Applied Materials (AMAT) 10-K risk factor changes: FY2020 vs FY2019

The amount and mix of capital equipment spending between different products and technologies can have a significant impact on [removed: the Company’s] [added: Applied’s] results of operations.

If Applied does not effectively manage these challenges during periods of changing demand, [added: including as a result of the ongoing COVID-19 pandemic and] its [added: effects, its] business performance and results of operations may be adversely impacted.

Moreover, in fiscal [removed: 2019,] [added: 2020,] approximately [removed: 87 percent] [added: 90%] of Applied’s net sales were to customers in regions outside the United States.

- [added: direct and indirect] global trade issues and changes in and uncertainties with respect to trade [removed: policies, including] [added: policies (including] the [added: impact of the implementation and interpretation of the rules published by the U.S. Department of Commerce on April 28, 2020 and August 17, 2020 relating to certain export license requirements and the] ability to obtain required import and export [removed: licenses,] [added: licenses),] trade sanctions, tariffs, and international trade disputes;

- delays or restrictions in shipping materials or finished products between [added: and within] countries;

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

International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could [removed: have an adverse] [added: adversely] impact [removed: on] our [removed: operations.][added: operations and reduce the competitiveness of our products relative to local and global competitors.]

We sell a significant majority of our products into countries outside of the United States including China, [removed: Taiwan] [added: Taiwan, Japan] and Korea.

Certain international sales depend on our ability to obtain export licenses, and our inability to obtain such licenses [added: have limited and] could [removed: potentially] [added: further] limit our markets and impact our business.

The risks to Applied’s investment portfolio may be exacerbated if financial market conditions deteriorate [added: (including from impacts of the ongoing COVID-19 pandemic)] and, as a result, the value and liquidity of the investment portfolio, as well as returns on pension assets, could be negatively impacted and lead to impairment charges.

Applied’s customer base is also geographically [removed: concentrated.][added: concentrated, particularly in China, Taiwan and Korea.]

If customers do not place orders, or they substantially reduce, delay or cancel [removed: orders,] [added: orders (including as a result of the ongoing COVID-19 pandemic),] Applied may not be able to replace the business, which may have a significant adverse impact on its results of operations and financial condition.

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

- the timing and extent of an expansion of manufacturing facilities in China, which may be affected by changes in local economic conditions and governmental policies in China, [removed: particularly in Asia] [added: Korea, Japan] and the United States;

Furthermore, new or improved products may entail higher [removed: costs and] [added: costs, longer development cycles,] lower [removed: profits,] [added: profits] and may have unforeseen product design or manufacturing defects.

Business combinations, acquisitions and [removed: investments ,] [added: investments,] such as the proposed acquisition of Kokusai Electric, involve numerous risks to Applied’s business, financial condition and operating results, including but not limited to:

- following completion of acquisitions, ineffective integration of businesses, operations, systems, [added: digital and physical security,] technologies, [removed: products or] [added: products,] employees, [added: compliance programs,] changes in laws or regulations, including tax laws, or other factors, may impact the ability to realize anticipated synergies or other benefits;

- inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and procedures, cybersecurity, privacy policies and [removed: procedures,] [added: compliance programs,] or environmental, health and safety, anti-corruption, human resource, or other policies or practices;

- unknown, [removed: underestimated or] [added: underestimated,] undisclosed [added: or undetected] commitments or [removed: liabilities;] [added: liabilities or non-compliance with laws, regulations or policies;] and

In addition, Applied is subject to examination by the [added: U.S.] Internal Revenue Service and other tax authorities, and from time to time amends previously filed tax returns.

Applied has [removed: $5.4] [added: $5.5] billion in aggregate principal amount of senior unsecured notes outstanding.

While no amounts were outstanding under either credit agreement as of October [removed: 27, 2019,] [added: 25, 2020,] Applied may borrow amounts in the future under either or both of these agreements.

Significant changes in Applied’s credit [removed: rating] [added: rating, disruptions in the global financial markets] or changes in the interest rate environment could have a material adverse consequence on Applied’s access to and cost of capital for future financings, and financial condition.

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

Applied may also experience significant interruptions of its manufacturing operations, delays in its ability to deliver [added: or install] products or services, increased costs or customer order cancellations as a result of:

- natural disasters or other events beyond Applied’s control (such as earthquakes, utility interruptions, tsunamis, hurricanes, typhoons, floods, storms or extreme weather conditions, fires, regional economic downturns, [removed: pandemics,] [added: regional or global health epidemics, including the ongoing COVID-19 pandemic, geopolitical turmoil, increased trade restrictions between the U.S. and China and other countries,] social unrest, political instability, terrorism, or acts of war) in locations where it or its customers or suppliers have manufacturing, research, engineering or other operations.

If a supplier fails to meet Applied’s requirements concerning quality, cost, protection of intellectual property, socially-responsible business practices, or other performance factors, Applied may transfer its business to alternative sources, which could entail manufacturing delays, additional [removed: costs,] [added: costs] or other [removed: difficulties.][added: difficulties, and may also result in a loss of Applied’s ability to protect, enforce and extract the full value of its or its customers’ and other third parties’ intellectual property rights, which could have an adverse impact on its business and competitive position and subject Applied to legal proceedings and claims.]

If Applied purchases inventory in anticipation of customer demand that does not [removed: materialize,] [added: materialize] or [added: rendered obsolete by the rapid pace of technological change, or] if customers reduce or delay orders, Applied may incur excess [added: or obsolete] inventory charges.

Applied’s success, competitiveness and ability to execute on its global strategies and maintain a culture of innovation depend in large part on its ability to attract, retain and motivate [added: qualified] employees [added: and leaders] with [removed: key skills] [added: expertise] and [removed: experience.][added: capabilities, representing diverse backgrounds and experiences.]

The failure or inability to comply with existing or future environmental and safety regulations could result in: significant remediation or other legal liabilities; the imposition of penalties and fines; restrictions on the development, manufacture, sale, [removed: shipment] [added: shipping] or use of certain of its products; limitations on the operation of its facilities or ability to use its real property; and a decrease in the value of its real property.

Risks Related to the COVID-19 Pandemic

The ongoing COVID-19 pandemic and global measures taken in response thereto have adversely impacted, and may continue to adversely impact, Applied’s operations and financial results.

The ongoing COVID-19 pandemic and measures taken in response by governments and businesses worldwide to contain its spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders, have adversely impacted and are expected to continue to adversely impact Applied’s supply chain, manufacturing, logistics, workforce and operations, as well as the operations of Applied’s customers, suppliers and partners globally.

There is considerable uncertainty regarding the duration, scope and severity of the pandemic and the impacts on our business and the global economy from the effects of the ongoing pandemic and response measures.

While Applied continues to see progress in the recovery within its supply chain, travel and logistics restrictions, shelter-in-place orders and other measures, including working remotely, social distancing and other policies implemented in foreign and domestic sites to protect the health and safety of employees, have resulted in, and are expected to continue to result in, transportation disruptions (such as reduced availability of air transport, port closures, and increased border controls or closures), production delays and capacity limitations at Applied and some of its customers, suppliers and partners, as well as reduced workforce availability or productivity at Applied and customer sites, and additional data, information and cyber security risks associated with an extensive workforce now working remotely full-time.

There can be no assurance that Applied or its suppliers will be able to maintain manufacturing operations at current levels.

In addition, the pandemic and the impact of the foregoing measures in various forms and in varying degrees have had, and may continue to have a significant adverse impact on the global economic activity and could also result in a reduced demand for our products, delayed deliveries or installation, cancelled orders or increase in logistics and operating costs, and materially adversely affect Applied’s business, financial condition and results of operations.

The degree to which the pandemic ultimately impacts Applied’s financial condition and results of operations and the global economy will depend on future developments beyond our control, which are highly uncertain and difficult to predict, including the severity and duration of the pandemic, the extent and effectiveness of containment actions, availability of effective vaccines against COVID-19, effectiveness of government stimulus programs, resurgence of COVID-19, how quickly and to what extent normal economic and operating activity can resume, and the severity and duration of the global economic downturn that results from the pandemic.

Risks Associated with Operating a Global Business

As more fully discussed in the risk factor “The ongoing COVID-19 pandemic and global measures taken in response thereto have adversely impacted, and may continue to adversely impact, Applied’s operations and financial results” above, the ongoing COVID-19 pandemic and measures taken in response by governments and businesses worldwide to contain its spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders, have adversely impacted and are expected to continue to adversely impact Applied’s supply chain, manufacturing, logistics, workforce and operations, as well as the operations of Applied’s customers, suppliers and partners globally.

There is inherent risk, based on the complex relationships among China, Taiwan, Japan, Korea and the United States, that political, diplomatic and national security influences might lead to trade disputes, impacts and/or disruptions, in particular, with respect to those affecting the semiconductor industry.

For example, on April 28, 2020, the U.S. Department of Commerce published rules, which became effective on June 29, 2020, that expanded export license requirements for U.S. companies that sell certain products to entities in China whose actions or functions are intended to support military end uses, and eliminated certain export license exceptions that applied to exports of certain items to China.

On September 25, 2020, the U.S. Department of Commerce designated a certain customer in China as a military end user.

These trade restrictions and their interpretation by the U.S. Department of Commerce require us to apply for additional export licenses for certain of our products sold to certain customers in China, including products sold to customers that the U.S. Department of Commerce has determined to present a risk of diversion to a military end use.

Obtaining export licenses may be difficult, costly and time-consuming, and our inability to obtain such licenses could limit our markets in China and adversely affect our results of operations.

The implementation and interpretation of these rules are ongoing and their impact on our business is uncertain, and these rules and other regulatory changes that have occurred and may occur in the future could materially and adversely affect our results of operations.

Additionally, on August 17, 2020, the U.S. Department of Commerce published a final rule that does not impose additional license requirements for the export of Applied’s products but could require certain of Applied’s customers to obtain licenses for the export of wafers, chipsets and certain related items to Huawei or its affiliates that are the direct product of US-origin semiconductor manufacturing equipment and thus could potentially limit the demand for certain of Applied’s products from such customers.

In particular, impacts of the ongoing COVID-19 pandemic have resulted in increased volatility in global financial markets, increases in levels of unemployment, and economic uncertainty, and may lead to significant negative impacts on customer spending, demand for our products, the ability of our customers to pay, our financial condition and the financial condition of our suppliers.

Risks Associated with Applied’s Industry

Risks Related to Applied’s Business, Finance and Operations

As more fully discussed in the risk factor “The ongoing COVID-19 pandemic and global measures taken in response thereto have adversely impacted, and may continue to adversely impact, Applied’s operations and financial results” above, the ongoing COVID-19 pandemic and measures taken in response by governments and businesses worldwide to contain its spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders, have adversely impacted and are expected to continue to adversely impact Applied’s supply chain, manufacturing, logistics, workforce and operations, as well as the operations of Applied’s customers, suppliers and partners globally.

If we are unable to attract, retain and motivate qualified employees and leaders, we may be unable to fully capitalize on current and new market opportunities, which could adversely impact Applied’s business and results of operations.

Risks Related to Intellectual Property and Cybersecurity

Risks Related to Legal and Compliance

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act).

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.

[removed: - *Overview:*] [added: *•Overview:*] a summary of Applied’s business and measurements

A summary of financial information for each reportable segment is found in Note [removed: 16] [added: 17] of Notes to Consolidated Financial Statements.

The growth of data and emerging end-market drivers such as artificial intelligence, [removed: augmented and virtual reality,] the Internet of [removed: Things and] [added: Things, 5G networks,] smart vehicles [added: and augmented and virtual reality] are also creating [removed: new opportunities] [added: the next wave of growth] for the industry.

| | | | | | | | | | | | | | | | | | | | | | Change | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | | | | | [removed: 2017] [added: 2018] | | | | | | [removed: 2019] [added: 2020] over [removed: 2018] [added: 2019] | | | | | | [removed: 2018] [added: 2019] over [removed: 2017 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 2018] | | |

| | | | (In millions, except per share amounts and percentages) | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Net sales | | | $ | [removed: 14,608] [added: 17,202] | | | | | $ | [removed: 16,705] [added: 14,608] | | | | | $ | [removed: 14,698] [added: 16,705] | | | | | $ | [removed: (2,097)] [added: 2,594] | | | | | $ | [removed: 2,007 | | | | | | | | | | | | | | | | | | | | | | | |] [added: (2,097)] | |

| Gross margin | | | [removed: 43.7] [added: 44.7] | | % | | | | [removed: 45.0] [added: 43.7] | | % | | | | 45.0 | | % | | | | [removed: (1.3)] [added: 1.0] points | | | | | | [removed: —] [added: (1.3)] points | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Operating income | | | $ | [removed: 3,350] [added: 4,365] | | | | | $ | [removed: 4,491] [added: 3,350] | | | | | $ | [removed: 3,936] [added: 4,491] | | | | | $ | [removed: (1,141)] [added: 1,015] | | | | | $ | [removed: 555 | | | | | | | | | | | | | | | | | | | | | | | |] [added: (1,141)] | |

| Operating margin | | | [removed: 22.9] [added: 25.4] | | % | | | | [removed: 26.9] [added: 22.9] | | % | | | | [removed: 26.8] [added: 26.9] | | % | | | | [removed: (4.0)] [added: 2.5] points | | | | | | [removed: 0.1] [added: (4.0)] points | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Net income | | | $ | [removed: 2,706] [added: 3,619] | | | | | $ | [removed: 3,038] [added: 2,706] | | | | | $ | [removed: 3,519] [added: 3,038] | | | | | $ | [removed: (332)] [added: 913] | | | | | $ | [removed: (481) | | | | | | | | | | | | | | | | | | | | | | | |] [added: (332)] | |

| Earnings per diluted share | | | $ | [removed: 2.86] [added: 3.92] | | | | | $ | [removed: 2.96] [added: 2.86] | | | | | $ | [removed: 3.25] [added: 2.96] | | | | | $ | [removed: (0.10)] [added: 1.06] | | | | | $ | [removed: (0.29) | | | | | | | | | | | | | | | | | | | | | | | |] [added: (0.10)] | |

Fiscal [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017] [added: 2018] each contained 52 weeks.

Semiconductor equipment customers continued to make strategic investments in new technology [removed: transitions.][added: transitions during fiscal 2020.]

Foundry and logic spending increased [removed: year-over-year] [added: in fiscal 2020 compared to fiscal 2019] led by customer [removed: investments] [added: investment] in [removed: both] advanced [removed: and mature] foundry-logic nodes.

Overall semiconductor systems revenue [removed: for] [added: increased in] fiscal [removed: 2019 decreased as] [added: 2020] compared to the prior year.

Applied’s display and adjacent markets revenue declined [removed: during] [added: slightly in] fiscal [removed: 2019] [added: 2020 compared to fiscal 2019,] due to weak demand for display manufacturing equipment for [removed: mobile products and] TVs.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| | | | [removed: 2019 | | | | | | | | | | | |] [added: 2020] | | | | | | | | | | | | [removed: 2018] | | | | | | [added: 2019] | | | | | | | | | | | | | | | | | | [removed: 2017] [added: 2018] | | | | | | | | | | | | [added: 2020 over 2019] | | | | | | 2019 over 2018 | | | [removed: | | | 2018 over 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| | | | (In millions, except percentages) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Semiconductor Systems | | | $ | [removed: 9,027] [added: 11,367] | | | | | [removed: 62%] [added: 66%] | | | | | | | | | | | | $ | [removed: 10,577] [added: 9,027] | | | | | [removed: 63%] [added: 62%] | | | | | | | | | | | | [removed: 9,544] [added: $] | [added: 10,577] | | | | | [removed: 65%] [added: 63%] | | | | | | [removed: (15)] [added: 26] | | % | | | | [removed: 11] [added: (15)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Applied Global Services | | | [removed: 3,854] [added: 4,155] | | | | | | [removed: 26%] [added: 24%] | | | | | | | | | | | | [removed: 3,754] [added: 3,854] | | | | | | [removed: 22%] [added: 26%] | | | | | | | | | | | | [removed: 3,014] [added: 3,754] | | | | | | [removed: 20%] [added: 22%] | | | | | | [removed: 3] [added: 8] | | % | | | | [removed: 25] [added: 3] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Display and Adjacent Markets | | | [removed: 1,651] [added: 1,607] | | | | | | [removed: 11%] [added: 9%] | | | | | | | | | | | | [removed: 2,298] [added: 1,651] | | | | | | [removed: 14%] [added: 11%] | | | | | | | | | | | | [removed: 2,042] [added: 2,298] | | | | | | 14% | | | | | | [removed: (28)] [added: (3)] | | % | | | | [removed: 13] [added: (28)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Corporate and Other | | | [removed: 76] [added: 73] | | | | | | 1% | | | | | | | | | | | | 76 | | | | | | 1% | | | | | | | | | | | | [removed: 98] [added: 76] | | | | | | 1% | | | | | | [removed: —] [added: (4)] | | % | | | | [removed: (22)] [added: —] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Total | | | $ | [removed: 14,608] [added: 17,202] | | | | | 100% | | | | | | | | | | | | $ | [removed: 16,705] [added: 14,608] | | | | | 100% | | | | | | | | | | | | $ | [removed: 14,698] [added: 16,705] | | | | | 100% | | | | | | [removed: (13)] [added: 18] | | % | | | | [removed: 14] [added: (13)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| China | | | $ | [removed: 4,277] [added: 5,456] | | | | | [removed: 29%] [added: 32%] | | | | | | | | | | | | $ | [removed: 5,047] [added: 4,277] | | | | | [removed: 30%] [added: 29%] | | | | | | | | | | | | $ | [removed: 2,758] [added: 5,047] | | | | | [removed: 19%] [added: 30%] | | | | | | [removed: (15)] [added: 28] | | % | | | | [removed: 83] [added: (15)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Korea | | | [removed: 1,929] [added: 3,031] | | | | | | [removed: 13%] [added: 18%] | | | | | | | | | | | | [removed: 3,539] [added: 1,929] | | | | | | [removed: 21%] [added: 13%] | | | | | | | | | | | | [removed: 4,087] [added: 3,539] | | | | | | [removed: 28%] [added: 21%] | | | | | | [removed: (45)] [added: 57] | | % | | | | [removed: (13)] [added: (45)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Taiwan | | | [removed: 2,965] [added: 3,953] | | | | | | [removed: 20%] [added: 23%] | | | | | | | | | | | | [removed: 2,504] [added: 2,965] | | | | | | [removed: 15%] [added: 20%] | | | | | | | | | | | | [removed: 3,369] [added: 2,504] | | | | | | [removed: 23%] [added: 15%] | | | | | | [removed: 18] [added: 33] | | % | | | | [removed: (26)] [added: 18] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Japan | | | [removed: 2,198] [added: 1,996] | | | | | | [removed: 15%] [added: 11%] | | | | | | | | | | | | [removed: 2,396] [added: 2,198] | | | | | | [removed: 14%] [added: 15%] | | | | | | | | | | | | [removed: 1,519] [added: 2,396] | | | | | | [removed: 10%] [added: 14%] | | | | | | [removed: (8)] [added: (9)] | | % | | | | [removed: 58] [added: (8)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Southeast Asia | | | [removed: 548] [added: 411] | | | | | | [removed: 4%] [added: 2%] | | | | | | | | | | | | [removed: 797] [added: 548] | | | | | | [removed: 5%] [added: 4%] | | | | | | | | | | | | [removed: 625] [added: 797] | | | | | | [removed: 4%] [added: 5%] | | | | | | [removed: (31)] [added: (25)] | | % | | | | [removed: 28] [added: (31)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Asia Pacific | | | [removed: 11,917] [added: 14,847] | | | | | | [removed: 81%] [added: 86%] | | | | | | | | | | | | [removed: 14,283] [added: 11,917] | | | | | | [removed: 85%] [added: 81%] | | | | | | | | | | | | [removed: 12,358] [added: 14,283] | | | | | | [removed: 84%] [added: 85%] | | | | | | [removed: (17)] [added: 25] | | % | | | | [removed: 16] [added: (17)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| United States | | | [removed: 1,871] [added: 1,619] | | | | | | [removed: 13%] [added: 10%] | | | | | | | | | | | | [removed: 1,413] [added: 1,871] | | | | | | [removed: 9%] [added: 13%] | | | | | | | | | | | | [removed: 1,512] [added: 1,413] | | | | | | [removed: 10%] [added: 9%] | | | | | | [removed: 32] [added: (13)] | | % | | | | [removed: (7)] [added: 32] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Europe | | | [removed: 820] [added: 736] | | | | | | [removed: 6%] [added: 4%] | | | | | | | | | | | | [removed: 1,009] [added: 820] | | | | | | 6% | | | | | | | | | | | | [removed: 828] [added: 1,009] | | | | | | 6% | | | | | | [removed: (19)] [added: (10)] | | % | | | | [removed: 22] [added: (19)] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

The changes in net sales in all regions [removed: other than Korea for] [added: in] fiscal [removed: 2018] [added: 2020] compared to fiscal [removed: 2017] [added: 2019] primarily reflected changes in semiconductor equipment [removed: spending, including product and customer mix, and increased spending in semiconductor spares and services.][added: spending.]

