Applied Materials (AMAT) 10-K risk factor changes: FY2021 vs FY2020

The ongoing COVID-19 pandemic and measures taken in response by governments and businesses worldwide to contain its [removed: spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders,] [added: spread] 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.

[removed: While Applied continues to see progress in the recovery within its supply chain, travel] [added: Travel] and logistics restrictions, shelter-in-place orders and other measures, including working remotely, social distancing and other policies implemented in foreign and domestic [removed: sites to protect the health and safety of employees,] [added: sites,] 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 [removed: levels.][added: levels or at increased levels that may be necessary to address demand for Applied products.]

In addition, the pandemic and [removed: the impact of the foregoing] [added: global] measures [removed: in various forms and] [added: taken] in [removed: varying degrees] [added: response thereto] 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 [added: and] adversely affect Applied’s business, financial condition and results of operations.

The degree to which the [added: ongoing] pandemic ultimately impacts Applied’s [added: business,] 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 [removed: severity and] [added: severity,] duration [added: and any resurgence] of the pandemic, the extent and effectiveness of containment actions, [removed: availability] [added: the availability, public adoption and efficacy] of [removed: effective vaccines against COVID-19,] [added: COVID vaccines,] effectiveness of government stimulus programs, [removed: 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 [removed: downturn] [added: volatility] that results from the [added: ongoing] pandemic.

Moreover, in fiscal [removed: 2020,] [added: 2021,] approximately [removed: 90%] [added: 91%] of Applied’s net sales were to customers in regions outside the United States.

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

- performance of [removed: third party] [added: third-party] providers of outsourced functions, including certain engineering, software development, manufacturing, information technology and other activities;

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 [removed: spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders,] [added: spread] 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 [removed: China, Taiwan, Japan, Korea and] the United [removed: States,] [added: States and the countries in which we conduct our business,] 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.

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

[removed: For example, on April 28, 2020, the] [added: The] U.S. Department of Commerce [removed: published rules, which became effective on June 29, 2020, that expanded] [added: has promulgated several rules and interpretations expanding] 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, [removed: and] eliminated certain export license exceptions that applied to exports of certain items to [removed: China.][added: China, and added certain Chinese companies, including one of the Company’s customers, to its “entity list”.]

Uncertain [removed: global] [added: or adverse] economic and business conditions, [removed: along with] [added: including] uncertainties and volatility in the financial markets, national [removed: debt and] [added: debt,] fiscal [removed: concerns] [added: or monetary concerns, inflation and rising interest rates] in various regions, [removed: pose challenges to the industries in which Applied operates.][added: could materially adversely impact Applied’s operating results.]

[removed: Economic uncertainty] [added: Uncertain or adverse economic] and [removed: related factors exacerbate negative trends in] business [removed: and] [added: conditions that result in decreases in] consumer spending and [added: demand or cause us to pass on increased costs to our customers] may cause certain [removed: Applied] [added: of our] customers to push out, [removed: cancel,] [added: cancel] or refrain from purchasing [removed: for] [added: our] equipment or services, which [removed: may have an adverse] [added: could materially adversely] impact [removed: on Applied’s revenues, results of operations] [added: demand for our products] and [removed: financial condition.][added: our operating results.]

Applied’s customer base is highly [removed: concentrated,] [added: concentrated] and has become increasingly so as a result of continued consolidation.

The mix and type of customers, and sales to any single customer, including as a result of changes in government policy, have varied and may vary significantly from quarter to quarter and from year to year, and have [added: had, and may continue to have,] a significant impact on Applied’s net sales, gross margins and net income.

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

To the extent its customers experience liquidity constraints, Applied may incur [removed: additional] bad debt expense, which may have a significant impact on its results of operations.

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

- trade, [removed: regulatory or] [added: regulatory,] tax [added: or government incentive] policies impacting the timing of customers’ investment in new or expanded fabrication plants;

- semiconductor manufacturer’s ability to reconfigure and re-use equipment, [removed: and the] resulting [removed: effect on their] [added: in diminished] need to purchase new equipment and [removed: services;][added: services from us, and challenges in providing parts for reused equipment;]

- investment in semiconductor manufacturing capabilities in China, which may be affected by changes in economic conditions and governmental [added: regulations and] policies in China and the United States;

If Applied does not accurately forecast and allocate appropriate resources and investment towards [removed: addressing,] [added: 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 rate of transition to larger substrate sizes for TVs and to new display technologies for [removed: TVs] [added: TVs, IT products] and mobile applications, and the resulting effect on capital intensity in the industry and on Applied’s product differentiation, gross margin and return on investment; and

- differentiate its products from those of competitors, meet customers’ performance [removed: specifications,] [added: specifications (including those related to energy consumption and environmental impact more broadly),] appropriately price products, and achieve market acceptance;

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

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

Applied also makes [removed: strategic] investments in other companies, including companies formed as joint ventures, which may decline in value or not meet desired objectives.

The success of these investments depends on various factors over which Applied may have limited or no control and, particularly with respect to joint ventures, requires ongoing and effective cooperation with [removed: strategic] partners.

The risks to Applied’s [removed: strategic] investment portfolio may be exacerbated by unfavorable financial market and macroeconomic conditions and, as a result, the value of the investment portfolio could be negatively impacted and lead to impairment charges.

[removed: Divestitures] [added: In addition, divestitures] involve significant risks and uncertainties, such as ability to sell such businesses on satisfactory price and terms and in a timely manner (including long and costly sales processes and the possibility of lengthy and potentially unsuccessful attempts by a buyer to receive required regulatory approvals), or at all, disruption to other parts of the businesses and distraction of management, allocation of internal resources that would otherwise be devoted to completing strategic acquisitions, loss of key employees or customers, exposure to unanticipated liabilities (including, among other things, those arising from representations and warranties made to a buyer regarding the businesses) or ongoing obligations to support the businesses following such divestitures, and other adverse financial impacts.

While no amounts were outstanding under [removed: either] [added: this] credit [removed: agreement] [added: facility] as of October [removed: 25, 2020,] [added: 31, 2021,] Applied may borrow amounts in the future under [removed: either or both of these agreements.][added: this credit facility.]

As part of its growth strategy, Applied [removed: must successfully] [added: seeks to] expand into related or new markets and industries, either with its existing products or with new products developed internally, or those developed in collaboration with third parties, or obtained through acquisitions.

As a condition to this government funding, Applied is often subject to certain record-keeping, audit, intellectual property [removed: rights-sharing] [added: rights-sharing,] and/or other obligations.

Applied’s business depends on its timely supply of equipment, services and related products [removed: that] [added: to] meet the [removed: rapidly] changing technical and volume requirements of its customers, which depends in part on the timely delivery of parts, [added: materials and services,] including components and subassemblies, from [removed: suppliers, including] [added: suppliers and] contract manufacturers.

Some key parts are subject to long lead-times or [removed: obtainable] [added: available] only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the countries where Applied conducts its manufacturing.

[removed: Variable industry conditions and the volatility] [added: Volatility] of demand for manufacturing equipment [added: can] increase capital, technical, operational and other risks for Applied and for companies throughout its supply [removed: chain.][added: chain, and may cause some suppliers to exit businesses, or scale back or cease operations, which could impact our ability to meet customer demand.]

- volatility in the availability and cost of [removed: materials;][added: parts, materials or services, including rising prices due to inflation;]

- natural [removed: disasters] [added: disasters, the impacts of climate change,] 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, 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.

[removed: 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] [added: Transferring] business to alternative [removed: sources, which] [added: suppliers] could [removed: entail] [added: result in] manufacturing delays, additional costs or other difficulties, and may [removed: also result in a loss of] [added: impair] Applied’s ability to protect, enforce and extract the full value of its [removed: or its customers’ and other third parties’] intellectual property rights, [removed: which could have an adverse impact on] [added: as well as the intellectual property rights of] its [removed: business and competitive position and subject Applied to legal proceedings] [added: customers’] and [removed: claims.][added: other third parties.]

While economic activity and business operations in certain regions continue to recover, there may be periods of significant or sudden increases in demand for Applied’s products, as well as worldwide demand for electronic products.

Significant or sudden demand increases may result in a shortage of parts, materials or services needed to manufacture Applied’s products or may cause shipment delays due to transportation interruptions or capacity constraints.

Such shortages or delays could adversely impact our suppliers’ ability to meet our demand requirements and our ability to meet our customer demand.

Additionally, Applied has a multi-phase plan to return to working on-site, which gradually allows additional workers to return onsite while practicing social distancing and other safety measures.

However, there is no assurance that such plan and safety measures will be effective in preventing the inadvertent transmission of COVID-19 within the workplace.

Further, implementation of such plan could adversely impact Applied’s operations.

- impacts of climate change on the operations of Applied, its customers and suppliers;

These rules and interpretations require us to obtain additional export licenses to supply certain of our products to such customer in China.

The U.S. and other governmental agencies may in the future promulgate new or additional export licensing or other requirements that have the effect of further limiting the Company’s ability to provide certain of its products to customers outside the U.S., including China.

In addition, the COVID-19 pandemic, and transportation interruptions and other measures taken in response thereto, have had, and may continue to have, a significant adverse impact on the global and regional economic activity, as well as our ability to meet our customer demand.

Similarly, changes that result in sudden increases in consumer demand for electronic products (for example, as a result of the reopening of the economy with the easing of COVID-19 related restrictions) have resulted in, and may continue to result in, a shortage of parts and materials needed to manufacture our products.

Such shortages, as well as shipment delays due to transportation interruptions, have adversely impacted, and may continue to adversely impact, our suppliers’ ability to meet our demand requirements.

In addition, Lunar New Year and other holidays in the countries in which we or our suppliers operate may reduce the level of business activities during such times, and thus adversely impact our and our suppliers’ ability to manufacture and deliver products, supplies and services.

Accelerated digital transformation may further increase consumer demand and exacerbate such shortages and also strain our manufacturing capacity, which may adversely impact our ability to meet customer demands and thus have an adverse impact on our revenues, results of operations and financial condition.

The geographic concentration of Applied’s customer base could shift over time as a result of government policy and incentives to develop regional semiconductor industries.

- increasing government incentives for local suppliers;

Significant and sudden increases in demand for Applied’s products, as well as worldwide demand for electronic products, have resulted in, and may continue to result in, a shortage of parts, materials and services needed to manufacture Applied’s products.

Such shortages, as well as delays in and unpredictability of shipments due to transportation interruptions, have adversely impacted, and may continue to adversely impact, our suppliers’ ability to meet our demand requirements.

Difficulties in obtaining sufficient and timely supply of parts, materials or services, and delays in and unpredictability of shipments due to transportation interruptions, have adversely impacted, and may continue to adversely impact, Applied’s manufacturing operations and its ability to meet customer demand.

- a worldwide shortage of semiconductor components as a result of sharp increases in demand for semiconductor products in general;

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 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 a supplier fails to meet Applied’s requirements concerning quality, cost, intellectual property protection, socially-responsible business practices, or other performance factors, Applied may transfer its business to alternative sources.

These outcomes could have an adverse impact on its business and competitive position and subject Applied to legal proceedings and claims.

Applied may not receive the necessary regulatory approvals or the approvals may come with significant conditions or obligations.

Some divestitures may take the form of Applied contributing assets to a joint venture, and thus are subject to the joint venture risks discussed above.

There have been a number of proposed changes in the tax laws that, if enacted, would increase our tax liability.

While it is too early to predict the outcome of these proposals, if enacted, they could have a material impact on our provision for income taxes and effective tax rate.

Applied also has in place a $1.5 billion revolving credit facility.

Applied and its third-party providers have experienced, and expect to continue to experience, cybersecurity incidents, some of which may be successful.

Although no such cybersecurity incident has been material to the Company to date, Applied continues to devote significant resources to network security, data encryption, and other measures to protect its systems and data from unauthorized access or misuse, and it may be required to expend greater resources in the future, especially in the face of continuously evolving cybersecurity threats and privacy and data protection laws.

Further, customers and third-party providers increasingly demand rigorous contractual provisions regarding privacy, cybersecurity, data protection, confidentiality, and intellectual property, which may also increase our overall compliance burden.

In addition to regulatory compliance, growing customer sustainability requirements, as well as Applied’s sustainability targets, could cause Applied from time to time to alter its manufacturing, operations or equipment designs, and incur substantial expense to meet these regulatory and sustainability requirements.

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.

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.

Applied also has in place a $1.5 billion revolving credit facility, and a $2.0 billion term loan facility to finance in part its planned acquisition of Kokusai Electric.

The inability to timely obtain sufficient quantities of parts can have an adverse impact on Applied’s manufacturing operations and ability to meet customer demand for equipment, spares and services.

These conditions may cause some suppliers to scale back operations, exit businesses, merge with other companies, or file for bankruptcy protection and possibly cease operations.

Applied devotes significant resources to network security, data encryption and other measures to protect its systems and data from unauthorized access or misuse.

Applied could be required to alter its manufacturing and operations and incur substantial expense in order to comply with environmental, health and safety regulations.

[added: As the COVID-19 pandemic emerged in 2020,] Applied [added: Materials] 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, [removed: customers] [added: customers, suppliers] and community.

Applied is keeping its [removed: critical] labs and operations active and continuing to support customers.

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

A summary of financial information for each reportable segment is found in Note [removed: 17] [added: 18] of Notes to Consolidated Financial Statements.

| | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | | | | | [removed: 2020] [added: 2021] over [removed: 2019] [added: 2020] | | | | | | [removed: 2019] [added: 2020] over [removed: 2018] [added: 2019] | | |

| Net sales | | | $ | [removed: 17,202] [added: 23,063] | | | | | $ | [removed: 14,608] [added: 17,202] | | | | | $ | [removed: 16,705] [added: 14,608] | | | | | $ | [removed: 2,594] [added: 5,861] | | | | | $ | [removed: (2,097)] [added: 2,594] | |

| Gross margin | | | [removed: 44.7] [added: 47.3] | | % | | | | [removed: 43.7] [added: 44.7] | | % | | | | [removed: 45.0] [added: 43.7] | | % | | | | [removed: 1.0] [added: 2.6] points | | | | | | [removed: (1.3)] [added: 1.0] points | | |

| Operating income | | | $ | [removed: 4,365] [added: 6,889] | | | | | $ | [removed: 3,350] [added: 4,365] | | | | | $ | [removed: 4,491] [added: 3,350] | | | | | $ | [removed: 1,015] [added: 2,524] | | | | | $ | [removed: (1,141)] [added: 1,015] | |

| Operating margin | | | [removed: 25.4] [added: 29.9] | | % | | | | [removed: 22.9] [added: 25.4] | | % | | | | [removed: 26.9] [added: 22.9] | | % | | | | [removed: 2.5] [added: 4.5] points | | | | | | [removed: (4.0)] [added: 2.5] points | | |

| Net income | | | $ | [removed: 3,619] [added: 5,888] | | | | | $ | [removed: 2,706] [added: 3,619] | | | | | $ | [removed: 3,038] [added: 2,706] | | | | | $ | [removed: 913] [added: 2,269] | | | | | $ | [removed: (332)] [added: 913] | |

| Earnings per diluted share | | | $ | [removed: 3.92] [added: 6.40] | | | | | $ | [removed: 2.86] [added: 3.92] | | | | | $ | [removed: 2.96] [added: 2.86] | | | | | $ | [removed: 1.06] [added: 2.48] | | | | | $ | [removed: (0.10)] [added: 1.06] | |

Fiscal [removed: 2020, 2019] [added: 2021 contained 53 weeks,] and [removed: 2018] [added: fiscal 2020 and 2019] each contained 52 weeks.

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

[removed: Even with the unprecedented challenges faced during the pandemic, semiconductor] [added: Semiconductor] equipment customers continued to make strategic investments in new technology transitions during fiscal [removed: 2020.][added: 2021.]

Foundry and logic spending increased in fiscal [removed: 2020] [added: 2021] compared to fiscal [removed: 2019 led] [added: 2020 driven] by customer investment in [added: both] advanced [removed: foundry-logic] [added: and mature] nodes.

Applied saw continued growth in its services business in fiscal [removed: 2020] [added: 2021] compared to fiscal [removed: 2019] [added: 2020] driven by an increase in the installed base of equipment and in long-term service agreements.

Applied’s [removed: display] [added: Display] and [removed: adjacent markets] [added: Adjacent Markets] revenue [removed: declined slightly] [added: remained relatively flat] in fiscal [removed: 2020] [added: 2021] compared to fiscal [removed: 2019,] [added: 2020] due to [removed: weak demand] [added: increased investment in display manufacturing equipment] for [added: TVs, offset by decreased investment in] display manufacturing equipment for [removed: TVs.][added: mobile products.]

In response to the ongoing COVID-19 pandemic and evolving conditions and worldwide response, Applied made adjustments to its global operations and [removed: continues to see recovery within] [added: is actively managing] its [removed: supply chain] [added: responses in collaboration with its employees, customers] and [removed: strong demand from semiconductor customers.][added: suppliers.]

| | | | [removed: 2020] [added: 2021] | | | | | | | | | | | | | | | | | | [removed: 2019] [added: 2020] | | | | | | | | | | | | | | | | | | [removed: 2018] [added: 2019] | | | | | | | | | | | | [removed: 2020] [added: 2021] over [removed: 2019] [added: 2020] | | | | | | [removed: 2019] [added: 2020] over [removed: 2018] [added: 2019] | | |

| Semiconductor Systems | | | $ | [removed: 11,367] [added: 16,286] | | | | | [removed: 66%] [added: 71%] | | | | | | | | | | | | $ | [removed: 9,027] [added: 11,367] | | | | | [removed: 62%] [added: 66%] | | | | | | | | | | | | $ | [removed: 10,577] [added: 9,027] | | | | | [removed: 63%] [added: 62%] | | | | | | [removed: 26] [added: 43] | | % | | | | [removed: (15)] [added: 26] | | % |

| Applied Global Services | | | [removed: 4,155] [added: 5,013] | | | | | | [removed: 24%] [added: 22%] | | | | | | | | | | | | [removed: 3,854] [added: 4,155] | | | | | | [removed: 26%] [added: 24%] | | | | | | | | | | | | [removed: 3,754] [added: 3,854] | | | | | | [removed: 22%] [added: 26%] | | | | | | [removed: 8] [added: 21] | | % | | | | [removed: 3] [added: 8] | | % |

| Display and Adjacent Markets | | | [removed: 1,607] [added: 1,634] | | | | | | [removed: 9%] [added: 7%] | | | | | | | | | | | | [removed: 1,651] [added: 1,607] | | | | | | [removed: 11%] [added: 9%] | | | | | | | | | | | | [removed: 2,298] [added: 1,651] | | | | | | [removed: 14%] [added: 11%] | | | | | | [removed: (3)] [added: 2] | | % | | | | [removed: (28)] [added: (3)] | | % |

| Corporate and Other | | | [removed: 73] [added: 130] | | | | | | [removed: 1%] [added: —%] | | | | | | | | | | | | [removed: 76] [added: 73] | | | | | | 1% | | | | | | | | | | | | 76 | | | | | | 1% | | | | | | [removed: (4)] [added: 78] | | % | | | | [removed: —] [added: (4)] | | % |

| Total | | | $ | [removed: 17,202] [added: 23,063] | | | | | 100% | | | | | | | | | | | | $ | [removed: 14,608] [added: 17,202] | | | | | 100% | | | | | | | | | | | | $ | [removed: 16,705] [added: 14,608] | | | | | 100% | | | | | | [removed: 18] [added: 34] | | % | | | | [removed: (13)] [added: 18] | | % |

Net sales in fiscal [added: 2021 compared to fiscal] 2020 [added: and fiscal 2020] compared to fiscal 2019 increased primarily due to increased customer investments in semiconductor equipment and spending on services.

