Warranty, Guarantees and Contingencies

Warranty

Changes in the warranty reserves are presented below:



	Three Months Ended						Six Months Ended
	April 29, 2018			April 30, 2017			April 29, 2018			April 30, 2017

	(In millions)
Beginning balance	$	204		$	170		$	199		$	153
Warranties issued	53			42			99			82
Change in reserves related to preexisting warranty	(3		)	(1		)	(1		)	2
Consumption of reserves	(36		)	(29		)	(79		)	(55		)
Ending balance	$	218		$	182		$	218		$	182

Applied products are generally sold with a warranty for a 12-month period following installation. The provision for the estimated cost of warranty is recorded when revenue is recognized. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical experience by product, configuration and geographic region. Quarterly warranty consumption is generally associated with sales that occurred during the preceding four quarters, and quarterly warranty provisions are generally related to the current quarter’s sales.

Guarantees

In the ordinary course of business, Applied provides standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either Applied or its subsidiaries. As of April 29, 2018, the maximum potential amount of future payments that Applied could be required to make under these guarantee agreements was approximately $64 million. Applied has not recorded any liability in connection with these guarantee agreements beyond that required to appropriately account for the underlying transaction being guaranteed. Applied does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee agreements.

Applied also has agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. As of April 29, 2018, Applied has provided parent guarantees to banks for approximately $150 million to cover these arrangements.

Legal Matters

From time to time, Applied receives notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions by Applied in connection with claims made against them. In addition, from time to time, Applied receives notification from third parties claiming that Applied may be or is infringing or misusing their intellectual property or other rights. Applied also is subject to various other legal proceedings and claims, both asserted and unasserted, that arise in the ordinary course of business.

Although the outcome of the above-described matters, claims and proceedings cannot be predicted with certainty, Applied does not believe that any will have a material effect on its consolidated financial condition or results of operations.