Income Taxes (Tables)

12 Months Ended

Oct. 25, 2015

Components of income from operations before income taxes

The components of income before income taxes for each fiscal year were as follows:



	2015		2014		2013

	(In millions)
U.S.	$	629	$	612	$	194
Foreign	969		836		156
	$	1,598	$	1,448	$	350

Components of the provision for income taxes

The components of the provision for income taxes for each fiscal year were as follows:



	2015			2014			2013

	(In millions)
Current:
U.S.	$	134		$	270		$	3
Foreign	199			97			72
State	18			27			2
	351			394			77
Deferred:
U.S.	(194		)	(9		)	34
Foreign	69			(3		)	(19		)
State	(5		)	(6		)	2
	(130		)	(18		)	17
	$	221		$	376		$	94

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 each fiscal year is presented below:



	2015		2014		2013
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Resolutions from prior years’ income tax filings	(4.9	)	2.0		(4.7	)
Effect of foreign operations taxed at various rates	(16.3	)	(10.9	)	(21.1	)
State income taxes, net of federal benefit	0.9		1.0		0.8
Research and other tax credits	(0.2	)	(0.3	)	(5.4	)
U.S. domestic production deduction	(0.6	)	(1.3	)	(1.0	)
Acquisition costs	(1.1	)	0.8		—
Goodwill impairment	—		—		22.5
Share-based compensation	0.8		0.4		2.2
Other	0.2		(0.7	)	(1.4	)
	13.8	%	26.0	%	26.9	%

Components of deferred income tax assets and liabilities

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



	October 25, 2015			October 26, 2014

	(In millions)
Deferred tax assets:
Allowance for doubtful accounts	$	20		$	26
Inventory reserves and basis difference	155			128
Installation and warranty reserves	11			18
Accrued liabilities	106			123
Deferred revenue	17			32
Tax credits and net operating losses	196			160
Deferred compensation	79			44
Share-based compensation	53			57
Fixed assets	—			16
Other	150			27
Gross deferred tax assets	787			631
Valuation allowance	(207		)	(173		)
Total deferred tax assets	580			458
Deferred tax liabilities:
Fixed assets	(15		)	—
Intangible assets	(91		)	(92		)
Undistributed foreign earnings	(68		)	(87		)
Foreign exchange	(4		)	(12		)
Total gross deferred tax liabilities	(178		)	(191		)
Net deferred tax assets	$	402		$	267

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



	October 25, 2015			October 26, 2014

	(In millions)
Current deferred tax asset	$	403		$	232
Non-current deferred tax asset	55			67
Non-current deferred tax liability	(56		)	(32		)
	$	402		$	267

Summary of valuation allowance

A valuation allowance is recorded to reflect the estimated amount of net deferred tax assets that may not be realized. Changes in the valuation allowance in each fiscal year were as follows:



	2015			2014			2013

	(In millions)
Beginning balance	$	173		$	116		$	46
Increases	40			60			70
Decreases	(6		)	(3		)	—
Ending balance	$	207		$	173		$	116

A reconciliation of gross unrecognized tax benefits

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



	2015			2014			2013

	(In millions)
Beginning balance of gross unrecognized tax benefits	$	134		$	194		$	174
Settlements with tax authorities	(16		)	(143		)	(15		)
Lapses of statutes of limitation	(1		)	(2		)	(15		)
Increases in tax positions for current year	43			52			48
Increases in tax positions for prior years	21			42			2
Decreases in tax positions for prior years	(4		)	(9		)	—
Ending balance of gross unrecognized tax benefits	$	177		$	134		$	194