Item 16. Form 10-K Summary

None.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Applied Materials, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Applied Materials, Inc. and subsidiaries (the Company) as of October 27, 2019 and October 28, 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 27, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 27, 2019 and October 28, 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended October 27, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of October 27, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 13, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in note 1 to the consolidated financial statements, in 2019, the Company has changed its method of accounting for revenue due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, and its method of accounting for intra-entity transfer of assets other than inventory due to the adoption of the Accounting Standards Update (ASU) No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of net realizable value adjustments to inventories for excess or obsolescence

As discussed in notes 1 and 8 to the consolidated financial statements, the Company has inventories with a carrying value of $3,474 million as of October 27, 2019. The Company adjusts inventory carrying value for estimated excess or obsolescence equal to the difference between cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual demand were to be substantially lower than estimated, there could be a significant adverse impact on the carrying value of inventories and results of operations.

We identified the evaluation of net realizable value adjustments to inventories for excess or obsolescence as a critical audit matter. Evaluation of the Company’s estimates regarding forecasted sales and inventory consumption involved a high degree of auditor judgment.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process for determining net realizable value adjustments for inventory excess or obsolescence, including estimating forecasted sales and inventory consumption. We evaluated certain inventories for excess or obsolescence by comparing the Company’s sales and inventory consumption forecast to historical sales, historical inventory usage, known customer orders, and industry outlook reports. In addition, for certain inventories, we compared the Company’s historical estimates of net realizable value adjustments for excess and obsolescence to the actual physical inventory disposals to evaluate the Company’s ability to accurately estimate the net realizable value adjustments.

Evaluation of the fair value of the underlying intangible assets utilized to record the deferred tax asset

As discussed in note 1 to the consolidated financial statements, the Company adopted ASU No. 2016-16 in the current year and upon adoption recorded a deferred tax asset of $1.6 billion related to the estimated income tax effects of an intra-entity transfer of intangible assets. The recorded deferred tax asset involves significant judgment in estimating the fair value of the underlying intangible assets that are subject to amortization for tax purposes.

We identified the evaluation of the fair value of the underlying intangible assets utilized to record the deferred tax asset as a critical audit matter. There was a high degree of subjectivity in evaluating the valuation methodology and assumptions utilized by the Company in estimating the fair value of the underlying intangible assets utilized to record the deferred tax asset. These assumptions included the fair value of the Company’s operating assets, discount rate and comparable company benchmark ratios utilized to calculate the portion of market value attributable to the intangible assets.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process to develop the assumptions used in the valuation, including the fair value of the Company’s operating assets, the discount rate, and comparable company benchmark ratios. We evaluated the fair value of the Company’s operating assets by comparing it to the Company’s market capitalization, adjusted for the fair value of the Company’s nonoperating assets and debt. We evaluated the comparable company benchmark rate by assessing comparable companies used by the Company in developing the assumption and testing the benchmark rate based on observable market information. We involved valuation professionals with specialized skills and knowledge, who assisted in:

• Evaluating the valuation methodology utilized by the Company

• Evaluating the discount rate by comparing it to a discount rate that was independently developed using observable market information.

/S/ KPMG LLP
KPMG LLP

We have served as the Company’s auditor since 2004.

Santa Clara, California

December 13, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Applied Materials, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Applied Materials, Inc. and subsidiaries' (the Company) internal control over financial reporting as of October 27, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 27, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of October 27, 2019 and October 28, 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 27, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated December 13, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP
KPMG LLP

Santa Clara, California

December 13, 2019

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

Fiscal Year			2019						2018						2017
Net sales			$	14,608					$	16,705					$	14,698
Cost of products sold			8,222						9,188						8,086
Gross profit			6,386						7,517						6,612
Operating expenses:
Research, development and engineering			2,054						2,022						1,781
Marketing and selling			521						521						457
General and administrative			461						483						438
Total operating expenses			3,036						3,026						2,676
Income from operations			3,350						4,491						3,936
Interest expense			237						234						198
Interest and other income, net			156						139						78
Income before income taxes			3,269						4,396						3,816
Provision for income taxes			563						1,358						297
Net income			$	2,706					$	3,038					$	3,519
Earnings per share:
Basic			$	2.89					$	3.00					$	3.28
Diluted			$	2.86					$	2.96					$	3.25
Weighted average number of shares:
Basic			937						1,013						1,073
Diluted			945						1,026						1,084

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

Fiscal Year			2019						2018						2017
Net income			$	2,706					$	3,038					$	3,519
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on available-for-sale investments			21						(51)						23
Change in unrealized net loss on derivative instruments			(7)						4						7
Change in defined and postretirement benefit plans			(51)						(17)						21
Change in cumulative translation adjustments			(1)						—						—
Other comprehensive income (loss), net of tax			(38)						(64)						51
Comprehensive income			$	2,668					$	2,974					$	3,570

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

			October 27, 2019						October 28, 2018
ASSETS
Current assets:
Cash and cash equivalents			$	3,129					$	3,440
Short-term investments			489						590
Accounts receivable, net			2,533						2,323
Inventories			3,474						3,721
Other current assets			581						530
Total current assets			10,206						10,604
Long-term investments			1,703						1,568
Property, plant and equipment, net			1,529						1,407
Goodwill			3,399						3,368
Purchased technology and other intangible assets, net			156						213
Deferred income taxes and other assets			2,031						473
Total assets			$	19,024					$	17,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt			$	600					$	—
Accounts payable and accrued expenses			2,511						2,721
Contract liabilities			1,336						1,201
Total current liabilities			4,447						3,922
Long-term debt			4,713						5,309
Income taxes payable			1,275						1,254
Other liabilities			375						303
Total liabilities			10,810						10,788
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock: $0.01 par value per share; 1 shares authorized; no shares issued			—						—
Common stock: $0.01 par value per share; 2,500 shares authorized; 916 and 967 shares outstanding at 2019 and 2018, respectively			9						10
Additional paid-in capital			7,595						7,274
Retained earnings			24,386						20,880
Treasury stock: 1,079 and 1,019 shares at 2019 and 2018, respectively			(23,596)						(21,194)
Accumulated other comprehensive loss			(180)						(125)
Total stockholders’ equity			8,214						6,845
Total liabilities and stockholders’ equity			$	19,024					$	17,633

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

			Common Stock																		Additional Paid-In Capital						Retained Earnings (b)						Treasury Stock																		Accumulated Other Comprehensive Income (Loss)						Total
			Shares						Amount																		Shares						Amount
Balance at October 30, 2016			1,078						$	11					$	6,809					$	15,448					889						$	(14,740)					$	(115)					$	7,413
Net income			—						—						—						3,519						—						—						—						3,519
Other comprehensive income, net of tax			—						—						—						—						—						—						51						51
Dividends			—						—						—						(428)						—						—						—						(428)
Share-based compensation			—						—						220						—						—						—						—						220
Issuance under stock plans, net of a tax benefit of $55 and other			10						—						27						—						—						—						—						27
Common stock repurchases			(28)						—						—						—						28						(1,172)						—						(1,172)
Balance at October 29, 2017			1,060						$	11					$	7,056					$	18,539					917						$	(15,912)					$	(64)					$	9,630
Adoption of new accounting standards (a)			—						—						—						(3)						—						—						3						—
Net income			—						—						—						3,038						—						—						—						3,038
Other comprehensive loss, net of tax			—						—						—						—						—						—						(64)						(64)
Dividends			—						—						—						(694)						—						—						—						(694)
Share-based compensation			—						—						258						—						—						—						—						258
Issuance under stock plans			9						—						(40)						—						—						—						—						(40)
Common stock repurchases			(102)						(1)						—						—						102						(5,282)						—						(5,283)
Balance at October 28, 2018			967						$	10					$	7,274					$	20,880					1,019						$	(21,194)					$	(125)					$	6,845
Adoption of new accounting standard (c)			—						—						—						1,570						—						—						(17)						1,553
Net income			—						—						—						2,706						—						—						—						2,706
Other comprehensive loss, net of tax			—						—						—						—						—						—						(38)						(38)
Dividends			—						—						—						(770)						—						—						—						(770)
Share-based compensation			—						—						263						—						—						—						—						263
Issuance under stock plans			9						—						58						—						—						—						—						58
Common stock repurchases			(60)						(1)						—						—						60						(2,402)						—						(2,403)
Balance at October 27, 2019			916						$	9					$	7,595					$	24,386					1,079						$	(23,596)					$	(180)					$	8,214

(a) - Represents the reclassification adjustment related to the early adoption of Accounting Standards Update (ASU) 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

(b) - Retained earnings balance as of October 30, 2016, October 29, 2017 and October 28, 2018 included increases of $196 million, $281 million and $6 million, respectively, related to the adoption of the standard related to revenue recognition.

(c) - Represents the 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 and ASU 2016-16 Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. See Note 1.

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Fiscal Year			2019						2018						2017
Cash flows from operating activities:
Net income			$	2,706					$	3,038					$	3,519
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization			363						457						407
Deferred income taxes			49						71						(12)
Other			(19)						4						(9)
Share-based compensation			263						258						220
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable			(207)						16						(37)
Inventories			248						(1,014)						(809)
Other current and non-current assets			(86)						(199)						(156)
Accounts payable and accrued expenses			(247)						170						371
Contract liabilities			135						75						133
Income taxes payable			44						886						121
Other liabilities			(2)						25						41
Cash provided by operating activities			3,247						3,787						3,789
Cash flows from investing activities:
Capital expenditures			(441)						(622)						(345)
Cash paid for acquisitions, net of cash acquired			(28)						(6)						(68)
Proceeds from sales and maturities of investments			1,940						3,276						2,743
Purchases of investments			(1,914)						(2,077)						(4,856)
Cash provided by (used in) investing activities			(443)						571						(2,526)
Cash flows from financing activities:
Debt borrowings, net of issuance costs			—						—						2,176
Debt repayments			—						—						(205)
Proceeds from common stock issuances			145						124						97
Common stock repurchases			(2,403)						(5,283)						(1,172)
Tax withholding payments for vested equity awards			(86)						(164)						(125)
Payments of dividends to stockholders			(771)						(605)						(430)
Cash provided by (used in) financing activities			(3,115)						(5,928)						341
Increase (decrease) in cash and cash equivalents			(311)						(1,570)						1,604
Cash and cash equivalents — beginning of year			3,440						5,010						3,406
Cash and cash equivalents — end of year			$	3,129					$	3,440					$	5,010
Supplemental cash flow information:
Cash payments for income taxes			$	522					$	300					$	194
Cash refunds from income taxes			$	22					$	63					$	61
Cash payments for interest			$	219					$	219					$	186

See accompanying Notes to Consolidated Financial Statements.

Note 1 Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Applied Materials, Inc. and its subsidiaries (Applied or the Company) after elimination of intercompany balances and transactions. All references to a fiscal year apply to Applied’s fiscal year which ends on the last Sunday in October. Fiscal 2019, 2018 and 2017 contained 52 weeks each. Each fiscal quarter of 2019, 2018 and 2017 contained 13 weeks.

Certain prior year amounts have been reclassified to conform to current year presentation.

At the beginning of the first quarter of fiscal 2019, Applied adopted the new revenue recognition standard using the full retrospective method. All financial statements and disclosures have been recast to comply with this new guidance. See “Recent Accounting Pronouncements - Accounting Standards Adopted” section below for further information.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, Applied evaluates its estimates, including those related to standalone selling price (SSP) related to revenue recognition, accounts receivable and sales allowances, fair values of financial instruments, inventories, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of share-based awards, and income taxes, among others. Applied bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Cash Equivalents

All highly-liquid investments with a remaining maturity of three months or less at the time of purchase are considered to be cash equivalents. Cash equivalents consist primarily of investments in institutional money market funds.

Investments

All of Applied’s investments, except equity investments held in privately-held companies, are classified as available-for-sale at the respective balance sheet dates. Investments classified as available-for-sale are measured and recorded at fair value with changes in fair value recorded in the accompanying Consolidated Statements of Operations. Interest earned on cash and investments, as well as realized gains and losses on sale of securities, are included in interest and other income, net in the Consolidated Statements of Operations.

