Cash America 2007 Annual Report Download - page 85

Download and view the complete annual report

Please find page 85 of the 2007 Cash America annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 126

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
65
liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the
opening balance of retained earnings. See Note 9.
It is the Company’s policy to classify interest and penalties on income tax liabilities as interest
expense and administrative expense, respectively. The Company did not change its policy on classification
of such amounts upon adoption of FIN 48.
Hedging and Derivatives Activity x As a policy, the Company does not engage in speculative or leveraged
transactions, nor does it hold or issue financial instruments for trading purposes. The Company does
periodically use derivative financial instruments, such as interest rate cap agreements, for the purpose of
managing interest rate exposures that exist from ongoing business operations. In December 2007, the
Company entered into an interest rate cap agreement that has been determined to be a perfectly effective
cash flow hedge pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS 133”), and its corresponding amendments under SFAS No. 138 “Accounting for Certain
Derivative Instruments and Certain Hedging Activities – an Amendment of FASB Statement No. 133”
(“SFAS 138”) and SFAS No. 149 “Amendment of FASB Statement No. 133 on Derivative and Hedging
Activities” (“SFAS 149”). The fair value of the interest rate cap agreement is recognized in the
accompanying consolidated balance sheets and changes in its fair value are recognized in accumulated other
comprehensive income/loss. The Company also entered into foreign currency forward contracts in 2007 to
minimize the effect of market fluctuations. See Note 13. The Company may periodically enter into forward
sale contracts with a major gold bullion bank to sell refined gold that is produced in the normal course of
business from the Company’s liquidation 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 133.
Operations and Administration Expenses x Operations expenses include expenses incurred for personnel,
occupancy and marketing that are directly related to the pawn lending, cash advance and check cashing
operations. These costs are incurred within the lending locations and the Company’s call centers for
customer service and collections. In addition, similar costs related to non-home office management
supervision, oversight of locations and similar costs incurred by the Retail Services Division for the
oversight of the Company’s physical lending locations are included in operations expenses. Administration
expenses include expenses incurred for personnel and general office activities such as accounting and legal
directly related to corporate administrative functions.
Marketing Expenses x Costs of advertising and direct customer procurement are expensed at the time of
first occurrence and included in operating expenses. Advertising expense for continuing operations was
$35.0 million, $18.5 million and $12.9 million for the years ended December 31, 2007, 2006, and 2005,
respectively.
Stock-Based Compensation x Beginning January 1, 2006, the Company has accounted for its stock-based
employee compensation plans in accordance with Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” (“SFAS 123R”), using the modified prospective method. Under the modified
prospective method, the Company is required to recognize compensation expense over the remaining
vesting periods for the portion of stock-based awards for which the requisite service had not been rendered
as of January 1, 2006. Prior to January 1, 2006, stock-based compensation was accounted for in accordance
with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” often
referred to as the “intrinsic value” based method, and no compensation expense was recognized for the stock
options. The consolidated financial statements for the year ended December 31, 2005, which was prior to
the adoption of SFAS 123R, have not been restated and do not reflect the recognition of the compensation
cost related to the stock options. The Company has elected to use the transition method of FASB Staff