Income Taxes
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Dec. 31, 2013
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes The federal and state and foreign income tax provision is summarized as follows:
Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. The examination and the resolution process may last longer than one year. The components of Net income before income taxes are summarized as follows:
The effective income tax rate differs from the federal income tax statutory rate due to the following:
(1) For 2013, (0.23) percent relates to federal issues mainly associated with compilation of foreign tax credits, 0.32 percent relates to state tax issues and the remaining 0.01 percent relates to foreign tax issues. For 2012, 0.15 percent relates to federal issues, 0.33 percent relates to state tax issues and the remaining 0.02 percent relates to foreign tax issues. For 2011, 0.25 percent relates to federal issues and the remaining 0.14 percent relates to state tax issues. Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $52,546 at December 31, 2013. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes, subject to an adjustment for foreign tax credits, and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation, including the availability, or lack thereof, of foreign tax credits to reduce a portion of the U.S. liability. Deferred income taxes for 2013, 2012 and 2011 reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The Company's deferred income tax net liability decreased significantly due to the following: (1) Pennsylvania Tax Law changes enacted on July 18, 2013 which became effective on January 1, 2014. These changes reduced the deferred tax liability which had accumulated during prior years. In accordance with the tax accounting rules, the effect of the law change is recorded in the year in which the law was signed. The primary change that affects the Company results from the reduction of net income apportioned to the State of Pennsylvania. The bill adopts “market-based” sourcing for apportionment. This method apportions sales to the state where the benefits are being derived by the customer. The current method apportions sales of services to the state where the cost was incurred to perform those services; (2) the Company's current payable was increased by unfavorable temporary differences such as stock option compensation which is not currently deductible but will reverse in the future; thus reducing the Company's deferred tax liability; (3) the Company's current payable decreased as a result of the sale of SEI AK. The deferred taxes accrued in 2012 relating to the cumulative undistributed earnings were included in 2013 tax provision. The net deferred income tax liability is comprised of:
The valuation allowances against deferred tax assets at December 31, 2013 and 2012 are related to state net operating losses from certain domestic subsidiaries. Certain state tax statutes significantly limit the utilization of net operating losses for domestic subsidiaries. Furthermore, these net operating losses cannot be used to offset the net income of other subsidiaries. The tax effect of significant temporary differences representing deferred tax liabilities is:
The Company recognizes uncertain tax positions in accordance with the applicable accounting guidance and adjusts these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. The Company’s total unrecognized tax benefit, not including interest and penalties, as of December 31, 2013 was $12,028, of which $10,139 would affect the effective tax rate if the Company were to recognize the tax benefit. The gross amount of uncertain tax liability of $4,175 which is expected to be paid within one year is netted against the current payable account while the remaining amount of $8,607 is included in Other long-term liabilities on the accompanying Consolidated Balance Sheets. During the year ended December 31, 2013, the Company recognized $1,022 of previously unrecognized tax benefits relating to the lapse of the statute of limitation for certain state filings. The Company files a consolidated federal income tax return and separate income tax returns with various states. Certain subsidiaries of the Company file tax returns in foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examination for years before 2010 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
The above reconciliation of the gross unrecognized tax benefit will differ from the amount which would affect the effective tax rate because of the recognition of the federal and state tax benefits. The Company classifies all interest and penalties as income tax expense. The Company has recorded $754, $770 and $634 in liabilities for tax related interest and penalties in 2013, 2012 and 2011, respectively. The Company estimates it will recognize $1,067 of unrecognized tax benefits within the next twelve months due to lapses on the statute of limitation. The Company includes its direct and indirect subsidiaries in its U.S. consolidated federal income tax return. The Company’s tax sharing allocation agreement provides that any subsidiary having taxable income will pay a tax liability equivalent to what that subsidiary would have paid if it filed a separate income tax return. If the separately calculated federal income tax provision for any subsidiary results in a tax loss, the current benefit resulting from such loss, to the extent utilizable on a separate return basis, is accrued and paid to that subsidiary. |