Cash America 2008 Annual Report Download - page 97

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
74
The Company amortizes intangible assets with an estimable life on the basis of their expected
periods of benefit, generally three to ten years. The costs of start-up activities and organization costs are
charged to expense as incurred.
Impairment of Long-Lived Assets x An evaluation of the recoverability of property and equipment and
intangible assets is performed whenever the facts and circumstances indicate that the carrying value may be
impaired. An impairment loss is recognized if the future undiscounted cash flows associated with the asset
are less than the asset’s corresponding carrying value. The amount of the impairment loss, if any, is the
excess of the asset’s carrying value over its estimated fair value.
Income Taxes x The provision for income taxes is based on income before income taxes as reported for
financial statement purposes. Deferred income taxes are provided for in accordance with the assets and
liability method of accounting for income taxes in order to recognize the tax effects of temporary
differences between financial statement and income tax accounting. Domestic income taxes have not been
provided on undistributed earnings of foreign subsidiaries because it is the Company’s intent to reinvest
these earnings in the business activities of the foreign subsidiaries for the foreseeable future.
Effective January 1, 2007, the Company began accounting for uncertainty in income taxes
recognized in the consolidated financial statements in accordance with Financial Accounting Standards
Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48
requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized
in the consolidated financial statements and prescribes how such benefit should be measured. It also
provides guidance on derecognition, classification, accrual of interest and penalties, accounting in interim
periods, disclosure and transition. It requires that the new standard be applied to the balances of assets and
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 and
December 2008, the Company entered into interest rate cap agreements that have been determined to be
perfectly effective cash flow hedges, pursuant to DIG Issue No. G20, “Assessing and Measuring the
Effectiveness of a Purchased Option Used in a Cash Flow Hedge” (“Issue G20”) at inception and on an
ongoing basis. The fair value of these interest rate cap agreements is recognized in the accompanying
consolidated balance sheets and changes in 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