Cash America 2001 Annual Report Download - page 27

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Property and Equipment • Property and equipment are recorded at cost.
Depreciation expense is generally provided on a straight-line basis, using estimat-
ed useful lives of 10 to 40 years for buildings and 2 to 15 years for equipment
and leasehold improvements. The cost of property retired or sold and the related
accumulated depreciation is removed from the accounts, and any resulting gain
or loss is recognized in the statement of operations.
Software Development Costs • The Company develops computer software for
internal use. Internal and external costs incurred for the development of com-
puter applications, as well as for upgrades and enhancements that result in addi-
tional functionality of the applications, are capitalized. Internal and external
training and maintenance costs are charged to expense as incurred. When an
application is placed in service, the Company begins amortizing the related capi-
talized software costs using the straight-line method and an estimated useful life
varying from 3 to 5 years.
Intangible Assets • Approximately 94% of net intangible assets consists of excess
purchase price over net assets acquired. Amortization is recorded on a straight-line
basis over the expected periods of benefit, generally 15 to 40 years. The costs of
start-up activities and organization costs are charged to expense as incurred.
Accumulated amortization of intangible assets for continuing operations was
$27,445,000 and $26,045,000 at December 31, 2001 and 2000, respectively.
Long-Lived Assets • An evaluation of property and equipment and intangible
assets recoverability is performed whenever the facts and circumstances indicate
that the carrying value may be impaired. An impairment loss is recognized if the
future undiscounted cash flows associated with the asset are less than the asset’s
corresponding carrying value. The amount of the impairment loss, if any, is the
excess of the asset’s carrying value over its estimated fair value.
Income Taxes • The provision for income taxes is based on income before
income taxes as reported for financial statement purposes. Deferred income taxes
are provided in accordance with the assets and liability method of accounting for
income taxes to recognize the tax effects of temporary differences between finan-
cial statement and income tax accounting. Deferred federal income taxes are not
provided on the undistributed earnings of foreign subsidiaries to the extent the
Company intends to indefinitely reinvest such earnings.
Hedging and Derivatives Activity • As a policy, the Company does not engage
in speculative or leveraged transactions, nor does it hold or issue financial instru-
ments for trading purposes. The Company does use derivative financial instru-
ments, such as interest rate cap agreements, for the purpose of managing interest
rate exposures that exist from ongoing business operations. On January 1, 2001,
the Company adopted Statement of Financial Accounting Standards (“SFAS”) No.
133 “Accounting for Derivative Instruments and Hedging Activities,” and its corre-
sponding amendments under SFAS No. 138, and began presenting its interest rate
cap agreements at fair value on the balance sheet. Changes in their fair value are
recognized in earnings unless they qualify as a hedge. Prior to 2001, the costs of
the agreements were recognized as adjustments to interest expense during the
terms of the agreements and any benefits received under the terms of the agree-
ments were recognized in the periods of the benefits. The Company may also
periodically enter into forward sale contracts with a major bullion bank to sell fine
gold that is produced in the normal course of business from the Company’s liqui-
dation of forfeited gold merchandise. These contracts are not accounted for as
derivatives because they meet the criteria for the normal purchases and normal
sales scope exception in SFAS No. 133. In addition, the Company may periodi-
cally transfer funds between currencies and may concurrently enter into short-
term currency swaps to eliminate the risk of currency fluctuations. The Company
did not enter into any short-term currency swaps during 2001 or 2000.
Advertising Costs • Costs of advertising are expensed at the time of first occur-
rence. Advertising expense for continuing operations was $4,104,000,
$4,202,000 and $3,427,000 for the years ended December 31, 2001, 2000 and
1999, respectively.
Stock-Based Compensation • The Company applies the intrinsic value based
method of accounting for the costs of its stock-based employee compensation
plans and, accordingly, discloses the pro forma effect on net income and net
income per share as if the fair value based method of accounting for the cost of
such plans had been applied.
Issuance of Investee Stock • In accordance with SEC Staff Accounting Bulletin
Topic 5H, the Company has elected to record, in income, non-operating gains or
losses arising from subsidiary or investee issuances of its own stock. When an
investee sells additional shares to parties other than the Company, the Company’s
percentage ownership in the investee decreases. In the event the selling price per
share is more or less than the Company’s average carrying amount per share, the
Company records a gain or loss in income. When an investee sells additional
shares to the Company and third parties, the Company’s percentage ownership
may change. In comparing the Company’s new carrying amount to its resulting
proportionate share of the investee’s equity, the Company records a gain or loss in
income. Applicable deferred income tax expenses or benefits are recognized on
such gains or losses. The Company adopted this accounting method for the
March 1999 transaction that resulted in innoVentry’s deconsolidation (see Note 4).
Net Income (Loss) Per Share • Basic net income (loss) per share is computed
by dividing net income (loss) by the weighted average number of shares out-
standing during the year. Diluted net income (loss) per share is calculated by
giving effect to the potential dilution that could occur if securities or other con-
tracts to issue common shares were exercised and converted into common shares
during the year.
The reconciliation of basic and diluted weighted average common
shares outstanding for the three years ended December 31, 2001, follows
(in thousands):
2001 2000 1999
Weighted average shares – Basic 24,643 25,461 25,346
Effect of shares applicable to
stock option plans 255 307 843
Effect of shares applicable to
nonqualified savings plan 65 49 40
Weighted average shares – Diluted 24,963 25,817 26,229
New Accounting Standards • In June 2001, the Financial Accounting
Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” that is
required to be adopted by the Company for business combinations initiated after
June 30, 2001. SFAS No. 141 requires that all business combinations be
accounted for under the purchase method. Use of the pooling-of-interests
method is prohibited. It also establishes criteria for the separate recognition of
intangible assets acquired in a business combination. The Company implement-
ed the provisions of SFAS No. 141 as required and its adoption did not have a
material effect on the Company’s consolidated financial position or results of
operations. During 2001, the Company acquired 5 pawnshops (4 subsequent to
June 30, 2001) in purchase transactions for an aggregate cash consideration of
$1,279,000. The excess of the aggregate purchase price over the aggregate fair
market value of net assets acquired was approximately $533,000.
In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other
Intangible Assets.” Goodwill and other intangible assets having an indefinite use-
Notes to Consolidated Financial Statements — Continued