Cash America 2000 Annual Report Download - page 4

To All Fellow Shareholders
2
What a diff e rence a year makes.
At this time last year, I felt compelled to defend our old
economy business model against the onslaught of dot.com
mania. The Dow Jones Industrial Index was above 11,000 and
the Nasdaq index was hovering around 5,000. The new econo-
my upstarts held a promise of redefining how the world works.
E a rnings and cash flow were relegated to a back seat status as
thousands of new companies consumed billions of dollars of
capital in a race to establish market space and capture eyeballs
in the new world of Internet commerce. Price/earnings ratios
gave way to new subscribers counts as the relevant measure of
value. Cash America was searching to understand how techno-
logical innovation might revolutionize the way our services are
d e l i v e red to our customers.
Today the Dow is below 10,000 and the Nasdaq has bro k e n
below 2,000. The media is filled with stories of dot.coms gone
bust. The capital markets have become much more discriminat-
ing in support of new ideas, and the landlords of nort h e rn
C a l i f o rnia are no longer demanding warrants in addition to
exorbitant rental rates. Traditional expectations for earnings and
cash flow have re s u rfaced as factors of management accounta-
b i l i t y. The world appears level once again, and Cash America
will continue to evaluate opportunities to refine our business
model through technological innovation.
A year ago we were also staring in the face of unbridled
optimism for the continuation of the longest sustainable U.S.
economic expansion of the 20th century. Unemployment fig-
u res, housing starts, capital spending, inflation rates and con-
sumer confidence were all pointing to a bright horizon. The
euphoria was infectious. Business people were convinced that
ongoing job growth, productivity gains and low inflation would
continue to drive an insatiable consumer appetite for goods and
s e rvices. Cash America was searching for ways to stimulate loan
demand in an economy clearly working against us.
Today the media has begun to signal the alarm of economic
slowing. We are seeing re p o rts of large layoffs, deceleration of
capital spending and drops in consumer confidence. The
Federal Reserve has responded with rate cuts while inflation
remains in check and unemployment rates remain low. Some
economists view recent events as a temporary breather for a
continuing robust economy and others are predicting a more
serious downturn. While the true direction of the U.S. econo-
my remains in debate, Cash America continues to work on
stimulating loan demand and expanding service offerings to our
c u s t o m e r s .
Cash America has not been immune to the troubles of the
technology sector. As the Nasdaq broke 2,000 in late 1998 on
its way to 5,000 in early 2000, our management team and
s h a reholders were infected with the excitement for potential
value appreciation from our investment in innoVe n t ry. That
c o m p a n y ’s business model of delivering kiosk-based financial
s e rvices from an Internet-based technology platform fit the defi-
nition of a new economy business model. With Wells Farg o
Bank (NYSE:WFC) as our partner in innoVe n t ry, we began the
year 2000 with great expectations for rapid deployment of the
c o m p a n y ’s signature RPM™machine. Like other developing
technology businesses, innoVe n t ry needed new capital just as
the Nasdaq began to plummet and both the public and private
equity markets reacted with dramatic contraction. The compa-
ny launched a private placement in June 2000 to a market that
had lost its appetite for start up technology businesses. While
obtaining $115 million in equity capital, the offering was not
completed until Febru a ry 2001 at a valuation that diluted Cash
A m e r i c a ’s ownership interests from approximately 38% to 19%.
I believe the amount of time re q u i r ed to complete this financing
coupled with concerns over the extent of our dilution led to the
significant decline in our share value in the last half of 2000.
R e g a rdless, I maintain an upbeat view on the value of our
remaining interest in innoVe n t ry. A significant portion of the
new financing for innoVe n t ry was provided by Capital One
Financial Corporation (NYSE:COF), a company that brings
additional expertise in data mining, technology development
and call center operations. I believe Capital One sees the same
o p p o rtunity Cash America and Wells Fargo has recognized for
the past two years. innoVe n t ry is a unique blend of both old
and new economies with a realistic plan to become the coun-
t ry ’s most dominant player in the delivery of kiosk-based finan-
cial services. There f o r e, I continue to believe our investment in
i n n o Ve n t ry has significant value.
The disappointment associated with innoVe n t ry in 2000
was certainly mitigated by significant improvements experi-
enced in our core lending business in the latter half of the year.
We had told the market at the beginning of the year to expect
gains in our U.S. pawn business in the final two quarters of the
year without any measurable help from an economic slowing.
We delivered on that commitment with earnings gains in our
U.S. pawn business of 37% in the third quarter followed by a
44% gain in the fourth quart e r . Additionally, after five consecu-
tive quarters of negative loan growth in the U.S. business, our
loan balances at year-end were back to flat in comparisons to
To All Fellow Shareholders