NOTE 16. 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,
	2012		2011		2010
	($ in millions)
Earnings from continuing operations before income taxes:
U.S.	$	125.5	$	196.2	$	247.9
Foreign		75.4		73.5		94.2

	$	200.9	$	269.7	$	342.1

The Provision for income taxes consists of the following components:


	Years Ended June 30,
	2012			2011			2010
	($ in millions)
Current:
U.S. Domestic	$	53.3		$	56.3		$	76.5
Foreign		22.0			22.9			28.1
State		9.0			5.9			9.0

Total current		84.3			85.1			113.6
Deferred:
U.S. Domestic		(5.2	)		20.0			0.6
Foreign		(1.1	)		(1.5	)		0.9
State		(2.1	)		(5.7	)		1.9

Total deferred		(8.4	)		12.8			3.4

Total provision for income taxes	$	75.9		$	97.9		$	117.0


	Years Ended June 30,
	2012			%			2011			%			2010			%
	($ in millions)
Provision for income taxes at U.S. statutory rate	$	70.3			35.0		$	94.4			35.0		$	119.7			35.0
Increase in Provision for income taxes from:
State taxes, net of federal tax		4.8			2.4			3.6			1.3			8.6			1.6
Foreign taxes		(5.7	)		(2.8	)		(1.4	)		(0.5	)		(4.6	)		(1.4	)
Valuation allowances		3.2			1.6			(4.5	)		(1.7	)		(9.5	)		(2.8	)
Advance pricing agreement adjustment		—			—			4.9			1.9			—			—
Other		3.3			1.6			0.9			0.3			2.8			1.8

	$	75.9			37.8		$	97.9			36.3		$	117.0			34.2

The Company’s effective tax rate for the fiscal year ended June 30, 2012 was 37.8% compared to 36.3% for the fiscal year ended June 30, 2011. The increase in the effective tax rate was primarily due to a $7.4 million one-time tax expense attributable to a valuation allowance on capital tax losses related to the PWI common stock and a write-off of certain state net operating loss carryforwards in fiscal year ended June 30, 2012.

As of June 30, 2012, the Company had approximately $280.3 million of 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, 2012 and 2011 were as follows:


	June 30,
	2012			2011
	($ in millions)
Classification:
Current deferred tax assets (included in Other current assets)	$	19.8		$	16.0
Long-term deferred tax assets (included in Other non-current assets)		0.3			—
Current deferred tax liabilities (included in Accrued expenses and other current liabilities)		(0.5	)		—
Long-term deferred tax liabilities		(63.2	)		(71.3	)

Net deferred tax liabilities	$	(43.6	)	$	(55.3	)

Components:
Deferred tax assets:
Accrued expenses not currently deductible	$	3.4		$	4.9
Depreciation		25.1			15.8
Compensation and benefits not currently deductible		49.6			43.2
Net operating and capital losses		33.5			36.3
Tax credits		1.9			1.2
Other		9.4			7.2

		122.9			108.6
Less: Valuation allowances		(14.7	)		(12.1	)

Deferred tax assets, net		108.2			96.5

Deferred tax liabilities:
Goodwill and identifiable intangibles		126.4			123.9
Net deferred expenses		21.6			23.9
Other		3.8			4.0

Deferred tax liabilities		151.8			151.8

Net deferred tax liabilities	$	(43.6	)	$	(55.3	)

The Company has estimated foreign net operating loss carryforwards of approximately $21.7 million as of June 30, 2012 of which $0.6 million expires in 2017 through 2027 and $21.1 million which has an indefinite utilization period. In addition, the Company has estimated U.S. federal net operating loss carryforwards of approximately $63.6 million which expire in 2018 through 2032.

The Company has recorded valuation allowances of $14.7 million and $12.1 million at June 30, 2012 and 2011, respectively, because the Company does not believe that it is more likely than not that it will be able to utilize the deferred tax assets attributable to net operating and capital loss carryforwards of certain subsidiaries to offset future taxable earnings.

For fiscal years 2012 and 2011, the Company’s total amounts of unrecognized tax benefits were $62.6 million and $47.0 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, 2012 that, if recognized, would affect the Company’s effective tax rate is approximately $22.7 million.

In the next twelve months, the Company expects to decrease its reserve for unrecognized tax benefits by approximately $7.0 million as a result of a transfer pricing settlement for the years 2007 through 2010 and certain state settlements.

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


	Fiscal Year Ended June 30,
	2012		2011			2010
	($ in millions)
Beginning balance	$	47.0	$	16.7		$	11.5
Gross increase related to prior period tax positions		9.2		31.4			5.2
Gross increase related to current period tax positions		6.4		2.6			—
Gross decrease related to prior period tax positions – Statute expiration		—		(3.7	)		—

Balance at June 30,	$	62.6	$	47.0		$	16.7

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, 2012, 2011 and 2010, the Company recognized approximately $1.0 million, $0.8 million and $0.8 million, respectively, in interest and penalties.

The Company is continuously subject to U.S. Federal, state and foreign income tax exams for the periods beginning March 31, 2007 through June 30, 2012.