-----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, LfpEioC5Ou1PO9ICpeFJEKHtsuET4PKyUPYVYp/UvY3Ows2Ul+iee5Pkv6JOrTvg EDRSo6a9kVT7Kb05Z+VZLg== 0000950134-02-010012.txt : 20020814 0000950134-02-010012.hdr.sgml : 20020814 20020814144339 ACCESSION NUMBER: 0000950134-02-010012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 1934 Act SEC FILE NUMBER: 001-09733 FILM NUMBER: 02734951 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 d98824e10vq.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2002 ================================================================================ UNITED STATES 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, 2002 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 organization Identification No.) 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: 24,490,634 common shares, $.10 par value, were outstanding as of July 31, 2002. ================================================================================ CASH AMERICA INTERNATIONAL, INC. INDEX TO FORM 10-Q PART I. FINANCIAL STATEMENTS
Page Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - June 30, 2002 and 2001 and December 31, 2001 .................................... 1 Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2002 and 2001 ........................... 2 Consolidated Statements of Stockholders' Equity - Six Months Ended June 30, 2002 and 2001 ........................... 3 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 ........................... 4 Notes to Consolidated Financial Statements ........................ 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ........... 13 PART II. OTHER INFORMATION ................................................... 30 SIGNATURES ................................................................... 32
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------ June 30, ------------------------------ December 31, 2002 2001 2001 ---------- ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 6,691 $ 6,688 $ 6,394 Pawn loans 120,575 118,898 116,590 Merchandise held for disposition, net 49,958 53,834 63,392 Finance and service charges receivable 18,864 18,864 19,396 Other receivables and prepaid expenses 7,909 7,559 7,992 Income taxes recoverable 2,270 2,514 -- Deferred tax assets 5,031 4,947 7,795 Net current assets of discontinued operations -- 4,742 3,008 ---------- ---------- ---------- Total current assets 211,298 218,046 224,567 Property and equipment, net 67,816 55,633 68,450 Goodwill 78,127 77,307 76,686 Intangible assets, net 746 1,279 981 Other assets 4,333 4,966 4,762 Deferred tax assets -- -- 1,846 Net non-current assets of discontinued operations -- 22,061 5,598 ---------- ---------- ---------- Total assets $ 362,320 $ 379,292 $ 382,890 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 18,752 $ 21,152 $ 27,939 Customer deposits 4,336 4,323 3,961 Reserve for disposal of discontinued operations 911 -- 7,953 Income taxes currently payable 943 1,007 1,123 Current portion of long-term debt 8,671 10,194 9,020 ---------- ---------- ---------- Total current liabilities 33,613 36,676 49,996 Deferred tax liabilities 2,337 2,667 1,701 Long-term debt 146,683 162,617 162,762 ---------- ---------- ---------- Stockholders' equity: Common stock, $.10 par value per share, 80,000,000 shares authorized 3,024 3,024 3,024 Paid in surplus 127,820 127,813 127,821 Retained earnings 103,263 105,277 95,192 Accumulated other comprehensive loss (6,288) (12,521) (10,820) Notes receivable - stockholders (6,047) (5,823) (5,890) ---------- ---------- ---------- 221,772 217,770 209,327 Less -- shares held in treasury, at cost (42,085) (40,438) (40,896) ---------- ---------- ---------- Total stockholders' equity 179,687 177,332 168,431 ---------- ---------- ---------- Total liabilities and stockholders' equity $ 362,320 $ 379,292 $ 382,890 ========== ========== ==========
See notes to consolidated financial statements. Page 1 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, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- REVENUE Finance and service charges $ 27,456 $ 27,442 $ 56,276 $ 56,407 Proceeds from disposition of merchandise 58,279 51,179 125,313 113,963 Cash advance fees 4,184 802 7,746 1,427 Check cashing royalties and fees 1,068 1,003 2,372 2,185 ---------- ---------- ---------- ---------- TOTAL REVENUE 90,987 80,426 191,707 173,982 ---------- ---------- ---------- ---------- COSTS OF REVENUE Disposed merchandise 39,185 33,274 83,066 74,702 ---------- ---------- ---------- ---------- NET REVENUE 51,802 47,152 108,641 99,280 ---------- ---------- ---------- ---------- OPERATING EXPENSES Lending operations 32,984 31,256 66,990 63,391 Cash advance loss provision 1,568 171 2,469 390 Check cashing operations 328 278 767 592 Administration 6,962 6,082 14,459 12,663 Depreciation and amortization 3,684 4,176 7,270 8,416 ---------- ---------- ---------- ---------- Total operating expenses 45,526 41,963 91,955 85,452 ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS 6,276 5,189 16,686 13,828 Interest expense, net 2,070 2,578 4,313 5,416 Loss (gain) from derivative valuation fluctuations 36 (106) 72 366 ---------- ---------- ---------- ---------- Income from continuing operations before income taxes 4,170 2,717 12,301 8,046 Provision for income taxes 1,488 1,149 4,416 3,245 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 2,682 1,568 7,885 4,801 Gain (loss) from discontinued operations 800 (680) 800 (1,238) ---------- ---------- ---------- ---------- NET INCOME $ 3,482 $ 888 $ 8,685 $ 3,563 ========== ========== ========== ========== Net income per share: Basic-- Income from continuing operations $ .11 $ .06 $ .32 $ .19 Gain (loss) from discontinued operations .03 (.03) .03 (.05) Net income $ .14 $ .04 $ .35 $ .14 Diluted-- Income from continuing operations $ .11 $ .06 $ .32 $ .19 Gain (loss) from discontinued operations .03 (.03) .03 (.05) Net income $ .14 $ .04 $ .35 $ .14 Weighted average common shares outstanding: Basic 24,447 24,656 24,483 24,653 Diluted 24,916 24,944 24,888 24,808
See notes to consolidated financial statements. Page 2 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(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, 2001 30,235,164 $3,024 $127,821 $ 95,192 $ (10,820) $ (5,890) Comprehensive income: Net income 8,685 $ 8,685 Other comprehensive income - Foreign currency translation adjustments 4,532 4,532 ------------- Comprehensive income $ 13,217 ------------- Dividends declared-- $.025 per share (614) Treasury shares purchased Stock options exercised (8) Tax benefit from exercise of option shares 7 Change in notes receivable - stockholders (157) ---------- ------ -------- -------- ------------- ------------ Balance at June 30, 2002 30,235,164 $3,024 $127,820 $103,263 $ (6,288) $ (6,047) ========== ====== ======== ======== ============= ============ 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) ========== ====== ======== ======== ============= ============
(UNAUDITED) ----------------------- TREASURY STOCK ----------------------- SHARES AMOUNT ---------- ---------- Balance at December 31, 2001 5,643,318 $ (40,896) Comprehensive income: Net income Other comprehensive income - Foreign currency translation adjustments Comprehensive income Dividends declared-- $.025 per share Treasury shares purchased 167,247 (1,225) Stock options exercised (5,000) 36 Tax benefit from exercise of option shares Change in notes receivable - stockholders ---------- ---------- Balance at June 30, 2002 5,805,565 $ (42,085) ========== ========== 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) ========== ==========
