Cash America 2008 Annual Report Download - page 62

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39
balances attributable to the increased amount of pawn loans written through existing and new locations
added during 2007 and 2008. An increase in the average balance of pawn loans outstanding contributed
$21.1 million of the increase and the higher annualized yield, which is a function of the blend in permitted
rates for fees and service charges on pawn loans in all operating locations of the Company, contributed $2.9
million of the increase. In addition, the Company’s decision to reduce the maximum loan term from 90
days to 60 days in 198 pawn locations in the last half of 2007 contributed to higher reported pawn loan
yields and contributed to better performance in the portfolio, as customer payments of finance and service
charges occurred earlier and the maximum amount of fees and services charges would be lower as an overall
percentage of the loan amount.
The average balances of loans outstanding during 2008 increased by $16.8 million, or 13.1%,
compared to 2007. The increase was driven by an 11.1% increase in the average amount per loan
outstanding and a 1.8% increase in the average number of pawn loans outstanding during 2008.
Management believes that the increase in the average amount per loan outstanding is attributable to higher
gold prices allowing for greater loan amounts for loans secured by gold collateral.
Pawn loan balances in domestic locations and foreign locations combined at December 31, 2008
were $168.7 million, which was 22.9% higher than at December 31, 2007. Annualized loan yield was
128.8% in 2008, compared to 125.5% in 2007. Pawn loan balances for same stores (stores that have been
open for at least twelve months) at December 31, 2008 increased $14.4 million, or 10.5%, as compared to
December 31, 2007. On December 16, 2008, the company completed the acquisition of Prenda Fácil, a
chain of pawnshops based in Mexico, which had pawn loans receivable of MXP 230.6 million (Mexican
pesos), or USD $16.7 million as of December 31, 2008.
Profit from the Disposition of Merchandise. Profit from the disposition of merchandise represents the
proceeds received from the disposition of merchandise in excess of the cost of disposed merchandise. The
following table summarizes the proceeds from the disposition of merchandise and the related profit for 2008
as compared to 2007 (dollars in thousands):
Year Ended December 31,
2008 2007
Merchan- Refined Merchan- Refined
dise Gold Total dise Gold Total
Proceeds from disposition..... $ 286,952 $ 178,703 $ 465,655 $ 276,794 $ 120,027 $ 396,821
Profit on disposition.............. $ 117,673 $ 52,622 $ 170,295 $ 112,090 $ 37,939 $ 150,029
Profit margin......................... 41.0% 29.4% 36.6%
40.5% 31.6 % 37.8%
Percentage of total profit....... 69.1% 30.9% 100.0%
74.7% 25.3 % 100.0%
The total proceeds from disposition of merchandise and refined gold increased $68.8 million, or
17.4%, and the total profit from the disposition of merchandise and refined gold increased $20.3 million, or
13.5%, primarily due to higher disposition activities consistent with higher levels of pawn loan balances,
which typically increases the amount of unredeemed loans and related merchandise for disposition. Overall
gross profit margin decreased from 37.8% in 2007 to 36.6% in 2008. Excluding the effect of the disposition
of refined gold, the profit margin on the disposition of merchandise (including jewelry sales) increased to
41.0% in 2008 from 40.5% in 2007. The gross profit margin in 2008 was positively impacted by a $1.2
million dollar reduction in the inventory valuation allowance during the fourth quarter of the current year,
primarily due to a modification of the methodology used to assess the adequacy of this allowance.
Excluding the impact of this modification on the total cost of disposed merchandise the gross profit margin
would have been $169.1 million, or 36.3%, and, on merchandise excluding refined gold, the gross profit
margin would have been $117.1 million, or 40.8%. The profit margin on the disposition of refined gold
decreased to 29.4% in 2008 from 31.6% in 2007, primarily due to the higher advance rates on loans secured
by gold following the increase in the market prices for gold in 2007 and early 2008. The Company also
experienced a 21% increase in the volume of refined gold sold during 2008, primarily due to a rising amount