DEF 14A 1 d459884ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.     )

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  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

  Definitive Proxy Statement

 

  Definitive Additional Materials

 

  Soliciting Material Pursuant to §240.14a-12

Applied Materials, Inc.

 

 

(Name of Registrant as Specified In Its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO


Table of Contents

 

Gary E. Dickerson

PRESIDENT

AND CHIEF EXECUTIVE OFFICER

   LOGO

January 25, 2018

Dear Fellow Shareholders:

We invite you to attend Applied Materials’ 2018 Annual Meeting of Shareholders, which will be held on Thursday, March 8, 2018, at 11:00 a.m. Pacific Time at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054.

The attached Notice of 2018 Annual Meeting of Shareholders and Proxy Statement describe the business to be conducted at the Annual Meeting. We have also made available a copy of our 2017 Annual Report on Form 10-K with the Proxy Statement.

Your vote is very important to us, and voting your proxy will ensure your representation at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, we urge you to vote as soon as possible and submit your proxy via the Internet, or if you requested to receive printed proxy materials, by telephone or by signing, dating and returning your proxy card.

Thank you for your attention to these important matters and for your continued support of Applied Materials.

Sincerely,

 

 

LOGO

Gary E. Dickerson

President and Chief Executive Officer

 

 

 

 

 

3050 Bowers Avenue

Santa Clara, California 95054

Phone: (408) 727-5555

  

Mailing Address:

Applied Materials, Inc.

3050 Bowers Avenue

P.O. Box 58039

Santa Clara, California 95052-8039


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LOGO

NOTICE OF

2018 ANNUAL MEETING OF SHAREHOLDERS

Thursday, March 8, 2018

at 11:00 a.m. Pacific Time

The 2018 Annual Meeting of Shareholders of Applied Materials, Inc. will be held on Thursday, March 8, 2018, at 11:00 a.m. Pacific Time at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054.

Items of Business

 

1. To elect ten directors to serve for a one-year term and until their successors have been duly elected and qualified.  

 

2. To approve, on an advisory basis, the compensation of our named executive officers for fiscal year 2017.  

 

3. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2018.  

 

4. To consider two shareholder proposals, if properly presented at the Annual Meeting.  

 

5. To transact any other business that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.  

Your vote is important. You may vote via the Internet or by telephone, or if you requested to receive printed proxy materials, by signing, dating and returning your proxy card. If you are voting via the Internet or by telephone, your vote must be received by 11:59 p.m. Eastern Time on Wednesday, March 7, 2018. For specific voting instructions, please refer to the information provided in the following Proxy Statement, together with your proxy card or the voting instructions you receive by e-mail or that are provided via the Internet.

If you received a Notice of Internet Availability of Proxy Materials on how to access the proxy materials via the Internet, a proxy card was not sent to you, and you may vote only via the Internet, unless you have requested a paper copy of the proxy materials, in which case, you may also vote by telephone or by signing, dating and returning your proxy card. Shares cannot be voted by marking, writing on and returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. Instructions for requesting a paper copy of the proxy materials are set forth on the Notice of Internet Availability.

 

By Order of the Board of Directors
LOGO

Thomas F. Larkins

Corporate Secretary

Santa Clara, California

January 25, 2018

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on March 8, 2018: The Proxy Statement and Annual Report to Shareholders are available at www.proxyvote.com.


Table of Contents

 

TABLE OF CONTENTS

 

     Page  
2018 Proxy Statement Summary      i  

Annual Meeting of Shareholders

     i  

Proposals and Board Recommendations

     i  

Director Nominees

     ii  

Board Practices and Composition

     ii  

Corporate Governance

     iii  

Executive Compensation

     iv  

Sustainability and Corporate Citizenship

     ix  
Proposal 1—Election of Directors      1  

Nominees

     1  
Board and Corporate Governance Practices      7  

Board Composition and Nominee Considerations

     7  

Corporate Governance

     9  

Board Meetings and Committees

     13  
Director Compensation      15  

Compensation Program for Directors

     15  

Director Compensation for Fiscal 2017

     16  
Stock Ownership Information      17  

Principal Shareholders

     17  

Directors and Executive Officers

     18  
Proposal 2—Approval, on an Advisory Basis, of the Compensation of Our Named Executive Officers      19  
Compensation Discussion and Analysis      20  

Executive Summary

     20  

Compensation Governance and Decision-Making Framework

     28  

Components of Total Direct Compensation

     29  

Additional Compensation Programs and Policies

     38  

Human Resources and

Compensation Committee Report

     40  
Executive Compensation      41  

Summary Compensation Table for Fiscal 2017, 2016 and 2015

     41  
     Page  

Grants of Plan-Based Awards for Fiscal 2017

     42  

Outstanding Equity Awards at Fiscal 2017 Year-End

     43  

Option Exercises and Stock Vested for Fiscal 2017

     44  

Non-Qualified Deferred Compensation

     45  

Employment Agreement

     45  

Potential Payments Upon Termination or Change of Control

     46  

Certain Relationships and Related Transactions

     46  
Proposal 3—Ratification of the Appointment of Independent Registered Public Accounting Firm      48  

Fees Paid to KPMG LLP

     48  

Policy on Audit Committee’s Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

     49  

Audit Committee Report

     49  
Proposal 4—Shareholder Proposal to Provide for Right to Act by Written Consent      50  

Shareholder Proposal

     50  

Board of Directors Statement in Opposition

     50  
Proposal 5—Shareholder Proposal for Annual Disclosure of EEO-1 Data      53  

Shareholder Proposal

     53  

Board of Directors Statement in Opposition

     54  
Questions and Answers about the Proxy Statement and Our 2018 Annual Meeting      56  
Other Matters      61  

Section  16(a) Beneficial Ownership Reporting Compliance

     61  

Shareholder Proposals or Nominations for 2019 Annual Meeting

     61  

No Incorporation by Reference

     61  
Appendix: Unaudited Reconciliation of Non-GAAP Adjusted Financial Measures      A-1  

Reconciliation of non-GAAP adjusted financial measures used in the Compensation Discussion and Analysis section and elsewhere in this Proxy Statement, other than as part of disclosure of target levels, can be found in the Appendix.

 

 


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2018 PROXY STATEMENT SUMMARY

 

2018 PROXY STATEMENT SUMMARY

Your proxy is being solicited on behalf of the Board of Directors of Applied Materials, Inc. We are making this Proxy Statement available to shareholders beginning on January 25, 2018. This summary highlights information contained elsewhere in this Proxy Statement. We encourage you to read the entire Proxy Statement for more information prior to voting.

Annual Meeting of Shareholders

 

 

Date and Time:    March 8, 2018, 11:00 a.m. Pacific Time
Location:    Applied Materials, Inc., 3050 Bowers Avenue, Building 1, Santa Clara, California 95054
Record Date:    January 10, 2018
Voting:    Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on.
Attendance:    Shareholders and their duly appointed proxies may attend the meeting.

Proposals and Board Recommendations

 

 

     For More Information   Board Recommendation
Proposal 1 – Election of Directors   Pages 1 to 6    FOR each Nominee

Judy Bruner

 

Stephen R. Forrest

 

Scott A. McGregor

   

Xun (Eric) Chen

 

Thomas J. Iannotti

 

Dennis D. Powell

   

Aart J. de Geus

Gary E. Dickerson

 

Alexander A. Karsner

Adrianna C. Ma

     
     
Proposal 2 – Executive Compensation   Page 19   FOR

Approval, on an advisory basis, of the compensation of our named executive officers for fiscal year 2017

   
     
Proposal 3 – Ratification of Registered Accounting Firm   Page 48   FOR

Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2018

   
     
Proposal 4 – Shareholder Proposal to Provide for Right to Act by Written Consent   Pages 50 to 52   AGAINST

Shareholder proposal requesting that the Board take steps to permit shareholder action by written consent without a meeting

   
     
Proposal 5 – Shareholder Proposal for Annual Disclosure of EEO-1 Data   Pages 53 to 55   AGAINST

Shareholder proposal requesting that the Board adopt and enforce a policy to disclose annually Applied’s EEO-1 data

       


 

Applied Materials, Inc.    i


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Director Nominees

 

 

Name and Occupation    Age    Director Since    Independent   Committees
Judy Bruner    59    2016      Governance (Chair)

Executive Vice President, Administration and Chief Financial Officer, SanDisk Corporation (retired)

           Audit
Xun (Eric) Chen    48    2015      Compensation

Chief Executive Officer, BaseBit Technologies, Inc.

           Strategy
Aart J. de Geus    63    2007      Strategy (Chair)

Chairman of the Board of Directors, Co-Chief Executive Officer, Synopsys, Inc.

           Investment
Gary E. Dickerson    60    2013         

President and Chief Executive Officer, Applied Materials, Inc.

          
Stephen R. Forrest    67    2008      Audit

Professor of Electrical Engineering & Computer Science, Physics, and Materials Science & Engineering, University of Michigan

          

Strategy

Investment

Thomas J. Iannotti    61    2005      Compensation (Chair)

Senior Vice President and General Manager, Enterprise Services, Hewlett-Packard Company (retired)

          
Alexander A. Karsner    50    2008      Compensation

Managing Partner, Emerson Collective

           Governance
Adrianna C. Ma    44    2015      Investment (Chair)

Managing Partner, Fremont Group

          

Audit

Governance

Scott A. McGregor    61    2018       

President and Chief Executive Officer, Broadcom Corporation (retired)

          
Dennis D. Powell    70    2007      Audit (Chair)

Executive Vice President, Chief Financial Officer, Cisco Systems, Inc. (retired)

                

Governance

Investment

Board Practices and Composition

 

Ensuring the Board is composed of directors who possess a wide variety of relevant skills, professional experience and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of shareholders, is a top priority of the Board and the Corporate Governance and Nominating Committee.

 

Director Nominee Expertise   Key Attributes

 

 

LOGO

 

 

 

LOGO



 

ii     2018 Proxy Statement

Semiconductor Industry and Technology 6 Financial and Accounting 3 Global Business 6 Strategy and Innovation 6 Operations and Infrastructure 4 Government Policy 2 M&A and Organizational Growth 5 Risk Management 6 Public Company Board Experience 8 Executive Leadership 6 Independent Board Chair 89% Director Independence Regular refreshment resulting in average director tenure of 7 years


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2018 PROXY STATEMENT SUMMARY

 

Board Practices Support Thoughtful Board Composition

 

Board Composition to Support Company Strategy

The Board and the Corporate Governance and Nominating Committee regularly evaluate the size and composition of the Board to ensure appropriate alignment with the Company’s evolving business and strategic needs.

Director Succession Planning

The Corporate Governance and Nominating Committee reviews the short- and long-term strategies and interests of Applied to determine what current and future skills and experience are required of the Board in exercising its oversight function.

Annual Board Evaluations

The Board conducts an annual assessment of Board, Board Committees and individual directors to evaluate effectiveness.

Board Diversity

The Board values diversity of background, skills and viewpoints, and gender and ethnicity in the recruitment of new directors.

Board Refreshment

The Board believes the fresh perspectives brought by new directors are critical to a forward-looking and strategic Board when appropriately balanced by the deep understanding of Applied’s business provided by longer-serving directors.

Corporate Governance

 

We are committed to effective corporate governance that is informed by our shareholders, promotes the long-term interests of our shareholders, and strengthens Board and management accountability.

Governance Highlights

 

  Annual Election of Directors

 

  Shareholder Right to Call a Special Meeting

  Independent Chairman of the Board

 

  Annual Board, Committee and Individual Evaluations

  Highly Independent Board (9 of 10 Directors) and Committees

 

  Robust Board Succession Planning

  Majority Voting for Directors

 

  Regular Executive Sessions of Independent Directors

  No Supermajority Vote Requirements

 

  Active Shareholder Engagement Practices

  Shareholder Proxy Access

 

  No Poison Pill

  Stock Ownership Guidelines for Directors and Executives

 

  Clawback Policy for Annual and Long-Term Incentive Plans

Shareholder Engagement

We believe that strong corporate governance should include regular engagement with our shareholders to enable us to understand and respond to shareholder concerns. We have a robust shareholder outreach program led by a cross-functional team that includes members of our Investor Relations, Global Rewards and Legal departments. Independent members of our Board are also involved, as appropriate. In the fall, we solicit feedback on our executive compensation program, corporate governance and disclosure practices, and sustainability and corporate citizenship initiatives, as well as any matters voted on at our prior annual meeting. After the filing of our proxy statement, we engage again with our shareholders about important topics to be addressed at our annual meeting. Following our annual meeting, we review the results of the meeting and investor feedback, as well as evaluate emerging trends in corporate governance and other areas. We share feedback we receive from our shareholders with our Human Resources and Compensation Committee, our Corporate Governance and Nominating Committee, and the full Board. See “Shareholder Engagement” on page 12 for more information.



 

Applied Materials, Inc.    iii


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Executive Compensation

 

Company Overview

Applied Materials is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. We develop, design, produce and service semiconductor and display equipment for manufacturers that sell into highly competitive and rapidly changing end markets. At Applied Materials, our innovations make possible the technology shaping the future.

2017 Performance Highlights

In 2017, we celebrated our 50th anniversary and delivered all-time record revenue, operating profit and earnings per share.

Key highlights include:

 

    Grew revenue to $14.5 billion in fiscal 2017, up 34% from the prior year, resulting in our second consecutive year of record revenue;

 

    Achieved record revenue across all of our segments;

 

    Grew operating profit to a new all-time record, resulting in record GAAP EPS of $3.17, up 106% over fiscal 2016, and record non-GAAP adjusted EPS of $3.25, an increase of 86% over fiscal 2016 (see the Appendix for a reconciliation of non-GAAP adjusted measures);

 

    Delivered record operating cash flow of over $3.6 billion, equal to 25% of revenue; and

 

    Returned $1.6 billion to shareholders through dividends and share repurchases.

Highlights of five-year performance achievements across key financial measures

 

 

LOGO

   LOGO    LOGO

Non-GAAP adjusted operating margin and non-GAAP adjusted EPS are performance targets under our bonus and long-term incentive plans. See Appendix for non-GAAP reconciliations.



 

iv     2018 Proxy Statement

Revenue RECORD HIGH $7.5B FY’13 +93% $14.5B FY’17 Non-GAAP Operating Margin 13.7% FY’13 +14 PTS 27.9% FY’17 Non-GAAP EPS RECORD HIGH $0.59 FY’13 +451% $3.25 FY’17


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2018 PROXY STATEMENT SUMMARY

 

Strategic and Operational Highlights

In fiscal 2017, we continued to drive profitable growth by targeting major technology inflections and introducing new, differentiated, enabling products and services to help our customers address their most critical technological challenges.

 

    Increased our investments in research and development by more than $230 million over fiscal 2016, to almost $1.8 billion, and converted over 90% of our development positions into volume production wins.

 

    Delivered strong growth in key areas of our semiconductor equipment business in fiscal 2017 – our process equipment business and our metrology and inspection business delivered all-time record revenues, and our physical vapor deposition (PVD), chemical mechanical polishing (CMP) and thermal products had an especially strong year, driven by the mass adoption of advanced interconnects in logic as well as increasing use of logic-like processes in memory.

 

    Made strong gains in patterning and 3D NAND memory, and positioned the company to grow in DRAM as customers transition to new higher performance devices.

 

    Built upon Applied’s large installed base of manufacturing systems and drove a 25% increase in the number of tools under comprehensive service agreements; these agreements enable us to generate more value by helping our customers achieve and maintain higher yields, and optimize factory output and operating costs.

 

    Ramped a new generation of equipment in our Display business for Gen 10.5 display factories, allowing customers to manufacture larger and more advanced TVs, and established the leading position in thin-film encapsulation, which enables next generation OLED displays for mobile devices.

Chief Financial Officer Transition. In August 2017, we welcomed a new Chief Financial Officer, Daniel J. Durn, who succeeded Robert J. Halliday. Mr. Durn brings significant industry experience and knowledge that will further accelerate our strategy.

Stock Price Performance

Our strong strategic and financial performance in fiscal 2017 also resulted in meaningful value creation for our shareholders. As illustrated below, Applied significantly outperformed both our peer group and the S&P 500 Information Technology Index.

FY2013 – FY2017 Total Shareholder Return vs. Key Peers

 

 

LOGO



 

Applied Materials, Inc.    v


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Pay Mix

In fiscal 2017, a significant portion of our executive compensation consisted of variable compensation and long-term incentives. As illustrated below, 93% of CEO compensation for fiscal 2017 comprised variable compensation elements, and 75% of Mr. Dickerson’s overall compensation was delivered in equity with multi-year vesting.

 

FY2017 Compensation Mix1

CEO

  

All Other NEOs

 

 

LOGO

  

 

 

LOGO

 

  1Represents total direct compensation for fiscal 2017; excludes new CFO Daniel J. Durn, who joined Applied in August 2017.

Summary of Fiscal 2017 Total Direct Compensation

The following table summarizes elements of annual total direct compensation for our named executive officers (“NEOs”) for fiscal 2017, consisting of (1) base salary, (2) annual incentive bonus and (3) annual long-term incentive awards (the grant date fair value of stock awards). This table excludes amounts not considered by the HRCC to be annual total direct compensation that are required by the SEC to be reported in the Summary Compensation Table (see page 41 of this Proxy Statement).

 

Name and Principal Position   

Salary

($)

    

Annual

Incentive

Bonus

($)

    

Annual

Long-Term

Incentive

Award

($)

    

Total

($)

 

Gary E. Dickerson

     1,000,000        2,640,000        10,844,501        14,484,501  

President and Chief Executive Officer

                                   

Daniel J. Durn(1)

     138,462        —          2,952,086        3,090,548  

Senior Vice President, Chief Financial Officer

                                   

Robert J. Halliday

     625,000        1,113,750        4,231,139        5,969,889  

Former Senior Vice President, Chief Financial Officer

                                   

Ali Salehpour

     591,346        1,060,290        3,868,486        5,520,122  

Senior Vice President, General Manager, Services, Display and Flexible Technologies

                                   

Omkaram Nalamasu

     484,808        770,770        2,176,031        3,431,609  

Senior Vice President and Chief Technology Officer

                                   

Thomas F. Larkins

     480,000        702,768        2,176,031        3,358,799  

Senior Vice President, General Counsel and Corporate Secretary

                                   
(1) Mr. Durn joined Applied in August 2017. Amounts for Mr. Durn exclude a sign-on bonus and a new-hire equity award, both of which are reported in the Summary Compensation Table.


