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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9733
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CASH AMERICA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
TEXAS 75-2018239
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1600 WEST 7TH STREET
FORT WORTH, TEXAS 76102-2599
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (817) 335-1100
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Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $.10 par value per share New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK PURCHASE RIGHTS
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of 24,213,052 shares of the registrant's common
stock held by nonaffiliates on March 8, 2000 was approximately $284,503,400.
At March 8, 2000 there were 25,259,601 shares of the registrant's Common
Stock, $.10 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Report to Shareholders for the year ended December
31, 1999 and the definitive Proxy Statement pertaining to the 2000 Annual
Meeting of Shareholders are incorporated herein by reference into Parts II and
IV, and Part III, respectively.
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CASH AMERICA INTERNATIONAL, INC.
YEAR ENDED DECEMBER 31, 1999
INDEX TO FORM 10-K
<TABLE>
<S> <C>
PART I......................................................................................................1
Item 1. Business ...................................................................................1
Item 2. Properties.................................................................................13
Item 3. Legal Proceedings..........................................................................16
Item 4. Submission of Matters to a Vote of Security Holders........................................16
PART II....................................................................................................16
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................16
Item 6. Selected Financial Data....................................................................16
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition......16
Item 8. Financial Statements and Supplementary Data................................................16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......17
PART III...................................................................................................17
Item 10. Directors and Executive Officers of the Registrant.........................................17
Item 11. Executive Compensation.....................................................................17
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................17
Item 13. Certain Relationships and Related Transactions.............................................17
PART IV....................................................................................................17
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................17
SIGNATURES.................................................................................................19
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INTRODUCTION
Cash America International, Inc. (the "Company") was incorporated in Texas
on October 4, 1984, to succeed to the business, assets and liabilities of a
predecessor corporation formed one year earlier to engage in the pawnshop
business. As of December 31, 1999, the Company owns pawnshops through
wholly-owned subsidiaries in sixteen states and the United Kingdom and Sweden.
The Company also provides check cashing services in nineteen states through its
subsidiary Mr. Payroll Corporation and rental of tires and wheels in one state
through its subsidiary Rent-A-Tire, Inc. The Company's principal executive
offices are located at 1600 West Seventh Street, Fort Worth, Texas 76102, and
its telephone number is (817) 335-1100. As used herein, the "Company" includes
Cash America International, Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a specialty financial services enterprise principally
engaged in acquiring, establishing and operating pawnshops which advance money
on the security of pledged tangible personal property. Pawnshops function as
convenient sources of consumer loans and as sellers primarily of
previously-owned merchandise acquired when customers do not redeem their pawned
goods. One convenient aspect of a pawn transaction is that the customer has no
legal obligation to repay the amount advanced. Instead, the Company relies on
the value of the pawned property as security. As a result, the creditworthiness
of the customer is not a factor, and a decision not to redeem pawned property
has no effect on the customer's personal credit status. (Although pawn
transactions can take the form of an advance of funds secured by the pledge of
property or a "buy-sell agreement" involving the actual sale of the property
with an option to repurchase it, the transactions are referred to throughout
this report as "loans" for convenience.)
The Company contracts for a finance and service charge to compensate it for
the use of the funds advanced. The finance and service charge is typically
calculated as a percentage of the loan amount based on the size and duration of
the transaction, in a manner similar to which interest is charged on a loan, and
has generally ranged from 12% to 300% annually, as permitted by applicable state
pawnshop laws. The pledged property is held through the term of the transaction,
which, in the Company's domestic operations, is generally one month with an
automatic sixty day redemption period unless otherwise earlier repaid, renewed
or extended. (For finance and service charges and transaction periods applicable
to the Company's foreign operations, see "Business-- Regulation." ). A majority
of the amounts advanced by the Company are paid in full, together with accrued
finance and service charges, or are renewed or extended through payment of
accrued finance and service charges. For the years 1997, 1998, and 1999, loans
repaid or renewed as a percentage of loans made were 67.9%, 66.9%, and 67.4%
respectively. In the event that the borrower does not redeem his pawned goods,
the unredeemed collateral is forfeited and becomes merchandise available for
disposition by the Company.
The Company's growth has been the result of its business strategy of
acquiring existing pawnshops and establishing new pawnshops that can benefit
from the Company's centralized management and standardized operations. The
Company intends to continue its business strategy of acquiring and establishing
pawnshops, increasing its share of consumer loan business, and concentrating
multiple pawnshops in regional and local markets in order to expand market
penetration, enhance name recognition and reinforce marketing programs. Studies
indicate to the Company that a large portion of its customers consists of
individuals who do not regularly transact loan business with banks. (See, for
example, John P. Caskey, Fringe Banking - Check
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Cashing Outlets, Pawnshops and the Poor, 1994.) These generally are persons who
may not have checking accounts and conduct as many of their transactions as
possible on a cash basis.
Pursuant to the Company's business expansion strategy, the Company added a
net 19 lending locations in 1997, a net 63 lending locations in 1998, and a net
2 lending locations in 1999. Of these net 84 lending locations added, 76 were
acquisitions in individual purchase transactions and 24 were start-ups, while 16
locations were either combined, closed or sold. As of December 31, 1999, the
Company had 413 domestic and 53 foreign operating locations. The Company plans
to continue to expand its operating locations through new start-ups and
acquisitions.
Franchising. The Company offers and sells franchises to third parties for
their independent ownership and operation of "Cash America" pawnshops. The
Company added one franchise lending location in 1997, four franchise lending
locations in 1998, and six franchise lending locations in 1999. Three of the six
franchises added in 1999 were previously company-owned locations. The Company
plans to continue to expand its franchise locations through new franchise sales.
While the Company's primary business involves the acquisition,
establishment and operation of pawnshops, it also provides manned check cashing
services through its subsidiary, Mr. Payroll Corporation ("Mr. Payroll"), and
tire and wheel rental services through its subsidiary, Rent-A-Tire, Inc.
("Rent-A-Tire").
During 1999, the Company restructured its check cashing operations. In
January 1999, the Company transferred its manned check cashing operations into
Mr. Payroll. Mr. Payroll earns franchise fees from the sale of manned check
cashing franchises, royalties from franchisees based on a percentage of the
gross revenue from a franchisee's manned check cashing business, and check
cashing fees from its owned manned centers. As of December 31, 1999, Mr. Payroll
operated 127 franchised and 10 company owned manned check cashing centers in 19
states and it had 25 employees.
The restructuring transactions were designed to isolate and accelerate the
development and deployment of the Company's automated check cashing machine
("CCM") that was first placed in service in June 1997. Since then, the CCM has
been marketed and sold to a variety of end users, including financial
institutions and retailers. In March 1999, Wells Fargo Cash Centers, Inc. ("Cash
Centers"), a wholly owned subsidiary of Wells Fargo Bank, N.A., contributed cash
and assets to the Company's CCM subsidiary (now known as "innoVentry") and
received newly issued senior convertible Series A voting preferred stock of
innoVentry. In addition, certain members of the newly constituted management of
innoVentry subscribed for newly issued shares of common stock of innoVentry. The
Company assigned 10% of its voting interest in innoVentry, represented by its
shares of newly issued senior convertible Series A voting 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. As a result of these transactions, the
Company no longer controlled the operations of innoVentry. innoVentry was
de-consolidated from the Company's consolidated financial statements 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 earnings or losses in its
consolidated financial statements. During the remainder of 1999, additional
shares of innoVentry common stock were sold to members of innoVentry's
management and other advisors, and in October 1999, the Company, Cash Centers,
and a third party each contributed an equal amount of cash for shares of
innoVentry's newly issued senior convertible Series B voting preferred stock. As
of December 31, 1999, the Company's voting interest in innoVentry was 38.4% and
Cash Centers voting interest in innoVentry was 42.2%. See Note 3 of Notes to
Consolidated Financial Statements in the Annual Report that is incorporated
herein by reference.
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At December 31, 1999, Rent-A-Tire owned and operated 24 tire and wheel
rental stores and managed an additional 15 tire and wheel rental stores, all of
which are located in Texas. Rent-A-Tire leases all of its rental stores and its
corporate headquarters. At December 31, 1999, Rent-A-Tire employed 237
employees. For additional information concerning Rent-A-Tire and the relation of
its financial condition and results of operations to that of the Company, see
Note 4 and Note 12 of Notes to Consolidated Financial Statements in the Annual
Report that is incorporated herein by reference.
LENDING FUNCTION
The Company is engaged primarily in the business of lending money on the
security of pledged goods. The pledged goods in the Company's domestic
operations are generally tangible personal property other than securities or
printed evidences of indebtedness and generally consist of jewelry, tools,
televisions and stereos, musical instruments, firearms, and other miscellaneous
items. In the Company's foreign operations, the pledged goods predominately
consist of jewelry. Pawn loans are made without personal liability to the
borrower. Because the loan is made without the borrower's personal liability,
the Company does not investigate the creditworthiness of the borrower, but
relies on the pledged personal property, and the possibility of its forfeiture,
as a basis for its lending decision. The pledged tangible personal property is
intended to provide security to the Company for the repayment of the amount
advanced. The Company contracts for a finance and service charge as compensation
for the use of the funds advanced. Finance and service charges contributed
approximately 59% of the Company's net revenue (total revenue less costs of
revenue) in 1997, 58% in 1998, and 58% in 1999.
At the time a pawn transaction is entered into, a pawn transaction
agreement, commonly referred to as a pawn ticket, is delivered to the borrower
(pledgor) that sets forth, among other items, the name and address of the
pawnshop and the pledgor, the pledgor's identification number from his or her
driver's license or other approved identification, the date, the identification
and description of the pledged goods, including applicable serial numbers, the
amount financed, the finance and service charge, the maturity date, the total
amount that must be paid to redeem the pledged goods on the maturity date and
the annual percentage rate.
With regard to domestic operations, the amount that the Company is willing
to finance is typically based on a percentage of the pledged personal property's
estimated disposition value. The sources for the Company's determination of the
estimated disposition value are numerous and include the Company's automated
product valuation system as well as catalogues, blue books, newspapers and
previous similar pawn loan transactions. These sources, together with the
employees' experience in disposing of similar items of merchandise in particular
pawnshops, influence the determination of the estimated disposition value of
such items. The Company does not utilize a standard or mandated percentage of
estimated disposition value in determining the amount to be financed. Rather,
the employees have the authority to set the percentage for a particular item and
determine the ratio of loan amount to estimated disposition value with the
expectation that, if the item is forfeited to the pawnshop, its subsequent
disposition would yield a gross profit margin consistent with the Company's
historical experience. The pledged property is held through the term of the
transaction, which generally is one month with an automatic sixty day redemption
period (see "Regulation" for exceptions in certain states), unless earlier
repaid, renewed or extended. A majority of the amounts advanced by the Company
are paid in full with accrued finance and service charges or are renewed or
extended through payment of accrued finance and service charges. In the event
the pledgor does not repay, renew or extend his loan, the unredeemed collateral
is forfeited to the Company and then becomes merchandise available for
disposition. The Company does not record loan losses or charge-offs inasmuch as,
if the pledged goods are not redeemed, the amount advanced becomes the carrying
cost of the forfeited collateral that is to be recovered through the merchandise
disposition function described below.
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With regard to the Company's foreign operations, the amount that the
pawnshop is willing to finance in a pledge of jewelry is typically based on a
fixed amount per gram of the gold or silver content of the pledged property plus
additional amounts for diamonds and other features which, in the unit
management's assessment, enhance the market value of the pledged property.
Declines in gold and silver prices historically have resulted in a reduction of
the amount that the pawnshop is willing to lend against an item, which reduces
the amount of the pawnshop's loan portfolio and related finance and service
charge revenue. The pawn loans are made for a term of six months with an
approximate annual blended yield on average foreign pawn loans outstanding in
1999 of 52%. The collateral is held through the term of the loan, and, in the
event that the loan is not repaid or renewed on or before maturity, the
unredeemed collateral is disposed of at auction or privately (or in some cases
at the pawnshop premises).
The recovery of the amount advanced, as well as realization of a profit on
disposition of merchandise, is dependent on the Company's initial assessment of
the property's estimated disposition value. Improper assessment of the
disposition value of the collateral in the lending function could result in the
disposition of the merchandise for an amount less than the amount advanced.
However, the Company historically has experienced profits from the disposition
of such merchandise. Declines in gold and silver prices generally will also
reduce the disposition value of jewelry items acquired in pawn transactions and
could adversely affect the Company's ability to recover the carrying cost of the
acquired collateral. For 1997, 1998 and 1999, the Company experienced gross
profit margins on dispositions of merchandise of 36%, 36%, and 32%,
respectively.
At December 31, 1999, the Company had approximately 1,192,000 outstanding
loans totaling $125,349,000, for an average of $105 per loan.
Presented below is information with respect to pawn loans made, acquired,
repaid and forfeited for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
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1997 1998 1999
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($ in thousands)
<S> <C> <C> <C>
Loans made ................................................................ $ 391,216 $ 435,341 $ 439,970
Loans acquired, net of loans sold ......................................... 1,520 7,178 558
Loans repaid .............................................................. (227,114) (249,752) (255,927)
Loans renewed ............................................................. (38,548) (41,619) (40,561)
Loans forfeited:
Available for disposition ............................................ (109,318) (124,415) (135,027)
Disposed of at auction ............................................... (8,945) (9,999) (10,636)
Effect of exchange rate translation ....................................... (4,250) (337) (1,665)
---------- ---------- ----------
Net increase (decrease) in pawn loans outstanding at end of period ... $ 4,561 $ 16,397 $ (3,288)
========== ========== ==========
Loans repaid or renewed as a percent of loans made ........................ 67.9% 66.9% 67.4%
========== ========== ==========
</TABLE>
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MERCHANDISE DISPOSITION FUNCTION
The Company engages in the disposition of merchandise acquired when a pawn
loan is not repaid, when used goods are purchased from the general public and
when new merchandise is acquired from vendors. New goods consist primarily of
accessory merchandise which enhances the marketability of existing merchandise,
such as tools, consumer electronics and jewelry. For the year ended December 31,
1999, $158,604,000 of merchandise was added to merchandise held for disposition,
of which $135,027,000 was from loans not repaid and $23,577,000 was purchased
from customers and vendors and through acquisitions of pawnshops.
The Company does not provide its customers with warranties on used
merchandise purchased from the Company. The Company permits its customers to
purchase merchandise on a layaway plan whereby the customer agrees to purchase
an item by making an initial cash deposit representing a small part of the
disposition price and making additional, non-interest bearing payments of the
balance of the disposition price in accordance with a specified schedule. The
Company then segregates the item and holds it until the disposition price is
paid in full. Should the customer fail to make a required payment, the item is
placed with the other merchandise held for disposition. At December 31, 1999,
the Company held approximately $4,131,000 in customer layaway deposits.
The Company provides an allowance for shrinkage and valuation of its
merchandise based on management's evaluation. Management's evaluation takes into
consideration historical shrinkage, the quantity and age of slow-moving
merchandise on hand and markdowns necessary to liquidate slow-moving
merchandise. At December 31, 1999, total lending operations merchandise on hand
was $64,419,000, after deducting an allowance for shrinkage and valuation of
merchandise of $2,008,000.
OPERATIONS
Unit Management
Each location has a unit manager who is responsible for supervising its
personnel and assuring that it is managed in accordance with Company guidelines
and established policies and procedures. Each unit manager reports to a Market
Manager who typically oversees approximately ten unit managers. As of December
31, 1999, the Company has two operating divisions in the United States, each of
which is managed by a Division Executive Vice President. Each operating division
has three geographic operating regions, each of which is managed by a Region
Vice President. Each Market Manager reports to a Region Vice President. The
Harvey & Thompson and Svensk Pantbelaning chains follow a similar management
organization, with a Managing Director overseeing each of these operations.
Trade Name
The Company operates its pawnshops under the trade name "Cash America Pawn"
in the U.S., "Harvey & Thompson Pawnbrokers" in the U.K., and "Svensk
Pantbelaning" in Sweden. The Company has registered the "Cash America" mark and
descriptive logos and phrases with the United States Patent and Trademark
Office.
Personnel
At December 31, 1999, the Company employed 3,061 persons in its lending
operations in 16 states, the United Kingdom and Sweden. Of the total employees,
approximately 218 were in executive and administrative functions.
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The Company has an established training program that provides a combination
of classroom instruction, video presentation and on-the-job loan and merchandise
disposition experience. The new employee is introduced to the business through
an orientation program and through a three-month training program that includes
classroom and on-the-job training in loans, layaways, merchandise and general
administration of unit operations.
The experienced employee receives training and an introduction to the
fundamentals of management to acquire the skills necessary to move into
management positions within the organization. Manager training involves a twelve
month program and includes additional management principles and more extensive
training in income maximization, recruitment, merchandise control and cost
efficiency.
FUTURE EXPANSION
The Company's objective is to continue to expand the number of pawnshops it
owns and operates through acquisitions and by establishing new units. Management
believes that such anticipated expansion will continue to provide economies of
scale in supervision, purchasing, administration and marketing by decreasing the
overall average cost of such functions per unit owned. The primary pawnshop
acquisition criteria include evaluation of the volume of annual loan
transactions, outstanding loan balances, merchandise on hand, disposition
history, and location and condition of the facility, including lease terms or
fair market value of the facility if it is to be purchased. The primary pawnshop
start-up criteria include the facility-related items noted above and conditions
in the surrounding community indicating a sufficient level of potential
customers.
The Company's business strategy is to continue expanding its pawnshop
business within its existing geographic markets and into other markets which
meet the risk/reward considerations of the Company.
The Company's expansion has not only been in acquiring previously owned
pawnshops, but also in establishing new locations. After a suitable location has
been found and a lease and license are obtained, the new location can be ready
for business within four to six weeks, with completion of counters, vaults and
security system and transfer of merchandise from other locations. The
approximate start-up costs, defined as the investment in property and equipment,
for recently established pawnshops have ranged from $98,000 to $213,000, with an
average cost per location of approximately $162,000 in 1999. This amount does
not include merchandise transferred from other locations, funds to advance on
pawn loans and operating expenses.
The Company's expansion program is subject to numerous factors which cannot
be predicted, such as the availability of attractive acquisition candidates or
sites on suitable terms and general economic conditions. Further, there can be
no assurance that future expansion can be continued on a profitable basis. Among
other factors, the following factors will impact the Company's future planned
expansion.
Statutory Requirements. The Company's ability to add newly-established
locations in Texas counties having a population of more than 250,000 is limited
by a law that became effective September 1, 1999, which restricts the
establishment of new pawnshops within a certain distance of existing pawnshops.
In addition, the present statutory and regulatory environment of some states
renders expansion into those states impractical. See "Business -- Regulation."
Competition. The Company faces competition in its expansion program.
Several competing pawnshop companies have implemented expansion and acquisition
programs. A number of smaller companies have also entered the market. While the
Company believes that it is the largest pawnshop operator in the United States,
there can be no assurance that the Company will be more successful than its
competitors in pursuing acquisition opportunities and leases for attractive
start-up locations. Increased competition could also increase prices for
attractive acquisition candidates.
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Capital Requirements. In some states, the Company is required by law to
maintain a minimum amount of certain unencumbered net assets (currently $150,000
in Texas) for each pawnshop location. The Company's expansion plans will
therefore be limited in these states to the extent the Company is unable to
maintain these required levels of unencumbered net assets.
