1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File Number 1-9733
CASH AMERICA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2018239
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1600 WEST 7TH STREET
FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
(817) 335-1100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
24,722,034 common shares, $.10 par value, were outstanding as of July 31, 2001
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CASH AMERICA INTERNATIONAL, INC.
INDEX TO 10-Q
PART I. FINANCIAL STATEMENTS
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2001
and 2000 and December 31, 2000................................. 1
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 2001 and 2000........................ 2
Consolidated Statements of Stockholders' Equity -
Six Months Ended June 30, 2001 and 2000........................ 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000........................ 4
Notes to Consolidated Financial Statements..................... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition......... 10
PART II. OTHER INFORMATION........................................... 29
SIGNATURE............................................................. 31
3
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
----------------------------------------------
June 30, December 31,
2001 2000 2000
--------- --------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 6,688 $ 3,825 $ 4,626
Loans 118,898 124,117 117,982
Merchandise held for disposition, net 53,834 55,262 58,817
Inventory 4,681 3,952 4,419
Finance and service charges receivable 18,864 19,406 19,918
Other receivables and prepaid expenses 7,620 13,527 8,239
Income taxes recoverable 2,514 6,874 2,992
Deferred tax assets 4,947 5,411 5,455
--------- --------- ---------
Total current assets 218,046 232,374 222,448
Property and equipment, net 67,680 58,234 61,898
Intangible assets, net 87,458 88,416 87,504
Other assets 6,108 8,515 6,383
--------- --------- ---------
Total assets $ 379,292 $ 387,539 $ 378,233
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 21,152 $ 15,270 $ 21,974
Customer deposits 4,323 4,410 3,931
Income taxes currently payable 1,007 1,353 379
Current portion of long-term debt 10,194 5,578 5,853
--------- --------- ---------
Total current liabilities 36,676 26,611 32,137
Deferred tax liabilities 2,667 1,598 3,027
Long-term debt 162,617 183,237 164,611
--------- --------- ---------
Stockholders' equity:
Common stock, $.10 par value per
share, 80,000,000 shares authorized 3,024 3,024 3,024
Paid in surplus 127,813 127,851 127,820
Retained earnings 105,277 92,516 102,326
Accumulated other comprehensive loss (12,521) (7,058) (8,487)
Notes receivable - stockholders (5,823) (5,649) (5,755)
--------- --------- ---------
217,770 210,684 218,928
Less -- shares held in treasury, at cost (40,438) (34,591) (40,470)
--------- --------- ---------
Total stockholders' equity 177,332 176,093 178,458
--------- --------- ---------
Total liabilities and stockholders' equity $ 379,292 $ 387,539 $ 378,233
========= ========= =========
See notes to consolidated financial statements.
Page 1
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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
-----------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
REVENUE
Finance and service charges $ 27,442 $ 27,241 $ 56,407 $ 56,767
Proceeds from disposition of merchandise 51,133 50,470 113,860 112,989
Other lending fees and royalties 848 46 1,530 125
Rental operations 5,024 4,051 10,429 7,792
Check cashing operations 1,003 953 2,185 2,084
--------- --------- --------- ---------
TOTAL REVENUE 85,450 82,761 184,411 179,757
--------- --------- --------- ---------
COSTS OF REVENUE
Disposed merchandise 33,274 33,586 74,702 76,062
Rental operations 1,972 1,265 4,125 2,447
--------- --------- --------- ---------
NET REVENUE 50,204 47,910 105,584 101,248
--------- --------- --------- ---------
OPERATING EXPENSES
Lending operations 31,427 29,532 63,781 60,918
Rental operations 3,160 2,686 6,213 5,194
Check cashing operations 278 367 592 734
Administration 6,278 6,587 13,182 13,274
Depreciation 3,770 3,323 7,596 6,851
Amortization 1,140 1,075 2,283 2,180
--------- --------- --------- ---------
Total operating expenses 46,053 43,570 93,647 89,151
--------- --------- --------- ---------
INCOME FROM OPERATIONS 4,151 4,340 11,937 12,097
Interest expense, net 2,578 3,191 5,416 6,490
(Gain) loss from derivative valuation fluctuations (106) -- 366 --
Equity in loss of unconsolidated subsidiary -- 8,248 -- 15,589
(Gain) loss from issuance of subsidiary's stock -- (136) -- (136)
--------- --------- --------- ---------
Income (loss) before income taxes 1,679 (6,963) 6,155 (9,846)
Provision for income taxes 791 579 2,592 2,333
--------- --------- --------- ---------
NET INCOME (LOSS) $ 888 $ (7,542) $ 3,563 $ (12,179)
========= ========= ========= =========
Net income (loss) per share:
Basic $ .04 $ (.29) $ .14 $ (.48)
Diluted .04 (.29) .14 (.48)
--------- --------- --------- ---------
Weighted average common shares outstanding:
Basic 24,656 25,759 24,653 25,520
Diluted 24,944 25,759 24,808 25,520
----------
See notes to consolidated financial statements.
Page 2
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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(In thousands, except share data)
(UNAUDITED)
---------------------------------------------------------------------------------------
ACCUMULATED NOTES
COMMON STOCK OTHER RECEIVABLE -
------------------- PAID IN RETAINED COMPREHENSIVE COMPREHENSIVE STOCK-
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) INCOME (LOSS) HOLDERS
---------- ------- ------- -------- ------------- ------------- -----------
Balance at
December 31, 2000 30,235,164 $ 3,024 $ 127,820 $ 102,326 $ (8,487) $ (5,755)
Comprehensive loss:
Net income 3,563 $ 3,563
Other comprehensive
loss - Foreign
currency translation
adjustments (4,034) (4,034)
---------
Comprehensive loss $ (471)
---------
Dividends declared--
$.025 per share (612)
Treasury shares purchased
Treasury shares reissued (13)
Tax benefit from exercise
of option shares 6
Change in notes
receivable - stockholders (68)
---------- ------- --------- --------- --------- --------
Balance at
June 30, 2001 30,235,164 $ 3,024 $ 127,813 $ 105,277 $ (12,521) $ (5,823)
========== ======= ========= ========= ========= ========
Balance at
December 31, 1999 30,235,164 $ 3,024 $ 127,350 $ 105,331 $ (3,989) $ (5,820)
Comprehensive loss:
Net loss (12,179) $ (12,179)
Other comprehensive
loss - Foreign
currency translation
adjustments (3,069) (3,069)
---------
Comprehensive loss $ (15,248)
---------
Dividends declared--
$.025 per share (636)
Treasury shares purchased
Treasury shares reissued (720)
Tax benefit from exercise
of option shares 1,221
Change in notes
receivable - stockholders 171
---------- ------- --------- --------- --------- --------
Balance at
June 30, 2000 30,235,164 $ 3,024 $ 127,851 $ 92,516 $ (7,058) $ (5,649)
========== ======= ========= ========= ========= ========
TREASURY STOCK
-------------------
SHARES AMOUNT
--------- ---------
Balance at
December 31, 2000 5,577,318 $ (40,470)
Comprehensive loss:
Net income
Other comprehensive
loss - Foreign
currency translation
adjustments
Comprehensive loss
Dividends declared--
$.025 per share
Treasury shares purchased 18,936 (64)
Treasury shares reissued (13,250) 96
Tax benefit from exercise
of option shares
Change in notes
receivable - stockholders
--------- ---------
Balance at
June 30, 2001 5,583,004 $ (40,438)
========= =========
Balance at
December 31, 1999 5,055,170 $ (38,956)
Comprehensive loss:
Net loss
Other comprehensive
loss - Foreign
currency translation
adjustments
Comprehensive loss
Dividends declared--
$.025 per share
Treasury shares purchased 17,893 (156)
Treasury shares reissued (589,450) 4,521
Tax benefit from exercise
of option shares
Change in notes
receivable - stockholders
--------- ---------
Balance at
June 30, 2000 4,483,613 $ (34,591)
========= =========
See notes to consolidated financial statements.
