Cash America 2011 Annual Report Download - page 108

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on the open market at an average price of $45.00. Management anticipates that it will continue to periodically purchase
shares under this authorization based on its assessment of market characteristics, the liquidity position of the Company
and alternative prospects for the investment of capital to expand the business and pursue strategic objectives.
At December 31, 2011, there were approximately 2,065,000 shares remaining under authorizations to
repurchase shares approved by the Company’s Board of Directors. Generally, the Company retains the shares upon
repurchase in treasury, which are not considered outstanding for earnings per common share computation purposes. For
additional information regarding the Company’s share repurchases during the year ended December 31, 2011, see “Item
5(c) — Issuer Purchases of Equity Securities” in Part II.
Off-Balance Sheet Arrangements
In certain markets, the Company arranges for consumers to obtain consumer loan products from one of
several independent third-party lenders through its CSO programs. For consumer loan products originated by third-party
lenders under the CSO programs, each lender is responsible for providing the criteria by which the consumer’s
application is underwritten and, if approved, determining the amount of the consumer loan. The Company in turn is
responsible for assessing whether or not the Company will guarantee such loans. When a consumer executes an
agreement with the Company under the CSO programs, the Company agrees, for a fee payable to the Company by the
consumer, to provide certain services to the consumer, one of which is to guarantee the consumer’s obligation to repay
the loan received by the consumer from the third-party lender if the consumer fails to do so. The guarantee represents an
obligation to purchase specific loans if they go into default, which generally have terms of less than 90 days. As of
December 31, 2011 and 2010, the outstanding amount of active consumer loans originated by third-party lenders under
the CSO programs was $59.4 million and $52.6 million, respectively, which were guaranteed by the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company’s operations result primarily from changes in interest rates, gold prices
and foreign currency exchange rates. The Company does not engage in speculative or leveraged transactions, nor does it
hold or issue financial instruments for trading purposes.
Interest Rate Risk. Management’s objective is to minimize the cost of borrowing over the long term through an
appropriate mix of fixed and floating rate debt. Derivative financial instruments, such as interest rate cap agreements,
may be used for the purpose of managing fluctuating interest rate exposures that exist from floating rate debt obligations
that are expected to remain outstanding. As of December 31, 2011, the Company had one outstanding interest rate cap
agreement with a notional amount of $15.0 million. This interest rate cap agreement was perfectly effective at
December 31, 2011. The Company had variable rate borrowings outstanding of $330.8 million and $240.9 million at
December 31, 2011 and 2010, respectively. If prevailing interest rates were to increase 100 basis points over the rates at
December 31, 2011, and the variable rate borrowings outstanding remained constant, the Company’s interest expense
would increase by $2.5 million, and net income attributable to the Company would decrease by $1.6 million for the year
ended December 31, 2011. See “Item 8. Financial Statements and Supplementary Data—Note 11.”
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 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.