Document and Company Information (USD $)	9 Months Ended
Document and Company Information (USD $)	Jul. 26, 2009	Apr. 26, 2009
Document and Company Information [Abstract]
Entity Registrant Name	Applied Materials, Inc.
Entity Central Index Key	0000006951
Document Type	10-Q
Document Period End Date	Jul. 26, 2009
Amendment Flag	false
Current Fiscal Year End Date	--10-26
Entity Well Known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float (actual number)		$ 15,579,209,892
Entity Common Stock Shares Outstanding (actual number)	1,333,714,002

Consolidated Condensed Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Jul. 26, 2009	Jul. 27, 2008	Jul. 26, 2009	Jul. 27, 2008
Net sales	$ 1,133,740	$ 1,848,168	$ 3,487,213	$ 6,085,563
Cost of products sold	808,866	1,105,854	2,615,244	3,441,440
Gross margin	324,874	742,314	871,969	2,644,123
Operating expenses:
Research, development and engineering	234,052	268,559	699,927	828,900
General and administrative	88,487	129,341	330,808	367,352
Marketing and selling	79,518	115,944	248,311	359,271
Restructuring and asset impairments	0	138	159,481	49,634
Income (loss) from operations	(77,183)	228,332	(566,558)	1,038,966
Pretax loss of equity-method investment	0	6,308	34,983	25,660
Impairment of equity-method investment and strategic investments	2,341	0	79,422	0
Interest expense	4,893	4,859	15,945	15,660
Interest income	10,233	25,399	37,257	88,383
Income (loss) before income taxes	(74,184)	242,564	(659,651)	1,086,029
Provision (benefit) for income taxes	(19,319)	77,796	(216,462)	356,378
Net income (loss)	$ (54,865)	$ 164,768	$ (443,189)	$ 729,651
Earnings (loss) per share:
Basic	$ (0.04)	$ 0.12	$ (0.33)	$ 0.54
Diluted	$ (0.04)	$ 0.12	$ (0.33)	$ 0.53
Weighted average number of shares:
Basic	1,333,278	1,350,526	1,331,410	1,359,492
Diluted	1,333,278	1,367,557	1,331,410	1,375,656

Consolidated Condensed Balance Sheets (USD $)
In Thousands, unless otherwise specified

Jul. 26, 2009

Oct. 26, 2008

Current assets:

Cash and cash equivalents

$ 1,555,470

$ 1,411,624

^[1]

Short-term investments

583,188

689,044

^[1]

Accounts receivable, net

842,169

1,691,027

^[1]

Inventories

1,748,507

1,987,017

^[1]

Deferred income taxes, net

304,706

388,807

^[1]

Income taxes receivable

421,935

125,605

^[1]

Other current assets

308,817

371,033

^[1]

Total current assets

5,764,792

6,664,157

^[1]

Long-term investments

990,167

1,367,056

^[1]

Property, plant and equipment

2,876,731

2,831,952

^[1]

Less: accumulated depreciation and amortization

(1,788,673)

(1,737,752)

^[1]

Net property, plant and equipment

1,088,058

1,094,200

^[1]

Goodwill, net

1,171,740

1,174,673

^[1]

Purchased technology and other intangible assets, net

327,351

388,429

^[1]

Equity method investment

79,533

^[1]

Deferred income taxes and other assets

238,173

238,270

^[1]

Total assets

9,580,281

11,006,318

^[1]

Current liabilities:

Current portion of long-term debt

1,203

1,068

^[1]

Accounts payable and accrued expenses

1,056,532

1,545,355

^[1]

Customer deposits and deferred revenue

911,485

1,225,735

^[1]

Income taxes payable

69,763

173,394

^[1]

Total current liabilities

2,038,983

2,945,552

^[1]

Long-term debt

201,200

201,576

^[1]

Other liabilities

326,489

310,232

^[1]

Total liabilities

2,566,672

3,457,360

^[1]

Stockholders' equity:

Common stock

13,337

13,308

^[1]

Additional paid-in capital

5,198,613

5,095,894

^[1]

Retained earnings

10,896,826

11,601,288

^[1]

Treasury stock

(9,100,915)

(9,134,962)

^[1]

Accumulated other comprehensive income (loss)

5,748

(26,570)

^[1]

Total stockholders' equity

7,013,609

7,548,958

^[1]

Total liabilities and stockholders' equity

$ 9,580,281

$ 11,006,318

^[1]

[1]	Amounts as of July 26, 2009 are unaudited. Amounts as of October 26, 2008 are derived from the October 26, 2008 audited consolidated financial statements.

Consolidated Condensed Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified

9 Months Ended

Jul. 26, 2009

Jul. 27, 2008

Cash flows from operating activities:

Net income (loss)

$ (443,189)

$ 729,651

Adjustments required to reconcile net income (loss) to cash provided by operating activities:

Depreciation and amortization

219,609

240,039

Loss on fixed asset retirements

16,165

27,880

Provision for bad debts

62,539

Restructuring and asset impairments

159,481

49,634

Deferred income taxes

96,117

(60,886)

Excess tax benefits from equity-based compensation plans

(5,406)

Net recognized loss (gain) on investments

13,083

(1,244)

Pretax loss of equity-method investment

34,983

25,660

Impairment of equity-method investment and strategic investments

79,422

Equity-based compensation

116,114

135,165

Changes in operating assets and liabilities, net of amounts acquired:

Accounts receivable

786,319

534,104

Inventories

238,510

(504,555)

Other current assets

49,990

77,593

Other assets

(7,134)

(4,383)

Accounts payable and accrued expenses

(632,193)

(127,423)

Customer deposits and deferred revenue

(314,250)

530,347

Income taxes

(419,297)

(66,603)

Other liabilities

36,527

4,578

Cash provided by operating activities

92,796

1,584,151

Cash flows from investing activities:

Capital expenditures

(187,804)

(209,512)

Cash paid for acquisition, net of cash acquired

(235,324)

Proceeds from sales and maturities of investments

1,121,026

4,514,648

Purchases of investments

(649,417)

(4,608,845)

Cash provided by (used in) investing activities

283,805

(539,033)

Cash flows from financing activities:

Debt repayments

(241)

(1,854)

Proceeds from common stock issuances

29,406

334,575

Common stock repurchases

(22,906)

(1,199,984)

Excess tax benefits from equity-based compensation plans

5,406

Payment of dividends to stockholders

(239,756)

(245,559)

Cash used in financing activities

(233,497)

(1,107,416)

Effect of exchange rate changes on cash and cash equivalents

742

108

Increase (decrease) in cash and cash equivalents

143,846

(62,190)

Cash and cash equivalents - beginning of period

1,411,624

^[1]

1,202,722

Cash and cash equivalents - end of period

1,555,470

1,140,532

Supplemental cash flow information:

Cash payments for income taxes

139,625

349,914

Cash payments for interest

$ 7,212

$ 7,243

[1]	Amounts as of July 26, 2009 are unaudited. Amounts as of October 26, 2008 are derived from the October 26, 2008 audited consolidated financial statements.


