XML 42 R15.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Income Taxes | 12 Months Ended
--- | ---
Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Earnings/(loss) before Income Taxes and Provision for Income Taxes The following table summarizes earnings/(loss) before income taxes:
(in millions) | 2018 |  | 2017 |  | 2016
U.S. operations | $ | 391 |  |  | $ | 1,772 |  |  | $ | 2,050 |
Non-U.S. operations | (619 | ) |  | 152 |  |  | 226 |
Earnings/(loss) before income taxes | $ | (228 | ) |  | $ | 1,924 |  |  | $ | 2,276 |
The following table summarizes the components of provision for/(benefit from) income taxes:
(in millions) | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | 341 |  |  | $ | 273 |  |  | $ | 633 |
State and local | 41 |  |  | 10 |  |  | 52 |
Non-U.S. | 143 |  |  | 56 |  |  | 73 |
Total current | $ | 525 |  |  | $ | 339 |  |  | $ | 758 |
Deferred: |  |  |  |  |
Federal | $ | (1,003 | ) |  | $ | 258 |  |  | $ | 96 |
State and local | 16 |  |  | 37 |  |  | 12 |
Non-U.S. | (25 | ) |  | (4 | ) |  | (21 | )
Total deferred | (1,012 | ) |  | 291 |  |  | 87 |
Provision for/(benefit from) income taxes | $ | (487 | ) |  | $ | 630 |  |  | $ | 845 |
Effective Tax Rate The following table presents a reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate:
| 2018 (1) |  | 2017 (2) |  | 2016 (2)
Provision at Federal statutory rate | 28.1 | % |  | 35.0 | % |  | 35.0 | %
State and local income taxes, net of federal benefit | (16.0 | ) |  | 1.0 |  |  | 1.5 |
Foreign tax rate differential | (48.4 | ) |  | (7.3 | ) |  | (0.6 | )
Nondeductible/nontaxable items | (10.2 | ) |  | 0.2 |  |  | 1.0 |
Goodwill impairment | (124.7 | ) |  | — |  |  | — |
Tax Act | 410.9 |  |  | — |  |  | — |
Capital loss | 71.4 |  |  | — |  |  | — |
Change in valuation allowances | (76.9 | ) |  | 7.7 |  |  | 0.1 |
Foreign tax credits | 27.3 |  |  | (1.6 | ) |  | (0.1 | )
China tax related to divestiture | (25.8 | ) |  | — |  |  | — |
Other | (21.9 | ) |  | (2.3 | ) |  | 0.2 |
Effective income tax rate | 213.8 | % |  | 32.7 | % |  | 37.1 | %
(1) | The effective income tax rate for fiscal 2018 represents an income tax benefit tax rate.
(2) | The effective income tax rates for fiscal 2017 and 2016 represents income tax expense tax rates.
The income tax benefit rate in fiscal 2018 was 213.8% compared to income tax expense rates of 32.7% in fiscal 2017 and 37.1% in fiscal 2016. Fluctuations in the effective tax rates are primarily due to net benefits from the enactment of the Tax Act, the impact of nondeductible goodwill impairment charges, and a benefit from a capital loss due to international legal entity reorganization. There were also changes in valuation allowances related to capital losses, credit carryforwards and net operating loss carryforwards in U.S. federal, U.S. state and international jurisdictions. On December 22, 2017, the United States enacted the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code that affect our fiscal year 2018 financial results in two primary ways. First, effective as of January 1, 2018, the Tax Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent. Second, it requires companies to pay a one-time U.S. repatriation tax on certain undistributed earnings of foreign subsidiaries. Because our fiscal year ends in June, we have a blended U.S. Federal statutory tax rate for fiscal 2018 of 28.1 percent under the Tax Act. The Tax Act also establishes new tax provisions that will affect us beginning July 1, 2018 including, (1) eliminating the U.S. manufacturing deduction; (2) establishing new limitations on deductible interest expense and certain executive compensation; (3) eliminating the corporate alternative minimum tax; (4) creating the base erosion anti-abuse tax; (5) creating a new provision designed to tax global intangible low-tax income (“GILTI”); (6) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; and (7) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. Regarding the new GILTI tax rules, we are allowed to make an accounting policy election to either (1) treat taxes due on future GILTI exclusions in U.S. taxable income as a current period expense when incurred or (2) reflect such portion of the future GILTI exclusions in U.S. taxable income that relate to existing basis differences in our measurement of deferred taxes. Our analysis of the new GILTI rules and how they may impact us is incomplete. Accordingly, we have not made a policy election regarding the treatment of the GILTI tax. As a result of the enactment of a lower tax rate, we remeasured our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. While we are still analyzing certain aspects of the Tax Act and refining our calculations, we have recorded a provisional net benefit of $977 million related to this required remeasurement. The provisional estimate is based on currently available information related to deferred tax assets and liabilities which is subject to change as additional information becomes available, prepared, and analyzed. At June 30, 2018, we had $110 million of undistributed earnings from non-U.S. subsidiaries. In connection with the required one-time U.S. repatriation tax on undistributed earnings of foreign subsidiaries, we recorded a provisional tax expense of $41 million which may change when our calculation is complete. The Tax Act permits the payment of this tax in eight installments over an eight-year period beginning in fiscal 2019. Though these foreign earnings have been deemed to be repatriated from a U.S. federal tax perspective, we have not yet completed our assessment of the Tax Act on our plans to reinvest foreign earnings and as such have not changed our prior conclusion that the earnings are indefinitely reinvested. The repatriation tax is based on currently available information and technical guidance related to the new tax law. The provisional estimate will be updated when additional information related to undistributed foreign earnings, foreign taxes and foreign cash and equivalents becomes available, prepared and analyzed. Our effective tax rate was unfavorably impacted by goodwill impairment charges related to our Medical operating segment for the portion attributable to nondeductible goodwill for income tax purposes. On June 28, 2018, we executed an international legal entity reorganization. This transaction resulted in a US capital loss and a tax benefit of $163 million. Due to the uncertainty of the future utilization of the capital loss, we recorded a valuation allowance of $72 million on the carryforward. We had other changes in valuation allowances related to federal credits and various international and state net operating losses that we believe are more likely than not to expire unutilized. Deferred Income Taxes Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities and operating loss and tax credit carryforwards for tax purposes. The following table presents the components of the deferred income tax assets and liabilities at June 30:
(in millions) | 2018 |  | 2017
Deferred income tax assets: |  |  |
Receivable basis difference | $ | 41 |  |  | $ | 42 |
Accrued liabilities | 110 |  |  | 125 |
Share-based compensation | 40 |  |  | 53 |
Loss and tax credit carryforwards | 526 |  |  | 378 |
Deferred tax assets related to uncertain tax positions | 30 |  |  | 51 |
Other | 101 |  |  | 43 |
Total deferred income tax assets | 848 |  |  | 692 |
Valuation allowance for deferred income tax assets | (412 | ) |  | (237 | )
Net deferred income tax assets | $ | 436 |  |  | $ | 455 |
Deferred income tax liabilities: |  |  |
Inventory basis differences | $ | (1,103 | ) |  | $ | (1,578 | )
Property-related | (176 | ) |  | (183 | )
Goodwill and other intangibles | (934 | ) |  | (570 | )
Total deferred income tax liabilities | $ | (2,213 | ) |  | $ | (2,331 | )
Net deferred income tax liability | $ | (1,777 | ) |  | $ | (1,876 | )
Deferred income tax assets and liabilities in the preceding table, after netting by taxing jurisdiction, are in the following captions in the consolidated balance sheets at June 30:
(in millions) | 2018 |  | 2017
Noncurrent deferred income tax asset (1) | 37 |  |  | 73 |
Noncurrent deferred income tax liability (2) | (1,814 | ) |  | (1,949 | )
Net deferred income tax liability | $ | (1,777 | ) |  | $ | (1,876 | )
(1) | Included in other assets in the consolidated balance sheets.
(2) | Included in deferred income taxes and other liabilities in the consolidated balance sheets.
At June 30, 2018 we had gross federal, state and international loss and credit carryforwards of $794 million, $2.0 billion and $1.1 billion, respectively, the tax effect of which is an aggregate deferred tax asset of $526 million. Substantially all of these carryforwards are available for at least three years. Approximately $379 million of the valuation allowance at June 30, 2018 applies to certain federal, state and international loss carryforwards that, in our opinion, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance would reduce income tax expense. Unrecognized Tax Benefits We had $423 million, $417 million and $527 million of unrecognized tax benefits at June 30, 2018, 2017 and 2016, respectively. The June 30, 2018, 2017 and 2016 balances include $262 million, $268 million and $355 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not affect our effective tax rate. We include the full amount of unrecognized tax benefits in deferred income taxes and other liabilities in the consolidated balance sheets. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
(in millions) | 2018 |  | 2017 |  | 2016
Balance at beginning of fiscal year | $ | 417 |  |  | $ | 527 |  |  | $ | 542 |
Additions for tax positions of the current year | 15 |  |  | 29 |  |  | 22 |
Additions for tax positions of prior years (1) | 141 |  |  | 23 |  |  | 42 |
Reductions for tax positions of prior years | (40 | ) |  | (8 | ) |  | (48 | )
Settlements with tax authorities (1) | (99 | ) |  | (154 | ) |  | (30 | )
Expiration of the statute of limitations (1) | (11 | ) |  | — |  |  | (1 | )
Balance at end of fiscal year | $ | 423 |  |  | $ | 417 |  |  | $ | 527 |
(1) | Included in additions for tax positions of prior years is $110 million related to exposures acquired as part of the Patient Recovery Business for which we are indemnified. Settlements of $81 million related to the Patient Recovery Business as well as $11 million of statute expirations.
It is reasonably possible that there could be a change in the amount of unrecognized tax benefits within the next 12 months due to activities of the U.S. Internal Revenue Service ("IRS") or other taxing authorities, possible settlement of audit issues, reassessment of existing unrecognized tax benefits or the expiration of statutes of limitations. We estimate that the range of the possible change in unrecognized tax benefits within the next 12 months is a net decrease of $0 million to $35 million, exclusive of penalties and interest. We recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. At June 30, 2018, 2017 and 2016, we had $110 million, $99 million and $145 million, respectively, accrued for the payment of interest and penalties. These balances are gross amounts before any tax benefits and are included in deferred income taxes and other liabilities in the consolidated balance sheets. During fiscal 2018 and 2017, we recognized $8 million and $12 million of expense for interest and penalties in income tax expense, respectively. During fiscal 2016, we recognized $9 million of benefit for interest and penalties in income tax expense. Other Tax Matters We file income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2008 through the current fiscal year. We are a party to a tax matters agreement with CareFusion Corporation ("CareFusion"), which has been acquired by Becton, Dickinson and Company. Under the tax matters agreement, CareFusion is obligated to indemnify us for certain tax exposures and transaction taxes prior to our fiscal 2010 spin-off of CareFusion. The indemnification receivable was $151 million and $142 million at June 30, 2018 and 2017, respectively, and is included in other assets in the consolidated balance sheets. As a result of the acquisition of the Patient Recovery Business, Medtronic plc is obligated to indemnify us for certain tax exposures and transaction taxes related to periods prior to the acquisition under the purchase agreement. The indemnification receivable was $21 million at June 30, 2018 and is included in Other assets in the consolidated balance sheet.

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