Note 15 - Income Taxes

3 Months Ended

Nov. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

15. INCOME TAXES

Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.

Provision for Income Taxes

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

	Three Months Ended November 30,
	2014			2013
U.S. operations	$	65,958		$	60,258
Non-U.S. operations		14,732			14,823
Income before income taxes	$	80,690		$	75,081
U.S. operations	$	25,660		$	19,653
Non-U.S. operations		(830	)		3,250
Total provision for income taxes	$	24,830		$	22,903
Effective tax rate		30.8	%		30.5	%

FactSet’s effective tax rate is based on recurring factors and nonrecurring events, including the taxation of foreign income. The Company’s effective tax rate will vary based on changes in levels of foreign income, as well as discrete and other nonrecurring events that may not be predictable. The effective tax rate was lower than the U.S. statutory rate of 35% in both periods presented above due to foreign income, which is subject to lower statutory tax rates than in the U.S., benefits from foreign tax credits, deductions due to U.S. production activities and income tax benefits from the U.S. Federal R&D tax credit (in fiscal 2014 only) partially offset by additional state and local income taxes.

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

	Three Months Ended
	November 30,
	2014			2013
Current
U.S. Federal	$	22,704		$	18,117
U.S. state and local		1,325			1,197
Non-U.S.		1,208			3,187
Total current taxes	$	25,237		$	22,501
Deferred
U.S. Federal	$	1,602		$	311
U.S. state and local		29			28
Non-U.S.		(2,038	)		63
Total deferred taxes	$	(407	)	$	402
Total provision for income taxes	$	24,830		$	22,903

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):

	Nov 30, 2014			Aug 31, 2014
Deferred tax assets
Current
Receivable reserve	$	593		$	597
Deferred rent		1,177			1,067
Other		215			177
Net current deferred taxes	$	1,985		$	1,841
Non-current
Depreciation on property, equipment and leasehold improvements	$	10,933		$	9,831
Deferred rent		3,374			3,572
Stock-based compensation		18,195			18,160
Purchased intangible assets, including acquired technology		(12,446	)		(10,750	)
Other		1,658			1,564
Net non-current deferred taxes	$	21,714		$	22,377
Total deferred tax assets	$	23,699		$	24,218

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

	Nov 30, 2014			Aug 31, 2014
Deferred tax liabilities (current)
Other	$	210		$	0
Total deferred tax liabilities (current)	$	210		$	0
Deferred tax liabilities (non-current)
Purchased intangible assets, including acquired technology	$	2,273		$	3,478
Stock-based compensation		0			(860	)
Depreciation on property, equipment and leasehold improvements		(191	)		0
Other		451			303
Total deferred tax liabilities (non-current)	$	2,533		$	2,921

A provision has not been made for additional U.S. Federal taxes as of November 30, 2014 as all undistributed earnings of foreign subsidiaries are considered to be invested indefinitely or will be repatriated free of additional tax. The amount of such undistributed earnings of these foreign subsidiaries included in consolidated retained earnings was immaterial at November 30, 2014 and August 31, 2014. As such, the unrecognized deferred tax liability on those undistributed earnings was immaterial. 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 on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

As of November 30, 2014, the Company had gross unrecognized tax benefits totaling $5.8 million, including $1.3 million of accrued interest, recorded as non-current taxes payable in the consolidated balance sheet. Approximately $0.2 million of these unrecognized tax benefits would have affected the current year effective tax rate if realized as of November 30, 2014. 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 ultimately 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 during the first three months of fiscal 2015 (in thousands):

Unrecognized income tax benefits at August 31, 2014	$	5,501
Additions based on tax positions related to the current year		187
Additions for tax positions of prior years		157
Unrecognized income tax benefits at November 30, 2014	$	5,845

In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At November 30, 2014, 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	2013 through 2015
State (various)	2011 through 2015
Europe
France	2012 through 2015
United Kingdom	2013 through 2015