Cash America 2009 Annual Report Download - page 31

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underlying collateral has not been sold. If a customer does not repay, renew or extend a pawn loan, the
unredeemed collateral is forfeited to the Company and becomes merchandise available for disposition through
the Company’s pawn lending locations, wholesale sources, internet sales or through a major gold bullion
bank. The Company does not record pawn loan losses or charge-offs because the amount advanced becomes
the carrying cost of the forfeited collateral that is to be recovered through the merchandise disposition
function described below.
With regard to the Company’s foreign pawn operations, the principal form of collateral accepted by
the Company is gold jewelry. The amount that the pawn lending location is willing to finance in a pledge of
gold jewelry is typically based on a fixed amount per gram of the gold content of the pledged property.
Similar to domestic operations, fluctuations in gold prices historically have affected the amount that the pawn
lending location is willing to lend against an item. A sustained increase or decrease in the market price of
gold can cause a related increase or decrease in the amount of the pawn lending location’s loan portfolio and
related finance and service charge revenue. Pawn loans at the Company’s Mexico operations are generally
made for a term of four weeks, with charges of approximately 150% annually. The collateral is held through
the term of the loan, and, in the event that the loan is not repaid or renewed on or before maturity, the
unredeemed collateral is disposed of on behalf of the customer in an effort to satisfy all fees and charges and
to repay the principal amount loaned. If the proceeds from the sale are less than the outstanding loan balance,
a loss is recorded for the difference at the time the collateral is sold. If the proceeds exceed the outstanding
loan balance, the Company recognizes as revenue the accrued service charges and other fees related to the
disposition of the item. In the event there are proceeds greater than the accrued service charges and fees, the
excess amount is available to the customer if a claim is made within six months, after which any unclaimed
excess amount is recognized as revenue.
For domestic and foreign pawn operations, the recovery of the amount advanced and the realization
of a profit on the disposition of merchandise depends on the Company’s initial assessment of the property’s
estimated disposition value when the pawn loan is made. While the Company has historically realized profits
when disposing of merchandise, the improper assessment of the disposition value could result in the
disposition of the merchandise for an amount less than the loan amount.
Merchandise Disposition Activities. The Company sells merchandise that pawn customers forfeit
when they do not repay or renew their pawn loans. The Company sells most of this merchandise at its
pawnshops, but the Company also disposes of some items through wholesale sources, over the internet, or, in
the case of some gold jewelry, through a major gold bullion bank. Its pawnshops also sell used goods
purchased from the general public and some new merchandise, principally accessory merchandise that
complements and enhances the marketability of items such as tools, consumer electronics and jewelry.
Merchandise sales are typically highest during the holiday and tax refund seasons, which occur during the
first and fourth quarters of each year. Gross proceeds from merchandise disposition activities contributed
approximately 44.9% of the Company’s total revenue in 2009, 45.2% in 2008 and 42.7% in 2007.
The Company offers customers a 30-day satisfaction guarantee, whereby the customer can return
merchandise and receive a full refund, a replacement item of comparable value or store credit. The Company
provides an allowance for returns and valuation based on management’s evaluation of the characteristics of
the merchandise. Customers may purchase merchandise on a layaway plan under which the customer makes
an initial cash deposit representing a small portion of the disposition price and pays the balance in regularly
scheduled, non-interest bearing payments. The Company segregates the layaway item and holds it until the
customer has paid the full disposition price. If the customer fails to make a required payment, the item is
returned to general merchandise held for disposition. The layaway fee is recognized as revenue, and any
amounts previously paid toward the item are returned to the customer as store credit.