Cash America 2011 Annual Report Download - page 120

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
89
store credit. Based on management’s analysis of historical refund trends, the Company provided a return allowance of
$0.3 million at December 31, 2011 and 2010.
Property and Equipment
Property and equipment is recorded at cost. The cost of property retired or sold and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is recognized in the consolidated statements
of income. Depreciation expense is generally provided on a straight-line basis, using the following estimated useful
lives:
Buildings and building improvements(a) 7 to 40 years
Leasehold improvements(b) 2 to 10 years
Furniture, fixtures and equipment 3 to 7 years
Computer hardware and software 2 to 10 years
(a)Structural components are depreciated over 30 to 40 years, and the remaining building systems and
features are depreciated over 7 to 20 years.
a
a
(b)Leasehold improvements are depreciated over the terms of the lease agreements with a maximum of
10 years.
Software Development Costs
The Company applies ASC 350-40, Internal Use Software (“ASC 350-40”), to its software purchase and
development activities. Under ASC 350-40, eligible internal and external costs incurred for the development of
computer applications, as well as for upgrades and enhancements that result in additional functionality of the
applications, are capitalized. Internal and external training and maintenance costs are charged to expense as incurred.
When a software application is placed in service, the Company begins amortizing the related capitalized software costs
using the straight-line method based on its estimated useful life, which currently ranges from three to 10 years.
Goodwill and Other Indefinite Lived Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in each business combination. In accordance with ASC 350-20-35, Goodwill – Subsequent
Measurement, the Company performs an impairment review of goodwill and intangible assets with an indefinite life at
least annually as of June 30 and between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying amount. The Company completed its June
2011 test and determined that there was no evidence of impairment of goodwill or other indefinite lived intangible
assets. There were no events or circumstances between June 30, 2011 and December 31, 2011 that would more likely
than not reduce the fair value of a reporting unit below its carrying amount.
The Company’s impairment evaluation of goodwill is based on comparing the fair value of the Company’s
reporting units to their carrying value. The fair value of the reporting units was determined based on the income
approach and then compared to the results of the market approach for reasonableness. The income approach
establishes fair value based on estimated future cash flows of each reporting unit, discounted by an estimated
weighted-average cost of capital developed using the capital asset pricing model, which reflects the overall level of
inherent risk of a reporting unit. The income approach uses the Company’s projections of financial performance for a
five-year period and includes assumptions about future revenue growth rates, operating margins and terminal values,
which vary among reporting units. The market approach establishes fair value by applying cash flow multiples to the
reporting unit’s operating performance. The multiples are derived from other publicly traded companies that are
similar but not identical from an operational and economic standpoint.
All of the amounts of goodwill recorded in the Company’s acquisitions, except for the acquisition of Prenda
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
89
store credit. Based on management’s analysis of historical refund trends, the Company provided a return allowance of
$0.3 million at December 31, 2011 and 2010.
Property and Equipment
Property and equipment is recorded at cost. The cost of property retired or sold and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is recognized in the consolidated statements
of income. Depreciation expense is generally provided on a straight-line basis, using the following estimated useful
lives:
Buildings and building improvements(a) 7 to 40 years
Leasehold improvements(b) 2 to 10 years
Furniture, fixtures and equipment 3 to 7 years
Computer hardware and software 2 to 10 years
(a)Structural components are depreciated over 30 to 40 years, and the remaining building systems and
features are depreciated over 7 to 20 years.
a
a
(b)Leasehold improvements are depreciated over the terms of the lease agreements with a maximum of
10 years.
Software Development Costs
The Company applies ASC 350-40, Internal Use Software (“ASC 350-40”), to its software purchase and
development activities. Under ASC 350-40, eligible internal and external costs incurred for the development of
computer applications, as well as for upgrades and enhancements that result in additional functionality of the
applications, are capitalized. Internal and external training and maintenance costs are charged to expense as incurred.
When a software application is placed in service, the Company begins amortizing the related capitalized software costs
using the straight-line method based on its estimated useful life, which currently ranges from three to 10 years.
Goodwill and Other Indefinite Lived Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in each business combination. In accordance with ASC 350-20-35, Goodwill – Subsequent
Measurement, the Company performs an impairment review of goodwill and intangible assets with an indefinite life at
least annually as of June 30 and between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying amount. The Company completed its June
2011 test and determined that there was no evidence of impairment of goodwill or other indefinite lived intangible
assets. There were no events or circumstances between June 30, 2011 and December 31, 2011 that would more likely
than not reduce the fair value of a reporting unit below its carrying amount.
The Company’s impairment evaluation of goodwill is based on comparing the fair value of the Company’s
reporting units to their carrying value. The fair value of the reporting units was determined based on the income
approach and then compared to the results of the market approach for reasonableness. The income approach
establishes fair value based on estimated future cash flows of each reporting unit, discounted by an estimated
weighted-average cost of capital developed using the capital asset pricing model, which reflects the overall level of
inherent risk of a reporting unit. The income approach uses the Company’s projections of financial performance for a
five-year period and includes assumptions about future revenue growth rates, operating margins and terminal values,
which vary among reporting units. The market approach establishes fair value by applying cash flow multiples to the
reporting unit’s operating performance. The multiples are derived from other publicly traded companies that are
similar but not identical from an operational and economic standpoint.
All of the amounts of goodwill recorded in the Company’s acquisitions, except for the acquisition of Prenda