INCOME TAXES

Following is a summary of the components of income before income taxes for the years ended December 31 (in thousands):



	2014		2013		2012
U.S.	$	188,963	$	186,330	$	150,023
Non-U.S.	85,720		80,109		85,573
Income before income taxes	$	274,683	$	266,439	$	235,596

The expense for income taxes on the above income consists of the following components (in thousands):



	2014			2013			2012
Current tax expense:
U.S. federal	$	49,281		$	20,215		$	25,270
State and local	5,135			4,928			2,508
Foreign	16,653			17,167			18,822
Total current	71,069			42,310			46,600
Deferred tax (benefit) expense:
U.S. federal	(6,670		)	18,824			8,379
State and local	6,477			2,742			(770		)
Foreign	779			(4,688		)	(7,797		)
Total deferred	586			16,878			(188		)
Total current and deferred	71,655			59,188			46,412
Benefit (expense) relating to interest rate swap used to increase (decrease) equity	(1,442		)	(1,405		)	51
Benefit from stock transactions with employees used to increase equity	18,704			25,373			21,304
Benefit (expense) relating to defined-benefit pension adjustments used to increase (decrease) equity	2,000			482			1,926
Total tax expense	$	90,917		$	83,638		$	69,693

Current and long-term deferred tax assets and liabilities are comprised of the following (in thousands):



	December 31,
	2014			2013
Accrued liabilities	$	67,066		$	56,787
Loss and credit carryforwards	13,350			17,648
Assets relating to equity compensation	19,920			19,773
Other assets	3,420			1,306
Gross deferred tax assets	103,756			95,514
Property, equipment, and leasehold improvements	(10,817		)	(12,067		)
Intangible assets	(29,400		)	(25,338		)
Prepaid expenses	(26,584		)	(22,517		)
Other liabilities	(3,591		)	—
Gross deferred tax liabilities	(70,392		)	(59,922		)
Valuation allowance	(570		)	(617		)
Net deferred tax assets	$	32,794		$	34,975

Current net deferred tax assets and current net deferred tax liabilities were $17.5 million and $2.1 million as of December 31, 2014 and $19.5 million and $8.7 million as of December 31, 2013, respectively, and are included in Prepaid expenses and other current assets and Accounts payable and accrued liabilities in the Consolidated Balance Sheets. Long-term net deferred tax assets and long-term net deferred tax liabilities were $18.0 million and $0.6 million as of December 31, 2014 and $24.4 million and $0.2 million as of December 31, 2013, respectively, and are included in Other assets and Other liabilities in the Consolidated Balance Sheets. Based on its assessment, management has concluded it is more likely than not that the reversal of deferred tax liabilities and results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance at December 31, 2014.

The valuation allowances of $0.6 million as of both December 31, 2014 and 2013 largely relate to certain net operating losses.

As of December 31, 2014, the Company had state and local tax net operating loss carryforwards of $7.8 million, of which $0.7 million expire within one to five years, $6.3 million expire within six to fifteen years, and $0.8 million expire within sixteen to twenty years. The Company also had state tax credits of $1.6 million which will expire within two to five years. These amounts have been reduced for unrecognized tax benefits, consistent with FASB ASU 2013-11.

As of December 31, 2014, the Company had non-U.S. net operating loss carryforwards of $30.2 million, of which $2.6 million expire over the next 20 years and $27.6 million can be carried forward indefinitely. In addition, the Company also had foreign tax credit carryforwards of $3.4 million, of which approximately half will expire at the end of 2017 and the remainder at the end of 2024.

The differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate on income before income taxes for the years ended December 31 follow:



	2014		2013		2012
Statutory tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	3.1		3.2		1.8
Effect of non-U.S. operations (1)	(7.0	)	(6.1	)	(6.4	)
Record (release) reserve for tax contingencies	2.6		0.9		0.7
Record (release) valuation allowance	—		(0.5	)	—
Other items, net	(0.6	)	(1.1	)	(1.5	)
Effective tax rate	33.1	%	31.4	%	29.6	%


(1)	Includes the effect of foreign income taxed at different rates, U.S. tax on actual and deemed distributions, and foreign tax credits.

For 2014 and 2013 state income taxes, net of federal tax benefit, include approximately $1.3 million and $1.3 million, respectively, of benefit relating to economic development tax credits associated with the renovation of the Company’s Stamford headquarters facility.

As of December 31, 2014 and December 31, 2013, the Company had unrecognized tax benefits of $20.6 million and $14.5 million, respectively. The increase is primarily attributable to positions taken with respect to state income tax apportionment and the realizability of certain refund claims. It is reasonably possible that the unrecognized tax benefits will be decreased by $4.9 million within the next 12 months due to anticipated closure of audits and the expiration of certain statutes of limitation. The unrecognized tax benefits relate primarily to the utilization of certain tax attributes, state income tax positions, and intercompany transactions.

The Company classifies uncertain tax positions not expected to be settled within one year as long term liabilities. As of December 31, 2014 and December 31, 2013, the Company had $15.7 million and $11.4 million, respectively, related to long term uncertain tax positions.

The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, for the years ending December 31 (in thousands):



	2014			2013
Beginning balance	$	14,488		$	17,552
Additions based on tax positions related to the current year	6,351			4,237
Additions for tax positions of prior years	4,112			827
Reductions for tax positions of prior years	(2,317		)	(1,973		)
Reductions for expiration of statutes	(1,027		)	(3,860		)
Settlements	(143		)	(1,575		)
Change in foreign currency exchange rates	(819		)	(720		)
Ending balance	$	20,645		$	14,488

Included in the balance of unrecognized tax benefits at December 31, 2014 are potential benefits of $16.5 million that if recognized would reduce the effective tax rate on income from continuing operations. Also included in the balance of unrecognized tax benefits as of December 31, 2014 are potential benefits of $4.1 million that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.

The Company accrues interest and penalties related to unrecognized tax benefits in its income tax provision. As of both December 31, 2014 and December 31, 2013, the Company had $3.3 million of accrued interest and penalties related to unrecognized tax benefits. These amounts are in addition to the unrecognized tax benefits disclosed above. The total amount of interest and penalties recognized in the Consolidated Statements of Operations for the years ending December 31, 2014 and December 31, 2013 was $0.1 million and $0.3 million, respectively.

The number of years with open statutes of limitation varies depending on the tax jurisdiction. Generally, the Company’s statutes are open for tax years ended December 31, 2010 and forward, with the exception of India which is open for tax years 2003 and forward. Major taxing jurisdictions include the U.S. (federal and state), the United Kingdom, Canada, Japan, Italy, India, France, and Ireland.

During 2014, the Internal Revenue Service closed the audit of the Company's 2010 and 2011 federal income tax returns. The resolution of the audit did not have a material adverse effect on the consolidated financial position, cash flows, or results of operations of the Company.

Under U.S. accounting rules, no provision for income taxes that may result from the remittance of earnings held overseas is required if the Company intends to reinvest such funds overseas. Our current plans do not demonstrate a need to repatriate these undistributed earnings to fund our U.S. operations or otherwise satisfy the liquidity needs of our U.S operations. We intend to reinvest these earnings in our non-U.S. operations, except in instances in which the repatriation of these earnings would result in minimal additional tax. As a result, the Company has not recognized additional income tax expense that may result from the remittance of these earnings. The accumulated undistributed earnings of non-U.S. subsidiaries were approximately $186.5 million as of December 31, 2014. An estimate of the income tax liability that would be payable if such earnings were not indefinitely invested is $35.8 million.