9. Income Taxes

Net operating losses – U.S.

The Company has generated net operating losses in the U.S. (“NOLs”). The following table summarizes the activity for NOLs for the six months ended June 30, 2015:


December 31, 2014	$	(109,839	)
U.S. GAAP pretax income		65,548
State income taxes		(506	)
Income tax differences:
Temporary		2,583
Permanent		(58,207	)

June 30, 2015	$	(100,421	)

During the first quarter of 2014, management determined that although realization is not assured, it believed that it is more likely than not that its gross deferred tax asset would be realized. Therefore, it released the valuation allowance previously recorded, resulting in an income tax benefit of $13,725 on the Company’s Consolidated Statements of Operations and Comprehensive Income in the three months ended March 31, 2014 and a corresponding deferred tax asset on the Company’s Consolidated Balance Sheets at March 31, 2014. The balance of the deferred tax asset at June 30, 2015 and December 31, 2014 was $10,079 and $9,490, respectively.

At June 30, 2015 and December 31, 2014, $92,214 and $101,108 of the NOLs were generated from stock-based compensation amounts recognized for tax purposes at the time options are exercised (at the intrinsic value) or restricted stock is vested (at fair value of the share price) in excess of amounts previously expensed at the date of grant for U.S. GAAP purposes. These amounts cannot be recognized as a deferred tax asset under U.S. GAAP. In addition, $3,487 of the NOLs are deemed worthless. Therefore, at June 30, 2015, the Company has no recognized deferred tax assets related to these NOLs.

During the three and six months ended June 30, 2015, the Company recognized tax expense of $16,766 and $25,724. During the six months ended June 30, 2015, the Company’s deferred tax asset increased by $589 and the Company recorded a credit to additional paid-in capital of $25,807 for the amount of NOLs from stock-based compensation utilized to reduce taxes payable during the period. In addition, during the three and six months ended June 30, 2015, the Company recorded $156 and $506 of state income taxes.

During the three and six months ended June 30, 2014, the Company recognized a tax expense of $9,531 and a tax benefit of $4,194. During the six months ended June 30, 2014, the Company utilized $4,238 of its deferred tax asset and recorded a credit to additional paid-in capital of $5,293 for the amount of NOLs from stock-based compensation utilized to reduce taxes payable during the period.

In the third quarter of 2014, the Company completed a state tax study which resulted in a reduction of its current baseline operating tax rate in the U.S. from 45% to approximately 38%. The Company reduced the carrying value of its deferred tax asset which had previously been recorded using the higher rate.

A summary of the components of the gross and tax affected deferred tax asset as of June 30, 2015 is as follows:


Stock-based compensation	$	9,124
Deferred rent liability		5,557
NOLs		4,720
Accrued expenses		20,645
Incentive compensation		(8,884	)
Fixed assets		(5,119	)
Other		217

Total deferred components		26,260
Income tax rate		38.38	%

Tax affected	$	10,079

Net operating losses – Non-U.S.

The Company’s foreign subsidiaries generated net operating losses outside the U.S. The following table summarizes the activity for NOLs for the six months ended June 30, 2015:


December 31, 2014	$	(4,061	)
Foreign subsidiaries loss		(3,095	)

June 30, 2015	$	(7,156	)

At June 30, 2015 and December 31, 2014, a deferred tax asset related to these NOLs has been fully offset by a valuation allowance of $1,423 and $816, respectively.