NOTE 9 – INCOME TAXES

The Company's income (loss) before income taxes and equity in net loss of affiliate consists of the following (in thousands):

The income tax benefit (provision) consists of the following (in thousands):

Differences between the income tax benefit (provision) reported in the consolidated statements of comprehensive income (loss) and the income tax amount computed using the statutory U.S. federal income tax rate are as follows (in thousands):

The components of net deferred income tax assets for U.S. income tax purposes are as follows (in thousands):

During fiscal 2017, the Company increased the deferred tax assets valuation allowance by $5.0 million of which $3.6 million was added as a result of the LoJack acquisition based on its assessment of the future realizability of the U.S. deferred tax assets. This valuation allowance increase related to state net operating loss carryforwards (“NOLs”), certain federal NOLs, foreign tax credits and capital loss carryforwards that are not projected to be used before their expiration dates.

At February 28, 2017, the Company had NOLs of approximately $91 million and $87 million for federal and state purposes, respectively, expiring at various dates through fiscal 2037. If certain substantial changes in the Company’s ownership were to occur, there could be an annual limitation on the amount of the NOL carryforwards that can be utilized.

As of February 28, 2017, the Company had R&D tax credit carryforwards of $8.6 million and $7.3 million for federal and state income tax purposes, respectively. The federal R&D tax credits expire at various dates through 2037. A substantial portion of the state R&D tax credits have no expiration date.

As described further in Note 10, the Company has tax deductions on exercised stock options and vested restricted stock awards that exceed stock compensation expense amounts recognized for financial reporting purposes. These excess tax deductions, which amounted to $4.5 million and $6.5 million in fiscal years 2016 and 2015, respectively, reduce current taxable income and thereby prolong the tax shelter period of the NOL and R&D tax credit carryforwards referred to above.

The Company follows ASC Topic 740, “Income Taxes,” which clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Management determined based on its evaluation of the Company’s income tax positions that it has one uncertain tax position relating to federal R&D tax credits of $1.0 million at February 28, 2017 for which the Company has not yet recognized an income tax benefit for financial reporting purposes.

Activity in the amount of unrecognized tax benefits for uncertain tax positions during the past three years is as follows (in thousands):

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states and Puerto Rico, Canada, Ireland, Italy, United Kingdom, the Netherlands, Brazil and New Zealand. Certain income tax returns for fiscal years 2013 through 2016 remain open to examination by U.S. federal and state tax authorities. LoJack Corporation’s U.S. income tax returns for 2012 through 2015 remain open to examination by U.S. federal and state tax authorities. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods in which net operating losses or tax credits were generated and carried forward, and to make adjustments up to the net operating loss or tax credit carryforward amount. CalAmp’s Canadian subsidiaries’ income tax returns for fiscal years 2013 through 2016 remain open to examination by tax authorities in Canada. Most of LoJack’s foreign subsidiaries’ foreign returns for 2012 to present remain open for examination by the tax authorities in the countries in which they are filed. Tax returns filed in Italy and the Netherlands from 2011 to present remain open for examination.

The Company has deferred tax assets for Canadian income tax purposes amounting to $7.2 million at February 28, 2017 which relate primarily to research and development expenses and non-capital loss carryforwards. The Company has provided a 100% valuation allowance against these Canadian deferred tax assets.

The Company has deferred tax assets for Italian income tax purposes amounting to $6.2 million at February 28, 2017 which relate primarily to Net Operating Loss carryforwards. The Company has provided a 100% valuation allowance against these Italian deferred tax assets.

The Company did not provide for U.S. federal income and foreign withholding taxes on the $16.8 million of undistributed earnings from non-U.S. operations as of February 28, 2017 because it intends to reinvest such earnings indefinitely outside of the U.S. If the Company were to distribute these earnings, foreign tax credits may become available under current law to reduce the resulting U.S. income tax liability. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.