Note 9. Income Taxes

In accordance with FASB Statement No. 109, accounting for income taxes follows the asset and liability approach. Deferred taxes reflect the tax consequences on future years of differences between the financial reporting and tax bases of assets and liabilities.

The provision for income taxes consists of the following components:

(In thousands)

Years ended June 30,
1997
1996
1995
Current:
Federal
$170,826
$124,400
$106,440
Non-U.S.
37,090
20,750
19,150
State
37,885
21,600
24,910
Total current
245,801
166,750
150,500
Deferred:
Federal
(29,741)
(6,060)
(4,440)
Non-U.S.
4,360
5,860
(5,430)
State
(9,910)
2,020
(1,180)
Total deferred
(35,291)
13,940
(11,050)
$210,510
$180,690
$139,450

At June 30, 1997 and 1996, the Company had gross deferred tax assets of approximately $142 million and $114 million, respectively, consisting primarily of operating expenses not currently deductible for tax return purposes. Valuation allowances approximated $23 million as of June 30, 1997 and 1996. Gross deferred tax liabilities approximated $214 million as of June 30, 1997 and June 30, 1996, consisting primarily of differences in the accounting and tax values of certain fixed and intangible assets.

Income tax payments were approximately $200 million in 1997, $178 million in 1996 and $131 million in 1995. Pretax U.S. earnings approximated $649 million in 1997, $592 million in 1996, and $505 million in 1995.

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

(In thousands, except percentages)

Years ended June 30,
1997
%
1996
%
1995
%
Provision for taxes at statutory rate
$253,400
35.0
$222,400
35.0
$187,000
35.0
Increase (decrease) in provision from:
Investments in municipals and and preferred stock
(62,200)
(8.6)
(55,300)
(8.7)
(57,995)
(10.9)
State taxes, net of federal tax benefit
18,180
2.5
15,370
2.4
15,425
2.9
Other
1,130
0.2
(1,780)
(.3)
(4,980)
(.9)
$210,510
29.1
$180,690
28.4
$139,450
26.1