News Column

Applied Materials Announces Second Quarter Results

May 15, 2014

* 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. (NASDAQ:AMAT), the global leader in precision materials engineering solutions for the semiconductor, display and solar industries, today reported results for its second quarter of fiscal 2014 ended April 27, 2014. Applied generated orders of $2.63 billion, up 15 percent from the prior quarter led by increases in Display and Silicon Systems. Net sales of $2.35 billion were up 7 percent sequentially led by growth in Silicon Systems. Non-GAAP adjusted gross margin increased 170 basis points from the prior quarter to 44.2 percent. Non-GAAP adjusted operating income grew 27 percent sequentially to $482 million or 20.5 percent of net sales. Non-GAAP adjusted net income grew 25 percent sequentially to $348 million or $0.28 per diluted share. The company recorded GAAP gross margin of 42.5 percent, operating income of $387 million or 16.4 percent of net sales, and net income of $262 million or $0.21 per diluted share. "Applied gained 1.4 points of wafer fab equipment market share in 2013 as we enabled major technology inflections for our customers with our unique capabilities in precision materials engineering," said Gary Dickerson, president and CEO. "We are also delivering significant improvements in our financial performance and have expanded our operating margins to their highest level in nearly three years." Quarterly Results Summary 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 MaterialsApplied 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     Three Months Ended   Six Months Ended ---------------------------------------------------- -------------------------------- (In millions, except per share amounts)   April 27, 2014   January 26, 2014   April 28, 2013   April 27, 2014   April 28, 2013 ---------------- ------------------ ---------------- ---------------- --------------- Net sales   $ 2,353     $ 2,190     $ 1,973     $ 4,543     $ 3,546 Cost of products sold   1,352   1,299   1,165   2,651   2,156 ---------------- ------------------ ---------------- ---------------- --------------- Gross margin   1,001     891     808     1,892     1,390 Operating expenses: Research, development and engineering   355   356   344   711   648 Marketing and selling   107   109   118   216   223 General and administrative   152   89   126   241   251 Impairment of goodwill and intangible assets   -   -   278   -   278 Restructuring charges and asset impairments   -   7   10   7   19 ---------------- ------------------ ---------------- ---------------- --------------- Total operating expenses   614   561   876   1,175   1,419 Income (loss) from operations   387   330   (68 )   717   (29 ) Interest expense   23   25   24   48   48 Interest and other income, net   1   10   2   11   5 ---------------- ------------------ ---------------- ---------------- --------------- Income (loss) before income taxes   365   315   (90 )   680   (72 ) Provision for income taxes   103   62   39   165   23 ---------------- ------------------ ---------------- ---------------- --------------- Net income (loss)   $ 262   $ 253   $ (129 )   $ 515   $ (95 ) ---------------- ------------------ ---------------- ---------------- --------------- Earnings (loss) per share: Basic   $ 0.22     $ 0.21     $ (0.11 )   $ 0.43     $ (0.08 ) Diluted   $ 0.21     $ 0.21     $ (0.11 )   $ 0.42     $ (0.08 ) Weighted average number of shares: Basic   1,216     1,206     1,203     1,211     1,200 Diluted   1,229     1,225     1,203     1,227     1,200 APPLIED MATERIALS, INC. UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS April January October (In millions)   27, 2014   26, 2014   27, 2013 ------------ -------------- ------------- ASSETS Current assets: Cash and cash equivalents   $ 2,453     $ 2,144     $ 1,711 Short-term investments   146     145     180 Accounts receivable, net   1,615     1,510     1,633 Inventories   1,564     1,533     1,413 Other current assets   623     682     705 ------------ -------------- ------------- Total current assets   6,401     6,014     5,642 Long-term investments   836     833     1,005 Property, plant and equipment, net   855     846     850 Goodwill   3,294     3,294     3,294 Purchased technology and other intangible assets, net   1,018   1,057   1,103 Deferred income taxes and other assets   151   155   149 ------------ -------------- ------------- Total assets   $ 12,555     $ 12,199     $ 12,043 ------------ -------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses   $ 1,663   $ 1,576   $ 1,649 Customer deposits and deferred revenue   999   901   794 ------------ -------------- ------------- Total current liabilities   2,662     2,477     2,443 Long-term debt   1,947     1,946     1,946 Other liabilities   471     535     566 ------------ -------------- ------------- Total liabilities   5,080     4,958     4,955 ------------ -------------- ------------- Total stockholders' equity   7,475     7,241     7,088 ------------ -------------- ------------- Total liabilities and stockholders' equity   $ 12,555   $ 12,199   $ 12,043 ------------ -------------- ------------- APPLIED MATERIALS, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Three Months Ended Six Months Ended ---------------------------------------------------- -------------------------------- (In millions) April 27, 2014   January 26, 2014   April 28, 2013   April 27, 2014   April 28, 2013 ---------------- ------------------ ---------------- ---------------- --------------- Cash flows from operating activities: Net income (loss) $ 262   $ 253   $ (129 )   $ 515   $ (95 ) Adjustments required to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 94   94   106   188   212 Impairment of goodwill and intangible assets -   -   278   -   278 Restructuring charges and asset impairments -   7   10   7   19 Unrealized loss (gain) on derivative associated with announced business combination 23   (24 )   -   (1 )   - Share-based compensation 42   46   39   88   81 Other 5     (16 )   32     (11 )   (46 ) Net change in operating assets and liabilities 11   12   (112 )   23   (209 ) ---------------- ------------------ ---------------- ---------------- --------------- Cash provided 437   372   224 by operating activities       809   240 ---------------- ------------------ ---------------- ---------------- --------------- Cash flows from investing activities: Capital expenditures (65 )   (48 )   (52 )   (113 )   (101 ) Proceeds from sales and maturities of investments 157   364   158   521   603 Purchases of investments (161 )   (163 )   (167 )   (324 )   (310 ) ---------------- ------------------ ---------------- ---------------- --------------- Cash provided (69 ) 153   (61 ) by (used in) investing activities       84   192 ---------------- ------------------ ---------------- ---------------- --------------- Cash flows from financing activities: Proceeds from common stock issuances and others 63   28   67   91   85 Common stock repurchases -   -   (100 )   -   (148 ) Payments of dividends to stockholders (122 )   (120 )   (108 )   (242 )   (216 ) ---------------- ------------------ ---------------- ---------------- --------------- Cash used in (59 ) (92 ) (141 ) financing activities       (151 )   (279 ) ---------------- ------------------ ---------------- ---------------- --------------- Increase in 309   433   22 cash and cash equivalents       742   153 Cash and cash equivalents - beginning of period 2,144   1,711   1,523   1,711   1,392 ---------------- ------------------ ---------------- ---------------- --------------- Cash and cash $ 2,453   $ 2,144   $ 1,545 equivalents - end of period       $ 2,453   $ 1,545 ---------------- ------------------ ---------------- ---------------- --------------- Supplemental cash flow information: Cash payments for income taxes $ 33   $ 26   $ 122   $ 59   $ 154 Cash refunds from income taxes $ 3   $ 9   $ 2   $ 12   $ 67 Cash payments for interest $ 7   $ 39   $ 7   $ 46   $ 46 APPLIED MATERIALS, INC. UNAUDITED SUPPLEMENTAL INFORMATION Reportable Segment Results   Q2 FY2014   Q1 FY2014   Q2 FY2013 ----------------------------------- ----------------------------------- ---------------------------------- Operating Operating Operating (In New Net Income New Net Income New Net Income millions) Orders   Sales   (Loss)   Orders   Sales   (Loss)   Orders   Sales   (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 Q2 Q1 Q2 (In millions)   FY2014   FY2014   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 New Net New Net New Net (In $ millions)   Orders   Sales   Orders   Sales   Orders   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 acquisitions(1)   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 acquisitions(1)   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 combination(2)   16   11   -   27   - Restructuring charges and asset impairments(3, 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 acquisitions(1)   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 combination(2)   16   11   -   27   - Impairment of goodwill and intangible assets   -   -   278   -   278 Restructuring charges and asset impairments(3, 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     Three Months Ended   Six Months Ended ---------------------------------------------------- -------------------------------- (In millions except per share amounts)   April 27, 2014   January 26, 2014   April 28, 2013   April 27, 2014   April 28, 2013 ---------------- ------------------ ---------------- ---------------- --------------- Non-GAAP Adjusted Earnings Per Diluted Share Reported earnings (loss) per diluted share - GAAP basis   $ 0.21   $ 0.21   $ (0.11 )   $ 0.42   $ (0.08 ) Impairment of goodwill and intangible assets   -   -   0.22   -   0.22 Certain items associated with acquisitions   0.03   0.03   0.04   0.06   0.07 Acquisition integration costs   0.01   0.01   0.01   0.01   0.02 Unrealized loss (gain) on derivative associated with announced business combination   0.01   (0.01 )   -   -   - Certain items associated with announced business combination   0.01   -   -   0.02   - Restructuring charges and asset impairments   -   -   -   -   0.01 Reinstatement of federal R&D tax credit and resolution of prior years' income tax filings and other tax items   0.01   (0.01 )   -   -   (0.02 ) ---------------- ------------------ ---------------- ---------------- --------------- Non-GAAP adjusted earnings per diluted share   $ 0.28   $ 0.23   $ 0.16   $ 0.51   $ 0.22 ---------------- ------------------ ---------------- ---------------- --------------- Weighted average number of diluted shares   1,229   1,225   1,217   1,227   1,216 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 acquisitions(1)   42   42   45   84   89 Acquisition integration costs   -   1   1   1   2 Restructuring charges and asset impairments(3)   -   -   -   -   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 acquisitions(1)   2   1   1   3   2 Restructuring charges and asset impairments(2,3)   -   -   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 acquisitions(1)   -   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 acquisitions(1)   2   1   5   3   12 Restructuring charges and asset impairments(2, 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   Three Months Ended ---------------------------------- (In millions) April 27, 2014   January 26, 2014 ---------------- ----------------- Operating expenses - GAAP basis $ 614     $ 561 Unrealized gain (loss) on derivative associated with announced business combination (23 )   24 Restructuring charges and asset impairments -     (7 ) Certain items associated with acquisitions (7 )   (6 ) Acquisition integration costs (9 )   (11 ) Certain items associated with announced business combination (16 )   (11 ) ---------------- ----------------- Non-GAAP adjusted operating expenses $ 559     $ 550 ---------------- ----------------- 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 23 business combination 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 % --------------- This announcement is distributed by GlobeNewswire on behalf of GlobeNewswire clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Applied Materials via GlobeNewswire [HUG#1785635]


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