INCOME TAXES

Income before income taxes consisted of the following components:



	Year ended December 31,
	2015			2014		2013
	(in thousands)
Domestic	$	365,362		$	373,122	$	389,459
Foreign	(23,191		)	19,682		18,010
Total income before income taxes	$	342,171		$	392,804	$	407,469

Income tax expense consisted of the following components:



	Year ended December 31
	2015			2014			2013
	(in thousands)
Current:
Federal	$	104,711		$	120,086		$	120,137
State	13,414			16,968			15,433
Foreign	4,297			6,296			8,656
Total current income tax expense	122,422			143,350			144,226
Deferred:
Federal	3,193			(3,785		)	(363		)
State	(1,412		)	1,042			(955		)
Foreign	(1,331		)	(3,675		)	(460		)
Total deferred income tax expense (benefit)	450			(6,418		)	(1,778		)
Total income tax expense	$	122,872		$	136,932		$	142,448

The following table summarizes the differences between the Company's effective tax rate for financial reporting purposes and the federal statutory tax rate:



	Year ended December 31,
	2015		2014		2013
Percent of pretax earnings:
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Increase (reduction) resulting from:
State income tax, net of federal tax benefit	3.5	%	3.2	%	3.1	%
Other permanent differences	0.4	%	0.1	%	0.1	%
International operations, net of foreign tax credits	3.8	%	(0.5	)%	—	%
Worthless stock tax benefit	(3.4	)%	—	%	—	%
Federal tax credits and income deductions	(2.5	)%	(2.3	)%	(2.1	)%
Tax impact of uncertain tax positions and other	(0.9	)%	(0.6	)%	(1.1	)%
Effective income tax rate	35.9	%	34.9	%	35.0	%

As described in Note 5, "Goodwill and Intangible Assets, Net," the Company recorded a $28.3 million long-lived asset impairment in the third quarter of 2015 related to the Discount Supplements business. The Company fully reduced the deferred income tax assets relating to net operating loss carryforwards of Discount Supplements by a valuation allowance in the third quarter of 2015 and recorded a discrete tax benefit of $11.8 million due to the effect of an anticipated worthless stock deduction resulting from excess tax basis in the common shares of Discount Supplements.

Significant components of the Company's deferred tax assets and liabilities consisted of the following at December 31:



	2015									2014
	Assets			Liabilities			Net			Assets			Liabilities			Net
	(in thousands)
Current assets (liabilities):
Operating reserves	$	7,159		$	—		$	7,159		$	5,971		$	—		$	5,971
Deferred revenue	2,976			—			2,976			2,697			—			2,697
Prepaid expenses	—			(3,936		)	(3,936		)	—			(5,282		)	(5,282		)
Accrued workers' compensation	2,891			—			2,891			2,811			—			2,811
Other	1,826			—			1,826			1,425			—			1,425
Total current	$	14,852		$	(3,936	)	$	10,916		$	12,904		$	(5,282	)	$	7,622
Non-current assets (liabilities):
Intangibles	$	—		$	(331,157	)	$	(331,157	)	$	—		$	(327,675	)	$	(327,675	)
Fixed assets	16,900			—			16,900			17,631			—			17,631
Stock compensation	3,344			—			3,344			1,977			—			1,977
Net operating loss and credit carryforwards	11,825			—			11,825			9,421			—			9,421
Long-term rent liabilities	8,438			—			8,438			7,836			—			7,836
Deferred Revenue	3,775			—			3,775			5,070			—			5,070
Convertible senior notes	—			(16,599		)	(16,599		)	—			—			—
Other	5,256			—			5,256			7,121			—			7,121
Valuation allowance	(2,915		)	—			(2,915		)	(1,144		)	—			(1,144		)
Total non-current	$	46,623		$	(347,756	)	$	(301,133	)	$	47,912		$	(327,675	)	$	(279,763	)
Total net deferred taxes	$	61,475		$	(351,692	)	$	(290,217	)	$	60,816		$	(332,957	)	$	(272,141	)

In connection with the convertible debt issuance in August 2015 as explained in Note 7, "Long-Term Debt / Interest Expense," the Company recorded a deferred tax liability, which represents the difference between the carrying value of the debt for book purposes and tax purposes, the latter of which excludes the conversion feature bifurcation. The recognition of this deferred tax liability was recorded as a reduction to additional paid-in capital on the accompanying consolidated balance sheet and will be amortized as a reduction to income tax expense over the life of the convertible debt.

At December 31, 2015 and 2014, the Company had deferred tax assets relating to foreign and state NOLs with lives ranging from 5 to 20 years. As of December 31, 2015 and 2014, a valuation allowance was provided for certain NOLs, as the Company currently believes that these NOLs may not be realizable prior to their expiration. During 2015, the Company increased its valuation allowance by $1.8 million. During 2014 and 2013, the Company reduced its valuation allowance by $1.6 million and $1.4 million, respectively. The valuation allowance was adjusted based on a change in circumstances, including anticipated future earnings and a tax law change, which caused a change in judgment about the realizability of certain deferred tax assets related to NOLs.

The Company does not have any material undistributed earnings of international subsidiaries at December 31, 2015 and 2014 as these subsidiaries are either considered to be branches for United States tax purposes, to have incurred cumulative NOLs, or to have only minimal undistributed earnings.

Holdings files a consolidated federal tax return and various consolidated and separate tax returns as prescribed by the tax laws of the state, local and international jurisdictions in which it and its subsidiaries operate. The statutes of limitation for the Company’s U.S. federal income tax returns are closed for years through 2011. The Company's 2010 and 2011 federal income tax returns have been examined by the Internal Revenue Service. The Internal Revenue Service closed the examination without making any material adjustments to the returns. The Company has various state and local jurisdiction tax years open to possible examination (the earliest open period is generally 2011), and the Company also has certain state and local tax filings currently under audit. As of December 31, 2015, the Company believes that it is appropriately reserved for any potential federal and state income tax exposures.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	December 31,
	2015			2014			2013
	(in thousands)
Balance of unrecognized tax benefits at beginning of period	$	11,652		$	10,848		$	12,882
Additions for tax positions taken during current period	1,345			1,524			873
Additions for tax positions taken during prior periods	543			116			1,965
Reductions for tax positions taken during prior periods	(6,258		)	(527		)	(4,068		)
Settlements	—			(309		)	(804		)
Balance of unrecognized tax benefits at end of period	$	7,282		$	11,652		$	10,848

The Company's liability for uncertain tax positions decreased by $3.3 million during the current year due in part to the expiration of certain statutes of limitation with respect to the 2011 fiscal year, which was recorded as a reduction to income tax expense. The Company’s liability for uncertain tax positions also decreased by $3.0 million with a corresponding reduction to receivables.

As of December 31, 2015, the Company is not aware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months. Accrued interest and penalties were $1.8 million and $4.2 million at December 31, 2015 and 2014, respectively. At December 31, 2015, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $9.1 million, including the impact of accrued interest and penalties. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its unrecognized tax benefits reflect the most likely outcome. The Company adjusts these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to the effective income tax rate in the period of resolution.