Note 1	Basis of Presentation and Equity-Based Compensation

Basis of Presentation

In the opinion of management, the unaudited interim consolidated condensed financial statements of Applied Materials, Inc. and its subsidiaries (Applied or the Company) included herein have been prepared on a basis consistent with the October 26, 2008 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Applied’s Annual Report on Form 10-K for the fiscal year ended October 26, 2008 (2008 Form 10-K). Applied’s results of operations for the three and nine months ended July 26, 2009 are not necessarily indicative of future operating results.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (United States) requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

Prior period amounts for customer deposits and deferred revenue have been reclassified to conform to the current period presentation.

During the first quarter of fiscal 2009, Applied elected to implement Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R).” As a result of this implementation, Applied changed the measurement date for its defined and postretirement benefit plan assets and obligations from an interim date to Applied’s fiscal year end. Accordingly, Applied recorded a $2 million (after tax) adjustment to the fiscal 2009 beginning balance of retained earnings.

Equity-Based Compensation

Applied has adopted stock plans that permit grants to employees of equity-based awards, including stock options, restricted stock and restricted stock units (also referred to as “performance shares” under the Applied Materials, Inc. Employee Stock Incentive Plan). In addition, the Employee Stock Incentive Plan provides for the automatic grant of restricted stock units to non-employee directors and permits the grant of equity-based awards to consultants. Applied also has two Employee Stock Purchase Plans (ESPP) for United States and international employees, respectively, which enable eligible employees to purchase Applied common stock.

During the three months ended July 26, 2009 and July 27, 2008, Applied recognized equity-based compensation expense related to stock options, ESPP shares, restricted stock units and restricted stock of $43 million and $46 million, respectively. During the three months ended July 26, 2009 and July 27, 2008, Applied recognized income tax benefits related to equity-based compensation of $12 million and $13 million, respectively. During the first nine months of fiscal 2009, Applied recognized total equity-based compensation expense of $116 million and a tax benefit of $33 million. During the first nine months of fiscal 2008, Applied recognized total equity-based compensation expense of $135 million and a tax benefit of $38 million. The equity-based compensation expense related to restricted stock units and restricted stock for the three months ended July 26, 2009 and July 27, 2008 was $31 million and $34 million, respectively, and for the nine months ended July 26, 2009 and July 27, 2008 was $94 million and $101 million, respectively. The estimated fair value of Applied’s equity-based awards, less expected forfeitures, is amortized over the awards’ service periods on a straight-line basis.

Stock Options

The exercise price of each stock option equals the fair market value of Applied common stock on the date of grant. Most options are scheduled to vest over three to four years and expire no later than seven years from the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. Applied’s stock options have characteristics significantly different from those of publicly traded options. The weighted average assumptions used in the model are outlined in the following table:


	Three Months Ended						Nine Months Ended
	July 26,			July 27,			July 26,			July 27,
	2009			2008			2009			2008

Stock Options:
Dividend yield		2.25	%		1.24	%		2.80	%		1.24	%
Expected volatility		46	%		32	%		50	%		32	%
Risk-free interest rate		1.3	%		2.9	%		1.3	%		3.0	%
Expected life (in years)		3.0			3.9			3.0			3.9

The computation of the expected volatility assumption used in the Black-Scholes calculations for new grants is based on a combination of historical and implied volatilities. When establishing the expected life assumption, Applied periodically reviews historical employee exercise behavior with respect to option grants.

Applied granted 13,000 and 24,514,000 stock options during the three and nine months ended July 26, 2009, respectively. Applied granted 6,000 and 7,000 stock options during the three and nine months ended July 27, 2008, respectively. The weighted average grant date fair value of options granted during the three months ended July 26, 2009 and July 27, 2008 was $2.99 and $5.05, respectively, and for options granted during the nine months ended July 26, 2009 and July 27, 2008, the value was $2.52 and $5.05, respectively.

Employee Stock Purchase Plans

Under the ESPP, substantially all employees may purchase Applied common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of Applied common stock at the beginning of the applicable offering period or at the end of each applicable purchase period. Effective March 2, 2009, the length of offering periods under the ESPP was reduced to 6 months, from a maximum of 24 months in duration. The incremental compensation cost associated with this modification was insignificant. Based on the Black-Scholes option pricing model, the weighted average estimated fair value of purchase rights under the ESPP was $2.99 and $4.88 for the nine months ended July 26, 2009 and July 27, 2008, respectively. No shares were issued under the ESPP during the three months ended July 26, 2009 and July 27, 2008, respectively. The number of shares issued during the nine months ended July 26, 2009 and July 27, 2008 was 3,536,000 and 2,294,000, respectively. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. Underlying assumptions used in the model are outlined in the following table:


	Nine Months Ended
	July 26,			July 27,
	2009			2008

ESPP:
Dividend yield		2.71	%		1.19	%
Expected volatility		69	%		29	%
Risk-free interest rate		0.41	%		4.63	%
Expected life (in years)		0.5			1.25

Restricted Stock Units and Restricted Stock

Restricted stock units are converted into shares of Applied common stock upon vesting on a one-for-one basis. Restricted stock units typically vest over three to four years. Vesting of restricted stock units usually is subject to the grantee’s continued service with Applied. The compensation expense related to these awards is determined using the fair market value of Applied common stock on the date of the grant, and the compensation expense is recognized over the vesting period. There were 2,811,000 and 1,603,000 restricted stock units granted in the three months ended July 26, 2009 and July 27, 2008, respectively, and 3,383,000 and 3,752,000 restricted stock units granted in the nine months ended July 26, 2009 and July 27, 2008, respectively.

Beginning in fiscal 2007, Applied initiated a performance-based equity award program for named executive officers and other key employees. These awards vest only if specific performance goals set by the Human Resources and Compensation Committee of Applied’s Board of Directors (the Committee) are achieved and if the grantee remains employed by Applied through the applicable vesting date. The performance goals require the achievement of targeted relative annual operating profit margin levels as compared to Applied’s peer companies in at least one of the four fiscal years beginning with the fiscal year of the grant. There were no performance-based awards granted in the nine months ended July 26, 2009. The Committee approved the award of 1,565,000 performance-based restricted stock units under this program for fiscal year 2008. The Committee also approved an award of 100,000 shares of performance-based restricted stock for fiscal year 2008 to Applied’s President and Chief Executive Officer at a purchase price of $0.01 per share. The fair value of the performance-based restricted stock units and restricted stock is estimated using the fair market value of Applied common stock on the date of the grant and assumes that the performance goals will be achieved. If achieved, the award vests over a specified remaining service period. If the performance goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost of each award is reflected over the service period and is reduced for estimated forfeitures. As of July 26, 2009, 70% of the performance goals associated with the fiscal 2008 awards were achieved. The performance goals associated with the remaining 30% may still be achieved, depending on future performance, during the remaining three fiscal years.


Note 3	Earnings (Loss) Per Share

Basic earnings (loss) per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, restricted stock units, and ESPP shares) outstanding during the period.

Applied’s net income (loss) has not been adjusted for any period presented for purposes of computing basic or diluted earnings (loss) per share due to the Company’s non-complex capital structure.

For purposes of computing diluted earnings per share, weighted average potential common shares do not include stock options with an exercise price greater than the average fair value of Applied common stock for the period, as the effect would be anti-dilutive. Accordingly, options to purchase 25,022,000 shares of common stock for the three months ended July 27, 2008, and 27,512,000 shares of common stock for the nine months ended July 27, 2008, were excluded from the computation. Potential common shares have not been included in the calculation of diluted net loss per share, as the effect would be anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss per share for the three and nine months ended July 26, 2009 are the same. The number of potential common shares that could dilute basic earnings per share in the future was 91,655,000 for the three and nine months ended July 26, 2009.


Note 4	Financial Instruments and Fair Value

Investments

Investments by security type at July 26, 2009 were as follows:


			Gross		Gross
			Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(In thousands)

U.S. Treasury and agency securities	$	635,068	$	10,115	$	160	$	645,023
Obligations of states and political subdivisions		404,995		8,013		351		412,657
U.S. commercial paper, corporate bonds and medium-term notes		304,959		3,961		1,043		307,877
Other debt securities		106,442		1,459		4,110		103,791

Total fixed income securities		1,451,464		23,548		5,664		1,469,348
Publicly traded equity securities		9,572		4,555		—		14,127
Equity investments in privately-held companies		89,880		—		—		89,880

Total	$	1,550,916	$	28,103	$	5,664	$	1,573,355

Investments by security type at October 26, 2008 were as follows:


			Gross		Gross
			Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(In thousands)

U.S. Treasury and agency securities	$	583,979	$	5,839	$	1,257	$	588,561
Obligations of states and political subdivisions		749,225		1,993		2,824		748,394
U.S. commercial paper, corporate bonds and medium-term notes		382,054		141		14,903		367,292
Other debt securities		255,777		535		11,507		244,805
Bank certificate of deposit		342		—		2		340

Total fixed income securities		1,971,377		8,508		30,493		1,949,392
Publicly traded equity securities		29,165		—		17,205		11,960
Equity investments in privately-held companies		94,748		—		—		94,748

Total	$	2,095,290	$	8,508	$	47,698	$	2,056,100

Cash and cash equivalents included investments in debt and other securities of $189 million at July 26, 2009 and $224 million at October 26, 2008. Other debt securities consist primarily of investment grade asset-backed and mortgage-backed securities.

Contractual maturities of investments at July 26, 2009 were as follows:


			Estimated
	Cost		Fair Value
	(In thousands)

Due in one year or less	$	562,596	$	566,762
Due after one through five years		758,482		773,286
Due after five years		23,944		25,508
No single maturity date*		205,894		207,799

	$	1,550,916	$	1,573,355


*		Securities with no single maturity date include publicly traded equity securities, asset and mortgage-backed securities.

At July 26, 2009, Applied had a gross unrealized loss of $6 million due to a decrease in the fair value of certain fixed income securities primarily as a result of the continuing turmoil in the global financial markets. Applied regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition, credit quality and near-term prospects of the investee; and whether it is more likely than not that Applied will be required to sell the security prior to recovery. Generally, the contractual terms of the investments do not permit settlement at prices less than the amortized cost of the investments. Applied has determined that the gross unrealized losses on its investments at July 26, 2009 are temporary in nature. Accordingly, Applied does not consider the investments to be other-than-temporarily impaired at July 26, 2009.

The following table provides the gross unrealized losses and the fair market value of Applied’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of July 26, 2009.


	In Loss Position for				In Loss Position for
	Less Than 12 Months				12 Months or Greater				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
					(In thousands)

U.S. Treasury and agency securities	$	60,315	$	160	$	—	$	—	$	60,315	$	160
Obligations of states and political subdivisions		55,975		329		3,405		22		59,380		351
U.S. commercial paper, corporate bonds and medium-term notes		111,149		368		29,785		675		140,934		1,043
Other debt securities		1,572		108		34,705		4,002		36,277		4,110

Total	$	229,011	$	965	$	67,895	$	4,699	$	296,906	$	5,664

Applied manages its cash equivalents and investments, excluding strategic investments, as a single portfolio of highly marketable securities that is intended to be available to meet Applied’s current cash requirements. For the three months ended July 26, 2009, gross realized gains on sales of investments and gross realized losses were each $1 million. For the three months ended July 27, 2008, gross realized gains on sales of investments were $1 million and gross realized losses were $2 million. For the nine months ended July 26, 2009, gross realized gains on sales of investments were $6 million and gross realized losses were $10 million. For the nine months ended July 27, 2008, gross realized gains on sales of investments were $11 million and gross realized losses were $8 million. There were no credit losses for the three and nine months ended July 26, 2009.

On October 27, 2008, Applied adopted the provisions of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), with respect to financial assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosure requirements for fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset, or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, which may be used to measure fair value:


	•	Level 1 — Quoted prices in active markets for identical assets or liabilities;

	•	Level 2 — Observable inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

	•	Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Applied’s investments are comprised primarily of debt securities that are classified as available-for-sale and recorded at their fair value. In determining the fair value of investments, Applied uses pricing information from pricing services that value securities based on quoted market prices and models that utilize observable market inputs. In the event a fair value estimate is unavailable from a pricing service, Applied generally obtains non-binding price quotes from brokers. Applied then reviews the information provided by the pricing services or brokers to determine the fair value of its short-term and long-term investments. In addition, to validate pricing information obtained from pricing services, Applied periodically performs supplemental analysis on a sample of securities. Applied reviews any significant unanticipated differences identified through this analysis to determine the appropriate fair value.

In general, investments with remaining effective maturities of 12 months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than 12 months from the balance sheet date are classified as long-term investments. As of July 26, 2009, a substantial majority of Applied’s available-for-sale, short-term and long-term investments were recognized at fair value that was determined based upon observable inputs.

Unrealized gains and temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive income (loss), net of any related tax effect. Upon realization, those amounts are reclassified from accumulated other comprehensive income (loss) to results of operations.

Financial Assets/Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities (excluding cash balances) measured at fair value on a recurring basis are summarized below as of July 26, 2009:


	Level 1		Level 2			Level 3		Total
			(In thousands)

Assets
Money market funds	$	1,310,936	$	—		$	—	$	1,310,936
U.S. Treasury and agency securities		198,299		446,724			—		645,023
Obligations of states and political subdivisions		—		412,657			—		412,657
U.S. commercial paper, corporate bonds and medium-term notes		—		307,877			—		307,877
Other debt securities		—		102,183			1,608		103,791
Publicly traded equity securities		14,127		—			—		14,127
Foreign exchange derivative assets		—		2,183			—		2,183

Total	$	1,523,362	$	1,271,624		$	1,608	$	2,796,594

Liabilities
Foreign exchange derivative liabilities	$	—	$	(1,914	)	$	—	$	(1,914	)

Total	$	—	$	(1,914	)	$	—	$	(1,914	)

At July 26, 2009, the fair value of Level 3 assets measured on a recurring basis was $2 million, representing approximately 0.1% of the total fair value of Applied’s investment portfolio. Level 3 assets consisted of asset-backed and mortgage-backed securities totaling $2 million, which values were based on non-binding, broker-provided price quotes and may not have been corroborated by observable market data.

