Item 16. Form 10-K Summary

None.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Applied Materials, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Applied Materials, Inc. and subsidiaries (the Company) as of October 29, 2023 and October 30, 2022, 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 29, 2023, 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 29, 2023 and October 30, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended October 29, 2023, 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 29, 2023, 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 15, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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

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

Critical Audit Matter

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

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

As discussed in notes 1 and 8 to the consolidated financial statements, the Company has inventories with a carrying value of $5,725 million as of October 29, 2023. The Company adjusts inventory carrying value for estimated excess or obsolescence equal to the difference between cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual demand were to be substantially lower than estimated, there could be a significant adverse impact on the carrying value of inventories and results of operations.

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

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

/S/ KPMG LLP
KPMG LLP

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

Santa Clara, California

December 15, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Applied Materials, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Applied Materials, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of October 29, 2023, 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 29, 2023, 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 29, 2023 and October 30, 2022, 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 29, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated December 15, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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

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

Definition and Limitations of Internal Control Over Financial Reporting

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

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

/s/ KPMG LLP
KPMG LLP

Santa Clara, California

December 15, 2023

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

Fiscal Year			2023						2022						2021
Net sales			$	26,517					$	25,785					$	23,063
Cost of products sold			14,133						13,792						12,149
Gross profit			12,384						11,993						10,914
Operating expenses:
Research, development and engineering			3,102						2,771						2,485
Marketing and selling			776						703						609
General and administrative			852						735						620
Severance and related charges			—						(4)						157
Deal termination fee			—						—						154
Total operating expenses			4,730						4,205						4,025
Income from operations			7,654						7,788						6,889
Interest expense			238						228						236
Interest and other income (expense), net			300						39						118
Income before income taxes			7,716						7,599						6,771
Provision for income taxes			860						1,074						883
Net income			$	6,856					$	6,525					$	5,888
Earnings per share:
Basic			$	8.16					$	7.49					$	6.47
Diluted			$	8.11					$	7.44					$	6.40
Weighted average number of shares:
Basic			840						871						910
Diluted			845						877						919

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

Fiscal Year			2023						2022						2021
Net income			$	6,856					$	6,525					$	5,888
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on available-for-sale investments			25						(74)						(21)
Change in unrealized net loss on derivative instruments			(66)						51						30
Change in defined and postretirement benefit plans			26						81						30
Other comprehensive income (loss), net of tax			(15)						58						39
Comprehensive income			$	6,841					$	6,583					$	5,927

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

			October 29, 2023						October 30, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	6,132					$	1,995
Short-term investments			737						586
Accounts receivable, net			5,165						6,068
Inventories			5,725						5,932
Other current assets			1,388						1,344
Total current assets			19,147						15,925
Long-term investments			2,281						1,980
Property, plant and equipment, net			2,723						2,307
Goodwill			3,732						3,700
Purchased technology and other intangible assets, net			294						339
Deferred income taxes and other assets			2,552						2,475
Total assets			$	30,729					$	26,726
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt			$	100					$	—
Accounts payable and accrued expenses			4,297						4,237
Contract liabilities			2,975						3,142
Total current liabilities			7,372						7,379
Long-term debt			5,461						5,457
Income taxes payable			833						964
Other liabilities			714						732
Total liabilities			14,380						14,532
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock: $0.01 par value per share; 1 shares authorized; no shares issued			—						—
Common stock: $0.01 par value per share; 2,500 shares authorized; 833 and 844 shares outstanding at 2023 and 2022, respectively			8						8
Additional paid-in capital			9,131						8,593
Retained earnings			43,726						37,892
Treasury stock: 1,191 and 1,173 shares at 2023 and 2022, respectively			(36,299)						(34,097)
Accumulated other comprehensive loss			(217)						(202)
Total stockholders’ equity			16,349						12,194
Total liabilities and stockholders’ equity			$	30,729					$	26,726

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per share amounts)

			Common Stock												Additional Paid-In Capital						Retained Earnings						Treasury Stock												Accumulated Other Comprehensive Income (Loss)						Total
			Shares						Amount												Shares						Amount
Balance at October 25, 2020			914						$	9					$	7,904					$	27,209					1,091						$	(24,245)					$	(299)					$	10,578
Net income			—						—						—						5,888						—						—						—						5,888
Other comprehensive income (loss), net of tax			—						—						—						—						—						—						39						39
Dividends declared ($0.94 per common share)			—						—						—						(851)						—						—						—						(851)
Share-based compensation			—						—						346						—						—						—						—						346
Net issuance under stock plans			6						—						(3)						—						—						—						—						(3)
Common stock repurchases			(28)						—						—						—						28						(3,750)						—						(3,750)
Balance at October 31, 2021			892						$	9					$	8,247					$	32,246					1,119						$	(27,995)					$	(260)					$	12,247
Net income			—						—						—						6,525						—						—						—						6,525
Other comprehensive income (loss), net of tax			—						—						—						—						—						—						58						58
Dividends declared ($1.02 per common share)			—						—						—						(879)						—						—						—						(879)
Share-based compensation			—						—						413						—						—						—						—						413
Net issuance under stock plans			6						—						(67)						—						—						—						—						(67)
Common stock repurchases			(54)						(1)						—						—						54						(6,102)						—						(6,103)
Balance at October 30, 2022			844						$	8					$	8,593					$	37,892					1,173						$	(34,097)					$	(202)					$	12,194
Net income			—						—						—						6,856						—						—						—						6,856
Other comprehensive income (loss), net of tax			—						—						—						—						—						—						(15)						(15)
Dividends declared ($1.22 per common share)			—						—						—						(1,022)						—						—						—						(1,022)
Share-based compensation			—						—						490						—						—						—						—						490
Net issuance under stock plans			7						—						48						—						—						—						—						48
Common stock repurchases			(18)						—						—						—						18						(2,202)						—						(2,202)
Balance at October 29, 2023			833						$	8					$	9,131					$	43,726					1,191						$	(36,299)					$	(217)					$	16,349

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Fiscal Year			2023						2022						2021
Cash flows from operating activities:
Net income			$	6,856					$	6,525					$	5,888
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization			515						444						394
Severance and related charges			—						(4)						148
Deferred income taxes			24						(223)						80
Other			40						36						(70)
Share-based compensation			490						413						346
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable			903						(1,109)						(1,989)
Inventories			207						(1,590)						(405)
Other current and non-current assets			(48)						(16)						(602)
Accounts payable and accrued expenses			(138)						390						465
Contract liabilities			(167)						1,039						755
Income taxes payable			(20)						(541)						396
Other liabilities			38						35						36
Cash provided by operating activities			8,700						5,399						5,442
Cash flows from investing activities:
Capital expenditures			(1,106)						(787)						(668)
Cash paid for acquisitions, net of cash acquired			(25)						(441)						(12)
Proceeds from sales and maturities of investments			1,268						1,363						1,471
Purchases of investments			(1,672)						(1,492)						(2,007)
Cash used in investing activities			(1,535)						(1,357)						(1,216)
Cash flows from financing activities:
Proceeds from commercial paper			991						—						—
Repayments of commercial paper			(900)						—						—
Proceeds from common stock issuances			227						199						175
Common stock repurchases			(2,189)						(6,103)						(3,750)
Tax withholding payments for vested equity awards			(179)						(266)						(178)
Payments of dividends to stockholders			(975)						(873)						(838)
Repayments of principals on finance leases			(7)						—						—
Cash used in financing activities			(3,032)						(7,043)						(4,591)
Increase (decrease) in cash, cash equivalents and restricted cash equivalents			4,133						(3,001)						(365)
Cash, cash equivalents and restricted cash equivalents — beginning of period			2,100						5,101						5,466
Cash, cash equivalents and restricted cash equivalents — end of period			$	6,233					$	2,100					$	5,101
Reconciliation of cash, cash equivalents, and restricted cash equivalents
Cash and cash equivalents			$	6,132					$	1,995					$	4,995
Restricted cash equivalents included in deferred income taxes and other assets			101						105						106
Total cash, cash equivalents, and restricted cash equivalents			$	6,233					$	2,100					$	5,101
Supplemental cash flow information:
Cash payments for income taxes			$	1,006					$	1,869					$	851
Cash refunds from income taxes			$	53					$	156					$	27
Cash payments for interest			$	205					$	205					$	205

See accompanying Notes to Consolidated Financial Statements.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Applied Materials, Inc. and its subsidiaries (we, us, and our) after elimination of intercompany balances and transactions. All references to a fiscal year apply to our fiscal year which ends on the last Sunday in October. Fiscal 2023, 2022 and 2021 contained 52, 52 and 53 weeks, respectively. Each fiscal quarter of 2023 and 2022 contained 13 weeks. The first fiscal quarter of 2021 contained 14 weeks, while the second, third and fourth quarters of fiscal 2021 contained 13 weeks.

Use of Estimates

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

Cash Equivalents

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

Investments

All of our investments, except equity investments, are classified as available-for-sale at the respective balance sheet dates. Investments classified as available-for-sale are measured and recorded in the Consolidated Balance Sheets at fair value, and unrealized gains and losses, net of tax, are reported as a separate component of other comprehensive income. Interest earned on cash and investments, as well as realized gains and losses on sale of securities, are included in interest and other income, net in the Consolidated Statements of Operations.

Our equity investments with readily determinable values consist of publicly traded equity securities. These investments are measured at fair value using quoted prices for identical assets in an active market. Privately held equity investments without readily determinable fair value are measured at cost, less impairment, adjusted by observable price changes. Adjustments resulting from impairments and observable price changes are recorded in interest and other income, net in the Consolidated Statements of Operations.

