Applied Materials (AMAT) 10-K risk factor changes: FY2019 vs FY2018

The following risk factors could materially and adversely affect Applied’s business, financial condition or results of operations and cause reputational harm, and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.

The industries that Applied serves can be volatile and difficult to predict.

As a supplier to the global semiconductor and display and related industries, Applied is subject to variable industry conditions, since demand for manufacturing equipment and services can change depending on several factors, including the nature and timing of technology inflections and advances in fabrication processes, the timing and requirements of new and emerging technologies and market drivers, production capacity relative to demand for chips and display technologies, end-user demand, customers’ capacity utilization, production volumes, access to affordable capital, consumer buying patterns and general economic conditions.

Applied’s industries historically have been cyclical, and are subject to volatility and sudden changes in customer requirements for new manufacturing capacity and advanced technology.

These changes can affect the timing and amounts of customer investments in technology and manufacturing equipment and can have a significant impact on Applied’s net sales, operating expenses, gross margins and net income.

The amount and mix of capital equipment spending between different products and technologies can have a significant impact on the Company’s results of operations.

To meet rapidly changing demand in the industries it serves, Applied must accurately forecast demand and effectively manage its resources and production capacity across its businesses, and may incur unexpected or additional costs to align its business operations.

During periods of increasing demand for its products, Applied must have sufficient manufacturing capacity and inventory to meet customer demand; effectively manage its supply chain; attract, retain and motivate a sufficient number of qualified employees; and continue to control costs.

During periods of decreasing demand, Applied must reduce costs and align its cost structure with prevailing market conditions; effectively manage its supply chain; and motivate and retain key employees.

If Applied does not effectively manage these challenges during periods of changing demand, its business performance and results of operations may be adversely impacted.

Even with effective allocation of resources and management of costs, during periods of decreasing demand, Applied’s gross margins and earnings may be adversely impacted.

Applied is exposed to the risks of operating a global business.

Applied has product development, engineering, manufacturing, sales and other operations distributed throughout many countries, and some of its business activities are concentrated in certain geographic areas.

Moreover, in fiscal 2019, approximately 87 percent of Applied’s net sales were to customers in regions outside the United States.

As a result of the global nature of its operations, Applied’s business performance and results of operations may be adversely affected by a number of factors, including:

- uncertain global economic and political business conditions and demands;

- political and social attitudes, laws, rules, regulations and policies within countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the development and growth of local competitors;

- global trade issues and changes in and uncertainties with respect to trade policies, including the ability to obtain required import and export licenses, trade sanctions, tariffs, and international trade disputes;

- customer- or government-supported efforts to influence Applied to conduct more of its operations and sourcing in a particular country, such as Korea and China;

- variations among, and changes in, local, regional, national or international laws and regulations, including contract, intellectual property, cybersecurity, data privacy, labor, tax, and import/export laws, and the interpretation and application of such laws and regulations;

- ineffective or inadequate legal protection of intellectual property rights in certain countries;

- positions taken by governmental agencies regarding possible national commercial and/or security issues posed by international business operations;

- fluctuating raw material, commodity, energy and shipping costs;

- delays or restrictions in shipping materials or finished products between countries;

- geographically diverse operations and projects, and our ability to maintain appropriate business processes, procedures and internal controls, and comply with environmental, health and safety, anti-corruption and other regulatory requirements;

- supply chain interruptions, and service interruptions from utilities, transportation, data hosting or telecommunications providers, or other events beyond our control;

- failure to effectively manage a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, and differing employment practices and labor issues;

- variations in the ability to develop relationships with local customers, suppliers and governments;

- fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against the Japanese yen, Israeli shekel, euro, Taiwanese dollar, Singapore dollar, Chinese yuan or Korean won;

- the need to provide sufficient levels of technical support in different locations around the world;

- performance of third party providers of outsourced functions, including certain engineering, software development, manufacturing, information technology and other activities;

- political instability, natural disasters, pandemics, social unrest, terrorism or acts of war in locations where Applied has operations, suppliers or sales, or that may influence the value chain of the industries that Applied serves;

- challenges in hiring and integration of an increasing number of workers in new countries;

- the increasing need for a mobile workforce to work in or travel to different regions; and

- uncertainties with respect to economic growth rates in various countries, including for the manufacture and sale of semiconductors and displays in the developing economies of certain countries.

International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could have an adverse impact on our operations.

We sell a significant majority of our products into countries outside of the United States including China, Taiwan and Korea.

We also purchase a significant portion of equipment and supplies from suppliers outside of the United States.

The United States and other countries have imposed and may continue to impose trade restrictions, and have also levied tariffs and taxes on certain goods.

Increases in tariffs, additional taxes or other trade restrictions and retaliatory measures may increasingly impact end-user demand and customer investment in manufacturing equipment, increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to facilitate an understanding of Applied’s business and results of operations.

This MD&A should be read in conjunction with Applied’s Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.

The following discussion contains forward-looking statements and should also be read in conjunction with the cautionary statement set forth at the beginning of this Form 10-K.

MD&A consists of the following sections:

- *Overview:* a summary of Applied’s business and measurements

- *Results of Operations:* a discussion of operating results

- *Segment Information:* a discussion of segment operating results

*•Recent Accounting Pronouncements:* a discussion of new accounting pronouncements and its impact to Applied’s consolidated financial statements

- *Financial Condition, Liquidity and Capital Resources:* an analysis of cash flows, sources and uses of cash

- *Off-Balance Sheet Arrangements and Contractual Obligations*

- *Critical Accounting Policies and Estimates:* a discussion of critical accounting policies that require the exercise of judgments and estimates

- *Non-GAAP Adjusted Results:* a presentation of results reconciling GAAP to non-GAAP adjusted measures

Overview

Applied provides manufacturing equipment, services and software to the semiconductor, display, and related industries.

Applied’s customers include manufacturers of semiconductor wafers and chips, liquid crystal and organic light-emitting diode (OLED) displays, and other electronic devices.

These customers may use what they manufacture in their own end products or sell the items to other companies for use in advanced electronic components.

Each of Applied’s businesses is subject to variable industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for chips, display technologies, and other electronic devices, as well as other factors, such as global economic and market conditions, and the nature and timing of technological advances in fabrication processes.

Applied operates in three reportable segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.

A summary of financial information for each reportable segment is found in Note 16 of Notes to Consolidated Financial Statements.

A discussion of factors that could affect Applied’s operations is set forth under “Risk Factors” in Part I, Item 1A, which is incorporated herein by reference.

Product development and manufacturing activities occur primarily in the United States, Europe, Israel, and Asia.

Applied’s broad range of equipment and service products are highly technical and are sold primarily through a direct sales force.

Applied’s results are driven primarily by customer spending on capital equipment and services to support key technology transitions or to increase production volume in response to worldwide demand for semiconductors and displays.

Spending by semiconductor customers, which include companies that operate in the foundry, logic and memory markets, is driven by demand for advanced electronic products, including smartphones and other mobile devices, servers, personal computers, automotive devices, storage, and other products.

The growth of data and emerging end-market drivers such as artificial intelligence, augmented and virtual reality, the Internet of Things and smart vehicles are also creating new opportunities for the industry.

As a result, products within the Semiconductor Systems segment are subject to significant changes in customer requirements, including transitions to smaller dimensions, increasingly complex chip architectures, new materials and an increasing number of applications.

Demand for display manufacturing equipment spending depends primarily on consumer demand for increasingly larger and more advanced TVs as well as larger and higher resolution displays for next-generation mobile devices, and investments in new types of display technologies.

While certain existing technologies may be adapted to new requirements, some applications create the need for an entirely different technological approach.

The timing of customer investment in manufacturing equipment is also affected by the timing of next-generation process development and the timing of capacity expansion to meet end-market demand.

In light of these conditions, Applied’s results can vary significantly year-over-year, as well as quarter-over-quarter.

Applied’s strategic priorities include developing products that help solve customers’ challenges at technology inflections; expanding its served market opportunities in the semiconductor and display industries; and growing its services business.

Applied’s long-term growth strategy requires continued development of new materials engineering capabilities, including products and platforms that enable expansion into new and adjacent markets.

Applied’s significant investments in research, development and engineering must generally enable it to deliver new products and technologies before the emergence of strong demand, thus allowing customers to incorporate these products into their manufacturing plans during early-stage technology selection.

Applied works closely with its global customers to design systems and processes that meet their planned technical and production requirements.

The following table presents certain significant measurements for the past three fiscal years:

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | Change | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2019 over 2018 | | | | | | 2018 over 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | |

Applied is exposed to interest rate risk related to its investment portfolio and debt issuances.

Applied’s investment portfolio includes fixed-income securities with a fair value of approximately $2.0 billion at October 27, 2019.

These securities are subject to interest rate risk and will decline in value if interest rates increase.

Based on Applied’s investment portfolio at October 27, 2019, an immediate 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of approximately $29 million.

While an increase in interest rates reduces the fair value of the investment portfolio, Applied will not realize the losses in the consolidated statement of operations unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary.

At October 27, 2019, the aggregate principal of long-term debt issued by Applied was $4.8 billion with an estimated fair values of $5.5 billion.

A hypothetical decrease in interest rates of 100 basis points would result in an increase in the fair value of Applied’s long-term debt issuances of approximately $549 million at October 27, 2019.

Certain operations of Applied are conducted in foreign currencies, such as Japanese yen, Israeli shekel, euro and Taiwanese dollar.

Applied enters into currency forward exchange and option contracts to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions generally expected to occur within the next 24 months.

Gains and losses on these contracts are generally recognized in income at the time that the related transactions being hedged are recognized.

Because the effect of movements in currency exchange rates on currency forward exchange and option contracts generally offsets the related effect on the underlying items being hedged, these financial instruments are not expected to subject Applied to risks that would otherwise result from changes in currency exchange rates.

Applied does not use derivative financial instruments for trading or speculative purposes.

Incorporated in 1967, Applied Materials, Inc. (Applied) is a Delaware corporation.

A global company with a broad set of capabilities in materials engineering, Applied provides manufacturing equipment, services and software to the semiconductor, display and related industries.

With its diverse technology capabilities, Applied delivers products and services that improve device performance, yield and cost.

Applied’s customers include manufacturers of semiconductor chips, liquid crystal and organic light-emitting diode (OLED) displays, and other electronic devices.

These customers may use what they manufacture in their own end products or sell the items to other companies for use in advanced electronic components.

Applied’s fiscal year ends on the last Sunday in October.

Applied operates in three reportable segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.

A summary of financial information for each reportable segment is found in Note 16 of Notes to Consolidated Financial Statements.

A discussion of factors that could affect operations is set forth under “Risk Factors” in Item 1A, which is incorporated herein by reference.

Semiconductor Systems

Applied’s Semiconductor Systems segment develops, manufactures and sells a wide range of manufacturing equipment used to fabricate semiconductor chips, also referred to as integrated circuits (ICs).

The Semiconductor Systems segment includes semiconductor capital equipment used for many steps of the chip making process including the transfer of patterns into device structures, transistor and interconnect fabrication, metrology, inspection and review, and packaging technologies for connecting finished IC die.

Applied’s patterning systems and technologies address challenges resulting from shrinking pattern dimensions and the growing complexity in vertical stacking found in today’s most advanced semiconductor devices.

Applied’s transistor and interconnect products and technologies enable continued device scaling of 3D transistors.

Applied’s metrology, inspection and review systems’ imaging capabilities and algorithms employ optical and e-beam technologies to meet the most advanced technical demands, such as self-aligned double and quad patterning, extreme ultraviolet layers, measurement-intensive optimal proximity correction mask qualification, and new 3D architectures.

Applied’s packaging technologies address challenges resulting from the increasing integration of multiple IC dies in a single package.

Applied delivers leading-edge capabilities that enable chipmakers to establish accurate statistical process control, ramp up production runs rapidly, and achieve consistently high production yields.

The majority of Applied’s new equipment sales are to leading integrated device manufacturers and foundries worldwide.

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Technologies | | | | | | Product(s) | | |

| Epitaxy Epitaxy (or epi) is a technique for growing silicon (e.g. silicon with another element) as a uniform crystalline structure on a wafer to form high quality material for the device circuity. Epi technology is used in device transistors to enhance chip speed. | | | | | | Centura RP Epi | | |

| Ion Implant Ion implantation is a key technology for forming transistors and is used many times during chip fabrication. During ion implantation, wafers are bombarded by a beam of electrically-charged ions, called dopants, which can change the electrical properties of the exposed semiconductor material. | | | | | | VIISta Systems | | |

| Oxidation/Nitridation Applied’s systems provide critical oxidation steps - like memory gate oxide, shallow trench isolation and liner oxide - for advanced device scaling. | | | | | | Vantage, Radiance and Centura Systems | | |

| Rapid Thermal Processing (RTP) RTP is used primarily for annealing, which modifies the properties of deposited films. Applied’s single-wafer RTP systems are also used for growing high quality oxide and oxynitride films. | | | | | | Vantage Systems | | |

| Physical Vapor Deposition (PVD) PVD is used to deposit high quality metal films. Applications include metal gate, silicides, contact liner/barrier, interconnect copper barrier seed and metal hard mask. | | | | | | Endura Systems | | |

| Chemical Vapor Deposition (CVD) CVD is used to deposit dielectric and metal films 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. | | | | | | Endura, Centura and Producer Systems | | |

| Chemical Mechanical Planarization (CMP) CMP is used to planarize a wafer surface, a process that allows subsequent photolithography patterning and material deposition steps to occur with greater accuracy, resulting in more uniform film layers with minimal thickness variations. | | | | | | Reflexion Systems | | |

| Electrochemical Deposition (ECD) ECD is a process by which metal atoms from a chemical fluid (an electrolyte) are deposited on the surface of an immersed object. | | | | | | Raider and Nokota Platforms | | |

| Atomic Layer Deposition (ALD) ALD technology enables ultra thin film growth of either a conducting or insulating material with uniform coverage in nanometer-sized structures. | | | | | | Olympia System | | |

| Etch Etching is used many times throughout the IC manufacturing process to selectively remove material from the surface of a wafer. Applied offers systems for etching dielectric, metal, and silicon films to meet the requirements of advanced processing. | | | | | | Centris and Producer Systems | | |

| Selective Removal Selective removal is a new etch technology intended to remove a material of a particular composition without damaging materials of different composition that coexist on the wafer. | | | | | | Producer Systems | | |

| Metrology and Inspection Metrology and inspection tools are used to locate, measure, and analyze defects and features on the wafer during various stages of the fabrication processes. Applied enables customers to characterize and control critical dimension (CD) and defect issues, especially at advanced generation technology nodes. | | | | | | SEMVision G7 Defect Analysis PROVision eBeam Inspection UVision 8 Inspection VeritySEM 5i Metrology Aera4 Mask Inspection | | |

Applied Global Services

The Applied Global Services (AGS) segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, remanufactured earlier generation equipment and factory automation software for semiconductor, display and other products.

Customer demand for products and services is fulfilled through a global distribution system more than 100 locations and trained service engineers located in close proximity to customer sites in more than a dozen countries to support over 42,500 installed Applied semiconductor, display and other manufacturing systems worldwide.

Applied offers the following general types of services and products under the Applied Global Services segment.

| | | |

| --- | --- | --- |

| AGS Solutions and Technology | | |

The information set forth under “Legal Matters” in Note 15 of Notes to Consolidated Financial Statements is incorporated herein by reference.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| ☑ | | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | |

For the fiscal year ended October 27, 2019

or

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| ☐ | | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | |

For the transition period from to

Commission file number 000-06920

Applied Materials, Inc.

*(Exact name of registrant as specified in its charter)*

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| Delaware | | | 94-1655526 | | |

| *(State or other jurisdiction of incorporation or organization)* | | | *(I.R.S. Employer Identification No.)* | | |

3050 Bowers Avenue

P.O. Box 58039

Santa Clara, California 95052-8039

*(Address of principal executive offices)*

(408) 727-5555

*(Registrant’s telephone number, including area code)*

Securities registered pursuant to Section 12(b) of the Act:

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Title of Each Class | | | Trading Symbol | | | Name of Each Exchange on Which Registered | | |

| Common Stock, par value $.01 per share | | | AMAT | | | The NASDAQ Stock Market LLC | | |

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☑

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit).

Yes ☑ No ☐

None.

Information concerning Applied’s properties is set forth below:

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| (Square feet in thousands) | | | United States | | | | | | Other Countries | | | | | | Total | | |

| Owned | | | 4,317 | | | | | | 2,470 | | | | | | 6,787 | | |

| Leased | | | 1,222 | | | | | | 1,527 | | | | | | 2,749 | | |

| Total | | | 5,539 | | | | | | 3,997 | | | | | | 9,536 | | |

Because of the interrelation of Applied’s operations, properties within a country may be shared by the segments operating within that country.

The Company’s headquarters offices are in Santa Clara, California.

Products in Semiconductor Systems are manufactured in Santa Clara, California; Austin, Texas; Gloucester, Massachusetts; Kalispell, Montana; Rehovot, Israel; and Singapore.

Remanufactured equipment products in the Applied Global Services segment are produced primarily in Austin, Texas.

