1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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: 25,418,376 common shares, $.10 par value, were outstanding as of November 6, 2000. ================================================================================ 2 CASH AMERICA INTERNATIONAL, INC. INDEX TO 10-Q PART I. FINANCIAL STATEMENTS Page Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - September 30, 2000 and 1999 and December 31, 1999 ...................................... 1 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 2000 and 1999 ....................... 2 Consolidated Statements of Stockholders' Equity - Three Months and Nine Months Ended September 30, 2000 and 1999 ..... 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 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 .............................................. 28 SIGNATURE ............................................................... 29 3 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (UNAUDITED) - -------------------------------------------------------------------------------- September 30, December 31, 2000 1999 1999 ---------- ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 6,628 $ 3,020 $ 6,186 Loans 122,549 134,291 125,349 Merchandise held for disposition, net 61,633 73,352 64,419 Inventory 4,877 1,857 2,801 Finance and service charges receivable 19,493 21,530 21,052 Other receivables and prepaid expenses 17,185 8,260 6,279 Income taxes recoverable 5,314 7,601 8,824 Deferred tax assets 5,839 7,393 5,548 --------- --------- --------- Total current assets 243,518 257,304 240,458 Property and equipment, net 60,086 59,381 60,961 Intangible assets, net 87,964 91,568 90,901 Other assets 6,733 5,017 9,911 Investment in and advances to unconsolidated subsidiary -- 14,163 15,392 --------- --------- --------- Total assets $ 398,301 $ 427,433 $ 417,623 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 20,872 $ 16,418 $ 20,931 Customer deposits 4,434 5,046 4,131 Income taxes currently payable 344 3,402 1,587 Current portion of long-term debt 5,725 4,706 5,390 --------- --------- --------- Total current liabilities 31,375 29,572 32,039 Deferred tax liabilities 2,275 1,298 1,668 Long-term debt 185,195 203,317 196,976 --------- --------- --------- Stockholders' equity: Common stock, $.10 par value per share, 80,000,000 shares authorized 3,024 3,024 3,024 Paid in surplus 127,835 127,354 127,350 Retained earnings 99,385 108,918 105,331 Accumulated other comprehensive loss (9,357) (2,659) (3,989) Notes receivable - stockholders (5,698) (5,820) (5,820) --------- --------- --------- 215,189 230,817 225,896 Less -- shares held in treasury, at cost (35,733) (37,571) (38,956) --------- --------- --------- Total stockholders' equity 179,456 193,246 186,940 --------- --------- --------- Total liabilities and stockholders' equity $ 398,301 $ 427,433 $ 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 Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- REVENUE Finance and service charges $ 28,974 $ 30,641 $ 85,741 $ 92,169 Proceeds from disposition of merchandise 49,697 50,814 162,686 164,857 Other lending fees and royalties 440 10 565 49 Rental operations 4,842 3,134 12,634 7,052 Check cashing royalties and fees 894 969 2,978 3,424 --------- --------- --------- --------- TOTAL REVENUE 84,847 85,568 264,604 267,551 --------- --------- --------- --------- COSTS OF REVENUE Disposed merchandise 32,948 34,774 109,010 110,266 Rental operations 1,643 879 4,090 1,767 --------- --------- --------- --------- NET REVENUE 50,256 49,915 151,504 155,518 --------- --------- --------- --------- OPERATING EXPENSES Lending operations 31,004 30,070 91,922 89,290 Rental operations 2,895 1,503 8,089 2,981 Check cashing operations 231 597 965 2,971 Administration 6,307 6,279 19,581 19,938 Depreciation 3,336 3,601 10,187 11,329 Amortization 1,082 1,115 3,262 3,500 --------- --------- --------- --------- Total operating expenses 44,855 43,165 134,006 130,009 --------- --------- --------- --------- INCOME FROM OPERATIONS 5,401 6,750 17,498 25,509 Interest expense, net 3,604 3,433 10,094 9,990 Loss (gain) from insurance claim settlement (9,729) -- (9,729) -- Equity in loss of unconsolidated subsidiary -- 2,204 15,589 5,137 Loss (gain) from issuance of subsidiary's stock -- 223 (136) (4,290) --------- --------- --------- --------- Income before income taxes 11,526 890 1,680 14,672 Provision for income taxes 4,335 468 6,668 7,526 --------- --------- --------- --------- NET INCOME (LOSS) $ 7,191 $ 422 $ (4,988) $ 7,146 ========= ========= ========= ========= Net income (loss) per share: Basic $ .28 $ .02 $ (.19) $ .28 Diluted .28 .02 (.19) .27 --------- --------- --------- --------- Weighted average common shares outstanding: Basic 25,712 25,458 25,585 25,356 Diluted 25,929 26,021 25,585 26,337 ========= ========= ========= ========= See notes to consolidated financial statements. Page 2 5 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Nine Months Ended September 30, 2000 And 1999 (In thousands, except share data) (UNAUDITED) - -------------------------------------------------------------------------------- COMMON STOCK ---------------------- PAID IN RETAINED COMPREHENSIVE SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) ---------- ------- ---------- ----------- ------------- Balance at December 31, 1999 30,235,164 $ 3,024 $ 127,350 $ 105,331 Comprehensive loss: Net loss (4,988) $ (4,988) Other comprehensive loss - Foreign currency translation adjustments (5,368) ---------- Comprehensive loss $ (10,356) ---------- Dividends declared-- $.0375 per share (958) Treasury shares acquired Treasury shares reissued (740) Tax benefit from exercise of option shares 1,225 Change in notes receivable - stockholders ---------- ------- ---------- ---------- Balance at September 30, 2000 30,235,164 $ 3,024 $ 127,835 $ 99,385 ========== ======= ========== ========== Balance at December 31, 1998 30,235,164 $ 3,024 $ 126,615 $ 102,722 Comprehensive income: Net income 7,146 $ 7,146 Other comprehensive loss - Foreign currency translation adjustments (245) ---------- Comprehensive income $ 6,901 ---------- Dividends declared-- $.0375 per share (950) Treasury shares acquired Treasury shares reissued (212) Tax benefit from exercise of option shares 951 Change in notes receivable - stockholders ---------- ------- ---------- ---------- Balance at September 30, 1999 30,235,164 $ 3,024 $ 127,354 $ 108,918 ========== ======= ========== ========== ACCUMULATED NOTES OTHER RECEIVABLE - TREASURY STOCK COMPREHENSIVE STOCK- --------------------------- INCOME (LOSS) HOLDERS SHARES AMOUNT ------------- ----------- ---------- ------------ Balance at December 31, 1999 $ (3,989) $ (5,820) 5,055,170 $ (38,956) Comprehensive loss: Net loss Other comprehensive loss - Foreign currency translation adjustments (5,368) Comprehensive loss Dividends declared-- $.0375 per share Treasury shares acquired 188,733 (1,370) Treasury shares reissued (598,825) 4,593 Tax benefit from exercise of option shares Change in notes receivable - stockholders 122 ---------- ---------- --------- ---------- Balance at September 30, 2000 $ (9,357) $ (5,698) 4,645,078 $ (35,733) ========== ========== ========= ========== Balance at December 31, 1998 $ (2,414) $ (3,263) 5,114,218 $ (39,240) Comprehensive income: Net income Other comprehensive loss - Foreign currency translation adjustments (245) Comprehensive income Dividends declared-- $.0375 per share Treasury shares acquired 323,281 (2,491) Treasury shares reissued (544,807) 4,160 Tax benefit from exercise of option shares Change in notes receivable - stockholders (2,557) ---------- ---------- --------- ---------- Balance at September 30, 1999 $ (2,659) $ (5,820) 4,892,692 $ (37,571) ========== ========== ========= ========== See