Cash America 2007 Annual Report Download - page 82

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
62
Foreign Currency Translations x Notes receivable and related interest receivable resulting from the sale of
the Company’s foreign pawn lending operations are denominated in Swedish kronor. The balances are
translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Interest income on the
notes was translated at the monthly average exchange rates. In August 2007, the Company completed the
sale of these notes. See Note 21. All realized and unrealized transaction gains and losses are included in
determining net income for the reporting period.
The functional currency for the Company’s subsidiary (CashEuroNet UK, LLC) is the British
pound. The assets and liabilities of this subsidiary are translated into U.S. dollars at the exchange rates in
effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive
income (loss) as a separate component of stockholders’ equity. Revenue and expenses are translated at the
monthly average exchange rates occurring during each year.
Cash and Cash Equivalents x The Company considers cash on hand in operating locations, deposits in
banks and short-term marketable securities with original maturities of 90 days or less as cash and cash
equivalents.
Revenue Recognition
Pawn Lending x Pawn loans are made on the pledge of tangible personal property. The Company accrues
finance and service charges revenue only on those pawn loans that the Company deems collectible based on
historical loan redemption statistics. Pawn loans written during each calendar month are aggregated and
tracked for performance. The gathering of this empirical data allows the Company to analyze the
characteristics of its outstanding pawn loan portfolio and estimate the probability of collection of finance
and service charges. For loans not repaid, the carrying value of the forfeited collateral (“merchandise held
for disposition”) is stated at the lower of cost (cash amount loaned) or market. Revenue is recognized at the
time that merchandise is sold. 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.
Cash Advances x Cash advances provide customers with cash in exchange for a promissory note or other
repayment agreement supported, in most cases, by that customer’s personal check or authorization to debit
that customer’s account via an Automated Clearing House (“ACH”) transaction for the aggregate amount of
the payment due. The customer may repay the cash advance either in cash, or, as applicable, by allowing
the check to be presented for collection, or by allowing the customer’s checking account to be debited
through an ACH for the amount due. The Company accrues fees and interest on cash advances on a
constant yield basis ratably over the period of the cash advance, pursuant to its terms. (Although cash
advance transactions may take the form of loans or deferred check deposit transactions, the transactions are
referred to throughout this discussion as “cash advances” for convenience.)
The Company provides a cash advance product in some markets under a credit services organization
program, in which the Company assists in arranging loans for customers from independent third-party
lenders. The Company also guarantees the customer’s payment obligations in the event of default if the
customer is approved for and accepts the loan. The borrower pays fees to the Company under the credit
services organization program (“CSO fees”) for performing services on the borrower’s behalf, including
credit services, and for agreeing to guaranty the borrower’s payment obligations to the lender. As a result of
providing the guaranty, the CSO fees are deferred and amortized over the term of the loan and recorded as
cash advance fees in the accompanying consolidated statements of income. The contingent loss on the
guaranteed loans is accrued and recorded as a liability. See Note 4.