Entity information:
INCOME TAXES
Earnings/(loss) from continuing operations before income taxes are as follows for the fiscal years ended 2017, 2016, and 2015:
 
Fiscal Year Ended  
 June 30,
(Dollars in millions)
2017
 
2016
 
2015
U.S. Operations
$
5.0

 
$
60.0

 
$
25.8

Non-U.S. Operations
$
130.6

 
$
84.9

 
$
86.7

 
$
135.6

 
$
144.9

 
$
112.5



The provision /(benefit) for income taxes consists of the following for the fiscal years ended 2017, 2016, and 2015: 
 
Fiscal Year Ended  
 June 30,
(Dollars in millions)
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal
$
2.1

 
$
(0.6
)
 
$
—

State and local
(0.4
)
 
(0.2
)
 
(0.8
)
Non-U.S.
22.7

 
26.3

 
31.9

Total
$
24.4

 
$
25.5

 
$
31.1

Deferred:
 
 
 
 
 
Federal
$
1.9

 
$
19.6

 
$
(125.3
)
State and local
1.4

 
(4.8
)
 
(1.1
)
Non-U.S.
(1.9
)
 
(6.6
)
 
(2.4
)
Total
1.4

 
8.2

 
(128.8
)
 
 
 
 
 
 
Total provision/(benefit)
$
25.8

 
$
33.7

 
$
(97.7
)

 

A reconciliation of the provision/(benefit) based on the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the fiscal years ended 2017, 2016, and 2015:  
 
Fiscal Year Ended  
 June 30,
(Dollars in millions)
2017
 
2016
 
2015
Provision at U.S. federal statutory tax rate
$
47.4

 
$
50.7

 
$
39.4

State and local income taxes
(1.5
)
 
(3.0
)
 
(2.4
)
Foreign tax rate differential
(25.7
)
 
(21.7
)
 
(23.9
)
Permanent items
2.9

 
(2.3
)
 
1.7

Unrecognized tax positions
(0.3
)
 
5.6

 
14.7

Tax valuation allowance
3.1

 
7.2

 
(133.2
)
Withholding tax and other foreign taxes
(0.2
)
 
0.6

 
1.4

Change in tax rate
2.0

 
(3.2
)
 
1.3

Foreign currency impact on permanently reinvested loans
—

 
—

 
2.7

R&D Tax Credit
(1.2
)
 
(1.4
)
 
(1.3
)
Other
(0.7
)
 
1.2

 
1.9

 
$
25.8

 
$
33.7

 
$
(97.7
)


The income tax provision for the current period is not comparable to the same period of the prior year due to changes in pretax income over many jurisdictions and the impact of discrete items. Generally, fluctuations in the effective tax rate are primarily due to changes in the geographic mix of pretax income and changes in the tax impact of permanent differences and other discrete tax items, which may have unique tax implications depending on the nature of the item. The effective tax rate for the fiscal year ended June 30, 2017 reflects the impact of an increase in foreign earnings taxed at rates lower than the U.S. statutory rate. This benefit is offset by an increase in the valuation allowance and the impact of permanent differences including disallowed transaction costs and deemed dividends offset by the benefit from the stock compensation deduction and dividend income exempt from tax under local law. The effective tax rate for the fiscal year ended June 30, 2016 reflects the impact of benefits of a valuation allowance release for utilized capital losses prior to expiration, a current year deduction related to stock compensation, as well as a deduction related to a further U.K. rate reduction enacted during the year, countered by valuation allowance builds on current year losses.
As of June 30, 2017, the Company had $569.5 million of undistributed earnings from non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. As these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not feasible to estimate the amount of U.S. tax that might be payable on the eventual remittance of such earnings.
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets and liabilities are as follows at June 30, 2017 and 2016:
 
 
Fiscal Year Ended  
 June 30,
(Dollars in millions)
2017
 
2016
Deferred income tax assets:
 
 
 

Accrued liabilities
$
27.4

 
$
21.6

Equity compensation
16.4

 
10.7

Loss and tax credit carryforwards
141.0

 
155.0

Foreign currency
11.5

 
18.8

Pension
39.4

 
45.9

Property-related
9.4

 
9.3

Intangibles
26.3

 
8.0

Other
25.7

 
17.1

Euro Denominated Debt
22.8

 
—

Total deferred income tax assets
319.9

 
286.4

Valuation allowance
(78.8
)
 
(69.9
)
Net deferred income tax assets
$
241.1

 
$
216.5

 
 
 
 
 
 
 
 
 
Fiscal Year Ended  
 June 30,
(Dollars in millions)
2017
 
2016
Deferred income tax liabilities:
 
 
 
Accrued liabilities
(0.8
)
 
(0.6
)
Foreign currency
(1.3
)
 
(0.9
)
Property-related
(57.6
)
 
(48.1
)
Goodwill and other intangibles
(151.1
)
 
(142.2
)
Other
(8.1
)
 
(1.0
)
Euro Denominated Debt
—

 
(27.6
)
Total deferred income tax liabilities
$
(218.9
)
 
(220.4
)
 
 
 
 
Net deferred tax asset/(liability)
$
22.2

 
$
(3.9
)


Deferred tax assets and liabilities in the preceding table are in the following captions in the balance sheet at June 30, 2017 and 2016:
 
Fiscal Year Ended  
 June 30,
(Dollars in millions)
2017
 
2016
Non-current deferred tax asset
53.9

 
37.5

Non-current deferred tax liability
31.7

 
41.4

Net deferred tax asset/(liability)
$
22.2

 
$
(3.9
)

At June 30, 2017, the Company has federal net operating loss carryforwards of $154.7 million, all of which are subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). Of this amount $1.4 million of net operating loss carryforwards were generated in years prior to April 10, 2007, when the Company was owned by Cardinal. The remaining amount of carryforwards are due to a change in ownership event when Blackstone, Genstar Capital, and Aisling Capital completed a secondary offering of the Company’s stock in March 2015. The federal loss carryforwards will expire in fiscal years 2023 through 2036.
At June 30, 2017, the Company has state tax loss carryforwards of $390.8 million. Approximately $49.5 million of these losses are state tax losses generated in periods prior to the period ending June 30, 2007. Substantially all state carryforwards have a twenty-year carryforward period. At June 30, 2017, the Company has international tax loss carryforwards of $152.6 million. Substantially all of these carryforwards are available for at least three years or have an indefinite carryforward period.

The Company had valuation allowances of $78.8 million and $69.9 million as of June 30, 2017 and 2016, respectively, against its deferred tax assets.

The Company considered all available evidence, both positive and negative, in assessing the need for a valuation allowance for deferred tax assets. Three possible sources of taxable income were evaluated when assessing the realization of deferred tax assets:
•
Future reversals of existing taxable temporary differences;
•
Tax planning strategies; and
•
Future taxable income exclusive of reversing temporary differences and carryforwards.
The Company considered the need to maintain a valuation allowance on deferred tax assets based on management’s assessment of whether it is more likely than not that deferred tax assets would be realized based on future reversals of existing taxable temporary differences and the ability to generate sufficient taxable income within the carryforward period available under the applicable tax law. The deferred tax liabilities are expected to reverse in the same period and jurisdiction and are of the same character as the temporary differences giving rise to a portion of the deferred tax assets.
The Company maintained a state valuation allowance on $386.3 million of apportioned net operating losses. Due to uncertainty around earnings, apportionment, certain restrictions at the state level, and a history of tax losses, anticipated utilization rates were not sufficient to overcome the negative evidence and allow a release. As part of the 2007 acquisition from Cardinal, the Company has been indemnified by Cardinal for tax liabilities that may arise in the future that relate to tax periods prior to April 10, 2007 (the "Formation Date"). The indemnification agreement includes, among other taxes, any and all federal, state and international income based taxes as well as any interest and penalties that may be related thereto.
Similarly, as part of the 2012 purchase of the CTS business from Aptuit, Inc., the Company has been indemnified by Aptuit, Inc. for tax liabilities relating to the CTS business that may arise in the future that relate to tax periods prior to February 17, 2012. The indemnification agreement includes, among other taxes, any and all federal, state and international income based taxes as well as any interest and penalties that may be related thereto.
The amount of income taxes the Company may pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. The Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental. The Company assesses its income tax positions and recorded benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, the Company records the amount that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties are accrued, where applicable.
ASC 740 includes guidance on the accounting for uncertainty in income taxes recognized in the financial statements. This standard also provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. As of June 30, 2017, the Company had a total of $52.5 million of unrecognized tax benefits. A reconciliation of unrecognized tax benefits, excluding accrued interest, for June 30, 2017, June 30, 2016 and June 30, 2015 is as follows:
(Dollars in millions)
Balance at June 30, 2014
$
60.6

Additions based on tax positions related to the current year
7.3

Additions for tax positions of prior years
5.5

Reductions for tax positions of prior years
(5.4
)
Settlements
(0.5
)
Lapse of the applicable statute of limitations
(0.6
)
Balance at June 30, 2015
$
66.9

Additions based on tax positions related to the current year
6.2

Additions for tax positions of prior years
—

Reductions for tax positions of prior years
(11.0
)
Settlements
—

Lapse of the applicable statute of limitations
(0.6
)
Balance at June 30, 2016
$
61.5

Additions based on tax positions related to the current year
3.3

Additions for tax positions of prior years
0.1

Reductions for tax positions of prior years
(6.8
)
Settlements
(5.4
)
Lapse of the applicable statute of limitations
(0.2
)
Balance at June 30, 2017
$
52.5


Of this amount, $41.4 million and $45.7 million represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate as of June 30, 2017 and June 30, 2016, respectively. An additional $11.1 million represents the amount of unrecognized tax benefits that, if recognized, would not affect the effective income tax rate due to a full valuation allowance.
In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including major jurisdictions such as Germany, United Kingdom, France, the United States, and various states. The Company is no longer subject to examinations by the relevant tax authorities for years prior to fiscal 2008.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2017, the Company has approximately $5.0 million of accrued interest related to uncertain tax positions, a decrease of $0.6 million from the prior year. The Company had approximately $5.6 million and $6.3 million of accrued interest related to uncertain tax positions as of June 30, 2016 and 2015, respectively. The portion of such interest and penalties subject to indemnification by Cardinal is $1.7 million, a decrease of $0.4 million from the prior year.