Cash America 2004 Annual Report Download - page 3

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The฀cover฀and฀interior฀pages฀of฀this฀2004฀Annual฀Report฀have฀
been฀designed฀to฀capture฀and฀celebrate฀the฀highlights฀of฀
our฀first฀20฀years฀in฀business.฀You฀will฀find฀many฀references฀
to฀innovations฀we฀developed฀in฀our฀industry฀and฀recaps฀of฀
significant฀milestones฀and฀successful฀events.฀Credibly,฀you฀will฀
also฀find฀references฀to฀a฀couple฀of฀unsuccessful฀ventures฀our฀
internal฀history฀book฀records฀as฀bona฀fide฀management฀faux฀
pas.฀The฀richness฀of฀our฀history฀can฀only฀be฀enjoyed฀within฀the฀
full฀context฀of฀goals฀we’ve฀scored฀and฀balls฀we’ve฀fumbled.
฀ I฀must฀admit฀that฀a฀20-year฀span฀seems฀shorter฀to฀
me฀at฀age฀54฀than฀I฀recollect฀at฀age฀34.฀But฀thinking฀back฀
to฀events฀of฀1984,฀it฀does฀seem฀like฀ages฀since฀the฀Apple฀
Macintosh฀was฀first฀introduced,฀AT&T฀was฀broken฀up,฀
Ronald฀Reagan฀defeated฀Walter฀Mondale฀for฀his฀second฀
term฀and฀the฀Soviets฀boycotted฀the฀Summer฀Olympics฀in฀
Los฀Angeles.฀Alternatively,฀it฀seems฀like฀yesterday฀that฀Arnold฀
Schwarzenegger฀first฀introduced฀us฀
to฀The฀Terminator,฀Princess฀Diana฀
gave฀birth฀to฀Prince฀Harry,฀and฀Michael฀
Jackson’s฀hair฀caught฀fire฀while฀
filming฀a฀Pepsi฀commercial.฀Maybe฀
the฀anthropological฀implication฀of฀this฀
contrast฀is฀that฀we฀tend฀to฀channel฀
lighter฀moments฀into฀our฀short-term฀
memory฀banks฀while฀creating฀distance฀
from฀the฀more฀serious฀events฀of฀our฀
past.฀(I฀hope฀the฀Michael฀Jackson฀
fans฀among฀you฀can฀forgive฀me฀for฀
considering฀that฀referenced฀event฀as฀a฀
light฀moment.)
฀ You฀will฀find฀a฀variety฀of฀
interesting฀and฀entertaining฀historical฀tidbits฀in฀this฀Report,฀and฀
I฀encourage฀you฀to฀enjoy฀each฀one.฀For฀those฀of฀you฀limiting฀
your฀reading฀time฀to฀just฀this฀message,฀I฀offer฀this฀Reader’s฀
Digest฀version:฀Cash฀America฀has฀evolved฀from฀one฀pawnshop฀
in฀Irving,฀Texas,฀with฀a฀few฀hundred฀thousand฀dollars฀of฀
revenue฀in฀1984,฀to฀over฀700฀lending฀locations฀approaching฀
one-half฀billion฀dollars฀of฀revenue฀in฀2004.฀The฀original฀Irving฀
crew฀of฀about฀one-half฀dozen฀workers฀has฀grown฀into฀a฀
base฀exceeding฀4,000฀of฀the฀best฀people฀in฀our฀industry.฀I’m฀
guessing฀the฀fair฀market฀value฀of฀that฀original฀shop฀in฀1984,฀
was฀somewhere฀around฀a฀quarter฀million,฀while฀Cash฀America’s฀
total฀market฀capitalization฀at฀the฀end฀of฀2004฀was฀$873฀million.฀
I฀am฀sure฀the฀Macintosh฀has฀created฀more฀incremental฀value฀
for฀Apple฀in฀the฀last฀20฀years,฀but฀$873฀million฀is฀not฀bad฀for฀a฀
business฀most฀capital฀market฀pundits฀laughed฀about฀in฀1984.฀
฀ While฀it฀is฀always฀fun฀to฀take฀that฀proverbial฀stroll฀
down฀memory฀lane,฀I฀hope฀you฀find฀comfort฀in฀the฀fact฀that฀I฀
spend฀most฀of฀my฀time฀thinking฀about฀our฀future฀and฀hardly฀
any฀time฀reflecting฀upon฀our฀past.฀The฀events฀of฀our฀20-year฀
history฀provide฀a฀rich฀reservoir฀of฀learning฀and฀a฀touchstone฀
of฀corporate฀identity.฀They฀do฀not,฀however,฀provide฀a฀clear฀
roadmap฀for฀the฀innovations฀and฀growth฀opportunities฀of฀our฀
future.฀I฀am฀constantly฀challenging฀our฀management฀team฀to฀
disrupt฀the฀status฀quo฀and฀search฀for฀ways฀to฀redefine฀our฀
business฀model.฀We฀must฀assume฀that฀our฀customers’฀needs฀
and฀wants฀will฀change฀with฀time,฀and฀we฀must฀anticipate฀
market฀movements฀that฀might฀threaten฀the฀preferred฀provider฀
status฀we฀currently฀enjoy฀with฀our฀customers.฀Our฀profile฀today฀
is฀significantly฀different฀than฀it฀was฀five฀years฀ago฀and฀even฀
significantly฀different฀than฀it฀was฀at฀the฀time฀of฀my฀last฀annual฀
message฀to฀you.฀Our฀profile฀today฀could฀never฀have฀been฀
accurately฀captured฀in฀1984฀when฀our฀Founders฀sketched฀฀
a฀business฀plan฀on฀the฀back฀of฀a฀soggy฀cocktail฀napkin฀at฀฀
The฀Fort฀Worth฀Club.
฀ The฀forward฀focus฀of฀our฀organization฀is฀what฀has฀
propelled฀the฀strategic฀moves฀made฀over฀the฀past฀few฀years฀
to฀simplify฀our฀business฀model฀and฀position฀the฀Company฀
for฀accelerated฀growth.฀Several฀significant฀acquisition฀and฀
divestiture฀transactions,฀coupled฀with฀the฀
strengthening฀of฀our฀management฀team,฀has฀
positioned฀us฀with฀a฀clear฀and฀simple฀profile฀
of฀two฀distinct฀business฀segments฀—฀each฀
organized฀to฀deliver฀on฀the฀promise฀couched฀
within฀our฀Core฀Purpose฀of฀“providing฀
financial฀solutions฀to฀help฀ordinary฀people฀
meet฀their฀needs฀and฀pursue฀their฀dreams.”฀
฀ Our฀two฀distinct฀business฀segments,฀
the฀pawn฀lending฀segment฀and฀the฀short-
term฀cash฀advance฀segment,฀share฀a฀
number฀of฀operational฀similarities,฀while฀at฀
the฀same฀time฀framing฀an฀important฀contrast฀
in฀investment฀thesis.
฀ Operationally,฀both฀segments฀
are฀neighborhood฀businesses฀conducting฀a฀high฀volume฀
of฀transactions฀within฀a฀relatively฀small฀physical฀footprint฀
with฀a฀coworker฀base฀that฀is฀largely฀interchangeable.฀Both฀
compete฀by฀offering฀convenience,฀speed฀of฀service฀and฀
respectability.฀Both฀require฀similar฀core฀competencies฀from฀our฀
organization฀with฀training,฀technology,฀real฀estate฀management,฀
governmental฀relations,฀compliances,฀marketing฀and฀financial฀
analyses฀being฀the฀most฀important.
฀ The฀strategic฀characteristics฀of฀the฀two฀segments฀
begin฀to฀diverge฀when฀you฀consider฀market฀position,฀future฀
opportunity฀and฀risks฀associated฀with฀each.฀The฀pawn฀lending฀
segment฀is฀a฀stable,฀relatively฀mature฀cash฀flow฀business฀
that฀is฀less฀vulnerable฀to฀competitive฀intrusion,฀primarily฀due฀
to฀the฀difficulty฀of฀managing฀at฀the฀unit฀level฀(mastering฀unit฀
management฀in฀the฀pawn฀segment฀requires฀12฀to฀24฀months฀
of฀training฀and฀experience฀versus฀3฀to฀6฀months฀in฀the฀short-
term฀cash฀advance฀segment).฀Because฀of฀its฀maturity฀and฀
management฀difficulty,฀the฀pawn฀segment฀has฀less฀robust฀
opportunities฀for฀unit฀growth,฀but฀it฀also฀enjoys฀less฀serious฀
and฀more฀manageable฀risks.฀(My฀definition฀
of฀risks฀here฀includes฀both฀the฀potential฀for฀
abrupt฀shifts฀in฀the฀marketplace฀and฀disruption฀
associated฀with฀overzealous฀regulatory฀or฀
legislative฀interference.)฀The฀short-term฀cash฀
advance฀segment฀is฀a฀less฀stable,฀immature฀
cash฀flow฀business฀that฀is฀more฀vulnerable฀to฀
competitive฀intrusion฀due฀to฀the฀relative฀ease฀
of฀unit฀management฀and฀greater฀accessibility฀
to฀acceptable฀real฀estate.฀The฀immaturity฀and฀
management฀ease฀of฀this฀segment฀portends฀
greater฀growth฀opportunities,฀albeit฀saddled฀with฀
more฀potential฀risks฀(same฀definition).฀Cash฀flow฀
returns฀on฀invested฀capital฀are฀impressive฀for฀both฀segments฀
with฀the฀cash฀advance฀segment฀holding฀a฀slight฀edge.
฀ I฀believe฀both฀the฀operational฀similarities฀and฀strategic฀
contrasts฀of฀our฀two฀business฀
segments฀should฀be฀important฀
considerations฀in฀the฀ongoing฀
evaluation฀of฀your฀investment฀in฀
Cash฀America฀stock.฀I฀see฀the฀
operational฀similarities฀as฀a฀definite฀
plus฀regardless฀of฀your฀
investment฀goals฀or฀risk฀
appetite.฀These฀similarities฀
allow฀us฀to฀leverage฀the฀tough฀
operational฀lessons฀of฀the฀past฀
20฀years฀and฀maximize฀the฀
efficiencies฀of฀our฀corporate฀
overhead.฀The฀innovations฀
we฀develop฀with฀training,฀
technology,฀marketing฀and฀
other฀competencies฀can฀
benefit฀both฀segments.฀Your฀
evaluation฀becomes฀more฀
discerning฀when฀you฀begin฀
to฀match฀personal฀investment฀
goals฀and฀risk฀appetite฀with฀
the฀contrasting฀strategic฀
profiles฀of฀the฀two฀segments.฀
Stereotypically,฀a฀pure฀value฀
investor฀might฀be฀drawn฀to฀the฀
stability,฀cash฀yield฀and฀relatively฀
limited฀risk฀of฀the฀pawn฀segment,฀
while฀a฀pure฀growth฀investor฀would฀
likely฀tolerate฀the฀risk฀associated฀
with฀the฀cash฀advance฀segment฀in฀
exchange฀for฀higher-octane฀growth.฀
The฀latter฀has฀been฀evident฀with฀the฀
recent฀IPOs฀of฀Advance฀America฀(AEA)฀
and฀QC฀Holdings฀(QCCO),฀the฀first฀
two฀IPOs฀in฀the฀short-term฀
cash฀advance฀arena.฀
฀ ฀฀฀฀฀฀฀฀I฀suspect฀that฀you,฀like฀me,฀own฀our฀
