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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 March 31, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
24,234,309 common shares, $.10 par value, were outstanding as of April 15, 2003
CASH AMERICA INTERNATIONAL, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL STATEMENTS
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2003
and 2002 and December 31, 2002.................................................... 1
Consolidated Statements of Operations - Three Months
Ended March 31, 2003 and 2002..................................................... 2
Consolidated Statements of Stockholders' Equity -
Three Months Ended March 31, 2003 and 2002........................................ 3
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2003 and 2002........................................ 4
Notes to Consolidated Financial Statements........................................ 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition..................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................ 23
Item 4. Controls and Procedures........................................................... 23
PART II. OTHER INFORMATION....................................................................... 24
SIGNATURES........................................................................................ 25
CERTIFICATIONS.................................................................................... 26
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED)
...........................................................................................................................
March 31, December 31,
2003 2002 2002
--------- --------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,256 $ 7,293 $ 3,951
Pawn loans 121,581 105,603 127,388
Cash advances, net 7,148 1,258 2,210
Merchandise held for disposition, net 49,216 55,101 54,444
Finance and service charges receivable 19,371 17,403 21,096
Other receivables and prepaid expenses 7,492 6,416 8,671
Deferred tax assets 4,759 7,437 5,392
Net current assets of discontinued operations -- 3,175 --
--------- --------- ---------
Total current assets 214,823 203,686 223,152
Property and equipment, net 66,929 67,302 67,254
Goodwill 80,658 77,058 79,833
Other assets 3,518 5,559 6,239
Deferred tax assets -- 1,470 --
Net non-current assets of discontinued operations -- 5,424 --
--------- --------- ---------
Total assets $ 365,928 $ 360,499 $ 376,478
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,783 $ 17,182 $ 24,297
Customer deposits 4,455 4,542 4,050
Reserve for disposal of discontinued operations 503 7,722 623
Income taxes currently payable 3,693 2,752 2,086
Current portion of long-term debt 12,571 8,671 12,571
--------- --------- ---------
Total current liabilities 42,005 40,869 43,627
Deferred tax liabilities 4,874 1,699 4,385
Long-term debt 121,764 146,388 136,131
--------- --------- ---------
Stockholders' equity:
Common stock, $.10 par value per
share, 80,000,000 shares authorized 3,024 3,024 3,024
Paid in surplus 127,819 127,821 127,819
Retained earnings 119,743 100,088 113,278
Accumulated other comprehensive loss (3,208) (11,630) (2,718)
Notes receivable - stockholders (5,864) (5,890) (5,864)
--------- --------- ---------
241,514 213,413 235,539
Less -- shares held in treasury, at cost (44,229) (41,870) (43,204)
--------- --------- ---------
Total stockholders' equity 197,285 171,543 192,335
--------- --------- ---------
Total liabilities and stockholders' equity $ 365,928 $ 360,499 $ 376,478
========= ========= =========
See notes to consolidated financial statements.
1
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) (UNAUDITED)
................................................................................................................
Three Months Ended
March 31,
2003 2002
--------- ---------
REVENUE
Finance and service charges $ 31,455 $ 28,820
Proceeds from disposition of merchandise 66,119 67,034
Cash advance fees 6,466 3,562
Check cashing royalties and fees 1,465 1,304
--------- ---------
TOTAL REVENUE 105,505 100,720
--------- ---------
COSTS OF REVENUE
Disposed merchandise 41,554 43,881
--------- ---------
NET REVENUE 63,951 56,839
--------- ---------
OPERATING EXPENSES
Lending operations 36,540 34,006
Cash advance loss provision 1,332 901
Check cashing operations 430 439
Administration 8,995 7,497
Depreciation and amortization 3,689 3,586
--------- ---------
Total operating expenses 50,986 46,429
--------- ---------
INCOME FROM OPERATIONS 12,965 10,410
Interest expense, net 2,176 2,243
Loss from derivative valuation fluctuations -- 36
--------- ---------
Income before income taxes 10,789 8,131
Provision for income taxes 4,020 2,928
--------- ---------
NET INCOME $ 6,769 $ 5,203
========= =========
Net income per share:
Basic $ 0.28 $ 0.21
Diluted 0.27 0.21
Weighted average common shares outstanding:
Basic 24,242 24,521
Diluted 24,784 24,862
See notes to consolidated financial statements.
2
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(In thousands, except share data) (UNAUDITED)
...................................................................................................................................
Accumu-
lated
Other
Compre- Compre- Notes
Common Stock hensive hensive Receivable - Treasury Stock
------------------- Paid In Retained Income Income Stock- -------------------
Shares Amount Surplus Earnings (Loss) (Loss) holders Shares Amount
---------- ------ -------- -------- ------- --------- ------------ --------- --------
Balance at
December 31, 2002 30,235,164 $3,024 $127,819 $113,278 $ (2,718) $(5,864) 5,939,794 $(43,204)
Comprehensive income:
Net income 6,769 $ 6,769
Other comprehensive
loss - Foreign
currency translation
adjustments (490) (490)
-------
Comprehensive income $ 6,279
-------
Dividends declared--
$.0125 per share (304)
Treasury shares purchased 116,573 (1,025)
---------- ------ -------- -------- ------- -------- ------- --------- --------
Balance at
March 31, 2003 30,235,164 $3,024 $127,819 $119,743 $ (3,208) $(5,864) 6,056,367 $(44,229)
========== ====== ======== ======== ======= ======== ======= ========= ========
Balance at
December 31, 2001 30,235,164 $3,024 $127,821 $ 95,192 $(10,820) $(5,890) 5,643,318 $(40,896)
Comprehensive income:
Net income 5,203 $ 5,203
Other comprehensive
loss - Foreign
currency translation
adjustments (810) (810)
-------
Comprehensive income $ 4,393
-------
Dividends declared--
$.0125 per share (307)
Treasury shares purchased 136,599 (974)
---------- ------ -------- -------- ------- -------- ------- --------- --------
Balance at
March 31, 2002 30,235,164 $3,024 $127,821 $100,088 $(11,630) $(5,890) 5,779,917 $(41,870)
========== ====== ======== ======== ======= ======== ======= ========= ========
See notes to consolidated financial statements.
3
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (UNAUDITED)
....................................................................................................................................
Three Months Ended
March 31,
2003 2002
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,769 $ 5,203
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,689 3,586
Cash advance loss provision 1,332 901
Loss from derivative valuation fluctuations -- 36
Changes in operating assets and liabilities-
Merchandise held for disposition 5,166 8,305
Finance and service charges receivable 1,744 1,948
Other receivables and prepaid expenses 3,192 (338)
Accounts payable and accrued expenses (3,632) (10,975)
Customer deposits, net 405 581
Current income taxes 1,625 1,644
Deferred taxes, net 1,093 731
----------- ----------
Net cash provided by operating activities of continuing operations 21,383 11,622
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Pawn loans forfeited and transferred to merchandise held for disposition 31,657 31,740
Pawn loans repaid or renewed 77,811 71,697
Pawn loans made, including loans renewed (103,221) (92,512)
----------- ----------
Net decrease in pawn loans 6,247 10,925
----------- ----------
Cash advances repaid or renewed 15,230 7,700
Cash advances made, assigned or purchased (20,752) (7,976)
----------- ----------
Net increase in cash advances (5,522) (276)
----------- ----------
Acquisitions, net of cash acquired (1,937) (1,044)
Purchases of property and equipment (3,241) (2,371)
----------- ----------
Net cash (used) provided by investing activities (4,453) 7,234
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments under bank lines of credit (9,995) (12,068)
Payments on notes payable and capital lease obligations (4,286) (4,635)
Treasury shares purchased (1,025) (974)
Dividends paid (304) (307)
----------- ----------
Net cash used by financing activities (15,610) (17,984)
----------- ----------
Effect of exchange rate changes on cash (15) 20
----------- ----------
Cash provided by continuing operations 1,305 892
Cash provided by discontinued operations -- 7
Cash and cash equivalents at beginning of period 3,951 6,394
----------- ----------
Cash and cash equivalents at end of period $ 5,256 $ 7,293
=========== ==========
See notes to consolidated financial statements.
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. See
Note 3.
The financial statements as of March 31, 2003 and 2002, and for the
three month periods then ended are unaudited but, in management's opinion,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such interim periods.
Operating results for the three month period are not necessarily indicative of
the results that may be expected for the full fiscal year.
Certain amounts in the consolidated financial statements for the three
month period ended March 31, 2002, have been reclassified to conform to the
presentation format adopted in 2003. 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 2002 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 that
merchandise is sold. Interim customer payments for layaway sales are recorded as
customer deposits 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. To repay the cash advance, customers may redeem their check
by paying cash or they may allow the check to be presented for collection. The
Company accrues fees and interest on cash advances on a constant yield basis
ratably over their terms. For those locations that offer cash advances from a
third-party financial institution, the Company receives an administrative
service fee for services provided on the institution's behalf. These fees are
recorded in revenue when earned.
5
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.
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 of $503,000 at March 31, 2003
consists primarily of expected future operating lease obligations (net of
sublease income) for closed stores.
The Company guaranteed obligations under certain operating leases for
the premises related to the 22 Rent-A-Tire stores included in the asset sale
agreement. In the event the buyer is unable to perform under the operating
leases, the Company's maximum aggregate contingent obligation under these
guarantees was approximately $1,259,000 at March 31, 2003. This amount will be
reduced dollar-for-dollar by future amounts paid on these operating leases by
the buyer. In the event that the buyer fails to perform and the Company is
required to make payments under these leases, the Company will seek to mitigate
its losses by subleasing the properties.
4. SMALL CONSUMER CASH ADVANCES AND ALLOWANCE FOR LOSSES
Cash advances are generally offered for a term of 7 to 45 days,
depending on the customer's next payday. The Company originates cash advances in
some of its locations and markets and services cash advances made by a
third-party bank in other Company locations. The Company recently terminated its
relationship with the national bank that had offered this product in many of its
stores. The Company also recently completed its conversion to a state chartered
bank program.
Under the current program, the Company purchases a participation
interest in the bank originated cash advances, and it also receives an
administrative fee for its services rendered. If the cash advance is unpaid
after its due date, the past due cash advance is assigned to the Company at a
discount from the amount owed by the borrower. One of the reasons for this
practice is to benefit from the use of the Company's collection resources and
proficiency. The Company is responsible for collections on past due cash
advances. As a result, losses on cash advances assigned to the Company that
prove uncollectible are the sole responsibility of the Company. Likewise, to the
extent that the Company collects an amount owed by the customer in
6
excess of the amount assigned by the bank, the Company recognizes the excess
amount in income when collected. Because the Company may not be successful in
the collection of these accounts, the Company's overall allowance for losses
includes estimates for these cash advance losses, while active in the
third-party bank's portfolio, at a level projected to be adequate to absorb
credit losses inherent in the outstanding portfolio.
Cash advances outstanding at March 31, 2003 and 2002 were as follows
(in thousands):
2003 2002
-------- --------
Originated by the Company
Active cash advances and fees receivable $ 1,073 $ 685
Cash advances and fees in collection 238 152
-------- --------
Total originated by the Company 1,311 837
-------- --------
Originated by banks
Active cash advances and fees receivable 6,017 3,290
Cash advances and fees in collection 1,885 1,092
-------- --------
Total originated by banks 7,902 4,382
-------- --------
Combined gross portfolio 9,213 5,219
Less:
Elimination of cash advances owned by banks 465 3,290
Discount on cash advances assigned by banks 237 176
-------- --------
Company cash advances and fees receivable, gross 8,511 1,753
Less: Allowance for losses 1,363 495
-------- --------
Cash advances and fees receivable, net $ 7,148 $ 1,258
======== ========
Changes in the allowance for losses on cash advances for the three
month periods ended March 31, were as follows (in thousands):
2003 2002
--------- --------
Balance at beginning of period $ 1,748 $ 711
Cash advance loss provision 1,332 901
Charge-offs (2,463) (1,697)
Recoveries 746 580
--------- --------
Balance at end of period $ 1,363 $ 495
========= ========
Balance as a % of combined gross portfolio 14.8% 9.5%
========= ========
Cash advance loss provision as a % of combined advances written 3.5% 4.2%
========= ========
Charge-offs (net of recoveries) as a % of combined advances written 4.5% 5.2%
========= ========
Cash advances assigned to the Company by the banks for collection were
$6,652,000 and $4,726,000, for the three months ended March 31, 2003 and 2002,
respectively. The Company's participation interest in bank originated cash
advances at March 31, 2003 was $3,828,000.
7
5. WEIGHTED AVERAGE SHARES
The reconciliation of basic and diluted weighted average common shares
outstanding for the periods ended March 31, was as follows (in thousands):
2003 2002
------- -------
Weighted average shares - Basic 24,242 24,521
Effect of shares applicable to stock option plans 475 268
Effect of shares applicable to nonqualified savings plan 67 73
------- -------
Weighted average shares - Diluted 24,784 24,862
======= =======
6. ACQUISITIONS
During the three months ended March 31, 2003, the Company acquired three
pawnshops, one check cashing franchise and other earning assets in purchase
transactions for an aggregate cash consideration of $1,937,000. The excess of
the aggregate purchase price over the aggregate fair market value of net assets
acquired was approximately $960,000.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets having an indefinite useful life are tested
for impairment annually at June 30 or more frequently if events or changes in
circumstances indicate that the assets might be impaired.
Goodwill - The changes in the carrying value of goodwill for the three month
periods ended March 31, were as follows (in thousands):
Lending
--------------------------------------
United Check
States Foreign Total Cashing Consolidated
------- -------- -------- ------- ------------
Balance as of January 1, 2003,
net of amortization of $23,365 $59,591 $ 15,059 $ 74,650 $5,183 $ 79,833
Acquired goodwill 144 689 833 127 960
Foreign translation impact -- (135) (135) -- (135)
------- -------- -------- ------ --------
Balance as of March 31, 2003 $59,735 $ 15,613 $ 75,348 $5,310 $ 80,658
======= ======== ======== ====== ========
Balance as of January 1, 2002,
net of amortization of $24,224 $59,050 $ 12,453 $ 71,503 $5,183 $ 76,686
Acquired goodwill 554 -- 554 -- 554
Foreign translation impact -- (182) (182) -- (182)
------- -------- -------- ------ --------
Balance as of March 31, 2002 $59,604 $ 12,271 $ 71,875 $5,183 $ 77,058
======= ======== ======== ====== ========
8
Acquired Intangible Assets - Acquired intangible assets that are subject to
amortization as of March 31, were as follows (in thousands):
2003 2002
------------------------------------ --------------------------------------
Gross Accumulated Gross Accumulated
Amount Amortization Net Amount Amortization Net
------ ------------ ---- ------ ------------ ----
Noncompete agreements $1,197 $(758) $439 $4,116 $(3,314) $802
Other 130 (73) 57 231 (159) 72
------ ----- ---- ------ ------- ----
Total $1,327 $(831) $496 $4,347 $(3,473) $874
====== ===== ==== ====== ======= ====
Noncompetition agreements are amortized over the terms of the contract. Net
acquired intangible assets are included in "Other assets" in the accompanying
consolidated balance sheets.
8. LONG-TERM DEBT
The Company's long-term debt instruments and balances outstanding at March 31,
2003 and 2002 were as follows (in thousands):
2003 2002
--------- ---------
U.S. Line of Credit up to $90,000
due August 14, 2005 $ 31,401 $ --
U.S. Line of Credit up to $150,000
due June 30, 2003 (terminated August 14, 2002) -- 86,500
Multi-currency Line of Credit up to L. 15,000
due April 30, 2004 14,720 --
Multi-currency Line of Credit up to L. 20,000
due April 30, 2003 (terminated August 29, 2002) -- 13,974
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 21,428 25,714
7.20% senior unsecured notes due 2009 42,500 --
Other obligations payable -- 300
--------- ---------
134,335 155,059
Less current portion 12,571 8,671
--------- ---------
Total long-term debt $ 121,764 $ 146,388
========= =========
In addition to the long-term debt listed above, the Company has an SEK
15,000,000 line of credit (approximately $1,771,000 at March 31, 2003) that
matures on May 30, 2003. There were no amounts outstanding on this line of
credit as of March 31, 2003 and 2002, respectively.
9. STOCK OPTIONS
Under various plans (the "Plans") it sponsors, the Company is authorized to
issue 8,300,000 shares of common stock pursuant to "Awards" granted as incentive
stock options (intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended) and nonqualified stock options. Stock options granted
under the Plan have contractual terms of 5 to 15 years and have an exercise
price equal to or greater than the fair market value of the stock at grant date.
Stock options granted vest over periods ranging from 1 to 7 years. However, the
7-year vesting periods and certain of the 4-year and 5-year vesting periods
accelerate if specified share price
9
appreciation criteria are met. No such accelerated vesting of stock options
occurred during the three months ended March 31, 2003 and 2002.
The Company applies the intrinsic value based method of accounting for
the Plans and, accordingly, no compensation cost has been recognized. If
compensation costs for the Company's stock options had been determined using the
fair value accounting provisions of Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation", the Company's net income and
related amounts per share, basic and diluted, for each of the three months ended
March 31 would have been reported as follows (in thousands, except per share
amounts):
2003 2002
-------- --------
Net income - as reported $ 6,769 $ 5,203
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards(1), net of related tax effects 414 234
-------- --------
Net income - pro forma $ 6,355 $ 4,969
======== ========
Net income per share
Basic:
As reported $ 0.28 $ 0.21
Pro forma 0.26 0.20
Diluted:
As reported $ 0.27 $ 0.21
Pro forma 0.26 0.20
(1) "All awards" refers to awards granted, modified, or settled in fiscal
periods beginning after December 15, 1994, that is, awards for which
the fair value was required to be measured under SFAS 123.
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model. For options granted during
the three months ended March 31, the following weighted average assumptions were
used:
2003 2002
---- ----
Expected term (years) 8.4 8.2
Risk-free interest rate 4.13% 5.23%
Expected dividend yield 0.61% 0.63%
Expected volatility 50.1% 56.7%
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. The segment data included below excludes amounts related
to discontinued operations. See Note 3.
10
Information concerning the segments is set forth below (in thousands):
Lending
-----------------------------------------------------------------
United Check
States Foreign Total Cashing Consolidated
-------- ------- -------- ------- ------------
Three Months Ended
March 31, 2003:
Total revenue $ 94,237 $10,185 $104,422 $1,083 $105,505
Income from operations 9,879 2,730 12,609 356 12,965
Total assets at March 31 264,123 93,816 357,939 7,989 365,928
Three Months Ended
March 31, 2002:
Total revenue $ 91,434 $ 8,166 $ 99,600 $1,120 $100,720
Income from operations 7,969 2,099 10,068 342 10,410
Total assets at March 31 268,177 76,443 344,620 7,280 351,900
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.
11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition Summary Consolidated Financial Data
FIRST QUARTER ENDED MARCH 31, 2003 vs.
FIRST QUARTER ENDED MARCH 31, 2002
- -------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected consolidated financial data
with respect to the Company and its lending operations as of March 31, 2003 and
2002, and for the three months then ended.
2003 2002 Change
--------- --------- ------
REVENUE
Finance and service charges $ 31,455 $ 28,820 9%
Proceeds from disposition of merchandise 66,119 67,034 (1)%
Cash advance fees 6,466 3,562 82%
Check cashing royalties and fees 1,465 1,304 12%
--------- --------- ----
TOTAL REVENUE 105,505 100,720 5%
--------- --------- ----
COSTS OF REVENUE
Disposed merchandise 41,554 43,881 (5)%
--------- --------- ----
NET REVENUE $ 63,951 $ 56,839 13%
========= ========= ====
OTHER DATA
CONSOLIDATED OPERATIONS:
Net revenue contribution by source--
Finance and service charges and other fees 49.2% 50.7% (3)%
Margin on disposition of merchandise 38.4% 40.7% (6)%
Cash advance fees 10.1% 6.3% 60%
Check cashing royalties and fees 2.3% 2.3% --
Expenses as a percentage of net revenue--
Operations and administration 71.9% 73.8% (3)%
Cash advance loss provision 2.1% 1.6% 31%
Depreciation and amortization 5.8% 6.3% (8)%
Interest, net 3.4% 3.9% (14)%
Income from operations as a percentage of net revenue 20.3% 18.3% 11%
LENDING OPERATIONS:
Pawn loans
Annualized yield on pawn loans 103.2% 105.8% (3)%
Total amount of pawn loans written $ 103,271 $ 92,512 12%
Average pawn loan balance outstanding $ 123,669 $ 110,465 12%
Average pawn loan balance per average pawnshop location in operation $ 272 $ 240 13%
Average pawn loan amount at end of period (not in thousands) $ 109 $ 100 9%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 37.2% 34.5% 8%
Average annualized merchandise turnover 3.3x 3.0x 9%
Average merchandise held for disposition per average pawnshop location $ 114 $ 130 (12)%
Owned pawnshop locations in operation--
Beginning of period 455 460
Acquired 3 2
Start-ups 1 --
Combined or closed (6) (3)
End of period 453 459 (1)%
Additional franchise locations at end of period 9 13 (31)%
Total pawnshop locations at end of period 462 472 (2)%
Average number of owned pawnshop locations in operation 454 460 (1)%
Small consumer cash advances
Total amount of cash advances written (a) $ 38,211 $ 21,687 76%
Number of cash advances written (not in thousands) (a) 129,737 76,472 70%
Average cash advance amount written (not in thousands) (a) $ 295 $ 284 4%
Combined cash advances outstanding (a) $ 9,213 $ 5,219 77%
Cash advances outstanding per location at end of period (a) $ 24 $ 13 77%
Cash advances outstanding before allowance for losses (b) $ 8,511 $ 1,753 386%
Locations offering advances at end of period:
Pawnshops 384 392 (2)%
Cash advance units 5 -- --
Total 389 392 (1)%
Average number of locations offering cash advances 390 390 --
CHECK CASHING OPERATIONS (c):
Check cashing royalties and fees $ 1,083 $ 1,120 (3)%
Franchised and owned check cashing centers--
Face amount of checks cashed $ 308,528 $ 295,946 4%
Gross fees collected $ 4,612 $ 4,448 4%
Fees as percentage of checks cashed 1.5% 1.5% --
Average check cashed (not in thousands) $ 408 $ 399 2%
Centers in operation at end of period 139 136 2%
Average centers in operation for the period 135 135 --
(a) Includes cash advances made by the Company and cash advances made by
third-party financial institutions.
(b) Amounts recorded in the Company's consolidated financial statements.
(c) Information presented in this section relates to Mr. Payroll. "Check
cashing royalties and fees" on the consolidated statements of
operations also includes United Kingdom check cashing fees.
12
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. As an alternative to a pawn loan, the Company offers unsecured
small consumer cash advances in selected lending locations and on behalf of a
third-party financial institution in other locations. A related activity of the
lending operations is the disposition of merchandise, primarily collateral from
unredeemed pawn loans. The Company also provides check cashing services through
its franchised and company owned Mr. Payroll(R) check cashing centers.
As of March 31, 2003, the Company's lending operations consisted of 462
pawnshops, including 391 owned units and 9 franchised units in 17 states in the
United States, 51 units in the United Kingdom, and 11 units in Sweden. The
foreign operations consist primarily of jewelry-only lending units. The number
of owned pawnshops declined by 7 during the 15 months ended March 31, 2003 as
the Company acquired 7 operating units, established 2 locations, and combined or
closed 16 locations. In addition, 4 franchise units were either closed or
terminated. As of March 31, 2003, the Company's lending operations also
consisted of 5 locations that only offer the cash advance product.
As of March 31, 2003, Mr. Payroll operated 132 franchised and 7 company
owned manned check cashing centers in 20 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
- -------------------------------------------------------------------------------
FIRST QUARTER ENDED MARCH 31, 2003, COMPARED TO THE
FIRST QUARTER ENDED MARCH 31, 2002
CONSOLIDATED NET REVENUE. Consolidated net revenue increased $7.1 million, or
12.5%, to $63.9 million during the first quarter ended March 31, 2003 (the
"current quarter") from $56.8 million during the first quarter ended March 31,
2002 (the "prior year quarter"). The following table sets forth net revenue
results by operating segment for the three-month periods ended March 31 (in
millions):
2003 2002 Increase
------ ------ -----------------
Domestic lending $ 54.7 $ 49.3 $ 5.4 11.0%
Foreign lending 8.1 6.4 1.7 26.6%
------ ------ ----- -----
Total lending 62.8 55.7 7.1 12.7%
Check cashing 1.1 1.1 -- --%
------ ------ ----- -----
Consolidated $ 63.9 $ 56.8 $ 7.1 12.5%
====== ====== ===== =====
13
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 on pawn loans,
and higher net revenue from the disposition of merchandise accounted for the
increase in net revenue.
The components of the increase in net revenue are finance and service
charges from pawn loans, which increased $2.6 million; net revenue from the
disposition of merchandise, which increased $1.4 million; cash advance fees,
which increased $2.9 million; and check cashing royalties and fees, which
increased $0.2 million. Management believes that the trend of higher cash
advance fees and higher finance and service charges on pawn loans will continue
during the remainder of 2003 as a result of the expected continuation of
increased demand for these products and due to the higher balances of cash
advances and pawn loans at the end of the first quarter of 2003 compared to the
prior year.
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
March 31 (in millions):
2003 2002 Increase
------ ------ --------------
Domestic lending $ 24.7 $ 23.3 $ 1.4 6.0%
Foreign lending 6.7 5.5 1.2 21.8%
------ ------ ----- -----
Total $ 31.4 $ 28.8 $ 2.6 9.0%
====== ====== ===== =====
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 for the
current quarter as compared to the prior year quarter (in millions):
Total
Average Before
Balance Loan Foreign Foreign
Outstanding Yield Translation Translation Total
----------- ------- ----------- ----------- ------
Domestic lending $ 0.9 $ 0.5 $ 1.4 $ -- $ 1.4
Foreign lending 0.5 (0.2) 0.3 0.9 1.2
------ ------- ------ ------ ------
Total $ 1.4 $ 0.3 $ 1.7 $ 0.9 $ 2.6
====== ======= ====== ====== ======
Excluding the favorable impact of foreign currency translation, the
company-wide average balance of pawn loans outstanding was 5.6% higher during
the current quarter than the prior year quarter. On a segment basis, the average
balances of pawn loans were 3.6% and 9.1% higher for the domestic and foreign
lending operations, respectively. The increase in the average balance of
domestic pawn loans outstanding was driven by a 1.2% increase in the average
number of pawn loans outstanding during the current quarter coupled with a 2.4%
increase in the average amount per loan. Management believes the higher average
domestic loan balance outstanding is attributable to adverse trends in the U.S.
economy, that were conducive to an increase in loan demand. Aggregate pawn loan
balances at the beginning of the current quarter were $10.8 million higher than
at the beginning of the prior year quarter. Domestic pawn loan balances at March
31, 2003 were $4.8 million, or 7.4%, higher than at March 31, 2002. Management
believes that this trend of higher pawn loan balances will continue throughout
the remainder of 2003. The average balance of pawn loans outstanding denominated
in their local currencies increased 11.7%
14
and 4.9% 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 6.0% and decreased 3.3%, respectively. Average amounts per loan
were higher for both the United Kingdom and Sweden by 5.4% and 8.4%,
respectively.
Domestic pawn loan balances at March 31, 2003 declined $8.7 million, or
11.1%, from December 31, 2002 balances. The decline for the comparable period of
the preceding year was $11.6 million, or 15.1%. The Company historically
experiences a decrease in domestic pawn loan balances during the first quarter
of each year when the Internal Revenue Service processes federal income tax
refunds. Management believes that many customers use a portion of their refund
to repay their loans and purchase items of personal property. Aggregate pawn
loan balances at March 31, 2003 were $5.8 million, or 4.6%, lower than at
December 31, 2002, compared to a $11.0 million, or 9.4%, decrease between the
comparable dates in the preceding year.
Excluding the favorable impact of foreign currency translation, the
consolidated annualized loan yield, which represents the blended result derived
from the distinctive loan yields realized from operations in the three
countries, was 106.2% in the current year quarter, compared to 105.8% in the
prior year quarter. There was an increase in the domestic annualized loan yield
to 137.5% for the current year quarter, compared to 134.5% for the prior year
quarter. Improved performance of the pawn loan portfolio, including higher
redemption rates and a slightly higher concentration of extended loans in the
portfolio, contributed to the higher domestic yield. The blended yield on
average foreign pawn loans outstanding decreased to 54.1% in the current year
quarter compared to 55.6% in the prior year quarter. The decrease in the blended
foreign yield was caused by a decrease in loan redemption rates and lower yield
on the disposition of unredeemed collateral at auction.
Favorable currency translation adjustments contributed $0.9 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 10.9% and 18.1% 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. 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 $ (1.5) (2.3)% $ 1.1 4.8%
Foreign lending 0.6 23.4% 0.3 49.7%
------ ------ ----- -----
Total $ (0.9) (1.4)% $ 1.4 6.1%
====== ====== ===== =====
Proceeds from the disposition of merchandise were $0.9 million, or
1.4%, lower than in the prior year quarter. The decrease was predominately the
result of the Company entering the
15
quarter with lower levels of merchandise available for disposition. Proceeds
from disposition of merchandise, excluding scrap gold, decreased $3.2 million,
or 5.3%. Proceeds from the disposition of scrap jewelry increased $2.3 million,
or 41.4%. The consolidated merchandise turnover rate increased to 3.3 times
during the current quarter as compared to 3.0 times during the prior year
quarter, and the margin on disposition of merchandise increased to 37.2% in the
current quarter as compared to 34.5% in the prior year quarter. Excluding the
effect of the disposition of scrap jewelry, the margin on disposition of
merchandise increased to 38.8% in the current quarter from 36.1% in the prior
year quarter due predominately to lower average cost of merchandise sold. The
margin on disposition of scrap jewelry was 24.8% in the current quarter compared
to 17.6% in the prior year quarter due to the prevailing higher market price of
gold.
CASH ADVANCE FEES. Cash advance fees increased $2.9 million, or 80.6%, to $6.5
million in the current quarter as compared to $3.6 million in the prior year
quarter. The increase resulted from significantly higher cash advance balances
at the beginning of the period related to the continued increase in demand for
the small consumer cash advance product. The Company began offering small
consumer cash advances in 2000. The product was available in 389 domestic
lending units at March 31, 2003, including 309 units that offer the product on
behalf of third-party banks, for which the Company performs administrative
services. Cash advance fees include revenue from the cash advance portfolio
owned by the Company and fees for administrative services performed for the
banks. (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 $16.5 million, or 76.0%,
to $38.2 million in the current quarter from $21.7 million in the prior year
quarter. The $38.2 million in cash advances written in the current quarter
includes $33.3 million extended to customers by the banks. The average amount
per cash advance increased to $295 from $284. The combined Company and bank
portfolio of cash advances generated $7.1 million in revenue during the current
quarter compared to $3.9 million in the prior year quarter. The outstanding
combined portfolio of small consumer cash advances increased $4.0 million to
$9.2 million at March 31, 2003 from $5.2 million at March 31, 2002. Included in
these amounts are $8.5 million and $1.8 million for 2003 and 2002, respectively,
that are included in the Company's consolidated balance sheets. Of the $6.7
million increase in cash advances included in the Company's consolidated balance
sheets at March 31, 2003, $5.3 million is attributable to the transition to a
new bank provider. An allowance for losses of $1.4 million and $0.5 million has
been provided in the consolidated financial statements as of March 31, 2003 and
2002, respectively, which offsets the outstanding cash advance amounts.
The Company recently terminated its relationship with the national bank
that had offered this product in many of its stores. The Company also recently
completed its conversion to a state chartered bank program. Management has not
experienced, and does not anticipate that the change in providers of the cash
advance product will have, a material adverse impact on consumers' demand for
the product, on the Company's ability to offer the product through its lending
locations, or on the Company's financial condition. See further discussion at
Note 4 of Notes to Consolidated Financial Statements.
CHECK CASHING ROYALTIES AND FEES. Check cashing fees for the United Kingdom
operations increased 107.6% to $0.4 million, in the current quarter. Check
cashing revenue for the Mr. Payroll operations remained unchanged at $1.1
million.
16
OPERATIONS AND ADMINISTRATION EXPENSES. Consolidated operations and
administration expenses as a percentage of net revenue was 71.9% in the current
quarter compared to 73.8% in the prior year quarter. These expenses increased
$4.0 million, or 9.6%, in the current quarter compared to the prior year
quarter. Domestic lending expenses increased $3.0 million, primarily as a result
of higher incentive expenses associated with the improvement in operating
results and expenses related to the cash advance product. Foreign lending
operations expenses increased $1.0 million primarily due to an increase in the
number of locations in the United Kingdom. Mr. Payroll's expenses remained
unchanged at $0.6 million for the three months ended March 31, 2003 and 2002.
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
portfolio. The cash advance loss provision for domestic lending operations
increased $0.4 million to $1.3 million in the current quarter as compared to
$0.9 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 was
20.6% in the current quarter as compared to 25.3% in the prior year quarter. The
decrease in the loss provision as a percentage of cash advance fees is due to
lower loss rates experienced by the Company in the current period compared to
the prior year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a
percentage of net revenue was 5.8% in the current quarter compared to 6.3% in
the prior year quarter. Total depreciation and amortization expenses decreased
$0.1 million, or 2.9%.
INTEREST EXPENSE. Net interest expense as a percentage of net revenue declined
to 3.4% in the current quarter from 3.9% in the prior year quarter. The amount
decreased a net $0.1 million, or 3.0%, due to the effect of a 16.1% reduction in
the Company's average debt balance partially offset by an increase in the
aggregate blended borrowing cost and the elimination of interest income from a
note receivable repaid early in the current quarter. The effective blended
borrowing cost increased to 6.2% in the current quarter as compared to 5.4% in
the prior year quarter due primarily to the Company's decision to issue
long-term fixed rate notes in July 2002 that replaced lower-rate shorter term
floating rate debt. The average amount of debt outstanding decreased during the
current quarter to $142.5 million from $169.7 million during the prior year
quarter.
LOSS FROM DERIVATIVE VALUATION FLUCTUATIONS. There were no adjustments to fair
values of interest rate cap agreements during the current quarter compared to a
loss of $36,000 in the prior year quarter.
INCOME TAXES. The Company's effective tax rate for the quarter ended March 31,
2003 was 37.3% as compared to 36.0% for the quarter ended March 31, 2002. The
increase in the current year is primarily attributable to an increase in the
Company's state income tax provision for domestic operations.
17
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operating activities
of continuing operations was $21.4 million for the three months ended March 31,
2003 (the "current period").
CASH FLOWS FROM INVESTING ACTIVITIES. The seasonal decline in balances due to
redemptions related to customers receipt of federal tax refunds led to a
decrease in the Company's investment in pawn loans during the current period
which generated $6.2 million of cash. The Company's transition from a national
bank to a state chartered bank program for its cash advance product required
$5.5 million in cash during the current quarter, when the Company purchased the
outstanding balance from the national bank and began acquiring a participation
interest in state bank originated cash advances. The Company invested $3.2
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. During the current period, the
Company acquired three lending locations, one check cashing franchise and other
earning assets for $1.9 million.
Management anticipates that capital expenditures for the remainder of
2003 will be approximately $10 to $15 million. These expenditures will primarily
relate to the establishment of new lending locations, the remodeling of selected
operating units and enhancements to information systems. The Company may add up
to 25 new lending locations, including a small number of cash advance only
locations. The new locations will be primarily through the acquisition of
existing pawnshop locations and the establishment of both new pawnshop and new
cash advance locations.
CASH FLOWS FROM FINANCING ACTIVITIES. The Company used cash to make payments of
$14.3 million on bank lines of credit and other debt obligations, $0.3 million
for dividends, and $1.0 million for the purchase of treasury shares. On July 24,
2002, the Company's 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 the current
period, the Company purchased 126,400 shares for an aggregate amount of $1.1
million under this 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.
At March 31, 2003, $31.4 million was outstanding on the Company's $90
million U.S. line of credit. In addition, the Company's L.15 million
(approximately $23.7 million at March 31, 2003) multi-currency line of credit in
the United Kingdom had balances outstanding of L.6.5 million (approximately
$10.2 million at March 31, 2003) and SEK 38 million (approximately $4.5 million
at March 31, 2003) 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 $172.8
million should be sufficient to meet the Company's anticipated future capital
requirements.
18
DOMESTIC LENDING OPERATIONS
- -------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected financial data for the
Company's domestic lending operations as of March 31, 2003 and 2002, and for the
three months then ended.
2003 2002 Change
--------- --------- ------
REVENUE
Finance and service charges $ 24,709 $ 23,315 6%
Proceeds from disposition of merchandise 63,062 64,557 (2)%
Cash advance fees 6,466 3,562 82%
--------- --------- ----
TOTAL REVENUE 94,237 91,434 3%
--------- --------- ----
COSTS OF REVENUE
Disposed merchandise 39,503 42,076 (6)%
--------- --------- ----
NET REVENUE $ 54,734 $ 49,358 11%
========= ========= ====
OTHER DATA
Net revenue contribution by source--
Finance and service charges 45.1% 47.2% (4)%
Margin on disposition of merchandise 43.0% 45.5% (5)%
Cash advance fees 11.9% 7.3% 63%
Expenses as a percentage of net revenue--
Operations and administration 74.3% 76.2% (3)%
Cash advance loss provision 2.4% 1.8% 33%
Depreciation and amortization 5.3% 5.8% (9)%
Interest, net 3.5% 2.4% 45%
Income from operations as a percentage of net revenue 18.0% 16.1% 12%
Annualized yield on pawn loans 137.5% 134.5% 2%
Total amounts of pawn loans written $ 72,073 $ 67,902 6%
Average pawn loan balance outstanding $ 72,883 $ 70,323 4%
Average pawn loan balance per average
pawnshop location in operation $ 185 $ 174 6%
Average pawn loan amount at end of period (not in thousands) $ 83 $ 82 1%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 37.4% 34.8% 7%
Average annualized merchandise turnover 3.4x 3.0x 15%
Average merchandise held for disposition
per average pawnshop location $ 118 $ 140 (16)%
Owned pawnshop locations in operation--
Beginning of period 396 404
Acquired -- 2
Combined or closed (5) (3)
End of period 391 403 (3)%
Additional franchise locations at end of period 9 13 (31)%
Total pawnshop locations at end of period 400 416 (4)%
Average number of owned pawnshop locations in operation 393 404 (3)%
19
FOREIGN LENDING OPERATIONS
- -------------------------------------------------------------------------------
(Dollars in thousands)
The following table sets forth selected combined financial data in U.S.
