Applied Materials, Inc.

Company Overview

Business Model: Applied Materials, Inc. is a global leader in materials engineering solutions, primarily serving the semiconductor industry. The company designs, develops, manufactures, and services critical wafer fabrication tools used to produce virtually every semiconductor in the world. These semiconductors are foundational for advancements in technology such as artificial intelligence (AI), the internet of things (IoT), robotics, electric and autonomous vehicles, and clean energy. Applied Materials, Inc.'s products enable customers to manufacture semiconductors used in personal computing devices, mobile phones, AI and data center servers, automobiles, connected devices, industrial applications, and consumer electronics. The company leverages its comprehensive portfolio to connect and co-optimize technologies, helping customers evolve their semiconductor technology roadmaps and achieve superior product results. Applied Materials, Inc. operates in two reportable segments: Semiconductor Systems and Applied Global Services.

Market Position: Applied Materials, Inc. holds a leadership position in materials engineering solutions for the semiconductor industry. Its Semiconductor Systems segment features the industry's most comprehensive portfolio of products for the chip-making process, addressing steps across materials engineering, process control, and advanced packaging. The company's competitive advantages stem from its technical capability, differentiation, productivity, cost-effectiveness, and ability to support a global customer base. Growth is driven by demand for advanced electronic products and emerging end-market drivers like AI, IoT, robotics, and smart vehicles. Applied Materials, Inc. protects its technology assets with over 23,500 active patents in the United States and other countries.

Recent Strategic Developments:

• Workforce Restructuring: In the fourth quarter of fiscal 2025, Applied Materials, Inc. approved a workforce reduction plan (Fiscal 2025 Restructuring Plan) impacting approximately 4% of its global workforce, aimed at positioning the company for continued growth as a more competitive and productive organization.
• Segment Reorganization: Effective the first quarter of fiscal 2026, the 200mm equipment business will be moved from the Applied Global Services segment to the Semiconductor Systems segment.
• Capital Structure Adjustments:
  • Issued $550 million in aggregate principal amount of 4.000% senior unsecured notes due 2031 and $450 million in aggregate principal amount of 4.600% senior unsecured notes due 2036 in September 2025.
  • Used a portion of the net proceeds from the new notes to repay $700 million in aggregate principal amount of 3.900% senior unsecured notes due October 1, 2025.
  • Increased its short-term commercial paper program to $4.0 billion in the fourth quarter of fiscal 2025.
  • Entered into a $2.0 billion 364-day committed revolving credit agreement in September 2025 and a $2.0 billion five-year committed revolving credit agreement in February 2025.
• Shareholder Return Program: The Board of Directors approved a $10.0 billion common stock repurchase program in March 2025, supplementing a previous $10.0 billion authorization from March 2023.
• Innovation Focus: Continued significant investments in Research, Development and Engineering (RD&E) to develop new materials engineering capabilities and expand into new and adjacent markets, including increasing incorporation of AI capabilities into technology development, business operations, and products/services.

Geographic Footprint: Applied Materials, Inc. operates globally with product development, engineering, manufacturing, sales, and other activities distributed across many countries. Manufacturing is primarily conducted in the United States, Singapore, Taiwan, and Israel. Research, development, and engineering, along with process support, are primarily performed in the United States, India, and Israel. Customer demonstrations are concentrated in the United States, China, Taiwan, Israel, and South Korea. In fiscal 2025, approximately 89% of net revenue was generated from customers outside the United States, with significant customer concentrations in China, Taiwan, and Korea. The company employs approximately 36,500 regular full-time employees across 25 countries, with approximately 46% in Asia-Pacific, 42% in North America, and 12% in Europe/Middle East.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 48.7% (2025) vs 47.5% (2024)
• Operating Margin: 29.2% (2025) vs 28.9% (2024)
• Net Margin: 24.7% (2025) vs 26.4% (2024)

Investment in Growth:

• R&D Expenditure: $3,570 million (12.6% of revenue)
• Capital Expenditures: $2,260 million
• Strategic Investments: Capital expenditures were primarily for investments in real property and improvements, demonstration and testing equipment, and manufacturing and network equipment. The company also made $29 million in net cash paid for acquisitions in fiscal 2025, focused on technology to access new market opportunities or emerging technologies.

