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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 26, 2020
or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                 
Commission File Number 000-06920
Applied Materials, Inc.
(Exact name of registrant as specified in its charter) 
Delaware94-1655526
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3050 Bowers Avenue
P.O. Box 58039
Santa Clara, California 95052-8039
(Address of principal executive offices)

(408727-5555
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $.01 per shareAMATThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes          No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes          No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer 
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes          No  
Number of shares outstanding of the issuer’s common stock as of January 26, 2020: 918,305,114




Table of Contents
APPLIED MATERIALS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 26, 2020
TABLE OF CONTENTS
 
  Page
PART I. FINANCIAL INFORMATION
Item 1:
Item 2:
Item 3:
Item 4:
PART II. OTHER INFORMATION
Item 1:
Item 1A:
Item 2:
Item 6:



Table of Contents
PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
Three Months Ended  
January 26,
2020
January 27,
2019
(Unaudited)
Net sales$4,162  $3,753  
Cost of products sold2,304  2,088  
Gross profit1,858  1,665  
Operating expenses:
Research, development and engineering552  516  
Marketing and selling135  131  
General and administrative129  110  
Total operating expenses816  757  
Income from operations1,042  908  
Interest expense59  60  
Interest and other income, net22  40  
Income before income taxes1,005  888  
Provision for income taxes113  117  
Net income$892  $771  
Earnings per share:
Basic$0.97  $0.81  
Diluted$0.96  $0.80  
Weighted average number of shares:
Basic916  957  
Diluted927  965  
See accompanying Notes to Consolidated Condensed Financial Statements.

3

Table of Contents
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Three Months Ended
January 26,
2020
January 27,
2019
(Unaudited)
Net income$892  $771  
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on available-for-sale investments2  5  
Change in unrealized net loss on derivative instruments(10) (17) 
Other comprehensive income (loss), net of tax(8) (12) 
Comprehensive income$884  $759  
See accompanying Notes to Consolidated Condensed Financial Statements.
4

Table of Contents
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
January 26,
2020
October 27,
2019
 
ASSETS
Current assets:
Cash and cash equivalents$3,424  $3,129  
Short-term investments536  489  
Accounts receivable, net2,679  2,533  
Inventories3,472  3,474  
Other current assets658  581  
Total current assets10,769  10,206  
Long-term investments1,713  1,703  
Property, plant and equipment, net1,555  1,529  
Goodwill3,399  3,399  
Purchased technology and other intangible assets, net142  156  
Deferred income taxes and other assets2,189  2,031  
Total assets$19,767  $19,024  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$600  $600  
Accounts payable and accrued expenses2,569  2,511  
Contract liabilities1,400  1,336  
Total current liabilities4,569  4,447  
Income taxes payable1,298  1,275  
Long-term debt4,714  4,713  
Other liabilities526  375  
Total liabilities11,107  10,810  
Stockholders’ equity:
Common stock9  9  
Additional paid-in capital7,550  7,595  
Retained earnings25,085  24,386  
Treasury stock(23,796) (23,596) 
Accumulated other comprehensive loss(188) (180) 
Total stockholders’ equity8,660  8,214  
Total liabilities and stockholders’ equity$19,767  $19,024  
Amounts as of January 26, 2020 are unaudited. Amounts as of October 27, 2019 are derived from the October 27, 2019 audited consolidated financial statements.
See accompanying Notes to Consolidated Condensed Financial Statements.
5

Table of Contents
APPLIED MATERIALS, INC
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)

Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
Three Months Ended January 26, 2020SharesAmountSharesAmount
(Unaudited)
Balance as of October 27, 2019916  $9  $7,595  $24,386  1,079  $(23,596) $(180) $8,214  
Net income—  —  —  892  —  —  —  892  
Other comprehensive income (loss), net of tax—  —  —  —  —  —  (8) (8) 
Dividends declared ($0.21 per common share)
—  —  —  (193) —  —  —  (193) 
Share-based compensation—  —  93  —  —  —  —  93  
Issuance under stock plans6  —  (138) —  —  —  —  (138) 
Common stock repurchases(3) —  —  —  3  (200) —  (200) 
Balance as of January 26, 2020919  $9  $7,550  $25,085  1,082  $(23,796) $(188) $8,660  


Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
Three Months Ended January 27, 2019SharesAmountSharesAmount
(Unaudited)
Balance as of October 28, 2018967  $10  $7,274  $20,880  1,019  $(21,194) $(125) $6,845  
Adoption of new accounting standards (a)—  —  —  1,570  —  —  (17) 1,553  
Net income—  —  —  771  —  —  —  771  
Other comprehensive income (loss), net of tax—  —  —  —  —  —  (12) (12) 
Dividends declared ($0.20 per common share)
—  —  —  (189) —  —  —  (189) 
Share-based compensation—  —  65  —  —  —  —  65  
Issuance under stock plans4  —  (74) —  —  —  —  (74) 
Common stock repurchases(22) (1) —  —  22  (749) —  (750) 
Balance as of January 27, 2019949  $9  $7,265  $23,032  1,041  $(21,943) $(154) $8,209  

(a) - Represents the reclassification adjustment related to the adoption of Accounting Standard Update (ASU) 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and ASU 2016-16 Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
See accompanying Notes to Consolidated Condensed Financial Statements.


6

Table of Contents
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
Three Months Ended  
January 26,
2020
January 27,
2019
(Unaudited)
Cash flows from operating activities:
Net income$892  $771  
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization94  88  
Share-based compensation93  65  
Deferred income taxes30  41  
Other15  1  
Changes in operating assets and liabilities:
Accounts receivable(146) (121) 
Inventories2  18  
Other current and non-current assets(99) 76  
Accounts payable and accrued expenses(6) (313) 
Contract liabilities64  155  
Income taxes payable23  41  
Other liabilities25  12  
Cash provided by operating activities987  834  
Cash flows from investing activities:
Capital expenditures(102) (133) 
Proceeds from sales and maturities of investments368  464  
Purchases of investments(428) (397) 
Cash used in investing activities(162) (66) 
Cash flows from financing activities:
Proceeds from common stock issuances 15    
Common stock repurchases(200) (750) 
Tax withholding payments for vested equity awards(153) (74) 
Payments of dividends to stockholders(192) (192) 
Cash used in financing activities(530) (1,016) 
Increase (decrease) in cash and cash equivalents295  (248) 
Cash and cash equivalents — beginning of period3,129  3,440  
Cash and cash equivalents — end of period$3,424  $3,192  
Supplemental cash flow information:
Cash payments for income taxes$82  $34  
Cash refunds from income taxes$1  $8  
Cash payments for interest$34  $34  

See accompanying Notes to Consolidated Condensed Financial Statements.

7

Table of Contents
Note 1    Basis of Presentation
Basis of Presentation
In the opinion of management, the unaudited interim consolidated condensed financial statements of Applied Materials, Inc. and its subsidiaries (Applied or the Company) included herein have been prepared on a basis consistent with the October 27, 2019 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Applied’s Annual Report on Form 10-K for the fiscal year ended October 27, 2019 (2019 Form 10-K). Applied’s results of operations for the three months ended January 26, 2020 are not necessarily indicative of future operating results. Applied’s fiscal year ends on the last Sunday in October of each year. Fiscal 2020 and 2019 contain 52 weeks each, and the first three months of fiscal 2020 and 2019 each contained 13 weeks.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, Applied evaluates its estimates, including those related to standalone selling price (SSP) related to revenue recognition, accounts receivable and sales allowances, fair values of financial instruments, inventories, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of share-based awards, and income taxes, among others. Applied bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Revenue Recognition from Contracts with Customers
Applied recognizes revenue when promised goods or services are transferred to a customer in an amount that reflects the consideration to which Applied expects to be entitled in exchange for those goods or services. Applied determines revenue recognition through the following five steps; (1) identification of the contract(s) with customers, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfied.
Identifying the contract(s) with customers. Applied sells manufacturing equipment, services, and spare parts directly to its customers in the semiconductor, display, and related industries. The Company generally considers written documentation including, but not limited to, signed purchase orders, master agreements, and sales orders as contracts provided that collection is probable. Collectability is assessed based on the customer’s creditworthiness determined by reviewing the customer’s published credit and financial information, historical payment experience, as well as other relevant factors.
Identifying the performance obligations. Applied’s performance obligations include delivery of manufacturing equipment, service agreements, spare parts, installation, extended warranty and training. Applied’s service agreements are considered one performance obligation and may include multiple goods and services that Applied provides to the customer to deliver against a performance metric. Judgment is used to determine whether multiple promised goods or services in a contract should be accounted for separately or as a group.
Determine the transaction price. The transaction price for Applied’s contracts with customers may include fixed and variable consideration. Applied includes variable consideration in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Allocate the transaction price to the performance obligations. A contract’s transaction price is allocated to each distinct performance obligation identified within the contract. Applied generally estimates the standalone selling price of a distinct performance obligation based on historical cost plus an appropriate margin. For contracts with multiple performance obligations, Applied allocates the contract’s transaction price to each performance obligation using the relative standalone selling price of each distinct good or service in the contract.
Recognizing the revenue as performance obligations are satisfied. Applied recognizes revenue from equipment and spares parts at a point in time when Applied has satisfied its performance obligation by transferring control of the goods to the customer which typically occurs at shipment or delivery. Revenue from service agreements is recognized over time, typically within 12 months, as customers receive the benefits of services.
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APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


The incremental costs to obtain a contract are not material.
Payment Terms. Payment terms vary by contract. Generally, the majority of payments are due within a certain number of days from shipment of goods or performance of service. The remainder is typically due upon customer technical acceptance. Applied typically receives deposits on future deliverables from customers in the Display and Adjacent Markets segment and, in certain instances, may also receive deposits from customers in the Applied Global Services segment. Applied’s payment terms do not generally contain a significant financing component.
Recent Accounting Pronouncements
Accounting Standards Adopted
Leases. In February 2016, the Financial Accounting Standard Board (FASB) issued authoritative guidance for lease accounting, which requires lessees to recognize lease assets and liabilities on the balance sheet for certain lease arrangements that are classified as operating leases under the previous standard, and to provide for enhanced disclosures. Applied adopted this guidance in the first quarter of fiscal 2020 using the modified retrospective transition method which required applying the new standard as of the beginning of the period of adoption with no adjustment to comparative prior periods. Applied elected the package of practical expedients permitted under the transition guidance, which allow Applied not to reassess whether a contract contains a lease, initial direct costs and lease classification for leases existing prior to adoption. Applied also elected to combine the lease and non-lease components as a single lease component and not to use hindsight in determining the lease term. Upon adoption, Applied recognized right-of-use assets of $160 million, net of deferred rent of $4 million and lease liabilities of $164 million.
Derivatives and Hedging. In August 2017, the FASB issued authoritative guidance that modifies the recognition and presentation of hedge accounting to better align an entity’s risk management strategies and financial reporting for hedging relationships. The authoritative guidance expands the application of hedge accounting for non-financial and financial risk components and eases certain hedge effectiveness assessment requirements. Applied adopted this guidance in the first quarter of fiscal 2020 under the modified retrospective approach. The cumulative effect adjustment for the elimination of the ineffectiveness was not material to Applied's condensed consolidated financial statements. The presentation and disclosure have been amended on a prospective basis, as required by this update.
Receivables: Nonrefundable Fees and Other Costs. In March 2017, the FASB issued authoritative guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date to more closely align with expectations incorporated in market pricing. Applied adopted this guidance in the first quarter of fiscal 2020 on a modified retrospective basis. The adoption of this guidance did not have a significant impact on Applied's consolidated financial statements.
Accounting Standards Not Yet Adopted
Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued an accounting standard update to simplify the accounting for income taxes (Topic 740). This amendment removes certain exceptions and improves consistent application of accounting principles for certain areas in Topic 740. This authoritative guidance will be effective for Applied in the first quarter of fiscal 2022, with early adoption permitted. Applied is currently evaluating the effect of this new guidance on Applied’s consolidated financial statements.
Retirement Benefits: Changes to the Disclosure Requirements for Defined Benefit and other Postretirement Plans. In August 2018, the FASB issued authoritative guidance that adds, removes, and clarifies disclosure requirements for defined benefit and other postretirement plans. This authoritative guidance will be effective for Applied in fiscal 2021 on a retrospective basis, with early adoption permitted. Applied is currently evaluating the effect of this new guidance on Applied’s consolidated financial statements.
Goodwill Impairment. In January 2017, the FASB issued authoritative guidance that simplifies the process required to test goodwill for impairment. The authoritative guidance will be effective for Applied in the first quarter of fiscal 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on Applied’s consolidated financial statements.
Financial Instruments: Credit Losses. In June 2016, the FASB issued authoritative guidance that modifies the impairment model for certain financial assets by requiring use of an expected loss methodology, which will result in more timely recognition of credit losses. The authoritative guidance will be effective for Applied in the first quarter of fiscal 2021. Early adoption was permitted beginning in the first quarter of fiscal 2020. Applied is currently evaluating the effect of this new guidance on Applied’s consolidated financial statements.
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APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


