(9) Income Taxes

Income tax expense (benefit) consisted of the following components (dollars in thousands):

	2014			2013		2012
Current:
Federal	$	4,802		$	2,628	$	416
State		4,823			1,634		782
Foreign		9,449			4,657		3,362

		19,074			8,919		4,560
Deferred:
Federal		(4,701	)		1,606		(19,423	)
State		1,026			992		(7,565	)
Foreign		(1,304	)		453		(168	)

		(4,979	)		3,051		(27,156	)

Total	$	14,095		$	11,970	$	(22,596	)

Income (loss) before income taxes consisted of the following (dollars in thousands):

	2014		2013		2012
U.S.	$	15,779	$	15,687	$	(248,101	)
Foreign		49,208		27,368		(22,354	)

Total	$	64,987	$	43,055	$	(270,455	)

Deferred income taxes are provided for temporary differences in reporting certain items. The tax effects of temporary differences that gave rise to the net deferred tax assets (liabilities) at December 31 were as follows (dollars in thousands):

	2014			2013
Deferred tax assets:
Compensation and benefits	$	17,252		$	12,844
Net operating loss and capital loss carryover		16,949			17,121
Share-based compensation		7,719			6,959
Allowance for doubtful accounts		452			889
Tax benefits on uncertain tax positions		3,507			2,697
Goodwill and other intangibles		16,256			21,138
Other		8,568			9,757

Total deferred tax assets		70,703			71,405
Less: valuation allowance		20,400			20,541

Total deferred tax assets, net of valuation allowance		50,303			50,864

Deferred tax liabilities:
Depreciation		(1,575	)		(3,916	)
Capitalized software		(11,870	)		(12,838	)
Other		(352	)		(343	)

Total deferred tax liabilities		(13,797	)		(17,097	)

Net deferred tax assets	$	36,506		$	33,767

The deferred tax assets and deferred tax liabilities detailed above are presented on a net basis on the accompanying Statements of Financial Condition by tax jurisdictions in which the deferred tax assets and deferred tax liabilities relate to. At December 31, 2014, the Company believes that it is more likely than not that future reversals of its existing taxable temporary differences and the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance. The Company's valuation allowance is primarily the result of historical operating losses in the Asia Pacific entities, where we maintain a full valuation for all deferred tax assets and net operating losses, and on certain tax credits taken in the U.S.

Net operating loss carry forwards expire as follows (dollars in thousands):

	Amount		Years remaining
Hong Kong and Australia	$	74,937	Indefinite

	$	74,937

The effective tax rate varied from the U.S. federal statutory income tax rate due to the following:

	2014			2013			2012
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of U.S. federal income tax effect		5.5			3.9			1.8
Foreign tax impact, net		(12.8	)		(6.4	)		(3.6	)
Non-deductible costs *		0.9			1.0			(24.3	)
Other, net		(6.9	)		(5.7	)		(0.5	)

Effective income tax rate		21.7	%		27.8	%		8.4	%

*	Non-deductible costs in 2012 include goodwill impairment charges.

The excess tax benefits realized on the exercises of stock options and the vesting of employee restricted share awards reduced current taxes payable by $1.1 million (net of $0.2 million of tax shortfalls) during 2014. For the years ended December 31, 2013 and 2012, the tax benefits realized on the exercises of stock options and the vesting of employee restricted share awards were less than the deferred benefits that were recorded based on grant date fair values. The resulting net tax shortfalls on these awards, along with the impact of cancelled awards reduced additional paid-in capital by $1.5 million and $4.1 million in 2013 and 2012, respectively. For further discussion, see Note 19, Employee and Non-Employee Director Stock and Benefit Plans.

Tax Uncertainties

Under ASC 740, Income Taxes, a tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

During 2014, the Company (a) amended certain prior-year tax returns in the U.S. for deductions in those years not previously taken, (b) resolved uncertain tax positions in the U.S. for fiscal years 2007 through 2010, reducing tax reserves, (c) revised estimates for certain tax positions for other prior years, increasing tax reserves and (d) adjusted accruals for prior year returns. The net effect was a decrease in tax expense of $2.7 million.

During 2013, uncertain tax positions in the U.S. were resolved for the 2003-2006 and 2008-2010 fiscal years resulting in a decrease in the recorded liability of $0.5 million and the related deferred tax asset of $0.2 million. Also, in 2013, an uncertain tax position in Europe for the 2011 year was resolved, resulting in a decrease in the recorded liability of $0.9 million. As a result of these resolutions, the Company recognized a tax benefit of $1.2 million. Additionally, we reduced reserves related to prior years following the resolution of tax contingencies primarily in Europe.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (dollars in thousands):

Uncertain Tax Benefits	2014			2013			2012
Balance, January 1	$	13,074		$	13,726		$	14,542
Additions based on tax positions related to the current year		309			404			568
Additions based on tax positions of prior years		3,681			434			857
Reductions for tax positions of prior years		(84	)		(148	)		(2,024	)
Reductions due to settlements with taxing authorities		(1,108	)		(124	)		(217	)
Reductions due to expiration of statute of limitations		(1,477	)		(1,218	)		—

Balance, December 31	$	14,395		$	13,074		$	13,726

Included in the balance at December 31, 2014, 2013 and 2012, are $12.7 million, $11.9 million, and $12.4 million, respectively, of unrecognized tax benefits (net of federal benefits) which, if recognized, would affect the Company's effective tax rate.

With limited exception, the Company is no longer subject to U.S. federal, state, local or foreign income tax audits by taxing authorities for years preceding 2008. The Internal Revenue Service is currently examining the Company's U.S. federal income tax returns for 2008 through 2011. Certain state and local returns are also currently under various stages of audit. The Company does not anticipate a significant change to the total of unrecognized tax benefits within the next twelve months.

At December 31, 2014, interest expense of $4.6 million, gross of related tax effects of $1.9 million, was accrued related to unrecognized tax benefits. As a continuing policy, interest accrued related to unrecognized tax benefits is recorded as income tax expense. During 2014, 2013 and 2012, the Company recognized $0.8 million, $0.5 million and $0.8 million, respectively, of tax-related interest expense. No penalties were incurred during 2014, 2013 or 2012.