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Applied Materials Delivers Record Quarterly and Annual Revenue and Earnings Per Share

  • Applied delivers record annual EPS of $1.54, up 38 percent year over year, and non-GAAP EPS of $1.75, up 47 percent year over year
  • Semiconductor Systems segment achieves highest quarterly and annual revenue in 15 years
  • Applied Global Services generates record quarterly and annual orders and revenue
  • Display and Adjacent Markets delivers record quarterly and annual revenue

SANTA CLARA, Calif., Nov. 17, 2016 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its fourth quarter and fiscal year ended October 30, 2016.

Fourth quarter new orders were $3.03 billion, up 25 percent year over year. Backlog of $4.58 billion was up 46 percent year over year. Net sales of $3.30 billion were up 39 percent year over year.

The company recorded fourth quarter gross margin of 42.4 percent, operating margin of 23.6 percent, and diluted earnings per share (EPS) of $0.56. On a non-GAAP adjusted basis, fourth quarter gross margin increased 1.5 points year over year to 43.7 percent, operating margin grew 5.9 points year over year to 25.2 percent, and diluted EPS grew by 128 percent year over year to $0.66.

The company generated $797 million in cash from operations and returned $279 million to shareholders through stock repurchases and cash dividends.

Full Year Results

In fiscal 2016, new orders grew 23 percent to $12.42 billion and net sales increased 12 percent to $10.83 billion. The company recorded gross margin of 41.7 percent, operating income of $2.15 billion or 19.9 percent of net sales, and diluted EPS of $1.54. On a non-GAAP adjusted basis, gross margin increased 300 basis points to 43.2 percent, operating income increased 24 percent to $2.35 billion or 21.7 percent of net sales, and diluted EPS increased 47 percent to $1.75.

The company generated $2.47 billion in cash from operations, paid dividends of $444 million and used $1.89 billion to repurchase 96 million shares of common stock at an average price of $19.82.

“In fiscal 2016, we grew orders, revenue, and earnings to the highest levels in the company’s history, and made significant progress towards our longer-term strategic and financial goals,” said Gary Dickerson, President and CEO. “We’ve focused our organization and investments to deliver highly differentiated solutions that enable customers to build new devices and structures that were never possible before.”

“As we look to 2017 and beyond, we see sustainable growth as new demand drivers layer on top of our traditional end markets in computing, mobility and consumer electronics,” said Bob Halliday, Senior Vice President and CFO. “The industries we serve are bigger and more attractive, our opportunity set is larger, our customer relationships are stronger, and we’re excited about our new product pipeline.”

Quarterly Results Summary

Change
Q4 FY2016 Q3 FY2016 Q4 FY2015 Q4 FY2016
vs.
Q3 FY2016
Q4 FY2016
vs.
Q4 FY2015
(In millions, except per share amounts and percentages)
New orders$3,032 $3,658 $2,424 (17%) 25%
Net sales$3,297 $2,821 $2,368 17% 39%
Gross margin42.4% 42.3% 40.5% 0.1points 1.9points
Operating margin23.6% 21.1% 17.9% 2.5points 5.7points
Net income$610 $505 $336 21% 82%
Diluted earnings per share (EPS)$0.56 $0.46 $0.28 22% 100%
Non-GAAP Adjusted Results
Non-GAAP adjusted gross margin43.7% 43.7% 42.2% points 1.5points
Non-GAAP adjusted operating margin25.2% 22.8% 19.3% 2.4points 5.9points
Non-GAAP adjusted net income$722 $550 $347 31% 108%
Non-GAAP adjusted diluted EPS$0.66 $0.50 $0.29 32% 128%

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

In the first quarter of fiscal 2017, Applied expects net sales to be in the range of $3.20 billion to $3.34 billion; the midpoint of the range would be an increase of approximately 45 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.62 to $0.70; the midpoint of the range would be an increase of approximately 154 percent, year over year.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.04 per share, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

Fourth Quarter and Fiscal Year Reportable Segment Information

Semiconductor SystemsQ4 FY2016 Q3 FY2016 Q4 FY2015 FY2016 FY2015
(In millions, except percentages)
New orders$1,833 $2,215 $1,444 $7,289 $6,581
Foundry64% 57% 35% 46% 34%
DRAM10% 14% 21% 16% 25%
Flash16% 15% 31% 26% 28%
Logic and other10% 14% 13% 12% 13%
Net sales2,127 1,786 1,494 6,873 6,135
Operating income667 511 318 1,807 1,410
Operating margin31.4% 28.6% 21.3% 26.3% 23.0%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income$713 $556 $365 $1,991 $1,588
Non-GAAP adjusted operating margin33.5% 31.1% 24.4% 29.0% 25.9%


Applied Global ServicesQ4 FY2016 Q3 FY2016 Q4 FY2015 FY2016 FY2015
(In millions, except percentages)
New orders$794 $590 $743 $2,775 $2,582
Net sales693 657 611 2,589 2,447
Operating income193 175 160 682 630
Operating margin27.8% 26.6% 26.2% 26.3% 25.7%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income$193 $176 $159 $683 $633
Non-GAAP adjusted operating margin27.8% 26.8% 26.0% 26.4% 25.9%


Display and Adjacent MarketsQ4 FY2016 Q3 FY2016 Q4 FY2015 FY2016 FY2015
(In millions, except percentages)
New orders$387 $803 $219 $2,160 $828
Net sales452 313 235 1,206 944
Operating income103 63 28 245 191
Operating margin22.8% 20.1% 11.9% 20.3% 20.2%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income$103 $63 $28 $245 $194
Non-GAAP adjusted operating margin22.8% 20.1% 11.9% 20.3% 20.6%

Backlog Information

Applied's backlog decreased 7 percent from the prior quarter to $4.58 billion and included negative adjustments of $106 million, primarily due to changes in expected timing of shipments and other adjustments, partially offset by favorable foreign currency impacts. Backlog composition by reportable segment was as follows:

Semiconductor Systems45%
Applied Global Services19%
Display and Adjacent Markets34%
Corporate and Other2%

Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted to exclude the impact of certain costs, expenses, gains and losses, including 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; income tax items and certain other discrete adjustments. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

Management uses these non-GAAP adjusted financial measures to evaluate the company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of our performance and 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 on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures 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 business and financial performance and market share positions, our development of new products and technologies, our business outlook for the first quarter of fiscal 2017, 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 leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future. 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 30,
2016
July 31,
2016
October 25,
2015
October 30,
2016
October 25,
2015
Net sales$3,297 $2,821 $2,368 $10,825 $9,659
Cost of products sold1,898 1,629 1,409 6,314 5,707
Gross profit1,399 1,192 959 4,511 3,952
Operating expenses:
Research, development and engineering394 386 363 1,540 1,451
Marketing and selling114 107 96 429 428
General and administrative114 103 77 390 469
Gain on derivatives associated with terminated business combination (89)
Total operating expenses622 596 536 2,359 2,259
Income from operations777 596 423 2,152 1,693
Interest expense38 38 32 155 103
Interest income and other income, net1 6 6 16 8
Income before income taxes740 564 397 2,013 1,598
Provision for income taxes130 59 61 292 221
Net income$610 $505 $336 $1,721 $1,377
Earnings per share:
Basic$0.56 $0.47 $0.28 $1.56 $1.13
Diluted$0.56 $0.46 $0.28 $1.54 $1.12
Weighted average number of shares:
Basic1,081 1,083 1,182 1,107 1,214
Diluted1,093 1,093 1,190 1,116 1,226

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)October 30,
2016
July 31,
2016
October 25,
2015
ASSETS
Current assets:
Cash and cash equivalents$3,406 $2,828 $4,797
Short-term investments343 438 168
Accounts receivable, net2,279 1,852 1,739
Inventories2,050 2,026 1,833
Other current assets275 255 724
Total current assets8,353 7,399 9,261
Long-term investments929 960 946
Property, plant and equipment, net937 905 892
Goodwill3,316 3,305 3,302
Purchased technology and other intangible assets, net575 621 762
Deferred income taxes and other assets478 509 145
Total assets$14,588 $13,699 $15,308
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt$200 $ $1,200
Accounts payable and accrued expenses2,056 1,800 1,833
Customer deposits and deferred revenue1,376 1,164 765
Total current liabilities3,632 2,964 3,798
Long-term debt3,143 3,343 3,342
Other liabilities596 573 555
Total liabilities7,371 6,880 7,695
Total stockholders’ equity7,217 6,819 7,613
Total liabilities and stockholders’ equity$14,588 $13,699 $15,308


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

(In millions)Three Months Ended Twelve Months Ended
October 30,
2016
July 31,
2016
October 25,
2015
October 30,
2016
October 25,
2015
Cash flows from operating activities:
Net income$610 $505 $336 $1,721 $1,377
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization100 97 96 389 371
Share-based compensation51 48 46 201 187
Excess tax benefits from share-based compensation(5) (5) (2) (23) (56)
Deferred income taxes7 21 (159) 21 (134)
Other18 5 (11) 38 53
Net change in operating assets and liabilities16 310 165 119 (635)
Cash provided by operating activities797 981 471 2,466 1,163
Cash flows from investing activities:
Capital expenditures(88) (50) (53) (253) (215)
Cash paid for acquisitions, net of cash acquired(11) 3 (2) (16) (4)
Proceeds from sales and maturities of investments553 208 200 1,234 1,100
Purchases of investments(443) (483) (202) (1,390) (1,162)
Cash provided by (used in) investing activities11 (322) (57) (425) (281)
Cash flows from financing activities:
Debt borrowings (repayments), net of issuance costs (2) 2,581 (1,207) 2,581
Proceeds from common stock issuances and others44 45 88 88
Common stock repurchases(171) (196) (700) (1,892) (1,325)
Excess tax benefits from share-based compensation5 5 2 23 56
Payments of dividends to stockholders(108) (108) (119) (444) (487)
Cash provided by (used in) financing activities(230) (301) 1,809 (3,432) 913
Increase (decrease) in cash and cash equivalents578 358 2,223 (1,391) 1,795
Cash and cash equivalents — beginning of period2,828 2,470 2,574 4,797 3,002
Cash and cash equivalents — end of period$3,406 $2,828 $4,797 $3,406 $4,797
Supplemental cash flow information:
Cash payments for income taxes$13 $49 $149 $157 $407
Cash refunds from income taxes$9 $1 $2 $113 $12
Cash payments for interest$41 $34 $7 $151 $92

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)Q4 FY2016 Q3 FY2016 Q4 FY2015 FY 2016 FY 2015
New orders$18 $50 $18 $192 $113
Unallocated net sales$25 $65 $28 $157 $133
Unallocated cost of products sold and expenses(160) (170) (65) (538) (523)
Share-based compensation(51) (48) (46) (201) (187)
Certain items associated with terminated business combination (50)
Gain on derivatives associated with terminated business combination, net 89
Total$(186) $(153) $(83) $(582) $(538)


Additional Information

Q4 FY2016 Q3 FY2016 Q4 FY2015
New Orders and Net Sales by Geography
(In $ millions)New
Orders
Net
Sales
New
Orders
Net
Sales
New
Orders
Net
Sales
United States221 289 259 289 282 301
% of Total7% 9% 7% 10% 12% 13%
Europe212 256 212 124 155 172
% of Total7% 8% 6% 5% 6% 7%
Japan262 364 270 321 452 278
% of Total9% 11% 7% 11% 19% 12%
Korea432 632 689 472 207 239
% of Total14% 19% 19% 17% 8% 10%
Taiwan1,170 1,154 1,240 741 846 758
% of Total39% 35% 34% 26% 35% 32%
Southeast Asia84 161 139 303 100 143
% of Total3% 5% 4% 11% 4% 6%
China651 441 849 571 382 477
% of Total21% 13% 23% 20% 16% 20%
Employees (In thousands)
Regular Full Time15.6 15.2 14.6


FY 2016 FY 2015
New Orders and Net Sales by Geography
(In $ millions) New
Orders
Net
Sales
New
Orders
Net
Sales
United States 1,235 1,143 1,323 1,630
% of Total 10% 11% 13% 17%
Europe 774 615 576 642
% of Total 6% 6% 6% 7%
Japan 980 1,279 1,786 1,078
% of Total 8% 12% 18% 11%
Korea 2,286 1,883 1,709 1,654
% of Total 19% 17% 17% 17%
Taiwan 3,389 2,843 2,808 2,600
% of Total 27% 26% 28% 27%
Southeast Asia 847 803 430 432
% of Total 7% 7% 4% 4%
China 2,905 2,259 1,472 1,623
% of Total 23% 21% 14% 17%

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

Three Months Ended Twelve Months Ended
(In millions, except percentages)October 30,
2016
July 31,
2016
October 25,
2015
October 30,
2016
October 25,
2015
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis$1,399 $1,192 $959 $4,511 $3,952
Certain items associated with acquisitions142 42 42 167 162
Inventory charges (reversals) related to restructuring3, 4 (1) 1 (2) 35
Other significant gains, losses or charges, net6 (2) (2)
Non-GAAP adjusted gross profit$1,441 $1,233 $1,000 $4,676 $4,147
Non-GAAP adjusted gross margin43.7% 43.7% 42.2% 43.2% 42.9%
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis$777 $596 $423 $2,152 $1,693
Certain items associated with acquisitions147 47 47 188 185
Acquisition integration and deal costs 2 2 2
Gain on derivatives associated with terminated business combination, net (89)
Certain items associated with terminated business combination2 50
Inventory charges (reversals) related to restructuring and asset impairments, net3, 4 (1) (1) (3) 49
Other significant gains, losses or charges, net5, 68 (13) 8 6
Non-GAAP adjusted operating income$832 $644 $456 $2,347 $1,896
Non-GAAP adjusted operating margin25.2% 22.8% 19.3% 21.7% 19.6%
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis7$610 $505 $336 $1,721 $1,377
Certain items associated with acquisitions147 47 47 188 185
Acquisition integration and deal costs 2 2 2
Gain on derivatives associated with terminated business combination, net (89)
Certain items associated with terminated business combination2 50
Inventory charges (reversals) related to restructuring and asset impairments, net3, 4 (1) (1) (3) 49
Impairment (gain on sale) of strategic investments, net6 (2) 3 4
Loss on early extinguishment of debt 5
Other significant gains, losses or charges, net5, 68 (13) 8 6
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items757 1 (18) 45 (110)
Income tax effect of non-GAAP adjustments8(6) (4) (2) (19) (17)
Non-GAAP adjusted net income$722 $550 $347 $1,950 $1,457