| China | | | $ | [removed: 5,456] [added: 7,535] | | | | | [removed: 32%] [added: 33%] | | | | | | | | | | | | $ | [removed: 4,277] [added: 5,456] | | | | | [removed: 29%] [added: 32%] | | | | | | | | | | | | $ | [removed: 5,047] [added: 4,277] | | | | | [removed: 30%] [added: 29%] | | | | | | [removed: 28] [added: 38] | | % | | | | [removed: (15)] [added: 28] | | % |

| Korea | | | [removed: 3,031] [added: 5,012] | | | | | | [removed: 18%] [added: 22%] | | | | | | | | | | | | [removed: 1,929] [added: 3,031] | | | | | | [removed: 13%] [added: 18%] | | | | | | | | | | | | [removed: 3,539] [added: 1,929] | | | | | | [removed: 21%] [added: 13%] | | | | | | [removed: 57] [added: 65] | | % | | | | [removed: (45)] [added: 57] | | % |

| Taiwan | | | [removed: 3,953] [added: 4,742] | | | | | | [removed: 23%] [added: 20%] | | | | | | | | | | | | [removed: 2,965] [added: 3,953] | | | | | | [removed: 20%] [added: 23%] | | | | | | | | | | | | [removed: 2,504] [added: 2,965] | | | | | | [removed: 15%] [added: 20%] | | | | | | [removed: 33] [added: 20] | | % | | | | [removed: 18] [added: 33] | | % |

| Japan | | | [removed: 1,996] [added: 1,962] | | | | | | [removed: 11%] [added: 8%] | | | | | | | | | | | | [removed: 2,198] [added: 1,996] | | | | | | [removed: 15%] [added: 11%] | | | | | | | | | | | | [removed: 2,396] [added: 2,198] | | | | | | [removed: 14%] [added: 15%] | | | | | | [removed: (9)] [added: (2)] | | % | | | | [removed: (8)] [added: (9)] | | % |

| Southeast Asia | | | [removed: 411] [added: 677] | | | | | | [removed: 2%] [added: 3%] | | | | | | | | | | | | [removed: 548] [added: 411] | | | | | | [removed: 4%] [added: 2%] | | | | | | | | | | | | [removed: 797] [added: 548] | | | | | | [removed: 5%] [added: 4%] | | | | | | [removed: (25)] [added: 65] | | % | | | | [removed: (31)] [added: (25)] | | % |

| Asia Pacific | | | [removed: 14,847] [added: 19,928] | | | | | | 86% | | | | | | | | | | | | [removed: 11,917] [added: 14,847] | | | | | | [removed: 81%] [added: 86%] | | | | | | | | | | | | [removed: 14,283] [added: 11,917] | | | | | | [removed: 85%] [added: 81%] | | | | | | [removed: 25] [added: 34] | | % | | | | [removed: (17)] [added: 25] | | % |

| United States | | | [removed: 1,619] [added: 2,038] | | | | | | [removed: 10%] [added: 9%] | | | | | | | | | | | | [removed: 1,871] [added: 1,619] | | | | | | [removed: 13%] [added: 10%] | | | | | | | | | | | | [removed: 1,413] [added: 1,871] | | | | | | [removed: 9%] [added: 13%] | | | | | | [removed: (13)] [added: 26] | | % | | | | [removed: 32] [added: (13)] | | % |

| Europe | | | [removed: 736] [added: 1,097] | | | | | | [removed: 4%] [added: 5%] | | | | | | | | | | | | [removed: 820] [added: 736] | | | | | | [removed: 6%] [added: 4%] | | | | | | | | | | | | [removed: 1,009] [added: 820] | | | | | | 6% | | | | | | [removed: (10)] [added: 49] | | % | | | | [removed: (19)] [added: (10)] | | % |

The changes in net sales in all regions in fiscal [removed: 2019] [added: 2021] compared to fiscal [removed: 2018] [added: 2020] primarily reflected changes in [added: investments in] semiconductor [removed: and display] manufacturing equipment [removed: spending] and customer [removed: and product mix.][added: spending on comprehensive service agreements.]

Gross margin in fiscal 2020 increased compared to fiscal 2019 [removed: year] primarily due to the increase in net sales and favorable changes in customer and product mix, partially offset by higher freight costs, and higher personnel costs due to increase in headcount to provide manufacturing capacity and flexibility, underutilization of headcount due to COVID-19 restrictions preventing travel to customer site and incremental employee compensation related to the COVID-19 pandemic.

[removed: Gross] [added: Operating] margin [removed: in] [added: for] fiscal [removed: 2019 decreased] [added: 2021 increased] compared to fiscal [removed: 2018,] [added: 2020] primarily due to [removed: the decrease in] [added: higher] net sales and [removed: unfavorable] [added: favorable] changes in customer and product mix.

Gross margin during fiscal [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018] [added: 2019] included [removed: $103] [added: $118] million, [removed: $89] [added: $103] million and [removed: $87] [added: $89] million, respectively, of share-based compensation expense.

| Research, development and engineering | | | $ | [removed: 2,234] [added: 2,485] | | | | | $ | [removed: 2,054] [added: 2,234] | | | | | $ | [removed: 2,022] [added: 2,054] | | | | | $ | [removed: 180] [added: 251] | | | | | $ | [removed: 32] [added: 180] | |

The increases in RD&E expenses during [added: both] fiscal [added: 2021 compared to fiscal] 2020 [added: and fiscal 2020] compared [added: to] fiscal 2019 were primarily due to additional headcount and higher expense associated with share-based compensation and variable compensation.

Applied continues to support workplace flexibility such as remote working where possible and follow enhanced safety and health protocols—including screenings, social distancing, and use of personal protective equipment.

In fiscal 2021, the COVID-19 pandemic accelerated the digital transformation of the economy, creating increased global demand for semiconductors.

Spending by memory customers increased in fiscal 2021 compared to fiscal 2020, as the industry made investments to maintain balance between supply and demand and invested in new technology.

While customers’ strategic investments continued, supply chain constraints impacted Applied’s ability to fulfill demand primarily in the fourth quarter of fiscal 2021.

Applied expects demand to remain strong and supply shortages to persist into fiscal 2022, and managing these near-term supply chain constraints is a top priority.

| Total | | | $ | 23,063 | | | | | 100% | | | | | | | | | | | | $ | 17,202 | | | | | 100% | | | | | | | | | | | | $ | 14,608 | | | | | 100% | | | | | | 34 | | % | | | | 18 | | % |

The decrease in net sales to customers in Japan for fiscal 2021 compared to fiscal 2020 primarily reflected a decrease in investments in semiconductor manufacturing equipment, partially offset by an increase in customer spending on comprehensive service agreements.

| Gross margin | | | 47.3 | | % | | | | 44.7 | | % | | | | 43.7 | | % | | | | 2.6 points | | | | | | 1.0 points | | |

Gross margin in fiscal 2021 increased compared to fiscal 2020 primarily due to the increase in net sales and favorable changes in customer and product mix, partially offset by higher freight costs and higher personnel costs due to an increase in headcount to provide manufacturing capacity and flexibility.

| | | | 2021 | | | | | | 2020 | | | | | | 2019 | | | | | | 2021 over 2020 | | | | | | 2020 over 2019 | | |

| | | | 2021 | | | | | | 2020 | | | | | | 2019 | | | | | | 2021 over 2020 | | | | | | 2020 over 2019 | | |

Marketing and selling expenses for fiscal 2021 increased compared to fiscal 2020 primarily due to additional headcount and higher variable compensation.

| | | | 2021 | | | | | | 2020 | | | | | | 2019 | | | | | | 2021 over 2020 | | | | | | 2020 over 2019 | | |

G&A expenses in fiscal 2021 increased compared to fiscal 2020 primarily due to additional headcount and higher variable compensation.

Severance and Related Charges

Severance and related charges for the periods indicated were as follows:

| 2021 | | | | | | 2020 | | | | | | 2019 | | | | | | 2021 over 2020 | | | | | | 2020 over 2019 | | | | | |

| Severance and related charges | | | $ | 157 | | | | | $ | — | | | | | $ | — | | | | | $ | 157 | | | | | $ | — | |

In the first quarter of fiscal 2021, Applied enacted a severance plan (Fiscal 2021 Severance Plan) to realign its workforce.

Under this plan, Applied implemented a one-time voluntary retirement program and other workforce reduction actions.

The voluntary retirement program was available to certain U.S. employees who met minimum age and length of service requirements, as well as other business-specific criteria.

In addition, Applied implemented other workforce reduction actions globally across the Display and Adjacent Markets business.

Deal Termination Fee

Deal termination fee for the periods indicated were as follows:

| 2021 | | | | | | 2020 | | | | | | 2019 | | | | | | 2021 over 2020 | | | | | | 2020 over 2019 | | | | | |

| Deal termination fee | | | $ | 154 | | | | | $ | — | | | | | $ | — | | | | | $ | 154 | | | | | $ | — | |

On June 30, 2019, Applied entered into a Share Purchase Agreement (SPA) with Kokusai Electric Corporation (Kokusai Electric) and KKR HKE Investment L.P. (KKR) providing for Applied’s acquisition of all outstanding shares of Kokusai Electric.

The SPA, as subsequently amended, terminated as of March 19, 2021.

Applied paid KKR a termination fee of $154 million during the second quarter of fiscal 2021.

| | | | | | | | | | | | | | | | | | | | | | Change | | | | | | | | |

| | | | 2021 | | | | | | 2020 | | | | | | 2019 | | | | | | 2021 over 2020 | | | | | | 2020 over 2019 | | |

| | | | (In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | |

Interest expense in fiscal 2021 remained relatively flat compared fiscal 2020 and fiscal 2019 due to the average principal balance of the senior unsecured notes remained consistent at $5.5 billion in each of the last three years.

Interest and other income, net in fiscal 2021 increased compared to fiscal 2020, primarily driven by a higher net gain from equity investments, partially offset by lower interest income during fiscal 2021 compared to fiscal 2020.

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

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

| | | | | | | | | | | | | | | | | | | | | | Change | | | | | | | | |

| | | | 2021 | | | | | | 2020 | | | | | | 2019 | | | | | | 2021 over 2020 | | | | | | 2020 over 2019 | | |

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

Applied’s effective tax rate for fiscal 2021 was slightly lower than fiscal 2020 primarily due to higher proportion of pre-tax income in lower tax jurisdictions, partially offset by resolutions of prior years’ income tax filings.

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

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 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.

Fiscal 2018 included a one-time expense related to the enactment of U.S. income tax law that reduced diluted earnings per share by $1.08.

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.

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

Net sales in fiscal 2019 compared to fiscal 2018 decreased primarily due to decreased customer investments in semiconductor and display manufacturing equipment.

The increase in net sales to customers in Taiwan and United States for fiscal 2019 compared the prior year was primarily due to increased investments in semiconductor manufacturing equipment.

The decrease in net sales to customers in all other regions for fiscal 2019 compared to fiscal 2018 primarily reflected a decrease in investments in semiconductor and display manufacturing equipment.

RD&E expenses increased slightly in fiscal 2019 compared to the prior year primarily due to additional headcount and increased research and development spending in Semiconductor Systems and Display and Adjacent Market segments.

General and administrative expenses in fiscal 2019 decreased slightly compared to fiscal 2018 primarily due to lower variable compensation expenses.

Interest expense in fiscal 2020 remained relatively flat compared fiscal 2019 and fiscal 2018.

Interest and other income, net primarily includes interest earned on cash and investments, realized gains or losses on sales of securities and impairment of strategic investments.

