Cash America 2014 Annual Report Download - page 102

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
87
Allowance and Liability for Estimated Losses on Consumer Loans
The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or
liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to
absorb credit losses inherent in the portfolio. The allowance for losses on the Company’s owned consumer loans
reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to
loans guaranteed under the CSO programs is included in “Accounts payable and accrued expenses” in the
consolidated balance sheets.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted
for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a
six-month rolling average of loss rates by stage of collection. For installment loan portfolios, the Company
generally uses a migration analysis to estimate losses inherent in the portfolio. The allowance or liability calculation
under the migration analysis is based on historical charge-off experience and the loss emergence period, which
represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The
factors the Company considers to assess the adequacy of the allowance or liability include past due performance,
historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration
analysis.
The Company fully reserves or charges off consumer loans once the loan or a portion of the loan has been
classified as delinquent for 60 consecutive days. If a loan is estimated to be uncollectible before it is fully reserved,
it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from
the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the
allowance are credited to the allowance when collected.
Merchandise Held for Disposition, Proceeds from Disposition of Merchandise and Cost of Disposed
Merchandise
Proceeds From and Cost of Disposed Merchandise
Upon the sale of merchandise, the Company realizes gross profit, which is the difference between the
Company’s cost basis in the loan (the amount loaned) 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.
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. Interim
customer payments for layaway sales are recorded as customer deposits and subsequently recognized as revenue
during the period in which the final payment is received.
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. The Company provides an allowance for returns and
an allowance for losses based on management’s evaluation of the characteristics of the merchandise and historical