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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 30, 2022
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 30, 2022: 883,394,639




Table of Contents
APPLIED MATERIALS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 30, 2022
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 Ended
January 30,
2022
January 31,
2021
(Unaudited)
Net sales$6,271 $5,162 
Cost of products sold3,312 2,813 
Gross profit2,959 2,349 
Operating expenses:
Research, development and engineering654 606 
Marketing and selling167 147 
General and administrative166 161 
Severance and related charges(4)152 
Total operating expenses983 1,066 
Income from operations1,976 1,283 
Interest expense57 61 
Interest and other income, net6 18 
Income before income taxes1,925 1,240 
Provision for income taxes133 110 
Net income$1,792 $1,130 
Earnings per share:
Basic$2.02 $1.23 
Diluted$2.00 $1.22 
Weighted average number of shares:
Basic889 915 
Diluted897 925 
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 30,
2022
January 31,
2021
(Unaudited)
Net income$1,792 $1,130 
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on available-for-sale investments(15)(2)
Change in unrealized net loss on derivative instruments(3)4 
Other comprehensive income (loss), net of tax(18)2 
Comprehensive income$1,774 $1,132 
See accompanying Notes to Consolidated Condensed Financial Statements.
4

Table of Contents
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
January 30,
2022
October 31,
2021
 
ASSETS
Current assets:
Cash and cash equivalents$5,264 $4,995 
Short-term investments473 464 
Accounts receivable, net4,405 4,953 
Inventories4,526 4,309 
Other current assets1,039 1,386 
Total current assets15,707 16,107 
Long-term investments2,026 2,055 
Property, plant and equipment, net1,974 1,934 
Goodwill3,479 3,479 
Purchased technology and other intangible assets, net94 104 
Deferred income taxes and other assets2,148 2,146 
Total assets$25,428 $25,825 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses$3,867 $4,268 
Contract liabilities2,397 2,076 
Total current liabilities6,264 6,344 
Long-term debt5,454 5,452 
Income taxes payable1,068 1,090 
Other liabilities752 692 
Total liabilities13,538 13,578 
Stockholders’ equity:
Common stock9 9 
Additional paid-in capital8,130 8,247 
Retained earnings33,827 32,246 
Treasury stock(29,798)(27,995)
Accumulated other comprehensive loss(278)(260)
Total stockholders’ equity11,890 12,247 
Total liabilities and stockholders’ equity$25,428 $25,825 
Amounts as of January 30, 2022 are unaudited. Amounts as of October 31, 2021 are derived from the October 31, 2021 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 30, 2022SharesAmountSharesAmount
(Unaudited)
Balance as of October 31, 2021892 $9 $8,247 $32,246 1,119 $(27,995)$(260)$12,247 
Net income— — — 1,792 — — — 1,792 
Other comprehensive income (loss), net of tax— — — — — — (18)(18)
Dividends declared ($0.24 per common share)
— — — (211)— — — (211)
Share-based compensation— — 118 — — — — 118 
Issuance under stock plans3 — (235)— — — — (235)
Common stock repurchases(12)— — — 12 (1,803)— (1,803)
Balance as of January 30, 2022883 $9 $8,130 $33,827 1,131 $(29,798)$(278)$11,890 



Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
Three Months Ended January 31, 2021SharesAmountSharesAmount
(Unaudited)
Balance as of October 25, 2020914 $9 $7,904 $27,209 1,091 $(24,245)$(299)$10,578 
Net income— — — 1,130 — — — 1,130 
Other comprehensive income (loss), net of tax— — — — — — 2 2 
Dividends declared ($0.22 per common share)
— — — (202)— — — (202)
Share-based compensation— — 107 — — — — 107 
Issuance under stock plans4 — (142)— — — — (142)
Balance as of January 31, 2021918 $9 $7,869 $28,137 1,091 $(24,245)$(297)$11,473 


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 30, 2022January 31, 2021
(Unaudited)
Cash flows from operating activities:
Net income$1,792 $1,130 
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization102 94 
Severance and related charges(4)148 
Share-based compensation118 107 
Deferred income taxes1 28 
Other16  
Changes in operating assets and liabilities:
Accounts receivable548 (81)
Inventories(217)(21)
Other current and non-current assets347 94 
Accounts payable and accrued expenses(393)(335)
Contract liabilities321 251 
Income taxes payable(34)(8)
Other liabilities61 14 
Cash provided by operating activities2,658 1,421 
Cash flows from investing activities:
Capital expenditures(144)(121)
Cash paid for acquisitions, net of cash acquired (12)
Proceeds from sales and maturities of investments318 358 
Purchases of investments(312)(441)
Cash used in investing activities(138)(216)
Cash flows from financing activities:
Common stock repurchases(1,803) 
Tax withholding payments for vested equity awards(235)(142)
Payments of dividends to stockholders(214)(201)
Cash used in financing activities(2,252)(343)
Increase in cash, cash equivalents and restricted cash equivalents268 862 
Cash, cash equivalents and restricted cash equivalents — beginning of period5,101 5,466 
Cash, cash equivalents and restricted cash equivalents — end of period$5,369 $6,328 
Reconciliation of cash, cash equivalents, and restricted cash equivalents
Cash and cash equivalents$5,264 $6,213 
Restricted cash equivalents included in deferred income taxes and other assets105 115 
Total cash, cash equivalents, and restricted cash equivalents$5,369 $6,328 
Supplemental cash flow information:
Cash payments for income taxes$80 $110 
Cash refunds from income taxes$123 $19 
Cash payments for interest$34 $35 
See accompanying Notes to Consolidated Condensed Financial Statements.
7

Table of Contents
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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 31, 2021 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 31, 2021 (2021 Form 10-K). Applied’s results of operations for the three months ended January 30, 2022 are not necessarily indicative of future operating results. Applied’s fiscal year ends on the last Sunday in October of each year. Fiscal 2022 and 2021 contain 52 weeks and 53 weeks, respectively, and the first three months of fiscal 2022 and 2021 contained 13 and 14 weeks, respectively.
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 January 30, 2022, 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.
8


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
Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standard Board (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. Applied adopted this authoritative guidance in the first quarter of fiscal 2022. The adoption of this guidance did not have a significant impact on Applied’s consolidated condensed financial statements.
Accounting Standards Not Yet Adopted
Contract Assets and Contract Liabilities from Revenue Contracts with Customers in a Business Combination. In October 2021, the FASB issued an accounting standard update to improve the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination (Topic 805). This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. This authoritative guidance will be effective for Applied in the first quarter of fiscal 2024, with early adoption permitted. Applied is currently evaluating the effect of this new guidance on Applied’s consolidated financial statements.

9


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 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 30,
2022
January 31,
2021
 (In millions, except per share amounts)
Numerator:
Net income $1,792 $1,130 
Denominator:
Weighted average common shares outstanding889 915 
Effect of weighted dilutive restricted stock units and employee stock purchase plan shares8 10 
Denominator for diluted earnings per share897 925 
Basic earnings per share$2.02 $1.23 
Diluted earnings per share$2.00 $1.22 
Potentially weighted dilutive securities  
Potentially weighted dilutive securities attributable to outstanding 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 by security type:
 
January 30, 2022CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
 (In millions)
Cash$1,260 $— $— $1,260 
Cash equivalents:
Money market funds3,968 — — 3,968 
Municipal securities14 — — 14 
Commercial paper, corporate bonds and medium-term notes22 — — 22 
Total Cash equivalents4,004 — — 4,004 
Total Cash and Cash equivalents$5,264 $— $— $5,264 
Short-term and long-term investments:
U.S. Treasury and agency securities$324 $ $3 $321 
Non-U.S. government securities*5   5 
Municipal securities371 1 3 369 
Commercial paper, corporate bonds and medium-term notes602 1 5 598 
Asset-backed and mortgage-backed securities516 2 4 514 
Total fixed income securities1,818 4 15 1,807 
Publicly traded equity securities21 34 7 48 
Equity investments in privately-held companies564 94 14 644 
Total equity investments585 128 21 692 
Total short-term and long-term investments$2,403 $132 $36 $2,499 
Total Cash, Cash equivalents and Investments$7,667 $132 $36 $7,763 
_________________________
*Includes Canadian provincial government debt
11


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

October 31, 2021CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
 (In millions)
Cash$1,407 $— $— $1,407 
Cash equivalents:
Money market funds3,556 — — 3,556 
Municipal securities22 — — 22 
Commercial paper, corporate bonds and medium-term notes10 — — 10 
Total Cash equivalents3,588 — — 3,588 
Total Cash and Cash equivalents$4,995 $— $— $4,995 
Short-term and long-term investments:
U.S. Treasury and agency securities$314 $ $ $314 
Non-U.S. government securities*5   5 
Municipal securities367 3 1 369 
Commercial paper, corporate bonds and medium-term notes587 2 2 587 
Asset-backed and mortgage-backed securities555 3 1 557 
Total fixed income securities1,828 8 4 1,832 
Publicly traded equity securities22 39 3 58 
Equity investments in privately-held companies561 82 14 629 
Total equity investments583 121 17 687 
Total short-term and long-term investments$2,411 $129 $21 $2,519 
Total Cash, Cash equivalents and Investments$7,406 $129 $21 $7,514 
 _________________________
*Includes Canadian provincial government debt
 
Maturities of Investments
The following table summarizes the contractual maturities of Applied’s investments as of January 30, 2022:
 
CostEstimated
Fair Value
 (In millions)
Due in one year or less$400 $401 
Due after one through five years902 892 
No single maturity date**1,101 1,206 
Total$2,403 $2,499 
 _________________________
** Securities with no single maturity date include publicly-traded and privately-held equity securities and asset-backed and mortgage-backed securities.

12


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

Gains and Losses on Investments
During the three months ended January 30, 2022 and January 31, 2021 gross realized gains and losses on investments were not material.
As of January 30, 2022, and October 31, 2021, 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 from credit losses or other factors. Factors considered in determining whether an unrealized loss is considered to be a credit loss include: the significance of the decline in value compared to 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. Credit losses related to available-for-sale debt securities are recorded as an allowance for credit losses through interest and other income, net. Any additional changes in fair value that are not related to credit losses are recognized in accumulated other comprehensive income.
During the three months ended January 30, 2022 and January 31, 2021, Applied did not recognize significant credit losses and the ending allowance for credit losses was not material on its debt investment portfolio. Impairment charges on equity investments in privately-held companies during the three months ended January 30, 2022 and January 31, 2021 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 30, 2022 and January 31, 2021 were as follows:
Three Months Ended
January 30, 2022January 31, 2021
 (In millions)
Publicly traded equity securities
Unrealized gain $1 $8 
Unrealized loss(8) 
Realized gain on sales2  
Equity investments in privately-held companies
Unrealized gain12 1 
Unrealized loss (3)
Realized gain on sales 2 
Realized loss on sales or impairment(4) 
Total gain (loss) on equity investments, net$3 $8 

13


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


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 30, 2022, 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.
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.


14


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

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:
 
 January 30, 2022October 31, 2021
 Level 1Level 2TotalLevel 1Level 2Total
 (In millions)
Assets:
Available-for-sale debt security investments
Money market funds*$4,073 $ $4,073 $3,662 $ $3,662 
U.S. Treasury and agency securities304 17 321 296 18 314 
Non-U.S. government securities 5 5  5 5 
Municipal securities 383 383  391 391 
Commercial paper, corporate bonds and medium-term notes 620 620  597 597 
Asset-backed and mortgage-backed securities 514 514  557 557 
Total available-for-sale debt security investments$4,377 $1,539 $5,916 $3,958 $1,568 $5,526 
Equity investments with readily determinable values
Publicly traded equity securities$48 $ $48 $58 $ $58 
Total equity investments with readily determinable values$48 $ $48 $58 $ $58 
Total$4,425 $1,539 $5,964 $4,016 $1,568 $5,584 
 _________________________
* Amounts as of January 30, 2022 and October 31, 2021, include $105 million and $106 million, respectively, invested in money market funds related to deferred compensation plans. Due to restrictions on the distribution of these funds, they are classified as restricted cash equivalents and are included in deferred income taxes and other assets in the Consolidated Condensed Balance Sheets.
Applied did not have any financial assets measured at fair value on a recurring basis within Level 3 fair value measurements as of January 30, 2022 or October 31, 2021.
Assets and Liabilities without Readily Determinable Values Measured on a Non-recurring Basis
Applied’s equity investments without readily determinable values consist of equity investments in privately-held companies. Applied elected the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes on a prospective basis for certain equity investments without readily determinable fair values and is required to account for any subsequent observable changes in fair value within the statements of operations. These investments are classified as Level 3 within the fair value hierarchy and periodically assessed for impairment when an event or circumstance indicates that a decline in value may have occurred. Impairment charges on equity investments in privately-held companies during the three months ended January 30, 2022 and January 31, 2021 were not material.
Other
The carrying amounts of Applied’s financial instruments, including cash and cash equivalents, restricted cash equivalents, accounts receivable, notes payable - short term, and accounts payable and accrued expenses, approximate fair value due to their short maturities. As of January 30, 2022, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion and the estimated fair value was $6.1 billion. As of October 31, 2021, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion and the estimated fair value was $6.4 billion. The estimated fair value of long-term senior unsecured notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. See Note 10 of the Notes to the Consolidated Condensed Financial Statements for further detail of existing debt.
15


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

Note 5       Derivative Instruments and Hedging Activities
Derivative Financial Instruments
Applied conducts business in a number of foreign countries, with certain transactions denominated in local currencies, such as the Japanese yen, Israeli shekel, euro and Taiwanese dollar. Applied uses derivative financial instruments, such as foreign currency forward and option contracts, to hedge certain forecasted foreign currency denominated transactions expected to occur typically within the next 24 months. The purpose of Applied’s foreign currency management is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged.
Applied does not use derivative financial instruments for trading or speculative purposes. Derivative instruments and hedging activities, including foreign currency exchange and interest rate contracts, are recognized on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify for hedge accounting treatment are recognized currently in earnings. All of Applied’s derivative financial instruments are recorded at their fair value in other current assets or in accounts payable and accrued expenses. 
Hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges and foreign exchange derivatives are typically entered into once per month. Cash flow hedges are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of AOCI in stockholders’ equity and is reclassified into earnings when the hedged transaction affects earnings. The majority of the after-tax net income or loss related to foreign exchange derivative instruments included in AOCI as of January 30, 2022 is expected to be reclassified into earnings within 12 months. Changes in fair value caused by changes in time value of option contracts designated as cash flow hedges are excluded from the assessment of effectiveness. The initial value of this excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in the financial statement line item to which the hedge relates. If the transaction being hedged is probable not to occur, Applied promptly recognizes the gain or loss on the associated financial instrument in the consolidated condensed statement of operations. The amount recognized due to discontinuance of cash flow hedges that were probable of not occurring by the end of the originally specified time period was not significant for the three months ended January 30, 2022 and January 31, 2021.
Foreign currency forward contracts are generally used to hedge certain foreign currency denominated assets or liabilities. Accordingly, changes in the fair value of these hedges are recorded in earnings to offset the changes in the fair value of the assets or liabilities being hedged.
As of January 30, 2022 and October 31, 2021, the total outstanding notional amount of foreign exchange contracts was $2.0 billion and $2.1 billion, respectively. The fair values of foreign exchange derivative instruments as of January 30, 2022 and October 31, 2021 were not material.
The gain (loss) on derivatives in cash flow hedging relationships recognized in AOCI for derivatives designated as hedging instruments for the indicated periods were as follows:
Three Months Ended
January 30,
2022
January 31,
2021
(In millions)
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts$5 $1 
Total$5 $1 
16


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

The effects of derivative instruments and hedging activities on the Consolidated Condensed Statements of Operations were as follows:
Three Months Ended
January 30, 2022January 31, 2021
Derivatives in Cash Flow Hedging RelationshipsDerivatives in Cash Flow Hedging Relationships
Total Amount Presented in the Consolidated Condensed Statement of Operations in which the Effects of Cash Flow Hedges are RecordedAmount of Gain or (Loss)
Reclassified
from AOCI into
Consolidated Condensed Statement of Operations
Amount of Gain (Loss) Excluded from Effectiveness Testing
Recognized in
Consolidated Condensed Statement of Operations
Total Amount Presented in the Consolidated Condensed Statement of Operations in which the Effects of Cash Flow Hedges are RecordedAmount of Gain or (Loss)
Reclassified
from AOCI into
Consolidated Condensed Statement of Operations
Amount of Gain (Loss) Excluded from Effectiveness Testing
Recognized in
Consolidated Condensed Statement of Operations
(In millions)
Foreign Exchange Contracts:
Net Sales$6,271 $13 $ $5,162 $(4)$ 
Cost of products sold$3,312 (2) $2,813 2 (1)
Research, development and engineering$654 1  $606 1  
Interest Rate Contracts:
Interest expense$57 (3) $61 (3) 
$9 $ $(4)$(1)

  Amount of Gain or (Loss) 
Recognized in Consolidated Condensed Statement of Operations
Three Months Ended
Location of Gain or
(Loss) Recognized
in Consolidated Condensed Statement of Operations
January 30,
2022
January 31,
2021
 (In millions)
Derivatives Not Designated as Hedging Instruments
Total return swaps - deferred compensationCost of products sold$(1)$1 
Total return swaps - deferred compensationOperating expenses(7)7 
Total$(8)$8 

Credit Risk Contingent Features
If Applied’s credit rating were to fall below investment grade, it would be in violation of credit risk contingent provisions of the derivative instruments discussed above, and certain counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was immaterial as of January 30, 2022.
Entering into derivative contracts with banks exposes Applied to credit-related losses in the event of the banks’ nonperformance. However, Applied’s exposure is not considered significant.

17


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

Note 6      Accounts Receivable, Net
Applied has agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. Applied sells its accounts receivable generally without recourse. Applied, from time to time, also discounts letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial institutions to discount the letters of credit and the cost of such arrangements.
Applied sold $205 million and $369 million of account receivables during the three months ended January 30, 2022 and January 31, 2021, respectively. Applied did not discount letters of credit issued by customers or discount promissory notes during the three months ended January 30, 2022 and January 31, 2021. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Condensed Statements of Operations and were not material for all periods presented.
Accounts receivable are presented net of allowance for credit losses of $29 million as of January 30, 2022 and as of October 31, 2021. Applied sells its products principally to manufacturers within the semiconductor and display industries. While Applied believes that its allowance for credit losses is adequate and represents its best estimate as of January 30, 2022, it continues to closely monitor customer liquidity and industry and economic conditions, which may result in changes to Applied’s estimates.
Note 7      Contract Balances
Contract assets primarily result from receivables for goods transferred to customers where payment is conditional upon technical sign off and not just the passage of time. Contract liabilities consist of unsatisfied performance obligations related to advance payments received and billings in excess of revenue recognized. Applied’s contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Contract assets are generally classified as current and are included in Other Current Assets in the Consolidated Condensed Balance Sheets. Contract liabilities are classified as current or non-current based on the timing of when performance obligations will be satisfied and associated revenue is expected to be recognized.
Contract balances at the end of each reporting period were as follows:
January 30, 2022October 31, 2021
(In millions)
Contract assets$174 $201 
Contract liabilities$2,397 $2,076 
The decrease in contract assets during the three months ended January 30, 2022 was primarily due to a reduction in goods transferred to customers where payment was conditional upon technical sign off.
During the three months ended January 30, 2022, Applied recognized revenue of approximately $1.0 billion related to contract liabilities at October 31, 2021. This reduction in contract liabilities was offset by new billings for products and services for which there were unsatisfied performance obligations to customers and revenue had not yet been recognized as of January 30, 2022.
There were no credit losses recognized on Applied’s accounts receivables and contract assets during both the three months ended January 30, 2022 and January 31, 2021.
As of January 30, 2022, the amount of remaining unsatisfied performance obligations on contracts with an original estimated duration of one year or more was approximately $970 million, of which approximately 42% is expected to be recognized within 12 months and the remainder is expected to be recognized within the following 24 months thereafter.
Applied has elected the available practical expedient to exclude the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

18


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

Note 8      Balance Sheet Detail
 
January 30,
2022
October 31,
2021
 (In millions)
Inventories
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