Note 15. Income Taxes

3 Months Ended

Nov. 30, 2011

Income Tax Disclosure [Text Block]

15. INCOME TAXES

Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.

Provision for Income Taxes

The provision for income taxes by geographic operations is as follows (in thousands):

	Three months ended November 30,
	2011			2010
U.S. operations	$	57,088		$	50,177
Non-U.S. operations		9,942			9,377
Income before income taxes	$	67,030		$	59,554
U.S. operations	$	19,363		$	15,678
Non-U.S. operations		2,123			2,275
Total provision for income taxes	$	21,486		$	17,953
Effective tax rate		32.1	%		30.1	%

The components of the provision for income taxes consist of the following (in thousands):

Three months ended November 30, 2011	2011				2010
Current:
U.S. federal		$	17,586			$	14,210
U.S. state and local			1,470				2,039
Non-U.S.			2,272				2,426
Total current taxes		$	21,328			$	18,675
Deferred:
U.S. federal		$	280			$	(555	)
U.S. state and local			27				(16	)
Non-U.S.			(149	)			(151	)
Total deferred taxes			158				(722	)
Total tax provision		$	21,486			$	17,953

The following table provides details of income taxes (in thousands, except percentages):

Three months ended November 30,	2011			2010
Income before income taxes	$	67,030		$	59,554
Provision for income taxes	$	21,486		$	17,953
Effective tax rate		32.1	% *		30.1	% **

* The Company's projected annual effective tax rate for fiscal 2012 is 32.1%. The expiration of the U.S. Federal R&D tax credit on December 31, 2011 increased the annual and first quarter effective tax rate from 30.8% to 32.1%.

** Included in the provision for income taxes during the three months ended November 30, 2010 were income tax benefits of $1.4 million from adjustments to certain reserves to appropriately reflect settlements with taxing authorities from previously filed tax returns.

Deferred Tax Assets and Liabilities

The significant components of deferred tax assets that are recorded in the Consolidated Balance Sheets were as follows (in thousands):

	Nov 30, 2011			Aug 31, 2011
Deferred tax assets
Current
Receivable reserve	$	725		$	736
Deferred rent		3,096			3,272
Net current deferred taxes	$	3,821		$	4,008
Non-current
Depreciation on property, equipment and leasehold improvements		1,218			2,437
Deferred rent		2,782			2,793
Stock-based compensation		19,436			18,096
Purchased intangible assets, including acquired technology		(4,862	)		(4,549	)
Other		1,396			1,389
Net non-current deferred taxes		19,970			20,166
Total deferred tax assets	$	23,791		$	24,174

The significant components of deferred tax liabilities that are recorded in the Consolidated Balance Sheets were as follows (in thousands):

	Nov 30, 2011		Aug 31, 2011
Deferred tax liabilities (non-current)
Purchased intangible assets, including acquired technology	$	3,386	$	3,712
Total deferred tax liabilities (non-current)	$	3,386	$	3,712

A provision has not been made for additional U.S. Federal taxes as of November 30, 2011 on undistributed earnings of foreign subsidiaries, except for France, because the Company intends to reinvest these funds indefinitely to support foreign growth opportunities. The amount of such undistributed earnings of foreign subsidiaries included in consolidated retained earnings was immaterial at November 30, 2011 and August 31, 2011. It is not practicable to estimate the unrecognized deferred tax liability on these undistributed earnings. These earnings could become subject to additional tax if they are remitted as dividends, loaned to FactSet, or upon sale of the subsidiary’s stock.

Unrecognized Tax Positions

Applicable accounting guidance prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions that a company has taken or expects to take on a tax return. A company can recognize the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit or expense can be recognized in the consolidated financial statements. The tax benefits recognized are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Additionally, companies are required to accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

As of November 30, 2011, the Company had gross unrecognized tax benefits totaling $7.5 million, including $1.0 million of accrued interest, recorded as non-current taxes payable in the consolidated balance sheet. Unrecognized tax benefits represent tax positions taken on tax returns but not yet recognized in the consolidated financial statements. When applicable, the Company adjusts the previously recorded tax expense to reflect examination results when the position is effectively settled. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. However, FactSet has no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. Any changes in accounting estimates resulting from new developments with respect to uncertain tax positions will be recorded as appropriate. The Company does not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.

The following table summarizes the changes in the balance of gross unrecognized tax benefits during the first three months of fiscal 2012 (in thousands):

Unrecognized tax benefits at August 31, 2011	$	7,204
Additions based on tax positions related to the current year		214
Additions for tax positions of prior years ($0.1 million for the payment of interest)		108
Unrecognized income tax benefits at November 30, 2011	$	7,526

In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At November 30, 2011, the Company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:

Major Tax Jurisdictions	Open Tax Years
U.S.
Federal	2009 through 2012
State (various)	2003 through 2012
Europe
France	2010 through 2012
United Kingdom	2008 through 2012