Products in the Display and Adjacent Markets segment are manufactured in Alzenau, Germany and Tainan, Taiwan.

Other products are manufactured in Treviso, Italy.

Applied also owns and leases offices, plants and warehouse locations in many locations throughout the world, including in Europe, Japan, North America (principally the United States), Israel, China, India, Korea, Southeast Asia and Taiwan.

These facilities are principally used for manufacturing; research, development and engineering; and marketing, sales and customer support.

Applied also owns a total of approximately 269 acres of buildable land in Montana, Texas, California, Israel and Italy that could accommodate additional building space.

Applied considers the properties that it owns or leases as adequate to meet its current and future requirements.

Applied regularly assesses the size, capability and location of its global infrastructure and periodically makes adjustments based on these assessments.

None.

PART II

Market Information

Applied’s common stock is traded on the NASDAQ Global Select Market under the symbol AMAT.

As of December 6, 2019, there were 2,859 registered holders of Applied common stock.

Information regarding quarterly cash dividends declared on Applied Materials’s common stock during fiscal 2019, 2018 and 2017 may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources”.

Performance Graph

The performance graph below shows the five-year cumulative total stockholder return on Applied common stock during the period from October 26, 2014 through October 27, 2019.

This is compared with the cumulative total return of the Standard & Poor’s 500 Stock Index, the RDG Semiconductor Composite Index and the PHLX Semiconductor Index over the same period.

In addition to the RDG Semiconductor Composite Index, Applied has added the PHLX Semiconductor Index, which Applied believes better represents overall semiconductor industry performance.

The comparison assumes $100 was invested on October 26, 2014 in Applied common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.

Dollar amounts in the graph are rounded to the nearest whole dollar.

The performance shown in the graph represents past performance and should not be considered an indication of future performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Applied Materials, Inc., the S&P 500 Index,

the RDG Semiconductor Composite Index and the PHLX Semiconductor Index


*Assumes $100 invested on 10/26/14 in stock or 10/31/14 in index, including reinvestment of dividends.

Indexes calculated on month-end basis.

Copyright© 2019 Standard & Poor’s, a division of S&P global.

All rights reserved.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | 10/26/2014 | | | | | | 10/25/2015 | | | | | | 10/30/2016 | | | | | | 10/29/2017 | | | | | | 10/28/2018 | | | | | | 10/27/2019 | | |

| Applied Materials | | | 100.00 | | | | | | 79.87 | | | | | | 141.85 | | | | | | 283.52 | | | | | | 163.81 | | | | | | 287.88 | | |

| S&P 500 Index | | | 100.00 | | | | | | 105.20 | | | | | | 109.94 | | | | | | 135.93 | | | | | | 145.91 | | | | | | 166.81 | | |

| RDG Semiconductor Composite Index | | | 100.00 | | | | | | 97.22 | | | | | | 119.39 | | | | | | 179.70 | | | | | | 171.36 | | | | | | 222.46 | | |

| PHLX Semiconductor Index | | | 100.00 | | | | | | 105.26 | | | | | | 133.38 | | | | | | 210.24 | | | | | | 201.66 | | | | | | 282.62 | | |

Issuer Purchases of Equity Securities

The following table provides information as of October 27, 2019 with respect to the shares of common stock repurchased by Applied during the fourth quarter of fiscal 2019 pursuant to a publicly announced stock repurchase program approved by the Board of Directors in February 2018, which authorized up to an aggregate of $6.0 billion in repurchases.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Period | | | Total Number of Shares Purchased | | | | | | Average Price Paid per Share | | | | | | Aggregate Price Paid | | | | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | | | | Maximum Dollar Value of Shares That May Yet be Purchased Under the Programs | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | (In millions, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Month #1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| (July 29, 2019 to August 25, 2019) | | | 2.5 | | | | | | $ | 47.33 | | | | | $ | 119 | | | | | 2.5 | | | | | | $ | 2,305 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Month #2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| (August 26, 2019 to September 22, 2019) | | | 3.3 | | | | | | $ | 49.47 | | | | | 166 | | | | | | 3.3 | | | | | | $ | 2,139 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Month #3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| (September 23, 2019 to October 27, 2019) | | | 4.2 | | | | | | $ | 51.45 | | | | | 215 | | | | | | 4.2 | | | | | | $ | 1,924 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total | | | 10.0 | | | | | | $ | 49.76 | | | | | $ | 500 | | | | | 10.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Applied adopted the authoritative guidance related to revenue recognition in the first quarter of fiscal 2019 using the full retrospective method.

Applied also adopted authoritative guidance related to retirement benefits in the first quarter of fiscal 2019 using the retrospective method.

The adoption of these guidance required restating fiscal years 2018 and 2017 results as presented below.

The following selected financial information has been derived from Applied’s historical audited consolidated financial statements and should be read in conjunction with the consolidated financial statements and the accompanying notes for the corresponding fiscal years:

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Fiscal Year(1) | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | (In millions, except percentages and per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net sales | | | $ | 14,608 | | | | | $ | 16,705 | | | | | $ | 14,698 | | | | | $ | 10,825 | | | | | $ | 9,659 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Gross profit | | | $ | 6,386 | | | | | $ | 7,517 | | | | | $ | 6,612 | | | | | $ | 4,511 | | | | | $ | 3,952 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Gross margin | | | 43.7 | | % | | | | 45.0 | | % | | | | 45.0 | | % | | | | 41.7 | | % | | | | 40.9 | | % | | | | | | | | | | | | | | | | | | | | | | | | |

| Research, development and engineering | | | $ | 2,054 | | | | | $ | 2,022 | | | | | $ | 1,781 | | | | | $ | 1,540 | | | | | $ | 1,451 | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Operating income | | | $ | 3,350 | | | | | $ | 4,491 | | | | | $ | 3,936 | | | | | $ | 2,152 | | | | | $ | 1,693 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Operating margin | | | 22.9 | | % | | | | 26.9 | | % | | | | 26.8 | | % | | | | 19.9 | | % | | | | 17.5 | | % | | | | | | | | | | | | | | | | | | | | | | | | |

| Income before income taxes | | | $ | 3,269 | | | | | $ | 4,396 | | | | | $ | 3,816 | | | | | $ | 2,013 | | | | | $ | 1,598 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net income | | | $ | 2,706 | | | | | $ | 3,038 | | | | | $ | 3,519 | | | | | $ | 1,721 | | | | | $ | 1,377 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Earnings per diluted share | | | $ | 2.86 | | | | | $ | 2.96 | | | | | $ | 3.25 | | | | | $ | 1.54 | | | | | $ | 1.12 | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Long-term debt | | | $ | 4,713 | | | | | $ | 5,309 | | | | | $ | 5,304 | | | | | $ | 3,125 | | | | | $ | 3,342 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Cash dividends declared per common share | | | $ | 0.83 | | | | | $ | 0.70 | | | | | $ | 0.40 | | | | | $ | 0.40 | | | | | $ | 0.40 | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total assets | | | $ | 19,024 | | | | | $ | 17,633 | | | | | $ | 19,190 | | | | | $ | 14,570 | | | | | $ | 15,308 | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

(1)Each fiscal year ended on the last Sunday in October.

Fiscal 2019, 2018, 2017, and 2015 each contained 52 weeks, and fiscal 2016 contained 53 weeks.

The consolidated financial statements required by this Item are set forth on the pages indicated at Item 15(a).

None.

Disclosure Controls and Procedures

As of the end of the period covered by this report, management of Applied conducted an evaluation, under the supervision and with the participation of Applied’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of Applied’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange Act).

Based upon that evaluation, Applied’s Chief Executive Officer and Chief Financial Officer concluded that Applied’s disclosure controls and procedures were effective as of the end of the period covered by this report in ensuring that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by Applied in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Applied’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act.

Under the supervision and with the participation of Applied’s Chief Executive Officer and Chief Financial Officer, management of Applied conducted an evaluation of the effectiveness of Applied’s internal control over financial reporting based upon the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on that evaluation, Applied’s management concluded that Applied’s internal control over financial reporting was effective as of October 27, 2019.

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Form 10-K and, as part of the audit, has issued a report, included herein, on the effectiveness of Applied’s internal control over financial reporting as of October 27, 2019.

Changes in Internal Control over Financial Reporting

During the fourth quarter of fiscal 2019, there were no changes in the internal control over financial reporting that materially affected, or are reasonably likely to materially affect, Applied’s internal control over financial reporting.

Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met.

In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

None

PART III

Except for the information regarding executive officers required by Item 401 of Regulation S-K (which is included in Part I, Item 1 of this Annual Report on Form 10-K, under “Executive Officers of the Registrant”) and code of ethics (which is set forth below), the information required by this item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2020.

Applied has implemented the Standards of Business Conduct, a code of ethics with which every person who works for Applied and every member of the Board of Directors is expected to comply.

If any substantive amendments are made to the Standards of Business Conduct or any waiver is granted, including any implicit waiver, from a provision of the code to Applied’s Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, Applied will disclose the nature of such amendment or waiver on its website or in a report on Form 8-K.

The above information, including the Standards of Business Conduct, is available on Applied’s website under the Corporate Governance section at *http://www.appliedmaterials.com/company/investor-relations/governance.* This website address is intended to be an inactive, textual reference only.

None of the materials on, or accessible through, this website is part of this report or is incorporated by reference herein.

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2020.

Except for the information regarding securities authorized for issuance under equity compensation plans (which is set forth below), the information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2020.

The following table summarizes information with respect to equity awards under Applied’s equity compensation plans as of October 27, 2019:

Equity Compensation Plan Information

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Plan Category | | | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) | | | | | | | | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | | | | | (c) Number of Securities Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | (In millions, except prices) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Equity compensation plans approved by security holders | | | 19 | | | | | | | | | $ | 15.06 | | | | | 77 | | | (3) | | | | | | | | | | | | | | | | | |

| Equity compensation plans not approved by security holders | | | — | | | | | | | | | $ | — | | | | | 2 | | | (4) | | | | | | | | | | | | | | | | | |

| Total | | | 19 | | | | | | | | | $ | 15.06 | | | | | 79 | | | | | | | | | | | | | | | | | | | | |

(1)Includes only options, restricted stock units and performance shares outstanding under Applied’s equity compensation plans, as no stock warrants or other rights were outstanding as of October 27, 2019.

(2)The weighted average exercise price calculation does not take into account any restricted stock units or performance shares.

(3)Includes 11 million shares of Applied common stock available for future issuance under the Applied Materials, Inc. Employees’ Stock Purchase Plan.

Of these 11 million shares, 1 million are subject to purchase during the purchase period in effect as of October 27, 2019.

(4)Includes 2 million shares of Applied common stock available for future issuance under the Applied Materials, Inc. Stock Purchase Plan for Offshore Employees.

Of these 2 million shares, 1 million are subject to purchase during the purchase period in effect as of October 27, 2019.

Applied has the following equity compensation plans that have not been approved by stockholders:

*Stock Purchase Plan for Offshore Employees.* The Stock Purchase Plan for Offshore Employees (the Offshore ESPP) was adopted effective as of October 16, 1995 for the benefit of employees of Applied’s participating affiliates.

The Offshore ESPP provides for the grant of options to purchase shares of Applied common stock through payroll deductions pursuant to one or more offerings.

The administrator of the Offshore ESPP (the Board of Directors of Applied or a committee appointed by the Board) determines the terms and conditions of all options prior to the start of an offering, including the purchase price of shares, the number of shares covered by the option and when the option may be exercised.

All options granted as part of an offering must be granted on the same date.

As of October 27, 2019, a total of 36 million shares have been authorized for issuance under the Offshore ESPP, and 2 million shares remain available for issuance.

Applied Materials Profit Sharing Scheme.

The Applied Materials Profit Sharing Scheme was adopted effective July 3, 1996 to enable employees of Applied Materials Ireland Limited and its participating subsidiaries to purchase Applied common stock at 100% of fair market value on the purchase date.

Under this plan, eligible employees may elect to forego a certain portion of their base salary and certain bonuses they have earned and that otherwise would be payable in cash to purchase shares of Applied common stock at full fair market value.

Since the eligible employees pay full fair market value for the shares, there is no reserved amount of shares under this plan and, accordingly, the table above does not include any set number of shares available for future issuance under the plan.

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2020.

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2020.

PART IV

(a) The following documents are filed as part of this Annual Report on Form 10-K:

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | Page Number | | |

| (1) | | | Financial Statements: | | | | | |

| | | | | | | | | |

| | | | [Reports of Independent Registered Public Accounting Firm](#i_0_106) | | | [58](#i_0_106) | | |

| | | | | | | | | |

| | | | [Consolidated Statements of Operations](#i_0_112) | | | [61](#i_0_112) | | |

| | | | | | | | | |

| | | | [Consolidated Statements of Comprehensive Income](#i_0_115) | | | [62](#i_0_115) | | |

| | | | | | | | | |

| | | | [Consolidated Balance Sheets](#i_0_118) | | | [63](#i_0_118) | | |

| | | | | | | | | |

| | | | [Consolidated Statements of Stockholders’ Equity](#i_0_124) | | | [64](#i_0_124) | | |

| | | | | | | | | |

| | | | [Consolidated Statements of Cash Flows](#i_0_130) | | | [65](#i_0_130) | | |

| | | | | | | | | |

| | | | [Notes to Consolidated Financial Statements](#i_0_133) | | | [66](#i_0_133) | | |

| | | | | | | | | |

| (2) | | | 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](#i_0_211) | | | [106](#i_0_211) | | |

| | | | | | | | | |

All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.

None.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Applied Materials, Inc.:

*Opinion on the Consolidated* *Financial Statements*

We have audited the accompanying consolidated balance sheets of Applied Materials, Inc. and subsidiaries (the Company) as of October 27, 2019 and October 28, 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 27, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 27, 2019 and October 28, 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended October 27, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of October 27, 2019, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 13, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

*Change in Accounting Principle*

As discussed in note 1 to the consolidated financial statements, in 2019, the Company has changed its method of accounting for revenue due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 606, *Revenue from Contracts with Customers*, and its method of accounting for intra-entity transfer of assets other than inventory due to the adoption of the Accounting Standards Update (ASU) No. 2016-16, *Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory*.

*Basis for Opinion*

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

*Critical Audit Matters*

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

*Evaluation of net realizable value adjustments to inventories for excess or obsolescence*

As discussed in notes 1 and 8 to the consolidated financial statements, the Company has inventories with a carrying value of $3,474 million as of October 27, 2019.

The Company adjusts inventory carrying value for estimated excess or obsolescence equal to the difference between cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.

If actual demand were to be substantially lower than estimated, there could be a significant adverse impact on the carrying value of inventories and results of operations.

We identified the evaluation of net realizable value adjustments to inventories for excess or obsolescence as a critical audit matter.

Evaluation of the Company’s estimates regarding forecasted sales and inventory consumption involved a high degree of auditor judgment.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s process for determining net realizable value adjustments for inventory excess or obsolescence, including estimating forecasted sales and inventory consumption.

We evaluated certain inventories for excess or obsolescence by comparing the Company’s sales and inventory consumption forecast to historical sales, historical inventory usage, known customer orders, and industry outlook reports.

In addition, for certain inventories, we compared the Company’s historical estimates of net realizable value adjustments for excess and obsolescence to the actual physical inventory disposals to evaluate the Company’s ability to accurately estimate the net realizable value adjustments.

*Evaluation of the fair value of the underlying intangible assets utilized to record the deferred tax asset*

As discussed in note 1 to the consolidated financial statements, the Company adopted ASU No. 2016-16 in the current year and upon adoption recorded a deferred tax asset of $1.6 billion related to the estimated income tax effects of an intra-entity transfer of intangible assets.

The recorded deferred tax asset involves significant judgment in estimating the fair value of the underlying intangible assets that are subject to amortization for tax purposes.

We identified the evaluation of the fair value of the underlying intangible assets utilized to record the deferred tax asset as a critical audit matter.

There was a high degree of subjectivity in evaluating the valuation methodology and assumptions utilized by the Company in estimating the fair value of the underlying intangible assets utilized to record the deferred tax asset.

These assumptions included the fair value of the Company’s operating assets, discount rate and comparable company benchmark ratios utilized to calculate the portion of market value attributable to the intangible assets.

The primary procedures we performed to address this critical audit matter included the following.

10-K 1 amat1028201810-kq42018.htm AMAT FY'18 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

| | |

| --- | --- |

| | |

| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the fiscal year ended October 28, 2018

or

| | |

| --- | --- |

| | |

| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the transition period from to

Commission file number 000-06920

Applied Materials, Inc.

(Exact name of registrant as specified in its charter)

| | |

| --- | --- |

| | |

| Delaware | 94-1655526 |

| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

| 3050 Bowers Avenue, P.O. Box 58039 Santa Clara, California | 95052-8039 (Zip Code) |

| (Address of principal executive offices) | |

Registrant’s telephone number, including area code:

(408) 727-5555

Securities registered pursuant to Section 12(b) of the Act:

| | |

| --- | --- |

| | |

| Title of Each Class | Name of Each Exchange on Which Registered |

| Common Stock, par value $.01 per share | The NASDAQ Stock Market LLC |

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ¨ No þ

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.