Income Taxes (Tables)

12 Months Ended

Oct. 28, 2012

Components of income from operations before income taxes

The components of income from operations before income taxes for fiscal 2012, 2011 and 2010 were as follows:



	2012			2011		2010

	(In millions)
U.S.	$	381		$	1,257	$	787
Foreign	(65		)	1,121		600
	$	316		$	2,378	$	1,387

Components of the provision for income taxes

The components of the provision for income taxes for fiscal 2012, 2011 and 2010 were as follows:



	2012			2011			2010

	(In millions)
Current:
U.S.	$	74		$	290		$	463
Foreign	75			206			134
State	8			5			34
	157			501			631
Deferred:
U.S.	52			(95		)	(160		)
Foreign	(4		)	(23		)	4
State	2			69			(26		)
	50			(49		)	(182		)
	$	207		$	452		$	449

Effective income tax rate continuing operations tax rate reconciliation

A reconciliation between the statutory U.S. federal income tax rate of 35 percent and Applied’s actual effective income tax rate for fiscal 2012, 2011 and 2010 is presented below:



	2012		2011		2010
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Favorable resolutions from audits of prior years’ income tax filings	(6.0	)	(6.9	)	—
Effect of foreign operations taxed at various rates	(8.5	)	(8.1	)	(3.0	)
State income taxes, net of federal benefit	2.0		1.6		0.9
Research and other tax credits	(1.0	)	(1.2	)	(0.3	)
Production benefit	(8.0	)	(0.8	)	(1.2	)
Goodwill impairment	47.0		—		—
Share-based compensation	4.0		0.4		0.6
Other	1.0		(1.0	)	0.4
	65.5	%	19.0	%	32.4	%

Components of deferred income tax assets and liabilities

The components of deferred income tax assets and liabilities are as follows:



	October 28, 2012			October 30, 2011

	(In millions)
Deferred tax assets:
Inventory reserves and basis difference	$	119		$	214
Installation and warranty reserves	27			31
Foreign tax credits on undistributed foreign earnings	—			112
Accrued liabilities	224			250
Restructuring reserves	23			4
Deferred revenue	36			53
Capital loss carryforward	—			4
Tax credits and net operating losses	111			39
Deferred compensation	41			21
Share-based compensation	51			49
Intangibles	12			10
Gross deferred tax assets	644			787
Valuation allowance	(46		)	(13		)
Total deferred tax assets	598			774
Deferred tax liabilities:
Depreciation	(71		)	(61		)
Purchased technology	(190		)	(86		)
Undistributed foreign earnings	(93		)	—
Other	(25		)	(44		)
Total gross deferred tax liabilities	(379		)	(191		)
Net deferred tax assets	$	219		$	583

Breakdown between current and non-current net deferred tax assets and liabilities

The following table presents the breakdown between current and non-current net deferred tax assets and liabilities:



	October 28, 2012			October 30, 2011

	(In millions)
Current deferred tax asset	$	369		$	580
Non-current deferred tax asset	51			78
Current deferred tax liability	(1		)	(1		)
Non-current deferred tax liability	(200		)	(74		)
	$	219		$	583

A reconciliation of gross unrecognized tax benefits

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:



	2012			2011

	(In millions)
Beginning balance of gross unrecognized tax benefits	$	59		$	328
Uncertainties arising from the acquisition of Varian	76			—
Settlements with tax authorities	(16		)	(314		)
Increases in tax positions for current years	46			45
Increases in tax positions for prior years	53			—
Decreases in tax positions for prior years	(37		)	—
Ending balance of gross unrecognized tax benefits	$	181		$	59