Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

For financial reporting purposes, income before income taxes includes the following components (in thousands):

	Years Ended December 31,
	2015		2014		2013
United States	$	52,563	$	47,963	$	47,640
Foreign		60,810		50,806		45,519
Total	$	113,373	$	98,769	$	93,159

The expense (benefit) for income taxes consists of the following (in thousands):     

	Years Ended December 31,
	2015			2014			2013
Federal
Current	$	(6,889	)	$	7,895		$	7,509
Deferred		18,024			7,021			9,491
Total		11,135			14,916			17,000
State
Current		379			1,542			2,492
Deferred		(4,096	)		(2,397	)		(1,687	)
Total		(3,717	)		(855	)		805
Foreign
Current		15,117			13,335			9,717
Deferred		5,402			3,813			1,769
Total		20,519			17,148			11,486
Total	$	27,937		$	31,209		$	29,291

Differences between the income tax expense computed at the statutory federal income tax rate and per the consolidated statements of income are summarized as follows (in thousands):

	Years Ended December 31,
	2015			2014			2013
Tax expense at federal rate of 35%	$	39,680		$	34,569		$	32,606
State income taxes, net of federal benefit		(2,462	)		(544	)		675
Change in valuation allowance		(9,066	)		3,521			(1,615	)
Foreign tax rate differential		(5,710	)		(5,508	)		(4,650	)
Unrecognized tax benefit increase		2,977			65			488
Tax effect of foreign operations		261			(104	)		5,906
Acquisition Costs		—			289			896
Tax benefit of research & development		(871	)		(3,446	)		(4,001	)
Other		3,128			2,367			(1,014	)
Income tax provision	$	27,937		$	31,209		$	29,291

The countries having the greatest impact on the tax rate adjustment line shown in the above table as “Foreign tax rate differential” for the year ended December 31, 2015 are Ireland, Netherlands, South Africa and United Kingdom. The countries having the greatest impact on the tax rate adjustment line shown in the above table as “Foreign tax rate differential” for the year ended December 31, 2014 are Ireland, South Africa and United Kingdom. The countries having the greatest impact on the tax rate adjustment line shown in the above table as “Foreign tax rate differential” for the year ended December 31, 2013, are Canada, Singapore, South Africa, and United Kingdom.

The deferred tax assets and liabilities result from differences in the timing of the recognition of certain income and expense items for tax and financial accounting purposes. The sources of these differences at each balance sheet date are as follows (in thousands):

	December 31,
	2015			2014
Deferred income tax assets:
Net operating loss carryforwards	$	112,193		$	150,004
Tax credits		40,614			43,804
Compensation		25,752			24,486
Deferred revenue		25,287			13,486
Tax basis in investments		100			5,601
Other		8,246			9,712
Gross deferred income tax assets		212,192			247,093
Less: valuation allowance		(18,742	)		(36,174	)
Net deferred income tax assets	$	193,450		$	210,919
Deferred income tax liabilities:
Depreciation and amortization	$	(130,645	)	$	(129,825	)
Total deferred income tax liabilities		(130,645	)		(129,825	)
Net deferred income taxes	$	62,805		$	81,094
Deferred income taxes / liabilities included in the balance sheet are:
Deferred income tax asset - noncurrent	$	90,872		$	94,536
Deferred income tax liability - noncurrent		(28,067	)		(13,442	)
Net deferred income taxes	$	62,805		$	81,094

In November 2015, the FASB issued ASU No. 2015-17, which requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company has early adopted this standard and has applied the requirements retrospectively to all periods presented. The adoption of this standard resulted in the reclassification in the consolidated balance sheet as of December 31, 2014 of $44.1 million from current deferred income tax assets to noncurrent deferred income tax assets and a reclassification of $0.2 million from current deferred income tax liabilities to noncurrent deferred income tax liabilities.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income, carryback opportunities and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, the Company believes it is more likely than not that it will realize the benefits of these deductible differences, net of the valuation allowances recorded. During the year ended December 31, 2015, the Company decreased its valuation allowance by $17.4 million which relates primarily to a reduction in valuation allowance on the Yodlee investment and a reduction in valuation allowance on domestic state and foreign net operating loses that are now expected to be utilized before they expire, partially offset by an increase in valuation allowance related to foreign tax credits.

At December 31, 2015, the Company had domestic federal tax net operating losses (“NOLs”) of $273.7 million which will begin to expire in 2017. The Company had domestic state tax net operating losses (“NOLs”) of $12.4 million which will begin to expire in 2018. The Company does not have any valuation allowance against the federal tax NOLs, but has provided a $6.2 million valuation allowance against the tax benefit associated with the state NOLs. The Company had foreign tax NOLs of $31.3 million, of which $30.0 million may be utilized over an indefinite life, with the remainder expiring over the next 10 years. The Company has provided a $0.5 million valuation allowance against the tax benefit associated with the foreign NOLs.

The Company had U.S. foreign tax credit carryforwards at December 31, 2015 of $31.9 million, for which a $10.7 million valuation allowance has been provided. The U.S. foreign tax credits will begin to expire in 2016. The Company also had domestic federal and state general business credit carryforwards at December 31, 2015 of $10.4 million and $1.6 million, respectively, which will begin to expire in 2020.

The unrecognized tax benefit at December 31, 2015 and December 31, 2014 was $21.1 million and $14.8 million, respectively, all of which is included in other noncurrent liabilities in the consolidated balance sheet. Of these amounts, $20.0 million and $13.0 million, respectively, represent the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate in respective years.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 is as follows (in thousands):

	2015			2014			2013
Balance of unrecognized tax benefits at beginning of year	$	14,780		$	14,996		$	13,079
Increases for tax positions of prior years		1,449			84			1,560
Decreases for tax positions of prior years		(47	)		(412	)		(327	)
Increases for tax positions established for the current period		9,866			491			1,739
Decreases for settlements with taxing authorities		(594	)		—			(61	)
Reductions resulting from lapse of applicable statute of limitation		(4,218	)		(239	)		(901	)
Adjustment resulting from foreign currency translation		(157	)		(140	)		(93	)
Balance of unrecognized tax benefits at end of year	$	21,079		$	14,780		$	14,996

The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and many foreign jurisdictions. The U.S., Australia, Canada, India, Ireland, South Africa, and United Kingdom are the main taxing jurisdictions in which the Company operates. The years open for audit vary depending on the tax jurisdiction. In the U.S., the Company’s tax returns for years following 2011 are open for audit. In the foreign jurisdictions, the tax returns open for audit generally vary by jurisdiction between 2002 and 2014.

The Company’s Indian income tax returns covering fiscal years 2002 through 2007 and 2010 through 2013 are under audit by the Indian tax authority. Other foreign subsidiaries could face challenges from various foreign tax authorities. It is not certain that the local authorities will accept the Company’s tax positions. The Company believes its tax positions comply with applicable tax law and intends to vigorously defend its positions. However, differing positions on certain issues could be upheld by tax authorities, which could adversely affect the Company’s financial condition and results of operations.

The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately $2.0 million due to the settlement of various audits and the expiration of statutes of limitations. The Company accrues interest related to uncertain tax positions in interest expense or interest income and recognizes penalties related to uncertain tax positions in other income or other expense. As of December 31, 2015 and December 31, 2014, $2.2 million and $2.4 million, respectively is accrued for the payment of interest and penalties related to income tax liabilities. The aggregate amount of interest and penalties recorded in the statement of income for the years ended December 31, 2015, 2014, and 2013 is $(0.1) million, $0.2 million, and $0.4 million, respectively.

The undistributed earnings of the Company’s foreign subsidiaries of approximately $252.8 million are considered to be permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been provided for such undistributed earnings. The determination of the additional U.S. federal and state income taxes or foreign withholding taxes that have not been provided is not practicable.