1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
3Results for the three months ended July 31, 2016 and twelve months ended October 30, 2016 primarily included benefit from sales of solar equipment tools for which inventory had been previously reserved related to the cost reductions in the solar business.
4Results 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 fiscal 2015 primarily included $35 million of inventory charges and $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.
5Results 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.
6Results for the three and twelve months ended October 25, 2015 included immaterial correction of errors related to prior periods, partially offset by costs related to executive termination.
7Amounts for fiscal 2016 and 2015 included resolution of prior years' income tax filings and other tax items. Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $28 million with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.02. 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.
8These amounts represent non-GAAP adjustments above multiplied by the effective tax rate within the jurisdictions the adjustments affect.

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 30,
2016
July 31,
2016
October 25,
2015
October 30,
2016
October 25,
2015
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis1$0.56 $0.46 $0.28 $1.54 $1.12
Certain items associated with acquisitions0.04 0.04 0.04 0.16 0.14
Certain items associated with terminated business combination 0.03
Gain on derivatives associated with terminated business combination, net (0.05)
Restructuring, inventory charges and asset impairments 0.03
Other significant gains, losses or charges, net0.01 (0.01) 0.01 0.01
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items10.05 (0.02) 0.04 (0.09)
Non-GAAP adjusted earnings per diluted share$0.66 $0.50 $0.29 $1.75 $1.19
Weighted average number of diluted shares1,093 1,093 1,190 1,116 1,226


1Amounts for fiscal 2016 and 2015 included resolution of prior years' income tax filings and other tax items. Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $28 million with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.02. 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 30,
2016
July 31,
2016
October 25,
2015
October 30,
2016
October 25,
2015
Semiconductor Systems Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis$667 $511 $318 $1,807 $1,410
Certain items associated with acquisitions146 45 47 184 178
Non-GAAP adjusted operating income$713 $556 $365 $1,991 $1,588
Non-GAAP adjusted operating margin33.5% 31.1% 24.4% 29.0% 25.9%
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis$193 $175 $160 $682 $630
Certain items associated with acquisitions1 1 1 1
Inventory charges related to restructuring2 3
Other significant gains, losses or charges, net3 (1) (1)
Non-GAAP adjusted operating income$193 $176 $159 $683 $633
Non-GAAP adjusted operating margin27.8% 26.8% 26.0% 26.4% 25.9%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis$103 $63 $28 $245 $191
Certain items associated with acquisitions1 3
Non-GAAP adjusted operating income$103 $63 $28 $245 $194
Non-GAAP adjusted operating margin22.8% 20.1% 11.9% 20.3% 20.6%


1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2Results for the twelve months ended October 30, 2015 included $3 million of inventory charges related to cost reduction in the solar business.
3Results for the three and twelve months ended October 25, 2015 included immaterial correction of errors related to prior periods, partially offset by costs related to executive termination.

Note: The reconciliation of GAAP and non-GAAP adjusted segment results above does not include certain revenues, costs of products sold and operating expenses that are reported within corporate and other and included in consolidated operating income.

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

Three Months Ended
(In millions)October 30, 2016 July 31, 2016
Operating expenses - GAAP basis$622 $596
Certain items associated with acquisitions(5) (5)
Acquisition integration and deal costs (2)
Other significant gains, losses or charges, net(8)
Non-GAAP adjusted operating expenses$609 $589

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

Three Months Ended
(In millions, except percentages)October 30, 2016
Provision for income taxes - GAAP basis (a)$130
Reinstatement of federal R&D tax credit, resolutions of prior years’ income tax filings and other tax items(57)
Income tax effect of non-GAAP adjustments6
Non-GAAP adjusted provision for income taxes (b)$79
Income before income taxes - GAAP basis (c)$740
Certain items associated with acquisitions47
Impairment of strategic investments, net6
Other significant gains, losses or charges, net8
Non-GAAP adjusted income before income taxes (d)$801
Effective income tax rate - GAAP basis (a/c)17.6%
Non-GAAP adjusted effective income tax rate (b/d)9.9%


Source:Applied Materials, Inc.