INCOME TAXES

Domestic and foreign income before income taxes for the last three fiscal years were as follows:



(dollars in millions)	2016		2015		2014
Domestic	$	107.1	$	101.1	$	98.2
Foreign	108.1		99.1		89.7
	$	215.2	$	200.2	$	187.9

Provisions for income taxes for the last three fiscal years were as follows:



(dollars in millions)	2016			2015			2014
Current:
Federal	$	(4.9	)	$	36.6		$	27.3
State	4.5			8.6			9.5
Foreign	37.2			23.0			33.2
	36.8			68.2			70.0
Deferred:
Federal	23.2			6.7			4.0
State	1.3			(1.2		)	(0.9		)
Foreign	(1.0		)	(21.3		)	(14.3		)
	23.5			(15.8		)	(11.2		)
	$	60.3		$	52.4		$	58.8

Our consolidated effective income tax rate differed from the U.S. federal statutory income tax rate for the last three fiscal years as set forth below:



(dollars in millions)	2016			%		2015			%		2014			%
Income tax expense computed at the federal statutory rate	$	75.3		35.0	%	$	70.1		35.0	%	$	65.8		35.0	%
State income taxes, net of federal benefit	4.3			2.0	%	5.1			2.5	%	5.4			2.9	%
Foreign rate differential	(12.8		)	(5.9	)%	(4.3		)	(2.2	)%	(4.9		)	(2.6	)%
Change in valuation allowances	13.3			6.2	%	(0.8		)	(0.4	)%	(0.5		)	(0.3	)%
Change in reserves	(5.7		)	(2.7	)%	(2.1		)	(1.0	)%	(5.2		)	(2.8	)%
Research and development	(9.0		)	(4.2	)%	(13.4		)	(6.7	)%	(3.3		)	(1.7	)%
Non-taxable contingent consideration	2.8			1.3	%	(1.8		)	(0.9	)%	(0.3		)	(0.2	)%
Recognition of subsidiary basis difference	(12.9		)	(6.0	)%	—			—	%	—			—	%
Other non-deductible expenses	1.5			0.7	%	1.3			0.6	%	—			—	%
Statutory tax rate changes	0.2			0.1	%	(0.6		)	(0.2	)%	(0.6		)	(0.3	)%
Other, net	3.3			1.5	%	(1.1		)	(0.5	)%	2.4			1.3	%
	$	60.3		28.0	%	$	52.4		26.2	%	$	58.8		31.3	%

Significant components of our net deferred tax assets (liabilities) as of June 30, 2016 and June 30, 2015 were as follows:



(dollars in millions)	2016			2015
Deferred tax assets:
U.S. loss carryforwards	$	2.5		$	2.5
Foreign loss carryforwards	13.9			4.5
Accrued expenses	49.8			42.6
Tax credit carryforwards	1.7			2.8
Provision for losses on receivables	1.6			2.7
Deferred compensation	13.2			10.0
Deferred revenue	22.6			21.3
Intercompany loans	0.2			1.3
Other	2.0			2.2
Gross deferred tax assets	107.5			89.9
Deferred tax asset valuation allowance	(16.1		)	(4.4		)
Total deferred tax assets	91.4			85.5
Deferred tax liabilities:
Property and equipment	(43.0		)	(6.8		)
Revenue recognition	(5.7		)	(10.7		)
Intangible assets	(29.0		)	(35.5		)
Other	(5.9		)	(4.7		)
Total deferred tax liabilities	(83.6		)	(57.7		)
Net deferred tax assets	$	7.8		$	27.8

The net deferred tax assets and liabilities included in the consolidated balance sheets as of June 30, 2016 and June 30, 2015 were as follows:



(dollars in millions)	2016			2015
Current deferred tax assets	$	—		$	59.1
Non-current deferred tax assets	27.1			11.7
Current deferred tax liabilities	—			(10.0		)
Non-current deferred tax liabilities	(19.3		)	(33.0		)
	$	7.8		$	27.8