Financial Assets/Liabilities Measured at Fair Value on a Non-recurring Basis

Equity investments in privately-held companies are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. If Applied determines that an other-than-temporary impairment has occurred, the investment will be written down to its estimated fair value based on available information, such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. Equity investments in privately-held companies totaled $90 million at July 26, 2009, of which $48 million of investments were accounted for under the cost method of accounting and $42 million of investments had been measured at fair value on a non-recurring basis during fiscal 2009 due to an other-than-temporary decline in value. The following table presents the balance of equity securities at July 26, 2009 that had been measured at fair value on a non-recurring basis, using the process described above, and the impairment charges recorded during the three and nine months then ended:


							Total		Total
							Impairment for		Impairment for
							the Three		the Nine
							Months Ended		Months Ended
	Level 1		Level 2		Level 3		July 26, 2009		July 26, 2009
					(In thousands)

Equity investments in privately-held companies measured at fair value on a non-recurring basis during fiscal 2009	$	—	$	—	$	42,110	$	2,341	$	14,402

Impairments associated with financial assets for the nine months ended July 26, 2009 totaled $79 million and consisted of the following: equity method investment in Sokudo Co., Ltd., a Japanese joint venture company, $45 million; publicly traded equity securities, $20 million; and equity investments in privately-held companies, $14 million.

Derivative Financial Instruments

Derivative instruments and hedging activities, including foreign currency exchange contracts, are recognized on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized currently in earnings. All of Applied’s derivative financial instruments are recorded at their fair value in other current assets or accounts payable and accrued expenses.

Applied conducts business in a number of foreign countries, with certain transactions denominated in local currencies, such as Japanese yen, euro, Israeli shekel and Swiss francs. The purpose of Applied’s foreign currency management is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. Applied does not use derivative financial instruments for trading or speculative purposes.

Applied uses derivative financial instruments, such as forward exchange contracts and currency option contracts, to hedge certain forecasted foreign currency denominated transactions expected to occur typically within the next 24 months. Hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges and are typically entered into once per month. Cash flow hedges are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income or loss (AOCI) in stockholders’ equity and is reclassified into earnings when the hedged transaction affects earnings. The majority of the after-tax net income or loss related to derivative instruments included in accumulated other comprehensive income or loss at July 26, 2009 is expected to be reclassified into earnings within 12 months. Changes in the fair value of currency forward exchange and option contracts due to changes in time value are excluded from the assessment of effectiveness. Both ineffective hedge amounts and hedge components excluded from the assessment of effectiveness are recognized promptly in earnings. If the transaction being hedged is no longer probable to occur, or if a portion of any derivative is deemed to be ineffective, Applied promptly recognizes the gain or loss on the associated financial instrument in general and administrative expenses. The amount recognized due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified time period was not significant for the three months ended July 26, 2009 and was $25 million for the nine months ended July 26, 2009. The amount recognized due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified time period was not significant for the three and nine months ended July 27, 2008. Gains and losses on foreign exchange contracts designated as cash flow hedges are presented in general and administrative expenses.

Forward exchange contracts are generally used to hedge certain foreign currency denominated assets or liabilities. These derivatives are typically entered into once per month and are not designated for hedge accounting treatment. Accordingly, changes in the fair value of these hedges are recorded promptly in earnings to offset the changes in the fair value of the assets or liabilities being hedged.

Fair values of derivative instruments were as follows:

July 26, 2009

Asset Derivatives

Liability Derivatives

Balance Sheet

Location

Fair Value

Location

Fair Value

(In thousands)

Derivatives Designated as Hedging Instruments

Foreign exchange contracts

Other current
assets

1,786

Accounts payable
and accrued
expenses

1,583

Derivatives Not Designated as Hedging Instruments

Foreign exchange contracts

Other current
assets

397

Accounts payable
and accrued
expenses

331

Total derivatives

2,183

1,914

The effect of derivative instruments on the Consolidated Condensed Statement of Operations for the three and nine months ended July 26, 2009 was as follows:


	Three Months Ended July 26, 2009
	Effective Portion						Ineffective Portion and Amount Excluded from
			Location of Gain				Effectiveness Testing
	Gain or (Loss)		or (Loss)	Gain or (Loss)			Location of Gain	Gain or (Loss)
	Recognized in		Reclassified from	Reclassified from			or (Loss)	Recognized in
	AOCI		AOCI into Income	AOCI into Income			Recognized in Income	Income
	(In thousands)

Derivatives in Cash Flow Hedging Relationships

Foreign exchange contracts	$	3,522	Cost of products sold	$	(52	)	Cost of products sold	$	(303	)
Foreign exchange contracts		—	General and administrative		2,859		General and administrative		(203	)
Foreign exchange contracts		—	Research, development and engineering		(82	)	Research, development and engineering		—

Total	$	3,522		$	2,725			$	(506	)


	Nine Months Ended July 26, 2009
	Effective Portion							Ineffective Portion and Amount Excluded from
				Location of Gain				Effectiveness Testing
	Gain or (Loss)			or (Loss)	Gain or (Loss)			Location of Gain	Gain or (Loss)
	Recognized in			Reclassified from	Reclassified from			or (Loss)	Recognized in
	AOCI			AOCI into Income	AOCI into Income			Recognized in Income	Income
	(In thousands)

Derivatives in Cash Flow Hedging Relationships

Foreign exchange contracts	$	(4,598	)	Cost of products sold	$	(8,953	)	Cost of products sold	$	(3,161	)
Foreign exchange contracts		—		General and administrative		(9,345	)	General and administrative		24,039
Foreign exchange contracts		—		Research, development and engineering		(245	)	Research, development and engineering		—

Total	$	(4,598	)		$	(18,543	)		$	20,878


		Three Months Ended			Nine Months Ended
		July 26, 2009			July 26, 2009
	Location of Gain or	Amount of Gain or			Amount of Gain or
	(Loss) Recognized	(Loss) Recognized in			(Loss) Recognized in
	in Income	Income			Income
	(In thousands)

Derivatives Not Designated as Hedging Instruments

Foreign exchange contracts	General and administrative	$	(1,518	)	$	(11,410	)

Total		$	(1,518	)	$	(11,410	)

Credit Risk Contingent Features

If Applied’s credit rating were to fall below investment grade, it would be in violation of credit risk contingent provisions, and certain counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a liability position was immaterial as of July 26, 2009.

Entering into foreign exchange contracts with banks exposes Applied to credit-related losses in the event of the banks’ nonperformance. However, Applied’s exposure is not considered significant.

For further details, see Note 11 of Notes to Consolidated Condensed Financial Statements.

Fair Value of Financial Instruments

The carrying amounts of Applied’s financial instruments, including cash and cash equivalents, accounts receivable, notes payable, and accounts payable and accrued expenses, approximate fair value due to the short maturities of these financial instruments. At July 26, 2009, the carrying amount of long-term debt was $202 million and the estimated fair value was $217 million. At October 26, 2008, the carrying amount of long-term debt was $203 million and the estimated fair value was $198 million. The estimated fair value of long-term debt is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues.


Note 5	Accounts Receivable, Net

Applied has agreements with various financial institutions to sell accounts receivable from selected customers. Applied also discounts letters of credit through various financial institutions. Under these agreements, Applied sold accounts receivable and discounted letters of credit in the amounts of $102 million and $20 million for the three months ended July 26, 2009 and July 27, 2008, respectively, and $179 million and $218 million for the nine months ended July 26, 2009 and July 27, 2008, respectively. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Condensed Statements of Operations and were not material for all periods presented.

Accounts receivable are presented net of allowance for doubtful accounts of $67 million at July 26, 2009 and $5 million at October 26, 2008.

