Applied Materials
Annual Report 2023

Plain-text annual report

2023 annual report FOLLOW US ONLINE AT: WEBSITE: APPLIEDMATERIALS.COM BLOG: BLOG.APPLIEDMATERIALS.COM APPLIED VENTURES, LLC: APPLIEDVENTURES.COM Dear Fellow Share hol ders, Applied Materials delivered record revenue, earnings and cash flow in fiscal 2023 and is outgrowing the wafer fabrication equipment market for the fifth consecutive year. This record performance is underpinned by the strength and breadth of our product portfolio as well as the central role we play in enabling major industry inflections. We have leadership positions in the key transistor, wiring and heterogeneous integration technologies that are critical to our customers’ roadmaps and shaping the future of the semiconductor industry. At no time in our history have we been closer to our customers, and we are taking steps to create even greater levels of collaboration that enable Applied and our partners to ‘innovate the way we innovate’. In May, we announced our new Equipment and Process Innovation and Commercialization (EPIC) Center in Silicon Valley which will be the heart of a high-velocity innovation platform designed to accelerate development and commercialization of next-generation technologies. Working collaboratively is also key to reducing the semiconductor supply chain’s carbon emissions, and we are expanding our sustainability programs and partnerships as detailed in the Applied Materials Net Zero 2040 Playbook that we launched in July. POSITIONED FOR SUSTAINABLE OUTPERFORMANCE Across the company, we are in a great position to enable our customers’ success and profitably grow Applied Materials as the next era of industry expansion takes shape. Our growth thesis has four key components. First, we believe that semiconductors will outgrow GDP as the digital transformation of the global economy progresses. Second, we expect the market for wafer fab equipment to grow as fast, or faster, than the market for semiconductors. This is because the industry roadmap is becoming more complex and chipmakers need to deploy more technology to move from one generation of chips to the next. Third, we believe that Applied will outperform the wafer fab equipment market because the key technology inflections are enabled by materials engineering, where Applied has the broadest and most connected portfolio of solutions. And fourth, we believe we can grow our service business as fast, or faster, than our equipment business by providing customers with advanced service solutions that accelerate technology transfer from R&D to high-volume manufacturing and optimize device performance, yield and cost in their fabs. In March, we signaled our confidence in our growth thesis by increasing Applied’s quarterly dividend by 23.1 percent, our largest increase in five years, and supplementing our share buyback program with a new $10 billion repurchase authorization. LEADERSHIP IN HOW CHIPS ARE MADE Semiconductors are more strategically important to the world than at any time in history. Everything that generates, transmits, stores, displays or processes data requires chips. But the world doesn’t just need more chips, it needs better chips that are faster, smaller, use less power and are even more affordable. Semiconductor leadership is about ‘where chips are made’ and, more importantly, ‘how chips are made’ – the foundational technologies that define the next generation of semiconductors. In May, we convened senior-level government officials along with global industry executives from semiconductor design, manufacturing and equipment companies, as well as academic leaders from top engineering universities to explore new collaboration opportunities. The gathering took place at the future site of Applied’s EPIC Center, which will become the world’s largest and most advanced facility for collaborative semiconductor process technology and manufacturing equipment R&D. Our aim with the EPIC Center is to reduce the time it takes the industry to bring new technology from concept to commercialization, while simultaneously increasing the commercial success rate of new innovations and the return on R&D investments for the entire semiconductor ecosystem. Over the past 12 months, we launched exciting new products and secured customer wins in key technology areas including Gate-All-Around transistors, backside power delivery, patterning, advanced DRAM and a p p l i e d m at e r i a l s 2 0 2 3 a n n u a l r e p o r t high-bandwidth memory, and heterogeneous integration. Among the innovative products introduced in 2023 was the Centura™ Sculpta™ system featuring a breakthrough pattern-shaping technology that allows chipmakers to create high-performance transistors and interconnect wiring with fewer EUV lithography steps, thereby lowering the cost, complexity and environmental impact of advanced chipmaking. We also introduced the Vistara™ platform which is purpose-built to help customers meet sustainability goals by reducing fab energy, chemicals and cleanroom footprint requirements. Along with these innovations, we broadened our ICAPS business which serves the Internet of Things (IoT), communications, auto, power and sensor customers with new products and application wins. A COLLABORATIVE PATHWAY TO NET ZERO We are also driving a collaborative approach to reduce carbon emissions as the industry grows. For Applied, 99 percent of our carbon emissions are Scope 3, meaning they are generated upstream and downstream in our value chain. As a result, our path to Net Zero depends heavily on close partnerships with our customers and supply chain. Applied’s Net Zero 2040 Playbook provides a comprehensive framework for doing this. Since launching the Playbook, Applied’s Scope 1, 2 and 3 emissions reduction targets have received validation from the Science Based Targets initiative (SBTi). By setting a 1.5°C-aligned target, currently the most ambitious designation available through the SBTi process, Applied is aligning its emissions reduction program to the latest climate science, and we will report our progress annually. In 2023, we furthered our commitment to upholding a culture of inclusion rooted in the belief that a workforce representing different perspectives, backgrounds and experiences is essential to delivering world-class innovations. Over the past year, we worked to instill best practices across the company, made progress towards our goals, and set new 2030 targets to further increase the representation of women globally and underrepresented minorities in our U.S. workforce. Looking ahead, we see a bright future for the semiconductor industry and for Applied Materials. Chips are essential to the digital transformation of the global economy, and as the IoT-AI era takes shape, it’s driving a new wave of growth for semiconductors. By identifying major industry inflections early and making strategic multiyear investments in our product portfolio and capabilities, Applied is best positioned to benefit from this exciting period of industry innovation and growth. We are changing the collaboration model with our customers and ecosystem partners to help the semiconductor industry overcome increasingly complex challenges to how chips are made and to bring game-changing new technology to the world faster. Sincerely, Thomas J. Iannotti Chairman of the Board December 31, 2023 Gary E. Dickerson President and Chief Executive Officer a p p l i e d m at e r i a l s 2 0 2 3 a n n u a l r e p o r t This Annual Report contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks and demand drivers, technology transitions, our business and financial performance and market share positions, our capital allocation and cash deployment strategies, our investment and growth strategies, our development of new products and technologies, our business outlook, and other statements that are not historical facts. Factors that could cause actual results to differ materially from those expressed or implied by such statements are set forth in the “Risk Factors” section of, and elsewhere, in our 2023 Annual Report on Form 10-K included in this report and other filings with the Securities and Exchange Commission. All forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof, and Applied Materials undertakes no obligation to update any such statements. S H A R E H O L D E R S ’ I N F O R M AT I O N INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP Santa Clara, California NUMBER OF REGISTERED SHAREHOLDERS 2,755 (as of December 8, 2023) STOCK LISTING Applied Materials, Inc. is traded on The Nasdaq Global Select Market® Nasdaq Symbol: AMAT TRANSFER AGENT Mail correspondence to: Computershare Trust Company, N.A. Stockholder Services P.O. Box 43078 Providence, RI 02940-3078 Send overnight correspondence to: Computershare 150 Royall St., Suite 101 Canton, MA 02021 Online inquiries: www-us.computershare.com/investor/Contact Tel: (312) 360–5186 or (877) 388–5186 Fax: (312) 601–4348 INVESTOR CONTACT Investor Relations Applied Materials, Inc. 3050 Bowers Avenue P.O. Box 58039, M/S 1261 Santa Clara, California 95054-3229 Tel: (408) 748–5227 Fax: (408) 986–2862 Email: investor_relations@amat.com CORPORATE HEADQUARTERS Applied Materials, Inc. 3050 Bowers Avenue Santa Clara, California 95054–3299 MAILING ADDRESS AND TELEPHONE Applied Materials, Inc. 3050 Bowers Avenue P.O. Box 58039 Santa Clara, California 95054–3299 Tel: (408) 727–5555 CORPORATE WEB SITE Additional information can be found at www.appliedmaterials.com a p p l i e d m at e r i a l s 2 0 2 3 a n n u a l r e p o r t UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark one) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 29, 2023 or ☐ TRANSRR ITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-06920 Applied Materials, Inc. EE (Exact name of regie stii rat nt as specifiei d in itstt charter) SS (State or other jurisdiction of incorporation or organizaii tion) Delaware 94-1655526 (I.R.S. Emplm oyer Idendd tifici ation No.) 3050 Bowers Avenue, P.O. Box 58039, Santa Clara, California (Address of principal i executive officff es)s 95052-8039 (ZipZZ Code) nt’s telephone numbe ii Regie stra Securities registered pursuant to Section 12(b) of the Act: r, including area code: (408) 727-5555 e Title of Each Class Common Stock, par value $.01 per share Trading Symbol AMAT Name of Each Exchange on Which Registered The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ 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 subju ect to such filing requirements for the past 90 days. Yes ☑ Indicate by check mark whether the registrant has submu 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 submu Interactive Data File required to be submu itted electronically everyr itted pursuant to Rule No ☐ No ☑ No ☐ it). Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☑ Accelerated filer ☐ Smaller reporting company ☐ Non-accelerated filer ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effeff ctiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ Aggregate market value of the voting stock held by non-affiff liates of the registrant as of April 30, 2023, based upon the closing sale price reported by the NASDAQ Global Select Market on that date: $94,685,528,382 Number of shares outstanding of the registrant’s Common Stock, $0.01 par value, as of December 8, 2023: 831,067,105 No ☑ ☑ Portions of Part III will be provided in accordance with Instruction G(3) to Form 10-K no later than February 26, 2024. DOCUMENTS INCORPORATRR ED BY REFERENCE: Caution Regarding Forward-Looking Statements This Annual Report on Form 10-K of Applied Materials, Inc. and its subsu idiaries, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements that involve a number of risks and uncertainties. As used herein, the terms “we,” “us,” and “our” refer to Applied Materials, Inc. and its subsu idiaries. u chain, manufacff ing and severance activities, backlog, working capia tal, liquidity, investment portfolff This report contains forward-looking statements that involve a number of risks and uncertainties. Examples of forward- looking statements include those regarding our future financial or operating results, customer demand and spending, end-user demand, our and market and industryrr trends and outlooks, cash flows and cash deployment strategies, declaration of dividends, share repurchases, business strategies and priorities, costs and cost controls, products, competitive positions, management’s plans and objectives for future operations, research and development, acquisitions, investments and divestitures, growth opportunities, restructurt io and policies, taxes, supply turing, properties, legal matters, claims and proceedings, and other statements that are not historical facts, as well as their underlying assumptions. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” and “continue,” the negative of these terms, or other comparable terminology. All forward-looking statements are subju ect to risks and uncertainties and other important factors, including those discussed in Part I, Item 1A, “Risk Factors,” below and elsewhere in this report. These and many other factors could affeff ct our future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by us or on our behalf.ff Forward-looking statements are based on management’s estimates, projections and expectations as of the date hereof, and we undertake no obligation to revise or update any such statements. The following information should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in this report. 2 APPLIED MATERIALS, INC. FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 29, 2023 TABLE OF CONTENTS Business Item 1: Item 1A: Risk Factors Item 1B: Unresolved Staff Comments Item 2: Item 3: Item 4: Mine Safety Disclosures Properties Legal Proceedings PART I PART II Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities [Reserved] Item 6: Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A: Quantitative and Qualitative Disclosures About Market Risk Item 8: Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9: Item 9A: Controls and Procedures Item 9B: Other Information Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10: Directors, Executive Officers and Corporate Governance Item 11: Executive Compensation Item 12: Item 13: Certain Relationships and Related Transactions, and Director Independence Item 14: Principal Accounting Fees and Services Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 15: Exhibits, Financial Statement Schedules em 16: Form 10-K Summary Signatures PART IV 3 Page 4 16 29 30 31 31 32 33 34 50 50 50 51 51 51 52 52 53 54 54 55 55 102 Item 1: Busineii ss PART I a Incorporated in 1967, Applied Materials, Inc. (Applied, we, us and our) is a Delaware corporation. A global company turing equipment, services and software to the lities, we deliver products and services that turers of semiconductor chips, liquid tal and organic light-emitting diode (OLED) displays, and other electronic devices. These customers may use what they ture in their own end products or sell the items to other companies for use in electronic products. Our fiscal year ends with a broad set of capabi semiconductor, display and related industries. With our diverse technology capabi improve device performance, power, yield and cost. Our customers include manufacff crysrr manufacff on the last Sunday in October. lities in materials engineering, we provide manufacff a We operate in three reportabla e segments: Semiconductor Systems, Applied Global Services, and Display and Adjad cent Markets. A summary of financial information for each reportabla e segment is found in Note 16 of Notes to Consolidated Financial Statements. A discussion of factors that could affeff ct operations is set forth under “Risk Factors” in Item 1A, which is incorporated herein by reference. Semiconductortt s Systemtt tures and sells a wide range of manufacff Our Semiconductor Systems segment develops, manufacff turing equipment used to fabra icate semiconductor chips, also referred to as integrated circuits (ICs). The Semiconductor Systems segment includes of patterns into device semiconductor capital equipment used for many steps of the chip making process including the transferff structurt es, transistor and interconnect fabra ication, metrology, inspection and review, and packaging technologies for connecting finished IC die. Our patterning systems and technologies address challenges resulting from shrinking pattern dimensions and the growing complexity in vertical stacking found in today’s most advanced semiconductor devices. Our transistor and interconnect producd ts and technologies enable continued power and performance improvements of 3D transistors. Our metrology, inspection and review systems’ imaging capabilities and algorithms employ optical and e-beam technologies to meet the most advanced technical demands in areas including self-aff ligned double and quad patterning, extreme ultraviolet layers, measurement-intensive optimal proximity correction mask qualificff ation, and new 3D architecturt es. Our packaging technologies address challenges resulting from the increasing heterogeneous integration of multiple IC dies in a single package. We deliver leading-edge capabia lities that enable chipmakers to establa ish accurate statistical process control, ramp up production runs rapidly, ing equipment that helps improve a performance, power, yield and cost of semiconductor devices that use mature process technologies and serve specialty markets such as the Internet of Things, Communications, Automotive, Power and Sensors. Our Semiconductor Systems equipment is sold to integrated device manufact and achieve consistently high production yields. We also provide manufact urt ers and foundries worldwide. urt ff ff 4 Semiconductor Systems Technologies Epitaxy Epitaxy (or epi) is a technique for growing silicon (e.g. silicon with another element) as a uniform crysrr talline structurt e on a wafer to form high quality material for the device circuity. Epi technology is used in device transistors to enhance chip speed. Ion Implant Ion implantation is a key technology for forming transistors and is used many times during chip fabra ication. During ion implantation, wafers are bombarded by a beam of electrically-charged ions, called dopants, which can change the electrical properties of the exposed semiconductor material. Oxidation/Nitridation These systems provide critical oxidation steps - like memory gate oxide, shallow trench isolation and liner oxide - for advanced device scaling. Rapid Thermal Processing (RTP) RTP is used primarily for annealing, which modifies the properties of deposited films. Single-wafer RTP systems are also used for growing high-quality oxide and oxynitride films. Product(s) Centura RP Epi VIISta Systems Vantage, Radiance and Centura Systems Vantage Systems Physical Vapor Deposition (PVD) PVD is used to deposit high quality metal films. Applications include metal gate, silicides, contact liner/brr arrier, interconnect copper barrier seed and metal hard mask. Chemical Vapor Deposition (CVD) CVD is used to deposit dielectric and metal films on a wafer. During the CVD process, gases that contain atoms of the material to be deposited react on the wafer surface, forming a thin film of solid material. Chemical Mechanical Planarization (CMP) Endura, Charger and Axcela Systems Endura, Centura and Producer Systems Reflexion and Mirra Systems CMP is used to planarize a wafer surface, a process that allows subsu equent photolithography patterning and material deposition steps to occur with greater accuracy, resulting in more uniform film la yers with minimal thickness variations. ff Electrochemical Deposition (ECD) Raider and Nokota Platforms ECD is a process by which metal atoms from a chemical fluid (an electrolyte) are deposited on the surfaceff of an immersed object. Atomic Layer Deposition (ALD) ALD technology enables ultra thin film growth of either a conducting or insulating material with uniform coverage in nanometer-sized structurt es. Etch ff Etching is used many times throughout the IC manufact remove material from the surface of a wafer. We offer metal, and silicon films to meet the requirements of advanced processing. Selective Processing (Deposition and Removal) urt ff ing process to selectively systems for etching dielectric, Selective processing uses specially co-designed chemical and materials interactions to enable delicate and precise deposition and removal of target materials. Metrology and Inspection Metrology and inspection tools are used to locate, measure, and analyze defects and featurt es on the wafer during various stages of the fabra ication processes. We enable customers to characterize and control critical dimension (CD) and defect issues, especially at advanced generation technology nodes. 5 Olympia, Sprinter, Morpher and P-300BV Systems Centris, Centura, Producd er and Vistara Systems Endura and Producer Systems SEMVision eBeam Review PROVision eBeam Metrology PrimeVision eBeam Inspection Enlight Optical Inspection UVision Optical Inspection VeritySEM CD-SEM Metrology Aera Mask Inspection Applpp iell d Globall l Services The Applied Global Services® (AGS) segment provides integrated solutions to optimize equipment and fab pe rformance tured earlier generation equipment and factory automation and productivity, including spares, upgrades, services, remanufacff software for semiconductor, display and other products. Customer demand for products and services is fulfilled through a global distribution system in more than 195 locations and trained service engineers located in close proximity to customer sites to suppor the u following general types of services and products under the Applied Global Services segment. t over 52,000 installed Applied semiconductor, display and other manufact ing systems worldwide. We offer urt a ff ff AGS Solutions and Technology Technology-Enabled Services® A comprehensive service product portfolff order to optimize customer factory pr Fab Consulting rr oducd tivity. io that combines service technology and tool specific performance commitments in Experts using advanced analytical tools to solve production problems that have the greatest impact on customer faba productivity. Supply Chain Assurance Programs Spare parts product portfolff Subfabff Equipment ff io offer s options to balance inventory, cost and risk to effiff ciently meet faba requirements. These solutions lower costs, save energy, reduce environmental impact, and meet Environmental Protection Agency reporting regulations for greenhouse gas emissions. Legacy Equipment and Upgrades ime. Our 200mm equipment suppor Comprehensive 200mm equipment and upgrades portfolff lifetff analog, power, and MEMS. Automation Software u of production needs and extend tool ts market inflections and new technology for a broad variety of devices including io to address a full spectrumrr Our SmartFactory® automation software portfolff equipment and people) to provide competitive advantage to customers. io coordinates and streamlines everyrr aspect of a factory (the processes, 6 Dispii laya and Adjadd cent Markets The Display and Adjad cent Markets segment is comprised primarily of products for manufacff tal displays rsonal computers (LCDs), organic light-emitting diodes (OLEDs), and other display technologies for TVs, monitors, laptops, pe (PCs), electronic tabla ets, smart phones, and other consumer-oriented devices. While similarities exist between the technologies utilized in semiconductor and display fabra ication, the most significant differences are in the size and composition of the subsu trate. Subsu trates used to manufacff ture display panels and other devices are typically glass, although newer flexible materials are entering the market. Display and Adjad cent Markets segment growth depends primarily on consumer demand for increasingly larger and more advanced TVs and high-resolution displays for mobile devices as well as new form factors, l reality. In addition to including thin, light, curved and flexible displays, and new applications such as augmented and virtuatt display applications, the segment’s Chemical Vapoa urt e solar energy cells. r Deposition (CVD) technology is used to manufact The Display and Adjad cent Markets segment offers a variety of technologies and products, including: turing liquid crysrr a ff ff Product(s) Electron Beam Array Tester Electron Beam Review (EBR) AKT PECVD Systems AKT Aristo and PiVot Systems Display and Adjad cent Markets Technologies Array Test a imize equipment utilization, and monitor manufact LCD display subsu trates are inspected at many stages of production to maximize yield, minimize scrap, opt ing processes. At the completion of the array stage, the performance of the millions of individual pixels on each display is tested. Defect Review urt ff Defects are identified during inspection steps and reviewed by a scanning electron microscope and other analyses to determine defect root cause and composition. Chemical Vapor Deposition (CVD) During CVD processing, gases containing atoms or molecules are introduced into the process chamber. The gases form reactive radicals or ions, which undergo chemical reactions to form thin films on the heated subsu trate. Physical Vapor Deposition (PVD) transparent conductors and PVD is used to deposit high quality films of metals, alloys, semiconductors. In Display, these films are used for contact, interconnect, transparent electrodes and transistor materials in TFT-LCD and OLED display backplkk anes, as well as for transparent electrodes in color filters and touch panels. 7 Backlog We manufacff ture systems to meet demand represented by order backlog and customer commitments. Backlog consisted (1) orders for which written authorizations have been accepted, or shipment has occurred but revenue has not been of:ff recognized; and (2) contractuat l service revenue and maintenance fees. Backlog by reportabla e segment as of October 29, 2023 and October 30, 2022 was as follows: Semiconductor Systems Applied Global Services Display and Adjad cent Markets Corporate and Other Total 2023 2022 (In millions, except percentages) $ $ 11,127 5,162 833 49 17,171 65 % $ 30 % 5 % — % 100 $% 12,691 5,643 581 96 19,011 67 % 30 % 3 % — % 100 % Of the total backlog as of October 29, 2023, approximately 30% is not reasonablya expected to be filled within the next 12 months. Our backlog on any particular date is not necessarily indicative of actual sales for any future periods, due to the potential for customer changes such as new orders or cancellations. Customers may delay delivery of products or cancel orders prior to shipment, subju ect to possible cancellation penalties. Delays in deliveryrr schedules or a reduction of backlog during any particular period could have a material adverse effeff ct on our business and results of operations. Manufacff turing, Raw Materials and Supplies Our worldwide manufacff turing activities consist primarily of assembly, integration and test of various proprietary and ing chain activities are conducted in various countries, primarily including China, Korea, Singapore, Taiwan, the United States and other countries in Asia and Europe. We use qualified vendors, chain strategy commits to adhere to actices, responsible minerals sourcing, Responsible Business Alliance and SEMI guidelines, and the Applied commercial parts, components and subau ssemblies that are used to manufact turing and supply model under which manufacff Israel, Japan, including contract manufact ethical labor pr a Materials Standards of Business Conduct as defined in our Environmental, Social and Governance (ESG) commitment. urt e systems. We utilize a distributed manufact rts, services and product suppor urt ers, to supply pa t. Our supply urt u u u u a ff ff ff Although we make reasonable effort ff s to assure that parts are availabla e from multiple qualified supplu always possible. Accordingly, some key parts may be obtained from only a qualified single supplu qualified supplu ff qualifying of parts; qualifying ne w parts on a timely basis; and ensuring quality and performance of parts. iers. We seek to reduce costs and to lower the risks of manufact rts; monitoring the financial condition of key supplu alternate supplu ff iers for pa urt ff ff iers, this is not ier or a limited group of ing and service interruptu ions by selecting and iers; maintaining appropriate inventories Research, Development and Engineering Our long-term growth strategy requires continued development of new materials engineering capabi lities, including products and platforms that enable expansion into new and adjad cent markets. Our significant investments in research, development and engineering (RD&E) must generally enable us to deliver new products and technologies before the emergence of strong demand, thus allowing customers to incorporate these products into their manufacff turing plans during early-stage technology selection. We work closely with our global customers and ecosystem partners to design systems and processes that meet planned technical and production requirements. a Our product development and engineering organizations are located primarily in the United States, as well as in China, t and Europe, India, Israel, Korea, Singapore and Taiwan. In addition, certain outsourced RD&E activities, process suppor a customer demonstrations are perforff med in China, India, Singapor e, Taiwan and the United States. u 8 Marketing and Sales Because of the highly technical nature of our products, we market and sell products worldwide almost entirely through a direct sales force. We have operations in many countries, with some of our business activities concentrated in certain geographic areas, and global and regional economic and political conditions can impact our business and financial results. Our business is based on turers, and is subju ect to significant variability capital equipment investments by major semiconductor, display and other manufacff in customer demand for our producd ts. Customers’ expenditures depend on many factors, including: general economic conditions; anticipated market demand and pricing for semiconductors, display technologies and other electronic devices; the development of new technologies; customers’ factory utilization; capia tal resources and financing; trade policies and export regulations; and government incentives. In addition, a significant driver in the semiconductor and display industries has been end-demand for mobile consumer producdd ts, which has been characterized by seasonality that impacts the timing of customer investments in manufact ing equipment and, in turn, our business. urt ff Information on net sales to unaffiliated customers and long-lived assets attributable to our geographic regions is included in Note 16 of Notes to Consolidated Financial Statements. The following companies accounted for at least 10 percent of our net sales in each fiscal year, which were forff products and services in multiple reportabla e segments. Samsung Electronics Co., Ltd. Taiwan Semiconductor Manufacff Intel Corporation turing Company Limited ______________________________ __ * Less than 10% 2023 15% 19% * 2022 12% 20% 10% 2021 20% 15% * 9 Competition The industries in which we operate are highly competitive and characterized by rapida technological change. Our ability to compete generally depends on our ability to commercialize our technology in a timely manner, continually improve our products, and develop new products that meet constantly evolving customer requirements. Significant competitive factors include technical capability and differen t a global customer base. The importance of these factors varies according to customers’ needs, including product mix and respective product requirements, applications, and the timing and circumstances of purchasing decisions. Subsu tantial competition exists in all areas of our business. Competitors range from small companies that compete in a single region, which may benefit from policies and regulations that favor domestic companies, to global, diversified companies, which operate in more complex global economic and regulatoryrr environments. Our ability to compete requires a high level of investment in RD&E, marketing and sales, and global customer suppor t activities. We believe that many of our products have strong competitive positions. tiation, productivity, cost-effectiveness and the ability to suppor u u ff The competitive environment for each segment is described below. The semiconductor industryrr is driven by demand for advanced electronic products, including smartphones and other mobile devices, servers, personal computers, automotive electronics, storage, and other products. The growth of data and emerging end-market drivers such as artificial intelligence, the Internet of Things, 5G networks, smart vehicles and augmented and virtuat l reality are also creating the next wave of growth for the industry.rr As a result, products within the Semiconductor Systems segment are subju ect to significant changes in customer requirements, including transitions to smaller dimensions, increasingly complex chip architecturtt es, new materials and an increasing number of applications. While certain existing technologies may be adapted to new requirements, some applications create the need for an entirely different technological ce of technological change can quickly diminish the value of current technologies and products and approach. The rapid pa create opportunities for existing and new competitors. Our broad portfolff a variety of differentiated products, including ff io offers co-optimized and integrated materials solutions that enable unique films, structurt es and devices. Our products must continuously evolve to satisfy customers’ requirements to compete effeff ctively in the marketplt ace. We allocate resources among ngs and thereforff e may decide not to invest in an individual product depending on market our numerous producdd t offeri requirements. There are a number of competitors serving the semiconductor manufacff turing equipment industry.rr Some of these competitors offer ff multiple product lines, and range from serving a single region to global, diversified companies. a single product line and others offer a ff ff Products and services within the Applied Global Services segment complement the Semiconductor Systems and Display and Adjad cent Markets segments’ products in markets that are characterized by demanding worldwide service requirements. Competition in the Applied Global Services segment includes a diverse group of numerous third-party service providers and customers that perform their own service. To compete effeff ctively, we offer ff increase yields and productivity of customers’ fab ope effeff ctiveness, and the level of technical service and suppor needs and the type of products or services offere d. ff producd ts and services to improve tool performance, lower overall cost of ownership, and rations. Significant competitive factors include productivity, cost- t. The importance of these factors varies according to customers’ u a Products in the Display and Adjad cent Markets segment are generally subju ect to strong competition from a number of major competitors primarily in Asia. We hold establa ished market positions with our technically-differentiated LCD and OLED turing solutions for PECVD, color filter PVD, PVD array, PVD touch panel, and TFT array testing, although our manufacff market position could change quickly due to customers’ evolving requirements. Important factors affeff cting the competitive position of our Display and Adjad cent Markets products include: industryrr trends, our ability to innovate and develop new products, and the extent to which our producd ts are technically-differe ntiated, as well as which customers within a highly concentrated customer base are making capia tal equipment investments and our existing position at these customers. ff 10 Patents and Licenses Protection of our technology assets through enforcement of our intellectual property rights, including patents, is important for our competitive position. Our practice is to file patent applications in the United States and other countries for inventions that we consider significant. We have more than 19,600 active patents in the United States and other countries, and additional applications are pending for new inventions. Although we do not consider our business materially dependent upon any one patent, our rights and the products made and sold under our patents, taken as a whole, are a significant element of our business. l property, including trademarks, know-how, trade secrets, and In addition to our patents, we possess other intellectuat copyrights. We enter into patent and technology licensing agreements with other companies when it is determined to be in our best interest. We pay royalties under existing patent license agreements for the use, in several of our products, of certain patented technologies. We also receive royalties from licenses granted to third parties. Royalties received from or paid to third parties have not been material to our consolidated results of operations. In the normal course of business, we periodically receive and make inquiries regarding possible patent infringement. In for us to obtain or grant licenses or other rights. However, there responding to such inquiries, it may become necessary or usefulff can be no assurance that such licenses or rights will be availabla e to us on commercially reasonabla e terms, or at all. If we are not able to resolve or settle claims, obtain necessary licenses on commercially reasonable terms, or successfulff ly prosecute or defend our position, our business, financial condition and results of operations could be materially and adversely affeff cted. Governmental Regulation As a public company with global operations, we are subju ect to the laws and regulations of the United States and multiple include those related to financial and other l property, tax, trade, including import, export and customs, t, environment, and health and safety, climate change, employment, immigration and travel regulations, privacy, data – We are exposed to foreign jurisdictions. These regulations, which differ among jurisdictions, disclosures, accounting standards, corporate governance, intellectuat antitrusrr protection and localization, and anti-corruptu ion. See “Risk Factorsrr – Legal, risks related to the global regulator yr environment” for furthett Compliance, and Othett r details. ii r Risks e e We are regulated under various international laws regarding the purchase and sale of goods and related items, including l property. See – Global trade issues and changes in and uncertainties with respect to trade and international ly impacm t our business and operations, and reduce the but not limited to those related to trade policies and export regulations, and limitations on transferff “Risk Factorsrr – Business and Industryr Risks policies and export regulat e trade dispii utes, have adverserr competitiveness of our products relative to local and global competitors” for furthett ions, including imporm t and expor ly impacm ted and could furthett t license requirements,tt trade sanctions, tariffsi of intellectuat r adverserr r details. x ii With respect to environmental, health and safety regulations, we maintain a number of programs that are primarily preventative in nature and regularly monitors ongoing compliance with applicable laws and regulations. In addition, we have trained personnel to conduct investigations of any environmental, health, or safety incidents, including, but not limited to, spills, releases, or possible contamination. See alsoll r Risks – We are ii subject to risks associated with environmental, health and safea ty regulat ,l Compliance, and Othett “Risk Factorsrr – Risks Related to Legal ions” for furthett r details. e e We are subju ect to income taxes in the United States and foreign jurisdictions. Our provision for income taxes, effeff ctive tax rate and financial results could be affeff cted by numerous factors, including changes in applicable tax laws, interpretations of applicable tax laws, amount and composition of pre-tax income in jurisdictions with differing tax rates, and valuation of deferred tax assets. There have been a number of proposed changes in the tax laws that could increase our tax liabia lity. See “Risk Factorsrr – Operational and Financial Risks – We operate in jurisdictions with complexee and changing taxaa laws” for r details. For additional discussions regarding the impact of compliance with income tax laws and regulations on our furthett business and operations, see alsoll is of Financial Condition and Resultstt of Operations– Results of Operations – Income Taxeaa s” and Note 14 of the Notes to the Consolidatdd ed Financial Statements. ment’s Discii ussion and Analysll “Manage MM ii 11 Our People Our commitment to innovation begins with the commitment to creating an environment in which our employees can do lity of our people to their best work. Our ability to create differen anticipate technology inflections and integrate customer requirements. To achieve this level of value creation, we believe we must attract, hire, develop and retain a world-class global workforce. We invest in our employees by providing quality training and learning oppor tunities; promoting inclusion, equity and diversity; and upholding a high standard of ethics and respect for r human rights. tiated value in the marketplt ace is driven by the capabi a ff As of October 29, 2023, we employed approximately 34,000 regular full-time employees, of whom approximately 44%, 43% and 13% resided in the Asia-Pacific region, North America, and Europe, Middle East and Afriff ca, respectively. Our team spans 24 countries, reflecting various cultures, backgrounds, race, color, national origin, religion, sex, sexual orientation, gender identity, ages, and disabia lity, veteran and military status. tt Diversirr tyii ,yy Equityii and Inclusion We value great talent and different perspectives, knowing that diversity is one of our greatest strengths. We thereforff e strive to provide fair and equal opportunity for career development and advancement to all our employees and incorporate respect for diverse backgrounds and perspectives into our culturtt e at everyrr y level – from strategy and policy down to everyda interactions. rr We expect that our commitment to strengthening our culture of inclusion will broaden the diversity of our workplkk ace and ne. In recent years, we continued to make progress in our culture of inclusion help us build a culture that benefits everyorr journey, including, among other things, increasing female representation in the U.S. and global workforce, and increasing U.S. underrepresented minority representation. As of October 29, 2023, our global workforce was 79.6% male and 20.3% female, and 19.9% of our workforce in the United States was composed of underrepresented minorities. Additionally, we are investing in inclusion learning experiences. For example, we have various initiatives to further develop our leaders to lead even more inclusively and further deepen engagement with employees. Talent Acquisition and Retentiontt We believe that our future success is highly dependent upon our continued ability to attract, develop, retain and engage employees. As part of our effort competitive rewards, compensation and benefits, including an Employee Stock Incentive Plan, an Employees’ Stock Purchase Plan, healthcare and retirement benefits, parental and family leave, adoption credits, holiday and paid time off,ff and tuition assistance. to attract and retain employees, we offer ff ff Employm ee Learning & Developmo ent r u We seek to create growth and development opportunities to suppor and development based on the 70/20/10 model--70% on-the-jo- b learning, 20% social/collabor t an engaged and inclusive workforce. We promote holistic employee learning ative and 10% formal training, with a focus on advancing technical skills as well as improving general business acumen to address sional breadth, we use a federated model where the segments and increasing work complexity. Also, to help expand profesff functions provide technical and job-specific training tied to their disciplines, while general profesff sional, management, and leadership training is provided at the corporate level. All training is coordinated centrally and aligned with common objectives through Applied Global University. In addition to instructor-led and web-based training, we offer state-of-tff he-art training lities, to help develop our new a modalities, such as AI-based simulations and Augmented and Virtuat products, train our manufact t employees, and collaborate remotely. Each fiscal year, employees are provided the opportunity to complete the required 40 hours of learning. l Reality learning capabi ing and field suppor urt u a ff ff 12 Employm ee Engagement We have historically measured employee engagement through surveys to gain insight into employees’ experiences, levels of workplkk ace satisfaction, and key drivers for engagement, inclusion and overall well-being. In fiscal 2023, we conducted an all-employee survey anonymously through an external partner to encourage maximal participation and elicit candid responses. We also benchmarked the survey results against a large and standardized data set involving large technology companies globally. The survey results and the benchmarking data allowed us to better understand enterprise-wide trends, gauge effeff ctiveness of interventions, and define targeted employee populations (e.g., early tenure employees). They also provided leaders and people managers with actionable insights tailored to their own groups that can further enhance employee engagement and inclusion. These actionable insights are then integrated with the people strategy process and cadence within the Company. Additional information regarding our activities related to our people and sustainability, as well as our workforce diversity data, can be found in our latest Sustainability Report and Annex thereto, which are located on our website at https:// www.appliedmaterials.com/us/en/corporate-responsibility.html. The Sustainability Report and the Annex thereto are updated annually. This website address is intended to be an inactive textual reference only. None of the information on, or accessible through, our website is part of this Form 10-K or is incorporated by reference herein. 13 Information about our executive offiff cers The following tabla e and notes set forth information about our executive offiff cers: Name of Individual Gary E. Dickerson(1) Brice Hill(2) Prabu Rajaa (3) Teri Little(4) Omkaram Nalamasu(5) Timothy M. Deane(6) Charles W. Read(7) Position President, Chief Executive Offiff cer Senior Vice President, Chief Financial Offiff cer and Global Information Services President, Semiconductor Products Group Senior Vice President, Chief Legal Offiff cer and Corporate Secretary Senior Vice President, Chief Technology Offiff cer Group Vice President, Applied Global Services Corporate Vice President, Business Units and Operations Chief Financial Offiff cer (1) Mr. Dickerson, age 66, was named President of Applied in June 2012 and appointed Chief Executive Offiff cer and a member of the Board of Directors in September 2013. Before joining Applied, he served as Chief Executive Offiff cer and a director of Varian Semiconductor Equipment Associates, Inc. (Varian) from 2004 until its acquisition by us in November 2011. Prior to Varian, Mr. Dickerson served 18 years with KLA-Tencor Corporation (KLA-Tencor), a supplu ier of process control and yield management solutions for the semiconductor and related industries, where he held a variety of operations and product development roles, including President and Chief Operating Offiff cer. Mr. Dickerson started his turing and engineering management at General Motors’ Delco Electronics Division and semiconductor career in manufacff then AT&T Technologies. (2) Mr. Hill, age 57, has been Senior Vice President and Chief Financial Offiff cer since March 2022. He also oversees Global Information Services for Applied. Prior to joining Applied, Mr. Hill was Executive Vice President and Chief Financial Offiff cer of Xilinx, Inc., a company that designed and developed programmabla e devices and associated technologies, from April 2020 until its acquisition by Advanced Micro Devices, Inc. in February 2022. Prior to Xilinx, Mr. Hill served in various finance positions with Intel Corporation for 25 years, most recently as Corporate Vice President and Chief Financial Offiff cer and Chief Operating Offiff cer, Technology, Systems and Core Engineering Group. (3) Dr. Rajaa , age 61, has been President, Semiconductor Products Group since March 2023. He previously served as Senior Vice President, Semiconductor Products Group of Applied from November 2017 to March 2023, and before that served in various senior management, product development and operational roles since joining Applied in 1995, including Group Vice President and General Manager of the Patterning and Packaging Group. (4) Ms. Little, age 59, joined Applied as Senior Vice President, Chief Legal Offiff cer and Corporate Secretaryrr in June 2020. Prior to joining Applied, Ms. Little served as Executive Vice President, Chief Legal Offiff cer and Corporate Secretaryrr at KLA Corporation from August 2017 to June 2020. Prior to that she was Senior Vice President, General Counsel and Corporate Secretary of KLA Corporation from October 2015 until August 2017, and prior to that she held various other positions at KLA Corporation since 2002. Prior to joining KLA Corporation, she was a Senior Corporate Associate at Wilson Sonsini Goodrich & Rosati, and a Litigation Associate at Heller Ehrman White & McAuliffe. rr ff (5) Dr. Nalamasu, age 65, has been Senior Vice President, Chief Technology Offiff cer since June 2013, and President of Applied Ventures, LLC, Applied’s venture capital arm, since November 2013. He had served as Group Vice President, Chief Technology Offiff cer from January 2012 to June 2013, and as Corporate Vice President, Chief Technology Offiff cer from January 2011 to January 2012. Upon joining Applied in June 2006 until January 2011, Dr. Nalamasu was an Appointed Vice President of Research and served as Deputy Chief Technology Offiff cer and General Manager for the Advanced Technologies Group.u From 2002 to 2006, Dr. Nalamasu was a NYSTAR distinguished profesff sor of Materials Science and Engineering at Rensselaer Polytechnic Institute, where he also served as Vice President of Research from 2005 to 2006. Prior to Rensselaer, Dr. Nalamasu served in several leadership roles at Bell Labor atories. a (6) Mr. Deane, age 58, has been Groupu Vice President, Applied Global Services since September 2022. He joined Applied in 1995 and previously served in various senior management and field operations roles, including head of Field Operations and Business Management for the Semiconductor Products Group, Account General Manager and Region General Manager. (7) Mr. Read, age 57, has been Corporate Vice President, Business Units and Operations Chief Financial Offiff cer since September 2022. Prior to that role, he was Corporate Vice President, Corporate Controller and Chief Accounting Offiff cer since joining Applied in September 2013. Prior to Applied, Mr. Read worked at Brocade Communications Systems, Inc., a provider of semiconductor and software-based network solutions, since October 2002, where he most recently served as Vice President, Corporate Controller. Prior to Brocade, Mr. Read worked at KPMG LLP, an audit, tax and advisory firm, from 1996 to 2002. 14 Available Information Our website is http://www.appliedmaterials.com. We make availabla e free of charge, on or through our website, our r acticable afteff annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably pr electronically filing such reports with, or furnishing them to, the SEC. The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These website addresses are intended to be an inactive textual references only. None of the information on, or accessible through, these websites is part of this Form 10-K or is incorporated by reference herein. a 15 Item 1A: Riskii Factors tt The following risk factors could materially and adversely affeff ct our business, financial condition or results of operations and cause reputational harm, and should be carefully considered in evaluating our business, in addition to other information presented elsewhere in this report. Business and Industry Risks y The industries we serve can be volatilell and diffi i cult to predicdd t. We are a supplu ier to the global semiconductor and display and related industries, which historically have been cyclical and are subju ect to volatility and sudden changes in customer demand. Factors that impact demand for our products and services include technology inflections and advances in fabra ication processes, new and emerging technologies and market drivers, production capacity relative to demand for chips and display technologies, end-user demand, customers’ capaa city utilization, able capia tal, business and consumer buying patterns and general economic and political production volumes, access to afford conditions. Changes in demand can affeff ct the timing and amounts of customer investments in technology and manufact ing equipment and can significantly impact our operating results. The amount and mix of our customers’ capia tal equipment spending between different products and technologies can also significantly impact our operating results. urt ff ff a To meet rapidly changing demand, we must accurately forecast demand and effeff ctively manage our resources, investments, producd tion capacity, supply chain, workforce, inventory, and other components of our business. We may incur unexpected or additional costs to align our business operations with changes in demand. If we do not effeff ctively manage these challenges, our business performance and operating results may be adversely impacted. Even with effeff ctive allocation of resources and management of costs, our gross and operating margins, cash flows and earnings may be adversely impacted during periods of changing demand. u We are expos xx ed to risks associati edtt withii an uncertain global economy.m Uncertain or adverse economic and business conditions, including uncertainties and volatility in the financial markets, national debt, fiscal or monetary concerns, rising inflation and interest rates, bank failures, and economic recession, could materially and adversely impact our operating results. Markets for semiconductors and displays depend largely on business and consumer spending and demand for electronic products. Uncertain or adverse economic and business conditions could result in decreases in consumer spending and demand. Decreases in spending and demand have caused, and may in the future cause, our customers to push out, cancel or refrain from purchasing our equipment or services, which could negatively impact demand for our producd ts and services, reduce our backlog, increase our inventory, and materially and adversely impact our operating results. Sudden increases in demand for electronic products have caused, and may in the future cause, a shortage of parts and city and materials needed to manufact iers’ ability to meet our requirements. interruptu ions, have adversely impacted, and may in the future adversely impact, our supplu Accelerated digital transforff mation may further increase demand and exacerbar ing capacity, which may adversely impact our ability to meet customer demand and have an adverse impact on our revenues, operating results and financial condition. urt e our producdd ts. Such shortages, and shipment delays due to transportation capaa te shortages and strain our manufact urt ff ff Uncertain or adverse economic and market conditions, difficulties in obtaining capia tal, increased costs or reduced urt ers, or file for profitaff bia lity may cause some customers to scale back operations, exit businesses, merge with other manufact cy protection and potentially cease operations, which can result in lower sales, additional inventory or bad debt bankrupt rr expense. Economic and industryrr uncertainty may impair the ability of supplu iers to deliver parts and negatively affeff ct our ability to manage operations and deliver our producdd ts. These conditions may also lead to consolidation or strategic alliances among other equipment manufact urt ers, which could adversely affeff ct our ability to compete effeff ctively. ff ff u Uncertain economic and industryrr conditions and supply chain challenges make it more difficult to accurately forecast operating results, make business decisions, and identify and prioritize the risks that may affeff ct our businesses, sources and uses of cash, financial condition and results of operations. If we do not appropriately manage our business operations in response to conditions, it could have a material and adverse impact on our business performance and changing economic and industryrr financial condition. We may be required to implement additional cost reduction effort ing activities, which ff may adversely impact our ability to capia talize on opportunities. Even during periods of economic uncertainty or lower demand, we must continue to invest in research and development and maintain a global business infrastructurt e to compete effeff ctively u and suppor t our customers, which can have a negative impact on our operating results. s, including restructurt We maintain an investment portfolff io that is subju ect to general credit, liquidity, market and interest rate risks. The risks to ted if financial market conditions deteriorate due to rising inflation, rising interest our investment portfolff io and returns on rates, bank failures or economic recession and, as a result, the value and liquidity of the investment portfolff pension assets, could be negatively impacted and lead to impairment charges. We also maintain cash balances in various bank io may be exacerbar 16 accounts globally in order to fund normal operations. If any of these financial institutions become insolvent, it could limit our ability to access cash in the affeff cted accounts, which could affeff ct our ability to manage our operations. We are exposxx ed to the risks of operatingii a global busineii ss. We have producd t development, engineering, manufacff turing, sales and other operations in many countries, and some of our business activities are concentrated in certain geographic areas. In fiscal 2023, approximately 85% of our net sales were to customers in regions outside the United States. As a result of the global nature of our operations, our business performance and results of operations may be adversely affeff cted by a number of factors, including: • • • • • • • • • • • • • • • • • • • • • uncertain global economic, political and business conditions and demand; global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and and international trade disputes, including new and changing export regulations and their impact on sanctions, tariffs,ff our ability to export products and provide services to customers; positions taken by governmental agencies regarding possible national, commercial or security issues posed by the development, sale or export of certain raw materials, products and technologies; political instability, natural disasters, regional or global health epidemics, social unrest, terrorism, acts of war or other geopolitical turmoil, or cybersecurity incidents in locations where we have operations, supplu iers or sales, or that may influence the value chain of the industries we serve; political and social attitudes, laws, rules, regulations and policies within countries, including in China, the United States, and countries in Europe and Asia, that favor domestic companies over non-domestic companies, including efforts to promote the development and growth of local competitors and reduce dependence on foreign semiconductor lities through policies and financial incentives; equipment and manufacff turing capabi a efforts to influence us to conduct more or less of our operations and sourcing in a particular country; nt and changing local, regional, national or international laws and regulations, including contract, intellectual tax, and import/export laws, and the interpretation and application of laws a differe ff property, cybersecurity, data privacy, labor, and regulations; ineffective or inadequate legal protection of intellectuat l property rights in certain countries; interruptu ions to our or our supplu u iers’ supply chain; the availabia lity of, and increases and volatility of, raw materials, commodity, energy and shipping costs; delays or restrictions on personnel travel and in shipping materials or products; geographically diverse operations and projects, and our ability to maintain appropriate business processes, procedurd es and internal controls, and comply with environmental, health and safety, anti-corruptu ion and other regulatory requirements; challenges in hiring and integrating workers in different countries, and in effeff ctively managing a diverse workforce with differff ent experience levels, languages, culturt es, customs, business practices and worker expectations, and differing employment practices and labor issues; a the ability to develop relationships with local customers, suppu liers and governments; fluff ctuatt against the Japane a tions in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar se yen, Israeli shekel, euro, Taiwanese dollar, Singapor a e dollar, Chinese yuan or Korean won; the need to provide technical suppor u t in different locations around the world; performance of geographically diverse third-party providers, including certain engineering, software development, manufacff turing, information technology and other functions; service interrupt rr ions from utilities, transportation, data hosting or telecommunications providers; impacts of climate change on our operations and those of our customers and supplu iers; the increasing need for a mobile workforce and travel to different regions; and uncertainties with respect to economic growth rates in various countries, including for the manufacff semiconductors and displays in the developing economies of certain countries. ture and sale of 17 ll trade issues and changes in and uncertainties withii Global t license requirements,s tradedd sanctions, tariffsi import and exporxx r adverserr furthett and couldll local and global competitott ly impacm t our busineii rs. respect to trade policie and internatiott nal trade dispii utestt ss and operations, and reduce the competititt veness of our products re ,s have adverserr tt lations, includindd g ly impacm ted lative to s and exporxx t regue ll a We also purchase a significant portion of equipment and supplu We sell a significant majoa rity of our producd ts into jurisdictions outside of the United States, including China, Taiwan, Korea and Japan. iers outside of the United States. There is inherent risk, based on the complex relationships among the United States and the countries in which we conduct our business, that political, diplomatic, and national security factors can lead to global trade restrictions and changes in trade policies and export regulations, in particular, with respect to those affeff cting the semiconductor industry.rr The United States and other countries have imposed and may continue to impose new trade restrictions and export regulations, and have levied tariffs and taxes on certain goods. Trade restrictions and export regulations, or increases in tariffs and additional taxes, including any retaliatory measures, can negatively impact end-user demand and customer investment in manufacff turing equipment, increase turing costs, decrease margins, reduce the competitiveness of our products, or our supply u restrict our ability to sell products, provide services or purchase necessary equipment and supplu ies, any or all of which could have a material and adverse effeff ct on our business, results of operations, or financial condition. chain complexity and our manufacff ies from supplu u For example, certain international sales depend on our ability to obtain export licenses, and our inability to obtain such licenses has limited and could further limit our markets and negatively impact our business. In the past two years, the U.S. government announced new export regulations for U.S. semiconductor technology sold in China, including wafer fabra ication equipment and related parts and services, which have limited the market for certain of our products, adversely impacted our revenues, and increased our exposure to foreign competition. The U.S. Department of Commerce has promulgated rules and regulations expanding export license requirements for U.S. companies that sell certain products to entities in China whose actions or functions are intended to suppor t military end uses, eliminated certain export license exceptions that applied to exports of certain items to China, added certain Chinese companies to its “Entity List” and “Unverified List,” making those companies subju ect to additional licensing requirements, and expanded licensing requirements for exports to China of items for use in the development or producd tion of integrated circuits and certain technologies. These rules and regulations require us to obtain additional export licenses to supply certain of our products or provide services to certain customers in China. Obtaining export licenses may be difficff ult, costly and time-consuming, and there is no assurance we will be issued licenses on a timely basis or at all. Our inability to obtain such licenses could limit our markets in China, may cause us to be displaced by foreign businesses and competitors and adversely affeff ct our results of operations. The implementation and interpretation of these complex rules and other regulatory actions taken by the U.S. government is uncertain and evolving, and may make it more challenging for us to manage our operations and forecast our operating results. The U.S. and other government agencies may promulgate new or additional export licensing or other requirements that have the effeff ct of further limiting our ability to provide certain products and services to customers outside the U.S., including China. The U.S. government may also revise or the scope and application of these requirements, which could change expand existing requirements or issue guidance clarifying turing operations. The U.S. government may also continue to add the impact of these rules on our business and manufacff our product shipments to certain customers to its “Entity List” and “Unverified List,” or take measures that could disrupt customers. These and other potential future regulatory changes could materially and adversely affeff ct our business, results of operations or financial condition. u ff rr u As a global business with customers, supplu iers and operations in many countries around the world, from time to time we may receive inquiries from government authorities about transactions between us and certain foreign entities. In August 2022, from the U.S. Attorney’s Offiff ce for the District of Massachusetts requesting information relating to we received a subpoena certain China customer shipments. In November 2023, we received a subpoena from the U.S. Commerce Department’s Bureau of Industryrr and Security requesting the same information. We are cooperating fully with the government in these matters. These inquiries are subju ect to uncertainties, and we cannot predict the outcome of these inquiries, or any other governmental inquires or proceedings that may occur. Any violation or alleged violation of law or regulations could result in significant legal costs or in legal proceedings in which we or our employees could be subju ected to fines and penalties and could result in restrictions on our business and damage to our global brand and reputation, and could have a material and adverse impact on our business operations, financial condition and results of operations. u Furthermore, government authorities may take retaliatory actions, impose conditions that require the use of local supplu iers l property, or engage in or partnerships with local companies, require the license or other transferff other effort s to promote local businesses and local competitors, which could have a material and adverse impact on our business. Many of these challenges are present in China and Korea, markets that represent a significant portion of our business. of sensitive data or intellectuatt ff WeWW are expos xx ed to risks associatedtt withii a highi ly concentratedtt customtt er base. A relatively limited number of customers account for a subsu tantial portion of our business. Our customer base is As a result, the actions of even a single customer geographically concentrated, particularly in China, Taiwan, Korea and Japan. or export regulations that apply to customers in certain countries, such as those in China, have exposed and can further expose a 18 our business and operating results to greater volatility. The geographic concentration of our customer base could shiftff over time as a result of government policy and incentives to develop regional semiconductor industries. The mix and type of customers, and sales to any single customer, including as a result of changes in government policy, have varied and may vary significantly from quarter to quarter and from year to year, and have had, and may continue to have, a significant impact on our operating results. Our products are configff ured to customer specifications, and changing, rescheduling or canceling orders may result in significant, non-recoverabla e costs. If customers do not place orders, or they subsu tantially reduce, delay or cancel orders (including as a result of uncertain or adverse economic conditions, our inability to fulfill orders due to export regulations, shortage of parts, transportation capacity/interruptu ions or any other reason), we may not be able to replace the business, which may have a material and adverse impact on our results of operations and financial condition. The concentration of our customer base increases our risks related to the financial condition of our customers, and the deterioration in financial condition of a single customer or the failure of a single customer to perform its obligations could have a material and adverse effeff ct on our results of operations and cash flow. To the extent our customers experience liquidity constraints, we may incur bad debt expense, which may have a significant impact on our results of operations. Majoa r customers may seek pricing, payment, intellectuat l property-related, or other commercial terms that are less favorable to us, which may have a negative impact on our business, cash flow, revenue and gross margins. ll Supplpp y ch ainii demand,dd couldll affeff ct our ability to disruii ii ptu iott ns,s manufacff turingii meet customtt interruptu iott ns or delaysa , or s the failure to accurately forecast customtt er er demand,dd lead to highi er costs, or result in excess or obsoletll ett inventory. rr u Our business depends on our timely supply of tions, have adversely impacted, and may continue to adversely impact, our manufacff turers. Increases in demand for our products and worldwide demand for electronic products can impact our supplu equipment, services and related products to meet the changing requirements iers and contract parts, materials and services from supplu of our customers, which depends in part on the timely delivery of manufacff iers’ ability to meet our demand requirements, and have resulted in, and may continue to result in, a shortage of parts, materials and ture our producdd ts. Such shortages, as well as delays in and unpredictabia lity of shipments due to services needed to manufacff turing operations and transportation interruprr turing equipment can also increase our and our our ability to meet customer demand. Volatility of demand for manufacff iers to exit businesses, or scale back or cease supplu operations, which could impact our ability to meet customer demand. Ongoing supply chain constraints may continue to increase costs of logistics and parts for our producdd ts and may cause us to pass on increased costs to our customers, which may lead to reduced demand for our producd ts and materially and adversely impact our operating results. Supply ions have caused and may continue to cause delays in our equipment production and delivery schedules, which can lead to our business performance becoming significantly dependent on quarter-end production and deliveryrr schedules, and could have an adverse impact on our operating and financial results. iers’ capital, technical, operational and other risks, and may cause some supplu chain disrupt u u rr Cybersecurity incidents affeff cting our supplu chain and may also cause difficulties and delays ture our products and provide services, and may in our ability to obtain parts, materials and services needed to manufacff adversely impact our manufact ing operations, our ability to meet customer demand, and our operating results. Failure to timely recover from such delays could materially and adversely affeff ct our business, financial condition and results of operations, and may also cause our business and financial outlook to be inaccurate. iers could impact our supply urtt u ff We may experience supply turing operations, delays in our ability to deliver or install products or services, increased costs, customer order cancellations or reduced demand for our products as a result of: ions, significant interruptu ions of our manufacff chain disrupt u rr • • • • • • • global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and international trade disputes, and new and changing regulations for exports of certain technologies to sanctions, tariffs,ff China, where a significant portion of our supply chain is located, and any retaliatory measures, that adversely impact us or our direct or sub-u tier supplu iers; u the failure or inability to accurately forecast demand and obtain quality parts on a cost-effective basis; volatility in the availabia lity and cost of parts, commodities, energy and shipping related to our products, including increased costs due to rising inflation or interest rates or other market conditions; diffiff culties or delays in obtaining required import or export licenses and approvals; shipment delays due to transportation interruptu ions or capaa city constraints; a worldwide shortage of semiconductor components as a result of sharprr products in general; increases in demand for semiconductor limited availabia lity of feasible alternatives to per- and polyfluff oroalkylkk components, process chemicals and other materials supplu ied to us or used in the operations of our products; subsu tances, which are found in parts, 19 • • cybersecurity incidents or information technology or infrastructurt e failures, including those of a third-party supplu service provider; and ier or naturt al disasters, the impacts of climate change, or other events beyond our control (such as earthquakes, utility interruptu ions, tsunamis, hurricanes, typhoons, floods, storms or extreme weather conditions, fires, regional economic downturns, regional or global health epidemics, geopolitical turmoil, increased trade restrictions between the U.S. and China and other countries, social unrest, political instability, terrorism, or acts of war) in locations where we or our customers or supplu turing, research, engineering or other operations. iers have manufacff ier faiff If a supplu iers could result in manufacff ls to meet our requirements concerning quality, cost, intellectuat l property protection, socially-responsible business practices, or other perforff mance factors, we may transferff ring business to alternative supplu turing delays, additional costs or other difficulties, and may impair our ability to l property rights of our customers protect, enforce and extract the full value of our intellectuat and other third parties. These outcomes could have a material and adverse impact on our business and competitive position and subju ect us to legal proceedings and claims. If we are unabla e to meet our customers’ demand for a prolonged period due to our inability to obtain certain parts or components from supplu iers on a timely basis or at all, our business, results of operations and customer relationships could be adversely impacted. our business to alternative sources. Transferff l property rights, and the intellectuat If we need to rapidly increase our business and manufact ff ing capacity to meet increases in demand or expedited shipment a schedules, this may strain our manufact chain operations, and negatively impact our working capia tal. If we are unable to accurately forecast demand for our products, we may purchase more or fewer parts than necessary or incur costs for parts. If we purchase or commit to purchase inventory in anticipation of canceling, postponing or expediting delivery of customer demand that does not materialize, or such inventoryrr ce of technological change, or if customers reduce, delay or cancel orders, we may incur excess or obsolete inventory charges. is rendered obsolete by the rapid pa ing and supply urt urt u a ff rr We are expos xx ed to ongoingii changes in the various industries in which we operate. The global semiconductor, display and related industries are characterized by ongoing changes that impact demand for and the profitaff bia lity of our products and services and our operating results, including: • • • • • • • • the nature, timing and degree of visibility of changes in end-user demand for electronic products, including those related to fluctuations in consumer buying patterns tied to general economic conditions, seasonality or the introduction of new products, and the effeff cts of these changes on customers’ businesses and on demand for our products; increasing capital requirements for building and operating new fabra ication plants and customers’ ability to raise the necessary capia tal; trade, regulatory, tax or government incentives impacting the timing of customers’ investment in new or expanded fabra ication plants; ff differe nces in growth rates among the semiconductor, display and other industries in which we operate; the importance of establa ishing, improving and maintaining strong relationships with customers; the cost and complexity for customers to move from product design to volume manufacff adoption rate of new manufacff turing technology; turing, which may slow the the importance of reducing the total cost of manufacff turing system ownership; the importance to customers of system reliabia lity and productivity and the effeff ct on demand for fabra ication systems as a result of their increasing productivity, device yield and reliability; • manufact ff urt ers’ ability to reconfigff ure and re-use fabra ication systems which can reduce demand for new equipment; • • • • • • • the importance of developing products with sufficient differentiation to influence customers’ purchasing decisions; requirements for shorter cycle times for the development, manufact ff urt e and installation of manufacff turing equipment; price and performance trends for semiconductor devices and displays, and the impact on demand for such products; the importance of the availabia lity of spare parts to maximize the time that customers’ systems are availabla e for production; government incentives for local supplu capabilities; iers and domestic semiconductor research, development and manufact ff urt ing the increasing role for and complexity of software in our products; the increasing role of machine learning services; and r and artificial intelligence with respect to semiconductor equipment and related 20 • the focus on reducing energy usage and improving the environmental impact and sustainability associated with manufacff turing operations. We are exposxx ed to ongoingii changes specifii c to the semiconductor industry. The largest proportion of our consolidated net sales and profitaff bia lity is derived from sales of manufact ff the Semiconductor Systems segment to the global semiconductor industry,rr Services is from sales to semiconductor manufact particular to this industryrr service products, including: ff urt ers. The semiconductor industryrr that impact demand for and the profitaff bia lity of our semiconductor manufact ff ing equipment in and a majoa rity of the revenues of Applied Global is characterized by ongoing changes ing equipment and urtt urt • • • • • • • • • • • • • • • • the frequency and complexity of technology transitions and inflections, and our ability to timely and effeff ctively anticipate and adapt to these changes; the cost of research and development due to many factors, including shrinking geometries, the use of new materials, new and more complex device structurt es, more applications and process steps, increasing chip design costs, and the cost and complexity of integrated manufact ing processes; urt ff the need to reduce product development time and meet technical challenges; the number of types and varieties of semiconductors and number of applications; the cost and complexity for semiconductor manufacff geometries to volume manufact urt ff ing, and the impact on investment in capia tal equipment; turers to move more technically advanced capability and smaller semiconductor manufacff turers’ levels of capia tal expenditures and the allocation of capia tal investment to market segments that we do not serve, such as lithography, or segments where our products have lower relative market presence; delays in installation of manufacff turing equipment delivered to customers; the importance of increasing market positions in segments with growing demand; semiconductor manufacff new equipment and services from us, and challenges in providing parts for reused equipment; turers’ ability to reconfigff ure and re-use equipment, resulting in diminished need to purchase shorter cycle times between order placements by customers and product shipment require greater reliance on forecasting of customer investment, which may lead to inventory write-offs and manufacff turing ineffiff ciencies that decrease gross margin; competitive factors that make it difficult to enhance position, including challenges in securing development-tool-of- record (DTOR) and production-tool-of-record (PTOR) positions with customers; consolidation in the semiconductor industry,rr equipment supplu iers; including among semiconductor manufact ff urtt ers and among manufact ff urt ing shifts in sourcing strategies by computer and electronics companies, and manufacff technologies, that impact the equipment requirements of our foundry customers; turing processes for advanced circuit the concentration of new wafer starts in Korea and Taiwan, where our service penetration and service-revenue-per- wafer-start have been lower than in other regions; the increasing fragmentation of semiconductor markets, leading certain markets to become too small to suppor cost of a new fabra ication plant, while others require less technologically advanced products; and u t the the growing importance of specialty markets (such as Internet of Things, communications, automotive, power and sensors) that use mature process technologies and have a low barrier to entry.rr If we do not accurately forecast and allocate appropriate resources and investment towards addressing key technology ly develop and commercialize products to meet demand for new technologies, and trends, our business and results of operations may be materially and adversely impacted. changes and inflections, successfulff effeff ctively address industryrr We are exposxx ed to ongoingii changes specifii c to the dispii laya industry. rr s experienced considerable volatility in capia tal equipment investment levels, due in part to The global display industry ha the limited number of display manufact urt ers, the concentrated nature of end-use applications, production capacity relative to ff end-use demand, and panel manufacturtt er profitaff bia lity. Industryrr growth depends primarily on consumer demand for increasingly larger and more advanced TVs, and on demand for advanced smartphones and mobile device displays, which demand is highly is characterized by ongoing changes sensitive to cost and improvements in technologies and featurt es. The display industryrr particular to this industryrr that impact demand for and the profitff ability of our display products and services, including: 21 • • • • • • • the importance of new types of display technologies, such as organic light-emitting diode (OLED), low temperaturett polysilicon (LTPS) and metal oxide transistor backplkk anes, flexible displays, and new touch panel films; the increasing cost of research and development, and complexity of technology transitions and inflections, and our ability to timely and effeff ctively anticipate and adapt to these changes; the timing and extent of an expansion of manufacff economic conditions and governmental regulations, including trade policies and export regulations; turing facilities in China, which may be affeff cted by changes in the importance of increasing market positions in products and technologies with growing demand; the rate of transition to new display technologies for TVs, information technology products and mobile applications, and augmented and virtuat l reality applications, and the resulting effeff ct on capital intensity in the industryrr and on our product differen tiation, gross margin and return on investment; ff the concentration of display manufacff urt year over year for display manufact ff turer customers, and fluctuations in customer spending quarter over quarter and ing equipment; and the dependence on a limited number of display manufact abia lity to successfulff technology end-use applications and growth drivers. urt er customers’ selection of new technologies, and their ly commercialize new products and technologies, and uncertainty with respect to future display ff The display industry ha ing equipment. If we do not ly develop and commercialize products to meet demand for new and emerging display technologies, or if industryrr ing equipment and technologies does not grow, our business and our operating results may s experienced decreased levels of investment in manufact urtt urt ff rr ff successfulff demand for display manufact continue to be adversely impacted. The industries in which we operate are highi ly competititt ve and subject to rapida technologio cal and market changes. We operate in a highly competitive environment in which innovation is critical, and our future success depends on many factors, including the development of new technologies and effeff ctive commercialization and customer acceptance of our equipment, services and related products, and our ability to increase our position in our current markets, expand into adjad cent t of products in a and new markets, and optimize operational performance. The development, introduction and suppor geographically diverse and competitive environment requires collabor rticipants, which has grown more complex and expensive over time. New or improved products may entail higher costs, longer development cycles, lower profitff s and may have unforff eseen product design or manufact ly, we must: ation with customers and other industry pa ing defects. To compete successfulff urtt u a ff rr • • • • • and address technology inflections, market changes, competitor innovations, new applications, customer identifyff requirements and end-use demand in a timely and effeff ctive manner; develop new products and disrupt adapt products for use by customers in different applications and markets with varying technical requirements; complete major infrastrucrr ture projects on schedule and on budget, and realize the anticipated benefits of those projects; ive technologies, improve and develop new applications for existing products, and rr differe ntiate our producdd ts from those of competitors, meet customers’ performance specifications (including those ff related to energy consumption and environmental impact more broadly), appropriately price products, and achieve market acceptance; effectively and timely implement artificff costly or ineffeff ctive, introducd e errors, cause loss of intellectuat intellectuat l property and other issues; ial intelligence strategies for our product and service offeri ngs, which may be l property, and raise complex regulatory compliance, ff • maintain operating flexibility to enable responses to changing markets, applications and customer requirements; • • • • • • enhance our worldwide operations across our businesses to reduce cycle time, enable continuous quality improvement, turabia lity and serviceabia lity; reduce costs, and enhance design for manufacff focus on produc ff strengthen customer relationships; t development and sales and marketing strategies that address customers’ high value problems and effectively allocate resources between our existing products and markets, the development of new products, and expanding into new and adjad cent markets; improve the productivity of capia tal invested in R&D activities; accurately forecast demand, work with supplu iers and meet production schedules for our products; improve our manufacff turing processes and achieve cost effiff ciencies across product offeri ff ngs; 22 • • • adapt to changes in value offere ff d by companies in different parts of the supply u chain; ff qualify pr oducts for evaluation and volume manufact ff urtt ing with our customers; and implement changes in our design engineering methodology to reduce material costs and cycle time, commonality of platforms and types of parts used in different systems, and improve product lifeff cycle management. increase If we do not successfulff ly anticipate technology inflections, develop and commercialize new products and technologies, and respond to changes in customer requirements and market trends, our business performance and operating results may be materially and adversely impacted. We are exposxx ed to risks associati edtt withii xx expandi ngii into new and related marketstt and industries. As part of our growth strategy, we seek to continue to expand into related or new markets and industries, either with our ation with third parties, or obtained a ly expand our business into new and related markets and industries may be existing products or with new producd ts developed internally, or those developed in collabor through acquisitions. Our ability to successfulff adversely affeff cted by a number of factors, including: • • • • • • • • • • • • • • the need to devote additional resources to develop new products for, and operate in, new markets; the need to develop new sales and technical marketing strategies, and to develop relationships with new customers; differing rates of profitaff bia lity and growth among multiple businesses; our ability to anticipate demand, capia talize on opportunities, and avoid or minimize risks; the complexity of managing multiple businesses with variations in production planning, execution, supply management and logistics; u chain the adoption of new business models, business processes and systems; the complexity of entering into and effeff ctively managing strategic alliances or partnering opportunities; new materials, processes and technologies; the need to attract, motivate and retain employees with skills and expertise in these new areas; new and more diverse customers and supplu funding, evolving business models or locations in regions where we do not have, or have limited, operations; iers, including some with limited operating histories, uncertain or limited new or differen ff customer relationships; t competitors with potentially more financial or other resources, industryrr experience and establa ished into new industries and countries, with differing levels of government involvement, laws and regulations, and entryrr business, employment and safety practices and requirements; third parties’ intellectuat l property rights; and the need to comply with, or work to establa ish, industryrr standards and practices. From time to time we receive funding from the United States and other government agencies for certain strategic development programs to increase our research and development resources and address new market opportunities. As a condition to this government funding, we are ofteff n subju ect to certain record-keeping, audit, intellectuatt l property rights-sharing, and/or other obligations. Operational and Financial Risks p We are exposxx ed to risks related to protect iott n and enfon rcement of intellecll tt tual propertytt righi ts. a iation of our intellectuat l property rights, such as the manufact Our success depends on the protection of our technology using patents, trade secrets, copyrights and other intellectual property rights. Infringement or misappropr urtt e or sale of equipment or spare parts that use our technology without authorization, could result in uncompensated lost market and revenue opportunities. Monitoring and detecting any unauthorized access, use or disclosure of our intellectuat l property is difficult and costly and we cannot be certain that the protective measures we have implemented will completely prevent misuse. Our ability l property rights is subju ect to litigation risks and uncertainty as to the protection and enforceabia lity of to enforce our intellectuat l property rights, we may be subju ect to claims that those those rights in some countries. If we seek to enforce our intellectuat rights are invalid or unenforceable, and others may seek counterclaims against us, which could have a negative impact on our business. If we are unable to enforce and protect intellectuat l property rights, or if they are circumvented, rendered obsolete, ce of technological change, or stolen or misappropriated by employees or third parties, it could have invalidated by the rapid pa l property laws or their interpretation may an adverse impact on our competitive position and business. Changes in intellectuat l property rights, increase costs and uncertainties in the prosecution of impact our ability to protect and assert our intellectuat a ff 23 patent applications or related enforcement actions, and diminish the value and competitive advantage conferff intellectuat l property assets. red by our From time to time third parties have asserted, and may continue to assert, intellectual property claims against us and our products. Claims that our producd ts infringe the rights of others, whether or not meritorious, can be expensive and time- consuming to defend and resolve, and may divert the effort s and attention of management and personnel. The inability to obtain rights to use third-party intellectuatt l property on commercially reasonable terms could have an adverse impact on our business. We may face claims based on the theftff or unauthorized use or disclosure of third-party trade secrets and other confidff ential business information. Any such incidents and claims could severely harm our business and reputation, result in significant expenses, harm our competitive position, and prevent us from selling certain products, all of which could have a material and adverse impact on our business and results of operations. ff We are exposxx ed to cyberserr curity th ii reatstt and incidents.tt ff rr u u In the conduct of our business, we collect, use, transmit, store, and otherwise process data using information technology systems, including systems owned and maintained by us or our third-party providers. These data include confidff ential l property belonging to us or our customers or other business partners, and personal information of information and intellectuatt ions, outages, failures, and security breaches or incidents. individuals. All information technology systems are subju ect to disrupt We and our third-party providers have experienced, and expect to continue to experience, cybersecurity incidents. Cybersecurity incidents may range from employee or contractor error or misuse or unauthorized use of information technology systems or confidff ential information, to individual attempts to gain unauthorized access to these information systems, to sophisticated cybersecurity attacks, known as advanced persistent threats, any of which may target us directly or indirectly chain. Cybersecurity attacks are increasing in number and the attackers are through our third-party providers and global supply increasingly organized and well-financed, or at times suppor ted by state actors. Geopolitical tensions or confliff cts, such as Russia’s invasion of Ukraine or increasing tension with China, may create a heightened risk of cybersecurity attacks. To the rabia lities and extent artificial intelligence capabilities improve and are increasingly adopted, they may be used to identify vulne creasingly sophisticated cybersecurity attacks. Vulnerabilities may be introduced from the use of artificial intelligence craft inff by us, our customers, supplu iers and other business partners and third-party providers. Although we are not aware of any cybersecurity incidents impacting us directly that have been material to us to date, we continue to devote significant resources tion, and other measures to protect our systems and data from unauthorized access or misuse, to network security, data encryprr and we may be required to expend greater resources in the future, especially in the face of evolving and increasingly sophisticated cybersecurity threats and laws, regulations, and other actual and asserted obligations to which we are or may become subju ect relating to privacy, data protection, and cybersecurity. We may be unabla e to anticipate, prevent, or remediate future attacks, vulnerabia lities, breaches, or incidents, and in some instances we may be unaware of vulnerabia lities or cybersecurity breaches or incidents or their magnitude and effeff cts, particularly as attackers are becoming increasingly able to circumvent controls and remove forensic evidence. Cybersecurity incidents may result in business disrupt ion; delay in the ing processes, internal communications, interactions development and delivery of our pr l iers and processing and reporting financial results; the theftff or misappropriation of intellectuat with customers and supplu property; corruptu ion, loss of, or inability to access (e.g., through ransomware or denial of service) confidff ential information and critical data (i.e., that of our company and our third-party providers and customers); reputational damage; private claims, demands, and litigation or regulatory investigations, enforcement actions, or other proceedings related to contractuat l or ivacy, cybersecurity, data protection, or other confidff entiality obligations; diminution in the value of our investment regulatory pr in research, development and engineering; and increased costs associated with the implementation of cybersecurity measures to detect, deter, protect against, and recover from such incidents. Our effort s to comply with, and changes to, laws, regulations, ff l and other actual and asserted obligations concerning privacy, cybersecurity, and data protection, including and contractuat developing restrictions on cross-border data transfer an l or alleged failure to comply could result in inquiries, investigations, and other proceedings against us by regulatory authorities or other third parties. Customers and third-party providers increasingly demand rigorous contractuatt l provisions regarding privacy, cybersecurity, data protection, confidff entiality, and intellectuat d data localization, could result in significant expense, and any actuat l property, which may increase our overall compliance burden. ion of our manufact oducd ts; disrupt urt rr rr rr ff ff rr We are expos xx ed to risks associatedtt withii busineii ss combinatiott ns, acqu s isitions,s strategie c investmett ntstt and divestitures. We may engage in acquisitions of or investments in companies, technologies or products in existing, related or new markets. Business combinations, acquisitions and investments involve numerous risks to our business, financial condition and operating results, including: • • • inability to complete proposed transactions timely or at all due to the failure to obtain regulatory or other approvals, litigation or other disputes, and any ensuing obligation to pay a termination fee; diversion of management’s attention and disrupt rr ion of ongoing businesses; the failure to realize expected revenues, gross and operating margins, net income and other returns from acquired businesses; 24 • • • • • • • • • • • • • • • • • requirements imposed by government regulators in connection with their review of a transaction, which may include, among other things, divestitures and restrictions on the conduct of our existing business or the acquired business; following completion of acquisitions, ineffeff ctive integration of businesses, operations, systems, digital and physical security, technologies, products, employees, compliance programs, changes in laws or regulations, including tax laws, or other factors, may impact the ability to realize anticipated synergies or other benefits; failure to commercialize technologies from acquired businesses or developed through strategic investments; dependence on unfamff u iliar supply chains or relatively small supply pa u rtners; inability to capitalize on characteristics of new markets that may be significantly different from our existing markets and where competitors may have stronger market positions and customer relationships; failure to retain and motivate key employees of acquired businesses; the impact of the announcement or consummation of a proposed transaction on relationships with third parties; changes in our credit rating, which could adversely impact our access to and cost of capital; increases in debt obligations to finance activities associated with a transaction, which increase interest expense, and reductions in cash balances, which reduce the availabia lity of cash flow for general corporate or other purpos es, including share repurchases and dividends; rr exposure to new operational risks, rules, regulations, worker expectations, customs and practices to the extent acquired businesses are located in regions where we have not historically conducted business; challenges associated with managing new, more diverse and more widespread operations, projects and people; inability to obtain and protect intellectuat l property rights in key technologies; inadequacy or ineffeff ctiveness of an acquired company’s internal financial controls, disclosure controls and procedurd es, cybersecurity, privacy policies and compliance programs, or environmental, health and safety, anti-corruptu ion, 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 claims associated with a proposed or completed transaction; unknown, underestimated, undisclosed or undetected commitments or liabilities, property infringement claims, or non-compliance with laws, regulations or policies; and including potential intellectual t the inappropriate scale of acquired entities’ critical resources or facilities for business needs. We make investments in other companies, including companies formed as joint ventures, which may decline in value or not meet desired objeb ctives. The success of these investments depends on various factors over which we may have limited or no control and, particularly with respect to joint venturt es, requires ongoing and effeff ctive cooperation with partners. In addition, new legislation, additional regulations or global economic or political conditions may affeff ct or impair our ability to invest in certain countries or require us to obtain regulatory approvals to do so. We may not receive the necessary regulatory approvals io may be exacerbated or the approvals may come with significant conditions or obligations. The risks to our investment portfolff by unfavff orable financial market and macroeconomic conditions and, as a result, the value of the investment portfolff io could be negatively impacted and lead to impairment charges. We may seek to divest portions of our business that are not deemed to fit with our strategic plan. Divestiturt es involve tory price and terms and in a timely manner, additional risks and uncertainties, such as ability to sell such businesses on satisfacff or at all, disrupt ion to other parts of the businesses and distraction of management, allocation of internal resources that would otherwise be devoted to completing strategic acquisitions, loss of key employees or customers, exposure to unanticipated liabia lities or ongoing obligations to suppor t the businesses following such divestitures, and other adverse financial impacts. u rr The abilityii to attrtt act, retain and motivatett keye employm ees is vitaii l to our success. Our success depends in large part on our ability to attract, retain and motivate qualified employees and leaders with the necessary expertise and capabilities, representing diverse backgrounds and experiences. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industryrr conditions, management or organizational changes, ongoing competition for talent, the availabia lity of qualified employees, the ability to obtain necessary authorizations for workers to provide services outside their home countries, the attractiveness of our compensation and benefit programs, our career growth and development opportunities, and our employment policies. If we are unabla e to attract, retain and motivate qualified employees and leaders, we may be unable to fully capitalize on current and new market opportunities, which could 25 adversely impact our business and results of operations. The loss of knowledgeable and experienced employees may result in unexpected costs, reduced productivity, or difficulties with respect to internal processes and controls. We operate in jurisdictio dd ns withii ee complex and changingii taxaa laws. We are subju ect to income taxes in the United States and foreign jurisdictions. Significant judgment is required to determine and estimate worldwide tax liabia lities. Our provision for income taxes and effeff ctive tax rates could be affeff cted by numerous factors, including changes in applicable tax laws, interpretations of applicable tax laws, amount and composition of pre-tax income in jurisdictions with differing tax rates, and valuation of deferred tax assets. There have been a number of proposed changes in the tax laws that, if enacted, would increase our tax liabia lity. While it is too early to predict the outcome of these proposals, if enacted, they could have a material impact on our provision for income taxes and effeff ctive tax rate. An increase in our provision for income taxes and effeff ctive tax rate could, in turn, have a material and adverse impact on our results of operations and financial condition. For example, several countries where we do business have announced plans to implement global minimum tax regimes based on the Organization for Economic Cooperation and Development Base Erosion and Profitff Shifting Project. If implemented, these global minimum tax regimes would change various aspects of the existing framework under which our global tax obligations are determined, which would unfavff orably impact our existing tax incentives and effeff ctive tax rate. As this framework is subju ect to further negotiation and implementation by each member country, the timing and ultimate impact of any such changes on our tax obligations are uncertain. Consistent with the international nature of our business, we conduct certain manufacff chain, and other operations in Asia, bringing these activities closer to customers and reducing operating costs. In some foreign jurisdictions, we must meet certain requirements to continue to qualifyff for tax incentives. There is no assurance we will be able to meet such requirements in the future to fully realize benefits from these incentives. Furthermore, the proposed plans to implement global minimum tax regimes could reduce or eliminate the benefits of our tax incentives. turing, supply u We are subju ect to examination by the U.S. Internal Revenue Service and other tax authorities, and from time to time amend previously filed tax returns. We regularly assess the likelihood of favorable or unfavff orable outcomes resulting from these examinations and amendments to determine the adequacy of our provision for income taxes, which requires estimates and judgments. Although we believe our tax estimates are reasonable, there can be no assurance the tax authorities will agree with such estimates. We 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 we will be successfulff or that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and effeff ctive tax rates. Our indebtedtt nedd ss and debt covenantstt could ad vedd rsely affeff ct our financ ii ll ial conditdd iott n and busineii ss. ff As of October 29, 2023, we had $5.5 billion in aggregate principal amount of senior unsecured notes outstanding. Under the indenture governing the senior unsecured notes, we may be required to offer to repurchase the notes at a price equal to 101% of the principal amount, plus accruerr d and unpaid interest, if we experience a change of control and a contemporaneous downgrade of the notes below investment grade. We also have in place a $1.5 billion revolving credit facility. While no amounts were outstanding under this credit facility as of October 29, 2023, we may borrow amounts in the future under this debt obligations is dependent upon the results credit facility or enter into new financing arrangements. Our ability to satisfy our of our business operations and subju ect to other risks discussed in this section. If we fail to satisfy our debt obligations, or comply with financial and other debt covenants, we may be in default and any borrowings may become immediately due and payable, and such default may constitute a default under our other obligations. There can be no assurance that we would have sufficient financial resources or be able to arrange financing to repay any borrowings at such time. Significant changes in our credit rating, disrupt ions in the global financial markets, or incurrence of new or refinancing of existing indebtedness at higher interest rates could have a material and adverse impact on our access to and cost of capia tal for future financings, and financial condition. rr ff ff The failure to successfulff ly impact our busineii plm emen ll ss and operatingii ly imll t enterprise resource planll ning and othett results. adverserr r infon rmatiott n systemtt s changes couldll We periodically implement new or enhanced enterprise resource planning and related information systems in order to better manage our business operations, align our global organizations and enable future growth. Implementation of new business processes and information systems requires the commitment of significant personnel, training and financial resources, and entails risks to our business operations. If we do not successfulff ly implement enterprise resource planning and related information systems improvements, or if there are delays or difficulties in implementing these systems, we may not realize anticipated productivity improvements or cost effiff ciencies, and may experience interruptu ions in service and operational difficulties, which could result in quality issues, reputational harm, lost market and revenue opportunities, and otherwise adversely affeff ct our business, financial condition and results of operations. 26 We maya incur impaim rmii ent charges related to goodwill or long-lgg ivll ed assets. We have a significant amount of goodwill and other acquired intangible assets related to acquisitions. Goodwill and lives are not amortized, but are reviewed for impairment annually during the purchased intangible assets with indefinite usefulff fourth quarter of each fiscal year, and more frequently when events or changes in circumstances indicate the carrying value of an asset may not be recoverabla e. The review compares the fair value for each of our 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 our common stock, changes in our strategies or product portfolff ing activities. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and projections of future operating performance. We may be required to record futff urt e charges to earnings during the period in which an impairment of goodwill or intangible assets is determined to exist. io, and restructurtt rr We maya not contintt ue to declarll e cash dividendsdd or repuee rchase our shares. Our ability to continue to pay quarterly dividends and to repurchase our shares is subju ect to capital availabia lity and periodic determinations by our Board of Directors that cash dividends and share repurchases are in the best interest of our stockholders and are in compliance with applicable laws and agreements. Future dividends and share repurchases may be affeff cted by, among other factors, our cash flow; potential future capia tal requirements for investments, acquisitions, infrastructurt e projects, and research and development; changes in applicable tax, corporate, or other laws; contractuatt l restrictions, such as financial or operating covenants in our debt arrangements; and changes to our business model. Our dividend payments and share repurchases may change from time to time, and we cannot provide assurance that we will continue to declare dividends or repurchase shares in any particular amounts or at all. A reduction or suspension in our dividend payments or share repurchases could have a negative effeff ct on the price of our common stock. , Legal, Compliance, and Other Risks g , p We are exposxx ed to risks related to legal pro e ceedindd gs, claill msii and investigtt atiott ns. From time to time we are, and in the future may be, involved in legal proceedings or claims regarding patent l property rights, trade compliance, including import, export and infringement, trade secret misappropriation, other intellectuatt customs, antitrust, environmental regulations, privacy, data protection, securities, contracts, product performance, product r competition, employment, workplkk ace safety, and other matters. We may receive, and have received, inquiries, liabia lity, unfaiff warrants, subpoena s, and other requests for information in connection with government investigations of potential or suspected violations of law or regulations by our company and/or our employees. We also on occasion receive notificff ations from customers who believe we owe them indemnificff ation, product warranty or have other obligations related to claims made against such customers by third parties. u Legal proceedings, claims, and government investigations, whether with or without merit, and internal investigations, may be time-consuming and expensive to prosecute, defend or conduct; divert management’s attention and our other resources; constrain our ability to sell our producdd ts and services; result in adverse judgments for damages, injun nctive relief, pena lties and fines; and negatively affeff ct our business. We cannot predict the outcome of current or future legal proceedings, claims or investigations. ff We are expos xx ed to risks related to the global regue latory enviroii nment. We are subju ect to the laws of the United States and multiple foreign jurisdictions and the rules and regulations of various governing bodies, which may differ among jurisdictions, including those related to financial and other disclosures, accounting standards, corporate governance, intellectual property, tax, trade (including import, export and customs), antitrust, environment, health and safety (including those relating to climate change), employment, immigration and travel regulations, human rights, privacy, data protection and localization, and anti-corruptu ion. Changing, inconsistent or confliff cting laws, rules and regulations, and ambiguities in their interpretation and application create uncertainty and challenges, and compliance with laws, rules and regulations may be onerous and expensive, divert management time and attention from revenue-generating activities, and otherwise adversely impact our business operations. Violations of law, rules and regulations, including, among others, those related to financial and other disclosures, trade, import and export regulations, antitrusrr t, privacy, data protection, and anti- corruptu ion, could result in fines, criminal penalties, restrictions on our business, and damage to our reputation, and could have an adverse impact on our business operations, financial condition and results of operations. Our enviroii nmental, social and governance strategie es and targetstt couldll result in additioii nal costs, and our inabiliii ty to ii achieve them couldll have an adverserr impacm t on our repuee tation and perforff marr nce. We periodically communicate our strategies and targets related to sustainability, carbon emissions, diversity and inclusion, human rights, and other environmental, social and governance matters. These strategies and targets, and their 27 underlying assumptions and projections, reflect our current plans and aspirations, and we may be unable to achieve them. Changing customer and shareholder sustainability expectations and regulatory requirements, as well as our sustainability turing, operations or equipment designs and processes. targets, could cause us to incur subsu tantial expense and alter our manufacff Any failure or perceived failure to timely meet these sustainability requirements, expectations or targets, or a failure to realize the anticipated benefits of planned investments and technology innovations related to sustainability, could adversely impact the demand for our producdd ts and subju ect us to significant costs and liabia lities and reputational risks that could in turn adversely affeff ct our business, financial condition and results of operations. In addition, standards and processes for measuring and reporting carbon emissions and other sustainability metrics may change over time, and may result in inconsistent data, or could result in significant revisions to our strategies and targets, or our ability to achieve them. Any scrutiny of our carbon emissions or other sustainability disclosures, our failure to achieve related strategies and targets, or our failure to disclose our sustainability measures consistent with applicable laws and regulations or to the satisfaction of our stakeholders could negatively impact our reputation or performance. r We are subject to risks associati edtt withii enviroii nmental, healthll and safea ty regue lations. We are subju ect to environmental, health and safety regulations in connection with our global business operations, ture, sale, shipping and use of our products; use, including but not limited to: regulations related to the design, manufacff handling, discharge, recycling, transportation and disposal of hazardous materials used in our products or in producing our products; the operation of our facilities; and the use of our real property, including in connection with construcrr tion of our infrastructurt e projects. The failure or inability to comply with existing or future environmental, health and safety regulations could result in: significant remediation or other legal liabia lities; the imposition of penalties and fines; restrictions on the development, manufacff ture, sale, shipping or use of certain of our products; limitations on the operation of our facilities or ability to use our real property; and a decrease in the value of our real property. We could be required to alter our product design, manufact ing, and operations, and incur subsu tantial expense in order to comply with environmental, health and safety regulations. Any failure to comply with these regulations could subju ect us to significant costs and liabia lities that could materially and adversely affeff ct our business, financial condition and results of operations. urtt ff 28 Item 1B: Unresolved Staftt fff Comments None. 29 Item 2: Propertiestt Information concerning our properties is set forth below: (Square feet in thousands) Owned Leased Total United States 5,627 2,733 8,360 Other Countries 2,931 1,909 4,840 Total 8,558 4,642 13,200 Because of the interrelation of our operations, properties within a country may be shared by the segments operating within that country. Our headquarters offiff ces are in Santa Clara, California. Products in Semiconductor Systems are manufact urt ed equipment products in the Applied Global Services segment are produced primarily in Austin, Texas. Products in the Display and Adjad cent Markets segment are manufacff urt ed primarily in Singapore; Austin, Texas; Gloucester, Massachusetts; and Rehovot, Israel. Remanufact tured primarily in Tainan, Taiwan. ff ff We also own and lease facilities throughout the world for use as offiff ces, plants and warehouses, and research and development centers, primarily in the United States, Taiwan, China, Israel and Singapor a e. We also own a total of approximately 279 acres of buildable land in the United States, Israel, Italy and India that could accommodate additional building space. We consider the properties that we own or lease as adequate to meet our current and future requirements. We regularly lity and location of our global infrastructurt e and periodically make adjud stments based on these a assess the size, capabi assessments. 30 Item 3: e Legal Proceedindd gs The information set forth under “Legal Matters” in Note 15 of Notes to Consolidated Financial Statements is incorporated ed to risks e ,l Compliance, and Othett “Risk Factorsrr – Risks Related to Legal We are expos ii r Risks – x ii herein by reference. See alsoll related to legal proc e eedings, clail ms and investigat i ions.” Item 4: Mine Sa fea ty Discii ii losures None. 31 PART II Item 5: Market for Regie stra ii nt’s Common Equityii ,yy Related Stockholde tt r Mattertt srr and Issuer Purchases of Equityii Securities ii Market Information Our common stock is traded on the NASDAQ Global Select Market under the symbol AMAT. As of December 8, 2023, there were 2,755 registered holders of our common stock. Information regarding quarterly cash dividends declared on our common stock during fiscal 2023, 2022 and 2021 may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capia tal Resources”. Perforff mance Graph The performance graph below shows the five-year cumulative total stockholder return on our common stock during the period from October 28, 2018 through October 29, 2023. This is compared with the cumulative total return of the Standard & Poor’s 500 Stock Index and the PHLX Semiconductor Index over the same period. The comparison assumes $100 was invested on October 28, 2018 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. Dollar amounts in the graph are rounded to the nearest whole dollar. The performance shown in the graph represents past performance and should not be considered an indication of future performance. The graph below assumes that the value of the investment in our common stock and in each of the indexes was $100 at October 28, 2018, and that all dividends were reinvested. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Applied Materials, Inc., the S&P 500 Index, and the PHLX Semiconductor Index $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 10/28/2018 10/27/2019 10/25/2020 10/31/2021 10/30/2022 10/29/2023 Applied Materials, Inc. S&P 500 PHLX Semiconductor Copyright© 2023 Standard & Poor’s, a division of S&P global. All rights reserved. Applied Materials S&P 500 Index PHLX Semiconductor Index 10/28/2018 10/27/2019 10/25/2020 10/31/2021 10/30/2022 10/29/2023 100.00 100.00 100.00 175.74 116.03 145.93 194.93 135.57 212.58 440.65 182.86 314.91 291.76 157.30 225.17 431.02 168.81 302.44 32 Issuer Purchases of Equity Securities In March 2023, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in emented the previously existing $6.0 billion authorization approved in March 2022. At October 29, repurchases, which supplu 2023, approximately $12.7 billion remained availabla e for future stock repurchases under the repurchase program. The following tabla e provides information as of October 29, 2023 with respect to the shares of common stock repurchased by us during the fourth quarter of fiscal 2023 pursuant to the foregoing Board authorization. Period Month #1 Total Number of Shares Purchased Average Price Paid per Share* Aggregate Price Paid* Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value of Shares That May Yet be Purchased Under the Programs* (In millions, except per share amounts) (July 31, 2023 to August 27, 2023) 0.3 $ 147.17 $ 50 Month #2 (August 28, 2023 to September 24, 2023) 1.6 $ 144.00 Month #3 (September 25, 2023 to October 29, 2023) Total 3.2 5.1 $ 136.43 $ 139.50 $ 226 429 705 $ $ $ 0.3 1.6 3.2 5.1 13,375 13,149 12,720 *Effective January 1, 2023, amounts include the 1% surcharge on stock repurchases under the Inflation Reduction Act’s excise tax. This excise tax is recorded in equity and reduces the amount availabla e under the repurchase program, as applicable. Item 6: [Reserved] 33 Item 7: Managea ment’s Discii ussion and Analysll ii is of Financ ial Conditiodd n and Resultstt of Operatiott ns Introduction Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to facilitate an understanding of our business and results of operations. This MD&A should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this Form 10-K. The following discussion contains forward-looking statements and should also be read in conjunction with the cautionary statement set forth at the beginning of this Form 10-K. MD&A consists of the following sections: • • • • • • • Overview: a summaryrr of our business and measurements Results of Operations: a discussion of operating results Segment Infon rmation: a discussion of segment operating results Recent Accounting Pronouncements: a discussion of new accounting pronouncements and its impact to our consolidated financial statements Financial Condition, Liquidity and Capia tal Resources: an analysis of cash flows, sources and uses of cash Contratt ctual Obligat i ions and Off-ff Balance Sheet Arrangements Critical Accounting Policies and Estimates: a discussion of critical accounting policies that require the exercise of judgments and estimates Overview ff ff urt urt ers of semiconductor wafers and chips, liquid crysrr ing equipment, services and software to the semiconductor, display, and related industries. Our We provide manufact tal and organic light-emitting diode (OLED) customers include manufact ture in their own end products or sell the displays, and other electronic devices. These customers may use what they manufacff items to other companies for use in electronic products. Each of our segments is subju ect to variable industryrr conditions, as demand for manufacff and demand for chips, display technologies, and other electronic devices, as well as other factors, such as global economic, political and market conditions, and the nature and timing of technological advances in fabra ication processes. turing equipment and services can change depending on supply u We operate in three reportabla e segments: Semiconductor Systems, Applied Global Services, and Display and Adjad cent Markets. A summary of financial information for each reportabla e segment is found in Note 16 of Notes to Consolidated Financial Statements. A discussion of factors that could affeff ct our operations is set forth under “Risk Factors” in Part I, turing activities occur primarily in the Item 1A, which is incorporated herein by reference. Product development and manufacff United States, Europe, Israel, and Asia. Our broad range of equipment and service products are highly technical and are sold primarily through a direct sales force. u Our results are driven primarily by customer spending on capital equipment and services to suppor t key technology transitions or to increase production volume in response to worldwide demand for semiconductors and displays. Spending by semiconductor customers, which include companies that operate in the foundry, logic, memory, and other semiconductor chip markets, is driven by demand for electronic products, including smartphones and other mobile devices, servers, personal computers, automotive devices, storage, and other products. The growth of data and emerging end-market drivers such as l reality are also creating the artificial intelligence, the Internet of Things, 5G networks, smart vehicles and augmented and virtuat next wave of growth for the industry.rr As a result, products within the Semiconductor Systems segment are subju ect to significant changes in customer requirements, including transitions to smaller dimensions, increasingly complex chip architecturt es, new materials and an increasing number of applications. Demand for display manufacff turing equipment spending depends primarily on consumer demand for increasingly larger and more advanced TVs as well as larger and higher resolution displays for next- generation mobile devices, and investments in new types of display technologies. The timing of customer investment in manufacff city expansion to meet end-market demand. In light of these conditions, our results can vary significantly year-over-year, as well as quarter-over-quarter. turing equipment is also affeff cted by the timing of next-generation process development and the timing of capaa 34 Our strategic priorities include developing products that help solve customers’ challenges at technology inflections; expanding our served market opportunities in the semiconductor and display industries; and growing our services business. Our lities, including products and long-term growth strategy requires continued development of new materials engineering capabi platforms that enable expansion into new and adjad cent markets. Our significant investments in research, development and engineering must generally enable us to deliver new products and technologies before the emergence of strong demand, thus allowing customers to incorporate these products into their manufact ing plans during early-stage technology selection. We work closely with our global customers to design systems and processes that meet their planned technical and production requirements. urt a ff The following tabla e presents certain significant measurements for the past three fiscal years: 2023 2022 2021 2023 over 2022 2022 over 2021 (In millions, except per share amounts and percentages) Change Net sales Gross margin Operating income Operating margin Net income Earnings per diluted share $ $ $ $ % % 26,517 46.7 7,654 28.9 6,856 8.11 $ $ $ $ 25,785 6.5 % 4 7,788 0.2 % 3 6,525 7.44 $ $ $ $ 23,063 6,889 2,722 $ 732 $ 0.8) points s ( 47.3 % 0.2 point 899 (134) $ $ .3 points s 0 29.9 % (1.3) point 331 $ 637 $ 5,888 6.40 $ 0.67 $ 1.04 Fiscal 2023 and fiscal 2022 each contained 52 weeks, while fiscal 2021 contained 53 weeks. Semiconductor equipment customers continued to make strategic investments in new capacity and new technology transitions during fiscal 2023. Foundry and logic spending increased in fiscal 2023 compared to fiscal 2022 driven by customer ing nodes to serve demand across a wide range of products. Memory customers’ spending in investments in maturt e manufact city additions primarily as a result of weakness in fiscal 2023 was lower as compared to fiscal 2022 due to deferred capaa demand for consumer electronic products. urt ff Our Applied Global Services net sales in fiscal 2023 increased compared to fiscal 2022 primarily due to an increase in sales associated with long-term service agreements and higher customer spending on legacy systems, partially offsff et by a decrease in net sales due to additional export regulations issued by the United States government in 2022 and lower customer utilization rates. Our Display and Adjad cent Markets net sales decreased in fiscal 2023 compared to fiscal 2022 primarily due to lower customer investments in display manufact ing equipment for TVs as a result of weakness in demand for consumer electronic products. urt ff We experienced supply u chain and logistics constraints in fiscal 2022, and although there have been significant u chain performance in fiscal 2023, we expect some shortages to persist, and managing these supply u improvements in supply chain constraints to increase shipments to customers remains a top priority. In fiscal 2024, we expect advanced foundry and logic demand to be stronger as compared to fiscal 2023 due to increased customer spending in PC, cloud and Artificial Intelligence (AI) data centers as well as customers’ continued investments in new technology. Demand for mature manufact ing nodes is expected to be lower as compared to fiscal 2023, primarily due to decreased customer spending in the industrial automation and automotive markets. We expect memory customers’ spending to be higher as compared to fiscal 2023 as customers continue to invest in new technology. urt ff In the past two years, the United States government announced additional export regulations for U.S. semiconductor technology sold in China. For a description of risks associated with global trade, see the risk factor entitled “Business and ions, - Global tradedd issues and changes in and uncertainties with respect to trade policies and expor Industryr Risks ly trade sanctions, tariffsi including imporm t and export license requirements,tt impacm ted and could furthett ly impacm t our business and operations, and reduce the competitiveness of our products relative to local and global competitors” in Part I, Item 1A, “Risk Factors.” and international trade dispii utes, have adverserr r adverserr t regulat e x ii 35 Results of Operations Net Sales Net sales for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change Semiconductor Systems Applied Global Services Display and Adjad cent Markets Corporate and Other Total $ 19,698 5,732 74% $ 18,797 5,543 22% 73% $ 16,286 5,013 22% 71% 22% (In millions, except percentages) 868 219 $ 26,517 3% 1% 1,331 5% 114 —% 100% $ 25,785 100% $ 23,063 1,634 7% 130 —% 100% 5 % 3 % (35)% 92 % 3 % 15 % 11 % (19)% (12)% 12 % The Semiconductor Systems segment continued to represent the largest contributor of net sales. Net sales in fiscal 2023 compared to fiscal 2022 and fiscal 2022 compared to fiscal 2021 increased primarily due to continued customer investment in turing equipment. The semiconductor equipment, partially offsff et by the reduction in customer investment in display manufacff chain performance increase in net sales in fiscal 2023 compared to fiscal 2022 was also due to improvements in our supply enabling us to better fulfillff demand. u Net sales by geographic region, determined by the location of customers’ facilities to which products were shipped, were as follows: China Korea Taiwan Japana Southeast Asia Asia Pacific United States Europe Total 2023 2022 2021 2023 over 2022 2022 over 2021 Change $ 7,247 4,609 5,670 2,075 758 20,359 4,006 2,152 $ 26,517 7,254 27% $ 4,395 18% 6,262 21% 2,012 8% 1,084 3% 21,007 77% 3,104 15% 1,674 8% 100% $ 25,785 (In millions, except percentages) 7,535 28% $ 5,012 17% 4,742 24% 1,962 8% 677 4% 19,928 81% 2,038 12% 1,097 7% 100% $ 23,063 33% 22% 20% 8% 3% 86% 9% 5% 100% — % 5 % (9)% 3 % (30)% (3)% 29 % 29 % 3 % (4)% (12)% 32 % 3 % 60 % 5 % 52 % 53 % 12 % The increases in net sales to customers in the U.S. and Europe for fiscal 2023 compared to fiscal 2022 primarily reflected increased investment by customers in semiconductor equipment and increased customer spending on legacy systems and comprehensive service agreements. The increase in net sales to customers in Korea for fiscal 2023 compared to fiscal 2022 primarily reflected increased investment by customers in semiconductor equipment and increased customer spending on comprehensive service agreements, spares and legacy systems, partially offsff et by decreased investment in display manufact ing equipment. urt ff The increase in net sales to customers in Japana for fiscal 2023 compared to fiscal 2022 primarily reflected increased turing equipment, partially offsff et by decreased investment by customers in semiconductor investment in display manufacff equipment. Net sales to customers in China for 2023 compared to fiscal 2022 remained flat and primarily reflected increased investment in semiconductor equipment, offsff et by decreased in customer spending on long-term service agreements due to the impact of additional export regulations issued by the United States government in 2022 and decreased investment in display manufacff turing equipment. The changes in net sales in all other regions for fiscal 2023 compared to fiscal 2022 primarily reflected changes in semiconductor manufacff turing equipment spending. 36 The increases in net sales in all regions other than China and Korea in fiscal 2022 compared to fiscal 2021 primarily reflected changes in semiconductor equipment spending and customer spending on comprehensive service agreements. The decrease in net sales to customers in China for fiscal 2022 compared to fiscal 2021 primarily reflected decreased investment in display manufact ing equipment and semiconductor equipment, partially offsff et by increased spending on spares and comprehensive service agreements. The decrease in net sales to customers in Korea for fiscal 2022 compared to fiscal 2021 primarily reflected decreased investment in semiconductor equipment, partially offsff et by increased investment in display manufacff turing equipment. urt ff Gross Margin Gross margins for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change (In millions, except percentages) Gross margin 46.7 % 46.5 % 47.3 % 0.2 points (0.8) points Gross margin in fiscal 2023 increased compared to fiscal 2022 primarily driven by favorable changes in customer and product mix and an increase in average selling prices, partially offsff et by higher material costs and inventoryrr charges. Gross margin in fiscal 2022 decreased compared to fiscal 2021 primarily driven by higher material, freight, and logistics city and flexibility, partially costs and higher personnel costs due to an increase in headcount to provide manufact offsff et by favorable changes in product mix and an increase in average selling prices. ing capaa urt ff Gross margin during fiscal 2023, 2022 and 2021 included $180 million, $147 million and $118 million, respectively, of share-based compensation expense. Research, Developmo ent and Engineii ering Research, Development and Engineering (RD&E) expenses for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change (In millions) Research, development and engineering $ 3,102 $ 2,771 $ 2,485 $ 331 $ 286 Our future operating results depend to a considerable extent on our ability to maintain a competitive advantage in the equipment and service products we provide. Development cycles range from 12 to 36 months depending on whether the product is an enhancement of an existing product, which typically has a shorter development cycle, or a new product, which typically has a longer development cycle. Most of our existing products resulted from internal development activities and innovations involving new technologies, materials and processes. In certain instances, we acquire technologies, either in existing or new product areas, to complement our existing technology capabi lities and to reduce time to market. a We believe that it is critical to continue to make subsu tantial investments in RD&E to assure the availabia lity of innovative technology that meets the current and projected requirements of our customers’ most advanced designs. We have maintained and intend to continue our commitment to investing in RD&E in order to continue to offer new products and technologies. ff We continued our RD&E investments in Semiconductor Systems and Display and Adjad cent Markets on the development of new unit process systems and integrated materials solutions. Areas of investment include etch, deposition, metrology and inspection, patterning, packaging and other technologies to improve chip performance, power, area, cost and time-to-market. In Display and Adjad cent Markets, RD&E investments were focused on expanding our market opportunity with new display technologies. The increases in RD&E expenses during fiscal 2023 compared to fiscal 2022 were primarily due to additional headcount, higher depreciation expense and consumable and equipment costs associated with ongoing product development. In addition, the increases in RD&E expenses in fiscal 2023 compared to fiscal 2022 also included a $30 million impairment of fixed assets. The increases in RD&E expenses during fiscal 2022 compared to fiscal 2021 were primarily due to additional headcount, higher consumable and equipment costs associated with ongoing product development and share-based compensation expense. These increases reflect our ongoing investments in product development initiatives, consistent with our growth strategy. We continued to prioritize existing RD&E investments in technical capabilities and critical research and development programs in current and new markets, with a focus on semiconductor technologies. 37 RD&E expenses during fiscal 2023, 2022 and 2021 included $179 million, $151 million and $129 million, respectively, of share-based compensation expense. Marketintt g and Sellingii Marketing and selling expenses for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change (In millions) Marketing and selling $ 776 $ 703 $ 609 $ 73 $ 94 Marketing and selling expenses for fiscal 2023 increased compared to fiscal 2022 primarily due to additional headcount and higher travel related expenses. Marketing and selling expenses for fiscal 2022 increased compared to fiscal 2021 primarily due to additional headcount. Marketing and selling expenses for fiscal years 2023, 2022 and 2021 included $55 million, $49 million and $43 million, respectively, of share-based compensation expense. ii General and Admidd niii stra tive General and administrative (G&A) expenses for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change (In millions) General and administrative $ 852 $ 735 $ 620 $ 117 $ 115 G&A expenses in fiscal 2023 increased compared to fiscal 2022 primarily due to additional headcount, higher sional fees and depreciation expense. G&A expenses in fiscal 2022 increased compared to fiscal 2021 primarily due to profesff additional headcount and higher travel related expenses. G&A expenses during fiscal 2023, 2022 and 2021 included $76 million, $66 million and $56 million, respectively, of share-based compensation expense. Interest Expexx nse and Interest and Othett r Income (expe ee nse), net Interest expense and interest and other income (expense), net for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change Interest expense Interest and other income (expense), net $ $ 238 300 $ $ 228 39 $ $ (In millions) 236 118 $ $ 10 261 $ $ (8) (79) Interest expense incurred was primarily associated with issued senior unsecured notes. Interest expense in fiscal 2023 remained relatively flat compared to fiscal 2022 and fiscal 2021 primarily due to the average principal balance of the senior unsecured notes remained consistent at $5.5 billion in each of the last three years. Interest and other income (expense), net in fiscal 2023 increased compared to fiscal 2022, primarily driven by higher interest income as a result of an increase in market rates of interest and higher net gain on equity investments, partially offsff et by higher impairment losses on equity investments, compared to the prior year. Interest and other income (expense), net in fiscal 2022 decreased compared to fiscal 2021, primarily driven by higher net loss from equity investments, partially offsff et by higher interest income during fiscal 2022 compared to fiscal 2021. 38 Income Taxesaa Provision for income taxes and effeff ctive tax rates for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change (In millions, except percentages) Provision for income taxes Effeff ctive income tax rate $ $ 860 11.1 % $ 1,074 14.1 % $ 883 13.0 % (214) (3.0) points $ 191 1.1 points Our provision for income taxes and effeff ctive tax rate are affeff cted by the geographical composition of pre-tax income ing tax rates, conditional reduced tax rates and other income tax incentives. It is also which includes jurisdictions with differff affeff cted by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings. The effeff ctive tax rate for fiscal 2023 was lower than fiscal 2022 primarily due to a reduction of deferred tax assets that occurred in fiscal 2022, related to a new tax incentive in Singapor e. The effeff ctive tax rate for fiscal 2022 was higher than fiscal 2021 primarily due to a reduction of deferred tax assets related to a new tax incentive in Singapore, partially offsff et by changes in uncertain tax positions. a Beginning in our fiscal 2023, the Tax Cuts and Jobs Act (Tax Act), enacted on December 22, 2017, eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five years for activities performed in the U.S. or fifteen years for activities performed outside of the U.S. This capitalization requirement increases our effeff ctive tax rates, deferred tax assets and cash tax liabilities beginning in fiscal 2023. 39 Segment Information We report financial results in three segments: Semiconductor Systems, Applied Global Services, and Display and Adjad cent Markets. A description of the producd ts and services, as well as financial data, for each reportabla e segment can be found in Note 16 of Notes to Consolidated Financial Statements. The Corporate and Other category includes revenues from products, as well as costs of products sold, for fabra icating solar photovoltaic cells and modules and certain operating expenses that are not allocated to our reportabla e segments and are managed separately at the corporate level. These operating expenses include costs for share-based compensation; certain management, finance, legal, human resource, and RD&E functions provided at the corporate level; and unabsorbed information technology and occupancy. ing, severance and asset impairment charges and any associated adjud stments related to restructurtt ing actions, unless these actions pertain to a specific reportabla e segment. In addition, we do not allocate to our reportabla e segments restructurtt u The results for each reportabla e segment are discussed below. Semiconductortt Systemtt s Segme ent The Semiconductor Systems segment is comprised primarily of capia tal equipment used to fabra icate semiconductor chips. Semiconductor industryrr spending on capia tal equipment is driven by demand for electronic products, including smartphones and other mobile devices, servers, personal computers, automotive electronics, storage, and other products, and the nature and timing of technological advances in fabra ication processes, and as a result is subju ect to variable industryrr conditions. Spending can also depend on customer facility readiness and timeline for installation of capia tal equipment at customer sites. Development effort s are focused on solving customers’ key technical challenges in transistor, interconnect, patterning and packaging ff performance. Certain significant measures for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change (In millions, except percentages and ratios) Net sales Operating income Operating margin $ 19,698 $ 7,090 $ 18,797 $ 6,969 $ 16,286 $ 6,311 $ $ 901 121 5 % $ 2,511 2 % $ 658 15 % 10 % 36.0 % 37.1 % 38.8 % (1.1) points (1.7) points Net sales for Semiconductor Systems by end use application for the periods indicated were as follows: Foundry, logic and other Dynamic random-access memory (DRAM) Flash memory 2023 2022 2021 77 % 17 % 6 % 66 % 19 % 15 % 60 % 19 % 21 % 100 % 100 % 100 % Semiconductor equipment customers continued to make strategic investments in new capaa city and new technology transitions during fiscal 2023. Foundry and logic spending increased in fiscal 2023 compared to fiscal 2022 primarily driven by turing nodes to serve demand across a wide range of products. Spending by memory customer investment in mature manufacff customers decreased in fiscal 2023 compared to fiscal 2022 due to deferred capacity additions primarily as a result of weakness in demand for consumer electronic products. Operating margin for fiscal 2023 decreased compared to fiscal 2022, primarily driven by increased RD&E expenses, higher inventory charges, the impact of export regulations, partially offsff et by favorable changes in customer and product mix, an increase in average selling prices and lower freight and logistics costs. Foundry and logic spending increased in fiscal 2022 compared to fiscal 2021 driven by customer investment in both advanced and mature nodes. Spending by DRAM customers increased and flash memory customers decreased in fiscal 2022 compared to fiscal 2021 due to changes in investments in new technology and capacity. Operating margin for fiscal 2022 decreased compared to fiscal 2021, primarily driven by higher material, freight, logistics costs and higher personnel costs due to the hiring of additional headcount to provide manufacff turing capacity and flexibility, partially offsff et by favorable changes in product mix and an increase in average selling prices. 40 Applpp iell d Globall l Services Segme ent The Applied Global Services segment provides integrated solutions to optimize equipment and fab pe a rformance and tured earlier generation equipment and factory automation productivity, including spares, upgrades, services, certain remanufacff software for semiconductor, display and solar products. turing Demand for Applied Global Services’ solutions are driven by our large and growing installed base of manufacff systems, and customers’ needs to shorten ramp times, improve device performance and yield, and optimize factory output and operating costs. Industryrr conditions that affeff ct Applied Global Services’ sales of spares and services are primarily characterized by changes in semiconductor manufacff turers’ wafer starts and higher utilization rates, growth of the installed base of equipment, growing service intensity of newer tools, and our ability to sell more comprehensive service agreements. Certain significant measures for the periods indicated were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change Net sales Operating income Operating margin $ 5,732 $ 1,657 $ 5,543 $ 1,661 (In millions, except percentages and ratios) $ 5,013 $ 1,508 189 (4) 3 % $ — % $ $ $ 530 153 11 % 10 % 28.9 % 30.0 % 30.1 % (1.1) points (0.1) points Net sales for fiscal 2023 increased compared to fiscal 2022 primarily due to an increase in sales associated with long-term service agreements and higher customer spending on legacy systems, partially offsff et by a decrease in net sales due to additional export regulations issued by the United States government in 2022 and lower customer utilization rates. Operating margin for fiscal 2023 decreased compared to fiscal 2022 primarily due to the impact of the export regulations, higher inventoryrr charges and unfavff orable changes in product mix. Net sales for fiscal 2022 increased compared to fiscal 2021 primarily due to higher customer spending on comprehensive service agreements, spares and legacy systems. Operating margin for fiscal 2022 decreased compared to fiscal 2021 primarily t business growth and higher freight costs, partially offsff et by due to higher expense related to an increase in headcount to suppor higher net sales in fiscal 2022. u 41 Dispii laya and Adjadd cent Marketstt Segme ent The Display and Adjad cent Markets segment encompasses products for manufacff tal and OLED displays, rsonal computers, electronic tabla ets, smart phones, other and other display technologies for TVs, monitors, consumer-oriented devices, equipment upgrades and solar energy cells. The segment is focused on expanding its presence through technologically-differe turing large-scale LCD TVs, OLEDs, low temperaturt e polysilicon (LTPS), metal oxide, and touch panel sectors; and development of products that provide customers with improved performance and yields. ntiated equipment for manufacff turing liquid crysrr a laptops, pe ff Display industry gr owth depends primarily on consumer demand for increasingly larger and more advanced TVs as well as larger and higher resolution displays for next-generation mobile devices. Uneven spending patterns by customers in the Display and Adjad cent Markets segment can cause significant fluctuations quarter-over-quarter, as well as year-over-year. rr Certain significant measures for the periods presented were as follows: 2023 2022 2021 2023 over 2022 2022 over 2021 Change Net sales Operating income Operating margin $ $ 868 133 15.3 % $ 1,331 260 $ 19.5 % (In millions, except percentages and ratios) $ 1,634 314 $ 19.2 % (463) (127) (4.2) points (35)% $ (49)% $ $ $ (303) (54) (19)% (17)% 0.3 points urt Net sales for fiscal 2023 decreased compared to fiscal 2022 primarily due to lower customer investments in display manufact ing equipment for TVs as a result of weakness in demand for consumer electronic products. Operating margin for ff fiscal 2023 decreased compared to fiscal 2022 primarily due to lower net sales, partially offsff et by a reduction in headcount related costs as headcount moved to open positions within Semiconductor Systems and Applied Global Services segments. urt Net sales for fiscal 2022 decreased compared to fiscal 2021 primarily due to lower customer investments in display manufact ing equipment for TVs and mobile products. Operating margin for fiscal 2022 increased compared to fiscal 2021 ff primarily due to reduction in headcount related costs as headcount moved to open positions within Semiconductor Systems and Applied Global Services segments, offsff et by higher material costs. 42 Recent Accounting Pronouncements For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effeff cts, if any, on our consolidated financial statements, see Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements. 43 Financial Condition, Liquidity and Capital Resources Our cash, cash equivalents and investments consist of the following: Cash and cash equivalents Short-term investments Long-term investments Total cash, cash-equivalents and investments Sources and Uses of Cash October 29, 2023 October 30, 2022 (In millions) 6,132 737 2,281 9,150 $ $ 1,995 586 1,980 4,561 $ $ A summary of cash provided by (used in) operating, investing, and financing activities is as follows: Cash provided by operating activities Cash used in investing activities Cash used in financing activities Operatintt g Activities ii 2023 2022 2021 8,700 $ (1,535) $ (3,032) $ (In millions) 5,399 $ (1,357) $ (7,043) $ $ $ $ 5,442 (1,216) (4,591) Cash from operating activities for fisff cal 2023 was $8.7 billion, which reflects net income adjud sted for the effeff ct of non- cash charges and changes in working capia tal components. Significant non-cash charges included depreciation, amortization, share-based compensation and deferred income taxes. Cash provided by operating activities in fiscal 2023 increased compared to fiscal 2022 primarily due to better inventory management, better accounts receivable collections and lower income tax payments, partially offsff et by higher payments to vendors and lower year over year change in deferred revenue. Cash provided by operating activities remained relatively flat in fiscal 2022 compared to fiscal 2021 primarily due to higher inventory and income tax payments, partially offsff et by higher net income and lower year over year increase in accounts receivable. We have agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. We sell our accounts receivable generally without recourse. From time to time, we also discount letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, ions to discount the letters of credit and the cost of such arrangements. We sold including the willingness of financial instituttt $0.7 billion, $1.0 billion and $1.3 billion of accounts receivable during fiscal 2023, 2022 and 2021, respectively. We did not discount letters of credit issued by customers in fiscal 2023, 2022 and 2021. There was no discounting of promissory notes in each of fiscal 2023, 2022 and 2021. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Statements of Operations and were not material for all years presented. Our working capital was $11.8 billion at October 29, 2023 and $8.5 billion at October 30, 2022. Days sales outstanding of our accounts receivable at the end of fiscal 2023, 2022 and 2021 was 70 days, 82 days, and 74 days, respectively. Days sales outstanding varies due to the timing of shipments and payment terms. The decrease in days sales outstanding at the end of fiscal 2023 was primarily due to a lower accounts receivable balance as a result of the timing of customer payments compared to the end of fiscal 2022. The increase in days sales outstanding at the end of fiscal 2022 was primarily due to higher accounts receivable balance as a result of the timing of customer payments and lower sales of accounts receivables compared to the end of fiscal 2021. 44 Investingn Activities ii We used $1.5 billion, $1.4 billion and $1.2 billion of cash in investing activities in fiscal 2023, 2022 and 2021, respectively. Capia tal expenditures in fiscal 2023, 2022 and 2021 were $1,106 million, $787 million and $668 million, respectively. Capia tal expenditures were primarily for investments in real property acquisitions and improvements, demonstration and testing equipment, manufacff turing and network equipment. Net cash paid for acquisitions in fiscal 2023, 2022 and 2021 were $25 million, $441 million and $12 million, respectively. Purchases of investments, net of proceeds from sales and maturities of investments, for 2023, 2022 and 2021 was $404 million, $129 million and $536 million, respectively. Investing activities also included investments in technology to allow us to access new market opportunities or emerging technologies. Our investment portfolff io consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, municipal bonds, corporate bonds and mortgage-backed and asset-backed securities, as well as equity securities. We regularly monitor the credit risk in our investment portfolff io and take appropriate measures, which may include the sale of certain securities, to manage such risks prudently in accordance with our investment policies. Financ ii ing Activities ii We used $3.0 billion of cash in financing activities in fiscal 2023, consisting primarily of repurchases of common stock of $2.2 billion, cash dividends to stockholders of $975 million and tax withholding payments for vested equity awards of $179 million, offsff et by proceeds received from common stock issuances of $227 million and net proceeds from issuances of commercial paper of $91 million. We used $7.0 billion of cash in financing activities in fiscal 2022, consisting primarily of repurchases of common stock of $6.1 billion, cash dividends to stockholders of $873 million and tax withholding payments for vested equity awards of $266 million, offsff et by proceeds received from common stock issuances of $199 million. We used $4.6 billion of cash in financing activities in fiscal 2021, consisting primarily of repurchases of common stock of $3.8 billion, cash dividends to stockholders of $838 million and tax withholding payments for vested equity awards of $178 million, offsff et by proceeds received from common stock issuances of $175 million. In March 2023, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in emented the previously existing $6.0 billion authorization approved in March 2022. At October 29, repurchases, which supplu 2023, approximately $12.7 billion remained availabla e for future stock repurchases under the repurchase program. During fiscal 2023, our Board of Directors declared one quarterly cash dividend of $0.26 per share and three quarterly cash dividends of $0.32 per share. During fiscal 2022, our Board of Directors declared one quarterly cash dividend of $0.24 per share and three quarterly cash dividends of $0.26 per share. During fiscal 2021, our Board of Directors declared one quarterly cash dividend of $0.22 per share and three quarterly cash dividends of $0.24 per share. Dividends paid during fiscal 2023, 2022 and 2021 amounted to $975 million, $873 million and $838 million, respectively. We currently anticipate that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capia tal requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of our stockholders. We have credit facilities for unsecured borrowings in various currencies of up to $1.6 billion, of which $1.5 billion is comprised of a committed revolving credit agreement (Revolving Credit Agreement) with a group of banks. The Revolving Credit Agreement includes a provision under which we may request an increase in the amount of the facility of up to $500 million for a total commitment of no more than $2.0 billion, subju ect to the receipt of commitments from one or more lenders for any such increase and other customaryrr conditions. The Revolving Credit Agreement is scheduled to expire in February 2026, unless extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement provides for borrowings in United States dollars that bear interest for each advance at one of two rates selected by us, plus an applicable margin, which varies according to our public debt credit ratings. The Revolving Credit Agreement includes financial and other covenants with which we were in compliance as of October 29, 2023. Remaining credit facilities in the amount of approximately $53 million are with Japane se banks. Our ability to borrow under these facilities is subju ect 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 Japane se yen. a a 45 We have a short-term commercial paper program under which we may from time to time issue unsecured commercial paper notes of up to a total amount of $1.5 billion. The proceeds from the issuances of commercial paper are used for general es. At October 29, 2023, we had $100 million of commercial paper notes outstanding. The commercial paper corporate purpos program is backstopped by the Revolving Credit Agreement and borrowings under the Revolving Credit Agreement reduce the amount of commercial paper notes we can issue. rr We had senior unsecured notes in the aggregate principal amount of $5.5 billion outstanding as of October 29, 2023. See Note 10 of the Notes to the Consolidated Financial Statements for additional discussion of existing debt. We may seek to refinance our existing debt and may incur additional indebtedness depending on our capital requirements and the availabia lity of financing. Othett rs On December 22, 2017, the U.S. government enacted the Tax Act, which requires a one-time transition tax on certain unrepatriated earnings of foreign subsu idiaries. The transition tax expense is payable in installments over eight years, with eight percent due in each of the first five years starting with fiscal 2018. As of October 29, 2023, we had $612 million of total payments remaining, payable in installments in the next three years. Beginning in fiscal 2023, the Tax Act eliminates the option to deduct research and development expenditures currently and requires taxpayers to capia talize and amortize them over five years for activities performed in the U.S. or fifteen years for activities performed outside of the U.S. This capia talization requirement increases our effeff ctive tax rates, deferred tax assets and cash tax liabilities beginning in fiscal 2023. On August 9, 2022, the U.S. government enacted the U.S. CHIPS and Science Act (“CHIPS Act”). The CHIPS Act urtt ing. The credit is provided creates a 25% investment tax credit for certain investments in domestic semiconductor manufact for qualifying pr tion begins before January 1, r December 31, 2022, for which construcrr ff 2027, and is treated as a government grant. We recognize this investment tax credit when there is reasonable assurance that we will qualifyff for the credit and the benefit will be received. operty, which is placed in service afteff ff On August 16, 2022, the U.S. government enacted the Inflation Reduction Act. The Inflation Reduction Act introduces a new 15% corporate minimum tax, based on adjud sted financial statement income of certain large corporations. Applicable corporations would be allowed to claim a credit for the minimum tax paid against regular tax in future years. The minimum tax may impact our financial results starting in fiscal 2024. We will evaluate the effeff ct of the corporate minimum tax as more guidance becomes availabla e. The Inflation Reduction Act also includes an excise tax that imposes a 1% surcharge on stock repurchases. This excise tax was effeff ctive January 1, 2023. The excise tax is included in our direct cost of stock repurchases and is recorded in equity. We do not expect the excise tax to have a significant impact on our financial results. Although cash requirements will fluctuate based on the timing and extent of factors such as those discussed above, our management believes that cash generated from operations, together with the liquidity provided by existing cash balances and liquidity requirements for the next 12 months. For further details regarding borrowing capability, will be sufficie our operating, investing and financing activities, see the Consolidated Statements of Cash Flows in this report. nt to satisfy our ff ff For details on standby letters of credit, guarantee instruments and other agreements with banks, see Off-Bff alance Sheet Arrangements below. 46 Contractual Obligations and Off-Bff alance Sheet Arrangements We have certain on-balance sheet and off-bff alance sheet obligation arrangements to make future payments under various l arrangements which are recorded on our balance sheet include borrowing facilities and debts and contracts. Certain contractuat lease obligations. Borrowingii Faciliti ii es and Debt Obligatiott ns As of October 29, 2023, we had $5.5 billion in aggregate principal amount of senior unsecured notes with varying maturities. Future interest payments associated with these unsecured notes were $2.8 billion, of which $205 million is due within 12 months and the remaining interest payments are due beyond 12 months. See Note 10, Borrowing Facilities and Debt, of the Notes to the Consolidated Financial Statements for further discussion related to our borrowing facilities and debt obligations. Lease Obligatiott ns As of October 29, 2023, our operating lease obligation was $370 million related to va irious opera itingg llease arra gngements itain fa icili ilities andd eq iuipm ne t and our finance lease obligation was $106 million related to lease arrangements that contain for cer a purchase option which we are reasonably certain to exercise at the end of the lease term. See Note 11, Leases, of the Notes to the Consolidated Financial Statements for further discussion relating to these lease obligations. Purchase Obligat iott ns i As of October 29, 2023, we had $5.5 billion of purchase obligations for goods and services, of which $5.1 billion is payable within 12 months and the remaining amount is payable beyond 12 months. Deemed Repat ee ritt ati iott n Taxaa Payaa ble As of October 29, 2023, we had $612 million of transition tax liability, of which $153 million is payable within 12 months and the remaining amount is payable beyond 12 months. This transition tax liability is associated with the deemed repatriation of accumulated foreign earnings as a result of the enactment of the Tax Act. Othett r Long-tgg ertt mrr Liabilities ii We also have the obligation to fund our pension, postretirement and deferred compensation plans. We evaluate the need to make contributions to our pension and postretirement benefit plans afteff of the plans, movements in the discount rate, performance of the plan assets and related tax consequences. Payments to the plans would be dependent on these factors and could vary across a wide range of amounts and time periods. Payments for deferred compensation plans are dependent on activity by participants, making the timing of payments uncertain. Information on our pension, postretirement benefit and deferred compensation plans is presented in Note 13, Employee Benefit Plans, of the Notes to the Consolidated Financial Statements. r considering the funded statust As of October 29, 2023, the gross liability for unrecognized tax benefits that was not expected to result in payment of cash within one year was $511 million. Interest and penalties related to uncertain tax positions that were not expected to result in payment of cash within one year of October 29, 2023 was $136 million. At this time, we are unabla e to reliably estimate the timing of payments due to uncertainties in the timing of tax audit outcomes. Off-Bff alance Sheet Arrangements In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either us or our subsu idiaries. These include agreements with various banks to facilitate subsu idiary banking operations worldwide, including overdraft arrangements. We also have agreements with various banks to facilitate subsu idiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. See Note 15, Warranty, Guarantees, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements for further discussion relating to these arrangements. 47 Critical Accounting Policies and Estimates The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affeff ct the amounts reported. Note 1 of Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies. A critical accounting policy is defined as one that is both material to the presentation of our consolidated financial statements and that requires management to make difficult, subju ective or complex judgments that could have a material effeff ct on our financial condition or results of operations. Specifically, these policies have the following attributes: (1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or change in the estimate that are reasonabla y likely to occur, would have a material effeff ct on our financial condition or results of operations. Estimates and assumptions about future events and their effeff cts cannot be determined with certainty. We base our 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 our operating environment changes. These changes have historically been minor and have 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 our control and will not be known for prolonged periods of time. These uncertainties include those discussed in Part I, Item 1A, “Risk Factors.” Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affeff cting the application of those policies, management believes that our 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 our financial condition and results of operations. Management believes that the following are critical accounting policies and estimates: Revenue Recogno itiontt We recognize revenue when promised goods or services (performance obligations) are transferff red to a customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We perform the following five steps to determine when to recognize revenue: (1) identification of the contract(s) with customers, (2) identification of the perforff mance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the perforff mance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfied. Management uses judgment to identify performance obligations within a contract and to determine whether multiple promised goods or services in a contract should be accounted for separately or as a group. Judgment is also used in interpreting commercial terms and determining when transferff of control occurs. Moreover, judgment is used to estimate the contract’s transaction price and allocate it to each performance obligation. Any material changes in the identification of performance obligations, determination and allocation of the transaction price to performance obligations, and determination of when transferff of control occurs to the customer, could impact the timing and amount of revenue recognition, which could have a material effeff ct on our financial condition and results of operations. Inventory Valuationtt Inventories are generally stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (FIFO) basis. The carrying value of inventory is reduced for estimated obsolescence by the difference between its cost and the estimated net realizable value based upon assumptions about future demand. We evaluate 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 effeff ct of known and anticipated engineering change orders and new products. If actuatt l demand were to be subsu tantially lower than estimated, additional adjud stments for excess or obsolete inventoryrr may be required, which could have a material adverse effeff ct on our business, financial condition and results of operations. 48 Income Taxesaa Our provision for income taxes and effeff ctive tax rate are affeff cted by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affeff cted by events that are not consistent from period to period, such as changes to income tax laws and the resolution of prior years’ income tax filings. We recognize a current tax liability for the estimated amount of income tax payable on tax returns for the current fiscal year. Deferred tax assets and liabia lities are recognized for the estimated future tax effeff cts of temporary di fferences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryforwards. Deferred tax assets are offsff et by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. Deferred tax assets and liabia lities are measured based on enacted tax rates that are expected to apply in the period in which the assets are realized or the liabia lities are settled. Deferred tax assets and liabilities are adjud sted for the effeff ct of a change in tax rates, laws, or statust when the change is enacted. rr We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized from such positions are estimated based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Any changes in judgment related to uncertain tax positions are recognized in our provision for income taxes in the quarter in which such change occurs. Interest and penalties related to uncertain tax positions are recognized in our provision for income taxes. The calculation of our provision for income taxes and effeff ctive tax rate 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 our expectations could have a material impact on our results of operations and financial condition. 49 Item 7A: Quantitaii tive and Qualitativ ll e Discii losures About Market Riskii We are exposed to financial market risks, including fluctuations in interest rate and foreign currency exchange rates. Interest Rate Risk Available-fo- r-sale Debt Securities. The market value of our investments in availabla e-for-sale securities was approximately $2.1 billion at October 29, 2023. An immediate hypothetical 100 basis point increase in interest rates would result in a decrease in the fair value of investments as of October 29, 2023 of approximately $27 million. Debt. At October 29, 2023, the aggregate principal of long-term senior unsecured notes issued by us was $5.5 billion with an estimated fair value of $4.7 billion. A hypothetical decrease in interest rates of 100 basis points would result in an increase in the fair value of our long-term senior notes issuances of approximately $398 million at October 29, 2023. From time to time, we use interest rate swaps or rate lock agreements to mitigate the potential impact of changes in benchmark interest rates on interest expense and cash flows. Foreign Currency Risk Certain of our operations are conducted in foreign currencies, such as Japane se yen, Israeli shekel, euro and Taiwanese dollar. Hedges are used to reduce, but not eliminate, the impact of foreign currency exchange rate movements on the consolidated balance sheet, statement of operations, and statement of cash flows. a We use primarily foreign currency forward contracts to offsff et the impact of foreign exchange movements on non-U.S. dollar denominated monetary assets and liabilities. The foreign exchange gains and losses on the assets and liabia lities are recorded in interest and other income (expense), net and are offsff et by the gains and losses on the hedges. We use foreign currency forward and option contracts to hedge a portion of anticipated non-U.S. dollar denominated revenues and expenses expected to occur within the next 24 months. Gains and losses on these hedging contracts generally mitigate the effeff ct of currency movements on our net sales, cost of products sold, and operating expenses. A hypothetical 10% adverse change in foreign currency exchange rates relative to the U.S. Dollar would result in a decrease in the fair value of these hedging contracts of $163 million at October 29, 2023. We do not use foreign currency forward or option contracts for trading or speculative purposes. Item 8: Financ ii ial Stattt emtt ents and Supplpp emen ll tary Data The consolidated financial statements required by this Item are set forth on the pages indicated at Item 15(a). Item 9: Changes in and Disaii gra eements withii Accountantt None. ts on Accountintt g and Financ ii ial Discii losure 50 Item 9A: Contrott ls and Procedures Disclosure Controls and Procedures As of the end of the period covered by this report, our management conducted an evaluation, under the supeu rvision and with the participation of our Chief Executive Offiff cer and Chief Financial Offiff cer, of the effeff ctiveness of our disclosure controls and procedurd es, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, our Chief Executive Offiff cer and Chief Financial Offiff cer concluded that our disclosure controls and procedurd es were effeff ctive as of the end of the period covered by this report in ensuring that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Offiff cer and Chief Financial Offiff cer, as appropriate to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establa ishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supeu rvision and with the participation of our Chief Executive Offiff cer and Chief Financial Offiff cer, our management conducted an evaluation of the effeff ctiveness of our internal control over financial reporting based upon the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effeff ctive as of October 29, 2023. KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Form 10-K and, as part of the audit, has issued a report, included herein, on the effeff ctiveness of our internal control over financial reporting as of October 29, 2023. Changes in Internal Control over Financial Reporting During the fourth quarter of fiscal 2023, there were no changes in the internal control over financial reporting that materially affeff cted, or are reasonably likely to materially affeff ct, our internal control over financial reporting. Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting 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. Item 9B: Othett r Infon rmationtt During the three months ended October 29, 2023, no director or offiff cer, as defined in Rule 16a-1(f), adopted or terminated a “RulRR e 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408. Item 9C: Discii losure Regardi e ngii Foreigngg Jurisdicdd tions that Prevent Inspections Not applicable. 51 PART III Item 10: Direii ctortt s,rr Executivtt e Offiff cers and Corporatett Governance Except for the information regarding executive offiff cers required by Item 401 of Regulation S-K (which is included in Part I, Item 1 of this Annual Report on Form 10-K, under “Information about our Executive Offiff cers”) and code of ethics (which is set forth below), the information required by this item will be provided in accordance with Instruction G(3) to Form 10-K no later than Februarr ry 26, 2024. We have implemented the Standards of Business Conduct, a code of ethics with which every pe rson who works for us and everyrr member of the Board of Directors is expected to comply. If any subsu tantive amendments are made to the Standards of Business Conduct or any waiver is granted, including any implicit waiver, from a provision of the code to our Chief Executive Offiff cer, Chief Financial Offiff cer or Chief Accounting Offiff cer, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K. The above information, including the Standards of Business Conduct, is availabla e on our the Governance Documents under website /about/ctt orporate- governance.html. This website address is intended to be an inactive, textual reference only. None of the materials on, or tt accessible through, this website is part of this report or is incorporated by reference herein. appliedmaterials.com/us/en// // https://www. section at rr Item 11: Executive Compensation The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 26, 2024. 52 Item 12: Securityii Ownership of ii Certaitt nii Benefie ciali Owners and Managea ment and Related Stockholde tt r Matters Except for the information regarding securities authorized for issuance under equity compensation plans (which is set forth below), the information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 26, 2024. The following tabla e summarizes information with respect to equity awards under our equity compensation plans as of October 29, 2023: Equity Compensation Plan Information (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) (In millions, except prices) (c) Number of Securities Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) 12 12 $ $ — — (3) 37 37 Plan Category Equity compensation plans approved by security holders Total (1) Includes only restricted stock units and performance share units outstanding under our equity compensation plans, as no options, stock warrants or other rights were outstanding as of October 29, 2023. (2) The weighted average exercise price calculation does not take into account any restricted stock units or performance shares. (3) Includes 12 million shares of our common stock availabla e for future issuance under the Applied Materials, Inc. Omnibus Employees’ Stock Purchase Plan. Of these 12 million shares, 1 million are subju ect to purchase during the purchase period in effeff ct as of October 29, 2023. We have the following equity compensation plan that has not been approved by stockholders: Applpp ied Materialsll Profitff Sharing Scheme. The Applied Materials Profitff Sharing Scheme was adopted effeff ctive July 3, 1996 to enable employees of Applied Materials Ireland Limited and its participating subsu idiaries to purchase our common stock at 100% of fair market value on the purchase date. Under this plan, eligible employees may elect to forego a certain portion of their base salary and certain bonuses they have earned and that otherwise would be payable in cash to purchase shares of our common stock at full fair market value. Since the eligible employees pay full fair market value for the shares, there is no reserved amount of shares under this plan and, accordingly, the tabla e above does not include any set number of shares availabla e for future issuance under the plan. 53 Item 13: Certaitt nii Relationships and Related Transactiott ns, and s Direii ctortt Independence dd The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 26, 2024. Item 14: ii Principal Accountintt g Fees and Services Our independent registered public accounting firm is KPMG LLP, Santa Clara, Californi ff a, Auditor Firm ID: 185. The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 26, 2024. 54 Item 15: Exhibii tsii ii ,s Financ tt ial Stattt emen t Schedules PART IV (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements: Reports of Independent Registered Public Accounting Firm Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K Page Number 56 59 60 61 62 63 64 99 All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. Item 16: Form 10-K- Summary None. 55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Applied Materials, Inc.: Opinion on the Consolidatdd ed Financial Statements We have audited the accompanying consolidated balance sheets of Applied Materials, Inc. and subsu idiaries (the Company) as of October 29, 2023 and October 30, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 29, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 29, 2023 and October 30, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended October 29, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Publu ic Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of October 29, 2023, based on criteria establa ished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 15, 2023 expressed an unqualified opinion on the effeff ctiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedurd es to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedurdd es that respond to those risks. Such procedurd es included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subju ective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 56 Evaluation of net realizable value adjustments to inventories for excess or obsolescence As discussed in notes 1 and 8 to the consolidated financial statements, the Company has inventories with a carrying value of $5,725 million as of October 29, 2023. The Company adjud sts inventory carrying value for estimated excess or obsolescence equal to the difference and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual demand were to be subsu tantially lower than estimated, there could be a significant adverse impact on the carrying value of inventories and results of operations. between cost of inventoryrr ff We identified the evaluation of net realizable value adjud stments to certain inventories for excess or obsolescence as a critical audit matter. Evaluation of the Company’s estimates regarding forecasted sales and inventoryrr consumption involved a high degree of auditor judgment. The following are the primary procedurd es we performed to address this critical audit matter. We evaluated the design and tested the operating effeff ctiveness of certain internal controls over the Company’s process for determining net realizable value adjud stments for inventory excess or obsolescence, including controls related to estimating forecasted sales and inventory consumption. We evaluated certain inventories for excess or obsolescence by comparing the Company’s sales and inventory consumption forecast to historical sales, historical inventory usage, known customer orders, and industryrr outlook reports. In addition, for certain inventories, we compared the Company’s historical estimates of net realizable value adjud stments for excess and obsolescence to the actuatt l physical inventory disposals to evaluate the Company’s ability to accurately estimate the net realizable value adjud stments. We have served as the Company’s auditor since 2004. Santa Clara, California December 15, 2023 ff /S/ KPMG LLP KPMG LLP 57 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Applied Materials, Inc.: Opinion on Internal Contrott l Over Financial Repor e ting We have audited Applied Materials, Inc. and subsu idiaries’ (the Company) internal control over financial reporting as of October 29, 2023, based on criteria establa ished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effeff ctive internal control over financial reporting as of October 29, 2023, based on criteria establa ished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Publu ic Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of October 29, 2023 and October 30, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 29, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated December 15, 2023 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effeff ctive internal control over financial reporting and for its assessment of the effeff ctiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effeff ctive internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effeff ctiveness of internal control based on the assessed risk. Our audit also included performing such other procedurd es as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definitio e n and Limitations of Internal Contrott l Over Financial Repor e ting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the es in accordance with generally reliabia lity of financial reporting and the preparation of financial statements for external purpos accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedurd es that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effeff ct on the financial statements. rr Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effeff ctiveness to future periods are subju ect to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedurdd es may deteriorate. /s/ KPMG LLP KPMG LLP Santa Clara, California December 15, 2023 58 APPLIED MATERIALS, INC. CONSOLIDATED STATEMENTS OF OPERATRR IONS (In millions, except per share amounts) Fiscal Year Net sales Cost of products sold Gross profitff Operating expenses: Research, development and engineering Marketing and selling General and administrative Severance and related charges Deal termination fee Total operating expenses Income from operations Interest expense Interest and other income (expense), net Income before income taxes Provision for income taxes Net income Earnings per share: Basic Diluted Weighted average number of shares: Basic Diluted 2023 2022 2021 $ $ 26,517 14,133 12,384 $ 25,785 13,792 11,993 23,063 12,149 10,914 3,102 776 852 — — 4,730 7,654 238 300 7,716 860 6,856 8.16 8.11 840 845 $ $ $ 2,771 703 735 (4) — 4,205 7,788 228 39 7,599 1,074 6,525 7.49 7.44 871 877 $ $ $ 2,485 609 620 157 154 4,025 6,889 236 118 6,771 883 5,888 6.47 6.40 910 919 $ $ $ See accompanying Notes to Consolidated Financial Statements. 59 APPLIED MATERIALS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Fiscal Year Net income Other comprehensive income (loss), net of tax: Change in unrealized gain (loss) on availabla e-for-sale investments Change in unrealized net loss on derivative instruments Change in defined and postretirement benefit plans Other comprehensive income (loss), net of tax Comprehensive income 2023 2022 2021 $ 6,856 $ 6,525 $ 5,888 25 (66) 26 (74) 51 81 (15) 6,841 $ 58 6,583 $ $ (21) 30 30 39 5,927 See accompanying Notes to Consolidated Financial Statements. 60 APPLIED MATERIALS, INC. CONSOLIDATED BALANCE SHEETS (In millions, except per share amounts) ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Other current assets Total current assets Long-term investments Property, plant and equipment, net Goodwill Purchased technology and other intangible assets, net Deferred income taxes and other assets Total assets Current liabia lities: Short-term debt LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable and accruerr d expenses Contract liabia lities Total current liabia lities Long-term debt Income taxes payable Other liabia lities Total liabia lities Commitments and contingencies (Note 15) Stockholders’ equity: Preferred stock: $0.01 par value per share; 1 shares authorized; no shares issued Common stock: $0.01 par value per share; 2,500 shares authorized; 833 and 844 shares outstanding at 2023 and 2022, respectively Additional paid-in capital Retained earnings Treasury stock: 1,191 and 1,173 shares at 2023 and 2022, respectively Accumulated other comprehensive loss Total stockholders’ equity Total liabia lities and stockholders’ equity See accompanying Notes to Consolidated Financial Statements. October 29, 2023 October 30, 2022 $ $ 6,132 737 5,165 5,725 1,388 19,147 2,281 2,723 3,732 294 2,552 1,995 586 6,068 5,932 1,344 15,925 1,980 2,307 3,700 339 2,475 $ 30,729 $ 26,726 $ 100 $ 4,297 2,975 7,372 5,461 833 714 — 4,237 3,142 7,379 5,457 964 732 14,380 14,532 — 8 9,131 43,726 (36,299) (217) 16,349 $ 30,729 $ — 8 8,593 37,892 (34,097) (202) 12,194 26,726 61 APPLIED MATERIALS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions, except per share amounts) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Shares Amount Accumulated Other Comprehensive Income (Loss) Total Balance at October 25, 2020 914 $ Net income Other comprehensive income (loss), net of tax Dividends declared ($0.94 per common share) Share-based compensation Net issuance under stock plans Common stock repurchases Balance at October 31, 2021 Net income Other comprehensive income (loss), net of tax Dividends declared ($1.02 per common share) Share-based compensation Net issuance under stock plans Common stock repurchases Balance at October 30, 2022 Net income Other comprehensive income (loss), net of tax Dividends declared ($1.22 per common share) Share-based compensation Net issuance under stock plans Common stock repurchases Balance at October 29, 2023 — — — — 6 (28) 892 $ — — — — 6 (54) 844 $ — — — — 7 (18) 833 $ 9 — — — — — — 9 — — — — — (1) 8 — — — — — — 8 $ 7,904 $ 27,209 1,091 $ (24,245) $ (299) $ 10,578 — — — 346 (3) — 5,888 — (851) — — — — — — — — 28 — — — — — (3,750) — 39 — — — — 5,888 39 (851) 346 (3) (3,750) $ 8,247 $ 32,246 1,119 $ (27,995) $ (260) $ 12,247 — — — 413 (67) — 6,525 — (879) — — — — — — — — 54 — — — — — (6,102) — 58 — — — — 6,525 58 (879) 413 (67) (6,103) $ 8,593 $ 37,892 1,173 $ (34,097) $ (202) $ 12,194 — — — 490 48 — 6,856 — (1,022) — — — — — — — — 18 — — — — — (2,202) — 6,856 (15) (15) — — — — (1,022) 490 48 (2,202) $ 9,131 $ 43,726 1,191 $ (36,299) $ (217) $ 16,349 See accompanying Notes to Consolidated Financial Statements. 62 APPLIED MATERIALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Fiscal Year Cash flows from operating activities: Net income Adjud stments required to reconcile net income to cash provided by operating activities: Depreciation and amortization Severance and related charges Deferred income taxes Other Share-based compensation Changes in operating assets and liabia lities, net of amounts acquired: Accounts receivable Inventories Other current and non-current assets Accounts payabla e and accruedrr Contract liabia lities expenses Income taxes payablea Other liabia lities Cash provided by operating activities Cash flows from investing activities: Capia tal expenditures Cash paid for acquisitions, net of cash acquired Proceeds from sales and maturities of investments Purchases of investments Cash used in investing activities Cash flows from financing activities: Proceeds from commercial paper Repayments of commercial paper Proceeds from common stock issuances Common stock repurchases Tax withholding payments for vested equity awards Payments of dividends to stockholders Repayments of principals on finance leases Cash used in financing activities Increase (decrease) in cash, cash equivalents and restricted cash equivalents Cash, cash equivalents and restricted cash equivalents — beginning of period Cash, cash equivalents and restricted cash equivalents — end of period Reconciliation of cash, cash equivalents, and restricted cash equivalents Cash and cash equivalents Restricted cash equivalents included in deferred income taxes and other assets Total cash, cash equivalents, and restricted cash equivalents Supplu emental cash flow information: Cash payments for income taxes Cash refunds from income taxes Cash payments for interest 2023 2022 2021 $ 6,856 $ 6,525 $ 5,888 515 — 24 40 490 903 207 (48) (138) (167) (20) 38 8,700 (1,106) (25) 1,268 (1,672) (1,535) 991 (900) 227 (2,189) (179) (975) (7) (3,032) 4,133 2,100 6,233 6,132 101 6,233 1,006 53 205 $ $ $ $ $ $ 444 (4) (223) 36 413 (1,109) (1,590) (16) 390 1,039 (541) 35 5,399 (787) (441) 1,363 (1,492) (1,357) — — 199 (6,103) (266) (873) — (7,043) (3,001) 5,101 2,100 1,995 105 2,100 1,869 156 205 $ $ $ $ $ $ 394 148 80 (70) 346 (1,989) (405) (602) 465 755 396 36 5,442 (668) (12) 1,471 (2,007) (1,216) — — 175 (3,750) (178) (838) — (4,591) (365) 5,466 5,101 4,995 106 5,101 851 27 205 $ $ $ $ $ $ See accompanying Notes to Consolidated Financial Statements. 63 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies Principli es of Consolidatdd ion and Basis of Presentation The consolidated financial statements include the accounts of Applied Materials, Inc. and its subsu idiaries (we, us, and r elimination of intercompany balances and transactions. All references to a fiscal year apply to our fiscal year which our) afteff ends on the last Sunday in October. Fiscal 2023, 2022 and 2021 contained 52, 52 and 53 weeks, respectively. Each fiscal quarter of 2023 and 2022 contained 13 weeks. The first fiscal quarter of 2021 contained 14 weeks, while the second, third and fourth quarters of fiscal 2021 contained 13 weeks. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affeff ct the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to standalone selling price (SSP) related to revenue recognition, accounts receivable and sales allowances, fair values of financial instruments, inventories, intangible assets and goodwill, usefulff lives of intangible assets and property and equipment, fair values of share-based awards, warranty, and income taxes, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Cash Equivalents All highly-liquid investments with a remaining maturity of three months or less at the time of purchase are considered to be cash equivalents. Cash equivalents consist primarily of investments in institutional money market funds and investment grade commercial paper. Investments All of our investments, except equity investments, are classified as availabla e-for-sale at the respective balance sheet dates. Investments classified as availabla e-for-sale are measured and recorded in the Consolidated Balance Sheets at fair value, and unrealized gains and losses, net of tax, are reported as a separate component of other comprehensive income. Interest earned on cash and investments, as well as realized gains and losses on sale of securities, are included in interest and other income, net in the Consolidated Statements of Operations. Our equity investments with readily determinable values consist of publicly traded equity securities. These investments are measured at fair value using quoted prices for identical assets in an active market. Privately held equity investments without readily determinable fair value are measured at cost, less impairment, adjud sted by observable price changes. Adjud stments resulting from impairments and observable price changes are recorded in interest and other income, net in the Consolidated Statements of Operations. Allowance for Credit Losses We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. This allowance is based on historical experience, credit evaluations, specific customer collection history and any customer-specific issues we have identifieff d. Changes in circumstances, such as an unexpected material adverse change in a major customer’s ability to meet its financial obligation to us or its payment trends, may require us to further adjud st our estimates of the recoverabia lity of amounts due to us. Bad debt expense and any reversals are recorded in marketing and selling expenses in the Consolidated Statement of Operations. Inventories Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (FIFO) basis. We adjud st inventory carrying value for estimated obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. We fully write down inventories and noncancelabla e purchase orders forff inventory deemed obsolete. We perform periodic reviews of inventory items to identifyff excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions become less favorable than those projected by us, additional inventory adjud stments may be required. 64 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Property,tt Planl t and Equipment Property, plant and equipment is stated at cost. Depreciation is provided over the estimated usefulff the straight-line method. Estimated usefulff to 30 years; demonstration and manufact urt equipment, 3 to 5 years. Land improvements are amortized over the shorter of 15 years or the estimated usefulff improvements are amortized over the shorter of five years or the lease term. lives of the assets using lives for financial reporting purposes are as follows: buildings and improvements, 3 ing equipment, 3 to 5 years; software, 3 to 5 years; and furniturt e, fixturt es and other life. Leasehold ff In connection with our periodic review of estimated usefulff lives of the property, plant, and equipment subsu equent to the end of fiscal 2023, we will increase the estimated usefulff lives of certain buildings ing equipment and improvements will increase by 5 years. The estimated range of usefulff will increase to between 5 to 8 years. This change in accounting estimate will be effeff ctive beginning fiscal year 2024 and will be applied on a prospective basis to the assets on our balance sheet as of October 29, 2023, as well as to future asset purchases. Based on the carrying amount of the assets included in property, plant and equipment, net in our Consolidated Balance Sheet as of October 29, 2023, we currently estimate this change will increase income from operations before income taxes in fiscal 2024 by approximately $128 million as a result of the reduction in depreciation expense. lives of certain assets. The estimated usefulff lives of demonstration and manufact urt ff Government Assistance We receive government assistance from various domestic and foreign governments in the form of cash grants or refundable tax credits. These arrangements incentivize us to continue growing our capia tal investments and research and development activities. Government incentives generally contain conditions that must be met in order for the assistance to be earned. We recognize the incentives when there is reasonable assurance that we will comply with all conditions specifieff d in the incentive arrangement and the incentive will be received. We record capia tal expenditure related incentives as an offsff et to the associated property, plant and equipment, net within our Consolidated Balance Sheets and recognize a reduction to depreciation expense over the usefulff lifeff of the corresponding acquired asset. We record incentives related to operating activities as a reduction to expense in the same line item on the Consolidated Statements of Operations as the expenditure for which the grant is intended to compensate. Capia tal expenditure related incentives reduced gross property, plant and equipment, net by $154 million in fiscal 2023. Contra-depreciation expense was not material in fiscal 2023. Operating incentives recognized as a reduction to research, development and engineering expense was $53 million in fiscal 2023. Capia tal expenditure related incentives reduced our income taxes payable by $149 million as of October 29, 2023, of which $140 million is in accounts payable and accrued expenses and $9 million is in income taxes payable, in our Consolidated Balance Sheets. Goodwill and Intangible Assets Intangible asset are generally recorded in connection with a business acquisition. The value assigned to intangible assets is usually based on estimates and judgments regarding expectations for the success and life cycle of products and technology acquired. We evaluate the usefulff lives of our intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization. In addition, we review intangible assets for impairment when events or changes in circumstances indicate their carrying value may not be recoverabla e. Management considers such l product acceptance from the estimates, changes in the competitive and economic indicators as significant differences in actuat environments, technological advances, and changes in cost structurt e. Intangible assets with infinite lives are not subju ect to amortization and consist primarily of in-process technology, which will be subju ect to amortization upon commercialization. If an in-process technology project is abandoned, the acquired technology attributable to the project will be written-off. Goodwill and intangible assets with indefinite usefulff 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 recoverabla e. Intangible assets with finite lives are presented at cost, net of accumulated amortization, and are amortized over their estimated usefulff lives of 1 to 15 years using the straight-line method. 65 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The process of evaluating the potential impairment of goodwill and intangible assets requires judgment. When reviewing goodwill for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carryirr ng value. In performing a qualitative assessment, we consider business conditions and other factors including, but not limited to (i) adverse industry or ing actions and lower projections that may impact future operating results, (iii) sustained decline in share price, and (iv) overall financial performance and other events affeff cting the reporting units. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed by estimating the fair value of the reporting unit and comparing it to its carrying va lue. If the carrying value of a reporting unit exceeds its fair value, we would record an impairment charge equal to the excess of the carryirr ng value of the reporting unit over its fair value. economic trends, (ii) restructurt rr rr Long-Lived Assets We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverabla e. We assess the fair value of the assets based on the amount of the undiscounted future cash flow that the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset, plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When we identify an impairment, we reduce the carrying value of the group of assets to comparable market values, when availabla e and appropriate, or to our estimated fair value based on a discounted cash flow approach. Revenue Recognition from Contratt ctstt with Customers We recognize revenue when promised goods or services are transferff red to a customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We determine revenue recognition through the following five steps: (1) identification of the contract(s) with customers, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfieff d. Idendd tifying the contratt ct(s) with customers.rr We sell manufacff turing equipment, services, and spare parts directly to our customers in the semiconductor, display, and related industries. We generally consider written documentation including, but not limited to, signed purchase orders, master agreements, and sales orders as contracts provided that collection is probabla e. Collectability is assessed based on the customer’s creditworthiness determined by reviewing the customer’s published credit and financial information, historical payment experience, as well as other relevant factors. Idendd tifying the perforff mance obligations. Our performance obligations include delivery of turing equipment, service agreements, spare parts, installation, extended warranty and training. Our service agreements are considered one performance obligation and may include multiple goods and services that we provide to the customer to deliver against a performance metric. Judgment is used to determine whether multiple promised goods or services in a contract should be accounted for separately or as a group. manufacff rr Determine the transaction price. The transaction price for our contracts with customers may include fixed and variable consideration. We include variable consideration in the transaction price to the extent that it is probabla e that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsu equently resolved. Allocate the transaction price to the perforff mance obligations. A contract’s transaction price is allocated to each distinct performance obligation identified within the contract. We generally estimate the standalone selling price of a distinct performance obligation based on historical cost plus an appropriate margin. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the relative standalone selling price of each distinct good or service in the contract. Recogniziii ng the revenue as perforff mance obligations are satisfii ieff d. We recognize revenue from equipment and spares parts ring control of the goods to the customer which at a point in time when we have satisfied our perforff mance obligation by transferff typically occurs at shipment or delivery. Revenue from service agreements is recognized over time, typically within 12 months, as customers receive the benefits of services. The incremental costs to obtain a contract are not material. 66 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) a Paymen t Terms. Payment terms vary by contract. Generally, the majoa rity of payments are due within a certain number of days from shipment of goods or performance of service. The remainder is typically due upon customer technical acceptance. We typically receive deposits on future deliverabla es from customers in the Semiconductor Systems and Display and Adjad cent Markets segments and, in certain instances, may also receive deposits from customers in the Applied Global Services segment. Our payment terms do not generally contain a significant financing component. Shipping and Handling Costs We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to the associated producd ts. Accordingly, amounts billed for shipping and handling costs are recorded as a component of transferff net sales and costs as a component of cost of products sold. Warranty We provide for the estimated cost of warranty when revenue is recognized. Estimated warranty costs are determined by t costs. Our warranty costs incurred in correcting product a l warranty costs differ subsu tantially from our estimates, revisions to the estimated analyzing specific product, current and historical configff uration statistics and regional warranty suppor obligation is affeff cted by product and component failure rates, material usage and labor failures during the warranty period. If actuat warranty liabia lity would be required. u We also sell extended warranty contracts to our customers which provide an extension of the standard warranty coverage r the extended period of up to 2 years. We receive payment at the inception of the contract and recognizes revenue ratably ove warranty coverage period, as the customer simultaneously receives and consumes the benefits of the extended warranty. a Sales and Value Addeddd Taxesaa Taxes collected from customers and remitted to governmental authorities are presented on a net basis in the Consolidated Statements of Operations. Research, Development and Engineering Costs Research, development and engineering costs are expensed as incurred. Income Taxesaa We recognize a current tax liability for the estimated amount of income tax payable on tax returns for the current fiscal year. Deferred tax assets and liabia lities are recognized for the estimated future tax effeff cts of temporary di fferences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offsff et by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. Deferred tax assets and liabia lities are measured based on enacted tax rates that are expected to apply in the period in which the assets are realized or the liabia lities are settled. Deferred tax assets and liabilities are adjud sted for the effeff ct of a change in tax rates, laws, or statust when the change is enacted. rr We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are estimated based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Any changes in judgment related to uncertain tax positions are recognized in our provision for income taxes in the quarter in which such change occurs. Interest and penalties related to uncertain tax positions are recognized in our provision for income taxes. 67 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Derivative Financial Instruments We use financial instruments, such as foreign currency forward and option contracts, to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions typically expected to occur within 24 months. The purpose of our foreign currency management is to mitigate the effeff ct of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. In certain cases, we also use interest rate swap or lock agreements to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. The terms of derivative financial instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. Our derivative financial instruments are recorded as assets or liabia lities at fair value and reported gross on our rties, we may net settle Consolidated Balance Sheets. However, under master netting agreements in place with our counterparr transactions of the same currency under certain circumstances. For derivative instruments designated and qualifying as cash flow hedges, the gain or loss is reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity, and is reclassified into earnings when the hedged transaction affeff cts earnings. Any portion excluded from the assessment of effeff ctiveness is recognized in the same line as the hedged transaction but may be recognized in a different manner, e.g. amortized. If a hedged transaction becomes probable of not occurring according to the original strategy, the hedge relationship is discontinued and we recognize the gain or loss on the associated derivative in earnings. For hedges of existing foreign currency denominated assets or liabilities, the gain or loss is recorded in earnings in the same period to offsff et the changes in the fair value of the assets or liabia lities being hedged. Foreigngg Currency As of October 29, 2023, all of our subsu idiaries use the United States dollar as their functional currency. Accordingly, assets and liabia lities of these subsu idiaries are remeasured using exchange rates in effeff ct at the end of the period, except for non- monetary assets, such as inventories and property, plant and equipment, which are remeasured using historical exchange rates. Foreign currency-denominated revenues and costs are remeasured using average exchange rates for the period, except for costs related to the non-monetary assets and liabia lities, which are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in interest and other income, net in the Consolidated Statements of Operations as incurred. Concentrations of Credit Riskii Financial instruments that potentially subju ect us to significant concentrations of credit risk consist principally of cash equivalents, investments, trade accounts receivable and derivative financial instruments used in hedging activities. We invest in a variety of financial instruments, such as, but not limited to, commercial paper, corporate bonds, municipal securities, United States Treasury and agency securities, and asset-backed and mortgage-backed securities, and, by policy, limits the amount of ion or commercial issuer. We are exposed to credit-related losses in the event of credit exposure with any one financial instituttt rties to fail to meet their nonperformance by counterparr obligations. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral to secure accounts receivable. We maintain an allowance for potentially uncollectible accounts receivable based on our assessment of the collectability of accounts receivable. We regularly review the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable balances, and current economic conditions that may affeff ct a customer’s ability to pay. In addition, we utilize deposits and/or letters of credit to mitigate credit risk when considered appropriate. rties to derivative financial instruments but do not expect any counterparr Recent Accountintt g Pronouncements Accountintt g Stantt dards Adoptdd edtt Discii losures by Business Entities about Government Assistance. In November 2021, the Financial Accounting Standards Board (FASB) issued an accounting standard update which requires annual disclosures related to certain government assistance received by business entities (Topic 832) including (1) the types of assistance, (2) the entity’s accounting for the assistance, and (3) the effeff ct of the assistance on an entity’s financial statements. We adopted this guidance for our fiscal 2023 Form 10-K. The adoption of this authoritative guidance only impacted the disclosures in our notes to consolidated financial statements. 68 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Accountintt g Stantt dards Not Yet Adoptdd edtt e Improvm ements to Repor table Segment Discii losures. In November 2023, the FASB issued an accounting standard update to improve reportabla e segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses (Topic 280). The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker (CODM) and included within the reported measure of a segment’s profitff or loss, requires interim disclosures about a reportabla e segment’s profitff or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profitff or loss and contains other disclosure requirements. This authoritative guidance will be effeff ctive for us in fiscal 2025 for annual periods and in the first quarter of fiscal 2026 for interim periods, with early adoption permitted. We are currently evaluating the effeff ct of this new guidance on our consolidated financial statements. Fair Value Measurement of Equity Securities Subject to Contratt ctual Sale Restrictions. In June 2022, the FASB issued an l sale restrictions is accounting standard update which clarifieff s how the fair value of equity securities subju ect to contractuatt l sale restriction should not be considered in measuring fair determined (Topic 820). The amendment clarifies that a contractuat value. It also requires certain qualitative and quantitative disclosures related to equity securities subju ect to contractuat l sale restrictions. This authoritative guidance will be effeff ctive for us in the first quarter of fiscal 2025, with early adoption permitted. We are currently evaluating the effeff ct of this new guidance on our consolidated financial statements. Contratt ct Assets and Contratt ct Liabilities from Revenue Contratt ctstt with Customersrr in a Business Combination. In October 2021, the FASB issued an accounting standard update to improve the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination (Topic 805). This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and afteff r a business combination. This authoritative guidance will be effeff ctive for us in the first quarter of fiscal 2024. The impact of the adoption depends on the facts and circumstances of future acquisitions. Note 2 Earnings Per Share Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effeff ct of restricted stock units and employee stock purchase plan shares) outstanding during the period. Our net income has not been adjud sted for any period presented for purposes of computing basic or diluted earnings per share due to our non-complex capia tal structurt e. scal Year Numerator: Net income Denominator: Weighted average common shares outstanding Effeff ct of weighted dilutive restricted stock units and employee stock purchase plan shares Denominator for diluted earnings per share Basic earnings per share Diluted earnings per share Potentially weighted dilutive securities 2023 2022 2021 (In millions, except per share amounts) $ 6,856 $ 6,525 $ 5,888 840 5 845 8.16 8.11 — $ $ 871 6 877 7.49 7.44 3 $ $ 910 9 919 6.47 6.40 — $ $ Excluded from the calculation of diluted earnings per share are securities attributable to outstanding restricted stock units where the combined exercise price and average unamortized fair value are greater than the average market price of our common stock, and thereforff e their inclusion would be anti-dilutive. 69 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Note 3 Cash, Cash Equivalents and Investments Summary of Cash, Cash Equivalentstt and Investments The following tabla es summarize our cash, cash equivalents and investments by security type: October 29, 2023 , Cash Cash equivalents: Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value $ 1,417 $ (In millions) — $ — $ 1,417 Money market funds* Municipal securities Commercial paper, corporate bonds and medium-term notes Total cash equivalents Total cash and cash equivalents Short-term and long-term investments: Bank certificates of deposit and time deposits U.S. Treasury and agency securities Non-U.S. government securities** Municipal securities Commercial paper, corporate bonds and medium-term notes Asset-backed and mortgage-backed securities Total fixed income securities Publu icly traded equity securities Equity investments in privately held companies Total equity investments Total short-term and long-term investments Total cash, cash equivalents and investments $ $ $ $ 3,260 26 1,429 4,715 6,132 18 381 7 438 760 502 2,106 543 192 735 2,841 8,973 $ $ $ $ — — — — — $ — $ — — — — — — 171 78 249 249 249 $ $ — — — — — $ — $ 7 1 11 12 15 46 16 10 26 72 72 $ $ 3,260 26 1,429 4,715 6,132 18 374 6 427 748 487 2,060 698 260 958 3,018 9,150 _________________________ *Excludes $101 million of restricted cash equivalents invested in money market funds related to deferred compensation plans. **Includes Canadian provincial government debt. 70 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value $ 1,199 $ (In millions) — $ — $ 1,199 October 30, 2022 , Cash Cash equivalents: Money market funds* U.S. Treasury and agency securities Municipal securities Commercial paper, corporate bonds and medium-term notes Total cash equivalents Total cash and cash equivalents Short-term and long-term investments: Bank certificates of deposit U.S. Treasury and agency securities Non-U.S. government securities** Municipal securities Commercial paper, corporate bonds and medium-term notes Asset-backed and mortgage-backed securities Total fixed income securities Publu icly traded equity securities Equity investments in privately held companies Total equity investments Total short-term and long-term investments Total cash, cash equivalents and investments $ $ $ $ 660 4 13 119 796 1,995 7 435 7 389 595 432 1,865 85 567 652 2,517 4,512 $ $ $ $ — — — — — — $ — $ — — — — — — 63 86 149 149 149 $ $ — — — — — — $ — $ 13 1 16 21 19 70 26 4 30 100 100 $ $ 660 4 13 119 796 1,995 7 422 6 373 574 413 1,795 122 649 771 2,566 4,561 ________________________ *Excludes $105 million of restricted cash equivalents invested in money market funds related to deferred compensation plans. **Includes Canadian provincial government debt. During fiscal 2023, 2022 and 2021, interest income from our cash, cash equivalents and fixed income securities was $262 million, $44 million and $26 million, respectively. Maturities of Investmett nts The following tabla e summarizes the contractuat l maturities of our investments at October 29, 2023: Cost Estimated Fair Value r one through five years Due in one year or less Due afteff No single maturity date* Total _________________________ $ $ $ (In millions) 716 888 1,237 2,841 $ 709 864 1,445 3,018 *Securities with no single maturity date include publicly traded and privately held equity securities and asset-backed and mortgage-backed securities. 71 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Gains and Losses on Investments At October 29, 2023, gross unrealized losses related to our fixed income portfolff io were not material. We regularly review our fixed income portfolff io to identifyff and evaluate investments that have indications of possible impairment from credit losses or other factors. Factors considered in determining whether an unrealized loss is considered to be a credit loss include: the significance of the decline in value compared to the cost basis; the financial condition; credit quality and near-term prospects of the investee; and whether it is more likely than not that we will be required to sell the security prior to recovery. Credit losses related to availabla e-for-sale debt securities are recorded as an allowance for credit losses through interest and other income (expense), net. Any additional changes in fair value that are not related to credit losses are recognized in accumulated other comprehensive income (loss) (AOCI). During fiscal 2023, 2022 and 2021, gross realized gains and losses related to our fixed income portfolff io were not material. During fiscal 2023, 2022 and 2021, we did not recognize significant credit losses and the ending allowance for credit losses was not material. The components of gain (loss) on equity investments for each fiscal year were as follows: Publu icly traded equity securities Unrealized gain Unrealized loss Realized gain on sales and dividends Realized loss on sales or impairment Equity investments in privately held companies Unrealized gain Unrealized loss Realized gain on sales and dividends Realized loss on sales or impairment 2023 2022 2021 (In millions) $ 193 $ 30 $ (44) 9 (4) 15 (30) 9 (121) (62) 7 — 41 (5) 3 (7) Total gain (loss) on equity investments, net $ 27 $ 7 $ 14 (11) 2 — 65 (12) 48 (7) 99 Impairment losses on equity investments in privately held companies, included in the above tabla e, were not material during fiscal 2022 and 2021 and were $121 million during fiscal 2023. These impairment losses are included in interest and other income (expense), net in the Consolidated Statement of Operations. 72 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Note 4 Fair Value Measurements Our financial assets are measured and recorded at fair value on a recurring basis, except for equity investments in privately held companies. These equity investments are generally accounted for under the measurement alternative, defined as cost, less impairments, adjud sted for subsu equent observable price changes and are periodically assessed for impairment when events or circumstances indicate that a decline in value may have occurred. Our nonfinff ancial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverabla e. Fair Value Hierarchy We use the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is availabla e and significant to the fair value measurement: • • • Level 1 — Quoted prices in active markets for identical assets or liabia lities; Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabia lities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for subsu tantially the full term of the assets or liabia lities; and Level 3 — Unobservable inputs that are suppor value of the assets or liabilities. ted by little or no market activity and that are significant to the fair u Our investments consist primarily of debt securities that are classified as availabla e-for-sale and recorded at their fair values. In determining the fair value of investments, we use pricing information from pricing services that value securities based on quoted market prices and models that utilize observable market inputs. In the event a fair value estimate is unavailabla e from a pricing service, we generally obtain non-binding price quotes from brokers. In addition, to validate pricing information obtained from pricing services, we periodically perform supplu emental analysis on a sample of securities. We review any significant unanticipated differences identifieff d through this analysis to determine the appropriate fair value. As of October 29, 2023, subsu tantially all of our availabla e-for-sale, short-term and long-term investments were recognized at fair value that was determined based upon observabla e inputs or quoted prices. Our equity investments with readily determinable values consist of publicly traded equity securities. These investments are measured at fair value using quoted prices for identical assets in an active market and the changes in fair value of these equity investments are recognized in the consolidated statements of operations. Investments with remaining effeff ctive maturities of 12 months or less from the balance sheet date are classified as short- term investments. Investments with remaining effeff ctive maturities of more than 12 months from the balance sheet date are classified as long-term investments. 73 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Assets Measured at Fair Value on a Recurring Basis Financial assets (excluding cash balances) measured at fair value on a recurring basis are summarized below: October 29, 2023 October 30, 2022 Level 1 Level 2 Total Level 1 Level 2 Total (In millions) Assets: Availabla e-for-sale debt security investments Money market funds* Bank certificates of deposit and time deposits U.S. Treasury and agency securities Non-U.S. government securities Municipal securities $ $ 3,361 — 331 — — $ — $ 3,361 18 18 374 43 6 6 453 453 Commercial paper, corporate bonds and medium-term notes Asset-backed and mortgage-backed securities — — 2,177 487 2,177 487 $ 765 — 404 — — — — — $ 7 22 6 386 693 413 765 7 426 6 386 693 413 Total availabla e-for-sale debt security investments $ 3,692 $ 3,184 $ 6,876 $ 1,169 $ 1,527 $ 2,696 Equity investments with readily determinable values Publu icly traded equity securities Total equity investments with readily determinable values $ $ 698 698 $ $ — $ — $ 698 698 $ $ 122 122 $ $ — $ — $ 122 122 Total $ 4,390 $ 3,184 $ 7,574 $ 1,291 $ 1,527 $ 2,818 _________________________ *Amounts as of October 29, 2023 and October 30, 2022 include $101 million and $105 million, respectively, invested in money market funds related to deferred compensation plans. Due to restrictions on the distribution of these funds, they are classified as restricted cash equivalents and are included in deferred income taxes and other assets in the Consolidated Balance Sheets. We did not have any financial assets measured at fair value on a recurring basis within Level 3 fair value measurements as of October 29, 2023 or October 30, 2022. Assets and Liabilities without Readily Determinable Values Measured on a Non-recurring Basis Our equity investments without readily determinable values consist of equity investments in privately held companies. We elected the measurement alternative, defined as cost, less impairments, adjud sted for subsu equent observable price changes on a prospective basis for certain equity investments without readily determinable fair values and are required to account for any subsu equent observable changes in fair value within the statements of operations. These investments are classified as Level 3 within the fair value hierarchy and periodically assessed for impairment when an event or circumstance indicates that a decline in value may have occurred. Impairment losses on equity investments in privately held companies, included in the above tabla e, were not material during fiscal 2022 and 2021 and were $121 million during fiscal 2023. These impairment losses are included in interest and other income (expense), net in the Consolidated Statement of Operations. tt Other The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash equivalents, expenses, approximate fair value due to their accounts receivable, commercial paper notes, and accounts payable and accruedrr short maturities. At October 29, 2023, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion, and the estimated fair value was $4.7 billion. At October 30, 2022, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion and the estimated fair value was $4.8 billion. The estimated fair value of long-term senior unsecured notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. See Note 10 of the Notes to the Consolidated Financial Statements for further detail of existing debt. 74 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Note 5 Derivative Instruments and Hedging Activities Derivative Financial Instruments We conduct business in a number of foreign countries, with certain transactions denominated in local currencies, such as the Japane se yen, Israeli shekel, euro and Taiwanese dollar. We use derivative financial instruments, such as foreign currency a forward and option contracts, to hedge certain forecasted foreign currency denominated transactions expected to occur typically within the next 24 months. The purpose of our foreign currency management is to mitigate the effeff ct of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. We do not use derivative financial instruments for trading or speculative purpos es. Derivative instruments and hedging activities, including foreign exchange and interest rate contracts, are recognized on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualifyff for hedge accounting treatment are recognized currently in earnings. All of our derivative financial instruments are recorded at their fair value in other current assets or in accounts payable and accruedrr expenses. rr Hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges and foreign exchange derivatives are typically entered into once per month. Cash flow hedges are evaluated for effeff ctiveness quarterly. The effeff ctive portion of the gain or loss on these hedges is reported as a component of AOCI in stockholders’ equity and is reclassified into earnings when the hedged transaction affeff cts earnings. The majority of the afteff r-tax net income or loss related to foreign exchange derivative instruments included in AOCI at October 29, 2023 is expected to be reclassified into earnings within 12 months. Changes in fair value caused by changes in time value of option contracts designated as cash flow hedges are excluded from the assessment of effeff ctiveness. The initial value of this excluded component is amortized on a straight-line basis over the lifeff of the hedging instrument and recognized in the financial statement line item to which the hedge relates. If the transaction being hedged is probabla e not to occur, we recognize the gain or loss on the associated financial instrument in the consolidated statement of operations. The amount recognized due to discontinuance of cash flow hedges that were probable of not occurring by the end of the originally specified time period was not significant for fiscal years 2023, 2022 or 2021. Foreign currency forward contracts are generally used to hedge certain foreign currency denominated assets or liabilities. Accordingly, changes in the fair value of these hedges are recorded in earnings to offsff et the changes in the fair value of the assets or liabia lities being hedged. As of October 29, 2023 and October 30, 2022, the total outstanding notional amount of foreign exchange contracts was $1.7 billion and $2.1 billion, respectively. The fair values of foreign exchange derivative instruments at October 29, 2023 and October 30, 2022 were not material. The gain (loss) on derivatives in cash flow hedging relationships recognized in AOCI for derivatives designated as hedging instruments for the indicated periods were as follows: Foreign exchange contracts Total Derivatives in Cash Flow Hedging Relationships 2023 2022 2021 (In millions) $ $ (56) $ (56) $ 128 128 $ $ 36 36 75 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The effeff cts of derivative instruments and hedging activities on the Consolidated Statements of Operations were as follows: 2023 Foreign Exchange Contracts: Net sales Cost of products sold Research, development and engineering Marketing and selling General and administrative Interest Rate Contracts: Interest expense 2022 Foreign Exchange Contracts: Net sales Cost of products sold Research, development and engineering Marketing and selling General and administrative Interest Rate Contracts: Interest expense 2021 Foreign Exchange Contracts: Net sales Cost of products sold Research, development and engineering General and administrative Interest Rate Contracts: Interest expense Total Amount Presented in the Consolidated Statement of Operations in which the Effeff cts of Cash Flow Hedges are Recorded Amount of Gain or (Loss) Reclassified from AOCI into Consolidated Statement of Operations Amounts of Gain (Loss) Excluded from Effeff ctiveness Testing Recognized in Consolidated Statement of Operations Derivatives in Cash Flow Hedging Relationships (In millions) $ 63 — (14) (2) (4) (13) 30 $ 100 $ (12) (7) (3) (3) (13) 62 $ $ 4 2 3 1 (13) (3) $ — — — — — — — — — (1) — — — (1) — (2) — — — (2) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 26,517 $ 14,133 3,102 776 852 238 $ 25,785 $ 13,792 2,771 703 735 228 $ 23,063 $ 12,149 2,485 620 236 $ 76 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Location of Gain or (Loss) Recognized in Consolidated Statement of Operations 2023 2022 2021 Amount of Gain or (Loss) Recognized in Consolidated Statement of Operations (In millions) Derivatives Not Designated as Hedging Instruments g g g Foreign exchange contracts Interest and other income (expense), net $ (4) $ 67 $ Total return swaps - deferred compensation Cost of products sold Total return swaps - deferred compensation Operating expenses Total return swaps - deferred compensation Interest and other income (expense), net Total Credit Riskii Contingent Features 1 9 (11) (5) $ (3) (29) (2) 33 $ $ 29 3 29 (1) 60 If our credit rating were to fall below investment grade, we would be in violation of credit risk contingent provisions of the derivative instruments discussed above, and certain counterparr rties 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 featurt es that were in a net liabia lity position was immaterial as of October 29, 2023 and October 30, 2022. Entering into derivative contracts with banks exposes us to credit-related losses in the event of the banks’ nonperformance. However, our exposure is not considered significant. Note 6 Accounts Receivable, Net We have agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. We sell our accounts receivable generally without recourse. From time to time, we also discount letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial instituttt ions to discount the letters of credit and the cost of such arrangements. We sold $0.7 billion, $1.0 billion and $1.3 billion of accounts receivable during fiscal 2023, 2022 and 2021, respectively. We did not discount letters of credit issued by customers in fiscal 2023, 2022 and 2021. There was no discounting of promissory notes in each of fiscal 2023, 2022 and 2021. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Statements of Operations and were not material for all years presented. Accounts receivable are presented net of allowance for credit losses of $29 million at October 29, 2023 and October 30, 2022. Changes in allowance for credit losses in fiscal 2023, 2022 and 2021 were not material. We sell our products principally to manufact urt ers within the semiconductor and display industries. While we believe that our allowance for credit losses is adequate and represents our best estimate as of October 29, 2023, we continue to closely monitor customer liquidity and industryrr and economic conditions, which may result in changes to our estimates. ff Note 7 Contract Balances and Perforff mance Obligations Contratt ct Assets and Liabilities Contract assets primarily result from receivables for goods transferff red to customers where payment is conditional upon technical sign offff and not just the passage of time. Contract liabia lities consist of unsatisfied performance obligations related to advance payments received and billings in excess of revenue recognized. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. Contract assets are generally classified as current and are included in Other Current Assets in the Consolidated Balance Sheets. Contract liabia lities are classified as current or non-current based on the timing of when performance obligations will be satisfied and associated revenue is expected to be recognized. 77 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Contract balances at the end of each reporting period were as follows: Contract assets Contract liabia lities October 29, 2023 October 30, 2022 (In millions) 274 2,975 $ $ 173 3,142 $ $ The increase in contract assets during fiscal 2023, was primarily due to an increase in unsatisfied performance obligations related to goods transferff red to customers where payment was conditional upon technical sign off.ff During fiscal 2023, we recognized revenue of approximately $2.9 billion related to contract liabilities at October 30, 2022. This reduction in contract liabia lities was offsff et by new billings for products and services for which there were unsatisfied performance obligations to customers and revenue had not yet been recognized as of October 29, 2023. There were no credit losses recognized on our accounts receivabla es and contract assets during fiscal 2023 and 2022. Perforff mance Obligations As of October 29, 2023, the amount of remaining unsatisfied performance obligations on contracts, primarily consisting of written purchase orders received from customers, with an original estimated duration of one year or more was approximately $6.0 billion, of which approximately 59% is expected to be recognized within 12 months and the remainder is expected to be recognized within the following 24 months thereafter. We have elected the availabla e practical expedient to exclude the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Note 8 Balance Sheet Detail Inventories Customer service spares Raw materials Work-in-process Finished goods Deferred cost of sales Evaluation inventory Manufacff tured on-hand inventory Total finished goods Total inventories Other Current Assets Prepaid income taxes and income taxes receivable Prepaid expenses and other 78 October 29, 2023 October 30, 2022 (In millions) 1,589 1,653 997 413 423 650 1,486 5,725 $ $ 1,409 1,807 1,029 704 422 561 1,687 5,932 October 29, 2023 October 30, 2022 (In millions) 412 976 1,388 $ $ 461 883 1,344 $ $ $ $ APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Property, Plant and Equipment, Net Land and improvements s Buildings and improvement Demonstration and manufacff turing equipment Furniture, fixtures and other equipment Construcrr Gross property, plant and equipment Accumulated depreciation tion in progress Usefulff Life (In years) October 29, 2023 October 30, 2022 (In millions) 3 -30 3-5 3-5 $ $ 393 2,194 2,353 762 672 6,374 (3,651) 2,723 $ $ 387 2,027 2,083 743 389 5,629 (3,322) 2,307 Depreciation expense was $471 million, $404 million and $345 million for fiscal 2023, 2022 and 2021, respectively. October 29, 2023 October 30, 2022 (In millions) $ $ 1,729 $ 1,395 370 108 345 389 — 691 2,552 $ 2,475 October 29, 2023 October 30, 2022 (In millions) $ 1,478 $ 1,024 332 267 282 65 38 84 102 625 4,297 $ $ 1,755 905 286 220 319 30 39 85 — 598 4,237 Deferred Income Taxes and Other Assets Non-current deferred income taxes Operating lease right-of-use assets Finance lease right-of-use assets Income tax receivables and other assets Accounts Payable and Accrued Expenses Accounts payable Compensation and employee benefits Warranty Dividends payable Income taxes payable Other accrued taxes Interest payable Operating lease liabia lities, current Finance lease liabia lities, current Other 79 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Other Liabilities Defined and postretirement benefit plans Operating lease liabia lities, non-current Other October 29, 2023 October 30, 2022 (In millions) 126 252 336 714 $ $ 107 287 338 732 $ $ Note 9 Goodwill and Intangible Assets As of October 29, 2023, our reporting units include Semiconductor Products Group and Imaging and Process Control Group, which combine to form the Semiconductor Systems reporting segment, Applied Global Services, Display and Adjad cent Markets and other reporting units recorded under Corporate and Other. Our methodology for allocating the purchase price relating to purchase acquisitions is determined through establa ished and generally accepted valuation techniques. Goodwill is measured as the excess of the purchase price over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. We assign assets acquired (including goodwill) and liabia lities assumed to one or more reporting units as of the date of acquisition. Typically, acquisitions relate to a single reporting unit and thus do not require the allocation of goodwill to multiple reporting units. If the products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process. Goodwill In the fourth quarter of fiscal 2023, we performed a qualitative assessment to test goodwill for all of our reporting units for impairment. We determined that it was more likely than not that each of our reporting units’ fair values exceeded their respective carrying values and that it was not necessary to perform the quantitative goodwill impairment test for any of our reporting units. The evaluation of goodwill and intangible assets for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, we will be required to reassess and update our forecasts and estimates used in future impairment analyses. If the results of these future analyses are lower than current estimates, a material impairment charge may result at that time. Details of goodwill as of October 29, 2023 and October 30, 2022 were as follows: Goodwill by reportable segment Semiconductor Systems Applied Global Services Display and Adjad cent Markets Corporate and Other October 29, 2023 October 30, 2022 (In millions) $ $ 2,460 $ 1,032 199 41 3,732 $ 2,428 1,032 199 41 3,700 From time to time, we acquire companies related to our existing or new markets. During fiscal 2023, goodwill increased primarily due to the preliminary purchase accounting for acquisitions, net of adjud stments, which were not material to our results of operations or to our balance sheet. 80 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Intangible Assets Details of intangible assets other than goodwill were as follows: Intangible assets with finff ite lives: Semiconductor Systems Group Applied Global Services Display and Adjad cent Markets Corporate & Other Total intangible assets with finite lives Intangible assets with infinite lives: Semiconductor Systems Group Corporate & Other Total intangible assets with infinite lives Total intangible assets $ $ $ $ $ October 29, 2023 October 30, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount 2,001 79 194 36 2,310 $ $ (1,714) $ (78) (194) (30) (2,016) $ — $ — — $ — $ — — $ (In millions) 287 1 — 6 294 $ $ — $ — — $ 1,985 79 194 36 2,294 16 1 17 2,310 $ (2,016) $ 294 $ 2,311 $ $ $ $ $ (1,675) $ (77) (194) (26) (1,972) $ — $ — — $ 310 2 — 10 322 16 1 17 (1,972) $ 339 The increase in intangible assets with finite lives during fiscal 2023 was primarily due to the preliminary pur rr chase accounting for acquisitions during fiscal 2023, which were not material to our results of operations. Amortization expense of intangible assets was $44 million, $40 million and $49 million during fiscal 2023, 2022 and 2021, respectively. As of October 29, 2023, future estimated amortization expense of intangible assets with finite lives is expected to be as follows: 2024 2025 2026 2027 2028 Thereafter Total ff Amortization Expense (In millions) 43 41 39 26 23 122 294 $ $ Note 10 Borrowing Facilities and Debt Revolving Creditdd Faciliii ties ii u In February 2020, we entered into a five-year $1.5 billion committed unsecured revolving credit agreement (Revolving Credit Agreement) with a group of banks. The Revolving Credit Agreement includes a provision under which we may request an increase in the amount of the facility of up to $500 million for a total commitment of no more than $2.0 billion, subju ect to the receipt of commitments from one or more lenders for any such increase and other customaryrr conditions. The Revolving Credit Agreement is scheduled to expire in February 2026, unless extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement provides for borrowings that bear interest for each advance at one of two rates selected by us, plus an applicable margin, which varies according to our public debt credit ratings. No amounts were outstanding under the Revolving Credit Agreement as of October 29, 2023 and October 30, 2022. 81 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In addition, we have revolving credit facilities with Japane to which we may borrow up to approximately $53 million in aggregate at any time. Our ability to borrow under these facilities is subju ect 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 Japane se yen. As of October 29, 2023 and October 30, 2022, no amounts were outstanding under these revolving credit a facilities. se banks pursuant a Short-ttt ertt mrr Commerciali Papera We have a short-term commercial paper program under which we may issue unsecured commercial paper notes of up to a total amount of $1.5 billion. The proceeds from the issuances of commercial paper are used for general corporate purposes. At October 29, 2023, we had $100 million of commercial paper notes outstanding and recorded as short-term debt with a weighted-average interest rate of 5.39% and maturities of 90 days, and as of October 30, 2022, we did not have any commercial paper notes outstanding. Senior Unsecured Notes Debt outstanding as of October 29, 2023 and October 30, 2022 was as follows: Principal Amount October 29, 2023 October 30, 2022 Effeff ctive Interest Rate Interest Pay Dates Long-term debt: 3.900% Senior Notes Due 2025 3.300% Senior Notes Due 2027 1.750% Senior Notes Due 2030 5.100% Senior Notes Due 2035 5.850% Senior Notes Due 2041 4.350% Senior Notes Due 2047 2.750% Senior Notes Due 2050 Total unamortized discount Total unamortized debt issuance costs Total long-term debt Note 11 Leases (In millions) 700 1,200 750 500 600 1,000 750 5,500 (11) (28) 5,461 $ $ 700 1,200 750 500 600 1,000 750 5,500 (12) (31) 5,457 $ $ 3.944% 3.342% 1.792% 5.127% 5.879% 4.361% 2.773% April 1, October 1 April 1, October 1 June 1, December 1 April 1, October 1 June 15, December 15 April 1, October 1 June 1, December 1 A contract contains a lease when we have the right to control the use of an identified asset for a period of time in exchange for consideration. A majority of our lease arrangements are operating leases. We also have certain leases that qualify as finance leases. We lease certain facilities, vehicles and equipment under non-cancelable operating leases, many of which include options to renew. Options that are reasonably certain to be exercised are included in the calculation of the right-of-use asset and lease liabia lity. Our finance leases are those that contain a purchase option which we are reasonablya certain to exercise at the end of the lease term. Our leases do not contain residual value guarantees or significant restrictions that impact the accounting for leases. As implicit rates are not availabla e for the leases, we use the incremental borrowing rate as of the lease commencement date in order to measure the right-of-use asset and liabia lity. Operating lease expense is generally recognized on a straight-line basis over the lease term. Finance lease expense is generally recognized on a straight-line basis over the life of the underlying leased asset. We elected the practical expedient to account for lease and non-lease components as a single lease component for all leases. For leases with a term of one year or less, we elected not to record a right-of-use asset or lease liability and to account for the associated lease payments as they become due. 82 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The components of lease expense and supplu emental information were as follows: Operating lease cost Finance lease cost: Amortization of right-of-use assets Interest on lease liabia lities Weighted-average remaining lease term (in years) - operating leases Weighted-average remaining lease term (in years) - finance leases Weighted-average discount rate - operating leases Weighted-average discount rate - finance leases Supplu emental cash flow information related to leases are as follows: Operating cash flows paid for operating leases Operating cash flows paid for finance leases Financing cash flows paid for finance leases Right-of-use assets obtained in exchange for operating lease liabilities Right-of-use assets obtained in exchange for finance lease liabilities As of October 29, 2023, the maturities of lease liabilities are as follows: Fiscal 2024 2025 2026 2027 2028 Thereafter Total lease payments Less imputed interest Total ff $ $ $ $ $ $ $ $ 2023 2022 2021 (In millions, except percentage) $ $ $ 102 2 3 5.7 0.9 3.1 % 4.6 % 93 $ — $ — $ 6.3 n/a 2.5 % n/a 79 — — 5.1 n/a 1.7 % n/a 2023 2022 2021 (In millions) 112 3 7 106 109 $ $ $ $ $ 107 $ — $ — $ 204 $ — $ 79 — — 123 — Operating Leases Finance Leases $ $ (In millions) 93 $ 82 47 37 30 81 370 (34) 336 $ 106 — — — — — 106 (4) 102 83 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Note 12 Stockholders’ Equity, Comprehensive Income and Share-Based Compensation Accumulated Othett r Comprehensive Income (Loss) Changes in the components of accumulated other comprehensive income (AOCI), net of tax, were as follows: Unrealized Gain (Loss) on Investments, Net Unrealized Gain (Loss) on Derivative Instruments Qualifyiff ng as Cash Flow Hedges Defined and Postretirement Benefit Plans Cumulative Translation Adjud stments Total (In millions) Balance at October 25, 2020 Other comprehensive income (loss) before reclassifications Amounts reclassified out of AOCI Other comprehensive income (loss), net of tax Balance at October 31, 2021 Other comprehensive income (loss) before reclassifications Amounts reclassified out of AOCI Other comprehensive income, net of tax Balance at October 30, 2022 $ $ $ Other comprehensive income (loss) before reclassifications Amounts reclassified out of AOCI Other comprehensive income (loss), net of tax $ 20 (14) (7) (21) (1) $ (60) (14) (74) (75) $ 16 9 25 (133) $ 28 2 30 (103) $ 100 (49) 51 (52) $ (44) (22) (66) (199) $ 20 10 30 (169) $ 71 10 81 (88) $ 17 9 26 Balance at October 29, 2023 $ (50) $ (118) $ (62) $ 13 — — — 13 — — — 13 — — — 13 (299) 34 5 39 (260) 111 (53) 58 (202) (11) (4) (15) $ $ $ (217) The tax effeff cts on net income of amounts reclassified from AOCI for the fiscal years 2023, 2022 and 2021 were $18 million, $36 million and $18 million, respectively. Stocktt Repuee rchase Program In March 2023, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in emented the previously existing $6.0 billion authorization approved in March 2022. At October 29, repurchases, which supplu 2023, approximately $12.7 billion remained availabla e for future stock repurchases under the repurchase program. The following tabla e summarizes our stock repurchases, including excise tax, for each fiscal year: Shares of common stock repurchased Cost of stock repurchased Average price paid per share 2023 2022 2021 (In millions, except per share amounts) 18 2,202 123.63 $ $ $ 54 6,103 113.84 113.84 $ $ 28 3,750 134.03 $ $ Effeff ctive January 1, 2023, stock repurchase amounts in the above tabla e include the 1% surcharge on stock repurchases under the Inflation Reduction Act’s excise tax. This excise tax is recorded in equity and reduces the amount availabla e under the repurchase program, as applicable. Excluding this excise tax, total cost of stock repurchased was $2,189 million, or $122.89 per share, for fiscal 2023. We record treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid in capia tal. If we reissue treasury stock at an amount below our acquisition cost and additional paid in capia tal associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against retained earnings. 84 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Dividends During fiscal 2023, our Board of Directors declared one quarterly cash dividend of $0.26 per share and three quarterly cash dividends of $0.32 per share. During fiscal 2022, our Board of Directors declared one quarterly cash dividend of $0.24 per share and three quarterly cash dividends of $0.26 per share. During fiscal 2021, our Board of Directors declared one quarterly cash dividend of $0.22 per share and three quarterly cash dividends of $0.24 per share. Dividends paid during fiscal 2023, 2022 and 2021 amounted to $975 million, $873 million and $838 million, respectively. We currently anticipate that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capia tal requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of our stockholders. Share-Based Compensation a We have a stockholder-approved equity plan, the Employee Stock Incentive Plan (ESIP), which permits grants to employees of share-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units and perforff mance units. In addition, the plan provides for the automatic grant of restricted stock units to non-employee directors and permits the grant of share-based awards to non-employee directors and consultants. Share-based awards made under the plan may be subju ect to accelerated vesting under certain circumstances in the event of a change in control. In addition, we have an Omnibus Employees’ Stock Purchase Plan (ESPP), which enables eligible employees to purchase our common stock. We recognized share-based compensation expense related to equity awards and ESPP shares. The effeff ct of share-based compensation on the results of operations and the related tax benefits for each fiscal year were as follows: Cost of products sold Research, development, and engineering Marketing and selling General and administrative Total share-based compensation Income tax benefits recognized 2023 2022 2021 (In millions) 180 179 55 76 490 63 $ $ $ 147 151 49 66 413 51 $ $ $ 118 129 43 56 346 43 $ $ $ The cost associated with share-based awards is typically recognized over the awards’ service period for the entire award on a straight-line basis, adjud sting for estimated forfeitures. However, in the case of share-based awards granted to certain members of senior management that allow for partial accelerated vesting in the event of a qualifying retirement based on age and years of service, the compensation expense is recognized once the individual meets the conditions for a qualifying retirement. We calculate estimated forfeiture rate on an annual basis, based on historical forfeiturtt e activities. The cost associated with perforff mance-based equity awards, which include performance and/or market goals, is recognized for each tranche over the service period. The cost of the portion of performance-based equity awards subju ect to performance goals is recognized based on an assessment of the likelihood that the applicable performance goals will be achieved, and the cost of the portion of performance-based equity awards subju ect to market goals is recognized based on the assumption of 100% achievement of the goal. At October 29, 2023, we had $791 million in total unrecognized compensation expense, net of estimated forfeiturtt es, related to grants of share-based awards under the ESIP and shares issued under the ESPP, which will be recognized over a weighted average period of 2.5 years. At October 29, 2023, there were 25 million shares availabla e for grant of share-based awards under the ESIP, and an additional 12 million shares availabla e for issuance under the ESPP. Stocktt Options Stock options are rights to purchase, at future dates, shares of our common stock. The exercise price of each stock option equals the fair market value of our common stock on the date of grant. Options typically vest over three to four years, subju ect to the grantee’s continued service with us through the scheduled vesting date, and expire no later than seven years from the grant date. There were no stock options granted during fiscal 2023, 2022 and 2021. There were no outstanding stock options at the end of fiscal 2023. 85 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Restricted Stocktt Units,tt Restrictedtt Stock, tt Perforff marr nce Share Units and Perforff marr nce Units Restricted stock units are converted into shares of our common stock upon vesting on a one-for-one basis. Restricted stock has the same rights as other issued and outstanding shares of our common stock except these shares generally have no right to dividends and are held in escrow until the award vests. Performance share units and performance units are awards that result in a payment to a grantee, generally in shares of our common stock on a one-for-one basis, if performance goals, market goals and/or other vesting criteria are achieved or the awards otherwise vest. Restricted stock units, restricted stock, performance share units and performance units typically vest over three to four years and vesting is usually subju ect to the grantee’s continued service with us and, in some cases, achievement of specified performance and/or market goals. The compensation expense related to share-based awards subju ect solely to time-based vesting requirements (Service- Based Awards) is determined using the market value of our common stock, adjud sted to exclude the present value of expected dividends during the vesting period. The market value of our common stock is calculated using the closing price of our common stock on the date of grant or if the grant date is not a trading date, the average of the closing prices on the trading dates immediately preceding and following the grant date. During fiscal 2023, 2022 and 2021, certain members of senior management were granted awards that are subju ect to the achievement of certain levels of specified perforff mance and/or market goals, in addition to time-based vesting requirements (Performance Based-Awards). Certain Performance-Based Awards are subju ect to the achievement of targeted levels of adjud sted operating margin and targeted levels of total shareholder return (TSR) relative to the TSR of the companies in the Standard & Poor’s 500 Index. Each of these two metrics will be weighted 50% and will be measured over a three-year period. The number of shares that may vest in full afteff r three years ranges from 0% to 200% of the target amount. The awards become eligible to vest only if the goals are achieved and will vest only if the grantee remains employed by us through each applicable vesting date, subju ect to a qualifying retirement based on age and years of service. The awards provide for a partial vesting based on actual performance at the conclusion of the three-year perforff mance period in the event of a qualifying retirement. ff During fiscal 2021, certain executive offiff cers were also granted non-recurring long-term Performance-Based Awards that are subju ect to the achievement of targeted levels of our absolute TSR. The awards become eligible to vest only if targeted levels of TSR are achieved during a five-year perforff mance period and will vest only if the grantee remains employed by us through termination of employment without cause, death or the vesting date in October 2025, except in the event of involuntaryrr r five years ranges from 0% to 200% of the target following a change of control. The number of shares that may vest in full afteff amount. The fair value of the portion of the Perforff mance-Based Awards subju ect to targeted levels of relative TSR or absolute TSR is estimated on the date of grant using a Monte Carlo simulation model. Compensation expense is recognized based upon the assumption of 100% achievement of the TSR goal and will not be reversed even if the threshold level of TSR is never achieved, and is reflected over the service period and reduced for estimated forfeitures. The fair value of the portion of the Perforff mance-Based Awards subju ect to targeted levels of adjud sted operating margin is estimated on the date of grant based on the market value of our common stock, adjud sted to exclude the present value of expected dividends during the vesting period. The market value of our common stock is calculated using the closing price of our common stock on the date of the grant or if the grant date is not a trading date, the average of the closing prices on the trading dates immediately preceding and following the grant date. If the performance goals are not met as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the portion of the awards that is probable to vest and is reflected over the service period and reduced for estimated forfeiff tures. 86 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following tabla es summarize the assumptions used for the valuation of share-based awards for the periods presented: Service-Based Awards and the portion of Perforff mance- Based Awards subject to perforff mance goals: Grant date market value Risk-free interest rate Dividend yield Fair value Portion of Perforff mance-Based Awards subject to market goals: Grant date market value Risk-free interest rate Dividend yield Expected volatility Fair value ________________________ 2023 2022 2021 $104.22 - $143.97 3.64% - 5.48% 0.70% - 3.59% $102.09 - $141.33 $74.62 - $157.29 0.16% - 4.48% 0.47% - 3.83% $72.24 - $154.88 $74.37 - $143.05 0.04% - 0.82% 0.20% - 3.09% $72.20 - $140.66 2023 2022 2021* $109.37 % 4.10 0.95 % % 52.38 $162.72 $86.10 - $88.84 $146.49 0.20% - 0.41% .87% 0 0 0.99% - 1.02% .66% 7.35% 40.51% - 47.00% $129.27 - $136.81 4 $210.69 *Fiscal 2021 included both annual and non-recurring long-term Performance-Based Awards. A summary of the changes in restricted stock units, restricted stock, performance shares and performance units outstanding under our equity compensation plans is presented below: Non-vested restricted stock units, restricted stock, performance shares and performance units at October 25, 2020 Granted Vested Canceled Non-vested restricted stock units, restricted stock, performance shares and performance units at October 31, 2021 Granted Vested Canceled Non-vested restricted stock units, restricted stock, performance shares and performance units at October 30, 2022 Granted Vested Canceled Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Shares (In millions, except per share amounts) 2.2 years $ 914 2.2 years $ 1,752 2.2 years $ 1,024 15 5 $ $ (6) $ (1) $ 13 4 $ $ (5) $ (1) $ 45.36 92.04 43.11 59.41 63.29 132.44 54.00 82.54 11 6 $ $ 92.31 104.00 (5) $ 72.49 — $ 103.73 Non-vested restricted stock units, restricted stock, performance shares and performance units at October 29, 2023 Non-vested restricted stock units, restricted stock, performance shares and performance units expected to vest 12 11 $ $ 106.24 2.4 years $ 1,524 107.26 2.3 years $ 1,495 At October 29, 2023, 0.8 million additional Performance-Based Awards could be earned based upon achievement of certain levels of specifieff d performance and/or market goals. 87 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Employm ee Stocktt Purchase Plans ll Under the ESPP, subsu tantially all employees may purchase our common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of our common stock at the beginning or end of each 6-month purchase period, subju ect to certain limits. Our purchasing cycles began in March and September of each of fiscal 2023, 2022 and 2021. We issued 2 million shares in fiscal 2023 at a weighted average price of $87.75 per share, 2 million shares in fiscal 2022 at a weighted average price of $93.30 per share and 3 million shares in fiscal 2021 at a weighted average price of $70.29 per share, under the ESPP. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black- Scholes model. Underlying assumptions used in the model are outlined in the following tabla e: ESPP: Dividend yield Expected volatility Risk-free interest rate Expected lifeff (in years) Weighted average estimated fair value Note 13 Employee Benefit Plans Employm ee Bonus Plans 2023 2022 2021 0.98 39.4 5.29 % % % 0.5 $35.31 0 .97 % 6.8 % 4 .24 % 2 0.5 $30.23 0.72 % 41.3 % 0.05 % 0.5 $33.77 We have various employee bonus plans. A discretionary bonus plan provides for the distribution of a percentage of pre- tax income to our employees who are not participants in other performance-based incentive plans, up to a maximum percentage of eligible compensation. Other plans provide for bonuses to our executives and other key contributors based on the achievement of profitff ability and/or other specified performance criteria. Charges under these plans for fiscal 2023, 2022 and 2021 were $702 million, $623 million and $631 million, respectively. Employm ee Savings and Retirement Plan Our Employee Savings and Retirement Plan (the 401(k) Plan) is qualified under Sections 401(a) and (k) of the Internal Revenue Code (the Code). Eligible employees may make salary deferral and catch-up contributions under the 401(k) Plan on a pre-tax basis and on a Roth basis, subju ect to an annual dollar limit establa ished by the Code. We match 100% of participant salary and/or Roth deferral contributions up to the first 3% of eligible contribution and then 50% of every dol lar between 4% and 6% of eligible contribution. We do not make matching contributions on any catch-up contributions made by participants. Plan participants who were employed by us or any of our affiff liates are 100% vested in their matching contribution account balances. Our matching contributions under the 401(k) Plan were approximately $85 million for fiscal 2023, $67 million for fiscal 2022 and $61 million for fiscal 2021. rr Define ed Benefie t Pension Plans of Foreign Subs gg idiaries and Othett r Postretirement Benefitse Several of our foreign subsu idiaries have definff ed benefit pension plans covering subsu tantially all of their eligible employees. Benefits under these plans are typically based on years of service and final average compensation levels. The plans are managed in accordance with applicable local statuttt es and practices. We deposit funds for certain of these plans with tees, government-managed accounts, and/or accrue the expense for the unfunded portion of insurance companies, pension trusrr the benefit obligation on our Consolidated Financial Statements. Our practice is to fund the various pension plans in amounts sufficient to meet the minimum requirements as establa ished by applicable local governmental oversight and taxing authorities. Depending on the design of the plan, local custom and market circumstances, the liabia lities of a plan may exceed the qualified plan assets. The differences between the aggregate projected benefit obligations and aggregate plan assets of these plans have been recorded as liabia lities by us and are included in other liabilities and accruedrr expenses in the Consolidated Balance Sheets. 88 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) A summary of the changes in benefit obligations and plan assets, which includes post-retirement benefits, for each fiscal year is presented below: Change in projected benefit obligation Beginning projected benefit obligation Service cost Interest cost Plan participants’ contributions Actuarial (gain) loss Foreign currency exchange rate changes Benefits paid Plan amendments and other adjud stments Ending projected benefit obligation Ending accumulated benefit obligation Range of assumptions to determine benefit obligations Discount rate Rate of comppensation increase Change in plan assets Beginning fair value of plan assets Return on plan assets Employer contributions Plan participants’ contributions Foreign currency exchange rate changes Benefits paid Ending fair value of plan assets Funded statust Amounts recognized in the consolidated balance sheets Noncurrent asset Current liabia lity Noncurrent liabia lity Total Estimated amortization from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal period Actuarial loss Prior service credit Total Amounts recognized in accumulated other comprehensive loss rial loss Net actuatt Prior service credit Total Plans with projected benefit obligations in excess of plan assets Projected benefit obligation Fair value of plan assets Plans with accumulated benefit obligations in excess of plan assets Accumulated benefit obligation Fair value of plan assets 2023 2022 2021 (In millions, except percentages) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 414 10 16 1 (38) 15 (10) — 408 351 1.3% - 7.1% 3.3% - 10.3% 351 5 9 1 18 (10) $ $ $ $ $ $ $ $ 685 14 9 1 (201) (84) (10) — 414 371 1.5% - 7.3% 2.7% - 10.0% 491 (78) 11 1 (64) (10) 374 $ (34) $ $ 95 (3) (126) (34) $ 3 — 3 70 1 71 146 18 97 18 $ $ $ $ $ $ $ $ 351 $ (63) $ $ 45 (1) (107) (63) $ 4 — 4 98 1 99 126 17 88 17 $ $ $ $ $ $ $ $ 674 15 8 1 (1) 3 (15) — 685 626 0.6% - 6.6% 2.4% - 10.0% 431 49 22 1 3 (15) 491 (194) 1 (2) (193) (194) 11 — 11 200 1 201 472 277 413 277 89 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Plan assets — allocation Equity securities Debt securities Insurance contracts Other investments Cash 2023 2022 29 % 31 % 19 % 20 % 1 % 26 % 37 % 21 % 15 % 1 % The following tabla e presents a summary of the ending fair value of the plan assets: October 29, 2023 October 30, 2022 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Equity securities Debt securities Insurance contracts Other investments Cash Total assets at fair value Assets measured at net asset value Total $ $ 102 60 — — 5 167 $ — $ — $ — — 57 — 57 $ — 72 — — 72 $ $ $ (In millions) 102 60 72 57 5 84 84 56 — — — — 3 3 $ — $ — $ — $ — $ — 7272 — — — — — — — 52 — — $ 143 $ 52 $ 72 296 78 374 $ $ The following tabla e presents the activity in Level 3 instruments for each fiscal year: 2023 2022 Balance, beginning of year Actual return on plan assets: Relating to assets still held at reporting date Purchases, sales, settlements, net Currency impact Balance, end of year $ $ (In millions) 72 $ (4) — 4 72 $ 84 56 72 52 3 267 84 351 110 (24) — (14) 72 Our investment strategy for our defined benefit plans is to invest plan assets in a prudent manner, maintaining well- diversified portfolff ios with the long-term objective of meeting the obligations of the plans as they come due. Asset allocation decisions are typically made by plan fiduciaries with input from our international pension committee. Our asset allocation strategy incorporates a sufficie nt equity exposure in order for the plans to benefit from the expected better long-term performance of equities relative to the plans’ liabia lities. We retain investment managers, where appropriate, to manage the assets of the plans. Perforff mance of investment managers is monitored by plan fiduciaries with the assistance of local investment consultants. The investment managers make investment decisions within the guidelines set forth by plan fiduciaries. Risk management practices include diversificff ation across asset classes and investment styles, and periodic rebalancing toward target asset allocation ranges. Investment managers may use derivative instruments for effiff cient portfolff io management purposes. ff 90 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) A summary of the components of net periodic benefit costs and the weighted average assumptions used for net periodic benefit cost calculations for each fiscal year is presented below: Components of net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of actuarial loss and prior service credit Net periodic benefit cost Weighted average assumptions Discount rate Expected long-term return on Rate of compensation increase t assets 2023 2022 2021 (In millions, except percentages) $ $ 10 16 (20) 4 10 $ $ 14 9 (21) 10 12 $ $ 15 8 (21) 14 16 3.48 % 5.15 % 3.39 % 1.41 % 4.56 % 2.89 % 1.18 % 4.80 % 2.74 % Asset return assumptions are derived based on actuat rial and statistical methodologies, from analysis of long-term historical data relevant to the country in which each plan is in effeff ct and the investments applicable to the corresponding plan. The discount rate for each plan was derived by reference to appropriate benchmark yields on high quality corporate bonds, allowing for the approximate duration of both plan obligations and the relevant benchmark yields. Future expected benefit payments for the pension plans and the postretirement plan over the next ten fiscal years are as follows: 2024 2025 2026 2027 2028 2029-2033 Total Benefit Payments (In millions) $ $ 11 14 15 16 16 108 180 Company contributions to these plans for fiscal 2024 are expected to be approximately $8 million. Executive Defee rred Compensation Plans l We sponsor two unfunded deferred compensation plans, the Executive Deferred Compensation Plan (Predecessor EDCP) and the 2016 Deferred Compensation Plan (2016 DCP) (formerly known as the 2005 Executive Deferred Compensation Plan), under which certain employees may elect to defer a portion of their following year’s eligible earnings. The Predecessor EDCP was frozen as of December 31, 2004 such that no new deferrals could be made under the plan afteff r that date and the plan would qualifyff for “grandfatff her” relief under Section 409A of the Code. The Predecessor EDCP participant accounts continue to be maintained under the plan and credited with deemed interest. The 2016 DCP was originally implemented by us effeff ctive as of January 1, 2005, and amended and restated as of October 12, 2015, and is intended to comply with the requirements of Section 409A of the Code. In addition, we also sponsor a non-qualified deferred compensation plan as a result of the acquisition of Varian. Amounts payable for all plans, including accrued de emed interest, totaled $245 million and $200 million at October 29, 2023 and October 30, 2022, respectively, which were included in other liabia lities in the Consolidated Balance Sheets. rr 91 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Note 14 Income Taxes The components of income before income taxes for each fiscal year were as follows: 2023 2022 2021 U.S. Foreign $ $ 1,234 6,482 7,716 The components of the provision for income taxes for each fiscal year were as follows: Current: U.S. Foreign State Deferred: U.S. Foreign State $ 2023 708 456 54 1,218 (255) (61) (42) (358) $ $ $ $ (In millions) 1,171 6,428 7,599 7,599 2022 (In millions) 590 275 14 879 (62) 265 (8) 195 $ $ $ 512 6,259 6,771 2021 462 344 17 823 (3) 67 (4) 60 $ 860 $ 1,074 $ 883 A reconciliation between the statutor yrr U.S. federal income tax rate and our actual effeff ctive income tax rate for each fiscal t year is presented below: yrr Tax provision at U.S. statutor t rate Effeff ct of foreign operations taxed at various rates Changes in prior years’ unrecognized tax benefits Resolutions of prior years’ income tax filings Research and other tax credits Other 2023 2022 2021 21.0 % 21.0 % 21.0 % (8.2) (0.2) (0.1) (1.6) 0.2 (4.4) (0.9) (0.2) (1.0) (0.4) (7.0) 0.2 (0.1) (0.9) (0.2) 11.1 % 14.1 % 13.0 % Our provision for income taxes and effeff ctive tax rate are affeff cted by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affeff cted by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings. Our effeff ctive tax rate for fiscal 2023 was lower than fiscal 2022 primarily due to a reduction of deferred tax assets that e. Our effeff ctive tax rate for fiscal 2022 was higher than fiscal e, partially offsff et by changes occurred in fiscal 2022, related to a new tax incentive in Singapor 2021 primarily due to a reduction of deferred tax assets related to a new tax incentive in Singapor in uncertain tax positions. a a 92 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) t In the reconciliation between the statutory U.S. federal income tax rate and the effeff ctive income tax rate, the effeff ct of foreign operations taxed at various rates represents the difference between an income tax provision at the U.S. federal statutor yrr income tax rate and the recorded income tax provision, with the difference expressed as a percentage of worldwide income before income taxes. This effeff ct is subsu tantially related to the tax effeff ct of pre-tax income in jurisdictions with lower statutor yrr t tax rates. The foreign operations with the most significant effeff ctive tax rate impact are in Singapore. The statutt oryrr tax rate for fiscal 2023 for Singapore is 17%. We have been granted conditional reduced tax rates that expire beginning in fiscal 2025, excluding potential renewal and subju ect to certain conditions with which we expect to comply. The tax benefits arising from these tax rates were $369 million or $0.44 per diluted share and $232 million or $0.26 per diluted share and $370 million or $0.40 per diluted share for fiscal 2023, 2022 and 2021, respectively. t Deferred tax assets and liabia lities are recognized for the estimated future tax effeff cts of temporary di fferences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offsff et by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. The components of deferred income tax assets and liabia lities were as follows: rr Deferred tax assets: Capia talized R&D expenses Allowance for doubtful accounts Inventory reserves and basis differff ence Installation and warranty reserves Intangible assets Accruedrr liabia lities Deferred revenue Tax credits Deferred compensation Share-based compensation Property, plant and equipment Lease liabia lity Other Gross deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities: Property, plant and equipment Right of use assets Undistributed foreign earnings Total deferred tax liabia lities Net deferred tax assets October 29, 2023 October 30, 2022 (In millions) $ $ 83 4 125 35 1,031 19 72 536 217 50 9 98 96 2,375 (530) 1,845 — (103) (23) (126) $ 1,719 $ — 5 131 29 984 35 82 453 125 42 — 81 67 2,034 (460) 1,574 (111) (80) (39) (230) 1,344 A valuation allowance is recorded to reflect the estimated amount of net deferred tax assets that may not be realized. Changes in the valuation allowance in each fiscal year were as follows: Beginning balance Increases Ending balance 2023 2022 2021 (In millions) $ $ 460 70 530 $ $ 361 99 460 $ $ 314 47 361 93 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) At October 29, 2023, we have state research and development tax credit carryforwards of $536 million, including $501 million of credits that are carried over until exhausted and $32 million that are carried over for 15 years and begin to expire in fiscal 2033. It is more likely than not that all tax credit carryforwards, net of valuation allowance, will be utilized. We maintain liabilities for uncertain tax positions. These liabia lities involve considerable judgment and estimation and are continuously monitored based on the best information availabla e. Gross unrecognized tax benefits are classified as non-current income taxes payable or as a reduction in deferred tax assets. A reconciliation of the beginning and ending balances of gross unrecognized tax benefits in each fiscal year is as follows: Beginning balance of gross unrecognized tax benefits Settlements with tax authorities es of statutt es of limitation Lapsa Increases in tax positions for current year Increases in tax positions for prior years Decreases in tax positions for prior years Ending balance of gross unrecognized tax benefits 2023 2022 2021 (In millions) 498 — — 28 — (16) 510 $ $ 537 (25) — 26 28 (68) 498 $ $ 496 — (4) 26 23 (4) 537 $ $ Tax expense for interest and penalties on unrecognized tax benefits for fiscal 2023, 2022 and 2021 was $34 million, $14 million and $14 million, respectively. The income tax liability for interest and penalties for fiscal 2023, 2022 and 2021 was $136 million, $103 million and $88 million, respectively, and was classified as non-current income taxes payable. Included in the balance of unrecognized tax benefits for fiscal 2023, 2022 and 2021 are $386 million, $388 million, and $442 million, respectively, of tax benefits that, if recognized, would affeff ct the effeff ctive tax rate. Our tax returns remain subju ect to examination by taxing authorities. These include U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2011 and later years. The timing of the resolution of income tax examinations, as well as the amounts and timing of various tax payments that may be part of the settlement process, is highly uncertain. This could cause fluctuations in our financial condition and results of operations. We continue to have ongoing negotiations with various taxing authorities throughout the year, and evaluate all domestic and foreign tax audit issues in the aggregate, along with the expiration of applicable statuttt es of limitations. We believe it is reasonably possible that the amount of gross unrecognized tax benefits related to foreign operations could e of statutt e of be reduced by up to $200 million in the next 12 months as a result of the resolution of tax matters or the lapsa limitations. Note 15 Warranty, Guarantees, Commitments and Contingencies Warranty Changes in the warranty reserves during each fiscal year were as follows: Beginning balance Provisions for warranty Changes in reserves related to preexisting warranty Consumption of reserves Ending balance 2023 2022 (In millions) 2021 286 254 2 (210) 332 $ $ 242 254 11 (221) 286 $ $ 201 223 9 (191) 242 $ $ 94 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Our products are generally sold with a warranty for a 12-month period following installation. The provision for the estimated cost of warranty is recorded when revenue is recognized. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical experience by product, configff uration and geographic region. Quarterly warranty consumption is generally associated with sales that occurred during the preceding four quarters, and quarterly warranty provisions are generally related to the current quarter’s sales. a Guarantees In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either us or our subsu idiaries. As of October 29, 2023, the maximum potential amount of future payments that we could be required to make under these guarantee agreements was approximately $333 million. We have not recorded any liability in connection with these guarantee agreements beyond that required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently availabla e, that it is probable that any amounts will be required to be paid under these guarantee agreements. We also have agreements with various banks to facilitate subsu idiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. As of October 29, 2023, we have provided parent guarantees to banks for approximately $293 million to cover these arrangements. Legal e Matters u From time to time, we receive notificff ation from third parties, including customers and supplu iers, seeking indemnificff ation, t, payment of money or other actions by us in connection with claims made against them. In addition, from litigation suppor time to time, we receive notification from third parties claiming that we may be or are infringing or misusing their intellectuat l property or other rights. We also are subju ect to various other legal proceedings, government investigations or inquiries, and claims, both asserted and unasserted, that arise in the ordinary course of business. These matters are subju ect to uncertainties, and we cannot predict the outcome of these matters, or governmental inquiries or proceedings that may occur. Although the outcome of the above-described matters, claims and proceedings cannot be predicted with certainty, we do not believe at this time that any of the above-described matters will have a material effeff ct on our consolidated financial condition or results of operations. In August 2022, we received a subpoena from the U.S. Attorney’s Offiff ce for the District of Massachusetts requesting information relating to certain China customer shipments. In November 2023, we received a subpoena from the U.S. Commerce Department’s Bureau of Industryrr and Security requesting the same information. We are cooperating fully with the government in these matters. These matters are subju ect to uncertainties, and we cannot predict the outcome, nor reasonablya estimate a range of loss or penalties, if any, relating to these matters. u u Note 16 Industry Segment Operations Our three reportabla e segments are: Semiconductor Systems, Applied Global Services, and Display and Adjad cent Markets. As defined under the accounting literature, our chief operating decision-maker has been identified as the President and Chief Executive Offiff cer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon our management organization structurt e as of October 29, 2023 and the distinctive nature of each segment. Future changes to this internal financial structurt e may result in changes to our reportabla e segments. The Semiconductor Systems reportabla e segment includes semiconductor capia tal equipment for etch, rapida processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation. thermal The Applied Global Services segment provides integrated solutions to optimize equipment and fab pe rformance and tured earlier generation equipment and factory automation a productivity, including spares, upgrades, services, certain remanufacff software for semiconductor, display and other products. The Display and Adjad cent Markets segment includes products for manufacff turing liquid crysrr light-emitting diodes (OLEDs), equipment upgrades and other display technologies for TVs, monitors, laptops, pe computers, smart phones, other consumer-oriented devices and solar energy cells. tal displays (LCDs), organic rsonal a Each operating segment is separately managed and has separate financial results that are reviewed by our chief operating decision-maker. Each reportabla e segment contains closely related products that are unique to the particular segment. Segment operating income is determined based upon internal performance measures used by our chief operating decision-maker. The chief operating decision-maker does not evaluate operating segments using total asset information. 95 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) We derive the segment results directly from our internal management reporting system. The accounting policies we use to derive reportabla e segment results are subsu tantially the same as those used for external reporting purposes. Management measures the perforff mance of each reportabla e 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 reportabla e segments. The Corporate and Other category includes revenues from products, as well as costs of products sold, for fabra icating solar photovoltaic cells and modules, and certain operating expenses that are not allocated to our reportabla e segments and are managed separately at the corporate level. These operating expenses include costs related to share-based compensation; certain management, finance, legal, human resources, and research, development and engineering functions provided at the corporate In addition, we do not allocate to our reportabla e segments level; and unabsorbed information technology and occupancy. restructurt ing actions, unless these actions pertain to a specific reportabla e segment. Segment operating income also excludes interest income/expense and other financial charges and income taxes. Management does not consider the unallocated costs in measuring the performance of the reportabla e segments. ing, severance and asset impairment charges and any associated adjud stments related to restructurt u Information for each reportabla e segment for and as of the end of each fiscal year were as follows: t Sales Operating Income (Loss) Depreciation/ Amortization Capital Expenditures Accounts Receivable Inventories 2023: Semiconductor Systems Applied Global Services Display and Adjad cent Markets Corporate and Other Total 2022: Semiconductor Systems Applied Global Services Display and Adjad cent Markets Corporate and Other Total 2021: Semiconductor Systems Applied Global Services Display and Adjad cent Markets Corporate and Other Total $ $ $ $ $ $ 19,698 5,732 868 219 26,517 18,797 5,543 1,331 114 25,785 16,286 5,013 1,634 130 23,063 $ $ $ $ $ $ 7,090 1,657 133 (1,226) 7,654 6,969 1,661 260 (1,102) 7,788 6,311 1,508 314 (1,244) 6,889 $ $ $ $ $ $ (In millions) 235 31 19 230 515 203 31 31 179 444 194 32 27 141 394 $ $ $ $ $ $ 381 39 13 673 1,106 249 38 30 470 787 228 29 32 379 668 $ $ $ $ $ $ 3,943 1,111 184 (73) 5,165 4,924 997 148 (1) 6,068 3,886 922 207 (62) 4,953 $ $ $ $ $ $ 3,433 2,073 200 19 5,725 3,995 1,788 129 20 5,932 2,586 1,561 153 9 4,309 Semiconductor Systems and Display and Adjad cent Markets revenues are recognized at a point in time. Applied Global Services revenue is recognized at a point in time for tangible goods such as spare parts and equipment, and over time for service agreements. The majority of revenue recognized over time is recognized within 12 months of the contract inception. Net sales for Semiconductor Systems by end use application for the periods indicated were as follows: Foundry, logic and other Dynamic random-access memory (DRAM) Flash memory 2023 2022 2021 77 % 17 % 6 % 100 % 66 % 19 % 15 % 100 % 60 % 19 % 21 % 100 % 96 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The reconciling items included in Corporate and Other were as follows: Unallocated net sales Unallocated cost of products sold and expenses Share-based compensation Severance and related charges Deal termination fee Total 2023 2022 2021 (In millions) $ 219 (955) (490) — — (1,226) $ 114 $ (807) (413) 4 — (1,102) $ 130 (725) (346) (149) (154) (1,244) $ $ For geographical reporting, revenue by geographic location is determined by the location of customers’ facilities to which products were shipped. Long-lived assets consist primarily of property, plant and equipment and right-of-use assets and are attributed to the geographic location in which they are located. Fiscal 2021 long-lived asset amount has been updated to include right-of-use assets to conform with the current year presentation. Net sales and long-lived assets by geographic region for and as of each fiscal year were as follows: Net sales: United States China Korea Taiwan Japana Europe Southeast Asia Total outside United States Consolidated total Long-lived assets: United States China Korea Taiwan Japana Europe Southeast Asia Total outside United States Consolidated total 2023 2022 2021 (In millions) $ $ 4,006 7,247 4,609 5,670 2,075 2,152 758 22,511 26,517 $ $ $ $ 3,104 7,254 4,395 6,262 2,012 1,674 1,084 22,681 25,785 $ $ 2,038 7,535 5,012 4,742 1,962 1,097 677 21,025 23,063 October 29, 2023 October 30, 2022 (In millions) 3,239 4 11 59 7 110 6 197 3,436 $ $ 2,725 6 14 62 7 75 8 172 2,897 97 APPLIED MATERIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following customers accounted for at least 10 percent of our net sales in each fiscal year, which were for products and services in multiple reportabla e segments: Samsung Electronics Co., Ltd. Taiwan Semiconductor Manufacff Intel Corporation turing Company Limited ___________________________ *Less than 10% __ 2023 2022 2021 15 19 % % * 1 2 % 0 % 2 0 % 1 20 % 15 % * 98 These Exhibits are numbered in accordance with the Exhibit Tabla e of Item 601 of Regulation S-K: INDEX TO EXHIBITS Incorporated by Reference p y Exhibit No. 3.1 Descriptionp Amended and Restated Certificate of Incorporation of Applied Materials, Inc., as amended and restated through March 16, 2020 3.2 4.1 4.2 4.3 4.4 4.5 4.6 Amended and Restated Bylaws of Applied Materials, Inc., as amended and restated through December 8, 2023 Indenture, dated June 8, 2011, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee First Supplemental Indenture, dated June 8, 2011, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee Second Supplemental Indenture, dated September 24, 2015, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee Third Supplemental Indenture, dated March 31, 2017, by and between Applied Materials, Inc. and U.S. Bank National Association, as Trustee Fourth Supplemental Indenture dated May 29, 2020, by and between Applied Materials, Inc. and U.S. Bank National Association Description of Registrant’s Securities Registered Under Section 12 of the Securities Exchange Act of 1934† Form 8-K File No. 000-06920 Exhibit No. 3.1 g Filing Date 3/16/2020 8-K 000-06920 8-K 000-06920 8-K 000-06920 3.2 4.1 4.2 12/13/2023 6/10/2011 6/10/2011 K 000-06920 4.1 9/24/2015 8-K 000-06920 4.1 3/31/2017 8-K 000-06920 4.1 5/29/2020 10.1 Form of Indemnification Agreement between Applied Materials, Inc. and Directors and certain officers 10-K 000-06920 10.1 12/16/2022 10.2 Applied Materials, Inc. Profit Sharing Scheme (Ireland) S-8 333-45011 4.1 1/27/1998 10.3* 10.4 10.5 10.6* 10.7* 10.8* Applied Materials Inc. Employee Financial Assistance Plan, amended and restated as of December 18, 2008 Deed of Amendment to Applied Materials Profit Sharing Scheme, dated February 7, 2006, to amend Clause 20 of the Trust Deed thereunder Deed of Amendment to Applied Materials Profit Sharing Scheme, dated February 7, 2006, to amend the definition of Eligible Employee in the First Schedule to the Trust Deed thereunder. Form of Restricted Stock Unit Agreement for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan Form of Restricted Stock Unit Agreement for Nonemployee Directors for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan Form of Restricted Stock Agreement for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan 10-Q 000-06920 10.58 3/3/2009 10-K 000-06920 10.48 12/12/2008 10-K 000-06920 10.49 12/12/2008 10-Q 000-06920 10.3 5/27/2021 10-Q 000-06920 10.4 5/27/2021 10-Q 000-06920 10.3 8/23/2012 10.9* Applied Materials, Inc. Omnibus Employees’ Stock Purchase Plan, effective September 1, 2021 8-K 000-06920 10.2 3/16/2021 10.10* Offer Letter, dated August 14, 2013, between Applied Materials, Inc. and Gary E. Dickerson Form of Non-Qualified Stock Option Agreement for Employees for use under the Applied Materials, Inc. Employee Stock Incentive Plan, as amended 10.11* 10.12* Form of Performance Unit Agreement for use under the Applied Materials, Inc. Employee Stock Incentive Plan, as amended 99 10-Q 000-06920 10.2 8/22/2013 Q 000-06920 10.4 8/22/2013 10-Q 000-06920 10.2 2/20/2014 Exhibit No. Descriptionp Form File No. Exhibit No. g Filing Date Incorporated by Reference p y 10-K 000-06920 10.15 12/16/2022 8-K 000-06920 10.1 3/16/2021 10-Q 000-06920 10.1 5/26/2022 8-K 000-06920 10.1 2/21/2020 10-Q 000-06920 10.1 8/25/2022 Q 000-06920 10.1 2/23/2023 10.13* Applied Materials, Inc. Applied Incentive Plan, amended and restated effective September 7, 2023† 10.14* Applied Materials, Inc. 2016 Deferred Compensation Plan, as amended and restated on January 1, 2021 10.15* Applied Materials, Inc. Employee Stock Incentive Plan, as amended and restated effective March 11, 2021 10.16* Applied Materials, Inc. Senior Executive Bonus Plan, as 10.17* 10.18* amended and restated effective September 8, 2023† Form of Performance Share Unit Agreement for members of the Executive Staff for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan† Form of Restricted Stock Unit Agreement for members of the Executive Staff for use under the amended and restated Applied Materials, Inc. Employee Stock Incentive Plan† 10.19* Offer Letter, dated February 26, 2022, between Applied Materials, Inc. and Brice Hill Credit Agreement, dated as of February 21, 2020, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein Amendment No. 1, dated as of July 27, 2022, to the Credit Agreement, dated as of February 21, 2020, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein Extension Agreement, dated as of February 21, 2023, to Credit Agreement, dated as of February 21, 2020 (as amended by that certain Amendment No. 1 to Credit Agreement, dated as of July 27, 2022), among Applied Materials, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent Subsidiaries of Applied Materials, Inc.† Consent of Independent Registered Public Accounting Firm, KPMG LLP† Power of Attorney (included on the signature page of this Annual Report on Form 10-K)† Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002† Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002† Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡ Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡ Applied Materials, Inc. Compensation Recovery Policy, adopted on September 7, 2023† 10.20 10.21 10.22 21 23 24 31.1 31.2 32.1 32.2 97.1 101.INS XBRL Instance Document‡ 101.SCH XBRL Taxonomy Extension Schema Document‡ 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document‡ 101.DEF XBRL Taxonomy Extension Definition Linkbase Document‡ 101.LAB XBRL Taxonomy Extension Labea 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document‡ l Linkbase Document‡ 104 Cover Page Interactive Data File (forff matted as inline XBRL) 100 * † ‡ Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3). Filed herewith. Furnished herewith. 101 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES APPLIED MATERIALS, INC. By: /s/ GARY E. DICKERSON Gary E. Dickerson Presidendd t, Chief Executive Officff er Dated: December 15, 2023 102 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary E. Dickerson, Brice Hill and Teri Little, jointly and severally, his or her attorneys-in-fact, each with the power of subsu tituttt ion, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and confirff ming all that each of said attorneys-in-fact, or his subsu tituttt e or subsu titutes, may do or cause to be hereby ratifying reof. done by virtue he ff tt Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capaa cities and on the dates indicated. ****** /s/ GARY E. DICKERSON Gary E. Dickerson /s/ BRICE HILL Brice Hill /s/ CHARLES W. READ Charles W. Read /S/ THOMAS J. IANNOT A TI Thomas J. Iannotti /S/ RANIAA BORKARKK Rani Borkar /S/ JUDY BRUNERUU Judy Brunrr er /S/ XUN CHEN Xun Chen /S/ AART J. DE GEUS Aart J. de Geus /S/ ALEXANDER A. KARSNER Alexander A. Karsner /S/ KEVIN P. MARCH Kevin P. March /s/ YVONNE MCGILL Yvonne McGill /s/ SCOTT A. MCGREGOR Scott A. McGregor Title President, Chief Executive Offiff cer and Director (Principal Executive Offiff cer) Date December 15, 2023 Senior Vice President, Chief Financial Offiff cer (Principal Financial Offiff cer) December 15, 2023 Corporate Vice President, Business Units and Operations Chief Financial Offiff cer (Principal Accounting Offiff cer) December 15, 2023 Chairman of the Board December 15, 2023 December 15, 2023 December 15, 2023 December 15, 2023 December 15, 2023 December 15, 2023 December 15, 2023 December 15, 2023 December 15, 2023 Director Director Director Director Director Director Director Director 103 B OA R D O F D I R E C TO R S (as of December 31, 2023) E X E C U T I V E O F F I C E R S (as of December 31, 2023) Gary E. Dickerson President and Chief Executive Officer Brice Hill Senior Vice President, Chief Financial Officer and Global Information Services Prabu Raja President, Semiconductor Products Group Teri Little Senior Vice President, Chief Legal Officer and Corporate Secretary Omkaram Nalamasu Senior Vice President, Chief Technology Officer Timothy M. Deane Group Vice President, Applied Global Services Charles W. Read Corporate Vice President, Business Units and Operations Chief Financial Officer Thomas J. Iannotti Chairman of the Board of Applied Materials, Inc. Senior Vice President and General Manager, Enterprise Services Hewlett-Packard Company (retired) Rani Borkar Corporate Vice President Azure Hardware Systems and Infrastructure Microsoft Corporation Judy Bruner Executive Vice President Administration and Chief Financial Officer SanDisk Corporation (retired) Xun (Eric) Chen Executive Chairman ParityBit Technologies, Inc. Aart J. de Geus Executive Chair of the Board of Directors Synopsys, Inc. Gary E. Dickerson President and Chief Executive Officer Applied Materials, Inc. Alexander A. Karsner Senior Strategist X (parent company: Alphabet Inc.) Kevin P. March Senior Vice President Chief Financial Officer Texas Instruments, Incorporated (retired) Yvonne McGill Chief Financial Officer Dell Technologies Inc. Scott A. McGregor President and Chief Executive Officer Broadcom Corporation (retired) © 2024 Applied Materials, Inc. Applied Materials, the Applied Materials logo, Make Possible and product names so designated are trademarks of Applied Materials, Inc. and/or its affiliates in the U.S. and other countries. Third party trademarks mentioned are the property of their respective owners. All rights reserved. Printed in the U.S.A. 01/2024 WWW.APPLIEDMATERIALS.COM 3050 BOWERS AVENUE PO BOX 58039 SANTA CLARA, CALIFORNIA 95054-3299 TEL: (408) 727-5555 

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