Note 7: Income Taxes

12 Months Ended

Jun. 30, 2011

Income Taxes

Income Tax Disclosure [Text Block]

NOTE 7: INCOME TAXES

The provision for income taxes from continuing operations consists of the following:

	Year ended June 30,
	2011	2010	2009
Current:
Federal	$      43,334	$      39,994	$     39,616
State	6,180	6,238	7,527
Deferred:
Federal	18,276	14,327	7,345
State	2,251	2,367	(280)
	$      70,041	$      62,926	$     54,208

The tax effects of temporary differences related to deferred taxes shown on the balance sheets were:

	June 30,
	2011	2010
Deferred tax assets:
Deferred revenue	$       5,372	$       3,875
Expense reserves (bad debts, insurance,
franchise tax and vacation)	8,086	6,730
Net operating loss carryforwards	11,097	12,222
Other, net	1,122	514
	25,677	23,341
Deferred tax liabilities:
Accelerated tax depreciation	(29,971)	(17,425)
Accelerated tax amortization	(81,265)	(73,355)
Other, net	(18,713)	(16,307)
	(129,949)	(107,087)
Net deferred tax liability before valuation allowance	(104,272)	(83,746)
Valuation allowance	(306)	(306)
Net deferred tax liability	$ (104,578)	$   (84,052)

The deferred taxes are classified on the balance sheets as follows:

	2011	2010
Deferred income taxes (current)	$    (15,274)	$   (10,449)
Deferred income taxes (long-term)	(89,304)	(73,603)
	$  (104,578)	$   (84,052)

The following analysis reconciles the statutory federal income tax rate to the effective income tax rates reflected above:

	Year Ended June 30,
	2011	2010	2009
Computed "expected" tax expense	35.0%	35.0%	35.0%
Increase (reduction) in taxes resulting from:
State income taxes,
net of federal income tax benefits	2.6%	2.5%	2.7%
Research and development credit	-2.0%	-0.7%	-3.0%
Permanent book/tax differences	-2.0%	-0.9%	-0.4%
Section 199 - prior year benefits	-0.2%	-1.8%	0.0%
Deferred tax adjustments	0.5%	0.7%	0.0%
Valuation Allowance	0.0%	0.0%	0.2%
Other (net)	-0.1%	0.0%	0.0%
	33.8%	34.8%	34.5%

An adjustment was made during fiscal 2011 to reflect a $3,802 reduction to the net deferred tax liability assumed upon the acquisition of iPay in fiscal 2010. Further details are provided in Note 12.

As of June 30, 2011, we have $24,876 of net operating loss (“NOL”) carryforwards pertaining to the acquisition of GFSI, which are expected to be utilized after the application of IRC Section 382. Separately, as of June 30, 2011, we had state NOL carryforwards of $2,379. These losses have varying expiration dates, ranging from 2012 to 2029. Based on state tax rules which restrict our usage of these losses, we believe it is more likely than not that $306 of these losses will expire unutilized. Accordingly, a valuation allowance of $306 has been recorded against these assets as of June 30, 2011 and 2010.

The Company paid income taxes of $60,515, $42,116, and $62,965 in 2011, 2010, and 2009, respectively.

At June 30, 2010, the Company had $7,187 of unrecognized tax benefits. At June 30, 2011, the Company had $8,897 of unrecognized tax benefits, of which, $6,655, if recognized, would affect our effective tax rate. We had accrued interest and penalties of $1,030 and $890 related to uncertain tax positions at June 30, 2011 and 2010, respectively.

A reconciliation of the unrecognized tax benefits for the years ended June 30, 2011 and 2010 follows:

	Unrecognized Tax Benefits
Balance at July 1, 2009	$           5,518
Additions for current year tax positions	691
Reductions for current year tax positions	(39)
Additions for prior year tax positions	2,049
Reductions for prior year tax positions	(298)
Settlements	-
Reductions related to expirations of statute of limitations	(734)
Balance at June 30, 2010	7,187
Additions for current year tax positions	1,338
Reductions for current year tax positions	-
Additions for prior year tax positions	599
Reductions for prior year tax positions	-
Settlements	-
Reductions related to expirations of statute of limitations	(227)
Balance at June 30, 2011	$           8,897

During the fiscal year ended June 30, 2010, the Internal Revenue Service commenced an examination of the Company’s U.S. federal income tax returns for fiscal years ended June 2008 through 2009 that is anticipated to be completed by the end of calendar year 2011. At this time, it is anticipated that the examination will not result in a material change to the Company’s financial position. The U.S. federal and state income tax returns for June 30, 2008 and all subsequent years still remain subject to examination as of June 30, 2011 under statute of limitations rules. We anticipate potential changes resulting from our IRS examination and expiration of statutes of limitations could reduce the unrecognized tax benefits balance by $3,000 - $4,000 within twelve months of June 30, 2011.