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 March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _______________ Commission File Number 1-9733 CASH AMERICA INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) TEXAS 75-2018239 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 1600 WEST 7TH STREET FORT WORTH, TEXAS 76102 (Address of principal executive offices) (Zip Code) (817) 335-1100 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ APPLICABLE ONLY TO CORPORATE ISSUERS: 25,810,601 common shares, $.10 par value, were outstanding as of April 30, 2000 ================================================================================ 2 CASH AMERICA INTERNATIONAL, INC. INDEX TO 10-Q PART I. FINANCIAL STATEMENTS Page Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 2000 and 1999 and December 31, 1999..................................................... 1 Consolidated Statements of Income - Three Months Ended March 31, 2000 and 1999...................................................... 2 Consolidated Statements of Stockholders' Equity - Three Months Ended March 31, 2000 and 1999......................................... 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999......................................... 4 Notes to Consolidated Financial Statements......................................... 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................. 10 PART II. OTHER INFORMATION............................................................... 21 SIGNATURE................................................................................. 22 3 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (UNAUDITED) March 31, December 31, 2000 1999 1999 ----------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 6,599 $ 5,769 $ 6,186 Loans 115,907 120,845 125,349 Merchandise held for disposition, net 56,572 63,125 64,419 Inventory 3,549 1,213 2,801 Finance and service charges receivable 18,928 18,304 21,052 Other receivables and prepaid expenses 12,884 7,398 6,279 Income taxes recoverable 8,921 5,422 8,824 Deferred tax assets 5,278 7,487 5,548 ----------- ----------- ----------- Total current assets 228,638 229,563 240,458 Property and equipment, net 55,378 62,132 60,961 Intangible assets, net 90,036 89,570 90,901 Other assets 9,887 3,993 9,911 Investment in and advances to unconsolidated subsidiary 8,082 18,832 15,392 ----------- ----------- ----------- Total assets $ 392,021 $ 404,090 $ 417,623 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 19,360 $ 18,036 $ 20,931 Customer deposits 4,635 4,750 4,131 Income taxes currently payable 1,423 2,344 1,587 Current portion of long-term debt 5,309 4,693 5,390 ----------- ----------- ----------- Total current liabilities 30,727 29,823 32,039 Deferred tax liabilities 1,646 1,381 1,668 Long-term debt 173,605 180,048 196,976 ----------- ----------- ----------- Stockholders' equity: Common stock, $.10 par value per share, 80,000,000 shares authorized 3,024 3,024 3,024 Paid in surplus 127,852 126,991 127,350 Retained earnings 100,379 107,207 105,331 Accumulated other comprehensive loss (4,667) (3,774) (3,989) Notes receivable - stockholders (6,145) (3,510) (5,820) ----------- ----------- ----------- 220,443 229,938 225,896 Less -- shares held in treasury, at cost (34,400) (37,100) (38,956) ----------- ----------- ----------- Total stockholders' equity 186,043 192,838 186,940 ----------- ----------- ----------- Total liabilities and stockholders' equity $ 392,021 $ 404,090 $ 417,623 =========== =========== =========== 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 March 31, 2000 1999 ------------ ------------ REVENUE Finance and service charges $ 29,526 $ 31,495 Proceeds from disposition of merchandise 62,519 61,210 Lending franchise fees and royalties 79 11 Rental operations 3,741 1,450 Check cashing royalties and fees 1,131 1,482 ------------ ------------ TOTAL REVENUE 96,996 95,648 ------------ ------------ COSTS OF REVENUE Disposed merchandise 42,476 40,416 Rental operations 1,182 323 ------------ ------------ NET REVENUE 53,338 54,909 ============ ============ OPERATING EXPENSES Lending operations 31,386 29,707 Rental operations 2,508 511 Check cashing operations 367 2,146 Administration 6,687 7,360 Depreciation 3,528 3,913 Amortization 1,105 1,188 ------------ ------------ Total operating expenses 45,581 44,825 ------------ ------------ INCOME FROM OPERATIONS 7,757 10,084 Interest expense, net 3,299 3,331 Equity in loss of unconsolidated subsidiary 7,341 587 Gain from issuance of subsidiary's stock -- (4,815) ------------ ------------ Income (loss) before income taxes (2,883) 10,981 Provision for income taxes 1,754 6,181 ------------ ------------ NET INCOME (LOSS) $ (4,637) $ 4,800 ============ ============ Net income (loss) per share: Basic $ (.18) $ .19 Diluted (.18) .18 ------------ ------------ Weighted average shares: Basic 25,282 25,191 Diluted 25,282 26,419 ============ ============ See notes to consolidated financial statements. Page 2 5 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (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, 1999 30,235,164 $ 3,024 $ 127,350 $ 105,331 $ (3,989) $ (5,820) Comprehensive loss: Net loss (4,637) $ (4,637) Other comprehensive loss - Foreign currency translation adjustments (678) (678) ------------- Comprehensive loss $ (5,315) ------------- Dividends declared-- $.0125 per share (315) Treasury shares acquired Treasury shares reissued 485 Tax benefit from exercise of option shares 17 Change in notes receivable - stockholders (325) ------------ ---------- --------- ---------- ------------- ------------- ---------- Balance