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Applied Materials Announces Fourth Quarter and Fiscal Year 2015 Results

  • Company delivered year-over-year growth in orders, net sales and earnings per share
  • FY2015 cash returns to shareholders increased by $1.33 billion year over year to $1.81 billion

SANTA CLARA, Calif., Nov. 12, 2015 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in materials engineering solutions for the semiconductor, display and solar industries, today reported results for its fourth quarter and fiscal year ended October 25, 2015.

Fourth quarter orders were $2.42 billion, down 16 percent sequentially and up 7 percent year over year. Net sales were $2.37 billion, down 5 percent sequentially and up 5 percent year over year.

On a non-GAAP adjusted basis, the company reported fourth-quarter gross margin of 42.2 percent, operating margin of 19.3 percent, and net income of $347 million or $0.29 per diluted share. The company recorded GAAP gross margin of 40.5 percent, operating margin of 17.9 percent, and net income of $336 million or $0.28 per diluted share.

The company generated $471 million in cash from operations during the fourth quarter, paid dividends of $119 million and used $700 million to repurchase 44 million shares of common stock at an average price of $15.78.

Full Year Results

In fiscal 2015, orders grew 5 percent to $10.10 billion, net sales increased 6 percent to $9.66 billion, non-GAAP adjusted gross margin declined 1.2 percentage points to 42.9 percent, non-GAAP adjusted operating margin remained at 19.6 percent, and non-GAAP adjusted net income increased by 10.9 percent to $1.46 billion or $1.19 per diluted share. The company recorded GAAP gross margin of 40.9 percent, operating income of $1.69 billion or 17.5 percent of net sales, and net income of $1.38 billion or $1.12 per diluted share.

The company generated $1.16 billion in cash from operations in fiscal 2015, paid dividends of $487 million and used $1.33 billion to repurchase 76 million shares of common stock.

"In fiscal 2015, Applied Materials delivered year-over-year growth across our semiconductor, display and service businesses resulting in our highest earnings in four years," said Gary Dickerson, president and CEO. "We have positioned the company for sustainable profitable growth and we are winning share, growing our service business and expanding our available market."


Quarterly Results Summary

        Change
  Q4 FY2015 Q3 FY2015 Q4 FY2014 Q4 FY2015
vs.
Q3 FY2015
 Q4 FY2015
vs.

Q4 FY2014
  (In millions, except per share amounts and percentages)
New orders $2,424 $2,892 $2,255 (16)% 7%
Net sales $2,368 $2,490 $2,264 (5)% 5%
Gross margin 40.5% 40.9% 42.4% (0.4) points (1.9) points
Operating margin 17.9% 15.9% 18.2% 2.0 points (0.3) points
Net income $336 $329 $256 2% 31%
Diluted earnings per share (EPS) $0.28 $0.27 $0.21 4% 33%

        Change
Non-GAAP Adjusted Results Q4 FY2015 Q3 FY2015 Q4 FY2014 Q4 FY2015
vs.
Q3 FY2015
 Q4 FY2015
vs.
Q4 FY2014
  (In millions, except per share amounts and percentages)
Non-GAAP adjusted gross margin 42.2% 43.9% 44.2% (1.7) points (2.0) points
Non-GAAP adjusted operating margin 19.3% 20.8% 19.5% (1.5) points (0.2) points
Non-GAAP adjusted net income $347 $410 $338 (15)% 3%
Non-GAAP adjusted diluted EPS $0.29 $0.33 $0.27 (12)% 7%

Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: 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; and certain discrete adjustments and 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.

Business Outlook

For the first quarter of fiscal 2016, Applied expects net sales to be down 2 percent to 9 percent sequentially. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.23 to $0.27.

This outlook excludes known charges related to completed acquisitions of $0.04 per share and does not exclude other non-GAAP adjustments that may arise subsequent to this release.

Fourth Quarter and Fiscal Year Reportable Segment Information

Silicon SystemsQ4 FY2015 Q3 FY2015 Q4 FY2014 FY2015 FY2014
          
 (In millions, except percentages)
New orders$1,444  $2,007  $1,334  $6,581  $6,132 
  Foundry35% 32% 50% 34% 52%
  DRAM21% 18% 20% 25% 14%
  Flash31% 39% 12% 28% 21%
  Logic and other13% 11% 18% 13% 13%
Net sales1,494  1,635  1,434  6,135  5,978 
Operating income318  411  305  1,410  1,391 
Operating margin21.3% 25.1% 21.3% 23.0% 23.3%
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income$365  $455  $352  $1,588  $1,565 
Non-GAAP adjusted operating margin24.4% 27.8% 24.5% 25.9% 26.2%

Applied Global ServicesQ4 FY2015 Q3 FY2015 Q4 FY2014 FY2015 FY2014
          
 (In millions, except percentages)
New orders$761  $561  $747  $2,653  $2,433 
Net sales637  665  592  2,531  2,200 
Operating income171  170  146  664  573 
Operating margin26.8% 25.6% 24.7% 26.2% 26.0%
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income$170  $173  $146  $667  $576 
Non-GAAP adjusted operating margin26.7% 26.0% 24.7% 26.4% 26.2%

DisplayQ4 FY2015 Q3 FY2015 Q4 FY2014 FY2015 FY2014
          
 (In millions, except percentages)
New orders$195  $295  $130  $717  $845 
Net sales191  151  190  780  615 
Operating income19  25  52  156  129 
Operating margin9.9% 16.6% 27.4% 20.0% 21.0%
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income$19  $26  $52  $158  $131 
Non-GAAP adjusted operating margin9.9% 17.2% 27.4% 20.3% 21.3%

Energy and Environmental SolutionsQ4 FY2015 Q3 FY2015 Q4 FY2014 FY2015 FY2014
          
 (In millions, except percentages)
New orders$24  $29  $44  $153  $238 
Net sales46  39  48  213  279 
Operating income (loss)-  (52) (3) (61) 15 
Operating margin-% (133.3)% (6.3)% (28.6)% 5.4%
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income (loss)$(1) $(2) $(1) $(10) $21 
Non-GAAP adjusted operating margin(2.2)% (5.1)% (2.1)% (4.7)% 7.5%

Backlog Information

Applied's backlog remained essentially flat at $3.14 billion and included negative adjustments of $13 million. Backlog composition by reportable segment was as follows:

Silicon Systems55%
Applied Global Services26%
Display16%
Energy and Environmental Solutions3%

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 anticipated growth and trends in our businesses and markets, industry outlooks, technology transitions, our financial performance and market share positions, our business outlook for the first quarter of fiscal 2016, 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 global leader in 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 25,
 2015
 July 26,
 2015
 October 26,
 2014
 October 25,
 2015
 October 26,
 2014
Net sales $2,368  $2,490  $2,264  $9,659  $9,072 
Cost of products sold 1,409  1,472  1,305  5,707  5,229 
Gross profit 959  1,018  959  3,952  3,843 
Operating expenses:          
  Research, development and engineering 363  372  360  1,451  1,428 
  Marketing and selling 96  112  99  428  423 
  General and administrative 77  135  127  469  502 
  Loss (gain) on derivatives associated with
  terminated business combination
 -  3  (39) (89) (30)
Total operating expenses 536  622  547  2,259  2,323 
Income from operations 423  396  412  1,693  1,520 
Interest expense 32  24  23  103  95 
Interest income and other income, net 6  3  9  8  23 
Income before income taxes 397  375  398  1,598  1,448 
Provision for income taxes 61  46  142  221  376 
Net income $336  $329  $256  $1,377  $1,072 
Earnings per share:          
  Basic $0.28  $0.27  $0.21  $1.13  $0.88 
  Diluted $0.28  $0.27  $0.21  $1.12  $0.87 
Weighted average number of shares:          
  Basic 1,182  1,221  1,220  1,214  1,215 
  Diluted 1,190  1,231  1,236  1,226  1,231 


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) October 25,
 2015
 July 26,
 2015
 October 26,
 2014
ASSETS      
Current assets:      
  Cash and cash equivalents $4,797  $2,574  $3,002 
  Short-term investments 168  169  160 
  Accounts receivable, net 1,739  1,991  1,670 
  Inventories 1,833  1,739  1,567 
  Other current assets 724  570  568 
Total current assets 9,261  7,043  6,967 
Long-term investments 946  958  935 
Property, plant and equipment, net 892  882  861 
Goodwill 3,302  3,304  3,304 
Purchased technology and other intangible assets, net 762  811  951 
Deferred income taxes and other assets 145  155  156 
Total assets $15,308  $13,153  $13,174 
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
  Short-term debt $1,200  $400  $- 
  Accounts payable and accrued expenses 1,833  1,762  1,883 
  Customer deposits and deferred revenue 765  858  940 
Total current liabilities 3,798  3,020  2,823 
Long-term debt 3,342  1,547  1,947 
Other liabilities 555  609  536 
Total liabilities 7,695  5,176  5,306 
Total stockholders' equity 7,613  7,977  7,868 
Total liabilities and stockholders' equity $15,308  $13,153  $13,174 


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

(In millions)Three Months Ended Twelve Months Ended
October 25,
 2015
 July 26,
 2015
 October 26,
 2014
October 25,
 2015
 October 26,
 2014
Cash flows from operating activities:         
  Net income$336  $329  $256  $1,377  $1,072 
  Adjustments required to reconcile net income to cash
  provided by operating activities:
         
   Depreciation and amortization96  93  94  371  375 
   Share-based compensation46  46  45  187  177 
   Excess tax benefits from share-based compensation(2) (3) (4) (56) (30)
   Deferred income taxes(159) 18  15  (134) 58 
   Other(11) 43  (14) 53  13 
   Net change in operating assets and liabilities165  (192) 15  (635) 135 
Cash provided by operating activities471  334  407  1,163  1,800 
Cash flows from investing activities:         
  Capital expenditures(53) (49) (63) (215) (241)
  Cash paid for acquisitions, net of cash acquired(2) (2) (12) (4) (12)
  Proceeds from sale of facility-  -  25  -  25 
  Proceeds from sales and maturities of investments200  583  176  1,100  878 
  Purchases of investments(202) (616) (179) (1,162) (811)
Cash used in investing activities(57) (84) (53) (281) (161)
Cash flows from financing activities:         
  Debt borrowings, net of issuance costs2,581  -  -  2,581  - 
  Proceeds from common stock issuances and others, net45  1  40  88  107 
  Common stock repurchases(700) (625) -  (1,325) - 
  Excess tax benefits from share-based compensation2  3  4  56  30 
  Payments of dividends to stockholders(119) (123) (122) (487) (485)
Cash provided by (used in) financing activities1,809  (744) (78) 913  (348)
Effect of exchange rate changes on cash and cash equivalents-  1  -  -  - 
Increase (decrease) in cash and cash equivalents2,223  (493) 276  1,795  1,291 
Cash and cash equivalents - beginning of period2,574  3,067  2,726  3,002  1,711 
Cash and cash equivalents - end of period$4,797  $2,574  $3,002  $4,797  $3,002 
Supplemental cash flow information:         
  Cash payments for income taxes$149  $51  $87  $407  $195 
  Cash refunds from income taxes$2  $5  $78  $12  $111 
  Cash payments for interest$7  $39  $7  $92  $92 


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate Unallocated Expenses

(In millions) Q4 FY2015 Q3 FY2015 Q4 FY2014 FY 2015 FY 2014
Share-based compensation $46  $46  $45  $187  $177 
Certain items associated with terminated business combination -  1  23  50  73 
Loss (gain) on derivatives associated with terminated business combination, net -  3  (39) (89) (30)
Other unallocated expenses 39  108  59  328  368 
Total corporate $85  $158  $88  $476  $588 

Additional Information

  Q4 FY2015 Q3 FY2015 Q4 FY2014
New Orders and Net Sales by Geography            
(In $ millions) New
Orders
 Net
Sales
 New
Orders
 Net
Sales
 New
Orders
 Net
Sales
United States 282  524  262  650  596  633 
  % of Total 12% 22% 9% 26% 26% 28%
Europe 155  140  142  134  198  178 
  % of Total 6% 6% 5% 6% 9% 8%
Japan 452  256  727  271  287  209 
  % of Total 19% 11% 25% 11% 13% 9%
Korea 207  216  349  308  251  187 
  % of Total 8% 9% 12% 12% 11% 8%
Taiwan 846  651  828  751  599  618 
  % of Total 35% 27% 29% 30% 27% 27%
Southeast Asia 100  131  142  94  113  136 
  % of Total 4% 6% 5% 4% 5% 6%
China 382  450  442  282  211  303 
  % of Total 16% 19% 15% 11% 9% 14%
             
Employees (In thousands)            
Regular Full Time 14.6  14.5  14.0 

  FY 2015 FY 2014
New Orders and Net Sales by Geography        
(In $ millions) New
Orders
 Net
Sales
 New
Orders
 Net
Sales
United States 1,323  2,335  2,200  1,966 
  % of Total 13% 24% 23% 22%
Europe 576  567  662  658 
  % of Total 6% 6% 7% 7%
Japan 1,786  1,015  1,031  817 
  % of Total 18% 10% 11% 9%
Korea 1,709  1,437  1,086  965 
  % of Total 17% 15% 11% 10%
Taiwan 2,808  2,376  2,740  2,702 
  % of Total 28% 25% 28% 30%
Southeast Asia 430  397  412  356 
  % of Total 4% 4% 4% 4%
China 1,472  1,532  1,517  1,608 
  % of Total 14% 16% 16% 18%


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

  Three Months Ended Twelve Months Ended
(In millions, except percentages) October 25,
 2015
 July 26,
 2015
 October 26,
 2014
 October 25,
 2015
 October 26,
 2014
Non-GAAP Adjusted Gross Profit          
Reported gross profit - GAAP basis $959  $1,018  $959  $3,952  $3,843 
Certain items associated with acquisitions1 42  41  42  162  158 
Inventory charges related to restructuring3, 4 1  34  -  35  - 
Acquisition integration costs -  -  -  -  1 
Other significant gains, losses or charges, net 7 (2) -  -  (2) - 
Non-GAAP adjusted gross profit $1,000  $1,093  $1,001  $4,147  $4,002 
Non-GAAP adjusted gross margin 42.2% 43.9% 44.2% 42.9% 44.1%
Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $423  $396  $412  $1,693  $1,520 
Certain items associated with acquisitions1 47  47  48  185  183 
Acquisition integration costs -  1  4  2  34 
Loss (gain) on derivatives associated with terminated business combination, net -  3  (39) (89) (30)
Certain items associated with terminated business combination2 -  1  23  50  73 
Restructuring, inventory charges and asset impairments3, 4, 5 (1) 50  (2) 49  5 
Foreign exchange loss due to functional currency change6 -  19  -  19  - 
Other significant gains, losses or charges, net 7 (13) -  (4) (13) (4)
Non-GAAP adjusted operating income $456  $517  $442  $1,896  $1,781 
Non-GAAP adjusted operating margin 19.3% 20.8% 19.5% 19.6% 19.6%
Non-GAAP Adjusted Net Income          
Reported net income - GAAP basis8 $336  $329  $256  $1,377  $1,072 
Certain items associated with acquisitions1 47  47  48  185  183 
Acquisition integration costs -  1  4  2  34 
Loss (gain) on derivatives associated with terminated business combination, net -  3  (39) (89) (30)
Certain items associated with terminated business combination2 -  1  23  50  73 
Restructuring, inventory charges and asset impairments3, 4, 5 (1) 50  (2) 49  5 
Impairment (gain on sale) of strategic investments, net (2) (1) (5) 4  (9)
Foreign exchange loss due to functional currency change6 -  19  -  19  - 
Other significant gains, losses or charges, net 7 (13) -  (4) (13) (4)
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items8 (18) (21) 50  (110) 28 
Income tax effect of non-GAAP adjustments (2) (18) 7  (17) (38)
Non-GAAP adjusted net income $347  $410  $338  $1,457  $1,314 

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 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 the three months ended July 26, 2015 primarily included $34 million of inventory charges and $17 million of restructuring charges and asset impairments related to the solar business.
  
4 Results for fiscal 2015 primarily included $35 million of inventory charges, $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 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.
  
6 Results for the three months ended July 26, 2015 and fiscal 2015 included a $19 million foreign exchange loss due to an immaterial correction of an error related to functional currency change.
  