At June 30, 2016, federal, state and foreign loss carryforwards of $4.6 million, $30.0 million and $68.7 million, respectively, were available to offset future liabilities for income taxes. The federal net operating losses expire in the fiscal years 2023 through 2034. Included in the state loss carryforwards is $3.4 million attributable to deductions from the exercise of equity awards. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash. Use of these loss carryforwards is limited based on the future income of certain subsidiaries. The state net operating losses expire in the fiscal years 2017 through 2034. Of the non-U.S. loss carryforwards, $2.1 million will expire between fiscal years 2017 and 2026; the remainder does not expire. We also have U.S. foreign tax credit carryforwards of $0.2 million, which will expire in Fiscal Year 2017 if not utilized. The increase in the foreign capital loss carryforwards is due to the recognition of basis differences in certain foreign subsidiaries post reorganization generating foreign capital loss carryforwards.

A valuation allowance has been established for certain future income tax benefits related to loss carryforwards and temporary tax adjustments based on an assessment that it is more likely than not that these benefits will not be realized. The increase in the valuation allowance in Fiscal Year 2016 was principally due to the establishment of a $12.8 million valuation allowance against the foreign capital loss carryforwards that were generated as a result of a foreign subsidiary reorganization.

In Fiscal Year 2015 we had U.S. foreign tax credit carryforwards of $26.1 million; included in the U.S. foreign tax credit carryforwards was $15.3 million attributable to deductions from the exercise of equity awards. In Fiscal Year 2016 we were able to utilize our foreign tax credit carryforwards, as a result we recorded an incremental $15.3 credit to additional paid-in capital.

Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries as those earnings are indefinitely reinvested. Undistributed earnings of foreign subsidiaries that are indefinitely reinvested are approximately $565.6 million and $479.0 million at June 30, 2016 and June 30, 2015, respectively. Due to the complexities associated with this hypothetical calculation, it is not practicable to estimate the unrecognized deferred tax liability on the earnings that are indefinitely reinvested in foreign operations.

As of June 30, 2016, we had $29.5 million of gross unrecognized tax benefits of which $18.9 million would impact the effective tax rate if recognized. As of June 30, 2015, we had $35.2 million of gross unrecognized tax benefits of which $23.9 million would impact the effective tax rate if recognized. This reserve primarily relates to exposures for income tax matters such as changes in the jurisdiction in which income is taxable.

Unrecognized tax benefits represent favorable positions we have taken, or expect to take, on tax returns. These positions have reduced, or are expected to reduce, our income tax liability on our tax returns and financial statements. As a result of the uncertainty associated with these positions, we have established a liability that effectively reverses the previous recognition of the tax benefits, making them “unrecognized.” Our unrecognized income tax benefits activity, excluding accrued interest and penalties, for the last three fiscal years were as follows:



(dollars in millions)	2016			2015			2014
Balance at beginning of year	$	35.2		$	41.5		$	46.6
Additions related to tax positions in prior years	0.1			—			0.8
Additions related to tax positions in the current year	1.0			3.6			—
Reductions related to tax positions in prior years	(5.0		)	(0.5		)	(1.1		)
Reductions related to settlements with tax authorities	—			(6.5		)	—
Reductions related to the expiration of statutes	(1.0		)	(0.1		)	(5.6		)
Currency translation adjustments	(0.8		)	(2.8		)	0.8
Balance at end of year	$	29.5		$	35.2		$	41.5

As of June 30, 2016, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $0.4 million in the next twelve months primarily as a result of the expiration of statutes of limitation and settlement with tax authorities.

We recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2016 and June 30, 2015, interest and penalties of $3.4 million and $4.2 million, respectively, were included in our liability for unrecognized tax benefits. For Fiscal Years 2016, 2015, and 2014, a benefit of $0.9 million, a benefit of $0.8 million, and an expense of $0.7 million, respectively, were recorded for interest and penalties related to tax matters.

We are subject to U.S. federal income tax, as well as income tax in multiple states, local and foreign jurisdictions. Our U.S. federal, state and local income tax returns for the tax years 2005 to 2015 remain open for examination by the relevant tax authority. In foreign tax jurisdictions, the Company has open tax years dating back to 2002. The extended open tax years for these tax jurisdictions resulted from tax attributes carryover including net operating losses or tax credits from those tax years.