Allowance for Credit Losses

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

Inventories

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property, Plant and Equipment

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

In connection with our periodic review of estimated useful lives of the property, plant, and equipment subsequent to the end of fiscal 2023, we will increase the estimated useful lives of certain assets. The estimated useful lives of certain buildings and improvements will increase by 5 years. The estimated range of useful lives of demonstration and manufacturing equipment will increase to between 5 to 8 years. This change in accounting estimate will be effective beginning fiscal year 2024 and will be applied on a prospective basis to the assets on our balance sheet as of October 29, 2023, as well as to future asset purchases. Based on the carrying amount of the assets included in property, plant and equipment, net in our Consolidated Balance Sheet as of October 29, 2023, we currently estimate this change will increase income from operations before income taxes in fiscal 2024 by approximately $128 million as a result of the reduction in depreciation expense.

Government Assistance

We receive government assistance from various domestic and foreign governments in the form of cash grants or refundable tax credits. These arrangements incentivize us to continue growing our capital investments and research and development activities. Government incentives generally contain conditions that must be met in order for the assistance to be earned. We recognize the incentives when there is reasonable assurance that we will comply with all conditions specified in the incentive arrangement and the incentive will be received.

We record capital expenditure related incentives as an offset to the associated property, plant and equipment, net within our Consolidated Balance Sheets and recognize a reduction to depreciation expense over the useful life of the corresponding acquired asset. We record incentives related to operating activities as a reduction to expense in the same line item on the Consolidated Statements of Operations as the expenditure for which the grant is intended to compensate. Capital expenditure related incentives reduced gross property, plant and equipment, net by $154 million in fiscal 2023. Contra-depreciation expense was not material in fiscal 2023. Operating incentives recognized as a reduction to research, development and engineering expense was $53 million in fiscal 2023. Capital expenditure related incentives reduced our income taxes payable by $149 million as of October 29, 2023, of which $140 million is in accounts payable and accrued expenses and $9 million is in income taxes payable, in our Consolidated Balance Sheets.

Goodwill and Intangible Assets

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

Intangible assets with infinite lives are not subject to amortization and consist primarily of in-process technology, which will be subject to amortization upon commercialization. If an in-process technology project is abandoned, the acquired technology attributable to the project will be written-off.

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The process of evaluating the potential impairment of goodwill and intangible assets requires judgment. When reviewing goodwill for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. In performing a qualitative assessment, we consider business conditions and other factors including, but not limited to (i) adverse industry or economic trends, (ii) restructuring actions and lower projections that may impact future operating results, (iii) sustained decline in share price, and (iv) overall financial performance and other events affecting the reporting units. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed by estimating the fair value of the reporting unit and comparing it to its carrying value. If the carrying value of a reporting unit exceeds its fair value, we would record an impairment charge equal to the excess of the carrying value of the reporting unit over its fair value.

Long-Lived Assets

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

Revenue Recognition from Contracts with Customers

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

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

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

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

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

Recognizing the revenue as performance obligations are satisfied. We recognize revenue from equipment and spares parts at a point in time when we have satisfied our performance obligation by transferring control of the goods to the customer which typically occurs at shipment or delivery. Revenue from service agreements is recognized over time, typically within 12 months, as customers receive the benefits of services.

The incremental costs to obtain a contract are not material.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Shipping and Handling Costs

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

Warranty

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

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

Sales and Value Added Taxes

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

Research, Development and Engineering Costs

Research, development and engineering costs are expensed as incurred.

Income Taxes

We recognize a current tax liability for the estimated amount of income tax payable on tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. Deferred tax assets and liabilities are measured based on enacted tax rates that are expected to apply in the period in which the assets are realized or the liabilities are settled. Deferred tax assets and liabilities are adjusted for the effect of a change in tax rates, laws, or status when the change is enacted.

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Derivative Financial Instruments

We use financial instruments, such as foreign currency forward and option contracts, to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions typically expected to occur within 24 months. The purpose of our foreign currency management is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. In certain cases, we also use interest rate swap or lock agreements to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. The terms of derivative financial instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. Our derivative financial instruments are recorded as assets or liabilities at fair value and reported gross on our Consolidated Balance Sheets. However, under master netting agreements in place with our counterparties, we may net settle transactions of the same currency under certain circumstances. For derivative instruments designated and qualifying as cash flow hedges, the gain or loss is reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity, and is reclassified into earnings when the hedged transaction affects earnings. 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 we recognize the gain or loss on the associated derivative in earnings. For hedges of existing foreign currency denominated assets or liabilities, the gain or loss is recorded in earnings in the same period to offset the changes in the fair value of the assets or liabilities being hedged.

Foreign Currency

As of October 29, 2023, all of our subsidiaries use the United States dollar as their functional currency. Accordingly, assets and liabilities of these subsidiaries are remeasured using exchange rates in effect at the end of the period, except for non-monetary assets, such as inventories and property, plant and equipment, which are remeasured using historical exchange rates. Foreign currency-denominated revenues and costs are remeasured using average exchange rates for the period, except for costs related to the non-monetary assets and liabilities, which are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in interest and other income, net in the Consolidated Statements of Operations as incurred.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash equivalents, investments, trade accounts receivable and derivative financial instruments used in hedging activities. We invest in a variety of financial instruments, such as, but not limited to, commercial paper, corporate bonds, municipal securities, United States Treasury and agency securities, and asset-backed and mortgage-backed securities, and, by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments but do not expect any counterparties to fail to meet their obligations. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral to secure accounts receivable. We maintain an allowance for potentially uncollectible accounts receivable based on our assessment of the collectability of accounts receivable. We regularly review the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. In addition, we utilize deposits and/or letters of credit to mitigate credit risk when considered appropriate.

Recent Accounting Pronouncements

Accounting Standards Adopted

Disclosures by Business Entities about Government Assistance. In November 2021, the Financial Accounting Standards Board (FASB) issued an accounting standard update which requires annual disclosures related to certain government assistance received by business entities (Topic 832) including (1) the types of assistance, (2) the entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. We adopted this guidance for our fiscal 2023 Form 10-K. The adoption of this authoritative guidance only impacted the disclosures in our notes to consolidated financial statements.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounting Standards Not Yet Adopted

Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued an accounting standard update to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses (Topic 280). The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker (CODM) and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss and contains other disclosure requirements. This authoritative guidance will be effective for us in fiscal 2025 for annual periods and in the first quarter of fiscal 2026 for interim periods, with early adoption permitted. We are currently evaluating the effect of this new guidance on our consolidated financial statements.

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. In June 2022, the FASB issued an accounting standard update which clarifies how the fair value of equity securities subject to contractual sale restrictions is determined (Topic 820). The amendment clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires certain qualitative and quantitative disclosures related to equity securities subject to contractual sale restrictions. This authoritative guidance will be effective for us in the first quarter of fiscal 2025, with early adoption permitted. We are currently evaluating the effect of this new guidance on our consolidated financial statements.

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. This authoritative guidance will be effective for us in the first quarter of fiscal 2024. The impact of the adoption depends on the facts and circumstances of future acquisitions.

Note 2 Earnings Per Share

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

Fiscal Year			2023						2022						2021
			(In millions, except per share amounts)
Numerator:
Net income			$	6,856					$	6,525					$	5,888
Denominator:
Weighted average common shares outstanding			840						871						910
Effect of weighted dilutive restricted stock units and employee stock purchase plan shares			5						6						9
Denominator for diluted earnings per share			845						877						919
Basic earnings per share			$	8.16					$	7.49					$	6.47
Diluted earnings per share			$	8.11					$	7.44					$	6.40
Potentially weighted dilutive securities			—						3						—

Excluded from the calculation of diluted earnings per share are securities attributable to outstanding restricted stock units where the combined exercise price and average unamortized fair value are greater than the average market price of our common stock, and therefore their inclusion would be anti-dilutive.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3 Cash, Cash Equivalents and Investments

Summary of Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents and investments by security type:

October 29, 2023			Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
			(In millions)
Cash			$	1,417					$	—					$	—					$	1,417
Cash equivalents:
Money market funds*			3,260						—						—						3,260
Municipal securities			26						—						—						26
Commercial paper, corporate bonds and medium-term notes			1,429						—						—						1,429
Total cash equivalents			4,715						—						—						4,715
Total cash and cash equivalents			$	6,132					$	—					$	—					$	6,132
Short-term and long-term investments:
Bank certificates of deposit and time deposits			$	18					$	—					$	—					$	18
U.S. Treasury and agency securities			381						—						7						374
Non-U.S. government securities**			7						—						1						6
Municipal securities			438						—						11						427
Commercial paper, corporate bonds and medium-term notes			760						—						12						748
Asset-backed and mortgage-backed securities			502						—						15						487
Total fixed income securities			2,106						—						46						2,060
Publicly traded equity securities			543						171						16						698
Equity investments in privately held companies			192						78						10						260
Total equity investments			735						249						26						958
Total short-term and long-term investments			$	2,841					$	249					$	72					$	3,018
Total cash, cash equivalents and investments			$	8,973					$	249					$	72					$	9,150

---

*Excludes $101 million of restricted cash equivalents invested in money market funds related to deferred compensation plans.

