Item 1. Financial Statements

137K characters. Original on sec.gov · Markdown

Item 1. Financial Statements

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

	(Unaudited)
Net revenue	$	6,646	$	6,630	$	13,353	$	13,369
Cost of products sold	3,493		3,536		6,996		7,130
Gross profit	3,153		3,094		6,357		6,239
Operating expenses:
Research, development and engineering	785		775		1,539		1,546
Marketing and selling	209		194		416		391
General and administrative	247		214		523		421




Total operating expenses	1,241		1,183		2,478		2,358
Income from operations	1,912		1,911		3,879		3,881

Interest expense	59		61		118		120
Interest and other income (expense), net	141		(73)		536		(23)
Income before income taxes	1,994		1,777		4,297		3,738
Provision for income taxes	272		202		556		446
Net income	$	1,722	$	1,575	$	3,741	$	3,292
Earnings per share:
Basic	$	2.08	$	1.87	$	4.50	$	3.90
Diluted	$	2.06	$	1.86	$	4.47	$	3.88
Weighted average number of shares:
Basic	830		843		831		844
Diluted	836		847		837		848

See accompanying Notes to Consolidated Condensed Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

	(Unaudited)
Net income	$	1,722	$	1,575	$	3,741	$	3,292
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on available-for-sale investments	(9)		5		18		28

Change in unrealized net loss on derivative instruments	3		(5)		36		(61)
Change in defined and postretirement benefit plans	—		—		(9)		—

Other comprehensive income (loss), net of tax	(6)		—		45		(33)
Comprehensive income	$	1,716	$	1,575	$	3,786	$	3,259

See accompanying Notes to Consolidated Condensed Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)


	April 28, 2024		October 29, 2023


ASSETS
Current assets:
Cash and cash equivalents	$	7,085	$	6,132
Short-term investments	472		737
Accounts receivable, net	4,778		5,165
Inventories	5,691		5,725
Other current assets	1,239		1,388
Total current assets	19,265		19,147
Long-term investments	2,983		2,281
Property, plant and equipment, net	2,958		2,723
Goodwill	3,732		3,732
Purchased technology and other intangible assets, net	273		294
Deferred income taxes and other assets	2,738		2,552
Total assets	$	31,949	$	30,729

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	99	$	100
Accounts payable and accrued expenses	4,174		4,297
Contract liabilities	2,611		2,975
Total current liabilities	6,884		7,372
Long-term debt	5,463		5,461
Income taxes payable	656		833
Other liabilities	747		714
Total liabilities	13,750		14,380
Stockholders’ equity:

Common stock	8		8
Additional paid-in capital	9,321		9,131
Retained earnings	46,871		43,726
Treasury stock	(37,829)		(36,299)
Accumulated other comprehensive loss	(172)		(217)
Total stockholders’ equity	18,199		16,349
Total liabilities and stockholders’ equity	$	31,949	$	30,729

Amounts as of April 28, 2024 are unaudited. Amounts as of October 29, 2023 are derived from the October 29, 2023 audited consolidated financial statements.

See accompanying Notes to Consolidated Condensed Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per share amount)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Total
Three Months Ended April 28, 2024	Shares	Amount				Shares		Amount

	(Unaudited)
Balance as of January 28, 2024	831	$	8	$	9,109	$	45,480	1,196	$	(37,002)	$	(166)	$	17,429

Net income	—	—		—		1,722		—	—		—		1,722
Other comprehensive income (loss), net of tax	—	—		—		—		—	—		(6)		(6)
Dividends declared ($0.40 per common share)	—	—		—		(331)		—	—		—		(331)
Share-based compensation	—	—		134		—		—	—		—		134

Net issuance under stock plans	1	—		78		—		—	—		—		78
Common stock repurchases	(4)	—		—		—		4	(827)		—		(827)
Balance as of April 28, 2024	828	$	8	$	9,321	$	46,871	1,200	$	(37,829)	$	(172)	$	18,199



	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Total
Six Months Ended April 28, 2024	Shares	Amount				Shares		Amount

	(Unaudited)
Balance as of October 29, 2023	833	$	8	$	9,131	$	43,726	1,191	$	(36,299)	$	(217)	$	16,349

Net income	—	—		—		3,741		—	—		—		3,741
Other comprehensive income (loss), net of tax	—	—		—		—		—	—		45		45
Dividends declared ($0.72 per common share)	—	—		—		(596)		—	—		—		(596)
Share-based compensation	—	—		304		—		—	—		—		304

Net issuance under stock plans	4	—		(114)		—		—	—		—		(114)
Common stock repurchases	(9)	—		—		—		9	(1,530)		—		(1,530)
Balance as of April 28, 2024	828	$	8	$	9,321	$	46,871	1,200	$	(37,829)	$	(172)	$	18,199

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)

(In millions, except per share amount)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Total
Three Months Ended April 30, 2023	Shares	Amount				Shares		Amount

	(Unaudited)
Balance as of January 29, 2023	845	$	8	$	8,605	$	39,389	1,175	$	(34,347)	$	(235)	$	13,420

Net income	—	—		—		1,575		—	—		—		1,575

Dividends declared ($0.32 per common share)	—	—		—		(268)		—	—		—		(268)
Share-based compensation	—	—		113		—		—	—		—		113

Net issuance under stock plans	2	—		93		—		—	—		—		93
Common stock repurchases	(7)	—		—		—		7	(804)		—		(804)
Balance as of April 30, 2023	840	$	8	$	8,811	$	40,696	1,182	$	(35,151)	$	(235)	$	14,129



	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Total
Six Months Ended April 30, 2023	Shares	Amount				Shares		Amount

	(Unaudited)
Balance as of October 30, 2022	844	$	8	$	8,593	$	37,892	1,173	$	(34,097)	$	(202)	$	12,194

Net income	—	—		—		3,292		—	—		—		3,292
Other comprehensive income (loss), net of tax	—	—		—		—		—	—		(33)		(33)
Dividends declared ($0.58 per common share)	—	—		—		(488)		—	—		—		(488)
Share-based compensation	—	—		261		—		—	—		—		261
Net issuance under stock plans	5	—		(43)		—		—	—		—		(43)
Common stock repurchases	(9)	—		—		—		9	(1,054)		—		(1,054)
Balance as of April 30, 2023	840	$	8	$	8,811	$	40,696	1,182	$	(35,151)	$	(235)	$	14,129

See accompanying Notes to Consolidated Condensed Financial Statements.

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

**(**In millions)


	Six Months Ended
	April 28, 2024		April 30, 2023

	(Unaudited)
Cash flows from operating activities:
Net income	$	3,741	$	3,292
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization	187		249







Share-based compensation	304		261

Deferred income taxes	(206)		(136)
Other	(247)		174
Changes in operating assets and liabilities:
Accounts receivable	387		552
Inventories	34		(8)
Other current and non-current assets	152		113

Accounts payable and accrued expenses	(255)		(613)
Contract liabilities	(364)		231
Income taxes payable	(17)		396
Other liabilities	1		51
Cash provided by operating activities	3,717		4,562
Cash flows from investing activities:
Capital expenditures	(486)		(542)
Cash paid for acquisitions, net of cash acquired	—		(18)

Proceeds from sales and maturities of investments	1,113		669
Purchases of investments	(1,223)		(730)

Cash used in investing activities	(596)		(621)
Cash flows from financing activities:


Proceeds from issuance of commercial paper	200		595
Repayments of commercial paper	(200)		(400)
Proceeds from common stock issuances	119		111
Common stock repurchases	(1,520)		(1,050)

Tax withholding payments for vested equity awards	(233)		(154)
Payments of dividends to stockholders	(532)		(439)
Repayments of principal on finance leases	(13)		(9)
Cash used in financing activities	(2,179)		(1,346)

Increase (decrease) in cash, cash equivalents and restricted cash equivalents	942		2,595
Cash, cash equivalents and restricted cash equivalents — beginning of period	6,233		2,100
Cash, cash equivalents and restricted cash equivalents — end of period	$	7,175	$	4,695

Reconciliation of cash, cash equivalents and restricted cash equivalents
Cash and cash equivalents	$	7,085	$	4,588
Restricted cash equivalents included in deferred income taxes and other assets	90		107
Total cash, cash equivalents and restricted cash equivalents	$	7,175	$	4,695

Supplemental cash flow information:
Cash payments for income taxes	$	606	$	221
Cash refunds from income taxes	$	5	$	51
Cash payments for interest	$	102	$	102

See accompanying Notes to Consolidated Condensed Financial Statements.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 Basis of Presentation

Basis of Presentation

In the opinion of our management, the unaudited interim consolidated condensed financial statements of Applied Materials, Inc. and its subsidiaries (we, us, and our) included herein have been prepared on a basis consistent with the October 29, 2023 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly state the information set forth therein. These unaudited interim consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 29, 2023 (2023 Form 10-K).

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

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, plant 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.

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. In connection with our periodic review of estimated useful lives of the property, plant, and equipment effective as of the beginning of fiscal 2024, we have increased the estimated useful lives of certain assets. The updated estimated useful lives for financial reporting purposes are as follows: buildings and improvements, 3 to 30 years with certain buildings and improvements’ useful lives increased by 5 years; demonstration and manufacturing equipment increased to between 5 to 8 years. The estimated useful lives for the remaining asset categories remained unchanged from fiscal 2023.

The change in accounting estimate is being applied on a prospective basis to the assets on our balance sheet as of October 29, 2023, as well as to subsequent asset purchases. Based on the net carrying amounts of assets in use as of the end of fiscal 2023, the impact of this change was a reduction of $30 million and $67 million in depreciation expense during the three and six months ended April 28, 2024, respectively, and an increase of $0.03 and $0.06 in both basic and diluted earnings per share for the three and six months ended April 28, 2024, respectively.

Recent Accounting Pronouncements

Accounting Standards Adopted

Contract Assets and Contract Liabilities from Revenue Contracts with Customers in a Business Combination. In October 2021, the Financial Accounting Standards Board (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. We adopted this authoritative guidance in the first quarter of fiscal 2024 and the impact of the adoption depends on the facts and circumstances of future acquisitions.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Accounting Standards Not Yet Adopted

Improvements to Income Tax Disclosures. In December 2023, the FASB issued an accounting standard update to improve income tax disclosures (Topic 740). The standard prescribes specific categories for the components of the effective tax rate reconciliation, requires disclosure of income taxes paid by jurisdiction, and modifies other income tax-related disclosures. This authoritative guidance will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are evaluating the effect of this new guidance on our consolidated financial statements and related disclosures.

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 evaluating the effect of this new guidance on our consolidated condensed 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 evaluating the effect of this new guidance on our consolidated condensed financial statements.

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.


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

	(In millions, except per share amounts)
Numerator:
Net income	$	1,722	$	1,575	$	3,741	$	3,292
Denominator:
Weighted average common shares outstanding	830		843		831		844
Effect of weighted dilutive restricted stock units and employee stock purchase plan shares	6		4		6		4
Denominator for diluted earnings per share	836		847		837		848
Basic earnings per share	$	2.08	$	1.87	$	4.50	$	3.90
Diluted earnings per share	$	2.06	$	1.86	$	4.47	$	3.88
Potentially weighted dilutive securities	—		2		—		2

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 CONDENSED 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:


April 28, 2024	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(In millions)
Cash	$	1,359	$	—	$	—	$	1,359
Cash equivalents:
Money market funds*	1,420		—		—		1,420
Bank certificates of deposit and time deposits	42		—		—		42
U.S. Treasury and agency securities	1,993		—		—		1,993

Municipal securities	44		—		—		44
Commercial paper, corporate bonds and medium-term notes	2,227		—		—		2,227

Total cash equivalents	5,726		—		—		5,726
Total cash and cash equivalents	$	7,085	$	—	$	—	$	7,085
Short-term and long-term investments:
Bank certificates of deposit and time deposits	$	19	$	—	$	—	$	19
U.S. Treasury and agency securities	401		—		5		396
Non-U.S. government securities**	6		—		—		6
Municipal securities	443		—		7		436
Commercial paper, corporate bonds and medium-term notes	764		1		7		758
Asset-backed and mortgage-backed securities	573		1		10		564
Total fixed income securities	2,206		2		29		2,179
Publicly traded equity securities	543		447		3		987
Equity investments in privately held companies	231		74		16		289
Total equity investments	774		521		19		1,276
Total short-term and long-term investments	$	2,980	$	523	$	48	$	3,455
Total cash, cash equivalents and investments	$	10,065	$	523	$	48	$	10,540

*Excludes $90 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 CONDENSED FINANCIAL STATEMENTS - (Continued)


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.

During the three months ended April 28, 2024 and April 30, 2023, interest income from our cash, cash equivalents and fixed income securities was $118 million and $61 million, respectively.

During the six months ended April 28, 2024 and April 30, 2023, interest income from our cash, cash equivalents and fixed income securities was $221 million and $92 million, respectively.

Maturities of Investments

The following table summarizes the contractual maturities of our investments as of April 28, 2024:


	Cost		Estimated Fair Value

	(In millions)
Due in one year or less	$	460	$	456
Due after one through five years	1,169		1,155
Due after five years	4		4
No single maturity date*	1,347		1,840
Total	$	2,980	$	3,455

*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 CONDENSED FINANCIAL STATEMENTS - (Continued)

Gains and Losses on Investments

During the three and six months ended April 28, 2024 and April 30, 2023 gross realized gains and losses on our fixed income portfolio were not material.

As of April 28, 2024 and 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 the three and six months ended April 28, 2024 and April 30, 2023, we did not recognize material credit losses and the ending allowance for credit losses was not material to our fixed income portfolio.

The components of gain (loss) on equity investments for the three and six months ended April 28, 2024 and April 30, 2023 were as follows:


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

	(In millions)
Publicly traded equity securities
Unrealized gain	$	25	$	1	$	312	$	19
Unrealized loss	(1)		(11)		(3)		(27)
Realized gain on sales and dividends	2		1		2		1
Realized loss on sales or impairment	—		(1)		(1)		(2)
Equity investments in privately held companies
Unrealized gain	—		8		1		12
Unrealized loss	(4)		(9)		(10)		(11)
Realized gain on sales and dividends	1		—		3		5
Realized loss on sales or impairment	—		(117)		—		(117)
Total gain (loss) on equity investments, net	$	23	$	(128)	$	304	$	(120)

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED 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 April 28, 2024, 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 CONDENSED 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:


	April 28, 2024				October 29, 2023
	Level 1		Level 2		Total		Level 1		Level 2		Total

	(In millions)
Assets:
Available-for-sale debt security investments
Money market funds*	$	1,510	$	—	$	1,510	$	3,361	$	—	$	3,361
Bank certificates of deposit and time deposits	—		61		61		—		18		18
U.S. Treasury and agency securities	2,365		24		2,389		331		43		374
Non-U.S. government securities	—		6		6		—		6		6
Municipal securities	—		480		480		—		453		453
Commercial paper, corporate bonds and medium-term notes	—		2,985		2,985		—		2,177		2,177
Asset-backed and mortgage-backed securities	—		564		564		—		487		487
Total available-for-sale debt security investments	$	3,875	$	4,120	$	7,995	$	3,692	$	3,184	$	6,876
Equity investments with readily determinable values

Publicly traded equity securities	$	987	$	—	$	987	$	698	$	—	$	698
Total equity investments with readily determinable values	$	987	$	—	$	987	$	698	$	—	$	698
Total	$	4,862	$	4,120	$	8,982	$	4,390	$	3,184	$	7,574

*Amounts as of April 28, 2024 and October 29, 2023 include $90 million and $101 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 Condensed 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 April 28, 2024 or October 29, 2023.

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 were not material during the three and six months ended April 28, 2024 and were $117 million during the three and six months ended April 30, 2023. These impairment losses are included in interest and other income (expense), net in the Consolidated Condensed 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. As of April 28, 2024, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion and the estimated fair value was $4.9 billion. As of 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. 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 Condensed Financial Statements for further detail of existing debt.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED 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 as of April 28, 2024 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 condensed 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 the three and six months ended April 28, 2024 and April 30, 2023.

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 April 28, 2024 and October 29, 2023, the total outstanding notional amounts of foreign exchange contracts were $1.8 billion and $1.7 billion. The fair values of foreign exchange derivative instruments as of April 28, 2024 and October 29, 2023 were not material.

We are also exposed to interest rate risk associated with our potential future borrowings. During the six months ended April 28, 2024, we entered into a series of interest rate contracts to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. These instruments were designated as cash flow hedges at inception and will be settled upon the issuance of debt.

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:


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023
	(In millions)
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	(6)	$	2	$	28	$	(47)
Interest rate contracts	15		—		20		—
Total	$	9	$	2	$	48	$	(47)

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

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


	Three Months Ended
	April 28, 2024						April 30, 2023
			Derivatives in Cash Flow Hedging Relationships						Derivatives in Cash Flow Hedging Relationships
	Total Amount Presented in the Consolidated Condensed Statement of Operations in which the Effects of Cash Flow Hedges are Recorded		Amount of Gain or (Loss) Reclassified from AOCI into Consolidated Condensed Statement of Operations		Amount of Gain (Loss) Excluded from Effectiveness Testing Recognized in Consolidated Condensed Statement of Operations		Total Amount Presented in the Consolidated Condensed Statement of Operations in which the Effects of Cash Flow Hedges are Recorded		Amount of Gain or (Loss) Reclassified from AOCI into Consolidated Condensed Statement of Operations		Amount of Gain (Loss) Excluded from Effectiveness Testing Recognized in Consolidated Condensed Statement of Operations
	(In millions)
Foreign Exchange Contracts:
Net revenue	$	6,646	$	9	$	(1)	$	6,630	$	14	$	—

Research, development and engineering	$	785	(1)		—		$	775	(3)		—
Marketing and selling	$	209	(1)		—		$	194	—		—
General and administrative	$	247	—		—		$	214	(1)		—
Interest Rate Contracts:
Interest expense	$	59	(3)		—		$	61	(3)		—
			$	4	$	(1)			$	7	$	—



