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EX-32.2 - EXHIBIT 32.2 - CASH AMERICA INTERNATIONAL INCcsh20160630ex322.htm
EX-32.1 - EXHIBIT 32.1 - CASH AMERICA INTERNATIONAL INCcsh20160630ex321.htm
EX-31.2 - EXHIBIT 31.2 - CASH AMERICA INTERNATIONAL INCcsh20160630ex312.htm
EX-31.1 - EXHIBIT 31.1 - CASH AMERICA INTERNATIONAL INCcsh20160630ex311.htm
EX-10.1 - EXHIBIT 10.1 - CASH AMERICA INTERNATIONAL INCcsh20160630ex101.htm

 
UNITED STATES



 
SECURITIES AND EXCHANGE COMMISSION
 
 
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
þ
  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  
 
 
 
 
 
  
For the quarterly period ended June 30, 2016
  
 
 
 
 
 
  
OR
  
 
 
 
 
¨
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  
 
 
 
 
 
  
For the transition period from                                  to                                 
  
 
 
 
 
 
  
Commission File Number 001-09733
  
 
(Exact name of registrant as specified in its charter)
Texas
 
75-2018239
(State or other jurisdiction of
Incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1600 West 7th Street
Fort Worth, Texas
 
 
76102
(Address of principal executive offices)
 
(Zip Code)
(817) 335-1100
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    þ        No    ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes    þ        No    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer þ                 Accelerated filer ¨                     
Non-accelerated filer ¨  (Do not check if a smaller reporting company) Smaller reporting company ¨             
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes    ¨        No    þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
24,025,196 of the Registrants’ common shares, $.10 par value per share, were outstanding as of August 1, 2016.



CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements give current expectations or forecasts of future events and reflect the views and assumptions of senior management with respect to the business, financial condition, operations and prospects of Cash America International, Inc. and its subsidiaries (collectively, the “Company”). When used in this report, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecast,” “project” and similar expressions or variations as they relate to the Company or its management are intended to identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that are beyond the ability of the Company to control and, in some cases, predict. Accordingly, there are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these statements. Key factors that could cause the Company’s actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following:
risks related to the pending merger with First Cash Financial Services, Inc. (“FCFS”), including the risk that the merger may not be completed (because it is subject to certain approvals by the shareholders of the Company and FCFS, regulatory approvals and certain other closing conditions that must be met in order for the merger to be completed), risks that the benefits of the business combination may not be achieved, and other risks related to the business and operations and to the Company’s stock price, among others;
risks related to the regulation of the Company, such as the failure to comply with existing, the adoption of new, or adverse changes in the interpretation or enforcement of laws, rules, regulations and guidance, the regulatory and examination authority of the Consumer Financial Protection Bureau (“CFPB”), and the effect of and compliance with enforcement actions, rules, orders and agreements issued by applicable regulators;
decreased demand for the Company’s products and services and changes in competition;
fluctuations in the price of gold and changes in economic conditions;
public perception of the Company’s business and the Company’s business practices;
the effect of any current or future litigation proceedings, including an unfavorable outcome in an outstanding lawsuit relating to the Company’s 5.75% Senior Notes due 2018 even though the Company believes the lawsuit is without merit and will vigorously defend its position, and any judicial decisions or rule-making that affects the Company, its products or the legality or enforceability of its arbitration agreements;
risks related to the Company’s financing, such as compliance with financial covenants in the Company’s debt agreements or the Company’s ability to satisfy its outstanding debt obligations, to refinance existing debt obligations or to obtain new capital;
accounting and income tax risks related to goodwill and other intangible asset impairment, certain tax positions taken by the Company and other accounting matters that require the judgment of management;
the Company’s ability to attract and retain qualified executive officers;
risks related to interruptions to the Company’s business operations, such as a prolonged interruption in the Company’s operations of its facilities, systems or business functions, cyber-attacks or security breaches or the actions of third parties who provide, acquire or offer products and services to, from or for the Company;
risks related to the expansion and growth of the Company’s business, including the Company’s ability to open new locations in accordance with plans or to successfully integrate newly acquired businesses into its operations;
risks related to the spin-off of the Company’s former online lending business that comprised its e-commerce division, Enova International, Inc.;
fluctuations in the price of the Company’s common stock;
the effect of any of the above changes on the Company’s business or the markets in which the Company operates; and
other risks and uncertainties described in this report or from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).



The foregoing list of factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this quarterly report, including under the caption “Risk Factors” in Item 1A of this quarterly report. In addition, new factors may emerge or changes to these factors may occur that would impact the Company’s business. Additional information regarding these and other risks can be found in this quarterly report and may also be contained in the Company’s other filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. If one or more events related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect, actual results may differ materially from those the Company anticipates. The Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.



CASH AMERICA INTERNATIONAL, INC.
INDEX TO FORM 10-Q
 
 
 
 
Page
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(Unaudited)
 
June 30,
 
December 31,
 
2016
 
2015
 
2015
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
20,029

 
$
43,986

 
$
23,153

Pawn loans
237,220

 
247,381

 
248,713

Merchandise held for disposition, net
218,262

 
203,006

 
241,549

Pawn loan fees and service charges receivable
49,800

 
50,317

 
52,798

Consumer loans, net
27,226

 
30,393

 
31,291

Income taxes receivable
3,993

 
4,084

 

Prepaid expenses and other assets
23,082

 
25,314

 
22,642

Investment in equity securities
47,069

 
109,140

 
42,613

Total current assets
626,681

 
713,621

 
662,759

Property and equipment, net
155,779

 
182,051

 
171,598

Goodwill
488,522

 
487,569

 
488,022

Intangible assets, net
36,523

 
42,562

 
39,536

Other assets
6,652

 
5,913

 
6,823

Total assets
$
1,314,157

 
$
1,431,716

 
$
1,368,738

Liabilities and Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable and accrued expenses
$
62,349

 
$
71,586

 
$
74,586

Customer deposits
21,613

 
20,350

 
18,864

Income taxes currently payable

 

 
3,063

Total current liabilities
83,962

 
91,936

 
96,513

Deferred tax liabilities
69,323

 
90,689

 
64,372

Other liabilities
630

 
838

 
723

Long-term debt
183,280

 
181,319

 
208,971

Total liabilities
$
337,195

 
$
364,782

 
$
370,579

Equity:
 
 
 
 
 
Common stock, $0.10 par value per share, 80,000,000 shares authorized, 30,235,164 shares issued
3,024

 
3,024

 
3,024

Additional paid-in capital
82,836

 
80,702

 
86,557

Retained earnings
1,061,391

 
1,037,505

 
1,052,567

Accumulated other comprehensive income
17,817

 
57,649

 
14,842

Treasury shares, at cost (6,241,981 shares, 3,678,936 shares and 5,362,684 shares as of June 30, 2016 and 2015, and as of December 31, 2015, respectively)
(188,106
)
 
(111,946
)
 
(158,831
)
Total equity
976,962

 
1,066,934

 
998,159

Total liabilities and equity
$
1,314,157

 
$
1,431,716

 
$
1,368,738


See notes to consolidated financial statements.
1


CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
 
 
 
 
 
 
 
Pawn loan fees and service charges
$
76,110

 
$
76,899

 
$
155,795

 
$
154,212

Proceeds from disposition of merchandise
148,138

 
138,703

 
326,435

 
310,916

Consumer loan fees
16,066

 
19,311

 
34,173

 
39,630

Other
837

 
1,551

 
1,953

 
3,468

Total Revenue
241,151

 
236,464

 
518,356

 
508,226

Cost of Revenue
 
 
 
 
 
 
 
Disposed merchandise
109,384

 
98,060

 
238,602

 
217,944

Consumer loan loss provision
3,552

 
4,413

 
7,495

 
9,200

Total Cost of Revenue
112,936

 
102,473

 
246,097

 
227,144

Net Revenue
128,215

 
133,991

 
272,259

 
281,082

Expenses
 
 
 
 
 
 
 
Operations and administration
108,614

 
113,306

 
219,405

 
229,644

Depreciation and amortization
13,028

 
14,559

 
26,533

 
29,078

Gain on divestitures

 
(201
)
 

 
(201
)
Total Expenses
121,642

 
127,664

 
245,938

 
258,521

Income from Operations
6,573

 
6,327

 
26,321

 
22,561

Interest expense
(3,436
)
 
(3,557
)
 
(7,355
)
 
(7,201
)
Interest income

 
5

 
20

 
7

Foreign currency transaction (loss) gain

 
(7
)
 

 
32

Loss on early extinguishment of debt

 
(607
)
 
(11
)
 
