Cash America 2013 Annual Report Download - page 128

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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. Short-term loans that are guaranteed generally have terms of
less than 90 days. Secured auto equity loans, which are included in the Company’s installment loan portfolio, typically
have an average term of less than 24 months, with available terms of up to 42 months. As of December 31, 2013 and
2012, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was
$59.0 million and $64.7 million, respectively, which were guaranteed by the Company. The estimated fair value of the
liability for estimated losses on consumer loans guaranteed by the Company of $3.1 million and $3.5 million as of
December 31, 2013 and 2012, respectively, is included in “Accounts payable and accrued expenses” in the consolidated
balance sheets.
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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 variable rate debt. Derivative financial instruments, such as interest rate cap agreements, have historically been
used for the purpose of managing fluctuating interest rate exposures that exist from variable rate debt obligations that are
expected to remain outstanding. As of December 31, 2013 and 2012, the Company did not have any outstanding interest
rate cap agreements. In 2013, the Company’s weighted average variable rate borrowings outstanding were $180.5
million. If prevailing interest rates were to increase 100 basis points and the average variable rate borrowings
outstanding for the year ended December 31, 2013 remained constant, the Company’s interest expense would increase
by $1.8 million, and net income attributable to the Company would have decreased by $1.1 million for the year ended
December 31, 2013.
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.