Income Taxes (Tables)

12 Months Ended

Oct. 28, 2018

Income Tax Disclosure [Abstract]

Components of income from operations before income taxes

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

	2018		2017		2016
	(In millions)
U.S.	$	439	$	514	$	199
Foreign	4,255		3,217		1,814
	$	4,694	$	3,731	$	2,013

Components of the provision for income taxes

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

	2018			2017			2016
	(In millions)
Current:
U.S.	$	1,035		$	67		$	(36	)
Foreign	126			233			351
State	22			9			(2		)
	1,183			309			313
Deferred:
U.S.	151			(11		)	55
Foreign	57			(7		)	(89		)
State	(10		)	6			13
	198			(12		)	(21		)
	$	1,381		$	297		$	292

Effective income tax rate continuing operations tax rate reconciliation

A reconciliation between the statutory U.S. federal income tax rate and Applied’s actual effective income tax rate for each fiscal year is presented below:

	2018		2017		2016
Tax provision at U.S. statutory rate	23.4	%	35.0	%	35.0	%
Changes in U.S. tax law	23.7		—		—
Resolutions of prior years’ income tax filings	(0.7	)	(1.9	)	3.9
Effect of foreign operations taxed at various rates	(15.6	)	(24.9	)	(24.1	)
State income taxes, net of federal benefit	0.2		0.3		0.6
Research and other tax credits	(0.7	)	(0.7	)	(1.3	)
U.S. domestic production deduction	(0.1	)	(0.2	)	(0.2	)
Share-based compensation	(0.7	)	0.4		0.4
Other	(0.1	)	—		0.2
	29.4	%	8.0	%	14.5	%

Components of deferred income tax assets and liabilities

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

	October 28, 2018			October 29, 2017
	(In millions)
Deferred tax assets:
Allowance for doubtful accounts	$	8		$	13
Inventory reserves and basis difference	117			156
Installation and warranty reserves	7			1
Accrued liabilities	20			31
Deferred revenue	9			15
Tax credits	236			317
Deferred compensation	79			81
Share-based compensation	37			53
Other	48			67
Gross deferred tax assets	561			734
Valuation allowance	(230		)	(227		)
Total deferred tax assets	331			507
Deferred tax liabilities:
Fixed assets	(48		)	(36		)
Intangible assets	(38		)	(76		)
Undistributed foreign earnings	(32		)	(11		)
Foreign exchange	(3		)	(4		)
Total gross deferred tax liabilities	(121		)	(127		)
Net deferred tax assets	$	210		$	380

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

	October 28, 2018			October 29, 2017
	(In millions)
Non-current deferred tax asset	$	222		$	385
Non-current deferred tax liability	(12		)	(5		)
	$	210		$	380

Summary of valuation allowance

Changes in the valuation allowance in each fiscal year were as follows:

	2018			2017		2016
	(In millions)
Beginning balance	$	227		$	207	$	207
Increases	8			20		27
Decreases	(5		)	—		(27		)
Ending balance	$	230		$	227	$	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:

	2018			2017			2016
	(In millions)
Beginning balance of gross unrecognized tax benefits	$	391		$	320		$	177
Settlements with tax authorities	(152		)	(42		)	(25		)
Lapses of statutes of limitation	(37		)	(15		)	(2		)
Increases in tax positions for current year	91			95			62
Increases in tax positions for prior years	83			33			109
Decreases in tax positions for prior years	(2		)	—			(1		)
Ending balance of gross unrecognized tax benefits	$	374		$	391		$	320