Note 16 - Income Taxes

12 Months Ended

Aug. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

16. 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):

Years Ended August 31,	2014			2013			2012
U.S. operations	$	242,839		$	220,778		$	229,772
Non-U.S. operations		60,625			50,132			44,933
Income before income taxes	$	303,464		$	270,910		$	274,705
U.S. operations	$	81,998		$	61,328		$	76,020
Non-U.S. operations		9,923			10,945			9,876
Total provision for income taxes	$	91,921		$	72,273		$	85,896
Effective tax rate		30.3	%		26.7	%		31.3	%

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

Years Ended August 31,	2014			2013			2012
Current
U.S. federal	$	77,368		$	52,625		$	73,272
U.S. state and local		3,972			3,309			4,305
Non-U.S.		10,350			11,188			10,224
Total current taxes	$	91,690		$	67,122		$	87,801
Deferred
U.S. federal	$	547		$	5,036			(1,405	)
U.S. state and local		111			359			(152	)
Non-U.S.		(427	)		(243	)		(348	)
Total deferred taxes	$	231		$	5,151		$	(1,905	)
Total provision for income taxes	$	91,921		$	72,273		$	85,896

The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to income before income taxes as a result of the following factors (expressed as a percentage of income before income taxes):

Years Ended August 31,	2014			2013			2012
Tax at federal U.S. statutory tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in taxes resulting from:
State and local taxes, net of U.S. federal income tax benefit		1.8			2.0			2.1
Foreign income at other than U.S. rates		(2.9	)		(2.5	)		(1.9	)
Domestic production activities deduction		(2.1	)		(2.6	)		(2.6	)
Income tax benefit from R&D tax credits		(1.1	)		(4.1	)		(0.8	)
Income tax benefits from foreign tax credits		(0.4	)		(1.2	)		(0.5	)
Other, net		0.0			0.1			0.0
Effective tax rate		30.3	%		26.7	%*		31.3	%

* The fiscal 2013 effective tax rate of 26.7% includes income tax benefits of $7.2 million primarily from the reenactment of the U.S. Federal R&D tax credit in January 2013 and the finalization of the fiscal 2012 tax return. The reenactment of the credit was retroactive to January 1, 2012 and extends through the end of the 2013 calendar year.

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):

At August 31,	2014			2013
Deferred tax assets
Current
Receivable reserve	$	597		$	614
Deferred rent		1,067			2,191
Other		177			(2	)
Net current deferred taxes	$	1,841		$	2,803
Non-current
Depreciation on property, equipment and leasehold improvements	$	9,831		$	6,329
Deferred rent		3,572			2,772
Stock-based compensation		18,160			19,828
Purchased intangible assets, including acquired technology		(10,750	)		(8,401	)
Other		1,564			1,495
Net non-current deferred taxes	$	22,377		$	22,023
Total deferred tax assets	$	24,218		$	24,826

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

At August 31,	2014			2013
Deferred tax liabilities (non-current)
Purchased intangible assets, including acquired technology	$	3,478		$	2,761
Stock-based compensation		(860	)		(365	)
Other		303			0
Total deferred tax liabilities (non-current)	$	2,921		$	2,396

A provision has not been made for additional U.S. Federal taxes 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 August 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 on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

As of August 31, 2014, the Company had gross unrecognized tax benefits totaling $5.5 million, including $1.1 million of accrued interest, recorded as non-current taxes payable in the consolidated balance sheet. Approximately $0.9 million of these unrecognized tax benefits would have affected the current year effective tax rate if realized as of August 31, 2014. 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 ultimately 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 (in thousands):

Unrecognized income tax benefits at August 31, 2011	$	7,204
Additions based on tax positions related to the current year		691
Additions for tax positions of prior years		470
Statute of limitations lapse		(613	)
Reductions from settlements with taxing authorities		(2,288	)
Unrecognized income tax benefits at August 31, 2012	$	5,464
Additions based on tax positions related to the current year		1,372
Additions for tax positions of prior years		986
Statute of limitations lapse		(1,103	)
Reductions from settlements with taxing authorities		(1,284	)
Unrecognized income tax benefits at August 31, 2013	$	5,435
Additions based on tax positions related to the current year		921
Additions for tax positions of prior years		628
Statute of limitations lapse		(717	)
Reductions from settlements with taxing authorities		(766	)
Unrecognized income tax benefits at August 31, 2014	$	5,501

In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At August 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 through 2014
State (various)	2010 through 2014
Europe
France	2011 through 2014
United Kingdom	2012 through 2014