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INCOME TAXES | 12 Months Ended
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Oct. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The domestic and foreign components of income (loss) before taxes are:
| Year Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in millions)
U.S. operations | $ | 20 |  |  | $ | (532 | ) |  | $ | (147 | )
Non-U.S. operations | 695 |  |  | 121 |  |  | 326 |
Total income (loss) before taxes | $ | 715 |  |  | $ | (411 | ) |  | $ | 179 |
The provision (benefit) for income taxes is comprised of:
| Year Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in millions)
U.S. federal taxes: |  |  |  |  |
Current | $ | 10 |  |  | $ | 131 |  |  | $ | 21 |
Deferred | (8 | ) |  | 46 |  |  | (56 | )
Non-U.S. taxes: |  |  |  |  |
Current | 91 |  |  | 75 |  |  | 101 |
Deferred | 14 |  |  | (832 | ) |  | 9 |
State taxes, net of federal benefit: |  |  |  |  |
Current | (5 | ) |  | 7 |  |  | 2 |
Deferred | (8 | ) |  | (3 | ) |  | — |
Total provision (benefit) for income taxes | $ | 94 |  |  | $ | (576 | ) |  | $ | 77 |
Due to the adoption of ASU 2016-09, excess tax benefits and deductions associated with our various share-based award plans are included as components of income tax expense for fiscal years 2019 and 2018. The income tax provision for fiscal year 2017 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 consolidated balance sheet are:
| October 31,
| 2019 |  | 2018
| Deferred Tax Assets |  | Deferred Tax Liabilities |  | Deferred Tax Assets |  | Deferred Tax Liabilities
| (in millions)
Inventory | $ | 10 |  |  | $ | (2 | ) |  | $ | 14 |  |  | $ | — |
Intangibles | 630 |  |  | (38 | ) |  | 664 |  |  | (66 | )
Property, plant and equipment | 17 |  |  | (24 | ) |  | 14 |  |  | (23 | )
Warranty reserves | 9 |  |  | (1 | ) |  | 11 |  |  | (1 | )
Pension benefits | 86 |  |  | (76 | ) |  | 47 |  |  | (67 | )
Employee benefits, other than retirement | 29 |  |  | (1 | ) |  | 27 |  |  | (1 | )
Net operating loss, capital loss, and credit carryforwards | 116 |  |  | — |  |  | 120 |  |  | — |
Unremitted earnings of foreign subsidiaries | — |  |  | (12 | ) |  | — |  |  | (5 | )
Share-based compensation | 15 |  |  | — |  |  | 14 |  |  | — |
Deferred revenue | 25 |  |  | (5 | ) |  | 37 |  |  | (1 | )
Other | 14 |  |  | (12 | ) |  | 11 |  |  | (1 | )
Subtotal | 951 |  |  | (171 | ) |  | 959 |  |  | (165 | )
Tax valuation allowance | (73 | ) |  | — |  |  | (79 | ) |  | — |
Total deferred tax assets or deferred tax liabilities | $ | 878 |  |  | $ | (171 | ) |  | $ | 880 |  |  | $ | (165 | )
The decrease in deferred tax assets in 2019 as compared to 2018 primarily relates to a decrease in intangible assets in Singapore due to amortization, partially offset by an increase in future pension liabilities in the U.S. and Germany. The increase in deferred tax liabilities in 2019 as compared to 2018 primarily relates an increase in future tax liabilities in Italy from a restructuring and a decrease in future pension liabilities in the U.K. and Japan, partially offset by a decrease in intangible assets in the U.S. due to amortization and a decrease in Germany due to a restructuring. As of October 31, 2019, there was a deferred tax liability of $12 million for the tax liability expected to be imposed upon the repatriation of unremitted foreign earnings that are not considered indefinitely reinvested. As of October 31, 2019, the cumulative amount of undistributed earnings considered indefinitely reinvested was $88 million. No deferred tax liability has been recognized on the basis difference created by such earnings since it is our intention to indefinitely reinvest those earnings in the company’s foreign operations. The amount of the unrecognized deferred tax liability on the indefinitely reinvested earnings was $4 million. 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 $73 million valuation allowance as of October 31, 2019 is mainly related to capital losses in the U.K., net operating losses in the Netherlands and U.K., and California research credits. The $79 million valuation allowance as of October 31, 2018 was mainly related to California research credits, capital losses in the U.K., and net operating losses in the U.K. and Netherlands. The decrease in valuation allowance from October 31, 2018 to October 31, 2019 is primarily due to a reversal of valuation allowance on a portion of the California research credits. We will maintain a valuation allowance until sufficient positive evidence exists to support reversal. At October 31, 2019, we had U.S. federal net operating loss carryforwards of approximately $8 million, acquired in the Ixia acquisition, and U.S. state net operating loss carryforwards, primarily acquired in the Ixia acquisition, of approximately $68 million. The U.S. federal net operating losses will expire in years beginning 2026 through 2029, if not utilized. The U.S. state net operating loss carryforwards will begin to expire in 2025, if not utilized. At October 31, 2019, we had California research credit carryforwards of approximately $20 million. The California research credits can be carried forward indefinitely. The U.S. federal and state net operating losses and tax credit carryforwards are subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions. At October 31, 2019, we also had foreign net operating loss carryforwards of approximately $305 million. Of this amount, $116 million will expire in years beginning 2023 through 2029 if not utilized. The remaining $189 million has an indefinite life. At October 31, 2019, we had foreign capital loss carryforwards of approximately $145 million, primarily acquired in the Anite acquisition, with an indefinite life and $3 million of tax credits in foreign jurisdictions with an indefinite life. Some of the foreign losses are subject to annual loss limitation rules. These annual loss limitations in foreign jurisdictions may result in the expiration or reduced utilization of the net operating losses. The differences between the U.S. federal statutory income tax rate and our effective tax rate are:
| Year Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in millions)
Profit(loss) before tax times statutory rate | $ | 150 |  |  | $ | (96 | ) |  | $ | 63 |
State income taxes, net of federal benefit | (6 | ) |  | 2 |  |  | 1 |
US tax on non-US entity income | 48 |  |  | 210 |  |  | 5 |
US benefit on foreign sales | (13 | ) |  | — |  |  | — |
U.S. research credits | (12 | ) |  | (10 | ) |  | (7 | )
Non-US income taxed at different rates | (70 | ) |  | 16 |  |  | (83 | )
Change in unrecognized tax benefits | (12 | ) |  | 86 |  |  | 23 |
Share-based compensation | (5 | ) |  | (1 | ) |  | 7 |
Singapore tax incentive and amortization | — |  |  | (591 | ) |  | — |
Reversal of deferred taxes on foreign earnings not considered indefinitely reinvested | — |  |  | (304 | ) |  | — |
Goodwill impairment | — |  |  | 99 |  |  | — |
U.S. federal statutory tax rate change | — |  |  | 10 |  |  | — |
Malaysia tax assessment | — |  |  | — |  |  | 68 |
Other, net | 14 |  |  | 3 |  |  | — |
Provision (benefit) for income taxes | $ | 94 |  |  | $ | (576 | ) |  | $ | 77 |
Effective tax rate | 13 | % |  | 140 | % |  | 43 | %
We benefit from tax incentives in several jurisdictions, most significantly in Singapore, that have granted 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 thresholds of investments and employment or specific types of income in those jurisdictions. The tax incentives are due for renewal between 2024 and 2025. The impact of the tax incentives decreased income taxes by $47 million, $567 million and $49 million in 2019, 2018 and 2017, respectively. The benefit of the tax incentives on net income per share (diluted) was approximately $0.25, $2.97 and $0.27 in 2019, 2018 and 2017, respectively. The decrease in the tax benefit from 2018 to 2019 is primarily due to the one-time impacts included in 2018 of the Singapore restructuring and tax incentive modifications that were completed in that year in response to Singapore tax law changes. Of the $2.97 benefit from the tax incentives on net income per share (diluted) in 2018, $2.75 relates to one-time items resulting from the Singapore restructuring. For 2019, the effective tax rate was 13 percent, which is lower than the U.S. statutory rate primarily due a higher percentage of earnings in the non-US jurisdictions taxed at lower statutory rates. For 2018, the effective tax rate was 140 percent, which is higher than the U.S. statutory rate primarily due to the impact of U.S. tax law changes, the Singapore restructuring and tax incentive modifications completed in 2018 in response to Singapore tax law changes, and the tax impact of goodwill impairment. For 2017, the effective tax rate was 43 percent, which is higher than the U.S. statutory rate primarily due to the payment of a prior year Malaysia tax assessment of $68 million, including tax and penalties, which we are currently in the process of appealing to the Special Commissioners of Income Tax (“SCIT”) in Malaysia. The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows for the years 2019 and 2018:
| October 31,
| 2019 |  | 2018
| (in millions)
Current income tax assets (included within other current assets) | $ | 40 |  |  | $ | 32 |
Current income tax liabilities (included within income and other taxes payable) | (35 | ) |  | (18 | )
Long-term income tax assets (included within other assets) | — |  |  | — |
Long-term income tax liabilities (included within other long-term liabilities) | (198 | ) |  | (205 | )
Total | $ | (193 | ) |  | $ | (191 | )
The calculation of our tax liabilities involves 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 the payment of these additional 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. We include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. The aggregate changes in the balances of our unrecognized tax benefits including all federal, state and foreign tax jurisdictions are as follows:
| 2019 |  | 2018 |  | 2017
| (in millions)
Gross Balance, beginning of year | $ | 234 |  |  | $ | 146 |  |  | $ | 51 |
Additions due to acquisition | 9 |  |  | — |  |  | 22 |
Additions for tax positions related to the current year | 18 |  |  | 100 |  |  | 31 |
Additions for tax positions from prior years | — |  |  | 2 |  |  | 52 |
Reductions for tax positions from prior years | (32 | ) |  | (1 | ) |  | (9 | )
Settlements with taxing authorities | — |  |  | (12 | ) |  | — |
Statute of limitations expirations | (3 | ) |  | (1 | ) |  | (1 | )
Gross Balance, end of year | $ | 226 |  |  | $ | 234 |  |  | $ | 146 |
As of October 31, 2019, the total amount of gross unrecognized tax benefits was $226 million, that, if recognized, $216 million would impact our effective tax rate. However, approximately $9 million of the unrecognized tax benefits were related to acquisitions, which if recognized within certain agreed upon time periods, would be offset due to an indemnification asset recognized. As of October 31, 2018, the total amount of gross unrecognized tax benefits was $234 million, that, if recognized, $227 million would impact our effective tax rate. We recognized tax expense of $2 million, $2 million, and $18 million of interest and penalties related to unrecognized tax benefits in 2019, 2018 and 2017, respectively. We recorded an additional $4 million of interest and penalties related to unrecognized tax benefits in 2019 through purchase accounting related to acquisitions. Cumulatively, interest and penalties accrued as of the end of October 31, 2019, 2018 and 2017 were $28 million, $22 million and $20 million, respectively. The open tax years for the IRS and most states are from November 1, 2015 through the current tax year. For the majority of our foreign entities, the open tax years are from November 1, 2014 through the current tax year. For certain foreign entities, the tax years remain open, at most, back to the year 2008. 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. The company is being audited in Malaysia for the 2008 tax year. Although this tax year pre-dates our spin-off from Agilent, pursuant to the agreement between Agilent and Keysight pertaining to tax matters, as finalized at the time of separation, for certain entities including Malaysia, any historical tax liability is the responsibility of Keysight. In the fourth quarter of fiscal 2017, Keysight paid income taxes and penalties of $68 million on gains related to intellectual property rights, although we are currently in the process of appealing to the SCIT in Malaysia. The company believes there are numerous defenses to the current assessment; the statute of limitations for the 2008 tax year in Malaysia is closed and the income in question is exempt from tax in Malaysia. The company is disputing this assessment and pursuing all avenues to resolve this issue favorably for the company.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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