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Income Taxes | 12 Months Ended
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Aug. 31, 2012
Income Taxes [Abstract] |
Income Taxes | 1 5. INCOME TAXES The provision (benefit) for income taxes from continuing operations consisted of the following (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2012 |  | 2011 |  | 2010
Current: |  |  |  |  |  |
Federal | $ | - | $ | - | $ | (454)
State |  | 228 |  | 204 |  | 16
Foreign |  | 2,553 |  | 1,643 |  | 1,555
|  | 2,781 |  | 1,847 |  | 1,117
Deferred: |  |  |  |  |  |
Federal |  | 1,311 |  | (430) |  | 1,254
State |  | (3) |  | (149) |  | (43)
Foreign |  | (269) |  | 45 |  | (488)
Benefit of foreign tax credit |  |  |  |  |  |
carryforward |  | (2,677) |  | (3,788) |  | -
Utilization of net loss carryforwards |  | 4,763 |  | 6,012 |  | 468
Provision resulting from the allocation |  |  |  |  |  |
of certain tax items directly to |  |  |  |  |  |
contributed capital |  | - |  | 102 |  | 176
|  | 3,125 |  | 1,792 |  | 1,367
| $ | 5,906 | $ | 3,639 | $ | 2,484
The allocation of total income tax p rovision (benefit) is as follows (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2012 |  | 2011 |  | 2010
Continuing operations | $ | 5,906 | $ | 3,639 | $ | 2,484
Other comprehensive income |  | (73) |  | 310 |  | (229)
Discontinued operations |  | - |  | - |  | 440
Gain on sale of discontinued |  | - |  |  |  |
operations |  | - |  | - |  | 854
| $ | 5,833 | $ | 3,949 | $ | 3,549
Income from continuing operations before income taxes consisted of the following (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2012 |  | 2011 |  | 2010
United States | $ | 11,006 | $ | 7,438 | $ | 1,127
Foreign |  | 2,741 |  | 1,008 |  | 53
| $ | 13,747 | $ | 8,446 | $ | 1,180
The differences between income taxes at the statutory federal income tax rate and income taxes from continuing operations reported in our consolidated statements of operations were as follows:
YEAR ENDED AUGUST 31, | 2012 | 2011 | 2010
Federal statutory income tax rate | 35.0% | 35.0% | 35.0%
State income taxes, net of federal effect | 2.7 | 3.7 | 1.2
Foreign jurisdictions tax differential | 1.8 | 0.3 | (4.2)
Tax differential on income subject to both U.S. and foreign taxes | (3.4) | (5.7) | 140.6
Uncertain tax positions | 3.2 | 3.7 | (21.2)
Tax on management stock loan interest | 2.2 | 3.6 | 25.9
Non-deductible executive compensation | 1.4 | 1.3 | 26.8
Non-deductible meals and entertainment | 0.9 | 1.5 | 7.4
Other | (0.8) | (0.3) | (0.9)
| 43.0% | 43.1% | 210.6%
We paid significant amounts of withholding tax on foreign royalties during fiscal years 201 2, 201 1, and 20 10. We also recognized taxable income on repatriated earnings from foreign income that are taxed in both foreign and domestic jurisdictions. During fiscal 2012 and fiscal 2011, we concluded that domestic foreign tax credits will be available to offset our foreign withholding taxes and U.S. taxes on foreign dividends for those years. However, for fiscal 2010 we concluded that no domestic foreign tax credits were available to offset the foreign withholding taxes and the U.S. taxes on foreign dividends. We accrue taxable interest income on outstanding management common stock loans (Note 10). Consistent with the accounting treatment for these loans, we are not recognizing interest income for book purposes, thus resulting in a permanent book versus tax difference. The significant components of our deferred tax assets and liabilities were comprised of the following (in thousands):
YEAR ENDED |  |  |  |
AUGUST 31, |  | 2012 |  | 2011
Deferred income tax assets: |  |  |  |
Sale and financing of corporate |  |  |  |
headquarters | $ | 10,953 | $ | 11,171
Foreign income tax credit |  |  |  |
carryforward |  | 6,205 |  | 5,946
Deferred compensation |  | 2,296 |  | 1,003
Bonus and other accruals |  | 1,399 |  | 1,403
Unearned revenue |  | 1,188 |  | 784
Inventory and bad debt reserves |  | 746 |  | 639
Net operating loss carryforward |  | 289 |  | 4,128
Alternative minimum tax carryforward |  | 392 |  | 393
Investment in FC Organizational |  |  |  |
Products |  | 275 |  | 1,466
Sales returns and contingencies |  | 253 |  | 248
Impairment of FC Organizational |  |  |  |
Products note receivable |  | - |  | 1,653
Impairment of investment in Franklin |  |  |  |
Covey Coaching, LLC |  | - |  | 46
Other |  | 163 |  | 151
Total deferred income tax assets |  | 24,159 |  | 29,031
Less: valuation allowance |  | - |  | (2,159)
Net deferred income tax assets |  | 24,159 |  | 26,872
Deferred income tax liabilities: |  |  |  |
Intangibles step-ups – indefinite lived |  | (8,667) |  | (8,597)
Intangibles step-ups – definite lived |  | (8,371) |  | (8,866)
Property and equipment depreciation |  | (4,822) |  | (5,430)
Intangible asset impairment and |  |  |  |
amortization |  | (4,919) |  | (4,319)
Unremitted earnings of foreign |  |  |  |
subsidiaries |  | (582) |  | (609)
Other |  | (142) |  | (114)
Total deferred income tax liabilities |  | (27,503) |  | (27,935)
Net deferred income taxes | $ | (3,344) | $ | (1,063)
Deferred income tax amounts are recorded as follows in our consolidated balance sheets (in thousands):
YEAR ENDED |  |  |  |
AUGUST 31, |  | 2012 |  | 2011
Current assets | $ | 3,634 | $ | 3,005
Long-term assets |  | 23 |  | 16
Long-term liabilities |  | (7,001) |  | (4,084)
Net deferred income tax liability | $ | (3,344) | $ | (1,063)
