Three Months Ended Six Months Ended
April 28,
2019 April 29,
2018 April 28,
2019 April 29,
2018

(In millions)
Semiconductor Systems $ 10
$ 45
$ 21
$ 91
Applied Global Services 1
1
1
1
Display and Adjacent Markets 3
3
6
7
Total $ 14
$ 49
$ 28
$ 99

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Details of amortization expense by segment were as follows:


	Three Months Ended
	January 26, 2020		January 27, 2019
	(In millions)
Semiconductor Systems	$	10	$	11

Display and Adjacent Markets	4		3

Total	$	14	$	14

Amortization expense was charged to the following categories:


	Three Months Ended
	January 26, 2020		January 27, 2019

	(In millions)
Cost of products sold	$	9	$	9

Marketing and selling	5		5

Total	$	14	$	14

Three Months Ended Six Months Ended
April 28,
2019 April 29,
2018 April 28,
2019 April 29,
2018

(In millions)
Cost of products sold $ 10
$ 45
$ 19
$ 90
Marketing and selling 4
4
9
9
Total $ 14
$ 49
$ 28
$ 99

As of ~~April 28, 2019,~~January 26, 2020, future estimated amortization expense is expected to be as follows:


	Amortization Expense
	(In millions)
2020 (remaining 9 months)	$	38
2021	39
2022	24
2023	11
2024	10
Thereafter	20
Total	$	142

Amortization
Expense
(In millions)
2019 (remaining 6 months) $ 29
2020 52
2021 39
2022 24
2023 11
Thereafter 30
Total $ 185

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


~~Note 10~~	~~Borrowing Facilities and Debt~~

Note 11 Borrowing Facilities and Debt

Applied has credit facilities for unsecured borrowings in various currencies of up to ~~$1.6~~$1.6 billion,, of which ~~$1.5~~$1.5 billion is comprised of a committed revolving credit agreement with a group of banks that is scheduled to expire in September 2021. This agreement provides for borrowings in United States dollars at interest rates keyed to one of various benchmark rates selected by Applied for each advance, plus a margin based on Applied’s public debt rating and includes financial and other covenants. Remaining credit facilities in the amount of approximately ~~$72~~$73 million are with Japanese banks. Applied’s ability to borrow under these facilities is subject to bank approval at the time of the borrowing request, and any advances will be at rates indexed to the banks’ prime reference rate denominated in Japanese yen. No

In August 2019, Applied entered into a term loan credit agreement with a group of lenders. Under the agreement, the lenders have committed to make an unsecured term loan to Applied of up to $2.0 billion to finance in part Applied’s planned acquisition of all outstanding shares of Kokusai Electric, to pay related transaction fees and expenses and for general corporate purposes. The commitments of the lenders to make the term loan will terminate if the transactions contemplated by the SPA are not consummated on or before June 30, 2020, which date may be extended by three months on 2 separate occasions if, on the applicable date, the only remaining conditions to closing relate to required regulatory approvals. The term loan, if advanced, will bear interest at one of 2 rates selected by Applied, plus an applicable margin, which varies according to Applied’s public debt credit ratings, and must be repaid in full on the third anniversary of the funding date of the term loan.

NaN amounts were outstanding under any of these facilities ~~as of~~at both ~~April 28, 2019~~January 26, 2020 and October ~~28, 2018,~~27, 2019, and Applied has not utilized these credit facilities. In fiscal 2011, Applied established a short-term commercial paper program of up to $1.5 billion. ~~As of April 28,~~At January 26, 2020 and October 27, 2019, Applied did ~~not~~0t have any commercial paper outstanding.

Debt outstanding as of ~~April 28, 2019~~January 26, 2020 and October ~~28, 2018~~27, 2019 was as follows:


	Principal Amount
	January 26, 2020		October 27, 2019		Effective Interest Rate	Interest Pay Dates

	(In millions)
Current portion of long-term debt
2.625% Senior Notes Due 2020	$	600	$	600	2.640%	April 1, October 1


Total current portion of long-term debt	600		600
Long-term debt:


4.300% Senior Notes Due 2021	750		750		4.326%	June 15, December 15
3.900% Senior Notes Due 2025	700		700		3.944%	April 1, October 1
3.300% Senior Notes Due 2027	1,200		1,200		3.342%	April 1, October 1
5.100% Senior Notes Due 2035	500		500		5.127%	April 1, October 1
5.850% Senior Notes Due 2041	600		600		5.879%	June 15, December 15
4.350% Senior Notes Due 2047	1,000		1,000		4.361%	April 1, October 1
	4,750		4,750
Total unamortized discount	(10)		(10)
Total unamortized debt issuance costs	(26)		(27)
Total long-term debt	$	4,714	$	4,713

Total debt	$	5,314	$	5,313

Principal Amount
April 28,
2019 October 28,
2018
Effective
Interest Rate

Interest
Pay Dates

(In millions)
Long-term debt:
2.625% Senior Notes Due 2020 $ 600
$ 600
2.640% April 1, October 1
4.300% Senior Notes Due 2021 750
750
4.326% June 15, December 15
3.900% Senior Notes Due 2025 700
700
3.944% April 1, October 1
3.300% Senior Notes Due 2027 1,200
1,200
3.342% April 1, October 1
5.100% Senior Notes Due 2035 500
500
5.127% April 1, October 1
5.850% Senior Notes Due 2041 600
600
5.879% June 15, December 15
4.350% Senior Notes Due 2047 1,000
1,000
4.361% April 1, October 1
5,350
5,350

Total unamortized discount (10 ) (11 )
Total unamortized debt issuance costs
(29 ) (30 )
Total long-term debt $ 5,311
$ 5,309

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Note 12 Leases

A contract contains a lease when Applied has the right to control the use of an identified asset for a period of time in exchange for consideration. Applied leases certain facilities, vehicles and equipment under non-cancelable operating leases, many of which include options to renew. Options that are reasonably certain to be exercised are included in the calculation of the right-of-use asset and lease liability. Applied's leases do not contain residual value guarantees or significant restrictions that impact the accounting for leases. As implicit rates are not available for the leases, Applied uses the incremental borrowing rate as of the lease commencement date in order to measure the right-of-use asset and liability. Operating lease expense is generally recognized on a straight-line basis over the lease term.

Applied elected the practical expedient to account for lease and non-lease components as a single lease component for all leases. For leases with a term of one year or less, Applied elected not to record a right-of-use asset or lease liability and to account for the associated lease payments as they become due.

The components of lease expense and supplemental information were as follows:


	Three Months Ended
	January 26, 2020
	(In millions, except percentages)
Operating lease expense	$	13
Weighted-average remaining lease term (in years)	5.5
Weighted-average discount rate	1.8		%

Supplemental cash flow information related to leases are as follows:


	Three Months Ended
	January 26, 2020
	(In millions)
Operating cash flows paid for operating leases	$	13
Right-of-use assets obtained in exchange for operating lease liabilities	$	5

As of January 26, 2020, the maturities of lease liabilities are as follows:


	Operating Leases
Fiscal	(In millions)
2020 (remaining 9 months)	$	35
2021	37
2022	26
2023	22
2024	18
Thereafter	30
Total lease payments	$	168
Less imputed interest	(8)
Total	$	160

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

As of October 27, 2019, future minimum lease payments were as follows:


	Lease Payments
Fiscal	(In millions)
2020	$	45
2021	34
2022	24
2023	21
2024	17
Thereafter	30
	$	171


~~Note 11~~	~~Stockholders’ Equity, Comprehensive Income and Share-Based Compensation~~

Note 13 Stockholders’ Equity, Comprehensive Income and Share-Based Compensation

Accumulated Other Comprehensive Income (Loss)

Changes in the components of AOCI, net of tax, were as follows:


	Unrealized Gain on Investments, Net		Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges		Defined and Postretirement Benefit Plans		Cumulative Translation Adjustments		Total

	(in millions)
Balance as of October 27, 2019	$	11	$	(16)	$	(188)	$	13	$	(180)


Other comprehensive income (loss) before reclassifications	3		(9)		—		—		(6)
Amounts reclassified out of AOCI	(1)		(1)		—		—		(2)
Other comprehensive income (loss), net of tax	2		(10)		—		—		(8)

Balance as of January 26, 2020	$	13	$	(26)	$	(188)	$	13	$	(188)

Unrealized Gain on Investments, Net Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges Defined and Postretirement Benefit Plans Cumulative Translation Adjustments Total

(in millions)
Balance as of October 28, 2018 $ 7
$ (9 ) $ (137 ) $ 14
$ (125 )
Adoption of new accounting standards (a) (17 ) —
—
—
(17 )

Other comprehensive income (loss) before reclassifications 13
(4 ) —
(1 ) 8
Amounts reclassified out of AOCI —
(4 ) —
—
(4 )
Other comprehensive income (loss), net of tax 13
(8 ) —
(1 ) 4

Balance as of April 28, 2019 $ 3
$ (17 ) $ (137 ) $ 13
$ (138 )


	Unrealized Gain (Loss) on Investments, Net		Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges		Defined and Postretirement Benefit Plans		Cumulative Translation Adjustments		Total

	(in millions)
Balance as of October 28, 2018	$	7	$	(9)	$	(137)	$	14	$	(125)
Adoption of new accounting standards (a)	(17)		—		—		—		(17)

Other comprehensive income (loss) before reclassifications	5		(12)		—		—		(7)
Amounts reclassified out of AOCI	—		(5)		—		—		(5)
Other comprehensive income (loss), net of tax	5		(17)		—		—		(12)
Balance as of January 27, 2019	$	(5)	$	(26)	$	(137)	$	14	$	(154)

(a) - Represents the reclassification adjustment related to the adoption of Accounting Standard Update (ASU) 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities in the first quarter of fiscal 2019. ~~See Note 1.~~

Unrealized Gain (Loss) on Investments, Net Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges Defined and Postretirement Benefit Plans Cumulative Translation Adjustments Total

(in millions)
Balance as of October 29, 2017 $ 53
$ (11 ) $ (120 ) $ 14
$ (64 )
Other comprehensive income (loss) before reclassifications (3 ) (13 ) —
—
(16 )
Amounts reclassified out of AOCI 2
2
(2 ) —
2
Other comprehensive income (loss), net of tax (1 ) (11 ) (2 ) —
(14 )
Balance as of April 29, 2018 $ 52
$ (22 ) $ (122 ) $ 14
$ (78 )

The tax effects on net income of amounts reclassified from AOCI for the three ~~and six~~ months ended ~~April 28,~~January 26, 2020 and January 27, 2019 ~~and April 29, 2018~~ were not material.

3025

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Stock Repurchase Program

In February 2018, the Board of Directors approved a common stock repurchase program authorizing up to an aggregate of $6.0 billion in repurchases. As of ~~April 28, 2019,~~January 26, 2020, approximately ~~$3.0~~$1.7 billion remained available for future stock repurchases under this repurchase program.

The following table summarizes Applied’s stock repurchases for the three ~~and six~~ months ended ~~April 28, 2019~~January 26, 2020 and ~~April 29, 2018:~~January 27, 2019:


	Three Months Ended				Six Months Ended					Three Months Ended
	April 28, 2019		April 29, 2018		April 28, 2019		April 29, 2018			January 26, 2020		January 27, 2019

	(in millions, except per share amount)									(in millions, except per share amount)
Shares of common stock repurchased	16		44		38		59		Shares of common stock repurchased	3		22
Cost of stock repurchased	$	625	$	2,500	$	1,375	$	3,282	Cost of stock repurchased	$	200	$	750
Average price paid per share	$	39.91	$	56.35	$	36.48	$	55.62	Average price paid per share	$	58.62	$	34.04

Applied records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid in capital. If Applied reissues treasury stock at an amount below its acquisition cost and additional paid in capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against retained earnings.

Dividends

In ~~March~~December 2019, ~~and December 2018,~~ Applied’s Board of Directors declared a quarterly cash ~~dividends,~~dividend, payable in March 2020, in the amount of $0.21 ~~and $0.20~~ per ~~share, respectively. The dividend declared in March 2019 is payable in June 2019.~~share. Dividends paid during the ~~six~~three months ended ~~April 28,~~January 26, 2020 and January 27, 2019 ~~and April 29, 2018~~each totaled ~~$381 million and $211 million, respectively.~~$192 million. Applied currently anticipates that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on Applied’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of Applied’s stockholders.

Share-Based Compensation

Applied has a stockholder-approved equity plan, the Employee Stock Incentive Plan, which permits grants to employees of share-based awards, including stock options, restricted stock, restricted stock units, performance shares and performance units. In addition, the plan provides for the automatic grant of restricted stock units to non-employee directors and permits the grant of share-based awards to non-employee directors and consultants. Share-based awards made under the plan may be subject to accelerated vesting under certain circumstances in the event of a change in control of Applied. Applied also has ~~two~~2 Employee Stock Purchase Plans, ~~one~~1 generally for United States employees and a second for employees of international subsidiaries (collectively, ESPP), which enable eligible employees to purchase Applied common stock.

During the three ~~and six~~ months ended ~~April 28,~~January 26, 2020 and January 27, 2019, ~~and April 29, 2018,~~ Applied recognized share-based compensation expense related equity awards and ESPP shares. The effect of share-based compensation on the results of operations was as follows:


	Three Months Ended
	January 26, 2020		January 27, 2019

	(In millions)
Cost of products sold	$	31	$	22
Research, development and engineering	35		24
Marketing and selling	11		8
General and administrative	16		11

Total share-based compensation	$	93	$	65

Three Months Ended Six Months Ended
April 28,
2019 April 29,
2018 April 28,
2019 April 29,
2018

(In millions)
Cost of products sold $ 22
$ 21
$ 44
$ 43
Research, development and engineering 25
24
49
48
Marketing and selling 7
8
15
16
General and administrative 11
11
22
22
Total share-based compensation $ 65
$ 64
$ 130
$ 129

Share-based expense in the first quarter of fiscal 2020 increased compared to the same period in the prior year primarily due to expense related to awards with provisions that became effective in the first quarter of fiscal 2020 that allow partial accelerated vesting in the event of a qualifying retirement.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

The cost associated with share-based awards that are subject solely to time-based vesting requirements, less expected forfeitures, is recognized over the awards’ service period for the entire award on a straight-line basis. Share-based awards granted to certain executive officers allow partial accelerated vesting in the event of a qualifying retirement based on age and years of service. The cost associated with performance-based equity awards, which include both performance and market goals, is recognized for each tranche over the service period. The cost of equity awards related to performance goals is based on an assessment of the likelihood that the applicable performance goals will be achieved. For the equity awards based on market goals, the cost is recognized based upon the assumption of 100% achievement of the goal.

As of ~~April 28, 2019~~,January 26, 2020, Applied had ~~$470~~$533 million in total unrecognized compensation expense, net of estimated forfeitures, related to grants of share-based awards and shares issued under Applied’s ESPP, which will be recognized over a weighted average period of ~~2.6~~2.9 years. As of ~~April 28, 2019~~,January 26, 2020, there were 6757 million shares available for grants of share-based awards under the Employee Stock Incentive Plan, and an additional 1513 million shares available for issuance under the ESPP.

Restricted Stock Units, Restricted Stock, Performance Shares and Performance Units

A summary of the changes in any restricted stock units, restricted stock, performance shares and performance units outstanding under Applied’s equity compensation plans during the ~~six~~three months ended ~~April 28, 2019~~January 26, 2020 is presented below:


						Shares	Weighted Average Grant Date Fair Value
	Shares		Weighted Average Grant Date Fair Value
						(In millions, except per share amounts)
	(In millions, except per share amounts)
Outstanding as of October 28, 2018	18		$	32.64
Outstanding as of October 27, 2019					Outstanding as of October 27, 2019	18	$	35.78
Granted	7		$	35.42	Granted	5	$	53.61
Vested	(7	)	$	28.09	Vested	(7)	$	30.76
Canceled	—		$	33.52	Canceled	—	$	39.47
Outstanding as of April 28, 2019	18		$	35.47
Outstanding as of January 26, 2020					Outstanding as of January 26, 2020	16	$	44.14

Table of Contents

The following tables present a reconciliation of the GAAP and non-GAAP adjusted consolidated results:

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS


	Three Months Ended
(In millions, except percentages)	January 26, 2020			January 27, 2019
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis	$	1,858		$	1,665
Certain items associated with acquisitions¹	9			10


Non-GAAP adjusted gross profit	$	1,867		$	1,675
Non-GAAP adjusted gross margin	44.9		%	44.6		%
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,042		$	908
Certain items associated with acquisitions¹	13			14
Acquisition integration and deal costs	13			3







Non-GAAP adjusted operating income	$	1,068		$	925
Non-GAAP adjusted operating margin	25.7		%	24.6		%
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis	$	892		$	771
Certain items associated with acquisitions¹	13			14
Acquisition integration and deal costs	13			3





Impairment (gain on sale) of strategic investments, net	2			(2)
Loss (gain) on strategic investments, net	2			(10)




Income tax effect of share-based compensation²	(33)			(5)
Income tax effect of changes in applicable U.S. tax laws³	—			(24)
Income tax effects related to amortization of intra-entity intangible asset transfers	21			(28)
Resolution of prior years’ income tax filings and other tax items	(1)			59
Income tax effect of non-GAAP adjustments⁴	(5)			1
Non-GAAP adjusted net income	$	904		$	779

Three Months Ended Six Months Ended
(In millions, except percentages) April 28,
2019 April 29,
2018 April 28,
2019 April 29,
2018
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis $ 1,530
$ 2,056
$ 3,195
$ 3,996
Certain items associated with acquisitions¹
9
44
19
89
Non-GAAP adjusted gross profit $ 1,539
$ 2,100
$ 3,214
$ 4,085
Non-GAAP adjusted gross margin 43.5 % 45.9 % 44.1 % 46.5 %
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 776
$ 1,292
$ 1,684
$ 2,507
Certain items associated with acquisitions¹
14
49
28
98
Acquisition integration and deal costs 4
1
7
2
Non-GAAP adjusted operating income $ 794
$ 1,342
$ 1,719
$ 2,607
Non-GAAP adjusted operating margin 22.4 % 29.3 % 23.6 % 29.7 %
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis $ 666
$ 1,100
$ 1,437
$ 1,265
Certain items associated with acquisitions¹
14
49
28
98
Acquisition integration and deal costs 4
1
7
2
Impairment (gain on sale) of strategic investments, net —
5
—
4
Loss (gain) on strategic investments, net (11 ) —
(23 ) —
Income tax effect of share-based compensation²
1
13
(4 ) (26 )
Income tax effect of changes in applicable U.S. tax laws³
—
71
(24 ) 1,077
Income tax effects related to amortization of intra-entity intangible asset transfers (31 ) —
(59 ) —
Resolution of prior years’ income tax filings and other tax items 17
10
76
(3 )
Income tax effect of non-GAAP adjustments⁴
—
(5 ) 1
(8 )
Non-GAAP adjusted net income $ 660
$ 1,244
$ 1,439
$ 2,409



1			These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2






2			GAAP basis tax benefit related to share-based compensation is ~~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.

Table of Contents

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS


	Three Months Ended
(In millions, except per share amounts)	January 26, 2020		January 27, 2019

Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis	$	0.96	$	0.80
Certain items associated with acquisitions	0.01		0.01
Acquisition integration and deal costs	0.01		—





Loss (gain) on strategic investments, net	—		(0.01)

Income tax effect of share-based compensation	(0.03)		—
Income tax effect of changes in applicable U.S. tax laws	—		(0.02)
Income tax effects related to amortization of intra-entity intangible asset transfers	0.03		(0.03)
Resolution of prior years’ income tax filings and other tax items	—		0.06


Non-GAAP adjusted earnings per diluted share	$	0.98	$	0.81
Weighted average number of diluted shares	927		965

Three Months Ended Six Months Ended
(In millions, except per share amounts) April 28,
2019 April 29,
2018 April 28,
2019 April 29,
2018

Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis $ 0.70
$ 1.06
$ 1.50
$ 1.20
Certain items associated with acquisitions 0.01
0.04
0.03
0.09
Loss (gain) on strategic investments, net —
—
(0.02 ) —
Income tax effect of share-based compensation —
0.01
(0.01 ) (0.03 )
Income tax effect of changes in applicable U.S. tax laws —
0.07
(0.02 ) 1.02
Income tax effects related to amortization of intra-entity intangible asset transfers (0.03 ) —
(0.06 ) —
Resolution of prior years’ income tax filings and other tax items 0.02
0.01
0.08
—
Non-GAAP adjusted earnings per diluted share $ 0.70
$ 1.19
$ 1.50
$ 2.28
Weighted average number of diluted shares 948
1,040
957
1,056

Table of Contents

The following table presents a reconciliation of the GAAP and non-GAAP adjusted segment results:

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS


	Three Months Ended
(In millions, except percentages)	January 26, 2020			January 27, 2019

Semiconductor Systems Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	915		$	631
Certain items associated with acquisitions¹	10			11

Non-GAAP adjusted operating income	$	925		$	642
Non-GAAP adjusted operating margin	32.9		%	28.3		%
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	278		$	285




Non-GAAP adjusted operating income	$	278		$	285
Non-GAAP adjusted operating margin	27.9		%	29.6		%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	38		$	115
Certain items associated with acquisitions¹	3			3

Non-GAAP adjusted operating income	$	41		$	118
Non-GAAP adjusted operating margin	12.3		%	23.3		%

Three Months Ended Six Months Ended
(In millions, except percentages) April 28,
2019 April 29,
2018 April 28,
2019 April 29,
2018

Semiconductor Systems Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 579
$ 992
$ 1,210
$ 2,016
Certain items associated with acquisitions¹
10
46
21
92
Non-GAAP adjusted operating income $ 589
$ 1,038
$ 1,231
$ 2,108
Non-GAAP adjusted operating margin 27.0 % 35.8 % 27.7 % 36.6 %
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 283
$ 279
$ 568
$ 534
Acquisition integration costs —
—
—
1
Non-GAAP adjusted operating income $ 283
$ 279
$ 568
$ 535
Non-GAAP adjusted operating margin 28.8 % 29.5 % 29.2 % 29.3 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 42
$ 210
$ 157
$ 300
Certain items associated with acquisitions¹
4
3
7
6
Acquisition integration costs —
1
—
1
Non-GAAP adjusted operating income $ 46
$ 214
$ 164
$ 307
Non-GAAP adjusted operating margin 13.2 % 29.8 % 19.2 % 26.4 %



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.

Table of Contents


~~Item 3:~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Applied is exposed to interest rate risk related to its investment portfolio and debt issuances. Applied’s investment portfolio includes fixed-income securities with a fair value of approximately ~~$2.0~~$2.1 billion as of ~~April 28, 2019~~.January 26, 2020. These securities are subject to interest rate risk and will decline in value if interest rates increase. Based on Applied’s investment portfolio as of ~~April 28, 2019~~,January 26, 2020, an immediate 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of approximately ~~$26~~$29 million. While an increase in interest rates reduces the fair value of the investment portfolio, Applied will not realize the losses in the consolidated statement of operations unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary. As of ~~April 28, 2019~~,January 26, 2020, the aggregate principal of long-term debt issued by Applied was ~~$5.4~~$4.8 billion with an estimated fair value of ~~$5.7 billion~~.$5.6 billion. A hypothetical decrease in interest rates of 100 basis points would result in an increase in the fair value of Applied’s long-term debt issuances of approximately ~~$515~~$564 million as of ~~April 28, 2019~~.January 26, 2020.

Certain operations of Applied are conducted in foreign currencies, such as Japanese yen, euro, Israeli shekel and Taiwanese dollar. Applied enters into currency forward exchange and option contracts to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions generally expected to occur within the next 24 months. Gains and losses on these contracts are generally recognized in income at the time that the related transactions being hedged are recognized. Because the effect of movements in currency exchange rates on currency forward exchange and option contracts generally offsets the related effect on the underlying items being hedged, these financial instruments are not expected to subject Applied to risks that would otherwise result from changes in currency exchange rates. Applied does not use derivative financial instruments for trading or speculative purposes.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, management of Applied conducted an evaluation, under the supervision and with the participation of Applied’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of Applied’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, Applied’s Chief Executive Officer and Chief Financial Officer concluded that Applied’s disclosure controls and procedures were effective as of the end of the period covered by this report in ensuring that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by Applied in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the ~~second~~first quarter of fiscal ~~2019, there~~2020, Applied implemented controls and processes relating to adoption of the new lease accounting standard that the Company adopted in the beginning of fiscal 2020. Throughout the implementation, Applied evaluated the impact of the adoption of the new standard on its internal control over financial reporting and made changes to controls where necessary to maintain the effectiveness of internal control over financial reporting in all material respects. There were no other changes in the internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act, that materially affected, or are reasonably likely to materially affect, Applied’s internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under “Legal Matters” in Note 1315 in Notes to Consolidated Condensed Financial Statements is incorporated herein by reference.

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~~Item 1A:~~	~~Risk Factors~~

Item 1A: Risk Factors

The risk factors set forth below include any material changes to, and supersede the description of, the risk factors disclosed in Part I, Item 1A of Applied’s ~~2018~~2019 Form 10-K. These factors could materially and adversely affect Applied’s business, financial condition or results of operations and cause reputational harm, and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.

The industries that Applied serves can be volatile and difficult to predict.

As a supplier to the global semiconductor and display and related industries, Applied is subject to variable industry conditions, assince demand for manufacturing equipment and services can change depending on several factors, including the nature and timing of technology inflections and advances in fabrication processes, the timing and requirements of new and emerging technologies and market drivers, production capacity relative to demand for chips and display technologies, end-user demand, customers’ capacity utilization, production volumes, access to affordable capital, consumer buying patterns and general economic conditions. Applied’s industries historically have been cyclical, and are subject to volatility and sudden changes in customer requirements for new manufacturing capacity and advanced technology. These changes can affect the timing and amounts of customer investments in technology and manufacturing equipment and can have a significant impact on Applied’s net sales, operating expenses, gross margins and net income. The amount and mix of capital equipment spending between different products and technologies can have a significant impact on the Company’s results of operations.

To meet rapidly changing demand in the industries it serves, Applied must accurately forecast demand and effectively manage its resources and production capacity across its businesses, and may incur unexpected or additional costs to align its business operations. During periods of increasing demand for its products, Applied must have sufficient manufacturing capacity and inventory to meet customer demand; effectively manage its supply chain; attract, retain and motivate a sufficient number of qualified employees; and continue to control costs. During periods of decreasing demand, Applied must reduce costs and align its cost structure with prevailing market conditions; effectively manage its supply chain; and motivate and retain key employees. If Applied does not effectively manage these challenges during periods of changing demand, its business performance and results of operations may be adversely impacted. Even with effective allocation of resources and management of costs, during periods of decreasing demand, Applied’s gross margins and earnings may be adversely impacted.

Applied is exposed to the risks of operating a global business.

Applied has product development, engineering, manufacturing, sales and other operations distributed throughout many countries, and some of its business activities are concentrated in certain geographic areas. Moreover, in the three months ended January 26, 2020, approximately 90 percent of Applied’s net sales were to customers in regions outside the United States. As a result of the global nature of its operations, Applied’s business performance and results of operations may be adversely affected by a number of factors, including:

•uncertain global economic and political business conditions and demands;

•political and social attitudes, laws, rules, regulations and policies within countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the development and growth of local competitors;

•global trade issues and changes in and uncertainties with respect to trade policies, including the ability to obtain required import and export licenses, trade sanctions, tariffs, and international trade disputes;

•customer- or government-supported efforts to influence Applied to conduct more of its operations and sourcing in a particular country, such as Korea and China;

•variations among, and changes in, local, regional, national or international laws and regulations, including contract, intellectual property, cybersecurity, data privacy, labor, tax, and import/export laws, and the interpretation and application of such laws and regulations;

•ineffective or inadequate legal protection of intellectual property rights in certain countries;

•positions taken by governmental agencies regarding possible national commercial and/or security issues posed by international business operations;

•fluctuating raw material, commodity, energy and shipping costs;

•delays or restrictions in shipping materials or finished products between countries;

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•geographically diverse operations and projects, and our ability to maintain appropriate business processes, procedures and internal controls, and comply with environmental, health and safety, anti-corruption and other regulatory requirements;

•supply chain interruptions, and service interruptions from utilities, transportation, data hosting or telecommunications providers, or other events beyond our control;

•failure to effectively manage a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, and differing employment practices and labor issues;

•variations in the ability to develop relationships with local customers, suppliers and governments;

•fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against the Japanese yen, Israeli shekel, euro, Taiwanese dollar, Singapore dollar, Chinese yuan or Korean won;

•the need to provide sufficient levels of technical support in different locations around the world;

•performance of third party providers of outsourced functions, including certain engineering, software development, manufacturing, information technology and other activities;

•political instability, natural disasters, regional or global health epidemics, social unrest, terrorism or acts of war in locations where Applied has operations, suppliers or sales, or that may influence the value chain of the industries that Applied serves;

•challenges in hiring and integration of an increasing number of workers in new countries;

•the increasing need for a mobile workforce to work in or travel to different regions; and

•uncertainties with respect to economic growth rates in various countries, including for the manufacture and sale of semiconductors and displays in the developing economies of certain countries.

For example, the recent coronavirus COVID-19 outbreak in China has impacted and could further impact Applied’s operations, customers and suppliers in China and potentially in other geographies as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak.

International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could have an adverse impact on our operations.

We sell a significant majority of our products into countries outside of the United States including China, Taiwan and Korea. We also purchase a significant portion of equipment and supplies from suppliers outside of the United States. The United States and other countries have imposed and may continue to impose trade restrictions, and have also levied tariffs and taxes on certain goods. Increases in tariffs, additional taxes or other trade restrictions and retaliatory measures may increasingly impact end-user demand and customer investment in manufacturing equipment, increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.

Certain international sales depend on our ability to obtain export licenses, and our inability to obtain such licenses could potentially limit our markets and impact our business. In addition, government authorities may impose conditions that require the use of local suppliers or partnerships with local companies, require the license or other transfer of intellectual property, or engage in other efforts to promote local businesses and local competitors, which could have a significant adverse impact on Applied’s business. Many of these challenges are present in China and Korea, markets that represent a significant portion of Applied’s current business as well as long-term growth opportunities.

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Applied is exposed to risks associated with an uncertain global economy.

Uncertain global economic and business conditions, along with uncertainties and volatility in the financial markets, national debt and fiscal concerns in various regions, pose challenges to the industries in which Applied operates. Markets for semiconductors and displays depend largely on business and consumer spending and demand for electronic products. Economic uncertainty and related factors exacerbate negative trends in business and consumer spending and may cause certain Applied customers to push out, cancel, or refrain from purchasing for equipment or services, which may have an adverse impact on Applied’s revenues, results of operations and financial condition. Uncertain market conditions, difficulties in obtaining capital, or reduced profitability may also cause some customers to scale back operations, exit businesses, merge with other manufacturers, or file for bankruptcy protection and potentially cease operations, which can also result in lower sales, additional inventory or bad debt expense for Applied. Economic and industry uncertainty may similarly affect suppliers, which could impair their ability to deliver parts and negatively affect Applied’s ability to manage operations and deliver its products. These conditions may also lead to consolidation or strategic alliances among other equipment manufacturers, which could adversely affect Applied’s ability to compete effectively.

Uncertain economic and industry conditions also make it more challenging for Applied to forecast its operating results, make business decisions, and identify and prioritize the risks that may affect its businesses, sources and uses of cash, financial condition and results of operations. If Applied does not appropriately manage its business operations in response to changing economic and industry conditions, it could have a significant negative impact on its business performance and financial condition. Applied may be required to implement additional cost reduction efforts, including restructuring activities, which may adversely affect Applied’s ability to capitalize on opportunities. Even during periods of economic uncertainty or lower revenues, Applied must continue to invest in research and development and maintain a global business infrastructure to compete effectively and support its customers, which can have a negative impact on its operating margins and earnings.

Applied maintains an investment portfolio that is subject to general credit, liquidity, market and interest rate risks. The risks to Applied’s investment portfolio may be exacerbated if financial market conditions deteriorate and, as a result, the value and liquidity of the investment portfolio, as well as returns on pension assets, could be negatively impacted and lead to impairment charges. Applied also maintains cash balances in various bank accounts globally in order to fund normal operations. If any of these financial institutions becomes insolvent, it could limit Applied’s ability to access cash in the affected accounts, which could affect its ability to manage its operations.

Applied is exposed to ~~the risks of operating a global business.~~

Applied has product development, engineering, manufacturing, sales and other operations distributed throughout many countries, and some of its business activities are concentrated in certain geographic areas. Moreover, in the three months ended April 28, 2019, approximately 87 percent of Applied’s net sales were to customers in regions outside the United States. As a result of the global nature of its operations, Applied’s business performance and results of operations may be adversely affected by a number of factors, including:

~~uncertain global economic and political business conditions and demands;~~

political and social attitudes, laws, rules, regulations and policies within countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the development and growth of local competitors;

global trade issues and changes in and uncertainties with respect to trade policies, including the ability to obtain required import and export licenses, trade sanctions, tariffs, and international trade disputes;

~~customer- or government-supported efforts to influence Applied to conduct more of its operations and sourcing in a particular country, such as Korea and China;~~

variations among, and changes in, local, regional, national or international laws and regulations, including contract, intellectual property, cybersecurity, data privacy, labor, tax, and import/export laws, and the interpretation and application of such laws and regulations;

~~ineffective or inadequate legal protection of intellectual property rights in certain countries;~~

~~positions taken by governmental agencies regarding possible national commercial and/or security issues posed by international business operations;~~

~~fluctuating raw material, commodity, energy and shipping costs;~~

~~delays or restrictions in shipping materials or finished products between countries;~~

geographically diverse operations and projects, and our ability to maintain appropriate business processes, procedures and internal controls, and comply with environmental, health and safety, anti-corruption and other regulatory requirements;

~~supply chain interruptions, and service interruptions from utilities, transportation, data hosting or telecommunications providers, or other events beyond our control;~~

~~a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, and differing employment practices and labor issues;~~

~~variations in the ability to develop relationships with local customers, suppliers and governments;~~

fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against the Japanese yen, euro, Taiwanese dollar, Israeli shekel, Chinese yuan or Singapore dollar;

~~the need to provide sufficient levels of technical support in different locations around the world;~~

~~performance of third party providers of outsourced functions, including certain engineering, software development, manufacturing, information technology and other activities;~~

political instability, natural disasters, pandemics, social unrest, terrorism or acts of war in locations where Applied has operations, suppliers or sales, or that may influence the value chain of the industries that Applied serves;

~~challenges in hiring and integration of an increasing number of workers in new countries;~~

~~the increasing need for a mobile workforce to work in or travel to different regions; and~~

~~uncertainties with respect to economic growth rates in various countries, including for the manufacture and sale of semiconductors and displays in the developing economies of certain countries.~~

~~International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could have an adverse impact on our operations.~~

We sell a significant majority of our products into countries outside of the United States including China. We also purchase a significant portion of equipment and supplies from suppliers outside of the United States. The United States and other countries have levied tariffs and taxes on certain goods. Increases in tariffs, additional taxes or other trade restrictions and retaliatory measures may impact end-user demand and customer investment in manufacturing equipment, increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.

~~Applied is exposed to~~ risks associated with a highly concentrated customer base.

Applied’s customer base is highly concentrated, and has become increasingly so as a result of continued consolidation. Applied’s customer base is also geographically ~~concentrated.~~concentrated, particularly in China, Taiwan and Korea. A relatively limited number of manufacturers account for a substantial portion of Applied’s business. As a result, the actions of even a single customer can expose Applied’s business and results of operations to greater volatility. The mix and type of customers, and sales to any single customer, including as a result of changes in government policy, have varied and may vary significantly from quarter to quarter and from year to year, and have a significant impact on Applied’s net sales, gross margins and net income. Applied’s products are configured to customer specifications, and changing, rescheduling or canceling orders may result in significant, non-recoverable costs. If customers do not place orders, or they substantially reduce, delay or cancel orders, Applied may not be able to replace the business, which may have a significant adverse impact on its results of operations and financial condition. The concentration of Applied’s customer base increases its risks related to the financial condition of its customers, and the deterioration in financial condition of a single customer or the failure of a single customer to perform its obligations could have a material adverse effect on Applied’s results of operations and cash flow. To the extent its customers experience liquidity constraints, Applied may incur additional bad debt expense, which may have a significant impact on its results of operations. Major customers may also seek pricing, payment, intellectual property-related, or other commercial terms that are less favorable to Applied, which may have a negative impact on Applied’s business, cash flow, revenue and gross margins.

Applied is exposed to risks as a result of ongoing changes in the various industries in which it operates.

The global semiconductor, display and related industries in which Applied operates are characterized by ongoing changes affecting some or all of these industries that impact demand for and the profitability of Applied’s products and its consolidated results of operations, including:

•the nature, timing and degree of visibility of changes in end demand for electronic products, including those related to fluctuations in consumer buying patterns tied to seasonality or the introduction of new products, and the effects of these changes on customers’ businesses and on demand for Applied’s products;

•increasing capital requirements for building and operating new fabrication plants and customers’ ability to raise the necessary capital;

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•trade, regulatory or tax policies impacting the timing of customers’ investment in new or expanded fabrication plants;

•differences in growth rates among the semiconductor, display and other industries in which Applied operates;

•the increasing importance of establishing, improving and maintaining strong relationships with customers;

•the increasing cost and complexity for customers to move from product design to volume manufacturing, which may slow the adoption rate of new manufacturing technology;

•the need for customers to continually reduce the total cost of manufacturing system ownership;

•the heightened importance to customers of system reliability and productivity and the effect on demand for fabrication systems as a result of their increasing productivity, device yield and reliability;

•manufacturers’ ability to reconfigure and re-use fabrication systems which can reduce demand for new equipment;

•the increasing importance of, and difficulties in, developing products with sufficient differentiation to influence customers’ purchasing decisions;

•requirements for shorter cycle times for the development, manufacture and installation of manufacturing equipment;

•price and performance trends for semiconductor devices and displays, and the corresponding effect on demand for such products;

•the increasing importance of the availability of spare parts to maximize the time that customers’ systems are available for production;

•the increasing role for and complexity of software in Applied products; and

•the increasing focus on reducing energy usage and improving the environmental impact and sustainability associated with manufacturing operations.

Applied is exposed to risks as a result of ongoing changes specific to the semiconductor industry.

The largest proportion of Applied’s consolidated net sales and profitability is derived from sales of manufacturing equipment in the Semiconductor Systems segment to the global semiconductor industry. In addition, a majority of the revenues of Applied Global Services is from sales to semiconductor manufacturers. The semiconductor industry is characterized by ongoing changes particular to this industry that impact demand for and the profitability of Applied’s semiconductor ~~manfuacturing~~manufacturing equipment and service products, including:

•the increasing frequency and complexity of technology transitions and inflections, and Applied’s ability to timely and effectively anticipate and adapt to these changes;

•the increasing cost of research and development due to many factors, including shrinking geometries, the use of new materials, new and more complex device structures, more applications and process steps, increasing chip design costs, and the increasing cost and complexity of integrated manufacturing processes;

•the need to reduce product development time, despite the increasing difficulty of technical challenges;

•the growing number of types and varieties of semiconductors and number of applications across multiple substrate sizes;

•the increasing cost and complexity for semiconductor manufacturers to move more technically advanced capability and smaller geometries to volume manufacturing, and the resulting impact on the rates of technology transition and investment in capital equipment;

•challenges in generating organic growth given semiconductor manufacturers’ levels of capital expenditures and the allocation of capital investment to market segments that Applied does not serve, such as lithography, or segments where Applied’s products have lower relative market presence;

•the importance of increasing market positions in segments with growing demand;

•semiconductor manufacturer’s ability to reconfigure and re-use equipment, and the resulting effect on their need to purchase new equipment and services;

•shorter cycle times between order placements by customers and product shipment require greater reliance on forecasting of customer investment, which may lead to inventory write-offs and manufacturing inefficiencies that decrease gross margin;

•competitive factors that make it difficult to enhance position, including challenges in securing development-tool-of-record (DTOR) and production-tool-of-record (PTOR) positions with customers;

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•consolidation in the semiconductor industry, including among semiconductor manufacturers and among manufacturing equipment suppliers;

•shifts in sourcing strategies by computer and electronics companies, and manufacturing processes for advanced circuit technologies, that impact the equipment requirements of Applied’s foundry customers;

•the concentration of new wafer starts in Korea and Taiwan, where Applied’s service penetration and service-revenue-per-wafer-start have been lower than in other regions;

•investment in semiconductor manufacturing capabilities in China, which may be affected by changes in economic conditions and governmental policies in ~~China;~~China and the United States;

•the increasing fragmentation of semiconductor markets, leading certain markets to become too small to support the cost of a new fabrication plant, while others require less technologically advanced ~~products.~~products; and

•the growing importance of specialty markets (such as Internet of Things, communications, automotive, power and sensors) that use mature process technologies and have a low barrier to entry.

If Applied does not accurately forecast, and allocate appropriate resources and investment towards addressing, key technology changes and inflections, successfully develop and commercialize products to meet demand for new technologies, and effectively address industry trends, its business and results of operations may be adversely impacted.

Applied is exposed to risks as a result of ongoing changes specific to the display industry.

The global display industry historically has experienced considerable volatility in capital equipment investment levels, due in part to the limited number of display manufacturers, the concentrated nature of end-use applications, production capacity relative to end-use demand, and panel manufacturer profitability. Industry growth depends primarily on consumer demand for increasingly larger and more advanced TVs, and on demand for advanced smartphones and mobile device displays, which demand is highly sensitive to cost and improvements in technologies and features. The display industry is characterized by ongoing changes particular to this industry that impact demand for and the profitability of Applied’s display products and services, including:

•the importance of new types of display technologies, such as organic light-emitting diode (OLED), low temperature polysilicon (LTPS) and metal oxide transistor backplanes, flexible displays, and new touch panel films;

•the increasing cost of research and development, and complexity of technology transitions and inflections, and Applied’s ability to timely and effectively anticipate and adapt to these changes;

•the timing and extent of an expansion of manufacturing facilities in China, which may be affected by changes in local economic conditions and governmental policies in ~~China;~~China, particularly in Asia and the United States;

•the importance of increasing market positions in products and technologies with growing demand;

•the rate of transition to larger substrate sizes for TVs and to new display technologies for TVs and mobile applications, and the resulting effect on capital intensity in the industry and on Applied’s product differentiation, gross margin and return on investment; and

~~the variability~~•fluctuations in ~~demand~~customer spending quarter over quarter and year over year for display manufacturing equipment, concentration of display manufacturer customers and their ability to successfully commercialize new products and technologies, and uncertainty with respect to future display technology end-use applications and growth drivers.

If Applied does not successfully develop and commercialize products to meet demand for new and emerging display technologies, or if industry demand for display manufacturing equipment and technologies slows, Applied’s business and its results of operations may be adversely impacted.

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The industries in which Applied operates are highly competitive and subject to rapid technological and market changes.

Applied operates in a highly competitive environment in which innovation is critical, and its future success depends on many factors, including the development of new technologies and effective commercialization and customer acceptance of its equipment, services and related products, and its ability to increase its position in its current markets, expand into adjacent and new markets, and optimize operational performance. The development, introduction and support of a broadening set of products in a geographically diverse and competitive environment, and that may require greater collaboration with customers and other industry participants, have grown more complex and expensive over time. Furthermore, new or improved products may entail higher costs and lower ~~profits.~~profits and may have unforeseen product design or manufacturing defects. To compete successfully, Applied must:

•identify and address technology inflections, market changes, competitor innovations, new applications, customer requirements and end-use ~~demand;~~demand in a timely and effective manner;

•develop new products and disruptive technologies, improve and develop new applications for existing products, and adapt products for use by customers in different applications and markets with varying technical requirements;

•differentiate its products from those of competitors, meet customers’ performance specifications, appropriately price products, and achieve market acceptance;

•maintain operating flexibility to enable responses to changing markets, applications, customers and customer requirements;

•enhance its worldwide operations across its businesses to reduce cycle time, enable continuous quality improvement, reduce costs, and enhance design for manufacturability and serviceability;

•focus on product development and sales and marketing strategies that address customers’ high value problems and strengthen customer relationships;

•effectively allocate resources between its existing products and markets, the development of new products, and expanding into new and adjacent markets;

•improve the productivity of capital invested in R&D activities;

•accurately forecast demand, work with suppliers and meet production schedules for its products;

•improve its manufacturing processes and achieve cost efficiencies across product offerings;

•adapt to changes in value offered by companies in different parts of the supply chain;

•qualify products for evaluation and volume manufacturing with its customers; and

•implement changes in its design engineering methodology to reduce material costs and cycle time, increase commonality of platforms and types of parts used in different systems, and improve product life cycle management.

If Applied does not successfully anticipate technology inflections, develop and commercialize new products and technologies, and respond to changes in customer requirements and market trends, its business performance and results of operations may be adversely impacted.

Applied is exposed to risks associated with business combinations, acquisitions, strategic investments and ~~strategic investments.~~divestitures.

Applied engages in acquisitions of or investments in companies, technologies or products in existing, related or new markets for Applied. Business combinations, acquisitions and investments, such as the proposed acquisition of Kokusai Electric, involve numerous risks to Applied’s business, financial condition and operating results, including but not limited to:

~~diversion of management’s attention and disruption of ongoing businesses;~~

~~contractual restrictions on the conduct of Applied’s business during the pendency of a proposed transaction~~;

•inability to complete proposed transactions timely or at all due to the failure to obtain regulatory or other approvals, litigation or other disputes, and any ensuing obligation to pay a termination ~~fee;~~fee (which, in the case of the stock purchase agreement related to the proposed acquisition of Kokusai Electric, Applied will be obligated to pay in the amount of $154 million if such agreement is terminated under certain circumstances involving the failure to obtain required regulatory approvals);

•diversion of management’s attention and disruption of ongoing businesses;

•the failure to realize expected revenues, gross and operating margins, net income and other returns from acquired businesses;

•requirements imposed by government regulators in connection with their review of a transaction, which may include, among other things, divestitures and restrictions on the conduct of Applied’s existing business or the acquired business;

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•following completion of acquisitions, ineffective integration of businesses, operations, systems, technologies, products or employees, ~~which can~~changes in laws or regulations, including tax laws, or other factors, may impact the ability to realize anticipated synergies or other benefits;

•failure to commercialize technologies from acquired businesses or developed through strategic investments;

•dependence on unfamiliar supply chains or relatively small supply partners;

•inability to capitalize on characteristics of new markets that may be significantly different from Applied’s existing markets and where competitors may have stronger market positions and customer relationships;

•failure to retain and motivate key employees of acquired businesses;

•the potential impact of the announcement or consummation of a proposed transaction on relationships with third parties;

•potential changes in Applied’s credit rating, which could adversely impact the Company’s access to and cost of capital;

•reductions in cash balances or increases in debt obligations to finance activities associated with a transaction, which increase interest expense, and reductions in cash balances, which reduce the availability of cash flow for general corporate or other purposes, including share repurchases and dividends;

•exposure to new operational risks, rules, regulations, worker expectations, customs and practices to the extent acquired businesses are located in regions where Applied has not historically conducted business;

•challenges associated with managing new, more diverse and more widespread operations, projects and people;

•inability to obtain and protect intellectual property rights in key technologies;

•inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and procedures, cybersecurity, privacy policies and procedures, or environmental, health and safety, anti-corruption, human resource, or other policies or practices;

•impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological advancements or worse-than-expected performance of the segment;

•the risk of litigation or claims associated with a proposed or completed transaction;

•unknown, underestimated or undisclosed commitments or liabilities; and

•the inappropriate scale of acquired entities’ critical resources or facilities for business needs.

Applied also makes strategic investments in other companies, including companies formed as joint ventures, which may decline in value or not meet desired objectives. The success of these investments depends on various factors over which Applied may have limited or no control and, particularly with respect to joint ventures, requires ongoing and effective cooperation with strategic partners. In addition, new legislation, or additional regulations or global economic or political conditions may affect or impair our ability to invest in certain countries or require us to obtain regulatory approvals to do so. The risks to Applied’s strategic investment portfolio may be exacerbated by unfavorable financial market and macroeconomic conditions and, as a result, the value of the investment portfolio could be negatively impacted and lead to impairment charges.

Applied continually assesses the strategic fit of its businesses and may from time to time seek to divest portions of its business that are not deemed to fit with its strategic plan. Divestitures involve significant risks and uncertainties, such as ability to sell such businesses on satisfactory price and terms and in a timely manner (including long and costly sales processes and the possibility of lengthy and potentially unsuccessful attempts by a buyer to receive required regulatory approvals), or at all, disruption to other parts of the businesses and distraction of management, allocation of internal resources that would otherwise be devoted to completing strategic acquisitions, loss of key employees or customers, exposure to unanticipated liabilities (including, among other things, those arising from representations and warranties made to a buyer regarding the businesses) or ongoing obligations to support the businesses following such divestitures, and other adverse financial impacts.

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Applied is exposed to risks associated with operating in jurisdictions with complex and changing tax laws.

Applied is subject to income taxes in the United States and foreign jurisdictions. Significant judgment is required to determine and estimate worldwide tax liabilities. Applied’s provision for income taxes and effective tax rates could be affected by numerous factors, including changes in applicable tax laws, interpretations of applicable tax laws, amount and composition of pre-tax income in jurisdictions with differing tax rates, and valuation of deferred tax assets. On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). On September 13, 2018, the U.S. government issued proposed regulations that, if finalized, would significantly affect how the Tax Act is interpreted related to a tax benefit of $96 million realized by Applied in the first half of fiscal 2019. Proposed regulations are not authoritative and may change in the regulatory review process. Pursuant to our accounting policies for uncertain tax positions, the tax benefit might reverse if the regulations are finalized as proposed. An increase in Applied’s provision for income taxes and effective tax rate could have a material adverse impact on Applied’s results of operations and financial condition.

Consistent with the international nature of its business, Applied conducts certain manufacturing, supply chain, and other operations in Asia, bringing these activities closer to customers and reducing operating costs. In certain foreign jurisdictions, conditional reduced income tax rates have been granted to Applied. To obtain the benefit of these tax incentives, Applied must meet requirements relating to various activities. Applied’s ability to realize benefits from these incentives could be materially affected if, among other things, applicable requirements are not met or Applied incurs net losses in these jurisdictions.

In addition, Applied is subject to examination by the Internal Revenue Service and other tax authorities, and from time to time amends previously filed tax returns. Applied regularly assesses the likelihood of favorable or unfavorable outcomes resulting from these examinations and amendments to determine the adequacy of its provision for income taxes, which requires estimates and judgments. Although Applied believes its tax estimates are reasonable, there can be no assurance that the tax authorities will agree with such estimates. Applied may have to engage in litigation to achieve the results reflected in the estimates, which may be time-consuming and expensive. There can be no assurance that Applied will be successful or that any final determination will not be materially different from the treatment reflected in Applied’s historical income tax provisions and effective tax rates.

Applied’s indebtedness and debt covenants could adversely affect its financial condition and business.

Applied has $5.4 billion in aggregate principal amount of senior unsecured notes outstanding. Under the indenture governing the senior unsecured notes, it may be required to offer to repurchase the notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest, upon a change of control of Applied and a contemporaneous downgrade of the notes below investment grade. Applied also has in place a $1.5 billion ~~committed~~ revolving credit ~~agreement.~~facility, and a $2.0 billion term loan facility to finance in part its planned acquisition of Kokusai Electric. While no amounts were outstanding under ~~this~~either credit agreement as of ~~April 28, 2019,~~January 26, 2020, Applied may borrow amounts in the future under ~~the agreement.~~either or both of these agreements. Applied may also enter into new financing arrangements. Applied’s ability to satisfy its debt obligations is dependent upon the results of its business operations and subject to other risks discussed in this section. Significant changes in Applied’s credit rating or changes in the interest rate environment could have a material adverse consequence on Applied’s access to and cost of capital for future financings, and financial condition. If Applied fails to satisfy its debt obligations, or comply with financial and other debt covenants, it may be in default and any borrowings may become immediately due and payable, and such default may also constitute a default under other of Applied’s obligations. There can be no assurance that Applied would have sufficient financial resources or be able to arrange financing to repay any borrowings at such time.

Applied is exposed to risks associated with expanding into new and related markets and industries.

As part of its growth strategy, Applied must successfully expand into related or new markets and industries, either with its existing products or with new products developed internally, or those developed in collaboration with third parties, or obtained through acquisitions. Applied’s ability to successfully expand its business into new and related markets and industries may be adversely affected by a number of factors, including:

•the need to devote additional resources to develop new products for, and operate in, new markets;

•the need to develop new sales and technical marketing strategies, cultivate relationships with new customers and meet different customer service requirements;

•differing rates of profitability and growth among multiple businesses;

•Applied’s ability to anticipate demand, capitalize on opportunities, and avoid or minimize risks;

•the complexity of managing multiple businesses with variations in production planning, execution, supply chain management and logistics;

•the adoption of new business models, business processes and systems;

•the complexity of entering into and effectively managing strategic alliances or partnering opportunities;

•new materials, processes and technologies;

•the need to attract, motivate and retain employees with skills and expertise in these new areas;

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•new and more diverse customers and suppliers, including some with limited operating histories, uncertain or limited funding, evolving business models or locations in regions where Applied does not have, or has limited, operations;

•new or different competitors with potentially more financial or other resources, industry experience and established customer relationships;

•entry into new industries and countries, with differing levels of government involvement, laws and regulations, and business, employment and safety practices;

•third parties’ intellectual property rights; and

•the need to comply with, or work to establish, industry standards and practices.

In addition, Applied from time to time receives funding from United States and other government agencies for certain strategic development programs to increase its research and development resources and address new market opportunities. As a condition to this government funding, Applied ~~may be~~is often subject to certain record-keeping, audit, intellectual property rights-sharing and/or other obligations.

~~Manufacturing~~Supply chain disruptions, manufacturing interruptions or delays, or the failure to accurately forecast customer demand, could affect Applied’s ability to meet customer demand, lead to higher costs, or result in excess or obsolete inventory.

Applied’s business depends on its timely supply of equipment, services and related products that meet the rapidly changing technical and volume requirements of its customers, which depends in part on the timely delivery of parts, including components and subassemblies, from suppliers, including contract manufacturers. The inability to timely obtain sufficient quantities of parts can have an adverse impact on Applied’s manufacturing operations and ability to meet customer demand for equipment, spares and services. Some key parts are subject to long lead-times or obtainable only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the countries where Applied conducts its manufacturing. Variable industry conditions and the volatility of demand for manufacturing equipment increase capital, technical, operational and other risks for Applied and for companies throughout its supply chain. These conditions may cause some suppliers to scale back operations, exit businesses, merge with other companies, or file for bankruptcy protection and possibly cease operations. Applied may also experience significant interruptions of its manufacturing operations, delays in its ability to deliver products or services, increased costs or customer order cancellations as a result of:

•the failure or inability to accurately forecast demand and obtain sufficient quantities of quality parts on a cost-effective basis;

•volatility in the availability and cost of materials;

•difficulties or delays in obtaining required import or export approvals;

•shipment delays due to transportation interruptions or capacity constraints;

•information technology or infrastructure failures, including those of a third party supplier or service provider; and

•natural disasters or other events beyond Applied’s control (such as earthquakes, utility interruptions, tsunamis, hurricanes, typhoons, floods, storms or ~~storms,~~extreme weather conditions, fires, regional economic downturns, ~~pandemics,~~regional or global health epidemics, including the recent coronavirus COVID-19 outbreak, social unrest, political instability, terrorism, or acts of war)~~, particularly~~ in locations where it ~~conducts manufacturing.~~or its customers or suppliers have manufacturing, research, engineering or other operations.

If a supplier fails to meet Applied’s requirements concerning quality, cost, protection of intellectual property, socially-responsible business practices, or other performance factors, Applied may transfer its business to alternative sources, which could entail manufacturing delays, additional costs, or other difficulties. If Applied is unable to meet its customers’ demand for a prolonged period due to its inability to obtain certain parts or components, it could affect its ability to manage its operations, and have an adverse impact on Applied’s business, results of operations and customer relationships. In addition, if Applied needs to rapidly increase its business and manufacturing capacity to meet increases in demand or expedited shipment schedules, this may exacerbate any interruptions in Applied’s manufacturing operations and supply chain and the associated effect on Applied’s working capital. Moreover, if actual demand for Applied’s products is different than expected, Applied may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If Applied purchases inventory in anticipation of customer demand that does not materialize, or if customers reduce or delay orders, Applied may incur excess inventory charges.

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The ability to attract, retain and motivate key employees is vital to Applied’s success.

Applied’s success, competitiveness and ability to execute on its global strategies and maintain a culture of innovation depend in large part on its ability to attract, retain and motivate employees with key skills and experience. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, management changes, Applied’s organizational structure, increasing global competition for talent, the availability of qualified employees in the local and global markets, cost reduction activities (including workforce reductions and unpaid shutdowns), availability of career development opportunities, the ability to obtain necessary authorizations for workers to provide services outside their home countries, and the attractiveness of Applied’s compensation and benefit programs, including its share-based programs. The loss or retirement of employees presents particular challenges to the extent they involve the departure of knowledgeable and experienced employees and the resulting need to identify and train existing or new workers to perform necessary functions, which may result in unexpected costs, reduced productivity, and/or difficulties with respect to internal processes and controls.

Applied is exposed to various risks related to protection and enforcement of intellectual property rights.

Applied’s success depends in significant part on the protection of its patents, trade secrets, copyrights and other intellectual property rights. Infringement of Applied’s rights by a third party, such as the unauthorized manufacture or sale of equipment or spare parts, could result in uncompensated lost market and revenue opportunities for Applied. Policing any unauthorized use of intellectual property is difficult and costly and Applied cannot be certain that the measures it has implemented will prevent misuse. Applied’s ability to enforce its intellectual property rights is subject to litigation risks, as well as uncertainty as to the protection and enforceability of those rights in some countries. If Applied seeks to enforce its intellectual property rights, it may be subject to claims that those rights are invalid or unenforceable, and others may seek counterclaims against Applied, which could have a negative impact on its business. If Applied is unable to enforce and protect intellectual property rights, or if they are circumvented, invalidated, rendered obsolete by the rapid pace of technological change, it could have an adverse impact on its competitive position and business. In addition, changes in intellectual property laws or their interpretation ~~such as recent changes in U.S. patent laws,~~ may impact Applied’s ability to protect and assert its intellectual property rights, increase costs and uncertainties in the prosecution of patent applications and enforcement or defense of issued patents, and diminish the value of Applied’s intellectual property.

Third parties may also assert claims against Applied and its products. Claims that Applied’s products infringe the rights of others, whether or not meritorious, can be expensive and time-consuming to defend and resolve, and may divert the efforts and attention of management and personnel. The inability to obtain rights to use third party intellectual property on commercially reasonable terms could have an adverse impact on Applied’s business. In addition, Applied may face claims based on the theft or unauthorized use or disclosure of third-party trade secrets and other confidential business information. Any such incidents and claims could severely harm Applied’s business and reputation, result in significant expenses, harm its competitive position, and prevent Applied from selling certain products, all of which could have a significant adverse impact on Applied’s business and results of operations.

Applied is exposed to risks related to cybersecurity threats and incidents.

In the conduct of its business, Applied collects, uses, transmits and stores data on information technology systems, including systems owned and maintained by Applied or third party providers. These data include confidential information and intellectual property belonging to Applied or its customers or other business partners, as well as personally-identifiable information of individuals. All information systems are subject to disruption, breach or failure. Applied has experienced, and expects to continue to be subject to, cybersecurity threats and incidents ranging from employee error or misuse to individual attempts to gain unauthorized access to these information systems, to sophisticated and targeted measures known as advanced persistent threats, none of which have been material to the Company to date. Applied devotes significant resources to network security, data encryption and other measures to protect its systems and data from unauthorized access or misuse. However, depending on their nature and scope, cybersecurity incidents could result in business disruption; the misappropriation of intellectual property, and corruption or loss of confidential information and critical data (Applied’s and that of third parties); reputational damage; litigation with third parties; diminution in the value of Applied’s investment in research, development and engineering; data privacy issues; and increased cybersecurity protection and remediation costs. Compliance with, and changes to, laws and regulations concerning privacy and information security could result in significant expense, and any failure to comply could result in proceedings against Applied by regulatory authorities or other third parties.

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Applied is exposed to various risks related to legal proceedings.

Applied from time to time is, and in the future may be involved in legal proceedings or claims regarding patent infringement, intellectual property rights, antitrust, environmental regulations, securities, contracts, product performance, product liability, unfair competition, misappropriation of trade secrets, employment, workplace safety, and other matters. Applied also on occasion receives notification from customers who believe that Applied owes them indemnification, product warranty or has other obligations related to claims made against such customers by third parties.

Legal proceedings and claims, whether with or without merit, and associated internal investigations, may be time-consuming and expensive to prosecute, defend or conduct; divert management’s attention and other Applied resources; inhibit Applied’s ability to sell its products; result in adverse judgments for damages, injunctive relief, penalties and fines; and negatively affect Applied’s business. There can be no assurance regarding the outcome of current or future legal proceedings, claims or investigations.

The failure to successfully implement enterprise resource planning and other information systems changes could adversely impact Applied’s business and results of operations.

Applied periodically implements new or enhanced enterprise resource planning and related information systems in order to better manage its business operations, align its global organizations and enable future growth. Implementation of new business processes and information systems requires the commitment of significant personnel, training and financial resources, and entails risks to Applied’s business operations. If Applied does not successfully implement enterprise resource planning and related information systems improvements, or if there are delays or difficulties in implementing these systems, Applied may not realize anticipated productivity improvements or cost efficiencies, and may experience interruptions in service and operational difficulties, such as its ability to track orders, timely manufacture and ship products, project inventory requirements, effectively manage its supply chain and allocate human resources, aggregate financial data and report operating results, and otherwise effectively manage its business, all of which could result in quality issues, reputational harm, lost market and revenue opportunities, and otherwise adversely affect Applied’s business, financial condition and results of operations.

Applied may incur impairment charges related to goodwill or long-lived assets.

Applied has a significant amount of goodwill and other acquired intangible assets related to acquisitions. Goodwill and purchased intangible assets with indefinite useful lives are not amortized, but are reviewed for impairment annually during the fourth quarter of each fiscal year, and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The review compares the fair value for each of Applied’s reporting units to its associated carrying value, including goodwill. Factors that could lead to impairment of goodwill and intangible assets include adverse industry or economic trends, reduced estimates of future cash flows, declines in the market price of Applied common stock, changes in Applied’s strategies or product portfolio, and restructuring activities. Applied’s valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and projections of future operating performance. Applied may be required to record future charges to earnings during the period in which an impairment of goodwill or intangible assets is determined to exist.

Applied is subject to risks associated with environmental, health and safety regulations.

Applied is subject to environmental, health and safety regulations in connection with its global business operations, including but not limited to: regulations related to the development, manufacture, shipping and use of its products; handling, discharge, recycling and disposal of hazardous materials used in its products or in producing its products; the operation of its facilities; and the use of its real property. The failure or inability to comply with existing or future environmental and safety regulations could result in: significant remediation or other legal liabilities; the imposition of penalties and fines; restrictions on the development, manufacture, sale, shipping or use of certain of its products; limitations on the operation of its facilities or ability to use its real property; and a decrease in the value of its real property. Applied could be required to alter its manufacturing and operations and incur substantial expense in order to comply with environmental, health and safety regulations. Any failure to comply with ~~environmental and safety~~these regulations could subject Applied to significant costs and liabilities that could adversely affect Applied’s business, financial condition and results of operations.

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Applied is exposed to various risks related to the global regulatory environment.

As a public company with global operations, Applied is subject to the laws of the United States and multiple foreign jurisdictions and the rules and regulations of various governing bodies, which may differ among jurisdictions, including those related to financial and other disclosures, accounting standards, corporate governance, intellectual property, tax, trade, antitrust, employment, immigration and travel regulations, privacy, and anti-corruption. Changing, inconsistent or conflicting laws, rules and regulations, and ambiguities in their interpretation and application create uncertainty and challenges, and compliance with laws, rules and regulations may be onerous and expensive, divert management time and attention from revenue-generating activities, and otherwise adversely impact Applied’s business operations. Violations of law, rules and regulations could result in fines, criminal sanctions, restrictions on Applied’s business, and damage to its reputation, and could have an adverse impact on its business operations, financial condition and results of operations.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information as of ~~April 28, 2019~~January 26, 2020 with respect to the shares of common stock repurchased by Applied during the ~~second~~first quarter of fiscal ~~2019~~2020 pursuant to a publicly announced stock repurchase program approved by the Board of Directors in February 2018, which authorized up to an aggregate of $6.0 billion in repurchases.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Aggregate Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Dollar Value of Shares That May Yet be Purchased Under the Program

	(In millions, except per share amounts)
Month #1
(October 28, 2019 to November 24, 2019)	1.5	$	56.73	$	88	1.5	$	1,836
Month #2
(November 25, 2019 to December 22, 2019)	0.9	$	58.31	52		0.9	$	1,784
Month #3
(December 23, 2019 to January 26, 2020)	1.0	$	61.96	60		1.0	$	1,724
Total	3.4	$	58.62	$	200	3.4

Period
Total Number
of
Shares Purchased

Average
Price Paid
per Share

Aggregate
Price
Paid

Total Number of
Shares Purchased as
Part of Publicly
Announced Program

Maximum Dollar
Value of Shares
That May Yet be
Purchased Under
the Program

(In millions, except per share amounts)
Month #1
(January 28, 2019 to February 24, 2019) 5.1
$ 39.34
$ 200
5.1
$ 3,377
Month #2
(February 25, 2019 to March 24, 2019) 6.0
$ 39.10
236
6.0
$ 3,141
Month #3
(March 25, 2019 to April 28, 2019) 4.5
$ 41.65
189
4.5
$ 2,952
Total 15.6
$ 39.91
$ 625
15.6

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Item 6. Exhibits

Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K:

Incorporated by Reference

Exhibit

No.

Description

Form

File No.

Exhibit No.

Filing Date

~~31.1~~10.1

Third Amendment to the Applied Materials, Inc. 2016 Deferred Compensation Plan†

31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡

~~101.INS~~101.SCH

~~XBRL Instance Document‡~~

~~101.SCH~~

Inline XBRL Taxonomy Extension Schema Document‡

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document‡

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document‡

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document‡

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document‡

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


†	† Filed herewith.


‡	~~Furnished herewith.~~

‡ Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


APPLIED MATERIALS, INC.

~~APPLIED MATERIALS, INC.~~
By:
~~By:~~	/s/ DANIEL J. DURN
		Daniel J. Durn Senior Vice President, Chief Financial Officer (Principal Financial Officer)

~~May 23, 2019~~February 20, 2020



By:			/s/ CHARLES W. READ
			Charles W. Read Corporate Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)

~~May 23, 2019~~

February 20, 2020



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share	AMAT	The NASDAQ Stock Market LLC



		Page
	PART I. FINANCIAL INFORMATION
Item 1:	Financial Statements (Unaudited)	3
	Consolidated Condensed Statements of Operations for the Three ~~and Six~~ Months Ended ~~April 28,~~ January 26, 2020 and January 27, 2019 ~~and April 29, 2018~~	3
	Consolidated Condensed Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~April 28,~~January 26, 20 20 and January 27, 2019 ~~and April 29, 2018~~	4
	Consolidated Condensed Balance Sheets as of ~~April 28, 2019~~ January 26, 2020 and October ~~28, 2018~~2 7 , 201 9	5
	Consolidated Condensed Statement of Stockholders’ Equity for the Three ~~and Six~~ Months Ended ~~April 28,~~J anuary 26, 2020 and J anuary 27, 2019 ~~and April 29, 2018~~	6
	Consolidated Condensed Statements of Cash Flows for the ~~Six~~Three Months Ended ~~April 28,~~January 26, 2020 and J anuary 27, 2019 ~~and April 29, 2018~~	87
	Notes to Consolidated Condensed Financial Statements	98
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3832
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	5649
Item 4:	Controls and Procedures	5649

	PART II. OTHER INFORMATION
Item 1:	Legal Proceedings	5750
Item 1A:	Risk Factors	5751
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	6863
Item 6:	Exhibits	6964
	Signatures	7065


	Three Months Ended				Six Months Ended					Three Months Ended
	April 28, 2019		April 29, 2018		April 28, 2019		April 29, 2018			January 26, 2020		January 27, 2019

	(Unaudited)									(Unaudited)
Net sales	$	3,539	$	4,579	$	7,292	$	8,784	Net sales	$	4,162	$	3,753
Cost of products sold	2,009		2,523		4,097		4,788		Cost of products sold	2,304		2,088
Gross profit	1,530		2,056		3,195		3,996		Gross profit	1,858		1,665
Operating expenses:									Operating expenses:
Research, development and engineering	508		509		1,024		998		Research, development and engineering	552		516
Marketing and selling	133		130		264		256		Marketing and selling	135		131
General and administrative	113		125		223		235		General and administrative	129		110

Total operating expenses	754		764		1,511		1,489		Total operating expenses	816		757
Income from operations	776		1,292		1,684		2,507		Income from operations	1,042		908

Interest expense	60		56		120		115		Interest expense	59		60
Interest and other income, net	43		25		83		52		Interest and other income, net	22		40
Income before income taxes	759		1,261		1,647		2,444		Income before income taxes	1,005		888
Provision for income taxes	93		161		210		1,179		Provision for income taxes	113		117
Net income	$	666	$	1,100	$	1,437	$	1,265	Net income	$	892	$	771
Earnings per share:									Earnings per share:
Basic	$	0.71	$	1.07	$	1.51	$	1.21	Basic	$	0.97	$	0.81
Diluted	$	0.70	$	1.06	$	1.50	$	1.20	Diluted	$	0.96	$	0.80
Weighted average number of shares:									Weighted average number of shares:
Basic	942		1,029		950		1,042		Basic	916		957
Diluted	948		1,040		957		1,056		Diluted	927		965


	January 26, 2020		October 27, 2019


ASSETS
Current assets:
Cash and cash equivalents	$	3,424	$	3,129
Short-term investments	536		489
Accounts receivable, net	2,679		2,533
Inventories	3,472		3,474
Other current assets	658		581
Total current assets	10,769		10,206
Long-term investments	1,713		1,703
Property, plant and equipment, net	1,555		1,529
Goodwill	3,399		3,399
Purchased technology and other intangible assets, net	142		156
Deferred income taxes and other assets	2,189		2,031
Total assets	$	19,767	$	19,024

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	600	$	600
Accounts payable and accrued expenses	2,569		2,511
Contract liabilities	1,400		1,336
Total current liabilities	4,569		4,447
Income taxes payable	1,298		1,275
Long-term debt	4,714		4,713
Other liabilities	526		375
Total liabilities	11,107		10,810
Stockholders’ equity:

Common stock	9		9
Additional paid-in capital	7,550		7,595
Retained earnings	25,085		24,386
Treasury stock	(23,796)		(23,596)
Accumulated other comprehensive loss	(188)		(180)
Total stockholders’ equity	8,660		8,214
Total liabilities and stockholders’ equity	$	19,767	$	19,024



	April 28, 2019			October 28, 2018


ASSETS
Current assets:
Cash and cash equivalents	$	3,116		$	3,440
Short-term investments	507			590
Accounts receivable, net	2,264			2,323
Inventories	3,677			3,721
Other current assets	498			530
Total current assets	10,062			10,604
Long-term investments	1,609			1,568
Property, plant and equipment, net	1,494			1,407
Goodwill	3,399			3,368
Purchased technology and other intangible assets, net	185			213
Deferred income taxes and other assets	2,026			473
Total assets	$	18,775		$	17,633

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	2,212		$	2,721
Contract liabilities	1,393			1,201
Total current liabilities	3,605			3,922
Income taxes payable	1,326			1,254
Long-term debt	5,311			5,309
Other liabilities	332			303
Total liabilities	10,574			10,788
Stockholders’ equity:
Common stock	9			10
Additional paid-in capital	7,396			7,274
Retained earnings	23,502			20,880
Treasury stock	(22,568		)	(21,194		)
Accumulated other comprehensive loss	(138		)	(125		)
Total stockholders’ equity	8,201			6,845
Total liabilities and stockholders’ equity	$	18,775		$	17,633


þ	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~


¨	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~



	Common Stock				Additional Paid-In Capital		Retained Earnings			Treasury Stock				Accumulated Other Comprehensive Income (Loss)			Total
Three Months Ended April 28, 2019	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Shares	Amount			Accumulated Other Comprehensive Income (Loss)			Total

	(Unaudited)
Balance as of January 27, 2019	949		$	9	$	7,265	$	23,032		1,041	$	(21,943	)	$	(154	)	$	8,209
Net income	—		—		—		666			—	—			—			666
Other comprehensive income (loss), net of tax	—		—		—		—			—	—			16			16
Dividends declared ($0.21 per common share)	—		—		—		(196		)	—	—			—			(196		)
Share-based compensation	—		—		65		—			—	—			—			65
Issuance under stock plans	3		—		66		—			—	—			—			66
Common stock repurchases	(16	)	—		—		—			16	(625		)	—			(625		)
Balance as of April 28, 2019	936		$	9	$	7,396	$	23,502		1,057	$	(22,568	)	$	(138	)	$	8,201



	Common Stock					Additional Paid-In Capital			Retained Earnings (b)			Treasury Stock				Accumulated Other Comprehensive Income (Loss)			Total
Six Months Ended April 29, 2018	Shares		Amount			Additional Paid-In Capital			Retained Earnings (b)			Shares	Amount			Accumulated Other Comprehensive Income (Loss)			Total

	(Unaudited)
Balance as of October 29, 2017	1,060		$	11		$	7,056		$	18,539		917	$	(15,912	)	$	(64	)	$	9,630
Net income	—		—			—			1,265			—	—			—			1,265
Other comprehensive income (loss), net of tax	—		—			—			—			—	—			(14		)	(14		)
Dividends declared ($0.30 per common share)	—		—			—			(306		)	—	—			—			(306		)
Share-based compensation	—		—			129			—			—	—			—			129
Issuance under stock plans	7		—			(98		)	—			—	—			—			(98		)
Common stock repurchases	(59	)	(1		)	—			—			59	(3,281		)	—			(3,282		)
Balance as of April 29, 2018	1,008		$	10		$	7,087		$	19,498		976	$	(19,193	)	$	(78	)	$	7,324



	April 29, 2018
	Three Months Ended									Six Months Ended
	As Previously Reported		Revenue Recognition Adjustment			Retirement Benefit Adjustment		As Adjusted		As Previously Reported		Revenue Recognition Adjustment			Retirement Benefit Adjustment			As Restated
	(In millions, except per share amounts)

Net sales	$	4,567	$	12		$	—	$	4,579	$	8,771	$	13		$	—		$	8,784
Cost of products sold	$	2,477	$	46		$	—	$	2,523	$	4,761	$	26		$	1		$	4,788
Gross profit	$	2,090	$	(34	)	$	—	$	2,056	$	4,010	$	(13	)	$	(1	)	$	3,996
Research, development and engineering	$	509	$	—		$	—	$	509	$	997	$	—		$	1		$	998
General and administrative	$	124	$	—		$	1	$	125	$	234	$	—		$	1		235
Interest and other income, net	$	24	$	—		$	1	$	25	$	49	$	—		$	3		52
Income before income taxes	$	1,295	$	(34	)	$	—	$	1,261	$	2,457	$	(13	)	$	—		$	2,444
Provision for income taxes	$	166	$	(5	)	$	—	$	161	$	1,193	$	(14	)	$	—		$	1,179
Net income	$	1,129	$	(29	)	$	—	$	1,100	$	1,264	$	1		$	—		$	1,265
Earnings per share: basic	$	1.10	$	(0.03	)	$	—	$	1.07	$	1.21	$	—		$	—		$	1.21
Earnings per share: diluted	$	1.09	$	(0.03	)	$	—	$	1.06	$	1.20	$	—		$	—		$	1.20



	October 28, 2018
	As Previously Reported		Adjustment			As Adjusted
	(In millions)

Accounts receivable, net	$	2,565	$	(242	)	$	2,323
Inventories	$	3,722	$	(1	)	$	3,721
Other current assets	$	430	$	100		$	530
Deferred income taxes and other assets	$	470	$	3		$	473
Customer deposits and deferred revenue	$	1,347	$	(1,347	)	$	—
Contract liabilities	$	—	$	1,201		$	1,201
Retained earnings	$	20,874	$	6		$	20,880


April 28, 2019	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
January 26, 2020									January 26, 2020	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(In millions)									(In millions)
Cash	$	1,185	$	—	$	—	$	1,185	Cash	$	1,370	$	—	$	—	$	1,370
Cash equivalents:									Cash equivalents:
Money market funds	1,671		—		—		1,671		Money market funds	1,644		—		—		1,644
U.S. Treasury and agency securities									U.S. Treasury and agency securities	2		—		—		2

Municipal securities	1		—		—		1		Municipal securities	1		—		—		1
Commercial paper, corporate bonds and medium-term notes	253		—		—		253		Commercial paper, corporate bonds and medium-term notes	407		—		—		407
Asset-backed and mortgage-backed securities	6		—		—		6

Total Cash equivalents	1,931		—		—		1,931		Total Cash equivalents	2,054		—		—		2,054
Total Cash and Cash equivalents	$	3,116	$	—	$	—	$	3,116	Total Cash and Cash equivalents	$	3,424	$	—	$	—	$	3,424
Short-term and long-term investments:									Short-term and long-term investments:
U.S. Treasury and agency securities	$	367	$	1	$	—	$	368	U.S. Treasury and agency securities	$	330	$	2	$	—	$	332
Non-U.S. government securities*	9		—		—		9		Non-U.S. government securities*	4		—		—		4
Municipal securities	410		2		1		411		Municipal securities	397		5		—		402
Commercial paper, corporate bonds and medium-term notes	588		3		1		590		Commercial paper, corporate bonds and medium-term notes	698		5		—		703
Asset-backed and mortgage-backed securities	601		1		1		601		Asset-backed and mortgage-backed securities	648		4		—		652
Total fixed income securities	1,975		7		3		1,979		Total fixed income securities	2,077		16		—		2,093
Publicly traded equity securities	10		27		3		34		Publicly traded equity securities	8		39		3		44
Equity investments in privately-held companies	97		9		3		103		Equity investments in privately-held companies	106		10		4		112
Total equity investments	107		36		6		137		Total equity investments	114		49		7		156
Total short-term and long-term investments	$	2,082	$	43	$	9	$	2,116	Total short-term and long-term investments	$	2,191	$	65	$	7	$	2,249

Total Cash, Cash equivalents and Investments	$	5,198	$	43	$	9	$	5,232	Total Cash, Cash equivalents and Investments	$	5,615	$	65	$	7	$	5,673


	Three Months Ended
	January 26, 2020		January 27, 2019


	(In millions)
Publicly traded equity securities
Unrealized gain	$	2	$	6
Unrealized loss	(3)		(2)
Gain on sales	—		1

Equity investments in privately-held companies
Unrealized gain	—		7
Unrealized loss	(1)		(1)
Gain on sales	—		1
Loss on sales or impairment	(2)		—
Total gain on equity investments, net	$	(4)	$	12


	January 26, 2020										October 27, 2019
	Level 1		Level 2		Total		Level 1		Level 2			Total

	(In millions)
Assets:
Available-for-sale debt security investments
Money market funds	$	1,644	$	—	$	1,644	$	1,677	$	—		$	1,677
U.S. Treasury and agency securities	318		16		334		323		18			341
Non-U.S. government securities	—		4		4		—		10			10
Municipal securities	—		403		403		—		406			406
Commercial paper, corporate bonds and medium-term notes	—		1,110		1,110		—		1,024			1,024
Asset-backed and mortgage-backed securities	—		652		652		—		635			635
Total available-for-sale debt security investments	$	1,962	$	2,185	$	4,147	2,000		2,093			4,093
Equity investments with readily determinable values

Publicly traded equity securities	$	44	$	—	$	44	45		—			45
Total equity investments with readily determinable values	$	44	$	—	$	44	$	45	$	—		$	45

Total	$	2,006	$	2,185	$	4,191	$	2,045	$	2,093		$	4,138



		Amount of Gain or (Loss) Recognized in Income
		Three Months Ended					Six Months Ended
	Location of Gain or (Loss) Recognized in Income	April 28, 2019		April 29, 2018			April 28, 2019			April 29, 2018

		(In millions)
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts	General and administrative	$	6	$	(2	)	$	(4	)	$	(10	)
Total		$	6	$	(2	)	$	(4	)	$	(10	)


~~Note 2~~	~~Earnings Per Share~~


~~Note 3~~	~~Cash, Cash Equivalents and Investments~~


~~Note 4~~	~~Fair Value Measurements~~


	Useful Life	January 26, 2020		October 27, 2019

	(In years)	(In millions)
Property, Plant and Equipment, Net
Land and improvements		$	256	$	254
Buildings and improvements	3-30	1,611		1,590
Demonstration and manufacturing equipment	3-5	1,524		1,505
Furniture, fixtures and other equipment	3-5	619		602
Construction in progress		152		120
Gross property, plant and equipment		4,162		4,071
Accumulated depreciation		(2,607)		(2,542)
		$	1,555	$	1,529


~~Note 9~~	~~Goodwill, Purchased Technology and Other Intangible Assets~~



	April 28, 2019									October 28, 2018
	Purchased Technology			Other Intangible Assets			Total			Purchased Technology			Other Intangible Assets			Total

	(In millions)
Gross carrying amount:
Semiconductor Systems	$	1,449		$	252		$	1,701		$	1,449		$	252		$	1,701
Applied Global Services	33			44			77			33			44			77
Display and Adjacent Markets	163			38			201			163			38			201
Corporate and Other	—			9			9			—			9			9
Gross carrying amount	$	1,645		$	343		$	1,988		$	1,645		$	343		$	1,988
Accumulated amortization:
Semiconductor Systems	$	(1,387	)	$	(159	)	$	(1,546	)	$	(1,375	)	$	(150	)	$	(1,525	)
Applied Global Services	(30		)	(44		)	(74		)	(29		)	(44		)	(73		)
Display and Adjacent Markets	(138		)	(36		)	(174		)	(132		)	(36		)	(168		)
Corporate and Other	—			(9		)	(9		)	—			(9		)	(9		)
Accumulated amortization	$	(1,555	)	$	(248	)	$	(1,803	)	$	(1,536	)	$	(239	)	$	(1,775	)
Carrying amount	$	90		$	95		$	185		$	109		$	104		$	213



	Amortization Expense
	(In millions)
2019 (remaining 6 months)	$	29
2020	52
2021	39
2022	24
2023	11
Thereafter	30
Total	$	185




	Three and Six Months Ended
	April 28, 2019	April 29, 2018
ESPP:
Dividend yield	2.18%	1.40%
Expected volatility	37.1%	35.5%
Risk-free interest rate	2.51%	1.83%
Expected life (in years)	0.5	0.5
Weighted average estimated fair value	$9.78	$14.26


~~Note 13~~	~~Warranty, Guarantees and Contingencies~~ Note 15 Warranty, Guarantees and Contingencies


	Three Months Ended
	Net Sales		Operating Income (Loss)

	(In millions)
January 26, 2020:
Semiconductor Systems	$	2,814	$	915
Applied Global Services	997		278
Display and Adjacent Markets	332		38
Corporate and Other	19		(189)
Total	$	4,162	$	1,042
January 27, 2019:
Semiconductor Systems	$	2,268	$	631
Applied Global Services	962		285
Display and Adjacent Markets	507		115
Corporate and Other	16		(123)
Total	$	3,753	$	908



	Percentage of Net Sales
Taiwan Semiconductor Manufacturing Company Limited	1529	%
~~Intel Corporation~~Samsung Electronics Co., Ltd.	1214	%
~~Toshiba~~	11		%
~~SK Hynix Inc.~~	11
	%