Income Taxes

12 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

NOTE 15.  INCOME TAXES

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

Years ended June 30,	2011	2010	2009
Earnings (loss) from continuing operations before income taxes:
United States	$    1,675.1	$    1,638.0	$    1,908.6
Foreign	257.6	225.2	(8.5)
	$    1,932.7	$    1,863.2	$    1,900.1

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

Years ended June 30,	2011	2010	2009
Current:
Federal	$       449.3	$       401.3	$       708.9
Foreign	96.9	104.4	(121.2)
State	24.7	54.1	35.2
Total current	570.9	559.8	622.9
Deferred:
Federal	95.7	106.8	(63.3)
Foreign	(1.8)	(15.1)	26.2
State	13.7	4.4	(10.8)
Total deferred	107.6	96.1	(47.9)
Total provision for income taxes	$       678.5	$       655.9	$       575.0

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

Years ended June 30,	2011		%	2010		%	2009		%
Provision for taxes at U.S.		#			#			#
statutory rate	$       676.5		35.0	$       652.1		35.0	$       665.0		35.0
Increase (decrease) in provision from:
State taxes, net of federal tax	29.2		1.5	34.5		1.9	37.8		2.0
Tax on repatriated earnings and foreign income	30.3		1.6	15.1		0.8	43.0		2.2
Utilization of foreign tax credits	(26.0)		(1.3)	(14.9)		(0.8)	(46.6)		(2.4)
Tax settlements	-		-	-		-	(120.0)		(6.3)
Resolution of tax matters	-		-	(12.2)		(0.7)	(2.8)		(0.1)
Section 199 - Qualified Production Activities	(18.2)		(1.0)	(11.8)		(0.6)	(6.9)		(0.4)
Other	(13.3)		(0.7)	(6.9)		(0.4)	5.5		0.3
	$       678.5		35.1	$       655.9		35.2	$       575.0		30.3

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

Years ended June 30,	2011	2010
Deferred tax assets:
Accrued expenses not currently deductible	$           205.8	$           227.4
Stock-based compensation expense	95.7	100.9
Net operating losses	111.4	80.8
Other	10.8	3.0
	423.7	412.1
Less: valuation allowances	(62.7)	(61.9)
Deferred tax assets, net	$           361.0	$           350.2
Deferred tax liabilities:
Prepaid retirement benefits	$             97.7	$             19.4
Deferred revenue	62.3	80.8
Fixed and intangible assets	298.9	176.3
Prepaid expenses	61.3	46.9
Unrealized investment gains, net	194.3	249.0
Tax on unrepatriated earnings	20.0	12.3
Other	0.4	-
Deferred tax liabilities	$           734.9	$           584.7
Net deferred tax liabilities	$           373.9	$           234.5

There are $35.2 million and $35.4 million of current deferred tax assets included in other current assets on the Consolidated Balance Sheets at June 30, 2011 and 2010, respectively. There are $62.3 million and $84.5 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 2011 and 2010, respectively.  There are $97.9 million, and $48.1 million of current deferred tax liabilities included in accrued expenses and other current liabilities on the Consolidated Balance Sheets at June 30, 2011 and 2010, respectively.

Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately $1,016.7 million as of June 30, 2011, 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 impractical to estimate the amount of net income tax that might be payable.

The Company has estimated foreign net operating loss carry-forwards of approximately $123.0 million as of June 30, 2011, of which $30.9 million expires through 2031 and $92.1 million has an indefinite utilization period. As of June 30, 2011, the Company has approximately $95.7 million of federal net operating loss carry-forwards from acquired companies.  The net operating loss has an annual utilization limitation pursuant to section 382 of the Internal Revenue Code and expires through 2026. 

The Company has state net operating loss carry-forwards of approximately $259.8 million as of June 30, 2011, which expire through 2030.

The Company has recorded valuation allowances of $62.7 million and $61.9 million at June 30, 2011 and 2010, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized. 

Income tax payments were approximately $628.7 million, $693.4 million, and $719.1 million for fiscal 2011, 2010, and 2009, respectively.

As of June 30, 2011, 2010 and 2009 the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $105.7 million, $107.2 million and $92.8 million respectively. The amount that, if recognized, would impact the effective tax rate is $56.3 million, $52.8 million and $42.0 million respectively.  The remainder, if recognized, would principally affect deferred taxes. 

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

	Fiscal 2011	Fiscal 2010	Fiscal 2009
Unrecognized tax benefits at beginning of year	$     107.2	$       92.8	$        404.2
Additions for tax positions	9.7	13.3	19.0
Reductions for tax positions	(2.4)	(2.1)	(6.4)
Additions for tax positions of prior periods	17.3	29.6	111.4
Reductions for tax positions of prior periods	(23.3)	(1.0)	(207.7)
Settlements with tax authorities	(4.5)	(5.0)	(216.9)
Expiration of the statute of limitations	(0.4)	(20.3)	(3.5)
Impact of foreign exchange rate fluctuations	2.1	(0.1)	(7.3)
Unrecognized tax benefits at end of year	$     105.7	$     107.2	$          92.8

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 ended June 30, 2011, 2010, and 2009, the Company recorded interest expense of $1.7 million, $4.0 million, and $15.5 million, respectively.  Penalties incurred during fiscal years ended June 30, 2011, 2010, and 2009 were not material.  At June 30, 2011, the Company had accrued interest of $15.4 million recorded on the Consolidated Balance Sheets, of which $0.4 million was recorded within income taxes payable, and the remainder was recorded within other liabilities.  At June 30, 2010, the Company had accrued interest of $15.3 million recorded on the Consolidated Balance Sheets, of which $0.2 million was recorded within income taxes payable, and the remainder was recorded within other liabilities.  At June 30, 2011, the Company had accrued penalties of $3.4 million recorded on the Consolidated Balance Sheets, of which $0.1 was recorded within income taxes payable, and the remainder was recorded within other liabilities.  At June 30, 2010, the Company had accrued penalties of $1.1 million recorded on the Consolidated Balance Sheets, all of which was recorded 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)                                              2009 – 2011   

    California                                          2006 - 2008

                                                                    Illinois                                               2004 - 2005

    New Jersey                                        2002 – 2008

    France                                                     2008 - 2009                             

Canada completed its joint audit with the Province of Ontario for the fiscal years ended June 30, 2005 through June 30, 2007 which did not have a material impact to the consolidated financial statements of the Company. 

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 $10.0 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 January 2010, the Company reached an agreement with the IRS regarding all outstanding tax audit issues in dispute for the tax years 2007 and 2008, which did not have a material impact to the consolidated financial statements of the Company. 

In June 2009, the Company reached an agreement with the IRS regarding all outstanding tax audit issues with the IRS in dispute for the tax years 1998 through 2006.  As a result, the Company owed the IRS and other tax jurisdictions $217.5 million, which was satisfied by applying $113.2 million of funds on deposit and making cash payments of $103.0 million in fiscal 2010.  The impact of this agreement was offset by a receivable of $168.1 million from the IRS and other tax jurisdictions, of which $152.3 million was received in fiscal 2010.  The remaining balances are expected to be settled in fiscal 2012.  In fiscal 2009, the Company had previously recorded a liability for unrecognized tax benefits of $317.6 million and recorded a benefit to the provision for income taxes of $99.7 million.  Additionally, in fiscal 2009, the Company included a cumulative adjustment between domestic and foreign earnings as a result of the audit settlement described above and a related agreement with a foreign tax authority, and as a result, included a foreign tax benefit of $119.7 million in its income tax provision. 

In April 2009, the Company settled a state tax matter, for which the Company had previously recorded a liability for unrecognized tax benefits of $14.2 million and a related deferred tax asset of $5.1 million.  Accordingly, the Company recorded a reduction in the provision for income taxes of $9.2 million during the fourth quarter of fiscal 2009 related to the reversal of the liability for unrecognized tax benefits and the related deferred tax asset.  In addition, the Company received a tax credit of $11.1 million related to the same matter, which further reduced the provision for income taxes during the fourth quarter of fiscal 2009.