Income Taxes

12 Months Ended

Jun. 30, 2019

Income before income taxes was derived from the following sources:



	2019		2018		2017
United States	$	1,124,933	$	963,843	$	722,925
Foreign	808,492		738,434		605,716
	$	1,933,425	$	1,702,277	$	1,328,641

Income taxes include the following:



	2019		2018			2017
Federal
Current	$	160,858	$	453,821		$	132,420
Deferred	14,903		(23,876		)	37,316
Foreign
Current	206,167		210,385			157,518
Deferred	3,202		(17,454		)	(5,319		)
State and local
Current	20,932		18,168			17,835
Deferred	14,432		(82		)	5,027
	$	420,494	$	640,962		$	344,797

A reconciliation of the Company's effective income tax rate to the statutory federal rate follows:



	2019		2018		2017
Statutory federal income tax rate	21.0	%	28.1	%	35.0	%
State and local income taxes	1.7		1.2		1.7
Tax related to international activities	2.9		(1.0	)	(5.5	)
Transition tax related to the TCJ Act	0.8		17.5		—
Remeasurement of deferred tax assets and liabilities related to the TCJ Act	(0.9	)	(4.8	)	—
Cash surrender value of life insurance	(0.1	)	(0.4	)	(0.9	)
Federal manufacturing deduction	0.1		(1.0	)	(0.9	)
Foreign derived intangible income deduction	(1.0	)	—		—
Research tax credit	(0.5	)	(0.7	)	(0.8	)
Share-based compensation	(1.7	)	(2.2	)	(2.7	)
Other	(0.6	)	1.0		0.1
Effective income tax rate	21.7	%	37.7	%	26.0	%

The Company made the accounting policy election to treat taxes related to Global Intangible Low-Taxed Income ("GILTI") as a current period expense when incurred. The tax rate impact of GILTI is included with tax related to international activities in the table above.

The Securities and Exchange Commission staff issued Staff Accounting Bulletin ("SAB") 118, which provided guidance on accounting for the tax effects of the TCJ Act. SAB 118 provided a measurement period that should not extend beyond one year from the TCJ Act's enactment date for companies to complete the applicable accounting under Topic 740. In accordance with SAB 118 and based on the information available, the Company recorded additional tax expense of $14,485 to the estimated one-time transition tax during 2019 prior to the close of the measurement period. This adjustment is a result of the Company's analysis of related proposed regulations that were issued subsequent to the recording of the previous provisional amount. The Company considers its provisional accounting for the effects of the TCJ Act, which includes the remeasurement of deferred tax balances and related valuation allowances, the one-time transition tax and the repatriation of undistributed foreign earnings, as being complete and as meeting the recognition guidance under Topic 740.

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities. The differences comprising the net deferred taxes shown on the Consolidated Balance Sheet at June 30 were as follows:



	2019			2018
Retirement benefits	$	368,269		$	340,480
Other liabilities and reserves	104,850			112,935
Long-term contracts	22,241			17,496
Stock-based compensation	38,730			38,535
Loss carryforwards	792,914			679,880
Unrealized currency exchange gains and losses	27,034			27,228
Inventory	5,540			6,696
Foreign tax credit carryforward	1,726			—
Undistributed foreign earnings	(16,762		)	(16,308		)
Depreciation and amortization	(589,454		)	(689,320		)
Valuation allowance	(797,692		)	(694,857		)
Net deferred tax (liability)	$	(42,604	)	$	(177,235	)

Change in net deferred tax (liability):
Provision for deferred tax	$	(32,537	)	$	41,412
Items of other comprehensive income (loss)	72,530			(65,542		)
Acquisitions and other	94,638			32,628
Total change in net deferred tax	$	134,631		$	8,498

As of June 30, 2019, the Company recorded deferred tax assets of $792,914 resulting from $3,057,386 in loss carryforwards. A valuation allowance of $779,733 related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $745,293 relates to non-operating entities whose loss carryforward utilization is considered to be remote. Some of the loss carryforwards can be carried forward indefinitely; others can be carried forward from three to 20 years. In addition, a valuation allowance of $17,959 related to future deductible items has been established due to the uncertainty of their realization. These future deductible items are recorded in the other liabilities and reserves line in the table above.

Although future distributions of foreign earnings to the U.S. should not be subject to U.S. federal income taxes, other U.S. or foreign taxes may be imposed on such earnings. The Company has analyzed existing factors and determined it will no longer permanently reinvest certain foreign earnings. On these undistributed foreign earnings of approximately $219 million that are no longer permanently reinvested outside of the U.S., the Company has recorded a deferred tax liability of $11 million. The remaining undistributed foreign earnings of approximately $3,000 million remain permanently reinvested outside the U.S. at June 30, 2019. Of these undistributed earnings, we have recorded a deferred tax liability of $6 million where certain foreign holding companies are not permanently reinvested in their subsidiaries. It is not practicable to estimate the additional taxes, including applicable foreign withholding taxes, that might be payable on the potential distribution of such permanently reinvested foreign earnings.

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



	2019			2018			2017
Balance July 1	$	153,091		$	147,506		$	139,907
Additions for tax positions related to current year	2,272			4,195			4,735
Additions for tax positions of prior years	45			8,333			2,618
Additions for acquisitions	—			—			3,939
Reductions for tax positions of prior years	(927		)	(3,790		)	(1,175		)
Reductions for settlements	(832		)	(315		)	(3,020		)
Reductions for expiration of statute of limitations	(9,388		)	(4,480		)	(2,792		)
Effect of foreign currency translation	(3,599		)	1,642			3,294
Balance June 30	$	140,662		$	153,091		$	147,506

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $140,662, $153,091 and $95,460 as of June 30, 2019, 2018 and 2017, respectively. If recognized, a significant portion of the gross unrecognized tax benefits as of June 30, 2017, would have been offset against an asset that had been recorded in the Consolidated Balance Sheet. The accrued interest related to the gross unrecognized tax benefits, excluded from the amounts above, was $25,214, $21,737 and $15,432 as of June 30, 2019, 2018 and 2017, respectively.

It is reasonably possible that, within the next 12 months, the amount of gross unrecognized tax benefits could be reduced by up to approximately $100,000 as a result of the revaluation of existing uncertain tax positions arising from developments in the examination process or the closure of tax statutes. Any increase in the amount of unrecognized tax benefits within the next 12 months is expected to be insignificant.

The Company and its subsidiaries file income tax returns in the United States and in various foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is open to assessment of its U.S. federal income tax returns by the Internal Revenue Service for years after 2013, and its state and local tax returns for years after 2013. The Company is open to assessment for significant foreign jurisdictions for years after 2009.