Dollars for Harvey & Thompson, Ltd. and Svensk Pantbelaning as of March 31, 2003
and 2002, and for the three months then ended, using the following currency
exchange rates:
2003 2002 Change
--------- --------- ------
Harvey & Thompson, Ltd. (British pound sterling per U.S. dollar)--
Balance sheet data - end of period rate .6328 .7014 10%
Statements of operations data - average rate for the period .6248 .7011 11%
Svensk Pantbelaning (Swedish kronor per U.S. dollar)--
Balance sheet data - end of period rate 8.4674 10.3615 18%
Statements of operations data - average rate for the period 8.5561 10.4438 18%
REVENUE
Finance and service charges $ 6,746 $ 5,505 23%
Proceeds from disposition of merchandise 3,057 2,477 23%
Check cashing fees 382 184 108%
--------- --------- -----
TOTAL REVENUE 10,185 8,166 25%
--------- --------- -----
COSTS OF REVENUE
Disposed merchandise 2,051 1,805 14%
--------- --------- -----
NET REVENUE $ 8,134 $ 6,361 28%
========= ========= =====
OTHER DATA
Net revenue contribution by source--
Finance and service charges 82.9% 86.5% (4)%
Margin on disposition of merchandise 12.4% 10.6% 17%
Check cashing fees 4.7% 2.9% 63%
Expenses as a percentage of net revenue--
Operations and administration 58.0% 58.1% --
Depreciation and amortization 8.4% 8.9% (5)%
Interest, net 2.0% 2.1% (5)%
Income from operations as a percentage of net revenue 33.6% 33.0% 2%
Annualized yield on pawn loans 53.9% 55.6% (3)%
Total amount of pawn loans written $ 31,198 $ 24,610 27%
Average pawn loan balance outstanding $ 50,786 $ 40,142 27%
Average pawn loan balance per average
pawnshop location in operation $ 833 $ 717 16%
Average pawn loan amount at end of period (not in thousands) $ 192 $ 158 22%
Margin on disposition of merchandise as a percentage
of proceeds from disposition of merchandise 32.9% 27.1% 21%
Average annualized merchandise turnover 1.6x 2.2x (28)%
Average merchandise held for disposition
per average pawnshop location $ 86 $ 58 48%
Owned pawnshop locations in operation--
Beginning of period 59 56
Acquired 3 --
Start-ups 1 --
Combined or closed (1) --
End of period 62 56 11%
Average number of owned pawnshop locations in operation 61 56 9%
20
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
- -------------------------------------------------------------------------------
This quarterly report, including management's discussion and analysis, contains
statements that are forward-looking, as that term is defined by the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules. The Company intends that all forward-looking statements
be subject to the safe harbors created by these laws and rules. When used in
this quarterly report, the words "believes", "estimates", "plans", "expects",
"anticipates", and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements. All
forward-looking statements are based on current expectations regarding important
risk factors. These risks and uncertainties are beyond the ability of the
Company to control, and, in many cases, the Company cannot predict all of the
risks and uncertainties that could cause its actual results to differ materially
from those expressed in the forward-looking statements. Accordingly, actual
results may differ materially from those expressed in the forward-looking
statements, and 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 that could cause results or events to
differ from current expectations are described below. These factors are not
intended to be an all-encompassing list of risks and uncertainties that may
affect the operations, performance, development and results of the Company's
business.
RISK FACTORS
- -------------------------------------------------------------------------------
- - CHANGES IN CUSTOMER DEMAND FOR THE COMPANY'S PRODUCTS AND SPECIALTY
FINANCIAL SERVICES. Although the Company's products and services are a
staple of its customer base, a significant change in the needs or wants
of customers and the Company's failure to adapt to those needs or wants
could result in a significant decrease in the revenues of the Company.
- - THE ACTIONS OF THIRD-PARTIES WHO OFFER PRODUCTS AND SERVICES AT THE
COMPANY'S LOCATIONS. The Company offers products and services to its
customers made available by various third parties. A failure of a third
party provider to provide its product or service or to maintain the
quality and consistency of its product or service could result in a
loss of customers and a related loss in revenue from those products or
services.
- - THE ABILITY OF THE COMPANY TO OPEN AND ACQUIRE NEW OPERATING UNITS IN
ACCORDANCE WITH ITS PLANS. The Company's expansion program is subject
to numerous factors which cannot be predicted or controlled, such as
the availability of attractive acquisition candidates or sites with
suitable terms and general economic conditions.
- - 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. The Company encounters significant
competition in connection with its lending and merchandise disposition
operations from other pawnshops and other forms of financial
institutions such as consumer finance companies. Significant increases
in these competitive influences could adversely affect the Company's
operations through a decrease in the number of cash advances and pawn
loans originated, resulting in lower levels of earning assets in these
categories.
- - CHANGES IN ECONOMIC CONDITIONS. While the credit risk for most of the
Company's consumer lending is mitigated by the collateralized nature of
pawn lending, a protracted deterioration in the economic environment
could adversely affect the Company's
21
operations through a deterioration in performance of its pawn loan or
cash advance portfolios, or by reducing consumer demand for the
purchase of pre-owned merchandise.
- - REAL ESTATE MARKET FLUCTUATIONS. A significant rise in real estate
prices could result in an increase in the cost of store leases as the
Company opens new locations and renews leases for existing locations.
- - INTEREST RATE FLUCTUATIONS. Although the weakness in the U.S. economy
over the past several quarters has resulted in relatively low interest
rates offered by lending institutions, an eventual economic recovery
could result in a rise in interest rates which would, in turn, increase
the cost of borrowing to the Company.
- - CHANGES IN THE CAPITAL MARKETS. The Company regularly accesses the debt
capital markets to refinance existing debt obligations, and to obtain
capital to finance growth. Efficient access to these markets is
critical to the Company's ongoing financial success; however, the
Company's future access to the debt capital markets could become
restricted should the Company experience deterioration of its cash
flows, balance sheet quality, or overall business or industry
prospects.
- - CHANGES IN TAX AND OTHER LAWS AND GOVERNMENTAL RULES AND REGULATIONS
APPLICABLE TO THE SPECIALTY FINANCIAL SERVICES INDUSTRY. The Company's
lending activities are subject to extensive regulation and supervision
under various federal, state and local laws, ordinances and
regulations. The Company faces the risk that new laws and regulations
could be enacted that could have a negative impact on the Company's
domestic or international lending activities.
- - OTHER RISKS INDICATED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
- - OTHER FACTORS DISCUSSED UNDER QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK IN ITEM 3 OF THIS FORM 10-Q AND IN THE COMPANY'S 2002
ANNUAL REPORT TO STOCKHOLDERS.
22
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, 2002.
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.
23
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 - None
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASH AMERICA INTERNATIONAL, INC.
--------------------------------------
(REGISTRANT)
BY: /s/ Thomas A. Bessant, Jr.
-------------------------------
Thomas A. Bessant, Jr.
Executive Vice President and
Chief Financial Officer
Date: April 25, 2003
25
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: April 25, 2003
/s/ Daniel R. Feehan
- --------------------------------------
Daniel R. Feehan
Chief Executive Officer and President
26
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: April 25, 2003
/s/ Thomas A. Bessant, Jr.
- -----------------------------
Thomas A. Bessant, Jr.
Executive Vice President and
Chief Financial Officer
27
Index to 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