Table of Contents Applied’s indebtedness and debt covenants could adversely affect its financial condition and business. Applied is exposed to risks associated with expanding into new and related markets and industries. In addition, Applied from time to time receives funding from United States and other government agencies for certain strategic development programs to increase its research and development resources and address new market opportunities. As a condition to this government funding, Applied is often subject to certain record-keeping, audit, intellectual property rights-sharing and/or other obligations. As part of its growth strategy, Applied must successfully expand into related or new markets and industries, either with its existing products or with new products developed internally, or those developed in collaboration with third parties, or obtained through acquisitions. Applied’s ability to successfully expand its business into new and related markets and industries may be adversely affected by a number of factors, including: Applied has $5.4 billion in aggregate principal amount of senior unsecured notes outstanding. Under the indenture governing the senior unsecured notes, it may be required to offer to repurchase the notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest, upon a change of control of Applied and a contemporaneous downgrade of the notes below investment grade. Applied also has in place a $1.5 billion revolving credit facility, and a $2.0 billion term loan facility to finance in part its planned acquisition of Kokusai Electric. While no amounts were outstanding under either credit agreement as of October 27, 2019, Applied may borrow amounts in the future under either or both of these agreements. Applied may also enter into new financing arrangements. Applied’s ability to satisfy its debt obligations is dependent upon the results of its business operations and subject to other risks discussed in this section. Significant changes in Applied’s credit rating or changes in the interest rate environment could have a material adverse consequence on Applied’s access to and cost of capital for future financings, and financial condition. If Applied fails to satisfy its debt obligations, or comply with financial and other debt covenants, it may be in default and any borrowings may become immediately due and payable, and such default may also constitute a default under other of Applied’s obligations. There can be no assurance that Applied would have sufficient financial resources or be able to arrange financing to repay any borrowings at such time. • the need to devote additional resources to develop new products for, and operate in, new markets; • the need to develop new sales and technical marketing strategies, cultivate relationships with new customers and meet different customer service requirements; • differing rates of profitability and growth among multiple businesses; • Applied’s ability to anticipate demand, capitalize on opportunities, and avoid or minimize risks; • the complexity of managing multiple businesses with variations in production planning, execution, supply chain management and logistics; • the adoption of new business models, business processes and systems; • the complexity of entering into and effectively managing strategic alliances or partnering opportunities; • new materials, processes and technologies; • the need to attract, motivate and retain employees with skills and expertise in these new areas; • new and more diverse customers and suppliers, including some with limited operating histories, uncertain or limited funding, evolving business models or locations in regions where Applied does not have, or has limited, operations; • new or different competitors with potentially more financial or other resources, industry experience and established customer relationships; • entry into new industries and countries, with differing levels of government involvement, laws and regulations, and business, employment and safety practices; • third parties’ intellectual property rights; and • the need to comply with, or work to establish, industry standards and practices. 21