Applied Materials Announces Second Quarter Results

* Orders of $2.63 billion, up 16 percent year over year. * Net sales of $2.35 billion, up 19 percent year over year led by growth in the Silicon Systems Group. * Non-GAAP adjusted operating income of $482 million, up 69 percent year over year.  GAAP operating income of $387 million. * Non-GAAP adjusted diluted EPS of $0.28, up 75 percent year over year.  GAAP diluted EPS of $0.21. SANTA CLARA, Calif., May 15, 2014 - Applied Materials, Inc...

GAAP Results		Q2 FY2014		Q1 FY2014		Q2 FY2013
Net sales		$2.35 billion		$2.19 billion		$1.97 billion
Operating income (loss)		$387 million		$330 million		$(68) million
Net income (loss)		$262 million		$253 million		$(129) million
Diluted earnings (loss) per share (EPS)		$0.21		$0.21		$(0.11)
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income		$482 million		$380 million		$285 million
Non-GAAP adjusted net income		$348 million		$279 million		$199 million
Non-GAAP adjusted diluted EPS		$0.28		$0.23		$0.16

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

Second Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.66 billion, up 6 percent, with increases in DRAM and logic/other more than offsetting declines in foundry and flash. Net sales increased 7 percent to $1.58 billion. Non-GAAP adjusted operating income increased to $433 million or 27.3 percent of net sales. GAAP operating income increased to $391 million or 24.7 percent of net sales. New order composition was: foundry 50 percent; flash 21 percent; DRAM 17 percent; and logic/other 12 percent.

Applied Global Services (AGS) orders were $537 million, down 10 percent, primarily due to service contract renewals being seasonally higher in the first quarter. Net sales of $534 million were up 5 percent. Non-GAAP adjusted operating income increased to $150 million or 28.1 percent of net sales. GAAP operating income increased to $148 million or 27.7 percent of net sales.

Display orders of $340 million rose from $79 million in the prior quarter, primarily reflecting orders for TV production capacity. Net sales declined 8 percent to $147 million. Operating income was $26 million or 17.7 percent of net sales both on a GAAP and non-GAAP adjusted basis.

Energy and Environmental Solutions (EES) orders grew to $88 million and net sales rose to $88 million. EES had a non-GAAP adjusted operating income of $7 million or 8 percent of net sales and GAAP operating income of $5 million or 6 percent of net sales.

Backlog grew 12 percent sequentially to $2.74 billion including positive adjustments of $23 million, primarily related to EES re-bookings. Backlog composition by segment was:  SSG 53 percent; AGS 24 percent; Display 17 percent; and EES 6 percent.

Second quarter gross margin included the benefit of non-recurring items equivalent to approximately 50 basis points of company gross margin.

Business Outlook

For the third quarter of fiscal 2014, Applied expects net sales to be in the range of flat to down 5 percent from the previous quarter and up by approximately 13 percent to 19 percent from the year-ago period. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.25 to $0.29 and up by approximately 39 percent to 61 percent year over year.

This outlook excludes known charges related to completed acquisitions and integration costs of $0.03 per share. The outlook does not exclude other non-GAAP adjustments that may arise subsequent to this release.

Use of Non-GAAP Adjusted Financial Measures

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

Webcast Information

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

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding Applied's performance, momentum and opportunities; industry trends; and its business outlook for the third quarter of fiscal 2014. These statements and their underlying assumptions are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including but not limited to: the level of demand for Applied's products, which is subject to many factors, including uncertain global economic and industry conditions, end-demand for electronic products and semiconductors, and customers' new technology and capacity requirements; the timing and nature of technology transitions; the concentrated nature of Applied's customer base; Applied's ability to (i) develop, deliver and support a broad range of products and expand its markets, (ii) achieve the objectives of operational and strategic initiatives, (iii) obtain and protect intellectual property rights in key technologies, (iv) attract, motivate and retain key employees, (v) successfully complete the announced business combination and realize expected benefits and synergies, and (vi) accurately forecast future results, which depends on multiple assumptions related to, without limitation, market conditions, customer requirements and business needs; and other risks described in Applied's SEC filings, including its most recent Forms 10-Q and 8-K. All forward-looking statements are based on management's estimates, projections and assumptions as of the date hereof. The company undertakes no obligation to update any forward-looking statements.

About Applied Materials

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

 

Contact:

Kevin Winston (editorial/media) 408.235.4498

Michael Sullivan (financial community) 408.986.7977

 

APPLIED MATERIALS, INC.

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

 

 

 

 

APPLIED MATERIALS, INC.

UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

 

 

 

 

 

APPLIED MATERIALS, INC.

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 

 

 

 

APPLIED MATERIALS, INC.

UNAUDITED SUPPLEMENTAL INFORMATION

 

Reportable Segment Results

 

 

	Q2 FY2014												Q1 FY2014												Q2 FY2013
(In millions)	New Orders				Net Sales				Operating Income (Loss)				New Orders				Net Sales				Operating Income (Loss)				New Orders				Net Sales				Operating Income (Loss)
SSG	$	1,664			$	1,584			$	391			$	1,569			$	1,484			$	314			$	1,551			$	1,291			$	283
AGS	537				534				148				597				507				125				481				517				118
Display	340				147				26				79				159				26				195				127				19
EES*	88				88				5				40				40				(11		)		39				38				(322		)
Corporate	-				-				(183		)		-				-				(124		)		-				-				(166		)
Consolidated	$	2,629			$	2,353			$	387			$	2,285			$	2,190			$	330			$	2,266			$	1,973			$	(68	)

 

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

Corporate Unallocated Expenses

 

 

(In millions)		Q2 FY2014				Q1 FY2014				Q2 FY2013
Restructuring charges and asset impairments		$	-			$	7			$	4
Share-based compensation		42				46				39
Unrealized loss (gain) on derivative associated with announced business combination		23				(24		)		-
Other unallocated expenses		118				95				123
Corporate		$	183			$	124			$	166

 

APPLIED MATERIALS, INC.

UNAUDITED SUPPLEMENTAL INFORMATION

 

Additional Information

 

 

		Q2 FY2014						Q1 FY2014						Q2 FY2013
New Orders and Net Sales by Geography
(In $ millions)		New Orders			Net Sales			New Orders			Net Sales			New Orders			Net Sales
United States		521			370			403			280			398			362
% of Total		20	%		16	%		18	%		13	%		18	%		18	%
Europe		199			156			119			164			173			144
% of Total		7	%		7	%		5	%		7	%		8	%		7	%
Japan		203			215			163			164			191			157
% of Total		8	%		9	%		7	%		8	%		8	%		8	%
Korea		378			351			240			201			259			226
% of Total		14	%		15	%		11	%		9	%		11	%		12	%
Taiwan		660			781			984			705			902			828
% of Total		25	%		33	%		43	%		32	%		40	%		42	%
Southeast Asia		72			52			50			87			67			73
% of Total		3	%		2	%		2	%		4	%		3	%		4	%
China		596			428			326			589			276			183
% of Total		23	%		18	%		14	%		27	%		12	%		9	%
Employees (In thousands)
Regular Full Time		13.7						13.6						13.6

 

 

 APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 

 

		Three Months Ended												Six Months Ended
(In millions, except percentages)		April 27, 2014				January 26, 2014				April 28, 2013				April 27, 2014				April 28, 2013
Non-GAAP Adjusted Gross Margin
Reported gross margin - GAAP basis		$	1,001			$	891			$	808			$	1,892			$	1,390
Certain items associated with acquisitions1		39				39				43				78				86
Acquisition integration costs		1				-				1				1				2
Non-GAAP adjusted gross margin		$	1,041			$	930			$	852			$	1,971			$	1,478
Non-GAAP adjusted gross margin percent (% of net sales)		44.2		%		42.5		%		43.2		%		43.4		%		41.7		%
Non-GAAP Adjusted Operating Income
Reported operating income (loss) - GAAP basis		$	387			$	330			$	(68	)		$	717			$	(29	)
Impairment of goodwill and intangible assets		-				-				278				-				278
Certain items associated with acquisitions1		46				45				53				91				107
Acquisition integration costs		10				11				12				21				22
Unrealized loss (gain) on derivative associated with announced business combination		23				(24		)		-				(1		)		-
Certain items associated with announced business combination2		16				11				-				27				-
Restructuring charges and asset impairments3, 4, 5		-				7				10				7				19
Non-GAAP adjusted operating income		$	482			$	380			$	285			$	862			$	397
Non-GAAP adjusted operating margin percent (% of net sales)		20.5		%		17.4		%		14.4		%		19.0		%		11.2		%
Non-GAAP Adjusted Net Income
Reported net income (loss) - GAAP basis		$	262			$	253			$	(129	)		$	515			$	(95	)
Certain items associated with acquisitions1		46				45				53				91				107
Acquisition integration costs		10				11				12				21				22
Unrealized loss (gain) on derivative associated with announced business combination		23				(24		)		-				(1		)		-
Certain items associated with announced business combination2		16				11				-				27				-
Impairment of goodwill and intangible assets		-				-				278				-				278
Restructuring charges and asset impairments3, 4, 5		-				7				10				7				19
Impairment (gain on sale) of strategic investments, net		2				(5		)		2				(3		)		2
Reinstatement of federal R&D tax credit		-				-				(3		)		-				(13		)
Resolution of prior years' income tax filings and other tax items		12				(15		)		-				(3		)		(11		)
Income tax effect of non-GAAP adjustments		(23		)		(4		)		(24		)		(27		)		(41		)
Non-GAAP adjusted net income		$	348			$	279			$	199			$	627			$	268

 

 

1	These items are incremental charges attributable to completed acquisitions, consisting of inventory fair value adjustments on products sold, and amortization of purchased intangible assets.
2	These items are incremental charges related to the announced business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration costs.
3	Results for the three months ended January 26, 2014 and six months ended April 27, 2014 included employee-related costs of $7 million related to the restructuring program announced on October 3, 2012.
4	Results for the three months ended April 28, 2013 included $4 million of employee-related costs related to the restructuring program announced on October 3, 2012 and restructuring and asset impairment charges of $6 million related to the restructuring program announced on May 10, 2012.
5	Results for the six months ended April 28, 2013 included $8 million of employee-related costs, net, related to the restructuring program announced on October 3, 2012, restructuring and asset impairment charges of $9 million related to the restructuring program announced on May 10, 2012 and employee-related costs of $2 million related to the integration of Varian Semiconductor Equipment Associates, Inc (Varian).

 

 

 

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 

 

 

 

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 

 

		Three Months Ended												Six Months Ended
(In millions, except percentages)		April 27, 2014				January 26, 2014				April 28, 2013				April 27, 2014				April 28, 2013
SSG Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis		$	391			$	314			$	283			$	705			$	417
Certain items associated with acquisitions1		42				42				45				84				89
Acquisition integration costs		-				1				1				1				2
Restructuring charges and asset impairments3		-				-				-				-				1
Non-GAAP adjusted operating income		$	433			$	357			$	329			$	790			$	509
Non-GAAP adjusted operating margin percent (% of net sales)		27.3		%		24.1		%		25.5		%		25.7		%		22.5		%
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis		$	148			$	125			$	118			$	273			$	207
Certain items associated with acquisitions1		2				1				1				3				2
Restructuring charges and asset impairments2,3		-				-				1				-				2
Non-GAAP adjusted operating income		$	150			$	126			$	120			$	276			$	211
Non-GAAP adjusted operating margin percent (% of net sales)		28.1		%		24.9		%		23.2		%		26.5		%		21.4		%
Display Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis		$	26			$	26			$	19			$	52			$	22
Certain items associated with acquisitions1		-				1				2				1				4
Non-GAAP adjusted operating income		$	26			$	27			$	21			$	53			$	26
Non-GAAP adjusted operating margin percent (% of net sales)		17.7		%		17.0		%		16.5		%		17.3		%		12.1		%
EES Non-GAAP Adjusted Operating Income (Loss)
Reported operating income (loss) - GAAP basis		$	5			$	(11	)		$	(322	)		$	(6	)		$	(376	)
Impairment of goodwill and intangible assets		-				-				278				-				278
Certain items associated with acquisitions1		2				1				5				3				12
Restructuring charges and asset impairments2, 3		-				-				5				-				8
Non-GAAP adjusted operating income (loss)		$	7			$	(10	)		$	(34	)		$	(3	)		$	(78	)
Non-GAAP adjusted operating margin percent (% of net sales)		8.0		%		(25.0		)%		(89.5		)%		(2.3		)%		(92.9		)%

 

 

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

 

 

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES

 

 

 

 

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

 

 

	Three Months Ended
(In millions, except percentages)	April 27, 2014
Provision for income taxes - GAAP basis (a)	$	103
Resolutions of prior years' income tax filings and other tax items	(12		)
Income tax effect of non-GAAP adjustments	23
Non-GAAP adjusted provision for income taxes (b)	$	114
Income before income taxes - GAAP basis (c)	$	365
Certain items associated with acquisitions	46
Acquisition integration costs	10
Unrealized loss on derivative associated with announced business combination	23
Certain items associated with announced business combination	16
Impairment of strategic investments, net	2
Non-GAAP adjusted income before income taxes (d)	$	462
Effective income tax rate - GAAP basis (a/c)	28.2		%
Non-GAAP adjusted effective income tax rate (b/d)	24.7		%

 

 

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