-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L7IdAA5URYTXK9twkvpSkafLA8id3HrFB4hEja+Y0rLa9R9tcjYjyovCDYuv1G+v Pf54PcjmjpYAPoq3xRkNTw== 0000950134-98-008862.txt : 19981116 0000950134-98-008862.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950134-98-008862 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASH AMERICA INTERNATIONAL INC CENTRAL INDEX KEY: 0000807884 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 752018239 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09733 FILM NUMBER: 98747323 BUSINESS ADDRESS: STREET 1: 1600 W 7TH ST CITY: FT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173351100 MAIL ADDRESS: STREET 1: 1600 WEST 7TH STREET CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: CASH AMERICA INVESTMENTS INC /TX/ DATE OF NAME CHANGE: 19920520 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _______________ Commission File Number 1-9733 CASH AMERICA INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) TEXAS 75-2018239 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 1600 WEST 7TH STREET FORT WORTH, TEXAS 76102 (Address of principal executive offices) (Zip Code) (817) 335-1100 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: 25,078,387 common shares, $.10 par value, were outstanding as of October 31, 1998. ================================================================================ 2 CASH AMERICA INTERNATIONAL, INC. INDEX TO 10-Q
PART I. FINANCIAL STATEMENTS Page Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - September 30, 1998 and 1997 and December 31, 1997........................................... 1 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 1998 and 1997............................ 2 Consolidated Statements of Comprehensive Income - Three Months and Nine Months Ended September 30, 1998 and 1997.......... 3 Consolidated Statements of Stockholders' Equity - Nine Months Ended September 30, 1998 and 1997............................ 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997........................... 5 Notes to Consolidated Financial Statements............................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition................... 11 PART II. OTHER INFORMATION..................................................... 29 SIGNATURE....................................................................... 30
3 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (UNAUDITED)
- -------------------------------------------------------------------------------------------- September 30, December 31, 1998 1997 1997 - -------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,267 $ 3,781 $ 1,119 Loans 133,053 116,391 112,240 Merchandise held for disposition, net 64,653 54,488 53,468 Inventories 4,081 -- 2,130 Finance and service charges receivable 19,772 17,564 17,414 Prepaid expenses and other 7,396 6,506 5,523 Deferred tax assets 14,681 13,098 12,529 - -------------------------------------------------------------------------------------------- Total current assets 246,903 211,828 204,423 Property and equipment, net 70,378 64,140 64,258 Intangible assets, net 89,394 65,677 64,977 Other assets 3,681 7,130 7,621 - -------------------------------------------------------------------------------------------- Total assets $ 410,356 $ 348,775 $ 341,279 - -------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 17,984 $ 15,295 $ 14,971 Customer deposits 4,829 4,151 3,740 Income taxes currently payable 4,934 4,390 3,819 Current portion of long-term debt 4,625 4,286 4,286 - -------------------------------------------------------------------------------------------- Total current liabilities 32,372 28,122 26,816 Long-term debt 192,455 159,037 146,142 - -------------------------------------------------------------------------------------------- Stockholders' equity: Common stock, $.10 par value per share, 80,000,000 shares authorized 3,024 3,024 3,024 Paid in surplus 126,346 122,116 122,155 Retained earnings 98,677 85,306 91,337 Accumulated other comprehensive loss (1,138) (2,958) (2,458) Notes receivable - stockholders (1,571) (1,337) (1,337) - -------------------------------------------------------------------------------------------- 225,338 206,151 212,721 Less -- shares held in treasury, at cost (39,809) (44,535) (44,400) - -------------------------------------------------------------------------------------------- Total stockholders' equity 185,529 161,616 168,321 - -------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 410,356 $ 348,775 $ 341,279 - --------------------------------------------------------------------------------------------
See notes to consolidated financial statements. Page 1 4 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (UNAUDITED)
- --------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------- REVENUE Finance and service charges $ 30,096 $ 27,025 $ 85,963 $ 77,463 Proceeds from disposition of merchandise 48,022 42,573 150,385 136,712 Check cashing machine sales 401 200 1,503 200 Check cashing royalties and fees 1,103 513 2,829 1,874 Rental operations 890 -- 2,278 -- - --------------------------------------------------------------------------------------------- TOTAL REVENUE 80,512 70,311 242,958 216,249 - --------------------------------------------------------------------------------------------- COSTS OF REVENUE Disposed merchandise 31,106 26,997 96,692 87,196 Cost of check cashing machines sold 375 177 1,401 177 Rental operations 234 -- 630 -- - --------------------------------------------------------------------------------------------- NET REVENUE 48,797 43,137 144,235 128,876 - --------------------------------------------------------------------------------------------- OPERATING EXPENSES Lending operations 28,402 24,227 82,830 73,166 Check cashing operations 1,882 587 4,899 1,567 Rental operations 378 -- 1,056 -- Administration 6,388 5,818 19,019 17,080 Depreciation 3,535 3,101 10,094 9,490 Amortization 1,141 812 2,984 2,466 - --------------------------------------------------------------------------------------------- Total operating expenses 41,726 34,545 120,882 103,769 - --------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 7,071 8,592 23,353 25,107 Interest expense, net 3,666 2,998 9,942 8,555 Other (income) expense (18) 105 1 256 - --------------------------------------------------------------------------------------------- Income before income taxes 3,423 5,489 13,410 16,296 Provision for income taxes 1,326 2,047 5,145 6,053 - --------------------------------------------------------------------------------------------- NET INCOME $ 2,097 $ 3,442 $ 8,265 $ 10,243 - --------------------------------------------------------------------------------------------- Net income per share: Basic $ .08 $ .14 $ .33 $ .42 Diluted .08 .14 .32 .41 - --------------------------------------------------------------------------------------------- Weighted average shares: Basic 25,030 24,279 24,754 24,238 Diluted 26,417 25,224 26,186 25,026 - ---------------------------------------------------------------------------------------------
See notes to consolidated financial statements. Page 2 5 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (UNAUDITED)
- --------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------- NET INCOME $ 2,097 $ 3,442 $ 8,265 $ 10,243 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustments 946 (975) 1,320 (2,572) -------- -------- -------- -------- Total other comprehensive income (loss) 946 (975) 1,320 (2,572) -------- -------- -------- -------- COMPREHENSIVE INCOME $ 3,043 $ 2,467 $ 9,585 $ 7,671 ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. Page 3 6 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (In thousands, except share data) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED NOTES OTHER RECEIVABLE - COMMON STOCK PAID IN RETAINED COMPREHENSIVE STOCK- TREASURY STOCK SHARES AMOUNT SURPLUS EARNINGS LOSS HOLDERS SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 30,235,164 $ 3,024 $ 122,155 $ 91,337 $ (2,458) $ (1,337) 5,812,519 $ (44,400) Net income 8,265 Other comprehensive income 1,320 Dividends declared-- $.0375 per share (925) Treasury shares purchased 20,511 (286) Treasury shares reissued 3,795 (641,269) 4,877 Tax benefit from exercise of option shares 396 Change in notes receivable - stockholders (234) - -------------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 30,235,164 $ 3,024 $ 126,346 $ 98,677 $ (1,138) $ (1,571) 5,191,761 $ (39,809) ================================================================================================================================ Balance at December 31, 1996 30,235,164 $ 3,024 $ 121,878 $ 75,973 $ (386) $ (1,065) 5,975,670 $ (45,397) Net income 10,243 Other comprehensive loss (2,572) Dividends declared-- $.0375 per share (910) Treasury shares purchased 144,294 (1,333) Treasury shares reissued (75) (287,763) 2,195 Tax benefit from exercise of option shares 313 Change in notes receivable - stockholders (272) - -------------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1997 30,235,164 $ 3,024 $ 122,116 $ 85,306 $ (2,958) $ (1,337) 5,832,201 $ (44,535) ================================================================================================================================
