Cash America 2009 Annual Report Download - page 99

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Management provides non-GAAP financial information for informational purposes and to enhance
understanding of the Company’s GAAP consolidated financial statements. Readers should consider the
information in addition to, but not instead of, the Company’s financial statements prepared in accordance with
GAAP. This non-GAAP financial information may be determined or calculated differently by other companies,
limiting the usefulness of those measures for comparative purposes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company’s operations result primarily from changes in interest rates, foreign
currency exchange rates and gold prices. The Company does not engage in speculative or leveraged transactions,
nor does it hold or issue financial instruments for trading purposes.
Interest Rate Risk. Management’s objective is to minimize the cost of borrowing through an appropriate mix of
fixed and floating rate debt. Derivative financial instruments, such as interest rate cap agreements, may be used for
the purpose of managing fluctuating interest rate exposures that exist from ongoing business operations. As of
December 31, 2009, the Company had outstanding two interest rate cap agreements with a combined notional
amount of $30.0 million. These interest rate cap agreements were perfectly effective at December 31, 2009. The
Company had variable rate borrowings outstanding of $227.7 million and $329.7 million at December 31, 2009 and
2008, respectively. If prevailing interest rates were to increase 100 basis points over the rates at December 31,
2009, and the variable rate borrowings outstanding remained constant, the Company’s interest expense would
increase by $2.7 million, and net income attributable to the Company would decrease by $1.7 million for the year
ended December 31, 2009. See “Item 8. Financial Statements and Supplementary Data—Note 8.”
Gold Price Risk. The Company periodically uses forward sale contracts with a major gold bullion bank to sell a
portion of the expected amount of refined gold produced in the normal course of business from its liquidation of
forfeited gold merchandise. A significant decrease in the price of gold would result in a reduction of proceeds from
the disposition of refined gold to the extent that amounts sold were in excess of the amount of contracted forward
sales. In addition, a significant and sustained decline in the price of gold would negatively impact the value of
some of the goods pledged as collateral by customers and identified for liquidation as refined gold. In this instance,
management believes some customers would be willing to add additional items of value to their pledge in order to
obtain the desired loan amount. However, those customers unable or unwilling to provide additional collateral
would receive lower loan amounts, possibly resulting in a lower balance of pawn loans outstanding for the
Company.
Foreign Currency Exchange Risk. The Company periodically uses forward currency exchange contracts and
foreign debt instruments to minimize risk of foreign currency exchange rate fluctuations. During 2009, the
Company hedged an average amount of MXN 70.4 million to manage its advances denominated in Mexican pesos
to its Mexico based pawn operations. The average exchange rate of the hedged transactions represented $5.2
million. As of December 31, 2009, the total amount hedged through forward contracts was MXN 116.9 million,
with an equivalent value of $8.8 million to minimize the effect of foreign currency risk in Mexico. Any gain or loss
resulting from these forward contracts is recorded as income or loss and is included in “Foreign currency
transaction gain (loss)” in the Company’s consolidated statement of income. For the year ended December 31,
2009, the Company recorded losses of $0.5 million related to these forward contracts. A hypothetical 10% decline
in the exchange rate of the Mexican peso at December 31, 2009 would have decreased net income attributable to
the Company by $50,000 in 2009. The Company is also subject to currency exchange rate fluctuations in the
United Kingdom, Australia and Canada. The Company does not currently manage its exposure to risk from foreign
currency exchange rate fluctuations through the use of foreign exchange forward contracts in these countries. As
the Company’s foreign operations continue to grow, management will continue to evaluate and implement foreign
exchange rate risk management strategies. See “Item 8. Financial Statements and Supplementary Data—Note 13.”