<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, 2000
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:
25,418,376 common shares, $.10 par value, were outstanding as of November 6,
2000.
================================================================================
<PAGE> 2
CASH AMERICA INTERNATIONAL, INC.
INDEX TO 10-Q
<TABLE>
<S> <C>
PART I. FINANCIAL STATEMENTS
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 2000
and 1999 and December 31, 1999 ...................................... 1
Consolidated Statements of Income - Three Months and
Nine Months Ended September 30, 2000 and 1999 ....................... 2
Consolidated Statements of Stockholders' Equity -
Three Months and Nine Months Ended September 30, 2000 and 1999 ..... 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 ....................... 4
Notes to Consolidated Financial Statements .......................... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ................. 10
PART II. OTHER INFORMATION .............................................. 28
SIGNATURE ............................................................... 29
</TABLE>
<PAGE> 3
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999 1999
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,628 $ 3,020 $ 6,186
Loans 122,549 134,291 125,349
Merchandise held for disposition, net 61,633 73,352 64,419
Inventory 4,877 1,857 2,801
Finance and service charges receivable 19,493 21,530 21,052
Other receivables and prepaid expenses 17,185 8,260 6,279
Income taxes recoverable 5,314 7,601 8,824
Deferred tax assets 5,839 7,393 5,548
--------- --------- ---------
Total current assets 243,518 257,304 240,458
Property and equipment, net 60,086 59,381 60,961
Intangible assets, net 87,964 91,568 90,901
Other assets 6,733 5,017 9,911
Investment in and advances
to unconsolidated subsidiary -- 14,163 15,392
--------- --------- ---------
Total assets $ 398,301 $ 427,433 $ 417,623
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,872 $ 16,418 $ 20,931
Customer deposits 4,434 5,046 4,131
Income taxes currently payable 344 3,402 1,587
Current portion of long-term debt 5,725 4,706 5,390
--------- --------- ---------
Total current liabilities 31,375 29,572 32,039
Deferred tax liabilities 2,275 1,298 1,668
Long-term debt 185,195 203,317 196,976
--------- --------- ---------
Stockholders' equity:
Common stock, $.10 par value per
share, 80,000,000 shares authorized 3,024 3,024 3,024
Paid in surplus 127,835 127,354 127,350
Retained earnings 99,385 108,918 105,331
Accumulated other comprehensive loss (9,357) (2,659) (3,989)
Notes receivable - stockholders (5,698) (5,820) (5,820)
--------- --------- ---------
215,189 230,817 225,896
Less -- shares held in treasury, at cost (35,733) (37,571) (38,956)
--------- --------- ---------
Total stockholders' equity 179,456 193,246 186,940
--------- --------- ---------
Total liabilities and stockholders' equity $ 398,301 $ 427,433 $ 417,623
========= ========= =========
</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,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE
Finance and service charges $ 28,974 $ 30,641 $ 85,741 $ 92,169
Proceeds from disposition of merchandise 49,697 50,814 162,686 164,857
Other lending fees and royalties 440 10 565 49
Rental operations 4,842 3,134 12,634 7,052
Check cashing royalties and fees 894 969 2,978 3,424
--------- --------- --------- ---------
TOTAL REVENUE 84,847 85,568 264,604 267,551
--------- --------- --------- ---------
COSTS OF REVENUE
Disposed merchandise 32,948 34,774 109,010 110,266
Rental operations 1,643 879 4,090 1,767
--------- --------- --------- ---------
NET REVENUE 50,256 49,915 151,504 155,518
--------- --------- --------- ---------
OPERATING EXPENSES
Lending operations 31,004 30,070 91,922 89,290
Rental operations 2,895 1,503 8,089 2,981
Check cashing operations 231 597 965 2,971
Administration 6,307 6,279 19,581 19,938
Depreciation 3,336 3,601 10,187 11,329
Amortization 1,082 1,115 3,262 3,500
--------- --------- --------- ---------
Total operating expenses 44,855 43,165 134,006 130,009
--------- --------- --------- ---------
INCOME FROM OPERATIONS 5,401 6,750 17,498 25,509
Interest expense, net 3,604 3,433 10,094 9,990
Loss (gain) from insurance claim settlement (9,729) -- (9,729) --
Equity in loss of unconsolidated subsidiary -- 2,204 15,589 5,137
Loss (gain) from issuance of subsidiary's stock -- 223 (136) (4,290)
--------- --------- --------- ---------
Income before income taxes 11,526 890 1,680 14,672
Provision for income taxes 4,335 468 6,668 7,526
--------- --------- --------- ---------
NET INCOME (LOSS) $ 7,191 $ 422 $ (4,988) $ 7,146
========= ========= ========= =========
Net income (loss) per share:
Basic $ .28 $ .02 $ (.19) $ .28
Diluted .28 .02 (.19) .27
--------- --------- --------- ---------
Weighted average common shares outstanding:
Basic 25,712 25,458 25,585 25,356
Diluted 25,929 26,021 25,585 26,337
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE> 5
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000 And 1999
(In thousands, except share data) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS)
---------- ------- ---------- ----------- -------------
Balance at
<S> <C> <C> <C> <C> <C>
December 31, 1999 30,235,164 $ 3,024 $ 127,350 $ 105,331
Comprehensive loss:
Net loss (4,988) $ (4,988)
Other comprehensive
loss - Foreign
currency translation
adjustments (5,368)
----------
Comprehensive loss $ (10,356)
----------
Dividends declared--
$.0375 per share (958)
Treasury shares acquired
Treasury shares reissued (740)
Tax benefit from exercise
of option shares 1,225
Change in notes
receivable - stockholders
---------- ------- ---------- ----------
Balance at
September 30, 2000 30,235,164 $ 3,024 $ 127,835 $ 99,385
========== ======= ========== ==========
Balance at
December 31, 1998 30,235,164 $ 3,024 $ 126,615 $ 102,722
Comprehensive income:
Net income 7,146 $ 7,146
Other comprehensive
loss - Foreign
currency translation
adjustments (245)
----------
Comprehensive income $ 6,901
----------
Dividends declared--
$.0375 per share (950)
Treasury shares acquired
Treasury shares reissued (212)
Tax benefit from exercise
of option shares 951
Change in notes
receivable - stockholders
---------- ------- ---------- ----------
Balance at
September 30, 1999 30,235,164 $ 3,024 $ 127,354 $ 108,918
========== ======= ========== ==========
<CAPTION>
ACCUMULATED NOTES
OTHER RECEIVABLE - TREASURY STOCK
COMPREHENSIVE STOCK- ---------------------------
INCOME (LOSS) HOLDERS SHARES AMOUNT
------------- ----------- ---------- ------------
Balance at
<S> <C> <C> <C> <C>
December 31, 1999 $ (3,989) $ (5,820) 5,055,170 $ (38,956)
Comprehensive loss:
Net loss
Other comprehensive
loss - Foreign
currency translation
adjustments (5,368)
Comprehensive loss
Dividends declared--
$.0375 per share
Treasury shares acquired 188,733 (1,370)
Treasury shares reissued (598,825) 4,593
Tax benefit from exercise
of option shares
Change in notes
receivable - stockholders 122
---------- ---------- --------- ----------
Balance at
September 30, 2000 $ (9,357) $ (5,698) 4,645,078 $ (35,733)
========== ========== ========= ==========
Balance at
December 31, 1998 $ (2,414) $ (3,263) 5,114,218 $ (39,240)
Comprehensive income:
Net income
Other comprehensive
loss - Foreign
currency translation
adjustments (245)
Comprehensive income
Dividends declared--
$.0375 per share
Treasury shares acquired 323,281 (2,491)
Treasury shares reissued (544,807) 4,160
Tax benefit from exercise
of option shares
Change in notes
receivable - stockholders (2,557)
---------- ---------- --------- ----------
Balance at
September 30, 1999 $ (2,659) $ (5,820) 4,892,692 $ (37,571)
========== ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 6
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,988) $ 7,146
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 10,187 11,329
Amortization 3,262 3,500
Gain from insurance claim settlement (9,729) --
Equity in loss of unconsolidated subsidiary 15,589 5,137
Gain from issuance of subsidiary's stock (136) (4,290)
Changes in operating assets and liabilities-
Merchandise held for disposition and inventory 1,019 (7,850)
Finance and service charges receivable 846 (1,788)
Other receivables and prepaid expenses (1,980) (1,543)
Accounts payable and accrued expenses (3,047) (2,162)
Customer deposits, net 303 883
Current income taxes 3,650 374
Deferred taxes, net 1,929 2,945
--------- ---------
Net cash provided by operating activities 16,905 13,681
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to merchandise held for disposition 98,724 107,583
Loans repaid or renewed 211,046 223,661
Loans made, including loans renewed (312,044) (335,576)
--------- ---------
Net increase in loans (2,274) (4,332)
--------- ---------
Acquisitions, net of cash acquired (2,031) (8,104)
Effect on cash of de-consolidation of subsidiary -- (4,795)
Advance to unconsolidated subsidiary -- (602)
Purchases of property and equipment (15,833) (15,147)
Proceeds from sale of property and equipment -- 5,831
Proceeds from property insurance claim 10,508 --
--------- ---------
Net cash used by investing activities (9,630) (27,149)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) borrowings under bank lines of credit (5,629) 18,705
Proceeds from capital lease obligations 2,115 --
Payments on notes payable and capital lease obligations (5,141) (4,587)
Change in notes receivable - stockholders 840 --
Net proceeds from reissuance of treasury shares 3,434 1,391
Treasury shares purchased (1,370) (2,491)
Dividends paid (958) (950)
--------- ---------
Net cash (used) provided by financing activities (6,709) 12,068
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (124) 3
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS 442 (1,397)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,186 4,417
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,628 $ 3,020
========= =========
SUPPLEMENTAL DISCLOSURES
NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans to stockholders for exercise of stock options $ 419 $ 2,557
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 7
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").
Through March 9, 1999, the assets and liabilities of the Company's automated
check cashing machine operations, now known as innoVentry Corp. ("innoVentry"),
and the results of its operations were included in the consolidated financial
statements. The Company disposed of a majority interest in innoVentry on March
9, 1999, and began accounting for its investment and its proportionate share of
the results of innoVentry's operations by the equity method of accounting. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The financial statements as of September 30, 2000 and 1999, and for the
three month and nine month periods 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
month and nine month periods ended September 30, 1999, have been reclassified to
conform to the presentation format adopted in 2000. 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 1999 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 collectible 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 5
<PAGE> 8
Rental Operations o Tire and wheel rentals are paid on a weekly basis in advance
and revenue is recognized in the period earned. Rental payments received prior
to the period due are recorded as deferred revenue. Customers may return the
rented tires and wheels at any time and have no obligation to complete the
rental agreement. Rent-A-Tire has also entered into agreements to operate and
manage stores for unrelated investors. The investors own the stores and incur
all costs to operate them. Management fees earned by Rent-A-Tire are recorded in
revenue over the life of the agreement. In addition, Rent-A-Tire receives
compensation for its efforts in constructing and opening each store that it
manages for a third party.
Check Cashing Operations o The Company records fees derived from its owned check
cashing locations in the period in which the service is provided. Royalties
derived from franchised locations are recorded on the accrual basis.
3. NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") that, as amended, is required to be adopted
by the Company for the year ended December 31, 2001. SFAS 133, as amended,
establishes new accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivative
instruments as either assets or liabilities on the balance sheet and measure
them at fair value. The accounting for the gains or losses resulting from
changes in the values of the derivatives will depend on the intended use of the
derivatives and whether they qualify for hedge accounting treatment. The
transition adjustments resulting from adopting SFAS 133 will be reported in net
income or in accumulated other comprehensive income (loss) in stockholders'
equity, as appropriate, as the effect of a change in accounting principle and
presented in a manner similar to the cumulative effect of a change in accounting
principle. The Company currently believes its only derivative instruments are
interest rate caps. The Company is currently in the process of estimating the
effect, if any, that the adoption of SFAS 133 will have on its financial
position and results of operations.
4. GAIN FROM INSURANCE CLAIM SETTLEMENT
On March 28, 2000, a tornado severely damaged the Company's corporate
headquarters in Fort Worth, Texas. Headquarters operations have been relocated
to temporary facilities and the Company's operating locations were not affected.
The Company owns the building and restoration is scheduled to begin in the
fourth quarter of 2000. The Company's insurance coverage provides proceeds for
the replacement costs related to the loss of the building; replacement of
furniture, improvements, and equipment; recovery of losses resulting from
business interruption; and recovery of other general expenses. The Company
recognized a gain of $9.7 million from the settlement of the insurance claim.
Income tax expense of $3.4 million related to the gain is included in the
provision for income taxes. At September 30, 2000, $11.0 million of insurance
claim proceeds receivable is included in other receivables and prepaid expenses
in the accompanying consolidated balance sheet.
Page 6
<PAGE> 9
5. LONG-TERM DEBT
The Company's long-term debt instruments and balances outstanding as of
September 30 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
U.S. Line of Credit up to $150 million
due June 30, 2003 $100,900 $111,700
U.K. Line of Credit up to(pound)15 million
due April 30, 2002 9,771 11,859
Swedish Lines of Credit up to SEK 215 million 10,782 15,060
8.33% senior unsecured notes due 2003 12,857 17,143
8.14% senior unsecured notes due 2007 20,000 20,000
7.10% senior unsecured notes due 2008 30,000 30,000
Capital lease obligations payable 6,110 1,761
6.25% subordinated unsecured notes due 2004 500 500
-------- --------
190,920 208,023
Less current portion 5,725 4,706
-------- --------
Total long-term debt $185,195 $203,317
======== ========
</TABLE>
6. WEIGHTED AVERAGE SHARES
The reconciliation of basic and diluted weighted average common shares
outstanding for the three month and nine month periods ended September 30,
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares - Basic 25,712 25,458 25,585 25,356
Effect of shares applicable to stock option plans 168 522 -- 942
Effect of shares applicable to nonqualified savings plan 49 41 -- 39
------ ------ ------ ------
Weighted average shares - Diluted 25,929 26,021 25,585 26,337
====== ====== ====== ======
</TABLE>
Diluted weighted average shares for the nine month period ended
September 30, 2000, excludes approximately 463,000 shares applicable to stock
option plans and 47,000 shares applicable to the nonqualified savings plan.
These shares are excluded due to their antidilutive effects as a result of the
Company's net loss during the nine month period ended September 30, 2000.
Page 7
<PAGE> 10
7. UNCONSOLIDATED SUBSIDIARY
Summarized unaudited results of operations for innoVentry for the three month
and nine month periods ended September 30, follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total net revenue $ 4,935 $ 2,792 $ 12,639 $ 6,035
Expenses including net interest expense (35,260) (10,626) (88,776) (24,362)
Income tax benefit -- -- -- 2,560
-------- -------- -------- --------
Net loss $(30,325) $ (7,834) $(76,137) $(15,767)
======== ======== ======== ========
</TABLE>
The Company recorded $2.5 million of net loss from innoVentry's
operations in 1999 prior to de-consolidation on March 9, 1999. Thereafter, the
Company recorded its proportionate share of innoVentry's net loss by the equity
method. As of June 30, 2000, the Company's proportionate share of the losses of
innoVentry exceeded the carrying amount of its investment in and advances to
innoVentry. The Company has no obligation to provide financial support to
innoVentry. Accordingly, it has suspended the recording of its equity in the
losses of innoVentry. The Company owns a 37.8% voting interest in innoVentry as
of September 30, 2000.
8. OPERATING SEGMENT INFORMATION
The Company has two reportable operating segments in the lending industry and
one each in the check cashing and rental industries. While the United States and
foreign lending segments offer the same services, each is managed separately due
to the different operational strategies required. The rental operation offers
different services and products thus requiring its own technical, marketing and
operational strategy. The same is true with respect to the check cashing
operations. However, the Company has not controlled the operations of innoVentry
since March 9, 1999.
Page 8
<PAGE> 11
Information concerning the segments is set forth below (in thousands):
<TABLE>
<CAPTION>
Lending
----------------------------------
United Check
States Foreign Total Rental Cashing Consolidated
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended
September 30, 2000:
Total revenue $ 71,908 $ 7,379 $ 79,287 $ 4,842 $ 718 $ 84,847
Income (loss)
from operations 3,963 2,043 6,006 (750) 145 5,401
Total assets at end of
period 282,558 77,216 359,774 26,486 12,041 398,301
-------- -------- -------- -------- -------- --------
Three Months Ended
September 30, 1999:
Total revenue 73,623 8,038 81,661 3,134 773 85,568
Income (loss)
from operations 3,958 3,152 7,110 (149) (211) 6,750
Total assets at end of
period 298,369 88,822 387,191 16,500 23,742 (A) 427,433
======== ======== ======== ======== ======== ========
Nine Months Ended
September 30, 2000:
Total revenue 225,511 24,008 249,519 12,634 2,451 264,604
Income (loss)
from operations 13,221 6,321 19,542 (2,381) 337 17,498
-------- -------- -------- -------- -------- --------
Nine Months Ended
September 30, 1999:
Total revenue 234,535 23,108 257,643 7,052 2,856 (B) 267,551
Income (loss)
from operations 18,969 9,056 28,025 66 (2,582)(B) 25,509
======== ======== ======== ======== ======== ========
</TABLE>
(A) Includes investment in and advances to innoVentry of $14,163.
(B) Includes innoVentry operations through March 9, 1999.
9. 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.
Page 9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY CONSOLIDATED FINANCIAL DATA
THIRD QUARTER ENDED SEPTEMBER 30, 2000 vs.
THIRD QUARTER ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data with
respect to the Company and its lending operations as of September 30, 2000 and
1999, and for the three months then ended.
<TABLE>
<CAPTION>
2000 1999 Change
------- ------- ------
<S> <C> <C> <C>
REVENUE
Finance and service charges $28,974 $30,641 (5)%
Proceeds from disposition of merchandise 49,697 50,814 (2)%
Other lending fees and royalties 440 10 4300%
Rental operations 4,842 3,134 54%
Check cashing royalties and fees 894 969 (8)%
------- ------- ----
TOTAL REVENUE 84,847 85,568 (1)%
------- ------- ----
COSTS OF REVENUE
Disposed merchandise 32,948 34,774 (5)%
Rental operations 1,643 879 87%
------- ------- ----
NET REVENUE $50,256 $49,915 1%
======= ======= ====
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 58.5% 61.4% (5)%
Margin on disposition of merchandise 33.3% 32.1% 4%
Rental operations 6.4% 4.5% 42%
Check cashing operations 1.8% 2.0% (10)%
Expenses as a percentage of net revenue--
Operations and administration 80.5% 77.0% 5%
Depreciation and amortization 8.8% 9.4% (6)%
Interest, net 7.2% 6.9% 4%
Income from operations before depreciation
and amortization as a percentage of total revenue 11.6% 13.4% (14)%
Income from operations as a percentage of total revenue 6.4% 7.9% (19)%
------- ------- ----
LENDING OPERATIONS:
Annualized yield on pawn loans 93% 91% 2%
Average pawn loan balance per average location in operation $ 269 $ 286 (6)%
Average pawn loan amount at end of period (not in thousands) $ 98 $ 102 (4)%
Margin on disposition of merchandise as a percentage of proceeds from
disposition of merchandise 33.7% 31.6% 7%
Average annualized merchandise turnover 2.2x 2.0x 10%
Average merchandise held for disposition per average location $ 126 $ 148 (15)%
Lending locations in operation--
Beginning of period 463 466
Acquired - 2
Start-ups - 1
Combined or closed - -
End of period 463 469 (1)%
Additional franchise locations at end of period 16 6 167%
Total locations at end of period 479 475 1%
Average number of owned locations(a) 463 468 (1)%
------- ------- ----
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 10
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 2000 vs.
NINE MONTHS ENDED SEPTEMBER 30, 1999
================================================================================
(Dollars in thousands)
The following table sets forth selected consolidated financial data with
respect to the Company and its lending operations as of September 30, 2000 and
1999, and for the nine months then ended.
<TABLE>
<CAPTION>
2000 1999 Change
--------- --------- ------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 85,741 $ 92,169 (7)%
Proceeds from disposition of merchandise 162,686 164,857 (1)%
Other lending fees and royalties 565 49 1053%
Rental operations 12,634 7,052 79%
Check cashing royalties and fees 2,978 3,424 (13)%
--------- --------- ----
TOTAL REVENUE 264,604 267,551 (1)%
--------- --------- ----
COSTS OF REVENUE
Disposed merchandise 109,010 110,266 (1)%
Rental operations 4,090 1,767 131%
--------- --------- ----
NET REVENUE $ 151,504 $ 155,518 (3)%
========= ========= ====
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 57.0% 59.3% (4)%
Margin on disposition of merchandise 35.4% 35.1% 1%
Rental operations 5.6% 3.4% 65%
Check cashing operations 2.0% 2.2% (9)%
Expenses as a percentage of net revenue--
Operations and administration 79.6% 74.1% 7%
Depreciation and amortization 8.9% 9.5% (7)%
Interest, net 6.7% 6.4% 5%
Income from operations before depreciation
and amortization as a percentage of total revenue 11.7% 15.1% (23)%
Income from operations as a percentage of total revenue 6.6% 9.5% (31)%
--------- --------- ----
LENDING OPERATIONS:
Annualized yield on pawn loans 94% 96% (2)%
Average pawn loan balance per average location in operation $ 262 $ 277 (5)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 33.0% 33.1% --
Average annualized merchandise turnover 2.5x 2.2x 14%
Average merchandise held for disposition
per average location $ 127 $ 142 (11)%
Lending locations in operation--
Beginning of period 466 464
Acquired -- 5
Start-ups 1 3
Combined, closed or sold (4) (3)
End of period 463 469 (1)%
Additional franchise locations at end of period 16 6 167%
Total locations at end of period 479 475 1%
Average number of owned locations in operation(a) 464 465 --
--------- --------- ----
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 11
<PAGE> 14
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. The pawn loan portfolio generates
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 rental of
tires and wheels through its subsidiary, Rent-A-Tire, Inc. ("Rent-A-Tire") and
check cashing services through its franchised and company owned Mr. Payroll(R)
manned check cashing centers.
The Company expanded its lending operations during the twenty-one
month period ended September 30, 2000, by adding a net 10 locations. It acquired
5 operating units, established 5 locations, and combined or closed 8 locations.
In addition, 11 franchise units were opened, including 3 company-owned locations
that were sold to a franchisee. As of September 30, 2000, the Company's lending
operations consisted of 479 lending units--410 owned units and 16 franchised
units in 18 states in the United States, 42 jewelry-only units in the United
Kingdom, and 11 loan-only and primarily jewelry-only units in Sweden.
During the twenty-one month period ended September 30, 2000,
Rent-A-Tire acquired 18 tire and wheel rental stores that it previously managed,
established 12 stores and closed one store. As of September 30, 2000,
Rent-A-Tire owned and operated 33 stores and also managed 10 additional stores
for a third party that were added during 1999.
During the first quarter of 1999, the Company restructured its check
cashing operations in a series of transactions designed to isolate and
accelerate the development and deployment of its automated check cashing machine
("CCM"). In January 1999, the Company transferred its manned check cashing
operations into a new wholly owned consolidated subsidiary ("Mr. Payroll"). As
of September 30, 2000, Mr. Payroll operated 130 franchised and 7 company owned
manned check cashing centers in 20 states. On March 9, 1999, Wells Fargo Cash
Centers, Inc. ("Cash Centers"), a wholly owned subsidiary of Wells Fargo Bank,
N.A., contributed approximately $27.0 million of cash and assets to the
Company's CCM subsidiary (now known as "innoVentry") and received newly issued
shares of innoVentry's senior convertible Series A preferred stock representing
45% of innoVentry's voting interest. Additionally, certain members of the newly
constituted management of innoVentry subscribed for newly issued shares of
common stock of innoVentry, representing 10% of its voting interest. The Company
also assigned 10% of its senior convertible Series A preferred stock to the
former owners of innoVentry's predecessor in consideration for the termination
of an option issued in conjunction with the Company's original acquisition of
innoVentry's predecessor. Upon completion of the transactions, the Company's
residual ownership interest in innoVentry was 40.5%. As a result, the Company no
longer controlled innoVentry, it was de-consolidated and the Company began
accounting for its investment and its share of the results of innoVentry's
operations after March 9, 1999, by the equity method of accounting whereby the
Company records its proportionate share of innoVentry's earnings
Page 12
<PAGE> 15
or losses in its consolidated financial statements. In October 1999, the
Company, Cash Centers, and a third party each purchased $10.0 million of
innoVentry's newly issued senior convertible Series B voting preferred stock.
The Company's voting interest as of September 30, 2000, is 37.8%.
RESULTS OF OPERATIONS
THIRD QUARTER ENDED SEPTEMBER 30, 2000, COMPARED TO THE
THIRD QUARTER ENDED SEPTEMBER 30, 1999
Net Revenue: Consolidated. Consolidated net revenue increased 1%, or
$.4 million, to $50.3 million during the third quarter ended September 30, 2000
(the "current quarter"), from $49.9 million during the third quarter ended
September 30, 1999 (the "prior year quarter"). Net revenue from lending
activities decreased $.6 million. Rental operations net revenue increased $1.0
million and check cashing operations net revenue remained constant.
Net Revenue: Lending Activities. Net revenue from lending operations
decreased $.6 million to $46.3 million during the current quarter from $46.9
million during the prior year quarter. Domestic lending net revenue from same
units (those in operation for more than one year) increased $1.0 million.
However, foreign lending net revenue from same units declined $1.3 million,
including $.6 million resulting from the translation of the foreign currencies
into United States Dollars (USD). A decrease of $.7 million resulted from a net
reduction of 6 lending units since September 30, 1999. Other lending fees and
franchise royalties increased a total of $.4 million.
The principal components of net revenue from lending operations are
finance and service charges, which declined $1.7 million, net revenue from the
disposition of merchandise, which increased $.7 million, and other domestic
lending and franchising activities and foreign check cashing operations, which
increased a combined $.4 million.
Fluctuations in finance and service charges are caused by changes in
both the average balance outstanding of pawn loans and the annualized yield of
the pawn loan portfolio. A lower average balance outstanding of pawn loans tends
to result in lower amounts of finance and service charges and net revenue. In
the current quarter, finance and service charges decreased 5%, or $1.7 million,
compared to the prior year quarter. The $1.7 million decline was the net result
of a $2.0 million decrease from a 7% reduction in the average pawn loan balance
that was slightly offset by a $.3 million increase attributed to a 2% increase
in the consolidated annualized loan yield. Of the $2.0 million decrease
attributable to a lower average pawn loan balance, $1.4 million occurred in the
United States as a result of a 5% decrease in the average number of pawn loans
outstanding. Management believes that the sustained strength in the United
States economy may have manifested itself in a weakened demand for pawn loans
that began during the prior year quarter. Management also believes that this
trend in lower loan demand may reverse during the fourth quarter resulting in
more favorable comparisons to prior period amounts. However, net revenue will
not return to historical levels until loan demand or customer count increases.
The remaining $.6 million decrease in finance and service charges occurred
primarily due to the negative foreign
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<PAGE> 16
currency translation adjustments resulting from the continued strengthening of
the USD against both the U. K. pound sterling and the Swedish kronor.
The consolidated annualized loan yield, which represents the blended
result derived from the distinctive loan yields realized in the three countries
in which the Company operates, was 93% in the current quarter compared to 91% in
the prior year quarter. The increase in the consolidated yield was primarily the
result of an increase in the domestic annualized loan yield to 119% for the
current quarter compared to 115% for the prior year quarter. The domestic loan
yield increased due to a greater concentration of loans in higher-yielding
markets and rate stratifications. A slightly higher concentration of extended or
renewed loans in the portfolio and higher redemption rates have also contributed
to the higher loan yield. The blended yield on the average amount of foreign
pawn loans outstanding was 47% for the current quarter compared to 52% in the
prior year quarter. The decrease in the blended foreign yield resulted primarily
from a decline in the United Kingdom to 48% from 56%. Although the average pawn
loan balance denominated in the U. K. pound sterling for the current quarter was
flat compared to the prior year quarter, the average balance has decreased
during fiscal year 2000. Because pawn loan terms in the United Kingdom are
generally 6 months, changes in trends occur more slowly than in the United
States. The higher amounts previously loaned contributed to lower redemption
rates and lower returns on the disposition of unredeemed collateral that
contributed to the decline in loan yield observed in the current quarter.
Management believes that this lower year-over-year loan yield trend in the
United Kingdom will continue for the next two quarters.
Net revenue from the disposition of merchandise represents the proceeds
received from the disposition of merchandise in excess of the cost of
merchandise disposed. Proceeds from the disposition of merchandise in the
current quarter were $1.1 million, or 2%, lower than the prior year quarter
primarily due to a $1.6 million decline from domestic activities, including a
$1.4 million decline from same units, that was partially offset by a $.5 million
increase from the foreign lending units, including a $.3 million increase from
same units. The margin on disposition of merchandise increased to 33.7% in the
current quarter from 31.6% during the prior year quarter primarily due to a
lower average cost of merchandise disposed. Excluding the effect of the
disposition of scrap jewelry, the margin on disposition of merchandise was 36.0%
for the current quarter compared to 33.2% for the prior year quarter. The margin
on disposition of scrap jewelry was 3% in both the current year quarter and the
prior year quarter. The improved overall margin resulted in a $.7 million, or
4%, increase in net revenue from the disposition of merchandise. Management
continues to emphasize disposition of merchandise and maintaining an effective
ratio of pawn loan balances to merchandise. As a result, the merchandise
turnover rate increased to 2.2 times in the current quarter compared to 2.0
times in the prior year quarter and the balance of merchandise available for
disposition at September 30, 2000, was 16% less than at September 30, 1999.
Other domestic lending fees and franchising royalties increased a
combined amount of $.4 million in the current quarter as compared to the prior
year quarter. The majority of the increase resulted from the initiation of a
small consumer cash advance product that was introduced into 152 of the domestic
lending units by the end of the current quarter,
Page 14
<PAGE> 17
including 9 units through which the product is offered by a third party
financial institution (the "Bank"). The Company provides customers with cash in
exchange for a promissory note or other repayment agreement supported by that
customer's check in the amount of the cash advanced plus a service fee. The
Company holds the check for a short period, typically less than 17 days. To
repay the advance, customers can redeem their checks by paying cash or they can
allow the checks to be deposited. (Although these cash advance transactions can
take the form of loans or deferred check deposit transactions, the transactions
are referred to throughout this report as "payday loans" for convenience.)
During the current quarter, $2.7 million of payday loans were written,
including $7 thousand written by the Bank, for an average of $179 per loan. As
of September 30, 2000, $843 thousand of gross payday loans were outstanding,
including $5 thousand in loans by the Bank that are not included in the
Company's consolidated balance sheet. A loan loss reserve of $213 thousand,
representing 25.4%, has been provided for the Company's portion of gross payday
loans outstanding. The Company expects that payday loans will be offered in
approximately 330 of its locations by the end of the current year.
Net Revenue: Other Activities. Net revenue of Rent-A-Tire increased to
$3.2 million in the current quarter from $2.3 million in the prior year quarter.
Tire and wheel rentals and sales net revenue increased $1.5 million as a result
of an average of 19 more stores in operation in the current quarter compared to
the prior year quarter. The level of activity in managed stores and the change
in the number of new managed stores drive management fees and related revenue.
Management fees and other related revenue for the current quarter declined $.6
million compared to the prior year quarter primarily as a result of decreases in
the average number of managed stores and the number of tires and wheels on
rental agreements in the managed stores.
Manned check cashing operations had a nominal decrease in net revenue
for the current quarter compared to the prior year quarter as the average number
of franchised and owned check cashing centers in operation was reduced to 137 in
the current quarter from 144 in the prior year quarter.
Operations and Administration Expenses. Consolidated operations and
administration expenses as a percentage of net revenue were 80.5% for the
current quarter compared to 77.0% for the prior year quarter. Total operations
and administration expenses increased a net amount of $2.0 million, or 5%, in
the current quarter as compared to the prior year quarter. Domestic lending
operations expenses increased $1.2 million primarily as a result of rollout
costs and continuing expenses associated with the introduction of payday loans
into 152 lending units. A summer marketing promotion also contributed to the
domestic increase. Foreign lending operations expenses declined $.2 million,
primarily as a result of a $.3 million decrease from the translation of the
foreign currencies into USD. Rent-A-Tire accounted for $1.4 million of the
increase due to the average of 19 more stores during the current quarter. Check
cashing operations expenses decreased $.4 million for the current quarter
compared to the prior year quarter. The prior year quarter included $.2 million
of losses from fraudulently cashed income tax checks as compared to a nominal
amount in the current year quarter. The remaining $.2 million decrease resulted
from a reduction in other administrative expenses.
Depreciation and Amortization. Depreciation and amortization expenses
as a percentage of net revenue decreased to 8.8% in the current quarter from
9.4% in the prior year quarter. The amount of depreciation and amortization
expenses decreased 6.3%
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<PAGE> 18
primarily as a result of tornado destruction to the Company's corporate
headquarters and a moderation in the unit expansion of its lending operations.
Interest Expense. Net interest expense as a percentage of net revenue
increased to 7.2% in the current quarter from 6.9% in the prior year quarter.
Average debt outstanding decreased 5.9% to $196.2 million during the current
quarter from $208.6 million during the prior year quarter. However, the
effective blended borrowing cost was 7.3% in the current quarter and 6.5% in the
prior year quarter. As a result, interest expense increased $.2 million for the
current quarter compared to the prior year quarter.
Other Items. During the current quarter, the Company recorded a $9.7
million gain from the settlement of the insurance claim resulting from the
severe damage to its corporate headquarters in Fort Worth, Texas by a tornado in
March 2000. Income tax expense of $3.4 million related to the gain is included
in the provision for income taxes.
As of June 30, 2000, the Company's proportionate share of innoVentry's
losses exceeded the carrying amount of its investment in and advances to
innoVentry. Since the Company has no obligation to provide financial support to
innoVentry, it suspended the recording of its equity in innoVentry's losses and
gains or losses on the issuance of innoVentry's common stock as of June 30,
2000, and has recorded no equity in losses of innoVentry or gains or losses from
the issuance of innoVentry's common stock during the current quarter. The
Company's share of innoVentry's net losses following de-consolidation in March
1999, was $2.2 million in the prior year quarter. The Company recorded a pre-tax
loss of $.2 million from the issuance of innoVentry's common stock in the prior
year quarter. The Company expects innoVentry's losses to continue as its
operations continue to expand.
Income Taxes. The Company recognized deferred tax benefits in the prior
year quarter from the equity losses arising from its investment in innoVentry
and the loss on issuance of innoVentry preferred stock. Excluding those effects
in the prior year quarter and their related tax effects, the Company's
consolidated effective income tax rate for the current quarter is 37.6% compared
to 39.8% in the prior year quarter. The effective tax rate decreased as a result
of a lower ratio of domestic non-deductible intangible asset amortization and
other miscellaneous items to pre-tax income in the current quarter as compared
to the prior year quarter. The effective tax rate of the foreign lending
operations was 31.5% in the current quarter and 30.8% in the prior year quarter.
NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net Revenue: Consolidated. Consolidated net revenue decreased 3%, or
$4.0 million, to $151.5 million during the nine months ended September 30, 2000
(the "current period"), from $155.5 million during the nine months ended
September 30, 1999 (the "prior year period"). Net revenue from lending
activities declined $6.9 million. Rental operations net revenue increased $3.2
million and check cashing operations net revenue decreased $.3 million.
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Net Revenue: Lending Activities. Net revenue from lending operations
decreased $6.9 million to $140.5 million during the current period from $147.4
million during the prior year period. Same units accounted for $6.1 million of
the decrease, including approximately $1.1 million resulting from the
translation of the foreign currencies into USD. Finance and service charges
declined $6.5 million, net revenue from the disposition of merchandise declined
$.9 million, and other domestic lending revenue, franchise royalties and foreign
check cashing fees increased a total of $.5 million.
Finance and service charges decreased $6.5 million, or 7%, in the
current period compared to the prior year period. Of the $6.5 million, $6.1
million was the result of a 6% decrease in the average pawn loan balance that
was caused by a 5% decrease in the average number of pawn loans outstanding
combined with a 1% decrease in the average amount per average pawn loan
outstanding. The decrease is primarily attributable to declines in loan demand
in the United States and Sweden. The remaining $.4 million decline was caused by
a 2% decrease in the consolidated annualized loan yield.
The consolidated annualized loan yield was 94% in the current period
compared to 96% in the prior year period. The decrease in the yield was
primarily the result of a lower blended yield on foreign loans as the domestic
yield was slightly higher at 124% for the current period compared to 122% for
the prior year period. The blended yield on the average amount of foreign pawn
loans outstanding was 48% for the current period compared to 53% in the prior
year period. The decrease in the blended foreign loan yield resulted primarily
from a decline in loan yield in the United Kingdom to 49% from 57%. The average
United Kingdom pawn loan balance denominated in the U. K. pound sterling for the
current period was 10% higher than the prior year period. However, lower
redemption rates and lower returns on the disposition of unredeemed collateral
contributed to the decline in loan yield.
Proceeds from the disposition of merchandise in the current period were
$2.2 million, or 1%, lower than the prior year period primarily due to a $4.9
million decline from domestic activities, including a $4.2 million decline from
same units, that was partially offset by a $2.7 million increase from the
foreign lending units, including a $1.2 million increase from same units in the
United Kingdom. The margin on disposition of merchandise declined slightly to
33.0% in the current period from 33.1% during the prior year period. Excluding
the effect of the disposition of scrap jewelry, the margin on disposition of
merchandise was 35.2% for the current period compared to 34.9% for the prior
year period. The margin on disposition of scrap jewelry was 1.8% in the current
period and 2.1% in the prior year period. The combination of lower proceeds and
a lower margin resulted in a $.9 million, or 2%, decline in net revenue from the
disposition of merchandise. The merchandise turnover rate increased to 2.5 times
in the current period compared to 2.2 times in the prior year period. During the
last five quarters, management has concentrated on discounting prices, lowering
the average cost of merchandise held for disposition, and reducing merchandise
to more desirable levels. As a result, management believes that the margin on
the disposition of merchandise should continue to improve throughout the
remainder of the year.
Other domestic lending fees and franchising royalties increased a
combined amount of $.5 million in the current period as compared to the prior
year period. The introduction of
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payday loans into 152 of the domestic lending units during the current period
accounted for $.4 million of the increase.
Net Revenue: Other Activities. Net revenue of Rent-A-Tire increased to
$8.5 million in the current period from $5.3 million in the prior year period.
Tire and wheel rentals and sales net revenue increased $3.9 million as a result
of an average of 20 more stores in operation in the current period compared to
the prior year period. Management fee revenue and other related revenue
decreased $.7 million due to a reduction of an average of one managed store in
the current period compared to the prior year period.
The restructuring of the Company's check cashing operations and
de-consolidation of innoVentry resulted in a $.3 million decrease in other net
revenue in the current year period compared to the prior year period. Following
de-consolidation, the Company began accounting for its investment in innoVentry
by the equity method and, accordingly, the Company's share of the results of
operations of innoVentry is recorded in "Equity in loss of unconsolidated
subsidiary." See "Other Items" below.
Operations and Administration Expenses. Due in part to the 3% decrease
in consolidated net revenue, consolidated operations and administration expenses
as a percentage of net revenue were 79.6% in the current period compared to
74.1% for the prior year period. Total operations and administration expenses
increased a net amount of $5.4 million, or 5%, in the current period as compared
to the prior year period. Domestic lending operations expenses increased $2.8
million primarily as a result of rollout costs and continuing expenses
associated with the introduction of payday loans into 152 lending units as well
as higher personnel benefits, occupancy, and marketing expenses. Foreign lending
operations contributed $.7 million of the increase and Rent-A-Tire accounted for
$5.1 million of the increase due to an average of 20 more stores during the
current period. Check cashing operations expenses decreased $3.2 million as a
result of the de-consolidation of innoVentry in March 1999 and losses from
fraudulently cashed income tax checks included in the prior year period that did
not recur in the current period.
Depreciation and Amortization. Depreciation and amortization expenses
as a percentage of net revenue decreased to 8.9% in the current period from 9.5%
in the prior year period. The amount of depreciation and amortization expenses
decreased 9.3% primarily as a result of a moderation in the Company's unit
expansion of its lending operations.
Interest Expense. Net interest expense as a percentage of net revenue
increased to 6.7% in the current period from 6.4% in the prior year period.
Average debt outstanding decreased 4.6% to $190.8 million during the current
period from $200.1 million during the prior year period. The effective blended
borrowing cost was 7.1% in the current period and 6.7% in the prior year period.
As a result, interest expense was $.1 million higher in the current period.
Other Items. A $9.7 million gain (before income tax expense of $3.4
million) on the settlement of the insurance claim related to the damage to the
corporate headquarters by a tornado in March 2000, was recorded in the current
period. Equity in loss of unconsolidated subsidiary was $15.6 million in the
current period compared to $5.1 million in the prior year
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<PAGE> 21
period. The Company recorded a pre-tax gain of $.1 million from the issuance of
innoVentry's common stock in the current period compared to a pre-tax gain of
$4.3 million from the issuance of innoVentry's senior convertible Series A
preferred stock and common stock in the prior year period.
Income Taxes. The Company's consolidated effective tax rate is impacted
in the current period by the effect of the valuation allowance provided against
the deferred tax assets arising from the Company's equity in the losses of
innoVentry and in the prior year period by the effects of income taxes provided
upon the de-consolidation of innoVentry on March 9, 1999. The Company recognized
no net deferred tax benefits in the current period from the equity losses
arising from its investment in innoVentry. Excluding the effects of the equity
in innoVentry's losses after de-consolidation and the gain from issuance of
innoVentry's stock and their related tax effects, the Company's consolidated
effective income tax rate is 38.9% for both periods. The effective tax rate of
the foreign lending operations was 31.7% in the current period and 31.2% in the
prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $16.9 million during the
current period. The Company invested $15.9 million in purchases of property and
equipment during the current period including $10.5 million for property
improvements, remodeling selected operating units, and additions to computer
systems of the lending operations and $.8 million for the replacement of
property destroyed by the tornado discussed below. Rent-A-Tire invested $4.3
million for the purchase of equipment and the continued development of a
point-of-sale software system, and the check cashing operations invested $.3
million in various fixtures. Rent-A-Tire also invested $2.0 million for the
acquisition of 5 tire rental stores. The Company paid $5.6 million to reduce its
net borrowings under its bank lines of credit, repaid $5.1 million of notes
payable and debt obligations in connection with capital leases, increased pawn
loan balances by $2.3 million, purchased $1.3 million of treasury shares in
connection with the open market share purchase program and the Company's
Nonqualified Savings Plan, and paid $1.0 million in dividends. The effect of
foreign exchange rate changes decreased cash balances $.1 million. These
activities were funded from the cash flow generated by operating activities,
$3.4 million from the issuance of common shares pursuant to the Company's stock
option plans, $2.1 million from the issuance of capital lease obligations, and
$.8 million of collections of stockholder notes. The Company also received a
$10.5 million advance payment on the property insurance claim resulting from the
tornado damage.
On March 28, 2000, a tornado severely damaged the Company's corporate
headquarters in Fort Worth, Texas. Headquarters operations have been relocated
to temporary facilities and the Company's operating locations were not affected.
The Company owns the building and restoration began in the fourth quarter of
2000. The Company's insurance coverage provides proceeds for replacement value
for the loss of the building; replacement of furniture, improvements, and
equipment; recovery of losses resulting from business interruption; and recovery
of other general expenses. During the current quarter, a net gain of $6.3
million after tax expense of $3.4 million has been recorded to recognize
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settlement of the insurance claim. Restoration of the existing structure will be
financed from proceeds received from the insurance claim.
As of September 30, 2000, the Company's voting interest in innoVentry
is 37.8%. In the event innoVentry requires additional capital in the future, the
Company has the opportunity to make additional investments. The Company
currently does not plan to participate in future capital fundings of innoVentry.
Therefore, any such capital fundings would dilute the Company's ownership
interest in innoVentry, and such dilution could be significant. Management
believes that innoVentry intends to continue to develop and market the CCM, now
known as the RPM(TM) Cash Management Machine, as a financial services machine.
The Company anticipates that innoVentry will incur future losses and require
additional capital until sufficient revenues are generated from its sales and
operations.
The Company may add up to 2 new lending units during the remainder of
2000. Rent-A-Tire plans to add 1 additional rental store during the remainder of
2000 through the acquisition of an existing store.
Through September 30, 2000, the Company purchased 183,100 shares of its
common stock in the open market for an aggregate amount of $1.3 million. The
Company purchased an additional 232,000 shares for an aggregate amount of $1.5
million through October 24, 2000. On October 25, 2000, the Company's Board of
Directors terminated the open market purchase authorization established in 1999
and established a new authorization for the purchase up to one million shares of
its common stock in the open market. 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 credit facilities.
Management believes that borrowings available under its revolving
credit facilities, cash generated from operations and current working capital of
$212.1 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, 2000, the Company had recorded a cumulative other comprehensive loss of $9.4
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.
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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, 2000 and 1999, and for the
three months then ended.
<TABLE>
<CAPTION>
2000 1999 Change
-------- -------- ------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 23,583 $ 24,107 (2)%
Proceeds from disposition of merchandise 47,885 49,506 (3)%
Other lending fees and royalties 440 10 4300%
-------- -------- ------
TOTAL REVENUE 71,908 73,623 (2)%
-------- -------- ------
COSTS OF REVENUE
Disposed merchandise 31,348 33,760 (7)%
-------- -------- ------
NET REVENUE $ 40,560 $ 39,863 2%
======== ======== ======
OTHER DATA
Net revenue contribution by source--
Finance and service charges 59.2% 60.5% (2)%
Margin on disposition of merchandise 40.8% 39.5% 3%
Expenses as a percentage of net revenue--
Operations and administration 82.0% 80.4% 2%
Depreciation and amortization 8.2% 9.6% (15)%
Interest, net 4.4% 5.9% (25)%
Income from operations before depreciation
and amortization as a percentage of total revenue 10.1% 10.6% (4)%
Income from operations as a percentage of total revenue 5.5% 5.4% 3%
Annualized yield on pawn loans 119% 115% 3%
Average pawn loan balance per average location in
operation $ 192 $ 201 (4)%
Average pawn loan amount at end of period (not
in thousands) $ 80 $ 79 1%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.5% 31.8% 9%
Average annualized merchandise turnover 2.3x 2.0x 15%
Average merchandise held for disposition
per average location $ 135 $ 160 (16)%
Lending locations in operation--
Beginning of period 410 414
Acquired -- 2
Start-ups -- 1
Combined or closed -- --
End of period 410 417 (2)%
Additional franchise locations at end of period 16 6 167%
Total locations at end of period 426 423 1%
Average number of owned locations(a) 410 416 (1)%
-------- -------- ------
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing
aggregate total months in the period.
Page 21
<PAGE> 24
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, 2000 and 1999, and for the nine
months then ended.
<TABLE>
<CAPTION>
2000 1999 Change
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 68,406 $ 73,074 (6)%
Proceeds from disposition of merchandise 156,540 161,412 (3)%
Other lending fees and royalties 565 49 1053%
--------- --------- ---------
TOTAL REVENUE 225,511 234,535 (4)%
--------- --------- ---------
COSTS OF REVENUE
Disposed merchandise 103,258 107,389 (4)%
--------- --------- ---------
NET REVENUE $ 122,253 $ 127,146 (4)%
========= ========= =========
OTHER DATA
Net revenue contribution by source--
Finance and service charges 56.4% 57.5% (2)%
Margin on disposition of merchandise 43.6% 42.5% 3%
Expenses as a percentage of net revenue--
Operations and administration 80.8% 75.5% 7%
Depreciation and amortization 8.4% 9.5% (12)%
Interest, net 4.1% 5.5% (25)%
Income from operations before depreciation
and amortization as a percentage of total revenue 10.4% 13.3% (22)%
Income from operations as a percentage of total revenue 5.9% 8.1% (27)%
Annualized yield on pawn loans 124% 122% 2%
Average pawn loan balance per average location in operation $ 180 $ 194 (7)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.0% 33.5% 2%
Average annualized merchandise turnover 2.5x 2.2x 14%
Average merchandise held for disposition
per average location $ 135 $ 155 (13)%
Lending locations in operation--
Beginning of period 413 414
Acquired -- 3
Start-ups 1 3
Combined, closed or sold (4) (3)
End of period 410 417 (2)%
Additional franchise locations at end of period 16 6 167%
Total locations at end of period 426 423 1%
Average number of owned locations in operation(a) 411 414 (1)%
--------- --------- ----------
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 22
<PAGE> 25
FOREIGN LENDING OPERATIONS
===============================================================================
(Dollars in thousands)
The following table sets forth selected consolidated financial data in U.S.
dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of September 30,
2000 and 1999, and for the three months then ended, using the following currency
exchange rates:
<TABLE>
<CAPTION>
2000 1999 Change
-------- -------- --------
<S> <C> <C> <C>
Harvey & Thompson, Ltd. (U.K. pound sterling per U.S.
dollar)--
Balance sheet data -- end of period rate .6781 .6071 (12)%
Income statement data -- three months average rate .6832 .6245 (9)%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Balance sheet data -- end of period rate 9.6450 8.1441 (18)%
Income statement data -- three months average rate 9.2863 8.3119 (12)%
------- ------- -----
</TABLE>
<TABLE>
<CAPTION>
2000 1999 Change
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance and service charges $5,391 $6,534 (17)%
Proceeds from disposition of merchandise 1,812 1,308 39%
Check cashing fees 176 196 (10)%
------ ------ -----
TOTAL REVENUE 7,379 8,038 (8)%
------ ------ -----
COSTS OF REVENUE
Disposed merchandise 1,600 1,014 58%
------ ------ -----
NET REVENUE $5,779 $7,024 (18)%
====== ====== =====
OTHER DATA
Net revenue contribution by source--
Finance and service charges 93.3% 93.0% --
Margin on disposition of merchandise 3.7% 4.2% (12)%
Check cashing fees 3.0% 2.8% 9%
Expenses as a percentage of net revenue--
Operations and administration 55.9% 48.3% 16%
Depreciation and amortization 8.8% 6.8% 29%
Interest, net 5.4% 4.3% 26%
Income from operations before depreciation and
amortization as a percentage of total revenue 34.6% 45.2% (23)%
Income from operations as a percentage of total revenue 27.7% 39.2% (29)%
Annualized yield on loans 47% 52% (10)%
Average loan balance per average location in operation $ 862 $ 967 (11)%
Average loan amount at end of period (not in thousands) $ 165 $ 189 (13)%
Margin on disposition of merchandise as a percentage of
proceeds from disposition of merchandise 11.7% 22.5% (48)%
Average annualized merchandise turnover 2.1x 1.6x 31%
Average merchandise held for disposition per average
location $ 57 $ 50 14%
Lending locations in operation--
Beginning of period 53 52
Acquired -- --
Start-ups -- --
Combined or closed -- --
End of period 53 52 2%
Average number of owned locations(a) 53 52 2%
------ ------ -----
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing
aggregate total by total months in the period.
Page 23
<PAGE> 26
FOREIGN LENDING OPERATIONS
================================================================================
(Dollars in thousands)
The following table sets forth selected consolidated financial data in
U.S. dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of
September 30, 2000 and 1999, and for the nine months then ended, using the
following currency exchange rates:
<TABLE>
<CAPTION>
2000 1999 Change
-------- ------- ---------
<S> <C> <C> <C>
Harvey & Thompson, Ltd. (U.K. pound sterling per U.S. dollar)--
Income statement data - nine months average rate .6497 .6200 (5)%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Income statement data - nine months average rate 8.9046 8.2381 (8)%
-------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
2000 1999 Change
-------- ------- ---------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 17,335 $ 19,095 (9)%
Proceeds from disposition of merchandise 6,146 3,445 78%
Check cashing fees 527 568 (7)%
-------- -------- ----
TOTAL REVENUE 24,008 23,108 4%
-------- -------- ----
COSTS OF REVENUE
Disposed merchandise 5,752 2,877 100%
-------- -------- ----
NET REVENUE $ 18,256 $ 20,231 (10)%
======== ======== ====
OTHER DATA
Net revenue contribution by source--
Finance and service charges 95.0% 94.4% 1%
Margin on disposition of merchandise 2.2% 2.8% (21)%
Check cashing fees 2.8% 2.8% 1%
Expenses as a percentage of net revenue--
Operations and administration 56.8% 47.8% 19%
Depreciation and amortization 8.6% 7.4% 16%
Interest, net 6.0% 4.8% 25%
Income from operations before depreciation
and amortization as a percentage of total revenue 32.8% 45.7% (28)%
Income from operations as a percentage of total revenue 26.3% 39.2% (33)%
Annualized yield on pawn loans 48% 53% (9)%
Average pawn loan balance per average location in operation $ 902 $ 951 (5)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 6.4% 16.5% (61)%
Average annualized merchandise turnover 2.3x 1.9x 21%
Average merchandise held for disposition
per average location $ 63 $ 40 58%
Lending locations in operation--
Beginning of period 53 50
Acquired -- 2
Start-ups -- --
Combined, closed or sold -- --
End of period 53 52 2%
Average number of owned locations in operation(a) 53 51 4%
-------- -------- ----
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 24
<PAGE> 27
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, 2000 and 1999, and for
the three months then ended.
<TABLE>
<CAPTION>
2000 1999 Change
------- ------ ------
<S> <C> <C> <C>
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $ 3,672 $1,547 137%
Management fees 410 1,060 (61)%
Tire and wheel sales 458 288 59%
Lease income and other 302 239 26%
------- ------ ----
TOTAL REVENUE 4,842 3,134 54%
------- ------ ----
COSTS OF REVENUE
Tire and wheel rentals 1,320 665 98%
Tire and wheel sales 323 214 51%
------- ------ ----
NET REVENUE $ 3,199 $2,255 42%
======= ====== ====
OTHER DATA
Owned rental locations--
Rental agreements outstanding at end of period $11,985 $4,319 177%
Average balance per rental agreement at end of
period (not in thousands) $ 1,066 $ 905 18%
Locations in operation at end of period 33 13 154%
Average locations in operation for the period(a) 32 13 146%
Managed rental locations--
Locations in operation at end of period 10 19 (47)%
Average locations in operation for the period(a) 11 15 (27)%
------- ------ ----
CHECK CASHING OPERATIONS:
REVENUE
Check cashing royalties and fees $ 718 $ 773 (7)%
------- ------ ----
TOTAL REVENUE 718 773 (7)%
------- ------ ----
NET REVENUE $ 718 773 (7)%
======= ====== ====
OTHER DATA
Franchised and owned check cashing centers--
Centers in operation at end of period 137 144 (5)%
Average centers in operation for the period(a) 137 144 (2)%
------- ------ ----
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing
aggregate 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, 2000 and 1999, and for
the nine months then ended.
<TABLE>
<CAPTION>
2000 1999 Change
--------- --------- -------
<S> <C> <C> <C>
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $ 8,942 $ 3,396 163%
Management fees 1,593 2,438 (35)
Tire and wheel sales 1,227 589 108%
Lease income and other 872 629 39%
--------- --------- -------
TOTAL REVENUE 12,634 7,052 79%
--------- --------- -------
COSTS OF REVENUE
Tire and wheel rentals 3,237 1,330 143%
Tire and wheel sales 853 437 95%
--------- --------- -------
NET REVENUE $ 8,544 $ 5,285 62%
========= ========= =======
OTHER DATA
Owned rental locations-
Average locations in operation for the period(a) 29 9 222%
Managed rental locations-
Average locations in operation for the period(a) 13 14 (7)%
--------- --------- -------
CHECK CASHING OPERATIONS:
REVENUE
Check cashing royalties and fees(b) $ 2,451 $ 2,440 --
--------- --------- -------
TOTAL REVENUE $ 2,451 $ 2,440 --
--------- --------- -------
NET REVENUE $ 2,451 $ 2,440 --
========= ========= =======
OTHER DATA
Franchised and owned check cashing centers-
Average centers in operation for the period(a) 136 138 (1)%
--------- --------- -------
</TABLE>
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
(b) Excludes CCM operations that were de-consolidated at the close of business,
March 9, 1999.
Page 26
<PAGE> 29
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 27
<PAGE> 30
PART II
Item 1. LEGAL PROCEEDINGS
See Note 9 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
10.1 Third Supplement (June 30, 2000) to Note Agreement
between the Company and the various Purchasers named
therein dated as of December 1, 1997.
10.2 Sixth Supplement (June 30, 2000) to Note Agreement
between the Company and Teachers Insurance and
Annuity Association of America dated as of July 7,
1995.
10.3 Ninth Supplement (June 30, 2000) to Note Agreement
between the Company and Teachers Insurance and
Annuity Association of America dated as of May 6,
1993.
10.4 Sixth Amendment (June 30, 2000) to Senior Revolving
Credit Facility Agreement among the Company and the
various Banks named therein dated June 19, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K - None
Page 28
<PAGE> 31
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 10, 2000
Page 29
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Third Supplement (June 30, 2000) to Note Agreement between the
Company and the various Purchasers named therein dated as of
December 1, 1997.
10.2 Sixth Supplement (June 30, 2000) to Note Agreement between the
Company and Teachers Insurance and Annuity Association of
America dated as of July 7, 1995.
10.3 Ninth Supplement (June 30, 2000) to Note Agreement between the
Company and Teachers Insurance and Annuity Association of
America dated as of May 6, 1993.
10.4 Sixth Amendment (June 30, 2000) to Senior Revolving Credit
Facility Agreement among the Company and the various Banks
named therein dated June 19, 1996.
27 Financial Data Schedule
</TABLE>
