Note 14 - Income Taxes

9 Months Ended

Mar. 25, 2012

Income Tax Disclosure [Text Block]

14. Income Taxes

The Company’s income tax provision for the quarter ended March 25, 2012 resulted in tax expense of $861 at an effective rate of 10.5%.  The Company’s income tax provision for the year-to-date period ended March 25, 2012 resulted in tax expense of $2,940 at an effective rate of 108.1%.  The income tax rate for the quarter and year-to-date periods ended March 25, 2012 is different from the U.S. statutory rate due to losses in tax jurisdictions for which no tax benefit could be recognized, foreign dividends taxed in the U.S. and abroad, and earnings attributable to foreign operations which are taxed at rates lower than the U.S. statutory rate.  The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from U.S. operations and foreign sources versus annual projections and changes in foreign currencies in relation to the U.S. dollar.  As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly basis.

The Company’s income tax provision for the quarter ended March 27, 2011 resulted in tax benefit of $166 at an effective tax rate of 3.9%.  The Company’s income tax provision for the year-to-date period ended March 27, 2011 resulted in tax expense of $4,205 at an effective rate of 26.6%.  The income tax rate for the quarter and year-to-date periods ended March 27, 2011 is different from the U.S. statutory rate due to losses from one of the Company’s equity affiliates, increases in uncertain tax positions, and foreign operations taxed at rates lower than in the U.S., which was partially offset by foreign dividends taxed in the U.S.

Deferred income taxes have been provided for the temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities.  In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences reverse.  Management considers the scheduled reversal of taxable temporary differences, taxable income in carryback periods, projected future taxable income, and tax planning strategies in making this assessment.  The Company currently has a full valuation allowance against its net deferred tax assets in the U.S. and certain foreign subsidiaries due to negative evidence concerning the realization of those deferred tax assets in recent years.  The projected benefits of the planned refinancing (see “Footnote 29. Subsequent Events”) on the Company’s future taxable income have not been considered as the refinancing is contingent upon the future actions of other parties that are not under the Company’s control, and any such benefits should only be recognized when incurred.  The Company continues to evaluate both positive and negative evidence to determine whether and when the valuation allowance, or a portion thereof, should be released.  A release of the valuation allowance could have a material effect on the Company’s income tax expense and the resulting net earnings in the period of release.

During the fiscal year ended June 26, 2011, the Company changed its indefinite reinvestment assertion related to approximately $26,630 of the earnings and profits held by Unifi do Brasil, Ltda. (“UDB”).  During the current fiscal year, the Company has had a net increase in the assertion to $30,360 including a net decrease of $2,490 during the third quarter of fiscal year 2012.  The Company has adjusted the deferred tax liability to reflect the additional income tax that would be due as a result of the current plan to repatriate in future periods.  All remaining undistributed earnings are deemed to be indefinitely reinvested and accordingly, no provision for U.S. federal and state income taxes is required to be provided.

The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years 2005 through 2011, for non-U.S. income taxes for tax years 2002 through 2011, and for state and local income taxes for fiscal years 2001 through 2011.

There have been no significant changes in the Company’s liability for uncertain tax positions since June 26, 2011.  The Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental.  Management believes that any reasonably foreseeable outcomes related to these matters have been adequately provided for.  However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire.