Income Taxes

3 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

Note 19.  Income Taxes

The Company uses the liability method to account for income taxes.  Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse.  Deferred tax expense/(benefit) is the result of changes in deferred tax assets and liabilities.

The provision for federal, state and local income taxes for the three months ended September 30, 2012 and 2011 was tax expense of $2,277 and $212, respectively, with effective tax rates of 44% and 49%, respectively.  The effective tax rate for the three months ended September 30, 2012 was lower compared to the three months ended September 30, 2011 due primarily to foreign losses relative to expected pre-tax income for Fiscal 2013.  This decrease was partially offset by the effects of a Pennsylvania tax law change which lowered the Company’s apportionment factor within the state.  The impact of this change caused the Company to reduce its deferred tax assets by approximately $217, and therefore increased the effective tax rate by 4% for the three months ended September 30, 2012.  Additionally, nondeductible incentive stock option compensation expenses relative to the expected pre-tax income for Fiscal 2013 resulted in a slight decrease in the effective rate compared to Fiscal 2012.  The Company expects its overall effective tax rate will be approximately 39% to 41% for the full year ended June 30, 2013.

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.

As of September 30, 2012 and June 30, 2012, the Company reported total unrecognized tax benefits of $280.  As a result of the positions taken during the period, the Company has not recorded any interest and penalties for the period ended September 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 September 30, 2012 and June 30, 2012.  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 2009 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.