**Includes Canadian provincial government debt.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

October 30, 2022			Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
			(In millions)
Cash			$	1,199					$	—					$	—					$	1,199
Cash equivalents:
Money market funds*			660						—						—						660
U.S. Treasury and agency securities			4						—						—						4
Municipal securities			13						—						—						13
Commercial paper, corporate bonds and medium-term notes			119						—						—						119
Total cash equivalents			796						—						—						796
Total cash and cash equivalents			$	1,995					$	—					$	—					$	1,995
Short-term and long-term investments:
Bank certificates of deposit			$	7					$	—					$	—					$	7
U.S. Treasury and agency securities			435						—						13						422
Non-U.S. government securities**			7						—						1						6
Municipal securities			389						—						16						373
Commercial paper, corporate bonds and medium-term notes			595						—						21						574
Asset-backed and mortgage-backed securities			432						—						19						413
Total fixed income securities			1,865						—						70						1,795
Publicly traded equity securities			85						63						26						122
Equity investments in privately held companies			567						86						4						649
Total equity investments			652						149						30						771
Total short-term and long-term investments			$	2,517					$	149					$	100					$	2,566
Total cash, cash equivalents and investments			$	4,512					$	149					$	100					$	4,561

---

*Excludes $105 million of restricted cash equivalents invested in money market funds related to deferred compensation plans.

**Includes Canadian provincial government debt.

During fiscal 2023, 2022 and 2021, interest income from our cash, cash equivalents and fixed income securities was $262 million, $44 million and $26 million, respectively.

Maturities of Investments

The following table summarizes the contractual maturities of our investments at October 29, 2023:

			Cost						Estimated Fair Value
			(In millions)
Due in one year or less			$	716					$	709
Due after one through five years			888						864
No single maturity date*			1,237						1,445
Total			$	2,841					$	3,018

---

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Gains and Losses on Investments

At October 29, 2023, gross unrealized losses related to our fixed income portfolio were not material. We regularly review our fixed income portfolio to identify and evaluate investments that have indications of possible impairment from credit losses or other factors. Factors considered in determining whether an unrealized loss is considered to be a credit loss include: the significance of the decline in value compared to the cost basis; the financial condition; credit quality and near-term prospects of the investee; and whether it is more likely than not that we will be required to sell the security prior to recovery. Credit losses related to available-for-sale debt securities are recorded as an allowance for credit losses through interest and other income (expense), net. Any additional changes in fair value that are not related to credit losses are recognized in accumulated other comprehensive income (loss) (AOCI).

During fiscal 2023, 2022 and 2021, gross realized gains and losses related to our fixed income portfolio were not material.

During fiscal 2023, 2022 and 2021, we did not recognize significant credit losses and the ending allowance for credit losses was not material.

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

			2023						2022						2021
			(In millions)
Publicly traded equity securities
Unrealized gain			$	193					$	30					$	14
Unrealized loss			(44)						(62)						(11)
Realized gain on sales and dividends			9						7						2
Realized loss on sales or impairment			(4)						—						—
Equity investments in privately held companies
Unrealized gain			15						41						65
Unrealized loss			(30)						(5)						(12)
Realized gain on sales and dividends			9						3						48
Realized loss on sales or impairment			(121)						(7)						(7)
Total gain (loss) on equity investments, net			$	27					$	7					$	99

Impairment losses on equity investments in privately held companies, included in the above table, were not material during fiscal 2022 and 2021 and were $121 million during fiscal 2023. These impairment losses are included in interest and other income (expense), net in the Consolidated Statement of Operations.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 4 Fair Value Measurements

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

Fair Value Hierarchy

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

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

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

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

Our investments consist primarily of debt securities that are classified as available-for-sale and recorded at their fair values. In determining the fair value of investments, we use pricing information from pricing services that value securities based on quoted market prices and models that utilize observable market inputs. In the event a fair value estimate is unavailable from a pricing service, we generally obtain non-binding price quotes from brokers. In addition, to validate pricing information obtained from pricing services, we periodically perform supplemental analysis on a sample of securities. We review any significant unanticipated differences identified through this analysis to determine the appropriate fair value. As of October 29, 2023, substantially all of our available-for-sale, short-term and long-term investments were recognized at fair value that was determined based upon observable inputs or quoted prices.

Our equity investments with readily determinable values consist of publicly traded equity securities. These investments are measured at fair value using quoted prices for identical assets in an active market and the changes in fair value of these equity investments are recognized in the consolidated statements of operations.

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets Measured at Fair Value on a Recurring Basis

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

			October 29, 2023																		October 30, 2022
			Level 1						Level 2												Total						Level 1						Level 2												Total
			(In millions)
Assets:
Available-for-sale debt security investments
Money market funds*			$	3,361					$	—											$	3,361					$	765					$	—											$	765
Bank certificates of deposit and time deposits			—						18												18						—						7												7
U.S. Treasury and agency securities			331						43												374						404						22												426
Non-U.S. government securities			—						6												6						—						6												6
Municipal securities			—						453												453						—						386												386
Commercial paper, corporate bonds and medium-term notes			—						2,177												2,177						—						693												693
Asset-backed and mortgage-backed securities			—						487												487						—						413												413
Total available-for-sale debt security investments			$	3,692					$	3,184											$	6,876					$	1,169					$	1,527											$	2,696
Equity investments with readily determinable values
Publicly traded equity securities			$	698					$	—											$	698					$	122					$	—											$	122
Total equity investments with readily determinable values			$	698					$	—											$	698					$	122					$	—											$	122
Total			$	4,390					$	3,184											$	7,574					$	1,291					$	1,527											$	2,818

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*Amounts as of October 29, 2023 and October 30, 2022 include $101 million and $105 million, respectively, invested in money market funds related to deferred compensation plans. Due to restrictions on the distribution of these funds, they are classified as restricted cash equivalents and are included in deferred income taxes and other assets in the Consolidated Balance Sheets.

We did not have any financial assets measured at fair value on a recurring basis within Level 3 fair value measurements as of October 29, 2023 or October 30, 2022.

Assets and Liabilities without Readily Determinable Values Measured on a Non-recurring Basis

Our equity investments without readily determinable values consist of equity investments in privately held companies. We elected the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes on a prospective basis for certain equity investments without readily determinable fair values and are required to account for any subsequent observable changes in fair value within the statements of operations. These investments are classified as Level 3 within the fair value hierarchy and periodically assessed for impairment when an event or circumstance indicates that a decline in value may have occurred. Impairment losses on equity investments in privately held companies, included in the above table, were not material during fiscal 2022 and 2021 and were $121 million during fiscal 2023. These impairment losses are included in interest and other income (expense), net in the Consolidated Statement of Operations.

Other

The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash equivalents, accounts receivable, commercial paper notes, and accounts payable and accrued expenses, approximate fair value due to their short maturities. At October 29, 2023, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion, and the estimated fair value was $4.7 billion. At October 30, 2022, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion and the estimated fair value was $4.8 billion. The estimated fair value of long-term senior unsecured notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. See Note 10 of the Notes to the Consolidated Financial Statements for further detail of existing debt.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5 Derivative Instruments and Hedging Activities

Derivative Financial Instruments

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

We do not use derivative financial instruments for trading or speculative purposes. Derivative instruments and hedging activities, including foreign exchange and interest rate contracts, are recognized on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify for hedge accounting treatment are recognized currently in earnings. All of our derivative financial instruments are recorded at their fair value in other current assets or in accounts payable and accrued expenses.

Hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges and foreign exchange derivatives are typically entered into once per month. Cash flow hedges are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of AOCI in stockholders’ equity and is reclassified into earnings when the hedged transaction affects earnings. The majority of the after-tax net income or loss related to foreign exchange derivative instruments included in AOCI at October 29, 2023 is expected to be reclassified into earnings within 12 months. Changes in fair value caused by changes in time value of option contracts designated as cash flow hedges are excluded from the assessment of effectiveness. The initial value of this excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in the financial statement line item to which the hedge relates. If the transaction being hedged is probable not to occur, we recognize the gain or loss on the associated financial instrument in the consolidated statement of operations. The amount recognized due to discontinuance of cash flow hedges that were probable of not occurring by the end of the originally specified time period was not significant for fiscal years 2023, 2022 or 2021.

Foreign currency forward contracts are generally used to hedge certain foreign currency denominated assets or liabilities. Accordingly, changes in the fair value of these hedges are recorded in earnings to offset the changes in the fair value of the assets or liabilities being hedged.

As of October 29, 2023 and October 30, 2022, the total outstanding notional amount of foreign exchange contracts was $1.7 billion and $2.1 billion, respectively. The fair values of foreign exchange derivative instruments at October 29, 2023 and October 30, 2022 were not material.

The gain (loss) on derivatives in cash flow hedging relationships recognized in AOCI for derivatives designated as hedging instruments for the indicated periods were as follows:

			Derivatives in Cash Flow Hedging Relationships
			2023						2022						2021
			(In millions)
Foreign exchange contracts			$	(56)					$	128					$	36
Total			$	(56)					$	128					$	36

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

									Derivatives in Cash Flow Hedging Relationships
			Total Amount Presented in the Consolidated Statement of Operations in which the Effects of Cash Flow Hedges are Recorded						Amount of Gain or (Loss) Reclassified from AOCI into Consolidated Statement of Operations						Amounts of Gain (Loss) Excluded from Effectiveness Testing Recognized in Consolidated Statement of Operations
2023			(In millions)
Foreign Exchange Contracts:
Net sales			$	26,517					$	63					$	—
Cost of products sold			$	14,133					—						—
Research, development and engineering			$	3,102					(14)						—
Marketing and selling			$	776					(2)						—
General and administrative			$	852					(4)						—
Interest Rate Contracts:
Interest expense			$	238					(13)						—
									$	30					$	—
2022
Foreign Exchange Contracts:
Net sales			$	25,785					$	100					$	—
Cost of products sold			$	13,792					(12)						—
Research, development and engineering			$	2,771					(7)						(1)
Marketing and selling			$	703					(3)						—
General and administrative			$	735					(3)						—
Interest Rate Contracts:
Interest expense			$	228					(13)						—
									$	62					$	(1)
2021
Foreign Exchange Contracts:
Net sales			$	23,063					$	4					$	—
Cost of products sold			$	12,149					2						(2)
Research, development and engineering			$	2,485					3						—
General and administrative			$	620					1						—
Interest Rate Contracts:
Interest expense			$	236					(13)						—
									$	(3)					$	(2)

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

									Amount of Gain or (Loss) Recognized in Consolidated Statement of Operations
			Location of Gain or (Loss) Recognized in Consolidated Statement of Operations						2023						2022						2021
									(In millions)
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts			Interest and other income (expense), net						$	(4)					$	67					$	29
Total return swaps - deferred compensation			Cost of products sold						1						(3)						3
Total return swaps - deferred compensation			Operating expenses						9						(29)						29
Total return swaps - deferred compensation			Interest and other income (expense), net						(11)						(2)						(1)
Total									$	(5)					$	33					$	60

Credit Risk Contingent Features

If our credit rating were to fall below investment grade, we would be in violation of credit risk contingent provisions of the derivative instruments discussed above, and certain counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was immaterial as of October 29, 2023 and October 30, 2022.

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

Note 6 Accounts Receivable, Net

We have agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. We sell our accounts receivable generally without recourse. From time to time, we also discount letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial institutions to discount the letters of credit and the cost of such arrangements.

We sold $0.7 billion, $1.0 billion and $1.3 billion of accounts receivable during fiscal 2023, 2022 and 2021, respectively. We did not discount letters of credit issued by customers in fiscal 2023, 2022 and 2021. There was no discounting of promissory notes in each of fiscal 2023, 2022 and 2021. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Statements of Operations and were not material for all years presented.

Accounts receivable are presented net of allowance for credit losses of $29 million at October 29, 2023 and October 30, 2022. Changes in allowance for credit losses in fiscal 2023, 2022 and 2021 were not material.

We sell our products principally to manufacturers within the semiconductor and display industries. While we believe that our allowance for credit losses is adequate and represents our best estimate as of October 29, 2023, we continue to closely monitor customer liquidity and industry and economic conditions, which may result in changes to our estimates.

Note 7 Contract Balances and Performance Obligations

Contract Assets and Liabilities

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

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

			October 29, 2023						October 30, 2022
			(In millions)
Contract assets			$	274					$	173
Contract liabilities			$	2,975					$	3,142

The increase in contract assets during fiscal 2023, was primarily due to an increase in unsatisfied performance obligations related to goods transferred to customers where payment was conditional upon technical sign off.

During fiscal 2023, we recognized revenue of approximately $2.9 billion related to contract liabilities at October 30, 2022. This reduction in contract liabilities was offset by new billings for products and services for which there were unsatisfied performance obligations to customers and revenue had not yet been recognized as of October 29, 2023.

There were no credit losses recognized on our accounts receivables and contract assets during fiscal 2023 and 2022.

Performance Obligations

As of October 29, 2023, the amount of remaining unsatisfied performance obligations on contracts, primarily consisting of written purchase orders received from customers, with an original estimated duration of one year or more was approximately $6.0 billion, of which approximately 59% is expected to be recognized within 12 months and the remainder is expected to be recognized within the following 24 months thereafter.

We have elected the available practical expedient to exclude the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Note 8 Balance Sheet Detail

			October 29, 2023						October 30, 2022
			(In millions)
Inventories
Customer service spares			$	1,589					$	1,409
Raw materials			1,653						1,807
Work-in-process			997						1,029
Finished goods
Deferred cost of sales			413						704
Evaluation inventory			423						422
Manufactured on-hand inventory			650						561
Total finished goods			1,486						1,687
Total inventories			$	5,725					$	5,932

			October 29, 2023						October 30, 2022
			(In millions)
Other Current Assets
Prepaid income taxes and income taxes receivable			$	412					$	461
Prepaid expenses and other			976						883
			$	1,388					$	1,344

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			Useful Life						October 29, 2023						October 30, 2022
			(In years)						(In millions)
Property, Plant and Equipment, Net
Land and improvements									$	393					$	387
Buildings and improvements			3-30						2,194						2,027
Demonstration and manufacturing equipment			3-5						2,353						2,083
Furniture, fixtures and other equipment			3-5						762						743
Construction in progress									672						389
Gross property, plant and equipment									6,374						5,629
Accumulated depreciation									(3,651)						(3,322)
									$	2,723					$	2,307

Depreciation expense was $471 million, $404 million and $345 million for fiscal 2023, 2022 and 2021, respectively.

			October 29, 2023						October 30, 2022
			(In millions)
Deferred Income Taxes and Other Assets
Non-current deferred income taxes			$	1,729					$	1,395
Operating lease right-of-use assets			370						389
Finance lease right-of-use assets			108						—
Income tax receivables and other assets			345						691
			$	2,552					$	2,475

			October 29, 2023						October 30, 2022
			(In millions)
Accounts Payable and Accrued Expenses
Accounts payable			$	1,478					$	1,755
Compensation and employee benefits			1,024						905
Warranty			332						286
Dividends payable			267						220
Income taxes payable			282						319
Other accrued taxes			65						30
Interest payable			38						39
Operating lease liabilities, current			84						85
Finance lease liabilities, current			102						—
Other			625						598
			$	4,297					$	4,237

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			October 29, 2023						October 30, 2022
			(In millions)
Other Liabilities
Defined and postretirement benefit plans			$	126					$	107
Operating lease liabilities, non-current			252						287
Other			336						338
			$	714					$	732

Note 9 Goodwill and Intangible Assets

As of October 29, 2023, our reporting units include Semiconductor Products Group and Imaging and Process Control Group, which combine to form the Semiconductor Systems reporting segment, Applied Global Services, Display and Adjacent Markets and other reporting units recorded under Corporate and Other.

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

Goodwill

In the fourth quarter of fiscal 2023, we performed a qualitative assessment to test goodwill for all of our reporting units for impairment. We determined that it was more likely than not that each of our reporting units’ fair values exceeded their respective carrying values and that it was not necessary to perform the quantitative goodwill impairment test for any of our reporting units. The evaluation of goodwill and intangible assets for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, we will be required to reassess and update our forecasts and estimates used in future impairment analyses. If the results of these future analyses are lower than current estimates, a material impairment charge may result at that time.

Details of goodwill as of October 29, 2023 and October 30, 2022 were as follows:

			October 29, 2023						October 30, 2022
			(In millions)
Goodwill by reportable segment
Semiconductor Systems			$	2,460					$	2,428
Applied Global Services			1,032						1,032
Display and Adjacent Markets			199						199
Corporate and Other			41						41
			$	3,732					$	3,700

From time to time, we acquire companies related to our existing or new markets. During fiscal 2023, goodwill increased primarily due to the preliminary purchase accounting for acquisitions, net of adjustments, which were not material to our results of operations or to our balance sheet.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible Assets

Details of intangible assets other than goodwill were as follows:

			October 29, 2023																		October 30, 2022
			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
			(In millions)
Intangible assets with finite lives:
Semiconductor Systems Group			$	2,001					$	(1,714)					$	287					$	1,985					$	(1,675)					$	310
Applied Global Services			79						(78)						1						79						(77)						2
Display and Adjacent Markets			194						(194)						—						194						(194)						—
Corporate & Other			36						(30)						6						36						(26)						10
Total intangible assets with finite lives			$	2,310					$	(2,016)					$	294					$	2,294					$	(1,972)					$	322
Intangible assets with infinite lives:
Semiconductor Systems Group			$	—					$	—					$	—					$	16					$	—					$	16
Corporate & Other			—						—						—						1						—						1
Total intangible assets with infinite lives			$	—					$	—					$	—					$	17					$	—					$	17
Total intangible assets			$	2,310					$	(2,016)					$	294					$	2,311					$	(1,972)					$	339

The increase in intangible assets with finite lives during fiscal 2023 was primarily due to the preliminary purchase accounting for acquisitions during fiscal 2023, which were not material to our results of operations.

Amortization expense of intangible assets was $44 million, $40 million and $49 million during fiscal 2023, 2022 and 2021, respectively.

As of October 29, 2023, future estimated amortization expense of intangible assets with finite lives is expected to be as follows:

			Amortization Expense
			(In millions)
2024			$	43
2025			41
2026			39
2027			26
2028			23
Thereafter			122
Total			$	294

Note 10 Borrowing Facilities and Debt

Revolving Credit Facilities

In February 2020, we entered into a five-year $1.5 billion committed unsecured revolving credit agreement (Revolving Credit Agreement) with a group of banks. The Revolving Credit Agreement includes a provision under which we may request an increase in the amount of the facility of up to $500 million for a total commitment of no more than $2.0 billion, subject to the receipt of commitments from one or more lenders for any such increase and other customary conditions. The Revolving Credit Agreement is scheduled to expire in February 2026, unless extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement provides for borrowings that bear interest for each advance at one of two rates selected by us, plus an applicable margin, which varies according to our public debt credit ratings.

No amounts were outstanding under the Revolving Credit Agreement as of October 29, 2023 and October 30, 2022.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In addition, we have revolving credit facilities with Japanese banks pursuant to which we may borrow up to approximately $53 million in aggregate at any time. Our ability to borrow under these facilities is subject to bank approval at the time of the borrowing request, and any advances will be at rates indexed to the banks’ prime reference rate denominated in Japanese yen. As of October 29, 2023 and October 30, 2022, no amounts were outstanding under these revolving credit facilities.

Short-term Commercial Paper

We have a short-term commercial paper program under which we may issue unsecured commercial paper notes of up to a total amount of $1.5 billion. The proceeds from the issuances of commercial paper are used for general corporate purposes. At October 29, 2023, we had $100 million of commercial paper notes outstanding and recorded as short-term debt with a weighted-average interest rate of 5.39% and maturities of 90 days, and as of October 30, 2022, we did not have any commercial paper notes outstanding.

Senior Unsecured Notes

Debt outstanding as of October 29, 2023 and October 30, 2022 was as follows:

			Principal Amount
			October 29, 2023						October 30, 2022						Effective Interest Rate						Interest Pay Dates
			(In millions)
Long-term debt:
3.900% Senior Notes Due 2025			$	700					$	700					3.944%						April 1, October 1
3.300% Senior Notes Due 2027			1,200						1,200						3.342%						April 1, October 1
1.750% Senior Notes Due 2030			750						750						1.792%						June 1, December 1
5.100% Senior Notes Due 2035			500						500						5.127%						April 1, October 1
5.850% Senior Notes Due 2041			600						600						5.879%						June 15, December 15
4.350% Senior Notes Due 2047			1,000						1,000						4.361%						April 1, October 1
2.750% Senior Notes Due 2050			750						750						2.773%						June 1, December 1
			5,500						5,500
Total unamortized discount			(11)						(12)
Total unamortized debt issuance costs			(28)						(31)
Total long-term debt			$	5,461					$	5,457

Note 11 Leases

A contract contains a lease when we have the right to control the use of an identified asset for a period of time in exchange for consideration. A majority of our lease arrangements are operating leases. We also have certain leases that qualify as finance leases. We lease certain facilities, vehicles and equipment under non-cancelable operating leases, many of which include options to renew. Options that are reasonably certain to be exercised are included in the calculation of the right-of-use asset and lease liability. Our finance leases are those that contain a purchase option which we are reasonably certain to exercise at the end of the lease term. Our leases do not contain residual value guarantees or significant restrictions that impact the accounting for leases. As implicit rates are not available for the leases, we use the incremental borrowing rate as of the lease commencement date in order to measure the right-of-use asset and liability. Operating lease expense is generally recognized on a straight-line basis over the lease term. Finance lease expense is generally recognized on a straight-line basis over the life of the underlying leased asset.

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

			2023						2022						2021
			(In millions, except percentage)
Operating lease cost			$	102					$	93					$	79
Finance lease cost:
Amortization of right-of-use assets			$	2					$	—					$	—
Interest on lease liabilities			$	3					$	—					$	—
Weighted-average remaining lease term (in years) - operating leases			5.7						6.3						5.1
Weighted-average remaining lease term (in years) - finance leases			0.9						n/a						n/a
Weighted-average discount rate - operating leases			3.1		%				2.5		%				1.7		%
Weighted-average discount rate - finance leases			4.6		%				n/a						n/a

Supplemental cash flow information related to leases are as follows:

			2023						2022						2021
			(In millions)
Operating cash flows paid for operating leases			$	112					$	107					$	79
Operating cash flows paid for finance leases			$	3					$	—					$	—
Financing cash flows paid for finance leases			$	7					$	—					$	—
Right-of-use assets obtained in exchange for operating lease liabilities			$	106					$	204					$	123
Right-of-use assets obtained in exchange for finance lease liabilities			$	109					$	—					$	—

As of October 29, 2023, the maturities of lease liabilities are as follows:

			Operating Leases						Finance Leases
Fiscal			(In millions)
2024			$	93					$	106
2025			82						—
2026			47						—
2027			37						—
2028			30						—
Thereafter			81						—
Total lease payments			370						106
Less imputed interest			(34)						(4)
Total			$	336					$	102

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Accumulated Other Comprehensive Income (Loss)

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

			Unrealized Gain (Loss) on Investments, Net						Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges						Defined and Postretirement Benefit Plans						Cumulative Translation Adjustments						Total
			(In millions)
Balance at October 25, 2020			$	20					$	(133)					$	(199)					$	13					(299)
Other comprehensive income (loss) before reclassifications			(14)						28						20						—						34
Amounts reclassified out of AOCI			(7)						2						10						—						5
Other comprehensive income (loss), net of tax			(21)						30						30						—						39
Balance at October 31, 2021			$	(1)					$	(103)					$	(169)					$	13					$	(260)
Other comprehensive income (loss) before reclassifications			(60)						100						71						—						111
Amounts reclassified out of AOCI			(14)						(49)						10						—						(53)
Other comprehensive income, net of tax			(74)						51						81						—						58
Balance at October 30, 2022			$	(75)					$	(52)					$	(88)					$	13					$	(202)
Other comprehensive income (loss) before reclassifications			16						(44)						17						—						(11)
Amounts reclassified out of AOCI			9						(22)						9						—						(4)
Other comprehensive income (loss), net of tax			25						(66)						26						—						(15)
Balance at October 29, 2023			$	(50)					$	(118)					$	(62)					$	13					$	(217)

The tax effects on net income of amounts reclassified from AOCI for the fiscal years 2023, 2022 and 2021 were $18 million, $36 million and $18 million, respectively.

Stock Repurchase Program

In March 2023, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in repurchases, which supplemented the previously existing $6.0 billion authorization approved in March 2022. At October 29, 2023, approximately $12.7 billion remained available for future stock repurchases under the repurchase program.

The following table summarizes our stock repurchases, including excise tax, for each fiscal year:

			2023						2022						2021
			(In millions, except per share amounts)
Shares of common stock repurchased			18						54						28
Cost of stock repurchased			$	2,202					$	6,103					$	3,750
Average price paid per share			$	123.63					$	113.84					$	134.03

Effective January 1, 2023, stock repurchase amounts in the above table include the 1% surcharge on stock repurchases under the Inflation Reduction Act’s excise tax. This excise tax is recorded in equity and reduces the amount available under the repurchase program, as applicable. Excluding this excise tax, total cost of stock repurchased was $2,189 million, or $122.89 per share, for fiscal 2023.

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Dividends

During fiscal 2023, our Board of Directors declared one quarterly cash dividend of $0.26 per share and three quarterly cash dividends of $0.32 per share. During fiscal 2022, our Board of Directors declared one quarterly cash dividend of $0.24 per share and three quarterly cash dividends of $0.26 per share. During fiscal 2021, our Board of Directors declared one quarterly cash dividend of $0.22 per share and three quarterly cash dividends of $0.24 per share. Dividends paid during fiscal 2023, 2022 and 2021 amounted to $975 million, $873 million and $838 million, respectively. We currently anticipate that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of our stockholders.

Share-Based Compensation

We have a stockholder-approved equity plan, the Employee Stock Incentive Plan (ESIP), which permits grants to employees of share-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units and performance units. In addition, the plan provides for the automatic grant of restricted stock units to non-employee directors and permits the grant of share-based awards to non-employee directors and consultants. Share-based awards made under the plan may be subject to accelerated vesting under certain circumstances in the event of a change in control. In addition, we have an Omnibus Employees’ Stock Purchase Plan (ESPP), which enables eligible employees to purchase our common stock.

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

			2023						2022						2021
			(In millions)
Cost of products sold			$	180					$	147					$	118
Research, development, and engineering			179						151						129
Marketing and selling			55						49						43
General and administrative			76						66						56
Total share-based compensation			$	490					$	413					$	346
Income tax benefits recognized			$	63					$	51					$	43

The cost associated with share-based awards is typically recognized over the awards’ service period for the entire award on a straight-line basis, adjusting for estimated forfeitures. However, in the case of share-based awards granted to certain members of senior management that allow for partial accelerated vesting in the event of a qualifying retirement based on age and years of service, the compensation expense is recognized once the individual meets the conditions for a qualifying retirement. We calculate estimated forfeiture rate on an annual basis, based on historical forfeiture activities. The cost associated with performance-based equity awards, which include performance and/or market goals, is recognized for each tranche over the service period. The cost of the portion of performance-based equity awards subject to performance goals is recognized based on an assessment of the likelihood that the applicable performance goals will be achieved, and the cost of the portion of performance-based equity awards subject to market goals is recognized based on the assumption of 100% achievement of the goal.

At October 29, 2023, we had $791 million in total unrecognized compensation expense, net of estimated forfeitures, related to grants of share-based awards under the ESIP and shares issued under the ESPP, which will be recognized over a weighted average period of 2.5 years. At October 29, 2023, there were 25 million shares available for grant of share-based awards under the ESIP, and an additional 12 million shares available for issuance under the ESPP.

Stock Options

Stock options are rights to purchase, at future dates, shares of our common stock. The exercise price of each stock option equals the fair market value of our common stock on the date of grant. Options typically vest over three to four years, subject to the grantee’s continued service with us through the scheduled vesting date, and expire no later than seven years from the grant date. There were no stock options granted during fiscal 2023, 2022 and 2021. There were no outstanding stock options at the end of fiscal 2023.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Stock Units, Restricted Stock, Performance Share Units and Performance Units

Restricted stock units are converted into shares of our common stock upon vesting on a one-for-one basis. Restricted stock has the same rights as other issued and outstanding shares of our common stock except these shares generally have no right to dividends and are held in escrow until the award vests. Performance share units and performance units are awards that result in a payment to a grantee, generally in shares of our common stock on a one-for-one basis, if performance goals, market goals and/or other vesting criteria are achieved or the awards otherwise vest. Restricted stock units, restricted stock, performance share units and performance units typically vest over three to four years and vesting is usually subject to the grantee’s continued service with us and, in some cases, achievement of specified performance and/or market goals.

The compensation expense related to share-based awards subject solely to time-based vesting requirements (Service-Based Awards) is determined using the market value of our common stock, adjusted to exclude the present value of expected dividends during the vesting period. The market value of our common stock is calculated using the closing price of our common stock on the date of grant or if the grant date is not a trading date, the average of the closing prices on the trading dates immediately preceding and following the grant date.

During fiscal 2023, 2022 and 2021, certain members of senior management were granted awards that are subject to the achievement of certain levels of specified performance and/or market goals, in addition to time-based vesting requirements (Performance Based-Awards).

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

During fiscal 2021, certain executive officers were also granted non-recurring long-term Performance-Based Awards that are subject to the achievement of targeted levels of our absolute TSR. The awards become eligible to vest only if targeted levels of TSR are achieved during a five-year performance period and will vest only if the grantee remains employed by us through the vesting date in October 2025, except in the event of involuntary termination of employment without cause, death or following a change of control. The number of shares that may vest in full after five years ranges from 0% to 200% of the target amount.

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

The fair value of the portion of the Performance-Based Awards subject to targeted levels of adjusted operating margin is estimated on the date of grant based on the market value of our common stock, adjusted to exclude the present value of expected dividends during the vesting period. The market value of our common stock is calculated using the closing price of our common stock on the date of the grant or if the grant date is not a trading date, the average of the closing prices on the trading dates immediately preceding and following the grant date. If the performance goals are not met as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the portion of the awards that is probable to vest and is reflected over the service period and reduced for estimated forfeitures.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables summarize the assumptions used for the valuation of share-based awards for the periods presented:

			2023						2022						2021
Service-Based Awards and the portion of Performance-Based Awards subject to performance goals:
Grant date market value			$104.22 - $143.97						$74.62 - $157.29						$74.37 - $143.05
Risk-free interest rate			3.64% - 5.48%						0.16% - 4.48%						0.04% - 0.82%
Dividend yield			0.70% - 3.59%						0.47% - 3.83%						0.20% - 3.09%
Fair value			$102.09 - $141.33						$72.24 - $154.88						$72.20 - $140.66

			2023						2022						2021*****
Portion of Performance-Based Awards subject to market goals:
Grant date market value			$109.37						$146.49						$86.10 - $88.84
Risk-free interest rate			4.10		%				0.87%						0.20% - 0.41%
Dividend yield			0.95		%				0.66%						0.99% - 1.02%
Expected volatility			52.38		%				47.35%						40.51% - 47.00%
Fair value			$162.72						$210.69						$129.27 - $136.81

---

*Fiscal 2021 included both annual and non-recurring long-term Performance-Based Awards.

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

			Shares						Weighted Average Grant Date Fair Value						Weighted Average Remaining Contractual Term						Aggregate Intrinsic Value
			(In millions, except per share amounts)
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 25, 2020			15						$	45.36					2.2 years						$	914
Granted			5						$	92.04
Vested			(6)						$	43.11
Canceled			(1)						$	59.41
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 31, 2021			13						$	63.29					2.2 years						$	1,752
Granted			4						$	132.44
Vested			(5)						$	54.00
Canceled			(1)						$	82.54
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 30, 2022			11						$	92.31					2.2 years						$	1,024
Granted			6						$	104.00
Vested			(5)						$	72.49
Canceled			—						$	103.73
Non-vested restricted stock units, restricted stock, performance shares and performance units at October 29, 2023			12						$	106.24					2.4 years						$	1,524
Non-vested restricted stock units, restricted stock, performance shares and performance units expected to vest			11						$	107.26					2.3 years						$	1,495

At October 29, 2023, 0.8 million additional Performance-Based Awards could be earned based upon achievement of certain levels of specified performance and/or market goals.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employee Stock Purchase Plans

Under the ESPP, substantially all employees may purchase our common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of our common stock at the beginning or end of each 6-month purchase period, subject to certain limits. Our purchasing cycles began in March and September of each of fiscal 2023, 2022 and 2021. We issued 2 million shares in fiscal 2023 at a weighted average price of $87.75 per share, 2 million shares in fiscal 2022 at a weighted average price of $93.30 per share and 3 million shares in fiscal 2021 at a weighted average price of $70.29 per share, under the ESPP. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. Underlying assumptions used in the model are outlined in the following table:

			2023						2022						2021
ESPP:
Dividend yield			0.98		%				0.97		%				0.72		%
Expected volatility			39.4		%				46.8		%				41.3		%
Risk-free interest rate			5.29		%				2.24		%				0.05		%
Expected life (in years)			0.5						0.5						0.5
Weighted average estimated fair value			$35.31						$30.23						$33.77

Note 13 Employee Benefit Plans

Employee Bonus Plans

We have various employee bonus plans. A discretionary bonus plan provides for the distribution of a percentage of pre-tax income to our employees who are not participants in other performance-based incentive plans, up to a maximum percentage of eligible compensation. Other plans provide for bonuses to our executives and other key contributors based on the achievement of profitability and/or other specified performance criteria. Charges under these plans for fiscal 2023, 2022 and 2021 were $702 million, $623 million and $631 million, respectively.

Employee Savings and Retirement Plan

Our Employee Savings and Retirement Plan (the 401(k) Plan) is qualified under Sections 401(a) and (k) of the Internal Revenue Code (the Code). Eligible employees may make salary deferral and catch-up contributions under the 401(k) Plan on a pre-tax basis and on a Roth basis, subject to an annual dollar limit established by the Code. We match 100% of participant salary and/or Roth deferral contributions up to the first 3% of eligible contribution and then 50% of every dollar between 4% and 6% of eligible contribution. We do not make matching contributions on any catch-up contributions made by participants. Plan participants who were employed by us or any of our affiliates are 100% vested in their matching contribution account balances. Our matching contributions under the 401(k) Plan were approximately $85 million for fiscal 2023, $67 million for fiscal 2022 and $61 million for fiscal 2021.

Defined Benefit Pension Plans of Foreign Subsidiaries and Other Postretirement Benefits

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

			2023						2022						2021
			(In millions, except percentages)
Change in projected benefit obligation
Beginning projected benefit obligation			$	414					$	685					$	674
Service cost			10						14						15
Interest cost			16						9						8
Plan participants’ contributions			1						1						1
Actuarial (gain) loss			(38)						(201)						(1)
Foreign currency exchange rate changes			15						(84)						3
Benefits paid			(10)						(10)						(15)
Plan amendments and other adjustments			—						—						—
Ending projected benefit obligation			$	408					$	414					$	685
Ending accumulated benefit obligation			$	351					$	371					$	626
Range of assumptions to determine benefit obligations
Discount rate			1.3% - 7.1%						1.5% - 7.3%						0.6% - 6.6%
Rate of compensation increase			3.3% - 10.3%						2.7% - 10.0%						2.4% - 10.0%
Change in plan assets
Beginning fair value of plan assets			$	351					$	491					$	431
Return on plan assets			5						(78)						49
Employer contributions			9						11						22
Plan participants’ contributions			1						1						1
Foreign currency exchange rate changes			18						(64)						3
Benefits paid			(10)						(10)						(15)
Ending fair value of plan assets			$	374					$	351					$	491
Funded status			$	(34)					$	(63)					$	(194)
Amounts recognized in the consolidated balance sheets
Noncurrent asset			$	95					$	45					$	1
Current liability			(3)						(1)						(2)
Noncurrent liability			(126)						(107)						(193)
Total			$	(34)					$	(63)					$	(194)
Estimated amortization from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal period
Actuarial loss			$	3					$	4					$	11
Prior service credit			—						—						—
Total			$	3					$	4					$	11
Amounts recognized in accumulated other comprehensive loss
Net actuarial loss			$	70					$	98					$	200
Prior service credit			1						1						1
Total			$	71					$	99					$	201
Plans with projected benefit obligations in excess of plan assets
Projected benefit obligation			$	146					$	126					$	472
Fair value of plan assets			$	18					$	17					$	277
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation			$	97					$	88					$	413
Fair value of plan assets			$	18					$	17					$	277

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			2023						2022
Plan assets — allocation
Equity securities			29		%				26		%
Debt securities			31		%				37		%
Insurance contracts			19		%				21		%
Other investments			20		%				15		%
Cash			1		%				1		%

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

			October 29, 2023																								October 30, 2022
			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
			(In millions)
Equity securities			$	102					$	—					$	—					$	102					$	84					$	—					$	—					$	84
Debt securities			60						—						—						60						56						—						—						56
Insurance contracts			—						—						72						72						—						—						72						72
Other investments			—						57						—						57						—						52						—						52
Cash			5						—						—						5						3						—						—						3
Total assets at fair value			$	167					$	57					$	72					296						$	143					$	52					$	72					267
Assets measured at net asset value																					78																								84
Total																					$	374																							$	351

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

			2023						2022
			(In millions)
Balance, beginning of year			$	72					$	110
Actual return on plan assets:
Relating to assets still held at reporting date			(4)						(24)
Purchases, sales, settlements, net			—						—
Currency impact			4						(14)
Balance, end of year			$	72					$	72

Our investment strategy for our defined benefit plans is to invest plan assets in a prudent manner, maintaining well-diversified portfolios with the long-term objective of meeting the obligations of the plans as they come due. Asset allocation decisions are typically made by plan fiduciaries with input from our international pension committee. Our asset allocation strategy incorporates a sufficient equity exposure in order for the plans to benefit from the expected better long-term performance of equities relative to the plans’ liabilities. We retain investment managers, where appropriate, to manage the assets of the plans. Performance of investment managers is monitored by plan fiduciaries with the assistance of local investment consultants. The investment managers make investment decisions within the guidelines set forth by plan fiduciaries. Risk management practices include diversification across asset classes and investment styles, and periodic rebalancing toward target asset allocation ranges. Investment managers may use derivative instruments for efficient portfolio management purposes.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

			2023						2022						2021
			(In millions, except percentages)
Components of net periodic benefit cost
Service cost			$	10					$	14					$	15
Interest cost			16						9						8
Expected return on plan assets			(20)						(21)						(21)
Amortization of actuarial loss and prior service credit			4						10						14
Net periodic benefit cost			$	10					$	12					$	16
Weighted average assumptions
Discount rate			3.48		%				1.41		%				1.18		%
Expected long-term return on assets			5.15		%				4.56		%				4.80		%
Rate of compensation increase			3.39		%				2.89		%				2.74		%

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

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

			Benefit Payments
			(In millions)
2024			$	11
2025			14
2026			15
2027			16
2028			16
2029-2033			108
Total			$	180

Company contributions to these plans for fiscal 2024 are expected to be approximately $8 million.

Executive Deferred Compensation Plans

We sponsor two unfunded deferred compensation plans, the Executive Deferred Compensation Plan (Predecessor EDCP) and the 2016 Deferred Compensation Plan (2016 DCP) (formerly known as the 2005 Executive Deferred Compensation Plan), under which certain employees may elect to defer a portion of their following year’s eligible earnings. The Predecessor EDCP was frozen as of December 31, 2004 such that no new deferrals could be made under the plan after that date and the plan would qualify for “grandfather” relief under Section 409A of the Code. The Predecessor EDCP participant accounts continue to be maintained under the plan and credited with deemed interest. The 2016 DCP was originally implemented by us effective as of January 1, 2005, and amended and restated as of October 12, 2015, and is intended to comply with the requirements of Section 409A of the Code. In addition, we also sponsor a non-qualified deferred compensation plan as a result of the acquisition of Varian. Amounts payable for all plans, including accrued deemed interest, totaled $245 million and $200 million at October 29, 2023 and October 30, 2022, respectively, which were included in other liabilities in the Consolidated Balance Sheets.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 14 Income Taxes

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

			2023						2022						2021
			(In millions)
U.S.			$	1,234					$	1,171					$	512
Foreign			6,482						6,428						6,259
			$	7,716					$	7,599					$	6,771

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

			2023						2022						2021
			(In millions)
Current:
U.S.			$	708					$	590					$	462
Foreign			456						275						344
State			54						14						17
			1,218						879						823
Deferred:
U.S.			(255)						(62)						(3)
Foreign			(61)						265						67
State			(42)						(8)						(4)
			(358)						195						60
			$	860					$	1,074					$	883

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

			2023						2022						2021
Tax provision at U.S. statutory rate			21.0		%				21.0		%				21.0		%
Effect of foreign operations taxed at various rates			(8.2)						(4.4)						(7.0)
Changes in prior years’ unrecognized tax benefits			(0.2)						(0.9)						0.2
Resolutions of prior years’ income tax filings			(0.1)						(0.2)						(0.1)
Research and other tax credits			(1.6)						(1.0)						(0.9)
Other			0.2						(0.4)						(0.2)
			11.1		%				14.1		%				13.0		%

Our provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affected by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings.

Our effective tax rate for fiscal 2023 was lower than fiscal 2022 primarily due to a reduction of deferred tax assets that occurred in fiscal 2022, related to a new tax incentive in Singapore. Our effective tax rate for fiscal 2022 was higher than fiscal 2021 primarily due to a reduction of deferred tax assets related to a new tax incentive in Singapore, partially offset by changes in uncertain tax positions.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the reconciliation between the statutory U.S. federal income tax rate and the effective income tax rate, the effect of foreign operations taxed at various rates represents the difference between an income tax provision at the U.S. federal statutory income tax rate and the recorded income tax provision, with the difference expressed as a percentage of worldwide income before income taxes. This effect is substantially related to the tax effect of pre-tax income in jurisdictions with lower statutory tax rates. The foreign operations with the most significant effective tax rate impact are in Singapore. The statutory tax rate for fiscal 2023 for Singapore is 17%. We have been granted conditional reduced tax rates that expire beginning in fiscal 2025, excluding potential renewal and subject to certain conditions with which we expect to comply. The tax benefits arising from these tax rates were $369 million or $0.44 per diluted share and $232 million or $0.26 per diluted share and $370 million or $0.40 per diluted share for fiscal 2023, 2022 and 2021, respectively.

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

			October 29, 2023						October 30, 2022
			(In millions)
Deferred tax assets:
Capitalized R&D expenses			$	83					$	—
Allowance for doubtful accounts			4						5
Inventory reserves and basis difference			125						131
Installation and warranty reserves			35						29
Intangible assets			1,031						984
Accrued liabilities			19						35
Deferred revenue			72						82
Tax credits			536						453
Deferred compensation			217						125
Share-based compensation			50						42
Property, plant and equipment			9						—
Lease liability			98						81
Other			96						67
Gross deferred tax assets			2,375						2,034
Valuation allowance			(530)						(460)
Total deferred tax assets			1,845						1,574
Deferred tax liabilities:
Property, plant and equipment			—						(111)
Right of use assets			(103)						(80)
Undistributed foreign earnings			(23)						(39)
Total deferred tax liabilities			(126)						(230)
Net deferred tax assets			$	1,719					$	1,344

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

			2023						2022						2021
			(In millions)
Beginning balance			$	460					$	361					$	314
Increases			70						99						47
Ending balance			$	530					$	460					$	361

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At October 29, 2023, we have state research and development tax credit carryforwards of $536 million, including $501 million of credits that are carried over until exhausted and $32 million that are carried over for 15 years and begin to expire in fiscal 2033. It is more likely than not that all tax credit carryforwards, net of valuation allowance, will be utilized.

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

			2023						2022						2021
			(In millions)
Beginning balance of gross unrecognized tax benefits			$	498					$	537					$	496
Settlements with tax authorities			—						(25)						—
Lapses of statutes of limitation			—						—						(4)
Increases in tax positions for current year			28						26						26
Increases in tax positions for prior years			—						28						23
Decreases in tax positions for prior years			(16)						(68)						(4)
Ending balance of gross unrecognized tax benefits			$	510					$	498					$	537

Tax expense for interest and penalties on unrecognized tax benefits for fiscal 2023, 2022 and 2021 was $34 million, $14 million and $14 million, respectively. The income tax liability for interest and penalties for fiscal 2023, 2022 and 2021 was $136 million, $103 million and $88 million, respectively, and was classified as non-current income taxes payable.

Included in the balance of unrecognized tax benefits for fiscal 2023, 2022 and 2021 are $386 million, $388 million, and $442 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

Our tax returns remain subject to examination by taxing authorities. These include U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2011 and later years.

The timing of the resolution of income tax examinations, as well as the amounts and timing of various tax payments that may be part of the settlement process, is highly uncertain. This could cause fluctuations in our financial condition and results of operations. We continue to have ongoing negotiations with various taxing authorities throughout the year, and evaluate all domestic and foreign tax audit issues in the aggregate, along with the expiration of applicable statutes of limitations.

We believe it is reasonably possible that the amount of gross unrecognized tax benefits related to foreign operations could be reduced by up to $200 million in the next 12 months as a result of the resolution of tax matters or the lapse of statute of limitations.

Note 15 Warranty, Guarantees, Commitments and Contingencies

Warranty

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

			2023						2022						2021
			(In millions)
Beginning balance			$	286					$	242					$	201
Provisions for warranty			254						254						223
Changes in reserves related to preexisting warranty			2						11						9
Consumption of reserves			(210)						(221)						(191)
Ending balance			$	332					$	286					$	242

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Guarantees

In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either us or our subsidiaries. As of October 29, 2023, the maximum potential amount of future payments that we could be required to make under these guarantee agreements was approximately $333 million. We have not recorded any liability in connection with these guarantee agreements beyond that required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee agreements.

We also have agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. As of October 29, 2023, we have provided parent guarantees to banks for approximately $293 million to cover these arrangements.

Legal Matters

From time to time, we receive notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions by us in connection with claims made against them. In addition, from time to time, we receive notification from third parties claiming that we may be or are infringing or misusing their intellectual property or other rights. We also are subject to various other legal proceedings, government investigations or inquiries, and claims, both asserted and unasserted, that arise in the ordinary course of business. These matters are subject to uncertainties, and we cannot predict the outcome of these matters, or governmental inquiries or proceedings that may occur. Although the outcome of the above-described matters, claims and proceedings cannot be predicted with certainty, we do not believe at this time that any of the above-described matters will have a material effect on our consolidated financial condition or results of operations.

In August 2022, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting information relating to certain China customer shipments. In November 2023, we received a subpoena from the U.S. Commerce Department’s Bureau of Industry and Security requesting the same information. We are cooperating fully with the government in these matters. These matters are subject to uncertainties, and we cannot predict the outcome, nor reasonably estimate a range of loss or penalties, if any, relating to these matters.

Note 16 Industry Segment Operations

Our three reportable segments are: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. As defined under the accounting literature, our chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon our management organization structure as of October 29, 2023 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to our reportable segments.

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

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

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

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

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

			Net Sales						Operating Income (Loss)						Depreciation/ Amortization						Capital Expenditures						Accounts Receivable						Inventories
			(In millions)
2023:
Semiconductor Systems			$	19,698					$	7,090					$	235					$	381					$	3,943					$	3,433
Applied Global Services			5,732						1,657						31						39						1,111						2,073
Display and Adjacent Markets			868						133						19						13						184						200
Corporate and Other			219						(1,226)						230						673						(73)						19
Total			$	26,517					$	7,654					$	515					$	1,106					$	5,165					$	5,725
2022:
Semiconductor Systems			$	18,797					$	6,969					$	203					$	249					$	4,924					$	3,995
Applied Global Services			5,543						1,661						31						38						997						1,788
Display and Adjacent Markets			1,331						260						31						30						148						129
Corporate and Other			114						(1,102)						179						470						(1)						20
Total			$	25,785					$	7,788					$	444					$	787					$	6,068					$	5,932
2021:
Semiconductor Systems			$	16,286					$	6,311					$	194					$	228					$	3,886					$	2,586
Applied Global Services			5,013						1,508						32						29						922						1,561
Display and Adjacent Markets			1,634						314						27						32						207						153
Corporate and Other			130						(1,244)						141						379						(62)						9
Total			$	23,063					$	6,889					$	394					$	668					$	4,953					$	4,309

Semiconductor Systems and Display and Adjacent Markets revenues are recognized at a point in time. Applied Global Services revenue is recognized at a point in time for tangible goods such as spare parts and equipment, and over time for service agreements. The majority of revenue recognized over time is recognized within 12 months of the contract inception.

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

			2023						2022						2021
Foundry, logic and other			77		%				66		%				60		%
Dynamic random-access memory (DRAM)			17		%				19		%				19		%
Flash memory			6		%				15		%				21		%
			100		%				100		%				100		%

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

			2023						2022						2021
			(In millions)
Unallocated net sales			$	219					$	114					$	130
Unallocated cost of products sold and expenses			(955)						(807)						(725)
Share-based compensation			(490)						(413)						(346)
Severance and related charges			—						4						(149)
Deal termination fee			—						—						(154)
Total			$	(1,226)					$	(1,102)					$	(1,244)

For geographical reporting, revenue by geographic location is determined by the location of customers’ facilities to which products were shipped. Long-lived assets consist primarily of property, plant and equipment and right-of-use assets and are attributed to the geographic location in which they are located. Fiscal 2021 long-lived asset amount has been updated to include right-of-use assets to conform with the current year presentation. Net sales and long-lived assets by geographic region for and as of each fiscal year were as follows:

			2023						2022						2021
			(In millions)
Net sales:
United States			$	4,006					$	3,104					$	2,038
China			7,247						7,254						7,535
Korea			4,609						4,395						5,012
Taiwan			5,670						6,262						4,742
Japan			2,075						2,012						1,962
Europe			2,152						1,674						1,097
Southeast Asia			758						1,084						677
Total outside United States			22,511						22,681						21,025
Consolidated total			$	26,517					$	25,785					$	23,063

			October 29, 2023						October 30, 2022
			(In millions)
Long-lived assets:
United States			$	3,239					$	2,725
China			4						6
Korea			11						14
Taiwan			59						62
Japan			7						7
Europe			110						75
Southeast Asia			6						8
Total outside United States			197						172
Consolidated total			$	3,436					$	2,897

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

			2023						2022						2021
Samsung Electronics Co., Ltd.			15		%				12		%				20		%
Taiwan Semiconductor Manufacturing Company Limited			19		%				20		%				15		%
Intel Corporation			*						10		%				*

---

*Less than 10%

INDEX TO EXHIBITS

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

						Incorporated by Reference
Exhibit No.			Description			Form			File No.			Exhibit No.			Filing Date
3.1			Amended and Restated Certificate of Incorporation of Applied Materials, Inc., as amended and restated through March 16, 2020			8-K			000-06920			3.1			3/16/2020
3.2			Amended and Restated Bylaws of Applied Materials, Inc., as amended and restated through December 8, 2023			8-K			000-06920			3.2			12/13/2023
4.1			Indenture, dated June 8, 2011, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.1			6/10/2011
4.2			First Supplemental Indenture, dated June 8, 2011, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.2			6/10/2011
4.3			Second Supplemental Indenture, dated September 24, 2015, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.1			9/24/2015
4.4			Third Supplemental Indenture, dated March 31, 2017, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee			8-K			000-06920			4.1			3/31/2017
4.5			Fourth Supplemental Indenture dated May 29, 2020, by and between Applied Materials, Inc. and U.S. Bank National Association			8-K			000-06920			4.1			5/29/2020
4.6			Description of Registrant’s Securities Registered Under Section 12 of the Securities Exchange Act of 1934†
10.1			Form of Indemnification Agreement between Applied Materials, Inc. and Directors and certain officers			10-K			000-06920			10.1			12/16/2022
10.2			Applied Materials, Inc. Profit Sharing Scheme (Ireland)			S-8			333-45011			4.1			1/27/1998
10.3*			Applied Materials Inc. Employee Financial Assistance Plan, amended and restated as of December 18, 2008			10-Q			000-06920			10.58			3/3/2009
10.4			Deed of Amendment to Applied Materials Profit Sharing Scheme, dated February 7, 2006, to amend Clause 20 of the Trust Deed thereunder			10-K			000-06920			10.48			12/12/2008
10.5			Deed of Amendment to Applied Materials Profit Sharing Scheme, dated February 7, 2006, to amend the definition of Eligible Employee in the First Schedule to the Trust Deed thereunder.			10-K			000-06920			10.49			12/12/2008
10.6*			Form of Restricted Stock Unit Agreement for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.3			5/27/2021
10.7*			Form of Restricted Stock Unit Agreement for Nonemployee Directors for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.4			5/27/2021
10.8*			Form of Restricted Stock Agreement for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan			10-Q			000-06920			10.3			8/23/2012
10.9*			Applied Materials, Inc. Omnibus Employees’ Stock Purchase Plan, effective September 1, 2021			8-K			000-06920			10.2			3/16/2021
10.10*			Offer Letter, dated August 14, 2013, between Applied Materials, Inc. and Gary E. Dickerson			10-Q			000-06920			10.2			8/22/2013
10.11*			Form of Non-Qualified Stock Option Agreement for Employees for use under the Applied Materials, Inc. Employee Stock Incentive Plan, as amended			10-Q			000-06920			10.4			8/22/2013
10.12*			Form of Performance Unit Agreement for use under the Applied Materials, Inc. Employee Stock Incentive Plan, as amended			10-Q			000-06920			10.2			2/20/2014

						Incorporated by Reference
Exhibit No.			Description			Form			File No.			Exhibit No.			Filing Date
10.13*			Applied Materials, Inc. Applied Incentive Plan, amended and restated effective September 7, 2023†
10.14*			Applied Materials, Inc. 2016 Deferred Compensation Plan, as amended and restated on January 1, 2021			10-K			000-06920			10.15			12/16/2022
10.15*			Applied Materials, Inc. Employee Stock Incentive Plan, as amended and restated effective March 11, 2021			8-K			000-06920			10.1			3/16/2021
10.16*			Applied Materials, Inc. Senior Executive Bonus Plan, as amended and restated effective September 8, 2023†
10.17*			Form of Performance Share Unit Agreement for members of the Executive Staff for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan†
10.18*			Form of Restricted Stock Unit Agreement for members of the Executive Staff for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan†
10.19*			Offer Letter, dated February 26, 2022, between Applied Materials, Inc. and Brice Hill			10-Q			000-06920			10.1			5/26/2022
10.20			Credit Agreement, dated as of February 21, 2020, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein			8-K			000-06920			10.1			2/21/2020
10.21			Amendment No. 1, dated as of July 27, 2022, to the Credit Agreement, dated as of February 21, 2020, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein			10-Q			000-06920			10.1			8/25/2022
10.22			Extension Agreement, dated as of February 21, 2023, to Credit Agreement, dated as of February 21, 2020 (as amended by that certain Amendment No. 1 to Credit Agreement, dated as of July 27, 2022), among Applied Materials, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent			10-Q			000-06920			10.1			2/23/2023
21			Subsidiaries of Applied Materials, Inc.†
23			Consent of Independent Registered Public Accounting Firm, KPMG LLP†
24			Power of Attorney (included on the signature page of this Annual Report on Form 10-K)†
31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
32.1			Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡
32.2			Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡
97.1			Applied Materials, Inc. Compensation Recovery Policy, adopted on September 7, 2023†
101.INS			XBRL Instance Document‡
101.SCH			XBRL Taxonomy Extension Schema Document‡
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document‡
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document‡
101.LAB			XBRL Taxonomy Extension Label Linkbase Document‡
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document‡
104			Cover Page Interactive Data File (formatted as inline XBRL)

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

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

APPLIED MATERIALS, INC.
By:			/s/ GARY E. DICKERSON
			Gary E. Dickerson
			President, Chief Executive Officer

Dated: December 15, 2023

POWER OF ATTORNEY

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

---

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

			Title			Date
/s/ GARY E. DICKERSON			President, Chief Executive Officer and Director (Principal Executive Officer)			December 15, 2023
Gary E. Dickerson
/s/ BRICE HILL			Senior Vice President, Chief Financial Officer (Principal Financial Officer)			December 15, 2023
Brice Hill
/s/ CHARLES W. READ			Corporate Vice President, Business Units and Operations Chief Financial Officer (Principal Accounting Officer)			December 15, 2023
Charles W. Read
/S/ THOMAS J. IANNOTTI
Thomas J. Iannotti			Chairman of the Board			December 15, 2023
/S/ RANI BORKAR
Rani Borkar			Director			December 15, 2023
/S/ JUDY BRUNER
Judy Bruner			Director			December 15, 2023
/S/ XUN CHEN
Xun Chen			Director			December 15, 2023
/S/ AART J. DE GEUS
Aart J. de Geus			Director			December 15, 2023
/S/ ALEXANDER A. KARSNER
Alexander A. Karsner			Director			December 15, 2023
/S/ KEVIN P. MARCH
Kevin P. March			Director			December 15, 2023
/s/ YVONNE MCGILL
Yvonne McGill			Director			December 15, 2023
/s/ SCOTT A. MCGREGOR
Scott A. McGregor			Director			December 15, 2023