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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
----------------------
Six Months Ended
June 30,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,563 $ (12,179)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 7,596 6,851
Amortization 2,283 2,180
Loss from derivative valuation fluctuations 366 --
Equity in loss of unconsolidated subsidiary -- 15,589
Gain from issuance of subsidiary's stock -- (136)
Changes in operating assets and liabilities-
Merchandise held for disposition and inventory 5,601 7,865
Finance and service charges receivable 622 1,252
Other receivables and prepaid expenses (861) (835)
Accounts payable and accrued expenses (699) (5,551)
Customer deposits, net 391 279
Current income taxes 1,143 3,023
Deferred taxes, net 343 (254)
--------- ---------
Net cash provided by operating activities 20,348 18,084
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to merchandise held for disposition 62,997 62,244
Loans repaid or renewed 135,003 142,820
Loans made, including loans renewed (202,415) (206,343)
--------- ---------
Net increase in loans (4,415) (1,279)
--------- ---------
Acquisitions, net of cash acquired (4,322) (425)
Purchases of property and equipment (13,861) (10,961)
Proceeds from property insurance claim 790 1,008
--------- ---------
Net cash used by investing activities (21,808) (11,657)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under bank lines of credit 8,937 (8,224)
Proceeds from capital lease obligations -- 843
Payments on notes payable and capital lease obligations (5,005) (4,821)
Change in notes receivable - stockholders 240 840
Net proceeds from reissuance of treasury shares 122 3,431
Treasury shares purchased (64) (156)
Dividends paid (612) (636)
--------- ---------
Net cash provided (used) by financing activities 3,618 (8,723)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (96) (65)
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS 2,062 (2,361)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,626 6,186
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,688 $ 3,825
========= =========
See notes to consolidated financial statements.
Page 4
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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Cash
America International, Inc. and its majority owned subsidiaries (the "Company").
During 1999, the Company disposed of a majority interest in innoVentry Corp.
("innoVentry") and began using the equity method of accounting for its
investment and its share of the results of innoVentry's operations. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In February 2001, innoVentry sold additional voting preferred stock,
reducing the Company's ownership and voting interest to 19.3%. Thereafter, the
Company began using the cost method of accounting for its investment in
innoVentry. See Note 5.
The financial statements as of June 30, 2001 and 2000, and for the
three month and six month periods then ended are unaudited but, in management's
opinion, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for such interim
periods. Operating results for the three month and six month periods are not
necessarily indicative of the results that may be expected for the full fiscal
year.
These financial statements and related notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2000 Annual Report to Stockholders.
2. REVENUE RECOGNITION
Lending Operations - Pawn loans ("loans") are made on the pledge of tangible
personal property. The Company accrues finance and service charges 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 offers small consumer cash advances ("payday loans") in
selected lending locations and on behalf of a third party financial institution
(the "Bank") in other locations. The Company accrues payday loan fees and
interest revenue on each loan on a constant yield basis over its term, which is
typically less than 17 days. A loan loss reserve is provided for loans, fees and
interest deemed to be uncollectible. The loan loss reserve is
Page 5
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increased by charges to operating expenses and decreased by charge offs (net of
recoveries), as required. The Bank pays the Company an administrative fee for
services provided on its behalf. Fees for administrative services provided to
the Bank are recorded in revenue when earned.
Rental Operations - 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. Through January 2001, Rent-A-Tire, Inc. ("Rent-A-Tire")
operated stores for unrelated investors pursuant to management agreements. The
investors owned the stores and incurred all costs to operate them pursuant to
the terms of the management agreements. Management fees earned by Rent-A-Tire
were recorded in revenue over the life of the agreements. In addition,
Rent-A-Tire received compensation for its efforts in constructing and opening
each store that it managed for a third party.
Check Cashing Operations - The Company records fees derived from its owned check
cashing locations in the period in which the service is provided. Royalties
derived from franchised locations are recorded on the accrual basis.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" that
is required to be adopted by the Company for business combinations initiated
after June 30, 2001. SFAS No. 141 requires that all business combinations be
accounted for under the purchase method. Use of the pooling-of-interests method
is prohibited. It also establishes criteria for the separate recognition of
intangible assets acquired in a business combination. The Company will implement
the provisions of SFAS No. 141 as required and its adoption is not expected to
have a material effect on the Company's consolidated financial position or
results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." Goodwill and other intangible assets having an indefinite
useful life acquired in business combinations completed after June 30, 2001, are
no longer subject to amortization to earnings. Effective January 1, 2002, all
goodwill and other intangible assets having an indefinite useful life become
subject to periodic testing for impairment and are no longer amortized to
earnings. The useful lives of other intangible assets must be reassessed and the
remaining amortization periods adjusted accordingly. The Company has not
determined the effect that the adoption of SFAS 142 will have on its
consolidated financial position or results of operations.
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4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities", as amended, on January 1, 2001. SFAS No. 133 requires an
entity to recognize each derivative instrument as either an asset or liability
on the balance sheet, measure it at fair value, and recognize the changes in its
fair value immediately in earnings unless it qualifies as a hedge. The Company's
only derivative instruments are interest rate cap agreements that it designates
and uses as cash flow hedges to protect against the risks associated with market
fluctuations in interest rates on a portion of its variable interest rate
borrowings. The Company performs prospective assessments of each agreement's
hedge effectiveness, as defined by SFAS No. 133, at the beginning of each
quarter. The final determination of hedge effectiveness is completed following
the end of each quarter.
The accompanying consolidated statements of operations include a gain
of $106 thousand during the three months ended June 30, 2001, and a loss of $366
thousand during the six months ended June 30, 2001, from derivative valuation
fluctuations. The loss during the six month period resulted from two
adjustments. As of January 1, 2001, the Company adjusted the carrying value of
each of its interest rate cap agreements to fair value and recorded a loss of
$259 thousand (before applicable income tax benefit of $87 thousand), which
represented the cumulative effect of adopting the new standard. The Company also
recorded an additional net loss of $107 thousand during the six month period due
to the determination that the interest rate cap agreements were ineffective as
hedges (as defined by SFAS No. 133) during the period, and due to the decreases
in the fair values of the agreements resulting from the prevailing interest rate
environment. The fair values of the interest rate cap agreements as of June 30,
2001, total $364 thousand and are included in "Other receivables and prepaid
expenses" in the accompanying consolidated balance sheet.
5. INVESTMENT IN INNOVENTRY
innoVentry sold $115.7 million of newly issued shares of senior convertible
Series C voting preferred stock in a private placement completed as of February
2, 2001. The Company participated in the placement by canceling its $2.9 million
note receivable from innoVentry plus accrued interest of $.4 million in exchange
for 2,269,066 shares of the Series C preferred stock. In conjunction with the
preferred stock sale, Wells Fargo Bank, N. A. amended its financing agreements
to provide a $55.0 million revolving secured credit agreement, up to $85.1
million of equipment lease financing, and a restructured Rapid Pay Machine(TM)
funding arrangement. Upon completion of the transactions, the Company owned
19.3% of the ownership and voting interest in innoVentry and began using the
cost method of accounting for its investment.
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6. LONG-TERM DEBT
The Company's long-term debt instruments and balances outstanding at June 30,
2001 and 2000 were as follows (in thousands):
2001 2000
-------- --------
U.S. Line of Credit up to $150 million
due June 30, 2003 $ 96,500 $ 95,450
U.K. Line of Credit up to L.15 million
due April 30, 2003 4,954 11,683
Swedish Lines of Credit up to SEK 215 million 7,325 13,167
8.33% senior unsecured notes due 2003 8,571 12,857
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 5,061 5,158
6.25% subordinated unsecured notes due 2004 400 500
-------- --------
172,811 188,815
Less current portion 10,194 5,578
-------- --------
Total long-term debt $162,617 $183,237
======== ========
7. WEIGHTED AVERAGE SHARES
The reconciliation of basic and diluted weighted average common shares
outstanding for the periods ended June 30, follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2001 2000 2001 2000
------ ------ ------ ------
Weighted average shares - Basic 24,656 25,759 24,653 25,520
Effect of shares applicable to stock option plans 228 453 91 597
Effect of shares applicable to nonqualified savings plan 60 45 64 46
Antidilutive effect resulting from net loss -- (498) -- (643)
------ ------ ------ ------
Weighted average shares - Diluted 24,944 25,759 24,808 25,520
====== ====== ====== ======
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8. OPERATING SEGMENT INFORMATION
The Company has two reportable operating segments in the lending industry and
one each in the check cashing and rental industries. While the United States and
foreign lending segments offer the same services, each is managed separately due
to the different operational strategies required. The rental operation offers
different services and products thus requiring its own technical, marketing and
operational strategy. The same is true with respect to the check cashing
operations.