Availability of Qualified Unit Management Personnel. The Company's ability
to expand may also be limited by the availability of qualified unit management
personnel. While the Company seeks to train its existing personnel to enable
those capable of doing so to assume management positions and to create
attractive compensation packages to retain existing management personnel, there
can be no assurance that sufficient qualified personnel will be available to
satisfy the Company's needs with respect to its planned expansion.
COMPETITION
The Company encounters significant competition in connection with its
lending and merchandise disposition operations. Some competitors may have
greater financial resources than the Company. Several competing pawnshop
companies have implemented expansion and acquisition programs. See "Business --
Future Expansion." These competitive conditions may adversely affect the
Company's revenues and profitability.
The Company, in connection with the lending of money, competes with other
pawnshops and other forms of financial institutions such as consumer finance
companies, which generally lend on an unsecured as well as a secured basis.
Other lenders may lend money on terms more favorable than the Company. The
pawnshop industry is characterized by a large number of independent
owner-operators, some of whom own and operate multiple pawnshops.
REGULATION
The Company's pawnshop operations are subject to extensive regulation,
supervision and licensing under various federal, state and local statutes,
ordinances and regulations in the sixteen states and two foreign countries in
which it operates. (For a geographic breakdown of operating locations, see
"Properties.") Set forth below is a summary of the state pawnshop regulations in
those states containing a preponderance of the Company's domestic operating
locations.
Texas Pawnshop Regulations. Pursuant to the terms of the Texas Pawnshop
Act, the Texas Consumer Credit Commissioner has primary responsibility for the
regulation of pawnshops and enforcement of laws relating to pawnshops in Texas.
The Company is required to furnish the Texas Consumer Credit Commissioner with
copies of information, documents and reports which are required to be filed by
it with the Securities and Exchange Commission.
The Texas Pawnshop Act prescribes the stratified loan amounts and the
maximum allowable rates of pawn service charge that pawnbrokers in Texas may
charge for the lending of money within each stratified range of loan amounts.
That is, the Texas law establishes the maximum allowable pawn service charge
rates based on the amount financed per pawn loan. The maximum allowable rates
under the Texas Pawnshop Act for the various stratified loan amounts for the
fiscal years ended June 30, 1998, 1999 and 2000 are as follows:
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<TABLE>
<CAPTION>
Year Ended June 30, 1998 Year Ended June 30, 1999 Year Ended June 30, 2000
- ------------------------------------ ------------------------------------ ------------------------------------
Maximum Maximum Maximum
Amount Allowable Amount Allowable Amount Allowable
Financed Annual Financed Annual Financed Annual
Per Pawn Percentage Per Pawn Percentage Per Pawn Percentage
Loan Rate Loan Rate Loan Rate
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ 1 to $ 135 ....... 240% $ 1 to $ 138 ....... 240% $ 1 to $ 141 ....... 240%
136 to 450 ....... 180 139 to 460 ....... 180 142 to 470 ....... 180
451 to 1,350 ....... 30 461 to 1,380 ....... 30 471 to 1,410 ....... 30
1,351 to 11,250 ....... 12 1,381 to 11,500 ....... 12 1,411 to 11,750 ....... 12
</TABLE>
These rates are reviewed and established annually. The maximum allowable service
charge rates were established and have not been revised since 1971 when the
Texas Pawnshop Act was enacted. Since 1981, the ceiling amounts for
stratification of the loan amounts to which these rates apply have been revised
each July 1 in relation to the Consumer Price Index. The Texas Pawnshop Act also
prescribes the maximum allowable pawn loan. Under current Texas law, a pawn loan
may not exceed $11,750. In addition to establishing maximum allowable service
charge rates and loan ceilings, the Texas Pawnshop Act also provides for the
licensing of pawnshops and pawnshop employees. To be eligible for a pawnshop
license in Texas, an applicant must (i) be of good moral character, (ii) have
net assets of at least $150,000 readily available for use in conducting the
business of each licensed pawnshop, (iii) show that the pawnshop will be
operated lawfully and fairly in accordance with the Texas Pawnshop Act, (iv)
show that the applicant has the financial responsibility, experience, character,
and general fitness to command the confidence of the public in its operations,
and (v) in the case of a business entity, the good moral character requirement
shall apply to each officer, director and holder of 5% or more of the entity's
outstanding shares.
As part of the license application process, any existing pawnshop licensee
who would be affected by the granting of the proposed application may request a
public hearing at which to appear and present evidence for or against the
application. For an application for a new license in a county with a population
of 250,000 or more, the proposed facility must not be located within two miles
of an existing licensed pawnshop.
The Texas Consumer Credit Commissioner may, after notice and hearing,
suspend or revoke any license for a Texas pawnshop upon finding, among other
things, that (i) any fees or charges have not been paid; (ii) the licensee
violates (whether knowingly or unknowingly without due care) any provisions of
the Texas Pawnshop Act or any regulation or order thereunder; or (iii) any fact
or condition exists which, if it had existed at the time the original
application was filed for a license, would have justified the Commissioner in
refusing such license.
Under the Texas Pawnshop Act, a pawnbroker may not accept a pledge from a
person under the age of 18 years; make any agreement requiring the personal
liability of the borrower; accept any waiver of any right or protection accorded
to a pledgor under the Texas Pawnshop Act; fail to exercise reasonable care to
protect pledged goods from loss or damage; fail to return pledged goods to a
pledgor upon payment of the full amount due; make any charge for insurance in
connection with a pawn transaction; enter into any pawn transaction that has a
maturity date of more than one month; display for disposition in storefront
windows or sidewalk display cases, pistols, swords, canes, blackjacks and
similar weapons; operate a pawnshop between the hours of 9:00 p.m. and 7:00
a.m.; or purchase used or secondhand personal property or certain building
construction materials unless a record is established containing the name,
address and identification of the seller, a complete
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description of the property, including serial number, and a signed statement
that the seller has the right to sell the property.
Florida Pawnshop Regulations. The Florida Pawnbroking Act, adopted in 1996,
provides for the licensing and bonding of pawnbrokers in Florida and for the
Department of Agriculture and Consumer Services' Division of Consumer Services
to investigate the general fitness of applicants and generally to regulate
pawnshops in the state. The statute limits the pawn service charge that a
pawnbroker may collect to a maximum of 25% of the amount advanced in the pawn
for each 30 day period of the transaction. The law also requires pawnbrokers to
maintain detailed records of all transactions and to deliver such records to the
appropriate local law enforcement officials. Among other things, the statute
prohibits pawnbrokers from falsifying or failing to make entries in pawn
transaction forms, refusing to allow appropriate law enforcement officials to
inspect their records, failing to maintain records of pawn transactions for at
least two years, making any agreement requiring the personal liability of a
pledgor, failing to return pledged goods upon payment in full of the amount due
(unless the pledged goods had been taken into custody by a court or law
enforcement officer or otherwise lost or damaged), or engaging in title loan
transactions at licensed pawnshop locations. It also prohibits pawnbrokers from
entering into pawn transactions with a person who is under the influence of
alcohol or controlled substances, a person who is under the age of eighteen, or
a person using a name other than his own name or the registered name of his
business.
Tennessee Pawnshop Regulations. Tennessee state law provides for the
licensing of pawnbrokers in that state. It also (i) requires that pawn
transactions be reported to local law enforcement agencies, (ii) requires
pawnbrokers to maintain insurance coverage on the property held on pledge for
the benefit of the pledgor, (iii) establishes certain hours during which
pawnshops may be open for business and (iv) requires that certain bookkeeping
records be maintained. Tennessee law prohibits pawnbrokers from selling,
redeeming or disposing of any goods pledged or pawned to or with them within 48
hours after making their report to local law enforcement agencies. The Tennessee
statute establishes a maximum allowable interest rate of 24% per annum; however,
the pawnshop operator may charge an additional fee of up to one-fifth of the
amount of the loan per month for investigating the title, storing and insuring
the security and various other expenses.
Georgia Pawnshop Regulations. Georgia state law requires pawnbrokers to
maintain detailed permanent records concerning pawn transactions and to keep
them available for inspection by duly authorized law enforcement authorities.
The Georgia statute prohibits pawnbrokers from failing to make entries of
material matters in their permanent records; making false entries in their
records; falsifying, obliterating, destroying, or removing permanent records
from their places of business; refusing to allow duly authorized law enforcement
officers to inspect their records; failing to maintain records of each pawn
transaction for at least four years; accepting a pledge or purchase from a
person under the age of eighteen or who the pawnbroker knows is not the true
owner of the property; making any agreement requiring the personal liability of
the pledgor or seller or waiving any of the provisions of the Georgia statute;
or failing to return or replace pledged goods upon payment of the full amount
due (unless the pledged goods have been taken into custody by a court or a law
enforcement officer). In the event pledged goods are lost or damaged while in
the possession of the pawnbroker, the pawnbroker must replace the lost or
damaged goods with like kinds of merchandise. Under Georgia law, total interest
and service charges may not, during each thirty-day period of the loan, exceed
25% of the principal amount advanced in the pawn transaction (except that after
ninety days from the original date of the loan, the maximum rate declines to
12.5% for each subsequent thirty-day period). The statute provides that
municipal authorities may license pawnbrokers, define their powers and
privileges by ordinance, impose taxes upon them, revoke their licenses, and
exercise such general supervision as will ensure fair dealing between the
pawnbroker and his customers.
9
<PAGE> 12
Oklahoma Pawnshop Regulations. The Company's Oklahoma operations are
subject to the Oklahoma Pawnshop Act. Following substantially the same statutory
scheme as the Texas Pawnshop Act, the Oklahoma Pawnshop Act provides for the
licensing and bonding of pawnbrokers in Oklahoma and provides for the Oklahoma
Administrator of Consumer Credit to investigate the general fitness of the
applicant and generally regulate pawnshops in that state. The Administrator has
broad rule-making authority with respect to Oklahoma pawnshops.
In general, the Oklahoma Pawnshop Act prescribes the stratified loan
amounts and the maximum rates of service charges which pawnbrokers in Oklahoma
may charge for lending money in Oklahoma within each stratified range of loan
amounts. The regulations provide for a graduated rate structure similar to that
utilized in federal income tax computations. For example, under this method of
calculation a $500 pawn loan earns interest as follows: (a) the first $150 at
240%, annually, (b) the next $100 at 180%, annually and (c) the remaining $250
at 120%, annually. The maximum allowable pawn service charges for the various
stratified loan amounts under the Oklahoma statute are as follows:
<TABLE>
<CAPTION>
Maximum
Amount Allowable
Financed Annual
Per Pawn Percentage
Loan Rate
-------- ----------
<S> <C>
$ 1 to $ 150 .............. 240%
151 to 250 .............. 180
251 to 500 .............. 120
501 to 1,000 .............. 60
1,001 to 25,000 .............. 36
</TABLE>
A pawn loan in Oklahoma may not exceed $25,000.
Louisiana Pawnshop Regulations. Louisiana law provides for the licensing
and bonding of pawnbrokers in that state. In addition, the act requires that
pawn transactions be reported to local law enforcement agencies, establishes
hours during which pawnbrokers may be open for business and requires certain
bookkeeping practices. Under the Louisiana statute, no pawnbroker may sell any
jewelry pledged as collateral until the lapse of six months from the time the
loan was made or extended by payment of accrued interest. All other unredeemed
collateral from loans can be sold after the lapse of three months. Louisiana
state law establishes maximum allowable rates of interest on pawn loans of 10%
per month. In addition, Louisiana law provides that the pawnbroker may also
charge a one-time fee not to exceed 10% for all other services. Various
municipalities and parishes in the state of Louisiana have promulgated
additional ordinances and regulations pertaining to pawnshops.
Although pawnshop regulations vary from state to state to a considerable
degree, the regulations summarized above are representative of the regulatory
frameworks affecting the Company in the various states in which its operating
units are located.
United Kingdom Regulations. Pawnshops in the United Kingdom conduct pawn
operations in a manner that is similar to the Company's domestic operations,
except that pawnshops generally lend money only on the security of jewelry and
gold and silver items. The Consumer Credit Act 1974 in the United Kingdom
requires that the pawnbroker notify the customer following the expiration of the
six month loan term and before the pledged items are sold by the pawnbroker.
Unredeemed items are generally sold at auction. For loans exceeding 75 pounds
sterling, any amounts received on the auction sale in excess of the principal
amount of the loan, accrued finance and service charge and disposition expenses
must be held by the pawnbroker to be
10
<PAGE> 13
reclaimed by the customer. If the pawnbroker is the highest bidder at the
auction, it reclaims the merchandise for later disposition from its pawnshop
premises and may realize gross profit on resale. For loans of 75 pounds sterling
or less, unredeemed merchandise is automatically forfeited to the pawnbroker,
and the pawnbroker may dispose of such merchandise to the public from the
pawnshop premises and retain any excess sales proceeds.
Pawnbrokers in the United Kingdom are licensed and regulated by the Office
of Fair Trading (the "OFT") pursuant to the Consumer Credit Act 1974. Licenses
are valid for five years, subject to possible revocation, suspension, or
variance by the OFT. Unlike most state statutes in the United States governing
pawnbrokers, the Consumer Credit Act 1974 and the regulations promulgated
thereunder do not specify a maximum allowable interest rate chargeable by
pawnbrokers in the United Kingdom. Rather, the statute prohibits pawnbrokers
from entering into "extortionate credit bargains" with customers. Currently, the
Company typically charges a rate of six percent (6%) per month.
Sweden Regulations. The regulatory environment for pawnshops in Sweden is
very similar to that in the United Kingdom. Sweden's 1949 statute governing
pawnbroking was repealed and replaced with a new pawnbroking act effective
January 1, 1996. The new act provides that the loan term may not exceed one
year, that the pawnbroker is entitled to default interest on arrears for a
maximum of four months from the due date, and that the pawnbroker may not
dispose of unredeemed merchandise less than two months after the due date. The
disposition must take place at a public auction, and the original customer is
entitled to any excess disposition proceeds.
Like Sweden's previous pawnbroking statute, the new act provides for
licensing and supervision of pawnshops by the local County Administrative
Boards. The act does not specify a maximum allowable interest rate for pawn
loans, and, unlike the previous statute, it does not authorize the local County
Administrative Boards to regulate the rates that pawnbrokers may charge.
Currently, the Company typically charges a rate of between 2.75% and 3.75% per
month. Also, the act grants Swedish pawnbrokers the new authority to purchase
unredeemed merchandise at the public auction and then dispose of the merchandise
to the public from the pawnshop premises.
Other Regulatory Matters, Etc. With respect to firearm sales, each of the
pawnshops must comply with the Brady Handgun Violence Prevention Act (the "Brady
Act"), which took effect on February 28, 1994. The Brady Act imposes a
background check requirement in connection with the disposition of firearms by
federally licensed firearms dealers. In addition, the Company must continue to
comply with the longstanding regulations promulgated by the Department of the
Treasury, Bureau of Alcohol, Tobacco and Firearms which require each pawnshop
dealing in guns to maintain a permanent written record of all receipts and
dispositions of firearms.
In addition to the state statutes and regulations described above, many of
the Company's pawnshops are subject to municipal ordinances, which may require,
for example, local licenses or permits and specified recordkeeping procedures,
among other things. Each of the Company's pawnshops voluntarily or pursuant to
municipal ordinance provides to the police department having jurisdiction copies
of all daily transactions involving pawn loans and over-the-counter purchases.
These daily transaction reports are designed to provide the local police with a
detailed description of the goods involved including serial numbers, if any, and
the name and address of the owner obtained from a valid identification card.
A copy of the transaction ticket is provided to local law enforcement
agencies for processing by the National Crime Investigative Computer to
determine conflicting claims of rightful ownership. Goods held to secure pawn
loans or goods purchased which are determined to belong to an owner other than
the borrower or seller are subject to recovery by the rightful owner. However,
the Company historically has not experienced
11
<PAGE> 14
a material number of claims of this sort, and the claims experienced have not
had a material adverse effect on the Company's results of operations.
Casualty insurance, including burglary coverage, is maintained for each of
the Company's pawnshops, and fidelity coverage is maintained on each of the
Company's employees.
Management of the Company believes its operations are conducted in material
compliance with all federal, state and local laws and ordinances applicable to
its business.
EXECUTIVE OFFICERS
The following sets forth, as of March 11, 2000, certain data concerning the
executive officers of the Company, all of whom are elected on an annual basis.
There is no family relationship between any of the executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Daniel R. Feehan 49 Chief Executive Officer, President and Director
Thomas A. Bessant, Jr. 41 Executive Vice President - Chief Financial Officer
Robert D. Brockman 45 Executive Vice President - Administration
Jerry D. Finn 53 Executive Vice President - U.S. Operations - Western Division
Michael D. Gaston 55 Executive Vice President - Business Development
William R. Horne 57 Executive Vice President - Information Technology
Hugh A. Simpson 40 Executive Vice President - General Counsel and Secretary
Gregory W. Trees 56 Executive Vice President - U.S. Operations - Eastern Division
James H. Kauffman 55 Executive Vice President - Foreign Operations; Chief Executive Officer -
Rent-A-Tire, Inc.
</TABLE>
Daniel R. Feehan has been Chief Executive Officer and President since
February 2000. He has served as President and Chief Operating Officer since
January 1990. He served as Chairman and Co-Chief Executive Officer of Mr.
Payroll Corporation from February 1998 to February 1999 before returning to the
position of President and Chief Operating Officer of the Company.
Thomas A. Bessant, Jr. joined the Company in May 1993 as Vice President -
Finance and Treasurer. He was elected Senior Vice President - Chief Financial
Officer in July 1997 and has served as Executive Vice President - Chief
Financial Officer since July 1998. Prior to joining the Company, Mr. Bessant was
a Senior Manager in the Corporate Finance Consulting Services Group of Arthur
Andersen & Co., S. C. in Dallas, Texas from June 1989. Prior to that time, Mr.
Bessant was Vice President in the Corporate Banking Division of NCNB Texas,
N.A., and its predecessor banking corporations, beginning in 1981.
Robert D. Brockman joined the Company in July 1995 as Executive Vice
President-Administration. Prior to that, he served as Vice President - Human
Resources of THORN Americas, Inc., the operator of the Rent-A- Center chain of
rent-to-own stores, from December 1986 to June 1995.
Jerry D. Finn joined the Company in August 1994 and has served in various
operations management positions since then, including Division Vice President
from January 1995 to July 1997, Division Senior Vice President from July 1997 to
April 1998, and Executive Vice President since April 1998. Prior to joining the
Company, he served as District Supervisor for Kelly-Moore Paint Co. from March
1981 to August 1994.
12
<PAGE> 15
Michael D. Gaston joined the Company in April 1997 as Executive Vice
President - Business Development. Prior to joining the Company, Mr. Gaston
served as President of the Gaston Corporation, a private consulting firm, from
1984 to April 1997, and Executive Vice President of Barkley & Evergreen, an
advertising and consulting agency, from 1991 to April 1997.
William R. Horne joined the Company in February 1991 as Vice President-MIS.
He was elected Senior Vice President-Information Technology in July 1997 and has
served as Executive Vice President-Information Technology since October 1999.
Hugh A. Simpson joined the Company in December 1990 as Vice President and
General Counsel and was elected Vice President - General Counsel and Secretary
in April 1991. He was elected Senior Vice President - General Counsel and
Secretary in July 1997 and has served as Executive Vice President - General
Counsel and Secretary since July 1998.
