v3.26.1
INCOME TAXES
 12 Months Ended
Jun. 30, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The provision for income taxes is comprised of the following:
Year Ended June 30,
(In millions)202620252024
Current:
Federal$176 $149 $185 
Foreign309 323 426 
State and local14 17 17 
Total current provision for income taxes499 489 628 
Deferred:
Federal(66)(235)(147)
Foreign(83)(146)(111)
State and local(15)(15)(7)
Total deferred benefit for income taxes(164)(396)(265)
Total provision for income taxes$335 $93 $363 

Earnings (loss) before income taxes from the Company’s operations in the United States were $117 million, $(1,813) million and $(575) million for fiscal years 2026, 2025 and 2024, respectively. Earnings before income taxes from the Company’s foreign operations were $400 million, $773 million and $1,347 million for fiscal 2026, 2025 and 2024, respectively.

On July 4, 2025, the One Big Beautiful Bill Act was enacted. This legislation includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act (the "TCJA"), modifications to the international tax framework and the restoration of certain business tax provisions. The legislation has multiple effective dates, with certain provisions becoming effective in fiscal 2026. The most impactful provision effective beginning in fiscal 2026 relates to the expansion of the business interest expense deduction limitation. The resulting increase in tax deductible interest expense reduced U.S. taxable income and increased the excess U.S. foreign tax credits generated which require a valuation allowance. The unfavorable impact of the One Big Beautiful Bill Act for fiscal 2026 was $52 million.

In December 2021, the Organization for Economic Cooperation and Development issued "Pillar Two" Global Anti-Base Erosion model rules for countries to enact into domestic law that would establish a 15% global minimum tax applied on a country-by-country basis for multinational companies. In certain countries that have enacted legislation incorporating the global minimum tax, it became effective for the Company at the beginning of fiscal 2025. The estimated tax impact of such legislation has been included in the provision for income taxes for the fiscal years ended June 30, 2026 and 2025 and was not material.

On August 26, 2024, the U.S. Tax Court issued a decision in Varian Medical Systems, Inc. v. Commissioner. The decision related to the TCJA deduction for certain deemed foreign dividends otherwise subject to the Transition Tax on unrepatriated earnings of applicable foreign subsidiaries. Based on the Company's evaluation of the technical merits of this decision, in fiscal 2025 the Company filed a protective refund claim with the U.S. Internal Revenue Service. Since the Company believed it was more-likely-than-not that such income tax benefit would not be sustained, the Company accrued a $73 million estimated tax benefit in the provision for income taxes in fiscal 2025, offset by an uncertain tax position reserve for the estimated $73 million Transition Tax at issue. As a result, there was no net impact to the provision for income taxes and accompanying consolidated statement of earnings (loss), or to the accompanying consolidated balance sheet as of and for the year ended June 30, 2025. On April 8, 2026, the U.S. Tax Court issued its second opinion in Varian Medical Systems v. Commissioner (“Varian Two”). In Varian Two, the U.S. Tax Court concluded that the TCJA deduction for certain deemed foreign dividends is limited to directly owned foreign subsidiaries while also clarifying the manner of calculating the impact of the allowable deduction on U.S. foreign tax credits. Following its evaluation of the technical merits of Varian Two, the Company has maintained its $73 million protective refund claim and continues to believe, based on the information available as of June 30, 2026, that it is more likely than not that such claim will not be sustained, and as such has not adjusted the previously recorded uncertain tax position reserve for the $73 million income tax benefit as of June 30, 2026.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s actual effective tax rate on earnings (loss) before income taxes, including the primary components, is as follows:
Year Ended June 30,
2026
2025(1)(2)
2024
($ in millions)$%$%$%
Provision (benefit) for income taxes at statutory rate$109 21.0 %$(218)21.0 %$162 21.0 %
Increase (decrease) due to:
State and local income taxes, net of federal income tax effect(3)
(1)(0.2)1 (0.1)(2)(0.3)
Foreign tax effects
China
Statutory income tax rate differential14 2.7 13 (1.2)22 2.8 
Withholding tax68 13.2 54 (5.2)63 8.2 
Other3 0.6 3 (0.3)3 0.4 
Korea
Statutory income tax rate differential— — (2)0.2 (10)(1.3)
Withholding tax9 1.7 9 (0.9)13 1.7 
Nondeductible goodwill impairment— — — — 61 7.9 
Other2 0.4 (6)0.6 6 0.8 
Switzerland
Statutory income tax rate differential(17)(3.3)(35)3.4 (62)(8.0)
Local income tax7 1.4 14 (1.3)8 1.0 
Other3 0.6 5 (0.5)3 0.4 
All other foreign jurisdictions(4)
134 25.9 82 (7.9)135 17.4 
Effects of cross-border tax laws
Global intangible low-tax income (GILTI)18 3.5 27 (2.6)41 5.3 
Subpart F income(21)(4.1)35 (3.4)58 7.5 
Foreign derived intangible income (FDII)(25)(4.8)— — — — 
Branch income14 2.7 19 (1.8)26 3.4 
U.S. foreign tax credits (FTCs)(72)(13.9)(132)12.7 (191)(24.7)
Tax credits
Research & development tax credit(9)(1.7)(13)1.3 (17)(2.2)
Changes in valuation allowances31 6.0 188 (18.1)25 3.2 
Nontaxable or nondeductible items
Stock-based compensation - excess tax provision expense15 2.9 31 (3.0)16 2.1 
Other10 1.9 8 (0.8)6 0.8 
Changes in unrecognized tax benefits39 7.5 7 (0.7)4 0.5 
Other adjustments4 0.8 3 (0.3)(7)(0.9)
Effective tax rate$335 64.8 %$93 (8.9)%$363 47.0 %
(1)In fiscal 2025, as a result of the loss before income taxes, all reconciling items to the effective tax rate that are income tax expenses are presented as decreases to the rate, and all reconciling items that are income tax benefits are presented as increases to the rate. Amounts presented as increases from the U.S. federal statutory income tax benefit are expenses and decreases are benefits.
(2)For fiscal 2025, the reconciling items between the Company's U.S. federal statutory income tax rate and the Company's actual effective tax rate were materially impacted by the decrease in earnings before income taxes from fiscal 2024 to fiscal 2025.
(3)For fiscal 2026 state income taxes in California and Oklahoma make up greater than 50% of the tax effect in this line item. For fiscal 2025 state income taxes in California, Massachusetts, North Carolina, and Texas make up greater than 50% of the tax effect in this line item. For fiscal 2024 state income taxes in California and Maryland make up greater than 50% of the tax effect in this line item.
(4)This line item includes the impact of foreign valuation allowances of approximately $26 million, $16 million and $(1) million for the fiscal years ended June 30, 2026, 2025 and 2024, respectively.
The Company recognized $21 million, $35 million and $23 million of income tax expense for U.S. and foreign tax deficiencies associated with stock-based compensation for the fiscal years ended June 30, 2026, 2025 and 2024, respectively, in the accompanying consolidated statements of earnings (loss).
The Company has approximately $4,220 million of undistributed earnings of foreign subsidiaries as of June 30, 2026, a portion of which is considered permanently reinvested for which no deferred income taxes have been provided. If these reinvested earnings were repatriated into the United States as dividends, the Company would be subject to approximately $91 million in taxes, primarily related to foreign withholding taxes as well as additional state and local income taxes.
Significant components of the Company’s deferred tax assets and liabilities were as follows:
June 30,
(In millions)20262025
Deferred tax assets:
Compensation-related expenses$226 $201 
Inventory94 101 
Retirement benefit obligations21 45 
Various accruals not currently deductible430 340 
Net operating loss, credit and other carryforwards621 615 
Unrecognized state tax benefits and accrued interest10 11 
Lease liabilities482 511 
Research-related expenses283 276 
Other differences between tax and financial statement values60 120 
2,227 2,220 
Valuation allowance for deferred tax assets(525)(454)
Total deferred tax assets1,702 1,766 
Deferred tax liabilities:
Fixed assets and intangibles(236)(353)
ROU assets(413)(464)
Other differences between tax and financial statement values(27)(36)
Total deferred tax liabilities(676)(853)
Total net deferred tax assets$1,026 $913 

As of June 30, 2026, the Company had net deferred tax assets of $1,026 million, of which $1,427 million is included in Other assets and $401 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets. As of June 30, 2025, the Company had net deferred tax assets of $913 million, of which $1,339 million is included in Other assets and $426 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets.

As of June 30, 2026 and 2025, certain subsidiaries had $1,013 million and $972 million of foreign net operating loss carryforwards, respectively, the tax effect of which was $219 million and $213 million, respectively, as well as U.S. federal tax credit carryforwards of $178 million and $172 million, respectively, and state and local income tax credit carryforwards of $14 million and $11 million, respectively. With the exception of $588 million of net operating losses with an indefinite carryforward period as of June 30, 2026, these net operating loss carryforwards expire at various dates through fiscal 2039. The state and local income tax credit carryforwards will begin to expire in fiscal 2029.
The Company has recorded a valuation allowance of $525 million and $454 million as of June 30, 2026 and 2025, respectively, principally against certain net operating loss carryforwards and tax credit carryforwards. A valuation allowance has been provided for those deferred tax assets for which, in the opinion of management, it is more-likely-than-not that the deferred tax assets will not be realized. During fiscal 2025, the Company established a U.S. valuation allowance of $172 million against general U.S. foreign tax credit and research and development tax credit carryforwards as it was determined more-likely-than-not that these deferred tax assets would not be realized. This determination was driven by the Company's weighing of relevant evidence including lower U.S. taxable income in fiscal 2025 as compared to recent years, reflecting reduced income from its travel retail business, and the resulting uncertainty about the ability to realize the carryforwards prior to expiration.

As of June 30, 2026, 2025 and 2024, the Company had gross unrecognized tax benefits of $174 million, $140 million, and $65 million, respectively. At June 30, 2026, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $167 million. The increase in the gross amount of unrecognized tax benefits as of June 30, 2026 as compared to June 30, 2025 was primarily attributable to having established uncertain tax position reserves arising from transfer pricing matters impacting multiple tax jurisdictions.

The Company classifies applicable interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The total gross accrued interest and penalty expense recorded during fiscal 2026, 2025 and 2024 in the accompanying consolidated statements of earnings (loss) was $3 million, $2 million and $3 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June 30, 2026 and 2025 was $22 million and $19 million, respectively. 

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

June 30,
(In millions)202620252024
Balance of gross unrecognized tax benefits, beginning of year
$140 $65 $63 
Gross amounts of increases as a result of tax positions taken during a prior period18 83 4 
Gross amounts of decreases as a result of tax positions taken during a prior period(11)(9)(4)
Gross amounts of increases as a result of tax positions taken during the current period35 7 5 
Amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities
(4)(2)(1)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations
(4)(4)(2)
Balance of gross unrecognized tax benefits, end of year
$174 $140 $65 

Earnings from the Company’s global operations are subject to tax in various jurisdictions both within and outside the United States. The Company participates in the U.S. Internal Revenue Service (the “IRS”) Compliance Assurance Program (“CAP”). The objective of CAP is to reduce taxpayer burden and uncertainty while assuring the IRS of the accuracy of income tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations.

During the fiscal 2026 second quarter, the Company received notification of the formal conclusion of the compliance process with respect to its fiscal 2024 income tax return under the IRS CAP, which had no impact on the Company’s consolidated financial statements for the year ended June 30, 2026.

Subsequent to June 30, 2026, the IRS completed its examination procedures with respect to fiscal 2025 under the IRS CAP, and the Company expects to receive formal notification during fiscal 2027. There was no impact to the Company’s consolidated financial statements. As of June 30, 2026, the compliance process was ongoing with respect to fiscal 2026.

The Company is currently undergoing income tax examinations and controversies in several state, local and foreign jurisdictions. These matters are in various stages of completion and involve complex multi-jurisdictional issues common among multinational enterprises, including transfer pricing, which may require an extended period of time for resolution.

During fiscal 2026, the Company concluded various state, local and foreign income tax audits and examinations while several other matters, including those noted above, were initiated or remained pending.
The tax years subject to examination vary depending on the tax jurisdiction. As of June 30, 2026, the following tax years remain subject to examination by the major tax jurisdictions indicated:
Major JurisdictionOpen Fiscal Years
Belgium2020 – 2026
Canada2023 – 2026
China2023 – 2026
France2022 – 2026
Germany2017 – 2026
Hong Kong2020 – 2026
India
2016 – 2018, 2020 – 2026
Italy2021 – 2026
Japan2021 – 2026
Korea2021 – 2026
Spain2018 – 2019, 2026
Switzerland2024 – 2026
United Kingdom2022 – 2026
United States2025 – 2026
State of California2020 – 2026
State and City of New York2019 – 2026

The Company is also subject to income tax examinations in numerous other state, local and foreign jurisdictions. The Company believes that its income tax reserves are adequate for all years subject to examination.