<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 1-9733
CASH AMERICA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2018239
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
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)
N/A
(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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
24,489,124 common shares, $.10 par value, were outstanding as of April 30, 1998
================================================================================
<PAGE> 2
CASH AMERICA INTERNATIONAL, INC.
INDEX TO 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL STATEMENTS
Page
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1998
and 1997 and December 31, 1997................................................ 1
Consolidated Statements of Income - Three Months
Ended March 31, 1998 and 1997................................................. 2
Consolidated Statements of Comprehensive Income -
Three Months Ended March 31, 1998 and 1997.................................... 3
Consolidated Statements of Stockholders' Equity -
Three Months Ended March 31, 1998 and 1997.................................... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997.................................... 5
Notes to Consolidated Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition........................... 10
PART II. OTHER INFORMATION........................................................... 20
SIGNATURE............................................................................ 21
</TABLE>
<PAGE> 3
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,574 $ 1,771 $ 1,119
Loans 108,907 101,732 112,240
Merchandise held for disposition, net 51,585 45,455 53,468
Inventories 4,468 213 2,130
Finance and service charges receivable 16,449 14,325 17,414
Prepaid expenses and other 6,966 5,586 5,523
Deferred tax assets 11,561 11,034 12,529
- ----------------------------------------------------------------------------------------------------------------
Total current assets 202,510 180,116 204,423
Property and equipment, net 66,108 61,620 64,258
Intangible assets, net 74,259 64,351 64,977
Other assets 4,675 6,469 7,621
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 347,552 $ 312,556 $ 341,279
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 19,655 $ 11,600 $ 14,971
Customer deposits 4,217 3,567 3,740
Income taxes currently payable 4,230 4,183 3,819
Current portion of long-term debt 4,286 4,286 4,286
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 32,388 23,636 26,816
Long-term debt 141,968 133,649 146,142
- ----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.10 par value per
share, 80,000,000 shares authorized 3,024 3,024 3,024
Paid in surplus 122,243 121,891 122,155
Retained earnings 95,566 79,460 91,337
Accumulated other comprehensive loss (2,015) (2,505) (2,458)
Notes receivable - stockholders (1,359) (954) (1,337)
- ----------------------------------------------------------------------------------------------------------------
217,459 200,916 212,721
Less -- shares held in treasury, at cost (44,263) (45,645) (44,400)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 173,196 155,271 168,321
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 347,552 $ 312,556 $ 341,279
================================================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 1
<PAGE> 4
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Finance and service charges $ 27,863 $ 25,471
Proceeds from disposition of merchandise 54,138 50,164
Check-cashing machine sales 800 --
Check-cashing royalties and fees 840 884
Rental operations 553 --
- -----------------------------------------------------------------------------------------------
TOTAL REVENUE 84,194 76,519
- -----------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 34,614 32,461
Cost of check-cashing machines sold 734 --
Rental operations 148 --
- -----------------------------------------------------------------------------------------------
NET REVENUE 48,698 44,058
===============================================================================================
OPERATING EXPENSES
Lending operations 26,591 24,731
Check-cashing operations 1,235 510
Rental operations 209 --
Administration 6,302 5,742
Depreciation 3,217 3,261
Amortization 862 881
- -----------------------------------------------------------------------------------------------
Total operating expenses 38,416 35,125
- -----------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 10,282 8,933
Interest expense, net 3,007 2,806
Other expense 32 58
- -----------------------------------------------------------------------------------------------
Income before income taxes 7,243 6,069
Provision for income taxes 2,709 2,279
- -----------------------------------------------------------------------------------------------
NET INCOME $ 4,534 $ 3,790
===============================================================================================
Net income per share:
Basic $ .19 $ .16
Diluted .18 .15
- -----------------------------------------------------------------------------------------------
Weighted average shares:
Basic 24,429 24,245
Diluted 25,633 24,875
===============================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE> 5
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 4,534 $ 3,790
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments 443 (2,119)
---------- ----------
Total other comprehensive income (loss) 443 (2,119)
---------- ----------
COMPREHENSIVE INCOME $ 4,977 $ 1,671
========== ==========
===============================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 6
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands, except share data) (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED NOTES
COMMON STOCK OTHER RECEIVABLE - TREASURY STOCK
--------------------- PAID IN RETAINED COMPREHENSIVE STOCK- -----------------------
SHARES AMOUNT SURPLUS EARNINGS LOSS HOLDERS SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 30,235,164 $ 3,024 $ 122,155 $ 91,337 $ (2,458) $ (1,337) 5,812,519 $ (44,400)
Net income 4,534
Other comprehensive income 443
Dividends declared (305)
Treasury shares acquired 13,377 (177)
Treasury shares reissued 1 (41,187) 314
Tax benefit from exercise
of option shares 87
Change in notes
receivable - stockholders (22)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at
March 31, 1998 30,235,164 $ 3,024 $ 122,243 $ 95,566 $ (2,015) $ (1,359) 5,784,709 $ (44,263)
================================================================================================================================
Balance at
December 31, 1996 30,235,164 $ 3,024 $ 121,878 $ 75,973 $ (386) $ (1,065) 5,975,670 $ (45,397)
Net income 3,790
Other comprehensive loss (2,119)
Dividends declared (303)
Treasury shares acquired 51,100 (458)
Treasury shares reissued (2) (27,650) 210
Tax benefit from exercise
of option shares 15
Change in notes
receivable - stockholders 111
- --------------------------------------------------------------------------------------------------------------------------------
Balance at
March 31, 1997 30,235,164 $ 3,024 $ 121,891 $ 79,460 $ (2,505) $ (954) 5,999,120 $ (45,645)
================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 7
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 4,534 $ 3,790
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,217 3,261
Amortization 862 881
Change in finance and service charges receivable 1,242 465
Change in merchandise held for disposition and inventories 1,311 3,309
Change in prepaid expenses and other (1,866) (158)
Change in accounts payable and accrued expenses 4,525 (2,385)
Change in customer deposits, net 392 612
Change in income taxes payable 470 519
Change in deferred taxes, net 616 229
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,303 10,523
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to merchandise held for disposition 28,740 27,016
Loans repaid or renewed 69,920 68,347
Loans made, including loans renewed (92,733) (92,710)
- ---------------------------------------------------------------------------------------------------------------
Net change in loans 5,927 2,653
- ---------------------------------------------------------------------------------------------------------------
Acquisitions, net of cash acquired (11,175) --
Investment in and advances to affiliates (120) 50
Purchases of property and equipment (4,191) (2,543)
- ---------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (9,559) 160
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments under bank lines of credit (4,095) (9,697)
Net change in notes receivable - stockholders -- 111
Net proceeds from reissuance of treasury shares 293 208
Treasury shares purchased (177) (458)
Dividends paid (305) (303)
- ---------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (4,284) (10,139)
- ---------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5) (107)
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS 1,455 437
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,119 1,334
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,574 $ 1,771
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 8
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Cash
America International, Inc. and its majority-owned subsidiaries (the "Company").
All significant intercompany accounts and transactions have been eliminated in
consolidation. Through January 31, 1998, the Company had a 49% ownership
interest in Express Rent A Tire, Ltd. ("Express") that was accounted for by the
equity method of accounting, whereby the Company recorded its 49% share of
earnings or losses in its consolidated financial statements. Effective February
1, 1998, the Company increased its ownership interest in Express to 99.9% and
reorganized it into a new corporation, Rent-A-Tire, Inc. ("Rent-A-Tire") (see
Note 3). The acquisition of additional interests has been accounted for as a
purchase and, accordingly, the assets and liabilities of Rent-A-Tire and the
results of its operations have been included in the consolidated financial
statements since February 1, 1998.
The financial statements as of March 31, 1998 and 1997, and for the
three months then ended are unaudited but, in management's opinion, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such interim periods. Operating results for
the three month periods are not necessarily indicative of the results that may
be expected for the full fiscal year.
Certain amounts in the consolidated financial statements for the three
months ended March 31, 1997, and the consolidated balance sheet at December 31,
1997, have been reclassified to conform to the presentation format adopted in
1998. These reclassifications have no effect on the net income previously
reported.
These financial statements and related notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1997 Annual Report to Stockholders.
2. REVENUE RECOGNITION
Lending Operations o Pawn loans ("loans") are made on the pledge of tangible
personal property. The company accrues finance and service charge revenue on all
loans that the Company deems collection is probable based on historical loan
redemption statistics. For loans not repaid, the carrying value of the forfeited
collateral ("merchandise held for disposition") is stated at the lower of cost
(cash amount loaned) or market.
Page 6
<PAGE> 9
Revenue is recognized at the time of disposition of merchandise.
Interim customer payments for layaway sales are recorded as deferred revenue and
subsequently recognized as revenue during the period in which final payment is
received.
Check-Cashing Operations o Check-cashing machine sales revenue is recorded upon
installation and activation of the machine. The Company records fees derived
from its owned check-cashing locations and machines on the cash basis, which
approximates the accrual basis. Royalties derived from franchised locations are
recorded on the accrual basis.
Rental Operations o Tire and wheel rentals are paid on a weekly basis in advance
and receipts are recorded on the cash basis. Customers may return the tires and
wheels at any time and have no obligation to complete the rental agreement. In
February 1998, Rent-A-Tire entered into agreements to operate and manage stores
for an unrelated group of investors. The investors own and provide 100%
financing for the stores, and incur all costs to operate them. Rent-A-Tire
receives initial compensation for its efforts in constructing and opening each
store and a fixed monthly management fee.
3. INVESTMENT IN AFFILIATE
Effective February 1, 1998, the Company exercised its option to increase its
ownership interest in Express from 49% to 90%. In conjunction with the
reorganization of Express into Rent-A-Tire, the Company also acquired an
additional 9.9% ownership interest for an option for the sellers to repurchase
9.9% of Rent-A-Tire for a nominal amount. The option is exercisable upon sixty
days written notice.
4. LONG-TERM DEBT
The Company's long-term debt at March 31 consisted of:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
U.S. Line of Credit up to $125 million
due June 30, 2001 $ 45,000 $ 61,850
U.K. Line of Credit up to(pound)5 million
due April 30, 1999 4,930 1,392
Swedish Lines of Credit up to SEK 215 million 20,609 24,693
8.33% senior unsecured notes due 2003 25,715 30,000
8.14% senior unsecured notes due 2007 20,000 20,000
7.10% senior unsecured notes due 2008 30,000 -0-
- ----------------------------------------------------------------------------------------------
146,254 137,935
Less current portion 4,286 4,286
- ----------------------------------------------------------------------------------------------
Long-term debt $ 141,968 $ 133,649
- ----------------------------------------------------------------------------------------------
</TABLE>
Page 7
<PAGE> 10
5. NET INCOME PER SHARE
The reconciliation of basic and diluted weighted average common shares
outstanding for the three month periods ended March 31, follows:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Weighted average shares - Basic 24,429 24,245
Plus shares applicable to stock option plans 1,204 630
- -----------------------------------------------------------------------------------------------
Weighted average shares - Diluted 25,633 24,875
- -----------------------------------------------------------------------------------------------
</TABLE>
6. OPERATING SEGMENT INFORMATION
The Company has two reportable operating segments in the lending industry and
one each in the check-cashing and rental industries. The United States and
foreign lending segments offer the same services, however, each is managed
separately due to the different marketing and operational strategies required.
The check-cashing and rental operations are managed separately because they
offer different services and products, each of which requires its own technical,
marketing and operational strategy.
Information concerning the segments is set forth below (in thousands):
<TABLE>
<CAPTION>
Lending
-------------------------------------------
United Check-
States Foreign Total Cashing Rental Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three Months
Ended March 31, 1998:
Total revenue $ 75,668 $ 6,444 $ 82,112 $ 1,529 $ 553 $ 84,194
Income (loss)
from operations 8,937 2,824 11,761 (1,419) (60) 10,282
Total assets 251,413 75,909 327,322 15,901 4,329 347,552
- -------------------------------------------------------------------------------------------------------------------------------
Three Months
Ended March 31, 1997:
Total revenue 69,400 6,235 75,635 884 n/a 76,519
Income (loss)
from operations 5,995 2,954 8,949 (16) n/a 8,933
Total assets 233,203 71,799 305,002 7,554 n/a 312,556
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 8
<PAGE> 11
7. LITIGATION
The Company is a defendant in certain lawsuits encountered in the ordinary
course of its business. In the opinion of management, the resolution of these
matters will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
8. SUBSEQUENT EVENT
The Company and Doc Holliday's Pawnbrokers & Jewellers, Inc. ("Doc Holliday's")
have entered into an Agreement and Plan of Merger pursuant to which Doc
Holliday's would become a wholly-owned subsidiary of the Company in a purchase
transaction. The closing of the transaction is subject to the satisfaction of
certain conditions under the Agreement. Doc Holliday's operates 40 pawnshops
located in six states.
Page 9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY CONSOLIDATED FINANCIAL DATA
FIRST QUARTER ENDED MARCH 31, 1998 vs.
FIRST QUARTER ENDED MARCH 31, 1997
- -------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data with
respect to the Company and its consolidated lending operations as of March 31,
1998 and 1997, and for the three months then ended.
<TABLE>
<CAPTION>
1998 1997 Change
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 27,863 $ 25,471 9%
Proceeds from disposition of merchandise 54,138 50,164 8%
Check-cashing machine sales 800 -- --
Check-cashing royalties and fees 840 884 (5)%
Rental operations 553 -- --
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 84,194 76,519 10%
- --------------------------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 34,614 32,461 7%
Sales of check-cashing machines 734 -- --
Rentals 148 -- --
- --------------------------------------------------------------------------------------------------------------------------
NET REVENUE $ 48,698 $ 44,058 11%
==========================================================================================================================
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue by source -
Finance and service charges 57.2% 57.8% (1)%
Margin on disposition of merchandise 40.1% 40.2% --
Check-cashing operations 1.9% 2.0% (5)%
Rental operations .8% .0% --
Expenses as a percentage of net revenue --
Operations and administration 70.5% 70.3% --
Depreciation and amortization 8.4% 9.4% (11)%
Interest, net 6.2% 6.4% (3)%
Income from operations before depreciation
and amortization as a percentage of total revenue 17.1% 17.1% --
Income before income taxes as a percentage of total revenue 8.6% 7.9% 9%
- --------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED LENDING OPERATIONS:
Annualized yield on loans 102% 99% 3%
Average loan balance per average location in operation $ 270 $ 273 (1)%
Average loan amount at end of period (not in thousands) $ 102 $ 99 3%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 36.1% 35.3% 2%
Average annualized merchandise turnover 2.7X 2.7x --
Average merchandise held for disposition
per average location $ 129 $ 125 3%
Locations in operation --
Beginning of period 401 382
Acquired 13 --
Start-ups 1 4
Combined or closed -- (1)
End of period 415 385 8%
Average number of locations in operation (a) 409 383 7%
==========================================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 10
<PAGE> 13
GENERAL
The Company is a diversified provider of specialty financial services
to individuals in the United States, United Kingdom and Sweden. The Company
offers secured non-recourse loans, commonly referred to as pawn loans, to
individuals through its lending operations. Pawn loans earn finance and service
charge revenue. The disposition of merchandise, primarily collateral from
unredeemed pawn loans, is a related but secondary source of net revenue from the
Company's lending function. The Company also provides check-cashing services
through its subsidiary, Mr. Payroll Corporation ("Mr. Payroll") and rental of
tires and wheels through its subsidiary, Rent-A-Tire, Inc. ("Rent-A-Tire").
The Company expanded its lending operations during the fifteen-month
period ended March 31, 1998, by adding a net thirty-three locations. Fourteen
locations were established, twenty-three operating units were acquired, and four
locations were combined or closed. As of March 31, 1998, the Company operated
415 lending units--365 in sixteen states in the United States, thirty-nine
jewelry-only and loan-only units in the United Kingdom, and eleven loan-only and
primarily jewelry-only units in Sweden.
During the fifteen months ended March 31, 1998, Mr. Payroll has
focused on the development of an automated check-cashing machine. The initial
installation occurred in June 1997, and thirty-seven units were in operation as
of March 31, 1998, sixteen of which were installed in the first quarter of 1998.
Also, Mr. Payroll's franchise system consisted of 148 manned check-cashing
centers in twenty-one states as of March 31, 1998, compared to 151 as of March
31, 1997.
Through January 31, 1998, the Company had a 49% ownership interest in
Express Rent A Tire, Ltd. ("Express") that was accounted for by the equity
method of accounting, whereby the Company recorded its 49% share of earnings or
losses in its consolidated financial statements. Effective February 1, 1998, the
Company increased its ownership interest to 99.9% and reorganized the operations
of Express into Rent-A-Tire. The acquisition of additional interests has been
accounted for as a purchase and, accordingly, the assets and liabilities of
Rent-A-Tire and the results of its operations have been included in the
consolidated financial statements since February 1, 1998. Rent-A-Tire owns and
operates four tire and wheel rental stores and manages four additional tire and
wheel rental stores under the Rent-A-Tire name.
FIRST QUARTER ENDED MARCH 31, 1998, COMPARED TO THE
FIRST QUARTER ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
Consolidated net revenue increased 11% to $48.7 million during the
first quarter of 1998 from $44.1 million during the first quarter of 1997. Of
the 11% increase, 6% was attributable to gains from same unit lending
operations, 4% was attributable to the net addition of thirty locations since
March 31, 1997, and 1% was attributable to increases in the check-cashing and
rental segments of the Company.
