Note H — Income Taxes

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



	Year Ended December 31,
	2014		2013		2012
Tax at statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.8	%	2.6	%	1.5	%
Effect of foreign operations, net of foreign tax credits	0.3	%	0.4	%	(0.2	)%
Effect of prior year credits	(2.0	)%	—	%	—	%
Adjustments to deferred taxes	(2.4	)%	—	%	—	%
Other, net	(0.4	)%	0.2	%	(0.2	)%
Total	32.3	%	38.2	%	36.1	%

The components of income tax expense are as follows:



	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Current expense
Federal	$	14,943		$	45,784		$	86,839
State	4,032			5,888			10,428
Foreign	1,673			5,659			3,100
Total current	20,648			57,331			100,367
Deferred expense
Federal	24,556			20,721			5,663
State	(90		)	2,521			(4,100		)
Foreign	817			(1,134		)	(142		)
Total deferred	25,283			22,108			1,421
Total	$	45,931		$	79,439		$	101,788

Deferred tax assets (liabilities) consist of the following:



	December 31,
	2014			2013
	(In thousands)
Deferred tax assets
Federal net operating loss carryforwards	$	—		$	1,798
State net operating loss carryforwards	16,937			15,072
Foreign net operating loss carryforwards	18,182			11,789
Accrued liabilities	72,058			59,718
Other assets including credits	6,993			2,619
Foreign tax credit carryforwards	12,306			10,584
	126,476			101,580
Valuation allowance	(24,709		)	(14,116		)
Deferred tax liabilities
Rental merchandise	(285,371		)	(255,541		)
Property assets	(2,222		)	(41,740		)
Intangible assets	(157,527		)	(108,686		)
	(445,120		)	(405,967		)
Net deferred taxes	$	(343,353	)	$	(318,503	)

During the year ended December 31, 2014, we utilized all of our approximately $5.1 million of federal net operating loss (“NOL”) carryforwards to offset taxable income. There are approximately $348.1 million of state NOL carryforwards expiring between 2015 and 2032. Of the total remaining state NOL carryforwards, approximately 18.0% represent acquired NOLs. Utilization of these NOLs is subject to applicable annual limitations for U.S. state tax purposes. At December 31, 2014, the foreign NOL carryforwards were approximately $60.6 million, which expire between 2020 and 2024, and are offset with a full valuation allowance. In addition, at December 31, 2014, we also had approximately $12.3 million in foreign tax credit (“FTC”) carryforwards expiring between 2020 and 2024. We establish a valuation allowance to the extent we consider it more likely than not that the deferred tax assets attributable to our NOLs, FTCs or other deferred tax assets 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 2011. We are currently under examination in various states. We do not anticipate that adjustments as a result of these audits, if any, 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, 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 January 1, 2014	13,173
Additions based on tax positions related to current year	425
Additions for tax positions of prior years	2,400
Reductions for tax positions of prior years	(2,225		)
Settlements	(397		)
Balance at December 31, 2014	$	13,376

Included in the balance of unrecognized tax benefits at December 31, 2014, is $10.7 million, net of federal benefit, which, if ultimately recognized, will affect our annual effective tax rate.

As of December 31, 2014, we have accrued approximately $2.0 million for the payment of interest and recorded interest expense of approximately $209,000 for the year then ended, which are excluded from the reconciliation of unrecognized tax benefits presented above.