Cash America 2009 Annual Report Download - page 86

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Proceeds from the disposition of refined gold increased $58.7 million, or 48.9%, in 2008 compared to 2007.
During 2008, an increase in the amount of pawn loans secured by jewelry and the sale of gold items purchased
directly from customers increased the volume of refined gold sold by the Company. The profit margin on the
disposition of refined gold decreased to 29.4% in 2008, from 31.6% in 2007, primarily due to the higher advance
rates on loans secured by gold following the increase in the market prices of gold in 2007 and early 2008.
Management emphasized disposition activities in 2008, especially in the last half of 2008, which resulted in
the improved mix of merchandise under one year old but also contributed to lower gross profit margins in the
second half of 2008. The following table summarizes the age of merchandise held for disposition before valuation
allowance of $0.7 million and $2.0 million, respectively, at December 31, 2008 and 2007 (dollars in thousands):
2008 2007
Amount % Amount %
Merchandise held for 1 year or less –
Jewelry $72,780 66.1 % $60,702 60.6 %
Other merchandise 28,979 26.3 29,437 29.4
Total merchandise held for 1 year or less 101,759 92.4 90,139 90.0
Merchandise held for more than 1 year –
Jewelry 5,306 4.8 6,264 6.3
Other merchandise 3,128 2.8 3,731 3.7
Total merchandise held for more than 1 year 8,434 7.6 9,995 10.0
Total merchandise held for disposition $110,193 100.0 % $100,134 100.0 %
During 2008, the Company modified its methodology for assessing the reasonableness of its inventory
allowance by taking a more comprehensive view of factors impacting the valuation of merchandise held for
disposition. Beginning in 2008, a greater emphasis was placed on shrinkage rates as a measure of adequacy of the
allowance, while maintaining the other measures of merchandise quality used in prior periods. Management
believes that this approach more accurately reflects the near-term vulnerability of merchandise valuation
impairment based on historical perspectives. As a result, the inventory allowance decreased to $0.7 million as of
December 31, 2008 from $2.0 million as of December 31, 2007, representing 0.6% of the balance of merchandise
held for disposition at December 31, 2008. The Company conducts multiple physical count assessments of
merchandise in all of its locations and immediately records the results of those activities directly to the income
statement. For the trailing six months ended December 31, 2008, the merchandise shortages charged to income was
$0.4 million, or 0.2%, of merchandise sales for the same period. This charge caused the merchandise balance to be
higher than it would have been if the allowance had not changed. Applying the prior year allowance of $2.0
million, reported net merchandise levels would have been up only 10.3%, compared to the currently reported
increase from 2007 to 2008 of 11.6%.
Cash Advance Fees. Cash advance fees increased $9.4 million, or 2.6%, to $364.6 million in 2008, as compared to
$355.2 million in 2007. The increase in revenue from cash advance fees is predominantly due to a 19.8% increase
in cash advance fees from the internet channel, partially offset by a 17.3% decrease in cash advance fees from
storefront activities. The decrease in storefront cash advance fees is mainly due to the closure of 56 cash advance
storefront locations during 2008, as well as adjustments to underwriting criteria late in 2007 to reduce losses on
cash advance loans.
As of December 31, 2008, cash advance products were available in 679 lending locations, including 431
pawn lending locations and 248 cash advance storefront locations. In 249 of these lending locations, the Company
arranges for customers to obtain cash advance products from independent third-party lenders for a fee. Cash
advance fees from same stores (stores that have been open for at least twelve months) decreased $28.3 million, or