Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes [Abstract]

Income Tax

12. Income Taxes

The components of the Company's deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows (dollars in thousands):

	As of December 31,
	2013		2012
Deferred tax assets:
Deferred finish-out allowances from lessors	$	767	$	760
Tax over book accrual of pawn loan fees and service charges		7,007		7,915
Convertible debt		483		0
Reserves for Ohio Reimbursement Program(a)		-		4,821
Reserves for 2013 Litigation Settlement(a)		6,394		0
Allowance for consumer loan losses		32,288		31,801
Deferred compensation		12,028		11,252
Net operating losses		17,568		15,468
Deferred state credits		1,186		1,206
Investment in Subsidiaries		-		9,338
Other		2,564		5,273
Total deferred tax assets		80,285		87,834
Deferred tax liabilities:
Amortizable intangible assets	$	79,750	$	66,972
Property and equipment		45,911		49,166
Convertible debt		-		897
Other		3,417		1,672
Total deferred tax liabilities		129,078		118,707
Net deferred tax liabilities before valuation allowance	$	(48,793)	$	(30,873)
Valuation Allowance		(13,824)		(21,846)
Net deferred tax liabilities after valuation allowance	$	(62,617)		(52,719)
Balance sheet classification:
Current deferred tax assets, net	$	38,800	$	48,992
Noncurrent deferred tax liabilities, net		(101,417)		(101,711)
Net deferred tax liabilities	$	(62,617)	$	(52,719)

(a)

See Note 13 for further discussion of the Ohio Reimbursement Program and the 2013 Litigation Settlement.

The components of the provision for income taxes and the income to which it relates for the years ended December 31, 2013, 2012 and 2011, were as follows (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Income (loss) before income taxes:
Domestic	$	176,077	$	214,463	$	225,351
Foreign		(2,487)		(28,143)		(7,825)
Income before income taxes		173,590		186,320		217,526
Current provision:
Federal	$	19,908	$	81,756	$	51,613
Foreign		(689)		603		440
State and local		2,678		5,818		4,744
Total current provision for income taxes		21,897		88,177		56,797
Deferred provision (benefit):
Federal	$	8,456	$	(8,031)	$	27,475
Foreign		-		4,811		(2,998)
State and local		401		(301)		1,086
Total deferred provision for income taxes		8,857		(3,521)		25,563
Total provision for income taxes	$	30,754	$	84,656	$	82,360

The Company recognized income tax expense of $30.8 million for the year ended December 31, 2013 compared to income tax expense of $84.7 million for the year ended December 31, 2012. The decrease in income tax expense and the effective tax rate for the year ended December 31, 2013 is primarily due to the recognition of the $33.2 million tax benefit associated with the Creazione Deduction as defined below and by the tax effect of lower earnings for the year ended December 31, 2013. In addition, the income tax expense in 2012 was negatively impacted by the recognition of a $12.6 million valuation allowance related to the deferred tax assets of the Company's Mexico subsidiaries.

In January 2013, the Company's Mexico-based pawn operations that were owned by Creazione Estilo, S.A. de C.V., a Mexican sociedad anónima de capital variable (“Creazione”), and operated under the name Prenda Fácil were sold by Creazione to another wholly-owned subsidiary of the Company, CA Empeños Mexico, S. de R.L. de C.V., and began operating exclusively under the name “Cash America casa de empeño.” As of December 31, 2013, Creazione's assets had been liquidated and it had entered into formal liquidation proceedings. In connection with the liquidation of Creazione, the Company will include a deduction on its 2013 federal income tax return for its tax basis in the stock of Creazione and has recognized an income tax benefit of $33.2 million as a result of the deduction (the “Creazione Deduction”). The Company believes that it meets the requirements for this deduction and that it should be treated as an ordinary loss, which has reduced the Company's cash taxes paid in 2013. The Company has obtained a Private Letter Ruling from the Internal Revenue Service with respect to one of the various factors that it considered in making this determination.

The effective tax rate on income differs from the federal statutory rate of 35% for the following reasons (dollars in thousands):

	Year Ended December 31,
	2013			2012			2011
Tax provision computed at the federal statutory income tax rate	$	60,757		$	65,212		$	76,134
State and local income taxes, net of federal tax benefits		2,395			3,587			3,790
Nondeductible lobbying		690			865			882
Foreign tax difference		(297)			2,027			587
Investment in subsidiaries (a)		(23,907)			(9,338)			-
Valuation allowance		(9,371)			21,846			-
Tax effect of Regulatory Penalty(b)		1,790			-			-
Change in reserve for uncertain tax benefits, net		(1,021)			-			-
Other		(282)			457			967
Total provision	$	30,754		$	84,656		$	82,360
Effective tax rate		17.7	%		45.4	%		37.9	%

For the years ended December 31, 2013 and 2012, relates to the Creazione Deduction.

Represents the tax effect of the $5.0 million penalty paid to the CFPB, which is nondeductible for tax purposes, in connection with the Regulatory Penalty. See Note 13.

(b)

(a)

As of December 31, 2013, the Company had net operating losses totaling $58.6 million related to its Mexico subsidiaries. Mexico allows a ten-year carryforward period, and, if unutilized, these net operating losses will expire in varying amounts beginning in 2018. Most of these net operating losses relate to Creazione and are expected to expire unutilized.

The Company performs an evaluation of the recoverability of its deferred tax assets on a quarterly basis. The Company establishes a valuation allowance if it is more-likely-than-not (greater than 50 percent) that all or some portion of the deferred tax asset will not be realized. The Company analyzes several factors, including the nature and frequency of operating losses, the Company's carryforward period for any losses, the reversal of future taxable temporary differences, the expected occurrence of future income or loss and the feasibility of available tax planning strategies to protect against the loss of deferred tax assets.

The Company recorded a valuation allowance against its gross deferred tax assets of $13.8 million and $21.8 million as of December 31, 2013 and December 31, 2012, respectively. In 2013, the Company released a $9.3 million valuation allowance related to the deferred tax asset associated with the Company's excess tax basis over its basis for financial reporting purposes in the stock of Creazione and recorded an additional $1.3 million valuation allowance related to deferred tax assets at its Mexico subsidiaries. The Company believes that it is reasonably possible that the formal liquidation of Creazione could be finalized in 2014

The aggregate change in the balance of the unrecognized tax benefits for the years ended December 31, 2013, 2012 and 2011 is summarized below (dollars in thousands):

	2013		2012		2011
Balance at January 1,	$	1,021	$	955	$	1,082
Decrease due to lapse of statute of limitations		(1,021)		-		-
Effect of change in foreign currency rates		-		66		(127)
Balance at December 31,	$	0	$	1,021	$	955

During 2013, the statute of limitations expired related to the Mexico tax returns of Creazione for periods before it was acquired by the Company (pre-2008). As a result, in the third quarter of 2013, the Company released reserves established for unrecognized tax benefits of $1.0 million and the related accrued interest and penalties of $1.9 million.Consistent with the Company's accounting policy, the release of the $1.0 million was recorded in the tax provision. The release of the $1.9 million of reserves related to the interest and penalties portion was recorded through a reduction of interest and administrative expenses.

The liability for unrecognized tax benefits, including related interest and penalties, is classified as a noncurrent liability in the consolidated balance sheets. The Company has accrued $1.7 million of interest and penalties as of December 31, 2012. The Company had no amounts accrued as of December 31, 2013.

As of December 31, 2013, the Company's 2010 through 2012 tax years were open to examination by the Internal Revenue Service and major state taxing jurisdictions, andthe 2008 through 2012 tax years of the Company's Mexican subsidiaries were open to examination by the Mexican taxing authorities.