e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
August 1,
2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
000-06920
Applied Materials,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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94-1655526
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3050 Bowers Avenue,
P.O. Box 58039
Santa Clara, California
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95052-8039
(Zip Code)
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(Address of principal executive
offices)
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(Registrants telephone number, including area code)
(408) 727-5555
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Number of shares outstanding of the issuers common stock
as of August 1, 2010: 1,336,068,013
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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APPLIED
MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
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Three Months Ended
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Nine Months Ended
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August 1,
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July 26,
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August 1,
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July 26,
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2010
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2009
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2010
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2009
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(Unaudited)
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(In thousands, except per share amounts)
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Net sales
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$
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2,517,790
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$
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1,133,740
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$
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6,662,232
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$
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3,487,213
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Cost of products sold
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1,657,662
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808,866
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4,164,028
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2,615,244
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Gross margin
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860,128
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324,874
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2,498,204
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871,969
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Operating expenses:
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Research, development and engineering
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290,398
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234,052
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865,329
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699,927
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General and administrative
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145,994
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88,487
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396,572
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330,808
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Marketing and selling
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105,754
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79,518
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303,369
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248,311
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Restructuring and asset impairments
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135,331
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248,143
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159,481
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Total operating expenses
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677,477
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402,057
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1,813,413
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1,438,527
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Income (loss) from operations
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182,651
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(77,183
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)
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684,791
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(566,558
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)
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Pre-tax loss of equity method investment
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34,983
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Impairment of equity method investment and strategic investments
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7,804
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2,341
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12,665
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79,422
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Interest expense
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5,496
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4,893
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15,762
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15,945
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Interest income
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8,480
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10,233
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27,253
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37,257
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Income (loss) before income taxes
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177,831
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(74,184
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)
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683,617
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(659,651
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)
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Provision (benefit) for income taxes
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54,735
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(19,319
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)
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213,766
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(216,462
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)
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Net income (loss)
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$
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123,096
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$
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(54,865
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)
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$
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469,851
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$
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(443,189
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)
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Earnings (loss) per share:
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Basic
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$
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0.09
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$
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(0.04
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$
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0.35
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$
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(0.33
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)
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Diluted
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$
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0.09
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$
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(0.04
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)
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$
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0.35
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$
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(0.33
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)
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Weighted average number of shares:
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Basic
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1,339,660
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1,333,278
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1,342,068
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1,331,410
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Diluted
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1,348,808
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1,333,278
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1,350,587
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1,331,410
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See accompanying Notes to Consolidated Condensed Financial
Statements.
2
APPLIED
MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
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August 1,
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October 25,
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2010
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2009
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(In thousands)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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1,564,337
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$
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1,576,381
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Short-term investments
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783,799
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638,349
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Accounts receivable, net
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1,721,496
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1,041,495
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Inventories
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1,590,052
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1,627,457
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Deferred income taxes, net
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577,442
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356,336
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Income taxes receivable
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184,760
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Other current assets
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314,622
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264,169
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Total current assets
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6,551,748
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5,688,947
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Long-term investments
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1,279,515
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1,052,165
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Property, plant and equipment, net
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983,790
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1,090,433
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Goodwill
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1,336,426
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1,170,932
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Purchased technology and other intangible assets, net
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300,401
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306,416
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Deferred income taxes and other assets
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274,268
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265,350
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Total assets
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$
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10,726,148
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$
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9,574,243
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Current portion of long-term debt
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$
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1,848
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$
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1,240
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Accounts payable and accrued expenses
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1,643,606
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1,061,502
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Customer deposits and deferred revenue
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1,036,938
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864,280
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Income taxes payable
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207,080
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12,435
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Total current liabilities
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2,889,472
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1,939,457
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Long-term debt
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204,438
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200,654
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Employee benefits and other liabilities
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354,099
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339,524
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Total liabilities
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3,448,009
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2,479,635
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Commitments and contingencies (Note 9)
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Stockholders equity:
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Common stock: $.01 par value per share;
2,500,000 shares authorized; 1,336,068 and
1,340,917 shares outstanding at August 1, 2010 and
October 25, 2009, respectively
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13,361
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13,409
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Additional paid-in capital
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5,368,862
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5,195,437
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Retained earnings
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11,135,753
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10,934,004
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Treasury stock: 523,791 and 508,254 shares at
August 1, 2010 and October 25, 2009, respectively, net
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(9,246,407
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)
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(9,046,562
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)
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Accumulated other comprehensive income (loss)
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6,570
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(1,680
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)
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Total stockholders equity
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|
7,278,139
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|
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7,094,608
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Total liabilities and stockholders equity
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$
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10,726,148
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$
|
9,574,243
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* |
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Amounts as of August 1, 2010 are unaudited. Amounts as of
October 25, 2009 are derived from the October 25, 2009
audited consolidated financial statements. |
See accompanying Notes to Consolidated Condensed Financial
Statements.
3
APPLIED
MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF
STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (LOSS)
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Accumulated
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Additional
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Other
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Common Stock
|
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Paid-In
|
|
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Retained
|
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Treasury
|
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Comprehensive
|
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Shares
|
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|
Amount
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Capital
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|
Earnings
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Nine Months Ended August 1, 2010
|
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Balance at October 25, 2009
|
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|
1,340,917
|
|
|
$
|
13,409
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|
|
$
|
5,195,437
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|
|
$
|
10,934,004
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|
|
$
|
(9,046,562
|
)
|
|
$
|
(1,680
|
)
|
|
$
|
7,094,608
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|
Components of comprehensive income, net of tax:
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|
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
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|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469,851
|
|
|
|
|
|
|
|
|
|
|
|
469,851
|
|
Change in unrealized net gain on investments
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,876
|
|
|
|
6,876
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|
Change in unrealized net gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,359
|
|
|
|
1,359
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|
Change in defined and postretirement benefit plans liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
74
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,101
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(268,102
|
)
|
|
|
|
|
|
|
|
|
|
|
(268,102
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
94,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,772
|
|
Issuance under stock plans, net of a tax detriment of $11,842
and other
|
|
|
10,689
|
|
|
|
107
|
|
|
|
78,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,760
|
|
Common stock repurchases
|
|
|
(15,538
|
)
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
(199,845
|
)
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 1, 2010
|
|
|
1,336,068
|
|
|
$
|
13,361
|
|
|
$
|
5,368,862
|
|
|
$
|
11,135,753
|
|
|
$
|
(9,246,407
|
)
|
|
$
|
6,570
|
|
|
$
|
7,278,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
4
APPLIED
MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
469,851
|
|
|
$
|
(443,189
|
)
|
Adjustments required to reconcile net income (loss) to cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
235,742
|
|
|
|
219,609
|
|
Loss on fixed asset retirements
|
|
|
14,505
|
|
|
|
16,165
|
|
Provision for bad debts
|
|
|
6,718
|
|
|
|
62,539
|
|
Restructuring and asset impairments
|
|
|
248,143
|
|
|
|
159,481
|
|
Deferred income taxes
|
|
|
(214,984
|
)
|
|
|
96,117
|
|
Net recognized loss on investments
|
|
|
15,532
|
|
|
|
13,083
|
|
Pre-tax loss of equity method investment
|
|
|
|
|
|
|
34,983
|
|
Impairment of investments
|
|
|
12,665
|
|
|
|
79,422
|
|
Share-based compensation
|
|
|
94,772
|
|
|
|
116,114
|
|
Changes in operating assets and liabilities, net of amounts
acquired:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(648,477
|
)
|
|
|
786,319
|
|
Inventories
|
|
|
100,305
|
|
|
|
238,510
|
|
Income taxes receivable
|
|
|
184,760
|
|
|
|
(296,330
|
)
|
Other current assets
|
|
|
(37,936
|
)
|
|
|
49,990
|
|
Other assets
|
|
|
(6,643
|
)
|
|
|
(7,134
|
)
|
Accounts payable and accrued expenses
|
|
|
374,037
|
|
|
|
(632,193
|
)
|
Customer deposits and deferred revenue
|
|
|
166,799
|
|
|
|
(314,250
|
)
|
Income taxes payable
|
|
|
192,054
|
|
|
|
(122,967
|
)
|
Employee benefits and other liabilities
|
|
|
(10,109
|
)
|
|
|
36,527
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
1,197,734
|
|
|
|
92,796
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(134,044
|
)
|
|
|
(187,804
|
)
|
Cash paid for acquisition, net of cash acquired
|
|
|
(322,599
|
)
|
|
|
|
|
Proceeds from sales and maturities of investments
|
|
|
967,067
|
|
|
|
1,121,026
|
|
Purchases of investments
|
|
|
(1,357,261
|
)
|
|
|
(649,417
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
|
|
|
(846,837
|
)
|
|
|
283,805
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Debt repayments, net
|
|
|
(5,684
|
)
|
|
|
(241
|
)
|
Proceeds from common stock issuances
|
|
|
98,920
|
|
|
|
29,406
|
|
Common stock repurchases
|
|
|
(200,000
|
)
|
|
|
(22,906
|
)
|
Payment of dividends to stockholders
|
|
|
(255,032
|
)
|
|
|
(239,756
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities
|
|
|
(361,796
|
)
|
|
|
(233,497
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,145
|
)
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(12,044
|
)
|
|
|
143,846
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
1,576,381
|
|
|
|
1,411,624
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
1,564,337
|
|
|
$
|
1,555,470
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash payments for income taxes
|
|
$
|
255,109
|
|
|
$
|
192,027
|
|
Cash refunds of income taxes
|
|
$
|
199,149
|
|
|
|
52,402
|
|
Cash payments for interest
|
|
$
|
7,196
|
|
|
$
|
7,212
|
|
See accompanying Notes to Consolidated Condensed Financial
Statements.
5
APPLIED
MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
(Unaudited)
|
|
Note 1
|
Basis of
Presentation
|
Basis
of Presentation
In the opinion of management, the unaudited interim consolidated
condensed financial statements of Applied Materials, Inc. and
its subsidiaries (Applied or the Company) included herein have
been prepared on a basis consistent with the October 25,
2009 audited consolidated financial statements and include all
material adjustments, consisting of normal recurring
adjustments, necessary to fairly present 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 Applieds Annual Report on
Form 10-K
for the fiscal year ended October 25, 2009 (2009
Form 10-K).
Applieds results of operations for the three and nine
months ended August 1, 2010 are not necessarily indicative
of future operating results.
Applieds fiscal year ends on the last Sunday in October of
each year. Fiscal 2010 contains 53 weeks, while fiscal 2009
contained 52 weeks, and the first nine months of fiscal
2010 contained 40 weeks, while the first nine months of
fiscal 2009 contained 39 weeks.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make judgments, estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
materially from those estimates. On an ongoing basis, Applied
evaluates its estimates, including those related to accounts
receivable and sales allowances, fair values of financial
instruments, inventories, intangible assets and goodwill, useful
lives of intangible assets and property and equipment, fair
values of stock-based awards, and income taxes, among others.
Applied bases its 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.
In the third quarter of fiscal 2010, Applied initiated a plan to
restructure its Energy and Environmental Solutions segment. The
action was in response to adverse market conditions for thin
film solar, including delays in utility-scale solar adoption,
solar panel manufacturers challenges in obtaining
affordable capital, changes and uncertainty in government
renewable energy policies, and competitive pressure from
crystalline silicon (c-Si) solar technologies. Under this plan,
Applied incurred charges totaling $405 million, which
included inventory-related charges of $247 million related
to SunFab thin film solar equipment, asset impairment charges of
$110 million, employee severance charges of
$45 million, and other costs of $3 million. In
addition, during the third quarter of fiscal 2010, Applied
revised the cost estimate of a global workforce reduction
program, originally announced in November 2009, as a result of
changes in business requirements and recorded a favorable
adjustment of $20 million.
Revenue
Recognition
Applied recognizes revenue when all four revenue recognition
criteria have been met: persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered;
sellers price to buyer is fixed or determinable; and
collectability is probable. Applieds shipping terms are
customarily FOB Applied shipping point or equivalent terms.
Applieds revenue recognition policy generally results in
revenue recognition at the following points: (1) for all
transactions where legal title passes to the customer upon
shipment, Applied recognizes revenue upon shipment for all
products that have been demonstrated to meet product
specifications prior to shipment; the portion of revenue
associated with certain installation-related tasks is deferred,
and that revenue is recognized upon completion of the
installation-related tasks; (2) for products that have not
been demonstrated to meet product specifications prior to
shipment, revenue is recognized at customer technical
acceptance; (3) for transactions where legal title does not
pass at shipment, revenue is recognized when legal title passes
to the customer, which is generally at customer technical
acceptance; (4) for arrangements initiated prior to
fiscal 2010 containing multiple
6
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
elements, the revenue relating to the undelivered elements is
deferred at their estimated relative fair values until delivery
of the deferred elements; and (5) for arrangements
initiated or materially modified during fiscal 2010 containing
multiple elements, the revenue relating to the undelivered
elements is deferred using the relative selling price method
utilizing estimated sales prices until delivery of the deferred
elements. Applied limits the amount of revenue recognition for
delivered elements to the amount that is not contingent on the
future delivery of products or services, future performance
obligations or subject to customer-specified return or
adjustment. In cases where Applied has sold products that have
been demonstrated to meet product specifications prior to
shipment, Applied believes that at the time of delivery, it has
an enforceable claim to amounts recognized as revenue. The
completed contract method is used for
SunFabtm
thin film lines. Certain SunFab thin film contracts have
provisions for additional amounts to become due to Applied if
the line achieves certain output criteria subsequent to factory
acceptance. Any additional amounts earned under these contracts
are recognized upon achievement. Spare parts revenue is
generally recognized upon shipment, and services revenue is
generally recognized over the period that the services are
provided.
In the first quarter of fiscal 2010, Applied elected to early
adopt amended accounting standards issued by the Financial
Accounting Standards Board (FASB) for multiple deliverable
revenue arrangements on a prospective basis for applicable
transactions originating or materially modified after
October 25, 2009. The new standard changes the requirements
for establishing separate units of accounting in a multiple
element arrangement and requires the allocation of arrangement
consideration to each deliverable to be based on the relative
selling price. The FASB also amended the accounting standards
for revenue recognition to exclude software that is contained in
a tangible product from the scope of software revenue guidance
if the software is essential to the tangible products
functionality. Implementation of this new authoritative guidance
had an insignificant impact on reported net sales as compared to
net sales under previous guidance, as the new guidance did not
change the units of accounting within sales arrangements and the
elimination of the residual method for the allocation of
arrangement consideration had an inconsequential impact on the
amount and timing of reported net sales. Accordingly, Applied
does not believe that the effect of adopting these standards
will have a material impact on future financial periods.
For fiscal 2010 and future periods, when a sales arrangement
contains multiple elements, such as hardware and services
and/or
software products, Applied allocates revenue to each element
based on a selling price hierarchy. The selling price for a
deliverable is based on its vendor specific objective evidence
(VSOE) if available, third party evidence (TPE) if VSOE is not
available, or estimated selling price (ESP) if neither VSOE nor
TPE is available. Applied generally utilizes the ESP due to the
nature of its products. In multiple element arrangements where
more-than-incidental
software deliverables are included, revenue is allocated to each
separate unit of accounting for each of the non-software
deliverables and to the software deliverables as a group using
the relative selling prices of each of the deliverables in the
arrangement based on the aforementioned selling price hierarchy.
If the arrangement contains more than one software deliverable,
the arrangement consideration allocated to the software
deliverables as a group is then allocated to each software
deliverable using the guidance for recognizing software revenue,
as amended.
Business
Combinations
Effective in the first quarter of fiscal 2010, Applied adopted
revised authoritative guidance on business combinations that
covers the measurement of acquirer shares issued as
consideration for a business combination, the recognition of
contingent consideration, the accounting for preacquisition gain
and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment
of acquisition-related transaction costs, and the recognition of
changes in the acquirers income tax valuation allowance.
This authoritative guidance also revised the accounting for both
increases and decreases in a parents controlling ownership
interest.
7
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Earnings
(Loss) Per Share
|
Basic earnings (loss) 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 stock options, restricted
stock units, and employee stock purchase plans shares)
outstanding during the period. Applieds net income (loss)
has not been adjusted for any period presented for purposes of
computing basic or diluted earnings (loss) per share due to the
Companys non-complex capital structure. For purposes of
computing diluted earnings per share, weighted average potential
common shares do not include stock options with an exercise
price greater than the average fair market value of Applied
common stock for the period as the effect would be
anti-dilutive. Potential common shares have not been included in
the calculation of diluted net loss per share for the three and
nine months ended July 26, 2009 as the effect would be
anti-dilutive. As such, the numerator and the denominator used
in computing both basic and diluted net loss per share for the
three and nine months ended July 26, 2009 are the same.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
123,096
|
|
|
$
|
(54,865
|
)
|
|
$
|
469,851
|
|
|
$
|
(443,189
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,339,660
|
|
|
|
1,333,278
|
|
|
|
1,342,068
|
|
|
|
1,331,410
|
|
Effect of dilutive stock options, restricted stock units and
employee stock purchase plans shares
|
|
|
9,148
|
|
|
|
|
|
|
|
8,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per share
|
|
|
1,348,808
|
|
|
|
1,333,278
|
|
|
|
1,350,587
|
|
|
|
1,331,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.09
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.35
|
|
|
$
|
(0.33
|
)
|
Diluted earnings (loss) per share
|
|
$
|
0.09
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.35
|
|
|
$
|
(0.33
|
)
|
Potentially dilutive securities
|
|
|
33,700
|
|
|
|
91,655
|
|
|
|
33,844
|
|
|
|
91,655
|
|
8
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 summarizes Applieds cash, cash
equivalents and investments by security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
August 1, 2010
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
624,590
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
624,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
873,705
|
|
|
|
|
|
|
|
|
|
|
|
873,705
|
|
U.S. Treasury and agency securities
|
|
|
66,060
|
|
|
|
|
|
|
|
18
|
|
|
|
66,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash equivalents
|
|
|
939,765
|
|
|
|
|
|
|
|
18
|
|
|
|
939,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash and Cash equivalents
|
|
$
|
1,564,355
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
1,564,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities
|
|
$
|
839,798
|
|
|
$
|
9,598
|
|
|
$
|
25
|
|
|
$
|
849,371
|
|
Obligations of states and political subdivisions
|
|
|
510,072
|
|
|
|
6,644
|
|
|
|
5
|
|
|
|
516,711
|
|
U.S. commercial paper, corporate bonds and medium-term notes
|
|
|
365,365
|
|
|
|
6,082
|
|
|
|
54
|
|
|
|
371,393
|
|
Other debt securities*
|
|
|
229,891
|
|
|
|
5,531
|
|
|
|
346
|
|
|
|
235,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities
|
|
|
1,945,126
|
|
|
|
27,855
|
|
|
|
430
|
|
|
|
1,972,551
|
|
Publicly traded equity securities
|
|
|
13,854
|
|
|
|
14,708
|
|
|
|
|
|
|
|
28,562
|
|
Equity investments in privately-held companies
|
|
|
62,201
|
|
|
|
|
|
|
|
|
|
|
|
62,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-term and Long-term investments
|
|
$
|
2,021,181
|
|
|
$
|
42,563
|
|
|
$
|
430
|
|
|
$
|
2,063,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash, Cash equivalents and Investments
|
|
$
|
3,585,536
|
|
|
$
|
42,563
|
|
|
$
|
448
|
|
|
$
|
3,627,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
October 25, 2009
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
341,127
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
341,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
1,235,254
|
|
|
|
|
|
|
|
|
|
|
|
1,235,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash equivalents
|
|
|
1,235,254
|
|
|
|
|
|
|
|
|
|
|
|
1,235,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash and Cash equivalents
|
|
$
|
1,576,381
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,576,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities
|
|
$
|
653,627
|
|
|
$
|
8,013
|
|
|
$
|
170
|
|
|
$
|
661,470
|
|
Obligations of states and political subdivisions
|
|
|
419,640
|
|
|
|
7,597
|
|
|
|
|
|
|
|
427,237
|
|
U.S. commercial paper, corporate bonds and medium-term notes
|
|
|
382,550
|
|
|
|
5,676
|
|
|
|
281
|
|
|
|
387,945
|
|
Other debt securities*
|
|
|
103,193
|
|
|
|
1,430
|
|
|
|
391
|
|
|
|
104,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities
|
|
|
1,559,010
|
|
|
|
22,716
|
|
|
|
842
|
|
|
|
1,580,884
|
|
Publicly traded equity securities
|
|
|
9,572
|
|
|
|
9,439
|
|
|
|
|
|
|
|
19,011
|
|
Equity investments in privately-held companies
|
|
|
90,619
|
|
|
|
|
|
|
|
|
|
|
|
90,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-term and Long-term investments
|
|
$
|
1,659,201
|
|
|
$
|
32,155
|
|
|
$
|
842
|
|
|
$
|
1,690,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash, Cash equivalents and Investments
|
|
$
|
3,235,582
|
|
|
$
|
32,155
|
|
|
$
|
842
|
|
|
$
|
3,266,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other debt securities consist primarily of investment grade
asset-backed and mortgage-backed securities. |
Maturities
of Investments
The following table summarizes the contractual maturities of
Applieds investments at August 1, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Due in one year or less
|
|
$
|
752,111
|
|
|
$
|
755,220
|
|
Due after one through five years
|
|
|
959,665
|
|
|
|
978,408
|
|
Due after five years
|
|
|
3,459
|
|
|
|
3,847
|
|
No single maturity date**
|
|
|
305,946
|
|
|
|
325,839
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,021,181
|
|
|
$
|
2,063,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
Securities with no single maturity date include publicly-traded
and privately-held equity securities, and asset-backed and
mortgage-backed securities. |
10
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Gains
and Losses on Investments
Gross realized gains and losses on sales of investments during
the three and nine months ended August 1, 2010 and
July 26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
August 1,
|
|
July 26,
|
|
August 1,
|
|
July 26,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(In thousands)
|
|
Gross realized gains
|
|
$
|
1,297
|
|
|
$
|
992
|
|
|
$
|
3,185
|
|
|
$
|
5,796
|
|
Gross realized losses
|
|
$
|
654
|
|
|
$
|
1,491
|
|
|
$
|
1,323
|
|
|
$
|
10,468
|
|
At August 1, 2010, Applied had a gross unrealized loss of
$0.4 million due to a decrease in the fair value of certain
fixed income securities. Applied regularly reviews its
investment portfolio to identify and evaluate investments that
have indications of possible impairment. Factors considered in
determining whether an unrealized loss is temporary, or
other-than-temporary
and therefore impaired, include: the length of time and extent
to which fair value has been lower than the cost basis; the
financial condition, credit quality and near-term prospects of
the investee; and whether it is more likely than not that
Applied will be required to sell the security prior to recovery.
Generally, the contractual terms of investments in marketable
securities do not permit settlement at prices less than the
amortized cost of the investments. Applied has determined that
the gross unrealized losses on its marketable securities at
August 1, 2010 are temporary in nature and therefore it did
not recognize any impairment of its marketable securities for
the three and nine months ended August 1, 2010. At
August 1, 2010, Applied determined that certain of its
equity investments in privately-held companies were
other-than-temporarily
impaired and, accordingly, recognized impairment charges in the
amounts of $8 million and $13 million for the three
and nine months ended August 1, 2010, respectively.
Impairment charges associated with equity investments in
privately-held companies for the three months ended
July 26, 2009 totaled $2 million. Impairment charges
associated with financial assets for the nine months ended
July 26, 2009 totaled $79 million, consisting of the
following: equity method investment, $45 million;
publicly-traded equity securities, $20 million; and equity
investments in privately-held companies, $14 million.
The following table provides the fair market value of
Applieds investments with unrealized losses that are not
deemed to be
other-than-temporarily
impaired as of August 1, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Loss Position for
|
|
|
In Loss Position for
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
U.S. Treasury and agency securities
|
|
$
|
84,630
|
|
|
$
|
38
|
|
|
$
|
7,558
|
|
|
$
|
5
|
|
|
$
|
92,188
|
|
|
$
|
43
|
|
Obligations of states and political subdivisions
|
|
|
5,667
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5,667
|
|
|
|
5
|
|
U.S. commercial paper, corporate bonds and medium-term notes
|
|
|
44,137
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
44,137
|
|
|
|
54
|
|
Other debt securities
|
|
|
30,817
|
|
|
|
196
|
|
|
|
1,641
|
|
|
|
150
|
|
|
|
32,458
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
165,251
|
|
|
$
|
293
|
|
|
$
|
9,199
|
|
|
$
|
155
|
|
|
$
|
174,450
|
|
|
$
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and temporary losses on investments classified
as
available-for-sale
are included within accumulated other comprehensive income
(loss), net of any related tax effect. Upon realization, those
amounts are reclassified from accumulated other comprehensive
income (loss) to results of operations.
11
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4
|
Fair
Value Measurements
|
Applieds financial assets are measured and recorded at
fair value, except for equity investments held in privately-held
companies. These equity investments are generally accounted for
under the cost method of accounting and are periodically
assessed for
other-than-temporary
impairment when events or circumstances indicate that an
other-than-temporary
decline in value may have occurred. Applieds nonfinancial
assets, such as goodwill, intangible assets, and property, plant
and equipment, are recorded at cost and are assessed for
impairment when events or circumstances indicate that an
other-than-temporary
decline in value may have occurred.
Fair
Value Hierarchy
Applied uses 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 Observable 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.
|
Applieds investments are comprised primarily of debt
securities that are classified as
available-for-sale
and recorded at their fair values. In determining the fair value
of investments, Applied uses 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,
Applied generally obtains non-binding price quotes from brokers.
Applied then reviews the information provided by the pricing
services or brokers to determine the fair value of its
short-term and long-term investments. In addition, to validate
pricing information obtained from pricing services, Applied
periodically performs supplemental analysis on a sample of
securities. Applied reviews any significant unanticipated
differences identified through this analysis to determine the
appropriate fair value.
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. As
of August 1, 2010, substantially all of Applieds
available-for-sale,
short-term and long-term investments were recognized at fair
value that was determined based upon observable inputs.
12
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
Financial assets and liabilities (excluding cash balances)
measured at fair value on a recurring basis are summarized below
as of August 1, 2010 and October 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2010
|
|
|
October 25, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
873,705
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
873,705
|
|
|
$
|
1,235,254
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,235,254
|
|
U.S. Treasury and agency securities
|
|
|
172,781
|
|
|
|
742,632
|
|
|
|
|
|
|
|
915,413
|
|
|
|
145,166
|
|
|
|
516,304
|
|
|
|
|
|
|
|
661,470
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
516,711
|
|
|
|
|
|
|
|
516,711
|
|
|
|
|
|
|
|
427,237
|
|
|
|
|
|
|
|
427,237
|
|
U.S. commercial paper, corporate bonds and medium-term notes
|
|
|
|
|
|
|
371,393
|
|
|
|
|
|
|
|
371,393
|
|
|
|
|
|
|
|
387,945
|
|
|
|
|
|
|
|
387,945
|
|
Other debt securities
|
|
|
|
|
|
|
235,076
|
|
|
|
|
|
|
|
235,076
|
|
|
|
|
|
|
|
104,232
|
|
|
|
|
|
|
|
104,232
|
|
Publicly traded equity securities
|
|
|
28,562
|
|
|
|
|
|
|
|
|
|
|
|
28,562
|
|
|
|
19,011
|
|
|
|
|
|
|
|
|
|
|
|
19,011
|
|
Foreign exchange derivative assets
|
|
|
|
|
|
|
6,167
|
|
|
|
|
|
|
|
6,167
|
|
|
|
|
|
|
|
2,173
|
|
|
|
|
|
|
|
2,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,075,048
|
|
|
$
|
1,871,979
|
|
|
$
|
|
|
|
$
|
2,947,027
|
|
|
$
|
1,399,431
|
|
|
$
|
1,437,891
|
|
|
$
|
|
|
|
$
|
2,837,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
|
$
|
|
|
|
$
|
(2,191
|
)
|
|
$
|
|
|
|
$
|
(2,191
|
)
|
|
$
|
|
|
|
$
|
(1,678
|
)
|
|
$
|
|
|
|
$
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(2,191
|
)
|
|
$
|
|
|
|
$
|
(2,191
|
)
|
|
$
|
|
|
|
$
|
(1,678
|
)
|
|
$
|
|
|
|
$
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no significant transfers in and out of Level 1
and Level 2 fair value measurements during the three and
nine months ended August 1, 2010. During the three and nine
months ended July 26, 2009, Level 3 assets consisted
of asset-backed and mortgage-backed securities, the values of
which were based on non-binding, broker-provided price quotes
and may not have been corroborated by observable market data.
The following table presents the activity in Level 3
instruments during the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1, 2010
|
|
|
July 26, 2009
|
|
|
August 1, 2010
|
|
|
July 26, 2009
|
|
|
|
Level 3
|
|
|
Level 3
|
|
|
Level 3
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Balance, beginning of period
|
|
$
|
|
|
|
$
|
2,285
|
|
|
$
|
|
|
|
$
|
13,100
|
|
Total realized and unrealized losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
908
|
|
|
|
|
|
|
|
(1,859
|
)
|
Included in other comprehensive loss
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
(1,152
|
)
|
Purchases, sales, and maturities
|
|
|
|
|
|
|
(1,996
|
)
|
|
|
|
|
|
|
(8,991
|
)
|
Transfers out of Level 3, net
|
|
|
|
|
|
|
438
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
|
|
|
$
|
1,608
|
|
|
$
|
|
|
|
$
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Assets
and Liabilities Measured at Fair Value on a Non-recurring
Basis
Equity investments in privately-held companies are generally
accounted for under the cost method of accounting and are
periodically assessed for
other-than-temporary
impairment when an event or circumstance indicates that an
other-than-temporary
decline in value may have occurred. If Applied determines that
an
other-than-temporary
impairment has occurred, the investment will be written down to
its estimated fair value based on available information, such as
pricing in recent rounds of financing, current cash positions,
earnings and cash flow forecasts, recent operational performance
and any other readily available market data. Equity investments
in privately-held companies totaled $62 million at
August 1, 2010, of which $39 million of investments
were accounted for under the cost method of accounting and
$23 million of investments had been measured at fair value
on a non-recurring basis due to an
other-than-temporary
decline in value. At July 26, 2009, equity investments in
privately-held companies totaled $90 million, of which
$48 million of investments were accounted for under the
cost method of accounting and $42 million of investments
had been measured at fair value on a non-recurring basis due to
an
other-than-temporary
decline in value.
The following tables present the balances of equity securities
at August 1, 2010 and July 26, 2009 that had been
measured at fair value on a non-recurring basis, using the
process described above, and the impairment charges recorded
during the three and nine months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of Equity Investments
|
|
|
|
|
|
|
|
|
in Privately-Held Companies
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
|
|
|
|
|
|
Ended
|
|
Ended
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
August 1, 2010
|
|
August 1, 2010
|
|
|
(In thousands)
|
|
Equity investments in privately-held companies measured at fair
value on a non-recurring basis during fiscal 2010
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,970
|
|
|
$
|
7,804
|
|
|
$
|
12,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of Equity Investments
|
|
|
|
|
|
|
|
|
in Privately-Held Companies
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
|
|
|
|
|
|
Ended
|
|
Ended
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
July 26, 2009
|
|
July 26, 2009
|
|
|
(In thousands)
|
|
Equity investments in privately-held companies measured at fair
value on a non-recurring basis during fiscal 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
42,110
|
|
|
$
|
2,341
|
|
|
$
|
14,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
The carrying amounts of Applieds financial instruments,
including cash and cash equivalents, accounts receivable, notes
payable, and accounts payable and accrued expenses, approximate
fair value due to the short maturities of these financial
instruments. At August 1, 2010, the carrying amount of
long-term debt was $206 million and the estimated fair
value was $240 million. At October 25, 2009, the
carrying amount of long-term debt was $202 million and the
estimated fair value was $216 million. The estimated fair
value of long-term debt is determined by Level 2 inputs and
is based primarily on quoted market prices for the same or
similar issues.
14
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5
|
Derivative
Instruments and Hedging Activities
|
Derivative
Financial Instruments
Applied conducts business in a number of foreign countries, with
certain transactions denominated in local currencies, such as
Japanese yen, euro, Israeli shekel and Swiss franc. Applied uses
derivative financial instruments, such as forward exchange
contracts and currency option contracts, to hedge certain
forecasted foreign currency denominated transactions expected to
occur typically within the next 24 months. The purpose of
Applieds 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.
Applied does not use derivative financial instruments for
trading or speculative purposes.
Derivative instruments and hedging activities, including foreign
currency exchange contracts, are recognized on the balance sheet
at fair value. Changes in the fair value of derivatives that do
not qualify for hedge treatment, as well as the ineffective
portion of any hedges, are recognized currently in earnings. All
of Applieds 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
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
accumulated other comprehensive income or loss (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 derivative instruments
included in AOCI at August 1, 2010 is expected to be
reclassified into earnings within 12 months. Changes in the
fair value of currency forward exchange and option contracts due
to changes in time value are excluded from the assessment of
effectiveness. Both ineffective hedge amounts and hedge
components excluded from the assessment of effectiveness are
recognized promptly in earnings. If the transaction being hedged
is no longer probable to occur, or if a portion of any
derivative is deemed to be ineffective, Applied promptly
recognizes the gain or loss on the associated financial
instrument in general and administrative expenses. The amount
recognized due to discontinuance of cash flow hedges that were
probable not to occur by the end of the originally specified
time period was not significant for the three and nine months
ended August 1, 2010. The amount recognized due to
discontinuance of cash flow hedges that were probable not to
occur by the end of the originally specified time period was not
significant for the three months ended July 26, 2009 and
was $25 million for the nine months ended July 26,
2009.
Forward exchange contracts are generally used to hedge certain
foreign currency denominated assets or liabilities. These
derivatives are typically entered into once per month and are
not designated for hedge accounting treatment. Accordingly,
changes in the fair value of these hedges are recorded promptly
in earnings to offset the changes in the fair value of the
assets or liabilities being hedged.
15
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Fair values of derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
August 1,
|
|
|
October 25,
|
|
|
Balance Sheet
|
|
August 1,
|
|
|
October 25,
|
|
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current
assets
|
|
$
|
4,512
|
|
|
$
|
1,811
|
|
|
Accounts payable
and accrued
expenses
|
|
$
|
1,821
|
|
|
$
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current
assets
|
|
$
|
1,655
|
|
|
$
|
362
|
|
|
Accounts payable
and accrued
expenses
|
|
$
|
370
|
|
|
$
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
6,167
|
|
|
$
|
2,173
|
|
|
|
|
$
|
2,191
|
|
|
$
|
1,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the Consolidated
Condensed Statement of Operations for the three months and nine
months ended August 1, 2010 and July 26, 2009 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 1, 2010
|
|
|
Three Months Ended July 26, 2009
|
|
|
|
|
|
|
|
|
Ineffective Portion
|
|
|
|
|
|
Ineffective Portion
|
|
|
|
|
|
|
|
|
|
|
|
and Amount
|
|
|
|
|
|
|
|
|
and Amount
|
|
|
|
Location of Gain
|
|
|
|
|
|
|
|
Excluded from
|
|
|
|
|
|
|
|
|
Excluded from
|
|
|
|
or (Loss)
|
|
|
|
|
|
|
|
Effectiveness
|
|
|
|
|
|
|
|
|
Effectiveness
|
|
|
|
Reclassified from
|
|
Effective Portion
|
|
|
Testing
|
|
|
Effective Portion
|
|
|
Testing
|
|
|
|
AOCI into
|
|
Gain or
|
|
|
Gain or (Loss)
|
|
|
|
|
|
Gain or
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
Income or
|
|
(Loss)
|
|
|
Reclassified
|
|
|
Gain or (Loss)
|
|
|
(Loss)
|
|
|
Reclassified
|
|
|
Gain or (Loss)
|
|
|
|
Recognized in
|
|
Recognized
|
|
|
from AOCI into
|
|
|
Recognized in
|
|
|
Recognized
|
|
|
from AOCI into
|
|
|
Recognized in
|
|
|
|
Income
|
|
in AOCI
|
|
|
Income
|
|
|
Income
|
|
|
in AOCI
|
|
|
Income
|
|
|
Income
|
|
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Cost of products
sold
|
|
$
|
(3,259
|
)
|
|
$
|
(1,321
|
)
|
|
$
|
(1,386
|
)
|
|
$
|
3,522
|
|
|
$
|
(52
|
)
|
|
$
|
(303
|
)
|
Foreign exchange contracts
|
|
General and
administrative
|
|
|
|
|
|
|
(3,179
|
)
|
|
|
(372
|
)
|
|
|
|
|
|
|
2,859
|
|
|
|
(203
|
)
|
Foreign exchange contracts
|
|
Research,
development and
engineering
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(3,259
|
)
|
|
$
|
(4,582
|
)
|
|
$
|
(1,758
|
)
|
|
$
|
3,522
|
|
|
$
|
2,725
|
|
|
$
|
(506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 1, 2010
|
|
|
Nine Months Ended July 26, 2009
|
|
|
|
|
|
|
|
|
Ineffective Portion
|
|
|
|
|
|
Ineffective Portion
|
|
|
|
|
|
|
|
|
|
|
|
and Amount
|
|
|
|
|
|
|
|
|
and Amount
|
|
|
|
Location of Gain
|
|
|
|
|
|
|
|
Excluded from
|
|
|
|
|
|
|
|
|
Excluded from
|
|
|
|
or (Loss)
|
|
|
|
|
|
|
|
Effectiveness
|
|
|
|
|
|
|
|
|
Effectiveness
|
|
|
|
Reclassified from
|
|
Effective Portion
|
|
|
Testing
|
|
|
Effective Portion
|
|
|
Testing
|
|
|
|
AOCI into Income
|
|
Gain or (Loss)
|
|
|
Gain or (Loss)
|
|
|
Gain or (Loss)
|
|
|
Gain or (Loss)
|
|
|
Gain or (Loss)
|
|
|
Gain or (Loss)
|
|
|
|
or Recognized
|
|
Recognized in
|
|
|
Reclassified from
|
|
|
Recognized in
|
|
|
Recognized in
|
|
|
Reclassified from
|
|
|
Recognized in
|
|
|
|
in Income
|
|
AOCI
|
|
|
AOCI into Income
|
|
|
Income
|
|
|
AOCI
|
|
|
AOCI into Income
|
|
|
Income
|
|
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Cost of products
sold
|
|
$
|
(4,866
|
)
|
|
$
|
(2,488
|
)
|
|
$
|
(1,685
|
)
|
|
$
|
(4,598
|
)
|
|
$
|
(8,953
|
)
|
|
$
|
(3,161
|
)
|
Foreign exchange contracts
|
|
General and
administrative
|
|
|
|
|
|
|
(4,266
|
)
|
|
|
(1,316
|
)
|
|
|
|
|
|
|
(9,345
|
)
|
|
|
24,039
|
|
Foreign exchange contracts
|
|
Research,
development and
engineering
|
|
|
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(4,866
|
)
|
|
$
|
(6,999
|
)
|
|
$
|
(3,001
|
)
|
|
$
|
(4,598
|
)
|
|
$
|
(18,543
|
)
|
|
$
|
20,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
August 1, 2010
|
|
|
July 26, 2009
|
|
|
August 1, 2010
|
|
|
July 26, 2009
|
|
|
|
Location of Gain
|
|
|
|
|
|
|
|
|
or (Loss)
|
|
|
|
|
|
|
|
|
Recognized
|
|
Amount of Gain or (Loss)
|
|
|
Amount of Gain or (Loss)
|
|
|
|
in Income
|
|
Recognized in Income
|
|
|
Recognized in Income
|
|
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
General and
administrative
|
|
$
|
(8,395
|
)
|
|
$
|
(1,518
|
)
|
|
$
|
(12,075
|
)
|
|
$
|
(11,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(8,395
|
)
|
|
$
|
(1,518
|
)
|
|
$
|
(12,075
|
)
|
|
$
|
(11,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Risk Contingent Features
If Applieds credit rating were to fall below investment
grade, it 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
August 1, 2010.
Entering into foreign exchange contracts with banks exposes
Applied to credit-related losses in the event of the banks
nonperformance. However, Applieds exposure is not
considered significant.
17
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Accounts
Receivable, Net
|
Applied has agreements with various financial institutions to
sell accounts receivable and discount promissory notes from
selected customers. Applied also discounts letters of credit
through various financial institutions. Applied sells its
accounts receivable without recourse. Details of discounted
letters of credit, factored accounts receivable and discounted
promissory notes for the three and nine months ended
August 1, 2010 and July 26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Discounted letters of credit
|
|
$
|
80,886
|
|
|
$
|
99,407
|
|
|
$
|
134,148
|
|
|
$
|
152,107
|
|
Factored accounts receivable
|
|
|
54,939
|
|
|
|
1,620
|
|
|
|
103,630
|
|
|
|
23,504
|
|
Discounted promissory notes
|
|
|
862
|
|
|
|
597
|
|
|
|
1,959
|
|
|
|
2,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
136,687
|
|
|
$
|
101,624
|
|
|
$
|
239,737
|
|
|
$
|
178,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 doubtful
accounts of $74 million at August 1, 2010 and
$67 million at October 25, 2009. Applied sells
principally to manufacturers within the semiconductor, display
and solar industries. As a result of challenging economic and
industry conditions, certain of these manufacturers may
experience difficulties in meeting their obligations in a timely
manner. While Applied believes that its allowance for doubtful
accounts is adequate and represents Applieds best estimate
at August 1, 2010, Applied will continue to closely monitor
customer liquidity and other economic conditions, which may
result in changes to Applieds estimates regarding
collectability.
|
|
Note 7
|
Balance
Sheet Detail
|
|
|
|
|
|
|
|
|
|
|
|
August 1,
|
|
|
October 25,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
Customer service spares
|
|
$
|
326,308
|
|
|
$
|
263,688
|
|
Raw materials
|
|
|
222,474
|
|
|
|
351,824
|
|
Work-in-process
|
|
|
603,588
|
|
|
|
667,484
|
|
Finished goods
|
|
|
437,682
|
|
|
|
344,461
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,590,052
|
|
|
$
|
1,627,457
|
|
|
|
|
|
|
|
|
|
|
Inventories are stated at the lower of cost or market, with cost
determined on a FIFO basis. Included in finished goods inventory
is $171 million at August 1, 2010, and
$133 million at October 25, 2009, of newly-introduced
systems at customer locations where the sales transaction did
not meet Applieds revenue recognition criteria as set
forth in Note 1.
Applied adjusts inventory carrying value for estimated
obsolescence equal to the difference between the cost of
inventory and the estimated market value based upon assumptions
about future demand and market conditions. Applied fully
reserves for inventories and noncancelable purchase orders for
inventory deemed obsolete. Applied performs periodic reviews of
inventory items to identify excess inventories on hand by
comparing on-hand balances to anticipated usage using recent
historical activity as well as anticipated or forecasted demand.
If estimates of
18
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
customer demand diminish further or market conditions become
less favorable than those projected by Applied, additional
inventory adjustments may be required. During the first nine
months of fiscal 2010, Applied incurred inventory-related
charges, including $330 million associated with SunFab thin
film solar equipment.
|
|
|
|
|
|
|
|
|
|
|
August 1,
|
|
|
October 25,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Property, Plant and Equipment, Net
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
227,144
|
|
|
$
|
228,057
|
|
Buildings and improvements
|
|
|
1,233,091
|
|
|
|
1,164,384
|
|
Demonstration and manufacturing equipment
|
|
|
665,181
|
|
|
|
654,779
|
|
Furniture, fixtures and other equipment
|
|
|
722,065
|
|
|
|
713,505
|
|
Construction in progress
|
|
|
18,058
|
|
|
|
146,232
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
2,865,539
|
|
|
|
2,906,957
|
|
Accumulated depreciation
|
|
|
(1,881,749
|
)
|
|
|
(1,816,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
983,790
|
|
|
$
|
1,090,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
628,326
|
|
|
$
|
477,148
|
|
Compensation and employee benefits
|
|
|
321,994
|
|
|
|
134,949
|
|
Warranty
|
|
|
147,200
|
|
|
|
117,537
|
|
Dividends payable
|
|
|
93,525
|
|
|
|
80,455
|
|
Other accrued taxes
|
|
|
94,792
|
|
|
|
36,954
|
|
Restructuring reserve
|
|
|
112,425
|
|
|
|
31,581
|
|
Other
|
|
|
245,344
|
|
|
|
182,878
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,643,606
|
|
|
$
|
1,061,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Deposits and Deferred Revenue
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
602,283
|
|
|
$
|
564,412
|
|
Deferred revenue
|
|
|
434,655
|
|
|
|
299,868
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,036,938
|
|
|
$
|
864,280
|
|
|
|
|
|
|
|
|
|
|
During the first nine months of fiscal 2010, Applied incurred
asset impairment charges of $119 million primarily related
to the restructuring of its Energy and Environmental Solutions
segment. As of August 1, 2010, other accrued expenses
included $42 million in contractual termination obligation
charges.
|
|
Note 8
|
Goodwill,
Purchased Technology and Other Intangible Assets
|
Goodwill
and Purchased Intangible Assets
Applieds methodology for allocating the purchase price
relating to purchase acquisitions is determined through
established and generally accepted valuation techniques.
Goodwill is measured as the excess of the cost of the
acquisition over the sum of the amounts assigned to tangible and
identifiable intangible assets acquired less liabilities
assumed. Applied assigns assets acquired (including goodwill)
and liabilities assumed to one or more reporting units as of the
date of acquisition. Typically, acquisitions relate to a single
reporting unit and thus do not require the allocation of
goodwill to multiple reporting units. If the products obtained
in an acquisition are assigned to multiple reporting units, the
goodwill is distributed to the respective reporting units as
part of the purchase price allocation process.
19
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Goodwill and purchased 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. The process
of evaluating the potential impairment of goodwill and
intangible assets requires significant judgment, especially in
emerging markets. Applied regularly monitors current business
conditions and other factors including, but not limited to,
adverse industry or economic trends, restructuring actions and
lower projections of profitability that may impact future
operating results. For goodwill, Applied performs a two-step
impairment test. In the first step, Applied compares the
estimated fair value of each reporting unit to its carrying
value. Applieds reporting units are consistent with the
reportable segments identified in Note 15, based on the
manner in which Applied operates its business and the nature of
those operations. Applied determines the fair value of each of
its reporting units based on a weighting of income and market
approaches. Under the income approach, Applied calculates the
fair value of a reporting unit based on the present value of
estimated future cash flows. Estimated future cash flows will be
impacted by a number of factors including anticipated future
operating results, estimated cost of capital
and/or
discount rates. Under the market approach, Applied estimates the
fair value based on market multiples of revenue or earnings for
comparable companies, as appropriate. If the fair value of the
reporting unit exceeds the carrying value of the net assets
assigned to that unit, goodwill is not impaired and no further
testing is performed. If the carrying value of the net assets
assigned to the reporting unit exceeds the fair value of the
reporting unit, then Applied would perform the second step of
the impairment test in order to determine the implied fair value
of the reporting units goodwill. Applied would then
allocate the fair value of the reporting unit to all of the
assets and liabilities of that unit, as if Applied had acquired
the reporting unit in a business combination, with the fair
value of the reporting unit being the purchase
price. The excess of the purchase price over
the carrying amounts assigned to assets and liabilities
represents the implied fair value of goodwill. If Applied
determined that the carrying value of a reporting units
goodwill exceeded its implied fair value, Applied would record
an impairment equal to the difference.
Applied conducted impairment tests in the fourth quarter of
fiscal 2009, and the results of the first step of the impairment
test indicated that Applieds goodwill and purchased
intangible assets with indefinite useful lives for each of its
reporting units were not impaired. During both the second and
third quarters of fiscal 2010, Applied tested goodwill of the
Energy and Environmental Solutions reporting unit for potential
impairment and the results of the first step of the impairment
test for each quarter indicated that there was no impairment.
Applied tested goodwill of the Energy and Environmental
Solutions reporting unit for impairment in the second fiscal
quarter in light of developments that included the insolvency of
a thin film solar customer, inability of other thin film solar
customers to secure financing, weaker outlooks for certain
customers that in turn reduced their spending plans resulting in
the delay or cancellation of thin film production lines, and
other adverse operating conditions affecting the solar industry.
Applied tested goodwill of the Energy and Environmental
Solutions reporting unit for impairment in the third fiscal
quarter in light of the restructuring announced during the
quarter.
Applied utilized the discounted cash flow method of the income
approach to estimate the fair value of the Energy and
Environmental Solutions reporting unit. Although considered, the
market approach was not used as comparable enterprises,
market-based growth rates, and gross margins were determined not
to be representative of the Energy and Environmental Solutions
reporting unit. For the second quarter of fiscal 2010, while the
results of the first step of the impairment test indicated that
goodwill and intangible assets within the Energy and
Environmental Solutions reporting unit were not impaired, the
estimated fair value in excess of carrying value had declined
from the fourth quarter of fiscal 2009 to the end of the second
quarter of fiscal 2010 to approximately $200 million (or
19 percent over the carrying value of the reporting unit).
For the third quarter of fiscal 2010, the results of the first
step of the impairment test indicated that goodwill and
intangible assets within the Energy and Environmental Solutions
reporting unit were not impaired and that the estimated fair
value in excess of carrying value had increased from the fourth
quarter of fiscal 2009 to the end of the third quarter of fiscal
2010 to approximately $1.3 billion (or 165 percent
over the carrying value of the reporting unit). The estimates
used in the impairment testing were consistent with the discrete
forecasts that Applied uses to manage its business, and
considered the significant developments that occurred during the
quarter. Cash flows beyond the discrete forecasts
20
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
were estimated using a terminal value rate, which considered the
long-term earnings growth rate specific to the Energy and
Environmental Solutions reporting unit. The change in the
estimated fair value in excess of the carrying value from the
second fiscal quarter was due primarily to changes in the
business mix of forecasted future operating results and a
reduction in the carrying value of the reporting unit. The
reduction in the carrying value of the reporting unit was due to
inventory-related charges and asset impairments recognized
during the third fiscal quarter. The estimated future cash flows
were discounted to present value using a discount rate that was
the value-weighted average of Applieds estimated cost of
equity and debt derived using both known and estimated market
metrics, and was adjusted to reflect risk factors that
considered both the timing and risks associated with the
estimated cash flows. In the event of future adverse business
conditions in the market in which the Energy and Environmental
Solutions reporting unit operates, Applied will reassess and
update its forecasts and estimates used in a future impairment
analysis. If the results of this analysis are lower than current
estimates, a material impairment charge may result at that time.
Details of indefinite-lived intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2010
|
|
|
October 25, 2009
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Intangible
|
|
|
|
|
|
|
|
|
Intangible
|
|
|
|
|
|
|
Goodwill
|
|
|
Assets
|
|
|
Total
|
|
|
Goodwill
|
|
|
Assets
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Silicon Systems Group
|
|
$
|
381,305
|
|
|
$
|
|
|
|
$
|
381,305
|
|
|
$
|
223,584
|
|
|
$
|
|
|
|
$
|
223,584
|
|
Applied Global Services
|
|
|
177,184
|
|
|
|
17,400
|
|
|
|
194,584
|
|
|
|
177,184
|
|
|
|
17,860
|
|
|
|
195,044
|
|
Display
|
|
|
115,908
|
|
|
|
|
|
|
|
115,908
|
|
|
|
115,908
|
|
|
|
|
|
|
|
115,908
|
|
Energy and Environmental Solutions
|
|
|
662,029
|
|
|
|
|
|
|
|
662,029
|
|
|
|
654,256
|
|
|
|
|
|
|
|
654,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
$
|
1,336,426
|
|
|
$
|
17,400
|
|
|
$
|
1,353,826
|
|
|
$
|
1,170,932
|
|
|
$
|
17,860
|
|
|
$
|
1,188,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From October 25, 2009 to August 1, 2010, goodwill
increased by $158 million due to the acquisition of
Semitool, Inc. (Semitool), and by $7 million due to an
asset purchase from Advent Solar, Inc. (Advent Solar), both
during the first quarter of fiscal 2010 (see Note 16).
Other intangible assets that are not subject to amortization
consist primarily of a trade name.
Finite-Lived
Purchased Intangible Assets
Applied amortizes purchased intangible assets with finite lives
using the straight-line method over the estimated economic lives
of the assets, ranging from 1 to 15 years.
Applied evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying value
of an asset group may not be recoverable. Applied assesses the
fair value of the assets based on the amount of the undiscounted
future cash flow that the assets are expected to generate and
recognizes an impairment loss when estimated undiscounted future
cash flow expected to result from the use of the asset, plus net
proceeds expected from disposition of the asset, if any, are
less than the carrying value of the asset. When Applied
identifies an impairment, Applied reduces the carrying value of
the group of assets to comparable market values, when available
and appropriate, or to its estimated fair value based on a
discounted cash flow approach.
Intangible assets, such as purchased technology, are generally
recorded in connection with a business acquisition. The value
assigned to intangible assets is usually based on estimates and
judgments regarding expectations for the success and life cycle
of products and technology acquired. Applied evaluates the
useful lives of its intangible assets each reporting period to
determine whether events and circumstances require revising the
remaining period of amortization. In addition, Applied reviews
intangible assets for impairment when events or changes in
circumstances indicate their carrying value may not be
recoverable. Management considers such
21
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
indicators as significant differences in actual product
acceptance from the estimates, changes in the competitive and
economic environment, technological advances, and changes in
cost structure.
Details of amortized intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2010
|
|
|
October 25, 2009
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Purchased
|
|
|
Intangible
|
|
|
|
|
|
Purchased
|
|
|
Intangible
|
|
|
|
|
|
|
Technology
|
|
|
Assets
|
|
|
Total
|
|
|
Technology
|
|
|
Assets
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Silicon Systems Group
|
|
$
|
310,259
|
|
|
$
|
19,800
|
|
|
$
|
330,059
|
|
|
$
|
244,558
|
|
|
$
|
|
|
|
$
|
244,558
|
|
Applied Global Services
|
|
|
32,089
|
|
|
|
60,564
|
|
|
|
92,653
|
|
|
|
39,729
|
|
|
|
60,564
|
|
|
|
100,293
|
|
Display
|
|
|
109,828
|
|
|
|
33,500
|
|
|
|
143,328
|
|
|
|
109,828
|
|
|
|
33,500
|
|
|
|
143,328
|
|
Energy and Environmental Solutions
|
|
|
105,305
|
|
|
|
231,667
|
|
|
|
336,972
|
|
|
|
160,805
|
|
|
|
235,565
|
|
|
|
396,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
557,481
|
|
|
$
|
345,531
|
|
|
$
|
903,012
|
|
|
$
|
554,920
|
|
|
$
|
329,629
|
|
|
$
|
884,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silicon Systems Group
|
|
$
|
(244,651
|
)
|
|
$
|
(4,984
|
)
|
|
$
|
(249,635
|
)
|
|
$
|
(238,628
|
)
|
|
$
|
|
|
|
$
|
(238,628
|
)
|
Applied Global Services
|
|
|
(17,944
|
)
|
|
|
(42,142
|
)
|
|
|
(60,086
|
)
|
|
|
(19,974
|
)
|
|
|
(38,635
|
)
|
|
|
(58,609
|
)
|
Display
|
|
|
(95,160
|
)
|
|
|
(21,667
|
)
|
|
|
(116,827
|
)
|
|
|
(91,364
|
)
|
|
|
(19,602
|
)
|
|
|
(110,966
|
)
|
Energy and Environmental Solutions
|
|
|
(33,833
|
)
|
|
|
(159,630
|
)
|
|
|
(193,463
|
)
|
|
|
(50,127
|
)
|
|
|
(137,663
|
)
|
|
|
(187,790
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
$
|
(391,588
|
)
|
|
$
|
(228,423
|
)
|
|
$
|
(620,011
|
)
|
|
$
|
(400,093
|
)
|
|
$
|
(195,900
|
)
|
|
$
|
(595,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
$
|
165,893
|
|
|
$
|
117,108
|
|
|
$
|
283,001
|
|
|
$
|
154,827
|
|
|
$
|
133,729
|
|
|
$
|
288,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From October 25, 2009 to August 1, 2010, the change in
gross carrying amount of the amortized intangible assets was
approximately $18 million, primarily due the acquisition of
Semitool during the first quarter of fiscal 2010, offset by
impairment of intangible assets in connection with restructuring
of the Energy and Environmental Solutions segment in the third
quarter of fiscal 2010. Aggregate amortization expense was
$17 million and $22 million for the three months ended
August 1, 2010 and July 26, 2009, respectively, and
$71 million and $67 million for the nine months ended
August 1, 2010 and July 26, 2009, respectively.
As of August 1, 2010, future estimated amortization expense
is expected to be as follows:
|
|
|
|
|
|
|
Amortization Expense
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
13,712
|
|
2011
|
|
|
52,673
|
|
2012
|
|
|
51,342
|
|
2013
|
|
|
48,633
|
|
2014
|
|
|
40,986
|
|
Thereafter
|
|
|
75,655
|
|
|
|
|
|
|
|
|
$
|
283,001
|
|
|
|
|
|
|
22
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9
|
Warranty,
Guarantees and Contingencies
|
Warranty
Changes in the warranty reserves during the three and nine
months ended August 1, 2010 and July 26, 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
140,369
|
|
|
$
|
131,871
|
|
|
$
|
117,537
|
|
|
$
|
142,846
|
|
Provisions for warranty
|
|
|
36,665
|
|
|
|
19,052
|
|
|
|
102,611
|
|
|
|
64,771
|
|
Consumption of reserves
|
|
|
(29,834
|
)
|
|
|
(32,421
|
)
|
|
|
(72,948
|
)
|
|
|
(89,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
147,200
|
|
|
$
|
118,502
|
|
|
$
|
147,200
|
|
|
$
|
118,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applied products are generally sold with a
12-month
warranty 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 quarters sales.
Guarantees
During the ordinary course of business, Applied provides standby
letters of credit or other guarantee instruments to certain
parties as required for certain transactions initiated by either
Applied or its subsidiaries. As of August 1, 2010, the
maximum potential amount of future payments that Applied could
be required to make under these guarantee arrangements was
$50 million. Applied has not recorded any liability in
connection with these guarantee arrangements beyond that
required to account for the underlying transaction being
guaranteed. Applied does 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 arrangements.
Applied also has agreements with various global banks to
facilitate subsidiary banking operations world-wide, including
overdraft arrangements, bank guarantees and letters of credit.
As of August 1, 2010, Applied Materials, Inc. has provided
parent guarantees to banks for approximately $175 million
to cover these arrangements.
Legal
matters
Semitool
Shareholder Litigation
On November 17, 2009, Applied announced that it was making
a tender offer to acquire all of the outstanding shares of
Semitool in accordance with an Agreement and Plan of Merger
entered into with Semitool. Following this announcement, three
lawsuits were filed by Semitool shareholders in the District
Court of the Eleventh Judicial District Court for the State of
Montana, County of Flathead, against Semitool, Semitools
directors, Applied Materials, Inc. and Applieds
acquisition subsidiary. The actions sought certification of a
class of all holders of Semitool common stock, except the
defendants and their affiliates. The complaints alleged that
Semitools directors breached their fiduciary duties by,
among other things, failing to maximize shareholder value and
failing to disclose material information, and that Applied aided
and abetted such alleged breaches. The actions sought injunctive
relief, damages and attorneys fees.
On December 14, 2009, all parties in these cases reached an
agreement in principle to settle the matters and the plaintiffs
withdrew their motion to enjoin consummation of the transaction.
Without admitting any wrongdoing or fault, Semitool disclosed
certain additional information in its
Schedule 14D-9
filed with the Securities and
23
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Exchange Commission on December 14, 2009. Following the
tender of shares representing over 95 percent of the
outstanding shares of Semitool common stock, the merger of
Semitool into Applieds acquisition subsidiary was
completed on December 21, 2009. Pursuant to a memorandum of
understanding between the parties, plaintiffs conducted
discovery to confirm the fairness and reasonableness of the
settlement and defendants agreed not to object to an application
by plaintiffs counsel for an award of attorneys fees
and expenses in an amount up to $200,000. A class of
Semitools public shareholders is expected to be certified
solely for purposes of settlement, which, if approved by the
Court, will result in a complete and final discharge of all
claims on behalf of the class.
Jusung
Applied has been engaged in several lawsuits and patent and
administrative proceedings in Taiwan and South Korea since 2003,
and more recently in China, with Jusung Engineering Co., Ltd.
(Jusung Engineering)
and/or
Jusung Pacific Co., Ltd. (Jusung Pacific, referred to together
with Jusung Engineering as Jusung) involving technology used in
manufacturing LCDs. Applied believes that it has meritorious
claims and defenses against Jusung that it intends to pursue
vigorously.
In 2004, Applied filed a complaint for patent infringement
against Jusung in the Hsinchu District Court in Taiwan seeking
damages and a permanent injunction for infringement of a patent
related to chemical vapor deposition (CVD) equipment, and
this case remains pending. Jusung Pacific unsuccessfully sought
invalidation of Applieds CVD patent in the Taiwanese
Intellectual Property Office (TIPO). Jusung Pacifics
initial appeal of the TIPOs decision was denied, and it
has filed a further appeal to the Taipei High Supreme
Administrative Court. In 2009, Jusung filed a second action with
the TIPO seeking invalidation of Applieds CVD patent which
remains pending.
In 2006, Applied filed an action in the TIPO challenging the
validity of a patent owned by Jusung Engineering related to
severability of the transfer chamber on a CVD tool. Jusung
Engineering sued Applied and AKT America in Hsinchu District
Court in Taiwan alleging infringement of the same patent and
this action is pending. The TIPO granted Applieds request
for invalidation and revoked Jusung Engineerings patent.
In March 2009, the Hsinchu District Court dismissed Jusung
Engineerings lawsuit, and in April 2009, the Ministry of
Economic Affairs overruled Jusung Engineerings
administrative appeal of the decision revoking its patent. On
January 7, 2010, the Taiwan Intellectual Property Court
granted Jusungs appeal of the decision revoking its patent
and remanded the matter to the TIPO for reconsideration of
validity. In November 2009, Applied filed an action in China
with the Patent Reexamination Board of the State Intellectual
Property Office seeking to invalidate this patent. On
June 18, 2010, the Patent Reexamination Board issued a
decision invalidating Jusungs patent in China.
In 2006, Jusung Engineering filed a complaint of private
prosecution in the Taipei District Court of Taiwan alleging that
Applieds outside counsel received from the Court and used
a copy of an expert report that Jusung had filed in the ongoing
patent infringement lawsuits that Jusung had intended to remain
confidential. The complaint names as defendants Applieds
outside counsel in Taiwan, as well as Michael R. Splinter,
Applieds Chairman, President and Chief Executive Officer,
as the statutory representative of Applied. The Taipei District
Court dismissed the private prosecution complaint, and the
matter was transferred to the Taipei District Attorneys
Office. The Taipei District Attorneys Office has issued
four successive rulings not to prosecute, each of which Jusung
Engineering has appealed. In each instance, the Taiwan High
Court District Attorney has returned the matter to the Taipei
District Attorneys Office for further consideration, where
it remains pending.
Korea
Criminal Proceedings
In February 2010, the Seoul Prosecutors Office for the
Eastern District of Korea (the Prosecutors Office)
indicted employees of several companies for the alleged improper
receipt and use of confidential information belonging to a major
Applied customer based in Korea. The Prosecutors Office
did not name Applied or any of its subsidiaries as a party to
the criminal action. The individuals charged included the former
head of Applied Materials Korea (AMK), who at the time of the
indictment was a vice president of Applied Materials, Inc., and
certain other
24
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
AMK employees. Hearings on these matters are ongoing in the
Seoul Eastern District Court. Applied is investigating the
allegations and underlying circumstances. Applied is also
discussing these matters and potential consequences with the
major customer. There is a risk that these matters may lead to
other claims. Applied currently is unable to determine what
impact these matters may have on Applieds business. The
magnitude of the impact on Applieds business will depend
on many factors, including the outcome of the proceedings and
Applieds customer relationships.
From time to time, Applied receives notification from third
parties, including customers and suppliers, seeking
indemnification, litigation support, payment of money or other
actions by Applied in connection with claims made against them.
In addition, from time to time, Applied receives notification
from third parties claiming that Applied may be or is infringing
or misusing their intellectual property or other rights. Applied
also is subject to various other legal proceedings and claims,
both asserted and unasserted, that arise in the ordinary course
of business.
Although the outcome of the above-described matters or these
claims and proceedings cannot be predicted with certainty,
Applied does not believe that any of these proceedings or other
claims will have a material adverse effect on its consolidated
financial condition or results of operations.
|
|
Note 10
|
Restructuring
and Asset Impairments
|
On July 21, 2010, Applied announced a plan to restructure
its Energy and Environmental Solutions segment. The action,
which is expected to impact between 400 to 500 positions
globally, was in response to adverse market conditions for thin
film solar, including delays in utility-scale solar adoption,
solar panel manufacturers challenges in obtaining
affordable capital, changes and uncertainty in government
renewable energy polices, and competitive pressure from c-Si
solar technologies. During the third quarter of fiscal 2010,
Applied recorded charges related to this plan totaling
$405 million, which included inventory-related charges of
$247 million related to SunFab thin film solar equipment,
asset impairment charges of $110 million, employee
severance charges of $45 million, and other costs of
$3 million.
|
|
|
|
|
|
|
Severance
|
|
|
|
(In thousands)
|
|
|
Provision for restructuring reserves
|
|
$
|
45,075
|
|
|
|
|
|
|
On November 11, 2009, Applied announced a restructuring
program to reduce its global workforce as of October 25,
2009 by approximately 1,300 to 1,500 positions, or 10 to
12 percent, over a period of 18 months. During the
first quarter of fiscal 2010, Applied recorded restructuring
charges of $104 million associated with this program.
During the third quarter of fiscal 2010, as a result of changes
in business requirements, Applied revised its global workforce
reduction to approximately 1,000 positions and recorded a
favorable adjustment of $20 million.
Changes in restructuring reserves related to the program
described above for the nine months ended August 1, 2010
were as follows:
|
|
|
|
|
|
|
Severance
|
|
|
|
(In thousands)
|
|
|
Provision for restructuring reserves
|
|
$
|
103,780
|
|
Consumption of reserves
|
|
|
(16,688
|
)
|
|
|
|
|
|
Balance, January 31, 2010
|
|
|
87,092
|
|
Consumption of reserves
|
|
|
(6,710
|
)
|
|
|
|
|
|
Balance, May 2, 2010
|
|
|
80,382
|
|
Consumption of reserves
|
|
|
(4,728
|
)
|
Adjustment of restructuring reserves
|
|
|
(20,000
|
)
|
|
|
|
|
|
Balance, August 1, 2010
|
|
$
|
55,654
|
|
|
|
|
|
|
25
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Changes in restructuring reserves for the nine months ended
August 1, 2010 related to other restructuring plans and
facilities realignment programs initiated in prior periods were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance, October 25, 2009
|
|
$
|
26,353
|
|
|
$
|
5,228
|
|
|
$
|
31,581
|
|
Provision for restructuring reserves
|
|
|
|
|
|
|
64
|
|
|
|
64
|
|
Consumption of reserves
|
|
|
(11,915
|
)
|
|
|
(227
|
)
|
|
|
(12,142
|
)
|
Foreign currency changes
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2010
|
|
|
14,438
|
|
|
|
5,068
|
|
|
|
19,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for restructuring reserves
|
|
|
|
|
|
|
57
|
|
|
|
57
|
|
Consumption of reserves
|
|
|
(6,167
|
)
|
|
|
(29
|
)
|
|
|
(6,196
|
)
|
Adjustment of restructuring reserves
|
|
|
2
|
|
|
|
(160
|
)
|
|
|
(158
|
)
|
Foreign currency changes
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 2, 2010
|
|
|
8,273
|
|
|
|
4,935
|
|
|
|
13,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for restructuring reserves
|
|
|
|
|
|
|
57
|
|
|
|
57
|
|
Consumption of reserves
|
|
|
(1,532
|
)
|
|
|
(37
|
)
|
|
|
(1,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 1, 2010
|
|
$
|
6,741
|
|
|
$
|
4,955
|
|
|
$
|
11,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of fiscal 2010, Applied recorded asset
impairment charges of $110 million related to the
restructuring of its Energy and Environmental Solutions segment.
During the second quarter of fiscal 2010, Applied recorded an
asset impairment charge of $9 million to write down a
facility to its estimated fair value based on prices for
comparable local properties. The facility was reclassified as an
asset held for sale within other current assets.
|
|
Note 11
|
Stockholders
Equity, Comprehensive Income and Share-Based
Compensation
|
Comprehensive
Income
Components of comprehensive income (loss), on an after-tax basis
where applicable, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
123,096
|
|
|
$
|
(54,865
|
)
|
|
$
|
469,851
|
|
|
$
|
(443,189
|
)
|
Pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
112
|
|
Change in unrealized net gain on investments
|
|
|
4,863
|
|
|
|
7,958
|
|
|
|
6,876
|
|
|
|
39,294
|
|
Change in unrealized net gain (loss) on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
qualifying as cash flow hedges
|
|
|
844
|
|
|
|
508
|
|
|
|
1,359
|
|
|
|
(7,795
|
)
|
Foreign currency translation adjustments
|
|
|
1,566
|
|
|
|
810
|
|
|
|
(59
|
)
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
130,369
|
|
|
$
|
(45,589
|
)
|
|
$
|
478,101
|
|
|
$
|
(410,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Components of accumulated other comprehensive income (loss), on
an after-tax basis where applicable, were as follows:
|
|
|
|
|
|
|
|
|
|
|
August 1,
|
|
|
October 25,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Pension liability and post retirement benefits
|
|
$
|
(32,075
|
)
|
|
$
|
(32,149
|
)
|
Unrealized gain on investments net
|
|
|
26,848
|
|
|
|
19,972
|
|
Unrealized gain on derivative instruments qualifying as cash
flow hedges
|
|
|
1,669
|
|
|
|
310
|
|
Cumulative translation adjustments
|
|
|
10,128
|
|
|
|
10,187
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,570
|
|
|
$
|
(1,680
|
)
|
|
|
|
|
|
|
|
|
|
Stock
Repurchase Program
On March 8, 2010, Applieds Board of Directors
approved a new stock repurchase program authorizing up to
$2 billion in repurchases over the next three years ending
in March 2013. Under this authorization, Applied renewed its
systematic stock repurchase program and may also make
supplemental stock repurchases from time to time, depending on
market conditions, stock price and other factors. During the
three months ended August 1, 2010, Applied repurchased
7,907,000 shares of its common stock at an average price of
$12.65 per share for a total cash outlay of $100 million.
During the nine months ended August 1, 2010, Applied
repurchased 15,537,000 shares of its common stock at an
average price of $12.87 per share for a total cash outlay of
$200 million. Applied did not repurchase any shares of its
common stock during the three months ended July 26, 2009.
During the nine months ended July 26, 2009, Applied
repurchased 1,942,000 shares of its common stock at an
average price of $11.80 per share for a total cash outlay of
$23 million.
Dividends
On June 9, 2010, Applieds Board of Directors approved
a quarterly cash dividend in the amount of $0.07 per share,
payable on September 15, 2010 to stockholders of record as
of August 25, 2010. On June 16, 2010, Applied paid a
quarterly cash dividend of $0.07 per share to stockholders of
record as of May 26, 2010. In December 2009, Applieds
Board of Directors declared a quarterly cash dividend in the
amount of $0.06 per share that was paid on March 17, 2010
to stockholders of record as of February 24, 2010. The
declaration of any future cash dividend is at the discretion of
the Board of Directors and will depend on Applieds
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 interest of Applieds stockholders.
Share-Based
Compensation
Applied has adopted stock plans that permit grants to employees
of share-based awards, including stock options, restricted stock
and restricted stock units (also referred to as
performance shares under Applieds principal
equity compensation plan, the Employee Stock Incentive Plan). In
addition, the Employee Stock Incentive Plan provides for the
automatic grant of restricted stock units to non-employee
directors and permits the grant of equity-based awards to
consultants. Applied also has two Employee Stock Purchase Plans,
one for United States employees and a second for international
employees (collectively, ESPP), which enable eligible employees
to purchase Applied common stock.
27
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
During the three and nine months ended August 1, 2010 and
July 26, 2009, Applied recognized share-based compensation
expense related to stock options, ESPP shares, restricted stock
units and restricted stock. Total share-based compensation and
related tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
August 1,
|
|
July 26,
|
|
August 1,
|
|
July 26,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Share-based compensation
|
|
$
|
32,442
|
|
|
$
|
43,334
|
|
|
$
|
94,772
|
|
|
$
|
116,114
|
|
Tax benefit recognized
|
|
$
|
9,732
|
|
|
$
|
12,133
|
|
|
$
|
27,758
|
|
|
$
|
32,512
|
|
The cost associated with equity awards that are subject solely
to time-based vesting requirements, less expected forfeitures,
is recognized over the awards service period for the
entire award on a straight-line basis. The cost associated with
performance-based equity awards is recognized for each tranche
over the service period, based on an assessment of the
achievement of performance goals.
At August 1, 2010, Applied had $197 million in total
unrecognized compensation expense, net of estimated forfeitures,
related to stock option, restricted stock unit and restricted
stock grants, which will be recognized over a weighted average
period of 1.4 years.
Stock
Options
The exercise price of each stock option equals the fair market
value of Applied common stock on the date of grant. Most options
are scheduled to vest over four years, subject to the
grantees continued service with Applied, and expire no
later than seven years from the grant date. The fair value of
each option is estimated on the date of grant using the
Black-Scholes option pricing model. This model was developed for
use in estimating the value of publicly traded options that have
no vesting restrictions and are fully transferable.
Applieds employee stock options have characteristics
significantly different from those of publicly traded options.
The weighted average assumptions used in the model are outlined
in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
August 1,
|
|
July 26,
|
|
August 1,
|
|
July 26,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
2.25
|
%
|
|
|
|
|
|
|
2.80
|
%
|
Expected volatility
|
|
|
|
|
|
|
46
|
%
|
|
|
|
|
|
|
50
|
%
|
Risk-free interest rate
|
|
|
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
1.3
|
%
|
Expected life (in years)
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
3.0
|
|
The computation of the expected volatility assumption used in
the Black-Scholes calculations for new grants is based on a
combination of historical and implied volatilities. When
establishing the expected life assumption, Applied periodically
reviews historical employee exercise behavior with respect to
option grants.
There were no stock options granted in the three and nine months
ended August 1, 2010. The weighted average grant date fair
value of options granted during the three and nine months ended
July 26, 2009 was $2.99 and $2.52, respectively.
28
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Stock option activity for the nine months ended August 1,
2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Outstanding at October 25, 2009
|
|
|
73,101
|
|
|
$
|
14.72
|
|
Granted
|
|
|
|
|
|
$
|
|
|
Exercised
|
|
|
(6,730
|
)
|
|
$
|
11.02
|
|
Canceled/forfeited
|
|
|
(13,213
|
)
|
|
$
|
15.22
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 1, 2010
|
|
|
53,158
|
|
|
$
|
15.12
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 1, 2010
|
|
|
39,264
|
|
|
$
|
17.42
|
|
Restricted
Stock Units and Restricted Stock
Restricted stock units are converted into shares of Applied
common stock upon vesting on a
one-for-one
basis. Restricted stock has the same rights as other issued and
outstanding shares of Applied common stock except these shares
have no right to dividends and are held in escrow until the
award vests. Restricted stock units and awards of restricted
stock typically vest over three to four years. Vesting of
restricted stock units and restricted stock usually is subject
to the grantees continued service with Applied and, in
some cases, achievement of specified performance goals. The
compensation expense related to these awards is determined using
the fair market value of Applied common stock on the date of the
grant, and the compensation expense is recognized over the
vesting period. Beginning in fiscal 2007, Applied initiated a
performance-based equity award program for named executive
officers and other key employees. Awards of restricted stock
units or restricted stock granted under this program vest only
if specific performance goals set by the Human Resources and
Compensation Committee of Applieds Board of Directors (the
Committee) are achieved and if the grantee remains employed by
Applied through the applicable vesting date. The performance
goals require the achievement of targeted relative annual
operating profit margin levels as compared to Applieds
peer companies in at least one of the four fiscal years
beginning with the fiscal year of the grant. The fair value of
these performance-based awards is estimated using the fair
market value of Applied common stock on the date of the grant
and assumes that the specified performance goals will be
achieved. If achieved, these awards vest over a specified
remaining service period. If the performance goals are not met,
no compensation expense is recognized and any previously
recognized compensation expense is reversed. The expected cost
of each award is reflected over the service period and is
reduced for estimated forfeitures. The Committee approved the
grant of 1,825,000 performance-based restricted stock units and
50,000 performance-based shares of restricted stock under this
program in the nine months ended August 1, 2010. There were
no performance-based awards granted in the nine months ended
July 26, 2009. With respect to the performance-based awards
granted in fiscal 2008, as of August 1, 2010,
70 percent of the performance goals associated with these
awards had been achieved. The performance goals associated with
the remaining 30 percent may still be achieved during
fiscal 2010 and fiscal 2011.
29
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Restricted stock unit and restricted stock activity for the nine
months ended August 1, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Contractual Term
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Non-vested restricted stock units and restricted stock at
October 25, 2009
|
|
|
12,105
|
|
|
$
|
16.16
|
|
|
|
2.4 Years
|
|
Granted
|
|
|
12,216
|
|
|
$
|
12.42
|
|
|
|
|
|
Vested
|
|
|
(2,275
|
)
|
|
$
|
15.45
|
|
|
|
|
|
Canceled
|
|
|
(1,503
|
)
|
|
$
|
15.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock units and restricted stock at
August 1, 2010
|
|
|
20,543
|
|
|
$
|
14.05
|
|
|
|
2.7 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plans
Under the ESPP, substantially all employees may purchase Applied
common stock through payroll deductions at a price equal to
85 percent of the lower of the fair market value of Applied
common stock at the beginning or end of each
6-month
purchase period, subject to certain limits. Based on the
Black-Scholes option pricing model, the weighted average
estimated fair value of purchase rights under the ESPP was $3.00
and $2.99 for the nine months ended August 1, 2010 and
July 26, 2009, respectively. No shares were issued under
the ESPP during the three months ended August 1, 2010 and
July 26, 2009, respectively. The number of shares issued
under the ESPP during the nine months ended August 1, 2010
and July 26, 2009 was 2,440,000 and 3,536,000,
respectively. 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:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
August 1,
|
|
July 26,
|
|
|
2010
|
|
2009
|
|
ESPP:
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
2.24
|
%
|
|
|
2.71
|
%
|
Expected volatility
|
|
|
33
|
%
|
|
|
69
|
%
|
Risk-free interest rate
|
|
|
0.18
|
%
|
|
|
0.41
|
%
|
Expected life (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
Note 12
|
Employee
Benefit Plans
|
Applied sponsors a number of employee benefit plans, including
defined benefit plans of certain foreign subsidiaries, and a
plan that provides certain health benefits to eligible retirees.
A summary of the components of net periodic benefit costs of
these defined and postretirement benefit plans for the three and
nine months ended August 1, 2010 and July 26, 2009 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
3,350
|
|
|
$
|
3,290
|
|
|
$
|
10,050
|
|
|
$
|
9,870
|
|
Interest cost
|
|
|
3,444
|
|
|
|
3,007
|
|
|
|
10,332
|
|
|
|
9,021
|
|
Expected return on plan assets
|
|
|
(1,913
|
)
|
|
|
(1,863
|
)
|
|
|
(5,739
|
)
|
|
|
(5,589
|
)
|
Amortization of actuarial loss
|
|
|
286
|
|
|
|
174
|
|
|
|
858
|
|
|
|
522
|
|
Amortization of prior service credit
|
|
|
(63
|
)
|
|
|
(70
|
)
|
|
|
(189
|
)
|
|
|
(210
|
)
|
Amortization of transition obligation
|
|
|
14
|
|
|
|
19
|
|
|
|
42
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
5,118
|
|
|
$
|
4,557
|
|
|
$
|
15,354
|
|
|
$
|
13,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13
|
Borrowing
Facilities
|
Applied has credit facilities for unsecured borrowings in
various currencies of up to $1.1 billion, of which
$1.0 billion is comprised of a
5-year
revolving credit agreement with a group of banks that is
scheduled to expire in January 2012. This agreement provides for
borrowings in United States dollars at interest rates keyed to
one of the two rates selected by Applied for each advance and
includes financial and other covenants with which Applied was in
compliance at August 1, 2010. Remaining credit facilities
in the amount of approximately $91 million are with
Japanese banks. Applieds 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 August 1, 2010.
Applieds effective income tax rate for the third quarter
of fiscal 2010 was a provision of 30.8 percent, and the
income tax rate for the third quarter of fiscal 2009 was a
benefit of 26.0 percent. Both periods included the impact
of restructuring charges. Applieds future effective income
tax rate depends on various factors, such as tax legislation,
the geographic composition of Applieds pre-tax income, and
the tax rate on equity compensation. Management carefully
monitors these factors and timely adjusts the interim income tax
rate accordingly.
During the second quarter of fiscal 2010, Applied received a
U.S. federal cash refund of approximately $130 million
due to the carryback of the fiscal year 2009 net operating
loss to fiscal year 2005.
During fiscal 2009, the Internal Revenue Service began an
examination of Applieds federal income tax returns for
fiscal years 2007 and 2006. Applied believes it has adequately
reserved for any income tax uncertainties that may arise as a
result of this examination.
A number of Applieds tax returns remain subject to
examination by taxing authorities. These include
U.S. federal returns for fiscal 2005 and later years,
California returns for fiscal 2006 and later years, tax returns
for certain other states for fiscal 2002 and later years, and
tax returns in certain jurisdictions outside of the United
States for fiscal 2003 and later years.
The timing of the resolution of income tax examinations, as well
as the amounts and timing of various tax payments that may be
part of the settlement process, is highly uncertain. This could
cause large fluctuations in the balance sheet classification of
current assets and non-current assets and liabilities. Applied
does not expect a material change in unrecognized tax benefits
in the next 12 months.
|
|
Note 15
|
Industry
Segment Operations
|
Applieds four reportable segments are: Silicon Systems
Group, Applied Global Services, Display, and Energy and
Environmental Solutions. Applieds 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 Applieds management organization structure as of
August 1, 2010 and the distinctive nature of each segment.
Future changes to this internal financial structure may result
in changes to the Companys reportable segments.
Each reportable segment is separately managed and has separate
financial results that are reviewed by Applieds 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 Applieds chief
operating decision-maker.
Applied derives the segment results directly from its internal
management reporting system. The accounting policies Applied
uses to derive reportable segment results are substantially the
same as those used for external reporting purposes. Effective in
the first quarter of fiscal 2010, Applied changed its
methodology for allocating certain expenses to its reportable
segments, such as components of variable compensation and
operating expenses
31
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
associated with the global sales organization. Applied has
reclassified segment operating results for the three and nine
months ended July 26, 2009 to conform to the fiscal 2010
presentation. Management measures the performance of each
reportable segment based upon several metrics including orders,
net sales and operating income. Management uses these results to
evaluate the performance of, and to assign resources to, each of
the reportable segments. Applied does not allocate to its
reportable segments certain operating expenses that it manages
separately at the corporate level, which include costs related
to share-based compensation, certain corporate functions
(certain management, finance, legal, human resources, and
research, development and engineering), and unabsorbed
information technology and occupancy. In addition, Applied does
not allocate to its reportable segments restructuring and asset
impairment charges and any associated adjustments related to
restructuring actions, unless these charges or adjustments
pertain to a specific reportable segment. Segment operating
income excludes interest income/expense and other financial
charges and income taxes according to how a particular
reportable segments management is measured. Management
does not consider the unallocated costs in measuring the
performance of the reportable segments.
The Silicon Systems Group segment includes semiconductor capital
equipment for etch, rapid thermal processing, deposition,
chemical mechanical planarization, metrology and inspection, and
wafer packaging.
The Applied Global Services segment includes technically
differentiated products and services to improve operating
efficiency, reduce operating costs and lessen the environmental
impact of semiconductor, display and solar customers
factories. Applied Global Services products consist of
spares, services, certain earlier generation products, and
remanufactured equipment. Customer demand for these products and
services is fulfilled through a global distribution system with
trained service engineers located in close proximity to customer
sites.
The Display segment includes products for manufacturing LCDs for
TVs, personal computers and other video-enabled devices.
The Energy and Environmental Solutions segment includes products
for fabricating solar photovoltaic cells and modules, high
throughput
roll-to-roll
coating systems for flexible electronics and web products, and
systems used in the manufacture of energy-efficient glass.
Net sales and operating income (loss) for each reportable
segment for the three and nine months ended August 1, 2010
and July 26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
Net Sales
|
|
|
Income (Loss)
|
|
|
Net Sales
|
|
|
Income (Loss)
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silicon Systems Group
|
|
$
|
1,446,740
|
|
|
$
|
524,752
|
|
|
$
|
3,821,179
|
|
|
$
|
1,328,426
|
|
Applied Global Services
|
|
|
467,539
|
|
|
|
84,426
|
|
|
|
1,348,857
|
|
|
|
237,164
|
|
Display
|
|
|
216,139
|
|
|
|
63,632
|
|
|
|
617,749
|
|
|
|
178,426
|
|
Energy and Environmental Solutions
|
|
|
387,372
|
|
|
|
(371,213
|
)
|
|
|
874,447
|
|
|
|
(552,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment
|
|
$
|
2,517,790
|
|
|
$
|
301,597
|
|
|
$
|
6,662,232
|
|
|
$
|
1,191,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silicon Systems Group
|
|
$
|
497,679
|
|
|
$
|
67,198
|
|
|
$
|
1,303,921
|
|
|
$
|
31,076
|
|
Applied Global Services
|
|
|
342,427
|
|
|
|
24,156
|
|
|
|
1,006,836
|
|
|
|
48,936
|
|
Display
|
|
|
69,161
|
|
|
|
(7,875
|
)
|
|
|
301,696
|
|
|
|
10,508
|
|
Energy and Environmental Solutions
|
|
|
224,473
|
|
|
|
(51,854
|
)
|
|
|
874,760
|
|
|
|
(206,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment
|
|
$
|
1,133,740
|
|
|
$
|
31,625
|
|
|
$
|
3,487,213
|
|
|
$
|
(115,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Reconciliations of total segment operating income to
Applieds consolidated operating income (loss) for the
three and nine months ended August 1, 2010 and
July 26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Total segment operating income (loss)
|
|
$
|
301,597
|
|
|
$
|
31,625
|
|
|
$
|
1,191,586
|
|
|
$
|
(115,568
|
)
|
Corporate and unallocated costs
|
|
|
(138,889
|
)
|
|
|
(108,808
|
)
|
|
|
(413,926
|
)
|
|
|
(291,509
|
)
|
Unallocated restructuring and asset impairment benefit (charge)
|
|
|
19,943
|
|
|
|
|
|
|
|
(92,869
|
)
|
|
|
(159,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
182,651
|
|
|
$
|
(77,183
|
)
|
|
$
|
684,791
|
|
|
$
|
(566,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended August 1, 2010, Samsung
Electronics Co., Ltd. accounted for 16 percent of
Applieds net sales and Taiwan Semiconductor Manufacturing
Company Limited accounted for 12 percent. These two
customers accounted for 22 percent of the accounts
receivable balance as of August 1, 2010.
|
|
Note 16
|
Business
Combinations
|
On December 21, 2009, Applied acquired Semitool, a public
company based in the state of Montana, for a purchase price of
$323 million in cash, net of cash acquired, pursuant to a
tender offer and subsequent short-form merger. The acquired
business is a leading supplier of electrochemical plating and
wafer surface preparation equipment used by semiconductor
packaging and manufacturing companies globally. Applieds
primary reasons for this acquisition were to complement its
existing product offerings and to provide opportunities for
future growth. The acquired business is included in results for
the Silicon Systems Group segment.
In November 2009, Applied acquired substantially all the assets,
including the intellectual property, of Advent Solar, a
developer of advanced technology for c-Si solar photovoltaic
cells and modules (PVs). This acquisition complemented
Applieds portfolio of solar PV technologies and enhanced
Applieds opportunities in the c-Si equipment market. The
acquisition is included in results for the Energy and
Environmental Solutions segment.
Applied allocated the purchase price of each of these
acquisitions to tangible assets, liabilities and identifiable
intangible assets acquired, based on their estimated fair
values. The excess of purchase price over the aggregate fair
values was recorded as goodwill. The fair value assigned to
identifiable intangible assets acquired was based on estimates
and assumptions made by management. These estimates were
determined through established and generally accepted
calculation techniques. Applied calculated the fair value of the
tangible and intangible assets
33
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
acquired to allocate the purchase prices at the respective
acquisition dates. Based upon these calculations, the purchase
prices for the above acquisitions were allocated as follows:
|
|
|
|
|
|
|
Acquisitions
|
|
Fair Market Values
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
38,744
|
|
Accounts receivable, net
|
|
|
37,961
|
|
Inventories
|
|
|
61,838
|
|
Other current assets
|
|
|
3,837
|
|
Property and equipment, net
|
|
|
45,578
|
|
Goodwill
|
|
|
165,495
|
|
Purchased intangible assets
|
|
|
93,376
|
|
|
|
|
|
|
Total assets acquired
|
|
|
446,829
|
|
Accounts payable and accrued expenses
|
|
|
(46,246
|
)
|
Other liabilities
|
|
|
(25,240
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(71,486
|
)
|
|
|
|
|
|
Purchase price allocated
|
|
$
|
375,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
|
Useful
|
|
Intangible Assets
|
|
|
|
Life
|
|
2010
|
|
|
|
(In years)
|
|
(In thousands)
|
|
|
Developed technology
|
|
6-10
|
|
$
|
65,700
|
|
Customer relationships
|
|
8
|
|
|
10,900
|
|
Trade names
|
|
3-10
|
|
|
5,700
|
|
Patents and trademarks
|
|
7-10
|
|
|
5,462
|
|
Backlog
|
|
1
|
|
|
4,100
|
|
Other
|
|
5
|
|
|
1,514
|
|
|
|
|
|
|
|
|
Total purchased intangible assets
|
|
|
|
$
|
93,376
|
|
|
|
|
|
|
|
|
|
|
Note 17
|
Recent
Accounting Pronouncements
|
In March 2010, the FASB issued updated authoritative guidance
that amends the requirements for evaluating whether a decision
maker or service provider has a variable interest entity and
clarified that a quantitative approach should not be the sole
consideration in assessing the criteria for variable interest
entity determination. The guidance also clarifies that related
parties should be considered in applying all of the decision
maker and service provider criteria. This is in addition to the
authoritative guidance the FASB issued in June 2009 that applies
to determining whether an entity is a variable interest entity
and requiring an enterprise to perform an analysis to determine
whether the enterprises variable interest or interests
give it a controlling financial interest in a variable interest
entity. Under this guidance, an enterprise has a controlling
financial interest when it has (1) the power to direct the
activities of a variable interest entity that most significantly
impact the entitys economic performance and (2) the
obligation to absorb losses of the entity or the right to
receive benefits from the entity that could potentially be
significant to the variable interest entity. The guidance also
requires an enterprise to assess whether it has an implicit
financial responsibility to ensure that a variable interest
entity operates as designed when determining whether it has
power to direct the activities of the variable interest entity
that most significantly impact the entitys economic
performance. The guidance also requires ongoing assessments of
whether an enterprise is the primary beneficiary of a variable
34
APPLIED
MATERIALS, INC.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
interest entity, requires enhanced disclosures, and eliminates
the scope exclusion for qualifying special-purpose entities.
This guidance is effective for Applied beginning in the first
quarter of fiscal 2011. Applied is evaluating the potential
impact of the implementation of this authoritative guidance on
its consolidated financial statements.
In January 2010, the FASB issued authoritative guidance for fair
value measurements, which requires additional disclosures and
clarifications to existing disclosures. This authoritative
guidance requires a reporting entity to disclose separately the
amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and also to describe the
reasons for these transfers. This authoritative guidance also
requires enhanced disclosure of activity in Level 3 fair
value measurements. The new disclosures and clarifications of
existing disclosures for Level 1 and Level 2 fair
value measurements became effective for Applied in the second
quarter of fiscal 2010. Disclosures regarding activity within
Level 3 fair value measurements becomes effective the first
interim reporting period after December 15, 2010 and will
be effective for Applied in the second quarter of fiscal 2011.
Applied is evaluating the potential impact of the implementation
of this authoritative guidance on its consolidated financial
statements. See Note 4 for information and related
disclosures regarding Applieds fair value measurements.
In June 2009, the FASB issued authoritative guidance on variable
interest entities, which requires revised evaluations of whether
entities represent variable interest entities, ongoing
assessments of control over such entities, and additional
disclosures for variable interests. In December 2009, the FASB
issued authoritative guidance on the financial reporting by
entities involved with variable interest entities which amends
previously issued guidance on variable interest entities. The
amendments in this authoritative guidance replace the
quantitative-based risks and rewards calculation for determining
which reporting entity, if any, has a controlling financial
interest in a variable interest entity with an approach focused
on identifying which reporting entity has the power to direct
the activities of a variable interest entity that most
significantly impact the entitys economic performance and
(1) the obligation to absorb losses of the entity or
(2) the right to receive benefits from the entity. This
authoritative guidance becomes effective for Applied in fiscal
2011. Applied is evaluating the potential impact of the
implementation of this authoritative guidance on its
consolidated financial statements.
35
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
All statements in this Quarterly Report on
Form 10-Q
and those made by the management of Applied, other than
statements of historical fact, are forward-looking statements.
Examples of forward-looking statements include statements
regarding Applieds future financial or operating results,
cash flows and cash deployment strategies, declaration of
dividends, share repurchases, business strategies, projected
costs, products, competitive positions, managements plans
and objectives for future operations, research and development,
acquisitions and joint ventures, growth opportunities,
customers, working capital, liquidity, investment portfolio and
policies, and legal proceedings and claims, as well as industry
trends and outlooks. These forward-looking statements are based
on managements estimates, projections and assumptions as
of the date hereof and include the assumptions that underlie
such statements. Forward-looking statements may contain words
such as may, will, should,
could, would, expect,
plan, anticipate, believe,
estimate, predict, potential
and continue, the negative of these terms, or other
comparable terminology. Any expectations based on these
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. Other risks
and uncertainties may be disclosed in Applieds prior
Securities and Exchange Commission (SEC) filings. These and many
other factors could affect Applieds 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 Applied or on
its behalf. Applied undertakes no obligation to revise or update
any forward-looking statements.
Overview
Applied provides Nanomanufacturing
Technologytm
solutions for the global semiconductor, flat panel display,
solar and related industries, with a broad portfolio of
innovative equipment, service and software products.
Applieds customers are primarily manufacturers of
semiconductors, flat panel liquid crystal displays (LCDs), solar
photovoltaic cells and modules (solar PVs), flexible electronics
and energy-efficient glass. Applied operates in four reportable
segments: Silicon Systems Group, Applied Global Services,
Display, and Energy and Environmental Solutions. Product
development and manufacturing activities occur primarily in
North America, Europe, Israel and Asia. Applieds broad
range of equipment and service products are highly technical and
are sold primarily through a direct sales force.
Applieds results historically have been driven primarily
by worldwide demand for semiconductors, which in turn depends on
end-user demand for electronic products. Each of Applieds
businesses is subject to cyclical industry conditions, as demand
for manufacturing equipment and services can change depending on
supply and demand for chips, LCDs, solar PVs and other
electronic devices, as well as other factors, such as global
economic and market conditions, and technological advances in
fabrication processes. After a challenging year in fiscal 2009
that was characterized by credit constraints in the financial
markets, a weak global economy and a semiconductor industry
downturn, global economic and industry conditions affecting
Applieds businesses generally improved in the first nine
months of fiscal 2010, except for conditions in the thin film
solar PV market.
The following table presents certain significant measurements
for the three and nine months ended August 1, 2010 and
July 26, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
August 1,
|
|
July 26,
|
|
|
|
August 1,
|
|
July 26,
|
|
|
|
|
2010
|
|
2009
|
|
% Change
|
|
2010
|
|
2009
|
|
% Change
|
|
|
(In millions, except per share amounts and percentages)
|
|
(In millions, except per share amounts and percentages)
|
|
New orders
|
|
$
|
2,725
|
|
|
$
|
1,072
|
|
|
|
154
|
%
|
|
$
|
7,223
|
|
|
$
|
2,624
|
|
|
|
175
|
%
|
Net sales
|
|
$
|
2,518
|
|
|
$
|
1,134
|
|
|
|
122
|
%
|
|
$
|
6,662
|
|
|
$
|
3,487
|
|
|
|
91
|
%
|
Gross margin
|
|
$
|
860
|
|
|
$
|
325
|
|
|
|
165
|
%
|
|
$
|
2,498
|
|
|
$
|
872
|
|
|
|
186
|
%
|
Gross margin percent
|
|
|
34
|
%
|
|
|
29
|
%
|
|
|
6 points
|
|
|
|
37
|
%
|
|
|
25
|
%
|
|
|
12 points
|
|
Operating income (loss)
|
|
$
|
183
|
|
|
$
|
(77
|
)
|
|
|
337
|
%
|
|
$
|
685
|
|
|
$
|
(567
|
)
|
|
|
221
|
%
|
Net income (loss)
|
|
$
|
123
|
|
|
$
|
(55
|
)
|
|
|
324
|
%
|
|
$
|
470
|
|
|
$
|
(443
|
)
|
|
|
206
|
%
|
Earnings (loss) per share
|
|
$
|
0.09
|
|
|
$
|
(0.04
|
)
|
|
|
322
|
%
|
|
$
|
0.35
|
|
|
$
|
(0.33
|
)
|
|
|
205
|
%
|
Fiscal year 2010 is a 53-week year with 40 weeks in the
first nine months, while fiscal 2009 was a 52-week year with
39 weeks in the first nine months.
36
Financial results for the third quarter of fiscal 2010 reflected
significantly increased demand for manufacturing equipment and
services due to more favorable global economic and industry
conditions compared to the third quarter of fiscal 2009. Total
orders in the quarter increased
year-over-year,
primarily due to increased demand for most of Applieds
products, with the principal exception of SunFab thin film solar
manufacturing lines. Net sales and net income increased during
the third quarter of fiscal 2010 compared to the third quarter
of fiscal 2009, led primarily by stronger sales of semiconductor
equipment.
In the third quarter of fiscal 2010, Applied incurred charges
totaling $405 million associated with a plan to restructure
its Energy and Environmental Solutions segment. The action was
in response to adverse market conditions for thin film solar,
including delays in utility-scale solar adoption, solar panel
manufacturers challenges in obtaining affordable capital,
changes and uncertainty in government renewable energy policies,
and competitive pressure from crystalline silicon (c-Si) solar
technologies. As part of the restructuring, Applied will
discontinue sales to new customers of its fully-integrated
SunFab lines but will offer individual tools for thin film solar
manufacturing. Applied will support existing SunFab customers
with services, upgrades and capacity increases through its
Applied Global Services segment and will continue RD&E
efforts to improve thin film panel efficiency and
high-productivity deposition.
Financial results for the first nine months of fiscal 2010 over
fiscal 2009 similarly reflected significantly increased demand
for manufacturing equipment and services due to more favorable
global economic and industry conditions. The increase in total
orders from the first nine months of fiscal 2009 was primarily
due to increased demand for semiconductor and display products,
partially offset by decreased demand for SunFab thin film solar
lines. Net sales increased during the first nine months of
fiscal 2010 compared to the first nine months of fiscal 2009,
due primarily to higher sales of semiconductor and display
products. Net income in both periods included restructuring
charges.
Results
of Operations
New orders of $2.7 billion for the third quarter of fiscal
2010 increased significantly from new orders of
$1.1 billion in the third quarter of fiscal 2009. The
increase was principally due to greater demand for semiconductor
equipment and services, primarily from memory and foundry
customers, as well as increased demand for c-Si solar
manufacturing products and display equipment. New orders of
$7.2 billion for the first nine months of fiscal 2010 more
than doubled from the first nine months of fiscal 2009. The
increase in new orders was primarily attributable to higher
demand for equipment and services from semiconductor customers,
as well as increased demand for display equipment and c-Si
products.
New orders by geographic region (determined by the location of
customers facilities) for the three and nine months ended
August 1, 2010 and July 26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
(%)
|
|
|
|
(In millions, except percentages)
|
|
|
Taiwan
|
|
|
733
|
|
|
|
27
|
|
|
|
261
|
|
|
|
24
|
|
|
|
2,047
|
|
|
|
28
|
|
|
|
407
|
|
|
|
15
|
|
Korea
|
|
|
519
|
|
|
|
19
|
|
|
|
114
|
|
|
|
11
|
|
|
|
1,467
|
|
|
|
20
|
|
|
|
263
|
|
|
|
10
|
|
China
|
|
|
415
|
|
|
|
15
|
|
|
|
181
|
|
|
|
17
|
|
|
|
1,181
|
|
|
|
16
|
|
|
|
276
|
|
|
|
11
|
|
Southeast Asia
|
|
|
245
|
|
|
|
9
|
|
|
|
88
|
|
|
|
8
|
|
|
|
522
|
|
|
|
7
|
|
|
|
159
|
|
|
|
6
|
|
Japan
|
|
|
233
|
|
|
|
8
|
|
|
|
151
|
|
|
|
14
|
|
|
|
568
|
|
|
|
8
|
|
|
|
407
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
2,145
|
|
|
|
78
|
|
|
|
795
|
|
|
|
74
|
|
|
|
5,785
|
|
|
|
79
|
|
|
|
1,512
|
|
|
|
57
|
|
North America(*)
|
|
|
342
|
|
|
|
13
|
|
|
|
147
|
|
|
|
14
|
|
|
|
898
|
|
|
|
13
|
|
|
|
511
|
|
|
|
20
|
|
Europe
|
|
|
238
|
|
|
|
9
|
|
|
|
130
|
|
|
|
12
|
|
|
|
540
|
|
|
|
8
|
|
|
|
601
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,725
|
|
|
|
100
|
|
|
|
1,072
|
|
|
|
100
|
|
|
|
7,223
|
|
|
|
100
|
|
|
|
2,624
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Primarily the United States. |
37
Applieds backlog for the most recent three fiscal quarters
was as follows: $3.1 billion at August 1, 2010,
$3.0 billion at May 2, 2010, and $2.9 billion at
January 31, 2010. Backlog increased 5 percent for the
third quarter of 2010 from the second quarter of fiscal 2010,
primarily due to an increase in new orders for Silicon Systems
Group and Applied Global Services. Backlog consists of:
(1) orders for which written authorizations have been
accepted and assigned shipment dates are within the next
12 months, or shipment has occurred but revenue has not
been recognized; (2) contractual service revenue and
maintenance fees to be earned within the next 12 months;
and (3) orders for SunFab lines that are anticipated to be
recognized as revenue within the next 12 months.
Applieds backlog at any particular time is not necessarily
indicative of actual sales for any future periods, due to the
potential for customer changes in delivery schedules or
cancellation of orders. In addition, the majority of sales in
the largest business segment were from orders received and
shipped in the same quarter.
Net sales of $2.5 billion for the third quarter of fiscal
2010 more than doubled from the third quarter of fiscal 2009,
reflecting higher sales of equipment and services to
semiconductor equipment customers as well as display and c-Si
customers. Net sales of $6.7 billion for the first nine
months of fiscal 2010 increased 91 percent from the first
nine months of fiscal 2009, primarily due to higher sales of
semiconductor equipment.
Net sales by geographic region (determined by the location of
customers facilities) for the three and nine months ended
August 1, 2010 and July 26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
(%)
|
|
|
|
(In millions, except percentages)
|
|
|
Taiwan
|
|
|
707
|
|
|
|
28
|
|
|
|
393
|
|
|
|
35
|
|
|
|
1,921
|
|
|
|
29
|
|
|
|
699
|
|
|
|
20
|
|
China
|
|
|
469
|
|
|
|
19
|
|
|
|
116
|
|
|
|
10
|
|
|
|
843
|
|
|
|
13
|
|
|
|
356
|
|
|
|
10
|
|
Korea
|
|
|
398
|
|
|
|
16
|
|
|
|
129
|
|
|
|
11
|
|
|
|
1,361
|
|
|
|
20
|
|
|
|
412
|
|
|
|
12
|
|
Japan
|
|
|
203
|
|
|
|
8
|
|
|
|
130
|
|
|
|
12
|
|
|
|
610
|
|
|
|
9
|
|
|
|
501
|
|
|
|
14
|
|
Southeast Asia
|
|
|
162
|
|
|
|
6
|
|
|
|
53
|
|
|
|
5
|
|
|
|
403
|
|
|
|
6
|
|
|
|
183
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
1,939
|
|
|
|
77
|
|
|
|
821
|
|
|
|
73
|
|
|
|
5,138
|
|
|
|
77
|
|
|
|
2,151
|
|
|
|
62
|
|
North America(*)
|
|
|
294
|
|
|
|
12
|
|
|
|
139
|
|
|
|
12
|
|
|
|
765
|
|
|
|
12
|
|
|
|
733
|
|
|
|
21
|
|
Europe
|
|
|
285
|
|
|
|
11
|
|
|
|
174
|
|
|
|
15
|
|
|
|
759
|
|
|
|
11
|
|
|
|
603
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,518
|
|
|
|
100
|
|
|
|
1,134
|
|
|
|
100
|
|
|
|
6,662
|
|
|
|
100
|
|
|
|
3,487
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Primarily the United States. |
Gross margin as a percentage of net sales was 34 percent
for the third quarter of fiscal 2010, up from 29 percent
for the third quarter of fiscal 2009. For the first nine months
of fiscal 2010, gross margin as a percentage of net sales was
37 percent, up from 25 percent for the first nine
months of fiscal 2009. The increases for both the three and nine
months ended August 1, 2010 were principally attributable
to higher net sales, more favorable product mix, improved
factory utilization, and continued cost control measures, offset
in part by inventory-related charges of $247 million
related to SunFab thin film solar equipment taken during the
third quarter of fiscal 2010 in connection with the
restructuring of the Energy and Environmental Solutions segment.
These inventory-related charges lowered gross margin for the
third quarter of fiscal 2010 by approximately 10 percentage
points. Inventory-related charges of $330 million associated
with SunFab thin film solar equipment lowered gross margin for
the first nine months of fiscal 2010 by approximately 5
percentage points. Gross margin during the third quarters of
fiscal 2010 and 2009 included $10 million and
$9 million of share-based compensation expense,
respectively. Gross margin during the first nine months of
fiscal 2010 and 2009 included $23 million of share-based
compensation expense in each period.
Operating expenses included expenses related to research,
development and engineering (RD&E), marketing and selling
(M&S), and general and administrative (G&A). Expenses
related to RD&E, M&S and G&A totaled
$542 million for the third quarter of fiscal 2010 compared
to $402 million for the third quarter of fiscal 2009. This
increase in operating expenses for the third quarter of fiscal
2010 reflected the elimination of temporary salary reductions
and shutdowns, and the resumption of variable compensation
programs. Expenses related to RD&E, M&S
38
and G&A totaled $1.6 billion for the first nine months
of fiscal 2010 compared to $1.3 billion for the first nine
months of fiscal 2009. The first nine months of fiscal 2010
included fewer shutdown days than the first nine months of
fiscal 2010, an extra week, elimination of temporary salary
reductions, and the resumption of variable compensation
programs. Operating expenses for the first quarter of fiscal
2010 included transaction and legal costs related to the
acquisition of Semitool, Inc. (Semitool) and the Advent Solar,
Inc. (Advent Solar) asset purchase.
Operating expenses for the third quarter of fiscal 2010 included
asset impairment charges of $110 million and restructuring
charges of $45 million associated with the Energy and
Environmental Solutions restructuring plan announced in July
2010, offset by a $20 million favorable adjustment to the
restructuring plan announced in November 2009. There were no
restructuring or asset impairment charges during the third
quarter of fiscal 2009.
Operating expenses for the first nine months of fiscal 2010
included asset impairment charges of $110 million and
restructuring charges of $45 million associated with the
Energy and Environmental Solutions restructuring plan announced
in July 2010, restructuring charges of $84 million
associated with a restructuring plan announced in November 2009,
and asset impairment charges of $9 million related to a
facility held for sale. Operating expenses for the first nine
months of fiscal 2009 included restructuring charges of
$145 million associated with a restructuring program
announced in November 2008, and asset impairment charges of
$15 million related to wafer cleaning equipment.
During the three and nine months ended August 1, 2010,
Applied recognized $8 million and $13 million,
respectively, in impairment charges associated with certain
equity investments in privately-held companies. For the three
months ended July 26, 2009, Applied recognized
$2 million in impairment charges associated with certain
equity investments in privately-held companies. During the nine
months ended July 26, 2009, Applied recognized
$79 million in impairment charges, consisting of
$45 million associated with its equity method investment in
Sokudo, a Japanese joint venture company, and $34 million
in impairment charges associated with certain strategic
investments.
Net interest income was $3 million for the third quarter of
fiscal 2010, down from $5 million for the third quarter of
fiscal 2009. Net interest income was $11 million for the
first nine months of fiscal 2010, down from $21 million for
the first nine months of fiscal 2009. Lower net interest income
for the three and nine months ended August 1, 2010 were
primarily due to a decrease in interest rates.
Applieds effective income tax rate for the third quarter
of fiscal 2010 was a provision of 30.8 percent as compared
to a benefit of 26.0 percent for the third quarter of
fiscal 2009. Applieds effective income tax rate for the
first nine months of fiscal 2010 was a provision of
31.3 percent as compared to a benefit of 32.8 percent
for the first nine months of fiscal 2009. The income tax rate
for each of these periods included the effect of restructuring
charges as discrete items. The effective income tax rate for the
first nine months of fiscal 2010 did not include the impact of
the U.S. R&D tax credit from the time it expired in
December 2009. In the event the U.S. R&D tax credit is
enacted on a retroactive basis, there would be a favorable
impact to Applieds effective income tax rate.
Applieds future effective income tax rate depends on
various factors, such as tax legislation, and the geographic
composition of Applieds pre-tax income. Management
carefully monitors these factors and timely adjusts the interim
income tax rate accordingly.
Segment
Information
Applied reports financial results in four segments: Silicon
Systems Group, Applied Global Services, Display, and Energy and
Environmental Solutions. 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. Applied does not allocate to its
reportable segments certain operating expenses that it manages
separately at the corporate level. These unallocated costs
include costs for share-based compensation, certain corporate
functions (certain management, finance, legal, human resources,
and RD&E), and unabsorbed information technology and
occupancy. In addition, Applied does not allocate to its
reportable segments restructuring and asset impairment charges
and any associated adjustments related to restructuring actions,
unless these charges or adjustments pertain to a specific
reportable segment.
39
Effective in the first quarter of fiscal 2010, Applied changed
its methodology for allocating certain expenses to its
reportable segments, such as components of variable compensation
and operating expenses associated with the global sales
organization. Applied has reclassified segment operating results
for the three and nine months ended July 26, 2009 to
conform to the fiscal 2010 presentation.
The results for each reportable segment are discussed below.
Silicon
Systems Group Segment
The Silicon Systems Group segment includes semiconductor capital
equipment for deposition, etch, rapid thermal processing,
chemical mechanical planarization, metrology and inspection, and
wafer packaging. Development efforts are focused on solving
customers key technical challenges, including transistor
performance and nanoscale patterning, and improving chip
manufacturing productivity to reduce costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
August 1,
|
|
July 26,
|
|
|
|
August 1,
|
|
July 26,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
(In millions, except percentages)
|
|
(In millions, except percentages)
|
|
New orders
|
|
$
|
1,535
|
|
|
$
|
542
|
|
|
$
|
993
|
|
|
$
|
4,086
|
|
|
$
|
1,047
|
|
|
$
|
3,039
|
|
Net sales
|
|
|
1,447
|
|
|
|
498
|
|
|
|
949
|
|
|
|
3,821
|
|
|
|
1,304
|
|
|
|
2,517
|
|
Operating income
|
|
|
525
|
|
|
|
67
|
|
|
|
458
|
|
|
|
1,329
|
|
|
|
31
|
|
|
|
1,298
|
|
Operating margin
|
|
|
36
|
%
|
|
|
13
|
%
|
|
|
23 points
|
|
|
|
35
|
%
|
|
|
2
|
%
|
|
|
33 points
|
|
New orders increased by $993 million to $1.5 billion
for the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009, and also increased by $3.0 billion
to $4.1 billion for the first nine months of fiscal 2010
compared to the first nine months of fiscal 2009. The increases
in new orders for the three and nine months ended August 1,
2010 were primarily from memory and foundry customers and
reflected the general recovery in the semiconductor equipment
industry from the steep downturn experienced in the first nine
months of fiscal 2009. The majority of fiscal 2010 new orders
were for customers capacity expansions, while fiscal 2009
orders were primarily for customers new technology
investments.
Net sales increased by $949 million to $1.4 billion
for the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009 and also increased by $2.5 billion
to $3.8 billion for the first nine months of fiscal 2010
compared to the first nine months of fiscal 2009. The increases
in net sales for the three and nine months ended August 1,
2010 were primarily due to increased investment by memory and
foundry customers. Four customers accounted for 57 percent
of net sales in this segment in the first nine months of fiscal
2010. Approximately 65 percent of net sales in the third
quarter of fiscal 2010 were for orders received and shipped
within the quarter.
The book to bill ratio (new orders divided by net sales) was 1.1
for each of the third quarters of fiscal 2010 and fiscal 2009.
The book to bill ratio increased to 1.1 for the first nine
months of fiscal 2010, reflecting increased demand, compared to
0.8 for the first nine months of fiscal 2009.
Operating income increased by $458 million to
$525 million for the third quarter of fiscal 2010 compared
to the third quarter of fiscal 2009. Operating income increased
significantly to $1.3 billion for the first nine months of
fiscal 2010 compared to the first nine months of fiscal 2009.
The increases in operating income for the three and nine months
ended August 1, 2010 were due to considerably higher
revenue from semiconductor equipment sales and reflected the
general recovery in the semiconductor equipment industry during
the first nine months of fiscal 2010. Results for the three and
nine months ended August 1, 2010 included Semitool, which
was acquired by Applied during the first quarter of fiscal 2010.
40
Applied
Global Services Segment
The Applied Global Services segment encompasses technically
differentiated products, including spares, services, certain
earlier generation equipment products, and remanufactured
equipment, to improve operating efficiency, reduce operating
costs, and lessen the environmental impact of semiconductor,
display and solar customers factories. Customer demand for
products and services is fulfilled through a global distribution
system with trained service engineers located in close proximity
to customer sites.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
August 1,
|
|
July 26,
|
|
|
|
August 1,
|
|
July 26,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
(In millions, except percentages)
|
|
(In millions, except percentages)
|
|
New orders
|
|
$
|
595
|
|
|
$
|
298
|
|
|
$
|
297
|
|
|
$
|
1,552
|
|
|
$
|
844
|
|
|
$
|
708
|
|
Net sales
|
|
|
468
|
|
|
|
342
|
|
|
|
126
|
|
|
|
1,349
|
|
|
|
1,007
|
|
|
|
342
|
|
Operating income
|
|
|
84
|
|
|
|
24
|
|
|
|
60
|
|
|
|
237
|
|
|
|
49
|
|
|
|
188
|
|
Operating margin
|
|
|
18
|
%
|
|
|
7
|
%
|
|
|
11 points
|
|
|
|
18
|
%
|
|
|
5
|
%
|
|
|
13 points
|
|
New orders increased by $297 million to $595 million
for the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009, and increased 84 percent to
$1.6 billion for the first nine months of fiscal 2010
compared to the first nine months of fiscal 2009. The increases
in orders for the three and nine months ended August 1,
2010 were due primarily to higher demand for spare parts and
equipment, reflecting customers higher factory utilization
rates as semiconductor industry conditions improved.
Net sales increased 36 percent to $468 million for the
third quarter of fiscal 2010 compared to the third quarter of
fiscal 2009. Net sales increased 34 percent to
$1.3 billion for the first nine months of fiscal 2010
compared to the first nine months of fiscal 2009. The increases
in net sales for the three and nine months ended August 1,
2010 were primarily due to higher sales of spare parts.
The book to bill ratio increased to 1.3 for the third quarter of
fiscal 2010 compared to 0.9 for the third quarter of fiscal
2009. The book to bill ratio increased to 1.2 for the first nine
months of fiscal 2010 compared to 0.8 for the first nine months
of fiscal 2009.
Operating income increased by $60 million to
$84 million for the third quarter of fiscal 2010 compared
to the third quarter of fiscal 2009. Operating income increased
by $188 million to $237 million for the first nine
months of fiscal 2010 compared to the first nine months of
fiscal 2009. The increases in operating income for the three and
nine months ended August 1, 2010 primarily reflected
increased sales of spare parts.
Display
Segment
The Display segment encompasses products for manufacturing LCDs
for TVs, personal computers and other video-enabled devices. The
business is focused on expanding market share by differentiation
with larger-scale substrates, entry into new markets, and
development of products to enable cost reductions through
productivity and uniformity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
August 1,
|
|
July 26,
|
|
|
|
August 1,
|
|
July 26,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
(In millions, except percentages)
|
|
(In millions, except percentages)
|
|
New orders
|
|
$
|
242
|
|
|
$
|
96
|
|
|
$
|
146
|
|
|
$
|
624
|
|
|
$
|
135
|
|
|
$
|
489
|
|
Net sales
|
|
|
216
|
|
|
|
69
|
|
|
|
147
|
|
|
|
618
|
|
|
|
302
|
|
|
|
316
|
|
Operating income (loss)
|
|
|
64
|
|
|
|
(8
|
)
|
|
|
72
|
|
|
|
179
|
|
|
|
11
|
|
|
|
168
|
|
Operating margin
|
|
|
30
|
%
|
|
|
(11
|
)%
|
|
|
41 points
|
|
|
|
29
|
%
|
|
|
4
|
%
|
|
|
25 points
|
|
New orders increased by $146 million to $242 million
for the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009, and increased by $489 million to
$624 million for the first nine months of fiscal 2010
compared to the first nine months of fiscal 2009. The increases
in orders for the three and nine months ended August 1,
2010 reflected the general recovery in the LCD market, as
customers increased production levels in response to strong
end-demand for flat panel TVs and notebook computers.
41
Net sales increased by $147 million to $216 million
for the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009 and increased by $316 million to
$618 million for the first nine months of fiscal 2010
compared to the first nine months of fiscal 2009. The increases
in net sales for the three and nine months ended August 1,
2010 reflected strong market demand for LCD products. Four
customers accounted for 56 percent of net sales for the
Display segment in the first nine months of fiscal 2010.
The book to bill ratio decreased to 1.1 for the third quarter of
fiscal 2010 compared to 1.4 for the third quarter of fiscal
2009. The book to bill ratio increased to 1.0 for the first nine
months of fiscal 2010 compared to 0.4 for the first nine months
of fiscal 2009.
Operating income was $64 million for the third quarter of
fiscal 2010 compared to an operating loss of $8 million for
the third quarter of fiscal 2009. Operating income increased by
$168 million to $179 million for the first nine months
of fiscal 2010 compared to the first nine months of fiscal 2009.
The increases in operating income for the three and nine months
ended August 1, 2010 were due to a significant increase in
net sales and more favorable product mix.
Energy
and Environmental Solutions Segment
The Energy and Environmental Solutions segment includes products
for fabricating thin film and c-Si solar PVs, high throughput
roll-to-roll
coating systems for flexible electronics and web products, and
systems used in the manufacture of energy-efficient glass. This
business is focused on delivering solutions to generate and
conserve energy, with an emphasis on lowering the cost to
produce solar power by providing equipment to enhance
manufacturing scale and efficiency.
During the third quarter of fiscal 2010, Applied incurred
charges related to the restructuring plan for the Energy and
Environmental Solutions segment described above of
$405 million, which included inventory-related charges of
$247 million related to SunFab thin film solar equipment,
asset impairment charges of $110 million, employee
severance charges of $45 million, and other costs of
$3 million. In addition, during the second quarter of
fiscal 2010, Applied incurred inventory-related charges of
$83 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
|
|
August 1,
|
|
|
July 26,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
(In millions, except percentages)
|
|
|
New orders
|
|
$
|
353
|
|
|
$
|
136
|
|
|
$
|
217
|
|
|
$
|
961
|
|
|
$
|
598
|
|
|
$
|
363
|
|
Net sales
|
|
|
387
|
|
|
|
224
|
|
|
|
163
|
|
|
|
874
|
|
|
|
874
|
|
|
|
|
|
Operating income (loss)
|
|
|
(371
|
)
|
|
|
(52
|
)
|
|
|
(319
|
)
|
|
|
(552
|
)
|
|
|
(206
|
)
|
|
|
(346
|
)
|
Operating margin
|
|
|
(96
|
)%
|
|
|
(23
|
)%
|
|
|
(73) points
|
|
|
|
(63
|
)%
|
|
|
(24
|
)%
|
|
|
(39) points
|
|
New orders increased by $217 million to $353 million
for the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009. New orders increased 61 percent to
$961 million for the first nine months of fiscal 2010
compared to the first nine months of fiscal 2009. The increases
in orders for the three and nine months ended August 1,
2010 reflected increased demand for c-Si products, particularly
wafering and metallization products, offset by diminished demand
for SunFab thin film manufacturing lines. The continued
challenging operating environment for manufacturers of thin film
solar panels, among other factors, contributed to the severe
reduction in orders for SunFab lines in the first nine months of
fiscal 2010.
Net sales increased 73 percent to $387 million for the
third quarter of fiscal 2010 compared to the third quarter of
fiscal 2009, and were $874 million for each of the first
nine months of fiscal 2010 and fiscal 2009. The increases in net
sales for the three months ended August 1, 2010 reflected
higher sales to c-Si customers. Net sales for the first nine
months of fiscal 2010 reflected higher sales to c-Si customers,
offset in part by lower sales to SunFab customers than in the
first nine months of fiscal 2009.
The book to bill ratio increased to 0.9 for the third quarter of
fiscal 2010 compared to 0.6 for the third quarter of fiscal
2009. The book to bill ratio increased to 1.1 for the first nine
months of fiscal 2010 compared to 0.7 for the first nine months
of fiscal 2009.
The operating loss in the Energy and Environmental Solutions
segment increased by $319 million to $371 million for
the third quarter of fiscal 2010 compared to the third quarter
of fiscal 2009, and increased by
42
$346 million to $552 million for the first nine months
of fiscal 2010 compared to the first nine months of fiscal 2009.
The increases in operating loss for the three and nine months
ended August 1, 2010 were primarily due to charges totaling
$405 million associated with the Energy and Environmental
Solutions restructuring plan announced in July 2010 and lower
net sales to SunFab customers, partially offset by increased
sales of c-Si products and cost control initiatives.
During both the second and third quarters of fiscal 2010,
Applied tested goodwill for potential impairment for the Energy
and Environmental Solutions reporting unit as a result of
certain developments. The results of the first step of the
impairment test indicated that goodwill of the Energy and
Environmental Solutions reporting unit was not impaired. Applied
tested goodwill of the Energy and Environmental Solutions
reporting unit for impairment in the second quarter in light of
developments that included the insolvency of a thin film solar
customer, inability of other thin film solar customers to secure
financing, weaker outlooks for certain customers that in turn
reduced their spending plans resulting in the delay or
cancellation of thin film production lines, and other adverse
operating conditions affecting the solar industry. Applied
tested goodwill of the Energy and Environmental Solutions
reporting unit for impairment in the third quarter of fiscal
2010 in light of the restructuring announced during the quarter.
Applied utilized the discounted cash flow method of the income
approach to estimate the fair value of the Energy and
Environmental Solutions reporting unit. Although considered, the
market approach was not used as comparable enterprises,
market-based growth rates, and gross margins were determined not
to be representative of the Energy and Environmental Solutions
reporting unit. For the second quarter of fiscal 2010, while the
results of the first step of the impairment test indicated that
goodwill and intangible assets within the Energy and
Environmental Solutions reporting unit were not impaired, the
estimated fair value in excess of carrying value had declined
from the fourth quarter of fiscal 2009 to the end of the second
quarter of fiscal 2010 to approximately $200 million (or
19 percent over the carrying value of the reporting unit).
For the third quarter of fiscal 2010, the results of the first
step of the impairment test indicated that goodwill and
intangible assets within the Energy and Environmental Solutions
reporting unit were not impaired and that the estimated fair
value in excess of carrying value had increased from the fourth
quarter of fiscal 2009 to the end of the third quarter of fiscal
2010 to approximately $1.3 billion (or 165 percent
over the carrying value of the reporting unit). The evaluation
of goodwill and intangible assets for impairment requires the
exercise of significant judgment. The estimates used in the
impairment testing were consistent with the discrete forecasts
that Applied uses to manage its business, and considered the
significant developments that occurred during the quarter. Cash
flows beyond the discrete forecasts were estimated using a
terminal value rate, which considered the long-term earnings
growth rate specific to the Energy and Environmental Solutions
reporting unit. The change in the estimated fair value in excess
of the carrying value from the second fiscal quarter was due
primarily to changes in the business mix of forecasted future
operating results and a reduction in the carrying value of the
reporting unit. The reduction in the carrying value of the
reporting unit was due to inventory-related charges and asset
impairments recognized during the third fiscal quarter. The
estimated future cash flows were discounted to present value
using a discount rate that was the value-weighted average of
Applieds estimated cost of equity and debt derived using
both known and estimated market metrics, and was adjusted to
reflect risk factors that considered both the timing and risks
associated with the estimated cash flows. While there are
inherent uncertainties related to the significant assumptions
used and managements application of these assumptions in
conducting the goodwill impairment analysis, Applied believes
that the income approach and the related assumptions used
provides a reasonable estimate of the fair value of the Energy
and Environmental Solutions reporting unit. In the event of
future adverse business conditions in the market in which the
Energy and Environmental Solutions reporting unit operates,
Applied will be required to reassess and update its forecasts
and estimates used in a future impairment analysis. If the
results of this analysis are lower than current estimates, a
material impairment charge may result at that time. (See
Note 8 of Notes to Consolidated Condensed Financial
Statements.)
Financial
Condition, Liquidity and Capital Resources
During the nine months ended August 1, 2010, cash, cash
equivalents and investments increased by $361 million from
$3.3 billion as of October 25, 2009.
43
Cash, cash equivalents and investments consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
August 1,
|
|
|
October 25,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
1,564
|
|
|
$
|
1,577
|
|
Short-term investments
|
|
|
784
|
|
|
|
638
|
|
Long-term investments
|
|
|
1,280
|
|
|
|
1,052
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and investments
|
|
$
|
3,628
|
|
|
$
|
3,267
|
|
|
|
|
|
|
|
|
|
|
Applied generated $1.2 billion of cash in operating
activities for the nine months ended August 1, 2010. The
primary sources of cash from operating activities for the nine
months ended August 1, 2010 were net income, as adjusted to
exclude the effect of non-cash charges including restructuring
and asset impairments, depreciation, amortization, share-based
compensation, and changes in components of working capital.
Changes in working capital included thin film solar
inventory-related charges of $330 million. Applied utilized
programs to discount letters of credit issued by customers of
$134 million for the nine months ended August 1, 2010.
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. For the
nine months ended August 1, 2010, Applied factored accounts
receivable of $104 million and discounted promissory notes
of $2 million. Days sales outstanding for the third quarter
of fiscal 2010 increased to 62 days, compared to
57 days in the second quarter of fiscal 2010, primarily due
to increased net sales in the third quarter of fiscal 2010,
offset in part by the benefit of factoring and discounted
letters of credit. Applieds working capital was
$3.7 billion at each of August 1, 2010 and
October 25, 2009. During the second quarter of fiscal 2010,
Applied received a U.S. federal income tax refund of
approximately $130 million for the carryback of
Applieds net operating loss from fiscal 2009 to fiscal
2005.
Applied used $847 million of cash from investing activities
during the nine months ended August 1, 2010, primarily due
to the acquisition of Semitool, a public company based in the
state of Montana, for $323 million, net of cash acquired.
Purchases of investments, net of proceeds from sales and
maturities of investments, totaled $390 million. Capital
expenditures were $134 million for the nine months ended
August 1, 2010 and included investment in the construction
of a solar R&D/demonstration center in Xian, China
and a manufacturing facility in Singapore.
Applied used $362 million of cash for financing activities
during the nine months ended August 1, 2010, consisting
primarily of $255 million in cash dividends paid to
stockholders and $200 million in common stock repurchases,
offset by $99 million in proceeds from common stock
issuances related to equity compensation awards. In March 2010,
Applieds Board of Directors approved a new stock
repurchase program authorizing up to $2 billion in
repurchases over the next three years ending in March 2013.
On June 9, 2010, Applieds Board of Directors approved
a quarterly cash dividend in the amount of $0.07 per share,
payable on September 15, 2010 to stockholders of record as
of August 25, 2010. On June 16, 2010, Applied paid a
quarterly cash dividend of $0.07 per share to stockholders of
record as of May 26, 2010. Applied currently anticipates
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
Applieds 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 Applieds
stockholders.
Applied has credit facilities for unsecured borrowings in
various currencies of up to $1.1 billion, of which
$1.0 billion is comprised of a
5-year
revolving credit agreement with a group of banks that is
scheduled to expire in January 2012. This agreement provides for
borrowings in United States dollars at interest rates keyed to
one of the two rates selected by Applied for each advance and
includes financial and other covenants with which Applied was in
compliance at August 1, 2010. Remaining credit facilities
in the amount of approximately $91 million are with
Japanese banks. Applieds 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 the above credit
facilities at August 1, 2010.
44
In the ordinary course of business, Applied provides standby
letters of credit or other guarantee instruments to third
parties as required for certain transactions initiated by either
Applied or its subsidiaries. As of August 1, 2010, the
maximum potential amount of future payments that Applied could
be required to make under these guarantee arrangements was
$50 million. Applied has not recorded any liability in
connection with these guarantee arrangements beyond that
required to appropriately account for the underlying transaction
being guaranteed. Applied does 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 arrangements.
Applieds 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. Applied regularly monitors the credit risk in its
investment portfolio and takes appropriate measures, which may
include the sale of certain securities, to manage such risks
prudently in accordance with its investment policies.
During the nine months ended August 1, 2010, as part of its
regular investment review process, Applied recorded impairment
charges of $13 million associated with equity investments
in privately-held companies. At August 1, 2010, Applied had
a gross unrealized loss in its investment portfolio of
$0.4 million due to a decrease in the fair value of certain
fixed income securities. Applied regularly reviews its
investment portfolio to identify and evaluate investments that
have indications of possible impairment. Factors considered in
determining whether a loss is temporary include: the length of
time and extent to which fair value has been lower than the cost
basis; the financial condition, credit quality and near-term
prospects of the investee; and whether it is more
likely-than-not
that Applied will be required to sell the security prior to any
anticipated recovery in fair value. Generally, the contractual
terms of the investments do not permit settlement at prices less
than the amortized cost of the investments. While Applied cannot
predict future market conditions or market liquidity, Applied
believes that its investment policies provide an appropriate
means to manage the risks in its investment portfolio.
During the nine months ended August 1, 2010, Applied
recorded a bad debt provision of $7 million as a result of
certain customers deteriorating financial condition.
During the nine months ended July 26, 2009, Applied
recorded a bad debt provision of $63 million as a result of
certain customers deteriorating financial condition. While
Applied believes that its allowance for doubtful accounts at
August 1, 2010 is adequate, it will continue to closely
monitor customer liquidity and economic conditions.
Although cash requirements will fluctuate based on the timing
and extent of factors such as those discussed above,
Applieds management believes that cash generated from
operations, together with the liquidity provided by existing
cash balances and borrowing capability, will be sufficient to
satisfy Applieds liquidity requirements for the next
12 months. For further details regarding Applieds
operating, investing and financing activities, see the
Consolidated 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 requires management to make
judgments, assumptions and estimates that affect the amounts
reported. Certain of these significant accounting policies are
considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both
material to the presentation of Applieds consolidated
financial statements and that requires management to make
difficult, subjective or complex judgments that could have a
material effect on Applieds financial condition or results
of operations. Specifically, these policies have the following
attributes: (1) Applied is required to make assumptions
about matters that are highly uncertain at the time of the
estimate; and (2) different estimates Applied could
reasonably have used, or changes in the estimate that are
reasonably likely to occur, would have a material effect on
Applieds financial condition or results of operations.
Estimates and assumptions about future events and their effects
cannot be determined with certainty. Applied bases its estimates
on historical experience and on various other assumptions
believed to be applicable and reasonable under the
circumstances. These estimates may change as new events occur,
as additional information is obtained and as Applieds
operating environment changes. These changes have historically
been minor and have
45
been included in the consolidated financial statements as soon
as they became known. In addition, management is periodically
faced with uncertainties, the outcomes of which are not within
its control and will not be known for prolonged periods of time.
These uncertainties include those discussed in Part II,
Item 1A, Risk Factors. Based on a critical
assessment of its accounting policies and the underlying
judgments and uncertainties affecting the application of those
policies, management believes that Applieds consolidated
financial statements are fairly stated in accordance with
accounting principles generally accepted in the United States of
America, and provide a meaningful presentation of Applieds
financial condition and results of operations.
Management believes that the following are critical accounting
policies:
Revenue
Recognition
Applied recognizes revenue when all four revenue recognition
criteria have been met: persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered;
sellers price to buyer is fixed or determinable; and
collectability is probable. Each sale arrangement may contain
commercial terms that differ from other arrangements. In
addition, Applied frequently enters into contracts that contain
multiple deliverables. Judgment is required to properly identify
the accounting units of the multiple deliverable transactions
and to determine the manner in which revenue should be allocated
among the accounting units. Moreover, judgment is used in
interpreting the commercial terms and determining when all
criteria of revenue recognition have been met in order for
revenue recognition to occur in the appropriate accounting
period. While changes in the allocation of the estimated sales
price between the units of accounting will not affect the amount
of total revenue recognized for a particular sales arrangement,
any material changes in these allocations could impact the
timing of revenue recognition, which could have a material
effect on Applieds financial condition and results of
operations.
In 2009, the Financial Accounting Standards Board issued amended
revenue recognition guidance for arrangements with multiple
deliverables and certain software sold with tangible products.
This new guidance eliminates the residual method of revenue
recognition and allows the use of managements best
estimate of selling price for individual elements of an
arrangement when vendor specific evidence or third party
evidence is unavailable. Applied implemented this guidance
prospectively beginning in the first quarter of fiscal 2010 for
transactions that were initiated or materially modified during
fiscal 2010. The implementation of the new guidance had an
insignificant impact on reported net sales as compared to net
sales under previous guidance, as the new guidance did not
change the units of accounting within sales arrangements and the
elimination of the residual method for the allocation of
arrangement consideration had an inconsequential impact on the
amount and timing of reported net sales.
Warranty
Costs
Applied provides for the estimated cost of warranty when revenue
is recognized. Estimated warranty costs are determined by
analyzing specific product, current and historical configuration
statistics and regional warranty support costs. Applieds
warranty obligation is affected by product and component failure
rates, material usage and labor costs incurred in correcting
product failures during the warranty period. As Applieds
customer engineers and process support engineers are highly
trained and deployed globally, labor availability is a
significant factor in determining labor costs. The quantity and
availability of critical replacement parts is another
significant factor in estimating warranty costs. Unforeseen
component failures or exceptional component performance can also
result in changes to warranty costs. If actual warranty costs
differ substantially from Applieds estimates, revisions to
the estimated warranty liability would be required, which could
have a material adverse effect on Applieds business,
financial condition and results of operations.
Allowance
for Doubtful Accounts
Applied maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. This allowance is based on historical
experience, credit evaluations, specific customer collection
history and any customer-specific issues Applied has identified.
Changes in circumstances, such as an unexpected material adverse
change in a major customers ability to meet its financial
obligation to Applied or its payment trends, may require Applied
to further adjust its estimates of the recoverability of amounts
due to Applied, which could have a material adverse effect on
Applieds business, financial condition and results of
operations.
46
Inventory
Valuation
Inventories are generally stated at the lower of cost or market,
with cost determined on a
first-in,
first-out basis. The carrying value of inventory is reduced for
estimated obsolescence by the difference between its cost and
the estimated market value based upon assumptions about future
demand. Applied evaluates the inventory carrying value for
potential excess and obsolete inventory exposures by analyzing
historical and anticipated demand. In addition, inventories are
evaluated for potential obsolescence due to the effect of known
and anticipated engineering change orders and new products. If
actual demand were to be substantially lower than estimated,
additional adjustments for excess or obsolete inventory may be
required, which could have a material adverse effect on
Applieds business, financial condition and results of
operations.
Goodwill
and Intangible Assets
Applied reviews goodwill and intangible assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable, and also
annually reviews goodwill and intangibles with indefinite lives
for impairment. Intangible assets, such as purchased technology,
are generally recorded in connection with a business
acquisition. The value assigned to intangible assets is usually
based on estimates and judgments regarding expectations for the
success and life cycle of products and technology acquired. If
actual product acceptance differs significantly from the
estimates, Applied may be required to record an impairment
charge to reduce the carrying value of the reporting unit to its
realizable value. The fair value of a reporting unit is
estimated using both the income approach and the market approach
taking into account such factors as future anticipated operating
results and estimated cost of capital. Management uses
significant judgment when assessing goodwill for potential
impairment, especially in emerging markets. A severe decline in
market value could result in an unexpected impairment charge for
impaired goodwill, which could have a material adverse effect on
Applieds business, financial condition and results of
operations.
Income
Taxes
The effective tax rate is highly dependent upon the geographic
composition of worldwide earnings, tax regulations governing
each region, non-tax deductible expenses incurred in connection
with acquisitions and availability of tax credits. Management
carefully monitors the changes in many factors and adjusts the
effective income tax rate as required. If actual results differ
from these estimates, Applied could be required to record a
valuation allowance on deferred tax assets or adjust its
effective income tax rate, which could have a material adverse
effect on Applieds business, financial condition and
results of operations.
Applied accounts for income taxes by recognizing deferred tax
assets and liabilities using statutory tax rates for the effect
of temporary differences between the book and tax bases of
recorded assets and liabilities, net operating losses and tax
credit carryforwards. Deferred tax assets are also reduced by a
valuation allowance if it is more likely than not that a portion
of the deferred tax asset will not be realized. Management has
determined that it is more likely than not that Applieds
future taxable income will be sufficient to realize its deferred
tax assets.
The calculation of tax liabilities involves significant judgment
in estimating the impact of uncertainties in the application of
complex tax laws. Resolution of these uncertainties in a manner
inconsistent with Applieds expectations could have a
material impact on Applieds results of operations and
financial condition.
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Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Applieds investment portfolio includes fixed-income
securities with a fair value of approximately $2.0 billion
at August 1, 2010. These securities are subject to interest
rate risk and will decline in value if interest rates increase.
Based on Applieds investment portfolio at August 1,
2010, an immediate 100 basis point increase in interest
rates would result in a decrease in the fair value of the
portfolio of approximately $25 million. While an increase
in interest rates reduces the fair value of the investment
portfolio, Applied will not realize the losses in the
consolidated condensed statement of operations unless the
individual fixed-income securities are sold prior to recovery or
the loss is determined to be
other-than-temporary.
47
Certain operations of Applied are conducted in foreign
currencies. Applied enters into currency forward exchange and
option contracts to hedge a portion of, but not all, existing
and anticipated foreign currency denominated transactions
expected to occur within 24 months. Gains and losses on
these contracts are generally recognized in income at the time
that the related transactions being hedged are recognized.
Because the effect of movements in currency exchange rates on
currency forward exchange and option contracts generally offsets
the related effect on the underlying items being hedged, these
financial instruments are not expected to subject Applied to
risks that would otherwise result from changes in currency
exchange rates. Applied does not use derivative financial
instruments for trading or speculative purposes. Net foreign
currency gains and losses were not material for the three and
nine months ended August 1, 2010.
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Item 4.
|
Controls
and Procedures
|
As required by
Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended (Exchange
Act), Applieds management, including the Chief Executive
Officer and Chief Financial Officer, conducted an evaluation as
of the end of the period covered by this report, of the
effectiveness of Applieds disclosure controls and
procedures as defined in Exchange Act
Rule 13a-15(e).
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that Applieds disclosure
controls and procedures were effective as of the end of the
period covered by this report in ensuring that information
required to be disclosed in Applieds SEC reports is
(i) recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms, and
(ii) accumulated and communicated to Applieds
management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
As required by
Rule 13a-15(d),
Applieds management, including the Chief Executive Officer
and Chief Financial Officer, also conducted an evaluation of
Applieds internal control over financial reporting to
determine whether any changes occurred during the fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, Applieds internal control over
financial reporting. Based on that evaluation, there has been no
such change during the fiscal quarter.
It should be noted that any system of controls, however well
designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system will be
met. In addition, the design of any control system is based in
part upon certain assumptions about the likelihood of future
events
48
PART II.
OTHER INFORMATION
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Item 1.
|
Legal
Proceedings
|
The information set forth above under the caption Legal
Matters in Note 9 contained in Notes to Consolidated
Condensed Financial Statements is incorporated herein by
reference.
The risk factors set forth below include any material changes
to, and supersede the description of, the risk factors disclosed
in Item 1A of Applieds 2009
Form 10-K.
The
industries that Applied serves are volatile and difficult to
predict.
As a supplier to the global semiconductor, flat panel display,
solar and related industries, Applied is subject to business
cycles, the timing, length and volatility of which can be
difficult to predict and which vary by reportable segment. These
industries historically have been cyclical due to sudden changes
in customers manufacturing capacity and advanced
technology requirements and spending, which depend in part on
customers capacity utilization, production volumes,
end-use demand, and inventory levels relative to demand, as well
as the rate of technology transitions and customers access
to affordable capital. These changes have affected the timing
and amounts of customers purchases and investments in
technology, and continue to affect Applieds orders, net
sales, operating expenses and net income.
To meet rapidly changing demand in the industries it serves,
Applied must accurately forecast demand and effectively manage
its resources and production capacity for each of its segments
as well as across multiple segments. During periods of
increasing demand for its products, Applied must have sufficient
manufacturing capacity and inventory to meet customer demand;
effectively manage its supply chain; attract, retain and
motivate a sufficient number of qualified employees; and
continue to control costs. During periods of decreasing demand,
Applied must appropriately align its cost structure with
prevailing market conditions; effectively manage its supply
chain; and motivate and retain key employees. If Applied does
not timely and appropriately adapt to changes in its business
environment, Applieds business, financial condition or
results of operations may be materially and adversely affected.
Applied
is exposed to risks associated with the difficult financial
markets and uncertain global economy.
The tightening of the credit markets, disruption in the
financial markets, and global economic recession that began in
2008 contributed to significant slowdowns in the industries in
which Applied operates. Although economic and market conditions
have improved, continuing difficulties in the financial markets
and uncertainty regarding the global economic recovery are
posing challenges. The markets for semiconductors and flat panel
displays in particular depend largely on consumer spending.
Economic uncertainty exacerbates negative trends in consumer
spending and may cause certain Applied customers to push out,
cancel, or refrain from placing orders for equipment or
services, which may reduce net sales, reduce backlog, and affect
Applieds ability to convert backlog to sales. Difficulties
in obtaining capital, uncertain market conditions, or reduced
profitability may also cause some customers to scale back
operations, exit businesses, merge with other manufacturers, or
file for bankruptcy protection and potentially cease operations,
leading to customers reduced research and development
funding
and/or
capital expenditures and, in turn, lower sales
and/or
additional inventory or bad debt expense for Applied. These
conditions may also similarly affect key suppliers, which could
impair their ability to deliver parts and result in delays for
Applieds products or added costs. In addition, these
conditions may lead to strategic alliances by, or consolidation
of, other equipment manufacturers, which could adversely affect
Applieds ability to compete effectively.
Uncertainty about future economic and industry conditions also
makes it more challenging for Applied to forecast its operating
results, make business decisions, and identify the risks that
may affect its business, sources and uses of cash, financial
condition and results of operations. Applied may be required to
implement additional cost reduction efforts, including
restructuring activities,
and/or
modify its business model, which may adversely affect
Applieds ability to capitalize on opportunities in a
market recovery. In addition, Applied maintains an investment
49
portfolio that is subject to general credit, liquidity, foreign
exchange, market and interest rate risks. The risks to
Applieds investment portfolio may be exacerbated if
financial market conditions deteriorate and, as a result, the
value and liquidity of the investment portfolio could be
negatively impacted and lead to impairment charges. If Applied
does not timely and appropriately adapt to changes resulting
from the uncertain macroeconomic environment and industry
conditions, Applieds business, financial condition or
results of operations may be materially and adversely affected.
Applied
is exposed to risks as a result of ongoing changes in the
various industries in which it operates.
The global semiconductor, flat panel display, solar and related
industries in which Applied operates are characterized by
ongoing changes affecting some or all of these industries,
including:
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increasing capital requirements for building and operating new
fabrication plants and customers ability to raise the
necessary capital, particularly in a difficult financial market;
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|
differences in growth rates among the semiconductor, display and
solar industries;
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abrupt and unforeseen shifts in the nature and amount of
customer and end-user demand;
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the increasing cost and complexity for customers to move from
product design to volume manufacturing, which may slow the
adoption rate for new manufacturing technology;
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the need to reduce the total cost of manufacturing system
ownership, due in part to greater demand for lower-cost consumer
electronics as compared to business information technology
spending;
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the heightened importance to customers of system reliability and
productivity and the effect on demand for fabrication systems as
a result of their increasing productivity, device yield and
reliability;
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|
the increasing importance of, and difficulties in, developing
products with sufficient differentiation to influence
customers purchasing decisions;
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requirements for shorter cycle times for the development,
manufacture and installation of manufacturing equipment;
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|
price and performance trends for semiconductor devices, LCDs and
solar PVs, and the corresponding effect on demand for such
products;
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|
the increasing importance of the availability of spare parts to
maximize the time that customers systems are available for
production;
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|
the increasing role for and complexity of software in Applied
products; and
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|
the increasing focus on reducing energy usage and improving the
environmental impact and sustainability associated with
manufacturing operations.
|
If Applied does not successfully manage the risks resulting from
the ongoing changes in the semiconductor, flat panel display,
solar and related industries, its business, financial condition
and results of operations could be materially and adversely
affected.
Applied
is exposed to risks as a result of ongoing changes specific to
the semiconductor industry.
The greatest portion of Applieds revenues and
profitability historically has been derived from sales of
manufacturing equipment to the global semiconductor industry. In
addition, a majority of the revenues of Applied Global Services
is from sales of service products to semiconductor
manufacturers. The semiconductor industry is characterized by
ongoing changes particular to that industry in addition to the
general industry changes described in the preceding risk factor,
including:
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the increasing cost of research and development due to many
factors, including: decreasing linewidths on a chip; the use of
new materials such as cobalt and yttrium; more complex device
structures; more applications and process steps; increasing chip
design costs; and the increasing cost and complexity of an
integrated manufacturing process;
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50
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the growing number of types and varieties of semiconductors and
number of applications across multiple substrate sizes;
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|
differing market growth rates and capital requirements for
different applications, such as memory (including NAND flash and
DRAM), logic and foundry, and Applieds ability to compete
in these market segments;
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the increasing cost and complexity for semiconductor
manufacturers to move more technically advanced capability and
smaller linewidths to volume manufacturing, and the resulting
impact on the rates of technology transition and investment in
capital equipment;
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semiconductor manufacturers increasing adoption of more
productive 300mm systems in relation to 200mm system capacity,
and the resulting effect on demand for manufacturing equipment
and services;
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the decreasing rate of capital expenditures as a percentage of
semiconductor manufacturers revenue;
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customers increasing need for shorter cycle times between
order placement and product shipment;
|
|
|
|
technology developments in related markets, such as lithography,
to which Applied may need to adapt;
|
|
|
|
competitive factors that make it difficult to enhance market
position, especially in larger market segments such as etch;
|
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|
the increasing concentration of wafer starts in one country,
Korea, where Applieds service penetration and
service-revenue-per-wafer-start have been lower than in other
regions;
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|
|
the increasing fragmentation of semiconductor markets, leading
certain markets to become too small to support the cost of a new
fabrication plant, while others require less technologically
advanced products; and
|
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|
the cost, technical complexity and timing of a proposed
transition from 300mm to 450mm wafers.
|
If Applied does not successfully manage the risks resulting from
the ongoing changes occurring in the semiconductor industry, its
business, financial condition and results of operations could be
materially and adversely affected.
Applied
is exposed to risks as a result of ongoing changes specific to
the flat panel display industry.
The global flat panel display industry historically has
experienced considerable volatility in capital equipment
investment levels, due in part to the limited number of LCD
manufacturers and the concentrated nature of LCD end-use
applications. Recently, industry growth has depended to a
considerable extent on consumer demand for increasingly larger
and more advanced TVs. In addition to the general industry
changes described above in the third risk factor, the display
industry is characterized by ongoing changes particular to that
industry, including:
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|
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the planned expansion of manufacturing facilities in China by
display manufacturers based in other countries, and uncertainty
regarding their ability to obtain government approvals;
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|
technical and financial difficulties associated with
transitioning to larger substrate sizes for LCDs;
|
|
|
|
the effect of a slowing rate of transition to larger substrate
sizes on capital intensity and product differentiation;
|
|
|
|
new energy efficiency standards for large-screen LCD
TVs; and
|
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|
|
uncertainty with respect to future LCD technology end-use
applications and growth drivers.
|
If Applied does not successfully manage the risks resulting from
the ongoing changes occurring in the display industry, its
business, financial condition and results of operations could be
materially and adversely affected.
51
Applied
is exposed to risks as a result of ongoing changes specific to
the solar industry.
Applied anticipates that an increasing portion of its business
will be in the emerging solar market, which, in addition to the
general industry changes described above in the third risk
factor, is characterized by ongoing changes specific to the
solar industry, including:
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|
|
the impact on demand for solar PV products arising from the cost
of electricity generated by solar PV technology compared to the
cost of electricity from the existing grid or other energy
sources;
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|
|
|
the varying energy policies of governments around the world and
their effect in influencing the rate of growth of the solar PV
market and between certain market segments such as rooftop
(which is more suited for c-Si modules) and ground-mounted,
utility-scale (which is more suited for thin film modules),
including the availability and amount of government incentives
for solar power such as tax credits, incentives, rebates,
renewable portfolio standards that require electricity providers
to sell a targeted amount of energy from renewable sources, and
goals for solar installations on government facilities;
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|
changes in the nature and amount of end demand for solar PVs
that adversely impact the sales growth rates and profitability
of Applieds products;
|
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|
varying levels of infrastructure investment for smart
grid technologies to modernize and enhance the
transmission, distribution and use of electricity, which link
distributed solar PV sources to population centers, increase
transmission capability, and optimize power usage;
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access to affordable financing and capital by customers and
end-users; and
|
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|
|
increasingly greater global production capacity for solar PVs,
primarily in China.
|
If Applied does not successfully manage the risks resulting from
the ongoing changes occurring in the solar industry, its
business, financial condition and results of operations could be
materially and adversely affected.
Applied
must adapt its business and product offerings to respond to
competition and rapid technological changes.
As Applied operates in a highly competitive environment, its
future success depends on many factors, including the effective
commercialization and customer acceptance of its
nanomanufacturing technology equipment, service and related
products. In addition, Applied must successfully execute its
growth strategy, including enhancing market share in existing
markets, expanding into related markets, cultivating new markets
and exceeding industry growth rates, while constantly improving
its operational performance. The development, introduction and
support of a broadening set of products in more varied
competitive environments have grown increasingly complex and
expensive over time. Furthermore, new or improved products may
entail higher costs and reduced profits. Applieds
performance may be adversely affected if it does not timely,
cost-effectively and successfully:
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develop new products, improve
and/or
develop new applications for existing products, and adapt
similar products for use by customers in different applications
and/or
markets with varying technical requirements;
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appropriately price and achieve market acceptance of products;
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|
differentiate its products from those of competitors and any
disruptive technologies, meet performance specifications, and
drive efficiencies and cost reductions;
|
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|
maintain operating flexibility to enable different responses to
different markets, customers and applications;
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|
allocate resources, including people and R&D funding, among
Applieds products and between the development of new
products and the enhancement of existing products, as most
appropriate and effective for future growth;
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accurately forecast demand, work with suppliers and meet
production schedules for its products;
|
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improve its manufacturing processes and achieve cost
efficiencies across product offerings;
|
52
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adapt to changes in value offered by companies in different
parts of the supply chain;
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qualify products for volume manufacturing with its customers;
|
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implement changes in its design engineering methodology,
including those that enable reduction of material costs and
cycle time, greater commonality of platforms and types of parts
used in different systems, greater effectiveness of product life
cycle management, and reduced energy usage and environmental
impact; and
|
If Applied does not successfully manage these challenges, its
business, financial condition and results of operations could be
materially and adversely affected.
Operating
in multiple industries, and the entry into new markets and
industries, entail additional challenges.
As part of its growth strategy, Applied must successfully expand
into related or new markets and industries, either with its
existing nanomanufacturing technology products or with new
products developed internally or obtained through acquisitions.
The entry into different markets involves additional challenges,
including those arising from:
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the need to devote additional resources to develop new products
for, and operate in, new markets;
|
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|
differing rates of profitability and growth among its multiple
businesses;
|
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|
|
Applieds ability to anticipate demand, capitalize on
opportunities, and avoid or minimize risks;
|
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|
the complexity of managing multiple businesses with variations
in production planning, execution, supply chain management and
logistics;
|
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|
the adoption of new business models;
|
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the need to undertake activities to grow demand for end-products;
|
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|
the need to develop adequate new business processes and systems;
|
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|
Applieds ability to rapidly expand its operations to meet
increased demand and the associated effect on working capital;
|
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|
new materials, processes and technologies;
|
|
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|
the need to attract, motivate and retain employees with skills
and expertise in these new areas;
|
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|
|
new and more diverse customers and suppliers, including some
with limited operating histories, uncertain
and/or
limited funding, evolving business models
and/or
locations in regions where Applied does not have existing
operations;
|
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different customer service requirements;
|
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|
new and/or
different competitors with potentially more financial or other
resources and industry experience;
|
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|
entry into new industries and countries, with differing levels
of government involvement, laws and regulations, and business,
employment and safety practices;
|
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third parties intellectual property rights; and
|
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|
|
the need to comply with, or work to establish, industry
standards and practices.
|
If Applied does not successfully manage the risks resulting from
its diversification and entry into new markets and industries,
its business, financial condition and results of operations
could be materially and adversely affected.
Applied
is exposed to the risks of operating a global
business.
In the third quarter of fiscal 2010, approximately
88 percent of Applieds net sales were to customers in
regions outside the United States. Certain of Applieds
R&D
and/or
manufacturing facilities, as well as suppliers to Applied, are
also located outside the United States, including in Singapore,
Taiwan, China and Korea. Applied is
53
also expanding its business and operations in new countries. The
global nature of Applieds business and operations presents
challenges, including but not limited to those arising from:
|
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|
|
varying regional and geopolitical business conditions and
demands;
|
|
|
|
political and social attitudes, laws, rules, regulations and
policies within countries that favor domestic companies over
non-domestic companies, including customer- or
government-supported efforts to promote the development and
growth of local competitors;
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|
variations among, and changes in, local, regional, national or
international laws and regulations (including protection of
intellectual property and other legal rights, labor laws, and
tax and import /export restrictions), as well as the
interpretation and application of such laws and regulations;
|
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|
global trade issues, including those related to the
interpretation and application of import and export licenses;
|
|
|
|
positions taken by governmental agencies regarding possible
national commercial
and/or
security issues posed by international business operations;
|
|
|
|
fluctuating raw material, commodity and energy costs;
|
|
|
|
challenges associated with managing more geographically and
culturally diverse operations, projects and people;
|
|
|
|
variations in the ability to develop relationships with
suppliers and other local businesses;
|
|
|
|
fluctuations in interest rates and currency exchange rates,
including the relative strength or weakness of the
U.S. dollar and the euro;
|
|
|
|
the need to provide sufficient levels of technical support in
different locations;
|
|
|
|
political instability, natural disasters (such as earthquakes,
floods or storms), pandemics, terrorism or acts of war in
locations where Applied has operations, suppliers or sales;
|
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|
|
cultural and language differences;
|
|
|
|
shipping costs
and/or
delays;
|
|
|
|
the need to continually improve the Companys operating
cost structure;
|
|
|
|
difficulties and uncertainties associated with the entry into
new countries;
|
|
|
|
uncertainties with respect to economic growth rates in various
countries; and
|
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|
|
uncertainties with respect to growth rates for the manufacture
and sales of semiconductors, LCDs and solar PVs in the
developing economies of certain countries.
|
Many of these challenges are present in China and Korea, which
are experiencing significant growth of both suppliers and
competitors to Applied. Applied further believes that China and
Korea present large potential markets for its products and
opportunity for growth over the long term, although at lower
projected levels of profitability and margins for certain
products than historically have been achieved in other regions.
In addition, Applied must regularly reassess the size,
capability and location of its global infrastructure and make
appropriate changes, and must have effective change management
processes and procedures to address changes in its business and
operations. These challenges may materially and adversely affect
Applieds business, financial condition and results of
operations.
Applied
is exposed to risks associated with a highly concentrated
customer base.
Applieds semiconductor and flat panel display customer
bases historically have been, and are becoming even more, highly
concentrated as a result of economic and industry conditions.
Certain customers have experienced significant ownership or
management changes, consolidated with other manufacturers,
outsourced manufacturing activities, or engaged in collaboration
or cooperation arrangements with other manufacturers. In
addition,
54
customers have entered into strategic alliances or industry
consortia that have increased the influence of key industry
participants in technology decisions made by their partners.
Also, certain semiconductor and display customers are making an
increasingly greater percentage of their respective
industrys capital equipment investments.
In this environment, contracts or orders from a relatively
limited number of semiconductor and display manufacturers have
accounted for, and are expected to continue to account for, a
substantial portion of Applieds business, which may result
in added complexities in managing customer relationships and
transactions. In addition, the mix and type of customers, and
sales to any single customer, may vary significantly from
quarter to quarter and from year to year. If customers do not
place orders, or they substantially reduce, delay or cancel
orders, Applied may not be able to replace the business. As
Applieds products are configured to customer
specifications, changing, rescheduling or canceling orders may
result in significant, non-recoverable costs. Major customers
may also seek, and on occasion receive, pricing, payment,
intellectual property-related, or other commercial terms that
are less favorable to Applied. These factors could have a
material adverse effect on Applieds business, financial
condition and results of operations.
Manufacturing
interruptions or delays could affect Applieds ability to
meet customer demand, while the failure to estimate customer
demand accurately could result in excess or obsolete
inventory.
Applieds business depends on its timely supply of
equipment, services and related products that meet the rapidly
changing technical and volume requirements of its customers,
which depends in part on the timely delivery of parts,
components and subassemblies (collectively, parts) from
suppliers. Some key parts may be subject to long lead-times
and/or
obtainable only from a single supplier or limited group of
suppliers, and some sourcing or subassembly is provided by
suppliers located in countries other than the United States,
including China and Korea. Cyclical industry conditions and the
volatility of demand for manufacturing equipment increase
capital, technical, operational and other risks for companies
throughout Applieds supply chain. Further, the adverse
conditions in the credit and financial markets and industry
slowdowns in recent periods have caused, and may continue to
cause, some suppliers to scale back operations, exit businesses,
merge with other companies, or file for bankruptcy protection
and possibly cease operations, potentially affecting
Applieds ability to obtain quality parts on a timely
basis. Applied may experience significant interruptions of its
manufacturing operations, delays in its ability to deliver
products or services, increased costs or customer order
cancellations as a result of:
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|
|
the failure or inability of suppliers to timely deliver
sufficient quantities of quality parts;
|
|
|
|
volatility in the availability and cost of materials;
|
|
|
|
difficulties or delays in obtaining required import or export
approvals;
|
|
|
|
information technology or infrastructure failures;
|
|
|
|
natural disasters (such as earthquakes, floods or
storms); or
|
|
|
|
other causes (such as regional economic downturns, pandemics,
political instability, terrorism, or acts of war) that could
result in delayed deliveries, manufacturing inefficiencies,
increased costs or order cancellations.
|
In addition, Applieds need to rapidly increase its
business and manufacturing capacity to meet increases in demand
or expedited shipment schedules may exacerbate any interruptions
in Applieds manufacturing operations and supply chain and
the associated effect on Applieds working capital.
Moreover, if actual demand for Applieds products is
different than expected, Applied may purchase more/fewer parts
than necessary or incur costs for canceling, postponing or
expediting delivery of parts. If Applied purchases inventory in
anticipation of customer demand that does not materialize, or if
customers reduce or delay orders, Applied may incur excess
inventory charges. Any or all of these factors could materially
and adversely affect Applieds business, financial
condition and results of operations.
55
Applied
is exposed to risks associated with acquisitions and strategic
investments.
Applied has made, and in the future intends to make,
acquisitions of, and investments in, companies, technologies or
products in existing, related or new markets for Applied.
Acquisitions involve numerous risks, including but not limited
to:
|
|
|
|
|
diversion of managements attention from other operational
matters;
|
|
|
|
inability to complete acquisitions as anticipated or at all;
|
|
|
|
inability to realize anticipated benefits;
|
|
|
|
failure to commercialize purchased technologies;
|
|
|
|
inability to capitalize on characteristics of new markets that
may be significantly different from Applieds existing
markets and where competitors may have stronger market positions;
|
|
|
|
failure to attract, retain and motivate key employees from the
acquired business;
|
|
|
|
exposure to new operational risks, rules, regulations, customs
and practices to the extent acquired businesses are located in
countries where Applied has not historically conducted business;
|
|
|
|
challenges associated with managing new, more diverse and more
widespread operations, projects and people;
|
|
|
|
inability to obtain and protect intellectual property rights in
key technologies;
|
|
|
|
inadequacy or ineffectiveness of an acquired companys
internal financial controls, disclosure controls and procedures,
and/or
environmental, health & safety, human resource, or
other policies or practices;
|
|
|
|
impairment of acquired intangible assets and goodwill as a
result of changing business conditions, technological
advancements or
worse-than-expected
performance of the segment;
|
|
|
|
the risk of litigation or disputes with customers, suppliers,
partners or stockholders of an acquisition target arising from a
proposed or completed transaction;
|
|
|
|
unknown, underestimated
and/or
undisclosed commitments or liabilities;
|
|
|
|
inappropriate scale of acquired entities critical
resources or facilities for business needs; and
|
|
|
|
ineffective integration of operations, systems, technologies,
products or employees of an acquired business.
|
Applied also makes strategic investments in other companies,
including companies formed as joint ventures, which may decline
in value
and/or not
meet desired objectives. The success of these investments
depends on various factors over which Applied may have limited
or no control and, particularly with respect to joint ventures,
requires ongoing and effective cooperation with strategic
partners. The risks to Applieds strategic investment
portfolio may be exacerbated by unfavorable financial market and
macroeconomic conditions and, as a result, the value of the
investment portfolio could be negatively impacted and lead to
impairment charges. Mergers and acquisitions and strategic
investments are inherently subject to significant risks, and the
inability to effectively manage these risks could materially and
adversely affect Applieds business, financial condition
and results of operations. If Applied does not successfully
manage the risks associated with acquisitions and strategic
investments, its business, financial condition and results of
operations could be materially and adversely affected.
Applied
may incur impairment charges to goodwill or long-lived
assets.
Applied has a significant amount of goodwill and other acquired
intangible assets related to acquisitions. Goodwill and
purchased intangible assets with indefinite useful lives are not
amortized, but are reviewed for impairment annually during the
fourth quarter of each fiscal year, and more frequently when
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. The review compares
the fair value for each of Applieds reporting units to its
associated carrying value, including goodwill. Factors that
could lead to impairment of goodwill and intangible assets
include adverse industry or economic trends, reduced estimates
of future cash flows, declines in the market price of Applied
common stock, changes in the companys
56
strategies or product portfolio, and restructuring activities.
Applieds valuation methodology for assessing impairment
requires management to make judgments and assumptions based on
historical experience and projections of future operating
performance. Applied may be required to record a charge to
earnings during the period in which an impairment of goodwill or
amortizable intangible assets is determined to exist, which
could materially and adversely affect Applieds results of
operations.
The
ability to attract, retain and motivate key employees is vital
to Applieds success.
Applieds success and competitiveness depend in large part
on its ability to attract, retain and motivate key employees.
Achieving this objective may be difficult due to many factors,
including fluctuations in global economic and industry
conditions, changes in Applieds management or leadership,
competitors hiring practices, cost reduction activities
(including workforce reductions), and the effectiveness of
Applieds compensation and benefit programs, including its
equity-based programs. Applied periodically evaluates its
overall compensation program and makes adjustments, as
appropriate, to enhance its competitiveness. If Applied does not
successfully attract, retain and motivate key employees, Applied
may be unable to capitalize on its opportunities and its
operating results may be materially and adversely affected.
The
failure to successfully implement and conduct off-shoring and
outsourcing activities and other operational initiatives could
adversely affect results of operations.
To better align its costs with market conditions, increase its
presence in growing markets, enhance productivity, and improve
efficiencies, Applied conducts engineering, software
development, manufacturing, sourcing and other operations in
regions outside the United States, including India, China, and
Korea. Applied is implementing a more distributed manufacturing
model, which includes transitioning certain manufacturing
activities from the United States to Singapore and Taiwan and
completing assembly of some systems at the customer site. In
addition, Applied outsources certain functions to third parties,
including companies in the United States, India, China, Korea
and other countries. Outsourced functions include engineering,
manufacturing, customer support, software development,
information technology support, finance and administrative
activities. The expanding role of third party providers has
required changes to Applieds existing operations and the
adoption of new procedures and processes for retaining and
managing these providers, as well as redistributing
responsibilities as warranted, in order to realize the potential
productivity and operational efficiencies, assure quality and
continuity of supply, and protect Applieds intellectual
property. If contract manufacturers or other outsource providers
fail to perform in a timely manner or at satisfactory quality
levels, Applieds ability to meet customer requirements
could suffer, particularly during a market upturn.
In addition, Applied is implementing a comprehensive program to
better align its global organizations and processes, including
initiatives to enhance the Asia supply chain, integrate its
sales teams into the business units, and improve back office and
information technology infrastructure for more efficient
transaction processing. Applied also is implementing a
multi-year, company-wide program to transform certain business
processes, including the transition to a single enterprise
resource planning (ERP) software system to perform various
functions. The implementation of additional functionality to the
ERP system entails certain risks, including difficulties with
changes in business processes that could disrupt Applieds
operations, such as its ability to track orders and timely ship
products, project inventory requirements, manage its supply
chain and aggregate financial and operational data. The
implementation of new initiatives may not achieve the
anticipated benefits and may divert managements attention
from other operational activities, negatively affect employee
morale, or have other unintended consequences.
If Applied does not effectively develop and implement its
off-shoring and outsourcing strategies, if required export and
other governmental approvals are not timely obtained, if
Applieds third party providers do not perform as
anticipated, or if there are delays or difficulties in enhancing
business processes, Applied may not realize anticipated
productivity improvements or cost efficiencies, and may
experience operational difficulties, increased costs (including
energy and transportation), manufacturing interruptions or
delays, inefficiencies in the structure
and/or
operation of its supply chain, loss of its intellectual property
rights, quality issues, increased product
time-to-market,
and/or
inefficient allocation of human resources, any or all of which
could materially and adversely affect Applieds business,
financial condition and results of operations.
57
Applied
is exposed to various risks related to legal proceedings or
claims and protection of intellectual property
rights.
Applied from time to time is, and in the future may be, involved
in legal proceedings or claims regarding patent infringement,
intellectual property rights, antitrust, environmental
regulations, securities, contracts, product performance, product
liability, unfair competition, misappropriation of trade
secrets, employment, workplace safety, and other matters.
Applied also on occasion receives notification from customers
who believe that Applied owes them indemnification or other
obligations related to claims made against such customers by
third parties. In February 2010, the Seoul Prosecutors
Office for the Eastern District in Korea indicted certain
employees of Applied Materials Korea (AMK), including the former
head of AMK who at the time of indictment was a vice president
of Applied Materials, Inc., along with employees of several
other companies, alleging the improper receipt and use of the
confidential information of a major customer. Hearings on these
matters are ongoing in the Seoul Eastern District Court. Applied
is investigating the allegations and underlying circumstances.
Applied is also discussing these matters and potential
consequences with the major customer. There is a risk that these
matters may lead to other claims. Applied currently is unable to
determine what impact these matters may have on Applieds
business. The magnitude of the impact on Applieds business
will depend on many factors, including the outcome of the court
proceedings and the discussions with the customer.
Legal proceedings and claims, whether with or without merit, and
associated internal investigations, may (1) be
time-consuming and expensive to prosecute, defend or conduct;
(2) divert managements attention and other Applied
resources; (3) inhibit Applieds ability to sell its
products; (4) result in adverse judgments for damages,
injunctive relief, penalties and fines;
and/or
(5) negatively affect Applieds business. There can be
no assurance regarding the outcome of current or future legal
proceedings, claims or investigations. If Applied is not able to
favorably resolve or settle legal proceedings or claims, or in
the event of any adverse findings against Applied or any of its
employees, Applieds business, financial condition and
results of operations could be materially and adversely affected
and Applied may suffer harm to its reputation.
Applieds success depends in significant part on the
protection of its intellectual property and other rights.
Infringement of Applieds rights by a third party, such as
the unauthorized manufacture or sale of equipment or spare
parts, could result in uncompensated lost market and revenue
opportunities for Applied. Applieds intellectual property
rights may not provide significant competitive advantages if
they are circumvented, invalidated, rendered obsolete by the
rapid pace of technological change, or if Applied does not
adequately protect or assert these rights. Furthermore, the laws
and practices of other countries, including China, India, Taiwan
and Korea, permit the protection and enforcement of
Applieds rights to varying extents, which may not be
sufficient to protect Applieds rights. Applied previously
entered into an arrangement with one of its competitors to
decrease the risk of patent infringement lawsuits in the future.
There can be no assurance that the intended results of this
arrangement will be achieved or that Applied will be able to
adequately protect its intellectual property rights with the
restrictions associated with the arrangement. If Applied is not
able to favorably resolve or settle claims, obtain or enforce
intellectual property rights, obtain necessary licenses on
commercially reasonable terms,
and/or
successfully prosecute or defend its intellectual property
position, Applieds business, financial condition and
results of operations could be materially and adversely affected
and Applied may suffer harm to its reputation.
Changes
in tax rates or tax assets and liabilities could affect results
of operations.
As a global company, Applied is subject to taxation in the
United States and various other countries. Significant judgment
is required to determine and estimate worldwide tax liabilities.
Applieds future annual and quarterly tax rates could be
affected by numerous factors, including changes in the:
(1) applicable tax laws; (2) amount and composition of
pre-tax income in countries with differing tax rates; or
(3) valuation of Applieds deferred tax assets and
liabilities.
In addition, Applied is subject to regular examination by the
Internal Revenue Service and other tax authorities, and from
time to time initiates amendments to previously filed tax
returns. Applied regularly assesses the likelihood of favorable
or unfavorable outcomes resulting from these examinations and
amendments to determine the adequacy of its provision for income
taxes, which requires estimates and judgments. Although Applied
believes its tax estimates are reasonable, there can be no
assurance that the tax authorities will agree with
58
such estimates. Applied may have to engage in litigation to
achieve the results reflected in the estimates, which may be
time-consuming and expensive. There can be no assurance that
Applied will be successful or that any final determination will
not be materially different from the treatment reflected in
Applieds historical income tax provisions and accruals,
which could materially and adversely affect Applieds
financial condition and results of operations.
Applied
is subject to risks of non-compliance with environmental and
safety regulations.
Applied is subject to environmental and safety regulations in
connection with its global business operations, including but
not limited to: regulations related to the development,
manufacture and use of its products; recycling and disposal of
materials used in its products or in producing its products; the
operation of its facilities; and the use of its real property.
The failure or inability to comply with existing or future
environmental and safety regulations, such as those related to
climate change, could result in: (1) significant
remediation liabilities; (2) the imposition of fines;
(3) the suspension or termination of the development,
manufacture, sale or use of certain of its products;
(4) limitations on the operation of its facilities or
ability to use its real property;
and/or
(5) a decrease in the value of its real property, each of
which could have a material adverse effect on Applieds
business, financial condition and results of operations.
Applied
is exposed to various risks related to the regulatory
environment.
Applied is subject to various risks related to: (1) new,
different, inconsistent or even conflicting laws, rules and
regulations that may be enacted by legislative bodies
and/or
regulatory agencies in the countries in which Applied operates;
(2) disagreements or disputes between national or regional
regulatory agencies related to international trade; and
(3) the interpretation and application of laws, rules and
regulations. If Applied is found by a court or regulatory agency
not to be in compliance with applicable laws, rules or
regulations, Applieds business, financial condition and
results of operations could be materially and adversely affected.
Applied
is subject to internal control evaluations and attestation
requirements of Section 404 of the Sarbanes-Oxley
Act.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
Applied must include in its Annual Report on
Form 10-K
a report of management on the effectiveness of Applieds
internal control over financial reporting. Ongoing compliance
with this requirement is complex, costly and time-consuming. If
Applied fails to maintain effective internal control over
financial reporting or Applieds management does not timely
assess the adequacy of such internal control, Applied could be
subject to regulatory sanctions and the publics perception
of Applied may decline.
59
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The following table provides information as of August 1,
2010 with respect to the shares of common stock repurchased by
Applied during the third quarter of fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Value of Shares
|
|
|
|
|
|
|
Average
|
|
|
Shares Purchased as
|
|
|
That May Yet be
|
|
|
|
Total Number of
|
|
|
Price Paid
|
|
|
Part of Publicly
|
|
|
Purchased Under
|
|
Period
|
|
Shares Purchased
|
|
|
per Share
|
|
|
Announced Program*
|
|
|
the Program*
|
|
|
|
(Shares in thousands)
|
|
|
|
|
|
(Shares in thousands)
|
|
|
(Dollars in millions)
|
|
|
Month #1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(May 3, 2010 to
May 30, 2010)
|
|
|
1,433
|
|
|
$
|
12.89
|
|
|
|
1,433
|
|
|
$
|
1,882
|
|
Month #2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(May 31, 2010 to
June 27, 2010)
|
|
|
3,259
|
|
|
$
|
12.88
|
|
|
|
3,259
|
|
|
$
|
1,840
|
|
Month #3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(June 28, 2010 to
August 1, 2010)
|
|
|
3,215
|
|
|
$
|
12.30
|
|
|
|
3,215
|
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,907
|
|
|
$
|
12.65
|
|
|
|
7,907
|
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
On March 8, 2010, the Board of Directors approved a stock
repurchase program for up to $2.0 billion in repurchases
over the next three years, ending March 2013. |
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None.
|
|
Item 5.
|
Other
Information
|
None.
60
Exhibits are numbered in accordance with the Exhibit Table
of Item 601 of
Regulation S-K:
|
|
|
|
|
Exhibit
|
|
|
No
|
|
Description
|
|
|
10
|
.73
|
|
Retirement Agreement and Release between Applied Materials, Inc.
and Franz Janker dated July 10, 2010
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
61