Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis is provided in addition to the accompanying consolidated condensed financial statements and notes, and for a full understanding of our results of operations and financial condition should be read in conjunction with the consolidated condensed financial statements and notes included in this Form 10-Q and the financial statements and notes for the fiscal year ended October 29, 2023 contained in our Form 10-K filed on December 15, 2023.

As used herein, the terms “we,” “us,” and “our” refer to Applied Materials, Inc. and its subsidiaries.

This report contains forward-looking statements that involve a number of risks and uncertainties. Examples of forward-looking statements include those regarding our future financial or operating results, customer demand and spending, end-user demand, our and market and industry trends and outlooks, cash flows and cash deployment strategies, declaration of dividends, share repurchases, business strategies and priorities, costs and cost controls, products, competitive positions, management’s plans and objectives for future operations, research and development, acquisitions, investments and divestitures, growth opportunities, restructuring and severance activities, backlog, working capital, liquidity, investment portfolio and policies, taxes, supply chain, manufacturing, properties, legal matters, claims and proceedings, and other statements that are not historical facts, as well as their underlying assumptions. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” and “continue,” the negative of these terms, or other comparable terminology. All forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in Part II, Item 1A, “Risk Factors,” below and elsewhere in this report. These and many other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by us or on our behalf. Forward-looking statements are based on management’s estimates, projections and expectations as of the date hereof, and we undertake no obligation to revise or update any such statements.

Overview

We provide manufacturing equipment, services and software to the semiconductor, display, and related industries. Our customers include manufacturers of semiconductor wafers and chips, liquid crystal and organic light-emitting diode (OLED) displays, and other electronic devices. These customers may use what they manufacture in their own end products or sell the items to other companies for use in electronic products. Each of our segments is subject to variable industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for chips, display technologies, and other electronic devices, as well as other factors, such as global economic, political and market conditions, the nature and timing of technological advances in fabrication processes and other factors described under “Risk Factors” in Part II, Item 1A.

We operate in three reportable segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. A summary of financial information for each reportable segment is found in Note 15 of Notes to Consolidated Condensed Financial Statements. A discussion of factors that could affect our operations is set forth under “Risk Factors” in Part II, Item 1A, which is incorporated herein by reference. Product development and manufacturing activities occur primarily in the United States, Europe, Israel, and Asia. Our broad range of equipment and service products are highly technical and are sold primarily through a direct sales force.

Our results are driven primarily by customer spending on capital equipment and services to support key technology transitions or to increase production volume in response to worldwide demand for semiconductors and displays. The timing of customer investment in manufacturing equipment is also affected by the timing of next-generation process development and the timing of capacity expansion to meet end-market demand. In light of these conditions, our results can vary significantly year-over-year, as well as quarter-over-quarter.

The following table presents certain significant measurements for the periods indicated:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions, except per share amounts and percentages)
Net revenue$6,646$6,630$16$13,353$13,369$(16)
Gross margin47.4%46.7%0.7 points47.6%46.7%0.9 points
Operating income$1,912$1,911$1$3,879$3,881$(2)
Operating margin28.8%28.8%— points29.0%29.0%— points
Net income$1,722$1,575$147$3,741$3,292$449
Earnings per diluted share$2.06$1.86$0.20$4.47$3.88$0.59

Fiscal 2024 and 2023 each contain 52 weeks and the first six months of fiscal 2024 and 2023 each contained 26 weeks.

Semiconductor equipment customers continued to make strategic investments in new capacity and new technology transitions during the six months ended April 28, 2024. Foundry and logic customers’ spending decreased in the three and six months ended April 28, 2024 compared to the same periods in the prior year driven primarily by lower customer investments in leading-edge manufacturing technologies, partially offset by increased customer investments in mature manufacturing technologies. Memory customers’ spending in the three and six months ended April 28, 2024 was higher as compared to the same periods in the prior year due to increased investments in technology transitions.

Our Applied Global Services net revenue in the three and six months ended April 28, 2024 increased compared to the same periods in the prior year primarily due to an increase in net revenue associated with long-term service agreements and higher customer spending on 200mm generation equipment. Our Display and Adjacent Markets net revenue increased in the three and six months ended April 28, 2024 compared to the same periods in the prior year primarily due to higher customer investments in display manufacturing equipment for IT products including laptops, monitors and tablets.

Results of Operations

Net Revenue

Net revenue for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions, except percentages)
Semiconductor Systems$4,90174%$4,97775%(2)%$9,81073%$10,13976%(3)%
Applied Global Services1,53023%1,42822%7%3,00623%2,79721%7%
Display and Adjacent Markets1793%1682%7%4233%3352%26%
Corporate and Other36—%571%(37)%1141%981%16%
Total$6,646100%$6,630100%—%$13,353100%$13,369100%—%

For the three and six months ended April 28, 2024, net revenue remained relatively flat as compared to the same periods in the prior year. The decrease in net revenue from customer investment in semiconductor equipment was offset by increases in net revenue associated with long-term service agreements, customer spending on 200mm generation equipment and customer investments in display manufacturing equipment for IT products including laptops, monitors and tablets. The Semiconductor Systems segment continued to represent the largest contributor of net revenue.

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

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions, except percentages)
China$2,83143%$1,40521%101%$5,82844%$2,55019%129%
Korea98815%1,58324%(38)%2,21916%2,87622%(23)%
Taiwan1,01915%1,43522%(29)%1,57812%3,40325%(54)%
Japan4537%4607%(2)%1,0188%9167%11%
Southeast Asia2133%1572%36%3993%4103%(3)%
Asia Pacific5,50483%5,04076%9%11,04283%10,15576%9%
United States85313%1,11317%(23)%1,61212%2,16416%(26)%
Europe2894%4777%(39)%6995%1,0508%(33)%
Total$6,646100%$6,630100%—%$13,353100%$13,369100%—%

The changes in net revenue to customers in all regions in the three and six months ended April 28, 2024 compared to the same periods in the prior year primarily reflected changes in semiconductor manufacturing equipment spending.

Gross Margin

Gross margins for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
Gross margin47.4%46.7%0.7 points47.6%46.7%0.9 points

Gross margin in the three months ended April 28, 2024 increased compared to the same period in the prior year, primarily driven by lower material, freight and logistics costs, favorable changes in customer and product mix and a decrease in inventory reserves, partially offset by an increase in labor costs. Gross margin in the six months ended April 28, 2024 increased compared to the same period in the prior year, primarily driven by lower material, freight and logistics costs and a decrease in inventory reserves, partially offset by unfavorable changes in customer and product mix and an increase in labor costs. Gross margin during the three months ended April 28, 2024 and April 30, 2023 included $33 million and $42 million of share-based compensation expense, respectively. Gross margin during the six months ended April 28, 2024 and April 30, 2023 included $65 million and $96 million of share-based compensation expense, respectively.

Research, Development and Engineering

Research, Development and Engineering (RD&E) expenses for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions)
Research, development and engineering$785$775$10$1,539$1,546$(7)

Our future operating results depend to a considerable extent on our ability to maintain a competitive advantage in the equipment and service products we provide. Development cycles range from 12 to 36 months depending on whether the product is an enhancement of an existing product, which typically has a shorter development cycle, or a new product, which typically has a longer development cycle. Most of our existing products resulted from internal development activities and innovations involving new technologies, materials and processes. In certain instances, we acquire technologies, either in existing or new product areas, to complement our existing technology capabilities and to reduce time to market.

We believe that it is critical to continue to make substantial investments in RD&E to assure the availability of innovative technology that meets the current and projected requirements of our customers’ most advanced designs. We have maintained and intend to continue our commitment to investing in RD&E in order to continue to offer new products and technologies.

The changes in RD&E expenses during the three and six months ended April 28, 2024 compared to the same periods in the prior year were primarily due to additional headcount to support our ongoing investments in product development initiatives, consistent with our growth strategy, offset by lower depreciation expense as a result of changes in certain assets’ useful lives effective as of the beginning of fiscal 2024 and lower impairment of fixed assets in fiscal 2024. We continued to prioritize existing RD&E investments in technical capabilities and critical research and development programs in current and new markets, with a focus on semiconductor technologies. RD&E expenses during the three months ended April 28, 2024 and April 30, 2023 included $54 million and $41 million of share-based compensation expense, respectively. RD&E expense during the six months ended April 28, 2024 and April 30, 2023 included $110 million and $95 million of share-based compensation expense, respectively.

