Cash America 2008 Annual Report Download - page 96

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
73
Merchandise Held for Disposition and Cost of Disposed Merchandise x Merchandise held for disposition
includes merchandise acquired from unredeemed loans, merchandise purchased directly from the public and
merchandise purchased from vendors. Merchandise held for disposition is stated at the lower of cost
(specific identification) or market. The cost of merchandise, computed on the specific identification basis,
is removed from merchandise held for disposition and recorded as a cost of revenue at the time of sale.
Cash received upon the sale of forfeited merchandise is classified as a recovery of principal on unredeemed
loans under investing activities and any related profit or loss on disposed merchandise is included in
operating activities in the period when the merchandise is sold. The Company provides an allowance for
valuation and shrinkage based on management’s evaluation of the characteristics of the merchandise. The
allowance deducted from the carrying value of merchandise held for disposition amounted to $0.7 million
and $2.0 million at December 31, 2008 and 2007, respectively.
During 2008, the Company modified its methodology for assessing the reasonableness of this
allowance by taking a more comprehensive view of factors impacting the valuation of merchandise held for
disposition. Beginning in 2008, a greater emphasis was placed on shrinkage rates as a measure of adequacy
of the allowance, while maintaining the other measures of merchandise quality used in prior periods.
Management believes that this approach more accurately reflects the near-term vulnerability of merchandise
valuation impairment based on historical perspectives. As a result, the allowance was reduced from $2.0
million as of December 31, 2007 to $0.7 million as of December 31, 2008, representing 0.6% of the balance
of merchandise held for disposition at December 31, 2008.
Property and Equipment x Property and equipment is recorded at cost. The cost of property retired or sold
and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is
recognized in the consolidated statements of income. Depreciation expense is generally provided on a
straight-line basis, using the following estimated useful lives:
Buildings and building improvements (1) ........................................................... 7 to 40 years
Leasehold improvements (2) ............................................................................... 2 to 10 years
Furniture, fixtures and equipment ...................................................................... 3 to 7 years
Computer software............................................................................................. 3 to 5 years
(1) Structural components are depreciated over 30 to 40 years and the remaining building systems and
features are depreciated over 7 to 20 years.
(2) Leasehold improvements are depreciated over the terms of the lease agreements with a maximum of 10
years.
Software Development Costs x The Company develops computer software for internal use. Internal and
external costs incurred for the development of computer applications, as well as for upgrades and
enhancements that result in additional functionality of the applications, are capitalized. Internal and external
training and maintenance costs are charged to expense as incurred. When an application is placed in
service, the Company begins amortizing the related capitalized software costs using the straight-line method
based on its estimated useful life, which currently ranges from three to five years.
Goodwill and Other Intangible Assets x SFAS No. 142, “Goodwill and Other Intangible Assets,” became
effective January 1, 2002, and, as a result, the Company discontinued the amortization of goodwill as of that
date. In lieu of amortization, the Company is required to perform an impairment review of goodwill at least
annually. The Company completed its reviews during 2008, 2007 and 2006. Based on the results of these
tests, management determined that there was no impairment as the respective fair values of each of the
Company’s reporting units exceeded their respective carrying amounts. See Note 6.