|
|
|
|
|
|
|
|
|
|
| | | | | | | |
| | (In millions, except per share amounts and percentages) |
| | | |
| 659 | |
| | | |
|
| 213 | |
|
| 321 | |
| 0.50 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | Net revenue by segment for the periods presented were as follows:
Net revenue for Semiconductor Systems by market for the periods presented were as follows:
| | | | | | | | | | | |
| | | |
| | 2024 | | 2023 |
| | | |
| Foundry, logic and other | 68 | % | | 77 | % |
| Dynamic random-access memory (DRAM) | 28 | % | | 17 | % |
| Flash memory | 4 | % | | 6 | % |
|
| 100 | % | | 100 | % |
Net revenue in fiscal 2024 increased as compared to the prior year. Gross margin increased primarily driven by lower material, freight, logistics, and manufacturing costs, favorable changes in customer and product mix and lower depreciation expense as a result of changes in certain assets’ useful lives effective as of the beginning of fiscal 2024, partially offset by an increase in labor costs.
Semiconductor Systems net revenue increased in fiscal 2024 as compared to the prior year as customers continued to make strategic investments in new capacity and new technology transitions. Foundry and logic customers’ spending decreased driven primarily by lower customer investments in leading-edge manufacturing technologies, partially offset by increased customer investments in non-leading edge manufacturing technologies. Memory customers’ spending in fiscal 2024 was higher due to increased investments in DRAM technology transitions. Investments by semiconductor equipment customers are expected to remain strong with growth in the adoption of high-bandwidth memory and other forms of advanced packaging, continued demand for AI and data center computing, and for non-leading edge nodes. The Semiconductor Systems segment continued to represent the largest contributor of net revenue.
Our AGS net revenue in fiscal 2024 increased primarily due to an increase in net revenue associated with long-term service agreements and customer spending on spares, partially offset by lower customer spending on 200mm equipment. Demand for services is expected to grow as our installed base of systems and chambers increases and customers renew long-term service agreements.
Our Display net revenue increased in fiscal 2024 compared to the prior year primarily due to higher customer investments in display fabrication equipment for IT products including laptops, monitors and tablets, partially offset by lower customer investments in display fabrication equipment for TVs.
Over the longer term, we believe secular drivers such as AI, data center computing, the internet of things, 5G networks, electric and autonomous vehicles and augmented and virtual reality will create the next wave of growth for semiconductors and expand our served market opportunities.
Net revenue by geographic region, determined by the location of customers’ facilities to which products were shipped and services were performed, was as follows:
Net revenue increased from customers in China in fiscal 2024 primarily due to investments in semiconductor equipment and spending on spares and services, partially offset by a decrease in investments in 200mm equipment. Net revenue decreased from customers in Europe primarily due to lower investments in semiconductor equipment. Net revenue from customers in Taiwan decreased primarily due to lower investments in semiconductor equipment and spares, offset by higher spending on services. The changes in net revenue from customers in all other regions for fiscal 2024 primarily reflected changes in investment and spending on semiconductor equipment and services.
Operating Expenses
Operating expenses for the periods presented were as follows:
The year-over-year change in RD&E expenses was primarily due to additional headcount to support our ongoing investments in product development initiatives, consistent with our growth strategy, offset by lower depreciation expense as a result of changes in certain assets’ useful lives effective as of the beginning of fiscal 2024. We continued to prioritize existing RD&E investments in technical capabilities and critical RD&E programs in current and new markets, with a focus on the development of new unit process systems and integrated materials solutions. Areas of investment in Semiconductor Systems include etch, deposition, metrology and inspection, patterning, packaging and other technologies to improve chip performance, power, area, cost and time-to-market. In Display, RD&E investments were focused on expanding our market opportunity with new display technologies.
Marketing and selling expenses for fiscal 2024 increased primarily due to additional headcount.
General and administrative expenses in fiscal 2024 increased primarily due to the increases in share-based compensation expense and professional fees.
Interest Expense and Interest and Other Income (expense), net
Interest expense and interest and other income (expense), net for the periods presented were as follows:
Interest expense incurred was primarily associated with issued senior unsecured notes. Interest expense in fiscal 2024 increased slightly as a result of the issuance of senior unsecured notes in June 2024.
Interest and other income (expense), net in fiscal 2024 increased primarily driven by higher interest income due to higher cash balances and lower impairment on equity investment, partially offset by higher net loss on equity investment.
Income Taxes
Provision for income taxes and effective tax rates for the periods indicated were as follows:
Our provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affected by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings.
Our effective tax rate for fiscal 2024 was higher than the prior fiscal year primarily due to lower tax credits in fiscal 2024, partially offset by higher proportion of pre-tax income in lower tax jurisdictions in fiscal 2024.
Segment Operating Income
Operating income by segment for the periods presented were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
|
| | | | | | | | | | | |
| | (In millions, except percentages and ratios) |
| Operating income (loss) | | | | | | | | | | | |
| 102 | | | 1 | % | | |
| | 19 | % | | |
| | (55) | % | | |
| | 13 | % | | |
| 213 | | | 3 | % | | |
| | | | | | | |
| Operating margin | | | | | | | | | | | |
| |
| |
| |
Semiconductor Systems’ operating margin for fiscal 2024 increased primarily driven by lower material, freight, logistics and manufacturing costs, favorable changes in customer and product mix and lower depreciation expense as a result of changes in certain assets’ useful lives effective as of the beginning of fiscal 2024, partially offset by increased RD&E expenses.
AGS’ operating margin for fiscal 2024 increased primarily due to the increase in net revenue and a favorable change in product mix.
Display’s operating margin for fiscal 2024 decreased primarily due to unfavorable changes in product mix.
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
Disaggregation of Income Statements Expenses. In November 2024, the Financial Accounting Standards Board (FASB) issued an accounting standard update to improve income statement expenses disclosures (Subtopic 220-40). The standard requires more detailed information related to the types of expenses, including (among other items) the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each interim and annual income statement’s expense caption, as applicable. This authoritative guidance can be applied prospectively or retrospectively and will be effective for us in fiscal 2028 for annual periods and in the first quarter of fiscal 2029 for interim periods, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.
Improvements to Income Tax Disclosures. In December 2023, the FASB issued an accounting standard update to improve income tax disclosures (Topic 740). The standard prescribes specific categories for the components of the effective tax rate reconciliation, requires disclosure of income taxes paid by jurisdiction, and modifies other income tax-related disclosures. This authoritative guidance will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.
Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued an accounting standard update to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses (Topic 280). The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker (CODM) and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss and contains other disclosure requirements. This authoritative guidance will be effective for us in fiscal 2025 for annual periods and in the first quarter of fiscal 2026 for interim periods, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. In June 2022, the FASB issued an accounting standard update which clarifies how the fair value of equity securities subject to contractual sale restrictions is determined (Topic 820). The amendment clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires certain qualitative and quantitative disclosures related to equity securities subject to contractual sale restrictions. We will adopt this guidance in the first quarter of fiscal 2025. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.
Accounting Standards Adopted
For a description of recently adopted accounting standards, including the date of adoption and the effect, if any, on our consolidated financial statements, see Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.
Financial Condition, Liquidity and Capital Resources
Our cash, cash equivalents and investments consist of the following:
| | | | | | | | | | | |
| October 27,
2024 | | October 29,
2023 |
| | | |
| | (In millions) |
| Cash and cash equivalents | $ | 8,022 | | | $ | 6,132 | |
| Short-term investments | 1,449 | | | 737 | |
| Long-term investments | 2,787 | | | 2,281 | |
| Total cash, cash-equivalents and investments | $ | 12,258 | | | $ | 9,150 | |
Sources and Uses of Cash
A summary of cash provided by (used in) operating, investing, and financing activities is as follows:
| | | | | | | | | | | |
|
| | | |
| | (In millions) |
| Cash provided by operating activities | $ | 8,677 | | | $ | 8,700 | |
| Cash used in investing activities | $ | (2,327) | | | $ | (1,535) | |
| Cash used in financing activities | $ | (4,470) | | | $ | (3,032) | |
Operating Activities
Cash from operating activities for fiscal 2024 was $8.7 billion, which reflects net income adjusted for the effect of non-cash charges and changes in working capital components. Significant non-cash charges included depreciation, amortization, share-based compensation and deferred income taxes. Cash provided by operating activities in fiscal 2024 remained relatively flat primarily due to lower collections of customer receivable balances, partially offset by lower payments to vendors and higher net income.
We have agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. We sell our accounts receivable generally without recourse. From time to time, we also discount letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial institutions to discount the letters of credit and the cost of such arrangements. We sold $0.4 billion and $0.7 billion of accounts receivable during fiscal 2024 and 2023, respectively. We did not discount letters of credit issued by customers in fiscal 2024 and 2023. There was no discounting of promissory notes in each of fiscal 2024 and 2023.
Our working capital was $12.8 billion at October 27, 2024 and $11.8 billion at October 29, 2023.
Days sales outstanding of our accounts receivable at the end of fiscal 2024 and 2023 was 68 days and 70 days, respectively. Days sales outstanding varies due to the timing of shipments and payment terms. The decrease in days sales outstanding was primarily due to favorable revenue linearity.
Investing Activities
We used $2.3 billion and $1.5 billion of cash in investing activities in fiscal 2024 and 2023, respectively. Capital expenditures in fiscal 2024 and 2023 were $1.2 billion and $1.1 billion, respectively. Capital expenditures were primarily for investments in real property acquisitions and improvements, demonstration and testing equipment, manufacturing and network equipment. Purchases of investments, net of proceeds from sales and maturities of investments, for 2024 and 2023 was $1.1 billion and $404 million, respectively. Net cash paid for acquisitions in fiscal 2023 was $25 million. Investing activities also included investments in technology to allow us to access new market opportunities or emerging technologies.
Our investment portfolio consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, municipal bonds, corporate bonds and mortgage-backed and asset-backed securities, as well as equity securities. We regularly monitor the credit risk in our investment portfolio and take appropriate measures, which may include the sale of certain securities, to manage such risks prudently in accordance with our investment policies.
Financing Activities
We used $4.5 billion of cash in financing activities in fiscal 2024, consisting primarily of repurchases of common stock of $3.8 billion, cash dividends to stockholders of $1.2 billion, tax withholding payments for vested equity awards of $291 million, and net payments of principal on financing leases of $102 million, partially offset by net proceeds received from the issuance of senior unsecured notes of $694 million and proceeds received from common stock issuances of $243 million.
We used $3.0 billion of cash in financing activities in fiscal 2023, consisting primarily of repurchases of common stock of $2.2 billion, cash dividends to stockholders of $975 million and tax withholding payments for vested equity awards of $179 million, offset by proceeds received from common stock issuances of $227 million and net proceeds from issuances of commercial paper of $91 million.
In March 2023, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in repurchases, which supplemented the previously existing $6.0 billion authorization approved in March 2022. At October 27, 2024, approximately $8.9 billion remained available for future stock repurchases under the repurchase program.
During each of fiscal 2024 and 2023 we paid four quarterly cash dividends, totaling $1.2 billion and $975 million, respectively. We currently anticipate that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of our stockholders.
We have credit facilities for unsecured borrowings in various currencies of up to $1.6 billion, of which $1.5 billion is comprised of a committed revolving credit agreement (Revolving Credit Agreement) with a group of banks. The Revolving Credit Agreement is scheduled to expire in February 2026, unless extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement includes financial and other covenants with which we were in compliance as of October 27, 2024. No amounts were outstanding under the Revolving Credit Agreement as of October 27, 2024 and October 29, 2023. See Note 9, Borrowing Facilities and Debt, of the Notes to the Consolidated Financial Statements for further discussion related to our Revolving Credit Agreement and other credit facilities.
We have a short-term commercial paper program under which we may from time to time issue unsecured commercial paper notes of up to a total amount of $1.5 billion. The proceeds from the issuances of commercial paper are used for general corporate purposes. At October 27, 2024, we had $100 million of commercial paper notes outstanding. The commercial paper program is backstopped by the Revolving Credit Agreement and borrowings under the Revolving Credit Agreement reduce the amount of commercial paper notes we can issue.
In June 2024, we issued $700 million aggregate principal amount of 4.800% senior unsecured notes due 2029 in a registered public offering. The proceeds from the issuance of the senior unsecured notes are intended for general corporate purposes.
We had senior unsecured notes in the aggregate principal amount of $6.2 billion outstanding as of October 27, 2024. See Note 9 of the Notes to the Consolidated Financial Statements for additional discussion of existing debt. We may seek to refinance our existing debt and may incur additional indebtedness depending on our capital requirements and the availability of financing.
Others
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act). The Tax Act requires a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The transition tax expense is payable in installments over eight years, with eight percent due in each of the first five years starting with fiscal 2018. As of October 27, 2024, we had $459 million of total payments remaining, payable in installments in the next two years.
On August 9, 2022, the U.S. government enacted the U.S. CHIPS and Science Act (“CHIPS Act”). The CHIPS Act creates a 25% investment tax credit for certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022, for which construction begins before January 1, 2027, and is treated as a government grant. We recognize this investment tax credit when there is reasonable assurance that we will qualify for the credit and the benefit will be received. Investments related to the 25% investment tax credit reduced our income taxes payable by $170 million as of October 27, 2024.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act. The Inflation Reduction Act introduced a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations are allowed to claim a credit for the minimum tax paid against regular tax in future years. We are subject to the minimum tax in fiscal 2024 and expect to claim a credit for the minimum tax in future years.
Several countries where we do business have enacted global minimum tax regimes based on the Organization for Economic Cooperation and Development (“OECD”) Base Erosion and Profit Shifting Project. This will change various aspects of the existing framework under which our global tax obligations are determined and is expected to increase our tax liabilities beginning in fiscal 2025. The OECD continues to release additional guidance on this new global minimum tax framework. We will continue to monitor these developments, as each jurisdiction incorporates changes into its tax laws.
Our conditional reduced tax rates in Singapore will expire in fiscal 2025, excluding potential renewal and subject to certain conditions with which we expect to comply.
Although cash requirements will fluctuate based on the timing and extent of factors such as those discussed above, our management believes that cash generated from operations, together with the liquidity provided by existing cash balances and borrowing capability, will be sufficient to satisfy our liquidity requirements for the next 12 months. For further details regarding our operating, investing and financing activities, see the Consolidated Statements of Cash Flows in this report.
For details on standby letters of credit, guarantee instruments and other agreements with banks, see Off-Balance Sheet Arrangements below.
Contractual Obligations and Off-Balance Sheet Arrangements
We have certain on-balance sheet and off-balance sheet obligation arrangements to make future payments under various contracts. Certain contractual arrangements which are recorded on our balance sheet include borrowing facilities and debts and lease obligations.
Borrowing Facilities and Debt Obligations
As of October 27, 2024, we had $6.2 billion in aggregate principal amount of senior unsecured notes with varying maturities, of which $700 million is due within 12 months and the remaining notes are due beyond 12 months. Future interest payments associated with these unsecured notes were $2.8 billion, of which $239 million is due within 12 months and the remaining interest payments are due beyond 12 months. See Note 9, Borrowing Facilities and Debt, of the Notes to the Consolidated Financial Statements for further discussion related to our borrowing facilities and debt obligations.
Lease Obligations
As of October 27, 2024, our operating lease obligation was $384 million related to various operating lease arrangements for certain facilities, of which $96 million is payable within 12 months and the remaining amount is payable beyond 12 months.
Purchase Obligations
As of October 27, 2024, we had $8.1 billion of purchase obligations for goods and services, of which $4.2 billion is payable within 12 months and the remaining amount is payable beyond 12 months.
Deemed Repatriation Tax Payable
As of October 27, 2024, we had $459 million of transition tax liability, of which $204 million is payable within 12 months and the remaining amount is payable beyond 12 months. This transition tax liability is associated with the deemed repatriation of accumulated foreign earnings as a result of the enactment of the Tax Act.
Other Long-term Liabilities
We also have the obligation to fund our pension, postretirement and deferred compensation plans. We evaluate the need to make contributions to our pension and postretirement benefit plans after considering the funded status of the plans, movements in the discount rate, performance of the plan assets and related tax consequences. Payments to the plans would be dependent on these factors and could vary across a wide range of amounts and time periods. Payments for deferred compensation plans are dependent on activity by participants, making the timing of payments uncertain. As of October 27, 2024, the total of our future expected benefit payments for the pension plans and the postretirement plan over the next ten fiscal years were $214 million, of which $14 million is payable within 12 months and the remaining amount is payable beyond 12 months.
As of October 27, 2024, the gross liability for unrecognized tax benefits that was not expected to result in payment of cash within one year was $521 million. Interest and penalties related to uncertain tax positions that were not expected to result in payment of cash within one year of October 27, 2024 was $181 million. At this time, we are unable to reliably estimate the timing of payments due to uncertainties in the timing of tax audit outcomes.
Off-Balance Sheet Arrangements
In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either us or our subsidiaries. These include agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements. We also have agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. See Note 13, Guarantees, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements for further discussion relating to these arrangements.
Critical Accounting 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.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. These uncertainties include those discussed in Part I, Item 1A, “Risk Factors.”
Management believes that the following is a critical accounting estimate:
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The calculation of our provision for income taxes and effective tax rate involves significant judgment in estimating the impact of uncertainties in the application of complex and evolving tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial condition. We recognize a current tax liability for the estimated amount of income taxes payable on tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. These estimates consider future operational results including realizability of our deferred tax assets. Deferred tax assets and liabilities are adjusted to reflect the effects of enacted changes in tax rates, laws and status, including changes in tax incentives.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including fluctuations in interest rate and foreign currency exchange rates.
