Income Taxes

12 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes was derived from the following sources:

	2020		2019		2018
United States	$	833,933	$	1,124,933	$	963,843
Foreign	678,694		808,492		738,434
	$	1,512,627	$	1,933,425	$	1,702,277

Income taxes include the following:

	2020			2019		2018
Federal
Current	$	105,796		$	160,858	$	453,821
Deferred	26,067			14,903		(23,876		)
Foreign
Current	167,680			206,167		210,385
Deferred	(14,247		)	3,202		(17,454		)
State and local
Current	18,756			20,932		18,168
Deferred	1,872			14,432		(82		)
	$	305,924		$	420,494	$	640,962

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

	2020		2019		2018
Statutory federal income tax rate	21.0	%	21.0	%	28.1	%
State and local income taxes	1.4		1.7		1.2
Tax related to international activities	1.8		2.9		(1.0	)
Transition tax related to the TCJ Act	(0.7	)	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	(0.3	)	(0.1	)	(0.4	)
Federal manufacturing deduction	—		0.1		(1.0	)
Foreign derived intangible income deduction	(1.5	)	(1.0	)	—
Research tax credit	(0.6	)	(0.5	)	(0.7	)
Share-based compensation	(1.5	)	(1.7	)	(2.2	)
Other	0.6		(0.6	)	1.0
Effective income tax rate	20.2	%	21.7	%	37.7	%

We 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.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, a significant tax-and-spending package intended to provide economic stimulus to address the impact of the COVID-19 pandemic. We continue to monitor the impact from the CARES Act; however, no income tax effects have been recorded in the current year, and we do not expect it to materially impact the Company.

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:

	2020			2019
Retirement benefits	$	504,747		$	368,269
Other liabilities and reserves	139,872			90,936
Long-term contracts	7,392			22,241
Stock-based compensation	35,483			38,730
Loss carryforwards	754,655			792,914
Unrealized currency exchange gains and losses	39,256			27,034
Inventory	5,242			5,540
Tax credit carryforwards	33,176			15,640
Undistributed foreign earnings	(15,196		)	(16,762		)
Depreciation and amortization	(988,886		)	(589,454		)
Valuation allowance	(771,430		)	(797,692		)
Net deferred tax (liability)	$	(255,689	)	$	(42,604	)
Change in net deferred tax (liability):
Provision for deferred tax	$	(13,692	)	$	(32,537	)
Items of other comprehensive income	102,297			72,530
Acquisitions and other	(301,690		)	94,638
Total change in net deferred tax	$	(213,085	)	$	134,631

As of June 30, 2020, we recorded deferred tax assets of $754,655 resulting from $3,048,453 in loss carryforwards. A valuation allowance of $741,171 related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $710,439 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 $30,259 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 and tax credit carryforward lines 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. We have analyzed existing factors and determined we will no longer permanently reinvest certain foreign earnings. On these undistributed foreign earnings of approximately $717 million that are no longer permanently reinvested outside of the U.S., we have recorded a deferred tax liability of $10 million. The remaining undistributed foreign earnings of approximately $2,122 million remain permanently reinvested outside the U.S. at June 30, 2020. Of these undistributed earnings, we have recorded a deferred tax liability of $5 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:

	2020			2019			2018
Balance July 1	$	140,662		$	153,091		$	147,506
Additions for tax positions related to current year	4,955			2,272			4,195
Additions for tax positions of prior years	798			45			8,333
Additions for acquisitions	43,532			—			—
Reductions for tax positions of prior years	(41,726		)	(927		)	(3,790		)
Reductions for settlements	(53,520		)	(832		)	(315		)
Reductions for expiration of statute of limitations	(3,820		)	(9,388		)	(4,480		)
Effect of foreign currency translation	(4,604		)	(3,599		)	1,642
Balance June 30	$	86,277		$	140,662		$	153,091

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $86,277, $140,662 and $153,091 as of June 30, 2020, 2019 and 2018, respectively. The accrued interest related to the gross unrecognized tax benefits, excluded from the amounts above, was $14,247, $25,214 and $21,737 as of June 30, 2020, 2019 and 2018, respectively. In the current year, we recorded the resolution of an examination with a foreign jurisdiction that resulted in a significant decrease to the unrecognized tax benefit recorded on our balance sheet. This is included in reductions for tax positions of prior years and reductions for settlements in the table above.

It is reasonably possible that, within the next 12 months, the amount of gross unrecognized tax benefits could be reduced by up to approximately $40,000 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.

We file income tax returns in the United States and in various foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world. We are open to assessment of our U.S. federal income tax returns by the Internal Revenue Service for years after 2013, and our state and local income tax returns for years after 2013. We are open to assessment for significant foreign jurisdictions for years after 2008.