Marketing and Selling

Marketing and selling expenses for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions)
Marketing and selling$209$194$15$416$391$25

Marketing and selling expenses for the three and six months ended April 28, 2024 increased compared to the same periods in the prior year primarily due to additional headcount. Marketing and selling expenses during the three months ended April 28, 2024 and April 30, 2023 included $18 million and $12 million of share-based compensation expense, respectively. Marketing and selling expenses during the six months ended April 28, 2024 and April 30, 2023 included $36 million and $29 million of share-based compensation expense, respectively.

General and Administrative

General and administrative (G&A) expenses for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions)
General and administrative$247$214$33$523$421$102

G&A expenses in the three and six months ended April 28, 2024 increased compared to the same periods in the prior year primarily due to the increases in labor costs and share-based compensation expense. G&A expenses during the three months ended April 28, 2024 and April 30, 2023 included $29 million and $18 million of share-based compensation expense, respectively. G&A expenses during the six months ended April 28, 2024 and April 30, 2023 included $93 million and $41 million of share-based compensation expense, respectively.

Interest Expense and Interest and Other Income (Expense), net

Interest expense and interest and other income (expense), net for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions)
Interest expense$59$61$(2)$118$120$(2)
Interest and other income (expense), net$141$(73)$214$536$(23)$559

Interest expense incurred was primarily associated with issued senior unsecured notes. Interest expense in the three and six months ended April 28, 2024 remained relatively flat compared to the same periods in the prior year.

Interest and other income (expense), net in the three and six months ended April 28, 2024 increased compared to the same periods in the prior year, primarily driven by higher net gain and lower impairment on equity investments and higher interest income as a result of an increase in market rates of interest, compared to the prior year.

Income Taxes

Provision for income taxes and effective tax rates for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions, except percentages)
Provision for income taxes$272$202$70$556$446$110
Effective income tax rate13.6%11.4%2.2 points12.9%11.9%1.0 point

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.

Segment Information

We report financial results in three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. A description of the products and services, as well as financial data, for each reportable segment can be found in Note 15 of Notes to Consolidated Condensed Financial Statements.

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 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 for certain management, finance, legal, human resource, and RD&E 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.

The results for each reportable segment are discussed below.

Semiconductor Systems Segment

The Semiconductor Systems segment is comprised primarily of capital equipment used to fabricate semiconductor chips. Semiconductor industry spending on capital equipment is driven by demand for electronic products, including smartphones and other mobile devices, servers, personal computers, automotive electronics, storage, and other products, and the nature and timing of technological advances in fabrication processes, and as a result is subject to variable industry conditions. Spending can also depend on customer facility readiness and timeline for installation of capital equipment at customer sites. Development efforts are focused on solving customers’ key technical challenges in transistor, interconnect, patterning and packaging performance.

Certain significant measures for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions, except percentages and ratios)
Net revenue$4,901$4,977$(76)(2)%$9,810$10,139$(329)(3)%
Operating income$1,701$1,715$(14)(1)%$3,445$3,570$(125)(4)%
Operating margin34.7%34.5%0.2 points35.1%35.2%(0.1) point

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

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023April 28, 2024April 30, 2023
Foundry, logic and other65%84%63%81%
Dynamic random-access memory (DRAM)32%11%33%12%
Flash memory3%5%4%7%
100%100%100%100%

Semiconductor equipment customers continued to make strategic investments in new capacity and new technology transitions during the first six months of fiscal 2024. Foundry and logic customers’ spending decreased in the three and six months ended April 28, 2024 compared to the same periods in the prior year driven primarily by lower customer investments in leading-edge manufacturing technologies, partially offset by increased customer investments in mature manufacturing technologies. Memory customers’ spending in the three and six months ended April 28, 2024 was higher as compared to the same periods in the prior year primarily due to increased investments in DRAM technology transitions.

Operating margin for the three and six months ended April 28, 2024 remained relatively flat compared to the same periods in the prior year primarily driven by lower net revenue and increased RD&E expenses, offset by lower material, freight and logistics costs and lower depreciation expense as a result of changes in certain assets’ useful lives effective as of the beginning of fiscal 2024.

Applied Global Services Segment

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 solar products.