See notes to consolidated financial statements. Page 3 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------- Six Months Ended June 30, 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,685 $ 3,563 Less: Gain (loss) from discontinued operations 800 (1,238) ---------- ---------- Income from continuing operations 7,885 4,801 Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities: Depreciation and amortization 7,270 8,416 Cash advance loss provision 2,469 390 Loss from derivative valuation fluctuations 72 366 Changes in operating assets and liabilities- Merchandise held for disposition 13,708 4,848 Finance and service charges receivable 970 622 Other receivables and prepaid expenses 1,635 (1,316) Accounts payable and accrued expenses (10,409) (698) Customer deposits, net 375 391 Current income taxes (2,467) 1,143 Deferred taxes, net 3,347 343 ---------- ---------- Net cash provided by operating activities of continuing operations 24,855 19,306 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Loans forfeited and transferred to merchandise held for disposition 60,792 62,997 Loans and advances repaid or renewed 149,862 140,343 Loans and advances made, including loans renewed (212,539) (207,753) ---------- ---------- Net increase in loans and advances (1,885) (4,413) ---------- ---------- Acquisitions, net of cash acquired (1,044) (452) Purchases of property and equipment (5,787) (12,954) Proceeds from property insurance claim -- 790 ---------- ---------- Net cash used by investing activities of continuing operations (8,716) (17,029) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net (payments) borrowings under bank lines of credit (8,816) 8,937 Payments on notes payable and capital lease obligations (8,920) (5,005) Change in notes receivable - stockholders 48 240 Net proceeds from reissuance of treasury shares 28 122 Treasury shares purchased (1,225) (64) Dividends paid (614) (612) ---------- ---------- Net cash (used) provided by financing activities of continuing operations (19,499) 3,618 ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 516 (96) ---------- ---------- CASH (USED) PROVIDED BY CONTINUING OPERATIONS (2,844) 5,799 NET CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS 3,141 (3,737) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,394 4,626 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,691 $ 6,688 ========== ==========
See notes to consolidated financial statements. Page 4 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Cash America International, Inc. (the "Company") and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In September 2001, the Company announced plans to exit the rent-to-own business in order to focus on its core business of lending activities. In June 2002, the Company sold the remaining assets of its rent-to-own business. The consolidated financial statements of the Company have been reclassified to reflect the disposal of the rental business segment. See Note 3. The financial statements as of June 30, 2002 and 2001, 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. Certain amounts in the consolidated financial statements for the three month and six month periods ended June 30, 2001, have been reclassified to conform to the presentation format adopted in 2002. 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 2001 Annual Report to Stockholders. 2. REVENUE RECOGNITION Lending Operations o Pawn loans ("loans") are made on the pledge of tangible personal property. The Company accrues finance and service 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. Small consumer cash advances ("advances") provide 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 may redeem their checks by paying cash or they may allow the checks to be processed for collection. The Company accrues fees and finance charge revenue on advances on a constant yield basis ratably over the period of the advance. For those locations that offer small consumer cash advances from a third-party financial Page 5 institution (the "Bank"), the Company receives an administrative service fee for services provided on the Bank's behalf. These fees are recorded in revenue when earned. Check Cashing Operations o The Company records fees derived from its owned check cashing locations in the period in which the service is provided. Royalties derived from franchise locations are recorded on the accrual basis. 3. DISCONTINUED OPERATIONS In September 2001, the Company adopted a formal plan to exit the rent-to-own business (the "Plan") in order to focus on its core business of lending activities. The Company's subsidiary, Rent-A-Tire, Inc. ("Rent-A-Tire"), offered new tires and wheels under a rent-to-own format to customers seeking an alternative to a direct purchase. The Company closed 21 Rent-A-Tire operating locations and held the remaining 22 locations for sale. In conjunction with the Plan, a pre-tax charge of $10,961,000 ($7,553,000 after income tax benefit) was recorded in the quarter ended September 30, 2001 to establish a reserve for the estimated loss on disposal of the rental business segment. This charge included a provision of $4,472,000 for operating losses subsequent to September 1, 2001, the effective date of the Plan, and a provision of $6,489,000 for the estimated loss on the sale of remaining assets. On June 14, 2002, the Company sold the assets of 22 Rent-A-Tire stores for proceeds of approximately $3,000,000 in cash. During the quarter ended June 30, 2002, the Company recorded a $1,214,000 ($800,000 after income tax) reduction in the original charge to the reserve, due to both a decrease in the Company's expected future operating lease obligations (net of sublease income) for closed stores and proceeds from the sale of assets in excess of the original estimate. The remaining balance of the reserve and the activity for the six month period ended June 30, 2002 is presented below (in thousands):
Phase-Out Period Facility Operating Loss on Inventory Obligation Workforce Losses Sale of Reserve Costs Reduction (Income) Assets Total --------- ---------- --------- --------- -------- -------- Reserve at December 31, 2001 $ 140 $ 2,044 $ 25 $ (555) $ 6,439 $ 7,953 Cash proceeds (expenditures), net -- (161) (8) (43) 2,786 2,574 Non-cash write-offs/reductions (140) -- -- (188) (8,214) (8,402) Adjustments -- (1,015) 26 786 (1,011) (1,214) -------- -------- -------- -------- -------- -------- Reserve at June 30, 2002 $ -- $ 868 $ 43 $ -- $ -- $ 911 ======== ======== ======== ======== ======== ========
Under the terms of the asset sale agreement with the buyer, the Company's contingent obligation under certain operating leases for the premises related to the 22 Rent-A-Tire stores continues in the event that the buyer is unable to perform under the operating leases. The maximum aggregate potential obligation under these guarantees is approximately $1.5 million. This amount is reduced over time by the amounts paid on these operating leases by the buyer. In the event that the buyer fails to perform and the Company is required, as the guarantor, to make payments under these leases, the Company would seek to mitigate its losses by subleasing the properties. Page 6 Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements of the Company have been reclassified to reflect the disposal of the rental business segment. Accordingly, the revenues, costs and expenses, assets, and cash flows of Rent-A-Tire have been segregated in the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows. The net operating results, net assets and net cash flows of this business segment have been reported as "discontinued operations" in the accompanying consolidated financial statements. The loss from discontinued operations does not include interest expense since debt was not assumed by the buyer. 4. SMALL CONSUMER CASH ADVANCES AND ALLOWANCE FOR LOSSES Small consumer cash advances are generally offered for a term of 7 to 31 days, depending on the customer's next payday. In addition to the advances originated by the Company in some of its locations, advances are offered in other locations by a third-party financial institution (the "Bank"). Under the terms of the August 2001 amendment to the Company's agreement with the Bank, the Bank assigns each advance that remains unpaid after its maturity date to the Company at a discount from the amount owed by the borrower, and the Company undertakes the collection activity on the account. Balances associated with the Company's small consumer cash advance portfolio are included in "Other receivables and prepaid expenses" in the accompanying consolidated balance sheets. The balances outstanding at June 30, 2002 and 2001 were as follows (in thousands):
2002 2001 -------- -------- Originated by the Company Active advances and fees outstanding $ 881 $ 546 Advances and fees in collection 296 195 -------- -------- Subtotal 1,177 741 -------- -------- Originated by the Bank Active advances and fees outstanding 4,463 1,348 Advances and fees in collection 1,849 659 -------- -------- Subtotal 6,312 2,007 -------- -------- Combined gross portfolio 7,489 2,748 Less: Elimination of advances owned by the Bank 4,463 2,007 Less: Discount on advances assigned by the Bank 272 -- -------- -------- Company advances outstanding before allowance 2,754 741 Less: Allowance for losses 1,324 138 -------- -------- Net advances and fees outstanding $ 1,430 $ 603 ======== ========
Page 7 Changes in the allowance for losses for the periods ended June 30, follow (in thousands):