The decrease in net sales to customers in [removed: Korea] [added: Japan and United States for fiscal 2020 compared to fiscal 2019] primarily reflected [removed: decreased] [added: a decrease in] investments in [added: semiconductor and] display manufacturing equipment.

| | | | | | | | | | | | | | | | | | | | | | [removed: Change] | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | | Change | | | | | | | | |]

| | | | [added: 2020 | | | | | | | | | | | | | | | | | |] 2019 | | | | | | [removed: 2018] | | | | | | [removed: 2017] | | | | | | [removed: 2019 over 2018] [added: 2018] | | | | | | [removed: 2018] [added: | | | | | | 2020] over [removed: 2017] [added: 2019] | | | | | | [added: 2019 over 2018] | | |

| Gross margin | | | [removed: 43.7] [added: 44.7] | | % | | | | [removed: 45.0] [added: 43.7] | | % | | | | 45.0 | | % | | | | [removed: (1.3)] [added: 1.0] points | | | | | | [removed: —] [added: (1.3)] points | | | [removed: | | | | | |]

Gross margin during fiscal [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017] [added: 2018] included [removed: $89] [added: $103] million, [removed: $87] [added: $89] million and [removed: $69] [added: $87] million, respectively, of share-based compensation expense.

| | | | (In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

*•Applied's Pandemic Response*

Applied’s Pandemic Response

Applied Materials’ business has been identified by the U.S. Department of Homeland Security as part of the Critical Infrastructure Sectors that the Federal government deems “essential to ensure the continuity of functions critical to public health and safety, as well as economic and national security” and that have “a special responsibility in these times to continue operations.”

Applied responded quickly to put in place precautionary measures to keep its workplaces healthy and safe, while ensuring compliance with orders and restrictions imposed by government authorities, everywhere Applied operates in the world.

Applied’s top priority during the ongoing COVID-19 pandemic remains protecting the health and safety of its employees and their families, customers and community.

Applied continues to maintain workplace flexibility such as working remotely where possible to reduce the number of people who are on campus each day.

Applied is keeping its critical labs and operations active and continuing to support customers.

In the interest of public health, all onsite operations are utilizing the minimum number of people to safely execute tasks and following enhanced safety and health protocols—including screenings, social distancing, and use of personal protective equipment.

Applied has a multi-phase plan to return to working on-site, which takes into consideration factors such as Applied’s business needs, local government regulations, community case trends, and recommendation from public health officials.

The plan involves multiple phases that gradually allow additional workers to return onsite while practicing social distancing and other safety measures.

Applied Materials is committed to helping those most impacted by the ongoing COVID-19 pandemic.

In regions around the world, Applied and its Foundation are addressing immediate humanitarian needs while investing resources to combat the long-term effect of the virus on the nonprofit organizations in its communities.

Applied has shared masks and equipment with medical facilities, provided blood analysis systems to medical professionals and sent emergency support to food banks.

Applied will continue to monitor and evaluate the ongoing COVID-19 pandemic and will work to respond appropriately to the impact of COVID-19 on its business, its customers’ and suppliers’ businesses and its communities.

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During fiscal 2020, COVID-19 was designated a pandemic and the resulting restrictions put in place worldwide impacted Applied’s supply chains and manufacturing operations.

The semiconductor industry was deemed to be part of a U.S. Critical Infrastructure Sector, allowing Applied to continue operations, while ensuring compliance with orders and restrictions imposed by government authorities by putting additional precautionary measures in place to keep its workplaces healthy and safe, everywhere Applied operates in the world.

Even with the unprecedented challenges faced during the pandemic, semiconductor equipment customers continued to make strategic investments in new technology transitions during fiscal 2020.

Spending by memory customers increased in fiscal 2020 compared to fiscal 2019, as the market began to recover from excess supply and inventory levels and customers invested in new technology development.

Applied saw continued growth in its services business in fiscal 2020 compared to fiscal 2019 driven by an increase in the installed base of equipment and in long-term service agreements.

In response to the ongoing COVID-19 pandemic and evolving conditions and worldwide response, Applied made adjustments to its global operations and continues to see recovery within its supply chain and strong demand from semiconductor customers.

However, the situation remains fluid and uncertain.

Applied is actively managing its responses in collaboration with its employees, customers and suppliers.

For additional risks associated with the ongoing COVID-19 pandemic, see the risk factor entitled “*The ongoing COVID-19 pandemic and global measures taken in response thereto have adversely impacted, and may continue to adversely impact, Applied’s operations and financial results*” in Part I, Item 1A, “Risk Factors.”

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Net sales in fiscal 2020 compared to fiscal 2019 increased primarily due to increased customer investments in semiconductor equipment and spending on services.

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| Total | | | $ | 17,202 | | | | | 100% | | | | | | | | | | | | $ | 14,608 | | | | | 100% | | | | | | | | | | | | $ | 16,705 | | | | | 100% | | | | | | 18 | | % | | | | (13) | | % |

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Customer investments in semiconductor and display manufacturing equipment and services continued to be the primary contributor of revenue during fiscal 2019.

Spending by memory customers, compared to fiscal 2018, was lower as they delayed new capacity additions and lowered their fab utilization rates in response to excess industry supply and inventory levels.

Despite the overall wafer fab equipment market being down in 2019, Applied saw modest growth in its services business as compared to the prior year.

This was driven by an increase in the installed base of equipment and continued growth in revenues from long-term service agreements, offset by a weaker demand for transactional spares due to lower memory fab utilization.

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Net sales in fiscal 2018 compared to fiscal 2017 increased due to increased customer investments across all segments.

The increase in net sales to customers in China also reflected increased investments in display manufacturing equipment.

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Gross margin in fiscal 2018 remained flat compared to fiscal 2017.

Marketing and selling expenses increased in fiscal 2018 compared to fiscal 2017 primarily due to additional headcount.

General and administrative expenses in fiscal 2018 increased compared to fiscal 2017 primarily due to additional headcount and unfavorable impact from foreign exchange fluctuation, partially offset by lower variable compensation expense.

Interest expense increased slightly in fiscal 2018 compared to fiscal 2017 due to the issuance of senior unsecured notes in March 2017.

Interest and other income, net in fiscal 2018 increased compared to fiscal 2017 primarily driven by realized gains on sales of securities and higher interest income from investments.

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).

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.

Customer investments in semiconductor manufacturing equipment continued to be the primary contributor of Applied’s revenue during fiscal 2019.

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Although operating margin remained flat, operating income for fiscal 2018 increased compared to fiscal 2017 primarily due to favorable changes in product mix and higher net sales, partially offset by higher RD&E expenses.

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| Korea | | | $ | 1,435 | | 16 | | % | | | | $ | 2,883 | | 27 | | % | | | | $ | 2,955 | | 31 | | % | | | | $ | (1,448) | | | | | (50) | | % | | | | $ | (72) | | | | | (2) | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Operating income and operating margin for fiscal 2018 increased compared to the fiscal 2017, reflecting higher net sales partially offset by increased headcount to support business growth.

The market environment for Applied's Display and Adjacent Markets segment in fiscal 2019 was characterized by weak demand for display manufacturing equipment for mobile products and TVs, compared to fiscal 2018.

Four customers each accounted for at least 10 percent of this segment’s net sales, and together they accounted for approximately 68 percent of net sales for this segment in fiscal 2019.

Operating income and operating margin for fiscal 2018 decreased slightly compared fiscal 2017, primarily due to higher RD&E spending and unfavorable product mix, offset by higher net sales.

| Korea | | | $ | 55 | | 3 | | % | | | | $ | 151 | | 7 | | % | | | | $ | 791 | | 39 | | % | | | | $ | (96) | | | | | (64) | | % | | | | $ | (640) | | | | | (81) | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

In March 2016, the Financial Accounting Standards Board issued authoritative guidance that simplifies several aspects of the accounting for share-based payment transactions, including forfeitures, income tax, and classification on the statement of cash flows.

Applied adopted this guidance in the first quarter of fiscal 2018.

Upon adoption, Applied elected to apply the presentation requirements for cash flows related to excess tax benefits and employee taxes paid for withheld shares retrospectively.

Applied’s investment portfolio includes fixed-income securities with a fair value of approximately [removed: $2.0] [added: $1.7] billion at October [removed: 27, 2019.][added: 25, 2020.]

Based on Applied’s investment portfolio at October [removed: 27, 2019,] [added: 25, 2020,] an immediate 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of approximately [removed: $29] [added: $25] million.

At October [removed: 27, 2019,] [added: 25, 2020,] the aggregate principal of long-term [removed: debt] [added: senior unsecured notes] issued by Applied was [removed: $4.8] [added: $5.5] billion with an estimated fair values of [removed: $5.5] [added: $6.6] billion.

A hypothetical decrease in interest rates of 100 basis points would result in an increase in the fair value of Applied’s long-term debt issuances of approximately [removed: $549] [added: $798] million at October [removed: 27, 2019.][added: 25, 2020.]

A summary of financial information for each reportable segment is found in Note [removed: 16] [added: 17] of Notes to Consolidated Financial Statements.

Applied’s transistor and interconnect products and technologies enable continued [removed: device scaling] [added: power and performance improvements] of 3D transistors.

Applied’s metrology, inspection and review systems’ imaging capabilities and algorithms employ optical and e-beam technologies to meet the most advanced technical [removed: demands, such as] [added: demands in areas including] self-aligned double and quad patterning, extreme ultraviolet layers, measurement-intensive optimal proximity correction mask qualification, and new 3D architectures.

Applied’s packaging technologies address challenges resulting from the increasing [added: heterogeneous] integration of multiple IC dies in a single package.

[removed: The majority of] Applied’s new equipment [removed: sales are] [added: is sold] to [removed: leading] integrated device manufacturers and foundries worldwide.

The Applied Global [removed: Services] [added: Services®] (AGS) segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, remanufactured earlier generation equipment and factory automation software for semiconductor, display and other products.

Customer demand for products and services is fulfilled through a global distribution system [added: in] more than [removed: 100] [added: 110] locations and trained service engineers located in close proximity to customer sites in [removed: more than a dozen] [added: 19] countries to support over [removed: 42,500] [added: 44,900] installed Applied semiconductor, display and other manufacturing systems worldwide.

| [removed: Technology-enabled Services] [added: Technology-Enabled Services®] A comprehensive service product portfolio that combines service technology and tool specific performance commitments in order to optimize customer factory productivity. | | |

| Automation Software Applied [removed: SmartFactory] [added: SmartFactory®] automation software portfolio coordinates and streamlines every aspect of a factory-the processes, equipment and people-to provide competitive advantage to customers. | | |

Backlog by reportable segment as of October [removed: 27, 2019] [added: 25, 2020] and October [removed: 28, 2018] [added: 27, 2019] was as follows:

| | | | [removed: | | | | | | | | |] [added: 2020] | | | | | | 2019 | | | | | | [removed: | | | | | | | | | | | |] 2018 | | | [removed: | | | | | | | | | | | | | | | | | |]

| | | | | | | | | | | | | | | | | | | (In millions, except percentages) | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | |]

| Semiconductor Systems | | | | | | | | | | | | | | | | | | $ | [removed: 2,925] [added: 2,880] | | | | | [removed: 45] [added: 43] | | % | | | | $ | [removed: 2,479] [added: 2,925] | | | | | [removed: 41] [added: 45] | | % | [removed: | | | | | | | | | | | | | | | | | |]

| Applied Global Services | | | | | | | | | | | | | | | | | | [removed: 2,073] [added: 2,607] | | | | | | [removed: 32] [added: 39] | | % | | | | [removed: 1,751] [added: 2,073] | | | | | | [removed: 29] [added: 32] | | % | [removed: | | | | | | | | | | | | | | | | | |]

| Display and Adjacent Markets | | | | | | | | | | | | | | | | | | [removed: 1,453] [added: 1,115] | | | | | | [removed: 23] [added: 17] | | % | | | | [removed: 1,836] [added: 1,453] | | | | | | [removed: 30] [added: 23] | | % | [removed: | | | | | | | | | | | | | | | | | |]

| Corporate and Other | | | | | | | | | | | | | | | | | | [removed: 22] [added: 54] | | | | | | [removed: —] [added: 1] | | % | | | | [removed: 26] [added: 22] | | | | | | — | | % | [removed: | | | | | | | | | | | | | | | | | |]

| Total | | | | | | | | | | | | | | | | | | $ | [removed: 6,473] [added: 6,656] | | | | | 100 | | % | | | | $ | [removed: 6,092] [added: 6,473] | | | | | 100 | | % | [removed: | | | | | | | | | | | | | | | | | |]

Of the total backlog as of October [removed: 27, 2019,] [added: 25, 2020,] approximately [removed: 12%] [added: 16%] is not reasonably expected to be filled within the next 12 months.

Applied has implemented a distributed manufacturing model under which manufacturing and supply chain activities are conducted in various countries, including Germany, Israel, Italy, [added: Mexico,] Singapore, Taiwan, the United States and other countries in Asia.

Applied’s product development and engineering organizations are located primarily in the United States, as well as in [removed: Canada,] China, Europe, India, Israel, Singapore and Taiwan.

Information on net sales to unaffiliated customers and long-lived assets attributable to Applied’s geographic regions is included in Note [removed: 16] [added: 17] of Notes to Consolidated Financial Statements.

| Samsung Electronics Co., Ltd. | | | [removed: *] [added: 18%] | | | | | | [removed: 13%] [added: *] | | | | | | [removed: 23%] [added: 13%] | | |

| Taiwan Semiconductor Manufacturing Company Limited | | | [removed: 14%] [added: 18%] | | | | | | [removed: *] [added: 14%] | | | | | | [removed: 16%] [added: *] | | |

| Intel Corporation | | | [removed: 12%] [added: *] | | | | | | [removed: 11%] [added: 12%] | | | | | | [removed: *] [added: 11%] | | |

The semiconductor industry is driven by demand for advanced electronic products, including smartphones and other mobile devices, servers, personal computers, automotive [removed: devices,] [added: electronics,] storage, and other products.

The growth of data and emerging end-market drivers such as artificial intelligence, [removed: augmented and virtual reality,] the Internet of [removed: Things and] [added: Things, 5G networks,] smart vehicles [added: and augmented and virtual reality] are also creating [removed: new opportunities] [added: the next wave of growth] for the industry.

Applied offers a variety of [removed: technologically-differentiated] [added: differentiated] products that must continuously evolve to satisfy customers’ requirements to compete effectively in the marketplace.

Applied allocates resources among its numerous product offerings and therefore may decide not to invest in an individual product [removed: to the same degree as competitors who specialize in fewer products.][added: depending on market requirements.]

Some of these competitors offer a single product line and others offer multiple product lines, and range from [removed: suppliers] serving a single region to global, diversified companies.

Applied has approximately [removed: 13,300] [added: 14,300] patents in the United States and other countries, and additional applications are pending for new inventions.

[added: With respect to environmental, health and safety regulation,] Applied maintains a number of [removed: environmental, health, and safety] programs that are primarily preventative in [removed: nature.][added: nature and regularly monitors ongoing compliance with applicable laws and regulations.]

The [removed: CSR] [added: Sustainability] Report [removed: is] [added: and the Annex thereto are] updated periodically.

Applied believes that its future success is highly dependent upon [removed: its] [added: the Company’s] continued ability to attract, retain and motivate qualified employees.

| Ginetto Addiego(2) | | | Senior Vice President, [removed: Engineering,] Operations and Quality | | |

| Omkaram [removed: Nalamasu(6)] [added: Nalamasu(5)] | | | Senior Vice President, Chief Technology Officer | | |

| Prabu [removed: Raja(7)] [added: Raja(6)] | | | Senior Vice President, Semiconductor Products Group | | |

| Ali [removed: Salehpour(8)] [added: Salehpour(7)] | | | Senior Vice President, Services, Display and Flexible Technology | | |

| Charles [removed: Read(9)] [added: Read(8)] | | | Corporate Vice President, Corporate Controller and Chief Accounting Officer | | |

(1)Mr. Dickerson, age [removed: 62,] [added: 63,] was named President of Applied in June 2012 and appointed Chief Executive Officer and a member of the Board of Directors in September 2013.

(2)Dr. Addiego, age [removed: 60,] [added: 61,] has been Senior Vice President, [removed: Engineering,] Operations and Quality since June 2015.

| Selective Processing (Deposition and Removal) Selective processing uses specially co-designed chemical and materials interactions to enable delicate and precise deposition and removal of target materials. | | | | | | Endura and Producer Systems | | |

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| | | | | | | | | | | | | 2020 | | | | | | | | | | | | 2019 | | | | | | | | | | | | | | |

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Governmental Regulation

As a public company with global operations, Applied is subject to the laws and regulations of the United States and multiple foreign jurisdictions.

These regulations, which differ among jurisdictions, include those related to financial and other disclosures, accounting standards, corporate governance, intellectual property, tax, trade, antitrust, employment, immigration and travel regulations, privacy, and anti-corruption.

*See* *also* “*Risk Factors – Risks Related to Legal and Compliance - Applied is subject to risks associated with environmental, health and safety regulations*” *for further details.*

Applied is subject to income taxes in the United States and foreign jurisdictions.

Applied’s provision for income taxes and effective tax rate could be affected by numerous factors, including changes in applicable tax laws, interpretations of applicable tax laws, amount and composition of pre-tax income in jurisdictions with differing tax rates, and valuation of deferred tax assets.

*See* “*Risk Factors – Risks Related to Legal and Compliance – Applied is exposed to risks associated with operating in jurisdictions with complex and changing tax laws*”.

For additional discussions regarding the impact of compliance with income tax laws and regulations on Applied’s business and operations, see also “*Management’s Discussion and Analysis of Financial Condition and Results of Operations– Results of Operations – Income Taxes*” and *“Note 15 of the Notes to the Consolidated Financial Statements”.*

Additionally, Applied is regulated under various international laws regarding the purchase and sale of goods and related items, including but not limited to those related to imposition of tariffs and other taxes, requirements for import/export licenses and limitations on transfer of intellectual property.

*See* “*Risk Factors – Risks Associated with Operating a Global Business – International trade disputes could result in increase in tariffs and other trade restrictions and protectionist measures that could have an adverse impact on our operations*” *for further details.*

Applied’s People

Applied’s commitment to innovation begins with the commitment to creating an environment in which Applied’s employees can do their best work.

Applied’s ability to create differentiated value in the marketplace is driven by the capability of the Company’s people to anticipate technology inflections and integrate customer requirements.

To achieve this level of value creation, Applied believes it must find, develop and keep a world-class global workforce.

The Company invests in its employees by providing quality training and learning opportunities; promoting inclusion and diversity; and upholding a high standard of ethics and respect for human rights.

As of October 25, 2020, Applied employed approximately 24,000 regular full-time employees, of whom approximately 44%, 43% and 13% resided in the Asia-Pacific region, North America, and Europe, Middle East and Africa, respectively.

Applied’s team spans 19 countries, reflecting various cultures, backgrounds, ages, gender identity, sexual orientation, and ethnicities.

Diversity and Inclusion

Applied knows that its diversity is one of its greatest strengths.

The Company therefore strives to provide fair and equal opportunity for career development and advancement to all its employees and incorporates respect for diverse backgrounds and perspectives into the Company’s culture at every level – from strategy and policy down to everyday interactions.

Applied expects that its commitment to strengthening the Company’s culture of inclusion will broaden the diversity of its workplace and help Applied build a culture that benefits everyone.

