Cash America 2012 Annual Report Download - page 29

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Reorganization of Mexico-based Pawn Operations and Purchase of Noncontrolling Interest
On September 24, 2012, the Company's Board of Directors approved a plan to significantly modify the business
plan and strategy of the Company's Mexico-based pawn operations, which comprise the foreign component of its retail
services segment. The Company reorganized these operations to include only full-service pawn locations that offer pawn
loans based on the pledge of general merchandise and jewelry-based collateral and discontinued the operations of 148 of
its Mexico-based pawn locations that primarily offered pawn loans based on the pledge of jewelry-based collateral (“the
Mexico Reorganization”). The Mexico Reorganization was substantially completed as of December 31, 2012. As of
December 31, 2012, the Company was operating 47 full-service pawn locations in Mexico. The Mexico Reorganization
reflects management’s decision to modify its strategy in Mexico to achieve profitability in its Mexico-based pawn
operations and to evaluate the potential to expand its services to customers in Latin American markets.
In connection with the Mexico Reorganization, the Company incurred charges for employee termination costs,
lease termination costs, asset impairments, loss on sale of assets, the recognition of a deferred tax asset valuation
allowance, uncollectible receivables and other charges. The Company recognized $28.9 million of charges related to the
Mexico Reorganization during the year ended December 31, 2012. See “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations—General—Recent Developments—Reorganization of Mexico-based
Pawn Operations and Purchase of Noncontrolling Interest” for further discussion of the Mexico Reorganization.
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As of December 31, 2012, the Company’s Mexico-based pawn operations were owned by Creazione Estilo, S.A.
de C.V., a Mexican sociedad anónima de capital variable (“Creazione”). Prior to September 26, 2012, the Company
owned 80% of the outstanding stock of Creazione. On September 26, 2012, the Company acquired all outstanding shares
of Creazione that were held by minority shareholders (approximately 20% of the outstanding shares), and, as a result,
Creazione became a wholly-owned subsidiary of the Company as of that date. The Company paid approximately $5.6
million in cash and released the minority shareholders from certain contingent obligations estimated at approximately
$2.8 million. The Company accounted for this transaction as an acquisition of the remaining interest of a majority-
owned subsidiary. The purchase resulted in a reduction to additional paid in capital of $7.7 million, representing the
excess of the cash amount paid and the released contingent obligations (totaling $8.4 million) less the carrying amount
of the noncontrolling interest of $0.7 million. In January 2013, the Company’s remaining Mexico-based pawn operations
were sold by Creazione to another wholly-owned subsidiary, CA Empeños Mexico, S. de R.L. de C.V., and began
operating exclusively under the name “Cash America casa de empeño.” In connection with the Mexico Reorganization,
the Company intends to liquidate the remaining assets of Creazione, which are insignificant, in 2013.
Acquisition of 25-Store Chain of Pawn Lending Locations in Kentucky, North Carolina and Tennessee
On September 27, 2012, the Company and three of its wholly-owned subsidiaries, Cash America, Inc. of
Tennessee, Cash America, Inc. of North Carolina and Cash America, Inc. of Kentucky, entered into an agreement to
acquire substantially all of the assets of a 25-store chain of pawn lending locations located in Kentucky, North Carolina,
and Tennessee owned by Standon, Inc., Casa Credit, Inc., Classic Credit, Inc. and Falcon Credit, Inc. As of that date, the
Company assumed the economic benefits of all of these pawnshops by operating them under management agreements
that commenced on September 27, 2012, and the final agreement terminated on December 16, 2012. The aggregate cash
consideration for the transaction, which was funded with borrowings under the Company’s line of credit, was
approximately $55.1 million, of which $52.0 million was paid in September 2012. The remaining $3.1 million of
consideration was paid during the fourth quarter of 2012.