Cash America 2008 Annual Report Download - page 78

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55
The notes were sold in August 2007; therefore, the Company expects interest income in 2008 will be
insignificant.
Foreign Currency Transaction Gain (Loss). The Company held two notes receivable denominated in
Swedish kronor until they were sold in August 2007. Exchange rate changes between the United States
dollar and the Swedish kronor resulted in a net gain of $63,000 (including a gain of $52,000 from foreign
currency forward contracts) in 2007 and $296,000 (net of a loss of $1.1 million from foreign currency
forward contracts) in 2006.
The functional currency of the Company’s United Kingdom operations is the British pound. In
2007, the Company recorded foreign currency transaction losses of approximately $87,000 on the
intercompany balances, which are denominated in U.S. dollars, between the U.S. and United Kingdom
operations.
Gain on Sale of Foreign Notes. The Company received gross proceeds in the amount of $16.8 million on
the sale of notes receivable that it had received in 2004 as part of the proceeds from its sale of Svensk
Pantbelåning, its former Swedish pawn lending subsidiary. In September 2004, the Company sold Svensk
Pantbelåning to Rutland Partners LLP, for cash and two subordinated notes receivable. One of the notes
receivable was convertible into approximately 27.7% of the parent company of Svensk Pantbelåning on a
fully-diluted basis. In August 2007, Rutland Partners LLP sold Svensk Pantbelåning to a third-party who
also purchased the notes receivable from the Company. The Company received total proceeds of $16.8
million, $12.4 million for the repayment of the face value of the principal, including $0.3 million of accrued
interest owed on notes receivable and $4.4 million for the value of its conversion rights under the
convertible note. The Company recognized a pre-tax gain of approximately $6.3 million from the sale of
the notes and related rights. Proceeds from the sale were used for general corporate purposes, including the
repayment of debt and the repurchase of shares in the open market pursuant to an existing share repurchase
authorization.
Income Taxes. The Company’s effective tax rate for 2007 was 36.4% as compared to 36.6% for 2006. The
Company recognized a $1.1 million one-time deferred Texas margin tax credit, net of the federal income tax
effect of the credit, during the second quarter of 2007. This credit resulted from a change in Texas law
enacted during the second quarter. Excluding the effect of the one-time Texas deferred tax benefit, the
effective tax rate for 2007 would have been 37.3%. Excluding the effect of the one-time deferred tax
benefit, the increase over 2006 is primarily attributable to an increase in state and local income taxes,
including the Texas margin tax that was enacted in 2006 and is imposed on the Company’s earnings
beginning in 2007.