In recent years, Applied continued to make progress in its culture of inclusion journey, including, among other things, expanding gender diversity on the Company’s Board to 30% female membership, increasing female representation in the U.S. and global workforce, and increasing U.S. underrepresented minority representation.

Talent Acquisition and Retention

As part of the Company’s effort to attract and motivate employees, Applied offers competitive rewards, compensation and benefits, including an Employee Stock Purchase Plan, healthcare and retirement benefits, parental and family leave, adoption credits, holiday and paid time off, and tuition assistance.

Employee Learning & Development

Applied believes continuous learning by its people feeds the Company’s pipeline of innovation and pays off in employee retention.

Applied’s business units maintain an independent strategy for skill-building, using content that is owned, supervised, developed, and managed by each unit’s learning team.

At the same time, these skill-building programs are aligned around a common set of objectives and framework focused on compliance, technical, professional and management development.

For example, the Company’s Environmental, Health & Safety (EHS) and Sustainability organization leads employee training and awareness on EHS management issues and the certification processes for safety and skills related to technical manufacturing and engineering work.

In addition, all employees have opportunities for training on a wide range of general professional skills that are designed to help them to be more effective in their current and future roles.

There is an expectation that every employee has a development goal as a part of individual performance objectives.

Historically more than 85% of employees have had development objectives.

Employee Engagement, Organizational Health and Pandemic Response

Applied manages and measures organizational health with a view to gaining insight into employees’ experiences, levels of workplace satisfaction, and feelings of engagement and inclusion with the company.

The Company uses McKinsey & Company’s Organizational Health Index (OHI) and employee engagement pulse surveys to measure its organizational health and employee experiences.

| Selective Removal Selective removal is a new etch technology intended to remove a material of a particular composition without damaging materials of different composition that coexist on the wafer. | | | | | | Producer Systems | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | 2019 | | | | | | 2018 | | | | | | 2017 | | |

Environmental Matters

As part of these programs, Applied regularly monitors ongoing compliance with applicable laws and regulations.

Compliance with federal, state and local environmental, health and safety laws and regulations, including those regulating the discharge of materials into the environment, remedial agreements, and other actions relating to the environment have not had, and are not expected to have, a material effect on Applied’s capital expenditures, competitive position, financial condition, or results of operations.

The most recent report on Applied’s environmental, health and safety activities can be found in Applied’s latest Corporate Social Responsibility (CSR) Report on its website at http://www.appliedmaterials.com//files/2018_csr.pdf.

Employees

At October 27, 2019, Applied employed approximately 22,000 regular employees.

In the high-technology industry, competition for highly-skilled employees is intense.

Executive Officers of the Registrant

| Steve Ghanayem(4) | | | Senior Vice President, New Markets and Alliances Group | | |

| Thomas F. Larkins(5) | | | Senior Vice President, General Counsel | | |

He has served in various senior management, product development and operational roles since joining Applied in 1989, including Group Vice President and General Manager of the Transistor and Interconnect Group.

(5)Mr. Larkins, age 58, has been Senior Vice President, General Counsel of Applied since November 2012 and was Corporate Secretary from November 2012 to March 2018.

Previously, Mr. Larkins was employed by Honeywell International Inc., a diversified global technology and manufacturing company, where he was Vice President, Corporate Secretary and Deputy General Counsel from 2002 until joining Applied.

Mr. Larkins served in various other positions at Honeywell (formerly AlliedSignal) after joining the company in 1997.

(7)Dr. Raja, age 57, has been Senior Vice President, Semiconductor Products Group of Applied since November 2017.

The information set forth under “Legal Matters” in Note [removed: 15] [added: 16] of Notes to Consolidated Financial Statements is incorporated herein by reference.

For the fiscal year ended October [removed: 27, 2019][added: 25, 2020]

Aggregate market value of the voting stock held by non-affiliates of the registrant as of April [removed: 28, 2019,] [added: 26, 2020,] based upon the closing sale price reported by the NASDAQ Global Select Market on that date: [removed: 41677858958][added: $47,228,292,437]

Number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of December [removed: 6, 2019: 915,304,098][added: 4, 2020: 914,344,189]

Portions of Part III will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 24, 2020.][added: 22, 2021.]

Examples of forward-looking statements include those regarding Applied’s future financial or operating results, customer demand and spending, [removed: end-use] [added: end-user] demand, [added: Applied’s and] market and industry trends and outlooks, [added: the impact of the ongoing COVID-19 pandemic and responses thereto on Applied’s operations and financial results,] cash flows and cash deployment strategies, declaration of dividends, share repurchases, business strategies and priorities, costs and cost controls, products, competitive positions, management’s plans and objectives for future operations, research and development, strategic acquisitions and investments, including the proposed acquisition of Kokusai Electric Corporation (Kokusai Electric), growth opportunities, restructuring activities, backlog, working capital, liquidity, investment portfolio and policies, taxes, supply chain, manufacturing, properties, legal proceedings and claims, and other statements that are not historical facts, as well as their underlying assumptions.

FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER [removed: 27, 2019][added: 25, 2020]

| Item 1: | | | [removed: [Business](#i_0_16)] [added: [Business](#i61bb1a104c194d65a48b52b5557c3ca8_16)] | | | [removed: [4](#i_0_16)] [added: [4](#i61bb1a104c194d65a48b52b5557c3ca8_16)] | | |

| Item 1A: | | | [Risk [removed: Factors](#i_0_19)] [added: Factors](#i61bb1a104c194d65a48b52b5557c3ca8_19)] | | | [removed: [14](#i_0_19)] [added: [16](#i61bb1a104c194d65a48b52b5557c3ca8_19)] | | |

| Item 1B: | | | [Unresolved Staff [removed: Comments](#i_0_22)] [added: Comments](#i61bb1a104c194d65a48b52b5557c3ca8_22)] | | | [removed: [25](#i_0_22)] [added: [28](#i61bb1a104c194d65a48b52b5557c3ca8_22)] | | |

| Item 2: | | | [removed: [Properties](#i_0_25)] [added: [Properties](#i61bb1a104c194d65a48b52b5557c3ca8_25)] | | | [removed: [26](#i_0_25)] [added: [29](#i61bb1a104c194d65a48b52b5557c3ca8_25)] | | |

| Item 3: | | | [Legal [removed: Proceedings](#i_0_28)] [added: Proceedings](#i61bb1a104c194d65a48b52b5557c3ca8_28)] | | | [removed: [27](#i_0_28)] [added: [30](#i61bb1a104c194d65a48b52b5557c3ca8_28)] | | |

| Item 4: | | | [Mine Safety [removed: Disclosures](#i_0_31)] [added: Disclosures](#i61bb1a104c194d65a48b52b5557c3ca8_31)] | | | [removed: [27](#i_0_31)] [added: [30](#i61bb1a104c194d65a48b52b5557c3ca8_31)] | | |

| Item 5: | | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#i_0_37)] [added: Securities](#i61bb1a104c194d65a48b52b5557c3ca8_37)] | | | [removed: [28](#i_0_37)] [added: [31](#i61bb1a104c194d65a48b52b5557c3ca8_37)] | | |

| Item 6: | | | [Selected Financial [removed: Data](#i_0_40)] [added: Data](#i61bb1a104c194d65a48b52b5557c3ca8_40)] | | | [removed: [30](#i_0_40)] [added: [33](#i61bb1a104c194d65a48b52b5557c3ca8_40)] | | |

| Item 7: | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i_0_43)] [added: Operations](#i61bb1a104c194d65a48b52b5557c3ca8_43)] | | | [removed: [31](#i_0_43)] [added: [34](#i61bb1a104c194d65a48b52b5557c3ca8_43)] | | |

| Item 7A: | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i_0_64)] [added: Risk](#i61bb1a104c194d65a48b52b5557c3ca8_64)] | | | [removed: [52](#i_0_64)] [added: [55](#i61bb1a104c194d65a48b52b5557c3ca8_64)] | | |

| Item 8: | | | [Financial Statements and Supplementary [removed: Data](#i_0_67)] [added: Data](#i61bb1a104c194d65a48b52b5557c3ca8_67)] | | | [removed: [52](#i_0_67)] [added: [55](#i61bb1a104c194d65a48b52b5557c3ca8_67)] | | |

| Item 9: | | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#i_0_70)] [added: Disclosure](#i61bb1a104c194d65a48b52b5557c3ca8_70)] | | | [removed: [52](#i_0_70)] [added: [55](#i61bb1a104c194d65a48b52b5557c3ca8_70)] | | |

| Item 9A: | | | [Controls and [removed: Procedures](#i_0_73)] [added: Procedures](#i61bb1a104c194d65a48b52b5557c3ca8_73)] | | | [removed: [53](#i_0_73)] [added: [56](#i61bb1a104c194d65a48b52b5557c3ca8_73)] | | |

| Item 9B: | | | [Other [removed: Information](#i_0_76)] [added: Information](#i61bb1a104c194d65a48b52b5557c3ca8_76)] | | | [removed: [53](#i_0_76)] [added: [56](#i61bb1a104c194d65a48b52b5557c3ca8_76)] | | |

| Item 10: | | | [Directors, Executive Officers and Corporate [removed: Governance](#i_0_85)] [added: Governance](#i61bb1a104c194d65a48b52b5557c3ca8_85)] | | | [removed: [54](#i_0_85)] [added: [57](#i61bb1a104c194d65a48b52b5557c3ca8_85)] | | |

| Item 11: | | | [Executive [removed: Compensation](#i_0_88)] [added: Compensation](#i61bb1a104c194d65a48b52b5557c3ca8_88)] | | | [removed: [54](#i_0_88)] [added: [57](#i61bb1a104c194d65a48b52b5557c3ca8_88)] | | |

| Item 12: | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i_0_91)] [added: Matters](#i61bb1a104c194d65a48b52b5557c3ca8_91)] | | | [removed: [55](#i_0_91)] [added: [58](#i61bb1a104c194d65a48b52b5557c3ca8_91)] | | |

| Item 13: | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i_0_94)] [added: Independence](#i61bb1a104c194d65a48b52b5557c3ca8_94)] | | | [removed: [56](#i_0_94)] [added: [59](#i61bb1a104c194d65a48b52b5557c3ca8_94)] | | |

| Item 14: | | | [Principal Accounting Fees and [removed: Services](#i_0_97)] [added: Services](#i61bb1a104c194d65a48b52b5557c3ca8_97)] | | | [removed: [56](#i_0_97)] [added: [59](#i61bb1a104c194d65a48b52b5557c3ca8_97)] | | |

| Item 15: | | | [Exhibits, Financial Statement [removed: Schedules](#i_0_103)] [added: Schedules](#i61bb1a104c194d65a48b52b5557c3ca8_103)] | | | [removed: [57](#i_0_103)] [added: [60](#i61bb1a104c194d65a48b52b5557c3ca8_103)] | | |

| Item 16: | | | [Form 10-K [removed: Summary](#i_0_103)] [added: Summary](#i61bb1a104c194d65a48b52b5557c3ca8_103)] | | | [removed: [57](#i_0_103)] [added: [60](#i61bb1a104c194d65a48b52b5557c3ca8_103)] | | |

| | | | [removed: [Signatures](#i_0_214)] [added: [Signatures](#i61bb1a104c194d65a48b52b5557c3ca8_187)] | | | [removed: [109](#i_0_214)] [added: [109](#i61bb1a104c194d65a48b52b5557c3ca8_187)] | | |

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report.