 

vi     2018 Proxy Statement

75% Long-Term Incentives 93% Variable Compensation 68% Long-Term Incentives 88% Variable Compensation


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2018 PROXY STATEMENT SUMMARY

 

Key Fiscal 2017 Executive Compensation Highlights

Key compensation decisions for fiscal 2017 included:

Limited Salary Increases for Select NEOs. Two NEOs received modest salary increases from 2016 levels to reflect each officer’s responsibilities.

Annual Bonuses Reflect Strong Company Performance. The average annual bonus payouts to our NEOs was 134% of target bonus, reflecting our strong performance against fiscal 2017 objectives.

Adopted New Long-Term Incentive Program. In response to shareholder feedback as well as a broad review of our executive compensation program in fiscal 2016, the HRCC completed a comprehensive redesign of the long-term incentive program that was effective beginning with fiscal 2017 grants. Key redesign elements included:

 

    Performance measurement periods extended from one year to three years;

 

    Tighter alignment of performance metrics with our strategic goals; and

 

    Re-balanced equity mix to achieve performance alignment and retention goals.

Our new long-term incentive program equity mix establishes a more direct balance between rigorous, performance-based incentives and retention-based incentives, both of which the HRCC believes are critical components of our compensation program. Additionally, new performance measures (non-GAAP adjusted operating margin and wafer fabrication equipment (WFE) market share) consider both our absolute and relative performance, and align with our stated strategic priorities to ensure our management team’s long-term incentives match our long-term goals.

Summary of Changes to Long-Term Incentive Program

 

 

Wholesale Redesign of the Long-Term Incentive Program

 

 

 

 

In fiscal 2017, the HRCC enacted a wholesale redesign of the long-term incentive program to address shareholder feedback and meet the needs of the evolving business

 

 

New equity mix includes performance share units (“PSUs”) to provide rigorous long-term performance alignment and restricted stock units (“RSUs”) to provide a link to shareholder value creation and retention value

 

 

PSUs (75% for CEO; 50% for all other NEOs) -- new performance measures:

 

     

3-year average non-GAAP adjusted operating margin

 

     

3-year average WFE market share

 

 

RSUs (25% for CEO; 50% for all other NEOs):

 

     

3-year ratable vesting

 

 

 

 

No performance retesting ability in new PSU design – shares not earned in performance period are forfeited

 

 

 

 

New PSU metrics have threshold, target and maximum performance levels that can result in payout below, at or above target

 

Stock Ownership Guidelines. In fiscal 2017, the HRCC approved changes to our stock ownership guidelines to increase the CEO ownership level from 5x to 6x of annual base salary and expanded the applicability of the guidelines (3x of annual base salary) to all Section 16 officers on the CEO Executive Staff.



 

Applied Materials, Inc.    vii


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Alignment of Pay with Performance

The following chart shows the alignment between total shareholder return (“TSR”) and the total direct compensation of our CEO for the last five fiscal years. While TSR has grown significantly over the last four years, our CEO’s total direct compensation has remained relatively flat during that period.

 

 

LOGO

 

(1)  Total direct compensation consists of annual base salary (annualized for 2013 for Mr. Dickerson, who became our CEO in September 2013), annual incentive bonus and annual long-term incentive award (grant date fair value of annual equity awards for all fiscal years, except for fiscal 2014, which consists of the total amount of cash-settled performance units). Total direct compensation shown above excludes other amounts required by the SEC to be reported in the Summary Compensation Table.
(2)  TSR line illustrates the total shareholder return on our common stock during the period from October 25, 2013 through October 27, 2017, assuming $100 was invested on October 25, 2013 and assuming reinvestment of dividends.


 

viii     2018 Proxy Statement


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2018 PROXY STATEMENT SUMMARY

 

Sustainability and Corporate Citizenship

 

Applied is committed to growing its business in a sustainable and socially responsible manner, and we demonstrate our commitment through our corporate citizenship programs and initiatives. We publish an annual Citizenship Report on our website to highlight our social responsibility accomplishments and provide key performance data to our shareholders. Sustainability is integrated into our operations, and we have an Environmental, Health and Safety (“EHS”) organization that is focused on maintaining a safe and healthy working environment, demonstrating environmental leadership, and meeting or exceeding regulatory compliance standards. The Head of EHS reports to the Board of Directors on a quarterly basis and provides a more in-depth environmental and sustainability update to the Audit Committee on an annual basis.

We believe that investing in operating our business in a sustainable manner, investing in our people, and investing in our communities benefits Applied and its shareholders.

 

 

Sustainability

 

    Conduct business in environmentally, socially responsible and ethical manner  

 

    Protect health and safety of workers, customers and community  

 

    Design efficient and sustainable products, to minimize environmental impact  

 

People

 

    Attract, develop and retain world-class global workforce  

 

    Value global diversity and respect local cultures where we do business  

 

    Promote personal and career development for employees to encourage innovation and engagement  

 

Community

 

    Invest in education, arts and culture, civic engagement, and environment in communities where we work and live  

 

    Support employee involvement through charitable donations and volunteer programs  

 

 

 

Key Sustainability Initiatives

 

Human Capital Management    Supply Chain

Our people are our greatest strength, and we have established practices to nurture our human capital.

 

  Advance diversity and inclusion through recruiting and mentoring programs, sponsoring employee resource groups and hosting annual diversity events with the participation of our Board, CEO and Executive Staff.

 

  Promote next generation of technology leaders by supporting STEM education programs and promoting participation of girls, women and under-represented minorities in STEM education and careers in technology.

  

Sustainable supply chains are core to our success, and we actively promote global best practices.

 

  Member of Responsible Business Alliance (formerly EICC), an industry coalition promoting safe supply chains and environmentally responsible, sustainable and ethical business operations.

 

  Committed to high standards – have adopted the RBA Code of Conduct and require companies in our global supply chain to conform to this Code.

  
Environment    Ethics

We seek to operate and develop products in a way that minimizes environmental impact.

 

  Water reduction efforts resulted in ~6.3M gallons of water recycled in 2016.

 

  Reduced non-hazardous waste by 30% in 2016.

 

  Minimize carbon footprint through on-site renewable energy production and use of green energy to support 100% of power needs of our two Santa Clara campuses.

  

We maintain the highest ethical standards in interactions with employees, customers, suppliers, competitors and public.

 

  Our Standards of Business Conduct include key provisions on human rights, including prohibitions on use of child labor or forced, bonded or indentured labor in our operations.

 

  Responsible sourcing of materials for our products.

 

  Conduct global training programs and offer 24/7 Business Ethics helplines.



 

Applied Materials, Inc.    ix


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PROPOSAL 1—ELECTION OF DIRECTORS

 

LOGO

PROXY STATEMENT

PROPOSAL 1—ELECTION OF DIRECTORS

Nominees

 

 

Applied’s Board of Directors is elected each year at the Annual Meeting of Shareholders. Applied currently has ten directors. Upon the recommendation of the Corporate Governance and Nominating Committee, the Board has nominated the ten individuals listed below for election at the Annual Meeting, each of whom currently serves as a director of Applied. These nominees bring a wide variety of relevant skills, professional experience and backgrounds, as well as diverse viewpoints and perspectives to represent the long-term interests of shareholders, and to fulfill the leadership and oversight responsibilities of the Board.

If any nominee listed below becomes unable to stand for election at the Annual Meeting, the persons named as

proxies may vote for any person designated by the Board to replace the nominee. Alternatively, the proxies may vote for the remaining nominees and leave a vacancy that the Board may fill later, or the Board may reduce the authorized number of directors. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unable or will decline to serve as a director.

Each director elected at the Annual Meeting will serve until Applied’s 2019 Annual Meeting of Shareholders and until he or she is succeeded by another qualified director who has been elected, or, if earlier, until his or her death, resignation or removal.

 

 

   

THE BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE FOLLOWING DIRECTOR NOMINEES

 

 

LOGO    

 

Judy Bruner

 

Executive Vice President, Administration and Chief Financial Officer, SanDisk Corporation (retired)

 

    
      
 
 

Independent Director

 

Director since 2016

 

Age 59

 

Board Committees:

Corporate Governance and Nominating (Chair)

Audit

 

Other Current Public Boards:

Rapid7, Inc.

Seagate Technology plc

Varian Medical Systems

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Accounting principles, financial controls, financial reporting rules and regulations, and audit procedures

 

  Global business, industry and operational experience

 

  Risk management and controls

 

  Public company board experience

          
 

 

Judy Bruner served as Executive Vice President, Administration and Chief Financial Officer of SanDisk

    

Corporation, a supplier of flash storage products, from June 2004 until its acquisition by Western Digital in May 2016. Previously, she was Senior Vice President and Chief Financial Officer of Palm, Inc., a provider of handheld computing and communications solutions, from September 1999 until June 2004. Prior to Palm, Inc., Ms. Bruner held financial management positions at 3Com Corporation, Ridge Computers and Hewlett-Packard Company. She currently serves as a member of the boards of directors of Rapid7, Inc., Seagate Technology plc and Varian Medical Systems, Inc. Ms. Bruner is a member of the board of trustees of the Computer History Museum, and previously served as a member of the board of directors of Brocade Communications Systems, Inc., from 2009 until its acquisition in November 2017.

 

 

    

 

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LOGO    

 

Xun (Eric) Chen

 

Chief Executive Officer,
BaseBit Technologies, Inc.

 

         

 

 

Independent Director

 

Director since 2015

 

Age 48

 

Board Committees:

Human Resources and Compensation

Strategy

 

Other Current Public Boards:

None

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Semiconductor industry leadership

 

  Global business, industry and operational experience in the technology and information sector

 

  Mergers and acquisitions, capital markets

 

  Public company board experience

          
 

 

Eric Chen is the Chief Executive Officer and Co-Founder of BaseBit Technologies, Inc., a technology company in

    

Silicon Valley. Dr. Chen has served as CEO of BaseBit Technologies since it was founded in October 2015, except from March 2016 until December 2017, when BaseBit was a portfolio company of Team Curis Group, a group of integrated biotechnology and data technology companies and laboratories, during which time Dr. Chen served as CEO of Team Curis Group. From 2008 to 2015, Dr. Chen served as a managing director of Silver Lake, a leading private investment firm focused on technology-enabled and related growth industries. Prior to Silver Lake, Dr. Chen was a senior vice president and served on the executive committee of ASML Holding N.V. He joined ASML following its 2007 acquisition of Brion Technologies, Inc., a company he co-founded in 2002 and served as Chief Executive Officer. Prior to Brion Technologies, Dr. Chen was a senior vice president at J.P. Morgan. He served as a member of the boards of directors of Qihoo 360 Technology Co. Ltd. from 2014 to July 2016 and of Varian Semiconductor Equipment Associates, Inc. (“Varian”) from 2004 until its acquisition by Applied in 2011.

 

    

 

LOGO    

 

Aart J. de Geus

 

Chairman and Co-Chief Executive Officer,
Synopsys, Inc.

 

         

 

 

Independent Director

 

Director since 2007

 

Age 63

 

Board Committees:

Strategy (Chair)

Investment

 

Other Current Public Boards:

Synopsys, Inc.

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Semiconductor industry leadership

 

  Innovation, management development and understanding of global challenges and opportunities

 

  Navigating a company from start-up through various stages of growth

 

  Mergers and acquisitions

 

  Public company board leadership

          
 

 

Aart J. de Geus is a co-founder of Synopsys, Inc., a provider of electronic design automation software and related services

    

for semiconductor design companies, and currently serves as its Chairman of the Board of Directors and Co-Chief Executive Officer. Since 1986, Dr. de Geus has held various positions at Synopsys, including President, Senior Vice President of Engineering and Senior Vice President of Marketing, and has served as a member of its board of directors. From 1982 to 1986, Dr. de Geus was employed by the General Electric Company, a global infrastructure, finance and media company, where he was the Manager of the Advanced Computer-Aided Engineering Group.

 

 

    

 

2    2018 Proxy Statement


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PROPOSAL 1—ELECTION OF DIRECTORS

 

 

 

LOGO

   

 

Gary E. Dickerson

 

President and Chief Executive Officer,

Applied Materials, Inc.

 

           

Director since 2013

 

Age 60

 

Other Current Public Boards:

None

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Semiconductor industry leadership

 

  Global business, industry and operational experience

 

  Extensive engineering and technological leadership

 

  Understanding of complex industry and global challenges

 

  Expertise in driving innovation and product development

 

          
 

 

Gary E. Dickerson was named President of Applied in June 2012 and was appointed Chief Executive Officer and a

    

member of the Board of Directors in September 2013. Before joining Applied, he served as Chief Executive Officer and a director of Varian, a supplier of semiconductor manufacturing equipment, from 2004 until its acquisition by Applied in November 2011. Prior to Varian, Mr. Dickerson served 18 years with KLA-Tencor Corporation, a supplier of process control and yield management solutions for the semiconductor and related industries, where he held a variety of operations and product development roles, including President and Chief Operating Officer. Mr. Dickerson started his semiconductor career in manufacturing and engineering management at General Motors’ Delco Electronics Division and AT&T Technologies.

 

 

    

 

LOGO    

 

Stephen R. Forrest

 

Professor of Electrical Engineering & Computer
Science, Physics, and Materials Science &
Engineering, University of Michigan

 

           

Independent Director

 

Director since 2008

 

Age 67

 

Board Committees:

Audit

Strategy

Investment

 

Other Current Public Boards:

None

 

Key Qualifications and Expertise:

 

  Semiconductor, display and alternative energy technologies

 

  Research and development portfolio management

 

  Government policy

 

  Innovation, technology licensing and product commercialization

 

  Establishing partnerships to develop businesses in new markets focused on alternative energy and other technologies

          
 

 

Stephen R. Forrest holds faculty appointments as

    

Professor of Electrical Engineering and Computer Science, as Professor of Physics, and as Professor of Materials Science and Engineering at the University of Michigan, and leads the University’s Optoelectronics Components and Materials Group. From January 2006 to December 2013, Mr. Forrest also served as Vice President for Research at the University of Michigan. From 1992 to 2005, Dr. Forrest served in a number of positions at Princeton University, including Chair of the Electrical Engineering Department, Director of the Center for Photonics and Optoelectronic Materials, and director of the National Center for Integrated Photonic Technology. Prior to Princeton, Dr. Forrest was a faculty member of the Electrical Engineering and Materials Science Departments at the University of Southern California.

 

 

    
        

 

 

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LOGO    

 

Thomas J. Iannotti

 

Senior Vice President and General Manager,
Enterprise Services, Hewlett-Packard Company
(retired)

 

  

      

 

Chairman of the Board

 

Independent Director

 

Director since 2005

 

Age 61

 

Board Committees:

Human Resources and Compensation (Chair)

 

Other Current Public Boards:

Atento S.A.

 

Key Qualifications and Expertise:

 

  Service management for technology companies on a global, regional and country level

 

  Senior leadership and management experience

 

  Global business, industry and operational experience

 

  International strategic and business development

 

  Public company board experience

 

          
 

 

Thomas J. Iannotti served as Senior Vice President and

    

General Manager, Enterprise Services, for Hewlett-Packard Company, a technology solutions provider to consumers, businesses and institutions globally, from February 2009 until his retirement in October 2011. From 2002 to January 2009, Mr. Iannotti held various executive positions at Hewlett-Packard, including Senior Vice President and Managing Director, Enterprise Business Group, Americas. From 1978 to 2002, Mr. Iannotti worked at Digital Equipment Corporation, a vendor of computer systems and software, and at Compaq Computer Corporation, a supplier of personal computing systems, after its acquisition of Digital Equipment Corporation. Mr. Iannotti currently serves as a member of the board of directors of Atento S.A.

 

    

 

 

LOGO    

 

Alexander A. Karsner

 

Managing Partner, Emerson Collective

 

           

Independent Director

 

Director since 2008

 

Age 50

 

Board Committees:

Human Resources and Compensation

Corporate Governance and Nominating

 

Other Current Public Boards:

None

 

Key Qualifications and Expertise:

 

  Expertise in public policy and government relations

 

  Domestic and international trade, development and investment markets

 

  Entrepreneurial leadership

 

  Renewable energy policy, technologies and commercialization

 

  Public company board experience

          
 

 

Alexander A. Karsner has served as Managing Partner of Emerson Collective, an investment platform funding non-profit, philanthropic and for-profit portfolios advancing

    

education, immigration, the environment and other social justice initiatives, since January 2016. Mr. Karsner has been Founder and CEO of Manifest Energy Inc., an energy technology development and investment firm, since July 2009, and has served as its Executive Chairman since January 2013. From March 2006 to August 2008, he served as Assistant Secretary for Energy Efficiency and Renewable Energy at the U.S. Department of Energy. From August 2002 to March 2006, Mr. Karsner was Founder and Managing Director of Enercorp, a private company involved in international project development, management and financing of energy infrastructure. Mr. Karsner has also worked with Tondu Energy Systems of Texas, Wartsila Power Development of Finland and other multi-national energy firms and developers. He is also Senior Strategist at X, part of Alphabet Inc., and a Precourt Energy Scholar at Stanford University’s School of Civil and Environmental Engineering, and serves on Advisory Boards of MIT Medialab, Sandia National Laboratory and The Polsky Center for Entrepreneurship at the University of Chicago’s Booth School of Business. Mr. Karsner served as a member of the board of directors of Codexis, Inc. from 2009 to 2014.

 

    

 

4    2018 Proxy Statement


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PROPOSAL 1—ELECTION OF DIRECTORS

 

 

 

LOGO    

 

Adrianna C. Ma

 

Managing Partner, Fremont Group

 

           

Independent Director

 

Director since 2015

 

Age 44

 

Board Committees:

Investment (Chair)

Audit

Corporate Governance and Nominating

 

Other Current Public Boards:

None

 

Key Qualifications and Expertise:

 

  Broad experience with technology companies

 

  Expertise in global growth investment

 

  Financial and accounting expertise

 

  Mergers and acquisitions, capital markets

 

  Board experience with technology-enabled growth companies

          
 

 

Adrianna C. Ma has been a Managing Partner at the Fremont Group, a private investment company, since May 2015. At the Fremont Group, she oversees BF Global, the flagship portfolio

    

of funds, including its investment strategy, asset allocation, manager selection and risk management. From 2005 to April 2015, Ms. Ma served as a Managing Director at General Atlantic LLC, a global growth equity firm, where she invested in and served on the boards of directors of technology-enabled growth companies around the world. Prior to joining General Atlantic, Ms. Ma worked at Morgan Stanley & Co. Incorporated as an investment banker in the Mergers, Acquisitions and Restructuring Department. Ms. Ma served as a member of the board of directors of C&J Energy Services, Inc. from 2013 to 2015.