Effective the first quarter of fiscal 2019, unrealized gains and losses on investments classified as equity investments are recognized in other income (expense), net in the Consolidated Statement of Operations.

Prior to the adoption of Accounting Standards Update (ASU) 2016-01 *Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities* in the first quarter of fiscal 2019, these unrealized gains and temporary losses were included within accumulated other comprehensive income (loss), net of any related tax effect.

Interest and other income, net in fiscal 2019 increased compared to fiscal 2018 primarily driven by unrealized gains on equity investment securities.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The enactment of the CARES Act does not result in any material adjustments to Applied’s provision for income taxes.

The effective tax rate for fiscal 2019 was lower than fiscal 2018 primarily due to tax expense of $1.1 billion in fiscal 2018 for the transition tax and remeasurement of deferred tax assets as a result of the Tax Act.

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

Overall semiconductor systems revenue increased in fiscal 2020 compared to the prior year.

Net sales for fiscal 2019 decreased compared to fiscal 2018 primarily due to lower spending from memory customers, partially offset by increased spending from foundry, logic and other customers.

Operating margin for fiscal 2019 decreased compared to the prior year, primarily reflecting lower net sales, unfavorable changes in customer and product mix.

Operating income for fiscal 2019 remained flat compared to the prior year primarily due to higher net sales, offset by higher expenses related to an increase in headcount.

Operating margin for fiscal 2019 decreased slightly compared to fiscal 2018 primarily due to an increase in headcount to support revenue growth.

Operating income and operating margin for fiscal 2019 decreased compared to fiscal 2018, reflecting lower net sales and unfavorable changes in customer and product mix.

Cash provided from operating activities in fiscal 2019 decreased compared to fiscal 2018 due to lower net income, cash collections, change in income taxes payable and higher payments to suppliers, offset by a decrease in inventories.

Applied generated $571 million in cash from investing activities in fiscal 2018.

Applied entered into the Revolving Credit Agreement in February 2020, which replaced Applied’s prior $1.5 billion revolving credit agreement that was scheduled to expire in September 2021.

In March 2020, Applied borrowed the full $1.5 billion available under the Revolving Credit Agreement in order to increase its cash position and preserve financial flexibility in light of the uncertainty in the global markets resulting from the COVID-19 outbreak.

In May 2020, Applied repaid the full $1.5 billion of borrowings under the Revolving Credit Agreement.

Applied may at any time and from time to time, borrow, repay and reborrow under the Revolving Credit Agreement during the term of the facility.

The interest rate for the March 2020 borrowing under the Revolving Credit Agreement was one-month LIBOR plus a margin of 0.875%, based on Applied’s public debt credit ratings.

In August 2019, Applied entered into a term loan credit agreement with a group of lenders.

The commitments of the lenders to make the term loan will terminate if the transactions contemplated by the Share Purchase Agreement are not consummated on or before December 30, 2020.

The term loan, if advanced, will bear interest at one of two rates selected by Applied, plus an applicable margin, which varies according to Applied’s public debt credit ratings, and must be repaid in full on the third anniversary of the funding date of the term loan.

[removed: Based on Applied’s investment portfolio at October 25, 2020, an] [added: An] immediate [added: hypothetical] 100 basis point increase in interest rates would result in a decrease in the fair value of [removed: the portfolio] [added: investments as] of [added: October 31, 2021 of] approximately [removed: $25] [added: $26] million.

[added: *Debt.*] At October [removed: 25, 2020,] [added: 31, 2021,] the aggregate principal of long-term senior unsecured notes issued by Applied was $5.5 billion with an estimated fair [removed: values] [added: value] of [removed: $6.6] [added: $6.4] 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 [removed: debt] [added: senior notes] issuances of approximately [removed: $798] [added: $731] million at October [removed: 25, 2020.][added: 31, 2021.]

Applied [removed: enters into] [added: uses foreign] currency forward [removed: exchange] and option contracts to hedge a portion [removed: of, but not all, existing and] [added: of] anticipated [removed: foreign currency] [added: non-U.S. dollar] denominated [removed: transactions generally] [added: revenues and expenses] expected to occur within the next 24 months.

Applied does not use [removed: derivative financial instruments] [added: foreign currency forward or option contracts] for trading or speculative purposes.

Applied is exposed to financial market risks, including fluctuations in interest rate and foreign currency exchange rates.

Interest Rate Risk

*Available-for-sale Debt Securities.* The market value of Applied's investments in available-for-sales securities was approximately $1.8 billion at October 31, 2021.

From time to time Applied uses interest rate swaps or rate lock agreements to mitigate the potential impact of changes in benchmark interest rates on interest expense and cash flows.

Foreign Currency Risk

Hedges are used to reduce, but not eliminate, the impact of foreign currency exchange rate movements on the consolidated balance sheet, statement of operations, and statement of cash flows.

Applied uses primarily foreign currency forward contracts to offset the impact of foreign exchange movements on non-U.S. dollar denominated monetary assets and liabilities.

The foreign exchange gains and losses on the assets and liabilities are recorded in interest and other income (net) and are offset by the gains and losses on the hedges.

Gains and losses on these hedging contracts generally mitigate the effect of currency movements on Applied’s net sales, cost of products sold, and operating expenses.

A hypothetical 10% adverse change in foreign currency exchange rates relative to the U.S. Dollar would result in a decrease in the fair value of these hedging contracts of $177 million at October 31, 2021.

Applied is exposed to interest rate risk related to its investment portfolio and debt issuances.

Applied’s investment portfolio includes fixed-income securities with a fair value of approximately $1.7 billion at October 25, 2020.

These securities are subject to interest rate risk and will decline in value if interest rates increase.

While an increase in interest rates reduces the fair value of the investment portfolio, Applied will not realize the losses in the consolidated statement of operations unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary.

Gains and losses on these contracts are generally recognized in income at the time that the related transactions being hedged are recognized.

Because the effect of movements in currency exchange rates on currency forward exchange and option contracts generally offsets the related effect on the underlying items being hedged, these financial instruments are not expected to subject Applied to risks that would otherwise result from changes in currency exchange rates.

A summary of financial information for each reportable segment is found in Note [removed: 17] [added: 18] of Notes to Consolidated Financial Statements.

| Physical Vapor Deposition (PVD) PVD is used to deposit high quality metal films. Applications include metal gate, silicides, contact liner/barrier, interconnect copper barrier seed and metal hard mask. | | | | | | [removed: Endura] [added: Endura, Charger and Axcela] Systems | | |

| Chemical Mechanical Planarization (CMP) CMP is used to planarize a wafer surface, a process that allows subsequent photolithography patterning and material deposition steps to occur with greater accuracy, resulting in more uniform film layers with minimal thickness variations. | | | | | | Reflexion [added: and Mirra] Systems | | |

| Metrology and Inspection Metrology and inspection tools are used to locate, measure, and analyze defects and features on the wafer during various stages of the fabrication processes. Applied enables customers to characterize and control critical dimension (CD) and defect issues, especially at advanced generation technology nodes. | | | | | | SEMVision [removed: G7 Defect Analysis] [added: eBeam Review] PROVision eBeam [added: Metrology and] Inspection [added: Enlight Optical Inspection] UVision [removed: 8] [added: Optical] Inspection VeritySEM [removed: 5i] [added: CD-SEM] Metrology [removed: Aera4] [added: Aera] Mask Inspection | | |

Customer demand for products and services is fulfilled through a global distribution system in more than [removed: 110] [added: 170] locations and trained service engineers located in close proximity to customer sites [removed: in 19 countries] to support over [removed: 44,900] [added: 45,900] installed Applied semiconductor, display and other manufacturing systems worldwide.

The Display and Adjacent Markets segment is comprised of products for manufacturing liquid crystal displays (LCDs), organic light-emitting diodes (OLEDs), and other display technologies for TVs, monitors, laptops, personal computers (PCs), electronic tablets, smart phones, and other consumer-oriented [removed: devices as well as equipment for processing flexible substrates.][added: devices.]

Display and Adjacent Markets industry growth depends primarily on consumer demand for increasingly larger and more advanced TVs and [removed: high resolution] [added: high-resolution] displays for mobile devices as well as new form factors, including thin, light, curved and flexible displays, and new applications such as augmented and virtual reality.

Backlog by reportable segment as of October [removed: 25, 2020] [added: 31, 2021] and October [removed: 27, 2019] [added: 25, 2020] was as follows:

| | | | [removed: | | |] [added: 2021] | | | | | | 2020 | | | | | | [removed: | | | | | |] 2019 | | | [removed: | | | | | | | | | | | |]

| Semiconductor Systems | | | | | | | | | | | | | | | | | | $ | [removed: 2,880] [added: 6,679] | | | | | [removed: 43] [added: 57] | | % | | | | $ | [removed: 2,925] [added: 2,880] | | | | | [removed: 45] [added: 43] | | % |

| Applied Global Services | | | | | | | | | | | | | | | | | | [removed: 2,607] [added: 4,335] | | | | | | [removed: 39] [added: 37] | | % | | | | [removed: 2,073] [added: 2,607] | | | | | | [removed: 32] [added: 39] | | % |

| Display and Adjacent Markets | | | | | | | | | | | | | | | | | | [removed: 1,115] [added: 735] | | | | | | [removed: 17] [added: 6] | | % | | | | [removed: 1,453] [added: 1,115] | | | | | | [removed: 23] [added: 17] | | % |

| Corporate and Other | | | | | | | | | | | | | | | | | | [removed: 54] [added: 9] | | | | | | [removed: 1] [added: —] | | % | | | | [removed: 22] [added: 54] | | | | | | [removed: —] [added: 1] | | % |

| Total | | | | | | | | | | | | | | | | | | $ | [removed: 6,656] [added: 11,758] | | | | | 100 | | % | | | | $ | [removed: 6,473] [added: 6,656] | | | | | 100 | | % |

Of the total backlog as of October [removed: 25, 2020,] [added: 31, 2021,] approximately [removed: 16%] [added: 21%] 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, [removed: Italy, Mexico,] Singapore, Taiwan, the United States and other countries in Asia.

Information on net sales to unaffiliated customers and long-lived assets attributable to Applied’s geographic regions is included in Note [removed: 17] [added: 18] of Notes to Consolidated Financial Statements.

| Samsung Electronics Co., Ltd. | | | [removed: 18%] [added: 20%] | | | | | | [removed: *] [added: 18%] | | | | | | [removed: 13%] [added: *] | | |

| Taiwan Semiconductor Manufacturing Company Limited | | | [removed: 18%] [added: 15%] | | | | | | [removed: 14%] [added: 18%] | | | | | | [removed: *] [added: 14%] | | |

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

Applied has approximately [removed: 14,300] [added: 15,700] patents in the United States and other countries, and additional applications are pending for new inventions.

