(18) Income Taxes

Income tax expense (benefit) based on the Company’s income before income taxes consisted of the following for the years ended December 31, 2013, 2012, and 2011:



	2013		2012		2011
	(In thousands)
Current:
U.S. federal	$	26,766	$	503	$	(86)
State and local		5,503		812		1,774
Foreign		1,216		—		—
Total current	$	33,485	$	1,315	$	1,688
Deferred:
U.S. federal	$	11,648	$	24,005	$	(12,025)
State and local		(1,901)		1,749		(2,839)
Foreign		(1,214)		(60)		—
Total deferred		8,533		25,694		(14,864)
Total income tax expense (benefit)	$	42,018	$	27,009	$	(13,176)

Income tax expense (benefit) differs from amounts computed by applying the U.S. federal statutory tax rate to income before taxes as follows for the years ended December 31, 2013, 2012, and 2011:



	2013		2012		2011
	(In thousands)
Income tax expense, at the statutory rate of 35.0%	$	21,932	$	24,595	$	19,940
Provision to return and deferred tax adjustments		(1,637)		200		(190)
Change in federal and state effective tax rates		—		—		(780)
State tax, net of federal benefit		2,275		1,858		2,418
Permanent adjustments		(115)		322		341
Foreign subsidiary tax rate differences		1,252		120		139
Impact of entity restructuring		15,501		—		(37,019)
Foreign subsidiary change in statutory rate		—		—		524
Other		(6)		67		256
Subtotal		39,202		27,162		(14,371)
Change in valuation allowance		2,816		(153)		1,195
Total income tax expense (benefit)	$	42,018	$	27,009	$	(13,176)

Income tax expense for the year ended December 31, 2013 relates primarily to the consolidated income generated from the Company’s U.S. operations and tax structure changes during the year. The significant expense and effective tax rate increase for the year ended December 31, 2013 when compared to the same period in 2012 was primarily due to: (1) restructuring of its U.K. operations during the third quarter of 2013, which resulted in the recognition of a $13.8 million income tax charge associated with its U.K. restructuring in the third quarter, which primarily relates to deferred tax assets that are no longer realizable as a result of the restructuring; (2) operating losses in certain foreign operations for which the Company does not record a tax benefit, as a result of carrying a valuation allowance on those deferred tax assets; (3) certain current year losses on its U.S. tax return that cannot be recognized as a result of the U.K. restructuring; and (4) certain non-deductible acquisition costs. The Company continues to maintain valuation allowances for its local net deferred tax asset positions for certain of its entities in the U.K. and Mexico, as it currently believes that it is more likely than not that these tax assets will not be realized.

The net current and noncurrent deferred tax assets and liabilities (by segment) as of December 31, 2013 and 2012 were as follows:



	United States				Europe				Other International
	2013		2012		2013		2012		2013		2012
	(In thousands)
Current deferred tax asset	$	17,652	$	12,839	$	3,576	$	107	$	171	$	395
Valuation allowance		—		—		(70)		(75)		(88)		(11)
Current deferred tax liability		(2)		(62)		(1,188)		(1,286)		—		—
Net current deferred tax asset (liability)		17,650		12,777		2,318		(1,254)		83		384
Noncurrent deferred tax asset		31,414		55,704		24,487		14,888		3,945		2,341
Valuation allowance		—		—		(9,900)		(10,233)		(2,008)		(244)
Noncurrent deferred tax liability		(36,264)		(30,348)		(5,909)		(3,401)		(1,755)		(2,421)
Net noncurrent deferred tax (liability) asset		(4,850)		25,356		8,678		1,254		182		(324)
Net deferred tax asset (liability)	$	12,800	$	38,133	$	10,996	$	—	$	265	$	60

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2013 and 2012 were as follows:



