11. Income Taxes

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


	2013		2012		2011
United States	$	205,033	$	186,301	$	144,928
Foreign		198,536		124,489		65,949

Total	$	403,569	$	310,790	$	210,877

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


	2013			2012			2011
Current:
Federal	$	72,909		$	62,886		$	45,817
State		7,369			4,551			2,578
Foreign		46,026			29,551			17,375

Total current		126,304			96,988			65,770
Deferred:
Federal		(1,287	)		2,295			1,538
State		130			417			132
Foreign		(6,079	)		(5,109	)		(3,898	)

Total deferred		(7,236	)		(2,397	)		(2,228	)

Total provision	$	119,068		$	94,591		$	63,542

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):


	2013					2012					2011
Computed “expected” tax expense	$	141,249		35.00	%	$	108,777		35.00	%	$	73,807		35.00	%
Changes resulting from:
Foreign income tax differential		(16,021	)	(3.97	)		(11,695	)	(3.76	)		(8,333	)	(3.95	)
State taxes net of federal benefits		4,744		1.18			3,858		1.24			1,923		0.91
Foreign-sourced nontaxable income		(11,967	)	(2.97	)		(8,840	)	(2.84	)		(4,423	)	(2.10	)
Other		1,063		0.26			2,491		0.76			568		0.27

Provision for income taxes	$	119,068		29.50	%	$	94,591		30.40	%	$	63,542		30.13	%

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):


	2013			2012
Deferred tax assets:
Accounts receivable, principally due to the allowance for doubtful accounts	$	4,451		$	4,028
Accrued expenses not currently deductible for tax		—			2,257
Stock based compensation		12,022			8,226
Foreign tax credit		1,349			177
Net operating loss carry forwards		4,438			4,291
Fixed assets		4,135			580
Other		541			643

Deferred tax assets before valuation allowance		26,936			20,202
Valuation allowance		(1,450	)		(1,382	)

Deferred tax assets, net		25,486			18,820

Deferred tax liabilities:
Property and equipment, principally due to differences between book and tax depreciation		(4,180	)		—
Intangibles—including goodwill		(226,396	)		(165,270	)
Basis difference in investment in foreign subsidiaries		(25,145	)		(26,926	)
Other		(14,519	)		(769	)

Deferred tax liabilities		(270,240	)		(192,965	)

Net deferred tax liabilities	$	(244,754	)	$	(174,145	)

The Company’s deferred tax balances are classified in its balance sheets based on net current items and net non-current items as of December 31 as follows (in thousands):


	2013			2012
Current deferred tax assets and liabilities:
Current deferred tax assets	$	4,750		$	6,464
Long term deferred tax assets and liabilities:
Long term deferred tax assets		20,736			12,357
Long term deferred tax liabilities		(270,240	)		(192,966	)

Net long term deferred tax liabilities		(249,504	)		(180,609	)

Net deferred tax liabilities	$	(244,754	)	$	(174,145	)

We reduce federal and state income taxes payable by the tax benefits associated with the exercise of certain stock options. To the extent realized tax deductions for options exceed the amount previously recognized as deferred tax benefits related to share-based compensation for these option awards, we record an excess tax benefit in stockholders’ equity. We recorded excess tax benefits of $32.5 million, $29.4 million and $13.7 million in the years ended 2013, 2012 and 2011, respectively.

At December 31, 2013, 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 $586.8 million, $388.3 million and $263.8 million at December 31, 2013, 2012 and 2011, respectively. 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, 2013 and 2012 was $1.5 million and $1.4 million, respectively. The valuation allowance relates to foreign and state net operating loss carry forwards and foreign tax credit carry forwards. The net change in the total valuation allowance for the years ended December 31, 2013 and 2012 was an increase of $0.1 million and $0.3 million, respectively.

As of December 31, 2013, the Company had aggregate net operating loss carry forwards for state income tax purposes of $18.3 million that are available to offset future state taxable income through 2025. Additionally, the Company had $4.5 million of net operating loss carry forwards for foreign income tax purposes that are available to offset future foreign taxable income. The foreign net operating loss carry forwards 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. This policy is a continuation of the Company’s policy prior to adoption of the guidance regarding uncertain tax positions. During 2013, 2012 and 2011, the Company had recorded accrued interest and penalties related to the unrecognized tax benefits of $8.8 million, $1.5 million and $0.9 million, respectively.

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 2010. The statute of limitations for the Company’s U.K. income tax returns has expired for years prior to 2011. The statute of limitations has expired for years prior to 2010 for the Company’s Czech Republic income tax returns, 2010 for the Company’s Russian income tax returns, 2008 for the Company’s Mexican income tax returns, 2008 for the Company’s Brazilian income tax returns, 2008 for the Company’s Luxembourg income tax returns, 2009 for the Company’s New Zealand income tax returns, and 2013 for the Company’s Australian income tax returns.

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, 2013, 2012 and 2011 is as follows (in thousands):


Unrecognized tax benefits at December 31, 2010	$	3,912
Additions based on tax provisions related to the current year		524
Additions based on tax provisions related to the prior year		1,010
Deductions based on settlement/expiration of prior year tax positions		(452	)

Unrecognized tax benefits at December 31, 2011		4,994
Additions based on tax provisions related to the current year		1,870
Additions based on tax provisions related to the prior year		716
Deductions based on settlement/expiration of prior year tax positions		(503	)

Unrecognized tax benefits at December 31, 2012		7,077
Additions based on tax provisions related to the current year		1,337
Additions related to prior years for 2013 acquisitions		15,249
Deductions based on settlement/expiration of prior year tax positions		(2,062	)

Unrecognized tax benefits at December 31, 2013	$	21,601

As of December 31, 2013 the Company had total unrecognized tax benefits of $21.6 million of which $6.3 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.