Income Taxes

12 Months Ended

Jun. 30, 2012

Income Taxes

Income Taxes

Note 20.  Income Taxes

The provision for income taxes consists of the following for the fiscal years ended June 30:

(In thousands)	2012		2011			2010
Current Income Taxes
Federal	$	1,513	$	(3,179	)	$	4,056
State and Local Taxes	5		(132		)	575
Total	1,518		(3,311		)	4,631
Deferred Income Taxes
Federal	828		2,617			(796		)
State and Local Taxes	254		233			978
Total	1,082		2,850			182
Total	$	2,600	$	(461	)	$	4,813

A reconciliation of the differences between the effective rates and federal statutory rates is as follows:

	2012		2011		2010
Federal income tax at statutory rate	34.0	%	34.0	%	34.0	%
State and local income tax, net	2.6	%	0.2	%	3.7	%
Nondeductible expenses	5.7	%	(35.1	)%	2.1	%
Change in valuation allowance	2.0	%	2.7	%	(0.6	)%
Income tax credits	(3.6	)%	83.3	%	(8.2	)%
Change in tax laws	—	%	—	%	5.0	%
Change in state nexus position	—	%	(24.0	)%	—	%
Other	(1.4	)%	4.7	%	1.5	%
Effective income tax rate	39.3	%	65.8	%	37.5	%

The principal types of differences between assets and liabilities for financial statement and tax return purposes are accruals, reserves, impairment of intangibles, accumulated amortization, accumulated depreciation and stock compensation expense.  A deferred tax asset is recorded for the future benefits created by the timing of accruals and reserves and the application of different amortization lives for financial statement and tax return purposes.  A deferred tax asset valuation allowance was established based on the likelihood that it is more likely than not that the Company will be unable to realize certain of the deferred tax assets.  A deferred tax liability is recorded for the future liability created by different depreciation methods for financial statement and tax return purposes.

As of June 30, 2012 and 2011, temporary differences which give rise to deferred tax assets and liabilities are as follows:

(In thousands)	2012			2011
Deferred tax assets:
Accrued expenses	$	74		$	182
Share-based compensation expense	1,088			959
Unearned grant funds	—			33
Reserve for returns	2,049			1,901
Reserves for accounts receivable and inventory	3,259			3,173
Intangible impairment	7,956			9,090
State net operating loss	100			208
Federal net operating loss	967			1,093
Impairment on Cody note receivable	1,998			1,997
Accumulated amortization on intangible asset	2,238			2,117
Foreign net operating loss	114			35
Other	133			—
Total deferred tax asset	19,976			20,788
Valuation allowance	(2,112		)	(2,032		)
Total	17,864			18,756
Deferred tax liabilities:
Prepaid expenses	63			60
Property, plant and equipment	3,899			3,637
Other	—			75
Net deferred tax asset	$	13,902		$	14,984

On April 10, 2007, the Company entered into a Stock Purchase Agreement to acquire Cody by purchasing all of the remaining shares of common stock of Cody.  As a result of the acquisition, the Company recorded deferred tax assets related to Cody’s federal net operation loss (NOL) carry forwards totaling approximately $3,774 at the date of acquisition with $1,902 expiring in 2026 and $1,872 in 2027.  At June 30, 2012, the remaining gross deferred tax asset is $2,844.  The income tax benefit associated with the NOL carry forwards has been recognized in accordance with Section 382 of the Internal Revenue Code of 1986.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative standards issued by the FASB also provide guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of interest and penalties) is as follows:

(In thousands)
Balance at June 30, 2010	$	399
Additions for tax positions of the current year	40
Additions for tax positions of prior years	51
Reductions for tax positions of prior years	—
Settlements	(264		)
Lapse of statute of limitations	(17		)
Balance at June 30, 2011	$	209
Additions for tax positions of the current year	24
Additions for tax positions of prior years	47
Reductions for tax positions of prior years	—
Settlements	—
Lapse of statute of limitations	—
Balance at June 30, 2012	$	280

As of June 30, 2012 and 2011, the Company reported total unrecognized benefits of $280 and $209, respectively.  As a result of the positions taken during the period, the Company has not recorded any interest and penalties for the period ended June 30, 2012 in the statement of operations and no cumulative interest and penalties have been recorded either in the Company’s statement of financial position as of June 30, 2012 and 2011.  The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses.  The Company does not believe that the total unrecognized tax benefits will significantly increase or decrease in the next twelve months.

The Company files income tax returns in the United States federal jurisdiction, Pennsylvania, New Jersey and California.  The Company’s tax returns for Fiscal 2008 and prior generally are no longer subject to review as such years generally are closed.  The Company believes that an unfavorable resolution for open tax years would not be material to the financial position of the Company.