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INCOME TAXES

12 Months Ended

Jun. 30, 2016

Income Tax Disclosure [Abstract]

NOTE 18. INCOME TAXES

The provision for income taxes on continuing operations, by tax jurisdiction, consisted of the following for the fiscal years ended June 30:

		2016				2015				2014
Current
Federal		$	254			$	265			$	247
State			31				28				34
Foreign			45				38				45
Total current			330				331				326

Deferred
Federal			11				(13	)			(19	)
State			1				(1	)			2
Foreign			(7	)			(2	)			(4	)
Total deferred			5				(16	)			(21	)
Total		$	335			$	315			$	305

The components of earnings from continuing operations before income taxes, by tax jurisdiction, consisted of the following for the fiscal years ended June 30:

	2016			2015			2014
United States	$	900		$	829		$	754
Foreign		83			92			130
Total	$	983		$	921		$	884

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate on continuing operations follows for the fiscal years ended June 30:

		2016			2015			2014
Statutory federal tax rate		35.0	%		35.0	%		35.0	%
State taxes (net of federal tax benefits)		2.1			2.1			2.6
Tax differential on foreign earnings		0.5			(0.3	)		(0.3	)
Domestic manufacturing deduction		(2.4	)		(2.1	)		(2.3	)
Change in valuation allowance		0.5			0.6			0.6
Other differences		(1.6	)		(1.1	)		(1.0	)
Effective tax rate		34.1	%		34.2	%		34.6	%

Applicable U.S. income taxes and foreign withholding taxes have not been provided on approximately $216 of undistributed earnings of certain foreign subsidiaries as of June 30, 2016, because these earnings are considered indefinitely reinvested. The estimated net federal income tax liability that could arise if these earnings were not indefinitely reinvested is approximately $56. Applicable U.S. income and foreign withholding taxes are provided on these earnings in the periods in which they are no longer considered indefinitely reinvested.

Tax benefits resulting from stock-based payment arrangements that are in excess of the tax benefits recorded in net earnings over the vesting period of those arrangements (excess tax benefits) are recorded as increases to Additional paid-in capital. Excess tax benefits of approximately $51, $42, and $11 were realized and recorded to Additional paid-in capital for fiscal years 2016, 2015 and 2014, respectively.

The components of net deferred tax assets (liabilities) as of June 30 are shown below:

		2016				2015
Deferred tax assets ^(a)
Compensation and benefit programs		$	193			$	191
Basis difference related to Venture Agreement			30				30
Accruals and reserves			34				43
Inventory costs			21				19
Net operating loss and tax credit carryforwards			48				41
Other			54				61
Subtotal			380				385
Valuation allowance			(37	)			(34	)
Total deferred tax assets			343				351

Deferred tax liabilities ^(a)
Fixed and intangible assets			(325	)			(277	)
Low-income housing partnerships			(23	)			(22	)
Unremitted foreign earnings			(16	)			(7	)
Other			(25	)			(24	)
Total deferred tax liabilities			(389	)			(330	)
Net deferred tax assets (liabilities)		$	(46	)		$	21

^(a)The Company prospectively adopted ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," requiring all deferred tax assets and liabilities to be classified as noncurrent. See Note 1 for further details.

The Company periodically reviews its deferred tax assets for recoverability. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Valuation allowances have been provided to reduce deferred tax assets to amounts considered recoverable. Details of the valuation allowance were as follows as of June 30:

		2016				2015
Valuation allowance at beginning of year		$	(34	)		$	(51	)
Net decrease/(increase) for other foreign deferred tax assets			3				15
Net decrease/(increase) for foreign net operating loss carryforwards and tax credits			(6	)			2
Valuation allowance at end of year		$	(37	)		$	(34	)

As of June 30, 2016, the Company had foreign tax credit carryforwards of $15 for U.S. income tax purposes with expiration dates between fiscal years 2024 and 2025. Tax credit carryforwards in foreign jurisdictions of $19 have expiration dates in fiscal year 2031. Tax credit carryforwards in foreign jurisdictions of $1 can be carried forward indefinitely. Tax benefits from foreign net operating loss carryforwards of $16 have expiration dates between fiscal years 2017 and 2036. Tax benefits from foreign net operating loss carryforwards of $12 can be carried forward indefinitely.

The Company files income tax returns in the U.S. federal and various state, local and foreign jurisdictions. The federal statute of limitations has expired for all tax years through June 30, 2012. Various income tax returns in state and foreign jurisdictions are currently in the process of examination.

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of June 30, 2016 and 2015, the total balance of accrued interest and penalties related to uncertain tax positions was $3 and $10, respectively. Interest and penalties related to uncertain tax positions included in income tax expense resulted in a net benefit of $1, a net benefit of $1, and a net expense of $3 in fiscal years 2016, 2015 and 2014, respectively.

The following is a reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits:

		2016				2015				2014
Unrecognized tax benefits at beginning of year		$	38			$	71			$	69
Gross increases - tax positions in prior periods			3				3				3
Gross decreases - tax positions in prior periods			(3	)			(8	)			(5	)
Gross increases - current period tax positions			8				6				7
Gross decreases - current period tax positions			-				-				-
Lapse of applicable statute of limitations			(4	)			(34	)			(1	)
Settlements			(5	)			-				(2	)
Unrecognized tax benefits at end of year		$	37			$	38			$	71

Included in the balance of unrecognized tax benefits as of June 30, 2016, 2015 and 2014, are potential benefits of $27, $27 and $58, respectively, which if recognized, would affect net earnings. During the fiscal year ended June 30, 2015, $32 of gross unrecognized tax benefits relating to other discontinued operations for periods prior to fiscal year 2015 were recognized upon the expiration of the applicable statute of limitations. Recognition of these previously disclosed tax benefits had no impact on the Company’s cash flow or earnings from continuing operations for the fiscal years ended June 30, 2016, 2015 and 2014.