at March 31, 2000 30,235,164 $ 3,024 $ 127,852 $ 100,379 $ (4,667) $ (6,145) ============ ========== ========= ========== ============= ============= ======== Balance at December 31, 1998 30,235,164 $ 3,024 $ 126,615 $ 102,722 $ (2,414) $ (3,263) Comprehensive income: Net income 4,800 $ 4,800 Other comprehensive loss - Foreign currency translation adjustments (1,360) (1,360) ------------- Comprehensive income $ 3,440 ------------- Dividends declared-- $.0125 per share (315) Treasury shares acquired Treasury shares reissued (232) Tax benefit from exercise of option shares 608 Change in notes receivable - stockholders (247) ------------ ---------- --------- ---------- ------------- ------------- ---------- Balance at March 31, 1999 30,235,164 $ 3,024 $ 126,991 $ 107,207 $ (3,774) $ (3,510) ============ ========== ========= ========== ============= ============= ========== TREASURY STOCK ----------------------- SHARES AMOUNT ----------- ----------- Balance at December 31, 1999 5,055,170 $ (38,956) $ Comprehensive loss: Net loss Other comprehensive loss - Foreign currency translation adjustments Comprehensive loss Dividends declared-- $.0125 per share Treasury shares acquired (3,341) 45 Treasury shares reissued (588,200) 4,511 Tax benefit from exercise of option shares Change in notes receivable - stockholders --------- ----------- Balance at March 31, 2000 4,463,629 $ (34,400) ========= =========== Balance at December 31, 1998 5,114,218 $ (39,240) Comprehensive income: Net income Other comprehensive loss - Foreign currency translation adjustments Comprehensive income Dividends declared-- $.0125 per share Treasury shares acquired (750) 3 Treasury shares reissued (279,939) 2,137 Tax benefit from exercise of option shares Change in notes receivable - stockholders ----------- ----------- Balance at March 31, 1999 4,833,529 $ (37,100) =========== =========== See notes to consolidated financial statements. Page 3 6 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED) Three Months Ended March 31, 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (4,637) $ 4,800 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 3,528 3,913 Amortization 1,105 1,188 Equity in loss of unconsolidated subsidiary 7,341 587 Gain from issuance of subsidiary's stock -- (4,815) Changes in operating assets and liabilities- Merchandise held for disposition and inventory 7,138 1,238 Finance and service charges receivable 2,031 1,282 Other receivables and prepaid expenses (155) 737 Accounts payable and accrued expenses (1,537) 675 Customer deposits, net 504 599 Current income taxes (227) 3,767 Deferred taxes, net 39 1,500 ---------- ---------- Net cash provided by operating activities 15,130 15,471 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Loans forfeited and transferred to merchandise held for disposition 32,424 34,632 Loans repaid or renewed 77,042 79,867 Loans made, including loans renewed (100,695) (107,852) ---------- ---------- Net decrease in loans 8,771 6,647 ---------- ---------- Acquisitions, net of cash acquired (425) (1,509) Effect on cash of de-consolidation of subsidiary -- (4,795) Advance to unconsolidated subsidiary -- (500) Purchases of property and equipment (4,386) (6,572) ---------- ---------- Net cash provided (used) by investing activities 3,960 (6,729) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net payments under bank lines of credit (22,822) (8,596) Payments on capital lease obligations (255) (107) Net proceeds from reissuance of treasury shares 4,671 1,658 Treasury shares sold 45 3 Dividends paid (315) (315) ---------- ---------- Net cash used by financing activities (18,676) (7,357) ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1) (33) ---------- ---------- CHANGE IN CASH AND CASH EQUIVALENTS 413 1,352 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,186 4,417 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,599 $ 5,769 ========== ========== See notes to consolidated financial statements. Page 4 7 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Cash America International, Inc. and its majority owned subsidiaries (the "Company"). Through March 9, 1999, the assets and liabilities of the Company's automated check cashing machine operations, now known as innoVentry Corp. ("innoVentry"), and the results of its operations were included in the consolidated financial statements. The Company disposed of a majority interest in innoVentry on March 9, 1999, and began accounting for its investment and its proportionate share of the results of innoVentry's operations by the equity method of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements as of March 31, 2000 and 1999, and for the three 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 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 period ended March 31, 1999, have been reclassified to conform to the presentation format adopted in 2000. These reclassifications have no effect on the net income previously reported. These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1999 Annual Report to Stockholders. 2. REVENUE RECOGNITION Lending Operations - Pawn loans ("loans") are made on the pledge of tangible personal property. The Company accrues finance and service charge revenue on all loans that the Company deems collectible based on historical loan redemption statistics. For loans not repaid, the carrying value of the forfeited collateral ("merchandise held for disposition") is stated at the lower of cost (cash amount loaned) or market. Revenue is recognized at the time of disposition of merchandise. Interim customer payments for layaway sales are recorded as deferred revenue and subsequently recognized as revenue during the period in which final payment is received. Page 5 8 Check Cashing Operations - The Company records fees derived from its owned check cashing locations in the period in which the service is provided. Royalties derived from franchised locations are recorded on the accrual basis. Rental Operations - Tire and wheel rentals are paid on a weekly basis in advance and revenue is recognized in the period earned. Rental payments received prior to the period due are recorded as deferred revenue. Customers may return the rented tires and wheels at any time and have no obligation to complete the rental agreement. Rent-A-Tire has also entered into agreements to operate and manage stores for unrelated investors. The investors own the stores and incur all costs to operate them. Management fees earned by Rent-A-Tire are recorded in revenue over the life of the agreement. In addition, Rent-A-Tire receives compensation for its efforts in constructing and opening each store that it manages for a third party. 3. PROPERTY AND EQUIPMENT On March 28, 2000, a tornado severely damaged the Company's corporate headquarters in Fort Worth, Texas. Headquarters operations have been relocated to temporary facilities and the Company's operating locations were not affected. The Company owns the building and management will evaluate all of its alternatives relating to its restoration. The Company's insurance coverage provides proceeds for the loss of the building; replacement of furniture, improvements, and equipment; recovery of losses resulting from business interruption; and recovery of other general expenses that will be incurred. The net book value of $6.3 million of property and equipment damaged or destroyed is included in other receivables and prepaid expenses in the accompanying consolidated balance sheet at March 31, 2000. Based upon current assessments of the insurance coverage, management believes that there will be no significant adverse effect on the Company's consolidated financial position or results of operations. However, there can be no assurance that the Company will not ultimately incur an extraordinary loss, net of insurance recovery and applicable income taxes. Page 6 9 4. LONG-TERM DEBT The Company's long-term debt instruments and balances outstanding as of March 31 are as follows (in thousands): 2000 1999 ------------ ------------ U.S. Line of Credit up to $150 million due June 30, 2003 $ 78,750 $ 85,500 U.K. Line of Credit up to(pound)10 million due April 30, 2001 14,628 7,575 Swedish Lines of Credit up to SEK 215 million 13,298 17,779 8.33% senior unsecured notes due 2003 17,143 21,429 8.14% senior unsecured notes due 2007 20,000 20,000 7.10% senior unsecured notes due 2008 30,000 30,000 Capital lease obligations payable 4,595 1,958 6.25% subordinated unsecured notes due 2004 500 500 ------------ ------------ 178,914 184,741 Less current portion 5,309 4,693 ------------ ------------ Total long-term debt $ 173,605 $ 180,048 ============ ============ 5. WEIGHTED AVERAGE SHARES The reconciliation of basic and diluted weighted average common shares outstanding for the three month periods ended March 31, follows (in thousands): 2000 1999 ---------- ---------- Weighted average shares - Basic 25,282 25,191 Effect of shares applicable to stock option plans -- 1,191 Effect of shares applicable to nonqualified savings plan -- 37 ---------- ---------- Weighted average shares - Diluted 25,282 26,419 ========== ========== Diluted weighted average shares for the three month period ended March 31, 2000, excludes approximately 780,000 shares and 47,000 shares applicable to stock option plans and the nonqualified savings plan, respectively. These shares are excluded due to their antidilutive effect as a result of the Company's net loss during the three month period ended March 31, 2000. Page 7 10 6. UNCONSOLIDATED SUBSIDIARY Summarized unaudited results of operations for innoVentry for the three month periods ended March 31, follows (in thousands): 2000 1999 ---------- ---------- Total net revenue $ 3,358 $ 859 Expenses including net interest expense (23,709) (4,678) Income tax benefit -- 207 ---------- ---------- Net loss $ (20,351) $ (3,612) ========== ========== The Company recorded $2.5 million of net loss from innoVentry's operations in 1999 prior to de-consolidation on March 9, 1999. Thereafter, the Company recorded its proportionate share of innoVentry's net loss by the equity method. The Company owns a 38.3% voting interest in innoVentry as of March 31, 2000. 7. OPERATING SEGMENT INFORMATION The Company has two reportable operating segments in the lending industry and one each in the check cashing and rental industries. While the United States and foreign lending segments offer the same services, each is managed separately due to the different operational strategies required. The rental operation offers different services and products thus requiring its own technical, marketing and operational strategy. The same is true with respect to the check cashing operations. However, the Company has not controlled the operations of innoVentry since March 9, 1999. Information concerning the segments is set forth below (in thousands): Lending ------------------------------------ United Check States Foreign Total Cashing Rental Consolidated ---------- ---------- ---------- ---------- ---------- ------------ Three Months Ended March 31, 2000: Total revenue $ 83,489 $ 8,803 $ 92,292 $ 963 $ 3,741 $ 96,996 Income (loss) from operations 5,990 2,322 8,312 256 (811) 7,757 Total assets at end of period 262,465 88,049 350,514 19,649 21,858 392,021 ---------- ---------- ---------- ---------- ---------- ------------ Three Months Ended March 31, 1999: Total revenue $ 85,448 $ 7,445 $ 92,893 $ 1,305(A) $ 1,450 $ 95,648 Income (loss) from operations 9,455 2,984 12,439 (2,333)(A) (22) 10,084 Total assets at end of period 286,282 80,170 366,452 28,209 9,429 404,090 ========== ========== ========== ========== ========== ============ (A) Includes innoVentry operations through March 9, 1999. Page 8 11 8. LITIGATION The Company is a defendant in certain lawsuits encountered in the ordinary course of its business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. Page 9 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SUMMARY CONSOLIDATED FINANCIAL DATA FIRST QUARTER ENDED MARCH 31, 2000 vs. FIRST QUARTER ENDED MARCH 31, 1999 ================================================================================ (Dollars in thousands) The following table sets forth selected consolidated financial data with respect to the Company and its consolidated lending operations as of March 31, 2000 and 1999, and for the three months then ended. 2000 1999 Change ------------ ------------ ------------ REVENUE Finance and service charges $ 29,526 $ 31,495 (6)% Proceeds from disposition of merchandise 62,519 61,210 2% Lending franchise fees and royalties 79 11 618% Rental operations 3,741 1,450 158% Check cashing royalties and fees 1,131 1,482 (24)% ------------ ------------ ------------ TOTAL REVENUE 96,996 95,648 1% ------------ ------------ ------------ COSTS OF REVENUE Disposed merchandise 42,476 40,416 5% Rental operations 1,182 323 266% ------------ ------------ ------------ NET REVENUE $ 53,338 $ 54,909 (3)% ============ ============ ============ OTHER DATA CONSOLIDATED OPERATIONS: Net revenue contribution by source-- Finance and service charges 55.4% 57.4% (3)% Margin on disposition of merchandise 37.7% 37.9% (1)% Rental operations 4.8% 2.0% 140% Check cashing operations 2.1% 2.7% (22)% Expenses as a percentage of net revenue-- Operations and administration 76.8% 72.3% 6% Depreciation and amortization 8.7% 9.3% (6)% Interest, net 6.2% 6.1% 2% Income from operations before depreciation and amortization as a percentage of total revenue 12.8% 15.9% (20)% Income from operations as a percentage of total revenue 8.0% 10.5% (24)% ------------ ------------ ------------ LENDING OPERATIONS: Annualized yield on pawn loans 99% 102% (3)% Average pawn loan balance per average location in operation $ 258 $ 270 (4)% Average pawn loan amount at end of period (not in thousands) $ 105 $ 104 1% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 32.1% 34.0% (6)% Average annualized merchandise turnover 2.8x 2.5x 12% Average merchandise held for disposition per average location $ 131 $ 140 (6)% Lending locations in operation-- Beginning of period 466 464 Acquired -- -- Start-ups 1 -- Combined or closed (3) (3) End of period 464 461 1% Additional franchise locations at end of period 15 5 200% Total locations at end of period 479 466 3% Average number of owned locations (a) 465 463 -- ============ ============ ============ (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 10 13 GENERAL The Company is a diversified provider of specialty financial services to individuals in the United States, United Kingdom and Sweden. The Company offers secured non-recourse loans, commonly referred to as pawn loans, to individuals through its lending operations. The pawn loan portfolio generates finance and service charge revenue. The disposition of merchandise, primarily collateral from unredeemed pawn loans, is a related but secondary source of net revenue from the Company's lending function. The Company also provides rental of tires and wheels through its subsidiary, Rent-A-Tire, Inc. ("Rent-A-Tire") and check cashing services through its franchised and company owned Mr. Payroll(R) manned check cashing centers. The Company expanded its lending operations during the fifteen month period ended March 31, 2000, by adding a net 10 locations. It acquired 5 operating units, established 5 locations, and combined or closed 7 locations. In addition, 10 franchise units were opened including 3 company-owned locations that were sold to a franchisee. As of March 31, 2000, the Company's lending operations consisted of 479 lending units--411 owned units and 15 franchised units in 17 states in the United States, 42 jewelry-only units in the United Kingdom, and 11 loan-only and primarily jewelry-only units in Sweden. During the fifteen month period ended March 31, 2000, Rent-A-Tire acquired 14 tire and wheel rental stores that it previously managed and established 9 stores. As of March 31, 2000, Rent-A-Tire owned and operated 27 stores and also managed 14 additional stores for a third party that were added during 1999. During the first quarter of 1999, the Company restructured its check cashing operations in a series of transactions designed to isolate and accelerate the development and deployment of its automated check cashing machine ("CCM"). In January 1999, the Company transferred its manned check cashing operations into a new wholly owned consolidated subsidiary ("Mr. Payroll"). As of March 31, 2000, Mr. Payroll operated 126 franchised and 10 company owned manned check cashing centers in twenty states. On March 9, 1999, Wells Fargo Cash Centers, Inc. ("Cash Centers"), a wholly owned subsidiary of Wells Fargo Bank, N.A., contributed approximately $27.0 million of cash and assets to the Company's CCM subsidiary (now known as "innoVentry") and received newly issued shares of innoVentry's senior convertible Series A preferred stock representing 45% of innoVentry's voting interest. Additionally, certain members of the newly constituted management of innoVentry subscribed for newly issued shares of common stock of innoVentry, representing 10% of its voting interest. The Company also assigned 10% of its senior convertible Series A preferred stock to the former owners of innoVentry's predecessor in consideration for the termination of an option issued in conjunction with the Company's original acquisition of innoVentry's predecessor. Upon completion of the transactions, the Company's residual ownership interest in innoVentry was 40.5%. As a result, the Company no longer controlled innoVentry, it was de-consolidated and the Company began accounting for its investment and its share of the results of innoVentry's operations after March 9, 1999, by the equity method of accounting whereby the Company records its proportionate share of innoVentry's earnings or losses in its consolidated financial statements. In October 1999, the Company, Cash Centers, and a third party each purchased $10.0 million of innoVentry's Page 11 14 newly issued senior convertible Series B voting preferred stock. The Company's voting interest as of March 31, 2000, is 38.3%. RESULTS OF OPERATIONS FIRST QUARTER ENDED MARCH 31, 2000, COMPARED TO THE FIRST QUARTER ENDED MARCH 31, 1999 Net Revenue: Consolidated. Consolidated net revenue decreased 3%, or $1.6 million, to $53.3 million during the first quarter ended March 31, 2000 (the "current quarter"), from $54.9 million during the first quarter ended March 31, 1999 (the "prior year quarter"). Net revenue from lending activities and check cashing operations declined $2.7 million and $.3 million, respectively. Rental operations net revenue increased $1.4 million. Net Revenue: Lending Activities. Net revenue from lending operations decreased $2.7 million to $49.8 million during the current quarter from $52.5 million during the prior year quarter. Same units (those in operation for more than one year) accounted for $2.1 million of the decrease and an additional decrease of $.6 million resulted from a net reduction of 3 lending units since March 31, 1999. The principal components of lending operations net revenue are finance and service charges, which declined $2.0 million, net revenue from the disposition of merchandise, which declined $.8 million, domestic franchising activities, which increased $.1 million, and foreign check cashing operations, which was the same in both quarters. Finance and service charges decreased $2.0 million, or 6%, in the current quarter compared to the prior year quarter. Fluctuations in finance and service charges are caused by changes in both the average balance outstanding of pawn loans and the annualized yield of the pawn loan portfolio. Of the $2.0 million decline, $1.3 million was the result of a 4% decrease in the average pawn loan balance which was caused by a 6% decrease in the average number of loans outstanding that was partially offset by a 2% increase in the average amount per loan. The remaining $.7 million decline was caused by a 3% decrease in the consolidated annualized loan yield. Pawn loans outstanding at March 31, 2000, decreased $4.9 million, or 4%, to $115.9 million from $120.8 million at March 31, 1999. This decline is primarily attributable to a decrease in loan demand leading to a lower number of loans outstanding. Management believes this trend of lower average loan balances will continue which will result in lower levels of finance and service charges and net revenue until loan demand or customer count increases. Pawn loans outstanding at March 31, 2000, were 8% lower than at December 31, 1999, compared to a 6% decline for the comparable period of the preceding year. For domestic operations, pawn loan balances decreased 13% during the 2000 period and 11% during the comparable 1999 period. Historically, the Company's domestic pawn loans have declined during the first quarter when the Internal Revenue Service processes federal income tax refunds. Management believes that many customers use a portion of their refund to repay or extend their loans and purchase items of personal property. Foreign loan balances, denominated in local currencies, increased during both periods. However, they did not lessen the impact of the domestic decreases since both currencies were weaker against the dollar at Page 12 15 March 31, 2000, as compared to December 31, 1999. After translation into dollars, the net foreign loan balance increase was negligible. The consolidated annualized loan yield, which represents the blended result derived from the distinctive loan yields realized in the three countries in which the Company operates, was 99% in the current quarter compared to 102% in the prior year quarter. The decrease in the yield was primarily the result of a lower blended yield on foreign loans as the domestic annualized loan yield was 133% for the current quarter compared to 131% for the prior year quarter. The domestic increase is primarily attributable to slightly higher redemption rates and decreased loan demand leading to a greater decline in loan balances during the current quarter. The blended yield on average foreign pawn loans outstanding was 51% for the current quarter compared to 55% in the prior year quarter. The decrease in the blended foreign loan yield resulted primarily from a decline in loan yield in the United Kingdom to 53% from 59%. Average pawn loan balances in the United Kingdom during the current quarter were 18% higher than the prior year quarter. However, lower redemption rates and lower returns on the disposition of unredeemed collateral contributed to the decline in loan yield. Net revenue from the disposition of merchandise represents the proceeds received from the disposition of merchandise in excess of the cost of merchandise disposed. Proceeds from the disposition of merchandise in the current quarter were $1.3 million, or 2%, higher than the prior year quarter primarily due to a $1.3 million increase from the United Kingdom lending units, including $.5 million from same units. The margin on disposition of merchandise declined to 32.1% in the current quarter from 34.0% during the prior year quarter. Excluding the effect of the disposition of scrap jewelry, the margin on disposition of merchandise fell to 34.1% for the current quarter from 35.4% in the prior year quarter primarily due to price discounting to reduce merchandise to more desirable levels. The margin on disposition of scrap jewelry was negligible and contributed to the lower overall margin on all merchandise disposed in the current quarter. The net result of the increased proceeds and reduced margin was an $.8 million, or 4% decline in net revenue from the disposition of merchandise. As a result of management's decision to emphasize disposition of merchandise, the ratio of pawn loan balances to merchandise balances improved. The merchandise turnover rate increased to 2.8 times in the current quarter compared to 2.5 times in the prior year quarter and the balance of merchandise available for disposition at March 31, 2000, was 10.4% less than at March 31, 1999. Net Revenue: Other Activities. Net revenue of Rent-A-Tire increased to $2.5 million in the current quarter from $1.1 million in the prior year quarter. Tire and wheel rentals and sales net revenue increased $1.2 million as a result of an average of 21 more stores in operation in the current quarter compared to the prior year quarter. The level of activity in managed stores primarily drives management fees and related revenue. Such revenue increased $.2 million as a result of a 31% increase in the number of tires and wheels on rental agreements in the managed stores. The restructuring of the Company's check cashing operations and de-consolidation of innoVentry resulted in a $.3 million decrease in other net revenue in the current year quarter compared to the prior year quarter. Following de-consolidation, the Company began accounting for its investment in innoVentry by the equity method and, accordingly, the Page 13 16 Company's share of the results of operations of innoVentry is recorded in "Equity in loss of unconsolidated subsidiary." See "Other Items" below. Operations and Administration Expenses. Due in part to the 3% decrease in consolidated net revenue, consolidated operations and administration expenses as a percentage of net revenue were 76.8% in the current quarter compared to 72.3% for the prior year quarter. Total operations and administration expenses increased a net amount of $1.2 million, or 3%, in the current quarter as compared to the prior year quarter. Domestic lending operations expenses increased $1.4 million primarily as a result of higher personnel benefits and occupancy expenses. Foreign lending operations contributed $.6 million of the increase and Rent-A-Tire accounted for $2.0 million of the increase due to an average of 21 more stores during the current quarter. Check cashing operations expenses decreased $2.8 million as a result of the de-consolidation of innoVentry in March 1999. Depreciation and Amortization. Depreciation and amortization expenses as a percentage of net revenue decreased to 8.7% in the current quarter from 9.3% in the prior year quarter. Depreciation and amortization expenses decreased 9.2% primarily as a result of a moderation in the Company's unit expansion of its lending operations. Interest Expense. Net interest expense as a percentage of net revenue increased to 6.2% in the current quarter from 6.1% in the prior year quarter. Average debt outstanding decreased 1.5% to $194.4 million during the current quarter from $197.4 million during the prior year quarter. The effective blended borrowing cost was 6.8% in both quarters. As a result, interest expense was approximately the same because the current quarter was one day longer than the prior year quarter. Other Items. Equity in loss of unconsolidated subsidiary, representing the Company's share of innoVentry's net losses following de-consolidation in March 1999, was $7.3 million in the current quarter compared to $.6 million in the prior year quarter. The Company expects innoVentry's losses to continue as its operations continue to expand. However, the future losses recorded by the Company will be limited to the carrying value of its investment in and advances to innoVentry. In the prior year quarter, the Company recorded a gain of $4.8 million, before applicable income tax expense of $3.7 million, from the issuance of innoVentry's senior convertible Series A preferred stock and common stock in March 1999. Income Taxes. The Company's consolidated effective tax rate is impacted in the current quarter by the effect of the valuation allowance provided against the deferred tax assets arising from the Company's equity in the losses of innoVentry and in the prior year quarter by the effects of income taxes provided upon the de-consolidation of innoVentry on March 9, 1999. The Company recognized no net deferred tax benefits in the current quarter from the equity losses arising from its investment in innoVentry. Excluding the effects of the equity in innoVentry's losses after de-consolidation and the gain from issuance of innoVentry's stock and their related tax effects, the Company's consolidated effective income tax rate for the current quarter is 39.2% compared to 40.0% in the prior year quarter. The effective tax rate decreased because, in the current quarter, a slightly higher proportion of income before taxes occurred in the foreign entities which have a lower combined effective Page 14 17 tax rate. The effective tax rate of the United States entities (excluding the effects of innoVentry discussed above) decreased slightly to 45.0% for the current quarter compared to 45.5% for the prior year quarter. The effective tax rate of the foreign lending operations was 31.4% for both the current quarter and the prior year quarter. The Company anticipates that the tax benefit from future innoVentry losses will be recognized when it is more likely than not that such benefits will be realized. As a result, management believes that the Company's consolidated effective income tax rate will continue to be substantially higher than the statutory income tax rate. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $15.1 million during the current quarter. The Company invested $4.4 million in purchases of property and equipment during the current quarter including $2.5 million for property improvements, remodeling selected operating units, and additions to computer systems of the lending operations. The remaining $1.9 million was for the purchase of equipment and the continued development of a point-of-sale software system for Rent-A-Tire. The Company also invested $.4 million for the acquisition of one tire rental store. The Company paid $22.8 million to reduce its net borrowings under the Company's bank lines of credit, paid $.3 million of debt obligations in connection with capital leases, and paid $.3 million in dividends. These activities were funded from the cash flow generated by operating activities, the reduction of pawn loan balances by $8.8 million, and $4.7 million from the issuance of common shares pursuant to the Company's stock option plans. On March 28, 2000, a tornado severely damaged the Company's corporate headquarters in Fort Worth, Texas. Headquarters operations have been relocated to temporary facilities and the Company's operating locations were not affected. The Company owns the building and management will evaluate all of its alternatives relating to its restoration. The Company's insurance coverage provides proceeds for the loss of the building; replacement of furniture, improvements, and equipment; recovery of losses resulting from business interruption; and recovery of other general expenses that will be incurred. Based upon current assessments of the insurance coverage, management believes that there will be no significant adverse effect on the Company's consolidated financial position, results of operations, or liquidity. As of March 31, 2000, the Company's voting interest in innoVentry is 38.3%. In the event innoVentry requires additional capital in the future, the Company has the opportunity to make additional investments. In the event the Company does not participate in future capital fundings of innoVentry, its ownership interest will be diluted. Management believes that innoVentry intends to continue to develop and market the CCM, now known as the RPM(TM) Cash Management Machine, as a financial services machine. The Company anticipates that innoVentry will incur future losses and require additional capital until sufficient revenues are generated from its sales and operations. The Company plans to add approximately 10 to 15 new lending units during the remainder of 2000. These additions will likely occur through a combination of new openings and acquisitions of existing locations. Rent-A-Tire plans to add approximately 15 to 20 Page 15 18 additional rental stores during the remainder of 2000 through the acquisition of existing stores or the opening of new stores. On October 19, 1999, the Company announced that its Board of Directors had authorized management to purchase up to one million shares of its common stock in the open market. During the current quarter, 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 $191.6 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 March 31, 2000, the Company had recorded a cumulative other comprehensive loss of $4.7 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. Page 16 19 DOMESTIC LENDING OPERATIONS ================================================================================ (Dollars in thousands) The following table sets forth selected financial data for the Company's domestic lending operations as of March 31, 2000 and 1999, and for the three months then ended. 2000 1999 Change ----------- ----------- ----------- REVENUE Finance and service charges $ 23,145 $ 25,119 (8)% Proceeds from disposition of merchandise 60,265 60,318 -- Lending franchise fees and royalties 79 11 618% ----------- ----------- ----------- TOTAL REVENUE 83,489 85,448 (2)% ----------- ----------- ----------- COSTS OF REVENUE Disposed merchandise 40,292 39,628 2% ----------- ----------- ----------- NET REVENUE $ 43,197 $ 45,820 (6)% =========== =========== =========== OTHER DATA Net revenue contribution by source-- Finance and service charges 53.6% 54.8% (2)% Margin on disposition of merchandise 46.2% 45.2% 2% Lending franchise fees and royalties .2% -- -- Expenses as a percentage of net revenue-- Operations and administration 77.9% 70.3% 11% Depreciation and amortization 8.3% 9.1% (9)% Interest, net 3.9% 5.2% (24)% Income from operations before depreciation and amortization as a percentage of total revenue 11.4% 15.9% (28)% Income from operations as a percentage of total revenue 7.2% 11.1% (35)% Annualized yield on pawn loans 133% 131% 2% Average pawn loan balance per average location in operation $ 170 $ 188 (10)% Average pawn loan amount at end of period (not in thousands) $ 80 $ 82 (2)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 33.1% 34.3% (3)% Average annualized merchandise turnover 2.8x 2.5x 12% Average merchandise held for disposition per average location $ 139 $ 154 (10)% Lending locations in operation-- Beginning of period 413 414 Acquired -- -- Start-ups 1 -- Combined or closed (3) (3) End of period 411 411 -- Additional franchise locations at end of period 15 5 200% Total locations at end of period 426 416 2% Average number of owned locations (a) 412 413 -- =========== =========== =========== (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 17 20 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 March 31, 2000 and 1999, and for the three months then ended, using the following currency exchange rates: 2000 1999 Change ----------- ----------- ----------- Harvey & Thompson, Ltd. (U.K. pound sterling per U.S. dollar)-- Balance sheet data - end of period rate .6262 .6204 (1)% Income statement data - three months average rate .6194 .6124 (1)% Svensk Pantbelaning (Swedish Kronor per U.S. dollar)-- Balance sheet data - end of period rate 8.6325 8.2608 (4)% Income statement data - three months average rate 8.5990 8.0012 (7)% ----------- ----------- ----------- 2000 1999 Change ----------- ----------- ----------- REVENUE Finance and service charges $ 6,381 $ 6,376 -- Proceeds from disposition of merchandise 2,254 892 153% Check cashing fees 168 177 (5)% ----------- ----------- ----------- TOTAL REVENUE 8,803 7,445 18% ----------- ----------- ----------- COSTS OF REVENUE Disposed merchandise 2,184 788 177% ----------- ----------- ----------- NET REVENUE $ 6,619 $ 6,657 (1)% =========== =========== =========== OTHER DATA Net revenue contribution by source-- Finance and service charges 96.4% 95.8% 1% Margin on disposition of merchandise 1.1% 1.6% (31)% Check cashing fees 2.5% 2.6% (5)% Expenses as a percentage of net revenue-- Operations and administration 57.0% 47.8% 19% Depreciation and amortization 7.9% 7.4% 7% Interest, net 6.1% 5.1% 20% Income from operations before depreciation and amortization as a percentage of total revenue 32.3% 46.7% (31)% Income before income taxes as a percentage of total revenue 26.4% 40.1% (34)% Annualized yield on loans 51% 55% (7)% Average loan balance per average location in operation $ 941 $ 945 -- Average loan amount at end of period (not in thousands) $ 182 $ 178 2% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 3.1% 11.7% (73)% Average annualized merchandise turnover 2.4x 2.1x 14% Average merchandise held for disposition per average location $ 68 $ 30 127% Lending locations in operation-- Beginning of period 53 50 Acquired -- -- Start-ups -- -- Combined or closed -- -- End of period 53 50 6% Average number of owned locations (a) 53 50 6% =========== =========== =========== (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 18 21 OTHER OPERATIONS ================================================================================ (Dollars in thousands) The following table sets forth selected financial data with respect to the Company's other domestic operations as of March 31, 2000 and 1999, and for the three months then ended. 2000 1999 Change -------- -------- -------- RENTAL OPERATIONS: REVENUE Tire and wheel rentals $ 2,411 $ 691 249% Management fees 603 482 25% Tire and wheel sales 432 101 328% Lease income and other 295 176 68% -------- -------- -------- TOTAL REVENUE 3,741 1,450 158% -------- -------- -------- COSTS OF REVENUE Tire and wheel rentals 885 248 257% Tire and wheel sales 297 75 296% -------- -------- -------- NET REVENUE $ 2,559 $ 1,127 127% ======== ======== ======== OTHER DATA Owned rental locations-- Rental agreements outstanding at end of period $ 8,546 $ 2,977 187% Average balance per rental agreement at end of period (not in thousands) $ 1,071 $ 970 10% Locations in operation at end of period 27 8 238% Average locations in operation for the period (a) 26 5 420% Managed rental locations-- Locations in operation at end of period 14 13 8% Average locations in operation for the period (a) 14 14 -- ======== ======== ======== CHECK CASHING OPERATIONS: REVENUE Check cashing royalties and fees (b) $ 963 $ 889 8% -------- -------- -------- TOTAL REVENUE 963 889 8% -------- -------- -------- NET REVENUE $ 963 $ 889 8% ======== ======== ======== OTHER DATA Franchised and owned check cashing centers-- Centers in operation at end of period 136 135 1% Average centers in operation for the period (a) 136 136 -- ======== ======== ======== (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. (b) Excludes CCM operations that were de-consolidated at the close of business, March 9, 1999. Page 19 22 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, factors affecting innoVentry's business, and other risks indicated in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this report, the words "believes," "estimates," "plans," "expects," "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. Page 20 23 PART II Item 1. LEGAL PROCEEDINGS See Note 8 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 99.1 Audit Committee Charter (b) Reports on Form 8-K - None Page 21 24 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: May 12, 2000 Page 22 25 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule 99.1 Audit Committee Charter