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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2017

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,		2017				2016				2015
U.S. Federal		$	69,079			$	86,719			$	85,585
State			10,643				9,801				9,431
Foreign			10,499				9,416				9,661
		$	90,221			$	105,936			$	104,677
Current		$	100,956			$	103,216			$	99,990
Deferred			(10,735	)			2,720				4,687
		$	90,221			$	105,936			$	104,677

Reconciliation of Effective Income Tax Rate

Following is a reconciliation of the effective income tax rate:

Years Ended December 31,		2017				2016				2015
U.S. federal statutory rate			35.0	%			35.0	%			35.0	%
State income taxes, net of federal benefit and other			2.4				2.3				2.4
Excess tax benefits from share-based compensation			(2.7	)			(1.0	)			—
Tax effects on foreign income			(1.0	)			(0.1	)			(0.3	)
Tax credits and other			(0.6	)			(0.2	)			(0.1	)
Repatriation transition tax			3.0				—				—
Deferred tax impact of enacted tax rate changes			(6.3	)			—				—
Effective income tax rate attributable to Watsco, Inc.			29.8				36.0				37.0
Taxes attributable to non-controlling interest			(3.8	)			(5.0	)			(5.4	)
Effective income tax rate			26.0	%			31.0	%			31.6	%

Significant Components of Net Deferred Tax Liabilities

The following is a summary of the significant components of our net deferred tax liabilities:

December 31,		2017				2016
Deferred tax assets:
Share-based compensation		$	18,977			$	26,239
Capitalized inventory costs and inventory reserves			2,107				2,301
Allowance for doubtful accounts			929				1,379
Self-insurance reserves			153				500
Other			2,423				2,227
Net operating loss carryforwards			291				209
			24,880				32,855
Valuation allowance			—				—
Total deferred tax assets			24,880				32,855
Deferred tax liabilities:
Deductible goodwill			(67,246	)			(88,581	)
Depreciation			(5,519	)			(5,883	)
Other			(5,189	)			(1,633	)
Total deferred tax liabilities			(77,954	)			(96,097	)
Net deferred tax liabilities (1)		$	(53,074	)		$	(63,242	)

(1) At December 31, 2017, net deferred tax liabilities have been included in the consolidated balance sheet in deferred income taxes and other liabilities. At December 31, 2016, net current deferred tax assets and liabilities of $5,485 are included in the consolidated balance sheet in other current assets and net long-term deferred tax assets and liabilities of $68,727 are included in the consolidated balance sheet 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, 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
Additions based on tax positions related to the current year			801
Reductions due to lapse of applicable statute of limitations			(271	)
Balance at December 31, 2017		$	4,225

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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.

+ References

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-SubTopic 10
-Section 50
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