notes to consolidated financial statements. Page 3 6 CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED) - -------------------------------------------------------------------------------- Nine Months Ended September 30, 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (4,988) $ 7,146 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 10,187 11,329 Amortization 3,262 3,500 Gain from insurance claim settlement (9,729) -- Equity in loss of unconsolidated subsidiary 15,589 5,137 Gain from issuance of subsidiary's stock (136) (4,290) Changes in operating assets and liabilities- Merchandise held for disposition and inventory 1,019 (7,850) Finance and service charges receivable 846 (1,788) Other receivables and prepaid expenses (1,980) (1,543) Accounts payable and accrued expenses (3,047) (2,162) Customer deposits, net 303 883 Current income taxes 3,650 374 Deferred taxes, net 1,929 2,945 --------- --------- Net cash provided by operating activities 16,905 13,681 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans forfeited and transferred to merchandise held for disposition 98,724 107,583 Loans repaid or renewed 211,046 223,661 Loans made, including loans renewed (312,044) (335,576) --------- --------- Net increase in loans (2,274) (4,332) --------- --------- Acquisitions, net of cash acquired (2,031) (8,104) Effect on cash of de-consolidation of subsidiary -- (4,795) Advance to unconsolidated subsidiary -- (602) Purchases of property and equipment (15,833) (15,147) Proceeds from sale of property and equipment -- 5,831 Proceeds from property insurance claim 10,508 -- --------- --------- Net cash used by investing activities (9,630) (27,149) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net (payments) borrowings under bank lines of credit (5,629) 18,705 Proceeds from capital lease obligations 2,115 -- Payments on notes payable and capital lease obligations (5,141) (4,587) Change in notes receivable - stockholders 840 -- Net proceeds from reissuance of treasury shares 3,434 1,391 Treasury shares purchased (1,370) (2,491) Dividends paid (958) (950) --------- --------- Net cash (used) provided by financing activities (6,709) 12,068 --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (124) 3 --------- --------- CHANGE IN CASH AND CASH EQUIVALENTS 442 (1,397) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,186 4,417 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,628 $ 3,020 ========= ========= SUPPLEMENTAL DISCLOSURES NONCASH INVESTING AND FINANCING ACTIVITIES: Loans to stockholders for exercise of stock options $ 419 $ 2,557 ========= ========= 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 September 30, 2000 and 1999, and for the three month and nine 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 nine month periods are not necessarily indicative of the results that may be expected for the full fiscal year. Certain amounts in the consolidated financial statements for the three month and nine month periods ended September 30, 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 o Pawn loans ("loans") are made on the pledge of tangible personal property. The Company accrues finance and service charge revenue on all loans that the Company deems collectible based on historical loan redemption statistics. For loans not repaid, the carrying value of the forfeited collateral ("merchandise held for disposition") is stated at the lower of cost (cash amount loaned) or market. Revenue is recognized at the time of disposition of merchandise. Interim customer payments for layaway sales are recorded as deferred revenue and subsequently recognized as revenue during the period in which final payment is received. Page 5 8 Rental Operations o 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. 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 franchised locations are recorded on the accrual basis. 3. NEW ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") that, as amended, is required to be adopted by the Company for the year ended December 31, 2001. SFAS 133, as amended, establishes new accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivative instruments as either assets or liabilities on the balance sheet and measure them at fair value. The accounting for the gains or losses resulting from changes in the values of the derivatives will depend on the intended use of the derivatives and whether they qualify for hedge accounting treatment. The transition adjustments resulting from adopting SFAS 133 will be reported in net income or in accumulated other comprehensive income (loss) in stockholders' equity, as appropriate, as the effect of a change in accounting principle and presented in a manner similar to the cumulative effect of a change in accounting principle. The Company currently believes its only derivative instruments are interest rate caps. The Company is currently in the process of estimating the effect, if any, that the adoption of SFAS 133 will have on its financial position and results of operations. 4. GAIN FROM INSURANCE CLAIM SETTLEMENT 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 restoration is scheduled to begin in the fourth quarter of 2000. The Company's insurance coverage provides proceeds for the replacement costs related to the loss of the building; replacement of furniture, improvements, and equipment; recovery of losses resulting from business interruption; and recovery of other general expenses. The Company recognized a gain of $9.7 million from the settlement of the insurance claim. Income tax expense of $3.4 million related to the gain is included in the provision for income taxes. At September 30, 2000, $11.0 million of insurance claim proceeds receivable is included in other receivables and prepaid expenses in the accompanying consolidated balance sheet. Page 6 9 5. LONG-TERM DEBT The Company's long-term debt instruments and balances outstanding as of September 30 are as follows (in thousands): 2000 1999 -------- -------- U.S. Line of Credit up to $150 million due June 30, 2003 $100,900 $111,700 U.K. Line of Credit up to(pound)15 million due April 30, 2002 9,771 11,859 Swedish Lines of Credit up to SEK 215 million 10,782 15,060 8.33% senior unsecured notes due 2003 12,857 17,143 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 6,110 1,761 6.25% subordinated unsecured notes due 2004 500 500 -------- -------- 190,920 208,023 Less current portion 5,725 4,706 -------- -------- Total long-term debt $185,195 $203,317 ======== ======== 6. WEIGHTED AVERAGE SHARES The reconciliation of basic and diluted weighted average common shares outstanding for the three month and nine month periods ended September 30, follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ------ ------ ------ ------ Weighted average shares - Basic 25,712 25,458 25,585 25,356 Effect of shares applicable to stock option plans 168 522 -- 942 Effect of shares applicable to nonqualified savings plan 49 41 -- 39 ------ ------ ------ ------ Weighted average shares - Diluted 25,929 26,021 25,585 26,337 ====== ====== ====== ====== Diluted weighted average shares for the nine month period ended September 30, 2000, excludes approximately 463,000 shares applicable to stock option plans and 47,000 shares applicable to the nonqualified savings plan. These shares are excluded due to their antidilutive effects as a result of the Company's net loss during the nine month period ended September 30, 2000. Page 7 10 7. UNCONSOLIDATED SUBSIDIARY Summarized unaudited results of operations for innoVentry for the three month and nine month periods ended September 30, follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Total net revenue $ 4,935 $ 2,792 $ 12,639 $ 6,035 Expenses including net interest expense (35,260) (10,626) (88,776) (24,362) Income tax benefit -- -- -- 2,560 -------- -------- -------- -------- Net loss $(30,325) $ (7,834) $(76,137) $(15,767) ======== ======== ======== ======== 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. As of June 30, 2000, the Company's proportionate share of the losses of innoVentry exceeded the carrying amount of its investment in and advances to innoVentry. The Company has no obligation to provide financial support to innoVentry. Accordingly, it has suspended the recording of its equity in the losses of innoVentry. The Company owns a 37.8% voting interest in innoVentry as of September 30, 2000. 