Cash America 2010 Annual Report Download - page 103

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
74
the merchandise the Company recognizes as gross profit the difference between the amounts loaned, which is cost of
sales, and the selling amount. The cost of merchandise, computed on the specific identification basis, is removed from
merchandise held for disposition and recorded as a cost of revenue at the time of sale. Interim customer payments for
layaway sales are recorded as customer deposits and subsequently recognized as revenue during the period in which
the final payment is received.
With respect to the Company’s foreign pawn operations, pledged collateral for nonperforming pawn loans is
not owned by the Company and is held in “Prepaid expenses and other assets” until sold. Revenue is recognized at the
time the collateral is sold as “pawn loan fees and service charges.” If the proceeds exceed the outstanding loan
balance, the Company recognizes as revenue accrued pawn loan fees and service charges, which includes other fees
and expenses incurred in relation to the non-payment and sale of the loan collateral on behalf of the customer at the
time of the sale. If the proceeds from the disposition of the collateral are less than the outstanding loan balance, a loss
is recorded for the difference at the time the collateral is sold which reduces the amount of pawn loan fees and service
charges revenue from performing loans in the current period. In the event there are proceeds greater than the accrued
service charges and all fees and expenses, the excess amount is recognized as revenue. If, within six months of the
sale of the merchandise, the customer makes a claim to receive the excess proceeds, the Company refunds that amount
to the customer and reduces revenue by the same amount.
Consumer Loans − The Company accrues fees and interest on consumer loans on a constant yield basis
ratably over the term of the loan. A consumer loan is considered nonperforming if the customer does not make
payments in accordance with the contractual requirements. Generally, consumer loan fees do not accrue on
nonperforming loans. CSO fees are deferred and amortized over the term of the loan and recorded as “Consumer loan
fees” in the accompanying consolidated statements of income. The contingent loss on the guaranteed loans is accrued
and recorded as a liability, which approximates the fair value of the liability.
As of December 31, 2010 and 2009, $178.3 million and $136.1 million, respectively, of gross consumer loans
were outstanding, which are included in the Company’s consolidated balance sheet. In addition, $48.8 million and
$49.9 million, respectively, of active consumer loans owned by third-party lenders were guaranteed by the Company.
One of the components in the Company’s e-commerce segment is earnings from its MLOC services channel.
The MLOC services channel has most recently generated its earnings through loan processing services the Company
provided for MetaBank related to the iAdvance MLOC product MetaBank made available on certain stored-value debit
cards the bank issues, as well as from fees generated from participation interests the Company acquired in the
receivables originated by MetaBank in connection with the iAdvance program. MetaBank terminated its iAdvance
program as of October 13, 2010.
Allowance for Losses on Consumer Loans
See Note 5 for a discussion of the Company’s allowance for losses on consumer loans.
Merchandise Held for Disposition and Cost of Disposed Merchandise
Merchandise held for disposition includes merchandise acquired from unredeemed loans, merchandise
purchased from third-parties or directly from customers. Merchandise held for disposition is stated at the lower of cost
(cash amount loaned) or market. Cash received upon the sale of forfeited merchandise is classified as a recovery of
principal on unredeemed loans under investing activities and any related profit or loss on disposed merchandise is
included in operating activities in the period when the merchandise is sold. The Company provides an allowance for
returns and valuation based on management’s evaluation of the characteristics of the merchandise and historical
shrinkage rates. The allowance deducted from the carrying value of merchandise held for disposition amounted to