Cash America 2010 Annual Report Download - page 33

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and Industry—Adverse changes in laws or regulations affecting the Company’s short-term consumer loan services
could negatively impact the Company’s operations.”
Services Offered by the Company
Pawn Lending. The Company’s retail services segment offers pawn loans through its retail services locations
in the United States and Mexico, where it began offering pawn loans in 2008 following the Company’s acquisition of
80% of the outstanding stock of Creazione Estilo, S.A. de C.V., a Mexican sociedad anónima de capital variable,
which operates retail services locations under the name “Prenda Fácil” (referred to as “Prenda Fácil”). See “Item 8.
Financial Statements and Supplementary Data—Note 3 for further discussion related to the Prenda Fácil acquisition.
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 Company
either becomes the owner of the property or becomes the party responsible for the disposition of the collateral in
satisfaction of the loan.
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 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 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 retail services 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 pawn loan fees and service charges as compensation for the use of the funds
loaned and to cover direct operating expenses related to the transaction. The pawn loan fees and service charges are
typically calculated as a percentage of the pawn loan amount based on the size and duration of the transaction and
generally range from 12% to 300% annually, as permitted by applicable laws. As required by applicable laws, the
amounts of these charges are disclosed to the customer on the pawn ticket. These pawn loan fees and service charges
contributed approximately 19.6% of the Company’s total revenue in 2010, 20.6% in 2009 and 17.9% in 2008.
In the Company’s pawn lending operations, the amount of a pawn loan is generally set 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 retail services 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, would yield a profit margin consistent with the
Company’s historical experience with similar items. With regard to the Company’s foreign pawn operations, the
principal form of collateral accepted by the Company is gold jewelry. Similar to domestic operations, fluctuations in
gold prices historically have affected the amount that the retail services location will 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 retail
services location’s loan portfolio and related revenue from pawn loan fees and service charges.
The Company holds the pledged property through the term of the loan, unless earlier repaid, renewed or
extended. The typical loan term is generally one month plus an additional period (typically 30 to 90 days). The
Company’s pawn loans may be either paid in full with accrued pawn loan fees and service charges or may be renewed
or extended by the customer’s payment of accrued pawn loan fees 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 underlying
collateral has not been sold. 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. The Company typically experiences seasonal growth during the third and fourth