NOTE 10. 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,	2016		2015		2014

Earnings from continuing operations before income taxes:
United States	$	2,028.5	$	1,895.3	$	1,635.6
Foreign	206.2		175.4		243.6
	$	2,234.7	$	2,070.7	$	1,879.2

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



Years ended June 30,	2016			2015			2014

Current:
Federal	$	579.0		$	576.3		$	552.1
Foreign	85.0			93.1			71.3
State	76.6			40.1			51.1
Total current	740.6			709.5			674.5

Deferred:
Federal	17.7			(1.3		)	(32.7		)
Foreign	(15.7		)	(17.0		)	(10.3		)
State	(1.3		)	3.0			5.1
Total deferred	0.7			(15.3		)	(37.9		)
Total provision for income taxes	$	741.3		$	694.2		$	636.6

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



Years ended June 30,	2016			%		2015			%		2014			%

Provision for taxes at U.S. statutory rate	$	782.1		35.0		$	724.8		35.0		$	657.7		35.0

Increase (decrease) in provision from:
State taxes, net of federal tax benefit	47.2			2.1		34.8			1.7		33.4			1.8
U.S. tax on foreign income	122.6			5.5		155.3			7.5		26.6			1.4
Utilization of foreign tax credits	(155.4		)	(7.0	)	(177.1		)	(8.6	)	(26.2		)	(1.4	)
Section 199 - Qualified production activities	(31.9		)	(1.4	)	(28.9		)	(1.4	)	(23.0		)	(1.2	)
Other	(23.3		)	(1.0	)	(14.7		)	(0.7	)	(31.9		)	(1.7	)
	$	741.3		33.2		$	694.2		33.5		$	636.6		33.9

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



Years ended June 30,	2016			2015

Deferred tax assets:
Accrued expenses not currently deductible	$	262.8		$	240.6
Stock-based compensation expense	74.6			72.3
Net operating losses	46.0			47.5
Other	70.8			23.5
	454.2			383.9
Less: valuation allowances	(15.4		)	(23.7		)
Deferred tax assets, net	$	438.8		$	360.2

Deferred tax liabilities:
Prepaid retirement benefits	$	77.2		$	147.9
Deferred revenue	43.2			36.6
Fixed and intangible assets	171.4			122.5
Prepaid expenses	118.0			108.5
Unrealized investment gains, net	176.2			71.9
Tax on unrepatriated earnings	—			5.1
Other	3.6			1.9
Deferred tax liabilities	$	589.6		$	494.4
Net deferred tax liabilities	$	150.8		$	134.2

The prospective adoption of ASU 2015-17 resulted in no current deferred tax assets included in other current assets and no current deferred tax liabilities included in accrued expenses and other current liabilities on the Consolidated Balance Sheets at June 30, 2016. There are $33.0 million of current deferred tax assets included in other current assets on the Consolidated Balance Sheets at June 30, 2015. There are $57.0 million of current deferred tax liabilities included in accrued expenses and other current liabilities on the Consolidated Balance Sheets at June 30, 2015. There are $100.3 million and $61.9 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 2016 and 2015, respectively.

Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately $443.2 million as of June 30, 2016, 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 $50.2 million as of June 30, 2016, of which $29.8 million expire through 2036 and $20.4 million have an indefinite utilization period. As of June 30, 2016, the Company has approximately $39.0 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 $242.3 million as of June 30, 2016, which expire through 2035.

The Company has recorded valuation allowances of $15.4 million and $23.7 million at June 30, 2016 and 2015, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.

Income tax payments were approximately $651.6 million, $773.3 million, and $821.5 million for fiscal 2016, 2015, and 2014, respectively.

As of June 30, 2016, 2015, and 2014 the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $27.4 million, $27.1 million, and $56.5 million respectively. The amount that, if recognized, would impact the effective tax rate is $18.7 million, $16.9 million, and $31.0 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:



	2016			2015			2014

Unrecognized tax benefits at beginning of the year	$	27.1		$	56.5		$	67.0
Additions for tax positions	3.8			2.4			3.6
Additions for tax positions of prior periods	3.5			3.1			6.8
Reductions for tax positions of prior periods	(0.1		)	(6.5		)	(3.7		)
Settlement with tax authorities	(1.7		)	(12.2		)	(4.4		)
Expiration of the statute of limitations	(4.9		)	(14.0		)	(13.7		)
Impact of foreign exchange rate fluctuations	(0.3		)	(2.2		)	0.9
Unrecognized tax benefit at end of year	$	27.4		$	27.1		$	56.5

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 2016, 2015, and 2014, the Company recorded interest expense (benefit) of $1.1 million, $(2.7) million, and $(3.4) million, respectively. Penalties incurred during fiscal years 2016, 2015, and 2014 were not material.

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, 2015, the Company had accrued interest of $3.8 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 penalties of $0.2 million recorded on the Consolidated Balance Sheets within other liabilities. At June 30, 2015, the Company had accrued penalties of $0.3 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)		2015-2016
Arizona		2010-2013
California		2012-2014
Illinois		2007-2014
New York		2010-2014
New Jersey		2011-2014
Canada		2012-2014
India		2004-2011, 2013-2015

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 $2 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 2016, the IRS completed its review of the examination of the Company's tax return for the year ended June 30, 2014, which did not have a material impact to the consolidated financial statements of the Company.