Gregory W. Trees joined the Company in March 1992 as Vice President -
Marketing and Merchandising. Mr. Trees served as Division Vice President from
April 1996 to July 1997 and Division Senior Vice President from July 1997 to
April 1998. He has served as Executive Vice President since April 1998.
James H. Kauffman joined the Company in July 1996 as Executive Vice
President - Chief Financial Officer. He served as President - Cash America Pawn
from July 1997 to July 1998, and since then has served as Chief Executive
Officer of Rent-A-Tire, Inc. He has also served as Executive Vice
President-Foreign Operations since October 1999. Prior to joining the Company,
Mr. Kauffman served as President of Keystone Steel & Wire Company, a wire
products manufacturer, from July 1991 to June 1996.
ITEM 2. PROPERTIES
During 1999, the Company sold to an unaffiliated party and leased back the
real estate and buildings for 11 of its pawnshop locations. The locations are
being leased under non-cancelable operating leases with terms of 15 years. The
Company also sold the real estate and building for one pawnshop location to a
franchisee. As of March 11, 2000, the Company owns the real estate and buildings
for four of its pawnshop locations in the United Kingdom. Since May 1992, the
Company's headquarters have been located in a nine-story building adjacent to
downtown Fort Worth, Texas. The Company purchased the building in January 1992.
On March 28, 2000, a tornado severely damaged the building. Headquarters
operations have been relocated to temporary facilities, and the Company's
operating locations were not affected. Management will evaluate all of its
alternatives relating to the restoration of the building. The Company's
insurance coverage provides proceeds 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 that will be
incurred. All of the Company's other locations are leased from unaffiliated
parties under non-cancelable operating leases with terms ranging from 3 to 10
years.
The following table sets forth, as of March 11, 2000, the geographic
markets served by the Company and the number of lending locations in such
markets in which it presently operates.
<TABLE>
<CAPTION>
Number of Locations
in Area
-------------------
<S> <C>
TEXAS:
Houston....................................... 44
Central/South Texas........................... 59
Dallas/Fort Worth............................. 35
West Texas.................................... 23
Rio Grande Valley............................. 10
---
Total Texas........................... 171
===
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C>
FLORIDA:
Tampa/St. Petersburg.......................................... 15
Orlando....................................................... 14
Jacksonville.................................................. 10
Other......................................................... 23
---
Total Florida........................................ 62
---
TENNESSEE:
Memphis....................................................... 23
Nashville..................................................... 5
---
Total Tennessee...................................... 28
--
GEORGIA:
Atlanta....................................................... 14
Savannah...................................................... 5
Other......................................................... 2
---
Total Georgia........................................ 21
---
OKLAHOMA:
Oklahoma City................................................. 14
Tulsa......................................................... 6
Other......................................................... 1
---
Total Oklahoma....................................... 21
---
LOUISIANA:
New Orleans................................................... 9
Baton Rouge................................................... 3
Other......................................................... 8
---
Total Louisiana...................................... 20
---
MISSOURI:
Kansas City................................................... 11
St. Louis..................................................... 5
---
Total Missouri....................................... 16
---
INDIANA:
Indianapolis.................................................. 9
Fort Wayne.................................................... 3
Other......................................................... 1
---
Total Indiana........................................ 13
---
NORTH CAROLINA:
Charlotte..................................................... 7
Greensboro/Winston Salem...................................... 3
Other......................................................... 1
---
Total North Carolina................................. 11
---
</TABLE>
14
<PAGE> 17
<TABLE>
<S> <C>
ALABAMA:
Mobile........................................................ 4
Birmingham.................................................... 4
Other......................................................... 1
---
Total Alabama........................................ 9
---
KENTUCKY:
Louisville.................................................... 9
---
SOUTH CAROLINA:
Charleston.................................................... 4
Greenville.................................................... 3
---
Total South Carolina................................. 7
---
OHIO:
Cincinnati.................................................... 6
---
UTAH:
Salt Lake City................................................ 7
---
COLORADO:
Colorado Springs.............................................. 3
Denver........................................................ 1
Other......................................................... 1
---
Total Colorado....................................... 5
ILLINOIS:
Chicago....................................................... 3
Other......................................................... 3
---
Total Illinois ...................................... 6
---
Total United States.................................. 412
---
UNITED KINGDOM:
London........................................................ 28
Other......................................................... 14
---
Total United Kingdom................................. 42
---
SWEDEN:
Stockholm..................................................... 4
Other......................................................... 7
---
Total Sweden......................................... 11
---
GRAND TOTAL................................................... 465
===
</TABLE>
The Company considers its equipment, furniture and fixtures and owned
buildings to be in good condition. The Company has its own construction
supervisors who engage local contractors to selectively remodel and upgrade its
domestic pawnshop facilities throughout the year.
15
<PAGE> 18
The Company's leases typically require the Company to pay all maintenance
costs, insurance costs and property taxes. For additional information concerning
the Company's leases see Note 15 of Notes to Consolidated Financial Statements
in the Annual Report which is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in certain lawsuits encountered in the ordinary
course of its business. Certain of these matters are covered to an extent by
insurance. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's security holders during
the fourth quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information contained under the caption "Common Stock Data" in the Annual
Report is incorporated herein by reference in response to this Item 5.
ITEM 6. SELECTED FINANCIAL DATA
Information contained under the caption "Eight Year Summary of Selected
Financial Data" in the Annual Report is incorporated herein by reference in
response to this Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Information contained under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the Annual Report
is incorporated herein by reference in response to this Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information contained under the captions "Consolidated Financial
Statements," "Notes to Consolidated Financial Statements," and "Income Statement
Quarterly Data" in the Annual Report is incorporated herein by reference in
response to this Item 8.
16
<PAGE> 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure
matters with its independent public accountants to report under this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Election of Directors" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 10. See Item 1, "Executive Officers" for information concerning
executive officers.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "Executive Compensation" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement is
incorporated herein by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Executive Compensation" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1) The following financial statements of the Company and Report of
Independent Accountants are contained in the Annual Report and are
incorporated herein by reference.
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
(2) The following financial statement schedule of the Company, as well as
the following financial statements of innoVentry Corp. and its
predecessor, Mr. Payroll Corporation, are included herein.
Schedule II -- Allowance for Valuation of Inventory.
Report of Independent Accountants on Financial Statement Schedule.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable, or the
required information is included elsewhere in the financial
statements.
Separate Financial Statements of Fifty Percent or Less Owned Persons-
FINANCIAL STATEMENTS OF INNOVENTRY CORP.:
[The audited financial statements of innoVentry Corp. ("innoVentry")
as of December 31, 1999 and for the year then ended, including the
accompanying Notes to Financial Statements and Report of Independent
Auditors, are in the possession of innoVentry. The Company has
requested innoVentry to furnish the financial statements for inclusion
herein in accordance with the requirements of Regulation S-X, but
innoVentry has not yet done so. If and when innoVentry furnishes the
financial statements, the Company will include them herein by
amendment.]
FINANCIAL STATEMENTS OF MR. PAYROLL CORPORATION:
Consolidated Balance Sheet as of December 31, 1998
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1997
Consolidated Statements of Shareholder's Equity (Deficit) for the
Years Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
(3) The exhibits filed in response to Item 601 of Regulation S-K are
listed in the Exhibit Index.
(4) During the fourth quarter ended December 31, 1999, the Company did not
file any reports on Form 8-K.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 29, 2000.
CASH AMERICA INTERNATIONAL, INC.
By: /s/ DANIEL R. FEEHAN
--------------------------------
Daniel R. Feehan
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on March 29, 2000 on behalf of
the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JACK R. DAUGHERTY Chairman of the Board March 29, 2000
- ------------------------------------------- of Directors
Jack R. Daugherty
/s/ DANIEL R. FEEHAN Chief Executive Officer, March 29, 2000
- ------------------------------------------- President and Director
Daniel R. Feehan (Principal Executive Officer)
/s/ THOMAS A. BESSANT, JR. Executive Vice President - March 29, 2000
- ------------------------------------------- Chief Financial Officer
Thomas A. Bessant, Jr. (Principal Financial and
Accounting Officer)
/s/ A. R. DIKE Director March 29, 2000
- -------------------------------------------
A. R. Dike
</TABLE>
19
<PAGE> 22
<TABLE>
<S> <C> <C>
/s/ JAMES H. GRAVES Director March 29, 2000
- -------------------------------------------
James H. Graves
/s/ B. D. HUNTER Director March 29, 2000
- -------------------------------------------
B. D. Hunter
/s/ TIMOTHY J. McKIBBEN Director March 29, 2000
- -------------------------------------------
Timothy J. McKibben
/s/ ALFRED M. MICALLEF Director March 29, 2000
- -------------------------------------------
Alfred M. Micallef
/s/ CLIFTON H. MORRIS, JR. Director March 29, 2000
- -------------------------------------------
Clifton H. Morris, Jr.
/s/ CARL P. MOTHERAL Director March 29, 2000
- -------------------------------------------
Carl P. Motheral
/s/ SAMUEL W. RIZZO Director March 29, 2000
- -------------------------------------------
Samuel W. Rizzo
/s/ ROSALIN ROGERS Director March 29, 2000
- -------------------------------------------
Rosalin Rogers
</TABLE>
20
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Cash America International, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 27, 2000, appearing in the 1999 Annual Report to Shareholders of
Cash America International, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14.(2.) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
January 27, 2000
21
<PAGE> 24
CASH AMERICA INTERNATIONAL, INC.
SCHEDULE II--ALLOWANCE FOR VALUATION OF INVENTORY
For the Three Years Ended December 31, 1999
<TABLE>
<CAPTION>
Additions
--------------------
Balance
at Charged Charged Balance
Beginning to to at End
Description of Period Expense Other Deductions(a) of Period
- ----------- --------- ------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C>
($ in thousands)
Year Ended:
December 31, 1999........... $ 2,163 $ 1,358 $-0- $ 1,513 $ 2,008
======= ======= ==== ======= =======
December 31, 1998........... $ 2,158 $ 1,338 $-0- $ 1,333 $ 2,163
======= ======= ==== ======= =======
December 31, 1997........... $ 2,078 $ 1,359 $-0- $ 1,279 $ 2,158
======= ======= ==== ======= =======
</TABLE>
- ----------
(a) Deducted from allowance for write-off or other disposition of inventory.
22
<PAGE> 25
MR. PAYROLL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(In thousands, except share data)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 4,303
Accounts receivable 869
Inventories 2,588
Prepaid expenses 98
Advances to parent 1,787
--------
Total current assets 9,645
--------
Property and equipment, net 13,510
Intangible assets, net 4,258
Other assets 266
--------
Total assets $ 27,679
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,375
Deferred revenue 575
Current portion of capital lease obligations payable 79
--------
Total current liabilities 4,029
--------
Capital lease obligations payable, net of current portion 7
Deferred income tax liability 3,251
Commitments and contingencies (Note 9)
Shareholder's equity:
Preferred stock -
Series A, $1 par value per share; 1,500 shares authorized, issued
and outstanding 2
Series B, $1 par value per share; 48,500 shares authorized, 8,500
shares issued and outstanding 8
Common stock, no par value per share; 100,000,000 shares
authorized, 10,000,000 shares issued and outstanding 2,000
Additional paid-in capital 34,165
Accumulated deficit (9,146)
Due from parent company (6,637)
--------
Total shareholder's equity 20,392
--------
Total liabilities and shareholder's equity $ 27,679
========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE> 26
MR. PAYROLL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(In thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenue
Royalties and check cashing fees $ 3,186 $ 2,168
Check cashing machine sales 2,044 750
Franchise sales 47 332
-------- --------
Total Revenue 5,277 3,250
Operating expenses and costs:
Cost of machines sold 1,885 668
Operations 4,904 1,215
Selling and administration 6,978 2,490
Depreciation and amortization 911 560
-------- --------
Total operating expenses and costs 14,678 4,933
-------- --------
Loss from operations (9,401) (1,683)
Interest expense, net 25 35
Other expense 72 38
-------- --------
Loss before income taxes (9,498) (1,756)
Income tax benefit (3,126) (260)
-------- --------
Net loss $ (6,372) $ (1,496)
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 27
MR. PAYROLL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31
(In thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------
Series A Series B Common Stock Additional Due From
---------------- --------------- ------------------- Paid-in Accumulated Parent
Shares Amount Shares Amount Shares Amount Capital Deficit Company
------ ------ ------ ------ ---------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,500 $ 2 2,150 $ 2 10,000,000 $2,000 $ 3,646 $(1,278) $ --
Preferred stock issued 6,350 6 6,974
Net loss (1,496)
Due from parent company (1,822)
------ ------ ------ ------ ---------- ------ ------- ------- -------
Balance, December 31, 1997 1,500 2 8,500 8 10,000,000 2,000 10,620 (2,774) (1,822)
Preferred stock issued -- -- 23,545
Net loss (6,372)
Due from parent company (4,815)
------ ------ ------ ------ ---------- ------ ------- ------- -------
Balance, December 31, 1998 1,500 $ 2 8,500 $ 8 10,000,000 $2,000 $34,165 $(9,146) $(6,637)
====== ====== ====== ====== ========== ====== ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 28
MR. PAYROLL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(In thousands)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash
used by operating activities--
Net loss $ (6,372) $(1,496)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 911 560
Loss on disposal of property and equipment 89 72
Changes in assets and liabilities--
Accounts receivable (414) (388)
Inventories (458) (2,130)
Prepaid expenses and other (262) 20
Accounts payable and accrued expenses 1,070 1,339
Deferred revenue (391) 850
Deferred income taxes, net 1,689 1,562
-------- -------
Net cash (used in) provided by operating activities (4,138) 389
-------- -------
Cash flows from investing activities:
Acquisitions (1,400) --
Purchases of property and equipment (7,454) (4,579)
Proceeds from disposal of property and equipment 30 13
Increase in intangible assets (86) --
-------- -------
Net cash used in investing activities (8,910) (4,566)
-------- -------
Cash flows from financing activities:
Sale of preferred stock 23,545 6,980
Payments on capital lease obligations
and other long-term liabilities (96) (518)
Advances to parent (1,787) --
Due from parent company (4,815) (1,822)
-------- -------
Net cash provided by financing activities 16,847 4,640
-------- -------
Net change in cash and cash equivalents 3,799 463
Cash and cash equivalents at beginning of year 504 41
-------- -------
Cash and cash equivalents at end of year $ 4,303 $ 504
======== =======
Cash paid during the period for interest $ 26 $ 211
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 29
MR. PAYROLL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS ACTIVITY
Mr. Payroll Corporation, now known as innoVentry Corp., (the
"Company") was incorporated in the State of Texas in August 1990,
and began operations as a check cashing service. In 1994, Cash
America International, Inc. ("Cash America") paid $2,000,000 for a
49% interest in the Company. Effective at the close of business on
December 31, 1996, Cash America acquired, in a purchase transaction,
the remaining 51% interest in the Company. The aggregate purchase
price of the additional 51% interest was to be paid in 3 annual
installments in an amount equal to .9775 times the defined after-tax
net income of the Company for the 1996, 1997 and 1998 fiscal years,
respectively. Cash America paid no additional consideration based on
the Company's results of operations in 1996, 1997 and 1998,
respectively. The purchase transaction established a new basis of
accounting for purchased assets and liabilities, that has been
reflected in these financial statements.
At December 31, 1998, the Company operated 127 franchised and 10
company owned check cashing centers. The Company collects an initial
franchise fee, as well as a royalty based on a percentage of the
check cashing fees earned by franchised centers and check cashing
fees earned by its company owned centers. The Company provides
training to franchisees and their employees and support services
ranging from computer equipment problem resolution, marketing
techniques and construction of equipment, to current issues
affecting the industry. During 1997, the Company developed an
automated check cashing machine ("CCM") that combines facial
biometrics imaging, for customer identification purposes, with
proprietary check cashing technology and a cash-dispensing machine.
The Company receives check cashing fees from its company owned CCMs.
The Company also sells CCMs to third parties and receives fees for
providing initial customer identification, as well as subsequent
check cashing verification and guarantee services from a central
service center. At December 31, 1998, the Company operated 84 CCMs,
including 38 that were company owned.
In May, 1998, the Company and Wells Fargo Bank, N.A. ("Wells Fargo")
entered into a joint venture, named innoVisions, LLC
("innoVisions"), to develop and distribute a new generation of
financial services vending machines targeting the gaming industry.
The machines would combine ATM functions with automated check
cashing, credit card cash advances, debit withdrawals, multimedia
advertising and distribution of event tickets. Wells Fargo
contributed the gaming-related assets of its wholly owned
subsidiary, Wells Fargo Cash Centers, Inc. ("Cash Centers"),
including approximately 200 ATMs operating in gaming establishments;
an initial $1,000,000 working capital line of credit, and cash for
use in its ATMs in specified markets at negotiated rates. The
Company agreed to contribute transaction services and technology
support, including a royalty-free license of its intellectual
property rights in the technology to operate the machines. The
Company also agreed to provide CCMs to innoVisions at cost. In order
to test the viability of the new machines, the agreement called for
a pilot placement of 10 CCMs at two casinos in Las Vegas and Reno,
Nevada.
5
<PAGE> 30
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF BUSINESS ACTIVITY, CONTINUED
In order to fund ongoing operations, the Company is dependent on a
significant increase in revenue from some combination of sales of
CCMs, verification fees, check cashing fees, franchise royalties and
sales of franchises. Should those revenues not increase as
anticipated, the Company would require additional sources of
capital. The Company received additional equity contributions in
March 1999. See Note 10.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiary. All intercompany accounts and
transactions have been eliminated in consolidation. The Company uses
the equity method of accounting for its investment in innoVisions.
innoVisions is in the development stage and has incurred losses
since its inception. The Company has not recorded its equity in the
losses of innoVisions since the carrying value of its investment is
zero and the Company has neither guaranteed obligations of
innoVisions nor does it have any obligation to provide financial
support to innoVisions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash on hand and cash
on deposit.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible.
No allowance for doubtful accounts is maintained nor is a credit
evaluation performed on customers. Amounts deemed uncollectible are
immediately charged to operations.
INVENTORIES
Inventories, which consist of sub-assembly components for CCMs and
of CCMs available for sale, are stated at the lower of cost
(specific identification) or market.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost less accumulated
depreciation. Equipment held under capital leases is recorded at the
lower of the net present value of the minimum lease payments or its
fair value at the inception of the lease. The cost of assets sold or
retired, as well as any accumulated depreciation, is removed from
the accounts at the time of disposal, with recognition of any
resulting gain or loss.
6
<PAGE> 31
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Depreciation expense is provided on a straight-line basis using
estimated useful lives of 5 to 7 years for furniture and equipment,
7 years for check cashing machines, 25 years for store booths and 3
to 5 years for software. Amortization of capital leases is included
in depreciation expense.
SOFTWARE DEVELOPMENT COSTS
The Company develops computer software for internal use. Internal
and external costs incurred for the development of computer
applications, as well as for upgrades and enhancements that result
in additional functionality of the applications, are capitalized.
Internal and external training and maintenance costs are charged to
expense as incurred. When an application is placed in service, the
Company begins amortizing the related capitalized software costs
using the straight-line method over 3 years.
INTANGIBLE ASSETS
Intangible assets, consisting principally of excess purchase price
over net assets acquired, are being amortized on a straight-line
basis over their expected periods of benefit, generally 28.5 years.
Management assesses the recoverability of intangible assets by
comparing the intangible assets to the undiscounted cash flows
expected to be generated by the acquired operations during the
anticipated period of benefit.
Accumulated amortization of intangible assets was $449,000 at
December 31, 1998.
INCOME TAXES
The Company is included in the 1998 consolidated federal income tax
return of Cash America. Pursuant to the terms of the Company's tax
matters agreement (the "Tax Matters Agreement") with Cash America,
any reduction of consolidated federal income tax liability that Cash
America may realize as a result of the Company's net operating
losses will not be treated as a benefit payable from Cash America to
the Company. Accordingly, such benefits are recorded as a reduction
of stockholder's equity.
The Company utilizes the liability method to account for income
taxes. This method requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax
reporting basis of assets and liabilities and operating loss and tax
credit carryforwards for tax purposes.
7
<PAGE> 32
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION
The Company collects a royalty based on a percentage of check
cashing fees earned by the franchisee.
The Company recognizes franchise sales when the Company has
substantially performed all of its material obligations under the
franchise agreement. Under the terms of a typical franchise
agreement, the Company is under no obligation to refund franchise
fees once a location has opened for business.
The Company sells CCMs and recognizes sales revenue when a CCM is
delivered to a purchaser, installed, and title is transferred.
Thereafter, the Company records check cashing verification fee
revenue in the period in which the service is provided.
The Company also owns and operates CCMs which generate check cashing
fee revenue that is recorded in the period in which the service is
provided.
ADVERTISING COSTS
Costs of advertising are expensed at the time of first occurrence.
Advertising expenses were $617,000 and $548,000 for the years ended
December 31, 1998 and 1997, respectively.
YEAR 2000 EXPENSES
Costs of identifying, correcting, reprogramming and testing computer
systems for Year 2000 compliance are charged to expense when
incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NEW ACCOUNTING STANDARDS
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 in years
beginning after June 15, 2000. The future adoption of SFAS 133 is
not expected to have a material effect on the Company's consolidated
financial position or results of operations.
8
<PAGE> 33
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RECLASSIFICATIONS
Certain amounts in the financial statements for 1997 have been
reclassified to conform with the presentation format adopted in
1998. These reclassifications have no significant effect on net
loss, shareholder's equity, or total assets as previously reported.
3. ACQUISITIONS
Effective June 1, 1998, the Company repurchased 10 check cashing
franchises and terminated options for the franchisee to open 10
additional franchises for an aggregate cash consideration of
$1,400,000. The transaction has been accounted for as a purchase.
The acquired goodwill of $1,390,000 is being amortized on a
straight-line basis utilizing a period of 28.5 years. The assets
acquired and the results of operations have been included in the
financial statements since the date of acquisition.
4. PROPERTY AND EQUIPMENT, NET
Major classifications of property and equipment at December 31, 1998
were as follows (in thousands):
<TABLE>
<S> <C>
Furniture and equipment $ 3,528
Check cashing machines 2,011
Store booths 1,973
Software 799
Software systems in process 7,097
-------
15,408
Less accumulated depreciation 1,898
-------
Property and equipment, net $13,510
=======
</TABLE>
Furniture and equipment includes $312,000 of cost and accumulated
depreciation of $251,000 at December 31, 1998 relating to assets
held under capital leases.
9
<PAGE> 34
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. CAPITAL LEASE OBLIGATIONS PAYABLE
The Company leases computer equipment under capital leases. The
typical lease has an original maturity of 5 years and contains
options to extend the lease or purchase the assets at market or a
predetermined value. The Company's capital lease obligations payable
at December 31, 1998 consisted of (in thousands):
<TABLE>
<S> <C>
Interest from 16.01% to 19.34%, due in monthly
installments through January 2000 $ 86
Less current portion of capital lease obligations (79)
----
Long-term liabilities $ 7
====
</TABLE>
The net present values of minimum lease payments on capital leases
are determined using appropriate interest rates at the inception of
each lease. Future minimum lease payments for capitalized lease
obligations at December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 86
2000 7
----
Total minimum lease payments 93
Less amount representing interest (7)
----
Present value of minimum lease payments $ 86
====
</TABLE>
6. INCOME TAXES
Income tax benefit for the years ended December 31, 1998 and 1997 is
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Current $(4,815) $(1,822)
Deferred federal 1,689 1,562
------- -------
Income tax benefit $(3,126) $ (260)
======= =======
</TABLE>
10
<PAGE> 35
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES, CONTINUED
The effective income tax rate differs from the federal statutory
income tax rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -----
<S> <C> <C>
Tax benefit computed at the statutory
federal income tax rate $(3,324) $(615)
Benefits realized at a rate less than the
statutory federal income tax rate 142 --
Non-deductible amortization of intangible assets 42 42
Valuation allowance -- 310
Other 14 3
------- -----
Total income tax benefit $(3,126) $(260)
======= =====
</TABLE>
The significant components of deferred tax assets and liabilities as
of December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred income tax liabilities:
Property and equipment $ 3,258
=======
Deferred income tax assets:
Net operating loss carryforward $ 1,110
Other, net 7
-------
Total deferred income tax assets 1,117
Valuation allowance for deferred tax assets (1,110)
-------
Net deferred income tax assets $ 7
-------
Net deferred income tax liabilities $ 3,251
=======
</TABLE>
The Company annually re-evaluates the potential for realization of
its deferred income tax assets.
As of December 31, 1998, the Company has net operating loss
carryforwards of $3,170,000 for federal income tax purposes. These
carryforwards may only be used to reduce future taxable income of
the Company and expire from 2009 through 2011.
11
<PAGE> 36
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. SHAREHOLDER'S EQUITY
On July 21, 1998, the Company's sole shareholder approved an
increase in the number of authorized common shares from 1,000,000 to
100,000,000, approved an increase in the number of authorized
preferred shares from 10,000 to 35,000,000, reserved 1,000,000
common shares for issuance of stock options, and declared an
8,000-for-one stock split effective July 23, 1998. Shares
outstanding have been restated to reflect the conversion.
On July 21, 1998, the Board of Directors authorized an increase in
the number of authorized Series B preferred shares from 8,500 to
48,500.
8. RELATED PARTY TRANSACTIONS
The Company paid $72,000 annually to Cash America for legal services
in 1998 and 1997, respectively. (See also Note 9.)
Pursuant to terms of the Tax Matters Agreement with Cash America,
the Company recorded a $6,637,000 and $1,822,000 reduction to
stockholder's equity in 1998 and 1997, respectively, for the
cumulative current federal income tax benefits of the Company's net
operating losses. Such amounts will not be paid to the Company by
Cash America.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases its primary office space from Cash America
pursuant to an operating lease expiring in December 2000. Minimum
annual rental commitments under non-cancelable leases including
leases with initial or remaining terms of one year or more as of
December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
NON-RELATED RELATED
PARTIES PARTIES TOTAL
----------- ------- -----
<S> <C> <C> <C>
1999 $ 54 $ 161 $ 215
2000 36 161 197
----- ----- -----
Total $ 90 $ 322 $ 412
===== ===== =====
</TABLE>
During 1998 and 1997, rent expense for operating leases was $180,000
and $137,000, respectively, of which $139,000 and $95,000,
respectively, was to related parties.
12
<PAGE> 37
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
The Company leases many of the spaces that franchisees occupy in
various retail outlets. Monthly lease rentals are typically based on
a percentage of the gross fees collected by the franchisee each
month. The Company pays all lease rentals accruing under such
leases.
LITIGATION
The Company is involved in certain legal actions and claims arising
in the ordinary course of business from time to time. It is the
opinion of management, based upon the advice of legal counsel, that
such litigation and claims will be resolved without a material
effect on the Company's financial position and results of
operations.
10. SUBSEQUENT EVENTS
DISTRIBUTION OF MANNED CHECK CASHING BUSINESS
On January 1, 1999, the Company distributed the net assets of its
manned check cashing business, valued at its historical cost of
$7,733,000, to Cash America.
CONTRIBUTION OF PREFERRED STOCK
On January 1, 1999, Cash America contributed 1,500 shares of Series
A, $1 par value per share preferred stock, and 8,500 shares of
Series B, $1 par value per share preferred stock, representing all
of the issued and outstanding preferred stock of the Company, as
additional capital paid on the common stock held by Cash America. No
additional shares of common stock were issued.
CHANGES TO PREFERRED STOCK
On March 9, 1999, the Board of Directors eliminated the existing
designations of Series A and Series B preferred stock, and the
Company's sole shareholder approved an increase from 35,000,000 to
54,000,000 in the authorized shares of $1 par value per share
preferred stock and the designation of a new Series A Preferred
Stock. Each share of the new Series A Preferred Stock is convertible
at the option of its holder immediately after its date of issuance
into common stock of the Company on a one-for-one basis subject to
adjustment for subsequent common stock splits, dividends,
distributions or subdivisions. The new Series A Preferred Stock will
automatically convert into common stock, on the same basis as a
voluntary conversion, upon the occurrence of the earlier of an
initial public offering yielding gross proceeds to the Company in
excess of $25,000,000; the liquidation, winding up or dissolution of
the Company whereby the proceeds are $75,000,000 or more; or the
date specified by agreement of the holders of at least 60% of the
voting power of the then outstanding shares of the new Series A
Preferred Stock. The holders of the new Series A Preferred Stock
shall be entitled to the number of votes equal to the number of
shares of common stock into which such shares of new Series A
Preferred Stock could then be converted and may vote along with the
13
<PAGE> 38
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. SUBSEQUENT EVENTS, CONTINUED:
holders of common stock as a single class on all matters on which
the common stockholders shall be entitled to vote.
DISSOLUTION OF INNOVISIONS
On March 9, 1999, pursuant to the terms of the operating agreement,
the Company, Cash Centers and the Board of Directors of innoVisions
dissolved and terminated the joint venture. The business activities
formerly conducted by innoVisions will be integrated into the
operations of the Company.
ADDITIONAL COMMON AND PREFERRED STOCK TRANSACTIONS
On March 9, 1999, the Company issued 27,000,000 shares of new Series
A Preferred Stock in exchange for 10 million shares of no par value
common stock, representing all of the then currently issued and
outstanding common stock of the Company. On the same date, Cash
Centers purchased 27,000,000 shares of new Series A Preferred Stock
for cash consideration of $20,975,000 and certain net assets having
a value of approximately $6,025,000. Additionally on March 9, 1999,
the Company received subscriptions from certain members of
management of the Company to purchase 6,000,000 shares of common
stock.
In October 1999, the Company sold 8,241,759 shares of new Series B
convertible preferred stock for cash consideration of $30,000,000.
The Series A and Series B convertible preferred stockholders are
entitled to the same voting and conversion rights.
REINCORPORATION AND NAME CHANGE
On July 19, 1999, the Company was reorganized and reincorporated in
the State of Delaware. The name of the Company was changed to
innoVentry Corp.
14
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Mr. Payroll Corporation (innoVentry Corp.) and
Board of Directors of
Cash America International, Inc.
In our opinion, the consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of operations, shareholder's equity (deficit)
and cash flows, for each of the two years in the period ended December 31, 1998,
present fairly, in all material respects, the financial position, results of
operations and cash flows of Mr. Payroll Corporation (innoVentry Corp.) at
December 31, 1998 and for each of the two years in the period ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Mr. Payroll Corporation (innoVentry Corp.)
for any period subsequent to December 31, 1998.
PricewaterhouseCoopers LLP
Fort Worth, Texas
April 22, 1999, except as to the information presented in Note 10,
for which the dates are July 19, 1999 and October 29, 1999
<PAGE> 40
EXHIBIT INDEX
The following documents are filed as a part of this report. Those exhibits
previously filed and incorporated herein by reference are identified below.
Exhibits not required for this report have been omitted.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 --Articles of Incorporation of Cash America Investments,
Inc. filed in the office of the Secretary of State of Texas
on October 4, 1984.(a) (Exhibit 3.1)
3.2 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on October 26, 1984.(a)
(Exhibits 3.2)
3.3 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on September 24, 1986.(a)
(Exhibit 3.3)
3.4 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on September 30, 1987.(b)
(Exhibit 3.4)
3.5 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on April 23, 1992 to change the
Company's name to "Cash America International, Inc." (c)
(Exhibit 3.5)
3.6 --Articles of Amendment to the Articles of Incorporation of
Cash America International, Inc. filed in Office of the
Secretary of State of Texas on May 21, 1993. (d) (Exhibit
3.6)
3.7 --Bylaws of Cash America International, Inc.(e) (Exhibit
3.5)
3.8 --Amendment to Bylaws of Cash America International, Inc.
dated effective September 26, 1990.(f) (Exhibit 3.6)
3.9 --Amendment to Bylaws of Cash America International, Inc.
dated effective April 22, 1992.(c) (Exhibit 3.8)
4.1 --Form of Stock Certificate.(c) (Exhibit 4.1)
10.1 --1989 Non-Employee Director Stock Option Plan.(g) (Exhibit
10.47)
10.2 --Amendment to 1989 Non-Employee Director Stock Option Plan
dated April 24, 1996. (h) (Exhibit 10.4)
10.3 --1989 Key Employee Stock Option Plan.(g) (Exhibit 10.48)
10.4 --Amendment to 1989 Key Employee Stock Option Plan dated
January 21, 1997. (h) (Exhibit 10.6)
10.5 --1994 Long-Term Incentive Plan.(i) (Exhibit 10.5)
10.6 --Amendment to 1994 Long-Term Incentive Plan dated July 22,
1997. (j) (Exhibit 10.1)
10.7 --Amended and Restated Executive Employment Agreement
between the Company and Mr. Feehan dated as of August 1,
1997. (j) (Exhibit 10.2)
10.8 --Consultation Agreements between the Company and Messrs.
Dike, Hunter, Motheral, and Rizzo, each dated April 25,
1990.(k) (Exhibit 10.49)
10.9 --Note Agreement between the Company and Teachers Insurance
and Annuity Association of America dated as of May 6,
1993.(l) (Exhibit 10.1)
10.10 --First Supplement to Note Agreement between the Company and
Teachers Insurance and Annuity Association of America dated
as of September 20, 1994.(i) (Exhibit 10.11)
10.11 --Second Supplement (May 12, 1995), Third Supplement (July
7, 1995), and Fourth Supplement (November 10, 1995) to 1993
Note Agreement between the Company and Teachers Insurance
and Annuity Association of America.(m) (Exhibit 10.1)
10.12 --Fifth Supplement (December 30, 1996) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (h) (Exhibit 10.13)
10.13 --Sixth Supplement (December 30, 1997) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (n) (Exhibit 10.16)
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
10.14 --Seventh Supplement (December 31, 1998) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (o) (Exhibit 10.18)
10.15 --Eighth Supplement (September 29, 1999) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (p) (Exhibit 10.3)
10.16 --Note Agreement between the Company and Teachers Insurance
and Annuity Association of America dated as of July 7,
1995.(q) (Exhibit 10.1)
10.17 --First Supplement (November 10, 1995) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (m) (Exhibit 10.2)
10.18 --Second Supplement (December 30, 1996) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (h) (Exhibit 10.16)
10.19 --Third Supplement (December 30, 1997) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (n) (Exhibit 10.20)
10.20 --Fourth Supplement (December 31, 1998) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (o) (Exhibit 10.23)
10.21 -Fifth Supplement (September 29, 1999) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (p) (Exhibit 10.2)
10.22 --Amended and Restated Senior Revolving Credit Facility
Agreement among the Company, certain lenders named therein,
and NationsBank of Texas, N.A., as Administrative Agent
dated as of June 19, 1996. (r) (Exhibit 10.1)
10.23 --First Amendment (December 11, 1997) to Amended and
Restated Senior Revolving Credit Facility Agreement dated as
of June 19, 1996. (n) (Exhibit 10.22)
10.24 --Second Amendment (June 24, 1998) to Amended and Restated
Senior Revolving Credit Facility Agreement dated as of June
19, 1996. (s) (Exhibit 10.1)
10.25 --Third Amendment (December 11, 1998) and Fourth Amendment
(December 31, 1998) to Amended and Restated Senior Revolving
Credit Facility Agreement dated as of June 19, 1996. (o)
(Exhibit 10.27)
10.26 --Fifth Amendment (September 29, 1999) to Amended and
Restated Senior Revolving Credit Facility Agreement dated as
of June 19, 1996. (p) (Exhibit 10.4)
10.27 --Note Agreement dated as of December 1, 1997 among the
Company and the Purchasers named therein for the issuance of
the Company's 7.10% Senior Notes due January 2, 2008 in the
aggregate principal amount of $30,000,000. (n) (Exhibit
10.23)
10.28 --First Supplement (December 31, 1998) to Note Agreement
dated as of December 1, 1997 among the Company and the
Purchasers named therein. (o) (Exhibit 10.29)
10.29 --Second Supplement (September 29, 1999) to Note Agreement
dated as of December 1, 1997 among the Company and the
Purchasers named therein. (p) (Exhibit 10.1)
13 --1999 Annual Report to Stockholders of the Company and 2000
Proxy Statement.
21 --Subsidiaries of Cash America International, Inc.
23 --Consent of PricewaterhouseCoopers LLP.
27 --Financial Data Schedule.
</TABLE>
- ----------
Certain Exhibits are incorporated by reference to the Exhibits shown in
parenthesis contained in the Company's following filings with the Securities and
Exchange Commission:
(a) Registration Statement Form S-1, File No. 33-10752.
(b) Amendment No. 1 to its Registration Statement on Form S-4, File No.
33-17275.
(c) Annual Report on Form 10-K for the year ended December 31, 1992.
(d) Annual Report on Form 10-K for the year ended December 31, 1993.
(e) Post-Effective Amendment No. 1 to its Registration Statement on Form S-4,
File No. 33-17275.
(f) Annual Report on Form 10-K for the year ended December 31, 1990.
(g) Annual Report on Form 10-K for the year ended December 31, 1989.
(h) Annual Report on Form 10-K for the year ended December 31, 1996.
(i) Annual Report on Form 10-K for the year ended December 31, 1994.
(j) Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(k) Post-Effective Amendment No. 4 to its Registration Statement on Form S-4,
File No. 33-17275.
(l) Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.
(m) Quarterly Report on Form 10-Q for the quarter ended September 30,1995.
(n) Annual Report on Form 10-K for the year ended December 31, 1997.
(o) Annual Report on Form 10-K for the year ended December 31, 1998.
(p) Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(q) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(r) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(s) Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
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 revenue from
the Company's lending function. The Company also provides check cashing services
through its franchised and company owned Mr. Payroll(R) manned check cashing
centers and rental of tires and wheels through its subsidiary, Rent-A-Tire, Inc.
("Rent-A-Tire").
The Company expanded its lending operations during the three years ended
December 31, 1999, by adding a net 95 locations. It acquired 76 operating units,
established 24 locations, and combined or closed 13 locations. In addition, 11
franchise units were opened including 3 company-owned locations that were sold
to a franchisee. As of December 31, 1999, the Company's lending operations
consisted of 477 lending units--413 owned units and 11 franchised units in 16
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 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 December 31, 1999, Mr. Payroll
operated 127 franchised and 10 company owned manned check cashing centers in 19
states. On March 9, 1999, Wells Fargo Cash Centers, Inc. ("Cash Centers"), a
wholly owned subsidiary of Wells Fargo Bank, N.A. ("Wells Fargo"), made a
contribution to the Company's CCM subsidiary (now known as "innoVentry") of
$21.0 million of cash and assets valued at $6.0 million that primarily consisted
of an existing network of approximately 200 automated teller machines operating
in gaming establishments. In return, Cash Centers 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. In
addition, the Company assigned 10% of its 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%. innoVentry was
deconsolidated 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 earnings 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 December 31, 1999, was
38.4%. See Note 3 of Notes to Consolidated Financial Statements.
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. 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 December 31, 1999, Rent-A-Tire owned
and operated 24 tire and wheel rental stores, including 13 that were previously
managed and were purchased in 1999 and 7 that were established in 1999.
Rent-A-Tire also manages 15 additional tire and wheel rental stores under its
name for a third party, including 14 that were added during 1999.
RESULTS OF OPERATIONS
YEAR ENDED 1999 COMPARED TO YEAR ENDED 1998
NET REVENUE: CONSOLIDATED. Consolidated net revenue increased 5.1%, or $10.2
million, to $210.8 million during 1999 from $200.6 million during 1998. Lending
activities, rental operations, and check cashing operations contributed $4.9
million, $5.0 million, and $.3 million, respectively, of the $10.2 million
increase.
NET REVENUE: LENDING ACTIVITIES. Net revenue from lending operations increased
$4.9 million to $199.7 million during 1999 from $194.8 million during 1998. The
new lending units in operation for less than one year during 1999 accounted for
a $6.4 million increase that was partially offset by a $1.5 million decrease
from same units (those in operation for more than one year during 1999). The
principal components of lending operations net revenue are finance and service
charges, which increased $6.0 million, net revenue from the disposition of
merchandise, which declined $1.1 million, and foreign check cashing operations,
which was the same in both years.
Fluctuations in finance and service charges are caused by changes in both
the average balance outstanding and the annualized yield of the pawn loan
portfolio. New lending units generated $3.4 million of the total finance and
service charge increase of $6.0 million. A 5.7% increase in the average pawn
loan balance resulted in $6.2 million of additional finance and service charges;
however, a fractional decline in the loan yield offset this amount by $.2
million. The growth in the average investment in pawn loans occurred
domestically and in the United Kingdom, while the Sweden average investment
declined slightly. An increase in the United States average loan balance caused
48% of the consolidated growth and resulted principally from the new unit
additions. The average number of domestic loans outstanding during 1999
increased 2.7% and the average amount per loan during 1999 increased 1.5%.
Growth in the United Kingdom caused 63% of the consolidated increase in average
investment as a result of an 18.5% increase in average number of loans and a
10.3% increase in the average amount per loan. The increase in the average
investment in pawn loans from same units in the United Kingdom was strong with
new units contributing to a lesser degree. Although the average investment in
loans during 1999 was higher than during 1998, loan balances at December 31,
1999 were $3.3 million, or 2.6%, lower than at December 31, 1998. This decline
is primarily attributable to a decrease in loan demand leading to a 5% reduction
in the number of loans outstanding at December 31, 1999, that was slightly
offset by a 2.6% increase in the average amount per loan. Management believes
this trend will continue, resulting in lower average loan balances and finance
and service charges until loan demand or customer count increases.
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 95.7% in 1999 compared to 96.2% in 1998,
resulting in a $.2 million decrease in finance and service charges. The domestic
annualized loan yield was slightly higher at 122.3% for 1999 compared to 121.8%
for 1998. The blended yield on average foreign pawn loans outstanding declined
slightly to 52.4% in 1999 compared to 52.9% in 1998. Slightly higher loan
14
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - Continued
- --------------------------------------------------------------------------------
yields on redeemed loans in Sweden were offset by a slightly lower loan yield on
redeemed loans in the United Kingdom and marginally lower returns on the
disposition of unredeemed collateral at auction in both countries.
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 were 8.8%, or
$19.0 million, higher than in 1998. Same unit increases accounted for $8.1
million of the $19.0 million increase. The margin on disposition of merchandise
declined to 32.2% in 1999 from 35.5% in 1998. Excluding the effect of the
disposition of scrap jewelry, the margin on disposition of merchandise fell to
34.1% for 1999 from 36.9% in 1998 primarily due to price discounting (especially
in several electronics categories) and a higher average cost of items disposed.
The margin on disposition of scrap jewelry was negligible and contributed to the
lower overall margin on all merchandise disposed in 1999. The net result of the
increased proceeds and reduced margin was a $1.1 million, or 1.5%, decrease in
net revenue from the disposition of merchandise. The merchandise turnover rate
was 2.4 times during both 1999 and 1998. In order to maintain merchandise at
levels desired by management, additional price discounting may be necessary,
which may result in continued downward pressure on the Company's margin on
disposition of merchandise.
NET REVENUE: OTHER ACTIVITIES. Net revenue of Rent-A-Tire increased to $7.5
million in 1999 from $2.5 million in 1998. The addition of 20 stores during 1999
resulted in an increase in tire and wheel rentals and sales net revenue of $2.1
million. An increase in the average number of managed stores to 15 during 1999
compared to 8 during 1998 resulted in increased management fees and related
revenue of $2.9 million.
The restructuring of the Company's check cashing operations and
de-consolidation of innoVentry resulted in a $.3 million increase in other net
revenue in 1999 over 1998. 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 the "Other Items"
discussion below.
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expenses as a percentage of net revenue remained constant at 74%
in 1999 and 1998. Total operations and administration expenses increased $8.2
million, or 5.5%, during 1999 compared to 1998. Total operations and
administration expense ratios to net revenue and year-to-year comparative
amounts were impacted by the effect of a decrease in innoVentry's operations and
administration expenses of $7.1 million during 1999 compared to 1998. The
reduction resulted from innoVentry's de-consolidation in March 1999. Excluding
the effects of innoVentry's expenses and net revenue, operations and
administration expenses as a percentage of net revenue were 73% in 1999 compared
to 69% in 1998 and total operations and administration expenses increased $15.3
million, or 11.0%, during 1999 compared to 1998. These expenses were primarily
greater due to higher operations expenses in the domestic lending and rental
segments and higher administration expenses in the domestic lending operations.
Domestic lending operations contributed $8.4 million of the total increase as a
result of higher personnel and occupancy expenses primarily attributable to new
unit operations expenses that accounted for $5.3 million of the domestic
increase. Same units accounted for an additional $1.4 million of the $8.4
million increase and administration expenses increased $1.7 million, primarily
due to higher marketing, Year 2000 software remediation and other administration
expenses. Foreign lending operations contributed $1.4 million of the increase.
Rent-A-Tire accounted for $4.0 million of the increase as a result of the
expansion of its operations from four rental stores at the beginning of 1998 to
39 owned and managed stores at the end of 1999. Domestic manned check cashing
operations accounted for the remaining $1.5 million increase including $.3
million of losses from fraudulently cashed income tax refund checks.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses as a
percentage of net revenue were 9% in both 1999 and 1998. Total depreciation and
amortization expenses increased $1.3 million, primarily due to the increase in
the number of tire rental stores in operation and the effects of a full year of
depreciation and amortization on the new lending units added in 1998.
INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined
to 6.5% in 1999 from 6.8% in 1998. The amount decreased a net $.1 million, or
1.0%, due to the effect of a 10.1% reduction in the Company's blended borrowing
costs that was partially offset by a higher average debt balance. The effective
blended borrowing cost decreased to 6.7% in 1999 from 7.4% in 1998. Average debt
outstanding increased 12.9% to $204.6 million during 1999 from $181.2 million
during 1998 due to the Company's additional investments in innoVentry and
expansion of Rent-A-Tire during 1999.
OTHER ITEMS. Equity in loss of unconsolidated subsidiary of $15.2 million
represents the Company's share of innoVentry's net losses following
de-consolidation in March 1999. The Company anticipates that these losses will
increase as innoVentry expands its operations. However, the losses recorded by
the Company will be limited to the carrying value of its investment in and
advances to innoVentry. The Company recorded gains of $5.2 million, before
applicable income tax expense of $3.6 million, from the issuance of innoVentry's
senior convertible Series A and B preferred stock and common stock from March 9,
1999, through December 31, 1999. The Company recorded a $2.2 million gain during
1999 from the sale of three lending units. See Note 13 of Notes to Consolidated
Financial Statements.
INCOME TAXES. The Company's consolidated effective income tax rate increased to
70.6% for 1999 from 38.0% for 1998 due principally to the effects of income
taxes provided upon the de-consolidation of innoVentry in March 1999 and the
effect of the valuation allowance provided against a portion of the deferred tax
assets arising from the Company's equity in the losses of innoVentry following
de-consolidation. Excluding the effects of the equity in innoVentry's losses
after March 9, 1999, the gain from issuance of innoVentry's stock and their
related tax effects, the Company's consolidated effective income tax rate for
1999 would have been 38.3%. The Company recognized $3.1 million of deferred tax
benefits from the equity losses arising from its investment in innoVentry. The
Company anticipates that the tax benefit from future innoVentry losses will be
recognized when it is more likely than not that such benefits will be realized.
As a result, management believes that the Company's consolidated effective
income tax rate will continue to be substantially greater than the statutory
income tax rate.
NET INCOME. Consolidated net income as a percentage of net revenue was 1.8% in
1999, compared to 6.3% in 1998. Diluted net income per share was $.15 for 1999
compared to $.48 for 1998.
YEAR ENDED 1998 COMPARED TO YEAR ENDED 1997
NET REVENUE: CONSOLIDATED. Consolidated net revenue increased 12.7%, or $22.5
million, to $200.6 million during 1998 from $178.1 million during 1997. Lending
activities, rental operations, and domestic check cashing operations contributed
$19.3 million, $2.5 million, and $.7 million, respectively, of the $22.5 million
increase.
15
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - Continued
- --------------------------------------------------------------------------------
NET REVENUE: LENDING ACTIVITIES. Net revenue from lending operations increased
$19.3 million to $194.8 million during 1998 from $175.5 million during 1997. The
new lending locations added during 1998 contributed $13.9 million of the
increase. Finance and service charges accounted for $13.0 million of the
increase, net revenue from the disposition of merchandise accounted for $5.5
million of the increase, and foreign check cashing operations, that commenced in
the third quarter of 1997, accounted for the remaining $.8 million
of the increase.
Finance and service charges increased $13.0 million, or 12.4%, in 1998 over
1997. Same units contributed $6.2 million of the increase. An 11.4% increase in
the average pawn loan balances, which occurred as a result of an 8.5% increase
in the average number of loans outstanding coupled with a 2.7% increase in the
average loan amount, accounted for $11.9 million of the increase in finance and
service charges.
The consolidated annualized loan yield increased to 96.2% in 1998 from
95.3% in 1997 resulting in a $1.1 million increase in finance and service
charges. The domestic annualized loan yield was 121.8% in 1998 compared to
123.9% for 1997. The decrease in domestic loan yield can be partially attributed
to a 17.7% increase in domestic pawn loan balances at December 31, 1998, over
the same date in 1997, which can have the effect of moderating the loan yield.
The net addition of 62 domestic lending locations accounted for 12.3% of the
loan balance increase, while same units contributed the remaining 5.4%. The
remainder of the domestic loan yield decrease occurred as a result of expansion
in lower-yielding domestic markets. The blended yield on average foreign pawn
loans outstanding was 52.9% for 1998 compared to 51.7% in 1997. The increase
resulted from slightly higher loan yields on redeemed loans that were offset by
slightly lower returns on the disposition of unredeemed collateral at auction.
Proceeds from the disposition of merchandise in 1998 were 10.4%, or $20.4
million, higher than 1997 primarily due to the impact of the new lending
locations. Same unit increases, which the Company believes is attributable to
stronger customer demand, accounted for $5.2 million of the $20.4 million
increase. The margin on disposition of merchandise declined to 35.5% in 1998
from 36.4% during 1997. Excluding the effect of the disposition of scrap
jewelry, the margin on disposition of merchandise fell to 36.9% for 1998 from
37.9% in 1997 due to the Company's emphasis on maintaining desirable levels of
merchandise held for disposition combined with a higher average cost of items
disposed. The net result was a $5.5 million, or 7.8%, increase in net revenue
from the disposition of merchandise. The merchandise turnover rate declined
slightly to 2.4 times compared to 2.5 times during 1997.
NET REVENUE: OTHER ACTIVITIES. Net revenue of check cashing operations in 1998
increased 30.1% over 1997. Check cashing royalties and fees earned from the
operations of CCMs, as well as the owned and franchised check cashing centers,
increased 52.7% and represented 94% and 80% of check cashing operations net
revenue in 1998 and 1997, respectively. Gross profit realized on CCM sales
accounted for 4% of net revenue in 1998 as compared to 3% in 1997. A reduction
in the amount of franchise fees, which accounted for virtually all of the
remaining net revenue in both years, reflected the emphasis on the development
of the CCM.
Rent-A-Tire contributed net revenue of $2.5 million in 1998. Prior to
February 1, 1998, the Company's 49% share of earnings or losses of Rent-A-Tire's
predecessor was recorded in "Equity in loss of unconsolidated subsidiary."
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expenses as a percentage of net revenue were 74.0% in 1998
compared to 69.5% for 1997. Total operations and administration expenses
increased $24.7 million, or 20.0%, in 1998 compared to 1997. Domestic lending
operations contributed $12.7 million of the increase primarily due to higher
personnel, occupancy, and office expenses mostly attributable to new lending
locations that accounted for $10.1 million of the domestic increase. Foreign
lending operations contributed $1.5 million of the increase. Check cashing
operations accounted for $7.8 million of the increase, primarily due to
increased personnel, communications, and travel expenses related to the
development and marketing of the CCM. The expenses of Rent-A-Tire, which was not
consolidated prior to February 1, 1998, accounted for the remaining $2.7 million
of the increase.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses as a
percentage of net revenue remained constant at 9.0% during 1998 when compared to
1997. Depreciation and amortization expenses increased 13.6% principally due to
the effect of the increase in additional lending locations during 1998.
INTEREST EXPENSE. Net interest expense as a percentage of net revenue increased
to 6.8% in 1998 from 6.5% in 1997. The amount increased $1.9 million, or 16.4%,
primarily due to the effect of a higher average debt level related to the
Company's growth in lending locations and continued investment in the
development of its check cashing operations. Average debt outstanding increased
17.6% to $181.2 million during 1998 from $154.0 million during 1997. The
effective blended borrowing cost decreased to 7.4% in 1998 from 7.6% in 1997.
EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY. The Company's 49% equity interest
in the losses of Express decreased $.5 million in 1998 as compared to 1997 as a
result of the consolidation of Express at February 1, 1998.
INCOME TAXES. The Company's consolidated effective income tax rate increased to
38.0% for 1998 from 36.6% for 1997 due primarily to higher non-deductible
intangible asset amortization. The favorable effects of lower foreign tax rates
in 1998 were offset by other miscellaneous items.
NET INCOME. Consolidated net income as a percentage of net revenue was 6.3% in
1998, compared to 9.3% in 1997. Diluted net income per share was $.48 for 1998
compared to $.66 for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $34.7 million, $20.6 million and
$24.4 million for 1999, 1998 and 1997, respectively. During 1999, the Company
invested $10.0 million to acquire 5 lending locations and 13 tire rental stores,
and invested $21.1 million in purchases of property and equipment. Of this
amount, $11.2 million was for property improvements, remodeling selected
operating units and additions to computer systems of the lending operations and
Mr. Payroll. Approximately $6.6 million was for the purchase of equipment and
the development of a point-of-sale software system for Rent-A-Tire.
Approximately $3.3 million was for the development of innoVentry's CCM before
de-consolidation. As a result of the de-consolidation of innoVentry, cash was
reduced by $4.8 million. The Company also invested $10.0 million in innoVentry
and advanced $.7 million to innoVentry following the de-consolidation. During
the year, the Company also made a scheduled payment of $4.3 million on its 8.33%
senior unsecured notes, paid $.5 million of debt obligations in connection with
capital leases, paid $1.3 million in dividends, purchased $3.8 million of
treasury shares under open market purchase programs, and purchased $.1 million
of treasury shares for the Company's Nonqualified Savings Plan.
These activities were funded primarily from the cash flow generated
internally by operating activities, the reduction of pawn loan balances of $2.2
million, and net borrowings of $10.9 million under the Company's bank lines of
credit.
16
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - Continued
- --------------------------------------------------------------------------------
Additional funding was provided by the issuance of $3.3 million of capital lease
obligations, $1.5 million from the issuance of common shares pursuant to the
Company's stock option plans, and $5.8 million of proceeds from the sale of
property and equipment. At December 31, 1999, $101.0 million was outstanding on
the Company's $150 million revolving line of credit. In addition, the Company's
(pound)10 million (approximately $16.2 million) line of credit in the United
Kingdom had a balance outstanding of (pound)9.5 million (approximately $15.3
million) and the Company's Swedish lines of credit totaling SEK 215 million
(approximately $25.3 million) had a combined balance outstanding of SEK 115.0
million (approximately $13.5 million).
As a result of the transactions described above involving innoVentry, the
Company has eliminated its obligation to continue to fund the development and
deployment of the CCM while remaining in a position to share in innoVentry's
growth potential. As of December 31, 1999, the Company's voting interest in
innoVentry is 38.4%. In the event innoVentry requires additional capital in the
future, the Company has the opportunity to make additional investments. In the
event the Company does not participate in additional capital fundings of
innoVentry, the Company's ownership interest will be diluted. Management
believes that innoVentry intends to continue to develop and market the CCM 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 plans to add approximately 10 to 15 new lending locations in
2000. These additions will likely occur through the opening of new locations,
that will require an approximate investment of $260,000 per location, or the
acquisition of existing locations. Rent-A-Tire plans to add approximately 15 to
20 rental locations in 2000 through the acquisition of existing locations or the
opening of new locations.
On October 19, 1999, 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 and terminated the open market purchase plan that it had
authorized in 1997. During 1999, the Company purchased 158,300 shares for an
aggregate amount of $1.3 million under the 1999 program and 320,000 shares for
an aggregate amount of $2.5 million under the 1997 program. Additional 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 $208.4
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
exchange rates by virtue of its operations in the United Kingdom and Sweden. In
accordance with generally accepted accounting principles, the Company's foreign
assets, liabilities, and earnings are converted into U.S. dollars for
consolidation into the Company's financial statements. At December 31, 1999, the
Company had recorded a cumulative other comprehensive loss of $4.0 million as a
result of fluctuations in foreign currency exchange rates.
Net income from foreign operations during 1999, 1998 and 1997 translated to
$7.5 million, $6.7 million and $6.0 million, respectively. 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
were designed and developed using two digits, rather than four, to specify the
year. As a result, such systems and equipment might have recognized a date using
"00" as the year 1900 rather than the year 2000. This could have resulted in a
system failure or miscalculations causing disruptions of operations as the
Company continued its operations into the year 2000.
THE COMPANY'S YEAR 2000 EFFORTS AND RESULTS TO DATE. During 1997, the Company
began formulating a comprehensive plan to assess the actions and resources
needed to address its company-wide Year 2000 issues. The plan was continually
developed and executed throughout 1998 and 1999. The Company completed all
necessary remediation, including modification, upgrading and replacement of
hardware and software as well as adequate testing to ensure Year 2000
compliance. The Company applied all aspects of its plan to both its information
technology ("IT") systems and non-IT systems. An additional part of the plan
involved communications with critical third parties that provide services or
goods essential to the Company's operations to determine the extent of the
Company's vulnerability to any third party's failure to remediate its Year 2000
problem and resolve such problems to the extent practicable.
