Applied Materials Delivers All-Time Record Performance


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

	Three Months Ended						Twelve Months Ended
(In millions, except percentages)	October 29, 2017			October 30, 2016			October 29, 2017			October 30, 2016
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis	$	1,787		$	1,399		$	6,532		$	4,511
Certain items associated with acquisitions¹	45			42			172			167
Inventory reversals related to restructuring²	—			—			—			(2		)
Non-GAAP adjusted gross profit	$	1,832		$	1,441		$	6,704		$	4,676
Non-GAAP adjusted gross margin	46.2		%	43.7		%	46.1		%	43.2		%
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,098		$	777		$	3,868		$	2,152
Certain items associated with acquisitions¹	49			47			191			188
Acquisition integration costs	—			—			3			2
Reversals related to restructuring, net²	—			—			—			(3		)
Other gains, losses or charges, net^3,4	(9		)	8			(12		)	8
Non-GAAP adjusted operating income	$	1,138		$	832		$	4,050		$	2,347
Non-GAAP adjusted operating margin	28.7		%	25.2		%	27.9		%	21.7		%
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis	$	982		$	610		$	3,434		$	1,721
Certain items associated with acquisitions¹	49			47			191			188
Acquisition integration costs	—			—			3			2
Reversals related to restructuring, net ²	—			—			—			(3		)
Impairment (gain on sale) of strategic investments, net	(7		)	6			(3		)	3
Loss on early extinguishment of debt	—			—			5			5
Other gains, losses or charges, net ^{3, 4}	(9		)	8			(12		)	8
Resolution of prior years’ income tax filings, reinstatement of federal R&D tax credit and other tax items ⁵	(11		)	57			(79		)	45
Income tax effect of non-GAAP adjustments ⁶	1			(6		)	(14		)	(19		)
Non-GAAP adjusted net income	$	1,005		$	722		$	3,525		$	1,950

¹ These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.

² Results for fiscal 2016 included favorable adjustments associated with the cost reductions in the solar business.

³ Results for the three and twelve months ended October 29, 2017 included immaterial correction of errors related to prior periods.

⁴ Results for the three and twelve months ended October 30, 2016 included a loss of $8 million due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified time period.

⁵ Results for the three and twelve months ended October 29, 2017 included the recognition of previously unrecognized foreign tax credits.

⁶ These amounts represent non-GAAP adjustments above multiplied by the effective tax rate within the jurisdictions that the adjustments affect.

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