Income Taxes (Tables)

12 Months Ended

Oct. 26, 2014

Components of income from operations before income taxes

The components of income before income taxes for fiscal 2014, 2013 and 2012 were as follows:



	2014		2013		2012

	(In millions)
U.S.	$	612	$	194	$	381
Foreign	836		156		(65		)
	$	1,448	$	350	$	316

Components of the provision for income taxes

The components of the provision for income taxes for fiscal 2014, 2013 and 2012 were as follows:



	2014			2013			2012

	(In millions)
Current:
U.S.	$	270		$	3		$	74
Foreign	97			72			75
State	27			2			8
	394			77			157
Deferred:
U.S.	(9		)	34			52
Foreign	(3		)	(19		)	(4		)
State	(6		)	2			2
	(18		)	17			50
	$	376		$	94		$	207

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 2014, 2013 and 2012 is presented below:



	2014		2013		2012
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Resolutions from prior years’ income tax filings	2.0		(4.7	)	(6.0	)
Effect of foreign operations taxed at various rates	(10.9	)	(21.1	)	(8.5	)
State income taxes, net of federal benefit	1.0		0.8		2.0
Research and other tax credits	(0.3	)	(5.4	)	(1.0	)
Production benefit	(1.3	)	(1.0	)	(8.0	)
Acquisition costs	0.8		—		—
Goodwill impairment	—		22.5		47.0
Share-based compensation	0.4		2.2		4.0
Other	(0.7	)	(1.4	)	1.0
	26.0	%	26.9	%	65.5	%

Components of deferred income tax assets and liabilities

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



	October 26, 2014			October 27, 2013

	(In millions)
Deferred tax assets:
Allowance for doubtful accounts	$	26		$	27
Inventory reserves and basis difference	128			134
Installation and warranty reserves	18			14
Accrued liabilities	123			138
Deferred revenue	32			27
Tax credits and net operating losses	160			182
Deferred compensation	44			33
Share-based compensation	57			60
Fixed assets	16			(34		)
Other	27			13
Gross deferred tax assets	631			594
Valuation allowance	(173		)	(116		)
Total deferred tax assets	458			478
Deferred tax liabilities:
Intangible assets	(92		)	(82		)
Undistributed foreign earnings	(87		)	(75		)
Foreign exchange	(12		)	(18		)
Total gross deferred tax liabilities	(191		)	(175		)
Net deferred tax assets	$	267		$	303

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



	October 26, 2014			October 27, 2013

	(In millions)
Current deferred tax asset	$	232		$	323
Non-current deferred tax asset	67			53
Current deferred tax liability	—			(2		)
Non-current deferred tax liability	(32		)	(71		)
	$	267		$	303

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:



	2014			2013

	(In millions)
Beginning balance of gross unrecognized tax benefits	$	194		$	174
Settlements with tax authorities	(143		)	(15		)
Lapses of statutes of limitation	(2		)	(15		)
Increases in tax positions for current year	52			48
Increases in tax positions for prior years	42			2
Decreases in tax positions for prior years	(9		)	—
Ending balance of gross unrecognized tax benefits	$	134		$	194