News Release

Applied Materials Announces Second Quarter Results

May 14, 2015 at 4:01 PM EDT
  • Q2 net sales of  $2.44 billion up 4% year over year led by growth in Applied Global Services and Display
  • Q2 non-GAAP adjusted EPS of $0.29 up 4% year over year; GAAP EPS of $0.29 up 38% year over year

SANTA CLARA, Calif., May 14, 2015 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in precision materials engineering solutions for the semiconductor, display and solar industries, today reported results for its second quarter ended April 26, 2015.

Second quarter orders were $2.52 billion, up 11 percent sequentially and down 4 percent year over year. Net sales were $2.44 billion, up 4 percent sequentially and up 4 percent year over year.

On a non-GAAP adjusted basis, the company reported gross margin of 43.2 percent, operating income of $476 million, and net income of $362 million or $0.29 per diluted share. The company recorded GAAP gross margin of 41.6 percent, operating income of $416 million, and net income of $364 million or $0.29 per diluted share.

"Applied posted our highest quarterly revenue in the past three years and earnings near the top of our guidance range," said Gary Dickerson, president and CEO. "These results demonstrate that Applied is delivering the enabling products and services our customers need as they transition complex new devices into volume production."

Quarterly Results Summary

                Change
GAAP Results   Q2 FY2015   Q1 FY2015   Q2 FY2014   Q2 FY2015
vs.
Q1 FY2015
  Q2 FY2015
vs.

Q2 FY2014
Net sales   $2.44 billion   $2.36 billion   $2.35 billion   4%   4%
Gross profit   $1.02 billion   $959 million   $1.00 billion   6%   1%
Operating income   $416 million   $458 million   $387 million   (9)%   7%
Net income   $364 million   $348 million   $262 million   5%   39%
Diluted earnings per share (EPS)   $0.29   $0.28   $0.21   4%   38%
Non-GAAP Adjusted Results                    
Non-GAAP adjusted gross profit   $1.06 billion   $1.00 billion   $1.04 billion   6%   1%
Non-GAAP adjusted operating income   $476 million   $447 million   $482 million   6%   (1)%
Non-GAAP adjusted net income   $362 million   $338 million   $348 million   7%   4%
Non-GAAP adjusted diluted EPS   $0.29   $0.27   $0.28   7%   4%

Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: certain items related to mergers and acquisitions; restructuring charges and any associated adjustments; impairments of assets, goodwill, or investments; gain or loss on sale of strategic investments or 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" section.

Second Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.70 billion, up 19 percent, with increases in foundry, flash and DRAM more than offsetting a decline in logic/other. Net sales increased by 8 percent to $1.56 billion. Non-GAAP adjusted operating income increased by 19 percent to $418 million or 26.8 percent of net sales. GAAP operating income increased by 22 percent to $374 million or 24.0 percent of net sales.

SSG new order composition was: foundry 36 percent; DRAM 31 percent; flash 21 percent; and logic/other 12 percent.

Applied Global Services orders of $641 million declined 7 percent primarily due to a seasonal decline in service contract renewals. Net sales of $646 million increased by 11 percent. Operating income increased to $170 million or 26.3 percent of net sales on both a GAAP and non-GAAP basis.

Display orders of $120 million were up 12 percent reflecting an increase in TV equipment orders. Net sales declined 41 percent to $163 million, which was in line with expectations. Operating income decreased to $40 million or 24.5 percent of net sales on both a GAAP and non-GAAP basis.

Energy and Environmental Solutions orders remained flat at $50 million, and net sales increased by 33 percent to $73 million. EES reported a non-GAAP adjusted operating loss of $4 million and a GAAP operating loss of $5 million.

Applied's backlog remained essentially flat at $2.78 billion and included negative adjustments of $69 million, primarily consisting of order cancellations and other adjustments. Backlog composition by segment was:  SSG 53 percent; AGS 29 percent; Display 13 percent; and EES 5 percent.

Business Outlook

For the third quarter of fiscal 2015, Applied expects net sales to be in the range of up 2 percent to up 6 percent from the previous quarter, the midpoint of which would be up 12 percent year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.31 to $0.35, the midpoint of which would be up 18 percent year over year.

This outlook excludes known charges related to completed acquisitions of $0.03 per share and does 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 anticipated growth and trends in our businesses and markets, industry outlooks, technology transitions, our financial performance and market share positions, our business outlook for the third quarter of fiscal 2015, and other statements that are not historical facts. These statements and their underlying assumptions are subject to risks and uncertainties and are not guarantees of future performance. Factors that could cause actual results to differ materially from those expressed or implied by such statements include, without limitation: the level of demand for our products; global economic and industry conditions; consumer demand for electronic products; the demand for semiconductors; customers' technology and capacity requirements; the introduction of new and innovative technologies, and the timing of technology transitions; our ability to develop, deliver and support new products and technologies; the concentrated nature of our customer base;  our ability to expand our current markets, increase market share and develop new markets; market acceptance of existing and newly developed products; our ability to obtain and protect intellectual property rights in key technologies; our ability to achieve the objectives of operational and strategic initiatives, align our resources and cost structure with business conditions, and attract, motivate and retain key employees; the variability of operating expenses and results among products and segments, and our ability to accurately forecast future results, market conditions, customer requirements and business needs; and other risks and uncertainties described in our SEC filings, including our most recent Forms 10-Q and 8-K. All forward-looking statements are based on management's current estimates, projections and assumptions, and we assume no obligation to update them.

About Applied Materials

Applied Materials, Inc. (Nasdaq:AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. 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   Six Months Ended
(In millions, except per share amounts)   April 26,
 2015
  January 25,
 2015
  April 27,
 2014
  April 26,
 2015
  April 27,
 2014
Net sales   $ 2,442     $ 2,359     $ 2,353     $ 4,801     $ 4,543  
Cost of products sold   1,426     1,400     1,352     2,826     2,651  
Gross profit   1,016     959     1,001     1,975     1,892  
Operating expenses:                    
Research, development and engineering   365     351     355     716     711  
Marketing and selling   109     111     107     220     216  
General and administrative   140     117     129     257     249  
Loss (gain) on derivatives associated with announced business combination   (14 )   (78 )   23     (92 )   (1 )
Total operating expenses   600     501     614     1,101     1,175  
Income from operations   416     458     387     874     717  
Interest expense   24     23     23     47     48  
Interest income and other income (loss), net   (3 )   2     1     (1 )   11  
Income before income taxes   389     437     365     826     680  
Provision for income taxes   25     89     103     114     165  
Net income   $ 364     $ 348     $ 262     $ 712     $ 515  
Earnings per share:                    
Basic   $ 0.30     $ 0.28     $ 0.22     $ 0.58     $ 0.43  
Diluted   $ 0.29     $ 0.28     $ 0.21     $ 0.57     $ 0.42  
Weighted average number of shares:                    
Basic   1,230     1,224     1,216     1,227     1,211  
Diluted   1,241     1,240     1,229     1,241     1,227  

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)   April 26,
 2015
  January 25,
 2015
  October 26,
 2014
ASSETS            
Current assets:            
Cash and cash equivalents   $ 3,067     $ 2,929     $ 3,002  
Short-term investments   163     158     160  
Accounts receivable, net   1,798     1,580     1,670  
Inventories   1,713     1,641     1,567  
Other current assets   706     625     568  
Total current assets   7,447     6,933     6,967  
Long-term investments   936     930     935  
Property, plant and equipment, net   887     864     861  
Goodwill   3,304     3,304     3,304  
Purchased technology and other intangible assets, net   860     905     951  
Deferred income taxes and other assets   153     137     156  
Total assets   $ 13,587     $ 13,073     $ 13,174  
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Accounts payable and accrued expenses   $ 1,822     $ 1,737     $ 1,883  
Customer deposits and deferred revenue   874     784     940  
Total current liabilities   2,696     2,521     2,823  
Long-term debt   1,947     1,947     1,947  
Other liabilities   593     533     536  
Total liabilities   5,236     5,001     5,306  
Total stockholders' equity   8,351     8,072     7,868  
Total liabilities and stockholders' equity   $ 13,587     $ 13,073     $ 13,174  

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

(In millions) Three Months Ended   Six Months Ended
April 26,
 2015
  January 25,
 2015
  April 27,
 2014
April 26,
 2015
  April 27,
 2014
Cash flows from operating activities:                  
Net income $ 364     $ 348     $ 262     $ 712     $ 515  
Adjustments required to reconcile net income to cash provided by operating activities:                  
Depreciation and amortization 90     92     94     182     188  
Share-based compensation 47     48     42     95     88  
Excess tax benefits from share-based compensation (12 )   (39 )   (7 )   (51 )   (25 )
Other (8 )   36     12     28     21  
Net change in operating assets and liabilities (183 )   (425 )   34     (608 )   22  
Cash provided by operating activities 298     60     437     358     809  
Cash flows from investing activities:                  
Capital expenditures (64 )   (49 )   (65 )   (113 )   (113 )
Proceeds from sales and maturities of investments 177     140     157     317     521  
Purchases of investments (203 )   (141 )   (161 )   (344 )   (324 )
Cash provided by (used in) investing activities (90 )   (50 )   (69 )   (140 )   84  
Cash flows from financing activities:                  
Proceeds from common stock issuances and others, net 42     -     56     42     66  
Excess tax benefits from share-based compensation 12     39     7     51     25  
Payments of dividends to stockholders (123 )   (122 )   (122 )   (245 )   (242 )
Cash used in financing activities (69 )   (83 )   (59 )   (152 )   (151 )
Effect of exchange rate changes on cash and cash equivalents (1 )   -     -     (1 )   -  
Increase (decrease) in cash and cash equivalents 138     (73 )   309     65     742  
Cash and cash equivalents - beginning of period 2,929     3,002     2,144     3,002     1,711  
Cash and cash equivalents - end of period $ 3,067     $ 2,929     $ 2,453     $ 3,067     $ 2,453  
Supplemental cash flow information:                  
Cash payments for income taxes $ 118     $ 89     $ 33     $ 207     $ 59  
Cash refunds from income taxes $ 2     $ 3     $ 3     $ 5     $ 12  
Cash payments for interest $ 7     $ 39     $ 7     $ 46     $ 46  

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reportable Segment Results

    Q2 FY2015   Q1 FY2015   Q2 FY2014
(In millions)   New
Orders
  Net
Sales
  Operating
Income
(Loss)
  New
Orders
  Net
Sales
  Operating
Income
(Loss)
  New
Orders
  Net
Sales
  Operating
Income
(Loss)
SSG   $ 1,704     $ 1,560     $ 374     $ 1,426     $ 1,446     $ 307     $ 1,664     $ 1,584     $ 391  
AGS   641     646     170     690     583     153     537     534     148  
Display   120     163     40     107     275     72     340     147     26  
EES   50     73     (5 )   50     55     (4 )   88     88     5  
Corporate   -     -     (163 )   -     -     (70 )   -     -     (183 )
Con-
solidated
  $ 2,515     $ 2,442     $ 416     $ 2,273     $ 2,359     $ 458     $ 2,629     $ 2,353     $ 387  

Corporate Unallocated Expenses

(In millions)   Q2 FY2015   Q1 FY2015   Q2 FY2014
Share-based compensation   47     48     42  
Certain items associated with announced business combination   29     20     16  
Loss (gain) on derivative associated with announced business combination, net   (14 )   (78 )   23  
Other unallocated expenses   101     80     102  
Total corporate   $ 163     $ 70     $ 183  

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information

    Q2 FY2015   Q1 FY2015   Q2 FY2014
New Orders and Net Sales by Geography                        
(In $ millions)   New
Orders
  Net
Sales
  New
Orders
  Net
Sales
  New
Orders
  Net
Sales
United States   368     632     411     529     521     370  
% of Total   15 %   26 %   18 %   22 %   20 %   16 %
Europe   131     150     148     143     199     156  
% of Total   5 %   6 %   6 %   6 %   7 %   7 %
Japan   365     257     242     231     203     215  
% of Total   15 %   10 %   11 %   10 %   8 %   9 %
Korea   607     449     546     464     378     351  
% of Total   24 %   18 %   24 %   20 %   14 %   15 %
Taiwan   589     455     545     519     660     781  
% of Total   23 %   19 %   24 %   22 %   25 %   33 %
Southeast Asia   103     87     85     85     72     52  
% of Total   4 %   4 %   4 %   4 %   3 %   2 %
China   352     412     296     388     596     428  
% of Total   14 %   17 %   13 %   16 %   23 %   18 %
                         
Employees (In thousands)                        
Regular Full Time   14.3     14.1     13.7  

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

    Three Months Ended   Six Months Ended
(In millions, except percentages)   April 26,
 2015
  January 25,
 2015
  April 27,
 2014
  April 26,
 2015
  April 27,
 2014
Non-GAAP Adjusted Gross Profit                    
Reported gross profit - GAAP basis   $ 1,016     $ 959     $ 1,001     $ 1,975     $ 1,892  
Certain items associated with acquisitions1   39     40     39     79     78  
Acquisition integration costs   -     -     1     -     1  
Non-GAAP adjusted gross profit   $ 1,055     $ 999     $ 1,041     $ 2,054     $ 1,971  
Non-GAAP adjusted gross margin   43.2 %   42.3 %   44.2 %   42.8 %   43.4 %
Non-GAAP Adjusted Operating Income                    
Reported operating income - GAAP basis   $ 416     $ 458     $ 387     $ 874     $ 717  
Certain items associated with acquisitions1   45     46     46     91     91  
Acquisition integration costs   -     1     10     1     21  
Loss (gain) on derivatives associated with announced business combination, net   (14 )   (78 )   23     (92 )   (1 )
Certain items associated with announced business combination2   29     20     16     49     27  
Restructuring charges and asset impairments3   -     -     -     -     7  
Non-GAAP adjusted operating income   $ 476     $ 447     $ 482     $ 923     $ 862  
Non-GAAP adjusted operating margin   19.5 %   18.9 %   20.5 %   19.2 %   19.0 %
Non-GAAP Adjusted Net Income                    
Reported net income - GAAP basis4   $ 364     $ 348     $ 262     $ 712     $ 515  
Certain items associated with acquisitions1   45     46     46     91     91  
Acquisition integration costs   -     1     10     1     21  
Loss (gain) on derivatives associated with announced business combination, net   (14 )   (78 )   23     (92 )   (1 )
Certain items associated with announced business combination2   29     20     16     49     27  
Restructuring charges and asset impairments3   -     -     -     -     7  
Impairment (gain on sale) of strategic investments, net   6     1     2     7     (3 )
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items4   (54 )   (17 )   12     (71 )   (3 )
Income tax effect of non-GAAP adjustments   (14 )   17     (23 )   3     (27 )
Non-GAAP adjusted net income   $ 362     $ 338     $ 348     $ 700     $ 627  

1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 These items are incremental charges related to the announced business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
   
3 Results for the six months ended April 27, 2014 included a $7 million of employee-related costs related to the restructuring program announced on October 3, 2012.
   
4 Amounts for the three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.

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

    Three Months Ended   Six Months Ended
(In millions except per share amounts)   April 26,
 2015
  January 25,
 2015
  April 27,
 2014
  April 26,
 2015
  April 27,
 2014
Non-GAAP Adjusted Earnings Per Diluted Share                    
Reported earnings per diluted share - GAAP basis1   $ 0.29     $ 0.28     $ 0.21     $ 0.57     $ 0.42  
Certain items associated with acquisitions   0.03     0.03     0.03     0.07     0.06  
Acquisition integration costs   -     -     0.01     -     0.01  
Certain items associated with announced business combination   0.02     0.01     0.01     0.03     0.02  
Loss (gain) on derivative associated with announced business combination, net   (0.01 )   (0.04 )   0.01     (0.05 )   -  
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items1   (0.04 )   (0.01 )   0.01     (0.06 )   -  
Non-GAAP adjusted earnings per diluted share   $ 0.29     $ 0.27     $ 0.28     $ 0.56     $ 0.51  
Weighted average number of diluted shares   1,241     1,240     1,229     1,241     1,227  

1 Amounts for the three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.


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

    Three Months Ended   Six Months Ended
(In millions, except percentages)   April 26,
 2015
  January 25,
 2015
  April 27,
 2014
  April 26,
 2015
  April 27,
 2014
SSG Non-GAAP Adjusted Operating Income                    
Reported operating income - GAAP basis   $ 374     $ 307     $ 391     $ 681     $ 705  
Certain items associated with acquisitions1   44     43     42     87     84  
Acquisition integration costs   -     -     -     -     1  
Non-GAAP adjusted operating income   $ 418     $ 350     $ 433     $ 768     $ 790  
Non-GAAP adjusted operating margin   26.8 %   24.2 %   27.3 %   25.5 %   25.7 %
AGS Non-GAAP Adjusted Operating Income                    
Reported operating income - GAAP basis   $ 170     $ 153     $ 148     $ 323     $ 273  
Certain items associated with acquisitions1   -     1     2     1     3  
Non-GAAP adjusted operating income   $ 170     $ 154     $ 150     $ 324     $ 276  
Non-GAAP adjusted operating margin   26.3 %   26.4 %   28.1 %   26.4 %   26.5 %
Display Non-GAAP Adjusted Operating Income                    
Reported operating income - GAAP basis   $ 40     $ 72     $ 26     $ 112     $ 52  
Certain items associated with acquisitions1   -     1     -     1     1  
Non-GAAP adjusted operating income   $ 40     $ 73     $ 26     $ 113     $ 53  
Non-GAAP adjusted operating margin   24.5 %   26.5 %   17.7 %   25.8 %   17.3 %
EES Non-GAAP Adjusted Operating Income (Loss)                    
Reported operating income (loss) - GAAP basis   $ (5 )   $ (4 )   $ 5     $ (9 )   $ (6 )
Certain items associated with acquisitions1   1     1     2     2     3  
Non-GAAP adjusted operating income (loss)   $ (4 )   $ (3 )   $ 7     $ (7 )   $ (3 )
Non-GAAP adjusted operating margin   (5.5 )%   (5.5 )%   8.0 %   (5.5 )%   (2.3 )%

1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES

  Three Months Ended
(In millions) April 26, 2015   January 25, 2015
       
Operating expenses - GAAP basis $ 600     $ 501  
Gain on derivative associated with announced business combination, net 14     78  
Certain items associated with acquisitions (6 )   (6 )
Acquisition integration costs -     (1 )
Certain items associated with announced business combination (29 )   (20 )
Non-GAAP adjusted operating expenses $ 579     $ 552  

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

  Three Months Ended
(In millions, except percentages) April 26, 2015
   
Provision for income taxes - GAAP basis1 (a) $ 25  
Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items 54  
Income tax effect of non-GAAP adjustments1 14  
Non-GAAP adjusted provision for income taxes (b) $ 93  
   
Income before income taxes - GAAP basis (c) $ 389  
Certain items associated with acquisitions 45  
Gain on derivative associated with announced business combination (14 )
Certain items associated with announced business combination 29  
Impairment of strategic investments, net 6  
Non-GAAP adjusted income before income taxes (d) $ 455  
   
Effective income tax rate - GAAP basis1 (a/c) 6.4 %
   
Non-GAAP adjusted effective income tax rate (b/d) 20.4 %

1 Amounts for the three months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.

HUG#1921623