Federal and State Income Taxes

12 Months Ended

Jun. 30, 2016

The federal and state income tax (provision) benefit for fiscal years 2016, 2015 and 2014 consists of the following:



	2016			2015			2014
Current:
Federal	$	(4,967	)	$	(12,604	)	$	(4,198	)
State	(1,483		)	(2,049		)	(2,010		)
Foreign	(70		)	(126		)	(22		)
Total current	(6,520		)	(14,779		)	(6,230		)

Deferred:
Federal	6,172			3,369			(2,781		)
State	957			254			192
Foreign	61			(24		)	77
Total deferred	7,190			3,599			(2,512		)
Total benefit (provision)	$	670		$	(11,180	)	$	(8,742	)

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, 2016 and 2015:



	2016			2015
Deferred income tax assets:
Allowance for doubtful accounts	$	3,169		$	3,295
Vacation pay accrual	4,827			4,228
Bonus accrual	4,141			5,661
Contract loss reserves	2,189			1,832
Goodwill and intangible asset amortization	6,430			—
Other accruals	4,855			3,468
Loss carryforwards	917			925
Legal reserve	834			1,414
Stock-based compensation expense	2,553			2,886
Total deferred income tax assets	29,915			23,709

Unearned revenue	(893		)	(1,333		)
Depreciation	(2,075		)	(1,421		)
Goodwill and intangible asset amortization	—			(1,473		)
Revenue recognition on long-term contracts	(670		)	(488		)
Other long-term liabilities	(38		)	(70		)
Total deferred income tax liabilities	(3,676		)	(4,785		)

Net deferred income tax assets	$	26,239		$	18,924

The Company elected to early adopt ASU 2015-17 in the fourth quarter of fiscal 2016 using the retrospective method and therefore, the Consolidated Balance Sheet as of June 30, 2015 has been retrospectively reclassified. The adoption of ASU 2015-17 therefore resulted in the reclassification of $16,057 net current deferred income tax assets into net long-term deferred income tax assets at June 30, 2015.

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, 2016 and June 30, 2015.

As of June 30, 2016, prior to the consideration of the Company's uncertain tax positions, the Company had no federal loss carryforwards and approximately $14,429 of state loss carryforwards expiring at various dates through fiscal year 2035. As of June 30, 2015, prior to the consideration of the Company's uncertain tax positions, the Company had no federal loss carryforwards and approximately $10,318 of state loss carryforwards expiring at various dates through fiscal year 2034.

The Company has a tax benefit of $3,965 related to excess tax benefits from stock compensation. Pursuant to ASC Topic 718, a benefit of $1,357 was recorded to additional paid in capital as it reduced income taxes payable in the current year. In addition, a tax deficiency of $178 related to the expiration of vested stock options was recorded to decrease additional paid in capital as it reduced deferred tax assets.

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, 2016, 2015 and 2014 is as follows:



	2016					2015					2014
	Amount			Percent		Amount			Percent		Amount			Percent
U.S. federal statutory income tax	$	(220	)	35.0	%	$	10,708		35.0	%	$	7,278		35.0	%
State income taxes, net of federal benefit	396			(63.0	)	1,123			3.7		1,066			5.1
Foreign income taxes	(26		)	4.2		93			0.3		(50		)	(0.2	)
Recognition of uncertain tax positions	319			(50.7	)	220			0.7		(24		)	(0.1	)
Federal R&D	(1,237		)	196.7		(1,009		)	(3.3	)	(45		)	(0.2	)
Domestic production activities deduction	(569		)	90.4		—			—		—			—
Non-deductible expenses	667			(106.1	)	45			0.1		517			2.4
Effective income tax	$	(670	)	106.5	%	$	11,180		36.5	%	$	8,742		42.0	%

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



	2016		2015			2014
Unrecognized tax benefits, beginning of year	$	1,450	$	1,432		$	1,131
Increases (decreases) for tax positions related to prior years	63		99			(130		)
Increases (decreases) for tax positions taken during the year	409		(81		)	431
Unrecognized tax benefits, end of year	$	1,922	$	1,450		$	1,432

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, 2016, the total amount of gross unrecognized tax benefits was $1,922, of which $872 if recognized, would impact the Company's effective tax rate. As of June 30, 2015, the total amount of gross unrecognized tax benefits was $1,450, of which $618 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 $85 and $89 for fiscal years 2016 and 2015, respectively. As of June 30, 2016 and 2015, the total accrued interest and penalties recognized on the consolidated balance sheets are $281 and $197, 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, 2013 to June 30, 2015 remain open to examination by the U.S. Internal Revenue Service and 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.

The Company is currently under Federal tax audit for the tax year ending June 30, 2014. No adjustments were proposed as of June 30, 2016.