Cash America 2008 Annual Report Download - page 40

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Finally, in recent years, the cash advance industry has been subject to regulatory proceedings, class
action lawsuits and other litigation concerning the offering of cash advances, and the Company could
suffer losses from interpretations of state laws in those lawsuits or regulatory proceedings, even if the
Company is not a party to those proceedings.
x A sustained deterioration in the economy could reduce demand for the Company’s products and
services and result in reduced earnings. A sustained deterioration in the economy could cause
deterioration in the performance of the Company’s pawn loan or cash advance portfolios and in
consumer demand for pre-owned merchandise such as the merchandise sold in the Company’s
pawnshops. An economic slowdown could result in an increase in loan defaults in our cash advance
products. During such a slowdown, the Company could be required to tighten its underwriting
standards, which would reduce cash advance balances, and could face more difficulty in collecting
defaulted cash advances, which could lead to an increase in loan losses. While the credit risk for much
of the Company’s pawn lending is mitigated by the collateralized nature of pawn lending, a sustained
deterioration in the economy could reduce the demand and resale value of pre-owned merchandise and
reduce the amount that the Company could effectively lend on an item of collateral. Such reductions
could adversely affect pawn loan balances, pawn loan redemption rates, inventory balances, inventory
mixes and gross profit margins.
x A decreased demand for the Company’s products and specialty financial services and failure of
the Company to adapt to such decrease could adversely affect results. Although the Company’s
products and services are a staple of its customer base, the demand for a particular product or service
may decrease due to a variety of factors, such as regulatory restrictions that reduce customer access to
particular products, the availability of competing products or changes in customers’ financial conditions.
Should the Company fail to adapt to a significant change in its customers’ demand for, or access to, its
products, the Company’s revenues could decrease significantly. Even if the Company does make
adaptations or introduce new products to fulfill customer demand, customers may resist or may reject
products whose adaptations make them less attractive or less available. In any event, the effect of any
product change on the results of the Company’s business may not be fully ascertainable until the change
has been in effect for some time. In particular, the Company has changed, and will continue to change,
some of the cash advance products operations of the Company and the products it offers.
x The failure of third-parties who provide products, services or support to the Company to
maintain their products, services or support could disrupt Company operations or result in a loss
of revenue. The Company’s cash advance revenues depend in part on the willingness and ability of
unaffiliated third-party lenders to make loans to customers and with other third parties to provide
services to facilitate lending and loan underwriting in both the storefront and online cash advance
channels. The loss of the relationship with any of these third parties, and an inability to replace them, or
the failure of these third parties to maintain quality and consistency in their programs or services could
cause the Company to lose customers and substantially decrease the revenues and earnings of the
Company’s cash advance business. The Company makes other non-cash advance products and services
provided by various third-party vendors available to its customers. If a third-party provider fails to
provide its product or service or to maintain its quality and consistency, the Company could lose
customers and related revenue from those products or services. The Company also uses third parties to
support and maintain certain of its communication systems and computerized point-of-sale and
information systems. The failure of such third parties to fulfill their support and maintenance
obligations could disrupt the Company’s operations.
x The Company’s business depends on the uninterrupted operation of the Company’s facilities,
systems and business functions, including its information technology and other business systems.
The Company’s business, particularly its online business, depends highly upon its employees’ ability to
perform, in an efficient and uninterrupted fashion, necessary business functions, such as Internet
support, call centers, and processing and making cash advances. Additionally, the Company’s storefront
operations depend on the efficiency and reliability of the Company’s point of sale system. A shut-down