Income Taxes

12 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

NOTE 19. INCOME TAXES

The domestic and foreign components of income before provision for income taxes are as follows (in thousands):

	Year ended June 30,
	2011		2010		2009 (As  Adjusted(1))
Domestic	$	215,200	$	156,024	$	144,888
Foreign		12,123		11,662		7,382
Income before income taxes	$	227,323	$	167,686	$	152,270

(1) Certain amounts for the year ended June 30, 2009 have been adjusted to reflect the retroactive application of new accounting standards. See Note 3.

The components of income tax expense are as follows (in thousands):

	Year ended June 30,
	2011		2010			2009 (As  Adjusted(1))
Current:
Federal	$	59,095	$	51,572		$	41,884
State and local		13,578		11,155			8,404
Foreign		2,845		3,147			2,660
Total current		75,518		65,874			52,948
Deferred:
Federal		6,175		(4,082	)		8,268
State and local		1,194		(820	)		1,661
Foreign		218		199			(305	)
Total deferred		7,587		(4,703	)		9,624
Total income tax expense	$	83,105	$	61,171		$	62,572

(1) Certain amounts for the year ended June 30, 2009 have been adjusted to reflect the retroactive application of new accounting standards. See Note 3.

Income tax expense differs from the amounts computed by applying the statutory U.S. income tax rate of 35 percent as a result of the following (in thousands):

	Year ended June 30,
	2011			2010			2009 (As  Adjusted(1))
Expected tax expense computed at federal rate	$	79,563		$	58,690		$	53,295
State and local taxes, net of federal benefit		9,602			6,759			6,479
(Nonincludible) nondeductible items		(1,965	)		(861	)		4,227
Incremental effect of foreign tax rates		(914	)		(830	)		(513	)
Other		(3,181	)		(2,587	)		(916	)
Total income tax expense	$	83,105		$	61,171		$	62,572

(1) Certain amounts for the year ended June 30, 2009 have been adjusted to reflect the retroactive application of new accounting standards. See Note 3.  

The tax effects of temporary differences that give rise to deferred taxes are presented below (in thousands):

	June 30,
	2011			2010
Deferred tax assets:
Reserves and accruals	$	29,945		$	25,347
Stock-based compensation		28,768			30,739
Deferred compensation and post-retirement obligations		27,977			22,093
Deferred rent		2,929			1,746
Original issue discount related to the Notes		883			1,355
Other		1,323			3,138
Total deferred tax assets		91,825			84,418
Deferred tax liabilities:
Goodwill and other intangible assets		(121,842	)		(98,988	)
Unbilled revenue		(11,758	)		(10,360	)
Prepaid expenses		(4,011	)		(3,630	)
Other		(6,257	)		(1,789	)
Total deferred tax liabilities		(143,868	)		(114,767	)
Net deferred tax liability	$	(52,043	)	$	(30,349	)

The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. During the Company's year ended June 30, 2010, the Internal Revenue Service completed its field audit of the Company's consolidated federal income tax returns for the years ended June 30, 2005 through 2007 and earlier years in connection with amended returns and carryback claims filed by the Company. The Company received the refunds reflected on its amended returns and carryback claims, as adjusted for the results of the field audit, during the year ended June 30, 2011. During the year ended June 30, 2011, the Internal Revenue Service concluded its examination of the Company's federal income tax return for the year ended June 30, 2008 with no significant adjustments to a previously recorded refund receivable. The Company collected this receivable during the year ended June 30, 2011. The Company is currently under examination by three state jurisdictions and one foreign jurisdiction for years ended June 30, 2003 through June 30, 2009. The Company does not expect the resolution of these examinations to have a material impact on its results of operations, financial condition or cash flows.

During the years ended June 30, 2011 and June 30, 2010, the Company's income tax expense was favorably impacted by non-taxable gains on assets invested in corporate-owned life insurance (COLI) policies, tax benefits related to deductions claimed for income from domestic production activities and interest earned from refunds due on prior year tax returns.

In connection with the issuance of the Notes, original issue discount (OID) was created for income tax purposes. Over the term of the Notes, this OID will generate additional interest expense for income tax reporting purposes (see Note 13).

U.S. income taxes have not been provided for with respect to undistributed earnings of foreign subsidiaries that have been permanently reinvested outside the United States. As of June 30, 2011, the deferred liability associated with these undistributed earnings is $6.0 million.

The Company's total liability for unrecognized tax benefits as of June 30, 2011, 2010 and 2009 was $5.9 million, $5.2 million and $11.9 million, respectively. Of the $5.9 million unrecognized tax benefit at June 30, 2011, $2.0 million, if recognized, would impact the Company's effective tax rate. A reconciliation of the beginning and ending amount of unrecognized benefits is shown in the table below (in thousands):

	Year ended June 30,
	2011			2010			2009
Beginning of year	$	5,189		$	11,945		$	4,612
Additions based on current year tax positions		2,711			1,323			651
Reductions based on current year tax positions		—			—			—
Additions based on prior year tax positions		—			—			6,682
Reductions based on prior year tax positions		(2,003	)		(7,332	)		—
Lapse of statute of limitations		—			(630	)		—
Settlements with taxing authorities		—			(117	)		—
End of year	$	5,897		$	5,189		$	11,945

The Company recognizes net interest and penalties as a component of income tax expense. During the years ended June 30, 2011 and 2010, the Company's income tax expense was reduced by $0.2 million and $0.7 million, respectively, related to interest earned in connection with amended returns and carryback claims filed by the Company, as described above. Over the next 12 months, the Company does not expect a significant increase or decrease in the unrecognized tax benefits recorded at June 30, 2011. As of June 30, 2011, $5.1 million of the unrecognized tax benefits are included in other long-term liabilities, with the remainder included in other balance sheets accounts.