	Six Months Ended
	April 28, 2024						April 30, 2023
			Derivatives in Cash Flow Hedging Relationships						Derivatives in Cash Flow Hedging Relationships
	Total Amount Presented in the Consolidated Condensed Statement of Operations in which the Effects of Cash Flow Hedges are Recorded		Amount of Gain or (Loss) Reclassified from AOCI into Consolidated Condensed Statement of Operations		Amount of Gain (Loss) Excluded from Effectiveness Testing Recognized in Consolidated Condensed Statement of Operations		Total Amount Presented in the Consolidated Condensed Statement of Operations in which the Effects of Cash Flow Hedges are Recorded		Amount of Gain or (Loss) Reclassified from AOCI into Consolidated Condensed Statement of Operations		Amount of Gain (Loss) Excluded from Effectiveness Testing Recognized in Consolidated Condensed Statement of Operations
	(In millions)
Foreign Exchange Contracts:
Net sales	$	13,353	$	14	$	(1)	$	13,369	$	39	$	—
Cost of products sold	$	6,996	(1)		—		$	7,130	2		—
Research, development and engineering	$	1,539	(4)		—		$	1,546	(3)		—
Marketing and selling	$	416	(1)		—		$	391	—		—
General and administrative	$	523	—		—		$	421	(1)		—
Interest Rate Contracts:
Interest expense	$	118	(6)		—		$	120	(6)		—
			$	2	$	(1)			$	31	$	—

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


			Amount of Gain or (Loss) Recognized in Consolidated Condensed Statement of Operations
		Three Months Ended						Six Months Ended
Location of Gain or (Loss) Recognized in Consolidated Condensed Statement of Operations		April 28, 2024			April 30, 2023			April 28, 2024			April 30, 2023

			(In millions)
Derivatives Not Designated as Hedging Instruments


Foreign exchange contracts	Interest and other income, net		$	17		$	12		$	18		$	(36)
Total return swaps - deferred compensation	Cost of products sold		1			—			4			1
Total return swaps - deferred compensation	Operating expenses		8			2			39			14
Total return swaps - deferred compensation	Interest and other income, net		(4)			(2)			(7)			(4)
Total			$	22		$	12		$	54		$	(25)

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 April 28, 2024.

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 $95 million and $264 million of account receivables during the three and six months ended April 28, 2024, respectively. We sold $250 million and $529 million of account receivables during the three and six months ended April 30, 2023, respectively. We did not discount letters of credit issued by customers or discount promissory notes during the three and six months ended April 28, 2024 and April 30, 2023. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Condensed Statements of Operations and were not material for all periods presented.

Accounts receivable are presented net of allowance for credit losses of $29 million as of April 28, 2024 and as of October 29, 2023. 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 April 28, 2024, 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 Condensed 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 CONDENSED FINANCIAL STATEMENTS - (Continued)

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


	April 28, 2024		October 29, 2023
	(In millions)

Contract assets	$	334	$	274
Contract liabilities	$	2,611	$	2,975

The increase in contract assets during the six months ended April 28, 2024 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 the six months ended April 28, 2024, we recognized revenue of approximately $2.2 billion related to contract liabilities at October 29, 2023. Contract liabilities decreased during the six months ended April 28, 2024 due to revenue recognized related to contract liabilities at October 29, 2023, partially 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 April 28, 2024.

There were no credit losses recognized on our accounts receivables and contract assets during both the six months ended April 28, 2024 and April 30, 2023.

Performance Obligations

As of April 28, 2024, 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 $4.3 billion, of which approximately 62% 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


	April 28, 2024		October 29, 2023

	(In millions)
Inventories
Customer service spares	$	1,654	$	1,589
Raw materials	1,722		1,653
Work-in-process	901		997
Finished goods
Deferred cost of sales	313		413
Evaluation inventory	462		423
Manufactured on-hand inventory	639		650
Total finished goods	1,414		1,486
Total inventories	$	5,691	$	5,725


	April 28, 2024		October 29, 2023

	(In millions)
Other Current Assets


Prepaid income taxes and income taxes receivable	$	223	$	412
Prepaid expenses and other	1,016		976
	$	1,239	$	1,388

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


	Useful Life	April 28, 2024		October 29, 2023

	(In years)	(In millions)
Property, Plant and Equipment, Net
Land and improvements		$	435	$	393
Buildings and improvements	3-30	2,255		2,194
Demonstration and manufacturing equipment	5-8	2,479		2,353
Furniture, fixtures and other equipment	3-5	786		762
Construction in progress		780		672
Gross property, plant and equipment		6,735		6,374
Accumulated depreciation		(3,777)		(3,651)
		$	2,958	$	2,723


	April 28, 2024		October 29, 2023

	(In millions)
Deferred Income Taxes and Other Assets
Non-current deferred income taxes	$	1,928	$	1,729
Operating lease right-of-use assets	379		370
Finance lease right-of-use assets	91		108
Income tax receivables and other assets	340		345
	$	2,738	$	2,552


