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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 July 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 July 26, 2020: 913,282,764




Table of Contents
APPLIED MATERIALS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 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 3:
Item 4:
Item 5:
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 EndedNine Months Ended
July 26,
2020
July 28,
2019
July 26,
2020
July 28,
2019
(Unaudited)
Net sales$4,395 $3,562 $12,514 $10,854 
Cost of products sold2,440 2,005 6,952 6,102 
Gross profit1,955 1,557 5,562 4,752 
Operating expenses:
Research, development and engineering572 515 1,674 1,539 
Marketing and selling130 128 395 392 
General and administrative145 112 411 335 
Total operating expenses847 755 2,480 2,266 
Income from operations1,108 802 3,082 2,486 
Interest expense61 58 181 178 
Interest and other income (loss), net(7)38 22 121 
Income before income taxes1,040 782 2,923 2,429 
Provision for income taxes199 211 435 421 
Net income$841 $571 $2,488 $2,008 
Earnings per share:
Basic$0.92 $0.61 $2.71 $2.13 
Diluted$0.91 $0.61 $2.69 $2.11 
Weighted average number of shares:
Basic915 929 916 943 
Diluted922 937 924 950 
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 EndedNine Months Ended
July 26,
2020
July 28,
2019
July 26,
2020
July 28,
2019
(Unaudited)
Net income$841 $571 $2,488 $2,008 
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on available-for-sale investments12 6 13 19 
Change in unrealized net loss on derivative instruments26 (5)(110)(13)
Change in cumulative translation adjustments   (1)
Other comprehensive income (loss), net of tax38 1 (97)5 
Comprehensive income$879 $572 $2,391 $2,013 
See accompanying Notes to Consolidated Condensed Financial Statements.
4

Table of Contents
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
July 26,
2020
October 27,
2019
 
ASSETS
Current assets:
Cash and cash equivalents$4,350 $3,129 
Short-term investments406 489 
Accounts receivable, net2,806 2,533 
Inventories3,952 3,474 
Other current assets734 581 
Total current assets12,248 10,206 
Long-term investments1,538 1,703 
Property, plant and equipment, net1,530 1,529 
Goodwill3,474 3,399 
Purchased technology and other intangible assets, net157 156 
Deferred income taxes and other assets2,224 2,031 
Total assets$21,171 $19,024 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$ $600 
Accounts payable and accrued expenses2,895 2,511 
Contract liabilities1,390 1,336 
Total current liabilities4,285 4,447 
Long-term debt, net of current portion5,447 4,713 
Income taxes payable1,237 1,275 
Other liabilities633 375 
Total liabilities11,602 10,810 
Stockholders’ equity:
Common stock9 9 
Additional paid-in capital7,754 7,595 
Retained earnings26,278 24,386 
Treasury stock(24,195)(23,596)
Accumulated other comprehensive loss(277)(180)
Total stockholders’ equity9,569 8,214 
Total liabilities and stockholders’ equity$21,171 $19,024 
Amounts as of July 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.
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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 July 26, 2020SharesAmountSharesAmount
(Unaudited)
Balance as of April 26, 2020917 $9 $7,687 $25,638 1,086 $(23,995)$(315)$9,024 
Net income   841    841 
Other comprehensive income (loss), net of tax      38 38 
Dividends declared ($0.22 per common share)
   (201)   (201)
Share-based compensation  70     70 
Issuance under stock plans  (3)    (3)
Common stock repurchases(4)   4 (200) (200)
Balance as of July 26, 2020913 $9 $7,754 $26,278 1,090 $(24,195)$(277)$9,569 

Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
Nine Months Ended July 26, 2020SharesAmountSharesAmount
(Unaudited)
Balance as of October 27, 2019916 $9 $7,595 $24,386 1,079 $(23,596)$(180)$8,214 
Net income   2,488    2,488 
Other comprehensive income (loss), net of tax      (97)(97)
Dividends declared ($0.65 per common share)
   (596)   (596)
Share-based compensation  234     234 
Issuance under stock plans8  (75)    (75)
Common stock repurchases(11)   11 (599) (599)
Balance as of July 26, 2020913 $9 $7,754 $26,278 1,090 $(24,195)$(277)$9,569 

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Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
Three Months Ended July 28, 2019SharesAmountSharesAmount
(Unaudited)
Balance as of April 28, 2019936 $9 $7,396 $23,502 1,057 $(22,568)$(138)$8,201 
Net income   571    571 
Other comprehensive income (loss), net of tax      1 1 
Dividends declared ($0.21 per common share)
   (193)   (193)
Share-based compensation  67     67 
Issuance under stock plans  (3)    (3)
Common stock repurchases(12)   12 (528) (528)
Balance as of July 28, 2019924 $9 $7,460 $23,880 1,069 $(23,096)$(137)$8,116 


Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
Nine Months Ended July 28, 2019SharesAmountSharesAmount
(Unaudited)
Balance as of October 28, 2018967 $10 $7,274 $20,880 1,019 $(21,194)$(125)$6,845 
Adoption of new accounting standard (a)   1,570   (17)1,553 
Net income   2,008    2,008 
Other comprehensive income (loss), net of tax      5 5 
Dividends declared ($0.62 per common share)
   (578)   (578)
Share-based compensation  197     197 
Issuance under stock plans7  (11)    (11)
Common stock repurchases(50)(1)  50 (1,902) (1,903)
Balance as of July 28, 2019924 $9 $7,460 $23,880 1,069 $(23,096)$(137)$8,116 
(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.


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APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
Nine Months Ended
July 26,
2020
July 28,
2019
(Unaudited)
Cash flows from operating activities:
Net income$2,488 $2,008 
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization279 271 
Share-based compensation234 197 
Deferred income taxes98 57 
Other55 (19)
Changes in operating assets and liabilities:
Accounts receivable(271)(47)
Inventories(469)182 
Other current and non-current assets(143)(93)
Accounts payable and accrued expenses243 (337)
Contract liabilities53 229 
Income taxes payable(123)(52)
Other liabilities45 25 
Cash provided by operating activities2,489 2,421 
Cash flows from investing activities:
Capital expenditures(260)(344)
Cash paid for acquisitions, net of cash acquired(107)(28)
Proceeds from sales and maturities of investments1,388 1,385 
Purchases of investments(1,010)(1,370)
Cash provided by (used in) investing activities11 (357)
Cash flows from financing activities:
Debt borrowings, net of issuance costs2,979  
Debt repayments(2,882) 
Proceeds from common stock issuances 91 73 
Common stock repurchases(599)(1,903)
Tax withholding payments for vested equity awards(166)(83)
Payments of dividends to stockholders(587)(577)
Cash used in financing activities(1,164)(2,490)
Increase (decrease) in cash, cash equivalents and restricted cash equivalents1,336 (426)
Cash, cash equivalents and restricted cash equivalents — beginning of period3,129 3,440 
Cash, cash equivalents and restricted cash equivalents — end of period$4,465 $3,014 
Reconciliation of cash, cash equivalents, and restricted cash equivalents
Cash and cash equivalents$4,350 $3,014 
Restricted cash equivalents included in deferred income taxes and other assets115  
Total cash, cash equivalents, and restricted cash equivalents$4,465 $3,014 
Supplemental cash flow information:
Cash payments for income taxes$519 $453 
Cash refunds from income taxes$5 $20 
Cash payments for interest$151 $143 
See accompanying Notes to Consolidated Condensed Financial Statements.
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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 and nine months ended July 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 nine months of fiscal 2020 and 2019 each contained 39 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.
As of July 26, 2020, the COVID-19 pandemic and worldwide response remains fluid. As a result, many of Applied’s estimates and assumptions are subject to increased judgment and volatility. These estimates may differ materially in future periods as the pandemic continues to evolve and additional information becomes available.
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.
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APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)


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


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.

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 EndedNine Months Ended
July 26,
2020
July 28,
2019
July 26,
2020
July 28,
2019
 (In millions, except per share amounts)
Numerator:
Net income $841 $571 $2,488 $2,008 
Denominator:
Weighted average common shares outstanding915