See notes to consolidated financial statements. Page 4 7 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED)
- ------------------------------------------------------------------------------------------------ Nine Months Ended September 30, 1998 1997 - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Reconciliation of Net Income to Net Cash Provided by Operating Activities: Net income $ 8,265 $ 10,243 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 10,094 9,490 Amortization 2,984 2,466 Changes in operating assets and liabilities- Finance and service charges receivable (1,438) (2,720) Merchandise held for disposition and inventories (8,395) (4,917) Prepaid expenses and other (2,786) (1,151) Accounts payable and accrued expenses 1,447 1,170 Customer deposits, net 801 1,153 Income taxes payable 2,665 1,045 Deferred taxes, net (2,074) (1,923) - ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 11,563 14,856 - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Loans forfeited and transferred to merchandise held for disposition 95,206 84,578 Loans repaid or renewed 216,909 198,706 Loans made, including loans renewed (325,126) (294,142) - ------------------------------------------------------------------------------------------------ Net change in loans (13,011) (10,858) - ------------------------------------------------------------------------------------------------ Acquisitions, net of cash acquired (21,787) (5,324) Investment in and advances to affiliates (120) (600) Purchases of property and equipment (15,380) (11,006) Proceeds from sales of property and equipment 1,037 -- - ------------------------------------------------------------------------------------------------ Net cash used by investing activities (49,261) (27,788) - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under bank lines of credit 48,745 20,108 Proceeds from capital lease obligations 1,853 -- Payments on notes payable and other obligations (10,892) (4,286) Payments on notes receivable - stockholders -- 243 Net proceeds from reissuance of treasury shares 1,307 1,605 Treasury shares purchased (286) (1,333) Dividends paid (925) (910) - ------------------------------------------------------------------------------------------------ Net cash provided by financing activities 39,802 15,427 - ------------------------------------------------------------------------------------------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 44 (48) - ------------------------------------------------------------------------------------------------ CHANGE IN CASH AND CASH EQUIVALENTS 2,148 2,447 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,119 1,334 - ------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,267 $ 3,781 ================================================================================================ SUPPLEMENTAL DISCLOSURES NONCASH INVESTING AND FINANCING ACTIVITIES: Purchase transactions- Treasury shares reissued 7,131 -- Liabilities assumed 8,227 167 Loans to stockholders for exercise of stock options 234 515 - ------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. Page 5 8 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Cash America International, Inc. and its majority-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Through January 31, 1998, the Company had a 49% ownership interest in Express Rent A Tire, Ltd. ("Express") that was accounted for by the equity method of accounting, whereby the Company recorded its 49% share of earnings or losses in its consolidated financial statements. Effective February 1, 1998, the Company increased its ownership interest in Express to 99.9% and reorganized it into a new corporation, Rent-A-Tire, Inc. ("Rent-A-Tire") (see Note 3). The acquisition of additional interests has been accounted for as a purchase and, accordingly, the assets and liabilities of Rent-A-Tire and the results of its operations have been included in the consolidated financial statements since February 1, 1998. The financial statements as of September 30, 1998 and 1997, and for the three months and nine months then ended are unaudited but, in management's opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. Operating results for the three month and nine month periods are not necessarily indicative of the results that may be expected for the full fiscal year. Certain amounts in the consolidated financial statements for the three months and nine months ended September 30, 1997, and the consolidated balance sheet at December 31, 1997, have been reclassified to conform to the presentation format adopted in 1998. These reclassifications have no effect on the net income previously reported. These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1997 Annual Report to Stockholders. 2. REVENUE RECOGNITION Lending Operations -- Pawn loans ("loans") are made on the pledge of tangible personal property. The Company accrues finance and service charge revenue on all loans that the Company deems collection is probable based on historical loan redemption statistics. For loans not repaid, the carrying value of the forfeited collateral ("merchandise held for disposition") is stated at the lower of cost (cash amount loaned) or market. Revenue is recognized at the time of disposition of merchandise. Interim customer payments for layaway sales are recorded as deferred revenue and subsequently recognized as revenue during the period in which final payment is received. Page 6 9 Check Cashing Operations -- Check cashing machine sales revenue is recorded upon installation and activation of the machine. The Company records fees derived from its owned check cashing locations and machines in the period in which the service is provided. Royalties derived from franchised locations are recorded on the accrual basis. Rental Operations -- Tire and wheel rentals are paid on a weekly basis in advance and receipts are recorded on the cash basis. Customers may return the tires and wheels at any time and have no obligation to complete the rental agreement. Rent-A-Tire has entered into agreements to operate and manage stores for an unrelated group of investors. The investors own and provide 100% financing for the stores, and incur all costs to operate them. Rent-A-Tire receives initial compensation for its efforts in constructing and opening each store and a monthly management fee. 3. ACQUISITIONS During the nine months ended September 30, 1998, the Company acquired fifty-eight pawnshops in purchase transactions for an aggregate purchase price of $35.7 million consisting of $20.4 million in cash, the assumption of $8.2 million of liabilities, and the issuance of 475,391 shares of the Company's common stock valued at $7.1 million. The Company also purchased ten manned check cashing centers for an aggregate cash consideration of $1.4 million during the period. Effective February 1, 1998, in a series of transactions accounted for as a purchase, the Company exercised an option, for which it had paid $1 million in 1995, to increase its ownership interest in Express from 49% to 90%. In conjunction with the reorganization of Express into Rent-A-Tire, the Company also acquired an additional 9.9% ownership interest. The aggregate purchase price of the additional 41% interest will be paid in four annual installments in an amount equal to .5835 times the defined after-tax net income of Express for the 1997 fiscal year and Rent-A-Tire for the 1998, 1999 and 2000 fiscal years, respectively. No consideration was payable based on Express's results of operations in 1997. The sellers have an option to repurchase 9.9% of Rent-A-Tire for a nominal amount. The option is exercisable upon sixty days written notice. Page 7 10 4. LONG-TERM DEBT The Company's long-term debt instruments and balances outstanding as of September 30 are as follows:
1998 1997 - ------------------------------------------------------------------------------------------------------------------- (In thousands) U.S. Line of Credit up to $150 million due June 30, 2003 $100,000 $ 91,150 U.K. Line of Credit up to(pound)10 million due April 30, 2000 3,570 2,019 Swedish Lines of Credit up to SEK 215 million 20,263 24,439 8.33% senior unsecured notes due 2003 21,429 25,715 8.14% senior unsecured notes due 2007 20,000 20,000 7.10% senior unsecured notes due 2008 30,000 -- Capital lease obligations payable 1,818 -- - ------------------------------------------------------------------------------------------------------------------- 197,080 163,323 Less current portion 4,625 4,286 =================================================================================================================== Long-term debt $192,455 $159,037 ===================================================================================================================
5. NET INCOME PER SHARE The reconciliation of basic and diluted weighted average common shares outstanding for the three month and nine month periods ended September 30, follows:
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ---------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------- ------------- ------------- ------------- ------------- (In thousands) Weighted average shares - Basic 25,030 24,279 24,754 24,238 Effect of shares applicable to stock option plans 1,355 941 1,409 783 Effect of shares applicable to nonqualified savings plan 32 4 23 5 - ------------------------------------------------------------- ------------- ------------- ------------- ------------- Weighted average shares - Diluted 26,417 25,224 26,186 25,026 ============================================================= ============= ============= ============= =============
6. OPERATING SEGMENT INFORMATION The Company has two reportable operating segments in the lending industry and one each in the check cashing and rental industries. The United States and foreign lending segments offer the same services. However, each is managed separately due to the different operational strategies required. The check cashing and rental operations are managed separately because they offer different services and products, each of which requires its own technical, marketing and operational strategy. Page 8 11 Information concerning the segments is set forth below (in thousands):
Lending ------------------------------------------ United Check States Foreign Total Cashing Rental Consolidated - -------------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, 1998: Total revenue $ 71,317 $ 7,044 $ 78,361 $ 1,261 $ 890 $ 80,512 Income (loss) from operations 6,311 3,077 9,388 (2,203) (114) 7,071 Total assets at end of period 307,149 79,047 386,196 18,856 5,304 410,356 - -------------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, 1997: Total revenue $ 63,570 $ 6,028 $ 69,598 $ 713 n/a $ 70,311 Income (loss) from operations 6,317 2,773 9,090 (498) n/a 8,592 Total assets at end of period 262,257 73,621 335,878 12,897 n/a 348,775 - -------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1998: Total revenue $ 216,946 $ 19,956 $ 236,902 $ 3,778 $ 2,278 $ 242,958 Income (loss) from operations 21,001 8,535 29,536 (5,858) (325) 23,353 - -------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1997: Total revenue $ 195,818 $ 18,357 $ 214,175 $ 2,074 n/a $ 216,249 Income (loss) from operations 17,538 8,537 26,075 (968) n/a 25,107 - --------------------------------------------------------------------------------------------------------------------
7. LITIGATION The Company is a defendant in certain lawsuits encountered in the ordinary course of its business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. 8. SUBSEQUENT EVENT The Company has signed a letter of intent with Wells Fargo Bank, N.A. ("Wells Fargo") that provides for the Company's wholly owned subsidiary, Mr. Payroll Corporation ("Mr. Payroll"), to contribute certain tangible assets and intellectual property associated with its automated check cashing machine business into its joint venture with Wells Fargo that was originally formed in May 1998. Page 9 12 Wells Fargo would contribute cash to the joint venture to further the development and distribution of the technology. Mr. Payroll and Wells Fargo would continue to hold equal ownership interests in the joint venture, subject to a minority interest reserved for management of the joint venture. The transaction is subject to the negotiation and execution of a definitive agreement, which the Company expects to finalize before the end of 1998. Page 10 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SUMMARY CONSOLIDATED FINANCIAL DATA THIRD QUARTER ENDED SEPTEMBER 30, 1998 vs. THIRD QUARTER ENDED SEPTEMBER 30, 1997 - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected consolidated financial data with respect to the Company and its consolidated lending operations as of September 30, 1998 and 1997, and for the three months then ended.
1998 1997 Change - -------------------------------------------------------------------------------------------------- REVENUE Finance and service charges $ 30,096 $ 27,025 11% Proceeds from disposition of merchandise 48,022 42,573 13% Check cashing machine sales 401 200 101% Check cashing royalties and fees 1,103 513 115% Rental operations 890 -- -- - -------------------------------------------------------------------------------------------------- TOTAL REVENUE 80,512 70,311 15% - -------------------------------------------------------------------------------------------------- COSTS OF REVENUE Disposed merchandise 31,106 26,997 15% Cost of check cashing machines sold 375 177 112% Rental operations 234 -- -- - -------------------------------------------------------------------------------------------------- NET REVENUE $ 48,797 $ 43,137 13% ================================================================================================== OTHER DATA CONSOLIDATED OPERATIONS: Net revenue contribution by source-- Finance and service charges 61.7% 62.7% (2)% Margin on disposition of merchandise 34.7% 36.1% (4)% Check cashing operations 2.3% 1.2% 92% Rental operations 1.3% -- -- Expenses as a percentage of net revenue-- Operations and administration 75.9% 71.0% 7% Depreciation and amortization 9.6% 9.1% 5% Interest, net 7.5% 6.9% 8% Income from operations before depreciation and amortization as a percentage of total revenue 14.6% 17.8% (18)% Income before income taxes as a percentage of total revenue 4.3% 7.8% (45)% - -------------------------------------------------------------------------------------------------- CONSOLIDATED LENDING OPERATIONS: Annualized yield on loans 92% 95% (3)% Average loan balance per average location in operation $ 282 $ 284 (1)% Average loan amount at end of period (not in thousands) $ 100 $ 96 4% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 35.2% 36.6% (4)% Average annualized merchandise turnover 2.1X 2.1x -- Average merchandise held for disposition per average location $ 131 $ 128 2% Locations in operation-- Beginning of period 459 395 Acquired 2 4 Start-ups 2 2 Combined or closed (3) -- End of period 460 401 15% Average number of locations in operation (a) 460 398 16% ==================================================================================================
(a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 11 14 NINE MONTHS ENDED SEPTEMBER 30, 1998 vs. NINE MONTHS ENDED SEPTEMBER 30, 1997 - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected consolidated financial data with respect to the Company and its consolidated lending operations as of September 30, 1998 and 1997, and for the nine months then ended.
