- Applied delivers record annual EPS of $1.54, up 38 percent year over year, and non-GAAP EPS of $1.75, up 47 percent year over year
- Semiconductor Systems segment achieves highest quarterly and annual revenue in 15 years
- Applied Global Services generates record quarterly and annual orders and revenue
- Display and Adjacent Markets delivers record quarterly and annual revenue
SANTA CLARA, Calif., Nov. 17, 2016 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT ) today reported results for its fourth quarter and fiscal year ended October 30, 2016.
Fourth quarter new orders were $3.03 billion, up 25 percent year over year. Backlog of $4.58 billion was up 46 percent year over year. Net sales of $3.30 billion were up 39 percent year over year.
The company recorded fourth quarter gross margin of 42.4 percent, operating margin of 23.6 percent, and diluted earnings per share (EPS) of $0.56. On a non-GAAP adjusted basis, fourth quarter gross margin increased 1.5 points year over year to 43.7 percent, operating margin grew 5.9 points year over year to 25.2 percent, and diluted EPS grew by 128 percent year over year to $0.66.
The company generated $797 million in cash from operations and returned $279 million to shareholders through stock repurchases and cash dividends.
Full Year Results
In fiscal 2016, new orders grew 23 percent to $12.42 billion and net sales increased 12 percent to $10.83 billion. The company recorded gross margin of 41.7 percent, operating income of $2.15 billion or 19.9 percent of net sales, and diluted EPS of $1.54. On a non-GAAP adjusted basis, gross margin increased 300 basis points to 43.2 percent, operating income increased 24 percent to $2.35 billion or 21.7 percent of net sales, and diluted EPS increased 47 percent to $1.75.
The company generated $2.47 billion in cash from operations, paid dividends of $444 million and used $1.89 billion to repurchase 96 million shares of common stock at an average price of $19.82.
“In fiscal 2016, we grew orders, revenue, and earnings to the highest levels in the company’s history, and made significant progress towards our longer-term strategic and financial goals,” said Gary Dickerson, President and CEO. “We’ve focused our organization and investments to deliver highly differentiated solutions that enable customers to build new devices and structures that were never possible before.”
“As we look to 2017 and beyond, we see sustainable growth as new demand drivers layer on top of our traditional end markets in computing, mobility and consumer electronics,” said Bob Halliday, Senior Vice President and CFO. “The industries we serve are bigger and more attractive, our opportunity set is larger, our customer relationships are stronger, and we’re excited about our new product pipeline.”
Quarterly Results Summary
| Change | |||||||||||||||||
| Q4 FY2016 | Q3 FY2016 | Q4 FY2015 | Q4 FY2016 vs. Q3 FY2016 | Q4 FY2016 vs. Q4 FY2015 | |||||||||||||
| (In millions, except per share amounts and percentages) | |||||||||||||||||
| New orders | $ | 3,032 | $ | 3,658 | $ | 2,424 | (17 | %) | 25 | % | |||||||
| Net sales | $ | 3,297 | $ | 2,821 | $ | 2,368 | 17 | % | 39 | % | |||||||
| Gross margin | 42.4 | % | 42.3 | % | 40.5 | % | 0.1 | points | 1.9 | points | |||||||
| Operating margin | 23.6 | % | 21.1 | % | 17.9 | % | 2.5 | points | 5.7 | points | |||||||
| Net income | $ | 610 | $ | 505 | $ | 336 | 21 | % | 82 | % | |||||||
| Diluted earnings per share (EPS) | $ | 0.56 | $ | 0.46 | $ | 0.28 | 22 | % | 100 | % | |||||||
| Non-GAAP Adjusted Results | |||||||||||||||||
| Non-GAAP adjusted gross margin | 43.7 | % | 43.7 | % | 42.2 | % | — | points | 1.5 | points | |||||||
| Non-GAAP adjusted operating margin | 25.2 | % | 22.8 | % | 19.3 | % | 2.4 | points | 5.9 | points | |||||||
| Non-GAAP adjusted net income | $ | 722 | $ | 550 | $ | 347 | 31 | % | 108 | % | |||||||
| Non-GAAP adjusted diluted EPS | $ | 0.66 | $ | 0.50 | $ | 0.29 | 32 | % | 128 | % | |||||||
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 first quarter of fiscal 2017, Applied expects net sales to be in the range of $3.20 billion to $3.34 billion; the midpoint of the range would be an increase of approximately 45 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.62 to $0.70; the midpoint of the range would be an increase of approximately 154 percent, year over year.
This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.04 per share, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.
Fourth Quarter and Fiscal Year Reportable Segment Information
| Semiconductor Systems | Q4 FY2016 | Q3 FY2016 | Q4 FY2015 | FY2016 | FY2015 | ||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| New orders | $ | 1,833 | $ | 2,215 | $ | 1,444 | $ | 7,289 | $ | 6,581 | |||||||||
| Foundry | 64 | % | 57 | % | 35 | % | 46 | % | 34 | % | |||||||||
| DRAM | 10 | % | 14 | % | 21 | % | 16 | % | 25 | % | |||||||||
| Flash | 16 | % | 15 | % | 31 | % | 26 | % | 28 | % | |||||||||
| Logic and other | 10 | % | 14 | % | 13 | % | 12 | % | 13 | % | |||||||||
| Net sales | 2,127 | 1,786 | 1,494 | 6,873 | 6,135 | ||||||||||||||
| Operating income | 667 | 511 | 318 | 1,807 | 1,410 | ||||||||||||||
| Operating margin | 31.4 | % | 28.6 | % | 21.3 | % | 26.3 | % | 23.0 | % | |||||||||
| Non-GAAP Adjusted Results | |||||||||||||||||||
| Non-GAAP adjusted operating income | $ | 713 | $ | 556 | $ | 365 | $ | 1,991 | $ | 1,588 | |||||||||
| Non-GAAP adjusted operating margin | 33.5 | % | 31.1 | % | 24.4 | % | 29.0 | % | 25.9 | % | |||||||||
| Applied Global Services | Q4 FY2016 | Q3 FY2016 | Q4 FY2015 | FY2016 | FY2015 | ||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| New orders | $ | 794 | $ | 590 | $ | 743 | $ | 2,775 | $ | 2,582 | |||||||||
| Net sales | 693 | 657 | 611 | 2,589 | 2,447 | ||||||||||||||
| Operating income | 193 | 175 | 160 | 682 | 630 | ||||||||||||||
| Operating margin | 27.8 | % | 26.6 | % | 26.2 | % | 26.3 | % | 25.7 | % | |||||||||
| Non-GAAP Adjusted Results | |||||||||||||||||||
| Non-GAAP adjusted operating income | $ | 193 | $ | 176 | $ | 159 | $ | 683 | $ | 633 | |||||||||
| Non-GAAP adjusted operating margin | 27.8 | % | 26.8 | % | 26.0 | % | 26.4 | % | 25.9 | % | |||||||||
| Display and Adjacent Markets | Q4 FY2016 | Q3 FY2016 | Q4 FY2015 | FY2016 | FY2015 | ||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| New orders | $ | 387 | $ | 803 | $ | 219 | $ | 2,160 | $ | 828 | |||||||||
| Net sales | 452 | 313 | 235 | 1,206 | 944 | ||||||||||||||
| Operating income | 103 | 63 | 28 | 245 | 191 | ||||||||||||||
| Operating margin | 22.8 | % | 20.1 | % | 11.9 | % | 20.3 | % | 20.2 | % | |||||||||
| Non-GAAP Adjusted Results | |||||||||||||||||||
| Non-GAAP adjusted operating income | $ | 103 | $ | 63 | $ | 28 | $ | 245 | $ | 194 | |||||||||
| Non-GAAP adjusted operating margin | 22.8 | % | 20.1 | % | 11.9 | % | 20.3 | % | 20.6 | % | |||||||||
Backlog Information
Applied's backlog decreased 7 percent from the prior quarter to $4.58 billion and included negative adjustments of $106 million, primarily due to changes in expected timing of shipments and other adjustments, partially offset by favorable foreign currency impacts. Backlog composition by reportable segment was as follows:
| Semiconductor Systems | 45 | % |
| Applied Global Services | 19 | % |
| Display and Adjacent Markets | 34 | % |
| 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 development of new products and technologies, our business outlook for the first quarter of fiscal 2017, 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 | Twelve Months Ended | ||||||||||||||||||
| (In millions, except per share amounts) | October 30, 2016 | July 31, 2016 | October 25, 2015 | October 30, 2016 | October 25, 2015 | ||||||||||||||
| Net sales | $ | 3,297 | $ | 2,821 | $ | 2,368 | $ | 10,825 | $ | 9,659 | |||||||||
| Cost of products sold | 1,898 | 1,629 | 1,409 | 6,314 | 5,707 | ||||||||||||||
| Gross profit | 1,399 | 1,192 | 959 | 4,511 | 3,952 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
| Research, development and engineering | 394 | 386 | 363 | 1,540 | 1,451 | ||||||||||||||
| Marketing and selling | 114 | 107 | 96 | 429 | 428 | ||||||||||||||
| General and administrative | 114 | 103 | 77 | 390 | 469 | ||||||||||||||
| Gain on derivatives associated with terminated business combination | — | — | — | — | (89 | ) | |||||||||||||
| Total operating expenses | 622 | 596 | 536 | 2,359 | 2,259 | ||||||||||||||
| Income from operations | 777 | 596 | 423 | 2,152 | 1,693 | ||||||||||||||
| Interest expense | 38 | 38 | 32 | 155 | 103 | ||||||||||||||
| Interest income and other income, net | 1 | 6 | 6 | 16 | 8 | ||||||||||||||
| Income before income taxes | 740 | 564 | 397 | 2,013 | 1,598 | ||||||||||||||
| Provision for income taxes | 130 | 59 | 61 | 292 | 221 | ||||||||||||||
| Net income | $ | 610 | $ | 505 | $ | 336 | $ | 1,721 | $ | 1,377 | |||||||||
| Earnings per share: | |||||||||||||||||||
| Basic | $ | 0.56 | $ | 0.47 | $ | 0.28 | $ | 1.56 | $ | 1.13 | |||||||||
| Diluted | $ | 0.56 | $ | 0.46 | $ | 0.28 | $ | 1.54 | $ | 1.12 | |||||||||
| Weighted average number of shares: | |||||||||||||||||||
| Basic | 1,081 | 1,083 | 1,182 | 1,107 | 1,214 | ||||||||||||||
| Diluted | 1,093 | 1,093 | 1,190 | 1,116 | 1,226 | ||||||||||||||
APPLIED MATERIALS, INC. UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
| (In millions) | October 30, 2016 | July 31, 2016 | October 25, 2015 | ||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,406 | $ | 2,828 | $ | 4,797 | |||||
| Short-term investments | 343 | 438 | 168 | ||||||||
| Accounts receivable, net | 2,279 | 1,852 | 1,739 | ||||||||
| Inventories | 2,050 | 2,026 | 1,833 | ||||||||
| Other current assets | 275 | 255 | 724 | ||||||||
| Total current assets | 8,353 | 7,399 | 9,261 | ||||||||
| Long-term investments | 929 | 960 | 946 | ||||||||
| Property, plant and equipment, net | 937 | 905 | 892 | ||||||||
| Goodwill | 3,316 | 3,305 | 3,302 | ||||||||
| Purchased technology and other intangible assets, net | 575 | 621 | 762 | ||||||||
| Deferred income taxes and other assets | 478 | 509 | 145 | ||||||||
| Total assets | $ | 14,588 | $ | 13,699 | $ | 15,308 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | 200 | $ | — | $ | 1,200 | |||||
| Accounts payable and accrued expenses | 2,056 | 1,800 | 1,833 | ||||||||
| Customer deposits and deferred revenue | 1,376 | 1,164 | 765 | ||||||||
| Total current liabilities | 3,632 | 2,964 | 3,798 | ||||||||
| Long-term debt | 3,143 | 3,343 | 3,342 | ||||||||
| Other liabilities | 596 | 573 | 555 | ||||||||
| Total liabilities | 7,371 | 6,880 | 7,695 | ||||||||
| Total stockholders’ equity | 7,217 | 6,819 | 7,613 | ||||||||
| Total liabilities and stockholders’ equity | $ | 14,588 | $ | 13,699 | $ | 15,308 | |||||
APPLIED MATERIALS, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
| (In millions) | Three Months Ended | Twelve Months Ended | |||||||||||||||||
| October 30, 2016 | July 31, 2016 | October 25, 2015 | October 30, 2016 | October 25, 2015 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||
| Net income | $ | 610 | $ | 505 | $ | 336 | $ | 1,721 | $ | 1,377 | |||||||||
| Adjustments required to reconcile net income to cash provided by operating activities: | |||||||||||||||||||
| Depreciation and amortization | 100 | 97 | 96 | 389 | 371 | ||||||||||||||
| Share-based compensation | 51 | 48 | 46 | 201 | 187 | ||||||||||||||
| Excess tax benefits from share-based compensation | (5 | ) | (5 | ) | (2 | ) | (23 | ) | (56 | ) | |||||||||
| Deferred income taxes | 7 | 21 | (159 | ) | 21 | (134 | ) | ||||||||||||