Interest Rate Risk
Available-for-sale Debt Securities - The market value of our investments in available-for-sale securities was approximately $3.2 billion at October 27, 2024. An immediate hypothetical 100 basis point increase in interest rates would result in a decrease in the fair value of investments as of October 27, 2024 of approximately $36 million.
Debt - At October 27, 2024, the aggregate principal of long-term senior unsecured notes issued by us was $5.5 billion with an estimated fair value of $5.1 billion. A hypothetical decrease in interest rates of 100 basis points would result in an increase in the fair value of our long-term senior notes issuances of approximately $428 million at October 27, 2024. From time to time, we use interest rate swaps or rate lock agreements to mitigate the potential impact of changes in benchmark interest rates on interest expense and cash flows.
Foreign Currency Risk
Certain of our operations are conducted in foreign currencies, such as Japanese yen, Israeli shekel, euro and Taiwanese dollar. Hedges are used to reduce, but not eliminate, the impact of foreign currency exchange rate movements on the consolidated balance sheet, statement of operations, and statement of cash flows.
We use primarily foreign currency forward contracts to offset the impact of foreign exchange movements on non-U.S. dollar denominated monetary assets and liabilities. The foreign exchange gains and losses on the assets and liabilities are recorded in interest and other income (expense), net and are offset by the gains and losses on the hedges.
We use foreign currency forward and option contracts to hedge a portion of anticipated non-U.S. dollar denominated revenues and expenses expected to occur within the next 24 months. Gains and losses on these hedging contracts generally mitigate the effect of currency movements on our net revenue, cost of products sold, and operating expenses. A hypothetical 10% adverse change in foreign currency exchange rates relative to the U.S. Dollar would result in a decrease in the fair value of these hedging contracts of $141 million at October 27, 2024.
We do not use foreign currency forward or option contracts for trading or speculative purposes.
Item 8: Financial Statements and Supplementary Data
The consolidated financial statements required by this Item are set forth on the pages indicated at Item 15(a).
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A: Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, our management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our 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, our Chief Executive Officer and Chief Financial Officer concluded that our 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 us in such reports is accumulated and communicated to our management, including our 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
Our 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 our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of October 27, 2024.
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 our internal control over financial reporting as of October 27, 2024.
Changes in Internal Control over Financial Reporting
During the fourth quarter of fiscal 2024, there were no changes in the internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
Item 9B: Other Information
During the three months ended October 27, 2024, no director or officer, as defined in Rule 16a-1(f), or a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.
Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10: Directors, Executive Officers and Corporate Governance
Except for the information regarding executive officers required by Item 401 of Regulation S-K (which is included in Part I, Item 1 of this Annual Report on Form 10-K, under “Information about our Executive Officers”), and code of ethics and insider trading policy (which are set forth below), the information required by this item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2025.
We have implemented the Standards of Business Conduct, a code of ethics with which every person who works for us 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 our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K. The above information, including the Standards of Business Conduct, is available on our website under the Governance Documents section at https://www.appliedmaterials.com/us/en/about/corporate-governance.html. 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.
We have adopted an Insider Trading Policy governing the purchase, sale, and other dispositions of our securities by our directors, officers, employees and other individuals associated with us that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to us. A copy of our Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Item 11: Executive Compensation
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2025.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except for the information regarding securities authorized for issuance under equity compensation plans (which is set forth below), the information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2025.
The following table summarizes information with respect to equity awards under our equity compensation plans as of October 27, 2024:
Equity Compensation Plan Information
| | | | | | | | | | | | | | | | | | | | | | | |
| Plan Category | (a)
Number of
Securities to be
Issued Upon Exercise
of Outstanding Options,
Warrants and
Rights(1) | | | (b)
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and
Rights(2) | | (c)
Number of Securities
Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in
Column(a)) | |
| | | | | | | |
| | (In millions, except prices) | |
| Equity compensation plans approved by security holders | 10 | | | | $ | — | | | 31 | | (3) |
| Total | 10 | | | | $ | — | | | 31 | | |
(1)Includes only restricted stock units and performance share units outstanding under our equity compensation plans, as no options, stock warrants or other rights were outstanding as of October 27, 2024.
(2)The weighted average exercise price calculation does not take into account any restricted stock units or performance shares.
(3)Includes 10 million shares of our common stock available for future issuance under the Applied Materials, Inc. Omnibus Employees’ Stock Purchase Plan. Of these 10 million shares, 1 million are subject to purchase during the purchase period in effect as of October 27, 2024.
We have the following equity compensation plan that has not been approved by stockholders:
Applied Materials Profit Sharing Scheme. The Applied Materials Profit Sharing Scheme was adopted effective July 3, 1996 and amended from time to time to enable employees of Applied Materials Ireland Limited and its participating subsidiaries to purchase our common stock at 100% of fair market value on the purchase date. Under this plan, eligible employees may elect to forego a certain portion of their base salary and certain bonuses they have earned and that otherwise would be payable in cash to purchase shares of our common stock at full fair market value. Since the eligible employees pay full fair market value for the shares, there is no reserved amount of shares under this plan and, accordingly, the 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 required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2025.
Item 14: Principal Accounting Fees and Services
Our independent registered public accounting firm is , , Auditor Firm ID: .
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than February 24, 2025.
PART IV
Item 15: Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
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| (2) | Exhibits: | |
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| | |
| | |
All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.
Item 16: Form 10-K Summary
None.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Applied Materials, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Applied Materials, Inc. and subsidiaries (the Company) as of October 27, 2024 and October 29, 2023, 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, 2024, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of October 27, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 27, 2024 and October 29, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended October 27, 2024, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 27, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, 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. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of sufficiency of audit evidence over revenue
As discussed in Notes 1 and 14 to the consolidated financial statements, the Company recorded $27,176 million in net revenue, for the year ended October 27, 2024. The Company generates revenue by providing manufacturing equipment, services and software to customers in the semiconductor, display and related industries. The Company’s process to account for and recognize revenue differs across revenue streams.
We identified the evaluation of the sufficiency of audit evidence obtained over net revenue as a critical audit matter. Evaluating the sufficiency of audit evidence required subjective auditor judgment due to the number of revenue streams and separate processes to account for and recognize revenue. This included determining the nature and extent of audit evidence obtained over each revenue stream.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the revenue streams over which procedures were performed as well as the nature and extent of such procedures. For revenue streams where procedures were performed, we:
•evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue recognition processes, including the Company’s controls over the accurate recording of revenue.
•evaluated the Company’s revenue recognition accounting policies.
•evaluated, for a sample of revenue transactions, (1) the accounting for consistency with the Company’s accounting policies, as applicable, including timing of revenue recognition, and (2) the recorded amounts by comparing them for consistency to underlying documentation, including the customer contracts.
In addition, we evaluated the sufficiency of audit evidence obtained by assessing the results of the procedures performed, including the appropriateness of the nature and extent of audit effort over revenue
We have served as the Company’s auditor since 2004.
Santa Clara, California
December 13, 2024
APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Fiscal Year | 2024 | | 2023 | | 2022 |
| | | | | | |
| Net revenue | $ | | | | $ | | | | $ | | |
| Cost of products sold | | | | | | | | |
| Gross profit | | | | | | | | |
| Operating expenses: | | | | | |
| Research, development and engineering | | | | | | | | |
| Marketing and selling | | | | | | | | |
| General and administrative | | | | | | | | |
|
|
| Severance and related charges | | | | | | | () | |
|
| Total operating expenses | | | | | | | | |
| Income from operations | | | | | | | | |
|
| Interest expense | | | | | | | | |
| Interest and other income (expense), net | | | | | | | | |
| Income before income taxes | | | | | | | | |
| Provision for income taxes | | | | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Earnings per share: | | | | | |
| Basic | $ | | | | $ | | | | $ | | |
| Diluted | $ | | | | $ | | | | $ | | |
| Weighted average number of shares: | | | | | |
| Basic | | | | | | | | |
| Diluted | | | | | | | | |
See accompanying Notes to Consolidated Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| | | | | | | | | | | | | | | | | |
| Fiscal Year | 2024 | | 2023 | | 2022 |
| | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Change in unrealized gain (loss) on available-for-sale investments | | | | | | | () | |
| Change in unrealized net loss on derivative instruments | | | | () | | | | |
| Change in defined and postretirement benefit plans | () | | | | | | | |
|
| Other comprehensive income (loss), net of tax | | | | () | | | | |
| Comprehensive income | $ | | | | $ | | | | $ | | |
See accompanying Notes to Consolidated Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
| | | | | | | | | | | |
| October 27,
2024 | | October 29,
2023 |
| | | |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | | | | $ | | |
| Short-term investments | | | | | |
| Accounts receivable, net | | | | | |
| Inventories | | | | | |
| Other current assets | | | | | |
| Total current assets | | | | | |
| Long-term investments | | | | | |
| Property, plant and equipment, net | | | | | |
| Goodwill | | | | | |
| Purchased technology and other intangible assets, net | | | | | |
| Deferred income taxes and other assets | | | | | |
| Total assets | $ | | | | $ | | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | |
| Short-term debt | $ | | | | $ | | |
| Accounts payable and accrued expenses | | | | | |
| Contract liabilities | | | | | |
| Total current liabilities | | | | | |
| Long-term debt | | | | | |
| Income taxes payable | | | | | |
| Other liabilities | | | | | |
| Total liabilities | | | | | |
| Commitments and contingencies (Note 13) | par value per share; shares authorized; shares issued | | | | | |
Common stock: $ par value per share; shares authorized; and shares outstanding at 2024 and 2023, respectively | | | | | |
| Additional paid-in capital | | | | | |
| Retained earnings | | | | | |
Treasury stock: and shares at 2024 and 2023, respectively | () | | | () | |
| Accumulated other comprehensive loss | () | | | () | |
| Total stockholders’ equity | | | | | |
| Total liabilities and stockholders’ equity | $ | | | | $ | | |
See accompanying Notes to Consolidated Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings | | Treasury Stock | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| Shares | | Amount | | | | Shares | | Amount | | |
| | | | | | | | | | | | | | | |
| Balance at October 31, 2021 | | | | $ | | | | $ | | | | $ | | | | | | | $ | () | | | $ | () | | | $ | | |
| | | | | | | | | |
| Net income | — | | | — | | | — | | | | | | — | | | — | | | — | | | | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
Dividends declared ($ per common share) | — | | | — | | | — | | | () | | | — | | | — | | | — | | | () | |
| Share-based compensation | — | | | — | | | | | | — | | | — | | | — | | | — | | | | |
| Net issuance under stock plans | | | | — | | | () | | | — | | | — | | | — | | | — | | | () | |
| Common stock repurchases | () | | | () | | | — | | | — | | | | | | () | | | — | | | () | |
| Balance at October 30, 2022 | | | | $ | | | | $ | | | | $ | | | | | | | $ | () | | | $ | () | | | $ | | |
| | | | | | | | | |
| Net income | — | | | — | | | — | | | | | | — | | | — | | | — | | | | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
Dividends declared ($ per common share) | — | | | — | | | — | | | () | | | — | | | — | | | — | | | () | |
| Share-based compensation | — | | | — | | | | | | — | | | — | | | — | | | — | | | | |
| Net issuance under stock plans | | | | — | | | | | | — | | | — | | | — | | | — | | | | |
| Common stock repurchases | () | | | — | | | — | | | — | | | | | | () | | | — | | | () | |
| Balance at October 29, 2023 | | | | $ | | | | $ | | | | $ | | | | | | | $ | () | | | $ | () | | | $ | | |
| Net income | — | | | — | | | — | | | | | | — | | | — | | | — | | | | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
Dividends declared ($ per common share) | — | | | — | | | — | | | () | | | — | | | — | | | — | | | () | |
| Share-based compensation | — | | | — | | | | | | — | | | — | | | — | | | — | | | | |
| Net issuance under stock plans | | | | — | | | () | | | — | | | — | | | — | | | — | | | () | |
| Common stock repurchases | () | | | — | | | — | | | — | | | | | | () | | | — | | | () | |
| Balance at October 27, 2024 | | | | $ | | | | $ | | | | $ | | | | | | | $ | () | | | $ | () | | | $ | | |
See accompanying Notes to Consolidated Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) | | | | | | | | | | | | | | | | | |
| Fiscal Year | 2024 | | 2023 | | 2022 |
| | | | | |
| Cash flows from operating activities: | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Adjustments required to reconcile net income to cash provided by operating activities: | | | | | |
| Depreciation and amortization | | | | | | | | |
|
|
|
| Severance and related charges | | | | | | | () | |
|
|
| Deferred income taxes | () | | | | | | () | |
|
|
|
| Share-based compensation | | | | | | | | |
| Other | | | | | | | | |
| Changes in operating assets and liabilities, net of amounts acquired: | | | | | |
| Accounts receivable | () | | | | | | () | |
| Inventories | | | | | | | () | |
| Other current and non-current assets | | | | () | | | () | |
|
| Accounts payable and accrued expenses | | | | () | | | | |
| Contract liabilities | () | | | () | | | | |
| Income taxes payable | | | | () | | | () | |
| Other liabilities | | | | | | | | |
| Cash provided by operating activities | | | | | | | | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures | () | | | () | | | () | |
| Cash paid for acquisitions, net of cash acquired | | | | () | | | () | |
|
| Proceeds from sales and maturities of investments | | | | | | | | |
| Purchases of investments | () | | | () | | | () | |
| Cash used in investing activities | () | | | () | | | () | |
| Cash flows from financing activities: | | | | | |
| Debt borrowings, net of issuance costs | | | | | | | | |
|
| Proceeds from commercial paper | | | | | | | | |
| Repayments of commercial paper | () | | | () | | | | |
| Proceeds from common stock issuances | | | | | | | | |
| Common stock repurchases | () | | | () | | | () | |
| Tax withholding payments for vested equity awards | () | | | () | | | () | |
| Payments of dividends to stockholders | () | | | () | | | () | |
| Repayments of principals on finance leases | () | | | () | | | | |
| Cash used in financing activities | () | | | () | | | () | |
|
| Increase (decrease) in cash, cash equivalents and restricted cash equivalents | | | | | | | () | |
| Cash, cash equivalents and restricted cash equivalents — beginning of period | | | | | | | | |
| Cash, cash equivalents and restricted cash equivalents — end of period | $ | | | | $ | | | | $ | | |
| Reconciliation of cash, cash equivalents, and restricted cash equivalents | | | | | |
| Cash and cash equivalents | $ | | | | $ | | | | $ | | |
| Restricted cash equivalents included in deferred income taxes and other assets | | | | | | | | |
| Total cash, cash equivalents, and restricted cash equivalents | $ | | | | $ | | | | $ | | |
| Supplemental cash flow information: | | | | | |
| Cash payments for income taxes | $ | | | | $ | | | | $ | | |
| Cash refunds from income taxes | $ | | | | $ | | | | $ | | |
| Cash payments for interest | $ | | | | $ | | | | $ | | |
See accompanying Notes to Consolidated Financial Statements.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to years with certain buildings and improvements’ useful lives increased by years; demonstration and manufacturing equipment increased to to years. The estimated useful lives for the following assets remained unchanged from fiscal 2023: software, to years; and furniture, fixtures and other equipment, to years. Land improvements are amortized over the shorter of years or the estimated useful life. Leasehold improvements are amortized over the shorter of or the lease term.The change in accounting estimate was applied on a prospective basis to the assets on our balance sheet as of October 29, 2023, as well as to subsequent asset purchases. Based on the net carrying amounts of assets in use as of the end of fiscal 2023, the impact of this change was a reduction of $ million in depreciation expense during fiscal 2024, and an increase of $ in both basic and diluted earnings per share for fiscal 2024.
related incentives as an offset to the associated property, plant and equipment, net within our Consolidated Balance Sheets and recognize a reduction to depreciation expense over the useful life of the corresponding acquired asset. We record incentives related to operating activities as a reduction to expense in the same line item on the Consolidated Statements of Operations as the expenditure for which the grant is intended to compensate.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
goodwill impairment was recorded during fiscal 2024, 2023 and 2022.Intangible assets with finite lives are presented at cost, net of accumulated amortization, and are amortized over their estimated useful lives of to years using the straight-line method. We evaluate the useful lives of our intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization. Intangible assets with infinite lives are not subject to amortization and consist primarily of in-process technology, which will be subject to amortization upon commercialization. If an in-process technology project is abandoned, the acquired technology attributable to the project will be written-off. The carrying values of our intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. The balances of our intangible assets were not material as of October 27, 2024 or October 29, 2023 and amortization expenses were not material for fiscal 2024, 2023 and 2022.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We also sell extended warranty contracts to our customers which provide an extension of the standard warranty coverage period of up to years. We receive payment at the inception of the contract and recognizes revenue ratably over the extended warranty coverage period, as the customer simultaneously receives and consumes the benefits of the extended warranty.
Our warranty reserves balances and the components of changes in our warranty reserves were not material for all periods presented.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 2
| | $ | | | | $ | | |
| Denominator: | | | | | |
| Weighted average common shares outstanding | | | | | | | | |
| Effect of weighted dilutive restricted stock units and employee stock purchase plan shares | | | | | | | | |
| Denominator for diluted earnings per share | | | | | | | | |
| Basic earnings per share | $ | | | | $ | | | | $ | | |
| Diluted earnings per share | $ | | | | $ | | | | $ | | |
| Potentially weighted dilutive securities | | | | | | | | |
Excluded from the calculation of diluted earnings per share are securities attributable to outstanding restricted stock units where the combined exercise price and average unamortized fair value are greater than the average market price of our common stock, and therefore their inclusion would be anti-dilutive.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 3
| | $ | — | | | $ | — | | | $ | | | | Cash equivalents: | | | | | | | |
Money market funds* | | | | — | | | — | | | | |
| Bank certificates of deposit and time deposits | | | | — | | | — | | | | |
| U.S. Treasury and agency securities | | | | — | | | — | | | | |
| |
| Municipal securities | | | | — | | | — | | | | |
| Commercial paper, corporate bonds and medium-term notes | | | | — | | | — | | | | |
| |
| Total cash equivalents | | | | — | | | — | | | | |
| Total cash and cash equivalents | $ | | | | $ | — | | | $ | — | | | $ | | |
| Short-term and long-term investments: | | | | | | | |
| Bank certificates of deposit and time deposits | $ | | | | $ | | | | $ | | | | $ | | |
| U.S. Treasury and agency securities | | | | | | | | | | | |
Non-U.S. government securities** | | | | | | | | | | | |
| Municipal securities | | | | | | | | | | | |
| Commercial paper, corporate bonds and medium-term notes | | | | | | | | | | | |
| Asset-backed and mortgage-backed securities | | | | | | | | | | | |
| Total fixed income securities | | | | | | | | | | | |
| Publicly traded equity securities | | | | | | | | | | | |
| Equity investments in privately held companies | | | | | | | | | | | |
| Total equity investments | | | | | | | | | | | |
| Total short-term and long-term investments | $ | | | | $ | | | | $ | | | | $ | | |
| Total cash, cash equivalents and investments | $ | | | | $ | | | | $ | | | | $ | | |
_________________________
*Excludes $ million of restricted cash equivalents invested in money market funds related to deferred compensation plans.
**Includes Canadian provincial government debt.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | — | | | $ | — | | | $ | | | | Cash equivalents: | | | | | | | |
Money market funds* | | | | — | | | — | | | | |
| |
| |
| Municipal securities | | | | — | | | — | | | | |
| Commercial paper, corporate bonds and medium-term notes | | | | — | | | — | | | | |
| Total cash equivalents | | | | — | | | — | | | | |
| Total cash and cash equivalents | $ | | | | $ | — | | | $ | — | | | $ | | |
| Short-term and long-term investments: | | | | | | | |
| Bank certificates of deposit and time deposits | $ | | | | $ | | | | $ | | | | $ | | |
| U.S. Treasury and agency securities | | | | | | | | | | | |
Non-U.S. government securities** | | | | | | | | | | | |
| Municipal securities | | | | | | | | | | | |
| Commercial paper, corporate bonds and medium-term notes | | | | | | | | | | | |
| Asset-backed and mortgage-backed securities | | | | | | | | | | | |
| Total fixed income securities | | | | | | | | | | | |
| Publicly traded equity securities | | | | | | | | | | | |
| Equity investments in privately held companies | | | | | | | | | | | |
| Total equity investments | | | | | | | | | | | |
| Total short-term and long-term investments | $ | | | | $ | | | | $ | | | | $ | | |
| Total cash, cash equivalents and investments | $ | | | | $ | | | | $ | | | | $ | | |
________________________
*Excludes $ million of restricted cash equivalents invested in money market funds related to deferred compensation plans.
**Includes Canadian provincial government debt.
During fiscal 2024, 2023 and 2022, interest income from our cash, cash equivalents and fixed income securities was $ million, $ million and $ million, respectively.
Maturities of Investments
| | $ | | | | Due after one through five years | | | | | |
| |
|
|
|
|
| | | | | | | | | |
| | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | _________________________
million and $ million, respectively, invested in money market funds related to deferred compensation plans. Due to restrictions on the distribution of these funds, they are classified as restricted cash equivalents and are included in deferred income taxes and other assets in the Consolidated Balance Sheets.
We did not have any financial assets measured at fair value on a recurring basis within Level 3 fair value measurements as of October 27, 2024 or October 29, 2023.
t material during fiscal 2024 and 2022 and were $ million during fiscal 2023. These impairment losses are included in interest and other income (expense), net in the Consolidated Statement of Operations.Other
The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash equivalents, accounts receivable, commercial paper notes, and accounts payable and accrued expenses, approximate fair value due to their short maturities. At October 27, 2024, the aggregate principal amount of long-term senior unsecured notes was $ billion, and the estimated fair value was $ billion. At October 29, 2023, the aggregate principal amount of long-term senior unsecured notes was $ billion and the estimated fair value was $ billion. The estimated fair value of long-term senior unsecured notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. See Note 9 of the Notes to the Consolidated Financial Statements for further detail of existing debt.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 5
months. The purpose of our foreign currency management is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. months. Changes in fair value caused by changes in time value of option contracts designated as cash flow hedges are excluded from the assessment of effectiveness. The initial value of this excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in the financial statement line item to which the hedge relates. If the transaction being hedged is probable not to occur, we recognize the gain or loss on the associated financial instrument in the consolidated statement of operations. The amount recognized due to discontinuance of cash flow hedges that were probable of not occurring by the end of the originally specified time period was not significant for fiscal years 2024, 2023 or 2022.
As of October 27, 2024 and October 29, 2023, the total outstanding notional amount of foreign exchange contracts was $ billion and $ billion, respectively. The fair values of foreign exchange derivative instruments at October 27, 2024 and October 29, 2023 were not material.
We are also exposed to interest rate risk associated with our potential future borrowings. During fiscal 2024, we entered into a series of interest rate contracts to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. These instruments were designated as cash flow hedges at inception and were settled in conjunction with the issuance of debt in June 2024.
The gain (loss) on derivatives in cash flow hedging relationships recognized in AOCI for derivatives designated as hedging instruments were not material for fiscal year 2024, 2023 and 2022.
The effects of derivative instruments, both those designated as cash flow hedges and those that are not designated, on the Consolidated Statements of Operations were not material for fiscal 2024, 2023 and 2022.
Credit Risk Contingent Features
If our credit rating were to fall below investment grade, we would be in violation of credit risk contingent provisions of the derivative instruments discussed above, and certain counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was immaterial as of October 27, 2024 and October 29, 2023.
Entering into derivative contracts with banks exposes us to credit-related losses in the event of the banks’ nonperformance. However, our exposure is not considered significant.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 6
billion, $ billion and $ billion of accounts receivable during fiscal 2024, 2023 and 2022, respectively. We did discount letters of credit issued by customers in fiscal 2024, 2023 and 2022. There was discounting of promissory notes in each of fiscal 2024, 2023 and 2022. 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.The balances of allowance for credit losses and changes in allowance for credit losses were not material for fiscal 2024, 2023 and 2022.
We sell our products principally to manufacturers within the semiconductor and display industries. While we believe that our allowance for credit losses is adequate and represents our best estimate as of October 27, 2024, we continue to closely monitor customer liquidity and industry and economic conditions, which may result in changes to our estimates.
Note 7
| | $ | | |
| Contract liabilities | $ | | | | $ | | |
The decrease in contract assets during fiscal 2024, was primarily due to a reduction in goods transferred to customers where payment was conditional upon technical sign off.
During fiscal 2024, we recognized revenue of approximately $ billion related to contract liabilities at October 29, 2023. This reduction in contract liabilities was partially offset by new billings for products and services for which there were unsatisfied performance obligations to customers and revenue had not yet been recognized as of October 27, 2024.
There were credit losses recognized on our accounts receivables and contract assets during fiscal 2024 and 2023.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
New export rules and regulations issued in December 2024 are expected to have an immaterial impact on remaining unsatisfied performance obligations on contracts with an original estimated duration of one year or more.
We have elected the available practical expedient to exclude the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
Note 8
| | $ | | | | Raw materials | | | | | |
| Work-in-process | | | | | |
| Finished goods | | | |
| Deferred cost of sales | | | | | |
| Evaluation inventory | | | | | |
| Manufactured on-hand inventory | | | | | |
| Total finished goods | | | | | |
| Total inventories | $ | | | | $ | | |
| | $ | | | | Prepaid expenses and other | | | | | |
| $ | | | | $ | | |
| | $ | | | | Buildings and improvements | - | | | | | | |
| Demonstration and manufacturing equipment | - | | | | | | |
| Furniture, fixtures and other equipment | - | | | | | | |
| Construction in progress | | | | | | | |
| Gross property, plant and equipment | | | | | | | |
| Accumulated depreciation | | | () | | | () | |
| | | $ | | | | $ | | |
Depreciation expense was $ million, $ million and $ million for fiscal 2024, 2023 and 2022, respectively.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | Operating lease right-of-use assets | | | | | |
| Finance lease right-of-use assets | | | | | |
| Income tax receivables and other assets | | | | | |
| $ | | | | $ | | |
| | $ | | | | |
| Compensation and employee benefits | | | | | |
| |
| Warranty | | | | | |
| Dividends payable | | | | | |
| Income taxes payable | | | | | |
| |
| |
| Operating lease liabilities, current | | | | | |
| Finance lease liabilities, current | | | | | |
| |
| Other | | | | | |
| $ | | | | $ | | |
| | $ | | | | Operating lease liabilities, non-current | | | | | |
| |
| Other | | | | | |
| $ | | | | $ | | |
Government Assistance
Capital expenditure related incentives reduced gross property, plant and equipment, net by $ million as of October 27, 2024. Contra-depreciation expense was not material in fiscal 2024. Operating incentives recognized as a reduction to research, development and engineering expense was $ million in fiscal 2024. Capital expenditure related incentives reduced our income taxes payable by $ million as of October 27, 2024, of which $ million is in accounts payable and accrued expenses and $ million is in deferred income taxes and other assets, in our Consolidated Balance Sheets.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 9
$ billion committed unsecured revolving credit agreement (Revolving Credit Agreement) with a group of banks. The Revolving Credit Agreement includes a provision under which we may request an increase in the amount of the facility of up to $ million for a total commitment of no more than $ billion, subject to the receipt of commitments from one or more lenders for any such increase and other customary conditions. The Revolving Credit Agreement is scheduled to expire in February 2026, unless extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement provides for borrowings that bear interest for each advance at one of two rates selected by us, plus an applicable margin, which varies according to our public debt credit ratings. amounts were outstanding under the Revolving Credit Agreement as of October 27, 2024 and October 29, 2023.
In addition, we have revolving credit facilities with Japanese banks pursuant to which we may borrow up to approximately $ million in aggregate at any time. Our ability to borrow under these facilities is subject to bank approval at the time of the borrowing request, and any advances will be at rates indexed to the banks’ prime reference rate denominated in Japanese yen. As of October 27, 2024 and October 29, 2023, amounts were outstanding under these revolving credit facilities.
Short-term Commercial Paper
We have a short-term commercial paper program under which we may issue unsecured commercial paper notes of up to a total amount of $ billion. The proceeds from the issuances of commercial paper are used for general corporate purposes. At October 27, 2024, we had $ million of commercial paper notes outstanding and recorded as short-term debt with a weighted-average interest rate of % and maturities of days, and as of October 29, 2023, we had $ million of commercial paper notes outstanding and recorded as short-term debt with a weighted-average interest rate of % and maturities of days.
Senior Unsecured Notes
In June 2024, we issued $ million aggregate principal amount of % senior unsecured notes due 2029 in a registered public offering. The proceeds from the issuance of the senior unsecured notes are intended for general corporate purposes.
% Senior Notes Due 2025$ | | | | $ | | | | % | | April 1, October 1 | | Total current portion of long-term debt | $ | | | | $ | | | | | | |
| Long-term debt: | | | | | | | |
| |
% Senior Notes Due 2025 | $ | | | | $ | | | | % | | April 1, October 1 |
% Senior Notes Due 2027 | | | | | | | % | | April 1, October 1 |
% Senior Notes Due 2029 | | | | | | | % | | June 15, December 15 |
% Senior Notes Due 2030 | | | | | | | % | | June 1, December 1 |
% Senior Notes Due 2035 | | | | | | | % | | April 1, October 1 |
% Senior Notes Due 2041 | | | | | | | % | | June 15, December 15 |
% Senior Notes Due 2047 | | | | | | | % | | April 1, October 1 |
% Senior Notes Due 2050 | | | | | | | % | | June 1, December 1 |
| | | | | | | | | |
| Total unamortized discount | () | | | () | | | | | |
| Total unamortized debt issuance costs | () | | | () | | | | | |
| Total long-term debt | $ | | | | $ | | | | | | |
| |
| |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 10
) | | $ | () | | | $ | () | | | $ | | | | () | |
| | | |
| | | |
| Other comprehensive income (loss) before reclassifications | () | | | | | | | | | | | | | |
| Amounts reclassified out of AOCI | () | | | () | | | | | | | | | () | |
| Other comprehensive income (loss), net of tax | () | | | | | | | | | | | | | |
Balance at October 30, 2022 | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | () | |
| | | |
| | | |
| Other comprehensive income (loss) before reclassifications | | | | () | | | | | | | | | () | |
| Amounts reclassified out of AOCI | | | | () | | | | | | | | | () | |
| Other comprehensive income, net of tax | | | | () | | | | | | | | | () | |
Balance at October 29, 2023 | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | () | |
| | | |
| | | |
| Other comprehensive income (loss) before reclassifications | | | | | | | | | | | | | | |
| Amounts reclassified out of AOCI | | | | | | | () | | | | | | () | |
| Other comprehensive income (loss), net of tax | | | | | | | () | | | | | | | |
Balance at October 27, 2024 | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | () | |
The tax effects on net income of amounts reclassified from AOCI were material for the fiscal 2024, 2023 and 2022.
In March 2023, our Board of Directors approved a common stock repurchase program authorizing $ billion in repurchases, which supplemented the previously existing $ billion authorization approved in March 2022. At October 27, 2024, approximately $ billion remained available for future stock repurchases under the repurchase program.
| | | | | | | | Cost of stock repurchased (including excise tax)* | $ | | | | $ | | | | $ | | |
| Average price paid per share (including excise tax)* | $ | | | | $ | | | | $ | | |
| Cost of stock repurchased (excluding excise tax) | $ | | | | $ | | | | $ | | |
| Average price paid per share (excluding excise tax) | $ | | | | $ | | | | $ | | |
(*) Effective January 1, 2023, stock repurchase amounts include the 1% surcharge on stock repurchases under the Inflation Reduction Act’s excise tax. This excise tax is recorded in equity and reduces the amount available under the repurchase program, as applicable.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share-Based Compensation
We have a stockholder-approved equity plan, the Employee Stock Incentive Plan (ESIP), which permits grants to employees of share-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units and performance units. In addition, the plan provides for the automatic grant of restricted stock units to non-employee directors and permits the grant of share-based awards to non-employee directors and consultants. Share-based awards made under the plan may be subject to accelerated vesting under certain circumstances in the event of a change in control. In addition, we have an Omnibus Employees’ Stock Purchase Plan (ESPP), which enables eligible employees to purchase our common stock.
We recognized share-based compensation expense related to equity awards and ESPP shares.
| | $ | | | | $ | | | | Research, development, and engineering | | | | | | | | |
| Marketing and selling | | | | | | | | |
| General and administrative | | | | | | | | |
|
| Total share-based compensation | $ | | | | $ | | | | $ | | |
| | | | | |
| Income tax benefits recognized | $ | | | | $ | | | | $ | | |
% achievement of the goal.At October 27, 2024, we had $ million in total unrecognized compensation expense, net of estimated forfeitures, related to grants of share-based awards under the ESIP and shares issued under the ESPP, which will be recognized over a weighted average period of years. At October 27, 2024, there were million shares available for grant of share-based awards under the ESIP, and an additional million shares available for issuance under the ESPP.
Stock Options
Stock options are rights to purchase, at future dates, shares of our common stock. There were stock options granted during fiscal 2024, 2023 and 2022 and outstanding stock options at the end of fiscal 2024.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The compensation expense related to share-based awards subject solely to time-based vesting requirements (Service-Based Awards) is determined using the market value of our common stock, adjusted to exclude the present value of expected dividends during the vesting period. The market value of our common stock is calculated using the closing price of our common stock on the date of grant, or if the grant date is not a trading date, the average of the closing prices on the trading dates immediately preceding and following the grant date.
During fiscal 2024, 2023 and 2022, certain members of senior management were granted awards that are subject to the achievement of certain levels of specified performance and market goals, in addition to time-based vesting requirements (Performance Based-Awards). These Performance-Based Awards are subject to the achievement of targeted levels of adjusted operating margin and targeted levels of total shareholder return (TSR) relative to the TSR of the companies in the Standard & Poor’s 500 Index. Each of these two metrics will be weighted % and will be measured over a period. The number of shares that may vest in full after ranges from % to % of the target amount. The awards become eligible to vest only if the goals are achieved and will vest only if the grantee remains employed by us through each applicable vesting date, subject to a qualifying retirement based on age and years of service. The awards provide for a partial vesting based on actual performance at the conclusion of the performance period in the event of a qualifying retirement.
The fair value of the portion of the Performance-Based Awards subject to targeted levels of relative TSR is estimated on the date of grant using a Monte Carlo simulation model. Compensation expense is recognized based upon the assumption of % achievement of the TSR goal and will not be reversed even if the threshold level of TSR is never achieved, and is reflected over the service period and reduced for estimated forfeitures.
The fair value of the portion of the Performance-Based Awards subject to targeted levels of adjusted operating margin is estimated on the date of grant based on the market value of our common stock, adjusted to exclude the present value of expected dividends during the vesting period. The market value of our common stock is calculated using the closing price of our common stock on the date of the grant or, if the grant date is not a trading date, the average of the closing prices on the trading dates immediately preceding and following the grant date. If the performance goals are not met as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the portion of the awards that is probable to vest and is reflected over the service period and reduced for estimated forfeitures.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| $ - $ | | $ - $ | | Risk-free interest rate | % - % | | % - % | | % - % |
| Dividend yield | % - % | | % - % | | % - % |
| Fair value | $ - $ | | $ - $ | | $ - $ |
| | | | | | | | | | | | | | | | | |
| 2024 | | 2023 | | 2022 |
| Portion of Performance-Based Awards subject to market goals: | | | | | |
| Grant date market value | $ - $ | | $ | | $ |
| Risk-free interest rate | % - % | | % | | % |
| Dividend yield | % - % | | % | | % |
| Expected volatility | % - % | | % | | % |
| Fair value | $ - $ | | $ | | $ |
| | $ | | | | | | | | Granted | | | | $ | | | | | | |
| Vested | () | | | $ | | | | | | |
| Canceled | () | | | $ | | | | | | |
Non-vested restricted stock units, restricted stock, performance share units and performance units at October 27, 2024 | | | | $ | | | | years | | $ | | |
| Non-vested restricted stock units, restricted stock, performance share units and performance units expected to vest | | | | $ | | | | years | | $ | | |
At October 27, 2024, million additional performance-based awards could be earned based upon achievement of certain levels of specified performance and/or market goals.
| | $ | | | | $ | | | | Total fair value of vested awards | $ | | | | $ | | | | $ | | |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
% | | | % | | | % | | Expected volatility | | % | | | % | | | % |
| Risk-free interest rate | | % | | | % | | | % |
| Expected life (in years) | | | | | |
| Weighted average estimated fair value | $ | | $ | | $ |
Note 11
million, $ million and $ million, respectively.Defined Benefit Pension Plans of Foreign Subsidiaries and Other Postretirement Benefits
Several of our 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. We deposit funds for certain of these plans with insurance companies, pension trustees, government-managed accounts, and/or accrue the expense for the unfunded portion of the benefit obligation on our Consolidated Financial Statements. Our practice is to fund the various pension plans in amounts sufficient to meet the minimum requirements as 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 the qualified plan assets. The differences between the aggregate projected benefit obligations and aggregate plan assets of these plans have been recorded as liabilities by us and are included in other liabilities and accrued expenses in the Consolidated Balance Sheets. The net funded status and periodic benefit cost were not material for fiscal 2024, 2023 and 2022.
Our investment strategy for our 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 our international pension committee. Our 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. We retain 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.
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.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 12
| | $ | | | | $ | | | | Foreign | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | Foreign | | | | | | | | |
| State | | | | | | | | |
| | | | | | | | |
| Deferred: | | | | | |
| U.S. | () | | | () | | | () | |
| Foreign | | | | () | | | | |
| State | () | | | () | | | () | |
| () | | | () | | | | |
| Total | $ | | | | $ | | | | $ | | |
% | | | % | | | % | |
| Effect of foreign operations taxed at various rates | () | | | () | | | () | |
Changes in prior years’ unrecognized tax benefits | | | | () | | | () | |
Resolutions of prior years’ income tax filings | () | | | () | | | () | |
| Research and other tax credits | () | | | () | | | () | |
|
|
|
|
| Other | | | | | | | () | |
| Total | | % | | | % | | | % |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized.
| | $ | | | | Capitalized R&D expenses | | | | | |
| Allowance for doubtful accounts | | | | | |
| Inventory reserves and basis difference | | | | | |
| Installation and warranty reserves | | | | | |
| Intangible assets | | | | | |
| Accrued liabilities | | | | | |
| |
| Deferred revenue | | | | | |
| |
| Tax credits | | | | | |
| Deferred compensation | | | | | |
| Share-based compensation | | | | | |
| Property, plant and equipment | | | | | |
| Lease liability | | | | | |
| Other | | | | | |
| Gross deferred tax assets | | | | | |
| Valuation allowance | () | | | () | |
| Total deferred tax assets | | | | | |
| Deferred tax liabilities: | | | |
| |
| Right of use assets | () | | | () | |
| |
| Undistributed foreign earnings | () | | | () | |
| |
| |
| Total deferred tax liabilities | () | | | () | |
| Net deferred tax assets | $ | | | | $ | | |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | | | | Increases | | | | | | | | |
|
| Ending balance | $ | | | | $ | | | | $ | | |
At October 27, 2024, we have state research and development tax credit carryforwards of $ million, including $ million of credits that are carried over until exhausted and $ million that are carried over for years and begin to expire in fiscal 2034. It is more likely than not that all tax credit carryforwards, net of valuation allowance, will be utilized.
We maintain liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored based on the best information available. Gross unrecognized tax benefits are classified as non-current income taxes payable or as a reduction in deferred tax assets.
| | $ | | | | $ | | | |
| Settlements with tax authorities | | | | | | | () | |
|
| Increases in tax positions for current year | | | | | | | | |
| Increases in tax positions for prior years | | | | | | | | |
| Decreases in tax positions for prior years | () | | | () | | | () | |
| Ending balance of gross unrecognized tax benefits | $ | | | | $ | | | | $ | | |
Tax expense for interest and penalties on unrecognized tax benefits for fiscal 2024, 2023 and 2022 was $ million, $ million and $ million, respectively. The income tax liability for interest and penalties for fiscal 2024, 2023 and 2022 was $ million, $ million and $ million, respectively, and was classified as non-current income taxes payable.
Included in the balance of unrecognized tax benefits for fiscal 2024, 2023 and 2022 are $ million, $ million, and $ million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
Our tax returns remain subject to examination by taxing authorities. These include U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2011 and later years.
The timing of the resolution of income tax examinations, as well as the amounts and timing of various tax payments that may be part of the settlement process, is highly uncertain. This could cause fluctuations in our financial condition and results of operations. We continue to have ongoing negotiations with various taxing authorities throughout the year, and evaluate all domestic and foreign tax audit issues in the aggregate, along with the expiration of applicable statutes of limitations.
million in the next 12 months as a result of the resolution of tax matters or the lapse of statute of limitations.
Note 13
million. We have not recorded any liability in connection with these guarantee agreements beyond that required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee agreements.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Legal Matters
From time to time, we receive notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions by us in connection with claims made against them. In addition, from time to time, we receive notification from third parties claiming that we may be or are infringing or misusing their intellectual property or other rights. We also are subject to various legal proceedings, government investigations or inquiries, and claims, both asserted and unasserted, that arise in the ordinary course of business. These matters are subject to uncertainties, and we cannot predict the outcome of these matters, or governmental inquiries or proceedings that may occur. Although the outcome of the above-described matters, claims and proceedings cannot be predicted with certainty, we do not believe at this time that any of the above-described matters will have a material effect on our consolidated financial condition or results of operations.
Since 2022, we have received multiple subpoenas from government authorities requesting information relating to certain China customer shipments and export controls compliance, including from the U.S. Department of Justice, the U.S. Commerce Department Bureau of Industry and Security, and the U.S. Securities and Exchange Commission. We also have received subpoenas from the U.S. Department of Justice requesting information related to certain federal award applications and information submitted to the federal government. We are cooperating fully with the U.S. government in these matters. We have continued to receive related subpoenas, as well as requests for information, and may in the future receive additional related subpoenas and requests for information from such or other government authorities. Any such matters are subject to uncertainties, and we cannot predict the outcome, nor reasonably estimate a range of loss or penalties, if any, relating to these matters.
Note 14
reportable segments are: Semiconductor Systems, Applied Global Services (AGS), and Display. As defined under the accounting literature, our chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. Segment information is presented based upon our management organization structure as of October 27, 2024 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to our reportable segments.The Semiconductor Systems reportable segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation.
The AGS segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, 200mm and other equipment and factory automation software for semiconductor, display and other products.
The Display segment includes products for manufacturing liquid crystal displays (LCDs), organic light-emitting diodes (OLEDs), equipment upgrades and other display technologies for TVs, monitors, laptops, personal computers, smart phones, other consumer-oriented devices and solar energy cells.
Each operating segment is separately managed and has separate financial results that are reviewed by our chief operating decision-maker. Each reportable segment contains closely related products that are unique to the particular segment. Segment operating income is determined based upon internal performance measures used by our chief operating decision-maker. The chief operating decision-maker does not evaluate operating segments using total asset information.
We derive the segment results directly from our internal management reporting system. Effective in the first quarter of fiscal 2024, management began including share-based compensation expense in the evaluation of reportable segments' performance. Prior-year numbers have been recast to conform to the current-year presentation. The accounting policies we use to derive reportable segment results are substantially the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics including orders, net revenue and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | Applied Global Services | | | | | | | | | | | | | | | | | | | |
| Display | | | | | | | | | | | | | | | | | | | |
| Corporate and Other | | | | () | | | | | | | | | () | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | |
2023: | | | | | | | | | | | | | |
| Semiconductor Systems | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | |
| Applied Global Services | | | | | | | | | | | | | | | | | | | |
| Display | | | | | | | | | | | | | | | | | | | |
| Corporate and Other | | | | () | | | | | | | | | () | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | |
2022: | | | | | | | | | | | | | |
| Semiconductor Systems | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | |
| Applied Global Services | | | | | | | | | | | | | | | | | | | |
| Display | | | | | | | | | | | | | | | | | | | |
| Corporate and Other | | | | () | | | | | | | | | () | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | Semiconductor Systems and Display revenues are recognized at a point in time. AGS revenue is recognized at a point in time for tangible goods such as spare parts and equipment, and over time for service agreements. The majority of revenue recognized over time is recognized within 12 months of the contract inception.
| | $ | | |
| Applied Global Services | | | | | |
| Display | | | | | |
| Corporate and Other | | | | | |
| $ | | | | $ | | |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
% | | | % | | | % | | Dynamic random-access memory (DRAM) | | % | | | % | | | % |
| Flash memory | | % | | | % | | | % |
|
| | % | | | % | | | % |
| | $ | | | | $ | | | | Unallocated cost of products sold and expenses | () | | | () | | | () | |
|
| Severance and related charges | | | | | | | | |
|
| Total | $ | () | | | $ | () | | | $ | () | |
For geographical reporting, revenue by geographic location is determined by the location of customers’ facilities to which products were shipped and services were performed. Long-lived assets consist primarily of property, plant and equipment and right-of-use assets and are attributed to the geographic location in which they are located.
| | $ | | | | $ | | | | China | | | | | | | | |
| Korea | | | | | | | | |
| Taiwan | | | | | | | | |
| Japan | | | | | | | | |
| Europe | | | | | | | | |
| Southeast Asia | | | | | | | | |
| Total outside United States | | | | | | | | |
| Consolidated total | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | |
| October 27,
2024 | | October 29,
2023 |
| | | |
| | (In millions) |
| Long-lived assets: | | | |
| United States | $ | | | | $ | | |
| China | | | | | |
| Korea | | | | | |
| Taiwan | | | | | |
| Japan | | | | | |
| Europe | | | | | |
| Southeast Asia | | | | | |
| Total outside United States | | | | | |
| Consolidated total | $ | | | | $ | | |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
% | | | % | | | % | | Taiwan Semiconductor Manufacturing Company Limited | | % | | | % | | | % |
|
| Intel Corporation | * | | * | | | % |
___________________________
*Less than 10%
INDEX TO EXHIBITS
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K:
| | | | | | | | | | | | | | | | | |
| | Incorporated by Reference |
| Exhibit No. | Description | Form | File No. | Exhibit No. | Filing Date |
| 3.1 | | 8-K | 000-06920 | 3.1 | 3/16/2020 |
| 3.2 | | 8-K | 000-06920 | 3.2 | 12/13/2023 |
| 4.1 | | 8-K | 000-06920 | 4.1 | 6/10/2011 |
| 4.2 | | 8-K | 000-06920 | 4.2 | 6/10/2011 |
| 4.3 | | 8-K | 000-06920 | 4.1 | 9/24/2015 |
| 4.4 | | 8-K | 000-06920 | 4.1 | 3/31/2017 |
| 4.5 | | 8-K | 000-06920 | 4.1 | 5/29/2020 |
| 4.6 | | 10-K | 000-06920 | 4.6 | 12/15/2023 |
| 4.7 | | 8-K | 000-06920 | 4.1 | 6/11/2024 |
| 4.8 | | 8-K | 000-06920 | 4.2 | 6/11/2024 |
| 10.1 | | 10-Q | 000-06920 | 10.1 | 5/23/2024 |
| 10.2 | | S-8 | 333-45011 | 4.1 | 1/27/1998 |
10.3* | | 10-Q | 000-06920 | 10.58 | 3/3/2009 |
| 10.4 | | 10-K | 000-06920 | 10.48 | 12/12/2008 |
| 10.5 | | 10-K | 000-06920 | 10.49 | 12/12/2008 |
10.6* | | 10-Q | 000-06920 | 10.3 | 5/27/2021 |
10.7* | | 10-Q | 000-06920 | 10.4 | 5/27/2021 |
10.8* | | 10-Q | 000-06920 | 10.3 | 8/23/2012 |
10.9* | | 8-K | 000-06920 | 10.2 | 3/16/2021 |
10.10* | | 10-Q | 000-06920 | 10.2 | 8/22/2013 |
| | | | | | | | | | | | | | | | | |
| | Incorporated by Reference |
| Exhibit No. | Description | Form | File No. | Exhibit No. | Filing Date |
10.11* | | 10-Q | 000-06920 | 10.4 | 8/22/2013 |
10.12* | | 10-Q | 000-06920 | 10.2 | 2/20/2014 |
10.13* | | 10-K | 000-06920 | 10.13 | 12/15/2023 |
| 10.14* | | 10-K | 000-06920 | 10.15 | 12/16/2022 |
10.15* | | 8-K | 000-06920 | 10.1 | 3/16/2021 |
10.16* | | 10-K | 000-06920 | 10.16 | 12/15/2023 |
| 10.17* | | 10-K | 000-06920 | 10.17 | 12/15/2023 |
| 10.18* | | 10-K | 000-06920 | 10.18 | 12/15/2023 |
| 10.19* | | 10-Q | 000-06920 | 10.1 | 5/26/2022 |
| 10.2 | | 8-K | 000-06920 | 10.1 | 2/21/2020 |
| 10.21 | Amendment No. 1, dated as of July 27, 2022, to the Credit Agreement, dated as of February 21, 2020, among Applied Materials, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and other lenders named therein | 10-Q | 000-06920 | 10.1 | 8/25/2022 |
| 10.22 | Extension Agreement, dated as of February 21, 2023, to Credit Agreement, dated as of February 21, 2020 (as amended by that certain Amendment No. 1 to Credit Agreement, dated as of July 27, 2022), among Applied Materials, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent | 10-Q | 000-06920 | 10.1 | 2/23/2023 |
| 10.23 | | 10-Q | 000-06920 | 10.1 | 2/27/2024 |
| 19.1 | | | | | |
| 21 | | | | | |
| 23 | | | | | |
| 24 | | | | | |
| 31.1 | | | | | |
| 31.2 | | | | | |
| 32.1 | | | | | |
| 32.2 | | | | | |
| 97.1 | | 10-K | 000-06920 | 97.1 | 12/15/2023 |
| 101.INS | XBRL Instance Document‡ | | | | |
| | | | | | | | | | | | | | | | | |
| | Incorporated by Reference |
| Exhibit No. | Description | Form | File No. | Exhibit No. | Filing Date |
| 101.SCH | XBRL Taxonomy Extension Schema Document‡ | | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document‡ | | | | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document‡ | | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document‡ | | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document‡ | | | | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL) | | | | |
| | | | | |
| * | Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3). |
| † | 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.
| | | | | |
| APPLIED MATERIALS, INC. |
| |
| By: | /s/ GARY E. DICKERSON |
| Gary E. Dickerson |
| President, Chief Executive Officer |
Dated: December 13, 2024
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary E. Dickerson, Brice Hill and Teri Little, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
******
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.
| | | | | | | | |
| | Title | Date |
| /s/ GARY E. DICKERSON | President, Chief Executive Officer and Director (Principal Executive Officer) | December 13, 2024 |
| Gary E. Dickerson | |
| /s/ BRICE HILL | Senior Vice President, Chief Financial Officer
(Principal Financial Officer) | December 13, 2024 |
| Brice Hill | |
| /s/ ADAM SANDERS | Vice President,
Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer) | December 13, 2024 |
| Adam Sanders | |
|
| | |
/S/ THOMAS J. IANNOTTI | | |
| Thomas J. Iannotti | Chairman of the Board | December 13, 2024 |
/S/ RANI BORKAR | | |
| Rani Borkar | Director | December 13, 2024 |
/S/ JUDY BRUNER | | |
| Judy Bruner | Director | December 13, 2024 |
/S/ XUN CHEN | | |
| Xun Chen | Director | December 13, 2024 |
/S/ AART J. DE GEUS | | |
| Aart J. de Geus | Director | December 13, 2024 |
/S/ ALEXANDER A. KARSNER | | |
| Alexander A. Karsner | Director | December 13, 2024 |
|
|
/S/ KEVIN P. MARCH | | |
| Kevin P. March | Director | December 13, 2024 |
| /s/ YVONNE MCGILL | | |
| Yvonne McGill | Director | December 13, 2024 |
| /s/ SCOTT A. MCGREGOR | | |
| Scott A. McGregor | Director | December 13, 2024 |
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