Income Taxes

The current and deferred components of the provision for income taxes consist of the following:



	June 30,
(In thousands)	2014		2013			2012
Current:
Federal	$	293	$	(24	)	$	(385	)
State	275		191			115
Total current income tax expense (benefit)	568		167			(270		)
Deferred:
Federal	99		(819		)	(63		)
State	38		(173		)	(14		)
Total deferred income tax expense (benefit)	137		(992		)	(77		)
Income tax expense (benefit)	$	705	$	(825	)	$	(347	)

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and OCI. An exception is provided in ASC 740, "Tax Provisions," when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the income tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the income tax expense recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from postretirement benefits recorded as a component of OCI, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the fiscal years ended June 30, 2014, 2013 and 2012, the Company recorded income tax expense of $0, $1.1 million and $0, respectively, in OCI related to the gain on postretirement benefits, and recorded a corresponding income tax benefit of $0, $1.1 million and $0, respectively, in continuing operations.

A reconciliation of income tax expense (benefit) to the federal statutory tax rate is as follows:



	June 30,
(In thousands)	2014			2013			2012
Statutory tax rate	34%			34%			34%
Income tax expense (benefit) at statutory rate	$	4,365		$	(3,158	)	$	(9,154	)
State income tax expense (benefit), net of federal tax benefit	749			(223		)	(1,023		)
Valuation allowance	(4,292		)	3,074			10,588
Change in contingency reserve (net)	(39		)	(7		)	(561		)
Other (net)	(78		)	(511		)	(197		)
Income tax expense (benefit)	$	705		$	(825	)	$	(347	)

The primary components of the temporary differences which give rise to the Company’s net deferred tax liabilities are as follows:



	June 30,
(In thousands)	2014			2013			2012
Deferred tax assets:
Postretirement benefits	$	19,800		$	26,014		$	27,568
Accrued liabilities	6,156			4,477			3,958
Net operating loss carryforward	40,275			44,607			44,736
Intangible assets	1,126			694			919
Other	7,253			8,945			5,945
Total deferred tax assets	74,610			84,737			83,126
Deferred tax liabilities:
Fixed assets	(1,902		)	(2,641		)	(4,117		)
Other	(1,538		)	(882		)	(794		)
Total deferred tax liabilities	(3,440		)	(3,523		)	(4,911		)
Valuation allowance	(72,613		)	(82,522		)	(79,448		)
Net deferred tax liability	$	(1,443	)	$	(1,308	)	$	(1,233	)

The Company has approximately $102.9 million and $99.2 million of federal and state net operating loss carryforwards that will begin to expire in the years ending June 30, 2030 and June 30, 2025, respectively. The Company has no federal or state capital loss carryforwards. Additionally, the Company has $0.8 million of federal business tax credits that begin expiring in June 30, 2025 and $2.5 million of charitable contribution carryforwards.

The Company has generated approximately $0.2 million of excess tax benefits related to stock compensation, the benefit of which will be recorded to additional paid in capital if and when realized.

At June 30, 2014, the Company had total deferred tax assets of $74.6 million and net deferred tax assets before valuation allowance of $71.2 million. In fiscal 2014, deferred tax assets decreased primarily due to the utilization of net operating losses to offset taxable income. Additionally, a cumulative loss in OCI related to coffee hedging, which previously represented a deferred tax asset, became a cumulative gain as of the end of the year which lowered the total net deferred tax assets. In fiscal 2013, deferred tax assets increased primarily due to net loss carryovers and a decrease in expected pension asset values related to a change in actuarial assumptions.

The Company considered whether a valuation allowance should be recorded against deferred tax assets based on the likelihood that the benefits of the deferred tax assets would or would not ultimately be realized in future periods. In making such assessment, significant weight was given to evidence that could be objectively verified, such as recent operating results, and less consideration was given to less objective indicators such as future earnings projections. After consideration of positive and negative evidence, including the recent history of losses, the Company cannot conclude that it is more likely than not that it will generate future earnings sufficient to realize the Company’s deferred tax assets as of June 30, 2014. Accordingly, a valuation allowance of $72.6 million has been recorded to offset this deferred tax asset. The valuation allowance decreased by $9.9 million in fiscal year ended June 30, 2014 and increased by $3.1 million, and $20.7 million, in the fiscal years ended June 30, 2013 and 2012, respectively.

A tabular reconciliation of the total amounts (in absolute values) of unrecognized tax benefits is as follows:



	Year Ended June 30,
(In thousands)	2014			2013		2012
Unrecognized tax benefits at beginning of year	$	3,211		$	3,211	$	3,902
Increases in tax positions for prior years	(30		)	—		—
Settlements	(3,181		)	—		(691		)
Unrecognized tax benefits at end of year	$	—		$	3,211	$	3,211

At June 30, 2014 and 2013, the Company has approximately $0 and $3.1 million, respectively, of unrecognized tax benefits that, if recognized, would affect the effective tax rate, subject to the valuation allowance. The Company believes it is reasonably possible that none of its total unrecognized tax benefits could be released in the next 12 months.

The Company made a determination in the quarter ended June 30, 2014 that it would not, at this time, pursue certain refund claims requested on its amended tax returns for the fiscal year ended June 30, 2003 through June 30, 2008. The Internal Revenue Service previously denied these refund claims upon audit and maintained that decision upon appeal. The Company released its tax reserve related to these refunds in the fourth quarter of fiscal 2014.

The Company files income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. The Company is no longer subject to U.S. income tax examinations for the fiscal years prior to June 30, 2011.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. In each of the fiscal years ended June 30, 2014 and 2013, the Company recorded $0 in accrued interest and penalties associated with uncertain tax positions. Additionally, the Company recorded income (expense) of $0, $10,000, and $37,000, related to interest and penalties on uncertain tax positions in the years ended June 30, 2014, 2013 and 2012, respectively.