Information concerning the segments is set forth below (in thousands):
Lending
------------------------------
United Check
States Foreign Total Rental Cashing Consolidated
-------- -------- -------- -------- -------- ------------
Three Months Ended
June 30, 2001:
Total revenue $ 72,230 $ 7,387 $ 79,617 $ 5,024 $ 809 $ 85,450
Income (loss)
from operations 2,989 2,055 5,044 (1,026) 133 4,151
Total assets at end of
period 270,641 70,493 341,134 27,233 10,925 379,292
-------- -------- -------- -------- -------- --------
Three Months Ended
June 30, 2000:
Total revenue 70,114 7,826 77,940 4,051 770 82,761
Income (loss)
from operations 3,268 1,956 5,224 (820) (64) 4,340
Total assets at end of
period 269,232 83,608 352,840 23,362 11,337 387,539
-------- -------- -------- -------- -------- --------
Six Months Ended
June 30, 2001:
Total revenue 156,949 15,225 172,174 10,429 1,808 184,411
Income (loss)
from operations 9,273 4,122 13,395 (1,875) 417 11,937
-------- -------- -------- -------- -------- --------
Six Months Ended
June 30, 2000:
Total revenue 153,603 16,629 170,232 7,792 1,733 179,757
Income (loss)
from operations 9,258 4,278 13,536 (1,631) 192 12,097
9. LITIGATION
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY CONSOLIDATED FINANCIAL DATA
SECOND QUARTER ENDED JUNE 30, 2001 vs.
SECOND QUARTER ENDED JUNE 30, 2000
================================================================================
(Dollars in thousands)
The following table sets forth selected consolidated financial data with
respect to the Company and its lending operations as of June 30, 2001 and 2000,
and for the three months then ended.
2001 2000 Change
-------- -------- --------
REVENUE
Finance and service charges $ 27,442 $ 27,241 1%
Proceeds from disposition of merchandise 51,133 50,470 1%
Other lending fees and royalties 848 46 1743%
Rental operations 5,024 4,051 24%
Check cashing operations 1,003 953 5%
-------- -------- --------
TOTAL REVENUE 85,450 82,761 3%
-------- -------- --------
COSTS OF REVENUE
Disposed merchandise 33,274 33,586 (1)%
Rental operations 1,972 1,265 56%
-------- -------- --------
NET REVENUE $ 50,204 $ 47,910 5%
======== ======== ========
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges and other fees 56.4% 57.0% (1)%
Margin on disposition of merchandise 35.6% 35.2% 1%
Rental operations 6.1% 5.8% 5%
Check cashing operations 1.9% 2.0% (5)%
Expenses as a percentage of net revenue--
Operations and administration 82.0% 81.8% --
Depreciation and amortization 9.8% 9.2% 7%
Interest, net 5.1% 6.7% (23)%
Income from operations as a percentage of total revenue 4.9% 5.2% (6)%
-------- -------- --------
LENDING OPERATIONS:
Annualized yield on pawn loans 96% 92% 4%
Average pawn loan balance per average location in operation $ 249 $ 258 (3)%
Average pawn loan amount at end of period (not in thousands) $ 94 $ 101 (7)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.9% 33.5% 4%
Average annualized merchandise turnover 2.5x 2.4x 4%
Average merchandise held for disposition
per average location $ 115 $ 120 (4)%
Owned locations in operation--
Beginning of period 460 464
Acquired 1 --
Start-ups -- --
Combined or closed (3) (1)
End of period 458 463 (1)%
Additional franchise locations at end of period 15 15 --
Total locations at end of period 473 478 (1)%
Average number of owned locations in operation(a) 459 464 (1)%
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
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SIX MONTHS ENDED JUNE 30, 2001 vs.
SIX MONTHS ENDED JUNE 30, 2000
================================================================================
(Dollars in thousands)
The following table sets forth selected consolidated financial data with
respect to the Company and its lending operations as of June 30, 2001 and 2000,
and for the six months then ended.
2001 2000 Change
--------- --------- ---------
REVENUE
Finance and service charges $ 56,407 $ 56,767 (1)%
Proceeds from disposition of merchandise 113,860 112,989 1%
Other lending fees and royalties 1,530 125 1124%
Rental operations 10,429 7,792 34%
Check cashing operations 2,185 2,084 5%
--------- --------- ---------
TOTAL REVENUE 184,411 179,757 3%
--------- --------- ---------
COSTS OF REVENUE
Disposed merchandise 74,702 76,062 (2)%
Rental operations 4,125 2,447 69%
--------- --------- ---------
NET REVENUE $ 105,584 $ 101,248 4%
========= ========= =========
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges and other fees 54.9% 56.2% (2)%
Margin on disposition of merchandise 37.1% 36.5% 2%
Rental operations 6.0% 5.3% 13%
Check cashing operations 2.0% 2.0% --
Expenses as a percentage of net revenue--
Operations and administration 79.3% 79.1% --
Depreciation and amortization 9.4% 8.9% 5%
Interest, net 5.1% 6.4% (20)%
Income from operations as a percentage of total revenue 6.5% 6.7% (3)%
--------- --------- ---------
LENDING OPERATIONS:
Annualized yield on pawn loans 99% 95% 4%
Average pawn loan balance per average location in operation $ 249 $ 259 (4)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.4% 32.7% 5%
Average annualized merchandise turnover 2.7x 2.6x 4%
Average merchandise held for disposition
per average location $ 119 $ 126 (6)%
Owned locations in operation--
Beginning of period 463 466
Acquired 1 --
Start-ups 1 1
Combined, closed or sold (7) (4)
End of period 458 463 (1)%
Additional franchise locations at end of period 15 15 --
Total locations at end of period 473 478 (1)%
Average number of owned locations in operation (a) 460 464 (1)%
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
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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 charges revenue. A related but secondary source of revenue is the
disposition of merchandise, primarily collateral from unredeemed pawn loans. The
Company also provides rental of tires and wheels through its subsidiary,
Rent-A-Tire, Inc. ("Rent-A-Tire") and check cashing services through its
franchised and company owned Mr. Payroll(R) manned check cashing centers.
The number of lending locations declined by 4 during the 18 months
ended June 30, 2001. The Company established 2 locations, acquired one location
and combined or closed 11 locations. In addition, 5 franchise units were opened
and one was closed. As of June 30, 2001, the Company's lending operations
consisted of 473 lending units--405 owned units and 15 franchised units in 18
states in the United States, 42 jewelry-only units in the United Kingdom, and 11
loan-only and primarily jewelry-only units in Sweden.