The Company completed the execution of its plan prior to January 1, 2000.
No disruption of operations has occurred since December 31, 1999, as a result of
Year 2000 issues, either in the Company's IT systems or non-IT systems. No
contingency plans had to be executed and no disruptions have occurred as a
result of any critical third party's failure to address its Year 2000 issues.
YEAR 2000 COSTS. The Company's Year 2000 project cost from 1997 through 1999 was
$2.9 million. Costs of $1.8 million for replacement of computerized systems,
hardware or equipment are included in the above total. No major non-Year 2000
projects were deferred because of Year 2000 activities. The Company funded the
expenditures related to its Year 2000 initiatives either through cash generated
from operations and working capital, or its existing revolving credit
facilities.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Annual Report to Shareholders contains 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 Annual Report to Shareholders, 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.
17
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - continued
- --------------------------------------------------------------------------------
(Dollars in thousands-- December 31)
SUMMARY
The Company has expanded its lending operations over the past three years
by increasing from 382 operating locations at December 31, 1996, to 466 owned
and 11 franchised operating locations at December 31, 1999. The growth in
lending locations is attributable to acquisitions, the start-up of new Company
units and the sale of new franchises. During 1999, the Company restructured its
check cashing operations in a series of transactions designed to isolate and
accelerate the development and deployment of the automated check cashing
machine. As a result of the transactions, the Company retained the manned check
cashing operations in a new wholly owned, consolidated subsidiary. At December
31, 1999, the company owned 38.4% of the automated check cashing operations
which have been renamed innoVentry Corp. Since March 9, 1999, the Company's
investment and its share of the results of operations of innoVentry have been
accounted for by the equity method. See Note 3 of Notes to Consolidated
Financial Statements. Effective February 1, 1998, the Company increased its
interest from 49% to 99.9% in Express Rent A Tire, Ltd., a provider of tire and
wheel rentals, and reorganized it into Rent-A-Tire, Inc. Rent-A-Tire has
expanded its operations since February 1, 1998, by increasing the number of tire
and wheel rental stores it owns or manages under its name from 8 to 39 at
December 31, 1999. Selected consolidated and operations data for the three years
ended December 31, 1999, are presented below.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 123,111 $ 117,078 $ 104,138
Proceeds from disposition of merchandise 235,374 216,422 195,978
Rental operations 10,253 3,346 --
Check cashing royalties and fees 4,366 4,008 2,500
Check cashing machine sales 82 2,022 750
---------- ---------- ----------
TOTAL REVENUE 373,186 342,876 303,366
========== ========== ==========
COSTS OF REVENUE
Disposed merchandise 159,602 139,502 124,616
Rental operations 2,732 832 --
Cost of check cashing machines sold 38 1,895 668
---------- ---------- ----------
NET REVENUE $ 210,814 $ 200,647 $ 178,082
========== ========== ==========
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 58.4% 58.3% 58.5%
Margin on disposition of merchandise 35.9% 38.3% 40.1%
Rental operations 3.6% 1.3% --
Check cashing operations 2.1% 2.1% 1.4%
Expenses as a percentage of net revenue--
Operations and administration 74.3% 74.0% 69.5%
Depreciation and amortization 9.2% 9.0% 9.0%
Interest, net 6.5% 6.8% 6.5%
Income from operations before depreciation
and amortization as a percentage of total revenue 14.5% 15.2% 17.9%
Income before income taxes as a percentage of total revenue 3.5% 5.9% 8.6%
========== ========== ==========
LENDING OPERATIONS:
Annualized yield on loans 95.7% 96.2% 95.3%
Average loan balance per average location in operation $ 277 $ 276 $ 279
Average loan amount at year-end (not in thousands) $ 105 $ 102 $ 99
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 32.2% 35.5% 36.4%
Average annualized merchandise turnover 2.4x 2.4x 2.5x
Average merchandise held for disposition per average location $ 145 $ 133 $ 129
Locations in operation--
Beginning of year 464 401 382
Acquired 5 61 10
Start-ups 4 7 13
Combined, closed or sold (7) (5) (4)
End of year 466 464 401
Additional franchise locations at end of year 11 5 1
Total locations at end of year 477 469 402
Average number of owned locations in operation 465 441 392
========== ========== ==========
RENTAL OPERATIONS
Owned rental locations--
Rental agreements outstanding at end of year $ 5,938 $ 1,231 --
Average balance per rental agreement at end of year (not in thousands) 1,036 834 --
Locations in operation at end of year 24 4 --
Average locations in operation for the year 11 4 --
Managed rental locations--
Locations in operation at end of year 15 14 --
Average locations in operation for the year 15 8 --
========== ========== ==========
CHECK CASHING OPERATIONS:
Franchised and owned check cashing centers--
Centers in operation at end of year 137 137 145
Average centers in operation for the year 139 143 150
Automated check cashing machines in service--
Machines in service at end of year -- 91 21
Average machines in service for the year -- 53 5
========== ========== ==========
</TABLE>
18
<PAGE> 6
EIGHT YEAR SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS-- years ended December 31
Total revenue $ 373,186 $ 342,876 $ 303,366 $ 280,968 $ 253,579
Income from operations 34,666 34,001 38,335 35,536 31,585
---------- ---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of change in accounting principle 13,184 20,364 26,157 25,108 20,616
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle 3,876 12,624 16,579 15,684 12,849
Cumulative effect on prior years of
change in accounting principle -- -- -- -- (19,772)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 3,876 $ 12,624 $ 16,579 $ 15,684 $ (6,923)
========== ========== ========== ========== ==========
Net income (loss) per share:
Basic--
Income before cumulative effect of
change in accounting principle $ .15 $ .51 $ .68 $ .55 $ .45
Cumulative effect of change
in accounting principle -- -- -- -- (.69)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ .15 $ .51 $ .68 $ .55 $ (.24)
========== ========== ========== ========== ==========
Diluted--
Income before cumulative effect of
change in accounting principle $ .15 $ .48 $ .66 $ .54 $ .45
Cumulative effect of change
in accounting principle -- -- -- -- (.69)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ .15 $ .48 $ .66 $ .54 $ (.24)
---------- ---------- ---------- ---------- ----------
Dividends per share $ .05 $ .05 $ .05 $ .05 $ .05
---------- ---------- ---------- ---------- ----------
Weighted average shares:
Basic 25,346 24,829 24,281 28,703 28,633
Diluted 26,229 26,226 25,158 28,806 28,863
---------- ---------- ---------- ---------- ----------
PRO FORMA AMOUNTS (a)
Total revenue $ 373,186 $ 342,876 $ 303,366 $ 280,968 $ 253,579
Income from operations 34,666 34,001 38,335 35,536 31,585
Net income 3,876 12,624 16,579 15,684 12,849
Net income per share-- Basic $ .15 $ .51 $ .68 $ .55 $ .45
Net income per share-- Diluted $ .15 $ .48 $ .66 $ .54 $ .45
========== ========== ========== ========== ==========
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
FINANCIAL POSITION-- at December 31
Loans $ 125,349 $ 128,637 $ 112,240 $ 107,679 $ 87,782
Merchandise held for disposition, net 64,419 65,417 53,468 48,777 56,647
Working capital 208,419 213,612 176,582 163,948 160,701
Total assets 417,623 410,823 340,254 324,032 313,275
Total debt 202,366 193,974 150,428 150,365 123,462
Stockholders' equity 186,940 187,444 167,296 152,977 174,120
Current ratio 7.5x 7.9x 7.6x 7.6x 11.2x
Debt to equity ratio 108.3% 103.5% 89.9% 98.3% 70.9%
---------- ---------- ---------- ---------- ----------
OWNED AND FRANCHISED LOCATIONS-- at December 31
Lending operations 477 469 402 382 373
Rental operations 24 4 -- -- --
Check cashing operations 137 228 166 152 --
========== ========== ========== ========== ==========
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
OPERATIONS-- years ended December 31
Total revenue $ 262,105 $ 224,700 $ 185,410
Income from operations 31,246 25,374 21,767
---------- ---------- ----------
Income before income taxes and cumulative
effect of change in accounting principle 24,958 21,766 20,348
---------- ---------- ----------
Income before cumulative effect of
change in accounting principle 15,498 13,839 13,006
Cumulative effect on prior years of
change in accounting principle -- -- --
---------- ---------- ----------
Net income (loss) $ 15,498 $ 13,839 $ 13,006
========== ========== ==========
Net income (loss) per share:
Basic--
Income before cumulative effect of
change in accounting principle $ .55 $ .49 $ .47
Cumulative effect of change
in accounting principle -- -- --
---------- ---------- ----------
Net income (loss) $ .55 $ .49 $ .47
========== ========== ==========
Diluted--
Income before cumulative effect of
change in accounting principle $ .54 $ .48 $ .45
Cumulative effect of change
in accounting principle -- -- --
---------- ---------- ----------
Net income (loss) $ .54 $ .48 $ .45
---------- ---------- ----------
Dividends per share $ .05 $ .05 $ .04 3/4
---------- ---------- ----------
Weighted average shares:
Basic 28,410 28,289 27,701
Diluted 28,930 28,938 28,698
---------- ---------- ----------
PRO FORMA AMOUNTS (a) (a) (a)
Total revenue $ 221,950 $ 191,851 $ 157,302
Income from operations 25,057 21,387 17,682
Net income 11,599 11,327 10,432
Net income per share-- Basic $ .41 $ .40 $ .38
Net income per share-- Diluted $ .40 $ .39 $ .36
========== ========== ==========
1994(a) 1993(a) 1992(a)
---------- ---------- ----------
FINANCIAL POSITION-- at December 31
Loans $ 78,095 $ 49,089 $ 46,926
Merchandise held for disposition, net 58,079 43,865 40,110
Working capital 146,843 101,854 96,541
Total assets 302,891 229,220 203,088
Total debt 119,796 64,000 50,000
Stockholders' equity 162,068 150,849 140,585
Current ratio 8.0x 8.2x 8.7x
Debt to equity ratio 73.9% 42.4% 35.6%
---------- ---------- ----------
OWNED AND FRANCHISED LOCATIONS-- at December 31
Lending operations 340 280 249
Rental operations -- -- --
Check cashing operations -- -- --
========== ========== ==========
</TABLE>
(a) Unaudited pro forma amounts assuming retroactive application of change in
accounting principle regarding the Company's method of income recognition
on pawn loans. The unaudited pro forma amounts reflect the effects of
retroactive application of the change on finance and service charges, costs
of disposed merchandise, provisions for related income taxes and the
carrying value of merchandise held for disposition, net.
19
<PAGE> 7
CONSOLIDATED BALANCE SHEETS-- December 31
- --------------------------------------------------------------------------------
(In thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,186 $ 4,417
Loans 125,349 128,637
Merchandise held for disposition, net 64,419 65,417
Inventories 2,801 3,093
Finance and service charges receivable 21,052 19,733
Prepaid expenses and other 6,279 7,129
Income taxes recoverable 8,824 5,870
Deferred tax assets 5,548 10,134
---------- ----------
Total current assets 240,458 244,430
Property and equipment, net 60,961 73,347
Intangible assets, net 90,901 88,284
Other assets 9,911 4,762
Investments in and advances to unconsolidated subsidiary 15,392 --
---------- ----------
Total assets $ 417,623 $ 410,823
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,931 $ 19,848
Customer deposits 4,131 4,151
Income taxes currently payable 1,587 2,133
Current portion of long-term debt 5,390 4,686
---------- ----------
Total current liabilities 32,039 30,818
Deferred tax liability 1,668 3,273
Long-term debt 196,976 189,288
---------- ----------
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock, $.10 par value per share, 80,000,000 shares
authorized; 30,235,164 shares issued in 1999 and 1998 3,024 3,024
Paid in surplus 127,350 126,615
Retained earnings 105,331 102,722
Accumulated other comprehensive loss (3,989) (2,414)
Notes receivable-stockholders (5,820) (3,263)
---------- ----------
225,896 226,684
Less-- shares held in treasury, at cost (5,055,170 in 1999
and 5,114,218 in 1998) (38,956) (39,240)
---------- ----------
Total stockholders' equity 186,940 187,444
---------- ----------
Total liabilities and stockholders' equity $ 417,623 $ 410,823
========== ==========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME-- Years Ended December 31
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE
Finance and service charges $ 123,111 $ 117,078 $ 104,138
Proceeds from disposition of merchandise 235,374 216,422 195,978
Rental operations 10,253 3,346 --
Check cashing royalties and fees 4,366 4,008 2,500
Check cashing machine sales 82 2,022 750
---------- ---------- ----------
TOTAL REVENUE 373,186 342,876 303,366
---------- ---------- ----------
COSTS OF REVENUE
Disposed merchandise 159,602 139,502 124,616
Rental operations 2,732 832 --
Cost of check cashing machines sold 38 1,895 668
---------- ---------- ----------
NET REVENUE 210,814 200,647 178,082
---------- ---------- ----------
OPERATING EXPENSES
Lending operations 121,242 113,696 98,669
Rental operations 4,952 1,389 --
Check cashing operations 3,510 7,182 2,549
Administration 27,019 26,270 22,582
Depreciation 14,810 13,935 12,659
Amortization 4,615 4,174 3,288
---------- ---------- ----------
Total operating expenses 176,148 166,646 139,747
---------- ---------- ----------
INCOME FROM OPERATIONS 34,666 34,001 38,335
Interest expense, net 13,690 13,557 11,644
Gain from sale of assets (2,224) -- --
Equity in loss of unconsolidated subsidiary 15,238 80 534
Gain from issuance of subsidiary's stock (5,222) -- --
---------- ---------- ----------
Income before income taxes 13,184 20,364 26,157
Provision for income taxes 9,308 7,740 9,578
---------- ---------- ----------
NET INCOME $ 3,876 $ 12,624 $ 16,579
========== ========== ==========
Net income per share:
Basic $ .15 $ .51 $ .68
Diluted $ .15 $ .48 $ .66
---------- ---------- ----------
Weighted average shares:
Basic 25,346 24,829 24,281
Diluted 26,229 26,226 25,158
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-- Years Ended December 31
- --------------------------------------------------------------------------------
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
-------------------------- Paid in Retained Comprehensive
Shares Amount Surplus Earnings Income
---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 30,235,164 $ 3,024 $ 121,878 $ 75,973
Comprehensive income:
Net income 16,579 $ 16,579
Other comprehensive
income -- Foreign
currency translation
adjustments (2,072)
------------
Comprehensive income $ 14,507
------------
Dividends declared--
$.05 per share (1,215)
Treasury shares purchased
Treasury shares reissued (71)
Tax benefit from exercise
of option shares 348
Change in notes
receivable-- stockholders
---------- ------------ ------------ ------------ ------------
Balance at
December 31, 1997 30,235,164 3,024 122,155 91,337
Comprehensive income:
Net income 12,624 $ 12,624
Other comprehensive
income -- Foreign
currency translation
adjustments 44
------------
Comprehensive income $ 12,668
------------
Dividends declared--
$.05 per share (1,239)
Treasury shares purchased
Treasury shares reissued 3,864
Tax benefit from exercise
of option shares 596
Change in notes
receivable-- stockholders
---------- ------------ ------------ ------------ ------------
Balance at
December 31, 1998 30,235,164 3,024 126,615 102,722
Comprehensive income:
Net income 3,876 $ 3,876
Other comprehensive
income -- Foreign
currency translation
adjustments (1,575)
------------
Comprehensive income $ 2,301
------------
Dividends declared--
$.05 per share (1,267)
Treasury shares purchased
Treasury shares reissued (218)
Tax benefit from exercise
of option shares 953
Change in notes
receivable-- stockholders
---------- ------------ ------------ ------------ ------------
BALANCE AT
DECEMBER 31, 1999 30,235,164 $ 3,024 $ 127,350 $ 105,331
---------- ------------ ------------ ------------ ------------
<CAPTION>
Accumulated Notes
Other Receivable- Treasury Stock
Comprehensive Stock- ----------------------------
Income (Loss) holders Shares Amount
------------- ------------ ------------ ------------
Balance at
<S> <C> <C> <C> <C>
December 31, 1996 $ (386) $ (2,115) 5,975,670 $ (45,397)
Comprehensive income:
Net income
Other comprehensive
income -- Foreign
currency translation
adjustments (2,072)
Comprehensive income
Dividends declared--
$.05 per share
Treasury shares purchased 147,811 (1,375)
Treasury shares reissued (310,962) 2,372
Tax benefit from exercise
of option shares
Change in notes
receivable-- stockholders (247)
------------ ------------ ------------ ------------
Balance at
December 31, 1997 (2,458) (2,362) 5,812,519 (44,400)
Comprehensive income:
Net income
Other comprehensive
income -- Foreign
currency translation
adjustments 44
Comprehensive income
Dividends declared--
$.05 per share
Treasury shares purchased 27,475 (380)
Treasury shares reissued (725,776) 5,540
Tax benefit from exercise
of option shares
Change in notes
receivable-- stockholders (901)
------------ ------------ ------------ ------------
Balance at
December 31, 1998 (2,414) (3,263) 5,114,218 (39,240)
Comprehensive income:
Net income
Other comprehensive
income -- Foreign
currency translation
adjustments (1,575)
Comprehensive income
Dividends declared--
$.05 per share
Treasury shares purchased 485,759 (3,876)
Treasury shares reissued (544,807) 4,160
Tax benefit from exercise
of option shares
Change in notes
receivable-- stockholders (2,557)
------------ ------------ ------------ ------------
BALANCE AT
DECEMBER 31, 1999 $ (3,989) $ (5,820) 5,055,170 $ (38,956)
------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS-- Years Ended December 31
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,876 $ 12,624 $ 16,579
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,810 13,935 12,659
Amortization 4,615 4,174 3,288
Gain from sale of assets (2,224) -- --
Equity in loss of unconsolidated subsidiary 15,238 80 534
Gain from issuance of subsidiary's stock (5,222) -- --
Changes in operating assets and liabilities--
Merchandise held for disposition and inventories 254 (7,829) (6,037)
Finance and service charges receivable (1,792) (1,572) (2,576)
Prepaid expenses and other (1,541) (4,386) (904)
Accounts payable and accrued expenses 3,230 3,348 838
Customer deposits, net 29 45 742
Current income taxes (2,125) (5,748) 479
Deferred taxes, net 5,540 5,885 (1,223)
---------- ---------- ----------
Net cash provided by operating activities 34,688 20,556 24,379
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to merchandise held for disposition 145,664 134,414 118,263
Loans repaid or renewed 296,492 291,371 265,662
Loans made, including loans renewed (439,970) (435,341) (391,216)
---------- ---------- ----------
Net decrease (increase) in loans 2,186 (9,556) (7,291)
---------- ---------- ----------
Acquisitions, net of cash acquired (9,989) (23,090) (5,324)
Cash of subsidiary at date of de-consolidation (4,795) -- --
Investment in and advances to unconsolidated subsidiary (10,654) (120) (1,195)
Purchases of property and equipment (21,067) (22,412) (14,262)
Proceeds from sales of property and equipment 5,831 1,142 22
---------- ---------- ----------
Net cash used by investing activities (38,488) (54,036) (28,050)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under bank lines of credit 10,868 45,670 (21,751)
Proceeds from issuance of long-term debt -- -- 30,000
Proceeds from capital lease obligations 3,257 2,183 --
Payments on notes payable, capital leases and other obligations (4,755) (10,978) (4,286)
Change in notes receivable-- stockholders (80) (46) 409
Net proceeds from reissuance of treasury shares 1,465 1,512 1,786
Treasury shares purchased (3,876) (349) (1,375)
Dividends paid (1,267) (1,239) (1,215)
---------- ---------- ----------
Net cash provided by financing activities 5,612 36,753 3,568
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (43) 25 (112)
---------- ---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS 1,769 3,298 (215)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,417 1,119 1,334
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,186 $ 4,417 $ 1,119
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase transactions--
Liabilities assumed and notes payable issued $ 12 $ 8,815 $ 167
Treasury shares reissued -- 7,131 --
Loans to stockholders for exercise of stock options 2,336 730 515
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF THE COMPANY
HISTORY AND OPERATIONS o Cash America International, Inc. ("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 disposition of merchandise, primarily collateral
from unredeemed pawn loans, is a related but secondary activity of the Company's
lending function. As of December 31, 1999, the Company's lending operations
consisted of 477 lending units, including 413 owned United States lending units,
11 franchised United States lending units, and 53 owned foreign lending units.