Equity investments without readily determinable fair value are measured at cost, less impairment, adjusted by observable price changes. Adjustments resulting from impairments and observable prices changes will be recorded in the Consolidated Statements of Operations.

Allowance for Doubtful Accounts

Applied maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. This allowance is based on historical experience, credit evaluations, specific customer collection history and any customer-specific issues Applied has identified. Changes in circumstances, such as an unexpected material adverse change in a major customer’s ability to meet its financial obligation to Applied or its payment trends, may require Applied to further adjust its estimates of the recoverability of amounts due to Applied. Bad debt expense and any reversals are recorded in marketing and selling expenses in the Consolidated Statement of Operations.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (FIFO) basis. Applied adjusts inventory carrying value for estimated obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. Applied fully writes down inventories and noncancelable purchase orders for inventory deemed obsolete. Applied performs periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions become less favorable than those projected by Applied, additional inventory adjustments may be required.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Estimated useful lives for financial reporting purposes are as follows: buildings and improvements, 3 to 30 years; demonstration and manufacturing equipment, 3 to 5 years; software, 3 to 5 years; and furniture, fixtures and other equipment, 3 to 5 years. Land improvements are amortized over the shorter of 15 years or the estimated useful life. Leasehold improvements are amortized over the shorter of five years or the lease term.

Intangible Assets

Goodwill and indefinite-lived assets are not amortized, but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Purchased technology and other intangible assets are presented at cost, net of accumulated amortization, and are amortized over their estimated useful lives of 1 to 15 years using the straight-line method.

Long-Lived Assets

Applied reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets or asset group may not be recoverable. Applied assesses these assets for impairment based on estimated future cash flows from these assets.

Revenue Recognition from Contracts with Customers

Applied recognizes revenue when promised goods or services are transferred to a customer in an amount that reflects the consideration to which Applied expects to be entitled in exchange for those goods or services. Applied determines revenue recognition through the following five steps; (1) identification of the contract(s) with customers, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfied.

Identifying the contract(s) with customers. Applied sells manufacturing equipment, services, and spare parts directly to its customers in the semiconductor, display, and related industries. The Company generally considers written documentation including, but not limited to, signed purchase orders, master agreements, and sales orders as contracts provided that collection is probable. Collectability is assessed based on the customer’s creditworthiness determined by reviewing the customer’s published credit and financial information, historical payment experience, as well as other relevant factors.

Identifying the performance obligations. Applied’s performance obligations include delivery of manufacturing equipment, service agreements, spare parts, installation, extended warranty and training. Applied’s service agreements are considered one performance obligation and may include multiple goods and services that Applied provides to the customer to deliver against a performance metric. Judgment is used to determine whether multiple promised goods or services in a contract should be accounted for separately or as a group.

Determine the transaction price. The transaction price for Applied’s contracts with customers may include fixed and variable consideration. Applied includes variable consideration in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Allocate the transaction price to the performance obligations. A contract’s transaction price is allocated to each distinct performance obligation identified within the contract. Applied generally estimates the standalone selling price of a distinct performance obligation based on historical cost plus an appropriate margin. For contracts with multiple performance obligations, Applied allocates the contract’s transaction price to each performance obligation using the relative standalone selling price of each distinct good or service in the contract.

Recognizing the revenue as performance obligations are satisfied. Applied recognizes revenue from equipment and spares parts at a point in time when Applied has satisfied its performance obligation by transferring control of the goods to the customer which typically occurs at shipment or delivery. Revenue from service agreements is recognized over time as customers receive the benefits of services.

The incremental costs to obtain a contract are not material.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Payment Terms. Payment terms vary by contract. Generally, the majority of payments are due within a certain number of days from shipment of goods or performance of service. The remainder is typically due upon customer technical acceptance. Applied typically receives deposits on future deliverables from customers in the Display and Adjacent Markets segment and, in certain instances, may also receive deposits from customers in the Applied Global Services segment. Applied’s payment terms do not generally contain a significant financing component.

Shipping and Handling Costs

Applied accounts for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, amounts billed for shipping and handling costs are recorded as a component of net sales and costs as a component of cost of products sold.

Warranty

Applied provides for the estimated cost of warranty when revenue is recognized. Estimated warranty costs are determined by analyzing specific product, current and historical configuration statistics and regional warranty support costs. Applied’s warranty obligation is affected by product and component failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. If actual warranty costs differ substantially from Applied’s estimates, revisions to the estimated warranty liability would be required.

Applied also sells extended warranty contracts to its customers which provide an extension of the standard warranty coverage period of up to 2 years. Applied receives payment at the inception of the contract and recognizes revenue ratably over the extended warranty coverage period, as the customer simultaneously receives and consumes the benefits of the extended warranty.

Sales and Value Added Taxes

Taxes collected from customers and remitted to governmental authorities are presented on a net basis in the Consolidated Statements of Operations.

Research, Development and Engineering Costs

Research, development and engineering costs are expensed as incurred.

Income Taxes

Applied recognizes a current tax liability for the estimated amount of income tax payable on tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized.

Applied recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are estimated based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Any changes in judgment related to uncertain tax positions are recognized in Applied’s provision for income taxes in the quarter in which such change occurs. Interest and penalties related to uncertain tax positions are recognized in Applied’s provision for income taxes.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Derivative Financial Instruments

Applied uses financial instruments, such as forward exchange and currency option contracts, to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions typically expected to occur within 24 months. The purpose of Applied’s foreign currency management is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. In certain cases, Applied also uses interest rate swap or lock agreements to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. The terms of derivative financial instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. All of Applied’s derivative financial instruments are recorded at fair value based upon quoted market prices for comparable instruments. For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity, and is reclassified into earnings when the hedged transaction affects earnings. If the transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss on the associated financial instrument is recorded promptly in earnings. For derivative instruments used to hedge existing foreign currency denominated assets or liabilities, the gain or loss on these hedges is recorded promptly in earnings to offset the changes in the fair value of the assets or liabilities being hedged. Applied does not use derivative financial instruments for trading or speculative purposes.

Foreign Currencies

As of October 27, 2019, all of Applied’s subsidiaries use the United States dollar as their functional currency. Accordingly, assets and liabilities of these subsidiaries are remeasured using exchange rates in effect at the end of the period, except for non-monetary assets, such as inventories and property, plant and equipment, which are remeasured using historical exchange rates. Foreign currency-denominated revenues and costs are remeasured using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in general and administrative expenses in the Consolidated Statements of Operations as incurred.

Concentrations of Credit Risk

Financial instruments that potentially subject Applied to significant concentrations of credit risk consist principally of cash equivalents, investments, trade accounts receivable and derivative financial instruments used in hedging activities. Applied invests in a variety of financial instruments, such as, but not limited to, commercial paper, corporate and municipal bonds, United States Treasury and agency securities, and asset-backed and mortgage-backed securities, and, by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. Applied is exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments, but does not expect any counterparties to fail to meet their obligations. In some instances, Applied has entered into security arrangements which require the counterparties to post collateral to further mitigate credit exposure. Applied performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. Applied maintains an allowance reserve for potentially uncollectible accounts receivable based on its assessment of the collectability of accounts receivable. Applied regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. In addition, Applied utilizes letters of credit to mitigate credit risk when considered appropriate.

Recent Accounting Pronouncements

Accounting Standards Adopted

Revenue Recognition. In May 2014, the FASB issued authoritative guidance that requires revenue recognition to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and requires certain additional disclosures. Applied adopted this authoritative guidance in the first quarter of fiscal 2019 using the full retrospective method, which required restating each prior reporting period presented. Refer to the Impacts to Previously Reported Results section below for the impact of the adoption of the standard to Applied’s consolidated financial statements.

For all periods prior to the date of initial adoption of this standard, Applied elected to use the practical expedient pursuant to which Applied excluded disclosures of both transaction prices allocated to remaining performance obligations and when these performance obligations are expected to be recognized as revenue.

The most significant impact from the adoption of this standard is fewer constraints on revenue recognition upon shipment of manufacturing equipment.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Impacts to Previously Reported Results

Adoption of the standards related to revenue recognition and retirement benefits impacted Applied’s Consolidated Statement of Operations for each of the fiscal years 2018 and 2017 as follows:

			2018																								2017
			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			$	17,253		$	(548)		$	—		$	16,705					$	14,537		$	161		$	—		$	14,698
Cost of products sold			$	9,436		$	(250)		$	2		$	9,188					$	8,005		$	76		$	5		$	8,086
Gross profit			$	7,817		$	(298)		$	(2)		$	7,517					$	6,532		$	85		$	(5)		$	6,612
Research, development and engineering			$	2,019		$	—		$	3		$	2,022					$	1,774		$	—		$	7		$	1,781
Marketing and selling			$	521		$	—		$	—		$	521					$	456		$	—		$	1		$	457
General and administrative			$	481		$	—		$	2		$	483					$	434		$	—		$	4		$	438
Interest and other income, net			$	132		$	—		$	7		$	139					$	61		$	—		$	17		$	78
Income before income taxes			$	4,694		$	(298)		$	—		$	4,396					$	3,731		$	85		$	—		$	3,816
Provision for income taxes			$	1,381		$	(23)		$	—		$	1,358					$	297		$	—		$	—		$	297
Net income			$	3,313		$	(275)		$	—		$	3,038					$	3,434		$	85		$	—		$	3,519
Earnings per share: basic			$	3.27		$	(0.27)		$	—		$	3.00					$	3.20		$	0.08		$	—		$	3.28
Earnings per share: diluted			$	3.23		$	(0.27)		$	—		$	2.96					$	3.17		$	0.08		$	—		$	3.25

Adoption of the retirement benefits standard did not have any impact on Applied’s Consolidated Balance Sheet or Consolidated Statement of Cash Flows.

Adoption of the standard related to revenue recognition impacted Applied’s Consolidated Balance Sheet at October 28, 2018 as follows:

			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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Adoption of the revenue recognition standard did not impact cash provided by or used in investing or financing activities in Applied’s Consolidated Statement of Cash Flows for each of fiscal years 2018 and 2017 as follows. The adoption did not impact total cash provided by operating activities, however it impacted individual components of cash provided by operating activities for each of fiscal years 2018 and 2017 as follows:

			2018																		2017
			As Previously Reported			Adjustment			As Adjusted						As Previously Reported			Adjustment			As Adjusted
			(In millions)
Cash flows from operating activities:
Net income			$	3,313		$	(275)		$	3,038					$	3,434		$	85		$	3,519
Adjustments required to reconcile net income to cash provided by operating activities:
Deferred income taxes			$	94		$	(23)		$	71					$	(11)		$	(1)		$	(12)
Changes in operating assets and liabilities:
Accounts receivables			$	(226)		$	242		$	16					$	(37)		$	—		$	(37)
Inventories			$	(792)		$	(222)		$	(1,014)					$	(879)		$	70		$	(809)
Other current and non-current assets			$	(93)		$	(106)		$	(199)					$	(157)		$	1		$	(156)
Accounts payable and accrued expenses			$	179		$	(9)		$	170					$	370		$	1		$	371
Contract liabilities			$	(318)		$	393		$	75					$	289		$	(156)		$	133

Income Taxes: Intra-Entity Asset Transfers. In October 2016, the FASB issued authoritative guidance that changed the tax accounting for intra-entity transfers of assets other than inventory. After adoption, the income tax effect of intra-entity transfers is realized at the time of the transfer instead of over the life of the asset. Applied adopted this guidance in the first quarter of fiscal 2019 using a modified retrospective approach, resulting in a cumulative effect adjustment to retained earnings. Upon adoption, deferred tax assets increased by $1.6 billion related to the estimated income tax effects of future amortization of intra-entity intangible asset transfers, with an offset to retained earnings.

Financial Instruments: Classification and Measurement. In January 2016, the FASB issued authoritative guidance that requires equity investments that do not result in consolidation, and are not accounted for under the equity method, to be measured at fair value, and requires recognition of any changes in fair value in net income unless the investments qualify for a new measurement alternative. For financial liabilities measured at fair value, the change in fair value caused by a change in instrument-specific credit risk will be required to be presented separately in other comprehensive income. Applied adopted this standard in the first quarter of fiscal year 2019. Upon adoption, Applied elected to apply the measurement alternative for equity investments without readily determinable fair value. Under the alternative, Applied measures investments without readily determinable fair value at cost, less impairment, adjusted by observable price changes prospectively to all equity investments that exist as of adoption and will reassess at each reporting period whether an investment qualifies for the alternative. Adopting this standard required Applied to record a cumulative net increase to retained earnings of approximately $21 million with the corresponding $17 million decrease in accumulated other comprehensive income, net of tax, for the unrealized gains and losses associated with equity investments with readily determinable fair values, as the authoritative guidance is required to be adopted prospectively. Going forward, the impact of this new standard could result in volatility in Applied’s Consolidated Statement of Operations.

Fair Value Measurement: Changes to the Disclosure Requirements for Fair Value Measurement. In August 2018, the FASB issued authoritative guidance that eliminates, amends, and adds disclosure requirements for fair value measurements. While the amended and new disclosure requirements primarily relate to Level 3 fair value measurements, the authoritative guidance also eliminates disclosure requirements related to the amount and reasons for transfer between Level 1 and Level 2 of fair value hierarchy, policy for timing of transfer between levels, and the valuation processes for Level 3 fair value measurements. Applied adopted this guidance in the fourth quarter of fiscal 2019 on a retrospective basis for the removal and amendment of certain disclosures, while the new disclosures requirements are to be applied prospectively at the effective date. The adoption of this guidance did not have an impact to Applied's consolidated financial statements.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Retirement Benefits. In March 2017, the FASB issued authoritative guidance which requires companies to present the service cost component of net benefit cost in the same line items in which they report compensation cost. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Applied adopted this guidance in the first quarter of fiscal 2019 on a retrospective basis. The adoption of this guidance resulted in reclassification of other components of net benefit costs outside of income from operations and did not have a significant impact on Applied’s consolidated financial statements.

Business Combinations. In January 2017, the FASB issued authoritative guidance that clarifies the definition of a business to help companies evaluate whether acquisition or disposal transactions should be accounted for as asset groups or as businesses. Applied adopted this guidance in the first quarter of fiscal 2019 on a prospective basis. The impact of the adoption depends on the facts and circumstances of future acquisition or disposal transactions.

Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued authoritative guidance which addresses classification of certain cash receipts and cash payments related to the statement of cash flows. Effective in the first quarter of fiscal 2019, Applied adopted the authoritative guidance retrospectively. The adoption of this guidance did not have a significant impact and only impacts disclosures in Applied' s consolidated statements of cash flow.

Accounting Standards Not Yet Adopted

Retirement Benefits: Changes to the Disclosure Requirements for Defined Benefit and other Postretirement Plans. In August 2018, the FASB issued authoritative guidance that adds, removes, and clarifies disclosure requirements for defined benefit and other postretirement plans. This authoritative guidance will be effective for Applied in fiscal 2021 on a retrospective basis, with early adoption permitted. Applied is currently evaluating the effect of this new guidance on Applied’s consolidated financial statements.

Derivatives and Hedging. In August 2017, the FASB issued authoritative guidance that modifies the recognition and presentation of hedge accounting to better align an entity’s risk management strategies and financial reporting for hedging relationships. The authoritative guidance expands the application of hedge accounting for non-financial and financial risk components and eases certain hedge effectiveness assessment requirements. The authoritative guidance will be effective for Applied in the first quarter of fiscal 2020, with early adoption permitted. While the Company's evaluation of the impact of this new guidance is not complete, it is not currently expected to have a significant impact on Applied’s consolidated financial statements.

Receivables: Nonrefundable Fees and Other Costs. In March 2017, the FASB issued authoritative guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date to more closely align with expectations incorporated in market pricing. This authoritative guidance will be effective for Applied in the first quarter of fiscal 2020 on a modified retrospective basis. While the Company's evaluation of the impact of this new guidance is not complete, it is not currently expected to have a significant impact on Applied’s consolidated financial statements.

Goodwill Impairment. In January 2017, the FASB issued authoritative guidance that simplifies the process required to test goodwill for impairment. The authoritative guidance will be effective for Applied in the first quarter of fiscal 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on Applied’s consolidated financial statements.

Financial Instruments: Credit Losses. In June 2016, the FASB issued authoritative guidance that modifies the impairment model for certain financial assets by requiring use of an expected loss methodology, which will result in more timely recognition of credit losses. The authoritative guidance will be effective for Applied in the first quarter of fiscal 2021. Early adoption is permitted beginning in the first quarter of fiscal 2020. Applied is currently evaluating the effect of this new guidance on Applied’s consolidated financial statements.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Leases. In February 2016, the FASB issued authoritative guidance for lease accounting, which requires lessees to recognize lease assets and liabilities on the balance sheet for certain lease arrangements that are classified as operating leases under the previous standard, and to provide for enhanced disclosures. The authoritative guidance should be applied using a modified retrospective approach. Applied currently anticipates adopting this guidance using the optional transition method by recognizing a cumulative-effect adjustment to the consolidated balance sheet at the beginning of fiscal year 2020 and will not adjust comparative prior periods. While the Company's evaluation of the impact of this new guidance is not complete, Applied currently expects that the primary impact of the new standard will be the recognition of right-of-use assets and lease liabilities of approximately $165 million on the Company's Consolidated Balance Sheets, mainly related to leases classified as operating leases. Applied is currently implementing changes to business processes and controls to support measurement and disclosure requirements under the new standard.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 2 Earnings Per Share

Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, restricted stock units, and employee stock purchase plan shares) outstanding during the period. Applied’s net income has not been adjusted for any period presented for purposes of computing basic or diluted earnings per share due to the Company’s non-complex capital structure.

Fiscal Year			2019						2018						2017
			(In millions, except per share amounts)
Numerator:
Net income			$	2,706					$	3,038					$	3,519
Denominator:
Weighted average common shares outstanding			937						1,013						1,073
Effect of dilutive stock options, restricted stock units and employee stock purchase plan shares			8						13						11
Denominator for diluted earnings per share			945						1,026						1,084
Basic earnings per share			$	2.89					$	3.00					$	3.28
Diluted earnings per share			$	2.86					$	2.96					$	3.25
Potentially dilutive securities			3						—						—

Potentially dilutive securities attributable to outstanding stock options and restricted stock units are excluded from the calculation of diluted earnings per share where the combined exercise price and average unamortized fair value are greater than the average market price of Applied common stock, and therefore their inclusion would be anti-dilutive. Prior to the adoption of Accounting Standards Update (ASU) 2016-09 Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting in the first quarter of fiscal 2018, the assumed tax benefits upon the exercise of options and vesting of restricted stock units were also included in this calculation.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3 Cash, Cash Equivalents and Investments

Summary of Cash, Cash Equivalents and Investments

The following tables summarize Applied’s cash, cash equivalents and investments by security type:

October 27, 2019			Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
			(In millions)
Cash			$	1,071					$	—					$	—					$	1,071
Cash equivalents:
Money market funds			1,677						—						—						1,677
U.S. Treasury and agency securities			4						—						—						4
Commercial paper, corporate bonds and medium-term notes			377						—						—						377
Total Cash equivalents			2,058						—						—						2,058
Total Cash and Cash equivalents			$	3,129					$	—					$	—					$	3,129
Short-term and long-term investments:
U.S. Treasury and agency securities			$	336					$	1					$	—					$	337
Non-U.S. government securities*			10						—						—						10
Municipal securities			402						4						—						406
Commercial paper, corporate bonds and medium-term notes			642						5						—						647
Asset-backed and mortgage-backed securities			631						4						—						635
Total fixed income securities			2,021						14						—						2,035
Publicly traded equity securities			8						40						3						45
Equity investments in privately-held companies			105						10						3						112
Total equity investments			113						50						6						157
Total short-term and long-term investments			$	2,134					$	64					$	6					$	2,192
Total Cash, Cash equivalents and Investments			$	5,263					$	64					$	6					$	5,321

---

• Includes agency debt securities guaranteed by Canada.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

October 28, 2018			Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
			(In millions)
Cash			$	1,489					$	—					$	—					$	1,489
Cash equivalents:
Money market funds			1,599						—						—						1,599
Commercial paper, corporate bonds and medium-term notes			352						—						—						352
Total Cash equivalents			1,951						—						—						1,951
Total Cash and Cash equivalents			$	3,440					$	—					$	—					$	3,440
Short-term and long-term investments:
U.S. Treasury and agency securities			$	335					$	—					$	2					$	333
Non-U.S. government securities*			10						—						—						10
Municipal securities			399						—						4						395
Commercial paper, corporate bonds and medium-term notes			705						—						3						702
Asset-backed and mortgage-backed securities			595						—						4						591
Total fixed income securities			2,044						—						13						2,031
Publicly traded equity securities			17						25						4						38
Equity investments in privately-held companies			89						—						—						89
Total equity investments			106						25						4						127
Total short-term and long-term investments			$	2,150					$	25					$	17					$	2,158
Total Cash, Cash equivalents and Investments			$	5,590					$	25					$	17					$	5,598

---

• Includes agency debt securities guaranteed by Canada.

Maturities of Investments

The following table summarizes the contractual maturities of Applied’s investments at October 27, 2019:

			Cost						Estimated Fair Value
			(In millions)
Due in one year or less			$	419					$	420
Due after one through five years			971						981
No single maturity date**			744						791
Total			$	2,134					$	2,192

---

** Securities with no single maturity date include publicly-traded and privately-held equity securities, and asset-backed and mortgage-backed securities.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Gains and Losses on Investments

Gross realized gains and losses on sales of investments for each fiscal year were as follows:

			2019						2018						2017
			(In millions)
Gross realized gains			$	10					$	29					$	14
Gross realized losses			$	2					$	3					$	1

At October 27, 2019, gross unrealized losses related to Applied’s debt investment portfolio were not material. Applied regularly reviews its debt investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether an unrealized loss is considered to be temporary, or other-than-temporary and therefore impaired, include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition, credit quality and near-term prospects of the investee; and whether it is more likely than not that Applied will be required to sell the security prior to recovery.

Applied determined that the gross unrealized losses on its marketable fixed income securities at October 27, 2019, October 28, 2018 and October 29, 2017 were temporary in nature and therefore it did not recognize any impairment of its marketable fixed income securities for fiscal 2019, 2018 or 2017. During fiscal 2019, 2018 and 2017, Applied determined that certain of its equity investments were impaired and, accordingly, recognized impairment charges of $1 million, $5 million and $10 million, respectively. These impairment charges are included in interest and other income, net in the Consolidated Statement of Operations.

Unrealized gains and losses on investments classified as equity investments are recognized in other income (expense), net in the Consolidated Statement of Operations. Prior to the adoption of Accounting Standards 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, these unrealized gains and temporary losses were included within accumulated other comprehensive income (loss), net of any related tax effect.

The components of gain (loss) on equity investments for fiscal 2019 were as follows:

			2019
			(In millions)
Publicly traded equity securities
Unrealized gain			$	28
Unrealized loss			(5)
Gain on sales			2
Loss on sales			—
Equity investments in privately-held companies
Unrealized gain			13
Unrealized loss			(6)
Gain on sales			5
Loss on sales or impairment			(1)
Total gain on equity investments, net			$	36

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 4 Fair Value Measurements

Applied’s financial assets are measured and recorded at fair value on a recurring basis, except for equity investments in privately-held companies. These equity investments are generally accounted for under the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes and are periodically assessed for impairment when events or circumstances indicate that a decline in value may have occurred. Applied’s nonfinancial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Fair Value Hierarchy

Applied uses the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Applied’s investments consist primarily of debt securities that are classified as available-for-sale and recorded at their fair values. In determining the fair value of investments, Applied uses pricing information from pricing services that value securities based on quoted market prices and models that utilize observable market inputs. In the event a fair value estimate is unavailable from a pricing service, Applied generally obtains non-binding price quotes from brokers. Applied then reviews the information provided by the pricing services or brokers to determine the fair value of its short-term and long-term investments. In addition, to validate pricing information obtained from pricing services, Applied periodically performs supplemental analysis on a sample of securities. Applied reviews any significant unanticipated differences identified through this analysis to determine the appropriate fair value. As of October 27, 2019, substantially all of Applied’s available-for-sale, short-term and long-term investments were recognized at fair value that was determined based upon observable inputs.

Applied’s equity investments with readily determinable values consist of publicly traded equity securities. Upon adoption of ASU 2016-01, these investments are measured at fair value using quoted prices for identical assets in an active market and the changes in fair value of these equity investments are recognized in the Consolidated Statements of Operations. Applied adopted the standard in the first quarter of fiscal 2019 using a modified retrospective transition method and reclassified the unrealized gains on these equity investments of $21 million to retained earnings as a cumulative-effect adjustment on the consolidated balance sheets.

Investments with remaining effective maturities of 12 months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than 12 months from the balance sheet date are classified as long-term investments.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets Measured at Fair Value on a Recurring Basis

Financial assets (excluding cash balances) measured at fair value on a recurring basis are summarized below:

			October 27, 2019																																				October 28, 2018
			Level 1						Level 2												Total						Level 1						Level 2												Total
			(In millions)
Assets:
Available-for-sale debt security investments
Money market funds			$	1,677					$	—											$	1,677					$	1,599					$	—											$	1,599
U.S. Treasury and agency securities			323						18												341						297						36												333
Non-U.S. government securities			—						10												10						—						10												10
Municipal securities			—						406												406						—						395												395
Commercial paper, corporate bonds and medium-term notes			—						1,024												1,024						—						1,054												1,054
Asset-backed and mortgage-backed securities			—						635												635						—						591												591
Total available-for-sale debt security investments			$	2,000					$	2,093											$	4,093					$	1,896					$	2,086											$	3,982
Equity investments with readily determinable values
Publicly traded equity securities			$	45					$	—											$	45					$	38					$	—											$	38
Total equity investments with readily determinable values			$	45					$	—											$	45					$	38					$	—											$	38
Total			$	2,045					$	2,093											$	4,138					$	1,934					$	2,086											$	4,020

Applied did not have any financial assets measured at fair value on a recurring basis within Level 3 fair value measurements as of October 27, 2019 or October 28, 2018.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Applied’s equity investments without readily determinable values consist of equity investments in privately-held companies. Upon adoption of ASU 2016-01, Applied elected the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes on a prospective basis for certain equity investments without readily determinable fair values and is required to account for any subsequent observable changes in fair value within the statements of operations. Applied adopted the guidance prospectively, effective October 29, 2018, and there was no impact to Applied’s consolidated financial statements. Prior to the adoption of ASU 2016-01, these investments were generally accounted for under the cost method of accounting. These investments are periodically assessed for impairment when an event or circumstance indicates that a decline in value may have occurred.

During fiscal 2019, 2018 and 2017, Applied determined that certain of its equity investments were impaired and, accordingly, recognized impairment charges of $1 million, $5 million and $10 million, respectively.

Other

The carrying amounts of Applied’s financial instruments, including cash and cash equivalents, accounts receivable, notes payable - short term, and accounts payable and accrued expenses, approximate fair value due to their short maturities. At October 27, 2019, the aggregate principal amount of long-term debt was $4.8 billion, and estimated fair value was $5.5 billion. At October 28, 2018, the aggregate principal and estimated fair value amounts of long-term debt were both $5.4 billion. The estimated fair value of long-term debt is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. See Note 11 of the Notes to the Consolidated Financial Statements for further detail of existing debt.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5 Derivative Instruments and Hedging Activities

Derivative Financial Instruments

Applied conducts business in a number of foreign countries, with certain transactions denominated in local currencies, such as the Japanese yen, euro, Israeli shekel and Taiwanese dollar. Applied uses derivative financial instruments, such as forward exchange contracts and currency option contracts, to hedge certain forecasted foreign currency denominated transactions expected to occur typically within the next 24 months. The purpose of Applied’s foreign currency management is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged.

Applied does not use derivative financial instruments for trading or speculative purposes. Derivative instruments and hedging activities, including foreign currency exchange and interest rate contracts, are recognized on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized currently in earnings. All of Applied’s derivative financial instruments are recorded at their fair value in other current assets or in accounts payable and accrued expenses.

Hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges and foreign exchange derivatives are typically entered into once per month. Cash flow hedges are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of AOCI in stockholders’ equity and is reclassified into earnings when the hedged transaction affects earnings. The majority of the after-tax net income or loss related to foreign exchange derivative instruments included in AOCI at October 27, 2019 is expected to be reclassified into earnings within 12 months. Changes in the fair value of currency forward exchange and option contracts due to changes in time value are excluded from the assessment of effectiveness. Both ineffective hedge amounts and hedge components excluded from the assessment of effectiveness are recognized in earnings. If the transaction being hedged is no longer probable to occur, or if a portion of any derivative is deemed to be ineffective, Applied promptly recognizes the gain or loss on the associated financial instrument in earnings. The amount recognized due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified time period were not significant for fiscal years 2019, 2018 and 2017.

Additionally, forward exchange contracts are generally used to hedge certain foreign currency denominated assets or liabilities. These derivatives are typically entered into once per month and are not designated for hedge accounting treatment. Accordingly, changes in the fair value of these hedges are recorded in earnings to offset the changes in the fair value of the assets or liabilities being hedged.

The fair values of foreign exchange derivative instruments at October 27, 2019 and October 28, 2018 were not material.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The effects of derivative instruments and hedging activities on the Consolidated Statements of Operations were as follows:

									Effective Portion																		Ineffective Portion and Amount Excluded from Effectiveness Testing
Derivatives in Cash Flow Hedging Relationships			Location of Gain or (Loss)						Gain or (Loss)						Gain or (Loss) Reclassified from AOCI into Income						Gain or (Loss) Recognized in Income
									(In millions)
2019
Foreign exchange contracts			AOCI						$	(14)					$	—					$	—
Foreign exchange contracts			Cost of products sold						—						2						15
Foreign exchange contracts			General and administrative						—						(3)						(6)
Interest rate contracts			Interest expense						—						(3)						—
Total									$	(14)					$	(4)					$	9
2018
Foreign exchange contracts			AOCI						$	3					$	—					$	—
Foreign exchange contracts			Cost of products sold						—						4						19
Foreign exchange contracts			General and administrative						—						(3)						(7)
Interest rate contracts			Interest expense						—						(3)						—
Total									$	3					$	(2)					$	12
2017
Foreign exchange contracts			AOCI						$	35					$	—					$	—
Foreign exchange contracts			Cost of products sold						—						7						(3)
Foreign exchange contracts			General and administrative						—						7						(2)
Interest rate contracts			AOCI						(14)						—						—
Interest rate contracts			Interest expense						—						(3)						—
Total									$	21					$	11					$	(5)

									Amount of Gain or (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments			Location of Gain or (Loss) Recognized in Income						2019						2018						2017
									(In millions)
Foreign exchange contracts			General and administrative						$	(8)					$	(5)					$	39
Total									$	(8)					$	(5)					$	39

Credit Risk Contingent Features

If Applied’s credit rating were to fall below investment grade, it would be in violation of credit risk contingent provisions of the derivative instruments discussed above, and certain counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was immaterial as of October 27, 2019 and October 28, 2018.

Entering into derivative contracts with banks exposes Applied to credit-related losses in the event of the banks’ nonperformance. However, Applied’s exposure is not considered significant.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 6 Accounts Receivable, Net

Applied has agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. Applied sells its accounts receivable without recourse. Applied, from time to time, also discounts letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial institutions to discount the letters of credit and the cost of such arrangements.

Applied sold $1.5 billion, $1.6 billion and $746 million of accounts receivable during fiscal 2019, 2018 and 2017, respectively. Applied discounted letters of credit issued by customers of $48 million and $37 million in fiscal 2019 and 2018, respectively. There was no discounting of promissory notes in each of fiscal 2019 and 2018. Applied did not discount letters of credit issued by customers or discount promissory notes during fiscal 2017. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Statements of Operations and were not material for all years presented.

Accounts receivable are presented net of allowance for doubtful accounts of $30 million and $33 million at October 27, 2019 and October 28, 2018, respectively. Changes in allowance for doubtful accounts in each fiscal year were as follows:

			2019						2018						2017
			(In millions)
Beginning balance			$	33					$	34					$	51
Provision			—						—						—
Deductions1			(3)						(1)						(17)
Ending balance			$	30					$	33					$	34

---

1 Fiscal 2019, 2018 and 2017 deductions primarily represent releases of allowance for doubtful accounts credited to expense as a result of an overall lower risk profile of Applied’s customers and cash collections.

Applied sells its products principally to manufacturers within the semiconductor and display industries. While Applied believes that its allowance for doubtful accounts is adequate and represents its best estimate as of October 27, 2019, it continues to closely monitor customer liquidity and industry and economic conditions, which may result in changes to Applied’s estimates.

Note 7 Contract Balances

Contract assets primarily result from receivables for goods transferred to customers where payment is conditional upon technical sign off and not just the passage of time. Contract liabilities consist of unsatisfied performance obligations related to advance payments received and billings in excess of revenue recognized. Applied’s contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

Contract assets are generally classified as current and included in Other Current Assets in the Consolidated Balance Sheets. Contract liabilities are classified as current or non-current based on the timing of when performance obligations will be satisfied and associated revenue is expected to be recognized.

Contract balances at the end of each reporting period were as follows:

			October 27, 2019						October 28, 2018
			(In millions)
Contract assets			$	108					$	99
Contract liabilities			$	1,336					$	1,201

The increase in contract assets during fiscal 2019, was primarily due to goods transferred to customers where payment was conditional upon technical sign off, offset by the reclassification of contract assets to net accounts receivable upon meeting conditions to the right to payment.

During fiscal 2019, Applied recognized revenue of approximately $859 million related to contract liabilities at October 28, 2018. This reduction in contract liabilities was offset by new billings for products and services for which there were unsatisfied performance obligations to customers and revenue had not yet been recognized as of October 27, 2019.

There were no impairment losses recognized on Applied’s accounts receivables and contract assets during fiscal 2019.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of October 27, 2019, the amount of remaining unsatisfied performance obligations on contracts with an original estimated duration of one year or more was approximately $868 million, of which approximately 42% is expected to be recognized within 12 months and the remainder is expected to be recognized within the following 24 months thereafter. Applied has elected the available practical expedient to exclude the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Note 8 Balance Sheet Detail

			October 27, 2019						October 28, 2018
			(In millions)
Inventories
Customer service spares			$	1,245					$	989
Raw materials			802						1,020
Work-in-process			575						505
Finished goods			852						1,207
			$	3,474					$	3,721

Included in finished goods inventory is $13 million at October 27, 2019 and $19 million at October 28, 2018, of newly-introduced systems at customer locations where the sales transaction did not meet Applied’s revenue recognition criteria as set forth in Note 1. Finished goods inventory includes $318 million and $350 million of evaluation inventory at October 27, 2019 and October 28, 2018, respectively.

			October 27, 2019						October 28, 2018
			(In millions)
Other Current Assets
Prepaid income taxes and income taxes receivable			$	96					$	40
Prepaid expenses and other			485						490
			$	581					$	530

			Useful Life						October 27, 2019						October 28, 2018
			(In years)						(In millions)
Property, Plant and Equipment, Net
Land and improvements									$	254					$	245
Buildings and improvements			3-30						1,590						1,448
Demonstration and manufacturing equipment			3-5						1,505						1,282
Furniture, fixtures and other equipment			3-5						602						634
Construction in progress									120						203
Gross property, plant and equipment									4,071						3,812
Accumulated depreciation									(2,542)						(2,405)
									$	1,529					$	1,407

Depreciation expense was $306 million, $258 million and $214 million for fiscal 2019, 2018 and 2017 respectively.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			October 27, 2019						October 28, 2018
			(In millions)
Deferred Income Taxes and Other Assets
Non-current deferred income taxes			$	1,766					$	225
Income tax receivables and other assets			265						248
			$	2,031					$	473

			October 27, 2019						October 28, 2018
			(In millions)
Accounts Payable and Accrued Expenses
Accounts payable			$	958					$	996
Compensation and employee benefits			559						639
Warranty			196						208
Dividends payable			192						193
Income taxes payable			160						136
Other accrued taxes			55						112
Interest payable			38						38
Other			353						399
			$	2,511					$	2,721

			October 27, 2019						October 28, 2018
			(In millions)
Other Liabilities
Defined and postretirement benefit plans			$	212					$	177
Other			163						126
			$	375					$	303

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 9 Business Combinations

Kokusai Electric Corporation

On June 30, 2019, Applied entered into a Share Purchase Agreement (SPA) to acquire all outstanding shares of Kokusai Electric Corporation (Kokusai Electric) for $2.2 billion in cash, subject to certain post-closing adjustments. Kokusai Electric is a leading company in providing high-productivity batch processing systems and services for memory, foundry and logic customers. These systems complement Applied’s portfolio of single-wafer processing systems. Following the close of the transaction, Kokusai Electric will operate as a business unit of Applied’s Semiconductor Systems segment and continue to be based in Tokyo, with technology and manufacturing centers in Toyama, Japan and Cheonan, Korea. The transaction is subject to regulatory approvals and other customary closing conditions.

Note 10 Goodwill, Purchased Technology and Other Intangible Assets

Goodwill and Purchased Intangible Assets

Applied’s methodology for allocating the purchase price relating to purchase acquisitions is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the purchase price over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. Applied assigns assets acquired (including goodwill) and liabilities assumed to one or more reporting units as of the date of acquisition. Typically, acquisitions relate to a single reporting unit and thus do not require the allocation of goodwill to multiple reporting units. If the products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process.

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 whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment, especially in emerging markets. Applied regularly monitors current business conditions and considers other factors including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results.

To test goodwill for impairment, Applied first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, Applied then performs the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. Under the two-step goodwill impairment test, Applied would in the first step compare the estimated fair value of each reporting unit to its carrying value. Applied determines the fair value of each of its reporting units based on a weighting of income and market approaches. If the carrying value of a reporting unit exceeds its fair value, Applied would then perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If Applied determines that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, Applied would record an impairment charge equal to the difference.

As of October 27, 2019, Applied’s reporting units include Semiconductor Products Group and Imaging and Process Control Group, which combine to form the Semiconductor Systems reporting segment, Applied Global Services, and Display and Adjacent Markets.

In the fourth quarter of fiscal 2019, Applied performed a qualitative assessment to test goodwill for all of its reporting units for impairment. Applied determined that it was more likely than not that each of its reporting units’ fair values exceeded their respective carrying values and that it was not necessary to perform the two-step goodwill impairment test for any of its reporting units.

The evaluation of goodwill and intangible assets for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, Applied will be required to reassess and update its forecasts and estimates used in future impairment analyses. If the results of these future analyses are lower than current estimates, a material impairment charge may result at that time.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Details of goodwill were as follows:

															October 27, 2019																		October 28, 2018
															(In millions)
Semiconductor Systems															$	2,182																	$	2,151
Applied Global Services															1,018																		1,018
Display and Adjacent Markets															199																		199
Carrying amount															$	3,399																	$	3,368

During fiscal 2019, the increase in goodwill was primarily due to acquisitions completed in the second quarter of fiscal 2019, which were not significant to Applied’s results of operations.

A summary of Applied’s purchased technology and intangible assets is set forth below:

			October 27, 2019						October 28, 2018
			(In millions)
Purchased technology, net			$	71					$	109
Intangible assets - finite-lived, net			85						104
			$	156					$	213

Finite-Lived Purchased Intangible Assets

Applied amortizes purchased intangible assets with finite lives using the straight-line method over the estimated economic lives of the assets, ranging from 1 to 15 years.

Applied evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable. Applied assesses the fair value of the assets based on the amount of the undiscounted future cash flow that the assets are expected to generate and recognizes an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset, plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When Applied identifies an impairment, Applied reduces the carrying value of the group of assets to comparable market values, when available and appropriate, or to its estimated fair value based on a discounted cash flow approach.

Intangible assets, such as purchased technology, are generally recorded in connection with a business acquisition. The value assigned to intangible assets is usually based on estimates and judgments regarding expectations for the success and life cycle of products and technology acquired. Applied evaluates the useful lives of its intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization. In addition, Applied reviews intangible assets for impairment when events or changes in circumstances indicate their carrying value may not be recoverable. Management considers such indicators as significant differences in actual product acceptance from the estimates, changes in the competitive and economic environments, technological advances, and changes in cost structure.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Details of finite-lived intangible assets were as follows:

			October 27, 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			$	(1,400)					$	(168)					$	(1,568)					$	(1,375)					$	(150)					$	(1,525)
Applied Global Services			(30)						(44)						(74)						(29)						(44)						(73)
Display and Adjacent Markets			(144)						(37)						(181)						(132)						(36)						(168)
Corporate and Other			—						(9)						(9)						—						(9)						(9)
Accumulated amortization			$	(1,574)					$	(258)					$	(1,832)					$	(1,536)					$	(239)					$	(1,775)
Carrying amount			$	71					$	85					$	156					$	109					$	104					$	213

Details of amortization expense for each fiscal year by segment were as follows:

			2019						2018						2017
			(In millions)
Semiconductor Systems			$	43					$	184					$	185
Applied Global Services			1						1						1
Display and Adjacent Markets			13						14						7
Total			$	57					$	199					$	193

Amortization expense for each fiscal year was charged to the following categories:

			2019						2018						2017
			(In millions)
Cost of products sold			$	38					$	180					$	173
Research, development and engineering			1						1						1
Marketing and selling			18						18						19
Total			$	57					$	199					$	193

As of October 27, 2019, future estimated amortization expense is expected to be as follows:

			Amortization Expense
			(In millions)
2020			$	52
2021			39
2022			24
2023			11
2024			10
Thereafter			20
Total			$	156

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 11 Borrowing Facilities and Debt

Applied has credit facilities for unsecured borrowings in various currencies of up to $1.6 billion, of which $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 $74 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.

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 two 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 two 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.

No amounts were outstanding under any of these facilities at both October 27, 2019 and October 28, 2018, 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. At October 27, 2019 and October 28, 2018, Applied did not have any commercial paper outstanding.

Debt outstanding as of October 27, 2019 and October 28, 2018 was as follows:

			Principal Amount
			October 27, 2019						October 28, 2018						Effective Interest Rate						Interest Pay Dates
			(In millions)
Current portion of long-term debt:
2.625% Senior Notes Due 2020			$	600					$	—					2.640%						April 1, October 1
Total current portion of long-term debt			600						—
Long-term debt:
2.625% Senior Notes Due 2020			—						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
			4,750						5,350
Total unamortized discount			(10)						(11)
Total unamortized debt issuance costs			(27)						(30)
Total long-term debt			4,713						5,309
Total debt			$	5,313					$	5,309

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 12 Stockholders’ Equity, Comprehensive Income and Share-Based Compensation

Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income (AOCI), net of tax, were as follows:

			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 at October 30, 2016			$	30					$	(18)					$	(141)					$	14					(115)
Other comprehensive income (loss) before reclassifications			24						13						29						—						66
Amounts reclassified out of AOCI			(1)						(6)						(8)						—						(15)
Other comprehensive income (loss), net of tax			23						7						21						—						51
Balance at October 29, 2017			$	53					$	(11)					$	(120)					$	14					$	(64)
Adoption of new accounting standards (a)			5						(2)						—						—						3
Other comprehensive income (loss) before reclassifications			(66)						5						(23)						—						(84)
Amounts reclassified out of AOCI			15						(1)						6						—						20
Other comprehensive income, net of tax			(51)						4						(17)						—						(64)
Balance at October 28, 2018			$	7					$	(9)					$	(137)					$	14					$	(125)
Adoption of new accounting standards (b)			(17)						—						—						—						(17)
Other comprehensive income (loss) before reclassifications			22						(10)						(57)						(1)						(46)
Amounts reclassified out of AOCI			(1)						3						6						—						8
Other comprehensive income (loss), net of tax			21						(7)						(51)						(1)						(38)
Balance at October 27, 2019			$	11					$	(16)					$	(188)					$	13					$	(180)

(a) - Represents the reclassification adjustment related to the early adoption of Accounting Standards Update (ASU) 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

(b) - 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.

The tax effects on net income of amounts reclassified from AOCI for the fiscal years 2019, 2018 and 2017 were not material.

Stock Repurchase Programs

In February 2018, the Board of Directors approved a common stock repurchase program authorizing up to an aggregate of $6.0 billion in repurchases. At October 27, 2019, $1.9 billion remained available for future stock repurchases under this repurchase program.

The following table summarizes Applied’s stock repurchases for each fiscal year:

			2019						2018						2017
			(In millions, except per share amounts)
Shares of common stock repurchased			60						102						28
Cost of stock repurchased			$	2,403					$	5,283					$	1,172
Average price paid per share			$	39.86					$	51.55					$	42.08

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.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Dividends

During fiscal 2019, Applied's Board of Directors declared one quarterly cash dividend of $0.20 per share and three quarterly cash dividends of $0.21 per share. During fiscal 2018, Applied's Board of Directors declared one quarterly cash dividend of $0.10 per share and three quarterly cash dividends of $0.20 per share. During fiscal 2017, Applied’s Board of Directors declared four quarterly cash dividends in the amount of $0.10 per share. Dividends paid during fiscal 2019, 2018 and 2017 amounted to $771 million, $605 million and $430 million, respectively. 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 Employee Stock Purchase Plans, one generally for United States employees and a second for employees of international subsidiaries (collectively, ESPP), which enable eligible employees to purchase Applied common stock.

Applied recognized share-based compensation expense related to equity awards and ESPP shares. The effect of share-based compensation on the results of operations and the related tax benefits for each fiscal year were as follows:

			2019						2018						2017
			(In millions)
Cost of products sold			$	89					$	87					$	69
Research, development, and engineering			99						96						83
Marketing and selling			31						31						28
General and administrative			44						44						40
Total share-based compensation			$	263					$	258					$	220
Income tax benefits recognized			$	37					$	45					$	60

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. The cost associated with performance-based equity awards is recognized for each tranche over the service period based on an assessment of the likelihood that the applicable performance goals will be achieved.

At October 27, 2019, Applied had $379 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 2.4 years. At October 27, 2019, there were 66 million shares available for grants of share-based awards under the Employee Stock Incentive Plan, and an additional 13 million shares available for issuance under the ESPP.

Stock Options

Stock options are rights to purchase, at future dates, shares of Applied common stock. The exercise price of each stock option equals the fair market value of Applied common stock on the date of grant. Options typically vest over three to four years, subject to the grantee’s continued service with Applied through the scheduled vesting date, and expire no later than seven years from the grant date. There were no stock options granted during fiscal 2019, 2018 and 2017. Outstanding stock options at the end of fiscal 2019 were not material to the consolidated financial statements.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Restricted stock units are converted into shares of Applied common stock upon vesting on a one-for-one basis. Restricted stock has the same rights as other issued and outstanding shares of Applied common stock except these shares generally have no right to dividends and are held in escrow until the award vests. Performance shares and performance units are awards that result in a payment to a grantee, generally in shares of Applied common stock on a one-for-one basis, if performance goals and/or other vesting criteria established by the Human Resources and Compensation Committee of Applied’s Board of Directors are achieved or the awards otherwise vest. Restricted stock units, restricted stock, performance shares and performance units typically vest over three to four years and vesting is usually subject to the grantee’s continued service with Applied and, in some cases, achievement of specified performance goals. The compensation expense related to the service-based awards is determined using the fair market value of Applied common stock on the date of the grant, and the compensation expense is recognized over the vesting period.

During fiscal 2017, 2018 and 2019, certain executive officers were granted awards that are subject to the achievement of specified performance goals (performance-based awards).

Performance-based awards granted in fiscal 2017 and 2018

Certain awards require the achievement of positive adjusted operating profit and vest ratably over three years. Other awards require the achievement of targeted levels of adjusted operating profit margin and wafer fabrication equipment market share, and the number of shares that may vest in full after three years ranges from 0% to 200% of the target amount.

The fair value of these awards is estimated on the date of grant. If the performance goals are achieved as of the end of the performance period, the awards will vest, provided that the grantee remains employed by Applied through each applicable vesting date. If the performance goals are not achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the awards that are probable to vest and is reflected over the service period and reduced for estimated forfeitures.

Performance-based awards granted in fiscal 2019

Certain awards are subject to the achievement of targeted levels of adjusted operating margin and total shareholder return (TSR) relative to a peer group, comprised of companies in the Standard & Poor's 500 Index. Each metric will be weighted 50% and will be measured over a three-year period. The number of shares that may vest in full after three years ranges from 0% to 200% of the target amount. The awards become eligible to vest only if performance goals are achieved and will vest only if the grantee remains employed by Applied through each applicable vesting date, subject to a qualifying retirement based on age and years of service. The awards provide for a partial payout based on actual performance at the conclusion of the three-year performance period in the event of a qualifying retirement.

The fair value of the portion of the awards subject to targeted levels of adjusted operating margin is estimated on the date of grant. If the performance goals are not achieved as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the awards that are probable to vest and is reflected over the service period and reduced for estimated forfeitures.

The fair value of the portion of the awards subject to targeted levels of TSR is estimated on the date of grant using a Monte Carlo simulation model. Compensation expense is recognized based upon the assumption of 100% achievement of the TSR goal and will not be reversed even if the threshold level of TSR is never achieved, and is reflected over the service period and reduced for estimated forfeitures.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the changes in restricted stock units, restricted stock, performance shares and performance units outstanding under Applied’s equity compensation plans is presented below:

			Shares						Weighted Average Grant Date Fair Value						Weighted Average Remaining Contractual Term						Aggregate Intrinsic Value
			(In millions, except per share amounts)
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 30, 2016			25						$	18.28					2.3 years						$	718
Granted			8						$	31.79
Vested			(10)						$	16.50
Canceled			(1)						$	21.25
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 29, 2017			22						$	23.96					2.2 years						$	1,239
Granted			6						$	50.62
Vested			(9)						$	22.15
Canceled			(1)						$	30.19
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 28, 2018			18						$	32.64					2.0 years						$	600
Granted			8						$	36.00
Vested			(7)						$	28.41
Canceled			(1)						$	34.59
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 27, 2019			18						$	35.78					2.1 years						$	985
Non-vested restricted stock units, restricted stock, performance shares and performance units expected to vest			17						$	35.31					1.9 years						$	934

At October 27, 2019, 1.6 million additional performance-based awards could be earned based upon achievement of certain levels of specified performance goals.

Employee Stock Purchase Plans

Under the ESPP, substantially all employees may purchase Applied common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of Applied common stock at the beginning or end of each 6-month purchase period, subject to certain limits. Applied issued 4 million shares in fiscal 2019 and 3 million shares in each of fiscal 2018 and 2017, under the ESPP. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. Underlying assumptions used in the model are outlined in the following table:

			2019						2018						2017
ESPP:
Dividend yield			1.99		%				1.68		%				0.99		%
Expected volatility			35.5		%				34.4		%				26.3		%
Risk-free interest rate			2.21		%				2.09		%				0.92		%
Expected life (in years)			0.5						0.5						0.5
Weighted average estimated fair value			$10.61						$12.02						$9.14

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 13 Employee Benefit Plans

Employee Bonus Plans

Applied has various employee bonus plans. A discretionary bonus plan provides for the distribution of a percentage of pre-tax income to Applied employees who are not participants in other performance-based incentive plans, up to a maximum percentage of eligible compensation. Other plans provide for bonuses to Applied’s executives and other key contributors based on the achievement of profitability and/or other specified performance criteria. Charges under these plans for fiscal 2019, 2018 and 2017 were $292 million, $382 million and $449 million, respectively.

Employee Savings and Retirement Plan

Applied’s Employee Savings and Retirement Plan (the 401(k) Plan) is qualified under Sections 401(a) and (k) of the Internal Revenue Code (the Code). Eligible employees may make salary deferral and catch-up contributions under the 401(k) Plan on a pre-tax basis and on a Roth basis, subject to an annual dollar limit established by the Code. Applied matches 100% of participant salary and/or Roth deferral contributions up to the first 3% of eligible contribution and then 50% of every dollar between 4% and 6% of eligible contribution. Applied does not make matching contributions on any catch-up contributions made by participants. Plan participants who were employed by Applied or any of its affiliates became 100% vested in their Applied matching contribution account balances. Applied’s matching contributions under the 401(k) Plan were approximately $49 million for fiscal 2019, $45 million for fiscal 2018 and $38 million for fiscal 2017.

Defined Benefit Pension Plans of Foreign Subsidiaries and Other Post-Retirement Benefits

Several of Applied’s foreign subsidiaries have defined benefit pension plans covering substantially all of their eligible employees. Benefits under these plans are typically based on years of service and final average compensation levels. The plans are managed in accordance with applicable local statutes and practices. Applied deposits funds for certain of these plans with insurance companies, pension trustees, government-managed accounts, and/or accrues the expense for the unfunded portion of the benefit obligation on its Consolidated Financial Statements. Applied’s practice is to fund the various pension plans in amounts sufficient to meet the minimum requirements as established by applicable local governmental oversight and taxing authorities. Depending on the design of the plan, local custom and market circumstances, the liabilities of a plan may exceed the qualified plan assets. The differences between the aggregate projected benefit obligations and aggregate plan assets of these plans have been recorded as liabilities by Applied and are included in other liabilities and accrued expenses in the Consolidated Balance Sheets.

Through December 31, 2017, Applied also sponsored a U.S. post-retirement plan that provided covered medical and vision benefits to certain eligible retirees. An eligible retiree also could elect coverage for an eligible spouse or domestic partner who was not eligible for Medicare. Coverage ended entirely for all participants when the plan terminated on December 31, 2017. In addition, Applied also has a post-retirement benefit plan as a result of the acquisition of Varian. Applied’s liability under these post-retirement plans, which was included in other liabilities in the Consolidated Balance Sheets, were immaterial at each of October 27, 2019 and October 28, 2018.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the changes in benefit obligations and plan assets, which includes post-retirement benefits, for each fiscal year is presented below:

			2019						2018						2017
			(In millions, except percentages)
Change in projected benefit obligation
Beginning projected benefit obligation			$	524					$	506					$	495
Service cost			11						12						13
Interest cost			10						11						10
Plan participants’ contributions			1						1						2
Actuarial (gain) loss			84						24						(35)
Curtailments, settlements and special termination benefits			(1)						(1)						(1)
Foreign currency exchange rate changes			(5)						(16)						34
Benefits paid			(8)						(12)						(12)
Plan amendments and business combinations			1						(1)						—
Ending projected benefit obligation			$	617					$	524					$	506
Ending accumulated benefit obligation			$	578					$	490					$	472
Range of assumptions to determine benefit obligations
Discount rate			0.5% - 3.1%						0.6% - 3.1%						0.5% - 3.4%
Rate of compensation increase			2.3% - 3.6%						2.4% - 3.5%						2.2% - 3.5%
Change in plan assets
Beginning fair value of plan assets			$	365					$	361					$	310
Return on plan assets			30						17						18
Employer contributions			27						11						16
Plan participants’ contributions			1						1						2
Foreign currency exchange rate changes			(5)						(12)						28
Divestitures, settlements and business combinations			(1)						(1)						(1)
Benefits paid			(8)						(12)						(12)
Ending fair value of plan assets			$	409					$	365					$	361
Funded status			$	(208)					$	(159)					$	(145)
Amounts recognized in the consolidated balance sheets
Noncurrent asset			$	5					$	19					$	17
Current liability			(1)						(1)						(1)
Noncurrent liability			(212)						(177)						(161)
Total			$	(208)					$	(159)					$	(145)
Estimated amortization from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal period
Actuarial loss			$	12					$	8					$	6
Prior service credit			—						(1)						(4)
Total			$	12					$	7					$	2
Amounts recognized in accumulated other comprehensive loss
Net actuarial loss			$	226					$	161					$	141
Prior service credit			—						(2)						(4)
Total			$	226					$	159					$	137
Plans with projected benefit obligations in excess of plan assets
Projected benefit obligation			$	424					$	365					$	326
Fair value of plan assets			$	211					$	186					$	142
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation			$	385					$	331					$	293
Fair value of plan assets			$	211					$	186					$	142

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			2019						2018
Plan assets — allocation
Equity securities			36		%				47		%
Debt securities			45		%				32		%
Insurance contracts			9		%				10		%
Other investments			10		%				10		%
Cash			—		%				1		%

The following table presents a summary of the ending fair value of the plan assets:

			October 27, 2019																																										October 28, 2018
			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
			(In millions)
Equity securities			$	90					$	—					$	—					$	90					$	86					$	—					$	—					$	86
Debt securities			70						—						—						70						19						—						—						19
Insurance contracts			—						—						36						36						—						—						36						36
Other investments			—						14						—						14						—						14						—						14
Cash			—						—						—						—						2						—						—						2
Total assets at fair value			$	160					$	14					$	36					210						$	107					$	14					$	36					157
Assets measured at net asset value																					199																								208
Total																					$	409																							$	365

The following table presents the activity in Level 3 instruments for each fiscal year:

			2019						2018
			(In millions)
Balance, beginning of year			$	36					$	38
Actual return on plan assets:
Relating to assets still held at reporting date			(3)						(1)
Purchases, sales, settlements, net			4						—
Currency impact			(1)						(1)
Balance, end of year			$	36					$	36

Applied’s investment strategy for its defined benefit plans is to invest plan assets in a prudent manner, maintaining well-diversified portfolios with the long-term objective of meeting the obligations of the plans as they come due. Asset allocation decisions are typically made by plan fiduciaries with input from Applied’s international pension committee. Applied’s asset allocation strategy incorporates a sufficient equity exposure in order for the plans to benefit from the expected better long-term performance of equities relative to the plans’ liabilities. Applied retains investment managers, where appropriate, to manage the assets of the plans. Performance of investment managers is monitored by plan fiduciaries with the assistance of local investment consultants. The investment managers make investment decisions within the guidelines set forth by plan fiduciaries. Risk management practices include diversification across asset classes and investment styles, and periodic rebalancing toward target asset allocation ranges. Investment managers may use derivative instruments for efficient portfolio management purposes. Plan assets do not include any of Applied’s own equity or debt securities.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the components of net periodic benefit costs and the weighted average assumptions used for net periodic benefit cost calculations for each fiscal year is presented below:

			2019						2018						2017
			(In millions, except percentages)
Components of net periodic benefit cost
Service cost			$	11					$	12					$	13
Interest cost			10						11						10
Expected return on plan assets			(20)						(20)						(18)
Amortization of actuarial loss and prior service credit			7						3						(10)
Settlement and curtailment loss			—						—						—
Net periodic benefit cost (income)			$	8					$	6					$	(5)
Weighted average assumptions
Discount rate			1.98		%				2.16		%				1.88		%
Expected long-term return on assets			5.40		%				5.41		%				5.38		%
Rate of compensation increase			2.74		%				2.66		%				2.69		%

Asset return assumptions are derived based on actuarial and statistical methodologies, from analysis of long-term historical data relevant to the country in which each plan is in effect and the investments applicable to the corresponding plan. The discount rate for each plan was derived by reference to appropriate benchmark yields on high quality corporate bonds, allowing for the approximate duration of both plan obligations and the relevant benchmark yields.

Future expected benefit payments for the pension plans and the post-retirement plan over the next ten fiscal years are as follows:

			Benefit Payments
			(In millions)
2020			$	12
2021			11
2022			12
2023			12
2024			12
2025-2029			83
			$	142

Company contributions to these plans for fiscal 2020 are expected to be approximately $10 million.

