Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.3.0.814
Income taxes
12 Months Ended
Sep. 30, 2015
Income taxes  
Income taxes

15. Income taxes

        The components of income before income taxes and the corresponding provision for income taxes are as follows (in thousands):

                                                                                                                                                                                    

 

 

Year ended September 30,

 

 

 

2015

 

2014

 

2013

 

Income before income taxes:

 

 

 

 

 

 

 

 

 

 

United States

 

$

232,359 

 

$

180,820 

 

$

139,716 

 

Foreign

 

 

27,460 

 

 

46,549 

 

 

49,306 

 

​  

​  

​  

​  

​  

​  

Income before income taxes

 

$

259,819 

 

$

227,369 

 

$

189,022 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

                                                                                                                                                                                    

 

 

Year ended September 30,

 

 

 

2015

 

2014

 

2013

 

Current provision:

 

 

 

 

 

 

 

 

 

 

Federal

 

$

74,050

 

$

55,656

 

$

43,199

 

State and local

 

 

15,332

 

 

12,003

 

 

11,257

 

Foreign

 

 

9,581

 

 

11,416

 

 

14,821

 

​  

​  

​  

​  

​  

​  

Total current provision

 

 

98,963

 

 

79,075

 

 

69,277

 

​  

​  

​  

​  

​  

​  

Deferred tax expense (benefit):

 

 

 

 

 

 

 

 

 

 

Federal

 

 

2,233

 

 

1,750

 

 

2,741

 

State and local

 

 

403

 

 

181

 

 

851

 

Foreign

 

 

(1,829

)

 

967

 

 

(1,196

)

​  

​  

​  

​  

​  

​  

Total deferred tax expense (benefit)

 

 

807

 

 

2,898

 

 

2,396

 

​  

​  

​  

​  

​  

​  

Provision for income taxes

 

$

99,770

 

$

81,973

 

$

71,673

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

        The provision for income taxes differs from that which would have resulted from the use of the federal statutory income tax rate as follows (in thousands):

                                                                                                                                                                                    

 

 

Year ended September 30,

 

 

 

2015

 

2014

 

2013

 

Federal income tax provision at statutory rate of 35%

 

$

90,937

 

$

79,579

 

$

66,158

 

State income taxes, net of federal benefit

 

 

9,847

 

 

7,920

 

 

8,151

 

Foreign taxation

 

 

(2,208

)

 

(3,909

)

 

(3,715

)

Permanent items

 

 

1,602

 

 

1,286

 

 

708

 

Tax credits

 

 

(961

)

 

(1,623

)

 

(217

)

Valuation allowances on net operating loss carryforwards

 

 

 

 

(962

)

 

 

Other

 

 

553

 

 

(318

)

 

588

 

​  

​  

​  

​  

​  

​  

Income tax expense

 

$

99,770

 

$

81,973

 

$

71,673

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The significant items comprising our deferred tax assets and liabilities as of September 30, 2015 and 2014 are as follows (in thousands):

 

                                                                                                                                                                                    

 

 

As of September 30,

 

 

 

2015

 

2014

 

Deferred tax assets—current:

 

 

 

 

 

 

 

Deferred revenue

 

$

12,320 

 

$

19,815 

 

Costs deductible in future periods

 

 

15,467 

 

 

14,944 

 

Net operating loss carryforwards

 

 

777 

 

 

207 

 

Other

 

 

26 

 

 

 

​  

​  

​  

​  

Total deferred tax assets—current

 

 

28,590 

 

 

34,966 

 

​  

​  

​  

​  

Deferred tax liabilities—current:

 

 

 

 

 

 

 

Accounts receivable—unbilled

 

 

9,598 

 

 

6,858 

 

​  

​  

​  

​  

Net deferred tax asset—current

 

$

18,992 

 

$

28,108 

 

​  

​  

​  

​  

​  

​  

​  

​  

Deferred tax assets—non-current:

 

 

 

 

 

 

 

Net operating loss carryforwards

 

$

139 

 

$

2,355 

 

Valuation allowance on net operating loss carryforwards

 

 

 

 

 

​  

​  

​  

​  

Net operating loss carryforwards net of valuation reserve

 

