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8-K - FORM 8-K - APPLIED MATERIALS INC /DEq115earnings8-k.htm
Exhibit 99.1
APPLIED MATERIALS ANNOUNCES FIRST QUARTER 2015 RESULTS
 
Q1 net sales of $2.36 billion up 8% year over year led by growth in Applied Global Services and Display
Q1 non-GAAP adjusted operating income of $447 million up 18% year over year; GAAP operating income of $458 million up 39% year over year
Q1 non-GAAP adjusted EPS of $0.27 up 17% year over year; GAAP EPS of $0.28 up 33% year over year

SANTA CLARA, Calif., Feb. 11, 2015 — 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 first quarter ended January 25, 2015.
First quarter orders were $2.27 billion, up 1 percent sequentially and down 1 percent year over year. Net sales were $2.36 billion, up 4 percent sequentially and up 8 percent year over year.
On a non-GAAP adjusted basis, the company reported gross margin of 42.3 percent, operating income of $447 million, and net income of $338 million or $0.27 per diluted share. The company recorded GAAP gross margin of 40.7 percent, operating income of $458 million, and net income of $348 million or $0.28 per diluted share.

“Major technology inflections in semiconductor and display are creating new growth opportunities for Applied’s precision materials engineering products and services,” said Gary Dickerson, president and chief executive officer. “With focus and execution, we are gaining momentum toward our long-term strategic goals, and this progress will be accelerated by our planned merger with Tokyo Electron.”

Quarterly Results Summary
 
 
 
 
 
 
 
 
Change
GAAP Results
 
Q1 FY2015
 
Q4 FY2014
 
Q1 FY2014
 
Q1 FY2015
vs.
Q4 FY2014
 
Q1 FY2015
vs.
Q1 FY2014
Net sales
 
$2.36 billion
 
$2.26 billion
 
$2.19 billion
 
4%
 
8%
Gross profit
 
$959 million
 
$959 million
 
$891 million
 
flat
 
8%
Operating income
 
$458 million
 
$412 million
 
$330 million
 
11%
 
39%
Net income
 
$348 million
 
$256 million
 
$253 million
 
36%
 
38%
Diluted earnings per share (EPS)
 
$0.28
 
$0.21
 
$0.21
 
33%
 
33%
Non-GAAP Adjusted Results
 
 
 
 
 
 
 
 
 
 
Non-GAAP adjusted gross profit
 
$1.00 billion
 
$1.00 billion
 
$930 million
 
flat
 
7%
Non-GAAP adjusted operating income
 
$447 million
 
$442 million
 
$380 million
 
1%
 
18%
Non-GAAP adjusted net income
 
$338 million
 
$338 million
 
$279 million
 
flat
 
21%
Non-GAAP adjusted diluted EPS
 
$0.27
 
$0.27
 
$0.23
 
flat
 
17%




Applied Materials, Inc.
Page 2 of 12
Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: certain items related to acquisitions or the announced business combination; restructuring charges and any associated adjustments; impairments of assets, goodwill, or investments; gain or loss on sale of strategic investments or facilities; 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.
First Quarter Reportable Segment Results and Comparisons to the Prior Quarter
Silicon Systems Group (SSG) orders were $1.43 billion, up 7 percent, with increases in DRAM and NAND, and decreases in foundry and logic/other. Net sales increased by 1 percent to $1.45 billion. Non-GAAP adjusted operating income decreased by 1 percent to $350 million or 24.2 percent of net sales. GAAP operating income increased by 1 percent to $307 million or 21.2 percent of net sales. New order composition was: foundry 34 percent; DRAM 34 percent; flash 18 percent and logic/other 14 percent.
Applied Global Services (AGS) orders of $690 million were the second highest in group history and declined 8 percent from the record set in the previous quarter due to decreases in semiconductor services and 200mm equipment orders. Net sales of $583 million declined 2 percent. Non-GAAP adjusted operating income increased by 5 percent to $154 million or 26.4 percent of net sales. GAAP operating income increased by 5 percent to $153 million or 26.2 percent of net sales.
Display orders of $107 million were down 18 percent reflecting a decrease in TV equipment orders. Net sales increased by 45 percent to $275 million. Non-GAAP adjusted operating income increased by 40 percent to $73 million or 26.5 percent of net sales. GAAP operating income increased by 38 percent to $72 million or 26.2 percent of net sales.
Energy and Environmental Solutions (EES) orders increased by 14 percent to $50 million, and net sales increased by 15 percent to $55 million. EES reported a non-GAAP adjusted operating loss of $3 million and a GAAP operating loss of $4 million.

Applied's backlog declined by 5 percent to $2.78 billion and included negative adjustments of $53 million, primarily consisting of currency adjustments. Backlog composition by segment was: SSG 49 percent; AGS 30 percent; Display 15 percent; and EES 6 percent.


Business Outlook
For the second quarter of fiscal 2015, Applied expects net sales to be in the range of flat to up a couple of percentage points from the previous quarter. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.26 to $0.30.
This outlook excludes known charges related to completed acquisitions of $0.03 per share. The outlook does not exclude other non-GAAP adjustments that may arise subsequent to this release.







Applied Materials, Inc.
Page 3 of 12

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, strategies, industry outlooks, and business outlook for the second quarter of fiscal 2015. 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-K 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 precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. 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.
Page 4 of 12


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 
 
 
Three Months Ended
(In millions, except per share amounts)
 
January 25,
2015
 
October 26,
2014
 
January 26,
2014
Net sales
 
$
2,359

 
$
2,264

 
$
2,190

Cost of products sold
 
1,400

 
1,305

 
1,299

Gross profit
 
959

 
959

 
891

Operating expenses:
 
 
 
 
 
 
Research, development and engineering
 
351

 
360

 
356

Marketing and selling
 
111

 
99

 
109

General and administrative
 
39

 
88

 
96

Total operating expenses
 
501

 
547

 
561

Income from operations
 
458

 
412

 
330

Interest expense
 
23

 
23

 
25

Interest and other income, net
 
2

 
9

 
10

Income before income taxes
 
437

 
398

 
315

Provision for income taxes
 
89

 
142

 
62

Net income
 
$
348

 
$
256

 
$
253

Earnings per share:
 
 
 
 
 
 
Basic and diluted
 
$
0.28

 
$
0.21

 
$
0.21

Weighted average number of shares:
 
 
 
 
 
 
Basic
 
1,224

 
1,220

 
1,206

Diluted
 
1,240

 
1,236

 
1,225








Applied Materials, Inc.
Page 5 of 12


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In millions)
 
January 25,
2015
 
October 26,
2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
2,929

 
$
3,002

Short-term investments
 
158

 
160

Accounts receivable, net
 
1,580

 
1,670

Inventories
 
1,641

 
1,567

Other current assets
 
625

 
568

Total current assets
 
6,933

 
6,967

Long-term investments
 
930

 
935

Property, plant and equipment, net
 
864

 
861

Goodwill
 
3,304

 
3,304

Purchased technology and other intangible assets, net
 
905

 
951

Deferred income taxes and other assets
 
137

 
156

Total assets
 
$
13,073

 
$
13,174

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
 
$
1,737

 
$
1,883

Customer deposits and deferred revenue
 
784

 
940

Total current liabilities
 
2,521

 
2,823

Long-term debt
 
1,947

 
1,947

Other liabilities
 
533

 
536

Total liabilities
 
5,001

 
5,306

Total stockholders’ equity
 
8,072

 
7,868

Total liabilities and stockholders’ equity
 
$
13,073

 
$
13,174








Applied Materials, Inc.
Page 6 of 12


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
(In millions)
Three Months Ended
January 25,
2015
 
October 26,
2014
 
January 26,
2014
Cash flows from operating activities:
 
 
 
 
 
Net income
$
348

 
$
256

 
$
253

Adjustments required to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
92

 
94

 
94

Unrealized loss (gain) on derivative associated with announced business combination
(78
)
 
12

 
(24
)
Share-based compensation
48

 
45

 
46

Excess tax benefits from share-based compensation
(39
)
 
(4
)
 
(18
)
Other
36

 
1

 
9

Net change in operating assets and liabilities
(347
)
 
3

 
12

Cash provided by operating activities
60

 
407

 
372

Cash flows from investing activities:
 
 
 
 
 
Capital expenditures
(49
)
 
(63
)
 
(48
)
Cash paid for acquisition, net of cash acquired

 
(12
)
 

Proceeds from sale of facility

 
25

 

Proceeds from sales and maturities of investments
140

 
176

 
364

Purchases of investments
(141
)
 
(179
)
 
(163
)
Cash provided by (used in) investing activities
(50
)
 
(53
)
 
153

Cash flows from financing activities:
 
 
 
 
 
Proceeds from common stock issuances and others, net

 
40

 
10

Excess tax benefits from share-based compensation
39

 
4

 
18

Payments of dividends to stockholders
(122
)
 
(122
)
 
(120
)
Cash used in financing activities
(83
)
 
(78
)
 
(92
)
Increase (decrease) in cash and cash equivalents
(73
)
 
276

 
433

Cash and cash equivalents — beginning of period
3,002

 
2,726

 
1,711

Cash and cash equivalents — end of period
$
2,929

 
$
3,002

 
$
2,144

Supplemental cash flow information:
 
 
 
 
 
Cash payments for income taxes
$
89

 
$
87

 
$
26

Cash refunds from income taxes
$
3

 
$
78

 
$
9

Cash payments for interest
$
39

 
$
7

 
$
39







Applied Materials, Inc.
Page 7 of 12

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reportable Segment Results
 
 
 
Q1 FY2015
 
Q4 FY2014
 
Q1 FY2014
(In millions)
 
New
Orders
 
Net
Sales
 
Operating
Income
(Loss)
 
New
Orders
 
Net
Sales
 
Operating
Income
(Loss)
 
New
Orders
 
Net
Sales
 
Operating
Income
(Loss)
SSG
 
$
1,426

 
$
1,446

 
$
307

 
$
1,334

 
$
1,434

 
$
305

 
$
1,569

 
$
1,484

 
$
314

AGS
 
690

 
583

 
153

 
747

 
592

 
146

 
597

 
507

 
125

Display
 
107

 
275

 
72

 
130

 
190

 
52

 
79

 
159

 
26

EES
 
50

 
55

 
(4
)
 
44

 
48

 
(3
)
 
40

 
40

 
(11
)
Corporate
 

 

 
(70
)
 

 

 
(88
)
 

 

 
(124
)
Consolidated
 
$
2,273

 
$
2,359

 
$
458

 
$
2,255

 
$
2,264

 
$
412

 
$
2,285

 
$
2,190

 
$
330



Corporate Unallocated Expenses
 
(In millions)
 
Q1 FY2015
 
Q4 FY2014
 
Q1 FY2014
Share-based compensation
 
48

 
45

 
46

Certain items associated with announced business combination
 
20

 
23

 
11

Gain on derivative associated with announced business combination, net
 
(78
)
 
(39
)
 
(24
)
Restructuring charges and asset impairments
 

 
(2
)
 
7

Gain on sale of facility
 

 
(4
)
 

Other unallocated expenses
 
80

 
65

 
84

Total corporate
 
$
70

 
$
88

 
$
124








Applied Materials, Inc.
Page 8 of 12
 
APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information
 
 
 
Q1 FY2015
 
Q4 FY2014
 
Q1 FY2014
New Orders and Net Sales by Geography
 
 
 
 
 
 
 
 
 
 
 
 
(In $ millions)
 
New
Orders
 
Net
Sales
 
New
Orders
 
Net
Sales
 
New
Orders
 
Net
Sales
United States
 
411

 
529

 
596

 
633

 
403

 
280

% of Total
 
18
%
 
22
%
 
26
%
 
28
%
 
18
%
 
13
%
Europe
 
148

 
143

 
198

 
178

 
119

 
164

% of Total
 
6
%
 
6
%
 
9
%
 
8
%
 
5
%
 
7
%
Japan
 
242

 
231

 
287

 
209

 
163

 
164

% of Total
 
11
%
 
10
%
 
13
%
 
9
%
 
7
%
 
8
%
Korea
 
546

 
464

 
251

 
187

 
240

 
201

% of Total
 
24
%
 
20
%
 
11
%
 
8
%
 
11
%
 
9
%
Taiwan
 
545

 
519

 
599

 
618

 
984

 
705

% of Total
 
24
%
 
22
%
 
27
%
 
27
%
 
43
%
 
32
%
Southeast Asia
 
85

 
85

 
113

 
136

 
50

 
87

% of Total
 
4
%
 
4
%
 
5
%
 
6
%
 
2
%
 
4
%
China
 
296

 
388

 
211

 
303

 
326

 
589

% of Total
 
13
%
 
16
%
 
9
%
 
14
%
 
14
%
 
27
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Employees (In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Regular Full Time
 
14.1
 
 
14.0
 
 
13.6
 











Applied Materials, Inc.
Page 9 of 12
 APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 
 
Three Months Ended
(In millions, except percentages)
 
January 25,
2015
 
October 26,
2014
 
January 26,
2014
Non-GAAP Adjusted Gross Profit
 
 
 
 
 
 
Reported gross profit - GAAP basis
 
$
959

 
$
959

 
$
891

Certain items associated with acquisitions1
 
40

 
42

 
39

Non-GAAP adjusted gross profit
 
$
999

 
$
1,001

 
$
930

Non-GAAP adjusted gross margin (% of net sales)
 
42.3
%
 
44.2
%
 
42.5
%
Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
Reported operating income - GAAP basis
 
$
458

 
$
412

 
$
330

Certain items associated with acquisitions1
 
46

 
48

 
45

Acquisition integration costs
 
1

 
4

 
11

Gain on derivative associated with announced business combination, net
 
(78
)
 
(39
)
 
(24
)
Certain items associated with announced business combination2
 
20

 
23

 
11

Restructuring charges and asset impairments3
 

 
(2
)
 
7

Gain on sale of facility
 

 
(4
)
 

Non-GAAP adjusted operating income
 
$
447

 
$
442

 
$
380

Non-GAAP adjusted operating margin (% of net sales)
 
18.9
%
 
19.5
%
 
17.4
%
Non-GAAP Adjusted Net Income
 
 
 
 
 
 
Reported net income - GAAP basis
 
$
348

 
$
256

 
$
253

Certain items associated with acquisitions1
 
46

 
48

 
45

Acquisition integration costs
 
1

 
4

 
11

Gain on derivative associated with announced business combination, net
 
(78
)
 
(39
)
 
(24
)
Certain items associated with announced business combination2
 
20

 
23

 
11

Restructuring charges and asset impairments3
 

 
(2
)
 
7

Gain on sale of facility
 

 
(4
)
 

Impairment (gain on sale) of strategic investments, net
 
1

 
(5
)
 
(5
)
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items
 
(17
)
 
50

 
(15
)
Income tax effect of non-GAAP adjustments
 
17

 
7

 
(4
)
Non-GAAP adjusted net income
 
$
338

 
$
338

 
$
279


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 announced business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
 
 
3
Results for the three months ended October 26, 2014 and January 26, 2014 included a $2 million favorable adjustment of restructuring reserve and $7 million of employee-related costs, respectively, related to the restructuring program announced on October 3, 2012.







Applied Materials, Inc.
Page 10 of 12

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 
 
Three Months Ended
(In millions except per share amounts)
 
January 25,
2015
 
October 26,
2014
 
January 26,
2014
Non-GAAP Adjusted Earnings Per Diluted Share
 
 
 
 
 
 
Reported earnings per diluted share - GAAP basis
 
$
0.28

 
$
0.21

 
$
0.21

Certain items associated with acquisitions
 
0.03

 
0.04

 
0.03

Acquisition integration costs
 

 

 
0.01

Certain items associated with announced business combination
 
0.01

 
0.01

 

Gain on derivative associated with announced business combination, net
 
(0.04
)
 
(0.02
)
 
(0.01
)
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items
 
(0.01
)
 
0.03

 
(0.01
)
Non-GAAP adjusted earnings per diluted share
 
$
0.27

 
$
0.27

 
$
0.23

Weighted average number of diluted shares
 
1,240

 
1,236

 
1,225









Applied Materials, Inc.
Page 11 of 12
 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
 
 
Three Months Ended
(In millions, except percentages)
 
January 25,
2015
 
October 26,
2014
 
January 26,
2014
SSG Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
Reported operating income - GAAP basis
 
$
307

 
$
305

 
$
314

Certain items associated with acquisitions1
 
43

 
46

 
42

Acquisition integration costs
 

 
1

 
1

Non-GAAP adjusted operating income
 
$
350

 
$
352

 
$
357

Non-GAAP adjusted operating margin (% of net sales)
 
24.2
 %
 
24.5
 %
 
24.1
 %
AGS Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
Reported operating income - GAAP basis
 
$
153

 
$
146

 
$
125

Certain items associated with acquisitions1
 
1

 

 
1

Non-GAAP adjusted operating income
 
$
154

 
$
146

 
$
126

Non-GAAP adjusted operating margin (% of net sales)
 
26.4
 %
 
24.7
 %
 
24.9
 %
Display Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
Reported operating income - GAAP basis
 
$
72

 
$
52

 
$
26

Certain items associated with acquisitions1
 
1

 

 
1

Non-GAAP adjusted operating income
 
$
73

 
$
52

 
$
27

Non-GAAP adjusted operating margin (% of net sales)
 
26.5
 %
 
27.4
 %
 
17.0
 %
EES Non-GAAP Adjusted Operating Loss
 
 
 
 
 
 
Reported operating loss - GAAP basis
 
$
(4
)
 
$
(3
)
 
$
(11
)
Certain items associated with acquisitions1
 
1

 
2

 
1

Non-GAAP adjusted operating loss
 
$
(3
)
 
$
(1
)
 
$
(10
)
Non-GAAP adjusted operating margin (% of net sales)
 
(5.5
)%
 
(2.1
)%
 
(25.0
)%
 
These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.






Applied Materials, Inc.
Page 12 of 12
 
APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES
 
 
Three Months Ended
(In millions)
January 25, 2015
 
October 26, 2014
 
 
 
 
Operating expenses - GAAP basis
$
501

 
$
547

Gain on derivative associated with announced business combination, net
78

 
39

Restructuring charges and asset impairments

 
2

Certain items associated with acquisitions
(6
)
 
(6
)
Acquisition integration costs
(1
)
 
(4
)
Certain items associated with announced business combination
(20
)
 
(23
)
Gain on sale of facility

 
4

Non-GAAP adjusted operating expenses
$
552

 
$
559



UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
 
 
Three Months Ended
(In millions, except percentages)
January 25, 2015
 
 
Provision for income taxes - GAAP basis (a)
$
89

Reinstatement of federal R&D tax credit, resolutions of prior years’ income tax filings and other tax items
17

Income tax effect of non-GAAP adjustments
(17
)
Non-GAAP adjusted provision for income taxes (b)
$
89

 
 
Income before income taxes - GAAP basis (c)
$
437

Certain items associated with acquisitions
46

Acquisition integration costs
1

Gain on derivative associated with announced business combination
(78
)
Certain items associated with announced business combination
20

Impairment of strategic investments
1

Non-GAAP adjusted income before income taxes (d)
$
427

 
 
Effective income tax rate - GAAP basis (a/c)
20.4
%
 
 
Non-GAAP adjusted effective income tax rate (b/d)
20.8
%