8. OPERATING SEGMENT INFORMATION The Company has two reportable operating segments in the lending industry and one each in the check cashing and rental industries. While the United States and foreign lending segments offer the same services, each is managed separately due to the different operational strategies required. The rental operation offers different services and products thus requiring its own technical, marketing and operational strategy. The same is true with respect to the check cashing operations. However, the Company has not controlled the operations of innoVentry since March 9, 1999. Page 8 11 Information concerning the segments is set forth below (in thousands): Lending ---------------------------------- United Check States Foreign Total Rental Cashing Consolidated -------- -------- -------- -------- -------- ------------ Three Months Ended September 30, 2000: Total revenue $ 71,908 $ 7,379 $ 79,287 $ 4,842 $ 718 $ 84,847 Income (loss) from operations 3,963 2,043 6,006 (750) 145 5,401 Total assets at end of period 282,558 77,216 359,774 26,486 12,041 398,301 -------- -------- -------- -------- -------- -------- Three Months Ended September 30, 1999: Total revenue 73,623 8,038 81,661 3,134 773 85,568 Income (loss) from operations 3,958 3,152 7,110 (149) (211) 6,750 Total assets at end of period 298,369 88,822 387,191 16,500 23,742 (A) 427,433 ======== ======== ======== ======== ======== ======== Nine Months Ended September 30, 2000: Total revenue 225,511 24,008 249,519 12,634 2,451 264,604 Income (loss) from operations 13,221 6,321 19,542 (2,381) 337 17,498 -------- -------- -------- -------- -------- -------- Nine Months Ended September 30, 1999: Total revenue 234,535 23,108 257,643 7,052 2,856 (B) 267,551 Income (loss) from operations 18,969 9,056 28,025 66 (2,582)(B) 25,509 ======== ======== ======== ======== ======== ======== (A) Includes investment in and advances to innoVentry of $14,163. (B) Includes innoVentry operations through March 9, 1999. 9. 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 THIRD QUARTER ENDED SEPTEMBER 30, 2000 vs. THIRD QUARTER ENDED SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------- (Dollars in thousands) The following table sets forth selected consolidated financial data with respect to the Company and its lending operations as of September 30, 2000 and 1999, and for the three months then ended. 2000 1999 Change ------- ------- ------ REVENUE Finance and service charges $28,974 $30,641 (5)% Proceeds from disposition of merchandise 49,697 50,814 (2)% Other lending fees and royalties 440 10 4300% Rental operations 4,842 3,134 54% Check cashing royalties and fees 894 969 (8)% ------- ------- ---- TOTAL REVENUE 84,847 85,568 (1)% ------- ------- ---- COSTS OF REVENUE Disposed merchandise 32,948 34,774 (5)% Rental operations 1,643 879 87% ------- ------- ---- NET REVENUE $50,256 $49,915 1% ======= ======= ==== OTHER DATA CONSOLIDATED OPERATIONS: Net revenue contribution by source-- Finance and service charges 58.5% 61.4% (5)% Margin on disposition of merchandise 33.3% 32.1% 4% Rental operations 6.4% 4.5% 42% Check cashing operations 1.8% 2.0% (10)% Expenses as a percentage of net revenue-- Operations and administration 80.5% 77.0% 5% Depreciation and amortization 8.8% 9.4% (6)% Interest, net 7.2% 6.9% 4% Income from operations before depreciation and amortization as a percentage of total revenue 11.6% 13.4% (14)% Income from operations as a percentage of total revenue 6.4% 7.9% (19)% ------- ------- ---- LENDING OPERATIONS: Annualized yield on pawn loans 93% 91% 2% Average pawn loan balance per average location in operation $ 269 $ 286 (6)% Average pawn loan amount at end of period (not in thousands) $ 98 $ 102 (4)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 33.7% 31.6% 7% Average annualized merchandise turnover 2.2x 2.0x 10% Average merchandise held for disposition per average location $ 126 $ 148 (15)% Lending locations in operation-- Beginning of period 463 466 Acquired - 2 Start-ups - 1 Combined or closed - - End of period 463 469 (1)% Additional franchise locations at end of period 16 6 167% Total locations at end of period 479 475 1% Average number of owned locations(a) 463 468 (1)% ------- ------- ---- (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 10 13 NINE MONTHS ENDED SEPTEMBER 30, 2000 vs. NINE MONTHS ENDED SEPTEMBER 30, 1999 ================================================================================ (Dollars in thousands) The following table sets forth selected consolidated financial data with respect to the Company and its lending operations as of September 30, 2000 and 1999, and for the nine months then ended. 2000 1999 Change --------- --------- ------ REVENUE Finance and service charges $ 85,741 $ 92,169 (7)% Proceeds from disposition of merchandise 162,686 164,857 (1)% Other lending fees and royalties 565 49 1053% Rental operations 12,634 7,052 79% Check cashing royalties and fees 2,978 3,424 (13)% --------- --------- ---- TOTAL REVENUE 264,604 267,551 (1)% --------- --------- ---- COSTS OF REVENUE Disposed merchandise 109,010 110,266 (1)% Rental operations 4,090 1,767 131% --------- --------- ---- NET REVENUE $ 151,504 $ 155,518 (3)% ========= ========= ==== OTHER DATA CONSOLIDATED OPERATIONS: Net revenue contribution by source-- Finance and service charges 57.0% 59.3% (4)% Margin on disposition of merchandise 35.4% 35.1% 1% Rental operations 5.6% 3.4% 65% Check cashing operations 2.0% 2.2% (9)% Expenses as a percentage of net revenue-- Operations and administration 79.6% 74.1% 7% Depreciation and amortization 8.9% 9.5% (7)% Interest, net 6.7% 6.4% 5% Income from operations before depreciation and amortization as a percentage of total revenue 11.7% 15.1% (23)% Income from operations as a percentage of total revenue 6.6% 9.5% (31)% --------- --------- ---- LENDING OPERATIONS: Annualized yield on pawn loans 94% 96% (2)% Average pawn loan balance per average location in operation $ 262 $ 277 (5)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 33.0% 33.1% -- Average annualized merchandise turnover 2.5x 2.2x 14% Average merchandise held for disposition per average location $ 127 $ 142 (11)% Lending locations in operation-- Beginning of period 466 464 Acquired -- 5 Start-ups 1 3 Combined, closed or sold (4) (3) End of period 463 469 (1)% Additional franchise locations at end of period 16 6 167% Total locations at end of period 479 475 1% Average number of owned locations in operation(a) 464 465 -- --------- --------- ---- (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 11 14 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 twenty-one month period ended September 30, 2000, by adding a net 10 locations. It acquired 5 operating units, established 5 locations, and combined or closed 8 locations. In addition, 11 franchise units were opened, including 3 company-owned locations that were sold to a franchisee. As of September 30, 2000, the Company's lending operations consisted of 479 lending units--410 owned units and 16 franchised units in 18 states in the United States, 42 jewelry-only units in the United Kingdom, and 11 loan-only and primarily jewelry-only units in Sweden. During the twenty-one month period ended September 30, 2000, Rent-A-Tire acquired 18 tire and wheel rental stores that it previously managed, established 12 stores and closed one store. As of September 30, 2000, Rent-A-Tire owned and operated 33 stores and also managed 10 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 September 30, 2000, Mr. Payroll operated 130 franchised and 7 company owned manned check cashing centers in 20 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 Page 12 15 or losses in its consolidated financial statements. In October 1999, the Company, Cash Centers, and a third party each purchased $10.0 million of innoVentry's newly issued senior convertible Series B voting preferred stock. The Company's voting interest as of September 30, 2000, is 37.8%. RESULTS OF OPERATIONS THIRD QUARTER ENDED SEPTEMBER 30, 2000, COMPARED TO THE THIRD QUARTER ENDED SEPTEMBER 30, 1999 Net Revenue: Consolidated. Consolidated net revenue increased 1%, or $.4 million, to $50.3 million during the third quarter ended September 30, 2000 (the "current quarter"), from $49.9 million during the third quarter ended September 30, 1999 (the "prior year quarter"). Net revenue from lending activities decreased $.6 million. Rental operations net revenue increased $1.0 million and check cashing operations net revenue remained constant. Net Revenue: Lending Activities. Net revenue from lending operations decreased $.6 million to $46.3 million during the current quarter from $46.9 million during the prior year quarter. Domestic lending net revenue from same units (those in operation for more than one year) increased $1.0 million. However, foreign lending net revenue from same units declined $1.3 million, including $.6 million resulting from the translation of the foreign currencies into United States Dollars (USD). A decrease of $.7 million resulted from a net reduction of 6 lending units since September 30, 1999. Other lending fees and franchise royalties increased a total of $.4 million. The principal components of net revenue from lending operations are finance and service charges, which declined $1.7 million, net revenue from the disposition of merchandise, which increased $.7 million, and other domestic lending and franchising activities and foreign check cashing operations, which increased a combined $.4 million. 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. A lower average balance outstanding of pawn loans tends to result in lower amounts of finance and service charges and net revenue. In the current quarter, finance and service charges decreased 5%, or $1.7 million, compared to the prior year quarter. The $1.7 million decline was the net result of a $2.0 million decrease from a 7% reduction in the average pawn loan balance that was slightly offset by a $.3 million increase attributed to a 2% increase in the consolidated annualized loan yield. Of the $2.0 million decrease attributable to a lower average pawn loan balance, $1.4 million occurred in the United States as a result of a 5% decrease in the average number of pawn loans outstanding. Management believes that the sustained strength in the United States economy may have manifested itself in a weakened demand for pawn loans that began during the prior year quarter. Management also believes that this trend in lower loan demand may reverse during the fourth quarter resulting in more favorable comparisons to prior period amounts. However, net revenue will not return to historical levels until loan demand or customer count increases. The remaining $.6 million decrease in finance and service charges occurred primarily due to the negative foreign Page 13 16 currency translation adjustments resulting from the continued strengthening of the USD against both the U. K. pound sterling and the Swedish kronor. 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 93% in the current quarter compared to 91% in the prior year quarter. The increase in the consolidated yield was primarily the result of an increase in the domestic annualized loan yield to 119% for the current quarter compared to 115% for the prior year quarter. The domestic loan yield increased due to a greater concentration of loans in higher-yielding markets and rate stratifications. A slightly higher concentration of extended or renewed loans in the portfolio and higher redemption rates have also contributed to the higher loan yield. The blended yield on the average amount of foreign pawn loans outstanding was 47% for the current quarter compared to 52% in the prior year quarter. The decrease in the blended foreign yield resulted primarily from a decline in the United Kingdom to 48% from 56%. Although the average pawn loan balance denominated in the U. K. pound sterling for the current quarter was flat compared to the prior year quarter, the average balance has decreased during fiscal year 2000. Because pawn loan terms in the United Kingdom are generally 6 months, changes in trends occur more slowly than in the United States. The higher amounts previously loaned contributed to lower redemption rates and lower returns on the disposition of unredeemed collateral that contributed to the decline in loan yield observed in the current quarter. Management believes that this lower year-over-year loan yield trend in the United Kingdom will continue for the next two quarters. 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 $1.1 million, or 2%, lower than the prior year quarter primarily due to a $1.6 million decline from domestic activities, including a $1.4 million decline from same units, that was partially offset by a $.5 million increase from the foreign lending units, including a $.3 million increase from same units. The margin on disposition of merchandise increased to 33.7% in the current quarter from 31.6% during the prior year quarter primarily due to a lower average cost of merchandise disposed. Excluding the effect of the disposition of scrap jewelry, the margin on disposition of merchandise was 36.0% for the current quarter compared to 33.2% for the prior year quarter. The margin on disposition of scrap jewelry was 3% in both the current year quarter and the prior year quarter. The improved overall margin resulted in a $.7 million, or 4%, increase in net revenue from the disposition of merchandise. Management continues to emphasize disposition of merchandise and maintaining an effective ratio of pawn loan balances to merchandise. As a result, the merchandise turnover rate increased to 2.2 times in the current quarter compared to 2.0 times in the prior year quarter and the balance of merchandise available for disposition at September 30, 2000, was 16% less than at September 30, 1999. Other domestic lending fees and franchising royalties increased a combined amount of $.4 million in the current quarter as compared to the prior year quarter. The majority of the increase resulted from the initiation of a small consumer cash advance product that was introduced into 152 of the domestic lending units by the end of the current quarter, Page 14 17 including 9 units through which the product is offered by a third party financial institution (the "Bank"). The Company provides customers with cash in exchange for a promissory note or other repayment agreement supported by that customer's check in 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 can redeem their checks by paying cash or they can allow the checks to be deposited. (Although these cash advance transactions can take the form of loans or deferred check deposit transactions, the transactions are referred to throughout this report as "payday loans" for convenience.) During the current quarter, $2.7 million of payday loans were written, including $7 thousand written by the Bank, for an average of $179 per loan. As of September 30, 2000, $843 thousand of gross payday loans were outstanding, including $5 thousand in loans by the Bank that are not included in the Company's consolidated balance sheet. A loan loss reserve of $213 thousand, representing 25.4%, has been provided for the Company's portion of gross payday loans outstanding. The Company expects that payday loans will be offered in approximately 330 of its locations by the end of the current year. Net Revenue: Other Activities. Net revenue of Rent-A-Tire increased to $3.2 million in the current quarter from $2.3 million in the prior year quarter. Tire and wheel rentals and sales net revenue increased $1.5 million as a result of an average of 19 more stores in operation in the current quarter compared to the prior year quarter. The level of activity in managed stores and the change in the number of new managed stores drive management fees and related revenue. Management fees and other related revenue for the current quarter declined $.6 million compared to the prior year quarter primarily as a result of decreases in the average number of managed stores and the number of tires and wheels on rental agreements in the managed stores. Manned check cashing operations had a nominal decrease in net revenue for the current quarter compared to the prior year quarter as the average number of franchised and owned check cashing centers in operation was reduced to 137 in the current quarter from 144 in the prior year quarter. Operations and Administration Expenses. Consolidated operations and administration expenses as a percentage of net revenue were 80.5% for the current quarter compared to 77.0% for the prior year quarter. Total operations and administration expenses increased a net amount of $2.0 million, or 5%, in the current quarter as compared to the prior year quarter. Domestic lending operations expenses increased $1.2 million primarily as a result of rollout costs and continuing expenses associated with the introduction of payday loans into 152 lending units. A summer marketing promotion also contributed to the domestic increase. Foreign lending operations expenses declined $.2 million, primarily as a result of a $.3 million decrease from the translation of the foreign currencies into USD. Rent-A-Tire accounted for $1.4 million of the increase due to the average of 19 more stores during the current quarter. Check cashing operations expenses decreased $.4 million for the current quarter compared to the prior year quarter. The prior year quarter included $.2 million of losses from fraudulently cashed income tax checks as compared to a nominal amount in the current year quarter. The remaining $.2 million decrease resulted from a reduction in other administrative expenses. Depreciation and Amortization. Depreciation and amortization expenses as a percentage of net revenue decreased to 8.8% in the current quarter from 9.4% in the prior year quarter. The amount of depreciation and amortization expenses decreased 6.3% Page 15 18 primarily as a result of tornado destruction to the Company's corporate headquarters and a moderation in the unit expansion of its lending operations. Interest Expense. Net interest expense as a percentage of net revenue increased to 7.2% in the current quarter from 6.9% in the prior year quarter. Average debt outstanding decreased 5.9% to $196.2 million during the current quarter from $208.6 million during the prior year quarter. However, the effective blended borrowing cost was 7.3% in the current quarter and 6.5% in the prior year quarter. As a result, interest expense increased $.2 million for the current quarter compared to the prior year quarter. Other Items. During the current quarter, the Company recorded a $9.7 million gain from the settlement of the insurance claim resulting from the severe damage to its corporate headquarters in Fort Worth, Texas by a tornado in March 2000. Income tax expense of $3.4 million related to the gain is included in the provision for income taxes. As of June 30, 2000, the Company's proportionate share of innoVentry's losses exceeded the carrying amount of its investment in and advances to innoVentry. Since the Company has no obligation to provide financial support to innoVentry, it suspended the recording of its equity in innoVentry's losses and gains or losses on the issuance of innoVentry's common stock as of June 30, 2000, and has recorded no equity in losses of innoVentry or gains or losses from the issuance of innoVentry's common stock during the current quarter. The Company's share of innoVentry's net losses following de-consolidation in March 1999, was $2.2 million in the prior year quarter. The Company recorded a pre-tax loss of $.2 million from the issuance of innoVentry's common stock in the prior year quarter. The Company expects innoVentry's losses to continue as its operations continue to expand. Income Taxes. The Company recognized deferred tax benefits in the prior year quarter from the equity losses arising from its investment in innoVentry and the loss on issuance of innoVentry preferred stock. Excluding those effects in the prior year quarter and their related tax effects, the Company's consolidated effective income tax rate for the current quarter is 37.6% compared to 39.8% in the prior year quarter. The effective tax rate decreased as a result of a lower ratio of domestic non-deductible intangible asset amortization and other miscellaneous items to pre-tax income in the current quarter as compared to the prior year quarter. The effective tax rate of the foreign lending operations was 31.5% in the current quarter and 30.8% in the prior year quarter. NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999 Net Revenue: Consolidated. Consolidated net revenue decreased 3%, or $4.0 million, to $151.5 million during the nine months ended September 30, 2000 (the "current period"), from $155.5 million during the nine months ended September 30, 1999 (the "prior year period"). Net revenue from lending activities declined $6.9 million. Rental operations net revenue increased $3.2 million and check cashing operations net revenue decreased $.3 million. Page 16 19 Net Revenue: Lending Activities. Net revenue from lending operations decreased $6.9 million to $140.5 million during the current period from $147.4 million during the prior year period. Same units accounted for $6.1 million of the decrease, including approximately $1.1 million resulting from the translation of the foreign currencies into USD. Finance and service charges declined $6.5 million, net revenue from the disposition of merchandise declined $.9 million, and other domestic lending revenue, franchise royalties and foreign check cashing fees increased a total of $.5 million. Finance and service charges decreased $6.5 million, or 7%, in the current period compared to the prior year period. Of the $6.5 million, $6.1 million was the result of a 6% decrease in the average pawn loan balance that was caused by a 5% decrease in the average number of pawn loans outstanding combined with a 1% decrease in the average amount per average pawn loan outstanding. The decrease is primarily attributable to declines in loan demand in the United States and Sweden. The remaining $.4 million decline was caused by a 2% decrease in the consolidated annualized loan yield. The consolidated annualized loan yield was 94% in the current period compared to 96% in the prior year period. The decrease in the yield was primarily the result of a lower blended yield on foreign loans as the domestic yield was slightly higher at 124% for the current period compared to 122% for the prior year period. The blended yield on the average amount of foreign pawn loans outstanding was 48% for the current period compared to 53% in the prior year period. The decrease in the blended foreign loan yield resulted primarily from a decline in loan yield in the United Kingdom to 49% from 57%. The average United Kingdom pawn loan balance denominated in the U. K. pound sterling for the current period was 10% higher than the prior year period. However, lower redemption rates and lower returns on the disposition of unredeemed collateral contributed to the decline in loan yield. Proceeds from the disposition of merchandise in the current period were $2.2 million, or 1%, lower than the prior year period primarily due to a $4.9 million decline from domestic activities, including a $4.2 million decline from same units, that was partially offset by a $2.7 million increase from the foreign lending units, including a $1.2 million increase from same units in the United Kingdom. The margin on disposition of merchandise declined slightly to 33.0% in the current period from 33.1% during the prior year period. Excluding the effect of the disposition of scrap jewelry, the margin on disposition of merchandise was 35.2% for the current period compared to 34.9% for the prior year period. The margin on disposition of scrap jewelry was 1.8% in the current period and 2.1% in the prior year period. The combination of lower proceeds and a lower margin resulted in a $.9 million, or 2%, decline in net revenue from the disposition of merchandise. The merchandise turnover rate increased to 2.5 times in the current period compared to 2.2 times in the prior year period. During the last five quarters, management has concentrated on discounting prices, lowering the average cost of merchandise held for disposition, and reducing merchandise to more desirable levels. As a result, management believes that the margin on the disposition of merchandise should continue to improve throughout the remainder of the year. Other domestic lending fees and franchising royalties increased a combined amount of $.5 million in the current period as compared to the prior year period. The introduction of Page 17 20 payday loans into 152 of the domestic lending units during the current period accounted for $.4 million of the increase. Net Revenue: Other Activities. Net revenue of Rent-A-Tire increased to $8.5 million in the current period from $5.3 million in the prior year period. Tire and wheel rentals and sales net revenue increased $3.9 million as a result of an average of 20 more stores in operation in the current period compared to the prior year period. Management fee revenue and other related revenue decreased $.7 million due to a reduction of an average of one managed store in the current period compared to the prior year period. 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 period compared to the prior year period. Following de-consolidation, the Company began accounting for its investment in innoVentry by the equity method and, accordingly, the Company's share of the results of operations of innoVentry is recorded in "Equity in loss of unconsolidated subsidiary." See "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 79.6% in the current period compared to 74.1% for the prior year period. Total operations and administration expenses increased a net amount of $5.4 million, or 5%, in the current period as compared to the prior year period. Domestic lending operations expenses increased $2.8 million primarily as a result of rollout costs and continuing expenses associated with the introduction of payday loans into 152 lending units as well as higher personnel benefits, occupancy, and marketing expenses. Foreign lending operations contributed $.7 million of the increase and Rent-A-Tire accounted for $5.1 million of the increase due to an average of 20 more stores during the current period. Check cashing operations expenses decreased $3.2 million as a result of the de-consolidation of innoVentry in March 1999 and losses from fraudulently cashed income tax checks included in the prior year period that did not recur in the current period. Depreciation and Amortization. Depreciation and amortization expenses as a percentage of net revenue decreased to 8.9% in the current period from 9.5% in the prior year period. The amount of depreciation and amortization expenses decreased 9.3% 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 6.7% in the current period from 6.4% in the prior year period. Average debt outstanding decreased 4.6% to $190.8 million during the current period from $200.1 million during the prior year period. The effective blended borrowing cost was 7.1% in the current period and 6.7% in the prior year period. As a result, interest expense was $.1 million higher in the current period. Other Items. A $9.7 million gain (before income tax expense of $3.4 million) on the settlement of the insurance claim related to the damage to the corporate headquarters by a tornado in March 2000, was recorded in the current period. Equity in loss of unconsolidated subsidiary was $15.6 million in the current period compared to $5.1 million in the prior year Page 18 21 period. The Company recorded a pre-tax gain of $.1 million from the issuance of innoVentry's common stock in the current period compared to a pre-tax gain of $4.3 million from the issuance of innoVentry's senior convertible Series A preferred stock and common stock in the prior year period. Income Taxes. The Company's consolidated effective tax rate is impacted in the current period 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 period 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 period 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 is 38.9% for both periods. The effective tax rate of the foreign lending operations was 31.7% in the current period and 31.2% in the prior year period. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $16.9 million during the current period. The Company invested $15.9 million in purchases of property and equipment during the current period including $10.5 million for property improvements, remodeling selected operating units, and additions to computer systems of the lending operations and $.8 million for the replacement of property destroyed by the tornado discussed below. Rent-A-Tire invested $4.3 million for the purchase of equipment and the continued development of a point-of-sale software system, and the check cashing operations invested $.3 million in various fixtures. Rent-A-Tire also invested $2.0 million for the acquisition of 5 tire rental stores. The Company paid $5.6 million to reduce its net borrowings under its bank lines of credit, repaid $5.1 million of notes payable and debt obligations in connection with capital leases, increased pawn loan balances by $2.3 million, purchased $1.3 million of treasury shares in connection with the open market share purchase program and the Company's Nonqualified Savings Plan, and paid $1.0 million in dividends. The effect of foreign exchange rate changes decreased cash balances $.1 million. These activities were funded from the cash flow generated by operating activities, $3.4 million from the issuance of common shares pursuant to the Company's stock option plans, $2.1 million from the issuance of capital lease obligations, and $.8 million of collections of stockholder notes. The Company also received a $10.5 million advance payment on the property insurance claim resulting from the tornado damage. 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 restoration began in the fourth quarter of 2000. The Company's insurance coverage provides proceeds for replacement value 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. During the current quarter, a net gain of $6.3 million after tax expense of $3.4 million has been recorded to recognize Page 19 22 settlement of the insurance claim. Restoration of the existing structure will be financed from proceeds received from the insurance claim. As of September 30, 2000, the Company's voting interest in innoVentry is 37.8%. In the event innoVentry requires additional capital in the future, the Company has the opportunity to make additional investments. The Company currently does not plan to participate in future capital fundings of innoVentry. Therefore, any such capital fundings would dilute the Company's ownership interest in innoVentry, and such dilution could be significant. 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 may add up to 2 new lending units during the remainder of 2000. Rent-A-Tire plans to add 1 additional rental store during the remainder of 2000 through the acquisition of an existing store. Through September 30, 2000, the Company purchased 183,100 shares of its common stock in the open market for an aggregate amount of $1.3 million. The Company purchased an additional 232,000 shares for an aggregate amount of $1.5 million through October 24, 2000. On October 25, 2000, the Company's Board of Directors terminated the open market purchase authorization established in 1999 and established a new authorization for the purchase up to one million shares of its common stock in the open market. 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 credit facilities. Management believes that borrowings available under its revolving credit facilities, cash generated from operations and current working capital of $212.1 million should be sufficient to meet the Company's anticipated future capital requirements. IMPACT OF FOREIGN CURRENCY EXCHANGE RATES The Company is subject to the risk of unexpected changes in foreign currency rates by virtue of its operations in the United Kingdom and Sweden. The Company's foreign assets, liabilities, and earnings are converted into U.S. dollars for consolidation into the Company's financial statements. At September 30, 2000, the Company had recorded a cumulative other comprehensive loss of $9.4 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 20 23 DOMESTIC LENDING OPERATIONS ================================================================================ (Dollars in thousands) The following table sets forth selected financial data for the Company's domestic lending operations as of September 30, 2000 and 1999, and for the three months then ended. 2000 1999 Change -------- -------- ------ REVENUE Finance and service charges $ 23,583 $ 24,107 (2)% Proceeds from disposition of merchandise 47,885 49,506 (3)% Other lending fees and royalties 440 10 4300% -------- -------- ------ TOTAL REVENUE 71,908 73,623 (2)% -------- -------- ------ COSTS OF REVENUE Disposed merchandise 31,348 33,760 (7)% -------- -------- ------ NET REVENUE $ 40,560 $ 39,863 2% ======== ======== ====== OTHER DATA Net revenue contribution by source-- Finance and service charges 59.2% 60.5% (2)% Margin on disposition of merchandise 40.8% 39.5% 3% Expenses as a percentage of net revenue-- Operations and administration 82.0% 80.4% 2% Depreciation and amortization 8.2% 9.6% (15)% Interest, net 4.4% 5.9% (25)% Income from operations before depreciation and amortization as a percentage of total revenue 10.1% 10.6% (4)% Income from operations as a percentage of total revenue 5.5% 5.4% 3% Annualized yield on pawn loans 119% 115% 3% Average pawn loan balance per average location in operation $ 192 $ 201 (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 34.5% 31.8% 9% Average annualized merchandise turnover 2.3x 2.0x 15% Average merchandise held for disposition per average location $ 135 $ 160 (16)% Lending locations in operation-- Beginning of period 410 414 Acquired -- 2 Start-ups -- 1 Combined or closed -- -- End of period 410 417 (2)% Additional franchise locations at end of period 16 6 167% Total locations at end of period 426 423 1% Average number of owned locations(a) 410 416 (1)% -------- -------- ------ (a) Averages based on accumulation of month-end balances and dividing aggregate total months in the period. Page 21 24 DOMESTIC LENDING OPERATIONS ================================================================================ (Dollars in thousands) The following table sets forth selected financial data for the Company's domestic lending operations as of September 30, 2000 and 1999, and for the nine months then ended. 2000 1999 Change --------- --------- --------- REVENUE Finance and service charges $ 68,406 $ 73,074 (6)% Proceeds from disposition of merchandise 156,540 161,412 (3)% Other lending fees and royalties 565 49 1053% --------- --------- --------- TOTAL REVENUE 225,511 234,535 (4)% --------- --------- --------- COSTS OF REVENUE Disposed merchandise 103,258 107,389 (4)% --------- --------- --------- NET REVENUE $ 122,253 $ 127,146 (4)% ========= ========= ========= OTHER DATA Net revenue contribution by source-- Finance and service charges 56.4% 57.5% (2)% Margin on disposition of merchandise 43.6% 42.5% 3% Expenses as a percentage of net revenue-- Operations and administration 80.8% 75.5% 7% Depreciation and amortization 8.4% 9.5% (12)% Interest, net 4.1% 5.5% (25)% Income from operations before depreciation and amortization as a percentage of total revenue 10.4% 13.3% (22)% Income from operations as a percentage of total revenue 5.9% 8.1% (27)% Annualized yield on pawn loans 124% 122% 2% Average pawn loan balance per average location in operation $ 180 $ 194 (7)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 34.0% 33.5% 2% Average annualized merchandise turnover 2.5x 2.2x 14% Average merchandise held for disposition per average location $ 135 $ 155 (13)% Lending locations in operation-- Beginning of period 413 414 Acquired -- 3 Start-ups 1 3 Combined, closed or sold (4) (3) End of period 410 417 (2)% Additional franchise locations at end of period 16 6 167% Total locations at end of period 426 423 1% Average number of owned locations in operation(a) 411 414 (1)% --------- --------- ---------- (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 22 25 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 September 30, 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 .6781 .6071 (12)% Income statement data -- three months average rate .6832 .6245 (9)% Svensk Pantbelaning (Swedish kronor per U.S. dollar)-- Balance sheet data -- end of period rate 9.6450 8.1441 (18)% Income statement data -- three months average rate 9.2863 8.3119 (12)% ------- ------- ----- 2000 1999 Change -------- -------- -------- REVENUE Finance and service charges $5,391 $6,534 (17)% Proceeds from disposition of merchandise 1,812 1,308 39% Check cashing fees 176 196 (10)% ------ ------ ----- TOTAL REVENUE 7,379 8,038 (8)% ------ ------ ----- COSTS OF REVENUE Disposed merchandise 1,600 1,014 58% ------ ------ ----- NET REVENUE $5,779 $7,024 (18)% ====== ====== ===== OTHER DATA Net revenue contribution by source-- Finance and service charges 93.3% 93.0% -- Margin on disposition of merchandise 3.7% 4.2% (12)% Check cashing fees 3.0% 2.8% 9% Expenses as a percentage of net revenue-- Operations and administration 55.9% 48.3% 16% Depreciation and amortization 8.8% 6.8% 29% Interest, net 5.4% 4.3% 26% Income from operations before depreciation and amortization as a percentage of total revenue 34.6% 45.2% (23)% Income from operations as a percentage of total revenue 27.7% 39.2% (29)% Annualized yield on loans 47% 52% (10)% Average loan balance per average location in operation $ 862 $ 967 (11)% Average loan amount at end of period (not in thousands) $ 165 $ 189 (13)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 11.7% 22.5% (48)% Average annualized merchandise turnover 2.1x 1.6x 31% Average merchandise held for disposition per average location $ 57 $ 50 14% Lending locations in operation-- Beginning of period 53 52 Acquired -- -- Start-ups -- -- Combined or closed -- -- End of period 53 52 2% Average number of owned locations(a) 53 52 2% ------ ------ ----- (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 23 26 FOREIGN LENDING OPERATIONS ================================================================================ (Dollars in thousands) The following table sets forth selected consolidated financial data in U.S. dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of September 30, 2000 and 1999, and for the nine months then ended, using the following currency exchange rates: 2000 1999 Change -------- ------- --------- Harvey & Thompson, Ltd. (U.K. pound sterling per U.S. dollar)-- Income statement data - nine months average rate .6497 .6200 (5)% Svensk Pantbelaning (Swedish kronor per U.S. dollar)-- Income statement data - nine months average rate 8.9046 8.2381 (8)% -------- ------- ------- 2000 1999 Change -------- ------- --------- REVENUE Finance and service charges $ 17,335 $ 19,095 (9)% Proceeds from disposition of merchandise 6,146 3,445 78% Check cashing fees 527 568 (7)% -------- -------- ---- TOTAL REVENUE 24,008 23,108 4% -------- -------- ---- COSTS OF REVENUE Disposed merchandise 5,752 2,877 100% -------- -------- ---- NET REVENUE $ 18,256 $ 20,231 (10)% ======== ======== ==== OTHER DATA Net revenue contribution by source-- Finance and service charges 95.0% 94.4% 1% Margin on disposition of merchandise 2.2% 2.8% (21)% Check cashing fees 2.8% 2.8% 1% Expenses as a percentage of net revenue-- Operations and administration 56.8% 47.8% 19% Depreciation and amortization 8.6% 7.4% 16% Interest, net 6.0% 4.8% 25% Income from operations before depreciation and amortization as a percentage of total revenue 32.8% 45.7% (28)% Income from operations as a percentage of total revenue 26.3% 39.2% (33)% Annualized yield on pawn loans 48% 53% (9)% Average pawn loan balance per average location in operation $ 902 $ 951 (5)% Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 6.4% 16.5% (61)% Average annualized merchandise turnover 2.3x 1.9x 21% Average merchandise held for disposition per average location $ 63 $ 40 58% Lending locations in operation-- Beginning of period 53 50 Acquired -- 2 Start-ups -- -- Combined, closed or sold -- -- End of period 53 52 2% Average number of owned locations in operation(a) 53 51 4% -------- -------- ---- (a) Averages based on accumulation of month-end balances and dividing aggregate total by total months in the period. Page 24 27 OTHER OPERATIONS ================================================================================ (Dollars in thousands) The following table sets forth selected financial data with respect to the Company's other domestic operations as of September 30, 2000 and 1999, and for the three months then ended. 2000 1999 Change ------- ------ ------ RENTAL OPERATIONS: REVENUE Tire and wheel rentals $ 3,672 $1,547 137% Management fees 410 1,060 (61)% Tire and wheel sales 458 288 59% Lease income and other 302 239 26% ------- ------ ---- TOTAL REVENUE 4,842 3,134 54% ------- ------ ---- COSTS OF REVENUE Tire and wheel rentals 1,320 665 98% Tire and wheel sales 323 214 51% ------- ------ ---- NET REVENUE $ 3,199 $2,255 42% ======= ====== ==== OTHER DATA Owned rental locations-- Rental agreements outstanding at end of period $11,985 $4,319 177% Average balance per rental agreement at end of period (not in thousands) $ 1,066 $ 905 18% Locations in operation at end of period 33 13 154% Average locations in operation for the period(a) 32 13 146% Managed rental locations-- Locations in operation at end of period 10 19 (47)% Average locations in operation for the period(a) 11 15 (27)% ------- ------ ---- CHECK CASHING OPERATIONS: REVENUE Check cashing royalties and fees $ 718 $ 773 (7)% ------- ------ ---- TOTAL REVENUE 718 773 (7)% ------- ------ ---- NET REVENUE $ 718 773 (7)% ======= ====== ==== OTHER DATA Franchised and owned check cashing centers-- Centers in operation at end of period 137 144 (5)% Average centers in operation for the period(a) 137 144 (2)% ------- ------ ---- (a) Averages based on accumulation of month-end balances and dividing aggregate total months in the period. Page 25 28 OTHER OPERATIONS =============================================================================== (Dollars in thousands) The following table sets forth selected financial data with respect to the Company's other domestic operations as of September 30, 2000 and 1999, and for the nine months then ended. 2000 1999 Change --------- --------- ------- RENTAL OPERATIONS: REVENUE Tire and wheel rentals $ 8,942 $ 3,396 163% Management fees 1,593 2,438 (35) Tire and wheel sales 1,227 589 108% Lease income and other 872 629 39% --------- --------- ------- TOTAL REVENUE 12,634 7,052 79% --------- --------- ------- COSTS OF REVENUE Tire and wheel rentals 3,237 1,330 143% Tire and wheel sales 853 437 95% --------- --------- ------- NET REVENUE $ 8,544 $ 5,285 62% ========= ========= ======= OTHER DATA Owned rental locations- Average locations in operation for the period(a) 29 9 222% Managed rental locations- Average locations in operation for the period(a) 13 14 (7)% --------- --------- ------- CHECK CASHING OPERATIONS: REVENUE Check cashing royalties and fees(b) $ 2,451 $ 2,440 -- --------- --------- ------- TOTAL REVENUE $ 2,451 $ 2,440 -- --------- --------- ------- NET REVENUE $ 2,451 $ 2,440 -- ========= ========= ======= OTHER DATA Franchised and owned check cashing centers- Average centers in operation for the period(a) 136 138 (1)% --------- --------- ------- (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 26 29 CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS Certain portions of this report contain forward-looking statements about the business, financial condition and prospects of the Company. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, changes in demand for the Company's services, changes in competition, the ability of the Company to open new operating units in accordance with its plans, economic conditions, real estate market fluctuations, interest rate fluctuations, changes in the capital markets, changes in tax and other laws and governmental rules and regulations applicable to the Company's business, and other risks indicated in the Company's filings with the Securities and Exchange Commission. 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 27 30 PART II Item 1. LEGAL PROCEEDINGS See Note 9 of Notes to Consolidated Financial Statements Item 2. CHANGES IN SECURITIES Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable Item 5. OTHER INFORMATION Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Third Supplement (June 30, 2000) to Note Agreement between the Company and the various Purchasers named therein dated as of December 1, 1997. 10.2 Sixth Supplement (June 30, 2000) to Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of July 7, 1995. 10.3 Ninth Supplement (June 30, 2000) to Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of May 6, 1993. 10.4 Sixth Amendment (June 30, 2000) to Senior Revolving Credit Facility Agreement among the Company and the various Banks named therein dated June 19, 1996. 27 Financial Data Schedule (b) Reports on Form 8-K - None Page 28 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: November 10, 2000 Page 29 32 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Third Supplement (June 30, 2000) to Note Agreement between the Company and the various Purchasers named therein dated as of December 1, 1997. 10.2 Sixth Supplement (June 30, 2000) to Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of July 7, 1995. 10.3 Ninth Supplement (June 30, 2000) to Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of May 6, 1993. 10.4 Sixth Amendment (June 30, 2000) to Senior Revolving Credit Facility Agreement among the Company and the various Banks named therein dated June 19, 1996. 27 Financial Data Schedule