Applied sells principally to manufacturers within the semiconductor, display and solar industries. As a result of extremely challenging economic and industry conditions, certain of these manufacturers may experience difficulties in meeting their obligations in a timely manner. While Applied believes that its allowance for doubtful accounts is adequate and represents Applied’s best estimate at July 26, 2009, Applied will continue to closely monitor customer liquidity and economic conditions, which may result in changes to Applied’s estimates regarding collectability.


Note 6	Inventories

Inventories are stated at the lower of cost or market, with cost determined on a FIFO basis. Components of inventories were as follows:


	July 26,		October 26,
	2009		2008
	(In thousands)

Customer service spares	$	275,011	$	526,825
Raw materials		376,430		381,457
Work-in-process		695,505		665,123
Finished goods		401,561		413,612

	$	1,748,507	$	1,987,017

Included in finished goods inventory is $118 million at July 26, 2009, and $165 million at October 26, 2008, of newly-introduced systems at customer locations where the sales transaction did not meet Applied’s revenue recognition criteria, as set forth in Note 1 of Notes to Consolidated Financial Statements in Applied’s 2008 Form 10-K.

Applied adjusts inventory carrying value for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Applied fully reserves for inventories and noncancelable purchase orders for inventory deemed obsolete. Applied performs periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions become less favorable than those projected by Applied, additional inventory adjustments may be required.


Note 7	Goodwill, Purchased Technology and Other Intangible Assets

Goodwill and Purchased Intangible Assets

Goodwill and purchased intangible assets with indefinite useful lives are not amortized, but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For goodwill, Applied performs a two-step impairment test. In the first step, Applied compares the fair value of each reporting unit to its carrying value. Applied’s reporting units are consistent with the reportable segments identified in Note 15, based on the manner in which Applied operates its business and the nature of those operations. Applied determines the fair value of each of its reporting units based on a weighting of income and market approaches. Under the income approach, Applied calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, Applied estimates the fair value based on market multiples of revenue or earnings for comparable companies. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then Applied would perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. Applied would then allocate the fair value of the reporting unit to all of the assets and liabilities of that unit, as if Applied had acquired the reporting unit in a business combination, with the fair value of the reporting unit being the “purchase price”. The excess of the “purchase price” over the carrying amounts assigned to assets and liabilities representing the implied fair value of goodwill. If Applied determined that the carrying value of a reporting unit’s goodwill exceeded its implied fair value, Applied would record an impairment loss equal to the difference.

Applied conducted these impairment tests in the fourth quarter of fiscal 2008, and the results of these tests indicated that Applied’s goodwill and purchased intangible assets with indefinite useful lives were not impaired.

Applied’s methodology for allocating the purchase price relating to purchase acquisitions is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. Applied assigns assets acquired (including goodwill) and liabilities assumed to a reporting unit as of the date of acquisition. Typically, acquisitions relate to a single reporting unit and thus do not require the allocation of goodwill to multiple reporting units. If the products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process.

Details of indefinite-lived intangible assets were as follows:


	July 26, 2009								October 26, 2008
				Other								Other
				Intangible								Intangible
	Goodwill			Assets		Total			Goodwill			Assets		Total
						(In thousands)

Gross carrying amount	$	1,217,610		$	17,860	$	1,235,470		$	1,220,543		$	17,860	$	1,238,403
Accumulated amortization		(45,870	)		—		(45,870	)		(45,870	)		—		(45,870	)

	$	1,171,740		$	17,860	$	1,189,600		$	1,174,673		$	17,860	$	1,192,533

From October 26, 2008 to July 26, 2009, goodwill decreased by $3 million due to an adjustment in the purchase price allocation of an acquisition as a result of a change in estimate of Applied’s ability to utilize tax net operating loss carryforwards associated with this acquisition. Other intangible assets that are not subject to amortization consist primarily of a trade name. As of July 26, 2009, indefinite-lived intangible assets by reportable segment were: Energy and Environmental Solutions, $654 million; Silicon, $224 million; Applied Global Services, $196 million; and Display, $116 million.

Finite-Lived Purchased Intangible Assets

Applied amortizes purchased intangible assets with finite lives using the straight-line method over the estimated economic lives of the assets, ranging from 1 to 15 years.

Applied evaluates long-lived assets, such as property, plant and equipment, and purchased intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable. Applied assesses the fair value of the assets based on the amount of the undiscounted future cash flow that the assets are expected to generate and recognizes an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset, plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When Applied identifies an impairment, Applied reduces the carrying value of the group of assets to comparable market values, when available and appropriate, or to its estimated fair value based on a discounted cash flow approach.

Intangible assets, such as purchased technology, are generally recorded in connection with a business acquisition. The value assigned to intangible assets is usually based on estimates and judgments regarding expectations for the success and life cycle of products and technology acquired. Applied evaluates the useful lives of its intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization. In addition, Applied reviews intangible assets for impairment when events or changes in circumstances indicate their carrying value may not be recoverable. Management considers such indicators as significant differences in actual product acceptance from the estimates, changes in the competitive and economic environment, technological advances, and changes in cost structure.

Details of amortized intangible assets were as follows:


	July 26, 2009									October 26, 2008
				Other									Other
	Purchased			Intangible						Purchased			Intangible
	Technology			Assets			Total			Technology			Assets			Total
	(In thousands)

Gross carrying amount	$	553,620		$	329,629		$	883,249		$	548,029		$	329,629		$	877,658
Accumulated amortization		(392,358	)		(181,400	)		(573,758	)		(369,183	)		(137,906	)		(507,089	)

	$	161,262		$	148,229		$	309,491		$	178,846		$	191,723		$	370,569

Aggregate amortization expense was $22 million and $37 million for the three months ended July 26, 2009 and July 27, 2008, respectively, and $67 million and $90 million for the nine months ended July 26, 2009 and July 27, 2008, respectively. As of July 26, 2009, future estimated amortization expense is expected to be $22 million for the remainder of fiscal 2009, $65 million for fiscal 2010, $51 million for fiscal 2011, $47 million for fiscal 2012, $43 million for fiscal 2013, and $80 million thereafter. As of July 26, 2009, amortized intangible assets by reportable segment were: Energy and Environmental Solutions, $229 million; Applied Global Services, $44 million; Display, $30 million; and Silicon, $6 million.

- Definition

Discloses the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain or loss on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. This element may be used as a single block of text to include the entire intangible asset disclosure including data and tables.

+ References+ Details


Note 9	Warranty, Guarantees and Contingencies

Warranty

Changes in the warranty reserves during the three and nine months ended July 26, 2009 and July 27, 2008 were as follows:


	Three Months Ended						Nine Months Ended
	July 26,			July 27,			July 26,			July 27,
	2009			2008			2009			2008
	(In thousands)

Beginning balance	$	131,871		$	161,089		$	142,846		$	184,271
Provisions for warranty		19,052			27,081			64,771			93,613
Consumption of reserves		(32,421	)		(46,179	)		(89,115	)		(135,893	)

Ending balance	$	118,502		$	141,991		$	118,502		$	141,991

Applied products are generally sold with a 12-month warranty period following installation. The provision for the estimated cost of warranty is recorded when revenue is recognized. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical experience by product, configuration and geographic region. Quarterly warranty consumption is generally associated with sales that occurred during the preceding four quarters, and quarterly warranty provisions are generally related to the current quarter’s sales.

