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Applied Films Corporation

CONFIDENTIAL TREATMENT
REQUESTED PURSUANT TO 17 C.F.R. § 200.83

APPLIED FILMS
CORPORATION
9586 I-25 Frontage Road
Suite 200
Longmont, Colorado 80504

August 26, 2005

Via EDGAR

Mr. Brian Cascio

Branch Chief

Securities and Exchange Commission

Division of Corporation Finance

Washington, DC 20549

Mr. Kevin Kuhar

Staff Accountant

Securities and Exchange Commission

Division of Corporation Finance

Washington, DC 20549

Subject:
Applied
Films Corporation
Form 10-K for the Fiscal Year Ended June 26, 2004
Filed September 9,
2004
Form 10-Q for the Fiscal Quarters Ended September 25, 2004,
December 25, 2004 and
March 26, 2005
File No. 000-23103

Dear Mr. Cascio and Mr.
Kuhar:

        Pursuant
to 17 C.F.R. § 200.83, Applied Films Corporation, a Colorado corporation
(“Applied Films” or the “Company”), has requested confidential
treatment of certain portions of this letter. This letter omits the confidential
information that was included in the unredacted version that was delivered to the Division
of Corporation Finance, and asterisks denote such omissions.

        Applied
Films, pursuant to the applicable provisions of the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations thereunder, submits this letter in
response to your letter to the Company dated July 5, 2005 (the “Comment
Letter”).

        The
following responses have been numbered to correspond to the numbered comments contained in
the Comment Letter.

     * * * * * * * * * *

Form 10-K for the
Fiscal year Ended June 26, 2004

Item 7.  MD&A of
Financial Condition and Results of Operations, page 24

Mr. Brian Cascio
August
26, 2005
Page 2

Overview, page 24

        Comment
1. We noted your discussion relating to the acquisition of Helix Technology.
Please tell us and revise future filings to include additional discussion of the
following:

•
Analysis
of the significant assumptions utilized by management in the valuation.

•
Discussion
of expected impact of the acquisition on your revenues and expenses.

        Response:         ***

Year Ended June 28,
2003 Compared to Year Ended June 26, 2004, page 25

        Comment
2. We note that your discussion of the significant changes in net revenues and
gross profit is limited and does not quantify the specific reasons for material changes in
line items in the financial statements. In future filings, each significant factor that
contributed to the changes, including offsetting factors, should be separately quantified.
Trends and uncertainties that may have a material impact upon revenues or operating
results should also be discussed. In addition, separately describe and quantify the
effects of changes in prices and volume of your product offerings on your operating
results.

        Response:
In future filings, we will attempt to quantify significant factors (including offsetting
factors) that affect specific line items. For example, we will expand the MD&A to
include a comparison of new orders for the markets that we serve which will explain the
overall business environment in the end markets. This will also allow us to describe in
more detail trends and uncertainties that may have a material impact upon revenues or
operating results. Due to the limited number of competitors and customers and the unique
features of each system we manufacture, it is not feasible for us to describe and quantify
the effects of changes in prices and volume of our product offerings on our operating
results, other than that increased volume will increase absorption of fixed expenses and,
if prices remain constant, will increase gross margins.

Item 8: Financial
Statements and Supplementary Data, page 36

Note 2: Significant
Accounting Policies, page 42

Marketable Securities,
page 43

        Comment
3. We see that the Company elected to reclassify all of its investments from
trading to available-for-sale securities. We noted that paragraph 15 of SFAS 115 states,
“given the nature of a trading security, transfers into or from the trading category
should be rare.” Please tell us what changes in facts and circumstances led to
this reclassification and its business purpose. Demonstrate to us that this is a rare
occurrence. We may have additional comments based on your response. In addition, MD&A
in future filings should disclose more details of your business strategy for holding
significant amounts of marketable securities.

Mr. Brian Cascio
August
26, 2005
Page 3

        Response:

        Following
our public offering in the fall of 2003, the amount of our investments increased
substantially. In reviewing our investments in April 2004, we evaluated the classification
of our investments and determined that classifying these investments as trading securities
was not the most appropriate classification based upon our investment policy and strategy.

