Cash America 2001 Annual Report Download - page 28

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ful life acquired in business combinations completed after June 30, 2001, are no
longer subject to amortization to earnings. Effective January 1, 2002, all good-
will 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 circum-
stances 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 car-
rying 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 will adopt the provisions of SFAS No. 142 on January 1, 2002 and will
complete the first step of the two-step impairment test prior to June 30, 2002.
Management currently does not expect to record an impairment charge upon
completion of the initial impairment review. However, there can be no assurance
that at the time the review is completed an impairment charge will not be record-
ed. The Company’s consolidated results of operations will be impacted with the
adoption of SFAS 142 when approximately $2,800,000 in annual goodwill amor-
tization ceases.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement supersedes SFAS No. 121, “Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and related liter-
ature and establishes a single accounting model, based on the framework estab-
lished in SFAS No. 121, for long-lived assets to be disposed of by sale. The
Company will implement the provisions of SFAS No. 144 as required on
January 1, 2002, and its adoption is not expected to have a material effect on
the Company’s consolidated financial position or results of operations.
Reclassifications • Certain amounts in the consolidated financial statements
for 2000 and 1999 have been reclassified to conform to the presentation format
adopted in 2001. These reclassifications have no effect on net income or stock-
holders’ equity previously reported.
3. Discontinued Operations
In September 2001, the Company announced plans to exit the rent-to-own busi-
ness in order to focus on its core business of lending activities. The Company’s
subsidiary, Rent-A-Tire, Inc. (“Rent-A-Tire”) provides new tires and wheels under a
rent-to-own format to customers seeking this alternative to a direct purchase. The
Company initiated the plan to close 21 Rent-A-Tire operating locations and sell the
remaining 22 units. As of December 31, 2001, the Company operated 22 Rent-A-
Tire locations. It expects the plan to be completed before September 2002.
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, Unusual and Infrequently Occurring Events and
Transactions,” the consolidated financial statements of the Company have been
reclassified to reflect the planned 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 state-
ments of operations and consolidated statements of cash flows. The net operat-
ing results, net assets and net cash flows of this business segment have been
reported as “Discontinued Operations” in the accompanying consolidated finan-
cial statements. The loss from operations does not include any interest expense
since the Company does not anticipate that debt will be assumed by the buyer.
Continuing losses associated with the rental business segment triggered an
evaluation of Rent-A-Tire’s long-lived asset recoverability during the third quarter
of 2001. As a result, a non-cash charge of $13,716,000 ($9,153,000 after
income tax benefit) to write down the carrying value of a portion of Rent-A-Tire’s
goodwill and property and equipment to estimated fair value, based upon dis-
counted future cash flows, is included in loss before income taxes reflected in the
table below for the year ended December 31, 2001.
Operating results for the discontinued operations for the years ended
December 31 are summarized below (in thousands, except per share data):
2001 2000 1999
Revenue $ 19,102 $ 17,354 $ 10,253
Loss before income taxes (16,651) (3,708) (80)
Benefit for income taxes (5,573) (1,277) (9)
Loss from operations
of discontinued rental business (11,078) (2,431) (71)
Loss on disposal of rental business
(less applicable income tax benefit of $3,408) (7,553) ——
Loss from discontinued operations $ (18,631) $ (2,431) $ (71)
Diluted loss per share
from discontinued operations $ (0.75) $ (0.09) $ —
Loss on disposal of the rental business segment recorded for the year ended
December 31, 2001, includes a provision of $4,472,000 for operating losses sub-
sequent to September 1, 2001, the effective date of the plan of disposition, and a
provision of $6,489,000 for the estimated loss on the sale of remaining assets.
The components of the combined pre-tax charge of $10,961,000 ($7,553,000
after income tax benefit) and the reserve activity during the year ended December
31, 2001, were as follows (in thousands):
Reserve at Cash Non-cash Reserve at
Inception Expenditures Write Downs December 31, 2001
Inventory Reserve $ 712 $ — $ (572) $ 140
Long-lived asset
write downs $ 1,590 $ — $ (1,590) $ —
Other closure/exit costs 2,194 (150) — 2,044
Workforce reduction 134 (109) — 25
Additional operating
(income) during
phase-out period (158) (196) (201) (555)
Loss on sale of assets 6,489 (50) — 6,439
Disposal reserve $ 10,249 $ (505) $ (1,791) $ 7,953
The adoption of the plan to close the 21 operating units resulted in the write
down of merchandise on rent, property and equipment, and goodwill. “Other
closure/exit costs” primarily includes non-cancelable operating lease obligations.
Net current assets of discontinued operations, consisting primarily of mer-
chandise on rent and on hand, were $3.0 million and $4.5 million at December
31, 2001 and 2000, respectively. Net non-current assets of discontinued opera-
tions, consisting primarily of property and equipment and goodwill, were
$5.6 million and $19.8 million at December 31, 2001 and 2000, respectively.
In a series of transactions effective February 1, 1998, the Company
increased its ownership interest in Rent-A-Tire from 49% to 99.9% and began
consolidating Rent-A-Tire’s assets and results of operations in the Company’s
financial statements. At that time, the sellers were granted an option, exercisable
upon sixty days written notice, to repurchase 9.9% of Rent-A-Tire for a nominal
amount. In October 2001, the sellers exercised their option.
Notes to Consolidated Financial Statements — Continued