Executive Deferred Compensation Plans

Applied sponsors two unfunded deferred compensation plans, the Executive Deferred Compensation Plan (Predecessor EDCP) and the 2016 Deferred Compensation Plan (2016 DCP) (formerly known as the 2005 Executive Deferred Compensation Plan), under which certain employees may elect to defer a portion of their following year’s eligible earnings. The Predecessor EDCP was frozen as of December 31, 2004 such that no new deferrals could be made under the plan after that date and the plan would qualify for “grandfather” relief under Section 409A of the Code. The Predecessor EDCP participant accounts continue to be maintained under the plan and credited with deemed interest. The 2016 DCP was originally implemented by Applied effective as of January 1, 2005, and amended and restated as of October 12, 2015, and is intended to comply with the requirements of Section 409A of the Code. In addition, Applied also sponsors a non-qualified deferred compensation plan as a result of the acquisition of Varian. Amounts payable for all plans, including accrued deemed interest, totaled $123 million and $92 million at October 27, 2019 and October 28, 2018, respectively, which were included in other liabilities in the Consolidated Balance Sheets.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 14 Income Taxes

The components of income before income taxes for each fiscal year were as follows:

			2019						2018						2017
			(In millions)
U.S.			$	363					$	389					$	510
Foreign			2,906						4,007						3,306
			$	3,269					$	4,396					$	3,816

The components of the provision for income taxes for each fiscal year were as follows:

			2019						2018						2017
			(In millions)
Current:
U.S.			$	240					$	1,021					$	64
Foreign			260						117						236
State			12						22						9
			512						1,160						309
Deferred:
U.S.			8						151						(11)
Foreign			46						57						(7)
State			(3)						(10)						6
			51						198						(12)
			$	563					$	1,358					$	297

A reconciliation between the statutory U.S. federal income tax rate and Applied’s actual effective income tax rate for each fiscal year is presented below:

			2019						2018						2017
Tax provision at U.S. statutory rate			21.0		%				23.4		%				35.0		%
Changes in U.S. tax law			—						25.3						—
Effect of foreign operations taxed at various rates			(5.9)						(15.6)						(25.3)
Changes in prior years' unrecognized tax benefits			2.6						(0.9)						0.1
Resolutions of prior years' income tax filings			(0.1)						0.2						(1.8)
Research and other tax credits			(1.1)						(0.8)						(0.7)
Other			0.7						(0.7)						0.5
			17.2		%				30.9		%				7.8		%

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act). The Tax Act requires a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries payable over eight years. U.S. deferred tax assets and liabilities were subject to remeasurement due to the reduction of the U.S. federal corporate tax rate. The U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, which provided guidance on accounting for the income tax effects of the Tax Act and a measurement period for companies to complete this accounting. Applied completed the accounting for the Tax Act during the measurement period, which ended one year after the enactment date of the Tax Act. Accounting for the remeasurement of deferred tax assets was completed in the fourth quarter of fiscal 2018, and the accounting for the transition tax was completed in the first quarter of fiscal 2019.

The Tax Act also includes provisions that impact Applied starting in fiscal 2019, including a provision designed to tax global intangible low-taxed income (GILTI). On June 14, 2019, the U.S. government released regulations that significantly affect how the GILTI provision of the Tax Act is interpreted. As a result, Applied reversed a tax benefit of $96 million in the third quarter of fiscal 2019 that had been realized in the first half of fiscal 2019. An accounting policy may be selected to treat GILTI temporary differences in taxable income either as a current-period expense when incurred (period cost method) or factor such amounts into the measurement of deferred taxes (deferred method). Applied has chosen the period cost method.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Before the Tax Act, U.S. income tax had not been provided for certain unrepatriated earnings that were considered indefinitely reinvested. Income tax is now provided for all unrepatriated earnings.

The effective tax rate for fiscal 2019 was lower than fiscal 2018 primarily due to tax expense of $1.1 billion in fiscal 2018 for the transition tax and remeasurement of deferred tax assets as a result of the Tax Act. Excluding the tax expense of $1.1 billion, the effective tax rate for fiscal 2019 was higher than fiscal 2018 primarily due to certain provisions in the Tax Act becoming effective in fiscal 2019, tax expense of $87 million in fiscal 2019 related to changes in uncertain tax positions and the excess tax benefit from share-based compensation in fiscal 2019 being $42 million less than the prior fiscal year.

The effective tax rate for fiscal 2018 was higher than fiscal 2017 primarily due to tax expense of $1.1 billion for the transition tax and remeasurement of deferred tax assets as a result of the Tax Act, partially offset by changes in the geographical composition of income, tax benefits from the lower U.S. federal corporate tax rate, adoption of authoritative guidance for share-based compensation, and the resolution of tax liabilities for uncertain tax positions. In addition, fiscal 2017 included tax benefits from the recognition of previously unrecognized foreign tax credits.

In the reconciliation between the statutory U.S. federal income tax rate and the effective income tax rate, the effect of foreign operations taxed at various rates represents the difference between an income tax provision at the U.S. federal statutory income tax rate and the recorded income tax provision, with the difference expressed as a percentage of worldwide income before income taxes. This effect is substantially related to the tax effect of pre-tax income in jurisdictions with lower statutory tax rates. The foreign operations with the most significant effective tax rate impact are in Singapore. The statutory tax rate for fiscal 2018 for Singapore is 17%. Applied has been granted conditional reduced tax rates that expire in fiscal 2025, excluding potential renewal and subject to certain conditions with which Applied expects to comply. The tax benefit arising from these tax rates was $167 million for fiscal 2019 or $0.18 per diluted share.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. The components of deferred income tax assets and liabilities were as follows:

			October 27, 2019						October 28, 2018
			(In millions)
Deferred tax assets:
Allowance for doubtful accounts			$	8					$	8
Inventory reserves and basis difference			117						117
Installation and warranty reserves			11						7
Intangible assets			1,472						—
Accrued liabilities			15						20
Deferred revenue			36						12
Tax credits			264						236
Deferred compensation			98						79
Share-based compensation			36						37
Other			58						45
Gross deferred tax assets			2,115						561
Valuation allowance			(257)						(230)
Total deferred tax assets			1,858						331
Deferred tax liabilities:
Fixed assets			(65)						(48)
Intangible assets			—						(38)
Undistributed foreign earnings			(38)						(32)
Total deferred tax liabilities			(103)						(118)
Net deferred tax assets			$	1,755					$	213

The following table presents a summary of non-current deferred tax assets and liabilities:

			October 27, 2019						October 28, 2018
			(In millions)
Non-current deferred tax asset			$	1,766					$	225
Non-current deferred tax liability			(11)						(12)
			$	1,755					$	213

A valuation allowance is recorded to reflect the estimated amount of net deferred tax assets that may not be realized. Changes in the valuation allowance in each fiscal year were as follows:

			2019						2018						2017
			(In millions)
Beginning balance			$	230					$	227					$	207
Increases			27						8						20
Decreases			—						(5)						—
Ending balance			$	257					$	230					$	227

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At October 27, 2019, Applied has state research and development tax credit carryforwards of $264 million, including $252 million of credits that are carried over until exhausted and $11 million that are carried over for 15 years and begin to expire in fiscal 2029. It is more likely than not that all tax credit carryforwards, net of valuation allowance, will be utilized.

Applied maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored based on the best information available. Gross unrecognized tax benefits are classified as non-current income taxes payable or as a reduction in deferred tax assets. A reconciliation of the beginning and ending balances of gross unrecognized tax benefits in each fiscal year is as follows:

			2019						2018						2017
			(In millions)
Beginning balance of gross unrecognized tax benefits			$	374					$	391					$	320
Settlements with tax authorities			(1)						(152)						(42)
Lapses of statutes of limitation			(2)						(37)						(15)
Increases in tax positions for current year			33						91						95
Increases in tax positions for prior years			441						83						33
Decreases in tax positions for prior years			—						(2)						—
Ending balance of gross unrecognized tax benefits			$	845					$	374					$	391

The increases in tax positions for prior years of $441 million for fiscal 2019 include the effect of adoption of Accounting Standard Update 2016-16 Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (See Note 1). Tax expense for interest and penalties on unrecognized tax benefits for fiscal 2019, 2018 and 2017 was $24 million, $12 million and $17 million, respectively. The income tax liability for interest and penalties for fiscal 2019, 2018 and 2017 was $50 million, $26 million and $46 million, respectively, and was classified as non-current income taxes payable.

Included in the balance of unrecognized tax benefits for fiscal 2019, 2018 and 2017 are $758 million, $294 million, and $284 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

In fiscal 2019, Applied paid an immaterial amount as a result of settlements with tax authorities. In fiscal 2018, Applied paid $158 million, including interest and penalties, as a result of a settlement in Israel for fiscal 2011 through fiscal 2015 resulting in the recognition of a tax expense of $6 million. In fiscal 2017, Applied paid $29 million, including interest and penalties, as a result of a settlement in Italy for fiscal 2011 resulting in the recognition of a tax expense of $6 million.

Applied’s tax returns remain subject to examination by taxing authorities. These include U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2010 and later years.

The timing of the resolution of income tax examinations, as well as the amounts and timing of various tax payments that may be part of the settlement process, is highly uncertain. This could cause fluctuations in Applied’s financial condition and results of operations. Applied continues to have ongoing negotiations with various taxing authorities throughout the year.

Note 15 Warranty, Guarantees, Commitments and Contingencies

Leases

Applied leases some of its facilities and equipment under non-cancelable operating leases and has options to renew most leases, with rentals to be negotiated. Total rent expense for fiscal 2019, 2018 and 2017, was $51 million, $50 million and $34 million, respectively.

As of October 27, 2019, future minimum lease payments are expected to be as follows:

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Warranty

Changes in the warranty reserves during each fiscal year were as follows:

			2019						2018						2017
			(In millions)
Beginning balance			$	208					$	206					$	153
Provisions for warranty			148						175						173
Changes in reserves related to preexisting warranty			7						3						1
Consumption of reserves			(167)						(176)						(121)
Ending balance			$	196					$	208					$	206

Applied products are generally sold with a warranty for a 12-month period following installation. The provision for the estimated cost of warranty is recorded when revenue is recognized. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical experience by product, configuration and geographic region. Quarterly warranty consumption is generally associated with sales that occurred during the preceding four quarters, and quarterly warranty provisions are generally related to the current quarter’s sales.

Guarantees

In the ordinary course of business, Applied provides standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either Applied or its subsidiaries. As of October 27, 2019, the maximum potential amount of future payments that Applied could be required to make under these guarantee agreements was approximately $76 million. Applied has not recorded any liability in connection with these guarantee agreements beyond that required to appropriately account for the underlying transaction being guaranteed. Applied does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee agreements.

Applied also has agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. As of October 27, 2019, Applied has provided parent guarantees to banks for approximately $151 million to cover these arrangements.

Legal Matters

From time to time, Applied receives notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions by Applied in connection with claims made against them. In addition, from time to time, Applied receives notification from third parties claiming that Applied may be or is infringing or misusing their intellectual property or other rights. Applied also is subject to various other legal proceedings and claims, both asserted and unasserted, that arise in the ordinary course of business.

Although the outcome of the above-described matters, claims and proceedings cannot be predicted with certainty, Applied does not believe that any will have a material effect on its consolidated financial condition or results of operations.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 16 Industry Segment Operations

Applied’s three reportable segments are: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. As defined under the accounting literature, Applied’s chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon Applied’s management organization structure as of October 27, 2019 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to Applied’s reportable segments.

The Semiconductor Systems reportable segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation.

The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, certain remanufactured earlier generation equipment and factory automation software for semiconductor, display and other products.

The Display and Adjacent Markets segment includes products for manufacturing liquid crystal displays (LCDs), organic light-emitting diodes (OLEDs), equipment upgrades and flexible coating systems and other display technologies for TVs, personal computers, smart phones, and other consumer-oriented devices.

Each operating segment is separately managed and has separate financial results that are reviewed by Applied’s chief operating decision-maker. Each reportable segment contains closely related products that are unique to the particular segment. Segment operating income is determined based upon internal performance measures used by Applied’s chief operating decision-maker. The chief operating decision-maker does not evaluate operating segments using total asset information.

Applied derives the segment results directly from its internal management reporting system. The accounting policies Applied uses to derive reportable segment results are substantially the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics including orders, net sales and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments.

The Corporate and Other category includes revenues from products, as well as costs of products sold, for fabricating solar photovoltaic cells and modules, and certain operating expenses that are not allocated to its reportable segments and are managed separately at the corporate level. These operating expenses include costs related to share-based compensation; certain management, finance, legal, human resources, and research, development and engineering functions provided at the corporate level; and unabsorbed information technology and occupancy. In addition, Applied does not allocate to its reportable segments restructuring and asset impairment charges and any associated adjustments related to restructuring actions, unless these actions pertain to a specific reportable segment. Segment operating income also excludes interest income/expense and other financial charges and income taxes. Management does not consider the unallocated costs in measuring the performance of the reportable segments.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information for each reportable segment for and as of the end of each fiscal year were as follows:

			Net Sales						Operating Income (Loss)						Depreciation/ Amortization						Capital Expenditures						Accounts Receivable						Inventories
			(In millions)
2019:
Semiconductor Systems			$	9,027					$	2,464					$	202					$	168					$	1,543					$	1,703
Applied Global Services			3,854						1,101						25						47						790						1,535
Display and Adjacent Markets			1,651						294						22						43						246						214
Corporate and Other			76						(509)						114						183						(46)						22
Total			$	14,608					$	3,350					$	363					$	441					$	2,533					$	3,474
2018:
Semiconductor Systems			$	10,577					$	3,441					$	303					$	168					$	1,597					$	2,215
Applied Global Services			3,754						1,102						21						33						630						1,243
Display and Adjacent Markets			2,298						574						20						39						142						246
Corporate and Other			76						(626)						113						382						(46)						17
Total			$	16,705					$	4,491					$	457					$	622					$	2,323					$	3,721
2017:
Semiconductor Systems			$	9,544					$	3,177					$	286					$	150					$	1,626					$	1,638
Applied Global Services			3,014						817						15						21						564						762
Display and Adjacent Markets			2,042						585						12						17						190						279
Corporate and Other			98						(643)						94						157						(42)						28
Total			$	14,698					$	3,936					$	407					$	345					$	2,338					$	2,707

Net sales for Semiconductor Systems by end use application for the periods indicated were as follows:

			2019						2018						2017
Foundry, logic and other			52		%				36		%				51		%
Dynamic random-access memory (DRAM)			22		%				27		%				15		%
Flash memory			26		%				37		%				34		%
			100		%				100		%				100		%

The reconciling items included in Corporate and Other were as follows:

			2019						2018						2017
			(In millions)
Unallocated net sales			$	76					$	76					$	98
Unallocated cost of products sold and expenses			(322)						(444)						(521)
Share-based compensation			(263)						(258)						(220)
Total			$	(509)					$	(626)					$	(643)

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For geographical reporting, revenue by geographic location is determined by the location of customers’ facilities to which products were shipped. Long-lived assets consist primarily of property, plant and equipment and are attributed to the geographic location in which they are located. Net sales and long-lived assets by geographic region for and as of each fiscal year were as follows:

			2019						2018						2017
			(In millions)
Net sales:
United States			$	1,871					$	1,413					$	1,512
China			4,277						5,047						2,758
Korea			1,929						3,539						4,087
Taiwan			2,965						2,504						3,369
Japan			2,198						2,396						1,519
Europe			820						1,009						828
Southeast Asia			548						797						625
Total outside United States			12,737						15,292						13,186
Consolidated total			$	14,608					$	16,705					$	14,698

			October 27, 2019						October 28, 2018
			(In millions)
Long-lived assets:
United States			$	1,539					$	1,414
China			20						13
Korea			24						21
Taiwan			56						29
Japan			16						9
Europe			28						50
Southeast Asia			23						25
Total outside United States			167						147
Consolidated total			$	1,706					$	1,561

The following customers accounted for at least 10 percent of Applied’s net sales in each fiscal year, which were for products and services in multiple reportable segments:

			2019						2018						2017
Samsung Electronics Co., Ltd.			*						13		%				23		%
Taiwan Semiconductor Manufacturing Company Limited			14		%				*						16		%
Intel Corporation			12		%				11		%				*

---

• Less than 10%

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 17 Unaudited Quarterly Consolidated Financial Data

			Fiscal Quarter
			First						Second						Third						Fourth						Fiscal Year
			(In millions, except per share amounts)
2019:
Net sales			$	3,753					$	3,539					$	3,562					$	3,754					$	14,608
Gross profit			$	1,665					$	1,530					$	1,557					$	1,634					$	6,386
Net income			$	771					$	666					$	571					$	698					$	2,706
Earnings per diluted share			$	0.80					$	0.70					$	0.61					$	0.75					$	2.86
2018:
Net sales			$	4,205					$	4,579					$	4,162					$	3,759					$	16,705
Gross profit			$	1,940					$	2,056					$	1,864					$	1,657					$	7,517
Net income			$	165					$	1,100					$	1,016					$	757					$	3,038
Earnings per diluted share			$	0.15					$	1.06					$	1.01					$	0.77					$	2.96

INDEX TO EXHIBITS

These 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
3.1			Certificate of Incorporation of Applied Materials, Inc., as amended and restated through March 10, 2009			10-Q			000-06920			3.1			6/3/2009
3.2			Certificate of Designation, Preferences and Rights of the Terms of the Series A Junior Participating Preferred Stock dated as of July 9, 1999			10-Q			000-06920			3(i)(a)			9/14/1999
3.3			Amended and Restated Bylaws of Applied Materials, Inc., amended as of December 8, 2015			8-K			000-06920			3.1			12/11/2015
4.1			Indenture, dated June 8, 2011, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.1			6/10/2011
4.2			First Supplemental Indenture, dated June 8, 2011, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.2			6/10/2011
4.3			Second Supplemental Indenture, dated September 24, 2015, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.1			9/24/2015
4.4			Third Supplemental Indenture, dated March 31, 2017, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.1			3/31/2017
4.5			Description of Registrant’s Securities Registered Under Section 12 of the Securities Exchange Act of 1934†
10.1			Form of Indemnification Agreement between Applied Materials, Inc. and Non-Employee Directors			10-K			000-06920			10.44			1/31/2000
10.2			Form of Indemnification Agreement between Applied Materials, Inc. and certain of its officers			10-K			000-06920			10.46			1/31/2000
10.3			Applied Materials, Inc. Profit Sharing Scheme (Ireland)			S-8			333-45011			4.1			1/27/1998
10.4*			Applied Materials, Inc. amended and restated Relocation Policy			8-K			000-06920			10.46			10/31/2005
10.5*			Applied Materials Inc. Employee Financial Assistance Plan, amended and restated as of December 18, 2008			10-Q			000-06920			10.58			3/3/2009
10.6			Deed of Amendment to Applied Materials Profit Sharing Scheme, dated February 7, 2006, to amend Clause 20 of the Trust Deed thereunder			10-K			000-06920			10.48			12/12/2008
10.7			Deed of Amendment to Applied Materials Profit Sharing Scheme, dated February 7, 2006, to amend the definition of Eligible Employee in the First Schedule to the Trust Deed thereunder.			10-K			000-06920			10.49			12/12/2008
10.8*			Form of Restricted Stock Unit Agreement for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.1			8/23/2018
10.9*			Form of Restricted Stock Unit Agreement for Nonemployee Directors for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.4			5/24/2012
10.10*			Form of Performance Shares Agreement for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.5			5/24/2012
10.11*			Form of Restricted Stock Agreement for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.3			8/23/2012
10.12*			Applied Materials, Inc. Employees’ Stock Purchase Plan, amended and restated effective October 28, 2019†
10.13*			Offer Letter, dated August 14, 2013, between Applied Materials, Inc. and Gary E. Dickerson			10-Q			000-06920			10.2			8/22/2013

						Incorporated by Reference
Exhibit No.			Description			Form			File No.			Exhibit No.			Filing Date
10.14*			Form of Non-Qualified Stock Option Agreement for Employees for use under the Applied Materials, Inc. Employee Stock Incentive Plan, as amended			10-Q			000-06920			10.4			8/22/2013
10.15*			Form of Performance Unit Agreement for use under the Applied Materials, Inc. Employee Stock Incentive Plan, as amended			10-Q			000-06920			10.2			2/20/2014
10.16*			Form of Letter of Understanding for Long-Term Assignment			10-K			000-06920			10.49			12/17/2014
10.17*			Applied Materials, Inc. Applied Incentive Plan, amended and restated effective October 27, 2014			10-Q			000-06920			10.4			2/19/2015
10.18*			Form of Performance Shares Agreement for fiscal 2015 performance-based equity awards for certain executive officers under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.5			2/19/2015
10.19			Credit Agreement, dated as of September 3, 2015, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein			8-K			000-06920			10.1			9/9/2015
10.20			Extension Agreement, dated as of September 3, 2017, to Credit Agreement, dated as of September 3, 2015, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.			8-K			000-06920			10.1			9/5/2017
10.21*			Applied Materials, Inc. Stock Purchase Plan for Offshore Employees, amended and restated effective October 28, 2019
10.22*			Applied Materials, Inc. 2016 Deferred Compensation Plan			10-K			000-06920			10.33			12/9/2015
10.23*			Applied Materials, Inc. Employee Stock Incentive Plan, as amended and restated effective March 9, 2017			10-Q			000-06920			10.1			5/25/2017
10.24*			Applied Materials, Inc. Senior Executive Bonus Plan, as amended and restated effective March 9, 2017			10-Q			000-06920			10.2			5/25/2017
10.25*			Amendment No. 1 to the Applied Materials, Inc. 2016 Deferred Compensation Plan			10-Q			000-06920			10.1			2/21/2019
10.26*			Second Amendment to the Applied Materials, Inc. 2016 Deferred Compensation Plan			10-Q			000-06920			10.2			2/21/2019
10.27*			Form of Performance Shares Agreement for members of the Executive Staff for use under the Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.3			2/21/2019
10.28*			Form of Restricted Stock Unit Agreement for members of the Executive Staff for use under the Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.4			2/21/2019
10.29*			Share Purchase Agreement, dated as of June 30, 2019, among Applied Materials, Inc., Kokusai Electric Corporation and KKR HKE Investment L.P.			8-K			000-06920			2.1			7/1/2019
10.30			Term Loan Credit Agreement, dated as of August 19, 2019, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein			8-K			000-06920			10.1			8/21/2019
10.31			Amendment No. 2, dated as of August 19, 2019, to Credit Agreement, dated as of September 3, 2015, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein			8-K			000-06920			10.2			8/21/2019
21			SubsiSubsidiaries of Applied Materials, Inc.†
23			Consent of Independent Registered Public Accounting Firm, KPMG LLP†LP†
24			Power of Attorney (included on the signature page of this Annual Report on Form 10-K)†
31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†

						Incorporated by Reference
Exhibit No.			Description			Form			File No.			Exhibit No.			Filing Date
31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
32.1			Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡
32.2			Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡
101.INS			XBRL Instance Document‡
101.SCH			XBRL Taxonomy Extension Schema Document‡
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document‡
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document‡
101.LAB			XBRL Taxonomy Extension Label Linkbase Document‡
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document‡
104			Cover Page Interactive Data File (formatted as inline XBRL)

*			Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3).
†			Filed herewith.
‡			Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
By:			/S/ GARY E. DICKERSON
			Gary E. Dickerson
			President, Chief Executive Officer

Dated: December 13, 2019

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary E. Dickerson, Daniel J. Durn and Thomas F. Larkins, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

---

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

			Title			Date
/S/ GARY E. DICKERSON			President, Chief Executive Officer and Director (Principal Executive Officer)			December 13, 2019
Gary E. Dickerson
/S/ DANIEL J. DURN			Senior Vice President, Chief Financial Officer (Principal Financial Officer)			December 13, 2019
Daniel J. Durn
/S/ CHARLES W. READ			Corporate Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)			December 13, 2019
Charles W. Read
/S/ THOMAS J. IANNOTTI
Thomas J. Iannotti			Chairman of the Board			December 13, 2019
/S/ JUDY BRUNER
Judy Bruner			Director			December 13, 2019
/S/ XUN CHEN
Xun Chen			Director			December 13, 2019
/S/ AART J. DE GEUS
Aart J. de Geus			Director			December 13, 2019
/S/ STEPHEN R. FORREST
Stephen R. Forrest			Director			December 13, 2019
/S/ ALEXANDER A. KARSNER
Alexander A. Karsner			Director			December 13, 2019
/S/ ADRIANNA C. MA
Adrianna C. Ma			Director			December 13, 2019
/s/ YVONNE MCGILL
Yvonne McGill			Director			December 13, 2019
/s/ SCOTT A. MCGREGOR
Scott A. McGregor			Director			December 13, 2019
/S/ DENNIS D. POWELL
Dennis D. Powell			Director			December 13, 2019