TAXES ON INCOME

The Company's pre-tax income from continuing operations consisted of $836 million, $1.3 billion and $1.1 billion from U.S. operations and $13 million, $19 million and $18 million from foreign operations for the years ended December 31, 2014, 2013 and 2012, respectively.

For the year ended December 31, 2013, pre-tax income from continuing operations in the U.S., income tax expense and the effective tax rate, including the state and local income tax rate, net of federal benefit, were impacted by the gain on sale of royalty rights. For further details regarding the sale of royalty rights, see Note 6.

The components of income tax expense from continuing operations for 2014, 2013 and 2012 were as follows:



	2014			2013			2012
Current:
Federal	$	204		$	417		$	332
State and local	34			59			61
Foreign	3			4			3

Deferred:
Federal	28			27			13
State and local	(6		)	(6		)	(6		)
Foreign	(1		)	(1		)	(1		)

Total	$	262		$	500		$	402

A reconciliation of the federal statutory rate to the Company's effective tax rate for 2014, 2013 and 2012 was as follows:



	2014		2013		2012

Tax provision at statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	3.1		2.8		3.4
Impact of foreign operations	(0.2	)	(0.3	)	(0.3	)
Tax credits	(0.8	)	(0.4	)	(0.2	)
Adjustments to unrecognized tax positions (the net benefit mainly results from favorable resolution of certain tax contingencies)	(4.9	)	1.4		1.2
Non-deductible expenses, primarily meals and entertainment expenses	0.4		0.3		0.3
Impact of noncontrolling interests	(1.6	)	(1.0	)	(1.3	)
Other, net	(0.1	)	(0.7	)	(0.5	)

Effective tax rate	30.9	%	37.1	%	37.6	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2014 and 2013 were as follows:



	2014			2013
Current deferred tax assets:
Accounts receivable reserves	$	91		$	85
Liabilities not currently deductible	78			63

Total current deferred tax assets	$	169		$	148

Non-current deferred tax assets (liabilities):
Liabilities not currently deductible	$	138		$	144
Stock-based compensation	42			43
Capitalized R&D expense	3			6
Net operating loss carryforwards, net of valuation allowance	165			114
Depreciation and amortization	(519		)	(475		)

Total non-current deferred tax liabilities, net	$	(171	)	$	(168	)

At December 31, 2014 and 2013, non-current deferred tax assets of $33 million and $24 million, respectively, are recorded in other long-term assets in the consolidated balance sheets. At December 31, 2014 and 2013, non-current deferred tax liabilities of $204 million and $192 million, respectively, are included in other long-term liabilities in the consolidated balance sheets.

As of December 31, 2014, the Company had estimated net operating loss carryforwards for federal and state income tax purposes of $326 million and $1.4 billion, respectively, which expire at various dates through 2034. Estimated net operating loss carryforwards for foreign income tax purposes are $44 million at December 31, 2014, some of which can be carried forward indefinitely while others expire at various dates through 2023. As of December 31, 2014 and 2013, deferred tax assets associated with net operating loss carryforwards of $242 million and $140 million, respectively, have each been reduced by valuation allowances of $60 million and $34 million, respectively.

The Company has not provided U.S. federal income and foreign tax withholdings on undistributed earnings from non-U.S. subsidiaries because the Company intends to reinvest such earnings indefinitely outside the U.S. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

Income taxes payable, including those classified in other long-term liabilities in the consolidated balance sheets at December 31, 2014 and 2013, were $110 million and $157 million, respectively. Prepaid income taxes were $44 million at December 31, 2014 and were included in prepaid expenses and other current assets in the consolidated balance sheets.

The total amount of unrecognized tax benefits as of and for the years ended December 31, 2014, 2013 and 2012 consisted of the following:



	2014			2013			2012

Balance, beginning of year	$	168		$	199		$	195
Additions:
For tax positions of current year	17			11			12
For tax positions of prior years	1			12			10
Reductions:
Changes in judgment	(56		)	(23		)	(2		)
Expirations of statutes of limitations	(6		)	(2		)	(6		)
Settlements	(2		)	(29		)	(10		)

Balance, end of year	$	122		$	168		$	199

The contingent liabilities for tax positions primarily relate to uncertainties associated with the realization of tax benefits derived from the allocation of income and expense among state jurisdictions, the characterization and timing of certain tax deductions associated with business combinations, income and expenses associated with certain intercompany licensing arrangements, certain tax credits and the deductibility of certain settlement payments.

The total amount of unrecognized tax benefits as of December 31, 2014, that, if recognized, would affect the effective income tax rate from continuing operations is $98 million. Based upon the expiration of statutes of limitations, settlements and/or the conclusion of tax examinations, the Company believes it is reasonably possible that the total amount of unrecognized tax benefits may decrease by up to $58 million within the next twelve months.

Accruals for interest expense on contingent tax liabilities are classified in income tax expense in the consolidated statements of operations. Accruals for penalties have historically been immaterial. Interest expense included in income tax expense in each of the years ended December 31, 2014, 2013 and 2012 was approximately $(1) million, $3 million and $3 million respectively. As of both December 31, 2014 and 2013, the Company has approximately $12 million and $13 million, respectively, accrued, net of the benefit of a federal and state deduction, for the payment of interest on uncertain tax positions.

The recognition and measurement of certain tax benefits includes estimates and judgment by management and inherently involves subjectivity. Changes in estimates may create volatility in the Company's effective tax rate in future periods and may be due to settlements with various tax authorities (either favorable or unfavorable), the expiration of the statute of limitations on some tax positions and obtaining new information about particular tax positions that may cause management to change its estimates.

In the regular course of business, various federal, state, local and foreign tax authorities conduct examinations of the Company's income tax filings and the Company generally remains subject to examination until the statute of limitations expires for the respective jurisdiction. The Internal Revenue Service (“IRS”) has completed its examinations of the Company's consolidated federal income tax returns up through and including the 2011 tax year; however, the Company plans to pursue all alternatives for settlement, including litigation, for certain tax adjustments related to its 2009 tax year. At this time, the Company does not believe that there will be any material additional payments beyond its recorded contingent liability reserves that may be required as a result of these tax audits. As of December 31, 2014, a summary of the tax years that remain subject to examination, or that are under appeal, for the Company's major jurisdictions are:

United States - federal 2012 - 2014

United States - various states 2005 - 2014