Income Taxes (Tables)

12 Months Ended

Oct. 29, 2017

Components of income from operations before income taxes

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



	2017		2016		2015

	(In millions)
U.S.	$	514	$	199	$	629
Foreign	3,217		1,814		969
	$	3,731	$	2,013	$	1,598

Components of the provision for income taxes

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



	2017			2016			2015

	(In millions)
Current:
U.S.	$	67		$	(36	)	$	134
Foreign	233			351			199
State	9			(2		)	18
	309			313			351
Deferred:
U.S.	(11		)	55			(194		)
Foreign	(7		)	(89		)	69
State	6			13			(5		)
	(12		)	(21		)	(130		)
	$	297		$	292		$	221

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:



	2017		2016		2015
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Resolutions of prior years’ income tax filings	(1.9	)	3.9		(4.9	)
Effect of foreign operations taxed at various rates	(24.9	)	(24.1	)	(16.3	)
State income taxes, net of federal benefit	0.3		0.6		0.9
Research and other tax credits	(0.7	)	(1.3	)	(0.2	)
U.S. domestic production deduction	(0.2	)	(0.2	)	(0.6	)
Share-based compensation	0.4		0.4		0.8
Other	—		0.2		(0.9	)
	8.0	%	14.5	%	13.8	%

Components of deferred income tax assets and liabilities

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



	October 29, 2017			October 30, 2016

	(In millions)
Deferred tax assets:
Allowance for doubtful accounts	$	13		$	20
Inventory reserves and basis difference	156			151
Installation and warranty reserves	1			3
Accrued liabilities	31			53
Deferred revenue	15			17
Tax credits	317			210
Deferred compensation	81			45
Share-based compensation	53			55
Other	67			176
Gross deferred tax assets	734			730
Valuation allowance	(227		)	(207		)
Total deferred tax assets	507			523
Deferred tax liabilities:
Fixed assets	(36		)	(29		)
Intangible assets	(76		)	(81		)
Undistributed foreign earnings	(11		)	(42		)
Foreign exchange	(4		)	—
Total gross deferred tax liabilities	(127		)	(152		)
Net deferred tax assets	$	380		$	371

The following table presents a summary of non-current deferred tax assets and liabilities:



	October 29, 2017			October 30, 2016

	(In millions)
Non-current deferred tax asset	$	385		$	372
Non-current deferred tax liability	(5		)	(1		)
	$	380		$	371

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:



	2017		2016			2015

	(In millions)
Beginning balance	$	207	$	207		$	173
Increases	20		27			40
Decreases	—		(27		)	(6		)
Ending balance	$	227	$	207		$	207

A reconciliation of gross unrecognized tax benefits

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



	2017			2016			2015

	(In millions)
Beginning balance of gross unrecognized tax benefits	$	320		$	177		$	134
Settlements with tax authorities	(42		)	(25		)	(16		)
Lapses of statutes of limitation	(15		)	(2		)	(1		)
Increases in tax positions for current year	95			62			43
Increases in tax positions for prior years	33			109			21
Decreases in tax positions for prior years	—			(1		)	(4		)
Ending balance of gross unrecognized tax benefits	$	391		$	320		$	177