Cash America 2009 Annual Report Download - page 113

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
85
Income Taxes
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 ASC 740-10-25, Accounting for Uncertainty in
Income Taxes (“ASC 740-10-25”). ASC 740-10-25 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 recognition adjustment, 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 ASC 740-10-25.
Hedging and Derivatives Activity
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. During the years ended December 31, 2009, 2008 and 2007, the
Company entered into interest rate cap agreements that have been determined to be perfectly effective cash
flow hedges, pursuant to ASC 815-20-25, Derivatives and Hedging – Recognition (“ASC 815-20-25”), 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 2009 to
minimize the effect of foreign currency risk in Mexico. See Note 13. The Company may periodically enter
into forward sale contracts with a major gold bullion bank to sell refined gold that is acquired 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 ASC 815-20-25.
Operations and Administration Expenses
Operations expenses include expenses incurred for occupancy, marketing and other charges 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 customer service and collections. In addition,
costs related to management supervision, oversight of locations and other costs for the oversight of the
Company’s storefront locations are included in operations expenses. Administration expenses include
expenses incurred for personnel and related expenses for more general activities, such as accounting,
information systems management, government relations, regulatory oversight and compliance and legal