Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

11. INCOME TAXES

Income (loss) before income taxes consists of the following (in thousands):

	Years ended December 31,
	2013			2012		2011
United States	$	5,109		$	6,882	$	3,973
Foreign		(298	)		4,870		1,614
Total	$	4,811		$	11,752	$	5,587

Income tax (benefit) expense consists of the following (in thousands):

	Years ended December 31,
	2013			2012			2011
Current tax expense (benefit)
Federal	$	10,546		$	8,102		$	(2,063	)
State		591			2,361			1,517
Foreign		(5,260	)		4,434			7,120
		5,877			14,897			6,574
Deferred tax (benefit) expense
Federal		(9,080	)		(9,048	)		(1,292	)
State		(1,179	)		(1,453	)		523
Foreign		(3,151	)		(1,153	)		(4,980	)
		(13,410	)		(11,654	)		(5,749	)
Income tax (benefit) expense	$	(7,533	)	$	3,243		$	825

The following is a reconciliation of the U.S. Federal statutory rate to the effective rate on pretax income (in thousands):

	Years ended December 31,
	2013			2012			2011
Federal tax expense computed at statutory rate	$	1,684		$	4,113		$	1,956
State tax (benefit) expense, net of federal tax		(193	)		416			1,502
Valuation allowance, net		3			23			(5,018	)
Permanent differences and other, net		(234	)		551			236
Change in tax rate		(94	)		12			(1,599	)
Change to uncertain tax positions, net		(4,850	)		(869	)		4,166
Foreign rate differential		(3,849	)		(1,003	)		(418	)
Income tax (benefit) expense	$	(7,533	)	$	3,243		$	825

Significant components of the Company’s net deferred tax liability are as follows (in thousands):

	December 31,
	2013			2012
Deferred tax assets:
Current deferred tax assets:
Reserve on assets	$	869		$	679
Liabilities not yet deductible		10,874			10,095
Deferred revenue		708			430
Other		496			207
		12,947			11,411
Valuation allowance		(6	)		(45	)
Net current deferred tax assets		12,941			11,366
Non-current deferred tax assets:
Net operating loss and credit carryforwards		1,983			1,918
Liabilities not yet deductible		14,264			12,806
Deferred revenue		1,090			737
Stock-based compensation		11,663			9,641
Deferred financing costs		—			1,018
Other		2,519			2,410
		31,519			28,530
Valuation allowance		(1,046	)		(1,037	)
Net non-current deferred tax assets		30,473			27,493
Total net deferred tax assets		43,414			38,859
Deferred tax liabilities:
Intangible assets		(152,462	)		(158,426	)
Depreciation		(17,805	)		(17,814	)
Total deferred tax liabilities		(170,267	)		(176,240	)
Net deferred tax liability	$	(126,853	)	$	(137,381	)

During 2013, the overall deferred tax liability has decreased, primarily due to the book to tax difference in the treatment of amortization of intangible assets and stock-based compensation.

The Company has foreign net operating losses of $9.5 million and has recorded an associated deferred tax asset totaling $1.5 million. Deferred tax assets associated with state net operating losses total $0.5 million. The net operating losses in foreign jurisdictions will begin to expire in 2031 or can be carried forward indefinitely. The net operating losses in the various states have expiration dates through 2031. In jurisdictions in which the Company has not had a history of profitability, the Company has recorded a valuation allowance of $1.0 million associated with foreign net operating losses totaling $7.8 million included in the total above.

We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a deferred tax liability of approximately $3.2 million related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $27.6 million of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. Should we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States. 

Uncertain Tax Positions

The Company follows the authoritative guidance relating to the accounting for uncertainty in income taxes. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

	Years ended December 31,
	2013			2012			2011
Beginning balance	$	7,412		$	7,933		$	4,420
Additions for tax positions of prior years		540			474			4,392
Additions for tax positions of current year		—			879			557
Settlements		(1,110	)		(474	)		(1,436	)
Reductions for tax positions of prior years		(4,108	)		(845	)		—
Lapses of statutes of limitations		(712	)		(778	)		—
Effect of foreign currency adjustments		12			223			—
Ending balance	$	2,034		$	7,412		$	7,933

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company’s current provision for income tax expense for the years ended December 31, 2013, 2012, and 2011 included $0.1 million, $0.3 million, and $0.8 million, respectively, of interest and penalties related to tax positions of the Company. The liability for total interest and penalties at December 31, 2013 and 2012 was $1.6 million and $2.6 million, respectively, and is included in other long-term liabilities. During the fourth quarter of 2013, the Company partially reduced its reserve for uncertain tax positions due to the lapse in the statute of limitations for prior tax filings. Additionally, the Company received correspondence from a government representative of a foreign jurisdiction settling a tax matter for prior years. A tax payment was made and amendments were made to previous filings; as a result, the excess uncertain tax benefit related to this matter was reduced during the second quarter of 2013.

The total amount of unrecognized tax benefits that if recognized would affect the Company’s effective tax rate is $1.5 million. The Company expects the unrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this time frame, or if applicable statutes of limitations lapse. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $1.0 million.

The Company and its domestic subsidiaries are subject to U.S. Federal income tax as well as multiple state jurisdictions. U.S. Federal income tax returns are typically subject to examination by the Internal Revenue Service (IRS) and the statute of limitations for Federal income tax returns is three years. The Company’s filings for 2010 through 2013 are subject to audit based upon the Federal statute of limitations. The Company received notification, in the fourth quarter of 2013, from the Internal Revenue Service, concerning the audit of 2011 which is in the beginning stages.

State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any Federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. There were no significant settlements of state audits during 2013. As of December 31, 2013, there were two income tax audits in process and the tax years from 2008 to 2013 are subject to audit.

The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, India, Canada, Ireland, and Puerto Rico. The tax returns for the Company’s subsidiaries located in foreign jurisdictions are subject to examination for periods ranging from one to seven years.