Annual report pursuant to Section 13 and 15(d)

Income taxes

 v2.3.0.11
Income taxes
 12 Months Ended
Jun. 30, 2011
Income taxes

K. Income taxes:

The provisions for income taxes consist of the following (in thousands):

 

     Year Ended June 30,  
     2011      2010     2009  

Earnings before income taxes consist of:

        

Domestic

    $ 131,080       $ 124,860      $ 121,585   

Foreign

      33,901         31,586        33,778   
  

 

 

     

 

 

    

 

 

  
   $ 164,981       $ 156,446      $ 155,363   
  

 

 

     

 

 

    

 

 

  

Taxes on income consist of:

        

Currently payable:

        

Federal

    $ 36,600       $ 37,098      $ 38,621   

State

      2,302         1,856        2,308   

Foreign

      9,854         9,266        9,920   

Net deferred:

        

Federal

      3,893         (1,494 )      (721 ) 

State

      19         39        9   

Foreign

      11         (95 )      (16 ) 
  

 

 

     

 

 

    

 

 

  
   $ 52,679       $ 46,670      $ 50,121   
  

 

 

     

 

 

    

 

 

  

 

The following is a reconciliation of the federal tax calculated at the statutory rate of 35% to the actual income taxes provided (in thousands):

 

     Year Ended June 30,  
     2011     2010     2009  

Computed expected federal income tax expense

    $ 57,743      $ 54,756      $ 54,377   

State income taxes, net of federal benefit

      1,463        1,247        1,805   

Qualified production activity deduction

      (3,889 )      (2,459 )      (2,397 ) 

Research and development tax credit

      (1,329 )      (444 )      (1,192 ) 

Tax-exempt interest

      (858 )      (1,114 )      (1,424 ) 

Increase (decrease) in deferred tax valuation allowance

      60        44        (235 ) 

Foreign exchange loss on repatriation

      0        (4,424 )      0   

Other

      (511 )      (936 )      (813 ) 
  

 

 

    

 

 

    

 

 

  
   $ 52,679      $ 46,670      $ 50,121   
  

 

 

    

 

 

    

 

 

  

Temporary differences comprising deferred taxes on the Consolidated Balance Sheets are as follows (in thousands):

 

     June 30  
     2011     2010  

Inventory

    $ 4,269      $ 8,902   

Unrealized profit on intercompany sales

      1,075        935   

Excess tax basis in equity investments

      3,643        3,651   

Foreign tax credit carryforward

      0        3,304   

Deferred compensation

      2,198        1,910   

Other

      596        950   

Valuation allowance

      (3,016 )      (2,956 ) 
  

 

 

    

 

 

  

Net deferred tax assets

      8,765        16,696   

Goodwill and intangible asset amortization

      (15,077 )      (1,241 ) 

Depreciation

      (485 )      0   

Other

      (766 )      (1,065 ) 
  

 

 

    

 

 

  

Deferred tax liabilities

      (16,328 )      (2,306 ) 
  

 

 

    

 

 

  

Net deferred tax (liabilities) assets

    $ (7,563 )    $ 14,390   
  

 

 

    

 

 

  

A deferred tax valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company has provided a valuation allowance for potential capital loss carryovers resulting from excess tax basis in certain of its equity investments. The Company believes that it is more likely than not that the recorded deferred tax assets, net of valuation allowance, will be realized.

During fiscal 2010, the Company’s R&D Europe subsidiary declared and paid a dividend of £50 million ($74.4 million) to the Company. The £50 million R&D Europe earnings had previously been taxed in the U.S. and therefore, no additional U.S. income tax resulted from the repatriation. The Company recorded a foreign currency exchange tax loss on the transaction of approximately $12.8 million and as a result, reported a $4.7 million reduction in income tax expense in fiscal 2010.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $112 million as of June 30, 2011. Deferred taxes have not been provided on such undistributed earnings, as the Company has either paid U.S. taxes on the undistributed earnings or intends to indefinitely reinvest the undistributed earnings in the foreign operations.

 

A summary of changes in unrecognized tax benefits is as follows (in thousands):

 

     June 30  
     2011     2010  

Beginning balance

    $ 96      $ 91   

Change due to tax positions related to the current year

      (53 )      15   

Decrease due to lapse of statute of limitations

      (9 )      (10 ) 
  

 

 

    

 

 

  

Ending balance

    $ 34      $ 96   
  

 

 

    

 

 

  

The gross unrecognized tax benefit balance as of June 30, 2011, 2010 and 2009 includes $3,000, $5,000 and $6,000 of unrecognized tax benefits that, if recognized, would affect the effective tax rate. Accrued interest and penalties were not material at June 30, 2011 and 2010.

The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next twelve months. The Company files income tax returns in the U.S federal tax jurisdiction, the states of Minnesota, Massachusetts and California, and several jurisdictions outside the U.S. U.S. tax returns for 2008 and subsequent years remain open to examination by the tax authorities. The Company’s major non-U.S. tax jurisdictions are the United Kingdom, France and Germany, which have tax years open to examination for 2007 and subsequent years, and China, which has calendar year 2011 open to examination.