(607
)
Gain on disposition of equity securities
6

 
1,099

 
123

 
1,225

Income before Income Taxes
3,143

 
3,260

 
19,098

 
16,017

Provision for income taxes
1,045

 
1,189

 
6,367

 
6,101

Net Income
$
2,098

 
$
2,071

 
$
12,731

 
$
9,916

Earnings Per Share:
 
 
 
 
 
 
 
Net Income:
 
 
 
 
 
 
 
Basic
$
0.09

 
$
0.08

 
$
0.52

 
$
0.35

Diluted
$
0.08

 
$
0.08

 
$
0.51

 
$
0.35

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
24,326

 
27,326

 
24,569

 
28,005

Diluted
24,714

 
27,508

 
24,908

 
28,124

Dividends declared per common share
$
0.08

 
$
0.05

 
$
0.16

 
$
0.10



See notes to consolidated financial statements.
2


CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(Unaudited)
 
Three Months Ended  
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Net Income
$
2,098

 
$
2,071

 
$
12,731

 
$
9,916

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in fair value of marketable equity securities before reclassification (a)
4,329

 
(3,741
)
 
3,054

 
(13,520
)
Gain on disposition of equity securities reclassified from accumulated other comprehensive income (b)
(4
)
 
(709
)
 
(79
)
 
(790
)
Total other comprehensive income (loss), net of tax
$
4,325

 
$
(4,450
)
 
$
2,975

 
$
(14,310
)
Comprehensive income (loss)
$
6,423

 
$
(2,379
)
 
$
15,706

 
$
(4,394
)
 
 
 
 
 
 
(a) 
Net of tax (provision) benefit of $(2,385) and $2,066 for the three months ended June 30, 2016 and 2015, respectively, and $(1,683) and $7,416 for the six months ended June 30, 2016 and 2015, respectively.
(b) 
Includes a $6 and $1,099 gain on available-for-sale securities that was reclassified to “Gain on disposition of equity securities” in the consolidated statements of income for the three months ended June 30, 2016 and 2015, respectively, and $123 and $1,225 for the six months ended June 30, 2016 and 2015, respectively. The tax impact of these reclassification were $2 and $390 for the three months ended June 30, 2016 and 2015, respectively, and $44 and $435 for the six months ended June 30, 2016 and 2015, respectively.





See notes to consolidated financial statements.
3


CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in thousands, except per share data)
(Unaudited)
 
Common Stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss)
 
Treasury shares, at cost
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance as of January 1, 2015
30,235,164

 
$
3,024

 
$
86,388

 
$
1,030,387

 
$
71,959

 
(1,428,495
)
 
$
(58,556
)
 
$
1,133,202

Shares issued under stock-based plans
 
 
 
 
(5,896
)
 
 
 
 
 
112,757

 
4,292

 
(1,604
)
Stock-based compensation expense
 
 
 
 
3,247

 
 
 
 
 
 
 
 
 
3,247

Income tax benefit from stock-based compensation
 
 
 
 
256

 
 
 
 
 
 
 
 
 
256

Net income
 
 
 
 
 
 
9,916

 
 
 
 
 
 
 
9,916

Dividends paid
 
 
 
 
 
 
(2,798
)
 
 
 
 
 
 
 
(2,798
)
Marketable equity securities loss, net of tax
 
 
 
 
 
 
 
 
(14,310
)
 
 
 
 
 
(14,310
)
Purchases of treasury shares
 
 
 
 
(3,293
)
 
 
 
 
 
(2,363,198
)
 
(57,682
)
 
(60,975
)
Balance as of June 30, 2015
30,235,164

 
$
3,024

 
$
80,702

 
$
1,037,505

 
$
57,649

 
(3,678,936
)
 
$
(111,946
)
 
$
1,066,934

Balance as of January 1, 2016
30,235,164

 
$
3,024

 
$
86,557

 
$
1,052,567

 
$
14,842

 
(5,362,684
)
 
$
(158,831
)
 
$
998,159

Shares issued under stock-based plans
 
 
 
 
(6,580
)
 
 
 
 
 
211,861

 
6,294

 
(286
)
Stock-based compensation expense
 
 
 
 
2,859

 
 
 
 
 
 
 
 
 
2,859

Net income
 
 
 
 
 
 
12,731

 
 
 
 
 
 
 
12,731

Dividends paid
 
 
 
 
 
 
(3,907
)
 
 
 
 
 
 
 
(3,907
)
Marketable equity securities gain, net of tax
 
 
 
 
 
 
 
 
2,975

 
 
 
 
 
2,975

Purchases of treasury shares
 
 
 
 
 
 
 
 
 
 
(1,091,158
)
 
(35,569
)
 
(35,569
)
Balance as of June 30, 2016
30,235,164

 
$
3,024

 
$
82,836

 
$
1,061,391

 
$
17,817

 
(6,241,981
)
 
$
(188,106
)
 
$
976,962



See notes to consolidated financial statements.
4


CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
 
Six Months Ended 
 June 30,
 
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net Income
$
12,731

 
$
9,916

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expenses
26,533

 
29,078

Amortization of debt discount and issuance costs
987

 
1,035

Consumer loan loss provision
7,495

 
9,200

Stock-based compensation
2,859

 
3,247

Deferred income taxes, net
3,312

 
(1,676
)
Non-cash loss on early extinguishment of debt
41

 
216

Non-cash gain on disposition of equity securities
(123
)
 
(1,225
)
Other
5,056

 
4,128

Changes in operating assets and liabilities, net of assets acquired:
 
 
 
Merchandise other than forfeited
16,229

 
3,656

Pawn loan fees and service charges receivable
3,009

 
3,223

Finance and service charges on consumer loans
(51
)
 
535

Prepaid expenses and other assets
303

 
(5,821
)
Accounts payable and accrued expenses
(11,569
)
 
(1,420
)
Current and noncurrent income taxes
(7,056
)
 
5,053

Other operating assets and liabilities
2,739

 
3,082

Net cash provided by operating activities
62,495

 
62,227

Cash Flows from Investing Activities
 
 
 
Pawn loans made
(378,586
)
 
(375,817
)
Pawn loans repaid
223,497

 
225,833

Principal recovered through dispositions of forfeited pawn loans
168,874

 
155,952

Consumer loans made or purchased
(193,577
)
 
(249,770
)
Consumer loans repaid
188,546

 
254,061

Acquisitions, net of cash acquired
(867
)
 

Purchases of property and equipment
(7,622
)
 
(6,883
)
Proceeds from disposition of marketable equity securities
93

 
351

Other investing activities
(232
)
 
1,215

Net cash provided by investing activities
126

 
4,942

Cash Flows from Financing Activities
 
 
 
Net payments under bank lines of credit
(23,269
)
 

Repurchases of notes payable
(3,000
)
 
(12,411
)
Treasury shares purchased
(35,569
)
 
(57,682
)
Accelerated share repurchases forward contact

 
(3,293
)
Dividends paid
(3,907
)
 
(2,798
)
Net cash used in financing activities
(65,745
)
 
(76,184
)
Effect of exchange rates on cash

 
(41
)
Net decrease in cash and cash equivalents
(3,124
)
 
(9,056
)
Cash and cash equivalents at beginning of year
23,153

 
53,042

Cash and cash equivalents at end of period
$
20,029

 
$
43,986

Supplemental Disclosures
 
 
 
Non-cash investing and financing activities
 
 
 
Pawn loans forfeited and transferred to merchandise held for disposition
$
165,590

 
$
153,267

Pawn loans renewed
$
95,375

 
$
103,789


See notes to consolidated financial statements.
5


CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
1. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include all of the accounts of Cash America International, Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements presented as of June 30, 2016 and 2015 and for the six-month periods ended June 30, 2016 and 2015 are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. The consolidated balance sheet data as of December 31, 2015 included herein was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). Operating results for the three- and six-month periods ended June 30, 2016 are not necessarily indicative of the results that may be expected for the full fiscal year.

The Company’s primary line of business is pawn lending. Pawn loans are short-term loans made on the pledge of tangible personal property. Pawn loan fees and service charges are generated from the Company’s pawn loan portfolio. In relation to its pawn lending operations, the Company also disposes of collateral from unredeemed pawn loans and liquidates a smaller volume of merchandise purchased directly from customers or from third parties.

Another component of the Company’s business is originating, arranging, guaranteeing or purchasing consumer loans in some of its locations. Consumer loans provide customers with cash, typically in exchange for an obligation to repay the amount advanced plus fees and any applicable interest. Consumer loans offered by the Company are either written by the Company or by a third-party lender through the Company’s credit services organization or credit access business programs (“CSO programs”) and include short-term loans (commonly referred to as payday loans) and installment loans. Revenue from consumer loan fees includes interest income, finance charges and fees for services provided through the CSO programs (“CSO fees”). For more information on the Company’s CSO programs, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—the Company’s Business—Consumer Loan Activities.”
    
