INCOME TAXES

12 Months Ended

Jun. 30, 2012

INCOME TAXES

INCOME TAXES

12.   INCOME TAXES

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

	Year Ended June 30,
	2012		2011		2010
	(in 000s)
United States	$	161,043	$	131,668	$	160,265
Foreign		3,416		11,725		10,553
Total	$	164,459	$	143,393	$	170,818

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

	Year Ended June 30,
	2012			2011			2010
	(in 000s)
Current:
Federal	$	61,115		$	12,614		$	59,626
State		9,085			5,585			5,928
Foreign		2,902			3,245			5,057
		73,102			21,444			70,611
Deferred:
Federal		(7,169	)		23,984			(9,261	)
State		(1,383	)		(919	)		(796	)
Foreign		(1,001	)		673			167
		(9,553	)		23,738			(9,890	)
Income tax expense	$	63,549		$	45,182		$	60,721

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,
	2012			2011			2010
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Change in income tax contingencies		2.1			(2.5	)		(0.9	)
State income taxes, net of federal benefit		2.8			2.0			2.0
Foreign earnings subject to U.S. tax		(0.3	)		2.9			1.2
Change in valuation allowance		(0.6	)		(0.2	)		(0.3	)
Tax credits		(1.2	)		(4.7	)		(1.7	)
Domestic production activities deduction		(2.7	)		(1.5	)		(0.4	)
Foreign losses-no future benefit		2.0			—			—
Other, net		1.5			0.5			0.6
		38.6	%		31.5	%		35.5	%

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

	June 30,
	2012			2011
	(in 000s)
Deferred tax assets:
Share-based compensation	$	11,838		$	11,405
Deferred revenue, net of deferred costs		14,145			9,326
Accruals not currently deductible for tax purposes		21,537			13,243
Inventory		5,518			4,640
Net operating loss carryforwards		2,988			3,466
Intangible assets		4,825			4,029
Allowance for doubtful accounts		4,132			4,607
Foreign tax credit carryforwards		1,588			2,154
Other tax credits		969			2,086
Interest rate swap agreement		5,043			1,412
Other		1,176			426
Total gross deferred tax assets		73,759			56,794
Less: Valuation allowance		(68	)		(1,186	)
Deferred tax assets	$	73,691		$	55,608
Deferred tax liabilities:
Property and equipment	$	22,955		$	12,734
Other		1,153			2,293
Total gross deferred tax liabilities	$	24,108		$	15,027
Net deferred tax assets	$	49,583		$	40,581

Current deferred income tax liabilities of $21,000 and $439,000 of as of June 30, 2012 and 2011, respectively, are included in accrued and other liabilities, and noncurrent deferred income tax liabilities of $627,000 and $418,000 as of June 30, 2012 and 2011, respectively, are included in other liabilities in the accompanying Consolidated Balance Sheets.

The Company has not provided income taxes on approximately $12.1 million and $9.7 million of undistributed earnings as of June 30, 2012 and 2011, 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, 2012, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $5.1 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 totaling approximately $4.3 million. 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 foreign net operating loss carryforwards and, therefore, no valuation allowance has been established for these losses.

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

The Company recorded $6.4 million and $8.7 million as an increase to stockholder's equity for certain tax benefits from employee share-based compensation for the years ended June 30, 2012 and 2011, respectively.

The Company had $12.7 million and $8.4 million of liabilities for unrecognized tax benefits as of June 30, 2012 and 2011, respectively. Of these amounts, $12.7 million and $8.2 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, 2012 and 2011, the Company had accrued interest and penalties of $1.7 million and $1.3 million, respectively. The Company increased the accrual of interest and penalties by $0.4 million, and decreased the accrual of interest and penalties by $2.5 million during the years ended June 30, 2012 and 2011, respectively.

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

	June 30,
	2012			2011
	(in 000s)
Balance, beginning of year	$	8,364		$	11,637
Additions based on tax provisions related to current year		3,099			1,035
Additions for tax positions of prior years		1,461			2,812
Reductions for tax positions of prior years		(128	)		(6,687	)
Lapse of statute of limitations		(36	)		(541	)
Foreign currency translation adjustment		(53	)		108
Balance, end of year	$	12,707		$	8,364

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. In January 2009, the IRS completed its field examination of the open tax years and issued a Revenue Agent's Report and 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 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 received a refund from the IRS of $2.3 million, including $0.6 million in interest.

The IRS commenced examination of the Company's United States federal income tax returns for 2006 through 2009 during fiscal year 2011. The IRS completed its field examination of the open tax years and issued a Revenue Agent's Report in January 2012. The Company filed a formal protest regarding certain unagreed adjustments in March 2012. If successful in defending the Company' position, it would result in a reduction to unrecognized tax benefits and a corresponding reduction of income tax provisions of approximately $3.7 million. If the IRS were to prevail in full, it would result in additional income tax provisions of approximately $7.1 million.

It is reasonably possible that within the next twelve months the Company will resolve the matter presently under consideration with the IRS which may increase or decrease unrecognized tax benefits for the open tax years. However, an estimate of such increase or decrease cannot be reasonably made.

Excluding the IRS Appeals case described above, 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 $1.3 million.

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