Cash America 2011 Annual Report Download - page 146

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
115
16. Derivative Instruments
The Company periodically uses derivative instruments to manage risk from changes in market conditions that
may affect the Company’s financial performance. The Company primarily uses derivative instruments to manage its
primary market risks, which are interest rate risk and foreign currency exchange rate risk.
The Company uses interest rate cap agreements for the purpose of managing interest rate exposure on its
floating rate debt. For derivatives designated as cash flow hedges, the effective portions of changes in the estimated
fair value of the derivative are reported in “Accumulated other comprehensive income (loss)” (or “OCI”) and are
subsequently reclassified into earnings when the hedged item affects earnings. The change in the estimated fair value
of the ineffective portion of the hedge, if any, will be recorded as income or expense.
On March 27, 2009, the Company entered into an interest rate cap agreement with a notional amount of $15.0
million to hedge the Company’s outstanding floating rate line of credit for a term of 36 months at a fixed rate of
3.25%. This interest rate contract has been determined to be a perfectly effective cash flow hedge, pursuant to ASC
815-20-25, Derivatives and Hedging – Recognition (“ASC 815”) at its inception and on an ongoing basis.
The Company uses forward currency exchange contracts to minimize the effects of foreign currency risk in the
United Kingdom, Australia and Mexico. As of September 30, 2011, the Company designated the intercompany
balance related to its Mexico operations as long-term; therefore, gains and losses related to the translation of this
balance have been recognized in “Accumulated other comprehensive income (loss)” in the accompanying consolidated
statements of equity as of that date. The Company’s forward currency exchange contracts are non-designated
derivatives. Any gain or loss resulting from these contracts is recorded as income or loss and is included in “Foreign
currency transaction (loss) gain” in the Company’s consolidated statements of income. The Company does not
currently manage its exposure to risk from foreign currency exchange rate fluctuations through the use of forward
currency exchange contracts in Canada. As the Company’s foreign operations continue to grow, management will
continue to evaluate and implement foreign exchange rate risk management strategies.
The fair values of the Company’s derivative instruments at December 31, 2011 and 2010 were as follows
(dollars in thousands):
Balance at December 31,
Assets Balance Sheet Location 2011 2010
Derivatives designated as hedges:
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Interest rate contracts
Prepaid expenses and
other assets $ 15,000 $ - $ 30,000 $ 7
N
on-designated derivatives:
Forward currency
exchange contracts
Prepaid expenses and
other assets $ 80,375 $ 260 $ 46,392 $ (577)