XML 28 R17.htm IDEA: XBRL DOCUMENT
v2.4.0.8

Income Tax | 6 Months Ended | 12 Months Ended
--- | --- | ---
Jun. 30, 2013 | Dec. 31, 2012
Income Tax Disclosure [Abstract] |  |
Income Tax | Note 8—Income Tax The components of income tax (benefit) expense for the three and six months ended June 30, 2013 and 2012 consisted of the following:
|  | Three months ended June 30, |  |  | Six months ended June 30, |
(Dollar amounts in thousands) |  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
Current tax provision |  | $ | 1,005 |  |  | $ | 3,452 |  |  | $ | 1,290 |  |  | $ | 5,470 |
Deferred tax benefit |  |  | (6,017 | ) |  |  | (4,250 | ) |  |  | (6,251 | ) |  |  | (5,212 | )
Income tax (benefit) expense |  | $ | (5,012 | ) |  | $ | (798 | ) |  | $ | (4,961 | ) |  | $ | 258 |
The Company conducts operations in Puerto Rico and certain countries throughout the Caribbean and Latin America. As a result, the income tax expense includes the effect of taxes paid to the Puerto Rico government as well as foreign jurisdictions. The following table presents the components of income tax expense (benefit) for the three and six months ended June 30, 2013 and 2012 and its segregation based on location of operations:
|  | Three months ended June 30, |  |  | Six months ended June 30, |
(Dollar amounts in thousands) |  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
Current tax provision |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Puerto Rico |  | $ | (122 | ) |  | $ | 3,040 |  |  | $ | 256 |  |  | $ | 4,950 |
United States |  |  | 210 |  |  |  | 159 |  |  |  | 429 |  |  |  | 343 |
Foreign countries |  |  | 917 |  |  |  | 253 |  |  |  | 605 |  |  |  | 177 |
Total current tax provision |  | $ | 1,005 |  |  | $ | 3,452 |  |  | $ | 1,290 |  |  | $ | 5,470 |
Deferred tax benefit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Puerto Rico |  | $ | (5,880 | ) |  | $ | (4,096 | ) |  | $ | (5,956 | ) |  | $ | (4,905 | )
United States |  |  | — |  |  |  | — |  |  |  | (2 | ) |  |  | — |
Foreign countries |  |  | (137 | ) |  |  | (154 | ) |  |  | (293 | ) |  |  | (307 | )
Total deferred tax benefit |  | $ | (6,017 | ) |  | $ | (4,250 | ) |  | $ | (6,251 | ) |  | $ | (5,212 | )
Taxes payable to foreign countries by EVERTEC’s subsidiaries will be paid by such subsidiary and the corresponding liability and expense will be presented in EVERTEC’s consolidated financial statements. On June 30, 2013, the Governor of Puerto Rico signed into law Act 40, effective as of January 1, 2013, which increased the maximum corporate income tax rate from 30% to 39%. This rate increase is only applicable to the fully taxable operations of EVERTEC. As a result of this tax rate increase, the deferred taxes were revalued resulting in the Company recognizing additional non-cash income tax expense of $1.4 million for the six months ended June 30, 2013. In addition, Act 40 established a national gross receipts tax based on gross revenues that is included as part of the alternative minimum tax calculation. The income tax (benefit) expense differs from the amount computed by applying the Puerto Rico statutory income tax rate to the income before income taxes as a result of the following:
|  | Three months ended June 30, |  |  | Six months ended June 30, |
(Dollar amounts in thousands) |  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
Computed income tax at statutory rates |  | $ | (26,782 | ) |  | $ | (851 | ) |  | $ | (25,125 | ) |  | $ | 526 |
Benefit of net tax-exempt interest income |  |  | (53 | ) |  |  | (2 | ) |  |  | (94 | ) |  |  | (4 | )
Adjustment to deferred taxes due to changes in enacted tax rate |  |  | 1,441 |  |  |  | — |  |  |  | 1,441 |  |  |  | — |
Differences in tax rates due to multiple jurisdictions |  |  | 102 |  |  |  | 99 |  |  |  | 282 |  |  |  | 251 |
Effect of income subject to tax-exemption grant |  |  | 19,983 |  |  |  | (479 | ) |  |  | 18,982 |  |  |  | (605 | )
Reversal of tax uncertainties reserve |  |  | — |  |  |  | — |  |  |  | (846 | ) |  |  | (640 | )
Fair value adjustment of indemnification assets |  |  | — |  |  |  | 62 |  |  |  | — |  |  |  | 364 |
Effect of net operating losses in foreign entities |  |  | (57 | ) |  |  | 278 |  |  |  | — |  |  |  | 278 |
Other |  |  | 354 |  |  |  | 95 |  |  |  | 399 |  |  |  | 88 |
Income tax (benefit) expense |  | $ | (5,012 | ) |  | $ | (798 | ) |  | $ | (4,961 | ) |  | $ | 258 |