These regulations, which differ among jurisdictions, include those related to financial and other disclosures, accounting standards, corporate governance, intellectual property, tax, trade, [added: including import, export and customs,] antitrust, [added: environment,] employment, immigration and travel regulations, privacy, [added: data protection] and [added: localization, and] anti-corruption.

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

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

*See* [removed: “*Risk] [added: *“Risk] Factors – Risks Related to [removed: Legal] [added: Applied’s Business, Finance] and [removed: Compliance] [added: Operations] – Applied is exposed to risks associated with operating in jurisdictions with complex and changing tax [removed: laws*”.][added: laws” for further details*.]

For additional discussions regarding the impact of compliance with income tax laws and regulations on Applied’s business and operations, [removed: see] [added: *see] also [removed: “*Management’s] [added: “Management’s] Discussion and Analysis of Financial Condition and Results of Operations– Results of Operations – Income [removed: Taxes*”] [added: Taxes”] and [removed: *“Note 15] [added: “Note 16] of the Notes to the Consolidated Financial Statements”.*

[removed: *See* “*Risk] [added: *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 [removed: have an adverse] [added: adversely] impact [removed: on] our [removed: operations*” *for] [added: operations and reduce the competitiveness of our products relative to local and global competitors” for] further details.*

To achieve this level of value creation, Applied believes it must [removed: find,] [added: attract, hire,] develop and [removed: keep] [added: retain] a world-class global workforce.

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

As of October [removed: 25, 2020,] [added: 31, 2021,] Applied employed approximately [removed: 24,000] [added: 27,000] regular full-time employees, of whom approximately [removed: 44%, 43%] [added: 46%, 42%] and [removed: 13%] [added: 12%] 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, [removed: ages, gender identity,] [added: race, color, national origin, religion, sex,] sexual orientation, [added: gender identity, ages,] and [removed: ethnicities.][added: disability, veteran and military status.]

[removed: Diversity] [added: Diversity, Equity] and Inclusion

Applied [removed: knows] [added: values great talent and different perspectives, knowing] that [removed: its] diversity is one of its greatest strengths.

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 [removed: 30%] [added: 40%] female membership, increasing female representation in the U.S. and global workforce, and increasing U.S. underrepresented minority representation.

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

As part of the Company’s effort to attract and [removed: motivate] [added: retain] 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.

Applied [removed: manages] [added: has historically managed] and [removed: measures] [added: measured] organizational health with a view to gaining insight into employees’ experiences, levels of workplace satisfaction, and feelings of engagement and [removed: inclusion with the company.][added: inclusion.]

The Company [removed: uses] [added: has used] McKinsey & Company’s Organizational Health Index (OHI) and employee engagement pulse surveys to measure its organizational health and employee experiences.

Insights from the Company’s [removed: OHI survey] [added: surveys] are used to develop both company-wide and business unit level organizational and talent development plans.

[added: Since the onset of the COVID-19 pandemic,] Applied’s top priority [removed: during the ongoing COVID-19 pandemic] remains protecting the health and safety of its employees and their families, [removed: customers] [added: customers, suppliers] and community.

| | | | | | | | | | | | | 2021 | | | | | | | | | | | | 2020 | | | | | | | | | | | | | | |

Applied’s supply chain strategy adheres to ethical labor practices, responsible minerals sourcing, Responsible Business Alliance and SEMI guidelines, and the Applied Materials Standards of Business Conduct as defined in Applied’s Environmental, Social and Governance (ESG) commitment.

*See “Risk Factors – Risks Related to Legal and Compliance – Applied is exposed to various risks related to the global regulatory environment” for further details.*

There have been a number of proposed changes in the tax laws that could increase Applied’s tax liability.

As of October 31, 2021, Applied’s global workforce was 81.9% male and 18.1% female, and 16.4% of Applied’s workforce in the United States was composed of underrepresented minorities.

Additionally, Applied is investing in inclusion learning experiences.

For example, the Company is implementing programs to further develop its leaders to lead even more inclusively and further deepen engagement with employees.

This includes an understanding of its employees’ engagement and experiences during the pandemic and developing a return to work and future of work strategy.

In fiscal 2020 and fiscal 2021, Applied conducted surveys focused on employee engagement and productivity and on the future of work.

Applied continues to support workplace flexibility such as remote working where possible, and follow enhanced safety and health protocols—including screenings, social distancing, and use of personal protective equipment.

Mr. Halliday previously served as Corporate Vice President and advisor to Applied in areas such as business development and government affairs since September 2017, and prior to that was Applied’s Chief Financial Officer from February 2013 to August 2017.

Prior to that he served as Group Vice President and General Manager of the Silicon Systems segment following the completion of Applied’s acquisition of Varian in November 2011.

Mr. Halliday had served as Chief Financial Officer of Varian since 2001 and as an Executive Vice President of Varian since 2004.

He was Varian’s Treasurer from November 2002 to October 2006 and from February 2009 to February 2010.

| Flexible Technologies Flexible coating systems utilize physical vapor deposition, thermal evaporation, chemical vapor deposition, and e-beam technology to deposit thin layers of metal onto flexible substrates. | | | | | | TopBeam, TopMet, TopCoil and SmartWeb Systems | | |

| | | | 2020 | | | | | | 2019 | | | | | | 2018 | | |

In fiscal 2019, Applied achieved an overall “healthy” rating on the OHI and continued to rank in the top quartile for overall health in the McKinsey database.

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 consistent with local laws and regulations 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.

Previously, Mr. Durn was Executive Vice President and Chief Financial Officer of NXP Semiconductors N.V., a semiconductor manufacturer (NXP), from December 2015 to August 2017.

Mr. Durn served as Senior Vice President of Finance and Chief Financial Officer of Freescale Semiconductor, Inc., from June 2014 until its merger with NXP in December 2015.

Prior to Freescale, Mr. Durn was Chief Financial Officer and Executive Vice President of Finance and Administration at GlobalFoundries, a semiconductor foundry, which he joined in December 2011.

The information set forth under “Legal Matters” in Note [removed: 16] [added: 17] of Notes to Consolidated Financial Statements is incorporated herein by reference.

*See also “Risk Factors – Risks Related to Legal and Compliance.”*

For the fiscal year ended October [removed: 25, 2020][added: 31, 2021]

Aggregate market value of the voting stock held by non-affiliates of the registrant as of [removed: April 26, 2020,] [added: May 2, 2021,] based upon the closing sale price reported by the NASDAQ Global Select Market on that date: [removed: $47,228,292,437][added: $120,888,771,285]

Number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of December [removed: 4, 2020: 914,344,189][added: 10, 2021: 888,513,248]

Portions of Part III will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 22, 2021.][added: 28, 2022.]

Examples of forward-looking statements include those regarding Applied’s future financial or operating results, customer demand and spending, end-user demand, Applied’s and market and industry trends and outlooks, 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, [removed: strategic acquisitions] [added: acquisitions, investments] and [removed: investments, including the proposed acquisition of Kokusai Electric Corporation (Kokusai Electric),] [added: divestitures,] growth opportunities, restructuring [added: and severance] 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: 25, 2020][added: 31, 2021]

| Item 1: | | | [removed: [Business](#i61bb1a104c194d65a48b52b5557c3ca8_16)] [added: [Business](#ie3b4dd133255408488aec6011c49b801_16)] | | | [removed: [4](#i61bb1a104c194d65a48b52b5557c3ca8_16)] [added: [4](#ie3b4dd133255408488aec6011c49b801_16)] | | |

| Item 1A: | | | [Risk [removed: Factors](#i61bb1a104c194d65a48b52b5557c3ca8_19)] [added: Factors](#ie3b4dd133255408488aec6011c49b801_19)] | | | [removed: [16](#i61bb1a104c194d65a48b52b5557c3ca8_19)] [added: [16](#ie3b4dd133255408488aec6011c49b801_19)] | | |

| Item 1B: | | | [Unresolved Staff [removed: Comments](#i61bb1a104c194d65a48b52b5557c3ca8_22)] [added: Comments](#ie3b4dd133255408488aec6011c49b801_22)] | | | [removed: [28](#i61bb1a104c194d65a48b52b5557c3ca8_22)] [added: [29](#ie3b4dd133255408488aec6011c49b801_22)] | | |

| Item 2: | | | [removed: [Properties](#i61bb1a104c194d65a48b52b5557c3ca8_25)] [added: [Properties](#ie3b4dd133255408488aec6011c49b801_25)] | | | [removed: [29](#i61bb1a104c194d65a48b52b5557c3ca8_25)] [added: [30](#ie3b4dd133255408488aec6011c49b801_25)] | | |

| Item 3: | | | [Legal [removed: Proceedings](#i61bb1a104c194d65a48b52b5557c3ca8_28)] [added: Proceedings](#ie3b4dd133255408488aec6011c49b801_28)] | | | [removed: [30](#i61bb1a104c194d65a48b52b5557c3ca8_28)] [added: [31](#ie3b4dd133255408488aec6011c49b801_28)] | | |

| Item 4: | | | [Mine Safety [removed: Disclosures](#i61bb1a104c194d65a48b52b5557c3ca8_31)] [added: Disclosures](#ie3b4dd133255408488aec6011c49b801_31)] | | | [removed: [30](#i61bb1a104c194d65a48b52b5557c3ca8_31)] [added: [31](#ie3b4dd133255408488aec6011c49b801_31)] | | |

| Item 5: | | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#i61bb1a104c194d65a48b52b5557c3ca8_37)] [added: Securities](#ie3b4dd133255408488aec6011c49b801_37)] | | | [removed: [31](#i61bb1a104c194d65a48b52b5557c3ca8_37)] [added: [32](#ie3b4dd133255408488aec6011c49b801_37)] | | |

| Item 7: | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i61bb1a104c194d65a48b52b5557c3ca8_43)] [added: Operations](#ie3b4dd133255408488aec6011c49b801_43)] | | | [removed: [34](#i61bb1a104c194d65a48b52b5557c3ca8_43)] [added: [34](#ie3b4dd133255408488aec6011c49b801_43)] | | |

| Item 7A: | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i61bb1a104c194d65a48b52b5557c3ca8_64)] [added: Risk](#ie3b4dd133255408488aec6011c49b801_64)] | | | [removed: [55](#i61bb1a104c194d65a48b52b5557c3ca8_64)] [added: [55](#ie3b4dd133255408488aec6011c49b801_64)] | | |

| Item 8: | | | [Financial Statements and Supplementary [removed: Data](#i61bb1a104c194d65a48b52b5557c3ca8_67)] [added: Data](#ie3b4dd133255408488aec6011c49b801_67)] | | | [removed: [55](#i61bb1a104c194d65a48b52b5557c3ca8_67)] [added: [55](#ie3b4dd133255408488aec6011c49b801_67)] | | |

| Item 9: | | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#i61bb1a104c194d65a48b52b5557c3ca8_70)] [added: Disclosure](#ie3b4dd133255408488aec6011c49b801_70)] | | | [removed: [55](#i61bb1a104c194d65a48b52b5557c3ca8_70)] [added: [55](#ie3b4dd133255408488aec6011c49b801_70)] | | |

| Item 9A: | | | [Controls and [removed: Procedures](#i61bb1a104c194d65a48b52b5557c3ca8_73)] [added: Procedures](#ie3b4dd133255408488aec6011c49b801_73)] | | | [removed: [56](#i61bb1a104c194d65a48b52b5557c3ca8_73)] [added: [56](#ie3b4dd133255408488aec6011c49b801_73)] | | |

| Item 9B: | | | [Other [removed: Information](#i61bb1a104c194d65a48b52b5557c3ca8_76)] [added: Information](#ie3b4dd133255408488aec6011c49b801_76)] | | | [removed: [56](#i61bb1a104c194d65a48b52b5557c3ca8_76)] [added: [56](#ie3b4dd133255408488aec6011c49b801_76)] | | |

| Item 10: | | | [Directors, Executive Officers and Corporate [removed: Governance](#i61bb1a104c194d65a48b52b5557c3ca8_85)] [added: Governance](#ie3b4dd133255408488aec6011c49b801_85)] | | | [removed: [57](#i61bb1a104c194d65a48b52b5557c3ca8_85)] [added: [57](#ie3b4dd133255408488aec6011c49b801_85)] | | |

| Item 11: | | | [Executive [removed: Compensation](#i61bb1a104c194d65a48b52b5557c3ca8_88)] [added: Compensation](#ie3b4dd133255408488aec6011c49b801_88)] | | | [removed: [57](#i61bb1a104c194d65a48b52b5557c3ca8_88)] [added: [57](#ie3b4dd133255408488aec6011c49b801_88)] | | |

| Item 12: | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i61bb1a104c194d65a48b52b5557c3ca8_91)] [added: Matters](#ie3b4dd133255408488aec6011c49b801_91)] | | | [removed: [58](#i61bb1a104c194d65a48b52b5557c3ca8_91)] [added: [58](#ie3b4dd133255408488aec6011c49b801_91)] | | |

| Item 13: | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i61bb1a104c194d65a48b52b5557c3ca8_94)] [added: Independence](#ie3b4dd133255408488aec6011c49b801_94)] | | | [removed: [59](#i61bb1a104c194d65a48b52b5557c3ca8_94)] [added: [59](#ie3b4dd133255408488aec6011c49b801_94)] | | |

| Item 14: | | | [Principal Accounting Fees and [removed: Services](#i61bb1a104c194d65a48b52b5557c3ca8_97)] [added: Services](#ie3b4dd133255408488aec6011c49b801_97)] | | | [removed: [59](#i61bb1a104c194d65a48b52b5557c3ca8_97)] [added: [59](#ie3b4dd133255408488aec6011c49b801_97)] | | |

| Item 15: | | | [Exhibits, Financial Statement [removed: Schedules](#i61bb1a104c194d65a48b52b5557c3ca8_103)] [added: Schedules](#ie3b4dd133255408488aec6011c49b801_103)] | | | [removed: [60](#i61bb1a104c194d65a48b52b5557c3ca8_103)] [added: [60](#ie3b4dd133255408488aec6011c49b801_103)] | | |

| Item 16: | | | [Form 10-K [removed: Summary](#i61bb1a104c194d65a48b52b5557c3ca8_103)] [added: Summary](#ie3b4dd133255408488aec6011c49b801_103)] | | | [removed: [60](#i61bb1a104c194d65a48b52b5557c3ca8_103)] [added: [60](#ie3b4dd133255408488aec6011c49b801_103)] | | |

| Item 6: | | | [\[Reserved\]](#ie3b4dd133255408488aec6011c49b801_1471) | | | [33](#ie3b4dd133255408488aec6011c49b801_1471) | | |

| | | | [Signatures](#ie3b4dd133255408488aec6011c49b801_190) | | | [108](#ie3b4dd133255408488aec6011c49b801_190) | | |

| Item 6: | | | [Selected Financial Data](#i61bb1a104c194d65a48b52b5557c3ca8_40) | | | [33](#i61bb1a104c194d65a48b52b5557c3ca8_40) | | |

| | | | [Signatures](#i61bb1a104c194d65a48b52b5557c3ca8_187) | | | [109](#i61bb1a104c194d65a48b52b5557c3ca8_187) | | |

| Owned | | | 4,855 | | | | | | 2,472 | | | | | | 7,327 | | |

| Leased | | | 1,912 | | | | | | 1,800 | | | | | | 3,712 | | |

| Total | | | 6,767 | | | | | | 4,272 | | | | | | 11,039 | | |

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

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

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

Other products are manufactured in Treviso, Italy.

As of December [removed: 4, 2020,] [added: 10, 2021,] there were [removed: 2,860] [added: 2,833] registered holders of Applied common stock.

Information regarding quarterly cash dividends declared on Applied Materials’s common stock during fiscal [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018] [added: 2019] 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: 25, 2015] [added: 30, 2016] through October [removed: 25, 2020.][added: 31, 2021.]

The comparison assumes $100 was invested on October [removed: 25, 2015] [added: 30, 2016] 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: 10/25/15] [added: 10/30/16] in stock or [removed: 10/31/15] [added: 10/31/16] in index, including reinvestment of dividends.

Copyright© [removed: 2020] [added: 2021] Standard & Poor’s, a division of S&P global.

| | | | [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] | | | | | | [removed: 10/25/2020] [added: 10/31/2021] | | |

The following table provides information as of October [removed: 25, 2020] [added: 31, 2021] with respect to the shares of common stock repurchased by Applied during the fourth quarter of fiscal [removed: 2020] [added: 2021] pursuant to [removed: a publicly announced stock repurchase program approved by] the [added: foregoing] Board [removed: of Directors in February 2018, which authorized up to an aggregate of $6.0 billion in repurchases.][added: authorization.]

| Applied Materials | | | 100.00 | | | | | | 199.87 | | | | | | 115.48 | | | | | | 202.95 | | | | | | 225.12 | | | | | | 508.89 | | |

| S&P 500 Index | | | 100.00 | | | | | | 123.88 | | | | | | 130.09 | | | | | | 150.94 | | | | | | 176.35 | | | | | | 237.87 | | |

| PHLX Semiconductor Index | | | 100.00 | | | | | | 156.93 | | | | | | 145.72 | | | | | | 212.64 | | | | | | 309.77 | | | | | | 458.88 | | |

In March 2021, Applied’s Board of Directors approved a common stock repurchase program authorizing $7.5 billion in repurchases, which supplemented the previously existing $6.0 billion authorization approved in February 2018.

| (August 2, 2021 to August 29, 2021) | | | 3.5 | | | | | | $ | 134.64 | | | | | $ | 466 | | | | | 3.5 | | | | | | $ | 6,059 | |

| (August 30, 2021 to September 26, 2021) | | | 3.2 | | | | | | $ | 137.35 | | | | | 443 | | | | | | 3.2 | | | | | | $ | 5,616 | |

| (September 27, 2021 to October 31, 2021) | | | 4.5 | | | | | | $ | 131.23 | | | | | 591 | | | | | | 4.5 | | | | | | $ | 5,025 | |

| Total | | | 11.2 | | | | | | $ | 134.05 | | | | | $ | 1,500 | | | | | 11.2 | | | | | | | | |

| 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 | | | | | | | | |

The following selected financial information has been derived from Applied’s historical audited consolidated financial statements and should be read in conjunction with the consolidated financial statements and the accompanying notes for the corresponding fiscal years:

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

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

| Fiscal Year(1) | | | 2020 | | | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | |

| | | | (In millions, except percentages and per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net sales | | | $ | 17,202 | | | | | $ | 14,608 | | | | | $ | 16,705 | | | | | $ | 14,698 | | | | | $ | 10,825 | |

| Gross profit | | | $ | 7,692 | | | | | $ | 6,386 | | | | | $ | 7,517 | | | | | $ | 6,612 | | | | | $ | 4,511 | |

| Gross margin | | | 44.7 | | % | | | | 43.7 | | % | | | | 45.0 | | % | | | | 45.0 | | % | | | | 41.7 | | % |

| Research, development and engineering | | | $ | 2,234 | | | | | $ | 2,054 | | | | | $ | 2,022 | | | | | $ | 1,781 | | | | | $ | 1,540 | |

| Operating income | | | $ | 4,365 | | | | | $ | 3,350 | | | | | $ | 4,491 | | | | | $ | 3,936 | | | | | $ | 2,152 | |

| Operating margin | | | 25.4 | | % | | | | 22.9 | | % | | | | 26.9 | | % | | | | 26.8 | | % | | | | 19.9 | | % |

| Income before income taxes | | | $ | 4,166 | | | | | $ | 3,269 | | | | | $ | 4,396 | | | | | $ | 3,816 | | | | | $ | 2,013 | |

| Net income | | | $ | 3,619 | | | | | $ | 2,706 | | | | | $ | 3,038 | | | | | $ | 3,519 | | | | | $ | 1,721 | |

| Earnings per diluted share | | | $ | 3.92 | | | | | $ | 2.86 | | | | | $ | 2.96 | | | | | $ | 3.25 | | | | | $ | 1.54 | |

| Long-term debt | | | $ | 5,448 | | | | | $ | 4,713 | | | | | $ | 5,309 | | | | | $ | 5,304 | | | | | $ | 3,125 | |

| Cash dividends declared per common share | | | $ | 0.87 | | | | | $ | 0.83 | | | | | $ | 0.70 | | | | | $ | 0.40 | | | | | $ | 0.40 | |

| Total assets | | | $ | 22,353 | | | | | $ | 19,024 | | | | | $ | 17,633 | | | | | $ | 19,190 | | | | | $ | 14,570 | |

(1)Each fiscal year ended on the last Sunday in October.

Fiscal 2020, 2019, 2018, and 2017 each contained 52 weeks, and fiscal 2016 contained 53 weeks.

Based on that evaluation, Applied’s management concluded that Applied’s internal control over financial reporting was effective as of October [removed: 25, 2020.][added: 31, 2021.]

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: 25, 2020.][added: 31, 2021.]

Due to the ongoing COVID-19 pandemic, Applied continues to [removed: maintain] [added: support] workplace flexibility such as [removed: working remotely] [added: remote work] where [removed: possible to reduce the number of people who are on campus each day.][added: possible.]

During the fourth quarter of fiscal [removed: 2020,] [added: 2021,] 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.

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 “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: 22, 2021.][added: 28, 2022.]

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 22, 2021.][added: 28, 2022.]

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: 22, 2021.][added: 28, 2022.]

The following table summarizes information with respect to equity awards under Applied’s equity compensation plans as of October [removed: 25, 2020:][added: 31, 2021:]

| Equity compensation plans approved by security holders | | | [removed: 15] [added: 13] | | | | | | | | | $ | — | | | | | [removed: 63] [added: 51] | | | (3) | | |

| Total | | | [removed: 15] [added: 13] | | | | | | | | | $ | — | | | | | [removed: 66] [added: 51] | | | | | |

(1)Includes only [removed: options,] restricted stock units and performance shares outstanding under Applied’s equity compensation plans, as no [added: options,] stock warrants or other rights were outstanding as of October [removed: 25, 2020.][added: 31, 2021.]

(3)Includes [removed: 7] [added: 16] million shares of Applied common stock available for future issuance under the Applied Materials, Inc. [added: Omnibus] Employees’ Stock Purchase Plan.

Of these [removed: 7] [added: 16] million shares, 1 million are subject to purchase during the purchase period in effect as of October [removed: 25, 2020.][added: 31, 2021.]

Applied has the following equity compensation [removed: plans] [added: plan] that [removed: have] [added: has] not been approved by stockholders:

[removed: Applied] [added: *Applied] Materials Profit Sharing [removed: Scheme.][added: Scheme*.]

Prior to September 1, 2021, Applied had two Employee Stock Purchase Plans, one generally for United States employees (U.S. ESPP) and a second for employees of international subsidiaries (Offshore ESPP), which enable eligible employees to purchase Applied common stock.

On March 11, 2021, Applied’s shareholders approved an amendment and restatement of the U.S. ESPP (as amended, the Omnibus ESPP).

The Omnibus ESPP became effective on September 1, 2021 (the Effective Date) in accordance with its terms, and amended the U.S. ESPP to, among other changes, (i) incorporate the Offshore ESPP as a sub-plan, and (ii) add 11.3 million shares to the number of shares of Applied common stock authorized for issuance.

The Offshore ESPP was terminated as an independent plan on the Effective Date.

| Equity compensation plans not approved by security holders | | | — | | | | | | | | | $ | — | | | | | 3 | | | (4) | | |

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

Of these 3 million shares, 1 million are subject to purchase during the purchase period in effect as of October 25, 2020.

*Stock Purchase Plan for Offshore Employees.* The Stock Purchase Plan for Offshore Employees (the Offshore ESPP) was adopted effective as of October 16, 1995 for the benefit of employees of Applied’s participating affiliates.

The Offshore ESPP provides for the grant of options to purchase shares of Applied common stock through payroll deductions pursuant to one or more offerings.

The administrator of the Offshore ESPP (the Board of Directors of Applied or a committee appointed by the Board) determines the terms and conditions of all options prior to the start of an offering, including the purchase price of shares, the number of shares covered by the option and when the option may be exercised.

All options granted as part of an offering must be granted on the same date.

As of October 25, 2020, a total of 39 million shares have been authorized for issuance under the Offshore ESPP, and 3 million shares remain available for issuance.

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 22, 2021.][added: 28, 2022.]

The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 22, 2021.][added: 28, 2022.]

| | | | [Reports of Independent Registered Public Accounting [removed: Firm](#i61bb1a104c194d65a48b52b5557c3ca8_106)] [added: Firm](#ie3b4dd133255408488aec6011c49b801_106)] | | | [removed: [61](#i61bb1a104c194d65a48b52b5557c3ca8_106)] [added: [61](#ie3b4dd133255408488aec6011c49b801_106)] | | |

| | | | [Consolidated Statements of [removed: Operations](#i61bb1a104c194d65a48b52b5557c3ca8_112)] [added: Operations](#ie3b4dd133255408488aec6011c49b801_112)] | | | [removed: [64](#i61bb1a104c194d65a48b52b5557c3ca8_112)] [added: [64](#ie3b4dd133255408488aec6011c49b801_112)] | | |

| | | | [Consolidated Statements of Comprehensive [removed: Income](#i61bb1a104c194d65a48b52b5557c3ca8_115)] [added: Income](#ie3b4dd133255408488aec6011c49b801_115)] | | | [removed: [65](#i61bb1a104c194d65a48b52b5557c3ca8_115)] [added: [65](#ie3b4dd133255408488aec6011c49b801_115)] | | |

| | | | [Consolidated Balance [removed: Sheets](#i61bb1a104c194d65a48b52b5557c3ca8_118)] [added: Sheets](#ie3b4dd133255408488aec6011c49b801_118)] | | | [removed: [66](#i61bb1a104c194d65a48b52b5557c3ca8_118)] [added: [66](#ie3b4dd133255408488aec6011c49b801_118)] | | |

| | | | [Consolidated Statements of Stockholders’ [removed: Equity](#i61bb1a104c194d65a48b52b5557c3ca8_121)] [added: Equity](#ie3b4dd133255408488aec6011c49b801_121)] | | | [removed: [67](#i61bb1a104c194d65a48b52b5557c3ca8_121)] [added: [67](#ie3b4dd133255408488aec6011c49b801_121)] | | |

| | | | [Consolidated Statements of Cash [removed: Flows](#i61bb1a104c194d65a48b52b5557c3ca8_124)] [added: Flows](#ie3b4dd133255408488aec6011c49b801_124)] | | | [removed: [68](#i61bb1a104c194d65a48b52b5557c3ca8_124)] [added: [68](#ie3b4dd133255408488aec6011c49b801_124)] | | |

| | | | [Notes to Consolidated Financial [removed: Statements](#i61bb1a104c194d65a48b52b5557c3ca8_127)] [added: Statements](#ie3b4dd133255408488aec6011c49b801_127)] | | | [removed: [69](#i61bb1a104c194d65a48b52b5557c3ca8_127)] [added: [69](#ie3b4dd133255408488aec6011c49b801_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](#i61bb1a104c194d65a48b52b5557c3ca8_184)] [added: 10-K](#ie3b4dd133255408488aec6011c49b801_187)] | | | [removed: [106](#i61bb1a104c194d65a48b52b5557c3ca8_184)] [added: [105](#ie3b4dd133255408488aec6011c49b801_187)] | | |

We have audited the accompanying consolidated balance sheets of Applied Materials, Inc. and subsidiaries (the Company) as of October [removed: 25, 2020] [added: 31, 2021] and October [removed: 27, 2019,] [added: 25, 2020,] 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: 25, 2020,] [added: 31, 2021,] 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: 25, 2020] [added: 31, 2021] and October [removed: 27, 2019,] [added: 25, 2020,] and the results of its operations and its cash flows for each of the years in the three-year period ended October [removed: 25, 2020,] [added: 31, 2021,] 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: 25, 2020,] [added: 31, 2021,] 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: 11, 2020] [added: 17, 2021] 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, the Company changed its method of accounting for leases as of October 28, 2019 due to the adoption of Accounting Standards Codification Topic 842, *Leases.* As discussed in note [removed: 15] [added: 16] to the consolidated financial statements, the Company changed its method of accounting for intra-entity transfers of assets other than inventory as of October 29, 2018 due to the adoption of Accounting Standards Update No. 2016-16, *Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory*.

As discussed in notes 1 and 8 to the consolidated financial statements, the Company has inventories with a carrying value of [removed: $3,904] [added: $4,309] million as of October [removed: 25, 2020.][added: 31, 2021.]

We have audited Applied Materials, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of October [removed: 25, 2020,] [added: 31, 2021,] 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: 25, 2020,] [added: 31, 2021,] 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: 25, 2020] [added: 31, 2021] and October [removed: 27, 2019,] [added: 25, 2020,] 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: 25, 2020,] [added: 31, 2021,] and the related notes (collectively, the consolidated financial statements), and our report dated December [removed: 11, 2020] [added: 17, 2021] expressed an unqualified opinion on those consolidated financial statements.

| Fiscal Year | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | |

| Net sales | | | $ | [removed: 17,202] [added: 23,063] | | | | | $ | [removed: 14,608] [added: 17,202] | | | | | $ | [removed: 16,705] [added: 14,608] | |

| Cost of products sold | | | [removed: 9,510] [added: 12,149] | | | | | | [removed: 8,222] [added: 9,510] | | | | | | [removed: 9,188] [added: 8,222] | | |

| Gross profit | | | [removed: 7,692] [added: 10,914] | | | | | | [removed: 6,386] [added: 7,692] | | | | | | [removed: 7,517] [added: 6,386] | | |

| Research, development and engineering | | | [removed: 2,234] [added: 2,485] | | | | | | [removed: 2,054] [added: 2,234] | | | | | | [removed: 2,022] [added: 2,054] | | |

| Marketing and selling | | | [removed: 526] [added: 609] | | | | | | [removed: 521] [added: 526] | | | | | | 521 | | |

| General and administrative | | | [removed: 567] [added: 620] | | | | | | [removed: 461] [added: 567] | | | | | | [removed: 483] [added: 461] | | |

| Total operating expenses | | | [removed: 3,327] [added: 4,025] | | | | | | [removed: 3,036] [added: 3,327] | | | | | | [removed: 3,026] [added: 3,036] | | |

| Income from operations | | | [removed: 4,365] [added: 6,889] | | | | | | [removed: 3,350] [added: 4,365] | | | | | | [removed: 4,491] [added: 3,350] | | |

| Interest expense | | | [removed: 240] [added: 236] | | | | | | [removed: 237] [added: 240] | | | | | | [removed: 234] [added: 237] | | |

| Interest and other income, net | | | [removed: 41] [added: 118] | | | | | | [removed: 156] [added: 41] | | | | | | [removed: 139] [added: 156] | | |

| Income before income taxes | | | [removed: 4,166] [added: 6,771] | | | | | | [removed: 3,269] [added: 4,166] | | | | | | [removed: 4,396] [added: 3,269] | | |

| Provision for income taxes | | | [removed: 547] [added: 883] | | | | | | [removed: 563] [added: 547] | | | | | | [removed: 1,358] [added: 563] | | |

| Net income | | | $ | [removed: 3,619] [added: 5,888] | | | | | $ | [removed: 2,706] [added: 3,619] | | | | | $ | [removed: 3,038] [added: 2,706] | |

| Basic | | | $ | [removed: 3.95] [added: 6.47] | | | | | $ | [removed: 2.89] [added: 3.95] | | | | | $ | [removed: 3.00] [added: 2.89] | |

| Diluted | | | $ | [removed: 3.92] [added: 6.40] | | | | | $ | [removed: 2.86] [added: 3.92] | | | | | $ | [removed: 2.96] [added: 2.86] | |

| Basic | | | [removed: 916] [added: 910] | | | | | | [removed: 937] [added: 916] | | | | | | [removed: 1,013] [added: 937] | | |

| Diluted | | | [removed: 923] [added: 919] | | | | | | [removed: 945] [added: 923] | | | | | | [removed: 1,026] [added: 945] | | |

