Income Taxes

The United States and foreign components of income before income taxes and equity in earnings in affiliates are as follows:



	2016		2015		2014
	(In thousands)
Income before income taxes and equity in earnings in affiliates
United States	$	139,937	$	130,752	$	145,656
Foreign	9,540		10,419		6,454
Income before income taxes and equity in earnings in affiliates	$	149,477	$	141,171	$	152,110

The provision for income taxes consists of the following components:



	2016			2015			2014
	(In thousands)
Federal income taxes:
Current	$	5,801		$	3,437		$	12,393
Deferred	(3,541		)	(1,924		)	(5,393		)
	2,260			1,513			7,000
State income taxes:
Current	2,764			683			4,302
Deferred	(1,792		)	684			(1,422		)
	972			1,367			2,880
Foreign income taxes:
Current	5,302			5,643			7,753
Deferred	(630		)	(1,134		)	(3,540		)
	4,672			4,509			4,213
Total U.S. and foreign provision for income taxes	$	7,904		$	7,389		$	14,093

A reconciliation of the statutory U.S. federal tax rate of 35.00% and the effective income tax rate is as follows:



	2016			2015			2014
	(In thousands)
Provisions using statutory federal income tax rate	$	52,317		$	49,410		$	53,239
State income taxes (benefit), net of federal tax benefit	1,161			(322		)	2,510
REIT Benefit	(41,479		)	(42,536		)	(44,538		)
Change in contingent tax liabilities	(403		)	(395		)	(576		)
Change in valuation allowance	243			3,702			664
Other, net	(3,935		)	(2,470		)	2,794
Total provision for income taxes	$	7,904		$	7,389		$	14,093

The Company's effective tax rate, beginning in 2013, differs from the U.S. statutory rate of 35.0% primarily due to a zero tax rate on earnings generated by the Company's REIT operations. State income taxes (benefit), net of federal tax benefits of $1.2 million, $(0.3) million and $2.5 million for 2016, 2015 and 2014, respectively, is presented exclusive of the related change in valuation allowance of state income tax deferred items. Net of the related change in valuation allowances the state income taxes, net of federal tax benefits is $1.2 million, $0.9 million and $2.5 million for 2016, 2015 and 2014, respectively.

The following table presents the breakdown between current and non-current net deferred tax assets as of December 31, 2016 and 2015:



	2016		2015
	(In thousands)
Deferred tax assets - current	$	—	$	27,914
Deferred tax liabilities - current (1)	—		(47		)
Deferred tax assets - non current	30,039		7,399
Deferred tax liabilities - non current	—		(11,471		)
Total net deferred tax assets	$	30,039	$	23,795

(1) Deferred tax liabilities - current is included in Accrued Expenses in the accompanying consolidated balance sheet as of December 31, 2015.

The significant components of the Company's deferred tax assets and liabilities consisted of the following as of December 31, 2016 and 2015:



	2016			2015
Deferred tax assets:	(In thousands)
Net operating losses	$	32,088		$	24,992
Accrued liabilities	26,355			26,524
Deferred compensation	14,273			12,362
Accrued compensation	6,527			5,920
Deferred revenue	4,564			5,692
Deferred rent	2,469			3,921
Tax credits	4,524			4,670
Equity awards	4,296			5,031
Other, net	1,260			1,746
Valuation allowance	(17,312		)	(17,069		)
Total deferred tax assets	$	79,044		$	73,789
Deferred tax liabilities:
Intangible assets	$	(40,935	)	$	(44,067	)
Capitalized transaction costs	(5,945		)	(3,416		)
Depreciation	(2,125		)	(2,511		)
Total deferred tax liabilities	$	(49,005	)	$	(49,994	)

Total net deferred tax assets	$	30,039		$	23,795

Deferred income taxes should be reduced by a valuation allowance if it is not more likely than not that some portion or all of the deferred tax assets will be realized. On a periodic basis, management evaluates and determines the amount of the valuation allowance required and adjusts such valuation allowance accordingly. At year end 2016 and 2015, the Company has a valuation allowance of $17.3 million and $17.1 million, respectively related to deferred tax assets for foreign net operating losses, state net operating losses and state tax credits. The valuation allowance increased by $0.2 million during the year ended December 31, 2016.

