<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 September 30, 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:
25,078,387 common shares, $.10 par value, were outstanding as of October 31,
1998.
================================================================================
<PAGE> 2
CASH AMERICA INTERNATIONAL, INC.
INDEX TO 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL STATEMENTS
Page
Item 1. Financial Statements (Unaudited)
<S> <C>
Consolidated Balance Sheets - September 30, 1998
and 1997 and December 31, 1997........................................... 1
Consolidated Statements of Income - Three Months and
Nine Months Ended September 30, 1998 and 1997............................ 2
Consolidated Statements of Comprehensive Income -
Three Months and Nine Months Ended September 30, 1998 and 1997.......... 3
Consolidated Statements of Stockholders' Equity -
Nine Months Ended September 30, 1998 and 1997............................ 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997........................... 5
Notes to Consolidated Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition................... 11
PART II. OTHER INFORMATION..................................................... 29
SIGNATURE....................................................................... 30
</TABLE>
<PAGE> 3
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,267 $ 3,781 $ 1,119
Loans 133,053 116,391 112,240
Merchandise held for disposition, net 64,653 54,488 53,468
Inventories 4,081 -- 2,130
Finance and service charges receivable 19,772 17,564 17,414
Prepaid expenses and other 7,396 6,506 5,523
Deferred tax assets 14,681 13,098 12,529
- --------------------------------------------------------------------------------------------
Total current assets 246,903 211,828 204,423
Property and equipment, net 70,378 64,140 64,258
Intangible assets, net 89,394 65,677 64,977
Other assets 3,681 7,130 7,621
- --------------------------------------------------------------------------------------------
Total assets $ 410,356 $ 348,775 $ 341,279
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,984 $ 15,295 $ 14,971
Customer deposits 4,829 4,151 3,740
Income taxes currently payable 4,934 4,390 3,819
Current portion of long-term debt 4,625 4,286 4,286
- --------------------------------------------------------------------------------------------
Total current liabilities 32,372 28,122 26,816
Long-term debt 192,455 159,037 146,142
- --------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.10 par value per
share, 80,000,000 shares authorized 3,024 3,024 3,024
Paid in surplus 126,346 122,116 122,155
Retained earnings 98,677 85,306 91,337
Accumulated other comprehensive loss (1,138) (2,958) (2,458)
Notes receivable - stockholders (1,571) (1,337) (1,337)
- --------------------------------------------------------------------------------------------
225,338 206,151 212,721
Less -- shares held in treasury, at cost (39,809) (44,535) (44,400)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 185,529 161,616 168,321
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 410,356 $ 348,775 $ 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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Finance and service charges $ 30,096 $ 27,025 $ 85,963 $ 77,463
Proceeds from disposition of merchandise 48,022 42,573 150,385 136,712
Check cashing machine sales 401 200 1,503 200
Check cashing royalties and fees 1,103 513 2,829 1,874
Rental operations 890 -- 2,278 --
- ---------------------------------------------------------------------------------------------
TOTAL REVENUE 80,512 70,311 242,958 216,249
- ---------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 31,106 26,997 96,692 87,196
Cost of check cashing machines sold 375 177 1,401 177
Rental operations 234 -- 630 --
- ---------------------------------------------------------------------------------------------
NET REVENUE 48,797 43,137 144,235 128,876
- ---------------------------------------------------------------------------------------------
OPERATING EXPENSES
Lending operations 28,402 24,227 82,830 73,166
Check cashing operations 1,882 587 4,899 1,567
Rental operations 378 -- 1,056 --
Administration 6,388 5,818 19,019 17,080
Depreciation 3,535 3,101 10,094 9,490
Amortization 1,141 812 2,984 2,466
- ---------------------------------------------------------------------------------------------
Total operating expenses 41,726 34,545 120,882 103,769
- ---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 7,071 8,592 23,353 25,107
Interest expense, net 3,666 2,998 9,942 8,555
Other (income) expense (18) 105 1 256
- ---------------------------------------------------------------------------------------------
Income before income taxes 3,423 5,489 13,410 16,296
Provision for income taxes 1,326 2,047 5,145 6,053
- ---------------------------------------------------------------------------------------------
NET INCOME $ 2,097 $ 3,442 $ 8,265 $ 10,243
- ---------------------------------------------------------------------------------------------
Net income per share:
Basic $ .08 $ .14 $ .33 $ .42
Diluted .08 .14 .32 .41
- ---------------------------------------------------------------------------------------------
Weighted average shares:
Basic 25,030 24,279 24,754 24,238
Diluted 26,417 25,224 26,186 25,026
- ---------------------------------------------------------------------------------------------
</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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME $ 2,097 $ 3,442 $ 8,265 $ 10,243
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments 946 (975) 1,320 (2,572)
-------- -------- -------- --------
Total other comprehensive income (loss) 946 (975) 1,320 (2,572)
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 3,043 $ 2,467 $ 9,585 $ 7,671
======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 6
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In thousands, except share data) (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED NOTES
OTHER RECEIVABLE -
COMMON STOCK PAID IN RETAINED COMPREHENSIVE STOCK- TREASURY 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 8,265
Other comprehensive income 1,320
Dividends declared--
$.0375 per share (925)
Treasury shares purchased 20,511 (286)
Treasury shares reissued 3,795 (641,269) 4,877
Tax benefit from exercise
of option shares 396
Change in notes
receivable - stockholders (234)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1998 30,235,164 $ 3,024 $ 126,346 $ 98,677 $ (1,138) $ (1,571) 5,191,761 $ (39,809)
================================================================================================================================
Balance at
December 31, 1996 30,235,164 $ 3,024 $ 121,878 $ 75,973 $ (386) $ (1,065) 5,975,670 $ (45,397)
Net income 10,243
Other comprehensive loss (2,572)
Dividends declared--
$.0375 per share (910)
Treasury shares purchased 144,294 (1,333)
Treasury shares reissued (75) (287,763) 2,195
Tax benefit from exercise
of option shares 313
Change in notes
receivable - stockholders (272)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1997 30,235,164 $ 3,024 $ 122,116 $ 85,306 $ (2,958) $ (1,337) 5,832,201 $ (44,535)
================================================================================================================================
</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>
- ------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 8,265 $ 10,243
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 10,094 9,490
Amortization 2,984 2,466
Changes in operating assets and liabilities-
Finance and service charges receivable (1,438) (2,720)
Merchandise held for disposition and inventories (8,395) (4,917)
Prepaid expenses and other (2,786) (1,151)
Accounts payable and accrued expenses 1,447 1,170
Customer deposits, net 801 1,153
Income taxes payable 2,665 1,045
Deferred taxes, net (2,074) (1,923)
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,563 14,856
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to merchandise held for disposition 95,206 84,578
Loans repaid or renewed 216,909 198,706
Loans made, including loans renewed (325,126) (294,142)
- ------------------------------------------------------------------------------------------------
Net change in loans (13,011) (10,858)
- ------------------------------------------------------------------------------------------------
Acquisitions, net of cash acquired (21,787) (5,324)
Investment in and advances to affiliates (120) (600)
Purchases of property and equipment (15,380) (11,006)
Proceeds from sales of property and equipment 1,037 --
- ------------------------------------------------------------------------------------------------
Net cash used by investing activities (49,261) (27,788)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under bank lines of credit 48,745 20,108
Proceeds from capital lease obligations 1,853 --
Payments on notes payable and other obligations (10,892) (4,286)
Payments on notes receivable - stockholders -- 243
Net proceeds from reissuance of treasury shares 1,307 1,605
Treasury shares purchased (286) (1,333)
Dividends paid (925) (910)
- ------------------------------------------------------------------------------------------------
Net cash provided by financing activities 39,802 15,427
- ------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 44 (48)
- ------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS 2,148 2,447
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,119 1,334
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,267 $ 3,781
================================================================================================
SUPPLEMENTAL DISCLOSURES
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase transactions-
Treasury shares reissued 7,131 --
Liabilities assumed 8,227 167
Loans to stockholders for exercise of stock options 234 515
- ------------------------------------------------------------------------------------------------
</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 September 30, 1998 and 1997, and for the
three months and nine 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 and nine 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 and nine months ended September 30, 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 -- 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.
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.
Page 6
<PAGE> 9
Check Cashing Operations -- 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 in the period in which the
service is provided. Royalties derived from franchised locations are recorded on
the accrual basis.
Rental Operations -- 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. Rent-A-Tire has 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 monthly management fee.
3. ACQUISITIONS
During the nine months ended September 30, 1998, the Company acquired
fifty-eight pawnshops in purchase transactions for an aggregate purchase price
of $35.7 million consisting of $20.4 million in cash, the assumption of $8.2
million of liabilities, and the issuance of 475,391 shares of the Company's
common stock valued at $7.1 million. The Company also purchased ten manned check
cashing centers for an aggregate cash consideration of $1.4 million during the
period.
Effective February 1, 1998, in a series of transactions accounted for as a
purchase, the Company exercised an option, for which it had paid $1 million in
1995, 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. The aggregate purchase
price of the additional 41% interest will be paid in four annual installments in
an amount equal to .5835 times the defined after-tax net income of Express for
the 1997 fiscal year and Rent-A-Tire for the 1998, 1999 and 2000 fiscal years,
respectively. No consideration was payable based on Express's results of
operations in 1997. The sellers have an option to repurchase 9.9% of Rent-A-Tire
for a nominal amount. The option is exercisable upon sixty days written notice.
Page 7
<PAGE> 10
4. LONG-TERM DEBT
The Company's long-term debt instruments and balances outstanding as of
September 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
U.S. Line of Credit up to $150 million
due June 30, 2003 $100,000 $ 91,150
U.K. Line of Credit up to(pound)10 million
due April 30, 2000 3,570 2,019
Swedish Lines of Credit up to SEK 215 million 20,263 24,439
8.33% senior unsecured notes due 2003 21,429 25,715
8.14% senior unsecured notes due 2007 20,000 20,000
7.10% senior unsecured notes due 2008 30,000 --
Capital lease obligations payable 1,818 --
- -------------------------------------------------------------------------------------------------------------------
197,080 163,323
Less current portion 4,625 4,286
===================================================================================================================
Long-term debt $192,455 $159,037
===================================================================================================================
</TABLE>
5. NET INCOME PER SHARE
The reconciliation of basic and diluted weighted average common shares
outstanding for the three month and nine month periods ended September 30,
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
1998 1997 1998 1997
- ------------------------------------------------------------- ------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Weighted average shares - Basic 25,030 24,279 24,754 24,238
Effect of shares applicable to stock option plans 1,355 941 1,409 783
Effect of shares applicable to nonqualified savings plan 32 4 23 5
- ------------------------------------------------------------- ------------- ------------- ------------- -------------
Weighted average shares - Diluted 26,417 25,224 26,186 25,026
============================================================= ============= ============= ============= =============
</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 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.
Page 8
<PAGE> 11
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
September 30, 1998:
Total revenue $ 71,317 $ 7,044 $ 78,361 $ 1,261 $ 890 $ 80,512
Income (loss)
from operations 6,311 3,077 9,388 (2,203) (114) 7,071
Total assets at end of
period 307,149 79,047 386,196 18,856 5,304 410,356
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30, 1997:
Total revenue $ 63,570 $ 6,028 $ 69,598 $ 713 n/a $ 70,311
Income (loss)
from operations 6,317 2,773 9,090 (498) n/a 8,592
Total assets at end of
period 262,257 73,621 335,878 12,897 n/a 348,775
- --------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 1998:
Total revenue $ 216,946 $ 19,956 $ 236,902 $ 3,778 $ 2,278 $ 242,958
Income (loss)
from operations 21,001 8,535 29,536 (5,858) (325) 23,353
- --------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 1997:
Total revenue $ 195,818 $ 18,357 $ 214,175 $ 2,074 n/a $ 216,249
Income (loss)
from operations 17,538 8,537 26,075 (968) n/a 25,107
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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 has signed a letter of intent with Wells Fargo Bank, N.A. ("Wells
Fargo") that provides for the Company's wholly owned subsidiary, Mr. Payroll
Corporation ("Mr. Payroll"), to contribute certain tangible assets and
intellectual property associated with its automated check cashing machine
business into its joint venture with Wells Fargo that was originally formed in
May 1998.
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<PAGE> 12
Wells Fargo would contribute cash to the joint venture to further the
development and distribution of the technology. Mr. Payroll and Wells Fargo
would continue to hold equal ownership interests in the joint venture, subject
to a minority interest reserved for management of the joint venture. The
transaction is subject to the negotiation and execution of a definitive
agreement, which the Company expects to finalize before the end of 1998.
Page 10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY CONSOLIDATED FINANCIAL DATA
THIRD QUARTER ENDED SEPTEMBER 30, 1998 vs.
THIRD QUARTER ENDED SEPTEMBER 30, 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 September
30, 1998 and 1997, and for the three months then ended.
<TABLE>
<CAPTION>
1998 1997 Change
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 30,096 $ 27,025 11%
Proceeds from disposition of merchandise 48,022 42,573 13%
Check cashing machine sales 401 200 101%
Check cashing royalties and fees 1,103 513 115%
Rental operations 890 -- --
- --------------------------------------------------------------------------------------------------
TOTAL REVENUE 80,512 70,311 15%
- --------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 31,106 26,997 15%
Cost of check cashing machines sold 375 177 112%
Rental operations 234 -- --
- --------------------------------------------------------------------------------------------------
NET REVENUE $ 48,797 $ 43,137 13%
==================================================================================================
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 61.7% 62.7% (2)%
Margin on disposition of merchandise 34.7% 36.1% (4)%
Check cashing operations 2.3% 1.2% 92%
Rental operations 1.3% -- --
Expenses as a percentage of net revenue--
Operations and administration 75.9% 71.0% 7%
Depreciation and amortization 9.6% 9.1% 5%
Interest, net 7.5% 6.9% 8%
Income from operations before depreciation
and amortization as a percentage of total revenue 14.6% 17.8% (18)%
Income before income taxes as a percentage of total revenue 4.3% 7.8% (45)%
- --------------------------------------------------------------------------------------------------
CONSOLIDATED LENDING OPERATIONS:
Annualized yield on loans 92% 95% (3)%
Average loan balance per average location in operation $ 282 $ 284 (1)%
Average loan amount at end of period (not in thousands) $ 100 $ 96 4%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.2% 36.6% (4)%
Average annualized merchandise turnover 2.1X 2.1x --
Average merchandise held for disposition
per average location $ 131 $ 128 2%
Locations in operation--
Beginning of period 459 395
Acquired 2 4
Start-ups 2 2
Combined or closed (3) --
End of period 460 401 15%
Average number of locations in operation (a) 460 398 16%
==================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 11
<PAGE> 14
NINE MONTHS ENDED SEPTEMBER 30, 1998 vs.
NINE MONTHS ENDED SEPTEMBER 30, 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 September
30, 1998 and 1997, and for the nine months then ended.
<TABLE>
<CAPTION>
1998 1997 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 85,963 $ 77,463 11%
Proceeds from disposition of merchandise 150,385 136,712 10%
Check cashing machine sales 1,503 200 652%
Check cashing royalties and fees 2,829 1,874 51%
Rental operations 2,278 -- --
- ----------------------------------------------------------------------------------------------------
TOTAL REVENUE 242,958 216,249 12%
- ----------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 96,692 87,196 11%
Cost of check cashing machines sold 1,401 177 692%
Rental operations 630 -- --
- ----------------------------------------------------------------------------------------------------
NET REVENUE $ 144,235 $ 128,876 12%
- ----------------------------------------------------------------------------------------------------
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 59.6% 60.1% (1)%
Margin on disposition of merchandise 37.2% 38.4% (3)%
Check cashing operations 2.0% 1.5% 33%
Rental operations 1.2% -- --
Expenses as a percentage of net revenue--
Operations and administration 74.7% 71.2% 5%
Depreciation and amortization 9.1% 9.3% (2)%
Interest, net 6.9% 6.6% 5%
Income from operations before depreciation
and amortization as a percentage of total revenue 15.0% 17.1% (12)%
Income before income taxes as a percentage of total revenue 5.5% 7.5% (27)%
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED LENDING OPERATIONS:
Annualized yield on loans 96% 96% --
Average loan balance per average location in operation $ 274 $ 277 (1)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.7% 36.2% (1)%
Average annualized merchandise turnover 2.3X 2.4x (4)%
Average merchandise held for disposition
per average location $ 128 $ 125 2%
Locations in operation--
Beginning of period 401 382
Acquired 58 10
Start-ups 6 12
Combined or closed (5) (3)
End of period 460 401 15%
Average number of locations in operation (a) 435 390 12%
====================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 12
<PAGE> 15
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 twenty-one month
period ended September 30, 1998, by adding a net seventy-eight locations.
Nineteen locations were established, sixty-eight operating units were acquired,
and nine locations were combined or closed. As of September 30, 1998, the
Company operated 460 lending units--410 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 twenty-one months ended September 30, 1998, Mr. Payroll has
focused on the development of its automated check cashing machine. The first two
machines were installed in June 1997, and sixty-seven units were in operation as
of September 30, 1998, including twenty-four machines that were owned and
operated by Mr. Payroll. Twenty-two machines were installed in the third quarter
of 1998. As of September 30, 1998, Mr. Payroll also had 136 franchised and ten
company owned manned check cashing centers in twenty-one states compared to 149
franchised centers as of September 30, 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. As of September 30,
1998, Rent-A-Tire owns and operates four tire and wheel rental stores and
manages ten additional tire and wheel rental stores under the Rent-A-Tire name,
including one that was added during the third quarter of 1998.
Page 13
<PAGE> 16
RESULTS OF OPERATIONS
THIRD QUARTER ENDED SEPTEMBER 30, 1998, COMPARED TO THE
THIRD QUARTER ENDED SEPTEMBER 30, 1997
Net Revenue: Consolidated. Consolidated net revenue increased 13% to $48.8
million during the third quarter ended September 30, 1998 (the "current
quarter"), from $43.1 million during the third quarter ended September 30, 1997
(the "prior year quarter"). Of the 13% increase, 10% was attributable to the net
addition of fifty-nine lending locations since September 30, 1997, 1% was
attributable to gains from same unit lending operations (those in operation for
more than one year), and 2% was attributable to increases in the check cashing
and rental segments of the Company.
Net Revenue: Lending Activities. Net revenue from lending operations
increased $4.6 million to $47.2 million during the current quarter from $42.6
million during the prior year quarter. The lending units added since September
30, 1997, contributed $4.3 million of the increase. The principal components of
lending operations net revenue are finance and service charges, which accounted
for $3.1 million of the total increase, and net revenue from the disposition of
merchandise, which accounted for $1.3 million of the total increase. The
remaining component, foreign check cashing operations, commenced in the third
quarter of 1997 and accounted for $.2 million of the total increase.
Finance and service charges are affected by changes in both the average
outstanding amount of pawn loans and the annualized yield on such loans. Finance
and service charges increased a net amount of $3.1 million, or 11%, in the
current quarter over the prior year quarter. A 15% increase in the average
outstanding amount of pawn loans, which occurred as a result of an 11% increase
in the average number of loans outstanding coupled with a 3% increase in the
average loan amount, produced the increase in finance and service charges. Same
units contributed $.8 million of the $3.1 million net increase.
The consolidated annualized loan yield, which represents a weighted average
of the distinctive loan yields realized in the three countries in which the
Company operates, declined to 92% in the current quarter from 95% in the prior
year quarter. The domestic annualized loan yield was 114% for the current
quarter compared to 122% for the prior year quarter. The decrease can be
partially attributed to an 18% increase in domestic pawn loans at September 30,
1998, over the same date in 1997, which can have the effect of reducing the loan
yield until revenues from these loans are fully realized. The net addition of
fifty-eight domestic lending locations accounted for 12% of the loan balance
increase, while same units contributed the remainder of the increase. The
remainder of the annualized loan yield decrease occurred as a result of
expansion in lower-yielding domestic markets. The blended yield on average
fforeign pawn loans outstanding was 52% for the current quarter compared to 51%
in the prior year quarter. The increase in foreign loan yields resulted from
slightly higher loan yields that offset slightly lower returns on the
disposition of unredeemed collateral at auction.
Net revenue from the disposition of merchandise represents the proceeds
received from the disposition of merchandise in excess of the cost of
merchandise disposed.
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<PAGE> 17
Proceeds from the disposition of merchandise in the current quarter were $5.4
million, or 13%, higher than the prior year quarter primarily due to the
addition of the new lending units. The margin on disposition of merchandise
declined to 35.2% in the current quarter from 36.6% during the prior year
quarter. Excluding the effect of the disposition of scrap jewelry, the margin on
disposition of merchandise fell to 36.6% for the current quarter from 37.8% in
the prior year quarter due to the Company's emphasis on maintaining merchandise
held for disposition at desirable levels and a higher average cost of items
disposed. The net result was a $1.3 million, or 9%, increase in net revenue from
the disposition of merchandise. The merchandise turnover rate was constant at
2.1 times for both quarters.
Net Revenue: Other Activities. Net revenue of Mr. Payroll in the current
quarter increased 65% compared to the prior year quarter. Check cashing
royalties and fees earned from the operations of check cashing machines as well
as the owned and franchised check cashing centers, increased 71% and represented
94% and 91% of net revenue in the current and prior year quarters, respectively.
Gross profit realized on check cashing machine sales accounted for 3% of net
revenue in the current quarter as compared to 4% in the prior year quarter. The
change in the amount of franchise fees, which accounted for the remaining net
revenue in both periods, was negligible.
Net revenue of $.6 million was contributed by Rent-A-Tire in the current
quarter. Prior to February 1, 1998, the Company's 49% share of earnings or
losses of Rent-A-Tire's predecessor was recorded in "Other (income) expense."
Operations and Administration Expenses. Consolidated operations and
administration expenses as a percentage of net revenue were 75.9% in the current
quarter compared to 71.0% for the prior year quarter. Total operations and
administration expenses increased $6.4 million, or 21%, in the current quarter
as compared to the prior year quarter. Domestic lending operations contributed
$3.4 million of the increase primarily due to higher personnel, occupancy, and
office expenses mostly attributable to new units which accounted for $2.7
million of the domestic increase. Foreign lending operations contributed $.3
million of the increase. Mr. Payroll accounted for $2.0 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
expenses of Rent-A-Tire, which was not consolidated prior to February 1, 1998,
comprised $.7 million of the increase.
Depreciation and Amortization. Depreciation and amortization expenses as a
percentage of net revenue increased to 9.6% in the current quarter from 9.1% in
the prior year quarter. Depreciation and amortization expenses increased 19%
principally due to the effect of the increase in additional lending units.
Interest Expense. Net interest expense as a percentage of net revenue
increased to 7.5% in the current quarter from 6.9% in the prior year quarter.
The amount increased $.7 million, or 22%, primarily due to the effect of a
higher average level of debt related to the Company's growth. Average debt
outstanding increased 25% to $197.1 million during the current quarter from
$157.9 million during the prior year quarter. The effective blended borrowing
cost remained constant at 7.4% in each quarter.
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<PAGE> 18
Other Expense. Other expense includes $148 thousand of losses in the prior
year quarter attributable to the Company's 49% equity interest in the losses of
Express.
Income Taxes. The Company's consolidated effective income tax rate
increased to 39% for the current quarter from 37% for the prior year quarter
primarily as a result of the effect in the current quarter of lower pre-tax
income and higher non-deductible intangible asset amortization. The effective
tax rate of the domestic lending operations increased to 40% for the current
quarter compared to 39% for the prior year quarter primarily as a result of
higher non-deductible intangible asset amortization that was partially offset by
a lower effective state income tax rate in the current quarter. The effective
tax rate of the foreign lending operations decreased to 32% for the current
quarter from 34% for the prior year quarter primarily as a result of a rate
reduction in the United Kingdom.
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1997
Net Revenue: Consolidated. Consolidated net revenue increased 12% to $144.2
million during the nine months ended September 30, 1998 (the "current period"),
from $128.9 million during the nine months ended September 30, 1997 (the "prior
year period"). Of the 12% increase, 7% was attributable to the net addition of
fifty-nine locations since September 30, 1997, 3% was attributable to gains from
same unit lending operations, and 2% was attributable to increases in the check
cashing and rental segments of the Company.
Net Revenue: Lending Activities. Net revenue from lending operations
increased $13.2 million to $140.2 million during the current period from $127.0
million during the prior year period, primarily due to a $9.0 million
contribution by the lending units added since September 30, 1997. Finance and
service charges, net revenue from the disposition of merchandise, and foreign
check cashing operations accounted for $8.5 million, $4.2 million, and $.5
million, respectively, of the total increase.
The finance and service charges increase of $8.5 million was attributable
to an 11% increase in the average outstanding amount of pawn loans that added
$8.2 million, plus a nominal increase in the annualized loan yield that provided
the remaining $.3 million. Same units contributed $4.3 million of the total
increase.
The consolidated annualized loan yield remained constant at 96% in both
periods even though both the domestic and blended foreign loan yields decreased.
No change occurred because there was a greater percentage of higher-yielding
domestic loans in the consolidated loan portfolio during the current period as
compared to the prior year period. The domestic annualized loan yield was 123%
for the current period compared to 125% for the prior year period. The decrease
was primarily due to a 15% increase in the average outstanding domestic pawn
loan balances during the current period as compared to the prior year period.
The blended yield on average foreign pawn loans outstanding decreased to 52% for
the current period from 53% in the prior year period. The decline in foreign
loan yields resulted primarily from lower returns on the disposition of
unredeemed collateral at auction.
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<PAGE> 19
Proceeds from the disposition of merchandise in the current period were
$13.7 million, or 10%, higher than the prior year period. Same unit increases,
which the Company believes is attributable to stronger customer demand,
accounted for $4.1 million of the $13.7 million increase. The margin on
disposition of merchandise declined to 35.7% in the current period from 36.2%
during the prior year period. The margin from the disposition of scrap jewelry
decreased $.2 million in the current period as compared to the prior year
period. Excluding the effect of the disposition of scrap jewelry, the margin on
disposition of merchandise was 37.1% for the current period compared to 37.9% in
the prior year period. The net result was a $4.2 million, or 8%, increase in net
revenue from the disposition of merchandise. The merchandise turnover rate
decreased slightly to 2.3 times from 2.4 times in the prior year period.
Net Revenue: Other Activities. Net revenue of Mr. Payroll in the current
period increased 25% compared to the prior year period. Mr. Payroll's decision
to emphasize the development and implementation of its automated check cashing
machine began to affect the composition of the components of net revenue in the
prior year period. Check cashing royalties and fees earned from the operations
of check cashing machines and owned and franchised check cashing centers,
increased 44% and represented 94% and 82% of net revenue in the current and
prior year periods, respectively. Gross profit realized on check cashing machine
sales, which did not begin until the latter stages of 1997, accounted for 4% and
1% of net revenue in the current period and the prior year period, respectively.
Franchise fees and other income accounted for 2% and 17% of net revenue in the
current period and the prior year period, respectively.
Net revenue of $1.6 million was contributed by Rent-A-Tire in the current
period. 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.
Operations and Administration Expenses. Consolidated operations and
administration expenses as a percentage of net revenue were 74.7% in the current
period compared to 71.2% for the prior year period. Total operations and
administration expenses increased $16.0 million in the current period as
compared to the prior year period. Domestic lending operations contributed $8.2
million of the increase primarily due to higher personnel, occupancy, and office
expenses mostly attributable to new units which accounted for $5.9 million of
the domestic increase. Foreign lending operations contributed $.8 million of the
increase. Mr. Payroll accounted for $5.2 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 expenses of
Rent-A-Tire, which was not consolidated prior to February 1, 1998, comprised
$1.8 million of the increase.
Depreciation and Amortization. Depreciation and amortization expenses as a
percentage of net revenue decreased to 9.1% in the current period from 9.3% in
prior year period. Depreciation and amortization expenses increased 9%
principally due to the effect of the increase in additional lending units.
Interest Expense. Net interest expense as a percentage of net revenue
increased to 6.9% in the current period from 6.6% in the prior year period. The
amount increased $1.4
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<PAGE> 20
million, or 16%, primarily due to the effect of a higher average level of debt
outstanding to support increased growth of operations and investment in
subsidiaries combined with a slightly higher effective blended borrowing cost.
Average debt outstanding increased 15% to $173.1 million during the current
period from $150.8 million during the prior year period. The effective blended
borrowing cost increased to 7.7% for the current period from 7.6% for the prior
year period.
Other Expense. Other expense includes $79 thousand and $323 thousand of
losses in the current period and prior year period, respectively, attributable
to the Company's 49% equity interest in the losses of Express.
Income Taxes. The Company's consolidated effective income tax rate
increased to 38% for the current period from 37% for the prior year period
primarily due to a non-recurring foreign dividend tax credit that reduced the
effective rate in the prior year period. The effective tax rate of the domestic
lending operations remained constant at 39% for each period. The favorable
effect of a lower effective state income tax rate in the current period offset
the impact of the non-recurring foreign dividend tax credit received in the
prior year period. The effective tax rate of the foreign lending operations
decreased to 33% for the current period from 34% for the prior year period
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 $2.2 million to $3.3 million at
September 30, 1998, from $1.1 million at December 31, 1997. During the nine
months ended September 30, 1998, $48.7 million of cash was provided by net
borrowings on the Company's bank lines of credit, $11.6 million was provided by
operating activities, $1.9 million was provided by the issuance of capital lease
obligations, $1.3 million was provided by the issuance of common shares pursuant
to the Company's stock option plans, and $1.1 million was provided by proceeds
from sales of property and equipment. The cash increases were partially offset
by the Company's investments of $21.8 million to acquire fifty-eight new lending
locations and to repurchase 10 manned check cashing centers, $15.4 million for
capital expenditures, $13.0 million to increase pawn loan balances, and $.1
million in advances to Express prior to its consolidation. The Company also made
a scheduled payment of $4.3 million on its 8.33% senior unsecured notes, paid
$6.6 million of debt obligations in connection with acquisitions and capital
leases, paid $.9 million in dividends, and purchased $.3 million of treasury
shares for the Company's Nonqualified Savings Plan.
The Company has signed a letter of intent with Wells Fargo Bank, N.A.
("Wells Fargo") that provides for Mr. Payroll to contribute certain tangible
assets and intellectual property associated with its automated check cashing
machine business into its joint venture with Wells Fargo that was originally
formed in May 1998. Wells Fargo would contribute cash to the joint venture to
further the development and distribution of the technology. Mr. Payroll and
Wells Fargo would continue to hold equal ownership interests in the joint
venture, subject to a minority interest reserved for management of the joint
venture. The transaction is subject to the negotiation and execution of a
definitive agreement, which the Company expects to finalize before the end of
1998. Until such a
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<PAGE> 21
transaction is finalized, the Company intends to continue to market and enhance
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 may add up to 5 new lending units during the remainder of
1998, for a total addition of approximately 60 to 65 units for the full year.
These additions may occur through new openings or acquisitions of existing
locations.
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 nine months ended September 30, 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 $214.5
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 September
30, 1998, the Company had recorded a cumulative other comprehensive loss of $1.1
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
Background. Many computer systems and equipment with embedded computer
chips in use today were designed and developed using two digits, rather than
four, to specify the year. As a result, such systems and equipment may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations.
The Company's Year 2000 Efforts. In 1997, the Company began formulating a
comprehensive plan to assess the actions and resources needed to address its
Year 2000 issues. The plan provides for the identification and assessment of the
Year 2000 issues for the Company's various internal systems and equipment;
necessary remediation, including modification, upgrading and replacement of
hardware and software; and adequate testing to ensure Year 2000 compliance. The
plan involves the utilization of both internal and external resources, including
the engagement of an independent expert to assist in the evaluation of the
various Year 2000 issues and efforts. The Company is applying all aspects of
this plan to both its information technology ("IT") systems and non-IT systems.
Computer equipment
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<PAGE> 22
and software commonly thought of as IT systems include point-of-sale,
accounting, data processing, telephone, and other miscellaneous systems. Non-IT
systems include alarm systems, security observation equipment, HVAC units, fax
machines, and other miscellaneous systems. The Company believes that it has
identified the internal business systems that are susceptible to system failures
or processing errors as a result of the Year 2000 issue. Those systems
considered most critical to continuing operations have received the highest
priority.
Currently, the Company anticipates that its Year 2000 identification,
assessment, and remediation efforts will be completed by June 30, 1999. While
the majority of the testing efforts should be completed by then, the Company
anticipates that additional testing will occur after June 30, 1999. The Company
believes that its pawnshop operating systems constitute its only critical
internal business systems. The Company's proprietary pawnshop operating system
used in its domestic lending business has been upgraded for Year 2000 compliance
and is currently being tested. The pawnshop operating system in use in the
Company's Sweden business was recently upgraded for Year 2000 compliance, and
testing of that system should be completed by December 31, 1998. A proprietary
pawnshop operating system for the Company's United Kingdom lending operations
is under development. The Company expects to complete the implementation and
testing of this system by June 30, 1999. The Company also believes that its
accounting applications, human resources, and payroll software systems are Year
2000 compliant, and testing to ensure compliance is scheduled to be completed
by March 31, 1999.
The Company is still in the assessment phase with respect to its non-IT
systems issues, and it currently estimates that all necessary non-IT system
remediation and testing efforts should be completed by September 30, 1999.
Third Parties. The Company is reviewing, and has initiated formal
communications with, critical third parties which provide services or goods
which are essential to Cash America's operations in order to: (1) determine the
extent to which the Company is vulnerable to any failure by such third parties
to remediate their respective Year 2000 problems; and (2) resolve such problems
to the extent practicable. These third parties include financial institutions,
utility suppliers, and providers of communication services and equipment.
However, the responses of third parties are beyond the control of the Company.
In the event that the Company is unable to obtain satisfactory assurance that a
critical third party provider has successfully and timely achieved Year 2000
compliance, and the Company is unable to replace such a provider with an
alternative provider, the Company's operations could be adversely impacted.
Estimated Year 2000 Costs. The Company currently estimates that its total
Year 2000 project cost will be approximately $1.7 million to $2.3 million.
Through September 30, 1998, the Company has expended approximately $.9 million.
Costs to replace computerized systems, hardware or equipment (currently
estimated to be approximately $1.1 million to $1.4 million) are included in the
above estimate. The remaining costs include estimated internal and external
costs to repair software problems, test all systems, and acquire license
upgrades that have been accelerated due to Year 2000 issues. No major non-Year
2000 projects have been deferred because of Year 2000 activities. The Company
has funded, and expects to continue to fund, the expenditures related to its
Year 2000
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initiatives either through cash generated from operations and current working
capital, or its existing revolving credit facilities.
Risks of Year 2000 Problems. Based on the progress it has made in
addressing its Year 2000 issues and its plan and timetable to complete its
compliance program, the Company does not currently foresee significant risks
associated with its Year 2000 issues. However, management believes that it is
not possible to determine with complete certainty that all Year 2000 problems
affecting the Company have been identified or will be corrected. Likewise,
because of its constant progress in addressing its various Year 2000 issues, the
Company has not yet determined the most reasonably likely worst case scenario
relating to Year 2000 problems. Nevertheless, management expects that the
Company could likely suffer the following consequences: (1) a significant number
of operational inconveniences and inefficiencies for the Company and its
customers that could divert management's time and attention and financial and
human resources from its ordinary business activities; and (2) a lesser number
of serious system failures that may require significant efforts by the Company
to prevent or alleviate material business disruptions.
Contingency Planning. The Company has not yet completed a comprehensive
contingency plan with respect to the Year 2000 issue, but intends to do so
during 1999. Due to the widespread nature of potential Year 2000 issues, the
contingency planning process is an ongoing one which will require further
modifications as the Company obtains additional information regarding (1) the
Company's progress on critical internal business systems during the remediation
and testing phases; and (2) the status of third party Year 2000 readiness.
Depending on the systems affected, these plans could include accelerated
replacement of affected software or equipment, increased work hours for Company
personnel or contract personnel to accelerate remediation efforts, or
development of manual workarounds for information systems. If the Company is
required to implement any of these contingency plans, the implementation could
have an adverse effect on the Company's financial condition and results of
operations.
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DOMESTIC LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data for the Company's
domestic lending operations as of September 30, 1998 and 1997, and for the three
months then ended.
<TABLE>
<CAPTION>
1998 1997 Change
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 24,076 $ 21,460 12%
Proceeds from disposition of merchandise 47,241 42,110 12%
- -------------------------------------------------------------------------------------------------
TOTAL REVENUE 71,317 63,570 12%
- -------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 30,452 26,686 14%
- -------------------------------------------------------------------------------------------------
NET REVENUE $ 40,865 $ 36,884 11%
=================================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 58.9% 58.2% 1%
Margin on disposition of merchandise 41.1% 41.8% (2)%
Expenses as a percentage of net revenue--
Operations and administration 74.7% 73.5% 2%
Depreciation and amortization 9.9% 9.3% 6%
Interest, net 6.7% 6.5% 3%
Income from operations before depreciation
and amortization as a percentage of total revenue 14.5% 15.4% (6)%
Income before income taxes as a percentage of total revenue 5.2% 6.0% (13)%
Annualized yield on loans 114% 122% (7)%
Average loan balance per average location in operation $ 204 $ 200 2%
Average loan amount at end of period (not in thousands) $ 80 $ 76 5%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.5% 36.6% (3)%
Average annualized merchandise turnover 2.1X 2.1x --
Average merchandise held for disposition
per average location $ 143 $ 144 (1)%
Locations in operation--
Beginning of period 409 347
Acquired 2 3
Start-ups 2 2
Combined or closed (3) --
End of period 410 352 16%
Average number of locations in operation (a) 410 349 17%
=================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
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DOMESTIC LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data for the Company's
domestic lending operations as of September 30, 1998 and 1997, and for the nine
months then ended.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1998 1997 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 68,533 $ 60,361 14%
Proceeds from disposition of merchandise 148,413 135,457 10%
- ----------------------------------------------------------------------------------------------------
TOTAL REVENUE 216,946 195,818 11%
- ----------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 95,090 86,318 10%
- ----------------------------------------------------------------------------------------------------
NET REVENUE $ 121,856 $ 109,500 11%
====================================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 56.2% 55.1% 2%
Margin on disposition of merchandise 43.8% 44.9% (2)%
Expenses as a percentage of net revenue--
Operations and administration 73.5% 74.3% (1)%
Depreciation and amortization 9.3% 9.7% (4)%
Interest, net 5.9% 6.2% (5)%
Income from operations before depreciation
and amortization as a percentage of total revenue 14.9% 14.4% 3%
Income before income taxes as a percentage of total revenue 6.4% 5.4% 19%
Annualized yield on loans 123% 125% (2)%
Average loan balance per average location in operation $ 193 $ 189 2%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.9% 36.3% (1)%
Average annualized merchandise turnover 2.3X 2.4x (4)%
Average merchandise held for disposition
per average location $ 142 $ 141 1%
Locations in operation--
Beginning of period 352 334
Acquired 57 9
Start-ups 6 12
Combined or closed (5) (3)
End of period 410 352 16%
Average number of locations in operation (a) 385 342 13%
====================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
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FOREIGN LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data in U.S.
dollars for Harvey & Thompson and Svensk Pantbelaning as of September 30, 1998
and 1997, and for the three months then ended, using the following currency
exchange rates:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harvey & Thompson (from pounds sterling into U.S. dollars)--
Balance sheet data - end of period rate .5882 .6192
Income statement data - three months average rate .6040 .6161
Svensk Pantbelaning (from Swedish Kronor into U.S. dollars)--
Balance sheet data - end of period rate 7.8438 7.5690
Income statement data - three months average rate 8.0026 7.8000
- ---------------------------------------------------------------------------------------------
1998 1997 Change
- ---------------------------------------------------------------------------------------------
REVENUE
Finance and service charges $6,020 $5,565 8%
Proceeds from disposition of merchandise 781 463 69%
Check cashing fees 243 -- --
- ---------------------------------------------------------------------------------------------
TOTAL REVENUE 7,044 6,028 17%
- ---------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 654 311 110%
- ---------------------------------------------------------------------------------------------
NET REVENUE $6,390 $5,717 12%
=============================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 94.2% 97.3% (3)%
Margin on disposition of merchandise 2.0% 2.7% (26)%
Check cashing fees 3.8% -- --
Expenses as a percentage of net revenue--
Operations and administration 46.3% 45.8% 1%
Depreciation and amortization 5.6% 5.7% (2)%
Interest, net 7.7% 10.2% (25)%
Income from operations before depreciation
and amortization as a percentage of total revenue 48.7% 51.4% (5)%
Income before income taxes as a percentage of total revenue 36.8% 36.5% 1%
Annualized yield on loans 52% 51% 2%
Average loan balance per average location in operation $ 924 $ 883 5%
Average loan amount at end of period (not in thousands) $ 179 $ 173 3%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 16.3% 32.8% (50)%
Average annualized merchandise turnover 1.8X 2.3x (22)%
Average merchandise held for disposition
per average location $ 28 $ 11 155%
Locations in operation--
Beginning of period 50 48
Acquired -- 1
Start-ups -- --
Combined or closed -- --
End of period 50 49 2%
Average number of locations in operation (a) 50 49 2%
=============================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 24
<PAGE> 27
FOREIGN LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data in U.S.
dollars for Harvey & Thompson and Svensk Pantbelaning as of September 30, 1998
and 1997, and for the nine months then ended, using the following currency
exchange rates:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harvey & Thompson (from pounds sterling into U.S. dollars)--
Income statement data - nine months average rate .6054 .6129
Svensk Pantbelaning (from Swedish Kronor into U.S. dollars)--
Income statement data - nine months average rate 7.9522 7.6070
<CAPTION>
- ------------------------------------------------------------------------------------------------
1998 1997 Change
- ------------------------------------------------------------------------------------------------
REVENUE
Finance and service charges $17,430 $17,102 2%
Proceeds from disposition of merchandise 1,972 1,255 57%
Check cashing fees 554 -- --
- ------------------------------------------------------------------------------------------------
TOTAL REVENUE 19,956 18,357 9%
- ------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 1,602 878 82%
- ------------------------------------------------------------------------------------------------
NET REVENUE $18,354 $17,479 5%
================================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 95.0% 97.8% (3)%
Margin on disposition of merchandise 2.0% 2.2% (9)%
Check cashing fees 3.0% -- --
Expenses as a percentage of net revenue--
Operations and administration 47.7% 45.7% 4%
Depreciation and amortization 5.8% 5.5% 5%
Interest, net 9.2% 9.9% (7)%
Income from operations before depreciation
and amortization as a percentage of total revenue 48.1% 51.7% (7)%
Income before income taxes as a percentage of total revenue 34.5% 37.2% (7)%
Annualized yield on loans 52% 53% (2)%
Average loan balance per average location in operation $ 899 $ 901 --
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 18.8% 30.0% (37)%
Average annualized merchandise turnover 1.7X 3.2x (47)%
Average merchandise held for disposition
per average location $ 25 $ 8 213%
Locations in operation--
Beginning of period 49 48
Acquired 1 1
Start-ups -- --
Combined or closed -- --
End of period 50 49 2%
Average number of locations in operation (a) 50 48 4%
================================================================================================
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 25
<PAGE> 28
OTHER OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data with respect to the
Company's other domestic operations as of September 30, 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 $ 401 $ 200 101%
Check cashing royalties and fees 860 513 68%
- --------------------------------------------------------------------------------
TOTAL REVENUE 1,261 713 77%
- --------------------------------------------------------------------------------
COSTS OF REVENUE
Cost of check cashing machines sold 375 177 112%
- --------------------------------------------------------------------------------
NET REVENUE $ 886 $ 536 65%
================================================================================
OTHER DATA
Franchised and owned check cashing units--
Checks cashed per average unit $1,286 $1,210 6%
Royalties, check cashing fees and franchise
fees per average unit $ 4 $ 3 33%
Units in operation at end of period 146 149 (2)%
Average units in operation for the period (a) 147 150 (2)%
Automated check cashing machines in service--
Checks cashed per average machine $ 592 $ 557 6%
Verification and check cashing fees per average
machine $ 4 $ 3 33%
Machines at end of period 67 7 857%
Average number of machines for the period (a) 56 5 1020%
================================================================================
================================================================================
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $ 552 n/a --
Tire and wheel sales 22 n/a --
Management fees and other 316 n/a --
- --------------------------------------------------------------------------------
TOTAL REVENUE 890 n/a --
- --------------------------------------------------------------------------------
COSTS OF REVENUE
Tire and wheel rentals 217 n/a --
- --------------------------------------------------------------------------------
Tire and wheel sales 17 n/a --
NET REVENUE $ 656 n/a --
- --------------------------------------------------------------------------------
OTHER DATA (OWNED LOCATIONS)
Rental agreements outstanding at end of period $1,374 n/a --
Average balance per rental agreement
at end of period (not in thousands) $ 894 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 26
<PAGE> 29
OTHER OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data with respect to the
Company's other domestic operations as of September 30, 1998 and 1997, and for
the nine months then ended.
<TABLE>
<CAPTION>
1998 1997 Change
- ----------------------------------------------------------------------------------------------------------
CHECK CASHING OPERATIONS:
<S> <C> <C> <C>
REVENUE
Check cashing machine sales $1,503 $ 200 652%
Check cashing royalties and fees 2,275 1,874 21%
- ----------------------------------------------------------------------------------------------------------
TOTAL REVENUE 3,778 2,074 82%
- ----------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Cost of check cashing machines sold 1,401 177 692%
- ----------------------------------------------------------------------------------------------------------
NET REVENUE $2,377 $1,897 25%
==========================================================================================================
OTHER DATA
Franchised and owned check cashing units--
Checks cashed per average unit $4,209 $3,736 13%
Royalties, check cashing fees and franchise
fees per average unit $ 12 $ 12 --
Average units in operation for the period (a) 147 150 (2)%
Automated check cashing machines in service--
Checks cashed per average machine $1,782 $1,512 18%
Verification and check cashing fees per average
machine $ 10 $ 8 25%
Average number of machines for the period (a) 43 2 2050%
==========================================================================================================
==========================================================================================================
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $1,530 n/a --
Tire and wheel sales 57 n/a --
Management fees and other 691 n/a --
- ----------------------------------------------------------------------------------------------------------
TOTAL REVENUE 2,278 n/a --
- ----------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Tire and wheel rentals 586 n/a --
Tire and wheel sales 44 n/a --
- ----------------------------------------------------------------------------------------------------------
NET REVENUE $1,648 n/a --
==========================================================================================================
OTHER DATA (OWNED LOCATIONS)
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 27
<PAGE> 30
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. Certain risks and uncertainties relating specifically
to the Company's Year 2000 efforts include, but are not limited to, the
availability of qualified personnel and other information technology resources;
the ability to identify and remediate all date sensitive lines of computer code
or to replace embedded computer chips in affected systems or equipment; and the
actions of various third parties with respect to Year 2000 problems. 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 28
<PAGE> 31
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
Page 29
<PAGE> 32
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.
Executive Vice President and
Chief Financial Officer
Date: November 12, 1998
Page 30
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,267
<SECURITIES> 0
<RECEIVABLES> 152,825
<ALLOWANCES> 0
<INVENTORY> 68,734
<CURRENT-ASSETS> 246,903
<PP&E> 135,276
<DEPRECIATION> 64,898
<TOTAL-ASSETS> 410,356
<CURRENT-LIABILITIES> 32,372
<BONDS> 192,455
0
0
<COMMON> 3,024
<OTHER-SE> 182,505
<TOTAL-LIABILITY-AND-EQUITY> 410,356
<SALES> 151,888
<TOTAL-REVENUES> 242,958
<CGS> 98,093
<TOTAL-COSTS> 187,508
<OTHER-EXPENSES> 32,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,942
<INCOME-PRETAX> 13,410
<INCOME-TAX> 5,145
<INCOME-CONTINUING> 8,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,265
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
