INCOME TAXES

Components of Income Tax Provision from Continuing Operations



	Years Ended October 31,
(in millions)	2015			2014		2013
Income before income taxes
United States	$	60.5		$	104.5	$	94.9
Foreign	11.9			6.1		3.8
	$	72.4		$	110.6	$	98.7

Provision for income taxes
Current:
Federal	$	3.7		$	32.6	$	13.3
State	3.7			7.6		9.5
Foreign	2.8			1.3		0.8
Deferred:
Federal	7.9			0.8		10.0
State	0.3			1.4		2.5
Foreign	(0.1		)	—		—
	$	18.3		$	43.7	$	36.1

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



	Years Ended October 31,
	2015		2014		2013
Tax rate reconciliation:
Statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal tax benefit	6.5	%	6.7	%	7.0	%
Federal and state tax credits	(9.6	)%	(2.2	)%	(7.3	)%
Impact of foreign operations	(3.6	)%	(1.1	)%	(0.8	)%
Changes in uncertain tax positions	(5.2	)%	(2.0	)%	(1.6	)%
Nondeductible expenses and other, net	2.2	%	3.1	%	4.3	%
Annual effective tax rate	25.3	%	39.5	%	36.6	%

The effective tax rates on income from continuing operations for 2015 and 2014 were 25.3% and 39.5%, respectively. The effective tax rate for 2015 was lower than the rate for 2014 principally due to: (i) $2.8 million of additional Work Opportunity Tax Credits (“WOTC”) primarily from the retroactive reinstatement of WOTC for calendar year 2014; (ii) $1.9 million of tax benefits for tax deductions on energy efficient government buildings; (iii) $1.6 million of state employment-based tax credits; and (iv) $1.6 million of tax benefits related to the recognition of previously unrecognized tax positions.

The effective tax rate for 2014 was higher than the rate for 2013 due to (i) the expiration of the WOTC as of December 31, 2013 and (ii) the retroactive reinstatement of the WOTC for calendar year 2012, which occurred during the year ended October 31, 2013.

Components of Deferred Tax Assets and Liabilities



	As of October 31,
(in millions)	2015			2014
Deferred tax assets:
Self-insurance claims (net of recoverables)	$	109.5		$	113.0
Deferred and other compensation	35.5			35.6
Accounts receivable allowances	2.9			3.7
Settlement liabilities	3.5			2.0
Other accruals	2.6			3.6
Other comprehensive income	1.3			1.2
State taxes	0.5			0.8
State net operating loss carryforwards	5.9			7.1
Tax credits	7.4			5.1
Other	0.4			0.9
	169.5			173.0
Valuation allowance	(5.5		)	(6.2		)
Total deferred tax assets	164.0			166.8
Deferred tax liabilities:
Property, plant and equipment	(0.4		)	(1.1		)
Goodwill and other acquired intangibles	(129.5		)	(135.5		)
Total deferred tax liabilities	(129.9		)	(136.6		)
Net deferred tax assets	$	34.1		$	30.2

Operating Loss Carryforwards

Operating loss carryforwards totaling $9.1 million at October 31, 2015 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 2016 and 2035. The valuation allowance represents the amount of tax benefits related to state net operating loss carryforwards that 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. Changes to the deferred tax asset valuation allowance for 2015, 2014, and 2013 were are as follows:



	Years Ended October 31,
(in millions)	2015			2014		2013
Valuation allowance at the beginning of the year	$	6.2		$	6.2	$	6.0
Sale of Security business	(0.8		)	—		—
Other, net	0.1			—		0.2
Valuation allowance at the end of the year	$	5.5		$	6.2	$	6.2

During 2015, the decrease in the valuation allowance was primarily due to $0.8 million of state net operating loss carryforwards associated with the sale of the Security business. During 2014, there was no change to the valuation allowance.

Unrecognized Tax Benefits

At October 31, 2015, 2014, and 2013, there was $75.6 million, $78.6 million, and $80.9 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 $21 million is reasonably possible over the next twelve months due to the resolution of certain tax matters. At October 31, 2015 and 2014, accrued interest and penalties were $3.2 million and $2.2 million, respectively. During 2015, 2014 and 2013, we recognized interest and penalties of $1.0 million, $0.9 million, and $0.2 million, respectively.

Reconciliation of Total Unrecognized Tax Benefits



	Years Ended October 31,
(in millions)	2015			2014			2013
Balance at beginning of year	$	85.5		$	87.6		$	88.4
Additions for tax positions related to the current year	2.1			1.4			1.7
Reductions for tax positions related to the current year	—			—			(0.6		)
Additions for tax positions related to prior years	0.1			—			0.6
Reductions for tax positions related to prior years	—			—			(0.1		)
Reductions for expiration of statute of limitations	(5.2		)	(3.2		)	(1.5		)
Settlements	—			(0.3		)	(0.9		)
Balance as of October 31	$	82.5		$	85.5		$	87.6

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.

Tax Years Open for Examination, by Entity



Entity	Open by statute
ABM state tax returns^*	10/31/2011 – 10/31/2015
ABM federal tax returns	10/31/2012 – 10/31/2015
Air Serv	6/30/2012 – 10/31/2012
HHA	10/31/2012

* We are currently being examined by the taxing authorities in the states of Alabama, Arizona, Connecticut, Michigan, New Jersey and North Carolina and in the city of New York, New York.