	April 28, 2024		October 29, 2023

	(In millions)
Accounts Payable and Accrued Expenses
Accounts payable	$	1,457	$	1,478

Compensation and employee benefits	788		1,024

Warranty	346		332
Dividends payable	331		267
Income taxes payable	363		282

Other accrued taxes	72		65
Interest payable	38		38

Operating lease liabilities, current	87		84
Finance lease liabilities, current	89		102
Other	603		625
	$	4,174	$	4,297

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


	April 28, 2024		October 29, 2023

	(In millions)
Other Liabilities


Defined and postretirement benefit plans	$	122	$	126
Operating lease liabilities, non-current	260		252

Other	365		336
	$	747	$	714

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 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 Condensed 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 Condensed 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 $232 million as of April 28, 2024. Contra-depreciation expense was not material during the three and six months ended April 28, 2024. Operating incentives recognized as a reduction to research, development and engineering expense were $6 million and $22 million in the three and six months ended April 28, 2024, respectively. Capital expenditure related incentives reduced our income taxes payable by $112 million as of April 28, 2024, of which $105 million is in accounts payable and accrued expenses and $7 million is in income taxes payable, in our Consolidated Condensed Balance Sheets.

Note 9 Goodwill and Intangible Assets

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.

Goodwill

As of April 28, 2024, our reporting units include Semiconductor Products Group and Imaging and Process Control Group, Applied Global Services, Display and Adjacent Markets and other reporting units recorded under Corporate and Other. The Semiconductor Products Group and Imaging and Process Control Group combine to form the Semiconductor Systems reporting segment.

Details of goodwill as of April 28, 2024 and October 29, 2023 were as follows:


	April 28, 2024		October 29, 2023

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

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Intangible Assets

Details of intangible assets other than goodwill were as follows:


	April 28, 2024						October 29, 2023
	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	$	2,001	$	(1,734)	$	267	$	2,001	$	(1,714)	$	287
Applied Global Services	79		(79)		—		79		(78)		1
Display and Adjacent Markets	194		(194)		—		194		(194)		—
Corporate and Other	37		(31)		6		36		(30)		6
Total intangible assets with finite lives	$	2,311	$	(2,038)	$	273	$	2,310	$	(2,016)	$	294

Amortization expense of intangible assets was $11 million and $22 million during the three and six months ended April 28, 2024, respectively. Amortization expense of intangible assets was $12 million and $23 million during the three and six months ended April 30, 2023, respectively.

As of April 28, 2024, future estimated amortization expense of intangible assets with finite lives is expected to be as follows:


	Amortization Expense
	(In millions)
2024 (remaining 6 months)	$	21
2025	41
2026	40
2027	26
2028	23
Thereafter	122
Total	$	273

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

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 April 28, 2024 and October 29, 2023.

In addition, we have revolving credit facilities with Japanese banks pursuant to which we may borrow up to approximately $52 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 April 28, 2024 and October 29, 2023, 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. As of April 28, 2024, we had commercial paper notes outstanding with an aggregate principal amount of $100 million, which were recorded as short-term debt with a weighted-average interest rate of 5.34% and maturities of 105 days, and as of 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.

Senior Unsecured Notes

Debt outstanding as of April 28, 2024 and October 29, 2023 was as follows:


	Principal Amount
	April 28, 2024		October 29, 2023		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	(10)		(11)
Total unamortized debt issuance costs	(27)		(28)



Total long-term debt	$	5,463	$	5,461

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

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.

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


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023
	(In millions, except percentages)
Operating lease cost	$	27	$	39	$	54	$	65
Finance lease cost:
Amortization of right-of-use assets	$	—	$	1	$	1	$	1
Interest on lease liabilities	$	1	$	1	$	2	$	1
Weighted-average remaining lease term (in years) - operating leases					5.8		6.1
Weighted-average remaining lease term (in years) - finance leases					0.4		1.4
Weighted-average discount rate - operating leases					3.2%		2.7%
Weighted-average discount rate - finance leases					4.6%		4.6%

Supplemental cash flow information related to leases are as follows:


	Six Months Ended
		April 28, 2024		April 30, 2023
		(In millions)
Operating cash flows paid for operating leases		$	53	$	65
Operating cash flows paid for finance leases		$	2	$	1
Financing cash flows paid for finance leases		$	13	$	9
Right-of-use assets obtained in exchange for operating lease liabilities		$	58	$	50
Right-of-use assets obtained in exchange for finance lease liabilities		$	—	$	109

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

As of April 28, 2024, the maturities of lease liabilities are as follows:


	Operating Leases		Finance Leases
Fiscal	(In millions)
2024 (remaining 6 months)	$	47	$	91
2025	93		—
2026	58		—
2027	46		—
2028	38		—
Thereafter	101		—
Total lease payments	$	383	$	91
Less imputed interest	(36)		(2)
Total	$	347	$	89

