INCOME TAXES

The following table shows the significant components of the income tax provision from continuing operations:



	Fiscal Year Ended September 30,
	2013			2012			2011
	(in thousands)
Current
Federal	$	38,599		$	60,343		$	49,744
State and foreign	5,954			9,108			3,052
	44,553			69,451			52,796
Deferred
Federal	(17,772		)	3,337			13,408
State and foreign	2,794			(1,536		)	268
	(14,978		)	1,801			13,676
	$	29,575		$	71,252		$	66,472

The following table shows a reconciliation of income taxes calculated at the statutory rate and the provision for income taxes attributable to continuing operations:



	Fiscal Year Ended September 30,
	2013			2012			2011
	(in thousands)
Income taxes at the federal statutory rate	$	31,959		$	77,789		$	65,969
Non-deductible expense related to incentive stock options	—			(633		)	—
State income tax, net of federal benefit	1,093			349			2,728
Change in valuation allowance	659			2,242			1,425
Federal tax credits	(314		)	(922		)	(167		)
Foreign tax credit	(3,263		)	(4,342		)	(4,356		)
Effect of permanently reinvesting foreign earnings	(606		)	(3,820		)	—
Other	47			589			873
Total provision	$	29,575		$	71,252		$	66,472
Effective tax rate	32		%	32		%	35		%

Our effective tax rates were approximately 32%, 32%, and 35% for the fiscal years ended September 30, 2013, 2012 and 2011, respectively.

The following table shows significant components of our deferred tax assets and liabilities:



	September 30,
	2013			2012
	(in thousands)
Deferred tax assets:
Albemarle & Bond write-down reversal	$	15,921		$	—
Tax over book inventory	12,521			3,904
Accrued liabilities	13,879			14,334
Pawn service charges receivable	3,450			3,937
Stock compensation	—			974
State and foreign net operating loss carry-forwards	659			3,845
Total deferred tax assets	46,430			26,994
Deferred tax liabilities:
Tax over book amortization	12,593			10,833
Foreign income and dividends	5,411			3,864
Tax over book depreciation	2,928			1,912
Stock compensation	1,441			—
Prepaid expenses	1,359			1,082
Total deferred tax liabilities	23,732			17,691
Net deferred tax asset	22,698			9,303
Valuation allowance	(659		)	(2,242		)
Net deferred tax asset	$	22,039		$	7,061

Deferred taxes are not provided for temporary differences of approximately $14.3 million representing earnings of non-U.S. subsidiaries intended to be permanently reinvested outside the U.S. We estimate that, upon distribution of our share of these earnings, we would be subject to U.S. income taxes of approximately $2.7 million as of September 30, 2013. At September 30, 2013 and 2012, we provided deferred income taxes on all undistributed earnings from Albemarle & Bond, and received dividends of approximately $3.3 million and $3.3 million, respectively. At September 30, 2013 and 2012, we provided deferred income taxes on all undistributed earnings from Cash Converters International, and recorded dividends of approximately $5.1 million and $4.4 million, respectively. Any taxes paid to foreign governments on these earnings may be used in whole or in part as credits against the U.S. tax on any dividends distributed from such earnings.

Under FASB ASC 740-10-25 (“Accounting for Uncertainty in Income Taxes”), a tax position must be more-likely-than-not to be sustained upon examination, based on the technical merits of the position to be recognized in the financial statements. In making the determination of sustainability, we must presume the appropriate taxing authority with full knowledge of all relevant information will examine tax positions. FASB ASC 740-10-25 also prescribes how the benefit should be measured, including the consideration of any penalties and interest. It requires that the standard be applied to the balances of tax assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of equity.

We recognize interest and penalties related to unrecognized tax benefits as federal income tax expense on our statement of operations.

We are subject to U.S., Mexico and Canada income taxes as well as to income taxes levied by various state and local jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years before the tax year ended September 30, 2008. The Internal Revenue Service has completed its field audit of the our federal income tax return for the fiscal year ended September 30, 2010 and proposed certain adjustments. Management believes that adequate provisions have been made for any adjustments that may result from tax examinations.