 

 

    

 

 

LOGO    

 

Scott A. McGregor

 

President and Chief Executive Officer,
Broadcom Corporation (retired)

 

           

Independent Director

 

Director since 2018

 

Age 61

 

Other Current Public Boards:

Equifax Inc. (since October 2017)

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Semiconductor industry leadership

 

  Global business, industry and operational experience

 

  Innovation, management development and understanding of global challenges and opportunities

 

  Public company Board leadership

 

          
    Scott A. McGregor served as President and Chief Executive Officer and as a member of the board of directors of     

Broadcom Corporation, a world leader in wireless connectivity, broadband, automotive and networking infrastructure, from 2005 until the company was acquired by Avago Technologies Limited in 2016. Mr. McGregor joined Broadcom from Philips Semiconductors (now NXP Semiconductors), where he was President and Chief Executive Officer. He previously served in a range of senior management positions at Santa Cruz Operation Inc., Digital Equipment Corporation (now part of HP), Xerox PARC and Microsoft, where he was the architect and development team leader for Windows 1.0. Mr. McGregor currently serves as a member of the board of directors of Equifax Inc. He previously served as a member of the boards of directors of Ingram Micro Inc. and Xactly Corporation.

 

    

 

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LOGO    

 

Dennis D. Powell

 

Executive Vice President, Chief Financial Officer,
Cisco Systems, Inc. (retired)

 

           

Independent Director

 

Director since 2007

 

Age 70

 

Board Committees:

Audit (Chair)

Corporate Governance and Nominating

Investment

 

Other Current Public Boards:

Intuit, Inc.

 

Key Qualifications and Expertise:

 

  Global financial and executive leadership

 

  Accounting principles, financial controls, financial reporting rules and regulations, and audit procedures

 

  Mergers and acquisitions

 

  Risk management and controls

 

  Public company board experience

          
 

 

Dennis D. Powell served as an Executive Advisor at Cisco Systems, Inc., a provider of networking products

    

and services, from February 2008 to September 2010. He served as Cisco’s Chief Financial Officer from May 2003 to February 2008 and, in addition, served as an Executive Vice President from 2007 to 2008 and a Senior Vice President from 2003 to 2007. After joining Cisco in 1997, Mr. Powell also served as Senior Vice President, Corporate Finance and Vice President, Corporate Controller. Before joining Cisco, Mr. Powell worked for 26 years at Coopers & Lybrand LLP, an accounting firm, where he was last a senior partner. Mr. Powell served as a member of the board of directors of VMware, Inc. from 2007 to 2015 and currently serves as a member of the board of directors of Intuit, Inc.

 

    

 

 

 

Chairman Emeritus

James C. Morgan became Chairman Emeritus in March 2009, following his retirement as our director and Chairman of the Board. Mr. Morgan spent more than 31 years as a director and employee of Applied, including over 20 years as

Chairman of the Board. Mr. Morgan first joined Applied in 1976 and served as Chief Executive Officer from 1977 to 2003. As Chairman Emeritus, Mr. Morgan does not attend any Board or Committee meetings, has no voting rights and receives no retainer or meeting fees.

 

 

6    2018 Proxy Statement


Table of Contents

BOARD AND CORPORATE GOVERNANCE PRACTICES

 

BOARD AND CORPORATE GOVERNANCE PRACTICES

Board Composition and Nominee Considerations

 

 

Nominee Skills and Experience

Our director nominees have a wide variety of relevant skills, professional experience and backgrounds, and collectively bring to our Board diverse viewpoints and perspectives that

strengthen its ability to represent the long-term interests of shareholders. The chart below illustrates broad categories of skills and expertise that our director nominees offer that we believe contribute to the effective leadership and exercise of oversight responsibilities by the Board.

 

 

 

LOGO

 

Diversity. Because diverse backgrounds, experiences and perspectives foster thoughtful and robust discussion and decision-making, our Corporate Governance and Nominating Committee (the “Governance Committee”) and the Board place great value on a diversity of background, skills and viewpoints, gender and ethnicity among the directors when considering potential director candidates and nominees. Among the factors the Governance Committee considers in identifying and evaluating a potential director is the extent to which the candidate would add to the diversity of the Board.

Independence. The Governance Committee also expects each non-employee director to be free of relationships, interests or affiliations that could give rise to conflicts of interest or interfere with the director’s exercise of independent judgment. Applied’s Corporate Governance Guidelines require that a majority of our directors must be independent, and that our Audit, Human Resources and Compensation, and Corporate Governance and Nominating Committees must consist solely of independent directors.

Director independence is determined under Nasdaq listing standards and SEC rules. The Board has affirmatively

determined that all members of the Board who served during 2017 and all director nominees, other than Mr. Dickerson, our Chief Executive Officer, are independent under applicable Nasdaq listing standards and SEC rules.

Tenure. The Board believes that new ideas and perspectives are critical to a forward-looking and strategic Board, as are the valuable experience and deep understanding of Applied’s business and industries that longer-serving directors offer. Our Governance Guidelines do not impose a tenure limit on Board service, and ongoing Board refreshment has resulted in a balanced range of tenures which ensures both continuity and fresh perspectives among our director nominees.

Although our directors are not typically nominated for re-election after they reach the age of 70, after due consideration, the Board waived this policy with respect to Mr. Powell based on its determination that it would be beneficial to have Mr. Powell continue to serve as director due to his financial and accounting expertise, his deep knowledge of the Company, and his leadership role as Chair of the Audit Committee.

 

 

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Our nominees have an average tenure of 6 years, which is lower than the average tenure of other S&P 500 companies, and four of our nominees have been members of the Board for four years or less.

 

 

Regular

refreshment

resulting in

average director

tenure of 6 years

   LOGO

 

Board Composition and Refreshment

Identification of New Director Candidates. Identifying and recommending individuals for nomination and election to our Board is a principal responsibility of our Governance Committee, which carries out this function through an ongoing, year-round process.

The Governance Committee regularly considers the size and composition of the Board and assesses whether the composition appropriately aligns with the Company’s evolving business and strategic needs. The focus is on ensuring that the Board is composed of directors who possess a wide variety of relevant skills, professional experience and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of shareholders.

In its consideration of potential director candidates, the Governance Committee reviews the short- and long-term strategies and interests of the Company to determine what current and future skills and experience are required of the Board in exercising its oversight function. Specific search criteria evolve over time to reflect the Company’s dynamic business and strategic needs and the changing composition of the Board, and may focus on such factors as:

 

    Operating experience or thought leadership in key markets, industries, technologies or business models that are aligned with the Company’s strategic growth plans;

 

    Business or cultural background in regions where the company does significant business;

 

    Senior executive leadership and management experience; and

 

    Subject matter expertise in such areas as corporate finance and financial reporting, governance, compensation and marketing.

The Governance Committee also considers succession planning in light of anticipated retirements, and for Board and Committee Chair roles, to maintain relevant expertise and depth of experience.

In addition, all director candidates are also expected to possess or demonstrate:

 

    Sound judgment, analytical and inquisitive perspective, and practical wisdom;
    Strategic mindset and engaged and collaborative approach;

 

    Independence, personal and professional ethics, integrity and values; and

 

    Commitment to representing the long-term interests of Applied’s shareholders.

The Governance Committee may retain a search firm to assist in identifying and evaluating new candidates for director nominees and may also consider referrals from directors, shareholders or other sources. Mr. McGregor, who joined our Board in January 2018, was identified and vetted as a potential candidate by a third-party search firm for consideration by the Governance Committee. The Governance Committee evaluates and interviews potential Board candidates and makes appointment recommendations to the full Board. All members of the Board may interview candidates.

Recent Board Refreshment. As a result of the foregoing process, the Board has added four new directors over the last three years. The appointments of Dr. Chen and Ms. Ma in 2015, Ms. Bruner in 2016, and Mr. McGregor in 2018 have brought valuable and diverse backgrounds and perspectives to the overall composition of the Board:

 

    Dr. Chen is an accomplished CEO with technological expertise and extensive experience in technology-enabled and related growth industries around the world.

 

    Ms. Ma has a broad financial perspective and a strong technical background, as well as experience in global growth investing, capital markets and mergers and acquisitions.

 

    Ms. Bruner is a well-respected former CFO with deep experience in the global high-tech industry and expertise in driving business growth and scale.

 

    Mr. McGregor is a former CEO who brings to our Board deep experience in the global semiconductor industry, as well as experience in innovation, management development, and understanding global challenges and opportunities.
 

 

8    2018 Proxy Statement


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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

Regular Review of Board Composition that Drives Refreshment

 

 

LOGO

 

Re-nomination of Directors for Election at Annual Meeting. In considering whether to recommend re-nomination of a director for election at our Annual Meeting, the Governance Committee considers factors such as:

 

    The extent to which the director’s skills, qualifications and experience continue to contribute to the success of our Board;

 

    Feedback from the annual Board evaluations and individual discussions between each non-employee director and our Chairman;

 

    Attendance and participation at, and preparation for, Board and Committee meetings;

 

    Shareholder feedback, including the support received by director nominees elected at our 2017 Annual Meeting;

 

    Outside board and other affiliations, including any actual or perceived conflicts of interest; and
    The extent to which the director continues to contribute to the diversity of our Board.

Based on the Governance Committee’s recommendation, the Board selects director nominees and recommends them for election by Applied’s shareholders.

Shareholder Recommendations or Nominations. The evaluation procedures described above apply to all candidates for director nomination, including candidates submitted by shareholders. Shareholders wishing to recommend a candidate for consideration by the Governance Committee should submit the candidate’s name, biographical data and a description of his or her qualifications in light of the criteria listed above to Thomas F. Larkins, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1241, P.O. Box 58039, Santa Clara, CA 95052, or by e-mail at corporatesecretary@amat.com.

Shareholders wishing to nominate a director should follow the specific procedures set forth in our Bylaws.

 

 

Corporate Governance

 

 

Corporate Governance Guidelines

Applied’s Corporate Governance Guidelines establish the governance framework within which the Board conducts its business and fulfills its responsibilities. These guidelines and

other important governance materials are available on our website at: http://www.appliedmaterials.com/company/investor-relations/governance-documents.

 

 

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The Board regularly reviews our Corporate Governance Guidelines in light of legal and regulatory requirements, evolving best practices and other developments.

Board Leadership

Our corporate governance framework provides the Board flexibility to determine the appropriate leadership structure for the Company, and whether the roles of Chairman and CEO should be separated or combined. In making this determination, the Board considers many factors, including the needs of the business, the Board’s assessment of its leadership needs from time to time and the best interests of shareholders. If the role of Chairman is filled by a director who does not qualify as an independent director, the Board will designate a Lead Independent Director.

The Board believes that it is currently appropriate to separate the roles of Chairman and CEO. The CEO is responsible for setting our strategic direction and the day-to-day leadership of our business, while the Chairman, along with the rest of our independent directors, ensures that the Board’s time and attention are focused on effective oversight of the matters most critical to Applied. Mr. Iannotti, an independent director, currently serves as the Chairman of the Board. Mr. Iannotti has significant experience and knowledge of Applied, working with two CEOs and different management teams at Applied, and the Board believes that his deep knowledge of the company and

industry, as well as his strong leadership and governance experience, enable him to lead the Board effectively and independently.

Board and Committee Evaluations

Our Board recognizes that a thorough, constructive evaluation process enhances our Board’s effectiveness and is an essential element of good corporate governance. Every year, the Governance Committee oversees the design and execution of the evaluation process, which involve assessments of the Board, each standing committee of the Board, and individual directors. Written questionnaires solicit feedback on a range of issues, including Board and Committee structure and composition; meeting process and dynamics; execution of key responsibilities; interaction with management; and information and resources.

Following completion of the written questionnaires, the Chairman meets with each director individually to discuss additional input on these topics and to provide individual feedback. Committee chairs lead a discussion of evaluation results for their respective Committees, and a summary of Board and Committee evaluation results is discussed with the full Board, including suggestions for updating policies and practices per evaluation results. Director suggestions for improvements to evaluation questionnaires and process are considered for incorporation for the following year.

 

 

2017 Board Evaluation Process

 

 

LOGO

 

10    2018 Proxy Statement


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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

Shareholder Rights

In addition to direct engagement through our recurring shareholder engagement program discussed below, Applied has instituted a number of mechanisms that allow shareholders to advance their points of view, including:

Right to Call a Special Meeting. Our Bylaws permit shareholders holding at least 20% of our outstanding shares of common stock to call a special meeting.

Proxy Access. Our Bylaws permit proxy access. Any shareholder (or group of up to 20 shareholders) owning 3% or more of Applied’s common stock continuously for at least three years may nominate up to two individuals or 20% of our Board, whichever is greater, as director candidates for election to the Board, and require us to include such nominees in our annual meeting proxy statement if the shareholders and nominees satisfy the requirements contained in our Bylaws.

Majority Voting. Under our Bylaws, in any uncontested election of directors (an election in which the number of nominees does not exceed the number of directors to be elected), any nominee who receives a greater number of votes cast “for” his or her election than votes cast “against” his or her election will be elected.

Our Bylaws provide that in the event an incumbent director receives more “against” than “for” votes, he or she shall tender his or her resignation after certification of the shareholder vote. Our Governance Committee, composed entirely of independent directors, will consider the offer of resignation, taking into consideration all factors it deems relevant, and recommend to the Board the action to be taken. The Board must take action on the recommendation within 90 days following certification of the shareholder vote. No director who tenders an offer of resignation may participate in the vote on the Governance Committee’s recommendation or the Board’s determination of whether to accept the resignation offer. Applied will publicly disclose the Board’s decision, including, if applicable, the reasons for rejecting an offer to resign.

Board’s Role in Risk Oversight

Applied’s management has day-to-day responsibility for identifying risks and assessing them in relation to Company strategies and objectives; implementing suitable risk mitigation plans, processes and controls; and appropriately managing risks in a manner that serves the best interests of Applied, its shareholders and other stakeholders.

Applied has implemented an enterprise risk management program (“ERM”), overseen by the Audit Committee, for the purpose of providing an enterprise-wide perspective on Applied’s risks. The risks identified are reported to the Board, which has oversight for risk management, with a focus on the most significant risks facing the Company, including strategic, operational, financial, and legal and compliance risks. The Board in turn delegates oversight responsibility for specific

risks to the respective Board Committees in whose area of responsibility and expertise the risks fall. Management reviews the ERM program activities regularly with the Audit Committee and the Board.

Throughout the year, the Board and the Committees review and discuss specific risk topics in greater detail.

 

  Our Audit Committee oversees the enterprise risk management program, as well as risks related to financial, regulatory, compliance, cybersecurity and environmental, health and safety matters, and regularly reviews with management, the head of internal audit and the independent accountants the steps taken to monitor and mitigate risk exposures.

 

  Our Governance Committee oversees the management of risks related to corporate governance matters, including director independence and Board composition and succession.

 

  Our Human Resources and Compensation Committee oversees risks associated with Applied’s compensation policies, plans and practices, organizational talent and culture, and management succession.

Risk Assessment of Compensation Programs. We have assessed our compensation policies, plans and practices, and determined that they do not create risks that are reasonably likely to have a material adverse effect on Applied. To make this determination, our management reviewed our compensation policies, plans and practices, and assessed the following aspects: design, payment methodology, potential payment volatility, relationship to our financial results, length of performance period, risk-mitigating features, performance measures and goals, oversight and controls, and plan features and values compared to market practices. Management reviewed its analysis with the Human Resources and Compensation Committee, which agreed with this determination. Applied also has in place various controls to mitigate risks relating to compensation policies, plans and practices, such as executive stock ownership guidelines and a clawback policy that enables the recovery of certain incentive compensation payments in certain circumstances.

Management Succession Planning

The Board has delegated to the Human Resources and Compensation Committee (“HRCC”) primary responsibility for management succession planning and executive organizational development. The HRCC reviews and advises on management’s succession and development programs for the CEO and other senior executives, with an eye toward ensuring readiness of succession candidates who can assume top management positions without undue interruption. Board members have opportunities throughout the year to engage with members of senior management in a variety of settings, including Board meetings and events, preparatory meetings, analyst meetings and internal and external business and

 

 

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technology conferences. The HRCC and Board also regularly discuss matters related to organizational health and discuss individual executive transitions as the need arises over the course of the year. The Board’s goal is to have a long-term and continuing process for effective senior leadership development and succession and to ensure that there are ready choices available when the time is right.

Shareholder Engagement

We believe that strong corporate governance should include regular engagement with our shareholders to enable us to understand and respond to shareholder concerns.

Our senior management team, including our CEO, CFO and members of our Investor Relations team, maintain regular contact with a broad base of investors, including through quarterly earnings calls, an annual analyst day event, individual meetings and other channels for communication, to understand their concerns. In 2017, senior management participated in over 400 meetings with investors, including more than 200 meetings with the CFO and more than 40 with our CEO.

In addition, we have a robust shareholder outreach program, developed over the last several years, that focuses on compensation and governance issues of interest to our shareholders. The outreach is a recurring, year-round effort, led by a cross-functional team that includes members of our Investor Relations, Global Rewards and Legal departments, which enables us to build meaningful relationships and trust over time with our shareholders. In the fall, we solicit feedback on our executive compensation program, corporate governance and disclosure practices, and sustainability and corporate citizenship initiatives, as well as any matters voted on at our prior annual meeting. After the filing of our proxy statement, we engage again with our shareholders about important topics to be addressed at our annual meeting. Following our annual meeting, we review the results of the meeting and investor input, as well as evaluate emerging trends in corporate governance and other areas. We share input we receive from our shareholders with our Human Resources and Compensation Committee, our Corporate Governance and Nominating Committee, and our Board on an ongoing basis throughout the year.

 

LOGO

During 2017, we engaged with a significant cross-section of our shareholder base, including large institutional investors, pension funds, and other investors. We reached out to holders of over 50% of our outstanding shares and spent a significant amount of time discussing key business, Board, governance, executive compensation, and sustainability matters, as well as other topics of interest to our shareholders.

We have sought and considered shareholder feedback in recent years as we have implemented changes to our compensation program design and certain of our corporate governance practices.

Executive Compensation. During the fall of 2016, we conducted extensive shareholder outreach efforts as part of a broad review of our executive compensation program and in response to shareholder input at the time of our 2016 Annual Meeting. We contacted the holders of approximately 43% of

 

 

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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

our outstanding shares, and engaged in active discussions with holders representing 25% of our shares outstanding.

