Income Taxes (Tables)

12 Months Ended

Oct. 30, 2016

Components of income from operations before income taxes

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



	2016		2015		2014

	(In millions)
U.S.	$	199	$	629	$	612
Foreign	1,814		969		836
	$	2,013	$	1,598	$	1,448

Components of the provision for income taxes

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



	2016			2015			2014

	(In millions)
Current:
U.S.	$	(36	)	$	134		$	270
Foreign	351			199			97
State	(2		)	18			27
	313			351			394
Deferred:
U.S.	55			(194		)	(9		)
Foreign	(89		)	69			(3		)
State	13			(5		)	(6		)
	(21		)	(130		)	(18		)
	$	292		$	221		$	376

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:



	2016		2015		2014
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Resolutions of prior years’ income tax filings	3.9		(4.9	)	2.0
Effect of foreign operations taxed at various rates	(24.1	)	(16.3	)	(10.9	)
State income taxes, net of federal benefit	0.6		0.9		1.0
Research and other tax credits	(1.3	)	(0.2	)	(0.3	)
U.S. domestic production deduction	(0.2	)	(0.6	)	(1.3	)
Acquisition costs	—		(1.1	)	0.8
Share-based compensation	0.4		0.8		0.4
Other	0.2		0.2		(0.7	)
	14.5	%	13.8	%	26.0	%

Components of deferred income tax assets and liabilities

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



	October 30, 2016			October 25, 2015

	(In millions)
Deferred tax assets:
Allowance for doubtful accounts	$	20		$	20
Inventory reserves and basis difference	151			155
Installation and warranty reserves	3			11
Accrued liabilities	53			106
Deferred revenue	17			17
Tax credits and net operating losses	210			196
Deferred compensation	45			79
Share-based compensation	55			53
Other	176			150
Gross deferred tax assets	730			787
Valuation allowance	(207		)	(207		)
Total deferred tax assets	523			580
Deferred tax liabilities:
Fixed assets	(29		)	(15		)
Intangible assets	(81		)	(91		)
Undistributed foreign earnings	(42		)	(68		)
Foreign exchange	—			(4		)
Total gross deferred tax liabilities	(152		)	(178		)
Net deferred tax assets	$	371		$	402

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



	October 30, 2016			October 25, 2015

	(In millions)
Current deferred tax asset	$	—		$	403
Non-current deferred tax asset	372			55
Non-current deferred tax liability	(1		)	(56		)
	$	371		$	402

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:



	2016			2015			2014

	(In millions)
Beginning balance	$	207		$	173		$	116
Increases	27			40			60
Decreases	(27		)	(6		)	(3		)
Ending balance	$	207		$	207		$	173

A reconciliation of gross unrecognized tax benefits

Gross unrecognized tax benefits are classified as non-current income taxes payable in other liabilities in the Consolidated Balance Sheets. A reconciliation of the beginning and ending balances of gross unrecognized tax benefits in each fiscal year is as follows:



	2016			2015			2014

	(In millions)
Beginning balance of gross unrecognized tax benefits	$	177		$	134		$	194
Settlements with tax authorities	(25		)	(16		)	(143		)
Lapses of statutes of limitation	(2		)	(1		)	(2		)
Increases in tax positions for current year	62			43			52
Increases in tax positions for prior years	109			21			42
Decreases in tax positions for prior years	(1		)	(4		)	(9		)
Ending balance of gross unrecognized tax benefits	$	320		$	177		$	134