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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File Number 1-9733
CASH AMERICA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2018239
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1600 WEST 7TH STREET
FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
(817) 335-1100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
24,723,726 common shares, $.10 par value, we were outstanding as of April 30,
2001.
================================================================================
2
CASH AMERICA INTERNATIONAL, INC.
INDEX TO 10-Q
PART I. FINANCIAL STATEMENTS
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2001
and 2000 and December 31, 2000......................................... 1
Consolidated Statements of Operations - Three Months
Ended March 31, 2001 and 2000.......................................... 2
Consolidated Statements of Stockholders' Equity -
Three Months Ended March 31, 2001 and 2000............................. 3
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000............................. 4
Notes to Consolidated Financial Statements............................. 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition................. 10
PART II. OTHER INFORMATION................................................... 21
SIGNATURE..................................................................... 22
3
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED)
March 31, December 31,
2001 2000 2000
------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,262 $ 6,599 $ 4,626
Loans 107,493 115,907 117,982
Merchandise held for disposition, net 52,308 56,572 58,817
Inventory 4,894 3,549 4,419
Finance and service charges receivable 17,710 18,928 19,918
Other receivables and prepaid expenses 6,994 12,884 8,239
Income taxes recoverable 1,183 8,921 2,992
Deferred tax assets 4,823 5,278 5,455
------------ ------------ ------------
Total current assets 201,667 228,638 222,448
Property and equipment, net 62,161 55,378 61,898
Intangible assets, net 88,461 90,036 87,504
Other assets 6,341 9,887 6,383
Investment in and advances to unconsolidated subsidiary -- 8,082 --
------------ ------------ ------------
Total assets $ 358,630 $ 392,021 $ 378,233
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 18,737 $ 19,360 $ 21,974
Customer deposits 4,363 4,635 3,931
Income taxes currently payable 433 1,423 379
Current portion of long-term debt 10,165 5,409 5,853
------------ ------------ ------------
Total current liabilities 33,698 30,827 32,137
Deferred tax liabilities 2,652 1,646 3,027
Long-term debt 144,661 173,505 164,611
------------ ------------ ------------
Stockholders' equity:
Common stock, $.10 par value per
share, 80,000,000 shares authorized 3,024 3,024 3,024
Paid in surplus 127,815 127,852 127,820
Retained earnings 104,697 100,379 102,326
Accumulated other comprehensive loss (11,993) (4,667) (8,487)
Notes receivable - stockholders (5,570) (6,145) (5,755)
------------ ------------ ------------
217,973 220,443 218,928
Less -- shares held in treasury, at cost (40,354) (34,400) (40,470)
------------ ------------ ------------
Total stockholders' equity 177,619 186,043 178,458
------------ ------------ ------------
Total liabilities and stockholders' equity $ 358,630 $ 392,021 $ 378,233
============ ============ ============
See notes to consolidated financial statements.
Page 1
4
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) (UNAUDITED)
Three Months Ended
March 31,
2001 2000
------------- -------------
REVENUE
Finance and service charges $ 28,965 $ 29,526
Proceeds from disposition of merchandise 62,727 62,519
Other lending fees and royalties 682 79
Rental operations 5,405 3,741
Check cashing operations 1,182 1,131
------------- -------------
TOTAL REVENUE 98,961 96,996
------------- -------------
COSTS OF REVENUE
Disposed merchandise 41,428 42,476
Rental operations 2,153 1,182
------------- -------------
NET REVENUE 55,380 53,338
------------- -------------
OPERATING EXPENSES
Lending operations 32,354 31,386
Rental operations 3,053 2,508
Check cashing operations 314 367
Administration 6,904 6,687
Depreciation 3,826 3,528
Amortization 1,143 1,105
------------- -------------
Total operating expenses 47,594 45,581
------------- -------------
INCOME FROM OPERATIONS 7,786 7,757
Interest expense, net 2,838 3,299
Loss (gain) from derivative valuation fluctuations 472 --
Equity in loss of unconsolidated subsidiary -- 7,341
------------- -------------
Income (loss) before income taxes 4,476 (2,883)
Provision for income taxes 1,801 1,754
------------- -------------
NET INCOME (LOSS) $ 2,675 $ (4,637)
============= =============
Net income (loss) per share:
Basic $ .11 $ (.18)
Diluted .11 (.18)
------------- -------------
Weighted average common shares outstanding:
Basic 24,653 25,282
Diluted 24,719 25,282
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, 2001 AND 2000
(In thousands, except share data) (UNAUDITED)
COMMON STOCK
----------------------- PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS)
----------- ---------- ------------ ------------ -------------
Balance at
December 31, 2000 30,235,164 $ 3,024 $ 127,820 $ 102,326
Comprehensive loss:
Net income 2,675 $ 2,675
Other comprehensive
loss - Foreign
currency translation
adjustments (3,506)
------------
Comprehensive loss $ (831)
------------
Dividends declared--
$.0125 per share (304)
Treasury shares
purchased
Treasury shares
reissued (5)
Change in notes
receivable -
stockholders
----------- ---------- ------------ ------------
Balance at
March 31, 2001 30,235,164 $ 3,024 $ 127,815 $ 104,697
=========== ========== ============ ============
Balance at
December 31, 1999 30,235,164 $ 3,024 $ 127,350 $ 105,331
Comprehensive loss:
Net loss (4,637) $ (4,637)
Other comprehensive
loss - Foreign
currency translation
adjustments (678)
------------
Comprehensive loss $ (5,315)
------------
Dividends declared--
$.0125 per share (315)
Treasury shares purchased
Treasury shares reissued (717)
Tax benefit from exercise
of option shares 1,219
Change in notes
receivable - stockholders
----------- ---------- ------------ ------------
Balance at
March 31, 2000 30,235,164 $ 3,024 $ 127,852 $ 100,379
=========== ========== ============ ============
ACCUMULATED NOTES
OTHER RECEIVABLE - TREASURY STOCK
COMPREHENSIVE STOCK- -------------------------
INCOME (LOSS) HOLDERS SHARES AMOUNT
------------- ------------ ------------ -----------
Balance at
December 31, 2000 $ (8,487) $ (5,755) 5,577,318 $ (40,470)
Comprehensive loss:
Net income
Other comprehensive
loss - Foreign
currency translation
adjustments (3,506)
Comprehensive loss
Dividends declared--
$.0125 per share
Treasury shares
purchased (1,590) 70
Treasury shares
reissued (6,250) 46
Change in notes
receivable -
stockholders 185
------------ ------------ ------------ -----------
Balance at
March 31, 2001 $ (11,993) $ (5,570) 5,569,478 $ (40,354)
============ ============ ============ ===========
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 (678)
Comprehensive loss
Dividends declared--
$.0125 per share
Treasury shares purchased (3,341) 45
Treasury shares reissued (588,200) 4,511
Tax benefit from exercise
of option shares
Change in notes
receivable - stockholders (325)
------------ ------------ ------------ -----------
Balance at
March 31, 2000 $ (4,667) $ (6,145) 4,463,629 $ (34,400)
============ ============ ============ ===========
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,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,675 $ (4,637)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 3,826 3,528
Amortization 1,143 1,105
Loss from derivative valuation fluctuations 472 --
Equity in loss of unconsolidated subsidiary -- 7,341
Changes in operating assets and liabilities-
Merchandise held for disposition and inventory 6,897 7,138
Finance and service charges receivable 1,828 2,031
Other receivables and prepaid expenses 599 (155)
Accounts payable and accrued expenses (3,162) (1,537)
Customer deposits, net 432 504
Current income taxes 1,886 (227)
Deferred taxes, net 406 39
------------ ------------
Net cash provided by operating activities 17,002 15,130
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to merchandise held for disposition 32,292 32,424
Loans repaid or renewed 72,645 77,042
Loans made, including loans renewed (97,461) (100,695)
------------ ------------
Net decrease in loans 7,476 8,771
------------ ------------
Acquisitions, net of cash acquired (3,870) (425)
Purchases of property and equipment (4,542) (4,386)
------------ ------------
Net cash (used) provided by investing activities (936) 3,960
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments under bank lines of credit (13,980) (22,822)
Payments on capital lease obligations (371) (255)
Change in notes receivable - stockholders 240 --
Net proceeds from reissuance of treasury shares (1) 4,671
Treasury shares sold 70 45
Dividends paid (304) (315)
------------ ------------
Net cash used by financing activities (14,346) (18,676)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (84) (1)
------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS 1,636 413
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,626 6,186
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,262 $ 6,599
============ ============
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").
During 1999, the Company disposed of a majority interest in innoVentry Corp.
("innoVentry") and began using the equity method of accounting for its
investment and its share of the results of innoVentry's operations. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In February 2001, innoVentry sold additional voting preferred stock,
reducing the Company's ownership and voting interest to 19.3%. Thereafter, the
Company began using the cost method of accounting for its investment in
innoVentry. See Note 4.
The financial statements as of March 31, 2001 and 2000, 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, 2000, have been reclassified to conform to the
presentation format adopted in 2001. 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 2000 Annual Report to Stockholders.
2. REVENUE RECOGNITION
Lending Operations o Pawn loans ("loans") are made on the pledge of tangible
personal property. The Company accrues finance and service charges revenue on
all loans that the Company deems collectible based on historical loan redemption
statistics. For loans not repaid, the carrying value of the forfeited collateral
("merchandise held for disposition") is stated at the lower of cost (cash amount
loaned) or market.
Revenue is recognized at the time of disposition of merchandise.
Interim customer payments for layaway sales are recorded as deferred revenue and
subsequently recognized as revenue during the period in which final payment is
received.
The Company offers small consumer cash advances ("payday loans") in
selected lending locations and on behalf of a third party financial institution
(the "Bank") in other
Page 5
8
locations. The Company accrues payday loan fees and interest revenue on each
loan on a constant yield basis over its term, which is typically less than 17
days. A loan loss reserve is provided for loans, fees and interest deemed to be
uncollectible. The loan loss reserve is increased by charges to operating
expenses and decreased by charge offs (net of recoveries), as required. The Bank
pays the Company an administrative fee for services provided on its behalf. Fees
for administrative services provided to the Bank are recorded in revenue when
earned.
