Applied Materials Announces Fourth Quarter and Fiscal Year 2015 Results
- Company delivered year-over-year growth in orders, net sales and earnings per share
- FY2015 cash returns to shareholders increased by $1.33 billion year over year to $1.81 billion
SANTA CLARA, Calif., Nov. 12, 2015 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in materials engineering solutions for the semiconductor, display and solar industries, today reported results for its fourth quarter and fiscal year ended October 25, 2015.
Fourth quarter orders were $2.42 billion, down 16 percent sequentially and up 7 percent year over year. Net sales were $2.37 billion, down 5 percent sequentially and up 5 percent year over year.
On a non-GAAP adjusted basis, the company reported fourth-quarter gross margin of 42.2 percent, operating margin of 19.3 percent, and net income of $347 million or $0.29 per diluted share. The company recorded GAAP gross margin of 40.5 percent, operating margin of 17.9 percent, and net income of $336 million or $0.28 per diluted share.
The company generated $471 million in cash from operations during the fourth quarter, paid dividends of $119 million and used $700 million to repurchase 44 million shares of common stock at an average price of $15.78.
Full Year Results
In fiscal 2015, orders grew 5 percent to $10.10 billion, net sales increased 6 percent to $9.66 billion, non-GAAP adjusted gross margin declined 1.2 percentage points to 42.9 percent, non-GAAP adjusted operating margin remained at 19.6 percent, and non-GAAP adjusted net income increased by 10.9 percent to $1.46 billion or $1.19 per diluted share. The company recorded GAAP gross margin of 40.9 percent, operating income of $1.69 billion or 17.5 percent of net sales, and net income of $1.38 billion or $1.12 per diluted share.
The company generated $1.16 billion in cash from operations in fiscal 2015, paid dividends of $487 million and used $1.33 billion to repurchase 76 million shares of common stock.
"In fiscal 2015, Applied Materials delivered year-over-year growth across our semiconductor, display and service businesses resulting in our highest earnings in four years," said Gary Dickerson, president and CEO. "We have positioned the company for sustainable profitable growth and we are winning share, growing our service business and expanding our available market."
Quarterly Results Summary
| Change | ||||||||||
| Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | Q4 FY2015 vs. Q3 FY2015 | Q4 FY2015 vs. Q4 FY2014 | ||||||
| (In millions, except per share amounts and percentages) | ||||||||||
| New orders | $2,424 | $2,892 | $2,255 | (16)% | 7% | |||||
| Net sales | $2,368 | $2,490 | $2,264 | (5)% | 5% | |||||
| Gross margin | 40.5% | 40.9% | 42.4% | (0.4) points | (1.9) points | |||||
| Operating margin | 17.9% | 15.9% | 18.2% | 2.0 points | (0.3) points | |||||
| Net income | $336 | $329 | $256 | 2% | 31% | |||||
| Diluted earnings per share (EPS) | $0.28 | $0.27 | $0.21 | 4% | 33% | |||||
| Change | ||||||||||
| Non-GAAP Adjusted Results | Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | Q4 FY2015 vs. Q3 FY2015 | Q4 FY2015 vs. Q4 FY2014 | |||||
| (In millions, except per share amounts and percentages) | ||||||||||
| Non-GAAP adjusted gross margin | 42.2% | 43.9% | 44.2% | (1.7) points | (2.0) points | |||||
| Non-GAAP adjusted operating margin | 19.3% | 20.8% | 19.5% | (1.5) points | (0.2) points | |||||
| Non-GAAP adjusted net income | $347 | $410 | $338 | (15)% | 3% | |||||
| Non-GAAP adjusted diluted EPS | $0.29 | $0.33 | $0.27 | (12)% | 7% | |||||
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, or investments; gain or loss on sale of strategic investments; and certain discrete adjustments and 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.
Business Outlook
For the first quarter of fiscal 2016, Applied expects net sales to be down 2 percent to 9 percent sequentially. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.23 to $0.27.
This outlook excludes known charges related to completed acquisitions of $0.04 per share and does not exclude other non-GAAP adjustments that may arise subsequent to this release.
Fourth Quarter and Fiscal Year Reportable Segment Information
| Silicon Systems | Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | FY2015 | FY2014 | ||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| New orders | $ | 1,444 | $ | 2,007 | $ | 1,334 | $ | 6,581 | $ | 6,132 | |||||||||
| Foundry | 35 | % | 32 | % | 50 | % | 34 | % | 52 | % | |||||||||
| DRAM | 21 | % | 18 | % | 20 | % | 25 | % | 14 | % | |||||||||
| Flash | 31 | % | 39 | % | 12 | % | 28 | % | 21 | % | |||||||||
| Logic and other | 13 | % | 11 | % | 18 | % | 13 | % | 13 | % | |||||||||
| Net sales | 1,494 | 1,635 | 1,434 | 6,135 | 5,978 | ||||||||||||||
| Operating income | 318 | 411 | 305 | 1,410 | 1,391 | ||||||||||||||
| Operating margin | 21.3 | % | 25.1 | % | 21.3 | % | 23.0 | % | 23.3 | % | |||||||||
| Non-GAAP Adjusted Results | |||||||||||||||||||
| Non-GAAP adjusted operating income | $ | 365 | $ | 455 | $ | 352 | $ | 1,588 | $ | 1,565 | |||||||||
| Non-GAAP adjusted operating margin | 24.4 | % | 27.8 | % | 24.5 | % | 25.9 | % | 26.2 | % | |||||||||
| Applied Global Services | Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | FY2015 | FY2014 | ||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| New orders | $ | 761 | $ | 561 | $ | 747 | $ | 2,653 | $ | 2,433 | |||||||||
| Net sales | 637 | 665 | 592 | 2,531 | 2,200 | ||||||||||||||
| Operating income | 171 | 170 | 146 | 664 | 573 | ||||||||||||||
| Operating margin | 26.8 | % | 25.6 | % | 24.7 | % | 26.2 | % | 26.0 | % | |||||||||
| Non-GAAP Adjusted Results | |||||||||||||||||||
| Non-GAAP adjusted operating income | $ | 170 | $ | 173 | $ | 146 | $ | 667 | $ | 576 | |||||||||
| Non-GAAP adjusted operating margin | 26.7 | % | 26.0 | % | 24.7 | % | 26.4 | % | 26.2 | % | |||||||||
| Display | Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | FY2015 | FY2014 | ||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| New orders | $ | 195 | $ | 295 | $ | 130 | $ | 717 | $ | 845 | |||||||||
| Net sales | 191 | 151 | 190 | 780 | 615 | ||||||||||||||
| Operating income | 19 | 25 | 52 | 156 | 129 | ||||||||||||||
| Operating margin | 9.9 | % | 16.6 | % | 27.4 | % | 20.0 | % | 21.0 | % | |||||||||
| Non-GAAP Adjusted Results | |||||||||||||||||||
| Non-GAAP adjusted operating income | $ | 19 | $ | 26 | $ | 52 | $ | 158 | $ | 131 | |||||||||
| Non-GAAP adjusted operating margin | 9.9 | % | 17.2 | % | 27.4 | % | 20.3 | % | 21.3 | % | |||||||||
| Energy and Environmental Solutions | Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | FY2015 | FY2014 | ||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| New orders | $ | 24 | $ | 29 | $ | 44 | $ | 153 | $ | 238 | |||||||||
| Net sales | 46 | 39 | 48 | 213 | 279 | ||||||||||||||
| Operating income (loss) | - | (52 | ) | (3 | ) | (61 | ) | 15 | |||||||||||
| Operating margin | - | % | (133.3 | )% | (6.3 | )% | (28.6 | )% | 5.4 | % | |||||||||
| Non-GAAP Adjusted Results | |||||||||||||||||||
| Non-GAAP adjusted operating income (loss) | $ | (1 | ) | $ | (2 | ) | $ | (1 | ) | $ | (10 | ) | $ | 21 | |||||
| Non-GAAP adjusted operating margin | (2.2 | )% | (5.1 | )% | (2.1 | )% | (4.7 | )% | 7.5 | % | |||||||||
Backlog Information
Applied's backlog remained essentially flat at $3.14 billion and included negative adjustments of $13 million. Backlog composition by reportable segment was as follows:
| Silicon Systems | 55 | % |
| Applied Global Services | 26 | % |
| Display | 16 | % |
| Energy and Environmental Solutions | 3 | % |
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 first quarter of fiscal 2016, 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 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 | Twelve Months Ended | |||||||||||||||||||
| (In millions, except per share amounts) | October 25, 2015 | July 26, 2015 | October 26, 2014 | October 25, 2015 | October 26, 2014 | |||||||||||||||
| Net sales | $ | 2,368 | $ | 2,490 | $ | 2,264 | $ | 9,659 | $ | 9,072 | ||||||||||
| Cost of products sold | 1,409 | 1,472 | 1,305 | 5,707 | 5,229 | |||||||||||||||
| Gross profit | 959 | 1,018 | 959 | 3,952 | 3,843 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Research, development and engineering | 363 | 372 | 360 | 1,451 | 1,428 | |||||||||||||||
| Marketing and selling | 96 | 112 | 99 | 428 | 423 | |||||||||||||||
| General and administrative | 77 | 135 | 127 | 469 | 502 | |||||||||||||||
| Loss (gain) on derivatives associated with terminated business combination | - | 3 | (39 | ) | (89 | ) | (30 | ) | ||||||||||||
| Total operating expenses | 536 | 622 | 547 | 2,259 | 2,323 | |||||||||||||||
| Income from operations | 423 | 396 | 412 | 1,693 | 1,520 | |||||||||||||||
| Interest expense | 32 | 24 | 23 | 103 | 95 | |||||||||||||||
| Interest income and other income, net | 6 | 3 | 9 | 8 | 23 | |||||||||||||||
| Income before income taxes | 397 | 375 | 398 | 1,598 | 1,448 | |||||||||||||||
| Provision for income taxes | 61 | 46 | 142 | 221 | 376 | |||||||||||||||
| Net income | $ | 336 | $ | 329 | $ | 256 | $ | 1,377 | $ | 1,072 | ||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic | $ | 0.28 | $ | 0.27 | $ | 0.21 | $ | 1.13 | $ | 0.88 | ||||||||||
| Diluted | $ | 0.28 | $ | 0.27 | $ | 0.21 | $ | 1.12 | $ | 0.87 | ||||||||||
| Weighted average number of shares: | ||||||||||||||||||||
| Basic | 1,182 | 1,221 | 1,220 | 1,214 | 1,215 | |||||||||||||||
| Diluted | 1,190 | 1,231 | 1,236 | 1,226 | 1,231 | |||||||||||||||
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
| (In millions) | October 25, 2015 | July 26, 2015 | October 26, 2014 | |||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 4,797 | $ | 2,574 | $ | 3,002 | ||||||
| Short-term investments | 168 | 169 | 160 | |||||||||
| Accounts receivable, net | 1,739 | 1,991 | 1,670 | |||||||||
| Inventories | 1,833 | 1,739 | 1,567 | |||||||||
| Other current assets | 724 | 570 | 568 | |||||||||
| Total current assets | 9,261 | 7,043 | 6,967 | |||||||||
| Long-term investments | 946 | 958 | 935 | |||||||||
| Property, plant and equipment, net | 892 | 882 | 861 | |||||||||
| Goodwill | 3,302 | 3,304 | 3,304 | |||||||||
| Purchased technology and other intangible assets, net | 762 | 811 | 951 | |||||||||
| Deferred income taxes and other assets | 145 | 155 | 156 | |||||||||
| Total assets | $ | 15,308 | $ | 13,153 | $ | 13,174 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Short-term debt | $ | 1,200 | $ | 400 | $ | - | ||||||
| Accounts payable and accrued expenses | 1,833 | 1,762 | 1,883 | |||||||||
| Customer deposits and deferred revenue | 765 | 858 | 940 | |||||||||
| Total current liabilities | 3,798 | 3,020 | 2,823 | |||||||||
| Long-term debt | 3,342 | 1,547 | 1,947 | |||||||||
| Other liabilities | 555 | 609 | 536 | |||||||||
| Total liabilities | 7,695 | 5,176 | 5,306 | |||||||||
| Total stockholders' equity | 7,613 | 7,977 | 7,868 | |||||||||
| Total liabilities and stockholders' equity | $ | 15,308 | $ | 13,153 | $ | 13,174 | ||||||
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
| (In millions) | Three Months Ended | Twelve Months Ended | ||||||||||||||||||
| October 25, 2015 | July 26, 2015 | October 26, 2014 | October 25, 2015 | October 26, 2014 | ||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income | $ | 336 | $ | 329 | $ | 256 | $ | 1,377 | $ | 1,072 | ||||||||||
| Adjustments required to reconcile net income to cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 96 | 93 | 94 | 371 | 375 | |||||||||||||||
| Share-based compensation | 46 | 46 | 45 | 187 | 177 | |||||||||||||||
| Excess tax benefits from share-based compensation | (2 | ) | (3 | ) | (4 | ) | (56 | ) | (30 | ) | ||||||||||
| Deferred income taxes | (159 | ) | 18 | 15 | (134 | ) | 58 | |||||||||||||
| Other | (11 | ) | 43 | (14 | ) | 53 | 13 | |||||||||||||
| Net change in operating assets and liabilities | 165 | (192 | ) | 15 | (635 | ) | 135 | |||||||||||||
| Cash provided by operating activities | 471 | 334 | 407 | 1,163 | 1,800 | |||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | (53 | ) | (49 | ) | (63 | ) | (215 | ) | (241 | ) | ||||||||||
| Cash paid for acquisitions, net of cash acquired | (2 | ) | (2 | ) | (12 | ) | (4 | ) | (12 | ) | ||||||||||
| Proceeds from sale of facility | - | - | 25 | - | 25 | |||||||||||||||
| Proceeds from sales and maturities of investments | 200 | 583 | 176 | 1,100 | 878 | |||||||||||||||
| Purchases of investments | (202 | ) | (616 | ) | (179 | ) | (1,162 | ) | (811 | ) | ||||||||||
| Cash used in investing activities | (57 | ) | (84 | ) | (53 | ) | (281 | ) | (161 | ) | ||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Debt borrowings, net of issuance costs | 2,581 | - | - | 2,581 | - | |||||||||||||||
| Proceeds from common stock issuances and others, net | 45 | 1 | 40 | 88 | 107 | |||||||||||||||
| Common stock repurchases | (700 | ) | (625 | ) | - | (1,325 | ) | - | ||||||||||||
| Excess tax benefits from share-based compensation | 2 | 3 | 4 | 56 | 30 | |||||||||||||||
| Payments of dividends to stockholders | (119 | ) | (123 | ) | (122 | ) | (487 | ) | (485 | ) | ||||||||||
| Cash provided by (used in) financing activities | 1,809 | (744 | ) | (78 | ) | 913 | (348 | ) | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | - | 1 | - | - | - | |||||||||||||||
| Increase (decrease) in cash and cash equivalents | 2,223 | (493 | ) | 276 | 1,795 | 1,291 | ||||||||||||||
| Cash and cash equivalents - beginning of period | 2,574 | 3,067 | 2,726 | 3,002 | 1,711 | |||||||||||||||
| Cash and cash equivalents - end of period | $ | 4,797 | $ | 2,574 | $ | 3,002 | $ | 4,797 | $ | 3,002 | ||||||||||
| Supplemental cash flow information: | ||||||||||||||||||||
| Cash payments for income taxes | $ | 149 | $ | 51 | $ | 87 | $ | 407 | $ | 195 | ||||||||||
| Cash refunds from income taxes | $ | 2 | $ | 5 | $ | 78 | $ | 12 | $ | 111 | ||||||||||
| Cash payments for interest | $ | 7 | $ | 39 | $ | 7 | $ | 92 | $ | 92 | ||||||||||
APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
Corporate Unallocated Expenses
| (In millions) | Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | FY 2015 | FY 2014 | |||||||||||||||
| Share-based compensation | $ | 46 | $ | 46 | $ | 45 | $ | 187 | $ | 177 | ||||||||||
| Certain items associated with terminated business combination | - | 1 | 23 | 50 | 73 | |||||||||||||||
| Loss (gain) on derivatives associated with terminated business combination, net | - | 3 | (39 | ) | (89 | ) | (30 | ) | ||||||||||||
| Other unallocated expenses | 39 | 108 | 59 | 328 | 368 | |||||||||||||||
| Total corporate | $ | 85 | $ | 158 | $ | 88 | $ | 476 | $ | 588 | ||||||||||
Additional Information
| Q4 FY2015 | Q3 FY2015 | Q4 FY2014 | ||||||||||||||||
| New Orders and Net Sales by Geography | ||||||||||||||||||
| (In $ millions) | New Orders | Net Sales | New Orders | Net Sales | New Orders | Net Sales | ||||||||||||
| United States | 282 | 524 | 262 | 650 | 596 | 633 | ||||||||||||
| % of Total | 12 | % | 22 | % | 9 | % | 26 | % | 26 | % | 28 | % | ||||||
| Europe | 155 | 140 | 142 | 134 | 198 | 178 | ||||||||||||
| % of Total | 6 | % | 6 | % | 5 | % | 6 | % | 9 | % | 8 | % | ||||||
| Japan | 452 | 256 | 727 | 271 | 287 | 209 | ||||||||||||
| % of Total | 19 | % | 11 | % | 25 | % | 11 | % | 13 | % | 9 | % | ||||||
| Korea | 207 | 216 | 349 | 308 | 251 | 187 | ||||||||||||
| % of Total | 8 | % | 9 | % | 12 | % | 12 | % | 11 | % | 8 | % | ||||||
| Taiwan | 846 | 651 | 828 | 751 | 599 | 618 | ||||||||||||
| % of Total | 35 | % | 27 | % | 29 | % | 30 | % | 27 | % | 27 | % | ||||||
| Southeast Asia | 100 | 131 | 142 | 94 | 113 | 136 | ||||||||||||
| % of Total | 4 | % | 6 | % | 5 | % | 4 | % | 5 | % | 6 | % | ||||||
| China | 382 | 450 | 442 | 282 | 211 | 303 | ||||||||||||
| % of Total | 16 | % | 19 | % | 15 | % | 11 | % | 9 | % | 14 | % | ||||||
| Employees (In thousands) | ||||||||||||||||||
| Regular Full Time | 14.6 | 14.5 | 14.0 | |||||||||||||||
| FY 2015 | FY 2014 | |||||||||||
| New Orders and Net Sales by Geography | ||||||||||||
| (In $ millions) | New Orders | Net Sales | New Orders | Net Sales | ||||||||
| United States | 1,323 | 2,335 | 2,200 | 1,966 | ||||||||
| % of Total | 13 | % | 24 | % | 23 | % | 22 | % | ||||
| Europe | 576 | 567 | 662 | 658 | ||||||||
| % of Total | 6 | % | 6 | % | 7 | % | 7 | % | ||||
| Japan | 1,786 | 1,015 | 1,031 | 817 | ||||||||
| % of Total | 18 | % | 10 | % | 11 | % | 9 | % | ||||
| Korea | 1,709 | 1,437 | 1,086 | 965 | ||||||||
| % of Total | 17 | % | 15 | % | 11 | % | 10 | % | ||||
| Taiwan | 2,808 | 2,376 | 2,740 | 2,702 | ||||||||
| % of Total | 28 | % | 25 | % | 28 | % | 30 | % | ||||
| Southeast Asia | 430 | 397 | 412 | 356 | ||||||||
| % of Total | 4 | % | 4 | % | 4 | % | 4 | % | ||||
| China | 1,472 | 1,532 | 1,517 | 1,608 | ||||||||
| % of Total | 14 | % | 16 | % | 16 | % | 18 | % | ||||
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||
| (In millions, except percentages) | October 25, 2015 | July 26, 2015 | October 26, 2014 | October 25, 2015 | October 26, 2014 | |||||||||||||||
| Non-GAAP Adjusted Gross Profit | ||||||||||||||||||||
| Reported gross profit - GAAP basis | $ | 959 | $ | 1,018 | $ | 959 | $ | 3,952 | $ | 3,843 | ||||||||||
| Certain items associated with acquisitions1 | 42 | 41 | 42 | 162 | 158 | |||||||||||||||
| Inventory charges related to restructuring3, 4 | 1 | 34 | - | 35 | - | |||||||||||||||
| Acquisition integration costs | - | - | - | - | 1 | |||||||||||||||
| Other significant gains, losses or charges, net 7 | (2 | ) | - | - | (2 | ) | - | |||||||||||||
| Non-GAAP adjusted gross profit | $ | 1,000 | $ | 1,093 | $ | 1,001 | $ | 4,147 | $ | 4,002 | ||||||||||
| Non-GAAP adjusted gross margin | 42.2 | % | 43.9 | % | 44.2 | % | 42.9 | % | 44.1 | % | ||||||||||
| Non-GAAP Adjusted Operating Income | ||||||||||||||||||||
| Reported operating income - GAAP basis | $ | 423 | $ | 396 | $ | 412 | $ | 1,693 | $ | 1,520 | ||||||||||
| Certain items associated with acquisitions1 | 47 | 47 | 48 | 185 | 183 | |||||||||||||||
| Acquisition integration costs | - | 1 | 4 | 2 | 34 | |||||||||||||||
| Loss (gain) on derivatives associated with terminated business combination, net | - | 3 | (39 | ) | (89 | ) | (30 | ) | ||||||||||||
| Certain items associated with terminated business combination2 | - | 1 | 23 | 50 | 73 | |||||||||||||||
| Restructuring, inventory charges and asset impairments3, 4, 5 | (1 | ) | 50 | (2 | ) | 49 | 5 | |||||||||||||
| Foreign exchange loss due to functional currency change6 | - | 19 | - | 19 | - | |||||||||||||||
| Other significant gains, losses or charges, net 7 | (13 | ) | - | (4 | ) | (13 | ) | (4 | ) | |||||||||||
| Non-GAAP adjusted operating income | $ | 456 | $ | 517 | $ | 442 | $ | 1,896 | $ | 1,781 | ||||||||||
| Non-GAAP adjusted operating margin | 19.3 | % | 20.8 | % | 19.5 | % | 19.6 | % | 19.6 | % | ||||||||||
| Non-GAAP Adjusted Net Income | ||||||||||||||||||||
| Reported net income - GAAP basis8 | $ | 336 | $ | 329 | $ | 256 | $ | 1,377 | $ | 1,072 | ||||||||||
| Certain items associated with acquisitions1 | 47 | 47 | 48 | 185 | 183 | |||||||||||||||
| Acquisition integration costs | - | 1 | 4 | 2 | 34 | |||||||||||||||
| Loss (gain) on derivatives associated with terminated business combination, net | - | 3 | (39 | ) | (89 | ) | (30 | ) | ||||||||||||
| Certain items associated with terminated business combination2 | - | 1 | 23 | 50 | 73 | |||||||||||||||
| Restructuring, inventory charges and asset impairments3, 4, 5 | (1 | ) | 50 | (2 | ) | 49 | 5 | |||||||||||||
| Impairment (gain on sale) of strategic investments, net | (2 | ) | (1 | ) | (5 | ) | 4 | (9 | ) | |||||||||||
| Foreign exchange loss due to functional currency change6 | - | 19 | - | 19 | - | |||||||||||||||
| Other significant gains, losses or charges, net 7 | (13 | ) | - | (4 | ) | (13 | ) | (4 | ) | |||||||||||
| Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items8 | (18 | ) | (21 | ) | 50 | (110 | ) | 28 | ||||||||||||
| Income tax effect of non-GAAP adjustments | (2 | ) | (18 | ) | 7 | (17 | ) | (38 | ) | |||||||||||
| Non-GAAP adjusted net income | $ | 347 | $ | 410 | $ | 338 | $ | 1,457 | $ | 1,314 | ||||||||||
| 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 terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs. |
| 3 | Results for the three months ended October 25, 2015 included a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans and $1 million of inventory charges related to cost reductions in the solar business. Results for the three months ended July 26, 2015 primarily included $34 million of inventory charges and $17 million of restructuring charges and asset impairments related to the solar business. |
| 4 | Results for fiscal 2015 primarily included $35 million of inventory charges, $17 million of restructuring charges and asset impairments related to cost reductions in the solar business, and a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans. |
| 5 | Results for the three months ended October 26, 2014 included a $2 million favorable adjustment of restructuring reserve, and results for the twelve months ended October 26, 2014 included $5 million of employee-related costs related to the restructuring program announced on October 3, 2012. |
| 6 | Results for the three months ended July 26, 2015 and fiscal 2015 included a $19 million foreign exchange loss due to an immaterial correction of an error related to functional currency change. |
| 7 | These items are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future. |
| 8 | Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $35 million with a corresponding increase in net income, resulting in an increase in 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 | Twelve Months Ended | |||||||||||||||||||
| (In millions except per share amounts) | October 25, 2015 | July 26, 2015 | October 26, 2014 | October 25, 2015 | October 26, 2014 | |||||||||||||||
| Non-GAAP Adjusted Earnings Per Diluted Share | ||||||||||||||||||||
| Reported earnings per diluted share - GAAP basis1 | $ | 0.28 | $ | 0.27 | $ | 0.21 | $ | 1.12 | $ | 0.87 | ||||||||||
| Certain items associated with acquisitions | 0.04 | 0.03 | 0.04 | 0.14 | 0.13 | |||||||||||||||
| Acquisition integration costs | - | - | - | - | 0.02 | |||||||||||||||
| Certain items associated with terminated business combination | - | - | 0.01 | 0.03 | 0.05 | |||||||||||||||
| Gain on derivatives associated with terminated business combination, net | - | - | (0.02 | ) | (0.05 | ) | (0.02 | ) | ||||||||||||
| Restructuring, inventory charges and asset impairments | - | 0.03 | - | 0.03 | - | |||||||||||||||
| Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items1 | (0.02 | ) | (0.02 | ) | 0.03 | (0.09 | ) | 0.02 | ||||||||||||
| Other significant gains, losses or charges, net | (0.01 | ) | - | - | (0.01 | ) | - | |||||||||||||
| Foreign exchange loss due to functional currency change | - | 0.02 | - | 0.02 | - | |||||||||||||||
| Non-GAAP adjusted earnings per diluted share | $ | 0.29 | $ | 0.33 | $ | 0.27 | $ | 1.19 | $ | 1.07 | ||||||||||
| Weighted average number of diluted shares | 1,190 | 1,231 | 1,236 | 1,226 | 1,231 | |||||||||||||||
| 1 | Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $35 million with a corresponding increase in net income, resulting in an increase in 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 | Twelve Months Ended | |||||||||||||||||||
| (In millions, except percentages) | October 25, 2015 | July 26, 2015 | October 26, 2014 | October 25, 2015 | October 26, 2014 | |||||||||||||||
| Silicon Systems Non-GAAP Adjusted Operating Income | ||||||||||||||||||||
| Reported operating income - GAAP basis | $ | 318 | $ | 411 | $ | 305 | $ | 1,410 | $ | 1,391 | ||||||||||
| Certain items associated with acquisitions1 | 47 | 44 | 46 | 178 | 172 | |||||||||||||||
| Acquisition integration costs | - | - | 1 | - | 2 | |||||||||||||||
| Non-GAAP adjusted operating income | $ | 365 | $ | 455 | $ | 352 | $ | 1,588 | $ | 1,565 | ||||||||||
| Non-GAAP adjusted operating margin | 24.4 | % | 27.8 | % | 24.5 | % | 25.9 | % | 26.2 | % | ||||||||||
| AGS Non-GAAP Adjusted Operating Income | ||||||||||||||||||||
| Reported operating income - GAAP basis | $ | 171 | $ | 170 | $ | 146 | $ | 664 | $ | 573 | ||||||||||
| Certain items associated with acquisitions1 | - | - | - | 1 | 3 | |||||||||||||||
| Inventory charges related to restructuring2, 3 | - | 3 | - | 3 | - | |||||||||||||||
| Other significant gains, losses or charges, net4 | (1 | ) | - | - | (1 | ) | - | |||||||||||||
| Non-GAAP adjusted operating income | $ | 170 | $ | 173 | $ | 146 | $ | 667 | $ | 576 | ||||||||||
| Non-GAAP adjusted operating margin | 26.7 | % | 26.0 | % | 24.7 | % | 26.4 | % | 26.2 | % | ||||||||||
| Display Non-GAAP Adjusted Operating Income | ||||||||||||||||||||
| Reported operating income - GAAP basis | $ | 19 | $ | 25 | $ | 52 | $ | 156 | $ | 129 | ||||||||||
| Certain items associated with acquisitions1 | - | 1 | - | 2 | 2 | |||||||||||||||
| Non-GAAP adjusted operating income | $ | 19 | $ | 26 | $ | 52 | $ | 158 | $ | 131 | ||||||||||
| Non-GAAP adjusted operating margin | 9.9 | % | 17.2 | % | 27.4 | % | 20.3 | % | 21.3 | % | ||||||||||
| EES Non-GAAP Adjusted Operating Income (Loss) | ||||||||||||||||||||
| Reported operating income (loss) - GAAP basis | $ | - | $ | (52 | ) | $ | (3 | ) | $ | (61 | ) | $ | 15 | |||||||
| Certain items associated with acquisitions1 | - | 2 | 2 | 4 | 6 | |||||||||||||||
| Restructuring, inventory charges and asset impairments2, 3 | (1 | ) | 48 | - | 47 | - | ||||||||||||||
| Non-GAAP adjusted operating income (loss) | $ | (1 | ) | $ | (2 | ) | $ | (1 | ) | $ | (10 | ) | $ | 21 | ||||||
| Non-GAAP adjusted operating margin | (2.2 | )% | (5.1 | )% | (2.1 | )% | (4.7 | )% | 7.5 | % | ||||||||||
| 1 | These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets. |
| 2 | Results for the three months ended October 25, 2015 included a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans and $1 million of inventory charges related to cost reductions in the solar business. Results for the three months ended July 26, 2015 primarily included $34 million of inventory charges and $17 million of restructuring charges and asset impairments related to the solar business. |
| 3 | Results for fiscal 2015 primarily included $35 million of inventory charges, $17 million of restructuring charges and asset impairments related to cost reductions in the solar business, and a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans. |
| 4 | These items are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future. |
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES
| Three Months Ended | |||||||
| (In millions) | October 25, 2015 | July 26, 2015 | |||||
| Operating expenses - GAAP basis | $ | 536 | $ | 622 | |||
| Loss on derivatives associated with terminated business combination | - | (3 | ) | ||||
| Restructuring charges and asset impairments | 2 | (16 | ) | ||||
| Certain items associated with acquisitions | (5 | ) | (6 | ) | |||
| Acquisition integration costs | - | (1 | ) | ||||
| Certain items associated with terminated business combination | - | (1 | ) | ||||
| Foreign exchange loss due to functional currency change | - | (19 | ) | ||||
| Other significant gains, losses or charges, net | 11 | - | |||||
| Non-GAAP adjusted operating expenses | $ | 544 | $ | 576 | |||
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
| Three Months Ended | |||
| (In millions, except percentages) | October 25, 2015 | ||
| Provision for income taxes - GAAP basis (a) | $ | 61 | |
| Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items | 18 | ||
| Income tax effect of non-GAAP adjustments | 2 | ||
| Non-GAAP adjusted provision for income taxes (b) | $ | 81 | |
| Income before income taxes - GAAP basis (c) | $ | 397 | |
| Certain items associated with acquisitions | 47 | ||
| Restructuring, inventory charges and asset impairments | (1 | ) | |
| Gain on sale of strategic investments, net | (2 | ) | |
| Other significant gains, losses or charges, net | (13 | ) | |
| Non-GAAP adjusted income before income taxes (d) | $ | 428 | |
| Effective income tax rate - GAAP basis (a/c) | 15.4 | % | |
| Non-GAAP adjusted effective income tax rate (b/d) | 18.9 | % | |