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INCOME TAXES | 12 Months Ended
--- | ---
Jun. 30, 2013
INCOME TAXES |
INCOME TAXES | 9. INCOME TAXES The components of income (loss) before income taxes are as follows:
|  | Fiscal Years |
--- | --- | --- | ---
|  | 2013 |  | 2012 |  | 2011 |
|  | (Dollars in thousands) |
Income (loss) before income taxes: |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | (25,177 | ) | $ | (35,430 | ) | $ | (49,669 | )
International |  |  | 35,275 |  |  | 10,116 |  |  | 5,736 |
|  | $ | 10,098 |  | $ | (25,314 | ) | $ | (43,933 | )
The (benefit) provision for income taxes consists of:
|  | Fiscal Years |
--- | --- | --- | ---
|  | 2013 |  | 2012 |  | 2011 |
|  | (Dollars in thousands) |
Current: |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | (21,053 | ) | $ | (1,095 | ) | $ | (4,409 | )
International |  |  | 707 |  |  | 2,261 |  |  | 1,106 |
Deferred: |  |  |  |  |  |  |  |  |  |
U.S. |  |  | 10,405 |  |  | (5,519 | ) |  | (16,283 | )
International |  |  | (83 | ) |  | (77 | ) |  | 3,253 |
|  | $ | (10,024 | ) | $ | (4,430 | ) | $ | (16,333 | )
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings (loss) before income taxes, as a result of the following:
|  | Fiscal Years |
--- | --- | --- | ---
|  | 2013 |  | 2012 |  | 2011 |
U.S. statutory rate (benefit) |  |  | 35.0 | % |  | (35.0 | )% |  | (35.0 | )%
State income taxes, net of federal income tax benefit |  |  | 3.6 |  |  | 3.5 |  |  | (1.7 | )
Tax effect of goodwill impairment |  |  | — |  |  | 47.7 |  |  | 6.5 |
Foreign income taxes at other than U.S. rates |  |  | 4.1 |  |  | (0.5 | ) |  | 4.7 |
Tax effect of foreign currency translation gain |  |  | (107.0 | ) |  | — |  |  | — |
Work Opportunity and Welfare-to-Work Tax Credits |  |  | (42.8 | ) |  | (19.4 | ) |  | (8.8 | )
Other, net |  |  | 7.8 |  |  | (13.8 | ) |  | (2.9 | )
|  |  | (99.3 | )% |  | (17.5 | )% |  | (37.2 | )%
The 7.8 percent of Other, net in fiscal year 2013 includes the rate impact of meals and entertainment expense disallowance, donated inventory, unrecognized tax benefits, and miscellaneous items of 4.9, (3.4), 5.5, and 0.8 percent, respectively. The (13.8) percent of Other, net in fiscal year 2012 includes the rate impact of meals and entertainment expense disallowance, unrecognized tax benefits, and miscellaneous items of 2.1, (9.1), and (6.8) percent, respectively. The (2.9) percent of Other, net in fiscal year 2011 includes the rate impact of unrecognized tax benefits and miscellaneous items of (1.8) and (1.1) percent, respectively. The components of the net deferred tax assets and liabilities are as follows:
|  | June 30, |
--- | --- | --- | ---
|  | 2013 |  | 2012 |
|  | (Dollars in thousands) |
Deferred tax assets: |  |  |  |  |  |  |
Deferred rent |  | $ | 12,953 |  | $ | 14,725 |
Payroll and payroll related costs |  |  | 34,073 |  |  | 43,717 |
Net operating loss carryforwards |  |  | 2,484 |  |  | 759 |
Tax credit carryforwards |  |  | 4,366 |  |  | — |
Salon asset impairment |  |  | 720 |  |  | 5,038 |
Inventories |  |  | 7,920 |  |  | 2,118 |
Federal and state benefit on uncertain tax positions |  |  | 1,888 |  |  | 2,113 |
Allowance for doubtful accounts/notes |  |  | 7,004 |  |  | 5,144 |
Insurance |  |  | 6,106 |  |  | 6,439 |
Other |  |  | 11,745 |  |  | 6,362 |
Total deferred tax assets |  | $ | 89,259 |  | $ | 86,415 |
Deferred tax liabilities: |  |  |  |  |  |  |
Depreciation |  | $ | (20,684 | ) | $ | (17,831 | )
Amortization of intangibles |  |  | (72,635 | ) |  | (61,139 | )
Deferred debt issuance costs |  |  | (2,303 | ) |  | (4,336 | )
Other |  |  | (4,903 | ) |  | (2,102 | )
Total deferred tax liabilities |  | $ | (100,525 | ) | $ | (85,408 | )
Net deferred tax (liability) asset |  | $ | (11,266 | ) | $ | 1,007 |
At June 30, 2013, the Company has tax effected state and U.K. net operating loss carryforwards of approximately $1.8 million (net of $0.1 million of valuation allowance) and $0.7 million, respectively. The state loss carryforwards expire from 2016 to 2033. The U.K. loss carryforward has no expiration. The Company's tax credit carryforward of $4.4 million will expire in 2033. As of June 30, 2013, undistributed earnings of international subsidiaries of approximately $25.2 million were considered to have been reinvested indefinitely and, accordingly, the Company has not provided for U.S. income taxes on such earnings. It is not practicable for the Company to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings. The Company files tax returns and pays tax primarily in the U.S., Canada, the U.K., and Luxembourg as well as states, cities, and provinces within these jurisdictions. In the U.S., fiscal years 2010 and beyond remain open for federal tax audit. The Company's U.S. federal income tax returns for the fiscal years 2010 and 2011 are currently under examination by the Internal Revenue Service. For state tax audits, the statute of limitations generally spans three to four years, resulting in a number of states remaining open for tax audits dating back to fiscal year 2009. However, the Company is under audit in a number of states in which the statute of limitations has been extended for fiscal years 2007 and forward. Internationally, including Canada, the statute of limitations for tax audits varies by jurisdiction, but generally ranges from three to five years. A rollforward of the unrecognized tax benefits is as follows:
|  | Fiscal Years |
--- | --- | --- | ---
|  | 2013 |  | 2012 |  | 2011 |
|  | (Dollars in thousands) |
Balance at beginning of period |  | $ | 4,381 |  | $ | 13,493 |  | $ | 16,856 |
Additions based on tax positions related to the current year |  |  | 44 |  |  | 482 |  |  | 796 |
(Reductions)/additions based on tax positions of prior years |  |  | 7,132 |  |  | (7 | ) |  | (759 | )
Reductions on tax positions related to the expiration of the statute of limitations |  |  | (1,403 | ) |  | (1,571 | ) |  | (2,718 | )
Settlements |  |  | (139 | ) |  | (8,016 | ) |  | (682 | )
Balance at end of period |  | $ | 10,015 |  | $ | 4,381 |  | $ | 13,493 |
If the Company were to prevail on all unrecognized tax benefits recorded, a benefit of approximately $2.8 million would be recorded in the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the fiscal years 2013, 2012, and 2011 we recorded interest and penalties of approximately $0.7, $(1.2), and $(0.6) million, respectively, for the fiscal years additions to the accrual net of the respective reversal of previously accrued interest and penalties. As of June 30, 2013, the Company had accrued interest and penalties related to unrecognized tax benefits of $2.2 million. This amount is not included in the gross unrecognized tax benefits noted above. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next fiscal year. However, an estimate of the amount or range of the change cannot be made at this time.

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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 Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 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 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: 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 6: 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 Reference 7: 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 8: 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. + Details
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