Note 2      Earnings Per Share
Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, restricted stock units, and employee stock purchase plan shares) outstanding during the period. Applied’s net income has not been adjusted for any period presented for purposes of computing basic or diluted earnings per share due to the Company’s non-complex capital structure.
 
Three Months Ended
January 26,
2020
January 27,
2019
 (In millions, except per share amounts)
Numerator:
Net income $892  $771  
Denominator:
Weighted average common shares outstanding916  957  
Effect of weighted dilutive stock options, restricted stock units and employee stock purchase plan shares11  8  
Denominator for diluted earnings per share927  965  
Basic earnings per share$0.97  $0.81  
Diluted earnings per share$0.96  $0.80  
Potentially weighted dilutive securities  8  
Potentially weighted dilutive securities attributable to outstanding stock options and restricted stock units are excluded from the calculation of diluted earnings per share where the combined exercise price and average unamortized fair value are greater than the average market price of Applied common stock, and therefore their inclusion would be anti-dilutive.
10


APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


Note 3      Cash, Cash Equivalents and Investments
Summary of Cash, Cash Equivalents and Investments
The following tables summarize Applied’s cash, cash equivalents and investments:
 
January 26, 2020CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
 (In millions)
Cash$1,370  $—  $—  $1,370  
Cash equivalents:
Money market funds1,644  —  —  1,644  
U.S. Treasury and agency securities2  —  —  2  
Municipal securities1  —  —  1  
Commercial paper, corporate bonds and medium-term notes407  —  —  407  
Total Cash equivalents2,054  —  —  2,054  
Total Cash and Cash equivalents$3,424  $—  $—  $3,424  
Short-term and long-term investments:
U.S. Treasury and agency securities$330  $2  $  $332  
Non-U.S. government securities*4      4  
Municipal securities397  5    402  
Commercial paper, corporate bonds and medium-term notes698  5    703  
Asset-backed and mortgage-backed securities648  4    652  
Total fixed income securities2,077  16    2,093  
Publicly traded equity securities8  39  3  44  
Equity investments in privately-held companies106  10  4  112  
Total equity investments114  49  7  156  
Total short-term and long-term investments$2,191  $65  $7  $2,249  
Total Cash, Cash equivalents and Investments$5,615  $65  $7  $5,673  
 _________________________
* Includes agency debt securities guaranteed by Canada.
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APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


October 27, 2019CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
 (In millions)
Cash$1,071  $—  $—  $1,071  
Cash equivalents:
Money market funds1,677  —  —  1,677  
U.S. Treasury and agency securities4  —  —  4  
Commercial paper, corporate bonds and medium-term notes377  —  —  377  
Total Cash equivalents2,058  —  —  2,058  
Total Cash and Cash equivalents$3,129  $—  $—  $3,129  
Short-term and long-term investments:
U.S. Treasury and agency securities$336  $1  $  $337  
Non-U.S. government securities*10      10  
Municipal securities402  4    406  
Commercial paper, corporate bonds and medium-term notes642  5    647  
Asset-backed and mortgage-backed securities631  4    635  
Total fixed income securities2,021  14    2,035  
Publicly traded equity securities8  40  3  45  
Equity investments in privately-held companies105  10  3  112  
Total equity investments113  50  6  157  
Total short-term and long-term investments$2,134  $64  $6  $2,192  
Total Cash, Cash equivalents and Investments$5,263  $64  $6  $5,321  
 _________________________
* Includes agency debt securities guaranteed by Canada.
 
