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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2016

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,		2016				2015				2014
U.S. Federal		$	86,719			$	85,585			$	74,561
State			9,801				9,431				10,325
Foreign			9,416				9,661				6,953
		$	105,936			$	104,677			$	91,839
Current		$	103,216			$	99,990			$	91,550
Deferred			2,720				4,687				289
		$	105,936			$	104,677			$	91,839

Reconciliation of Effective Income Tax Rate

Following is a reconciliation of the effective income tax rate:

Years Ended December 31,		2016				2015				2014
U.S. federal statutory rate			35.0	%			35.0	%			35.0	%
State income taxes, net of federal benefit and other			2.1				2.3				3.0
Excess tax benefits from share-based compensation			(1.0	)			—				—
Tax effects on foreign income			(0.1	)			(0.3	)			(1.0	)
Effective income tax rate attributable to Watsco, Inc.			36.0				37.0				37.0
Taxes attributable to non-controlling interest			(5.0	)			(5.4	)			(6.4	)
Effective income tax rate			31.0	%			31.6	%			30.6	%

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,		2016				2015
Current deferred tax assets:
Capitalized inventory costs and inventory reserves		$	2,301			$	1,794
Allowance for doubtful accounts			1,379				1,053
Self-insurance reserves			500				519
Other current deferred tax assets			1,778				1,921
Total current deferred tax assets (1)			5,958				5,287
Long-term deferred tax assets:
Share-based compensation			26,239				23,603
Other long-term deferred tax assets			449				352
Net operating loss carryforwards			209				207
			26,897				24,162
Valuation allowance			—				—
Total long-term deferred tax assets (2)			26,897				24,162
Current deferred tax liabilities:
Other current deferred tax liabilities			(473	)			(686	)
Total current deferred tax liabilities (1)			(473	)			(686	)
Long-term deferred tax liabilities:
Deductible goodwill			(88,581	)			(83,868	)
Depreciation			(5,883	)			(3,774	)
Other long-term deferred tax liabilities			(1,160	)			(1,533	)
Total long-term deferred tax liabilities (2)			(95,624	)			(89,175	)
Net deferred tax liabilities		$	(63,242	)		$	(60,412	)

(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, 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
Additions based on tax positions related to the current year			871
Reductions due to lapse of applicable statute of limitations and tax assessments			(1,077	)
Balance at December 31, 2015			3,513
Additions based on tax positions related to the current year			547
Reductions due to lapse of applicable statute of limitations			(365	)
Balance at December 31, 2016		$	3,695

X

- 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.

+ References

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 9
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+ References

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-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 2
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Tabular disclosure of the reconciliation using percentage or dollar amounts of the reported amount of income tax expense attributable to continuing operations for the year to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations.

+ References

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
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-SubTopic 10
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-URI http://asc.fasb.org/extlink&oid=75116239&loc=d3e36027-109320

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