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Taxes on Earnings | 9 Months Ended
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Jul. 31, 2018
Income Tax Disclosure [Abstract] |
Taxes on Earnings | Taxes on Earnings Provision for Taxes The Company's effective tax rate was 2.8% and (128.0)% for the three months ended July 31, 2018 and 2017, respectively, and 1,003.9% and 89.9% for the nine months ended July 31, 2018 and 2017, respectively. The effective tax rate for three months ended July 31, 2018 was impacted by various items discrete to the quarter. The effective tax rate for nine months ended July 31, 2018 was significantly impacted by the Tax Act and the settlement of certain pre-Separation tax liabilities of HP Inc. For the three and nine months ended July 31, 2018, the Company recorded $68 million and $3.3 billion of net income tax benefits, respectively, related to various items discrete to the period. For the three months ended July 31, 2018 this amount primarily included $38 million of income tax benefits from the release of non-U.S. valuation allowances on deferred tax assets following changes in foreign tax laws, $33 million of net income tax benefits for impacts related to U.S. tax reform and $26 million of net excess tax benefits related to stock-based compensation partially offset by $7 million of income tax charges related to tax indemnification with HP Inc. For the nine months ended July 31, 2018, this amount primarily included $2.0 billion of income tax benefits for the effects of the settlement of certain pre-Separation income tax liabilities, $713 million of net income tax benefits for impacts related to U.S. tax reform, $228 million of income tax benefits from foreign tax credits and from the release of non-U.S. valuation allowances on deferred tax assets and liabilities established in connection with the Everett Transaction following changes in foreign tax laws, $203 million of income tax benefits related to the liquidation of an insolvent non-U.S. subsidiary, $74 million of net income tax benefits on restructuring charges, separation costs and acquisition and other related charges, $68 million of net excess tax benefits related to stock-based compensation and $38 million of income tax benefits from the release of non-U.S. valuation allowances on deferred tax assets following changes in foreign tax laws. For the three and nine months ended July 31, 2017, the Company recorded $290 million of net income tax benefits and $236 million of net income tax charges, respectively, related to various items discrete to the period. For the three months ended July 31, 2017, this amount primarily included $189 million of income tax benefits related to the Everett transaction, $61 million of income tax benefits on restructuring charges, separation costs and acquisition and other related charges, $29 million of income tax benefits related to U.S. provision-to-return adjustments, and $25 million of income tax benefits related to the expiration of the statute of limitations on uncertain tax reserves partially offset by $26 million related to tax indemnification with HP Inc. For the nine months ended July 31, 2017, this amount primarily included $473 million of income tax charges from valuation allowances on U.S. state deferred tax assets and $57 million of income tax charges related to tax indemnification with HP Inc., partially offset by $129 million of net income tax benefits on restructuring charges, separation costs and acquisition and other related charges, $79 million of income tax benefits related to the Everett transaction, $29 million of income tax benefits related to U.S. provision-to-return adjustments and $25 million income tax benefits related to the expiration of the statute of limitations on uncertain tax reserves. Recent Tax Legislation See Note 1, "Overview and Basis of Presentation", for details related to the Tax Act. The Tax Act requires the Company to incur a one-time Transition Tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets and 8% on the remaining income. The GILTI and BEAT provisions of the Tax Act will be effective for the Company beginning November 1, 2018. The Company has an October 31 fiscal year end; therefore, the lower corporate tax rate enacted by the Tax Act will be phased in, resulting in a U.S. statutory federal rate of 23.3% for the fiscal year ending October 31, 2018 and 21% for subsequent fiscal years. The Company has not completed its accounting for the tax effects of the Tax Act. Reasonable estimates of the impacts of the Tax Act are provided in accordance with guidance from the SEC that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. Adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the period in which the adjustments are made. The Company expects to complete the accounting under the Tax Act as soon as practicable, but in no event later than one year from the enactment date of the Tax Act. For the nine months ended July 31, 2018, the Company recorded a provisional estimate of $1.1 billion related to the Transition Tax, which was included in (Provision) benefit for taxes in the Condensed Consolidated Statements of Earnings. The adjustments made in the third quarter of fiscal 2018 were not significant. The final calculations of the Transition Tax may differ from estimates, potentially materially, due to, among other things, changes in interpretations of the Tax Act, analysis of proposed regulations and current and additional guidance from the Internal Revenue Service ("IRS"), the Company’s analysis of the Tax Act, or any updates or changes to estimates that the Company utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and assertions. No cash payment is anticipated due to the availability of tax attributes to offset the Transition Tax. In addition, for the nine months ended July 31, 2018, the Company recorded a net $1.8 billion provisional tax benefit related to the remeasurement of U.S. deferred tax assets and liabilities as a result of the reduction of the U.S. corporate tax rate, which was included in (Provision) benefit for taxes in the Condensed Consolidated Statements of Earnings. The adjustments made in the third quarter of fiscal 2018 were not significant. As part of the remeasurement of the net U.S. deferred tax assets, the Company will need to reassess the realizability of certain deferred tax assets, including tax credits and other non-credit deferred tax assets, based on the new method of taxation on non-U.S. earnings applicable beginning in fiscal 2019 and such change may have a material impact. The Company's analysis of the future realization of the deferred tax assets is incomplete. Regarding the new GILTI tax rules, the Company is required to make an accounting policy election to either treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred or reflect such portion of the future GILTI inclusions in U.S. taxable income that relate to existing basis differences in the Company's current measurement of deferred taxes. The Company's analysis of the new GILTI tax rules and how they may impact the Company is in process. Accordingly, the Company has not made a policy election regarding the treatment of the GILTI tax. Uncertain Tax Positions As of July 31, 2018 and October 31, 2017, the amount of unrecognized tax benefits was $8.7 billion and $11.3 billion, respectively, of which up to $1.1 billion and $3.0 billion would affect the Company's effective tax rate if realized as of their respective periods. The Company is joint and severally liable for certain pre-Separation tax liabilities of HP Inc. HP Inc. is subject to numerous ongoing audits by federal, state and foreign tax authorities. During the nine months ended July 31, 2018, HP Inc. settled with the IRS on certain matters and closed pre-Separation Hewlett-Packard Company audits for fiscal years 2009 through 2012, for which the Company had been joint and severally liable, resulting in a reduction in the Company's unrecognized tax benefits of $2.6 billion. The Company recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in (Provision) benefit for taxes in the Condensed Consolidated Statements of Earnings. As of July 31, 2018 and October 31, 2017, the Company recorded $179 million and $304 million, respectively, for interest and penalties in the Condensed Consolidated Balance Sheets. The Company engages in continuous discussions and negotiations with taxing authorities regarding tax matters in various jurisdictions. The Company does not expect complete resolution of any audit cycle within the next 12 months. However, it is reasonably possible that certain federal, foreign and state tax issues may be concluded in the next 12 months, including issues involving transfer pricing, joint and several tax liabilities related to the Separation from HP Inc. and other matters. Accordingly, the Company believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $85 million within the next 12 months. Deferred Tax Assets and Liabilities Deferred tax assets and liabilities included in the Condensed Consolidated Balance Sheets were as follows:
| As of
| July 31, 2018 |  | October 31, 2017
| In millions
Deferred tax assets - long-term | $ | 5,933 |  |  | $ | 4,663 |
Deferred tax liabilities - long-term | (235 | ) |  | (104 | )
Deferred tax assets net of deferred tax liabilities | $ | 5,698 |  |  | $ | 4,559 |
The Company periodically engages in intercompany advanced royalty payment and licensing arrangements that may result in advance payments between subsidiaries in different tax jurisdictions. When the local tax treatment of the intercompany licensing arrangements differs from the U.S. GAAP treatment, deferred taxes are recognized. For further details, see Note 3, "Segment Information". Tax Matters Agreement and Other Income Tax Matters In connection with the Separation, the Company entered into a Tax Matters Agreement with HP Inc. In connection with the Everett and Seattle Transactions, the Company entered into a Tax Matters Agreement with DXC and a Tax Matters Agreement with Micro Focus, respectively. For more details, see the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017.

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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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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