INCOME TAXES

The components of income before income taxes and equity in earnings of equity-method investees were as follows:



	Fiscal Year ended June 30,
	2012		2011		2010
Domestic	$	111,255	$	95,048	$	66,005
Foreign	22,973		3,879		2,287
Total	$	134,228	$	98,927	$	68,292

The provision for income taxes is presented below.



	Fiscal Year ended June 30,
	2012			2011		2010
Current
Federal	$	28,983		$	24,878	$	20,357
State and local	3,414			4,833		2,361
Foreign	6,050			2,437		2,231
	38,447			32,148		24,949
Deferred:
Federal	3,963			4,201		515
State and local	493			501		205
Foreign	(1,749		)	958		2,693
	2,707			5,660		3,413
Total	$	41,154		$	37,808	$	28,362

Income taxes paid during the years ended June 30, 2012, 2011 and 2010 amounted to $21,902, $34,297 and $12,335, respectively.

Reconciliations of expected income taxes at the U.S. federal statutory rate of 35% to the Company’s provision for income taxes for the fiscal years ended June 30 were as follows:



	2012			%		2011			%		2010			%
Expected U.S. federal income tax at statutory rate	$	46,980		35.0	%	$	34,624		35.0	%	$	23,902		35.0	%
State income taxes, net of federal benefit	3,267			2.4	%	3,467			3.5	%	2,356			3.4	%
Domestic manufacturing deduction	(2,275		)	(1.7	)%	(2,191		)	(2.2	)%	(770		)	(1.1	)%
Non-deductible compensation	216			0.2	%	1,278			1.3	%	1,194			1.7	%
Foreign income at different rates	(11,513		)	(8.6	)%	(534		)	(0.5	)%	(2,555		)	(3.7	)%
Effect of settled tax matters	—			—	%	—			—	%	(1,205		)	(1.8	)%
Valuation allowances established for UK losses	—			—	%	2,118			2.1	%	5,721			8.4	%
Contingent consideration expense reversal	5,434			4.0	%	—			—	%	—			—	%
Other	(955		)	(0.6	)%	(954		)	(1.0	)%	(281		)	(0.4	)%
Provision for income taxes	$	41,154		30.7	%	$	37,808		38.2	%	$	28,362		41.5	%

We have deferred tax benefits related to carryforward losses and deferred tax assets in the United Kingdom of $4,594, against which full valuation allowances have been recorded. These valuation allowances were initially recorded in the third quarter of fiscal 2010 as a result of the Company’s evaluation of its United Kingdom tax position in accordance with ASC 740, “Accounting for Income Taxes.” Prior to the acquisition of Daniels, the Company’s United Kingdom subsidiaries had recorded historical losses and had been affected by restructuring and other charges. These losses represented sufficient evidence for management to determine that a full valuation allowance for the deferred tax assets was appropriate under ASC 740. Prior to the Daniels acquisition, we did not recognize a tax benefit for losses incurred in the United Kingdom. Under current U.K. tax law, our carryforward losses have no expiration. If the Company is able to realize any of these deferred tax assets in the future, the provision for income taxes will be reduced by a release of the corresponding valuation allowance. Until an appropriate level of profitability is attained in a manner such that those historical loss carryforwards can be utilized, we expect to continue to maintain a valuation allowance on those net deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of our deferred tax assets (liabilities) were as follows:



	June 30, 2012			June 30, 2011
Current deferred tax assets:
Basis difference on inventory	$	4,359		$	4,628
Reserves not currently deductible	11,106			8,853
Other	369			512
Current deferred tax assets	15,834			13,993

Noncurrent deferred tax liabilities:
Basis difference on intangible assets	(93,090		)	(40,752		)
Basis difference on property and equipment	(13,976		)	(11,226		)
Other comprehensive income	(8,246		)	(7,678		)
Noncurrent deferred tax assets:
Net operating loss and tax credit carryforwards	11,204			12,058
Stock based compensation	3,458			2,705
Other	(8		)	(626		)
Valuation allowances	(6,975		)	(6,402		)
Noncurrent deferred tax liabilities, net	(107,633		)	(51,921		)
	$	(91,799	)	$	(37,928	)

We have U.S. foreign tax credit carryforwards of $1,012 at June 30, 2012 with various expiration dates through 2020. We have U.S. federal tax net operating losses available for carryforward at June 30, 2012 of $3,551 that were generated by certain subsidiaries prior to their acquisition and have expiration dates through 2028. The use of pre-acquisition operating losses is subject to limitations imposed by the Internal Revenue Code. We do not anticipate that these limitations will affect utilization of the carryforwards prior to their expiration. In addition to the net operating losses in the United Kingdom described above, we also have deferred tax benefits for foreign net operating losses of $2,114 which are available to reduce future income tax liabilities in Belgium and the Netherlands. The Company believes it is more likely than not that these net operating losses will not be realized and a valuation allowance has been established against these deferred tax assets.

The changes in valuation allowances against deferred income tax assets were as follows:



	Fiscal Year ended June 30,
	2012			2011
Balance at beginning of year	$	6,402		$	7,041
Additions charged to income tax expense	1,064			89
Reductions credited to income tax expense	—			(1,255		)
Currency translation adjustments	(491		)	527
Balance at end of year	$	6,975		$	6,402

As of June 30, 2012, the Company had approximately $38,225 of undistributed earnings of foreign subsidiaries for which taxes have not been provided as the Company has invested or expects to invest these undistributed earnings indefinitely. If in the future these earnings are repatriated to the U.S., or if the Company determines such earnings will be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that might be payable if some or all of such earnings were to be remitted.

Unrecognized tax benefits, including interest and penalties, activity is summarized below:



	Fiscal Year ended June 30,
	2012			2011			2010
Balance at beginning of year	$	1,472		$	2,248		$	2,489
Additions based on tax positions related to prior years	15			224			304
Additions for acquired companies	690			—			—
Reductions for tax positions of prior years	—			—			(545		)
Reductions due to lapse in statute of limitations	(840		)	(1,000		)	—
Balance at end of year	$	1,337		$	1,472		$	2,248

At June 30, 2012, $1,178 represents the amount that would impact the effective tax rate in future periods if recognized.

The Company records interest and penalties on tax uncertainties as a component of the provision for income taxes. The Company recognized $(135), $224 and $113 of interest and penalties related to the above unrecognized benefits within income tax expense for the fiscal years ended June 30, 2012, 2011 and 2010, respectively. The Company had accrued $152 and $287 for interest and penalties at the end of fiscal 2012 and 2011, respectively. The Company reduced its reserves by $840 and $1,000 in fiscal 2012 and 2011, respectively, as a result of an expiration of certain statutes of limitations. In addition, the Internal Revenue Service completed the examination of our income tax returns for fiscal years 2005 and 2006 in the fourth quarter of fiscal 2010, which resulted in the receipt of a small refund. As a result, the Company reduced its reserves for uncertain tax positions by $400.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and several foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2008. Given the uncertainty regarding when tax authorities will complete their examinations and the possible outcomes of their examinations, a current estimate of the range of reasonably possible significant increases or decreases of income tax that may occur within the next twelve months cannot be made.