Note J — Income Taxes

A reconciliation of the federal statutory rate of 35% to actual follows:



	Year Ended December 31,
	2013		2012		2011
Tax at statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	2.6	%	1.5	%	1.9	%
Effect of foreign operations, net of foreign tax credits	0.4	%	(0.2	)%	0.3	%
Other, net	0.2	%	(0.2	)%	(1.4	)%
Total	38.2	%	36.1	%	35.8	%

The components of income tax expense are as follows:



	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Current expense
Federal	$	45,784		$	86,839		$	4,154
State	5,888			10,428			6,547
Foreign	5,659			3,100			3,762
Total current	57,331			100,367			14,463
Deferred expense
Federal	20,427			6,589			76,336
State	2,494			(4,069		)	1,090
Foreign	(1,134		)	(142		)	(631		)
Total deferred	21,787			2,378			76,795
Total	$	79,118		$	102,745		$	91,258

Deferred tax assets (liabilities) consist of the following:



	December 31,
	2013			2012
	(In thousands)
Deferred tax assets
Federal net operating loss carryforwards	$	1,798		$	7,873
State net operating loss carryforwards	15,072			14,711
Accrued liabilities	54,875			52,909
Other assets including credits	2,619			1,402
Foreign tax credit carryforwards	10,584			6,771
	84,948			83,666
Valuation allowance	(319		)	(319		)
Deferred tax liabilities
Rental merchandise	(256,912		)	(252,464		)
Property assets	(42,357		)	(32,815		)
Intangible assets	(108,686		)	(97,695		)
	(407,955		)	(382,974		)
Net deferred taxes	$	(323,326	)	$	(299,627	)

At December 31, 2013, we had approximately $5.1 million of federal net operating loss (“NOL”) carryforwards available to offset future taxable income expiring between 2020 and 2023 and approximately $304.6 million of state NOL carryforwards expiring between 2014 and 2031. All of the federal NOL and 22% of the total remaining state NOL carryforward represent acquired NOLs. Utilization of these NOL's is subject to applicable annual limitations for U.S. state and U.S. federal tax purposes, including section 382 of the Internal Revenue Code of 1986, as amended. In addition, at December 31, 2013, we also had approximately $10.6 million in foreign tax credit (“FTC”) carryforwards expiring between 2020 and 2023. We establish a valuation allowance to the extent we consider it more likely than not that the deferred tax assets attributable to our state NOLs or FTCs will not be recovered.

We have not provided for deferred income taxes on undistributed earnings of non-U.S. subsidiaries because of our intention to indefinitely reinvest these earnings outside the U.S. The determination of the amount of the unrecognized deferred income tax liability related to the undistributed earnings is not practicable: however, unrecognized foreign income tax credits would be available to reduce a portion of this liability.

We are subject to federal, state, local and foreign income taxes. Along with our U.S. subsidiaries, we file a U.S. federal consolidated income tax return. With few exceptions, we are no longer subject to U.S. federal, state, foreign and local income tax examinations by tax authorities for years before 2010. The appeals process with the Internal Revenue Service (IRS) Office of Appeals for the years 2001 through 2007 has been completed. We reached agreement on all issues except one issue with respect to the 2003 tax year, an issue which occurs in 2004 through 2007 taxable years as well. This matter was heard by the United States Tax Court at trial during November 2011. A favorable decision was issued by the Court on January 14, 2014, and is subject to appeal by the IRS. Our 2010 U. S. federal income tax return has been selected for a limited scope audit and we are also under examination in various states. We do not anticipate that adjustments, if any, regarding the 2003 through 2007 disputed issue, the 2010 federal exam or the various state examinations will result in a material change to our consolidated statement of earnings, financial condition, statement of cash flows or earnings per share.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:



	(In thousands)
Balance at January 1, 2012	$	9,656
Additions for tax positions of prior years	1,411
Reductions for tax positions of prior years	(489		)
Settlements	(411		)
Balance at January 1, 2013	10,167
Additions based on tax positions related to current year	50
Additions for tax positions of prior years	3,742
Reductions for tax positions of prior years	(786		)
Balance at December 31, 2013	$	13,173

Included in the balance of unrecognized tax benefits at December 31, 2013 is $9.0 million, net of federal benefit, which, if ultimately recognized, will affect our annual effective tax rate.

As of December 31, 2013, we have accrued approximately $1.8 million for the payment of interest and recorded interest expense of approximately $455,000 for the year then ended, which are excluded from the reconciliation of unrecognized tax benefits presented above.