Cash America 2014 Annual Report Download - page 21

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6
Merchandise Disposition Activities
A closely 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. 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 in accordance with state statutes.
Once the Company owns the forfeited collateral, 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 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 (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. The Company provides an allowance for losses based on
management’s evaluation of the characteristics of the merchandise being held for disposition and historical
experience.
Merchandise sales are typically highest during the first quarter tax refund and fourth quarter holiday
seasons. Gross proceeds from merchandise disposition activities contributed approximately 60.3%, 57.8% and
61.8% of the Company’s total revenue from continuing operations in 2014, 2013 and 2012, respectively.
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 also offers or arranges certain consumer loans, including short-
term loans and secured and unsecured installment loans, in some of its locations. Consumer loan fees include
revenue from the loan portfolio owned by the Company and fees paid to the Company for arranging, guaranteeing
and processing loans from independent third-party lenders for customers through the CSO programs. Consumer
loan fees, which include fees from short-term and installment loans, earned by the Company contributed
approximately 8.9%, 11.0% and 10.7% of the Company’s total revenue from continuing operations in 2014, 2013
and 2012, respectively.
Through the Company’s CSO programs, the Company provides services related to a third-party lender’s
consumer loan products in some markets by acting as a credit services organization or credit access business on
behalf of consumers in accordance with applicable state laws. Services offered under the CSO programs include
credit-related services such as arranging CSO loans with third-party lenders. Under the CSO programs, the
Company guarantees consumer loan payment obligations to the third-party lender in the event that the customer
defaults on the loan. CSO loans are not included in the Company’s financial statements, but the Company has
established a liability for the estimated losses in support of the guarantee on these loans in its consolidated balance
sheets.
Short-term loans generally have a loan term of seven to 90 days and are usually payable on the customer’s
next payday, unless the loan is renewed or extended in accordance with applicable laws. The fees the Company
charges on short-term loans in the United States vary by jurisdiction but typically range between $10 to $25 per
$100 borrowed. Due to the credit risk and high transaction costs of serving the Company’s customer segment, the
fees the Company charges are generally higher than the fees charged to customers with top-tier credit histories by
commercial banks and similar lenders.