The recorded net operating losses (“NOL”) carryforwards differs from the amount of NOL available to the Company for tax purposes due to a windfall tax benefit. This benefit results from tax deductions in excess of previously recorded compensation expense due to differences in fair value of the stock options at the time of the grant versus at the time of the exercise. Although these windfalls are available to the Company, the additional tax benefit associated with the windfall cannot be recognized until the deduction reduces taxes payable. The unused amount of windfall remains as an off-balance sheet item, however it is available to offset future taxable income. Total available gross NOL related to the windfall tax benefit that does not reduce income tax payable in the current year amounted to $59.0 million at June 30, 2013, which will result in a future tax benefit of $8.4 million. This NOL carryforward expires in 2023. There are no open uncertain tax positions as of June 30, 2013. | Note 17—Income Tax On April 17, 2012, as explained in Note 1, EVERTEC, LLC was converted from a Puerto Rico corporation into a Puerto Rico limited liability company in order to take advantage of recent changes to the PR Code that allow limited liability companies to be treated as partnerships that are pass-through entities for Puerto Rico tax purposes. As a result of the Conversion, EVERTEC, LLC’s taxable income from its Puerto Rico operations flows through to its direct parent company and therefore to EVERTEC, Inc. EVERTEC, LLC, Holdings and EVERTEC, Inc. entered into a Tax Payment Agreement pursuant to which the EVERTEC, LLC is obligated to make certain payments to Holdings or EVERTEC, Inc. for taxable periods or portions thereof occurring on or after April 17, 2012 (the “Effective Date”). Under the Tax Payment Agreement, EVERTEC, LLC will make payments with respect to any and all taxes (including estimated taxes) imposed under the laws of Puerto Rico, the United States of America and any other jurisdiction or any political (including municipal) subdivision or authority or agency in Puerto Rico, the United States of America or such other jurisdiction, that would have been imposed on EVERTEC, LLC if EVERTEC, LLC had been a corporation for tax purposes of that jurisdiction, together with all interest and penalties with respect thereto (“Taxes”), reduced by taking into account any applicable net operating losses or other tax attributes of Holdings or EVERTEC, Inc. that reduce Holdings’ or EVERTEC, Inc.’s taxes in such period. The Tax Payment Agreement provides that the payments thereunder shall not exceed the net amount of Taxes that Holdings and EVERTEC, Inc. actually owe to the appropriate taxing authority for a taxable period. Further, the Tax Payment Agreement provides that if Holdings or EVERTEC, Inc. receives a tax refund attributable to any taxable period or portion thereof occurring on or after the Effective Date, EVERTEC, Inc. shall be required to recalculate the payment for such period required to be made by EVERTEC, LLC to Holdings or EVERTEC, Inc. If the payment, as recalculated, is less than the amount of the payment EVERTEC, LLC already made to Holdings or EVERTEC, Inc. in respect of such period, Holdings or EVERTEC, Inc. shall promptly make a payment to EVERTEC, LLC in the amount of such difference. The components of income tax benefit consisted of the following:
|  | Years ended December 31, |
(Dollar amounts in thousands) |  | 2012 |  |  | 2011 |
Current tax provision (benefit) |  | $ | 6,910 |  |  | $ | (7,144 | )
Deferred tax benefit |  |  | (66,568 | ) |  |  | (22,083 | )
Income tax benefit |  | $ | (59,658 | ) |  | $ | (29,227 | )
For the year ended December 31, 2011, the Company recognized a reduction in its deferred tax liability of $27.6 million as a result of the approval in January 2011 of the new Puerto Rico Internal Revenue Code, which provides for a reduction in the statutory tax rates from 39% to 30%. The Company conducts operations in Puerto Rico and certain countries throughout the Caribbean and Latin America. As a result, the income tax benefit includes the effect of taxes paid to the Puerto Rico government as well as foreign jurisdictions. The following table presents the segregation of income tax benefit based on location of operations:
|  | Years ended December 31, |
(Dollar amounts in thousands) |  | 2012 |  |  | 2011 |
Current tax provision (benefit) |  |  |  |  |  |  |  |
Puerto Rico |  | $ | 4,661 |  |  | $ | (9,521 | )
United States |  |  | 622 |  |  |  | 385 |
Foreign countries |  |  | 1,627 |  |  |  | 1,992 |
Total current tax provision (benefit) |  | $ | 6,910 |  |  | $ | (7,144 | )
Deferred tax benefit |  |  |  |  |  |  |  |
Puerto Rico |  | $ | (65,822 | ) |  | $ | (21,479 | )
United States |  |  | (38 | ) |  |  | — |
Foreign countries |  |  | (708 | ) |  |  | (604 | )
Total deferred tax benefit |  | $ | (66,568 | ) |  | $ | (22,083 | )
Taxes payable to foreign countries by EVERTEC’s subsidiaries will be paid by such subsidiary and the corresponding liability and expense will be presented in EVERTEC’s consolidated financial statements. As of December 31, 2012, the Company has reported $8.3 million of unremitted earnings for foreign subsidiaries in the consolidated statement of income and comprehensive income. The Company had not recognized a deferred tax liability on undistributed earnings for our foreign subsidiaries, because these earnings are intended to be permanently reinvested. The amount of the unrecognized deferred tax liability depends on judgment required to analyze the withholding tax due, the applicable tax law and factual circumstances in effect at the time of any such distributions, therefore, we believe it is not practicable at this time to reliably determine the amount of unrecognized deferred tax liability related to the Company’s undistributed earnings. If circumstances change and it becomes apparent that some or all of the undistributed earnings of a subsidiary will be remitted in the next twelve months and income taxes have not been recognized by the parent entity, the parent entity shall accrue as an expense of the current period income taxes attributable to that remittance. On October 19, 2012, EVERTEC, LLC was granted with an additional tax exemption under the Tax Incentive Act No. 73 of 2008. Under this grant, EVERTEC, LLC will benefit from a preferential income tax rate on industrial development income, as well as from tax exemptions with respect to its municipal and property tax obligations for certain activities derived from its data processing operations in Puerto Rico. The grant has a term of 15 years effective as of January 1, 2012 with respect to income tax obligations and January 1, 2013 with respect to municipal and property tax obligations. The grant establishes a base taxable income amount with respect to EVERTEC, LLC’s industrial development income, which amount will continue to be subject to the ordinary income tax rate under existing law. Applicable taxable income in excess of the established base taxable income amount will be subject to a preferential rate of 4%. The base taxable income amount will be ratably reduced to zero by the fourth taxable year at which point all of EVERTEC, LLC’s applicable industrial development income will be taxed at the preferential rate of 4% for the remaining period of the grant. The grant also establishes a 90% exemption on certain real and property taxes and a 60% exemption on municipal taxes, in each case imposed on EVERTEC, LLC. In addition, distributions to stockholders by EVERTEC, Inc. of the industrial development income will not be subject to Puerto Rico tollgate taxes. The grant contains customary commitments, conditions and representations that EVERTEC, LLC will be required to comply with in order to maintain the grant. The more significant commitments include: (i) maintaining at least 750 employees in EVERTEC, LLC’s Puerto Rico data processing operations during 2012 and at least 700 employees for the remaining years of the grant; and (ii) investing at least $200.0 million in building, machinery, equipment or computer programs to be used in Puerto Rico during the effective term of the grant (to be made in $50.0 million increments over four year capital investment cycles). Failure to meet the requirements could result, among other things, in reductions in the benefits of the grant or revocation of the grant in its entirety, which could result in EVERTEC, Inc. paying additional taxes or other payments relative to what such parties would be required to pay if the full benefits of the grant are available. In addition, the protection from Puerto Rican tollgate taxes on distributions to stockholders may be lost. On October 11, 2011, the Puerto Rico Government approved a grant under Tax Incentive Law No. 73 of 2008, retroactively to December 1, 2009. Under this grant, activities derived from consulting and data processing services provided outside Puerto Rico are subject to a preferred rate that declines gradually from 7% to 4% by December 1, 2013. After this date, the rate remains at 4% until its expiration in November 1, 2024. For the years ended December 31, 2012 and 2011, income subject to the exemption amounted to $1.5 million and $4.9 million, respectively. In addition, EVERTEC, LLC has a base tax rate of 7% on income derived from certain development and installation service in excess of a determined income for a 10-year period from January 1, 2008. For the year ended December 31, 2012, the income subject to this exemption amounted to $0.2 million. No income was subject to the exemption for years prior to 2012 since the income covered by the decree did not exceed the determined base income amount. The following table presents the components of the Company’s deferred tax assets and liabilities:
|  | December 31, |
(Dollar amounts in thousands) |  | 2012 |  |  | 2011 |
Deferred tax assets |  |  |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 307 |  |  | $ | 540 |
Net operating loss |  |  | 7,141 |  |  |  | 10,444 |
Unfavorable contract liability |  |  | — |  |  |  | 211 |
Other temporary assets |  |  | 399 |  |  |  | 909 |
Total gross deferred tax assets |  |  | 7,847 |  |  |  | 12,104 |
Deferred tax liabilities (“DTL”) |  |  |  |  |  |  |  |
Deferred compensation |  | $ | 768 |  |  | $ | 2,915 |
Difference between the assigned values and the tax basis of assets and liabilities recognized in purchase |  |  | 28,871 |  |  |  | 90,766 |
Debt issue cost |  |  | 2,353 |  |  |  | 8,513 |
Other temporary liabilities |  |  | (333 | ) |  |  | 218 |
Total gross deferred tax liabilities |  |  | 31,659 |  |  |  | 102,412 |
Deferred tax liability, net |  | $ | (23,812 | ) |  | $ | (90,308 | )
Pursuant to the provision of the PR Code, net operating losses can be carried forward for a period of ten taxable years. The net operating loss carried forward outstanding at December 31, 2012 expires in 2020. Specific tax indemnification obligations were agreed under the Merger Agreement: (i) to the extent EVERTEC has incurred taxes already paid by Popular at or prior to the closing related to the post-closing period, EVERTEC is required to reimburse Popular for these prepaid taxes; and (ii) to the extent EVERTEC has incurred taxes payable after closing related to the pre-closing period, Popular is required to reimburse EVERTEC for such taxes. The Company recognizes in its financial statements the benefits of tax return positions if it is more likely than not to be sustained on audit based on its technical merits. On a quarterly basis, EVERTEC evaluates its tax positions and revises its estimates accordingly. The Company records accrued interest, if any, to unrecognized tax benefits in income tax expense, while the penalties, if any reported in operating costs and expenses. For the years ended December 31, 2012 and 2011, the Company accrued $0.2 million and $0.3 million for potential payment of interest based on an average 10% interest rate, respectively. As of December 31, 2010, the Company had not accrued any amount for potential payment of penalties and interest. At December 31, 2012 and 2011, EVERTEC had a liability for unrecognized tax benefits of $0.8 million and $1.5 million, respectively, which, if recognized in the future, would impact EVERTEC’s effective tax rate. The reconciliation of unrecognized tax benefits, including accrued interest, was as follows:
(Dollar amounts in thousands) |  |  |
Balance as of December 31, 2010 |  | $ | 1,222 |
Accrued estimated interest |  |  | 281 |
Balance as of December 31, 2011 |  |  | 1,503 |
Foreign currency translation adjustment |  |  | 7 |
Reversal of tax uncertainties reserve |  |  | (707 | )
Accrued estimated interest |  |  | 25 |
Balance as of December 31, 2012 |  | $ | 828 |
The income tax benefit differs from the amount computed by applying the Puerto Rico statutory income tax rate to the income before income taxes as a result of the following:
|  | Years ended December 31, |
(Dollar amounts in thousands) |  | 2012 |  |  | 2011 |
Computed income tax at statutory rates |  | $ | 5,313 |  |  | $ | (1,504 | )
Benefit of net tax-exempt interest income |  |  | (13 | ) |  |  | (23 | )
Benefit of net tax-exempt dividend income |  |  | — |  |  |  | (620 | )
Non taxable loss on settlement of derivative asset |  |  | — |  |  |  | 420 |
Tax expense (benefit) due to a change in estimate |  |  | 320 |  |  |  | (2,416 | )
Adjustment to DTL due to changes in enacted tax rate and tax grant |  |  | (66,423 | ) |  |  | (23,813 | )
Effect of net operating losses in effective tax rate |  |  | 1,012 |  |  |  | — |
Differences in tax rates due to multiple jurisdictions |  |  | 720 |  |  |  | 285 |
Effect of income subject to tax-exemption grant |  |  | (58 | ) |  |  | (1,737 | )
Reversal of tax uncertainties reserve |  |  | (707 | ) |  |  | — |
Fair value adjustment of indemnification assets |  |  | 340 |  |  |  | (288 | )
Tax expense of CONTADO dividend |  |  | — |  |  |  | 81 |
Tax uncertainties reserve |  |  | — |  |  |  | 250 |
Other |  |  | (162 | ) |  |  | 138 |
Income tax benefit |  | $ | (59,658 | ) |  | $ | (29,227 | )
As of December 31, 2012, the statute of limitations for all tax years prior to 2007 expired for the Company in Puerto Rico, subsequent years are subject to review by the Puerto Rico Treasury Department. For the subsidiaries in Costa Rica the statute of limitations for all tax years prior to 2009 expired and subsequent years are subject to review by their government authorities.

X
- Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration