined benefit
pension plans covering substantially all of their eligible
employees. Benefits under these plans are based on years of
service and final average compensation levels. Funding is limited
by the local statutory requirements of the countries in which
the subsidiaries are located. Expenses under these plans,
consisting principally of service cost, were $7 million for
both fiscal 1997 and 1998 and $9 million for fiscal 1999. At
October 31, 1999, the aggregate accumulated benefit
obligation was $35 million, the projected benefit obligation was
$59 million, and the fair value of plan assets was
$20 million.
Post-Retirement Benefits
On January 1, 1999, Applied
Materials adopted a plan that provides medical benefits
(including vision) to retirees who are at least age 55, and
whose age plus years of service is at least 65 at date of
retirement. An eligible retiree may elect coverage for a spouse
or domestic partner under the age of 65. Coverage under the plan
generally ends for both the retiree and spouse or domestic
partner no later than age 65. This plan has not had, and is
not expected to have, a material effect on Applied
Materials’ financial condition or results of operations.
Note 11 — Income Taxes
The components of income from continuing operations before taxes
and equity in net income/(loss) of joint venture were as follows:
47
The components of the provision for income taxes were as follows:
A reconciliation between the statutory U.S. federal income tax
rate of 35 percent and Applied Materials’ actual effective
income tax rate is as follows:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. The components of net deferred income
tax assets were as follows:
48
U.S. income taxes have not been provided for approximately
$74 million of cumulative undistributed earnings of several
non-U.S. subsidiaries. Applied Materials intends to reinvest
these earnings indefinitely in operations outside of the United
States.
Note 12 — Industry Segment and Foreign Operations
In fiscal 1999, Applied Materials adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131),
“Disclosures About Segments of an Enterprise and Related
Information,” which changes the way public companies report
information about operating segments. SFAS 131, which is
based on a management approach to segment reporting, establishes
requirements to report selected segment information quarterly and
to report annually entity-wide disclosures about products and
services, major customers, and the countries in which the entity
holds material assets and reports revenue. An operating segment
is defined as a component that engages in business activities,
whose operating results are reviewed by the chief operating
decision maker, and for which discrete financial information is
available. Applied Materials’ chief operating decision maker
has been identified as the Office of the President, which
reviews operating results to make decisions about allocating
resources and assessing performance for the entire company.
Applied Materials operates in one segment for the manufacture,
marketing and servicing of semiconductor wafer fabrication
equipment. All material operating units qualify for aggregation
under SFAS 131 due to their similar economic
characteristics, nature of products and services, procurement,
manufacturing and distribution processes, and identical customer
base. Since Applied Materials operates in one segment, all
financial segment information required by SFAS 131 can be
found in the consolidated financial statements. For geographical
reporting, revenues are attributed to the geographic location in
which the customer is located. Long-lived assets consist
primarily of property, plant and equipment, and are attributed to
the geographic location in which they are located. During fiscal
1997 and 1998, no individual customer accounted for more than
10 percent of Applied Materials’ net sales. During
fiscal 1999, one customer accounted for more than 10 percent
of net sales.
49
Note 13 — Commitments and Contingencies
Applied Materials leases some of its facilities and equipment
under non-cancelable operating leases and has options to renew
most leases, with rentals to be negotiated. Applied Materials
also leases some office and general operating facilities in Santa
Clara, California, under an agreement that provides for monthly
payments based on LIBOR or the relevant commercial paper rate. In
accordance with this agreement, Applied Materials must maintain
compliance with covenants identical to those contained in its
credit facilities. At the end of these leases, Applied Materials
is required to acquire the properties at their original cost or
arrange for these properties to be acquired by a third party. If
the fair market value of the leased properties declines below
original cost, Applied Materials will be contingently liable
under 82 percent first-loss clauses for up to approximately
$53 million. At October 31, 1999, Applied Materials
believed that the fair market value of the leased properties
exceeded original cost. Management believes that these contingent
liabilities will not have a material adverse effect on Applied
Materials’ financial condition or results of operations in
the future.
Total rent expense for fiscal 1997, 1998 and 1999 was
$69 million, $71 million and $62 million,
respectively. Future minimum lease payments at October 31,
1999 are: $66 million for fiscal 2000; $57 million for
fiscal 2001; $41 million for fiscal 2002; $28 million
for fiscal 2003; $26 million for fiscal 2004; and
$85 million thereafter.
Applied Materials has several agreements that allow it to sell
accounts receivable from selected customers at a discount to
various financial institutions. Receivable sales have the effect
of increasing cash and reducing accounts receivable and days
sales outstanding. Discounting fees were recorded in interest
expense and were not material for fiscal 1997, 1998 or 1999.
During fiscal 1997, 1998 and 1999, Applied Materials sold
$303 million, $488 million and $945 million,
respectively, of accounts receivable under these agreements. At
October 31, 1999, $327 million of these receivables
remained outstanding and subject to limited recourse provisions.
Applied Materials does not expect these recourse provisions to
have a material effect on its financial condition or results of
operations.
Legal Matters
In April 1997, Applied Materials initiated separate lawsuits in
the Northern District of California against AST Electronik GmbH
and AST Electronik USA, Inc. (collectively “AST”) and
AG Associates, Inc. (AG), alleging infringement of certain
patents concerning rapid thermal processing technology. In
October 1997, AST and AG each filed counterclaims alleging
infringement by Applied Materials of patents concerning related
technology. In February 1999, Applied Materials and AST resolved
their dispute on mutually acceptable terms and conditions. In
addition, on August 5, 1998, AG filed a lawsuit in
California against Applied Materials alleging infringement of
another patent relating to rapid thermal processing technology,
and, on August 13, 1998, AG filed a lawsuit in Delaware
against Applied Materials alleging infringement of two other
patents concerning related technology. The Delaware case was
subsequently transferred to California. In September 1999, the
Court suspended each of these actions to allow the parties to
engage in settlement discussions.
As a result of the acquisition of Orbot, Applied Materials is
defending a lawsuit brought by KLA Instruments Corp. (KLA)
against Orbot. KLA alleges that Orbot infringes a patent for mask
and reticle inspection equipment. Limited discovery has occurred
and no trial date has been set.
50
On June 13, 1997, Applied Materials filed a lawsuit against
Varian Associates, Inc. (Varian), alleging infringement of
several of Applied Materials’ 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.
Applied Materials 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 Applied Materials in violation of antitrust
laws. On June 23, 1997, Novellus filed a separate lawsuit
against Applied Materials alleging infringement by Applied
Materials of three patents concerning PVD technology that were
formerly owned by Varian. Varian also has filed a separate
lawsuit against Applied Materials 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. The Court has scheduled trial of all patent
claims for the first half of 2001. No other trial dates have been
set.
During fiscal 1998, Applied Materials settled all outstanding
litigation with ASM International N.V. (see Note 8 of Notes to
Consolidated Financial Statements).
Applied Materials 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 Applied Materials’ financial condition or results
of operations.
Note 14 — Acquisitions
On December 11, 1998, Applied Materials acquired Consilium,
a supplier of integrated semiconductor and electronics
manufacturing execution systems and services, in a
stock-for-stock merger accounted for as a pooling of interests.
Due to the immateriality of Consilium’s historical financial
position and results of operations in relation to those of
Applied Materials, Applied Materials’ prior period financial
statements have not been restated. Applied Materials issued
1.7 million shares of its common stock to complete this
transaction, and recorded $5 million of transaction costs as
a one-time operating expense. The Consilium acquisition did not
have a material effect on Applied Materials’ financial
condition or results of operations for fiscal 1999.
On October 5, 1999, Applied Materials acquired Obsidian, a
developer of fixed-abrasive chemical mechanical polishing
solutions for the semiconductor industry, in a stock-for-stock
merger accounted for as a purchase business combination. Applied
Materials issued shares of its common stock having a market value
of $150 million to complete this transaction. The
allocation of the purchase price resulted in acquired in-process
research and development expense of $35 million, a purchased
technology asset of $36 million and a goodwill asset of
$117 million. Purchased technology and goodwill will be
amortized to expense over 7 years. Except for in-process
research and development expense, the Obsidian acquisition did
not have a material effect on Applied Materials’ financial
condition or results of operations.
On October 29, 1999, Applied Materials acquired the
remaining 50 percent of AKT, a company that develops,
manufactures and markets systems used to produce Flat Panel
Displays. For further details, see Note 4 of Notes to
Consolidated Financial Statements.
