
	Unrealized Gain (Loss) on Investments, Net		Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges		Defined and Postretirement Benefit Plans		Cumulative Translation Adjustments		Total

	(in millions)
Balance as of October 31, 2021	$	(1)	$	(103)	$	(169)	$	13	$	(260)


Other comprehensive income (loss) before reclassifications	(36)		73		—		—		37
Amounts reclassified out of AOCI	(9)		(27)		—		—		(36)
Other comprehensive income (loss), net of tax	(45)		46		—		—		1

Balance as of July 31, 2022	$	(46)	$	(57)	$	(169)	$	13	$	(259)


	Unrealized Gain (Loss) on Investments, Net		Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges		Defined and Postretirement Benefit Plans		Cumulative Translation Adjustments		Total

	(in millions)
Balance as of October 25, 2020	$	20	$	(133)	$	(199)	$	13	$	(299)


Other comprehensive income (loss) before reclassifications	(7)		14		—		—		7
Amounts reclassified out of AOCI	(4)		4		—		—		—
Other comprehensive income (loss), net of tax	(11)		18		—		—		7
Balance as of August 1, 2021	$	9	$	(115)	$	(199)	$	13	$	(292)

In March 2022, Applied’s Board of Directors approved a common stock repurchase program authorizing $6.0 billion in repurchases, which supplemented the previously existing $7.5 billion authorization approved in March 2021. As of July 31, 2022, approximately $6.4 billion remained available for future stock repurchases under the repurchase program.


	Three Months Ended				Nine Months Ended
	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021

	(in millions, except per share amount)
Shares of common stock repurchased	10		11		37		17
Cost of stock repurchased	$	1,000	$	1,500	$	4,603	$	2,250
Average price paid per share	$	102.09	$	133.40	$	125.85	$	134.03

Applied records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid in capital. If Applied reissues treasury stock at an amount below its acquisition cost and additional paid in capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against retained earnings.

In June 2022, March 2022 and December 2021, Applied’s Board of Directors declared quarterly cash dividends, in the amount of $0.26, $0.26 and $0.24 per share, respectively. The dividend declared in June 2022 is payable in September 2022. Dividends paid during the nine months ended July 31, 2022 and August 1, 2021 totaled $650 million and $622 million, respectively. Applied currently anticipates that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on Applied’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of Applied’s stockholders.

Applied has a stockholder-approved equity plan, the Employee Stock Incentive Plan (ESIP), which permits grants to employees of share-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units and performance units. In addition, the plan provides for the automatic grant of restricted stock units to non-employee directors and permits the grant of share-based awards to non-employee directors and consultants. Share-based awards made under the plan may be subject to accelerated vesting under certain circumstances in the event of a change in control of Applied. In addition, Applied currently has an Omnibus Employees’ Stock Purchase Plan (ESPP), which enables eligible employees to purchase Applied common stock.

During the three and nine months ended July 31, 2022 and August 1, 2021, Applied recognized share-based compensation expense related to equity awards and ESPP shares. The effect of share-based compensation on the results of operations was as follows:


	Three Months Ended				Nine Months Ended
	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021

	(In millions)
Cost of products sold	$	34	$	28	$	112	$	93
Research, development and engineering	35		30		115		101
Marketing and selling	11		11		37		34
General and administrative	15		12		50		44

Total share-based compensation	$	95	$	81	$	314	$	272

The cost associated with share-based awards that are subject solely to time-based vesting requirements, less expected forfeitures, is recognized over the awards’ service period for the entire award on a straight-line basis. Share-based awards granted to certain executive officers allow partial accelerated vesting in the event of a qualifying retirement based on age and years of service. The cost associated with performance-based equity awards, which include both performance and market goals, is recognized for each tranche over the service period. The cost of equity awards related to performance goals is based on an assessment of the likelihood that the applicable performance goals will be achieved. For the equity awards based on market goals, the cost is recognized based upon the assumption of 100% achievement of the goal.

As of July 31, 2022, Applied had $711 million in total unrecognized compensation expense, net of estimated forfeitures, related to grants of share-based awards and shares issued under the ESPP, which will be recognized over a weighted average period of 2.8 years. As of July 31, 2022, there were 32 million shares available for grant of share-based awards under the ESIP, and an additional 15 million shares available for issuance under the ESPP.

A summary of the changes in restricted stock units, restricted stock, performance share units and performance units outstanding under Applied’s equity compensation plans during the nine months ended July 31, 2022 is presented below:


	Shares	Weighted Average Grant Date Fair Value

	(In millions, except per share amounts)
Outstanding as of October 31, 2021	13	$	63.29
Granted	4	$	136.18
Vested	(5)	$	53.17
Canceled	(1)	$	79.85
Outstanding as of July 31, 2022	11	$	92.09

During the first quarter of fiscal 2022, certain executive officers were granted awards that are subject to the achievement of targeted levels of adjusted operating margin and targeted levels of total shareholder return (TSR) relative to a peer group, comprised of companies in the Standard & Poor's 500 Index. Each metric will be weighted 50% and will be measured over a three-year period.

The awards become eligible to vest only if performance goals are achieved and will vest only if the grantee remains employed by Applied through each applicable vesting date, subject to a qualifying retirement based on age and years of service. The number of shares that may vest in full after three years ranges from 0% to 200% of the target amount. The awards provide for a partial payout based on actual performance at the conclusion of the three-year performance period in the event of a qualifying retirement.

The fair value of the portion of the awards subject to targeted levels of adjusted operating margin is estimated on the date of grant. If the performance goals are not met as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the portion of the awards that is probable to vest and is reflected over the service period and reduced for estimated forfeitures.

The fair value of the portion of the awards subject to targeted levels of relative TSR is estimated on the date of grant using a Monte Carlo simulation model. Compensation expense is recognized based upon the assumption of 100% achievement of the TSR goal and will not be reversed even if the threshold level of TSR is never achieved, and is reflected over the service period and reduced for estimated forfeitures.

Under the ESPP, substantially all employees may purchase Applied common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of Applied common stock at the beginning or end of each 6-month purchase period, subject to certain limits. Applied issued a total of 1 million shares in the nine months ended July 31, 2022 and a total of 2 million shares in the nine months ended August 1, 2021. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.



	Nine Months Ended
	July 31, 2022	August 1, 2021

Dividend yield	0.74%	0.72%
Expected volatility	45.2%	44.6%
Risk-free interest rate	0.60%	0.05%
Expected life (in years)	0.5	0.5
Weighted average estimated fair value	$35.79	$33.48