INCOME TAXES

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



	Years Ended June 30,
	2016		2015		2014
	(in millions)
Earnings before income taxes:
U.S.	$	389.2	$	365.4	$	308.1
Foreign	79.7		73.5		87.4
Total	$	468.9	$	438.9	$	395.5

The Provision for income taxes consists of the following components:



	Years Ended June 30,
	2016			2015			2014
	(in millions)
Current:
U.S. Domestic	$	134.9		$	120.8		$	114.8
Foreign	23.9			19.8			22.5
State	8.5			10.6			6.8
Total current	167.3			151.2			144.1
Deferred:
U.S. Domestic	(7.4		)	4.5			(8.7		)
Foreign	(0.4		)	(0.9		)	(0.4		)
State	1.9			(3.0		)	(2.5		)
Total deferred	(5.9		)	0.6			(11.6		)
Total Provision for income taxes	$	161.4		$	151.8		$	132.5



	Years Ended June 30,
	2016			%		2015			%		2014			%
	(in millions)
Provision for income taxes at U.S. statutory rate	$	164.1		35.0		$	153.6		35.0		$	138.4		35.0
Increase (decrease) in Provision for income taxes from:
State taxes, net of federal tax	7.0			1.5		5.8			1.3		4.0			1.0
Foreign taxes	(5.6		)	(1.2	)	(5.1		)	(1.2	)	(7.5		)	(1.9	)
Valuation allowances	(0.3		)	(0.1	)	(0.9		)	(0.2	)	(0.7		)	(0.2	)
Other	(3.8		)	(0.7	)	(1.6		)	(0.3	)	(1.7		)	(0.4	)
Total Provision for income taxes	$	161.4		34.4		$	151.8		34.6		$	132.5		33.5

The Provision for income taxes and the effective tax rates for the fiscal year ended June 30, 2016 were $161.4 million and 34.4%, compared to $151.8 million and 34.6%, for the fiscal year ended June 30, 2015, respectively. The decrease in the effective tax rate was primarily attributable to a greater recognition of tax benefits in the fiscal year 2016 annualized effective tax rate for the current year federal research and development (R&D) tax credit and the Section 199 domestic production activities deduction (the Section 199 deduction) compared to the recognition of such tax benefits in the annualized rate for fiscal year 2015. The additional benefits in the fiscal year 2016 annualized tax rate for the R&D tax credit and the Section 199 deduction compared to fiscal year 2015 resulted in a decrease in the rate of approximately 34 basis points. In addition, the Company recognized more cumulative discrete tax benefits in fiscal year 2016 compared to fiscal year 2015, yielding an additional benefit of approximately 2 basis points to the rate. The cumulative discrete tax benefits in fiscal year 2016 related primarily to larger discrete tax benefits for prior years US federal R&D tax credits and the prior year Section 199 deduction. The gross tax benefit of approximately 36 basis points from the greater recognition in fiscal year 2016 for tax benefits in the annualized rate and excess cumulative discrete items compared to fiscal year 2015 was partially offset by the recognition in fiscal year 2016 of additional US federal tax expense (a decrease of approximately 16 basis points to the rate) attributable to a one-time dividend from a foreign affiliate that was a party to a legal entity reorganization. In fiscal year 2016, the Company’s foreign earnings were approximately 17% of total company earnings before income taxes as compared to fiscal year 2015 when the Company’s foreign earnings were also approximately 17% 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 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 the 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.

As of June 30, 2016, the Company had approximately $366.5 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, 2016 and 2015 were as follows:



	June 30,
	2016			2015
	(in millions)
Classification:
Current deferred tax assets (included in Other current assets)	$	19.3		$	17.7
Long-term deferred tax assets (included in Other non-current assets)	1.5			1.3
Current deferred tax liabilities (included in Accrued expenses and other current liabilities)	(0.8		)	(0.6		)
Long-term deferred tax liabilities	(61.6		)	(61.7		)
Net deferred tax liabilities	$	(41.6	)	$	(43.3	)
Components:
Deferred tax assets:
Accrued expenses not currently deductible	$	4.0		$	4.3
Depreciation	21.1			19.6
Compensation and benefits not currently deductible	56.0			47.3
Net operating and capital losses	21.6			23.7
Tax credits	4.8			5.9
Other	5.1			4.9
Total deferred tax assets	112.6			105.7
Less: Valuation allowances	(9.8		)	(9.2		)
Deferred tax assets, net	102.8			96.5
Deferred tax liabilities:
Goodwill and identifiable intangibles	120.3			116.4
Net deferred expenses	16.5			16.9
Other	7.6			6.5
Deferred tax liabilities	144.4			139.8
Net deferred tax liabilities	$	(41.6	)	$	(43.3	)

The Company has estimated foreign net operating loss carryforwards of approximately $13.7 million as of June 30, 2016 of which $1.2 million expires in 2017 through 2027 and of which $12.5 million has an indefinite utilization period. In addition, the Company has estimated U.S. federal net operating loss carryforwards of approximately $31.4 million, which expire in 2017 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 $9.8 million and $9.2 million at June 30, 2016 and 2015, 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.

In the next twelve months, the Company expects to decrease its reserve for unrecognized tax benefits by approximately $0.5 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 gross unrecognized tax positions:



	Fiscal Year Ended June 30,
	2016			2015			2014
	(in millions)
Beginning balance	$	24.4		$	26.6		$	30.0
Gross increase related to prior period tax positions	0.6			0.5			0.5
Gross increase related to current period tax positions	2.6			2.4			2.2
Gross decrease related to prior period tax positions	(9.4		)	(5.1		)	(6.1		)
Ending balance	$	18.2		$	24.4		$	26.6

As of June 30, 2016, 2015 and 2014 the reserve for unrecognized tax positions recorded by the Company for the gross unrecognized tax positions presented in the preceding table, was $12.9 million, $12.7 million, and $14.5 million respectively, if reversed in full the reserve would affect the effective tax rate by these amounts, respectively.

The $9.4 million gross decrease in fiscal year 2016 for prior period tax positions related to certain tax audit settlements and certain state, federal and foreign statute of limitation expirations.

The $5.1 million gross decrease in fiscal year 2015 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 $6.1 million gross decrease in fiscal year 2014 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. In this regard, during the fiscal year ended June 30, 2016, the Company adjusted accrued interest by approximately $(0.3) million as a result of a favorable audit settlement and recognized a total liability of $3.4 million; in fiscal year ended June 30, 2015, the Company accrued approximately $0.1 million and recognized a total liability of $5.0 million; in fiscal year ended June 30, 2014 the Company accrued approximately $0.9 million and recognized a total liability of $3.2 million for penalties and interest.

The Company is regularly subject to examination of its income tax returns by U.S. Federal, state and foreign income tax authorities. The tax years that are currently open and could be subject to income tax audits for U.S. federal and most state and local jurisdictions are fiscal years ending June 30, 2013 through June 30, 2016, and for Canadian operations that could be subject to audit in Canada, fiscal years ending June 30, 2012 through June 30, 2016. A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements.