INCOME TAXES

The composition of (loss) income before taxes from domestic and foreign locations was as follows for the fiscal years ended June 30 (in thousands):



	2012			2011		2010
Domestic	$	(1,531,052	)	$	368,102	$	248,304
Foreign	1,568			1,110		1,843
(Loss) income before taxes	$	(1,529,484	)	$	369,212	$	250,147

The components of the provision for income taxes (benefit) expense reflected in the accompanying consolidated statements of operations were as follows for the fiscal years ended June 30 (in thousands):



	2012			2011		2010
Current taxes:
Federal	$	104,730		$	95,805	$	101,895
State and local	14,027			19,852		15,605
Total current tax provision	118,757			115,657		117,500
Deferred tax (benefit) provision	(132,500		)	24,047		(35,859		)
Provision for income taxes (benefit) expense	$	(13,743	)	$	139,704	$	81,641

The provision for income taxes reflected in the accompanying consolidated statements of operations varies from the amounts that would have been provided by applying the United States federal statutory income tax rate to earnings before income taxes as shown below for the fiscal years ended June 30:



	2012		2011		2010
U.S. Federal statutory income tax rate	(35.0	)%	35.0	%	35.0	%
State and local income taxes, net of U.S. federal income tax benefit	(0.5	)%	3.4	%	1.4	%
Increase in valuation allowance	0.2	%	—	%	2.0	%
Permanent items	0.1	%	0.3	%	0.1	%
Nondeductible goodwill	34.4	%	—	%	—	%
Uncertain tax positions	—	%	(0.7	)%	(5.9	)%
Other items, net	(0.1	)%	(0.2	)%	—	%
Effective income tax rate	(0.9	)%	37.8	%	32.6	%

The effective tax rate in the current fiscal year was significantly impacted by goodwill and indefinite-lived intangible asset impairment charges. Of the total $1,746.8 million impairment recorded in the current fiscal year, approximately $1,501.5 million related to goodwill recorded as part of the Transaction. As there was no tax basis associated with goodwill recorded in connection with the Transaction, none of it was deductible for tax purposes. The remaining impairment of $245.3 million resulted in a deferred tax benefit, as this related to goodwill and intangible assets where tax basis did exist.

Net deferred income tax assets and liabilities consisted of the following at June 30 (in thousands):



	2012			2011
Current deferred tax assets:
Allowance for doubtful accounts	$	95,571		$	75,431
Accrued wages	11,560			4,029
Other	3,372			2,896
Gross current deferred tax assets	110,503			82,356
Less valuation allowance	(7,835		)	(5,552		)
Total current deferred tax assets	$	102,668		$	76,804
Noncurrent deferred tax assets:
Interest rate swap	$	13,125		$	8,634
Deferred liabilities	28,314			25,236
Foreign and state net operating losses	7,446			11,145
Share-based compensation	17,317			12,744
Other	20,708			12,334
Gross noncurrent deferred tax assets	86,910			70,093
Less valuation allowance	(17,432		)	(16,115		)
Total noncurrent deferred tax assets	69,478			53,978
Noncurrent deferred tax liabilities:
Intangible assets	134,963			227,494
Property and equipment	46,124			46,115
Other	158			1,145
Total noncurrent deferred tax liabilities	181,245			274,754
Total net noncurrent deferred tax liabilities	$	111,767		$	220,776

At June 30, 2012, the Company had state net operating loss carry forwards of approximately $104.8 million available to offset future taxable income and a related deferred tax asset of $6.9 million. The carry forwards expire at varying dates beginning in fiscal 2024 through fiscal 2032. The Company has determined that it is currently “more-likely-than-not” that the deferred tax assets associated with $100.0 million of its state net operating loss carry forwards will not be realized and has established a valuation allowance equal to the gross deferred tax asset balance of $6.7 million related to these net operating loss carry forwards. In addition, certain of the Company’s state net operating losses may be subject to annual limitations due to these states’ adoption of the ownership change limitations imposed by Internal Revenue Code Section 382 or similar state provisions, which could result in the expiration of the state net operating loss carry forwards before they can be utilized.

At June 30, 2012, the Company had Canadian net operating loss carry forwards of approximately $2.2 million available to offset future taxable income and a related deferred tax asset of $0.6 million.

The recognition and measurement of tax benefits associated with uncertain income tax positions requires the use of judgment and estimates by management, which are inherently subjective. Changes in judgment about uncertain tax positions taken in previous periods may result from new information concerning an uncertain tax position, completion of an audit or the expiration of statutes of limitation. These changes may create volatility in the Company’s effective tax rate in future periods.

A reconciliation of the beginning and ending balance of unrecognized tax benefits, excluding interest expense and the indirect benefits of state taxes, for the fiscal years ended June 30 is as follows (in thousands):



	2012			2011			2010
Unrecognized tax benefits, beginning of year	$	5,438		$	8,902		$	22,639
Increase in prior year unrecognized tax benefits	—			26			51
(Decrease) in prior year unrecognized tax benefits	(93		)	(174		)	(539		)
Increase in current year unrecognized tax benefits	58			943			3,070
(Decrease) in unrecognized tax benefits due to the expiration of statutes of limitation	(880		)	(4,259		)	(16,319		)
Unrecognized tax benefits, end of year	$	4,523		$	5,438		$	8,902

All of the Company’s $4.5 million in unrecognized tax benefits, excluding interest expense and the indirect benefit of state taxes, would affect the annual effective tax rate if recognized. It is reasonably possible that the total amount of unrecognized tax benefits will decrease by $0.7 million within the next twelve months due to the expiration of certain statutes of limitation. The resulting benefit, if recognized, would affect the tax rate as a discrete item in the quarter ended March 31, 2013.

The Company classifies interest expense and penalties accrued in connection with unrecognized tax benefits as income tax expense in its consolidated statement of operations, which is consistent with the Company’s past accounting policy for interest and penalties related to tax liabilities. The total amount of such interest recognized in the consolidated statement of operations for fiscal 2012 was $0.1 million. No penalties were recognized during fiscal 2012, and no amount was accrued for penalties on the consolidated balance sheet at June 30, 2012.

The statutes of limitation for the Company’s U.S. income tax returns are closed for years through fiscal 2008. The statutes of limitation for the Company’s state and local income tax returns for prior periods vary by jurisdiction. However, the statutes of limitation with respect to the major jurisdictions in which the Company files state and local tax returns are generally closed for years through fiscal 2007.