News Release

Applied Materials Announces Record Results

Aug 18, 2016 at 4:01 PM EDT
  • Applied delivers record EPS of $0.46 and record non-GAAP EPS of $0.50 in its third quarter
  • Generates $3.66 billion in new orders and reports $4.95 billion in backlog, both all-time highs 
  • Expects record non-GAAP EPS in its fourth quarter

SANTA CLARA, Calif., Aug. 18, 2016 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its third quarter ended July 31, 2016.

New orders were $3.66 billion, up 6 percent sequentially and up 26 percent year over year. Backlog of $4.95 billion was up 19 percent sequentially and up 60 percent year over year. Net sales of $2.82 billion were up 15 percent sequentially and up 13 percent year over year.

The company recorded gross margin of 42.3 percent, operating margin of 21.1 percent, and net income of $505 million or $0.46 per diluted share. On a non-GAAP adjusted basis, the company reported third quarter gross margin of 43.7 percent, operating margin of 22.8 percent, and net income of $550 million or $0.50 per diluted share.

The company generated $981 million in cash from operations, paid dividends of $108 million and used $196 million to repurchase 9 million shares of common stock at an average price of $21.88.

“With earnings and orders at an all-time high, Applied is performing better than ever and in a great position to sustainably outperform our markets,” said Gary Dickerson, president and CEO. “We are in the early stages of large, multi-year industry inflections that are driving our business today and creating new opportunities for future growth.”

Quarterly Results Summary

              Change
  Q3 FY2016   Q2 FY2016   Q3 FY2015   Q3 FY2016
vs.
Q2 FY2016
  Q3 FY2016
vs.
Q3 FY2015
  (In millions, except per share amounts and percentages)
New orders $ 3,658     $ 3,451     $ 2,892     6 %   26 %
Net sales $ 2,821     $ 2,450     $ 2,490     15 %   13 %
Gross margin 42.3 %   41.0 %   40.9 %   1.3 points   1.4 points
Operating margin 21.1 %   17.3 %   15.9 %   3.8 points   5.2 points
Net income $ 505     $ 320     $ 329     58 %   53 %
Diluted earnings per share (EPS) $ 0.46     $ 0.29     $ 0.27     59 %   70 %


              Change
Non-GAAP Adjusted Results Q3 FY2016   Q2 FY2016   Q3 FY2015   Q3 FY2016
vs.
Q2 FY2016
  Q3 FY2016
vs.
Q3 FY2015
  (In millions, except per share amounts and percentages)
Non-GAAP adjusted gross margin 43.7 %   42.7 %   43.9 %   1.0 points   (0.2 ) points
Non-GAAP adjusted operating margin 22.8 %   19.2 %   20.8 %   3.6 points   2.0 points
Non-GAAP adjusted net income $ 550     $ 376     $ 410     46 %   34 %
Non-GAAP adjusted diluted EPS $ 0.50     $ 0.34     $ 0.33     47 %   52 %
                                   

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

In the fourth quarter of fiscal 2016, Applied expects net sales to be up 15 percent to 19 percent sequentially. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.61 to $0.69.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.04 per share and any additional charges related to completed or future acquisitions or other non-operational or unusual items that are unknown at this time, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

Third Quarter Reportable Segment Information

Effective in the third quarter of fiscal 2016, Applied has expanded its Display segment to now include roll-to-roll web coating systems (previously in Energy and Environmental Solutions) and display upgrade equipment (previously in Applied Global Services). The Display segment is now named Display and Adjacent Markets. Applied no longer reports Energy and Environmental Solutions as a segment and its solar business is now included in Corporate and Other. The Silicon Systems segment is now named Semiconductor Systems and is otherwise unchanged. Applied Global Services continues to include 200-millimeter semiconductor equipment sales. Segment operating results for previous periods have been recast to conform to the current presentation in the table below and in the supplemental historical information accompanying this release.

Semiconductor Systems Q3 FY2016   Q2 FY2016   Q3 FY2015
  (In millions, except percentages)
New orders $ 2,215     $ 1,966     $ 2,007  
Foundry 57 %   23 %   32 %
DRAM 14 %   17 %   18 %
Flash 15 %   49 %   39 %
Logic and other 14 %   11 %   11 %
Net sales 1,786     1,587     1,635  
Operating income 511     364     411  
Operating margin 28.6 %   22.9 %   25.1 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 556     $ 410     $ 455  
Non-GAAP adjusted operating margin 31.1 %   25.8 %   27.8 %


Applied Global Services Q3 FY2016   Q2 FY2016   Q3 FY2015
  (In millions, except percentages)
New orders $ 590     $ 636     $ 543  
Net sales 657     633     646  
Operating income 175     165     162  
Operating margin 26.6 %   26.1 %   25.1 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 176     $ 165     $ 165  
Non-GAAP adjusted operating margin 26.8 %   26.1 %   25.5 %


Display and Adjacent Markets Q3 FY2016   Q2 FY2016   Q3 FY2015
  (In millions, except percentages)
New orders $ 803     $ 762     $ 318  
Net sales 313     187     185  
Operating income 63     31     35  
Operating margin 20.1 %   16.6 %   18.9 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 63     $ 31     $ 36  
Non-GAAP adjusted operating margin 20.1 %   16.6 %   19.5 %
                 

Backlog Information

Applied's backlog increased 19 percent to $4.95 billion and included negative adjustments of $56 million, primarily consisting of order cancellations, partially offset by favorable foreign currency impacts. Backlog composition by reportable segment was as follows:

Semiconductor Systems 50 %
Applied Global Services 15 %
Display and Adjacent Markets 33 %
Corporate and Other 2 %
     

Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted to exclude the impact of certain costs, expenses, gains and losses, including 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; income tax items and certain other discrete adjustments. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

Management uses these non-GAAP adjusted financial measures to evaluate the company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of our performance and 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 on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures 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 business and financial performance and market share positions, our earnings expectations, our business outlook for the fourth 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 leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future. 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 31,
 2016
  May 1,
 2016
  July 26,
 2015
  July 31,
 2016
  July 26,
 2015
Net sales $ 2,821     $ 2,450     $ 2,490     $ 7,528     $ 7,291  
Cost of products sold 1,629     1,446     1,472     4,416     4,298  
Gross profit 1,192     1,004     1,018     3,112     2,993  
Operating expenses:                  
Research, development and engineering 386     386     372     1,146     1,088  
Marketing and selling 107     102     112     315     332  
General and administrative 103     91     135     276     392  
Loss (gain) on derivatives associated with terminated business combination         3         (89 )
Total operating expenses 596     579     622     1,737     1,723  
Income from operations 596     425     396     1,375     1,270  
Interest expense 38     37     24     117     71  
Interest income and other income, net 6     7     3     15     2  
Income before income taxes 564     395     375     1,273     1,201  
Provision for income taxes 59     75     46     162     160  
Net income $ 505     $ 320     $ 329     $ 1,111     $ 1,041  
Earnings per share:                  
Basic $ 0.47     $ 0.29     $ 0.27     $ 1.00     $ 0.85  
Diluted $ 0.46     $ 0.29     $ 0.27     $ 0.99     $ 0.84  
Weighted average number of shares:                  
Basic 1,083     1,113     1,221     1,115     1,225  
Diluted 1,093     1,119     1,231     1,123     1,238  


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In millions) July 31,
 2016
  May 1,
 2016
  October 25,
 2015
ASSETS          
Current assets:          
Cash and cash equivalents $ 2,828     $ 2,470     $ 4,797  
Short-term investments 438     170     168  
Accounts receivable, net 1,852     1,913     1,739  
Inventories 2,026     1,924     1,833  
Other current assets 255     251     724  
Total current assets 7,399     6,728     9,261  
Long-term investments 960     934     946  
Property, plant and equipment, net 905     904     892  
Goodwill 3,305     3,304     3,302  
Purchased technology and other intangible assets, net 621     668     762  
Deferred income taxes and other assets 509     537     145  
Total assets $ 13,699     $ 13,075     $ 15,308  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Short-term debt $     $     $ 1,200  
Accounts payable and accrued expenses 1,800     1,630     1,833  
Customer deposits and deferred revenue 1,164     981     765  
Total current liabilities 2,964     2,611     3,798  
Long-term debt 3,343     3,343     3,342  
Other liabilities 573     556     555  
Total liabilities 6,880     6,510     7,695  
Total stockholders’ equity 6,819     6,565     7,613  
Total liabilities and stockholders’ equity $ 13,699     $ 13,075     $ 15,308  


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
(In millions) Three Months Ended   Nine Months Ended
July 31,
 2016
  May 1,
 2016
  July 26,
 2015
July 31,
 2016
  July 26,
 2015
Cash flows from operating activities:                  
Net income $ 505     $ 320     $ 329     $ 1,111     $ 1,041  
Adjustments required to reconcile net income to cash provided by operating activities:                  
Depreciation and amortization 97     96     93     289     275  
Share-based compensation 48     48     46     150     141  
Excess tax benefits from share-based compensation (5 )   (3 )   (3 )   (18 )   (54 )
Deferred income taxes 21     (22 )   18     14     25  
Other 5     5     43     20     64  
Net change in operating assets and liabilities 310     37     (192 )   103     (800 )
Cash provided by operating activities 981     481     334     1,669     692  
Cash flows from investing activities:                  
Capital expenditures (50 )   (47 )   (49 )   (165 )   (162 )
Cash paid for acquisitions, net of cash acquired 3     (8 )   (2 )   (5 )   (2 )
Proceeds from sales and maturities of investments 208     232     583     681     900  
Purchases of investments (483 )   (182 )   (616 )   (947 )   (960 )
Cash used in investing activities (322 )   (5 )   (84 )   (436 )   (224 )
Cash flows from financing activities:                  
Debt repayments (2 )           (1,207 )    
Proceeds from common stock issuances and others     42     1     44     43  
Common stock repurchases (196 )   (900 )   (625 )   (1,721 )   (625 )
Excess tax benefits from share-based compensation 5     3     3     18     54  
Payments of dividends to stockholders (108 )   (113 )   (123 )   (336 )   (368 )
Cash used in financing activities (301 )   (968 )   (744 )   (3,202 )   (896 )
Effect of exchange rate changes on cash and cash equivalents         1          
Increase (decrease) in cash and cash equivalents 358     (492 )   (493 )   (1,969 )   (428 )
Cash and cash equivalents — beginning of period 2,470     2,962     3,067     4,797     3,002  
Cash and cash equivalents — end of period $ 2,828     $ 2,470     $ 2,574     $ 2,828     $ 2,574  
Supplemental cash flow information:                  
Cash payments for income taxes $ 49     $ 51     $ 51     $ 144     $ 258  
Cash refunds from income taxes $ 1     $ 98     $ 5     $ 104     $ 10  
Cash payments for interest $ 34     $ 42     $ 39     $ 110     $ 85  


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
           
Corporate and Other          
           
(In millions) Q3 FY2016   Q2 FY2016   Q3 FY2015
New orders $ 50     $ 87     $ 24  
           
Unallocated net sales $ 65     $ 43     $ 24  
Unallocated cost of products sold and expenses (170 )   (130 )   (186 )
Share-based compensation (48 )   (48 )   (46 )
Certain items associated with terminated business combination         (1 )
Loss on derivatives associated with terminated business combination, net         (3 )
Total $ (153 )   $ (135 )   $ (212 )


Additional Information
 
  Q3 FY2016   Q2 FY2016   Q3 FY2015
New Orders and Net Sales by Geography                      
(In $ millions) New
Orders
  Net
Sales
  New
Orders
  Net
Sales
  New
Orders
  Net
Sales
United States 259     289     386     272     262     488  
% of Total 7 %   10 %   11 %   11 %   9 %   20 %
Europe 212     124     194     97     142     148  
% of Total 6 %   5 %   6 %   4 %   5 %   6 %
Japan 270     321     339     260     727     283  
% of Total 7 %   11 %   10 %   10 %   25 %   11 %
Korea 689     472     792     506     349     343  
% of Total 19 %   17 %   23 %   21 %   12 %   14 %
Taiwan 1,240     741     445     311     828     825  
% of Total 34 %   26 %   13 %   13 %   29 %   33 %
Southeast Asia 139     303     392     252     142     101  
% of Total 4 %   11 %   11 %   10 %   5 %   4 %
China 849     571     903     752     442     302  
% of Total 23 %   20 %   26 %   31 %   15 %   12 %
                       
Employees (In thousands)                      
Regular Full Time 15.2     14.8     14.5  


 APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
  Three Months Ended   Nine Months Ended
(In millions, except percentages) July 31,
 2016
  May 1,
 2016
  July 26,
 2015
  July 31,
 2016
  July 26,
 2015
Non-GAAP Adjusted Gross Profit                  
Reported gross profit - GAAP basis $ 1,192     $ 1,004     $ 1,018     $ 3,112     $ 2,993  
Certain items associated with acquisitions1 42     41     41     125     120  
Inventory charges (reversals) related to restructuring3, 5 (1 )       34     (2 )   34  
Non-GAAP adjusted gross profit $ 1,233     $ 1,045     $ 1,093     $ 3,235     $ 3,147  
Non-GAAP adjusted gross margin 43.7 %   42.7 %   43.9 %   43.0 %   43.2 %
Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 596     $ 425     $ 396     $ 1,375     $ 1,270  
Certain items associated with acquisitions1 47     46     47     141     138  
Acquisition integration and deal costs 2         1     2     2  
Loss (gain) on derivatives associated with terminated business combination, net         3         (89 )
Certain items associated with terminated business combination2         1         50  
Inventory charges (reversals) related to restructuring and asset impairments, net3, 4, 5 (1 )   (1 )   50     (3 )   50  
Foreign exchange loss due to functional currency change6         19         19  
Non-GAAP adjusted operating income $ 644     $ 470     $ 517     $ 1,515     $ 1,440  
Non-GAAP adjusted operating margin 22.8 %   19.2 %   20.8 %   20.1 %   19.8 %
Non-GAAP Adjusted Net Income                  
Reported net income - GAAP basis7 $ 505     $ 320     $ 329     $ 1,111     $ 1,041  
Certain items associated with acquisitions1 47     46     47     141     138  
Acquisition integration and deal costs 2         1     2     2  
Loss (gain) on derivatives associated with terminated business combination, net         3         (89 )
Certain items associated with terminated business combination2         1         50  
Inventory charges (reversals) related to restructuring and asset impairments, net3, 4, 5 (1 )   (1 )   50     (3 )   50  
Impairment (gain on sale) of strategic investments, net     (1 )   (1 )   (3 )   6  
Foreign exchange loss due to functional currency change6         19         19  
Loss on early extinguishment of debt             5      
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items7 1     16     (21 )   (12 )   (92 )
Income tax effect of non-GAAP adjustments8 (4 )   (4 )   (18 )   (13 )   (15 )
Non-GAAP adjusted net income $ 550     $ 376     $ 410     $ 1,228     $ 1,110  


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 and nine months ended July 31, 2016 primarily included benefit from sales of solar equipment tools for which inventory had been previously reserved related to the cost reductions in the solar business.
   
4 Results for the three months ended May 1, 2016 included a $1 million favorable adjustment of employee-related costs associated with the cost reductions in the solar business.
   
5 Results for the three and nine months ended July 26, 2015 primarily included $34 million of inventory charges and $17 million of restructuring charges and asset impairments related to cost reductions in the solar business.
   
6 Results for the three and nine months ended July 26, 2015 included a $19 million foreign exchange loss due to an immaterial correction of an error related to functional currency change.
   
7 Amounts for nine months ended July 26, 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.
   
8 These amounts represent non-GAAP adjustments above multiplied by the effective tax rate within the jurisdictions the adjustments affect.


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 31,
 2016
  May 1,
 2016
  July 26,
 2015
  July 31,
 2016
  July 26,
 2015
Non-GAAP Adjusted Earnings Per Diluted Share                  
Reported earnings per diluted share - GAAP basis1 $ 0.46     $ 0.29     $ 0.27     $ 0.99     $ 0.84  
Certain items associated with acquisitions 0.04     0.04     0.03     0.11     0.10  
Certain items associated with terminated business combination                 0.03  
Gain on derivatives associated with terminated business combination, net                 (0.05 )
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     0.01     (0.02 )   (0.01 )   (0.07 )
Foreign exchange loss due to functional currency change         0.02         0.02  
Non-GAAP adjusted earnings per diluted share $ 0.50     $ 0.34     $ 0.33     $ 1.09     $ 0.90  
Weighted average number of diluted shares 1,093     1,119     1,231     1,123     1,238  


1 Amounts for nine months ended July 26, 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   Nine Months Ended
(In millions, except percentages) July 31,
 2016
  May 1,
 2016
  July 26,
 2015
  July 31,
 2016
  July 26,
 2015
Semiconductor Systems Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 511     $ 364     $ 411     $ 1,140     $ 1,092  
Certain items associated with acquisitions1 45     46     44     138     131  
Non-GAAP adjusted operating income $ 556     $ 410     $ 455     $ 1,278     $ 1,223  
Non-GAAP adjusted operating margin 31.1 %   25.8 %   27.8 %   26.9 %   26.4 %
AGS Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 175     $ 165     $ 162     $ 489     $ 470  
Certain items associated with acquisitions1 1             1     1  
Inventory charges related to restructuring2         3         3  
Non-GAAP adjusted operating income $ 176     $ 165     $ 165     $ 490     $ 474  
Non-GAAP adjusted operating margin 26.8 %   26.1 %   25.5 %   25.8 %   25.8 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 63     $ 31     $ 35     $ 142     $ 163  
Certain items associated with acquisitions1         1         3  
Non-GAAP adjusted operating income $ 63     $ 31     $ 36     $ 142     $ 166  
Non-GAAP adjusted operating margin 20.1 %   16.6 %   19.5 %   18.8 %   23.4 %


1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 Results for the three and nine months ended July 26, 2015 included $3 million of inventory charges related to cost reduction in the solar business.
   
Note: The reconciliation of GAAP and non-GAAP adjusted segment results above does not include certain revenues, costs of products sold and operating expenses that are reported within corporate and other and included in consolidated operating income.


APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES
 
  Three Months Ended
(In millions) July 31, 2016   May 1, 2016
Operating expenses - GAAP basis $ 596     $ 579  
Reversals related to restructuring, net     1  
Certain items associated with acquisitions (5 )   (5 )
Acquisition integration and deal costs (2 )    
Non-GAAP adjusted operating expenses $ 589     $ 575  


UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
 
  Three Months Ended
(In millions, except percentages) July 31, 2016
Provision for income taxes - GAAP basis (a) $ 59  
Reinstatement of federal R&D tax credit, resolutions of prior years’ income tax filings and other tax items (1 )
Income tax effect of non-GAAP adjustments 4  
Non-GAAP adjusted provision for income taxes (b) $ 62  
   
Income before income taxes - GAAP basis (c) $ 564  
Certain items associated with acquisitions 47  
Reversals related to restructuring, net (1 )
Acquisition integration costs 2  
Non-GAAP adjusted income before income taxes (d) $ 612  
   
Effective income tax rate - GAAP basis (a/c) 10.5 %
   
Non-GAAP adjusted effective income tax rate (b/d) 10.1 %


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL HISTORICAL INFORMATION
 
Semiconductor Systems Q2 FY2016   Q1 FY2016   Q4 FY2015   Q3 FY2015   Q2 FY2015   Q1 FY2015   FY2014
  (In millions, except percentages)
New orders $ 1,966     $ 1,275     $ 1,444     $ 2,007     $ 1,704     $ 1,426     $ 6,132  
Net sales   1,587       1,373       1,494       1,635       1,560       1,446       5,978  
Operating income   364       265       318       411       374       307       1,391  
Operating margin   22.9 %     19.3 %     21.3 %     25.1 %     24.0 %     21.2 %     23.3 %
Non-GAAP Adjusted Results                                                          
Non-GAAP adjusted operating income $ 410     $ 312     $ 365     $ 455     $ 418     $ 350     $ 1,565  
Non-GAAP adjusted operating margin 25.8 %   22.7 %     24.4 %     27.8 %     26.8 %     24.2 %     26.2 %


Applied Global Services Q2 FY2016   Q1 FY2016   Q4 FY2015   Q3 FY2015   Q2 FY2015   Q1 FY2015   FY2014
  (In millions, except percentages)
New orders $ 636     $ 755     $ 743     $ 543     $ 620     $ 676     $ 2,345  
Net sales 633     606     611     646     627     563     2,114  
Operating income 165     149     160     162     162     146     538  
Operating margin 26.1 %   24.6 %   26.2 %   25.1 %   25.8 %   25.9 %   25.4 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 165     $ 149     $ 159     $ 165     $ 162     $ 147     $ 541  
Non-GAAP adjusted operating margin 26.1 %   24.6 %   26.0 %   25.5 %   25.8 %   26.1 %   25.6 %


Display and Adjacent Markets Q2 FY2016   Q1 FY2016   Q4 FY2015   Q3 FY2015   Q2 FY2015   Q1 FY2015   FY2014
  (In millions, except percentages)
New orders $ 762     $ 208     $ 219     $ 318     $ 159     $ 132     $ 1,066  
Net sales 187     254     235     185     208     316     848  
Operating income 31     48     28     35     49     79     202  
Operating margin 16.6 %   18.9 %   11.9 %   18.9 %   23.6 %   25.0 %   23.8 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 31     $ 48     $ 28     $ 36     $ 50     $ 80     $ 206  
Non-GAAP adjusted operating margin 16.6 %   18.9 %   11.9 %   19.5 %   24.0 %   25.3 %   24.3 %


Corporate and Other Q2 FY2016   Q1 FY2016   Q4 FY2015   Q3 FY2015   Q2 FY2015   Q1 FY2015   FY2014
  (In millions)
New orders $ 87     $ 37     $ 18     $ 24     $ 32     $ 39     $ 105  
                           
Unallocated net sales $ 43     $ 24     $ 28     $ 24     $ 47     $ 34     $ 132  
Unallocated cost of products sold and expenses (130 )   (78 )   (65 )   (186 )   (154 )   (118 )   (523 )
Share-based compensation (48 )   (54 )   (46 )   (46 )   (47 )   (48 )   (177 )
Certain items associated with terminated business combination             (1 )   (29 )   (20 )   (73 )
Gain (loss) on derivatives associated with terminated business combination, net             (3 )   14     78     30  
Total $ (135 )   $ (108 )   $ (83 )   $ (212 )   $ (169 )   $ (74 )   $ (611 )


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Applied Materials, Inc.