| Other | 18 | 5 | (11 | ) | 38 | 53 | |||||||||||||
| Net change in operating assets and liabilities | 16 | 310 | 165 | 119 | (635 | ) | |||||||||||||
| Cash provided by operating activities | 797 | 981 | 471 | 2,466 | 1,163 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||
| Capital expenditures | (88 | ) | (50 | ) | (53 | ) | (253 | ) | (215 | ) | |||||||||
| Cash paid for acquisitions, net of cash acquired | (11 | ) | 3 | (2 | ) | (16 | ) | (4 | ) | ||||||||||
| Proceeds from sales and maturities of investments | 553 | 208 | 200 | 1,234 | 1,100 | ||||||||||||||
| Purchases of investments | (443 | ) | (483 | ) | (202 | ) | (1,390 | ) | (1,162 | ) | |||||||||
| Cash provided by (used in) investing activities | 11 | (322 | ) | (57 | ) | (425 | ) | (281 | ) | ||||||||||
| Cash flows from financing activities: | |||||||||||||||||||
| Debt borrowings (repayments), net of issuance costs | — | (2 | ) | 2,581 | (1,207 | ) | 2,581 | ||||||||||||
| Proceeds from common stock issuances and others | 44 | — | 45 | 88 | 88 | ||||||||||||||
| Common stock repurchases | (171 | ) | (196 | ) | (700 | ) | (1,892 | ) | (1,325 | ) | |||||||||
| Excess tax benefits from share-based compensation | 5 | 5 | 2 | 23 | 56 | ||||||||||||||
| Payments of dividends to stockholders | (108 | ) | (108 | ) | (119 | ) | (444 | ) | (487 | ) | |||||||||
| Cash provided by (used in) financing activities | (230 | ) | (301 | ) | 1,809 | (3,432 | ) | 913 | |||||||||||
| Increase (decrease) in cash and cash equivalents | 578 | 358 | 2,223 | (1,391 | ) | 1,795 | |||||||||||||
| Cash and cash equivalents — beginning of period | 2,828 | 2,470 | 2,574 | 4,797 | 3,002 | ||||||||||||||
| Cash and cash equivalents — end of period | $ | 3,406 | $ | 2,828 | $ | 4,797 | $ | 3,406 | $ | 4,797 | |||||||||
| Supplemental cash flow information: | |||||||||||||||||||
| Cash payments for income taxes | $ | 13 | $ | 49 | $ | 149 | $ | 157 | $ | 407 | |||||||||
| Cash refunds from income taxes | $ | 9 | $ | 1 | $ | 2 | $ | 113 | $ | 12 | |||||||||
| Cash payments for interest | $ | 41 | $ | 34 | $ | 7 | $ | 151 | $ | 92 | |||||||||
APPLIED MATERIALS, INC. UNAUDITED SUPPLEMENTAL INFORMATION
Corporate and Other
| (In millions) | Q4 FY2016 | Q3 FY2016 | Q4 FY2015 | FY 2016 | FY 2015 | ||||||||||||||
| New orders | $ | 18 | $ | 50 | $ | 18 | $ | 192 | $ | 113 | |||||||||
| Unallocated net sales | $ | 25 | $ | 65 | $ | 28 | $ | 157 | $ | 133 | |||||||||
| Unallocated cost of products sold and expenses | (160 | ) | (170 | ) | (65 | ) | (538 | ) | (523 | ) | |||||||||
| Share-based compensation | (51 | ) | (48 | ) | (46 | ) | (201 | ) | (187 | ) | |||||||||
| Certain items associated with terminated business combination | — | — | — | — | (50 | ) | |||||||||||||
| Gain on derivatives associated with terminated business combination, net | — | — | — | — | 89 | ||||||||||||||
| Total | $ | (186 | ) | $ | (153 | ) | $ | (83 | ) | $ | (582 | ) | $ | (538 | ) | ||||
Additional Information
| Q4 FY2016 | Q3 FY2016 | Q4 FY2015 | |||||||||||||||
| New Orders and Net Sales by Geography | |||||||||||||||||
| (In $ millions) | New Orders | Net Sales | New Orders | Net Sales | New Orders | Net Sales | |||||||||||
| United States | 221 | 289 | 259 | 289 | 282 | 301 | |||||||||||
| % of Total | 7 | % | 9 | % | 7 | % | 10 | % | 12 | % | 13 | % | |||||
| Europe | 212 | 256 | 212 | 124 | 155 | 172 | |||||||||||
| % of Total | 7 | % | 8 | % | 6 | % | 5 | % | 6 | % | 7 | % | |||||
| Japan | 262 | 364 | 270 | 321 | 452 | 278 | |||||||||||
| % of Total | 9 | % | 11 | % | 7 | % | 11 | % | 19 | % | 12 | % | |||||
| Korea | 432 | 632 | 689 | 472 | 207 | 239 | |||||||||||
| % of Total | 14 | % | 19 | % | 19 | % | 17 | % | 8 | % | 10 | % | |||||
| Taiwan | 1,170 | 1,154 | 1,240 | 741 | 846 | 758 | |||||||||||
| % of Total | 39 | % | 35 | % | 34 | % | 26 | % | 35 | % | 32 | % | |||||
| Southeast Asia | 84 | 161 | 139 | 303 | 100 | 143 | |||||||||||
| % of Total | 3 | % | 5 | % | 4 | % | 11 | % | 4 | % | 6 | % | |||||
| China | 651 | 441 | 849 | 571 | 382 | 477 | |||||||||||
| % of Total | 21 | % | 13 | % | 23 | % | 20 | % | 16 | % | 20 | % | |||||
| Employees (In thousands) | |||||||||||||||||
| Regular Full Time | 15.6 | 15.2 | 14.6 | ||||||||||||||
| FY 2016 | FY 2015 | |||||||||||
| New Orders and Net Sales by Geography | ||||||||||||
| (In $ millions) | New Orders | Net Sales | New Orders | Net Sales | ||||||||
| United States | 1,235 | 1,143 | 1,323 | 1,630 | ||||||||
| % of Total | 10 | % | 11 | % | 13 | % | 17 | % | ||||
| Europe | 774 | 615 | 576 | 642 | ||||||||
| % of Total | 6 | % | 6 | % | 6 | % | 7 | % | ||||
| Japan | 980 | 1,279 | 1,786 | 1,078 | ||||||||
| % of Total | 8 | % | 12 | % | 18 | % | 11 | % | ||||
| Korea | 2,286 | 1,883 | 1,709 | 1,654 | ||||||||
| % of Total | 19 | % | 17 | % | 17 | % | 17 | % | ||||
| Taiwan | 3,389 | 2,843 | 2,808 | 2,600 | ||||||||
| % of Total | 27 | % | 26 | % | 28 | % | 27 | % | ||||
| Southeast Asia | 847 | 803 | 430 | 432 | ||||||||
| % of Total | 7 | % | 7 | % | 4 | % | 4 | % | ||||
| China | 2,905 | 2,259 | 1,472 | 1,623 | ||||||||
| % of Total | 23 | % | 21 | % | 14 | % | 17 | % | ||||
APPLIED MATERIALS, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||
| (In millions, except percentages) | October 30, 2016 | July 31, 2016 | October 25, 2015 | October 30, 2016 | October 25, 2015 | ||||||||||||||
| Non-GAAP Adjusted Gross Profit | |||||||||||||||||||
| Reported gross profit - GAAP basis | $ | 1,399 | $ | 1,192 | $ | 959 | $ | 4,511 | $ | 3,952 | |||||||||
| Certain items associated with acquisitions 1 | 42 | 42 | 42 | 167 | 162 | ||||||||||||||
| Inventory charges (reversals) related to restructuring 3, 4 | — | (1 | ) | 1 | (2 | ) | 35 | ||||||||||||
| Other significant gains, losses or charges, net 6 | — | — | (2 | ) | — | (2 | ) | ||||||||||||
| Non-GAAP adjusted gross profit | $ | 1,441 | $ | 1,233 | $ | 1,000 | $ | 4,676 | $ | 4,147 | |||||||||
| Non-GAAP adjusted gross margin | 43.7 | % | 43.7 | % | 42.2 | % | 43.2 | % | 42.9 | % | |||||||||
| Non-GAAP Adjusted Operating Income | |||||||||||||||||||
| Reported operating income - GAAP basis | $ | 777 | $ | 596 | $ | 423 | $ | 2,152 | $ | 1,693 | |||||||||
| Certain items associated with acquisitions 1 | 47 | 47 | 47 | 188 | 185 | ||||||||||||||
| Acquisition integration and deal costs | — | 2 | — | 2 | 2 | ||||||||||||||
| Gain on derivatives associated with terminated business combination, net | — | — | — | — | (89 | ) | |||||||||||||
| Certain items associated with terminated business combination 2 | — | — | — | — | 50 | ||||||||||||||
| Inventory charges (reversals) related to restructuring and asset impairments, net 3, 4 | — | (1 | ) | (1 | ) | (3 | ) | 49 | |||||||||||
| Other significant gains, losses or charges, net 5, 6 | 8 | — | (13 | ) | 8 | 6 | |||||||||||||
| Non-GAAP adjusted operating income | $ | 832 | $ | 644 | $ | 456 | $ | 2,347 | $ | 1,896 | |||||||||
| Non-GAAP adjusted operating margin | 25.2 | % | 22.8 | % | 19.3 | % | 21.7 | % | 19.6 | % | |||||||||
| Non-GAAP Adjusted Net Income | |||||||||||||||||||
| Reported net income - GAAP basis 7 | $ | 610 | $ | 505 | $ | 336 | $ | 1,721 | $ | 1,377 | |||||||||
| Certain items associated with acquisitions 1 | 47 | 47 | 47 | 188 | 185 | ||||||||||||||