	2013		2012
	(In thousands)
Current deferred tax assets:
Reserve for receivables	$	258	$	218
Accrued liabilities and inventory reserves		5,069		3,813
Net operating loss carryforward		3,614		375
Unrealized losses on interest rate swap contracts		12,197		8,677
Other		261		258
Subtotal		21,399		13,341
Valuation allowance		(158)		(86)
Current deferred tax assets		21,241		13,255
Noncurrent deferred tax assets:
Net operating loss carryforward		17,350		4,434
Unrealized loss on interest rate swap contracts		13,548		32,916
Stock-based compensation		6,111		4,819
Asset retirement obligations		2,434		4,963
Tangible and intangible assets		15,970		24,065
Deferred revenue		798		138
Other		3,635		1,598
Subtotal		59,846		72,933
Valuation allowance		(11,908)		(10,477)
Noncurrent deferred tax assets		47,938		62,456
Current deferred tax liabilities:
Other		(1,190)		(1,348)
Current deferred tax liabilities		(1,190)		(1,348)
Noncurrent deferred tax liabilities:
Tangible and intangible assets		(41,303)		(33,441)
Asset retirement obligations		(2,625)		(2,729)
Noncurrent deferred tax liabilities		(43,928)		(36,170)

Net deferred tax asset	$	24,061	$	38,193

On August 7, 2013, through its wholly-owned subsidiaries, the Company acquired all of the outstanding shares of Cardpoint, with operations in the U.K. and Germany. At the time of the acquisition, ten legal entities were active under Cardpoint (collectively, the “Cardpoint group”). Various entities in the Cardpoint group have accumulated net operating loss carryforwards (“NOL”) and allowable capital allowances that the Company expects to utilize in the future to offset expected future profits in the group. As of the acquisition date, the Cardpoint group had NOLs in the amount of approximately $60.5 million and allowable capital allowances of approximately $72.4 million. The Company determined that it is more likely than not that the Cardpoint group will be able to realize the benefits of its deferred tax assets.

Following the Cardpoint acquisition in September 2013, the Company restructured a portion of its other U.K. operations (Bank Machine entities). Through a series of restructuring completed during the third quarter of 2013, the Bank Machine entities are now owned by Cardpoint Limited. Concurrent with the restructuring, the Company implemented a financing structure to fund future growth of its European operations.

The deferred tax benefits associated with the Company’s net unrealized losses on derivative instruments have been reflected within the Accumulated other comprehensive loss, net, balance in the accompanying Consolidated Balance Sheets.

As of December 31, 2013, the Company had approximately $7.9 million in U.S. federal net operating loss carryforwards that will begin expiring in 2025.

As of December 31, 2013, the Company had approximately $67.4 million in net operating loss carryforwards in the U.K. not subject to expiration, $8.5 million in net operating loss carryforwards in Mexico that will begin expiring in 2016, and approximately $3.0 million in net operating loss carryforwards in Germany that are not subject to expiration. The deferred tax benefits associated with such carryforwards in Mexico and some of the Company’s U.K. entities, to the extent they are not offset by deferred tax liabilities, have been fully reserved for through a valuation allowance. The Company determined that it is more likely than not that the Cardpoint group will be able to realize the benefits of its tax assets related to net operating losses.

At this time, the Company does not expect that its U.K. and Mexico operations that carry valuation allowances will be in a position in the near future to be able to more likely than not fully utilize their deferred tax assets in their respective tax jurisdictions, including their net operating loss carryforwards. As a result, the deferred tax benefits associated with these companies, to the extent they are not offset by deferred tax liabilities, have been fully reserved through a valuation allowance

The Company currently believes that the unremitted earnings of its international subsidiaries will be reinvested in the corresponding country of origin for an indefinite period of time. Accordingly, no deferred taxes have been provided for on the differences between the Company’s book basis and underlying tax basis in those subsidiaries or on the foreign currency translation adjustment amounts related to such operations.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. With few exceptions, the Company is not subject to income tax examination by tax authorities for years before 2010.