Cash America 2009 Annual Report Download - page 84

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partially offset by a decrease due to closed cash advance storefront locations in 2008. Management expects that the
implementation of the Company’s new proprietary point-of-sale system, which is expected to be completed in late
2010, will result in a substantial increase in depreciation expense in 2011.
Interest Expense. Interest expense as a percentage of total revenue was 1.9% in 2009 and 1.6% in 2008. Interest
expense increased $4.8 million, or 30.1%, to $20.8 million in 2009 as compared to $16.0 million in 2008. The
increase was primarily due to an increase in the average amount of debt outstanding during 2009 to $435.1 million
from $324.8 million during 2008, primarily due to the Prenda Fácil acquisition in the fourth quarter of 2008 and the
supplemental earn-out and true-up payments related to the CashNetUSA acquisition paid in late 2008 ($34.7
million) and early 2009 ($39.7 million). The increase was partially offset by a decrease in the effective blended
borrowing cost to 4.1% in 2009 from 4.7% in 2008. While the effective blended borrowing cost decreased in 2009,
the Company’s offering of its 5.25% Convertible Senior Notes due May 15, 2029 (the “2009 Convertible Notes”)
during the second quarter of 2009 contributed to the increase in interest expense, net, as relatively lower cost
floating rate debt was replaced by relatively higher fixed rate debt. See “Item 8. Financial Statements and
Supplementary Data─Note 8” for further discussion of the 2009 Convertible Notes. The Company also incurred
non-cash interest expense of $2.0 million related to the issuance of the 2009 Convertible Notes in May 2009.
Income Taxes. The Company’s effective tax rate was 36.7% for 2009, compared to 38.9% in 2008. The Company
incurred $4.4 million of nondeductible expenses during 2008 primarily related to development activities supporting
a 2008 referendum to overturn Ohio legislation related to short-term cash advances in that state. If the prior year
expense related to the Ohio referendum activities were deductible, the effective tax rate for 2008 would have been
37.7%. Without the prior year expense, the decrease in the 2009 effective tax rate was attributable to lower state
taxes and to the effect of lower foreign statutory tax rates on the 2009 increase in earnings from foreign operations.
Year Ended 2008 Compared To Year Ended 2007
Consolidated Net Revenue. Consolidated net revenue increased $52.8 million, or 7.7%, to $735.4 million during
2008 from $682.6 million during 2007. Net revenue from the pawn segment increased $37.3 million, or 10.5%,
largely due to increased finance and service charges from domestic pawn loans and increased profit from the
disposition of merchandise. In addition, net revenue from the cash advance segment increased by $15.7 million
during 2008, primarily due to growth in the Company’s internet channel. Partially offsetting this increase was a
decrease in net revenue from storefront cash advance activities as a result of adjustments in underwriting criteria to
reduce loss exposure and closing locations in various markets. The following table sets forth net revenue by
operating segment for 2008 and 2007 (dollars in thousands):
Year ended December 31,
2008 2007 Increase/(Decrease)
Pawn lending segment components:
Domestic $ 392,291 $ 356,275 $ 36,016 10.1
Foreign 1,330 - 1,330 N/A
Total pawn lending segment $ 393,621 $ 356,275 $ 37,346 10.5 %
Cash advance segment components:
Storefront $ 114,948 $ 137,979 $ (23,031) (16.7) %
Internet lending 221,324 184,729 36,595 19.8
Card services 2,153 - 2,153 N/A
Total cash advance segment $ 338,425 $ 322,708 $ 15,717 4.9 %
Check cashing segment 3,388 3,619 (231) (6.4)
Consolidated net revenue $ 735,434 $ 682,602 $ 52,832 7.7 %
Finance and Service Charges. Finance and service charges from pawn loans increased $24.0 million, or 14.9%, to
$185.0 million in 2008 from $161.0 million in 2007. The increase was primarily due to higher average loan