Guarantees

During the ordinary course of business, Applied provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either Applied or its subsidiaries. As of July 26, 2009, the maximum potential amount of future payments that Applied could be required to make under these guarantee arrangements was $96 million. Applied has not recorded any liability in connection with these guarantee arrangements beyond that required to account for the underlying transaction being guaranteed. Applied does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee arrangements.

Applied also has agreements with various global banks to facilitate subsidiary banking operations world-wide, including overdraft arrangements, bank guarantees and letters of credit. As of July 26, 2009, Applied Materials, Inc. has provided parent guarantees to banks for approximately $175 million to cover these arrangements.

Legal matters

Jusung

Applied has been engaged in a number of lawsuits and patent and administrative proceedings in Taiwan and South Korea since 2003 with Jusung Engineering Co., Ltd. (Jusung Engineering) and/or Jusung Pacific Co., Ltd. (Jusung Pacific, referred to together with Jusung Engineering as Jusung) involving technology used in manufacturing LCDs. Applied believes that it has meritorious claims and defenses against Jusung that it intends to pursue vigorously.

In 2004, Applied filed a complaint for patent infringement against Jusung in the Hsinchu District Court in Taiwan seeking damages and a permanent injunction for infringement of a patent related to chemical vapor deposition (CVD) equipment, and this case remains pending. Jusung Pacific unsuccessfully sought invalidation of Applied’s CVD patent in the Taiwanese Intellectual Property Office (TIPO). Jusung Pacific’s initial appeal of the TIPO’s decision was denied, and it has filed a further appeal to the Taipei High Supreme Administrative Court. In 2006, Applied filed an action in the TIPO challenging the validity of a patent owned by Jusung Engineering related to severability of the transfer chamber on a CVD tool. Jusung Engineering filed a lawsuit against Applied and AKT America in Hsinchu District Court in Taiwan alleging infringement of the same patent. The TIPO granted Applied’s request for invalidation and revoked Jusung Engineering’s patent. In March 2009, the Hsinchu District Court dismissed Jusung Engineering’s lawsuit, and in April 2009, the Ministry of Economic Affairs overruled Jusung Engineering’s administrative appeal of the decision revoking its patent. Jusung has appealed both decisions. In 2006, Jusung Engineering filed a complaint of private prosecution in the Taipei District Court of Taiwan alleging that Applied’s outside counsel received from the Court and used a copy of an expert report that Jusung had filed in the ongoing patent infringement lawsuits that Jusung had intended to remain confidential. The complaint names as defendants Applied’s outside counsel in Taiwan, as well as Michael R. Splinter, Applied’s President and Chief Executive Officer, as the statutory representative of Applied. The Taipei District Court dismissed the private prosecution complaint, and the matter was transferred to the Taipei District Attorney’s Office. The Taipei District Attorney’s Office has issued three successive rulings not to prosecute, each of which Jusung Engineering has appealed to the Taiwan High Court District Attorney. In each instance, the Taiwan High Court District Attorney has returned the matter to the Taipei District Attorney’s Office for further consideration, where it remains pending.

In 2007, Jusung Engineering filed a complaint against AKT America in Seoul Central District Court in Seoul, Korea, alleging infringement of a Jusung patent involving the showerhead assembly of plasma enhanced chemical vapor deposition (PECVD) equipment. After the Korean Intellectual Property Office (KIPO) ruled that Jusung’s patent was invalid, the District Court dismissed Jusung Engineering’s infringement action, which Jusung Engineering has appealed. On July 9, 2009, the Korean Supreme Court dismissed Jusung’s appeal of the KIPO’s determination that the PECVD patent is invalid, and Jusung has no further right of appeal in this matter. On July 30, 2009, Jusung Engineering’s related confirmation-of-scope action was dismissed based on the Supreme Court’s invalidation of the PECVD patent. Applied has submitted notice of the Supreme Court’s invalidity decision to the High Court considering Jusung’s appeal in the infringement action. In 2007, Applied filed a complaint against Jusung Engineering in the Seoul Central District Court for infringement of an Applied patent involving the housing for a substrate supporting pin used in PECVD equipment. The KIPO subsequently ruled in favor of an action by Jusung to invalidate Applied’s substrate patent. The Patent Court dismissed Applied’s appeal and Applied has appealed to the Supreme Court. The District Court has dismissed Applied’s complaint, and Applied’s appeal was also dismissed. Applied’s related confirmation of scope case was dismissed, and Applied’s appeal of that ruling was also dismissed.

From time to time, Applied receives notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions by Applied in connection with claims made against them. In addition, from time to time, Applied receives notification from third parties claiming that Applied may be or is infringing their intellectual property or other rights. Applied also is subject to various other legal proceedings and claims, both asserted and unasserted, that arise in the ordinary course of business.

Although the outcome of the above-described matters cannot be predicted with certainty, Applied does not believe that any of these proceedings or other claims will have a material adverse effect on its consolidated financial condition or results of operations.


Note 10	Restructuring and Asset Impairments

On November 12, 2008, Applied announced a restructuring program to reduce its global workforce by approximately 1,800 positions. During the first quarter of fiscal 2009, Applied recorded restructuring charges of $133 million associated with this program. The restructuring charges consisted of employee termination costs to reduce the Company’s workforce through a combination of attrition, voluntary separation and other workforce reduction programs. During the second quarter of fiscal 2009, Applied expanded the scope of the restructuring program by approximately 200 positions, resulting in an additional cost of $12 million, for an aggregate cost of $145 million.

Changes in restructuring reserves related to severance under this restructuring program for the nine months ended July 26, 2009 were as follows:


	Severance
	(In thousands)

Provision for restructuring reserves	$	132,658
Consumption of reserves		(12,393	)

Balance, January 25, 2009		120,265
Provision for restructuring reserves		12,243
Consumption of reserves		(77,895	)

Balance, April 26, 2009		54,613
Consumption of reserves		(14,571	)

Balance, July 26, 2009	$	40,042

Changes in restructuring reserves for the nine months ended July 26, 2009 related to other restructuring plans and facilities realignment programs initiated in prior periods were as follows:


	Severance			Facilities			Total
	(In thousands)

Balance, October 26, 2008	$	5,702		$	14,745		$	20,447
Provision for restructuring reserves		—			114			114
Consumption of reserves		(2,830	)		(2,215	)		(5,045	)
Foreign currency changes		(182	)		(1,123	)		(1,305	)

Balance, January 25, 2009		2,690			11,521			14,211
Consumption of reserves		(1,249	)		(1,639	)		(2,888	)
Adjustment of restructuring reserves		—			(2,169	)		(2,169	)
Foreign currency changes		—			276			276

Balance, April 26, 2009		1,441			7,989			9,430
Consumption of reserves		(644	)		(1,358	)		(2,002	)
Foreign currency changes		—			698			698

Balance, July 26, 2009	$	797		$	7,329		$	8,126

During the nine months ended July 26, 2009, Applied determined that the carrying value of certain fixed assets to be sold exceeded the estimated fair value and, as a result, recorded a $15 million impairment charge. In addition, Applied incurred expenses of $1.5 million in connection with ceasing use of certain leased facilities.


Note 11	Stockholders’ Equity

Comprehensive Income

Components of comprehensive income (loss), on an after-tax basis where applicable, were as follows:


	Three Months Ended						Nine Months Ended
	July 26,			July 27,			July 26,			July 27,
	2009			2008			2009			2008
	(In thousands)

Net income (loss)	$	(54,865	)	$	164,768		$	(443,189	)	$	729,651
Pension liability adjustment		—			—			112			—
Change in unrealized net gain (loss) on investments		7,958			(8,133	)		39,294			(27,025	)
Change in unrealized net gain (loss) on derivative instruments qualifying as cash flow hedges		508			(2,333	)		(7,795	)		5,049
Foreign currency translation adjustments		810			(520	)		707			2,201

Comprehensive income (loss)	$	(45,589	)	$	153,782		$	(410,871	)	$	709,876

Components of accumulated other comprehensive loss, on an after-tax basis where applicable, were as follows:


	July 26,			October 26,
	2009			2008
	(In thousands)

Pension liability	$	(19,560	)	$	(19,672	)
Retiree medical benefits		734			734
Unrealized gain (loss) on investments, net		14,310			(24,984	)
Unrealized gain on derivative instruments qualifying as cash flow hedges		244			8,039
Cumulative translation adjustments		10,020			9,313

	$	5,748		$	(26,570	)

For further details on derivative instruments, see Note 4 of the Notes to Consolidated Condensed Financial Statements.

Stock Repurchase Program

On September 15, 2006, Applied’s Board of Directors approved a stock repurchase program for up to $5.0 billion in repurchases over the three years ending in September 2009, of which authorization for $2.3 billion of repurchases remained as of July 26, 2009. Under this authorization, Applied implemented a systematic stock repurchase program and also has made supplemental repurchases of its common stock from time to time in the open market, depending on market conditions, stock price and other factors. In November 2008, Applied announced that it had temporarily suspended stock repurchases in light of uncertain global economic and market conditions.

Applied did not repurchase any shares of its common stock during the three months ended July 26, 2009. During the three months ended July 27, 2008, Applied repurchased 15,611,000 shares of its common stock at an average price of $19.22 per share for a total cash outlay of $300 million. During the nine months ended July 26, 2009, Applied repurchased 1,942,000 shares of its common stock at an average price of $11.80 per share for a total cash outlay of $23 million. During the nine months ended July 27, 2008, Applied repurchased 64,263,000 shares of its common stock at an average price of $18.67 per share for a total cash outlay of $1.2 billion.

Dividends

In June 2009, Applied’s Board of Directors declared a quarterly cash dividend in the amount of $0.06 per share payable on September 3, 2009 to stockholders of record as of August 13, 2009. In March 2009, Applied’s Board of Directors declared a quarterly cash dividend in the amount of $0.06 per share that was paid on June 4, 2009 to stockholders of record as of May 14, 2009. In December 2008, Applied’s Board of Directors declared a quarterly cash dividend in the amount of $0.06 per share that was paid on March 5, 2009 to stockholders of record as of February 12, 2009. The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on Applied’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interest of Applied’s stockholders.

- Definition

Disclosures related to accounts comprising shareholders' equity, including other comprehensive income. Includes: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables; effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References+ Details


Note 12	Employee Benefit Plans

Applied sponsors a number of employee benefit plans, including defined benefit plans of certain foreign subsidiaries, and a plan that provides certain medical and vision benefits to eligible retirees. A summary of the components of net periodic benefit costs of these defined and postretirement benefit plans for the three and nine months ended July 26, 2009 and July 27, 2008 is presented below:


	Three Months Ended						Nine Months Ended
	July 26,			July 27,			July 26,			July 27,
	2009			2008			2009			2008
	(In thousands)						(In thousands)

Service cost	$	3,290		$	3,840		$	9,870		$	11,520
Interest cost		3,007			3,361			9,021			10,083
Expected return on plan assets		(1,863	)		(2,211	)		(5,589	)		(6,633	)
Amortization of actuarial loss		174			151			522			453
Amortization of prior service (credit) costs		(70	)		62			(210	)		186
Amortization of transition obligation		19			20			57			60

Net periodic pension cost	$	4,557		$	5,223		$	13,671		$	15,669

- Definition

Description containing the entire pension and other postretirement benefits disclosure as a single block of text.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 158

-Paragraph 7, 21, 22

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5, 6, 7, 8

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 8

-Subparagraph m

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 106

-Paragraph 518

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 87

-Paragraph 264

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph b

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph a

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph h

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph q

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name FASB Staff Position (FSP)

-Number FAS106-2

-Paragraph 20, 21, 22

Reference 11: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Emerging Issues Task Force (EITF)

-Number 03-2

-Paragraph 8

Reference 12: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Principles Board Opinion (APB)

-Number 30

-Paragraph 26

Reference 13: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Implementation Guide (Q and A)

-Number FAS88

-Paragraph 63

+ Details


Note 13	Borrowing Facilities

Applied has credit facilities for unsecured borrowings in various currencies of up to $1.2 billion, of which $1.0 billion is comprised of a 5-year revolving credit agreement with a group of banks that is scheduled to expire in January 2012. This agreement provides for borrowings in United States dollars at interest rates keyed to one of the two rates selected by Applied for each advance and includes financial and other covenants with which Applied was in compliance at July 26, 2009. In May 2009, Applied amended certain terms of this credit agreement, including (i) replacing the funded-debt-to-adjusted-earnings ratio financial covenant with a minimum liquidity covenant and a funded-debt-to-total-capital ratio covenant and (ii) increasing the facility fee and applicable interest rate margins on advances. Remaining credit facilities in the amount of approximately $160 million are with Japanese banks. Applied’s ability to borrow under these facilities is subject to bank approval at the time of the borrowing request, and any advances will be at rates indexed to the banks’ prime reference rate denominated in Japanese yen. No amounts were outstanding under any of these facilities at July 26, 2009.


Note 14	Income Taxes

Applied’s effective income tax rate for the third quarter of fiscal 2009 was a benefit of 26.0 percent, and the income tax rate for the third quarter of fiscal 2008 was a provision of 32.1 percent. The tax provision for the third quarter of fiscal 2008 included $19 million of tax expense for certain corrections pertaining to tax items prior to fiscal 2008. The impact of the corrections recognized during the third quarter of fiscal 2008 was not considered material to the prior reporting periods.

During the second quarter of fiscal 2009, the Internal Revenue Service began an examination of Applied’s federal income tax returns for fiscal years 2007 and 2006. Applied believes it has adequately reserved for any income tax uncertainties that may arise as a result of this examination.

Applied’s future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of Applied’s pre-tax income, and the tax rate on equity compensation. Management carefully monitors these factors and adjusts the interim effective income tax rate accordingly.


Note 15	Industry Segment Operations

Applied’s four reportable segments are: Silicon, Applied Global Services, Display, and Energy and Environmental Solutions. Applied’s chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. Segment information is presented based upon Applied’s management organization structure as of July 26, 2009 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the Company’s reportable segments.

Each reportable segment is separately managed and has separate financial results that are reviewed by Applied’s chief operating decision-maker. Each reportable segment contains closely related products that are unique to the particular segment. Segment operating income is determined based upon internal performance measures used by Applied’s chief operating decision-maker.

Applied derives the segment results directly from its internal management reporting system. The accounting policies Applied uses to derive reportable segment results are substantially the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics including orders, net sales and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. Applied does not allocate to its reportable segments certain operating expenses that it manages separately at the corporate level, which include costs related to equity-based compensation and certain components of variable compensation, the global sales organization, corporate functions (certain management, finance, legal, human resources, marketing, and research, development and engineering), and unabsorbed information technology and occupancy. In addition, Applied does not allocate to its reportable segments restructuring and asset impairment charges and any associated adjustments related to restructuring actions. Segment operating income excludes interest income/expense and other financial charges and income taxes according to how a particular reportable segment’s management is measured. Management does not consider the unallocated costs in measuring the performance of the reportable segments.

The Silicon segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, and metrology and inspection.

The Applied Global Services segment includes technically differentiated products and services to improve operating efficiency, reduce operating costs and lessen the environmental impact of semiconductor, display and solar customers’ factories. Applied Global Services’ products consist of spares, services, certain earlier generation products, and remanufactured equipment. Customer demand for these products and services is fulfilled through a global distribution system with trained service engineers located in close proximity to customer sites.

The Display segment encompasses products for manufacturing LCDs for TVs, personal computers and other video-enabled devices. The Display segment also includes the design and manufacture of differentiated stand-alone equipment for the Applied SunFab^tm Thin Film Line.

The Energy and Environmental Solutions segment includes products for fabricating solar photovoltaic cells and modules, high throughput roll-to-roll coating systems for flexible electronics and web products, and systems used in the manufacture of energy-efficient glass.

Net sales and operating income (loss) for each reportable segment for the three and nine months ended July 26, 2009 and July 27, 2008 were as follows:


	Three Months Ended					Nine Months Ended
			Operating					Operating
	Net Sales		Income (Loss)			Net Sales		Income (Loss)
	(In thousands)					(In thousands)

2009:
Silicon	$	497,679	$	56,061		$	1,303,921	$	(6,060	)
Applied Global Services		342,427		23,929			1,006,836		48,127
Display		69,161		(4,815	)		301,696		21,734
Energy and Environmental Solutions		224,473		(53,395	)		874,760		(211,491	)

Total Segment	$	1,133,740	$	21,780		$	3,487,213	$	(147,690	)

2008:
Silicon	$	755,592	$	172,127		$	3,260,729	$	1,065,307
Applied Global Services		607,214		144,741			1,801,187		451,962
Display		310,944		103,049			641,707		196,745
Energy and Environmental Solutions		174,418		(85,152	)		381,940		(204,168	)

Total Segment	$	1,848,168	$	334,765		$	6,085,563	$	1,509,846

Reconciliations of total segment operating income to Applied’s consolidated operating income (loss) for the three and nine months ended July 26, 2009 and July 27, 2008 were as follows:


	Three Months Ended						Nine Months Ended
	July 26,			July 27,			July 26,			July 27,
	2009			2008			2009			2008
	(In thousands)						(In thousands)

Total segment operating income (loss)	$	21,780		$	334,765		$	(147,690	)	$	1,509,846
Corporate and unallocated costs		(98,963	)		(106,295	)		(259,387	)		(421,246	)
Restructuring and asset impairment charges		—			(138	)		(159,481	)		(49,634	)

Income (loss) from operations	$	(77,183	)	$	228,332		$	(566,558	)	$	1,038,966


Note 16	Recently Issued Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 168, “The FASB Accounting Standards Codification^tm and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (SFAS 168). This standard establishes the FASB Accounting Standards Codification (Codification) as the single source of authoritative U.S. GAAP. The Codification does not create any new GAAP standards but incorporates existing accounting and reporting standards into a new topical structure. The Codification will be effective for Applied beginning in the fourth quarter of fiscal 2009 and existing references to authoritative standards will be replaced by new references set forth by the Codification.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167), which becomes effective the first annual reporting period after November 15, 2009 and will be effective for Applied in fiscal 2011. This Statement amends FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51,” to require revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. Applied is evaluating the potential impact of the implementation of SFAS 167 on its consolidated financial statements.

In April 2009, the FASB issued FSP No. 141(R)-1 “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP 141(R)-1). FSP 141(R)-1 will amend the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination under SFAS No. 141(R), “Business Combinations” (SFAS 141(R)). FSP 141(R)-1 will carry forward the requirements in SFAS No. 141, “Business Combinations,” for acquired contingencies, thereby requiring that such contingencies be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. Otherwise, entities would typically account for the acquired contingencies in accordance with SFAS No. 5, “Accounting for Contingencies,”. FSP 141(R)-1 will have the same effective date as SFAS No. 141(R), and will therefore be effective for Applied in fiscal 2010. Applied expects that FSP 141(R)-1 will have an impact on its consolidated financial statements, but the nature and magnitude of the specific effects will depend upon the nature, term and size of the acquired contingencies.

In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP 132(R)-1). FSP 132(R)-1 amends FASB Statement No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The new disclosures are required to be included in financial statements for fiscal years ending after December 15, 2009. Applied is evaluating the impact of the implementation of FSP 132(R)-1 on its consolidated financial statements.

In December 2007, the FASB issued Statement No. 141 (revised), “Business Combinations” (SFAS 141(R)). The standard changes the accounting for business combinations, including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for preacquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition-related transaction costs, and the recognition of changes in the acquirer’s income tax valuation allowance. SFAS 141(R) will be effective for Applied in fiscal 2010, with early adoption prohibited. Applied expects that SFAS 141(R) will have an impact on its consolidated financial statements, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions it consummates after the effective date.

In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS 160). The standard changes the accounting for noncontrolling (minority) interests in consolidated financial statements, including the requirements to classify noncontrolling interests as a component of consolidated stockholders’ equity, and the elimination of “minority interest” accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS 160 revises the accounting for both increases and decreases in a parent’s controlling ownership interest. SFAS 160 will be effective for Applied in fiscal 2010, with early adoption prohibited. Applied is evaluating the potential impact of the implementation of SFAS 160 on its financial position and results of operations.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (SFAS 159), which permits entities to elect to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This election is irrevocable. SFAS 159 became effective for Applied beginning with its 2009 fiscal year. Applied has not elected the fair value measurement option for its financial assets or liabilities that are not currently required to be measured at fair value.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued FSP 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (FSP 157-1) as well as FSP 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP 157-1 amends SFAS 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date for Applied of SFAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of Applied’s first quarter of fiscal 2010. The measurement and disclosure requirements related to financial assets and financial liabilities are effective for Applied beginning in the first quarter of fiscal 2009. In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (FSP 157-3). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active, and provides guidance on the key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. Applied adopted the effective portions of SFAS 157 beginning in the first quarter of fiscal 2009. See Note 4 for information and related disclosures regarding Applied’s fair value measurements.


Note 17	Subsequent Events Through September 1, 2009

During the fourth quarter of fiscal 2009, Applied received notice from the State of California stating that its examination of Applied’s returns for fiscal 2005 and 2004 had been settled. The settlement will result in a decrease to net unrecognized tax benefits of $9 million and reduce the effective tax rate for the fourth quarter of fiscal 2009.