During 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"). As a result of the
restructuring and a change in corporate name, the CCM operations are held in
innoVentry Corp. ("innoVentry"). At December 31, 1999, the Company owned 38.4%
of innoVentry. The Company retained its manned check cashing operations in a new
wholly owned, consolidated subsidiary, Mr. Payroll Corporation ("Mr. Payroll").
At December 31, 1999, Mr. Payroll had 127 franchised and 10 owned check cashing
centers in operation.
The Company also provides rental of tires and wheels through its
consolidated subsidiary, Rent-A-Tire, Inc. ("Rent-A-Tire"). At December 31,
1999, Rent-A-Tire owned and operated 24 tire rental stores and managed 15
additional stores under the Rent-A-Tire name.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION o The consolidated financial statements include the
accounts of the Company's majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Through March 9, 1999, innoVentry's assets and liabilities and the results
of its operations were included in the consolidated financial statements.
Effective as of the close of business on March 9, 1999, innoVentry sold, in a
private placement, newly issued shares of its senior convertible Series A
preferred stock and common stock and began accounting for its investment and its
share of the results of innoVentry's operations after March 9, 1999, by the
equity method (see Note 3).
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 Rent-A-Tire, a new corporation (see Note 4). 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.
USE OF ESTIMATES o The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions which affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION o The functional currencies for the Company's
foreign subsidiaries are the local currencies. The assets and liabilities of
those subsidiaries are translated into U.S. dollars at the exchange rates in
effect at the balance sheet date, and resulting adjustments are accumulated in
other comprehensive income (loss) as a separate component of stockholders'
equity. Revenue and expenses are translated at the monthly average exchange
rates occurring during the year.
CASH AND CASH EQUIVALENTS o The Company considers cash on hand in units,
deposits in banks and short-term marketable securities with original maturities
of 90 days or less as cash and cash equivalents.
REVENUE RECOGNITION 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.
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. Prior to the de-consolidation of
innoVentry, CCM sales revenue was recorded upon installation and activation of
the CCM.
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.
MERCHANDISE HELD FOR DISPOSITION AND COST OF DISPOSED MERCHANDISE o Merchandise
held for disposition includes merchandise acquired from unredeemed loans,
merchandise purchased directly from the public and merchandise purchased from
vendors. Merchandise held for disposition is stated at the lower of cost
(specific identification) or market. The Company provides an allowance for
shrinkage and valuation based on management's evaluation of the merchandise. The
allowance deducted from the carrying value of merchandise held for disposition
amounted to $2,008,000 and $2,163,000 at December 31, 1999 and 1998,
respectively.
The cost of merchandise, computed on the specific identification basis, is
removed from merchandise held for disposition and recorded as a cost of revenue
at the time of disposition.
PROPERTY AND EQUIPMENT o Property and equipment are recorded at cost.
Depreciation expense is generally provided on a straight-line basis, using
estimated useful lives of 10 to 30 years for buildings and 3 to 10 years for
equipment and leasehold improvements. The cost of property retired or sold and
the related accumulated depreciation is removed from the accounts, and any
resulting gain or loss is recognized in the income statement.
SOFTWARE DEVELOPMENT COSTS o The Company develops computer software for internal
use. Internal and external costs incurred for the development of computer
applications, as well as for upgrades and enhancements that result in additional
24
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
functionality of the applications, are capitalized. Internal and external
training and maintenance costs are charged to expense as incurred. When an
application is placed in service, the Company begins amortizing the related
capitalized software costs using the straight-line method and an estimated
useful life varying from 3 to 5 years.
INTANGIBLE ASSETS o Approximately 93% of net intangible assets consists of
excess purchase price over net assets acquired. Amortization is recorded on a
straight-line basis over the expected periods of benefit, generally 15 to 40
years. Intangible assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amounts may not be recoverable.
Effective January 1, 1999, the Company adopted the provisions of the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants' ("AcSEC") Statement of Position 98-5 "Reporting on the Costs
of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires start-up and
organization costs to be charged to expense as incurred. The adoption of SOP
98-5 did not have a material effect on the Company's results of operations.
Prior to 1999, pre-opening costs associated with the establishment of new
operating units were capitalized and expensed during the twelve months following
the date of opening. Pre-opening costs remaining to be amortized totaled
$138,000 at December 31, 1998.
Accumulated amortization of intangible assets was $24,364,000 and
$22,393,000 at December 31, 1999 and 1998, respectively.
INCOME TAXES o The provision for income taxes is based on income before income
taxes as reported for financial statement purposes. Deferred income taxes are
provided in accordance with the assets and liability method of accounting for
income taxes to recognize the tax effects of temporary differences between
financial statement and income tax accounting. Deferred federal income taxes are
not provided on the undistributed earnings of foreign subsidiaries to the extent
the Company intends to indefinitely reinvest such earnings.
HEDGING AND DERIVATIVES ACTIVITY o As a policy, the Company does not engage in
speculative or leveraged transactions, nor does it hold or issue financial
instruments for trading purposes. The Company does use derivative financial
instruments, such as interest rate cap agreements, for the purpose of managing
interest rate exposures that exist from ongoing business operations. The costs
of the agreements are recognized as adjustments to interest expense during the
term of the agreements and any benefits received under the terms of the
agreements are recognized in the periods of the benefits. The Company may also
periodically enter into forward sale contracts with a major bullion bank to sell
fine gold that is produced in the normal course of business from the Company's
liquidation of forfeited gold merchandise. In addition, the Company transfers
funds between currencies from time-to-time and may concurrently enter into
short-term currency swaps to eliminate the risk of currency fluctuations.
ADVERTISING COSTS o Costs of advertising are expensed at the time of first
occurrence. Advertising expense was $3,671,000, $3,685,000 and $3,444,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
YEAR 2000 EXPENSES o The costs of identifying, correcting, reprogramming and
testing computer systems for Year 2000 compliance are recorded as expenses when
incurred.
STOCK-BASED COMPENSATION o The Company applies the intrinsic value based method
of accounting for the costs of its stock-based employee compensation plans and,
accordingly, discloses the pro forma effect on net income and net income per
share as if the fair value based method of accounting for the cost of such plans
had been applied.
ISSUANCE OF INVESTEE STOCK o In accordance with SEC Staff Accounting Bulletin
Topic 5H, the Company has elected to record, in income, non-operating gains (or
losses) arising from subsidiary or investee issuances of its own stock. When an
investee sells additional shares to parties other than the Company, the
Company's percentage ownership in the investee decreases. In the event the
selling price per share is more or less than the Company's average carrying
amount per share, the Company records a gain or loss in income. When an investee
sells additional shares to the Company and third parties, the Company's
percentage ownership may change. In comparing the Company's new carrying amount
to its resulting proportionate share of the investee's equity, the Company
records a gain or loss in income. Applicable deferred income tax expenses or
benefits are recognized on such gains or losses. The Company adopted this
accounting method for the March 1999 transaction that resulted in innoVentry's
de-consolidation (see Note 3).
NET INCOME PER SHARE o Basic net income per share is computed by dividing net
income by the weighted average number of shares outstanding during the year.
Diluted net income per share is calculated by giving effect to the potential
dilution that could occur if securities or other contracts to issue common
shares were exercised and converted into common shares during the year.
The reconciliation of basic and diluted weighted average common shares
outstanding for the three years ended December 31, 1999, follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average shares - Basic 25,346 24,829 24,281
Effect of shares applicable
to stock option plans 843 1,368 871
Effect of shares applicable
to nonqualified savings plan 40 29 6
------ ------ ------
Weighted average shares - Diluted 26,229 26,226 25,158
====== ====== ======
</TABLE>
25
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS o In June 1998, the Financial Accounting Standards
Board ("FASB") 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 in years beginning after June 15,
2000. Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of SFAS 133 will have a significant effect on the
Company's consolidated financial position or results of operations.
RECLASSIFICATIONS o Certain amounts in the consolidated financial statements for
1998 and 1997 have been reclassified to conform to the presentation format
adopted in 1999. These reclassifications have no effect on the net income
previously reported.
3. ISSUANCE OF SUBSIDIARY'S STOCK
In March 1999, Wells Fargo Cash Centers, Inc. ("Cash Centers"), a wholly owned
subsidiary of Wells Fargo Bank, N.A. ("Wells Fargo"), made a contribution to
innoVentry of $20,975,000 of cash and assets valued at $6,025,000 that primarily
consisted of an existing network of approximately 200 automated teller machines
operating in gaming establishments. In addition, Wells Fargo agreed to provide
innoVentry a $5,000,000 revolving line of credit, up to $17,000,000 in equipment
lease financing, and cash for use in its CCMs and ATMs in specified markets at
negotiated rates. In return, Cash Centers received newly issued shares of
innoVentry's senior convertible Series A preferred stock representing 45% of its
voting interest. Also, 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. In addition, the Company 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.
In October 1999, the Company, Cash Centers, and a third party each
purchased $10,000,000 of innoVentry's newly issued senior convertible Series B
voting preferred stock. After the issuance of senior convertible Series A and B
preferred stock and other common stock sold by innoVentry, the Company's voting
interest at December 31, 1999 was 38.4%. If innoVentry were to issue all of its
potentially dilutive securities, the Company's voting interest would be reduced
to 35.1%. The Company's ownership is represented by shares of senior convertible
Series A and B preferred stock issued in March 1999 and October 1999. The
Company recognized a gain of $5,222,000 (before applicable income taxes of
$3,590,000) as a result of the transactions described above.
In conjunction with the March 1999 transactions described above, innoVentry
issued a $2,900,000 note payable to the Company. The note bears interest at 7%
and principal and interest are due and payable upon the occurrence of certain
events, but not later than April 1, 2004. The principal plus accrued interest of
$154,000 are included in investments in and advances to unconsolidated
subsidiary in the accompanying consolidated balance sheet.
The excess of the Company's investment over its underlying equity in the
net assets of innoVentry at March 9, 1999, is being amortized on a straight-line
basis over five years. At December 31, 1999, the unamortized balance was
$1,375,000. No dividends were received from innoVentry during the period from
March 10, 1999 through December 31, 1999.
Summarized financial information for innoVentry at December 31, 1999, and for
the year ended December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Total current assets $ 32,837
Property, equipment, computer software, and leasehold improvements, net 35,867
Non-current assets 3,035
--------
Total assets $ 71,739
========
Total current liabilities $ 34,140
Non-current liabilities 8,540
Total stockholders' equity 29,059
--------
Total liabilities and stockholders' equity $ 71,739
========
Total net revenue 9,117
Expenses including net interest expense (52,946)
Income tax benefit 2,787
--------
Net loss $(41,042)
========
</TABLE>
The Company recorded $2,515,000 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 the innoVentry net loss by the equity
method.
The summarized financial information for innoVentry is prepared on a going
concern basis. Management of the Company believes that the investment in
innoVentry is ultimately recoverable based on the belief that innoVentry can
raise additional capital through the issuance of debt or equity securities to
support operating requirements. However, there can be no assurance that
innoVentry will be able to obtain additional capital or that such capital will
be available on terms satisfactory to innoVentry.
4. ACQUISITIONS
During 1999, the Company acquired 5 pawnshops in purchase transactions for an
aggregate cash consideration of $4,322,000. Rent-A-Tire acquired 13 tire rental
stores that it previously managed, in purchase transactions for $5,667,000 of
cash in 1999. During 1998, the Company acquired 61 pawnshops in purchase
transactions for an aggregate purchase price of $37,636,000 consisting of
$21,690,000 in cash, $500,000 in notes issued, the assumption of $8,315,000 of
liabilities, and the issuance of 475,391 shares of the Company's common stock
valued at $7,131,000. The Company also purchased 10 manned check cashing centers
for an aggregate cash consideration of $1,400,000 during 1998. The excess of the
aggregate purchase price over the aggregate fair market value of net assets
acquired of approximately $6,092,000 and $22,282,000 during 1999 and 1998,
respectively, is being amortized over periods ranging from 15 to 40 years. The
related assets and liabilities and results of operations have been included in
the Company's financial statements from the dates of acquisition.
In September 1995, the Company acquired, for a nominal amount, a 49%
interest in Express. The Company also acquired an option for $1,000,000 to
purchase an additional 41% interest. Effective February 1, 1998, in a series of
transactions accounted for as a purchase, the Company exercised its option and
increased 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 the results of operations of
Express in 1997 and the results of operations of Rent-A-Tire in 1998 and 1999.
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.
26
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
5. CONSOLIDATED BALANCE SHEET DETAILS
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
At December 31,
---------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Land $ 1,838 $ 4,504
Buildings and leasehold improvements 69,190 66,481
Furniture, fixtures and equipment 46,691 46,800
Computer software 17,739 21,938
-------- --------
Total 135,458 139,723
Less-- accumulated depreciation 74,497 66,376
-------- --------
Property and equipment - net $ 60,961 $ 73,347
======== ========
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Trade accounts payable $ 5,382 $ 4,234
Accrued taxes, other than income taxes 4,291 4,007
Accrued payroll and fringe benefits 5,594 6,156
Accrued interest payable 2,010 2,070
Other accrued liabilities 3,654 3,381
-------- --------
Total $ 20,931 $ 19,848
======== ========
</TABLE>
During 1999, under sale-leaseback agreements, the Company sold certain
buildings and improvements utilized in lending operations with a net book value
of $4,201,000 for $5,831,000 of cash. Annual payments under the operating lease
agreements are $687,000. The gain of $1,630,000 is being amortized over the 15
year basic lease term.
At December 31, 1999, property and equipment included $5,441,000 of cost
and $679,000 of accumulated depreciation relating to assets held under capital
leases.
6. LONG-TERM DEBT
The Company's long-term debt instruments and balances outstanding at December 31
are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
U.S. Line of Credit up to $150,000 due June 30, 2003 $101,000 $ 95,500
U.K. Line of Credit up to(pound)10,000 due April 30, 2001 15,346 5,808
Swedish Lines of Credit up to SEK 215,000 13,528 18,676
8.33% senior unsecured notes due 2003 17,143 21,429
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 4,849 2,061
6.25% subordinated unsecured notes due 2004 500 500
-------- --------
202,366 193,974
Less current portion 5,390 4,686
-------- --------
Total long-term debt $196,976 $189,288
======== ========
</TABLE>
Interest on the U.S. Line of Credit is charged, at the Company's option, at
either a margin over LIBOR (1.0% at December 31, 1999) or at the Agent's base
rate. The Company pays a fee of .25% per annum on the unused portion. The
Company has an interest rate cap agreement totaling $20,000,000 that expires in
September 2000 and limits the maximum LIBOR rate to 6%, and an interest rate cap
agreement totaling $30,000,000 that expires in February 2004 and limits the
maximum LIBOR rate to 5.5%. During the year ended December 31, 1999, the
weighted average amount outstanding on the line of credit was $106,442,000 and
the effective interest rate was 6.66% after taking into account the interest
rate cap agreements.
The (pound) 10,000,000 U.K. Line of Credit (approximately $16,153,000 as of
December 31, 1999) bears interest at the Bank's cost of funds plus a margin of
60 basis points for borrowings less than 14 days, and a margin of 55 basis
points for borrowings of 14 days or more. The Company pays a fee of .25% per
annum on the unused portion. During the year ended December 31, 1999, the
weighted average amount outstanding was (pound) 6,462,000 (approximately
$10,450,000), and the effective interest rate was 5.85%.
The Company has an SEK 185,000,000 ($21,757,000 as of December 31, 1999)
line of credit maturing September 30, 2002. Interest is charged at a margin over
the Stockholm InterBank Offered Rate ("STIBOR") (.75% at December 31, 1999). The
Company pays a fee of .25% per annum on the unused portion. The Company also has
an SEK 30,000,000 ($3,528,000 as of December 31, 1999) line of credit with a
commercial bank maturing June 1, 2001. Interest is charged at the Bank's base
funding rate plus 1.0%. The Company pays a fee of .375% per annum on the unused
portion. As of December 31, 1999, amounts outstanding under the lines of credit
were SEK 101,000,000 ($11,878,000), and SEK 14,031,000 ($1,650,000),
respectively. The Company has an interest rate cap agreement for SEK 100,000,000
($11,761,000 as of December 31, 1999) that expires in August 2003 and limits the
maximum STIBOR rate to 5.5%. During the year ended December 31, 1999, the
weighted average amount outstanding under the lines of credit was SEK
135,968,000 (approximately $16,453,000), and the effective interest rate was
4.56%.
All debt instruments are unsecured and governed by agreements that have
provisions that require the Company to maintain certain financial ratios and
limit specific payments and equity distributions.
Annual maturities of long-term debt (including capital lease obligations)
through 2004 are: 2000 - $5,390,000; 2001 - $22,462,000; 2002 - $21,996,000;
2003 - $114,989,000; and 2004 - $8,386,000.
Cash payments for interest on long-term debt were $13,991,000, $12,576,000
and $12,005,000 in 1999, 1998 and 1997, respectively.