Page 11
<PAGE> 14
Net revenue of lending operations increased $4.3 million to $47.5
million during the first quarter of 1998 from $43.2 million during the first
quarter of 1997, due primarily to a $2.6 million increase from same units (those
in operation more than one year). The components of lending operations net
revenue are finance and service charges and net proceeds from the disposition of
merchandise.
Finance and service charges are impacted by changes in both the
average outstanding amount of pawn loans and the annualized yield on such loans.
Finance and service charges increased $2.4 million, or 9%, in the first quarter
of 1998 over the first quarter of 1997. A 6% increase in the average outstanding
amount of pawn loans, which occurred as a result of a 4% increase in the number
of loans outstanding coupled with an increase of 3% in the average loan amount,
contributed $1.4 million of the total increase. A 3% increase in the annualized
loan yield provided the remaining $1.0 million increase. Same units contributed
$1.8 million of the $2.4 million increase.
Pawn loans outstanding at March 31, 1998, were 3% lower than at
December 31, 1997, compared to a 6% decline for the comparable period of the
preceding year. Domestic pawn loan balances decreased 8% during the 1998 period
and 9% during the 1997 period. Historically, the Company's domestic pawn loans
have declined during the first quarter when the Internal Revenue Service
processes federal income tax refunds. The Company believes that many customers
use a portion of their refund to repay or extend their loans and purchase items
of personal property. Foreign loan balances, denominated in local currencies,
increased during each period and lessened the impact of the domestic decreases.
Both foreign currencies were stable against the dollar at March 31, 1998, as
compared to December 31, 1997, resulting in a 5% increase after translation to
dollars. However, during the first quarter of 1997, the effect of the local
currency increases was negated due to strengthening of the dollar, thereby
causing a 1% decline after translation to dollars.
The consolidated annualized loan yield, which represents a weighted
average of the distinctive yields realized in the three countries in which the
Company operates, increased to 102% in the first quarter of 1998 from 99% in the
first quarter of 1997. The domestic loan yield increased to 134% for the first
quarter of 1998, compared to 130% for the first quarter of 1997. The Company
believes the increase is attributable to the continued emphasis on the
maximization of cash returns on capital employed as well as increased loan
redemption rates. The blended yield on average foreign pawn loans outstanding
decreased to 53% for the first quarter of 1998 from 55% for the same period in
1997. The decline in foreign loan yields was primarily the result of lower
returns on the disposition of unredeemed collateral at auction.
Net proceeds from the disposition of merchandise increased $1.8
million, or 10%, in the first quarter of 1998 over the first quarter of 1997,
due to increases in both the proceeds from disposition of merchandise and the
margin received thereon. Proceeds from merchandise dispositions increased $4.0
million, or 8%, in the first quarter of 1998 over the first quarter of 1997.
Same unit increases, which the Company believes is attributable to stronger
customer demand and a continued emphasis on increasing the turnover rate,
accounted for 60% of the
Page 12
<PAGE> 15
total increase. The increase in proceeds contributed $1.4 million to the
increase in net proceeds.
The margin on disposition of merchandise increased to 36.1% in the
first quarter of 1998, compared to 35.3% for the first quarter of 1997, and
contributed the remaining $.4 million increase in net proceeds. The improvement
in margin is due primarily to a higher margin on the disposition of scrap
jewelry during the first quarter of 1998, compared to the same period in 1997,
as well as the Company's continued emphasis on faster disposition of
merchandise. Excluding the effect of the disposition of scrap jewelry, the
margin on disposition of merchandise was 37.6% for the first quarter of 1998,
compared to 37.4% in the first quarter of 1997. The merchandise turnover rate
remained constant at 2.7.
Net revenue of Mr. Payroll in the first quarter of 1998 decreased
10.1% compared to the first quarter of 1997. The decrease reflects the Company's
decision to emphasize the development and implementation of an automated
check-cashing machine, which is still in its early growth stage, and to
de-emphasize the sale of franchised manned check-cashing centers. Thus, no
franchise fees were earned in the first quarter of 1998, while such fees
accounted for 28% of net revenue in the first quarter of 1997. Gross profit
realized on check-cashing machine sales, which did not begin until the second
quarter of 1997, accounted for 8% of net revenue in the first quarter of 1998.
Check-cashing royalties and fees increased 22% during the first quarter of 1998,
compared to the first quarter of 1997 and represented 92% of net revenue in
1998.
Net revenue of $.4 million was contributed by Rent-A-Tire in February
and March 1998. Prior to February 1, 1998, the Company's 49% share of earnings
or losses of Rent-A-Tire's predecessor was recorded in other expense.
