INCOME TAXES

12 Months Ended

Jul. 28, 2012

INCOME TAXES

INCOME TAXES

(14) INCOME TAXES

        For the fiscal year July 28, 2012, income before income taxes consisted of $142.2 million from U.S. operations and $8.6 million from foreign operations. For the fiscal year ended July 30, 2011, income before income taxes consists of $118.5 million from U.S. operations and $7.9 million from foreign operations. For the fiscal year ended July 31, 2010, income (loss) before income taxes consists of $112.9 million from U.S. operations and ($0.9) million from foreign operations.

        Total federal and state income tax (benefit) expense consists of the following:

	Current			Deferred			Total
	(In thousands)
Fiscal year ended July 28, 2012:
U.S. Federal	$	55,083		$	(7,506	)	$	47,577
State & Local		9,002			462			9,464
Foreign		1,471			929			2,400
	$	65,556		$	(6,115	)	$	59,441
Fiscal year ended July 30, 2011:
U.S. Federal	$	24,971		$	14,273		$	39,244
State & Local		7,091			1,207			8,298
Foreign		2,180			40			2,220
	$	34,242		$	15,520		$	49,762
Fiscal year ended July 31, 2010:
U.S. Federal	$	31,818		$	5,488		$	37,306
State & Local		7,147			(427	)		6,720
Foreign		(345	)		—			(345	)
	$	38,620		$	5,061		$	43,681

        Total income tax expense (benefit) was different than the amounts computed using the United States statutory income tax rate (35%) applied to income before income taxes as a result of the following:

	Fiscal year ended
	July 28, 2012			July 30, 2011			July 31, 2010
	(In thousands)
Computed "expected" tax expense	$	52,774		$	44,252		$	39,201
State and local income tax, net of Federal income tax benefit		6,152			5,394			4,368
Non-deductible expenses		1,260			1,111			872
Tax effect of share-based compensation		(140	)		(440	)		78
General business credits		(231	)		(1,021	)		(215	)
Other, net		(374	)		466			(623	)
Total income tax expense	$	59,441		$	49,762		$	43,681

        Total income tax expense (benefit) for the years ended July 28, 2012, July 30, 2011 and July 31, 2010 was allocated as follows:

	July 28, 2012			July 30, 2011			July 31, 2010
	(In thousands)
Income tax expense	$	59,441		$	49,762		$	43,681
Stockholders' equity, difference between compensation expense for tax purposes and amounts recognized for financial statement purposes		(2,804	)		(1,545	)		(1,822	)
Other comprehensive income		495			502			97
	$	57,132		$	48,719		$	41,956

        The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at July 28, 2012 and July 30, 2011 are presented below:

	2012			2011
	(In thousands)
Deferred tax assets:
Inventories, principally due to additional costs inventoried for tax purposes	$	6,431		$	5,638
Compensation and benefits related		18,471			16,701
Accounts receivable, principally due to allowances for uncollectible accounts		2,817			2,286
Accrued expenses		8,294			7,037
Other comprehensive income		—			495
Net operating loss carryforwards		2,778			7,381
Other deferred tax assets		221			71
Total gross deferred tax assets		39,012			39,609
Less valuation allowance		990			5,071
Net deferred tax assets	$	38,022		$	34,538
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation	$	23,828		$	30,333
Intangible assets		24,825			20,530
Other		276			203
Total deferred tax liabilities		48,929			51,066
Net deferred tax liabilities	$	(10,907	)	$	(16,528	)
Current deferred income tax assets	$	25,353		$	22,023
Non-current deferred income tax liabilities		(36,260	)		(38,551	)
	$	(10,907	)	$	(16,528	)

        The net increase (decrease) in total valuation allowance in fiscal year 2012, 2011, and 2010 was $(4,081), $19 and $(86), respectively. The net decrease in fiscal 2012 did not have an impact on net income as it relates to expired unutilized tax attributes for which a valuation allowance was previously recorded in prior fiscal years.

        At July 28, 2012, the Company had net operating loss carryforwards of approximately $4.3 million for federal income tax purposes. The federal carryforwards are subject to an annual limitation of approximately $0.3 million under Internal Revenue Code Section 382. The carryforwards expire at various times between fiscal years 2017 and 2027. In addition, the Company had net operating loss carryforwards of approximately $25.8 million for state income tax purposes that expire in fiscal years 2013 through 2031.

        In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the fact that the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods in which the deferred tax assets are deductible, the ultimate realization of deferred tax assets for federal and state tax purposes appears more likely than not at July 28, 2012, with the exception of certain state deferred tax assets. Valuation allowances were established against approximately $1.0 million of state deferred tax assets. The subsequent release of this valuation allowance, if such release occurs, will reduce income tax expense.

        The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company believes it is reasonably possible that certain statutes of limitations and tax examinations will expire or may be concluded within the next twelve months, and that unrecognized tax benefits, including potential interest and penalties, may decrease by up to approximately $4.5 million, which would be recorded as a tax benefit in the statement of income. These unrecognized tax benefits primarily relate to tax attributes acquired in a prior business combination. For the fiscal years ended July 28, 2012 and July 30, 2011, the Company did not have any other significant unrecognized tax benefits and thus, no significant interest and penalties related to unrecognized tax benefits were recognized.

        The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and in various state jurisdictions. Following the acquisition of the SDG assets from SunOpta, UNFI Canada files income tax returns in Canada and certain of its provinces. The Company is currently undergoing an income tax audit of fiscal 2010 and 2011 by the U.S. Internal Revenue Service (the "IRS"). The Company is no longer subject to U.S. federal tax examinations for years before fiscal 2010, and with limited exception, the tax years that remain subject to examination by state jurisdictions range from the Company's fiscal 2009 to fiscal 2012.