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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2014

Components of Income Tax Expense

The components of income tax expense from our wholly-owned operations and investments and our controlling interest in joint ventures with Carrier are as follows:

Years Ended December 31,		2014				2013				2012
U.S. Federal		$	74,561			$	62,616			$	50,919
State			10,325				9,234				6,245
Foreign			6,953				5,810				5,478
		$	91,839			$	77,660			$	62,642
Current		$	91,550			$	69,071			$	55,918
Deferred			289				8,589				6,724
		$	91,839			$	77,660			$	62,642

Reconciliation of Effective Income Tax Rate

Following is a reconciliation of the effective income tax rate:

Years Ended December 31,		2014				2013				2012
U.S. federal statutory rate			35.0	%			35.0	%			35.0	%
State income taxes, net of federal benefit and other			3.0				3.3				2.5
Tax effects on foreign income			(1.0	)			(1.3	)			(0.8	)
Effective income tax rate attributable to Watsco, Inc.			37.0				37.0				36.7
Taxes attributable to noncontrolling interest			(6.4	)			(7.7	)			(8.3	)
Effective income tax rate			30.6	%			29.3	%			28.4	%

Significant Components of Current and Long-Term Deferred Tax Assets and Liabilities

The following is a summary of the significant components of our current and long-term deferred tax assets and liabilities:

December 31,		2014				2013
Current deferred tax assets:
Capitalized inventory costs and inventory reserves		$	3,262			$	2,883
Self-insurance reserves			759				1,093
Allowance for doubtful accounts			992				882
Other current deferred tax assets			1,588				1,539
Total current deferred tax assets (1)			6,601				6,397
Long-term deferred tax assets:
Share-based compensation			20,108				17,455
Other long-term deferred tax assets			746				909
Net operating loss carryforwards			221				283
			21,075				18,647
Valuation allowance			—				(75	)
Total long-term deferred tax assets (2)			21,075				18,572
Current deferred tax liabilities:
Other current deferred tax liabilities			(536	)			(1,304	)
Total current deferred tax liabilities (1)			(536	)			(1,304	)
Long-term deferred tax liabilities:
Deductible goodwill			(80,404	)			(76,519	)
Depreciation			(2,992	)			(2,873	)
Other long-term deferred tax liabilities			(1,320	)			(2,556	)
Total long-term deferred tax liabilities (2)			(84,716	)			(81,948	)
Net deferred tax liabilities		$	(57,576	)		$	(58,283	)

(1) Current deferred tax assets and liabilities have been included in the consolidated balance sheets in other current assets.

(2) Long-term deferred tax assets and liabilities have been included in the consolidated balance sheets in deferred income taxes and other liabilities.

Changes in Gross Unrecognized Tax Benefits

The changes in gross unrecognized tax benefits are as follows:

Balance at December 31, 2011		$	2,424
Additions based on tax positions related to the current year			416
Reductions due to lapse of applicable statute of limitations			(366	)
Balance at December 31, 2012			2,474
Additions based on tax positions related to the current year			673
Reductions due to lapse of applicable statute of limitations			(12	)
Balance at December 31, 2013			3,135
Additions based on tax positions related to the current year			751
Reductions due to lapse of applicable statute of limitations			(167	)
Balance at December 31, 2014		$	3,719

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- Definition

Tabular disclosure of the components of income tax expense attributable to continuing operations for each year presented including, but not limited to: current tax expense (benefit), deferred tax expense (benefit), investment tax credits, government grants, the benefits of operating loss carryforwards, tax expense that results from allocating certain tax benefits either directly to contributed capital or to reduce goodwill or other noncurrent intangible assets of an acquired entity, adjustments of a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of the entity, and adjustments of the beginning-of-the-year balances of a valuation allowance because of a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset in future years.

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