1998 1997 Change - ---------------------------------------------------------------------------------------------------- REVENUE Finance and service charges $ 85,963 $ 77,463 11% Proceeds from disposition of merchandise 150,385 136,712 10% Check cashing machine sales 1,503 200 652% Check cashing royalties and fees 2,829 1,874 51% Rental operations 2,278 -- -- - ---------------------------------------------------------------------------------------------------- TOTAL REVENUE 242,958 216,249 12% - ---------------------------------------------------------------------------------------------------- COSTS OF REVENUE Disposed merchandise 96,692 87,196 11% Cost of check cashing machines sold 1,401 177 692% Rental operations 630 -- -- - ---------------------------------------------------------------------------------------------------- NET REVENUE $ 144,235 $ 128,876 12% - ---------------------------------------------------------------------------------------------------- OTHER DATA CONSOLIDATED OPERATIONS: Net revenue contribution by source-- Finance and service charges 59.6% 60.1% (1)% Margin on disposition of merchandise 37.2% 38.4% (3)% Check cashing operations 2.0% 1.5% 33% Rental operations 1.2% -- -- Expenses as a percentage of net revenue-- Operations and administration 74.7% 71.2% 5% Depreciation and amortization 9.1% 9.3% (2)% Interest, net 6.9% 6.6% 5% Income from operations before depreciation and amortization as a percentage of total revenue 15.0% 17.1% (12)% Income before income taxes as a percentage of total revenue 5.5% 7.5% (27)% - ---------------------------------------------------------------------------------------------------- CONSOLIDATED LENDING OPERATIONS: Annualized yield on loans 96% 96% -- Average loan balance per average location in operation $ 274 $ 277 (1)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 35.7% 36.2% (1)% Average annualized merchandise turnover 2.3X 2.4x (4)% Average merchandise held for disposition per average location $ 128 $ 125 2% Locations in operation-- Beginning of period 401 382 Acquired 58 10 Start-ups 6 12 Combined or closed (5) (3) End of period 460 401 15% Average number of locations in operation (a) 435 390 12% ====================================================================================================
(a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 12 15 GENERAL The Company is a diversified provider of specialty financial services to individuals in the United States, United Kingdom and Sweden. The Company offers secured non-recourse loans, commonly referred to as pawn loans, to individuals through its lending operations. Pawn loans earn finance and service charge revenue. The disposition of merchandise, primarily collateral from unredeemed pawn loans, is a related but secondary source of net revenue from the Company's lending function. The Company also provides check cashing services through its subsidiary, Mr. Payroll Corporation ("Mr. Payroll") and rental of tires and wheels through its subsidiary, Rent-A-Tire, Inc. ("Rent-A-Tire"). The Company expanded its lending operations during the twenty-one month period ended September 30, 1998, by adding a net seventy-eight locations. Nineteen locations were established, sixty-eight operating units were acquired, and nine locations were combined or closed. As of September 30, 1998, the Company operated 460 lending units--410 in sixteen states in the United States, thirty-nine jewelry-only and loan-only units in the United Kingdom, and eleven loan-only and primarily jewelry-only units in Sweden. During the twenty-one months ended September 30, 1998, Mr. Payroll has focused on the development of its automated check cashing machine. The first two machines were installed in June 1997, and sixty-seven units were in operation as of September 30, 1998, including twenty-four machines that were owned and operated by Mr. Payroll. Twenty-two machines were installed in the third quarter of 1998. As of September 30, 1998, Mr. Payroll also had 136 franchised and ten company owned manned check cashing centers in twenty-one states compared to 149 franchised centers as of September 30, 1997. Through January 31, 1998, the Company had a 49% ownership interest in Express Rent A Tire, Ltd. ("Express") that was accounted for by the equity method of accounting, whereby the Company recorded its 49% share of earnings or losses in its consolidated financial statements. Effective February 1, 1998, the Company increased its ownership interest to 99.9% and reorganized the operations of Express into Rent-A-Tire. The acquisition of additional interests has been accounted for as a purchase and, accordingly, the assets and liabilities of Rent-A-Tire and the results of its operations have been included in the consolidated financial statements since February 1, 1998. As of September 30, 1998, Rent-A-Tire owns and operates four tire and wheel rental stores and manages ten additional tire and wheel rental stores under the Rent-A-Tire name, including one that was added during the third quarter of 1998. Page 13 16 RESULTS OF OPERATIONS THIRD QUARTER ENDED SEPTEMBER 30, 1998, COMPARED TO THE THIRD QUARTER ENDED SEPTEMBER 30, 1997 Net Revenue: Consolidated. Consolidated net revenue increased 13% to $48.8 million during the third quarter ended September 30, 1998 (the "current quarter"), from $43.1 million during the third quarter ended September 30, 1997 (the "prior year quarter"). Of the 13% increase, 10% was attributable to the net addition of fifty-nine lending locations since September 30, 1997, 1% was attributable to gains from same unit lending operations (those in operation for more than one year), and 2% was attributable to increases in the check cashing and rental segments of the Company. Net Revenue: Lending Activities. Net revenue from lending operations increased $4.6 million to $47.2 million during the current quarter from $42.6 million during the prior year quarter. The lending units added since September 30, 1997, contributed $4.3 million of the increase. The principal components of lending operations net revenue are finance and service charges, which accounted for $3.1 million of the total increase, and net revenue from the disposition of merchandise, which accounted for $1.3 million of the total increase. The remaining component, foreign check cashing operations, commenced in the third quarter of 1997 and accounted for $.2 million of the total increase. Finance and service charges are affected by changes in both the average outstanding amount of pawn loans and the annualized yield on such loans. Finance and service charges increased a net amount of $3.1 million, or 11%, in the current quarter over the prior year quarter. A 15% increase in the average outstanding amount of pawn loans, which occurred as a result of an 11% increase in the average number of loans outstanding coupled with a 3% increase in the average loan amount, produced the increase in finance and service charges. Same units contributed $.8 million of the $3.1 million net increase. The consolidated annualized loan yield, which represents a weighted average of the distinctive loan yields realized in the three countries in which the Company operates, declined to 92% in the current quarter from 95% in the prior year quarter. The domestic annualized loan yield was 114% for the current quarter compared to 122% for the prior year quarter. The decrease can be partially attributed to an 18% increase in domestic pawn loans at September 30, 1998, over the same date in 1997, which can have the effect of reducing the loan yield until revenues from these loans are fully realized. The net addition of fifty-eight domestic lending locations accounted for 12% of the loan balance increase, while same units contributed the remainder of the increase. The remainder of the annualized loan yield decrease occurred as a result of expansion in lower-yielding domestic markets. The blended yield on average fforeign pawn loans outstanding was 52% for the current quarter compared to 51% in the prior year quarter. The increase in foreign loan yields resulted from slightly higher loan yields that offset slightly lower returns on the disposition of unredeemed collateral at auction. Net revenue from the disposition of merchandise represents the proceeds received from the disposition of merchandise in excess of the cost of merchandise disposed. Page 14 17 Proceeds from the disposition of merchandise in the current quarter were $5.4 million, or 13%, higher than the prior year quarter primarily due to the addition of the new lending units. The margin on disposition of merchandise declined to 35.2% in the current quarter from 36.6% during the prior year quarter. Excluding the effect of the disposition of scrap jewelry, the margin on disposition of merchandise fell to 36.6% for the current quarter from 37.8% in the prior year quarter due to the Company's emphasis on maintaining merchandise held for disposition at desirable levels and a higher average cost of items disposed. The net result was a $1.3 million, or 9%, increase in net revenue from the disposition of merchandise. The merchandise turnover rate was constant at 2.1 times for both quarters. Net Revenue: Other Activities. Net revenue of Mr. Payroll in the current quarter increased 65% compared to the prior year quarter. Check cashing royalties and fees earned from the operations of check cashing machines as well as the owned and franchised check cashing centers, increased 71% and represented 94% and 91% of net revenue in the current and prior year quarters, respectively. Gross profit realized on check cashing machine sales accounted for 3% of net revenue in the current quarter as compared to 4% in the prior year quarter. The change in the amount of franchise fees, which accounted for the remaining net revenue in both periods, was negligible. Net revenue of $.6 million was contributed by Rent-A-Tire in the current quarter. Prior to February 1, 1998, the Company's 49% share of earnings or losses of Rent-A-Tire's predecessor was recorded in "Other (income) expense." Operations and Administration Expenses. Consolidated operations and administration expenses as a percentage of net revenue were 75.9% in the current quarter compared to 71.0% for the prior year quarter. Total operations and administration expenses increased $6.4 million, or 21%, in the current quarter as compared