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Balance at beginning of period $ 495 $ 249 $ 711 $ 243 Provision for loan losses 1,568 171 2,469 390 Charge-offs (1,213) (305) (2,910) (525) Recoveries 474 23 1,054 30 -------- -------- -------- -------- Balance at end of period $ 1,324 $ 138 $ 1,324 $ 138 ======== ======== ======== ========
5. 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, --------------------- --------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Weighted average shares - Basic 24,447 24,656 24,483 24,653 Effect of shares applicable to stock option plans 403 228 335 91 Effect of shares applicable to nonqualified savings plan 66 60 70 64 -------- -------- -------- -------- Weighted average shares - Diluted 24,916 24,944 24,888 24,808 ======== ======== ======== ========
6. ACQUISITIONS During the six months ended June 30, 2002, the Company acquired two U.S. pawnshops in purchase transactions for an aggregate cash consideration of $1,044,000. The excess of the aggregate purchase price over the aggregate fair market value of assets acquired was approximately $555,000. 7. GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS 142 In June 2001, the Financial Accounting Standards Board ("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 are no longer amortized to earnings. The useful lives of other intangible assets must be reassessed and the remaining amortization periods adjusted accordingly. Goodwill and other intangible assets having an indefinite useful life will be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the assets might be impaired, using a two-step impairment assessment. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Page 8 The Company adopted the provisions of SFAS No. 142 on January 1, 2002 and completed the first step of the two-step impairment test during the quarter ended June 30, 2002. Based on the results of this test, Management determined there was no impairment as of January 1, 2002. Goodwill o The changes in the carrying value of goodwill for the six months ended June 30, 2002, follows (in thousands):
Lending ---------------------------------- United Check States Foreign Total Cashing Consolidated -------- -------- -------- -------- ------------ Balance as of January 1, 2002, net of amortization of $24,224 $ 59,050 $ 12,453 $ 71,503 $ 5,183 $ 76,686 Acquired goodwill 555 -- 555 -- 555 Foreign translation impact -- 886 886 -- 886 -------- -------- -------- -------- -------- Balance as of June 30, 2002 $ 59,605 $ 13,339 $ 72,944 $ 5,183 $ 78,127 ======== ======== ======== ======== ========
Transitional Disclosures o Net income and net income per share excluding the after-tax effect of amortization expense related to goodwill for the periods ended June 30, were as follows (in thousands, except per share amounts; due to rounding, per share amounts may not total):
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Reported net income $ 3,482 $ 888 $ 8,685 $ 3,563 Add back: Goodwill amortization -- 642 -- 1,287 ---------- ---------- ---------- ---------- Adjusted net income $ 3,482 $ 1,530 $ 8,685 $ 4,850 ========== ========== ========== ========== Basic net income per share: Reported net income $ .14 $ .04 $ .35 $ .14 Add back: Goodwill amortization -- .03 -- .05 ---------- ---------- ---------- ---------- Adjusted net income $ .14 $ .06 $ .35 $ .20 ========== ========== ========== ========== Diluted net income per share: Reported net income $ .14 $ .04 $ .35 $ .14 Add back: Goodwill amortization -- .03 -- .05 ---------- ---------- ---------- ---------- Adjusted net income $ .14 $ .06 $ .35 $ .20 ========== ========== ========== ==========
Acquired Intangible Assets o Acquired intangible assets that are subject to amortization as of June 30, 2002 are as follows (in thousands):
Gross Accumulated Amount Amortization Net -------- ------------ -------- Noncompetition agreements $ 3,051 $ (2,372) $ 679 Other 131 (64) 67 -------- -------- -------- Total $ 3,182 $ (2,436) $ 746 ======== ======== ========
Noncompetition agreements are amortized over the applicable period of the contract. Page 9 Amortization o Amortization expense for the acquired intangible assets above is as follows (in thousands): Actual amortization expense For the three months ended June 30, 2002 $ 124 For the six months ended June 30, 2002 278 Estimated amortization expense For the years ended December 31,: 2002 $ 478 2003 188 2004 84 2005 81 2006 76
8. LONG-TERM DEBT The Company's long-term debt instruments and balances outstanding at June 30, 2002 and 2001 were as follows (in thousands):
2002 2001 ---------- ---------- U.S. Line of Credit up to $150,000 due June 30, 2003 $ 95,000 $ 96,500 Multi-currency Line of Credit up to L.20,000 due April 30, 2003 10,054 -- U.K. Line of Credit up to L.15,000 due April 30, 2002 -- 4,954 Swedish Line of Credit up to SEK 185,000 -- 7,000 Swedish Line of Credit up to SEK 30,000 -- 325 8.33% senior unsecured notes due 2003 4,286 8,571 8.14% senior unsecured notes due 2007 20,000 20,000 7.10% senior unsecured notes due 2008 25,714 30,000 6.25% subordinated unsecured notes due 2004 300 400 Capital lease obligations payable -- 5,061 ---------- ---------- 155,354 172,811 Less current portion 8,671 10,194 ---------- ---------- Total long-term debt $ 146,683 $ 162,617 ========== ==========
During August 2002, the Company issued $42,500,000 of 7.20% senior unsecured notes, due August 2009. The notes are payable in five equal annual payments beginning August 2005. The Company also refinanced its U.S. line of credit during August 2002, with a $90,000,000 senior unsecured revolving line of credit maturing August 2005. Interest on the line of credit will be charged at the Company's option at either LIBOR (1.875% at June 30, 2002) plus a margin or at the Agent's base rate. The margin on the line of credit varies from 1.25% to 2.50%, depending on the Company's ratio of indebtedness to cash flow as defined in the agreement. Net proceeds received under these agreements will be used to reduce existing indebtedness, and for general Page 10 corporate purposes. The Company is in compliance with all covenants or other requirements set forth in the debt agreements. The Company has received a commitment to extend its multi-currency line of credit for one year to April 30, 2004. The terms of this line of credit remain essentially unchanged, with the exception of a reduction in the maximum amount to (pound)15,000,000 (approximately $23.0 million at June 30, 2002) from (pound)20,000,000 (approximately $30.6 million at June 30, 2002). 9. OPERATING SEGMENT INFORMATION The Company has two reportable operating segments in the lending industry and one in the check cashing industry. While the United States and foreign lending segments offer the same services, each is managed separately due to the different operational strategies required. The check cashing operation offers different services and products thus requiring its own technical, marketing and operational strategy. As described in Note 3, the Company has reclassified the results of operations of Rent-A-Tire as discontinued operations. This business was previously reported as a separate operating segment. The segment data included below has been restated to exclude amounts related to Rent-A-Tire. Information concerning the segments is set forth below (in thousands):
Lending ---------------------------------------- United Check States Foreign Total Cashing Consolidated ---------- ---------- ---------- ---------- ------------ Three Months Ended June 30, 2002: Total revenue $ 80,965 $ 9,196 $ 90,161 $ 826 $ 90,987 Income from operations 3,782 2,296 6,078 198 6,276 Total assets at June 30 274,157 80,302 354,459 7,861 362,320 Three Months Ended June 30, 2001: Total revenue 72,230 7,387 79,617 809 80,426 Income from operations 3,001 2,055 5,056 133 5,189 Total assets at June 30 272,917 70,493 343,410 9,079 352,489 Six Months Ended June 30, 2002: Total revenue 172,399 17,362 189,761 1,946 191,707 Income from operations 11,751 4,395 16,146 540 16,686 Six Months Ended June 30, 2001: Total revenue 156,949 15,225 172,174 1,808 173,982 Income from operations 9,289 4,122 13,411 417 13,828
Page 11 10. 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. Page 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SUMMARY CONSOLIDATED FINANCIAL DATA SECOND QUARTER ENDED JUNE 30, 2002 vs. SECOND QUARTER ENDED JUNE 30, 2001 - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected consolidated financial data with respect to the Company and its lending and check cashing operations as of June 30, 2002 and 2001, and for the three months then ended.
2002 2001 Change ---------- ---------- --------- REVENUE Finance and service charges $ 27,456 $ 27,442 -- Proceeds from disposition of merchandise 58,279 51,179 14% Cash advance fees 4,184 802 422% Check cashing royalties and fees 1,068 1,003 6% ---------- ---------- --------- TOTAL REVENUE 90,987 80,426 13% ---------- ---------- --------- COSTS OF REVENUE Disposed merchandise 39,185 33,274 18% ---------- ---------- --------- NET REVENUE $ 51,802 $ 47,152 10% ========== ========== ========= OTHER DATA CONSOLIDATED OPERATIONS: Net revenue contribution by source-- Finance and service charges 53.0% 58.2% (9)% Margin on disposition of merchandise 36.9% 38.0% (3)% Cash advance fees 8.1% 1.7% 376% Check cashing royalties and fees 2.0% 2.1% (5)% Expenses as a percentage of net revenue-- Operations and administration 77.7% 79.8% (3)% Cash advance loss provision 3.0% .4% 650% Depreciation and amortization 7.1% 8.9% (20)% Interest, net 4.0% 5.5% (27)% Income from operations as a percentage of total revenue 6.9% 6.5% 6% LENDING OPERATIONS: PAWN LOANS Annualized yield on pawn loans 97.4% 96.0% 1% Average pawn loan balance outstanding $ 113,097 $ 114,141 (1)% Average pawn loan balance per average location in operation $ 248 $ 249 -- Average pawn loan amount at end of period (not in thousands) $ 100 $ 94 6% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 32.8% 35.0% (6)% Average annualized merchandise turnover 3.0x 2.5x 20% Average merchandise held for disposition balance per average location $ 115 $ 115 -- SMALL CONSUMER CASH ADVANCES Total amount of advances written(a) $ 26,347 $ 8,154 223% Number of advances written (not in thousands)(a) 94,037 33,522 181% Average advance amount written (not in thousands)(a) $ 280 $ 243 15% Average number of locations offering advances (not in thousands)(a) 391 352 11% Combined advances outstanding(a) $ 7,489 $ 2,748 173% Advances outstanding before allowance for losses(b) $ 2,754 $ 741 272% Owned locations in operation-- Beginning of period 459 460 Acquired -- 1 Combined or closed (5) (3) End of period 454 458 (1)% Additional franchise locations at end of period 13 15 (13)% Total locations at end of period 467 473 (1)% Average number of owned locations in operation 456 459 (1)% CHECK CASHING OPERATIONS: Check cashing royalties and fees $ 826 $ 809 2% Franchised and owned check cashing centers-- Face amount of checks cashed $ 249,778 $ 230,689 8% Gross fees collected $ 3,470 $ 3,144 10% Average check cashed (not in thousands) $ 333 $ 324 3% Centers in operation at end of period 135 135 -- Average centers in operation for the period 135 133 2%
- ---------- (a) Includes advances made by the Company and advances made by a third-party financial institution. (b) Amounts recorded in the Company's consolidated financial statements. Page 13 SIX MONTHS ENDED JUNE 30, 2002 vs. SIX MONTHS ENDED JUNE 30, 2001 - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected consolidated financial data with respect to the Company and its lending and check cashing operations as of June 30, 2002 and 2001, and for the six months then ended.
2002 2001 Change ---------- ---------- ---------- REVENUE Finance and service charges $ 56,276 $ 56,407 -- Proceeds from disposition of merchandise 125,313 113,963 10% Cash advance fees 7,746 1,427 443% Check cashing royalties and fees 2,372 2,185 9% ---------- ---------- ---------- TOTAL REVENUE 191,707 173,982 10% ---------- ---------- ---------- COSTS OF REVENUE Disposed merchandise 83,066 74,702 11% ---------- ---------- ---------- NET REVENUE $ 108,641 $ 99,280 9% ========== ========== ========== OTHER DATA CONSOLIDATED OPERATIONS: Net revenue contribution by source-- Finance and service charges 51.8% 56.8% (9)% Margin on disposition of merchandise 38.9% 39.5% (2)% Cash advance fees 7.1% 1.5% 373% Check cashing royalties and fees 2.2% 2.2% -- Expenses as a percentage of net revenue-- Operations and administration 75.7% 77.2% (2)% Cash advance loss provision 2.3% .4% 475% Depreciation and amortization 6.7% 8.5% (21)% Interest, net 4.0% 5.5% (27)% Income from operations as a percentage of total revenue 8.7% 7.9% 10% LENDING OPERATIONS: PAWN LOANS Annualized yield on pawn loans 100.7% 99.5% 1% Average pawn loan balance outstanding $ 112,664 $ 114,345 (1)% Average pawn loan balance per average location in operation $ 246 $ 249 (1)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 33.7% 34.5% (2)% Average annualized merchandise turnover 3.0x 2.7x 10% Average merchandise held for disposition balance per average location $ 123 $ 119 3% SMALL CONSUMER CASH ADVANCES Total amount of advances written(a) $ 48,035 $ 14,006 243% Number of advances written (not in thousands)(a) 170,509 60,561 182% Average advance amount written (not in thousands)(a) $ 282 $ 231 22% Average number of locations offering advances (not in thousands)(a) 391 345 13% Owned locations in operation-- Beginning of period 460 463 Acquired 2 1 Start-ups -- 1 Combined or closed (8) (7) End of period 454 458 (1)% Additional franchise locations at end of period 13 15 (13)% Total locations at end of period 467 473 (1)% Average number of owned locations in operation 458 460 -- CHECK CASHING OPERATIONS: Check cashing royalties and fees $ 1,946 $ 1,808 8% Franchised and owned check cashing centers-- Face amount of checks cashed $ 545,723 $ 503,666 8% Gross fees collected $ 7,918 $ 7,166 10% Average check cashed (not in thousands) $ 366 $ 350 5% Centers in operation at end of period 135 135 -- Average centers in operation for the period 135 133 2%
- ---------- (a) Includes advances made by the Company and advances made by a third-party financial institution. (b) Amounts recorded in the Company's consolidated financial statements. Page 14 GENERAL - -------------------------------------------------------------------------------- The Company is a 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. As an alternative to a pawn loan, the Company offers small consumer cash advances in selected lending locations and on behalf of a third-party financial institution in other locations. The Company also provides check cashing services through its franchised and company owned Mr. Payroll(R) manned check cashing centers. As of June 30, 2002, the Company's lending operations consisted of 467 lending units (454 owned units and 13 franchised units in 18 states in the United States, 45 jewelry-only units in the United Kingdom, and 11 loan-only and primarily jewelry-only units in Sweden). The number of owned lending locations declined by 9 during the 18 months ended June 30, 2002 as the Company acquired 7 operating units, established 2 locations, and combined or closed 18 locations. In addition, one franchise unit was opened and 4 units were closed. As of June 30, 2002, Mr. Payroll operated 128 franchised and 7 company owned manned check cashing centers in 20 states. In September 2001, the Company announced plans to exit the rent-to-own business in order to focus on its core business of lending activities. In June 2002, the Company sold the remaining assets of its rent-to-own business. See Note 3 of Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- SECOND QUARTER ENDED JUNE 30, 2002, COMPARED TO THE SECOND QUARTER ENDED JUNE 30, 2001 CONSOLIDATED NET REVENUE. Consolidated net revenue increased $4.7 million, or 10.0%, to $51.8 million during the second quarter ended June 30, 2002 (the "current quarter") from $47.1 million during the second quarter ended June 30, 2001 (the "prior year quarter"). The following table sets forth net revenue results by operating segment for the three month periods ended June 30 ($ in millions):
2002 2001 Increase (decrease) ------ ------ ------------------ Domestic lending $ 44.3 $ 40.5 $ 3.8 9.4% Foreign lending 6.7 5.8 0.9 15.5% ------ ------ ------ ------ Total lending 51.0 46.3 4.7 10.1% Check cashing .8 .8 -- --% ------ ------ ------ ------ Consolidated $ 51.8 $ 47.1 $ 4.7 10.0% ====== ====== ====== ======
The Company's domestic lending operations generated the majority of the increase in consolidated net revenue. Higher disposition of merchandise and higher revenue from the Company's small consumer cash advance product accounted for the increase in net revenue. The components of net revenue are finance and service charges from pawn loans, which remained unchanged; net revenue from the disposition of merchandise, which increased $1.2 Page 15 million; cash advance fees, which increased $3.4 million; and check cashing fees and royalties, which increased $.1 million. Management believes that the trend of higher cash advance fees will continue during 2002 as customers may choose to use both pawn and cash advance products. This will likely cause a more moderate increase, or potentially a decrease, in finance and service charges in 2002 that should be offset by higher cash advance fees. FINANCE AND SERVICE CHARGES. The following is a summary of finance and service charges related to pawn loans by operating segment for the three months ended June 30 ($ in millions):
2002 2001 Increase (decrease) -------- -------- ----------------------- Domestic lending $ 21.7 $ 22.2 $ (.5) (2.2)% Foreign lending 5.7 5.2 .5 9.6% -------- -------- -------- -------- Total $ 27.4 $ 27.4 $ -- --% ======== ======== ======== ========
Variations in finance and service charges on pawn loans are caused by changes in the average balance of pawn loans outstanding, the annualized yield of the pawn loan portfolio, and the effects of translation of foreign currency amounts into United States dollars. The following table demonstrates how each of these factors affected the total change in finance and service charges on pawn loans ($ in millions):
Average Total Before Balance Loan Foreign Foreign Outstanding Yield Translation Translation Total ----------- -------- ----------- ----------- -------- Domestic lending $ (1.1) $ .6 $ (.5) $ -- $ (.5) Foreign lending .1 .2 .3 .2 .5 -------- -------- -------- -------- -------- Total $ (1.0) $ .8 $ (.2) $ .2 $ -- ======== ======== ======== ======== ========
Excluding the favorable impact of foreign currency translation adjustments, the company-wide average balance of pawn loans outstanding was 2.6% lower during the current quarter than the prior year quarter. On a segment basis, the average balances of pawn loans were 5.2% lower and 2.2% higher for the domestic and foreign lending operations, respectively. The decrease in the average balance of domestic pawn loans outstanding was driven by a 6.4% decline in the average number of pawn loans outstanding during the current quarter, partially offset by a 1.4% increase in the average amount per loan. Management believes that the decrease in the number of domestic pawn loans was partly attributable to some customers choosing to satisfy their short-term borrowing needs through a cash advance instead of through a pawn loan. Also, pawn loan balances at the beginning of the current quarter were lower on a year-over-year basis due to larger than usual per capita tax refunds believed to have been received by pawn loan customers in the first quarter of 2002. Management believes that this trend will continue throughout the remainder of 2002. The average balance of pawn loans outstanding denominated in their local currencies increased 6.9% and decreased 4.9% in the United Kingdom and Sweden, respectively. Foreign loan demand was mixed as the average number of pawn loans outstanding in the United Kingdom and Sweden increased 4.5% and decreased 7.2%, respectively. Average amounts per loan were higher for both the United Kingdom and Sweden by 2.3% and 2.5%, respectively. Excluding the favorable impact of foreign currency translation adjustments, the consolidated annualized loan yield, which represents the blended result derived from the distinctive loan yields realized from operations in the three countries, was 98.4% in the current year quarter, compared to 96.4% in the prior year quarter. There was an increase in the domestic annualized loan yield to 122.8% for the current year quarter, compared to 119.5% for the prior year quarter. A slightly higher concentration of extended or renewed loans in the portfolio and Page 16 higher redemption rates have contributed to the higher domestic yield. The blended yield on average foreign pawn loans outstanding increased to 55.5% in the current year quarter compared to 52.7% in the prior year quarter. The increase in the blended foreign yield was caused by a combination of higher loan redemption rates and higher yield on the disposition of unredeemed collateral at auction. Foreign source finance and service charges increased $.2 million in the current quarter due to favorable currency translation adjustments resulting from the weakening of the United States dollar against the British pound and Swedish kronor. The weighted average exchange rates used for translating earnings into United States dollars for the pound and kronor were 3.0% and 4.7% higher, respectively, during the current quarter compared to the prior year quarter. Management anticipates a continued favorable translation adjustment for both the pound and the kronor for the remainder of 2002. NET REVENUE FROM THE DISPOSITION OF MERCHANDISE. Net revenue from the disposition of merchandise represents the proceeds received from the disposition of merchandise in excess of the cost of merchandise sold. The combination of a 13.9% increase in proceeds offset by slightly lower margins resulted in a $1.2 million, or 6.6%, increase in net revenue from the disposition of merchandise. The following table summarizes by operating segment the change in the proceeds from the disposition of merchandise and the related net margin for the current quarter compared to the prior year quarter ($ in millions):
Increase (decrease) ------------------------------------------ Disposition % Net % Proceeds Change Margin Change ----------- ------ ------ ------ Domestic lending $ 5.9 12.0% $ .9 5.3% Foreign lending 1.2 58.8% .3 57.1% ------ ------ ------ ------ Total $ 7.1 13.9% $ 1.2 6.6% ====== ====== ====== ======
Proceeds from the disposition of merchandise were $7.1 million, or 13.9%, higher than in the prior year quarter, primarily due to an increase in volume of items sold and an increase in the disposition of scrap gold jewelry. The consolidated merchandise turnover rate increased to 3.0 times during the current quarter as compared to 2.5 times during the prior year quarter, and the margin on disposition of merchandise decreased to 32.8% in the current quarter from 35.0% in the prior year quarter. Excluding the effect of the disposition of scrap jewelry, the margin on disposition of merchandise decreased slightly to 36.7% in the current quarter from 37.2% in the prior year quarter due to lower average proceeds of merchandise sold. The margin on disposition of scrap jewelry was 12.1% in the current quarter compared to 9.0% in the prior year quarter due to the prevailing higher price of gold which resulted in a higher settlement price per ounce. CASH ADVANCE FEES. Cash advance fees increased $3.4 million to $4.2 million in the current quarter as compared to $.8 million in the prior year quarter. The increase resulted from higher demand for the small consumer cash advance product that the Company began offering and promoting in 2000. The product was available in 390 domestic lending units at June 30, 2002, including 321 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. Cash advance fees includes revenue from the advance portfolio owned by the Company and fees for administrative services performed for the Bank. (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 "advances" for convenience.) Page 17 Advances written increased $18.2 million to $26.3 million in the current quarter from $8.1 million in the prior year quarter. The $26.3 million in advances written in the current quarter includes $22.4 million extended to customers by the Bank. The average amount per advance increased to $280 from $243 and the combined portfolio of advances generated $4.6 million in revenue during the current quarter compared to $1.2 million in the prior year quarter. The outstanding combined Company and Bank portfolio of short-term advances increased $4.8 million to $7.5 million at June 30, 2002 from $2.7 million at June 30, 2001. Included in these amounts are $2.7 million and $.7 million for 2002 and 2001, respectively, that are included in the Company's consolidated balance sheets. An allowance for losses of $1.3 million and $.1 million has been provided in the consolidated financial statements for June 30, 2002 and 2001, respectively, which offsets the outstanding advance amounts. The net balance is carried in "Other receivables and prepaid expenses" on the consolidated balance sheets. CHECK CASHING ROYALTIES AND FEES. Check cashing revenue remained unchanged for both Mr. Payroll and the United Kingdom operations in the current quarter at $.8 million and $.2 million, respectively. OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and administration expense as a percentage of net revenue was 77.7% in the current quarter compared to 79.8% in the prior year quarter. These expenses increased $2.6 million, or 7.1%, in the current quarter compared to the prior year quarter. Domestic lending expenses increased $2.1 million, primarily as a result of higher health insurance costs and higher incentive expenses associated with the improvement in operating results. Foreign lending operations expenses increased $.6 million primarily due to an increase in the number of locations in the United Kingdom. Mr. Payroll's expenses remained unchanged. CASH ADVANCE LOSS PROVISION. Cash advance loss provision for domestic lending operations increased $1.4 million to $1.6 million in the current quarter as compared to $.2 million in the prior year quarter due to the increase in the size of the portfolio. The Company's cash advance product primarily services a customer base of non-prime borrowers. The Company maintains an allowance for losses on its advances at a level estimated to be adequate to absorb future credit losses inherent in the outstanding advance portfolio. The cash advance loss provision is utilized to increase the allowance carried against the outstanding receivables portfolio. In addition to the advances originated by the Company in some of its locations, advances are offered in other locations by a third-party financial institution (the "Bank"). Under the terms of the August 2001 amendment to the Company's agreement with the Bank, the Bank assigns each advance that remains unpaid after its maturity date to the Company at a discount from the amount owed by the borrower and the Company undertakes the collection activity on the account. One of the reasons for this practice is to benefit from the use of the Company's collections resources and proficiency. As a result, future losses on cash advances assigned to the Company that prove uncollectible are the sole responsibility of the Company. Therefore, when establishing the Company's overall allowance for losses, management includes estimates for these cash advance losses, while active in the Bank's portfolio, at a level estimated to be adequate to absorb credit losses. Loss provision as a percentage of cash advance fees increased to 37.5% in the current quarter from 21.3% in the prior year quarter. This increase reflects the changes made to the Company's agreement with the Bank in August 2001. While the new agreement provided for a higher administrative fee, the cash advance loss provision increased as the Company began providing for estimated losses on active advances and advances assigned to the Company for collection. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a percentage of net revenue was 7.1% in the current quarter compared to 8.9% in the prior year quarter. Total Page 18 depreciation and amortization expenses decreased $.5 million, or 11.8%. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, the Company ceased amortizing all goodwill and other intangible assets having an indefinite useful life. See Note 7 of Notes to Consolidated Financial Statements. A $.8 million decline in amortization due to the adoption of SFAS 142 was partially offset by an increase in depreciation expense associated with the reconstruction of the Company's corporate headquarters that was severely damaged by a tornado in March 2000. INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined to 4.0% in the current quarter from 5.5% in the prior year quarter. The amount decreased a net $.5 million, or 19.7%, due to the effect of lower blended borrowing costs accompanied by a 2.9% reduction in the Company's average debt balance. The effective blended borrowing cost decreased to 5.2% in the current quarter from 6.2% in the prior year quarter. The average amount of debt outstanding decreased during the current quarter to $161.0 million from $165.8 million during the prior year quarter. LOSS FROM DERIVATIVE VALUATION FLUCTUATIONS. Effective January 1, 2001, the Company implemented SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and its corresponding amendments under SFAS No. 138. The adjustments to fair values of interest rate cap agreements during the current quarter resulted in a slight loss compared to a gain of $.1 million in the prior year quarter. INCOME TAXES. The Company's effective tax rate for the quarter ended June 30, 2002 was 35.7% as compared to 42.3% for the quarter ended June 30, 2001. Excluding goodwill amortization and the related tax effects in the prior year quarter, the Company's comparable consolidated effective tax rate was 36.2% for the prior year quarter. Page 19 - -------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001 CONSOLIDATED NET REVENUE. Consolidated net revenue increased $9.3 million, or 9.4%, to $108.6 million during the six months ended June 30, 2002 (the "current period") from $99.3 million during the six months ended June 30, 2001 (the "prior year period"). The following table sets forth net revenue results by operating segment for the six month periods ended June 30 ($ in millions):
2002 2001 Increase (decrease) -------- -------- ---------------------- Domestic lending $ 93.6 $ 85.7 $ 7.9 9.2% Foreign lending 13.1 11.8 1.3 11.0% -------- -------- -------- -------- Total lending 106.7 97.5 9.2 9.4% Check cashing 1.9 1.8 .1 5.6% -------- -------- -------- -------- Consolidated $ 108.6 $ 99.3 $ 9.3 9.4% ======== ======== ======== ========
The Company's domestic lending operations generated the majority of the increase in consolidated net revenue. Higher disposition of merchandise and higher revenue from the Company's small consumer cash advance product accounted for this increase. Finance and service charges from pawn loans decreased $.1 million; net revenue from the disposition of merchandise increased $3.0 million; cash advance fees increased $6.3 million; and check cashing fees and royalties increased $.1 million. Management believes that the trend of higher cash advance fees will continue during 2002 as customers may choose to use both pawn and cash advance products. This will likely cause a more moderate increase, or potentially a decrease, in finance and service charges for the remainder of 2002 that should be offset by higher cash advance fees. FINANCE AND SERVICE CHARGES. The following is a summary of finance and service charges related to pawn loans by operating segment for the six months ended June 30 ($ in millions):
2002 2001 Increase (decrease) -------- -------- ----------------------- Domestic lending $ 45.0 $ 45.8 $ (.8) (1.7)% Foreign lending 11.3 10.6 .7 6.6% -------- -------- -------- -------- Total $ 56.3 $ 56.4 $ (.1) (.2)% ======== ======== ======== ========
The following table demonstrates how each of these factors affected the total change in finance and service charges on pawn loans ($ in millions):
Average Total Before Balance Loan Foreign Foreign Outstanding Yield Translation Translation Total ----------- -------- ------------ ----------- -------- Domestic lending $ (1.5) $ .7 $ (.8) $ -- $ (.8) Foreign lending .3 .4 .7 -- .7 -------- -------- -------- -------- -------- Total $ (1.2) $ 1.1 $ (.1) $ -- $ (.1) ======== ======== ======== ======== ========
Excluding the effects of foreign currency translation adjustments, the company-wide average balance of pawn loans outstanding was 1.6% lower during the current period than the prior year period. On a segment basis, the average balances of pawn loans were 3.3% lower and Page 20 1.4% higher for the domestic and foreign lending operations, respectively. The decrease in the average balance of domestic pawn loans outstanding was driven by a 4.1% decline in the average number of pawn loans outstanding during the current period, partially offset by a .8% increase in the average amount per loan. Management believes that the decrease in the number of domestic pawn loans was partly attributable to some customers choosing to satisfy their short-term borrowing needs through a cash advance instead of through a pawn loan and also due to larger than usual per capita tax refunds believed to have been received by pawn loan customers in the first quarter of 2002. Management believes that this trend will continue throughout the remainder of 2002. The average balance of pawn loans outstanding denominated in their local currencies increased 5.7% and decreased 4.9% in the United Kingdom and Sweden, respectively. Foreign loan demand was mixed as the average number of pawn loans outstanding in the United Kingdom and Sweden increased 3.5% and decreased 6.9%, respectively. Average amounts per loan were 2.1% higher for both the United Kingdom and Sweden. Excluding the effects of foreign currency translation adjustments, the consolidated annualized loan yield was 100.9% in the current year period, compared to 99.5% in the prior year period. There was an increase in the domestic annualized loan yield to 127.2% for the current year period, compared to 125.2% for the prior year period. A slightly higher concentration of extended or renewed loans in the portfolio and higher redemption rates have contributed to the higher domestic loan yield. The blended yield on average foreign pawn loans outstanding increased to 55.4% in the current year period compared to 52.6% in the prior year period. The increase in the blended foreign yield was caused by a combination of higher loan redemption rates and higher yield on the disposition of unredeemed collateral at auction. While foreign source finance and service charges were not significantly impacted during the current period by currency translation adjustments, based on current trends in exchange rates Management anticipates a favorable translation adjustment for both the British pound and the Swedish kronor for the remainder of 2002. The weighted average exchange rates used for translating earnings into United States dollars for the pound and the kronor were .6% higher and .9% lower, respectively, during the current period compared to the prior year period. NET REVENUE FROM THE DISPOSITION OF MERCHANDISE. The combination of increased proceeds and a slightly higher margin resulted in a $3.0 million, or 7.6%, increase in net revenue from the disposition of merchandise. The following table summarizes by operating segment the change in the proceeds from the disposition of merchandise and the related net margin for the current period compared to the prior year period ($ in millions):
Increase (decrease) -------------------------------------------------------------- Disposition % Net % Proceeds Change Margin Change ----------- -------- -------- -------- Domestic lending $ 9.9 9.1% $ 2.4 6.3% Foreign lending 1.4 33.1% .6 71.5% -------- -------- -------- -------- Total $ 11.3 10.0% $ 3.0 7.6% ======== ======== ======== ========
Proceeds from the disposition of merchandise were $11.3 million, or 10.0%, higher than in the prior year period, primarily due to an increase in volume of items sold and an increase in the disposition of scrap gold jewelry. The consolidated merchandise turnover rate increased to 3.0 times during the current period as compared to 2.7 times during the prior year period, and the margin on disposition of merchandise decreased to 33.7% in the current period from 34.5% in the prior year period. Excluding the effect of the disposition of scrap jewelry, the margin on disposition of merchandise remained virtually unchanged at 36.3% in the current period compared Page 21 to 36.4% in the prior year period. The margin on disposition of scrap jewelry was 14.1% in the current period compared to 6.9% in the prior year period due to the prevailing higher price of gold which resulted in a higher settlement price per ounce. CASH ADVANCE FEES. Cash advance fees increased $6.3 million to $7.7 million in the current period as compared to $1.4 million in the prior year period. The increase resulted from higher demand for the small consumer cash advance product that the Company began offering and promoting in 2000. Advances written increased $34.0 million to $48.0 million in the current period from $14.0 million in the prior year period. The $48.0 million in advances written in the current period includes $40.9 million extended to customers by the Bank. The average amount per advance increased to $282 from $231 and the combined portfolio of advances generated $8.5 million in revenue during the current period compared to $2.1 million in the prior year period. CHECK CASHING ROYALTIES AND FEES. Check cashing revenue for Mr. Payroll increased $.1 million, or 7.6%, in the current period, while check cashing fees for the United Kingdom operations remained unchanged at $.4 million for the same period. OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and administration expense as a percentage of net revenue was 75.7% in the current period compared to 77.2% in the prior year period. These expenses increased $5.5 million, or 7.2%, in the current period compared to the prior year period. Domestic lending expenses increased $4.5 million, primarily as a result of higher health insurance costs and higher incentive expenses associated with the improvement in operating results. Foreign lending operations expenses increased $.9 million primarily due to an increase in the number of locations in the United Kingdom and higher administration costs. Mr. Payroll's expenses increased $.1 million in the current period compared to the prior year period, primarily due to higher marketing and occupancy costs. CASH ADVANCE LOSS PROVISION. Cash advance loss provision for domestic lending operations increased $2.1 million to $2.5 million in the current period as compared to $.4 million in the prior year period due to the increase in the size of the portfolio. Loss provision as a percentage of cash advance fees increased to 31.9% in the current period from 27.3% in the prior year period. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a percentage of net revenue was 6.7% in the current period compared to 8.5% in the prior year period. Total depreciation and amortization expenses decreased $1.1 million, or 13.6%. A $1.6 million decline in amortization due to the adoption of SFAS 142 was partially offset by an increase in depreciation expense associated with the reconstruction of the Company's corporate headquarters that was severely damaged by a tornado in March 2000. INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined to 4.0% in the current period from 5.5% in the prior year period. The amount decreased a net $1.1 million, or 20.3%, due to the effect of lower blended borrowing costs accompanied by a 2.0% reduction in the Company's average debt balance. The effective blended borrowing cost decreased to 5.3% in the current period from 6.6% in the prior year period. The average amount of debt outstanding decreased during the current period to $163.1 million from $166.5 million during the prior year period. Page 22 LOSS FROM DERIVATIVE VALUATION FLUCTUATIONS. The adjustments to fair values of interest rate cap agreements during the current period resulted in a loss of $.1 million compared to a loss of $.4 million in the prior year period. INCOME TAXES. The Company's effective tax rate for the period ended June 30, 2002 was 35.9% as compared to 40.3% for the period ended June 30, 2001. Excluding goodwill amortization and the related tax effects in the prior year period, the Company's comparable consolidated effective tax rate was 36.2% for the prior year period. LIQUIDITY AND CAPITAL RESOURCES - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operating activities of continuing operations was $24.9 million for the six months ended June 30, 2002 (the "current period"). CASH FLOWS FROM INVESTING ACTIVITIES. An increase in the Company's investment in pawn loans and cash advances during the current quarter required $1.9 million of cash. Additionally, the Company invested $5.8 million in purchases of property and equipment during the current period for property improvements, the remodeling of selected operating units and additions to computer systems for lending operations. During the current period, the Company acquired two lending locations for $1.0 million. Management anticipates that capital expenditures for the remainder of 2002 will be approximately $6.0 million. These expenditures will primarily relate to an estimated 5 to 10 new lending locations, the remodeling of selected operating units, and enhancements to information systems. The new lending locations will mostly occur through the acquisition of existing locations. CASH FLOWS FROM FINANCING ACTIVITIES. The Company used cash to make payments of $17.7 million on debt obligations in connection with unsecured notes and capital leases, $.6 million for dividends, and $1.2 million for the purchase of treasury shares. 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. Under this authorization, the Company purchased 176,700 shares for an aggregate amount of $1.2 million during the current period. On July 25, 2002, the Company announced that its Board of Directors had authorized management to repurchase up to one million shares of its stock on the open market. Purchases will be made from time to time and it is expected that funding will come from operating cash flow. At June 30, 2002, $95 million was outstanding on the Company's $150 million U.S. line of credit. In addition, the Company's (pound)20 million (approximately $30.6 million at June 30, 2002) multi-currency line of credit in the United Kingdom had balances outstanding of (pound)2.8 million (approximately $4.2 million at June 30, 2002) and SEK 53.5 million (approximately $5.8 million at June 30, 2002) related to operations in the United Kingdom and Sweden, respectively. During August 2002, the Company issued $42,500,000 of 7.20% senior unsecured notes, due August 2009. The notes are payable in five equal annual payments beginning August 2005. The Company also refinanced its U.S. line of credit during August 2002, with a $90,000,000 senior unsecured revolving line of credit maturing August 2005. Interest on the line of credit will be charged at the Company's option at either LIBOR (1.875% at June 30, 2002) plus a margin or at the Agent's base rate. The margin on the line of credit varies from 1.25% to 2.50%, depending on the Company's ratio of indebtedness to cash flow as defined in the agreement. Net proceeds received under these agreements will be used to reduce existing indebtedness, and for general Page 23 corporate purposes. The Company is in compliance with all covenants or other requirements set forth in the debt agreements. The Company has received a commitment to extend its multi-currency line of credit for one year to April 30, 2004. The terms of this line of credit remain essentially unchanged, with the exception of a reduction in the maximum amount to L.15,000,000 (approximately $23.0 million at June 30, 2002) from L.20,000,000 (approximately $30.6 million at June 30, 2002). Management believes that borrowings available under these credit facilities, cash generated from operations and current working capital of $177.7 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, 2001. Page 24 DOMESTIC LENDING OPERATIONS - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected financial data for the Company's domestic lending operations as of June 30, 2002 and 2001, and for the three months then ended.
2002 2001 Change -------- -------- -------- REVENUE Finance and service charges $ 21,688 $ 22,255 (3)% Proceeds from disposition of merchandise 55,093 49,173 12% Cash advance fees 4,184 802 422% -------- -------- TOTAL REVENUE 80,965 72,230 12% -------- -------- COSTS OF REVENUE Disposed merchandise 36,728 31,732 16% -------- -------- NET REVENUE $ 44,237 $ 40,498 9% ======== ======== OTHER DATA Net revenue contribution by source-- Finance and service charges 49.0% 55.0% (11)% Margin on disposition of merchandise 41.5% 43.1% (4)% Cash advance fees 9.5% 1.9% 400% Expenses as a percentage of net revenue-- Operations and administration 81.3% 83.7% (3)% Cash advance loss provision 3.5% .4% 775% Depreciation and amortization 6.6% 8.5% (22)% Interest, net 2.4% 3.1% (23)% Income from operations as a percentage of total revenue 4.7% 4.1% 15% Annualized yield on pawn loans 122.8% 119.5% 3% Average pawn loan balance outstanding $ 70,832 $ 74,682 (5)% Average pawn loan balance per average location in operation $ 177 $ 184 (4)% Average pawn loan amount at end of period (not in thousands) $ 80 $ 79 1% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 33.3% 35.5% (6)% Average annualized merchandise turnover 3.0x 2.5x 21% Average merchandise held for disposition balance per average location $ 122 $ 124 (2)% Owned locations in operation-- Beginning of period 403 407 Acquired -- 1 Combined or closed (5) (3) End of period 398 405 (2)% Additional franchise locations at end of period 13 15 (13)% Total locations at end of period 411 420 (2)% Average number of owned locations in operation 400 406 (1)%
Page 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, 2002 and 2001, and for the six months then ended.
2002 2001 Change ---------- ---------- ---------- REVENUE Finance and service charges $ 45,003 $ 45,815 (2)% Proceeds from disposition of merchandise 119,650 109,707 9% Cash advance fees 7,746 1,427 443% ---------- ---------- TOTAL REVENUE 172,399 156,949 10% ---------- ---------- COSTS OF REVENUE Disposed merchandise 78,804 71,263 11% ---------- ---------- NET REVENUE $ 93,595 $ 85,686 9% ========== ========== OTHER DATA Net revenue contribution by source-- Finance and service charges 48.1% 53.5% (10)% Margin on disposition of merchandise 43.6% 44.9% (3)% Cash advance fees 8.3% 1.6% 419% Expenses as a percentage of net revenue-- Operations and administration 78.6% 80.6% (2)% Cash advance loss provision 2.6% .5% 420% Depreciation and amortization 6.2% 8.1% (23)% Interest, net 2.4% 2.9% (18)% Income from operations as a percentage of total revenue 6.8% 5.9% 15% Annualized yield on pawn loans 127.2% 125.2% 2% Average pawn loan balance outstanding $ 71,356 $ 73,768 (3)% Average pawn loan balance per average location in operation $ 178 $ 181 (2)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 34.1% 35.0% (3)% Average annualized merchandise turnover 3.0x 2.8x 7% Average merchandise held for disposition balance per average location $ 132 $ 128 3% Owned locations in operation-- Beginning of period 404 410 Acquired 2 1 Start-ups -- 1 Combined or closed (8) (7) End of period 398 405 (2)% Additional franchise locations at end of period 13 15 (13)% Total locations at end of period 411 420 (2)% Average number of owned locations in operation 402 407 (1)%
Page 26 FOREIGN LENDING OPERATIONS - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected consolidated financial data in U.S. dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of June 30, 2002 and 2001, and for the three months then ended, using the following currency exchange rates:
2002 2001 Change ---------- ---------- ---------- Harvey & Thompson, Ltd. (British pound sterling per U.S. dollar)-- Balance sheet data - end of period rate .6527 .7066 8% Statements of operations data - average rate for the period .6842 .7051 3% Svensk Pantbelaning (Swedish kronor per U.S. dollar)-- Balance sheet data - end of period rate 9.1593 10.8530 16% Statements of operations data - average rate for the period 9.9669 10.4553 5% ========== ========== REVENUE Finance and service charges $ 5,768 $ 5,187 11% Proceeds from disposition of merchandise 3,186 2,006 59% Check cashing fees 242 194 25% ---------- ---------- TOTAL REVENUE 9,196 7,387 24% ---------- ---------- COSTS OF REVENUE Disposed merchandise 2,457 1,542 59% ---------- ---------- NET REVENUE $ 6,739 $ 5,845 15% ========== ========== OTHER DATA Net revenue contribution by source-- Finance and service charges 85.6% 88.7% (4)% Margin on disposition of merchandise 10.8% 7.9% 37% Check cashing fees 3.6% 3.4% 8% Expenses as a percentage of net revenue-- Operations and administration 57.0% 56.1% 2% Depreciation and amortization 9.0% 8.8% 2% Interest, net 2.1% 3.2% (34)% Income from operations as a percentage of total revenue 25.0% 27.8% (10)% Annualized yield on loans 54.7% 52.7% 4% Average pawn loan balance outstanding $ 42,265 $ 39,458 7% Average loan balance per average location in operation $ 755 $ 744 1% Average loan amount at end of period (not in thousands) $ 175 $ 153 14% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 22.9% 23.1% (1)% Average annualized merchandise turnover 2.7x 2.4x 14% Average merchandise held for disposition balance per average location $ 64 $ 48 33% Lending locations in operation-- Beginning of period 56 53 6% End of period 56 53 6% Average number of locations in operation 56 53 6%
Page 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, 2002 and 2001, and for the six months then ended, using the following currency exchange rates:
2002 2001 Change -------- -------- -------- Harvey & Thompson, Ltd. (British pound sterling per U.S. dollar)-- Statements of operations data - average rate for the period .6920 .6960 1% Svensk Pantbelaning (Swedish kronor per U.S. dollar)-- Statements of operations data - average rate for the period 10.1984 10.1117 (1)% -------- -------- REVENUE Finance and service charges $ 11,273 $ 10,592 6% Proceeds from disposition of merchandise 5,663 4,256 33% Check cashing fees 426 377 13% -------- -------- TOTAL REVENUE 17,362 15,225 14% -------- -------- COSTS OF REVENUE Disposed merchandise 4,262 3,439 24% -------- -------- NET REVENUE $ 13,100 $ 11,786 11% ======== ======== OTHER DATA Net revenue contribution by source-- Finance and service charges 86.1% 89.9% (4)% Margin on disposition of merchandise 10.7% 6.9% 55% Check cashing fees 3.2% 3.2% 1% Expenses as a percentage of net revenue-- Operations and administration 57.5% 56.5% 2% Depreciation and amortization 8.9% 8.6% -- Interest, net 2.1% 3.5% (40)% Income from operations as a percentage of total revenue 25.3% 27.1% (7)% Annualized yield on pawn loans 55.0% 52.6% 4% Average pawn loan balance outstanding $ 41,308 $ 40,577 2% Average pawn loan balance per average location in operation $ 738 $ 766 (4)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 24.7% 19.2% 29% Average annualized merchandise turnover 2.5x 2.6x (4)% Average merchandise held for disposition balance per average location $ 61 $ 51 20% Lending locations in operation-- Beginning of period 56 53 6% End of period 56 53 6% Average number of locations in operation 56 53 6%
Page 28 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 related 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 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: o Changes in customer demand for the Company's products and specialty financial services; o The actions of third-parties who offer products and services at the Company's locations; o The ability of the Company to open and acquire new operating units in accordance with its plans; o Changes in competition from various sources such as banks, savings and loans, short-term consumer lenders, and other similar financial services entities, as well as retail businesses that offer products and services offered by the Company; o Changes in economic conditions; o Real estate market fluctuations; o Interest rate fluctuations; o Changes in the capital markets; o Changes in tax and other laws and governmental rules and regulations applicable to the specialty financial services industry; o Other risks indicated in the Company's filings with the Securities and Exchange Commission; and o Other factors discussed under Quantitative and Qualitative Disclosures about Market Risk in the Company's 2001 Annual Report to Stockholders. Page 29 PART II Item 1. LEGAL PROCEEDINGS See Note 10 of Notes to Consolidated Financial Statements Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 24, 2002, 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. 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 22,175,646 109,178 A. R. Dike 22,175,330 109,494 Daniel R. Feehan 22,176,075 108,749 James H. Graves 22,155,980 128,844 B. D. Hunter 22,147,747 137,077 Timothy J. McKibben 22,065,980 218,844 Alfred M. Micallef 22,175,980 108,844 Clifton H. Morris, Jr. 22,065,680 219,144 Carl P. Motheral 22,154,780 130,044
Page 30 (b) Ratification of Independent Auditors For - 22,017,406 Against - 262,787 Abstain - 4,631
Item 5. OTHER INFORMATION Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K None Page 31 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CASH AMERICA INTERNATIONAL, INC. -------------------------------------- (Registrant) By: /s/ Thomas A. Bessant, Jr. ---------------------------------- Thomas A. Bessant, Jr. Executive Vice President and Chief Financial Officer Date: August 14, 2002 Page 32 -----END PRIVACY-ENHANCED MESSAGE-----