stock฀because฀you฀are฀neither฀a฀pure฀value฀
nor฀pure฀growth฀investor.฀You฀favor฀a฀balance฀
of฀excitement฀and฀comfort฀—฀excitement฀from฀
the฀potential฀stock฀appreciation฀of฀accelerated฀
earnings฀growth฀in฀the฀cash฀advance฀segment฀
balanced฀against฀the฀comfort฀of฀reliability฀in฀the฀
pawn฀segment.฀We฀have฀purposely฀positioned฀
Cash฀America฀to฀fit฀this฀balanced฀profile.฀The฀
purchase฀of฀Cashland฀in฀2003,฀the฀sale฀of฀
our฀European฀businesses฀and฀simultaneous฀
purchase฀of฀SuperPawn฀in฀2004,฀and฀new฀unit฀
openings฀in฀both฀years฀have฀all฀been฀part฀of฀a฀
strategy฀to฀create฀a฀comfortable฀blend฀of฀value฀and฀growth.฀
We฀understand฀our฀strategy฀takes฀us฀out฀of฀the฀pure฀play฀
game,฀but฀we฀sense฀our฀shareholders฀and฀potential฀new฀
investors฀are฀migrating฀toward฀more฀balance฀in฀their฀portfolios.
฀ By฀the฀way,฀if฀you’re฀wondering฀about฀the฀impact฀of฀
the฀aforementioned฀IPOs฀on฀Cash฀America,฀I฀view฀them฀as฀a฀
net฀positive.฀While฀these฀new฀public฀entrants฀are฀competing฀
for฀investment฀dollars,฀they฀are฀also฀spreading฀the฀word฀and฀
educating฀institutional฀investors฀about฀the฀prospects฀of฀the฀
cash฀advance฀business.฀They฀will฀undoubtedly฀be฀educating฀
some฀new฀investors฀who฀will฀be฀drawn฀to฀the฀balance฀of฀Cash฀
America’s฀position.฀Additionally,฀these฀deals฀represent฀one฀
more฀critical฀step฀in฀the฀mainstreaming฀of฀the฀cash฀advance฀
business฀in฀the฀American฀financial฀system.
฀ For฀the฀younger฀shareholders฀among฀you,฀I฀will฀close฀
this฀letter฀with฀a฀prediction฀that฀the฀current฀two-segment฀profile฀
of฀Cash฀America฀I฀have฀set฀forth฀in฀this฀letter฀will฀no฀more฀
accurately฀capture฀the฀Company’s฀profile฀in฀two฀decades฀than฀
did฀that฀soggy฀cocktail฀napkin฀in฀1984.฀Customers฀will฀change,฀
markets฀will฀change,฀products฀will฀change.฀Our฀goal฀is฀to฀
anticipate฀that฀change,฀adjust฀and฀maintain฀relevance฀with฀our฀
customers.฀I฀believe฀the฀impressive฀group฀of฀young฀managers฀
we฀are฀grooming฀will฀be฀up฀to฀that฀challenge฀over฀the฀next฀20฀
years.฀One฀of฀them฀may฀very฀well฀be฀reporting฀to฀you฀on฀the฀
Company’s฀second฀20฀years฀in฀her฀2024฀Annual฀Message฀
to฀Shareholders.฀I฀am฀trusting฀they฀all฀will฀be฀adding฀to฀the฀
comfort฀of฀my฀retirement!
Thanks฀for฀your฀continuing฀support.
Daniel฀R.฀Feehan
Chief฀Executive฀Officer฀and฀President
February฀2005
To My Fellow Shareholders:
2
$0.50
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0
Quarterly Comparison of
Earnings Per Share Continuing Operations
Q-4
Q-3Q-2Q-1
2002 2003 2004
2001
$1,000
$750
$500
$250
$0
Cash America Year-End
Market Capitalization
(in millions)
2002 2003 2004
$209.6 $231.9
$598.5
$873.1
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