Cash America 2009 Annual Report Download - page 30

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As of December 31, 2009, the Company’s check cashing operating segment consisted of 120
unconsolidated franchised and six consolidated Company-owned check cashing locations operating in 16 states
in the United States under the name “Mr. Payroll.”
Pawn Lending Segment
The Company offers pawn loans through its pawn lending locations in the United States and Mexico,
where it began offering pawn loans in 2008. (See “Item 8. Financial Statements and Supplementary Data—
Note 3” for discussion related to the Company’s 2008 Prenda Fácil acquisition.) Pawn lending locations are
convenient sources of consumer loans. They also sell previously-owned merchandise primarily acquired from
customers who do not redeem their pawned goods. A pawn lending location may also sell items purchased
from third-parties or directly from customers.
Pawn Lending. When receiving a pawn loan from the Company, a customer pledges personal
property to the Company as security for the loan. The Company delivers a pawn transaction agreement,
commonly referred to as a pawn ticket, to the customer, along with the proceeds of the loan. If the customer
does not repay the loan and redeem the property, the customer forfeits the property to the Company, and the
Company disposes of the property.
The Company relies on the disposition of pawned property to recover the principal amount of an
unpaid pawn loan, plus a yield on the investment, because it does not have recourse against the customer for
the loan. As a result, the customer’s creditworthiness is not a significant factor in the loan decision, and a
decision not to redeem pawned property does not affect the customer’s personal credit status. Goods pledged
to secure pawn loans are tangible personal property items such as jewelry, tools, televisions and other
electronics, musical instruments, firearms, and other miscellaneous items. Pawn transactions can also take the
form of a “buy-sell agreement” involving the actual sale of the property by the customer to the pawn lending
location with the customer retaining an option to repurchase the property. Pledge and buy-sell transactions
are referred to throughout this report as “pawn loans.”
The Company contracts for a finance and service charge to compensate it for the use of the funds
loaned and to cover direct operating expenses related to the transaction. The finance and service charge is
typically calculated as a percentage of the pawn loan amount based on the size and duration of the transaction
and generally ranges from 12% to 300% annually, as permitted by applicable laws. The amounts of these
charges are disclosed to the customer on the pawn ticket. These finance and service charges contributed
approximately 20.6% of the Company’s total revenue in 2009, 17.9% in 2008 and 17.3% in 2007. The
Company typically experiences seasonal growth during the third and fourth quarter of each year due to loan
balance growth that occurs after the heavy repayment period of pawn loans with tax refund proceeds received
by customers in the first quarter each year.
In the Company’s domestic pawn operations, the Company sets the amount of a pawn loan generally
as a percentage of the pledged personal property’s estimated disposition value. The Company relies on many
sources to determine the estimated disposition value, including its proprietary automated product valuation
system, catalogs, “blue books,” newspapers, internet research and its (or its employees’) experience in
disposing of similar items of merchandise in particular pawn lending locations. The Company does not use a
standard or mandated percentage of estimated disposition value in determining the loan amount. Instead, its
employees may set the percentage for a particular item and determine whether the item’s disposition, if it is
forfeited to the pawn lending location, would yield a profit margin consistent with the Company’s historical
experience with similar items. The Company holds the pledged property through the term of the loan, which,
unless earlier repaid, renewed or extended, is generally one month plus an additional period (typically 30-60
days) for the customer to redeem the merchandise by paying off the loan and all accrued charges. A majority
of the Company’s pawn loans are either paid in full with accrued finance and service charges or are renewed
or extended by the customer’s payment of accrued finance and service charges. Accrued interest on loans that
have passed the maturity date and the expiration of the grace period is fully reserved to the extent that the