A small component of the Company’s business includes the offering of check cashing services through franchised check cashing centers, for which the Company receives franchise fees. In addition, in some of its Company-operated lending locations, the Company offers check cashing services, as well as prepaid debit cards that are issued and serviced through a third party.

The Company has one reportable operating segment, and therefore, all required financial segment information can be found directly in the consolidated financial statements. The Company evaluates the performance of its reportable segment based on income from operations.

These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

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 and is not amortized. In accordance with Accounting Standards Codification (“ASC”) 350-20-35, Goodwill-Subsequent Measurement (“ASC 350”), the Company tests goodwill and intangible assets with an indefinite life for potential impairment annually as of June 30 and between

6

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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, which would result in impairment. The Company has one reportable operating segment, which serves as the only reporting unit for goodwill assessment.

The Company completed its annual assessment of goodwill as of June 30, 2016. The Company elected to perform a qualitative assessment in accordance with ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”), and, based on the results of this assessment, determined that no conditions existed that would make it more likely than not that goodwill was impaired.

As part of the goodwill assessment, the Company also considers certain observable quantitative factors in its assessment, such as the market value of its equity, which is the observable market value of the Company based on the quoted market prices of the Company’s common stock at the measurement date. The Company compares the market value of its equity to the carrying value of its equity. As of June 30, 2016, the market value of the Company’s equity was higher than the carrying value of equity. In addition, as part of the Agreement and Plan of Merger (the “Merger Agreement”) entered into by the Company, First Cash Financial Services, Inc., a Delaware corporation (“FCFS”), and Frontier Merger Sub, LLC, a Texas limited liability company, the estimated merger consideration based on the stock price of FCFS as of June 30, 2016 was in excess of the Company’s carrying value of equity. See Note 8 for a description of the Merger Agreement with FCFS. Therefore, the Company’s goodwill is not considered to be at risk of being impaired at this time. However, a decline in general economic, market or business conditions, significant unfavorable changes in the Company’s forecasted revenue, expenses, cash flows, weighted-average cost of capital, and/or market transaction multiples, or a termination of the Merger Agreement could represent a potential triggering event that may indicate an impairment review should be performed. The Company will continue to monitor for events and circumstances that could negatively impact the key assumptions in determining its fair value.

The Company performed its annual indefinite-lived intangible asset impairment test as of June 30, 2016. The Company’s indefinite-lived intangible assets consist of trademarks, trade names, and licenses and had a carrying amount of $15.0 million as of June 30, 2016. The Company elected to perform a qualitative assessment in accordance with ASU 2012-02 and determined that no conditions existed that would make it more likely than not that the indefinite-lived intangible assets were impaired. Therefore, no further quantitative assessment was required.

Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects related to the accounting for share-based payment transactions. Per ASU 2016-09: (1) all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement, rather than in additional paid-in capital under current guidance; (2) excess tax benefits should be classified along with other income tax cash flows as an operating activity on the statement of cash flows, rather than as a separate cash inflow from financing activities and cash outflow from operating activities under current guidance; (3) cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity; and (4) an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, which is consistent with current guidance, or account for forfeitures when they occur. ASU 2016-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted.

Effective January 1, 2016, the Company elected to early adopt ASU 2016-09. The Company prospectively applied the guidance dictating that excess tax benefits be recognized on the income statement. For the three and six months ended June 30, 2016, the Company recognized an excess income tax benefit of $0.2 million and $0.7 million, respectively, that reduced the income tax provision and increased net income on the consolidated statements of income. The Company retrospectively applied the guidance dictating the presentation of excess tax benefits as an operating cash flow and included the $0.7 million excess income tax benefit as part of “Current and noncurrent

7

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

income taxes” presented as an operating activity on the consolidated statement of cash flows for the six months ended June 30, 2016. For the six months ended June 30, 2015, the $0.3 million excess tax benefit presented as offsetting operating and financing activities in the consolidated cash flow statements within the quarterly report filed on Form 10-Q for the six months ended June 30, 2015 was eliminated from the presentation due to the adoption of this guidance. In addition, the Company retrospectively applied the guidance dictating that cash paid by an employer when directly withholding shares for tax-withholding purposes be classified as a financing activity, and, consistent with prior period presentation, these amounts were included as part of “Treasury shares purchased” presented as a financing activity on the consolidated statement of cash flows for the six months ended June 30, 2016 and 2015. Finally, the Company elected to account for forfeitures when they occur.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which requires that all deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 eliminates the current requirement for an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. ASU 2015-17 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and can be prospectively or retrospectively applied. Early adoption is permitted. The Company early adopted ASU 2015-17 on January 1, 2016 and retrospectively applied ASU 2015-17 for all periods presented. The impact of this change in accounting principle on amounts previously reported on the consolidated balance sheet as of June 30, 2015 was a reclassification of $20.4 million previously reported as “Current deferred tax liabilities” in the current liabilities section of the consolidated balance sheet to “Deferred tax liabilities” in the noncurrent liabilities section of the consolidated balance sheet. As of December 31, 2015, the impact of this change in accounting principle resulted in a reclassification of $7.7 million previously reported as “Current deferred tax assets” in the current assets section of the consolidated balance sheet to “Deferred tax liabilities” in the noncurrent liabilities section of the consolidated balance sheet.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. In addition, since ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs specifically related to line-of-credit arrangements, the FASB also issued ASU 2015-15, Interest-Imputed Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”), in August 2015. ASU 2015-15 states that, for line-of-credit arrangements, entities can continue to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt costs ratably over the term of the arrangement. ASU 2015-03 and ASU 2015-15 apply to all business entities and are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015.

On January 1, 2016, the Company retrospectively adopted ASU 2015-03 and ASU 2015-15. As a result, unamortized debt issuance costs related to the Company’s $300.0 million in aggregate principal amount of 5.75% senior notes due 2018 (the “2018 Senior Notes”) of $2.0 million, $3.1 million and $2.6 million as of June 30, 2016 and 2015 and December 31, 2015, respectively, were reclassified from “Other assets” to a deduction of “Long-term debt” on the Company’s consolidated balance sheets. Unamortized debt issuance costs related to the Company’s $280.0 million line of credit due 2018 (the “Line of Credit”) of $1.1 million, $1.4 million and $1.4 million as of June 30, 2016 and 2015 and December 31, 2015, respectively, remain in “Other assets” on the Company’s consolidated balance sheets. Adoption of ASU 2015-03 and ASU 2015-15 did not impact the results of operations, retained earnings or cash flows in the current or previous reporting periods.

In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which defines specific criteria that entities must apply to determine if a cloud computing arrangement includes an in-substance software license. The result of the assessment will direct the entity to apply either software licensing or service contract guidance to record the related fees. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015 and can be prospectively or retrospectively

8

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

applied. The Company prospectively adopted ASU 2015-02 on January 1, 2016, and the adoption did not have a material effect on its financial position or results of operations.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which provides guidance for reporting entities that are required to evaluate whether they should consolidate certain legal entities. In accordance with ASU 2015-02, all legal entities are subject to reevaluation under the revised consolidation model. ASU 2015-02 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Entities are permitted to apply ASU 2015-02 either retrospectively or through a modified retrospective approach. The Company retrospectively adopted ASU 2015-02 on January 1, 2016, and the adoption did not have a material effect on its financial position or results of operations.

Accounting Standards to be Adopted in Future Periods

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 is effective for public entities that are Securities and Exchange Commission
(“SEC”) filers for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company does not expect that the adoption of ASU 2016-13 will have a material effect on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transaction to the Equity Method of Accounting (“ASU 2016-07”), which eliminates the requirement that when an investment qualifies for the use of the equity method as a result of an increase in the level of ownership interest or degree of influence, the investor must adjust the investment, results of operations and retained earnings retrospectively as if the equity method had been in effect during all previous periods in which the investment had been held. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. In addition, ASU 2016-07 requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, and should be applied prospectively. Early adoption is permitted. Since the Company does not account for its investment in Enova common stock under the equity method of accounting, the Company does not expect that the adoption of ASU 2016-07 will have a material effect on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 824) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to recognize the following for all leases with terms longer than 12 months: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Leases with a term of 12 months or less will be accounted for similarly to existing guidance for operating leases today. In addition, ASU 2016-02 aligns lessor accounting with the lessee accounting model and ASU 2014-09, Revenue from Contracts with Customers (Topic 606) Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40) (“ASU 2014-09”). ASU 2016-02 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Entities must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial

9

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

statements. The Company is still assessing the potential impact of ASU 2016-02 on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. The Company does not expect that the adoption of ASU 2016-01 will have a material effect on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which defers the effective date of ASU 2014-09 by one year. In addition, between March 2016 and May 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”) and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients (“ASU 2016-12”). ASU 2016-08, ASU 2016-10 and ASU 2016-12 clarify certain aspects of ASU 2014-09 and provide additional implementation guidance. For public business entities, ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted at, but not before, the original effective date, which is for fiscal years, and interim periods within those years, beginning after December 15, 2016. Entities are permitted to apply ASU 2014-09, ASU 2016-08, ASU 2016-10, and ASU 2016-12 either retrospectively or through an alternative transition model. The Company does not expect that the adoption of ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 will have a material effect on its consolidated financial statements.

2. Credit Quality Information on Pawn Loans    

In its pawn loan portfolio, the Company monitors the type and adequacy of collateral compared to historical forfeiture rates, average loan amounts and gross profit margins, among other factors. If a pawn loan defaults, the Company relies on the disposition of forfeited merchandise to recover the principal amount of an unpaid pawn loan, plus a yield on the investment, because the Company’s pawn loans are non-recourse against the customer. In addition, a pawn loan customer’s creditworthiness does not affect the Company’s financial position or results of operations. Generally, forfeited merchandise has historically sold for an amount in excess of the carrying value of the merchandise. Goods pledged to secure pawn loans are tangible personal property items such as jewelry, tools, televisions and other electronics, musical instruments and other miscellaneous items.

A pawn loan is considered delinquent if the customer does not repay or, where allowed by law, renew or extend the loan on or prior to its contractual maturity date plus any applicable grace period. Therefore, the balance of “Pawn loans” in the consolidated balance sheets includes delinquent loans that are in the process of being moved to merchandise held for disposition but have not yet been transferred. Pawn loan fees and service charges do not accrue on delinquent pawn loans. When a pawn loan is considered delinquent, any accrued pawn loan fees and service charges are reversed, and no additional pawn loan fees and service charges are accrued. As of June 30, 2016

10

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

and 2015 and December 31, 2015, the Company had current pawn loans outstanding of $229.2 million, $239.2 million and $241.6 million, respectively, and delinquent pawn loans outstanding of $8.0 million, $8.2 million and $7.1 million, respectively.

3. Consumer Loans, Credit Quality Information on Consumer Loans, Allowance and Liability for Estimated Losses on Consumer Loans and Guarantees of Consumer Loans

Current and Delinquent Consumer Loans

The Company classifies its consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. Installment loans are considered delinquent when a customer misses two payments. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.

The Company generally does not accrue interest on delinquent consumer loans. In addition, delinquent consumer loans generally may not be renewed, and if, during its attempt to collect on a delinquent consumer loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.

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 earned fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for estimated losses on the consumer loans owned by the Company reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under the Company’s CSO programs is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. Increases or decreases in the allowance and the liability for estimated losses are increased by charge-offs and decreased by recoveries, and the net change is recorded as “Consumer loan loss provision” in the consolidated statements of income.

In determining the allowance or liability for estimated losses on consumer loans, the Company applies a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans and installment loans and are analyzed as current or delinquent.

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 loans, the Company uses a migration analysis to estimate losses inherent in the portfolio once an adequate period of time has elapsed in order for the Company to generate a meaningful indication of performance history. 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 in determining 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. Prior to the establishment of an indicative migration analysis, the Company estimates future losses for its installment loans based on the historical charge-off experience of the total portfolio on a static pool basis.
The Company fully reserves or charges off consumer loans once the loan has been classified as delinquent for 60 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 the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance, including the sale of delinquent loans to unaffiliated third parties, are credited to the allowance when collected or when sold to a third party.

11

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


The components of Company-owned consumer loan portfolio receivables as of June 30, 2016 and 2015 and December 31, 2015 were as follows (dollars in thousands):
 
 
As of
 
As of
 
As of
 
June 30, 2016
 
June 30, 2015
 
December 31, 2015
Short-term loans
 
 
 
 
 
Current loans
$
23,726

 
$
25,573

 
$
26,304

Delinquent loans
2,539

 
3,519

 
2,723

Total consumer loans, gross
26,265

 
29,092

 
29,027

Less: Allowance for losses
(1,350
)
 
(2,106
)
 
(1,651
)
Consumer loans, net
$
24,915

 
$
26,986

 
$
27,376

 
 
 
 
 
 
Installment loans
 
 
 
 
 
Current loans
$
1,563

 
$
2,334

 
$
2,027

Delinquent loans
1,706

 
2,500

 
3,133

Total consumer loans, gross
3,269

 
4,834

 
5,160

Less: Allowance for losses
(958
)
 
(1,427
)
 
(1,245
)
Consumer loans, net
$
2,311

 
$
3,407

 
$
3,915

 
 
 
 
 
 
Total Company-owned consumer loans
 
 
 
 
 
Current loans
$
25,289

 
$
27,907

 
$
28,331

Delinquent loans
4,245

 
6,019

 
5,856

Total consumer loans, gross
29,534

 
33,926

 
34,187

Less: Allowance for losses
(2,308
)
 
(3,533
)
 
(2,896
)
Consumer loans, net
$
27,226

 
$
30,393

 
$
31,291





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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


Changes in the allowance for losses for Company-owned consumer loans and the liability for estimated losses on the Company’s guarantees of third-party lender-owned consumer loans through the CSO programs for the three and six months ended June 30, 2016 and 2015 were as follows (dollars in thousands):

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Short-term loans
 
 
 
 
 
 
 
Allowance for losses for Company-owned consumer loans:
 
 
 
 
 
 
 
Balance at beginning of period
$
1,164

 
$
2,034

 
$
1,651

 
$
2,736

Consumer loan loss provision
2,319

 
1,767

 
4,692

 
5,073

Charge-offs
(2,657
)
 
(4,406
)
 
(6,228
)
 
(10,121
)
Recoveries
524

 
2,711

 
1,235

 
4,418

Balance at end of period
$
1,350

 
$
2,106

 
$
1,350

 
$
2,106

Liability for third-party lender-owned consumer loans:
 
 
 
 
 
 
 
Balance at beginning of period
$
26

 
$
215

 
$
30

 
$
402

Consumer loan loss provision
1

 
(56
)
 
(3
)
 
(243
)
Balance at end of period
$
27

 
$
159

 
$
27

 
$
159

 
 
 
 
 
 
 
 
Installment loans
 
 
 
 
 
 
 
Allowance for losses for Company-owned consumer loans:
 
 
 
 
 
 
 
Balance at beginning of period
$
1,087

 
$
1,191

 
$
1,245

 
$
1,426

Consumer loan loss provision
1,413

 
1,965

 
4,449

 
3,265

Charge-offs
(2,223
)
 
(2,007
)
 
(5,781
)
 
(3,914
)
Recoveries
681

 
278

 
1,045

 
650

Balance at end of period
$
958

 
$
1,427

 
$
958

 
$
1,427

Liability for third-party lender-owned consumer loans:
 
 
 
 
 
 
 
Balance at beginning of period
$
494

 
$
1,026

 
$
1,956

 
$
658

Consumer loan loss provision
(181
)
 
737

 
(1,643
)
 
1,105

Balance at end of period
$
313

 
$
1,763

 
$
313

 
$
1,763

 
 
 
 
 
 
 
 
Total consumer loans
 
 
 
 
 
 
 
Allowance for losses for Company-owned consumer loans:
 
 
 
 
 
 
 
Balance at beginning of period
$
2,251

 
$
3,225

 
$
2,896

 
$
4,162

Consumer loan loss provision (a)
3,732

 
3,732

 
9,141

 
8,338

Charge-offs
(4,880
)
 
(6,413
)
 
(12,009
)
 
(14,035
)
Recoveries
1,205

 
2,989

 
2,280

 
5,068

Balance at end of period
$
2,308

 
$
3,533

 
$
2,308

 
$
3,533

Liability for third-party lender-owned consumer loans:
 
 
 
 
 
 
 
Balance at beginning of period
$
520

 
$
1,241

 
$
1,986

 
$
1,060

Consumer loan loss provision (a)
(180
)
 
681

 
(1,646
)
 
862

Balance at end of period
$
340

 
$
1,922

 
$
340

 
$
1,922

 
 
 
 
 
 
 
 
(a) 
The sum of the consumer loan loss provision related to the allowance for losses for Company-owned consumer loans and the consumer loan loss provision related to the liability for third-party lender-owned consumer equals the consumer loan loss provision presented on the consolidated statements of income for the respective time periods.


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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans, unsecured installment loans and the remaining outstanding installment loans that are secured by a customer’s vehicle, which the Company ceased offering in the latter half of 2015. The guarantee represents an obligation to purchase specific loans that go into default.

Short-term loans that the Company guarantees generally have terms of 45 days or less. Unsecured installment loans that the Company guarantees generally have terms of up to twelve months. Secured installment loans that the Company guarantees, which the Company ceased offering in the latter half of 2015, have remaining terms of up to 23 months. As of June 30, 2016 and 2015 and December 31, 2015, the amount of consumer loans guaranteed by the Company, excluding unearned CSO fees, was $7.4 million, $12.9 million and $11.1 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The liability for estimated losses on consumer loans guaranteed by the Company of $0.3 million, $1.9 million and $2.0 million, as of June 30, 2016 and 2015 and December 31, 2015, respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.

4. Investment in Enova

Upon completion of the distribution of approximately 80% of the outstanding shares of Enova International, Inc. (“Enova”) common stock to the Company’s shareholders in November 2014 (the “Enova Spin-off”), the Company retained approximately 20 percent, or 6,596,927 shares of Enova common stock, and the Company agreed, pursuant to a private letter ruling it obtained in connection with the Enova Spin-off, to dispose of its retained shares of Enova common stock (other than the shares retained for delivery under the Company’s long-term incentive plans (the “LTIPs”) as described below) no later than November 13, 2016, which is two years after the date of the Enova Spin-off. At the time of the private letter ruling, Company management believed that the Company’s shares of Enova common stock would be registered with the SEC on approximately the same date as the Enova Spin-off in order to efficiently dispose of the shares in open market dispositions over a two-year period. Due to unanticipated delays in the registration process, the Company’s shares of Enova common stock were not registered until September 15, 2015. Shortly after the shares were registered, the Company filed a supplemental request with the Internal Revenue Service requesting an extension of the original two-year period to dispose of its retained shares of Enova common stock. In March 2016, the Internal Revenue Service granted the request and extended the date by which the Company was required to dispose of its shares of Enova common stock to September 15, 2017.

All of the retained shares of Enova common stock (including shares retained for delivery under the Company’s LTIPs as described below) are classified as “available-for-sale securities” in accordance with ASC 320, Investments-Debt and Equity Securities (“ASC 320”). The Company does not account for its investment in Enova common stock under the equity method for the following reasons. The Company does not have the ability to significantly influence the strategy or the operating or financial policies of Enova. The Company does not share employees or management with Enova and does not participate in any policy-making process of Enova. The Company does not have the right to vote on matters put before Enova stockholders because it has granted Enova a proxy to vote its shares in the same proportion as the other stockholders of Enova on all such matters. In addition, the Company has agreed to divest its ownership in Enova prior to September 15, 2017, as discussed above. While Daniel R. Feehan, the Company’s Executive Chairman of the Board, serves as one of nine members of Enova’s Board of Directors, he does not serve on any committees of Enova’s Board of Directors, and the Company is not able to influence his future election to Enova’s Board of Directors because it does not have voting power with respect to the shares of Enova that it owns. The Company also does not have any material business relationships with Enova.

The retained shares of Enova common stock include a portion of shares of Enova common stock that may be delivered by the Company, based on applicable vesting or deferral terms, to holders of certain outstanding unvested restricted stock units (“RSUs”), vested deferred RSUs, and unvested deferred RSUs that were granted by the Company under the LTIPs to certain of its officers, directors and employees, as well as shares that are deliverable to certain directors who have elected to defer a portion of their director fees to be paid in the form of

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

common stock of the Company (“Director Deferred Shares”), if such equity awards and Director Deferred Shares were outstanding under the LTIPs on the date of the Enova Spin-off.

Such RSU awards and Director Deferred Shares will be payable by the Company in both shares of Company common stock and Enova common stock, subject to the terms of the LTIPs and/or the applicable award agreements. The delivery of the Enova shares of common stock occurs periodically based on the vesting or deferral terms that are applicable to the RSU awards or Director Deferred Shares. In the event the award does not vest and shares are forfeited or if shares are withheld to pay taxes for vested awards, the Enova shares will be retained by the Company and sold.

As of June 30, 2016, the Company owned 6,424,231 shares and had allocated 425,096 of these retained shares for delivery under the LTIPs (as described above), resulting in the Company’s implied residual ownership in Enova equal to approximately 18 percent of the outstanding Enova common stock as of June 30, 2016. See table below for additional information.

As of June 30, 2016, the Company’s cost basis in its investment in Enova common stock was approximately $19.5 million, and an unrealized gain of approximately $27.6 million was included in “Accumulated other comprehensive income.” For the six months ended June 30, 2016 and 2015, the Company recognized a gain of approximately $0.1 million and $1.2 million, respectively, for the disposition of Enova common stock as a result of the distribution of shares for payment of RSU awards, as well as the sale of shares that were withheld to pay taxes for issued awards. The Company’s investment in Enova common stock is included in “Investment in equity securities” in the consolidated balance sheets, and the unrealized gain on the Company’s investment in Enova common stock comprises the entire balance of “Accumulated other comprehensive income” as of June 30, 2016 and 2015 and December 31, 2015. Activity during the six months ended June 30, 2016 for the Enova shares retained by the Company is shown below (shares in ones):

 
Enova Shares Attributed to the Company (a)
 
Potential Enova Shares to be Delivered Under the LTIPs (b)
 
Total Enova Shares Held by the Company
Enova shares at December 31, 2015
5,964,106

 
511,505

 
6,475,611

Forfeitures (c)
35,029

 
(35,029
)
 

Shares delivered under the LTIPs

 
(33,458
)
 
(33,458
)
Shares withheld for taxes and sold

 
(17,922
)
 
(17,922
)
Shares held as of June 30, 2016
5,999,135

 
425,096

 
6,424,231

Approximate % ownership of Enova as of June 30, 2016
18.1
%
 
1.3
%
 
19.4
%
 
 
 
 
 
 
(a) 
Does not include shares retained for delivery under the LTIPs.
(b) 
The Enova shares payable for vested deferred RSUs and Director Deferred Shares are held in a rabbi trust.
(c) 
Shares initially allocated for delivery under the LTIPs that were forfeited prior to vesting are attributed to the Company and are to be disposed of by the Company.


15

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

5. Long-term Debt

The Company’s long-term debt instruments and balance outstanding as of June 30, 2016 and 2015 and December 31, 2015 were as follows (dollars in thousands):

 
Balance as of
 
June 30,
 
December 31,
 
2016
 
2015
 
2015
Line of credit due 2018
$
3,839

 
$

 
$
27,108

5.75% senior unsecured notes due 2018:
 
 
 
 
 
    5.75% senior unsecured notes due 2018, outstanding principal
181,450

 
184,450

 
184,450

    Unamortized debt issuance costs
(2,009
)
 
(3,131
)
 
(2,587
)
5.75% senior unsecured notes due 2018, net of debt issuance costs
179,441

 
181,319

 
181,863

          Total long-term debt
$
183,280

 
$
181,319

 
$
208,971


Line of Credit

The Company has a credit agreement with a syndicate of financial institutions as lenders that was entered into on March 30, 2011 and later amended (the “Credit Agreement”). The Credit Agreement, as amended, provides for a line of credit in an aggregate principal amount of up to $280.0 million permitting revolving credit loans (“Line of Credit”). The Credit Agreement is guaranteed by the Company’s domestic subsidiaries and matures on March 31, 2018. The Credit Agreement contains an accordion feature whereby the Line of Credit may be increased up to an additional $100.0 million with the consent of any increasing lenders.

Interest on the Line of Credit is charged, at the Company’s option, at either the London Interbank Offered Rate (“LIBOR”) for one week or one-, two-, three- or six-month periods, as selected by the Company, plus a margin varying from 2.00% to 3.25% or at the agent’s base rate plus a margin varying from 0.50% to 1.75%. The margin for the Line of Credit is dependent on the Company’s cash flow leverage ratios as defined in the Credit Agreement. The Company also pays a fee on the unused portion of the Line of Credit ranging from 0.25% to 0.50% (0.38% as of June 30, 2016) based on the Company’s cash flow leverage ratios.

The Company had $3.8 million and $27.1 million of borrowings outstanding under the Line of Credit as of June 30, 2016 and December 31, 2015, respectively. As of June 30, 2016, borrowings under the Line of Credit consisted of one pricing tranche with a maturity date of one day. As of December 31, 2015, borrowings under the Line of Credit consisted of two pricing tranches with maturity dates ranging from five to eight days. The Company had no borrowings outstanding under the Line of Credit as of June 30, 2015. The weighted average interest rate (including margin) on the Line of Credit was 3.69% and 3.48% as of June 30, 2016 and December 31, 2015, respectively. The Company may routinely refinance its borrowings pursuant to the terms of its Line of Credit. Therefore, these borrowings are considered part of the applicable line of credit and as long-term debt.

Letter of Credit Facility

When the Company entered into the Credit Agreement, it also entered into a Standby Letter of Credit Agreement (the “LC Agreement”) for the issuance of up to $20.0 million in letters of credit (the “Letter of Credit Facility”) that is guaranteed by the Company’s domestic subsidiaries and matures on March 31, 2018. In the event that an amount is paid by the issuing bank under a standby letter of credit, it will be due and payable by the Company on demand, and amounts due by the Company under the LC Agreement will bear interest annually at a rate that is the lesser of (a) 2% above the prime rate for Wells Fargo Bank, National Association or (b) the maximum rate of interest permissible under applicable laws. The LC Agreement also requires the Company to pay quarterly fees equal to the applicable margin set forth in the LC Agreement on the undrawn amount of the credit outstanding.

16

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The Company had standby letters of credit of $6.0 million issued under its Letter of Credit Facility as of June 30, 2016.

$300.0 million 5.75% Senior Unsecured Notes

On May 15, 2013, the Company issued and sold $300.0 million in aggregate principal amount of the 2018 Senior Notes. The 2018 Senior Notes bear interest at a rate of 5.75% annually on the principal amount, payable semi-annually in arrears on May 15 and November 15 of each year. The 2018 Senior Notes will mature on May 15, 2018, and there are no scheduled payments of principal due before the maturity date. The 2018 Senior Notes were originally sold to qualified institutional buyers under Rule 144A of the Securities Act and Regulation S of the Securities Act outside the United States, and all 2018 Senior Notes were subsequently registered under the Securities Act pursuant to an exchange offer.

The 2018 Senior Notes are senior unsecured debt obligations of the Company and are guaranteed by all of the Company’s subsidiaries (the “Guarantors”). The Guarantors have guaranteed fully and unconditionally, on a joint and several basis, the obligations to pay principal and interest for the 2018 Senior Notes. As of June 30, 2016, Cash America International, Inc., on a stand-alone unconsolidated basis (the “Parent Company”), had no independent assets or operations. As of June 30, 2016, all of the Guarantors were 100% owned by the Company. The Indenture, dated as of May 15, 2013, that governs the 2018 Senior Notes, among the Company, the guarantors party thereto and the trustee (“2018 Senior Notes Indenture”), provides that if any of the Guarantors is released from its guarantees of the Company’s borrowings and obligations under the Credit Agreement, that Guarantor’s guaranty of the 2018 Senior Notes will also be released.

The 2018 Senior Notes are redeemable at the Company’s option, in whole or in part, at any time at 100% of the aggregate principal amount of 2018 Senior Notes redeemed plus the applicable “make whole” redemption price specified in the 2018 Senior Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date. In addition, if a change of control occurs, as that term is defined in the 2018 Senior Notes Indenture, the holders of 2018 Senior Notes will have the right, subject to certain conditions, to require the Company to repurchase their 2018 Senior Notes at a purchase price equal to 101% of the aggregate principal amount plus accrued and unpaid interest, if any, as of the date of repurchase. On August 2, 2016, the Company exercised its option to redeem the 2018 Senior Notes in full. For additional information on the upcoming redemption, see Note 9.

Debt Agreement Compliance
    
The debt agreements for the Line of Credit and the 2018 Senior Notes require the Company to maintain certain financial ratios. As of June 30, 2016, the Company believes it was in compliance with all covenants or other requirements set forth in its debt agreements.

On June 26, 2015, the Trustee under the 2018 Senior Notes Indenture, filed a lawsuit against the Company in the United States District Court for the Southern District of New York. The lawsuit alleges that the Enova Spin-off was not permitted by the 2018 Senior Notes Indenture, and the Trustee is seeking a remedy equal to principal and accrued and unpaid interest, plus a make-whole premium, to be paid to the holders of the 2018 Senior Notes. The Company disagrees with the assertion in the lawsuit that the Enova Spin-off was not permitted under the 2018 Senior Notes Indenture. The Company also disagrees that a make-whole premium would be due to the holders of the 2018 Senior Notes even if it is determined that the Enova Spin-off was not permitted under the 2018 Senior Notes Indenture. Discovery in this lawsuit has been completed, and the parties have filed cross-motions for summary judgment that have not yet been ruled on by the court. The Company believes the position taken by the Trustee is without merit, and the Company intends to vigorously defend its position. On August 2, 2016, the Company exercised its option to redeem the 2018 Senior Notes in full. For additional information on the upcoming redemption, see Note 9.


17

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

6. Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the period.

RSUs issued under the Company’s stock-based employee compensation plans are included in diluted shares from the grant date of the award based on the treasury stock method. Performance-based RSU awards are included in diluted shares based on the level of performance that management estimates is the most probable outcome at the grant date. Throughout the requisite service period, management monitors the probability of achievement of the performance condition and adjusts the number of shares included in diluted shares accordingly.
The following table sets forth the reconciliation of numerators and denominators of basic and diluted net income per share calculations for the three and six months ended June 30, 2016 and 2015 (dollars and shares in thousands, except per share amounts):
 
 
Three Months Ended  
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net Income
$
2,098

 
$
2,071

 
$
12,731

 
$
9,916

Denominator:
 
 
 
 
 
 
 
Total weighted average basic shares (a)
24,326

 
27,326

 
24,569

 
28,005

Shares applicable to stock-based compensation (b)
388

 
182

 
339

 
119

    Total weighted average diluted shares (c)
24,714

 
27,508

 
24,908

 
28,124

Net Income - basic
$
0.09

 
$
0.08

 
$
0.52

 
$
0.35

Net Income - diluted
$
0.08

 
$
0.08

 
$
0.51

 
$
0.35

 
 
 
 
 
(a) 
Includes vested and deferred RSUs of 291 and 299 for the three months ended June 30, 2016 and 2015, respectively, and 292 and 302 for the six months ended June 30, 2016 and 2015, respectively.
(b) 
Includes the dilutive effect of shares related to unvested RSU awards.
(c) 
Excludes 15 and 117 anti-dilutive shares for the three months ended June 30, 2016 and 2015, respectively, and 15 and 239 for the six months ended June 30, 2016 and 2015, respectively.

7. Fair Value Measurements

Recurring Fair Value Measurements

In accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs, other than Level 1, or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data and reflect the Company’s own assumptions.

18

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The Company’s financial assets that are measured at fair value on a recurring basis as of June 30, 2016 and 2015 and December 31, 2015 are as follows (dollars in thousands):
 
 
June 30,
 
Fair Value Measurements Using
 
2016
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
Nonqualified Savings Plan-related assets and Director Deferred Shares (a)
$
11,679

 
$
11,679

 
$

 
$

Investment in equity securities
47,069

 
47,069

 

 

Total
$
58,748

 
$
58,748

 
$

 
$

 
June 30,
 
Fair Value Measurements Using
 
2015
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
Nonqualified Savings Plan-related assets and Director Deferred Shares (a)
$
11,576

 
$
11,090

 
$
486

 
$

Investment in equity securities
109,140

 

 
109,140

 

Total
$
120,716

 
$
11,090

 
$
109,626

 
$

 
December 31,
 
Fair Value Measurements Using
 
2015
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
Nonqualified Savings Plan-related assets and Director Deferred Shares (a)
$
10,767

 
$
10,767

 
$

 
$

Investment in equity securities
42,613

 
42,613

 

 

Total
$
53,380

 
$
53,380

 
$

 
$

 
 
 
 
 
(a) 
Only includes the portion of the Director Deferred Shares that are payable in Enova common stock.

Nonqualified Savings Plan-related assets and Director Deferred Shares have an offsetting liability of equal amount, which is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. The Nonqualified Savings Plan-related assets include marketable equity securities, which are classified as Level 1 and based on net asset values. As a result of the Enova Spin-off, the portion of the Director Deferred Shares measured at fair value represented shares of Enova common stock. The Company’s investment in equity securities represented the Company’s available-for-sale shares of Enova common stock that it retained in connection with the Enova Spin-off. See Note 4. As of June 30, 2016 and December 31, 2015, the equity securities representing Enova common stock, both those included in Director Deferred Shares and investment in equity securities in the table above, were classified as Level 1 and based on the market-determined stock price of Enova.

In September 2015, the equity securities representing Enova common stock, both those included in Deferred Director Shares and investment in equity securities in the table above, were transferred to Level 1 from Level 2 as a result of the registration of these shares with the SEC. As of June 30, 2015, the Enova common shares were classified as Level 2, as they were not-yet-registered securities with the SEC as of that date, and accordingly, were not carried at the fair value of the quoted Enova stock prices, but rather the Company valued these shares using the market determined stock price of Enova, less an adjustment factor due to the unregistered nature of the shares. During the six months ended June 30, 2016 and 2015, there were no transfers of assets in or out of Level 1 or Level 2 fair value measurements.

Fair Value Measurements on a Non-Recurring Basis

The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a nonrecurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired.

19

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Financial Assets and Liabilities Not Measured at Fair Value

The Company’s financial assets and liabilities as of June 30, 2016 and 2015 and December 31, 2015 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):
 
 
Carrying Value
 
Estimated Fair Value
 
June 30,
 
June 30,
 
Fair Value Measurement Using
 
2016
 
2016
 
Level 1
Level 2
Level 3
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
20,029

 
$
20,029

 
$
20,029

$

$

Pawn loans
237,220

 
237,220

 


237,220

Consumer loans, net — Short-term
24,915

 
24,915

 


24,915

Consumer loans, net — Installment
2,311

 
2,311

 


2,311

Pawn loan fees and service charges receivable
49,800

 
49,800

 


49,800

Total
$
334,275

 
$
334,275

 
$
20,029

$

$
314,246

Financial liabilities:
 
 
 
 
 
 
 
Liability for estimated losses on consumer loans guaranteed by the Company
$
340

 
$
340

 
$

$

$
340

Line of credit
3,839

 
3,943

 

3,943


Senior unsecured notes, outstanding principal
181,450

 
184,172

 

184,172


Total
$
185,629

 
$
188,455

 
$

$
188,115

$
340


 
Carrying Value
 
Estimated Fair Value
 
June 30,
 
June 30,
 
Fair Value Measurement Using
 
2015
 
2015
 
Level 1
Level 2
Level 3
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
43,986

 
$
43,986

 
$
43,986

$

$

Pawn loans
247,381

 
247,381

 


247,381

Consumer loans, net — Short-term
26,986

 
26,986

 


26,986

Consumer loans, net — Installment
3,407

 
3,407

 


3,407

Pawn loan fees and service charges receivable
50,317

 
50,317

 


50,317

Total
$
372,077

 
$
372,077

 
$
43,986

$

$
328,091

Financial liabilities:
 
 
 
 
 
 
 
Liability for estimated losses on consumer loans guaranteed by the Company
$
1,922

 
$
1,922

 
$

$

$
1,922

Senior unsecured notes, outstanding principal
184,450

 
186,756

 

186,756


Total
$
186,372

 
$
188,678

 
$

$
186,756

$
1,922




20

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 
Carrying Value
 
Estimated Fair Value
 
December 31,
 
December 31,
 
Fair Value Measurement Using
 
2015
 
2015
 
Level 1
Level 2
Level 3
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
23,153

 
$
23,153

 
$
23,153

$

$

Pawn loans
248,713

 
248,713

 


248,713

Consumer loans, net — Short-term
27,376

 
27,376

 


27,376

Consumer loans, net — Installment
3,915

 
3,915

 


3,915

Pawn loan fees and service charges receivable
52,798

 
52,798

 


52,798

Total
$
355,955

 
$
355,955

 
$
23,153

$

$
332,802

Financial liabilities:
 
 
 
 
 
 
 
Liability for estimated losses on consumer loans guaranteed by the Company
$
1,986

 
$
1,986

 
$

$

$
1,986

Line of credit
27,108

 
28,154

 

28,154


Senior unsecured notes, outstanding principal
184,450

 
185,603

 

185,603


Total
$
213,544

 
$
215,743

 
$

$
213,757

$
1,986

Pawn loans generally have maturity periods of less than 90 days. Because of this short maturity period, the carrying value of pawn loans approximates the fair value of these loans.

Short-term loans and installment loans, collectively, represent “Consumer loans, net” on the consolidated balance sheet and are carried net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value approximates the fair value.
    
Pawn loan fees and service charges revenue includes interest, service charges and extension fees and are typically calculated as a percentage of the pawn loan amount based on the size and duration of the transaction, as permitted by applicable laws. Other fees, such as origination fees, storage fees and lost ticket fees are generally a fixed amount per pawn loan. Pawn loan fees and service charges revenue and the related pawn loan fees and service charges receivable are accrued ratably over the term of the loan for the portion of those pawn loans estimated to be collectible. The Company uses historical performance data to determine collectability of pawn loan fees and service charges receivable. Additionally, pawn loan fee and service charge rates are determined by regulations and bear no valuation relationship to the capital markets’ interest rate movements. Therefore, the carrying value approximates the fair value.

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans, unsecured installment loans and installment loans secured by the customer’s vehicle (which the Company has ceased offering) and is required to purchase any defaulted loans it has guaranteed. The Company measures the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximate the fair value.

The Company measures the fair value of long-term debt instruments using Level 2 inputs. The fair values of the Company’s long-term debt instruments are estimated based on market values for debt issues with similar characteristics or rates currently available for debt with similar terms. As of June 30, 2016, the 2018 Senior Notes had a higher fair market value than the carrying value due to the difference in yield when compared to similar senior unsecured notes.


21

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The Company’s cost-method investment in a non-publicly traded entity amounted to $3.8 million, $3.1 million and $3.5 million as of June 30, 2016 and 2015 and December 31, 2015, respectively, and is included in “Other assets” on the Company’s consolidated balance sheets. The Company has not estimated the fair value of this investment because its fair value is not readily determinable. Under the cost method, the investment is carried at initial value, is adjusted for cash contributions and distributions, and is subject to evaluation for impairment. When circumstances indicate there may have been a reduction in the value of an investment in an unconsolidated entity, the Company evaluates whether the loss in value is other than temporary. If the loss is other than temporary, the Company recognizes an impairment charge to reflect the cost-method investment at fair value. No impairment indicators for this investment were noted as of June 30, 2016.

8. Merger Agreement

On April 28, 2016, the Merger Agreement was executed. Pursuant to the Merger Agreement, the Company and FCFS will combine in an all-stock merger of equals. Upon completion of the transaction, the combined company will be named FirstCash, Inc., will be headquartered in Fort Worth, Texas, and will have one of the largest retail pawn store footprints in Latin America and the United States, with over 2,000 locations across four countries.

Under the terms of the Merger Agreement, which was unanimously approved by the boards of directors of both the Company and FCFS, the Company’s shareholders will receive a fixed exchange ratio of 0.84 FCFS shares for each Company share they own. Following the close of the transaction, FCFS shareholders will own approximately 58% of the combined company, and the Company’s shareholders will own approximately 42%. Pending completion of the transaction, both companies expect to continue paying quarterly cash dividends under each company’s existing dividend policy, and the respective stock repurchase programs of the Company and FCFS will be suspended.

In connection with the proposed merger between the Company and FCFS, the Company filed, with the SEC on August 1, 2016, a joint definitive proxy statement with FCFS. The joint definitive proxy statement was also included in a registration statement on Form S-4/prospectus that was filed by FCFS and declared effective by the SEC on July 29, 2016. The joint definitive proxy statement relates to a special meeting of shareholders to be held by each of FCFS and Cash America on August 31, 2016 to vote on matters in connection with the proposed merger, including the approval of the merger by the Company’s shareholders.

The transaction is expected to close in the third quarter of 2016, subject to certain approvals by the shareholders of both the Company and FCFS and the satisfaction of customary closing conditions. See Part II, “Item 1A. Risk Factors” for additional information.
    
9. Subsequent Events

On August 2, 2016, the Company sent an irrevocable notice to all holders of the 2018 Senior Notes indicating that it will redeem the 2018 Senior Notes in full on September 1, 2016. The 2018 Senior Notes will be redeemed at 100% of the aggregate principal amount of the 2018 Senior Notes outstanding plus the applicable “make whole” redemption price specified in the 2018 Senior Notes Indenture, plus accrued and unpaid interest up to the redemption date. As of June 30, 2016, the Company had $181.5 million in aggregate principal amount of 2018 Senior Notes outstanding. The total amount estimated to be paid upon redemption is $198.5 million, which will be paid with borrowings under the Company’s Line of Credit. Following the redemption, no 2018 Senior Notes will remain outstanding.

22


ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of financial condition, results of operations, liquidity, capital resources and certain factors that may affect future results of Cash America International, Inc. and its subsidiaries (the “Company”) should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included under Part 1—Item 1 of this Quarterly Report on Form 10-Q, as well as with the Company’s consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

THE COMPANY’S BUSINESS

The Company provides specialty financial services to individuals in the United States through its storefront lending locations and franchised check cashing centers. The Company has one reportable operating segment. The Company’s products and services are described below.

Pawn Lending

The Company offers secured non-recourse loans, commonly referred to as pawn loans, as its primary line of business. Pawn loans are short-term loans made on the pledge of tangible personal property. Pawn loan fees and service charges are generated from the Company’s pawn loan portfolio. In relation to its pawn lending operations, the Company also disposes of collateral from unredeemed pawn loans and liquidates a smaller volume of merchandise purchased directly from customers or from third parties. Pawn-related total revenue accounted for 93% of consolidated total revenue for both the three and six months ended June 30, 2016.

Consumer Loan Activities

    Another component of the Company's business is originating, arranging, guaranteeing or purchasing consumer loans in some of its locations. Consumer loans provide customers with cash, typically in exchange for an obligation to repay the amount advanced plus fees and any applicable interest. Consumer loans that the Company offers include short-term loans (commonly referred to as payday loans) and installment loans. Consumer loan total revenue accounted for 7% of consolidated total revenue for both the three and six months ended June 30, 2016.

     Short-term consumer loan products that the Company offers include unsecured short-term loans written by the Company or by a third-party lender through the Company’s credit services organization and credit access business programs (“CSO programs”). Installment consumer loans are longer-term, multi-payment loans that require the pay-down of the outstanding principal balance in multiple installments. Installment loan products that the Company offers are unsecured and can either be written by the Company or by a third-party lender through the CSO programs. The Company previously offered installment loans secured by a customer’s vehicle, but it ceased offering that product in the latter half of 2015.

Through the Company’s CSO programs, the Company provides services and receives fees related to a third-party lender’s consumer loan products 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 loans with third-party lenders (“CSO loans”). In addition, 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 consolidated 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. In the event that the customer defaults on a CSO loan, the Company purchases the specific loan, and the outstanding loan balance and related allowance for estimated losses is then included in “Consumer loans, net” in the Company’s consolidated financial statements.


23


Check Cashing and Other Financial Services

A small component of the Company’s business includes the offering of check cashing services through franchised check cashing centers, for which the Company receives franchise fees. In addition, in some of its Company-operated lending locations, the Company offers check cashing services, as well as prepaid debit cards that are issued and serviced through a third party. Total revenue from check cashing and other ancillary products and services accounted for less than 1% of consolidated total revenue for both the three and six months ended June 30, 2016.

Locations

The following table sets forth, as of June 30, 2016 and 2015, the number of Company-operated locations that offered pawn lending, consumer lending, and other services, in addition to franchised locations that offered check cashing services. The Company provides these services in the United States primarily under the names “Cash America Pawn,” “SuperPawn,” “Cash America Payday Advance,” “Cashland” and “Mr. Payroll.” The Company’s pawn and consumer lending locations operated in 20 states in the United States as of both June 30, 2016 and 2015, respectively. As of both June 30, 2016 and 2015, the franchised check cashing centers operated in 12 states.

 
As of June 30,
 
2016
 
2015
Company-operated locations offering:
 
 
 
Pawn lending only
590

 
549

Both pawn and consumer lending
206

 
255

Consumer lending only
21

 
22

          Total Company-operated locations
817

 
826

   Franchised check cashing centers
72

 
78

     Total
889

 
904


During the twelve months ended June 30, 2016, the Company closed or sold 12 locations. Consistent with the Company’s strategy to deemphasize its consumer lending activities, the Company eliminated the consumer loan product in 46 of its pawn lending locations during the twelve months ended June 30, 2016. Including consumer-loan-lending locations closed or sold and locations where the consumer loan product was eliminated, consumer lending activities were discontinued in 50 of the Company’s locations during the twelve months ended June 30, 2016.

For the six months ended June 30, 2016, the Company closed six locations and eliminated the consumer loan product in 45 of its pawn lending locations.

Recent Developments

Merger Agreement

On April 28, 2016, the Company and First Cash Financial Services, Inc., a Delaware corporation (“FCFS”), announced the execution of an Agreement and Plan of Merger (the “Merger Agreement”) entered into among the Company, FCFS and Frontier Merger Sub, LLC, a Texas limited liability company and a direct wholly owned subsidiary of FCFS. Pursuant to the Merger Agreement, the companies will combine in an all-stock merger of equals (the “Merger”). Upon completion of the transaction, the combined company will be named FirstCash, Inc., will be headquartered in Fort Worth, Texas, and will have one of the largest retail pawn store footprints in Latin America and the United States, with over 2,000 locations across four countries.


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Under the terms of the Merger Agreement, which was unanimously approved by the boards of directors of both the Company and FCFS, the Company’s shareholders will receive a fixed exchange ratio of 0.84 FCFS shares for each Company share they own. Following the close of the transaction, FCFS shareholders will own approximately 58% of the combined company, and the Company’s shareholders will own approximately 42%. Pending completion of the transaction, both companies expect to continue paying quarterly cash dividends under each company’s existing dividend policy, and the respective stock repurchase programs of the Company and FCFS will be suspended.

In connection with the proposed merger between the Company and FCFS, the Company filed, with the Securities and Exchange Commission (the “SEC”) on August 1, 2016, a joint definitive proxy statement with FCFS. The joint definitive proxy statement was also included in a registration statement on Form S-4/prospectus that was filed by FCFS and declared effective by the SEC on July 29, 2016. The joint definitive proxy statement relates to a special meeting of shareholders to be held by each of FCFS and Cash America on August 31, 2016 to vote on matters in connection with the proposed merger, including the approval of the merger by the Company’s shareholders.

The transaction is expected to close in the third quarter of 2016, subject to certain approvals by the shareholders of both the Company and FCFS and the satisfaction of customary closing conditions. See Part II, “Item 1A. Risk Factors” for additional information.

Redemption of $300.0 million 5.75% Senior Unsecured Notes

On August 2, 2016, the Company sent an irrevocable notice to all holders of the Company’s $300.0 million aggregate principal amount of 5.75% senior notes due May 15, 2018 (the “2018 Senior Notes”) indicating that it will redeem the 2018 Senior Notes in full on September 1, 2016. The 2018 Senior Notes will be redeemed at 100% of the aggregate principal amount of the 2018 Senior Notes outstanding plus the applicable “make whole” redemption price specified in the Indenture, dated as of May 15, 2013, that governs the 2018 Senior Notes, among the Company, the guarantors party thereto and the trustee (“2018 Senior Notes Indenture”), plus accrued and unpaid interest up to the redemption date. As of June 30, 2016, the Company had $181.5 million in aggregate principal amount of 2018 Senior Notes outstanding. The total amount estimated to be paid upon redemption is $198.5 million, which will be paid with borrowings under the Company’s $280 million line of credit (the “Line of Credit”). Following the redemption, no 2018 Senior Notes will remain outstanding.



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RESULTS OF OPERATIONS

Highlights

The Company’s financial results for the three months ended June 30, 2016 (the “current quarter”) compared to the three months ended June 30, 2015 (the “prior year quarter”) are summarized below.

Total revenue was $241.2 million for the current quarter, representing an increase of $4.7 million, or 2.0%, compared to the prior year quarter. Net revenue decreased $5.8 million, or 4.3%, to $128.2 million for the current quarter compared to the prior year quarter.

Income from operations was $6.6 million for the current quarter, representing an increase of $0.2 million, or 3.9%, compared to the prior year quarter, primarily due to a $4.7 million decrease in operations and administration expenses.

Net income was $2.1 million and diluted net income per share was $0.08 for both the current quarter and prior year quarter. Net income and net income per share were affected by certain income and expense items in the current quarter and prior year quarter. See “Non GAAP Disclosure—Adjusted Earnings Measures” for additional information.

Net Revenue

Net revenue is composed of total revenue less the cost of disposed merchandise and the consumer loan loss provision. Net revenue is the income available to satisfy all remaining expenses and is the measure management uses to evaluate top-line performance.

The following table shows the components of net revenue for the Company’s operations for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
Pawn loan fees and service charges
$
76,110

 
59.4
%
 
$
76,899

 
57.4
%
 
$
155,795

 
57.2
%
 
$
154,212

 
54.9
%
Proceeds from disposition of merchandise, net of cost of disposed merchandise
38,754

 
30.2
%
 
40,643

 
30.3
%
 
87,833

 
32.3
%
 
92,972