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INCOME TAXES | 12 Months Ended
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Dec. 31, 2015
INCOME TAXES [ABSTRACT] |
INCOME TAXES | (10)INCOME TAXES The sources of pre-tax operating income are as follows (in thousands):
|  | Year Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Domestic |  | $ | 25,402 |  | $ | 20,569 |  | $ | 10,816 |
Foreign |  |  | 60,487 |  |  | 79,890 |  |  | 81,253 |
Total |  | $ | 85,889 |  | $ | 100,459 |  | $ | 92,069 |
The components of the Company’s Provision for (benefit from) income taxes are as follows (in thousands):
|  | Year Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Current provision for (benefit from) |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 4,094 |  | $ | (699) |  | $ | (320) |
State |  |  | 1,829 |  |  | 270 |  |  | 150 |
Foreign |  |  | 4,764 |  |  | 13,957 |  |  | 13,876 |
Total current provision for (benefit from) |  |  | 10,687 |  |  | 13,528 |  |  | 13,706 |
Deferred provision for (benefit from) |  |  |  |  |  |  |  |  |  |
Federal |  |  | (1,895) |  |  | 10,148 |  |  | 4,674 |
State |  |  | 1,085 |  |  | 423 |  |  | 195 |
Foreign |  |  | 10,127 |  |  | (1,057) |  |  | 2,023 |
Total deferred provision for (benefit from) |  |  | 9,317 |  |  | 9,514 |  |  | 6,892 |
Total provision for (benefit from) income taxes |  | $ | 20,004 |  | $ | 23,042 |  | $ | 20,598 |
The following reconciles the Company’s effective tax rate to the federal statutory rate (in thousands):
|  | Year Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Income tax per U.S. federal statutory rate (35%) |  | $ | 30,062 |  | $ | 35,161 |  | $ | 32,224 |
State income taxes, net of federal deduction |  |  | 1,603 |  |  | 1,525 |  |  | 210 |
Change in valuation allowances |  |  | 3,923 |  |  | 256 |  |  | 3,266 |
Foreign income taxes at different rates than the U.S. |  |  | (14,490) |  |  | (17,824) |  |  | (20,529) |
Foreign withholding taxes |  |  | 958 |  |  | 257 |  |  | 2,504 |
Losses in international markets without tax benefits |  |  | 1,999 |  |  | 1,649 |  |  | 779 |
Nondeductible compensation under Section 162(m) |  |  | 512 |  |  | 817 |  |  | 1,847 |
Liabilities for uncertain tax positions |  |  | 1,756 |  |  | 1,435 |  |  | 77 |
Permanent difference related to foreign exchange gains |  |  | 162 |  |  | (11) |  |  | (122) |
(Income) losses of foreign branch operations |  |  | (517) |  |  | 225 |  |  | 1,447 |
Non-taxable earnings of noncontrolling interest |  |  | (1,349) |  |  | (1,141) |  |  | (1,172) |
Foreign dividend less foreign tax credits |  |  | (4,425) |  |  | (1,428) |  |  | (2,587) |
Increase in deferred tax liability - branch losses in UK |  |  | (2,530) |  |  | (75) |  |  | (954) |
Decrease (increase) to deferred tax asset - change in tax rate |  |  | (526) |  |  | (443) |  |  | (68) |
State income tax credits and net operating losses |  |  | (1,477) |  |  | (142) |  |  | 615 |
Foreign earnings taxed currently in U.S. |  |  | 2,839 |  |  | 2,696 |  |  | 2,907 |
Other |  |  | 1,504 |  |  | 85 |  |  | 154 |
Income tax per effective tax rate |  | $ | 20,004 |  | $ | 23,042 |  | $ | 20,598 |
The Company’s deferred income tax assets and liabilities are summarized as follows (in thousands):
|  | Year Ended December 31, |
|  | 2015 |  | 2014 |
Deferred tax assets, gross |  |  |  |  |  |  |
Accrued workers compensation, deferred compensation and employee benefits |  | $ | 10,509 |  | $ | 17,030 |
Allowance for doubtful accounts, insurance and other accruals |  |  | 4,860 |  |  | 4,554 |
Amortization of deferred rent liabilities |  |  | 2,500 |  |  | 2,201 |
Net operating losses |  |  | 19,522 |  |  | 11,296 |
Equity compensation |  |  | 3,505 |  |  | 2,997 |
Customer acquisition and deferred revenue accruals |  |  | 16,610 |  |  | 16,241 |
Federal and state tax credits, net |  |  | 10,057 |  |  | 10,621 |
Depreciation and amortization |  |  | 6,265 |  |  | — |
Unrealized losses on derivatives |  |  | 16,644 |  |  | 11,686 |
Other |  |  | 2,655 |  |  | 12,749 |
Total deferred tax assets, gross |  |  | 93,127 |  |  | 89,375 |
Valuation allowances |  |  | (10,139) |  |  | (10,721) |
Total deferred tax assets, net |  |  | 82,988 |  |  | 78,654 |
Deferred tax liabilities |  |  |  |  |  |  |
Depreciation and amortization |  |  | — |  |  | (7,035) |
Contract acquisition costs |  |  | (25,667) |  |  | (11,768) |
Future losses in UK |  |  | — |  |  | (2,530) |
Intangible assets |  |  | (6,082) |  |  | (7,628) |