Business Segment Analysis

Semiconductor Systems

Financial Performance:

• Revenue: $20,798 million (+4.5% YoY from $19,911 million in 2024)
• Operating Margin: 35.5% (vs 35.1% in 2024)
• Key Growth Drivers: Revenue growth in fiscal 2025 was driven by customers' strategic investments in new capacity and technology transitions. Specifically, Foundry, logic and other customers increased spending due to higher investments in leading-edge manufacturing technologies, while memory customers increased investments in NAND fabrication equipment upgrades. Future growth is anticipated from the adoption of high-bandwidth memory, advanced packaging, and continued demand for AI and data center computing, as well as non-leading edge nodes.

Product Portfolio: This segment designs, develops, manufactures, and sells a comprehensive range of equipment for fabricating semiconductor chips. Its portfolio addresses materials engineering, process control, and advanced packaging, including patterning systems, transistor and interconnect products, optical and eBeam process control systems, and advanced packaging systems for heterogeneous integration.

Market Dynamics: The segment serves the foundry, logic and other; dynamic random access memory (DRAM); and flash memory (NAND) markets. The foundry, logic and other market includes leading-edge (7 nanometers and smaller) and non-leading edge technology nodes (e.g., internet of things, communications, automotive, power, sensors). The segment operates in a highly competitive environment characterized by rapid technological change and evolving customer requirements, including transitions to smaller dimensions, complex chip architectures, and new materials.

Sub-segment Breakdown:

• Foundry, logic and other: 67% of Semiconductor Systems net revenue
• Dynamic random-access memory (DRAM): 26% of Semiconductor Systems net revenue
• Flash memory (NAND): 7% of Semiconductor Systems net revenue

Applied Global Services

Financial Performance:

• Revenue: $6,385 million (+2.6% YoY from $6,225 million in 2024)
• Operating Margin: 28.1% (vs 29.1% in 2024)
• Key Growth Drivers: Revenue growth was primarily due to higher customer spending on long-term service agreements and spares. Demand for services is expected to grow with the increasing installed base of manufacturing systems and customers' needs to shorten ramp times, improve system performance, and optimize factory output and operating costs. This growth was partially offset by lower customer spending on 200mm equipment.

Product Portfolio: This segment provides integrated solutions to optimize equipment and fab performance and productivity, including services, spares, and factory automation software. It also includes 200 millimeter (200mm) and other equipment, which will be moved to the Semiconductor Systems segment in the first quarter of fiscal 2026.

Market Dynamics: Competition in the AGS segment includes a diverse group of third-party service providers and customers who choose to perform their own service. Demand is primarily driven by semiconductor manufacturers’ wafer starts and utilization rates, the growth of the installed base of equipment, and the increasing service intensity of newer tools.

Corporate and Other

Financial Performance:

• Revenue: $1,185 million (+13.9% YoY from $1,040 million in 2024)
• Operating Loss: $(882) million (vs $(926) million in 2024)
• This category includes revenues and costs from other operating segments that do not meet the requirements for a reportable segment, such as the display business. It also includes certain unallocated corporate operating expenses (e.g., management, finance, legal, human resources, and RD&E functions) and restructuring charges. In fiscal 2025, a goodwill impairment charge of $41 million was recognized for certain non-strategic businesses within this category.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $4,893 million (30 million shares) in fiscal 2025.
• Dividend Payments: $1,422 million in fiscal 2025, representing $1.78 per common share.
• Future Capital Return Commitments: As of October 26, 2025, approximately $14.0 billion remained available for future stock repurchases under the Board-approved program. Applied Materials, Inc. anticipates continuing quarterly cash dividends, subject to Board discretion.

Balance Sheet Position:

• Cash and Equivalents: $7,241 million
• Total Debt: $6,555 million (comprising $100 million in short-term debt and $6,455 million in long-term debt)
• Net Cash Position: $686 million
• Debt Maturity Profile: As of October 26, 2025, $100 million in commercial paper notes were outstanding with maturities of 35 days. The company had $6.5 billion in aggregate principal amount of senior unsecured notes outstanding with varying maturities, including notes due in 2027, 2029, 2030, 2031, 2035, 2036, 2041, 2047, and 2050. Future interest payments associated with these unsecured notes totaled $2.9 billion, with $246 million due within 12 months.