7 These items are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future.
  
8 Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $35 million with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.03. 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 per share amounts) October 25,
 2015
 July 26,
 2015
 October 26,
 2014
 October 25,
 2015
 October 26,
 2014
Non-GAAP Adjusted Earnings Per Diluted Share          
Reported earnings per diluted share - GAAP basis1 $0.28  $0.27  $0.21  $1.12  $0.87 
Certain items associated with acquisitions 0.04  0.03  0.04  0.14  0.13 
Acquisition integration costs -  -  -  -  0.02 
Certain items associated with terminated business combination -  -  0.01  0.03  0.05 
Gain on derivatives associated with terminated business combination, net -  -  (0.02) (0.05) (0.02)
Restructuring, inventory charges and asset impairments -  0.03  -  0.03  - 
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items1 (0.02) (0.02) 0.03  (0.09) 0.02 
Other significant gains, losses or charges, net (0.01) -  -  (0.01) - 
Foreign exchange loss due to functional currency change -  0.02  -  0.02  - 
Non-GAAP adjusted earnings per diluted share $0.29  $0.33  $0.27  $1.19  $1.07 
Weighted average number of diluted shares 1,190  1,231  1,236  1,226  1,231 

1 Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $35 million with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.03. 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 25,
 2015
 July 26,
 2015
 October 26,
 2014
 October 25,
 2015
 October 26,
 2014
Silicon Systems Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $318  $411  $305  $1,410  $1,391 
Certain items associated with acquisitions1 47  44  46  178  172 
Acquisition integration costs -  -  1  -  2 
Non-GAAP adjusted operating income $365  $455  $352  $1,588  $1,565 
Non-GAAP adjusted operating margin 24.4% 27.8% 24.5% 25.9% 26.2%
AGS Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $171  $170  $146  $664  $573 
Certain items associated with acquisitions1 -  -  -  1  3 
Inventory charges related to restructuring2, 3 -  3  -  3  - 
Other significant gains, losses or charges, net4 (1) -  -  (1) - 
Non-GAAP adjusted operating income $170  $173  $146  $667  $576 
Non-GAAP adjusted operating margin 26.7% 26.0% 24.7% 26.4% 26.2%
Display Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $19  $25  $52  $156  $129 
Certain items associated with acquisitions1 -  1  -  2  2 
Non-GAAP adjusted operating income $19  $26  $52  $158  $131 
Non-GAAP adjusted operating margin 9.9% 17.2% 27.4% 20.3% 21.3%
EES Non-GAAP Adjusted Operating Income (Loss)          
Reported operating income (loss) - GAAP basis $-  $(52) $(3) $(61) $15 
Certain items associated with acquisitions1 -  2  2  4  6 
Restructuring, inventory charges and asset impairments2, 3 (1) 48  -  47  - 
Non-GAAP adjusted operating income (loss) $(1) $(2) $(1) $(10) $21 
Non-GAAP adjusted operating margin (2.2)% (5.1)% (2.1)% (4.7)% 7.5%

1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2 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 the three months ended July 26, 2015 primarily included $34 million of inventory charges and $17 million of restructuring charges and asset impairments related to the solar business.
  
3 Results for fiscal 2015 primarily included $35 million of inventory charges, $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.
  
4 These items are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future.


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

 Three Months Ended
(In millions)October 25, 2015 July 26, 2015
    
Operating expenses - GAAP basis$536  $622 
Loss on derivatives associated with terminated business combination-  (3)
Restructuring charges and asset impairments2  (16)
Certain items associated with acquisitions(5) (6)
Acquisition integration costs-  (1)
Certain items associated with terminated business combination-  (1)
Foreign exchange loss due to functional currency change-  (19)
Other significant gains, losses or charges, net11  - 
Non-GAAP adjusted operating expenses$544  $576 


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

 Three Months Ended
(In millions, except percentages)October 25, 2015
  
Provision for income taxes - GAAP basis (a)$61 
Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items18 
Income tax effect of non-GAAP adjustments2 
Non-GAAP adjusted provision for income taxes (b)$81 
  
Income before income taxes - GAAP basis (c)$397 
Certain items associated with acquisitions47 
Restructuring, inventory charges and asset impairments(1)
Gain on sale of strategic investments, net(2)
Other significant gains, losses or charges, net(13)
Non-GAAP adjusted income before income taxes (d)$428 
  
Effective income tax rate - GAAP basis (a/c)15.4%
  
Non-GAAP adjusted effective income tax rate (b/d)18.9%
 
HUG#1966318
November 12, 2015