Maturities of Investments
The following table summarizes the contractual maturities of Applied’s investments as of January 26, 2020:
 
CostEstimated
Fair Value
 (In millions)
Due in one year or less$477  $478  
Due after one through five years953  964  
No single maturity date**761  807  
Total$2,191  $2,249  
 _________________________
** Securities with no single maturity date include publicly-traded and privately-held equity securities and asset-backed and mortgage-backed securities. 

Gains and Losses on Investments
During the three months ended January 26, 2020 and January 27, 2019 gross realized gains and losses on investments were not material.
As of January 26, 2020, and October 27, 2019, gross unrealized losses related to Applied’s debt investment portfolio were not material. Applied regularly reviews its debt investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether an unrealized loss is considered to be temporary, or other-than-temporary and therefore impaired, include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition, credit quality and near-term prospects of the investee; and whether it is more likely than not that Applied will be required to sell the security prior to recovery.
12


APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


Applied determined that the gross unrealized losses on its marketable fixed-income securities as of January 26, 2020 and January 27, 2019 were temporary in nature and therefore it did not recognize any impairment of its marketable fixed-income securities during the three months ended January 26, 2020 or January 27, 2019. Impairment charges on equity investments in privately-held companies during the three months ended January 26, 2020 and January 27, 2019 were not material. These impairment charges are included in interest and other income, net in the Consolidated Condensed Statement of Operations.
The components of gain (loss) on equity investments for the three months ended January 26, 2020 and January 27, 2019 were as follows:
Three Months Ended
January 26, 2020January 27, 2019
 (In millions)
Publicly traded equity securities
Unrealized gain $2  $6  
Unrealized loss(3) (2) 
Gain on sales  1  
Equity investments in privately-held companies
Unrealized gain  7  
Unrealized loss(1) (1) 
Gain on sales  1  
Loss on sales or impairment(2)   
Total gain on equity investments, net$(4) $12  


Note 4       Fair Value Measurements
Applied’s financial assets are measured and recorded at fair value on a recurring basis, except for equity investments in privately-held companies. These equity investments are generally accounted for under the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes and are periodically assessed for impairment when events or circumstances indicate that a decline in value may have occurred. Applied’s nonfinancial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Fair Value Hierarchy
Applied uses the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
 
Level 1 — Quoted prices in active markets for identical assets or liabilities;
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Applied’s investments consist primarily of debt securities that are classified as available-for-sale and recorded at their fair values. In determining the fair value of investments, Applied uses pricing information from pricing services that value securities based on quoted market prices and models that utilize observable market inputs. In the event a fair value estimate is unavailable from a pricing service, Applied generally obtains non-binding price quotes from brokers. Applied then reviews the information provided by the pricing services or brokers to determine the fair value of its short-term and long-term investments. In addition, to validate pricing information obtained from pricing services, Applied periodically performs supplemental analysis on a sample of securities. Applied reviews any significant unanticipated differences identified through this analysis to determine the appropriate fair value. As of January 26, 2020, substantially all of Applied’s available-for-sale, short-term and long-term investments were recognized at fair value that was determined based upon observable inputs.
13


APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


Applied’s equity investments with readily determinable values consist of publicly traded equity securities. These investments are measured at fair value using quoted prices for identical assets in an active market and the changes in fair value of these equity investments are recognized in the consolidated statements of operations.
Investments with remaining effective maturities of 12 months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than 12 months from the balance sheet date are classified as long-term investments.

Assets Measured at Fair Value on a Recurring Basis
Financial assets (excluding cash balances) measured at fair value on a recurring basis are summarized below: