INCOME TAXES

Components of Income Tax Provision



	Years Ended October 31,
(in millions)	2014		2013		2012
Current:
Federal	$	36.2	$	15.3	$	9.7
State	9.1		10.9		10.5
Foreign	1.3		0.8		—
Deferred:
Federal	0.8		10.0		11.1
State	1.4		2.5		(1.3		)
	$	48.8	$	39.5	$	30.0

Reconciliation of the U.S. Statutory Tax Rate to Annual Effective Tax Rate



	Years Ended October 31,
	2014		2013		2012
Tax rate reconciliation:
Statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal tax benefit	6.5	%	6.5	%	6.5	%
Federal and state tax credits	(2.6	)%	(8.6	)%	(5.5	)%
Impact of change in state tax rate	0.1	%	0.5	%	1.2	%
Changes in uncertain tax positions	(1.7	)%	(1.4	)%	(7.2	)%
Nondeductible expenses and other, net	1.9	%	3.1	%	2.4	%
Annual effective tax rate	39.2	%	35.1	%	32.4	%

The effective tax rate for 2014 was higher than the rate for 2013 primarily due to (a) the expiration of the Work Opportunity Tax Credit (“WOTC”) as of December 31, 2013 and (b) the retroactive reinstatement of the WOTC for calendar year 2012, which occurred during the year ended October 31, 2013.

The effective tax rate for 2013 was higher than the rate for 2012 due to a tax benefit included in 2012 of $6.9 million related to a re-measurement of certain unrecognized tax benefits and discrete adjustments of $1.9 million for employment-based tax credits. The impact of these benefits was partially offset by discrete tax benefits during 2013 of $4.1 million related to a retroactive reinstatement of federal employment-based tax credits.

Components of Deferred Tax Assets and Liabilities



	As of October 31,
(in millions)	2014			2013
Deferred tax assets:
Self-insurance claims (net of recoverables)	$	113.0		$	114.9
Deferred and other compensation	35.6			33.6
Accounts receivable allowances	3.7			3.9
Settlement liabilities	2.0			0.6
Other accruals	3.6			2.3
Other comprehensive income	1.2			1.4
State taxes	0.8			0.7
State net operating loss carryforwards	7.1			8.1
Tax credits	5.1			6.1
Other	0.9			1.0
	173.0			172.6
Valuation allowance	(6.2		)	(6.2		)
Total deferred tax assets	166.8			166.4
Deferred tax liabilities:
Property, plant and equipment	(1.1		)	(5.5		)
Goodwill and other acquired intangibles	(135.5		)	(126.9		)
Total deferred tax liabilities	(136.6		)	(132.4		)
Net deferred tax assets	$	30.2		$	34.0

Operating Loss Carryforwards

Operating loss carryforwards totaling $10.9 million at October 31, 2014 are being carried forward in a number of state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire between 2015 and 2034. The valuation allowance represents the amount of tax benefits related to state net operating loss carryforwards that our management believes are not likely to be realized. We believe the remaining net deferred tax assets are more likely than not to be realizable based on estimates of future taxable income.

Unrecognized Tax Benefits

At October 31, 2014, 2013, and 2012, there was $78.6 million, $80.9 million, and $81.6 million, respectively, of unrecognized tax benefits that if recognized in the future, would impact our effective tax rate. We estimate that a decrease in unrecognized tax benefits of up to approximately $8.0 million is reasonably possible over the next twelve months. At October 31, 2014 and 2013, accrued interest and penalties were $2.2 million and $1.3 million, respectively, During 2014, 2013 and 2012, we recognized interest and penalties of $0.9 million, $0.2 million, and $0.2 million, respectively.

Reconciliation of Total Unrecognized Tax Benefits



	Years Ended October 31,
(in millions)	2014			2013			2012
Balance at beginning of year	$	87.6		$	88.4		$	95.9
Additions for tax positions related to the current year	1.4			1.7			0.6
Reductions for tax positions related to the current year	—			(0.6		)	—
Additions for tax positions related to prior years	—			0.6			0.9
Reductions for tax positions related to prior years	—			(0.1		)	(7.3		)
Reductions for expiration of statute of limitations	(3.2		)	(1.5		)	(0.1		)
Settlements	(0.3		)	(0.9		)	(1.6		)
Balance as of October 31	$	85.5		$	87.6		$	88.4

Jurisdictions

We conduct business in all 50 states, significantly in California, Texas, and New York, as well as in various foreign jurisdictions. Our most significant income tax jurisdiction is the United States. The following table summarizes by entity the tax years that are either currently being examined or remain open for examination:



Entity	Open by statute
ABM state tax returns^*	10/31/2010 – 10/31/2014
ABM federal tax returns	10/31/2011 – 10/31/2014
Air Serv	6/30/2011 – 10/31/2012
HHA	12/31/2011 – 10/31/2012

* We are currently being examined by the taxing authorities in the states of New Jersey and Michigan.