As a result of this program review and shareholder outreach, the Human Resources and Compensation Committee made several changes to the annual bonus program effective beginning in fiscal 2016, and completed a comprehensive redesign of the long-term incentive program effective beginning in fiscal 2017. These changes enhanced alignment with Applied’s strategic priorities and directly reflected the input provided by shareholders.

Proxy Access. In the fall of 2015, we discussed with our shareholders their views on proxy access. Shareholders expressed varying points of view: while some indicated support for proxy access, others expressed concerns about the potential costs and disruption that it could impose without appropriate terms and safeguards. Following these discussions, we amended our Bylaws in December 2015 to implement proxy access with terms that reflected the views expressed by our shareholders.

Special Meeting Right. We engaged in an extensive shareholder outreach effort in the spring of 2015 to discuss the implementation of a shareholder right to call a special meeting. Many shareholders supported implementation of the right at a 20% ownership threshold. As a result of this effort, and after careful consideration of the issue, in December 2015, we amended our Bylaws to permit shareholders holding at least 20% of our outstanding shares of common stock to call a special meeting.

Shareholder Communications

Any shareholder wishing to communicate with any of our directors regarding Applied may write to the director, c/o Thomas F. Larkins, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1241,

P.O. Box 58039, Santa Clara, CA 95052, or by e-mail at corporatesecretary@amat.com. The Corporate Secretary reviews correspondence directed to the Board and, at the Corporate Secretary’s discretion, forwards items that he deems appropriate for the Board’s consideration. The independent directors of the Board review and approve the shareholder communication process periodically in order to enable an effective method by which shareholders can communicate with the Board.

Stock Ownership Guidelines

The Board has adopted stock ownership guidelines to align the interests of our directors and executive officers with those of our shareholders. The guidelines provide that non-employee directors should each own Applied stock with a value of at least five times the annual base retainer for non-employee directors. Applied’s Chief Executive Officer should own Applied stock with a value of at least six times his annual base salary. Each Section 16 officer on the CEO Executive Staff should own Applied stock with a value of at least three times his or her annual base salary. As of December 31, 2017, all of our directors and executive officers had met the stock ownership guidelines.

Standards of Business Conduct

Applied’s Standards of Business Conduct embody our commitment to ethical and legal business practices. The Board expects Applied’s directors, officers and all other members of its workforce to act ethically at all times and to acknowledge their commitment to Applied’s Standards of Business Conduct. The Standards of Business Conduct are available on our website at:

http://www.appliedmaterials.com/company/investor-relations/governance-documents.

 

 

Board Meetings and Committees

 

 

The Board met five times in fiscal 2017. Each director attended over 75% of all Board and applicable committee meetings held during fiscal 2017. Directors are strongly encouraged to attend the Annual Meeting of Shareholders, and all of the directors serving on our Board at the time attended our 2017 Annual Meeting of Shareholders.

The Board has three principal committees performing the functions required by applicable SEC rules and Nasdaq listing standards to be performed by independent directors: the Audit Committee, the Human Resources and Compensation Committee, and the Corporate Governance and Nominating

Committee. Each of these committees meets regularly and has a written charter approved by the Board that is reviewed annually by the respective committee and by the Board.

In addition, at each regularly-scheduled Board meeting, the Chair of each committee reports on any significant matters addressed by the committee since the last Board meeting. Each director who serves on the Audit Committee, Human Resources and Compensation Committee, or Corporate Governance and Nominating Committee is an independent director under applicable Nasdaq listing standards and SEC rules.

 

 

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Copies of the current charters for the Audit, Human Resources and Compensation, and Corporate Governance and Nominating Committees can be found on our website at: http://www.appliedmaterials.com/company/investor-relations/governance-documents.

The Board also has a Strategy Committee and an Investment Committee, whose roles and responsibilities are described in Applied’s Corporate Governance Guidelines.

 

 

 Audit Committee

 

Members:

 

Dennis D. Powell, Chair*

Judy Bruner*

Stephen R. Forrest+

Adrianna C. Ma*

 

Primary responsibilities:

 

  Oversee financial statements, internal control over financial reporting and auditing, accounting and financial reporting processes

  Oversee the qualifications, independence, performance and engagement of our independent registered public accounting firm

  Oversee disclosure controls and procedures, and internal audit function

  Review and pre-approve audit and permissible non-audit services and fees

  Oversee tax, legal, regulatory and ethical compliance

  Review and approve related-person transactions

  Oversee financial-related risks, enterprise risk management program and cybersecurity

 

   Meetings in
Fiscal 2017: 12

*  Audit Committee Financial Expert

+   Appointed to Committee in March 2017

 

 

      

 

 Human Resources and Compensation Committee

 

Members:

 

Thomas J. Iannotti, Chair

Xun (Eric) Chen

Alexander A. Karsner

 

Primary responsibilities:

 

  Oversee human resources programs, compensation and employee benefits programs, policies and plans

  Review and advise on management succession planning and executive organizational development

  Determine compensation policies for executive officers and employees

  Review the performance and determine the compensation of executive officers

  Approve and oversee equity-related incentive plans and executive bonus plans

  Review compensation policies and practices as they relate to risk management practices

  Approve the compensation program for Board members

 

 

   Meetings in
Fiscal 2017: 5

 

 Corporate Governance and Nominating Committee

 

Members:

 

Judy Bruner, Chair+

Alexander A. Karsner

Adrianna C. Ma+

Dennis D. Powell

 

Primary responsibilities:

 

  Oversee the composition, structure and evaluation of the Board and its committees

  Identify and recommend qualified candidates for election to the Board

  Establish procedures for director candidate nomination and evaluation

  Oversee corporate governance policies and practices, including Corporate Governance Guidelines

  Review and approval of director service on the board of directors of other companies and oversight of director education

  Review shareholder proposals and recommend to the Board actions to be taken in response to each proposal

  Review and monitor takeover defenses and takeover defense preparedness to maximize long-term shareholder value

 

   Meetings in
Fiscal 2017: 8

+   Appointed to Committee in March 2017

 

 

    

 

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DIRECTOR COMPENSATION

 

DIRECTOR COMPENSATION

Compensation Program for Directors

 

 

We compensate our non-employee directors for their service on the Board with a combination of cash and equity awards. Directors who are employees of Applied do not receive any compensation for their service as directors. In March 2017, the Human Resources and Compensation Committee, comprised solely of independent directors, approved changes to the compensation program for non-employee directors after consideration of market data and based on the recommendation of its independent compensation consultant. These changes, which were effective beginning with the second fiscal quarter of 2017, included:

 

    Increasing the annual base retainer from $65,000 to $70,000 and the additional annual retainer for Committee chairs;

 

    Increasing the value of annual equity awards from $200,000 to $225,000;

 

    Replacing Committee meeting fees with annual retainers for members of the Audit Committee, Human Resources and Compensation Committee, Corporate Governance and Nominating Committee, and Strategy Committee; and

 

    Maintaining meeting fees for members of the Investment Committee and other ad-hoc committees that do not meet regularly and increasing the meeting fee for ad-hoc committee chairs.

Prior to these changes, the cash compensation, consisting of annual retainers and committee meeting fees, and the grant date fair market value of annual equity awards for our non-employee directors had not changed since fiscal 2009.

Retainer and Meeting Fees

Each non-employee director currently receives an annual cash retainer for his or her service on the Board, as well as additional cash retainers if he or she serves as the Chairman of the Board, on a committee or as the chair of a committee. Annual retainers are paid quarterly and are prorated based on the director’s service during the fiscal year. The following table sets forth cash compensation for non-employee directors in effect during fiscal 2017.

      Effective
through
Q1 FY 2017
    

Effective
as of

Q2 FY 2017

 

Annual Base Retainer (prorated and paid quarterly)

   $ 65,000      $ 70,000  

Fee per Committee Meeting Attended

   $ 2,000      $ 0  

Additional Annual Retainers for Committee Service (prorated and paid quarterly):

                 

Audit Committee

   $ 0      $ 25,000  

Human Resources and Compensation Committee

   $ 0      $ 12,500  

Corporate Governance and Nominating Committee

   $ 0      $ 10,000  

Strategy Committee

   $ 0      $ 10,000  

Additional Annual Retainers for Chairman and Committee Chairs (prorated and paid quarterly):

                 

Chairman of the Board

   $ 150,000      $ 150,000  

Audit Committee Chair

   $ 20,000      $ 25,000  

Human Resources and Compensation Committee Chair

   $ 15,000      $ 20,000  

Corporate Governance and Nominating Committee Chair

   $ 10,000      $ 12,500  

Strategy Committee Chair

   $ 10,000      $ 12,500  

In addition, non-employee directors receive $2,000 per meeting for service on the Investment Committee or other ad-hoc committee of which they are a member, or $3,000 per meeting if they are the chair of such a committee. Non-employee directors are reimbursed for travel and other reasonable out-of-pocket expenses related to attendance at Board and committee meetings, business events on behalf of Applied, and seminars and programs on subjects related to their Board responsibilities.

 

 

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Equity Compensation

Initial Grant. Upon initial appointment or election to the Board, a non-employee director receives a grant of restricted stock units with respect to a number of shares of Applied common stock with a fair market value on the date of grant equal to $225,000 (rounded down to the nearest whole share), pro-rated based on the period starting on the day of initial appointment or election and ending on the day of the next scheduled annual meeting of shareholders.

Annual Grant. Each non-employee director elected at an annual meeting receives on that date a non-discretionary grant of restricted stock units with respect to a number of shares of Applied common stock with a fair market value on the date of grant equal to $225,000 (rounded down to the nearest whole share). A non-employee director who is initially appointed or elected to the Board on the day of an annual meeting of shareholders receives only an annual grant. Each of our non-employee directors re-elected at the 2017 Annual Meeting received a grant of 6,019 restricted stock units on that date.

Vesting. Grants made to our non-employee directors vest in full on the earlier of March 1 of the year following the date of grant or the next annual meeting, provided the non-employee

director remains on the Board through the scheduled vesting date. Vesting of these grants will be accelerated in full upon a non-employee director’s earlier termination of service on the Board due to disability or death, or upon a change of control of Applied if the director ceases to be a non-employee director (and does not become a member of the board of directors of any successor corporation or its parent). Non-employee directors may elect in advance to defer receipt of vested shares until their termination of service on the Board.

Limit on Awards. Under our amended and restated Employee Stock Incentive Plan, grants of equity awards to any individual non-employee director may not exceed a fair market value totaling more than $400,000 in any fiscal year.

Charitable Matching Contributions

Non-employee directors are eligible to participate in The Applied Materials Foundation Matching Gift Program, under which the Foundation annually will match up to $3,000 of a non-employee director’s donations to eligible non-profit civic, arts, environmental and educational organizations. Non-employee directors are subject to the same maximum matching amount and other terms as those for Applied’s employees.

 

 

Director Compensation for Fiscal 2017

 

 

  Name      Fees Earned
or Paid in
Cash
($)
       Stock
Awards
($)(1)(2)
       All Other
Compensation
($)(3)
       Total
($)
 

  Judy Bruner

       108,026          222,643          3,000          333,669  

  Xun (Eric) Chen

       91,625          222,643          2,000          316,268  

  Aart J. de Geus

       92,125          222,643          —            314,768  

  Stephen R. Forrest

       96,390          222,643          —            319,033  

  Thomas J. Iannotti

       202,760          222,643          1,750          427,153  

  Susan M. James(4)

       41,017          —            —            41,017  

  Alexander A. Karsner

       94,669          222,643          2,000          319,312  

  Adrianna C. Ma

       102,956          222,643          —            325,599  

  Scott A. McGregor(5)

       —            —            —            —    

  Dennis D. Powell

       130,750          222,643          —            353,393  

  Willem P. Roelandts(4)

       76,717          —            —            76,717  
(1) Amounts shown do not reflect compensation actually received by the directors. Instead, these amounts represent the grant date fair value of stock awards granted in fiscal 2017 (consisting of 6,019 restricted stock units granted to each continuing director on March 9, 2017), as determined pursuant to FASB Accounting Standards Codification 718 (“ASC 718”). The assumptions used to calculate the value of stock awards are set forth in Note 11 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2017 filed with the SEC on December 15, 2017.
(2) Each continuing director had 6,019 restricted stock units outstanding at the end of fiscal 2017. In addition, certain directors had restricted stock units that had vested in previous years and for which settlement was deferred until the date of his or her termination of service from the Board, as follows: Mr. Chen, 10,219 units; Ms. Ma, 10,219 units; and Mr. Powell, 57,191 units.
(3) Amount shown represents The Applied Materials Foundation’s matching contribution of the director’s donations to eligible non-profit organizations.
(4) The term of office for each of Ms. James and Mr. Roelandts expired upon the election of directors at the 2017 annual meeting of shareholders on March 9, 2017, so they did not receive annual grants in fiscal 2017.
(5)  Mr. McGregor was appointed to the Board in fiscal 2018.

 

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STOCK OWNERSHIP INFORMATION

 

STOCK OWNERSHIP INFORMATION

Principal Shareholders

 

The following table shows the number of shares of our common stock beneficially owned as of December 31, 2017 by each person known by Applied to own 5% or more of our common stock. In general, “beneficial ownership” refers to shares that an entity or individual had the power to vote or the power to dispose of, and shares that such entity or individual had the right to acquire within 60 days after December 31, 2017.

 

    Shares Beneficially Owned  
Name       Number         Percent(1)  

The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355

    70,920,938 (2)      6.7

BlackRock, Inc.
55 East 52nd Street
New York, NY 10055

    66,066,425 (3)      6.3
(1) Percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by 1,051,802,947 shares of common stock outstanding as of December 31, 2017.
(2) The amended Schedule 13G filed with the SEC by The Vanguard Group (“Vanguard”) on February 9, 2017 indicates that as of December 31, 2016, Vanguard had sole dispositive power over 69,034,547 shares, shared dispositive power over 1,886,391 shares, sole voting power over 1,701,589 shares, and shared voting power over 209,026 shares.
(3) The amended Schedule 13G filed with the SEC by BlackRock, Inc. (“BlackRock”) on January 19, 2017 indicates that as of December 31, 2016, BlackRock had sole dispositive power over 66,066,425 shares and sole voting power over 55,558,435 shares.

 

Applied Materials, Inc.    17


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Directors and Executive Officers

 

The following table shows the number of shares of our common stock beneficially owned as of December 31, 2017 by: (1) each director nominee, (2) each NEO and (3) the current directors and executive officers as a group. In general, “beneficial ownership” refers to shares that a director or executive officer had the power to vote or the power to dispose of, and shares that such individual had the right to acquire within 60 days after December 31, 2017.

 

     Shares Beneficially Owned  
Name         Number(1)     Percent(2)  

Directors, not including the CEO:

    

Judy Bruner

     10,777 (3)      *

Xun (Eric) Chen

     20,389 (4)      *

Aart J. de Geus

     137,678 (3)      *

Stephen R. Forrest

     75,178 (3)      *

Thomas J. Iannotti

     73,178 (3)      *

Alexander A. Karsner

     16,238 (3)      *

Adrianna C. Ma

     18,815 (4)      *

Scott A. McGregor(5)

           *

Dennis D. Powell

     83,656 (6)      *

Named Executive Officers:

    

Gary E. Dickerson

     2,050,555 (7)      *

Daniel J. Durn

     29,810 (8)      *

Robert J. Halliday

     254,131       *

Thomas F. Larkins

     274,058       *

Omkaram Nalamasu

     199,062       *

Ali Salehpour

     135,080       *

Current Directors and Executive Officers, as a Group (18 persons)

     3,672,686 (9)      *
* Less than 1%
(1) Except as subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all of their shares of common stock.
(2) Percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of 1,051,802,947 shares of common stock outstanding as of December 31, 2017, plus the number of shares of common stock that such person or group had the right to acquire within 60 days after December 31, 2017.
(3) Includes 6,019 restricted stock units that are scheduled to vest within 60 days after December 31, 2017.
(4) Includes (a) 10,278 restricted stock units that have vested and which, pursuant to the director’s election to defer, will be converted to shares of Applied common stock and paid to the director on the date of the director’s termination of service from the Applied Board and (b) 6,019 restricted stock units that are scheduled to vest within 60 days after December 31, 2017.
(5)  Mr. McGregor was appointed to the Board on January 22, 2018. Upon his appointment, he received an automatic grant of 472 restricted stock units that are scheduled to vest within 60 days of December 31, 2017.
(6) Includes (a) 57,638 restricted stock units that have vested and which, pursuant to Mr. Powell’s election to defer, will be converted to shares of Applied common stock and paid to him on the date of his termination of service from the Applied Board and (b) 6,019 restricted stock units that are scheduled to vest within 60 days after December 31, 2017.
(7) Includes an option to purchase 1,000,000 shares that is exercisable within 60 days after December 31, 2017.
(8) Consists of restricted stock units that are scheduled to vest within 60 days after December 31, 2017.
(9) Includes (a) an option to purchase 1,000,000 shares that is exercisable within 60 days after December 31, 2017, (b) 111,563 restricted stock units that are scheduled to vest within 60 days after December 31, 2017 and (c) 78,194 restricted stock units that have vested and which, pursuant to each director’s election to defer, will be converted to shares of Applied common stock and paid to the director on the date of the director’s termination of service from the Applied Board.

 

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PROPOSAL 2—APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

 

PROPOSAL 2—APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

 

Pursuant to Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), we are asking shareholders to approve, on a non-binding, advisory basis, the compensation of our NEOs, as described in this Proxy Statement. We seek this approval each year. Our annual “say-on-pay” proposals have been supported by our shareholders each year since we began providing this vote in 2011, and received the support of 98% of votes cast in 2017.

Our Board of Directors believes that our compensation policies and practices promote a performance-based culture and align our executives’ interests with those of our shareholders through a strong emphasis on at-risk compensation tied to the achievement of performance objectives and shareholder value. Our executive compensation program is also designed to attract and retain highly-talented executives who are critical to the successful implementation of Applied’s strategic plan.

Pay Aligned with Performance. There is strong alignment between key financial and company performance metrics and the compensation paid to our CEO during the last five fiscal years. See pages 26 and 35 for charts illustrating this alignment.

Significant Portion of CEO Pay Consists of Variable Compensation and Long-Term Incentives. In fiscal 2017, 93% of our CEO’s compensation comprised variable compensation elements, and 75% of his overall compensation

was delivered in equity with multi-year vesting. Performance objectives include financial objectives relating to adjusted operating margin, gross margin and earnings per share, as well as strategic and operational objectives, as described on page 32.

Please see the “Compensation Discussion and Analysis” section for further discussion of our executive compensation program and the fiscal 2017 compensation of our NEOs.

We are asking our shareholders to approve the compensation of our NEOs as described in this Proxy Statement by voting in favor of the following resolution:

“RESOLVED, that the shareholders approve, on a non-binding, advisory basis, the compensation paid to the Company’s named executive officers as disclosed in the Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis section, the Summary Compensation Table, other compensation tables, narrative discussion and related disclosure.”

Even though this say-on-pay vote is advisory and therefore will not be binding on the Company, the HRCC and the Board value the opinions of our shareholders, and will consider the results of the vote when making future compensation decisions for our NEOs.

 

 

   

THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS FOR FISCAL YEAR 2017, AS DISCLOSED IN THIS PROXY STATEMENT

 

 

Applied Materials, Inc.    19


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COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

 

Our Business and Strategy

Applied Materials is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future.

We develop, design, produce and service semiconductor and display equipment for manufacturers that sell into highly competitive and rapidly changing end markets. Our competitive positioning is driven by our ability to identify major materials engineering technology inflections early, and to develop highly differentiated solutions for our customers to enable those technology inflections. Through our broad portfolio of products and technologies, innovation leadership and focused investments in research and development, we are enabling our customers’ success, thereby generating record performance for the company and creating significant value for our shareholders.

Our Performance Highlights

In 2017, we celebrated our 50th anniversary and delivered all-time record revenue, operating profit and earnings per share. Key highlights include:

 

    Grew revenue to $14.5 billion in fiscal 2017, up 34% from the prior year, resulting in our second consecutive year of record revenue;

 

    Achieved record revenue across all of our segments;

 

    Grew operating profit to a new all-time record, resulting in record GAAP EPS of $3.17, up 106% over fiscal 2016, and record non-GAAP adjusted EPS of $3.25, an increase of 86% over fiscal 2016 (see the Appendix for a reconciliation of non-GAAP adjusted measures);

 

    Delivered record operating cash flow of over $3.6 billion, equal to 25% of revenue; and

 

    Returned $1.6 billion to shareholders through dividends and share repurchases.

Highlights of five-year performance achievements across key financial measures

 

 

LOGO

  

LOGO

  

LOGO

Non-GAAP adjusted operating margin and non-GAAP adjusted EPS are performance targets under our bonus and long-term incentive plans. See Appendix for non-GAAP reconciliations.



 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Key financial highlights for our reporting segments in fiscal 2017 include the following:

 

    Semiconductor Systems segment: we delivered record annual revenue of $9.5 billion, up 38% from the prior year.

 

    Applied Global Services segment: we grew revenue to a record $3.0 billion, up 17% from fiscal 2016. We accelerated our momentum by introducing new ways to help our customers manage increasing complexity.

 

    Display and Adjacent Markets segment: we delivered manufacturing equipment for increasingly larger and more advanced TVs as well as high-resolution mobile displays, growing revenue to a record $1.9 billion, and achieving the highest year-over-year growth of 58% for the company.

Strategic and Operational Highlights

Applied’s strategy is to deliver highly differentiated materials engineering products and services that enable major technology inflections and drive our customers’ success.

 

 

LOGO

In fiscal 2017, we continued to drive profitable growth by executing against our strategy. Key highlights include:

 

    Increased our investments in research and development by more than $230 million over fiscal 2016, to almost $1.8 billion, and converted over 90% of our development positions into volume production wins.

 

    Delivered strong growth in key areas of our semiconductor equipment business in fiscal 2017 – our process equipment business and our metrology and inspection business delivered all-time record revenues, and our physical vapor deposition (PVD), chemical mechanical polishing (CMP) and thermal products had an especially strong year, driven by the mass adoption of advanced interconnects in logic as well as increasing use of logic-like processes in memory.

 

    Made strong gains in patterning and 3D NAND memory, and positioned the company to grow in DRAM as customers transition to new higher performance devices.

 

    Built upon Applied’s large installed base of manufacturing systems and drove a 25% increase in the number of tools under comprehensive service agreements; these agreements enable us to generate more value by helping our customers achieve and maintain higher yields, and optimize factory output and operating costs.

 

    Ramped a new generation of equipment in our Display business for Gen 10.5 display factories, allowing customers to manufacture larger and more advanced TVs, and established the leading position in thin-film encapsulation, which enables next generation OLED displays for mobile devices.

Chief Financial Officer Transition. In August 2017, we welcomed a new Chief Financial Officer, Daniel J. Durn, who succeeded Robert J. Halliday. Mr. Durn brings significant industry experience and knowledge that will further accelerate our strategy.



 

Applied Materials, Inc.    21


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Stock Price Performance

Our strong strategic and financial performance in fiscal 2017 also resulted in meaningful value creation for our shareholders. As illustrated below, Applied significantly outperformed both our peer group and the S&P 500 Information Technology Index.

FY2013 – FY2017 Total Shareholder Return vs. Key Peers

 

 

LOGO

Key Fiscal 2017 Executive Compensation Highlights

Key compensation decisions for fiscal 2017 include:

Limited Salary Increases for Select NEOs. Two NEOs received modest salary increases from 2016 levels to reflect each officer’s responsibilities.

Annual Bonuses Reflect Strong Company Performance. The average annual bonus payouts to our NEOs was 134% of target bonus, reflecting our strong performance against fiscal 2017 objectives.

Adopted New Long-Term Incentive Program. In response to shareholder feedback as well as a broad review of our executive compensation program in fiscal 2016, the HRCC completed a comprehensive redesign of the long-term incentive program that was effective beginning with fiscal 2017 grants. Key redesign elements included:

 

    Performance measurement periods extended from one year to three years;

 

    Tighter alignment of performance metrics with our strategic goals; and

 

    Re-balanced equity mix to achieve performance alignment and retention goals.

Our new long-term incentive program equity mix establishes a more direct balance between rigorous, performance-based incentives and retention-based incentives, both of which the HRCC believes are critical components of our compensation program. Additionally, new performance measures (non-GAAP adjusted operating margin and wafer fabrication equipment (WFE) market share) consider both our absolute and relative performance, and align with our stated strategic priorities to ensure our management team’s long-term incentives match our long-term goals.



 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Summary of Changes to Long-Term Incentive Program

 

 

Wholesale Redesign of the Long-Term Incentive Program

 

 

 

 

In fiscal 2017, the HRCC enacted a wholesale redesign of the long-term incentive program to address shareholder feedback and meet the needs of the evolving business

 

 

 

New equity mix includes performance share units (“PSUs”) to provide rigorous long-term performance alignment and restricted stock units (“RSUs”) to provide a link to shareholder value creation and retention value

 

 

 

PSUs (75% for CEO; 50% for all other NEOs) -- new performance measures:

   

 

  

 

3-year average non-GAAP adjusted operating margin

   

 

  

 

3-year average WFE market share

 

 

 

RSUs (25% for CEO; 50% for all other NEOs):

   

 

 

  

 

3-year ratable vesting

 

 

 

 

 

No performance retesting ability in new PSU design – shares not earned in performance period are forfeited

 

 

 

 

 

New PSU metrics have threshold, target and maximum performance levels that can result in payout below, at or above target

 

Stock Ownership Guidelines. In fiscal 2017, the HRCC approved changes to our stock ownership guidelines to increase the CEO ownership level from 5x to 6x of annual base salary and expanded the applicability of the guidelines (3x of annual base salary) to all Section 16 officers on the CEO Executive Staff.



 

Applied Materials, Inc.    23


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Primary Compensation Elements for Fiscal 2017

The primary elements of our compensation program consist of base salary, annual incentive bonuses and annual long-term incentive awards. Other elements of compensation include a 401(k) savings plan, deferred compensation benefits and other benefits programs that are generally available to all employees. Primary elements of our fiscal 2017 compensation program were as follows:

 

    Element of Pay       Philosophy     Structure
                   

Base Salary

(see page 29)

 

   

 

 

 

Fixed cash compensation for expected day-to-day responsibilities

 

     

Reviewed annually and adjusted when appropriate, based on scope of responsibility, performance, time in role, experience and competitive market for executive talent

 

                   

Annual

Incentive

Bonuses

(see page 29)

 

   

 

 

 

Variable compensation paid in cash

 

   

 

 

 

NEO annual incentives determined through three-step performance measurement process:

 

   

 

Based on performance against
pre-established financial,
operational, strategic and individual
performance measures

 

Financial and non-financial metrics
provide a comprehensive
assessment of executive
performance

 

Performance metrics evaluated annually for alignment with strategy and market trends

     
   

 

 

 

 

 

 

       

LOGO

 

LOGO

 

 

LOGO

 

 

 

Initial Performance Goal

Non-GAAP Adjusted Earnings Per Share

 

   
             

 

LOGO

 

 

Corporate Scorecard

Business and Strategic Goals

 

   
             

 

LOGO

 

 

Individual Performance Modifier

Individual NEO Performance

 

   
                                     
                   

Long-Term Incentives (see page 35)

 

   

 

 

 

Performance share units to establish rigorous long-term performance alignment

 

   

 

 

 

Performance share units vest based on
achievement of 3-year
non-GAAP adjusted operating margin and 3-year wafer fabrication equipment market share goals

 

     

Restricted stock units to provide link to shareholder value creation and retention value

 

   

 

Restricted stock units vest ratably over 3 years

 



 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Pay Mix

In fiscal 2017, a significant portion of our executive compensation consisted of variable compensation and long-term incentives. As illustrated below, 93% of CEO compensation for fiscal 2017 comprised variable compensation elements, and 75% of Mr. Dickerson’s overall compensation was delivered in equity with multi-year vesting.

 

FY2017 Compensation Mix1

CEO

  

All Other NEOs

LOGO    LOGO

1Represents total direct compensation for fiscal 2017; excludes new CFO Daniel J. Durn, who joined Applied in August 2017.

Summary of 2017 Total Direct Compensation

The following table summarizes elements of annual total direct compensation for our NEOs for fiscal 2017, consisting of (1) base salary, (2) annual incentive bonus and (3) annual long-term incentive awards (the grant date fair value of stock awards). This table excludes amounts not considered by the HRCC to be annual total direct compensation that are required by the SEC to be reported in the Summary Compensation Table (see page 41 of this Proxy Statement).

 

Name and Principal Position    Salary
($)
    

Annual
Incentive
Bonus

($)

    

Annual
Long-Term
Incentive Award

($)

    

Total

($)

 

Gary E. Dickerson
President and Chief Executive Officer

     1,000,000        2,640,000        10,844,501        14,484,501  

Daniel J. Durn(1)
Senior Vice President, Chief Financial Officer

     138,462        —          2,952,086        3,090,548  

Robert J. Halliday
Former Senior Vice President, Chief Financial Officer

     625,000        1,113,750        4,231,139        5,969,889  

Ali Salehpour
Senior Vice President, General Manager, Services, Display and Flexible Technologies

     591,346        1,060,290        3,868,486        5,520,122  

Omkaram Nalamasu
Senior Vice President and Chief Technology Officer

     484,808        770,770        2,176,031        3,431,609  

Thomas F. Larkins
Senior Vice President, General Counsel and Corporate Secretary

     480,000        702,768        2,176,031        3,358,799  
(1) Mr. Durn joined Applied in August 2017. Amounts for Mr. Durn exclude a sign-on bonus and a new-hire equity award, both of which are reported in the Summary Compensation Table.


 

Applied Materials, Inc.    25


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Alignment of Pay with Performance

The following chart shows the alignment between total shareholder return (“TSR”) and the total direct compensation of our CEO for the last five fiscal years. While TSR has grown significantly over the last four years, our CEO’s total direct compensation has remained relatively flat during that period.

 

 

LOGO

 

  (1)  Total direct compensation consists of annual base salary (annualized for 2013 for Mr. Dickerson, who became our CEO in September 2013), annual incentive bonus and annual long-term incentive award (grant date fair value of annual equity awards for all fiscal years, except for fiscal 2014, which consists of the total amount of cash-settled performance units). Total direct compensation shown above excludes other amounts required by the SEC to be reported in the Summary Compensation Table.
  (2)  TSR line illustrates the total shareholder return on our common stock during the period from October 25, 2013 through October 27, 2017, assuming $100 was invested on October 25, 2013 and assuming reinvestment of dividends.


 

26     2018 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

Other Key Compensation Practices

We are committed to executive compensation practices that drive performance, mitigate risk and align the interests of our leadership team with the interests of our shareholders. Below is a summary of best practices that we have implemented and practices that we avoid because we believe they are not in the best interests of Applied or our shareholders.

 

WHAT WE DO        WHAT WE DO NOT DO

  Pay for Performance – Significant majority of NEO target compensation is performance-based and tied to pre-established performance goals aligned with our short- and long-term objectives.     Ò   No Guaranteed Bonuses – Our annual bonus plans are performance-based and do not include any minimum payment levels.

 

   

 

  Mitigation of Risk – Use of varied performance measures in incentive programs mitigates risk that executives will be motivated to pursue results with respect to any one performance measure to the detriment of Applied as a whole.     Ò   No Hedging or Pledging – Our insider trading policy prohibits all NEOs and directors from engaging in hedging or other speculative trading, or pledging their shares.

 

   

 

  Compensation Recoupment Policy – Both our annual cash bonus plan and our stock incentive plan contain “clawback” provisions providing for reimbursement of incentive compensation from NEOs in certain circumstances.     Ò   No Perquisites – We do not provide material perquisites or other personal benefits to our NEOs or directors, except in connection with business-related relocation.

 

   

 

  Stock Ownership Guidelines – All officers and directors are subject to stock ownership guidelines to align their interests with shareholders’ interests.     Ò   No Dividends on Unvested Equity Awards – We do not pay dividends or dividend equivalents on unvested equity awards.

 

   

 

  Double-Trigger Change-in-Control Provisions – Equity awards for all NEOs require a “double-trigger” of both a change-in-control and termination of employment for vesting acceleration benefits to apply.     Ò   No Executive Pensions – We do not offer any executive pension or executive retirement plans.

 

   

 

  Annual Say-On-Pay Vote – We seek annual shareholder feedback on our executive compensation program.       Ò   No Tax Gross-Ups – We do not pay tax gross-ups, except in connection with business-related relocation or expatriate assignments.


 

Applied Materials, Inc.    27


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Compensation Governance and Decision-Making Framework

 

 

Overview of Compensation Program Philosophy and Governance Framework

Our executive compensation program has three principal objectives:

 

  To attract, reward and retain highly-talented executive officers and other key employees;

 

  To motivate these individuals to achieve short-term and long-term goals that enhance shareholder value; and

 

  To support our core values and culture.

We seek to achieve these objectives by:

 

  Providing compensation that is competitive with the practices of other leading, high-technology companies; and

 

  Linking rewards to company and individual performance by:

 

    Setting challenging performance goals for executive officers and other key employees;

 

    Balancing retention needs with performance objectives; and

 

    Providing a high proportion of total target compensation in the form of equity incentives to motivate executive officers and key employees to increase long-term value in alignment with shareholders’ interests.

The HRCC uses these principles to determine base salaries, annual incentive bonuses and long-term incentive awards. The HRCC also considers Applied’s business objectives, competitive practices and trends, and corporate considerations, including the affordability of the compensation program.

The HRCC further considers the results of the annual advisory “say-on-pay” vote and shareholder feedback. In response to feedback from our shareholders as well as a broad review of our executive compensation program in 2016, the HRCC made changes to certain elements of the annual incentive bonus program and redesigned the

long-term incentive program for fiscal 2017. At our Annual Meeting in 2017, our “say-on-pay” proposal received a substantial majority (98%) of votes cast. The HRCC considered the vote results as strong shareholder support for our executive compensation program.

Fiscal 2017 Peer Group Companies

The HRCC regularly reviews compensation paid by our peer group, which consists of a broad range of high-technology companies whose businesses are similar to ours and with which we typically compete for executive talent, as a reference point for evaluating our compensation program.

For the composition of the fiscal 2017 peer group, we considered companies that met the following criteria: (1) technology companies with manufacturing operations, (2) companies whose revenues were approximately one-third to five times that of Applied, (3) companies with global operations that disclose executive compensation pursuant to SEC rules, (4) companies that compete with us for key talent, and (5) companies that devote significant resources to research and development as a percentage of revenue. Based on this assessment, the HRCC determined to exclude Broadcom Corp., which was part of the 2016 peer group, from the fiscal 2017 peer group due to its acquisition by Avago Technologies in 2016. Each of the other companies in the peer group listed below met most, if not all, of the five screening criteria listed above and continued to be included in the peer group; in addition, several of the companies were among our principal U.S. competitors or top U.S. customers.

Data gathered on the peer group include base salary, bonus, targeted cash compensation, long-term incentive awards and total direct compensation. The HRCC uses this information as a reference point rather than to target a specific percentile for our NEOs. The peer group data is gathered from the sources described in “Role of Compensation Consultant” below.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The tables below set forth our fiscal 2017 peer group and related information.

 

Fiscal 2017 Peer Group
Advanced Micro Devices, Inc.    Micron Technology, Inc.

Avago Technologies

(renamed Broadcom Ltd.)

   Motorola Solutions, Inc.
Cisco Systems, Inc.    NetApp, Inc.
Corning Inc.    NVIDIA Corp.
EMC Corp.    QUALCOMM, Inc.
Intel Corp.    SanDisk Corp.
Juniper Networks, Inc.    Seagate Technology plc
KLA-Tencor Corp.    Texas Instruments Incorporated
Lam Research Corp.    Western Digital Corp.

Applied Materials Positioning Relative to Peers

 

 

LOGO

 

 

Components of Total Direct Compensation

 

 

Determining Annual Total Direct Compensation

At the beginning of fiscal 2017, the HRCC evaluated each NEO’s annual total direct compensation – consisting of annual base salary, annual incentive bonus and annual long-term incentive award. As part of this annual evaluation, the HRCC considers the NEO’s scope of responsibility, performance, skill set, prior experience and achievements, advancement potential, impact on results and expected future contributions to our business. The HRCC also considers the compensation levels of an executive officer relative to other Applied officers, the need to attract and retain talent, and business conditions, and compensation levels at our peer companies for comparable positions; however, no individual element of compensation is targeted to a peer percentile range. The HRCC uses peer group data as a tool to assess how our executives’ compensation compares to the market rather than as a means to establish specific target compensation levels. Actual pay results vary based on the overall performance of the Company and individual NEO performance, as the largest portion of NEO compensation is performance-based.

Base Salaries

Base salaries and bonus opportunities are designed to attract, motivate, reward and retain executive talent, as well as to align pay with performance. At the beginning of each fiscal year, the HRCC determines each NEO’s targeted total cash compensation (salary and target bonus).

Base salaries are an annual fixed level of cash compensation. At the beginning of fiscal 2017, the HRCC increased Mr. Salehpour’s base salary from $550,000 to $600,000 and Dr. Nalamasu’s from $460,000 to $490,000 to

reflect each officer’s performance, role and responsibilities, and retention considerations. The HRCC did not change base salaries for the other NEOs in fiscal 2017. The HRCC determined that continuing base salary amounts from fiscal 2016 for those other NEOs was sufficiently competitive to provide adequate retention value and allowed Applied to continue its focus on weighting cash compensation toward performance-based incentives.

Annual Incentive Bonus Opportunities

Bonus Plan Overview. In fiscal 2017, all of our NEOs participated in the Senior Executive Bonus Plan (the “Bonus Plan”), except for Mr. Durn. Mr. Durn was not eligible to participate in the Bonus Plan for fiscal 2017 due to the timing of his hire two months before the end of the fiscal year. The Bonus Plan is a shareholder-approved bonus program designed to motivate and reward achievement of Applied’s business goals and to attract and retain highly-talented individuals. The annual incentive bonus opportunity for each NEO under the Bonus Plan is directly linked to Applied’s achievement of financial and market performance, operational performance and strategic objectives, in addition to individual performance. Company and individual goals are designed to incentivize management to drive strong operating performance, invest in innovation to drive future growth and create shareholder value. Our Bonus Plan is performance-based and does not include any minimum payment levels. Fiscal 2017 bonuses under this plan are intended to qualify as “performance-based” compensation under Section 162(m).

Determining Target Bonus Amounts. Target bonus amounts for the NEOs are expressed as a percentage of base salary. The HRCC set the annual target bonus amount for each NEO, taking into consideration Mr. Dickerson’s recommendations regarding the annual target bonus amounts

 

 

Applied Materials, Inc.    29


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for each of the NEOs other than himself. In early fiscal 2017, Mr. Dickerson recommended that, for each NEO, the target bonus amounts remain unchanged from fiscal 2016. In making his recommendations, Mr. Dickerson relied on a variety of factors, including publicly-available data and market

survey data, as described above, as well as his assessment of overall economic and business conditions. The HRCC considered these same factors in deciding not to increase Mr. Dickerson’s target bonus.

 

 

Assessing Performance and Payout. The determination of fiscal 2017 performance and annual incentive bonuses for our NEOs consisted of three key steps, as illustrated in the diagram below and the following discussion.

 

 

LOGO

 

The HRCC believes that this multi-step performance framework appropriately emphasizes financial performance, while also providing a mechanism to assess achievement of key business imperatives by individual NEOs

 

Initial Performance Goal. For fiscal 2017, the HRCC chose non-GAAP adjusted EPS as the initial performance hurdle to establish 162(m) tax deductibility. EPS, an indicator of overall company financial performance, is a measure of profits generated on a per share basis that are available either to reinvest in the business or distribute to shareholders, and has a strong link to share price valuation.

If Applied does not achieve a threshold non-GAAP adjusted EPS of $1.75 for the fiscal year, no bonus is payable. If this threshold is achieved, the maximum bonus that becomes payable for each NEO is the lowest of: (a) $5 million, (b) 3x a corporate bonus pool funding modifier, multiplied by the target bonus, and (c) 3x the target bonus, as a percentage of base salary.

In fiscal 2017, Applied’s non-GAAP adjusted EPS was $3.25, resulting in achievement of the initial performance goal under the Bonus Plan. Adjusted EPS is a non-GAAP measure that excludes certain items from EPS determined in accordance with GAAP (see Appendix for a reconciliation of non-GAAP adjusted EPS). Non-GAAP adjusted EPS does not exclude share-based compensation expenses.

Balanced Corporate Scorecard. If the initial performance goal is achieved, the HRCC then uses the corporate scorecard to evaluate achievement of pre-defined corporate objectives and goals for each NEO and as a primary mechanism to exercise negative discretion from the maximum bonus amount. The scorecard is designed to measure financial and non-financial objectives that are considered by the HRCC to be key drivers

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

of the Company’s near-term financial and operational success that will create shareholder value over the longer-term. As in previous years, the fiscal 2017 scorecard measured corporate performance in five broad categories: (1) Financial and Market Performance, (2) Products and Growth, (3) Execution, (4) Customers, Field and Service and

(5) People and Organization. These categories align with and support the Company’s strategy of strengthening our materials engineering capabilities to enable major technology inflections for our customers and positioning Applied for sustainable growth to support long-term value creation for its shareholders.

 

 

Scorecard Category

 

 

Link to Company Strategy and Performance

 

Financial and Market Performance   Financial, market share and TSR goals align with a focus on delivering sustainable performance that increases shareholder value
Products and Growth   Reinforces strategy of developing new and differentiated products and services, and positioning Applied and its products for future revenue and market share growth
Execution   Incentivizes increased efficiency in operational process, product development success and quality and safety performance
Customers, Field and Service   Promotes focus on driving customer loyalty relative to competitors’ achievements and improving growth and efficiency at key accounts
People and Organization   Drives focus on greater employee engagement to promote hiring, retention and development of key talent

 

NEO Objectives and Weightings. Each NEO was assigned individualized weightings for all measures other than the Financial and Market Performance measures (which were weighted at 50% for all NEOs), to reflect the relative impact and contributions of that NEO and his business or organizational unit to Applied’s overall performance with respect to a particular measure. The corporate scorecard objectives and weightings were the same for Mr. Dickerson and Mr. Halliday. All other NEOs shared these objectives, but each had different weightings as set forth in the table below.

Goal Setting and Measurement. At the beginning of the fiscal year, the HRCC reviewed objectives, goals and weightings initially proposed by management, provided input and made

adjustments, and approved the final corporate scorecard and individual weightings for each NEO. Progress towards achieving the corporate scorecard objectives was evaluated and tracked quarterly during the fiscal year. Scores were awarded for each metric under the scorecard based on the degree to which the pre-determined goals for that metric were achieved. Performance hurdles were set to measure achievement at 0, 0.5, 1.0, 1.5 and 2.0 levels, with a score of 1.0 indicating performance that met expectations and scores over 1.0 indicating extraordinary achievement. At the end of the fiscal year, scores were calculated based on actual performance against objectives and were presented to the HRCC to review, adjust and approve.

 

 

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The following table details fiscal 2017 corporate scorecard objectives, their relative weightings for each NEO who participated in the Bonus Plan, the achievements based on performance against objectives and the resulting scores, as approved by the HRCC (see Appendix for non-GAAP reconciliations).

 

    Weightings            
Objectives   Dickerson
and
Halliday
    Salehpour     Nalamasu     Larkins     Achievements   Score  

Financial and Market Performance

    50.0%       50.0%       50.0%       50.0%              

Grow wafer fabrication equipment (measured by Gartner) and Display market share

                                 

Estimating 22% of wafer fabrication equipment market share in calendar 2017 and ~70% share gains in Display equipment served available market

    0.6 (1) 

Achieve gross margin targets (gross margin reported externally)

                                 

Achieved 46.1% non-GAAP adjusted gross margin

    1.5  

Achieve adjusted operating margin goal (operating margin reported externally)

                                 

Achieved 27.9% non-GAAP adjusted operating margin

    1.5  

Achieve TSR target relative to peers

                                 

Achieved targeted TSR performance in semiconductor equipment peer group

    1.0  

Products and Growth

    15.0%       19.0%       32.0%       15.0%              

Win development tool of record and production tool of record positions at key Semiconductor Systems and Display customers

                                 

Exceeded target number of development tool of record and production tool of record positions

    1.7 (1) 

Grow service revenue and number of tools under service contracts

                                 

Increased net tools under service agreements in line with annual target

    1.0  

Develop organic growth pipeline to deliver targeted incremental fiscal 2019 revenue in new and adjacent markets

                                 

Developed pipeline to deliver risk-adjusted 2019 revenues in excess of published financial model

    1.5  

Execution

    15.0%       15.0%       8.0%       15.0%              

Reduce order-to-cash cycle time per plan

                                 

Achieved below targeted order-to-cash cycle time

    0.5  

Improve product success rate and commercialization of winning products

                                 

Implemented “Winning Team” best practices for top 12 programs; developed Capability Maturing Model and assessment plan for Product Development Engine and achieved a winning ROI assessment for 70% of the programs

    1.0  

Improve operational, quality and safety performance

                                 

Successfully drove improvements in on time delivery, materials cost and safety

    1.1 (1) 

Customer, Field and Service

    10.0%       10.0%       0.0%       10.0%              

Achieve 5 growth and efficiency metrics at 8 key accounts

                                 

Achieved targeted growth and efficiency metrics at key accounts

    1.0  

Improve win rate of prioritized opportunities by customer

                                 

Exceeded targets for prioritized opportunities

    1.5  

People and Organization

    10.0%       6.0%       10.0%       10.0%              

Improve priority practices and overall employee engagement score relative to 2016 OHI survey results, measured by survey administered by McKinsey

                                 

Increased priority practices scores on average of 3.6 points and overall employee engagement score by 2.7 points

    1.5  

Implement next phase of employee development and training strategies

         

Updated integrated training curriculum and trained over 90% of the targeted population

    2.0  

Goals tied to objective and quantifiable metrics

 

(1) Reflects weighted average of the scores of multiple underlying goals.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Individual Performance Factor. The HRCC also considered the individual performance of each NEO as indicated by that NEO’s individual performance factor (“IPF”). The IPF applied only if the initial performance goal and at least some of the corporate scorecard objectives were achieved. The IPF modified the initial bonus amount as determined based on achievement against the corporate scorecard objectives. The IPF modifier ranges from 0 to 1.5.

The HRCC determined the IPFs for all NEOs. Mr. Dickerson’s IPF was based on the HRCC’s year-end assessment of his

leadership and the Company’s overall performance during the year. The HRCC determined the IPF for each other NEO taking into consideration Mr. Dickerson’s recommendation, which included his assessment of the achievement of strategic, financial, operational and organizational performance goals specific to the business or organizational unit for which the NEO was responsible, as well as the NEO’s leadership skills and current and expected contributions to the business. For fiscal 2017, the HRCC assigned each NEO an IPF of 1.10.

 

 

The following table shows the highlights of each NEO’s performance in fiscal 2017 that the HRCC considered in determining their respective IPFs.

 

NEO   

 

Fiscal 2017 Individual Performance Highlights

Dickerson

  

  Delivered all-time record-high revenue and operating profit, representing a year-over-year increase of more than 30% and 70%, respectively
  

  Made strategic investments to create long-term sustainable profitable growth across the company and position Applied to capitalize on major technology inflections

Halliday

  

  Executed tax strategy to optimize tax rate and cash management
  

  Raised $2.2 billion in debt capital to support financial flexibility
  

  Successfully transitioned Mr. Durn into the Chief Financial Officer role

Salehpour

  

  Delivered all-time record Applied Global Services (AGS) revenues of $3.0 billion
  

  Delivered record revenues in Display of $1.9 billion
  

  Won more than 85% of targeted applications in Display

Nalamasu

  

  Delivered more than 10 new ideation programs and progressed 7 existing ideation programs to incubation
  

  Secured external funding for R&D programs and executed targeted number of Applied Ventures deals to provide strategic insight into new and adjacent markets

Larkins

  

  Developed and implemented global IP protection model
  

  Addressed highly complex legal matters with successful resolution

 

Applied Materials, Inc.    33


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Actual Bonus Payouts. The NEOs’ performance against corporate scorecard goals and IPF ratings resulted in an average bonus payout of 1.34 of target bonus. The diagram below shows the results for each of the three key steps in determining the NEOs’ fiscal 2017 annual incentive bonuses.

Fiscal 2017 Annual Incentive Calculation

 

 

       

Performance Measures

     

Fiscal 2017 Achievement

       
LOGO    

   Fiscal 2017 non-GAAP adjusted EPS of $1.75

 

   

  Achieved non-GAAP adjusted EPS of $3.25

 

       
LOGO    

   Strong performance on core objectives:

–   Financial and Market Performance

–   Products and Growth

–   Execution

–   Customer, Field and Service

–   People and Organization

 

   

  NEO scorecard results achieved in a range from 1.19 to 1.30 based on individual weightings

 

       
LOGO    

   Strong NEO performance against personal objectives and individual contribution to business performance

 

   

  IPF achieved at 1.10 for all NEOs

 

        LOGO
       

 

Average NEO bonus, as
multiple of target: 1.34

 

 

The following table shows for each NEO: (1) the maximum amount payable under the Bonus Plan, (2) the target bonus amounts expressed as a percentage of base salary, (3) the target bonus expressed as a dollar amount and (4) the actual fiscal 2017 bonus amount approved by the HRCC and paid to the NEO.

 

  NEO     

(1)

Maximum

Bonus

Payable

($)

      

(2)

Target
Bonus as a
Percentage
of Base

Salary

(%)

    

(3)

Target

Bonus

($)

      

(4)

Actual

Bonus

($)

 

  Dickerson

     $ 5,000,000        200%      $ 2,000,000        $ 2,640,000  

  Durn

       —          —          —            —    

  Halliday

     $ 2,531,250        135%      $ 843,750        $ 1,113,750  

  Salehpour

     $ 2,430,000        135%      $ 810,000        $ 1,060,290  

  Nalamasu

     $ 1,617,000        110%      $ 539,000        $ 770,770  

  Larkins

     $ 1,584,000        110%      $ 528,000        $ 702,768  

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Pay and Performance Alignment. Our process for determining annual bonus awards has resulted in strong pay and performance alignment. The chart below illustrates the rigor of our scorecard and alignment between the actual annual bonus awards for our CEO and our non-GAAP adjusted EPS achievements.

CEO Actual Annual Bonus vs. Earnings Per Share

 

 

LOGO

Non-GAAP adjusted EPS is a performance target under our bonus plan. See Appendix for non-GAAP reconciliations.

 

Long-Term Incentives

Overview. Applied’s long-term incentive compensation program is intended to help (1) achieve our business objectives, (2) attract, motivate and retain key talent, and (3) align our executives’ interests with shareholders’ interests to maximize long-term shareholder value.

Timing of Awards. The HRCC grants equity and other long-term incentive awards to NEOs under our shareholder-approved Employee Stock Incentive Plan (the “Stock Plan”). The HRCC has not granted, nor does it intend to grant, equity awards in anticipation of the release of material, nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement. Similarly, Applied has not timed, nor does it intend to time, the release of material, nonpublic information based on equity award grant dates.

Fiscal 2017 Equity Awards

The HRCC oversaw a comprehensive review of our compensation programs in 2016 to ensure that they continue to align our management team with the interests of our shareholders, incentivize actions that will drive profitable growth, and attract and retain top talent in a highly competitive industry. As a result of this review, and feedback received from our shareholders, the HRCC approved changes to our long-term incentive program with the goals of increasing differentiation for high performance, balancing long-term and short-term incentives, and simplifying our long-term incentive plan.

Beginning in fiscal 2017, the long-term incentive awards for NEOs consist of two forms of equity: performance share units (“PSUs”) and restricted stock units (“RSUs”). The target mix of the awards consists of 75% PSUs and 25% RSUs for the CEO and 50% PSUs and 50% RSUs for the other NEOs.

 

 

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The HRCC believes that this new long-term incentive structure establishes a closer direct link to long-term company performance through the PSUs and will also provide a crucial retention value through the RSUs.

 

CEO LTI Vehicle Mix    All Other NEO LTI
Vehicle Mix

LOGO

   LOGO

For fiscal 2017, in December 2016, the HRCC granted the number of PSUs and RSUs listed in the below table to our NEOs. Mr. Durn is not included in the table below as he received his awards at the time he joined in Applied in August 2017.

 

  NEO     

Total Value
of Awards
(1)

($)


 

 

    


Equivalent
Target
Number of
PSUs
(2)

 

 
      

Equivalent
Number of
RSUs
(2)


 

  Dickerson

   $ 11,250,000        280,316          93,439  

  Halliday

   $ 4,375,000        72,675          72,675  

  Salehpour

   $ 4,000,000        66,446          66,446  

  Nalamasu

   $ 2,250,000        37,376          37,376  

  Larkins

   $ 2,250,000        37,376          37,376  
(1) Value of awards is based on Applied’s stock price on the grant date. Amounts shown in the “Stock Awards” column of the Summary Compensation Table represent grant date fair value determined pursuant to Accounting Standards Codification 718.
(2)  Number of shares calculated by dividing value of awards by $30.10, the closing price of Applied stock on December 1, 2016, the grant date.

Size of Performance-Based Equity Awards. In determining the size of the awards, the HRCC considered each NEO’s award as a component of his total direct compensation. Target fiscal 2017 long-term equity awards were determined in light of each NEO’s scope of responsibility, performance, impact on results and expected future contributions to our business, compensation levels relative to other Applied officers, the wholesale changes made to the long-term incentive program and establishment of three-year performance goals, the need to attract and retain talent, and

business conditions. In addition, the fiscal 2017 target grant sizes provided sufficient performance-based equity incentives to align compensation with the long-term interests of our shareholders, were in line with market norms for the NEOs’ respective roles and were sufficient to provide incentive for them.

Performance Share Units. The long-term incentive program was entirely redesigned to provide for longer performance measurement periods and alignment of performance metrics with our strategic goals. The PSUs will vest three years from the grant date based on achievement of average non-GAAP adjusted operating margin for fiscal 2017 through fiscal 2019 and average WFE market share goals for calendar years 2016 through 2018, with equal weighting given to each metric.

 

 

LOGO

The number of PSUs that may vest is based on the achievement of threshold, target or maximum levels of each metric and may range from 50% to 200% of the target number of shares, as set forth below.

 

  Achievement Level     


Percentage of

Shares That
May Vest

 

 
 

  Threshold

     50%  

  Target

     100%  

  Maximum

     200%  

If the threshold level is not achieved, then no shares will vest. If achievement falls between threshold, target or maximum levels, the portion of the award that may vest will be determined based on straight-line interpolation.

In setting goals for the PSUs, the HRCC considered Applied’s historical results and relative performance, and established goals that are aligned with Applied’s financial and strategic objectives and will require significant effort to achieve the maximum level.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Restricted Stock Units. The RSU awards are scheduled to vest ratably over three years, providing a link to shareholder value creation and maintaining retention value.

New CFO Equity Awards and Compensation Package. In connection with Mr. Durn’s hire, the HRCC granted him the following equity awards 30 days after his start date: (1) new-hire RSUs with a value of $2,500,000, scheduled to vest ratably over three years and subject to acceleration of vesting in the event that Applied terminates Mr. Durn without cause before February 2020; (2) PSUs with a target value of $1,500,000, scheduled to vest in December 2019, subject to achievement of the same goals as the fiscal 2017 PSU awards for our other NEOs – three-year average WFE share and three-year average non-GAAP adjusted operating margin goals; and (3) RSUs with a value of $1,500,000, scheduled to vest in three equal installments through 2019. The number of RSUs or PSUs granted was determined by dividing the stated value of the award by $44.73, the closing price of Applied stock on September 6, 2017, the grant date.

In addition, Mr. Durn’s new-hire compensation included an initial annual base salary of $600,000 and a target bonus of 110% of his base salary under the Bonus Plan beginning in fiscal year 2018. As Mr. Durn’s employment occurred after the eligibility date for a 2017 bonus award under the Bonus Plan, he was awarded a special bonus of $250,000 to be paid six months following his start date, subject to continued employment. Mr. Durn also received a $500,000 sign-on bonus 30 days after his start date. In the event that Mr. Durn resigns or Applied terminates his employment for cause prior to the completion of 24 months of service, Mr. Durn is obligated to repay the full amount of the sign-on bonus, less any amounts withheld by Applied for taxes. Mr. Durn also received relocation benefits under Applied’s standard relocation policy.

In developing a compensation package for Mr. Durn, the HRCC considered his experience and expected future contributions to Applied, as well as compensation levels at our peer companies for the CFO position. The HRCC also considered the associated one-time costs of replacing compensation value that Mr. Durn forfeited by leaving his previous employer.

Role and Authority of the Human Resources and Compensation Committee

The HRCC has a written charter approved by the Board that specifies the HRCC’s duties and responsibilities, which is available on our website at: http://www.appliedmaterials.com/company/investor-relations/governance-documents. In accordance with its charter, the HRCC oversees our programs that foster executive and employee development and retention, with emphasis on leadership development, management capabilities and succession plans. The HRCC also determines executive and director

compensation, and oversees significant employee benefits programs, policies and plans.

Each member of the HRCC has been determined to be independent under Nasdaq, SEC and Internal Revenue Code rules. The HRCC may delegate any of its responsibilities to subcommittees. See “Board Meetings and Committees” for more information about the HRCC.

Role of Compensation Consultant

The HRCC has the authority to engage independent advisors to assist it in carrying out its responsibilities. During 2017, the HRCC determined that, since it had engaged Semler Brossy Consulting Group (“Semler Brossy”) as independent compensation consultant since 2008, it was appropriate to initiate a request for proposal (“RFP”) process for independent compensation consultant services. The purpose of the RFP was to ensure that the HRCC continues to receive comprehensive, expert consultant services and recommendations that reinforce the Company’s business strategy. Our current consultant, Semler Brossy, was invited to respond to the RFP, as were several other companies which provide independent compensation consultant services. After a thorough interview process with the candidates, the HRCC renewed its engagement with Semler Brossy for independent compensation consultant services in 2017.

Semler Brossy, who reports directly to the HRCC and not to management, is independent from Applied, has not provided any services to Applied other than to the HRCC and receives compensation from Applied only for services provided to the HRCC. The HRCC assessed the independence of Semler Brossy pursuant to SEC rules and concluded that the work of Semler Brossy for the HRCC has not raised any conflict of interest.

Semler Brossy reviews and advises on all principal aspects of the executive compensation program. Its main responsibilities are as follows:

 

    Advise on alignment of pay and performance;

 

    Review and advise on executive total compensation, including base salaries, short- and long-term incentives, associated performance goals, and retention and severance arrangements;

 

    Advise on trends in executive compensation;

 

    Provide recommendations regarding the composition of our peer group;

 

    Analyze peer group proxy statements, compensation survey data and other publicly available data; and

 

    Perform any special projects requested by the HRCC.
 

 

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The HRCC typically asks Semler Brossy to attend the HRCC’s meetings, including executive sessions at which management is not present. Semler Brossy communicates regularly with the HRCC Chair outside of committee meetings and also meets with management to gather information and review proposals.

Role of Executive Officers and Management in Compensation Decisions

For fiscal 2017, the HRCC invited Mr. Dickerson (as CEO) and other executives, including the heads of Global Human Resources and Global Rewards, to attend its meetings. The

HRCC also regularly held executive sessions without management present. The CEO, together with the HRCC, assesses the performance of our NEOs and other executive officers. The CEO presents to the HRCC his evaluation of each executive officer’s performance over the past year and makes recommendations to the HRCC regarding base salaries, bonus targets and actual payments, performance goals and weightings, and long-term incentive awards for executive officers. The HRCC considers these recommendations in making its final determinations, in addition to considering input from Semler Brossy. The HRCC discusses the CEO’s proposed compensation and makes final decisions regarding the CEO’s compensation when he is not present.

 

 

Additional Compensation Programs and Policies

 

 

Deferred Compensation Plan

Our 2016 Deferred Compensation Plan (the “DCP”) allows our NEOs and other eligible employees to voluntarily defer on a pre-tax basis a portion of their eligible earnings. We do not provide matching or other employer contributions under this plan. Deferrals made prior to October 2015 under the DCP are credited with deemed interest and are subject to the distribution rules in place prior to the plan amendment in October 2015. Beginning in fiscal 2016, participants are permitted to notionally invest new deferrals in certain investment options newly available under the plan. Additionally, for new deferrals, the DCP provides new distribution rules for in-service distributions and upon a qualifying separation from service, disability and change in control. See “Nonqualified Deferred Compensation” below for more information about the DCP.

Retirement Benefits under the 401(k) Plan and Generally Available Benefits Programs

During fiscal 2017, all full-time and part-time (working 20 or more hours a week) U.S. employees, including the NEOs, were eligible to participate in Applied’s 401(k) plan, a tax-qualified retirement plan. Eligible Applied 401(k) plan participants receive matching contributions from Applied. Other than the 401(k) plan, we do not provide defined benefit pension plans or defined contribution retirement plans to the NEOs or other employees, except as required in certain countries outside the U.S. for legal or competitive reasons. Applied offers a number of other benefits programs to a broad base of eligible employees, including a tax-qualified employee stock purchase plan, medical, dental and vision insurance, long-term and short-term disability plans, life and accidental death and dismemberment plans, health and dependent care flexible spending accounts, business travel insurance, wellness programs, educational assistance, employee assistance program and certain other country- specific benefits.

Applied annually benchmarks its overall benefits programs, including the 401(k) plan, against those of our peers. Applied’s overall broad-based benefits programs are at approximately the market median, which the HRCC believes allows us to remain competitive in attracting and retaining talent.

The benefits provided under the programs discussed above are not considered by the HRCC in determining an individual NEO’s total compensation.

Relocation Program

Applied maintains a relocation program that is consistent with current practices among global companies. The program is available to all eligible employees. Applied provides competitive relocation benefits to ensure it can fill positions critical to its business needs and provide career development opportunities for high-potential employees. Benefits for employees on international assignment include reimbursement on an after-tax basis for housing and transportation allowances and living and travel expense reimbursements. Benefits also include tax equalization that is intended to put employees who relocate in service to Applied in the same position, from a tax-liability perspective, that they would be in if they were still located in the U.S.

In 2014, the Board requested that Mr. Dickerson relocate full-time to Japan to continue leading critical efforts toward the then-anticipated completion of a proposed business combination with Tokyo Electron.

Board Rationale for Relocation. Recognizing the complexity of a U.S.-Japanese merger, including both geographic and cultural differences, the Board felt strongly that to effect a smooth business combination and increase the likelihood of achieving forecasted business benefits of the merger, it was critical to have senior leadership presence from Applied on the ground in Japan to work closely with Tokyo Electron during the regulatory review period. The Board considered and determined that the anticipated cost savings that would be generated from the merger would significantly outweigh

 

 

38    2018 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

the expenses to relocate our senior management to Japan. At the Board’s request, Mr. Dickerson relocated with his family to Japan in August 2014.

Relocation Benefits. In accordance with our relocation program, the HRCC approved relocation benefits for Mr. Dickerson, which are reported in the Summary Compensation Table. The relocation benefits were provided to Mr. Dickerson under the relocation program that is available to all employees on global assignment. These benefits included housing, transportation and moving expenses, a cost of living adjustment, education expense reimbursements, relocation allowance, amounts for taxes incurred in connection with the relocation, as well as tax equalization for the incremental tax-liability resulting from his relocation to Japan in service of Applied. Tax equalization ensures that the tax costs incurred by Mr. Dickerson on the international assignment be equivalent to what the tax costs would have been had he remained in the U.S. Tax payments were not paid to Mr. Dickerson but were paid directly to the appropriate tax authorities. While the amounts of the relocation benefits are attributed to Mr. Dickerson in the Summary Compensation Table, they did not provide any additional compensation to him and are not part of his ongoing pay.

Disclosure and Payment Timing. Although Mr. Dickerson relocated to Japan for part of 2014 and 2015, the timing and disclosure of relocation payments extend beyond this period. Mr. Dickerson is subject to income taxes in Japan on income earned for the period of time of his international assignment, including continuing Japanese tax liabilities related to his equity awards. Japan assesses income tax on compensation earned while an individual is resident in Japan. Performance shares are deemed earned over the period during which they vest and stock options are deemed earned from grant to exercise. Mr. Dickerson has outstanding equity awards that he earned during the period of his international assignment in Japan. Applied, in connection with providing tax equalization benefits to Mr. Dickerson under the relocation program, will be responsible for incremental taxes on the equity awards as they continue to vest through fiscal 2019.

Stock Ownership Guidelines

We have stock ownership guidelines to help align the interests of our NEOs with those of our shareholders. In fiscal 2017, the HRCC approved changes to our stock ownership guidelines to increase the CEO ownership level from 5x to 6x of his annual base salary and apply the guidelines to all Section 16 officers on the CEO Executive Staff. The guidelines provide that officers should meet the following ownership levels in Applied common stock:

 

Position    Ownership Level  

CEO

     6x base salary

Other Officers

     3x base salary

As of December 31, 2017, all NEOs had met the stock ownership guidelines.

Hedging and Pledging Prohibitions

Applied has an insider trading policy that, among other things, prohibits our NEOs from engaging in hedging or other speculative transactions relating to Applied shares, or pledging their Applied shares.

Clawback Policy

We have a “clawback” policy that allows the Board to require reimbursement of incentive compensation from an executive officer in the event intentional misconduct by the officer is determined to be the primary cause of a material negative restatement of Applied’s financial results. The compensation that may be recovered is the after-tax portion of any bonus paid to, and any performance-based equity awards earned by, the NEO within the 12 months after filing of the financial statements, if the compensation would not have been paid to the NEO had Applied’s financial results been reported properly. The policy applies to financial statements filed in a rolling three-year, look-back period. This clawback policy is in addition to any policies or recovery rights that are required under applicable laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

Tax Deductibility

Section 162(m) of the Internal Revenue Code, as amended by the recently-exacted Tax Cuts and Jobs Act, restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1 million to the NEOs, effective for tax years beginning after 2017, subject to a transition rule for written binding contracts which were in effect on November 2, 2017, and which were not modified in any material respect on or after such date. In the past, Section 162(m)’s deductibility limitation was subject to an exception for compensation that qualified as ‘performance-based’. Our compensation programs were designed to permit Applied to qualify for the performance-based exception, although the Company reserved the right to pay compensation that did not qualify as ‘performance-based’. While the HRCC has considered the deductibility of compensation as a factor in making compensation decisions, it has retained the flexibility to provide compensation that is consistent with the Company’s goals for its executive compensation program, even if such compensation would not be fully tax-deductible. The HRCC is continuing to assess the impact of Section 162(m) of the Code, as amended, on our compensation programs.

 

 

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HUMAN RESOURCES AND

COMPENSATION COMMITTEE REPORT

 

 

The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Applied specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.

The Human Resources and Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal 2017. Based on the review and discussions, the Human Resources and Compensation

Committee recommended to the Board that the Compensation Discussion and Analysis be included in Applied’s Proxy Statement for its 2018 Annual Meeting of Shareholders.

This report is submitted by the Human Resources and Compensation Committee.

Thomas J. Iannotti (Chair)

Xun (Eric) Chen

Alexander A. Karsner

 

 

40    2018 Proxy Statement


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EXECUTIVE COMPENSATION

 

EXECUTIVE COMPENSATION

Summary Compensation Table for Fiscal 2017, 2016 and 2015

 

The following table shows compensation information for fiscal 2017, 2016 and 2015 for our NEOs.

 

Name and Principal Position   Year     Salary
($)(1)
    Bonus
($)(2)
    Stock
Awards
($)(3)
    Non-Equity
Incentive Plan
Compensation
($)(4)
    All Other
Compensation
($)
   

Total

($)

 

Gary E. Dickerson
President and Chief Executive Officer

   

2017

2016

2015


   

1,000,000

1,019,231

995,385

 

 

 

   

—  

—  

—  

 

 

 

   

10,844,501

11,111,985

10,818,374

 

 

 

   

2,640,000

2,449,440

2,090,000

 

 

 

   

838,204

5,099,766

4,189,049

(5) 

(6) 

 

   

15,322,705

19,680,422

18,092,808

 

 

 

Daniel J. Durn(7)
Senior Vice President, Chief Financial Officer

   

2017

2016

2015


   

138,462

—  

—  

 

 

 

   

500,000

—  

—  

 

 

 

   

5,421,909

—  

—  

 

 

 

   

—  

—  

—  

 

 

 

   

411,239

—  

—  

(8) 

 

 

   

6,471,610

—  

—  

 

 

 

Robert J. Halliday(9)
Former Senior Vice President, Chief Financial Officer

   

2017

2016

2015


   

625,000

637,019

613,462

 

 

 

   

—  

2,203,125

—  

 

 

 

   

4,231,139

4,321,318

4,207,134

 

 

 

   

1,113,750

1,033,358

961,875

 

 

 

   

12,705

25,818

41,082

(10) 

 

 

   

5,982,594

8,220,638

5,823,553

 

 

 

Ali Salehpour
Senior Vice President, General Manager, Services, Display and Flexible Technologies

   

2017

2016

2015


   

591,346

560,577

550,000

 

 

 

   

—  

1,732,500

—  

 

 

 

   

3,868,486

3,086,656

3,005,095

 

 

 

   

1,060,290

882,651

846,450

 

 

 

   

12,058

9,230

12,815

(11) 

 

 

   

5,532,180

6,271,614

4,414,360

 

 

 

Omkaram Nalamasu
Senior Vice President, Chief Technology Officer

   

2017

2016

2015


 

   

484,808

468,846

460,000

 

 

 

   

—  

1,380,000

—  

 

 

 

   

2,176,031

2,160,671

2,103,581

 

 

 

   

770,770

622,659

430,100

 

 

 

   

12,323

12,841

15,046

(12) 

 

 

   

3,443,932

4,645,017

3,008,727

 

 

 

Thomas F. Larkins
Senior Vice President, General Counsel
and Corporate Secretary

   

2017

2016

2015


   

480,000

489,231

480,000

 

 

 

   

—  

1,512,000

—  

 

 

 

   

2,176,031

1,975,455

2,103,581

 

 

 

   

702,768

640,494

476,520

 

 

 

   

12,899

12,847

12,808

(13) 

 

 

   

3,371,698

4,630,027

3,072,909

 

 

 

(1) Applied’s fiscal 2016 contained 53 weeks, and fiscal 2017 and 2015 each contained 52 weeks. Amounts shown reflect salaries for services rendered for the number of weeks in the respective fiscal years.
(2) Amount shown for Mr. Durn is a new-hire bonus of $500,000, which is subject to repayment by Mr. Durn if he resigns or his employment is terminated by Applied for cause within two years of his hire. Amount shown for fiscal 2016 for each other NEO is a retention bonus paid to the applicable NEO in the beginning of fiscal 2016, six months after the termination of a proposed business combination with Tokyo Electron, pursuant to the terms of the NEO’s amended and restated retention agreement.
(3) Amounts shown do not reflect compensation actually received by the executive officer. Instead, the amounts reported represent the aggregate grant date fair value of target stock awards granted in the respective fiscal years, as determined pursuant to ASC 718 (but excluding the effect of estimated forfeitures for performance-based awards). For fiscal 2017, the grant date fair value of maximum number of stock awards for each NEO is as follows: Mr. Dickerson: $18,951,240; Mr. Durn: $6,892,083; Mr. Halliday: $6,332,900; Mr. Salehpour: $5,790,104; Dr. Nalamasu: $3,256,945; and Mr. Larkins: $3,256,945. See “Fiscal 2017 Equity Awards” on page 35 for more information regarding the stock awards. The assumptions used to calculate the value of awards are set forth in Note 11 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2017 filed with the SEC on December 15, 2017.
(4) Amounts consist of bonuses earned under the Senior Executive Bonus Plan for services rendered in the respective fiscal years.
(5) Amount includes Applied’s matching contribution of $12,150 under the tax-qualified 401(k) Plan, Applied’s payment on behalf of Mr. Dickerson of $780 in term life insurance premiums and a payment of $1,125 under Applied’s Patent Incentive Award Program. Amount also includes $34,226 paid by Applied on behalf of Mr. Dickerson for tax consultation, $254,131 for taxes incurred and $535,792 of tax equalization payments for Japanese tax liabilities and taxes incurred as a result of these payments made under Applied’s relocation program in connection with Mr. Dickerson’s international assignment in Japan in contemplation of the closing of a proposed business combination with Tokyo Electron. Tax equalization ensures that the tax costs incurred by Mr. Dickerson on the international assignment are equivalent to what the tax costs would have been had he remained in the U.S. The tax equalization amounts were not paid to Mr. Dickerson but were paid directly to the appropriate tax authorities. See “Relocation Program” on page 38 for more information regarding Mr. Dickerson’s international assignment.
(6) Amount includes (a) Applied’s matching contribution of $11,925 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Mr. Dickerson of $960 in term life insurance premiums and (c) a payment of $875 under Applied’s Patent Incentive Award Program. Amount also includes payments made under Applied’s relocation program in connection with Mr. Dickerson’s international assignment in Japan in contemplation of the closing of a proposed business combination with Tokyo Electron and his repatriation to the U.S. following the termination of the business combination. These amounts are as follows: $84,136 in housing, moving, and other direct assignment-related expenses for fiscal 2016 covered under our relocation program; $3,352,117 paid by Applied for taxes incurred in connection with assignment-related expenses in 2015 and 2016 due to the timing of final determination of tax liabilities and tax filings; and $1,649,753 of tax equalization payments for Japanese tax liabilities and taxes incurred as a result of these payments.
(7) Mr. Durn was appointed CFO effective August 24, 2017.
(8) Amount consists of (a) Applied’s matching contribution of $1,038 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Mr. Durn of $780 in term life insurance premiums, (c) a lump-sum payment of $7,500 to cover incidental costs related to Mr. Durn’s relocation, (d) Applied’s payment on behalf of Mr. Durn of $268,302 for relocation expenses and (e) the reimbursement to Mr. Durn of $133,619 for taxes incurred in connection with his relocation.

