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Applied Materials Announces Fourth Quarter and Fiscal Year 2014 Results

  • Q4 net sales of  $2.26 billion up 14% year over year (YOY) led by growth in semiconductor equipment and services
  • Q4 non-GAAP adjusted gross margin of 44.2% up 220 bps YOY; GAAP gross margin of 42.4% up 240 bps YOY
  • Q4 non-GAAP adjusted operating income of $442 million up 37% YOY; GAAP operating income of $412 million up 95% YOY
  • Q4 non-GAAP adjusted EPS of $0.27 up 42% YOY; GAAP EPS of $0.23 up 53% YOY

SANTA CLARA, Calif., Nov. 13, 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 fourth quarter and fiscal year ended October 26, 2014.

In its fourth quarter, Applied generated orders of $2.26 billion, down 9 percent sequentially and up 8 percent year over year. Net sales were $2.26 billion, flat sequentially and up 14 percent year over year.

On a non-GAAP adjusted basis, the company reported gross margin of 44.2 percent, operating income of $442 million, and net income of $338 million or $0.27 per diluted share. The company recorded GAAP gross margin of 42.4 percent, operating income of $412 million, and net income of $290 million or $0.23 per diluted share.

Full Year Results

In FY2014, orders grew 14 percent to $9.65 billion, net sales increased 21 percent to $9.07 billion, non-GAAP adjusted gross margin increased 200 basis points to 44.1 percent, non-GAAP adjusted operating income increased 73 percent to $1.78 billion or 19.6 percent of net sales, and non-GAAP adjusted net income increased 83 percent to $1.31 billion or $1.07 per diluted share. The company recorded GAAP gross margin of 42.4 percent, operating income of $1.52 billion or 16.8 percent of net sales, and net income of $1.11 billion or $0.90 per diluted share.

"Our fourth quarter results round out a strong year for Applied Materials where we grew revenues in our semiconductor business by 25 percent and expanded our company operating margin by 6 points," said Gary Dickerson, president and CEO. "We are making our largest gains in areas of the market that are growing the fastest, including etch and deposition, and we carry positive momentum into 2015."

Quarterly Results Summary

        Change
GAAP Results Q4 FY2014 Q3 FY2014 Q4 FY2013 Q4 FY2014
vs.
Q3 FY2014
 Q4 FY2014
vs.

Q4 FY2013
Net sales $2.26 billion $2.27 billion $1.99 billion -% 14%
Gross margin $959 million $992 million $795 million (3)% 21%
Operating income $412 million $391 million $211 million 5% 95%
Net income $290 million $301 million $183 million (4)% 58%
Diluted earnings per share (EPS) $0.23 $0.24 $0.15 (4)% 53%
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin $1.00 billion $1.03 billion $835 million (3)% 20%
Non-GAAP adjusted operating income $442 million $477 million $323 million (7)% 37%
Non-GAAP adjusted net income $338 million $349 million $228 million (3)% 48%
Non-GAAP adjusted diluted EPS $0.27 $0.28 $0.19 (4)% 42%

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.

Fourth Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.33 billion, down 15 percent, with decreases in DRAM, flash and foundry partially offset by an increase in logic/other. Net sales decreased by 3 percent to $1.43 billion. Non-GAAP adjusted operating income decreased by 17 percent to $352 million or 24.5 percent of net sales. GAAP operating income decreased by 20 percent to $305 million or 21.3 percent of net sales. New order composition was: foundry 50 percent; DRAM 20 percent; logic/other 18 percent; and flash 12 percent.

Applied Global Services (AGS) orders of $747 million grew 35 percent, driven primarily by increases in semiconductor services and spares orders. Net sales of $592 million were up 4 percent. Operating income declined by 5 percent to $146 million on both a GAAP and non-GAAP adjusted basis, and represented 24.7 percent of net sales.

Display orders of $130 million were down 56 percent reflecting continued variability in industry order patterns. Net sales increased 60 percent to $190 million. Operating income doubled to $52 million on both a GAAP and non-GAAP adjusted basis, or 27.4 percent of net sales, including a benefit from the sale of previously reserved inventory that was equivalent to approximately one half point of company gross margin.

Energy and Environmental Solutions (EES) orders decreased to $44 million and net sales declined to $48 million. EES reported a non-GAAP adjusted operating loss of $1 million and a GAAP operating loss of $3 million.

Applied's backlog declined 2 percent sequentially to $2.92 billion and included negative adjustments of $42 million. Backlog composition by segment was:  SSG 48 percent; AGS 27 percent; Display 20 percent; and EES 5 percent.

Full-Year Reportable Segment Results and Comparisons to the Prior Year

SSG orders increased by 11 percent to $6.13 billion, net sales increased by 25 percent to $5.98 billion, non-GAAP adjusted operating income increased by 49 percent to $1.57 billion or 26.2 percent of net sales, and GAAP operating income increased by 59 percent to $1.39 billion or 23.3 percent of net sales.

AGS orders increased by 16 percent to $2.43 billion, net sales increased by 9 percent to $2.20 billion, non-GAAP adjusted operating income increased by 30 percent to $576 million or 26.2 percent of net sales, and GAAP operating income increased by 31 percent to $573 million or 26.0 percent of net sales.

Display orders increased by 20 percent to $845 million, net sales increased by 14 percent to $615 million, non-GAAP adjusted operating income increased by 64 percent to $131 million or 21.3 percent of net sales, and GAAP operating income increased by 74 percent to $129 million or 21.0 percent of net sales.

EES orders increased by 43 percent to $238 million, net sales increased by 61 percent to $279 million. In FY2014, EES reported a non-GAAP adjusted operating income of $21 million or 7.5 percent of net sales, and GAAP operating income of $15 million or 5.4 percent of net sales. In FY2013, EES reported a non-GAAP adjusted operating loss of $115 million, and GAAP operating loss of $433 million.

Business Outlook

For the first quarter of fiscal 2015, Applied expects net sales to be in the range of flat to up 5 percent from the previous quarter. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.25 to $0.29, the mid-point of which would be flat with the previous quarter and up by 17 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, strategies, industry outlooks, and business outlook for the first 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-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 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.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

  Three Months Ended Twelve Months Ended
(In millions, except per share amounts) October 26,
 2014
 July 27,
 2014
 October 27,
 2013
 October 26,
 2014
 October 27,
 2013
Net sales $2,264  $2,265  $1,988  $9,072  $7,509 
Cost of products sold 1,305  1,273  1,193  5,229  4,518 
Gross margin 959  992  795  3,843  2,991 
Operating expenses:               
Research, development and engineering 360  357  338  1,428  1,320 
Marketing and selling 99  108  99  423  433 
General and administrative 90  136  117  467  465 
Impairment of goodwill and intangible assets -  -  -  -  278 
Restructuring charges and asset impairments (2) -  30  5  63 
Total operating expenses 547  601  584  2,323  2,559 
Income from operations 412  391  211  1,520  432 
Interest expense 23  24  24  95  95 
Interest and other income, net 9  3  7  23  13 
Income before income taxes 398  370  194  1,448  350 
Provision for income taxes 108  69  11  342  94 
Net income $290  $301  $183  $1,106  $256 
Earnings per share:               
Basic $0.24  $0.25  $0.15  $0.91  $0.21 
Diluted $0.23  $0.24  $0.15  $0.90  $0.21 
Weighted average number of shares:               
Basic 1,220  1,218  1,204  1,215  1,202 
Diluted 1,236  1,233  1,222  1,231  1,219 


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) October 26,
 2014
 July 27,
 2014
 October 27,
 2013
ASSETS         
Current assets:         
Cash and cash equivalents $3,002  $2,726  $1,711 
Short-term investments 160  145  180 
Accounts receivable, net 1,670  1,622  1,633 
Inventories 1,567  1,547  1,413 
Other current assets 568  600  705 
Total current assets 6,967  6,640  5,642 
Long-term investments 935  957  1,005 
Property, plant and equipment, net 861  849  850 
Goodwill 3,304  3,294  3,294 
Purchased technology and other intangible assets, net 951  979  1,103 
Deferred income taxes and other assets 156  132  149 
Total assets $13,174  $12,851  $12,043 
LIABILITIES AND STOCKHOLDERS' EQUITY         
Current liabilities:         
Accounts payable and accrued expenses $1,883  $1,689  $1,649 
Customer deposits and deferred revenue 940  1,066  794 
Total current liabilities 2,823  2,755  2,443 
Long-term debt 1,947  1,947  1,946 
Other liabilities 502  465  566 
Total liabilities 5,272  5,167  4,955 
Total stockholders' equity 7,902  7,684  7,088 
Total liabilities and stockholders' equity $13,174  $12,851  $12,043 


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)Three Months Ended Twelve Months Ended
October 26,
 2014
 July 27,
 2014
 October 27,
 2013
October 26,
 2014
 October 27,
 2013
Cash flows from operating activities:              
Net income$290  $301  $183  $1,106  $256 
Adjustments required to reconcile net income to cash provided by operating activities:              
Depreciation and amortization94  93  98  375  410 
Impairment of goodwill and intangible assets-  -  -  -  278 
Restructuring charges and asset impairments(2) -  30  5  63 
Unrealized loss on derivative associated with announced business combination12  10  7  21  7 
Share-based compensation45  44  41  177  162 
Other(1) 48  11  36  (91)
Net change in operating assets and liabilities(31) 88  (351) 80  (462)
Cash provided by operating activities407  584  19  1,800  623 
Cash flows from investing activities:              
Capital expenditures(63) (65) (57) (241) (197)
Cash paid for acquisition, net of cash acquired(12) -  -  (12) (1)
Proceeds from sale of facility25  -  7  25  7 
Proceeds from sales and maturities of investments176  181  276  878  1,013 
Purchases of investments(179) (308) (169) (811) (607)
Cash provided by (used in) investing activities(53) (192) 57  (161) 215 
Cash flows from financing activities:              
Proceeds from common stock issuances and others, net44  2  57  137  182 
Common stock repurchases-  -  (47) -  (245)
Payments of dividends to stockholders(122) (121) (120) (485) (456)
Cash used in financing activities(78) (119) (110) (348) (519)
Increase (decrease) in cash and cash equivalents276  273  (34) 1,291  319 
Cash and cash equivalents - beginning of period2,726  2,453  1,745  1,711  1,392 
Cash and cash equivalents - end of period$3,002  $2,726  $1,711  $3,002  $1,711 
Supplemental cash flow information:              
Cash payments for income taxes$87  $49  $12  $195  $196 
Cash refunds from income taxes$78  $21  $35  $111  $102 
Cash payments for interest$7  $39  $7  $92  $92 


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reportable Segment Results

 Q4 FY2014 Q3 FY2014 Q4 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$1,334  $1,434  $305  $1,565  $1,476  $381  $1,390  $1,243  $213 
AGS747  592  146  552  567  154  548  538  115 
Display130  190  52  296  119  25  114  163  19 
EES44  48  (3) 66  103  24  40  44  (30)
Corporate-  -  (88) -  -  (193) -  -  (106)
Consolidated$2,255  $2,264  $412  $2,479  $2,265  $391  $2,092  $1,988  $211 

  FY 2014 FY 2013
(In millions) New
Orders
 Net
Sales
 Operating
Income
(Loss)
 New
Orders
 Net
Sales
 Operating
Income
(Loss)
SSG $6,132  $5,978  $1,391  $5,507  $4,775  $876 
AGS 2,433  2,200  573  2,090  2,023  436 
Display 845  615  129  703  538  74 
EES* 238  279  15  166  173  (433)
Corporate -  -  (588) -  -  (521)
Consolidated $9,648  $9,072  $1,520  $8,466  $7,509  $432 

* Operating loss for FY2013 included $278 million in goodwill and intangible asset impairment charges.


Corporate Unallocated Expenses

(In millions) Q4 FY2014 Q3 FY2014 Q4 FY2013 FY 2014 FY 2013
Restructuring charges and asset impairments $(2) $-  $23  $5  $35 
Share-based compensation 45  44  41  177  162 
Gain on sale of facility (4) -  -  (4) (4)
Certain items associated with announced business combination 23  23  17  73  17 
Loss (gain) on derivative associated with announced business combination, net (39) 10  7  (30) 7 
Other unallocated expenses 65  116  18  367  304 
Total corporate $88  $193  $106  $588  $521 


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information

  Q4 FY2014 Q3 FY2014 Q4 FY2013
New Orders and Net Sales by Geography                  
(In $ millions) New
Orders
 Net
Sales
 New
Orders
 Net
Sales
 New
Orders
 Net
Sales
United States 596  633  680  683  261  357 
% of Total 26% 28% 27% 30% 12% 18%
Europe 198  178  146  160  203  242 
% of Total 9% 8% 6% 7% 10% 12%
Japan 287  209  378  229  117  276 
% of Total 13% 9% 15% 10% 6% 14%
Korea 251  187  217  226  209  231 
% of Total 11% 8% 9% 10% 10% 12%
Taiwan 599  618  497  598  721  589 
% of Total 27% 27% 20% 26% 34% 30%
Southeast Asia 113  136  177  81  95  89 
% of Total 5% 6% 7% 4% 5% 4%
China 211  303  384  288  486  204 
% of Total 9% 14% 16% 13% 23% 10%
                   
Employees (In thousands)                  
Regular Full Time 14.0  13.8  13.7 

  FY 2014 FY 2013
New Orders and Net Sales by Geography            
(In $ millions) New
Orders
 Net
Sales
 New
Orders
 Net
Sales
United States 2,200  1,966  1,419  1,473 
% of Total 23% 22% 17% 20%
Europe 662  658  735  680 
% of Total 7% 7% 8% 9%
Japan 1,031  817  822  685 
% of Total 11% 9% 10% 9%
Korea 1,086  965  915  924 
% of Total 11% 10% 11% 12%
Taiwan 2,740  2,702  2,885  2,640 
% of Total 28% 30% 34% 35%
Southeast Asia 412  356  351  320 
% of Total 4% 4% 4% 4%
China 1,517  1,608  1,339  787 
% of Total 16% 18% 16% 11%


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

  Three Months Ended Twelve Months Ended
(In millions, except percentages) October 26,
 2014
 July 27,
 2014
 October 27,
 2013
 October 26,
 2014
 October 27,
 2013
Non-GAAP Adjusted Gross Margin               
Reported gross margin - GAAP basis $959  $992  $795  $3,843  $2,991 
Certain items associated with acquisitions1 42  38  40  158  166 
Acquisition integration costs -  -  -  1  3 
Non-GAAP adjusted gross margin $1,001  $1,030  $835  $4,002  $3,160 
Non-GAAP adjusted gross margin percent (% of net sales) 44.2% 45.5% 42.0% 44.1% 42.1%
Non-GAAP Adjusted Operating Income               
Reported operating income - GAAP basis $412  $391  $211  $1,520  $432 
Certain items associated with acquisitions1 48  44  47  183  201 
Acquisition integration costs 4  9  11  34  38 
Loss (gain) on derivative associated with announced business combination, net (39) 10  7  (30) 7 
Certain items associated with announced business combination2 23  23  17  73  17 
Impairment of goodwill and intangible assets -  -  -  -  278 
Restructuring charges and asset impairments3, 4, 5 (2) -  30  5  63 
Gain on sale of facility (4) -  -  (4) (4)
Non-GAAP adjusted operating income $442  $477  $323  $1,781  $1,032 
Non-GAAP adjusted operating margin percent (% of net sales) 19.5% 21.1% 16.2% 19.6% 13.7%
Non-GAAP Adjusted Net Income               
Reported net income - GAAP basis $290  $301  $183  $1,106  $256 
Certain items associated with acquisitions1 48  44  47  183  201 
Acquisition integration costs 4  9  11  34  38 
Loss (gain) on derivative associated with announced business combination, net (39) 10  7  (30) 7 
Certain items associated with announced business combination2 23  23  17  73  17 
Impairment of goodwill and intangible assets -  -  -  -  278 
Restructuring charges and asset impairments3, 4, 5 (2) -  30  5  63 
Gain on sale of facility (4) -  -  (4) (4)
Impairment (gain on sale) of strategic investments, net (5) (1) (3) (9) 1 
Reinstatement of federal R&D tax credit -  -  -  -  (13)
Resolution of prior years' income tax filings and other tax items 16  (19) (10) (6) (24)
Income tax effect of non-GAAP adjustments 7  (18) (54) (38) (102)
Non-GAAP adjusted net income $338  $349  $228  $1,314  $718 

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2These items are incremental charges related to the announced business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
  
3Results for the three months ended October 26, 2014 included a $2 million favorable adjustment of restructuring reserve and results for the twelve months ended October 26, 2014 included $5 million of employee-related costs related to the restructuring program announced on October 3, 2012.
  
4Results for the three months ended October 27, 2013 included $27 million of employee-related costs related to the restructuring program announced on October 3, 2012, and restructuring and asset impairment charges of $7 million related to the restructuring program announced on May 10, 2012, partially offset by a favorable adjustment of $4 million in restructuring charges related to other restructuring plans.
  
5Results for the twelve months ended October 27, 2013 included $39 million of employee-related costs, net, related to the restructuring program announced on October 3, 2012, and restructuring and asset impairment charges of $26 million related to the restructuring program announced on May 10, 2012, partially offset by a favorable adjustment of $2 million related to other restructuring plans.

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 26,
 2014
 July 27,
 2014
 October 27,
 2013
 October 26,
 2014
 October 27,
 2013
Non-GAAP Adjusted Earnings Per Diluted Share               
Reported earnings per diluted share - GAAP basis $0.23  $0.24  $0.15  $0.90  $0.21 
Certain items associated with acquisitions 0.04  0.03  0.03  0.13  0.14 
Acquisition integration costs -  0.01  -  0.02  0.02 
Certain items associated with announced business combination 0.01  0.02  0.01  0.05  0.01 
Gain on derivative associated with announced business combination, net (0.02) -  -  (0.02) - 
Impairment of goodwill and intangible assets -  -  -  -  0.21 
Restructuring charges and asset impairments -  -  0.01  -  0.03 
Reinstatement of federal R&D tax credit and resolution of prior years' income tax filings and other tax items 0.01  (0.02) (0.01) (0.01) (0.03)
Non-GAAP adjusted earnings per diluted share $0.27  $0.28  $0.19  $1.07  $0.59 
Weighted average number of diluted shares 1,236  1,233  1,222  1,231  1,219 


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

  Three Months Ended Twelve Months Ended
(In millions, except percentages) October 26,
 2014
 July 27,
 2014
 October 27,
 2013
 October 26,
 2014
 October 27,
 2013
SSG Non-GAAP Adjusted Operating Income               
Reported operating income - GAAP basis $305  $381  $213  $1,391  $876 
Certain items associated with acquisitions1 46  42  44  172  175 
Acquisition integration costs 1  -  1  2  (2)
Restructuring charges and asset impairments3 -  -  -  -  1 
Non-GAAP adjusted operating income $352  $423  $258  $1,565  $1,050 
Non-GAAP adjusted operating margin percent (% of net sales) 24.5% 28.7% 20.8% 26.2% 22.0%
AGS Non-GAAP Adjusted Operating Income               
Reported operating income - GAAP basis $146  $154  $115  $573  $436 
Certain items associated with acquisitions1 -  -  1  3  5 
Restructuring charges and asset impairments3 -  -  -  -  2 
Non-GAAP adjusted operating income $146  $154  $116  $576  $443 
Non-GAAP adjusted operating margin percent (% of net sales) 24.7% 27.2% 21.6% 26.2% 21.9%
Display Non-GAAP Adjusted Operating Income               
Reported operating income - GAAP basis $52  $25  $19  $129  $74 
Certain items associated with acquisitions1 -  1  1  2  6 
Non-GAAP adjusted operating income $52  $26  $20  $131  $80 
Non-GAAP adjusted operating margin percent (% of net sales) 27.4% 21.8% 12.3% 21.3% 14.9%
EES Non-GAAP Adjusted Operating Income (Loss)               
Reported operating income (loss) - GAAP basis $(3) $24  $(30) $15  $(433)
Certain items associated with acquisitions1 2  1  1  6  15 
Restructuring charges and asset impairments2, 3 -  -  7  -  25 
Impairment of goodwill and intangible assets -  -  -  -  278 
Non-GAAP adjusted operating income (loss) $(1) $25  $(22) $21  $(115)
Non-GAAP adjusted operating margin percent (% of net sales) (2.1)% 24.3% (50.0)% 7.5% (66.5)%

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2Results for the three months ended October 27, 2013 included restructuring and asset impairment charges of $7 million related to the restructuring program announced on May 10, 2012.
  
3Results for the twelve months ended October 27, 2013 included restructuring and asset impairment charges of $26 million related to the restructuring program announced on May 10, 2012 and severance charges 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)October 26, 2014 July 27, 2014
      
Operating expenses - GAAP basis$547  $601 
Gain (loss) on derivative associated with announced business combination, net39  (10)
Restructuring charges and asset impairments2  - 
Certain items associated with acquisitions(6) (6)
Acquisition integration costs(4) (9)
Certain items associated with announced business combination(23) (23)
Gain on sale of facility4  - 
Non-GAAP adjusted operating expenses$559  $553 

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

 Three Months Ended
(In millions, except percentages)October 26, 2014
   
Provision for income taxes - GAAP basis (a)$108 
Resolutions of prior years' income tax filings and other tax items(16)
Income tax effect of non-GAAP adjustments(7)
Non-GAAP adjusted provision for income taxes (b)$85 
   
Income before income taxes - GAAP basis (c)$398 
Certain items associated with acquisitions48 
Restructuring charges and asset impairments(2)
Acquisition integration costs4 
Gain on derivative associated with announced business combination(39)
Certain items associated with announced business combination23 
Gain on sale of strategic investments, net(5)
Gain on sale of facility(4)
Non-GAAP adjusted income before income taxes (d)$423 
   
Effective income tax rate - GAAP basis (a/c)27.1%
   
Non-GAAP adjusted effective income tax rate (b/d)20.1%
 
HUG#1870997
November 13, 2014