Cash America 2015 Annual Report Download - page 73

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the migration analysis is based on historical charge-off experience and the loss emergence period, which represents
the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The factors the
Company considers in determining the adequacy of the allowance or liability include past due performance,
historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration
analysis. Prior to the establishment of an indicative migration analysis, the Company estimates future losses for its
installment loans based on the historical charge-off experience of the total portfolio on a static pool basis.
The Company fully reserves or charges off consumer loans once the loan has been classified as delinquent
for 60 days. If a loan is estimated to be uncollectible before it is fully reserved, it is charged off at that point.
Consumer loans classified as delinquent generally have an age of one to 59 days from the date the loan became
delinquent, as defined above. Recoveries on loans previously charged to the allowance, including the sale of
delinquent loans to unaffiliated third parties, are credited to the allowance when collected or when sold to a third
party.
AsofDecember31,2015,theallowanceforlossesonconsumerloanswas$2.9million,andtheliabilityfor
estimated losses on third-party lender-ownedconsumerloansguaranteedbytheCompanywas$2.0million,in
aggregate representing 10.8% of the combined consumer loan portfolio.
FortheyearendedDecember31,2015,theconsumerloanlossprovisionwas$23.1million.Iftheloss
provision increased or decreased by 10%, or $2.3 million, from 2015 levels, net income attributable to the Company
would likewise decrease or increase by $1.4 million, net of taxes, for 2015, assuming the same volume of consumer
loans written and renewed in 2015.
Merchandise Held for Disposition
Merchandise held for disposition consists primarily of forfeited collateral from pawn loans not repaid and
merchandise that is purchased directly from customers or from third parties. The carrying value of the forfeited
collateral and other merchandise held for disposition is stated at the lower of cost (which is the cost basis in the loan
or the amount paid for purchased merchandise) or fair value. The Company provides an allowance for returns and
an allowance for losses based on management’s evaluation of a variety of factors, including historical shrinkage and
obsolescence rates for inventory.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in each business combination and is not amortized. In accordance with Accounting
Standards Codification (“ASC”) 350-20-35, Goodwill—Subsequent Measurement (“ASC 350”), the Company tests
goodwillandintangibleassetswithanindefinitelifeforpotentialimpairmentannuallyasofJune30andbetween
annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the
reporting unit below its carrying amount, which would result in impairment. The Company has one reportable
operating segment, which serves as the only reporting unit for goodwill assessment.
The Company uses the income approach to complete its annual goodwill assessment. The income approach
uses future cash flows and estimated terminal values for the Company’s reporting unit that are discounted using a
market participant perspective to determine the fair value of the reporting unit, which is then compared to the
carrying value of that reporting unit to determine if there is impairment. The income approach includes assumptions
about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-
average cost of capital derived from other publicly-traded companies that are similar but not identical from an
operational and economic standpoint.
The Company completed its annual assessment of goodwill as of June 30, 2015 and determined that the fair
value for the Company’s reporting unit exceeded its carrying value, and, as a result, no impairment was indicated at
that date. AsofJune30,2015,theexcessfairvalueoverthecarryingvaluewas9%comparedto3%asof
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