The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent that such earnings are permanently invested outside the United States. At December 31, 2016, $6.1 million of accumulated undistributed earnings of non-U.S. subsidiaries were permanently invested. At the existing U.S. federal income and applicable foreign withholding tax rates, additional taxes (net of foreign tax credits) of $0.3 million, consisting solely of withholding taxes, would have to be provided if such earnings were remitted currently.

As of the year ended December 31, 2016, the Company had $0.3 million of Federal net operating loss carryforwards which begin to expire in 2035 and $146.0 million of combined net operating loss carryforwards in various states which began to expire in 2017. The Company has recorded a partial valuation allowance against the deferred tax assets related to the state operating losses.

Also as of the year ended December 31, 2016, the Company had $83.2 million of foreign operating losses which carry forward indefinitely and $3.5 million of state tax credits which begin to expire in 2019. The Company has recorded a partial valuation allowance against the deferred tax assets related to the foreign operating losses and state tax credits.

The Company recognizes the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. The exercise of non-qualified stock options and vesting of restricted stock awards which have been granted under the Company’s equity award plans give rise to compensation income which is includable in the taxable income of the applicable employees and deducted by the Company for federal and state income tax purposes. In the case of non-qualified stock options, the compensation income results from increases in the fair market value of the Company's common stock subsequent to the date of grant. At year end 2016, the deferred tax asset net of a valuation allowance related to unexercised stock options and restricted stock grants for which the Company has recorded a book expense was $4.4 million.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2016			2015			2014
	(In thousands)
Balance at Beginning of Period	$	1,571		$	2,076		$	2,766
Additions based on tax positions related to the current year	1,290			—			—
Additions for tax positions of prior years	341			—			—
Reductions as a result of a lapse of applicable statutes of limitations	(1,562		)	(505		)	(690		)
Balance at End of Period	$	1,640		$	1,571		$	2,076

All amounts in the reconciliation are reported on a gross basis and do not reflect a federal tax benefit on state income taxes. The Company has accrued $1.2 million of accrued uncertain tax benefits as of December 31, 2016 which is inclusive of the federal tax benefit on state income taxes. The Company believes that it is reasonably possible that a decrease may be necessary in the unrecognized tax benefits within twelve months of the reporting date of approximately $0.1 million, related to state tax exposures, due to lapse of statute of limitation. The accrued uncertain tax balance at December 31, 2016 includes $1.2 million of unrecognized tax benefits which, if ultimately recognized, will reduce the Company’s annual effective tax rate.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2011. The Company participated in the voluntary IRS real-time tax audit Compliance Assurance Process (“CAP”) for the 2011 and 2012 tax year. The 2009 and 2010 years were under audit as transition years as provided under the IRS CAP program. The federal income tax audits for 2009 through 2012 were concluded in 2013. During the fourth quarter of 2015, the Company was notified by the IRS that its 2013 tax year will be under audit commencing in 2016.

The calculation of the Company’s provision (benefit) for income taxes requires the use of significant judgment and involves dealing with uncertainties in the application of complex tax laws and regulations. In determining the adequacy of the Company’s provision (benefit) for income taxes, potential settlement outcomes resulting from income tax examinations are regularly assessed. As such, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty.

During the year ended December 31, 2016, the Company recognized $0.1 million in interest and penalties. There were no interest and penalties recognized during the year ended December 31, 2015. The Company had accrued $0.1 million and $0.1 million for the payment of interest and penalties at December 31, 2016 and 2015, respectively. The Company classifies interest and penalties as interest expense and other expense, respectively.

In 2016, the Company discovered certain immaterial errors in prior periods related to the calculation of deferred tax assets and liabilities. In accordance with ASC Topic 250-10-S99-2, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," the Company recorded an aggregate adjustment of approximately $2.7 million reducing the provision for income taxes in 2016. This adjustment to the Company's financial statements is immaterial both as it relates to the current period as well as each of the prior periods affected. In evaluating materiality and determining the appropriateness of applying ASC Topic 250-10-S99-2 to these errors, the Company considered materiality both qualitatively and quantitatively as prescribed by ASC Topic 250-10-S99-1, "Assessing Materiality."