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Income Taxes
 12 Months Ended
Oct. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income before income taxes for each fiscal year were as follows:
 
202120202019
 (In millions)
U.S.$512 $92 $363 
Foreign6,259 4,074 2,906 
$6,771 $4,166 $3,269 
The components of the provision for income taxes for each fiscal year were as follows:
202120202019
 (In millions)
Current:
U.S.$462 $196 $240 
Foreign344 263 260 
State17 20 12 
823 479 512 
Deferred:
U.S.(3)(3)8 
Foreign67 76 46 
State(4)(5)(3)
60 68 51 
$883 $547 $563 
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:
 
202120202019
Tax provision at U.S. statutory rate21.0 %21.0 %21.0 %
Effect of foreign operations taxed at various rates(7.0)(5.9)(5.9)
Changes in prior years’ unrecognized tax benefits
0.2 0.5 2.6 
Resolutions of prior years’ income tax filings
(0.1)(1.0)(0.1)
Research and other tax credits(0.9)(1.3)(1.1)
Other(0.2)(0.2)0.7 
13.0 %13.1 %17.2 %
Before the Tax Act, U.S. income tax had not been provided for certain unrepatriated earnings that were considered indefinitely reinvested. Income tax is now provided for all unrepatriated earnings.
Applied’s effective tax rate for fiscal 2021 was slightly lower than fiscal 2020 primarily due to higher proportion of pre-tax income in lower tax jurisdictions, partially offset by resolutions of prior years’ income tax filings. The effective tax rate for fiscal 2020 was lower than fiscal 2019 primarily due to a decline in the tax expense from changes to uncertain tax provisions year-over-year, an increased tax benefit from tax credits, and increased excess stock compensation tax benefits. This benefit was partly offset by an unfavorable settlement of an uncertain tax position in fiscal 2020.
On June 14, 2019, the U.S. government released regulations that significantly affect how the global intangible low-taxed income (GILTI) provision of the Tax Cuts and Jobs Act (Tax Act) is interpreted. As a result, Applied reversed a tax benefit of $96 million in the third quarter of fiscal 2019 that had been realized in the first half of fiscal 2019. An accounting policy may be selected to treat GILTI temporary differences in taxable income either as a current-period expense when incurred (period cost method) or factor such amounts into the measurement of deferred taxes (deferred method). Applied has chosen the period cost method.
In the reconciliation between the statutory U.S. federal income tax rate and the effective income tax rate, the effect of foreign operations taxed at various rates represents the difference between an income tax provision at the U.S. federal statutory income tax rate and the recorded income tax provision, with the difference expressed as a percentage of worldwide income before income taxes. This effect is substantially related to the tax effect of pre-tax income in jurisdictions with lower statutory tax rates. The foreign operations with the most significant effective tax rate impact are in Singapore. The statutory tax rate for fiscal 2021 for Singapore is 17%. Applied has been granted conditional reduced tax rates that expire in fiscal 2025, excluding potential renewal and subject to certain conditions with which Applied expects to comply. The tax benefits arising from these tax rates were $370 million or $0.40 per diluted share and $215 million or $0.23 per diluted share for fiscal 2021 and 2020, respectively.
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. The components of deferred income tax assets and liabilities were as follows: 
October 31,
2021		October 25,
2020
 (In millions)
Deferred tax assets:
Allowance for doubtful accounts$4 $4 
Inventory reserves and basis difference112 119 
Installation and warranty reserves29 14 
Intangible assets1,281 1,355 
Accrued liabilities31 24 
Deferred revenue25 32 
Tax credits 369 326 
Deferred compensation133 130 
Share-based compensation34 30 
Lease liability61 55 
Other89 96 
Gross deferred tax assets2,168 2,185 
Valuation allowance(361)(314)
Total deferred tax assets1,807 1,871 
Deferred tax liabilities:
Fixed assets(93)(76)
Right of use assets(62)(54)
Undistributed foreign earnings(37)(39)
Total deferred tax liabilities(192)(169)
Net deferred tax assets$1,615 $1,702 
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:
202120202019
(In millions)
Beginning balance$314 $257 $230 
Increases47 57 27 
Decreases— — — 
Ending balance$361 $314 $257 
At October 31, 2021, Applied has state research and development tax credit carryforwards of $369 million, including $345 million of credits that are carried over until exhausted and $20 million that are carried over for 15 years and begin to expire in fiscal 2033. It is more likely than not that all tax credit carryforwards, net of valuation allowance, will be utilized.
Applied maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored based on the best information available. Gross unrecognized tax benefits are classified as non-current income taxes payable or as a reduction in deferred tax assets. A reconciliation of the beginning and ending balances of gross unrecognized tax benefits in each fiscal year is as follows: 
202120202019
 (In millions)
Beginning balance of gross unrecognized tax benefits$496 $845 $374 
Settlements with tax authorities— (446)(1)
Lapses of statutes of limitation(4)(3)(2)
Increases in tax positions for current year26 44 33 
Increases in tax positions for prior years23 91 441 
Decreases in tax positions for prior years(4)(35)— 
Ending balance of gross unrecognized tax benefits$537 $496 $845 
In fiscal 2020, Applied settled tax audits in Singapore related to fiscal 2012 through fiscal 2019 for additional tax payments of $72 million and a reduction of future tax deductions of $374 million. The tax expense impact of these settlements was $26 million. In fiscal 2019, Applied paid an immaterial amount as a result of settlements with tax authorities.
The increases in tax positions for prior years of $441 million for fiscal 2019 include the effect of adoption of Accounting Standard Update 2016-16 Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Tax expense for interest and penalties on unrecognized tax benefits for fiscal 2021, 2020 and 2019 was $14 million, $24 million and $24 million, respectively. The income tax liability for interest and penalties for fiscal 2021, 2020 and 2019 was $88 million, $74 million and $50 million, respectively, and was classified as non-current income taxes payable.
Included in the balance of unrecognized tax benefits for fiscal 2021, 2020 and 2019 are $442 million, $410 million, and $758 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
Applied’s tax returns remain subject to examination by taxing authorities. These include U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2011 and later years.
The timing of the resolution of income tax examinations, as well as the amounts and timing of various tax payments that may be part of the settlement process, is highly uncertain. This could cause fluctuations in Applied’s financial condition and results of operations. Applied continues to have ongoing negotiations with various taxing authorities throughout the year.