Cash America 2013 Annual Report Download - page 32

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charge-offs because the amount advanced becomes the carrying cost of the forfeited collateral that is to be recovered
through the disposition of merchandise (as described below). The Company typically experiences seasonal growth
during the second, third and fourth quarter of each year due to loan balance growth that occurs after the heavy
repayment of pawn loans with tax refund proceeds received by customers in the first quarter each year.
Merchandise Disposition Activities
A related activity of the Company's pawn lending operations is the disposition of collateral from forfeited pawn
loans and the liquidation of a smaller volume of merchandise purchased directly from customers or from third parties.
The Company’s retail services segment engages in merchandise disposition activities through its retail services locations
in the United States and Mexico.
If a customer does not repay, renew or extend a pawn loan at the time a loan is due, the Company becomes the
owner of the forfeited collateral. With respect to the Company’s foreign pawn operations, collateral underlying forfeited
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.
Once the Company owns the forfeited collateral or becomes the party responsible for its care and disposition in
satisfaction of the loan, the merchandise becomes available for disposition through either retail or commercial sales.
Retail sales include the sale of jewelry and general merchandise direct to consumers through the Company’s domestic
and foreign retail services locations or over the internet through auction and other similar sites. Commercial sales
include the sale of refined gold, platinum, silver and diamonds to brokers or manufacturers.
Upon the sale of merchandise, the Company realizes gross profit, which is the difference between the
Company’s cost basis in the loan or the amount paid for purchased merchandise, both of which are recorded as cost of
sales, and the amount of proceeds from the sale. The cost of disposed merchandise is computed on the specific
identification basis. If the proceeds from the disposition of the collateral are less than the outstanding loan balance, a
loss is recorded for the difference at the time the collateral is sold. In the Company’s foreign operations, if within six
months of the sale of the merchandise, the customer makes a claim to receive the excess proceeds, the Company refunds
that amount to the customer and reduces revenue by the same amount.
The recovery of the amount advanced and the realization of a profit on the disposition of merchandise depends
on the Company’s initial assessment of the property’s estimated disposition value when the pawn loan is made. While
the Company has historically realized profits when disposing of merchandise, the improper assessment of the disposition
value could result in the disposition of the merchandise for an amount less than the loan amount. The Company’s retail
services locations also sell used goods purchased from the general public and some new merchandise purchased from
third parties, principally accessory merchandise that complements and enhances the marketability of items such as tools,
consumer electronics and jewelry. Merchandise sales are typically highest during the first quarter tax refund and fourth
quarter holiday seasons. Gross proceeds from merchandise disposition activities contributed approximately 33.1% of the
Company’s total revenue in 2013, 39.1% in 2012 and 43.5% in 2011.
The Company offers customers a 30-day satisfaction guarantee, whereby the customer can return merchandise
and receive a full refund, a replacement item of comparable value or store credit. The Company provides an allowance
for returns and valuation based on management’s evaluation of the characteristics of the merchandise. Customers may
purchase merchandise on a layaway plan under which the customer agrees to pay the purchase price for the item plus a
layaway fee, makes an initial cash deposit representing a small portion of the disposition price and pays the balance in
regularly scheduled, non-interest bearing payments. The Company segregates the layaway item and holds it until the
customer has paid the full disposition price. If the customer fails to make a required payment, the item is returned to
merchandise held for disposition. The layaway fee is recognized as revenue, and any amounts previously paid toward
the item are returned to the customer as store credit.
Consumer Loan Activities
In addition to pawn loans, the Company’s retail services segment also offers certain consumer loans in many of
its retail services locations in the United States, including short-term loans and secured and unsecured installment loans.