Restructuring Charges and Asset Impairments

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

Global Restructuring Plan

On October 3, 2012, Applied announced a restructuring plan (the 2012 Global Restructuring Plan) to realign its global workforce and enhance its ability to invest for growth. Under this plan, Applied implemented a voluntary retirement program and other workforce reduction actions that are expected to affect approximately 900 to 1,300 positions, or 6 percent to 9 percent of its global workforce. The voluntary retirement program was available to certain U.S. employees who met minimum age and length of service requirements, as well as other business-specific criteria. In addition, Applied implemented other workforce reduction actions globally across multiple business segments and functions, the extent of which depended on the number of employees who participated in the voluntary retirement program and other considerations. Applied expects to substantially complete this plan by the end of the third quarter of fiscal 2013, depending on local legal requirements.

In connection with the 2012 Global Restructuring Plan, Applied expects to incur aggregate pre-tax restructuring charges comprised of severance and other termination benefits in the range of $180 million to $230 million, substantially all of which will be paid in cash. Applied began recording these restructuring charges in the fourth quarter of fiscal 2012 and expects that the remainder will be recorded during fiscal 2013.

During the fourth quarter of fiscal 2012, Applied recognized $106 million of severance and other employee-related costs in connection with the 2012 Global Restructuring Plan, all of which remain outstanding as of October 28, 2012. These costs were not allocated to the segments and were based on an estimated number of employees who are impacted by the workforce reduction. Incremental charges will coincide with the acceptances of the voluntary retirement plan in the first quarter of fiscal 2013.

Due to the nature of this plan, the costs and charges incurred are subject to subsequent adjustments due to multiple assumptions and estimates used, including with respect to: the number and job levels of employees who participate in the voluntary retirement program, the nature and extent of additional workforce actions required to complete this plan, and other factors.

2012 EES Restructuring Plan

On May 10, 2012, Applied announced a plan (the 2012 EES Restructuring Plan) to restructure its Energy and Environmental Solutions segment in light of challenging industry conditions affecting the solar photovoltaic and light-emitting diode (LED) equipment markets. As of October 28, 2012, as part of the 2012 EES Restructuring Plan, Applied was still in the process of relocating certain manufacturing, business operations and customer support functions of its precision wafering systems business and has ceased LED development activities. The 2012 EES Restructuring Plan also impacted 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 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 2012 EES Restructuring Plan impacted up to approximately 250 positions globally. During fiscal 2012, Applied recognized $48 million of restructuring and asset impairment charges in connection with the 2012 EES Restructuring Plan. These costs were primarily reported in the Energy and Environmental Solutions and Applied Global Services segments. As of October 28, 2012, remaining severance accrual associated with restructuring reserves under this program was $16 million.

Integration of Varian and Prior Year Restructuring Plans

During fiscal 2012, Applied also recognized $14 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. As of October 28, 2012, remaining severance accrual associated with restructuring reserves under this program was $5 million.

On July 21, 2010, Applied announced a plan (the 2010 EES Restructuring Plan) to restructure its Energy and Environmental Solutions segment, which was expected to impact between 400 to 500 positions globally. During fiscal 2011, as a result of changes in Applied’s operating environment and business requirements, Applied revised its workforce reduction under this program to approximately 200 positions and recorded a favorable adjustment of $36 million. During fiscal 2010, Applied incurred employee severance charges of $45 million associated with this program. As of October 28, 2012, the 2010 EES Restructuring Plan was complete.

On November 11, 2009, Applied announced a restructuring program (the 2010 Global Restructuring Plan) to reduce its global workforce as of October 25, 2009. During fiscal 2010, Applied recorded restructuring charges of $84 million under this program. The improved economic environment continued in the first half of fiscal 2011, and as a result Applied recorded an additional favorable adjustment of $19 million. As of October 28, 2012, the 2010 Global Restructuring Plan was complete.

On November 12, 2008, Applied initiated a restructuring program to reduce its global workforce by approximately 2,000 positions. During fiscal 2011, Applied favorably adjusted the severance accrual associated with this program by $5 million. As of October 28, 2012, this program was complete.

The following table summarizes major components of the restructuring and asset impairment charges during fiscal 2012, 2011 and 2010:



	2012		2011			2010

	(In millions)
2012 Global Restructuring Plan
Severance and other employee-related costs	$	106	$	—		$	—
2012 EES Restructuring Plan
Severance and other employee-related costs	27		—			—
Contract cancellation and other costs	1		—			—
Asset impairments	20		—			—
2010 EES Restructuring Plan
Severance and other employee-related costs	—		(36		)	45
Asset impairments	—		—			108
2010 Global Restructuring Plan
Severance and other employee-related costs	—		(19		)	84
Others
Severance and other employee-related costs	14		(5		)	—
Non-Restructuring Related
Asset impairments	—		30			9
	$	168	$	(30	)	$	246

In fiscal 2012, Applied incurred inventory-related charges of $13 million associated with 2012 EES Restructuring Plan that were recorded in cost of products sold and reported in the Energy and Environmental Solutions segment.

In fiscal 2011, Applied incurred impairment charges of $24 million associated with certain intangible assets and purchased technology. See Note 9, Goodwill, Purchased Technology and Other Intangible Assets. Applied also incurred asset impairment charges of $3 million related to certain fixed assets.

In fiscal 2010, Applied recorded asset impairment charges of $108 million related to the 2010 EES Restructuring Plan and $9 million to write down a facility to its estimated fair value based on prices for comparable local properties. In fiscal 2011, Applied recorded additional impairment charges of $3 million related to this facility. In addition, during fiscal 2010, inventory-related charges of $330 million were recorded in costs of products sold associated with SunFab^TM thin film solar equipment.

Restructuring and asset impairment charges were recorded as follows:



	2012		2011			2010

	(In millions)
Silicon Systems Group	$	4	$	—		$	—
Applied Global Services	15		24			—
Energy and Environmental Solutions	38		(33		)	153
Corporate Unallocated	111		(21		)	93
Total	$	168	$	(30	)	$	246

Changes in restructuring reserves for fiscal 2012, 2011, and 2010 related to other restructuring plans and facilities realignment programs initiated in prior periods were as follows:



	2012 Global Restructuring Plan		2012 EES Restructuring Plan					2010 EES Restructuring Plan			2010 Global Restructuring Plan			Others
	Severance and Other Employee-Related Costs		Severance and Other Employee-Related Costs			Contract Cancellation and Other Costs		Severance and Other Employee-Related Costs			Severance and Other Employee-Related Costs			Severance and Other Employee-Related Costs			Contract Cancellation and Other Costs		Total

	(In millions)
Balance, October 25, 2009	$	—	$	—		$	—	$	—		$	—		$	26		$	5	$	31
Provision for restructuring reserves	—		—			—		45			104			—			—		149
Consumption of reserves	—		—			—		(3		)	(33		)	(20		)	—		(56		)
Adjustment of restructuring reserves	—		—			—		—			(20		)	—			—		(20		)
Balance, October 31, 2010	$	—	$	—		$	—	$	42		$	51		$	6		$	5	$	104
Consumption of reserves	—		—			—		(5		)	(27		)	(1		)	—		(33		)
Adjustment of restructuring reserves	—		—			—		(36		)	(19		)	(5		)	—		(60		)
Balance, October 30, 2011	$	—	$	—		$	—	$	1		$	5		$	—		$	5	$	11
Provision for restructuring reserves	106		27			1		—			—			14			—		148
Consumption of reserves	—		(11		)	—		(1		)	(5		)	(9		)	—		(26		)
Balance, October 28, 2012	$	106	16			1		—			—			$	5		$	5	$	133