13. Income Taxes

The components of income from continuing operations before provision for income taxes consisted of the following (dollars in thousands):


	Year Ended December 31,
	2015		2014		2013
Domestic	$	600,939	$	537,271	$	431,024
Foreign		278,791		239,991		77,961

	$	879,730	$	777,262	$	508,985

Our tax provision (benefit) consisted of the following (dollars in thousands):


	Year Ended December 31,
	2015			2014			2013
Federal:
Current	$	215,703		$	173,110		$	118,741
Deferred		1,559			(333	)		8,023

		217,262			172,777			126,764
State:
Current		24,476			18,876			23,324
Deferred		861			669			(14,036	)

		25,337			19,545			9,288
Foreign:
Current		91,048			87,769			85,848
Deferred		(12,794	)		(16,332	)		(34,713	)

		78,254			71,437			51,135

	$	320,853		$	263,759		$	187,187

The following is a reconciliation stated as a percentage of pre-tax income of the U.S. statutory federal income tax rate to our effective tax rate:


	Year Ended December 31,
	2015			2014			2013
Federal statutory tax rate		35	%		35	%		35	%
State taxes, net of federal benefit		3			3			2
Non-deductible expenses		1			1			1
Reserves for uncertain tax positions		1			(2	)		—
Foreign earnings repatriation		—			1			(5	)
Non-controlling interests		—			(1	)		(1	)
Acquisition costs		—			—			1
Change in valuation allowance		(1	)		(1	)		5
Credits and exemptions		(2	)		(1	)		(1	)
Foreign rate differential		(2	)		(2	)		—
Other		1			1			—

Effective tax rate		36	%		34	%		37	%

During the years ended December 31, 2015, 2014 and 2013, respectively, we recorded a $3.2 million, $2.2 million and $10.5 million income tax benefit in connection with stock options exercised. Of this income tax benefit, $2.3 million, $1.2 million and $9.9 million was charged directly to additional paid-in capital within the equity section of the accompanying consolidated balance sheets in 2015, 2014 and 2013, respectively.

Cumulative tax effects of temporary differences are shown below at December 31, 2015 and 2014 (dollars in thousands):


	December 31,
	2015			2014
Asset (Liability)
Property and equipment	$	(80,925	)	$	(82,378	)
Bad debt and other reserves		59,257			52,071
Capitalized costs and intangibles		(283,156	)		(211,133	)
Derivative financial instruments		8,583			10,603
Bonus and deferred compensation		250,600			224,460
Investments		6,395			4,942
NOL and state tax credits		57,027			50,400
Foreign tax credits		53,976			53,455
Unconsolidated affiliates		23,981			23,213
Pension obligation		26,251			21,788
All other		4,574			2,702

Net deferred tax assets before valuation allowance		126,563			150,123
Valuation allowance		(91,672	)		(93,490	)

Net deferred tax assets	$	34,891		$	56,633

As of December 31, 2015, we had U.S. federal net operating losses (NOLs) of approximately $33.7 million, translating to a deferred tax asset before valuation allowance of $11.8 million, which will begin to expire in 2023. As of December 31, 2015, there were also deferred tax assets before valuation allowances of approximately $3.2 million related to state NOLs as well as $41.8 million related to foreign NOLs. The state and foreign NOLs both begin to expire in 2016, but the majority carry forward indefinitely. The utilization of NOLs may be subject to certain limitations under U.S. federal, state and foreign laws.

In addition, as of December 31, 2015, we had $54.0 million of foreign income tax credits that can be utilized to offset U.S. federal income taxes on foreign-sourced earnings. These credits are scheduled to expire in 2023.

We determined that as of December 31, 2015, $91.7 million of deferred tax assets do not satisfy the realization criteria set forth in Topic 740. Accordingly, a valuation allowance has been recorded for this amount. If released, the entire amount would result in a benefit to continuing operations. During the year ended December 31, 2015, our valuation allowance decreased by approximately $1.8 million. This resulted from $3.2 million of non-U.S. net operating loss utilization, $2.8 million of foreign currency translation, a reduction of historical non-U.S. net operating loss balances by $2.1 million and $1.9 million related to the release of valuation allowance on U.S. net operating losses and other assets. These decreases were partially offset by establishment of valuation allowances of $6.9 million related to non-U.S. net operating losses and other foreign assets and $1.3 million related to U.S. net operating losses and other U.S. assets. We believe it is more likely than not that future operations will generate sufficient taxable income to realize the benefit of the deferred tax assets recorded net of these valuation allowances.

Our foreign subsidiaries have accumulated $1.4 billion of undistributed earnings for which we have not recorded a deferred tax liability. Although tax liabilities might result from dividends being paid out of these earnings, or as a result of a sale or liquidation of non-U.S. subsidiaries, these earnings are permanently reinvested outside of the U.S. and we do not have any plans to repatriate them or to sell or liquidate any of our non-U.S. subsidiaries. To the extent that we are able to repatriate the earnings in a tax efficient manner, we would be required to accrue and pay U.S. taxes to repatriate these funds, net of foreign tax credits. Determining our tax liability upon repatriation is not practicable. Cash and cash equivalents owned by non-U.S. subsidiaries totaled $315.5 million at December 31, 2015. In 2013, we repatriated $196.2 million. Tax benefits associated with the release of valuation allowances on foreign tax credits of $14.5 million and $4.9 million were recorded in 2013 and 2014, respectively.

The total amount of gross unrecognized tax benefits was approximately $92.5 million and $67.0 million as of December 31, 2015 and 2014, respectively. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $43.8 million ($40.7 million, net of federal benefit received from state positions) and $37.6 million ($35.8 million, net of federal benefit received from state positions) as of December 31, 2015 and 2014, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2015 and 2014 is as follows (dollars in thousands):


	Year Ended December 31,
	2015			2014
Beginning balance, unrecognized tax benefits	$	(66,984	)	$	(95,664	)
Gross increases—tax positions in prior period		(17,545	)		(8,864	)
Gross decreases—tax positions in prior period		92			20,823
Gross increases—current-period tax positions		(8,792	)		(4,431	)
Decreases relating to settlements		—			17,747
Reductions as a result of lapse of statute of limitations		688			2,857
Foreign exchange movement		3			548

Ending balance, unrecognized tax benefits	$	(92,538	)	$	(66,984	)

We believe it is reasonably possible that between $2.0 million and $3.4 million of gross unrecognized tax benefits will be settled during the next twelve months due to filing amended returns and settling ongoing exams.

Our continuing practice is to recognize potential accrued interest and/or penalties related to income tax matters within income tax expense. During the years ended December 31, 2015, 2014 and 2013, we accrued an additional $3.2 million, $3.0 million and $2.6 million, respectively, in interest and penalties associated with uncertain tax positions. During the year ended December 31, 2014, we reversed $10.5 million of accrued interest and penalties related to settled positions. As of December 31, 2015 and 2014, we have recognized a liability for interest and penalties of $28.8 million ($22.1 million, net of related federal benefit received from interest expense) and $25.5 million ($19.8 million, net of related federal benefit received from interest expense), respectively.

We conduct business globally and, as a result, one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and in multiple state, local and foreign jurisdictions. We are no longer open to assessment by the U.S. Internal Revenue Service for years prior to 2005. With limited exception, our significant state and foreign tax jurisdictions are no longer subject to audit by the various tax authorities for tax years prior to 2007.