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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9733
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CASH AMERICA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2018239
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 WEST 7TH STREET
FORT WORTH, TEXAS 76102-2599
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 335-1100
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Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.10 par value per share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK PURCHASE RIGHTS
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of 24,213,052 shares of the registrant's common
stock held by nonaffiliates on March 8, 2000 was approximately $284,503,400.
At March 8, 2000 there were 25,259,601 shares of the registrant's Common
Stock, $.10 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Report to Shareholders for the year ended December
31, 1999 and the definitive Proxy Statement pertaining to the 2000 Annual
Meeting of Shareholders are incorporated herein by reference into Parts II and
IV, and Part III, respectively.
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CASH AMERICA INTERNATIONAL, INC.
YEAR ENDED DECEMBER 31, 1999
INDEX TO FORM 10-K
PART I......................................................................................................1
Item 1. Business ...................................................................................1
Item 2. Properties.................................................................................13
Item 3. Legal Proceedings..........................................................................16
Item 4. Submission of Matters to a Vote of Security Holders........................................16
PART II....................................................................................................16
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................16
Item 6. Selected Financial Data....................................................................16
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition......16
Item 8. Financial Statements and Supplementary Data................................................16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......17
PART III...................................................................................................17
Item 10. Directors and Executive Officers of the Registrant.........................................17
Item 11. Executive Compensation.....................................................................17
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................17
Item 13. Certain Relationships and Related Transactions.............................................17
PART IV....................................................................................................17
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................17
SIGNATURES.................................................................................................19
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INTRODUCTION
Cash America International, Inc. (the "Company") was incorporated in Texas
on October 4, 1984, to succeed to the business, assets and liabilities of a
predecessor corporation formed one year earlier to engage in the pawnshop
business. As of December 31, 1999, the Company owns pawnshops through
wholly-owned subsidiaries in sixteen states and the United Kingdom and Sweden.
The Company also provides check cashing services in nineteen states through its
subsidiary Mr. Payroll Corporation and rental of tires and wheels in one state
through its subsidiary Rent-A-Tire, Inc. The Company's principal executive
offices are located at 1600 West Seventh Street, Fort Worth, Texas 76102, and
its telephone number is (817) 335-1100. As used herein, the "Company" includes
Cash America International, Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a specialty financial services enterprise principally
engaged in acquiring, establishing and operating pawnshops which advance money
on the security of pledged tangible personal property. Pawnshops function as
convenient sources of consumer loans and as sellers primarily of
previously-owned merchandise acquired when customers do not redeem their pawned
goods. One convenient aspect of a pawn transaction is that the customer has no
legal obligation to repay the amount advanced. Instead, the Company relies on
the value of the pawned property as security. As a result, the creditworthiness
of the customer is not a factor, and a decision not to redeem pawned property
has no effect on the customer's personal credit status. (Although pawn
transactions can take the form of an advance of funds secured by the pledge of
property or a "buy-sell agreement" involving the actual sale of the property
with an option to repurchase it, the transactions are referred to throughout
this report as "loans" for convenience.)
The Company contracts for a finance and service charge to compensate it for
the use of the funds advanced. The finance and service charge is typically
calculated as a percentage of the loan amount based on the size and duration of
the transaction, in a manner similar to which interest is charged on a loan, and
has generally ranged from 12% to 300% annually, as permitted by applicable state
pawnshop laws. The pledged property is held through the term of the transaction,
which, in the Company's domestic operations, is generally one month with an
automatic sixty day redemption period unless otherwise earlier repaid, renewed
or extended. (For finance and service charges and transaction periods applicable
to the Company's foreign operations, see "Business-- Regulation." ). A majority
of the amounts advanced by the Company are paid in full, together with accrued
finance and service charges, or are renewed or extended through payment of
accrued finance and service charges. For the years 1997, 1998, and 1999, loans
repaid or renewed as a percentage of loans made were 67.9%, 66.9%, and 67.4%
respectively. In the event that the borrower does not redeem his pawned goods,
the unredeemed collateral is forfeited and becomes merchandise available for
disposition by the Company.
The Company's growth has been the result of its business strategy of
acquiring existing pawnshops and establishing new pawnshops that can benefit
from the Company's centralized management and standardized operations. The
Company intends to continue its business strategy of acquiring and establishing
pawnshops, increasing its share of consumer loan business, and concentrating
multiple pawnshops in regional and local markets in order to expand market
penetration, enhance name recognition and reinforce marketing programs. Studies
indicate to the Company that a large portion of its customers consists of
individuals who do not regularly transact loan business with banks. (See, for
example, John P. Caskey, Fringe Banking - Check
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Cashing Outlets, Pawnshops and the Poor, 1994.) These generally are persons who
may not have checking accounts and conduct as many of their transactions as
possible on a cash basis.
Pursuant to the Company's business expansion strategy, the Company added a
net 19 lending locations in 1997, a net 63 lending locations in 1998, and a net
2 lending locations in 1999. Of these net 84 lending locations added, 76 were
acquisitions in individual purchase transactions and 24 were start-ups, while 16
locations were either combined, closed or sold. As of December 31, 1999, the
Company had 413 domestic and 53 foreign operating locations. The Company plans
to continue to expand its operating locations through new start-ups and
acquisitions.
Franchising. The Company offers and sells franchises to third parties for
their independent ownership and operation of "Cash America" pawnshops. The
Company added one franchise lending location in 1997, four franchise lending
locations in 1998, and six franchise lending locations in 1999. Three of the six
franchises added in 1999 were previously company-owned locations. The Company
plans to continue to expand its franchise locations through new franchise sales.
While the Company's primary business involves the acquisition,
establishment and operation of pawnshops, it also provides manned check cashing
services through its subsidiary, Mr. Payroll Corporation ("Mr. Payroll"), and
tire and wheel rental services through its subsidiary, Rent-A-Tire, Inc.
("Rent-A-Tire").
During 1999, the Company restructured its check cashing operations. In
January 1999, the Company transferred its manned check cashing operations into
Mr. Payroll. Mr. Payroll earns franchise fees from the sale of manned check
cashing franchises, royalties from franchisees based on a percentage of the
gross revenue from a franchisee's manned check cashing business, and check
cashing fees from its owned manned centers. As of December 31, 1999, Mr. Payroll
operated 127 franchised and 10 company owned manned check cashing centers in 19
states and it had 25 employees.
The restructuring transactions were designed to isolate and accelerate the
development and deployment of the Company's automated check cashing machine
("CCM") that was first placed in service in June 1997. Since then, the CCM has
been marketed and sold to a variety of end users, including financial
institutions and retailers. In March 1999, Wells Fargo Cash Centers, Inc. ("Cash
Centers"), a wholly owned subsidiary of Wells Fargo Bank, N.A., contributed cash
and assets to the Company's CCM subsidiary (now known as "innoVentry") and
received newly issued senior convertible Series A voting preferred stock of
innoVentry. In addition, certain members of the newly constituted management of
innoVentry subscribed for newly issued shares of common stock of innoVentry. The
Company assigned 10% of its voting interest in innoVentry, represented by its
shares of newly issued senior convertible Series A voting 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. As a result of these transactions, the
Company no longer controlled the operations of innoVentry. innoVentry was
de-consolidated from the Company's consolidated financial statements 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 earnings or losses in its
consolidated financial statements. During the remainder of 1999, additional
shares of innoVentry common stock were sold to members of innoVentry's
management and other advisors, and in October 1999, the Company, Cash Centers,
and a third party each contributed an equal amount of cash for shares of
innoVentry's newly issued senior convertible Series B voting preferred stock. As
of December 31, 1999, the Company's voting interest in innoVentry was 38.4% and
Cash Centers voting interest in innoVentry was 42.2%. See Note 3 of Notes to
Consolidated Financial Statements in the Annual Report that is incorporated
herein by reference.
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At December 31, 1999, Rent-A-Tire owned and operated 24 tire and wheel
rental stores and managed an additional 15 tire and wheel rental stores, all of
which are located in Texas. Rent-A-Tire leases all of its rental stores and its
corporate headquarters. At December 31, 1999, Rent-A-Tire employed 237
employees. For additional information concerning Rent-A-Tire and the relation of
its financial condition and results of operations to that of the Company, see
Note 4 and Note 12 of Notes to Consolidated Financial Statements in the Annual
Report that is incorporated herein by reference.
LENDING FUNCTION
The Company is engaged primarily in the business of lending money on the
security of pledged goods. The pledged goods in the Company's domestic
operations are generally tangible personal property other than securities or
printed evidences of indebtedness and generally consist of jewelry, tools,
televisions and stereos, musical instruments, firearms, and other miscellaneous
items. In the Company's foreign operations, the pledged goods predominately
consist of jewelry. Pawn loans are made without personal liability to the
borrower. Because the loan is made without the borrower's personal liability,
the Company does not investigate the creditworthiness of the borrower, but
relies on the pledged personal property, and the possibility of its forfeiture,
as a basis for its lending decision. The pledged tangible personal property is
intended to provide security to the Company for the repayment of the amount
advanced. The Company contracts for a finance and service charge as compensation
for the use of the funds advanced. Finance and service charges contributed
approximately 59% of the Company's net revenue (total revenue less costs of
revenue) in 1997, 58% in 1998, and 58% in 1999.
At the time a pawn transaction is entered into, a pawn transaction
agreement, commonly referred to as a pawn ticket, is delivered to the borrower
(pledgor) that sets forth, among other items, the name and address of the
pawnshop and the pledgor, the pledgor's identification number from his or her
driver's license or other approved identification, the date, the identification
and description of the pledged goods, including applicable serial numbers, the
amount financed, the finance and service charge, the maturity date, the total
amount that must be paid to redeem the pledged goods on the maturity date and
the annual percentage rate.