Federal net operating losses of $33.3 million and $21.2 million were generated in fiscal 2003 and 2004, respectively, all of which have been utilized. In fiscal 2009, a federal net operating loss of $9.7 million was generated. During fiscal 2012, a total of $6.5 million of the fiscal 2009 loss carryforward was utilized, leaving a remaining loss carryforward from fiscal 2009 of $3.2 million, which expires on August 31, 2029. The total loss carryforward of $3.2 million includes $1.6 million of deductions applicable to addi tional paid-in capital that will be credited once the loss carryforward amounts are utilized. We also have state net operating loss carryforwards generated in various state jurisdictions that expire primarily between August 31, 201 3 and August 31, 202 9. Our U.S. foreign income tax credit carryforward of $2.2 million that was generated during fiscal 2002 expired on August 31, 2012. Our U.S. foreign income tax credit carryforwards generated in fiscal 2012 and fiscal 2011 of $2.7 million and $3.5 million e xpire on August 31, 2022 and 2021, respectively. Valuation Allowance on Deferred Tax Assets The foreign tax credit of $2.2 million that was generated in fiscal 2002 expired in fiscal 2012. Accordingly, the corresponding valuation allowance of $2.2 million previously recorded against the foreign tax credit was reversed in fiscal 2012, leaving no remaining valuation allowance against any of our deferred income tax assets at August 31, 2012. We have determined that projected future taxable income is adequate to allow for realization of all domestic deferred tax assets. We considered sources of taxable income, including future reversals of taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and reasonable, practical tax-planning strategies to generate additional taxable income. Based on the factors described above, we concluded that realization of all our domestic deferred tax assets is more likely than not at August 31, 2012. The table below presents the pre-tax book income, significant book versus tax differences, and taxable income for the years ended August 31, 2012, 20 11, and 2010 (in thousands).
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2012 |  | 2011 |  | 2010
Domestic pre-tax book income | $ | 11,006 | $ | 7,438 | $ | 1,745
Share-based compensation |  | 3,405 |  | 1,700 |  | 359
Actual and deemed foreign dividends |  | 2,484 |  | 5,409 |  | 2,502
Property and equipment depreciation |  |  |  |  |  |
and dispositions |  | 1,664 |  | 1,766 |  | 1,482
Unearned revenue |  | 1,057 |  | 37 |  | 1,534
Interest on management common |  |  |  |  |  |
stock loans |  | 870 |  | 376 |  | 313
Disallowed executive compensation |  | 549 |  | 537 |  | 755
Changes in accrued liabilities |  | 88 |  | 1,091 |  | (724)
Impairment of note receivable from |  |  |  |  |  |
FC Organizational Products |  | (4,667) |  | 390 |  | 315
Taxable losses from FC Organizational |  |  |  |  |  |
Products |  | (2,916) |  | (748) |  | (3,073)
Amortization/write-off of intangible |  |  |  |  |  |
assets |  | (92) |  | (1,274) |  | (617)
Deduction for foreign income taxes |  | - |  | - |  | (1,272)
Sale of corporate headquarters campus |  | (822) |  | (683) |  | (585)
Other book versus tax differences |  | (30) |  | 281 |  | 232
| $ | 12,596 | $ | 16,320 | $ | 2,966
Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2012 |  | 2011 |  | 2010
Beginning balance | $ | 3,703 | $ | 3,940 | $ | 4,225
Additions based on tax positions |  |  |  |  |  |
related to the current year |  | 297 |  | 6 |  | 46
Additions for tax positions in |  |  |  |  |  |
prior years |  | 327 |  | 384 |  | 173
Reductions for tax positions of prior |  |  |  |  |  |
years resulting from the lapse of |  |  |  |  |  |
applicable statute of limitations |  | - |  | - |  | (425)
Other reductions for tax positions of |  |  |  |  |  |
prior years |  | (115) |  | (627) |  | (79)
Ending balance | $ | 4,212 | $ | 3,703 | $ | 3,940
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $3.1 million and $2.8 million at August 31, 2012 and 2011. Included in the ending balance of gross unrecognized tax benefits is $3.2 million related to individual states’ net operating loss carryforwards. Interest and penalties related to uncertain tax positions are recognized as components of income tax expense. The net accruals and reversals of interest and penalties increased income tax expense by $0.1 million in fiscal 2012, increased income tax expense by an insignificant amount in fiscal 2011, and decreased income tax expense by $0.1 million in fiscal 2010. The balance of interest and penalties included on our consolidated balance sheets at August 31, 2012 and 2011 was $0.2 million and $0.1 million, respectively. We expect an increase of $0.3 million in our unrecognized tax benefits over the next twelve months, primarily related to the utilization of individual states’ net operating loss carryforwards. We file United States federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The tax years that remain subject to examinations for our major tax jurisdictions are shown below. Additionally, any net operating losses that were generated in prior years and utilized in these years may be subject to examination.
200 5-201 2 | Canada
200 6-201 2 | Australia
200 7-201 2 | Japan, United Kingdom
200 8-201 2 | United States – state and local income tax
200 9-201 2 | United States – federal income tax

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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