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INCOME TAXES | 12 Months Ended
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Oct. 31, 2015
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The domestic and foreign components of income before taxes are:
| Year Ended October 31,
| 2015 |  | 2014 |  | 2013
| (in millions)
U.S. operations | $ | (6 | ) |  | $ | (18 | ) |  | $ | 14 |
Non-U.S. operations | 394 |  |  | 493 |  |  | 487 |
Total income before taxes | $ | 388 |  |  | $ | 475 |  |  | $ | 501 |
The provision (benefit) for income taxes is comprised of:
| Year Ended October 31,
| 2015 |  | 2014 |  | 2013
| (in millions)
U.S. federal taxes: |  |  |  |  |
Current | $ | 12 |  |  | $ | (11 | ) |  | $ | 10 |
Deferred | (7 | ) |  | 25 |  |  | 12 |
Non-U.S. taxes: |  |  |  |  |
Current | 24 |  |  | 62 |  |  | 16 |
Deferred | (158 | ) |  | (4 | ) |  | 3 |
State taxes, net of federal benefit: |  |  |  |  |
Current | 1 |  |  | 9 |  |  | 4 |
Deferred | 3 |  |  | 2 |  |  | (1 | )
Total provision (benefit) for income taxes | $ | (125 | ) |  | $ | 83 |  |  | $ | 44 |
The income tax provision does not reflect potential future tax savings resulting from excess deductions associated with our various share-based award plans. The significant components of deferred tax assets and deferred tax liabilities included in the combined and consolidated balance sheet are:
| October 31,
| 2015 |  | 2014
| Deferred Tax Assets |  | Deferred Tax Liabilities |  | Deferred Tax Assets |  | Deferred Tax Liabilities
| (in millions)
Inventory | $ | 12 |  |  | $ | (1 | ) |  | $ | 20 |  |  | $ | — |
Intangibles | 131 |  |  | (15 | ) |  | 35 |  |  | (6 | )
Property, plant and equipment | 25 |  |  | (11 | ) |  | 28 |  |  | (10 | )
Warranty reserves | 20 |  |  | — |  |  | 18 |  |  | — |
Pension benefits | 66 |  |  | (18 | ) |  | 61 |  |  | (18 | )
Employee benefits, other than retirement | 27 |  |  | — |  |  | 26 |  |  | — |
Net operating loss, capital loss, and credit carryforwards | 135 |  |  | — |  |  | 127 |  |  | — |
State taxes | — |  |  | — |  |  | 6 |  |  | — |
Unremitted earnings of foreign subsidiaries | — |  |  | (33 | ) |  | — |  |  | (53 | )
Share-based compensation | 23 |  |  | — |  |  | 15 |  |  | — |
Deferred revenue | 36 |  |  | (3 | ) |  | 42 |  |  | (1 | )
Other | 11 |  |  | (7 | ) |  | 3 |  |  | (11 | )
Subtotal | 486 |  |  | (88 | ) |  | 381 |  |  | (99 | )
Tax valuation allowance | (46 | ) |  | — |  |  | (39 | ) |  | — |
Total deferred tax assets or deferred tax liabilities | $ | 440 |  |  | $ | (88 | ) |  | $ | 342 |  |  | $ | (99 | )
The significant increase in 2015 as compared to 2014 for deferred tax assets primarily relates to the $219 million in net deferred tax assets arising from the confirmation received from the Singaporean government that we would entitled to amortize the value of certain intangible property rights we received from Agilent in the separation. Through 2015, $88 million of this asset has been amortized for tax purposes. Further, the acquisition of Anite impacted the deferred tax assets and liabilities, primarily through the addition of $34 million of deferred tax assets for capital losses, which have a full valuation allowance. Lastly, due to the separation from Agilent, for fiscal 2015, Keysight is no longer reporting under the separate return methodology; therefore, current and non-current deferred tax assets decreased by approximately $4 million and $43 million, respectively. This decline was primarily related to the decrease in tax attributes of $83 million offset by a decrease in foreign unremitted earnings of approximately $53 million and valuation allowance of $36 million that are not retained by Keysight upon separation. We continue to be in discussions with Agilent regarding the allocation of certain deferred tax liability balances related to foreign unremitted earnings in accordance with the separation agreements. We record U.S. income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries' earnings are considered permanently reinvested outside the U.S. As of October 31, 2015 we recognized a $33 million deferred tax liability for the overall residual tax expected to be imposed upon the repatriation of unremitted foreign earnings that are not considered permanently reinvested. As of October 31, 2015 the cumulative amount of undistributed earnings considered permanently reinvested was $1.1 billion. No deferred tax liability has been recognized on the basis difference created by such earnings since it is our intention to utilize those earnings in the company’s foreign operations. Because of the availability of U.S. foreign tax credits, the determination of the unrecognized deferred tax liability on these earnings is not practicable. The breakdown between current and long-term deferred tax assets and deferred tax liabilities was as follows for the years 2015 and 2014:
| October 31,
| 2015 |  | 2014
| (in millions)
Current deferred tax assets | $ | 74 |  |  | $ | 83 |
Long-term deferred tax assets | 295 |  |  | 163 |
Current deferred tax liabilities (included within other accrued liabilities) | (2 | ) |  | (1 | )
Long-term deferred tax liabilities (included within other long-term liabilities) | (15 | ) |  | (2 | )
Total | $ | 352 |  |  | $ | 243 |
Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. The valuation allowance decreased by $2 million in the year ended October 31, 2014. In the fourth quarter of 2014 management concluded that the valuation allowance of our U.K. deferred tax assets is no longer needed primarily due to the emergence from cumulative losses in recent years, the return to sustainable U.K. operating profits and the expectation of sustainable profitability in future periods. Accordingly, we recognized a non-recurring tax benefit of $6 million relating to the U.K. valuation allowance reversal. The valuation allowance as of October 31, 2015 of $46 million is mainly related to deferred tax assets for capital losses in the U.K. We will maintain a valuation allowance until sufficient positive evidence exists to support reversal. The increase in valuation allowance from October 31, 2014 to October 31, 2015 includes a reduction in the valuation allowance for amounts that are not retained by Keysight upon separation offset by the valuation allowance on certain acquired deferred tax assets. At October 31, 2015, we had U.S. federal net operating loss carryforwards from acquired entities of approximately $3 million and tax credit carryforwards of approximately $1 million. The federal net operating losses expire in 2035, and the federal tax credits expire in 2025, if not utilized. The federal loss and credit carryforwards are subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions. At October 31, 2015, we also had foreign net operating loss carryforwards of approximately $1,519 million. Of this foreign loss, $39 million will expire in years beginning 2019 through 2023 if not utilized. The remaining $1,480 million has an indefinite life, of which $13 million relates to acquired entities. At October 31, 2015, we had foreign capital loss carryforwards of approximately $177 million with an indefinite life and $2 million of tax credits in foreign jurisdictions with an indefinite life, of which $170 million and $2 million relate to acquired entities, respectively. Some of the foreign losses are subject to annual loss limitation rules. These annual loss limitations in the U.S. and foreign jurisdictions may result in the expiration or reduced utilization of the net operating losses. The authoritative guidance prohibits recognition of a deferred tax asset for excess tax benefits related to stock and stock option plans that have not yet been realized through reduction in income taxes payable. Such unrecognized deferred tax benefit totals zero as of October 31, 2015 and will be accounted for as a credit to shareholders' equity, if and when realized, through a reduction in income taxes payable. We have recognized approximately $4 million as a credit to shareholders' equity for cumulative excess tax benefits related to stock and stock option plans that have been realized as of October 31, 2015. The differences between the U.S. federal statutory income tax rate and our effective tax rate are:
| Year Ended October 31,
| 2015 |  | 2014 |  | 2013
| (in millions)
Profit before tax times statutory rate | $ | 136 |  |  | $ | 166 |  |  | $ | 175 |
State income taxes, net of federal benefit | 3 |  |  | 6 |  |  | 2 |
Non-U.S. income taxed at different rates | (107 | ) |  | (113 | ) |  | (147 | )
Singapore tax incentives through amortization | (219 | ) |  | — |  |  | — |
Retroactive Singapore tax rate incentive impact | (15 | ) |  |  |  |
Repatriation of foreign earnings | — |  |  | 62 |  |  | 8 |
Foreign earnings not considered indefinitely reinvested | 33 |  |  | — |  |  | — |
Change in unrecognized tax benefits | 33 |  |  | (39 | ) |  | 6 |
Valuation allowances | — |  |  | (5 | ) |  | — |
Other, net | 11 |  |  | 6 |  |  | — |
Provision (benefit) for income taxes | $ | (125 | ) |  | $ | 83 |  |  | $ | 44 |
Effective tax rate | (32 | )% |  | 18 | % |  | 9 | %
We benefit from tax incentives in several different jurisdictions, most significantly in Singapore, and several jurisdictions have granted or are anticipated to grant us tax incentives that require renewal at various times in the future. The tax incentives provide lower rates of taxation on certain classes of income and require various thresholds of investments and employment or specific types of income in those jurisdictions. The tax incentives are due for renewal between 2016 and 2023. The impact of the tax incentives decreased income taxes by $250 million, $40 million and $68 million in 2015, 2014, and 2013, respectively. The benefit of the tax incentives on net income per share (diluted) was approximately $1.46, $0.41, and $0.57 in 2015, 2014 and 2013, respectively. Of the $1.46 benefit of the tax incentives on net income per share (diluted) in 2015, $1.21 benefit relates to one- time items due to the retroactive granting of the Singapore tax incentives. For 2015, the effective tax rate was a benefit of 32 percent, which is lower than the U.S. statutory rate primarily due to the retroactive benefit of two tax incentives in Singapore approved during 2015. Also, the tax rate was lower than the U.S. statutory rate due to the mix of earnings in the non-U.S. jurisdictions taxed at lower statutory tax rates. For 2014, the effective tax rate was 18 percent. The 18 percent effective tax rate is lower than the U.S. statutory rate primarily due to the mix of earnings in non-U.S. jurisdictions taxed at lower statutory tax rates; in particular Singapore, where we benefited from tax incentives for the first three quarters of 2014, which resulted in $40 million lower income tax expense. The 2014 rate was also favorably impacted by a $55 million benefit from a prior year reserve release, which was offset by $62 million tax expense as a result of the repatriation of foreign earnings. For 2013 the effective tax rate was 9 percent. The 9 percent effective tax rate is lower than the U.S. statutory rate primarily due to the mix of earnings in non-U.S. jurisdictions taxed at lower statutory rates; in particular Singapore where we benefited from tax incentives. The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows for the years 2015 and 2014:
| October 31,
| 2015 |  | 2014
| (in millions)
Current income tax liabilities (included within income and other taxes payable) | $ | (3 | ) |  | $ | (60 | )
Long-term income tax liabilities (included within other long-term liabilities) | (14 | ) |  | (82 | )
Total | $ | (17 | ) |  | $ | (142 | )
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. In accordance with the guidance on the accounting for uncertainty in income taxes, for all U.S. and other tax jurisdictions, we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes and interest will be due. The ultimate resolution of tax uncertainties may differ from what is currently estimated, which could result in a material impact on income tax expense. If our estimate of income tax liabilities proves to be less than the ultimate assessment, a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. The aggregate changes in the balances of our unrecognized tax benefits including all federal, state and foreign tax jurisdictions are as follows:
| 2015 |  | 2014 |  | 2013
| (in millions)
Balance, beginning of year | $ | 129 |  |  | $ | 173 |  |  | $ | 162 |
Reductions due to spin transaction | (113 | ) |  | — |  |  | — |
Additions due to acquisition | 2 |  |  | — |  |  | — |
Additions for tax positions related to the current year | 34 |  |  | 10 |  |  | 9 |
Additions for tax positions from prior years | 2 |  |  | 9 |  |  | 5 |
Reductions for tax positions from prior years | (4 | ) |  | (59 | ) |  | (2 | )
Settlements with taxing authorities | — |  |  | (1 | ) |  | — |
Statute of limitations expirations | — |  |  | (3 | ) |  | (1 | )
Balance, end of year | $ | 50 |  |  | $ | 129 |  |  | $ | 173 |
As of October 31, 2015 we had $50 million of unrecognized tax benefits which, if recognized, would affect our effective tax rate. Under the terms of the tax matters agreement, the unrecognized tax benefits as of separation differed from the amount allocated using the separate return methodology, therefore, a $113 million reduction in the unrecognized tax benefits occurred between October 31, 2014 and October 31, 2015 upon separation. We recognized a tax expense of zero, a tax expense of $4 million and a tax expense of $2 million of interest and penalties related to unrecognized tax benefits in 2015, 2014 and 2013, respectively. Interest and penalties accrued as of October 31, 2015 and 2014 were $1 million and $8 million, respectively. For the majority of our entities, the open tax years for the IRS, state and most foreign audit authorities are from August 1, 2014, through the current tax year. For certain historical Agilent foreign entities that Keysight retained as part of the separation, the tax years generally remain open back to the year 2005. For certain entities acquired during 2015, the tax years also remain open back to the year 2005. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, we are unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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