Note 10 - Income Taxes

12 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Text Block]

10. INCOME TAXES

Components of earnings (loss) before income taxes are as follows (in thousands):

	2012			2011			2010
Domestic operations	$	(14,614	)	$	(413	)	$	(7,295	)
Foreign operations		14,725			13,652			(2,046	)
	$	111		$	13,239		$	(9,341	)

The provision (benefit) for income taxes consists of the following (in thousands):

	2012			2011			2010
Current:
Federal	$	(392	)	$	12		$	-
Foreign		4,239			6,818			3,699
State		455			164			30
Deferred:
Federal		(5,195	)		(177	)		(815	)
Foreign		656			(331	)		(4,112	)
State		(540	)		(92	)		(122	)
	$	(777	)	$	6,394		$	(1,320	)

Reconciliations of expected tax expense (benefit) at the U.S. statutory rate to actual tax expense (benefit) are as follows (in thousands):

	2012			2011			2010
Expected tax expense (benefit)	$	38		$	4,501		$	(3,176	)
State taxes, net of federal effect		(170	)		(32	)		(255	)
Foreign taxes, net of federal credits		(751	)		(227	)		(76	)
Change in valuation allowance		(201	)		908			181
Return to provision and tax reserve adjustments (including Brazil tax settlement in fiscal 2010)		(286	)		246			759
Foreign losses not benefited		206			771			1,042
Other permanent items		387			227			205
Actual tax expense (benefit)	$	(777	)	$	6,394		$	(1,320	)

 No valuation allowance has been recorded for the domestic federal NOL.  The Company believes that forecasted future taxable income and certain tax planning opportunities eliminate the need for any valuation allowance.

Conversely, a valuation allowance was provided on certain state NOLs in 2006 as a result of much shorter carryforward periods and the uncertainty of generating adequate taxable income at the entity and state level.  This valuation allowance has remained through fiscal 2012.  Similarly, a valuation allowance has been provided on certain foreign NOLs due to the uncertainty of generating future taxable income in those jurisdictions. Lastly, a valuation allowance has been provided for foreign tax credit carryforwards due to the uncertainty of generating sufficient foreign source income in the future. The need for any valuation allowance on the domestic federal NOL and the continued need for allowance on state and foreign NOLs and tax credits is reevaluated as facts and assumptions change over time.

Deferred income taxes at June 30, 2012 and June 30, 2011 are attributable to the following (in thousands):

	2012			2011
Deferred assets (current):
Inventories	$	4,892		$	4,598
Employee benefits (other than pension)		1,336			548
Book reserves		1,757			954
Other		298			-
Valuation allowance		(663	)		-
Current deferred tax asset	$	7,620		$	6,100
Deferred assets (long-term):
Federal NOL, carried forward	$	5,706		$	7,438
State NOL, various carryforward periods		874			1,039
Foreign NOL, various carried forward periods		1,283			1,583
Foreign tax credit carryforward, expiring 2014 - 2015		1,028			1,117
Pension benefit		13,599			3,980
Retiree medical benefits		5,563			4,615
Intangibles		3,285			3,813
Other		401			651
Valuation allowance		(1,897	)		(2,829	)
Long-term deferred tax asset	$	29,842		$	21,407
Deferred liabilities (long-term):
Depreciation		(2,530	)		(2,806	)
Long-term deferred tax liabilities	$	(2,530	)	$	(2,806	)
Net deferred tax assets	$	34,932		$	24,701

As of June 30, 2012 and June 30, 2011, the net long-term deferred tax asset and deferred tax liabilities on the balance sheet are as follows (in thousands):

	2012			2011
Long-term assets	$	29,842		$	21,407
Long-term liabilities		(2,530	)		(2,806	)
	$	27,312		$	18,601

Foreign operations deferred assets (current) relate primarily to book reserves.  Foreign operations net deferred assets (long-term) relate primarily to pension benefits.  Amounts related to foreign operations included in the long-term portion of deferred liabilities relate primarily to depreciation.

The Company is subject to U.S. federal income tax and various state, local and international income taxes in numerous jurisdictions. The Company’s domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

Reconciliations of the beginning and ending amount of unrecognized tax benefits are as follows (in thousands):

Balance at June 27, 2009, as adjusted	$	(9,817	)
Increases for tax positions taken during the current period		(234	)
Effect of exchange rate changes		242
Balance at June 26, 2010		(9,809	)
Decreases for tax positions taken during a prior period		156
Increases for tax positions taken during the current period		(1,189	)
Effect of exchange rate changes		(285	)
Balance at June 30, 2011		(11,127	)
Increases for tax positions taken during a prior period		(32	)
Increases for tax positions taken during the current period		(955	)
Effect of exchange rate changes		473
Decrease relating to settlement		137
Decreases resulting from the expiration of the statute of limitations		914
Balance at June 30, 2012	$	(10,590	)

The long-term tax obligations on the balance sheet as of June 30, 2012 and June 30, 2011 relate primarily to transfer pricing adjustments.  The Company has also recorded a non-current tax receivable for $3.8 million and $3.6 million at June 30, 2012 and 2011, respectively, representing the corollary effect of transfer pricing competent authority adjustments.

During the next 12 months, the Company expects there is the possibility that there will be a decrease in the total amount of unrecognized tax benefits as a result of the passing of the related statute of limitations.  The Company recognizes interest and penalties related to income tax matters in income tax expense.

The Company’s US tax returns are no longer subject to U.S. federal examination by the Internal Revenue Service for years prior to 2005. As of June 30, 2012, the Company did have a state income tax audit in process.  There were no other local or federal income tax audits as of June 30, 2012.  In international jurisdictions the years that may be examined vary by country.  

The federal NOL carryforward of $16.8 million expires beginning in 2026. The state tax loss carryforward tax effected benefit of $0.9 million expire at various times over the next 5 years. The foreign tax credit carryforward of $1.0 million expires in the years 2014 through 2015.

No deferred taxes have been provided on the undistributed non-U.S. subsidiary earnings that are considered to be permanently invested. At June 30, 2012, the estimated amount of total unremitted earnings is $71.7 million. The Company has not determined the total amount of the unrecognized deferred taxes related to these earnings as the Company has permanently invested those earnings overseas.