Consolidated operations and administration expenses as a percentage
of net revenue were 70.5% in the first quarter of 1998 compared to 70.3% for the
same period in 1997. Total operations and administration expenses increased $3.4
million in the first quarter of 1998, representing an 11% increase over the
first quarter of 1997. Domestic lending operations contributed $1.6 million of
the increase, of which $.7 million related to new unit locations and $.9 million
related primarily to increased personnel, occupancy, and office expenses.
Foreign lending operations contributed $.1 million of the increase. Mr. Payroll
contributed $1.3 million of the increase, primarily due to increased personnel,
communications, and travel expenses related to the development and marketing of
the check-cashing machine. The consolidation of Rent-A-Tire since February 1,
1998, contributed $.4 million of the increase.
Depreciation and amortization expenses as a percentage of net revenue
decreased to 8.4% in the first quarter of 1998, from 9.4% in first quarter of
1997. Depreciation and amortization expenses stayed relatively constant while
net revenue increased.
Net interest expense as a percentage of net revenue decreased to 6.2%
in the first quarter of 1998 from 6.4% in the first quarter of 1997. The amount
of interest expense
Page 13
<PAGE> 16
increased by $.2 million, or 7%, due primarily to the effect of a higher
effective interest rate combined with a slightly higher average level of debt
outstanding. The effective rate of interest increased to 8.0% for the first
quarter of 1998 from 7.7% for the first quarter of 1997. Average debt
outstanding increased 4% to $153.0 million during the first quarter of 1998 from
$147.6 million during the first quarter of 1997.
Other expense includes $79 thousand and $51 thousand of losses in the
first quarter of 1998 and the first quarter of 1997, respectively, attributable
to the Company's 49% equity interest in the losses of Express.
The Company's consolidated effective income tax rate decreased to 37%
for the first quarter of 1998, from 38% for the first quarter of 1997. The
domestic effective tax rate remained constant at 40% for both quarters. The
foreign tax rate decreased to 33% for the first quarter of 1998, from 34% for
the first quarter of 1997, primarily due to a rate reduction in the United
Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
In management's opinion, the Company's cash flow and liquidity remain
strong. Cash and cash equivalents increased $1.5 million to $2.6 million at
March 31, 1998, from $1.1 million at December 31, 1997. During the first
quarter, $15.3 million of cash was provided by operating activities, $5.9
million was provided by a reduction of pawn loan balances, and $.3 million was
provided by the issuance of common shares pursuant to the Company's stock option
plans. The cash increases were partially offset by the Company's payment of
$11.2 million to acquire thirteen new lending locations, $4.2 million for
capital expenditures, and $.1 million in advances to Express. The Company also
repaid $4.1 million of bank lines of credit, purchased $.2 million of treasury
shares for the Company's Nonqualified Savings Plan, and paid $.3 million in
dividends. The Company intends to continue to develop Mr. Payroll's automated
check-cashing system and anticipates that Mr. Payroll will incur future losses
until sufficient revenues are generated from the sale and operation of automated
check-cashing machines.
The Company and Doc Holliday's Pawnbrokers & Jewellers, Inc. ("Doc
Holliday's") have entered into an Agreement and Plan of Merger pursuant to which
Doc Holliday's would become a wholly-owned subsidiary of the Company in a
purchase transaction. The closing of the transaction is subject to the
satisfaction of certain conditions under the Agreement. Doc Holliday's operates
40 pawnshops located in six states. The Company would fund the acquisition
through borrowings under its U. S. line of credit and the issuance of treasury
shares. In addition to the units that may be acquired in the Doc Holliday's
transaction, the Company also expects to add approximately 15 to 25 new lending
units during the remainder of 1998, which would add approximately 70 to 80 units
for the full year. These additions may occur through new openings or
acquisitions of existing locations.
Page 14
<PAGE> 17
On January 22, 1997, the Company announced that its Board of
Directors had authorized management to purchase up to one million shares of its
common stock in the open market. During the quarter ended March 31, 1998, the
Company made no purchases under the program. Purchases may be made from time to
time in the open market and it is expected that funding of the program will come
from operating cash flow and existing bank facilities.
Management believes that borrowings available under its revolving
credit facilities, cash generated from operations and current working capital of
$170 million should be sufficient to meet the Company's anticipated future
capital requirements.
IMPACT OF FOREIGN CURRENCY EXCHANGE RATES
The Company is subject to the risk of unexpected changes in foreign
currency rates by virtue of its operations in the United Kingdom and Sweden. The
Company's foreign assets, liabilities, and earnings are converted into U.S.
dollars for consolidation into the Company's financial statements. At March 31,
1998, the Company had recorded a cumulative other comprehensive loss of $2.0
million as a result of fluctuations in foreign currency exchange rates. Future
earnings and comparisons with prior periods reported by the Company may
fluctuate depending on applicable currency exchange rates in effect during the
periods.
COMPUTER SYSTEMS - THE YEAR 2000 ISSUE
The Company has taken actions to understand the nature and extent of
the work required making its systems Year 2000 compliant. The Company is
utilizing both internal and external resources to identify, correct or reprogram
and test systems for Year 2000 compliance, but it has not yet completed that
process. As a result, the Company has not yet determined the Year 2000
compliance expense and related potential effect on earnings. While this is an
ongoing process and these efforts will involve additional costs, the Company
believes, based on currently available information, that it will be able to
manage its total Year 2000 transition without any material adverse effect on its
business operations.
Page 15
<PAGE> 18
DOMESTIC LENDING OPERATIONS
- -------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data for the Company's
domestic lending operations as of March 31, 1998 and 1997, and for the three
months then ended.
<TABLE>
<CAPTION>
1998 1997 Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 22,129 $ 19,589 13%
Proceeds from disposition of merchandise 53,539 49,811 7%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 75,668 69,400 9%
- -----------------------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 34,154 32,205 6%
- -----------------------------------------------------------------------------------------------------------------------
NET REVENUE $ 41,514 $ 37,195 12%
=======================================================================================================================
OTHER DATA
Net revenue by source -
Finance and service charges 53.3% 52.7% 1%
Margin on disposition of merchandise 46.7% 47.3% (1)%
Expenses as a percentage of net revenue --
Operations and administration 70.0% 73.9% (5)%
Depreciation and amortization 8.5% 10.0% (15)%
Interest, net 5.8% 5.9% (3)%
Income from operations before depreciation
and amortization as a percentage of total revenue 16.5% 14.0% 18%
Income before income taxes as a percentage of total revenue 8.6% 5.4% 58%
Annualized yield on loans 134% 130% 3%
Average loan balance per average location in operation $ 186 $ 182 2%
Average loan amount at end of period (not in thousands) $ 79 $ 74 7%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 36.2% 35.3% 2%
Average annualized merchandise turnover 2.7X 2.7x --
Average merchandise held for disposition
per average location $ 144 $ 142 1%
Locations in operation --
Beginning of period 352 334
Acquired 12 --
Start-ups 1 4
Combined or closed -- (1)
End of period 365 337 8%
Average number of locations in operation (a) 359 335 7%
=======================================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 16
<PAGE> 19
FOREIGN LENDING OPERATIONS
- -------------------------------------------------------------------------------
(Dollars in thousands)
The table below sets forth selected consolidated financial data in U.S.
dollars for Harvey & Thompson and Svensk Pantbelaning as of March 31, 1998, and
1997, and for the three months then ended, using the following currency exchange
rates:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harvey & Thompson (from pounds sterling into U.S. dollars)--
Balance sheet data - end of period currency exchange rate 1.6713 1.6373
Income statement data - three months average currency exchange rate 1.6463 1.6338
Svensk Pantbelaning (from Swedish Kronor into U.S. dollars)--
Balance sheet data - end of period currency exchange rate 8.0085 7.5491
Income statement data - three months average currency exchange rate 8.0222 7.3514
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 CHANGE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Finance and service charge revenues $ 5,734 $ 5,882 (3)%
Proceeds from disposition of merchandise 599 353 70%
Check-cashing fees 111 -- --
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 6,444 6,235 3%
Cost of disposed merchandise 460 256 80%
- ----------------------------------------------------------------------------------------------------------------------------
NET REVENUES $ 5,984 $ 5,979 0%
============================================================================================================================
OTHER DATA
Net revenues by source-
Finance and service charge revenues 95.8% 98.4% (3)%
Margin on disposition of merchandise 2.3% 1.6% (44)%
Check-cashing fees 1.9% -- --
Expenses as a percentage of net revenues-
Operations and administration 47.1% 45.3% 4%
Depreciation and amortization 5.7% 5.3% 8%
Interest, net 9.8% 9.9% (1)%
Income from operations before depreciation and amortization as a
percentage of total revenues 49.1% 52.4% (6)%
Income before income taxes as a percentage of total revenues 35.1% 38.0% (8)%
Annualized yield on loans 53% 55% (4)%
Average loan balance per average location in operation $ 870 $ 902 (4)%
Average loan amount at end of period (not in thousands) $ 173 $ 176 (2)%
Margin on disposition of merchandise as a percentage of proceeds from
disposition of merchandise 23.2% 27.5% (16)%
Average annualized merchandise turnover 1.8X 4.1X (56)%
Average merchandise held for disposition per average location $ 21 $ 5 320%
Locations in operation-
Beginning of period 49 48
Acquired 1 --
Start-ups -- --
Combined or closed -- --
End of period 50 48 4%
Average number of locations in operation 50 48 4%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 17
<PAGE> 20
OTHER OPERATIONS
- -------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data with respect to the
Company's other domestic operations as of March 31, 1998 and 1997, and for the
three months then ended.
