Cardinal Health 2015 Annual Report Download - page 61

Notes to Financial Statements
Cardinal Health | Fiscal 2015 Form 10-K 60
The provision for income taxes from continuing operations consists
of the following:
(in millions) 2015 2014 2013
Current:
Federal $ 424 $ 521 $ 451
State and local 83 51 62
Non-U.S. 29 37 19
Total current $ 536 $ 609 $ 532
Deferred:
Federal $ 196 $ 24 $ 28
State and local 24 3 (5)
Non-U.S. (1) (1) (2)
Total deferred 219 26 21
Provision for income taxes $ 755 $ 635 $ 553
The following table presents a reconciliation of the provision based
on the federal statutory income tax rate to our effective income tax
rate from continuing operations:
2015 2014 2013
Provision at Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal benefit 4.1 2.2 2.5
Foreign tax rate differential (2.4) (1.2) (4.0)
Nondeductible/nontaxable items 0.7 (0.2) (0.5)
Nondeductible goodwill impairment —— 33.2
Change in measurement of uncertain tax
positions and impact of IRS settlements 0.9 (0.4) (5.7)
Other 0.1 (0.1) 1.8
Effective income tax rate 38.4% 35.3% 62.3%
The fiscal 2015 effective tax rate was impacted by net unfavorable
discrete items of $15 million, which increased the rate by 0.8
percentage points. There were no individually significant discrete
items.
The fiscal 2014 effective tax rate was impacted by net favorable
discrete items of $37 million, which reduced the rate by 2.1
percentage points. The discrete items include the favorable impact
of the settlement of federal and state tax controversies ($80 million)
and release of valuation allowances ($12 million) and the unfavorable
impact of remeasurement of unrecognized tax benefits ($65 million),
primarily as a result of proposed assessments of additional tax.
The fiscal 2013 effective tax rate was unfavorably impacted by 33.2
percentage points ($295 million) due to the nondeductibility of
substantially all of the goodwill impairment which was partially offset
by the favorable impact of the revaluation of our deferred tax liability
and related interest on unrepatriated foreign earnings as a result of
an agreement with tax authorities ($64 million or 7.2 percentage
points).
At June 30, 2015, we had $1.9 billion of undistributed earnings from
non-U.S. subsidiaries that are intended to be permanently reinvested
in non-U.S. operations. Because these earnings are considered
permanently reinvested, no U.S. tax provision has been accrued
related to the repatriation of these earnings. It is not practicable to
estimate the amount of U.S. tax that might be payable on the eventual
remittance of such earnings.
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) 2015 2014
Deferred income tax assets:
Receivable basis difference $ 47 $ 59
Accrued liabilities 138 111
Share-based compensation 53 51
Loss and tax credit carryforwards 197 191
Deferred tax assets related to uncertain tax positions 100 84
Other 50 42
Total deferred income tax assets 585 538
Valuation allowance for deferred income tax assets (87) (94)
Net deferred income tax assets $ 498 $ 444
Deferred income tax liabilities:
Inventory basis differences $ (1,344) $ (1,164)
Property-related (155) (142)
Goodwill and other intangibles (352) (340)
Other (2) (7)
Total deferred income tax liabilities (1,853) (1,653)
Net deferred income tax liability $ (1,355) $ (1,209)
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) 2015 2014
Current deferred income tax asset (1) $ 22 $ 18
Noncurrent deferred income tax asset (2) 17 15
Current deferred income tax liability (3) (1,066) (918)
Noncurrent deferred income tax liability (4) (328) (324)
Net deferred income tax liability $ (1,355) $ (1,209)
(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, 2015, we had gross federal, state and international loss
and credit carryforwards of $210 million, $1.2 billion and $72 million,
respectively, the tax effect of which is an aggregate deferred tax asset
of $197 million. Substantially all of these carryforwards are available
for at least three years. Approximately $86 million of the valuation
allowance at June 30, 2015 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.