EX-99.1 2 exhibit991q42018earningsre.htm EXHIBIT 99.1 EARNINGS RELEASE Exhibit
Exhibit 99.1
amatnewlogoa04a01a15.jpg

APPLIED MATERIALS ANNOUNCES FOURTH QUARTER AND FISCAL YEAR 2018 RESULTS

•
Quarterly revenue of $4.01 billion with GAAP EPS of $0.89 and non-GAAP EPS of $0.97
•
Record annual revenue and EPS
•
Returns $5.89 billion to shareholders in fiscal 2018

SANTA CLARA, Calif., Nov. 15, 2018 — Applied Materials, Inc. (NASDAQ:AMAT) today reported strong revenue, operating income and earnings per share in its fourth quarter and fiscal year ended Oct. 28, 2018.
Fourth Quarter Results
Compared to the fourth quarter of fiscal 2017, Applied net sales increased slightly to $4.01 billion. On a GAAP basis, the company recorded gross margin of 44.3 percent, operating income of $1.02 billion or 25.3 percent of net sales, and earnings per share (EPS) of $0.89.
On a non-GAAP adjusted basis, over the same period, the company reported gross margin of 45.5 percent, operating income of $1.07 billion or 26.6 percent of net sales, and EPS of $0.97.
The company returned $946 million to shareholders through $751 million in share repurchases and dividends of $195 million.
Full Year Results
In fiscal 2018, Applied grew net sales by 19 percent to $17.25 billion. On a GAAP basis, the company recorded gross margin of 45.3 percent, operating income of $4.80 billion, and EPS of $3.23. On a non-GAAP adjusted basis, the company reported gross margin of 46.3 percent, operating income of $5.0 billion or 29.0 percent of net sales, and EPS of $4.45.
The company generated $3.79 billion in cash from operations, paid dividends of $605 million and used $5.28 billion to repurchase 102 million shares of common stock.

“In fiscal 2018, each of Applied’s major businesses delivered double-digit growth despite challenging conditions in the second half of the year,” said Gary Dickerson, president and CEO. “While near-term market headwinds remain, overall industry spending remains robust, and we are focused on positioning Applied Materials for the long term, expanding our role in the A.I.-Big Data era and winning the major technology inflections ahead.”






Applied Materials, Inc.
Page 2 of 13
Results Summary
 
 
 
 
 
 
 
 
Change
 
Q4 FY2018
 
Q4 FY2017
 
FY2018
 
FY2017
Q4 FY2018
vs.
Q4 FY2017
 
FY2018 vs. FY2017
 
(In millions, except per share amounts and percentages)
Net sales
$
4,014

 
$
3,969

 
$
17,253

 
$
14,537

1%
 
19%
Gross margin
44.3
%
 
45.0
%
 
45.3
%
 
44.9
%
(0.7) points
 
0.4 points
Operating margin
25.3
%
 
27.7
%
 
27.8
%
 
26.6
%
(2.4) points
 
1.2 points
Net income
$
876

 
$
982

 
$
3,313

 
$
3,434

(11)%
 
(4)%
Diluted earnings per share
$
0.89

 
$
0.91

 
$
3.23

 
$
3.17

(2)%
 
2%
Non-GAAP Adjusted Results
 
 
 
 
 
 
 
 
 
 
Non-GAAP adjusted gross margin
45.5
%
 
46.2
%
 
46.3
%
 
46.1
%
(0.7) points
 
0.2 points
Non-GAAP adjusted operating margin
26.6
%
 
28.7
%
 
29.0
%
 
27.9
%
(2.1) points
 
1.1 points
Non-GAAP adjusted net income
$
956

 
$
1,005

 
$
4,569

 
$
3,525

(5)%
 
30%
Non-GAAP adjusted diluted EPS
$
0.97

 
$
0.93

 
$
4.45

 
$
3.25

4%
 
37%

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.







Applied Materials, Inc.
Page 3 of 13


Business Outlook
In the first quarter of fiscal 2019, Applied expects net sales to be in the range of $3.56 billion to $3.86 billion; the midpoint of the range would be down approximately 12 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.75 to $0.83; the midpoint of the range would be a decrease of approximately 25 percent, year over year.
This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share, the normalized tax benefit of share-based compensation of $0.04 per share, and net income tax benefit related to intra-entity intangible asset transfers of $0.02 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 Systems
Q4 FY2018
 
Q4 FY2017
 
FY2018
 
FY2017
 
(In millions, except percentages)
Net sales
$
2,309

 
$
2,431

 
$
10,903

 
$
9,517

Foundry
23
%
 
36
%
 
24
%
 
41
%
DRAM
26
%
 
12
%
 
27
%
 
16
%
Flash
34
%
 
38
%
 
36
%
 
34
%
Logic and other
17
%
 
14
%
 
13
%
 
9
%
Operating income
638

 
801

 
3,634

 
3,173

Operating margin
27.6
%
 
32.9
%
 
33.3
%
 
33.3
%
Non-GAAP Adjusted Results
 
 
 
 
 
 
Non-GAAP adjusted operating income
$
684

 
$
847

 
$
3,817

 
$
3,357

Non-GAAP adjusted operating margin
29.6
%
 
34.8
%
 
35.0
%
 
35.3
%

Applied Global Services
Q4 FY2018
 
Q4 FY2017
 
FY2018
 
FY2017
 
(In millions, except percentages)
Net sales
$
977

 
$
831

 
$
3,754

 
$
3,017

Operating income
289

 
232

 
1,102

 
817

Operating margin
29.6
%
 
27.9
%
 
29.4
%
 
27.1
%
Non-GAAP Adjusted Results
 
 
 
 
 
 
Non-GAAP adjusted operating income
$
290

 
$
232

 
$
1,104

 
$
821

Non-GAAP adjusted operating margin
29.7
%
 
27.9
%
 
29.4
%
 
27.2
%








Applied Materials, Inc.
Page 4 of 13

Display and Adjacent Markets
Q4 FY2018
 
Q4 FY2017
 
FY2018
 
FY2017
 
(In millions, except percentages)
Net sales
$
702

 
$
677

 
$
2,498

 
$
1,900

Operating income
202

 
212

 
679

 
502

Operating margin
28.8
%
 
31.3
%
 
27.2
%
 
26.4
%
Non-GAAP Adjusted Results
 
 
 
 
 
 
Non-GAAP adjusted operating income
$
206

 
$
215

 
$
694

 
$
507

Non-GAAP adjusted operating margin
29.3
%
 
31.8
%
 
27.8
%
 
26.7
%


Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted for 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; tax effect of share-based compensation; certain income tax items and other discrete adjustments. Additionally, the fourth quarter and fiscal 2018 non-GAAP results exclude estimated discrete income tax expense items associated with changes to recent U.S. tax legislation. 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.



Applied Materials, Inc.
Page 5 of 13

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks and demand drivers, technology transitions, our business and financial performance and market share positions, our capital allocation, our investment and growth strategies, our development of new products and technologies, our business outlook for the first quarter of fiscal 2019, 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; global trade issues and changes in trade policies; 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; changes in U.S. tax laws and regulation, and our interpretations of them; 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:
Ricky Gradwohl (editorial/media) 408.235.4676
Michael Sullivan (financial community) 408.986.7977





Applied Materials, Inc.
Page 6 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Twelve Months Ended
(In millions, except per share amounts)
October 28,
2018
 
October 29,
2017
 
October 28,
2018
 
October 29,
2017
Net sales
$
4,014

 
$
3,969

 
$
17,253

 
$
14,537

Cost of products sold
2,234

 
2,182

 
9,436

 
8,005

Gross profit
1,780

 
1,787

 
7,817

 
6,532

Operating expenses:
 
 
 
 
 
 
 
Research, development and engineering
518

 
466

 
2,019

 
1,774

Marketing and selling
127

 
105

 
521

 
456

General and administrative
119

 
118

 
481

 
434

Total operating expenses
764

 
689

 
3,021

 
2,664

Income from operations
1,016

 
1,098

 
4,796

 
3,868

Interest expense
60

 
57

 
234

 
198

Interest and other income, net
42

 
33

 
132

 
61

Income before income taxes
998

 
1,074

 
4,694

 
3,731

Provision for income taxes
122

 
92

 
1,381

 
297

Net income
$
876

 
$
982

 
$
3,313

 
$
3,434

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.90

 
$
0.92

 
$
3.27

 
$
3.20

Diluted
$
0.89

 
$
0.91

 
$
3.23

 
$
3.17

Weighted average number of shares:
 
 
 
 
 
 
 
Basic
974

 
1,064

 
1,013

 
1,073

Diluted
984

 
1,076

 
1,026

 
1,084







Applied Materials, Inc.
Page 7 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In millions)
October 28,
2018
 
October 29,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,440

 
$
5,010

Short-term investments
590

 
2,266

Accounts receivable, net
2,565

 
2,338

Inventories
3,722

 
2,930

Other current assets
430

 
374

Total current assets
10,747

 
12,918

Long-term investments
1,568

 
1,143

Property, plant and equipment, net
1,407

 
1,066

Goodwill
3,368

 
3,368

Purchased technology and other intangible assets, net
213

 
412

Deferred income taxes and other assets
470

 
512

Total assets
$
17,773

 
$
19,419

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
2,721

 
$
2,450

Customer deposits and deferred revenue
1,347

 
1,665

Total current liabilities
4,068

 
4,115

Long-term debt
5,309

 
5,304

Income taxes payable
1,254

 
392

Other liabilities
303

 
259

Total liabilities
10,934

 
10,070

Total stockholders’ equity
6,839

 
9,349

Total liabilities and stockholders’ equity
$
17,773

 
$
19,419








Applied Materials, Inc.
Page 8 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
(In millions)
Three Months Ended
 
Twelve Months Ended
October 28,
2018
 
October 29,
2017
October 28,
2018
 
October 29,
2017
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
876

 
$
982

 
$
3,313

 
$
3,434

Adjustments required to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
120

 
105

 
457

 
407

Share-based compensation
65

 
58

 
258

 
220

Deferred income taxes
(18
)
 
(17
)
 
94

 
(11
)
Other
—

 
(24
)
 
4

 
(9
)
Net change in operating assets and liabilities
34

 
(395
)
 
(339
)
 
(252
)
Cash provided by operating activities
1,077

 
709

 
3,787

 
3,789

Cash flows from investing activities:
 
 
 
 
 
 
 
Capital expenditures
(165
)
 
(124
)
 
(622
)
 
(345
)
Cash paid for acquisitions, net of cash acquired
(1
)
 
(12
)
 
(6
)
 
(68
)
Proceeds from sales and maturities of investments
453

 
921

 
3,276

 
2,743

Purchases of investments
(416
)
 
(1,314
)
 
(2,077
)
 
(4,856
)
Cash provided by (used in) investing activities
(129
)
 
(529
)
 
571

 
(2,526
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Debt borrowings, net of issuance costs
—

 
—

 
—

 
2,176

Debt repayments
—

 
—

 
—

 
(205
)
Proceeds from common stock issuances
68

 
50

 
124

 
97

Common stock repurchases
(751
)
 
(385
)
 
(5,283
)
 
(1,172
)
Tax withholding payments for vested equity awards
(4
)
 
(6
)
 
(164
)
 
(125
)
Payments of dividends to stockholders
(195
)
 
(107
)
 
(605
)
 
(430
)
Cash provided by (used in) financing activities
(882
)
 
(448
)
 
(5,928
)
 
341

Increase (decrease) in cash and cash equivalents
66

 
(268
)
 
(1,570
)
 
1,604

Cash and cash equivalents — beginning of period
3,374

 
5,278

 
5,010

 
3,406

Cash and cash equivalents — end of period
$
3,440

 
$
5,010

 
$
3,440

 
$
5,010

Supplemental cash flow information:
 
 
 
 
 
 
 
Cash payments for income taxes
$
19

 
$
26

 
$
300

 
$
194

Cash refunds from income taxes
$
12

 
$
44

 
$
63

 
$
61

Cash payments for interest
$
76

 
$
76

 
$
219

 
$
186






Applied Materials, Inc.
Page 9 of 13

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other
(In millions)
Q4 FY2018
 
Q4 FY2017
 
FY2018
 
FY2017
Unallocated net sales
$
26

 
$
30

 
$
98

 
$
103

Unallocated cost of products sold and expenses
(74
)
 
(119
)
 
(459
)
 
(507
)
Share-based compensation
(65
)
 
(58
)
 
(258
)
 
(220
)
Total
$
(113
)
 
$
(147
)
 
$
(619
)
 
$
(624
)
Additional Information
 
Q4 FY2018
 
Q4 FY2017
 
FY2018
 
FY2017
Net Sales by Geography (In millions)
 
 
 
 
 
United States
366

 
415

 
1,532

 
1,474

% of Total
9
%
 
10
%
 
9
%
 
10
%
Europe
250

 
227

 
1,066

 
816

% of Total
7
%
 
6
%
 
6
%
 
6
%
Japan
721

 
507

 
2,405

 
1,518

% of Total
18
%
 
13
%
 
14
%
 
10
%
Korea
537

 
1,175

 
3,603

 
4,052

% of Total
13
%
 
30
%
 
21
%
 
28
%
Taiwan
608

 
718

 
2,732

 
3,291

% of Total
15
%
 
18
%
 
16
%
 
23
%
Southeast Asia
201

 
330

 
802

 
640

% of Total
5
%
 
8
%
 
4
%
 
4
%
China
1,331

 
597

 
5,113

 
2,746

% of Total
33
%
 
15
%
 
30
%
 
19
%
 
 
 
 
 
 
 
 
Employees (In thousands)
 
 
 
 
 
 
 
Regular Full Time
21.0

 
18.4

 
 
 
 







Applied Materials, Inc.
Page 10 of 13
 APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 
Three Months Ended
 
Twelve Months Ended
(In millions, except percentages)
October 28,
2018
 
October 29,
2017
 
October 28,
2018
 
October 29,
2017
Non-GAAP Adjusted Gross Profit
 
 
 
 
 
 
 
Reported gross profit - GAAP basis
$
1,780

 
$
1,787

 
$
7,817

 
$
6,532

Certain items associated with acquisitions1
45

 
45

 
179

 
172

Non-GAAP adjusted gross profit
$
1,825

 
$
1,832

 
$
7,996

 
$
6,704

Non-GAAP adjusted gross margin
45.5
%
 
46.2
%
 
46.3
%
 
46.1
%
Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
 
Reported operating income - GAAP basis
$
1,016

 
$
1,098

 
$
4,796

 
$
3,868

Certain items associated with acquisitions1
50

 
49

 
197

 
191

Acquisition integration and deal costs
3

 
—

 
5

 
3

Other gains, losses or charges, net
—

 
(9
)
 
—

 
(12
)
Non-GAAP adjusted operating income
$
1,069

 
$
1,138

 
$
4,998

 
$
4,050

Non-GAAP adjusted operating margin
26.6
%
 
28.7
%
 
29.0
%
 
27.9
%
Non-GAAP Adjusted Net Income
 
 
 
 
 
 
 
Reported net income - GAAP basis
$
876

 
$
982

 
$
3,313

 
$
3,434

Certain items associated with acquisitions1
50

 
49

 
197

 
191

Acquisition integration and deal costs
3

 
—

 
5

 
3

Impairment (gain on sale) of strategic investments, net
(15
)
 
(7
)
 
(25
)
 
(3
)
Loss on early extinguishment of debt
—

 
—

 
—

 
5

Other gains, losses or charges, net
—

 
(9
)
 
—

 
(12
)
Income tax effect of share-based compensation2
13

 
—

 
—

 
—

Income tax effect of changes in applicable U.S. tax laws3
23

 
—

 
1,112

 
—

Resolution of prior years’ income tax filings and other tax items
6

 
(11
)
 
(26
)
 
(79
)
Income tax effect of non-GAAP adjustments4
—

 
1

 
(7
)
 
(14
)
Non-GAAP adjusted net income
$
956

 
$
1,005

 
$
4,569

 
$
3,525



1 
These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
 
 
2
Applied adopted the accounting standard related to share-based compensation (ASU 2016-09) in the first quarter of fiscal 2018, which resulted in $51 million tax benefit on a GAAP basis for fiscal 2018; this benefit was being recognized ratably over the fiscal year on a non-GAAP basis.
 
 
3
Charges to income tax provision related to a one-time transition tax and a decrease in U.S. deferred tax assets as a result of the recent U.S. tax legislation.
 
 
4
Adjustment to provision for income taxes related to non-GAAP adjustments reflected in income before income taxes.






Applied Materials, Inc.
Page 11 of 13

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 28,
2018
 
October 29,
2017
 
October 28,
2018
 
October 29,
2017
Non-GAAP Adjusted Earnings Per Diluted Share
 
 
 
 
 
 
 
Reported earnings per diluted share - GAAP basis
$
0.89

 
$
0.91

 
$
3.23

 
$
3.17

Certain items associated with acquisitions
0.05

 
0.04

 
0.18

 
0.16

Impairment (gain on sale) of strategic investments, net
(0.01
)
 
—

 
(0.02
)
 
—

Income tax effect of share-based compensation
0.01

 
—

 
—

 
—

Income tax effect of changes in applicable U.S. tax laws
0.02

 
—

 
1.08

 
—

Resolution of prior years’ income tax filings and other tax items
0.01

 
(0.01
)
 
(0.02
)
 
(0.07
)
Other gains, losses or charges, net
—

 
(0.01
)
 
—

 
(0.01
)
Non-GAAP adjusted earnings per diluted share
$
0.97

 
$
0.93

 
$
4.45

 
$
3.25

Weighted average number of diluted shares
984

 
1,076

 
1,026

 
1,084


 
 






Applied Materials, Inc.
Page 12 of 13
 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
 
Three Months Ended
 
Twelve Months Ended
(In millions, except percentages)
October 28,
2018
 
October 29,
2017
 
October 28,
2018
 
October 29,
2017
Semiconductor Systems Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
 
Reported operating income - GAAP basis
$
638

 
$
801

 
$
3,634

 
$
3,173

Certain items associated with acquisitions1
46

 
46

 
183

 
184

Non-GAAP adjusted operating income
$
684

 
$
847

 
$
3,817

 
$
3,357

Non-GAAP adjusted operating margin
29.6
%
 
34.8
%
 
35.0
%
 
35.3
%
AGS Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
 
Reported operating income - GAAP basis
$
289

 
$
232

 
$
1,102

 
$
817

Certain items associated with acquisitions1
—

 
—

 
—

 
1

Acquisition integration costs
1

 
—

 
2

 
3

Non-GAAP adjusted operating income
$
290

 
$
232

 
$
1,104

 
$
821

Non-GAAP adjusted operating margin
29.7
%
 
27.9
%
 
29.4
%
 
27.2
%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
 
Reported operating income - GAAP basis
$
202

 
$
212

 
$
679

 
$
502

Certain items associated with acquisitions1
4

 
3

 
14

 
5

Acquisition integration costs
—

 
—

 
1

 
—

Non-GAAP adjusted operating income
$
206

 
$
215

 
$
694

 
$
507

Non-GAAP adjusted operating margin
29.3
%
 
31.8
%
 
27.8
%
 
26.7
%
 
1 
These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.

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.
Page 13 of 13



UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
 
 
Three Months Ended
(In millions, except percentages)
October 28, 2018
 
 
Provision for income taxes - GAAP basis (a)
$
122

Income tax effect of share-based compensation
(13
)
Income tax effect of changes in applicable U.S. tax laws
(23
)
Resolutions of prior years’ income tax filings and other tax items
(6
)
Non-GAAP adjusted provision for income taxes (b)
$
80

 
 
Income before income taxes - GAAP basis (c)
$
998

Certain items associated with acquisitions
50

Acquisition integration and deal costs
3

Impairment (gain on sale) of strategic investments, net
(15
)
Non-GAAP adjusted income before income taxes (d)
$
1,036

 
 
Effective income tax rate - GAAP basis (a/c)
12.2
%
 
 
Non-GAAP adjusted effective income tax rate (b/d)
7.7
%