<TABLE>
<CAPTION>
1998 1997 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHECK-CASHING OPERATIONS:
REVENUE
Check-cashing machine sales $ 800 $ -- --
Check-cashing royalties and fees 729 884 (18)%
- -------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 1,529 884 73%
- -------------------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Sales of check-cashing machines 734 -- --
- -------------------------------------------------------------------------------------------------------------------
NET REVENUE $ 795 $ 884 (10)%
===================================================================================================================
OTHER DATA
Franchised check-cashing units --
Checks cashed per average unit $ 1,608 $ 1,344 20%
Royalties and franchise fees per average unit $ 4 $ 5 (20)%
Units in operation at end of period 148 151 (2)%
Average units in operation for the period (a) 146 151 (3)%
Automated check-cashing machines in service --
Checks cashed per average machine $ 579 n/a --
Verification and check-cashing fees per average
machine $ 3 n/a --
Machines at end of period 37 n/a --
Average number of machines for the period (a) 32 n/a --
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $ 360 n/a --
Tire and wheel sales 15 n/a --
Management fees and other 178 n/a --
- -------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 553 n/a --
- -------------------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Tire and wheel rentals 136 n/a --
Tire and wheel sales 12 n/a --
- -------------------------------------------------------------------------------------------------------------------
NET REVENUE $ 405 n/a --
- -------------------------------------------------------------------------------------------------------------------
OTHER DATA (OWNED LOCATIONS)
Rental agreements outstanding at end of period $ 1,581 n/a --
Average balance per rental agreement
at end of period (not in thousands) $ 956 n/a --
Locations in operation at end of period 4 n/a --
Average locations in operation for the period (a) 4 n/a --
===================================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 18
<PAGE> 21
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES
THAT MAY AFFECT FUTURE RESULTS
Certain portions of this report contain forward-looking statements
about the business, financial condition and prospects of the Company. The actual
results of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties including,
without limitation, changes in demand for the Company's services, changes in
competition, the ability of the Company to open new operating units in
accordance with its plans, economic conditions, real estate market fluctuations,
interest rate fluctuations, changes in the capital markets, changes in tax and
other laws and governmental rules and regulations applicable to the Company's
business, and other risks indicated in the Company's filings with the Securities
and Exchange Commission. These risks and uncertainties are beyond the ability of
the Company to control, and, in many cases, the Company cannot predict all of
the risks and uncertainties that could cause its actual results to differ
materially from those indicated by the forward-looking statements. When used in
this report, the words "believes," "estimates," "plans," "expects,"
"anticipates" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
Page 19
<PAGE> 22
PART II
Item 1. LEGAL PROCEEDINGS
See Note 7 of Notes to Consolidated Financial Statements
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K - None
Page 20
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASH AMERICA INTERNATIONAL, INC.
----------------------------------------------
(Registrant)
BY: /s/ Thomas A. Bessant, Jr.
----------------------------------------------
Thomas A. Bessant, Jr.
Senior Vice President and
Chief Financial Officer
Date: May 12, 1998
Page 21
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,574
<SECURITIES> 0
<RECEIVABLES> 125,356
<ALLOWANCES> 0
<INVENTORY> 56,053
<CURRENT-ASSETS> 202,510
<PP&E> 124,917
<DEPRECIATION> 58,809
<TOTAL-ASSETS> 347,552
<CURRENT-LIABILITIES> 32,388
<BONDS> 141,968
0
0
<COMMON> 3,024
<OTHER-SE> 170,172
<TOTAL-LIABILITY-AND-EQUITY> 347,552
<SALES> 54,938
<TOTAL-REVENUES> 84,194
<CGS> 35,496
<TOTAL-COSTS> 63,531
<OTHER-EXPENSES> 10,381
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,007
<INCOME-PRETAX> 7,243
<INCOME-TAX> 2,709
<INCOME-CONTINUING> 4,534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,534
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
