News Release

• Non-GAAP adjusted EPS of 18 cents at mid-point of guidance; GAAP EPS of 14 cents
• Strong demand for mobile devices and large-screen TVs drives semiconductor and display equipment sales
• Spending shift to RD&E to fund profitable growth opportunities in precision materials engineering

SANTA CLARA, Calif., August 15, 2013 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in manufacturing solutions for the semiconductor, display and solar industries, today reported results for its third quarter of fiscal 2013 ended July 28, 2013.

Applied generated orders of $2.00 billion, down 12 percent from the prior quarter as a seasonal decline in foundry bookings was partially offset by growth in memory and logic orders along with higher bookings in the Display Group and Applied Global Services. Net sales were $1.98 billion, essentially flat sequentially. The company reported non-GAAP adjusted operating income of $312 million and non-GAAP adjusted net income of $223 million or 18 cents per diluted share. The company recorded GAAP operating income of $250 million and GAAP net income of $168 million or 14 cents per diluted share.

"Consumers' appetite for mobile devices and larger TVs is driving healthy demand for our semiconductor and display equipment," said Mike Splinter, chairman and chief executive officer. "We are seeing stronger investment by our memory customers, and our display business booked its highest orders in over two years."

Quarterly Results Summary

GAAP Results		Q3 FY2013		Q2 FY2013		Q3 FY2012
Net sales		$1.98 billion		$1.97 billion		$2.34 billion
Operating income (loss)		$250 million		$(68) million		$322 million
Net income (loss)		$168 million		$(129) million		$218 million
Diluted earnings (loss) per share (EPS)		$0.14		$(0.11)		$0.17
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income		$312 million		$285 million		$431 million
Non-GAAP adjusted net income		$223 million		$199 million		$300 million
Non-GAAP adjusted diluted EPS		$0.18		$0.16		$0.24

 

Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: certain acquisition-related costs; restructuring charges and any associated adjustments; impairments of assets, goodwill, or investments; gain or loss on sale of facilities; and certain tax items. A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial tables included in this release. See also "Use of Non-GAAP Adjusted Financial Measures" below.

Third Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.20 billion, down 22 percent, due to a decrease in foundry orders, partially offset by increases in memory and logic orders. Net sales of $1.27 billion declined 1 percent. Non-GAAP adjusted operating income decreased to $283 million or 22.2 percent of net sales. GAAP operating income decreased to $246 million or 19.3 percent of net sales. New order composition was: foundry 45 percent; flash 24 percent; logic/other 17 percent; and DRAM 14 percent.

Applied Global Services (AGS) orders were $517 million, up 7 percent, reflecting higher orders for spares and 200mm equipment. Net sales were $497 million down 4 percent. Non-GAAP adjusted operating income was approximately flat at $116 million or 23.3 percent of net sales. GAAP operating income was approximately flat at $114 million or 22.9 percent of net sales.

Display orders were $256 million, up 31 percent led by a recovery in TV equipment demand. Net sales were $161 million up 27 percent. Non-GAAP adjusted operating income increased to $34 million or 21.1 percent of net sales. GAAP operating income increased to $33 million or 20.5 percent of net sales.

Energy and Environmental Solutions (EES) orders were $19 million, down 51 percent. Net sales were $45 million, up 18 percent. EES had a non-GAAP adjusted operating loss of $15 million; EES recorded a GAAP operating loss of $27 million, which included restructuring and impairment charges of $10 million.

Additional Quarterly Financial Information

• Backlog was approximately flat sequentially at $2.29 billion including negative adjustments of $28 million.
• Gross margin was 42.9 percent on a non-GAAP adjusted basis, down slightly from 43.2 percent in the prior quarter. GAAP gross margin was 40.8 percent.
• On a year-over-year basis, G&A declined by $40 million, or 29 percent, while RD&E increased by $25 million, or 8 percent. These changes primarily reflect the impact of ongoing initiatives to reduce company overhead spending and increase funding of profitable growth opportunities, particularly in the Silicon Systems Group.
• The effective tax rate was 23.9 percent on a non-GAAP adjusted basis. The GAAP effective tax rate was 26.3 percent.
• The company paid $120 million in cash dividends, up 11 percent from the prior quarter, reflecting the quarterly dividend increase announced in March 2013. Applied also used $50 million to repurchase 3 million shares of its common stock.
• Cash, cash equivalents and investments ended the quarter at $3.03 billion, up 6 percent from the prior quarter.

