NOTE 12. INCOME TAXES

Earnings from continuing operations before income taxes shown below are based on the geographic location to which such earnings are attributable.



Years ended June 30,	2017		2016		2015

Earnings from continuing operations before income taxes:
United States	$	2,232.8	$	2,028.5	$	1,895.3
Foreign	298.3		206.2		175.4
	$	2,531.1	$	2,234.7	$	2,070.7

The provision (benefit) for income taxes consists of the following components:



Years ended June 30,	2017			2016			2015

Current:
Federal	$	615.3		$	579.0		$	576.3
Foreign	91.6			85.0			93.1
State	82.7			76.6			40.1
Total current	789.6			740.6			709.5

Deferred:
Federal	6.2			17.7			(1.3		)
Foreign	7.2			(15.7		)	(17.0		)
State	(5.3		)	(1.3		)	3.0
Total deferred	8.1			0.7			(15.3		)
Total provision for income taxes	$	797.7		$	741.3		$	694.2

A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:



Years ended June 30,	2017			%		2016			%		2015			%

Provision for taxes at U.S. statutory rate	$	885.9		35.0		$	782.1		35.0		$	724.8		35.0

Increase (decrease) in provision from:
State taxes, net of federal tax benefit	52.2			2.1		47.2			2.1		34.8			1.7
U.S. tax on foreign income	66.1			2.6		122.6			5.5		155.3			7.5
Utilization of foreign tax credits	(76.0		)	(3.0	)	(155.4		)	(7.0	)	(177.1		)	(8.6	)
Section 199 - Qualified production activities	(33.2		)	(1.3	)	(31.9		)	(1.4	)	(28.9		)	(1.4	)
Section 199 - Qualified production activities and research tax credit refund claim - net of reserves	(51.8		)	(2.1	)	—			—		—			—
Excess tax benefit - Stock-based compensation	(32.1		)	(1.3	)	—			—		—			—
Other	(13.4		)	(0.5	)	(23.3		)	(1.0	)	(14.7		)	(0.7	)
	$	797.7		31.5		$	741.3		33.2		$	694.2		33.5

The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:



Years ended June 30,	2017			2016

Deferred tax assets:
Accrued expenses not currently deductible	$	294.5		$	262.8
Stock-based compensation expense	75.5			74.6
Foreign Tax Credits	49.5			47.1
Net operating losses	49.5			46.0
Other	18.7			23.7
	487.7			454.2
Less: valuation allowances	(9.4		)	(15.4		)
Deferred tax assets, net	$	478.3		$	438.8

Deferred tax liabilities:
Prepaid retirement benefits	$	125.1		$	77.2
Deferred revenue	35.5			43.2
Fixed and intangible assets	226.3			171.4
Prepaid expenses	122.5			118.0
Unrealized investment gains, net	33.4			176.2
Other	5.2			3.6
Deferred tax liabilities	$	548.0		$	589.6
Net deferred tax liabilities	$	69.7		$	150.8

There are $93.4 million and $100.3 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 2017 and 2016, respectively.

Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately $469.5 million as of June 30, 2017, as the Company considers such earnings to be permanently reinvested outside of the United States. The additional U.S. income tax that would arise on repatriation of the remaining undistributed earnings could be offset, in part, by foreign tax credits on such repatriation. However, it is impracticable to estimate the amount of net income tax that might be payable.

The Company has estimated foreign net operating loss carry-forwards of approximately $71.7 million as of June 30, 2017, of which $17.3 million expire through 2025 and $54.4 million have an indefinite utilization period. As of June 30, 2017, the Company has approximately $35.4 million of federal net operating loss carry-forwards from acquired companies. The net operating losses have an annual utilization limitation pursuant to section 382 of the Internal Revenue Code and expire through 2031.

The Company has state net operating loss carry-forwards of approximately $271.4 million as of June 30, 2017, which expire through 2036.

The Company has recorded valuation allowances of $9.4 million and $15.4 million at June 30, 2017 and 2016, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.

Income tax payments were approximately $817.1 million, $651.6 million, and $773.3 million for fiscal 2017, 2016, and 2015, respectively.

As of June 30, 2017, 2016, and 2015 the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $74.6 million, $27.4 million, and $27.1 million respectively. The amount that, if recognized, would impact the effective tax rate is $61.0 million, $18.7 million, and $16.9 million, respectively. The remainder, if recognized, would principally impact deferred taxes.

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



	2017			2016			2015

Unrecognized tax benefits at beginning of the year	$	27.4		$	27.1		$	56.5
Additions for tax positions	7.5			3.8			2.4
Additions for tax positions of prior periods	41.9			3.5			3.1
Reductions for tax positions of prior periods	(0.5		)	(0.1		)	(6.5		)
Settlement with tax authorities	(0.9		)	(1.7		)	(12.2		)
Expiration of the statute of limitations	(0.9		)	(4.9		)	(14.0		)
Impact of foreign exchange rate fluctuations	0.1			(0.3		)	(2.2		)
Unrecognized tax benefit at end of year	$	74.6		$	27.4		$	27.1

Interest expense and penalties associated with uncertain tax positions have been recorded in the provision for income taxes on the Statements of Consolidated Earnings. During the fiscal years 2017, 2016, and 2015, the Company recorded interest expense (benefit) of $3.0 million, $1.1 million, and $(2.7) million, respectively. Penalties incurred during fiscal years 2017, 2016, and 2015 were not significant.

At June 30, 2017, the Company had accrued interest of $6.9 million recorded on the Consolidated Balance Sheets, of which $0.1 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2016, the Company had accrued interest of $4.0 million recorded on the Consolidated Balance Sheets, of which $0.1 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2017, the Company had accrued penalties of $0.2 million recorded on the Consolidated Balance Sheets within other liabilities. At June 30, 2016, the Company had accrued penalties of $0.2 million recorded on the Consolidated Balance Sheets within other liabilities.

The Company is routinely examined by the IRS and tax authorities in foreign countries in which it conducts business, as well as tax authorities in states in which it has significant business operations. The tax years currently under examination vary by jurisdiction. Examinations in progress in which the Company has significant business operations are as follows:



Taxing Jurisdiction		Fiscal Years under Examination
U.S. (IRS)		2016-2017
California		2012-2014
Illinois		2007-2013
New York		2010-2015
Canada		2012-2014
India		2004-2011, 2013-2015
Germany		2010-2014

The Company regularly considers the likelihood of assessments resulting from examinations in each of the jurisdictions. The resolution of tax matters is not expected to have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company's Statements of Consolidated Earnings for a particular future period and on the Company's effective tax rate.

If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, settlements related to various jurisdictions and tax periods could increase earnings up to $35 million in the next twelve months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.

In fiscal 2017, the IRS completed its review of the examination of the Company's tax return for the year ended June 30, 2015, which did not have a material impact to the Consolidated Financial Statements of the Company.