 

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(9) Mr. Halliday stepped down as CFO on August 24, 2017.
(10) Amount consists of (a) Applied’s matching contribution of $11,925 under the tax-qualified 401(k) Plan and (b) Applied’s payment on behalf of Mr. Halliday of $780 in term life insurance premiums.
(11) Amount consists of (a) Applied’s matching contribution of $11,278 under the tax-qualified 401(k) Plan and (b) Applied’s payment on behalf of Mr. Salehpour of $780 in term life insurance premiums.
(12) Amount consists of (a) Applied’s matching contribution of $10,855 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Dr. Nalamasu of $718 in term life insurance premiums and (c) a payment of $750 under Applied’s Patent Incentive Award Program.
(13) Amount consists of (a) Applied’s matching contribution of $12,150 under the tax-qualified 401(k) Plan and (b) Applied’s payment on behalf of Mr. Larkins of $749 in term life insurance premiums.

Grants of Plan-Based Awards for Fiscal 2017

 

The following table shows all plan-based awards granted to the NEOs during fiscal 2017.

 

         

 

Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards(1)

   

 

Estimated Future Payouts
Under Equity
Incentive Plan Awards

   

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units

(#)

    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/share)
   

Grant
Date Fair
Value of
Stock and
Option
Awards

($)(2)

 
Name  

Grant

Date

    Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
   

Target

(#)

    Maximum
(#)
         

 

Gary E. Dickerson

 

 

 

 

12/1/2016

12/1/2016

—  

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

—  

—  

2,000,000

 

 

 

 

 

 

 

 

—  

—  

5,000,000

 

 

 

 

 

 

 

 

140,158

—  

—  

 

 

 

 

 

 

 

 

280,316

—  

—  

 

 

 

 

 

 

 

 

560,632

—  

—  

 

 

 

 

 

 

 

 

—  

93,439

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

8,106,739

2,737,762

—  

 

 

 

 

 

Daniel J. Durn

 

 

 

 

9/6/2017

9/6/2017

 

 

 

 

 

 

 

—  

—  

 

 

 

 

 

 

 

—  

—  

 

 

 

 

 

 

 

—  

—  

 

 

 

 

 

 

 

16,768

—  

 

 

 

 

 

 

 

33,535

—  

 

 

 

 

 

 

 

67,070

—  

 

 

 

 

 

 

 

—  

89,426

 

 

 

 

 

 

 

—  

—  

 

 

 

 

 

 

 

—  

—  

 

 

 

 

 

 

 

1,470,174

3,951,735

 

 

 

 

Robert J. Halliday

 

 

 

 

12/1/2016

12/1/2016

—  

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

—  

—  

843,750

 

 

 

 

 

 

 

 

—  

—  

2,531,250

 

 

 

 

 

 

 

 

36,338

—  

—  

 

 

 

 

 

 

 

 

72,675

—  

—  

 

 

 

 

 

 

 

 

145,350

—  

—  

 

 

 

 

 

 

 

 

—  

72,675

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

2,101,761

2,129,378

—  

 

 

 

 

 

Ali Salehpour

 

 

 

 

12/1/2016

12/1/2016

—  

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

—  

—  

810,000

 

 

 

 

 

 

 

 

—  

—  

2,430,000

 

 

 

 

 

 

 

 

33,223

—  

—  

 

 

 

 

 

 

 

 

66,446

—  

—  

 

 

 

 

 

 

 

 

132,892

—  

—  

 

 

 

 

 

 

 

 

—  

66,446

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

1,921,618

1,946,868

—  

 

 

 

 

 

Omkaram Nalamasu

 

 

 

 

12/1/2016

12/1/2016

—  

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

—  

—  

539,000

 

 

 

 

 

 

 

 

—  

—  

1,617,000

 

 

 

 

 

 

 

 

18,688

—  

—  

 

 

 

 

 

 

 

 

37,376

—  

—  

 

 

 

 

 

 

 

 

74,752

—  

—  

 

 

 

 

 

 

 

 

—  

37,376

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

1,080,914

1,095,117

—  

 

 

 

 

 

Thomas F. Larkins

 

 

 

 

12/1/2016

12/1/2016

—  

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

—  

—  

528,000

 

 

 

 

 

 

 

 

—  

—  

1,584,000

 

 

 

 

 

 

 

 

18,688

—  

—  

 

 

 

 

 

 

 

 

37,376

—  

—  

 

 

 

 

 

 

 

 

74,752

—  

—  

 

 

 

 

 

 

 

 

—  

37,376

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

1,080,914

1,095,117

—  

 

 

 

 

(1) Amounts shown were estimated possible payouts for fiscal 2017 under the Senior Executive Bonus Plan. These amounts were based on the individual NEO’s fiscal 2017 base salary and position. The maximum amount shown is three times the target amount for the NEO, except the amount for Mr. Dickerson, which is the maximum amount payable per participant in any performance period under the Senior Executive Bonus Plan. Actual bonuses received by the NEOs for fiscal 2017 under the Senior Executive Bonus Plan are reported in the Summary Compensation Table under the column titled “Non-Equity Incentive Plan Compensation.
(2) Amounts shown do not reflect compensation actually received by the NEOs. Instead, the amounts represent the aggregate grant date fair value of the awards as determined pursuant to ASC 718 (but excluding the effect of estimated forfeitures for performance-based awards). The assumptions used to calculate the awards’ value are set forth in Note 11 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2017 filed with the SEC on December 15, 2017.

 

42    2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

Outstanding Equity Awards at Fiscal 2017 Year-End

 

The following table shows all outstanding equity awards held by the NEOs at the end of fiscal 2017.

 

    Option Awards     Stock Awards(1)  
Name   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(2)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)
    Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)(2)
 

Gary E. Dickerson

   

1,000,000

—  

—  

—  

—  

 

 

 

 

 

   

—  

—  

—  

—  

—  

 

 

 

 

 

   

—  

—  

—  

—  

—  

 

 

 

 

 

   

15.06

—  

—  

—  

—  

 

 

 

 

 

   

9/1/2020

—  

—  

—  

—  

 

 

 

 

 

   

—  

278,465

356,955

93,439

—  

 

(3) 

(4) 

(5) 

 

   

—  

15,786,181

20,235,779

5,297,057

—  

 

 

 

 

 

   


—  

—  

—  

—  
280,316

 

 

 

 
(6) 

   


—  

—  

—  

—  
15,891,114

 

 

 

 
 

Daniel J. Durn

   

—  

—  

—  

 

 

 

   

—  

—  

—  

 

 

 

   

—  

—  

—  

 

 

 

   

—  

—  

—  

 

 

 

   

—  

—  

—  

 

 

 

   

55,891

33,535

—  

(7) 

(8) 

 

   

3,168,461

1,901,099

—  

 

 

 

   

—  

—  

33,535

 

 

(9) 

   


—  

—  
1,901,099

 

 
 

Robert J. Halliday

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

108,292

138,816

72,675

—  

(10) 

(11) 

(12) 

 

   

6,139,073

7,869,479

4,119,946

—  

 

 

 

 

   


—  

—  

—  
72,675

 

 

 
(6) 

   


—  

—  

—  
4,119,946

 

 

 
 

Ali Salehpour

   

—  

—  

—  

—  

—  

 

 

 

 

 

   

—  

—  

—  

—  

—  

 

 

 

 

 

   

—  

—  

—  

—  

—  

 

 

 

 

 

   

—  

—  

—  

—  

—  

 

 

 

 

 

   

—  

—  

—  

—  

—  

 

 

 

 

 

   

30,000

77,351

99,154

66,446

—  

(13) 

(14) 

(15) 

(16) 

 

   

1,700,700

4,385,028

5,621,040

3,766,824

—  

 

 

 

 

 

   


—  

—  

—  

—  
66,446

 

 

 

 
(6) 

   


—  

—  

—  

—  
3,766,824

 

 

 

 
 

Omkaram Nalamasu

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

54,146

69,408

37,376

—  

(17) 

(18) 

(19) 

 

   

3,069,537

3,934,740

2,118,845

—  

 

 

 

 

   


—  

—  

—  
37,376

 

 

 
(6) 

   


—  

—  

—  
2,118,845

 

 

 
 

Thomas F. Larkins

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   


—  

—  
—  

—  

 

 
 

 

   

—  

—  

—  

—  

 

 

 

 

   

—  

—  

—  

—  

 

 

 

 

   

54,146

63,459

37,376

—  

(17) 

(20) 

(19) 

 

   

3,069,537

3,597,491

2,118,845

—  

 

 

 

 

   


—  

—  

—  
37,376

 

 

 
(6) 

   


—  

—  

—  
2,118,845

 

 

 
 

(1) Stock awards consist of restricted stock units, performance shares and PSUs, all of which will be converted into Applied common stock on a one-to-one basis upon vesting. All future vesting of shares is subject to the NEO’s continued employment with Applied through each applicable vest date. See “Long-Term Incentives” on page 35 for more information regarding these awards.
(2) Market value was determined by multiplying the number of such shares by the closing price of Applied common stock of $56.69 on October 27, 2017, the last trading day of fiscal 2017, as reported on the Nasdaq Global Select Market.
(3) Performance shares were granted on December 8, 2014. Of these, 139,233 shares vested on December 19, 2017 and 139,232 shares are scheduled to vest on December 19, 2018.
(4) Performance shares were granted on December 7, 2015. Of these, 118,985 shares vested on December 19, 2017 and 118,985 shares are scheduled to vest on December 19 of each of 2018 and 2019. On December 14, 2017, an additional 237,970 shares became eligible to vest due to achievement of a TSR goal related to the grant. Of these additional TSR shares, 118,985 shares vested on December 19, 2017, 54,492 shares are scheduled to vest on December 19, 2018 and 54,493 shares are scheduled to vest on December 19, 2019. The additional TSR shares were earned based on Applied’s TSR for the two-year period ended fiscal 2017 ranking at the 98th percentile among the companies in the S&P 500 Information Technology Index.
(5) Restricted stock units were granted on December 1, 2016. Of these, 31,146 shares vested on December 19, 2017, 31,146 shares are scheduled to vest on December 19, 2018 and 31,147 shares are scheduled to vest on December 19, 2019.
(6) PSUs were granted on December 1, 2016. The shares are scheduled to vest on December 19, 2019, depending on the achievement of specified performance goals. The number of shares shown is the target amount, and the actual number of shares that may vest ranges from 0% to 200% of the target amount, depending on the achievement of specified performance goals.
(7) Restricted stock units were granted on September 6, 2017. Of these, 18,631 shares are scheduled to vest on February 1, 2018 and 18,630 shares are scheduled to vest on February 1 of each of 2019 and 2020.
(8) Restricted stock units were granted on September 6, 2017. Of these, 11,179 shares are scheduled to vest on January 15, 2018 and 11,178 shares are scheduled to vest on December 19 of each of 2018 and 2019.
(9) PSUs were granted on September 6, 2017. The shares are scheduled to vest on December 19, 2019, depending on the achievement of specified performance goals. The number of shares shown is the target amount, and the actual number of shares that may vest ranges from 0% to 200% of the target amount, depending on the achievement of specified performance goals.
(10) Performance shares were granted on December 8, 2014. Of these, 54,146 shares vested on December 19, 2017 and 54,146 shares are scheduled to vest on December 19, 2018.
(11)

Performance shares were granted on December 7, 2015. Of these, 46,272 shares vested on December 19, 2017 and 46,272 shares are scheduled to vest on December 19 of each of 2018 and 2019. On December 14, 2017, an additional 92,544 shares became eligible to vest due to achievement of a TSR goal related to the grant. Of these additional TSR shares, 46,272 shares vested on December 19, 2017 and 23,136 shares are scheduled to vest on December 19

 

Applied Materials, Inc.    43


Table of Contents
  of each of 2018 and 2019. The additional TSR shares were earned based on Applied’s TSR for the two-year period ended fiscal 2017 ranking at the 98th percentile among the companies in the S&P 500 Information Technology Index.
(12) Restricted stock units were granted on December 1, 2016. Of these, 24,225 shares vested on December 19, 2017 and 24,225 shares are scheduled to vest on December 19 of each of 2018 and 2019.
(13) Performance shares were granted on September 9, 2014. These shares are scheduled to vest on October 1, 2018.
(14) Performance shares were granted on December 8, 2014. Of these, 38,676 shares vested on December 19, 2017 and 38,675 shares are scheduled to vest on December 19, 2018.
(15) Performance shares were granted on December 7, 2015. Of these, 33,051 shares vested on December 19, 2017, 33,051 shares are scheduled to vest on December 19, 2018 and 33,052 shares are scheduled to vest on December 19, 2019. On December 14, 2017, an additional 66,103 shares became eligible to vest due to achievement of a TSR goal related to the grant. Of these additional TSR shares, 33,051 shares vested on December 19, 2017 and 16,526 shares are scheduled to vest on December 19 of each of 2018 and 2019. The additional TSR shares were earned based on Applied’s TSR for the two-year period ended fiscal 2017 ranking at the 98th percentile among the companies in the S&P 500 Information Technology Index.
(16) Restricted stock units were granted on December 1, 2016. Of these, 22,148 shares vested on December 19, 2017 and 22,149 shares are scheduled to vest on December 19 of each of 2018 and 2019.
(17) Performance shares were granted on December 8, 2014. Of these, 27,073 shares vested on December 19, 2017 and 27,073 shares are scheduled to vest on December 19, 2018.
(18) Performance shares were granted on December 7, 2015. Of these, 23,136 shares vested on December 19, 2017 and 23,136 shares are scheduled to vest on December 19 of each of 2018 and 2019. On December 14, 2017, an additional 46,272 shares became eligible to vest due to achievement of a TSR goal related to the grant. Of these additional TSR shares, 23,136 shares vested on December 19, 2017 and 11,568 shares are scheduled to vest on December 19 of each of 2018 and 2019. The additional TSR shares were earned based on Applied’s TSR for the two-year period ended fiscal 2017 ranking at the 98th percentile among the companies in the S&P 500 Information Technology Index.
(19) Restricted stock units were granted on December 1, 2016. Of these, 12,458 shares vested on December 19, 2017 and 12,459 shares are scheduled to vest on December 19 of each of 2018 and 2019.
(20) Performance shares were granted on December 7, 2015. Of these, 21,153 shares vested on December 19, 2017 and 21,153 shares are scheduled to vest on December 19 of each of 2018 and 2019. On December 14, 2017, an additional 42,306 shares became eligible to vest due to achievement of a TSR goal related to the grant. Of these additional TSR shares, 21,153 shares vested on December 19, 2017, 10,576 shares are scheduled to vest on December 19, 2018 and 10,577 shares are scheduled to vest on December 19, 2019. The additional TSR shares were earned based on Applied’s TSR for the two-year period ended fiscal 2017 ranking at the 98th percentile among the companies in the S&P 500 Information Technology Index.

Option Exercises and Stock Vested for Fiscal 2017

 

The following table shows all stock awards that vested and the value realized upon vesting for each NEO during fiscal 2017.

 

     Option Awards      Stock Awards  
Name    Number of Shares
Acquired on
Exercise
(#)
     Value Realized
on Exercise
($)
     Number of Shares
Acquired on
Vesting
(#)(1)
     Value Realized
on Vesting
($)(2)
 

Gary E. Dickerson

     —          —          454,628        14,748,132  

Daniel J. Durn

     —          —          —          —    

Robert J. Halliday

     —          —          205,965        6,509,405  

Ali Salehpour

     —          —          216,369        7,502,040  

Omkaram Nalamasu

     —          —          159,234        5,387,301  

Thomas F. Larkins

     —          —          113,500        3,681,940  
(1) Of the amounts shown in this column, Applied withheld the following number of shares to cover tax withholding obligations: 246,636 shares for Mr. Dickerson; 102,098 shares for Mr. Halliday; 111,816 shares for Mr. Salehpour; 81,580 shares for Dr. Nalamasu; and 54,745 shares for Mr. Larkins.
(2) Value realized equals the fair market value of Applied common stock on the vesting date, multiplied by the number of shares that vested.

 

44    2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

Non-Qualified Deferred Compensation

 

 

Applied’s 2016 Deferred Compensation Plan (the “DCP”), restated effective October 12, 2015 (the “Restatement Date”) and formerly known as the 2005 Executive Deferred Compensation Plan, is a non-qualified deferred compensation plan that allows eligible employees, including executive officers, to voluntarily defer receipt of all or a portion of their: (1) eligible sign-on bonus payments, if any, (2) up to 40% of their base salaries, (3) eligible annual bonus payments, if any, and (4) eligible severance payments, if any.

Deferrals made prior to the Restatement Date are retained as separate “rollover” accounts under the DCP. These deferrals continue to be credited with deemed interest in the sum of (a) the yield-to-maturity of five-year U.S. Treasury notes, plus (b) 1.50%. The deemed interest rate under the DCP for fiscal 2017 was 3.09% from October 31, 2016 to December 31, 2016 and 3.40% from January 1, 2017 to October 29, 2017. Deferred amounts in the rollover accounts, plus deemed interest thereon, are generally payable on the same date

selected by the participants or specified prior to the Restatement Date under the terms of the DCP. Beginning in fiscal 2016, new deferrals under the DCP are credited with deemed investment returns, gains or losses based upon investment crediting options newly available under the DCP. Applied does not make any matching or other employer contributions to the plan.

Under the DCP, a change in control (as defined prior to the Restatement Date), would trigger the distribution of all deferred balances in the rollover accounts. For new account balances after the Restatement Date, the DCP provides new distribution rules for in-service distribution options and upon a qualifying separation from service, disability and change in control, including the option to change the time and form of payment within three (3) months following a change in control, as such term is defined in the DCP. Distributions are payable from the general assets of Applied or from the assets of a grantor trust (known as a rabbi trust) established by Applied.

 

 

Non-Qualified Deferred Compensation for Fiscal 2017

 

Name  

Executive
Contributions in
Last Fiscal Year