Business Outlook

For the fourth quarter of fiscal 2013, Applied expects net sales to be approximately flat as compared to the previous quarter. The company expects non-GAAP adjusted operating expenses to be in the range of $525 million, plus or minus $10 million. Non-GAAP adjusted EPS is expected to be in the range of $0.16 to $0.20. The non-GAAP adjusted operating expenses and EPS outlooks exclude known charges related to completed acquisitions of approximately $19 million and $0.04 per share, respectively, but do not exclude other non-GAAP adjustments that may arise subsequent to this release.

Use of Non-GAAP Adjusted Financial Measures

Management uses non-GAAP adjusted results to evaluate the company's operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Applied believes these measures enhance investors' ability to review the company's business from the same perspective as the company's management and facilitate comparisons of this period's results with prior periods. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP.

Webcast Information

Applied Materials will discuss these results during an earnings call that begins at 1:30 p.m. Pacific Time today. A live webcast will be available at www.appliedmaterials.com. A replay will be available on the website beginning at 5:00 p.m. Pacific Time today.

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding Applied's performance, end-user and customer demand, spending for growth, and business outlooks for the fourth quarter of fiscal 2013. These statements and their underlying assumptions are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including but not limited to: the level of demand for Applied's products, which is subject to many factors, including uncertain global economic and industry conditions, end-demand for electronic products and semiconductors, and customers' new technology and capacity requirements; variability of operating expenses and results among the company's segments caused by differing conditions in the served markets; the concentrated nature of Applied's customer base; Applied's ability to (i) develop, deliver and support a broad range of products, expand its markets and develop new markets, (ii) achieve the objectives of operational initiatives, (iii) plan and manage its resources and production capability, (iv) obtain and protect intellectual property rights in key technologies, (v) attract, motivate and retain key employees, and (vi) accurately forecast future results, which depends on multiple assumptions related to, without limitation, market conditions, customer requirements and business needs; and other risks described in Applied's SEC filings, including its most recent Form 10-Q. All forward-looking statements are based on management's estimates, projections and assumptions as of the date hereof. The company undertakes no obligation to update any forward-looking statements.

About Applied Materials

Applied Materials, Inc. (Nasdaq:AMAT) is the global leader in providing innovative equipment, services and software to enable the manufacture of advanced semiconductor, flat panel display and solar photovoltaic products. Our technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world. Learn more at www.appliedmaterials.com.

Contact:

Kevin Winston (editorial/media) 408.235.4498

Michael Sullivan (financial community) 408.986.7977

 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

 

			Three Months Ended													Nine Months Ended
(In millions, except per share amounts)			July 28, 2013					April 28, 2013				July 29, 2012				July 28, 2013				July 29, 2012
Net sales			$		1,975			$	1,973			$	2,343			$	5,521			$	7,073
Cost of products sold			1,169					1,165				1,413				3,325				4,347
Gross margin			806					808				930				2,196				2,726
Operating expenses:
	Research, development and engineering		334					344				309				982				933
	Marketing and selling		111					118				118				334				374
	General and administrative		97					126				137				348				465
	Impairment of goodwill and intangible assets		-					278				-				278				-
	Restructuring charges and asset impairments		14					10				44				33				44
Total operating expenses			556					876				608				1,975				1,816
Income (loss) from operations			250					(68		)		322				221				910
Impairments of strategic investments			3					2				-				5				3
Interest and other expenses			23					24				24				71				72
Interest and other income, net			4					4				4				11				13
Income (loss) before income taxes			228					(90		)		302				156				848
Provision for income taxes			60					39				84				83				224
Net income (loss)			$	168				$	(129	)		$	218			$	73			$	624
Earnings (loss) per share:
	Basic		$	0.14				$	(0.11	)		$	0.17			$	0.06			$	0.49
	Diluted		$	0.14				$	(0.11	)		$	0.17			$	0.06			$	0.48
Weighted average number of shares:
	Basic		1,203					1,203				1,257				1,201				1,282
	Diluted		1,220					1,203				1,268				1,218				1,292

 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

 

(In millions)			July 28, 2013				April 28, 2013				October 28, 2012
ASSETS
Current assets:
	Cash and cash equivalents		$	1,745			$	1,545			$	1,392
	Short-term investments		230				225				545
	Accounts receivable, net		1,170				1,275				1,220
	Inventories		1,358				1,318				1,272
	Other current assets		734				750				673
Total current assets			5,237				5,113				5,102
Long-term investments			1,055				1,080				1,055
Property, plant and equipment, net			872				886				910
Goodwill			3,294				3,294				3,518
Purchased technology and other intangible assets, net			1,148				1,194				1,355
Deferred income taxes and other assets			145				128				162
Total assets			$	11,751			$	11,695			$	12,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	1,446			$	1,462			$	1,510
	Customer deposits and deferred revenue		756				739				755
Total current liabilities			2,202				2,201				2,265
Long-term debt			1,946				1,946				1,946
Other liabilities			649				650				656
Total liabilities			4,797				4,797				4,867
Total stockholders' equity			6,954				6,898				7,235
Total liabilities and stockholders' equity			$	11,751			$	11,695			$	12,102

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 

(In millions)			Three Months Ended												Nine Months Ended
			July 28, 2013				April 28, 2013				July 29, 2012				July 28, 2013				July 29, 2012
Cash flows from operating activities:
	Net income (loss)		$	168			$	(129	)		$	218			$	73			$	624
	Adjustments required to reconcile net income (loss) to cash provided by operating activities:
		Depreciation and amortization	100				106				105				312				325
		Impairment of goodwill and intangible assets	-				278				-				278				-
		Restructuring charges and asset impairments	14				10				44				33				44
		Deferred income taxes and other	(56		)		32				91				(102		)		144
		Share-based compensation	40				39				42				121				138
		Net change in operating assets and liabilities, net of amounts acquired	98				(112		)		156				(111		)		165
Cash provided by operating activities			364				224				656				604				1,440
Cash flows from investing activities:
	Capital expenditures, net		(40		)		(51		)		(45		)		(140		)		(121		)
	Cash paid for acquisition, net of cash acquired		-				(1		)		(3		)		(1		)		(4,189		)
	Proceeds from sales and maturities of investments		134				158				205				737				765
	Purchases of investments		(128		)		(167		)		(438		)		(438		)		(1,152		)
Cash provided by (used in) investing activities			(34		)		(61		)		(281		)		158				(4,697		)
Cash flows from financing activities:
	Proceeds from common stock issuances and others, net		40				67				6				125				51
	Common stock repurchases		(50		)		(100		)		(500		)		(198		)		(900		)
	Payments of dividends to stockholders		(120		)		(108		)		(115		)		(336		)		(323		)
Cash used in financing activities			(130		)		(141		)		(609		)		(409		)		(1,172		)
Effect of exchange rate changes on cash and cash equivalents			-				-				2				-				(2		)
Increase (decrease) in cash and cash equivalents			200				22				(232		)		353				(4,431		)
Cash and cash equivalents - beginning of period			1,545				1,523				1,761				1,392				5,960
Cash and cash equivalents - end of period			$	1,745			$	1,545			$	1,529			$	1,745			$	1,529
Supplemental cash flow information:
	Cash payments for income taxes		$	30			$	122			$	54			$	184			$	233
	Cash refunds from income taxes		$	-			$	2			$	1			$	67			$	5
	Cash payments for interest		$	39			$	7			$	39			$	85			$	87

 

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

 Reportable Segment Results

 

		Q3 FY2013												Q2 FY2013												Q3 FY2012
(In millions)		New Orders				Net Sales				Operating Income (Loss)				New Orders				Net Sales				Operating Income (Loss)				New Orders				Net Sales				Operating Income (Loss)
SSG		$	1,203			$	1,272			$	246			$	1,551			$	1,291			$	283			$	1,166			$	1,545			$	427
AGS		517				497				114				481				517				118				531				579				122
Display		256				161				33				195				127				19				67				142				10
EES*		19				45				(27		)		39				38				(322		)		35				77				(102		)
Corporate		-				-				(116		)		-				-				(166		)		-				-				(135		)
Consol- idated		$	1,995			$	1,975			$	250			$	2,266			$	1,973			$	(68	)		$	1,799			$	2,343			$	322

* Operating loss for the second quarter of fiscal 2013 included $278 million in goodwill and intangible asset impairment charges

Corporate Unallocated Expenses

(In millions)		Q3 FY2013				Q2 FY2013				Q3 FY2012
Restructuring charges and asset impairments		$	4			$	4			$	-
Share-based compensation		40				39				42
Gain on sale of facility		(4		)		-				-
Other unallocated expenses		76				123				93
Corporate		$	116			$	166			$	135