With regard to domestic operations, the amount that the Company is willing
to finance is typically based on a percentage of the pledged personal property's
estimated disposition value. The sources for the Company's determination of the
estimated disposition value are numerous and include the Company's automated
product valuation system as well as catalogues, blue books, newspapers and
previous similar pawn loan transactions. These sources, together with the
employees' experience in disposing of similar items of merchandise in particular
pawnshops, influence the determination of the estimated disposition value of
such items. The Company does not utilize a standard or mandated percentage of
estimated disposition value in determining the amount to be financed. Rather,
the employees have the authority to set the percentage for a particular item and
determine the ratio of loan amount to estimated disposition value with the
expectation that, if the item is forfeited to the pawnshop, its subsequent
disposition would yield a gross profit margin consistent with the Company's
historical experience. The pledged property is held through the term of the
transaction, which generally is one month with an automatic sixty day redemption
period (see "Regulation" for exceptions in certain states), unless earlier
repaid, renewed or extended. A majority of the amounts advanced by the Company
are paid in full with accrued finance and service charges or are renewed or
extended through payment of accrued finance and service charges. In the event
the pledgor does not repay, renew or extend his loan, the unredeemed collateral
is forfeited to the Company and then becomes merchandise available for
disposition. The Company does not record loan losses or charge-offs inasmuch as,
if the pledged goods are not redeemed, the amount advanced becomes the carrying
cost of the forfeited collateral that is to be recovered through the merchandise
disposition function described below.
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With regard to the Company's foreign operations, the amount that the
pawnshop is willing to finance in a pledge of jewelry is typically based on a
fixed amount per gram of the gold or silver content of the pledged property plus
additional amounts for diamonds and other features which, in the unit
management's assessment, enhance the market value of the pledged property.
Declines in gold and silver prices historically have resulted in a reduction of
the amount that the pawnshop is willing to lend against an item, which reduces
the amount of the pawnshop's loan portfolio and related finance and service
charge revenue. The pawn loans are made for a term of six months with an
approximate annual blended yield on average foreign pawn loans outstanding in
1999 of 52%. The collateral is held through the term of the loan, and, in the
event that the loan is not repaid or renewed on or before maturity, the
unredeemed collateral is disposed of at auction or privately (or in some cases
at the pawnshop premises).
The recovery of the amount advanced, as well as realization of a profit on
disposition of merchandise, is dependent on the Company's initial assessment of
the property's estimated disposition value. Improper assessment of the
disposition value of the collateral in the lending function could result in the
disposition of the merchandise for an amount less than the amount advanced.
However, the Company historically has experienced profits from the disposition
of such merchandise. Declines in gold and silver prices generally will also
reduce the disposition value of jewelry items acquired in pawn transactions and
could adversely affect the Company's ability to recover the carrying cost of the
acquired collateral. For 1997, 1998 and 1999, the Company experienced gross
profit margins on dispositions of merchandise of 36%, 36%, and 32%,
respectively.
At December 31, 1999, the Company had approximately 1,192,000 outstanding
loans totaling $125,349,000, for an average of $105 per loan.
Presented below is information with respect to pawn loans made, acquired,
repaid and forfeited for the years ended December 31, 1997, 1998 and 1999:
Year Ended December 31,
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1997 1998 1999
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($ in thousands)
Loans made ................................................................ $ 391,216 $ 435,341 $ 439,970
Loans acquired, net of loans sold ......................................... 1,520 7,178 558
Loans repaid .............................................................. (227,114) (249,752) (255,927)
Loans renewed ............................................................. (38,548) (41,619) (40,561)
Loans forfeited:
Available for disposition ............................................ (109,318) (124,415) (135,027)
Disposed of at auction ............................................... (8,945) (9,999) (10,636)
Effect of exchange rate translation ....................................... (4,250) (337) (1,665)
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Net increase (decrease) in pawn loans outstanding at end of period ... $ 4,561 $ 16,397 $ (3,288)
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Loans repaid or renewed as a percent of loans made ........................ 67.9% 66.9% 67.4%
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MERCHANDISE DISPOSITION FUNCTION
The Company engages in the disposition of merchandise acquired when a pawn
loan is not repaid, when used goods are purchased from the general public and
when new merchandise is acquired from vendors. New goods consist primarily of
accessory merchandise which enhances the marketability of existing merchandise,
such as tools, consumer electronics and jewelry. For the year ended December 31,
1999, $158,604,000 of merchandise was added to merchandise held for disposition,
of which $135,027,000 was from loans not repaid and $23,577,000 was purchased
from customers and vendors and through acquisitions of pawnshops.
The Company does not provide its customers with warranties on used
merchandise purchased from the Company. The Company permits its customers to
purchase merchandise on a layaway plan whereby the customer agrees to purchase
an item by making an initial cash deposit representing a small part of the
disposition price and making additional, non-interest bearing payments of the
balance of the disposition price in accordance with a specified schedule. The
Company then segregates the item and holds it until the disposition price is
paid in full. Should the customer fail to make a required payment, the item is
placed with the other merchandise held for disposition. At December 31, 1999,
the Company held approximately $4,131,000 in customer layaway deposits.
The Company provides an allowance for shrinkage and valuation of its
merchandise based on management's evaluation. Management's evaluation takes into
consideration historical shrinkage, the quantity and age of slow-moving
merchandise on hand and markdowns necessary to liquidate slow-moving
merchandise. At December 31, 1999, total lending operations merchandise on hand
was $64,419,000, after deducting an allowance for shrinkage and valuation of
merchandise of $2,008,000.
OPERATIONS
Unit Management
Each location has a unit manager who is responsible for supervising its
personnel and assuring that it is managed in accordance with Company guidelines
and established policies and procedures. Each unit manager reports to a Market
Manager who typically oversees approximately ten unit managers. As of December
31, 1999, the Company has two operating divisions in the United States, each of
which is managed by a Division Executive Vice President. Each operating division
has three geographic operating regions, each of which is managed by a Region
Vice President. Each Market Manager reports to a Region Vice President. The
Harvey & Thompson and Svensk Pantbelaning chains follow a similar management
organization, with a Managing Director overseeing each of these operations.
Trade Name
The Company operates its pawnshops under the trade name "Cash America Pawn"
in the U.S., "Harvey & Thompson Pawnbrokers" in the U.K., and "Svensk
Pantbelaning" in Sweden. The Company has registered the "Cash America" mark and
descriptive logos and phrases with the United States Patent and Trademark
Office.
Personnel
At December 31, 1999, the Company employed 3,061 persons in its lending
operations in 16 states, the United Kingdom and Sweden. Of the total employees,
approximately 218 were in executive and administrative functions.
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The Company has an established training program that provides a combination
of classroom instruction, video presentation and on-the-job loan and merchandise
disposition experience. The new employee is introduced to the business through
an orientation program and through a three-month training program that includes
classroom and on-the-job training in loans, layaways, merchandise and general
administration of unit operations.
The experienced employee receives training and an introduction to the
fundamentals of management to acquire the skills necessary to move into
management positions within the organization. Manager training involves a twelve
month program and includes additional management principles and more extensive
training in income maximization, recruitment, merchandise control and cost
efficiency.
FUTURE EXPANSION
The Company's objective is to continue to expand the number of pawnshops it
owns and operates through acquisitions and by establishing new units. Management
believes that such anticipated expansion will continue to provide economies of
scale in supervision, purchasing, administration and marketing by decreasing the
overall average cost of such functions per unit owned. The primary pawnshop
acquisition criteria include evaluation of the volume of annual loan
transactions, outstanding loan balances, merchandise on hand, disposition
history, and location and condition of the facility, including lease terms or
fair market value of the facility if it is to be purchased. The primary pawnshop
start-up criteria include the facility-related items noted above and conditions
in the surrounding community indicating a sufficient level of potential
customers.
The Company's business strategy is to continue expanding its pawnshop
business within its existing geographic markets and into other markets which
meet the risk/reward considerations of the Company.
The Company's expansion has not only been in acquiring previously owned
pawnshops, but also in establishing new locations. After a suitable location has
been found and a lease and license are obtained, the new location can be ready
for business within four to six weeks, with completion of counters, vaults and
security system and transfer of merchandise from other locations. The
approximate start-up costs, defined as the investment in property and equipment,
for recently established pawnshops have ranged from $98,000 to $213,000, with an
average cost per location of approximately $162,000 in 1999. This amount does
not include merchandise transferred from other locations, funds to advance on
pawn loans and operating expenses.
The Company's expansion program is subject to numerous factors which cannot
be predicted, such as the availability of attractive acquisition candidates or
sites on suitable terms and general economic conditions. Further, there can be
no assurance that future expansion can be continued on a profitable basis. Among
other factors, the following factors will impact the Company's future planned
expansion.
Statutory Requirements. The Company's ability to add newly-established
locations in Texas counties having a population of more than 250,000 is limited
by a law that became effective September 1, 1999, which restricts the
establishment of new pawnshops within a certain distance of existing pawnshops.
In addition, the present statutory and regulatory environment of some states
renders expansion into those states impractical. See "Business -- Regulation."
Competition. The Company faces competition in its expansion program.
Several competing pawnshop companies have implemented expansion and acquisition
programs. A number of smaller companies have also entered the market. While the
Company believes that it is the largest pawnshop operator in the United States,
there can be no assurance that the Company will be more successful than its
competitors in pursuing acquisition opportunities and leases for attractive
start-up locations. Increased competition could also increase prices for
attractive acquisition candidates.
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Capital Requirements. In some states, the Company is required by law to
maintain a minimum amount of certain unencumbered net assets (currently $150,000
in Texas) for each pawnshop location. The Company's expansion plans will
therefore be limited in these states to the extent the Company is unable to
maintain these required levels of unencumbered net assets.
Availability of Qualified Unit Management Personnel. The Company's ability
to expand may also be limited by the availability of qualified unit management
personnel. While the Company seeks to train its existing personnel to enable
those capable of doing so to assume management positions and to create
attractive compensation packages to retain existing management personnel, there
can be no assurance that sufficient qualified personnel will be available to
satisfy the Company's needs with respect to its planned expansion.
COMPETITION
The Company encounters significant competition in connection with its
lending and merchandise disposition operations. Some competitors may have
greater financial resources than the Company. Several competing pawnshop
companies have implemented expansion and acquisition programs. See "Business --
Future Expansion." These competitive conditions may adversely affect the
Company's revenues and profitability.
The Company, in connection with the lending of money, competes with other
pawnshops and other forms of financial institutions such as consumer finance
companies, which generally lend on an unsecured as well as a secured basis.
Other lenders may lend money on terms more favorable than the Company. The
pawnshop industry is characterized by a large number of independent
owner-operators, some of whom own and operate multiple pawnshops.
REGULATION
The Company's pawnshop operations are subject to extensive regulation,
supervision and licensing under various federal, state and local statutes,
ordinances and regulations in the sixteen states and two foreign countries in
which it operates. (For a geographic breakdown of operating locations, see
"Properties.") Set forth below is a summary of the state pawnshop regulations in
those states containing a preponderance of the Company's domestic operating
locations.
Texas Pawnshop Regulations. Pursuant to the terms of the Texas Pawnshop
Act, the Texas Consumer Credit Commissioner has primary responsibility for the
regulation of pawnshops and enforcement of laws relating to pawnshops in Texas.
The Company is required to furnish the Texas Consumer Credit Commissioner with
copies of information, documents and reports which are required to be filed by
it with the Securities and Exchange Commission.
The Texas Pawnshop Act prescribes the stratified loan amounts and the
maximum allowable rates of pawn service charge that pawnbrokers in Texas may
charge for the lending of money within each stratified range of loan amounts.
That is, the Texas law establishes the maximum allowable pawn service charge
rates based on the amount financed per pawn loan. The maximum allowable rates
under the Texas Pawnshop Act for the various stratified loan amounts for the
fiscal years ended June 30, 1998, 1999 and 2000 are as follows:
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Year Ended June 30, 1998 Year Ended June 30, 1999 Year Ended June 30, 2000
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Maximum Maximum Maximum
Amount Allowable Amount Allowable Amount Allowable
Financed Annual Financed Annual Financed Annual
Per Pawn Percentage Per Pawn Percentage Per Pawn Percentage
Loan Rate Loan Rate Loan Rate
---- ---- ---- ---- ---- ----
$ 1 to $ 135 ....... 240% $ 1 to $ 138 ....... 240% $ 1 to $ 141 ....... 240%
136 to 450 ....... 180 139 to 460 ....... 180 142 to 470 ....... 180
451 to 1,350 ....... 30 461 to 1,380 ....... 30 471 to 1,410 ....... 30
1,351 to 11,250 ....... 12 1,381 to 11,500 ....... 12 1,411 to 11,750 ....... 12
These rates are reviewed and established annually. The maximum allowable service
charge rates were established and have not been revised since 1971 when the
Texas Pawnshop Act was enacted. Since 1981, the ceiling amounts for
stratification of the loan amounts to which these rates apply have been revised
each July 1 in relation to the Consumer Price Index. The Texas Pawnshop Act also
prescribes the maximum allowable pawn loan. Under current Texas law, a pawn loan
may not exceed $11,750. In addition to establishing maximum allowable service
charge rates and loan ceilings, the Texas Pawnshop Act also provides for the
licensing of pawnshops and pawnshop employees. To be eligible for a pawnshop
license in Texas, an applicant must (i) be of good moral character, (ii) have
net assets of at least $150,000 readily available for use in conducting the
business of each licensed pawnshop, (iii) show that the pawnshop will be
operated lawfully and fairly in accordance with the Texas Pawnshop Act, (iv)
show that the applicant has the financial responsibility, experience, character,
and general fitness to command the confidence of the public in its operations,
and (v) in the case of a business entity, the good moral character requirement
shall apply to each officer, director and holder of 5% or more of the entity's
outstanding shares.
As part of the license application process, any existing pawnshop licensee
who would be affected by the granting of the proposed application may request a
public hearing at which to appear and present evidence for or against the
application. For an application for a new license in a county with a population
of 250,000 or more, the proposed facility must not be located within two miles
of an existing licensed pawnshop.
The Texas Consumer Credit Commissioner may, after notice and hearing,
suspend or revoke any license for a Texas pawnshop upon finding, among other
things, that (i) any fees or charges have not been paid; (ii) the licensee
violates (whether knowingly or unknowingly without due care) any provisions of
the Texas Pawnshop Act or any regulation or order thereunder; or (iii) any fact
or condition exists which, if it had existed at the time the original
application was filed for a license, would have justified the Commissioner in
refusing such license.
Under the Texas Pawnshop Act, a pawnbroker may not accept a pledge from a
person under the age of 18 years; make any agreement requiring the personal
liability of the borrower; accept any waiver of any right or protection accorded
to a pledgor under the Texas Pawnshop Act; fail to exercise reasonable care to
protect pledged goods from loss or damage; fail to return pledged goods to a
pledgor upon payment of the full amount due; make any charge for insurance in
connection with a pawn transaction; enter into any pawn transaction that has a
maturity date of more than one month; display for disposition in storefront
windows or sidewalk display cases, pistols, swords, canes, blackjacks and
similar weapons; operate a pawnshop between the hours of 9:00 p.m. and 7:00
a.m.; or purchase used or secondhand personal property or certain building
construction materials unless a record is established containing the name,
address and identification of the seller, a complete
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description of the property, including serial number, and a signed statement
that the seller has the right to sell the property.
Florida Pawnshop Regulations. The Florida Pawnbroking Act, adopted in 1996,
provides for the licensing and bonding of pawnbrokers in Florida and for the
Department of Agriculture and Consumer Services' Division of Consumer Services
to investigate the general fitness of applicants and generally to regulate
pawnshops in the state. The statute limits the pawn service charge that a
pawnbroker may collect to a maximum of 25% of the amount advanced in the pawn
for each 30 day period of the transaction. The law also requires pawnbrokers to
maintain detailed records of all transactions and to deliver such records to the
appropriate local law enforcement officials. Among other things, the statute
prohibits pawnbrokers from falsifying or failing to make entries in pawn
transaction forms, refusing to allow appropriate law enforcement officials to
inspect their records, failing to maintain records of pawn transactions for at
least two years, making any agreement requiring the personal liability of a
pledgor, failing to return pledged goods upon payment in full of the amount due
(unless the pledged goods had been taken into custody by a court or law
enforcement officer or otherwise lost or damaged), or engaging in title loan
transactions at licensed pawnshop locations. It also prohibits pawnbrokers from
entering into pawn transactions with a person who is under the influence of
alcohol or controlled substances, a person who is under the age of eighteen, or
a person using a name other than his own name or the registered name of his
business.
Tennessee Pawnshop Regulations. Tennessee state law provides for the
licensing of pawnbrokers in that state. It also (i) requires that pawn
transactions be reported to local law enforcement agencies, (ii) requires
pawnbrokers to maintain insurance coverage on the property held on pledge for
the benefit of the pledgor, (iii) establishes certain hours during which
pawnshops may be open for business and (iv) requires that certain bookkeeping
records be maintained. Tennessee law prohibits pawnbrokers from selling,
redeeming or disposing of any goods pledged or pawned to or with them within 48
hours after making their report to local law enforcement agencies. The Tennessee
statute establishes a maximum allowable interest rate of 24% per annum; however,
the pawnshop operator may charge an additional fee of up to one-fifth of the
amount of the loan per month for investigating the title, storing and insuring
the security and various other expenses.
Georgia Pawnshop Regulations. Georgia state law requires pawnbrokers to
maintain detailed permanent records concerning pawn transactions and to keep
them available for inspection by duly authorized law enforcement authorities.
The Georgia statute prohibits pawnbrokers from failing to make entries of
material matters in their permanent records; making false entries in their
records; falsifying, obliterating, destroying, or removing permanent records
from their places of business; refusing to allow duly authorized law enforcement
officers to inspect their records; failing to maintain records of each pawn
transaction for at least four years; accepting a pledge or purchase from a
person under the age of eighteen or who the pawnbroker knows is not the true
owner of the property; making any agreement requiring the personal liability of
the pledgor or seller or waiving any of the provisions of the Georgia statute;
or failing to return or replace pledged goods upon payment of the full amount
due (unless the pledged goods have been taken into custody by a court or a law
enforcement officer). In the event pledged goods are lost or damaged while in
the possession of the pawnbroker, the pawnbroker must replace the lost or
damaged goods with like kinds of merchandise. Under Georgia law, total interest
and service charges may not, during each thirty-day period of the loan, exceed
25% of the principal amount advanced in the pawn transaction (except that after
ninety days from the original date of the loan, the maximum rate declines to
12.5% for each subsequent thirty-day period). The statute provides that
municipal authorities may license pawnbrokers, define their powers and
privileges by ordinance, impose taxes upon them, revoke their licenses, and
exercise such general supervision as will ensure fair dealing between the
pawnbroker and his customers.
9
12
Oklahoma Pawnshop Regulations. The Company's Oklahoma operations are
subject to the Oklahoma Pawnshop Act. Following substantially the same statutory
scheme as the Texas Pawnshop Act, the Oklahoma Pawnshop Act provides for the
licensing and bonding of pawnbrokers in Oklahoma and provides for the Oklahoma
Administrator of Consumer Credit to investigate the general fitness of the
applicant and generally regulate pawnshops in that state. The Administrator has
broad rule-making authority with respect to Oklahoma pawnshops.
In general, the Oklahoma Pawnshop Act prescribes the stratified loan
amounts and the maximum rates of service charges which pawnbrokers in Oklahoma
may charge for lending money in Oklahoma within each stratified range of loan
amounts. The regulations provide for a graduated rate structure similar to that
utilized in federal income tax computations. For example, under this method of
calculation a $500 pawn loan earns interest as follows: (a) the first $150 at
240%, annually, (b) the next $100 at 180%, annually and (c) the remaining $250
at 120%, annually. The maximum allowable pawn service charges for the various
stratified loan amounts under the Oklahoma statute are as follows:
Maximum
Amount Allowable
Financed Annual
Per Pawn Percentage
Loan Rate
-------- ----------
$ 1 to $ 150 .............. 240%
151 to 250 .............. 180
251 to 500 .............. 120
501 to 1,000 .............. 60
1,001 to 25,000 .............. 36
A pawn loan in Oklahoma may not exceed $25,000.
Louisiana Pawnshop Regulations. Louisiana law provides for the licensing
and bonding of pawnbrokers in that state. In addition, the act requires that
pawn transactions be reported to local law enforcement agencies, establishes
hours during which pawnbrokers may be open for business and requires certain
bookkeeping practices. Under the Louisiana statute, no pawnbroker may sell any
jewelry pledged as collateral until the lapse of six months from the time the
loan was made or extended by payment of accrued interest. All other unredeemed
collateral from loans can be sold after the lapse of three months. Louisiana
state law establishes maximum allowable rates of interest on pawn loans of 10%
per month. In addition, Louisiana law provides that the pawnbroker may also
charge a one-time fee not to exceed 10% for all other services. Various
municipalities and parishes in the state of Louisiana have promulgated
additional ordinances and regulations pertaining to pawnshops.
Although pawnshop regulations vary from state to state to a considerable
degree, the regulations summarized above are representative of the regulatory
frameworks affecting the Company in the various states in which its operating
units are located.
United Kingdom Regulations. Pawnshops in the United Kingdom conduct pawn
operations in a manner that is similar to the Company's domestic operations,
except that pawnshops generally lend money only on the security of jewelry and
gold and silver items. The Consumer Credit Act 1974 in the United Kingdom
requires that the pawnbroker notify the customer following the expiration of the
six month loan term and before the pledged items are sold by the pawnbroker.
Unredeemed items are generally sold at auction. For loans exceeding 75 pounds
sterling, any amounts received on the auction sale in excess of the principal
amount of the loan, accrued finance and service charge and disposition expenses
must be held by the pawnbroker to be
10
13
reclaimed by the customer. If the pawnbroker is the highest bidder at the
auction, it reclaims the merchandise for later disposition from its pawnshop
premises and may realize gross profit on resale. For loans of 75 pounds sterling
or less, unredeemed merchandise is automatically forfeited to the pawnbroker,
and the pawnbroker may dispose of such merchandise to the public from the
pawnshop premises and retain any excess sales proceeds.
Pawnbrokers in the United Kingdom are licensed and regulated by the Office
of Fair Trading (the "OFT") pursuant to the Consumer Credit Act 1974. Licenses
are valid for five years, subject to possible revocation, suspension, or
variance by the OFT. Unlike most state statutes in the United States governing
pawnbrokers, the Consumer Credit Act 1974 and the regulations promulgated
thereunder do not specify a maximum allowable interest rate chargeable by
pawnbrokers in the United Kingdom. Rather, the statute prohibits pawnbrokers
from entering into "extortionate credit bargains" with customers. Currently, the
Company typically charges a rate of six percent (6%) per month.
Sweden Regulations. The regulatory environment for pawnshops in Sweden is
very similar to that in the United Kingdom. Sweden's 1949 statute governing
pawnbroking was repealed and replaced with a new pawnbroking act effective
January 1, 1996. The new act provides that the loan term may not exceed one
year, that the pawnbroker is entitled to default interest on arrears for a
maximum of four months from the due date, and that the pawnbroker may not
dispose of unredeemed merchandise less than two months after the due date. The
disposition must take place at a public auction, and the original customer is
entitled to any excess disposition proceeds.
Like Sweden's previous pawnbroking statute, the new act provides for
licensing and supervision of pawnshops by the local County Administrative
Boards. The act does not specify a maximum allowable interest rate for pawn
loans, and, unlike the previous statute, it does not authorize the local County
Administrative Boards to regulate the rates that pawnbrokers may charge.
Currently, the Company typically charges a rate of between 2.75% and 3.75% per
month. Also, the act grants Swedish pawnbrokers the new authority to purchase
unredeemed merchandise at the public auction and then dispose of the merchandise
to the public from the pawnshop premises.
Other Regulatory Matters, Etc. With respect to firearm sales, each of the
pawnshops must comply with the Brady Handgun Violence Prevention Act (the "Brady
Act"), which took effect on February 28, 1994. The Brady Act imposes a
background check requirement in connection with the disposition of firearms by
federally licensed firearms dealers. In addition, the Company must continue to
comply with the longstanding regulations promulgated by the Department of the
Treasury, Bureau of Alcohol, Tobacco and Firearms which require each pawnshop
dealing in guns to maintain a permanent written record of all receipts and
dispositions of firearms.
In addition to the state statutes and regulations described above, many of
the Company's pawnshops are subject to municipal ordinances, which may require,
for example, local licenses or permits and specified recordkeeping procedures,
among other things. Each of the Company's pawnshops voluntarily or pursuant to
municipal ordinance provides to the police department having jurisdiction copies
of all daily transactions involving pawn loans and over-the-counter purchases.
These daily transaction reports are designed to provide the local police with a
detailed description of the goods involved including serial numbers, if any, and
the name and address of the owner obtained from a valid identification card.
A copy of the transaction ticket is provided to local law enforcement
agencies for processing by the National Crime Investigative Computer to
determine conflicting claims of rightful ownership. Goods held to secure pawn
loans or goods purchased which are determined to belong to an owner other than
the borrower or seller are subject to recovery by the rightful owner. However,
the Company historically has not experienced
11
14
a material number of claims of this sort, and the claims experienced have not
had a material adverse effect on the Company's results of operations.
Casualty insurance, including burglary coverage, is maintained for each of
the Company's pawnshops, and fidelity coverage is maintained on each of the
Company's employees.
Management of the Company believes its operations are conducted in material
compliance with all federal, state and local laws and ordinances applicable to
its business.
EXECUTIVE OFFICERS
The following sets forth, as of March 11, 2000, certain data concerning the
executive officers of the Company, all of whom are elected on an annual basis.
There is no family relationship between any of the executive officers.
Name Age Position
---- --- --------
Daniel R. Feehan 49 Chief Executive Officer, President and Director
Thomas A. Bessant, Jr. 41 Executive Vice President - Chief Financial Officer
Robert D. Brockman 45 Executive Vice President - Administration
Jerry D. Finn 53 Executive Vice President - U.S. Operations - Western Division
Michael D. Gaston 55 Executive Vice President - Business Development
William R. Horne 57 Executive Vice President - Information Technology
Hugh A. Simpson 40 Executive Vice President - General Counsel and Secretary
Gregory W. Trees 56 Executive Vice President - U.S. Operations - Eastern Division
James H. Kauffman 55 Executive Vice President - Foreign Operations; Chief Executive Officer -
Rent-A-Tire, Inc.
Daniel R. Feehan has been Chief Executive Officer and President since
February 2000. He has served as President and Chief Operating Officer since
January 1990. He served as Chairman and Co-Chief Executive Officer of Mr.
Payroll Corporation from February 1998 to February 1999 before returning to the
position of President and Chief Operating Officer of the Company.
Thomas A. Bessant, Jr. joined the Company in May 1993 as Vice President -
Finance and Treasurer. He was elected Senior Vice President - Chief Financial
Officer in July 1997 and has served as Executive Vice President - Chief
Financial Officer since July 1998. Prior to joining the Company, Mr. Bessant was
a Senior Manager in the Corporate Finance Consulting Services Group of Arthur
Andersen & Co., S. C. in Dallas, Texas from June 1989. Prior to that time, Mr.
Bessant was Vice President in the Corporate Banking Division of NCNB Texas,
N.A., and its predecessor banking corporations, beginning in 1981.
Robert D. Brockman joined the Company in July 1995 as Executive Vice
President-Administration. Prior to that, he served as Vice President - Human
Resources of THORN Americas, Inc., the operator of the Rent-A- Center chain of
rent-to-own stores, from December 1986 to June 1995.
Jerry D. Finn joined the Company in August 1994 and has served in various
operations management positions since then, including Division Vice President
from January 1995 to July 1997, Division Senior Vice President from July 1997 to
April 1998, and Executive Vice President since April 1998. Prior to joining the
Company, he served as District Supervisor for Kelly-Moore Paint Co. from March
1981 to August 1994.
12
15
Michael D. Gaston joined the Company in April 1997 as Executive Vice
President - Business Development. Prior to joining the Company, Mr. Gaston
served as President of the Gaston Corporation, a private consulting firm, from
1984 to April 1997, and Executive Vice President of Barkley & Evergreen, an
advertising and consulting agency, from 1991 to April 1997.
William R. Horne joined the Company in February 1991 as Vice President-MIS.
He was elected Senior Vice President-Information Technology in July 1997 and has
served as Executive Vice President-Information Technology since October 1999.
Hugh A. Simpson joined the Company in December 1990 as Vice President and
General Counsel and was elected Vice President - General Counsel and Secretary
in April 1991. He was elected Senior Vice President - General Counsel and
Secretary in July 1997 and has served as Executive Vice President - General
Counsel and Secretary since July 1998.
Gregory W. Trees joined the Company in March 1992 as Vice President -
Marketing and Merchandising. Mr. Trees served as Division Vice President from
April 1996 to July 1997 and Division Senior Vice President from July 1997 to
April 1998. He has served as Executive Vice President since April 1998.
James H. Kauffman joined the Company in July 1996 as Executive Vice
President - Chief Financial Officer. He served as President - Cash America Pawn
from July 1997 to July 1998, and since then has served as Chief Executive
Officer of Rent-A-Tire, Inc. He has also served as Executive Vice
President-Foreign Operations since October 1999. Prior to joining the Company,
Mr. Kauffman served as President of Keystone Steel & Wire Company, a wire
products manufacturer, from July 1991 to June 1996.
ITEM 2. PROPERTIES
During 1999, the Company sold to an unaffiliated party and leased back the
real estate and buildings for 11 of its pawnshop locations. The locations are
being leased under non-cancelable operating leases with terms of 15 years. The
Company also sold the real estate and building for one pawnshop location to a
franchisee. As of March 11, 2000, the Company owns the real estate and buildings
for four of its pawnshop locations in the United Kingdom. Since May 1992, the
Company's headquarters have been located in a nine-story building adjacent to
downtown Fort Worth, Texas. The Company purchased the building in January 1992.
On March 28, 2000, a tornado severely damaged the building. Headquarters
operations have been relocated to temporary facilities, and the Company's
operating locations were not affected. Management will evaluate all of its
alternatives relating to the restoration of the building. The Company's
insurance coverage provides proceeds for the loss of the building; replacement
of furniture, improvements, and equipment; recovery of losses resulting from
business interruption; and recovery of other general expenses that will be
incurred. All of the Company's other locations are leased from unaffiliated
parties under non-cancelable operating leases with terms ranging from 3 to 10
years.
The following table sets forth, as of March 11, 2000, the geographic
markets served by the Company and the number of lending locations in such
markets in which it presently operates.
Number of Locations
in Area
-------------------
TEXAS:
Houston....................................... 44
Central/South Texas........................... 59
Dallas/Fort Worth............................. 35
West Texas.................................... 23
Rio Grande Valley............................. 10
---
Total Texas........................... 171
===
13
16
FLORIDA:
Tampa/St. Petersburg.......................................... 15
Orlando....................................................... 14
Jacksonville.................................................. 10
Other......................................................... 23
---
Total Florida........................................ 62
---
TENNESSEE:
Memphis....................................................... 23
Nashville..................................................... 5
---
Total Tennessee...................................... 28
--
GEORGIA:
Atlanta....................................................... 14
Savannah...................................................... 5
Other......................................................... 2
---
Total Georgia........................................ 21
---
OKLAHOMA:
Oklahoma City................................................. 14
Tulsa......................................................... 6
Other......................................................... 1
---
Total Oklahoma....................................... 21
---
LOUISIANA:
New Orleans................................................... 9
Baton Rouge................................................... 3
Other......................................................... 8
---
Total Louisiana...................................... 20
---
MISSOURI:
Kansas City................................................... 11
St. Louis..................................................... 5
---
Total Missouri....................................... 16
---
INDIANA:
Indianapolis.................................................. 9
Fort Wayne.................................................... 3
Other......................................................... 1
---
Total Indiana........................................ 13
---
NORTH CAROLINA:
Charlotte..................................................... 7
Greensboro/Winston Salem...................................... 3
Other......................................................... 1
---
Total North Carolina................................. 11
---
14
17
ALABAMA:
Mobile........................................................ 4
Birmingham.................................................... 4
Other......................................................... 1
---
Total Alabama........................................ 9
---
KENTUCKY:
Louisville.................................................... 9
---
SOUTH CAROLINA:
Charleston.................................................... 4
Greenville.................................................... 3
---
Total South Carolina................................. 7
---
OHIO:
Cincinnati.................................................... 6
---
UTAH:
Salt Lake City................................................ 7
---
COLORADO:
Colorado Springs.............................................. 3
Denver........................................................ 1
Other......................................................... 1
---
Total Colorado....................................... 5
ILLINOIS:
Chicago....................................................... 3
Other......................................................... 3
---
Total Illinois ...................................... 6
---
Total United States.................................. 412
---
UNITED KINGDOM:
London........................................................ 28
Other......................................................... 14
---
Total United Kingdom................................. 42
---
SWEDEN:
Stockholm..................................................... 4
Other......................................................... 7
---
Total Sweden......................................... 11
---
GRAND TOTAL................................................... 465
===
The Company considers its equipment, furniture and fixtures and owned
buildings to be in good condition. The Company has its own construction
supervisors who engage local contractors to selectively remodel and upgrade its
domestic pawnshop facilities throughout the year.
15
18
The Company's leases typically require the Company to pay all maintenance
costs, insurance costs and property taxes. For additional information concerning
the Company's leases see Note 15 of Notes to Consolidated Financial Statements
in the Annual Report which is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in certain lawsuits encountered in the ordinary
course of its business. Certain of these matters are covered to an extent by
insurance. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's security holders during
the fourth quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information contained under the caption "Common Stock Data" in the Annual
Report is incorporated herein by reference in response to this Item 5.
ITEM 6. SELECTED FINANCIAL DATA
Information contained under the caption "Eight Year Summary of Selected
Financial Data" in the Annual Report is incorporated herein by reference in
response to this Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Information contained under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the Annual Report
is incorporated herein by reference in response to this Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information contained under the captions "Consolidated Financial
Statements," "Notes to Consolidated Financial Statements," and "Income Statement
Quarterly Data" in the Annual Report is incorporated herein by reference in
response to this Item 8.
16
19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure
matters with its independent public accountants to report under this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Election of Directors" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 10. See Item 1, "Executive Officers" for information concerning
executive officers.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "Executive Compensation" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement is
incorporated herein by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Executive Compensation" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1) The following financial statements of the Company and Report of
Independent Accountants are contained in the Annual Report and are
incorporated herein by reference.
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
17
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
(2) The following financial statement schedule of the Company, as well as
the following financial statements of innoVentry Corp. and its
predecessor, Mr. Payroll Corporation, are included herein.
Schedule II -- Allowance for Valuation of Inventory.
Report of Independent Accountants on Financial Statement Schedule.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable, or the
required information is included elsewhere in the financial
statements.
Separate Financial Statements of Fifty Percent or Less Owned Persons-
FINANCIAL STATEMENTS OF INNOVENTRY CORP.:
[The audited financial statements of innoVentry Corp. ("innoVentry")
as of December 31, 1999 and for the year then ended, including the
accompanying Notes to Financial Statements and Report of Independent
Auditors, are in the possession of innoVentry. The Company has
requested innoVentry to furnish the financial statements for inclusion
herein in accordance with the requirements of Regulation S-X, but
innoVentry has not yet done so. If and when innoVentry furnishes the
financial statements, the Company will include them herein by
amendment.]
FINANCIAL STATEMENTS OF MR. PAYROLL CORPORATION:
Consolidated Balance Sheet as of December 31, 1998
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1997
Consolidated Statements of Shareholder's Equity (Deficit) for the
Years Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
(3) The exhibits filed in response to Item 601 of Regulation S-K are
listed in the Exhibit Index.
(4) During the fourth quarter ended December 31, 1999, the Company did not
file any reports on Form 8-K.
18
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 29, 2000.
CASH AMERICA INTERNATIONAL, INC.
By: /s/ DANIEL R. FEEHAN
--------------------------------
Daniel R. Feehan
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on March 29, 2000 on behalf of
the registrant and in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ JACK R. DAUGHERTY Chairman of the Board March 29, 2000
- ------------------------------------------- of Directors
Jack R. Daugherty
/s/ DANIEL R. FEEHAN Chief Executive Officer, March 29, 2000
- ------------------------------------------- President and Director
Daniel R. Feehan (Principal Executive Officer)
/s/ THOMAS A. BESSANT, JR. Executive Vice President - March 29, 2000
- ------------------------------------------- Chief Financial Officer
Thomas A. Bessant, Jr. (Principal Financial and
Accounting Officer)
/s/ A. R. DIKE Director March 29, 2000
- -------------------------------------------
A. R. Dike
19
22
/s/ JAMES H. GRAVES Director March 29, 2000
- -------------------------------------------
James H. Graves
/s/ B. D. HUNTER Director March 29, 2000
- -------------------------------------------
B. D. Hunter
/s/ TIMOTHY J. McKIBBEN Director March 29, 2000
- -------------------------------------------
Timothy J. McKibben
/s/ ALFRED M. MICALLEF Director March 29, 2000
- -------------------------------------------
Alfred M. Micallef
/s/ CLIFTON H. MORRIS, JR. Director March 29, 2000
- -------------------------------------------
Clifton H. Morris, Jr.
/s/ CARL P. MOTHERAL Director March 29, 2000
- -------------------------------------------
Carl P. Motheral
/s/ SAMUEL W. RIZZO Director March 29, 2000
- -------------------------------------------
Samuel W. Rizzo
/s/ ROSALIN ROGERS Director March 29, 2000
- -------------------------------------------
Rosalin Rogers
20
23
REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Cash America International, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 27, 2000, appearing in the 1999 Annual Report to Shareholders of
Cash America International, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14.(2.) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
January 27, 2000
21
24
CASH AMERICA INTERNATIONAL, INC.
SCHEDULE II--ALLOWANCE FOR VALUATION OF INVENTORY
For the Three Years Ended December 31, 1999
Additions
--------------------
Balance
at Charged Charged Balance
Beginning to to at End
Description of Period Expense Other Deductions(a) of Period
- ----------- --------- ------- ----- ------------- ---------
($ in thousands)
Year Ended:
December 31, 1999........... $ 2,163 $ 1,358 $-0- $ 1,513 $ 2,008
======= ======= ==== ======= =======
December 31, 1998........... $ 2,158 $ 1,338 $-0- $ 1,333 $ 2,163
======= ======= ==== ======= =======
December 31, 1997........... $ 2,078 $ 1,359 $-0- $ 1,279 $ 2,158
======= ======= ==== ======= =======
- ----------
(a) Deducted from allowance for write-off or other disposition of inventory.
22
25
MR. PAYROLL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 4,303
Accounts receivable 869
Inventories 2,588
Prepaid expenses 98
Advances to parent 1,787
--------
Total current assets 9,645
--------
Property and equipment, net 13,510
Intangible assets, net 4,258
Other assets 266
--------
Total assets $ 27,679
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,375
Deferred revenue 575
Current portion of capital lease obligations payable 79
--------
Total current liabilities 4,029
--------
Capital lease obligations payable, net of current portion 7
Deferred income tax liability 3,251
Commitments and contingencies (Note 9)
Shareholder's equity:
Preferred stock -
Series A, $1 par value per share; 1,500 shares authorized, issued
and outstanding 2
Series B, $1 par value per share; 48,500 shares authorized, 8,500
shares issued and outstanding 8
Common stock, no par value per share; 100,000,000 shares
authorized, 10,000,000 shares issued and outstanding 2,000
Additional paid-in capital 34,165
Accumulated deficit (9,146)
Due from parent company (6,637)
--------
Total shareholder's equity 20,392
--------
Total liabilities and shareholder's equity $ 27,679
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
1
26
MR. PAYROLL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(In thousands)
1998 1997
-------- --------
Revenue
Royalties and check cashing fees $ 3,186 $ 2,168
Check cashing machine sales 2,044 750
Franchise sales 47 332
-------- --------
Total Revenue 5,277 3,250
Operating expenses and costs:
Cost of machines sold 1,885 668
Operations 4,904 1,215
Selling and administration 6,978 2,490
Depreciation and amortization 911 560
-------- --------
Total operating expenses and costs 14,678 4,933
-------- --------
Loss from operations (9,401) (1,683)
Interest expense, net 25 35
Other expense 72 38
-------- --------
Loss before income taxes (9,498) (1,756)
Income tax benefit (3,126) (260)
-------- --------
Net loss $ (6,372) $ (1,496)
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
2
27
MR. PAYROLL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31
(In thousands, except share data)
Preferred Stock
----------------------------------
Series A Series B Common Stock Additional Due From
---------------- --------------- ------------------- Paid-in Accumulated Parent
Shares Amount Shares Amount Shares Amount Capital Deficit Company
------ ------ ------ ------ ---------- ------ ------- ------- -------
Balance, December 31, 1996 1,500 $ 2 2,150 $ 2 10,000,000 $2,000 $ 3,646 $(1,278) $ --
Preferred stock issued 6,350 6 6,974
Net loss (1,496)
Due from parent company (1,822)
------ ------ ------ ------ ---------- ------ ------- ------- -------
Balance, December 31, 1997 1,500 2 8,500 8 10,000,000 2,000 10,620 (2,774) (1,822)
Preferred stock issued -- -- 23,545
Net loss (6,372)
Due from parent company (4,815)
------ ------ ------ ------ ---------- ------ ------- ------- -------
Balance, December 31, 1998 1,500 $ 2 8,500 $ 8 10,000,000 $2,000 $34,165 $(9,146) $(6,637)
====== ====== ====== ====== ========== ====== ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
3
28
MR. PAYROLL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(In thousands)
1998 1997
-------- -------
Cash flows from operating activities:
Reconciliation of net loss to net cash
used by operating activities--
Net loss $ (6,372) $(1,496)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 911 560
Loss on disposal of property and equipment 89 72
Changes in assets and liabilities--
Accounts receivable (414) (388)
Inventories (458) (2,130)
Prepaid expenses and other (262) 20
Accounts payable and accrued expenses 1,070 1,339
Deferred revenue (391) 850
Deferred income taxes, net 1,689 1,562
-------- -------
Net cash (used in) provided by operating activities (4,138) 389
-------- -------
Cash flows from investing activities:
Acquisitions (1,400) --
Purchases of property and equipment (7,454) (4,579)
Proceeds from disposal of property and equipment 30 13
Increase in intangible assets (86) --
-------- -------
Net cash used in investing activities (8,910) (4,566)
-------- -------
Cash flows from financing activities:
Sale of preferred stock 23,545 6,980
Payments on capital lease obligations
and other long-term liabilities (96) (518)
Advances to parent (1,787) --
Due from parent company (4,815) (1,822)
-------- -------
Net cash provided by financing activities 16,847 4,640
-------- -------
Net change in cash and cash equivalents 3,799 463
Cash and cash equivalents at beginning of year 504 41
-------- -------
Cash and cash equivalents at end of year $ 4,303 $ 504
======== =======
Cash paid during the period for interest $ 26 $ 211
======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
4
29
MR. PAYROLL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS ACTIVITY
Mr. Payroll Corporation, now known as innoVentry Corp., (the
"Company") was incorporated in the State of Texas in August 1990,
and began operations as a check cashing service. In 1994, Cash
America International, Inc. ("Cash America") paid $2,000,000 for a
49% interest in the Company. Effective at the close of business on
December 31, 1996, Cash America acquired, in a purchase transaction,
the remaining 51% interest in the Company. The aggregate purchase
price of the additional 51% interest was to be paid in 3 annual
installments in an amount equal to .9775 times the defined after-tax
net income of the Company for the 1996, 1997 and 1998 fiscal years,
respectively. Cash America paid no additional consideration based on
the Company's results of operations in 1996, 1997 and 1998,
respectively. The purchase transaction established a new basis of
accounting for purchased assets and liabilities, that has been
reflected in these financial statements.
At December 31, 1998, the Company operated 127 franchised and 10
company owned check cashing centers. The Company collects an initial
franchise fee, as well as a royalty based on a percentage of the
check cashing fees earned by franchised centers and check cashing
fees earned by its company owned centers. The Company provides
training to franchisees and their employees and support services
ranging from computer equipment problem resolution, marketing
techniques and construction of equipment, to current issues
affecting the industry. During 1997, the Company developed an
automated check cashing machine ("CCM") that combines facial
biometrics imaging, for customer identification purposes, with
proprietary check cashing technology and a cash-dispensing machine.
The Company receives check cashing fees from its company owned CCMs.
The Company also sells CCMs to third parties and receives fees for
providing initial customer identification, as well as subsequent
check cashing verification and guarantee services from a central
service center. At December 31, 1998, the Company operated 84 CCMs,
including 38 that were company owned.
In May, 1998, the Company and Wells Fargo Bank, N.A. ("Wells Fargo")
entered into a joint venture, named innoVisions, LLC
("innoVisions"), to develop and distribute a new generation of
financial services vending machines targeting the gaming industry.
The machines would combine ATM functions with automated check
cashing, credit card cash advances, debit withdrawals, multimedia
advertising and distribution of event tickets. Wells Fargo
contributed the gaming-related assets of its wholly owned
subsidiary, Wells Fargo Cash Centers, Inc. ("Cash Centers"),
including approximately 200 ATMs operating in gaming establishments;
an initial $1,000,000 working capital line of credit, and cash for
use in its ATMs in specified markets at negotiated rates. The
Company agreed to contribute transaction services and technology
support, including a royalty-free license of its intellectual
property rights in the technology to operate the machines. The
Company also agreed to provide CCMs to innoVisions at cost. In order
to test the viability of the new machines, the agreement called for
a pilot placement of 10 CCMs at two casinos in Las Vegas and Reno,
Nevada.
5
30
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF BUSINESS ACTIVITY, CONTINUED
In order to fund ongoing operations, the Company is dependent on a
significant increase in revenue from some combination of sales of
CCMs, verification fees, check cashing fees, franchise royalties and
sales of franchises. Should those revenues not increase as
anticipated, the Company would require additional sources of
capital. The Company received additional equity contributions in
March 1999. See Note 10.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiary. All intercompany accounts and
transactions have been eliminated in consolidation. The Company uses
the equity method of accounting for its investment in innoVisions.
innoVisions is in the development stage and has incurred losses
since its inception. The Company has not recorded its equity in the
losses of innoVisions since the carrying value of its investment is
zero and the Company has neither guaranteed obligations of
innoVisions nor does it have any obligation to provide financial
support to innoVisions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash on hand and cash
on deposit.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible.
No allowance for doubtful accounts is maintained nor is a credit
evaluation performed on customers. Amounts deemed uncollectible are
immediately charged to operations.
INVENTORIES
Inventories, which consist of sub-assembly components for CCMs and
of CCMs available for sale, are stated at the lower of cost
(specific identification) or market.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost less accumulated
depreciation. Equipment held under capital leases is recorded at the
lower of the net present value of the minimum lease payments or its
fair value at the inception of the lease. The cost of assets sold or
retired, as well as any accumulated depreciation, is removed from
the accounts at the time of disposal, with recognition of any
resulting gain or loss.
6
31
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Depreciation expense is provided on a straight-line basis using
estimated useful lives of 5 to 7 years for furniture and equipment,
7 years for check cashing machines, 25 years for store booths and 3
to 5 years for software. Amortization of capital leases is included
in depreciation expense.
SOFTWARE DEVELOPMENT COSTS
The Company develops computer software for internal use. Internal
and external costs incurred for the development of computer
applications, as well as for upgrades and enhancements that result
in additional functionality of the applications, are capitalized.
Internal and external training and maintenance costs are charged to
expense as incurred. When an application is placed in service, the
Company begins amortizing the related capitalized software costs
using the straight-line method over 3 years.
INTANGIBLE ASSETS
Intangible assets, consisting principally of excess purchase price
over net assets acquired, are being amortized on a straight-line
basis over their expected periods of benefit, generally 28.5 years.
Management assesses the recoverability of intangible assets by
comparing the intangible assets to the undiscounted cash flows
expected to be generated by the acquired operations during the
anticipated period of benefit.
Accumulated amortization of intangible assets was $449,000 at
December 31, 1998.
INCOME TAXES
The Company is included in the 1998 consolidated federal income tax
return of Cash America. Pursuant to the terms of the Company's tax
matters agreement (the "Tax Matters Agreement") with Cash America,
any reduction of consolidated federal income tax liability that Cash
America may realize as a result of the Company's net operating
losses will not be treated as a benefit payable from Cash America to
the Company. Accordingly, such benefits are recorded as a reduction
of stockholder's equity.
The Company utilizes the liability method to account for income
taxes. This method requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax
reporting basis of assets and liabilities and operating loss and tax
credit carryforwards for tax purposes.
7
32
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION
The Company collects a royalty based on a percentage of check
cashing fees earned by the franchisee.
The Company recognizes franchise sales when the Company has
substantially performed all of its material obligations under the
franchise agreement. Under the terms of a typical franchise
agreement, the Company is under no obligation to refund franchise
fees once a location has opened for business.
The Company sells CCMs and recognizes sales revenue when a CCM is
delivered to a purchaser, installed, and title is transferred.
Thereafter, the Company records check cashing verification fee
revenue in the period in which the service is provided.
The Company also owns and operates CCMs which generate check cashing
fee revenue that is recorded in the period in which the service is
provided.
ADVERTISING COSTS
Costs of advertising are expensed at the time of first occurrence.
Advertising expenses were $617,000 and $548,000 for the years ended
December 31, 1998 and 1997, respectively.
YEAR 2000 EXPENSES
Costs of identifying, correcting, reprogramming and testing computer
systems for Year 2000 compliance are charged to expense when
incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NEW ACCOUNTING STANDARDS
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 in years
beginning after June 15, 2000. The future adoption of SFAS 133 is
not expected to have a material effect on the Company's consolidated
financial position or results of operations.
8
33
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RECLASSIFICATIONS
Certain amounts in the financial statements for 1997 have been
reclassified to conform with the presentation format adopted in
1998. These reclassifications have no significant effect on net
loss, shareholder's equity, or total assets as previously reported.
3. ACQUISITIONS
Effective June 1, 1998, the Company repurchased 10 check cashing
franchises and terminated options for the franchisee to open 10
additional franchises for an aggregate cash consideration of
$1,400,000. The transaction has been accounted for as a purchase.
The acquired goodwill of $1,390,000 is being amortized on a
straight-line basis utilizing a period of 28.5 years. The assets
acquired and the results of operations have been included in the
financial statements since the date of acquisition.
4. PROPERTY AND EQUIPMENT, NET
Major classifications of property and equipment at December 31, 1998
were as follows (in thousands):
Furniture and equipment $ 3,528
Check cashing machines 2,011
Store booths 1,973
Software 799
Software systems in process 7,097
-------
15,408
Less accumulated depreciation 1,898
-------
Property and equipment, net $13,510
=======
Furniture and equipment includes $312,000 of cost and accumulated
depreciation of $251,000 at December 31, 1998 relating to assets
held under capital leases.
9
34
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. CAPITAL LEASE OBLIGATIONS PAYABLE
The Company leases computer equipment under capital leases. The
typical lease has an original maturity of 5 years and contains
options to extend the lease or purchase the assets at market or a
predetermined value. The Company's capital lease obligations payable
at December 31, 1998 consisted of (in thousands):
Interest from 16.01% to 19.34%, due in monthly
installments through January 2000 $ 86
Less current portion of capital lease obligations (79)
----
Long-term liabilities $ 7
====
The net present values of minimum lease payments on capital leases
are determined using appropriate interest rates at the inception of
each lease. Future minimum lease payments for capitalized lease
obligations at December 31, 1998 are as follows (in thousands):
1999 $ 86
2000 7
----
Total minimum lease payments 93
Less amount representing interest (7)
----
Present value of minimum lease payments $ 86
====
6. INCOME TAXES
Income tax benefit for the years ended December 31, 1998 and 1997 is
as follows (in thousands):
1998 1997
------- -------
Current $(4,815) $(1,822)
Deferred federal 1,689 1,562
------- -------
Income tax benefit $(3,126) $ (260)
======= =======
10
35
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES, CONTINUED
The effective income tax rate differs from the federal statutory
income tax rate for the following reasons (in thousands):
1998 1997
------- -----
Tax benefit computed at the statutory
federal income tax rate $(3,324) $(615)
Benefits realized at a rate less than the
statutory federal income tax rate 142 --
Non-deductible amortization of intangible assets 42 42
Valuation allowance -- 310
Other 14 3
------- -----
Total income tax benefit $(3,126) $(260)
======= =====
The significant components of deferred tax assets and liabilities as
of December 31, 1998 are as follows (in thousands):
Deferred income tax liabilities:
Property and equipment $ 3,258
=======
Deferred income tax assets:
Net operating loss carryforward $ 1,110
Other, net 7
-------
Total deferred income tax assets 1,117
Valuation allowance for deferred tax assets (1,110)
-------
Net deferred income tax assets $ 7
-------
Net deferred income tax liabilities $ 3,251
=======
The Company annually re-evaluates the potential for realization of
its deferred income tax assets.
As of December 31, 1998, the Company has net operating loss
carryforwards of $3,170,000 for federal income tax purposes. These
carryforwards may only be used to reduce future taxable income of
the Company and expire from 2009 through 2011.
11
36
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. SHAREHOLDER'S EQUITY
On July 21, 1998, the Company's sole shareholder approved an
increase in the number of authorized common shares from 1,000,000 to
100,000,000, approved an increase in the number of authorized
preferred shares from 10,000 to 35,000,000, reserved 1,000,000
common shares for issuance of stock options, and declared an
8,000-for-one stock split effective July 23, 1998. Shares
outstanding have been restated to reflect the conversion.
On July 21, 1998, the Board of Directors authorized an increase in
the number of authorized Series B preferred shares from 8,500 to
48,500.
8. RELATED PARTY TRANSACTIONS
The Company paid $72,000 annually to Cash America for legal services
in 1998 and 1997, respectively. (See also Note 9.)
Pursuant to terms of the Tax Matters Agreement with Cash America,
the Company recorded a $6,637,000 and $1,822,000 reduction to
stockholder's equity in 1998 and 1997, respectively, for the
cumulative current federal income tax benefits of the Company's net
operating losses. Such amounts will not be paid to the Company by
Cash America.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases its primary office space from Cash America
pursuant to an operating lease expiring in December 2000. Minimum
annual rental commitments under non-cancelable leases including
leases with initial or remaining terms of one year or more as of
December 31, 1998, are as follows (in thousands):
NON-RELATED RELATED
PARTIES PARTIES TOTAL
----------- ------- -----
1999 $ 54 $ 161 $ 215
2000 36 161 197
----- ----- -----
Total $ 90 $ 322 $ 412
===== ===== =====
During 1998 and 1997, rent expense for operating leases was $180,000
and $137,000, respectively, of which $139,000 and $95,000,
respectively, was to related parties.
12
37
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
The Company leases many of the spaces that franchisees occupy in
various retail outlets. Monthly lease rentals are typically based on
a percentage of the gross fees collected by the franchisee each
month. The Company pays all lease rentals accruing under such
leases.
LITIGATION
The Company is involved in certain legal actions and claims arising
in the ordinary course of business from time to time. It is the
opinion of management, based upon the advice of legal counsel, that
such litigation and claims will be resolved without a material
effect on the Company's financial position and results of
operations.
10. SUBSEQUENT EVENTS
DISTRIBUTION OF MANNED CHECK CASHING BUSINESS
On January 1, 1999, the Company distributed the net assets of its
manned check cashing business, valued at its historical cost of
$7,733,000, to Cash America.
CONTRIBUTION OF PREFERRED STOCK
On January 1, 1999, Cash America contributed 1,500 shares of Series
A, $1 par value per share preferred stock, and 8,500 shares of
Series B, $1 par value per share preferred stock, representing all
of the issued and outstanding preferred stock of the Company, as
additional capital paid on the common stock held by Cash America. No
additional shares of common stock were issued.
CHANGES TO PREFERRED STOCK
On March 9, 1999, the Board of Directors eliminated the existing
designations of Series A and Series B preferred stock, and the
Company's sole shareholder approved an increase from 35,000,000 to
54,000,000 in the authorized shares of $1 par value per share
preferred stock and the designation of a new Series A Preferred
Stock. Each share of the new Series A Preferred Stock is convertible
at the option of its holder immediately after its date of issuance
into common stock of the Company on a one-for-one basis subject to
adjustment for subsequent common stock splits, dividends,
distributions or subdivisions. The new Series A Preferred Stock will
automatically convert into common stock, on the same basis as a
voluntary conversion, upon the occurrence of the earlier of an
initial public offering yielding gross proceeds to the Company in
excess of $25,000,000; the liquidation, winding up or dissolution of
the Company whereby the proceeds are $75,000,000 or more; or the
date specified by agreement of the holders of at least 60% of the
voting power of the then outstanding shares of the new Series A
Preferred Stock. The holders of the new Series A Preferred Stock
shall be entitled to the number of votes equal to the number of
shares of common stock into which such shares of new Series A
Preferred Stock could then be converted and may vote along with the
13
38
MR. PAYROLL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. SUBSEQUENT EVENTS, CONTINUED:
holders of common stock as a single class on all matters on which
the common stockholders shall be entitled to vote.
