Industry Segment Operations

12 Months Ended

Oct. 25, 2015

Segment Reporting [Abstract]

Industry Segment Operations

Industry Segment Operations

Applied’s four reportable segments remain Silicon Systems, 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.

During the third quarter of fiscal 2015, Applied implemented a new management structure, which resulted in changes in Applied’s reporting units. Applied determined its reporting units by first identifying its operating segments, and then assessing whether components of these operating segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. Applied aggregates reporting units within an operating segment that have similar economic characteristics and are similar in nature of their products and services, production processes, type or class of customers, distribution methods and operational environment. Applied identified three reporting units, which include the Transistor and Interconnect Group, Patterning and Packaging Group, and Imaging and Process Control Group, which combine to form the Silicon Systems reporting segment. The new management structure did not affect Applied Global Services, Display and Energy and Environmental Solutions reporting segments.

Each operating 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. Future changes to this internal financial structure may result in changes to Applied’s reportable segments.

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 reportable 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 liquid crystal displays (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, as well as high throughput roll-to-roll deposition equipment for flexible electronics and other applications.

Information for each reportable segment for and as of the end of each fiscal year is as follows:

	Net Sales		Operating Income  (Loss)			Depreciation/ Amortization		Capital Expenditures		Segment Assets
	(In millions)
2015:
Silicon Systems	$	6,135	$	1,410		$	268	$	115	$	5,464
Applied Global Services	2,531		664			10		12		2,254
Display	780		156			5		13		456
Energy and Environmental Solutions	213		(61		)	7		3		118
Total Segment	$	9,659	$	2,169		$	290	$	143	$	8,292
2014:
Silicon Systems	$	5,978	$	1,391		$	268	$	134	$	5,508
Applied Global Services	2,200		573			11		7		2,042
Display	615		129			5		4		423
Energy and Environmental Solutions	279		15			9		1		173
Total Segment	$	9,072	$	2,108		$	293	$	146	$	8,146
2013:
Silicon Systems	$	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

Operating results for fiscal 2015, 2014 and 2013 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 each fiscal year are as follows:

	2015			2014			2013
	(In millions)
Total segment operating income	$	2,169		$	2,108		$	953
Corporate and unallocated costs	(515		)	(540		)	(462		)
Restructuring charges and asset impairments	—			(5		)	(35		)
Certain items associated with terminated business combination	(50		)	(73		)	(17		)
Gain (loss) on derivatives associated with terminated business combination	89			30			(7		)
Income from operations	$	1,693		$	1,520		$	432

Reconciliations of depreciation and amortization expense to Applied consolidated totals for each fiscal year are as follows:

	2015		2014		2013
	(In millions)
Total segment depreciation and amortization	$	290	$	293	$	303
Depreciation on shared facilities and information technology assets	81		82		107
Consolidated depreciation and amortization	$	371	$	375	$	410

Reconciliations of capital expenditures to Applied consolidated totals for each fiscal year are as follows:

	2015		2014		2013
	(In millions)
Total segment capital expenditures	$	143	$	146	$	132
Shared facilities and information technology assets	72		95		65
Consolidated capital expenditures	$	215	$	241	$	197

Reconciliations of segment assets to Applied consolidated totals for each fiscal year are as follows:

	October 25, 2015			October 26, 2014
	(In millions)
Total segment assets	$	8,292		$	8,146
Cash and investments	5,911			4,060
Allowance for bad debts	(49		)	(58		)
Deferred income taxes	458			299
Other current assets	148			147
Common property, plant and equipment	514			522
Other assets	34			58
Consolidated total assets	$	15,308		$	13,174

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 for and as of each fiscal year were as follows:

	2015		2014		2013
	(In millions)
Net sales:
United States	$	1,630	$	1,966	$	1,473
Taiwan	2,600		2,702		2,640
China	1,623		1,608		787
Korea	1,654		965		924
Japan	1,078		817		685
Europe	642		658		680
Southeast Asia	432		356		320
Total outside United States	8,029		7,106		6,036
Consolidated total	$	9,659	$	9,072	$	7,509

	October 25, 2015		October 26, 2014
	(In millions)
Long-lived assets:
United States	$	705	$	636
Taiwan	39		34
China	46		61
Korea	12		12
Japan	6		5
Europe	75		99
Southeast Asia	73		77
Total outside United States	251		288
Consolidated total	$	956	$	924

The following customers accounted for at least 10 percent of Applied’s net sales in each fiscal year, which were for products in multiple reportable segments:

	2015		2014		2013
Samsung Electronics Co., Ltd.	18	%	12	%	13	%
Taiwan Semiconductor Manufacturing Company Limited	15	%	21	%	27	%