Note 7. Income Taxes
Income (loss) before provision for income taxes consisted of the following (in thousands):
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| FY 2015 | FY 2016 | FY 2017 | ||||||||||
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North America |
$ | 6,234 | $ | (13,607) | $ | (8,234) | ||||||
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Asia-Pacific |
15,508 | 8,130 | 7,362 | |||||||||
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| $ | 21,742 | $ | (5,477) | $ | (872) | |||||||
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The provision for income taxes consisted of the following (in thousands):
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| FY 2015 | FY 2016 | FY 2017 | ||||||||||
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Current: |
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U.S. Federal |
$ | — | $ | — | $ | — | ||||||
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State |
— | 203 | 172 | |||||||||
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Foreign |
4,582 | 1,842 | 703 | |||||||||
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| 4,582 | 2,045 | 875 | ||||||||||
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Deferred: |
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U.S. Federal |
4,152 | (4,364) | (3,351) | |||||||||
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State |
474 | (39) | (120) | |||||||||
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Foreign |
(511) | 167 | 2,571 | |||||||||
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| 4,115 | (4,236) | (900) | ||||||||||
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| $ | 8,697 | $ | (2,191) | $ | (25) | |||||||
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The components of the net deferred tax liability are as follows (in thousands):
| June 30, | ||||||||
| 2016 | 2017 | |||||||
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Deferred tax assets: |
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Net operating loss and tax credit carryforwards (a) |
$ | 28,686 | $ | 40,310 | ||||
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Accrued compensation and other benefits |
3,070 | 2,867 | ||||||
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Allowance for doubtful accounts |
3,079 | 1,846 | ||||||
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Total deferred tax assets |
34,835 | 45,023 | ||||||
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Deferred tax liabilities: |
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Accelerated tax depreciation and amortization (a) |
(73,841) | (82,214) | ||||||
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Deferred revenue and expenses |
— | (915) | ||||||
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Total deferred tax liabilities |
(73,841) | (83,129) | ||||||
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Net deferred tax liabilities |
$ | (39,006) | $ | (38,106) | ||||
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(a) The June 30, 2016 deferred tax liability has been adjusted to reflect a reclassification to accelerated tax depreciation and amortization from net operating loss and tax credit carryforwards.
At June 30, 2017, the Company had a U.S. federal net operating loss carryforward of $94,806,000, which expires if unused during fiscal years 2019 – 2037, and state net operating loss carryforwards of $40,937,000, which will begin expiring in fiscal year 2019. As a result of stock ownership changes, it is possible to have a change in ownership for federal income tax purposes, which can limit the amount of net operating loss currently available as a deduction. As a result of the stock ownership change in the Pac-Van acquisition in October 2008, the available deduction of the net operating loss carryforward of $21,304,000 is generally limited to approximately $2,400,000 on a yearly basis.
For income tax purposes, deductible compensation related to non-qualified stock option awards is based on the value of the award when realized, which may be different than the compensation expense recognized in the consolidated financial statements, which is based on the award value on the date of grant. The difference between the value of the award upon grant and the value of the award when ultimately realized creates either additional tax benefits or a tax shortfall. Tax benefits resulting from tax deductions in excess of the compensation cost recognized for share-based awards would be recognized as increases to additional paid in capital only if an incremental income tax benefit would be realized after considering all other tax attributes presently available. Tax shortfalls, which would occur when the tax deduction for share-based awards is less than the compensation cost recognized, would be recorded as a reduction to additional paid in capital to the extent that, cumulatively, the shortfalls do not exceed the cumulative excess tax benefits recognized (including excess tax benefits not yet recognized in additional paid in capital). Should cumulative tax shortfalls exceed cumulative excess tax benefits, the difference would be reflected as additional tax expense in the consolidated financial statements. The Company has not recognized excess tax benefits in FY 2015, FY 2016 or FY 2017 because it has not paid U.S. federal income taxes in those years.
Management evaluates the ability to realize its deferred tax assets on a quarterly basis and adjusts the amount of its valuation allowance if necessary. No valuation allowance has been determined to be required as of June 30, 2016 and 2017.
A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows:
| FY 2015 | FY 2016 | FY 2017 | ||||||||||
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Federal statutory rate |
35.0% | 35.0% | 35.0% | |||||||||
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Adjustment to estimated state deferred tax liability, net of U.S. federal tax benefit (a) |
— | — | (34.1) | |||||||||
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State and Asia-Pacific taxes, net of U.S. federal tax benefit and credit |
5.0 | 5.0 | (2.1) | |||||||||
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Other |
-- | -- | 4.1 | |||||||||
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Effective tax rate |
40.0% | 40.0% | 2.9% | |||||||||
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(a) Adjustment for estimated state taxes of $297,000.