        Under
FAS 115, trading securities are described as “Debt and marketable equity securities
bought and held principally for the purpose of selling them in the near term.” As we
reviewed this definition, although the weighted average maturity or WAM of our securities
is typically one year or less, we do hold most of these securities to maturity and we also
hold some securities longer than one year. We do not engage in “trading”
securities. Our principal line of business and source of cash flow is building equipment
and not trading securities. Our strategic plan calls for use of these investment
securities for acquisitions, product development and working capital, and we liquidate
securities primarily for those purposes. Therefore, we concluded that the
“available-for-sale” category is the most appropriate classification for our
invested securities. We believe this is a rare occurrence, as defined in FAS 115, because
this is the first and only change we have made to this classification since prior to our
initial public offering in 1997. We are confident that we have chosen the correct
classification and will not have a need to evaluate another change in this classification
unless our line of business significantly changes.

        In
addition to the cash and liquidity that is required to operate the business
and demonstrate our strength in the marketplace, we have outlined in our strategy
that we will pursue selective acquisitions. In conjunction with the addition of our
new products that provide organic growth of our company, we regularly seek and evaluate
acquisition opportunities that would enhance or complement our existing operations or
otherwise offer growth opportunities consistent with our strategy and core
competencies. In our industry and given our concentration of revenues and customers
outside of the United States, most acquisition opportunities will be international in
nature and scope. With international acquisitions, there is typically a reluctance to
accept a foreign company’s stock as consideration for a transaction. Therefore, we
believe that our balance sheet strength and liquidity helps our position as we
look at acquisition opportunities, and enables meaningful discussions to take place. As a
result we believe it is of strategic importance that we maintain a significant level of
invested cash to allow us to explore all of the acquisition opportunities that are
available in our markets.

Goodwill and Other
Intangible Assets, page 44

        Comment
4. Describe to us the nature of the $1 million intangible asset you recorded
for customer lists as part of the acquisition of Helix Technology. Tell us how this was
valued and why it meets the criteria under SFAS 141 as a separately identifiable
intangible asset. Refer to EITF 02-17.

Mr. Brian Cascio
August
26, 2005
Page 4

        Response:

        We
believe the classification of customers lists should be characterized as customer
relationships. In the future, we will refer to this as customer relationships.

        The
inline systems division of Helix Technology in Taiwan was a division of a multi-division
company. In carving out and purchasing the division, we were acquiring all of Helix’s
capability to service the customer base that they had built up over the previous 6 or 7
years. The team of employees that we acquired would be responsible for all post warranty
work and therefore as part of the purchase we assumed the warranty obligation as well as
all of the customer relationships of that division. Helix had established relationships
with its customers through system contracts and customer service. In accordance with
Paragraph A18 of Statement 141 and EITF 02-17, we determined that these customer
relationships are an asset which can be recognized as an intangible asset apart from
goodwill since it arose from contractual and other legal rights. We initially estimated
the value of the customer relationships as a component of the overall purchase price to be
approximately $1 million. Subsequently, upon completion of final price allocation we
determined the customer relationships to be valued at $3.2 million.

        ***

Note 5: Investment in
Joint Venture, page 52

        Comment
5. Please tell us how you considered FIN 46 in regards to your investment in
the China Joint Venture.

        Response:
        ***

Note 7: Income Taxes,
page 56

        Comment
6. We note your statement that “provision has not been made for additional
foreign taxes on undistributed earnings of our foreign subsidiaries and the China JV where
such earnings will continue to be reinvested.” However, upon review of your Form
10-K/A filed May 24, 2005, it appears based on Note 9 of the China JV, that in
each of the past two years they have declared dividends of their undistributed earnings.
Please tell us how you have considered paragraphs 7 to 14 of APB 23 where you have
concluded that undistributed earnings will continue to be reinvested and have not
recognized the deferred tax impact and how the recent dividends of the China JV has
impacted that accounting.

Mr. Brian Cascio
August
26, 2005
Page 5

        Response:
We considered ABP 23 in reaching the conclusions discussed below. APB 23 states: The
presumption that all undistributed earnings will be transferred to the parent company may
be overcome, and no income taxes should be accrued by the parent company, if sufficient
evidence shows that the subsidiary has invested or will invest the undistributed earnings
indefinitely or that the earnings will be remitted in a tax-free liquidation. A parent
company should have evidence of specific plans for reinvestment of undistributed earnings
of a subsidiary which demonstrate that remittance of the earnings will be postponed
indefinitely. Experience of the companies and definite future programs of operations and
remittances are examples of the types of evidence required to substantiate the parent
company’s representation of indefinite postponement of remittances from a subsidiary.
If circumstances change and it becomes apparent that some or all of the undistributed
earnings of a subsidiary will be remitted in the foreseeable future but income taxes have
not been recognized by the parent company, it should accrue as an expense of the current
period income taxes attributable to that remittance; income tax expense for such
undistributed earnings should not be accounted for as an extraordinary item. If it becomes
apparent that some or all of the undistributed earnings of a subsidiary on which income
taxes have been accrued will not be remitted in the foreseeable future, the parent company
should adjust income tax expense of the current period; such adjustment of income tax
expense should not be accounted for as an extraordinary item.

        ***

        Note
12: Helix Acquisition, page 60

        Comment
7. In future filings, please provide supplemental pro forma information for the
acquisition of Helix, as required by paragraphs 54 and 55 of SFAS 141, or tell us why you
are not required to provide these disclosures.

Response:
Paragraphs 54 and 55 of SFAS 141, require disclosure of a material business combination.
We are not required to provide the disclosures because the acquisition of Helix was not a
material business combination.

We
evaluated financial statements or pro forma information as required to be disclosed in the
reported financial statements of AFC using the applicable test pursuant to Regulation S-X
Rule 1.02(w) (dollars in thousands).

               (1)

               The registrant’s and its other subsidiaries’ investments in and
               advances to the subsidiary exceed 10 percent of the total assets of the
               registrant and its subsidiaries consolidated as of the end of the most recently
               completed fiscal year.

     Purchase Price
     15,000
     5.87%
      Fail

     AFC Consolidated Assets 6/28/2003
     255,642

               (2)

               The registrant’s and its other subsidiaries’ proportionate share of
               the total assets (after intercompany eliminations) of the subsidiary exceeds 10
               percent of the total assets of the registrant and its subsidiaries consolidated
               as of the end of the most recently completed fiscal year.

     Helix Assets Acquired
     7,900
     3.09%
      Fail

     AFC Consolidated Assets 6/28/2003 as
     255,642

Mr. Brian Cascio
August
26, 2005
Page 6

               (3)

               The registrant’s and its other subsidiaries’ equity in the income from
               continuing operations before income taxes, extraordinary items and cumulative
               effect of a change in accounting principle of the subsidiary exceeds 10 percent
               of such income of the

     Helix Pretax Income for their year end
     164
     9.80%
      Fail

     AFC income from continuing operations

before Income taxes at 6/28/2003
     1,674

        The
Helix acquisition fails all of the above tests under the Pro Forma Financial Information
Rule.

        We
voluntarily provided certain information as disclosed in our 10-K for our fiscal year
ended June 26, 2004 to the users and readers of our financial statements even
though we determined that the acquisition was not material.

        Comment
8. We see the reference to the independent third party valuation on page 60.
Please note the reference to third party experts is not required but if this is included,
the third party expert should be named and their consent included in any registration
statements filed. Alternatively, this reference could be removed and disclosures provided
of the assumptions and methodology used by management in the valuations.

        Response:
In future filings, we will omit the reference to an independent third party valuation and
disclose the assumptions and methodology used in the valuation.

Item 9A: Controls and
Procedures, page 61

        Comment
9. We note your statement that the chief executive officer and chief financial
officer have concluded that the Company’s disclosure controls and procedures are
effective “except as discussed below.” Given the exceptions noted, it remains
unclear whether your chief executive officer and chief financial officer have concluded
that your disclosure controls and procedures are effective. Please revise your disclosure
in future filings to state, in clear and unqualified language, the conclusions reached by
your chief executive officer and your chief financial officer on the effectiveness of your
disclosure controls and procedures. For example, if true, you can state that your
disclosure controls and procedures are effective including consideration of the identified
matters, so long as you provide appropriate disclosure explaining how the disclosure
controls and procedures were determined to be effective in light of the identified
matters. Or, if true, you can state that given the identified matters, your disclosure
controls and procedures are not effective. You should not, however,