to the prior year quarter. Domestic lending operations contributed $3.4 million of the increase primarily due to higher personnel, occupancy, and office expenses mostly attributable to new units which accounted for $2.7 million of the domestic increase. Foreign lending operations contributed $.3 million of the increase. Mr. Payroll accounted for $2.0 million of the increase, primarily due to increased personnel, communications, and travel expenses related to the development and marketing of the check cashing machine. The expenses of Rent-A-Tire, which was not consolidated prior to February 1, 1998, comprised $.7 million of the increase. Depreciation and Amortization. Depreciation and amortization expenses as a percentage of net revenue increased to 9.6% in the current quarter from 9.1% in the prior year quarter. Depreciation and amortization expenses increased 19% principally due to the effect of the increase in additional lending units. Interest Expense. Net interest expense as a percentage of net revenue increased to 7.5% in the current quarter from 6.9% in the prior year quarter. The amount increased $.7 million, or 22%, primarily due to the effect of a higher average level of debt related to the Company's growth. Average debt outstanding increased 25% to $197.1 million during the current quarter from $157.9 million during the prior year quarter. The effective blended borrowing cost remained constant at 7.4% in each quarter. Page 15 18 Other Expense. Other expense includes $148 thousand of losses in the prior year quarter attributable to the Company's 49% equity interest in the losses of Express. Income Taxes. The Company's consolidated effective income tax rate increased to 39% for the current quarter from 37% for the prior year quarter primarily as a result of the effect in the current quarter of lower pre-tax income and higher non-deductible intangible asset amortization. The effective tax rate of the domestic lending operations increased to 40% for the current quarter compared to 39% for the prior year quarter primarily as a result of higher non-deductible intangible asset amortization that was partially offset by a lower effective state income tax rate in the current quarter. The effective tax rate of the foreign lending operations decreased to 32% for the current quarter from 34% for the prior year quarter primarily as a result of a rate reduction in the United Kingdom. NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Net Revenue: Consolidated. Consolidated net revenue increased 12% to $144.2 million during the nine months ended September 30, 1998 (the "current period"), from $128.9 million during the nine months ended September 30, 1997 (the "prior year period"). Of the 12% increase, 7% was attributable to the net addition of fifty-nine locations since September 30, 1997, 3% was attributable to gains from same unit lending operations, and 2% was attributable to increases in the check cashing and rental segments of the Company. Net Revenue: Lending Activities. Net revenue from lending operations increased $13.2 million to $140.2 million during the current period from $127.0 million during the prior year period, primarily due to a $9.0 million contribution by the lending units added since September 30, 1997. Finance and service charges, net revenue from the disposition of merchandise, and foreign check cashing operations accounted for $8.5 million, $4.2 million, and $.5 million, respectively, of the total increase. The finance and service charges increase of $8.5 million was attributable to an 11% increase in the average outstanding amount of pawn loans that added $8.2 million, plus a nominal increase in the annualized loan yield that provided the remaining $.3 million. Same units contributed $4.3 million of the total increase. The consolidated annualized loan yield remained constant at 96% in both periods even though both the domestic and blended foreign loan yields decreased. No change occurred because there was a greater percentage of higher-yielding domestic loans in the consolidated loan portfolio during the current period as compared to the prior year period. The domestic annualized loan yield was 123% for the current period compared to 125% for the prior year period. The decrease was primarily due to a 15% increase in the average outstanding domestic pawn loan balances during the current period as compared to the prior year period. The blended yield on average foreign pawn loans outstanding decreased to 52% for the current period from 53% in the prior year period. The decline in foreign loan yields resulted primarily from lower returns on the disposition of unredeemed collateral at auction. Page 16 19 Proceeds from the disposition of merchandise in the current period were $13.7 million, or 10%, higher than the prior year period. Same unit increases, which the Company believes is attributable to stronger customer demand, accounted for $4.1 million of the $13.7 million increase. The margin on disposition of merchandise declined to 35.7% in the current period from 36.2% during the prior year period. The margin from the disposition of scrap jewelry decreased $.2 million in the current period as compared to the prior year period. Excluding the effect of the disposition of scrap jewelry, the margin on disposition of merchandise was 37.1% for the current period compared to 37.9% in the prior year period. The net result was a $4.2 million, or 8%, increase in net revenue from the disposition of merchandise. The merchandise turnover rate decreased slightly to 2.3 times from 2.4 times in the prior year period. Net Revenue: Other Activities. Net revenue of Mr. Payroll in the current period increased 25% compared to the prior year period. Mr. Payroll's decision to emphasize the development and implementation of its automated check cashing machine began to affect the composition of the components of net revenue in the prior year period. Check cashing royalties and fees earned from the operations of check cashing machines and owned and franchised check cashing centers, increased 44% and represented 94% and 82% of net revenue in the current and prior year periods, respectively. Gross profit realized on check cashing machine sales, which did not begin until the latter stages of 1997, accounted for 4% and 1% of net revenue in the current period and the prior year period, respectively. Franchise fees and other income accounted for 2% and 17% of net revenue in the current period and the prior year period, respectively. Net revenue of $1.6 million was contributed by Rent-A-Tire in the current period. Prior to February 1, 1998, the Company's 49% share of earnings or losses of Rent-A-Tire's predecessor was recorded in other expense. Operations and Administration Expenses. Consolidated operations and administration expenses as a percentage of net revenue were 74.7% in the current period compared to 71.2% for the prior year period. Total operations and administration expenses increased $16.0 million in the current period as compared to the prior year period. Domestic lending operations contributed $8.2 million of the increase primarily due to higher personnel, occupancy, and office expenses mostly attributable to new units which accounted for $5.9 million of the domestic increase. Foreign lending operations contributed $.8 million of the increase. Mr. Payroll accounted for $5.2 million of the increase primarily due to increased personnel, communications, and travel expenses related to the development and marketing of the check cashing machine. The expenses of Rent-A-Tire, which was not consolidated prior to February 1, 1998, comprised $1.8 million of the increase. Depreciation and Amortization. Depreciation and amortization expenses as a percentage of net revenue decreased to 9.1% in the current period from 9.3% in prior year period. Depreciation and amortization expenses increased 9% principally due to the effect of the increase in additional lending units. Interest Expense. Net interest expense as a percentage of net revenue increased to 6.9% in the current period from 6.6% in the prior year period. The amount increased $1.4 Page 17 20 million, or 16%, primarily due to the effect of a higher average level of debt outstanding to support increased growth of operations and investment in subsidiaries combined with a slightly higher effective blended borrowing cost. Average debt outstanding increased 15% to $173.1 million during the current period from $150.8 million during the prior year period. The effective blended borrowing cost increased to 7.7% for the current period from 7.6% for the prior year period. Other Expense. Other expense includes $79 thousand and $323 thousand of losses in the current period and prior year period, respectively, attributable to the Company's 49% equity interest in the losses of Express. Income Taxes. The Company's consolidated effective income tax rate increased to 38% for the current period from 37% for the prior year period primarily due to a non-recurring foreign dividend tax credit that reduced the effective rate in the prior year period. The effective tax rate of the domestic lending operations remained constant at 39% for each period. The favorable effect of a lower effective state income tax rate in the current period offset the impact of the non-recurring foreign dividend tax credit received in the prior year period. The effective tax rate of the foreign lending operations decreased to 33% for the current period from 34% for the prior year period primarily due to a rate reduction in the United Kingdom. LIQUIDITY AND CAPITAL RESOURCES In management's opinion, the Company's cash flow and liquidity remain strong. Cash and cash equivalents increased $2.2 million to $3.3 million at September 30, 1998, from $1.1 million at December 31, 1997. During the nine months ended September 30, 1998, $48.7 million of cash was provided by net borrowings on the Company's bank lines of credit, $11.6 million was provided by operating activities, $1.9 million was provided by the issuance of capital lease obligations, $1.3 million was provided by the issuance of common shares pursuant to the Company's stock option plans, and $1.1 million was provided by proceeds from sales of property and equipment. The cash increases were partially offset by the Company's investments of $21.8 million to acquire fifty-eight new lending locations