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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File Number 1-9733
CASH AMERICA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2018239
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1600 WEST 7TH STREET
FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
(817) 335-1100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
24,416,384 common shares, $.10 par value, were outstanding as of October 14,
2002.
CASH AMERICA INTERNATIONAL, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL STATEMENTS
Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- September 30, 2002
and 2001 and December 31, 2001 ........................................1
Consolidated Statements of Operations -- Three Months and
Nine Months Ended September 30, 2002 and 2001 .........................2
Consolidated Statements of Stockholders' Equity --
Nine Months Ended September 30, 2002 and 2001 .........................3
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 2002 and 2001 .........................4
Notes to Consolidated Financial Statements ............................5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ....................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......30
Item 4. Controls and Procedures ..........................................30
PART II. OTHER INFORMATION .................................................31
SIGNATURES ..................................................................32
CERTIFICATIONS ..............................................................33
Item 1. Financial Statements (Unaudited)
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED)
- -----------------------------------------------------------------------------------------------
September 30, December 31,
2002 2001 2001
- -----------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,106 $ 6,631 $ 6,394
Pawn loans 127,197 119,537 116,590
Merchandise held for disposition, net 56,348 64,024 63,392
Finance and service charges receivable 20,087 19,265 19,396
Other receivables and prepaid expenses 7,983 7,280 7,992
Income taxes recoverable 1,553 2,125 --
Deferred tax assets 5,568 8,233 7,795
Net current assets of discontinued operations -- 3,732 3,008
- -----------------------------------------------------------------------------------------------
Total current assets 223,842 230,827 224,567
Property and equipment, net 67,763 62,581 68,450
Goodwill 79,339 77,337 76,686
Intangible assets, net 639 1,133 981
Other assets 5,400 4,997 4,762
Deferred tax assets -- 3,958 1,846
Net non-current assets of discontinued operations -- 5,814 5,598
- -----------------------------------------------------------------------------------------------
Total assets $ 376,983 $ 386,647 $ 382,890
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 18,657 $ 20,133 $ 27,939
Customer deposits 4,593 4,558 3,961
Reserve for disposal of discontinued operations 754 8,422 7,953
Income taxes currently payable 992 1,052 1,123
Current portion of long-term debt 12,571 10,055 9,020
- -----------------------------------------------------------------------------------------------
Total current liabilities 37,567 44,220 49,996
Deferred tax liabilities 3,028 1,620 1,701
Long-term debt 153,455 177,322 162,762
- -----------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.10 par value per
share, 80,000,000 shares authorized 3,024 3,024 3,024
Paid in surplus 127,819 127,821 127,821
Retained earnings 106,140 89,551 95,192
Accumulated other comprehensive loss (5,312) (10,597) (10,820)
Notes receivable - stockholders (6,103) (5,890) (5,890)
- -----------------------------------------------------------------------------------------------
225,568 203,909 209,327
Less -- shares held in treasury, at cost (42,635) (40,424) (40,896)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 182,933 163,485 168,431
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 376,983 $ 386,647 $ 382,890
==============================================================================================
See notes to consolidated financial statements.
Page 1
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------
REVENUE
Finance and service charges $ 30,530 $ 28,685 $ 86,806 $ 85,092
Proceeds from disposition of merchandise 53,244 51,455 178,557 165,418
Cash advance fees 5,088 1,435 12,834 2,862
Check cashing royalties and fees 1,094 1,029 3,466 3,214
- --------------------------------------------------------------------------------------------------------
TOTAL REVENUE 89,956 82,604 281,663 256,586
- --------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 34,556 33,392 117,622 108,094
- --------------------------------------------------------------------------------------------------------
NET REVENUE 55,400 49,212 164,041 148,492
- --------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Lending operations 34,225 32,051 101,215 95,442
Cash advance loss provision 2,070 529 4,539 919
Check cashing operations 361 425 1,128 1,017
Administration 7,534 6,399 21,993 19,062
Depreciation and amortization 3,881 4,089 11,151 12,505
- --------------------------------------------------------------------------------------------------------
Total operating expenses 48,071 43,493 140,026 128,945
- --------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 7,329 5,719 24,015 19,547
Interest expense, net 2,252 2,444 6,565 7,860
Loss from derivative valuation fluctuations 98 269 170 635
- --------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 4,979 3,006 17,280 11,052
Provision for income taxes 1,797 1,031 6,213 4,276
- --------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 3,182 1,975 11,067 6,776
Gain (loss) from discontinued operations -- (17,393) 800 (18,631)
- --------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 3,182 $ (15,418) $ 11,867 $ (11,855)
========================================================================================================
Net income (loss) per share:
Basic--
Income from continuing operations $ .13 $ .08 $ .45 $ .27
Gain (loss) from discontinued operations -- (.71) .03 (.76)
Net income (loss) $ .13 $ (.63) $ .49 $ (.48)
Diluted--
Income from continuing operations $ .13 $ .08 $ .45 $ .27
Gain (loss) from discontinued operations -- (.69) .03 (.75)
Net income (loss) $ .13 $ (.61) $ .48 $ (.48)
========================================================================================================
Weighted average common shares outstanding:
Basic 24,412 24,658 24,459 24,655
Diluted 24,773 25,152 24,849 24,936
========================================================================================================
See notes to consolidated financial statements.
Page 2
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In thousands, except share data) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK OTHER
-------------------- PAID IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) INCOME (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 2001 30,235,164 $ 3,024 $ 127,821 $ 95,192 $ (10,820)
Comprehensive income:
Net income 11,867 $ 11,867
Other comprehensive
income - Foreign
currency translation
adjustments 5,508 5,508
----------
Comprehensive income $ 17,375
----------
Dividends declared--
$.0375 per share (919)
Treasury shares purchased
Treasury shares reissued (10)
Tax benefit from exercise
of option shares 8
Change in notes
receivable - stockholders
- ----------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 2002 30,235,164 $ 3,024 $ 127,819 $ 106,140 $ (5,312)
============================================================================================================================
Balance at
December 31, 2000 30,235,164 $ 3,024 $ 127,820 $ 102,326 $ (8,487)
Comprehensive loss:
Net loss (11,855) $ (11,855)
Other comprehensive
loss - Foreign
currency translation
adjustments (2,110) (2,110)
---------
Comprehensive loss $ (13,965)
---------
Dividends declared--
$.0375 per share (920)
Treasury shares purchased
Treasury shares reissued (7)
Tax benefit from exercise
of option shares 8
Change in notes
receivable - stockholders
- ----------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 2001 30,235,164 $ 3,024 $ 127,821 $ 89,551 $ (10,597)
============================================================================================================================
- ----------------------------------------------------------------------------------------
NOTES
RECEIVABLE - TREASURY STOCK
STOCK- ---------------------
HOLDERS SHARES AMOUNT
- ----------------------------------------------------------------------------------------
Balance at
December 31, 2001 $(5,890) 5,643,318 $ (40,896)
Comprehensive income:
Net income
Other comprehensive
income - Foreign
currency translation
adjustments
Comprehensive income
Dividends declared--
$.0375 per share
Treasury shares purchased 238,444 (1,787)
Treasury shares reissued (6,750) 48
Tax benefit from exercise
of option shares
Change in notes
receivable - stockholders (213)
- ----------------------------------------------------------------------------------------
Balance at
September 30, 2002 $(6,103) 5,875,012 $ (42,635)
========================================================================================
Balance at
December 31, 2000 $(5,755) 5,577,318 $ (40,470)
Comprehensive loss:
Net loss
Other comprehensive
loss - Foreign
currency translation
adjustments
Comprehensive loss
Dividends declared--
$.0375 per share
Treasury shares purchased 24,060 (109)
Treasury shares reissued (21,500) 155
Tax benefit from exercise
of option shares
Change in notes
receivable - stockholders (135)
- ----------------------------------------------------------------------------------------
Balance at
September 30, 2001 $(5,890) 5,579,878 $ (40,424)
========================================================================================
See notes to consolidated financial statements.
Page 3
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
2002 2001
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 11,867 $ (11,855)
Less: Gain (loss) from discontinued operations 800 (18,631)
--------- ---------
Income from continuing operations 11,067 6,776
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operating activities:
Depreciation and amortization 11,151 12,505
Cash advance loss provision 4,539 919
Loss from derivative valuation fluctuations 170 635
Changes in operating assets and liabilities-
Merchandise held for disposition 7,673 (5,039)
Finance and service charges receivable (112) 417
Other receivables and prepaid expenses (1,482) (921)
Accounts payable and accrued expenses (10,696) 6,652
Customer deposits, net 632 622
Current income taxes (1,726) 1,543
Deferred taxes, net 5,207 (7,985)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of continuing operations 26,423 16,124
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to merchandise held for disposition 96,047 100,374
Loans and cash advances repaid or renewed 227,710 209,353
Loans and cash advances made, including loans renewed (333,236) (314,277)
- ----------------------------------------------------------------------------------------------------------------
Net increase in loans and advances (9,479) (4,550)
- ----------------------------------------------------------------------------------------------------------------
Acquisitions, net of cash acquired (3,713) (1,249)
Purchases of property and equipment (8,433) (22,693)
Proceeds from property insurance claim -- 790
- ----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities of continuing operations (21,625) (27,702)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) borrowings under bank lines of credit (40,422) 23,732
Proceeds from issuance of long-term notes payable 42,500 --
Payments on notes payable, capital leases and other obligations (9,220) (5,538)
Change in notes receivable - stockholders 48 240
Net proceeds from reissuance of treasury shares 38 120
Treasury shares purchased (1,787) (109)
Dividends paid (919) (920)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities of continuing operations (9,762) 17,525
- ----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 531 (69)
- ----------------------------------------------------------------------------------------------------------------
Cash (used) provided by continuing operations (4,433) 5,878
Net cash provided (used) by discontinued operations 3,145 (3,873)
Cash and cash equivalents at beginning of period 6,394 4,626
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,106 $ 6,631
================================================================================================================
See notes to consolidated financial statements.
Page 4
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cash America
International, Inc. (the "Company") and its majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In September 2001, the Company announced plans to exit the rent-to-own
business in order to focus on its core business of lending activities. In June
2002, the Company sold the remaining assets of its rent-to-own business. The
consolidated financial statements of the Company have been reclassified to
reflect the disposal of the rental business segment. See Note 3.
The financial statements as of September 30, 2002 and 2001, and for the
three month and nine month periods then ended are unaudited but, in management's
opinion, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for such interim
periods. Operating results for the three month and nine month periods are not
necessarily indicative of the results that may be expected for the full fiscal
year.
Certain amounts in the consolidated financial statements for the three
month and nine month periods ended September 30, 2001, have been reclassified to
conform to the presentation format adopted in 2002. These reclassifications have
no effect on the net income previously reported.
These financial statements and related notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2001 Annual Report to Stockholders.
2. REVENUE RECOGNITION
Lending Operations -- Pawn loans ("loans") are made on the pledge of tangible
personal property. The Company accrues finance and service charges revenue on
all loans that the Company deems collectible based on historical loan redemption
statistics. For loans not repaid, the carrying value of the forfeited collateral
("merchandise held for disposition") is stated at the lower of cost (cash amount
loaned) or market.
Revenue is recognized at the time of disposition of merchandise. Interim
customer payments for layaway sales are recorded as deferred revenue and
subsequently recognized as revenue during the period in which final payment is
received.
Small consumer cash advances ("cash advances") provide customers with cash in
exchange for a promissory note or other repayment agreement supported by that
customer's personal check for the aggregate amount of the cash advanced plus a
service fee. The Company holds the check for a short period, typically less than
17 days. To repay the cash advance, customers may redeem their checks by paying
cash or they may allow the checks to be processed for collection. The Company
accrues fees and finance charge revenue on cash advances on a constant yield
basis ratably over the period of the cash advance. For those locations that
offer
Page 5
cash advances from a third-party financial institution (the "Bank"), the Company
receives an administrative service fee for services provided on the Bank's
behalf. These fees are recorded in revenue when earned.
Check Cashing Operations -- The Company records fees derived from its owned
check cashing locations in the period in which the service is provided.
Royalties derived from franchise locations are recorded on the accrual basis.
3. DISCONTINUED OPERATIONS
In September 2001, the Company adopted a formal plan to exit the rent-to-own
business (the "Plan") in order to focus on its core business of lending
activities. The Company's subsidiary, Rent-A-Tire, Inc. ("Rent-A-Tire"), offered
new tires and wheels under a rent-to-own format to customers seeking an
alternative to a direct purchase. The Company closed 21 Rent-A-Tire operating
locations and held the remaining 22 locations for sale. In conjunction with the
Plan, a pre-tax charge of $10,961,000 ($7,553,000 after income tax benefit) was
recorded in the quarter ended September 30, 2001 to establish a reserve for the
estimated loss on disposal of the rental business segment. This charge included
a provision of $4,472,000 for operating losses subsequent to September 1, 2001,
the effective date of the Plan, and a provision of $6,489,000 for the estimated
loss on the sale of remaining assets.
On June 14, 2002, the Company sold the assets of 22 Rent-A-Tire stores
for proceeds of approximately $3,000,000 in cash. During the quarter ended June
30, 2002, the Company recorded a $1,214,000 ($800,000 after income tax)
reduction in the original charge to the reserve, due to both a decrease in the
Company's expected future operating lease obligations (net of sublease income)
for closed stores and proceeds from the sale of assets in excess of the original
estimate. The remaining balance of the reserve and the activity for the nine
month period ended September 30, 2002 is presented below (in thousands):
Phase-Out
Period
Facility Operating Loss on
Inventory Obligation Workforce Losses Sale of
Reserve Costs Reduction (Income) Assets Total
------- ---------- --------- ----------- ------- -------
Reserve at December 31, 2001 $ 140 $ 2,044 $ 25 $ (555) $ 6,439 $ 7,953
Cash proceeds
(expenditures), net -- (275) (51) (43) 2,786 2,417
Non-cash
write-offs/reductions (140) -- -- (188) (8,214) (8,402)
Adjustments -- (1,015) 26 786 (1,011) (1,214)
------- ------- ------- ------- ------- -------
Reserve at September 30, 2002 $ -- $ 754 $ -- $ -- $ -- $ 754
======= ======= ======= ======= ======= =======
Under the terms of the asset sale agreement with the buyer, the
Company's contingent obligation under certain operating leases for the premises
related to the 22 Rent-A-Tire stores continues in the event that the buyer is
unable to perform under the operating leases. The maximum aggregate potential
obligation under these guarantees was approximately $1.4 million at September
30, 2002. This amount is reduced over time by the amounts paid on these
operating leases by the buyer. In the event that the buyer fails to perform and
the Company is required, as the guarantor, to make payments under these leases,
the Company would seek to mitigate its losses by subleasing the properties.
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary,
Page 6
Unusual and Infrequently Occurring Events and Transactions," the consolidated
financial statements of the Company have been reclassified to reflect the
disposal of the rental business segment. Accordingly, the revenues, costs and
expenses, assets, and cash flows of Rent-A-Tire have been segregated in the
consolidated balance sheets, consolidated statements of operations and
consolidated statements of cash flows. The net operating results, net assets and
net cash flows of this business segment have been reported as "discontinued
operations" in the accompanying consolidated financial statements. The loss from
discontinued operations does not include interest expense since debt was not
assumed by the buyer.
4. SMALL CONSUMER CASH ADVANCES
Cash advances are generally offered for a term of 7 to 31 days, depending on the
customer's next payday. In addition to the cash advances originated by the
Company in some of its locations, cash advances are offered in other locations
by a third-party financial institution (the "Bank"). Balances associated with
the Company's small consumer cash advance portfolio are included in "Other
receivables and prepaid expenses" in the accompanying consolidated balance
sheets. The balances outstanding at September 30, 2002 and 2001 were as follows
(in thousands):
2002 2001
- --------------------------------------------------------------------------------
Originated by the Company
Active cash advances and fees outstanding $1,083 $ 574
Cash advances and fees in collection 404 269
- --------------------------------------------------------------------------------
Subtotal 1,487 843
- --------------------------------------------------------------------------------
Originated by the Bank
Active cash advances and fees outstanding 5,702 2,281
Cash advances and fees in collection 2,266 1,072
- --------------------------------------------------------------------------------
Subtotal 7,968 3,353
- --------------------------------------------------------------------------------
Combined gross portfolio 9,455 4,196
Less: Elimination of cash advances owned by the Bank 5,702 2,454
Less: Discount on cash advances assigned by the Bank 381 111
- --------------------------------------------------------------------------------
Company cash advances outstanding before allowance 3,372 1,631
Less: Allowance for losses 1,709 481
- --------------------------------------------------------------------------------
Net cash advances and fees outstanding $1,663 $1,150
================================================================================
Under the terms of the August 2001 amendment to the Company's agreement with
the Bank, the Bank assigns each cash advance that remains unpaid after its
maturity date to the Company at a discount from the amount owed by the borrower
and the Company undertakes the collection activity on the account. One of the
reasons for this practice is to benefit from the use of the Company's
collections resources and proficiency. As a result, losses on cash advances
assigned to the Company that prove uncollectible are the sole responsibility of
the Company. Therefore, when establishing the Company's overall allowance for
losses, management includes estimates for these cash advance losses, while
active in the Bank's portfolio, at a level projected to be adequate to absorb
credit losses inherent in the outstanding portfolio.
5. ALLOWANCE FOR LOSSES ON SMALL CONSUMER CASH ADVANCES
The Company maintains an allowance for losses on cash advances (including fees
and interest) at a level estimated to be adequate to absorb credit losses
inherent in the outstanding portfolio. Cash advances written during each
calendar month are aggregated and tracked to develop a performance history. The
Company stratifies the outstanding portfolio by age, delinquency, and stage of
Page 7
collection when assessing the adequacy of the allowance for losses. Recent
collection history is utilized to develop expected loss rates which are used for
the establishment of the allowance. A cash advance loss provision is recorded to
increase the allowance carried against the outstanding receivables portfolio.
The Company charges off all cash advances once they are 60 days past due, or
sooner if deemed uncollectible. Recoveries on losses previously charged to the
allowance are credited to the allowance at the time the recovery is collected.
Changes in the allowance for losses on cash advances for the periods
ended September 30, follow (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 1,324 $ 138 $ 711 $ 243
Provision for loan losses 2,070 529 4,539 919
Charge-offs (2,145) (232) (5,055) (757)
Recoveries 460 46 1,514 76
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 1,709 $ 481 $ 1,709 $ 481
- ------------------------------------------------------------------------------------------------------------------------------
Balance as a % of combined gross portfolio 18.1% 11.5%
- ------------------------------------------------------------------------------------------------------------------------------
Balance as a % of Company cash advances outstanding before allowance 50.7% 29.5%
- ------------------------------------------------------------------------------------------------------------------------------
6. WEIGHTED AVERAGE SHARES
The reconciliation of basic and diluted weighted average common shares
outstanding for the periods ended September 30, follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
- -------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------
Weighted average shares - Basic 24,412 24,658 24,459 24,655
Effect of shares applicable to stock option plans 296 430 322 217
Effect of shares applicable to nonqualified savings plan 65 64 68 64
- -------------------------------------------------------------------------------------------------------
Weighted average shares - Diluted 24,773 25,152 24,849 24,936
- -------------------------------------------------------------------------------------------------------
7. ACQUISITIONS
During the nine months ended September 30, 2002, the Company acquired two U.S.
pawnshops and two United Kingdom pawnshops in purchase transactions for an
aggregate cash consideration of $3.7 million. The excess of the aggregate
purchase price over the aggregate fair market value of assets acquired was
approximately $1.6 million.
Page 8
8. GOODWILL AND OTHER INTANGIBLE ASSETS -- ADOPTION OF SFAS 142
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets." Goodwill and other intangible
assets having an indefinite useful life acquired in business combinations
completed after June 30, 2001, are no longer subject to amortization to
earnings. Effective January 1, 2002, all goodwill and other intangible assets
having an indefinite useful life are no longer amortized to earnings. The useful
lives of other intangible assets must be reassessed and the remaining
amortization periods adjusted accordingly. Goodwill and other intangible assets
having an indefinite useful life will be tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the assets might
be impaired, using a two-step impairment assessment. The first step of the
goodwill impairment test, used to identify potential impairment, compares the
fair value of a reporting unit with its carrying amount, including goodwill. If
the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired, and the second step of the impairment
test is not necessary. If the carrying amount of a reporting unit exceeds its
fair value, the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any.
The Company adopted the provisions of SFAS No. 142 on January 1, 2002
and completed the first step of the two-step impairment test during the quarter
ended June 30, 2002. Based on the results of this test, Management determined
there was no impairment as of January 1, 2002.
Goodwill -- The changes in the carrying value of goodwill for the nine months
ended September 30, 2002, follows (in thousands):
Lending
---------------------------------
United Check
States Foreign Total Cashing Consolidated
- -------------------------------------------------------------------------------------------------------
Balance as of January 1, 2002,
net of amortization of $24,224 $59,050 $12,453 $71,503 $ 5,183 $76,686
Acquired goodwill 552 1,006 1,558 -- 1,558
Foreign translation impact -- 1,095 1,095 -- 1,095
- -------------------------------------------------------------------------------------------------------
Balance as of September 30, 2002 $59,602 $14,554 $74,156 $ 5,183 $79,339
=======================================================================================================
Transitional Disclosures -- Net income and net income per share excluding the
after-tax effect of amortization expense related to goodwill for the periods
ended September 30, were as follows (in thousands, except per share amounts; due
to rounding, per share amounts may not total):
Three Months Ended Nine Months Ended
September 30, September 30,
- --------------------------------------------------------------------------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------
Reported net income (loss) $3,182 $(15,418) $11,867 $(11,855)
Add back: Goodwill amortization -- 645 -- 1,932
- --------------------------------------------------------------------------------------------
Adjusted net income (loss) $3,182 $(14,773) $11,867 $ (9,923)
============================================================================================
Basic net income (loss) per share:
Reported net income (loss) $ .13 $ (.63) $ .49 $ (.48)
Add back: Goodwill amortization -- .03 -- .08
- --------------------------------------------------------------------------------------------
Adjusted net income (loss) $ .13 $ (.60) $ .49 $ (.40)
============================================================================================
Diluted net income (loss) per share:
Reported net income (loss) $ .13 $ (.61) $ .48 $ (.48)
Add back: Goodwill amortization -- .03 -- .08
- --------------------------------------------------------------------------------------------
Adjusted net income (loss) $ .13 $ (.59) $ .48 $ (.40)
============================================================================================
Page 9
Acquired Intangible Assets -- Acquired intangible assets that are subject to
amortization as of September 30, 2002 are as follows (in thousands):
Gross Accumulated
Amount Amortization Net
- -------------------------------------------------------------------
Noncompetition agreements $ 2,991 $(2,415) $ 576
Other 131 (68) 63
- -------------------------------------------------------------------
Total $ 3,122 $(2,483) $ 639
===================================================================
Noncompetition agreements are amortized over the applicable period of the
contract.
Amortization -- Amortization expense for the acquired intangible assets above is
as follows (in thousands):
Actual amortization expense
For the three months ended September 30, 2002 $107
For the nine months ended September 30, 2002 385
Estimated amortization expense
For the years ended December 31,:
2002 $478
2003 188
2004 84
2005 81
2006 76
9. LONG-TERM DEBT
The Company's long-term debt instruments and balances outstanding at September
30, 2002 and 2001 were as follows (in thousands):
2002 2001
- --------------------------------------------------------------------------------
U.S. Line of Credit up to $90,000
due August 14, 2005 $ 60,955 $ --
U.S. Line of Credit up to $150,000
due June 30, 2003 -- 110,400
Multi-currency Line of Credit up to
Pound Sterling 15,000 due April 30, 2004 12,571 --
U.K. Line of Credit up to Pound Sterling 15,000
due April 30, 2002 -- 5,011
Swedish Line of Credit up to
SEK 185,000 -- 8,467
8.33% senior unsecured notes due 2003 4,286 8,571
8.14% senior unsecured notes due 2007 20,000 20,000
7.10% senior unsecured notes due 2008 25,714 30,000
7.20% senior unsecured notes due 2009 42,500 --
Capital leases and other obligations payable -- 4,928
- --------------------------------------------------------------------------------
166,026 187,377
Less current portion 12,571 10,055
- --------------------------------------------------------------------------------
Total long-term debt $153,455 $177,322
================================================================================
Page 10
During August 2002, the Company issued $42,500,000 of 7.20% senior unsecured
notes, due August 2009. The notes are payable in five equal annual payments
beginning August 2005. The Company also refinanced its U.S. line of credit
during August 2002, with a $90,000,000 senior unsecured revolving line of credit
maturing August 2005. Interest on the line of credit will be charged, at the
Company's option, at either LIBOR (1.8125% at September 30, 2002) plus a margin
or at the Agent's base rate. The margin on the line of credit varies from 1.25%
to 2.50%, depending on the Company's ratio of indebtedness to cash flow as
defined in the agreement. Net proceeds received under these agreements were used
to reduce existing indebtedness, and will be utilized for general corporate
purposes. The Company is in compliance with all covenants or other requirements
set forth in its credit agreements.
The Company extended its multi-currency line of credit for one year to
April 30, 2004. The terms of this line of credit remain essentially unchanged,
with the exception of a reduction in the maximum amount to Pound
Sterling 15,000,000 (approximately $23.5 million at September 30, 2002) from
Pound Sterling 20,000,000 (approximately $31.4 million at September 30, 2002).
10. OPERATING SEGMENT INFORMATION
The Company has two reportable operating segments in the lending industry and
one in the check cashing industry. While the United States and foreign lending
segments offer the same services, each is managed separately due to the
different operational strategies required. The check cashing operation offers
different services and products, requiring its own technical, marketing and
operational strategy.
As described in Note 3, the Company has reclassified the results of
operations of Rent-A-Tire as discontinued operations. This business was
previously reported as a separate operating segment. The segment data included
below has been restated to exclude amounts related to Rent-A-Tire.
Information concerning the segments is set forth below (in thousands):
Lending
-----------------------------------
United Check
States Foreign Total Cashing Consolidated
- ---------------------------------------------------------------------------------------------------
Three Months Ended
September 30, 2002:
Total revenue $ 79,702 $ 9,435 $ 89,137 $ 819 $ 89,956
Income from operations 4,487 2,684 7,171 158 7,329
Total assets at September 30 282,868 86,182 369,050 7,933 376,983
- ---------------------------------------------------------------------------------------------------
Three Months Ended
September 30, 2001:
Total revenue 74,030 7,753 81,783 821 82,604
Income (loss) from operations 3,575 2,149 5,724 (5) 5,719
Total assets at September 30 290,663 75,085 365,748 11,353 377,101
===================================================================================================
Nine Months Ended
September 30, 2002:
Total revenue 252,101 26,797 278,898 2,765 281,663
Income from operations 16,238 7,079 23,317 698 24,015
- ---------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 2001:
Total revenue 230,979 22,978 253,957 2,629 256,586
Income from operations 12,864 6,271 19,135 412 19,547
- ---------------------------------------------------------------------------------------------------
Page 11
11. LITIGATION
The Company is party to a number of lawsuits arising in the normal course of
business. In the opinion of management, the resolution of these matters will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
Page 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION SUMMARY CONSOLIDATED FINANCIAL DATA
THIRD QUARTER ENDED SEPTEMBER 30, 2002 vs. THIRD QUARTER ENDED SEPTEMBER 30,
2001
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data with
respect to the Company and its lending and check cashing operations as of
September 30, 2002 and 2001, and for the three months then ended.
2002 2001 Change
- ----------------------------------------------------------------------------------------------------------
REVENUE
Finance and service charges $ 30,530 $ 28,685 6%
Proceeds from disposition of merchandise 53,244 51,455 3%
Cash advance fees 5,088 1,435 255%
Check cashing royalties and fees 1,094 1,029 6%
- ----------------------------------------------------------------------------------------------------------
TOTAL REVENUE 89,956 82,604 9%
- ----------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 34,556 33,392 3%
- ----------------------------------------------------------------------------------------------------------
NET REVENUE $ 55,400 $ 49,212 13%
==========================================================================================================
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 55.1% 58.3% (5)%
Margin on disposition of merchandise 33.7% 36.7% (8)%
Cash advance fees 9.2% 2.9% 217%
Check cashing royalties and fees 2.0% 2.1% (5)%
Expenses as a percentage of net revenue--
Operations and administration 76.0% 79.0% (4)%
Cash advance loss provision 3.7% 1.1% 236%
Depreciation and amortization 7.0% 8.3% (16)%
Interest, net 4.1% 5.0% (18)%
Income from operations as a percentage of total revenue 8.1% 6.9% 17%
==========================================================================================================
LENDING OPERATIONS:
PAWN LOANS
Annualized yield on pawn loans 97.2% 94.7% 3%
Average pawn loan balance outstanding $ 124,665 $ 120,220 4%
Average pawn loan balance per average location in operation $ 274 $ 261 5%
Average pawn loan amount at end of period (not in thousands) $ 102 $ 96 6%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.1% 35.1% --%
Average annualized merchandise turnover 2.6X 2.2x 18%
Average merchandise held for disposition balance
per average location $ 116 $ 128 (9)%
SMALL CONSUMER CASH ADVANCES
Total amount of cash advances written(a) $ 34,072 $ 13,605 150%
Number of cash advances written (not in thousands)(a) 120,578 50,635 138%
Average cash advance amount written (not in thousands)(a) $ 283 $ 269 5%
Average number of locations offering cash advances
(not in thousands)(a) 390 352 11%
Combined cash advances outstanding(a) $ 9,455 $ 4,196 125%
Cash advances outstanding before allowance for losses(b) $ 3,372 $ 1,631 107%
Owned locations in operation--
Beginning of period 454 458
Acquired 2 4
Start-ups 1 --
Combined or closed (1) (1)
End of period 456 461 (1)%
Additional franchise locations at end of period 13 15 (13)%
Total locations at end of period 469 476 (1)%
Average number of owned locations in operation 455 460 (1)%
==========================================================================================================
CHECK CASHING OPERATIONS:
Check cashing royalties and fees $ 819 $ 821 --%
Franchised and owned check cashing centers--
Face amount of checks cashed $ 247,030 $ 232,963 6%
Gross fees collected $ 3,388 $ 3,116 9%
Average check cashed (not in thousands) $ 333 $ 324 3%
Centers in operation at end of period 135 138 (2)%
Average centers in operation for the period 135 137 (1)%
==========================================================================================================
(a) Includes advances made by the Company and advances made by a third-party
financial institution.
(b) Amounts recorded in the Company's consolidated financial statements.
Page 13
NINE MONTHS ENDED SEPTEMBER 30, 2002 vs. NINE MONTHS ENDED SEPTEMBER 30, 2001
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data with
respect to the Company and its lending and check cashing operations as of
September 30, 2002 and 2001, and for the nine months then ended.
2002 2001 Change
- ---------------------------------------------------------------------------------------------------------------------------
REVENUE
Finance and service charges $ 86,806 $ 85,092 2%
Proceeds from disposition of merchandise 178,557 165,418 8%
Cash advance fees 12,834 2,862 348%
Check cashing royalties and fees 3,466 3,214 8%
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 281,663 256,586 10%
- ---------------------------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 117,622 108,094 9%
- ---------------------------------------------------------------------------------------------------------------------------
NET REVENUE $ 164,041 $ 148,492 10%
===========================================================================================================================
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges 52.9% 57.3% (8)%
Margin on disposition of merchandise 37.1% 38.6% (4)%
Cash advance fees 7.8% 2.0% 290%
Check cashing royalties and fees 2.2% 2.1% 5%
Expenses as a percentage of net revenue--
Operations and administration 75.8% 77.8% (3)%
Cash advance loss provision 2.8% .6% 367%
Depreciation and amortization 6.8% 8.4% (19)%
Interest, net 4.0% 5.3% (25)%
Income from operations as a percentage of total revenue 8.5% 7.6% 12%
===========================================================================================================================
LENDING OPERATIONS:
PAWN LOANS
Annualized yield on pawn loans 99.5% 97.9% 2%
Average pawn loan balance outstanding $ 116,673 $ 116,239 --%
Average pawn loan balance per average location in operation $ 255 $ 253 1%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.1% 34.7% (2)%
Average annualized merchandise turnover 2.8X 2.6x 8%
Average merchandise held for disposition balance
per average location $ 121 $ 123 (1)%
SMALL CONSUMER CASH ADVANCES
Total amount of cash advances written (a) $ 82,106 $ 27,611 197%
Number of cash advances written (not in thousands) (a) 291,087 111,196 162%
Average cash advance amount written (not in thousands) (a) $ 282 $ 248 14%
Average number of locations offering cash advances (not in thousands) (a) 390 347 12%
Owned locations in operation--
Beginning of period 460 463
Acquired 4 5
Start-ups 1 1
Combined or closed (9) (8)
End of period 456 461 (1)%
Additional franchise locations at end of period 13 15 (13)%
Total locations at end of period 469 476 (1)%
Average number of owned locations in operation 458 460 --%
===========================================================================================================================
CHECK CASHING OPERATIONS:
Check cashing royalties and fees $ 2,765 $ 2,629 5%
Franchised and owned check cashing centers--
Face amount of checks cashed $ 792,753 $ 736,630 8%
Gross fees collected $ 11,305 $ 10,282 10%
Average check cashed (not in thousands) $ 355 $ 341 4%
Average centers in operation for the period 135 134 1%
===========================================================================================================================
(a) Includes advances made by the Company and advances made by a third-party
financial institution.
(b) Amounts recorded in the Company's consolidated financial statements.
Page 14
GENERAL
- --------------------------------------------------------------------------------
The Company is a provider of specialty financial services to individuals in the
United States, United Kingdom and Sweden. The Company offers secured
non-recourse loans, commonly referred to as pawn loans, to individuals through
its lending operations. The pawn loan portfolio generates finance and service
charges revenue. A related but secondary source of revenue is the disposition of
merchandise, primarily unredeemed collateral from pawn loans. As an alternative
to a pawn loan, the Company offers small consumer cash advances in selected
lending locations and on behalf of a third-party financial institution in other
locations. The Company also provides check cashing services through its
franchised and company owned Mr. Payroll(R) manned check cashing centers.
As of September 30, 2002, the Company's lending operations consisted of
469 lending units (397 owned units and 13 franchised units in 18 states in the
United States, 48 jewelry-only units in the United Kingdom, and 11 loan-only and
primarily jewelry-only units in Sweden). The number of owned lending locations
declined by 7 during the 21 months ended September 30, 2002 as the Company
acquired 9 operating units, established 3 locations, and combined or closed 19
locations. In addition, one franchise unit was opened and 4 units were closed.
As of September 30, 2002, Mr. Payroll operated 128 franchised and 7
company owned manned check cashing centers in 21 states.
In September 2001, the Company announced plans to exit the rent-to-own
business in order to focus on its core business of lending activities. In June
2002, the Company sold the remaining assets of its rent-to-own business. See
Note 3 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
THIRD QUARTER ENDED SEPTEMBER 30, 2002, COMPARED TO THE
THIRD QUARTER ENDED SEPTEMBER 30, 2001
CONSOLIDATED NET REVENUE. Consolidated net revenue increased $6.2 million, or
12.6%, to $55.4 million during the third quarter ended September 30, 2002 (the
"current quarter") from $49.2 million during the third quarter ended September
30, 2001 (the "prior year quarter"). The following table sets forth net revenue
results by operating segment for the three month periods ended September 30
($ in millions):
2002 2001 Increase (decrease)
---------- ----------- --------------------------
Domestic lending $47.0 $42.2 $4.8 11.4%
Foreign lending 7.6 6.2 1.4 22.6%
---------- ----------- ------------ -----------
Total lending 54.6 48.4 6.2 12.8%
Check cashing .8 .8 -- --%
---------- ----------- ------------ -----------
Consolidated $55.4 $49.2 $6.2 12.6%
========== =========== ============ ===========
The Company's domestic lending operations generated the majority of the
increase in consolidated net revenue. Higher revenue from the Company's small
consumer cash advance product, higher finance and service charges, and higher
net proceeds from the disposition of merchandise accounted for the increase in
net revenue.
Page 15
The components of the increase in net revenue are cash advance fees,
which increased $3.7 million; finance and service charges from pawn loans, which
increased $1.8 million; net revenue from the disposition of merchandise, which
increased $.6 million; and check cashing fees and royalties, which increased $.1
million. Management believes that the trend of higher cash advance fees will
continue during 2002 and 2003. Since customers may choose to use both pawn and
cash advance products, moderate increases may occur in finance and service
charges in 2002 and 2003, offset by the higher cash advance fees.
FINANCE AND SERVICE CHARGES. The following is a summary of finance and service
charges related to pawn loans by operating segment for the three months ended
September 30 ($ in millions):
2002 2001 Increase (decrease)
---------- ---------- -----------------------
Domestic lending $24.1 $23.3 $ .8 3.4%
Foreign lending 6.4 5.4 1.0 18.5%
---------- ---------- ----------- ---------
Total $30.5 $28.7 $1.8 6.3%
========== ========== =========== =========
Variations in finance and service charges on pawn loans are caused by
changes in the average balance of pawn loans outstanding, the annualized yield
of the pawn loan portfolio, and the effects of translation of foreign currency
amounts into United States dollars. The following table demonstrates how each of
these factors affected the total change in finance and service charges on pawn
loans ($ in millions):
Total
Average Before
Balance Loan Foreign Foreign
Outstanding Yield Translation Translation Total
------------ ------- ----------- ----------- --------
Domestic lending $(.5) $1.3 $ .8 $-- $ .8
Foreign lending .3 .2 .5 .5 1.0
------------ ------- ----------- ---------- --------
Total $(.2) $1.5 $1.3 $.5 $1.8
============ ======= =========== ========== ========
Excluding the favorable impact of foreign currency translation
adjustments, the company-wide average balance of pawn loans outstanding was .2%
higher during the current quarter than the prior year quarter. On a segment
basis, the average balances of pawn loans were 1.9% lower and 4.5% higher for
the domestic and foreign lending operations, respectively. The decrease in the
average balance of domestic pawn loans outstanding was driven by a 3.4% decline
in the average number of pawn loans outstanding during the current quarter,
partially offset by a 1.5% increase in the average amount per loan. The lower
average domestic loan balance outstanding is a reflection of the lower balance
at the beginning of the current quarter due to larger than usual per capita tax
refunds believed to have been received by pawn customers in early 2002. Loan
balances at the beginning of the current quarter were $4.2 million lower than at
the beginning of the prior year quarter. Management believes that this was also
partly attributable to some customers choosing to satisfy their short-term
borrowing needs through a cash advance instead of through a pawn loan. Strong
pawn loan demand during the current quarter and the non-recurrence of the
Internal Revenue Service's advance tax refunds in August and September of 2001
have helped to reverse the trend of lower year-over-year loan balances. Domestic
pawn loan balances at September 30, 2002 were $1.2 million, or 1.5%, higher than
at September 30, 2001. Same store domestic pawn loans finished the current
quarter approximately 2.2% higher than the prior year quarter. Management
believes that this trend will continue throughout the remainder of 2002. The
average balance of pawn loans outstanding denominated in their local currencies
increased 9.0% and decreased 2.4% in the United Kingdom and Sweden,
respectively. Foreign loan demand was mixed as the average number of pawn loans
outstanding in the United Kingdom
Page 16
and Sweden increased 6.0% and decreased 7.2%, respectively. Average amounts per
loan were higher for both the United Kingdom and Sweden by 2.8% and 5.2%,
respectively.
Excluding the favorable impact of foreign currency translation
adjustments, the consolidated annualized loan yield, which represents the
blended result derived from the distinctive loan yields realized from operations
in the three countries, was 98.8% in the current year quarter, compared to 94.7%
in the prior year quarter. There was an increase in the domestic annualized loan
yield to 121.8% for the current year quarter, compared to 115.3% for the prior
year quarter. A slightly higher concentration of extended or renewed loans in
the portfolio and higher redemption rates have contributed to the higher
domestic yield. The blended yield on average foreign pawn loans outstanding
increased to 55.3% in the current year quarter compared to 53.1% in the prior
year quarter. The increase in the blended foreign yield was caused by a
combination of higher loan redemption rates and higher yield on the disposition
of unredeemed collateral at auction.
Favorable currency translation adjustments contributed $.5 million to
the increase in foreign source finance and service charges in the current
quarter as compared to the prior year quarter as the British pound and Swedish
kronor were stronger relative to the United States dollar. The weighted average
exchange rates used for translating earnings into dollars for the pound and
kronor were 7.3% and 11.1% higher, respectively, during the current quarter
compared to the prior year quarter.
NET REVENUE FROM THE DISPOSITION OF MERCHANDISE. Net revenue from the
disposition of merchandise represents the proceeds received from the disposition
of merchandise in excess of the cost of merchandise sold. A 3.5% increase in
proceeds resulted in a $.6 million, or 3.5%, increase in net revenue from the
disposition of merchandise. The following table summarizes, by operating
segment, the change in the proceeds from the disposition of merchandise and the
related net margin for the current quarter compared to the prior year quarter ($
in millions):
Increase (decrease)
----------------------------------------------------
Disposition % Net %
Proceeds Change Margin Change
----------- ---------- --------- ------------
Domestic lending $1.2 2.4% $.3 1.9%
Foreign lending .6 27.5% .3 48.1%
----------- ---------- --------- ------------
Total $1.8 3.5% $.6 3.5%
=========== ========== ========= ============
Proceeds from the disposition of merchandise were $1.8 million, or 3.5%,
higher than in the prior year quarter, primarily due to an increase in the
disposition of scrap gold jewelry. The consolidated merchandise turnover rate
increased to 2.6 times during the current quarter as compared to 2.2 times
during the prior year quarter, and the margin on disposition of merchandise
remained unchanged at 35.1% in the current quarter. Excluding the effect of the
disposition of scrap jewelry, the margin on disposition of merchandise increased
slightly to 37.2% in the current quarter from 36.4% in the prior year quarter
due to lower average cost of merchandise sold. The margin on disposition of
scrap jewelry was 18.2% in the current quarter compared to 17.3% in the prior
year quarter due to the prevailing higher market price of gold.
CASH ADVANCE FEES. Cash advance fees increased $3.7 million to $5.1 million in
the current quarter as compared to $1.4 million in the prior year quarter. The
increase resulted from higher demand for the small consumer cash advance product
which generated higher balances outstanding. The Company began offering small
consumer cash advances in 2000. The product was available in 390 domestic
lending units at September 30, 2002, including 308 units that offer
Page 17
the product on behalf of a third-party financial institution (the "Bank"), which
pays the Company a fee for its administrative services. Cash advance fees
includes revenue from the cash advance portfolio owned by the Company and fees
for administrative services performed for the Bank. (Although small consumer
cash advance transactions may take the form of loans or deferred check deposit
transactions, the transactions are referred to throughout this discussion as
"cash advances" for convenience.)
The amount of cash advances written increased $20.5 million to $34.1
million in the current quarter from $13.6 million in the prior year quarter. The
$34.1 million in cash advances written in the current quarter includes $29.2
million extended to customers by the Bank. The average amount per cash advance
increased to $283 from $269. The combined portfolio of cash advances generated
$5.9 million in revenue during the current quarter compared to $2.2 million in
the prior year quarter. The outstanding combined Company and Bank portfolio of
small consumer cash advances increased $5.3 million to $9.5 million at September
30, 2002 from $4.2 million at September 30, 2001. Included in these amounts are
$3.4 million and $1.6 million for 2002 and 2001, respectively, that are included
in the Company's consolidated balance sheets. An allowance for losses of $1.7
million and $.5 million has been provided in the consolidated financial
statements for September 30, 2002 and 2001, respectively, which offsets the
outstanding cash advance amounts. The net balance is carried in "Other
receivables and prepaid expenses" on the consolidated balance sheets.
CHECK CASHING ROYALTIES AND FEES. Check cashing fees for the United Kingdom
operations increased $.1 million, or 32.2%, in the current quarter, while check
cashing revenue for the Mr. Payroll operations remained unchanged.
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expense as a percentage of net revenue was 76.0% in the current
quarter compared to 79.0% in the prior year quarter. These expenses increased
$3.2 million, or 8.3%, in the current quarter compared to the prior year
quarter. Domestic lending expenses increased $2.6 million, primarily as a result
of higher health insurance costs and higher incentive expenses associated with
the improvement in operating results. Foreign lending operations expenses
increased $.7 million primarily due to an increase in the number of locations in
the United Kingdom. Mr. Payroll's expenses decreased by $.1 million.
CASH ADVANCE LOSS PROVISION. The Company maintains an allowance for losses on
cash advances at a level projected to be adequate to absorb credit losses
inherent in the outstanding cash advance portfolio. The cash advance loss
provision is utilized to increase the allowance carried against the outstanding
receivables portfolio. The cash advance loss provision for domestic lending
operations increased $1.6 million to $2.1 million in the current quarter as
compared to $.5 million in the prior year quarter due to the significant
increase in the size of the portfolio. Loss provision as a percentage of cash
advance fees increased to 40.7% in the current quarter from 36.9% in the prior
year quarter. This increase reflects the changes made to the Company's agreement
with the Bank in August 2001. While the new agreement provided for a higher
administrative fee, the cash advance loss provision increased as the Company
began providing for estimated losses on active cash advances owned by the Bank
prior to the date any amounts are assigned to the Company for collection. See
Notes 4 and 5 of Notes to Consolidated Financial Statements.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a
percentage of net revenue was 7.0% in the current quarter compared to 8.3% in
the prior year quarter. Total depreciation and amortization expenses decreased
$.2 million, or 5.1%. Effective January 1,
Page 18
2002, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, the Company
ceased amortizing all goodwill and other intangible assets having an indefinite
useful life. See Note 8 of Notes to Consolidated Financial Statements. A $.7
million decline in amortization due to the adoption of SFAS 142 was partially
offset by a $.3 million increase in depreciation expense associated with the
completion of the reconstruction of the Company's corporate headquarters late
2001 after it was severely damaged by a tornado in March 2000 and a $.2 million
increase in depreciation from other additions.
INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined
to 4.1% in the current quarter from 5.0% in the prior year quarter. The amount
decreased a net $.2 million, or 7.9%, due to the effect of a 7.5% reduction in
the Company's average debt balance. The effective blended borrowing cost
remained unchanged at 5.3% in the current quarter. The average amount of debt
outstanding decreased during the current quarter to $169.6 million from $183.4
million during the prior year quarter.
LOSS FROM DERIVATIVE VALUATION FLUCTUATIONS. Effective January 1, 2001, the
Company implemented SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and its corresponding amendments under SFAS No. 138. The
adjustments to fair values of interest rate cap agreements during the current
quarter resulted in a loss of $.1 million compared to a loss of $.3 million in
the prior year quarter.
INCOME TAXES. The Company's effective tax rate for the quarter ended September
30, 2002 was 36.1% as compared to 34.3% for the quarter ended September 30,
2001. Excluding goodwill amortization and the related tax effects in the prior
year quarter, the Company's comparable consolidated effective tax rate was 30.2%
for the prior year quarter. An adjustment to the estimate of U.S. income tax on
foreign earnings reduced the Company's consolidated effective tax rate in the
prior year quarter. The consolidated effective tax rate for the current quarter
was impacted by an increase in the effective foreign tax rate.
Page 19
- --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 2001
CONSOLIDATED NET REVENUE. Consolidated net revenue increased $15.5 million, or
10.4%, to $164.0 million during the nine months ended September 30, 2002 (the
"current period") from $148.5 million during the nine months ended September 30,
2001 (the "prior year period"). The following table sets forth net revenue
results by operating segment for the nine month periods ended September 30 ($ in
millions):
2002 2001 Increase (decrease)
------ ------ -------------------
Domestic lending $140.6 $127.9 $12.7 9.9%
Foreign lending 20.6 18.0 2.6 14.4%
------ ------ ----- ---
Total lending 161.2 145.9 15.3 10.5%
Check cashing 2.8 2.6 .2 7.7%
------ ------ ----- ---
Consolidated $164.0 $148.5 $15.5 10.4%
====== ====== ===== ====
The Company's domestic lending operations generated the majority of the
increase in consolidated net revenue. Higher revenue from the Company's small
consumer cash advance product and higher net proceeds from the disposition of
merchandise accounted for the majority of this increase.
Cash advance fees increased $9.9 million; net revenue from the
disposition of merchandise increased $3.6 million; finance and service charges
from pawn loans increased $1.7 million; and check cashing fees and royalties
increased $.3 million. Management believes that the trend of higher cash advance
fees will continue during 2002 and 2003. Since customers may choose to use both
pawn and cash advance products, moderate increases may occur in finance and
service charges in 2002 and 2003, offset by the higher cash advance fees.
FINANCE AND SERVICE CHARGES. The following is a summary of finance and service
charges related to pawn loans by operating segment for the nine months ended
September 30 ($ in millions):
2002 2001 Increase (decrease)
----- ----- -------------------
Domestic lending $69.2 $69.2 $ -- --%
Foreign lending 17.6 15.9 1.7 10.7%
----- ----- ---- ----
Total $86.8 $85.1 $1.7 2.0%
===== ===== ==== ====
The following table identifies the impact of underlying factors on the
total change in finance and service charges on pawn loans ($ in millions):
Total
Average Before
Balance Loan Foreign Foreign
Outstanding Yield Translation Translation Total
------------- -------- ----------- ----------- --------
Domestic lending $(1.7) $1.7 $-- $-- $ --
Foreign lending .5 .7 1.2 .5 1.7
------------- -------- ----------- ----------- --------
Total $(1.2) $2.4 $1.2 $.5 $1.7
===== ==== ==== === ====
Excluding the effects of foreign currency translation adjustments, the
company-wide average balance of pawn loans outstanding was .8% lower during the
current period than the prior
Page 20
year period. On a segment basis, the average balances of pawn loans were 2.5%
lower and 2.5% higher for the domestic and foreign lending operations,
respectively. The decrease in the average balance of domestic pawn loans
outstanding was driven by a 3.5% decline in the average number of pawn loans
outstanding during the current period, partially offset by a 1.1% increase in
the average amount per loan. Management believes that the decrease in the number
of domestic pawn loans was partly attributable to some customers choosing to
satisfy their short-term borrowing needs through a cash advance instead of
through a pawn loan and also due to larger than usual per capita tax refunds
believed to have been received by pawn loan customers in the first quarter of
2002. While average domestic pawn loan balances were lower in the current period
compared to the prior year period, strong pawn loan demand during the current
quarter and the non-recurrence of the Internal Revenue Service's advance tax
refunds in August and September of 2001 have contributed to higher loan balances
at the end of the current period. Domestic pawn loan balances at September 30,
2002 were $1.2 million, or 1.5%, higher than at September 30, 2001. Management
believes that this trend will continue throughout the remainder of 2002. The
average balance of pawn loans outstanding denominated in their local currencies
increased 6.8% and decreased 3.9% in the United Kingdom and Sweden,
respectively. Foreign loan demand was mixed as the average number of pawn loans
outstanding in the United Kingdom and Sweden increased 4.3% and decreased 6.9%,
respectively. Average amounts per loan were higher for both the United Kingdom
and Sweden by 2.4% and 3.2%, respectively.
Excluding the effects of foreign currency translation adjustments, the
consolidated annualized loan yield was 100.0% in the current year period,
compared to 97.9% in the prior year period. There was an increase in the
domestic annualized loan yield to 125.2% for the current year period, compared
to 122.0% for the prior year period. A slightly higher concentration of extended
or renewed loans in the portfolio and higher redemption rates have contributed
to the higher domestic loan yield. The blended yield on average foreign pawn
loans outstanding increased to 55.2% in the current year period compared to
52.7% in the prior year period. The increase in the blended foreign yield was
caused by a combination of higher loan redemption rates and higher yield on the
disposition of unredeemed collateral at auction.
Favorable currency translation adjustments contributed $.5 million to
the increase in foreign source finance and service charges in the current period
as compared to the prior year period as the British pound and Swedish kroner
were stronger relative to the United States dollar. The weighted average
exchange rates used for translating earnings into dollars were 3.2% higher for
both the pound and the kronor during the current period compared to the prior
year period.
NET REVENUE FROM THE DISPOSITION OF MERCHANDISE. The combination of increased
proceeds and a slightly higher margin resulted in a $3.6 million, or 6.3%,
increase in net revenue from the disposition of merchandise. The following table
summarizes, by operating segment, the change in the proceeds from the
disposition of merchandise and the related net margin for the current period
compared to the prior year period ($ in millions):
Increase (decrease)
----------------------------------------------------
Disposition % Net %
Proceeds Change Margin Change
----------- ---------- --------- ------------
Domestic lending $11.1 7.0% $2.7 4.9%
Foreign lending 2.0 31.2% .9 61.5%
----------- ---------- --------- ------------
Total $13.1 7.9% $3.6 6.3%
=========== ========== ========= ============
Proceeds from the disposition of merchandise were $13.1 million, or 7.9%, higher
than in the prior year period, primarily due to an increase in volume of items
sold and an increase in the
Page 21
disposition of scrap gold jewelry. The consolidated merchandise turnover rate
increased to 2.8 times during the current period as compared to 2.6 times during
the prior year period, and the margin on disposition of merchandise decreased
slightly to 34.1% in the current period from 34.7% in the prior year period.
Excluding the effect of the disposition of scrap jewelry, the margin on
disposition of merchandise increased slightly to 36.6% in the current period
compared to 36.3% in the prior year period. The margin on disposition of scrap
jewelry was 15.3% in the current period compared to 10.3% in the prior year
period due to the prevailing market price of gold.
CASH ADVANCE FEES. Cash advance fees increased $9.9 million to $12.8 million in
the current period as compared to $2.9 million in the prior year period. The
increase resulted from higher demand for the small consumer cash advance product
which generated higher balances outstanding. The Company began offering small
consumer cash advances in 2000.
The amount of cash advances written increased $54.5 million to $82.1
million in the current period from $27.6 million in the prior year period. The
$82.1 million in cash advances written in the current period includes $70.0
million extended to customers by the Bank. The average amount per cash advance
increased to $282 from $248. The combined portfolio of cash advances generated
$14.4 million in revenue during the current period compared to $4.3 million in
the prior year period.
CHECK CASHING ROYALTIES AND FEES. Check cashing revenue for Mr. Payroll
increased $.2 million, or 5.2%, in the current period, while check cashing fees
for the United Kingdom operations increased $.1 million, or 19.8% for the same
period.
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expense as a percentage of net revenue was 75.8% in the current
period compared to 77.8% in the prior year period. These expenses increased $8.8
million, or 7.6%, in the current period compared to the prior year period.
Domestic lending expenses increased $7.1 million, primarily as a result of
higher health insurance costs and higher incentive expenses associated with the
improvement in operating results. Foreign lending operations expenses increased
$1.6 million primarily due to an increase in the number of locations in the
United Kingdom and higher administration costs. Mr. Payroll's expenses increased
$.1 million in the current period compared to the prior year period, primarily
due to higher marketing costs.
CASH ADVANCE LOSS PROVISION. The cash advance loss provision for domestic
lending operations increased $3.6 million to $4.5 million in the current period
as compared to $.9 million in the prior year period due to the increase in the
size of the portfolio. Loss provision as a percentage of cash advance fees
increased to 35.4% in the current period from 32.1% in the prior year period.
This increase reflects the changes made to the Company's agreement with the Bank
in August 2001. While the new agreement provided for a higher administrative
fee, the cash advance loss provision increased as the Company began providing
for estimated losses on active cash advances owned by the Bank prior to the date
any amounts are assigned to the Company for collection. See Notes 4 and 5 of
Notes to Consolidated Financial Statements.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a
percentage of net revenue was 6.8% in the current period compared to 8.4% in the
prior year period. Total depreciation and amortization expenses decreased $1.4
million, or 10.8%. A $2.3 million decline in amortization due to the adoption of
SFAS 142 was partially offset by a $.7 million increase in depreciation expense
associated with the completion of the reconstruction of the Company's corporate
headquarters late 2001 after it was severely damaged by a tornado in March 2000
and a $.2 million increase in depreciation from other additions.
Page 22
INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined
to 4.0% in the current period from 5.3% in the prior year period. The amount
decreased a net $1.3 million, or 16.5%, due to the effect of lower blended
borrowing costs accompanied by a 3.2% reduction in the Company's average debt
balance. The effective blended borrowing cost decreased to 5.3% in the current
period from 6.1% in the prior year period. The average amount of debt
outstanding decreased during the current period to $166.7 million from $172.2
million during the prior year period.
LOSS FROM DERIVATIVE VALUATION FLUCTUATIONS. The adjustments to fair values of
interest rate cap agreements during the current period resulted in a loss of $.2
million compared to a loss of $.6 million in the prior year period.
INCOME TAXES. The Company's effective tax rate for the period ended September
30, 2002 was 36.0% as compared to 38.7% for the period ended September 30, 2001.
Excluding goodwill amortization and the related tax effects in the prior year
period, the Company's comparable consolidated effective tax rate was 34.5% for
the prior year period.. The Company's consolidated effective tax rate for the
current period was impacted by an increase in the effective foreign tax rate and
by a higher proportionate increase in domestic income, which is subject to a
higher rate of tax.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operating activities
of continuing operations was $26.4 million for the nine months ended September
30, 2002 (the "current period").
CASH FLOWS FROM INVESTING ACTIVITIES. An increase in the Company's investment in
pawn loans and cash advances during the current period required $9.5 million of
cash. Additionally, the Company invested $8.4 million in purchases of property
and equipment during the current period for property improvements, the
remodeling of selected operating units and additions to computer systems for
lending operations. Approximately $1.2 million of this amount was related to the
reconstruction of the Company's corporate headquarters. During the current
period, the Company acquired four lending locations for $3.7 million.
Management anticipates that capital expenditures for the remainder of
2002 will be approximately $1.5 million. These expenditures will primarily
relate to the remodeling of selected operating units and enhancements to
information systems. In addition, the Company may add up to 5 new lending
locations, primarily through the acquisition of existing locations.
CASH FLOWS FROM FINANCING ACTIVITIES. The Company received proceeds of $42.5
million from the issuance of long-term note obligations and used cash to make
payments of $49.6 million on bank lines of credit and other debt obligations,
$.9 million for dividends, and $1.8 million for the purchase of treasury shares.
On July 25, 2002, the Company announced that its Board of Directors authorized
management to purchase up to one million shares of its common stock in the open
market and terminated the open market purchase authorization established in
2000. During 2002, the Company purchased 66,000 shares for an aggregate amount
of $.5 million under the 2002 authorization and 176,700 shares for an aggregate
amount of $1.3 million under the 2000 authorization. Additional purchases may be
made from time to time in the open market, and it is expected that funding will
come from operating cash flow.
During August 2002, the Company issued $42,500,000 of 7.20% senior
unsecured notes, due August 2009. The notes are payable in five equal annual
payments beginning August 2005. The Company also refinanced its U.S. line of
credit during August 2002, with a $90,000,000
Page 23
senior unsecured revolving line of credit maturing August 2005. Interest on the
line of credit will be charged, at the Company's option, at either LIBOR
(1.8125% at September 30, 2002) plus a margin or at the Agent's base rate. The
margin on the line of credit varies from 1.25% to 2.50%, depending on the
Company's ratio of indebtedness to cash flow as defined in the agreement. Net
proceeds received under these agreements were used to reduce existing
indebtedness and will be utilized for general corporate purposes. The Company is
in compliance with all covenants or other requirements set forth in its credit
agreements.
The Company extended its multi-currency line of credit for one year to
April 30, 2004. The terms of this line of credit remain essentially unchanged,
with the exception of a reduction in the maximum amount to Pound
Sterling 15,000,000 (approximately $23.5 million at September 30, 2002) from
Pound Sterling 20,000,000 (approximately $31.4 million at September 30, 2002).
At September 30, 2002, $61.0 million was outstanding on the Company's
$90 million U.S. line of credit. In addition, the Company's Pound Sterling 15
million (approximately $23.5 million at September 30, 2002) multi-currency line
of credit in the United Kingdom had balances outstanding of Pound Sterling 4.6
million (approximately $7.2 million at September 30, 2002) and SEK 50.0 million
(approximately $5.4 million at September 30, 2002) related to operations in the
United Kingdom and Sweden, respectively.
Management believes that borrowings available under these credit
facilities, cash generated from operations and current working capital of $186.3
million should be sufficient to meet the Company's anticipated future capital
requirements.
Page 24
DOMESTIC LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data for the Company's
domestic lending operations as of September 30, 2002 and 2001, and for the three
months then ended.
2002 2001 Change
- --------------------------------------------------------------------------------------------------------
REVENUE
Finance and service charges $ 24,167 $ 23,334 4%
Proceeds from disposition of merchandise 50,447 49,261 2%
Cash advance fees 5,088 1,435 255%
- --------------------------------------------------------------------------------------------------------
TOTAL REVENUE 79,702 74,030 8%
- --------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 32,670 31,813 3%
- --------------------------------------------------------------------------------------------------------
NET REVENUE $ 47,032 $ 42,217 11%
========================================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 51.4% 55.3% (7)%
Margin on disposition of merchandise 37.8% 41.3% (8)%
Cash advance fees 10.8% 3.4% 218%
Expenses as a percentage of net revenue--
Operations and administration 79.5% 82.4% (3)%
Cash advance loss provision 4.4% 1.3% 238%
Depreciation and amortization 6.5% 7.9% (18)%
Interest, net 2.7% 3.0% (7)%
Income from operations as a percentage of total revenue 5.6% 4.8% 17%
Annualized yield on pawn loans 121.8% 115.4% 6%
Average pawn loan balance outstanding $ 78,725 $ 80,257 (2)%
Average pawn loan balance per average location in operation $ 198 $ 198 -- %
Average pawn loan amount at end of period (not in thousands) $ 81 $ 80 1%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 35.2% 35.4% (1)%
Average annualized merchandise turnover 2.6X 2.2x 18%
Average merchandise held for disposition balance
per average location $ 123 $ 139 (11)%
Owned locations in operation--
Beginning of period 398 405
Acquired -- 1
Combined or closed (1) (1)
End of period 397 405 (2)%
Additional franchise locations at end of period 13 15 (13)%
Total locations at end of period 410 420 (2)%
Average number of owned locations in operation 398 405 (2)%
========================================================================================================
Page 25
DOMESTIC LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data for the Company's
domestic lending operations as of September 30, 2002 and 2001, and for the nine
months then ended.
2002 2001 Change
- ----------------------------------------------------------------------------------------------------------
REVENUE
Finance and service charges $ 69,170 $ 69,149 -- %
Proceeds from disposition of merchandise 170,097 158,968 7%
Cash advance fees 12,834 2,862 348%
- ----------------------------------------------------------------------------------------------------------
TOTAL REVENUE 252,101 230,979 9%
- ----------------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 111,474 103,076 8%
- ----------------------------------------------------------------------------------------------------------
NET REVENUE $ 140,627 $ 127,903 10%
==========================================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 49.2% 54.1% (9)%
Margin on disposition of merchandise 41.7% 43.7% (5)%
Cash advance fees 9.1% 2.2% 314%
Expenses as a percentage of net revenue--
Operations and administration 78.9% 81.2% (3)%
Cash advance loss provision 3.2% .7% 357%
Depreciation and amortization 6.3% 8.1% (22)%
Interest, net 2.5% 2.9% (15)%
Income from operations as a percentage of total revenue 6.4% 5.6% 14%
Annualized yield on pawn loans 125.2% 122.0% 3%
Average pawn loan balance outstanding $ 73,873 $ 75,753 (2)%
Average pawn loan balance per average location in operation $ 184 $ 187 (1)%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 34.5% 35.2% (2)%
Average annualized merchandise turnover 2.9X 2.6x 10%
Average merchandise held for disposition balance
per average location $ 130 $ 133 (2)%
Owned locations in operation--
Beginning of period 404 410
Acquired 2 2
Start-ups -- 1
Combined or closed (9) (8)
End of period 397 405 (2)%
Additional franchise locations at end of period 13 15 (13)%
Total locations at end of period 410 420 (2)%
Average number of owned locations in operation 401 406 (1)%
==========================================================================================================
Page 26
FOREIGN LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data in
U.S. dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of September
30, 2002 and 2001, and for the three months then ended, using the following
currency exchange rates:
- -----------------------------------------------------------------------------------------------------
2002 2001 Change
- -----------------------------------------------------------------------------------------------------
Harvey & Thompson, Ltd. (British pound sterling per U.S. dollar)--
Balance sheet data - end of period rate .6375 .6785 6%
Statements of operations data - average rate for the period .6449 .6954 7%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Balance sheet data - end of period rate 9.2678 10.6887 13%
Statements of operations data - average rate for the period 9.3858 10.5571 11%
=====================================================================================================
REVENUE
Finance and service charges $ 6,363 $ 5,351 19%
Proceeds from disposition of merchandise 2,797 2,194 27%
Check cashing fees 275 208 32%
- -----------------------------------------------------------------------------------------------------
TOTAL REVENUE 9,435 7,753 22%
- -----------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 1,886 1,579 19%
- -----------------------------------------------------------------------------------------------------
NET REVENUE $ 7,549 $ 6,174 22%
=====================================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 84.3% 86.7% (3)%
Margin on disposition of merchandise 12.1% 10.0% 21%
Check cashing fees 3.6% 3.3% 9%
Expenses as a percentage of net revenue--
Operations and administration 55.7% 56.5% (1)%
Depreciation and amortization 8.7% 8.7% -- %
Interest, net 1.7% 2.8% (39)%
Income from operations as a percentage of total revenue 28.4% 27.7% 3%
Annualized yield on loans 55.0% 53.1% 4%
Average pawn loan balance outstanding $45,940 $39,963 15%
Average loan balance per average location in operation $ 806 $ 727 11%
Average loan amount at end of period (not in thousands) $ 179 $ 155 16%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 32.6% 28.0% 16%
Average annualized merchandise turnover 1.9X 2.2x (13)%
Average merchandise held for disposition balance
per average location $ 68 $ 51 33%
Lending locations in operation--
Beginning of period 56 53
Acquired 2 3
Start-ups 1 --
End of period 59 56 5%
Average number of locations in operation 57 55 4%
=====================================================================================================
Page 27
FOREIGN LENDING OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data in
U.S. dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of September
30, 2002 and 2001, and for the nine months then ended, using the following
currency exchange rates:
- ----------------------------------------------------------------------------------------------------
2002 2001 Change
- ----------------------------------------------------------------------------------------------------
Harvey & Thompson, Ltd. (British pound sterling per U.S. dollar)--
Statements of operations data - average rate for the period .6733 .6957 3%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Statements of operations data - average rate for the period 9.9301 10.2596 3%
====================================================================================================
REVENUE
Finance and service charges $17,636 $15,943 11%
Proceeds from disposition of merchandise 8,460 6,450 31%
Check cashing fees 701 585 20%
- ----------------------------------------------------------------------------------------------------
TOTAL REVENUE 26,797 22,978 17%
- ----------------------------------------------------------------------------------------------------
COSTS OF REVENUE
Disposed merchandise 6,148 5,018 23%
- ----------------------------------------------------------------------------------------------------
NET REVENUE $20,649 $17,960 15%
====================================================================================================
OTHER DATA
Net revenue contribution by source--
Finance and service charges 85.4% 88.8% (4)%
Margin on disposition of merchandise 11.2% 8.0% 40%
Check cashing fees 3.4% 3.2% 5%
Expenses as a percentage of net revenue--
Operations and administration 56.9% 56.5% 1%
Depreciation and amortization 8.9% 8.6% 3%
Interest, net 2.0% 3.3% (39)%
Income from operations as a percentage of total revenue 26.4% 27.3% (3)%
Annualized yield on pawn loans 55.1% 52.7% 5%
Average pawn loan balance outstanding $42,800 $40,486 6%
Average pawn loan balance per average location in operation $ 751 $ 750 --%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 27.3% 22.2% 23%
Average annualized merchandise turnover 2.3X 2.4x (5)%
Average merchandise held for disposition balance
per average location $ 63 $ 51 24%
Lending locations in operation--
Beginning of period 56 53
Acquired 2 3
Start-ups 1 --
End of period 59 56 5%
Average number of locations in operation 57 54 6%
====================================================================================================
Page 28
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
- --------------------------------------------------------------------------------
This quarterly report, including management's discussion and analysis, contains
statements that are forward-looking, as that term is defined by the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules. The Company intends that all forward-looking statements
be subject to the safe harbors created by these laws and rules. When used in
this quarterly report, the words "believes", "estimates", "plans", "expects",
"anticipates", and similar expressions as they related to the Company or its
management are intended to identify forward-looking statements. All
forward-looking statements are based on current expectations regarding important
risk factors. These risks and uncertainties are beyond the ability of the
Company to control, and, in many cases, the Company cannot predict all of the
risks and uncertainties that could cause its actual results to differ materially
from those expressed in the forward-looking statements. Accordingly, actual
results may differ materially from those expressed in the forward-looking
statements, and such statements should not be regarded as a representation by
the Company or any other person that the results expressed in the statements
will be achieved. Important risk factors include, but are not limited to, the
following:
- Changes in customer demand for the Company's products and specialty
financial services;
- The actions of third-parties who offer products and services at the
Company's locations;
- The ability of the Company to open and acquire new operating units
in accordance with its plans;
- Changes in competition from various sources such as banks, savings
and loans, short-term consumer lenders, and other similar financial
services entities, as well as retail businesses that offer products
and services offered by the Company;
- Changes in economic conditions;
- Real estate market fluctuations;
- Interest rate fluctuations;
- Changes in the capital markets;
- Changes in tax and other laws and governmental rules and regulations
applicable to the specialty financial services industry;
- Other risks indicated in the Company's filings with the Securities
and Exchange Commission; and
- Other factors discussed under Quantitative and Qualitative
Disclosures about Market Risk in the Company's 2001 Annual Report to
Stockholders.
Page 29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates, foreign exchange rates, and gold prices. The Company
does not engage in speculative or leveraged transactions, nor does it hold or
issue financial instruments for trading purposes. There have been no material
changes to the Company's exposure to market risks since December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, management of the Company
has evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934) as of a date (the
"Evaluation Date") within 90 days prior to the filing date of this
report. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in timely
alerting them to the material information relating to the Company
required to be included in its periodic filings with the Securities and
Exchange Commission.
(b) During the period covered by this report, there were no significant
changes in the Company's internal controls or, to management's
knowledge, in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
Page 30
PART II
Item 1. LEGAL PROCEEDINGS
See Note 11 of Notes to Consolidated Financial Statements
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350
(b) Reports on Form 8-K
(1) On August 14, 2002, the Company filed a Report on Form 8-K
to report under Item 9 that it had attached as Exhibits to
the Report the Certifications of its Chief Executive
Officer and its Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. The
Certifications accompanied the Company's quarterly report
on Form 10-Q for the quarter ended June 30, 2002, as filed
with the Securities and Exchange Commission on August 14,
2002.
(2) On August 15, 2002, the Company filed a Report on Form
8-K to report under Item 5 that it had issued $42,500,000
of 7.20% senior unsecured notes, due August 12, 2009,
pursuant to the Note Agreement dated as of August 12, 2002
among the Company and the "Purchasers" named therein
Page 31
(the "Note Agreement"), and that the Company had also
obtained a new line of credit of $90,000,000 pursuant to
the Credit Agreement among the Company, certain lenders
named therein, and Wells Fargo Bank Texas, National
Association, as Administrative Agent, dated as of August
14, 2002 (the "Credit Agreement"). Copies of the Note
Agreement and Credit Agreement were filed with the Report
as Exhibits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASH AMERICA INTERNATIONAL, INC.
--------------------------------------
(Registrant)
By: /s/ Thomas A. Bessant, Jr.
--------------------------------
Thomas A. Bessant, Jr.
Executive Vice President and
Chief Financial Officer
Date: October 31, 2002
Page 32
CERTIFICATION
I, Daniel R. Feehan, Chief Executive Officer and President of Cash
America International, Inc. ("registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 31, 2002
/s/ Daniel R. Feehan
- --------------------------------------
Daniel R. Feehan
Chief Executive Officer and President
Page 33
CERTIFICATION
I, Thomas A Bessant, Jr., Executive Vice President and Chief Financial
Officer of Cash America International, Inc. ("registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 31, 2002
/s/ Thomas A. Bessant, Jr.
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Thomas A. Bessant, Jr.
Executive Vice President and
Chief Financial Officer
Page 34
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350