Demand for Applied Global Services’ solutions are driven by our large and growing installed base of manufacturing systems, and customers’ needs to shorten ramp times, improve device performance and yield, and optimize factory output and operating costs. Industry conditions that affect Applied Global Services’ sales of spares and services are primarily characterized by changes in semiconductor manufacturers’ wafer starts and utilization rates, growth of the installed base of equipment, growing service intensity of newer tools, and our ability to sell more comprehensive service agreements.

Certain significant measures for the periods indicated were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions, except percentages and ratios)
Net revenue$1,530$1,428$1027%$3,006$2,797$2097%
Operating income$436$384$5214%$853$729$12417%
Operating margin28.5%26.9%1.6 points28.4%26.1%2.3 points

Net revenue for the three and six months ended April 28, 2024 increased compared to the same periods in the prior year primarily due to an increase in net revenue associated with long-term service agreements and higher customer spending on 200mm generation equipment. Operating margin for the three and six months ended April 28, 2024 increased compared to the same periods in the prior year primarily due to the increase in net revenue.

Display and Adjacent Markets Segment

The Display and Adjacent Markets segment encompasses products for manufacturing liquid crystal and OLED displays, and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smart phones, other consumer-oriented devices, equipment upgrades and solar energy cells. The segment is focused on expanding its presence through technologically-differentiated equipment for manufacturing large-scale LCD TVs, OLEDs, low temperature polysilicon (LTPS), metal oxide, and touch panel sectors; and development of products that provide customers with improved performance and yields.

Display industry growth depends primarily on consumer demand for increasingly larger and more advanced TVs as well as larger and higher resolution displays for next-generation mobile devices. Uneven spending patterns by customers in the Display and Adjacent Markets segment can cause significant fluctuations quarter-over-quarter, as well as year-over-year.

Certain significant measures for the periods presented were as follows:

Three Months EndedSix Months Ended
April 28, 2024April 30, 2023ChangeApril 28, 2024April 30, 2023Change
(In millions, except percentages and ratios)
Net revenue$179$168$117%$423$335$8826%
Operating income$5$16$(11)(69)%$30$19$1158%
Operating margin2.8%9.5%(6.7) points7.1%5.7%1.4 points

Net revenue for the three and six months ended April 28, 2024 increased compared to the same periods in the prior year primarily due to higher customer investments in display manufacturing equipment for IT products including laptops, monitors and tablets. In addition, the increase in net revenue for the three months ended April 28, 2024 was partially offset by lower customer investments in display manufacturing equipment for products in the mobile market. Operating margin for the three months ended April 28, 2024 decreased compared to the same period in the prior year primarily due to unfavorable changes in product mix, partially offset by higher net revenue. Operating margin for the six months ended April 28, 2024 increased compared to the same period in the prior year primarily due to higher net revenue, partially offset by unfavorable changes in product mix.

Financial Condition, Liquidity and Capital Resources

Our cash, cash equivalents and investments consist of the following:

April 28, 2024October 29, 2023
(In millions)
Cash and cash equivalents$7,085$6,132
Short-term investments472737
Long-term investments2,9832,281
Total cash, cash-equivalents and investments$10,540$9,150

Sources and Uses of Cash

A summary of cash provided by (used in) operating, investing, and financing activities is as follows:

Six Months Ended
April 28, 2024April 30, 2023
(In millions)
Cash provided by operating activities$3,717$4,562
Cash used in investing activities$(596)$(621)
Cash used in financing activities$(2,179)$(1,346)

Operating Activities

Cash from operating activities for the six months ended April 28, 2024 was $3.7 billion, which reflects net income adjusted for the effect of non-cash items and changes in working capital components. Significant non-cash items included depreciation, amortization, gain on investments, and share-based compensation. Cash provided by operating activities decreased in the first six months of fiscal 2024 compared to the same period in the prior year primarily due to higher payments for income taxes and lower new billings for products and services for which there were unsatisfied performance obligations, partially offset by lower payments to vendors.

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 $264 million and $529 million of account receivables during the six months ended April 28, 2024 and April 30, 2023, respectively. We did not discount letters of credit issued by customers or discount promissory notes during the six months ended April 28, 2024 and April 30, 2023, respectively.

Our working capital was $12.4 billion as of April 28, 2024 and $11.8 billion as of October 29, 2023.

Days sales outstanding of our accounts receivable for the three months ended April 28, 2024 and April 30, 2023 were 65 days and 76 days, respectively. Days sales outstanding varies due to the timing of shipments and payment terms. The decrease in days sales outstanding was primarily due to favorable revenue linearity and lower accounts receivable balance as a result of the timing of customer payments.

Investing Activities

We used $596 million of cash in investing activities during the six months ended April 28, 2024. Capital expenditures totaled $486 million and purchases of investments, net of proceeds from sales and maturities of investments were $110 million, during the six months ended April 28, 2024.

Our investment portfolio consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, municipal bonds, corporate bonds and mortgage-backed and asset-backed securities, as well as equity securities. We regularly monitor the credit risk in our investment portfolio and take appropriate measures, which may include the sale of certain securities, to manage such risks prudently in accordance with our investment policies.

Financing Activities

We used $2.2 billion of cash in financing activities during the six months ended April 28, 2024, consisting primarily of cash used for repurchases of common stock of $1.5 billion, dividends to stockholders of $532 million, tax withholding payments for vested equity awards of $233 million and net payments of principals on financing leases of $13 million, partially offset by proceeds received from common stock issuances of $119 million under our employee stock purchase plan.

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. 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.

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.

We have credit facilities for unsecured borrowings in various currencies of up to $1.6 billion, of which $1.5 billion is comprised of a committed revolving credit agreement (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 in United States dollars 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. The Revolving Credit Agreement includes financial and other covenants with which we were in compliance as of April 28, 2024.

Remaining credit facilities in the amount of approximately $52 million are with Japanese banks. 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.

No amounts were outstanding under any of these facilities at both April 28, 2024 and October 29, 2023.

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. As of April 28, 2024, we had commercial paper notes outstanding with an aggregate principal amount of $100 million. The proceeds from the issuances of commercial paper are used for general corporate purposes. The commercial paper is backstopped by the Revolving Credit Agreement and borrowings under the Revolving Credit Agreement reduce the amount of commercial paper notes we can issue.

We had senior unsecured notes in the aggregate principal amount of $5.5 billion outstanding as of April 28, 2024. See Note 10 of the Notes to the Consolidated Condensed Financial Statements for additional discussion of existing debt. We may seek to refinance our existing debt and may incur additional indebtedness depending on our capital requirements, general corporate purposes and the availability of financing.

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.

Others

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act). The Tax Act requires a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The transition tax expense is payable in installments over eight years, with eight percent due in each of the first five years starting with fiscal 2018. As of April 28, 2024, we had $459 million of total payments remaining, payable in installments in the next two years.

On August 9, 2022, the U.S. government enacted the U.S. CHIPS and Science Act (“CHIPS Act”). The CHIPS Act creates a 25% investment tax credit for certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022, for which construction begins before January 1, 2027, and is treated as a government grant. We recognize this investment tax credit when there is reasonable assurance that we will qualify for the credit and the benefit will be received.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act. The Inflation Reduction Act introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations are allowed to claim a credit for the minimum tax paid against regular tax in future years. We are subject to the minimum tax in fiscal 2024 and expect to claim a credit for the minimum tax in future years.

Several countries where we do business have enacted global minimum tax regimes based on the Organization for Economic Cooperation and Development (“OECD”) Base Erosion and Profit Shifting Project. This will change various aspects of the existing framework under which our global tax obligations are determined and is expected to increase our tax liabilities beginning in fiscal 2025. The OECD continues to release additional guidance on this new global minimum tax framework. We will continue to monitor these developments, as each jurisdiction incorporates changes into its tax laws.

Our conditional reduced tax rates in Singapore will expire in fiscal 2025, excluding potential renewal and subject to certain conditions with which we expect to comply.

Although cash requirements will fluctuate based on the timing and extent of factors such as those discussed above, our management believes that cash generated from operations, together with the liquidity provided by existing cash balances and borrowing capability, will be sufficient to satisfy our liquidity requirements for the next 12 months. For further details regarding our operating, investing and financing activities, see the Consolidated Condensed Statements of Cash Flows in this report.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K and as updated as applicable in Note 1 of Notes to Consolidated Condensed Financial Statements in this report describe the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies. There have been no significant changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for fiscal year ended October 29, 2023.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated condensed financial statements, see Note 1 of the Notes to Consolidated Condensed Financial Statements.

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