Cash America 2009 Annual Report Download - page 121

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
93
All of the amounts of goodwill recorded in the Company’s acquisitions, except for the acquisition of
Prenda Fácil, are expected to be deductible for tax purposes.
4. Cash advances, Allowance for Losses and Accruals for Losses on Third-Party Lender-Owned
Cash Advances
In order to manage the portfolio of cash advances effectively, the Company utilizes a variety of
underwriting criteria, monitors the performance of the portfolio and maintains either an allowance or accrual
for losses on cash advances (including fees and interest) at a level estimated to be adequate to absorb credit
losses inherent in the receivables portfolio and expected losses from CSO guarantees. The allowance for
losses on Company-owned cash advances offsets the outstanding cash advance amounts in the consolidated
balance sheets. See Note 2 for a discussion of the Company’s cash advance products.
With respect to CSO guarantees, if the Company collects a customer’s delinquent payment in an
amount that is less than the amount the Company paid to the third-party lender pursuant to the guarantee, the
Company must absorb the shortfall. If the amount collected exceeds the amount paid under the guarantee, the
Company is entitled to the excess and recognizes the excess amount in income. Since the Company may not
be successful in collecting delinquent amounts, the Company’s cash advance loss provision includes amounts
estimated to be adequate to absorb credit losses from cash advances in the aggregate cash advance portfolio,
including those expected to be acquired by the Company as a result of its guarantee obligations. The
estimated amounts of losses on portfolios owned by the third-party lenders are included in “Accounts payable
and accrued expenses” in the consolidated balance sheets. Active third-party lender-originated cash advances
in which the Company does not have a participation interest are not included in the consolidated balance
sheets.
With respect to the Company’s card services business, losses on cash advances in which the
Company has a participation interest that prove uncollectible are the responsibility of the Company. Since the
Company may not be successful in the collection of these accounts, the Company’s cash advance loss
provision also includes amounts estimated to be adequate to absorb credit losses from these cash advances.
The Company stratifies the outstanding combined cash advance portfolio by age, delinquency, and
stage of collection when assessing the adequacy of the allowance for losses. The combined cash advance
portfolio represents cash advances included in the Company’s consolidated balance sheet and third-party cash
advances. It uses historical collection performance adjusted for recent portfolio performance trends to
develop the expected loss rates used to establish either the allowance or accrual. Increases in either the
allowance or accrual are recorded as a cash advance loss provision expense in the consolidated statements of
income. The Company charges off all cash advances once they have been in default for 60 days, or sooner if
deemed uncollectible. Recoveries on losses previously charged to the allowance are credited to the allowance
when collected.
The Company’s internet channel periodically sells selected cash advances that have been previously
charged off. Proceeds from these sales are recorded as recoveries on losses previously charged to the
allowance for losses. These sales generated proceeds of $2.4 million and $4.7 million for the years ended
December 31, 2009 and 2008, respectively, which were recorded as recoveries on losses previously charged
to the allowance for losses.
The allowance deducted from the carrying value of cash advances was $27.4 million and $21.5
million at December 31, 2009 and 2008, respectively. The accrual for losses on third-party lender-owned
cash advances was $2.9 million and $2.1 million at December 31, 2009 and 2008, respectively, and is