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 has been identified as the President and Chief Executive Officer, who reviews 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 27, 2013 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 actions 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.

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 deposition equipment for flexible electronics and other applications.

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.

With the acquisition of Varian, Applied acquired ion implantation technology for semiconductor as well as for c-Si solar cell manufacturing, which was recorded under the Silicon Systems Group segment in fiscal 2012. In fiscal 2013, Applied began marketing the solar implant products commercially through its Energy and Environmental Solutions segment. Accordingly, effective in the first quarter of fiscal 2013, Applied accounts for its solar implant products under the Energy and Environmental Solutions segment. The effect of the solar implant products was not material to the operations of either the Silicon Systems Group or Energy and Environmental Solutions segments.

Information for each reportable segment as of October 27, 2013, October 28, 2012 and October 30, 2011 and for the fiscal years then ended, is as follows:



	Net Sales		Operating Income (Loss)			Depreciation/ Amortization		Capital Expenditures		Segment Assets

	(In millions)
2013:
Silicon Systems Group	$	4,775	$	876		$	260	$	118	$	5,525
Applied Global Services	2,023		436			13		7		1,958
Display	538		74			8		6		293
Energy and Environmental Solutions	173		(433		)	22		1		183
Total Segment	$	7,509	$	953		$	303	$	132	$	7,959
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

Operating results for fiscal 2013, 2012 and 2011 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 2013, 2012 and 2011 are as follows:



	2013			2012			2011

	(In millions)
Total segment operating income	$	953		$	1,102		$	2,846
Corporate and unallocated costs	(490		)	(580		)	(496		)
Restructuring charges and asset impairments	(35		)	(111		)	21
Gain on sale of facility	4			—			27
Income from operations	$	432		$	411		$	2,398

Corporate and unallocated costs for fiscal 2013 and fiscal 2012 included deal costs and other acquisition-related costs of $17 million and $45 million, respectively.

Reconciliations of depreciation and amortization expense to Applied consolidated totals for fiscal 2013, 2012 and 2011 are as follows:



	2013		2012		2011

	(In millions)
Total segment depreciation and amortization	$	303	$	319	$	106
Depreciation on shared facilities and information technology assets	107		103		140
Consolidated depreciation and amortization	$	410	$	422	$	246

Reconciliations of capital expenditures to Applied consolidated totals for fiscal 2013, 2012 and 2011 are as follows:



	2013		2012		2011

	(In millions)
Total segment capital expenditures	$	132	$	86	$	113
Shared facilities and information technology assets	65		76		96
Consolidated capital expenditures	$	197	$	162	$	209

Reconciliations of segment assets to Applied consolidated totals as of October 27, 2013, and October 28, 2012 are as follows:



	October 27, 2013			October 28, 2012

	(In millions)
Total segment assets	$	7,959		$	7,932
Cash and investments	2,896			2,992
Allowance for bad debts	(74		)	(87		)
Deferred income taxes	376			420
Other current assets	203			98
Common property, plant and equipment	541			588
Other assets	142			159
Consolidated total assets	$	12,043		$	12,102

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)
2013:
United States	$	1,473	$	620
Taiwan	2,640		37
China	787		65
Korea	924		8
Japan	685		4
Europe	680		99
Southeast Asia	320		81
Total outside United States	6,036		294
Consolidated total	$	7,509	$	914
2012:
United States	$	1,749	$	666
Taiwan	2,411		36
China	783		74
Korea	1,897		9
Japan	704		6
Europe	863		110
Southeast Asia	312		87
Total outside United States	6,970		322
Consolidated total	$	8,719	$	988
2011:
United States	$	1,963	$	623
Taiwan	2,093		33
China	2,574		81
Korea	1,263		8
Japan	912		7
Europe	1,120		128
Southeast Asia	592		71
Total outside United States	8,554		328
Consolidated total	$	10,517	$	951

The following companies accounted for at least 10 percent of Applied’s net sales in fiscal 2013, 2012, and/or 2011, which were for products in multiple reportable segments.



	2013		2012		2011
Taiwan Semiconductor Manufacturing Company Limited	27	%	16	%	10	%
Samsung Electronics Co., Ltd.	13	%	20	%	12	%
Intel Corporation	*		*		10	%

_____________________________


*	Less than 10%.