If all of Applied Materials’ fiscal 1999 acquisitions had
occurred as of the beginning of fiscal 1998, pro forma net sales,
pro forma income from continuing operations, excluding net
one-time expenses, and pro forma income from continuing
operations per diluted share, excluding net one-time expenses,
for fiscal 1998 and 1999 would not have been materially different
from the amounts reported.
51
Note 15 — Unaudited Quarterly Consolidated
Financial Data
52
1998
1999
(In thousands)
Obligations of states and political subdivisions
$
253,709
$
293,720
U.S. commercial paper, corporate bonds and medium-term notes
473,654
882,405
Bank certificates of deposit
138,053
282,399
U.S. Treasury and agency securities
211,094
360,710
Other debt securities
111,841
117,945
$
1,188,351
$
1,937,179
Due After One
Due in One
Year Through
Due After
Year or Less
Three Years
Three Years
Total
(In thousands)
Obligations of states and political subdivisions
$
100,030
$
126,595
$
67,095
$
293,720
U.S. commercial paper, corporate bonds and medium-term notes
693,794
116,812
71,799
882,405
Bank certificates of deposit
282,399
—
—
282,399
U.S. Treasury and agency securities
231,405
22,711
106,594
360,710
Other debt securities
33,835
63,033
21,077
117,945
$
1,341,463
$
329,151
$
266,565
$
1,937,179
1998
1999
(In thousands)
Forward exchange contracts to sell foreign currency (primarily
Japanese yen) for U.S. dollars
$
274,326
$
564,465
Forward exchange contracts to sell U.S. dollars for foreign
currency (primarily Japanese yen)
$
88,248
$
389,038
Currency option contracts to sell Japanese yen for U.S. dollars
$
189,380
$
227,037
1998
1999
Carrying
Estimated
Carrying
Estimated
Amount
Fair Value
Amount
Fair Value
(In thousands)
Long-term debt, including current portion
$
623,939
$
656,603
$
620,841
$
605,366
Forward exchange contracts:
Sell foreign currency
$
241,517
$
239,827
$
545,313
$
546,804
Buy foreign currency
$
99,293
$
99,293
$
396,318
$
396,318
Currency option contracts:
Sell foreign currency
$
3,892
$
202
$
2,601
$
302
1998
1999
(In thousands)
Inventories:
Customer service spares
$
239,139
$
239,082
Raw materials
98,180
102,843
Work-in-process
126,533
202,312
Finished goods
92,029
88,480
$
555,881
$
632,717
Property, Plant and Equipment:
Land and improvements
$
125,467
$
188,313
Buildings and improvements
712,740
796,978
Demonstration and manufacturing equipment
501,648
498,532
Furniture, fixtures and other equipment
384,069
378,053
Construction in progress
274,220
297,082
Gross property, plant and equipment
1,998,144
2,158,958
Accumulated depreciation
(736,624
)
(931,221
)
Net property, plant and equipment
$
1,261,520
$
1,227,737
Other Assets:
Purchased technology, net
$
91,218
$
205,213
Goodwill, net
11,614
162,015
Other
46,385
51,078
$
149,217
$
418,306
1998
1999
(In thousands)
Accounts Payable and Accrued Expenses:
Accounts payable
$
182,616
$
363,179
Compensation and employee benefits
185,391
295,028
Installation and warranty
179,742
228,892
Restructuring
91,781
15,536
Other
401,811
486,171
$
1,041,341
$
1,388,806
1998
1999
(In thousands)
Japanese debt, 1.72% – 4.85%, maturing 1999-2011
$
50,939
$
47,841
6.65 – 7.00% medium-term notes due 2000 –
2005, interest payable March 15 and September 15
73,000
73,000
8% noncallable unsecured senior notes due 2004, interest payable
March 1 and September 1
100,000
100,000
6.75% noncallable unsecured senior notes due 2007, interest
payable April 15 and October 15
200,000
200,000
7.125% noncallable unsecured senior notes due 2017, interest
payable April 15 and October 15
200,000
200,000
623,939
620,841
Current portion
(7,367
)
(36,484
)
$
616,572
$
584,357
1997
1998
1999
(In thousands)
Acquired in-process research and development expense
$
59,500
$
32,227
$
43,400
Write-down of impaired asset
—
70,000
—
Restructuring charges
—
135,000
—
Bad debt expense
16,318
—
—
Acquisition expenses
—
—
5,000
$
75,818
$
237,227
$
48,400
Severance
and Benefits
Facilities
Total
(In thousands)
Provision for fiscal 1998
$
74,812
$
60,188
$
135,000
Amount utilized in fiscal 1998
(39,526
)
(3,693
)
(43,219
)
Balance, October 25, 1998
35,286
56,495
91,781
Amount utilized in fiscal 1999
(29,852
)
(46,393
)
(76,245
)
Balance, October 31, 1999
$
5,434
$
10,102
$
15,536
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
1997
Price
1998
Price
1999
Price
(In thousands, except per share amounts)
Outstanding, beginning of year
30,564
$
10.05
34,057
$
15.16
52,633
$
22.10
Granted and assumed
13,324
21.21
26,848
29.14
13,458
67.37
Exercised
(7,744
)
6.00
(4,041
)
8.08
(10,726
)
15.12
Canceled
(2,087
)
12.82
(4,231
)
24.29
(2,895
)
26.42
Outstanding, end of year
34,057
$
15.16
52,633
$
22.10
52,470
$
34.50
Exercisable, end of year
8,298
$
8.51
12,772
$
13.46
11,724
$
19.14
Options Outstanding
Options Exercisable
Weighted
Weighted
Average
Weighted
Number
Average
Remaining
Number
Average
of Shares
Exercise
Contractual Life
of Shares
Exercise
Range of Exercise Prices
(In thousands)
Price
(In years)
(In thousands)
Price
$ 0.01 – $ 9.96
948
$
7.37
3.2
871
$
7.35
$ 9.97 – $19.93
11,985
13.53
3.6
6,443
13.28
$19.94 – $29.89
14,857
25.71
5.5
2,059
23.67
$29.90 – $39.85
13,243
32.89
5.2
1,920
33.12
$39.86 – $49.81
746
45.91
4.8
404
46.07
$49.82 – $89.81
10,691
73.21
6.9
27
55.85
52,470
$
34.50
5.2
11,724
$
19.14
1997
1998
1999
(In thousands, except per share amounts)
Net income as reported
$
498,474
$
230,902
$
746,649
Pro forma net income
$
466,395
$
146,094
$
635,252
Earnings per share as reported:
Basic
$
1.37
$
0.63
$
1.99
Diluted
$
1.32
$
0.61
$
1.89
Pro forma earnings per share:
Basic
$
1.28
$
0.40
$
1.69
Diluted
$
1.23
$
0.39
$
1.60
Stock Options
ESPP
1997
1998
1999
1997
1998
1999
Dividend yield
None
None
None
None
None
None
Expected volatility
55
%
55
%
59
%
55
%
55
%
59
%
Risk-free interest rate
6.27
%
5.33
%
5.48
%
6.39
%
5.93
%
4.75
%
Expected lives (in years)
3.6
3.7
4.0
0.5
0.5
0.5
1997
1998
1999
(In thousands)
U.S.
$
678,049
$
383,210
$
965,775
Foreign
120,872
54,623
56,015
Income from continuing operations before taxes and equity in net
income/(loss) of joint venture
$
798,921
$
437,833
$
1,021,790
1997
1998
1999
(In thousands)
Current:
U.S.
$
261,120
$
133,852
$
244,655
Foreign
60,594
44,267
62,440
State
31,276
20,144
12,495
352,990
198,263
319,590
Deferred:
U.S.
(51,939
)
(34,277
)
12,298
Foreign
1,207
(5,456
)
(3,755
)
State
(1,811
)
(9,667
)
1,797
(52,543
)
(49,400
)
10,340
Provision for income taxes
$
300,447
$
148,863
$
329,930
1997
1998
1999
Tax provision at U.S. statutory rate
35.0
%
35.0
%
35.0
%
Non-tax deductible acquired in-process research and development
expense
2.6
—
1.5
Effect of foreign operations taxed at various rates
0.8
1.3
0.8
State income taxes, net of federal benefit
2.4
1.6
0.9
Research tax credits
(0.8
)
(1.9
)
(1.4
)
FSC benefit
(2.2
)
(3.4
)
(3.9
)
Other
(0.2
)
1.4
(0.6
)
Provision for income taxes
37.6
%
34.0
%
32.3
%
1998
1999
(In thousands)
Deferred income tax assets:
Inventory reserves and basis difference
$
86,296
$
81,284
Warranty and installation reserves
59,194
71,646
Accrued liabilities
153,923
140,301
Restructuring accrual
32,370
4,570
Other
6,123
26,223
Deferred income tax liabilities:
Depreciation
(638
)
8,324
Purchased technology
(19,159
)
(54,476
)
Other
8,456
12,980
Net deferred income tax assets
$
326,565
$
290,852
Long-lived
Net Sales
Assets
(In thousands)
1997:
North America*
$
1,500,926
$
811,539
Taiwan
696,312
41,536
Japan
749,706
125,299
Europe
600,227
65,575
Korea
333,380
52,020
Asia-Pacific
193,724
4,875
Total
$
4,074,275
$
1,100,844
1998:
North America*
$
1,549,337
$
998,508
Taiwan
816,730
39,548
Japan
677,737
135,051
Europe
645,570
83,038
Korea
166,511
42,825
Asia-Pacific
185,802
8,935
Total
$
4,041,687
$
1,307,905
1999:
North America*
$
1,665,974
$
965,238
Taiwan
997,206
34,444
Japan
817,919
142,074
Europe
765,354
103,218
Korea
316,937
26,983
Asia-Pacific
295,746
6,858
Total
$
4,859,136
$
1,278,815
Quarter
Fiscal
First
Second
Third
Fourth
Year
(In thousands, except per share amounts)
1998:
Net sales
$
1,307,685
$
1,176,316
$
884,491
$
673,195
$
4,041,687
Gross margin
$
629,441
$
554,289
$
394,389
$
285,037
$
1,863,156
Income/(loss) from continuing operations*
$
228,893
$
141,221
$
47,517
$
(165,733
)
$
251,898
Discontinued operations**
—
—
—
(20,996
)
(20,996
)
Net income/(loss)
$
228,893
$
141,221
$
47,517
$
(186,729
)
$
230,902
Earnings/(loss) per diluted share:
Continuing operations
$
0.60
$
0.37
$
0.13
$
(0.45
)
$
0.67
Discontinued operations
—
—
—
(0.06
)
(0.06
)
Total
$
0.60
$
0.37
$
0.13
$
(0.51
)
$
0.61
1999:
Net sales
$
742,477
$
1,117,626
$
1,433,510
$
1,565,523
$
4,859,136
Gross margin
$
321,103
$
517,241
$
698,615
$
784,884
$
2,321,843
Income from continuing operations*
$
56,342
$
140,457
$
254,189
$
274,665
$
725,653
Discontinued operations**
(3,457
)
1,182
(9,773
)
33,044
20,996
Net income
$
52,885
$
141,639
$
244,416
$
307,709
$
746,649
Earnings/(loss) per diluted share:
Continuing operations
$
0.15
$
0.36
$
0.64
$
0.69
$
1.84
Discontinued operations
(0.01
)
—
(0.03
)
0.08
0.05
Total
$
0.14
$
0.36
$
0.61
$
0.77
$
1.89
*
Income/(loss) from continuing operations for fiscal 1998 includes
one-time items, on an after-tax basis, of: $31,530 of income for
the first fiscal quarter, $23,100 of expense for the third
fiscal quarter and $173,523 of expense for the fourth fiscal
quarter. Income from continuing operations for fiscal 1999
includes one-time items, on an after-tax basis, of: $10,350 of
income for the first fiscal quarter and $32,544 of expense for
the fourth fiscal quarter.
**
As discussed in Note 4 of Notes to Consolidated Financial
Statements, in fiscal 1999, Applied Materials reversed its fiscal
1998 decision to discontinue the operations of AKT. As a result,
Applied Materials reclassified the prior period operating
results of AKT to continuing operations and reversed its charge
for discontinuing AKT’s operations. The reclassifications
had no effect on Applied Materials’ net income or total
earnings per share amounts as previously reported.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Applied Materials,
Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
stockholders’ equity and of cash flows present fairly, in
all material respects, the financial position of Applied
Materials, Inc. and its subsidiaries at October 25, 1998 and
October 31, 1999 and the results of their operations and
their cash flows for each of the three years in the period ended
October 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial
statements are the responsibility of Applied Materials’
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
STOCK PRICE HISTORY
The preceding table sets forth the high and low closing sale
prices as reported on the Nasdaq National Market during the last
two years.
