Cardinal Health 2012 Annual Report Download - page 39

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
37
The components of the deferred income tax assets and liabilities as of
June 30, 2012 and 2011 are as follows:
(in millions) 2012 2011
Deferred income tax assets:
Receivable basis difference $46$46
Accrued liabilities 107 105
Share-based compensation 90 97
Loss and tax credit carryforwards 120 199
Deferred tax assets related to uncertain tax positions 118 157
Other 85 97
Total deferred income tax assets $ 566 $ 701
Valuation allowance for deferred income tax assets (86) (158)
Net deferred income tax assets $ 480 $ 543
Deferred income tax liabilities:
Inventory basis differences $ (1,067) $ (980)
Property-related (180) (159)
Goodwill and other intangibles (146) (70)
Unremitted foreign earnings (64) (140)
Other (5) (3)
Total deferred income tax liabilities $ (1,462) $ (1,352)
Net deferred income tax liability $ (982) $ (809)
Deferred tax assets and liabilities in the preceding table, after netting by
taxing jurisdiction, are in the following captions in the consolidated balance
sheet at June 30, 2012 and 2011:
(in millions) 2012 2011
Current deferred income tax asset (1) $27$29
Noncurrent deferred income tax asset (2) 610
Current deferred income tax liability (3) (858) (763)
Noncurrent deferred income tax liability (4) (157) (85)
Net deferred income tax liability $ (982) $ (809)
(1) Included in Prepaid expenses and other in the consolidated balance sheets.
(2) Included in Other assets in the consolidated balance sheets.
(3) Included in Other accrued liabilities in the consolidated balance sheets.
(4) Included in Deferred income taxes and other liabilities in the consolidated balance
sheets.
At June 30, 2012, we had gross federal, state and international loss and
credit carryforwards of $37 million, $523 million and $135 million,
respectively, the tax effect of which is an aggregate deferred tax asset of
$120 million. Substantially all of these carryforwards are available for at
least three years or have an indefinite carryforward period. Approximately
$74 million of the valuation allowance at June 30, 2012 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.
We had $654 million, $747 million and $731 million of unrecognized tax
benefits at June 30, 2012, 2011 and 2010, respectively. The June 30,
2012, 2011 and 2010 balances include $337 million, $332 million and $311
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.
A reconciliation of the beginning and ending amounts of unrecognized tax
benefits for fiscal 2012, 2011 and 2010 is as follows:
(in millions) 2012 2011 2010
Balance at beginning of fiscal year $ 747 $ 731 $ 849
Additions for tax positions of the current year 16 16 43
Additions for tax positions of prior years 68 58 90
Reductions for tax positions of prior years (3) (20) (240)
Settlements with tax authorities (172) (36) (10)
Expiration of the statute of limitations (2) (2) (1)
Balance at end of fiscal year $ 654 $ 747 $ 731
We recognize accrued interest and penalties related to unrecognized tax
benefits in income tax expense. As of June 30, 2012, 2011 and 2010, we
had $209 million, $267 million and $233 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 sheet. For fiscal 2012, we
recognized $28 million of benefit for interest and penalties in income tax
expense. For fiscal 2011 and 2010, we recognized $36 million and $35
million of interest and penalties in income tax expense, respectively.
We file income tax returns in the U.S. federal jurisdiction, various U.S.
state jurisdictions and various foreign jurisdictions. With few exceptions,
we are subject to audit by taxing authorities for fiscal 2003 through the
current fiscal year.
The IRS closed its audits of fiscal 2001 and 2002 during fiscal 2012 and
is currently conducting audits of fiscal 2003 through 2010. We have
received proposed adjustments from the IRS for fiscal years 2003 through
2007 related to our transfer pricing arrangements between foreign and
domestic subsidiaries and the transfer of intellectual property among
subsidiaries of an acquired entity prior to its acquisition by us. The IRS
has proposed additional taxes of $849 million, excluding penalties and
interest. If this tax ultimately must be paid, CareFusion is liable under the
tax matters agreement for $592 million of the total amount. We disagree
with these proposed adjustments, which we are contesting, and have
accounted for the unrecognized tax benefits related to them.
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 IRS or other taxing authorities, including proposed assessments of
additional tax, possible settlement of audit issues (primarily IRS audits of
fiscal 2003 through 2005), or the expiration of applicable statutes of
limitations. We estimate that the range of the possible change in
unrecognized tax benefits within the next 12 months is a decrease of
approximately zero to $275 million, exclusive of penalties and interest.
9. Commitments, Contingent Liabilities and
Litigation
Commitments
The future minimum rental payments for operating leases having initial or
remaining non-cancelable lease terms in excess of one year at June 30,
2012 are as follows: $83 million, $64 million, $48 million, $35 million, $25
million for fiscal 2013 through 2017, and $45 million thereafter. Rental
expense relating to operating leases was $86 million, $79 million and $80
million in fiscal 2012, 2011 and 2010, respectively. Sublease rental income
was not material for any period presented.