This report contains forward-looking statements that involve a number of risks and uncertainties.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

| Owned | | | 4,978 | | | | | | 2,472 | | | | | | 7,450 | | |

| Leased | | | 1,110 | | | | | | 1,602 | | | | | | 2,712 | | |

| Total | | | 6,088 | | | | | | 4,074 | | | | | | 10,162 | | |

| Owned | | | 4,317 | | | | | | 2,470 | | | | | | 6,787 | | |

| Leased | | | 1,222 | | | | | | 1,527 | | | | | | 2,749 | | |

| Total | | | 5,539 | | | | | | 3,997 | | | | | | 9,536 | | |

As of December [removed: 6, 2019,] [added: 4, 2020,] there were [removed: 2,859] [added: 2,860] registered holders of Applied common stock.

Information regarding quarterly cash dividends declared on Applied Materials’s common stock during fiscal [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017] [added: 2018] may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources”.

The performance graph below shows the five-year cumulative total stockholder return on Applied common stock during the period from October [removed: 26, 2014] [added: 25, 2015] through October [removed: 27, 2019.][added: 25, 2020.]

This is compared with the cumulative total return of the Standard & Poor’s 500 Stock [removed: Index, the RDG Semiconductor Composite] Index and the PHLX Semiconductor Index over the same period.

The comparison assumes $100 was invested on October [removed: 26, 2014] [added: 25, 2015] in Applied common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.

[removed: ][added: ]

*Assumes $100 invested on [removed: 10/26/14] [added: 10/25/15] in stock or [removed: 10/31/14] [added: 10/31/15] in index, including reinvestment of dividends.

Copyright© [removed: 2019] [added: 2020] Standard & Poor’s, a division of S&P global.

| | | | [removed: 10/26/2014] [added: 10/25/2015] | | | | | | [removed: 10/25/2015] [added: 10/30/2016] | | | | | | [removed: 10/30/2016] [added: 10/29/2017] | | | | | | [removed: 10/29/2017] [added: 10/28/2018] | | | | | | [removed: 10/28/2018] [added: 10/27/2019] | | | | | | [removed: 10/27/2019] [added: 10/25/2020] | | |

The following table provides information as of October [removed: 27, 2019] [added: 25, 2020] with respect to the shares of common stock repurchased by Applied during the fourth quarter of fiscal [removed: 2019] [added: 2020] pursuant to a publicly announced stock repurchase program approved by the Board of Directors in February 2018, which authorized up to an aggregate of $6.0 billion in repurchases.

| Period | | | Total Number of Shares Purchased | | | | | | Average Price Paid per Share | | | | | | Aggregate Price Paid | | | | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | | | | Maximum Dollar Value of Shares That May Yet be Purchased Under the Programs | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| | | | (In millions, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Month #1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Month #2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Month #3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Applied Materials | | | 100.00 | | | | | | 177.60 | | | | | | 354.97 | | | | | | 205.10 | | | | | | 360.44 | | | | | | 399.81 | | |

| S&P 500 Index | | | 100.00 | | | | | | 104.76 | | | | | | 129.77 | | | | | | 136.27 | | | | | | 158.11 | | | | | | 184.74 | | |

| PHLX Semiconductor Index | | | 100.00 | | | | | | 122.17 | | | | | | 191.73 | | | | | | 178.03 | | | | | | 259.79 | | | | | | 378.46 | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| (July 27, 2020 to August 23, 2020) | | | 0.8 | | | | | | $ | 64.40 | | | | | $ | 50 | | | | | 0.8 | | | | | | $ | 1,275 | |

| (August 24, 2020 to September 20, 2020) | | | — | | | | | | | | | | | | — | | | | | | — | | | | | | $ | 1,275 | |

| (September 21, 2020 to October 25, 2020) | | | — | | | | | | | | | | | | — | | | | | | — | | | | | | $ | 1,275 | |

| Total | | | 0.8 | | | | | | $ | 64.40 | | | | | $ | 50 | | | | | 0.8 | | | | | | | | |

In addition to the RDG Semiconductor Composite Index, Applied has added the PHLX Semiconductor Index, which Applied believes better represents overall semiconductor industry performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Applied Materials, Inc., the S&P 500 Index,

the RDG Semiconductor Composite Index and the PHLX Semiconductor Index

| Applied Materials | | | 100.00 | | | | | | 79.87 | | | | | | 141.85 | | | | | | 283.52 | | | | | | 163.81 | | | | | | 287.88 | | |

| S&P 500 Index | | | 100.00 | | | | | | 105.20 | | | | | | 109.94 | | | | | | 135.93 | | | | | | 145.91 | | | | | | 166.81 | | |

| RDG Semiconductor Composite Index | | | 100.00 | | | | | | 97.22 | | | | | | 119.39 | | | | | | 179.70 | | | | | | 171.36 | | | | | | 222.46 | | |

| PHLX Semiconductor Index | | | 100.00 | | | | | | 105.26 | | | | | | 133.38 | | | | | | 210.24 | | | | | | 201.66 | | | | | | 282.62 | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| (July 29, 2019 to August 25, 2019) | | | 2.5 | | | | | | $ | 47.33 | | | | | $ | 119 | | | | | 2.5 | | | | | | $ | 2,305 | | | | | | | | | | | | | | | | | | | | | | | | | |

| (August 26, 2019 to September 22, 2019) | | | 3.3 | | | | | | $ | 49.47 | | | | | 166 | | | | | | 3.3 | | | | | | $ | 2,139 | | | | | | | | | | | | | | | | | | | | | | | | | |

| (September 23, 2019 to October 27, 2019) | | | 4.2 | | | | | | $ | 51.45 | | | | | 215 | | | | | | 4.2 | | | | | | $ | 1,924 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total | | | 10.0 | | | | | | $ | 49.76 | | | | | $ | 500 | | | | | 10.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Fiscal [removed: Year(1) | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | |] [added: Year(1)] | | | [removed: 2015] [added: 2020] | | | | | | [added: 2019] | | | | | | [added: 2018] | | | | | | [added: 2017] | | | | | | [added: 2016] | | |

| | | | (In millions, except percentages and per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Net sales | | | $ | [removed: 14,608] [added: 17,202] | | | | | $ | [removed: 16,705] [added: 14,608] | | | | | $ | [removed: 14,698] [added: 16,705] | | | | | $ | [removed: 10,825] [added: 14,698] | | | | | $ | [removed: 9,659 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 10,825] | |

| Gross profit | | | $ | [removed: 6,386] [added: 7,692] | | | | | $ | [removed: 7,517] [added: 6,386] | | | | | $ | [removed: 6,612] [added: 7,517] | | | | | $ | [removed: 4,511] [added: 6,612] | | | | | $ | [removed: 3,952 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 4,511] | |

| Gross margin | | | [removed: 43.7] [added: 44.7] | | % | | | | [removed: 45.0] [added: 43.7] | | % | | | | 45.0 | | % | | | | [removed: 41.7] [added: 45.0] | | % | | | | [removed: 40.9] [added: 41.7] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Research, development and engineering | | | $ | [removed: 2,054] [added: 2,234] | | | | | $ | [removed: 2,022] [added: 2,054] | | | | | $ | [removed: 1,781] [added: 2,022] | | | | | $ | [removed: 1,540] [added: 1,781] | | | | | $ | [removed: 1,451 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 1,540] | |

| Operating income | | | $ | [removed: 3,350] [added: 4,365] | | | | | $ | [removed: 4,491] [added: 3,350] | | | | | $ | [removed: 3,936] [added: 4,491] | | | | | $ | [removed: 2,152] [added: 3,936] | | | | | $ | [removed: 1,693 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 2,152] | |

| Operating margin | | | [removed: 22.9] [added: 25.4] | | % | | | | [removed: 26.9] [added: 22.9] | | % | | | | [removed: 26.8] [added: 26.9] | | % | | | | [removed: 19.9] [added: 26.8] | | % | | | | [removed: 17.5] [added: 19.9] | | % | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Income before income taxes | | | $ | [removed: 3,269] [added: 4,166] | | | | | $ | [removed: 4,396] [added: 3,269] | | | | | $ | [removed: 3,816] [added: 4,396] | | | | | $ | [removed: 2,013] [added: 3,816] | | | | | $ | [removed: 1,598 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 2,013] | |

| Net income | | | $ | [removed: 2,706] [added: 3,619] | | | | | $ | [removed: 3,038] [added: 2,706] | | | | | $ | [removed: 3,519] [added: 3,038] | | | | | $ | [removed: 1,721] [added: 3,519] | | | | | $ | [removed: 1,377 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 1,721] | |

| Earnings per diluted share | | | $ | [removed: 2.86] [added: 3.92] | | | | | $ | [removed: 2.96] [added: 2.86] | | | | | $ | [removed: 3.25] [added: 2.96] | | | | | $ | [removed: 1.54] [added: 3.25] | | | | | $ | [removed: 1.12 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 1.54] | |

| Long-term debt | | | $ | [removed: 4,713] [added: 5,448] | | | | | $ | [removed: 5,309] [added: 4,713] | | | | | $ | [removed: 5,304] [added: 5,309] | | | | | $ | [removed: 3,125] [added: 5,304] | | | | | $ | [removed: 3,342 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 3,125] | |

| Cash dividends declared per common share | | | $ | [removed: 0.83] [added: 0.87] | | | | | $ | [removed: 0.70] [added: 0.83] | | | | | $ | [removed: 0.40] [added: 0.70] | | | | | $ | 0.40 | | | | | $ | 0.40 | | [removed: | | | | | | | | | | | | | | | | | | | | | | | |]

| Total assets | | | $ | [removed: 19,024] [added: 22,353] | | | | | $ | [removed: 17,633] [added: 19,024] | | | | | $ | [removed: 19,190] [added: 17,633] | | | | | $ | [removed: 14,570] [added: 19,190] | | | | | $ | [removed: 15,308 | | | | | | | | | | | | | | | | | | | | | | | |] [added: 14,570] | |

Fiscal [added: 2020,] 2019, 2018, [removed: 2017,] and [removed: 2015] [added: 2017] each contained 52 weeks, and fiscal 2016 contained 53 weeks.

