Cash America 2013 Annual Report Download - page 120

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Expenses related to the Reorganization of Mexico-based Pawn Operations
As discussed in “Operations and administration expenses” and “Depreciation and amortization expenses” above,
in connection with the Mexico Reorganization, the Company recognized $28.9 million in reorganization charges during
2012.
The following table summarizes the charges recognized for the year ended December 31, 2012 related to the
Mexico Reorganization (dollars in thousands):
Type of expense Description Amount
Depreciation and amortization expenses Impairment and losses on property and equipment $ 7,478
Provision for income taxes Deferred tax asset valuation allowance 7,161
Depreciation and amortization expenses Impairment of intangible assets 5,086
Operations and administration expenses Employee termination costs 2,424
Operations and administration expenses Inventory shrinkage and loss on sale of assets 2,395
Operations and administration expenses Lease termination costs 1,628
Operations and administration expenses Impairment of other assets 1,211
Operations and administration expenses Other restructuring charges 798
Revenue Uncollectible receivables 692
Total charges related to the Mexico Reorganization $ 28,873
The Mexico Reorganization was considered a triggering event for purposes of impairment testing of the retail
services segment. As a result, the Company tested goodwill, indefinite-lived intangible assets, other intangible assets and
long-lived assets for impairment following the approval of the Mexico Reorganization as described below.
The Company tested goodwill for the retail services segment following the approval of the Mexico
Reorganization and noted no impairment. Although no goodwill impairment was noted, there can be no assurance that
future goodwill impairments will not occur. In addition, a 10% decrease in the estimated fair values of the Company’s
retail services segment for the assessment completed for September 2012 would not have resulted in a goodwill
impairment charge.
The Company also tested indefinite-lived intangible assets and other intangible assets following the approval of
the Mexico Reorganization. As a result, during the year ended December 31, 2012, the Company recognized impairment
charges of $5.1 million related to indefinite-lived intangible assets and other intangible assets, which is included in
“Depreciation and amortization expense” in the consolidated statements of income. The Company also tested property
and equipment following the approval of the Mexico Reorganization. As a result, during the year ended December 31,
2012, the Company recognized impairment charges and losses on property and equipment related to its Mexico
operations of $7.5 million (consisting of $6.0 million of impairment charges recognized in the third quarter of 2012 and
$1.5 million of losses on disposition incurred in the fourth quarter of 2012), which is included in “Depreciation and
amortization expenses” in the consolidated statements of income. The fair value measurements of intangible assets and
property and equipment are considered Level 3 in the fair value hierarchy as they are based on management’s judgment
about future cash flows.
Interest Expense
Interest expense increased $3.6 million, or 14.1%, to $29.1 million in 2012 compared to $25.5 million in 2011.
The average amount of debt outstanding increased $53.4 million to $519.8 million during 2012 from $466.4 million in
2011, primarily due to borrowings associated with two acquisitions in the second half of 2012. The Company’s effective
blended borrowing rate decreased to 4.8% in 2012 from 4.9% in 2011.
Income Taxes
The Company’s effective tax rate was 45.4% in 2012 compared to 37.9% in 2011. During 2012, the Company
recorded a deferred tax asset of $9.3 million related to the Company’s excess tax basis over its basis for financial
reporting purposes in the stock of Creazione. The Company recorded a valuation allowance of $21.8 million, including