 

139 

 

 

2,355 

 

Deferred revenue

 

 

9,127 

 

 

7,089 

 

Stock compensation

 

 

4,600 

 

 

4,100 

 

Costs deductible in future periods

 

 

10,429 

 

 

1,662 

 

Other

 

 

441 

 

 

7,828 

 

​  

​  

​  

​  

Total deferred tax assets—non-current

 

 

24,736 

 

 

23,034 

 

​  

​  

​  

​  

Deferred tax liabilities—non-current

 

 

 

 

 

 

 

Amortization of goodwill and intangible assets

 

 

22,061 

 

 

20,261 

 

Capitalized software

 

 

9,781 

 

 

12,057 

 

Property and equipment

 

 

6,353 

 

 

10,045 

 

Deferred contract costs

 

 

 

 

1,762 

 

Employee benefit costs

 

 

759 

 

 

 

Other

 

 

941 

 

 

292 

 

​  

​  

​  

​  

Total deferred tax liability—non-current

 

$

39,895 

 

$

44,417 

 

​  

​  

​  

​  

Net deferred tax liability—non-current

 

$

15,159 

 

$

21,383 

 

​  

​  

​  

​  

​  

​  

​  

​  

 

        At September 30, 2015, our foreign subsidiaries held approximately $190 million of cumulative earnings. We consider undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States and, accordingly, no U.S. deferred taxes have been recorded with respect to such earnings in accordance with the relevant accounting guidance for income taxes. Should the earnings be remitted as dividends, we may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings given the various tax planning alternatives we could employ should we decide to repatriate these earnings in a tax-efficient manner.

        We had $2.1 million and $4.5 million of net operating loss carryforwards in the U.S. at September 30, 2015 and 2014, respectively. These balances resulted in deferred tax assets of $0.7 million and $2.4 million, respectively, and relate exclusively to the losses held by PSI prior to the acquisition in 2012. Although our ability to use these loss carryforwards will be restricted to an annual allowance, we have sufficient profits and time within the jurisdictions where losses have arisen to ensure that these losses will be utilized in full through fiscal year 2017. Accordingly, no reserve has been recorded against these balances. These net operating loss carryforwards expire between 2027 and 2031.

        We had $0.4 million and $0.8 million of net operating loss carryforwards in Canada at September 30, 2015 and 2014, respectively, resulting in deferred tax assets of $0.1 million and $0.2 million. These net operating loss carryforwards expire through 2027 to 2031.

        Cash paid for income taxes during the years ended September 30, 2015, 2014, and 2013 was $81.3 million, $79.4 million and $58.2 million, respectively.

        The provision for income taxes includes all provision to return adjustments included in the year recognized in the financial statements.

        We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. Our net unrecognized tax benefits totaled $1.0 million and $1.1 million at September 30, 2015 and 2014, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect our annual effective income tax rate was $1.0 million at September 30, 2015.

        We report interest and penalties as a component of income tax expense. In the fiscal years ending September 30, 2015, 2014 and 2013, we recognized interest expense relating to unrecognized tax benefits of less than $0.1 million in each year. The net liability balance at September 30, 2015 and 2014 includes approximately $0.5 million of interest and penalties.

        We recognize and present uncertain tax positions on a gross basis (i.e., without regard to likely offsets for deferred tax assets, deductions and/or credits that would result from payment of uncertain tax amounts). The reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows (in thousands):

                                                                                                                                                                                    

 

 

Year Ended September 30,

 

 

 

2015

 

2014

 

2013

 

Balance at beginning of year

 

$

812

 

$

812

 

$

1,059

 

Lapse of statute of limitation

 

 

(200

)

 

 

 

(230

)

Reductions for tax positions of prior years

 

 

(83

)

 

 

 

(17

)

​  

​  

​  

​  

​  

​  

Balance at end of year

 

$

529

 

$

812

 

$

812

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to federal income tax examinations for years before 2012 and to state and local income tax examinations by tax authorities for years before 2010. In international jurisdictions, similar rules apply to filed income tax returns, although the tax examination limitations and requirements may vary. We are no longer subject to audit by tax authorities for foreign jurisdictions for years prior to 2010.