Applied Materials Announces First Quarter Results

Wed Feb 13, 2013 4:00pm EST

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*First quarter non-GAAP EPS of 6 cents at high end of outlook; GAAP EPS of 3 cents 
*Orders grew 44 percent sequentially led by demand for semiconductor and display equipment 
*Company expects strong sequential net sales and EPS growth in the second quarter of 2013 

SANTA CLARA, Calif., February 13, 2013 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader
in  manufacturing solutions for the semiconductor, display and solar industries, today reported
results for its first quarter of fiscal 2013 ended January 27, 2013.

Applied generated orders of $2.11 billion and net sales of $1.57 billion. The company reported
operating income of $39 million and net income of $34 million or 3 cents per diluted share.
Non-GAAP operating income was $112 million, and non-GAAP net income was $69 million or 6 cents per
share, at the high end of the business outlook.

"We executed well through the bottom of this industry investment cycle and, with our semiconductor
orders up over 80 percent from the previous quarter, we are optimistic about the potential of our
markets this year," said Mike Splinter, chairman and chief executive officer. "2013 looks to be
another strong year for mobile products like smartphones and tablets, and customers are
increasingly turning to Applied to help solve the technology challenges they face in this growing
market."

Quarterly Results Summary

               GAAP Results                   Q1 FY2013         Q4 FY2012        Q1 FY2012    
                Net sales                   $1.57 billion     $1.65 billion    $2.19 billion  
         Operating income (loss)             $39 million     $(499) million     $179 million  
            Net income (loss)                $34 million     $(515) million     $117 million  
 Diluted earnings (loss) per share (EPS)        $0.03            $(0.42)           $0.09      
             Non-GAAP Results                                                                 
        Non-GAAP operating income            $112 million     $114 million      $344 million  
           Non-GAAP net income               $69 million       $70 million      $240 million  
           Non-GAAP diluted EPS                 $0.06             $0.06            $0.18      


Applied's non-GAAP results exclude the impact of the following, where applicable: certain discrete
tax items; restructuring charges and any associated adjustments; certain acquisition-related
costs; and impairments of assets, goodwill, or investments. A reconciliation of the GAAP and
non-GAAP results is provided in the financial tables included in this release. See also "Use of
Non-GAAP Financial Measures" below.

First Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.36 billion, up 84 percent primarily due to increased
demand in foundry and memory, partially offset by lower orders in logic. Net sales were $969
million, up 11 percent. Non-GAAP operating income increased to $180 million or 18.6 percent of net
sales. GAAP operating income increased to $134 million or 13.8 percent of net sales. New order
composition was: foundry 73 percent, logic and other 12 percent, flash 8 percent, and DRAM 7
percent.

Applied Global Services (AGS) orders were $544 million, down 6 percent primarily due to lower
orders of 200mm equipment. Net sales were $471 million, down 24 percent from the prior quarter
which benefited from the sale of a thin film production line. Non-GAAP operating income decreased
to $91 million or 19.3 percent of net sales. GAAP operating income decreased to $89 million or
18.9 percent of net sales.

Display orders were $138 million, up 66 percent from low levels. Net sales were $87 million, down
6 percent. Non-GAAP operating income increased to $5 million or 5.7 percent of net sales. GAAP
operating income remained at $3 million or 3.4 percent of net sales.

Energy and Environmental Solutions (EES) orders were $68 million, up 5 percent from low levels,
with the majority of orders for web coating equipment. Net sales were $46 million, down 26
percent. EES had a non-GAAP operating loss of $44 million and a GAAP operating loss of $54
million.

Additional Quarterly Financial Information

*Backlog increased by 31 percent sequentially  to $2.11 billion including negative adjustments of
$40 million. 
*Gross margin was 39.8 percent on a non-GAAP basis, up from 38.4 percent  in the prior quarter due
to a more favorable product mix. GAAP gross margin was 37.0 percent. 
*Operating expenses were $514 million on a non-GAAP basis, below the company's expectation due to
approximately $20 million in favorable expense items. GAAP operating expenses were $543 million. 
*The effective tax rate was 24.2 percent on a non-GAAP basis. The GAAP effective tax rate was a
benefit of 88.9 percent, reflecting the favorable resolution of a tax audit and the reinstatement
of the U.S. R&D tax credit.
*The company paid $108 million in cash dividends and used $48 million to repurchase 4 million
shares of its common stock. 
*Cash, cash equivalents and investments ended the quarter at $2.82 billion. 

Business Outlook

For the second quarter of fiscal 2013, Applied expects net sales to be up 15 to 25 percent
sequentially. The company expects non-GAAP EPS to be in the range of $0.09 to $0.15. The non-GAAP
EPS outlook excludes known charges related to completed acquisitions of approximately $0.04 per
share but does not exclude other non-GAAP adjustments that may arise subsequent to this release.

Use of Non-GAAP Financial Measures

Management uses non-GAAP 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 statements regarding Applied's
performance, industry conditions, market outlook, opportunities  and business outlooks for the
second quarter of fiscal 2013, and include the assumptions that underlie such statements. These
statements 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; variability of
operating expenses and results among the company's segments caused by differing conditions in the
served markets; the concentrated nature of Applied's customer base; Applied's ability to (i)
develop, deliver and support a broad range of products, expand its markets and develop new
markets, (ii) timely align its cost structure with business conditions and achieve the intended
objectives of cost-reduction activities, (iii) plan and manage its resources and production
capability, (iv) obtain and protect intellectual property rights in key technologies, (v) attract,
motivate and retain key employees, 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 Form 10-K for
the fiscal year ended October 28, 2012. 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 providing innovative equipment,
services and software to enable the manufacture of advanced semiconductor, flat panel display and
solar photovoltaic products. Our technologies help make innovations like smartphones, flat screen
TVs and solar panels more affordable and accessible to consumers and businesses around the world.
Learn more at www.appliedmaterials.com.

Contact:

Kevin Winston (editorial/media) 408.235.4498
Michael Sullivan (financial community) 408.986.7977
  

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                                                                             Three Months Ended                        
 (In millions, except per share amounts)                                 January 27,            October 28,            January 29,     
                                                                             2013                   2012                   2012        
 Net sales                                                            $      1,573           $      1,646           $      2,189       
 Cost of products sold                                                         991                  1,060                  1,403       
 Gross margin                                                                  582                    586                    786       
 Operating expenses:                                                                                                                   
                       Research, development and engineering                   304                    303                    304       
                       Selling, general and administrative                     230                    237                    303       
                       Impairment of goodwill                                    -                    421                      -       
                       Restructuring charges and asset impairments               9                    124                      -       
 Total operating expenses                                                      543                  1,085                    607       
 Income (loss) from operations                                                  39                   (499 )                  179       
 Impairment of strategic investments                                             -                     14                      -       
 Interest and other expenses                                                    24                     24                     24       
 Interest and other income, net                                                  3                      5                      4       
 Income (loss) before income taxes                                              18                   (532 )                  159       
 Provision (benefit) for income taxes                                          (16 )                  (17 )                   42       
 Net income (loss)                                                    $         34           $       (515 )         $        117       
 Earnings (loss) per share:                                                                                                            
                       Basic and diluted                              $       0.03           $      (0.42 )         $       0.09       
 Weighted average number of shares:                                                                                                    
                       Basic                                                 1,198                  1,220                  1,299       
                       Diluted                                               1,212                  1,220                  1,310       


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

 (In millions)                                                              January 27,           October 28,     
                                                                               2013                  2012         
 ASSETS                                                                                                           
 Current assets:                                                                                                  
                              Cash and cash equivalents                 $       1,523         $       1,392       
                              Short-term investments                              230                   545       
                              Accounts receivable, net                          1,109                 1,220       
                              Inventories                                       1,278                 1,272       
                              Other current assets                                625                   673       
 Total current assets                                                           4,765                 5,102       
 Long-term investments                                                          1,062                 1,055       
 Property, plant and equipment, net                                               900                   910       
 Goodwill                                                                       3,518                 3,518       
 Purchased technology and other intangible assets, net                          1,302                 1,355       
 Deferred income taxes and other assets                                           167                   162       
 Total assets                                                           $      11,714         $      12,102       
 LIABILITIES AND STOCKHOLDERS' EQUITY                                                                             
 Current liabilities:                                                                                             
                              Accounts payable and accrued expenses     $       1,287         $       1,510       
                              Customer deposits and deferred revenue              678                   755       
 Total current liabilities                                                      1,965                 2,265       
 Long-term debt                                                                 1,946                 1,946       
 Other liabilities                                                                662                   656       
 Total liabilities                                                              4,573                 4,867       
 Total stockholders' equity                                                     7,141                 7,235       
 Total liabilities and stockholders' equity                             $      11,714         $      12,102       


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

 (In millions)                                                                                                                                                           Three Months Ended                        
                                                                                                                                                     January 27,            October 28,            January 29,     
                                                                                                                                                         2013                   2012                   2012        
 Cash flows from operating activities:                                                                                                                                                                             
                        Net income (loss)                                                                                                         $         34           $       (515 )         $        117       
                        Adjustments required to reconcile net income (loss) to cash provided by operating activities:                                                                                              
                                                                         Depreciation and amortization                                                     106                     97                    112       
                                                                         Impairment of goodwill                                                              -                    421                      -       
                                                                         Restructuring charges and asset impairments                                         9                    124                      -       
                                                                         Deferred income taxes and other                                                   (78 )                   64                     39       
                                                                         Impairment of strategic investments                                                 -                     14                      -       
                                                                         Share-based compensation                                                           42                     44                     53       
                                                                         Net change in operating assets and liabilities, net of amounts acquired           (97 )                  162                   (140 )     
 Cash provided by operating activities                                                                                                                      16                    411                    181       
 Cash flows from investing activities:                                                                                                                                                                             
                        Capital expenditures                                                                                                               (49 )                  (41 )                  (37 )     
                        Cash paid for acquisition, net of cash acquired                                                                                      -                     (1 )               (4,179 )     
                        Proceeds from sales and maturities of investments                                                                                  445                    254                    313       
                        Purchases of investments                                                                                                          (143 )                 (175 )                 (254 )     
 Cash provided by (used in) investing activities                                                                                                           253                     37                 (4,157 )     
 Cash flows from financing activities:                                                                                                                                                                             
                        Proceeds from common stock issuances                                                                                                18                     45                      2       
                        Common stock repurchases                                                                                                           (48 )                 (516 )                 (200 )     
                        Payments of dividends to stockholders                                                                                             (108 )                 (111 )                 (104 )     
 Cash used in financing activities                                                                                                                        (138 )                 (582 )                 (302 )     
 Effect of exchange rate changes on cash and cash equivalents                                                                                                -                     (3 )                   (1 )     
 Increase (decrease) in cash and cash equivalents                                                                                                          131                   (137 )               (4,279 )     
 Cash and cash equivalents - beginning of period                                                                                                         1,392                  1,529                  5,960       
 Cash and cash equivalents - end of period                                                                                                        $      1,523           $      1,392           $      1,681       
 Supplemental cash flow information:                                                                                                                                                                               
                        Cash payments for income taxes                                                                                            $         32           $         10           $         33       
                        Cash refunds from income taxes                                                                                            $         65           $         74           $          3       
                        Cash payments for interest                                                                                                $         39           $          7           $         41       


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reportable Segment Results

                                          Q1 FY2013                                                   Q4 FY2012                                                   Q1 FY2012                         
 (In millions)          New                 Net               Operating             New                 Net               Operating             New                 Net               Operating     
                       Orders              Sales               Income              Orders              Sales               Income              Orders              Sales               Income       
                                                               (Loss)                                                      (Loss)                                                      (Loss)       
 SSG              $     1,363         $       969         $       134         $       741         $       870         $        41         $     1,418         $     1,344         $       271       
 AGS                      544                 471                  89                 576                 621                 164                 517                 534                 107       
 Display                  138                  87                   3                  83                  93                   3                  40                 104                   5       
 EES                       68                  46                 (54 )                65                  62                (480 )                33                 207                 (23 )     
 Corporate                  -                   -                (133 )                 -                   -                (227 )                 -                   -                (181 )     
 Consol-          $     2,113         $     1,573         $        39         $     1,465         $     1,646         $      (499 )       $     2,008         $     2,189         $       179       
 idated                                                                                                                                                                                             


Corporate Unallocated Expenses

 (In millions)                                           Q1 FY2013           Q4 FY2012           Q1 FY2012     
 Restructuring charges and asset impairments, net    $         4         $       111         $         -       
 Share-based compensation                                     42                  44                  53       
 Other unallocated expenses                                   87                  72                 128       
 Corporate                                           $       133         $       227         $       181       


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information

                                                   Q1 FY2013                      Q4 FY2012                      Q1 FY2012              
 New Orders and Net Sales by Geography                                                                                                  
 (In $ millions)                                 New              Net           New              Net           New              Net     
                                               Orders            Sales        Orders            Sales        Orders            Sales    
 United States                                 391              401           435              373           467              417       
                      % of Total                19 %             25 %          30 %             23 %          23 %             19 %     
 Europe                                        134              119           165              271           209              179       
                      % of Total                 6 %              8 %          11 %             16 %          11 %              8 %     
 Japan                                         181               98           184              129           167              217       
                      % of Total                 9 %              6 %          12 %              8 %           8 %             10 %     
 Korea                                         198              205           115              127           666              628       
                      % of Total                 9 %             13 %           8 %              8 %          33 %             29 %     
 Taiwan                                        906              565           390              457           367              489       
                      % of Total                43 %             36 %          27 %             28 %          18 %             22 %     
 Southeast Asia                                 65               58            74               97            50               79       
                      % of Total                 3 %              4 %           5 %              6 %           3 %              4 %     
 China                                         238              127           102              192            82              180       
                      % of Total                11 %              8 %           7 %             11 %           4 %              8 %     
                                                                                                                                        
 Employees (In thousands)                                                                                                               
 Regular Full Time                                             13.7                           14.5                           14.6       


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

                                                                                 Three Months Ended                       
 (In millions, except percentages)                             January 27,           October 28,           January 29,    
                                                                  2013                  2012                  2012        
 Non-GAAP Gross Margin                                                                                                    
 Reported gross margin (GAAP basis)                         $       582           $       586           $       786       
 Certain items associated with acquisitions1                         43                    46                   104       
 Acquisition integration and deal costs                               1                     -                     -       
 Non-GAAP gross margin                                      $       626           $       632           $       890       
 Non-GAAP gross margin percent (% of net sales)                    39.8 %                38.4 %                40.7 %     
 Non-GAAP Operating Income                                                                                                
 Reported operating income (loss) (GAAP basis)              $        39           $      (499 )         $       179       
 Certain items associated with acquisitions1                         54                    55                   115       
 Acquisition integration and deal costs                              10                    13                    50       
 Impairment of goodwill                                               -                   421                     -       
 Restructuring charges and asset impairments2, 3                      9                   124                     -       
 Non-GAAP operating income                                  $       112           $       114           $       344       
 Non-GAAP operating margin percent (% of net sales)                 7.1 %                 6.9 %                15.7 %     
 Non-GAAP Net Income                                                                                                      
 Reported net income (loss) (GAAP basis)                    $        34           $      (515 )         $       117       
 Certain items associated with acquisitions1                         54                    55                   115       
 Acquisition integration and deal costs                              10                    13                    50       
 Impairment of goodwill                                               -                   421                     -       
 Restructuring charges and asset impairments2, 3                      9                   124                     -       
 Impairment of strategic investments                                  -                    14                     -       
 Reinstatement of federal R&D tax credit                            (10 )                   -                     -       
 Resolution of audits of prior years' income tax filings            (11 )                  (5 )                   -       
 Income tax effect of non-GAAP adjustments                          (17 )                 (37 )                 (42 )     
 Non-GAAP net income                                        $        69           $        70           $       240       


 1  These items are incremental charges attributable to acquisitions, consisting of inventory fair value adjustments on products sold, and amortization of purchased intangible assets.                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                                                    
 2  Results for the three months ended January 27, 2013 included $4 million of employee-related costs, net, related to the restructuring program announced on October 3, 2012, asset impairment charges of $3 million related to the restructuring program announced on May 10, 2012 and severance charges of $2 million related to the integration of Varian.                                      
                                                                                                                                                                                                                                                                                                                                                                                                    
 3  Results for the three months ended October 28, 2012 included severance and other employee-related costs of $106 million related to the restructuring program announced on October 3, 2012, restructuring and asset impairment charges of $12 million related to the restructuring program announced on May 10, 2012, and severance charges of $6 million related to the integration of Varian.  


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

                                                                                                                                      Three Months Ended                                
 (In millions except per share amounts)                                                                    January 27, 2013            October 28, 2012            January 29, 2012     
 Non-GAAP Earnings Per Diluted Share                                                                                                                                                    
 Reported earnings (loss) per diluted share (GAAP basis)                                                $          0.03             $         (0.42 )           $          0.09         
 Certain items associated with acquisitions                                                                        0.03                        0.04                        0.07         
 Acquisition integration and deal costs                                                                            0.01                        0.01                        0.02         
 Impairment of goodwill                                                                                               -                        0.34                           -         
 Restructuring charges and asset impairments                                                                       0.01                        0.08                           -         
 Impairment of strategic investments                                                                                  -                        0.01                           -         
 Reinstatement of federal R&D tax credit and resolution of audits of prior years' income tax filings              (0.02 )                         -                           -         
 Non-GAAP earnings per diluted share                                                                    $          0.06             $          0.06             $          0.18         
 Weighted average number of diluted shares                                                                        1,212                       1,234                       1,310         


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

                                                                            Three Months Ended                       
 (In millions, except percentages)                        January 27,           October 28,           January 29,    
                                                             2013                  2012                  2012        
 Non-GAAP SSG Operating Income                                                                                       
 Reported operating income (GAAP basis)                $       134           $        41           $       271       
 Certain items associated with acquisitions1                    44                    45                   101       
 Acquisition integration and deal costs                          1                     6                    14       
 Restructuring charges and asset impairments2, 3                 1                     3                     -       
 Non-GAAP operating income                             $       180           $        95           $       386       
 Non-GAAP operating margin percent (% of net sales)           18.6 %                10.9 %                28.7 %     
 Non-GAAP AGS Operating Income                                                                                       
 Reported operating income (GAAP basis)                $        89           $       164           $       107       
 Certain items associated with acquisitions1                     1                     3                     6       
 Restructuring charges and asset impairments2, 3                 1                     4                     -       
 Non-GAAP operating income                             $        91           $       171           $       113       
 Non-GAAP operating margin percent (% of net sales)           19.3 %                27.5 %                21.2 %     
 Non-GAAP Display Operating Income                                                                                   
 Reported operating income (GAAP basis)                $         3           $         3           $         5       
 Certain items associated with acquisitions1                     2                     1                     2       
 Non-GAAP operating income                             $         5           $         4           $         7       
 Non-GAAP operating margin percent (% of net sales)            5.7 %                 4.3 %                 6.7 %     
 Non-GAAP EES Operating Income                                                                                       
 Reported operating loss (GAAP basis)                  $       (54 )         $      (480 )         $       (23 )     
 Certain items associated with acquisitions1                     7                     7                     6       
 Impairment of goodwill                                          -                   421                     -       
 Restructuring charges and asset impairments2, 3                 3                     6                     -       
 Non-GAAP operating loss                               $       (44 )         $       (46 )         $       (17 )     
 Non-GAAP operating margin percent (% of net sales)          (95.7 )%              (74.2 )%               (8.2 )%    


 1  These items are incremental charges attributable to acquisitions, consisting of inventory fair value adjustments on products sold, and amortization of purchased intangible assets.                                                                              
                                                                                                                                                                                                                                                                     
 2  Results for the three months ended January 27, 2013 included asset impairment charges of $3 million related to the restructuring program announced on May 10, 2012 and severance charges of $2 million related to the integration of Varian.                     
                                                                                                                                                                                                                                                                     
 3  Results for the three months ended October 28, 2012 included restructuring and asset impairment charges of $7 million related to the restructuring program announced on May 10, 2012, and severance charges of $6 million related to the integration of Varian.  


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

                                                               Three Months Ended                  
 (In millions)                                   January 27, 2013             October 28, 2012     
                                                                                                   
 Operating expenses (GAAP basis)              $           543              $         1,085         
 Certain items associated with acquisitions               (11 )                         (9 )       
 Acquisition integration and deal costs                    (9 )                        (13 )       
 Impairment of goodwill                                     -                         (421 )       
 Restructuring charges and asset impairments               (9 )                       (124 )       
 Non-GAAP operating expenses                  $           514              $           518         


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

                                                                     Three Months Ended 
 (In millions, except percentages)                                     January 27, 2013 
                                                                                        
 Provision (benefit) for income taxes (GAAP basis) (a)              $      (16 )        
 Reinstatement of federal R&D tax credit                                    10          
 Resolutions from audits of prior years' income tax filings                 11          
 Income tax effect of non-GAAP adjustments                                  17          
 Non-GAAP provision for income taxes (b)                            $       22          
                                                                                        
 Income before income taxes (GAAP basis) (c)                        $       18          
 Certain items associated with acquisitions                                 54          
 Acquisition integration costs                                              10          
 Restructuring charges and asset impairments                                 9          
 Non-GAAP income before income taxes (d)                            $       91          
                                                                                        
 Effective income tax rate (GAAP basis) (a/c)                            (88.9 )%       
                                                                                        
 Non-GAAP effective income tax rate (b/d)                                 24.2 %        



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