(9) Income Taxes

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

	2015			2014			2013
Current:
Federal	$	5,731		$	4,802		$	2,628
State		(1,645	)		4,823			1,634
Foreign		12,647			9,449			4,657

		16,733			19,074			8,919
Deferred:
Federal		13,665			(4,701	)		1,606
State		2,570			1,026			992
Foreign		(3,312	)		(1,304	)		453

		12,923			(4,979	)		3,051

Total	$	29,656		$	14,095		$	11,970

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

	2015		2014		2013
U.S.	$	51,797	$	15,779	$	15,687
Foreign		69,429		49,208		27,368

Total	$	121,226	$	64,987	$	43,055

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):

	2015			2014
Deferred tax assets:
Compensation and benefits	$	13,742		$	17,252
Net operating loss and capital loss carryover		16,094			16,949
Share-based compensation		6,488			7,719
Allowance for doubtful accounts		396			452
Tax benefits on uncertain tax positions		2,862			3,507
Goodwill and other intangibles		9,483			16,256
Other		7,736			8,568

Total deferred tax assets		56,801			70,703
Less: valuation allowance		19,444			20,400

Total deferred tax assets, net of valuation allowance		37,357			50,303

Deferred tax liabilities:
Depreciation		(1,281	)		(1,575	)
Capitalized software		(12,072	)		(11,870	)
Other		(414	)		(352	)

Total deferred tax liabilities		(13,767	)		(13,797	)

Net deferred tax assets	$	23,590		$	36,506

The deferred tax assets and deferred tax liabilities detailed above are presented on a net basis by tax jurisdiction on the accompanying Statements of Financial Condition. At December 31, 2015, 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 a full valuation allowance is maintained for all deferred tax assets and net operating losses, as well as on certain tax credits generated in the U.S.

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

	Amount		Years remaining
Hong Kong and Australia	$	72,644	Indefinite
United States		3,754	15 years
Ireland		165	Indefinite

	$	76,563

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

	2015			2014			2013
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		0.4			5.5			3.9
Foreign tax impact, net		(7.2	)		(12.8	)		(6.4	)
Deemed dividend on capital structure amendment(1)		5.4			—			—
Impact of deductible basis on the sale of energy research business		(14.8	)		—			—
Non-deductible costs(2)		6.1			0.9			1.0
Other, net		(0.4	)		(6.9	)		(5.7	)

Effective income tax rate		24.5	%		21.7	%		27.8	%


(1)	Reflects the impact of the tax on a deemed dividend from amending the capital structure of the Company's operations outside of North America.
(2)	Includes the impact of the non-deductible fine and related revenue disgorgement paid in August 2015 to the Securities and Exchange Commission (the "SEC") (see Note 21, Commitments and Contingencies).

The excess tax benefits realized on the exercises of stock options and the vesting of employee restricted stock unit awards reduced current taxes payable in 2015 and 2014 by $2.1 million (net of $0.9 million of tax shortfalls) and $1.1 million (net of $0.2 million of tax shortfalls), respectively. For the year ended December 31, 2013, the tax benefits realized on the exercises of stock options and the vesting of employee restricted stock unit awards was less than the deferred benefits that were recorded based on grant date fair values. The resulting net tax shortfall on these awards, along with the impact of cancelled awards, reduced additional paid-in capital by $1.5 million. For further discussion, see Note 19, Employee and Non-Employee Director Stock and Benefit Plans.

Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries since the Company recognized a current tax expense of $6.5 million in 2015 on the deemed dividend on all such cumulative undistributed earnings as part of the amendment to the capital structure of its operations outside of North America.

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 2015, the Company (a) resolved uncertain tax positions in the U.S. for fiscal years 2006 through 2012, reducing tax reserves, (b) revised estimates for certain tax positions for other prior years, increasing tax reserves and (c) adjusted accruals for prior year returns. The net effect was a decrease in tax expense of $2.0 million.

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, the Company 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	2015			2014			2013
Balance, January 1	$	14,395		$	13,074		$	13,726
Additions based on tax positions related to the current year		2,807			309			404
Additions based on tax positions of prior years		349			3,681			434
Reductions for tax positions of prior years		(36	)		(84	)		(148	)
Reductions due to settlements with taxing authorities		(1,773	)		(1,108	)		(124	)
Reductions due to expiration of statute of limitations		(189	)		(1,477	)		(1,218	)

Balance, December 31	$	15,553		$	14,395		$	13,074

Included in the balance at December 31, 2015, 2014 and 2013, are $14.6 million, $12.7 million, and $11.9 million, respectively, of unrecognized tax benefits (net of offsetting federal benefits, where appropriate) 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 2012. 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, 2015, interest expense of $4.7 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 2015, 2014 and 2013, the Company recognized $0.1 million, $0.8 million and $0.5 million, respectively, of tax-related interest expense. No tax penalties were recorded during 2015, 2014 or 2013.