and to repurchase 10 manned check cashing centers, $15.4 million for capital expenditures, $13.0 million to increase pawn loan balances, and $.1 million in advances to Express prior to its consolidation. The Company also made a scheduled payment of $4.3 million on its 8.33% senior unsecured notes, paid $6.6 million of debt obligations in connection with acquisitions and capital leases, paid $.9 million in dividends, and purchased $.3 million of treasury shares for the Company's Nonqualified Savings Plan. The Company has signed a letter of intent with Wells Fargo Bank, N.A. ("Wells Fargo") that provides for Mr. Payroll to contribute certain tangible assets and intellectual property associated with its automated check cashing machine business into its joint venture with Wells Fargo that was originally formed in May 1998. Wells Fargo would contribute cash to the joint venture to further the development and distribution of the technology. Mr. Payroll and Wells Fargo would continue to hold equal ownership interests in the joint venture, subject to a minority interest reserved for management of the joint venture. The transaction is subject to the negotiation and execution of a definitive agreement, which the Company expects to finalize before the end of 1998. Until such a Page 18 21 transaction is finalized, the Company intends to continue to market and enhance Mr. Payroll's automated check cashing system and anticipates that Mr. Payroll will incur future losses until sufficient revenues are generated from the sale and operation of automated check cashing machines. The Company may add up to 5 new lending units during the remainder of 1998, for a total addition of approximately 60 to 65 units for the full year. These additions may occur through new openings or acquisitions of existing locations. On January 22, 1997, the Company announced that its Board of Directors had authorized management to purchase up to one million shares of its common stock in the open market. During the nine months ended September 30, 1998, the Company made no purchases under the program. Purchases may be made from time to time in the open market and it is expected that funding of the program will come from operating cash flow and existing bank facilities. Management believes that borrowings available under its revolving credit facilities, cash generated from operations and current working capital of $214.5 million should be sufficient to meet the Company's anticipated future capital requirements. IMPACT OF FOREIGN CURRENCY EXCHANGE RATES The Company is subject to the risk of unexpected changes in foreign currency rates by virtue of its operations in the United Kingdom and Sweden. The Company's foreign assets, liabilities, and earnings are converted into U.S. dollars for consolidation into the Company's financial statements. At September 30, 1998, the Company had recorded a cumulative other comprehensive loss of $1.1 million as a result of fluctuations in foreign currency exchange rates. Future earnings and comparisons with prior periods reported by the Company may fluctuate depending on applicable currency exchange rates in effect during the periods. COMPUTER SYSTEMS - THE YEAR 2000 ISSUE Background. Many computer systems and equipment with embedded computer chips in use today were designed and developed using two digits, rather than four, to specify the year. As a result, such systems and equipment may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations. The Company's Year 2000 Efforts. In 1997, the Company began formulating a comprehensive plan to assess the actions and resources needed to address its Year 2000 issues. The plan provides for the identification and assessment of the Year 2000 issues for the Company's various internal systems and equipment; necessary remediation, including modification, upgrading and replacement of hardware and software; and adequate testing to ensure Year 2000 compliance. The plan involves the utilization of both internal and external resources, including the engagement of an independent expert to assist in the evaluation of the various Year 2000 issues and efforts. The Company is applying all aspects of this plan to both its information technology ("IT") systems and non-IT systems. Computer equipment Page 19 22 and software commonly thought of as IT systems include point-of-sale, accounting, data processing, telephone, and other miscellaneous systems. Non-IT systems include alarm systems, security observation equipment, HVAC units, fax machines, and other miscellaneous systems. The Company believes that it has identified the internal business systems that are susceptible to system failures or processing errors as a result of the Year 2000 issue. Those systems considered most critical to continuing operations have received the highest priority. Currently, the Company anticipates that its Year 2000 identification, assessment, and remediation efforts will be completed by June 30, 1999. While the majority of the testing efforts should be completed by then, the Company anticipates that additional testing will occur after June 30, 1999. The Company believes that its pawnshop operating systems constitute its only critical internal business systems. The Company's proprietary pawnshop operating system used in its domestic lending business has been upgraded for Year 2000 compliance and is currently being tested. The pawnshop operating system in use in the Company's Sweden business was recently upgraded for Year 2000 compliance, and testing of that system should be completed by December 31, 1998. A proprietary pawnshop operating system for the Company's United Kingdom lending operations is under development. The Company expects to complete the implementation and testing of this system by June 30, 1999. The Company also believes that its accounting applications, human resources, and payroll software systems are Year 2000 compliant, and testing to ensure compliance is scheduled to be completed by March 31, 1999. The Company is still in the assessment phase with respect to its non-IT systems issues, and it currently estimates that all necessary non-IT system remediation and testing efforts should be completed by September 30, 1999. Third Parties. The Company is reviewing, and has initiated formal communications with, critical third parties which provide services or goods which are essential to Cash America's operations in order to: (1) determine the extent to which the Company is vulnerable to any failure by such third parties to remediate their respective Year 2000 problems; and (2) resolve such problems to the extent practicable. These third parties include financial institutions, utility suppliers, and providers of communication services and equipment. However, the responses of third parties are beyond the control of the Company. In the event that the Company is unable to obtain satisfactory assurance that a critical third party provider has successfully and timely achieved Year 2000 compliance, and the Company is unable to replace such a provider with an alternative provider, the Company's operations could be adversely impacted. Estimated Year 2000 Costs. The Company currently estimates that its total Year 2000 project cost will be approximately $1.7 million to $2.3 million. Through September 30, 1998, the Company has expended approximately $.9 million. Costs to replace computerized systems, hardware or equipment (currently estimated to be approximately $1.1 million to $1.4 million) are included in the above estimate. The remaining costs include estimated internal and external costs to repair software problems, test all systems, and acquire license upgrades that have been accelerated due to Year 2000 issues. No major non-Year 2000 projects have been deferred because of Year 2000 activities. The Company has funded, and expects to continue to fund, the expenditures related to its Year 2000 Page 20 23 initiatives either through cash generated from operations and current working capital, or its existing revolving credit facilities. Risks of Year 2000 Problems. Based on the progress it has made in addressing its Year 2000 issues and its plan and timetable to complete its compliance program, the Company does not currently foresee significant risks associated with its Year 2000 issues. However, management believes that it is not possible to determine with complete certainty that all Year 2000 problems affecting the Company have been identified or will be corrected. Likewise, because of its constant progress in addressing its various Year 2000 issues, the Company has not yet determined the most reasonably likely worst case scenario relating to Year 2000 problems. Nevertheless, management expects that the Company could likely suffer the following consequences: (1) a significant number of operational inconveniences and inefficiencies for the Company and its customers that could divert management's time and attention and financial and human resources from its ordinary business activities; and (2) a lesser number of serious system failures that may require significant efforts by the Company to prevent or alleviate material business disruptions. Contingency Planning. The Company has not yet completed a comprehensive contingency plan with respect to the Year 2000 issue, but intends to do so during 1999. Due to the widespread nature of potential Year 2000 issues, the contingency planning process is an ongoing one which will require further modifications as the Company obtains additional information regarding (1) the Company's progress on critical internal business systems during the remediation and testing phases; and (2) the status of third party Year 2000 readiness. Depending on the systems affected, these plans could include accelerated replacement of affected software or equipment, increased work hours for Company personnel or contract personnel to accelerate remediation efforts, or development of manual workarounds for information systems. If the Company is required to implement any of these contingency plans, the implementation could have an adverse effect on the Company's financial condition and results of operations. Page 21 24 DOMESTIC LENDING OPERATIONS - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected financial data for the Company's domestic lending operations as of September 30, 1998 and 1997, and for the three months then ended.
1998 1997 Change - ------------------------------------------------------------------------------------------------- REVENUE Finance and service charges $ 24,076 $ 21,460 12% Proceeds from disposition of merchandise 47,241 42,110 12% - ------------------------------------------------------------------------------------------------- TOTAL REVENUE 71,317 63,570 12% - ------------------------------------------------------------------------------------------------- COSTS OF REVENUE Disposed merchandise 30,452 26,686 14% - ------------------------------------------------------------------------------------------------- NET REVENUE $ 40,865 $ 36,884 11% ================================================================================================= OTHER DATA Net revenue contribution by source-- Finance and service charges 58.9% 58.2% 1% Margin on disposition of merchandise 41.1% 41.8% (2)% Expenses as a percentage of net revenue-- Operations and administration 74.7% 73.5% 2% Depreciation and amortization 9.9% 9.3% 6% Interest, net 6.7% 6.5% 3% Income from operations before depreciation and amortization as a percentage of total revenue 14.5% 15.4% (6)% Income before income taxes as a percentage of total revenue 5.2% 6.0% (13)% Annualized yield on loans 114% 122% (7)% Average loan balance per average location in operation $ 204 $ 200 2% Average loan amount at end of period (not in thousands) $ 80 $ 76 5% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 35.5% 36.6% (3)% Average annualized merchandise turnover 2.1X 2.1x -- Average merchandise held for disposition per average location $ 143 $ 144 (1)% Locations in operation-- Beginning of period 409 347 Acquired 2 3 Start-ups 2 2 Combined or closed (3) -- End of period 410 352 16% Average number of locations in operation (a) 410 349 17% =================================================================================================
(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 September 30, 1998 and 1997, and for the nine months then ended.
- ---------------------------------------------------------------------------------------------------- 1998 1997 Change - ---------------------------------------------------------------------------------------------------- REVENUE Finance and service charges $ 68,533 $ 60,361 14% Proceeds from disposition of merchandise 148,413 135,457 10% - ---------------------------------------------------------------------------------------------------- TOTAL REVENUE 216,946 195,818 11% - ---------------------------------------------------------------------------------------------------- COSTS OF REVENUE Disposed merchandise 95,090 86,318 10% - ---------------------------------------------------------------------------------------------------- NET REVENUE $ 121,856 $ 109,500 11% ==================================================================================================== OTHER DATA Net revenue contribution by source-- Finance and service charges 56.2% 55.1% 2% Margin on disposition of merchandise 43.8% 44.9% (2)% Expenses as a percentage of net revenue-- Operations and administration 73.5% 74.3% (1)% Depreciation and amortization 9.3% 9.7% (4)% Interest, net 5.9% 6.2% (5)% Income from operations before depreciation and amortization as a percentage of total revenue 14.9% 14.4% 3% Income before income taxes as a percentage of total revenue 6.4% 5.4% 19% Annualized yield on loans 123% 125% (2)% Average loan balance per average location in operation $ 193 $ 189 2% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 35.9% 36.3% (1)% Average annualized merchandise turnover 2.3X 2.4x (4)% Average merchandise held for disposition per average location $ 142 $ 141 1% Locations in operation-- Beginning of period 352 334 Acquired 57 9 Start-ups 6 12 Combined or closed (5) (3) End of period 410 352 16% Average number of locations in operation (a) 385 342 13% ====================================================================================================
(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 and Svensk Pantbelaning as of September 30, 1998 and 1997, and for the three months then ended, using the following currency exchange rates:
- --------------------------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------------------------- Harvey & Thompson (from pounds sterling into U.S. dollars)-- Balance sheet data - end of period rate .5882 .6192 Income statement data - three months average rate .6040 .6161 Svensk Pantbelaning (from Swedish Kronor into U.S. dollars)-- Balance sheet data - end of period rate 7.8438 7.5690 Income statement data - three months average rate 8.0026 7.8000 - --------------------------------------------------------------------------------------------- 1998 1997 Change - --------------------------------------------------------------------------------------------- REVENUE Finance and service charges $6,020 $5,565 8% Proceeds from disposition of merchandise 781 463 69% Check cashing fees 243 -- -- - --------------------------------------------------------------------------------------------- TOTAL REVENUE 7,044 6,028 17% - --------------------------------------------------------------------------------------------- COSTS OF REVENUE Disposed merchandise 654 311 110% - --------------------------------------------------------------------------------------------- NET REVENUE $6,390 $5,717 12% ============================================================================================= OTHER DATA Net revenue contribution by source-- Finance and service charges 94.2% 97.3% (3)% Margin on disposition of merchandise 2.0% 2.7% (26)% Check cashing fees 3.8% -- -- Expenses as a percentage of net revenue-- Operations and administration 46.3% 45.8% 1% Depreciation and amortization 5.6% 5.7% (2)% Interest, net 7.7% 10.2% (25)% Income from operations before depreciation and amortization as a percentage of total revenue 48.7% 51.4% (5)% Income before income taxes as a percentage of total revenue 36.8% 36.5% 1% Annualized yield on loans 52% 51% 2% Average loan balance per average location in operation $ 924 $ 883 5% Average loan amount at end of period (not in thousands) $ 179 $ 173 3% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 16.3% 32.8% (50)% Average annualized merchandise turnover 1.8X 2.3x (22)% Average merchandise held for disposition per average location $ 28 $ 11 155% Locations in operation-- Beginning of period 50 48 Acquired -- 1 Start-ups -- -- Combined or closed -- -- End of period 50 49 2% Average number of locations in operation (a) 50 49 2% =============================================================================================
(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 and Svensk Pantbelaning as of September 30, 1998 and 1997, and for the nine months then ended, using the following currency exchange rates:
- ------------------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------------------ Harvey & Thompson (from pounds sterling into U.S. dollars)-- Income statement data - nine months average rate .6054 .6129 Svensk Pantbelaning (from Swedish Kronor into U.S. dollars)-- Income statement data - nine months average rate 7.9522 7.6070 - ------------------------------------------------------------------------------------------------ 1998 1997 Change - ------------------------------------------------------------------------------------------------ REVENUE Finance and service charges $17,430 $17,102 2% Proceeds from disposition of merchandise 1,972 1,255 57% Check cashing fees 554 -- -- - ------------------------------------------------------------------------------------------------ TOTAL REVENUE 19,956 18,357 9% - ------------------------------------------------------------------------------------------------ COSTS OF REVENUE Disposed merchandise 1,602 878 82% - ------------------------------------------------------------------------------------------------ NET REVENUE $18,354 $17,479 5% ================================================================================================ OTHER DATA Net revenue contribution by source-- Finance and service charges 95.0% 97.8% (3)% Margin on disposition of merchandise 2.0% 2.2% (9)% Check cashing fees 3.0% -- -- Expenses as a percentage of net revenue-- Operations and administration 47.7% 45.7% 4% Depreciation and amortization 5.8% 5.5% 5% Interest, net 9.2% 9.9% (7)% Income from operations before depreciation and amortization as a percentage of total revenue 48.1% 51.7% (7)% Income before income taxes as a percentage of total revenue 34.5% 37.2% (7)% Annualized yield on loans 52% 53% (2)% Average loan balance per average location in operation $ 899 $ 901 -- Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 18.8% 30.0% (37)% Average annualized merchandise turnover 1.7X 3.2x (47)% Average merchandise held for disposition per average location $ 25 $ 8 213% Locations in operation-- Beginning of period 49 48 Acquired 1 1 Start-ups -- -- Combined or closed -- -- End of period 50 49 2% Average number of locations in operation (a) 50 48 4% ================================================================================================
(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 September 30, 1998 and 1997, and for the three months then ended.
1998 1997 Change - -------------------------------------------------------------------------------- CHECK CASHING OPERATIONS: REVENUE Check cashing machine sales $ 401 $ 200 101% Check cashing royalties and fees 860 513 68% - -------------------------------------------------------------------------------- TOTAL REVENUE 1,261 713 77% - -------------------------------------------------------------------------------- COSTS OF REVENUE Cost of check cashing machines sold 375 177 112% - -------------------------------------------------------------------------------- NET REVENUE $ 886 $ 536 65% ================================================================================ OTHER DATA Franchised and owned check cashing units-- Checks cashed per average unit $1,286 $1,210 6% Royalties, check cashing fees and franchise fees per average unit $ 4 $ 3 33% Units in operation at end of period 146 149 (2)% Average units in operation for the period (a) 147 150 (2)% Automated check cashing machines in service-- Checks cashed per average machine $ 592 $ 557 6% Verification and check cashing fees per average machine $ 4 $ 3 33% Machines at end of period 67 7 857% Average number of machines for the period (a) 56 5 1020% ================================================================================ ================================================================================ RENTAL OPERATIONS: REVENUE Tire and wheel rentals $ 552 n/a -- Tire and wheel sales 22 n/a -- Management fees and other 316 n/a -- - -------------------------------------------------------------------------------- TOTAL REVENUE 890 n/a -- - -------------------------------------------------------------------------------- COSTS OF REVENUE Tire and wheel rentals 217 n/a -- - -------------------------------------------------------------------------------- Tire and wheel sales 17 n/a -- NET REVENUE $ 656 n/a -- - -------------------------------------------------------------------------------- OTHER DATA (OWNED LOCATIONS) Rental agreements outstanding at end of period $1,374 n/a -- Average balance per rental agreement at end of period (not in thousands) $ 894 n/a -- Locations in operation at end of period 4 n/a -- Average locations in operation for the period (a) 4 n/a -- ================================================================================
(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 September 30, 1998 and 1997, and for the nine months then ended.
1998 1997 Change - ---------------------------------------------------------------------------------------------------------- CHECK CASHING OPERATIONS: REVENUE Check cashing machine sales $1,503 $ 200 652% Check cashing royalties and fees 2,275 1,874 21% - ---------------------------------------------------------------------------------------------------------- TOTAL REVENUE 3,778 2,074 82% - ---------------------------------------------------------------------------------------------------------- COSTS OF REVENUE Cost of check cashing machines sold 1,401 177 692% - ---------------------------------------------------------------------------------------------------------- NET REVENUE $2,377 $1,897 25% ========================================================================================================== OTHER DATA Franchised and owned check cashing units-- Checks cashed per average unit $4,209 $3,736 13% Royalties, check cashing fees and franchise fees per average unit $ 12 $ 12 -- Average units in operation for the period (a) 147 150 (2)% Automated check cashing machines in service-- Checks cashed per average machine $1,782 $1,512 18% Verification and check cashing fees per average machine $ 10 $ 8 25% Average number of machines for the period (a) 43 2 2050% ========================================================================================================== ========================================================================================================== RENTAL OPERATIONS: REVENUE Tire and wheel rentals $1,530 n/a -- Tire and wheel sales 57 n/a -- Management fees and other 691 n/a -- - ---------------------------------------------------------------------------------------------------------- TOTAL REVENUE 2,278 n/a -- - ---------------------------------------------------------------------------------------------------------- COSTS OF REVENUE Tire and wheel rentals 586 n/a -- Tire and wheel sales 44 n/a -- - ---------------------------------------------------------------------------------------------------------- NET REVENUE $1,648 n/a -- ========================================================================================================== OTHER DATA (OWNED LOCATIONS) Average locations in operation for the period (a) 4 n/a -- ==========================================================================================================
(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 Certain portions of this report contain forward-looking statements about the business, financial condition and prospects of the Company. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, changes in demand for the Company's services, changes in competition, the ability of the Company to open new operating units in accordance with its plans, economic conditions, real estate market fluctuations, interest rate fluctuations, changes in the capital markets, changes in tax and other laws and governmental rules and regulations applicable to the Company's business, and other risks indicated in the Company's filings with the Securities and Exchange Commission. Certain risks and uncertainties relating specifically to the Company's Year 2000 efforts include, but are not limited to, the availability of qualified personnel and other information technology resources; the ability to identify and remediate all date sensitive lines of computer code or to replace embedded computer chips in affected systems or equipment; and the actions of various third parties with respect to Year 2000 problems. These risks and uncertainties are beyond the ability of the Company to control, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this report, the words "believes," "estimates," "plans," "expects," "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. Page 28 31 PART II Item 1. LEGAL PROCEEDINGS See Note 7 of Notes to Consolidated Financial Statements Item 2. CHANGES IN SECURITIES Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable Item 5. OTHER INFORMATION Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule Page 29 32 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CASH AMERICA INTERNATIONAL, INC. ----------------------------------------------------------- (Registrant) BY: /S/ Thomas A. Bessant, Jr. --------------------------------------------------- Thomas A. Bessant, Jr. Executive Vice President and Chief Financial Officer Date: November 12, 1998 Page 30 33 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------- ------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 3,267 0 152,825 0 68,734 246,903 135,276 64,898 410,356 32,372 192,455 0 0 3,024 182,505 410,356 151,888 242,958 98,093 187,508 32,097 0 9,942 13,410 5,145 8,265 0 0 0 8,265 .33 .32
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