During the eighteen months ended June 30, 2001, Rent-A-Tire acquired 15
tire and wheel rental stores that it previously managed, established 5 stores
and closed one store. As of June 30, 2001, Rent-A-Tire owned and operated 43
stores. As of June 30, 2001, Mr. Payroll operated 128 franchised and 7 company
owned manned check cashing centers in 20 states. During 1999, the Company
disposed of a majority interest in innoVentry Corp. ("innoVentry") and began
accounting for its investment by the equity method of accounting. innoVentry
issued additional voting preferred stock in private placements in October 1999
and February 2001. The Company began accounting for its investment by the cost
method following the February 2001 private placement. As of June 30, 2001, the
Company's ownership and voting interest was 19.3%.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 2001, COMPARED TO THE
SECOND QUARTER ENDED JUNE 30, 2000
FOREIGN CURRENCY TRANSLATION. The strength of the United States dollar against
the two currencies utilized in the Company's foreign operations negatively
impacted the results of operations during the second quarter ended June 30, 2001
(the "current quarter"), when compared to the results during the second quarter
ended June 30, 2000 (the "prior year quarter"). The weighted average exchange
rates used for translating earnings into United States dollars for the British
pound sterling and Swedish kronor were 7.9% and 17.9% lower, respectively,
during the current quarter compared to the prior year quarter. The exchange
rates used for translating assets and liabilities into United States dollars at
June 30, 2001, for the pound sterling and the kronor were 6.7% and 23.5% lower,
respectively, than the rates used at June 30, 2000. Management anticipates that
the unfavorable currency translation adjustments will continue during the
remainder of fiscal 2001. When the effects of these declines on the quarterly
comparisons are significant, they will be analyzed separately from the
operational effects on the quarterly comparisons. The separated operational
effects will be referred to as "pro forma."
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NET REVENUE: CONSOLIDATED. Consolidated net revenue increased 4.8%, or $2.3
million, to $50.2 million during the current quarter, from $47.9 million during
the prior year quarter. Net revenue from lending activities and rental
operations increased $2.0 million and $.3 million, respectively, and check
cashing operations net revenue was the same in both quarters.
NET REVENUE: LENDING ACTIVITIES. Lending operations net revenue increased $2.0
million to $46.3 million during the current quarter from $44.3 million during
the prior year quarter. The principal components of lending operations net
revenue are finance and service charges, which increased $.2 million; net
revenue from the disposition of merchandise, which increased $1.0 million; other
domestic lending fees and franchise royalties, which increased $.8 million; and
foreign check cashing operations, which was the same in both quarters.
The increased finance and service charges revenue of $.2 million
resulted from a combination of the effects of translation of foreign currency
amounts into United States dollars ($.6 million decrease), changes in the
average balance of pawn loans outstanding ($.6 million increase), and changes in
the annualized yield of the pawn loan portfolio ($.2 million increase).
Excluding the negative effects of translation mentioned above, increases in
finance and service charges revenue of $.7 million and $.4 million from domestic
and United Kingdom same units (those in operation for more than one year during
the current quarter), respectively, were offset by a $.2 million decrease from
same units in Sweden.
The decline in the currency translation rates during the current
quarter compared to the prior year quarter caused a $.6 million decrease in
foreign finance and service charges revenue. The decline in revenue was caused
by the decline in the combined foreign average balance of pawn loans
outstanding. The translation rate declines exaggerated the actual reductions in
average balances of pawn loans outstanding that occurred in both the United
Kingdom and in Sweden. The combined foreign loan balances were 18.4% lower and
the domestic average balance was 4.8% higher, resulting in a company-wide
average balance that was 4.6% lower during the current quarter than during the
prior year quarter. However, excluding the effects on translation of exchange
rate declines, the company-wide average balance for the current quarter was flat
compared to the prior year quarter because the pro forma combined foreign
average balance was only 7.7% lower.
Higher average balances outstanding generally result in higher amounts
of finance and service charges revenue. Thus, domestic finance and service
charges revenue increased $1.0 million. Excluding the effects on translation of
the exchange rate declines, a decrease in pro forma combined foreign finance and
service charges revenue of $.4 million offset the domestic increase resulting in
a net increase of $.6 million from changes in the average balance of pawn loans
outstanding. The increase in the average balance of domestic pawn loans
outstanding was driven by a 3.8% growth in the average number of pawn loans
outstanding during the current quarter coupled with a 1.0% increase in the
average amount per loan. The increase in average number of domestic pawn loans
outstanding is the second consecutive quarter-over-quarter increase, continuing
to reinforce management's belief that the weakness in domestic pawn loan demand
may be dissipating. Excluding the effects of exchange rate declines, the average
balance of pawn loans outstanding decreased 10.4% and 3.8% in the United Kingdom
and Sweden, respectively. Foreign loan demand continues to be weaker as
exemplified by a 6.3% and 6.8%
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decrease in the average number of pawn loans outstanding in the United Kingdom
and Sweden, respectively. Average amounts per loan were 4.3% lower in the United
Kingdom and 3.2% higher in Sweden.
Excluding the negative effects of foreign currency exchange rate
declines, the consolidated annualized loan yield, which represents the blended
result derived from the distinctive loan yields realized from operations in the
three countries, was 94.2% in the current quarter compared to 91.6% in the prior
year quarter. The increase resulted in a $.2 million increase in finance and
service charges revenue. The domestic annualized loan yield decreased to 119.5%
for the current quarter, compared to 122.4% for the prior year quarter resulting
in a $.4 million decrease in finance and service charges revenue. An increase in
the pro forma blended yield on foreign loans to 51.8% in the current quarter
compared to 46.3% in the prior year quarter caused a combined $.6 million of
growth in pro forma finance and service charges revenue. Increased pro forma
revenue in the United Kingdom due to improvement in loan redemption rates and
higher returns on the disposition of unredeemed collateral at auction offset
slightly lower pro forma revenue in Sweden primarily due to lower returns on the
disposition of unredeemed collateral at auction.
Net revenue from the disposition of merchandise represents the proceeds
received from the disposition of merchandise in excess of the cost of
merchandise disposed. The effects of declines in foreign currency exchange rates
were negligible since 96.1% of proceeds and 97.4% of net margins were generated
by domestic activities. Proceeds from the disposition of merchandise in the
current quarter increased $.6 million, or 1.3%, over the prior year quarter.
Increased proceeds of $.7 million, or 1.5%, occurred in the Company's domestic
lending units. The margin on disposition of merchandise increased to 34.9% in
the current quarter from 33.5% in the prior year quarter. Excluding the effect
of the disposition of scrap jewelry, the margin on disposition of merchandise
increased to 37.1% in the current quarter from 35.9% in the prior year quarter
due to a lower average cost of merchandise disposed. The margin on disposition
of scrap jewelry improved to 9.0% in the current quarter compared to 2.7% in the
prior year quarter due to a higher volume sold and a lower average cost per
ounce for domestic dispositions. Overall, the combination of increased proceeds
and a higher margin resulted in a $1.0 million, or 5.8%, increase in net revenue
from the disposition of merchandise. The merchandise turnover rate increased to
2.5 times during the current quarter from 2.4 times during the prior year
quarter. Since the end of the second quarter of 1999, management has
concentrated on discounting prices, lowering the average cost of merchandise
held for disposition, and reducing aggregate merchandise levels. As a result,
management believes that the margin on disposition should continue to trend
slightly higher throughout the remainder of 2001.
Other domestic lending fees and franchising royalties increased $.8
million in the current quarter as compared to the prior year quarter. The
increase resulted from the initiation of a small consumer cash advance product
during 2000 that was introduced into 352 domestic lending units and 40 tire
rental stores by the end of the current quarter, including 310 units that offer
the product on behalf of a third party financial institution (the "Bank"), which
pays the Company a fee for its administrative services. The product offered by
the Company in 82 locations provides customers with cash in exchange for a
promissory note or other repayment agreement supported by that customer's check
for the amount of the cash advanced plus a service fee. The Company holds the
check for a short period, typically less than 17 days. To repay the advance,
customers
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may redeem their checks by paying cash or they may allow the checks to be
processed for collection. (Although these cash advance transactions may take the
form of loans or deferred check deposit transactions, the transactions are
referred to throughout this discussion as "payday loans" for convenience.)
During the current quarter, $8.2 million of payday loans were written,
including $5.6 million extended to customers by the Bank, for an average of $243
per loan. The combined payday loan portfolio generated $1.2 million in revenue
during the current quarter. Included in the current quarter's results in "Other
lending fees and royalties" is $.8 million in revenue from the Company's
portfolio and fees for administrative services on the portfolio owned by the
Bank. As of June 30, 2001, $2.7 million of gross payday loans were outstanding,
including $2.0 million extended to customers by the Bank that is not included in
the Company's consolidated balance sheet. A loan loss reserve of $138 thousand,
representing approximately 19% of the Company's gross payday loans outstanding,
has been provided in the consolidated financial statements. The Company plans to
offer payday loans in approximately 50 more domestic lending locations and cease
offering them in the 40 tire rental stores during the remainder of 2001.
NET REVENUE: OTHER ACTIVITIES. Net revenue of Rent-A-Tire increased $.3 million,
or 9.6%, to $3.1 million in the current quarter. Tire and wheel rentals and
sales net revenue increased $1.0 million as a result of an average of 15 more
stores in operation in the current quarter as compared to the prior year
quarter. Management fee revenue and other related revenue decreased $.7 million
due to a reduction of an average of 14 managed stores in the current quarter as
compared to the prior year quarter.
Mr. Payroll's net revenue was virtually the same during the current
quarter as compared to the prior year quarter. See "Other Items" below for a
discussion of the effects on income of the Company's investment in innoVentry.
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expenses as a percentage of net revenue were 82.0% in the current
quarter compared to 81.8% in the prior year quarter. The expenses increased $2.0
million, or 5.0%, in the current quarter compared to the prior year quarter.
Domestic lending expenses increased $2.2 million, primarily as a result of
higher personnel costs, expenses associated with the advertising and promotion
of payday loans, establishment of loan loss reserves for the larger payday loan
portfolio and higher occupancy expenses. Foreign lending operations expenses
decreased $.1 million due to a $.3 million beneficial effect on expenses of the
decline in foreign currency exchange rates. Rent-A-Tire accounted for an
increase of $.1 million as expense containment measures offset the impact of
having an average of 15 more stores in operation during the current quarter
compared to the prior year quarter. Mr. Payroll's expenses decreased $.2 million
in the current quarter compared to the prior year quarter.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses as a
percentage of net revenue were 9.8% in the current quarter compared to 9.2% in
the prior year quarter. Total depreciation and amortization expenses increased
$.5 million, or 11.6%. An increase in Rent-A-Tire depreciation and amortization
expenses resulting from the increase in the number of tire rental stores in
operation and the implementation of their new point-of-sale software system
accounted for the majority of the consolidated increase. Depreciation of
additional equipment
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and software necessary to provide payday loans in 352 domestic lending locations
accounted for most of the remainder of the increase.
INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined
to 5.1% in the current quarter from 6.7% in the prior year quarter. The amount
decreased a net $.6 million, or 19.2%, due to an 11.6% reduction of the
effective blended borrowing cost to 6.2% in the current quarter from 7.1% in the
prior year quarter, and an 8.8% reduction in the Company's average debt balance.
The average amount of debt outstanding decreased during the current quarter to
$165.8 million from $181.8 million during the prior year quarter. A lower
average merchandise balance and the receipt of insurance proceeds in 2000 from
claims resulting from tornado damage to the corporate headquarters in March
2000, that were partially offset by increased capital expenditures resulting
from ongoing reconstruction of the corporate headquarters were factors
contributing to the reduction.
OTHER ITEMS. Effective January 1, 2001, the Company implemented Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The adjustments to fair values of interest
rate cap agreements (the Company's only derivative instruments) at March 31,
2001, and June 30, 2001, resulted in a gain of $.1 million that is recorded in
"(Gain) loss from derivative valuation fluctuations" in the Company's
Consolidated Statements of Operations in the current quarter. See Note 4 of
Notes to Consolidated Financial Statements.
In the prior year quarter, the Company's share of innoVentry's net
losses was $8.2 million and the Company's gain resulting from innoVentry's
issuance of its own common stock was $.1 million. As of June 30, 2000, the
Company's proportionate share of innoVentry's losses exceeded the carrying
amount of its investment in and advances to innoVentry. Since the Company had no
obligation then, and continues to have no obligation, to provide financial
support to innoVentry, it suspended the recording of its equity in innoVentry's
losses as of that date. In February 2001, innoVentry sold additional voting
preferred stock. The Company's ownership and voting interest was reduced to
19.3% and it began accounting for its investment in innoVentry by the cost
method of accounting. See Note 5 of Notes to Consolidated Financial Statements.
INCOME TAXES. The Company's effective tax rate for the current quarter is 47.1%.
The Company's consolidated effective tax rate in the prior year quarter was
impacted by the effect of the valuation allowance provided for the deferred tax
assets arising from the Company's equity in the losses of innoVentry. Including
the effect of the valuation allowance provided, the Company recognized no net
deferred tax benefits in the prior year quarter from its equity in the losses of
innoVentry. Excluding the effects of the equity in innoVentry's losses and their
related tax effects, the Company's consolidated effective tax rate was 46.2% for
the prior year quarter. The Company's effective tax rate in both periods exceeds
the statutory tax rate primarily due to the effect of amortization of intangible
assets that is not deductible for income tax purposes and the effect of state
income taxes net of federal income tax benefit.
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SIX MONTHS ENDED JUNE 30, 2001, COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 2000
FOREIGN CURRENCY TRANSLATION. The strength of the United States dollar against
the two currencies utilized in the Company's foreign operations negatively
impacted the results of operations during the six months ended June 30, 2001
(the "current period"), when compared to the results during the six months ended
June 30, 2000 (the "prior year period"). The weighted average exchange rates
used for translating earnings into United States dollars for the British pound
sterling and Swedish kronor were 9.3% and 15.9% lower, respectively, during the
current period compared to the prior year period. The effects of these declines
on the six month period comparisons, when significant, will be analyzed
separately from the operational effects. Management anticipates that the
unfavorable currency translation adjustments will continue during the remainder
of fiscal 2001.
NET REVENUE: CONSOLIDATED. Consolidated net revenue increased 4.3%, or $4.4
million, to $105.6 million during the current period, from $101.2 million during
the prior year period. Net revenue from lending activities, rental operations
and check cashing operations increased $3.3 million, $1.0 million and $.1
million, respectively.
NET REVENUE: LENDING ACTIVITIES. Lending operations net revenue increased $3.3
million to $97.5 million during the current period from $94.2 million during the
prior year period. Finance and service charges revenue decreased $.4 million,
net revenue from the disposition of merchandise increased $2.3 million, other
domestic lending fees and franchise royalties increased $1.4 million, and
foreign check cashing operations was the same in both periods.
The finance and service charges revenue decline of $.4 million resulted
from a combination of the effects of translation of foreign currency amounts
into United States dollars ($1.2 million decrease), changes in the average
balance of pawn loans outstanding ($.5 million increase), and changes in the
annualized yield of the pawn loan portfolio ($.3 million increase). Excluding
the negative effects of translation mentioned above, increases in finance and
service charges revenue of $1.2 million and $.2 million from domestic and United
Kingdom same units (those in operation for more than one year during the current
quarter), respectively, were offset by a $.4 million decrease from same units in
Sweden.
The decline in the translation rates during the current period compared
to the prior year period caused a $1.2 million decrease in foreign finance and
service charges revenue. The effects of the translation rate declines on the
combined foreign average balance of pawn loans outstanding accounted for $1.1
million of the decrease and the effects on the combined annualized pawn loan
yield caused the remaining $.1 million decrease. The translation rate declines
exaggerated the actual declines in average balances of pawn loans outstanding
that occurred in both the United Kingdom and in Sweden. The combined foreign
balances were 17.2% lower and the domestic average balance was 3.3% higher,
resulting in a reported company-wide average balance that was 5.0% lower during
the current period than during the prior year period. However, excluding the
effects on translation of exchange rate declines, the company-wide average
balance for the current period was only 1.1% lower than for the prior year
period because the pro forma combined foreign average balance was only 7.6%
lower.
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Domestic finance and service charges revenue increased $1.5 million due
to the effects of changes in the average balance of pawn loans outstanding.
Excluding the effects on translation of the exchange rate declines, a decrease
in pro forma combined foreign finance and service charges revenue of $1.0
million offset the domestic increase resulting in a net increase of $.5 million
from changes in the average balance of pawn loans outstanding. The increase in
the average balance of domestic pawn loans outstanding was driven by a 2.2%
growth in the average number of pawn loans outstanding during the current period
coupled with a 1.1% increase in the average amount per loan. Excluding the
effects of exchange rate declines, the average balance of pawn loans outstanding
decreased 10.6% and 3.2% in the United Kingdom and Sweden, respectively. Foreign
loan demand continues to be weaker as the average number of pawn loans
outstanding in both the United Kingdom and Sweden declined 6.7%. Average amounts
per loan were 4.3% lower in the United Kingdom and 3.8% higher in Sweden.
Excluding the negative effects of foreign currency exchange rate
declines, the consolidated annualized loan yield was 97.6% in the current period
compared to 94.8% in the prior year period. The increase resulted in a $.3
million increase in finance and service charges revenue. The domestic annualized
loan yield decreased slightly to 125.2% for the current period compared to
126.2% for the prior year period causing a $.5 million decrease in finance and
service charges revenue. An increase in the pro forma blended yield on foreign
loans to 52.5% in the current period compared to 49.0% in the prior year period
resulted in a combined $.8 million of growth in pro forma finance and service
charges revenue. Increased pro forma revenue in the United Kingdom due to
improvement in loan redemption rates offset slightly lower pro forma revenue in
Sweden primarily due to lower returns on the disposition of unredeemed
collateral at auction.
The effects on net revenue from the disposition of merchandise from
declines in foreign currency exchange rates were negligible since 96.3% of
proceeds and 97.9% of net margins were generated domestically. Proceeds from the
disposition of merchandise in the current period increased $.9 million, or 0.8%,
over the prior year period. All of the increased proceeds occurred in the
Company's domestic lending units. The margin on disposition of merchandise
increased to 34.4% in the current period from 32.7% in the prior year period.
Excluding the effect of the disposition of scrap jewelry, the margin on
disposition of merchandise improved to 36.3% in the current period from 34.9% in
the prior year period due to a lower average cost of merchandise disposed. The
margin on disposition of scrap jewelry increased to 6.9% in the current period
compared to 1.2% in the prior year period due to a higher volume sold and a
lower average cost per ounce for domestic dispositions. The combination of
increased proceeds and a higher margin resulted in a $2.3 million, or 6.0%,
increase in net revenue from the disposition of merchandise. The merchandise
turnover rate increased to 2.7 times during the current period from 2.6 times
during the prior year period.
Other domestic lending fees and franchising royalties increased $1.4
million in the current period as compared to the prior year period. The increase
resulted from the initiation and expansion of the Company's payday loan program.
The combined payday loan portfolio of the Company and the Bank generated $2.1
million in revenue during the current year. Included in the current year's
results in "Other lending fees and royalties" is $1.4 million in revenue from
the Company's portfolio and fees for administrative services on the portfolio
owned by the Bank.
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During the current period, $14.0 million of payday loans were written, including
$8.7 million extended to customers by the Bank, for an average of $231 per loan.
NET REVENUE: OTHER ACTIVITIES. Net revenue of Rent-A-Tire increased $1.0
million, or 17.9%, to $6.3 million in the current period. Tire and wheel rentals
and sales net revenue increased $2.4 million as a result of an average of 15
more stores in operation in the current period as compared to the prior year
period. Management fee revenue and other related revenue decreased $1.4 million
due to a reduction of an average of 13 managed stores in the current period as
compared to the prior year period.
Mr. Payroll's net revenue increased by $.1 million, or 4.3%, during the
current period as compared to the prior year period. See "Other Items" below for
a discussion of the effects on income of the Company's investment in innoVentry.
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expenses as a percentage of net revenue were 79.3% in the current
period compared to 79.1% in the prior year period. The expenses increased $3.6
million, or 4.6%, in the current period as compared to the prior year period.
Domestic lending expenses increased $3.9 million, primarily as a result of
expenses associated with the advertising and promotion of payday loans,
establishment of loan loss reserves for the larger payday loan portfolio, higher
personnel costs, and higher occupancy and utility expenses. Foreign lending
operations expenses decreased $.5 million due to an $.8 million beneficial
effect on expenses of the decline in foreign currency exchange rates.
Rent-A-Tire accounted for an increase of $.5 million as expense containment
measures offset the impact of having an average of 15 more stores in operation
during the current period as compared to the prior year period. Mr. Payroll's
expenses were $.3 million lower in the current period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses as a
percentage of net revenue were 9.4% in the current period compared to 8.9% in
the prior year period. Total depreciation and amortization expenses increased
$.8 million, or 9.4%. An increase in Rent-A-Tire depreciation and amortization
expenses resulting from the increase in the number of tire rental stores in
operation and the implementation of their new point-of-sale software system
accounted for the majority of the consolidated increase. Depreciation of
additional equipment and software necessary to provide payday loans in 352
domestic lending locations accounted for most of the remainder of the increase.
INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined
to 5.1% in the current period from 6.4% in the prior year period. The amount
decreased a net $1.1 million, or 16.5%, due to the effect of an 11.5% reduction
in the Company's average debt balance and a 5.5% reduction in the blended
borrowing costs. The average amount of debt outstanding decreased during the
current period to $166.5 million from $188.1 million during the prior year
period. The lower average amount was primarily due to the combined effects of a
lower average balance of pawn loans outstanding, a lower average merchandise
balance, and the receipt of insurance proceeds in the last six months of 2000
from claims resulting from tornado damage to the corporate headquarters in March
2000, that were partially offset by increased capital expenditures resulting
from ongoing reconstruction of the corporate headquarters. The effective
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blended borrowing costs were 6.6% in the current period compared to 6.9% in the
prior year period.
OTHER ITEMS. Pursuant to SFAS No. 133, the Company was required to adjust the
carrying values of its interest rate cap agreements to their fair values as of
January 1, 2001, March 31, 2001, and June 30, 2001. The adjustments resulted in
a net charge of $.4 million that is recorded in "(Gain) loss from derivative
valuation fluctuations" in the Company's Consolidated Statements of Operations
in the current period. See Note 4 of Notes to Consolidated Financial Statements.
In the prior year period, the Company's share of innoVentry's net
losses was $15.6 million and the Company's gain resulting from innoVentry's
issuance of its own common stock was $.1 million. No additional gains or losses
have been recorded since June 30, 2000. The Company has accounted for its 19.3%
voting interest in innoVentry that has a carrying value of zero by the cost
method since February 2001. See Note 5 of Notes to Consolidated Financial
Statements.
INCOME TAXES. The Company's effective tax rate for the current period is 42.1%.
The Company's consolidated effective tax rate in the prior year period was
impacted by the effect of the valuation allowance provided for the deferred tax
assets arising from the Company's equity in the losses of innoVentry. Including
the effect of the valuation allowance provided, the Company recognized no net
deferred tax benefits in the prior year period from its equity in the losses of
innoVentry. Excluding the effects of the equity in innoVentry's losses and their
related tax effects, the Company's consolidated effective tax rate was 40.8% for
the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $20.3 million for the six months
ended June 30, 2001 (the "current period"). Net borrowings under the Company's
bank lines of credit provided an additional $8.9 million and the collection of
notes receivable from stockholders and net proceeds received from the issuance
of treasury shares to employees pursuant to the exercise of stock options
provided $.4 million. The Company also received the final payment of $.8 million
of insurance proceeds due from the March 2000 tornado damage claim.
The Company utilized $4.4 million of cash to increase its pawn loan
balances. An investment of $13.8 million in purchases of property and equipment
was made during the current period, including $3.8 million for property
improvements, the remodeling of selected operating units and additions to
computer systems for lending operations, and $9.5 million for the reconstruction
of corporate headquarters property destroyed by the March 2000 tornado.
Rent-A-Tire also invested $.4 million for the purchase of various equipment as
well as computer hardware for use with its point-of-sale software system, and
Mr. Payroll invested $.1 million in various fixtures and additions to its
point-of-sale software system. Rent-A-Tire invested an additional $3.9 million
to acquire 9 tire rental stores that it previously managed and the Company
acquired one lending location for $.4 million. During the current period, the
Company also used cash to make scheduled payments of $5.0 million on debt
obligations in connection with unsecured notes and capital leases, pay $.6
million in dividends, and purchase $.1 million of treasury shares. The effect of
exchange rate declines further reduced cash by $.1 million.
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The Company plans to add approximately 5 to 10 new lending locations
during the remainder of 2001. These additions will likely occur through a
combination of the opening of new locations and the acquisition of existing
locations. The Company also plans to complete the reconstruction of its
corporate headquarters during 2001.
On October 26, 2000, the Company announced that its Board of Directors
authorized management to purchase up to one million shares of its common stock
in the open market and terminated the open market purchase authorization
established in 1999. The Company did not purchase any shares under the
authorization during the current period. Purchases may be made from time to time
in the open market and it is expected that funding will come from operating cash
flow and existing credit facilities.
At June 30, 2001, $96.5 million was outstanding on the Company's $150
million U.S. revolving line of credit. In addition, the Company's L.15 million
(approximately $21.2 million) line of credit in the United Kingdom had a balance
outstanding of L.3.5 million (approximately $5.0 million) and the Company's
Swedish lines of credit totaling SEK 215 million (approximately $19.8 million)
had a combined balance outstanding of SEK 79.5 million (approximately $7.3
million). Management believes that borrowings available under these revolving
credit facilities, cash generated from operations and current working capital of
$181.4 million should be sufficient to meet the Company's anticipated future
capital requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates, foreign exchange rates, and gold prices. The Company does not
engage in speculative or leveraged transactions, nor does it hold or issue
financial instruments for trading purposes. There have been no material changes
to the Company's exposure to market risks since December 31, 2000.
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DOMESTIC LENDING OPERATIONS
================================================================================
(Dollars in thousands)
The following table sets forth selected financial data for the Company's
domestic lending operations as of June 30, 2001 and 2000, and for the three
months then ended.
2001 2000 Change
-------- -------- --------
REVENUE
Finance and service charges $ 22,255 $ 21,678 3%
Proceeds from disposition of merchandise 49,127 48,390 2%
Other lending fees and royalties 848 46 1743%
-------- -------- --------
TOTAL REVENUE 72,230 70,114 3%
-------- -------- --------
COSTS OF REVENUE
Disposed merchandise 31,732 31,618 --
-------- -------- --------
NET REVENUE $ 40,498 $ 38,496 5%
======== ======== ========
OTHER DATA
Net revenue contribution by source--
Finance and service charges 55.0% 56.3% (2)%
Margin on disposition of merchandise 43.0% 43.6% (1)%
Other lending fees and royalties 2.0% .1% 1900%
Expenses as a percentage of net revenue--
Operations and administration 84.1% 82.8% 2%
Depreciation and amortization 8.5% 8.7% (2)%
Interest, net 3.1% 4.0% (24)%
Income from operations as a percentage of total revenue 4.1% 4.7% (11)%
Annualized yield on pawn loans 120% 122% (2)%
Average pawn loan balance per average location in operation $ 184 $ 173 6%
Average pawn loan amount at end of period (not in thousands) $ 79 $ 79 --
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.4% 34.7% 2%
Average annualized merchandise turnover 2.5x 2.4x 4%
Average merchandise held for disposition
per average location $ 124 $ 127 (2)%
Owned locations in operation--
Beginning of period 407 411
Acquired 1 --
Start-ups -- --
Combined or closed (3) (1)
End of period 405 410 (1)%
Additional franchise locations at end of period 15 15 --
Total locations at end of period 420 425 (1)%
Average number of owned locations in operation(a) 406 411 (1)%
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 22
25
DOMESTIC LENDING OPERATIONS
================================================================================
(Dollars in thousands)
The following table sets forth selected financial data for the Company's
domestic lending operations as of June 30, 2001 and 2000, and for the six months
then ended.
2001 2000 Change
--------- --------- ---------
REVENUE
Finance and service charges $ 45,815 $ 44,823 2%
Proceeds from disposition of merchandise 109,604 108,655 1%
Other lending fees and royalties 1,530 125 1124%
--------- --------- ---------
TOTAL REVENUE 156,949 153,603 2%
--------- --------- ---------
COSTS OF REVENUE
Disposed merchandise 71,263 71,910 (1)%
--------- --------- ---------
NET REVENUE $ 85,686 $ 81,693 5%
========= ========= =========
OTHER DATA
Net revenue contribution by source--
Finance and service charges 53.5% 54.9% (3)%
Margin on disposition of merchandise 44.7% 45.0% (1)%
Other lending fees and royalties 1.8% .1% 1700%
Expenses as a percentage of net revenue--
Operations and administration 81.0% 80.2% 1%
Depreciation and amortization 8.1% 8.5% (5)%
Interest, net 2.9% 4.0% (26)%
Income from operations as a percentage of total revenue 5.9% 6.0% (2)%
Annualized yield on pawn loans 125% 126% (1)%
Average pawn loan balance per average location in operation $ 181 $ 174 4%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.0% 33.8% 3%
Average annualized merchandise turnover 2.8x 2.6x 8%
Average merchandise held for disposition
per average location $ 128 $ 134 (4)%
Owned locations in operation--
Beginning of period 410 413
Acquired 1 --
Start-ups 1 1
Combined, closed or sold (7) (4)
End of period 405 410 (1)%
Additional franchise locations at end of period 15 15 --
Total locations at end of period 420 425 (1)%
Average number of owned locations in operation (a) 407 411 (1)%
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 23
26
FOREIGN LENDING OPERATIONS
================================================================================
(Dollars in thousands)
The following table sets forth selected consolidated financial data in
U.S. dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of June 30,
2001 and 2000, and for the three months then ended, using the following currency
exchange rates:
2001 2000 Change
-------- -------- --------
Harvey & Thompson, Ltd. (British pound sterling per U.S. dollar)--
Balance sheet data - end of period rate .7066 .6591 (7)%
Income statement data - three months average rate .7051 .6495 (9)%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Balance sheet data - end of period rate 10.8530 8.7898 (23)%
Income statement data - three months average rate 10.4553 8.8652 (18)%
======== ======== ========
REVENUE
Finance and service charges $ 5,187 $ 5,563 (7)%
Proceeds from disposition of merchandise 2,006 2,080 (4)%
Check cashing fees 194 183 6%
-------- -------- --------
TOTAL REVENUE 7,387 7,826 (6)%
-------- -------- --------
COSTS OF REVENUE
Disposed merchandise 1,542 1,968 (22)%
-------- -------- --------
NET REVENUE $ 5,845 $ 5,858 --
======== ======== ========
OTHER DATA
Net revenue contribution by source--
Finance and service charges 88.7% 95.0% (7)%
Margin on disposition of merchandise 7.9% 1.9% 316%
Check cashing fees 3.4% 3.1% 7%
Expenses as a percentage of net revenue--
Operations and administration 56.1% 57.6% (3)%
Depreciation and amortization 8.8% 9.0% (3)%
Interest, net 3.2% 6.6% (52)%
Income from operations as a percentage of total revenue 27.8% 25.0% 11%
Annualized yield on loans 53% 46% 15%
Average loan balance per average location in operation $ 744 $ 913 (19)%
Average loan amount at end of period (not in thousands) $ 153 $ 178 (14)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 23.1% 5.4% 330%
Average annualized merchandise turnover 2.4x 2.3x 4%
Average merchandise held for disposition
per average location $ 48 $ 65 (26)%
Lending locations in operation--
Beginning of period 53 53
Acquired -- --
Start-ups -- --
Combined or closed -- --
End of period 53 53 --
Average number of locations in operation (a) 53 53 --
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 24
27
FOREIGN LENDING OPERATIONS
================================================================================
(Dollars in thousands)
The following table sets forth selected consolidated financial data in
U.S. dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of June 30,
2001 and 2000, and for the six months then ended, using the following currency
exchange rates:
2001 2000 Change
--------- --------- ---------
Harvey & Thompson, Ltd. (British pound sterling per U.S. dollar)--
Income statement data - six months average rate .6960 .6314 (10)%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Income statement data - six months average rate 10.1117 8.7259 (16)%
========= ========= =========
REVENUE
Finance and service charges $ 10,592 $ 11,944 (11)%
Proceeds from disposition of merchandise 4,256 4,334 (2)%
Check cashing fees 377 351 7%
--------- --------- ---------
TOTAL REVENUE 15,225 16,629 (8)%
--------- --------- ---------
COSTS OF REVENUE
Disposed merchandise 3,439 4,152 (17)%
--------- --------- ---------
NET REVENUE $ 11,786 $ 12,477 (6)%
========= ========= =========
OTHER DATA
Net revenue contribution by source--
Finance and service charges 89.9% 95.7% (6)%
Margin on disposition of merchandise 6.9% 1.5% 360%
Check cashing fees 3.2% 2.8% 17%
Expenses as a percentage of net revenue--
Operations and administration 56.5% 57.3% (1)%
Depreciation and amortization 8.6% 8.4% 2%
Interest, net 3.5% 6.3% (44)%
Income from operations as a percentage of total revenue 27.1% 25.7% 5%
Annualized yield on pawn loans 53% 49% 8%
Average pawn loan balance per average location in operation $ 766 $ 924 (17)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 19.2% 4.2% 357%
Average annualized merchandise turnover 2.6x 2.4x 8%
Average merchandise held for disposition
per average location $ 51 $ 66 (23)%
Lending locations in operation--
Beginning of period 53 53
Acquired -- --
Start-ups -- --
Combined, closed or sold -- --
End of period 53 53 --
Average number of locations in operation (a) 53 53 --
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 25
28
OTHER OPERATIONS
================================================================================
(Dollars in thousands)
The following table sets forth selected financial data with respect to
the Company's other domestic operations as of June 30, 2001 and 2000, and for
the three months then ended.
2001 2000 Change
--------- --------- ---------
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $ 4,255 $ 2,859 49%
Management fees -- 580 (100)%
Tire and wheel sales 686 337 104%
Lease income and other 95 275 (65)%
--------- --------- ---------
TOTAL REVENUE 5,036 4,051 24%
--------- --------- ---------
COSTS OF REVENUE
Tire and wheel rentals 1,544 1,032 50%
Tire and wheel sales 428 233 84%
--------- --------- ---------
NET REVENUE $ 3,064 $ 2,786 10%
========= ========= =========
OTHER DATA
Owned rental locations--
Rental agreements outstanding at end of period $ 10,753 $ 9,364 15%
Average balance per rental agreement
at end of period (not in thousands) $ 1,048 $ 1,045 --
Locations in operation at end of period 43 29 48%
Average locations in operation for the period (a) 43 28 54%
Managed rental locations--
Locations in operation at end of period -- 14 (100)%
Average locations in operation for the period (a) -- 14 (100)%
========= ========= =========
CHECK CASHING OPERATIONS:
REVENUE
Check cashing royalties and fees $ 809 $ 770 5%
--------- --------- ---------
TOTAL REVENUE 809 770 5%
--------- --------- ---------
NET REVENUE $ 809 $ 770 5%
========= ========= =========
OTHER DATA
Franchised and owned check cashing centers--
Centers in operation at end of period 135 137 (1)%
Average centers in operation for the period (a) 133 136 (2)%
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 26
29
OTHER OPERATIONS
================================================================================
(Dollars in thousands)
The following table sets forth selected financial data with respect to
the Company's other domestic operations as of June 30, 2001 and 2000, and for
the six months then ended.
2001 2000 Change
--------- --------- ---------
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $ 8,718 $ 5,270 65%
Management fees 75 1,183 (94)%
Tire and wheel sales 1,407 769 83%
Lease income and other 245 570 (57)%
--------- --------- ---------
TOTAL REVENUE 10,445 7,792 34%
--------- --------- ---------
COSTS OF REVENUE
Tire and wheel rentals 3,193 1,917 67%
Tire and wheel sales 932 530 76%
--------- --------- ---------
NET REVENUE $ 6,320 $ 5,345 18%
========= ========= =========
OTHER DATA
Owned rental locations--
Average locations in operation for the period (a) 42 27 56%
Managed rental locations--
Average locations in operation for the period (a) 1 14 (93)%
========= ========= =========
CHECK CASHING OPERATIONS:
REVENUE
Check cashing royalties and fees $ 1,808 $ 1,733 4%
--------- --------- ---------
TOTAL REVENUE 1,808 1,733 4%
--------- --------- ---------
NET REVENUE $ 1,808 $ 1,733 4%
========= ========= =========
OTHER DATA
Franchised and owned check cashing centers--
Average centers in operation for the period (a) 133 136 (2)%
----------
(a) Averages based on accumulation of month-end balances and dividing aggregate
total by total months in the period.
Page 27
30
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This quarterly report, including management's discussion and analysis, contains
statements that are forward-looking, as that term is defined by the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules. The Company intends that all forward-looking statements
be subject to the safe harbors created by these laws and rules. When used in
this quarterly report, the words "believes," "estimates," "plans," "expects,"
"anticipates" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements. All
forward-looking statements are based on current expectations regarding important
risk factors. 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 expressed in the forward-looking statements. Accordingly, actual
results may differ materially from those expressed in the forward-looking
statements, and the making of such statements should not be regarded as a
representation by the Company or any other person that the results expressed in
the statements will be achieved. Important risk factors include, but are not
limited to, the following: 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.
Page 28
31
PART II
Item 1. LEGAL PROCEEDINGS
See Note 9 of Notes to Consolidated Financial Statements
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 16, 2001, the Company's Annual Meeting of Shareholders was held.
All of the nominees for director identified in the Company's Proxy Statement,
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, were
elected at the meeting to hold office until the next Annual Meeting or until
their successors are duly elected and qualified. The shareholders ratified the
Company's selection of independent auditors. The shareholders also approved the
proposed Amendment to the Company's 1994 Long-Term Incentive Plan. There was no
other business brought before the meeting that required shareholder approval.
Votes were cast in the matters described below as follows (there were no broker
non-votes or abstentions other than those listed below):
(a) Election of directors
For Withheld
--- --------
Jack R. Daugherty 21,478,415 1,773,199
A. R. Dike 21,477,415 1,774,199
Daniel R. Feehan 20,436,148 2,815,466
James H. Graves 21,477,415 1,774,199
B. D. Hunter 21,470,699 1,780,915
Timothy J. McKibben 21,477,309 1,774,305
Alfred J. Micallef 21,477,315 1,774,299
Clifton H. Morris, Jr. 21,477,315 1,774,299
Carl P. Motheral 21,476,915 1,774,699
Samuel W. Rizzo 21,470,799 1,780,815
Page 29
32
(b) Ratification of Independent Auditors
For - 21,831,920
Against - 1,415,624
Abstain - 4,070
(c) Proposed Amendment to the Company's 1994 Long-Term
Incentive Plan
For - 12,708,995
Against - 9,721,016
Abstain - 821,603
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended and Restated Executive Employment Agreement
between the Company and Mr. Daniel R. Feehan dated as
of April 29, 2001.
(b) Reports on Form 8-K
None
Page 30
33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASH AMERICA INTERNATIONAL, INC.
--------------------------------------
(Registrant)
By: /s/ Thomas A. Bessant, Jr.
---------------------------
Thomas A. Bessant, Jr.
Executive Vice President and
Chief Financial Officer
Date: August 10, 2001
Page 31
34
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Amended and Restated Executive Employment Agreement between the Company
and Mr. Daniel R. Feehan dated as of April 29, 2001.