Fiscal year
1998
1999
High
Low
High
Low
First quarter
38
7/16
26
1/8
63
3/16
31
7/8
Second quarter
38
7/8
30
1/4
68
11/16
51
7/8
Third quarter
39
1/2
27
3/16
78
9/16
53
1/16
Fourth quarter
35
1/8
22
3/8
89
13/16
63
15/16
54
EXHIBIT 21
SUBSIDIARIES OF APPLIED MATERIALS, INC.
| Place of | |||
| Legal Entity Name | Incorporation | ||
|
|
|
||
| Applied Materials Japan, Inc. | Japan | ||
| Applied Materials Europe BV(1) | Netherlands | ||
| Applied Materials International BV | Netherlands | ||
| Applied Acquisition Subsidiary | California | ||
| Applied Materials (Holdings)(2) | California | ||
| Applied Materials Asia-Pacific, Ltd.(3) | Delaware | ||
| Applied Materials Israel, Ltd.(4) | Israel | ||
| Opal, Inc. | Delaware | ||
| Orbot Instruments, Inc. | Delaware | ||
| AM Japan LLC | Delaware | ||
| Consilium, Inc.(5) | Delaware | ||
| Applied Materials SPV1, Inc.(6) | Delaware | ||
| Parker Technologies, Inc. | California | ||
| AKT, Inc.(7) | Japan | ||
| Obsidian, Inc. | California | ||
|
|
|||
| (1) Applied Materials Europe BV owns the following subsidiaries: | |||
| Applied Materials GmbH | Germany | ||
| Applied Materials France SARL | France | ||
| Applied Materials Ltd. | United Kingdom | ||
| Applied Materials Ireland Ltd. | Ireland | ||
| Applied Materials Sweden AB | Sweden | ||
| Applied Materials Israel Services (1994) Ltd. | Israel | ||
| Applied Materials Italy Srl. | Italy | ||
| Applied Materials Belgium S.A. | Belgium | ||
| (2) Applied Materials (Holdings) owns the following subsidiary: | |||
| Applied Implant Technology, Ltd. | California | ||
| (3) Applied Materials Asia-Pacific, Ltd. owns the following subsidiaries: | |||
| Applied Materials Korea, Ltd. | Korea | ||
| Applied Materials Taiwan, Ltd. | Taiwan | ||
| Applied Materials South East Asia Pte. Ltd.(a) | Singapore | ||
| Applied Materials China, Ltd.(b) | Hong Kong | ||
| AMAT (Thailand) Limited | Thailand | ||
| (4) Applied Materials Israel, Ltd. owns the following subsidiary: | |||
| Integrated Circuit Testing GmbH | Germany | ||
| (5) Consilium, Inc. owns the following subsidiaries: | |||
| Consilium GmbH | Germany | ||
| Consilium France SARL | France | ||
| Consilium Foreign Sales Corporation | Virgin Islands | ||
| Nihon Consilium KK or Consilium Japan Corporation | Japan | ||
| Consilium Asia, Inc. | California | ||
| Consilium Taiwan, Inc. | Delaware | ||
| Place of | |||
| Legal Entity Name | Incorporation | ||
|
|
|
||
| (6) Applied Materials SPV1, Inc. owns the following subsidiary: | |||
| Applied Materials SPV2, Inc. | Delaware | ||
| (7) AKT, Inc. owns the following subsidiary: | |||
| AKT America, Inc. | California | ||
| (a) Applied Materials South East Asia Pte. Ltd. owns the following subsidiary: | |||
| Applied Materials (AMSEA) Sdn Bhd | Malaysia | ||
| (b) Applied Materials China, Ltd. owns the following subsidiary: | |||
| Applied Materials China Tianjin Co., Ltd. | P.R. China | ||
50-50 JOINT VENTURE OF APPLIED MATERIALS, INC.
| Place of | ||
| Legal Entity Name | Incorporation | |
|
|
|
|
| eLith LLC | Delaware |
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Forms S-8 (Nos. 2-69114;
2-77987; 2-77988; 2-85545; 2-94205; 33-24530; 33-52072; 33-52076;
33-63847; 33-64285; 333-21367; 333-31289; 333-31291; 333-45007;
333-45011; 333-69193; 333-88777; 333-88779; 333-71241; 333-71243;
333-71245) of Applied Materials, Inc. of our report dated
November 17, 1999 relating to the consolidated financial
statements, which appears in the 1999 Annual Report to
Stockholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference
of our report dated November 17, 1999 relating to the
financial statement schedule, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors and officers of Applied Materials,
Inc., a Delaware corporation (the “Company”) hereby
constitute and appoint James C. Morgan and Joseph R.
Bronson, and each of them with full power to act without the
other, the undersigned’s true and lawful attorney-in-fact,
with full power of substitution and resubstitution, for the
undersigned and in the undersigned’s name, place and stead
in the undersigned’s capacity as an officer and/or director
of the Company, to execute in the name and on behalf of the
undersigned an annual report of the Company on Form 10-K for
the fiscal year ended October 31, 1999 (the
“Report”), under the Securities and Exchange Act of
1934, as amended, and to file such Report, with exhibits thereto
and other documents in connection therewith and any and all
amendments thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform each and every act and
thing necessary or desirable to be done and to take any other
action of any type whatsoever in connection with the foregoing
which, in the opinion of such attorney-in-fact, may be of benefit
to, in the best interest of, or legally required of, the
undersigned, it being understood that the documents executed by
such attorney-in-fact on behalf of the undersigned pursuant to
this Power of Attorney shall be in such form and shall contain
such terms and conditions as such attorney-in-fact may approve in
such attorney-in-fact’s discretion.
IN WITNESS WHEREOF, we have hereunto set our hands this
7th day of December, 1999.
/s/ JAMES C. MORGAN
James C. Morgan
Chairman, Chief Executive Officer and Director (Principal
Executive Officer)
/s/ DAN MAYDAN
Dan Maydan
President and Director
/s/ MICHAEL H. ARMACOST
Michael H. Armacost
Director
/s/ DEBORAH A. COLEMAN
Deborah A. Coleman
Director
/s/ HERBERT M. DWIGHT, JR.
Herbert M. Dwight, Jr.
Director
/s/ PHILIP V. GERDINE
Philip V. Gerdine
Director
/s/ TSUYOSHI KAWANISHI
Tsuyoshi Kawanishi
Director
/s/ PAUL R. LOW
Paul R. Low
Director
/s/ ALFRED J. STEIN
Alfred J. Stein
Director
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 1999. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1999 |
| PERIOD START | OCT 26 1998 |
| PERIOD END | OCT 31 1999 |
| CASH | 823,272 |
| SECURITIES | 1,937,179 |
| RECEIVABLES | 1,199,943 |
| ALLOWANCES | 1,874 |
| INVENTORY | 632,717 |
| CURRENT ASSETS | 5,060,461 |
| PP&E | 2,158,958 |
| DEPRECIATION | 931,221 |
| TOTAL ASSETS | 6,706,504 |
| CURRENT LIABILITIES | 1,669,393 |
| BONDS | 584,357 1 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 3,827 |
| OTHER SE | 4,332,775 |
| TOTAL LIABILITY AND EQUITY | 6,706,504 |
| SALES | 4,859,136 |
| TOTAL REVENUES | 4,859,136 |
| CGS | 2,537,293 |
| TOTAL COSTS | 2,537,293 |
| OTHER EXPENSES | 681,797 2 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 47,093 |
| INCOME PRETAX | 1,021,790 |
| INCOME TAX | 329,930 |
| INCOME CONTINUING | 725,653 |
| DISCONTINUED | 20,996 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 746,649 |
| EPS BASIC | 1.99 3 |
| EPS DILUTED | 1.89 |
| 1 | ITEM CONSISTS OF LONG TERM DEBT. |
| 2 | ITEM CONSISTS OF RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES. |
| 3 | ITEM CONSISTS OF BASIC EARNINGS PER SHARE. |