Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Jun. 30, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The provision for income taxes consists of the following (in thousands):
 
Year ended
 
June 30,
2012
 
July 2,
2011
 
July 3,
2010
Current:
 
 
 
 
 
Federal
$
(6,795
)
 
$
3,936

 
$
3,317

State
—

 
315

 
288

Foreign
157

 
167

 
148

Total current
$
(6,638
)
 
$
4,418

 
$
3,753

Deferred:
 
 
 
 
 
Federal
$
(284
)
 
$
562

 
$
115

State
(985
)
 
373

 
598

Total deferred
(1,269
)
 
935

 
713

(Benefit from) provision for income taxes
$
(7,907
)
 
$
5,353

 
$
4,466


For financial reporting purposes, income before income taxes includes the following components (in thousands):
 
Year ended
 
June 30,
2012
 
July 2,
2011
 
July 3,
2010
United States
$
(21,660
)
 
$
12,814

 
$
11,143

Foreign
11,306

 
9,866

 
5,510

 
$
(10,354
)
 
$
22,680

 
$
16,653

In fiscal year 2012, we generated federal net operating losses of $20.0 million. We have classified this net operating loss in income taxes receivable as we believe this asset is fully realizable as we intend to carry this loss back against the taxable income from fiscal years 2011 and 2010, which can sufficiently cover this loss.
A reconciliation between actual (benefit from) provision for income taxes and the provision for income taxes computed using the federal statutory income tax rate of 34.0% is as follows (in thousands):
 
Year ended
 
June 30,
2012
 
July 2,
2011
 
July 3,
2010
Income tax expense at the statutory rate
$
(3,520
)
 
$
7,712

 
$
5,662

State income tax expense, net of federal income tax effect
(975
)
 
561

 
358

Rate difference and nondeductible items in foreign jurisdictions
(47
)
 
(20
)
 
(12
)
Impact of foreign earnings in tax-free zone
(3,683
)
 
(3,223
)
 
(1,765
)
Valuation allowance adjustments
14

 
—

 
84

Nondeductible compensation
193

 
157

 
—

Nondeductible amortization and other permanent differences
91

 
86

 
95

Amended return and charitable contribution adjustments
—

 
—

 
(20
)
Other
20

 
80

 
64

(Benefit from) provision for income taxes
$
(7,907
)
 
$
5,353

 
$
4,466


Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. We have not provided deferred taxes on the $35.9 million of undistributed earnings of our foreign subsidiaries where the earnings are considered to be permanently reinvested. The undistributed earnings would become taxable in the United States if we decided to repatriate earnings for business, tax or foreign exchange reasons. If we made that decision, U.S. income taxes would be provided for net of foreign taxes already paid. The determination of the unrecognized deferred tax liability associated with these unremitted earnings is not practical at this time. Significant components of our deferred tax assets and liabilities are as follows (in thousands):
 
June 30,
2012
 
July 2,
2011
Deferred tax assets:
 
 
 
State net operating loss carryforwards
$
1,406

 
$
446

Charitable donation carryforward
373

 
352

Derivative — interest rate contracts
81

 
9

Currently nondeductible accruals
5,555

 
4,363

Gross deferred tax assets
7,415

 
5,170

Less valuation allowance — state net operating loss
(122
)
 
(108
)
Net deferred tax assets
7,293

 
5,062

 
 
 
 
Deferred tax liabilities:
 
 
 
Depreciation
(2,704
)
 
(2,032
)
Goodwill and intangibles
(3,319
)
 
(2,876
)
Other
(109
)
 
(100
)
Gross deferred tax liabilities
(6,132
)
 
(5,008
)
Net deferred tax asset
1,161

 
54

Less non-current net deferred tax liabilities
3,803

 
2,877

Current deferred tax asset
$
4,964

 
$
2,931


As of June 30, 2012, we had $1.0 million of charitable contribution carryforwards for federal income tax purposes resulting in a deferred tax asset of $0.4 million. In fiscal year 2013, $0.9 million of the charitable carryforward expires, with the remaining $0.1 million expiring in fiscal year 2014. The future charitable deduction in limited to 10% of taxable income for each year. Based on our forecasts, we expect that we will have sufficient taxable income to use all of the charitable contributions before they expire. Therefore, we determined that no valuation allowance against the deferred tax asset associated with the charitable carryforward is required.
As of June 30, 2012 and July 2, 2011, we had operating loss carryforwards of approximately $31.1 million and $12.0 million, respectively, for state purposes, resulting in deferred tax assets of $1.4 million and $0.4 million, respectively. These carryforwards expire at various intervals through 2032. Our deferred tax asset related to state net operating loss carryforwards is reduced by a valuation allowance to result in deferred tax assets we consider more likely than not to be realized. There was a fourteen thousand net change in the total valuation allowance for the year ended June 30, 2012. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible.
FASB Codification No. 740, Income Taxes (“ASC 740”) requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The tax years 2008 to 2011, according to statute, remain open to examination by the major taxing jurisdictions to which we are subject. Upon adoption of ASC 740, we did not have any material unrecognized tax benefits, nor did we have any material unrecognized tax benefits as of June 30, 2012. We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax provision. We did not have any interest and penalties accrued related to unrecognized tax benefits as of June 30, 2012.