01—Abstract
Summary
Summary of the 10-K filed January 12, 1996. Cited figures are marked; the original filing is the authoritative source.
Applied Materials' fiscal 1995 (ended October 29, 1995) was a record year.
Net sales rose 84% to $3.06 billiona from $1.66 billion, and net income more than doubled to $454.1 million, or $2.56 per share (split-adjusted), up from $220.7 million, or $1.30 per share. Gross margin held at 46%, and operating expenses fell to 23% of sales from 26%, which drove pre-tax income of $698.5 million. Backlog ended the year at $1.5 billion versus $715.2 million a year earlier, and management expects to fill it during fiscal 1996.
Growth was broad across regions, with Korea, Japan and Asia-Pacific all rising sharply, and 68% of sales came from outside North America. The balance sheet strengthened considerably. Cash and short-term investments reached $769 millionb, helped by a July 1995 common stock offering that raised about $321 million.
Working capital grew to $1.45 billionc, and the debt-to-equity ratio fell to 17%. Capital spending was $266 million in fiscal 1995, and management expects roughly $500 million in 1996 for facility expansion in Texas, California, Japan, Taiwan and Korea. The company has never paid cash dividends and has no plans to do so.
Key risks disclosed include dependence on capital spending by semiconductor manufacturers, exposure to Japanese yen movements (hedged with forward contracts and options), and an active patent litigation docket with ASM International, Novellus and General Signal. Management judges none of these lawsuits likely to have a material adverse effect. The company also owns a 50%d stake in Applied Komatsu Technology, a flat panel display joint venture that turned its first quarterly profit in Q4 1995 and is not expected to materially affect results in fiscal 1996.
02—Key points
Key Highlights
- Net sales grew 84% to a record $3.06 billion in fiscal 1995, up from $1.66 billion in fiscal 1994.
- Net income rose to $454.1 million ($2.56 per share), more than doubling from $220.7 million ($1.30 per share).
- Backlog reached $1.5 billion at fiscal year-end, more than double the $715.2 million of a year earlier, and is expected to be filled in fiscal 1996.
- Gross margin was steady at 46%, while operating expenses fell to 23% of net sales from 26% in fiscal 1994.
- Cash and short-term investments reached $769 million after a $321 million common stock offering in July 1995; the debt-to-equity ratio improved to 17%.
- Capital expenditures of about $500 million are planned for 1996, mainly for facility expansion in Texas, California, Japan, Taiwan and Korea.
- Sales are highly international, with 68% of net sales coming from outside North America; the company has never paid cash dividends.
03—Questions
Frequently Asked Questions
What drove Applied Materials' revenue growth in fiscal 1995?
Revenue growth came from strong worldwide demand for advanced wafer processing equipment, especially multi-chamber systems such as the Precision 5000, Endura and Centura platforms. Installed-base support services revenue also rose 47%. Demand from DRAM capacity expansion in South Korea, Taiwan and Singapore, and from eight-inch wafer capacity expansion in Japan, was a major contributor.
Is the company's backlog a reliable indicator of future revenue?
Backlog rose to $1.5 billion from $715.2 million, and management expects to fill it during fiscal 1996, which supports near-term revenue visibility. However, semiconductor equipment demand is cyclical and tied to chipmakers' capital spending, so backlog can change quickly, and management explicitly cautions that current operating expense ratios may not persist.
What are the main legal risks facing the company?
Applied Materials is involved in several patent disputes, most notably with ASM International (epitaxial reactors) and Novellus Systems (CVD processes), and General Signal has sued over multi-chamber equipment. Management believes it is unlikely any of these will have a material adverse effect on financial position or results, though a jury trial in the Novellus case was scheduled for August 1996.
How exposed is the company to currency and international risk?
A large share of operations is conducted in Japanese yen, and the company uses forward contracts and currency options to hedge firm commitments and expected transactions. Management states these instruments do not create speculative risk. It is also exposed to economic and political instability across its global markets, which could reduce demand for its products and services.
Does the company pay dividends, and how is it funding its growth?
Applied Materials has not paid cash dividends and does not plan to in the near future. Growth is funded by operating cash flow, cash on hand, the July 1995 equity offering and debt including $73 million of medium-term notes issued under a $267 million program, plus existing credit facilities of $189 million. Management believes these sources will cover fiscal 1996 capital and cash requirements.
04—Continue