Rental Operations 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. Through January 2001, Rent-A-Tire, Inc. ("Rent-A-Tire")
operated stores for unrelated investors pursuant to management agreements. The
investors owned the stores and incurred all costs to operate them pursuant to
the terms of the management agreements. Management fees earned by Rent-A-Tire
were recorded in revenue over the life of the agreements. In addition,
Rent-A-Tire received compensation for its efforts in constructing and opening
each store that it managed for a third party.
Check Cashing Operations 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
The Company adopted Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as
amended, on January 1, 2001. SFAS 133 requires an entity to recognize each
derivative instrument as either an asset or liability on the balance sheet,
measure it at fair value, and recognize the changes in its fair value
immediately in income unless it qualifies as a hedge. The Company's only
derivative instruments are interest rate cap agreements that it designates and
uses as cash flow hedges to protect against the risks associated with market
fluctuations in interest rates on a portion of its variable interest rate
borrowings. The Company performs prospective assessments of each agreement's
hedge effectiveness, as defined by SFAS 133, at the beginning of each quarter.
The final determination of hedge effectiveness is completed following the end of
each quarter.
The accompanying consolidated statements of operations include a loss
from derivative valuation fluctuations resulting from two adjustments totaling
$472 thousand. As of January 1, 2001, the Company adjusted the carrying value of
each of its interest rate cap agreements to fair value and recorded a loss of
$259 thousand (before applicable income tax benefit of $87 thousand), which
represented the cumulative effect of adopting the new standard. The Company
recorded an additional loss of $213 thousand during the three months ended March
31, 2001, due to the determination that the interest rate cap agreements were
ineffective as hedges (as defined by SFAS 133) during the three month period,
and a decrease in the fair values of the agreements resulting from the
prevailing interest rate environment. The fair value of the interest rate cap
agreements as of March 31, 2001, is $262 thousand and
Page 6
9
is included in "Other receivables and prepaid expenses" in the accompanying
consolidated balance sheet.
4. INVESTMENT IN INNOVENTRY
innoVentry sold $115.7 million of newly issued shares of senior convertible
Series C voting preferred stock in a private placement completed as of February
2, 2001. The Company participated in the placement by canceling its $2.9 million
note receivable from innoVentry plus accrued interest of $.4 million in exchange
for 2,269,066 shares of the Series C preferred stock. In conjunction with the
preferred stock sale, Wells Fargo Bank, N. A. amended its financing agreements
to provide a $55.0 million revolving secured credit agreement, up to $85.1
million of equipment lease financing, and a restructured Rapid Pay Machine(TM)
funding arrangement. Upon completion of the transactions, the Company owned
19.3% of the ownership and voting interest in innoVentry and began using the
cost method of accounting for its investment.
5. LONG-TERM DEBT
The Company's long-term debt instruments and balances outstanding at March 31,
2001 and 2000 were as follows (in thousands):
2001 2000
------------ ------------
U.S. Line of Credit up to $150 million
due June 30, 2003 $ 71,700 $ 78,750
U.K. Line of Credit up to L.15 million
due April 30, 2002 6,195 14,628
Swedish Lines of Credit up to SEK 215 million 8,265 13,298
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 5,409 4,595
6.25% subordinated unsecured notes due 2004 400 500
------------ ------------
154,826 178,914
Less current portion 10,165 5,409
------------ ------------
Total long-term debt $ 144,661 $ 173,505
============ ============
Page 7
10
6. WEIGHTED AVERAGE SHARES
The reconciliation of basic and diluted weighted average common shares
outstanding for the three month periods ended March 31, 2001 and 2000 follows
(in thousands):
2001 2000
------- -------
Weighted average shares - Basic 24,653 25,282
Effect of shares applicable to stock option plans 1 780
Effect of shares applicable to nonqualified savings plan 65 47
Antidilutive effect resulting from net loss -- (827)
------- -------
Weighted average shares - Diluted 24,719 25,282
------- -------
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.
Information concerning the segments is set forth below (in thousands):
Lending
------------------------------------
United Check
States Foreign Total Rental Cashing Consolidated
---------- ---------- ---------- ---------- ---------- ------------
Three Months Ended
March 31, 2001:
Total revenue $ 84,719 $ 7,838 $ 92,557 $ 5,405 $ 999 $ 98,961
Income (loss)
from operations 6,284 2,067 8,351 (849) 284 7,786
Total assets at March 31 244,639 70,836 315,475 30,505 12,650 358,630
---------- ---------- ---------- ---------- ---------- ----------
Three Months Ended
March 31, 2000:
Total revenue 83,489 8,803 92,292 3,741 963 96,996
Income (loss)
from operations 5,990 2,322 8,312 (811) 256 7,757
Total assets at March 31 262,465 88,049 350,514 21,858 19,649 392,021
Page 8
11
8. LITIGATION
The Company is party to a number of lawsuits arising in the normal
course of business. In the opinion of management, the resolution of these
matters will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
Page 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, 2001 vs.
