Table	of	Contents

# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

(Mark	one)

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended	October	27,	2013

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

# Applied	Materials,	Inc.

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

(Address	of	principal	executive	offices)

(I.R.S.	Employer Identification	No.)

(Zip	Code)

Registrant's	telephone	number,	including	area	code:

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

Title	of	Each	Class

Common	Stock,	par	value	$.01	per	share

Name	of	Each	Exchange	on	Which	Registered

The	NASDAQ	Stock	Market	LLC

Securities	registered	pursuant	to	Section	12(g)	of	the	Act:

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.				Yes		þ								No		¨

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		¨								No		þ

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past 90	days.				Yes		þ								No		¨

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Web	site,	if	any,	every	Interactive	Data	File	required	to	be submitted	and	posted	pursuant	to	Rule	405	of	Regulation	S-T	(§232.405	of	this	chapter)	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was required	to	submit	and	post	such	files).				Yes		þ								No		¨

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	(§229.405	of	this	chapter)	is	not	contained	herein,	and	will	not	be contained,	to	the	best	of	registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment to	this	Form	10-K.				¨

	Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a	smaller	reporting	company.	See	the definitions	of	"large	accelerated	filer,"	"accelerated	filer"	and	"smaller	reporting	company"	in	Rule	12b-2	of	the	Exchange	Act.

Large	accelerated	filer	þ

Non-accelerated	filer	¨	(Do	not	check	if	a	smaller	reporting	company)

Accelerated	filer	¨

Smaller	reporting	company	¨

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Act).				Yes		¨								No		þ

Aggregate	market	value	of	the	voting	stock	held	by	non-affiliates	of	the	registrant	as	of	April	26,	2013,	based	upon	the	closing	sale	price	reported	by	the	NASDAQ Global	Select	Market	on	that	date:	$16,956,394,267

# DOCUMENTS	INCORPORATED	BY	REFERENCE:

Portions	of	the	definitive	Proxy	Statement	for	Applied	Materials,	Inc.'s	2014	Annual	Meeting	of	Stockholders	are	incorporated	by	reference	into	Part	III	of	this Form	10-K.

# Caution	Regarding	Forward-Looking	Statements

Certain	information	in	this	Annual	Report	on	Form	10-K	(report	or	Form	10-K)	of	Applied	Materials,	Inc.	and	its	subsidiaries	(Applied	or	the	Company), including	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations"	in	Item	7,	is	forward-looking	in	nature.	All	statements	in	this report	and	those	made	by	the	management	of	Applied,	other	than	statements	of	historical	fact,	are	forward-looking	statements.

Forward-looking	 statements	 may	 contain	 words	 such	 as	 "may,"	 "will,"	 "should,"	 "could,"	 "would,"	 "expect,"	 "plan,"	 "anticipate,"	 "believe,"	 "estimate," "potential"	 and	 "continue,"	 the	 negative	 of	 these	 terms,	 or	 other	 comparable	 terminology.	 Examples	 of	 forward-looking	 statements	 include	 statements	 regarding Applied's	future	financial	or	operating	results,	as	well	as	its	plans	or	expectations	regarding	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,	strategic	acquisitions	and	investments,	the	proposed	business	combination	with	Tokyo	Electron	Limited,	growth	opportunities,	the	nature	and	impact of	restructuring	activities,	backlog,	working	capital,	liquidity,	investment	portfolio	and	policies,	taxes,	supply	chain,	manufacturing,	properties,	legal	proceedings	and claims,	customer	demand	and	spending,	end-use	demand,	market	and	industry	trends	and	outlooks,	and	general	economic	conditions.	These	forward-looking	statements are	based	on	management's	estimates,	projections	and	assumptions	as	of	the	date	hereof	and	include	the	assumptions	that	underlie	such	statements.	Any	expectations based	on	these	forward-looking	statements	are	subject	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	affect	Applied's	future	financial	condition	and	operating	results	and	could	cause	actual	results	to differ	materially	from	expectations	based	on	forward-looking	statements	made	in	this	document	or	elsewhere	by	Applied	or	on	its	behalf.	Applied	undertakes	no obligation	to	revise	or	update	any	forward-looking	statements.

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.

# PART	I

|  | PART	I |  |
| :--- | :--- | :--- |
| Item\t1: | Business | 4 |
| Item\t1A: | Risk\tFactors | 18 |
| Item\t1B: | Unresolved\tStaff\tComments | 28 |
| Item\t2: | Properties | 29 |
| Item\t3: | Legal\tProceedings | 30 |
| Item\t4: | Mine\tSafety\tDisclosures | 30 |
|  | PART\tII |  |
| Item\t5: | Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 30 |
| Item\t6: | Selected\tFinancial\tData | 33 |
| Item\t7: | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 34 |
| Item\t7A: | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 59 |
| Item\t8: | Financial\tStatements\tand\tSupplementary\tData | 59 |
| Item\t9: | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 59 |
| Item\t9A: | Controls\tand\tProcedures | 60 |
| Item\t9B: | Other\tInformation | 60 |
|  | PART\tIII |  |
| Item\t10: | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 61 |
| Item\t11: | Executive\tCompensation | 61 |
| Item\t12: | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 61 |
| Item\t13: | Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 63 |
| Item\t14: | Principal\tAccounting\tFees\tand\tServices | 63 |
|  | PART\tIV |  |
| Item\t15: | Exhibits,\tFinancial\tStatement\tSchedules | 64 |
|  | Signatures | 121 |

# Item	1: Business

Incorporated	in	1967,	Applied,	a	Delaware	corporation,	provides	manufacturing	equipment,	services	and	software	to	the	global	semiconductor,	flat	panel	display, solar	photovoltaic	(PV)	and	related	 industries.	Applied's	customers	 include	manufacturers	of	semiconductor	wafers	and	chips,	flat	panel	 liquid	crystal	and	other displays,	solar	PV	cells	and	modules,	and	other	electronic	devices.	These	customers	may	use	what	they	manufacture	in	their	own	end	products	or	sell	the	items	to	other companies	for	use	in	advanced	electronic	components.	Applied's	fiscal	year	ends	on	the	last	Sunday	in	October.

Applied	operates	in	four	reportable	segments:	Silicon	Systems	Group,	Applied	Global	Services,	Display,	and	Energy	and	Environmental	Solutions.	Applied manages	its	business	based	upon	these	segments.	A	summary	of	financial	information	for	each	reportable	segment	is	found	in	Note	16	of	Notes	to	Consolidated Financial	Statements.	A	discussion	of	factors	that	could	affect	operations	is	set	forth	under	"Risk	Factors"	in	Item	1A,	which	is	incorporated	herein	by	reference.

In	November	2011,	Applied	completed	the	acquisition	of	Varian	Semiconductor	Equipment	Associates,	Inc.	(Varian),	a	leading	supplier	of	ion	implantation equipment	to	the	semiconductor	and	solar	industries.	The	acquisition	expanded	Applied's	technologies	for	chip	and	solar	module	manufacturing.	The	acquired	business is	primarily	included	in	consolidated	results	of	operations	and	the	results	of	the	Silicon	Systems	Group	and	Applied	Global	Services	segments.

Net	sales	by	reportable	segment	for	the	past	three	fiscal	years	were	as	follows:

|  |  |  | (In	millions,	except	percentages) | (In	millions,	except	percentages) |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Silicon\tSystems\tGroup | $4,775 | 64% | $5,536 | 64% | $5,415 | 51% |
| Applied\tGlobal\tServices | 2,023 | 27% | 2,285 | 26% | 2,413 | 23% |
| Display | 538 | 7% | 473 | 5% | 699 | 7% |
| Energy\tand\tEnvironmental\tSolutions | 173 | 2% | 425 | 5% | 1,990 | 19% |
| Total | $7,509 | 100% | $8,719 | 100% | $10,517 | 100% |

# Silicon	Systems	Group	Segment

The	 Silicon	 Systems	 Group	 segment	 develops,	 manufactures	 and	 sells	 manufacturing	 equipment	 used	 to	 fabricate	 semiconductor	 chips,	 also	 referred	 to	 as integrated	circuits	(ICs).	Most	chips	are	built	on	a	silicon	wafer	base	and	include	a	variety	of	circuit	components,	such	as	transistors	and	other	devices,	that	are	connected by	multiple	layers	of	wiring	(interconnects).	Applied	offers	systems	that	perform	various	processes	used	in	chip	fabrication,	including	atomic	layer	deposition	(ALD), chemical	vapor	deposition	(CVD),	physical	vapor	deposition	(PVD),	electrochemical	deposition	(ECD),	rapid	thermal	processing	(RTP),	ion	implantation,	chemical mechanical	planarization	(CMP),	wet	cleaning,	and	wafer	metrology	and	inspection,	as	well	as	systems	that	etch	or	inspect	circuit	patterns	on	masks	used	in	the photolithography	process.	Applied's	semiconductor	manufacturing	systems	are	used	by	integrated	device	manufacturers	and	foundries	to	build	and	package	memory, logic	and	other	types	of	chips.

The	majority	of	the	Company's	new	equipment	sales	are	for	leading-edge	technology	for	advanced	nodes	using	28	nanometer	(nm)	and	smaller	dimensions.	To build	a	chip,	the	transistors,	capacitors	and	other	circuit	components	are	first	created	on	the	surface	of	the	wafer	by	performing	a	series	of	processes	to	deposit	and selectively	remove	portions	of	successive	film	layers.	Similar	processes	are	then	used	to	build	the	layers	of	wiring	structures	on	the	wafer.	As	the	density	of	the	circuit components	increases	to	enable	greater	computing	capability	in	the	same	or	smaller	physical	area,	the	complexity	of	building	the	chip	also	increases,	necessitating	more process	steps	to	form	smaller	transistor	structures	and	more	intricate	wiring	schemes.	Advanced	chip	designs	require	more	than	500	steps	involving	these	and	other processes	to	complete	the	manufacturing	cycle.

Today's	advanced	interconnects	are	made	using	copper	as	the	main	wiring	material.	Copper	has	low	resistance	and	can	carry	a	large	amount	of	current	in	a	small area,	which	allows	signals	to	travel	quickly.	Applied	is	a	leading	supplier	of	systems	for	manufacturing	copper-based	interconnects,	including	equipment	for	depositing, etching	and	planarizing	these	multi-layer	structures.

To	increase	the	speed	of	interconnect	signals	even	further,	low	dielectric	constant	(low	k)	films	are	used	to	insulate	the	copper	wiring.	Applied	provides	systems for	depositing	low	k	dielectric	films	that	enable	higher	device	performance	and	longer	battery	life.

The	transistor	is	another	key	area	of	the	chip	where	semiconductor	manufacturers	are	improving	their	device	designs	to	enhance	performance.	Applied	has technically	advanced	products	for	building	smaller	and	faster	transistors.	One	method	of	enhancing	chip	performance	is	strain	engineering,	a	technique	that	stretches	or compresses	the	space	between	atoms,	allowing	electrical	current	to	flow	more	quickly.	Multiple	strain	films	are	typically	used	in	advanced	devices	since	they	have	an additive	effect	on	increasing	transistor	speed.	Applied	has	systems	to	enable	these	applications	using	CVD	and	epitaxial	deposition	technologies.

Major	 chipmakers	 are	 integrating	 high	 dielectric	 constant	 (high-k)	 and	 metal	 materials	 and	 processes	 in	 their	 transistor	 gate	 structures	 to	 increase	 chip performance	and	reduce	power	consumption.	Applied	has	fully	characterized	processes	for	building	these	high-k/metal	gates.	These	solutions	include	an	integrated dielectric	gate	stack	tool	that	combines	four	critical	processes	in	a	single	system,	a	portfolio	of	metallization	technologies	using	ALD	and	PVD,	and	an	innovative	high temperature	etch	system.

To	address	the	need	for	higher	performance	in	a	smaller	space	driven	by	new	consumer	products,	a	new	type	of	chip	packaging	at	wafer	level	is	emerging,	which enables	three-dimensional	(3D)	ICs.	Providing	greater	functionality	in	a	smaller	footprint,	3D	ICs	stack	multiple	chips	together	and	electrically	connect	them	using	deep holes,	called	through-silicon	via	(TSV)	structures.	Applied	has	production-proven	systems	and	processes	required	for	advanced	packaging	manufacturing,	including etch,	CVD,	PVD,	ECD,	wafer	cleaning	and	CMP	systems.

Most	of	Applied's	semiconductor	equipment	products	are	single-wafer	systems	with	multiple	process	chambers	attached	to	a	base	platform.	This	enables	each wafer	to	be	processed	separately	in	its	own	environment,	allowing	precise	process	control,	while	the	system's	multiple	chambers	enable	simultaneous,	high	productivity manufacturing.	Applied	 sells	 most	 of	 its	 single-wafer,	 multi-chamber	 systems	 on	 six	 basic	 platforms:	 the	 Endura®,,	 Centura®,	 Producer®,	 Raider®,	 VIISta®	 and Vantage®	platforms.	These	platforms	support	ALD,	CVD,	ECD,	PVD,	etch,	ion	implantation,	and	RTP	technologies.

Over	time,	the	semiconductor	industry	has	migrated	to	increasingly	larger	wafers	to	build	chips.	The	predominant	or	common	wafer	size	used	today	for	volume production	of	advanced	chips	is	300	millimeter	(mm),	or	12-inch,	wafers.	Applied	offers	300mm	systems	through	its	Silicon	Systems	Group	segment.	The	Company also	offers	earlier-generation	200mm	systems,	as	well	as	products	and	services	to	support	all	of	its	systems,	which	are	reported	under	its	Applied	Global	Services segment.

The	following	discusses	in	more	detail	the	portfolio	of	products	and	their	associated	process	technology	areas	reported	under	the	Silicon	Systems	Group	segment.

# Deposition

Deposition	is	a	fundamental	step	in	fabricating	a	chip.	During	deposition,	layers	of	dielectric	(an	insulator),	barrier,	or	electrically	conductive	(typically	metal) films	are	deposited	or	grown	on	a	wafer.	Applied	provides	equipment	to	perform	four	types	of	deposition:	ALD,	CVD,	ECD	and	PVD.	In	addition,	Applied's	RTP systems	can	be	used	to	perform	certain	types	of	dielectric	deposition.

# Atomic	Layer	Deposition

ALD	is	an	advanced	technology	in	which	atoms	are	deposited	one	layer	at	a	time	to	build	chip	structures.	This	technology	enables	customers	to	fabricate	thin	films of	either	conducting	or	insulating	material	with	uniform	coverage	in	nanometer-sized	structures.	One	of	the	most	critical	areas	of	the	transistor	is	its	gate,	which	is	built by	depositing	layers	of	dielectric	films.	At	the	22nm	node	and	below,	these	film	layers	are	so	thin	that	they	must	be	atomically	engineered.	The	Applied	Centura Integrated	Gate	Stack	system	features	advanced	ALD	technology	that	builds	ultrathin	high-k	film	layers	less	than	2nm	in	thickness	—	about	one	hundred	thousandth	the width	of	a	human	hair.

# Chemical	Vapor	Deposition

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.	Films	deposited	by	CVD	may	be	silicon	oxide,	single-crystal	epitaxial	silicon,	amorphous	silicon,	silicon	nitride,	dielectric anti-reflective	coatings,	low	k	dielectric	(for	highly-efficient	insulating	materials),	aluminum,	titanium,	titanium	nitride,	polysilicon,	tungsten,	refractory	metals	or silicides.	Applied	offers	the	following	CVD	products	and	technologies:

The	Applied	Producer	CVD	platform	—	The	Producer	high-throughput	platform	features	Twin-Chamber®	modules	that	have	two	single-wafer	process chambers	per	unit.	Up	to	three	Twin-Chamber	modules	can	be	mounted	on	each	Producer	platform,	giving	it	a	simultaneous	processing	capacity	of	six	wafers.	Many dielectric	CVD	processes	can	be	performed	on	this	platform.	The	highest	productivity	model	of	this	system	is	the	Applied	Producer	GT,	which	features	fast	wafer handling	performance	and	compact	design.

Low	k	Dielectric	Films	—	Low	k	dielectric	materials	are	used	in	copper-based	chip	designs	to	further	improve	interconnect	speed.	Using	conventional	CVD equipment,	the	Applied	Producer	Black	Diamond®	family	of	low	k	systems	provides	customers	with	a	proven,	cost-effective	way	to	integrate	a	variety	of	low	k	films into	advanced	interconnect	structures.	The	Company's	latest	third-generation	low	k	technologies	are	featured	on	the	Applied	Producer	Black	Diamond	3	system	and Applied	Producer	Nanocure	3	system.	In	addition,	the	Company	offers	its	Applied	Producer®	OnyxTM	process,	an	innovative	film	treatment	that	optimizes	the	molecular structure	of	low	k	films.	Together,	these	products	are	designed	to	enable	smaller,	higher	performance	and	more	power-efficient	devices	at	22nm	and	below.

Lithography-Enabling	Solutions	—	Applied	offers	several	technologies	on	the	Producer	system	to	help	chipmakers	extend	their	current	193nm	lithography tools,	including	a	line	of	Applied	APF®	(advanced	patterning	film)	films	and	Applied	DARC®	(dielectric	anti-reflective	coating)	films.	Together,	they	provide	a	film stack	with	the	precise	dimensional	control	and	compatibility	needed	to	cost-effectively	pattern	nano-scale	features	without	additional	integration	complexity.

Gap	Fill	Films	—	There	are	many	steps	during	the	chipmaking	process	in	which	extremely	small	and	deep,	or	high	aspect	ratio	(HAR),	structures	must	be filled	void-free	with	a	dielectric	film.	Many	of	these	applications	include	the	deposition	of	silicon	oxides	in	substrate	isolation	structures,	contacts	and	interconnects. Applied's	most	advanced	gap	fill	system	is	its	Applied	Producer	Eterna™	FCVD™	system.	Targeted	for	20nm	and	below	chips,	the	Eterna	system	delivers	a	liquid-like film	that	flows	freely	into	virtually	any	structure	to	provide	void-free	dielectric	fill.

Strain	Engineering	Solutions	—	The	Applied	Producer	HARP™	system	plays	a	key	role	in	enhancing	transistor	performance,	enabling	chipmakers	to	boost chip	speed	by	depositing	strain-inducing	dielectric	films.	Offering	the	industry's	first	integrated	stress	nitride	deposition	and	ultraviolet	(UV)	cure	solution,	the	Applied Producer	Celera	CVD	delivers	benchmark	levels	of	high-stress	tensile	silicon	nitride	films.	The	Company	also	offers	the	Applied	Centura	SiNgenPlus	low	pressure CVD	system	for	low	temperature	silicon	nitride	films.	Used	together,	and	in	conjunction	with	silicon	germanium	(SiGe)	films	using	Applied's	epitaxial	deposition technologies,	these	systems	can	provide	additive	strain	engineering	benefits.

Through-Silicon	Via	Films	—	Applied	offers	products	for	TSV	fabrication,	including	the	Applied	Producer	InVia™	system.	This	product	uses	an	innovative process	 to	 deposit	 the	 critical	 oxide	 liner	 film	 layer	 in	 HAR	TSV	 structures,	 enabling	 robust	 electrical	 isolation	 of	 the	TSV,	 which	 is	 vital	 for	 reliable	 device performance.	For	applications	where	higher	temperatures	can	damage	the	manufacturing	process,	the	Applied	Producer	Avila™	CVD	system	and	Applied	Producer Optiva	CVD	system	allow	high	quality	dielectric	film	deposition	at	stable	substrate	temperatures	at	a	low	cost	of	ownership.

Epitaxial	Deposition	—	Epitaxial	silicon	(epitaxy	or	epi)	is	a	layer	of	pure	silicon	grown	in	a	uniform	crystalline	structure	on	the	wafer	to	form	a	high quality	base	for	the	device	circuitry.	Epi	technology	is	used	in	an	increasing	number	of	IC	devices	in	both	the	wafer	substrate	and	transistor	areas	of	a	chip	to	enhance speed.	The	Applied	Centura	Epi	system	integrates	pre-	and	post-epi	processes	on	the	same	system	to	improve	film	quality	and	reduce	production	costs.	This	system	is also	used	for	SiGe	epi	technology,	which	reduces	power	usage	and	increases	speed	in	certain	types	of	advanced	chips.	For	emerging	transistor	designs,	the	Applied Centura	RP	Epi	system	offers	selective	epi	processes	to	enable	faster	transistor	switching	through	strain	engineering	techniques.

Polysilicon	Deposition	—	Polysilicon	is	a	type	of	silicon	used	to	form	portions	of	the	transistor	structure	within	the	IC	device.	The	Applied	Centura Polygen™	LPCVD	system	is	a	single-wafer,	multi-chamber	product	that	deposits	thin	polysilicon	films	at	high	temperatures	to	create	transistor	gate	structures.	To address	the	challenging	requirements	of	shrinking	gate	dimensions,	the	Applied	Centura	DPN	Gate	Stack	system	integrates	chambers	for	decoupled	plasma	nitridation (DPN),	RTP	anneal,	and	polysilicon	deposition	on	one	platform	to	enable	superior	film	quality	and	material	properties.

Tungsten	Deposition	—	Tungsten	is	used	in	the	contact	area	of	a	chip	that	connects	the	transistors	to	the	wiring	circuitry.	In	aluminum-based	devices, tungsten	is	also	used	in	the	structures	that	connect	the	multiple	layers	of	aluminum	wiring.	Applied	has	two	products	for	depositing	tungsten:	the	Applied	Centura Sprint®	Tungsten	CVD	system	and	the	Applied	Centura	iSprint	ALD/CVD	system	which	provide	tungsten	filling	capability	to	20nm	and	below.

# Electrochemical	Deposition

ECD	is	a	process	by	which	metal	atoms	from	a	chemical	fluid	(an	electrolyte)	are	deposited	on	the	surface	of	an	immersed	object.	One	application	is	to	deposit copper	in	interconnect	wiring	structures.	This	process	step	follows	the	deposition	of	barrier	and	seed	layers	which	prevent	the	copper	from	contaminating	other	areas	of the	device,	improve	the	adhesion	of	the	copper	film	and	enable	electrodeposition	to	occur.	Another	application	is	wafer	level	packaging	for	deposition	of	copper	to	fill TSV	3D	chip-to-chip	connections.	Applied	offers	special	configurations	of	the	Applied	Raider	system	for	these	ECD	applications.

# Physical	Vapor	Deposition

PVD	is	a	physical	process	in	which	atoms	of	a	gas,	such	as	argon,	are	accelerated	toward	a	metal	target.	The	metal	atoms	chip	off,	or	sputter	away,	and	are	then deposited	 on	 the	 wafer.	 The	 Applied	 Endura	 PVD	 system	 offers	 various	 advanced	 metal	 deposition	 processes,	 including	 aluminum,	 aluminum	 alloys,	 cobalt, titanium/titanium	nitride,	tantalum/tantalum	nitride,	tungsten/tungsten	nitride,	nickel,	vanadium	and	copper.	Introduced	23	years	ago,	the	Company's	Applied	Endura platform	is	the	most	successful	metal	deposition	system	in	the	history	of	the	semiconductor	industry.

The	Applied	Endura	CuBS	(copper	barrier/seed)	PVD	system	is	widely	used	by	customers	for	fabricating	copper-based	chips.	Using	PVD	technology,	the	system deposits	a	tantalum-based	barrier	film	that	prevents	copper	material	from	entering	other	areas	of	the	device	and	then	a	copper	seed	layer	that	primes	the	structure	for	the subsequent	deposition	of	bulk	copper.	The	Applied	Endura	CuBS	RFX	PVD	system	extends	cost-effective	CuBS	technology	to	the	22nm	node.	The	Applied	Endura Avenir™	RF	PVD	system	sequentially	deposits	the	multiple	metal	film	layers	that	form	the	heart	of	the	industry's	new,	faster,	metal	gate	transistors.	The	Applied Endura	iLB	PVD/ALD	system	advances	the	state-of-the-art	in	ALD	technology,	enabling	customers	to	shrink	their	speed-critical	contact	structures	for	20nm	and	below devices.	The	Applied	Endura	AmberTM	PVD	system	uses	copper	reflow	technology	to	achieve	rapid,	void-free	fill	of	interconnect	structures	at	virtually	any	device	node.

Applied's	Endura	system	has	also	been	used	for	many	years	in	back-end	applications	to	deposit	metal	layers	before	final	bump	or	wire	bonding	packaging	steps are	performed.	Additionally, the	Applied	Charger ®	 UBM	 PVD	 system,	 which is	 specifically	 designed	 for	 under-bump	 metallization	 (UBM)	 and	 other	 back-end processes,	features	linear	architecture	for	reliable	performance	and	very	high	productivity	at	a	low	cost	per	wafer.

Etching	is	used	many	times	throughout	the	IC	manufacturing	process	to	selectively	remove	material	from	the	surface	of	a	wafer.	Before	etching	begins,	the	wafer is	coated	with	a	light-sensitive	film,	called	photoresist.	A	photolithography	process	then	projects	the	circuit	pattern	onto	the	wafer.	Etching	removes	material	only	from areas	dictated	by	the	photoresist	pattern.	Applied	offers	systems	for	etching	dielectric,	metal,	and	silicon	films	to	meet	the	requirements	of	advanced	processing.

For	etching	silicon,	the	Applied	Centris	AdvantEdge™	Mesa™	system	features	eight	process	chambers	for	high	wafer	output	and	proprietary	system	intelligence software	to	assure	every	process	on	every	chamber	precisely	matches.	The	system	also	saves	on	power,	water	and	gas	consumption,	helping	customers	to	lower	operating costs	and	support	their	sustainable	manufacturing	initiatives.	Chip	manufacturers	are	also	beginning	to	employ	3D	architectures	in	advance	memory	chips	to	provide higher-density	storage	capacity.	These	structures	require	the	precise	etching	of	exceptionally	deep	and	narrow	structures.	To	meet	this	industry	requirement,	Applied offers	its	Applied	Centura	Avatar TM 	dielectric	etch	system	that	can	etch	holes	and	trenches	up	to	80:1	depth-to-width	aspect	ratios.	Also	for	3D	chip	manufacturing,	the Applied	Centura	Silvia ®	system	is	specifically	designed	for	etching	small,	deep	holes	for	TSV	applications.

# Rapid	Thermal	Processing

RTP	is	a	process	in	which	a	wafer	is	subjected	to	rapid	bursts	of	intense	heat	that	can	take	the	wafer	from	room	temperature	to	more	than	1,000	degrees	Celsius	in less	than	10	seconds.	A	rapid	thermal	process	is	used	mainly	for	annealing,	which	modifies	the	properties	of	deposited	films.	The	Applied	Centura	Radiance ®Plus	and Applied	 Vantage	 RadOx™	 RTP	 systems	 feature	 advanced	 RTP	 technology	 with	 differing	 platform	 designs.	 While	 the	 multi-chamber	 Centura	 platform	 offers exceptional	process	flexibility,	the	streamlined	two-chamber	Vantage	platform	is	designed	for	dedicated	high-volume	manufacturing.	These	single-wafer	RTP	systems are	also	used	for	growing	high	quality	oxide	and	oxynitride	films,	deposition	steps	that	traditional	large	batch	furnaces	can	no	longer	achieve	with	the	necessary	precision and	control.

Applied's	latest	RTP	systems	address	the	critical	need	for	controlling	wafer	temperature	to	increase	chip	performance	and	yield.	The	laser-based	Applied	Vantage Astra™	millisecond	anneal	system	abruptly	raises	the	surface	temperature	of	the	wafer	locally	to	modify	material	properties	at	the	atomic	level.	The	Applied	Vantage Vulcan	system,	the	first	RTP	system	to	heat	the	wafer	entirely	from	the	backside,	brings	a	new	level	of	precision	and	control	to	the	anneal	process,	allowing	chipmakers to	produce	more	high	performance	devices	per	wafer.

# Ion	Implantation

Ion	implantation	is	a	key	technology	for	forming	transistors	and	is	used	many	times	during	chip	fabrication.	During	ion	implantation,	wafers	are	bombarded	by	a beam	of	electrically-charged	ions,	called	dopants,	which	change	the	electrical	properties	of	the	exposed	surface	films.	These	dopants	are	accelerated	to	an	energy	that permits	them	to	penetrate	the	substrate	at	a	precise	quantity	and	depth.	Dopant	concentration	is	determined	by	controlling	the	number	of	ions	in	the	beam	and	the	number of	times	the	wafer	passes	through	the	beam;	the	depth	of	the	dopants	is	determined	by	the	energy	of	beam.	Ion	implantation	systems	may	also	be	used	in	other	areas	of IC	manufacturing	to	modify	the	material	properties	of	the	semiconductor	devices,	as	well	as	in	manufacturing	crystalline-silicon	solar	cells.

Applied	offers	a	line	of	single-wafer	ion	implantation	equipment	that	covers	the	entire	energy	and	current	range	required	to	manufacture	advanced	devices.	The VIISta	3000XP	implanter	delivers	the	angle	precision	required	for	advanced	high-energy	applications,	while	the	VIISta	900XP	implanter	provides	medium	current precision	doping.	The	VIISta	PLAD	implanter	enables	manufacturers	to	rapidly	implant	high	dopant	concentrations	over	the	entire	wafer	using	a	low-energy	process	that preserves	sensitive	circuit	features	in	next-generation	devices.	The	VIISta	Trident	high	current	ion	implanter	provides	the	precise	dose	and	angle	control	needed	for advanced	transistor	structures.

# Chemical	Mechanical	Planarization

The	CMP	process	removes	material	from	a	wafer	to	create	a	flat	(planarized)	surface.	This	process	allows	subsequent	photolithography	patterning	and	material deposition	steps	to	occur	with	greater	accuracy,	resulting	in	more	highly	uniform	film	layers	with	minimal	thickness	variations.	Applied	has	led	the	industry	with	its 300mm	Applied	Reflexion®	LK	system,	with	features	such	as	integrated	cleaning,	film	measurement	and	process	control	capabilities.	Applied's	latest	CMP	product,	the Applied	 Reflexion	 GT	 system,	 has	 an	 innovative	 dual-wafer	 design	 that	 increases	 performance	 while	 lowering	 system	 cost	 of	 ownership	 in	 fabricating	 copper interconnects	and	tungsten	contacts.

# Metrology	and	Wafer	Inspection

Applied	offers	several	products	for	measuring	features	and	inspecting	defects	on	the	wafer	during	various	stages	of	the	fabrication	process.	These	systems	enable customers	to	characterize	and	control	critical	dimension	(CD)	and	defect	issues,	especially	at	advanced	generation	technology	nodes.

Critical	Dimension	and	Defect	Review	Scanning	Electron	Microscopes	(CD-SEMs	and	DR-SEMs)	—	Scanning	electron	microscopes	(SEMs)	use	an	electron	beam	to form	images	of	microscopic	features	of	a	patterned	wafer	at	extremely	high	magnification.	Applied's	SEM	products	provide	customers	with	full	automation,	along	with the	high	accuracy	and	sensitivity	needed	for	measuring	very	small	CDs.	The	Applied	VeritySEM ®	4i+	metrology	system	uses	proprietary	SEM	imaging	technology	to enable	precise	control	of	the	lithography	and	etching	processes,	measuring	CDs	at	a	precision	of	less	than	0.3nm.	Applied's	OPC	Check™	software	for	the	VeritySEM system	performs	automated	qualification	of	OPC-based	(optical	proximity	correction)	chip	designs,	significantly	reducing	mask	verification	time	over	conventional manual	methods.

DR-SEMs	review	defects	on	the	wafer	(such	as	particles,	scratches	or	residues)	that	are	first	located	by	a	defect	detection	system	and	then	classify	the	defects	to identify	their	source.	The	high-throughput,	fully	automatic	Applied	SEMVision™	Defect	Analysis	products	enable	customers	to	use	this	technology	as	an	integral	part	of their	production	lines	to	analyze	critical	defects	with	industry-leading	throughput.	In	2013,	Applied	introduced	the	latest	generation	of	defect	review	and	classification technology	with	its	Applied	SEMVision	G6	system,	designed	to	accelerate	time-to-yield	for	leading-edge	chip	manufacturing	at	the	1X-nm	node	and	beyond.	The system	delivers	a	30%	resolution	improvement	over	the	previous	SEMVision	generation,	making	it	the	highest	available	in	the	industry.

Wafer	Inspection	—	Using	deep	ultraviolet	(DUV)	laser-based	technology,	defects	can	be	detected	on	patterned	wafers	(wafers	with	printed	circuit	images)	as	they move	between	processing	steps.	Defects	include	particles,	open	circuit	lines,	and	shorts	between	lines.	The	Applied	UVision®	5	wafer	inspection	system	detects	yield- limiting	defects	in	the	critical	patterning	layers	of	logic	and	memory	devices.

# Mask	Making

Masks	are	used	by	photolithography	systems	to	transfer	microscopic	circuit	designs	onto	wafers.	Since	an	imperfection	in	a	mask	may	be	replicated	on	the	wafer, the	mask	must	be	virtually	defect-free.	Applied	provides	systems	for	etching	and	inspecting	masks.

Applied's	Tetra™	line	of	systems	has	been	used	by	mask	makers	worldwide	to	etch	the	majority	of	high-end	masks	over	the	last	five	years.	The	Applied	Centura Tetra	EUV	(extreme	ultraviolet)	Advanced	Reticle	Etch	system	is	an	advanced	etch	tool	for	fabricating	leading-edge	masks	at	22nm	and	below.	The	Applied	Aera3™ Mask	 inspection	 system	 also	 addresses	 the	 challenges	 of	 detecting	 defects	 on	 22nm	 masks,	 using	 sophisticated	 aerial	 imaging	 technology	 that	 allows	 users	 to immediately	see	how	the	pattern	on	the	mask	will	appear	on	the	wafer,	revealing	only	the	defects	most	likely	to	print	and	significantly	reducing	inspection	time.	These systems	also	address	the	challenge	of	fabricating	emerging	EUV	lithography	masks.

# Applied	Global	Services	Segment

The	Applied	Global	Services	segment	encompasses	services,	products	and	integrated	solutions	to	optimize	equipment	and	fab	performance	and	productivity. Leveraging	the	Company's	experience	with	complex	manufacturing	technology	and	processes,	skilled	equipment	and	process	engineers	are	deployed	at	or	near	customer sites	in	more	than	a	dozen	countries	to	support	approximately	33,000	installed	Applied	semiconductor,	display	and	solar	manufacturing	systems	worldwide.	Applied offers	the	following	general	types	of	services	and	products	under	the	Applied	Global	Services	segment:

Fab	and	Equipment	Services	—	Applied's	fab	and	equipment	services	are	designed	to	help	customers	improve	cost	of	ownership,	process	control	and	device performance.	They	include	corrective	and	preventive	maintenance	programs,	comprehensive	spare	parts	packages,	and	consulting	and	advanced	service	offerings.

For	example,	Applied	Performance	Services	offers	customers	comprehensive	equipment	support	with	performance-based	pricing	and	predictable	costs.	This program	includes	Applied's	ExpertConnect	remote	diagnostic	capability,	providing	specialized	support	around	the	clock.	In	addition,	Applied	FabVantage™	Consulting Services	are	delivered	by	teams	of	technology,	equipment	and	engineering	experts	who	provide	key	insights	to	help	customers	solve	some	of	their	most	difficult manufacturing	challenges.	Applied's	TechEdge™	advanced	service	offerings	combine	equipment	and	engineering	expertise	with	software	and	connectivity	technologies to	address	manufacturing	issues	like	excursion	control	and	predictive	maintenance.

Legacy	 Systems	—	Applied	offers	products	to	extend	the	performance	and	productive	life	of	200mm	semiconductor	fabs,	including	new	and	remanufactured 200mm	equipment,	system	enhancements	to	lower	cost	of	ownership	and	extend	technology	and	fab	transition	services.	Applied's	200mm	systems	are	available	in production-proven	technologies	that	provide	productive,	cost-effective	manufacturing	solutions	for	mainstream,	as	well	as	specialty	processes	including	micro-electro- mechanical	systems	(MEMS),	power	transistors	and	image	sensors.

Automation	Systems	—	Applied	offers	automated	factory-level	and	 tool-level	control	software	systems	for	semiconductor,	display	and	solar	manufacturing facilities.	These	enterprise	solutions	include	manufacturing	execution	systems	(MES)	to	automate	the	production	of	wafers,	display	and	solar	substrates;	advanced process	control	systems;	and	scheduling	and	materials	handling	control	systems.

Applied	also	offers	computerized	maintenance	management	systems,	performance	tracking,	and	modeling	and	simulation	tools	for	improving	asset	utilization. Applied's	E3™	equipment	engineering	system	solution,	for	example,	integrates	all	critical	equipment	automation	and	process	control	components.

# Display	Segment

Applied's	products	for	manufacturing	liquid	crystal	displays	(LCDs),	organic	light-emitting	diodes	(OLEDs),	and	other	display	technologies	for	televisions, personal	computers	(PCs),	tablets,	smartphones,	and	other	consumer-oriented	devices	are	reported	under	its	Display	segment.	While	similarities	exist	between	the technologies	utilized	 in	chipmaking	and	display	fabrication,	 the	most	significant	differences	are	 in	 the	size	and	composition	of	 the	substrate.	Substrates	used	 to manufacture	display	panels	can	be	more	than	120	times	larger	in	area	than	300mm	wafers	and	are	made	of	glass,	while	wafers	used	in	semiconductor	fabrication	are made	of	silicon.

Applied	supplies	systems	that	process	and	test	different	glass	substrate	sizes.	To	meet	consumer	demand	for	larger,	more	cost-effective	LCD	TVs,	Applied's	latest generation	(Gen)	10	systems	can	process	substrates	sized	at	approximately	2.85	x	3.05	meters,	with	each	substrate	enabling	the	production	of	up	to	six	65-inch	LCD	TV screens.

Applied	is	also	extending	its	core	LCD	technology	to	enable	ultra-high	resolution	displays	for	next-generation	smartphones,	tablet	PCs,	and	OLED	TVs.	These higher-performance	displays	are	fabricated	using	newer	materials	such	as	low-temperature	polysilicon	(LTPS)	and	metal	oxide	films	in	the	transistor	layer	of	the	panel	to gain	significantly	faster	switching	speeds.	Applied	also	offers	its	line	of	plasma-enhanced	CVD	(PECVD)	systems	for	depositing	LTPS	films	with	the	AKT-15K	PX, AKT-25K	PX,	and	AKT-55K	PX	systems.	These	CVD	systems	are	available	for	a	range	of	display	substrate	sizes	to	enable	manufacturers	to	achieve	economies	of	scale.

Applied	also	offers	technology	for	fabricating	advanced	metal	oxide-based	transistors	in	displays.	The	AKT-PiVot™	PVD	system,	which	features	rotary	cathode array	technology,	deposits	indium	gallium	zinc	oxide	(IZGO)	film	to	form	the	transistor	channel.	The	AKT-PECVD	system	is	used	to	deposit	the	dielectric	film	needed to	insulate	the	transistor	gate.	Together,	these	systems	offer	a	cost-effective	solution	for	producing	smaller,	faster	switching	pixels	to	create	higher	resolution	screens.

For	manufacturing	the	color	filter	of	LCD	panels,	Applied	offers	the	AKT-NEW	ARISTO™	system	for	transparent	conductive	oxide	film	deposition.	Providing customers	with	new	levels	of	productivity	and	flexibility,	the	Applied	AKT-AristoTwin	system	is	used	for	manufacturing	touch-enabled	displays.	The	system's	two independent	processing	tracks	achieve	more	capacity	with	a	smaller	footprint	than	traditional	platforms.

To	complement	these	systems,	Applied	also	offers	a	line	of	electron	beam	array	test	(EBT)	systems	for	testing	substrates	during	production	for	defective	pixels	and other	imperfections,	including	the	Gen-10	AKT-90K	EBT	product.	Featuring	one	of	the	industry's	fastest	and	most	accurate	pixel	test	technologies,	the	EBT	systems' non-contact	test	technology	enables	the	safe	testing	of	thin	film	transistors	(TFTs)	used	in	high-value	TV	panels	without	damaging	or	scratching	the	display.

# Energy	and	Environmental	Solutions	Segment

The	Energy	and	Environmental	Solutions	segment	includes	systems	for	manufacturing	wafer-based	crystalline	silicon	(c-Si)	cells	and	modules.	These	systems	are designed	to	increase	the	conversion	efficiency	and	yields	of	solar	PV	devices	in	order	to	help	reduce	the	cost	per	watt	of	solar	generated	electricity.	The	segment	also includes	high-throughput	roll-to-roll,	vacuum	web	coating	systems	for	high-performance	deposition	of	a	range	of	films	on	flexible	substrates	for	flexible	electronics, packaging	and	other	applications.

The	solar	equipment	products	offered	under	this	segment	include:

Cell	manufacturing	—	Applied	offers	a	comprehensive	line	of	automated	metallization	and	test	systems	for	c-Si	cell	manufacturing.	These	systems	include	high- precision	printing	capability	for	increasing	the	efficiency	of	c-Si	solar	cells.

Wafer	manufacturing	—	Applied's	precision	wafering	systems	crop	and	square	silicon	ingots	into	bricks	and	slice	silicon	bricks	into	thin	wafers.	These	wafers	are subsequently	processed	by	cell	manufacturing	systems	to	create	the	PV	cells	used	in	making	c-Si	solar	panels.

Ion	implantation	—	Applied	offers	ion	implantation	technology	for	c-Si	cell	manufacturing,	a	process	that	enables	the	volume	production	of	high	efficiency	c-Si cells	with	better	yield	and	reduced	cost.

# Backlog

Applied	manufactures	systems	to	meet	demand	represented	by	order	backlog	and	customer	commitments.	Backlog	consists	of:	(1)	orders	for	which	written authorizations	have	been	accepted	and	assigned	shipment	dates	are	within	the	next	12	months,	or	shipment	has	occurred	but	revenue	has	not	been	recognized;	and (2)	contractual	service	revenue	and	maintenance	fees	to	be	earned	within	the	next	12	months.

Backlog	by	reportable	segment	as	of	October	27,	2013	and	October	28,	2012	was	as	follows:

|  |  | (In	millions,	except	percentages) | (In	millions,	except	percentages) |  |
| :--- | :--- | :--- | :--- | :--- |
| Silicon\tSystems\tGroup | $1,295 | 55% | $705 | 44% |
| Applied\tGlobal\tServices | 591 | 25% | 580 | 36% |
| Display | 361 | 15% | 206 | 13% |
| Energy\tand\tEnvironmental\tSolutions | 125 | 5% | 115 | 7% |
| Total | $2,372 | 100% | $1,606 | 100% |

Applied's	backlog	on	any	particular	date	is	not	necessarily	indicative	of	actual	sales	for	any	future	periods,	due	to	the	potential	for	customer	changes	in	delivery schedules	or	cancellation	of	orders.	Customers	may	delay	delivery	of	products	or	cancel	orders	prior	to	shipment,	subject	to	possible	cancellation	penalties.	Delays	in delivery	schedules	and/or	a	reduction	of	backlog	during	any	particular	period	could	have	a	material	adverse	effect	on	Applied's	business	and	results	of	operations.

# Manufacturing,	Raw	Materials	and	Supplies

Applied's	manufacturing	activities	consist	primarily	of	assembly,	test	and	integration	of	various	proprietary	and	commercial	parts,	components	and	subassemblies (collectively,	parts)	that	are	used	to	manufacture	systems.	Applied	has	implemented	a	distributed	manufacturing	model	under	which	manufacturing	and	supply	chain activities	are	conducted	in	various	countries,	including	the	United	States,	Europe,	Israel,	Singapore,	Taiwan,	and	other	countries	in	Asia,	and	assembly	of	some	systems is	completed	at	customer	sites.	Applied	uses	numerous	vendors,	including	contract	manufacturers,	to	supply	parts	and	assembly	services	for	the	manufacture	and	support of	its	products.	Although	Applied	makes	reasonable	efforts	to	assure	that	parts	are	available	from	multiple	qualified	suppliers,	this	is	not	always	possible.	Accordingly, some	key	parts	may	be	obtained	from	only	a	single	supplier	or	a	limited	group	of	suppliers.	Applied	seeks	to	reduce	costs	and	to	lower	the	risks	of	manufacturing	and service	interruptions	by:	(1)	selecting	and	qualifying	alternate	suppliers	for	key	parts;	(2)	monitoring	the	financial	condition	of	key	suppliers;	(3)	maintaining	appropriate inventories	of	key	parts;	(4)	qualifying	new	parts	on	a	timely	basis;	and	(5)	locating	certain	manufacturing	operations	in	close	proximity	to	suppliers	and	customers.

# Research,	Development	and	Engineering

Applied's	long-term	growth	strategy	requires	continued	development	of	new	products.	The	Company's	significant	investment	in	research,	development	and engineering	(RD&E)	has	generally	enabled	it	to	deliver	new	products	and	technologies	before	the	emergence	of	strong	demand,	thus	allowing	customers	to	incorporate these	products	into	their	manufacturing	plans	at	an	early	stage	in	the	technology	selection	cycle.	Applied	works	closely	with	its	global	customers	to	design	systems	and processes	that	meet	their	planned	technical	and	production	requirements.	Product	development	and	engineering	organizations	are	located	primarily	in	the	United	States, as	well	as	in	Europe,	Israel,	Taiwan,	and	China.	In	addition,	Applied	outsources	certain	RD&E	activities,	some	of	which	are	performed	outside	the	United	States, primarily	in	India.	Process	support	and	customer	demonstration	laboratories	are	located	in	the	United	States,	China,	Taiwan,	Europe,	and	Israel.

Applied's	investments	in	RD&E	for	product	development	and	engineering	programs	to	create	or	improve	products	and	technologies	over	the	last	three	years	were as	follows:	$1.3	billion	(18	percent	of	net	sales)	in	fiscal	2013,	$1.2	billion	(14	percent	of	net	sales)	in	fiscal	2012,	and	$1.1	billion	(11	percent	of	net	sales)	in	fiscal	2011. Applied	has	spent	an	average	of	14	percent	of	net	sales	in	RD&E	over	the	last	five	years.	In	addition	to	RD&E	for	specific	product	technologies,	Applied	maintains ongoing	programs	for	automation	control	systems,	materials	research,	and	environmental	control	that	are	applicable	to	its	products.

# Marketing	and	Sales

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

|  |  |  | (In	millions,	except	percentages) | (In	millions,	except	percentages) |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Taiwan | $2,640 | 35% | $2,411 | 28% | $2,093 | 20% |
| China | 787 | 11% | 783 | 9% | 2,574 | 24% |
| Korea | 924 | 12% | 1,897 | 22% | 1,263 | 12% |
| Japan | 685 | 9% | 704 | 8% | 912 | 9% |
| Southeast\tAsia | 320 | 4% | 312 | 3% | 592 | 5% |
| Asia\tPacific | 5,356 | 71% | 6,107 | 70% | 7,434 | 70% |
| United\tStates | 1,473 | 20% | 1,749 | 20% | 1,963 | 19% |
| Europe | 680 | 9% | 863 | 10% | 1,120 | 11% |
| Total | $7,509 | 100% | $8,719 | 100% | $10,517 | 100% |

Because	of	the	highly	technical	nature	of	its	products,	Applied	markets	and	sells	products	worldwide	almost	entirely	through	a	direct	sales	force.	Approximately 80	percent	of	Applied's	fiscal	2013	net	sales	were	to	regions	outside	of	the	United	States.

General	economic	conditions	 impact	Applied's	business	and	financial	results.	From	 time	 to	 time,	 the	markets	 in	which	products	are	sold	experience	weak economic	conditions	that	may	negatively	impact	sales.	Applied's	business	is	usually	not	seasonal	in	nature,	but	it	is	highly	cyclical,	based	on	capital	equipment investment	by	major	semiconductor,	flat	panel	display,	solar	PV	and	other	manufacturers.	Customers'	expenditures	depend	on	many	factors,	including:	anticipated market	demand	and	pricing	for	semiconductors,	display,	solar	cells	and	modules,	and	other	substrates;	 the	development	of	new	 technologies;	customers'	factory utilization;	capital	resources	and	financing;	government	policies	and	incentives;	and	global	and	regional	economic	conditions.

Information	 on	 net	 sales	 to	 unaffiliated	 customers	 and	 long-lived	 assets	 attributable	 to	Applied's	 geographic	 regions	 is	 included	 in	 Note	 16	 of	 Notes	 to Consolidated	Financial	Statements.	The	following	companies	accounted	for	at	least	10	percent	of	Applied's	net	sales	in	2013,	2012,	and	2011,	which	were	for	products	in multiple	reportable	segments.

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Taiwan\tSemiconductor\tManufacturing\tCompany\tLimited | 27% | 16% | 10% |
| Samsung\tElectronics\tCo.,\tLtd. | 13% | 20% | 12% |
| Intel\tCorporation | * | * | 10% |

* Less	than

# Competition

The	industries	in	which	Applied	operates	are	highly	competitive	and	characterized	by	rapid	technological	change.	Applied's	ability	to	compete	generally	depends on	its	ability	to	timely	commercialize	its	technology,	continually	improve	its	products,	and	develop	new	products	that	meet	constantly	evolving	customer	requirements. Significant	competitive	factors	include	technical	capability	and	differentiation,	productivity	and	cost-effectiveness.	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.	Substantial competition	exists	in	all	areas	of	Applied's	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.	Applied's	ability	to	compete	requires	a	high	level	of	investment	in	RD&E,	marketing	and sales,	and	global	customer	support	activities.	Management	believes	that	many	of	Applied's	products	have	strong	competitive	positions.

# The	competitive	environment	for	each	segment	is	described	below.

The	semiconductor	industry	has	been	increasingly	driven	by	consumer	demand	for	lower-cost	electronic	products	with	increased	capability.	As	a	result,	products within	the	Silicon	Systems	Group	segment	are	subject	to	significant	changes	in	customer	requirements,	including	transitions	to	smaller	dimensions,	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	approach.	The	rapid	pace	of	technological	change	can	quickly	diminish	the	value	of	current	technologies	and	products	and	create	opportunities	for	existing and	new	competitors.	Applied	offers	a	variety	of	technologically	differentiated	products	that	must	continuously	evolve	to	satisfy	customers'	requirements	in	order	to compete	effectively.	Applied	allocates	resources	among	its	numerous	product	offerings	and	therefore	may	decide	not	to	invest	in	an	individual	product	to	the	same degree	as	competitors	who	specialize	in	fewer	products.	There	are	a	number	of	competitors	serving	the	semiconductor	manufacturing	equipment	industry,	with	some offering	a	single	product	line	and	others	offering	multiple	product	lines.	These	competitors	range	from	suppliers	serving	a	single	region	to	global,	diversified	companies. The	competitive	environment	for	the	Silicon	Systems	Group	in	fiscal	2013	reflected	continued	investment	in	the	semiconductor	industry	driven	by	capacity	demand	for mobile	computing.	Foundry	customers	led	capacity	additions	for	advanced	technology	nodes	and	were	the	primary	drivers	for	net	sales	of	the	Silicon	Systems	Group	in fiscal	2013.

Products	and	services	within	the	Applied	Global	Services	segment	complement	the	Silicon	Systems	Group,	Display,	and	Energy	and	Environmental	Solutions segments'	products,	 in	markets	 that	are	characterized	by	demanding	worldwide	service	requirements	and	a	diverse	group	of	numerous	competitors.	To	compete effectively,	Applied	offers	products	and	services	to	improve	tool	performance,	lower	overall	cost	of	ownership,	and	increase	the	productivity	and	energy	efficiency	of customers'	fab	operations.	Significant	competitive	factors	include	productivity,	cost-effectiveness,	and	the	level	of	technical	service	and	support.	The	importance	of these	factors	varies	according	to	customers'	needs	and	the	type	of	products	or	services	offered.	Industry	conditions	that	affected	Applied	Global	Services'	sales	of	spares and	services	in	fiscal	2013	were	principally	semiconductor	manufacturers'	wafer	starts	and	factory	utilization	rates.

Products	in	the	Display	segment	are	generally	subject	to	strong	competition	from	a	number	of	major	competitors	primarily	in	Asia.	Applied	holds	established market	positions	with	its	technically-differentiated	LCD	and	OLED	manufacturing	solutions	for	PECVD,	color	filter	PVD,	PVD	array,	PVD	touch	panel,	and	TFT	array testing,	although	its	market	position	could	change	quickly	due	to	customers'	evolving	requirements.	The	competitive	environment	for	the	Display	segment	in	fiscal	2013 was	characterized	by	a	recovery	in	demand	for	TV	manufacturing	equipment	compared	to	weak	industry	levels	the	prior	year,	while	demand	continued	for	equipment	to make	touch	screen	and	high-end	mobile	devices.	Important	factors	affecting	the	competitive	position	of	Applied's	Display	products	include:	industry	trends,	Applied's ability	to	innovate	and	develop	new	products,	and	the	extent	to	which	Applied's	products	are	technically-differentiated,	as	well	as	which	customers	within	a	highly concentrated	customer	base	are	making	capital	equipment	investments	and	Applied's	existing	position	at	these	customers.

Applied's	products	within	the	Energy	and	Environmental	Solutions	segment	compete	in	several	diverse	market	areas,	including	primarily	the	c-Si	solar	equipment market.	The	solar	equipment	market	is	characterized	by	significant	pressure	to	reduce	customers'	overall	production	costs	and	improve	performance.	In	fiscal	2013, while	solar	end-market	demand	continued	to	be	robust	as	the	industry	further	reduced	manufacturing	costs	and	made	conversion	efficiency	improvements,	enabling	PV- generated	electricity	to	reach	parity	with	retail	electricity	rates	in	an	increasing	number	of	areas	around	the	world,	investment	levels	in	capital	equipment	remained depressed.	Global	solar	PV	production	capacity	exceeds	end-demand,	resulting	in	a	continued	challenging	environment	and	causing	solar	cell	and	wafering	customers	to defer	purchases	of	new	capacity	to	preserve	capital.	The	rationalization	of	capacity	will	be	an	important	factor	in	determining	when	supply	and	demand	come	back	into balance.	Adding	to	market	uncertainty	are	international	trade	actions	against	Chinese	solar	manufacturers	commenced	in	the	U.S.	and	other	regions	that	have	resulted	in the	imposition	of	some	import	sanctions,	with	others	still	under	consideration.	With	respect	to	its	c-Si	equipment	products,	Applied	competes	with	a	number	of	other companies,	some	of	which	have	significant	experience	with	solar	applications	and	some	of	which	are	new	entrants	to	the	solar	equipment	market.	The	solar	industry downturn	has	affected	many	of	Applied's	competitors	and	customers	adversely,	with	some	companies	going	through	extensive	financial	and	organizational	restructuring, and	in	some	instances	ceasing	operations.

# Patents	and	Licenses

Management	believes	that	Applied's	competitive	position	significantly	depends	upon	the	Company's	research,	development,	engineering,	manufacturing	and marketing	capabilities,	and	not	just	on	its	patent	position.	However,	protection	of	Applied's	technological	assets	through	enforcement	of	its	intellectual	property	rights, including	patents,	is	important.	Therefore,	Applied's	practice	is	to	file	patent	applications	in	the	United	States	and	other	countries	for	inventions	that	Applied	considers significant.	Applied	has	approximately	10,400	patents	in	the	United	States	and	other	countries,	and	additional	applications	are	pending	for	new	inventions.	Although Applied	does	not	consider	its	business	materially	dependent	upon	any	one	patent,	the	rights	of	Applied	and	the	products	made	and	sold	under	its	patents,	taken	as	a whole,	are	a	significant	element	of	Applied's	business.	In	addition	to	patents,	Applied	also	possesses	other	intellectual	property,	including	trademarks,	know-how,	trade secrets,	and	copyrights.

Applied	enters	into	patent	and	technology	licensing	agreements	with	other	companies	when	management	determines	that	it	is	in	Applied's	best	interest	to	do	so. Applied	pays	royalties	under	existing	patent	license	agreements	for	the	use,	in	several	of	its	products,	of	certain	patented	technologies.	Applied	also	receives	royalties from	licenses	granted	to	third	parties.	Royalties	received	from	or	paid	to	third	parties	have	not	been,	and	are	not	expected	to	be,	material	to	Applied's	consolidated	results of	operations.

In	the	normal	course	of	business,	Applied	periodically	receives	and	makes	inquiries	regarding	possible	patent	infringement.	In	responding	to	such	inquiries,	it	may become	necessary	or	useful	for	Applied	to	obtain	or	grant	licenses	or	other	rights.	However,	there	can	be	no	assurance	that	such	licenses	or	rights	will	be	available	to Applied	on	commercially	reasonable	terms,	or	at	all.	If	Applied	is	not	able	to	resolve	or	settle	claims,	obtain	necessary	licenses	on	commercially	reasonable	terms, and/or	successfully	prosecute	or	defend	its	position,	Applied's	business,	financial	condition	and	results	of	operations	could	be	materially	and	adversely	affected.

# Environmental	Matters

Applied	maintains	a	number	of	environmental,	health,	and	safety	programs	that	are	primarily	preventive	in	nature.	As	part	of	these	programs,	Applied	regularly monitors	ongoing	compliance	with	applicable	laws	and	regulations.	In	addition,	Applied	has	trained	personnel	to	conduct	investigations	of	any	environmental,	health,	or safety	incidents,	including,	but	not	limited	to,	spills,	releases,	or	possible	contamination.

Compliance	with	federal,	state	and	local	environmental,	health,	and	safety	provisions,	including,	but	not	limited	to,	those	regulating	the	discharge	of	materials	into the	environment,	remedial	agreements,	and	other	actions	relating	to	the	environment	have	not	had,	and	are	not	expected	to	have,	a	material	effect	on	Applied's	capital expenditures,	competitive	position,	financial	condition,	or	results	of	operations.

The	most	recent	report	on	Applied's	environmental,	health,	and	safety	activities	can	be	found	in	the	Company's	latest	Citizenship	Report	on	its	website	at http://www.appliedmaterials.com/about/cr/sustainability.	The	Citizenship	Report	is	updated	periodically.	This	website	address	is	intended	to	be	an	inactive	textual reference	only.	None	of	the	information	on,	or	accessible	through,	Applied's	website	is	part	of	this	Form	10-K	or	is	incorporated	by	reference	herein.

# Employees

At	October	27,	2013,	Applied	employed	approximately	13,700	regular	employees	and	800	temporary	employees.	In	the	high-technology	industry,	competition	for highly-skilled	employees	is	intense.	Applied	believes	that	its	future	success	is	highly	dependent	upon	its	continued	ability	to	attract,	retain,	and	motivate	qualified employees.	There	can	be	no	assurance	that	Applied	will	be	able	to	attract,	hire,	assimilate,	motivate,	and	retain	a	sufficient	number	of	qualified	employees.

# Executive	Officers	of	the	Registrant

The	following	table	and	notes	set	forth	information	about	Applied's	executive	officers	as	of	October	27,	2013:

(1) Mr.	Splinter,	age	63,	has	been	Executive	Chairman	of	the	Board	of	Directors	of	Applied	since	September	2013	and	Chairman	of	the	Board	of	Directors	since March	2009.	Mr.	Splinter	served	as	Chief	Executive	Officer	of	Applied	from	April	2003	until	September	2013,	and	as	President	from	April	2003	to	June	2012. Prior	to	joining	Applied,	Mr.	Splinter	was	an	executive	at	Intel	Corporation,	a	manufacturer	of	chips	and	computer,	networking	and	communications	products, where	he	held	a	number	of	positions,	including	Executive	Vice	President	and	Director	of	Sales	and	Marketing,	and	Executive	Vice	President	and	General Manager	of	the	Technology	and	Manufacturing	Group.

(2) Mr.	Dickerson,	age	56,	has	been	Chief	Executive	Officer	and	member	of	the	Board	of	Directors	of	Applied	since	September	2013.	Mr.	Dickerson	was	named President	of	Applied	in	June	2012,	after	joining	Applied	following	its	acquisition	of	Varian	in	November	2011.	Mr.	Dickerson	had	served	as	Chief	Executive Officer	and	a	director	of	Varian	since	2004.	Prior	to	joining	Varian	in	2004,	Mr.	Dickerson	served	18	years	with	KLA-Tencor	Corporation	(KLA-Tencor),	a supplier	of	process	control	and	yield	management	solutions	for	the	semiconductor	and	related	industries,	where	he	held	a	variety	of	operations	and	product development	roles	before	being	appointed	Chief	Operating	Officer	in	1999	and	then	President	and	Chief	Operating	Officer	in	2002.	Mr.	Dickerson	started	his semiconductor	career	in	manufacturing	and	engineering	management	at	General	Motors'	Delco	Electronics	Division	and	then	AT&T,	Inc.

(3) Dr.	Thakur,	age	51,	has	been	Executive	Vice	President,	General	Manager	Silicon	Systems	Group	since	December	2009,	after	serving	as	Senior	Vice	President, General	Manager	Silicon	Systems	Group	since	October	2009.	Previously,	he	was	Senior	Vice	President,	General	Manager,	Thin	Film	Solar	and	Display.	He was	appointed	Senior	Vice	President,	General	Manager,	Strategic	Operations	when	he	rejoined	Applied	in	May	2008.	He	previously	was	with	Applied	from 2000	to	2005	in	a	variety	of	executive	roles	including	Group	Vice	President,	General	Manager	for	Front	End	Products.	From	September	2005	to	May	2008, Dr.	Thakur	served	as	Executive	Vice	President	of	Technology	and	Fab	Operations	at	SanDisk	Corporation,	a	data	storage	solutions	manufacturer,	and	as	head of	SanDisk's	worldwide	operations.

(4) Mr.	Halliday,	age	59,	has	been	Senior	Vice	President,	Chief	Financial	Officer	of	Applied	since	February	2013.	Mr.	Halliday	previously	served	as	a	group	vice president	and	general	manager	in	Applied's	Silicon	Systems	Group	segment	following	the	completion	of	Applied's	acquisition	of	Varian	in	November	2011. Mr.	Halliday	had	served	as	Chief	Financial	Officer	of	Varian	since	2001	and	as	an	Executive	Vice	President	of	Varian	since	2004.	Mr.	Halliday	served	as Varian's	Treasurer	from	November	2002	to	October	2006	and	from	February	2009	to	February	2010.

(5) Ms.	Humiston,	age	48,	has	been	Senior	Vice	President,	Human	Resources,	Communications	and	Public	Affairs	since	February	2013.	She	served	as	Senior	Vice President,	Global	Human	Resources	from	July	2011	to	February	2013;	Group	Vice	President,	Global	Human	Resources	from	July	2010	to	July	2011;	and Corporate	Vice	President,	Global	Human	Resources	from	June	2009	to	June	2010.	Prior	to	June	2009,	she	served	as	the	Corporate	Vice	President	of	Human Resources	for	both	the	Energy	and	Environmental	Solutions	and	Display	groups.	Prior	to	joining	Applied,	Ms.	Humiston	was	Vice	President	of	Human Resources	at	Honeywell	International	Inc.	(Honeywell),	a	diversified	global	technology	and	manufacturing	company,	from	October	2002	to	June	2008,	with responsibility	for	various	corporate	and	international	organizations.

(6) Mr.	Larkins,	age	52,	has	been	Senior	Vice	President,	General	Counsel	and	Corporate	Secretary	of	Applied	since	November	2012.	 Previously,	Mr.	Larkins	was employed	by	Honeywell,	where	he	was	Vice	President,	Corporate	Secretary	and	Deputy	General	Counsel	from	2002	until	joining	Applied.		Mr.	Larkins	served in	various	other	positions	at	Honeywell	(formerly	AlliedSignal)	after	joining	the	company	in	1997.

(7) Dr.	Nalamasu,	age	55,	has	been	Senior	Vice	President,	Chief	Technology	Officer	since	June	2013,	and	had	served	as	Group	Vice	President,	Chief	Technology Officer	from	January	2012	to	June	2013,	and	as	Corporate	Vice	President,	Chief	Technology	Officer	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	Officer	and General	Manager	for	the	Advanced	Technologies	Group.	From	2002	to	2006,	Dr.	Nalamasu	was	a	NYSTAR	distinguished	professor	of	Materials	Science	and Engineering	at	Rensselaer	Polytechnic	Institute,	where	he	also	served	as	Vice	President	of	Research	from	2005	to	2006.

(8) Mr.	Salehpour,	age	52,	has	been	Senior	Vice	President,	General	Manager	Applied	Global	Services	and	Growth	Markets	since	September	2013.	He	previously served	as	Group	Vice	President,	General	Manager	Energy	and	Environmental	Solutions	and	Display	Business	Groups,	since	joining	Applied	in	November 2012.	Prior	to	Applied,	Mr.	Salehpour	worked	at	KLA-Tencor	for	16	years,	where	he	served	most	recently	as	Senior	Vice	President	and	General	Manager	SFS- ADE	Divisions	from	2008.

(9) Mr.	Kerley,	age	47,	has	been	Group	Vice	President,	Chief	Information	Officer	since	March	2013.	Mr.	Kerley	joined	Applied	in	2006,	and	has	served	as	Chief Information	Officer	since	October	2011.	Mr.	Kerley	has	more	than	20	years	of	information	technology	(IT)	experience	in	various	industries,	leading	IT transformation	and	globalization.

(10)Mr.	Read,	age	47,	has	been	Corporate	Vice	President,	Corporate	Controller	and	Chief	Accounting	Officer	of	Applied	since	joining	the	Company	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.

# Available	Information

Applied's	website	is	http://www.appliedmaterials.com.	Applied	makes	available	free	of	charge,	on	or	through	its	website,	its	annual,	quarterly	and	current	reports, and	any	amendments	to	those	reports,	as	soon	as	reasonably	practicable	after	electronically	filing	such	reports	with,	or	furnishing	them	to,	the	SEC.	This	website	address is	intended	to	be	an	inactive	textual	reference	only.	None	of	the	information	on,	or	accessible	through,	Applied's	website	is	part	of	this	Form	10-K	or	is	incorporated	by reference	herein.

# Item	1A: Risk	Factors

The	following	factors	could	materially	and	adversely	affect	Applied's	business,	financial	condition	or	results	of	operations	and	cause	reputational	harm,	and	they should	be	carefully	considered	in	evaluating	the	Company	and	its	business,	in	addition	to	other	information	presented	elsewhere	in	this	report.

# The	industries	that	Applied	serves	are	volatile	and	difficult	to	predict.

As	a	supplier	to	the	global	semiconductor,	flat	panel	display,	and	solar	industries,	Applied	is	subject	to	business	cycles,	the	timing,	length	and	volatility	of	which can	be	difficult	to	predict	and	which	vary	by	reportable	segment.	These	industries	historically	have	been	cyclical	due	to	sudden	changes	in	customers'	requirements	for new	manufacturing	capacity	and	advanced	technology,	which	depend	in	part	on	customers'	capacity	utilization,	production	volumes,	access	to	affordable	capital,	end- use	demand,	consumer	buying	patterns,	and	inventory	levels	relative	to	demand,	as	well	as	the	rate	of	technology	transitions	and	general	economic	conditions.	These changes	have	affected	the	timing	and	amounts	of	customers'	purchases	and	investments	in	technology,	and	continue	to	affect	Applied's	orders,	net	sales,	operating expenses	and	net	income.

To	meet	rapidly	changing	demand	in	the	industries	it	serves,	Applied	must	accurately	forecast	demand	and	effectively	manage	its	resources	and	production capacity	for	each	of	its	segments	as	well	as	across	multiple	segments,	and	may	incur	unexpected	or	additional	costs	to	align	its	business	operations.	During	periods	of increasing	demand	for	its	products,	Applied	must	have	sufficient	manufacturing	capacity	and	inventory	to	meet	customer	demand;	effectively	manage	its	supply	chain; attract,	retain	and	motivate	a	sufficient	number	of	qualified	employees;	and	continue	to	control	costs.	During	periods	of	decreasing	demand,	Applied	must	reduce	costs and	align	its	cost	structure	with	prevailing	market	conditions;	effectively	manage	its	supply	chain;	and	motivate	and	retain	key	employees.

# Applied	is	exposed	to	risks	associated	with	the	uncertain	global	economy.

Uncertain	global	economic	conditions	and	weak	or	moderate	growth	in	China,	Europe,	and	the	United	States,	along	with	uncertainties	in	the	financial	markets, national	debt	and	fiscal	concerns	in	various	regions,	and	government	austerity	measures,	are	posing	challenges	to	the	industries	in	which	Applied	operates.	The	markets for	semiconductors	and	flat	panel	displays	in	particular	depend	largely	on	consumer	spending,	while	the	solar	market	depends	in	part	on	government	incentives	and	the availability	of	financing	for	PV	installations.	Economic	uncertainty	and	related	factors	exacerbate	negative	trends	in	business	and	consumer	spending	and	may	cause certain	Applied	customers	to	push	out,	cancel,	or	refrain	from	placing	orders	for	equipment	or	services,	which	may	in	turn	reduce	Applied's	net	sales,	reduce	backlog, and	affect	Applied's	ability	to	convert	backlog	to	sales.	Uncertain	market	conditions,	difficulties	in	obtaining	capital,	or	reduced	profitability	may	also	cause	some customers	to	scale	back	operations,	exit	businesses,	merge	with	other	manufacturers,	or	file	for	bankruptcy	protection	and	potentially	cease	operations,	which	can	also result	in	lower	sales	and/or	additional	inventory	or	bad	debt	expense	for	Applied.	These	conditions	may	similarly	affect	key	suppliers,	which	could	impair	their	ability	to deliver	parts	and	result	in	delays	for	Applied's	products	or	added	costs.	In	addition,	these	conditions	may	lead	to	strategic	alliances	by,	or	consolidation	of,	other equipment	manufacturers,	which	could	adversely	affect	Applied's	ability	to	compete	effectively.

Uncertainty	about	future	economic	and	industry	conditions	also	makes	it	more	challenging	for	Applied	to	forecast	its	operating	results,	make	business	decisions, and	identify	and	prioritize	the	risks	that	may	affect	its	businesses,	sources	and	uses	of	cash,	financial	condition	and	results	of	operations.	Applied	may	be	required	to implement	additional	cost	reduction	efforts,	including	restructuring	activities,	which	may	adversely	affect	Applied's	ability	to	capitalize	on	opportunities.	In	addition, Applied	maintains	an	investment	portfolio	that	is	subject	to	general	credit,	liquidity,	foreign	exchange,	market	and	interest	rate	risks.	The	risks	to	Applied's	investment portfolio	may	be	exacerbated	if	financial	market	conditions	deteriorate	and,	as	a	result,	the	value	and	liquidity	of	the	investment	portfolio,	as	well	as	returns	on	pension assets,	could	be	negatively	impacted	and	lead	to	impairment	charges.	Applied	also	maintains	cash	balances	in	various	bank	accounts	globally	in	order	to	fund	normal operations.	If	any	of	these	financial	institutions	becomes	insolvent,	it	could	limit	Applied's	ability	to	access	cash	in	the	affected	accounts.

# Applied	is	exposed	to	risks	as	a	result	of	ongoing	changes	in	the	various	industries	in	which	it	operates.

The	global	semiconductor,	flat	panel	display,	solar	and	related	industries	in	which	Applied	operates	are	characterized	by	ongoing	changes	affecting	some	or	all	of these	industries	that	impact	demand	for	and/or	the	profitability	of	Applied's	products,	including:

•the	nature,	timing	and	degree	of	visibility	of	changes	in	end	demand	for	electronic	products,	including	those	related	to	fluctuations	in	consumer	buying	patterns tied	to	seasonality	or	the	introduction	of	new	products,	and	the	effects	of	these	changes	on	foundry	and	other	customers'	businesses	and,	in	turn,	on	demand	for Applied's	products;

•increasing	capital	requirements	for	building	and	operating	new	fabrication	plants	and	customers'	ability to	raise the	necessary capital;

•differences in growth rates among the semiconductor, display and solar industries;

•the	 increasing importance of establishing, improving and	 maintaining strong relationships	 with customers;

•the	 increasing	 cost	 and	 complexity for	 customers to	 move from	 product	 design to	 volume	 manufacturing,	 which	 may	 slow the	 adoption rate	 of	 new manufacturing	technology;

•the	need	to	continually	reduce	the	total	cost	of	manufacturing	system	ownership,	due	in	part	to	greater	demand	for	lower-cost	consumer	electronics	compared	to business	information	technology	spending;

•the	heightened	importance	to	customers	of	system	reliability	and	productivity	and	the	effect	on	demand	for	fabrication	systems	as	a	result	of	their	increasing productivity,	device	yield	and	reliability;

•manufacturers' ability to reconfigure and re-use fabrication systems;

•the	 increasing importance	 of,	 and	 difficulties in,	 developing	 products	 with sufficient	 differentiation to influence	 customers'	 purchasing decisions;

•requirements for shorter cycle times for the development,	 manufacture and installation of	 manufacturing equipment;

•price	 and	 performance trends	 for	 semiconductor	 devices,	 displays	 and	 solar	 PVs,	 and the	 corresponding	 effect	 on	 demand	 for	 such products;

•the	 increasing importance	 of the	 availability	 of	 spare	 parts to	 maximize the time that	 customers'	 systems	 are	 available for production;

•the	 increasing role for and complexity of software in Applied products;	and

•the	 increasing focus	 on reducing	 energy	 usage	 and improving the	 environmental impact	 and sustainability	 associated	 with	 manufacturing operations.

# Applied	is	exposed	to	risks	as	a	result	of	ongoing	changes	specific	to	the	semiconductor	industry.

The	largest	proportion	of	Applied's	consolidated	net	sales	and	profitability	has	been	and	continues	to	be	derived	from	sales	of	manufacturing	equipment	by	the Silicon	Systems	Group	to	the	global	semiconductor	industry.	In	addition,	a	majority	of	the	revenues	of	Applied	Global	Services	is	from	sales	of	service	products	to semiconductor	manufacturers.	The	semiconductor	industry	is	characterized	by	ongoing	changes	particular	to	this	industry	that	impact	demand	for	and/or	the	profitability of	Applied's	semiconductor	equipment	and	service	products,	including:

•the	increasing	cost	of	research	and	development	due	to	many	factors,	including:	decreasing	linewidths	on	a	chip,	the	use	of	new	materials,	new	and	more complex	 device	 structures,	 more	 applications	 and	 process	 steps,	 increasing	 chip	 design	 costs,	 and	 the	 increasing	 cost	 and	 complexity	 of	 integrated manufacturing	processes;

•the	 need to reduce product development time, despite the increasing difficulty of technical challenges;

•the	growing	number	of	types	and	varieties	of	semiconductors	and	number	of	applications	across	multiple	substrate sizes;

•the	 increasing	 cost	 and	 complexity	 for	 semiconductor	 manufacturers	 to	 move	 more	 technically	 advanced	 capability	 and	 smaller linewidths to	 volume manufacturing,	and	the	resulting	impact	on	the	rates	of	technology	transition	and	investment	in	capital	equipment;

•challenges	in	generating	organic	growth	given	semiconductor	manufacturers'	levels	of	capital	expenditures	and	the	allocation	of	capital	investment	to	market segments	that	Applied	does	not	serve,	such	as	lithography,	or	segments	where	Applied's	products	have	lower	relative	market	presence;

•the	 importance of increasing	 market positions in under-penetrated segments, such as etch and inspection;

•the	growing	demand	for	mobility	products,	such	as	tablets	and	smartphones,	and	corresponding	industry	investment	in	devices	that	require	fewer	Applied products	to	manufacture,	such	as	NAND	flash	memory,	than	are	needed	to	make	devices	used	in	other	applications,	such	as	DRAM	for	personal	computers;

•the	adoption	of	cloud-based	memory	storage	particularly	for	mobility	products,	and	the	associated	inhibiting	effect	on	NAND	bit	growth rates;

•the	increasing	frequency	and	complexity	of	technology	transitions	and	inflections,	such	as	3-D	transistors	and	advanced	interconnects,	and	Applied's	ability	to timely	and	effectively	anticipate	and	adapt	to	these	changes;

•shorter	 cycle	 times	 between	 order	 placements	 by	 customers	 (particularly	 foundries)	 and	 product	 shipment,	 which	 may lead to inventory	 write-offs	 and manufacturing	inefficiencies	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;

•shifts	 in sourcing strategies	 by	 computer	 and	 electronics	 companies that impact the	 equipment requirements	 of	 Applied's foundry customers;

•the	concentration	of	new	wafer	starts	in	Korea	and	Taiwan,	where	Applied's	service	penetration	and	service-revenue-per-wafer-start	have	been	lower	than	in other	regions;	and

•the	increasing	fragmentation	of	semiconductor	markets,	leading	certain	markets	to	become	too	small	to	support	the	cost	of	a	new	fabrication	plant,	while	others require	less	technologically	advanced	products.

Applied	must	accurately	forecast,	and	allocate	appropriate	resources	and	investment	towards	addressing,	key	technology	changes	and	inflections,	such	as	the transition	to	20nm	devices,	in	order	to	enable	opportunities	for	gains.	In	addition,	the	industry	transition	from	300mm	to	450mm	wafers	presents	opportunities	as	well	as risks	and	uncertainties,	including	those	related	to	cost,	technical	complexity,	timing,	and	the	resulting	effect	on	demand	for	manufacturing	equipment	and	services. Several	semiconductor	customers	have	invested	in	another	wafer	fabrication	equipment	supplier	to	help	fund	development	of	450mm	and	other	new	technologies,	which may	influence	the	timing	of	technology	transitions,	funding	allocations	or	other	matters.

# Applied	is	exposed	to	risks	as	a	result	of	ongoing	changes	specific	to	the	flat	panel	display	industry.

The	global	flat	panel	display	industry	historically	has	experienced	considerable	volatility	in	capital	equipment	investment	levels,	due	in	part	to	the	limited	number of	display	manufacturers,	the	concentrated	nature	of	end-use	applications,	excess	production	capacity	relative	to	end-use	demand,	and	panel	manufacturer	profitability. Industry	growth	has	depended	primarily	on	consumer	demand	for	increasingly	larger	and	more	advanced	TVs	and,	more	recently,	on	demand	for	smartphones	and	other mobile	devices,	which	demand	is	highly	sensitive	to	cost	and	improvements	in	technologies	and	features.	The	display	industry	is	characterized	by	ongoing	changes particular	to	this	industry	that	impact	demand	for	and/or	the	profitability	of	Applied's	display	products,	including:

•the	timing	and	extent	of	an	expansion	of	manufacturing	facilities	in	China	by	Chinese	display	manufacturers	and	manufacturers	from	other	countries,	and	the ability	of	non-Chinese	manufacturers	to	obtain	government	approvals	on	a	timely	basis;

•the	rate	of	transition	to	larger	substrate	sizes	for	TVs	and	the	resulting	effect	on	capital	intensity	in	the	industry	and	on	Applied's	product	differentiation,	gross margin	and	return	on	investment;

•the	importance	of	new	types	of	display	technologies,	such	as	low	temperature	polysilicon	(LTPS),	organic	light-emitting	diode	(OLED)	and	metal	oxide,	and new	touch	panel	films,	such	as	anti-reflective	and	anti-fingerprint;	and

•uncertainty	 with respect to future	 display technology end-use applications and	 growth drivers.

# Applied	is	exposed	to	risks	as	a	result	of	ongoing	changes	specific	to	the	solar	industry.

Investment	levels	in	capital	equipment	for	the	global	solar	industry	have	experienced	considerable	volatility.	In	recent	years,	global	solar	PV	production	capacity has	exceeded	end-use	demand,	causing	customers	to	significantly	reduce	or	delay	investments	in	manufacturing	capacity	and	new	technology,	or	to	cease	operations.	The global	solar	market	is	characterized	by	ongoing	changes	specific	to	this	industry	that	impact	demand	for	and/or	the	profitability	of	Applied's	solar	products,	including:

•the	need	to	continually	decrease	the	cost-per-watt	of	electricity	produced	by	solar	PV	products	to	at	or	below	grid	parity	in	more	global	regions	by,	among other	things,	reducing	operating	costs	and	increasing	throughputs	for	solar	PV	manufacturing,	and	improving	the	conversion	efficiency	of	solar	PVs;

•the	variability	and	uncertainty	of	government	energy	policies	and	their	effect	in	influencing	the	rate	of	growth	of	the	solar	PV	market,	including	the	availability and	amount	of	incentives	for	solar	power	such	as	tax	credits,	feed-in	tariffs,	rebates,	renewable	portfolio	standards	that	require	electricity	providers	to	sell	a targeted	amount	of	energy	from	renewable	sources,	and	goals	for	solar	installations	on	government	facilities;

•the	number	of	solar	PV	manufacturers	and	amount	of	global	production	capacity	for	solar	PVs,	primarily	in

China;

•the	filing	of	regulatory	unfair	trade	proceedings	against	solar	PVs	from	China,	where	most	of	Applied's	solar	equipment	sales	are	concentrated,	which	has resulted	in	the	assessment	of	duties	on	solar	cells	and	modules	imported	from	China	and	led	to	other	trade-related	conflicts	and	outcomes;

•the	varying	levels	of	operating	and	industry	experience	among	solar	PV	manufacturers	and	the	resulting	differences	in	the	nature	and	extent	of	customer support	services	requested	from	Applied;

•challenges	associated	with	marketing	and	selling	manufacturing	equipment	and	services	to	a	diverse	and	diffuse	customer base;

•the	 growth	 of	 market segments in	 which	 Applied	 does	 not	 participate, such	 as	 passivation	 and furnaces;

•the	 availability and condition of used solar equipment,	 which impacts demand for new equipment;

•complexities associated	 with	 government-affiliated entities as customers, for example in China;

•the	financial	condition	of	solar	PV	customers	and	their	access	to	affordable	financing	and	capital;

•solar	panel	manufacturing	overcapacity,	which	has	led	to	weak	industry	operating	performance	and	outlooks,	deterioration	of	the	solar	equipment	market,	and	a worsening	of	the	financial	condition	of	certain	customers.

# Applied	must	continually	innovate,	commercialize	its	products,	and	adapt	its	business	and	product	offerings	to	respond	to	competition	and	rapid	technological changes.

As	Applied	operates	in	a	highly	competitive	environment	in	which	innovation	is	critical,	its	future	success	depends	on	many	factors,	including	the	effective commercialization	 and	 customer	 acceptance	 of	 its	 equipment,	 services	 and	 related	 products.	 In	 addition,	Applied	 must	 successfully	 execute	 its	 growth	 strategy, including	enhancing	its	presence	in	existing	markets,	expanding	into	related	markets,	cultivating	new	markets	and	exceeding	industry	growth	rates,	while	constantly improving	its	operational	performance.	The	development,	introduction	and	support	of	a	broadening	set	of	products	in	more	collaborative,	geographically	diverse,	open and	varied	competitive	environments	have	grown	more	complex	and	expensive	over	time.	Furthermore,	new	or	improved	products	may	entail	higher	costs	and	reduced profits.	Applied's	performance	may	be	adversely	affected	if	it	does	not	timely,	cost-effectively	and	successfully:

•identify	and	address	technology	inflections,	market	changes,	new	applications,	customer	requirements	and	end-use	demand;

•develop	new	products	(including	disruptive	technologies),	improve	and/or	develop	new	applications	for	existing	products,	and	adapt	similar	products	for	use	by customers	in	different	applications	and/or	markets	with	varying	technical	requirements;

•differentiate	its	products	from	those	of	competitors	and	any	disruptive	technologies,	meet	customers'	performance	specifications,	appropriately	price	products, and	achieve	market	acceptance;

•maintain	 operating flexibility to enable different responses to different	 markets, customers and applications;

•enhance	its	worldwide	operations	across	all	business	segments	to	reduce	cycle	time,	enable	continuous	quality	improvement,	reduce	costs,	and	enhance	design for	manufacturability	and	serviceability;

•focus	 on	 product	 development and sales and	 marketing strategies that address customers'	 high	 value	 problems and foster strong customer relationships;

•allocate	resources,	including	people	and	R&D	funding,	among	Applied's	products	and	between	the	development	of	new	products	and	the	enhancement	of existing	products,	as	most	appropriate	and	effective	for	future	growth;

•reduce	 the cost and improve the productivity of capital invested in	 R&D activities;

•accurately forecast demand,	 work	 with suppliers and	 meet production schedules for its products;

•improve its	 manufacturing processes and achieve cost efficiencies across product offerings;

•adapt to	changes in	value	offered	by	companies in	different	parts	of the	supply chain;

•qualify	products	for	evaluation	and,	in	turn,	volume	manufacturing	with	its	customers;

•implement	changes	in	its	design	engineering	methodology,	including	those	that	enable	reduction	of	material	costs	and	cycle	time,	greater	commonality	of platforms	and	types	of	parts	used	in	different	systems,	greater	effectiveness	of	product	life	cycle	management,	and	reduced	energy	usage	and	environmental impact.

# Applied	is	exposed	to	risks	associated	with	a	highly	concentrated	customer	base.

Applied's	semiconductor	customer	base	historically	has	been,	and	is	becoming	even	more,	highly	concentrated	as	a	result	of	economic	and	industry	conditions.	In fiscal	2013,	three	semiconductor	manufacturers	accounted	for	approximately	65	percent	of	Silicon	Systems	Group	net	sales	and	two	customers	accounted	for	40	percent of	Applied's	consolidated	net	sales.	Applied's	display	customer	base	is	also	highly	concentrated,	while	concentration	within	Applied's	solar	customer	base	varies depending	on	the	product	line	but	is	increasing	due	to	challenging	industry	conditions.	Applied's	customer	base	is	also	geographically-concentrated.	See	Item	2, "Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations,"	for	tabular	presentations	of	net	sales	by	geographic	region.

In	addition,	certain	customers	have	experienced	significant	ownership	or	management	changes,	consolidated	with	other	manufacturers,	outsourced	manufacturing activities,	or	engaged	in	collaboration	or	cooperation	arrangements	with	other	manufacturers.	Customers	have	entered	into	strategic	alliances	or	industry	consortia	that have	increased	the	influence	of	key	industry	participants	in	technology	decisions	made	by	their	partners.	Also,	certain	customers	are	making	an	increasingly	greater percentage	of	their	respective	industry's	capital	equipment	investments.	Further,	claims	or	litigation	involving	key	industry	participants	have	resulted	and	may	continue to	result	in	changes	in	their	sourcing	strategies	and	other	outcomes.	In	this	environment,	contracts	or	orders	from	a	relatively	limited	number	of	manufacturers	have accounted	for,	and	are	expected	to	continue	to	account	for,	a	substantial	portion	of	Applied's	business.	The	mix	and	type	of	customers,	and	sales	to	any	single	customer, may	vary	significantly	from	quarter	to	quarter	and	from	year	to	year.	If	customers	do	not	place	orders,	or	they	substantially	reduce,	delay	or	cancel	orders,	Applied	may not	 be	 able	 to	 replace	 the	 business.	As	Applied's	 products	 are	 configured	 to	 customer	 specifications,	 changing,	 rescheduling	 or	 canceling	 orders	 may	 result	 in significant,	non-recoverable	costs.	Major	customers	may	also	seek,	and	on	occasion	receive,	pricing,	payment,	intellectual	property-related,	or	other	commercial	terms that	are	less	favorable	to	Applied.

# Applied	is	exposed	to	the	risks	of	operating	a	global	business.

In	fiscal	2013,	approximately	80	percent	of	Applied's	net	sales	were	to	customers	in	regions	outside	the	United	States.	Moreover,	China	now	represents	the	largest market	for	various	electronic	products,	such	as	TVs,	PCs,	and	smartphones.	Certain	of	Applied's	R&D	and	manufacturing	facilities,	as	well	as	suppliers	to	Applied,	are also	located	outside	the	United	States,	including	in	Singapore,	Taiwan,	China,	Korea,	Israel,	Germany	and	Italy.	Applied	is	also	expanding	its	business	and	operations	in new	countries.	The	global	nature	of	Applied's	business	and	operations,	combined	with	the	need	to	continually	improve	the	Company's	operating	cost	structure,	presents challenges,	including	but	not	limited	to	those	arising	from:

•varying regional and geopolitical business conditions and demands;

•political	and	social	attitudes,	laws,	rules,	regulations	and	policies	within	countries	that	favor	domestic	companies	over	non-domestic	companies,	including customer-	or	government-supported	efforts	to	promote	the	development	and	growth	of	local	competitors;

•customer-	or	government-supported	efforts	to	influence	Applied	to	conduct	more	of	its	operations	and	sourcing	in	a	particular	country,	such	as	Korea	and China;

•variations	among,	and	changes	in,	local,	regional,	national	or	international	laws	and	regulations	(including	intellectual	property,	labor,	tax,	and	import/export laws),	as	well	as	the	interpretation	and	application	of	such	laws	and	regulations;

•global	trade	issues,	including	those	related	to	the	interpretation	and	application	of	import	and	export	licenses,	as	well	as	international	trade disputes;

•positions taken	 by	 governmental agencies regarding	 possible	 national commercial and/or security issues	 posed	 by international	 business operations;

•fluctuating raw	 material, commodity, energy and shipping costs	 or shipping delays;

•challenges	associated	with	managing	more	geographically	diverse	operations	and	projects,	which	require	an	effective	organizational	structure	and	appropriate business	processes,	procedures	and	controls;

•a	 more	 diverse	 workforce	 with different experience levels, cultures, customs, business practices and	 worker expectations;

•variations	 in the ability to develop relationships with local customers, suppliers and governments;

•fluctuations	 in	 interest	rates	and	currency	exchange	rates, including the	relative	strength	or	weakness	of the	U.S.	dollar	against the	Japanese	yen,	euro, Taiwanese	dollar,	Israeli	shekel	or	Chinese	yuan;

•the	 need to	 provide	 sufficient levels	 of technical	 support in	 different locations	 around the world;

•political	instability,	natural	disasters	(such	as	earthquakes,	floods	or	storms),	pandemics,	social	unrest,	terrorism	or	acts	of	war	in	locations	where	Applied	has operations,	suppliers	or	sales,	or	that	may	influence	the	value	chain	of	the	industries	that	Applied	serves;

•the	 need for	 an	 effective	 business	 continuity	 plan if	 a	 disaster	 or	 other	 event	 occurs that	 could	 disrupt	 business operations;

•the	 need to regularly reassess the	 size,	 capability	 and location	 of	 global infrastructure	 and	 make	 appropriate changes;

•cultural and language differences;

•difficulties and uncertainties associated with the entry into new countries;

•hiring	and	integration	of	an	increasing	number	of	new	workers,	including	in	countries	such	as	India	and China;

•the	 increasing	 need	 for the	 workforce to	 be	 more	 mobile	 and	 work in	 or travel to	 different regions;

•uncertainties with respect to economic growth rates in various countries;	and

•uncertainties	with	respect	to	growth	rates	for	the	manufacture	and	sale	of	semiconductors,	displays	and	solar	PVs	in	the	developing	economies	of	certain countries.

Many	of	these	challenges	are	present	in	China	and	Korea,	which	are	experiencing	significant	growth	of	customers,	suppliers	and	competitors	to	Applied.	Applied further	believes	that	China	and	Korea	present	large	potential	markets	for	its	products	and	opportunity	for	growth	over	the	long	term,	although	at	lower	projected	levels	of profitability	and	margins	for	certain	products	than	historically	have	been	achieved	in	other	regions.

# Applied	is	exposed	to	risks	associated	with	business	combinations,	acquisitions	and	strategic	investments.

Applied	has	made,	and	in	the	future	may	make,	acquisitions	of	or	investments	in	companies,	technologies	or	products	in	existing,	related	or	new	markets	for Applied.	Business	combinations,	acquisitions	and	investments	involve	numerous	risks	that	vary	depending	on	their	scale	and	nature,	including	but	not	limited	to:

•diversion of management's attention from other operational matters;

•contractual	restrictions	on	the	conduct	of	Applied's	business	during	the	pendency	of	a	proposed	transaction;

•inability	to	complete	proposed	transactions	as	anticipated	or	at	all	and	any	ensuing	obligation	to	pay	a	termination fee;

•the	 failure of acquired businesses to	 meet or exceed expected returns;

•requirements	imposed	by	government	regulators	in	connection	with	their	review	of	a	transaction,	which	may	include,	among	other	things,	divestitures	and/or restrictions	on	the	conduct	of	Applied's	existing	business	or	the	acquired	business;

•ineffective	integration	of	operations,	systems,	technologies,	products	or	employees,	which	can	impact	the	ability	to	realize	anticipated	synergies	or	other benefits;

•failure to commercialize purchased technologies;

•initial dependence on unfamiliar supply chains or relatively small supply partners;

•inability	to	capitalize	on	characteristics	of	new	markets	that	may	be	significantly	different	from	Applied's	existing	markets	and	where	competitors	may	have stronger	market	positions	and	customer	relationships;

•failure to attract, retain and motivate key employees;

•the	potential impact	of the	announcement	or	consummation	of	a	proposed transaction	on	relationships	with third parties;

•potential	changes in	Applied's	credit	rating,	which	could	adversely impact the	Company's	access to	and	cost	of capital;

•reductions	in	cash	balances	and/or	increases	in	debt	obligations	to	finance	activities	associated	with	a	transaction,	which	reduce	the	availability	of	cash	flow	for general	corporate	or	other	purposes;

•exposure	to	new	operational	risks,	rules,	regulations,	worker	expectations,	customs	and	practices	to	the	extent	acquired	businesses	are	located	in	regions	where Applied	has	not	historically	conducted	business;

•challenges	 associated	 with	 managing	 new,	 more	 diverse	 and	 more	 widespread	 operations,	 projects	 and people;

•inability	 to obtain and protect intellectual property rights in key technologies;

•inadequacy	or	ineffectiveness	of	an	acquired	company's	internal	financial	controls,	disclosure	controls	and	procedures,	and/or	environmental,	health	and	safety, anti-corruption,	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	 and/or	 undisclosed	 commitments	 or liabilities; and

•the	 inappropriate	 scale	 of	 acquired	 entities'	 critical resources	 or facilities for	 business needs.

Applied	also	makes	strategic	investments	in	other	companies,	including	companies	formed	as	joint	ventures,	which	may	decline	in	value	and/or	not	meet	desired objectives.	The	success	of	these	investments	depends	on	various	factors	over	which	Applied	may	have	limited	or	no	control	and,	particularly	with	respect	to	joint ventures,	requires	ongoing	and	effective	cooperation	with	strategic	partners.	The	risks	to	Applied's	strategic	investment	portfolio	may	be	exacerbated	by	unfavorable financial	market	and	macroeconomic	conditions	and,	as	a	result,	the	value	of	the	investment	portfolio	could	be	negatively	impacted	and	lead	to	impairment	charges.

# The	proposed	business	combination	with	Tokyo	Electron	Limited	may	not	be	completed	or,	if	completed,	the	intended	benefits	may	not	be	fully	realized.

On	September	24,	2013,	Applied	entered	into	an	agreement	with	Tokyo	Electron	Limited	(TEL),	a	Japanese	corporation	and	global	provider	of	semiconductor,	flat panel	display	and	photovoltaic	panel	production	equipment,	to	effect	a	strategic	combination	of	their	respective	businesses.	The	closing	of	the	transaction	is	subject	to customary	conditions,	including	approval	by	Applied's	and	TEL's	shareholders	and	regulatory	approvals.	The	proposed	business	combination	is	subject	to	the	risk factors	described	immediately	above,	including	the	risks	that	the	combination	may	not	be	consummated	in	a	timely	manner	or	at	all;	that	required		regulatory	approvals may	not	be	obtained	or	may	be	subject	to	conditions	that	reduce	the	estimated	benefits	of	the	combination;	that	the	businesses	and	operations	of	Applied	and	TEL	may not	be	integrated	successfully;	and,	following	completion	of	the	transaction,	that	the	inability	to	effectively	integrate	operations,	systems,	technologies,	products	or employees,	or	other	factors,	may	impact	the	combined	company's	ability	to	realize	anticipated	synergies	and	benefits.

# Operating	in	multiple	industries,	and	the	entry	into	new	markets	and	industries,	entail	additional	challenges	and	obligations.

As	part	of	its	growth	strategy,	Applied	must	successfully	expand	into	related	or	new	markets	and	industries,	either	with	its	existing	products	or	with	new	products developed	internally	or	obtained	through	acquisitions.	The	entry	into	different	markets	involves	additional	challenges,	including	those	arising	from:

•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, cultivate relationships	 with	 new customers and	 meet	 different customer service requirements;

•differing rates of profitability and growth among multiple businesses; •Applied's	 ability to	 anticipate	 demand,	 capitalize	 on	 opportunities,	 and	 avoid	 or	 minimize risks;

•the	 complexity	 of	 managing	 multiple	 businesses	 with	 variations in	 production	 planning,	 execution,	 supply	 chain	 management	 and logistics;

•the	 adoption of new business	 models, business processes and systems;

•Applied's	ability	to	rapidly	expand	or	reduce	its	operations	to	meet	increased	or	decreased	demand,	respectively,	and	the	associated	effect	on	working capital;

•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	suppliers,	including	some	with	limited	operating	histories,	uncertain	and/or	limited	funding,	evolving	business	models and/or	locations	in	regions	where	Applied	does	not	have,	or	has	limited,	operations;

•new	 or	 different competitors	 with potentially	 more financial or other resources, industry experience and/or established customer relationships;

•entry	 into	 new industries	 and	 countries,	 with	 differing levels	 of	 government involvement, laws	 and	 regulations,	 and	 business,	 employment	 and	 safety practices;

•third	parties'	intellectual	property	rights;	and

•the	 need to comply	 with, or	 work to establish, industry standards and practices.

In	addition,	Applied	from	time	to	time	receives	funding	from	United	States	and	other	government	agencies	for	certain	strategic	development	programs	to	increase its	research	and	development	resources	and	address	new	market	opportunities.	As	a	condition	to	this	government	funding,	Applied	may	be	subject	to	certain	record- keeping,	audit,	intellectual	property	rights-sharing	and/or	other	obligations.

# Manufacturing	interruptions	or	delays	could	affect	Applied's	ability	to	meet	customer	demand	and	lead	to	higher	costs,	while	the	failure	to	estimate	customer demand	accurately	could	result	in	excess	or	obsolete	inventory.

Applied's	business	depends	on	its	timely	supply	of	equipment,	services	and	related	products	that	meet	the	rapidly	changing	technical	and	volume	requirements	of its	 customers,	 which	 depends	 in	 part	 on	 the	 timely	 delivery	 of	 parts,	 components	 and	 subassemblies	 (collectively,	 parts)	 from	 suppliers,	 including	 contract manufacturers.	Some	key	parts	are	subject	 to	 long	 lead-times	and/or	obtainable	only	from	a	single	supplier	or	 limited	group	of	suppliers,	and	some	sourcing	or subassembly	is	provided	by	suppliers	located	in	countries	other	than	the	countries	where	Applied	conducts	its	manufacturing,	including	China	and	Korea.	Cyclical industry	conditions	and	the	volatility	of	demand	for	manufacturing	equipment	increase	capital,	technical,	operational	and	other	risks	for	Applied	and	for	companies throughout	its	supply	chain.	Further,	these	conditions	may	cause	some	suppliers	to	scale	back	operations,	exit	businesses,	merge	with	other	companies,	or	file	for bankruptcy	protection	and	possibly	cease	operations.	Applied	may	also	experience	significant	interruptions	of	its	manufacturing	operations,	delays	in	its	ability	to deliver	products	or	services,	increased	costs	or	customer	order	cancellations	as	a	result	of:

•the	failure	or	inability	of	suppliers	to	timely	deliver	sufficient	quantities	of	quality	parts	on	a	cost-effective basis;

•volatility in the availability and cost of	 materials, including rare earth elements;

•difficulties or delays in obtaining required import or export approvals;

•information	technology	or	infrastructure	failures;	and

•natural	disasters	or	other	events	beyond	Applied's	control	(such	as	earthquakes,	floods	or	storms,	regional	economic	downturns,	pandemics,	social	unrest, political	instability,	terrorism,	or	acts	of	war),	particularly	where	it	conducts	manufacturing.

If	a	supplier	fails	to	meet	Applied's	requirements	concerning	quality,	cost,	socially-responsible	business	practices,	or	other	performance	factors,	Applied	may transfer	its	business	to	alternative	sources,	which	could	entail	manufacturing	delays,	additional	costs,	or	other	difficulties.	In	addition,	if	Applied	needs	to	rapidly increase	its	business	and	manufacturing	capacity	to	meet	increases	in	demand	or	expedited	shipment	schedules,	this	may	exacerbate	any	interruptions	in	Applied's manufacturing	operations	and	supply	chain	and	the	associated	effect	on	Applied's	working	capital.	Moreover,	if	actual	demand	for	Applied's	products	is	different	than expected,	Applied	may	purchase	more/fewer	parts	than	necessary	or	incur	costs	for	canceling,	postponing	or	expediting	delivery	of	parts.	If	Applied	purchases	inventory in	anticipation	of	customer	demand	that	does	not	materialize,	or	if	customers	reduce	or	delay	orders,	Applied	may	incur	excess	inventory	charges.

# The	ability	to	attract,	retain	and	motivate	key	employees	is	vital	to	Applied's	success.

Applied's	success,	competitiveness	and	ability	to	execute	on	its	global	strategies	and	maintain	a	culture	of	innovation	depend	in	large	part	on	its	ability	to	attract, retain	and	motivate	key	employees,	especially	in	critical	positions.	Achieving	this	objective	may	be	difficult	due	to	many	factors,	including	fluctuations	in	global economic	 and	 industry	 conditions,	 management	 changes,	Applied's	 organizational	 structure,	 hiring	 practices	 of	 competitors	 and	 other	 companies,	 cost	 reduction activities	(including	workforce	reductions	and	unpaid	shutdowns),	availability	of	career	development	opportunities,	the	ability	to	obtain	necessary	authorizations	for workers	to	provide	services	outside	their	home	countries,	and	the	effectiveness	of	Applied's	compensation	and	benefit	programs,	including	its	share-based	programs. Restructuring	programs	present	particular	challenges	to	the	extent	they	involve	the	departure	of	knowledgeable	and	experienced	employees	and	the	resulting	need	to identify	and	train	existing	or	new	workers	to	perform	necessary	functions,	which	may	result	in	unexpected	costs,	reduced	productivity,	and/or	difficulties	with	respect	to internal	processes	and	controls.

# Applied	is	exposed	to	various	risks	related	to	protection	and	enforcement	of	intellectual	property	rights.

Applied's	success	depends	in	significant	part	on	the	protection	of	its	intellectual	property	and	other	rights.	Infringement	of	Applied's	rights	by	a	third	party,	such as	the	unauthorized	manufacture	or	sale	of	equipment	or	spare	parts,	could	result	in	uncompensated	lost	market	and	revenue	opportunities	for	Applied.	Policing	any unauthorized	use	of	intellectual	property	is	difficult	and	costly	and	Applied	cannot	be	certain	that	the	measures	it	has	implemented	will	prevent	misuse.	Applied's intellectual	 property	 rights	 may	 not	 provide	 significant	 competitive	 advantages	 if	 they	 are	 circumvented,	 invalidated,	 rendered	 obsolete	 by	 the	 rapid	 pace	 of technological	change,	or	if	Applied	does	not	adequately	protect	or	assert	these	rights	or	obtain	necessary	licenses	on	commercially	reasonable	terms.	Furthermore,	the laws	and	practices	of	other	countries,	including	China,	India,	Taiwan	and	Korea,	permit	the	protection	and	enforcement	of	Applied's	rights	to	varying	extents,	which may	not	be	sufficient	to	adequately	protect	Applied's	rights.	In	addition,	changes	in	intellectual	property	laws	or	their	interpretation,	such	as	recent	changes	in	U.S. patent	laws,	may	impact	Applied's	ability	to	protect	and	assert	its	intellectual	property	rights,	increase	costs	and	uncertainties	in	the	prosecution	of	patent	applications and	enforcement	or	defense	of	issued	patents,	and	diminish	the	value	of	Applied's	intellectual	property.

# Applied	is	exposed	to	risks	related	to	cybersecurity	threats	and	incidents.

In	the	conduct	of	its	business,	Applied	collects,	uses,	transmits	and	stores	data	on	information	technology	systems.	This	data	includes	confidential	information belonging	to	Applied	or	its	customers	or	other	business	partners,	as	well	as	personally-identifiable	information	of	individuals.	Applied	has	experienced,	and	expects	to continue	to	be	subject	to,	cybersecurity	threats	and	incidents,	ranging	from	employee	error	or	misuse	to	individual	attempts	to	gain	unauthorized	access	to	information systems	to	sophisticated	and	targeted	measures	known	as	advanced	persistent	threats,	none	of	which	have	been	material	to	the	Company	to	date.	Applied	devotes significant	resources	to	network	security,	data	encryption	and	other	measures	to	protect	its	systems	and	data	from	unauthorized	access	or	misuse.	However,	depending on	their	nature	and	scope,	cybersecurity	incidents	could	result	in	business	disruption;	the	misappropriation,	corruption	or	loss	of	confidential	information	and	critical	data (Applied's	and	that	of	third	parties);	reputational	damage;	litigation	with	third	parties;	diminution	in	the	value	of	Applied's	investment	in	research,	development	and engineering;	data	privacy	issues;	and	increased	cybersecurity	protection	and	remediation	costs.

# Applied	is	exposed	to	various	risks	related	to	legal	proceedings.

Applied	from	time	to	time	is,	and	in	the	future	may	be,	involved	in	legal	proceedings	or	claims	regarding	patent	infringement,	intellectual	property	rights,	antitrust, environmental	regulations,	securities,	contracts,	product	performance,	product	liability,	unfair	competition,	misappropriation	of	trade	secrets,	employment,	workplace safety,	and	other	matters.	Applied	also	on	occasion	receives	notification	from	customers	who	believe	that	Applied	owes	them	indemnification	or	other	obligations related	to	claims	made	against	such	customers	by	third	parties.

Legal	proceedings	and	claims,	whether	with	or	without	merit,	and	associated	internal	investigations,	may	(1)	be	time-consuming	and	expensive	to	prosecute, defend	or	conduct;	(2)	divert	management's	attention	and	other	Applied	resources;	(3)	inhibit	Applied's	ability	to	sell	its	products;	(4)	result	in	adverse	judgments	for damages,	injunctive	relief,	penalties	and	fines;	and/or	(5)	negatively	affect	Applied's	business.	There	can	be	no	assurance	regarding	the	outcome	of	current	or	future legal	proceedings,	claims	or	investigations.

# The	failure	to	successfully	implement	and	conduct	outsourcing	activities	and	other	operational	initiatives	could	adversely	affect	results	of	operations.

To	better	align	its	costs	with	market	conditions,	locate	closer	to	customers,	enhance	productivity,	and	improve	efficiencies,	Applied	conducts	certain	engineering, software	development,	manufacturing,	sourcing	and	other	operations	in	regions	outside	the	United	States,	including	India,	Taiwan,	China,	and	Korea.	Applied	has implemented	a	distributed	manufacturing	model,	under	which	certain	manufacturing	and	supply	chain	activities	are	conducted	in	various	countries,	including	the	United States,	Europe,	Israel,	Singapore,	Taiwan	and	other	countries	in	Asia,	and	assembly	of	some	systems	is	completed	at	customer	sites.	In	addition,	Applied	outsources certain	functions	to	third	parties,	including	companies	in	the	United	States,	India,	China,	Korea,	Malaysia	and	other	countries.	Outsourced	functions	include	contract manufacturing,	engineering,	customer	support,	software	development,	information	technology	support,	finance	and	administrative	activities.	The	expanding	role	of	third party	providers	has	required	changes	to	Applied's	existing	operations	and	the	adoption	of	new	procedures	and	processes	for	retaining	and	managing	these	providers,	as well	as	redistributing	responsibilities	as	warranted,	in	order	to	realize	the	potential	productivity	and	operational	efficiencies,	assure	quality	and	continuity	of	supply,	and protect	the	intellectual	property	of	Applied	and	its	customers,	suppliers	and	other	partners.	If	Applied	does	not	accurately	forecast	the	amount,	timing	and	mix	of	demand for	products,	or	if	contract	manufacturers	or	other	outsource	providers	fail	to	perform	in	a	timely	manner	or	at	satisfactory	quality	levels,	Applied's	ability	to	meet customer	requirements	could	suffer,	particularly	during	a	market	upturn.

In	addition,	Applied	must	regularly	implement	or	update	comprehensive	programs	and	processes	to	better	align	its	global	organizations,	including	initiatives	to enhance	 the	 Asia	 supply	 chain	 and	 improve	 back	 office	 and	 information	 technology	 infrastructure	 for	 more	 efficient	 transaction	 processing.	 Applied	 also	 is implementing	a	multi-year,	company-wide	program	to	transform	certain	business	processes	or	extend	established	processes,	including	the	transition	to	a	single	enterprise resource	planning	(ERP)	software	system	to	perform	various	functions.	The	implementation	of	additional	functionality	to	the	ERP	system	entails	certain	risks,	including difficulties	with	changes	in	business	processes	that	could	disrupt	Applied's	operations,	such	as	its	ability	to	track	orders	and	timely	ship	products,	project	inventory requirements,	manage	its	supply	chain	and	aggregate	financial	and	operational	data.	During	transitions	Applied	must	continue	to	rely	on	legacy	information	systems, which	may	be	costly	or	inefficient,	while	the	implementation	of	new	initiatives	may	not	achieve	the	anticipated	benefits	and	may	divert	management's	attention	from other	operational	activities,	negatively	affect	employee	morale,	or	have	other	unintended	consequences.

If	Applied	does	not	effectively	develop	and	implement	its	outsourcing	and	relocation	strategies,	if	required	export	and	other	governmental	approvals	are	not timely	obtained,	if	Applied's	third	party	providers	do	not	perform	as	anticipated,	or	if	there	are	delays	or	difficulties	in	enhancing	business	processes,	Applied	may	not realize	anticipated	productivity	improvements	or	cost	efficiencies,	and	may	experience	operational	difficulties,	increased	costs	(including	energy	and	transportation), manufacturing	 interruptions	 or	 delays,	 inefficiencies	 in	 the	 structure	 and/or	 operation	 of	 its	 supply	 chain,	 loss	 of	 its	 intellectual	 property	 rights,	 quality	 issues, reputational	harm,	increased	product	time-to-market,	and/or	inefficient	allocation	of	human	resources.

# Applied	may	incur	impairment	charges	to	goodwill	or	long-lived	assets.

Applied	has	a	significant	amount	of	goodwill	and	other	acquired	intangible	assets	related	to	acquisitions.	Goodwill	and	purchased	intangible	assets	with	indefinite useful	lives	are	not	amortized,	but	are	reviewed	for	impairment	annually	during	the	fourth	quarter	of	each	fiscal	year,	and	more	frequently	when	events	or	changes	in circumstances	indicate	that	the	carrying	value	of	an	asset	may	not	be	recoverable.	The	review	compares	the	fair	value	for	each	of	Applied's	reporting	units	to	its associated	carrying	value,	including	goodwill.	Factors	that	could	lead	to	impairment	of	goodwill	and	intangible	assets	include	adverse	industry	or	economic	trends, reduced	estimates	of	future	cash	flows,	declines	in	the	market	price	of	Applied	common	stock,	changes	in	Applied's	strategies	or	product	portfolio,	and	restructuring activities.	Applied's	valuation	methodology	for	assessing	impairment	requires	management	to	make	judgments	and	assumptions	based	on	historical	experience	and projections	of	future	operating	performance.	For	example,	in	the	second	quarter	of	fiscal	2013,	Applied	recorded	goodwill	and	intangible	asset	impairment	charges. Applied	may	be	required	to	record	future	charges	to	earnings	during	the	period	in	which	an	impairment	of	goodwill	or	intangible	assets	is	determined	to	exist.

# Changes	in	tax	rates	or	tax	assets	and	liabilities	could	affect	results	of	operations.

As	a	global	company,	Applied	is	subject	to	taxation	in	the	United	States	and	various	other	countries.	Significant	judgment	is	required	to	determine	and	estimate worldwide	tax	liabilities.	Applied's	future	annual	and	quarterly	tax	rates	could	be	affected	by	numerous	factors,	including	changes	in	the:	(1)	applicable	tax	laws; (2)	amount	and	composition	of	pre-tax	income	in	countries	with	differing	tax	rates;	(3)	plans	of	the	Company	to	permanently	reinvest	certain	funds	held	outside	of	the U.S.;	or	(4)	valuation	of	Applied's	deferred	tax	assets	and	liabilities.

To	better	align	with	the	international	nature	of	its	business,	Applied	conducts	certain	manufacturing,	supply	chain,	and	other	operations	in	Asia,	bringing	these activities	closer	to	customers	and	reducing	operating	costs.	Applied	has	received	authorization	to	use	tax	incentives	that	provide	that	income	earned	in	certain	countries outside	the	U.S.	will	be	subject	to	tax	holidays	or	reduced	income	tax	rates.	To	obtain	the	benefit	of	these	tax	provisions,	Applied	must	meet	requirements	relating	to various	activities.	Applied's	ability	to	realize	benefits	from	these	provisions	could	be	materially	affected	if,	among	other	things,	applicable	requirements	are	not	met,	or	if Applied	incurs	net	losses	for	which	it	cannot	claim	a	deduction.

In	addition,	Applied	is	subject	to	regular	examination	by	the	Internal	Revenue	Service	and	other	tax	authorities,	and	from	time	to	time	initiates	amendments	to previously	filed	tax	returns.	Applied	regularly	assesses	the	likelihood	of	favorable	or	unfavorable	outcomes	resulting	from	these	examinations	and	amendments	to determine	the	adequacy	of	its	provision	for	income	taxes,	which	requires	estimates	and	judgments.	Although	Applied	believes	its	tax	estimates	are	reasonable,	there	can be	no	assurance	that	the	tax	authorities	will	agree	with	such	estimates.	Applied	may	have	to	engage	in	litigation	to	achieve	the	results	reflected	in	the	estimates,	which may	be	time-consuming	and	expensive.	There	can	be	no	assurance	that	Applied	will	be	successful	or	that	any	final	determination	will	not	be	materially	different	from the	treatment	reflected	in	Applied's	historical	income	tax	provisions	and	accruals.

# Applied	is	subject	to	risks	of	non-compliance	with	environmental	and	safety	regulations.

Applied	is	subject	to	environmental	and	safety	regulations	in	connection	with	its	global	business	operations,	including	but	not	limited	to:	regulations	related	to	the development,	manufacture	and	use	of	its	products;	recycling	and	disposal	of	materials	used	in	its	products	or	in	producing	its	products;	the	operation	of	its	facilities;	and the	use	of	its	real	property.	The	failure	or	inability	to	comply	with	existing	or	future	environmental	and	safety	regulations,	such	as	those	related	to	climate	change,	could result	in:	(1)	significant	remediation	liabilities;	(2)	the	imposition	of	fines;	(3)	the	suspension	or	termination	of	the	development,	manufacture,	sale	or	use	of	certain	of	its products;	(4)	limitations	on	the	operation	of	its	facilities	or	ability	to	use	its	real	property;	and/or	(5)	a	decrease	in	the	value	of	its	real	property.

# Applied	is	exposed	to	various	risks	related	to	the	regulatory	environment.

Applied	is	subject	to	various	risks	related	to:	(1)	new,	different,	inconsistent	or	even	conflicting	laws,	rules	and	regulations	that	may	be	enacted	by	executive order,	legislative	bodies	and/or	regulatory	agencies	in	the	countries	in	which	Applied	operates;	(2)	disagreements	or	disputes	between	national	or	regional	regulatory agencies	related	to	international	trade;	and	(3)	the	interpretation	and	application	of	laws,	rules	and	regulations.	For	example,	as	a	public	company	with	global	operations, Applied	 is	subject	 to	 the	 laws	of	multiple	 jurisdictions	and	 the	rules	and	regulations	of	various	governing	bodies,	 including	 those	related	 to	financial	and	other disclosures,	corporate	governance,	privacy,	and	anti-corruption.	Changes	in	laws,	regulations	and	standards	may	create	uncertainty	regarding	compliance	matters.	Efforts to	comply	with	new	and	changing	regulations	have	resulted	in,	and	are	likely	to	continue	to	result	in,	increased	general	and	administrative	expenses	and	a	diversion	of management	time	and	attention	from	revenue-generating	activities	to	compliance	activities.

# Item	1B: Unresolved	Staff	Comments

None.

# Item	2: Properties

Information	concerning	Applied's	principal	properties	at	October	27,	2013	is	set	forth	below:

Because	of	the	interrelation	of	Applied's	operations,	properties	within	a	country	may	be	shared	by	the	segments	operating	within	that	country.	Products	in	the Silicon	Systems	Group	are	manufactured	in	Austin,	Texas;	Singapore;	Gloucester,	Massachusetts;	and	Rehovot,	Israel.	Remanufactured	equipment	products	in	the Applied	 Global	 Services	 segment	 are	 produced	 primarily	 in	Austin,	Texas.	 Products	 in	 the	 Display	 segment	 are	 manufactured	 in	Tainan,	Taiwan;	 Santa	 Clara, California;	and	Alzenau,	Germany.	Products	in	the	Energy	and	Environmental	Solutions	segment	are	primarily	manufactured	in	Alzenau,	Germany;	Treviso,	Italy;	and Cheseaux,	Switzerland.

In	addition	to	the	above	properties,	Applied	also	owns	and	leases	offices,	plants	and/or	warehouse	locations	in	78	locations	throughout	the	world:	18	in	Europe,	21 in	Japan,	15	in	North	America	(principally	the	United	States),	8	in	China,	7	in	Korea,	6	in	Southeast	Asia,	and	3	in	Taiwan.	These	facilities	are	principally	used	for manufacturing;	research,	development	and	engineering;	and	marketing,	sales	and/or	customer	support.

Applied	also	owns	a	total	of	approximately	139	acres	of	buildable	land	in	Texas,	California,	Israel	and	Italy	that	could	accommodate	additional	building	space.

Applied	considers	the	properties	that	it	owns	or	leases	as	adequate	to	meet	its	current	and	future	requirements.	Applied	regularly	assesses	the	size,	capability	and location	of	its	global	infrastructure	and	periodically	makes	adjustments	based	on	these	assessments.

# Item	3: Legal	Proceedings

The	information	set	forth	under	"Legal	Matters"	in	Note	15	of	Notes	to	Consolidated	Financial	Statements	is	incorporated	herein	by	reference.

# Item	4: Mine	Safety	Disclosures

# PART	II

# Item	5: Market for	 Registrant's	 Common	 Equity,	 Related	 Stockholder	 Matters and Issuer	 Purchases of	 Equity Securities

# Market	Information

The	following	table	sets	forth	the	high	and	low	closing	sale	prices	for	the	periods	presented	as	reported	on	the	NASDAQ	Global	Select	Market.

|  | High | Low |
| :--- | :--- | :--- |
| Fiscal\t2013 |  |  |
| First\tquarter | $12.83 | $10.15 |
| Second\tquarter | $14.15 | $12.80 |
| Third\tquarter | $16.69 | $14.40 |
| Fourth\tquarter | $18.10 | $14.97 |
| Fiscal\t2012 |  |  |
| First\tquarter | $12.73 | $10.13 |
| Second\tquarter | $13.21 | $11.49 |
| Third\tquarter | $11.99 | $10.01 |
| Fourth\tquarter | $12.05 | $10.65 |

Applied's	common	stock	is	traded	on	the	NASDAQ	Global	Select	Market	under	the	symbol	AMAT.	As	of	November	21,	2013,	there	were	3,676	registered holders	of	Applied	common	stock.

# Performance	Graph

The	performance	graph	below	shows	the	five-year	cumulative	total	stockholder	return	on	Applied	common	stock	during	the	period	from	October	26,	2008	through October	27,	2013.	This	is	compared	with	the	cumulative	total	return	of	the	Standard	&	Poor's	500	Stock	Index	and	the	RDG	Semiconductor	Composite	Index	over	the same	period.	The	comparison	assumes	$100	was	invested	on	October	26,	2008	in	Applied	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.

# COMPARISON	OF	5	YEAR	CUMULATIVE	TOTAL	RETURN*

# Among	Applied	Materials,	Inc.,	the	S&P	500	Index

# and	the	RDG	Semiconductor	Composite	Index

Indexes	calculated	on	month-end	basis.

"S&P"	is	a	registered	trademark	of	Standard	&	Poor's	Financial	Services	LLC,	a	subsidiary	of	The	McGraw-Hill	Companies,	Inc.

|  | 10/26/2008 | 10/25/2009 | 10/31/2010 | 10/30/2011 | 10/28/2012 | 10/27/2013 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Applied\tMaterials | 100.00 | 116.07 | 113.08 | 118.21 | 102.77 | 175.76 |
| S&P\t500\tIndex | 100.00 | 109.80 | 127.94 | 138.29 | 159.32 | 202.61 |
| RDG\tSemiconductor\tComposite\tIndex | 100.00 | 124.98 | 153.98 | 166.89 | 149.81 | 200.47 |

# Dividends

During	fiscal	2013,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.10	per	share	each	and	one	quarterly	cash	dividend	of	$0.09	per share.	During	fiscal	2012,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.09	per	share	each	and	one	quarterly	cash	dividend	of	$0.08	per share.	During	fiscal	2011,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.08	per	share	each	and	one	quarterly	cash	dividend	of	$0.07. Dividends	declared	during	fiscal	2013,	2012	 and	2011	 totaled	$469	million,	$438	million	 and	$408	million,	respectively.	Applied	currently	anticipates	that	it	will continue	to	pay	cash	dividends	on	a	quarterly	basis	in	the	future,	although	the	declaration	and	amount	of	any	future	cash	dividends	are	at	the	discretion	of	the	Board	of Directors	and	will	depend	on	Applied's	financial	condition,	results	of	operations,	capital	requirements,	business	conditions	and	other	factors,	as	well	as	a	determination that	cash	dividends	are	in	the	best	interests	of	Applied's	stockholders.

# Repurchases	of	Applied	Common	Stock

The	following	table	provides	information	as	of	October	27,	2013,	with	respect	to	the	shares	of	common	stock	repurchased	by	Applied	during	the	fourth	quarter	of fiscal	2013	pursuant	to	the	publicly-announced	stock	repurchase	program	approved	by	the	Board	of	Directors	on	March	5,	2012,	which	authorized	up	to	$3.0	billion	in repurchases	over	the	next	three	years	ending	March	2015.

| Period | Total	Number	of<br>Shares	Purchased | Average<br>Price	Paid<br>per	Share | Aggregate<br>Price	Paid | Total	Number	of<br>Shares		Purchased	as<br>Part	of	Publicly<br>Announced	Program | Maximum	Dollar<br>Value	of	Shares<br>That	May	Yet	be<br>Purchased	Under<br>the	Program |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tper\tshare\tamounts) |  |  |
| Month\t#1 |  |  |  |  |  |
| (July\t29,\t2013\tto\tAugust\t25,\t2013) | 0.8 | $15.78 | $13 | 0.8 | $1,619 |
| Month\t#2 |  |  |  |  |  |
| (August\t26,\t2013\tto\tSeptember\t22,\t2013) | 2.1 | $15.58 | 33 | 2.1 | $1,586 |
| Month\t#3 |  |  |  |  |  |
| (September\t23,\t2013\tto\tOctober\t27,\t2013) | 0.1 | $15.97 | 1 | 0.1 | $1,585 |
| Total | 3.0 | $15.65 | $47 | 3.0 |  |

# Item	6: Selected	Financial	Data

The following	 selected financial information	 has	 been	 derived from	Applied's	 historical	 audited	 consolidated financial	 statements	 and	 should	 be read in conjunction	with	the	consolidated	financial	statements	and	the	accompanying	notes	for	the	corresponding	fiscal	years:

| Fiscal	Year(1) | 2013 | 2012 | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tmillions,\texcept\tpercentages\tand\tper\tshare\tamounts) | (In\tmillions,\texcept\tpercentages\tand\tper\tshare\tamounts) | (In\tmillions,\texcept\tpercentages\tand\tper\tshare\tamounts) |  |
| New\torders | $8,466 | $8,037 | $10,142 | $10,249 | $4,097 |
| Net\tsales | $7,509 | $8,719 | $10,517 | $9,549 | $5,014 |
| Gross\tmargin | $2,991 | $3,313 | $4,360 | $3,715 | $1,431 |
| (%\tof\tnet\tsales) | 39.8 | 38.0 | 41.5 | 38.9 | 28.5 |
| Research,\tdevelopment\tand\tengineering | $1,320 | $1,237 | $1,118 | $1,143 | $934 |
| Operating\tincome\t(loss) | $432 | $411 | $2,398 | $1,384 | $(394) |
| (%\tof\tnet\tsales) | 5.8 | 4.7 | 22.8 | 14.5 | (7.9) |
| Income\t(loss)\tbefore\tincome\ttaxes | $350 | $316 | $2,378 | $1,387 | $(486) |
| Net\tincome\t(loss) | $256 | $109 | $1,926 | $938 | $(305) |
| Earnings\t(loss)\tper\tdiluted\tshare | $0.21 | $0.09 | $1.45 | $0.70 | $(0.23) |
| Long-term\tdebt | $1,946 | $1,946 | $1,947 | $204 | $201 |
| Cash\tdividends\tdeclared\tper\tcommon\tshare | $0.39 | $0.35 | $0.31 | $0.27 | $0.24 |
| Total\tassets | $12,043 | $12,102 | $13,861 | $10,943 | $9,574 |

# Item	7: Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of Operations

# Introduction

Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	(MD&A)	is	intended	to	facilitate	an	understanding	of	Applied's	business and	results	of	operations.	This	MD&A	should	be	read	in	conjunction	with	Applied's	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 summary of Applied's business and measurements

•Results	of	Operations:	a	discussion	of	operating	results

•Segment Information: a discussion of segment operating results

•Business Combinations: a summary of announced or completed business combinations and acquisitions

•Recent	 Accounting	 Pronouncements:	 a	 discussion	 of	 new	 accounting	 pronouncements	 and its impact to	 Applied's consolidated financial statements

•Financial	Condition,	Liquidity	and	Capital	Resources:	an	analysis	of	cash	flows,	sources	and	uses	of	cash,	contractual	obligations	and	financial position

•Off-Balance Sheet Arrangements and Contractual Obligations

•Critical	Accounting	 Policies	 and	 Estimates:	 a	 discussion	 of	 critical	 accounting	 policies that require the	 exercise	 of judgments	 and estimates

•Non-GAAP	 Adjusted	 Results: a presentation of results reconciling	 GAAP to non-GAAP adjusted measures

# Overview

Applied	provides	manufacturing	equipment,	services	and	software	to	the	global	semiconductor,	flat	panel	display,	solar	photovoltaic	(PV)	and	related	industries. Applied's	customers	include	manufacturers	of	semiconductor	wafers	and	chips,	flat	panel	liquid	crystal	and	other	displays,	solar	PV	cells	and	modules,	and	other electronic	devices.	These	customers	may	use	what	they	manufacture	in	their	own	end	products	or	sell	the	items	to	other	companies	for	use	in	advanced	electronic components.	Applied	operates	in	four	reportable	segments:	Silicon	Systems	Group,	Applied	Global	Services,	Display,	and	Energy	and	Environmental	Solutions.	A summary	of	financial	information	for	each	reportable	segment	is	found	in	Note	16	of	Notes	to	Consolidated	Financial	Statements.	A	discussion	of	factors	that	could affect	Applied's	operations	is	set	forth	under	"Risk	Factors"	in	Part	I,	Item	1A,	which	is	incorporated	herein	by	reference.	Product	development	and	manufacturing activities	occur	primarily	in	North	America,	Europe	and	Asia.	Applied's	equipment	and	service	products	are	highly	technical	and	are	sold	primarily	through	a	direct sales	force.

Applied's	results	historically	have	been	driven	primarily	by	worldwide	demand	for	semiconductors,	which	in	turn	depends	on	end-user	demand	for	electronic products.	Each	of	Applied's	businesses	is	subject	to	highly	cyclical	industry	conditions,	as	demand	for	manufacturing	equipment	and	services	can	change	depending	on supply	and	demand	for	chips,	display	technologies,	solar	PVs	and	other	electronic	devices,	as	well	as	other	factors,	such	as	global	economic	and	market	conditions,	and technological	advances	in	fabrication	processes.	In	light	of	this	cyclicality,	Applied's	results	can	vary	significantly	year-over-year,	as	well	as	quarter-over-quarter.	As	a result	of	these	conditions	and	the	changing	global	economic	environment,	there	were	significant	fluctuations	in	Applied's	quarterly	new	orders	and	net	sales	within	and across	the	last	three	fiscal	years.

Applied's	strategic	priorities	for	fiscal	2014	include	growing	its	presence	in	wafer	fab	equipment	and	display,	reducing	its	losses	in	the	solar	business,	and expanding	 its	overall	available	market.	As	part	of	this	strategy,	the	Company	has	implemented	initiatives	to	decrease	overhead	spending	and	further	reduce	solar operating	expense	to	fund	research	and	development	in	semiconductor	and	other	key	product	areas.	In	semiconductor	equipment,	Applied	intends	to	continue	investment in	 300mm,	 450mm	 and	 other	 semiconductor	 technologies	 to	 strengthen	 the	 product	 pipeline	 and	 investment	 in	 the	 enhancement	 of	 technical	 relationships	 with customers.

On	September	24,	2013,	Applied	entered	into	an	agreement	with	Tokyo	Electron	Limited	(TEL),	a	Japanese	corporation	and	global	supplier	of	semiconductor,	flat panel	display	and	photovoltaic	panel	production	equipment,	to	effect	a	combination	of	their	respective	businesses	into	a	new	combined	company.	The	combination	is expected	to	bring	together	leading	technologies	and	products	and	create	an	expanded	set	of	capabilities	in	precision	materials	engineering	and	patterning.	The	closing	of the	transaction	is	subject	to	customary	conditions,	including	approval	by	Applied's	and	TEL's	stockholders	and	regulatory	approvals.

# Results	of	Operations

The	following	table	presents	certain	significant	measurements	for	the	past	three	fiscal	years:

| Fiscal	Year | 2013 | 2012 | 2011 | 2013	over	2012 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tmillions,\texcept\tper\tshare\tamounts\tand\tpercentages) | (In\tmillions,\texcept\tper\tshare\tamounts\tand\tpercentages) | (In\tmillions,\texcept\tper\tshare\tamounts\tand\tpercentages) |  |
| New\torders | $8,466 | $8,037 | $10,142 | $429 | $(2,105) |
| Net\tsales | $7,509 | $8,719 | $10,517 | $(1,210) | $(1,798) |
| Gross\tmargin | $2,991 | $3,313 | $4,360 | $(322) | $(1,047) |
| Gross\tmargin\tpercent | 39.8% | 38.0% | 41.5% | 1.8\tpoints | (3.5)\tpoints |
| Operating\tincome | $432 | $411 | $2,398 | $21 | $(1,987) |
| Operating\tmargin\tpercent | 5.8% | 4.7% | 22.8% | 1.1\tpoints | (18.1)\tpoints |
| Net\tincome | $256 | $109 | $1,926 | $147 | $(1,817) |
| Earnings\tper\tdiluted\tshare | $0.21 | $0.09 | $1.45 | $0.12 | $(1.36) |
| Non-GAAP\tAdjusted\tResults |  |  |  |  |  |
| Non-GAAP\tadjusted\tgross\tmargin | $3,160 | $3,566 | $4,397 | $(406) | $(831) |
| Non-GAAP\tadjusted\tgross\tmargin\tpercent | 42.1% | 40.9% | 41.8% | 1.2\tpoints | (0.9)\tpoints |
| Non-GAAP\tadjusted\toperating\tincome | $1,032 | $1,379 | $2,411 | $(347) | $(1,032) |
| Non-GAAP\tadjusted\toperating\tmargin\tpercent | 13.7% | 15.8% | 22.9% | (2.1)\tpoints | (7.1)\tpoints |
| Non-GAAP\tadjusted\tnet\tincome | $718 | $960 | $1,717 | $(242) | $(757) |
| Non-GAAP\tadjusted\tearnings\tper\tdiluted\tshare | $0.59 | $0.75 | $1.29 | $(0.16) | $(0.54) |

Reconciliations	of	non-GAAP	adjusted	measures	are	presented	under	"Non-GAAP	Adjusted	Results"	below.	Fiscal	2013,	2012	and	2011	each	contained	52 weeks.

Mobility	continued	to	be	the	largest	influence	on	semiconductor	industry	spending	during	fiscal	2013.	The	first	half	of	fiscal	2013	was	characterized	by	strong demand	for	semiconductor	equipment	from	foundry	customers	driven	by	demand	for	advanced	mobile	chips.	In	the	second	half	of	the	year,	demand	from	foundry customers	softened,	reflecting	seasonal	consumer	buying	patterns	for	mobility	products,	while	demand	from	memory	and	logic	customers	improved.	Mobility	also represents	a	significant	driver	of	display	industry	spending,	and	demand	for	mobile	display	equipment	remained	strong	during	fiscal	2013.	Fiscal	2013	was	also characterized	by	a	recovery	in	demand	for	TV	manufacturing	equipment	compared	to	weak	industry	levels	in	the	prior	year,	resulting	from	higher	consumer	demand	in emerging	markets	and	for	larger	LCD	TVs.	In	solar,	while	end	market	growth	continued,	investment	in	solar	equipment	remained	low	during	fiscal	2013	due	to continued	excess	manufacturing	capacity	in	the	industry.

Applied	expects	the	mobility	trend	to	remain	the	main	growth	driver	for	the	semiconductor	industry,	and	in	turn	for	the	Silicon	Systems	Group,	in	2014.	Applied also	expects	the	overall	display	investment	cycle	to	continue	into	2014,	while	solar	equipment	demand	is	expected	to	remain	soft	in	2014.

Fiscal	2012	was	characterized	by	significant	fluctuations	in	demand	for	semiconductor	equipment,	coupled	with	an	extremely	weak	market	environment	for	display and	solar	equipment.	Applied	completed	its	acquisition	of	Varian	Semiconductor	Equipment	Associates,	Inc.	(Varian)	in	the	first	quarter	of	fiscal	2012.	Mobility	was	the greatest	 influence	 on	 semiconductor	 industry	 spending	 in	 fiscal	 2012.	 Consumer	 buying	 patterns	 for	 electronic	 products,	 combined	 with	 growing	 semiconductor customer	concentration,	contributed	to	a	seasonality	effect,	with	relatively	strong	demand	for	semiconductor	equipment	led	by	foundry	customers	during	the	first	half	of fiscal	2012,	followed	by	softening	of	demand	from	foundry	and	logic	customers	in	the	third	quarter	of	fiscal	2012	and	further	declines	across	all	categories	of	wafer	fab equipment	customers	in	the	fourth	quarter	of	fiscal	2012.		Low	investment	levels	for	display	equipment	continued	in	fiscal	2012	due	to	decreased	capacity	requirements for	 larger	flat	panel	 televisions	as	conditions	 in	 this	 industry	remained	challenging.	As	with	 the	semiconductor	 industry,	demand	for	mobility	products,	such	as smartphones	and	tablets,	significantly	influenced	equipment	spending	in	the	display	industry.	In	the	solar	industry,	fiscal	2012	was	characterized	by	continued	excess manufacturing	capacity,	which	led	to	significantly	reduced	demand	for	crystalline-silicon	(c-Si)	equipment,	as	well	as	weaker	operating	performance	and	outlook	by	the fourth	quarter.

The	first	nine	months	of	fiscal	2011	reflected	increased	demand	across	all	segments	except	Display,	due	to	improved	global	economic	and	industry	conditions, although	demand	softened	for	semiconductor,	display	and	solar	equipment	in	the	last	quarter	of	fiscal	2011.	Towards	the	end	of	fiscal	2011,	each	of	the	semiconductor, display	and	solar	industries	was	negatively	impacted	by	uncertainty	in	the	macroeconomic	environment,	and	the	display	and	solar	equipment	industries	were	also negatively	impacted	by	overcapacity.

# New	Orders

New	orders	by	reportable	segment	for	the	past	three	fiscal	years	were	as	follows:

|  |  | 2013 | Change<br>2013	over	2012 | 2012 |  | Change<br>2012	over	2011 | 2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |  |  |
| Silicon\tSystems\tGroup | $5,507 | 65% | 4% | $5,294 | 66% | (4)% | $5,489 | 54% |
| Applied\tGlobal\tServices | 2,090 | 25% | (8)% | 2,274 | 28% | (3)% | 2,333 | 23% |
| Display | 703 | 8% | 157% | 274 | 4% | (57)% | 636 | 6% |
| Energy\tand\tEnvironmental\nSolutions | 166 | 2% | (15)% | 195 | 2% | (88)% | 1,684 | 17% |
| Total | $8,466 | 100% | 5% | $8,037 | 100% | (21)% | $10,142 | 100% |

New	orders	for	fiscal	2013	increased	compared	to	fiscal	2012,	primarily	due	to	a	recovery	in	demand	for	display	manufacturing	equipment	and	increased	demand in	semiconductor	equipment,	partially	offset	by	lower	demand	for	service	products,	as	well	as	depressed	demand	for	c-Si	solar	equipment	due	to	continued	excess manufacturing	capacity	in	the	solar	industry.	New	orders	for	the	Silicon	Systems	Group	and	Applied	Global	Services	continued	to	comprise	a	majority	of	Applied's consolidated	total	new	orders.

New	orders	for	fiscal	2012	decreased	for	all	segments	compared	to	the	same	periods	in	the	prior	year,	mostly	due	to	the	lower	demand	for	c-Si	solar	and	display equipment	due	to	excess	manufacturing	capacity	in	the	solar	industry	and	the	continued	down	cycle	in	the	display	industry,	respectively,	partially	offset	by	the	addition of	orders	attributable	to	Varian	of	$1.0	billion.	The	Silicon	Systems	Group's	and	Applied	Global	Services'	relative	share	of	total	new	orders	increased	compared	to	the prior	year	as	a	result	of	the	addition	of	Varian	and	the	sharp	decrease	in	orders	in	Display	and	Energy	and	Environmental	Solutions.

New	orders	by	geographic	region,	determined	by	the	product	shipment	destination	specified	by	the	customer,	were	as	follows:

|  |  | 2013 | Change<br>2013	over	2012 | 2012 |  | Change<br>2012	over	2011 | 2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |  |  |
| Taiwan | $2,885 | 34% | 34% | $2,155 | 27% | (4)% | $2,235 | 22% |
| China | 1,339 | 16% | 232% | 403 | 5% | (80)% | 2,066 | 20% |
| Korea | 915 | 11% | (49)% | 1,784 | 22% | 39% | 1,286 | 13% |
| Japan | 822 | 10% | 37% | 600 | 7% | (40)% | 1,001 | 10% |
| Southeast\tAsia | 351 | 4% | 24% | 283 | 4% | (39)% | 463 | 5% |
| Asia\tPacific | 6,312 | 75% | 21% | 5,225 | 65% | (26)% | 7,051 | 70% |
| United\tStates | 1,419 | 17% | (29)% | 1,995 | 25% | (4)% | 2,069 | 20% |
| Europe | 735 | 8% | (10)% | 817 | 10% | (20)% | 1,022 | 10% |
| Total | $8,466 | 100% | 5% | $8,037 | 100% | (21)% | $10,142 | 100% |

	The	recovery	in	demand	for	display	manufacturing	equipment	in	fiscal	2013	led	to	the	increase	in	new	orders	from	customers	in	China.	The	change	in	the composition	of	new	orders	from	customers	in	Taiwan,	Korea,	Japan	and	the	United	States	was	primarily	related	to	changes	in	customer	demand	for	semiconductor equipment.

The	decrease	in	new	orders	from	customers	in	China	in	fiscal	2012	compared	to	fiscal	2011	primarily	reflected	reduced	investments	by	solar	manufacturers	due	to industry	overcapacity.

Changes	in	backlog	during	fiscal	2013	and	2012	were	as	follows:

|  | 2013 | 2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Beginning\tbalance | $1,606 | $2,392 |
| New\torders | 8,466 | 8,037 |
| Net\tsales | (7,509) | (8,719) |
| Net\tadjustments | (191) | (104) |
| Ending\tbalance | $2,372 | $1,606 |

Backlog	consists	of:	(1)	orders	for	which	written	authorizations	have	been	accepted	and	assigned	shipment	dates	are	within	the	next	12	months,	or	shipment	has occurred	but	revenue	has	not	been	recognized;	and	(2)	contractual	service	revenue	and	maintenance	fees	to	be	earned	within	the	next	12	months.	Applied's	backlog	at any	particular	time	is	not	necessarily	indicative	of	actual	sales	for	any	future	periods,	due	to	the	potential	for	customer	changes	in	delivery	schedules	or	cancellation	of orders.	Approximately	80	percent	of	the	backlog	as	of	the	end	of	fiscal	2013	is	anticipated	to	be	shipped	within	the	first	two	quarters	of	fiscal	2014.

Applied's	backlog	was	$2.4	billion	 at	October	27,	2013	compared	to	$1.6	billion	 at	October	28,	2012.	Backlog	adjustments	were	negative	for	fiscal	2013	and totaled	$191	million,	primarily	consisting	of	customer	cancellations	and	financial	debookings.

|  |  |  | (In	millions,	except	percentages) |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Silicon\tSystems\tGroup | $1,295 | 55% | 84% | $705 | 44% |
| Applied\tGlobal\tServices | 591 | 25% | 2% | 580 | 36% |
| Display | 361 | 15% | 75% | 206 | 13% |
| Energy\tand\tEnvironmental\tSolutions | 125 | 5% | 9% | 115 | 7% |
| Total | $2,372 | 100% | 48% | $1,606 | 100% |

Backlog	increased	in	fiscal	2013	from	fiscal	2012	across	all	segments.	The	increase	in	backlog	was	primarily	due	to	increases	in	demand	from	memory	customers and	the	recovery	in	demand	for	display	manufacturing	equipment.	In	the	fourth	quarter	of	fiscal	2013	approximately	49	percent	of	net	sales	in	the	Silicon	Systems	Group, Applied's	largest	business	segment,	were	for	orders	received	and	shipped	within	the	quarter,	down	from	53	percent	in	the	fourth	quarter	of	fiscal	2012.

# Net	Sales

|  |  | 2013 | Change<br>2013	over	2012 | 2012 |  | Change<br>2012	over	2011 | 2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |  |  |
| Silicon\tSystems\tGroup | $4,775 | 64% | (14)% | $5,536 | 64% | 2% | $5,415 | 51% |
| Applied\tGlobal\tServices | 2,023 | 27% | (11)% | 2,285 | 26% | (5)% | 2,413 | 23% |
| Display | 538 | 7% | 14% | 473 | 5% | (32)% | 699 | 7% |
| Energy\tand\tEnvironmental\nSolutions | 173 | 2% | (59)% | 425 | 5% | (79)% | 1,990 | 19% |
| Total | $7,509 | 100% | (14)% | $8,719 | 100% | (17)% | $10,517 | 100% |

For	fiscal	2013	as	compared	to	fiscal	2012,	net	sales	in	Display	increased,	reflecting	the	recovery	of	TV	manufacturing	equipment	investment,	while	net	sales across	 all	 other	 segments	 decreased.	The	 decrease	 primarily	 reflected	 continued	 excess	 manufacturing	 capacity	 in	 the	 solar	 industry	 and	 lower	 investments	 in semiconductor	equipment,	spares	and	services.	The	Silicon	Systems	Group	remains	the	largest	contributor	of	net	sales.

For	fiscal	2012	as	compared	to	fiscal	2011,	net	sales	in	the	Silicon	Systems	Group	increased	slightly	while	net	sales	across	all	other	segments	decreased.	The decreases	reflected	lower	investments	in	c-Si	solar	and	LCD	TV	equipment,	partially	offset	by	sales	attributable	to	Varian.

|  |  | 2013 | Change<br>2013	over	2012 | 2012 |  | Change<br>2012	over	2011 | 2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |  |  |
| Taiwan | $2,640 | 35% | 9% | $2,411 | 28% | 15% | $2,093 | 20% |
| China | 787 | 11% | 1% | 783 | 9% | (70)% | 2,574 | 24% |
| Korea | 924 | 12% | (51)% | 1,897 | 22% | 50% | 1,263 | 12% |
| Japan | 685 | 9% | (3)% | 704 | 8% | (23)% | 912 | 9% |
| Southeast\tAsia | 320 | 4% | 3% | 312 | 3% | (47)% | 592 | 5% |
| Asia\tPacific | 5,356 | 71% | (12)% | 6,107 | 70% | (18)% | 7,434 | 70% |
| United\tStates | 1,473 | 20% | (16)% | 1,749 | 20% | (11)% | 1,963 | 19% |
| Europe | 680 | 9% | (21)% | 863 | 10% | (23)% | 1,120 | 11% |
| Total | $7,509 | 100% | (14)% | $8,719 | 100% | (17)% | $10,517 | 100% |

The	increase	in	net	sales	from	customers	in	China	in	fiscal	2013	was	primarily	due	to	the	recovery	in	demand	for	display	manufacturing	equipment.	The	changes	in net	sales	from	customers	in	Korea,	the	United	States	and	Taiwan	were	primarily	related	to	changes	in	customer	demand	for	semiconductor	equipment.

The	decrease	in	net	sales	from	customers	in	China	in	fiscal	2012	compared	to	fiscal	2011	primarily	reflected	decreased	investments	in	the	solar	and	display industries	due	to	overcapacity.

# Gross	Margin

Gross	margins	for	the	past	three	fiscal	years	were	as	follows:

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tpercentages) |  |  |
| Gross\tmargin | $2,991 | $3,313 | $4,360 | $(322) | $(1,047) |
| Gross\tmargin\t(%\tof\tnet\tsales) | 39.8% | 38.0% | 41.5% | 1.8\tpoints | (3.5)\tpoints |
| Non-GAAP\tAdjusted\tResults |  |  |  |  |  |
| Non-GAAP\tadjusted\tgross\tmargin | $3,160 | $3,566 | $4,397 | $(406) | $(831) |
| Non-GAAP\tadjusted\tgross\tmargin\t(%\tof\tnet\nsales) | 42.1% | 40.9% | 41.8% | 1.2\tpoints | (0.9)\tpoints |

Reconciliations	of	non-GAAP	adjusted	measures	are	presented	under	"Non-GAAP	Adjusted	Results"	below.

Gross	margin	and	non-GAAP	adjusted	gross	margin	decreased	in	fiscal	2013	compared	to	fiscal	2012	reflecting	lower	sales.	Gross	margin	percent	and	non-GAAP adjusted	gross	margin	percent	increased	in	fiscal	2013	compared	to	fiscal	2012	despite	lower	sales,	due	primarily	to	lower	inventory	charges,	a	favorable	product	mix, and	material	cost	reductions.	Gross	margin	and	non-GAAP	adjusted	gross	margin	decreased	in	fiscal	2012	from	fiscal	2011	due	primarily	to	changes	in	segment	and customer	mix,	additional	inventory	charges,	and	lower	net	sales,	partially	offset	by	sales	for	a	thin	film	solar	production	line	in	fiscal	2012,	for	which	inventory	was	fully reserved	prior	to	fiscal	2012.	In	addition,	the	decrease	in	gross	margin	in	fiscal	2012	was	also	affected	by	inventory	fair	value	adjustments	and	intangible	asset amortization	associated	with	purchase	accounting,	mostly	associated	with	the	acquisition	of	Varian,	which	amounted	to	$253	million	in	fiscal	2012.	Gross	margin	and non-GAAP	adjusted	gross	margin	during	fiscal	2013,	2012	 and	2011	 included	$50	million,	$54	million	 and	$48	million,	respectively,	of	share-based	compensation expense.

Research,	Development	and	Engineering	(RD&E)	expenses	for	the	past	three	fiscal	years	were	as	follows:

|  |  |  |  | Change |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 | 2011 | 2013\tover\t2012 | 2012\tover\t2011 |
|  |  |  | (In\tmillions) |  |  |
| Research,\tdevelopment\tand\tengineering | $1,320 | $1,237 | $1,118 | $83 | $119 |

Applied's	future	operating	results	depend	to	a	considerable	extent	on	its	ability	to	maintain	a	competitive	advantage	in	the	equipment	and	service	products	it provides.	Applied	believes	that	it	is	critical	to	continue	to	make	substantial	investments	in	RD&E	to	assure	the	availability	of	innovative	technology	that	meets	the current	and	projected	requirements	of	its	customers'	most	advanced	designs.	Applied	has	maintained	and	intends	to	continue	its	commitment	to	investing	in	RD&E	in order	to	continue	to	offer	new	products	and	technologies.	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	Applied's	existing products	resulted	from	internal	development	activities	and	innovations	involving	new	technologies,	materials	and	processes.	In	certain	instances,	Applied	acquires technologies,	either	in	existing	or	new	product	areas,	to	complement	its	existing	technology	capabilities	and	to	reduce	time	to	market.

In	fiscal	2013,	Applied	increased	its	investment	in	300mm	product	development.	Applied	developed	new	applications	for	its	epitaxial	technology,	enabling industry	transition	to	NMOS	transistors	at	the	20nm	node	and	enabling	chip	makers	to	build	faster	devices	and	deliver	next-generation	mobile	computing	power. Applied	also	released	its	next-generation	defect	review	and	classification	technology	that	delivers	industry-leading	resolution	used	for	finding,	identifying	and	analyzing defects	in	3D	FinFET	and	high	aspect	ratio	structures	at	10nm	nodes.	Applied	also	continued	to	invest	in	the	development	of	450mm	wafer	fabrication	equipment.

RD&E	expenses	increased	in	fiscal	2013	compared	to	the	prior	year.	As	part	of	its	growth	strategy,	Applied	has	taken	certain	actions,	including	workforce reductions	and	reprioritization	of	existing	spend,	to	enable	increased	funding	for	investments	in	technical	capabilities	and	critical	R&D	programs	in	current	and	new markets,	with	a	focus	on	semiconductor	technologies.	The	increase	in	RD&E	for	fiscal	2012	compared	to	fiscal	2011	was	primarily	due	to	RD&E	expenses	related	to Varian	of	approximately	$180	million	and	continued	investment	in	the	development	of	equipment	for	smaller	linewidths	and	450mm	wafers,	partially	offset	by	lower investments	in	solar	R&D	projects	and	the	cessation	of	light-emitting	diode	(LED)	equipment	development.	RD&E	expense	during	fiscal	2013,	2012	and	2011	included $53	million,	$54	million	and	$46	million,	respectively,	of	share-based	compensation	expense.

# Marketing	and	Selling

Marketing	and	selling	expenses	for	the	past	three	fiscal	years	were	as	follows:

|  |  |  |  | Change |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 | 2011 | 2013\tover\t2012 | 2012\tover\t2011 |
|  |  |  | (In\tmillions) |  |  |
| Marketing\tand\tselling | $433 | $481 | $432 | $(48) | $49 |

The	decrease	in	marketing	and	selling	expenses	for	fiscal	2013	compared	to	fiscal	2012	was	primarily	attributable	to	savings	from	restructuring	programs	along with	a	reduction	in	the	bad	debt	provision	during	the	year	as	a	result	of	lower	risk	exposures	in	display	and	solar	customers.	The	increase	in	marketing	and	selling expenses	for	fiscal	2012	compared	to	fiscal	2011	was	primarily	attributable	to	marketing	and	selling	expenses	incurred	in	connection	with	the	acquisition	of	Varian. Marketing	and	selling	expenses	during	fiscal	2013,	2012	 and	2011	 included	$20	million,	$22	million	 and	$16	million,	respectively,	of	share-based	compensation expense.

# General	and	Administrative

General	and	administrative	(G&A)	expenses	for	the	past	three	fiscal	years	were	as	follows:

|  |  |  |  | Change |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 | 2011 | 2013\tover\t2012 | 2012\tover\t2011 |
|  |  |  | (In\tmillions) |  |  |
| General\tand\tadministrative | $469 | $595 | $469 | $(126) | $126 |

The	decrease	in	G&A	for	fiscal	2013	compared	to	fiscal	2012	was	primarily	due	to	the	absence	of	certain	costs	incurred	during	fiscal	2012	associated	with	the acquisition	of	Varian,	savings	from	restructuring	programs,	and	lower	share-based	compensation	expense,	partially	offset	by	costs	incurred	associated	with	the	business combination	with	TEL.	The	increase	in	G&A	expenses	for	fiscal	2012	compared	to	fiscal	2011	is	primarily	attributable	to	acquisition-related	costs	and	other	G&A expenses	incurred	in	connection	with	the	acquisition	of	Varian,	partially	offset	by	lower	variable	compensation	and	savings	associated	with	temporary	shutdowns.	G&A expenses	during	fiscal	2013,	2012	and	2011	included	$34	million,	$52	million	and	$36	million	respectively,	of	share-based	compensation	expense.

# Impairment	of	Goodwill

During	fiscal	2012,	the	solar	industry	faced	increasing	challenges,	including	manufacturing	overcapacity	and	weak	operating	performance	and	outlook,	which	led to	a	deterioration	in	market	conditions.	As	a	result,	Applied	performed	a	two-step	goodwill	impairment	test	and	recorded	a	$421	million	goodwill	impairment	charge	in its	Energy	and	Environmental	Solutions	segment.

During	the	second	quarter	of	fiscal	2013,	the	solar	industry	experienced	further	deterioration	of	market	conditions	associated	with	continued	manufacturing overcapacity	and	weaker	operating	performance	and	outlook,	resulting	in	increased	uncertainties	regarding	the	timing	and	nature	of	a	recovery	in	solar	capital	equipment expenditures.	Taking	these	factors	into	account,	Applied	reassessed	its	financial	outlook	for	the	Energy	and	Environmental	Solutions	reporting	unit	and	consequently reevaluated	the	recoverability	of	this	reporting	unit's	goodwill.	Applied	performed	the	two-step	impairment	test	and	concluded	that	the	Energy	and	Environmental Solutions	reporting	unit's	carrying	value	exceeded	its	fair	value.	Based	on	Applied's	analyses,	the	implied	fair	value	of	goodwill	was	substantially	lower	than	the carrying	value	of	goodwill	for	the	reporting	unit.	As	a	result,	in	the	second	quarter	of	fiscal	2013,	Applied	recorded	a	goodwill	impairment	charge	of	$224	million, representing	all	of	the	remaining	goodwill	for	this	reporting	unit.	Applied	also	performed	an	impairment	test	for	long-lived	assets	associated	with	the	reporting	unit	and determined	that	the	majority	of	intangible	assets	were	impaired	mostly	due	to	the	lower	long-term	revenue	and	profitability	outlook	associated	with	products	related	to these	intangible	assets.	Accordingly,	during	the	second	quarter	of	fiscal	2013,	Applied	recorded	an	impairment	charge	of	$54	million	related	to	these	intangible	assets, which	was	the	amount	by	which	the	carrying	value	of	these	intangible	assets	exceeded	their	estimated	fair	value,	based	on	discounted	projected	cash	flows.

In	 the	 fourth	 quarter	 of	 fiscal	2013,	Applied	also	performed	a	qualitative	assessment	to	test	goodwill	for	the	remaining	reporting	units	for	impairment	and determined	that	it	was	more	likely	than	not	that	each	of	the	Silicon	Systems	Group,	Applied	Global	Services,	and	Display	reporting	units'	fair	values	exceeded	its respective	carrying	values	and	that	it	was	not	necessary	to	perform	the	two-step	goodwill	impairment	test	for	these	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, Applied	will	be	required	to	reassess	and	update	its	forecasts	and	estimates	used	in	future	impairment	analyses.	If	the	results	of	these	analyses	are	lower	than	current estimates,	a	material	impairment	charge	may	result	at	that	time.

For	further	details,	see	Note	9	of	Notes	to	Consolidated	Financial	Statements.

# Restructuring	and	Asset	Impairments

Restructuring	and	asset	impairment	expenses	for	the	past	three	fiscal	years	were	as	follows:

|  |  |  |  | Change |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 | 2011 | 2013\tover\t2012 | 2012\tover\t2011 |
|  |  |  | (In\tmillions) |  |  |
| Restructuring\tand\tasset\timpairments,\tnet | $63 | $168 | $(30) | $(105) | $198 |

On	October	3,	2012,	Applied	announced	a	restructuring	plan	(the	2012	Global	Restructuring	Plan)	to	realign	its	global	workforce	and	enhance	its	ability	to	invest for	growth.	Under	this	plan,	Applied	implemented	a	voluntary	retirement	program	and	other	workforce	reduction	actions	that	were	expected	to	affect	approximately	900 to	1,300	positions,	or	6	percent	to	9	percent	of	its	global	workforce.	In	connection	with	the	2012	Global	Restructuring	Plan,	Applied	expects	to	incur	aggregate	pre-tax restructuring	charges	comprised	of	severance	and	other	termination	benefits	of	up	to	$160	million	(including	costs	incurred	to	date	of	$145	million	discussed	below). Applied	expects	to	substantially	complete	this	plan	by	the	end	of	the	first	quarter	of	fiscal	2014.

During	fiscal	2013	and	2012,	Applied	recognized	$39	million	 and	$106	million,	respectively,	of	employee-related	costs	in	connection	with	the	2012	Global Restructuring	Plan.	These	costs	were	not	allocated	to	the	segments.	Applied	has	incurred	aggregate	pre-tax	restructuring	charges	comprised	of	severance	and	other termination	benefits	of	$145	million	under	this	plan.

On	May	10,	2012,	Applied	announced	a	plan	(the	2012	EES	Restructuring	Plan)	to	restructure	its	Energy	and	Environmental	Solutions	segment	in	light	of challenging	industry	conditions	affecting	the	solar	photovoltaic	and	light-emitting	diode	(LED)	equipment	markets.	As	part	of	the	2012	EES	Restructuring	Plan,	Applied relocated	certain	manufacturing,	business	operations	and	customer	support	functions	of	its	precision	wafering	systems	business	and	ceased	LED	development	activities. This	 plan	 impacted	 approximately	300	 positions	 globally.	As	 of	October	27,	2013,	principal	activities	related	 to	 this	plan	were	complete.	Total	costs	 incurred	 in implementing	this	plan	were	$87	million,	of	which	$13	million	were	inventory-related	charges.

During	fiscal	2013	and	2012,	Applied	recognized	$26	million	and	$48	million,	respectively,	of	restructuring	and	asset	impairment	charges	in	connection	with	the 2012	EES	Restructuring	Plan.	As	of	October	27,	2013,	remaining	severance	accrual	associated	with	restructuring	reserves	under	this	program	was	$5	million.

Also	in	fiscal	2013	and	2012,	Applied	incurred	$2	million	and	$14	million,	respectively	of	severance	and	other	employee-related	costs	in	connection	with	the integration	of	Varian.

Results	for	fiscal	2011	included	favorable	adjustments	of	$60	million	related	to	restructuring	program	charges	recorded	in	prior	years,	offset	in	part	by	asset impairment	charges	of	$30	million	primarily	related	to	certain	intangible	assets.

# Gain	on	Sale	of	Facilities,	net

In	the	first	quarter	of	fiscal	2011,	Applied	received	$39	million	in	proceeds	from	the	sale	of	a	property	located	in	North	America	and	incurred	a	loss	of	$1	million on	the	transaction.	In	the	third	quarter	of	fiscal	2011,	Applied	received	$60	million	in	proceeds	from	the	sale	of	another	property	located	in	North	America	and	incurred a	gain	of	$28	million	on	the	transaction.

# Impairments	of	Strategic	Investments

Equity	investments	in	privately-held	companies	are	generally	accounted	for	under	the	cost	method	of	accounting	and	are	periodically	assessed	for	other-than- temporary	impairment	when	an	event	or	circumstance	indicates	that	an	other-than-temporary	decline	in	value	may	have	occurred.	If	Applied	determines	that	an	other- than-temporary	impairment	has	occurred,	the	investment	will	be	written	down	to	its	estimated	fair	value	based	on	available	information,	such	as	pricing	in	recent	rounds of	financing,	current	cash	positions,	earnings	and	cash	flow	forecasts,	recent	operational	performance	and	any	other	readily	available	market	data.	During	fiscal	2013, 2012	 and	2011,	Applied	determined	that	certain	of	its	equity	investments	held	in	privately-held	companies	were	other-than-temporarily	impaired	and,	accordingly, recognized	impairment	charges	of	$6	million,	$17	million	and	$3	million,	respectively.

# Interest	Expense	and	Interest	and	Other	Income,	net

Interest	expense	and	interest	and	other	income,	net	for	the	past	three	fiscal	years	were	as	follows:

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions) |  |  |
| Interest\texpense | $95 | $95 | $59 | $— | $36 |
| Interest\tand\tother\tincome,\tnet | $19 | $17 | $42 | $2 | $(25) |

Interest	expenses	incurred	were	primarily	associated	with	the	senior	unsecured	notes	issued	in	June	2011	to	fund	a	portion	of	the	consideration	and	certain	costs associated	with	the	acquisition	of	Varian.	Interest	expense	remained	flat	during	fiscal	2013	from	the	prior	year,	while	interest	expense	increased	in	fiscal	2012	compared to	fiscal	2011	mainly	due	to	the	full	year	of	interest	expense	incurred	on	the	senior	unsecured	notes	in	fiscal	2012.

Interest	income	primarily	includes	interest	earned	on	cash	and	investments	and	realized	gains	on	sale	of	securities.	Interest	and	other	income	was	essentially	flat for	fiscal	2013	from	fiscal	2012.	The	decrease	in	interest	income	in	fiscal	2012	from	fiscal	2011	is	due	to	lower	cash	and	investment	balances	after	completion	of	the acquisition	of	Varian,	decreased	realized	gains	on	investment	securities,	and	lower	interest	rates.

# Income	Taxes

Income	tax	expenses	for	the	past	three	fiscal	years	were	as	follows:

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |  |
| Provision\tfor\tincome\ttaxes | $94 | $207 | $452 | $(113) | $(245) |
| Effective\tincome\ttax\trate | 26.9% | 65.5% | 19.0% | (38.6)\tpoints | 46.5\tpoints |

The	effective	tax	rate	for	fiscal	2013	was	significantly	lower	than	the	rate	for	fiscal	2012	due	primarily	to	the	geographic	composition	of	Applied's	pre-tax	income, lower	nondeductible	goodwill	impairment	charges,	and	reinstatement	of	the	U.S.	federal	research	and	development	tax	credit	retroactive	to	its	expiration	in	December 2012.	These	reductions	were	partially	offset	by	a	lower	benefit	in	fiscal	2013	from	the	U.S.	federal	domestic	production	deduction,	which	was	limited	by	U.S.	federal taxable	income.

The	effective	income	tax	rate	for	fiscal	2012	was	significantly	higher	than	the	rate	for	fiscal	2011	due	primarily	to	nondeductible	goodwill	impairment	charges	in fiscal	2012	and	the	fiscal	2011	benefit	from	the	December	2010	reinstatement	of	the	U.S.	R&D	tax	credit	retroactive	to	its	expiration	in	December	2009.

# Segment	Information

Applied	reports	financial	results	 in	four	segments:	Silicon	Systems	Group,	Applied	Global	Services,	Display,	and	Energy	and	Environmental	Solutions.	A description	of	the	products	and	services,	as	well	as	financial	data,	for	each	reportable	segment	can	be	found	in	Note	16	of	Notes	to	Consolidated	Financial	Statements. Applied	does	not	allocate	to	its	reportable	segments	certain	operating	expenses	that	it	manages	separately	at	the	corporate	level.	These	unallocated	costs	include	costs	for share-based	compensation;	certain	management,	finance,	legal,	human	resources,	and	RD&E	functions	provided	at	the	corporate	level;	and	unabsorbed	information technology	and	occupancy.	In	addition,	Applied	does	not	allocate	to	its	reportable	segments	restructuring	and	asset	impairment	charges	and	any	associated	adjustments related	to	restructuring	actions,	unless	these	actions	pertain	to	a	specific	reportable	segment.

The	results	for	each	reportable	segment	are	discussed	below.

The	 Silicon	 Systems	 Group	 segment	 includes	 semiconductor	 capital	 equipment	 for	 deposition,	 etch,	 ion	 implantation,	 rapid	 thermal	 processing,	 chemical mechanical	planarization,	metrology	and	inspection,	and	wafer	packaging.	Development	efforts	are	focused	on	solving	customers'	key	technical	challenges	in	transistor, patterning,	interconnect	and	packaging	performance	as	devices	scale	to	advanced	technology	nodes.	The	mobility	trend	remains	the	largest	influence	on	industry spending,	as	it	drives	device	manufacturers	to	deliver	high-performance,	low-power	processors	and	affordable	solid-state	storage	in	a	small	form	factor.

With	the	acquisition	of	Varian,	Applied	acquired	ion	implantation	technology	for	semiconductor	as	well	as	c-Si	solar	cell	manufacturing,	which	was	recorded under	the	Silicon	Systems	Group	segment	in	fiscal	2012.	In	fiscal	2013,	Applied	began	marketing	the	solar	implant	products	commercially	through	its	Energy	and Environmental	Solutions	segment.	Accordingly,	effective	in	the	first	quarter	of	fiscal	2013,	Applied	accounts	for	its	solar	implant	products	under	the	Energy	and Environmental	Solutions	segment.	The	effect	of	the	solar	implant	products	was	not	material	to	the	operations	of	either	the	Silicon	Systems	Group	or	Energy	and Environmental	Solutions	segments.

# Certain	significant	measures	for	the	past	three	fiscal	years	were	as	follows:

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2013	over	2012 | 2012	over	2011 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) |  |  |
| New\torders | $5,507 | $5,294 | $5,489 | $213 | 4% | $(195) | (4)% |
| Net\tsales | 4,775 | 5,536 | 5,415 | (761) | (14)% | 121 | 2% |
| Book\tto\tbill\tratio | 1.2 | 1.0 | 1.0 |  |  |  |  |
| Operating\tincome | 876 | 1,243 | 1,764 | (367) | (30)% | (521) | (30)% |
| Operating\tmargin | 18.3% | 22.5% | 32.6% | (4.2)\tpoints | (4.2)\tpoints | (10.1)\tpoints | (10.1)\tpoints |
| Non-GAAP\tAdjusted\tResults |  |  |  |  |  |  |  |
| Non-GAAP\tadjusted\toperating\nincome | $1,050 | $1,537 | $1,779 | (487) | (32)% | (242) | (14)% |
| Non-GAAP\tadjusted\toperating\nmargin | 22.0% | 27.8% | 32.9% | (5.8)\tpoints | (5.8)\tpoints | (5.1)\tpoints | (5.1)\tpoints |

New	orders	for	the	Silicon	Systems	Group	by	end	use	application	for	the	past	three	fiscal	years	were	as	follows:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Foundry | 58% | 62% | 47% |
| Memory | 27% | 22% | 28% |
| Logic\tand\tother | 15% | 16% | 25% |
|  | 100% | 100% | 100% |

The	following	region	accounted	for	at	least	30	percent	of	total	net	sales	for	the	Silicon	Systems	Group	segment	for	one	or	more	of	the	past	three	fiscal	years:

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2013	over	2012 | 2012	over	2011 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |  |  |
| Taiwan | $2,171 | $1,744 | $1,309 | $427 | 24% | $435 | 33% |

Customers	in	Taiwan	accounted	for	45	percent,	32	percent	and	24	percent	of	the	total	net	sales	of	the	Silicon	Systems	Group	in	fiscal	2013,	2012	and	2011, respectively.	Customers	in	Korea	and	United	States	together	contributed	31	percent,	49	percent	and	43	percent	of	the	total	net	sales	for	this	segment	in	fiscal	2013,	2012 and	2011,	respectively.

The	increase	in	new	orders	in	fiscal	2013	compared	to	fiscal	2012	primarily	reflected	increased	demand	from	memory	customers.	In	the	fourth	quarter	of	fiscal 2013,	new	orders	were	$1.4	billion,	an	 increase	of	16	percent	compared	to	the	prior	quarter.	Net	sales	decreased	in	fiscal	2013	from	the	prior	year	due	to	overall decreased	wafer	fab	equipment	spending	in	the	semiconductor	industry.	Three	customers	accounted	for	approximately	65	percent	of	new	orders	and	net	sales	in	this segment	in	fiscal	2013.	Approximately	49	percent	of	net	sales	in	the	fourth	quarter	of	fiscal	2013	were	for	orders	received	and	shipped	within	the	quarter,	which increased	from	45	percent	in	the	third	quarter	of	fiscal	2013.	Operating	income	and	non-GAAP	adjusted	operating	income	for	fiscal	2013	decreased	compared	to	fiscal 2012,	reflecting	the	decrease	in	net	sales,	changes	in	product	mix	and	higher	RD&E	spend.

Fiscal	2012	financial	results	reflected	continued	uncertain	global	economic	conditions	that	led	to	decreased	demand	for	semiconductor	manufacturing	equipment compared	to	fiscal	2011,	particularly	in	the	second	half	of	fiscal	2012.	In	the	fourth	quarter	of	fiscal	2012,	new	orders	were	$741	million,	a	decrease	of	36	percent compared	to	the	third	quarter	of	fiscal	2012.	The	decrease	in	new	orders	in	fiscal	2012	from	the	prior	year	was	primarily	due	to	reduced	demand	from	memory	and	logic customers,	partially	offset	by	the	addition	of	Varian.	Net	sales	increased	slightly	in	fiscal	2012	from	the	prior	year	due	to	the	addition	of	net	sales	attributable	to	Varian, partially	offset	by	decreased	investment	from	memory	and	logic	customers.	Three	customers	accounted	for	60	percent	of	net	sales	in	this	segment	in	fiscal	2012. Approximately	53	percent	of	net	sales	in	the	fourth	quarter	of	fiscal	2012	were	for	orders	received	and	shipped	within	the	quarter,	which	remained	flat	from	the	third quarter	of	fiscal	2012.	Operating	income	and	non-GAAP	adjusted	operating	income	for	fiscal	2012	decreased	compared	to	fiscal	2011,	due	to	changes	in	customer	and product	mix	with	the	inclusion	of	Varian,	costs	associated	with	Varian	operations,	and	additional	inventory	charges.	Operating	income	for	fiscal	2012	also	included Varian	acquisition-related	costs	of	$290	million.

The	Applied	Global	Services	segment	encompasses	spares,	upgrades,	services,	remanufactured	earlier	generation	equipment	and	factory	automation	software	for semiconductor,	display	and	solar	manufacturing.	These	products	are	designed	to	improve	customers'	operating	efficiency,	optimize	their	operating	costs,	and	lessen	the environmental	impact	of	their	factories.	Customer	demand	for	products	and	services	is	fulfilled	through	a	global	distribution	system	with	trained	service	engineers located	in	close	proximity	to	customer	sites.

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2013	over	2012 | 2012	over	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) |  |  |
| New\torders | $2,090 | $2,274 | $2,333 | $(184) | (8)% | $(59) | (3)% |
| Net\tsales | 2,023 | 2,285 | 2,413 | (262) | (11)% | (128) | (5)% |
| Book\tto\tbill\tratio | 1.0 | 1.0 | 1.0 |  |  |  |  |
| Operating\tincome | 436 | 502 | 482 | (66) | (13)% | 20 | 4\t% |
| Operating\tmargin | 21.6% | 22.0% | 20.0% | (0.4)\tpoints | (0.4)\tpoints | 2.0\tpoints | 2.0\tpoints |
| Non-GAAP\tAdjusted\tResults |  |  |  |  |  |  |  |
| Non-GAAP\tadjusted\toperating\nincome | 443 | 530 | 513 | (87) | (16)% | 17 | 3\t% |
| Non-GAAP\tadjusted\toperating\nmargin | 21.9% | 23.2% | 21.3% | (1.3)\tpoints | (1.3)\tpoints | 1.9\tpoints |  |

There	were	no	individual	regions	that	accounted	for	at	least	30	percent	of	total	net	sales	for	the	Applied	Global	Services	segment	for	any	of	the	past	three	fiscal years.

For	fiscal	2013,	new	orders	and	net	sales	decreased	compared	to	fiscal	2012	due	primarily	to	lower	demand	and	investments	for	semiconductor	spares	and	services. In	addition,	the	decrease	in	net	sales	was	also	due	to	lower	investments	in	display	upgrades.	Fiscal	2012	net	sales	also	included	$85	million	in	sales	for	a	thin	film	solar production	line.	Operating	income	and	non-GAAP	adjusted	operating	income	decreased	in	fiscal	2013	compared	to	fiscal	2012,	reflecting	lower	sales	and	a	$20	million customs	duty	assessment,	partially	offset	by	lower	operating	expenses	from	spending	controls.

For	fiscal	2012,	new	orders	and	net	sales	decreased	compared	to	fiscal	2011	due	primarily	to	lower	sales	of	200mm	systems,	offset	in	part	by	the	addition	of Varian.	Operating	income	and	non-GAAP	adjusted	operating	income	increased	in	fiscal	2012	compared	to	fiscal	2011	primarily	due	to	the	sale	of	the	thin	film	solar	line, for	which	inventory	had	been	fully	reserved	prior	to	fiscal	2012,	partially	offset	by	inventory	charges	of	approximately	$57	million.	Operating	income	also	included restructuring	and	asset	impairment	charges	of	$15	million	associated	with	the	2012	EES	Restructuring	Plan	and	the	integration	of	Varian.

The	Display	segment	encompasses	products	for	manufacturing	LCDs,	OLEDs,	and	other	display	technologies	for	TVs,	personal	computers	(PCs),	tablets,	smart phones,	and	other	consumer-oriented	devices.	The	segment	is	focused	on	expanding	its	presence	through	technologically-differentiated	equipment	for	manufacturing larger-scale	TVs;	entry	into	new	markets	such	as	the	LTPS,	metal	oxide,	and	touch	panel	sectors;	and	development	of	products	that	enable	cost	reductions	through productivity	and	uniformity.	Display	industry	growth	depends	primarily	on	consumer	demand	for	increasingly	larger	and	more	advanced	LCD	TVs	and	high	resolution displays	for	next	generation	mobile	devices.

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2013	over	2012 | 2012	over	2011 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) |  |  |
| New\torders | $703 | $274 | $636 | $429 | 157% | $(362) | (57)% |
| Net\tsales | 538 | 473 | 699 | 65 | 14% | (226) | (32)% |
| Book\tto\tbill\tratio | 1.3 | 0.6 | 0.9 |  |  |  |  |
| Operating\tincome | 74 | 25 | 147 | 49 | 196% | (122) | (83)% |
| Operating\tmargin | 13.8% | 5.3% | 21.0% | 8.5\tpoints | 8.5\tpoints | (15.7)\tpoints | (15.7)\tpoints |
| Non-GAAP\tAdjusted\tResults |  |  |  |  |  |  |  |
| Non-GAAP\tadjusted\toperating\nincome | $80 | $32 | $154 | 48 | 150% | (122) | (79)% |
| Non-GAAP\tadjusted\toperating\nmargin | 14.9% | 6.8% | 22.0% | 8.1\tpoints | 8.1\tpoints | (15.2)\tpoints | (15.2)\tpoints |

The	following	regions	accounted	for	at	least	30	percent	of	total	net	sales	for	the	Display	segment	for	one	or	more	of	the	past	three	fiscal	years:

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2013	over	2012 | 2012	over	2011 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |  |
| Taiwan | $50 | $179 | $216 | $(129) | (72)% | $(37) | (17)% |
| China | $260 | $133 | $330 | $127 | 95% | $(197) | (60)% |
| Korea | $175 | $88 | $111 | $87 | 99% | $(23) | (21)% |

In	fiscal	2013,	customers	in	China	accounted	for	48	percent	of	total	net	sales	for	the	Display	segment	compared	to	28	percent	in	fiscal	2012,	and	47	percent	in	fiscal 2011.	Customers	in	Korea	accounted	for	33	percent	of	total	net	sales	for	the	Display	segment	in	fiscal	2013	compared	to	19	percent	in	fiscal	2012,	and	16	percent	in	fiscal 2011.	Customers	in	Taiwan	accounted	for	9	percent	of	total	net	sales	for	the	segment	in	fiscal	2013	compared	to	38	percent	in	fiscal	2012,	and	31	percent	in	fiscal	2011. The	increase	in	net	sales	from	customers	in	China	and	Korea	reflected	the	recovery	in	demand	for	TV	manufacturing	equipment,	while	the	decrease	in	net	sales	from customers	in	Taiwan	primarily	related	to	lower	sales	of	mobile	display	manufacturing	equipment.

Fiscal	2013	operating	results	reflected	a	recovery	in	demand	for	TV	manufacturing	equipment	and	continued	demand	for	advanced	mobile	display	equipment, which	resulted	in	increased	new	orders,	net	sales,	operating	income	and	non-GAAP	adjusted	operating	income	compared	to	fiscal	2012.	In	the	fourth	quarter	of	fiscal 2013,	new	orders	were	$114	million,	down	55	percent	from	the	prior	quarter,	and	reflected	customer	push-outs	of	orders.	Net	sales	in	the	fourth	quarter	of	fiscal	2013 were	$163	million,	almost	flat	compared	to	the	prior	quarter.	Two	customers	accounted	for	approximately	50	percent	of	net	sales	for	the	Display	segment	in	fiscal	2013.

Fiscal	2012	operating	results	reflected	a	continued	overcapacity	in	the	large	substrate	LCD	TV	equipment	industry	that	resulted	in	decreased	new	orders	and	net sales	in	fiscal	2012.	The	downturn	in	the	LCD	TV	equipment	industry	was	partially	offset	by	increased	demand	for	advanced	mobile	display	equipment.	Four	customers accounted	for	60	percent	of	net	sales	for	the	Display	segment	in	fiscal	2012.

The	Energy	and	Environmental	Solutions	segment	includes	products	for	fabricating	c-Si	solar	PVs,	as	well	as	high	throughput	roll-to-roll	deposition	equipment	for flexible	electronics,	packaging	and	other	applications.	This	business	is	focused	on	delivering	solutions	to	generate	and	conserve	energy,	with	an	emphasis	on	lowering the	cost	to	produce	solar	power	and	increasing	conversion	efficiency.	While	end-demand	for	solar	PVs	has	been	robust	over	the	last	several	years,	investment	levels	in capital	equipment	remain	depressed.	Global	solar	PV	production	capacity	exceeds	anticipated	demand,	which	has	caused	solar	PV	manufacturers	to	significantly	reduce or	delay	investments	in	manufacturing	capacity	and	new	technology,	or	in	some	instances	to	cease	operations.

|  | 2013 | 2012 | 2011 | 2013	over	2012 | 2013	over	2012 | 2012	over	2011 | 2012	over	2011 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) | (In\tmillions,\texcept\tpercentages\tand\tratios) |  |  |
| New\torders | $166 | $195 | $1,684 | $(29) | (15)% | $(1,489) | (88)% |
| Net\tsales | 173 | 425 | 1,990 | (252) | (59)% | (1,565) | (79)% |
| Book\tto\tbill\tratio | 1.0 | 0.5 | 0.8 |  |  |  |  |
| Operating\tincome\t(loss) | (433) | (668) | 453 | 235 | 35% | (1,121) | (247)% |
| Operating\tmargin | (250.3)% | (157.2)% | 22.8% | (93.1)\tpoints | (93.1)\tpoints | (180.0)\tpoints | (180.0)\tpoints |
| Non-GAAP\tAdjusted\tResults |  |  |  |  |  |  |  |
| Non-GAAP\tadjusted\toperating\nincome\t(loss) | (115) | (184) | 444 | 69 | 38% | (628) | (141)% |
| Non-GAAP\tadjusted\toperating\nmargin | (66.5)% | (43.3)% | 22.3% | (23.2)\tpoints | (23.2)\tpoints | (65.6)\tpoints | (65.6)\tpoints |

The	following	region	accounted	for	at	least	30	percent	of	total	net	sales	for	the	Energy	and	Environmental	Solutions	segment	for	one	or	more	of	the	past	three	fiscal

# years:

|  |  |  |  |  | Change |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 | 2011 | 2013\tover\t2012 |  | 2012\tover\t2011 |  |
|  |  |  |  | (In\tmillions,\texcept\tpercentages) |  |  |  |
| China | $100 | $210 | $1,584 | $(110) | (52)% | $(1,374) | (87)% |

In	fiscal	2013,	customers	in	China	accounted	for	58	percent	of	total	net	sales	for	the	Energy	and	Environmental	Solutions	segment	compared	to	49	percent	in	fiscal 2012,	and	80	percent	in	fiscal	2011.

Fiscal	2013	financial	results	continued	to	reflect	excess	manufacturing	capacity	in	the	solar	industry,	which	resulted	in	low	levels	of	new	orders	and	net	sales,	and consequently	an	operating	loss	for	the	segment.	In	the	fourth	quarter	of	fiscal	2013,	new	orders	were	$40	million,	up	from	$19	million	in	the	prior	quarter	and	net	sales were	$44	million,	almost	flat	from	the	prior	quarter.	Operating	loss	for	fiscal	2013	included	restructuring	and	asset	impairment	charges	of	$25	million	associated	with the	2012	EES	Restructuring	Plan	discussed	above.	Details	on	restructuring	and	asset	impairment	charges	are	also	included	in	Note	11	of	the	Notes	to	the	Consolidated Financial	Statements.

Operating	loss	for	fiscal	2013	also	included	goodwill	and	intangible	asset	impairment	charges	of	$278	million.	During	the	second	quarter	of	fiscal	2013,	Applied performed	the	two-step	impairment	test	and	concluded	that	the	Energy	and	Environmental	Solutions	reporting	unit's	carrying	value	exceeded	its	fair	value	and	therefore recorded	a	goodwill	impairment	charge	of	$224	million,	representing	all	of	the	remaining	goodwill	for	this	reporting	unit.	Applied	also	performed	an	impairment	test	for long-lived	assets	associated	with	the	reporting	unit	and	determined	that	the	majority	of	intangible	assets	were	impaired.	Accordingly,	during	the	second	quarter	of	fiscal 2013,	Applied	recorded	an	impairment	charge	of	$54	million	related	to	these	intangible	assets.	See	discussion	in	the	Impairment	of	Goodwill	section	above	and	Note	9 of	Notes	to	Consolidated	Financial	Statements	for	further	details.

Fiscal	2012	financial	results	reflected	continued	excess	manufacturing	capacity	in	the	solar	industry,	the	impairment	of	a	portion	of	the	segment's	goodwill	and	a restructuring	program.	In	the	fourth	quarter	of	fiscal	2012,	new	orders	were	$65	million,	an	increase	of	86	percent	compared	to	the	third	quarter	of	fiscal	2012's	low	level of	$35	million	in	new	orders.	During	fiscal	2012,	65	percent	of	the	segment's	net	sales	were	from	products	shipped	in	earlier	periods	than	fiscal	2012.	For	fiscal	2012, new	orders	and	net	sales	decreased	compared	to	fiscal	2011	reflecting	significantly	decreased	demand	for	c-Si	equipment.	The	Energy	and	Environmental	Solutions segment	reported	an	operating	loss	of	$668	million	for	fiscal	2012	compared	to	an	operating	income	of	$453	million	for	fiscal	2011	due	primarily	to	lower	sales, additional	 inventory	 charges,	 impairment	 and	 restructuring	 charges	 during	 the	 year.	 Restructuring	 and	 asset	 impairment	 charges	 of	$38	 million	 and	 a	 goodwill impairment	charge	of	$421	million	were	recorded	in	fiscal	2012.

# Business	Combinations

# Tokyo	Electron	Limited

On	September	24,	2013,	Applied	and	TEL	entered	into	a	definitive	agreement	to	effect	a	strategic	combination	of	their	respective	businesses	into	a	new	combined company	through	a	"merger	of	equals."	TEL,	a	Japanese	corporation,	is	a	global	provider	of	semiconductor,	flat	panel	display	and	photovoltaic	panel	production equipment.	Under	the	terms	of	the	agreement,	TEL	shareholders	will	receive	3.25	shares	of	the	new	combined	company	for	every	TEL	share	held.	Applied	stockholders will	receive	one	share	of	the	new	combined	company	for	every	Applied	share	held.	Based	on	the	number	of	shares	of	Applied	common	stock	and	shares	of	TEL common	stock	expected	to	be	issued	and	outstanding	immediately	prior	to	the	closing	of	the	transaction,	it	is	anticipated	that,	immediately	following	the	transaction, former	Applied	stockholders	and	former	TEL	shareholders	will	own	approximately	68%	and	32%,	respectively,	of	the	new	combined	company.

The	new	combined	company	will	have	a	new	name,	dual	headquarters	in	Tokyo	and	Santa	Clara,	and	a	dual	listing	on	the	Tokyo	Stock	Exchange	and	NASDAQ, and	will	be	incorporated	in	the	Netherlands.	The	closing	of	the	transaction	is	subject	to	customary	conditions,	including	approval	by	Applied's	and	TEL's	shareholders and	regulatory	approvals.	It	is	expected	that	the	combined	company	will	commence	a	$3.0	billion	stock	repurchase	program	targeted	to	be	executed	within	12	months following	the	closing	of	the	transaction.

The	business	combination	agreement	contains	mutual	pre-closing	covenants,	including	the	obligation	of	Applied	and	TEL	to	conduct	their	businesses	in	the	ordinary course	consistent	in	all	material	respects	with	past	practices.	The	agreement	also	contains	termination	rights	for	Applied	and	TEL	and	provides	that	upon	certain	events, such	as	a	termination	due	to	a	change	in	recommendation	by	the	other	party	or	a	termination	relating	to	certain	tax	rulings,	a	termination	fee	of	$400	million	is	payable.

# Varian	Semiconductor	Equipment	Associates,	Inc.

On	November	10,	2011,	Applied	completed	the	acquisition	of	Varian,	a	public	company	manufacturer	of	semiconductor	processing	equipment	and	the	leading supplier	of	ion	implantation	equipment	used	by	chip	makers	globally,	for	an	aggregate	purchase	price	of	$4.2	billion	in	cash,	net	of	cash	acquired	and	assumed	earned equity	awards	of	$27	million,	pursuant	to	an	Agreement	and	Plan	of	Merger	dated	as	of	May	3,	2011.	Applied's	primary	reasons	for	this	acquisition	were	to	complement existing	product	offerings	and	to	provide	opportunities	for	future	growth.	The	acquired	business	is	primarily	included	in	results	for	the	Silicon	Systems	Group	and Applied	Global	Services	segments.

Applied	funded	the	transaction	with	a	combination	of	existing	cash	balances	and	debt.	On	June	8,	2011,	Applied	issued	senior	unsecured	notes	in	the	aggregate principal	amount	of	$1.75	billion	and	used	the	net	proceeds	of	the	Notes	to	fund	a	portion	of	the	consideration	and	certain	costs	associated	with	the	acquisition.	See	Note 10	of	Notes	to	Consolidated	Financial	Statements	for	additional	discussion	of	long-term	debt.

# Recent	Accounting	Pronouncements

In	July	2013,	the	Financial	Accounting	Standards	Board	(FASB)	issued	authoritative	guidance	that	will	require	an	unrecognized	tax	benefit	to	be	presented	as	a reduction	of	a	deferred	tax	asset	for	a	net	operating	loss	carryforward,	a	similar	tax	loss	or	a	tax	credit	carryforward,	with	certain	exceptions.	The	authoritative	guidance becomes	effective	for	Applied	in	the	first	quarter	of	fiscal	2015,	with	early	adoption	permitted.	The	guidance	is	not	expected	to	have	an	impact	on	Applied's	financial position	or	results	of	operations.

In	February	2013,	the	FASB	issued	authoritative	guidance	that	will	require	a	public	entity	to	present	in	its	annual	and	interim	financial	statements	information about	reclassification	adjustments	from	accumulated	other	comprehensive	income	in	a	single	note	or	on	the	face	of	the	financial	statements.	The	authoritative	guidance becomes	effective	for	Applied	in	the	first	quarter	of	fiscal	2014,	with	early	adoption	permitted,	and	is	not	expected	to	have	an	impact	on	Applied's	financial	position	or results	of	operations.

# Financial	Condition,	Liquidity	and	Capital	Resources

Applied's	cash,	cash	equivalents	and	investments	decreased	to	$2.9	billion	at	October	27,	2013	from	$3.0	billion	at	October	28,	2012.

Cash,	cash	equivalents	and	investments	consist	of	the	following:

|  | October	27,<br>2013 | October	28,<br>2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Cash\tand\tcash\tequivalents | $1,711 | $1,392 |
| Short-term\tinvestments | 180 | 545 |
| Long-term\tinvestments | 1,005 | 1,055 |
| Total\tcash,\tcash-equivalents\tand\tinvestments | $2,896 | $2,992 |

# Sources	and	Uses	of	Cash

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

| Cash	provided	by	operating	activities | $623 | $1,851 | $2,429 |
| :--- | :--- | :--- | :--- |
| Cash\tprovided\tby\t(used\tin)\tinvesting\tactivities | $215 | $(4,660) | $707 |
| Cash\tprovided\tby\t(used\tin)\tfinancing\tactivities | $(519) | $(1,754) | $960 |

# Operating	Activities

Cash	from	operating	activities	for	fiscal	2013	was	$623	million,	which	reflects	net	income	adjusted	for	the	effect	of	non-cash	charges	and	changes	in	working capital	components.	Non-cash	charges	included	depreciation,	amortization,	share-based	compensation,	impairment	of	goodwill	and	intangible	assets,	restructuring	and asset	impairments	and	deferred	income	taxes.	The	decrease	in	cash	from	operating	activities	from	fiscal	2012	to	fiscal	2013	was	primarily	due	to	increases	in	accounts receivable	and	inventory	balances.	The	increase	in	accounts	receivable	resulted	from	a	higher	proportion	of	shipments	near	the	end	of	the	year,	while	inventories	grew	to support	projected	customer	demand.

Applied	did	not	utilize	programs	to	discount	letters	of	credit	issued	by	customers	in	fiscal	2013	and	2012.	Applied	utilized	programs	to	discount	letters	of	credit issued	by	customers	of	$211	million	in	fiscal	2011.	Discounting	of	letters	of	credit	depends	on	many	factors,	including	the	willingness	of	financial	institutions	to discount	the	letters	of	credit	and	the	cost	of	such	arrangements.	There	was	no	factoring	of	accounts	receivable	or	discounting	of	promissory	notes	in	fiscal	2013.	Applied factored	accounts	receivable	and	discounted	promissory	notes	of	$93	million	in	fiscal	2012,	and	$80	million	in	fiscal	2011.

Applied's	working	capital	was	$3.2	billion	at	October	27,	2013	and	$2.8	billion	at	October	28,	2012.	During	fiscal	2011,	Applied	received	a	U.S.	federal	income tax	refund	of	$276	million	including	interest.

Days	sales,	inventory	and	payable	outstanding	at	the	end	of	each	of	the	periods	indicated	are:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Days\tsales\toutstanding | 75 | 67 | 62 |
| Days\tinventory\toutstanding | 108 | 109 | 116 |
| Days\tpayable\toutstanding | 44 | 34 | 33 |

Days	sales	outstanding	varies	due	to	the	timing	of	shipments	and	the	payment	terms.	The	days	sales	outstanding	in	fiscal	2012	included	a	favorable	impact	from the	timing	of	the	sale	of	thin	film	production	line	during	the	year.	Days	inventory	outstanding	decreased	slightly	from	fiscal	2012	to	fiscal	2013,	while	days	payable outstanding	increased.	The	increase	in	days	payable	outstanding	primarily	reflected	an	increase	in	accounts	payable	due	to	increase	in	inventory	purchases	near	the	end of	the	period	to	support	projected	customer	demand.

# Investing	Activities

Applied	generated	$215	million	of	cash	from	investing	activities	in	fiscal	2013	and	$707	million	in	fiscal	2011.	Applied	used	$4.7	billion	of	cash	for	investing activities	in	fiscal	2012.	Capital	expenditures	were	$197	million	in	fiscal	2013,	$162	million	in	fiscal	2012,	and	$209	million	in	fiscal	2011.	Capital	expenditures	in	fiscal 2013	were	primarily	for	demonstration	and	test	equipment	as	well	as	laboratory	tools	and	equipment	upgrades	in	North	America.	Capital	expenditures	in	fiscal	2012 were	primarily	for	various	information	technology	expenditures	in	North	America,	including	the	addition	of	Varian,	and	expansion	of	semiconductor	assembly	centers in	Singapore.	Capital	expenditures	in	fiscal	2011	were	offset	by	$99	million	in	proceeds	received	from	the	sale	of	two	properties	located	in	North	America	and	$31 million	in	proceeds	received	from	the	completed	divestiture	of	certain	assets	held	for	sale.	Proceeds	from	sales	and	maturities	of	investments,	net	of	purchases	of investments,	 totaled	$406	million	 for	 fiscal	2013	 and	$786	million	 in	 fiscal	 2011,	 while	 purchases	 of	 investments,	 net	 of	 proceeds	 from	 sales	 and	 maturities	 of investments,	totaled	$308	million	for	fiscal	2012.	Investing	activities	also	included	investments	in	technology	and	acquisitions	of	companies	to	allow	Applied	to	access new	market	opportunities	or	emerging	technologies.	In	fiscal	2012,	Applied	acquired	Varian	for	$4.2	billion,	net	of	cash	acquired.

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

# Financing	Activities

Applied	used	cash	for	financing	activities	in	the	amount	of	$519	million	for	fiscal	2013	and	$1.8	billion	for	fiscal	2012.	Applied	generated	$960	million	of	cash from	financing	activities	in	fiscal	2011,	consisting	primarily	of	net	proceeds	received	from	the	issuance	of	senior	unsecured	notes	of	$1.75	billion.	Financing	activities for	these	periods	included	payment	of	cash	dividends	to	stockholders	and	issuances	and	repurchases	of	common	stock.	Cash	used	to	repurchase	shares	totaled	$245 million	 in	fiscal	2013,	$1.4	billion	 in	fiscal	2012,	 and	$468	million	 in	fiscal	2011.	In	March	2012,	Applied's	Board	of	Directors	approved	a	new	stock	repurchase program	authorizing	up	to	$3.0	billion	in	repurchases	over	the	next	three	years	ending	in	March	2015.	Proceeds	from	stock	issuances	related	to	equity	compensation awards	were	$182	million	in	fiscal	2013,	$97	million	in	fiscal	2012,	and	$95	million	in	fiscal	2011.

During	fiscal	2013,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.10	per	share	each	and	one	quarterly	cash	dividend	of	$0.09	per share.	During	fiscal	2012,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.09	per	share	each	and	one	quarterly	cash	dividend	of	$0.08	per share.	During	fiscal	2011,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.08	per	share	each	and	one	quarterly	cash	dividend	of	$0.07.	Cash paid	in	dividends	during	fiscal	2013,	2012	and	2011	amounted	to	$456	million,	$434	million	 and	$397	million,	respectively.	Applied	currently	anticipates	that	cash dividends	will	continue	to	be	paid	on	a	quarterly	basis,	although	the	declaration	of	any	future	cash	dividend	is	at	the	discretion	of	the	Board	of	Directors	and	will	depend on	Applied's	financial	condition,	results	of	operations,	capital	requirements,	business	conditions	and	other	factors,	as	well	as	a	determination	by	the	Board	of	Directors that	cash	dividends	are	in	the	best	interests	of	Applied's	stockholders.

Applied	has	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	with	a	group	of	banks	that	was	extended	by	one	year	in	May	2013	and	is	scheduled	to	expire	in	May	2017.	This	agreement	provides	for	borrowings	in United	States	dollars	at	interest	rates	keyed	to	one	of	the	two	rates	selected	by	Applied	for	each	advance	and	includes	financial	and	other	covenants	with	which	Applied was	in	compliance	at	October	27,	2013.	Remaining	credit	facilities	in	the	amount	of	approximately	$82	million	are	with	Japanese	banks.	Applied's	ability	to	borrow under	these	facilities	is	subject	to	bank	approval	at	the	time	of	the	borrowing	request,	and	any	advances	will	be	at	rates	indexed	to	the	banks'	prime	reference	rate denominated	in	Japanese	yen.	No	amounts	were	outstanding	under	any	of	these	facilities	at	both	October	27,	2013	and	October	28,	2012	and	Applied	has	not	utilized these	credit	facilities.

In	fiscal	2011,	Applied	established	a	short-term	commercial	paper	program	of	up	to	$1.5	billion.	At	October	27,	2013	and	October	28,	2012,	Applied	did	not	have any	commercial	paper	outstanding.

In	June	2011,	Applied	issued	senior	unsecured	notes	in	the	aggregate	principal	amount	of	$1.75	billion.	The	following	table	summarizes	the	notes	issued	in	June

| Due	Date | Principal<br>		Amount | Effective<br>		Interest	Rate | Interest<br>Payment	Dates |
| :--- | :--- | :--- | :--- |
|  | (In\tmillions) |  |  |
| 2.650%\tSenior\tNotes\tDue\t2016 | $400 | 2.666% | June\t15,\tDecember\t15 |
| 4.300%\tSenior\tNotes\tDue\t2021 | 750 | 4.326% | June\t15,\tDecember\t15 |
| 5.850%\tSenior\tNotes\tDue\t2041 | 600 | 5.879% | June\t15,\tDecember\t15 |

The	indenture	governing	the	notes	includes	certain	covenants	with	which	Applied	was	in	compliance	at	October	27,	2013.	See	Note	10	of	Notes	to	Consolidated Financial	Statements	for	additional	discussion	of	long-term	debt.

# Others

During	fiscal	2013,	Applied	did	not	record	any	additional	bad	debt	provision	but	reversed	$13	million	of	its	allowance	for	doubtful	accounts	as	a	result	of	lower risk	exposures	in	display	and	solar	customers.	While	Applied	believes	that	its	allowance	for	doubtful	accounts	at	October	27,	2013	is	adequate,	it	will	continue	to	closely monitor	customer	liquidity	and	economic	conditions.

As	of	October	27,	2013,	approximately	$1.2	billion	of	cash,	cash	equivalents,	and	marketable	securities	held	by	foreign	subsidiaries	may	be	subject	to	U.S.	taxes	if repatriated	for	U.S.	operations.	Of	this	amount,	Applied	intends	to	permanently	reinvest	approximately	$800	million	of	these	funds	outside	of	the	U.S.	and	does	not	plan to	repatriate	these	funds.	For	the	remaining	cash,	cash	equivalents	and	marketable	securities	held	by	foreign	subsidiaries,	U.S.	taxes	have	been	provided	for	in	the financial	statements.

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

For	details	on	standby	letters	of	credit	and	other	agreements	with	banks,	see	Off-Balance	Sheet	Arrangements	below.

# Off-Balance	Sheet	Arrangements

In	the	ordinary	course	of	business,	Applied	provides	standby	letters	of	credit	or	other	guarantee	instruments	to	third	parties	as	required	for	certain	transactions initiated	by	either	Applied	or	its	subsidiaries.	As	of	October	27,	2013,	the	maximum	potential	amount	of	future	payments	that	Applied	could	be	required	to	make	under these	guarantee	agreements	was	approximately	$41	million.	Applied	has	not	recorded	any	liability	in	connection	with	these	guarantee	agreements	beyond	that	required to	appropriately	account	for	the	underlying	transaction	being	guaranteed.	Applied	does	not	believe,	based	on	historical	experience	and	information	currently	available, that	it	is	probable	that	any	amounts	will	be	required	to	be	paid	under	these	guarantee	agreements.

Applied	also	has	agreements	with	various	banks	 to	facilitate	subsidiary	banking	operations	worldwide,	 including	overdraft	arrangements,	 issuance	of	bank guarantees,	and	letters	of	credit.	As	of	October	27,	2013,	Applied	Materials	Inc.	has	provided	parent	guarantees	to	banks	for	approximately	$102	million	to	cover	these arrangements.

Applied	also	has	operating	leases	for	various	facilities.	Total	rent	expense	was	$36	million	for	fiscal	2013,	$38	million	for	fiscal	2012,	and	$44	million	for	fiscal 2011.

# Contractual	Obligations

The	following	table	summarizes	Applied's	contractual	obligations	as	of	October	27,	2013:

|  |  |  | Payments	Due	by	Period |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Less\tThan | 1-3 | 3-5 | More\tThan |
| Contractual\tObligations | Total | 1\t\tYear | Years | Years | 5\t\tYears |
|  |  |  | (In\tmillions) |  |  |
| Long-term\tdebt\tobligations | $1,950 | $— | $400 | $200 | $1,350 |
| Interest\texpense\tassociated\twith\tlong-term\tdebt\tobligations | 1,330 | 92 | 185 | 149 | 904 |
| Operating\tlease\tobligations | 87 | 28 | 32 | 17 | 10 |
| Purchase\tobligations1 | 1,244 | 1,212 | 32 | — | — |
| Other\tlong-term\tliabilities2 | 278 | — | 94 | 42 | 142 |
|  | $4,889 | $1,332 | $743 | $408 | $2,406 |

1 Represents	Applied's	agreements	to	purchase	goods	and	services	consisting	of	Applied's	(a)	outstanding	purchase	orders	for	goods	and	services;	and	(b)	contractual requirements	to	make	specified	minimum	payments	even	if	Applied	does	not	take	delivery	of	the	contracted	goods.

2 Other	long-term	liabilities	do	not	include	noncurrent	income	taxes	payable,	noncurrent	deferred	income	taxes	payable	and	certain	tax-related	liabilities	due	to	the uncertainty	in	the	timing	of	future	payments.

In	addition	to	the	contractual	obligations	disclosed	above,	Applied	has	certain	tax	obligations.	Gross	interest	and	penalties	and	unrecognized	tax	benefits	that	are not	expected	to	result	in	payment	or	receipt	of	cash	within	one	year	have	been	reported	as	non-current	liabilities	on	the	Consolidated	Balance	Sheet.	As	of	October	27, 2013,	the	gross	liability	for	unrecognized	tax	benefits	was	$194	million.	Increases	or	decreases	to	interest	and	penalties	on	uncertain	tax	positions	are	included	in provision	 for	 income	 taxes	 in	 the	 Consolidated	 Statement	 of	 Operations.	 Interest	 and	 penalties	 accrued	 related	 to	 uncertain	 tax	 positions	 were	$7	million	 as	 of October	27,	2013	and	$7	million	as	of	October	28,	2012,	which	were	classified	as	a	noncurrent	liability	in	the	Consolidated	Balance	Sheets.	At	this	time,	Applied	is unable	to	make	a	reasonably	reliable	estimate	of	the	timing	of	payments	in	individual	years	due	to	uncertainties	in	the	timing	of	tax	audit	outcomes	and,	accordingly, such	amounts	are	not	included	in	the	above	contractual	obligation	table.

# Critical	Accounting	Policies	and	Estimates

The	preparation	of	consolidated	financial	statements	and	related	disclosures	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of America	requires	management	to	make	judgments,	assumptions	and	estimates	that	affect	the	amounts	reported.	Note	1	of	Notes	to	Consolidated	Financial	Statements 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	Applied's	consolidated	financial	statements	and	that	requires	management to	make	difficult,	subjective	or	complex	judgments	that	could	have	a	material	effect	on	Applied's	financial	condition	or	results	of	operations.	Specifically,	these	policies have	the	following	attributes:	(1)	Applied	is	required	to	make	assumptions	about	matters	that	are	highly	uncertain	at	the	time	of	the	estimate;	and	(2)	different	estimates Applied	could	reasonably	have	used,	or	changes	in	the	estimate	that	are	reasonably	likely	to	occur,	would	have	a	material	effect	on	Applied's	financial	condition	or results	of	operations.

Estimates	and	assumptions	about	future	events	and	their	effects	cannot	be	determined	with	certainty.	Applied	bases	its	estimates	on	historical	experience	and	on various	other	assumptions	believed	to	be	applicable	and	reasonable	under	the	circumstances.	These	estimates	may	change	as	new	events	occur,	as	additional	information is	 obtained	 and	 as	Applied's	 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	its	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	its	accounting policies	and	the	underlying	judgments	and	uncertainties	affecting	the	application	of	those	policies,	management	believes	that	Applied's	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	Applied's financial	condition	and	results	of	operations.

Management	believes	that	the	following	are	critical	accounting	policies	and	estimates:

# Revenue	Recognition

Applied	recognizes	revenue	when	all	four	revenue	recognition	criteria	have	been	met:	persuasive	evidence	of	an	arrangement	exists;	delivery	has	occurred	or services	have	been	rendered;	sales	price	is	fixed	or	determinable;	and	collectability	is	probable.	Each	sale	arrangement	may	contain	commercial	terms	that	differ	from other	arrangements.	In	addition,	Applied	frequently	enters	into	contracts	that	contain	multiple	deliverables.	Judgment	is	required	to	properly	identify	the	accounting units	of	the	multiple	deliverable	transactions	and	to	determine	the	manner	in	which	revenue	should	be	allocated	among	the	accounting	units.	Moreover,	judgment	is	used in	interpreting	the	commercial	terms	and	determining	when	all	criteria	of	revenue	recognition	have	been	met	in	order	for	revenue	recognition	to	occur	in	the	appropriate accounting	period.	While	changes	in	the	allocation	of	the	estimated	sales	price	between	the	units	of	accounting	will	not	affect	the	amount	of	total	revenue	recognized	for a	particular	sales	arrangement,	any	material	changes	in	these	allocations	could	impact	the	timing	of	revenue	recognition,	which	could	have	a	material	effect	on	Applied's financial	condition	and	results	of	operations.

# Warranty	Costs

Applied	provides	for	the	estimated	cost	of	warranty	when	revenue	is	recognized.	Estimated	warranty	costs	are	determined	by	analyzing	specific	product,	current and	historical	configuration	statistics	and	regional	warranty	support	costs.	Applied's	warranty	obligation	is	affected	by	product	and	component	failure	rates,	material usage	and	labor	costs	incurred	in	correcting	product	failures	during	the	warranty	period.	As	Applied's	customer	engineers	and	process	support	engineers	are	highly trained	and	deployed	globally,	labor	availability	is	a	significant	factor	in	determining	labor	costs.	The	quantity	and	availability	of	critical	replacement	parts	is	another significant	factor	in	estimating	warranty	costs.	Unforeseen	component	failures	or	exceptional	component	performance	can	also	result	in	changes	to	warranty	costs.	If actual	warranty	costs	differ	substantially	from	Applied's	estimates,	revisions	to	the	estimated	warranty	liability	would	be	required,	which	could	have	a	material	adverse effect	on	Applied's	business,	financial	condition	and	results	of	operations.

# Allowance	for	Doubtful	Accounts

Applied	maintains	an	allowance	for	doubtful	accounts	for	estimated	losses	resulting	from	the	inability	of	its	customers	to	make	required	payments.	This	allowance is	 based	 on	 historical	 experience,	 credit	 evaluations,	 specific	 customer	 collection	 history	 and	 any	 customer-specific	 issues	 Applied	 has	 identified.	 Changes	 in circumstances,	such	as	an	unexpected	material	adverse	change	in	a	major	customer's	ability	to	meet	its	financial	obligation	to	Applied	or	its	payment	trends,	may	require Applied	to	further	adjust	its	estimates	of	the	recoverability	of	amounts	due	to	Applied,	which	could	have	a	material	adverse	effect	on	Applied's	business,	financial condition	and	results	of	operations.

# Inventory	Valuation

Inventories	are	generally	stated	at	the	lower	of	cost	or	market,	with	cost	determined	on	a	first-in,	first-out	basis.	The	carrying	value	of	inventory	is	reduced	for estimated	obsolescence	by	the	difference	between	its	cost	and	the	estimated	market	value	based	upon	assumptions	about	future	demand.	Applied	evaluates	the	inventory carrying	value	for	potential	excess	and	obsolete	inventory	exposures	by	analyzing	historical	and	anticipated	demand.	In	addition,	inventories	are	evaluated	for	potential obsolescence	due	to	the	effect	of	known	and	anticipated	engineering	change	orders	and	new	products.	If	actual	demand	were	to	be	substantially	lower	than	estimated, additional	adjustments	for	excess	or	obsolete	inventory	may	be	required,	which	could	have	a	material	adverse	effect	on	Applied's	business,	financial	condition	and results	of	operations.

# Goodwill	and	Intangible	Assets

Applied	reviews	goodwill	and	intangible	assets	for	impairment	whenever	events	or	changes	in	circumstances	indicate	that	the	carrying	amount	of	these	assets	may not	be	recoverable,	and	also	annually	reviews	goodwill	and	intangibles	with	indefinite	lives	for	impairment.	Intangible	assets,	such	as	purchased	technology,	are generally	recorded	in	connection	with	a	business	acquisition.	The	value	assigned	to	intangible	assets	is	usually	based	on	estimates	and	judgments	regarding	expectations for	the	success	and	life	cycle	of	products	and	technology	acquired.	If	actual	product	acceptance	differs	significantly	from	the	estimates,	Applied	may	be	required	to record	an	impairment	charge	to	reduce	the	carrying	value	of	the	reporting	unit	to	its	estimated	fair	value.	The	fair	value	of	a	reporting	unit	is	estimated	using	both	the income	approach	and	the	market	approach	taking	into	account	such	factors	as	future	anticipated	operating	results	and	estimated	cost	of	capital.	Management	uses significant	judgment	when	assessing	goodwill	for	potential	impairment,	especially	in	emerging	markets.	A	severe	decline	in	market	conditions	could	result	in	an unexpected	impairment	charge	for	impaired	goodwill,	which	could	have	a	material	adverse	effect	on	Applied's	business,	financial	condition	and	results	of	operations.

The	effective	tax	rate	is	highly	dependent	upon	the	geographic	composition	of	worldwide	earnings,	tax	regulations	governing	each	region,	nondeductible	expenses incurred	in	connection	with	acquisitions	and	availability	of	tax	credits.	Management	carefully	monitors	the	changes	in	many	factors	and	adjusts	the	effective	tax	rate	as required.	If	actual	results	differ	from	these	estimates,	Applied	could	be	required	to	record	a	valuation	allowance	on	deferred	tax	assets	or	adjust	its	effective	tax	rate, which	could	have	a	material	adverse	effect	on	Applied's	business,	financial	condition	and	results	of	operations.

Applied	accounts	for	income	taxes	by	recognizing	deferred	tax	assets	and	liabilities	using	statutory	tax	rates	for	the	effect	of	temporary	differences	between	the book	and	tax	bases	of	recorded	assets	and	liabilities,	net	operating	losses	and	tax	credit	carryovers.	Deferred	tax	assets	are	also	reduced	by	a	valuation	allowance	if	it	is more	likely	than	not	that	a	portion	of	the	deferred	tax	asset	will	not	be	realized.	Management	has	determined	that	it	is	more	likely	than	not	that	Applied's	future	taxable income	will	be	sufficient	to	realize	its	deferred	tax	assets,	net	of	existing	valuation	allowance.

The	calculation	of	tax	liabilities	involves	significant	judgment	in	estimating	the	impact	of	uncertainties	in	the	application	of	complex	tax	laws.	Resolution	of	these uncertainties	in	a	manner	inconsistent	with	Applied's	expectations	could	have	a	material	impact	on	Applied's	results	of	operations	and	financial	condition.

# Non-GAAP	Adjusted	Results

Management	uses	non-GAAP	adjusted	results	to	evaluate	operating	and	financial	performance	in	light	of	business	objectives	and	for	planning	purposes.	Applied believes	these	measures	enhance	investors'	ability	to	review	the	Company's	business	from	the	same	perspective	as	management	and	facilitate	comparisons	of	this period's	results	with	prior	periods.	The	non-GAAP	adjusted	results	presented	below	exclude	the	impact	of	the	following,	where	applicable:	certain	acquisition-related costs;	restructuring	charges	and	any	associated	adjustments;	impairments	of	assets,	goodwill,	or	investments;	gain	or	loss	on	sale	of	facilities;	and	certain	tax	items. These	non-GAAP	adjusted	measures	are	not	in	accordance	with	GAAP	and	may	differ	from	non-GAAP	methods	of	accounting	and	reporting	used	by	other	companies. The	presentation	of	this	additional	information	should	not	be	considered	a	substitute	for	results	prepared	in	accordance	with	GAAP.

The	following	tables	present	a	reconciliation	of	the	GAAP	and	non-GAAP	adjusted	consolidated	results	for	the	past	three	fiscal	years:

# UNAUDITED	RECONCILIATION	OF	GAAP	TO	NON-GAAP	ADJUSTED	RESULTS

| Reported	gross	margin	-	GAAP	basis | $2,991 | $3,313 | $4,360 |
| :--- | :--- | :--- | :--- |
| Certain\titems\tassociated\twith\tacquisitions1 | 166 | 253 | 37 |
| Acquisition\tintegration\tand\tdeal\tcosts | 3 | — | — |
| Non-GAAP\tadjusted\tgross\tmargin | $3,160 | $3,566 | $4,397 |
| Non-GAAP\tadjusted\tgross\tmargin\tpercent\t(%\tof\tnet\tsales) | 42.1% | 40.9% | 41.8% |
| Non-GAAP\tAdjusted\tOperating\tIncome |  |  |  |
| Reported\toperating\tincome\t-\tGAAP\tbasis | $432 | $411 | $2,398 |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 278 | 421 | — |
| Certain\titems\tassociated\twith\tacquisitions1 | 201 | 298 | 51 |
| Acquisition\tintegration\tand\tdeal\tcosts | 38 | 81 | 19 |
| Certain\titems\tassociated\twith\tannounced\tbusiness\tcombination5 | 24 | — | — |
| Restructuring\tcharges\tand\tasset\timpairments2,\t3,\t4 | 63 | 168 | (30) |
| Gain\ton\tsale\tof\tfacilities,\tnet | (4) | — | (27) |
| Non-GAAP\tadjusted\toperating\tincome | $1,032 | $1,379 | $2,411 |
| Non-GAAP\tadjusted\toperating\tmargin\tpercent\t(%\tof\tnet\tsales) | 13.7% | 15.8% | 22.9% |
| Non-GAAP\tAdjusted\tNet\tIncome |  |  |  |
| Reported\tnet\tincome\t-\tGAAP\tbasis | $256 | $109 | $1,926 |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 278 | 421 | — |
| Certain\titems\tassociated\twith\tacquisitions1 | 201 | 298 | 51 |
| Acquisition\tintegration\tand\tdeal\tcosts | 38 | 81 | 19 |
| Certain\titems\tassociated\twith\tannounced\tbusiness\tcombination5 | 24 | — | — |
| Restructuring\tcharges\tand\tasset\timpairments2,\t3,\t4 | 63 | 168 | (30) |
| Impairment\t(gain\ton\tsale)\tof\tstrategic\tinvestments | 1 | 17 | (6) |
| Gain\ton\tsale\tof\tfacilities,\tnet | (4) | — | (27) |
| Reinstatement\tof\tfederal\tR&amp;D\ttax\tcredit | (13) | — | (13) |
| Resolution\tof\tprior\tyears'\tincome\ttax\tfilings\tand\tother\ttax\titems | (24) | (22) | (203) |
| Income\ttax\teffect\tof\tnon-GAAP\tadjustments | (102) | (112) | — |
| Non-GAAP\tadjusted\tnet\tincome | $718 | $960 | $1,717 |

1 These	items	are	incremental	charges	attributable	to	completed	acquisitions,	consisting	of	inventory	fair	value	adjustments	on	products	sold,	and	amortization	of	purchased intangible	assets.

2 Results	for	the	twelve	months	ended	October	27,	2013	included	$39	million	of	employee-related	costs,	net,	related	to	the	restructuring	program	announced	on	October	3, 2012,	and	restructuring	and	asset	impairment	charges	of	$26	million	related	to	the	restructuring	program	announced	on	May	10,	2012,	partially	offset	by	a	favorable adjustment	of	$2	million	related	to	other	restructuring	plans.

3 Results	for	the	twelve	months	ended	October	28,	2012	included	employee-related	costs	of	$106	million	related	to	the	restructuring	program	announced	on	October	3,	2012, restructuring	and	asset	impairment	charges	of	$48	million	related	to	the	restructuring	program	announced	on	May	10,	2012,	and	severance	charges	of	$14	million	related	to the	integration	of	Varian.

4 Results	for	the	twelve	months	ended	October	30,	2011	included	favorable	adjustments	of	$36	million	related	to	a	restructuring	program	announced	on	July	21,	2010,	$19 million	related	to	a	restructuring	program	announced	on	November	11,	2009,	and	$5	million	related	to	a	restructuring	program	announced	on	November	12,	2008,	partially offset	by	asset	impairment	charges	of	$30	million	primarily	related	to	certain	fixed	and	intangible	assets.

5 These	items	are	incremental	charges	related	to	the	announced	business	combination	agreement	with	Tokyo	Electron	Limited,	consisting	of	acquisition-related	costs	and	other charges.

| Reported	earnings	per	diluted	share	-	GAAP	basis | $0.21 | $0.09 | $1.45 |
| :--- | :--- | :--- | :--- |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 0.21 | 0.33 | — |
| Certain\titems\tassociated\twith\tacquisitions | 0.14 | 0.19 | 0.03 |
| Acquisition\tintegration\tand\tdeal\tcosts | 0.02 | 0.05 | 0.01 |
| Certain\titems\tassociated\twith\tannounced\tbusiness\tcombination | 0.01 | — | — |
| Restructuring\tcharges\tand\tasset\timpairments | 0.03 | 0.10 | (0.01) |
| Impairment\tof\tstrategic\tinvestments | — | 0.01 | (0.01) |
| Gain\ton\tsale\tof\tfacilities,\tnet | — | — | (0.02) |
| Reinstatement\tof\tfederal\tR&amp;D\ttax\tcredit\tand\tresolution\tof\tprior\tyears'\tincome\ttax\tfilings\tand\tother\ttax\titems | (0.03) | (0.02) | (0.16) |
| Non-GAAP\tadjusted\tearnings\tper\tdiluted\tshare | $0.59 | $0.75 | $1.29 |
| Weighted\taverage\tnumber\tof\tdiluted\tshares | 1,219 | 1,277 | 1,330 |

The	following	table	presents	a	reconciliation	of	the	GAAP	and	non-GAAP	adjusted	segment	results	for	the	past	three	fiscal	years:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
|  | (In\tmillions,\texcept\tpercentages) | (In\tmillions,\texcept\tpercentages) |  |
| SSG\tNon-GAAP\tAdjusted\tOperating\tIncome |  |  |  |
| Reported\toperating\tincome\t-\tGAAP\tbasis | $876 | $1,243 | $1,764 |
| Certain\titems\tassociated\twith\tacquisitions1 | 175 | 253 | 12 |
| Acquisition\tintegration\tand\tdeal\tcosts,\tnet | (2) | 37 | 3 |
| Restructuring\tcharges\tand\tasset\timpairments2 | 1 | 4 | — |
| Non-GAAP\tadjusted\toperating\tincome | $1,050 | $1,537 | $1,779 |
| Non-GAAP\tadjusted\toperating\tmargin\tpercent\t(%\tof\tnet\tsales) | 22.0\t% | 27.8\t% | 32.9% |
| AGS\tNon-GAAP\tAdjusted\tOperating\tIncome |  |  |  |
| Reported\toperating\tincome\t-\tGAAP\tbasis | $436 | $502 | $482 |
| Certain\titems\tassociated\twith\tacquisitions1 | 5 | 13 | 7 |
| Restructuring\tcharges\tand\tasset\timpairments2,\t3 | 2 | 15 | 24 |
| Non-GAAP\tadjusted\toperating\tincome | $443 | $530 | $513 |
| Non-GAAP\tadjusted\toperating\tmargin\tpercent\t(%\tof\tnet\tsales) | 21.9\t% | 23.2\t% | 21.3% |
| Display\tNon-GAAP\tAdjusted\tOperating\tIncome |  |  |  |
| Reported\toperating\tincome\t-\tGAAP\tbasis | $74 | $25 | $147 |
| Certain\titems\tassociated\twith\tacquisitions1 | 6 | 7 | 7 |
| Non-GAAP\tadjusted\toperating\tincome | $80 | $32 | $154 |
| Non-GAAP\tadjusted\toperating\tmargin\tpercent\t(%\tof\tnet\tsales) | 14.9\t% | 6.8\t% | 22.0% |
| EES\tNon-GAAP\tAdjusted\tOperating\tIncome\t(Loss) |  |  |  |
| Reported\toperating\tincome\t(loss)\t-\tGAAP\tbasis | $(433) | $(668) | $453 |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 278 | 421 | — |
| Certain\titems\tassociated\twith\tacquisitions1 | 15 | 25 | 25 |
| Restructuring\tcharges\tand\tasset\timpairments2,\t3,\t4 | 25 | 38 | (34) |
| Non-GAAP\tadjusted\toperating\tincome\t(loss) | $(115) | $(184) | $444 |
| Non-GAAP\tadjusted\toperating\tmargin\tpercent\t(%\tof\tnet\tsales) | (66.5)% | (43.3)% | 22.3% |

2 Results	for	the	twelve	months	ended	October	27,	2013	included	restructuring	and	asset	impairment	charges	of	$26	million	related	to	the	restructuring	program	announced	on May	10,	2012	and	severance	charges	of	$2	million	related	to	the	integration	of	Varian.

4 Results	for	the	twelve	months	ended	October	30,	2011	included	favorable	adjustments	of	$36	million	related	to	a	restructuring	program	announced	on	July	21,	2010,	partially offset	by	asset	impairment	charges	of	$26	million	primarily	related	to	certain	fixed	and	intangible	assets.

Note:	The	reconciliation	of	GAAP	and	non-GAAP	adjusted	segment	results	above	does	not	include	certain	operating	expenses	that	are	managed	separately	at	the corporate	level	and	certain	expenses	that	are	not	absorbed	by	the	segments,	which	are	reported	within	corporate	and	unallocated	costs	and	included	in	consolidated operating	income.

# Item	7A: Quantitative	and	Qualitative	Disclosures	About	Market

Applied	is	exposed	to	interest	rate	risk	related	to	its	investment	portfolio	and	debt	issuances.	Applied's	investment	portfolio	includes	fixed-income	securities	with a	fair	value	of	approximately	$1.0	billion	at	October	27,	2013.	These	securities	are	subject	to	interest	rate	risk	and	will	decline	in	value	if	interest	rates	increase.	Based	on Applied's	investment	portfolio	at	October	27,	2013,	an	immediate	100	basis	point	increase	in	interest	rates	would	result	in	a	decrease	in	the	fair	value	of	the	portfolio	of approximately	$18	million.	While	an	increase	in	interest	rates	reduces	the	fair	value	of	the	investment	portfolio,	Applied	will	not	realize	the	losses	in	the	consolidated statement	of	operations	unless	the	individual	fixed-income	securities	are	sold	prior	to	recovery	or	the	loss	is	determined	to	be	other-than-temporary.	At	October	27,	2013, the	carrying	amount	of	debt	issued	by	Applied	was	$1.9	billion	with	an	estimated	fair	value	of	$2.1	billion.	A	hypothetical	decrease	in	interest	rates	of	100	basis	points would	result	in	an	increase	in	the	fair	value	of	Applied's	debt	issuances	of	approximately	$170	million	at	October	27,	2013.

Certain	operations	of	Applied	are	conducted	in	foreign	currencies,	such	as	Japanese	yen,	euro,	Israeli	shekel,	Taiwanese	dollar	and	Swiss	franc.	Applied	enters into	currency	forward	exchange	and	option	contracts	to	hedge	a	portion	of,	but	not	all,	existing	and	anticipated	foreign	currency	denominated	transactions	generally expected	to	occur	within	the	next	24	months.	Gains	and	losses	on	these	contracts	are	generally	recognized	in	income	at	the	time	that	the	related	transactions	being hedged	are	recognized.	Because	the	effect	of	movements	in	currency	exchange	rates	on	currency	forward	exchange	and	option	contracts	generally	offsets	the	related effect	on	the	underlying	items	being	hedged,	these	financial	instruments	are	not	expected	to	subject	Applied	to	risks	that	would	otherwise	result	from	changes	in currency	exchange	rates.	Applied	does	not	use	derivative	financial	instruments	for	trading	or	speculative	purposes.

In	certain	cases,	Applied	uses	derivatives	to	hedge	specific	foreign	currency	exposures.	During	the	fourth	quarter	of	fiscal	2013,	as	part	of	an	overall	risk management	strategy,	Applied	purchased	foreign	exchange	option	contracts	to	limit	its	foreign	exchange	risk	associated	with	the	announced	business	combination	with TEL	in	the	event	there	is	a	significant	weakening	in	the	Japanese	yen	as	compared	to	the	U.S.	dollar.	The	derivatives	used	to	hedge	the	currency	exposure	did	not	qualify for	 hedge	 accounting	 treatment.	At	 October	 27,	 2013,	 the	 fair	 value	 of	 the	 foreign	 exchange	 currency	 option	 contracts	 was	 approximately	$17	million.	Applied recognized	a	loss	of	$7	million	during	the	fourth	quarter	of	fiscal	2013	related	to	such	contracts.	Changes	in	the	exchange	rate	between	the	U.S.	dollar	and	the	Japanese yen	would	impact	Applied's	consolidated	financial	statements.		The	future	maximum	loss	exposure	on	this	option	contract	is	generally	limited	to	its	fair	value	as	of	the most	recent	balance	sheet	date.	For	further	details,	see	Note	5	of	Notes	to	Consolidated	Financial	Statements.

# Item	8: Financial	Statements	and	Supplementary

The	consolidated	financial	statements	required	by	this	Item	are	set	forth	on	the	pages	indicated	at	Item	15(a).

# Item	9: Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial

# Disclosure

# Item	9A: Controls	and	Procedures

# Disclosure	Controls	and	Procedures

As	of	the	end	of	the	period	covered	by	this	report,	management	of	Applied	conducted	an	evaluation,	under	the	supervision	and	with	the	participation	of	Applied's Chief	Executive	Officer	and	Chief	Financial	Officer,	of	the	effectiveness	of	the	design	and	operation	of	Applied's	disclosure	controls	and	procedures,	as	such	term	is defined	in	Rule	13a-15(e)	of	the	Securities	Exchange	Act	of	1934	(the	Exchange	Act).	Based	upon	that	evaluation,	Applied's	Chief	Executive	Officer	and	Chief Financial	Officer	concluded	 that	Applied's	disclosure	controls	and	procedures	were	effective	as	of	 the	end	of	 the	period	covered	by	 this	report	 in	ensuring	 that information	required	to	be	disclosed	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	Applied	in	such	reports	is	accumulated	and	communicated	to	the	Company's	management,	including its	Chief	Executive	Officer	and	Chief	Financial	Officer,	as	appropriate	to	allow	timely	decisions	regarding	required	disclosure.

# Management's	Report	on	Internal	Control	over	Financial	Reporting

Applied's	management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting,	as	such	term	is	defined	in	Rule	13a-15(f) of	the	Exchange	Act.	Under	the	supervision	and	with	the	participation	of	Applied's	Chief	Executive	Officer	and	Chief	Financial	Officer,	management	of	Applied conducted	an	evaluation	of	 the	effectiveness	of	Applied's	 internal	control	over	financial	reporting	based	upon	 the	framework	 in	"Internal	Control	—	Integrated Framework	(1992)"	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	Based	on	that	evaluation,	Applied's	management	concluded that	Applied's	internal	control	over	financial	reporting	was	effective	as	of	October	27,	2013.

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	effectiveness	of	Applied's	internal	control	over	financial	reporting	as	of	October	27,	2013.

# Changes	in	Internal	Control	over	Financial	Reporting

During	the	fourth	quarter	of	fiscal	2013,	there	were	no	changes	in	the	internal	control	over	financial	reporting	that	materially	affected,	or	are	reasonably	likely	to materially	affect,	Applied's	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: Other	Information

# PART	III

Pursuant	to	Paragraph	G(3)	of	the	General	Instructions	to	Form	10-K,	portions	of	the	information	required	by	Part	III	of	Form	10-K	are	incorporated	by	reference from	Applied's	Proxy	Statement	to	be	filed	with	the	SEC	in	connection	with	the	2014	Annual	Meeting	of	Stockholders	(the	Proxy	Statement).

# Item	10: Directors,	Executive	Officers	and	Corporate

# Governance

(1)	Information	regarding	directors,	including	director	nominations,	and	Applied's	audit	committee	and	audit	committee	financial	expert,	appears	in	the	Proxy Statement	under	"Election	of	Directors,"	and	is	incorporated	herein	by	reference.

(2)	For	information	with	respect	to	Executive	Officers,	see	Part	I,	Item	1	of	this	Annual	Report	on	Form	10-K,	under	"Executive	Officers	of	the	Registrant."

(3)	Information	regarding	Section	16(a)	beneficial	ownership	reporting	compliance	appears	in	the	Proxy	Statement	under	"Section	16(a)	Beneficial	Ownership Reporting	Compliance,"	and	is	incorporated	herein	by	reference.

Applied	has	implemented	the	Standards	of	Business	Conduct,	a	code	of	ethics	with	which	every	person	who	works	for	Applied	and	every	member	of	the	Board	of Directors	is	expected	to	comply.	If	any	substantive	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	Applied's	Chief	Executive	Officer,	Chief	Financial	Officer	or	Chief	Accounting	Officer,	Applied	will	disclose	the	nature	of	such amendment	or	waiver	on	its	website	or	in	a	report	on	Form	8-K.	The	above	information,	including	the	Standards	of	Business	Conduct,	is	available	on	Applied's	website under	the	Corporate	Governance	section	at	http://www.appliedmaterials.com/investor-relations.	This	website	address	is	intended	to	be	an	inactive,	textual	reference only.	None	of	the	materials	on,	or	accessible	through,	this	website	is	part	of	this	report	or	is	incorporated	by	reference	herein.

# Item	11: Executive	Compensation

Information	regarding	executive	compensation	appears	in	the	Proxy	Statement	under	"Executive	Compensation	and	Related	Information"	and	is	incorporated herein	by	reference.

Information	regarding	compensation	committee	interlocks	and	insider	participation	appears	in	the	Proxy	Statement	under	"Compensation	Committee	Interlocks and	Insider	Participation"	and	is	incorporated	herein	by	reference.

Information	regarding	the	compensation	committee	report	appears	in	the	Proxy	Statement	under	"Human	Resources	and	Compensation	Committee	Report"	and	is incorporated	herein	by	reference.

# Item	12: Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder Matters

Information	regarding	the	security	ownership	of	certain	beneficial	owners	and	management	appears	in	the	Proxy	Statement,	under	"Principal	Stockholders,"	and	is incorporated	herein	by	reference.

The	following	table	summarizes	information	with	respect	to	options	and	other	equity	awards	under	Applied's	equity	compensation	plans	as	of	October	27,	2013:

# Equity	Compensation	Plan	Information

| Plan	Category | (a)<br>Number	of<br>Securities	to	be<br>Issued	Upon	Exercise<br>of		Outstanding	Options,<br>Warrants	and<br>Rights(1) |  | (b)<br>Weighted	Average<br>Exercise	Price	of<br>Outstanding	Options,<br>Warrants	and<br>Rights(2) | (c)<br>Number	of		Securities<br>Available	for	Future<br>Issuance	Under	Equity<br>Compensation	Plans<br>(Excluding	Securities<br>Reflected	in<br>Column(a)) |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tprices) |  |  |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity\tholders | 41 |  | $10.56 | 187 | (3) |
| Equity\tcompensation\tplans\tnot\tapproved\tby\tsecurity\nholders | 2 | (4) | $6.83 | 14 | (5) |
| Total | 43 |  | $9.12 | 201 |  |

(1) Includes	only	options,	restricted	stock	units	performance	shares	and	performance	units	outstanding	under	Applied's	equity	compensation	plans,	as	no	stock warrants	or	other	rights	were	outstanding	as	of	October	27,	2013.

(2) The	weighted	average	exercise	price	calculation	does	not	take	into	account	any	restricted	stock	units,	and	performance	shares	or	performance	units	as	they have	a	de	minimis	purchase	price.

(3) Includes	27	million	shares	of	Applied	common	stock	available	for	future	issuance	under	the	Applied	Materials,	Inc.	Employees'	Stock	Purchase	Plan.	Of	these 27	million	shares,	2	million	are	subject	to	purchase	during	the	purchase	period	in	effect	as	of	October	27,	2013.

(4) Includes	options	to	purchase	2	million	shares	of	Applied	common	stock	assumed	through	various	mergers	and	acquisitions,	after	giving	effect	to	the	applicable exchange	ratios.	The	assumed	options	had	a	weighted	average	exercise	price	of	$6.63	per	share.	No	further	shares	are	available	for	issuance	under	the	plans under	which	these	assumed	awards	were	granted.

(5) Includes	14	million	shares	of	Applied	common	stock	available	for	 future	 issuance	 under	 the	Applied	 Materials,	 Inc.	 Stock	 Purchase	 Plan	 for	 Offshore Employees.	Of	these	14	million	shares,	1	million	are	subject	to	purchase	during	the	purchase	period	in	effect	as	of	October	27,	2013.

Applied	has	the	following	equity	compensation	plans	that	have	not	been	approved	by	stockholders:

2000	Global	Equity	Incentive	Plan.	The	2000	Global	Equity	Incentive	Plan	(the	2000	Plan)	was	adopted	effective	as	of	June	21,	2000.	The	2000	Plan provides	for	the	grant	of	non-qualified	stock	options	to	employees	other	than	officers	and	directors.	The	administrator	of	the	2000	Plan	(either	the	Board	of	Directors	of Applied	or	a	committee	appointed	by	the	Board)	determines	the	terms	and	conditions	of	all	stock	options	granted;	provided,	however,	that	(1)	the	exercise	price generally	may	not	be	less	than	100	percent	of	the	fair	market	value	(on	the	date	of	grant)	of	the	stock	covered	by	the	option,	and	(2)	the	term	of	options	can	be	no	longer than	10	years	(or	13	years	in	the	event	of	death).	Upon	stockholder	approval	of	the	amended	and	restated	Employee	Stock	Incentive	Plan	on	March	6,	2012,	the	2000 Global	Equity	Incentive	Plan,	which	had	approximately	76	million	shares	available	for	issuance,	became	unavailable	for	any	future	grants.

Stock	 Purchase	 Plan for	 Offshore	 Employees.	 The	 Stock	 Purchase	 Plan	 for	 Offshore	 Employees	 (the	 Offshore	 ESPP)	 was	 adopted	 effective	 as	 of October	16,	1995	for	the	benefit	of	employees	of	Applied's	participating	affiliates	(other	than	United	States	citizens	or	residents).	The	Offshore	ESPP	provides	for	the grant	of	options	to	purchase	shares	of	Applied	common	stock	through	payroll	deductions	pursuant	to	one	or	more	offerings.	The	administrator	of	the	Offshore	ESPP	(the Board	of	Directors	of	Applied	or	a	committee	appointed	by	the	Board)	determines	the	terms	and	conditions	of	all	options	prior	to	the	start	of	an	offering,	including	the purchase	price	of	shares,	the	number	of	shares	covered	by	the	option	and	when	the	option	may	be	exercised.	All	options	granted	as	part	of	an	offering	must	be	granted	on the	same	date.	As	of	October	27,	2013,	a	total	of	36	million	shares	have	been	authorized	for	issuance	under	the	Offshore	ESPP,	and	14	million	shares	remain	available for	issuance.

Applied	Materials	Profit	Sharing	Scheme.	The	Applied	Materials	Profit	Sharing	Scheme	was	adopted	effective	July	3,	1996	to	enable	employees	of	Applied Materials	Ireland	Limited	and	its	participating	subsidiaries	to	purchase	Applied	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	Applied	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	table	above	does	not	include	any	set	number	of	shares	available	for	future	issuance	under	the	plan.

# Item	13: Certain	Relationships	and	Related	Transactions,	and	Director

# Independence

The	information	appearing	in	the	Proxy	Statement	under	the	heading	"Certain	Relationships	and	Related	Transactions"	is	incorporated	herein	by	reference.

The	information	appearing	in	the	Proxy	Statement	under	the	heading	"Director	Independence"	is	incorporated	herein	by	reference.

# Item	14: Principal	Accounting	Fees	and	Services

Information	regarding	principal	accounting	fees	and	services	and	the	audit	committee's	preapproval	policies	and	procedures	appears	in	the	Proxy	Statement	under the	headings	"Fees	Paid	to	KPMG	LLP"	and	"Policy	on	Audit	Committee's	Pre-Approval	of	Audit	and	Permissible	Non-audit	Services	of	Independent	Registered	Public Accounting	Firm,"	and	is	incorporated	herein	by	reference.

# PART	IV

# Item	15: Exhibits,	Financial	Statement

# Schedules

(a)	The	following	documents	are	filed	as	part	of	this	Annual	Report	on	Form	10-K:

| (1) | Financial	Statements: |  |
| :--- | :--- | :--- |
|  | Reports\tof\tKPMG\tLLP,\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 65 |
|  | Consolidated\tStatements\tof\tOperations\tfor\teach\tof\tthe\tyears\tin\tthe\tthree-year\tperiod\tended |  |
|  | October\t27,\t2013 | 67 |
|  | Consolidated\tStatements\tof\tComprehensive\tIncome\tfor\teach\tof\tthe\tyears\tin\tthe\tthree-year\tperiod\tended\tOctober\t27,\t2013 | 68 |
|  | Consolidated\tBalance\tSheets\tat\tOctober\t27,\t2013\tand\tOctober\t28,\t2012 | 69 |
|  | Consolidated\tStatements\tof\tStockholders'\tEquity\tfor\teach\tof\tthe\tyears\tin\tthe\tthree-year\tperiod\tended\tOctober\t27,\t2013 | 70 |
|  | Consolidated\tStatements\tof\tCash\tFlows\tfor\teach\tof\tthe\tyears\tin\tthe\tthree-year\tperiod\tended |  |
|  | October\t27,\t2013 | 71 |
|  | Notes\tto\tConsolidated\tFinancial\tStatements | 72 |

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

All	other	schedules	are	omitted	because	they	are	not	applicable	or	the	required	information	is	shown	in	the	Consolidated	Financial	Statements	or	Notes	thereto.

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

# The	Board	of	Directors	and	Stockholders

We	have	audited	the	accompanying	consolidated	balance	sheets	of	Applied	Materials,	Inc.	and	subsidiaries	(the	Company)	as	of	October	27,	2013	and	October	28, 2012,	and	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	27,	2013.	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	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit	includes	examining,	on	a test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.	An	audit	also	includes	assessing	the	accounting	principles	used	and	significant estimates	made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	the	consolidated	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	financial	position	of	Applied	Materials,	Inc. and	subsidiaries	as	of	October	27,	2013	and	October	28,	2012,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	years	in	the	three-year	period	ended October	27,	2013,	in	conformity	with	U.S.	generally	accepted	accounting	principles.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	Applied	Materials,	Inc.'s	internal control	over	financial	reporting	as	of	October	27,	2013,	based	on	criteria	established	in	Internal	Control-Integrated	Framework	(1992)	issued	by	the	Committee	of Sponsoring	Organizations	of	the	Treadway	Commission	(COSO),	and	our	report	dated	December	4,	2013	expressed	an	unqualified	opinion	on	the	effectiveness	of	the Company's	internal	control	over	financial	reporting.

KPMG	LLP

Santa	Clara,	California

We	have	audited	Applied	Materials,	Inc.'s	(the	Company)	internal	control	over	financial	reporting	as	of	October	27,	2013,	based	on	criteria	established	in	Internal Control	-	Integrated	Framework	(1992)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).	The	Company's	management	is responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting, included	in	the	accompanying	Management's	Report	on	Internal	Control	over	Financial	Reporting	in	Item	9A.	Our	responsibility	is	to	express	an	opinion	on	the Company's	internal	control	over	financial	reporting	based	on	our	audit.

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

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

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

In	our	opinion,	Applied	Materials,	Inc.	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	October	27,	2013,	based	on criteria	established	in	Internal	Control	-	Integrated	Framework	(1992)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	balance	sheets	of Applied	Materials,	Inc.	and	subsidiaries	as	of	October	27,	2013	and	October	28,	2012,	and	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	27,	2013.	Our	report	dated	December	4,	2013	expressed	an	unqualified opinion	on	those	consolidated	financial	statements.

# CONSOLIDATED	STATEMENTS	OF	OPERATIONS

| Fiscal	Year | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
|  | (In\tmillions,\texcept\tper\tshare\tamounts) | (In\tmillions,\texcept\tper\tshare\tamounts) |  |
| Net\tsales | $7,509 | $8,719 | $10,517 |
| Cost\tof\tproducts\tsold | 4,518 | 5,406 | 6,157 |
| Gross\tmargin | 2,991 | 3,313 | 4,360 |
| Operating\texpenses: |  |  |  |
| Research,\tdevelopment\tand\tengineering | 1,320 | 1,237 | 1,118 |
| Marketing\tand\tselling | 433 | 481 | 432 |
| General\tand\tadministrative | 469 | 595 | 469 |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 278 | 421 | — |
| Restructuring\tcharges\tand\tasset\timpairments | 63 | 168 | (30) |
| Gain\ton\tsale\tof\tfacilities,\tnet | (4) | — | (27) |
| Total\toperating\texpenses | 2,559 | 2,902 | 1,962 |
| Income\tfrom\toperations | 432 | 411 | 2,398 |
| Impairment\tof\tstrategic\tinvestments | 6 | 17 | 3 |
| Interest\texpense | 95 | 95 | 59 |
| Interest\tand\tother\tincome,\tnet | 19 | 17 | 42 |
| Income\tbefore\tincome\ttaxes | 350 | 316 | 2,378 |
| Provision\tfor\tincome\ttaxes | 94 | 207 | 452 |
| Net\tincome | $256 | $109 | $1,926 |
| Earnings\tper\tshare: |  |  |  |
| Basic | $0.21 | $0.09 | $1.46 |
| Diluted | $0.21 | $0.09 | $1.45 |
| Weighted\taverage\tnumber\tof\tshares: |  |  |  |
| Basic | 1,202 | 1,266 | 1,319 |
| Diluted | 1,219 | 1,277 | 1,330 |

See	accompanying	Notes	to	Consolidated	Financial	Statements.

# CONSOLIDATED	STATEMENTS	OF	COMPREHENSIVE	INCOME

| Fiscal	Year | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) |  |
| Net\tincome | $256 | $109 | $1,926 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax: |  |  |  |
| Change\tin\tunrealized\tnet\tgain\ton\tinvestments | 9 | (1) | (8) |
| Change\tin\tunrealized\tnet\tgain\ton\tderivative\tinvestments | 1 | 1 | (4) |
| Change\tin\tdefined\tbenefit\tplan\tliability | 18 | (65) | 14 |
| Change\tin\tcumulative\ttranslation\tadjustments | (5) | (2) | 2 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax | 23 | (67) | 4 |
| Comprehensive\tincome | $279 | $42 | $1,930 |

# CONSOLIDATED	BALANCE	SHEETS

| Cash	and	cash	equivalents | $1,711 | $1,392 |
| :--- | :--- | :--- |
| Short-term\tinvestments | 180 | 545 |
| Accounts\treceivable,\tnet | 1,633 | 1,220 |
| Inventories | 1,413 | 1,272 |
| Other\tcurrent\tassets | 705 | 673 |
| Total\tcurrent\tassets | 5,642 | 5,102 |
| Long-term\tinvestments | 1,005 | 1,055 |
| Property,\tplant\tand\tequipment,\tnet | 850 | 910 |
| Goodwill | 3,294 | 3,518 |
| Purchased\ttechnology\tand\tother\tintangible\tassets,\tnet | 1,103 | 1,355 |
| Deferred\tincome\ttaxes\tand\tother\tassets | 149 | 162 |
| Total\tassets | $12,043 | $12,102 |
| LIABILITIES\tAND\tSTOCKHOLDERS'\tEQUITY |  |  |
| Current\tliabilities: |  |  |
| Accounts\tpayable\tand\taccrued\texpenses | $1,649 | $1,510 |
| Customer\tdeposits\tand\tdeferred\trevenue | 794 | 755 |
| Total\tcurrent\tliabilities | 2,443 | 2,265 |
| Long-term\tdebt | 1,946 | 1,946 |
| Other\tliabilities | 566 | 656 |
| Total\tliabilities | 4,955 | 4,867 |
| Commitments\tand\tcontingencies |  |  |
| Stockholders'\tequity: |  |  |
|  | — | — |
| and\t2012,\trespectively | 12 | 12 |
| Additional\tpaid-in\tcapital | 6,151 | 5,863 |
| Retained\tearnings | 12,487 | 12,700 |
| Treasury\tstock:\t717\tand\t699\tshares\tat\t2013\tand\t2012,\trespectively,\tnet | (11,524) | (11,279) |
| Accumulated\tother\tcomprehensive\tloss | (38) | (61) |
| Total\tstockholders'\tequity | 7,088 | 7,235 |
| Total\tliabilities\tand\tstockholders'\tequity | $12,043 | $12,102 |

# CONSOLIDATED	STATEMENTS	OF	STOCKHOLDERS'	EQUITY

|  | Common	Stock<br>Shares | Amount | Additional<br>Paid-In<br>Capital | Retained<br>Earnings | Treasury	Stock<br>Shares | Amount | Accumulated<br>Other<br>Comprehensive<br>Income	(Loss) | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tmillions) |  |  |  |  |
| Balance\tat\tOctober\t31,\t2010 | 1,328 | $13 | $5,406 | $11,511 | 537 | $(9,396) | $2 | $7,536 |
| Net\tincome | — | — | — | 1,926 | — | — | — | 1,926 |
| Other\tcomprehensive\tincome,\tnet\tof\ttax | — | — | — | — | — | — | 4 | 4 |
| Dividends | — | — | — | (408) | — | — | — | (408) |
| Share-based\tcompensation | — | — | 146 | — | — | — | — | 146 |
| Issuance\tunder\tstock\tplans,\tnet\tof\ta\ttax\ndetriment\tof\t$5\tand\tother | 14 | — | 64 | — | — | — | — | 64 |
| Common\tstock\trepurchases | (36) | — | — | — | 36 | (468) | — | (468) |
| Balance\tat\tOctober\t30,\t2011 | 1,306 | $13 | $5,616 | $13,029 | 573 | $(9,864) | $6 | $8,800 |
| Net\tincome | — | — | — | 109 | — | — | — | 109 |
| Other\tcomprehensive\tloss,\tnet\tof\ttax | — | — | — | — | — | — | (67) | (67) |
| Dividends | — | — | — | (438) | — | — | — | (438) |
| Share-based\tcompensation | — | — | 182 | — | — | — | — | 182 |
| Stock\toptions\tassumed\tin\tconnection\twith |  |  |  |  |  |  |  |  |
| acquisition | — | — | 11 | — | — | — | — | 11 |
| Issuance\tunder\tstock\tplans,\tnet\tof\ta\ttax\ndetriment\tof\t$12\tand\tother | 17 | — | 54 | — | — | — | — | 54 |
| Common\tstock\trepurchases | (126) | (1) | — | — | 126 | (1,415) | — | (1,416) |
| Balance\tat\tOctober\t28,\t2012 | 1,197 | $12 | $5,863 | $12,700 | 699 | $(11,279) | $(61) | $7,235 |
| Net\tincome | — | — | — | 256 | — | — | — | 256 |
| Other\tcomprehensive\tincome,\tnet\tof\ttax | — | — | — | — | — | — | 23 | 23 |
| Dividends | — | — | — | (469) | — | — | — | (469) |
| Share-based\tcompensation | — | — | 162 | — | — | — | — | 162 |
| Issuance\tunder\tstock\tplans,\tnet\tof\ta\ttax |  |  |  |  |  |  |  |  |
| benefit\tof\t$14\tand\tother | 25 | — | 126 | — | — | — | — | 126 |
| Common\tstock\trepurchases | (18) | — | — | — | 18 | (245) | — | (245) |
| Balance\tat\tOctober\t27,\t2013 | 1,204 | $12 | $6,151 | $12,487 | 717 | $(11,524) | $(38) | $7,088 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

| Fiscal	Year | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) |  |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |
| Net\tincome | $256 | $109 | $1,926 |
| Adjustments\trequired\tto\treconcile\tnet\tincome\tto\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation\tand\tamortization | 410 | 422 | 246 |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 278 | 421 | — |
| Restructuring\tcharges\tand\tasset\timpairments | 63 | 168 | (30) |
| Deferred\tincome\ttaxes\tand\tother | (91) | 222 | 136 |
| Share-based\tcompensation | 162 | 182 | 146 |
| Changes\tin\toperating\tassets\tand\tliabilities,\tnet\tof\tamounts\tacquired: |  |  |  |
| Accounts\treceivable | (404) | 493 | 292 |
| Inventories | (141) | 679 | (163) |
| Other\tassets | (63) | 46 | (61) |
| Accounts\tpayable\tand\taccrued\texpenses | 78 | (469) | (310) |
| Customer\tdeposits\tand\tdeferred\trevenue | 39 | (412) | 267 |
| Other\tliabilities | 36 | (10) | (20) |
| Cash\tprovided\tby\toperating\tactivities | 623 | 1,851 | 2,429 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |
| Capital\texpenditures | (197) | (162) | (209) |
| Cash\tpaid\tfor\tacquisitions,\tnet\tof\tcash\tacquired | (1) | (4,190) | — |
| Proceeds\tfrom\tsale\tof\tfacilities | 7 | — | 130 |
| Proceeds\tfrom\tsales\tand\tmaturities\tof\tinvestments | 1,013 | 1,019 | 1,923 |
| Purchases\tof\tinvestments | (607) | (1,327) | (1,137) |
| Cash\tprovided\tby\t(used\tin)\tinvesting\tactivities | 215 | (4,660) | 707 |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |
| Debt\tborrowings\t(repayments),\tnet | — | (1) | 1,730 |
| Proceeds\tfrom\tcommon\tstock\tissuances\tand\tothers,\tnet | 182 | 97 | 95 |
| Common\tstock\trepurchases | (245) | (1,416) | (468) |
| Payments\tof\tdividends\tto\tstockholders | (456) | (434) | (397) |
| Cash\tprovided\tby\t(used\tin)\tfinancing\tactivities | (519) | (1,754) | 960 |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tcash\tequivalents | — | (5) | 6 |
| Increase\t(decrease)\tin\tcash\tand\tcash\tequivalents | 319 | (4,568) | 4,102 |
| Cash\tand\tcash\tequivalents\t—\tbeginning\tof\tyear | 1,392 | 5,960 | 1,858 |
| Cash\tand\tcash\tequivalents\t—\tend\tof\tyear | $1,711 | $1,392 | $5,960 |
| Supplemental\tcash\tflow\tinformation: |  |  |  |
| Cash\tpayments\tfor\tincome\ttaxes | $196 | $243 | $761 |
| Cash\trefunds\tfrom\tincome\ttaxes | $102 | $79 | $289 |
| Cash\tpayments\tfor\tinterest | $92 | $94 | $14 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# Note	1 Summary	of	Significant	Accounting	Policies

# Principles	of	Consolidation	and	Basis	of	Presentation

The	 consolidated	 financial	 statements	 include	 the	 accounts	 of	Applied	 Materials,	 Inc.	 and	 its	 subsidiaries	 (Applied	 or	 the	 Company)	 after	 elimination	 of intercompany	balances	and	transactions.	All	references	to	a	fiscal	year	apply	to	Applied's	fiscal	year	which	ends	on	the	last	Sunday	in	October.	Fiscal	2013,	2012	and 2011	contained	52	weeks	each.	Each	fiscal	quarter	of	2013,	2012	and	2011	contained	13	weeks.

In	November	2011,	Applied	completed	its	acquisition	of	Varian	Semiconductor	Equipment	Associates,	Inc.	(Varian).	Beginning	in	the	first	quarter	of	fiscal	2012, the	acquired	business	is	included	in	Applied's	consolidated	results	of	operations	and	the	results	of	the	Silicon	Systems	Group	and	Applied	Global	Services	segments.

# Use	of	Estimates

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

# 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.

# Investments

All	of	Applied's	investments,	except	equity	investments	held	in	privately-held	companies,	are	classified	as	available-for-sale	at	the	respective	balance	sheet	dates. Investments	classified	as	available-for-sale	are	recorded	at	fair	value	based	upon	quoted	market	prices,	and	any	temporary	difference	between	the	cost	and	fair	value	of an	investment	is	presented	as	a	separate	component	of	accumulated	other	comprehensive	income	(loss).	The	specific	identification	method	is	used	to	determine	the	gains and	losses	on	investments.	Interest	earned	on	cash	and	investments,	as	well	as	realized	gains	and	losses	on	sale	of	securities,	are	included	in	interest	income	in	the accompanying	Consolidated	Statements	of	Operations.

Equity	investments	in	privately-held	companies	are	generally	accounted	for	under	the	cost	method	of	accounting	and	are	periodically	assessed	for	other-than- temporary	impairment	when	an	event	or	circumstance	indicates	that	an	other-than-temporary	decline	in	value	may	have	occurred.

Applied	maintains	an	allowance	for	doubtful	accounts	for	estimated	losses	resulting	from	the	inability	of	its	customers	to	make	required	payments.	This	allowance is	 based	 on	 historical	 experience,	 credit	 evaluations,	 specific	 customer	 collection	 history	 and	 any	 customer-specific	 issues	 Applied	 has	 identified.	 Changes	 in circumstances,	such	as	an	unexpected	material	adverse	change	in	a	major	customer's	ability	to	meet	its	financial	obligation	to	Applied	or	its	payment	trends,	may	require Applied	to	further	adjust	its	estimates	of	the	recoverability	of	amounts	due	to	Applied.

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS	—	(Continued)

# Inventories

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

# Property,	Plant	and	Equipment

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

# Intangible	Assets

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

# Long-Lived	Assets

Applied	reviews	long-lived	assets	for	impairment	whenever	events	or	changes	in	circumstances	indicate	that	the	carrying	amount	of	these	assets	may	not	be recoverable.	Applied	assesses	these	assets	for	impairment	based	on	estimated	future	cash	flows	from	these	assets.

# Research,	Development	and	Engineering	Costs

Research,	development	and	engineering	costs	are	expensed	as	incurred.

# Sales	and	Value	Added	Taxes

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

# Warranty

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

Income	tax	expense	is	based	on	pretax	earnings.	Deferred	tax	assets	and	liabilities	are	recognized	for	the	expected	tax	consequences	of	temporary	differences between	the	book	and	tax	bases	of	recorded	assets	and	liabilities,	net	operating	losses	and	tax	credit	carryforwards.

# Restructuring

From	time	to	time,	Applied	initiates	restructuring	activities	to	appropriately	align	its	cost	structure	relative	to	prevailing	economic	and	industry	conditions	and associated	customer	demand	as	well	as	in	connection	with	certain	acquisitions.	Costs	associated	with	restructuring	actions	can	include	termination	benefits	and	related charges	in	addition	to	facility	closure,	contract	termination	and	other	related	activities.	Costs	associated	with	restructuring	activities	are	included	in	restructuring	charges and	asset	impairments	in	the	Consolidated	Statements	of	Operations.

Applied	recognizes	revenue	when	all	four	revenue	recognition	criteria	have	been	met:	persuasive	evidence	of	an	arrangement	exists;	delivery	has	occurred	or services	have	been	rendered;	seller's	price	to	buyer	is	fixed	or	determinable;	and	collectability	is	probable.	Applied's	shipping	terms	are	customarily	FOB	Applied shipping	point	or	equivalent	terms.	Applied's	revenue	recognition	policy	generally	results	in	revenue	recognition	at	the	following	points:	(1)	for	all	transactions	where legal	title	passes	to	the	customer	upon	shipment	or	delivery,	Applied	recognizes	revenue	upon	passage	of	title	for	all	products	that	have	been	demonstrated	to	meet product	specifications	prior	to	shipment;	the	portion	of	revenue	associated	with	certain	installation-related	tasks	is	deferred,	and	that	revenue	is	recognized	upon completion	of	the	installation-related	tasks;	(2)	for	products	that	have	not	been	demonstrated	to	meet	product	specifications	prior	to	shipment,	revenue	is	recognized	at customer	technical	acceptance;	(3)	for	transactions	where	legal	title	does	not	pass	at	shipment	or	delivery,	revenue	is	recognized	when	legal	title	passes	to	the	customer, which	is	generally	at	customer	technical	acceptance;	and	(4)	for	arrangements	containing	multiple	elements,	the	revenue	relating	to	the	undelivered	elements	is	deferred using	the	relative	selling	price	method	utilizing	estimated	sales	prices	until	delivery	of	the	deferred	elements.	Applied	limits	the	amount	of	revenue	recognition	for delivered	elements	to	the	amount	that	is	not	contingent	on	the	future	delivery	of	products	or	services,	future	performance	obligations	or	subject	to	customer-specified return	or	adjustment.	In	cases	where	Applied	has	sold	products	that	have	been	demonstrated	to	meet	product	specifications	prior	to	shipment,	Applied	believes	that	at the	time	of	delivery,	it	has	an	enforceable	claim	to	amounts	recognized	as	revenue.	Spare	parts	revenue	is	generally	recognized	upon	shipment,	and	services	revenue	is generally	recognized	over	the	period	that	the	services	are	provided.

When	a	sales	arrangement	contains	multiple	elements,	such	as	hardware	and	services	and/or	software	products,	Applied	allocates	revenue	to	each	element	based on	a	selling	price	hierarchy.	The	selling	price	for	a	deliverable	is	based	on	its	vendor	specific	objective	evidence	(VSOE)	if	available,	third	party	evidence	(TPE)	if VSOE	is	not	available,	or	estimated	selling	price	(ESP)	if	neither	VSOE	nor	TPE	is	available.	Applied	generally	utilizes	the	ESP	due	to	the	nature	of	its	products.	In multiple	element	arrangements	where	more-than-incidental	software	deliverables	are	included,	revenue	is	allocated	to	each	separate	unit	of	accounting	for	each	of	the non-software	deliverables	and	to	the	software	deliverables	as	a	group	using	the	relative	selling	prices	of	each	of	the	deliverables	in	the	arrangement	based	on	the aforementioned	 selling	 price	 hierarchy.	 If	 the	 arrangement	 contains	 more	 than	 one	 software	 deliverable,	 the	 arrangement	 consideration	 allocated	 to	 the	 software deliverables	as	a	group	is	then	allocated	to	each	software	deliverable	using	the	guidance	for	recognizing	software	revenue.

# Derivative	Financial	Instruments

Applied	uses	financial	instruments,	such	as	forward	exchange	and	currency	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	terms	of	currency	instruments	used	for	hedging	purposes	are	generally	consistent with	the	timing	of	the	transactions	being	hedged.	The	purpose	of	Applied's	foreign	currency	management	is	to	mitigate	the	effect	of	exchange	rate	fluctuations	on	certain foreign	currency	denominated	revenues,	costs	and	eventual	cash	flows.	All	of	Applied's	derivative	financial	instruments	are	recorded	at	fair	value	based	upon	quoted market	prices	for	comparable	instruments.	For	derivative	instruments	designated	and	qualifying	as	cash	flow	hedges	of	anticipated	foreign	currency	denominated transactions,	the	effective	portion	of	the	gain	or	loss	on	these	hedges	is	reported	as	a	component	of	accumulated	other	comprehensive	income	(loss)	in	stockholders' equity,	and	is	reclassified	into	earnings	when	the	hedged	transaction	affects	earnings.	If	the	transaction	being	hedged	fails	to	occur,	or	if	a	portion	of	any	derivative	is ineffective,	the	gain	or	loss	on	the	associated	financial	instrument	is	recorded	promptly	in	earnings.	For	derivative	instruments	used	to	hedge	existing	foreign	currency denominated	assets	or	liabilities,	the	gain	or	loss	on	these	hedges	is	recorded	promptly	in	earnings	to	offset	the	changes	in	the	fair	value	of	the	assets	or	liabilities	being hedged.	Applied	does	not	use	derivative	financial	instruments	for	trading	or	speculative	purposes.

# Foreign	Currencies

As	of	October	27,	2013,	primarily	all	of	Applied's	subsidiaries	use	the	United	States	dollar	as	their	functional	currency.	Accordingly,	assets	and	liabilities	of	these subsidiaries	are	remeasured	using	exchange	rates	 in	effect	at	 the	end	of	 the	period,	except	for	non-monetary	assets,	such	as	 inventories	and	property,	plant	and equipment,	which	are	remeasured	using	historical	exchange	rates.	Foreign	currency-denominated	revenues	and	costs	are	remeasured	using	average	exchange	rates	for	the period,	except	for	costs	related	to	those	balance	sheet	items	that	are	remeasured	using	historical	exchange	rates.	The	resulting	remeasurement	gains	and	losses	are included	in	general	and	administrative	expenses	in	the	Consolidated	Statements	of	Operations	as	incurred.

# Concentrations	of	Credit	Risk

Financial	 instruments	 that	potentially	subject	Applied	 to	significant	concentrations	of	credit	risk	consist	principally	of	cash	equivalents,	 investments,	 trade accounts	receivable	and	derivative	financial	instruments	used	in	hedging	activities.	Applied	invests	in	a	variety	of	financial	instruments,	such	as,	but	not	limited	to, certificates	of	deposit,	corporate	and	municipal	bonds,	United	States	Treasury	and	agency	securities,	and	asset-backed	and	mortgage-backed	securities,	and,	by	policy, limits	the	amount	of	credit	exposure	with	any	one	financial	institution	or	commercial	issuer.	Applied	performs	ongoing	credit	evaluations	of	its	customers'	financial condition	and	generally	requires	no	collateral	to	secure	accounts	receivable.	Applied	maintains	an	allowance	reserve	for	potentially	uncollectible	accounts	receivable based	on	its	assessment	of	the	collectability	of	accounts	receivable.	Applied	regularly	reviews	the	allowance	by	considering	factors	such	as	historical	experience,	credit quality,	age	of	the	accounts	receivable	balances,	and	current	economic	conditions	that	may	affect	a	customer's	ability	to	pay.	In	addition,	Applied	utilizes	letters	of	credit to	mitigate	credit	risk	when	considered	appropriate.	Applied	is	exposed	to	credit-related	losses	in	the	event	of	nonperformance	by	counterparties	to	derivative	financial instruments,	but	does	not	expect	any	counterparties	to	fail	to	meet	their	obligations.	In	some	instances,	Applied	has	entered	into	security	arrangements	which	require	the counterparties	to	post	collateral	to	further	mitigate	credit	exposure.

# Note	2 Earnings	Per

# Share

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

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions,\texcept\tper\tshare\tamounts) |  |
| Numerator: |  |  |  |
| Net\tincome | $256 | $109 | $1,926 |
| Denominator: |  |  |  |
| Weighted\taverage\tcommon\tshares\toutstanding | 1,202 | 1,266 | 1,319 |
| Effect\tof\tdilutive\tstock\toptions,\trestricted\tstock\tunits\tand\temployee\tstock\tpurchase\tplan\nshares | 17 | 11 | 11 |
| Denominator\tfor\tdiluted\tearnings\tper\tshare | 1,219 | 1,277 | 1,330 |
| Basic\tearnings\tper\tshare | $0.21 | $0.09 | $1.46 |
| Diluted\tearnings\tper\tshare | $0.21 | $0.09 | $1.45 |
| Potentially\tdilutive\tsecurities | 2 | 9 | 16 |

Potentially	dilutive	securities	attributable	to	outstanding	stock	options	and	restricted	stock	units	were	excluded	from	the	calculation	of	diluted	earnings	per	share because	the	combined	exercise	price,	average	unamortized	fair	value	and	assumed	tax	benefits	upon	the	exercise	of	options	and	the	vesting	of	restricted	stock	units	were greater	than	the	average	market	price	of	Applied	common	stock,	and	therefore	their	inclusion	would	have	been	anti-dilutive.

# Note	3 Cash,	Cash	Equivalents	and	Investments

# Summary	of	Cash,	Cash	Equivalents	and	Investments

The	following	tables	summarize	Applied's	cash,	cash	equivalents	and	investments	by	security	type:

| October	27,	2013 | Cost | Gross<br>Unrealized<br>Gains | Gross<br>Unrealized<br>Losses | Estimated<br>Fair		Value |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) | (In\tmillions) |  |
| Cash | $611 | $— | $— | $611 |
| Cash\tequivalents: |  |  |  |  |
| Money\tmarket\tfunds | 1,095 | — | — | 1,095 |
| Municipal\tsecurities | 5 | — | — | 5 |
| Total\tCash\tequivalents | 1,100 | — | — | 1,100 |
| Total\tCash\tand\tCash\tequivalents | $1,711 | $— | $— | $1,711 |
| Short-term\tand\tlong-term\tinvestments: |  |  |  |  |
| U.S.\tTreasury\tand\tagency\tsecurities | $170 | $— | $— | $170 |
| Non-U.S.\tgovernment\tsecurities* | 11 | — | — | 11 |
| Municipal\tsecurities | 379 | 2 | — | 381 |
| Commercial\tpaper,\tcorporate\tbonds\tand\tmedium-term\tnotes | 218 | 2 | 1 | 219 |
| Asset-backed\tand\tmortgage-backed\tsecurities | 268 | 2 | 2 | 268 |
| Total\tfixed\tincome\tsecurities | 1,046 | 6 | 3 | 1,049 |
| Publicly\ttraded\tequity\tsecurities | 27 | 33 | — | 60 |
| Equity\tinvestments\tin\tprivately-held\tcompanies | 76 | — | — | 76 |
| Total\tshort-term\tand\tlong-term\tinvestments | $1,149 | $39 | $3 | $1,185 |
| Total\tCash,\tCash\tequivalents\tand\tInvestments | $2,860 | $39 | $3 | $2,896 |

*	Includes	agency	and	corporate	debt	securities	guaranteed	by	non-U.S.	governments,	which	consist	of	Germany,	Canada	and	Australia.

| October	28,	2012 | Cost | Gross<br>Unrealized<br>Gains | Gross<br>Unrealized<br>Losses | Estimated<br>Fair		Value |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) | (In\tmillions) |  |
| Cash | $876 | $— | $— | $876 |
| Cash\tequivalents: |  |  |  |  |
| Money\tmarket\tfunds | 483 | — | — | 483 |
| Municipal\tsecurities | 33 | — | — | 33 |
| Total\tCash\tequivalents | 516 | — | — | 516 |
| Total\tCash\tand\tCash\tequivalents | $1,392 | $— | $— | $1,392 |
| Short-term\tand\tlong-term\tinvestments: |  |  |  |  |
| U.S.\tTreasury\tand\tagency\tsecurities | $373 | $1 | $— | $374 |
| Non-U.S.\tgovernment\tsecurities | 29 | — | — | 29 |
| Municipal\tsecurities | 396 | 2 | — | 398 |
| Commercial\tpaper,\tcorporate\tbonds\tand\tmedium-term\tnotes | 381 | 3 | — | 384 |
| Asset-backed\tand\tmortgage-backed\tsecurities | 294 | 4 | — | 298 |
| Total\tfixed\tincome\tsecurities | 1,473 | 10 | — | 1,483 |
| Publicly\ttraded\tequity\tsecurities | 32 | 15 | — | 47 |
| Equity\tinvestments\tin\tprivately-held\tcompanies | 70 | — | — | 70 |
| Total\tshort-term\tand\tlong-term\tinvestments | $1,575 | $25 | $— | $1,600 |
| Total\tCash,\tCash\tequivalents\tand\tInvestments | $2,967 | $25 | $— | $2,992 |

# Maturities	of	Investments

The	following	table	summarizes	the	contractual	maturities	of	Applied's	investments	at	October	27,	2013:

|  | Cost | Estimated<br>Fair		Value |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Due\tin\tone\tyear\tor\tless | $149 | $149 |
| Due\tafter\tone\tthrough\tfive\tyears | 629 | 632 |
| No\tsingle\tmaturity\tdate** | 371 | 404 |
|  | $1,149 | $1,185 |

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

# Gains	and	Losses	on	Investments

Gross	realized	gains	and	losses	on	sales	of	investments	during	fiscal	2013,	2012,	and	2011	were	as	follows:

| Gross	realized	gains | $7 | $3 | $20 |
| :--- | :--- | :--- | :--- |
| Gross\trealized\tlosses | $2 | $3 | $4 |

At	October	27,	2013,	gross	unrealized	losses	related	to	Applied's	investment	portfolio	were	not	material.	Applied	regularly	reviews	its	investment	portfolio	to identify	and	evaluate	investments	that	have	indications	of	possible	impairment.	Factors	considered	in	determining	whether	an	unrealized	loss	was	considered	to	be temporary,	or	other-than-temporary	and	therefore	impaired,	include:	the	length	of	time	and	extent	to	which	fair	value	has	been	lower	than	the	cost	basis;	the	financial condition,	credit	quality	and	near-term	prospects	of	the	investee;	and	whether	it	is	more	likely	than	not	that	Applied	will	be	required	to	sell	the	security	prior	to	recovery. Generally,	the	contractual	terms	of	investments	in	marketable	securities	do	not	permit	settlement	at	prices	less	than	the	amortized	cost	of	the	investments.	Applied determined	that	the	gross	unrealized	losses	on	its	marketable	securities	at	October	27,	2013,	October	28,	2012	 and	October	30,	2011	were	temporary	in	nature	and therefore	it	did	not	recognize	any	impairment	of	its	marketable	securities	for	fiscal	2013,	2012	or	2011.	During	fiscal	2013,	2012	and	2011,	Applied	determined	that certain	of	its	equity	investments	held	in	privately-held	companies	were	other-than-temporarily	impaired	and,	accordingly,	recognized	impairment	charges	of	$6	million, $17	million	and	$3	million,	respectively.

Unrealized	gains	and	temporary	losses	on	investments	classified	as	available-for-sale	are	included	within	accumulated	other	comprehensive	income	(loss),	net	of any	related	tax	effect.	Upon	realization,	those	amounts	are	reclassified	from	accumulated	other	comprehensive	income	(loss)	to	results	of	operations.

# Note	4 Fair	Value

# Measurements

Applied's	financial	assets	are	measured	and	recorded	at	fair	value,	except	for	equity	investments	held	in	privately-held	companies.	These	equity	investments	are generally	accounted	for	under	the	cost	method	of	accounting	and	are	periodically	assessed	for	other-than-temporary	impairment	when	events	or	circumstances	indicate that	an	other-than-temporary	decline	in	value	may	have	occurred.	Applied's	nonfinancial	assets,	such	as	goodwill,	intangible	assets,	and	property,	plant	and	equipment, are	recorded	at	cost	and	are	assessed	for	impairment	when	events	or	circumstances	indicate	that	an	other-than-temporary	decline	in	value	may	have	occurred.

# Fair	Value	Hierarchy

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

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

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

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

Applied's	investments	are	comprised	primarily	of	debt	securities	that	are	classified	as	available-for-sale	and	recorded	at	their	fair	values.	In	determining	the	fair value	of	investments,	Applied	uses	pricing	information	from	pricing	services	that	value	securities	based	on	quoted	market	prices	and	models	that	utilize	observable market	inputs.	In	the	event	a	fair	value	estimate	is	unavailable	from	a	pricing	service,	Applied	generally	obtains	non-binding	price	quotes	from	brokers.	Applied	then reviews	the	information	provided	by	the	pricing	services	or	brokers	to	determine	the	fair	value	of	its	short-term	and	long-term	investments.	In	addition,	to	validate pricing	information	obtained	from	pricing	services,	Applied	periodically	performs	supplemental	analysis	on	a	sample	of	securities.	Applied	reviews	any	significant unanticipated	differences	identified	through	this	analysis	to	determine	the	appropriate	fair	value.

Investments	with	remaining	effective	maturities	of	12	months	or	less	from	the	balance	sheet	date	are	classified	as	short-term	investments.	Investments	with remaining	effective	maturities	of	more	than	12	months	from	the	balance	sheet	date	are	classified	as	long-term	investments.	As	of	October	27,	2013,	substantially	all	of Applied's	available-for-sale,	short-term	and	long-term	investments	were	recognized	at	fair	value	that	was	determined	based	upon	observable	inputs.

# 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	as	of	October	27,	2013	and	October	28,	2012:

|  |  | October	27,	2013 |  |  | October	28,	2012 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Level\t1 | Level\t2 | Total | Level\t1 | Level\t2 | Total |
|  |  |  | (In\tmillions) | (In\tmillions) |  |  |
| Assets: |  |  |  |  |  |  |
| Money\tmarket\tfunds | $1,095 | $— | $1,095 | $483 | $— | $483 |
| U.S.\tTreasury\tand\tagency\tsecurities | 66 | 104 | 170 | 128 | 246 | 374 |
| Non-U.S.\tgovernment\tsecurities | — | 11 | 11 | — | 29 | 29 |
| Municipal\tsecurities | — | 386 | 386 | — | 431 | 431 |
| Commercial\tpaper,\tcorporate\tbonds\tand\tmedium-term\tnotes | — | 219 | 219 | — | 384 | 384 |
| Asset-backed\tand\tmortgage-backed\tsecurities | — | 268 | 268 | — | 298 | 298 |
| Publicly\ttraded\tequity\tsecurities | 60 | — | 60 | 47 | — | 47 |
| Foreign\texchange\tderivative\tassets | — | 20 | 20 | — | 4 | 4 |
| Total | $1,221 | $1,008 | $2,229 | $658 | $1,392 | $2,050 |

There	were	no	transfers	between	Level	1	and	Level	2	fair	value	measurements	during	fiscal	2013	and	2012	and	Applied	did	not	have	any	financial	assets	measured at	fair	value	on	a	recurring	basis	within	Level	3	fair	value	measurements	as	of	October	27,	2013	or	October	28,	2012.

# Assets	and	Liabilities	Measured	at	Fair	Value	on	a	Non-recurring	Basis

Equity	investments	in	privately-held	companies	are	generally	accounted	for	under	the	cost	method	of	accounting	and	are	periodically	assessed	for	other-than- temporary	impairment	when	an	event	or	circumstance	indicates	that	an	other-than-temporary	decline	in	value	may	have	occurred.	If	Applied	determines	that	an	other- than-temporary	impairment	has	occurred,	the	investment	will	be	written	down	to	its	estimated	fair	value	based	on	available	information,	such	as	pricing	in	recent	rounds of	financing,	current	cash	positions,	earnings	and	cash	flow	forecasts,	recent	operational	performance	and	any	other	readily	available	market	data.	Equity	investments	in privately-held	companies	totaled	$76	million	at	October	27,	2013,	of	which	$66	million	of	investments	were	accounted	for	under	the	cost	method	of	accounting	and	$10 million	of	investments	had	been	measured	at	fair	value	on	a	non-recurring	basis	within	Level	3	fair	value	measurements	due	to	an	other-than-temporary	decline	in	value. Equity	investments	in	privately-held	companies	totaled	$70	million	at	October	28,	2012,	of	which	$57	million	of	investments	were	accounted	for	under	the	cost	method of	accounting	and	$13	million	of	investments	had	been	measured	at	fair	value	on	a	non-recurring	basis	within	Level	3	fair	value	measurements	due	to	an	other-than- temporary	decline	in	value.

During	 fiscal	2013,	2012	 and	2011,	Applied	determined	that	certain	of	its	equity	investments	held	in	privately-held	companies	were	other-than-temporarily impaired	and,	accordingly,	recognized	impairment	charges	of	$6	million,	$17	million	and	$3	million,	respectively.

The	inputs	used	to	measure	the	fair	value	of	goodwill	and	intangible	assets	of	the	Energy	and	Environmental	Solutions	segment	are	classified	as	a	Level	3	fair value	measurement	due	to	the	significance	of	unobservable	inputs	using	company-specific	information.	The	valuation	methodology	used	to	estimate	the	fair	value	of goodwill	and	intangible	assets	are	discussed	in	Note	9,	Goodwill,	Purchased	Technology	and	Other	Intangible	Assets.

# Other

The	carrying	amounts	of	Applied's	financial	instruments,	including	cash	and	cash	equivalents,	accounts	receivable,	notes	payable,	and	accounts	payable	and accrued	expenses,	approximate	fair	value	due	to	the	short	maturities	of	these	financial	instruments.	At	October	27,	2013,	the	carrying	amount	of	long-term	debt	was	$1.9 billion	and	the	estimated	fair	value	was	$2.1	billion.	At	October	28,	2012,	the	carrying	amount	of	long-term	debt	was	$1.9	billion	and	the	estimated	fair	value	was	$2.3 billion.	The	estimated	fair	value	of	long-term	debt	is	determined	by	Level	2	inputs	and	is	based	primarily	on	quoted	market	prices	for	the	same	or	similar	issues.

# Note	5 Derivative	Instruments	and	Hedging	Activities

Applied	conducts	business	in	a	number	of	foreign	countries,	with	certain	transactions	denominated	in	local	currencies,	such	as	the	Japanese	yen,	euro,	Israeli shekel,	Taiwanese	dollar	and	Swiss	franc.	Applied	uses	derivative	financial	instruments,	such	as	forward	exchange	contracts	and	currency	option	contracts,	to	hedge certain	 forecasted	 foreign	 currency	 denominated	 transactions	 expected	 to	 occur	 typically	 up	 to	 the	 next	24	months.	 The	 purpose	 of	Applied's	 foreign	 currency management	is	to	mitigate	the	effect	of	exchange	rate	fluctuations	on	certain	foreign	currency	denominated	revenues,	costs	and	eventual	cash	flows.	The	terms	of currency	instruments	used	for	hedging	purposes	are	generally	consistent	with	the	timing	of	the	transactions	being	hedged.	Applied	does	not	use	derivative	financial instruments	for	trading	or	speculative	purposes.

Derivative	instruments	and	hedging	activities,	including	foreign	currency	exchange	contracts,	are	recognized	on	the	balance	sheet	at	fair	value.	Changes	in	the	fair value	of	derivatives	that	do	not	qualify	for	hedge	treatment,	as	well	as	the	ineffective	portion	of	any	hedges,	are	recognized	currently	in	earnings.	All	of	Applied's derivative	financial	instruments	are	recorded	at	their	fair	value	in	other	current	assets	or	in	accounts	payable	and	accrued	expenses.

Hedges	related	to	anticipated	transactions	are	designated	and	documented	at	the	inception	of	the	hedge	as	cash	flow	hedges	and	are	typically	entered	into	once	per month.	Cash	flow	hedges	are	evaluated	for	effectiveness	quarterly.	The	effective	portion	of	the	gain	or	loss	on	these	hedges	is	reported	as	a	component	of	accumulated other	comprehensive	income	or	loss	(AOCI)	in	stockholders'	equity	and	is	reclassified	into	earnings	when	the	hedged	transaction	affects	earnings.	The	majority	of	the after-tax	net	income	or	loss	related	to	derivative	instruments	included	in	AOCI	at	October	27,	2013	is	expected	to	be	reclassified	into	earnings	within	12	months. Changes	in	the	fair	value	of	currency	forward	exchange	and	option	contracts	due	to	changes	in	time	value	are	excluded	from	the	assessment	of	effectiveness.	Both ineffective	hedge	amounts	and	hedge	components	excluded	from	the	assessment	of	effectiveness	are	recognized	in	earnings.	If	the	transaction	being	hedged	is	no	longer probable	to	occur,	or	if	a	portion	of	any	derivative	is	deemed	to	be	ineffective,	Applied	promptly	recognizes	the	gain	or	loss	on	the	associated	financial	instrument	in general	and	administrative	expenses.	The	amount	recognized	due	to	discontinuance	of	cash	flow	hedges	that	were	probable	not	to	occur	by	the	end	of	the	originally specified	time	period	was	not	significant	for	fiscal	2013,	2012	or	2011.

Additionally,	forward	exchange	contracts	are	generally	used	to	hedge	certain	foreign	currency	denominated	assets	or	liabilities.	These	derivatives	are	typically entered	into	once	per	month	and	are	not	designated	for	hedge	accounting	treatment.	Accordingly,	changes	in	the	fair	value	of	these	hedges	are	recorded	in	earnings	to offset	the	changes	in	the	fair	value	of	the	assets	or	liabilities	being	hedged.

During	 the	 fourth	 quarter	 of	 fiscal	 2013,	 the	 Company	 purchased	 foreign	 exchange	 option	 contracts	 to	 limit	 its	 foreign	 exchange	 risk	 associated	 with	 the announced	business	combination	with	Tokyo	Electron	Limited	(TEL).	The	derivatives	used	to	hedge	our	currency	exposure	did	not	qualify	for	hedge	accounting treatment.	These	derivatives	are	marked	to	market	at	the	end	of	each	reporting	period	with	gains	and	losses	recognized	as	general	and	administrative	expenses.	At October	27,	2013,	the	fair	value	of	these	foreign	exchange	option	contracts	was	approximately	$17	million.	The	Company	recognized	a	loss	of	$7	million	during	the fourth	quarter	of	fiscal	2013	related	to	such	contracts.	The	cash	flow	impact	of	this	derivative	has	been	classified	as	operating	cash	flows	in	the	consolidated	statements of	cash	flows.	To	further	mitigate	credit	exposure	in	connection	with	these	foreign	exchange	option	contracts,	the	Company	entered	into	security	arrangements	with certain	counterparties,	which	require	the	counterparties	to	post	collateral	amounting	to	the	approximate	fair	value	of	the	derivative	contracts.	The	cash	collateral	is included	in	cash	and	cash	equivalents	in	the	consolidated	statements	of	financial	position,	with	the	corresponding	liability	included	in	accounts	payable	and	accrued expenses.

Other	than	the	foreign	exchange	option	contracts	discussed	in	the	preceding	paragraph,	the	fair	values	of	other	derivative	instruments	at	October	27,	2013	and October	28,	2012	were	not	material.

The	effects	of	derivative	instruments	on	the	Consolidated	Statements	of	Operations	for	fiscal	2013	and	2012	were	as	follows:

|  |  | 2013 | 2013 | 2012 | 2012 | 2012 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Effective\tPortion | Effective\tPortion | Ineffective\tPortion\tand\nAmount\nExcluded\tfrom\nEffectiveness\nTesting | Effective\tPortion | Effective\tPortion | Ineffective\tPortion\tand\nAmount\nExcluded\tfrom\nEffectiveness\nTesting |
|  | Location\tof\tGain\tor\n(Loss)\tReclassified\nfrom\tAOCI\tinto\nIncome | Gain\tor\n(Loss)\nRecognized\nin\tAOCI | Gain\tor\t(Loss)\nReclassified\nfrom\tAOCI\tinto\nIncome | Gain\tor\t(Loss)\nRecognized\tin\nIncome | Gain\tor\n(Loss)\nRecognized\nin\tAOCI | Gain\tor\t(Loss)\nReclassified\nfrom\tAOCI\tinto\nIncome | Gain\tor\t(Loss)\nRecognized\tin\nIncome |
|  |  |  |  | (In\tmillions) |  |  |  |
| Derivatives\tin\tCash\tFlow\nHedging\tRelationships |  |  |  |  |  |  |  |
| Foreign\texchange\tcontracts | Cost\tof\tproducts |  |  |  |  |  |  |
|  | sold | $29 | $21 | $(3) | $2 | $4 | $(1) |
| Foreign\texchange\tcontracts | General\tand |  |  |  |  |  |  |
|  | administrative | — | 7 | (1) | — | (5) | (1) |
| Total |  | $29 | $28 | $(4) | $2 | $(1) | $(2) |

# Credit	Risk	Contingent	Features

If	Applied's	credit	rating	were	to	fall	below	investment	grade,	it	would	be	in	violation	of	credit	risk	contingent	provisions	of	the	derivative	instruments	discussed above,	and	certain	counterparties	to	the	derivative	instruments	could	request	immediate	payment	on	derivative	instruments	in	net	liability	positions.	The	aggregate	fair value	of	all	derivative	instruments	with	credit-risk	related	contingent	features	that	were	in	a	net	liability	position	was	immaterial	as	of	October	27,	2013.

Entering	into	foreign	exchange	contracts	with	banks	exposes	Applied	to	credit-related	losses	in	the	event	of	the	banks'	nonperformance.	However,	Applied's exposure	is	not	considered	significant.

# Note	6 Accounts	Receivable,

Applied	has	agreements	with	various	financial	institutions	to	sell	accounts	receivable	and	discount	promissory	notes	from	selected	customers.	Applied	sells	its accounts	receivable	without	recourse.	Applied,	from	 time	 to	 time,	also	discounts	 letters	of	credit	 issued	by	customers	 through	various	financial	 institutions.	The discounting	of	 letters	of	credit	depends	on	many	factors,	 including	 the	willingness	of	financial	 institutions	 to	discount	 the	 letters	of	credit	and	 the	cost	of	such arrangements.	Details	of	discounted	letters	of	credit,	factored	accounts	receivable	and	discounted	promissory	notes	for	fiscal	years	ended	October	27,	2013,	October	28, 2012	and	October	30,	2011	were	as	follows:

| Discounted	letters	of	credit | $— | $— | $211 |
| :--- | :--- | :--- | :--- |
| Factored\taccounts\treceivable\tand\tdiscounted\tpromissory\tnotes | — | 93 | 80 |
| Total | $— | $93 | $291 |

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	doubtful	accounts	of	$74	million	at	October	27,	2013	and	$87	million	 at	October	28,	2012.	Changes	in allowance	for	doubtful	accounts	were	as	follows:

| Beginning	balance | $87 | $73 | $74 |
| :--- | :--- | :--- | :--- |
| Provision | — | 14 | 5 |
| Deductions1 | (13) | — | (6) |
| Ending\tbalance | $74 | $87 | $73 |

1	Fiscal	2013	deductions	represent	releases	of	allowance	for	doubtful	accounts	credited	to	expense	as	a	result	of	lower	risk	exposures	in	display	and	solar	customers

Applied	sells	principally	to	manufacturers	within	the	semiconductor,	display	and	solar	industries.	While	Applied	believes	that	its	allowance	for	doubtful	accounts is	adequate	and	represents	Applied's	best	estimate	as	of	October	27,	2013,	Applied	continues	to	closely	monitor	customer	liquidity	and	other	economic	conditions,	which may	result	in	changes	to	Applied's	estimates	regarding	collectability.

Included	in	finished	goods	inventory	is	$136	million	at	October	27,	2013,	and	$60	million	at	October	28,	2012,	of	newly-introduced	systems	at	customer	locations where	the	sales	transaction	did	not	meet	Applied's	revenue	recognition	criteria	as	set	forth	in	Note	1.	Finished	goods	inventory	includes	$177	million	and	$176	million of	evaluation	inventory	at	October	27,	2013	and	October	28,	2012,	respectively.

|  | (In	years) | (In	millions) | (In	millions) |
| :--- | :--- | :--- | :--- |
| Property,\tPlant\tand\tEquipment,\tNet |  |  |  |
| Land\tand\timprovements |  | $167 | $169 |
| Buildings\tand\timprovements | 3-30 | 1,217 | 1,196 |
| Demonstration\tand\tmanufacturing\tequipment | 3-5 | 792 | 760 |
| Furniture,\tfixtures\tand\tother\tequipment | 3-15 | 589 | 734 |
| Construction\tin\tprogress |  | 52 | 58 |
| Gross\tproperty,\tplant\tand\tequipment |  | 2,817 | 2,917 |
| Accumulated\tdepreciation |  | (1,967) | (2,007) |
|  |  | $850 | $910 |

During	 fiscal	 2013	 and	 2012,	 fixed	 asset	 impairment	 charges	 of	$12	 million	 and	$20	 million,	 respectively,	 were recorded in relation to the	 Energy	 and Environmental	Solutions	segment	restructuring	plan,	as	discussed	in	Note	11,	Restructuring	Charges	and	Asset	Impairments.

In	fiscal	2011,	Applied	received	$99	million	in	proceeds	from	the	sale	of	two	properties	located	in	North	America	and	recognized	a	net	gain	of	$27	million	on	the transactions.	Applied	also	completed	the	divestiture	of	certain	assets	held	for	sale	for	proceeds	of	$31	million.

| Accounts	payable | $582 | $396 |
| :--- | :--- | :--- |
| Compensation\tand\temployee\tbenefits | 417 | 426 |
| Warranty | 102 | 119 |
| Income\ttaxes\tpayable | 73 | 74 |
| Dividends\tpayable | 121 | 108 |
| Other\taccrued\ttaxes | 41 | 18 |
| Interest\tpayable | 30 | 30 |
| Restructuring\treserve | 39 | 133 |
| Other | 244 | 206 |
|  | $1,649 | $1,510 |

Applied	typically	receives	deposits	on	future	deliverables	from	customers	in	the	Energy	and	Environmental	Solutions	and	Display	segments.	In	certain	instances, customer	deposits	may	be	received	from	customers	in	the	Applied	Global	Services	segment.

# Note	8 Business	Combinations

On	September	24,	2013,	Applied	and	TEL	entered	into	a	definitive	agreement	to	effect	a	strategic	combination	of	their	respective	businesses	into	a	new	combined company	through	a	"merger	of	equals."	TEL,	a	Japanese	corporation,	is	a	global	provider	of	semiconductor,	flat	panel	display	and	photovoltaic	panel	production equipment.	Under	the	terms	of	the	Agreement,	TEL	shareholders	will	receive	3.25	shares	of	the	new	combined	company	for	every	TEL	share	held.	Applied	shareholders will	 receive	one	share	of	the	new	combined	company	for	every	Applied	share	held.	Based	on	the	number	of	shares	of	Applied	common	stock	and	shares	of	TEL common	stock	expected	to	be	issued	and	outstanding	immediately	prior	to	the	closing	of	the	transaction,	it	is	anticipated	that,	immediately	following	the	transaction, former	Applied	stockholders	and	former	TEL	shareholders	will	own	approximately	68%	and	32%,	respectively,	of	the	new	combined	company.

On	November	10,	2011,	Applied	completed	the	acquisition	of	Varian,	a	public	company	manufacturer	of	semiconductor	processing	equipment	and	the	leading supplier	of	ion	implantation	equipment	used	by	chip	makers	globally,	for	an	aggregate	purchase	price	of	$4.2	billion	in	cash,	net	of	cash	acquired	and	assumed	earned equity	awards	of	$27	million,	pursuant	to	an	Agreement	and	Plan	of	Merger	dated	as	of	May	3,	2011.	Applied's	primary	reasons	for	this	acquisition	were	to	complement existing	product	offerings	and	to	provide	opportunities	for	future	growth.	Varian	designs,	markets,	manufactures	and	services	ion	implantation	systems.

Applied	allocated	the	purchase	price	of	this	acquisition	to	tangible	and	identifiable	intangible	assets	acquired	and	liabilities	assumed,	based	on	their	estimated	fair values.	These	estimates	were	determined	through	established	and	generally	accepted	valuation	techniques.	Applied	recorded	$2.6	billion	in	goodwill,	which	represented the	excess	of	the	purchase	price	over	the	aggregate	estimated	fair	values	of	the	assets	acquired	and	liabilities	assumed	in	the	acquisition.	Of	this	amount,	$1.8	billion	of goodwill	was	allocated	to	the	Silicon	Systems	Group	segment,	and	the	remainder	was	allocated	to	the	Applied	Global	Services	segment.	Goodwill	associated	with	the acquisition	was	primarily	attributable	to	the	opportunities	from	the	addition	of	Varian's	product	portfolio	which	complement	Applied's	Silicon	Systems	Group's	suite	of products,	including	providing	integrated	process	solutions	to	customers.	Goodwill	is	not	deductible	for	tax	purposes.	During	the	third	quarter	of	fiscal	2012,	Applied completed	the	purchase	price	allocation	for	the	Varian	acquisition.

The	following	table	summarizes	the	allocation	of	the	assets	acquired	and	liabilities	assumed	at	the	acquisition	date:

|  | Estimated	Fair	Values |
| :--- | :--- |
|  | (In\tmillions) |
| Fair\tvalue\tof\tnet\ttangible\tassets\tacquired | $892 |
| Goodwill | 2,604 |
| Purchased\tintangible\tassets | 1,365 |
| Purchase\tprice\tallocated | $4,861 |

The	following	table	presents	details	of	the	purchase	price	allocated	to	purchased	intangible	assets	of	Varian	at	the	acquisition	date:

|  | Useful<br>Life | Purchased<br>Intangible		Assets |
| :--- | :--- | :--- |
|  | (In\tyears) | (In\tmillions) |
| Developed\ttechnology | 1\t-\t7 | $987 |
| Customer\trelationships | 15 | 150 |
| In-process\ttechnology |  | 142 |
| Patents\tand\ttrademarks | 10 | 69 |
| Backlog | 1 | 7 |
| Covenant\tnot\tto\tcompete | 2 | 10 |
| Total\tpurchased\tintangible\tassets |  | $1,365 |

The	results	of	operations	of	Varian	are	included	in	Applied's	consolidated	results	of	operations,	primarily	in	the	results	for	the	Silicon	Systems	Group	and	Applied Global	Services	segments,	beginning	in	the	first	quarter	of	fiscal	2012.	For	the	fiscal	year	ended	October	28,	2012,	net	sales	of	approximately	$1.0	billion	and	operating loss	of	approximately	$148	million	attributable	to	Varian	were	included	in	the	consolidated	results	of	operations.	For	the	year	ended	October	28,	2012,	results	of operations	included	charges	of	$332	million,	attributable	to	inventory	fair	value	adjustments	on	products	sold,	amortization	of	purchased	intangible	assets,	share-based compensation	 associated	 with	 accelerated	 vesting,	 deal	 costs	 and	 other	 integration	 costs	 associated	 with	 the	 acquisition.	 Of	 these	 amounts,	 deal	 costs	 and	 other acquisition-related	 costs	 of	$45	million	were	not	allocated	 to	 the	segments	for	 the	year	ended	October	28,	2012.	Deal	costs	are	 included	 in	selling,	general	and administrative	expenses	in	Applied's	consolidated	results	of	operations.

The	following	unaudited	pro	forma	consolidated	results	of	operations	assume	the	acquisition	was	completed	as	of	the	beginning	of	fiscal	2011.	The	pro	forma consolidated	results	of	operations	for	the	year	ended	October	30,	2011	combine	the	results	of	Applied	for	the	year	ended	October	30,	2011,	with	the	results	of	Varian	for the	year	ended	September	30,	2011.

The	pro	forma	results	below	include	adjustments	related	to	the	purchase	price	allocation	and	financing	of	the	acquisition,	primarily	to	increase	depreciation	and amortization	with	the	higher	values	of	property,	plant	and	equipment	and	identifiable	intangible	assets,	to	increase	interest	expense	for	the	additional	debt	incurred	to complete	the	acquisition,	and	to	reflect	the	related	income	tax	effect.	The	pro	forma	results	for	the	fiscal	year	ended	October	30,	2011	include	costs	of	$128	million, which	reduced	net	income	due	to	inventory	fair	value	adjustments	on	products	sold,	share-based	compensation	associated	with	accelerated	vesting	and	acquisition- related	costs,	which	are	not	expected	to	occur	in	future	quarters.	The	pro	forma	information	does	not	necessarily	reflect	the	actual	results	of	operations	had	the	acquisition been	consummated	at	the	beginning	of	the	fiscal	reporting	period	indicated	nor	is	it	necessarily	indicative	of	future	operating	results.	The	pro	forma	information	does	not include	any	potential	revenue	enhancements,	cost	synergies	or	other	operating	efficiencies	that	could	result	from	the	acquisition.

|  | 2012 | 2011 |
| :--- | :--- | :--- |
|  | (In\tmillions,\texcept\tper\tshare\tamounts) | (In\tmillions,\texcept\tper\tshare\tamounts) |
| Net\tsales | $8,719 | $11,734 |
| Net\tincome | $167 | $1,862 |
| Basic\tearnings\tper\tshare | $0.13 | $1.41 |
| Diluted\tearnings\tper\tshare | $0.13 | $1.40 |

# Note	9 Goodwill,	Purchased	Technology	and	Other	Intangible

# Assets

# Goodwill	and	Purchased	Intangible	Assets

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

Goodwill	and	purchased	intangible	assets	with	indefinite	useful	lives	are	not	amortized,	but	are	reviewed	for	impairment	annually	during	the	fourth	quarter	of	each fiscal	year	and	whenever	events	or	changes	in	circumstances	indicate	that	the	carrying	value	of	an	asset	may	not	be	recoverable.	The	process	of	evaluating	the	potential impairment	of	goodwill	and	intangible	assets	requires	significant	judgment,	especially	in	emerging	markets.	Applied	regularly	monitors	current	business	conditions	and other	factors	including,	but	not	limited	to,	adverse	industry	or	economic	trends,	restructuring	actions	and	lower	projections	of	profitability	that	may	impact	future operating	results.

To	test	goodwill	for	impairment,	Applied	first	performs	a	qualitative	assessment	to	determine	whether	it	is	more	likely	than	not	that	the	fair	value	of	a	reporting unit	is	less	than	its	carrying	value.	If	it	is	concluded	that	this	is	the	case,	Applied	then	performs	the	two-step	goodwill	impairment	test.	Otherwise,	the	two-step	goodwill impairment	test	is	not	required.	Under	the	two-step	goodwill	impairment	test,	Applied	would,	in	the	first	step,	compare	the	estimated	fair	value	of	each	reporting	unit	to its	carrying	value.	Applied	determines	the	fair	value	of	each	of	its	reporting	units	based	on	a	weighting	of	income	and	market	approaches.	If	the	carrying	value	of	the	net assets	assigned	to	the	reporting	unit	exceeds	its	fair	value,	then	Applied	would	then	perform	the	second	step	of	the	impairment	test	in	order	to	determine	the	implied	fair value	of	the	reporting	unit's	goodwill.	If	Applied	determines	that	the	carrying	value	of	a	reporting	unit's	goodwill	exceeds	its	implied	fair	value,	Applied	would	record an	impairment	charge	equal	to	the	difference.	Applied's	reporting	units	are	consistent	with	the	reportable	segments	identified	in	Note	16,	Industry	Segment	Operations, which	are	based	on	the	manner	in	which	Applied	operates	its	business	and	the	nature	of	those	operations.

During	the	second	quarter	of	fiscal	2013,	the	solar	industry	experienced	further	deterioration	of	market	conditions	associated	with	continued	manufacturing overcapacity	and	weaker	operating	performance	and	outlook,	resulting	in	increased	uncertainties	regarding	the	timing	and	nature	of	a	recovery	in	solar	capital	equipment expenditures.	Taking	these	factors	into	account,	Applied	reassessed	its	financial	outlook	for	the	Energy	and	Environmental	Solutions	reporting	unit	and	consequently reevaluated	the	recoverability	of	this	reporting	unit's	goodwill.	Applied	performed	the	two-step	impairment	test	and	concluded	that	the	Energy	and	Environmental Solutions	reporting	unit's	carrying	value	exceeded	its	fair	value.	Based	on	Applied's	analyses,	the	implied	fair	value	of	goodwill	was	substantially	lower	than	the carrying	value	of	goodwill	for	the	reporting	unit.	As	a	result,	in	the	second	quarter	of	fiscal	2013,	Applied	recorded	a	goodwill	impairment	charge	of	$224	million, representing	all	of	the	remaining	goodwill	for	this	reporting	unit.	As	of	October	27,	2013,	accumulated	goodwill	impairment	charges	amounted	to	$645	million	which were	recorded	in	the	Energy	and	Environmental	Solutions	segment.

Applied	also	performed	an	impairment	test	for	long-lived	assets	associated	with	the	Energy	and	Environmental	Solutions	reporting	unit	and	determined	that	the majority	of	intangible	assets	were	impaired	mostly	due	to	the	lower	long-term	revenue	and	profitability	outlook	associated	with	products	related	to	these	intangible assets.	Accordingly,	during	the	second	quarter	of	fiscal	2013,	Applied	recorded	an	impairment	charge	of	$54	million	related	to	these	intangible	assets,	which	was	the amount	by	which	the	carrying	value	of	these	intangible	assets	exceeded	their	estimated	fair	value,	based	on	discounted	projected	cash	flows.

Applied	utilized	an	equal	weighting	of	both	the	discounted	cash	flow	method	of	the	income	approach	and	the	guideline	company	method	of	the	market	approach	to estimate	the	fair	value	of	the	Energy	and	Environmental	Solutions	reporting	unit.	The	estimates	used	in	the	impairment	testing	were	consistent	with	the	discrete	forecasts that	Applied	uses	to	manage	its	business,	and	considered	the	significant	developments	that	occurred	during	the	quarter.	Under	the	discounted	cash	flow	method,	cash flows	beyond	the	discrete	forecasts	were	estimated	using	a	terminal	growth	rate,	which	considered	the	long-term	earnings	growth	rate	specific	to	the	Energy	and Environmental	Solutions	reporting	unit.	The	estimated	future	cash	flows	were	discounted	to	present	value	using	a	discount	rate	that	was	the	value-weighted	average	of the	reporting	unit's	estimated	cost	of	equity	and	debt	derived	using	both	known	and	estimated	market	metrics,	and	was	adjusted	to	reflect	risk	factors	that	considered both	the	timing	and	risks	associated	with	the	estimated	cash	flows.	The	tax	rate	used	in	the	discounted	cash	flow	method	reflected	the	international	structure	currently	in place,	which	is	consistent	with	the	market	participant	perspective.	Under	the	guideline	company	method,	market	multiples	were	applied	to	forecasted	revenues	and earnings	before	interest,	taxes,	depreciation	and	amortization.	The	market	multiples	used	were	consistent	with	comparable	publicly-traded	companies.

In	the	fourth	quarter	of	fiscal	2013,	Applied	performed	a	qualitative	assessment	to	test	goodwill	for	all	reporting	units	for	impairment	and	determined	that	it	was more	likely	than	not	that	each	of	the	Silicon	Systems	Group,	Applied	Global	Services,	and	Display	reporting	units'	fair	values	exceeded	their	respective	carrying	values and	that	it	was	not	necessary	to	perform	the	two-step	goodwill	impairment	test	for	these	reporting	units.

Details	of	goodwill	and	other	indefinite-lived	intangible	assets	were	as	follows:

|  | Goodwill | October	27,	2013<br>Other<br>Intangible<br>Assets | Total | Goodwill | October	28,	2012<br>Other<br>Intangible<br>Assets | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions) |  |  |  |
| Silicon\tSystems\tGroup | $2,151 | $142 | $2,293 | $2,151 | $142 | $2,293 |
| Applied\tGlobal\tServices | 1,027 | — | 1,027 | 1,027 | — | 1,027 |
| Display | 116 | — | 116 | 116 | — | 116 |
| Energy\tand\tEnvironmental\tSolutions | — | — | — | 224 | — | 224 |
| Carrying\tamount | $3,294 | $142 | $3,436 | $3,518 | $142 | $3,660 |

During	fiscal	2013,	goodwill	and	other	indefinite-lived	intangible	assets	decreased	by	$224	million	due	to	the	impairment	of	goodwill	recorded	in	the	second quarter	of	fiscal	2013.

Other	 intangible	 assets	 that	 are	 not	 subject	 to	 amortization	 consist	 primarily	 of	 in-process	 technology,	 which	 will	 be	 subject	 to	 amortization	 upon commercialization.	The	fair	value	assigned	to	in-process	technology	was	determined	using	the	income	approach	taking	into	account	estimates	and	judgments	regarding risks	inherent	in	the	development	process,	including	the	likelihood	of	achieving	technological	success	and	market	acceptance.	If	an	in-process	technology	project	is abandoned,	the	acquired	technology	attributable	to	the	project	will	be	written-off.

A	summary	of	Applied's	purchased	technology	and	intangible	assets	is	set	forth	below:

|  | October	27,<br>2013 | October	28,<br>2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Purchased\ttechnology,\tnet | $748 | $945 |
| Intangible\tassets\t-\tfinite-lived,\tnet | 213 | 268 |
| Intangible\tassets\t-\tindefinite-lived | 142 | 142 |
| Total | $1,103 | $1,355 |

# Finite-Lived	Purchased	Intangible	Assets

Applied	amortizes	purchased	intangible	assets	with	finite	lives	using	the	straight-line	method	over	the	estimated	economic	lives	of	the	assets,	ranging	from	1	to	15 years.

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

Intangible	assets,	such	as	purchased	technology,	are	generally	recorded	in	connection	with	a	business	acquisition.	The	value	assigned	to	intangible	assets	is	usually based	on	estimates	and	judgments	regarding	expectations	for	the	success	and	life	cycle	of	products	and	technology	acquired.	Applied	evaluates	the	useful	lives	of	its intangible	assets	each	reporting	period	to	determine	whether	events	and	circumstances	require	revising	the	remaining	period	of	amortization.	In	addition,	Applied reviews	intangible	assets	for	impairment	when	events	or	changes	in	circumstances	indicate	their	carrying	value	may	not	be	recoverable.	Management	considers	such indicators	as	significant	differences	in	actual	product	acceptance	from	the	estimates,	changes	in	the	competitive	and	economic	environment,	technological	advances,	and changes	in	cost	structure.	In	the	fourth	quarter	of	fiscal	2013,	Applied	performed	an	impairment	analysis	on	the	carrying	value	of	its	intangible	assets	and	determined that	there	was	no	impairment.

Details	of	finite-lived	intangible	assets	were	as	follows:

|  | Purchased<br>Technology | October	27,	2013<br>Other<br>Intangible<br>Assets | Total | Purchased<br>Technology | October	28,	2012<br>Other<br>Intangible<br>Assets | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions) |  |  |  |
| Gross\tcarrying\tamount: |  |  |  |  |  |  |
| Silicon\tSystems\tGroup | $1,301 | $252 | $1,553 | $1,300 | $252 | $1,552 |
| Applied\tGlobal\tServices | 28 | 44 | 72 | 28 | 44 | 72 |
| Display | 110 | 33 | 143 | 110 | 33 | 143 |
| Energy\tand\tEnvironmental\tSolutions | 5 | 15 | 20 | 105 | 232 | 337 |
| Gross\tcarrying\tamount | $1,444 | $344 | $1,788 | $1,543 | $561 | $2,104 |
| Accumulated\tamortization: |  |  |  |  |  |  |
| Silicon\tSystems\tGroup | $(562) | $(58) | $(620) | $(411) | $(36) | $(447) |
| Applied\tGlobal\tServices | (23) | (42) | (65) | (22) | (39) | (61) |
| Display | (110) | (29) | (139) | (106) | (27) | (133) |
| Energy\tand\tEnvironmental\tSolutions | (1) | (2) | (3) | (59) | (191) | (250) |
| Accumulated\tamortization | $(696) | $(131) | $(827) | $(598) | $(293) | $(891) |
| Carrying\tamount | $748 | $213 | $961 | $945 | $268 | $1,213 |

During	 fiscal	2013,	the	impact	of	the	impairment	of	certain	intangible	assets	associated	with	the	Energy	and	Environmental	Solutions	segment	on	the	gross carrying	amount	and	accumulated	amortization	of	the	finite-lived	intangible	assets	was	approximately	$317	million	and	$262	million,	respectively.

Details	of	amortization	expense	by	segment	for	fiscal	2013,	2012	and	2011	were	as	follows:

| Silicon	Systems	Group | $172 | $183 | $13 |
| :--- | :--- | :--- | :--- |
| Applied\tGlobal\tServices | 5 | 9 | 7 |
| Display | 6 | 7 | 8 |
| Energy\tand\tEnvironmental\tSolutions | 16 | 25 | 24 |
| Total | $199 | $224 | $52 |

For	fiscal	2013,	2012	and	2011,	amortization	expense	was	charged	to	the	following	categories:

| Cost	of	products	sold | $166 | $185 | $36 |
| :--- | :--- | :--- | :--- |
| Research,\tdevelopment\tand\tengineering | 1 | 1 | — |
| Marketing\tand\tselling | 26 | 30 | 16 |
| General\tand\tadministrative | 6 | 8 | — |
| Total | $199 | $224 | $52 |

As	of	October	27,	2013,	future	estimated	amortization	expense	is	expected	to	be	as	follows:

|  | Amortization<br>Expense |
| :--- | :--- |
|  | (In\tmillions) |
| 2014 | 181 |
| 2015 | 175 |
| 2016 | 169 |
| 2017 | 165 |
| 2018 | 163 |
| Thereafter | 108 |
| Total | $961 |

# Note	10 Borrowing	Facilities	and	Long-Term	Debt

Long-term	debt	outstanding	as	of	October	27,	2013	and	October	28,	2012	was	as	follows:

Applied	has	debt	agreements	that	contain	financial	and	other	covenants.	These	covenants	require	Applied	to	maintain	certain	minimum	financial	ratios.	At October	27,	2013,	Applied	was	in	compliance	with	all	such	covenants.

# Note	11 Restructuring	Charges	and	Asset	Impairments

From	time	to	time,	Applied	initiates	restructuring	activities	to	appropriately	align	its	cost	structure	relative	to	prevailing	economic	and	industry	conditions	and associated	customer	demand	as	well	as	in	connection	with	certain	acquisitions.	Costs	associated	with	restructuring	actions	can	include	termination	benefits	and	related charges	in	addition	to	facility	closure,	contract	termination	and	other	related	activities.

The	following	table	summarizes	major	components	of	the	restructuring	and	asset	impairment	charges	during	fiscal	2013,	2012	and	2011:

| Severance	and	other	employee-related	costs1 | $39 | $106 | $— |
| :--- | :--- | :--- | :--- |
| 2012\tEES\tRestructuring\tPlan |  |  |  |
| Severance\tand\tother\temployee-related\tcosts2 | 8 | 27 | — |
| Contract\tcancellation\tand\tother\tcosts | 6 | 1 | — |
| Asset\timpairments | 12 | 20 | — |
| 2010\tEES\tRestructuring\tPlan |  |  |  |
| Severance\tand\tother\temployee-related\tcosts | — | — | (36) |
| Asset\timpairments | — | — | — |
| 2010\tGlobal\tRestructuring\tPlan |  |  |  |
| Severance\tand\tother\temployee-related\tcosts | — | — | (19) |
| Others |  |  |  |
| Severance\tand\tother\temployee-related\tcosts | 2 | 14 | (5) |
| Contract\tcancellation\tand\tother\tcosts | (4) | — | — |
| Non-Restructuring\tRelated |  |  |  |
| Asset\timpairments | — | — | 30 |
|  | $63 | $168 | $(30) |

1	Includes	share-based	compensation	expense,	with	the	offset	recorded	in	additional	paid-in	capital.

2	Includes	post-retirement	benefit	expense,	with	the	offset	recorded	in	accumulated	other	comprehensive	loss.

Restructuring	and	asset	impairment	charges	were	recorded	as	follows:

| Silicon	Systems	Group | $1 | $4 | $— |
| :--- | :--- | :--- | :--- |
| Applied\tGlobal\tServices | 2 | 15 | 24 |
| Energy\tand\tEnvironmental\tSolutions | 25 | 38 | (33) |
| Corporate\tUnallocated | 35 | 111 | (21) |
| Total | $63 | $168 | $(30) |

# Global	Restructuring	Plan

On	October	3,	2012,	Applied	announced	a	restructuring	plan	(the	2012	Global	Restructuring	Plan)	to	realign	its	global	workforce	and	enhance	its	ability	to	invest for	growth.	Under	this	plan,	Applied	implemented	a	voluntary	retirement	program	and	other	workforce	reduction	actions	that	were	expected	to	affect	approximately	900 to	1,300	positions,	or	6	percent	to	9	percent	of	its	global	workforce.	The	voluntary	retirement	program	was	available	to	certain	U.S.	employees	who	met	minimum	age and	length	of	service	requirements,	as	well	as	other	business-specific	criteria.	In	addition,	Applied	implemented	other	workforce	reduction	actions	globally	across multiple	business	segments	and	functions,	the	extent	of	which	depended	on	the	number	of	employees	who	participated	in	the	voluntary	retirement	program	and	other considerations.

In	connection	with	 the	2012	Global	Restructuring	Plan,	Applied	expects	 to	 incur	aggregate	pre-tax	restructuring	charges	comprised	of	severance	and	other termination	benefits	of	up	to	$160	million	(including	costs	incurred	to	date	of	$145	million	discussed	below).	Applied	expects	to	substantially	complete	this	plan	by	the end	of	the	first	quarter	of	fiscal	2014.

# 2012	EES	Restructuring	Plan

On	May	10,	2012,	Applied	announced	a	plan	(the	2012	EES	Restructuring	Plan)	to	restructure	its	Energy	and	Environmental	Solutions	segment	in	light	of challenging	industry	conditions	affecting	the	solar	photovoltaic	and	light-emitting	diode	(LED)	equipment	markets.	As	part	of	this	plan,	Applied	relocated	certain manufacturing,	business	operations	and	customer	support	functions	of	its	precision	wafering	systems	business	and	ceased	LED	development	activities.	The	2012	EES Restructuring	Plan	also	impacted	certain	LED	support	activities	in	the	Applied	Global	Services	segment.	The	2012	EES	Restructuring	Plan	impacted	approximately	300 positions	globally.	As	of	October	27,	2013,	principal	activities	related	to	this	plan	were	complete.	Total	costs	incurred	in	implementing	this	plan	were	$87	million,	of which	$13	million	were	inventory-related	charges.

During	fiscal	2013	and	2012,	Applied	recognized	$26	million	and	$48	million,	respectively,	of	restructuring	and	asset	impairment	charges	in	connection	with	the 2012	EES	Restructuring	Plan.	These	costs	were	reported	in	the	Energy	and	Environmental	Solutions	and	Applied	Global	Services	segments.	As	of	October	27,	2013, remaining	severance	accrual	associated	with	restructuring	reserves	under	this	program	was	$5	million.

# Integration	of	Varian	and	Prior	Year	Restructuring	Plans

During	fiscal	2013	and	2012,	Applied	also	recognized	$2	million	and	$14	million,	respectively	of	severance	and	other	employee-related	costs	in	connection	with the	integration	of	Varian.	These	costs	were	reported	in	the	Silicon	Systems	Group	and	Applied	Global	Services	segments.	As	of	 October	27,	2013,	remaining	severance accrual	associated	with	restructuring	reserves	under	this	program	was	$2	million.

In	 fiscal	2011,	Applied	had	favorable	adjustments	of	$60	million	related	to	a	restructuring	programs	announced	prior	to	fiscal	2012,	partially	offset	by	asset impairment	charges	of	$30	million	primarily	related	to	certain	fixed	and	intangible	assets.

Changes	in	restructuring	reserves	for	fiscal	2013,	2012,	and	2011	were	as	follows:

|  | 2012	Global<br>Restructuring	Plan<br>Severance	and	Other<br>Employee-Related<br>Costs | 2012	EES	Restructuring	Plan<br>Severance	and	Other<br>Employee-Related<br>Costs | Contract<br>Cancellation	and<br>Other	Costs | 2010	EES	Restructuring<br>Plan<br>Severance	and	Other<br>Employee-Related	Costs | 2010	Global<br>Restructuring	Plan<br>Severance	and	Other<br>Employee-Related	Costs | Severance	and<br>Other	Employee-<br>Related	Costs | Others<br>Contract	Cancellation<br>and	Other	Costs | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tmillions) |  |  |  |  |
| Balance,\tOctober\t31,\t2010 | $— | $— | $— | $42 | $51 | $6 | $5 | $104 |
| Consumption\tof\treserves | — | — | — | (5) | (27) | (1) | — | (33) |
| Adjustment\tof\trestructuring\nreserves | — | — | — | (36) | (19) | (5) | — | (60) |
| Balance,\tOctober\t30,\t2011 | $— | $— | $— | $1 | $5 | $— | $5 | $11 |
| Provision\tfor\trestructuring\nreserves | 106 | 27 | 1 | — | — | 14 | — | 148 |
| Consumption\tof\treserves | — | (11) | — | (1) | (5) | (9) | — | (26) |
| Balance,\tOctober\t28,\t2012 | $106 | $16 | $1 | $— | $— | $5 | $5 | $133 |
| Provision\tfor\trestructuring |  |  |  |  |  |  |  |  |
| reserves | 35 | 7 | 8 | — | — | 2 | — | 52 |
| Consumption\tof\treserves | (111) | (18) | (2) | — | — | (5) | — | (136) |
| Adjustment\tof\trestructuring\nreserves1 | (4) | — | (2) | — | — | — | (4) | (10) |
| Balance,\tOctober\t27,\t2013 | $26 | 5 | 5 | — | — | $2 | $1 | $39 |

1	Adjustment	of	restructuring	reserves	for	2012	Global	Restructuring	plan	represents	reclassification	of	post-retirement	benefit	liability	to	other	liabilities.

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

# Accumulated	Other	Comprehensive	Loss

Components	of	accumulated	other	comprehensive	loss,	on	an	after-tax	basis,	were	as	follows:

|  | October	27,<br>2013 | October	28,<br>2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Unrealized\tgain\ton\tinvestments,\tnet | $25 | $16 |
| Unrealized\tgain\ton\tderivative\tinstruments\tqualifying\tas\tcash\tflow\thedges | 2 | 1 |
| Pension\tliability | (72) | (90) |
| Cumulative\ttranslation\tadjustments | 7 | 12 |
|  | $(38) | $(61) |

The	decrease	in	accumulated	other	comprehensive	loss	associated	with	pension	liability	amounted	to	$18	million,	net	of	income	tax	effect	of	$7	million.

# Stock	Repurchase	Program

On	March	5,	2012,	Applied's	Board	of	Directors	approved	a	new	stock	repurchase	program	authorizing	up	to	$3.0	billion	in	repurchases	over	the	next	three	years ending	 in	March	2015.	Under	this	authorization,	Applied	purchases	shares	of	its	common	stock	under	a	systematic	stock	repurchase	program	and	may	also	make supplemental	stock	repurchases	from	time	to	time,	depending	on	market	conditions,	stock	price	and	other	factors.	At	October	27,	2013,	$1.6	billion	remains	available	for future	stock	repurchases	under	this	repurchase	program.

The	following	table	summarizes	Applied's	stock	repurchases:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions,\texcept\tper\tshare\tamounts) |  |
| Shares\tof\tcommon\tstock\trepurchased | 18 | 126 | 36 |
| Cost\tof\tstock\trepurchased | $245 | $1,416 | $468 |
| Average\tprice\tpaid\tper\tshare | $13.60 | $11.22 | $12.88 |

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

During	fiscal	2013,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.10	per	share	each	and	one	quarterly	cash	dividend	of	$0.09	per share.	During	fiscal	2012,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.09	per	share	each	and	one	quarterly	cash	dividend	of	$0.08	per share.	During	fiscal	2011,	Applied's	Board	of	Directors	declared	three	quarterly	cash	dividends	of	$0.08	per	share	each	and	one	quarterly	cash	dividend	of	$0.07. Dividends	declared	during	fiscal	2013,	2012	and	2011	amounted	to	$469	million,	$438	million	and	$408	million,	respectively.	Applied	currently	anticipates	that	cash dividends	will	continue	to	be	paid	on	a	quarterly	basis,	although	the	declaration	of	any	future	cash	dividend	is	at	the	discretion	of	the	Board	of	Directors	and	will	depend on	Applied's	financial	condition,	results	of	operations,	capital	requirements,	business	conditions	and	other	factors,	as	well	as	a	determination	by	the	Board	of	Directors that	cash	dividends	are	in	the	best	interests	of	Applied's	stockholders.

# Share-Based	Compensation

Applied	has	a	stockholder	approved	equity	plan,	the	Employee	Stock	Incentive	Plan,	which	permits	grants	to	employees	of	share-based	awards,	including	stock options,	restricted	stock,	restricted	stock	units,	performance	shares	and	performance	units.	In	addition,	the	plan	provides	for	the	automatic	grant	of	restricted	stock	units to	non-employee	directors	and	permits	the	grant	of	share-based	awards	to	non-employee	directors	and	consultants.	Share-based	awards	made	beginning	in	March	2012 under	the	plan	may	be	subject	to	accelerated	vesting	under	certain	circumstances	in	the	event	of	a	change	in	control	of	Applied.	Applied	also	has	two	Employee	Stock Purchase	 Plans,	 one	 generally	 for	 United	 States	 employees	 and	 a	 second	 for	 employees	 of	 international	 subsidiaries	 (collectively,	 ESPP),	 which	 enable	 eligible employees	to	purchase	Applied	common	stock.

During	fiscal	2013,	2012,	and	2011,	Applied	recognized	share-based	compensation	expense	related	to	stock	options,	ESPP	shares,	restricted	stock,	restricted	stock units,	performance	shares	and	performance	units.	Total	share-based	compensation	and	related	tax	benefits	were	as	follows:

| Share-based	compensation | $162 | $182 | $146 |
| :--- | :--- | :--- | :--- |
| Tax\tbenefit\trecognized | $45 | $52 | $42 |

The	effect	of	share-based	compensation	on	the	results	of	operations	for	fiscal	2013,	2012,	and	2011	was	as	follows:

| Cost	of	products	sold | $50 | $54 | $48 |
| :--- | :--- | :--- | :--- |
| Research,\tdevelopment,\tand\tengineering | 53 | 54 | 46 |
| Marketing\tand\tselling | 20 | 22 | 16 |
| General\tand\tadministrative | 34 | 52 | 36 |
| Restructuring\tcharge | 5 | — | — |
| Total | $162 | $182 | $146 |

The	cost	associated	with	share-based	awards	that	are	subject	solely	to	time-based	vesting	requirements,	less	expected	forfeitures,	is	recognized	over	the	awards' service	period	for	the	entire	award	on	a	straight-line	basis.	The	cost	associated	with	performance-based	equity	awards	is	recognized	for	each	tranche	over	the	service period,	based	on	an	assessment	of	the	likelihood	that	the	applicable	performance	goals	will	be	achieved.

At	October	27,	2013,	Applied	had	$250	million	in	total	unrecognized	compensation	expense,	net	of	estimated	forfeitures,	related	to	grants	of	share-based	awards and	shares	issued	under	Applied's	ESPP,	which	will	be	recognized	over	a	weighted	average	period	of	2.4	years.	At	October	27,	2013,	there	were	183	million	shares available	for	grants	of	share-based	awards	under	the	Employee	Stock	Incentive	Plan,	and	an	additional	40	million	shares	available	for	issuance	under	the	ESPP.

# Stock	Options

Applied	grants	options	to	purchase,	at	future	dates,	shares	of	its	common	stock	to	employees	and	consultants.	The	exercise	price	of	each	stock	option	equals	the fair	market	value	of	Applied	common	stock	on	the	date	of	grant.	Options	typically	vest	over	three	to	four	years,	subject	to	the	grantee's	continued	service	with	Applied through	the	scheduled	vesting	date,	and	expire	no	later	than	seven	years	from	the	grant	date.	The	fair	value	of	each	option	grant	is	estimated	on	the	date	of	grant	using	the Black-Scholes	option	pricing	model.	This	model	was	developed	for	use	in	estimating	the	value	of	publicly	traded	options	that	have	no	vesting	restrictions	and	are	fully transferable.	Applied's	employee	stock	options	have	characteristics	significantly	different	from	those	of	publicly	traded	options.	The	weighted	average	assumptions used	in	the	model	for	the	stock	options	granted	and	assumed	are	outlined	below:

|  | 2013<br>Shares | Weighted<br>Average<br>Exercise<br>Price | 2012<br>Shares | Weighted<br>Average<br>Exercise<br>Price | 2011<br>Shares | Weighted<br>Average<br>Exercise<br>Price |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tper\tshare\tamounts) | (In\tmillions,\texcept\tper\tshare\tamounts) |  |  |
| Outstanding,\tbeginning\tof\tyear | 21 | $10.53 | 30 | $13.05 | 51 | $15.04 |
| Granted\tand\tassumed\tin\tVarian\tacquisition | 1 | $15.06 | 5 | $4.85 | — | $— |
| Exercised | (11) | $8.16 | (4) | $7.30 | (5) | $9.21 |
| Canceled\tand\tforfeited | (5) | $17.62 | (10) | $16.76 | (16) | $20.28 |
| Outstanding,\tend\tof\tyear | 6 | $9.12 | 21 | $10.53 | 30 | $13.05 |
| Exercisable,\tend\tof\tyear | 5 | $7.90 | 20 | $10.71 | 24 | $14.23 |

The	following	table	summarizes	information	with	respect	to	options	outstanding	and	exercisable	at	October	27,	2013:

|  |  | Options	Outstanding | Options	Outstanding |  |  | Options	Exercisable |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Range\tof\nExercise\tPrices | Number\tof\nShares | Weighted\nAverage\nExercise\nPrice | Weighted\nAverage\nRemaining\nContractual\nLife | Aggregate\nIntrinsic\nValue | Number\tof\nShares | Weighted\nAverage\nExercise\nPrice | Aggregate\nIntrinsic\nValue |
|  | (In\tmillions) | (In\tyears) | (In\tyears) | (In\tmillions) | (In\tmillions) |  | (In\tmillions) |
| $3.09\t—\t$9.99 | 5 | $7.23 | 1.47 | $46 | 4 | $7.26 | $44 |
| $10.00\t—\t$19.99 | 1 | $15.00 | 5.55 | 3 | 1 | $14.77 | 1 |
|  | 6 | $9.12 | 2.38 | $49 | 5 | $7.90 | $45 |
| Options\texercisable\tand\texpected\tto\nbecome\texercisable | 6 | $8.95 | 2.25 | $49 |  |  |  |

Option	prices	at	the	lower	end	of	the	range	were	principally	attributable	to	stock	options	assumed	in	connection	with	the	Varian	acquisition	in	fiscal	year	2012.

# Restricted	Stock	Units,	Restricted	Stock,	Performance	Shares	and	Performance	Units

Restricted	stock	units	are	converted	into	shares	of	Applied	common	stock	upon	vesting	on	a	one-for-one	basis.	Restricted	stock	has	the	same	rights	as	other	issued and	outstanding	shares	of	Applied	common	stock	except	these	shares	generally	have	no	right	to	dividends	and	are	held	in	escrow	until	the	award	vests.	Performance shares	and	performance	units	are	awards	that	result	in	a	payment	to	a	grantee	in	shares	of	Applied	common	stock	on	a	one-for-one	basis	if	performance	goals	and/or other	vesting	criteria	established	by	the	Human	Resources	and	Compensation	Committee	of	Applied's	Board	of	Directors	(the	Committee)	are	achieved	or	the	awards otherwise	vest.	Restricted	stock	units,	restricted	stock,	performance	shares	and	performance	units	typically	vest	over	four	years	and	vesting	is	usually	subject	to	the grantee's	continued	service	with	Applied	and,	in	some	cases,	achievement	of	specified	performance	goals.	The	compensation	expense	related	to	the	service-based awards	is	determined	using	the	fair	market	value	of	Applied	common	stock	on	the	date	of	the	grant,	and	the	compensation	expense	is	recognized	over	the	vesting	period.

Restricted	stock,	performance	shares	and	performance	units	granted	to	certain	executive	officers	are	also	subject	to	the	achievement	of	specified	performance goals	(performance-based	awards).	These	performance-based	awards	become	eligible	to	vest	only	if	performance	goals	are	achieved	and	then	actually	will	vest	only	if the	grantee	remains	employed	by	Applied	through	each	applicable	vesting	date.	These	performance-based	awards	require	the	achievement	of	targeted	levels	of	relative adjusted	annual	operating	profit	margin.	For	the	fiscal	2013	and	fiscal	2012	performance-based	awards,	additional	shares	become	eligible	for	time-based	vesting	if Applied	achieves	certain	levels	of	total	shareholder	return	(TSR)	relative	to	a	peer	group	comprised	of	companies	in	the	Standard	&	Poor's	500	Information	Technology Index	measured	at	the	end	of	a	two-year	period.

In	September	2013,	the	Committee	approved	the	amendment	of	certain	outstanding	performance-based	awards,	so	that	applicable	performance	goals	will	be deemed	satisfied	at	target	levels	effective	as	of	either	three	days	prior	to	the	closing	of	the	announced	business	combination	between	Applied	and	TEL,	or	the	date	the proposed	business	combination	is	terminated.	The	vesting	of	the	awards	will	remain	subject	to	time-based	vesting.	In	addition,	the	Committee	also	approved	the amendment	of	certain	outstanding	awards	held	by	executive	officers	to	provide	that	if	the	award	is	outstanding	and	subject	solely	to	time-based	vesting	as	of	three trading	days	prior	to	the	closing	of	the	business	combination	agreement	with	TEL,	vesting	of	the	portion	of	the	award	that	is	otherwise	scheduled	to	vest	during	calendar year	2014	will	accelerate.

The	fair	value	of	these	performance-based	awards	is	estimated	on	the	date	of	grant	and	assumes	that	the	specified	performance	goals	will	be	achieved.	If	the	goals are	achieved,	these	awards	vest	over	a	specified	remaining	service	period	of	generally	three	 or	four	years,	provided	that	the	grantee	remains	employed	by	Applied through	each	scheduled	vesting	date.	If	the	performance	goals	are	not	met,	no	compensation	expense	is	recognized	and	any	previously	recognized	compensation	expense is	reversed.	The	expected	cost	of	each	award	is	reflected	over	the	service	period	and	is	reduced	for	estimated	forfeitures.

A	summary	of	the	performance-based	awards	approved	by	the	Committee	is	presented	below:

|  | Number	of	Performance-Based	Awards	Granted | Number	of	Performance-Based	Awards	Granted | Percent	of	Performance-Based |
| :--- | :--- | :--- | :--- |
|  | Performance | Shares\tof | Awards\tEarned\tas\tof\tOctober |
| Fiscal\tYear\tGranted | Shares/Performance\tUnits | Restricted\tStock | 27,\t2013* |
|  | (in\tmillions) | (in\tmillions) |  |
| 2013 | 3 | — | 0% |
| 2012 | 3 | 1 | 14% |
| 2011 | 2 | 0.1 | 100% |
| 2010 | 2 | 0.1 | 82% |

*	subject	to	additional	time-based	vesting	requirements

A	summary	of	the	changes	in	restricted	stock	units,	restricted	stock,	performance	shares	and	performance	units	outstanding	under	Applied's	equity	compensation plans	during	fiscal	2013,	2012	and	2011	are	presented	below:

|  | Shares | Weighted<br>Average<br>Grant	Date<br>Fair	Value | Weighted<br>Average<br>Remaining<br>Contractual	Term | Aggregate<br>Intrinsic<br>Value |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tmillions,\texcept\tper\tshare\tamounts) | (In\tmillions,\texcept\tper\tshare\tamounts) |  |
| Non-vested\trestricted\tstock\tunits,\trestricted\tstock,\tperformance\tshares\tand\nperformance\tunits\tat\tOctober\t31,\t2010 | 18 | $13.33 | 2.8\tyears | $227 |
| Granted | 17 | $12.62 |  |  |
| Vested | (5) | $14.64 |  |  |
| Canceled | (2) | $13.11 |  |  |
| Non-vested\trestricted\tstock\tunits,\trestricted\tstock,\tperformance\tshares\tand\nperformance\tunits\tat\tOctober\t30,\t2011 | 28 | $12.64 | 2.8\tyears | $345 |
| Granted | 19 | $10.61 |  |  |
| Vested | (9) | $12.87 |  |  |
| Canceled | (2) | $12.26 |  |  |
| Non-vested\trestricted\tstock\tunits,\trestricted\tstock,\tperformance\tshares\tand\nperformance\tunits\tat\tOctober\t28,\t2012 | 36 | $11.53 | 2.6\tyears | $376 |
| Granted | 19 | $10.55 |  |  |
| Vested | (11) | $11.44 |  |  |
| Canceled | (6) | $11.28 |  |  |
| Non-vested\trestricted\tstock\tunits,\trestricted\tstock,\tperformance\tshares\tand\nperformance\tunits\tat\tOctober\t27,\t2013 | 38 | $11.11 | 2.4\tyears | $662 |
| Non-vested\trestricted\tstock\tunits,\trestricted\tstock,\tperformance\tshares\tand\nperformance\tunits\texpected\tto\tvest |  |  |  |  |
|  | 34 | $10.93 | 2.4\tyears | $594 |

At	October	27,	2013,	2	million	additional	performance-based	awards	could	be	earned	upon	certain	levels	of	achievement	of	Applied's	TSR	relative	to	a	peer	group at	a	future	date.

The	actual	tax	benefit	realized	for	the	tax	deductions	from	vested	restricted	stock	units	totaled	$42	million in	fiscal	2013,	$27	million in fiscal	2012 and	$22 million	in	fiscal	2011.

# Employee	Stock	Purchase	Plans

Under	the	ESPP,	substantially	all	employees	may	purchase	Applied	common	stock	through	payroll	deductions	at	a	price	equal	to	85	percent	of	the	lower	of	the	fair market	value	of	Applied	common	stock	at	the	beginning	or	end	of	each	6-month	purchase	period,	subject	to	certain	limits.	Based	on	the	Black-Scholes	option	pricing model,	the	weighted	average	estimated	fair	value	of	purchase	rights	under	the	ESPP	was	$3.08	per	share	for	the	year	ended	October	27,	2013,	$2.73	per	share	for	the year	ended	October	28,	2012	and	$3.03	per	share	for	the	year	ended	October	30,	2011.	The	number	of	shares	issued	under	the	ESPP	during	fiscal	2013,	2012	and	2011 was	7	million,	7	million	and	6	million,	respectively.	At	October	27,	2013,	there	were	40	million	available	for	future	issuance	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	for	fiscal	2013,	2012	and 2011	are	outlined	in	the	following	table:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| ESPP: |  |  |  |
| Dividend\tyield | 2.80% | 3.01% | 2.53% |
| Expected\tvolatility | 24.8% | 29.6% | 31.1% |
| Risk-free\tinterest\trate | 0.09% | 0.13% | 0.09% |
| Expected\tlife\t(in\tyears) | 0.5 | 0.5 | 0.5 |

# Note	13 Employee	Benefit

# Plans

# Employee	Bonus	Plans

Applied	has	various	employee	bonus	plans.	A	discretionary	bonus	plan	provides	for	the	distribution	of	a	percentage	of	pre-tax	income	to	Applied	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	Applied's executives	and	other	key	contributors	based	on	the	achievement	of	profitability	and/or	other	specified	performance	criteria.	Charges	under	these	plans	were	$269	million for	fiscal	2013,	$271	million	for	fiscal	2012,	and	$319	million	charges	for	fiscal	2011.

# Employee	Savings	and	Retirement	Plan

Applied's	Employee	Savings	and	Retirement	Plan	(the	401(k)	Plan)	is	qualified	under	Sections	401(a)	and	(k)	of	the	Internal	Revenue	Code	(the	Code).	Effective as	of	the	close	of	the	stock	market	on	December	31,	2012,	the	Varian-sponsored	401(k)	plan	was	merged	with	and	into	the	401(k)	Plan,	with	the	401(k)	Plan	being	the surviving	plan.	Eligible	employees	may	make	salary	deferral	and	catch-up	contributions	under	the	401(k)	Plan	on	a	pre-tax	basis	and/or	(effective	as	of	the	first	payroll period	beginning	on	or	after	December	22,	2012)	on	a	Roth	basis,	subject	to	an	annual	dollar	limit	established	by	the	Code.

Applied	matches	100%	of	participant	salary	and/or	Roth	deferral	contributions	up	to	the	first	3%	of	eligible	contribution	and	then	50%	of	every	dollar	between	4% and	6%	of	eligible	contribution.	Applied	does	not	make	matching	contributions	on	any	catch-up	contributions	made	by	participants.	Plan	participants	who	were employed	by	Applied	or	any	of	its	affiliates	on	or	after	January	1,	2010	became	100%	vested	in	their	Applied	matching	contribution	account	balances.	Applied's matching	contributions	under	the	401(k)	Plan	were	approximately	$29	million,	net	of	$1	million	in	forfeitures	for	fiscal	2013,	$37	million	for	fiscal	2012	and	$27	million for	fiscal	2011.

# Defined	Benefit	Pension	Plans	of	Foreign	Subsidiaries	and	Other	Post-Retirement	Benefits

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

Applied	also	has	a	U.S.	post-retirement	plan	that	provides	certain	medical	and	vision	benefits	to	eligible	retirees	who	are	at	least	age	55	and	whose	years	of	service plus	their	age	equals	at	least	65	at	their	date	of	retirement.	An	eligible	retiree	also	may	elect	coverage	for	an	eligible	spouse	or	domestic	partner	who	is	not	eligible	for Medicare.	Coverage	under	the	plan	generally	ends	for	both	the	retiree	and	spouse	or	domestic	partner	upon	becoming	eligible	for	Medicare.	In	addition,	Applied	also	has a	post-retirement	benefit	plan	as	a	result	of	the	acquisition	of	Varian.	Applied's	liability	under	these	post-retirement	plans,	which	was	included	in	other	liabilities	in	the Consolidated	Balance	Sheets,	was	$34	million	at	October	27,	2013	and	$33	million	at	October	28,	2012.

A	summary	of	the	changes	in	benefit	obligations	and	plan	assets,	which	includes	post-retirement	benefits,	for	fiscal	2013	and	2012	is	presented	below.

| Beginning	projected	benefit	obligation | $434 | $303 |
| :--- | :--- | :--- |
| Service\tcost | 20 | 16 |
| Interest\tcost | 15 | 14 |
| Plan\tparticipants'\tcontributions | 1 | 1 |
| Actuarial\t(gain)\tloss | (16) | 96 |
| Curtailments,\tsettlements\tand\tspecial\ttermination\tbenefits | (8) | (3) |
| Foreign\tcurrency\texchange\trate\tchanges | 10 | (4) |
| Benefits\tpaid | (10) | (7) |
| Plan\tamendments\tand\tbusiness\tcombinations | (1) | 18 |
| Ending\tprojected\tbenefit\tobligation | $445 | $434 |
| Ending\taccumulated\tbenefit\tobligation | $409 | $395 |
| Range\tof\tassumptions\tto\tdetermine\tbenefit\tobligations |  |  |
| Discount\trate | 1.1%\t-\t4.5% | 1.3%\t-\t4.7% |
| Rate\tof\tcompensation\tincrease | 2.0%\t-\t4.7% | 2.0%\t-\t8.0% |
| Change\tin\tplan\tassets |  |  |
| Beginning\tfair\tvalue\tof\tplan\tassets | $214 | $183 |
| Return\ton\tplan\tassets | 18 | 14 |
| Employer\tcontributions | 24 | 31 |
| Plan\tparticipants'\tcontributions | 1 | 1 |
| Foreign\tcurrency\texchange\trate\tchanges | 8 | (4) |
| Divestitures,\tsettlements\tand\tbusiness\tcombinations | (7) | (4) |
| Benefits\tpaid | (10) | (7) |
| Ending\tfair\tvalue\tof\tplan\tassets | $248 | $214 |
| Funded\tstatus | $(197) | $(220) |
| Amounts\trecognized\tin\tthe\tconsolidated\tbalance\tsheets |  |  |
| Noncurrent\tasset | $9 | $5 |
| Current\tliability | (4) | (4) |
| Noncurrent\tliability | (202) | (221) |
| Total | $(197) | $(220) |
| Estimated\tamortization\tfrom\taccumulated\tother\tcomprehensive\tloss\tinto\tnet\tperiodic\tbenefit\tcost\tover\nthe\tnext\tfiscal\tyear |  |  |
| Actuarial\tloss | $4 | $6 |
| Prior\tservice\tcost\t(credit) | — | (1) |
| Total | $4 | $5 |
| Amounts\trecognized\tin\taccumulated\tother\tcomprehensive\tloss |  |  |
| Net\tactuarial\tloss | $91 | $117 |
| Prior\tservice\tcost\t(credit) | 2 | (3) |
| Total | $93 | $114 |
| Plans\twith\tprojected\tbenefit\tobligations\tin\texcess\tof\tplan\tassets |  |  |
| Projected\tbenefit\tobligation | $438 | $428 |
| Fair\tvalue\tof\tplan\tassets | $233 | $202 |
| Plans\twith\taccumulated\tbenefit\tobligations\tin\texcess\tof\tplan\tassets |  |  |
| Accumulated\tbenefit\tobligation | $269 | $389 |
| Fair\tvalue\tof\tplan\tassets | $99 | $202 |

The	following	table	presents	the	activity	in	Level	3	instruments	during	fiscal	2013	and	2012:

|  | 2013 | 2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Balance,\tbeginning\tof\tyear | $49 | $48 |
| Actual\treturn\ton\tplan\tassets: |  |  |
| Relating\tto\tassets\tstill\theld\tat\treporting\tdate | (1) | 1 |
| Purchases,\tsales,\tsettlements,\tnet | (4) | 3 |
| Currency\timpact | 3 | (3) |
| Balance,\tend\tof\tyear | $47 | $49 |

Applied's	investment	strategy	for	its	defined	benefit	plans	is	to	invest	plan	assets	in	a	prudent	manner,	maintaining	well-diversified	portfolios	with	the	long-term objective	of	meeting	 the	obligations	of	 the	plans	as	 they	come	due.	Asset	allocation	decisions	are	 typically	made	by	plan	fiduciaries	with	 input	from	Applied's international	pension	committee.	Applied's	asset	allocation	strategy	incorporates	a	sufficient	equity	exposure	in	order	for	the	plans	to	benefit	from	the	expected	better long-term	 performance	 of	 equities	 relative	 to	 the	 plans'	 liabilities.	Applied	 retains	 investment	 managers,	 where	 appropriate,	 to	 manage	 the	 assets	 of	 the	 plans. Performance	of	investment	managers	is	monitored	by	plan	fiduciaries	with	the	assistance	of	local	investment	consultants.	The	investment	managers	make	investment decisions	within	the	guidelines	set	forth	by	plan	fiduciaries.	Risk	management	practices	include	diversification	across	asset	classes	and	investment	styles,	and	periodic rebalancing	toward	target	asset	allocation	ranges.	Investment	managers	may	use	derivative	instruments	for	efficient	portfolio	management	purposes.	Plan	assets	do	not include	any	of	Applied's	own	equity	or	debt	securities.

A	summary	of	the	components	of	net	periodic	benefit	costs	and	the	weighted	average	assumptions	used	for	net	periodic	benefit	cost	and	benefit	obligation calculations	for	fiscal	2013,	2012	and	2011	is	presented	below.

| Service	cost | $20 | $16 | $15 |
| :--- | :--- | :--- | :--- |
| Interest\tcost | 15 | 14 | 14 |
| Expected\treturn\ton\tplan\tassets | (12) | (11) | (11) |
| Amortization\tof\tactuarial\tloss\tand\tprior\tservice\tcredit | 6 | — | 2 |
| Settlement\tand\tcurtailment\tloss\t(gain) | — | 6 | (2) |
| Net\tperiodic\tbenefit\tcost | $29 | $25 | $18 |
| Weighted\taverage\tassumptions |  |  |  |
| Discount\trate | 3.46% | 4.53% | 4.33% |
| Expected\tlong-term\treturn\ton\tassets | 5.38% | 5.91% | 6.39% |
| Rate\tof\tcompensation\tincrease | 3.07% | 3.09% | 3.42% |

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

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

Company	contributions	to	these	plans	for	fiscal	2014	are	expected	to	be	approximately	$18	million.

# Executive	Deferred	Compensation	Plans

Applied	sponsors	two	unfunded	deferred	compensation	plans,	the	Executive	Deferred	Compensation	Plan	(Predecessor	EDCP)	and	the	2005	Executive	Deferred Compensation	Plan	(2005	EDCP),	under	which	certain	employees	may	elect	to	defer	a	portion	of	their	following	year's	eligible	earnings.	The	Predecessor	EDCP	was frozen	as	of	December	31,	2004	such	that	no	new	deferrals	could	be	made	under	the	plan	after	that	date	and	the	plan	would	qualify	for	"grandfather"	relief	under Section	409A	of	the	Code.	The	Predecessor	EDCP	participant	accounts	continue	to	be	maintained	under	the	plan	and	credited	with	deemed	interest.	The	2005	EDCP	was implemented	by	Applied	effective	as	of	January	1,	2005	and	is	intended	to	comply	with	the	requirements	of	Section	409A	of	the	Code.	In	addition,	Applied	also sponsors	a	non-qualified	deferred	compensation	plan	as	a	result	of	the	acquisition	of	Varian.	Amounts	payable,	including	accrued	deemed	interest,	totaled	$49	million	at October	27,	2013	and	$57	million	at	October	28,	2012,	which	were	included	in	other	liabilities	in	the	Consolidated	Balance	Sheets.	Under	the	Predecessor	EDCP	and 2005	EDCP,	in	the	event	of	change	of	control	(as	defined	under	these	plans),	the	distribution	of	all	deferred	balances	would	be	required.

# Note	14 Income

# Taxes

The	components	of	income	before	income	taxes	for	fiscal	2013,	2012	and	2011	were	as	follows:

| U.S. | $194 | $381 | $1,257 |
| :--- | :--- | :--- | :--- |
| Foreign | 156 | (65) | 1,121 |
|  | $350 | $316 | $2,378 |

The	components	of	the	provision	for	income	taxes	for	fiscal	2013,	2012	and	2011	were	as	follows:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) |  |
| Current: |  |  |  |
| U.S. | $3 | $74 | $290 |
| Foreign | 72 | 75 | 206 |
| State | 2 | 8 | 5 |
|  | 77 | 157 | 501 |
| Deferred: |  |  |  |
| U.S. | 34 | 52 | (95) |
| Foreign | (19) | (4) | (23) |
| State | 2 | 2 | 69 |
|  | 17 | 50 | (49) |
|  | $94 | $207 | $452 |

A	reconciliation	between	the	statutory	U.S.	federal	income	tax	rate	of	35	percent		and	Applied's	actual	effective	income	tax	rate	for	fiscal	2013,	2012	and	2011	is presented	below:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Tax\tprovision\tat\tU.S.\tstatutory\trate | 35.0\t% | 35.0\t% | 35.0\t% |
| Resolutions\tfrom\tprior\tyears'\tincome\ttax\tfilings | (4.7) | (6.0) | (6.9) |
| Effect\tof\tforeign\toperations\ttaxed\tat\tvarious\trates | (19.4) | (8.5) | (8.1) |
| State\tincome\ttaxes,\tnet\tof\tfederal\tbenefit | 0.8 | 2.0 | 1.6 |
| Research\tand\tother\ttax\tcredits | (5.4) | (1.0) | (1.2) |
| Production\tbenefit | (1.0) | (8.0) | (0.8) |
| Goodwill\timpairment | 22.5 | 47.0 | — |
| Share-based\tcompensation | 2.2 | 4.0 | 0.4 |
| Other | (3.1) | 1.0 | (1.0) |
|  | 26.9\t% | 65.5\t% | 19.0\t% |

The	effective	tax	rate	for	fiscal	2013	was	significantly	lower	than	the	rate	for	fiscal	2012	due	primarily	to	the	geographic	composition	of	Applied's	pre-tax	income, lower	nondeductible	goodwill	impairment	charges,	and	reinstatement	of	the	U.S.	federal	research	and	development	tax	credit	retroactive	to	its	expiration	in	December 2012.	These	reductions	were	partially	offset	by	a	lower	benefit	in	fiscal	2013	from	the	U.S.	federal	domestic	production	deduction,	which	was	limited	by	U.S.	federal taxable	 income.	The	effective	 income	 tax	rate	for	fiscal	2012	was	significantly	higher	 than	 the	rate	for	fiscal	2011	due	primarily	 to	 the	nondeductible	goodwill impairment	charges	in	fiscal	2012	and	the	fiscal	2011	benefit	from	the	December	2010	reinstatement	of	the	U.S.	R&D	tax	credit	retroactive	to	its	expiration	in	December 2009.

Deferred	income	taxes	reflect	the	net	tax	effects	of	temporary	differences	between	the	carrying	amounts	of	assets	and	liabilities	for	financial	reporting	purposes and	the	amounts	used	for	income	tax	purposes.	The	components	of	deferred	income	tax	assets	and	liabilities	are	as	follows:

| Inventory	reserves	and	basis	difference | $134 | $124 |
| :--- | :--- | :--- |
| Installation\tand\twarranty\treserves | 14 | 27 |
| Accrued\tliabilities | 201 | 211 |
| Restructuring\treserves | 5 | 23 |
| Deferred\trevenue | 27 | 36 |
| Tax\tcredits\tand\tnet\toperating\tlosses | 182 | 111 |
| Deferred\tcompensation | 33 | 41 |
| Share-based\tcompensation | 60 | 51 |
| Gross\tdeferred\ttax\tassets | 656 | 624 |
| Valuation\tallowance | (116) | (46) |
| Total\tdeferred\ttax\tassets | 540 | 578 |
| Deferred\ttax\tliabilities: |  |  |
| Fixed\tassets | (54) | (71) |
| Intangible\tassets | (94) | (178) |
| Undistributed\tforeign\tearnings | (75) | (92) |
| Other | (14) | (18) |
| Total\tgross\tdeferred\ttax\tliabilities | (237) | (359) |
| Net\tdeferred\ttax\tassets | $303 | $219 |

The	following	table	presents	the	breakdown	between	current	and	non-current	net	deferred	tax	assets	and	liabilities:

|  | October	27,<br>2013 | October	28,<br>2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Current\tdeferred\ttax\tasset | $323 | $369 |
| Non-current\tdeferred\ttax\tasset | 53 | 51 |
| Current\tdeferred\ttax\tliability | (2) | (1) |
| Non-current\tdeferred\ttax\tliability | (71) | (200) |
|  | $303 | $219 |

Current	deferred	tax	liabilities	are	included	in	accounts	payable	and	accrued	expenses	on	the	Consolidated	Balance	Sheets	and	non-current	deferred	tax	liabilities are	included	in	other	liabilities	on	the	Consolidated	Balance	Sheets.

A	valuation	allowance	is	recorded	to	reflect	the	estimated	amount	of	deferred	tax	assets	that	may	not	be	realized.	A	valuation	allowance	was	established	against state	research	and	development	credit	carryforwards	and	non-U.S.	net	operating	loss	carryforwards	where	it	is	believed	that	it	is	not	more	likely	than	not	that	the carryforwards	will	be	realized.

Applied	has	been	granted	tax	holidays	for	certain	of	its	subsidiaries	in	Singapore,	China	and	Israel.	The	tax	benefit	arising	from	these	tax	holidays	was	$15	million for	2013	($0.08	per	diluted	share).	The	tax	holidays	expire	at	various	times	through	2026,	excluding	potential	renewals,	and	are	subject	to	certain	conditions	with	which the	Company	expects	to	comply.

For	fiscal	2013,	U.S.	income	taxes	have	not	been	provided	for	approximately	$2.2	billion	of	cumulative	undistributed	earnings	of	several	non-U.S.	subsidiaries. Applied	intends	to	reinvest	these	earnings	indefinitely	in	operations	outside	of	the	U.S.	If	these	earnings	were	distributed	to	the	United	States	in	the	form	of	dividends	or otherwise,	or	if	the	shares	of	the	relevant	foreign	subsidiaries	were	sold	or	otherwise	transferred,	Applied	would	be	subject	to	additional	U.S.	income	taxes	(subject	to	an adjustment	for	foreign	tax	credits)	and	foreign	withholding	taxes.	Determination	of	the	amount	of	unrecognized	deferred	income	tax	liability	related	to	these	earnings	is not	practicable.

At	October	27,	2013,	Applied	has	state	research	and	development	tax	credit	carryforwards	of	$109	million,	including	$89	million	of	credits	that	are	carried	over until	exhausted	and	$19	million	which	are	carried	over	for	15	years	and	begin	to	expire	in	fiscal	2021.	Applied	has	a	$51	million	federal	foreign	tax	credit	carryforward which	may	be	carried	over	10	years	and	expires	in	fiscal	2022.	Applied	has	a	$19	million	federal	research	and	development	tax	credit	carryover	which	may	be	carried over	for	20	years	and	begins	to	expire	in	fiscal	2032.	Applied	has	a	net	operating	loss	carryover	in	state	jurisdictions	of	$65	million	which	begin	to	expire	in	fiscal	2018. Management	believes	it	is	more	likely	than	not	that	all	loss	and	tax	credit	carryovers	at	October	27,	2013,	net	of	valuation	allowance,	will	be	utilized	in	future	periods.

Applied's	income	taxes	payable	have	been	reduced	by	the	tax	benefits	associated	with	employee	stock	option	transactions.	These	benefits,	credited	directly	to stockholders'	equity	with	a	corresponding	reduction	to	taxes	payable,	amounted	to	$11	million	for	fiscal	2013,	$2	million	for	fiscal	2012,	and	$4	million	for	fiscal	2011.

Applied	maintains	 liabilities	for	uncertain	 tax	positions.	These	 liabilities	 involve	considerable	 judgment	and	estimation	and	are	continuously	monitored	by management	based	on	the	best	information	available.	A	reconciliation	of	the	beginning	and	ending	balances	of	the	total	amounts	of	gross	unrecognized	tax	benefits	is	as follows:

|  | 2013 | 2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Beginning\tbalance\tof\tgross\tunrecognized\ttax\tbenefits | $174 | $59 |
| Uncertainties\tarising\tfrom\tthe\tacquisition\tof\tVarian | — | 70 |
| Settlements\twith\ttax\tauthorities | (15) | (15) |
| Lapses\tof\tstatutes\tof\tlimitation | (15) | — |
| Increases\tin\ttax\tpositions\tfor\tcurrent\tyears | 48 | 42 |
| Increases\tin\ttax\tpositions\tfor\tprior\tyears | 2 | 51 |
| Decreases\tin\ttax\tpositions\tfor\tprior\tyears | — | (33) |
| Ending\tbalance\tof\tgross\tunrecognized\ttax\tbenefits | $194 | $174 |

Increases	or	decreases	to	interest	and	penalties	on	uncertain	tax	positions	were	included	in	the	provision	for	income	taxes	in	the	Consolidated	Statement	of Operations.	Interest	and	penalties	related	to	uncertain	tax	positions	were	$7	million	as	of	October	27,	2013	and	$7	million	as	of	October	28,	2012	and	were	classified	as	a non-current	liability	in	the	Consolidated	Balance	Sheets.

In	fiscal	2013,	Applied	received	a	refund	of	$31	million,	including	interest,	as	a	result	of	settling	an	Internal	Revenue	Service	(IRS)	audit	of	fiscal	2008	and	fiscal 2009.	This	resulted	in	the	recognition	of	a	tax	benefit	of	$12	million	in	the	Consolidated	Statement	of	Operations.	In	fiscal	2013,	Applied	paid	$14	million	to	the	IRS	as part	of	an	ongoing	audit	of	the	Varian	subsidiary	for	fiscal	2010	through	fiscal	2012.	No	tax	expense	or	benefit	was	recognized.	In	fiscal	2011,	Applied	received	a	refund of	$276	million,	including	interest,	as	a	result	of	settling	an	IRS	audit	for	fiscal	years	2006	and	2007.	This	resulted	in	the	recognition	of	a	tax	benefit	of	$176	million	in the	Consolidated	Statement	of	Operations	for	fiscal	2011,	which	was	net	of	previously	recognized	tax	benefits.

A	number	of	Applied's	tax	returns	remain	subject	to	examination	by	taxing	authorities.	These	include	U.S.	federal	returns	for	fiscal	2010	and	later	years,	California returns	for	fiscal	2009	and	later	years,	tax	returns	for	certain	other	states	for	fiscal	2009	and	later	years,	and	tax	returns	in	certain	jurisdictions	outside	of	the	United States	for	fiscal	2007	and	later	years.

The	timing	of	the	resolution	of	income	tax	examinations,	as	well	as	the	amounts	and	timing	of	various	tax	payments	that	may	be	part	of	the	settlement	process,	is highly	uncertain.	This	could	cause	large	fluctuations	in	the	balance	sheet	classification	of	current	assets	and	non-current	assets	and	liabilities.	Applied	continues	to	have ongoing	negotiations	with	various	taxing	authorities	throughout	the	year.	 	During	the	next	twelve	months,	it	is	reasonably	possible	that	audit	resolutions	and	the expiration	of	statutes	of	limitation	could	reduce	our	unrecognized	tax	benefits	by	up	to	$115	million.

# Note	15 Warranty,	Guarantees	and	Contingencies

# Leases

Applied	leases	some	of	its	facilities	and	equipment	under	non-cancelable	operating	leases	and	has	options	to	renew	most	leases,	with	rentals	to	be	negotiated. Total	rent	expense	was	$36	million	for	fiscal	2013,	$38	million	for	fiscal	2012,	and	$44	million	for	fiscal	2011.

As	of	October	27,	2013,	future	minimum	lease	payments	are	expected	to	be	as	follows:

|  | Lease	Payments |
| :--- | :--- |
|  | (In\tmillions) |
| 2014 | $28 |
| 2015 | 19 |
| 2016 | 13 |
| 2017 | 10 |
| 2018 | 7 |
| Thereafter | 10 |

Changes	in	the	warranty	reserves	during	fiscal	2013	and	2012	were	as	follows:

|  | 2013 | 2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Beginning\tbalance | $119 | $168 |
| Provisions\tfor\twarranty | 103 | 107 |
| Consumption\tof\treserves | (120) | (156) |
| Ending\tbalance | $102 | $119 |

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

# Guarantees

# Legal	Matters

# Korea	Criminal	Proceedings

In	2010,	the	Seoul	Eastern	District	Court	began	hearings	on	indictments	brought	by	the	Seoul	Prosecutor's	Office	for	the	Eastern	District	of	Korea	(the	Prosecutor's Office)	alleging	that	employees	of	several	companies	improperly	received	and	used	confidential	information	belonging	to	Samsung	Electronics	Co.,	Ltd.	(Samsung),	a major	Applied	customer	based	in	Korea.	The	individuals	charged	included	the	former	head	of	Applied	Materials	Korea	(AMK),	who	at	the	time	of	the	indictment	was	a vice	president	of	Applied	Materials,	Inc.,	and	certain	other	AMK	employees.	Neither	Applied	nor	any	of	its	subsidiaries	was	named	as	a	party	to	the	proceedings. Hearings	on	these	matters	concluded	in	November	2012	and	the	Court	issued	its	decision	on	February	7,	2013.	As	part	of	the	ruling,	nine	AMK	employees	(including the	former	head	of	AMK)	were	acquitted	of	all	charges,	while	one	AMK	employee	was	found	guilty	on	some	of	the	charges	and	received	a	suspended	jail	sentence.	The Prosecutor's	Office	and	various	individuals	filed	notices	of	appeal,	and	hearings	are	underway	in	the	appeals.	The	current	round	of	hearings	in	the	appeals	is	scheduled	to conclude	at	the	end	of	December	2013,	with	final	briefing	and	a	ruling	expected	early	in	2014.

# Other	Matters

From	time	to	time,	Applied	receives	notification	from	third	parties,	including	customers	and	suppliers,	seeking	indemnification,	litigation	support,	payment	of money	or	other	actions	by	Applied	in	connection	with	claims	made	against	them.	In	addition,	from	time	to	time,	Applied	receives	notification	from	third	parties	claiming that	Applied	may	be	or	is	infringing	or	misusing	their	intellectual	property	or	other	rights.	Applied	also	is	subject	to	various	other	legal	proceedings	and	claims,	both asserted	and	unasserted,	that	arise	in	the	ordinary	course	of	business.

Although	the	outcome	of	the	above-described	matters,	claims	and	proceedings	cannot	be	predicted	with	certainty,	Applied	does	not	believe	that	any	will	have	a material	effect	on	its	consolidated	financial	condition	or	results	of	operations.

# Note	16 Industry	Segment	Operations

Applied's	four	reportable	segments	are:	Silicon	Systems	Group,	Applied	Global	Services,	Display,	and	Energy	and	Environmental	Solutions.	As	defined	under the	accounting	literature,	Applied's	chief	operating	decision-maker	has	been	identified	as	the	President	and	Chief	Executive	Officer,	who	reviews	operating	results	to make	decisions	about	allocating	resources	and	assessing	performance	for	the	entire	Company.	Segment	information	is	presented	based	upon	Applied's	management organization	structure	as	of	October	27,	2013	and	the	distinctive	nature	of	each	segment.	Future	changes	to	this	internal	financial	structure	may	result	in	changes	to Applied's	reportable	segments.

Each	reportable	segment	is	separately	managed	and	has	separate	financial	results	that	are	reviewed	by	Applied's	chief	operating	decision-maker.	Each	reportable segment	contains	closely	related	products	that	are	unique	to	the	particular	segment.	Segment	operating	income	is	determined	based	upon	internal	performance	measures used	by	Applied's	chief	operating	decision-maker.

Applied	derives	the	segment	results	directly	from	its	internal	management	reporting	system.	The	accounting	policies	Applied	uses	to	derive	reportable	segment results	are	substantially	the	same	as	those	used	for	external	reporting	purposes.	Management	measures	the	performance	of	each	reportable	segment	based	upon	several metrics	including	orders,	net	sales	and	operating	income.	Management	uses	these	results	to	evaluate	the	performance	of,	and	to	assign	resources	to,	each	of	the	reportable segments.	Applied	does	not	allocate	to	its	reportable	segments	certain	operating	expenses	that	it	manages	separately	at	the	corporate	level,	which	include	costs	related	to share-based	compensation;	certain	management,	finance,	legal,	human	resources,	and	research,	development	and	engineering	functions	provided	at	the	corporate	level; and	unabsorbed	information	technology	and	occupancy.	In	addition,	Applied	does	not	allocate	to	its	reportable	segments	restructuring	and	asset	impairment	charges	and any	associated	adjustments	related	to	restructuring	actions,	unless	these	actions	pertain	to	a	specific	reportable	segment.	Segment	operating	income	excludes	interest income/expense	and	other	financial	charges	and	income	taxes.	Management	does	not	consider	the	unallocated	costs	in	measuring	the	performance	of	the	reportable segments.

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

The	Applied	Global	Services	segment	includes	technically	differentiated	products	and	services	to	improve	operating	efficiency,	reduce	operating	costs	and	lessen the	 environmental	 impact	 of	 semiconductor,	 display	 and	 solar	 customers'	 factories.	Applied	 Global	 Services'	 products	 consist	 of	 spares,	 services,	 certain	 earlier generation	products,	remanufactured	equipment,	and	products	that	have	reached	a	particular	stage	in	the	product	lifecycle.	Customer	demand	for	these	products	and services	is	fulfilled	through	a	global	distribution	system	with	trained	service	engineers	located	in	close	proximity	to	customer	sites.

The	Display	segment	 includes	products	for	manufacturing	LCDs,	organic light-emitting	diodes	(OLEDs),	and	other	display technologies	for	TVs,	personal computers,	tablets,	smart	phones,	and	other	consumer-oriented	devices.

The	Energy	and	Environmental	Solutions	segment	includes	products	for	fabricating	solar	photovoltaic	cells	and	modules,	high	throughput	roll-to-roll	deposition equipment	for	flexible	electronics	and	other	applications.

In	November	2011,	Applied	completed	its	acquisition	of	Varian.	Beginning	in	the	first	quarter	of	fiscal	2012,	the	acquired	business	is	primarily	included	in	the results	for	the	Silicon	Systems	Group	and	Applied	Global	Services	segments,	with	certain	corporate	functions	included	in	corporate	and	unallocated	costs.

With	the	acquisition	of	Varian,	Applied	acquired	ion	implantation	technology	for	semiconductor	as	well	as	for	c-Si	solar	cell	manufacturing,	which	was	recorded under	the	Silicon	Systems	Group	segment	in	fiscal	2012.	In	fiscal	2013,	Applied	began	marketing	the	solar	implant	products	commercially	through	its	Energy	and Environmental	Solutions	segment.	Accordingly,	effective	in	the	first	quarter	of	fiscal	2013,	Applied	accounts	for	its	solar	implant	products	under	the	Energy	and Environmental	Solutions	segment.	The	effect	of	the	solar	implant	products	was	not	material	to	the	operations	of	either	the	Silicon	Systems	Group	or	Energy	and Environmental	Solutions	segments.

Information	for	each	reportable	segment	as	of	October	27,	2013,	October	28,	2012	and	October	30,	2011	and	for	the	fiscal	years	then	ended,	is	as	follows:

|  | Net	Sales | Operating<br>Income		(Loss) | Depreciation/<br>Amortization | Capital<br>Expenditures | Segment<br>Assets |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions) |  |  |
| 2013: |  |  |  |  |  |
| Silicon\tSystems\tGroup | $4,775 | $876 | $260 | $118 | $5,525 |
| Applied\tGlobal\tServices | 2,023 | 436 | 13 | 7 | 1,958 |
| Display | 538 | 74 | 8 | 6 | 293 |
| Energy\tand\tEnvironmental\tSolutions | 173 | (433) | 22 | 1 | 183 |
| Total\tSegment | $7,509 | $953 | $303 | $132 | $7,959 |
| 2012: |  |  |  |  |  |
| Silicon\tSystems\tGroup | $5,536 | $1,243 | $256 | $71 | $5,106 |
| Applied\tGlobal\tServices | 2,285 | 502 | 17 | 8 | 2,035 |
| Display | 473 | 25 | 8 | 1 | 278 |
| Energy\tand\tEnvironmental\tSolutions | 425 | (668) | 38 | 6 | 513 |
| Total\tSegment | $8,719 | $1,102 | $319 | $86 | $7,932 |
| 2011: |  |  |  |  |  |
| Silicon\tSystems\tGroup | $5,415 | $1,764 | $52 | $59 | $2,036 |
| Applied\tGlobal\tServices | 2,413 | 482 | 13 | 7 | 1,337 |
| Display | 699 | 147 | 7 | 31 | 459 |
| Energy\tand\tEnvironmental\tSolutions | 1,990 | 453 | 34 | 16 | 1,438 |
| Total\tSegment | $10,517 | $2,846 | $106 | $113 | $5,270 |

Operating	results	for	fiscal	2013,	2012	and	2011	included	restructuring	charges	and	asset	impairments	as	discussed	in	detail	in	Note	11,	Restructuring	Charges	and Asset	Impairments.

Reconciliations	of	segment	operating	results	to	Applied	consolidated	totals	for	fiscal	2013,	2012	and	2011	are	as	follows:

| Total	segment	operating	income | $953 | $1,102 | $2,846 |
| :--- | :--- | :--- | :--- |
| Corporate\tand\tunallocated\tcosts | (490) | (580) | (496) |
| Restructuring\tcharges\tand\tasset\timpairments | (35) | (111) | 21 |
| Gain\ton\tsale\tof\tfacility | 4 | — | 27 |
| Income\tfrom\toperations | $432 | $411 | $2,398 |

Corporate	and	unallocated	costs	for	fiscal	2013	and	fiscal	2012	included	deal	costs	and	other	acquisition-related	costs	of	$17	million	and	$45	million,	respectively.

Reconciliations	of	depreciation	and	amortization	expense	to	Applied	consolidated	totals	for	fiscal	2013,	2012	and	2011	are	as	follows:

| Total	segment	depreciation	and	amortization | $303 | $319 | $106 |
| :--- | :--- | :--- | :--- |
| Depreciation\ton\tshared\tfacilities\tand\tinformation\ttechnology\tassets | 107 | 103 | 140 |
| Consolidated\tdepreciation\tand\tamortization | $410 | $422 | $246 |

Reconciliations	of	capital	expenditures	to	Applied	consolidated	totals	for	fiscal	2013,	2012	and	2011	are	as	follows:

| Total	segment	capital	expenditures | $132 | $86 | $113 |
| :--- | :--- | :--- | :--- |
| Shared\tfacilities\tand\tinformation\ttechnology\tassets | 65 | 76 | 96 |
| Consolidated\tcapital\texpenditures | $197 | $162 | $209 |

Reconciliations	of	segment	assets	to	Applied	consolidated	totals	as	of	October	27,	2013,	and	October	28,	2012	are	as	follows:

|  | October	27,<br>2013 | October	28,<br>2012 |
| :--- | :--- | :--- |
|  | (In\tmillions) |  |
| Total\tsegment\tassets | $7,959 | $7,932 |
| Cash\tand\tinvestments | 2,896 | 2,992 |
| Allowance\tfor\tbad\tdebts | (74) | (87) |
| Deferred\tincome\ttaxes | 376 | 420 |
| Other\tcurrent\tassets | 203 | 98 |
| Common\tproperty,\tplant\tand\tequipment | 541 | 588 |
| Other\tassets | 142 | 159 |
| Consolidated\ttotal\tassets | $12,043 | $12,102 |

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	equity-method	investments,	and	are	attributed	to	the	geographic	location	in	which	they	are	located.	Net sales	and	long-lived	assets	by	geographic	region	were	as	follows:

| United	States | $1,473 | $620 |
| :--- | :--- | :--- |
| Taiwan | 2,640 | 37 |
| China | 787 | 65 |
| Korea | 924 | 8 |
| Japan | 685 | 4 |
| Europe | 680 | 99 |
| Southeast\tAsia | 320 | 81 |
| Total\toutside\tUnited\tStates | 6,036 | 294 |
| Consolidated\ttotal | $7,509 | $914 |
| 2012: |  |  |
| United\tStates | $1,749 | $666 |
| Taiwan | 2,411 | 36 |
| China | 783 | 74 |
| Korea | 1,897 | 9 |
| Japan | 704 | 6 |
| Europe | 863 | 110 |
| Southeast\tAsia | 312 | 87 |
| Total\toutside\tUnited\tStates | 6,970 | 322 |
| Consolidated\ttotal | $8,719 | $988 |
| 2011: |  |  |
| United\tStates | $1,963 | $623 |
| Taiwan | 2,093 | 33 |
| China | 2,574 | 81 |
| Korea | 1,263 | 8 |
| Japan | 912 | 7 |
| Europe | 1,120 | 128 |
| Southeast\tAsia | 592 | 71 |
| Total\toutside\tUnited\tStates | 8,554 | 328 |
| Consolidated\ttotal | $10,517 | $951 |

The	following	companies	accounted	for	at	least	10	percent	of	Applied's	net	sales	in	fiscal	2013,	2012,	and/or	2011,	which	were	for	products	in	multiple	reportable segments.

# Note	17 Unaudited	Quarterly	Consolidated	Financial	Data

|  | First | Second | Third | Fourth | Fiscal	Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tmillions,\texcept\tper\tshare\tamounts) |  |  |
| 2013: |  |  |  |  |  |
| Net\tsales | $1,573 | $1,973 | $1,975 | $1,988 | $7,509 |
| Gross\tmargin | $582 | $808 | $806 | $795 | $2,991 |
| Net\tincome\t(loss) | $34 | $(129) | $168 | $183 | $256 |
| Earnings\t(loss)\tper\tdiluted\tshare | $0.03 | $(0.11) | $0.14 | $0.15 | $0.21 |
| 2012: |  |  |  |  |  |
| Net\tsales | $2,189 | $2,541 | $2,343 | $1,646 | $8,719 |
| Gross\tmargin | $786 | $1,011 | $930 | $586 | $3,313 |
| Net\tincome\t(loss) | $117 | $289 | $218 | $(515) | $109 |
| Earnings\t(loss)\tper\tdiluted\tshare | $0.09 | $0.22 | $0.17 | $(0.42) | $0.09 |

# INDEX	TO	EXHIBITS

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

| Exhibit	No. | Description | Form | File	No. | Exhibit	No. | Filing	Date |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2.1** | Business\tCombination\tAgreement,\tdated\tas\tof\tSeptember\t24,\t2013,\tbetween\tApplied | 8-K | 000-06920 | 2.1 | 9/24/2013 |
|  | Materials,\tInc.\tand\tTokyo\tElectron\tLimited |  |  |  |  |
| 3.1 |  | 10-Q | 000-06920 | 3.1 | 6/3/2009 |
|  | through\tMarch\t10,\t2009 |  |  |  |  |
| 3.2 | Certificate\tof\tDesignation,\tPreferences\tand\tRights\tof\tthe\tTerms\tof\tthe\tSeries\tA | 10-Q | 000-06920 | 3(i)(a) | 9/14/1999 |
|  | Junior\tParticipating\tPreferred\tStock\tdated\tas\tof\tJuly\t9,\t1999 |  |  |  |  |
| 3.3 |  | 8-K | 000-06920 | 3.1 | 12/7/2011 |
| 4.1 |  | 8-K | 000-06920 | 4.1 | 8/17/1994 |
|  | and\tHarris\tTrust\tCompany\tof\tCalifornia,\tas\tTrustee |  |  |  |  |
| 4.2 |  | 8-K | 000-06920 | 4.1 | 6/10/2011 |
|  | Bank\tNational\tAssociation,\tas\tTrustee |  |  |  |  |
| 4.3 | First\tSupplemental\tIndenture,\tdated\tJune\t8,\t2011,\tby\tand\tbetween\tApplied | 8-K | 000-06920 | 4.2 | 6/10/2011 |
|  | Materials,\tInc.\tand\tU.S.\tBank\tNational\tAssociation,\tas\tTrustee |  |  |  |  |
| 10.1* | Applied\tMaterials,\tInc.\tExecutive\tDeferred\tCompensation\tPlan,\tas\tamended\tand | 10-Q | 000-06920 | 10.24 | 6/7/1995 |
|  | restated\ton\tApril\t1,\t1995 |  |  |  |  |
| 10.2* |  | 10-Q | 000-06920 | 10.1 | 9/9/1998 |
|  | Plan |  |  |  |  |
| 10.3* |  | 10-Q | 000-06920 | 10.2 | 9/9/1998 |
|  | Plan |  |  |  |  |
| 10.4 | Form\tof\tIndemnification\tAgreement\tbetween\tApplied\tMaterials,\tInc.\tand\tNon- | 10-K | 000-06920 | 10.44 | 1/31/2000 |
|  | Employee\tDirectors |  |  |  |  |
| 10.5 |  | 10-K | 000-06920 | 10.46 | 1/31/2000 |
|  | its\tofficers |  |  |  |  |
| 10.6* |  | 10-K | 000-06920 | 10.31 | 1/23/2003 |
|  | April\t16,\t2002 |  |  |  |  |
| 10.7 | Applied\tMaterials,\tInc.\tProfit\tSharing\tScheme\t(Ireland) | S-8 | 333-45011 | 4.1 | 1/27/1998 |
| 10.8* | Applied\tMaterials,\tInc.\tamended\tand\trestated\tRelocation\tPolicy | 8-K | 000-06920 | 10.46 | 10/31/2005 |
| 10.9* |  | 10-K | 000-06920 | 10.46 | 12/14/2005 |
|  | Plan |  |  |  |  |
| 10.10* |  | 10-K | 000-06920 | 10.47 | 12/14/2005 |
|  | Plan |  |  |  |  |
| 10.11* | Form\tof\tNon-Qualified\tStock\tOption\tGrant\tAgreement\tfor\tuse\tunder\tthe\tApplied | 10-Q | 000-06920 | 10.53 | 8/31/2006 |
|  | Materials\tEmployee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.12* | Form\tof\tNon-Qualified\tStock\tOption\tGrant\tAgreement\tfor\tuse\tunder\tthe\tApplied | 10-Q | 000-06920 | 10.54 | 8/31/2006 |
|  | Materials,\tInc.\t2000\tGlobal\tEquity\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.13* | Applied\tMaterials,\tInc.\tEmployee\tFinancial\tAssistance\tPlan,\tamended\tand\trestated | 10-Q | 000-06920 | 10.58 | 3/3/2009 |

| Exhibit	No. | Description | Form | File	No. | Exhibit	No. | Filing	Date |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 10.14* | Form\tof\tNon-Qualified\tStock\tOption\tGrant\tAgreement\tfor\tuse\tunder\tthe\tApplied | 10-Q | 000-06920 | 10.45 | 5/30/2007 |
|  | Materials,\tInc.\tEmployee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.15* | Form\tof\tNon-Qualified\tStock\tOption\tGrant\tAgreement\tfor\tuse\tunder\tthe\tApplied | 10-Q | 000-06920 | 10.46 | 5/30/2007 |
|  | Materials,\tInc.\t2000\tGlobal\tEquity\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.16* | Applied\tMaterials,\tInc.\tamended\tand\trestated\t2005\tExecutive\tDeferred | 8-K | 000-06920 | 10.49 | 7/13/2007 |
|  | Compensation\tPlan |  |  |  |  |
| 10.17* | Form\tof\tNon-Qualified\tStock\tOption\tGrant\tAgreement\tfor\tuse\tunder\tthe\tApplied | 10-K | 000-06920 | 10.50 | 12/14/2007 |
|  | Materials,\tInc.\tEmployee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.18* | Form\tof\tNon-Qualified\tStock\tOption\tGrant\tAgreement\tfor\tuse\tunder\tthe\tApplied | 10-K | 000-06920 | 10.52 | 12/14/2007 |
|  | Materials,\tInc.\t2000\tGlobal\tEquity\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.19* |  | 10-Q | 000-06920 | 10.57 | 8/29/2008 |
|  | Employee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.20 | Deed\tof\tAmendment\tto\tApplied\tMaterials\tProfit\tSharing\tScheme,\tdated\tFebruary\t7, | 10-K | 000-06920 | 10.48 | 12/12/2008 |
|  | 2006,\tto\tamend\tClause\t20\tof\tthe\tTrust\tDeed\tthereunder |  |  |  |  |
| 10.21 | Deed\tof\tAmendment\tto\tApplied\tMaterials\tProfit\tSharing\tScheme,\tdated\tFebruary\t7, | 10-K | 000-06920 | 10.49 | 12/12/2008 |
|  | 2006,\tto\tamend\tthe\tdefinition\tof\tEligible\tEmployee\tin\tthe\tFirst\tSchedule\tto\tthe |  |  |  |  |
|  | Trust\tDeed\tthereunder. |  |  |  |  |
| 10.22* |  | 10-K | 000-06920 | 10.50 | 12/12/2008 |
|  | Plan |  |  |  |  |
| 10.23* |  | 10-Q | 000-06920 | 10.59 | 3/3/2009 |
|  | Plan |  |  |  |  |
| 10.24* |  | 10-K | 000-06920 | 10.51 | 12/12/2008 |
|  | Compensation\tPlan |  |  |  |  |
| 10.25* |  | 10-Q | 000-06920 | 10.60 | 3/3/2009 |
|  | Compensation\tPlan |  |  |  |  |
| 10.26* |  | 10-K | 000-06920 | 10.56 | 12/12/2008 |
|  | Employee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.27* | Form\tof\tPerformance\tShares\tAgreement\tfor\tNonemployee\tDirectors\tfor\tuse\tunder | 10-Q | 000-06920 | 10.61 | 3/3/2009 |
|  | the\tApplied\tMaterials,\tInc.\tEmployee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.28* | Form\tof\tNon-Qualified\tStock\tOption\tAgreement\tfor\tEmployees\tfor\tuse\tunder\tthe | 10-Q | 000-06920 | 10.63 | 3/3/2009 |
|  | Applied\tMaterials,\tInc.\tEmployee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.29* | Form\tof\tNon-Qualified\tStock\tOption\tAgreement\tfor\tuse\tunder\tthe\tApplied | 10-Q | 000-06920 | 10.64 | 3/3/2009 |
|  | Materials,\tInc.\t2000\tGlobal\tEquity\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.30* |  | 10-Q | 000-06920 | 10.67 | 6/9/2010 |
|  | Plan |  |  |  |  |
| 10.31* |  | 10-Q | 000-06920 | 10.68 | 6/9/2010 |
|  | Compensation\tPlan |  |  |  |  |
| 10.32* |  | 10-Q | 000-06920 | 10.71 | 6/9/2010 |

| Exhibit	No. | Description | Form | File	No. | Exhibit	No. | Filing	Date |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 10.33* |  | 10-Q | 000-06920 | 10.72 | 6/9/2010 |
|  | Employee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.34* | Applied\tMaterials,\tInc.\tApplied\tIncentive\tPlan,\tamended\tand\trestated\teffective | 10-K | 000-06920 | 10.59 | 12/10/2010 |
|  | August\t13,\t2010 |  |  |  |  |
| 10.35* |  | 10-Q | 000-06920 | 10.60 | 2/28/2011 |
|  | Plan |  |  |  |  |
| 10.36* |  | 10-Q | 000-06920 | 10.61 | 2/28/2011 |
|  | Compensation\tPlan |  |  |  |  |
| 10.37 |  | 10-Q/A | 000-06920 | 10.64 | 11/18/2011 |
|  | therein |  |  |  |  |
| 10.38* |  | 10-Q | 000-06920 | 10.1 | 2/27/2012 |
|  | Employee\tStock\tIncentive\tPlan,\tas\tamended |  |  |  |  |
| 10.39* | Applied\tMaterials,\tInc.\tEmployee\tStock\tIncentive\tPlan,\tamended\tand\trestated | 8-K | 000-06920 | 10.1 | 3/9/2012 |
|  | effective\tMarch\t6,\t2012 |  |  |  |  |
| 10.40* |  | 8-K | 000-06920 | 10.2 | 3/9/2012 |
|  | March\t6,\t2012 |  |  |  |  |
| 10.41* | Form\tof\tRestricted\tStock\tUnit\tAgreement\tfor\tuse\tunder\tthe\tamended\tand\trestated | 10-Q | 000-06920 | 10.3 | 5/24/2012 |
|  | Applied\tMaterials,\tInc.\tEmployee\tStock\tIncentive\tPlan |  |  |  |  |
| 10.42* | Form\tof\tRestricted\tStock\tUnit\tAgreement\tfor\tNonemployee\tDirectors\tfor\tuse\tunder | 10-Q | 000-06920 | 10.4 | 5/24/2012 |
| 10.43* | Form\tof\tPerformance\tShares\tAgreement\tfor\tuse\tunder\tthe\tamended\tand\trestated | 10-Q | 000-06920 | 10.5 | 5/24/2012 |
|  | Applied\tMaterials,\tInc.\tEmployee\tStock\tIncentive\tPlan |  |  |  |  |
| 10.44 |  | 8-K | 000-06920 | 10.1 | 5/30/2012 |
| 10.45* | Form\tof\tRestricted\tStock\tAgreement\tfor\tuse\tunder\tthe\tamended\tand\trestated\tApplied | 10-Q | 000-06920 | 10.3 | 8/23/2012 |
|  | Materials,\tInc.\tEmployee\tStock\tIncentive\tPlan |  |  |  |  |
| 10.46* | Applied\tMaterials,\tInc.\tEmployees'\tStock\tPurchase\tPlan,\tamended\tand\trestated | 10-K | 000-06920 | 10.54 | 12/5/2012 |
|  | effective\tOctober\t28,\t2012 |  |  |  |  |
| 10.47* |  | 10-K | 000-06920 | 10.55 | 12/5/2012 |
|  | restated\teffective\tOctober\t28,\t2012 |  |  |  |  |
| 10.48 | Extension\tAgreement,\tdated\tas\tof\tMay\t25,\t2013,\tto\tCredit\tAgreement,\tdated\tas\tof | 8-K | 000-06920 | 10.1 | 5/28/2013 |
|  | N.A.\tas\tadministrative\tagent\tand\tthe\tlenders\tparties\tthereto |  |  |  |  |
| 10.49* |  | 10-Q | 000-06920 | 10.2 | 8/22/2013 |
|  | Dickerson |  |  |  |  |
| 10.50* |  | 10-Q | 000-06920 | 10.3 | 8/22/2013 |
|  | R.\tSplinter |  |  |  |  |
| 10.51* | Form\tof\tNon-Qualified\tStock\tOption\tAgreement\tfor\tEmployees\tfor\tuse\tunder\tthe | 10-Q | 000-06920 | 10.4 | 8/22/2013 |

* Indicates	a	management	contract	or	compensatory	plan	or	arrangement,	as	required	by	Item	15(a)3.

** Schedules	and	certain	exhibits	to	this	agreement	have	been	omitted	pursuant	to	Item	601(b)(2)	of	Regulation	S-K.	Applied	hereby	undertakes	to	furnish supplementally	copies	of	any	of	the	omitted	schedules	and	exhibits	upon	request	by	the	Securities	and	Exchange	Commission.

† Filed	herewith.

‡ Furnished	herewith.

# SIGNATURES

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

Gary	E.	Dickerson

President,	Chief	Executive	Officer

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

Representing	a	majority	of	the	members	of	the	Board	of	Directors.

Gary	E.	Dickerson Attorney-in-Fact**

** By	authority	of	the	power	of	attorney	filed herewith.


what is the total return if 100000 are invested in s&p500 in 2008 and sold in 2011?