| Acquisition integration and deal costs | — | 2 | — | 2 | 2 | ||||||||||||||
| Gain on derivatives associated with terminated business combination, net | — | — | — | — | (89 | ) | |||||||||||||
| Certain items associated with terminated business combination 2 | — | — | — | — | 50 | ||||||||||||||
| Inventory charges (reversals) related to restructuring and asset impairments, net 3, 4 | — | (1 | ) | (1 | ) | (3 | ) | 49 | |||||||||||
| Impairment (gain on sale) of strategic investments, net | 6 | — | (2 | ) | 3 | 4 | |||||||||||||
| Loss on early extinguishment of debt | — | — | — | 5 | — | ||||||||||||||
| Other significant gains, losses or charges, net 5, 6 | 8 | — | (13 | ) | 8 | 6 | |||||||||||||
| Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items 7 | 57 | 1 | (18 | ) | 45 | (110 | ) | ||||||||||||
| Income tax effect of non-GAAP adjustments 8 | (6 | ) | (4 | ) | (2 | ) | (19 | ) | (17 | ) | |||||||||
| Non-GAAP adjusted net income | $ | 722 | $ | 550 | $ | 347 | $ | 1,950 | $ | 1,457 | |||||||||
| 1 | These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets. |
| 2 | These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs. |
| 3 | Results for the three months ended July 31, 2016 and twelve months ended October 30, 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 October 25, 2015 included a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans and $1 million of inventory charges related to cost reductions in the solar business. Results for fiscal 2015 primarily included $35 million of inventory charges and $17 million of restructuring charges and asset impairments related to cost reductions in the solar business, and a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans. |
| 5 | Results for the three and twelve months ended October 30, 2016 included a loss of $8 million due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified time period. |
| 6 | Results for the three and twelve months ended October 25, 2015 included immaterial correction of errors related to prior periods, partially offset by costs related to executive termination. |
| 7 | Amounts for fiscal 2016 and 2015 included resolution of prior years' income tax filings and other tax items. Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $28 million with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.02. 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 | Twelve Months Ended | ||||||||||||||||||
| (In millions, except per share amounts) | October 30, 2016 | July 31, 2016 | October 25, 2015 | October 30, 2016 | October 25, 2015 | ||||||||||||||
| Non-GAAP Adjusted Earnings Per Diluted Share | |||||||||||||||||||
| Reported earnings per diluted share - GAAP basis 1 | $ | 0.56 | $ | 0.46 | $ | 0.28 | $ | 1.54 | $ | 1.12 | |||||||||
| Certain items associated with acquisitions | 0.04 | 0.04 | 0.04 | 0.16 | 0.14 | ||||||||||||||
| 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 | ||||||||||||||
| Other significant gains, losses or charges, net | 0.01 | — | (0.01 | ) | 0.01 | 0.01 | |||||||||||||
| Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items 1 | 0.05 | — | (0.02 | ) | 0.04 | (0.09 | ) | ||||||||||||
| Non-GAAP adjusted earnings per diluted share | $ | 0.66 | $ | 0.50 | $ | 0.29 | $ | 1.75 | $ | 1.19 | |||||||||
| Weighted average number of diluted shares | 1,093 | 1,093 | 1,190 | 1,116 | 1,226 | ||||||||||||||
| 1 | Amounts for fiscal 2016 and 2015 included resolution of prior years' income tax filings and other tax items. Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $28 million with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.02. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010. |
APPLIED MATERIALS, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||
| (In millions, except percentages) | October 30, 2016 | July 31, 2016 | October 25, 2015 | October 30, 2016 | October 25, 2015 | ||||||||||||||
| Semiconductor Systems Non-GAAP Adjusted Operating Income | |||||||||||||||||||
| Reported operating income - GAAP basis | $ | 667 | $ | 511 | $ | 318 | $ | 1,807 | $ | 1,410 | |||||||||
| Certain items associated with acquisitions 1 | 46 | 45 | 47 | 184 | 178 | ||||||||||||||
| Non-GAAP adjusted operating income | $ | 713 | $ | 556 | $ | 365 | $ | 1,991 | $ | 1,588 | |||||||||
| Non-GAAP adjusted operating margin | 33.5 | % | 31.1 | % | 24.4 | % | 29.0 | % | 25.9 | % | |||||||||
| AGS Non-GAAP Adjusted Operating Income | |||||||||||||||||||
| Reported operating income - GAAP basis | $ | 193 | $ | 175 | $ | 160 | $ | 682 | $ | 630 | |||||||||
| Certain items associated with acquisitions 1 | — | 1 | — | 1 | 1 | ||||||||||||||
| Inventory charges related to restructuring 2 | — | — | — | — | 3 | ||||||||||||||
| Other significant gains, losses or charges, net 3 | — | — | (1 | ) | — | (1 | ) | ||||||||||||
| Non-GAAP adjusted operating income | $ | 193 | $ | 176 | $ | 159 | $ | 683 | $ | 633 | |||||||||
| Non-GAAP adjusted operating margin | 27.8 | % | 26.8 | % | 26.0 | % | 26.4 | % | 25.9 | % | |||||||||
| Display and Adjacent Markets Non-GAAP Adjusted Operating Income | |||||||||||||||||||
| Reported operating income - GAAP basis | $ | 103 | $ | 63 | $ | 28 | $ | 245 | $ | 191 | |||||||||
| Certain items associated with acquisitions 1 | — | — | — | — | 3 | ||||||||||||||
| Non-GAAP adjusted operating income | $ | 103 | $ | 63 | $ | 28 | $ | 245 | $ | 194 | |||||||||
| Non-GAAP adjusted operating margin | 22.8 | % | 20.1 | % | 11.9 | % | 20.3 | % | 20.6 | % | |||||||||
| 1 | These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets. |
| 2 | Results for the twelve months ended October 30, 2015 included $3 million of inventory charges related to cost reduction in the solar business. |
| 3 | Results for the three and twelve months ended October 25, 2015 included immaterial correction of errors related to prior periods, partially offset by costs related to executive termination. |
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) | October 30, 2016 | July 31, 2016 | |||||
| Operating expenses - GAAP basis | $ | 622 | $ | 596 | |||
| Certain items associated with acquisitions | (5 | ) | (5 | ) | |||
| Acquisition integration and deal costs | — | (2 | ) | ||||
| Other significant gains, losses or charges, net | (8 | ) | — | ||||
| Non-GAAP adjusted operating expenses | $ | 609 | $ | 589 | |||
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
| Three Months Ended | |||
| (In millions, except percentages) | October 30, 2016 | ||
| Provision for income taxes - GAAP basis (a) | $ | 130 | |
| Reinstatement of federal R&D tax credit, resolutions of prior years’ income tax filings and other tax items | (57 | ) | |
| Income tax effect of non-GAAP adjustments | 6 | ||
| Non-GAAP adjusted provision for income taxes (b) | $ | 79 | |
| Income before income taxes - GAAP basis (c) | $ | 740 | |
| Certain items associated with acquisitions | 47 | ||
| Impairment of strategic investments, net | 6 | ||
| Other significant gains, losses or charges, net | 8 | ||
| Non-GAAP adjusted income before income taxes (d) | $ | 801 | |
| Effective income tax rate - GAAP basis (a/c) | 17.6 | % | |
| Non-GAAP adjusted effective income tax rate (b/d) | 9.9 | % | |
