Cash America 2012 Annual Report Download - page 79

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and third-party lenders. If the loss provision increased or decreased by 10%, or $31.6 million, from 2012 levels (a 0.9%
change in the percentage of gross combined consumer loans written and renewed), net income attributable to the
Company would decrease or increase by $19.9 million, net of taxes, for 2012, assuming the same volume of consumer
loans written and renewed in 2012.
Merchandise Held for Disposition
Merchandise held for disposition consists primarily of forfeited collateral from pawn loans not repaid and
merchandise that is purchased directly from customers or from third parties. The carrying value of the forfeited collateral
and other merchandise held for disposition is stated at the lower of cost (which is the cost basis in the loan or the amount
paid for purchased merchandise) or fair value. With respect to the Company’s foreign pawn operations, collateral
underlying unredeemed pawn loans is not owned by the Company; however, the Company assumes the risk of loss on
such collateral and is solely responsible for its care and disposition. Accordingly, the Company classifies these domestic
and foreign assets as “Merchandise held for disposition, net” in the consolidated balance sheets. The Company provides
an allowance for returns and an allowance for valuation based on management’s evaluation of the current trends in
performance, characteristics of the merchandise and historical shrinkage rates. Because the Company's pawn loans are
made without recourse to the borrower, the Company does not investigate or rely upon the borrower’s creditworthiness,
but instead bases its lending decision on an evaluation of the pledged personal property. The amount financed is
typically based on a percentage of the pledged personal property’s estimated disposition value. The Company uses
numerous sources in determining an item’s estimated disposition value, including the Company’s automated product
valuation system as well as catalogs, “blue books,” newspapers, internet research and previous disposition experience.
The Company performs a physical count of its merchandise in each location on multiple occasions on a cyclical basis
and reviews the composition of inventory by category and age in order to assess the adequacy of the allowance.
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 tests goodwill and intangible assets with an indefinite life for potential impairment 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 uses the income approach to complete its annual goodwill assessment. The income approach uses
future cash flows and estimated terminal values for each of the Company’s reporting units that are discounted using a
market participant perspective to determine the fair value of each reporting unit, which is then compared to the carrying
value of that reporting unit to determine if there is impairment. The income approach includes assumptions about
revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of
capital derived from other publicly-traded companies that are similar but not identical from an operational and economic
standpoint. The Company completed its annual assessment of goodwill as of June 30, 2012 and determined that the fair
value is significantly in excess of carrying value, and, as a result, no impairment existed at that date. See “Recent
Developments—Reorganization of Mexico-based Pawn Operations and Purchase of Noncontrolling Interest” for a
discussion of additional impairment testing performed in September 2012.
Long-Lived Assets and Other Intangible Assets
An evaluation of the recoverability of property and equipment and intangible assets subject to amortization is
performed whenever the facts and circumstances indicate that the carrying value may be impaired. An impairment loss is
recognized if the future undiscounted cash flows associated with the asset and the estimated fair value of the asset are
less than the asset’s corresponding carrying value. The amount of the impairment loss, if any, is the excess of the asset’s
carrying value over its estimated fair value.