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

| Change in unrealized net loss on derivative instruments | | | [removed: (117)] [added: 30] | | | | | | [removed: (7)] [added: (117)] | | | | | | [removed: 4] [added: (7)] | | |

| Change in defined and postretirement benefit plans | | | [removed: (11)] [added: 30] | | | | | | [removed: (51)] [added: (11)] | | | | | | [removed: (17)] [added: (51)] | | |

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

| Other comprehensive [removed: loss,] [added: income (loss),] net of tax | | | [removed: (119)] [added: 39] | | | | | | [removed: (38)] [added: (119)] | | | | | | [removed: (64)] [added: (38)] | | |

| Comprehensive income | | | $ | [removed: 3,500] [added: 5,927] | | | | | $ | [removed: 2,668] [added: 3,500] | | | | | $ | [removed: 2,974] [added: 2,668] | |

| | | | October [removed: 25, 2020] [added: 31, 2021] | | | | | | October [removed: 27, 2019] [added: 25, 2020] | | |

| Cash and cash equivalents | | | $ | [added: 4,995 | | | | | $ |] 5,351 | | | | | $ | 3,129 | |

| Short-term investments | | | [removed: 387] [added: 464] | | | | | | [removed: 489] [added: 387] | | |

| Accounts receivable, net | | | [removed: 2,963] [added: 4,953] | | | | | | [removed: 2,533] [added: 2,963] | | |

| Inventories | | | [removed: 3,904] [added: 4,309] | | | | | | [removed: 3,474] [added: 3,904] | | |

| Other current assets | | | [removed: 764] [added: 1,386] | | | | | | [removed: 581] [added: 764] | | |

| Total current assets | | | [removed: 13,369] [added: 16,107] | | | | | | [removed: 10,206] [added: 13,369] | | |

| Long-term investments | | | [removed: 1,538] [added: 2,055] | | | | | | [removed: 1,703] [added: 1,538] | | |

| Severance and related charges | | | 157 | | | | | | — | | | | | | — | | |

| Deal termination fee | | | 154 | | | | | | — | | | | | | — | | |

| Fiscal Year | | | 2021 | | | | | | 2020 | | | | | | 2019 | | |

| Net income | | | $ | 5,888 | | | | | $ | 3,619 | | | | | $ | 2,706 | |

| Balance at October 31, 2021 | | | 892 | | | | | | $ | 9 | | | | | $ | 8,247 | | | | | $ | 32,246 | | | | | 1,119 | | | | | | $ | (27,995) | | | | | $ | (260) | | | | | $ | 12,247 | |

| Fiscal Year | | | 2021 | | | | | | 2020 | | | | | | 2019 | | |

| Net income | | | $ | 5,888 | | | | | $ | 3,619 | | | | | $ | 2,706 | |

| Severance and related charges | | | 148 | | | | | | — | | | | | | — | | |

The first fiscal quarter of 2021 contained 14 weeks, while the second, third and fourth quarters of fiscal 2021 contained 13 weeks.

These investments are measured at fair value using quoted prices for identical assets in an active market.

*Allowance for Credit Losses*

Applied’s derivative financial instruments are recorded as assets or liabilities at fair value.

Any portion excluded from the assessment of effectiveness is recognized in the same line as the hedged transaction but may be recognized in a different manner, e.g. amortized.

If a hedged transaction becomes probable of not occurring according to the original strategy, the hedge relationship is discontinued and the gain or loss on the associated derivative is recorded promptly in earnings.

Applied adopted this guidance in the first quarter of fiscal 2021.

*Contract Assets and Contract Liabilities from Revenue Contracts with Customers in a Business Combination.* In October 2021, the FASB issued an accounting standard update to improve the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination (Topic 805).

This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination.

| Fiscal Year | | | 2021 | | | | | | 2020 | | | | | | 2019 | | |

| Net income | | | $ | 5,888 | | | | | $ | 3,619 | | | | | $ | 2,706 | |

| Municipal securities | | | 367 | | | | | | 3 | | | | | | 1 | | | | | | 369 | | |

| Total equity investments | | | 583 | | | | | | 121 | | | | | | 17 | | | | | | 687 | | |

* Includes Canadian provincial government debt

| Total | | | $ | 2,411 | | | | | $ | 2,519 | |

Credit losses related to available-for-sale debt securities are recorded as an allowance for credit losses through interest and other income, net.

Any additional changes in fair value that are not related to credit losses are recognized in accumulated other comprehensive income.

During fiscal 2021, with the adoption of credit losses authoritative guidance, Applied did not recognize significant credit losses and the ending allowance for credit losses was not material.

Applied’s equity investments with readily determinable values consist of publicly traded equity securities.

As of October 31, 2021 and October 25, 2020, the total outstanding notional amount of foreign exchange contracts was $2.1 billion and $1.6 billion, respectively.

| Net Sales | | | $ | 23,063 | | | | | $ | 4 | | | | | $ | — | |

| Research, development and engineering | | | $ | 2,485 | | | | | 3 | | | | | | — | | |

| | | | | | | | | | $ | (3) | | | | | $ | (2) | |

Applied did not discount letters of credit issued by customers in fiscal 2021.

| | | | 2021 | | | | | | 2020 | | | | | | 2019 | | |

| | | | $ | 4,309 | | | | | $ | 3,904 | |

| | | | $ | 1,386 | | | | | $ | 764 | |

| | | | | | | | | | $ | 1,934 | | | | | $ | 1,604 | |

| | | | $ | 2,146 | | | | | $ | 2,223 | |

| | | | October 31, 2021 | | | | | | October 25, 2020 | | |

| | | | $ | 4,268 | | | | | $ | 3,138 | |

| | | | October 31, 2021 | | | | | | October 25, 2020 | | |

December 11, 2020

APPLIED MATERIALS, INC.

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

| Balance at October 29, 2017 | | | 1,060 | | | | | | $ | 11 | | | | | $ | 7,056 | | | | | $ | 18,539 | | | | | 917 | | | | | | $ | (15,912) | | | | | $ | (64) | | | | | $ | 9,630 | |

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All of Applied’s derivative financial instruments are recorded at fair value based upon quoted market prices for comparable instruments.

Applied does not use derivative financial instruments for trading or speculative purposes.

*Derivatives and Hedging.* In August 2017, the FASB issued authoritative guidance that modifies the recognition and presentation of hedge accounting to better align an entity’s risk management strategies and financial reporting for hedging relationships.

The authoritative guidance expands the application of hedge accounting for non-financial and financial risk components and eases certain hedge effectiveness assessment requirements.

The 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.

*Receivables: Nonrefundable Fees and Other Costs.* In March 2017, the FASB issued authoritative guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date to more closely align with expectations incorporated in market pricing.

This authoritative guidance will be effective for Applied in fiscal 2021 on a retrospective basis, with early adoption permitted.

* Includes agency debt securities guaranteed by Canada.

| Total | | | $ | 1,847 | | | | | $ | 1,925 | |

| Gross realized gains | | | $ | 19 | | | | | $ | 10 | | | | | $ | 29 | |

| Gross realized losses | | | $ | 2 | | | | | $ | 2 | | | | | $ | 3 | |

Unrealized gains and losses on investments classified as equity investments are recognized in other income (expense), net in the Consolidated Statement of Operations.

Prior to the adoption of Accounting Standards Update (ASU) 2016-01 *Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities* in the first quarter of fiscal 2019, these unrealized gains and temporary losses were included within accumulated other comprehensive income (loss), net of any related tax effect.

| U.S. Treasury and agency securities | | | 375 | | | | | | 23 | | | | | | | | | | | | 398 | | | | | | 323 | | | | | | 18 | | | | | | | | | | | | 341 | | |

Prior to adopting the new accounting guidance for hedge accounting, changes in the fair value of currency forward exchange and option contracts due to changes in time value were excluded from the assessment of effectiveness.

Both ineffective hedge amounts and hedge components excluded from the assessment of effectiveness are recognized in earnings.

If the transaction being hedged is no longer probable to occur, or if a portion of any derivative is deemed to be ineffective, Applied promptly recognizes the gain or loss on the associated financial instrument in the statement of operations.

These derivatives are typically entered into once per month and are not designated for hedge accounting treatment.

| 2018 | | | | | | | | | | | | | | | | | |

| | | | | | | | | | $ | (2) | | | | | $ | 12 | |

Changes in allowance for doubtful accounts in each fiscal year were as follows:

| | | | $ | 3,904 | | | | | $ | 3,474 | |

| | | | $ | 764 | | | | | $ | 581 | |

| | | | | | | | | | $ | 1,604 | | | | | $ | 1,529 | |

| | | | $ | 2,223 | | | | | $ | 2,031 | |

| | | | $ | 3,138 | | | | | $ | 2,511 | |

| | | | $ | 662 | | | | | $ | 375 | |

Kokusai Electric is a leading company in providing high-productivity batch processing systems and services for memory, foundry and logic customers.

These systems complement Applied’s portfolio of single-wafer processing systems.

Following the close of the transaction, Kokusai Electric will operate as a business unit of Applied’s Semiconductor Systems segment and continue to be based in Tokyo, with technology and manufacturing centers in Toyama, Japan and Cheonan, Korea.

The transaction is subject to regulatory approvals and other customary closing conditions.

The SPA contains certain termination rights, including if the transactions contemplated by the SPA are not consummated on or before June 30, 2020 (Outside Date), which date may be extended by three months on two separate occasions if, on the applicable date, the only conditions to closing relate to required regulatory approvals.