Cash America 2014 Annual Report Download - page 35

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the market for qualified individuals is highly competitive, the Company may not be able to attract and retain
qualified executive officers or candidates. For example, attracting or selecting a new Chief Executive Officer who
understands the Company’s business and has the experience and skills requisite for such position could be difficult.
In addition, increasing regulations and negative publicity on the consumer financial services industry could affect
the Company’s ability to attract and retain qualified executive officers, including a new Chief Executive Officer.
Additionally, any significant leadership change or executive management transition, such as the replacement of the
Company’s Chief Executive Officer, involves inherent risk, and if the Company does not have an effective transfer
of knowledge and a smooth transition for this position, it could hinder the Company’s strategic planning, execution
and future performance. The Company could also experience other departures of senior management following the
replacement of the Chief Executive Officer, and the loss of senior management could result in significant
disruptions to the Company’s operations. If the Company is unable to attract or retain qualified executive officers,
such inability could have Material Adverse Effect.
Certain tax positions taken by the Company require the judgment of management and could be challenged by the
Internal Revenue Service.
Management’s judgment is required in determining the provision for income taxes, the deferred tax assets
and liabilities and any valuation allowance recorded against deferred tax assets. Management’s judgment is also
required in evaluating whether tax benefits meet the more-likely-than-not threshold for recognition under ASC 740.
For example, in connection with the liquidation of Creazione, the Company included a deduction on its 2013 federal
income tax return for the Company’s tax basis in the stock of Creazione and recognized a tax benefit of
approximately $33.2 million as a result of the deduction. Management believes that the Company met the
requirements for this deduction and that it should be treated as an ordinary loss, which reduced the Company’s cash
taxes paid in 2013. The Company obtained a private letter ruling from the IRS with respect to one of the various
factors that the Company considered in making this determination. Because there are a number of factors that must
be considered in making this determination, some of which were not specifically addressed in the private letter
ruling, the IRS could challenge the availability and/or characterization of the loss. If the deduction is ultimately
denied or is determined to be a capital loss by the IRS, the Company may be required to reverse the previously
recognized tax benefit and may be required to make additional income tax payments, which could have a Material
Adverse Effect. In addition, the Enova Spin-off was structured with the intent that it would be a tax-free
distribution. See “Risk Factors Related to the Enova Spin-off—The Company could be responsible for U.S. federal
and state income tax liabilities that relate to the Enova Spin-off” for additional information regarding risks related
to the tax treatment of the Enova Spin-off.
Decreased demand for the Company’s products and specialty financial services, due to sustained changes in the
economy or for other reasons, and the Company’s failure to adapt to such decrease could result in a loss of
revenue and could have a Material Adverse Effect.
The demand for a particular product or service may decrease due to a variety of factors, such as regulatory
restrictions that reduce customer access to particular products, the availability of competing or alternative products,
changes in macro-economic conditions or changes in customers’ financial conditions. Should the Company fail to
adapt to a significant change in its customers’ demand for, or access to, its products, the Company’s revenue could
decrease significantly. Even if the Company makes adaptations or introduces new products to fulfill customer
demand, customers may resist or may reject products whose adaptations make them less attractive or less available.
In any event, the effect of any product change on the results of the Company’s business may not be fully
ascertainable until the change has been in effect for some time. In particular, the Company has changed, and will
continue to change, some of the consumer loan operations of the Company and the products it offers. In addition, a
sustained deterioration in the economy could also decrease demand for pre-owned merchandise such as the
merchandise sold in the Company’s pawnshops and cause deterioration in the performance of the Company’s pawn
loan or consumer loan portfolios. While the credit risk for much of the Company’s pawn lending is mitigated by the
collateralized nature of pawn lending, a sustained deterioration in the economy could reduce the demand for and
resale value of pre-owned merchandise and reduce the amount that the Company could effectively lend on an item
of collateral. Such reductions could adversely affect pawn loan balances, pawn loan redemption rates, inventory
balances, inventory mixes and gross profit margins. An economic slowdown could also result in a decreased
number of consumer loans being made to customers due to higher unemployment or an increase in loan defaults in