Cash America 2015 Annual Report Download - page 91

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In determining the allowance or liability for estimated losses on consumer loans, the Company applies a
documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are
divided into discrete groups of short-term loans and installment loans and are analyzed as current or delinquent.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted
for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a
six-month rolling average of loss rates by stage of collection. For installment loans, the Company uses a migration
analysis to estimate losses inherent in the portfolio once an adequate period of time has elapsed in order for the
Company to generate a meaningful indication of performance history. The allowance or liability calculation under
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.
Merchandise Held for Disposition, Proceeds from and Cost of Disposed Merchandise
Proceeds From and Cost of Disposed Merchandise
Upon the sale of merchandise, the Company realizes gross profit, which is the difference between the
amount of proceeds from the sale and the cost of sales, which is either the Company’s cost basis in the loan (the
amount loaned) or the amount paid for purchased merchandise.
Customers may purchase merchandise on a layaway plan under which the customer agrees to pay the
purchase price for the item plus a layaway fee, makes an initial cash deposit representing a small portion of the
disposition price and pays the balance in regularly scheduled, non-interest bearing payments. The Company
segregates the layaway item and holds it until the customer has paid the full disposition price. If the customer fails
to make a required payment, the item is returned to merchandise held for disposition. The layaway fee is recognized
as revenue, and any amounts previously paid toward the item are returned to the customer as store credit. Interim
customer payments for layaway sales are recorded as customer deposits and subsequently recognized as revenue
during the period in which the final payment is received.
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. The allowance deducted from the carrying value of merchandise held for
dispositionwas$2.8millionand$2.4millionasofDecember31,2015and2014,respectively. The allowance
deducted from the carrying value of merchandise held for disposition is recorded in the Company’s balance sheets
in “Merchandise held for disposition, net.”
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
87