Federal and State Income Taxes

12 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Federal and State Income Taxes

Federal and State Income Taxes

The federal and state income tax (provision) benefit for fiscal years 2014, 2013 and 2012 consists of the following:

	2014			2013			2012
Current:
Federal	$	(4,198	)	$	(181	)	$	3,990
State	(2,010		)	(991		)	(1,031		)
Foreign	(22		)	(1		)	(26		)
Total current	(6,230		)	(1,173		)	2,933
Deferred:
Federal	(2,781		)	15,800			879
State	192			3,358			118
Foreign	77			1			—
Total deferred	(2,512		)	19,159			997
Total benefit (provision)	$	(8,742	)	$	17,986		$	3,930

Deferred income taxes represent the tax effect of transactions that are reported in different periods for financial and tax reporting purposes. Temporary differences and carryforwards that give rise to a significant portion of the deferred income tax benefits and liabilities are as follows at June 30, 2014 and 2013:

	2014			2013
Current deferred income tax assets and (liabilities):
Allowance for doubtful accounts	$	3,343		$	4,306
Vacation pay accrual	3,611			3,367
Bonus accrual	3,872			3,635
Contract loss reserves	993			1,082
Other accruals	2,498			2,234
Total deferred income tax assets	14,317			14,624
Unearned revenue	(1,987		)	(2,032		)
Other liabilities	(37		)	(74		)
Total deferred income tax liabilities	(2,024		)	(2,106		)
Net current deferred income tax assets	12,293			12,518
Long-term deferred income tax assets and (liabilities):
Loss carryforwards	1,081			613
Goodwill and intangible asset amortization	—			2,193
Legal reserve	567			458
Stock-based compensation expense	3,619			3,470
Other long-term assets	993			2,328
Total long-term deferred income tax assets	6,260			9,062
Depreciation	(1,496		)	(1,708		)
Revenue recognition on long-term contracts	(213		)	(606		)
Other long-term liabilities	(284		)	(147		)
Net long-term deferred income tax liabilities	(1,993		)	(2,461		)
Net long-term deferred income tax assets	4,267			6,601
Net deferred income tax assets	$	16,560		$	19,119

Based upon an assessment of available positive and negative evidence, the Company concluded its deferred tax assets would more likely than not be realized. As such, a valuation allowance was not established at the period ended June 30, 2014.

During the fourth quarter of fiscal year 2013, the Company determined that it was more likely than not that its deferred tax assets would be realized after considering all positive and negative evidence. Positive evidence included cumulative profitability, the Company's recent results of operations, and expected future taxable income sufficient to realize its deferred tax assets. Accordingly, a deferred tax valuation allowance release of $25,646 was recorded as a deferred income tax benefit during the fiscal year 2013, reducing the valuation allowance to zero. The Company's conclusion that it was more likely than not that such deferred tax assets would be realized was influenced by its forecast of future taxable income. The Company believes its forecast of future taxable income is reasonable; however, it is inherently uncertain. Therefore, if the Company realizes materially less future taxable income than forecasted or has material unforeseen losses, then its ability to generate sufficient income necessary to realize a portion of the deferred tax assets may be reduced, and a charge to increase the valuation allowance may be recorded.

As of June 30, 2014, prior to the consideration of the Company's uncertain tax positions, the Company had no federal loss carryforwards and approximately $21,047 of state loss carryforwards expiring at various dates through fiscal year 2033. As of June 30, 2013, prior to the consideration of the Company's uncertain tax positions, the Company had approximately $7,689 and $25,771 of federal and state loss carryforwards, respectively, expiring at various dates through fiscal year 2032.

The Company has a tax benefit of approximately $3,318 related to excess tax benefits from stock compensation. Pursuant to ASC Topic 718, this tax affected benefit is recorded as an addition to additional paid in capital when the benefit is realized through the reduction of taxes payable. In the current fiscal year ended 2014, a benefit of $3,115 has been recorded to additional paid in capital as it reduced income taxes payable in the current year.

A reconciliation of the U.S. federal statutory income tax rate to the Company's consolidated effective income tax rate for the fiscal years ended June 30, 2014, 2013 and 2012 is as follows:

	2014		2013		2012
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	5.1		6.6		7.1
Foreign income taxes	(0.2	)	0.2		—
Valuation allowance	—		(140.2	)	(46.7	)
Recognition of uncertain tax positions	(0.1	)	0.7		(11.1	)
Expiration of capital loss	—		—		3.1
Other, net	2.2		(0.6	)	(0.7	)
Effective income tax rate	42.0	%	(98.3	)%	(13.3	)%

The following represents a summary of the Company's uncertain tax positions:

	2014			2013		2012
Unrecognized tax benefits, beginning of year	$	1,131		$	740	$	10,822
Decreases for tax positions related to prior years	(130		)	—		(9,566		)
Increases for tax positions taken during the year	431			391		68
Reduction due to statute of limitation expirations	—			—		(584		)
Unrecognized tax benefits, end of year	$	1,432		$	1,131	$	740

ASC Topic 740, Income Taxes, requires a company to show the liability associated with the unrecognized tax benefit on a gross basis. As such, the ending balance of the unrecognized tax benefits will not agree to the liability recorded on the consolidated balance sheets.

As of June 30, 2014, the total amount of gross unrecognized tax benefits was $1,432, of which $408 if recognized, would impact the Company's effective tax rate. As of June 30, 2013, the total amount of gross unrecognized tax benefits was $1,131, of which $421 if recognized, would impact the Company's effective tax rate.

The Company does not expect significant changes in the unrecognized tax benefit balance in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. The total amount of interest and penalties recognized in the consolidated statements of operations was an expense of $24 and $16 for fiscal years 2014 and 2013, respectively. As of June 30, 2014 and 2013, the total accrued interest and penalties recognized on the consolidated balance sheets are $108 and $83, respectively.

The Company is subject to U.S. Federal Income Tax as well as income tax of certain state and foreign jurisdictions. The periods from June 30, 2012 to June 30, 2014 remain open to examination by the U.S. Internal Revenue Service. The periods from June 30, 2010 to June 30, 2014 remain open to examination by state authorities. In addition, for state purposes, the tax authorities can generally reduce a net operating loss (but not create taxable income) for a period outside the statute of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statute of limitations.

In fiscal year 2014, the IRS concluded its income tax examination for fiscal year 2011. No adjustments were proposed.

In fiscal year 2013, the state of Illinois concluded an income tax audit for the tax years ended June 30, 2006 through June 30, 2010. No adjustments were proposed.

The Company is currently under New York State income tax audit for the tax years ended June 30, 2009 through June 30, 2011. It is reasonably possible that the Company will close the New York State audit within the next twelve month period. Such resolution is not anticipated to have a significant impact on the results of operations. There are no other state income tax audits in progress.