Cash America 2010 Annual Report Download - page 34

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quarter of each year due to loan balance growth that occurs after the heavy repayment period of pawn loans with tax
refund proceeds received by customers in the first quarter each year.
Merchandise Disposition Activities. A related activity of the pawn lending operations is the disposition of
collateral from unredeemed pawn loans and the liquidation of a smaller volume of merchandise purchased from third-
parties or directly from customers. The Company’s retail services segment engages in merchandise disposition
activities through its retail services locations in the United States and Mexico. With respect to the Company’s
domestic operations, if a customer does not repay, renew or extend a pawn loan, the Company becomes the owner of
the unredeemed collateral. The Company becomes the party responsible for the disposition of the collateral in
satisfaction of the loan, and the merchandise becomes available for disposition through the Company’s retail services
locations, wholesale sources, internet sales or through a major gold bullion bank. With respect to the Company’s
foreign pawn operations, 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. In the Company’s domestic operations, if the proceeds
exceed the outstanding loan balance, the Company recognizes as revenue the accrued pawn loan fees and service
charges, as well as other fees and expenses incurred in relation to the non-payment and sale of the loan collateral on
behalf of the customer. In the Company’s foreign operations, 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 merchandise, the customer makes a claim to receive the excess proceeds, the Company refunds the amount to
the customer and reduces revenue by the same amount. 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. 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. The Company’s retail services locations also sell used goods purchased from the general public and some
new merchandise purchased from third parties, 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 tax refund and holiday seasons, which occur during the first and fourth quarters of each year. Gross proceeds from
merchandise disposition activities contributed approximately 41.4% of the Company’s total revenue in 2010, 44.9% in
2009 and 45.2% in 2008.
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.
Consumer Loan Activities. The Company’s retail services segment also offers consumer loans in many of its
retail services locations in the United States. The Company’s e-commerce segment offers consumer loans and other
services over the internet. The Company began offering consumer loans over the internet in the United States under
the name “CashNetUSA” when it acquired CashNetUSA in 2006. See “Item 8. Financial Statements and
Supplementary Data—Note 3 for further discussion related to the CashNetUSA acquisition. The Company further
expanded its online lending business internationally when it began offering its short-term consumer loan product
online to customers in the United Kingdom in 2007 under the name “QuikQuid” and in Canada and Australia in 2009
under the name “DollarsDirect.” Consumer loan fees include revenue from the loan portfolio owned by the Company
and fees paid to the Company for arranging or processing loans from independent third-party lenders for customers
through the CSO program and through the Company’s MLOC services channel.
The Company offers or arranges single payment consumer loans and longer-term multi-payment installment
loans. Single payment consumer loans are unsecured, and generally have a loan term of 7 to 45 days and are usually