Restructuring Charges and Asset Impairments

Applied records restructuring charges and asset impairments associated with management-approved restructuring plans to either reorganize one or more of Applied's business segments, or to remove duplicative headcount or infrastructure associated with business acquisitions.

On May 10, 2012, Applied announced a plan to restructure its Energy and Environmental Solutions segment in light of challenging industry conditions affecting the solar photovoltaic and light-emitting diode (LED) equipment markets. As part of the EES Restructuring Plan, Applied expects to relocate manufacturing, business operations and customer support functions of its precision wafering systems business and cease LED development activities. The EES Restructuring Plan also impacts certain LED support activities in the Applied Global Services segment. The total estimated pre-tax cost of implementing this plan is expected to be in the range of approximately $70 million to $100 million, which will be incurred over a period of 12 to 18 months beginning in the third quarter of fiscal 2012, and will be reported primarily in the Energy and Environmental Solutions segment. This estimate consists of: (i) up to $30 million in fixed asset impairment charges; (ii) up to $15 million of inventory-related charges; (iii) up to $15 million in charges arising from lease terminations and other obligations, and (iv) up to $40 million in severance and other employee-related costs. The EES Restructuring Plan will impact up to approximately 250 positions globally.

During the third quarter of fiscal 2012, Applied recognized $9 million of severance and other employee-related costs in connection with the integration of Varian. These costs were reported in the Silicon Systems Group and Applied Global Services segments.

The following table summarizes the major components of restructuring charges and asset impairments:



	Three and Nine Months Ended July 29, 2012
	(In millions)
EES Restructuring Plan
Severance and other employee-related costs	$	24
Asset impairments	11
Varian Integration
Severance and other employee-related costs	9
Total	$	44

In addition to the above, inventory-related charges of $13 million related to the EES Restructuring Plan were recorded in cost of products sold during the three months ended July 29, 2012 and reported in the Energy and Environmental Solutions segment.

Restructuring charges and asset impairments by segment were as follows:



	Three and Nine Months Ended July 29, 2012
	(In millions)
Silicon Systems Group	$	1
Applied Global Services	11
Energy and Environmental Solutions	32
Total	$	44

Changes in restructuring reserves related to the restructuring plans described above for the three months ended July 29, 2012 were as follows:



	Severance and other employee-related costs
	(In millions)
Balance, April 29, 2012	$	—
Provision for restructuring	33
Consumption of reserves	(6		)
Foreign exchange	(1		)
Balance, July 29, 2012	$	26

Certain severance and other employee-related costs have not been recognized as these costs are subject to negotiations with employees and employee representative bodies, and, as such, are not currently estimable.

Results for the nine months ended July 31, 2011 included favorable adjustments of $36 million related to a restructuring plan announced on July 21, 2010, $19 million related to a restructuring plan announced on November 11, 2009, and $5 million related to a restructuring plan announced on November 12, 2008, partially offset by asset impairment charges of $30 million primarily related to certain fixed and intangible assets.