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Notes to Financial Statements continued (in millions)
Income Taxes |
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The provision for income taxes consisted of: |
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Year Ended June 30 |
1998 |
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1999 |
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2000 |
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Current taxes: |
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U.S. and state |
$ 2,518 |
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$ 4,027 |
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$ 4,744 |
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International |
526 |
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281 |
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535 |
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Current taxes |
3,044 |
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4,308 |
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5,279 |
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Deferred taxes |
(417 |
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(202 |
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(425 |
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Provision for income taxes |
$ 2,627 |
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$ 4,106 |
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$ 4,854 |
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U.S. and international components of income before income taxes were: |
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Year Ended June 30 |
1998 |
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1999 |
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2000 |
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U.S. |
$ 5,072 |
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$ 10,649 |
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$ 11,860 |
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International |
2,045 |
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1,242 |
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2,415 |
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Income before income taxes |
$ 7,117 |
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$ 11,891 |
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$ 14,275 |
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The effective income tax rate increased to 36.9% in 1998 due to the nondeductible write-off of WebTV in-process technologies. In 1999, the effective tax rate was 35.0%, excluding the impact of the gain on the sale of Softimage, Inc. In 2000, the effective tax rate was 34.0%, and included the effect of a 2.5% reduction from the U.S. statutory rate for tax credits and a 1.5% increase for other items. The components of the differences between the U.S. statutory tax rate and the Company's effective tax rate in 1998 and 1999 were not significant.
Deferred income taxes as of June 30 were: |
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1999 |
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2000 |
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Deferred income tax assets: |
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Revenue items |
$ 1,145 |
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$ 1,320 |
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Expense items |
648 |
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2,122 |
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Deferred income tax assets |
1,793 |
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3,442 |
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Deferred income tax liabilities: |
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Unrealized gain on investments |
(1,046 |
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(874 |
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International earnings |
(647 |
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(1,766 |
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Other |
(16 |
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(121 |
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Deferred income tax liabilities |
$ (1,709 |
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$ (2,761 |
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The Internal Revenue Service (IRS) has assessed taxes for 1990 and 1991, which the Company is contesting in U.S. Tax Court. Income taxes, except for taxes related to the 1990 and 1991 assessments, have been settled with the IRS for all years through 1994. The IRS is examining the Company's U.S. income tax returns for 1995 and 1996. Management believes any related adjustments that might be required will not be material to the financial statements. Income taxes paid were $1.1 billion in 1998, $874 million in 1999, and $800 million in 2000.
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