DISSOLUTION OF INNOVISIONS
On March 9, 1999, pursuant to the terms of the operating agreement,
the Company, Cash Centers and the Board of Directors of innoVisions
dissolved and terminated the joint venture. The business activities
formerly conducted by innoVisions will be integrated into the
operations of the Company.
ADDITIONAL COMMON AND PREFERRED STOCK TRANSACTIONS
On March 9, 1999, the Company issued 27,000,000 shares of new Series
A Preferred Stock in exchange for 10 million shares of no par value
common stock, representing all of the then currently issued and
outstanding common stock of the Company. On the same date, Cash
Centers purchased 27,000,000 shares of new Series A Preferred Stock
for cash consideration of $20,975,000 and certain net assets having
a value of approximately $6,025,000. Additionally on March 9, 1999,
the Company received subscriptions from certain members of
management of the Company to purchase 6,000,000 shares of common
stock.
In October 1999, the Company sold 8,241,759 shares of new Series B
convertible preferred stock for cash consideration of $30,000,000.
The Series A and Series B convertible preferred stockholders are
entitled to the same voting and conversion rights.
REINCORPORATION AND NAME CHANGE
On July 19, 1999, the Company was reorganized and reincorporated in
the State of Delaware. The name of the Company was changed to
innoVentry Corp.
14
39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Mr. Payroll Corporation (innoVentry Corp.) and
Board of Directors of
Cash America International, Inc.
In our opinion, the consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of operations, shareholder's equity (deficit)
and cash flows, for each of the two years in the period ended December 31, 1998,
present fairly, in all material respects, the financial position, results of
operations and cash flows of Mr. Payroll Corporation (innoVentry Corp.) at
December 31, 1998 and for each of the two years in the period ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Mr. Payroll Corporation (innoVentry Corp.)
for any period subsequent to December 31, 1998.
PricewaterhouseCoopers LLP
Fort Worth, Texas
April 22, 1999, except as to the information presented in Note 10,
for which the dates are July 19, 1999 and October 29, 1999
40
EXHIBIT INDEX
The following documents are filed as a part of this report. Those exhibits
previously filed and incorporated herein by reference are identified below.
Exhibits not required for this report have been omitted.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 --Articles of Incorporation of Cash America Investments,
Inc. filed in the office of the Secretary of State of Texas
on October 4, 1984.(a) (Exhibit 3.1)
3.2 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on October 26, 1984.(a)
(Exhibits 3.2)
3.3 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on September 24, 1986.(a)
(Exhibit 3.3)
3.4 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on September 30, 1987.(b)
(Exhibit 3.4)
3.5 --Articles of Amendment to the Articles of Incorporation of
Cash America Investments, Inc. filed in the office of the
Secretary of State of Texas on April 23, 1992 to change the
Company's name to "Cash America International, Inc." (c)
(Exhibit 3.5)
3.6 --Articles of Amendment to the Articles of Incorporation of
Cash America International, Inc. filed in Office of the
Secretary of State of Texas on May 21, 1993. (d) (Exhibit
3.6)
3.7 --Bylaws of Cash America International, Inc.(e) (Exhibit
3.5)
3.8 --Amendment to Bylaws of Cash America International, Inc.
dated effective September 26, 1990.(f) (Exhibit 3.6)
3.9 --Amendment to Bylaws of Cash America International, Inc.
dated effective April 22, 1992.(c) (Exhibit 3.8)
4.1 --Form of Stock Certificate.(c) (Exhibit 4.1)
10.1 --1989 Non-Employee Director Stock Option Plan.(g) (Exhibit
10.47)
10.2 --Amendment to 1989 Non-Employee Director Stock Option Plan
dated April 24, 1996. (h) (Exhibit 10.4)
10.3 --1989 Key Employee Stock Option Plan.(g) (Exhibit 10.48)
10.4 --Amendment to 1989 Key Employee Stock Option Plan dated
January 21, 1997. (h) (Exhibit 10.6)
10.5 --1994 Long-Term Incentive Plan.(i) (Exhibit 10.5)
10.6 --Amendment to 1994 Long-Term Incentive Plan dated July 22,
1997. (j) (Exhibit 10.1)
10.7 --Amended and Restated Executive Employment Agreement
between the Company and Mr. Feehan dated as of August 1,
1997. (j) (Exhibit 10.2)
10.8 --Consultation Agreements between the Company and Messrs.
Dike, Hunter, Motheral, and Rizzo, each dated April 25,
1990.(k) (Exhibit 10.49)
10.9 --Note Agreement between the Company and Teachers Insurance
and Annuity Association of America dated as of May 6,
1993.(l) (Exhibit 10.1)
10.10 --First Supplement to Note Agreement between the Company and
Teachers Insurance and Annuity Association of America dated
as of September 20, 1994.(i) (Exhibit 10.11)
10.11 --Second Supplement (May 12, 1995), Third Supplement (July
7, 1995), and Fourth Supplement (November 10, 1995) to 1993
Note Agreement between the Company and Teachers Insurance
and Annuity Association of America.(m) (Exhibit 10.1)
10.12 --Fifth Supplement (December 30, 1996) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (h) (Exhibit 10.13)
10.13 --Sixth Supplement (December 30, 1997) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (n) (Exhibit 10.16)
41
10.14 --Seventh Supplement (December 31, 1998) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (o) (Exhibit 10.18)
10.15 --Eighth Supplement (September 29, 1999) to 1993 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (p) (Exhibit 10.3)
10.16 --Note Agreement between the Company and Teachers Insurance
and Annuity Association of America dated as of July 7,
1995.(q) (Exhibit 10.1)
10.17 --First Supplement (November 10, 1995) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (m) (Exhibit 10.2)
10.18 --Second Supplement (December 30, 1996) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (h) (Exhibit 10.16)
10.19 --Third Supplement (December 30, 1997) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (n) (Exhibit 10.20)
10.20 --Fourth Supplement (December 31, 1998) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (o) (Exhibit 10.23)
10.21 -Fifth Supplement (September 29, 1999) to 1995 Note
Agreement between the Company and Teachers Insurance and
Annuity Association of America. (p) (Exhibit 10.2)
10.22 --Amended and Restated Senior Revolving Credit Facility
Agreement among the Company, certain lenders named therein,
and NationsBank of Texas, N.A., as Administrative Agent
dated as of June 19, 1996. (r) (Exhibit 10.1)
10.23 --First Amendment (December 11, 1997) to Amended and
Restated Senior Revolving Credit Facility Agreement dated as
of June 19, 1996. (n) (Exhibit 10.22)
10.24 --Second Amendment (June 24, 1998) to Amended and Restated
Senior Revolving Credit Facility Agreement dated as of June
19, 1996. (s) (Exhibit 10.1)
10.25 --Third Amendment (December 11, 1998) and Fourth Amendment
(December 31, 1998) to Amended and Restated Senior Revolving
Credit Facility Agreement dated as of June 19, 1996. (o)
(Exhibit 10.27)
10.26 --Fifth Amendment (September 29, 1999) to Amended and
Restated Senior Revolving Credit Facility Agreement dated as
of June 19, 1996. (p) (Exhibit 10.4)
10.27 --Note Agreement dated as of December 1, 1997 among the
Company and the Purchasers named therein for the issuance of
the Company's 7.10% Senior Notes due January 2, 2008 in the
aggregate principal amount of $30,000,000. (n) (Exhibit
10.23)
10.28 --First Supplement (December 31, 1998) to Note Agreement
dated as of December 1, 1997 among the Company and the
Purchasers named therein. (o) (Exhibit 10.29)
10.29 --Second Supplement (September 29, 1999) to Note Agreement
dated as of December 1, 1997 among the Company and the
Purchasers named therein. (p) (Exhibit 10.1)
13 --1999 Annual Report to Stockholders of the Company and 2000
Proxy Statement.
21 --Subsidiaries of Cash America International, Inc.
23 --Consent of PricewaterhouseCoopers LLP.
27 --Financial Data Schedule.
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Certain Exhibits are incorporated by reference to the Exhibits shown in
parenthesis contained in the Company's following filings with the Securities and
Exchange Commission:
(a) Registration Statement Form S-1, File No. 33-10752.
(b) Amendment No. 1 to its Registration Statement on Form S-4, File No.
33-17275.
(c) Annual Report on Form 10-K for the year ended December 31, 1992.
(d) Annual Report on Form 10-K for the year ended December 31, 1993.
(e) Post-Effective Amendment No. 1 to its Registration Statement on Form S-4,
File No. 33-17275.
(f) Annual Report on Form 10-K for the year ended December 31, 1990.
(g) Annual Report on Form 10-K for the year ended December 31, 1989.
(h) Annual Report on Form 10-K for the year ended December 31, 1996.
(i) Annual Report on Form 10-K for the year ended December 31, 1994.
(j) Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(k) Post-Effective Amendment No. 4 to its Registration Statement on Form S-4,
File No. 33-17275.
(l) Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.
(m) Quarterly Report on Form 10-Q for the quarter ended September 30,1995.
(n) Annual Report on Form 10-K for the year ended December 31, 1997.
(o) Annual Report on Form 10-K for the year ended December 31, 1998.
(p) Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(q) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(r) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(s) Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.