7. INCOME TAXES
The components of the Company's deferred tax assets and liabilities as of
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Provision for valuation of merchandise
held for disposition $ 473 $ 529
Tax over book accrual of finance and
service charges 4,655 9,070
Property and equipment 2,461 --
Deferred compensation 475 520
Investment in unconsolidated subsidiary 2,727 --
Net operating loss carryforwards 16 1,516
Other 1,227 1,011
-------- --------
Total deferred tax assets 12,034 12,646
Valuation allowance for deferred tax assets (2,604) (1,482)
-------- --------
Net deferred tax assets $ 9,430 $ 11,164
======== ========
Deferred tax liabilities:
Amortization of acquired intangibles $ 1,338 $ 1,039
Deferred installment gain 777 --
Foreign tax reserves 1,066 838
Property and equipment -- 1,863
Deferred acquisition and start-up costs -- 172
Other 799 391
-------- --------
Total deferred tax liabilities 3,980 4,303
-------- --------
Net deferred tax assets $ 5,450 $ 6,861
======== ========
Balance sheet classification:
Current deferred tax assets $ 5,548 $ 10,134
Non-current deferred tax liabilities (1,668) (3,273)
Included in non-current other assets 1,570 --
-------- --------
Net deferred tax assets $ 5,450 $ 6,861
======== ========
</TABLE>
27
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
The components of the provision for income taxes and the income to which it
relates for the years ended December 31 are shown below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes:
United States entities $ 2,405 $ 10,531 $ 17,362
Foreign entities 10,779 9,833 8,795
-------- -------- --------
$ 13,184 $ 20,364 $ 26,157
======== ======== ========
Current provision (benefit):
Federal $ 1,006 $ (2,658) $ 7,717
Foreign 2,899 2,797 2,380
State and local 197 447 704
-------- -------- --------
$ 4,102 $ 586 $ 10,801
======== ======== ========
Deferred provision (benefit):
Federal $ 4,654 $ 6,929 $ (1,463)
Foreign 430 221 409
State and local 122 4 (169)
-------- -------- --------
$ 5,206 $ 7,154 $ (1,223)
======== ======== ========
Total provision $ 9,308 $ 7,740 $ 9,578
======== ======== ========
</TABLE>
The effective tax rate differs from the federal statutory rate for the
following reasons (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tax provision computed at the
statutory federal income tax rate $ 4,614 $ 7,127 $ 9,155
Non-deductible amortization of
intangible assets 663 617 517
Taxes provided upon de-consolidation
of subsidiary 1,763 -- --
Foreign tax rate difference (620) (621) (530)
Valuation allowance 2,172 -- --
Other 716 617 436
-------- -------- --------
Total provision $ 9,308 $ 7,740 $ 9,578
======== ======== ========
Effective tax rate 70.6% 38.0% 36.6%
======== ======== ========
</TABLE>
As of December 31, 1999, the Company has a net operating loss carryforward
of $45,000 for U.S. income tax purposes. The loss carryforward resulted from the
1998 acquisition of Doc Holliday's Pawnbrokers and Jewellers, Inc. ("Doc
Holliday's") and expires in 2012. A $432,000 valuation allowance against
preacquisition deferred tax assets of Doc Holliday's remains at December 31,
1999. When realized, the tax benefits from these differences will reduce
goodwill related to the Doc Holliday's acquisition. Such reductions of goodwill
were $520,000 for 1999. The de-consolidation of innoVentry in March 1999,
resulted in a $3,170,000 reduction in net operating loss carryforwards and a
$547,000 decrease in the valuation allowance. During 1999, an additional
$2,172,000 valuation allowance was provided for a portion of the deferred tax
assets arising from the Company's equity in the losses of innoVentry following
de-consolidation.
Domestic income taxes have not been provided on undistributed earnings of
foreign subsidiaries to the extent that it is the Company's intent to reinvest
these earnings overseas indefinitely. Upon distribution of accumulated earnings
of all foreign subsidiaries, the Company would be subject to U.S. income taxes
(net of foreign tax credits) of approximately $1,300,000.
Cash payments for income taxes were $6,628,000, $7,599,000 and $10,322,000
in 1999, 1998 and 1997, respectively.
8. EMPLOYEE BENEFIT PLANS
The Cash America International, Inc. 401(k) Savings Plan is open to all domestic
employees that meet specific length of employment and age requirements. The Cash
America International, Inc. Nonqualified Savings Plan is available to certain
members of management. Participants may contribute up to 15% of their earnings
to these plans. The Company makes matching contributions of 50% of each
participant's contributions, based on participant contributions of up to 5% of
compensation. Company contributions vest at the rate of 20% each year after one
year of service; thus a participant is 100% vested after five years of service.
The Company provides benefits under separate retirement plans for eligible
employees in foreign countries.
Total Company contributions to retirement plans were $700,000, $681,000 and
$575,000 in 1999, 1998 and 1997, respectively.
9. STOCKHOLDERS' EQUITY
In October 1999, the Board of Directors authorized the purchase of up to
1,000,000 shares of the Company's common stock and terminated the open market
purchase plan that it had established in 1997. During 1999, the Company
purchased 158,300 shares for an aggregate amount of $1,339,000 under the 1999
plan and 320,000 shares for an aggregate amount of $2,470,000 under the 1997
plan. In 1997, the Company purchased 119,900 shares for an aggregate amount of
$1,081,000 under the 1997 plan.
The Company also purchased 7,459 shares of the Company's common stock for
$67,000, 25,693 shares for $349,000 and 13,236 shares for $136,000 during 1999,
1998 and 1997, respectively, for the Nonqualified Savings Plan. The Company also
received 1,782 shares of its common stock valued at $31,000 and 14,675 shares
valued at $158,000 during 1998 and 1997, respectively, as partial payment for
shares issued under stock option plans.
The Board of Directors adopted an officer stock loan program (the
"Program") in 1994 and modified it in 1996 and 1999. Program participants may
utilize loan proceeds to acquire and hold the Company's and affiliates' common
stock by means of stock option exercises or otherwise. Common stock held as a
result of the loan must be pledged to the Company to secure the obligation.
Interest accrues at the "applicable Federal rate" as published periodically by
the Internal Revenue Service, is payable annually and may be paid with
additional loan proceeds. Each loan has a one year maturity and is renewable for
successive one year terms subject to the discretion of the Executive
Compensation Committee of the Board of Directors. Amounts due from officers
under the Program are reflected as a reduction of stockholders' equity in the
accompanying consolidated balance sheets.
10. STOCK PURCHASE RIGHTS
In August 1997, the Board of Directors declared a dividend distribution of one
Common Stock Purchase Right (the "Right") for each outstanding share of its
common stock. The Rights become exercisable in the event a person or group
acquires 15% or more of the Company's common stock or announces a tender offer,
the consummation of which would result in ownership by a person or group of 15%
or more of the common stock. If any person becomes a 15% or more shareholder of
the Company, each Right (subject to certain limits) will entitle its holder
(other than such person or members of such group) to purchase, for $37.00, the
number of shares of the Company's common stock determined by dividing $74.00 by
the then current market price of the common stock. The rights will expire on
August 5, 2007.
11. STOCK OPTIONS
Under various plans (the "Plans") it sponsors, the Company is authorized to
issue 7,100,000 shares of Common Stock pursuant to "Awards" granted as incentive
stock options (intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended) and nonqualified stock options. Stock options granted
under the plans have contractual terms of five to 15 years and have an exercise
price equal to or greater than the fair market value of the stock at grant date.
Stock options granted vest over periods ranging from 1 to 7 years. However, the
7 year vesting periods accelerate if specified share price appreciation criteria
are met.
28
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
A summary of the Company's stock option activity for the three years ending
December 31, 1999 is as follows (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICES SHARES PRICES SHARES PRICES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,228 $ 7.41 4,434 $ 7.40 3,759 $ 6.63
Granted 137 13.78 87 13.80 1,028 10.17
Exercised 545 7.23 250 9.07 311 7.40
Forfeited 84 10.98 43 8.94 24 9.38
Expired 7 7.75 -- -- 18 7.75
-------- -------- -------- -------- -------- --------
Outstanding at end of year 3,729 $ 7.59 4,228 $ 7.41 4,434 $ 7.40
-------- -------- -------- -------- -------- --------
Exercisable at end of year 2,947 $ 6.83 3,427 $ 6.85 3,189 $ 6.53
-------- -------- -------- -------- -------- --------
Weighted average fair value of
options granted $ 7.36 $ 5.61 $ 4.03
======== ======== ========
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model using the following weighted
average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected term (years) 8.8 8.0 7.2
Risk-free interest rate 5.29% 5.50% 6.21%
Expected dividend yield 0.50% 0.61% 0.50%
Expected volatility 36.8% 27.3% 23.5%
</TABLE>
Stock options outstanding and exercisable as of December 31, 1999 are
summarized below (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE YEARS
WEIGHTED OF REMAINING WEIGHTED
RANGE OF NUMBER AVERAGE CONTRACTUAL NUMBER AVERAGE EXERCISE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE LIFE EXERCISABLE PRICE
---------------- ----------- -------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 5.63 to $ 7.00 2,569 $ 6.32 4.7 2,563 $ 6.32
7.01 to 10.81 967 9.71 7.0 359 9.80
10.82 to 16.69 193 13.87 8.8 25 16.69
---------------- ----- ------ --- ----- ------
$ 5.63 to $16.69 3,729 $ 7.59 5.5 2,947 $ 6.83
---------------- ----- ------ --- ----- ------
</TABLE>
The Company applies the intrinsic value based method of accounting for the
Plans and, accordingly, no compensation cost has been recognized. If
compensation costs for the Company's stock options had been determined on the
fair value based method of accounting, the Company's net income, net income per
share basic and diluted for each of the years ended December 31 would have been
reported as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income
As reported $ 3,876 $ 12,624 $ 16,579
Pro forma $ 3,076 $ 11,989 $ 16,299
Net income per share
Basic:
As reported $ .15 $ .51 $ .68
Pro forma $ .12 $ .48 $ .67
Diluted:
As reported $ .15 $ .48 $ .66
Pro forma $ .12 $ .46 $ .65
</TABLE>
The effects of applying the fair value based method of accounting in the
pro forma amounts above are not indicative of future effects and its application
does not apply to awards granted prior to 1995.
29
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
12. 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 secured non-recourse pawn loans to individuals.
In the United States segment, loan terms are generally for one month with
provisions for renewals and extensions and the loans average approximately 50
days in length. The loan collateral includes a wide variety of personal property
items. However, in the foreign segment, loan terms are six months, the loan
amounts are generally larger, and the collateral is predominately jewelry. The
check cashing segment provides check cashing services to individuals through
franchised and company owned Mr. Payroll service centers and through automated
service centers operated by innoVentry. The rental segment rents vehicle tires
and wheels to individuals.
The accounting policies of the segments are the same as those described in
Note 2. Management of the Company evaluates performance based on income or loss
from operations before net interest expense, other miscellaneous items of income
or expense, and the provision for income taxes. There are no intersegmental
sales.
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 (see Note 3).
Information concerning the segments is set forth below (in thousands):
<TABLE>
<CAPTION>
LENDING
------------------------------------------
UNITED STATES FOREIGN TOTAL CHECK CASHING RENTAL CONSOLIDATED
------------- ---------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1999
Total revenue $ 327,117 $ 32,118 $ 359,235 $ 3,698 $ 10,253 $ 373,186
Depreciation and amortization 15,864 1,885 17,749 828 848 19,425
Income (loss) from operations 25,721 12,134 37,855 (3,109) (80) 34,666
Equity in loss of unconsolidated
subsidiary -- -- -- (15,238) -- (15,238)
Total assets at December 31 285,594 89,031 374,625 24,811 18,187 417,623
Investment in and advances to
unconsolidated subsidiary -- -- -- 15,392 -- 15,392
Expenditures for property
and equipment 5,669 4,656 10,325 4,154 6,588 21,067
1998
Total revenue 305,981 28,294 334,275 5,255 3,346 342,876
Depreciation and amortization 15,420 1,427 16,847 894 368 18,109
Income (loss) from operations 31,781 11,893 43,674 (9,100) (573) 34,001
Total assets at December 31 294,717 78,122 372,839 32,099 5,885 410,823
Expenditures for property
and equipment 11,624 1,413 13,037 6,889 2,486 22,412
1997
Total revenue 275,775 24,341 300,116 3,250 N/A 303,366
Depreciation and amortization 14,090 1,297 15,387 560 N/A 15,947
Income (loss) from operations 28,927 11,128 40,055 (1,720) N/A 38,335
Total assets at December 31 256,431 70,522 326,953 13,301 N/A 340,254
Expenditures for property
and equipment 8,878 890 9,768 4,494 N/A 14,262
</TABLE>
The geographic distribution of property and equipment at December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
UNITED STATES FOREIGN CONSOLIDATED
------------- ------- ------------
<S> <C> <C> <C>
1999 $52,546 $ 8,415 $60,961
1998 68,056 5,291 73,347
1997 59,454 4,804 64,258
</TABLE>
30
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
In December 1999, the Company sold 3 lending units, including certain real
estate, for $4,520,000 to Ace Pawn, Inc. ("Ace") whose sole stockholder, J.D.
Credit, Inc. ("J.D. Credit"), is controlled by the Chairman of the Board of
Directors of the Company. The price was determined by independent appraisal and
approved by the Board of Directors of the Company. The Company received
promissory notes from Ace that are collateralized by all of its assets. In
addition, J.D. Credit has pledged the common stock of Ace and the Chairman of
the Board has provided a personal guaranty for repayment of the notes. The notes
bear interest at 10% per annum and require quarterly principal and interest
payments and a final balloon payment in December 2002. The Company has the right
of first refusal in the event of a proposed resale of the lending units. A
gain of $2,224,000 was recognized on the transactions. The notes are included in
other assets in the accompanying consolidated balance sheet.
The 3 lending units were converted to Company franchise units, and the
Company continued to manage the units pursuant to a management agreement for a
brief interim period immediately following the closing of the transaction. The
Company recorded franchise fee revenue of $30,000, management fee income of
$35,000 and royalties of $7,000 in December 1999.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and cash equivalents bear interest at market rates and have maturities less
than 90 days. Pawn loans have relatively short maturity periods depending on
local regulations, generally 90 days or less in the United States and 180 days
or less in the United Kingdom and Sweden. Finance and service charge rates are
determined by regulations and bear no valuation relationship to capital markets'
interest rate movements. Generally, pawn loans may only be resold to a licensed
pawnbroker. The Company's interest rate cap agreements are evaluated pursuant to
the terms of the agreements and settled in specific three-month intervals. The
fair values of the interest rate caps are based on quoted market prices for
interest rate caps currently available with similar terms.
The Company's bank credit facilities bear interest at rates that are
frequently adjusted on the basis of market rate changes. The fair values of the
remaining long-term debt instruments are estimated based on market values for
debt issues with similar characteristics or rates currently available for debt
with similar terms.
The carrying amounts and estimated fair values of financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 6,186 $ 6,186 $ 4,417 $ 4,417
Pawn loans 125,349 125,349 128,637 128,637
Interest rate caps 783 2,036 355 844
Financial liabilities:
Bank lines of credit 129,874 129,874 119,984 119,984
Senior unsecured notes 67,143 64,363 71,429 74,161
Capital lease obligations and other notes 5,349 5,272 2,561 2,548
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities under operating leases with terms
ranging from 3 to 10 years, with certain rights to extend for additional
periods. Future minimum rentals due under non-cancelable leases are as follows
for each of the years ending December 31 (in thousands):
<TABLE>
<S> <C>
2000 $20,169
2001 16,066
2002 12,108
2003 8,002
2004 4,744
Thereafter 8,934
-------
Total $70,023
=======
</TABLE>
Rent expense was $21,042,000, $18,567,000 and $15,949,000 for 1999, 1998
and 1997, respectively.
The Company is party to a number of lawsuits arising in the normal course
of 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.
31
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
CASH AMERICA INTERNATIONAL, INC.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Cash America International, Inc. (the
"Company") and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of innoVentry Corp. as of and for the year ended December
31, 1999, the investment and loss in which is reflected in the accompanying
financial statements using the equity method of accounting (see Notes 2 and 3).
The Company's proportionate share of innoVentry Corp.'s net assets and advances
to the Company reflects $15.4 million as of December 31, 1999 and total
operating losses of $15.2 million for the period then ended. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for innoVentry Corp., is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
January 27, 2000
INCOME STATEMENT QUARTERLY DATA (Unaudited)
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenue $ 95,686 $ 86,335 $ 85,568 $ 105,597
Costs of revenue 40,777 35,641 35,653 50,301
Net income (loss) 4,800 1,924 422 (3,270)
Net income (loss) per share - Diluted .18 .07 .02 (.13)
Weighted average shares - Diluted 26,419 26,552 26,021 25,924
1998
Total revenue $ 84,194 $ 78,252 $ 80,512 $ 99,918
Costs of revenue 35,496 31,512 31,715 43,506
Net income 4,534 1,634 2,097 4,359
Net income per share - Diluted .18 .06 .08 .17
Weighted average shares - Diluted 25,633 26,398 26,417 26,346
</TABLE>
COMMON STOCK DATA
- --------------------------------------------------------------------------------
The New York Stock Exchange is the principal exchange on which Cash America
International, Inc. common stock is traded. There were 898 stockholders of
record (not including individual participants in security listings) as of
February 9, 2000. The high and low sales prices of common stock as quoted on the
composite tape of the New York Stock Exchange and cash dividends per share
during 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
High $ 15.75 $ 15.50 $ 13.13 $ 11.44
Low 10.38 11.50 6.75 7.50
Close 12.88 12.88 9.44 9.75
Cash dividend per share .01 1/4 .01 1/4 .01 1/4 .01 1/4
1998
High $ 16.75 $ 20.88 $ 20.50 $ 16.88
Low 10.63 14.56 10.38 9.00
Close 16.25 15.25 11.13 15.19
Cash dividend per share .01 1/4 .01 1/4 .01 1/4 .01 1/4
</TABLE>
32
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- ---------------
<S> <C>
Cash America International, Inc. Texas
Cash America, Inc. Delaware
Cash America, Inc. of Louisiana Delaware
Rent-A-Tire, Inc. Texas
Cash America, Inc. of Tennessee Tennessee
Cash America, Inc. of Oklahoma Oklahoma
Cash America, Inc. of Kentucky Kentucky
Cash America, Inc. of South Carolina South Carolina
Florida Cash America, Inc. Florida
Georgia Cash America, Inc. Georgia
Cash America, Inc. of North Carolina North Carolina
Cash America Pawn, Inc. of Ohio Ohio
Cash America, Inc. of Alabama Alabama
Cash America, Inc. of Colorado Colorado
Cash America, Inc. of Indiana Indiana
Cash America Pawn L.P. Delaware
Cash America Management L.P. Delaware
Cash America Holding, Inc. Delaware
Harvey & Thompson Limited England
Express Cash International Corporation Delaware
CAII Pantbelaning AB Sweden
Cash America of Missouri, Inc. Missouri
Vincent's Jewelers and Loan, Inc. Missouri
Mr. Payroll Corporation Delaware
Cash America, Inc. of Utah Utah
Cash America Franchising, Inc. Delaware
Cash America Financial Services, Inc. Delaware
Cash America, Inc. of Illinois Illinois
Uptown City Pawners, Inc. Illinois
Doc Holliday's Pawnbrokers & Jewelers, Inc. Delaware
Longhorn Pawn & Gun, Inc. Texas
Bronco Pawn & Gun, Inc. Oklahoma
Gamecock Pawn & Gun, Inc. South Carolina
Hornet Pawn & Gun, Inc. North Carolina
Tiger Pawn & Gun, Inc. Tennessee
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the four separate
Registration Statements on Form S-8, (Filings No. 33-29658, 33-36430, 33-59733
and 333-95827) of Cash America International, Inc., of our report dated January
27, 2000 relating to the consolidated financial statements, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report dated
January 27, 2000, relating to the financial statement schedule, which appears in
this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,186
<SECURITIES> 0
<RECEIVABLES> 146,401
<ALLOWANCES> 0
<INVENTORY> 67,220
<CURRENT-ASSETS> 240,458
<PP&E> 135,458
<DEPRECIATION> 74,497
<TOTAL-ASSETS> 417,623
<CURRENT-LIABILITIES> 32,039
<BONDS> 196,976
0
0
<COMMON> 3,024
<OTHER-SE> 183,916
<TOTAL-LIABILITY-AND-EQUITY> 417,623
<SALES> 235,456
<TOTAL-REVENUES> 373,186
<CGS> 159,640
<TOTAL-COSTS> 292,076
<OTHER-EXPENSES> 46,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,690
<INCOME-PRETAX> 13,184
<INCOME-TAX> 9,308
<INCOME-CONTINUING> 3,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,876
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
