Note 16. Income Taxes

12 Months Ended

Aug. 31, 2012

Income Tax Disclosure [Text Block]

16. INCOME TAXES

Provision for Income Taxes

The provision for income taxes by geographic operations is as follows (in thousands):

Years Ended August 31,	2012				2011				2010
U.S. operations		$	229,772			$	198,688		$	182,038
Non-U.S. operations			44,933				40,270			40,143
Income before income taxes		$	274,705			$	238,958		$	222,181
U.S. operations		$	76,020			$	58,125		$	62,554
Non-U.S. operations			9,876				9,787			9,416
Total provision for income taxes		$	85,896			$	67,912	*	$	71,970	**
Effective tax rate			31.3	%			28.4	% *		32.4	% **

* Includes income tax benefits of $6.3 million from the finalization of the fiscal 2010 tax return and the reenactment of the U.S. Federal R&D tax credit in December 2010. The fiscal 2011 annual effective tax rate before discrete items of $6.3 million was 30.9% or 40 basis points lower than the 2012 effective tax rate due to the expiration of the U.S. Federal R&D tax credit on December 31, 2011, which negatively impacted the fiscal 2012 annual effective tax rate by 130 basis points.

** Includes income tax benefits of $1.3 million from the finalization of the fiscal 2009 tax return, adjustments to certain reserves to reflect the lapse of statute of limitations and higher levels of non-U.S. taxable income. The fiscal 2010 annual effective tax rate before discrete items of $1.3 million was 32.9%.

The components of the provision for income taxes consist of the following (in thousands):

Years Ended August 31,	2012		2011			2010
Current
U.S. federal	$	73,272		$	53,925	$	63,712
U.S. state and local		4,305			4,833		4,839
Non-U.S.		10,224			10,728		10,151
Total current taxes	$	87,801		$	69,486	$	78,702
Deferred
U.S. federal	$	1,405		$	606	$	5,718
U.S. state and local		152			27		279
Non-U.S.		348			941		735
Total deferred taxes	$	1,905		$	1,574	$	6,732
Total provision for income taxes	$	85,896		$	67,912	$	71,970

The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to income before income taxes as a result of the following factors (expressed as a percentage of income before income taxes):

Years Ended August 31,	2012			2011			2010
Tax at federal U.S. statutory tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in taxes resulting from:
State and local taxes, net of U.S. federal income tax benefit		2.1			2.2			2.1
Foreign income at other than U.S. rates		(1.9	)		(1.7	)		(1.8	)
Domestic production activities (Section 199) deduction		(2.6	)		(2.1	)		(1.9	)
Income tax benefit from R&D tax credits		(0.8	)		(4.9	)		(0.6	)
Income tax benefits from foreign tax credits		(0.5	)		(0.7	)		(0.5	)
Other, net		0.0			0.6			0.1
Effective tax rate		31.3	%		28.4	%		32.4	%

Deferred Tax Assets and Liabilities

The significant components of deferred tax assets that are recorded in the Consolidated Balance Sheets were as follows (in thousands):

At August 31,	2012			2011
Deferred tax assets
Current
Receivable reserve	$	687		$	736
Deferred rent		3,175			3,272
Deferred fees		1,223			-
Net current deferred taxes	$	5,085		$	4,008
Non-current
Depreciation on property, equipment and leasehold improvements	$	2,498		$	2,427
Deferred rent		2,782			2,793
Stock-based compensation		23,395			18,096
Purchased intangible assets, including acquired technology		(6,801	)		(5,295	)
Other		1,239			2,145
Net non-current deferred taxes	$	23,113		$	20,166
Total deferred tax assets	$	28,198		$	24,174

The significant components of deferred tax liabilities that are recorded in the Consolidated Balance Sheets were as follows (in thousands):

At August 31,	2012			2011
Deferred tax liabilities (non-current)
Purchased intangible assets, including acquired technology	$	2,936		$	3,712
Stock-based compensation		(343	)		-
Total deferred tax liabilities (non-current)	$	2,593		$	3,712

A provision has not been made for additional U.S. Federal taxes as of August 31, 2012 on undistributed earnings of foreign subsidiaries, except for France, because the Company intends to reinvest these funds indefinitely to support foreign growth opportunities. The amount of such undistributed earnings of foreign subsidiaries included in consolidated retained earnings was immaterial at August 31, 2012 and 2011. It is not practicable to estimate the unrecognized deferred tax liability on these undistributed earnings. These earnings could become subject to additional tax if they are remitted as dividends, loaned to FactSet, or upon sale of the subsidiary’s stock.

Unrecognized Tax Positions

Applicable accounting guidance prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions that a company has taken or expects to take on a tax return. A company can recognize the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit or expense can be recognized in the consolidated financial statements. The tax benefits recognized are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Additionally, companies are required to accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

As of August 31, 2012, the Company had gross unrecognized tax benefits totaling $5.5 million, including $1.0 million of accrued interest, recorded as non-current taxes payable in the consolidated balance sheet. Unrecognized tax benefits represent tax positions taken on tax returns but not yet recognized in the consolidated financial statements. When applicable, the Company adjusts the previously recorded tax expense to reflect examination results when the position is effectively settled. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. However, FactSet has no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. Any changes in accounting estimates resulting from new developments with respect to uncertain tax positions will be recorded as appropriate. The Company does not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.

The following table summarizes the changes in the balance of gross unrecognized tax benefits from August 31, 2009 to August 31, 2012 (in thousands):

Unrecognized income tax benefits at August 31, 2009	$	6,437
Additions based on tax positions related to the current year		1,301
Additions for tax positions of prior years		469
Statute of limitations lapse		(861	)
Unrecognized income tax benefits at August 31, 2010	$	7,346
Additions based on tax positions related to the current year		1,258
Additions for tax positions of prior years		1,493
Statute of limitations lapse		(964	)
Reductions from settlements with taxing authorities		(1,929	)
Unrecognized income tax benefits at August 31, 2011	$	7,204
Additions based on tax positions related to the current year		691
Additions for tax positions of prior years		470
Statute of limitations lapse		(613	)
Reductions from settlements with taxing authorities		(2,288	)
Unrecognized income tax benefits at August 31, 2012	$	5,464

In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At August 31, 2012, the Company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:

Major Tax Jurisdictions	Open Tax Years
U.S.
Federal	2009 through 2012
State (various)	2008 through 2012
Europe
France	2010 through 2012
United Kingdom	2008 through 2012