Income Taxes

12 Months Ended

Jun. 30, 2012

Income Taxes

Income Taxes

16.Income Taxes

Income from continuing operations before income taxes for the Company’s domestic and foreign operations was as follows:

	Years Ended June 30,
($ in millions)	2012		2011		2010
Domestic	$	168.4	$	64.9	$	(7.4	)
Foreign	20.2		22.9		12.1
Income before income taxes	$	188.6	$	87.8	$	4.7

The provision (benefit) for income taxes from continuing operations consisted of the following:

	Years Ended June 30,
($ in millions)	2012		2011			2010
Current:
Federal	$	21.5	$	9.2		$	—
State	2.9		5.2			0.7
Foreign	5.8		6.7			2.8
Total current	30.2		21.1			3.5
Deferred:
Federal	32.5		(3.6		)	2.2
State	4.1		(1.3		)	(4.1		)
Foreign	0.2		(0.1		)	1.0
Total deferred	36.8		(5.0		)	(0.9		)
Total income tax expense	$	67.0	$	16.1		$	2.6

The following is a reconciliation of income taxes computed at the U.S. Federal income tax rate to the Company’s effective income tax rate:

	Years Ended June 30,
(% of pre-tax income)	2012		2011		2010
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.2		2.9		(13.5	)
Domestic manufacturing deduction	(2.3	)	(3.4	)	(13.7	)
Research and development tax credit	(0.6	)	(3.7	)	(6.0	)
Foreign tax rate differential	(0.6	)	(1.7	)	(10.7	)
Nontaxable income	—		(0.6	)	(27.3	)
Foreign source income	—		(7.3	)	—
Increases (decreases) in valuation allowances	0.1		(0.2	)	7.9
Adjustments of prior years’ income taxes	(0.5	)	(2.6	)	57.8
Changes in uncertain tax positions, net	0.4		(0.4	)	(104.8	)
Healthcare reform	—		—		126.9
Other, net	1.8		0.3		3.7
Effective income tax rate	35.5	%	18.3	%	55.3	%

Deferred taxes are recorded for temporary differences between the carrying amounts of assets and liabilities and their tax bases.  The significant components of deferred tax assets and liabilities that are recorded in the Consolidated Balance Sheet are summarized in the table below. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. As of June 30, 2012, the Company had state net operating loss carryforwards of $325.4 million expiring between 2013 and 2031.  The valuation allowance increased from 2011 by $0.6 million primarily due to a decrease in the amount of future reversals of taxable temporary differences.

	June 30,
($ in millions)	2012			2011
Deferred tax assets:
Pensions	$	132.1		$	75.7
Postretirement provisions	90.8			48.0
Net operating loss carryforwards	20.7			20.5
Environmental	4.5			12.8
Other	44.5			19.5
Gross deferred tax assets	292.6			176.5
Valuation allowances	(18.1		)	(17.5		)
Net deferred tax assets	274.5			159.0
Deferred tax liabilities:
Depreciation	(239.5		)	(177.7		)
Intangible assets	(41.2		)	(9.4		)
Inventories	(12.9		)	(5.3		)
Other	(1.7		)	—
Total deferred tax liabilities	(295.3		)	(192.4		)
Deferred tax liabilities	$	(20.8	)	$	(33.4	)

At June 30, 2012, the Company had undistributed earnings of foreign subsidiaries, amounting to $114.0 million on which deferred income taxes have not been provided because earnings are expected to be reinvested indefinitely outside of the U.S. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes and withholding taxes in various foreign tax jurisdictions.  It is not practical to calculate these taxes due to the complex and hypothetical nature of the calculations.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for uncertain tax positions is as follows:

	Year Ended June 30,
($ in millions)	2012		2011			2010
Balance, beginning	$	1.9	$	3.6		$	14.3
Additions based on tax positions of prior years	—		0.3			—
Additions based on tax positions of current years	0.4		—			—
Reductions as a result of a lapse of statute of limitations	—		(2.0		)	(8.2		)
Reductions based on tax positions of prior year	—		—			(1.9		)
Settlements	—		—			(0.6		)
Balance, ending	$	2.3	$	1.9		$	3.6

The liability for unrecognized tax benefits as of June 30, 2012 of $2.3 million includes $1.5 million of offsetting tax benefits for reversals of deferred tax items.  The net amount of $0.8 million would, if recognized, favorably impact the Company’s effective tax rate. The net amounts at June 30, 2011 and 2010 were $0.4 million and $0.6 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefits will change within the next 12 months; however, any such changes should not have a significant impact on the Company’s consolidated financial statements.

It is the Company’s policy to classify interest and penalties recognized on uncertain tax positions as a component of income tax expense. The Company’s income tax expense included a charge of $0.4 million and benefits of $0.3 million and $1.7 million related to interest and penalties for the years ended June 30, 2012, 2011 and 2010, respectively.  In addition, $0.7 million and $0.3 million were included in accrued income taxes in the Consolidated Balance Sheet as of June 30, 2012 and 2011, respectively.

All years prior to June 30, 2008 have been settled with the Internal Revenue Service and with most significant state tax jurisdictions. The Company has not extended any statute of limitations period for any significant location in which it operates. Generally, tax years are open to examination for a period of four to six years following the filing of the tax returns.