Cash Flow Generation:

• Operating Cash Flow: $7,958 million
• Free Cash Flow: $5,698 million (Operating Cash Flow of $7,958 million minus Capital Expenditures of $2,260 million)
• Cash Conversion Metrics: Days sales outstanding of accounts receivable was 69 days at the end of fiscal 2025, a slight increase primarily due to unfavorable revenue linearity. Applied Materials, Inc. sold $501 million of accounts receivable in fiscal 2025.

Operational Excellence

Production & Service Model: Applied Materials, Inc.'s worldwide manufacturing activities primarily involve the assembly, integration, and testing of proprietary and commercial parts, components, and subassemblies used to produce its systems. The company employs a distributed manufacturing model, with activities conducted in various countries including the United States, Singapore, Japan, China, Korea, Taiwan, Israel, and other parts of Asia and Europe. Qualified vendors, including contract manufacturers, are utilized for parts, services, and product support. The supply chain strategy emphasizes ethical labor practices, responsible minerals sourcing, and adherence to Responsible Business Alliance and SEMI guidelines, as well as the Applied Materials Standards of Business Conduct. The Applied Global Services segment delivers services, spares, and factory automation software globally through a robust distribution system and trained field engineers located near customer sites.

Supply Chain Architecture: Key Suppliers & Partners:

• Vendors: Utilizes qualified vendors and contract manufacturers for parts, services, and product support.
• Single/Limited Suppliers: Some key parts are sourced from single or a limited group of qualified suppliers. Mitigation strategies include qualifying alternate suppliers, monitoring key supplier financial conditions, maintaining appropriate inventories, and timely qualification of new parts.
• Critical Materials: The company is exposed to risks related to the limited availability of critical materials and minerals, such as rare earth minerals, which are subject to export controls (e.g., by the Chinese government in 2025).

Facility Network:

• Manufacturing: Key production locations include the United States, Singapore, Taiwan, and Israel.
• Research & Development: R&D centers and product development activities are primarily located in the United States, India, and Israel.
• Distribution: A global distribution system supports the Applied Global Services segment.
• Overall Infrastructure: Applied Materials, Inc. owns and leases approximately 9.1 million square feet and 5.3 million square feet of space, respectively, for offices, manufacturing, warehouses, and R&D centers worldwide. The company also owns approximately 279 acres of buildable land, primarily in the United States, for potential future expansion.

Operational Metrics:

• Backlog as of October 26, 2025, totaled $15,002 million, with Semiconductor Systems accounting for $7,105 million (47%) and Applied Global Services for $7,141 million (48%). Approximately 31% of this backlog is not expected to be filled within the next 12 months.
• A workforce reduction plan approved in the fourth quarter of fiscal 2025 is expected to impact approximately 4% of the global workforce.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Applied Materials, Inc. markets and sells its highly technical products worldwide almost entirely through a direct sales force, fostering direct customer relationships.

Customer Portfolio: Enterprise Customers:

• Customer Concentration: In fiscal 2025, two customers individually accounted for approximately 19% and 15% of the company's net revenue, respectively.
• Strategic Partnerships: Applied Materials, Inc. collaborates closely with its global customers and ecosystem partners to design systems and processes that meet planned technical and production requirements.

Geographic Revenue Distribution:

• China: 30% of total revenue ($8,529 million)
• Korea: 20% of total revenue ($5,608 million)
• Taiwan: 24% of total revenue ($6,857 million)
• Japan: 8% of total revenue ($2,273 million)
• Southeast Asia: 4% of total revenue ($1,076 million)
• United States: 11% of total revenue ($3,063 million)
• Europe: 3% of total revenue ($962 million)
• Total revenue from outside the United States was $25,305 million, representing 89% of consolidated total revenue.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The industries in which Applied Materials, Inc. operates, particularly the global semiconductor industry, are highly competitive, characterized by rapid technological change, and historically cyclical with significant volatility in customer demand. Demand is influenced by technology inflections, advances in fabrication processes, new and emerging technologies, production capacity relative to end-user demand, customer investment timing, factory utilization, capital resources, trade policies, and government incentives. Artificial intelligence (AI) and related technologies are identified as a significant and rapidly evolving demand driver. The growth of data, IoT, robotics, and smart vehicles are creating the next wave of industry growth.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Applied Materials, Inc. faces substantial competition across all segments of its business. Competitors range from small, regional companies that may benefit from policies favoring domestic companies, to global, diversified companies. The company could see increased competition from domestic equipment manufacturers in China, potentially benefiting from local government incentives and funding, as well as U.S. export controls. In the Applied Global Services segment, competition includes diverse third-party service providers and customers who choose to perform their own service.

Emerging Competitive Threats: The rapid pace of technological change can quickly diminish the value of current technologies and products, creating opportunities for new entrants and disruptive technologies. The evolving landscape of AI technology also presents competitive threats, as competitors may develop superior products with AI, and the inherent complexities and ethical considerations of AI could impact market adoption.

Competitive Response Strategy: Applied Materials, Inc. maintains its competitive advantage through a high level of investment in RD&E, marketing and sales, and global customer support activities. The company's strategy involves successfully anticipating technology inflections, continuously improving products, and developing new products that meet evolving customer requirements. This includes differentiating products, meeting performance specifications, enhancing worldwide operations to reduce cycle time and costs, and focusing on product development and sales/marketing strategies that address high-value customer problems.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: The industries served, particularly the global semiconductor industry, are highly cyclical and volatile, making demand difficult to predict. Factors such as technology inflections, production capacity, end-user demand, and customer investment timing significantly impact operating results. The company is exposed to risks from an uncertain global economy, including financial market volatility, inflation, interest rate changes, and trade policies, which can lead to delayed or canceled customer purchases. Global operations expose the company to political and social conditions, geopolitical turmoil, and currency fluctuations. Global trade issues, including U.S. export regulations on semiconductor technology to China and increased tariffs, have limited markets, impacted revenues, and increased exposure to foreign and Chinese domestic competition. Customer concentration, with two customers accounting for 19% and 15% of fiscal 2025 net revenue, increases business volatility. Expansion into new and related markets also carries risks related to resource allocation, new sales strategies, and different competitive landscapes. The increasing use of AI by Applied Materials, Inc. and its competitors introduces risks related to implementation costs, potential flaws in AI algorithms, intellectual property concerns, and evolving regulatory environments.

Operational & Execution Risks

Supply Chain Vulnerabilities: Applied Materials, Inc.'s ability to meet customer demand relies on the timely delivery of parts, materials, and services from a global network of suppliers and contract manufacturers. The company faces risks from supply chain disruptions, manufacturing interruptions, or delays due to factors such as global trade issues, geopolitical instability, cybersecurity incidents, volatility in material and logistics costs, import/export license difficulties, worldwide semiconductor component shortages, and limited availability of critical materials (e.g., rare earth minerals). Inaccurate demand forecasting can lead to excess or obsolete inventory and increased costs. Some key parts are sourced from single or limited suppliers, posing risks if these suppliers fail to meet requirements.

Financial & Regulatory Risks

Market & Financial Risks: Applied Materials, Inc. had $6.5 billion in aggregate principal amount of senior unsecured notes outstanding as of October 26, 2025. Its ability to satisfy debt obligations is dependent on business operations, and significant changes in credit rating or market disruptions could impact access to capital. The company relies on complex information systems for operations, and failures could disrupt business, impede financial reporting, or lead to cybersecurity incidents. There is a risk of incurring impairment charges related to goodwill and long-lived assets due to adverse industry or economic trends. The ability to continue cash dividends and share repurchases is subject to capital availability and Board discretion.

Regulatory & Compliance Risks: As a global public company, Applied Materials, Inc. is subject to a complex and evolving regulatory environment across numerous jurisdictions, covering financial disclosures, trade, tax, environmental, health and safety, cybersecurity, privacy, and anti-corruption laws. Compliance is onerous and expensive, and violations can result in significant fines, penalties, business restrictions, and reputational damage. The company has received multiple subpoenas from U.S. government authorities regarding China customer shipments, export controls compliance, and federal award applications, with uncertain outcomes. Government incentives and agreements also carry specific compliance requirements, with potential for penalties or clawbacks for non-compliance.

Geopolitical & External Risks

Geopolitical Exposure: The company's global operations and concentrated customer base in regions like China, Taiwan, and Korea expose it to geopolitical risks, including political instability, social unrest, and acts of war. Trade relations and policy changes, such as U.S. export controls and tariffs, can significantly impact business operations and market access. Compliance with sanctions and export controls imposes business limitations and requires continuous monitoring.

Innovation & Technology Leadership

Research & Development Focus: Applied Materials, Inc. maintains a strong focus on Research & Development (RD&E) to drive its long-term growth strategy. Core Technology Areas: The company is committed to the continued development of new materials engineering solutions, including products and platforms that enable expansion into new and adjacent markets. RD&E efforts are concentrated on solving customers' key technical challenges in patterning, transistor, interconnect, process control, and packaging performance. Applied Materials, Inc. is also increasingly incorporating AI capabilities into its technology development.

Innovation Pipeline: Significant investments in RD&E are made to deliver new products and technologies ahead of strong market demand, allowing customers to integrate these innovations into their manufacturing plans early. The company collaborates closely with global customers and ecosystem partners to design systems and processes. Product development, engineering, and process support activities are primarily conducted in the United States, India, and Israel, with customer demonstrations in the United States, China, Taiwan, Israel, and South Korea.

Intellectual Property Portfolio:

• Patent Strategy: Applied Materials, Inc. actively protects its technology assets through the enforcement of intellectual property rights, including patents. The company holds over 23,500 active patents in the United States and other countries, with additional applications pending for new inventions.
• Licensing Programs: The company engages in patent and technology licensing agreements, both as a licensee and licensor, though royalties received or paid have not been material to consolidated results.
• IP Litigation: Applied Materials, Inc. periodically addresses patent infringement claims, which can be expensive and time-consuming, and may require obtaining or granting licenses.

Technology Partnerships: Applied Materials, Inc. works closely with its global customers and ecosystem partners to design systems and processes, indicating a collaborative approach to technology development and market solutions.

Leadership & Governance

Executive Leadership Team

Board Composition: The Board of Directors is responsible for overseeing the assessment of major risks, with the Audit Committee specifically overseeing the Enterprise Risk Management (ERM) program, including cybersecurity risks. The Audit Committee receives quarterly reports from management on cybersecurity risks and the cybersecurity risk management program, and management reports to the full Board on these matters at least annually. Thomas J. Iannotti serves as the Chairman of the Board.

Human Capital Strategy

Workforce Composition: As of October 26, 2025, Applied Materials, Inc. employed approximately 36,500 regular full-time employees across 25 countries. The geographic distribution of employees was approximately 46% in the Asia-Pacific region, 42% in North America, and 12% in Europe/Middle East. The company values a broad mix of perspectives, skills, and experiences, with a focus on advancing technical skills and improving general business acumen.

Talent Management: Acquisition & Retention: Applied Materials, Inc. prioritizes attracting, developing, retaining, and engaging a world-class global workforce. The company offers competitive rewards, compensation, and benefits, including an Employee Stock Incentive Plan, an Employees’ Stock Purchase Plan, healthcare and retirement benefits, parental and family leave, adoption credits, holiday and paid time off, and tuition assistance. Diversity & Development: The company strives to provide fair and equal opportunity for career development and advancement to all employees, fostering a connected and highly engaged culture. Employee learning and development are promoted through a holistic approach (70% on-the-job, 20% social/collaborative, 10% formal training), with a focus on technical skills and business acumen. Applied Global University coordinates general professional, management, and leadership training, utilizing state-of-the-art modalities such as AI-based simulations and Augmented and Virtual Reality learning. Culture & Engagement: Applied Materials, Inc. cultivates a culture reflecting its values: being the Most Valued Partner, being part of a Winning Team, operating with Responsibility & Integrity, and achieving World Class Performance. Employee engagement is measured through anonymous surveys (conducted in fiscal 2025) and benchmarked against large technology companies globally, with results used to understand trends, gauge intervention effectiveness, and inform people strategy.

Environmental & Social Impact

Environmental Commitments: Supply Chain Sustainability: Applied Materials, Inc.'s supply chain strategy is committed to ethical labor practices, responsible minerals sourcing, and adherence to Responsible Business Alliance and SEMI guidelines, as well as the Applied Materials Standards of Business Conduct.

Business Cyclicality & Seasonality

Demand Patterns: The industries Applied Materials, Inc. serves, particularly the global semiconductor industry, are historically cyclical and subject to volatility in customer demand. Demand for products and services can fluctuate based on supply and demand for chips and other electronic devices, general economic and political conditions, and business and consumer buying patterns. The timing of customers’ investments in new or expanded fabrication plants and technology inflections also significantly impacts demand.

Planning & Forecasting: To navigate rapidly changing demand, Applied Materials, Inc. must accurately forecast demand and effectively manage its resources, investments, production capacity, supply chain, workforce, and inventory. Shorter cycle times between customer order placements and product shipment necessitate greater reliance on accurate forecasting of customer investment.

Regulatory Environment & Compliance

Regulatory Framework: Applied Materials, Inc. operates under the laws and regulations of the United States and numerous foreign jurisdictions. These regulations encompass financial and other disclosures, accounting standards, securities, corporate governance, public procurement and funding, intellectual property, tax, trade (including import, export, and customs), antitrust, cybersecurity, environment, health and safety, employment, immigration, human rights, privacy, data protection and localization, and anti-corruption. Compliance with these diverse and often conflicting regulations is complex and costly, with potential violations leading to fines, criminal penalties, business restrictions, and reputational damage.

Trade & Export Controls: The company's international sales are significantly impacted by global trade issues and export regulations. The U.S. government has implemented export regulations for U.S. semiconductor technology sold in China, which have limited Applied Materials, Inc.'s ability to provide certain products and services to customers in China, adversely impacting revenues and increasing exposure to foreign and Chinese domestic competition. Obtaining necessary export licenses can be difficult and time-consuming. Legal Proceedings: Applied Materials, Inc. is periodically involved in legal proceedings and claims, including those related to patent infringement, trade secret misappropriation, trade compliance, and government investigations. Since 2022, the company has received multiple subpoenas from U.S. government authorities (including the U.S. Department of Justice, U.S. Commerce Department Bureau of Industry and Security, and U.S. Securities and Exchange Commission) requesting information related to China customer shipments, export controls compliance, and federal award applications. Applied Materials, Inc. is cooperating fully with these inquiries, but the outcome and potential penalties are uncertain.

Tax Strategy & Considerations

Tax Profile: Applied Materials, Inc.'s provision for income taxes and effective tax rate are influenced by the geographical composition of its pre-tax income, which includes jurisdictions with differing tax rates and conditional reduced tax rates. For example, the company benefits from conditional reduced tax rates in Singapore, which are set to expire beginning in fiscal 2030.

• Effective Tax Rate: 24.5% (2025) vs 12.0% (2024).
• Tax Reform Impact:
  • One Big Beautiful Bill Act (OBBBA): Enacted on July 4, 2025, this U.S. government act led to a $407 million valuation allowance against deferred tax assets related to corporate alternative minimum tax (CAMT) credits in fiscal 2025. This was due to changes in the timing of future tax deductions, which increased the company's effective tax rate. Most provisions are effective in fiscal years 2026 or 2027, with immediate expensing of qualifying property effective in fiscal 2025.
  • U.S. CHIPS and Science Act (CHIPS Act): Enacted on August 9, 2022, this act provides a 25% investment tax credit for certain domestic semiconductor manufacturing investments. As of October 26, 2025, this credit reduced current income taxes payable by $233 million and future income taxes payable by $548 million. The OBBBA further increased this investment tax credit to 35%.
  • Tax Cuts and Jobs Act: Applied Materials, Inc. has one remaining payment of $255 million, due in February 2026, related to the one-time transition tax on certain unrepatriated foreign earnings.
• The company is subject to examination by the U.S. Internal Revenue Service and other tax authorities, with U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2011 and later years, remaining subject to examination.

Insurance & Risk Transfer

Risk Management Framework: Applied Materials, Inc. utilizes various financial instruments to manage market risks.

• Risk Transfer Mechanisms: The company uses interest rate swaps or rate lock agreements to mitigate the potential impact of changes in benchmark interest rates on interest expense and cash flows. It also employs foreign currency forward and option contracts to hedge a portion of anticipated non-U.S. dollar denominated revenues and expenses, typically expected to occur within the next 24 months, to reduce the effect of exchange rate fluctuations.