INCOME TAXES

Earnings before income taxes shown below are based on the geographic location to which such earnings are attributable.



	Years Ended June 30,
	2015		2014		2013
	($ in millions)
Earnings before income taxes:
U.S.	$	365.4	$	308.1	$	252.3
Foreign	73.5		87.4		70.9
Total	$	438.9	$	395.5	$	323.2

The Provision for income taxes consists of the following components:



	Years Ended June 30,
	2015			2014			2013
	($ in millions)
Current:
U.S. Domestic	$	120.8		$	114.8		$	73.1
Foreign	19.8			22.5			15.8
State	10.6			6.8			8.1
Total current	151.2			144.1			97.0
Deferred:
U.S. Domestic	4.5			(8.7		)	16.0
Foreign	(0.9		)	(0.4		)	—
State	(3.0		)	(2.5		)	(1.9		)
Total deferred	0.6			(11.6		)	14.1
Total Provision for income taxes	$	151.8		$	132.5		$	111.1



	Years Ended June 30,
	2015			%		2014			%		2013			%
	($ in millions)
Provision for income taxes at U.S. statutory rate	$	153.6		35.0		$	138.4		35.0		$	113.1		35.0
Increase (decrease) in Provision for income taxes from:
State taxes, net of federal tax	5.8			1.3		4.0			1.0		4.6			1.4
Foreign taxes	(5.1		)	(1.2	)	(7.5		)	(1.9	)	(4.3		)	(1.3	)
Valuation allowances	(0.9		)	(0.2	)	(0.7		)	(0.2	)	1.0			0.3
Other	(1.6		)	(0.3	)	(1.7		)	(0.4	)	(3.3		)	(1.0	)
Total Provision for income taxes	$	151.8		34.6		$	132.5		33.5		$	111.1		34.4

The Provision for income taxes and the effective tax rates for the fiscal year ended June 30, 2015 were $151.8 million and 34.6%, respectively, compared to $132.5 million and 33.5%, for the fiscal year ended June 30, 2014, respectively. The increase in the effective tax rate was primarily attributable to the cumulative tax benefits in fiscal year 2015 being less than cumulative tax benefits in fiscal year 2014. The cumulative tax benefits in fiscal year 2015 primarily related to the release of various tax reserves related to certain foreign, U.S. federal and state income taxes due to audit settlements and the expiration of certain audit periods, and the recognition of U.S. federal research and development credits based on the December 2014 legislative reinstatement of this credit for calendar year 2014 which collectively resulted in a net decrease to the effective tax rate of approximately 50 basis points. In fiscal year 2014 the cumulative tax benefits resulted in a net 85 basis point decrease to the effective tax rate. In addition to the lower cumulative tax benefits in fiscal year 2015 when compared to 2014, the change in the effective tax rate was also negatively impacted by the geographical mix of income. In general, the Company’s foreign earnings are subject to a lower corporate income tax rates relative to the tax rate applied against U.S. income. In fiscal year 2015, the Company’s foreign earnings were approximately 17% of total company earnings before income taxes as compared to fiscal year 2014 when the Company’s foreign earnings were approximately 22% of total company earnings before income taxes. The geographical mix of income may impact the effective tax rate in future periods as the geographical mix of the Company’s business changes.

The cumulative tax benefits in fiscal year 2014 primarily related to the release of a valuation allowance for a net operating loss carryforward in a foreign tax jurisdiction, and the release of various tax reserves related to certain foreign, U.S. federal and state income taxes due to audit settlements and the expiration of certain audit periods which resulted in a decrease to the effective tax rate of approximately 115 basis points as compared to fiscal year 2013. In addition, the effective tax rate was also positively affected by approximately 30 basis points due to the characterization of a $3.3 million decrease in the fair value of obligations under contingent acquisition consideration arrangements as a deductible permanent tax item. Offsetting these positive benefits were various non-deductible permanent tax items that negatively impacted the tax rate by approximately 60 basis points. The cumulative tax benefits in fiscal year 2014 primarily consisted of the recognition of a previous period’s foreign tax credits. In addition to the higher cumulative tax benefits in fiscal year 2014, the change in the effective tax rate was marginally positively impacted by the geographical mix of income.

As of June 30, 2015, the Company had approximately $375.0 million of accumulated earnings attributable to foreign subsidiaries. The Company considers such earnings as permanently reinvested outside the U.S. and, therefore, provides no additional taxes that could occur upon repatriation. It is not practicable to determine the amount of income taxes payable in the event all such foreign earnings are repatriated.

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Company’s deferred tax assets and liabilities at June 30, 2015 and 2014 were as follows:



	June 30,
	2015			2014
	($ in millions)
Classification:
Current deferred tax assets (included in Other current assets)	$	17.7		$	18.9
Long-term deferred tax assets (included in Other non-current assets)	1.3			0.9
Current deferred tax liabilities (included in Accrued expenses and other current liabilities)	(0.6		)	(0.6		)
Long-term deferred tax liabilities	(61.7		)	(62.4		)
Net deferred tax liabilities	$	(43.3	)	$	(43.2	)
Components:
Deferred tax assets:
Accrued expenses not currently deductible	$	4.3		$	4.9
Depreciation	19.6			23.9
Compensation and benefits not currently deductible	47.3			47.5
Net operating and capital losses	23.7			27.3
Tax credits	5.9			4.5
Other	4.9			5.6
Total deferred tax assets	105.7			113.7
Less: Valuation allowances	(9.2		)	(10.9		)
Deferred tax assets, net	96.5			102.8
Deferred tax liabilities:
Goodwill and identifiable intangibles	116.4			121.8
Net deferred expenses	16.9			19.9
Other	6.5			4.3
Deferred tax liabilities	139.8			146.0
Net deferred tax liabilities	$	(43.3	)	$	(43.2	)

The Company has estimated foreign net operating loss carryforwards of approximately $14.1 million as of June 30, 2015 of which $0.5 million expires in 2017 through 2027 and of which $13.6 million has an indefinite utilization period. In addition, the Company has estimated U.S. federal net operating loss carryforwards of approximately $37.4 million, which expire in 2015 through 2030.

Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that the Company will not be able to utilize the deferred tax assets attributable to net operating and capital loss carryforwards of certain subsidiaries to offset future taxable earnings. The Company has recorded valuation allowances of $9.2 million and $10.9 million at June 30, 2015 and 2014, respectively. The determination as to whether a deferred tax asset will be recognized is made on a jurisdictional basis and is based on the evaluation of historical taxable income or loss, projected future taxable income, carryforward periods, scheduled reversals of deferred tax liabilities and tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The assumptions used to project future taxable income require significant judgment and are consistent with the plans and estimates used to manage the underlying businesses.

As of June 30, 2015 and 2014, the Company’s total amounts of unrecognized tax benefits were $24.4 million and $26.6 million, respectively. The change relates to tax positions taken for the current and prior tax year. The amount of the unrecognized tax benefits at June 30, 2015 that, if recognized, would affect the Company’s effective tax rate is approximately $12.7 million.

In the next twelve months, the Company expects to decrease its reserve for unrecognized tax benefits by approximately $0.8 million as a result of statute of limitations expirations and certain potential state settlements.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:



	Fiscal Year Ended June 30,
	2015			2014			2013
	($ in millions)
Beginning balance	$	26.6		$	30.0		$	62.6
Gross increase related to prior period tax positions	0.5			0.5			1.9
Gross increase related to current period tax positions	2.4			2.2			2.2
Gross decrease related to prior period tax positions	(5.1		)	(6.1		)	(36.7		)
Ending balance	$	24.4		$	26.6		$	30.0

The $5.1 million gross decrease in fiscal year 2015 for prior period tax positions related to certain state, federal and foreign statute of limitation expirations.

The $6.1 million gross decrease in fiscal year 2014 for prior period tax positions related to the settlement of certain state income tax audits and certain federal and foreign statute of limitation expirations.

The $36.7 million gross decrease in fiscal year 2013 for prior period tax positions related to the settlement and execution of an advance pricing agreement with the U.S. Internal Revenue Service and the Canada Revenue Agency and statute of limitation expirations.

The Company’s policy with respect to interest and penalties associated with uncertain tax positions is not to include them in income tax expense but include penalties as a component of other accrued expenses and interest in interest expense. During the fiscal years ended June 30, 2015, 2014 and 2013, the Company recognized approximately $0.1 million, $0.9 million and $0.2 million, respectively, in interest and penalties.

The Company is regularly subject to examination of its income tax returns by U.S. Federal, state and foreign income tax authorities. A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements.