INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

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,	2012		2011		2010
U.S. Federal	$	50,919	$	50,197	$	44,845
State		6,245		6,338		5,515
Foreign		5,478		315		—
	$	62,642	$	56,850	$	50,360
Current	$	55,918	$	48,540	$	37,635
Deferred		6,724		8,310		12,725
	$	62,642	$	56,850	$	50,360

Reconciliation of Effective Income Tax Rate

Following is a reconciliation of the effective income tax rate:

Years Ended December 31,	2012			2011			2010
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit and other		2.5			3.1			3.0
Tax effects on foreign income		(0.8	)		(0.1	)		—
Effective income tax rate attributable to Watsco, Inc.		36.7			38.0			38.0
Taxes attributable to noncontrolling interest		(8.3	)		(8.8	)		(6.9	)
Effective income tax rate		28.4	%		29.2	%		31.1	%

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,	2012			2011
Current deferred tax assets:
Capitalized inventory costs and inventory reserves	$	2,386		$	2,966
Allowance for doubtful accounts		1,084			1,634
Other current deferred tax assets		1,215			979
Self-insurance reserves		1,039			769
Total current deferred tax assets (1)		5,724			6,348
Long-term deferred tax assets:
Share-based compensation		13,911			11,688
Other long-term deferred tax assets		797			1,021
Net operating loss carryforwards		609			648
		15,317			13,357
Valuation allowance		(391	)		(423	)
Total long-term deferred tax assets (2)		14,926			12,934
Long-term deferred tax liabilities:
Deductible goodwill		(66,636	)		(46,057	)
Depreciation		(3,100	)		(2,500	)
Other long-term deferred tax liabilities		(1,358	)		(1,141	)
Total long-term deferred tax liabilities (2)		(71,094	)		(49,698	)
Net deferred tax liabilities	$	(50,444	)	$	(30,416	)

(1) Current deferred tax assets 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.

Change in Gross Unrecognized Tax Benefits

The change in gross unrecognized tax benefits during 2012 and 2011 is as follows:

Gross balance at January 1, 2011	$	1,889
Additions based on tax positions related to the current year		542
Reductions due to lapse of applicable statute of limitations		(7	)
Gross 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	)
Gross balance at December 31, 2012	$	2,474