XML 57 R15.htm IDEA: XBRL DOCUMENT
v3.19.3.a.u2

INCOME TAXES | 12 Months Ended
--- | ---
Oct. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The domestic and foreign components of income before taxes are:
| Years Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in millions)
U.S. operations | $ | 189 |  |  | $ | 169 |  |  | $ | 116 |
Non-U.S. operations | 730 |  |  | 777 |  |  | 687 |
Total income before taxes | $ | 919 |  |  | $ | 946 |  |  | $ | 803 |
The provision for income taxes is comprised of:
| Years Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in millions)
U.S. federal taxes: |  |  |  |  |
Current | $ | (191 | ) |  | $ | 520 |  |  | $ | 15 |
Deferred | — |  |  | 51 |  |  | 110 |
Non-U.S. taxes: |  |  |  |  |
Current | 290 |  |  | 95 |  |  | 1 |
Deferred | (267 | ) |  | (22 | ) |  | (7 | )
State taxes, net of federal benefit: |  |  |  |  |
Current | 4 |  |  | 1 |  |  | 1 |
Deferred | 12 |  |  | (15 | ) |  | (1 | )
Total provision (benefit) | $ | (152 | ) |  | $ | 630 |  |  | $ | 119 |
The differences between the U.S. federal statutory income tax rate and our effective tax rate are:
| Years Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in millions)
Profit before tax times statutory rate | $ | 193 |  |  | $ | 221 |  |  | $ | 281 |
Non-U.S. income taxed at different rates | (8 | ) |  | (93 | ) |  | (43 | )
Change in unrecognized tax benefits | (13 | ) |  | (17 | ) |  | (110 | )
Impact of the Tax Act | — |  |  | 552 |  |  | — |
Extension of the tax incentive in Singapore | (299 | ) |  | — |  |  | — |
Other, net | (25 | ) |  | (33 | ) |  | (9 | )
Provision (benefit) for income taxes | $ | (152 | ) |  | $ | 630 |  |  | $ | 119 |
Effective tax rate | (16.5 | )% |  | 66.6 | % |  | 14.8 | %
For 2019, the company's income tax benefit was $152 million with an effective tax rate of (16.5) percent. For the year ended October 31, 2019, our effective tax rate and the resulting provision for income taxes were significantly impacted by the discrete benefit of $299 million related to the extension of the company’s tax incentive in Singapore. As part of the business integration of some of our prior acquisitions, we undertook corporate restructurings in the fourth quarter of fiscal year 2019 that involved on-shoring certain intangible properties held by our foreign subsidiaries to the United States. These restructurings resulted in a cash tax liability of $231 million. These taxes generate tax attributes that will offset our transition tax liability which is included in other long-term liabilities in our consolidated balance sheet. For 2018, the company's income tax expense was $630 million with an effective tax rate of 66.6 percent. For the year ended October 31, 2018, our effective tax rate and the resulting provision for income taxes were significantly impacted by the discrete charge of $552 million related to the enactment of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) as discussed below. For 2017, the company’s income tax expense was $119 million with an effective tax rate of 14.8 percent. Our effective tax rate is impacted by earnings realized in foreign jurisdictions with statutory tax rates lower than the federal statutory tax rate. During the year, the company determined a portion of current year foreign earnings from its low tax jurisdictions would not be considered as indefinitely reinvested. As such, a deferred tax liability for that portion of unremitted foreign earnings was accrued causing an increase in the annual tax expense. Our annual effective tax rate also included tax benefits due to the settlement of an audit in Germany for the years 2005 through 2008 and the lapse of U.S. statute of limitation for the fiscal years 2012 and 2013. This benefit was offset by a deferred tax liability required for the tax expected upon repatriation of related unremitted foreign earnings that were not asserted as indefinitely invested outside the U.S. The company has negotiated tax holidays in several different jurisdictions, most significantly in Singapore. The tax holidays 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. In December 2018, the tax holiday in Singapore was renegotiated and extended through 2027. Other tax holidays are due for renewal in 2020. As a result of the incentives, the impact of the tax holidays decreased income taxes by $368 million, $87 million, and $93 million in 2019, 2018, and 2017, respectively. The benefit of the tax holidays on net income per share (diluted) was approximately $1.16, $0.27, and $0.29 in 2019, 2018 and 2017, respectively. The increase in the benefit from 2018 to 2019 is primarily due to the Singapore restructuring and tax incentive modifications completed in 2019 in response to Singapore tax law changes. Of the $1.16 benefit of the tax incentives on net income per share (diluted) in 2019, $0.94 of the benefit relates to one-time items from the Singapore restructuring. 2017 U.S. Tax Reform - Tax Cuts and Jobs Act On December 22, 2017, the Tax Act was enacted into law. The Tax Act enacted significant changes affecting our fiscal year 2018, including, but not limited to, (1) reducing the U.S. federal corporate tax rate and (2) imposing a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that had not been previously taxed in the U.S. The Tax Act also established new tax provisions affecting our fiscal year 2019, including, but not limited to, (1) creating a new provision designed to tax global intangible low-tax income (“GILTI”); (2) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (3) eliminating the corporate alternative minimum tax (“AMT”); (4) creating the base erosion anti-abuse tax (“BEAT”); (5) establishing a deduction for foreign derived intangible income ("FDII"); (6) repealing domestic production activity deduction; and (7) establishing new limitations on deductible interest expense and certain executive compensation. ASC 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 ("SAB 118") which allowed companies to record provisional amounts during a measurement period not extending beyond one year from the Tax Act enactment date. For the year ended October 31, 2018, the company recognized income tax expense related to the Tax Act of $552 million which includes (1) an expense of $499 million of U.S. transition tax and correlative items on deemed repatriated earnings of non-U.S. subsidiaries and (2) an expense of $53 million associated with the impact on deferred taxes resulting from the decreased U.S. corporate tax rate as described below. Deemed Repatriation Transition Tax ("Transition Tax"): The Transition Tax is based on the company’s total unrepatriated post-1986 earnings and profits ("E&P") of its foreign subsidiaries and the amount of non-U.S. taxes paid (Tax Pools) on such earnings. Historically, the company permanently reinvested a significant portion of these post-1986 E&P outside the U.S. For the remaining portion, the company previously accrued deferred taxes. Since the Tax Act required all foreign earnings to be taxed currently, the company recorded an income tax expense of $651 million for its one-time transition U.S. federal tax and a benefit of $152 million for the reversal of related deferred tax liabilities. The resulting $499 million net transition tax, reduced by existing tax credits, will be paid over 8 years in accordance with the election available under the Tax Act. We have completed our accounting for charges related to the Transition Tax. Reduction of U.S. Federal Corporate Tax Rate: The reduction of the corporate income tax rate requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment. The amount recorded for the year ended October31, 2018 for the remeasurement due to tax rate change is $53 million. We have completed our accounting for the measurement of deferred taxes. GILTI: The Tax Act subjects a U.S. corporation to tax on its GILTI. U.S. GAAP allows companies to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in the U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (“deferred method”). We have completed our analysis and elected to treat GILTI as a “current period cost”. Indefinite Reinvestment Assertion: Prior to the enactment of the Tax Act, the company had indefinite investment assertion on a significant portion of its undistributed earnings from foreign subsidiaries. As a result of the enactment of the Tax Act, we have reevaluated our historic assertion and no longer consider these earnings to be indefinitely reinvested in our foreign subsidiaries. The company has recorded a deferred tax liability of $10 million for foreign withholding taxes on repatriation of remaining undistributed earnings. The significant components of deferred tax assets and deferred tax liabilities included on the consolidated balance sheet are:
| Years Ended October 31,
| 2019 |  | 2018
| (in millions)
Deferred Tax Assets |  |  |
Intangibles | $ | 131 |  |  | $ | — |
Property, plant and equipment | — |  |  | 8 |
Pension benefits and retiree medical benefits | 71 |  |  | 49 |
Employee benefits, other than retirement | 34 |  |  | 34 |
Net operating loss, capital loss, and credit carryforwards | 195 |  |  | 185 |
Share-based compensation | 32 |  |  | 31 |
Deferred revenue | 38 |  |  | 38 |
Other | 35 |  |  | 19 |
Deferred tax assets | $ | 536 |  |  | $ | 364 |
Tax valuation allowance | (134 | ) |  | (135 | )
Deferred tax assets, net of valuation allowance | $ | 402 |  |  | $ | 229 |
Deferred Tax Liabilities |  |  |
Intangibles | $ | — |  |  | $ | (112 | )
Property, plant and equipment | (16 | ) |  | — |
Other | (7 | ) |  | (21 | )
Deferred tax liabilities | $ | (23 | ) |  | $ | (133 | )
Net deferred tax assets (liabilities) | $ | 379 |  |  | $ | 96 |
The increase in 2019 as compared to 2018 for the deferred tax asset and liabilities was primarily due to the benefit of $299 million related to the extension of the company’s tax incentive in Singapore. 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. As of October 31, 2019, we continued to maintain a valuation allowance of $134 million until sufficient positive evidence exists to support reversal. The valuation allowance is primarily related to deferred tax assets for the states of California and Colorado, along with the net operating losses in the Netherlands and capital losses in the U.S. and Australia. At October 31, 2019, we had federal, state and foreign net operating loss carryforwards of approximately $48 million, $571 million and $577 million, respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state tax laws. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2020. If not utilized, $155 million of the foreign net operating loss carryforwards will begin to expire in 2020. The remaining $422 million of the foreign net operating losses carry forward indefinitely. At October 31, 2019, we had federal and foreign capital loss carryforwards of $48 million and $116 million, respectively. If not utilized, the federal capital loss carryforwards will expire in 2022. The foreign capital losses carry forward indefinitely. At October 31, 2019, we had state tax credit carryforwards of approximately $78 million. The state tax credits carry forward indefinitely. The breakdown between long-term deferred tax assets and deferred tax liabilities was as follows:
| October 31,
| 2019 |  | 2018
| (in millions)
Long-term deferred tax assets (included within other assets) | $ | 410 |  |  | $ | 165 |
Long-term deferred tax liabilities (included within other long-term liabilities) | (31 | ) |  | (69 | )
Total | $ | 379 |  |  | $ | 96 |
The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows:
| October 31,
| 2019 |  | 2018
| (in millions)
Current income tax assets (included within other current assets) | $ | 68 |  |  | $ | 59 |
Long-term income tax assets (included within other assets) | 4 |  |  | 19 |
Current income tax liabilities (included within other accrued liabilities) | (292 | ) |  | (71 | )
Long-term income tax liabilities (included within other long-term liabilities) | (328 | ) |  | (607 | )
Total | $ | (548 | ) |  | $ | (600 | )
Uncertain Tax Positions The aggregate changes in the balances of our gross unrecognized tax benefits including all federal, state and foreign tax jurisdictions are as follows:
| 2019 |  | 2018 |  | 2017
| (in millions)
Balance, beginning of year | $ | 214 |  |  | $ | 224 |  |  | $ | 293 |
Additions for tax positions related to the current year | 7 |  |  | 27 |  |  | 32 |
Additions for tax positions from prior years | 12 |  |  | 2 |  |  | 1 |
Reductions for tax positions from prior years | (2 | ) |  | (13 | ) |  | (3 | )
Settlements with taxing authorities | — |  |  | — |  |  | (52 | )
Statute of limitations expirations | (25 | ) |  | (26 | ) |  | (47 | )
Balance, end of year | $ | 206 |  |  | $ | 214 |  |  | $ | 224 |
As of October 31, 2019, we had $227 million of unrecognized tax benefits, including interest and penalties of which $204 million, if recognized, would affect our effective tax rate. However, approximately $23 million of the unrecognized tax benefits were related to state income tax positions that, if recognized, would be in the form of a deferred tax asset that would likely not affect our effective tax rate due to a valuation allowance. We recognized a tax expense of $9 million, a tax expense of $11 million and a tax benefit of $9 million of interest and penalties related to unrecognized tax benefits in 2019, 2018 and 2017, respectively. Interest and penalties accrued as of October 31, 2019 and 2018 were $36 million and $27 million, respectively. In the U.S., tax years remain open back to the year 2016 for federal income tax purposes and the year 2015 for significant states. In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2009. With these jurisdictions and the U.S., it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to either the expiration of a statute of limitation or a tax audit settlement which will be partially offset by an anticipated tax liability related to unremitted foreign earnings, where applicable. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, management is unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration