Cash America 2015 Annual Report Download - page 77

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company’s operations result primarily from changes in interest rates, gold
prices and equity risk. The Company does not engage in speculative or leveraged transactions, nor does it hold or
issue financial instruments for trading purposes.
Interest Rate Risk
Management’s objective is to minimize the cost of borrowing over the long term through an appropriate
mix of fixed and variable rate debt. In 2015, the Company’s weighted average variable rate borrowings outstanding
were $9.2 million. If prevailing interest rates were to increase 100 basis points and the average variable rate
borrowingsoutstandingfortheyearendedDecember31,2015remainedconstant,theCompany’sinterestexpense
would increase by $0.1 million, and net income attributable to the Company would have decreased by $0.1 million
fortheyearendedDecember31,2015.
Gold Price Risk
The Company periodically uses forward sale contracts with a major gold bullion bank to sell a portion of
the expected amount of refined gold produced in the normal course of business from its liquidation of gold
merchandise. A significant decrease in the price of gold would result in a reduction of proceeds from the disposition
of refined gold to the extent that the aggregate amount sold exceeded the amount of contracted forward sales. In
addition, a significant and sustained decline in the price of gold would negatively impact the value of some of the
goods pledged as collateral by customers and other items which are now, or could be in the future, identified for
liquidation as refined gold. In this instance, management believes some customers would be willing to add
additional items of value to their pledge in order to obtain the desired loan amount. However, those customers
unable or unwilling to provide additional collateral would receive lower loan amounts, possibly resulting in a lower
balance of pawn loans outstanding for the Company.
Investment in Enova
Equity risk is the risk that the Company may incur a reduction in future earnings, cash flows or fair value of
assets due to adverse changes in the market price of equity securities held by the Company. The Company is
exposed to equity risk through its investment in Enova common stock, which is classified as “available-for-sale
securities” and included in “Investment in equity securities” in the consolidated balance sheets.
AsofDecember31,2015,thefairvalueofEnovacommonstockheldbytheCompanywas$42.6million
and represents approximately 3.1% of the Company’s total assets. AsofDecember31,2015,theCompany’scost
basis in its investment in Enova common stock was approximately $19.6 million, and an unrealized gain of
approximately $23.0 million was included in “Accumulated other comprehensive income.” A future increase or
decrease in the quoted market price of Enova common stock would increase or decrease the pre-tax proceeds
received and the resulting pre-tax gain recognized upon the sale of the Company’s Enova common stock. As of
December31,2015,theimpactofa10%increaseordecreaseinthepriceofEnovacommonstockwouldresultina
$4.3 million change to the fair value of the Enova common stock held by the Company,aswellasa$4.3million
change to the pre-tax proceeds received and pre-tax gain recognized upon sale. See “Item 8. Financial Statements
andSupplementaryData—Note9”foradditionalinformationontheCompany’sinvestmentinEnova.
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