Note 15 - Income Taxes

9 Months Ended

May 31, 2014

Income Tax Disclosure [Abstract]

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 is as follows (in thousands):

	Three Months Ended May 31,						Nine Months Ended May 31,
	2014			2013			2014			2013
U.S. operations	$	58,943		$	59,122		$	181,631		$	162,101
Non-U.S. operations		14,428			12,876			42,220			37,930
Income before income taxes	$	73,371		$	71,998		$	223,851		$	200,031
U.S. operations	$	20,631		$	15,787		$	60,560		$	44,115
Non-U.S. operations		1,208			2,844			7,155			8,242
Total provision for income taxes	$	21,839		$	18,631		$	67,715		$	52,357
Effective tax rate		29.8	%		25.9	%		30.3	%		26.2	%

FactSet’s effective tax rate is based on recurring factors and nonrecurring events, including the taxation of foreign income. The Company’s effective tax rate will vary based on changes in levels of foreign income, as well as discrete and other nonrecurring events that may not be predictable. The effective tax rate was lower than the U.S. statutory rate of 35% for the three and nine months ended May 31, 2014 and 2013 due to foreign income, which is subject to lower statutory tax rates than in the U.S., benefits from foreign tax credits and the U.S. Federal R&D tax credit partially offset by additional state and local income taxes.   

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

	Nine Months Ended
	May 31,
	2014			2013
Current
U.S. Federal	$	58,300		$	37,498
U.S. state and local		2,861			2,440
Non-U.S.		7,452			8,370
Total current taxes	$	68,613		$	48,308
Deferred
U.S. Federal	$	(631	)	$	3,896
U.S. state and local		29			281
Non-U.S.		(296	)		(128	)
Total deferred taxes	$	(898	)	$	4,049
Total provision for income taxes	$	67,715		$	52,357

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):

	May 31, 2014			Aug 31, 2013
Deferred tax assets
Current
Receivable reserve	$	602		$	614
Deferred rent		1,067			2,191
Other		(2	)		(2	)
Net current deferred taxes	$	1,667		$	2,803
Non-current
Depreciation on property, equipment and leasehold improvements	$	9,166		$	6,329
Deferred rent		3,816			2,772
Stock-based compensation		18,746			19,828
Purchased intangible assets, including acquired technology		(9,644	)		(8,401	)
Other		1,503			1,495
Net non-current deferred taxes	$	23,587		$	22,023
Total deferred tax assets	$	25,254		$	24,826

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

	May 31, 2014			Aug 31, 2013
Deferred tax liabilities (non-current)
Purchased intangible assets, including acquired technology	$	4,309		$	2,761
Stock-based compensation		(964	)		(365	)
Depreciation on property, equipment and leasehold improvements		(716	)		0
Other		463			0
Total deferred tax liabilities (non-current)	$	3,092		$	2,396

A provision has not been made for additional U.S. Federal taxes as of May 31, 2014 as all undistributed earnings of foreign subsidiaries are considered to be invested indefinitely or will be repatriated free of additional tax. The amount of such undistributed earnings of these foreign subsidiaries included in consolidated retained earnings was immaterial at May 31, 2014 and August 31, 2013. As such, the unrecognized deferred tax liability on those undistributed earnings was immaterial. 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 May 31, 2014, the Company had gross unrecognized tax benefits totaling $5.2 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 nine months of fiscal 2014 (in thousands):

Unrecognized income tax benefits at August 31, 2013	$	5,435
Additions based on tax positions related to the current year		691
Reductions for tax positions of prior years		(203	)
Reductions from settlements with taxing authorities		(766	)
Unrecognized income tax benefits at May 31, 2014	$	5,157

In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At May 31, 2014, 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	2013
State (various)	2010 through 2013
Europe
France	2011 through 2013
United Kingdom	2011 through 2013