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.

The following table summarizes major components of the restructuring and asset impairment charges during the three and nine months ended July 28, 2013:



	Three Months Ended				Nine Months Ended
	July 28, 2013		July 29, 2012		July 28, 2013		July 29, 2012

	(In millions)
2012 Global Restructuring Plan
Severance and other employee-related costs¹	$	4	$	—	$	12	$	—
2012 EES Restructuring Plan
Severance and other employee-related costs²	3		24		5		24
Contract cancellation and other costs	1		—		3		—
Asset impairments	6		11		11		11
Others
Severance and other employee-related costs	—		9		2		9
	$	14	$	44	$	33	$	44

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¹ Includes share-based compensation expense which was recorded in additional paid-in capital.

² Includes post-retirement benefit expense which was recorded in accumulated other comprehensive loss.

Restructuring and asset impairment charges were recorded as follows:



	Three Months Ended				Nine Months Ended
	July 28, 2013		July 29, 2012		July 28, 2013		July 29, 2012

	(In millions)
Silicon Systems Group	$	—	$	1	$	1	$	1
Applied Global Services	—		11		2		11
Energy and Environmental Solutions	10		32		18		32
Corporate Unallocated	4		—		12		—
Total	$	14	$	44	$	33	$	44

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 were 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. 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.

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 $120 million to $160 million (including costs incurred to date of $118 million discussed below). Applied expected to substantially complete this plan by the end of the third quarter of fiscal 2013. Applied has extended this plan and expects to substantially complete it by the end of the first quarter of fiscal 2014.

During the third quarter and first nine months of fiscal 2013, Applied recognized $4 million and $12 million, respectively, of employee-related costs in connection with the 2012 Global Restructuring Plan. These costs were not allocated to the segments. Applied has incurred aggregate pre-tax restructuring charges comprised of severance and other termination benefits of $118 million under this plan.

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 part of this plan, Applied relocated certain manufacturing, business operations and customer support functions of its precision wafering systems business and ceased LED development activities. This 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 up 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 has impacted approximately 250 positions globally. As the Energy and Environmental Solutions segment continues to consolidate infrastructure and reduce its operating expenses, Applied expects approximately 150 additional positions to be impacted globally. No changes in the estimated pre-tax cost of the implementation of this plan are anticipated. During the third quarter and first nine months of fiscal 2013, Applied recognized $10 million and $19 million, respectively, of restructuring and asset impairment charges in connection with this plan, which were primarily reported in the Energy and Environmental Solutions segment. As of July 28, 2013, total costs incurred in implementing this plan were $80 million, of which $13 million were inventory-related charges.

Integration of Varian Semiconductor Associates, Inc. (Varian)

During the first nine months of fiscal 2013, Applied recognized $2 million of severance and other employee-related costs in connection with the integration of Varian, acquired in the first quarter of fiscal 2012, which costs were reported in the Silicon Systems Group and Applied Global Services segments. As of July 28, 2013, the remaining severance accrual associated with restructuring reserves under this program was $2 million.

Restructuring Reserves

Changes in restructuring reserves during the nine months ended July 28, 2013 were as follows:



	2012 Global Restructuring Plan			2012 EES 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			Contract Cancellation and Other Costs		Total

	(In millions)
Balance, October 28, 2012	$	106		$	16		$	1		$	5		$	5	$	133
Provision for restructuring reserves	8			4			3			2			—		17
Consumption of reserves	(106		)	(16		)	(2		)	(5		)	—		(129		)
Reclassification of restructuring reserves¹	(4		)	—			—			—			—		(4		)
Balance, July 28, 2013	$	4		4			2			$	2		$	5	$	17

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¹ Includes reclassification of post-retirement benefit liability to other liabilities.