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 nine months ended September 30, 2015:


December 31, 2014	$	(109,839	)
2014 Return to provision adjustment		3,906
U.S. GAAP pretax income		106,321
State income taxes		(1,357	)
Income tax differences:
Temporary		14,137
Permanent		(73,922	)

September 30, 2015	$	(60,754	)

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 September 30, 2015 and December 31, 2014 was $14,623 and $9,490, respectively.

At September 30, 2015 and December 31, 2014, $52,547 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 September 30, 2015, the Company has no recognized deferred tax assets related to these NOLs.

During the three and nine months ended September 30, 2015, the Company recognized tax expense of $16,245 and $41,969. During the nine months ended September 30, 2015, the Company’s deferred tax asset increased by $5,133 and the Company recorded a credit to additional paid-in capital of $45,706 for the amount of NOLs from stock-based compensation utilized to reduce taxes payable during the period. In addition, during the three and nine months ended September 30, 2015, the Company recorded $852 and $1,357 of state income taxes.

During the three and nine months ended September 30, 2014, the Company recognized a tax expense of $9,634 and $5,440. During the nine months ended September 30, 2014, the Company utilized $5,472 of its deferred tax asset and recorded a credit to additional paid-in capital of $13,649 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 September 30, 2015 is as follows:


Stock-based compensation	$	10,303
Deferred rent liability		5,509
NOLs		4,720
Accrued expenses		30,180
Incentive compensation		(7,996	)
Fixed assets		(5,119	)
Other		218

Total deferred components		37,815
Income tax rate		38.67	%

Tax affected	$	14,623

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 nine months ended September 30, 2015:


December 31, 2014	$	(4,061	)
Foreign subsidiaries loss		(4,912	)

September 30, 2015	$	(8,973	)

At September 30, 2015 and December 31, 2014, a deferred tax asset related to these NOLs has been fully offset by a valuation allowance of $1,814 and $816, respectively.