Cash America 2008 Annual Report Download - page 25

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The Company began offering cash advances online with its acquisition of CashNetUSA in
September 2006. The Company is also actively pursuing strategies to increase and enhance its online
presence, including the entrance of various international markets, the use of joint cooperative marketing
agreements to reach additional customers and the introduction of longer term installment loan products with
the goal of becoming the premier online direct provider of short term loans. The Company also intends to
offer new products and services that complement its specialty financial services and to meet the growing
financial services needs of its customers both at its physical lending locations and online.
Recent Developments.
Prenda Fácil Acquisition. On December 16, 2008, the Company acquired 80% of the outstanding stock of
Creazione Estilo, S.A. de C.V., SOFOM, E.N.R., a Mexican sociedad anónima de capital variable, sociedad
financiera de objeto múltiple, entidad no regulada (“Creazione”), which, as of December 31, 2008, operates
a chain of 112 pawnshops in Mexico under the name “Prenda Fácil.” The Company paid an aggregate
initial consideration of $90.5 million, net of cash acquired, of which $82.6 million was paid in cash,
including acquisition costs of approximately $3.4 million. The remainder of the initial consideration was
paid in the form of 391,236 shares of the Company’s common stock with a fair value of $7.9 million as of
the closing date. The Company also agreed to pay a supplemental earn-out payment in an amount based on
a five times multiple of the consolidated earnings of Creazione’s business as specifically defined in the
Stock Purchase Agreement (generally Creazione’s earnings before interest, income taxes, depreciation and
amortization expenses) for the twelve month period ending June 30, 2011, reduced by amounts previously
paid. If the calculation of the supplemental payment produces an amount that is zero or less, there would be
no supplemental payment. This supplemental payment is expected to be paid in cash on or before August
15, 2011. The Company is operating the Prenda Fácil pawnshops through its Retail Services Division, and
is including the activities of Prenda Fácil in the results of its pawn lending segment.
Primary Innovations Acquisition. On July 23, 2008, the Company, through a wholly-owned
subsidiary, Primary Cash Holdings, LLC (now known as Primary Innovations, LLC, or “PI”), purchased
substantially all the assets of Primary Business Services, Inc., Primary Finance, Inc., Primary Processing,
Inc. and Primary Members Insurance Services, Inc. (collectively, “PBSI”), a group of companies in the
business of, among other things, providing loan processing services for, and participating in receivables
associated with, a bank issued line of credit made available by the bank on certain stored-value debit cards
the bank issues. The Company paid approximately $5.6 million in cash, of which approximately $4.9
million was used to repay a loan that the Company had made to PBSI and approximately $0.3 million
related to transaction costs. The Company also agreed to pay up to eight supplemental earn-out payments
during the four-year period after the closing. The amount of each supplemental payment is to be based on a
multiple of 3.5 times the consolidated earnings attributable to PI’s business for a specified period (generally
12 months) preceding each scheduled supplemental payment, reduced by amounts previously paid.
Substantially all of these supplemental payments will be accounted for as goodwill. The first supplemental
payment is due in April 2009, and, under the terms of the purchase agreement, shall not be less than $2.7
million. The activities of PI are included in the results of the Company’s cash advance segment.
Regulatory Developments. During the second quarter, the Company announced the potential
closure of up to 139 cash advance locations in Ohio due to legislation adopted by the Ohio legislature in
May 2008 that made changes to the statutes governing the Ohio cash advance product. In June 2008, the
Governor of Ohio signed the new legislation into law. This new law capped the annual percentage rate, as
defined in the statute (“APR”), on payday loans in Ohio at 28%, which significantly reduced the revenue
and profitability of that product in Ohio, effectively eliminating the Company’s ability to offer that
particular product in Ohio. Upon the new law becoming effective in the fourth quarter of 2008, the
Company's online business and its Ohio storefronts, including the remaining Ohio Cashland locations,
began offering customers short-term unsecured loans governed by the Ohio Second Mortgage Loan statute,
and most of the remaining Ohio Cashland locations also began offering gold buying services. The Company
is closely evaluating the success and viability of such alternative products and services.