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INCOME TAXES | 12 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income Tax Provisions For financial reporting purposes, earnings before income taxes consists of the following:
| 2018 |  | 2017 |  | 2016
| (In thousands)
U.S. | $ | 1,765,793 |  |  | $ | 1,569,073 |  |  | $ | 1,225,142 |
Foreign | 190,431 |  |  | 197,157 |  |  | 207,865 |
Total | $ | 1,956,224 |  |  | $ | 1,766,230 |  |  | $ | 1,433,007 |
The income tax provision for each fiscal year consists of the following:
| 2018 |  | 2017 |  | 2016
| (In thousands)
U.S. federal income taxes | $ | 399,254 |  |  | $ | 534,266 |  |  | $ | 429,658 |
State and local income taxes | 62,670 |  |  | 69,913 |  |  | 34,032 |
Foreign income taxes | 63,534 |  |  | 19,548 |  |  | 19,695 |
Total | $ | 525,458 |  |  | $ | 623,727 |  |  | $ | 483,385 |
The current and deferred components of the income tax provisions for each fiscal year are as follows:
| 2018 |  | 2017 |  | 2016
| (In thousands)
Current | $ | 337,550 |  |  | $ | 675,573 |  |  | $ | 389,514 |
Deferred | 187,908 |  |  | (51,846 | ) |  | 93,871 |
Total | $ | 525,458 |  |  | $ | 623,727 |  |  | $ | 483,385 |
The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred Tax Assets and Liabilities Significant components of Sysco’s deferred tax assets and liabilities are as follows:
| Jun. 30, 2018 |  | Jul. 1, 2017
| (In thousands)
Deferred tax assets: |  |  |  |
Net operating loss carryforwards | $ | 226,274 |  |  | $ | 194,287 |
Pension | 115,361 |  |  | 360,864 |
Share-based compensation | 34,486 |  |  | 48,077 |
Deferred compensation | 29,512 |  |  | 39,830 |
Self-insured liabilities | — |  |  | 84,401 |
Receivables | 13,001 |  |  | 30,842 |
Inventory | 14,728 |  |  | 21,332 |
Foreign currency remeasurement losses and currency hedge | 15,796 |  |  | 13,221 |
Other | 33,386 |  |  | 54,619 |
Deferred tax assets before valuation allowances | 482,544 |  |  | 847,473 |
Valuation allowances | (123,237 | ) |  | (114,151 | )
Total deferred tax assets | 359,307 |  |  | 733,322 |
Deferred tax liabilities: |  |  |
Excess tax depreciation and basis differences of assets | 180,950 |  |  | 247,510 |
Goodwill and intangible assets | 373,041 |  |  | 455,340 |
Other | 40,774 |  |  | 49,654 |
Total deferred tax liabilities | 594,765 |  |  | 752,504 |
Total net deferred tax assets / (liabilities) | $ | (235,458 | ) |  | $ | (19,182 | )
The company’s deferred tax asset for net operating loss carryforwards as of June 30, 2018 and July 1, 2017 consisted of state and foreign net operating tax loss carryforwards. The state net operating loss carryforwards outstanding as of June 30, 2018 expire in fiscal years 2019 through 2036. The foreign net operating loss carryforward periods vary by jurisdiction, from 17 years to unlimited. The company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the company’s analysis, it was concluded that, as of June 30, 2018, a valuation allowance of $123.2 million should be established against the portion of the deferred tax asset attributable to certain foreign losses. The company will continue to monitor facts and circumstances in the reassessment of the likelihood that net operating loss carryforwards will be realized. Tax Cuts and Jobs Act On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code that affected the company’s fiscal year ending June 30, 2018, including, but not limited to: (1) reducing the U.S. federal corporate tax rate; (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over 8 years; and (3) bonus depreciation that will allow for full expensing of qualified property placed in service after September 27, 2017. The Tax Act also establishes new tax laws that could affect Sysco in future fiscal years, including, but not limited to (1) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (2) a new provision designed to tax global intangible low-taxed income (GILTI); (3) creation of the base erosion anti-abuse tax (BEAT), a new minimum tax; (4) a new limitation on deductible interest; (5) repeal of the domestic production activity deduction; and (6) increased limitations on the deductibility of certain executive compensation. Also, in December 2017, the Securities and Exchange Commission staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC Topic 740, “Income Taxes” (ASC 740). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. Our accounting for the following elements of the Tax Act is incomplete. However, the company was able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments, described below, which represent our provisional estimate of each of the following impacts of the Tax Act. Once Sysco has completed its accounting for the income tax effects of the Tax Act, the ultimate impact may differ from the provisional amounts recorded due to additional analysis, changes in interpretations and assumptions the company has made, additional regulatory guidance that may be issued, and actions the company may take as a result of the Tax Act. The accounting is not expected to extend beyond one year from the Tax Act enactment date. Reduction of U.S. federal corporate tax rate: As noted above, the Tax Act reduces the U.S. federal corporate tax rate to 21% in our fiscal year; however, Section 15 of the Internal Revenue Code stipulates that the reduction in the corporate tax rate is applied to fiscal year taxpayers by computing a blended tax rate, based on the applicable tax rates before and after the effective date of the change in the statutory rate. When applied to Sysco’s fiscal year, this blended rate is 28% for fiscal 2018. In fiscal 2018, the company recorded a provisional tax benefit attributable to remeasuring Sysco’s deferred tax liabilities and deferred tax assets of $74.1 million. Transition Tax: In the second quarter of fiscal 2018, the company recorded a discrete tax expense of $115.0 million attributable to the provisional impact of the transition tax. In the fourth quarter of fiscal 2018, this was reduced to $80.0 million due to changes in the provisional estimate. The transition tax is payable in eight annual installments beginning in our first quarter of fiscal 2019. As a result of the 8 year payment period, approximately $73.6 million attributable to the portion of the provisional transition tax not due within 12 months is located within other long-term liabilities in the consolidated balance sheet as of June 30, 2018. Our accounting for the following elements of the Tax Act is incomplete, and we were not able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded. GILTI: The Tax Act creates a new requirement that certain income earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. Sysco will not be subject to the GILTI provisions until fiscal 2019. Because of the complexity of the new GILTI tax rules, the company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, the company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Sysco’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether the company expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether Sysco expects to have future U.S. inclusions in taxable income related to GILTI depends not only on our current structure and estimated future results of global operations but also the company’s intent and ability to modify its structure and/or its business, Sysco is not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, the company has not made any adjustments related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to record deferred taxes on GILTI. Executive Compensation Limitation: The Tax Act expands the definition under Section 162(m) of the Internal Revenue Code (“Section 162(m)”) of covered employee and provides that, for specified employees, status as a covered employee continues for all subsequent tax years, including years after the death of the individual, and, among other modifications, repeals the exception for performance-based compensation and commissions from the $1 million deduction limitation. In addition, the Tax Act provides for transitional guidance that will allow certain payments made under written and binding agreements entered into prior to November 2, 2017 to be treated as if they were made under the provisions of Section 162(m) that were in effect prior to enactment of the Tax Act. The company is in the process of gathering information on existing compensation arrangements for covered employees as well as assessing the impact of transitional guidance on the realizability of existing deferred tax assets related to compensation arrangements of its covered employees. As a result, the company has not made any adjustments related to impacts of the new executive compensation limitations in its financial statements. Indefinite Reinvestment Assertion: Prior to the enactment of the Tax Act, the company intended to indefinitely reinvest $1.4 billion of undistributed income of certain consolidated foreign subsidiaries, for which no deferred U.S. income tax provision had been recorded. However, upon enactment of the Tax Act, those undistributed earnings became subject to the U.S. transition tax. As a result, in the fourth quarter, the company repatriated $1.0 billion of foreign earnings of certain non-U.S. subsidiaries and recognized foreign income and non-income based taxes of $50.2 million. The company is in the process of assessing the impact of the Tax Act on its indefinite reinvestment assertion and the company’s plans to determine any associated impact on the financial statements. Therefore, no adjustments have been made in the financial statements with respect to its indefinite reinvestment assertion. An estimate of any U.S. or foreign income or non-income based taxes that may be applicable upon any future actual or deemed repatriation is not practical due to the complexities associated with the hypothetical calculation. Effective Tax Rates Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows:
| 2018 |  | 2017 |  | 2016
U.S. statutory federal income tax rate | 28.00 | % |  | 35.00 | % |  | 35.00 | %
State and local income taxes, net of any applicable federal income tax benefit | 2.48 |  |  | 2.61 |  |  | 1.79 |
Foreign income taxes | 0.07 |  |  | (2.81 | ) |  | (2.40 | )
Uncertain tax position | (0.22 | ) |  | 0.01 |  |  | (1.96 | )
Tax benefit of equity-based compensation | (2.66 | ) |  | — |  |  | — |
Impact of US Tax Reform | 0.13 |  |  | — |  |  | — |
Other | (0.95 | ) |  | 0.50 |  |  | 1.30 |
Effective income tax rate | 26.85 | % |  | 35.31 | % |  | 33.73 | %
The effective tax rate of 26.85% for fiscal 2018 was favorably impacted by the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), as well as a reduction of the statutory tax rate in the U.S. and certain foreign jurisdictions. Foreign earnings taxed at rates different than our domestic tax rate had the impact of increasing the effective tax rate. The effective tax rate of 35.31% for fiscal 2017 was favorably impacted by tax credits allowed against U.S. Federal and State income tax liabilities, as well as a reduction of the statutory tax rate in certain foreign jurisdictions. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate. The effective tax rate of 33.73% for fiscal 2016 was favorably impacted by the favorable resolution of tax contingencies resulting in tax benefits of $29.6 million ($10.6 million in tax and $19.0 million in interest). Costs associated with the redemption of the senior notes that had been issued in contemplation of the proposed merger with US Foods and charges incurred from the revision to the Company’s business technology strategy resulted in lower state taxes. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate. Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
| 2018 |  | 2017
| (In thousands)
Unrecognized tax benefits at beginning of year | $ | 16,278 |  |  | $ | 24,614 |
Additions for tax positions related to prior years | 652 |  |  | 648 |
Reductions for tax positions related to prior years | (4,033 | ) |  | (2,147 | )
Reductions due to settlements with taxing authorities | (702 | ) |  | (6,837 | )
Unrecognized tax benefits at end of year | $ | 12,195 |  |  | $ | 16,278 |
As of June 30, 2018, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $8.5 million. As of July 1, 2017, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $10.7 million. The expense recorded for interest and penalties related to unrecognized tax benefits was not material in any year presented. If Sysco were to recognize all unrecognized tax benefits recorded as of June 30, 2018, approximately $9.6 million of the $12.2 million reserve would reduce the effective tax rate. If Sysco were to recognize all unrecognized tax benefits recorded as of July 1, 2017, approximately $10.8 million of the $16.3 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in various jurisdictions and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of limitations expiring. Sysco anticipates an immaterial decrease to the reserve within twelve months as a result of lapse of statutes. Sysco’s federal tax returns for 2016 and subsequent tax years have statutes of limitations that remain open for audit. As of June 30, 2018, Sysco’s tax returns in the majority of the state and local and material foreign jurisdictions are no longer subject to audit for the years before 2010.

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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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