Table of Contents Applied’s competitive position significantly depends upon its research, development, engineering, manufacturing and marketing capabilities, as well as its patent position. Protection of Applied’s technology assets through enforcement of its intellectual property rights, including patents, is important. Applied’s practice is to file patent applications in the United States and other countries for inventions that it considers significant. Applied has approximately 14,300 patents in the United States and other countries, and additional applications are pending for new inventions. Although Applied does not consider its business materially dependent upon any one patent, the rights of Applied and the products made and sold under its patents, taken as a whole, are a significant element of its business. In addition to its patents, Applied possesses other intellectual property, including trademarks, know-how, trade secrets, and copyrights. Applied enters into patent and technology licensing agreements with other companies when it is determined to be in its best interest. Applied pays royalties under existing patent license agreements for the use, in several of its products, of certain patented technologies. Applied also receives royalties from licenses granted to third parties. Royalties received from or paid to third parties have not been material to Applied’s consolidated results of operations. In the normal course of business, Applied periodically receives and makes inquiries regarding possible patent infringement. In responding to such inquiries, it may become necessary or useful for Applied to obtain or grant licenses or other rights. However, there can be no assurance that such licenses or rights will be available to Applied on commercially reasonable terms, or at all. If Applied is not able to resolve or settle claims, obtain necessary licenses on commercially reasonable terms, or successfully prosecute or defend its position, Applied’s business, financial condition and results of operations could be materially and adversely affected. As a public company with global operations, Applied is subject to the laws and regulations of the United States and multiple foreign jurisdictions. These regulations, which differ among jurisdictions, include those related to financial and other disclosures, accounting standards, corporate governance, intellectual property, tax, trade, antitrust, employment, immigration and travel regulations, privacy, and anti-corruption. With respect to environmental, health and safety regulation, Applied maintains a number of programs that are primarily preventative in nature and regularly monitors ongoing compliance with applicable laws and regulations. In addition, Applied has trained personnel to conduct investigations of any environmental, health, or safety incidents, including, but not limited to, spills, releases, or possible contamination.  See also  “ Risk Factors – Risks Related to Legal and Compliance - Applied is subject to risks associated with environmental, health and safety regulations ”  for further details. Applied is subject to income taxes in the United States and foreign jurisdictions. Applied’s provision for income taxes and effective tax rate could be affected by numerous factors, including changes in applicable tax laws, interpretations of applicable tax laws, amount and composition of pre-tax income in jurisdictions with differing tax rates, and valuation of deferred tax assets.  See  “ Risk Factors – Risks Related to Legal and Compliance – Applied is exposed to risks associated with operating in jurisdictions with complex and changing tax laws ”. For additional discussions regarding the impact of compliance with income tax laws and regulations on Applied’s business and operations, see also “ Management’s Discussion and Analysis of Financial Condition and Results of Operations– Results of Operations – Income Taxes ” and  “Note 15 of the Notes to the Consolidated Financial Statements”. Additionally, Applied is regulated under various international laws regarding the purchase and sale of goods and related items, including but not limited to those related to imposition of tariffs and other taxes, requirements for import/export licenses and limitations on transfer of intellectual property.  See  “ Risk Factors – Risks Associated with Operating a Global Business – International trade disputes could result in increase in tariffs and other trade restrictions and protectionist measures that could have an adverse impact on our operations ”  for further details. 11 Governmental Regulation Patents and Licenses