UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________
FORM 8-K
____________________________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 18, 2016
____________________________________________________________________
Applied Materials, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________________________________
Delaware | 000-06920 | 94-1655526 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
3050 Bowers Avenue | ||
P.O. Box 58039 Santa Clara, CA | 95052-8039 | |
(Address of principal executive | (Zip Code) | |
offices) | ||
Registrant’s telephone number, including area code: (408) 727-5555
N/A
(Former name or former address, if changed since last report.)
____________________________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Item 2.02 Results of Operations and Financial Condition.
On August 18, 2016, Applied Materials, Inc. (“Applied Materials”) announced its financial results for its third quarter ended July 31, 2016. A copy of Applied Materials’ press release is attached hereto as Exhibit 99.1.
The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of Applied Materials, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference in such filing. The information in this report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. | Description | |
99.1 | Press Release issued by Applied Materials, Inc. dated August 18, 2016 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Applied Materials, Inc. (Registrant) | ||||
Date: | August 18, 2016 | By: | /s/ Thomas F. Larkins | |
Thomas F. Larkins | ||||
Senior Vice President, General Counsel and Corporate Secretary | ||||
EXHIBIT INDEX
Exhibit No. | Description | |
99.1 | Press Release issued by Applied Materials, Inc. dated August 18, 2016 | |
Exhibit 99.1
APPLIED MATERIALS ANNOUNCES RECORD RESULTS
• | 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., August 18, 2016 - 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 | % | |||||||
Applied Materials, Inc.
Page 2 of 14
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 Materials, Inc.
Page 3 of 14
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 | % |
Applied Materials, Inc.
Page 4 of 14
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.
Applied Materials, Inc.
Page 5 of 14
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.
Page 6 of 14
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.
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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.
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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.
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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.
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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.
Page 11 of 14
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.
Page 12 of 14
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.
Page 13 of 14
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.
Page 14 of 14
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 | ) | ||||||