Other |  |  | (2,490) |  |  | (355) |
Total deferred tax liabilities |  |  | (34,239) |  |  | (29,316) |
Net deferred tax assets |  | $ | 48,749 |  | $ | 49,338 |
Quarterly, the Company assesses the likelihood by jurisdiction that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized. As of December 31, 2015 the Company had approximately $40.4 million of net deferred tax assets in the U.S. and $8.4 million of net deferred tax assets related to certain international locations whose recoverability is dependent upon their future profitability. As of December 31, 2015 the deferred tax valuation allowance was $10.1 million and related primarily to tax losses in foreign jurisdictions and U.S. federal and state tax credits which do not meet the “more-likely-than-not” standard under current accounting guidance. The utilization of these federal and state tax credits are subject to numerous factors including various expiration dates, generation of future taxable income over extended periods of time and state income tax apportionment factors which are subject to change. During November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The Company early adopted ASU 2015-17 effective December 31, 2015 on a prospective basis. Adoption of this ASU resulted in a reclassification of the Company’s net current deferred tax asset to the net non-current deferred tax asset in its Consolidated Balance Sheet as of December 31, 2015. No prior periods were retrospectively adjusted. When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred. In 2015, the Company made adjustments to its deferred tax assets and corresponding valuation allowances. The net change to the valuation allowance consisted of the following: a $2.9 million decrease in certain state credits and NOLs that are now expected to be utilized prior to expiration, a $4.3 million increase in valuation allowance in Belgium, Canada, Costa Rica, Israel, Macedonia, New Zealand and United Kingdom for deferred tax assets that do not meet the “more-likely-than-not” standard, and a $1.8 million release of valuation allowance in various other jurisdictions related to the utilization or write-off of deferred tax assets. Activity in the Company’s valuation allowance accounts consists of the following (in thousands):
|  | Year Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Beginning balance |  | $ | 10,721 |  | $ | 10,792 |  | $ | 20,909 |
Additions of deferred income tax expense |  |  | 4,300 |  |  | 946 |  |  | 4,218 |
Reductions of deferred income tax expense |  |  | (4,882) |  |  | (1,017) |  |  | (14,335) |
Ending balance |  | $ | 10,139 |  | $ | 10,721 |  | $ | 10,792 |
As of December 31, 2015, after consideration of all tax loss and tax credit carry back opportunities, the Company had tax affected tax loss carry forwards worldwide expiring as follows (in thousands):
2016 |  | $ | 1,616
2017 |  |  | 133
2018 |  |  | 316
2019 |  |  | 295
After 2019 |  |  | 12,688
No expiration |  |  | 4,473
Total |  | $ | 19,521
As of December 31, 2015, domestically, the Company had federal tax credit carry forwards in the amount of $1.6 million that if unused will expire in 2021, $2.2 million that if unused will expire in 2022, $2.2 million that if unused will expire in 2023, $0.9 million that if unused will expire in 2024, and $1.7 million that if unused will expire in 2025. The Company also had state tax credit carry-forwards of $0.3 million that if unused will expire between 2016 and 2023. As of December 31, 2015 the cumulative amount of foreign earnings considered permanently invested outside the U.S. was $49 3.4 million. Those earnings do not include earnings from certain subsidiaries which the Company intends to repatriate to the U.S. or are otherwise considered available for distribution to the U.S. Accordingly, no provision for U.S. federal or state income taxes or foreign withholding taxes has been provided on these undistributed earnings. If these earnings become taxable in the U.S, the Company would be subject to incremental tax expense, after any applicable foreign tax credit, and foreign withholding tax expense. It is not practicable to estimate the additional taxes that may become payable upon the eventual remittance of these foreign earnings. The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of the Philippines and Costa Rica. Generally, a Tax Holiday is an agreement between the Company and a foreign government under which the Company receives certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities. In the Philippines, the Company has been granted multiple agreements with an initial period of four years and additional periods for varying years, expiring at various times between 2011 and 2020. The aggregate benefit to income tax expense for the years ended December 31, 2015, 2014 and 2013 was approximately $1 2.2 million, $20.2 million and $14.6 million, respectively, which had a favorable impact on diluted net income per share of $0.25, $0.27 and $0.28, respectively. Accounting for Uncertainty in Income Taxes In accordance with ASC 740, the Company has recorded a reserve for uncertain tax positions. The total amount of interest and penalties recognized in the accompanying Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss) as of December 31, 2015, 2014 and 2013 was approximately $709 thousand, $132 thousand and $77 thousand, respectively. The Company had a reserve for uncertain tax benefits, on a net basis, of $3.7 million and $1.9 million for the years ended December 31, 2015 and 2014, respectively. The liability for uncertain tax positions was not changed in 2015 for tax positions that were resolved favorably or expired. The tabular reconciliation of the reserve for uncertain tax benefits on a gross basis without interest for the three years ended December 31, 2015 is presented below (in thousands):
Balance as of December 31, 2012 |  | $ | 358
Additions for current year tax positions |  |  | —
Reductions in prior year tax positions |  |  | —
Balance as of December 31, 2013 |  |  | 358
Additions for current year tax positions |  |  | 1,303
Reductions in prior year tax positions |  |  | —
Balance as of December 31, 2014 |  |  | 1,661
Additions for current year tax positions |  |  | 1,048
Reductions in prior year tax positions |  |  | —
Balance as of December 31, 2015 |  | $ | 2,709
At December 31, 2015, the amount of uncertain tax benefits that, if recognized, would reduce tax expense was $3.7 million. Within the next 12 months, it is expected that the amount of unrecognized tax benefits will be reduced by $1.2 million as a result of the expiration of various statutes of limitation. The Company and its domestic and foreign subsidiaries (including Percepta LLC and its domestic and foreign subsidiaries) file income tax returns as required in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table presents the major tax jurisdictions and tax years that are open as of December 31, 2015 and subject to examination by the respective tax authorities:
Tax Jurisdiction |  | Tax Year Ended
United States |  | 2012 to present
Argentina |  | 2010 to present
Australia |  | 2011 to present
Brazil |  | 2010 to present
Canada |  | 2008 to present
Mexico |  | 2010 to present
Philippines |  | 2013 to present
Spain |  | 2011 to present
During the first quarter of 2014, a benefit of $1.2 million was recorded due to the closing of statutes of limitations in Canada. During the third quarter of 2014, the Company settled an audit with the taxing authorities in the Netherlands for tax years 2010 and 2011. An expense of $1.3 million was recorded in the quarter as a result of that settlement and the related impact through 2014. In accordance with ASC 740, the Company recorded a liability during the second quarter of 2015 of $1.75 million, inclusive of penalties and interest, for an uncertain tax position. See Note 1. The Company’s U.S. income tax returns filed for the tax years ending December 31, 2012 to present, remain open tax years. The IRS has concluded its audit in the United States for tax years 2009, 2011 and 2012 resulting in no changes to the Company’s financial statements or tax liabilities as previously reported. The Company has been notified of the intent to audit, or is currently under audit of incomes taxes in the following jurisdictions: the United States, specifically for the acquired entity TSG, for the tax year 2012 (prior to acquisition), Canada for tax years 2009 and 2010, and New Zealand for tax year 2013. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements.

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- 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 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 2: 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 Reference 3: 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 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 + Details
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