INCOME TAXES

The components of earnings from continuing operations before income taxes and the provision for income taxes from continuing operations were as follows:



	Years ended December 31,
	2014			2013	2012
	(In thousands)
Earnings from continuing operations before income taxes:
United States	$	275,912		302,689	241,672
Foreign	62,637			66,206	61,445
Total	$	338,549		368,895	303,117
Current tax expense (benefit) from continuing operations:
Federal ⁽¹⁾	$	(230	)	233	(4,157	)
State ⁽¹⁾	6,396			4,194	11,514
Foreign	7,163			7,691	7,759
	13,329			12,118	15,116
Deferred tax expense from continuing operations:
Federal	90,104			98,036	77,819
State	12,429			15,399	3,871
Foreign	2,228			146	5,412
	104,761			113,581	87,102
Provision for income taxes from continuing operations	$	118,090		125,699	102,218

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(1)	Excludes federal and state tax benefits resulting from the exercise of stock options and vesting of restricted stock awards, which were credited directly to “Additional paid-in capital.”

A reconciliation of the federal statutory tax rate with the effective tax rate from continuing operations follows:



	Years ended December 31,
	2014		2013		2012
	(Percentage of pre-tax earnings)
Federal statutory tax rate	35.0		35.0		35.0
Impact on deferred taxes for changes in tax rates	(0.9	)	0.1		—
State income taxes, net of federal income tax benefit	5.2		4.0		4.1
Foreign rates varying from federal	(3.7	)	(4.1	)	(2.8	)
Tax reviews and audits	(1.1	)	(0.8	)	(2.7	)
Miscellaneous items, net	0.4		(0.1	)	0.1
Effective tax rate	34.9		34.1		33.7

Tax Law Changes

The effects of changes in tax laws on deferred tax balances are recognized in the period the new legislation is enacted. The following provides a summary of the increases (decreases) to net earnings from continuing operations from changes in tax laws by tax jurisdiction:



Tax Jurisdiction	Enactment Date	Net Earnings
		(in thousands)
2014
New York	March 31, 2014	$1,776
Rhode Island	June 19, 2014	$626

2013
Puerto Rico	June 30, 2013	$(503)
United Kingdom	July 17, 2013	$485

2012
United Kingdom	July 17,2012	$(856)
Canada	June 20, 2012	$(671)

Deferred Income Taxes

The components of the net deferred income tax liability were as follows:



	December 31,
	2014			2013
	(In thousands)
Deferred income tax assets:
Self-insurance accruals	$	81,908		69,291
Net operating loss carryforwards	377,740			322,380
Alternative minimum taxes	10,727			10,727
Accrued compensation and benefits	68,626			60,039
Federal benefit on state tax positions	18,847			18,417
Pension benefits	157,082			87,745
Miscellaneous other accruals	33,090			39,414
	748,020			608,013
Valuation allowance	(24,742		)	(33,793	)
	723,278			574,220
Deferred income tax liabilities:
Property and equipment bases difference	(2,149,699		)	(1,943,923	)
Other items	(16,996		)	(22,503	)
	(2,166,695		)	(1,966,426	)
Net deferred income tax liability ⁽¹⁾	$	(1,443,417	)	(1,392,206	)

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(1)	Deferred tax assets of $33 million and $37 million have been included in “Prepaid expenses and other current assets” at December 31, 2014 and 2013, respectively.

U.S. deferred income taxes have not been provided on certain undistributed earnings of foreign subsidiaries,which were approximately $658 million at December 31, 2014. The determination of the amount of the related unrecognized deferred tax liability is not practicable because of the complexities associated with the hypothetical calculations. We have historically reinvested such earnings overseas in foreign operations indefinitely and expect future earnings will also be reinvested overseas indefinitely.

At December 31, 2014, we had U.S. federal tax effected net operating loss carryforwards of $334 million and various U.S. subsidiaries had state tax effected net operating loss carryforwards of $21 million both expiring through tax year 2034. We also had foreign tax effected net operating losses of $23 million that are available to reduce future income tax payments in several countries, subject to varying expiration rules. A valuation allowance has been established to reduce deferred income tax assets, principally foreign tax loss carryforwards, to amounts more likely than not to be realized. We had unused alternative minimum tax credits of $11 million at December 31, 2014 which are available to reduce future income tax liabilities. The alternative minimum tax credits may be carried forward indefinitely.

Uncertain Tax Positions

The following is a summary of tax years that are no longer subject to examination:

Federal — audits of our U.S. federal income tax returns are closed through fiscal year 2008.

State — for the majority of states, tax returns are closed through fiscal year 2008.

Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2007 in Canada, 2009 in Brazil, 2009 in Mexico and 2013 in the U.K., which are our major foreign tax jurisdictions.

The following table summarizes the activity related to unrecognized tax benefits (excluding the federal benefit received from state positions):



	December 31,
	2014			2013		2012
	(In thousands)
Balance at January 1	$	56,813		52,271		62,247
Additions based on tax positions related to the current year	6,896			7,606		3,980
Reductions due to lapse of applicable statutes of limitation	(3,227		)	(3,064	)	(13,956	)
Gross balance at December 31	60,482			56,813		52,271
Interest and penalties	5,125			5,756		5,319
Balance at December 31	$	65,607		62,569		57,590

Of the total unrecognized tax benefits, $47 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. The total amount includes $4 million and $5 million of interest and penalties, at December 31, 2014 and 2013, respectively, net of the federal benefit on state issues. For the years ended December 31, 2014, 2013 and 2012, we recognized an income tax benefit related to interest and penalties of $1 million in each period, within “Provision for income taxes” in our Consolidated Statements of Earnings. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $4 million by December 31, 2015, if audits are completed or tax years close during 2015.

Like-Kind Exchange Program

We have a like-kind exchange program for certain of our U.S.-based revenue earning equipment. Pursuant to the program, we dispose of vehicles and acquire replacement vehicles in a form whereby tax gains on disposal of eligible vehicles are deferred. To qualify for like-kind exchange treatment, we exchange through a qualified intermediary eligible vehicles being disposed of with vehicles being acquired, allowing us to generally carryover the tax basis of the vehicles sold (“like-kind exchanges”). The program results in a material deferral of federal and state income taxes, and a decrease in cash taxes in periods when we are not in a net operating loss (NOL) position. As part of the program, the proceeds from the sale of eligible vehicles are restricted for the acquisition of replacement vehicles and other specified applications. Due to the structure utilized to facilitate the like-kind exchanges, the qualified intermediary that holds the proceeds from the sales of eligible vehicles and the entity that holds the vehicles to be acquired under the program are required to be consolidated in the accompanying Consolidated Financial Statements in accordance with U.S. GAAP. The total assets, primarily revenue earning equipment, and the total liabilities, primarily vehicle accounts payable, held by these consolidated entities are equal in value as these entities are solely structured to facilitate the like-kind exchanges. At December 31, 2014 and 2013, these consolidated entities had total assets, primarily revenue earning equipment, and total liabilities, primarily accounts payable of $205 million and $246 million, respectively.

In the second quarter of 2012, we began to restructure and centralize the administration of vehicle purchasing, licensing and sales in order to reduce vehicle acquisition costs as well as realize operational efficiencies. During 2012, we were in a NOL position for tax purposes and were not realizing any benefits from the like-kind exchange program. As a result of those events, effective April 1, 2012, we temporarily suspended the like-kind exchange program. Once we suspended the program, tax gains on vehicles sold during that period were no longer deferred. Those tax gains resulted in an immaterial decrease in the NOL. Although the suspension did not impact our 2012 tax provision or capital spending program, our cash flows increased by $19 million from the release of the program's restricted cash.

In the first quarter of 2013, once we had completed our restructuring of the administrative processes for purchasing and selling vehicles, we reinstated our like-kind exchange program. The reinstated program operates, and will provide cash tax benefits, in the same manner as it did prior to suspension once we are no longer in a NOL position. In 2013, our cash flow declined $11 million as a result of the program's restricted cash. There were no other impacts to cash flow as a result of the program's reinstatement.