NOTE 8 — INCOME TAXES

The provision for income taxes is comprised of the following:

	Year Ended June 30
(In millions)	2015			2014			2013
Current:
Federal	$	236.8		$	338.2		$	261.7
Foreign	251.2			265.4			241.5
State and local	31.8			20.5			24.3

	519.8			624.1			527.5


Deferred:
Federal	(55.5		)	(41.7		)	(35.2		)
Foreign	2.1			(18.6		)	(41.3		)
State and local	0.8			3.9			0.4

	(52.6		)	(56.4		)	(76.1		)

	$	467.2		$	567.7		$	451.4

Earnings before income taxes include amounts contributed by the Company’s foreign operations of approximately $1,420 million, $1,384 million and $1,220 million for fiscal 2015, 2014 and 2013, respectively. A portion of these earnings are taxed in the United States.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s actual effective tax rate on earnings before income taxes is as follows:

	Year Ended June 30
	2015		2014		2013

Provision for income taxes at statutory rate	35.0	%	35.0	%	35.0	%
Increase (decrease) due to:
State and local income taxes, net of federal tax benefit	1.1		1.4		1.3
Taxation of foreign operations	(6.8	)	(4.0	)	(4.9	)
Income tax reserve adjustments	0.5		(0.5	)	(1.0	)
Other, net	0.1		0.1		0.2

Effective tax rate	29.9	%	32.0	%	30.6	%

Income tax reserve adjustments represent changes in the Company’s net liability for unrecognized tax benefits related to prior-year tax positions including tax settlements and lapses of the applicable statutes of limitations.

Federal income and foreign withholding taxes have not been provided on approximately $2,918 million of undistributed earnings of foreign subsidiaries at June 30, 2015. The Company intends to reinvest these earnings in its foreign operations indefinitely, except where it is able to repatriate these earnings to the United States without material incremental tax provision. The determination and estimation of the future income tax consequences in all relevant taxing jurisdictions involves the application of highly complex tax laws in the countries involved, particularly in the United States, and is based on the tax profile of the Company in the year of earnings repatriation. Accordingly, it is not practicable to determine the amount of tax associated with such undistributed earnings.

Significant components of the Company’s deferred income tax assets and liabilities were as follows:

	June 30
(In millions)	2015			2014
Deferred tax assets:
Compensation related expenses	$	218.5		$	199.1
Inventory obsolescence and other inventory related reserves	82.2			80.1
Retirement benefit obligations	97.4			94.0
Various accruals not currently deductible	167.1			174.5
Net operating loss, credit and other carryforwards	117.5			111.3
Unrecognized state tax benefits and accrued interest	25.8			19.3
Other differences between tax and financial statement values	87.0			83.9

	795.5			762.2
Valuation allowance for deferred tax assets	(120.9		)	(115.2		)

Total deferred tax assets	674.6			647.0


Deferred tax liabilities:
Depreciation and amortization	(279.6		)	(248.0		)
Other differences between tax and financial statement values	(43.9		)	(18.4		)

Total deferred tax liabilities	(323.5		)	(266.4		)

Total net deferred tax assets	$	351.1		$	380.6

As of June 30, 2015 and 2014, the Company had current net deferred tax assets of $279.0 million and $295.1 million, respectively, substantially all of which are included in Prepaid expenses and other current assets in the accompanying consolidated balance sheets. In addition, the Company had noncurrent net deferred tax assets of $72.1 million and $85.5 million as of June 30, 2015 and 2014, respectively, substantially all of which are included in Other assets in the accompanying consolidated balance sheets.

As of June 30, 2015 and 2014, certain subsidiaries had net operating loss and other carryforwards for tax purposes of approximately $430 million and $424 million, respectively. With the exception of approximately $416 million of net operating loss and other carryforwards with an indefinite carryforward period as of June 30, 2015, these carryforwards expire at various dates through fiscal 2035. Deferred tax assets, net of valuation allowances, in the amount of $4.6 million and $11.1 million as of June 30, 2015 and 2014, respectively, have been recorded to reflect the tax benefits of the carryforwards not utilized to date.

A full 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.

As of June 30, 2015 and 2014, the Company had gross unrecognized tax benefits of $77.8 million and $58.1 million, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $51.6 million.

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 during fiscal 2015 in the accompanying consolidated statement of earnings was $5.9 million. During fiscal 2014, the Company recognized a gross interest and penalty benefit of $1.7 million in the accompanying consolidated statement of earnings. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June 30, 2015 and 2014 were $16.5 million and $12.5 million, respectively. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	June 30
(In millions)	2015			2014

Beginning of the year balance of gross unrecognized tax benefits	$	58.1		$	64.0
Gross amounts of increases as a result of tax positions taken during a prior period	21.9			5.1
Gross amounts of decreases as a result of tax positions taken during a prior period	(8.1		)	(10.5		)
Gross amounts of increases as a result of tax positions taken during the current period	11.2			10.1
Amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities	(3.1		)	(6.4		)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations	(2.2		)	(4.2		)

End of year balance of gross unrecognized tax benefits	$	77.8		$	58.1

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 first and fourth quarters of fiscal 2015, the Company formally concluded the compliance process with respect to fiscal years 2013 and 2014, respectively, under the IRS CAP. The conclusion of this process did not impact the Company’s consolidated financial statements. As of June 30, 2015, the compliance process was ongoing with respect to fiscal year 2015.

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 2015, 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. On the basis of the information available in this regard as of June 30, 2015, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in a range of $5 million to $10 million within 12 months as a result of projected resolutions of global tax examinations and controversies and a potential lapse of the applicable statutes of limitations.

The tax years subject to examination vary depending on the tax jurisdiction. As of June 30, 2015, the following tax years remain subject to examination by the major tax jurisdictions indicated:

Major Jurisdiction		Open Fiscal Years

Belgium		2013 – 2015
Canada		2008 – 2015
China		2011 – 2015
France		2012 – 2015
Germany		2013 – 2015
Hong Kong		2009 – 2015
Japan		2012 – 2015
Korea		2014 – 2015
Russia		2013 – 2015
Spain		2012 – 2015
Switzerland		2011 – 2015
United Kingdom		2014 – 2015
United States		2015
State of California		2012 – 2015
State and City of New York		2011 – 2015

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