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

Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income (loss) (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 as of October 29, 2023	$	(50)	$	(118)	$	(62)	$	13	$	(217)


Other comprehensive income (loss) before reclassifications	13		37		—		—		50
Amounts reclassified out of AOCI	5		(1)		(9)		—		(5)
Other comprehensive income (loss), net of tax	18		36		(9)		—		45
Balance as of April 28, 2024	$	(32)	$	(82)	$	(71)	$	13	$	(172)


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

	(in millions)
Balance as of October 30, 2022	$	(75)	$	(52)	$	(88)	$	13	$	(202)


Other comprehensive income (loss) before reclassifications	20		(37)		—		—		(17)
Amounts reclassified out of AOCI	8		(24)		—		—		(16)
Other comprehensive income (loss), net of tax	28		(61)		—		—		(33)
Balance as of April 30, 2023	$	(47)	$	(113)	$	(88)	$	13	$	(235)

The tax effects on net income of amounts reclassified from AOCI for the three and six months ended April 28, 2024 and April 30, 2023 were not material.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

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. As of April 28, 2024, approximately $11.2 billion remained available for future stock repurchases under the repurchase program.

The following table summarizes our stock repurchases, including and excluding excise tax, for the three and six months ended April 28, 2024 and April 30, 2023:


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

	(in millions, except per share amount)
Shares of common stock repurchased	4		7		9		9
Cost of stock repurchased (including excise tax)*	$	827	$	804	$	1,530	$	1,054
Average price paid per share (including excise tax)*	$	199.59	$	115.53	$	175.23	$	112.39
Cost of stock repurchased (excluding excise tax)	$	820	$	800	$	1,520	$	1,050
Average price paid per share (excluding excise tax)	$	197.77	$	114.94	$	174.04	$	111.96

(*) Stock repurchase amounts 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.

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.

Dividends

In March 2024 and December 2023, our Board of Directors declared quarterly cash dividends in the amount of $0.40 and $0.32 per share, respectively. The dividend declared in March 2024 is payable in June 2024. Dividends paid during the six months ended April 28, 2024 and April 30, 2023 totaled $532 million and $439 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.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

During the three and six months ended April 28, 2024 and April 30, 2023, we recognized share-based compensation expense related to equity awards and ESPP shares. The effect of share-based compensation on the results of operations was as follows:


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

	(In millions)
Cost of products sold	$	33	$	42	$	65	$	96
Research, development and engineering	54		41		110		95
Marketing and selling	18		12		36		29
General and administrative	29		18		93		41

Total share-based compensation	$	134	$	113	$	304	$	261

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.

As of April 28, 2024, we had $1.1 billion 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 2.8 years. As of April 28, 2024, there were 21 million shares available for grant of share-based awards under the ESIP, and an additional 11 million shares available for issuance under the ESPP.

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

A summary of the changes in restricted stock units, restricted stock, performance share units and performance units outstanding under our equity compensation plans during the six months ended April 28, 2024 is presented below:


	Shares	Weighted Average Grant Date Fair Value

	(In millions, except per share amounts)
Outstanding as of October 29, 2023	12	$	106.24
Granted	4	$	146.05
Vested	(4)	$	96.54
Canceled	(1)	$	119.20
Outstanding as of April 28, 2024	11	$	124.99

As of April 28, 2024, 0.7 million additional performance-based awards could be earned based upon achievement of certain levels of specified performance and/or market goals.

During the first half of fiscal 2024, certain members of senior management were granted awards that 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.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

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.

The fair value of the portion of the awards subject to targeted levels of relative 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 awards subject to targeted levels of adjusted operating margin is estimated on the date of grant. 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.

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 begin in March and September of each of fiscal year. We issued a total of 1 million shares in the three and six months ended April 28, 2024 and a total of 1 million shares in the three and six months ended April 30, 2023. 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:



	Three and Six Months Ended
	April 28, 2024	April 30, 2023

Dividend yield	0.76%	1.09%
Expected volatility	35.6%	43.3%
Risk-free interest rate	5.27%	5.14%
Expected life (in years)	0.5	0.5
Weighted average estimated fair value	$53.98	$32.47

Note 13 Income Taxes

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 rates for the second quarter of fiscal 2024 and 2023 were 13.6 percent and 11.4 percent, respectively. The effective tax rate for the second quarter of fiscal 2024 was higher than the same period in the prior fiscal year primarily due to lower tax credits in fiscal 2024.

Our effective tax rates for the first six months of fiscal 2024 and 2023 were 12.9 percent and 11.9 percent, respectively. The effective tax rate for the first six months of fiscal 2024 was higher than the same period in the prior fiscal year primarily due to lower tax credits in fiscal 2024, partially offset by larger excess tax benefits from share-based compensation in fiscal 2024.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Note 14 Warranty, Guarantees, Commitments and Contingencies

Warranty

Changes in the warranty reserves are presented below:


	Three Months Ended				Six Months Ended
	April 28 2024		April 30 2023		April 28 2024		April 30 2023

	(In millions)
Beginning balance	$	344	$	302	$	332	$	286
Provisions for warranty	60		62		119		124
Changes in reserves related to preexisting warranty	(8)		(2)		(6)		2
Consumption of reserves	(50)		(52)		(99)		(102)
Ending balance	$	346	$	310	$	346	$	310

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 April 28, 2024, the maximum potential amount of future payments that we could be required to make under these guarantee agreements was approximately $387 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 April 28, 2024, we have provided parent guarantees to banks for approximately $292 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 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.

We have received multiple subpoenas from government authorities requesting information relating to certain China customer shipments. In August 2022 and February 2024, we received subpoenas from the U.S. Attorney’s Office for the District of Massachusetts; in November 2023 and May 2024, we received subpoenas from the U.S. Commerce Department’s Bureau of Industry and Security; and in February 2024, we received a subpoena from the U.S. Securities and Exchange Commission. Also in February 2024, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting information related to certain federal award applications. 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.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Note 15 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 April 28, 2024 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, 200mm 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.

We derive the segment results directly from our internal management reporting system. Effective in the first quarter of fiscal 2024, management began including share-based compensation expense in the evaluation of reportable segments' performance. Prior-year numbers have been recast to conform to the current-year presentation. 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 revenue 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 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.

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Net revenue and operating income (loss) for each reportable segment were as follows:


	Three Months Ended				Six Months Ended
	Net Revenue		Operating Income (Loss)		Net Revenue		Operating Income (Loss)

	(In millions)
April 28, 2024:
Semiconductor Systems	$	4,901	$	1,701	$	9,810	$	3,445
Applied Global Services	1,530		436		3,006		853
Display and Adjacent Markets	179		5		423		30
Corporate and Other	36		(230)		114		(449)
Total	$	6,646	$	1,912	$	13,353	$	3,879
April 30, 2023:
Semiconductor Systems	$	4,977	$	1,715	$	10,139	$	3,570
Applied Global Services	1,428		384		2,797		729
Display and Adjacent Markets	168		16		335		19
Corporate and Other	57		(204)		98		(437)
Total	$	6,630	$	1,911	$	13,369	$	3,881

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 revenue by geographic region, determined by the location of customers’ facilities to which products were shipped to, were as follows:


	Three Months Ended										Six Months Ended
	April 28, 2024				April 30, 2023				Change		April 28, 2024				April 30, 2023				Change

	(In millions, except percentages)
China	$	2,831	43	%	$	1,405	21	%	101	%	$	5,828	44	%	$	2,550	19	%	129	%
Korea	988		15	%	1,583		24	%	(38)	%	2,219		16	%	2,876		22	%	(23)	%
Taiwan	1,019		15	%	1,435		22	%	(29)	%	1,578		12	%	3,403		25	%	(54)	%
Japan	453		7	%	460		7	%	(2)	%	1,018		8	%	916		7	%	11	%
Southeast Asia	213		3	%	157		2	%	36	%	399		3	%	410		3	%	(3)	%
Asia Pacific	5,504		83	%	5,040		76	%	9	%	11,042		83	%	10,155		76	%	9	%
United States	853		13	%	1,113		17	%	(23)	%	1,612		12	%	2,164		16	%	(26)	%
Europe	289		4	%	477		7	%	(39)	%	699		5	%	1,050		8	%	(33)	%
Total	$	6,646	100	%	$	6,630	100	%	—	%	$	13,353	100	%	$	13,369	100	%	—	%

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


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023
Foundry, logic and other	65	%	84	%	63	%	81	%
Dynamic random-access memory (DRAM)	32	%	11	%	33	%	12	%
Flash memory	3	%	5	%	4	%	7	%

	100	%	100	%	100	%	100	%

APPLIED MATERIALS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

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


	Three Months Ended				Six Months Ended
	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

	(In millions)
Unallocated net revenue	$	36	$	57	$	114	$	98
Unallocated cost of products sold and expenses	(266)		(261)		(563)		(535)





Total	$	(230)	$	(204)	$	(449)	$	(437)

The following customer accounted for at least 10 percent of our net revenue for the six months ended April 28, 2024, and sales to this customer included products and services from multiple reportable segments.


	Percentage of Net Revenue

Samsung Electronics Co., Ltd.	13	%

Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations