Employee Benefit Plans

12 Months Ended

Oct. 28, 2012

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

Employee Benefit Plans

Employee Bonus Plans

Applied has various employee bonus plans. A discretionary bonus plan provides for the distribution of a percentage of pre-tax income to Applied employees who are not participants in other performance-based incentive plans, up to a maximum percentage of eligible compensation. Other plans provide for bonuses to Applied’s executives and other key contributors based on the achievement of profitability and/or other specified performance criteria. Charges under these plans were $271 million for fiscal 2012, $319 million for fiscal 2011, and $320 million charges for fiscal 2010.

Employee Savings and Retirement Plan

Applied’s Employee Savings and Retirement Plan (401(k) Plan) is qualified under Sections 401(a) and (k) of the Internal Revenue Code. Eligible employees may make salary deferral and catch-up contributions under the 401(k) Plan on a pre-tax basis. Applied matches a percentage of each participant’s salary deferral contributions with cash contributions. Plan participants who were employed by Applied or any of its affiliates on or after January 1, 2010 became 100% vested in their Applied matching contribution account balances. Participants may direct that funds held in their 401(k) Plan accounts, including any Applied matching contributions, be invested in any of the diversified investment funds available under the 401(k) Plan or within certain limits in the Applied Materials, Inc. Common Stock Fund (Stock Fund), which invests solely in shares of Applied common stock. The Stock Fund is a non-leveraged employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Internal Revenue Code) and, as a result, participants have the option of specifying that any future cash dividends paid on shares held in the Stock Fund be either reinvested in the Stock Fund or distributed directly to them in cash no later than 90 days after the calendar year for which the dividends were paid. Applied’s matching contributions under this plan were approximately $27 million for each of fiscal 2012 and fiscal 2011, and $25 million, net of $1 million in forfeitures, for fiscal 2010.

In addition, Applied has a defined contribution retirement plan covering all U.S. Varian employees. Generally, Applied makes a guaranteed contribution, and in some years a discretionary contribution, to each participant's account, typically based on fiscal year earnings achievement and calculated as a percentage of the participant's base pay. Participants are entitled, upon termination or retirement, to their portion of the retirement fund assets, which are held by a third-party custodian. Applied’s matching contributions under this plan were approximately $10 million for fiscal 2012.

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

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

Applied also has a U.S. post-retirement plan that provides certain medical and vision benefits to eligible retirees who are at least age 55 and whose years of service plus their age equals at least 65 at their date of retirement. An eligible retiree also may elect coverage for an eligible spouse or domestic partner who is not eligible for Medicare. Coverage under the plan generally ends for both the retiree and spouse or domestic partner upon becoming eligible for Medicare. Applied’s liability under this post-retirement plan, which was included in other long-term liabilities in the Consolidated Balance Sheets, was $28 million at October 28, 2012 and $13 million at October 30, 2011. The balance at October 28, 2012 includes an allowance for the potential obligations in connection with the recently announced voluntary retirement program associated with the 2012 Global Restructuring Plan.

A summary of the changes in benefit obligations and plan assets, which includes post-retirement benefits, for fiscal 2012 and 2011 is presented below.

	2012			2011
	(In millions, except percentages)
Change in projected benefit obligation
Beginning projected benefit obligation	$	303		$	309
Service cost	16			15
Interest cost	14			14
Plan participants’ contributions	1			1
Actuarial (gain) loss	96			(26		)
Curtailments, settlements and special termination benefits	(3		)	(9		)
Foreign currency exchange rate changes	(4		)	5
Benefits paid	(7		)	(8		)
Plan amendments and business combinations	18			2
Ending projected benefit obligation	$	434		$	303
Ending accumulated benefit obligation	$	395		$	273
Range of assumptions to determine benefit obligations
Discount rate	1.3% - 4.7%			1.7% - 6.5%
Rate of compensation increase	2.0% - 8.0%			2.0% - 5.0%
Change in plan assets
Beginning fair value of plan assets	$	183		$	162
Return on plan assets	14			3
Employer contributions	31			26
Plan participants’ contributions	1			1
Foreign currency exchange rate changes	(4		)	2
Divestitures, settlements and business combinations	(4		)	(3		)
Benefits paid	(7		)	(8		)
Ending fair value of plan assets	$	214		$	183
Funded status	$	(220	)	$	(120	)
Amounts recognized in the consolidated balance sheets
Noncurrent asset	$	5		$	13
Current liability	(4		)	(3		)
Noncurrent liability	(221		)	(130		)
Total	$	(220	)	$	(120	)
Estimated amortization from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year
Actuarial loss	$	6		$	1
Prior service cost (credit)	(1		)	—
Total	$	5		$	1
Amounts recognized in accumulated other comprehensive loss
Net actuarial loss	$	117		$	27
Prior service cost (credit)	(3		)	(4		)
Total	$	114		$	23
Plans with projected benefit obligations in excess of plan assets
Projected benefit obligation	$	428		$	259
Fair value of plan assets	$	202		$	126
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation	$	389		$	225
Fair value of plan assets	$	202		$	116

	2012		2011
Plan assets — allocation
Equity securities	37	%	37	%
Debt securities	33	%	28	%
Insurance contracts	23	%	26	%
Commingled funds	5	%	5	%
Cash	2	%	4	%

The following table presents a summary of the ending fair value of the plan assets:

	October 28, 2012								October 30, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In millions)
Equity securities	$	79	$	—	$	—	$	79	$	67	$	—	$	—	$	67
Debt securities	70		—		—		70		51		—		—		51
Insurance contracts	—		—		49		49		—		—		48		48
Commingled funds	—		12		—		12		—		10		—		10
Cash	4		—		—		4		7		—		—		7
Total	$	153	$	12	$	49	$	214	$	125	$	10	$	48	$	183

The following table presents the activity in Level 3 instruments during fiscal 2012 and 2011:

	2012			2011
	(In millions)
Balance, beginning of year	$	48		$	44
Actual return on plan assets:
Relating to assets still held at reporting date	1			1
Purchases, sales, settlements, net	3			2
Currency impact	(3		)	1
Balance, end of year	$	49		$	48

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

A summary of the components of net periodic benefit costs and the weighted average assumptions used for net periodic benefit cost and benefit obligation calculations for fiscal 2012, 2011 and 2010 is presented below.

	2012			2011			2010
	(In millions, except percentages)
Components of net periodic benefit cost
Service cost	$	16		$	15		$	13
Interest cost	14			14			13
Expected return on plan assets	(11		)	(11		)	(7		)
Amortization of actuarial loss and prior service credit	—			2			1
Settlement and curtailment loss (gain)	6			(2		)	1
Net periodic benefit cost	$	25		$	18		$	21
Weighted average assumptions
Discount rate	4.53		%	4.33		%	4.76		%
Expected long-term return on assets	5.91		%	6.39		%	6.92		%
Rate of compensation increase	3.09		%	3.42		%	3.30		%

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

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

	Benefit Payments
	(In millions)
2013	$	12
2014	13
2015	14
2016	14
2017	15
2018-2022	87
	$	155

Company contributions to these plans for fiscal 2013 are expected to be approximately $17 million.

Executive Deferred Compensation Plans

Applied sponsors two unfunded deferred compensation plans, the Executive Deferred Compensation Plan (Predecessor EDCP) and the 2005 Executive Deferred Compensation Plan (2005 EDCP), under which certain employees may elect to defer a portion of their following year’s eligible earnings. The Predecessor EDCP was frozen as of December 31, 2004 such that no new deferrals could be made under the plan after that date and the plan would qualify for “grandfather” relief under Section 409A of the Internal Revenue Code. The Predecessor EDCP participant accounts continue to be maintained under the plan and credited with deemed interest. The 2005 EDCP was implemented by Applied effective as of January 1, 2005 and is intended to comply with the requirements of Section 409A of the Internal Revenue Code. Amounts payable, including accrued deemed interest, totaled $50 million at October 28, 2012 and $59 million at October 30, 2011, which were included in other long-term liabilities in the Consolidated Balance Sheets.

In addition, Applied also sponsors a non-qualified deferred compensation plan as a result of the acquisition of Varian. At October 28, 2012, the liability related to this plan totaled $7 million, of which $6 million was included in other long-term liabilities in the Consolidated Balance Sheets.