INCOME TAXES

12 Months Ended

Jun. 30, 2019

The provision for income taxes on continuing operations, by tax jurisdiction, consisted of the following for the fiscal years ended June 30:



	2019			2018			2017
Current
Federal	$	166		$	177		$	291
State	24			34			36
Foreign	34			43			38
Total current	224			254			365
Deferred
Federal	(22		)	(24		)	(29		)
State	(1		)	3			(2		)
Foreign	3			(2		)	(4		)
Total deferred	(20		)	(23		)	(35		)
Total	$	204		$	231		$	330

The components of earnings from continuing operations before income taxes, by tax jurisdiction, consisted of the following for the fiscal years ended June 30:



	2019		2018		2017
United States	$	912	$	963	$	927
Foreign	112		91		106
Total	$	1,024	$	1,054	$	1,033

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate on continuing operations follows for the fiscal years ended June 30:



	2019		2018		2017
Statutory federal tax rate	21.0	%	28.1	%	35.0	%
State taxes (net of federal tax benefits)	1.7		2.4		2.2
Tax differential on foreign earnings	1.0		1.2		(0.6	)
Federal domestic manufacturing deduction	—		(1.8	)	(2.6	)
Change in valuation allowance	0.1		0.3		0.2
Federal excess tax benefits	(2.3	)	(1.7	)	(2.0	)
Reversals of deferred taxes related to foreign unremitted earnings	—		(2.6	)	—
Remeasurement of deferred taxes	0.1		(3.1	)	—
Other differences	(1.8	)	(1.0	)	(0.3	)
Effective tax rate	19.8	%	21.8	%	31.9	%

The Tax Act was signed into law by the President of the United States on December 22, 2017. The Tax Act made significant changes to U.S. tax law, and included a reduction of U.S. corporation statutory income tax rates from 35% to 21%, effective January 1, 2018. Under the Tax Act, the Company was subject to an average federal statutory tax rate of 28.1% for its fiscal year ended June 30, 2018. The Company’s federal statutory tax rate was 21.0% beginning in July 2018 for the fiscal year ended June 30, 2019. The Tax Act also included, among other things, a one-time transition tax on accumulated foreign earnings and the adoption of a modified territorial approach to the taxation of future foreign earnings.

During the second quarter of fiscal year 2018, the Company made reasonable estimates of the impacts of the Tax Act and initially recorded total benefits of $81 as provisional, as defined in Staff Accounting Bulletin No. 118, as follows:



	Adjustments
One-time net deferred tax liability reduction	$	60
One-time transition tax	(7		)
Net total one-time tax benefit	53
Beneficial year-to-date current taxable income impact	28
Total tax benefits	$	81

As of December 31, 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Tax Act. Cumulative measurement adjustments through the second quarter of fiscal year 2019 were insignificant.

Per U.S. GAAP, foreign withholding taxes are provided on unremitted foreign earnings that are not indefinitely reinvested at the time the earnings are generated. The Company regularly reviews and assesses whether there are any changes to its indefinite reinvestment assertion. Through the second quarter of fiscal year 2018, the Company had determined that the undistributed earnings of a number of its foreign subsidiaries were indefinitely reinvested. When the Tax Act was passed into law in December 2017, it significantly reduced the cost of U.S. repatriation. In the third quarter of fiscal year 2018, the Company concluded an analysis wherein it determined that none of the undistributed earnings of its foreign subsidiaries were indefinitely reinvested. As a result, the Company is providing foreign withholding taxes on the undistributed earnings of all foreign subsidiaries where applicable. These withholding taxes had no significant impact on the Company’s consolidated results.

The components of net deferred tax assets (liabilities) as of June 30 are shown below:



	2019			2018
Deferred tax assets
Compensation and benefit programs	$	100		$	103
Net operating loss and tax credit carryforwards	87			86
Accruals and reserves	41			28
Basis difference related to Venture Agreement	19			19
Inventory costs	22			16
Other	21			25
Subtotal	290			277
Valuation allowance	(44		)	(43		)
Total deferred tax assets	246			234
Deferred tax liabilities
Fixed and intangible assets	(236		)	(232		)
Low-income housing partnerships	(13		)	(17		)
Other	(18		)	(19		)
Total deferred tax liabilities	(267		)	(268		)
Net deferred tax assets (liabilities)	$	(21	)	$	(34	)

The Company reviews its deferred tax assets for recoverability on a quarterly basis. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Valuation allowances have been provided to reduce deferred tax assets to amounts considered recoverable. Details of the valuation allowance were as follows as of June 30:



	2019			2018			2017
Valuation allowance at beginning of year	$	(43	)	$	(40	)	$	(37	)
Net decrease/(increase) for other foreign deferred tax assets	—			—			—
Net decrease/(increase) for foreign net operating loss carryforwards and tax credits	(1		)	(3		)	(3		)
Valuation allowance at end of year	$	(44	)	$	(43	)	$	(40	)

As of June 30, 2019, the Company had foreign tax credit carryforwards of $35 for U.S. income tax purposes with expiration dates between fiscal years 2024 and 2029. Tax credit carryforwards in foreign jurisdictions of $24 can be carried forward indefinitely. Tax benefits from foreign net operating loss carryforwards of $19 have expiration dates between fiscal years 2020 and 2036. Tax benefits from foreign net operating loss carryforwards of $9 can be carried forward indefinitely.

The Company files income tax returns in the U.S. federal and various state, local and foreign jurisdictions. The federal statute of limitations has expired for all tax years through June 30, 2015. Various income tax returns in state and foreign jurisdictions are currently in the process of examination.

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of June 30, 2019 and 2018, the total balance of accrued interest and penalties related to uncertain tax positions was $4 and $5, respectively. Interest and penalties related to uncertain tax positions included in income tax expense resulted in a net benefit of $1 in fiscal year 2019, a net expense of $1 in fiscal year 2018, and a net benefit of $1 in fiscal year 2017.

The following is a reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits:



	2019			2018			2017
Unrecognized tax benefits at beginning of year	$	47		$	40		$	37
Gross increases - tax positions in prior periods	2			2			1
Gross decreases - tax positions in prior periods	(20		)	(1		)	(6		)
Gross increases - current period tax positions	6			8			9
Gross decreases - current period tax positions	—			—			—
Lapse of applicable statute of limitations	(3		)	(2		)	(1		)
Settlements	(1		)	—			—
Unrecognized tax benefits at end of year	$	31		$	47		$	40

Included in the balance of unrecognized tax benefits as of June 30, 2019, 2018 and 2017, were potential benefits of $23, $33 and $28, respectively, which if recognized, would affect the effective tax rate. Unrecognized tax benefits are not expected to significantly increase or decrease within the next 12 months.

During the year ended June 30, 2019, new facts and circumstances warranted the recognition of previously unrecognized federal, state, and foreign income tax benefits from prior years. The benefits that were recognized in the current year were not material for any one jurisdiction or any one tax position.