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Applied adopted the authoritative guidance related to revenue recognition in the first quarter of fiscal 2019 using the full retrospective method.

Applied also adopted authoritative guidance related to retirement benefits in the first quarter of fiscal 2019 using the retrospective method.

The adoption of these guidance required restating fiscal years 2018 and 2017 results as presented below.

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

Based on that evaluation, Applied’s management concluded that Applied’s internal control over financial reporting was effective as of October [removed: 27, 2019.][added: 25, 2020.]

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Form 10-K and, as part of the audit, has issued a report, included herein, on the effectiveness of Applied’s internal control over financial reporting as of October [removed: 27, 2019.][added: 25, 2020.]

During the fourth quarter of fiscal [removed: 2019,] [added: 2020,] there were no changes in the internal control over financial reporting that materially affected, or are reasonably likely to materially affect, Applied’s internal control over financial reporting.

Due to the ongoing COVID-19 pandemic, Applied continues to maintain workplace flexibility such as working remotely where possible to reduce the number of people who are on campus each day.

Business continuity plans are in effect in order to mitigate potential impact on Applied’s control environment and its operating and disclosure controls and procedures.

The design of business continuity plans, which include remote access to secure data when needed, allow for remote and reliable execution of Applied’s operating and disclosure controls and procedures.

Applied evaluated the impact of the ongoing COVID-19 pandemic on its internal control over financial reporting.

Except for the information regarding executive officers required by Item 401 of Regulation S-K (which is included in Part I, Item 1 of this Annual Report on Form 10-K, under [removed: “Executive Officers of the Registrant”)] [added: “Information about our Executive Officers”)] and code of ethics (which is set forth below), the information required by this item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 24, 2020.][added: 22, 2021.]

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 24, 2020.][added: 22, 2021.]

Except for the information regarding securities authorized for issuance under equity compensation plans (which is set forth below), the information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 24, 2020.][added: 22, 2021.]

The following table summarizes information with respect to equity awards under Applied’s equity compensation plans as of October [removed: 27, 2019:][added: 25, 2020:]

| Plan Category | | | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) | | | | | | | | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | | | | | (c) Number of Securities Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) | | | | | | [removed: | | | | | | | | | | | | | | |]

| | | | (In millions, except prices) | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | | | | |]

| Equity compensation plans approved by security holders | | | [removed: 19] [added: 15] | | | | | | | | | $ | [removed: 15.06] [added: —] | | | | | [removed: 77] [added: 63] | | | (3) | | | [removed: | | | | | | | | | | | | | | |]

| Equity compensation plans not approved by security holders | | | — | | | | | | | | | $ | — | | | | | [removed: 2] [added: 3] | | | (4) | | | [removed: | | | | | | | | | | | | | | |]

| Total | | | [removed: 19] [added: 15] | | | | | | | | | $ | [removed: 15.06 | | | | | 79 | | | | | | | | | |] [added: —] | | | | | [added: 66] | | | | | |

(1)Includes only options, restricted stock units and performance shares outstanding under Applied’s equity compensation plans, as no stock warrants or other rights were outstanding as of October [removed: 27, 2019.][added: 25, 2020.]

(3)Includes [removed: 11] [added: 7] million shares of Applied common stock available for future issuance under the Applied Materials, Inc. Employees’ Stock Purchase Plan.

Of these [removed: 11] [added: 7] million shares, 1 million are subject to purchase during the purchase period in effect as of October [removed: 27, 2019.][added: 25, 2020.]

(4)Includes [removed: 2] [added: 3] million shares of Applied common stock available for future issuance under the Applied Materials, Inc. Stock Purchase Plan for Offshore Employees.

Of these [removed: 2] [added: 3] million shares, 1 million are subject to purchase during the purchase period in effect as of October [removed: 27, 2019.][added: 25, 2020.]

As of October [removed: 27, 2019,] [added: 25, 2020,] a total of [removed: 36] [added: 39] million shares have been authorized for issuance under the Offshore ESPP, and [removed: 2] [added: 3] million shares remain available for issuance.

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The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 24, 2020.][added: 22, 2021.]

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 24, 2020.][added: 22, 2021.]

| | | | [Reports of Independent Registered Public Accounting [removed: Firm](#i_0_106)] [added: Firm](#i61bb1a104c194d65a48b52b5557c3ca8_106)] | | | [removed: [58](#i_0_106)] [added: [61](#i61bb1a104c194d65a48b52b5557c3ca8_106)] | | |

| | | | [Consolidated Statements of [removed: Operations](#i_0_112)] [added: Operations](#i61bb1a104c194d65a48b52b5557c3ca8_112)] | | | [removed: [61](#i_0_112)] [added: [64](#i61bb1a104c194d65a48b52b5557c3ca8_112)] | | |

| | | | [Consolidated Statements of Comprehensive [removed: Income](#i_0_115)] [added: Income](#i61bb1a104c194d65a48b52b5557c3ca8_115)] | | | [removed: [62](#i_0_115)] [added: [65](#i61bb1a104c194d65a48b52b5557c3ca8_115)] | | |

| | | | [Consolidated Balance [removed: Sheets](#i_0_118)] [added: Sheets](#i61bb1a104c194d65a48b52b5557c3ca8_118)] | | | [removed: [63](#i_0_118)] [added: [66](#i61bb1a104c194d65a48b52b5557c3ca8_118)] | | |

| | | | [Consolidated Statements of Stockholders’ [removed: Equity](#i_0_124)] [added: Equity](#i61bb1a104c194d65a48b52b5557c3ca8_121)] | | | [removed: [64](#i_0_124)] [added: [67](#i61bb1a104c194d65a48b52b5557c3ca8_121)] | | |

| | | | [Consolidated Statements of Cash [removed: Flows](#i_0_130)] [added: Flows](#i61bb1a104c194d65a48b52b5557c3ca8_124)] | | | [removed: [65](#i_0_130)] [added: [68](#i61bb1a104c194d65a48b52b5557c3ca8_124)] | | |

| | | | [Notes to Consolidated Financial [removed: Statements](#i_0_133)] [added: Statements](#i61bb1a104c194d65a48b52b5557c3ca8_127)] | | | [removed: [66](#i_0_133)] [added: [69](#i61bb1a104c194d65a48b52b5557c3ca8_127)] | | |

| | | | [The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Annual Report on Form [removed: 10-K](#i_0_211)] [added: 10-K](#i61bb1a104c194d65a48b52b5557c3ca8_184)] | | | [removed: [106](#i_0_211)] [added: [106](#i61bb1a104c194d65a48b52b5557c3ca8_184)] | | |

[removed: The] [added: To the Stockholders and] Board of Directors [removed: and Stockholders]

We have audited the accompanying consolidated balance sheets of Applied Materials, Inc. and subsidiaries (the Company) as of October [removed: 27, 2019] [added: 25, 2020] and October [removed: 28, 2018,] [added: 27, 2019,] 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 [removed: 27, 2019,] [added: 25, 2020,] 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 [removed: 27, 2019] [added: 25, 2020] and October [removed: 28, 2018,] [added: 27, 2019,] and the results of its operations and its cash flows for each of the years in the three-year period ended October [removed: 27, 2019,] [added: 25, 2020,] 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 [removed: 27, 2019,] [added: 25, 2020,] 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 [removed: 13, 2019] [added: 11, 2020] expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

As discussed in note 1 to the consolidated financial statements, [removed: in 2019,] the Company [removed: has] changed its method of accounting for [removed: revenue] [added: leases as of October 28, 2019] due to the adoption of [removed: Financial] Accounting Standards [removed: Board Accounting Standards] Codification Topic [removed: 606, *Revenue from Contracts with Customers*, and] [added: 842, *Leases.* As discussed in note 15 to the consolidated financial statements, the Company changed] its method of accounting for intra-entity [removed: transfer] [added: transfers] of assets other than inventory [added: as of October 29, 2018] due to the adoption of [removed: the] Accounting Standards Update [removed: (ASU)] No. 2016-16, *Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory*.

*Critical Audit [removed: Matters*][added: Matter*]

The critical audit [removed: matters] [added: matter] communicated below [removed: are matters] [added: is a matter] arising from the current period audit of the consolidated financial statements that [removed: were] [added: was] communicated or required to be communicated to the audit committee and that: (1) [removed: relate] [added: relates] 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 [added: a] critical audit [removed: matters] [added: matter] 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 [removed: matters] [added: matter] below, providing [added: a] separate [removed: opinions] [added: opinion] on the critical audit [removed: matters] [added: matter] or on the accounts or disclosures to which [removed: they relate.][added: it relates.]

As discussed in notes 1 and 8 to the consolidated financial statements, the Company has inventories with a carrying value of [removed: $3,474] [added: $3,904] million as of October [removed: 27, 2019.][added: 25, 2020.]

The [added: following are the] primary procedures we performed to address this critical audit [removed: matter included the following.][added: matter.]

We [added: evaluated the design and] tested [added: the operating effectiveness of] certain internal controls over the Company’s process for determining net realizable value adjustments for inventory excess or obsolescence, including [added: controls related to] estimating forecasted sales and inventory consumption.

[removed: December 13, 2019][added: | 2019 | | | | | | | | | | | | | | | | | |]

We have audited Applied Materials, Inc. and [removed: subsidiaries'] [added: subsidiaries’] (the Company) internal control over financial reporting as of October [removed: 27, 2019,] [added: 25, 2020,] 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 [removed: 27, 2019,] [added: 25, 2020,] 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 [removed: 27, 2019] [added: 25, 2020] and October [removed: 28, 2018,] [added: 27, 2019,] 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 [removed: 27, 2019,] [added: 25, 2020,] and the related notes (collectively, the consolidated financial statements), and our report dated December [removed: 13, 2019] [added: 11, 2020] expressed an unqualified opinion on those consolidated financial statements.

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 [removed: Reporting in Item 9A.][added: Reporting.]

[removed: APPLIED] [added: | APPLIED] MATERIALS, [removed: INC.][added: INC. | | | | | |]

| Fiscal Year | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | | | | | [removed: 2017] [added: 2018] | | |

| Net sales | | | $ | [removed: 14,608] [added: 17,202] | | | | | $ | [removed: 16,705] [added: 14,608] | | | | | $ | [removed: 14,698] [added: 16,705] | |

| Cost of products sold | | | [removed: 8,222] [added: 9,510] | | | | | | [removed: 9,188] [added: 8,222] | | | | | | [removed: 8,086] [added: 9,188] | | |

| Gross profit | | | [removed: 6,386] [added: 7,692] | | | | | | [removed: 7,517] [added: 6,386] | | | | | | [removed: 6,612] [added: 7,517] | | |

| Research, development and engineering | | | [removed: 2,054] [added: 2,234] | | | | | | [removed: 2,022] [added: 2,054] | | | | | | [removed: 1,781] [added: 2,022] | | |

| Marketing and selling | | | [removed: 521] [added: 526] | | | | | | 521 | | | | | | [removed: 457] [added: 521] | | |

| General and administrative | | | [removed: 461] [added: 567] | | | | | | [removed: 483] [added: 461] | | | | | | [removed: 438] [added: 483] | | |

| Total operating expenses | | | [removed: 3,036] [added: 3,327] | | | | | | [removed: 3,026] [added: 3,036] | | | | | | [removed: 2,676] [added: 3,026] | | |

| Income from operations | | | [removed: 3,350] [added: 4,365] | | | | | | [removed: 4,491] [added: 3,350] | | | | | | [removed: 3,936] [added: 4,491] | | |

| Interest expense | | | [removed: 237] [added: 240] | | | | | | [removed: 234] [added: 237] | | | | | | [removed: 198] [added: 234] | | |

| Interest and other income, net | | | [removed: 156] [added: 41] | | | | | | [removed: 139] [added: 156] | | | | | | [removed: 78] [added: 139] | | |

| Income before income taxes | | | [removed: 3,269] [added: 4,166] | | | | | | [removed: 4,396] [added: 3,269] | | | | | | [removed: 3,816] [added: 4,396] | | |

| Provision for income taxes | | | [removed: 563] [added: 547] | | | | | | [removed: 1,358] [added: 563] | | | | | | [removed: 297] [added: 1,358] | | |

| Net income | | | $ | [removed: 2,706] [added: 3,619] | | | | | $ | [removed: 3,038] [added: 2,706] | | | | | $ | [removed: 3,519] [added: 3,038] | |

| Basic | | | $ | [removed: 2.89] [added: 3.95] | | | | | $ | [removed: 3.00] [added: 2.89] | | | | | $ | [removed: 3.28] [added: 3.00] | |

| Diluted | | | $ | [removed: 2.86] [added: 3.92] | | | | | $ | [removed: 2.96] [added: 2.86] | | | | | $ | [removed: 3.25] [added: 2.96] | |

| Basic | | | [removed: 937] [added: 916] | | | | | | [removed: 1,013] [added: 937] | | | | | | [removed: 1,073] [added: 1,013] | | |

| Diluted | | | [removed: 945] [added: 923] | | | | | | [removed: 1,026] [added: 945] | | | | | | [removed: 1,084] [added: 1,026] | | |

| Change in unrealized gain (loss) on available-for-sale investments | | | [removed: 21] [added: 9] | | | | | | [removed: (51)] [added: 21] | | | | | | [removed: 23] [added: (51)] | | |

| Change in unrealized net loss on derivative instruments | | | [removed: (7)] [added: (117)] | | | | | | [removed: 4] [added: (7)] | | | | | | [removed: 7] [added: 4] | | |

| Change in defined and postretirement benefit plans | | | [removed: (51)] [added: (11)] | | | | | | [removed: (17)] [added: (51)] | | | | | | [removed: 21] [added: (17)] | | |

| Change in cumulative translation adjustments | | | [removed: (1)] [added: —] | | | | | | [removed: —] [added: (1)] | | | | | | — | | |

| Other comprehensive income (loss), net of tax | | | [removed: (38)] [added: (51)] | | | | | | [removed: (64)] [added: 4] | | | | | | [removed: 51] [added: (17)] | | | [added: | | | — | | | | | | (64) | | |]

*Changes in Accounting Principles*

To the Stockholders and Board of Directors

December 11, 2020

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| Cash and cash equivalents | | | $ | 5,351 | | | | | $ | 3,129 | |

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| Dividends declared ($0.70 per common share) | | | — | | | | | | — | | | | | | — | | | | | | (694) | | | | | | — | | | | | | — | | | | | | — | | | | | | (694) | | |

| Dividends declared ($0.83 per common share) | | | — | | | | | | — | | | | | | — | | | | | | (770) | | | | | | — | | | | | | — | | | | | | — | | | | | | (770) | | |

| Net income | | | — | | | | | | — | | | | | | — | | | | | | 3,619 | | | | | | — | | | | | | — | | | | | | — | | | | | | 3,619 | | |

| Dividends declared ($0.87 per common share) | | | — | | | | | | — | | | | | | — | | | | | | (796) | | | | | | — | | | | | | — | | | | | | — | | | | | | (796) | | |

| Balance at October 25, 2020 | | | 914 | | | | | | $ | 9 | | | | | $ | 7,904 | | | | | $ | 27,209 | | | | | 1,091 | | | | | | $ | (24,245) | | | | | $ | (299) | | | | | $ | 10,578 | |

| Fiscal Year | | | 2020 | | | | | | 2019 | | | | | | 2018 | | |

| Reconciliation of cash, cash equivalents, and restricted cash equivalents | | | | | | | | | | | | | | | | | |

| Total cash, cash equivalents, and restricted cash equivalents | | | $ | 5,466 | | | | | $ | 3,129 | | | | | $ | 3,440 | |

As of October 25, 2020, the COVID-19 pandemic and worldwide response remains fluid.

As a result, many of Applied’s estimates and assumptions are subject to increased judgment and volatility.

These estimates may differ materially in future periods as the pandemic continues to evolve and additional information becomes available.

Applied elected the package of practical expedients permitted under the transition guidance, which allow Applied not to reassess whether a contract contains a lease, initial direct costs and lease classification for leases existing prior to adoption.

Applied also elected to combine the lease and non-lease components as a single lease component and not to use hindsight in determining the lease term.

Upon adoption, Applied recognized right-of-use assets of $160 million, net of deferred rent of $4 million and lease liabilities of $164 million.

The cumulative effect adjustment for the elimination of the ineffectiveness was not material to Applied’s consolidated financial statements.

The presentation and disclosure have been amended on a prospective basis, as required by this update.

*Simplifying the Accounting for Income Taxes:* In December 2019, the FASB issued an accounting standard update to simplify the accounting for income taxes (Topic 740).

This amendment removes certain exceptions and improves consistent application of accounting principles for certain areas in Topic 740.

| Fiscal Year | | | 2020 | | | | | | 2019 | | | | | | 2018 | | |

| Net income | | | $ | 3,619 | | | | | $ | 2,706 | | | | | $ | 3,038 | |

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| Municipal securities | | | 359 | | | | | | 6 | | | | | | — | | | | | | 365 | | |

| Total short-term and long-term investments | | | $ | 1,847 | | | | | $ | 88 | | | | | $ | 10 | | | | | $ | 1,925 | |

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*Change in Accounting Principle*

*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.

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.

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balance at October 30, 2016 | | | 1,078 | | | | | | $ | 11 | | | | | $ | 6,809 | | | | | $ | 15,448 | | | | | 889 | | | | | | $ | (14,740) | | | | | $ | (115) | | | | | $ | 7,413 | | | | | | | | | | | | | |

| Dividends | | | — | | | | | | — | | | | | | — | | | | | | (428) | | | | | | — | | | | | | — | | | | | | — | | | | | | (428) | | | | | | | | | | | | | | |

| Dividends | | | — | | | | | | — | | | | | | — | | | | | | (694) | | | | | | — | | | | | | — | | | | | | — | | | | | | (694) | | | | | | | | | | | | | | |

| Dividends | | | — | | | | | | — | | | | | | — | | | | | | (770) | | | | | | — | | | | | | — | | | | | | — | | | | | | (770) | | | | | | | | | | | | | | |

See Note 1.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In some instances, Applied has entered into security arrangements which require the counterparties to post collateral to further mitigate credit exposure.

*Revenue Recognition.

I*n 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.

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.

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:

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| | | | As Previously Reported | | | Revenue Recognition Adjustment | | | Retirement Benefit Adjustment | | | As Adjusted | | | | | | As Previously Reported | | | Revenue Recognition Adjustment | | | Retirement Benefit Adjustment | | | As Restated | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net sales | | | $ | 17,253 | | $ | (548) | | $ | — | | $ | 16,705 | | | | | $ | 14,537 | | $ | 161 | | $ | — | | $ | 14,698 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Gross profit | | | $ | 7,817 | | $ | (298) | | $ | (2) | | $ | 7,517 | | | | | $ | 6,532 | | $ | 85 | | $ | (5) | | $ | 6,612 | | | | | | | | | | | | | | | | | | | | | | | | | |

| Income before income taxes | | | $ | 4,694 | | $ | (298) | | $ | — | | $ | 4,396 | | | | | $ | 3,731 | | $ | 85 | | $ | — | | $ | 3,816 | | | | | | | | | | | | | | | | | | | | | | | | | |