Cash America 2010 Annual Report Download - page 92
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63
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 the aggregate amount sold exceeded 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 other items which are now, or could be in the future, 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 in the United Kingdom, Mexico and
Australia. The Company’s forward currency exchange contracts are non-designated derivatives. 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. The following table sets forth, by each foreign
currency hedged, the notional amounts of forward currency exchange contracts as of December 31, 2010, the total
gains or losses recorded in 2010, and sensitivity analysis of hypothetical 10% declines in the exchange rates of the
currencies (US Dollars in thousands).
Notional amount of
outstanding contracts
as of December 31,
2010
Gain/(loss)
recorded in 2010
Sensitivity
Analysis (a)
British pound $ 33,856 $ (9) $ ($2,231)
Mexican peso 7,787 (809) (464)
Australian dollar 4,749 (350) (312)
Total $ 46,392 $ (1,168) $ ($3,007)
(a) Represents the decrease to net income attributable to the Company
due to a hypothetical 10% decline in the exchange rate of the foreign
currency.
The Company is also subject to currency exchange rate fluctuations in 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 Canada. As the Company’s Canadian 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 15.”