Income Taxes

Income before the provision for income taxes is attributable to the following jurisdictions (in thousands) for years ended December 31:



	2016		2015		2014
United States	$	383,427	$	304,743	$	233,933
Foreign	259,492		231,261		279,010
Total	$	642,919	$	536,004	$	512,943

The provision for income taxes for the years ended December 31 consists of the following (in thousands):



	2016			2015			2014
Current:
Federal	$	147,406		$	82,926		$	39,168
State	10,725			8,051			8,208
Foreign	61,084			51,970			55,144
Total current	219,215			142,947			102,520
Deferred:
Federal	(18,723		)	36,723			41,814
State	1,608			1,525			(596		)
Foreign	(11,566		)	(7,622		)	498
Total deferred	(28,681		)	30,626			41,716
Total provision	$	190,534		$	173,573		$	144,236

The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 35% to income before income taxes for the years ended December 31 due to the following (in thousands):



	2016					2015					2014
Computed “expected” tax expense	$	225,022		35.0	%	$	187,601		35.0	%	$	179,530		35.0	%
Changes resulting from:
Change in valuation allowance	11,952			1.9		20,243			3.8		(53		)	—
Foreign income tax differential	(25,533		)	(4.0	)	(23,718		)	(4.4	)	(24,972		)	(4.9	)
State taxes net of federal benefits	9,439			1.5		6,711			1.2		4,492			0.9
Foreign-sourced nontaxable income	(7,961		)	(1.2	)	(10,573		)	(2.0	)	(8,128		)	(1.6	)
IRC Section 199 deduction	(7,731		)	(1.2	)	(10,221		)	(1.9	)	—			—
Excess tax benefits related to stock-based compensation	(11,974		)	(1.9	)	—			—		—			—
Other	(2,680		)	(0.4	)	3,530			0.7		(6,633		)	(1.3	)
Provision for income taxes	$	190,534		29.7	%	$	173,573		32.4	%	$	144,236		28.1	%

The adoption of ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting" resulted in excess tax benefits being recorded as a reduction of income tax expense during 2016, rather than additional paid in capital as discussed in the summary of significant accounting policies footnote.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31 are as follows (in thousands):



	2016			2015
Deferred tax assets:
Accounts receivable, principally due to the allowance for doubtful accounts	$	7,148		$	6,277
Accrued expenses not currently deductible for tax	2,647			5,797
Stock based compensation	41,415			35,066
Income tax credits	376			3,830
Net operating loss carry forwards	45,969			39,970
Equity investment	53,379			38,760
Accrued escheat	7,290			13,497
Fixed assets, intangibles and other	15,622			14,191
Deferred tax assets before valuation allowance	173,846			157,388
Valuation allowance	(76,395		)	(62,605		)
Deferred tax assets, net	97,451			94,783
Deferred tax liabilities:
Intangibles—including goodwill	(687,443		)	(732,017		)
Basis difference in investment in foreign subsidiaries	(48,354		)	(47,737		)
Prepaid expenses	(3,644		)	—
Property and equipment, principally due to differences between book and tax depreciation, and other	(24,157		)	(19,544		)
Deferred tax liabilities	(763,598		)	(799,298		)
Net deferred tax liabilities	$	(666,147	)	$	(704,515	)

The Company’s deferred tax balances are classified in its balance sheets as of December 31 as follows (in thousands):



	2016			2015
Current deferred tax assets and liabilities:
Current deferred tax assets	$	—		$	9,585
Current deferred tax liabilities	—			(672		)
Net current deferred taxes	—			8,913
Long term deferred tax assets and liabilities:
Long term deferred tax assets	2,433			1,639
Long term deferred tax liabilities	(668,580		)	(715,067		)
Net long term deferred taxes	(666,147		)	(713,428		)
Net deferred tax liabilities	$	(666,147	)	$	(704,515	)

The Company elected to early adopt Accounting Standards Update 2015-17, "Balance Sheet Classification of Deferred Taxes". The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). The Company elected to apply the new guidance prospectively.

We reduce federal and state income taxes payable by the tax benefits associated with the exercise of certain stock options. Prior to the adoption of ASU 2016-09, we recorded an excess tax benefit in stockholders’ equity to the extent realized tax deductions for options exceeded the amount recognized as deferred tax benefits related to share-based compensation for these option awards. We recorded excess tax benefits of $26.4 million and $56.8 million in the years ended 2015 and 2014, respectively.

For 2016, as a result of the adoption of ASU 2016-09, the excess tax benefit was recorded as a reduction of income tax expense rather than as additional paid in capital. The excess tax benefit recorded in 2016 was $12.0 million.

At December 31, 2016, U.S. taxes were not provided on earnings of the Company’s foreign subsidiaries. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. If in the future these earnings are repatriated to the U.S, or if the Company determines that the earnings will be remitted in the foreseeable future, an additional tax provision and related liability may be required. If such earnings were distributed, U.S. income taxes would be partially reduced by available credits for taxes paid to the jurisdictions in which the income was earned.

Cumulative undistributed earnings of non-U.S. subsidiaries for which U.S. taxes have not been provided are included in consolidated retained earnings in the amount of approximately $1,356.6 million at December 31, 2016. Because of the availability of United States foreign tax credits, it is not practicable to determine the domestic federal income tax liability that would be payable if such earnings were not reinvested indefinitely.

The valuation allowance for deferred tax assets at December 31, 2016 and 2015 was $76.4 million and $62.6 million, respectively. The valuation allowance relates to foreign and state net operating loss carry forwards, basis differences related to an equity method investment and foreign tax credit carry forwards. The net change in the total valuation allowance for the years ended December 31, 2016 and 2015 was an increase of $13.8 million and $35.5 million, respectively. The increases in 2016 and 2015 were primarily due to changes in our deferred tax asset related to basis differences in an equity method investment.

As of December 31, 2016, the Company had a net operating loss carryforward for state income tax purposes of approximately $697.0 million that is available to offset future state taxable income through 2028. Additionally, the Company had $43.5 million net operating loss carryforwards for foreign income tax purposes that are available to offset future foreign taxable income. The foreign net operating loss carryforwards will not expire in future years.

The Company recognizes interest and penalties on unrecognized tax benefits (including interest and penalties calculated on uncertain tax positions on which the Company believes it will ultimately prevail) within the provision for income taxes on continuing operations in the consolidated financial statements. During 2016 and 2015, the Company had recorded accrued interest and penalties related to the unrecognized tax benefits of $5.9 million and $5.4 million, respectively.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits including interest for the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):




Unrecognized tax benefits at December 31, 2013	$	21,601
Additions based on tax provisions related to the current year	1,676
Deductions based on settlement/expiration of prior year tax positions	(4,636		)
Unrecognized tax benefits at December 31, 2014	18,641
Additions based on tax provisions related to the current year	9,079
Additions based on tax provisions related to the prior year	477
Deductions based on settlement/expiration of prior year tax positions	(6,363		)
Unrecognized tax benefits at December 31, 2015	21,834
Additions based on tax provisions related to the current year	3,332
Additions based on tax provisions related to the prior year	2,496
Deductions based on settlement/expiration of prior year tax positions	(1,507		)
Unrecognized tax benefits at December 31, 2016	$	26,155

As of December 31, 2016, the Company had total unrecognized tax benefits of $26.2 million of which $20.7 million, if recognized, would affect its effective tax rate. It is not anticipated that there are any unrecognized tax benefits that will significantly increase or decrease within the next twelve months.

The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations for the Company’s U.S. federal income tax returns has expired for years prior to 2013. The statute of limitations for the Company’s U.K. income tax returns has expired for years prior to 2014. The statute of limitations has expired for years prior to 2013 for the Company’s Czech Republic income tax returns, 2013 for the Company’s Russian income tax returns, 2011 for the Company’s Mexican income tax returns, 2011 for the Company’s Brazilian income tax returns, 2011 for the Company’s Luxembourg income tax returns, 2012 for the Company’s New Zealand income tax returns, and 2014 for the Company’s Australian income tax returns.