Note H—Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2013, 2012 and 2011, consisted of the following (in thousands):


	Years Ended December 31,
	2013			2012			2011
Current:
Federal	$	114,687		$	99,354		$	48,068
State		27,358			24,339			11,969
Foreign		16,598			25,603			23,101
Deferred:
Federal and state		(7,759	)		(15,188	)		15,117
Foreign		(5,500	)		195			2,039

	$	145,384		$	134,303		$	100,294

Income before the provision for income taxes for the years ended December 31, 2013, 2012 and 2011, consisted of the following (in thousands):


	Years Ended December 31,
	2013		2012		2011
Domestic	$	357,382	$	286,537	$	202,210
Foreign		40,197		57,708		48,006

	$	397,579	$	344,245	$	250,216

The income taxes shown above varied from the statutory federal income tax rates for these periods as follows:


	Years Ended December 31,
	2013			2012			2011
Federal U.S. income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		4.3			4.0			3.4
Non-deductible expenses		0.7			0.8			1.3
Non-U.S. income taxed at different rates, net of foreign tax credits		(1.0	)		0.7			2.2
Federal tax credits		(1.3	)		(0.3	)		(1.2	)
Tax impact of uncertain tax positions		0.1			(1.2	)		(0.4	)
Valuation allowance release, net		(1.0	)		—			—
Other, net		(0.2	)		—			(0.2	)

Effective tax rate		36.6	%		39.0	%		40.1	%

The deferred portion of the tax provision (benefit) consisted of the following (in thousands):


	Years Ended December 31,
	2013			2012			2011
Amortization of franchise rights	$	514		$	514		$	514
Amortization of other intangibles		621			1,180			1,142
Accrued expenses, deducted for tax when paid		(11,190	)		(13,494	)		(2,076	)
Capitalized costs for books, deducted for tax		3,019			7,395			7,448
Depreciation		(2,597	)		(7,813	)		(1,709	)
Federal impact of unrecognized tax benefits		(274	)		478			331
Foreign tax credit carryforwards		(3,449	)		—			5,719
Other, net		97			(3,253	)		5,787

	$	(13,259	)	$	(14,993	)	$	17,156

The deferred income tax amounts included on the Consolidated Statements of Financial Position are composed of the following (in thousands):


	December 31,
	2013			2012
Current deferred income tax assets, net	$	112,881		$	102,993
Long-term deferred income tax liabilities, net		(10,601	)		(14,244	)

	$	102,280		$	88,749

The components of the deferred income tax amounts at December 31, 2013 and 2012, were as follows (in thousands):


	December 31,
	2013			2012
Deferred Income Tax Assets
Provision for bad debts	$	8,012		$	7,585
Employee retirement and other benefit obligations		72,227			62,637
Workers’ compensation		9,538			10,007
Deferred compensation		12,067			10,895
Credits and net operating loss carryforwards		49,556			48,609
Other		25,953			23,781

Total deferred income tax assets		177,353			163,514

Deferred Income Tax Liabilities
Amortization of intangible assets		(23,305	)		(22,169	)
Property and equipment basis differences		(8,098	)		(8,029	)
Other		(6,626	)		(5,257	)

Total deferred income tax liabilities		(38,029	)		(35,455	)
Valuation allowance		(37,044	)		(39,310	)

Total deferred income tax assets, net	$	102,280		$	88,749

Credits and net operating loss carryforwards primarily include net operating losses in foreign countries of $37.3 million that expire in 2014 and later; foreign tax credits of $3.4 million that expire in 2023; and California enterprise zone tax credits of $6.3 million that expire in 2023. New legislation passed by the State of California in 2013 limits the carryforward period on the enterprise zone credits to 10 years; therefore, the company expects that it will utilize $3.2 million of these credits prior to expiration.

The Company has not provided deferred income taxes or foreign withholding taxes on $2.8 million and $2.2 million of undistributed earnings of its non-U.S. subsidiaries as of December 31, 2013 and 2012, respectively, since the Company intends to reinvest these earnings indefinitely. The U.S. tax impact upon repatriation, net of foreign tax credits, would be zero for the years ended December 31, 2013 and 2012.

FASB authoritative guidance prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The literature also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The following table reconciles the total amounts of gross unrecognized tax benefits from January 1, 2011 to December 31, 2013 (in thousands):


	December 31,
	2013			2012			2011
Balance at beginning of period	$	7,097		$	11,669		$	12,505
Gross increases—tax positions in prior years		559			352			564
Gross decreases—tax positions in prior years		(369	)		(273	)		(1,061	)
Gross increases—tax positions in current year		38			42			40
Settlements		—			(252	)		(111	)
Lapse of statute of limitations		(1,215	)		(4,441	)		(268	)

Balance at end of period	$	6,110		$	7,097		$	11,669

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $1.3 million, $1.0 million and $2.7 million for 2013, 2012 and 2011, respectively.

The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The total amount of interest and penalties accrued as of December 31, 2013, is $2.8 million, including a $0.3 million reduction recorded in income tax expense during the year. The total amount of interest and penalties accrued as of December 31, 2012, was $3.1 million, including a $2.3 million reduction recorded in income tax expense during the year. The total amount of interest and penalties accrued as of December 31, 2011, was $5.3 million, including a $0.3 million increase recorded in income tax expense during the year.

The Company believes it is reasonably possible that the settlement of certain tax uncertainties could occur within the next twelve months; accordingly, $2.2 million of the unrecognized gross tax benefit has been classified as a current liability as of December 31, 2013. This amount primarily represents unrecognized tax benefits composed of items related to assessed state income tax audits and negotiations.

The Company’s major income tax jurisdictions are the United States, Australia, Belgium, Canada and Germany. For U.S. federal income tax, the Company remains subject to examination for 2010 and subsequent years. For major U.S. states, with few exceptions, the Company remains subject to examination for 2009 and subsequent years. Generally, for the foreign countries, the Company remains subject to examination for 2006 and subsequent years.