 

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information

 

			Q3 FY2013						Q2 FY2013						Q3 FY2012
New Orders and Net Sales by Geography
(In $ millions)			New Orders			Net Sales			New Orders			Net Sales			New Orders			Net Sales
United States			369			353			398			362			420			441
	% of Total		19	%		18	%		18	%		18	%		23	%		19	%
Europe			225			175			173			144			172			184
	% of Total		11	%		9	%		8	%		7	%		9	%		8	%
Japan			333			154			191			157			128			189
	% of Total		17	%		8	%		8	%		8	%		7	%		8	%
Korea			249			262			259			226			299			392
	% of Total		12	%		13	%		11	%		12	%		17	%		17	%
Taiwan			356			658			902			828			588			811
	% of Total		18	%		33	%		40	%		42	%		33	%		34	%
Southeast Asia			124			100			67			73			91			72
	% of Total		6	%		5	%		3	%		4	%		5	%		3	%
China			339			273			276			183			101			254
	% of Total		17	%		14	%		12	%		9	%		6	%		11	%
Employees (In thousands)
Regular Full Time			13.7						13.6						14.6

 

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

		Three Months Ended												Nine Months Ended
(In millions, except percentages)		July 28, 2013				April 28, 2013				July 29, 2012				July 28, 2013				July 29, 2012
Non-GAAP Adjusted Gross Margin
Reported gross margin (GAAP basis)		$	806			$	808			$	930			$	2,196			$	2,726
Certain items associated with acquisitions1		40				43				44				126				209
Acquisition integration and deal costs		1				1				-				3				-
Non-GAAP adjusted gross margin		$	847			$	852			$	974			$	2,325			$	2,935
Non-GAAP adjusted gross margin percent (% of net sales)		42.9		%		43.2		%		41.6		%		42.1		%		41.5		%
Non-GAAP Adjusted Operating Income
Reported operating income (loss) (GAAP basis)		$	250			$	(68	)		$	322			$	221			$	910
Impairment of goodwill and intangible assets		-				278				-				278				-
Certain items associated with acquisitions1		47				53				57				154				242
Acquisition integration and deal costs		5				12				8				27				70
Restructuring charges and asset impairments2, 3, 4, 5		14				10				44				33				44
Gain on sale of facility		(4		)		-				-				(4		)		-
Non-GAAP adjusted operating income		$	312			$	285			$	431			$	709			$	1,266
Non-GAAP adjusted operating margin percent (% of net sales)		15.8		%		14.4		%		18.4		%		12.8		%		17.9		%
Non-GAAP Adjusted Net Income
Reported net income (loss) (GAAP basis)		$	168			$	(129	)		$	218			$	73			$	624
Impairment of goodwill and intangible assets		-				278				-				278				-
Certain items associated with acquisitions1		47				53				57				154				242
Acquisition integration and deal costs		5				12				8				27				70
Restructuring charges and asset impairments2, 3, 4, 5		14				10				44				33				44
Gain on sale of facility		(4		)		-				-				(4		)		-
Impairment of strategic investments		3				2				-				5				3
Reinstatement of federal R&D tax credit		-				(3		)		-				(13		)		-
Resolution of prior years' income tax filings		(3		)		-				(10		)		(14		)		(17		)
Income tax effect of non-GAAP adjustments		(7		)		(24		)		(17		)		(48		)		(77		)
Non-GAAP adjusted net income		$	223			$	199			$	300			$	491			$	889

 

1	These items are incremental charges attributable to acquisitions, consisting of inventory fair value adjustments on products sold, and amortization of purchased intangible assets.
2	Results for the three months ended July 28, 2013 included $4 million of employee-related costs related to the restructuring program announced on October 3, 2012 and restructuring and asset impairment charges of $10 million related to the restructuring program announced on May 10, 2012.
3	Results for the three months ended April 28, 2013 included $4 million of employee-related costs related to the restructuring program announced on October 3, 2012 and restructuring and asset impairment charges of $6 million related to the restructuring program announced on May 10, 2012.
4	Results for the three and nine months ended July 29, 2012 included $35 million of restructuring and asset impairment charges related to the restructuring program announced on May 10, 2012 and severance charges of $9 million related to the integration of Varian.
5	Results for the nine months ended July 28, 2013 included $12 million of employee-related costs, net, related to the restructuring program announced on October 3, 2012, restructuring and asset impairment charges of $19 million related to the restructuring program announced on May 10, 2012 and severance charges of $2 million related to the integration of Varian.

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 

		Three Months Ended												Nine Months Ended
(In millions except per share amounts)		July 28, 2013				April 28, 2013				July 29, 2012				July 28, 2013				July 29, 2012
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings (loss) per diluted share (GAAP basis)		$	0.14			$	(0.11	)		$	0.17			$	0.06			$	0.48
Impairment of goodwill and intangible assets		-				0.22				-				0.22				-
Certain items associated with acquisitions		0.03				0.04				0.04				0.10				0.15
Acquisition integration and deal costs		-				0.01				0.01				0.02				0.04
Restructuring charges and asset impairments		0.01				-				0.03				0.02				0.03
Reinstatement of federal R&D tax credit and resolution of prior years' income tax filings		-				-				(0.01		)		(0.02		)		(0.01		)
Non-GAAP adjusted earnings per diluted share		$	0.18			$	0.16			$	0.24			$	0.40			$	0.69
Weighted average number of diluted shares		1,220				1,217				1,268				1,218				1,292

 

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

		Three Months Ended												Nine Months Ended
(In millions, except percentages)		July 28, 2013				April 28, 2013				July 29, 2012				July 28, 2013				July 29, 2012
SSG Non-GAAP Adjusted Operating Income
Reported operating income (GAAP basis)		$	246			$	283			$	427			$	663			$	1,202
Certain items associated with acquisitions1		42				45				47				131				208
Acquisition integration and deal costs, net		(5		)		1				7				(3		)		31
Restructuring charges and asset impairments4, 5		-				-				1				1				1
Non-GAAP adjusted operating income		$	283			$	329			$	482			$	792			$	1,442
Non-GAAP adjusted operating margin percent (% of net sales)		22.2		%		25.5		%		31.2		%		22.4		%		30.9		%
AGS Non-GAAP Adjusted Operating Income
Reported operating income (GAAP basis)		$	114			$	118			$	122			$	321			$	338
Certain items associated with acquisitions1		2				1				2				4				10
Restructuring charges and asset impairments3, 4, 5		-				1				11				2				11
Non-GAAP adjusted operating income		$	116			$	120			$	135			$	327			$	359
Non-GAAP adjusted operating margin percent (% of net sales)		23.3		%		23.2		%		23.3		%		22.0		%		21.6		%
Display Non-GAAP Adjusted Operating Income
Reported operating income (GAAP basis)		$	33			$	19			$	10			$	55			$	23
Certain items associated with acquisitions1		1				2				2				5				6
Non-GAAP adjusted operating income		$	34			$	21			$	12			$	60			$	29
Non-GAAP adjusted operating margin percent (% of net sales)		21.1		%		16.5		%		8.5		%		16.0		%		7.6		%
EES Non-GAAP Adjusted Operating Loss
Reported operating loss (GAAP basis)		$	(27	)		$	(322	)		$	(102	)		$	(403	)		$	(188	)
Impairment of goodwill and intangible assets		-				278				-				278				-
Certain items associated with acquisitions1		2				5				6				14				18
Restructuring charges and asset impairments2, 3, 4, 5		10				5				32				18				32
Non-GAAP adjusted operating loss		$	(15	)		$	(34	)		$	(64	)		$	(93	)		$	(138	)
Non-GAAP adjusted operating margin percent (% of net sales)		(33.3		)%		(89.5		)%		(83.1		)%		(72.1		)%		(38.0		)%

 

1	These items are incremental charges attributable to acquisitions, consisting of inventory fair value adjustments on products sold, and amortization of purchased intangible assets.
2	Results for the three months ended July 28, 2013 included restructuring and asset impairment charges of $10 million related to the restructuring program announced on May 10, 2012.
3	Results for the three months ended April 28, 2013 included restructuring and asset impairment charges of $6 million related to the restructuring program announced on May 10, 2012.
4	Results for the three and nine months ended July 29, 2012 included restructuring and asset impairment charges of $35 million related to the restructuring program announced on May 10, 2012 and severance charges of $9 million related to the integration of Varian.
5	Results for the nine months ended July 28, 2013 included restructuring and asset impairment charges of $19 million related to the restructuring program announced on May 10, 2012 and severance charges of $2 million related to the integration of Varian.

 

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES 

 

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE