Industry Segment Operations

12 Months Ended

Oct. 28, 2012

Segment Reporting [Abstract]

Industry Segment Operations

Industry Segment Operations

Applied’s four reportable segments are: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions. As defined under the accounting literature, Applied’s chief operating decision-maker are both the Chief Executive Officer and the President, who review operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon Applied’s management organization structure as of October 28, 2012 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to Applied’s reportable segments.

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

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

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

In fiscal 2010, as part of the restructuring of the Energy and Environmental Solutions segment, Applied discontinued marketing of its fully-integrated SunFab production lines but continues to offer individual tools for thin film solar manufacturing to existing customers. Applied is supporting existing SunFab customers with services, upgrades and capacity increases through its Applied Global Services segment as these products are considered to have reached a particular stage in the product lifecycle. Effective in the first quarter of fiscal 2011, Applied accounts for thin film products under its Applied Global Services segment.

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

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

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

The Energy and Environmental Solutions segment includes products for fabricating solar photovoltaic cells and modules, high throughput roll-to-roll coating systems for flexible electronics and web products.

Information for each reportable segment as of October 28, 2012, October 30, 2011 and October 31, 2010 and for the fiscal years then ended, is as follows:

	Net Sales		Operating Income  (Loss)			Depreciation/ Amortization		Capital Expenditures		Segment Assets
	(In millions)
2012:
Silicon Systems Group	$	5,536	$	1,243		$	256	$	71	$	5,106
Applied Global Services	2,285		502			17		8		2,035
Display	473		25			8		1		278
Energy and Environmental Solutions	425		(668		)	38		6		513
Total Segment	$	8,719	$	1,102		$	319	$	86	$	7,932
2011:
Silicon Systems Group	$	5,415	$	1,764		$	52	$	59	$	2,036
Applied Global Services	2,413		482			13		7		1,337
Display	699		147			7		31		459
Energy and Environmental Solutions	1,990		453			34		16		1,438
Total Segment	$	10,517	$	2,846		$	106	$	113	$	5,270
2010:
Silicon Systems Group	$	5,304	$	1,892		$	66	$	39	$	2,317
Applied Global Services	1,865		337			25		5		1,285
Display	899		267			8		5		419
Energy and Environmental Solutions	1,481		(466		)	57		41		1,402
Total Segment	$	9,549	$	2,030		$	156	$	90	$	5,423

Operating results for fiscal 2012, 2011 and 2010 included restructuring charges and asset impairments as discussed in detail in Note 11, Restructuring Charges and Asset Impairments.

Reconciliations of segment operating results to Applied consolidated totals for fiscal 2012, 2011 and 2010 are as follows:

	2012			2011			2010
	(In millions)
Total segment operating income	$	1,102		$	2,846		$	2,030
Corporate and unallocated costs	(580		)	(496		)	(553		)
Restructuring charges and asset impairments	(111		)	21			(93		)
Gain on sale of facility	—			27			—
Income from operations	$	411		$	2,398		$	1,384

Corporate and unallocated costs for fiscal 2012 included deal costs and other acquisition-related costs related to the Varian acquisition of $45 million.

Reconciliations of depreciation and amortization expense to Applied consolidated totals for fiscal 2012, 2011 and 2010 are as follows:

	2012		2011		2010
	(In millions)
Total segment depreciation and amortization	$	319	$	106	$	156
Depreciation on shared facilities and information technology assets	103		140		149
Consolidated depreciation and amortization	$	422	$	246	$	305

Reconciliations of capital expenditures to Applied consolidated totals for fiscal 2012, 2011 and 2010 are as follows:

	2012		2011		2010
	(In millions)
Total segment capital expenditures	$	86	$	113	$	90
Shared facilities and information technology assets	76		96		79
Consolidated capital expenditures	$	162	$	209	$	169

Reconciliations of segment assets to Applied consolidated totals as of October 28, 2012, and October 30, 2011 are as follows:

	October 28, 2012			October 30, 2011
	(In millions)
Total segment assets	$	7,932		$	5,270
Cash and investments	2,992			7,174
Allowance for bad debts	(87		)	(73		)
Deferred income taxes	420			658
Other current assets	98			90
Common property, plant and equipment	588			620
Other assets	159			122
Consolidated total assets	$	12,102		$	13,861

For geographical reporting, revenue by geographic location is determined by the location of customers’ facilities to which products were shipped. Long-lived assets consist primarily of property, plant and equipment and equity-method investments, and are attributed to the geographic location in which they are located. Net sales and long-lived assets by geographic region were as follows:

	Net Sales		Long-lived Assets
	(In millions)
2012:
United States	$	1,749	$	666
China	783		74
Taiwan	2,411		36
Korea	1,897		9
Europe	863		110
Japan	704		6
Southeast Asia	312		87
Total outside United States	6,970		322
Consolidated total	$	8,719	$	988
2011:
United States	$	1,963	$	623
China	2,574		81
Taiwan	2,093		33
Korea	1,263		8
Europe	1,120		128
Japan	912		7
Southeast Asia	592		71
Total outside United States	8,554		328
Consolidated total	$	10,517	$	951
2010:
United States	$	1,147	$	715
China	1,557		78
Taiwan	2,750		32
Korea	1,768		5
Europe	981		95
Japan	768		5
Southeast Asia	578		65
Total outside United States	8,402		280
Consolidated total	$	9,549	$	995

The following companies accounted for at least 10 percent of Applied’s net sales in fiscal 2012, 2011, and/or 2010, which were for products in multiple reportable segments.

	2012		2011		2010
Samsung Electronics Co., Ltd.	20	%	12	%	14	%
Taiwan Semiconductor Manufacturing Company Limited	16	%	10	%	11	%
Intel Corporation	*		10	%	*

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* Less than 10%.