Cash America 2010 Annual Report Download - page 49

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The Company made significant acquisitions in 2010 involving a 39-store chain of pawn lending locations that
operate in Washington and Arizona under the names “Maxit” and “Pawn X-Change” and in 2008 involving a new
product line and business model as well as a significant entry into a foreign market (Mexico). The Company has
historically grown through strategic acquisitions and a key component of the Company’s future strategy is to continue
to pursue attractive acquisition opportunities. The success of recent and future acquisitions is, and will be, dependent
upon the Company effectively integrating the management, operations and technology of acquired businesses into the
Company’s existing management, operations and technology platforms. The failure to successfully integrate acquired
businesses into the Company’s organization could materially adversely affect the Company’s business, prospects,
results of operations and financial condition. In addition, any acquisition has the risk that the Company may not
realize a return on the acquisition or the Company’s investment.
If the Company’s allowance for losses and accruals for losses on third-party lender-owned consumer loans are not
adequate to absorb losses, the Company’s results of operations and financial condition may be adversely affected.
As more fully described under “Item 8. Financial Statements and Supplementary Data— Note 5,” the
Company utilizes a variety of underwriting criteria, monitors the performance of its consumer loan portfolios and
maintains either an allowance or accrual for losses on consumer loans (including fees and interest) at a level estimated
to be adequate to absorb credit losses inherent in the receivables portfolio and expected losses from CSO guarantees.
The allowance deducted from the carrying value of consumer loans was $38.9 million at December 31, 2010, and the
accrual for losses on third-party lender-owned consumer loans was $2.8 million at December 31, 2010. These reserves
are estimates, and if actual loan losses are materially greater than the Company’s reserves, the Company’s results of
operations and financial condition could be adversely affected.
A sustained deterioration in the economy could reduce demand for the Company’s products and services and result
in reduced earnings.
A sustained deterioration in the economy could cause deterioration in the performance of the Company’s pawn
loan or consumer loan portfolios and in consumer demand for pre-owned merchandise such as the merchandise sold in
the Company’s pawnshops. An economic slowdown could result in a decreased number of consumer loans being
made to customers due to higher unemployment or an increase in loan defaults in the Company’s consumer loan
products. During an economic slowdown, the Company could be required to tighten its underwriting standards, which
would likely reduce consumer loan balances, and could face more difficulty in collecting defaulted consumer loans,
which could lead to an increase in loan losses. While the credit risk for much of the Company’s pawn lending is
mitigated by the collateralized nature of pawn lending, a sustained deterioration in the economy could reduce the
demand and resale value of pre-owned merchandise and reduce the amount that the Company could effectively lend on
an item of collateral. Such reductions could adversely affect pawn loan balances, pawn loan redemption rates,
inventory balances, inventory mixes and gross profit margins.
The Company is subject to impairment risk.
At December 31, 2010, the Company had goodwill totaling $543.3 million, consisting of $333.0 million
related to the retail services segment and $210.3 million related to the e-commerce segment, on its consolidated
balance sheets, all of which represent assets capitalized in connection with the Company’s acquisitions and business
combinations. In addition, at December 31, 2010, the Company had intangible assets, net of accumulated
amortization, of $31.2 million, consisting of $30.1 million related to its retail services segment and $1.1 million related
to the e-commerce segment. Accounting for intangible assets requires significant management estimates and
judgment. Events may occur in the future and the Company may not realize the value of these intangible assets.
Management performs periodic reviews of the carrying values of the intangible assets to determine whether events and
circumstances indicate that an impairment in value may have occurred. A variety of factors could cause the carrying
value of an intangible asset to become impaired. Should a review indicate impairment, a write-down of the carrying
value of the intangible asset would occur, resulting in a non-cash charge, which would adversely affect the Company’s
results of operations and could also lead to the Company’s inability to comply with certain covenants in the
Company’s financing documents, which could cause a default under those agreements.