INCOME TAXES

12 Months Ended

Jun. 30, 2011

INCOME TAXES

INCOME TAXES

14.   INCOME TAXES

Consolidated income from continuing operations before taxes and noncontrolling interest for domestic and foreign operations is as follows:

	Year Ended June 30,
	2011		2010		2009
	(in 000s)
United States	$	131,668	$	160,265	$	169,756
Foreign		11,725		10,553		15,204
Total	$	143,393	$	170,818	$	184,960

The components of the Company's income tax expense from continuing operations are as follows:

		Year Ended June 30,
		2011			2010			2009
		(in 000s)
Current:
	Federal	$	12,614		$	59,626		$	26,956
	State		5,585			5,928			4,820
	Foreign		3,245			5,057			3,711
			21,444			70,611			35,487
Deferred:
	Federal		23,984			(9,261	)		26,458
	State		(919	)		(796	)		2,770
	Foreign		673			167			66
			23,738			(9,890	)		29,294
Income tax expense		$	45,182		$	60,721		$	64,781

The difference between the U.S. statutory federal income tax rate and the Company's effective income tax rate is as follows:

	Year Ended June 30,
	2011			2010			2009
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Change in income tax contingencies		(2.5	)		(0.9	)		1.2
State income taxes, net of federal benefit		2.0			2.0			3.5
Foreign earnings subject to U.S. tax		2.9			1.2			2.2
Change in valuation allowance		(0.2	)		(0.3	)		(0.2	)
Tax credits		(4.7	)		(1.7	)		(6.7	)
Domestic production activities deduction		(1.5	)		(0.4	)		(1.9	)
Other, net		0.5			0.6			1.9
		31.5	%		35.5	%		35.0	%

The major components of the deferred tax assets and liabilities from continuing operations are as follows:

		June 30,
		2011			2010
		(in 000s)
Deferred tax assets:
	Share-based compensation	$	11,405		$	13,621
	Deferred revenue, net of deferred costs		9,326			10,124
	Accruals not currently deductible for tax purposes		13,243			13,516
	Property and equipment		—			7,663
	Inventory		4,640			3,985
	Net operating loss carryforwards		3,466			3,800
	Intangible assets		4,029			1,563
	Allowance for doubtful accounts		4,607			4,428
	Foreign tax credit carryforwards		2,154			1,902
	Other tax credits		2,086			1,448
	Other		1,838			4,625
Total gross deferred tax assets			56,794			66,675
Less: Valuation allowance			(1,186	)		(1,526	)
Deferred tax assets		$	55,608		$	65,149
Deferred tax liabilities:
	Property and equipment	$	12,734		$	—
	Other		2,293			100
Total gross deferred tax liabilities		$	15,027		$	100
Net deferred tax assets		$	40,581		$	65,049

Current deferred income tax liabilities of $439,000 and $362,000 of as of June 30, 2011 and 2010, respectively, are included in accrued and other liabilities and noncurrent deferred income tax liabilities of $418,000 and $542,000 as of June 30, 2011 and 2010, respectively, are included in other liabilities in the accompanying Consolidated Balance Sheets.

The Company has not provided income taxes on approximately $9.7 million and $15.4 million of undistributed earnings as of June 30, 2011 and 2010, respectively, from certain foreign subsidiaries. The Company plans to permanently invest the earnings in the foreign subsidiaries and therefore has not recorded a deferred tax liability associated with the undistributed earnings.

At June 30, 2011, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $5.6 million. The entire amount of the net operating loss carryforwards are subject to limitations under Section 382 of the Internal Revenue Code. Section 382 limits the amount of carryforwards available per year for use against future taxable income. Based on the Company's recent history of taxable income and projections of taxable income in the future, the Company expects to utilize all of its federal net operating loss carryforwards. The Company also has net operating losses in several foreign jurisdictions, mainly the United Kingdom and Australia. Due to a history of net operating losses in the United Kingdom, management has determined that it is more likely than not that these losses will not be realized and therefore has established a full valuation allowance. The Company forecasts future taxable income sufficient to utilize all net operating losses in Australia, therefore, no valuation allowance has been established for these losses.

The Company's subsidiary in India operated under a tax holiday which expired in March 2011.

The Company recorded $8.7 million and $16.7 million as an increase to stockholder's equity for certain tax benefits from employee share-based compensation for the years ended June 30, 2011 and 2010, respectively.

The Company had $8.4 million and $11.6 million of liabilities for unrecognized tax benefits as of June 30, 2011 and 2010, respectively. Of these amounts, $8.2 million and $10.2 million, respectively, if recognized, would impact our effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits as tax expense. As of June 30, 2011 and 2010, the Company had accrued interest and penalties of $1.3 million and $3.7 million, respectively. The Company decreased the accrual of interest and penalties by $2.5 million and $1.9 million during the years ended June 30, 2011 and 2010, respectively.

Changes to the balance of unrecognized tax benefits are as follows:

	June 30,
	2011			2010
	(in 000s)
Balance, beginning of year	$	11,637		$	19,049
Additions based on tax provisions related to current year		1,035			463
Additions for tax positions of prior years		2,812			330
Reductions for tax positions of prior years		(6,687	)		(2,485	)
Settlements		—			(5,395	)
Lapse of statute of limitations		(541	)		(213	)
Foreign currency translation adjustment		108			(112	)
Balance, end of year	$	8,364		$	11,637

The Internal Revenue Service ("IRS") commenced examination of the Company's United States federal income tax returns for 2003 through 2005 in the fourth quarter of 2006. Throughout the examination, the IRS proposed, and management agreed to certain adjustments related to the open tax years that were recorded in the income tax provision. In January 2009, the IRS completed its field examination of the open tax years and issued a Revenue Agent's Report. Also in January 2009, the Company paid $3.4 million in tax and $1.2 million in interest to the IRS to settle certain agreed adjustments. The Company filed a formal protest regarding certain unagreed adjustments and the case was assigned to the IRS Las Vegas Appeals Office in July 2009. In June 2010, the Company agreed to settle all remaining issues with the IRS. Formal closure of the case occurred in October 2010 and the Company has received a refund from the IRS of $2.3 million, including $0.6 million in interest.

In the second quarter of fiscal year 2011, the Company was notified by the IRS that they will be examining the United States federal income tax returns for 2007 through 2009. The IRS commenced the examination in the third quarter of 2011. During the fourth quarter of 2011, the IRS notified the Company that the 2006 United States federal income tax return will be included in the examination.

The Company files numerous consolidated and separate income tax returns in the United States and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to United States federal income tax examinations for years before 2006 and is no longer subject to state and local, or foreign income tax examinations for years before 2003.

It is reasonably possible that the Company's amount of unrecognized tax benefits may decrease within the next twelve months by a range up to $0.3 million.