Note 6: Income Taxes
We recognize a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are periodically reviewed for recoverability.
Accounting guidance for accounting for uncertain tax positions prescribes a recognition threshold required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.
We recognize interest and penalties accrued with respect to uncertain tax positions as components of our income tax provision. At May 31, 2013 and 2012, we did not have any accrual for interest and penalties.
The reconciliation of our unrecognized tax benefits is as follows for the fiscal years ended May 31:
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Balance as of June 1 |
$ | — | $ | — | $ | 4,691 | ||||||
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Decrease related to prior year tax positions |
— | — | (4,691 | ) | ||||||||
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Balance as of May 31 |
$ | — | $ | — | $ | — | ||||||
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We are subject to taxation in the U.S., as well as various states and foreign jurisdictions. We have substantially settled all income tax matters for the United States federal jurisdiction for years through fiscal 2009. Major state jurisdictions have been examined through fiscal 2004 and 2005, and foreign jurisdictions have not been examined for their respective maximum statutory periods.
For financial reporting purposes, income before income taxes comprised the following as of May 31:
| 2013 | 2012 | 2011 | ||||||||||
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Domestic |
$ | 37,162 | $ | 40,364 | $ | 36,817 | ||||||
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Foreign |
(49 | ) | (359 | ) | 472 | |||||||
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| $ | 37,113 | $ | 40,005 | $ | 37,289 | |||||||
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The provision for income taxes consisted of the following for the fiscal years ended May 31:
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Current |
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Federal |
$ | 17,007 | $ | 1,057 | $ | (5,583 | ) | |||||
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State |
1,417 | 1,523 | 2,028 | |||||||||
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Foreign |
573 | 538 | (521 | ) | ||||||||
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Deferred |
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Federal |
(4,401 | ) | 10,541 | 17,083 | ||||||||
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State |
257 | 559 | 540 | |||||||||
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Foreign |
(494 | ) | 15 | (14 | ) | |||||||
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| $ | 14,359 | $ | 14,233 | $ | 13,533 | |||||||
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The following reconciles the statutory federal income tax rate to the effective tax rate for the fiscal years ended May 31:
| 2013 | 2012 | 2011 | ||||||||||
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Statutory federal rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
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State taxes, net of federal benefit |
3.0 | 3.4 | 4.5 | |||||||||
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Derecognition of uncertain tax positions |
— | — | (3.4 | ) | ||||||||
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Bargain purchase gain |
— | (3.0 | ) | (0.2 | ) | |||||||
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Foreign tax refund |
— | (0.4 | ) | — | ||||||||
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Permanent differences resulting from valuation allowances |
0.7 | 0.7 | 0.3 | |||||||||
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Other |
— | (0.1 | ) | 0.1 | ||||||||
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Effective tax rate |
38.7 | % | 35.6 | % | 36.3 | % | ||||||
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Our effective tax rate in fiscal 2013, 2012 and 2011 was 38.7%, 35.6% and 36.3%, respectively. The lower effective rate in fiscal 2012 was due to the bargain purchase gain on EMT and state tax credits offset by an increase in the foreign valuation allowance. The lower effective rate in fiscal 2011 was due to our effective settlement of our remaining uncertain tax positions and the resulting derecognition of $1,396 for interest and penalties previously recognized in our income tax provision. Tax advantaged investments reduced expense by $0, $0 and $2 for fiscal 2013, 2012 and 2011, respectively.
The tax effects of temporary differences that gave rise to significant portions of the net deferred tax liabilities consisted of the following at May 31:
| 2013 | 2012 | |||||||
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Deferred tax assets: |
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Goodwill and intangible assets |
$ | — | $ | 300 | ||||
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Allowance for doubtful accounts |
105 | 206 | ||||||
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Deferred compensation and benefits |
3,545 | 2,813 | ||||||
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Net operating losses |
1,110 | 871 | ||||||
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Valuation allowance |
(1,110 | ) | (871 | ) | ||||
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Other |
908 | 1,390 | ||||||
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| 4,558 | 4,709 | |||||||
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Deferred tax liabilities: |
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Accumulated depreciation |
(51,948 | ) | (56,532 | ) | ||||
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Deferred taxes on bargain purchase |
(2,207 | ) | (2,548 | ) | ||||
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Intangible asset |
(143 | ) | — | |||||
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Net deferred tax liabilities |
$ | (49,740 | ) | $ | (54,371 | ) | ||
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We determined that a valuation allowance was required in fiscal 2013 and 2012 of $1,110 and $871, respectively, for our deferred tax asset related to certain foreign net operating loss carry forwards and other related timing differences, which, if unused, will expire between fiscal 2014 and 2017. The increase in the valuation allowance for fiscal 2013, 2012 and 2011 was not significant. As of May 31, 2013, 2012 and 2011, U.S. income taxes had not been assessed on approximately $1,833, $1,599 and $1,425, respectively, of undistributed earnings of foreign subsidiaries because we consider these earnings to be invested indefinitely.