Income Taxes

Income tax expense (benefit) for 2013, 2012 and 2011 consists of the following:



	For the Years Ended
(In thousands)	2013			2012			2011

Current:
Federal	$	178,424		$	164,690		$	162,288
State	25,148			13,302			19,061
Foreign	8,775			4,142			3,831
Total current expense	212,347			182,134			185,180
Deferred:
Federal	(9,792		)	9,035			(15,927		)
State	(7,116		)	4,453			(5,410		)
Foreign	(5,739		)	(5,146		)	(776		)
Total deferred expense (benefit)	(22,647		)	8,342			(22,113		)

Total income tax expense	$	189,700		$	190,476		$	163,067

Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of deferred income taxes at the end of 2013 and 2012 relate to the following:



(In thousands)	2013			2012

Deferred tax assets:
Accrued expenses	$	22,948		$	20,346
Tax credits and separate return net operating losses	25,612			21,412
Share based compensation	44,856			35,323
Contract and service revenues and costs	65,407			17,339
Other	12,529			6,890
Gross deferred tax assets	171,352			101,310
Less: Valuation allowance	(896		)	—
Total deferred tax assets	170,456			101,310

Deferred tax liabilities:
Software development costs	(130,583		)	(101,393		)
Depreciation and amortization	(113,492		)	(96,695		)
Other	(2,859		)	(5,537		)
Total deferred tax liabilities	(246,934		)	(203,625		)

Net deferred tax liability	$	(76,478	)	$	(102,315	)

At the end of 2013, we had net operating loss carry-forwards subject to Section 382 of the Internal Revenue Code for Federal income tax purposes of $6.5 million that are available to offset future Federal taxable income, if any, through 2020. We had net operating loss carry-forwards from foreign jurisdictions of $0.4 million that are available to offset future taxable income, if any, through 2024 and $52.4 million that are available to offset future taxable income, if any, with no expiration. We had a deferred tax asset for state net operating loss carry-forwards of $0.6 million which are available to offset future taxable income, if any, through 2033. In addition, we have a state income tax credit carry-forward of $8.5 million available to offset income tax liabilities through 2029.

During 2013, we recorded a valuation allowance of $0.9 million against our deferred tax asset for certain foreign net operating losses, generated in prior years, because we concluded that it is not more likely than not that we will generate income of the appropriate character to utilize these losses. We expect to fully utilize all the remaining net operating loss and tax credit carry-forwards in future periods.

At the end of 2013, we had not provided tax on the cumulative undistributed earnings of our foreign subsidiaries of approximately $107 million, because it is our intention to reinvest these earnings indefinitely. If these earnings were distributed, we would be subject to U.S. taxes and foreign withholding taxes, net of U.S. foreign tax credits which may be available. The calculation of this unrecognized deferred tax liability is complex and not practicable.

The effective income tax rates for 2013, 2012, and 2011 were 32%, 32%, and 35%, respectively. These effective rates differ from the Federal statutory rate of 35% as follows:



	For the Years Ended
(In thousands)	2013			2012			2011

Tax expense at statutory rates	$	205,819		$	205,698		$	164,393
State income tax, net of federal benefit	17,502			13,856			11,439
Tax credits	(18,683		)	(1,510		)	(5,520		)
Unrecognized tax benefit (including interest)	(20		)	(12,832		)	102
Permanent differences	(14,760		)	(19,900		)	(2,472		)
Other, net	(158		)	5,164			(4,875		)

Total income tax expense	$	189,700		$	190,476		$	163,067

A reconciliation of the beginning and ending amount of unrecognized tax benefit is presented below:



(In thousands)	2013			2012			2011

Unrecognized tax benefit - beginning balance	$	2,176		$	14,640		$	14,100
Gross increases (decreases) - tax positions in prior periods	(76		)	(12,464		)	540

Unrecognized tax benefit - ending balance	$	2,100		$	2,176		$	14,640

All of the unrecognized tax benefit will favorably impact our effective tax rate if recognized. We anticipate that it is reasonably possible that our unrecognized tax benefits will decrease by up to $2 million within the next twelve months due to the potential settlement of examinations and lapse of the statutes of limitations in various taxing jurisdictions. Our federal returns have been examined by the Internal Revenue Service through 2009. We have various state and foreign returns under examination.

The 2013 beginning and ending amounts of accrued interest related to unrecognized tax benefits were $0.1 million and $0.2 million, respectively. We classify interest and penalties as income tax expense in our consolidated statement of operations. No accrual for tax penalties was recorded at the end of the year.