FIRST QUARTER ENDED MARCH 31, 2000
(Dollars in thousands)
The following table sets forth selected consolidated financial data
with respect to the Company and its lending operations as of March 31, 2001 and
2000, and for the three months then ended.
2001 2000 Change
------------ ------------ ------------
REVENUE
Finance and service charges $ 28,965 $ 29,526 (2)%
Proceeds from disposition of merchandise 62,727 62,519 --
Other lending fees and royalties 682 79 763%
Rental operations 5,405 3,741 44%
Check cashing operations 1,182 1,131 5%
------------ ------------ ------------
TOTAL REVENUE 98,961 96,996 2%
------------ ------------ ------------
COSTS OF REVENUE
Disposed merchandise 41,428 42,476 (2)%
Rental operations 2,153 1,182 82%
------------ ------------ ------------
NET REVENUE $ 55,380 $ 53,338 4%
============ ============ ============
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 53.5% 55.5% (4)%
Margin on disposition of merchandise 38.5% 37.6% 2%
Rental operations 5.9% 4.8% 23%
Check cashing operations 2.1% 2.1% --
Expenses as a percentage of net revenue--
Operations and administration 77.0% 76.8% --
Depreciation and amortization 9.0% 8.7% 3%
Interest, net 5.1% 6.2% (17)%
Income from operations as a percentage of total revenue 7.9% 8.0% (1)%
------------ ------------ ------------
LENDING OPERATIONS:
Annualized yield on pawn loans 104% 99% 5%
Average pawn loan balance per average location in operation $ 244 $ 258 (5)%
Average pawn loan amount at end of period (not in thousands) $ 99 $ 105 (6)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.0% 32.1% 6%
Average annualized merchandise turnover 3.0x 2.8x 7%
Average merchandise held for disposition
per average location $ 122 $ 131 (7)%
Owned locations in operation--
Beginning of period 463 466
Acquired -- --
Start-ups 1 1
Combined or closed (4) (3)
End of period 460 464 (1)%
Additional franchise locations at end of period 16 11 45%
Total locations at end of period 476 475 --
Average number of owned locations in operation(a) 462 465 (1)%
(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 charges revenue. A related but secondary source of revenue is the
disposition of merchandise, primarily collateral from unredeemed pawn loans. The
Company also provides rental of tires and wheels through its subsidiary,
Rent-A-Tire, Inc. ("Rent-A-Tire") and check cashing services through its
franchised and company owned Mr. Payroll(R) manned check cashing centers.
The number of lending locations declined by one during the 15 months
ended March 31, 2001. The Company established 2 locations, and combined or
closed 8 locations. In addition, 5 franchise units were opened. As of March 31,
2001, the Company's lending operations consisted of 476 lending units--407 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 fifteen months ended March 31, 2001, Rent-A-Tire acquired 15
tire and wheel rental stores that it previously managed, established 5 stores
and closed one store. As of March 31, 2001, Rent-A-Tire owned and operated 43
stores. As of March 31, 2001, Mr. Payroll operated 125 franchised and 7 company
owned manned check cashing centers in 20 states. During 1999, the Company
disposed of a majority interest in innoVentry Corp. ("innoVentry") and began
accounting for its investment by the equity method of accounting. innoVentry
issued additional voting preferred stock in private placements in October 1999
and February 2001. The Company began accounting for its investment by the cost
method following the February 2001 private placement. As of March 31, 2001, the
Company's ownership and voting interest was 19.3%.
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 2001, COMPARED TO THE
FIRST QUARTER ENDED MARCH 31, 2000
FOREIGN CURRENCY TRANSLATION. The strength of the United States dollar against
the two currencies utilized in the Company's foreign operations negatively
impacted the results of operations during the first quarter ended March 31, 2001
(the "current quarter"), when compared to the results during the first quarter
ended March 31, 2000 (the "prior year quarter"). The weighted average exchange
rates used for translating earnings into United States dollars for the United
Kingdom pound sterling and Swedish kronor were 10.8% and 13.5% lower,
respectively, during the current quarter compared to the prior year quarter. The
exchange rates used for translating assets and liabilities into United States
dollars at March 31, 2001, for the pound sterling and the kronor were 12.8% and
20.6% lower, respectively, than the rates used at March 31, 2000. The effects of
these declines on the quarterly comparisons, when significant, will be analyzed
separately from the operational effects. Management anticipates that the
unfavorable currency translation adjustments will continue during fiscal 2001.
Page 11
14
NET REVENUE: CONSOLIDATED. Consolidated net revenue increased 3.8%, or $2.1
million, to $55.4 million during the current quarter, from $53.3 million during
the prior year quarter. Net revenue from lending activities, rental operations
and check cashing operations increased $1.3 million, $.7 million and $.1
million, respectively.
NET REVENUE: LENDING ACTIVITIES. Lending operations net revenue increased $1.3
million to $51.1 million during the current quarter from $49.8 million during
the prior year quarter. The principal components of lending operations net
revenue are finance and service charges, which decreased $.6 million; net
revenue from the disposition of merchandise, which increased $1.3 million; other
domestic lending fees and franchise royalties, which increased $.6 million; and
foreign check cashing operations, which was the same in both quarters.
Changes in the average balance of pawn loans outstanding, changes in
the annualized yield of the pawn loan portfolio, and the effects of translation
of foreign currency amounts into United States dollars cause the fluctuations in
finance and service charges. The company-wide average balance of pawn loans
outstanding was 6.0% lower during the current quarter than during the prior year
quarter. Excluding the effects on translation of exchange rate declines, the
company-wide average balance of pawn loans outstanding was only 3.0% lower than
the prior year quarter. The lower average balances outstanding generally result
in lower amounts of finance and service charges. A $.3 million decrease in
finance and service charges that resulted from the lower average pawn loan
balances was offset by a $.3 million increase that occurred from an increase in
the annualized loan yield. The declines in the foreign currency exchange rates
caused all of the $.6 million decrease in finance and service charges. An
increase in finance and service charges of $.5 million from United States same
units (those in operation for more than one year during the current quarter) was
negated by the $.6 million decrease from foreign same units resulting from the
lower exchange rates.
The average balance of domestic pawn loans outstanding increased 1.7%
during the current quarter over the prior year quarter average, which led to a
$.4 million increase in domestic finance and service charges. The increase was
driven by a 1.5% growth in the average amount per loan coupled with a .2%
increase in the average number of pawn loans outstanding during the current
quarter. The modest increase in average number of domestic pawn loans
outstanding is the first quarter-over-quarter increase since mid-1999,
reinforcing management's belief that the weakness in domestic pawn loan demand
may be dissipating. Excluding the effects of exchange rate declines, the average
balance of pawn loans outstanding declined 12.7% and 4.9% in the United Kingdom
and Sweden, respectively, and led to a $.5 million decrease in finance and
service charges in the United Kingdom and a $.2 million decrease in Sweden.
Foreign loan demand continues to be weaker as exemplified by 7.2% and 6.7%
decreases in the average number of pawn loans outstanding in the United Kingdom
and Sweden, respectively. Average amounts per loan were 6.0% lower in the United
Kingdom and 2.0% higher in Sweden.
Domestic pawn loan balances at March 31, 2001 declined $7.7 million, or
10.2%, from December 31, 2000 balances. The decline for the comparable period of
the preceding year was $9.6 million, or 12.7%. The Company historically
experiences a decrease in domestic pawn loan balances during the first quarter
of each year when the Internal Revenue Service processes federal income tax
refunds. Management believes that many customers use a portion of their refund
to repay their loans and purchase items of personal property. Aggregate pawn
loan balances at March 31, 2001, were $10.5 million, or 8.9% lower than at
December 31, 2000,
Page 12
15
compared to a $9.4 million, or 7.5%, decrease between the comparable dates in
the preceding year. From December 31, 2000, to March 31, 2001, foreign pawn loan
balances declined $3.0 million as a result of the deterioration in the foreign
currency exchange rates between the two dates. Excluding the effects of the
exchange rate declines, foreign pawn loan balances increased approximately $.2
million during each of the comparable periods.
Excluding the negative effects of foreign currency exchange rate
declines, the consolidated annualized loan yield, which represents the blended
result derived from the distinctive loan yields realized from operations in the
three countries, was 103.0% in the current quarter compared to 98.9% in the
prior year quarter. The increase resulted in a $.3 million increase in finance
and service charges. The domestic annualized loan yield increased to 133.9% for
the current quarter, compared to 132.6% for the prior year quarter resulting in
a slight increase in finance and service charges. An increase in the blended
yield on foreign loans to 54.2% in the current quarter compared to 51.5% in the
prior year quarter caused $.3 million of growth in finance and service charges.
Virtually all of the increase occurred in the United Kingdom due to improvement
in loan redemption rates.
Net revenue from the disposition of merchandise represents the proceeds
received from the disposition of merchandise in excess of the cost of
merchandise disposed. The effects of declines in foreign currency exchange rates
were negligible since 96.4% of proceeds and 98.3% of net margins were generated
domestically. Proceeds from the disposition of merchandise in the current
quarter were virtually unchanged from the prior year quarter. All of the
increased proceeds of $.2 million, or .3%, occurred in the Company's domestic
lending units. The margin on disposition of merchandise increased to 34.0% in
the current quarter from 32.1% in the prior year quarter. Excluding the effect
of the disposition of scrap jewelry, the margin on disposition of merchandise
increased to 35.7% in the current quarter from 34.1% in the prior year quarter
due to a lower average cost of merchandise disposed. The margin on disposition
of scrap jewelry was 4.6% in the current quarter compared to a loss of .3% in
the prior year quarter due to a lower average cost per ounce for domestic
dispositions. The combination of increased proceeds and higher margin resulted
in a $1.3 million, or 6.3%, increase in net revenue from the disposition of
merchandise. The merchandise turnover rate increased to 3.0 times during the
current quarter from 2.8 times during the prior year quarter. Since the end of
the second quarter of 1999, management has concentrated on discounting prices,
lowering the average cost of merchandise held for disposition, and reducing
aggregate merchandise levels. As a result, management believes that the margin
on disposition should continue to trend slightly higher throughout the remainder
of 2001.
Other domestic lending fees and franchising royalties increased $.6
million in the current quarter as compared to the prior year quarter. The
increase resulted from the initiation of a small consumer cash advance product
during 2000 that was introduced into 352 domestic lending units and 40 tire
rental stores by the end of the current quarter, including 310 units that offer
the product on behalf of a third party financial institution (the "Bank"), which
pays the Company a fee for its administrative services. The product offered by
the Company in 82 locations provides customers with cash in exchange for a
promissory note or other repayment agreement supported by that customer's check
for the amount of the cash advanced plus a service fee. The Company holds the
check for a short period, typically less than 17 days. To repay the advance,
customers may redeem their checks by paying cash or they may allow the checks to
be processed for collection. (Although these cash advance transactions may take
the form of loans or deferred
Page 13
16
check deposit transactions, the transactions are referred to throughout this
discussion as "payday loans" for convenience.)
During the current quarter, $5.9 million of payday loans were written,
including $3.0 million extended to customers by the Bank, for an average of $216
per loan. As of March 31, 2001, $1.5 million of gross payday loans were
outstanding, including $.8 million extended to customers by the Bank that is not
included in the Company's consolidated balance sheet. A loan loss reserve of
$249 thousand, representing approximately 37% of the Company's gross payday
loans outstanding, has been provided in the consolidated financial statements.
The Company plans to offer payday loans in approximately 50 more domestic
lending locations during 2001.
NET REVENUE: OTHER ACTIVITIES. Net revenue of Rent-A-Tire increased $.7 million,
or 27.2%, to $3.3 million in the current quarter. Tire and wheel rentals and
sales net revenue increased $1.4 million as a result of an average of 15 more
stores in operation in the current quarter as compared to the prior year
quarter. Management fee revenue and other related revenue decreased $.7 million
due to a reduction of an average of 11 managed stores in the current quarter as
compared to the prior year quarter.
Mr. Payroll's net revenue increased by $.1 million, or 3.7%, during the
current quarter as compared to the prior year quarter. See "Other Items" below
for a discussion of the effects on income of the Company's investment in
innoVentry.
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expenses as a percentage of net revenue were 77.0% in the current
quarter compared to 76.8% in the prior year quarter. The expenses increased $1.7
million, or 4.1%, in the current quarter as compared to the prior year quarter.
Domestic lending expenses increased $1.7 million, primarily as a result of
rollout costs and continuing expenses associated with the introduction of payday
loans into 392 locations, higher utility expenses and higher personnel costs.
Foreign lending operations expenses decreased $.4 million due to the beneficial
effects on expenses of the decline in foreign currency exchange rates.
Rent-A-Tire accounted for an increase of $.4 million as expense containment
measures offset the impact of having an average of 15 more stores in operation
during the current quarter as compared to the prior year quarter. Mr. Payroll's
expenses were the same in both quarters.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses as a
percentage of net revenue were 9.0% in the current quarter compared to 8.7% in
the prior year quarter. Total depreciation and amortization expenses increased
$.3 million, or 7.3%. An increase in Rent-A-Tire depreciation and amortization
expenses resulting from the increase in the number of tire rental stores in
operation and the implementation of their new point-of-sale software system
accounted for virtually all of the consolidated increase.
INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined
to 5.1% in the current quarter from 6.2% in the prior year quarter. The amount
decreased a net $.5 million, or 14.0%, due to the effect of a 14.2% reduction in
the Company's average debt balance that was partially offset by higher blended
borrowing costs. The average amount of debt outstanding decreased during the
current quarter to $167.2 million from $194.4 million during the prior year
quarter. Factors contributing to the reduction were lower pawn loan and
merchandise balances, and the receipt of insurance proceeds in 2000 from claims
resulting from tornado damage to the
Page 14
17
corporate headquarters in March 2000. The effective blended borrowing cost
increased slightly to 6.9% in the current quarter from 6.8% in the prior year
quarter. The effects of the declines in foreign currency exchange rates on the
average amounts of debt outstanding and the effective blended borrowing cost
were not significant.
OTHER ITEMS. Effective January 1, 2001, the Company implemented Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended, established new
accounting and reporting standards for derivative instruments and hedging
activities. The new standard does not permit the restatement of prior years'
financial statements. Therefore, the Company was required to adjust the carrying
values of its interest rate cap agreements (its only derivative instruments) to
their fair values as of January 1, 2001, and March 31, 2001. The adjustments to
fair values at both dates resulted in a charge of $.5 million that is recorded
in "Loss (gain) from derivative valuation fluctuations" in the Company's
Consolidated Statements of Operations in the current quarter. See Note 3 of
Notes to Consolidated Financial Statements.
The Company's share of innoVentry's net losses in the prior year
quarter was $7.3 million. As of June 30, 2000, the Company's proportionate share
of innoVentry's losses exceeded the carrying amount of its investment in and
advances to innoVentry. Since the Company has no obligation to provide financial
support to innoVentry, it suspended the recording of its equity in innoVentry's
losses as of that date. In February 2001, innoVentry sold additional voting
preferred stock. The Company's ownership and voting interest was reduced to
19.3% and it began accounting for its investment in innoVentry by the cost
method of accounting. See Note 4 of Notes to Consolidated Financial Statements.
INCOME TAXES. The Company's effective tax rate for the current quarter was
40.2%. The Company's consolidated effective tax rate in the prior year quarter
was impacted by the effect of the valuation allowance provided for the deferred
tax assets arising from the Company's equity in the losses of innoVentry.
Including the effect of the valuation allowance provided, the Company recognized
no net deferred tax benefits in the prior year quarter from its equity in the
losses of innoVentry. Excluding the effects of the equity in innoVentry's losses
and their related tax effects, the Company's consolidated effective tax rate was
39.2% for the prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $17.0 million for the current
quarter. A reduction of the Company's investment in pawn loans during the
current quarter provided an additional $7.5 million. The collection of notes
receivable from stockholders and the net contribution of treasury shares to the
Company's 401(k) plan from the non qualified savings plan provided additional
combined proceeds of $.3 million.
The Company invested $4.5 million in purchases of property and
equipment during the current quarter, including $1.5 million for property
improvements, the remodeling of selected operating units and additions to
computer systems for lending operations, and $2.6 million for the reconstruction
of corporate headquarters property destroyed by a tornado in March 2000.
Rent-A-Tire invested $.3 million for the purchase of various equipment as well
as computer hardware for use with its point-of-sale software system, and Mr.
Payroll invested $.1 million in various fixtures and additions to its
point-of-sale software system. Rent-A-Tire also invested
Page 15
18
$3.9 million to acquire 9 tire rental stores that it previously managed. During
the current quarter, the Company utilized cash in financing activities to make
net payments of $14.0 million on its bank lines of credit, scheduled payments of
$.4 million on debt obligations in connection with capital leases, and payment
of $.3 million in dividends. The effect of exchange rate declines further
reduced cash by $.1 million.
The Company plans to add approximately 5 to 15 new lending locations
during 2001. These additions will likely occur through a combination of the
opening of new locations and the acquisition of existing locations. The Company
also plans to complete the reconstruction of its corporate headquarters during
2001.
On October 26, 2000, the Company announced that its Board of
Directors authorized management to purchase up to one million shares of its
common stock in the open market and terminated the open market purchase
authorization established in 1999. The Company did not purchase any shares under
the authorization during the current quarter. Purchases may be made from time to
time in the open market and it is expected that funding will come from operating
cash flow and existing credit facilities.
At March 31, 2001, $71.7 million was outstanding on the Company's $150
million U.S. revolving line of credit. In addition, the Company's L.15 million
(approximately $21.2 million) line of credit in the United Kingdom had a balance
outstanding of L.4.4 million (approximately $6.2 million) and the Company's
Swedish lines of credit totaling SEK 215 million (approximately $20.7 million)
had a combined balance outstanding of SEK 86.0 million (approximately $8.3
million). Management believes that borrowings available under these revolving
credit facilities, cash generated from operations and current working capital of
$168.0 million should be sufficient to meet the Company's anticipated future
capital requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates, foreign exchange rates, and gold prices. The Company does not
engage in speculative or leveraged transactions, nor does it hold or issue
financial instruments for trading purposes. There have been no material changes
to the Company's exposure to market risks since December 31, 2000.
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, 2001 and 2000, and for the
three months then ended.
2001 2000 Change
---------- ---------- ----------
REVENUE
Finance and service charges $ 23,560 $ 23,145 2%
Proceeds from disposition of merchandise 60,477 60,265 --
Other lending fees and royalties 682 79 763%
---------- ---------- ----------
TOTAL REVENUE 84,719 83,489 1%
---------- ---------- ----------
COSTS OF REVENUE
Disposed merchandise 39,531 40,292 (2)%
---------- ---------- ----------
NET REVENUE $ 45,188 $ 43,197 5%
========== ========== ==========
OTHER DATA
Net revenue contribution by source--
Finance and service charges 52.1% 53.6% (3)%
Margin on disposition of merchandise 46.4% 46.2% --
Other lending fees and royalties 1.5% .2% 650%
Expenses as a percentage of net revenue--
Operations and administration 78.3% 77.9% 1%
Depreciation and amortization 7.8% 8.3% (6)%
Interest, net 2.8% 3.9% (28)%
Income from operations as a percentage of total revenue 7.4% 7.2% 3%
Annualized yield on pawn loans 134% 133% 1%
Average pawn loan balance per average location in operation $ 174 $ 170 2%
Average pawn loan amount at end of period (not in thousands) $ 82 $ 80 3%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.6% 33.1% 5%
Average annualized merchandise turnover 3.0x 2.8x 7%
Average merchandise held for disposition
per average location $ 131 $ 139 (6)%
Owned locations in operation--
Beginning of period 410 413
Acquired -- --
Start-ups 1 1
Combined or closed (4) (3)
End of period 407 411 (1)%
Additional franchise locations at end of period 16 15 7%
Total locations at end of period 423 426 (1)%
Average number of owned locations in operation(a) 409 412 (1)%
(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,
2001 and 2000, and for the three months then ended, using the following currency
exchange rates:
2001 2000 Change
--------------- ------------ ------------
Harvey & Thompson, Ltd. (U.K. pound sterling per U.S. dollar)--
Balance sheet data - end of period rate .7063 .6262 (13)%
Income statement data - three months average rate .6861 .6194 (11)%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Balance sheet data - end of period rate 10.4110 8.6325 (21)%
Income statement data - three months average rate 9.7565 8.5990 (13)%
--------------- ------------ ------------
REVENUE
Finance and service charges $ 5,405 $ 6,381 (15)%
Proceeds from disposition of merchandise 2,250 2,254 --
Check cashing fees 183 168 9%
--------------- ------------ ------------
TOTAL REVENUE 7,838 8,803 (11)%
--------------- ------------ ------------
COSTS OF REVENUE
Disposed merchandise 1,897 2,184 (13)%
--------------- ------------ ------------
NET REVENUE $ 5,941 $ 6,619 (10)%
=============== ============ ============
OTHER DATA
Net revenue contribution by source--
Finance and service charges 91.0% 96.4% (6)%
Margin on disposition of merchandise 5.9% 1.1% 436%
Check cashing fees 3.1% 2.5% 25%
Expenses as a percentage of net revenue--
Operations and administration 56.9% 57.0% --
Depreciation and amortization 8.3% 7.9% 5%
Interest, net 3.8% 6.1% (38)%
Income from operations as a percentage of total revenue 26.4% 26.4% --
Annualized yield on loans 53% 51% 4%
Average loan balance per average location in operation $ 783 $ 941 (17)%
Average loan amount at end of period (not in thousands) $ 156 $ 182 (14)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 15.7% 3.1% 405%
Average annualized merchandise turnover 2.8x 2.4x 17%
Average merchandise held for disposition
per average location $ 53 $ 68 (22)%
Lending locations in operation--
Beginning of period 53 53
Acquired -- --
Start-ups -- --
Combined or closed -- --
End of period 53 53 --
Average number of locations in operation (a) 53 53 --
(a) Averages based on accumulation of month-end balances and dividing
aggregate total by total months in the period.
Page 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, 2001 and 2000, and for
the three months then ended.
2001 2000 Change
------------ ------------ ------------
RENTAL OPERATIONS:
REVENUE
Tire and wheel rentals $ 4,463 $ 2,411 85%
Management fees 75 603 (88)%
Tire and wheel sales 721 432 67%
Lease income and other 150 295 (49)%
------------ ------------ ------------
TOTAL REVENUE 5,409 3,741 45%
------------ ------------ ------------
COSTS OF REVENUE
Tire and wheel rentals 1,649 885 86%
Tire and wheel sales 504 297 70%
------------ ------------ ------------
NET REVENUE $ 3,256 $ 2,559 27%
============ ============ ============
OTHER DATA
Owned rental locations--
Rental agreements outstanding at end of period $ 11,332 $ 8,546 33%
Average balance per rental agreement
at end of period (not in thousands) $ 1,024 $ 1,071 (4)%
Locations in operation at end of period 43 27 59%
Average locations in operation for the period (a) 40 26 54%
Managed rental locations--
Locations in operation at end of period -- 14 (100)%
Average locations in operation for the period (a) 3 14 (79)%
CHECK CASHING OPERATIONS:
REVENUE
Check cashing royalties and fees $ 999 $ 963 4%
------------ ------------ ------------
TOTAL REVENUE 999 963 4%
------------ ------------ ------------
NET REVENUE $ 999 $ 963 4%
============ ============ ============
OTHER DATA
Franchised and owned check cashing centers--
Centers in operation at end of period 132 136 (3)%
Average centers in operation for the period (a) 132 136 (3)%
(a) Averages based on accumulation of month-end balances and dividing
aggregate total by total months in the period.
Page 19
22
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This quarterly report, including management's discussion and analysis, contains
statements that are forward-looking, as that term is defined by the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules. The Company intends that all forward-looking statements
be subject to the safe harbors created by these laws and rules. When used in
this quarterly report, the words "believes," "estimates," "plans," "expects,"
"anticipates" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements. All
forward-looking statements are based on current expectations regarding important
risk factors. These risks and uncertainties are beyond the ability of the
Company to control, and, in many cases, the Company cannot predict all of the
risks and uncertainties that could cause its actual results to differ materially
from those expressed in the forward-looking statements. Accordingly, actual
results may differ materially from those expressed in the forward-looking
statements, and the making of such statements should not be regarded as a
representation by the Company or any other person that the results expressed in
the statements will be achieved. Important risk factors include, but are not
limited to, the following: changes in demand for the Company's services, changes
in competition, the ability of the Company to open new operating units in
accordance with its plans, economic conditions, real estate market fluctuations,
interest rate fluctuations, changes in the capital markets, changes in tax and
other laws and governmental rules and regulations applicable to the Company's
business, and other risks indicated in the Company's filings with the Securities
and Exchange Commission.
Page 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 - None
(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 10, 2001
Page 22