UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas 76011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 460-3947
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. Large accelerated
filer [ ] Accelerated filer [ X ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
As of May 8, 2006 there were 32,065,172 shares of Common Stock outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
-------------------- ------------
2006 2005 2005
-------- -------- --------
(unaudited)
(in thousands, except share data)
ASSETS
Cash and cash equivalents................ $ 56,367 $ 38,883 $ 42,741
Service fees receivable.................. 3,934 3,968 4,176
Pawn receivables......................... 26,743 22,435 27,314
Short-term advance receivables,
net of allowance of $171, $416
and $242, respectively................. 4,599 11,575 6,488
Inventories.............................. 20,701 16,104 21,987
Prepaid expenses and other current assets 4,487 2,582 5,430
-------- -------- --------
Total current assets .................. 116,831 95,547 108,136
Property and equipment, net.............. 25,380 18,516 23,565
Goodwill................................. 53,237 53,237 53,237
Other.................................... 1,090 2,599 1,016
-------- -------- --------
Total assets .......................... $ 196,538 $ 169,899 $ 185,954
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................... $ 1,211 $ 693 $ 908
Accrued liabilities...................... 10,443 8,680 13,722
-------- -------- --------
Total current liabilities ............. 11,654 9,373 14,630
Deferred income taxes payable............ 8,826 9,055 8,616
-------- -------- --------
Total liabilities ..................... 20,480 18,428 23,246
-------- -------- --------
Stockholders' equity:
Preferred stock; $.01 par value;
10,000,000 shares authorized ........ - - -
Common stock; $.01 par value;
90,000,000 shares authorized ........ 345 334 340
Additional paid-in capital ............ 88,788 79,744 83,065
Retained earnings ..................... 110,445 83,509 102,823
Common stock held in treasury ......... (23,520) (12,116) (23,520)
-------- -------- --------
Total stockholders' equity ............ 176,058 151,471 162,708
-------- -------- --------
Total liabilities and stockholders'
equity .............................. $ 196,538 $ 169,899 $ 185,954
======== ======== ========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31,
----------------------------
2006 2005
-------- --------
(unaudited, in thousands,
except per share amounts)
Revenues:
Merchandise sales ........................... $ 29,509 $ 24,237
Pawn service fees ........................... 11,066 8,954
Short-term advance and credit services fees.. 14,040 12,669
Check cashing fees .......................... 886 826
Other ....................................... 199 313
-------- --------
55,700 46,999
-------- --------
Cost of revenues:
Cost of goods sold .......................... 17,516 14,590
Short-term advance and credit services loss
provision ................................. 784 1,581
Check cashing returned items expense ........ 94 86
-------- --------
18,394 16,257
-------- --------
Gross profit............................... 37,306 30,742
Expenses and other income:
Store operating expenses .................... 18,119 15,761
Administrative expenses ..................... 5,706 4,216
Depreciation ................................ 1,705 1,292
Interest income ............................. (221) (84)
-------- --------
25,309 21,185
Income before income taxes..................... 11,997 9,557
Provision for income taxes..................... 4,375 3,488
-------- --------
Net income..................................... $ 7,622 $ 6,069
======== ========
Net income per share:
Basic........................................ $ 0.24 $ 0.19
======== ========
Diluted...................................... $ 0.23 $ 0.18
======== ========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
---------
2006 2005
-------- --------
(unaudited, in thousands)
Cash flows from operating activities:
Net income ................................... $ 7,622 $ 6,069
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation .............................. 1,705 1,292
Share-based compensation .................. 506 -
Short-term advance loss provision .......... 416 1,581
Stock option and warrant income tax benefit - 598
Changes in operating assets and liabilities:
Service fees receivable .................... 242 544
Inventories ................................ 450 554
Prepaid expenses and other assets .......... 1,053 (1,600)
Accounts payable and accrued liabilities ... (3,912) (1,552)
Current and deferred income taxes ......... 962 2,550
-------- --------
Net cash flows from operating activities . 9,044 10,036
-------- --------
Cash flows from investing activities:
Pawn receivables, net ........................ 1,407 1,980
Short-term advance receivables, net .......... 1,473 2,309
Purchases of property and equipment .......... (3,520) (2,432)
-------- --------
Net cash flows from investing activities . (640) 1,857
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and
warrants.................................... 3,110 758
Stock option and warrant income tax benefit .. 2,112 -
-------- --------
Net cash flows from financing activities . 5,222 758
-------- --------
Change in cash and cash equivalents............ 13,626 12,651
Cash and cash equivalents at beginning
of the period................................ 42,741 26,232
-------- --------
Cash and cash equivalents at end of the period. $ 56,367 $ 38,883
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ............................... $ 1,232 $ 341
======== ========
Supplemental disclosure of non-cash investing activity:
Non-cash transactions in connection with pawn
receivables settled through forfeitures of
collateral transferred to inventories ...... $ 10,550 $ 8,483
======== ========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
including the notes thereto, include the accounts of First Cash Financial
Services, Inc. (the "Company"), and its wholly-owned subsidiaries. In
addition, the accompanying consolidated financial statements include the
accounts of Cash & Go, Ltd., a Texas limited partnership that operates
financial services kiosks inside convenience stores, in which the Company
has a 50% ownership interest. All significant intercompany accounts and
transactions have been eliminated.
Such unaudited consolidated financial statements are condensed and do
not include all disclosures and footnotes required by generally accepted
accounting principles in the United States of America for complete financial
statements. Such interim period financial statements should be read in
conjunction with the Company's consolidated financial statements, which are
included in the Company's December 31, 2005 Annual Report on Form 10-K. The
condensed consolidated financial statements as of March 31, 2006 and for the
three month periods ended March 31, 2006 and 2005, are unaudited, but in
management's opinion, include all adjustments (consisting of only normal
recurring adjustments) considered necessary to present fairly the financial
position, results of operations and cash flows for such interim periods.
Operating results for the period ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the full fiscal year.
Certain amounts in prior year comparative presentations have been
reclassified in order to conform to the 2006 presentation.
Note 2 - Stock Split
In January 2006, the Company's Board of Directors approved a two-for-
one stock split in the form of a stock dividend to shareholders of record on
February 6, 2006. The additional shares were distributed on February 20,
2006. Common stock and all share and per share amounts (except authorized
shares and par value) have been retroactively adjusted to reflect the split.
Note 3 - Revolving Credit Facility
The Company maintains a long-term line of credit with two commercial
lenders (the "Credit Facility"). The Credit Facility provides a $25,000,000
long-term line of credit that matures on April 15, 2007, and bears interest
at the prevailing LIBOR rate (which was approximately 4.8% at March 31,
2006) plus a fixed interest rate margin of 1.375%. Amounts available under
the Credit Facility are limited to 300% of the Company's earnings before
income taxes, interest, and depreciation for the trailing twelve months. At
March 31, 2006, no amounts were outstanding under the Credit Facility and
the Company had $25,000,000 available for borrowings. Under the terms of
the Credit Facility, the Company is required to maintain certain financial
ratios and comply with certain technical covenants. The Company was in
compliance with the requirements and covenants of the Credit Facility as of
March 31, 2006, and May 8, 2006. The Company is required to pay an annual
commitment fee of 1/8 of 1% on the average daily unused portion of
the Credit Facility commitment. The Company's Credit Facility contains
provisions that allow the Company to repurchase stock and/or pay cash
dividends within certain parameters. Substantially all of the unencumbered
assets of the Company have been pledged as collateral against indebtedness
under the Credit Facility.
Note 4 - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended March 31,
----------------------------
2006 2005
-------- --------
Numerator:
Net income for calculating basic
and diluted earnings per share $ 7,622 $ 6,069
======== ========
Denominator:
Weighted-average common shares for
calculating basic earnings per share 31,846 32,125
Effect of dilutive securities:
Stock options and warrants 1,951 1,900
-------- --------
Weighted-average common shares for
calculating diluted earnings per share 33,797 34,025
======== ========
Basic earnings per share $ 0.24 $ 0.19
======== ========
Diluted earnings per share $ 0.23 $ 0.18
======== ========
Note 5 - Share-Based Compensation Expense
Under the Company's equity compensation plans, including the board-
approved 1990 Stock Option Plan, the shareholder-approved 1999 Stock
Option Plan and the shareholder-approved 2004 Long-Term Incentive Plan
(collectively described as the "Plans"), it has granted qualified and non-
qualified stock options to officers, directors and other key employees. At
March 31, 2006, 214,000 shares of unissued common stock of the Company were
available for granting under the Plans. In addition, the Company has issued
warrants to purchase shares of common stock to certain key members of
management, directors and other third parties.
Prior to January 1, 2006, the Company applied the recognition and
measurement principles of APB 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for awards of stock options and
warrants, whereby at the date of grant, no compensation expense was
reflected in income, as all stock options and warrants granted had an
exercise price equal to or greater than the market value of the underlying
common stock on the date of grant. Pro forma information regarding net
income and earnings per share was provided in accordance with Statement of
Financial Accounting Standards ("SFAS") 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, as if the fair value method
defined by SFAS 123, Accounting for Stock-Based Compensation had been
applied to stock-based compensation. For purposes of the pro forma
disclosures, the estimated fair value of stock options was amortized to
expense over the options' vesting period.
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-
Based Payments, which replaces SFAS 123 and supersedes APB 25. SFAS 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their
fair values. The Company adopted SFAS 123(R) using the modified-prospective
transition method, which requires the Company, beginning January 1, 2006 and
thereafter, to expense the grant-date fair value of all share-based awards
over their remaining vesting periods to the extent the awards were not fully
vested as of the date of adoption and to expense the fair value of all
share-based awards granted subsequent to December 31, 2005 over their
requisite service periods. Stock-based compensation expense for all share-
based payment awards granted after January 1, 2006 is based on the grant-
date fair value estimated in accordance with the provisions of SFAS 123(R).
The Company recognizes compensation cost net of a forfeiture rate and
recognizes the compensation cost for only those awards expected to vest on a
straight-line basis over the requisite service period of the award, which is
generally the vesting term. The Company estimated the forfeiture rate based
on its historical experience and its expectations about future forfeitures.
As required under the modified-prospective transition method, prior periods
have not been restated. In March 2005, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") 107 regarding
the SEC's interpretation of SFAS 123(R) and the valuation of share-based
payments for public companies. The Company has applied the provisions of
SAB 107 in its adoption of SFAS 123(R). The Company records share-based
compensation cost as an administrative expense.
For purposes of the pro forma information required to be disclosed by
SFAS 123, the Company recognized compensation expense over the vesting
period. Under SFAS 123(R), compensation expense is recognized over the
period through the date that the employee first becomes eligible to retire
and is no longer required to provide service to earn the award. For grants
prior to January 1, 2006, compensation expense continues to be recognized
under the prior method; compensation expense for awards granted after
December 31, 2005 is recognized over the period to the date the employee
first becomes eligible for retirement.
Historically, stock options and warrants have been granted to purchase
the Company's common stock at an exercise price equal to or greater than the
fair market value at the date of grant and generally have a maximum duration
of ten years. Stock options and warrants granted prior to January 1, 2005
were either fully vested and exercisable on the date grant, or vested and
become exercisable ratably over a five year period beginning five years from
the date of grant. In addition, certain of the options with vesting
provisions granted prior to January 1, 2005 included accelerated vesting
provisions tied to increases in the market value of Company's stock. All
stock options granted during fiscal 2005 were fully vested on the date of
grant, of which 594,000 options were granted with an exercise price equal to
the market price of the stock on the date of grant and 5,264,000 options
were granted with an exercise price that exceeded the market price on the
date of grant ("premium-priced options"). The options granted in fiscal
2005 at market price had a weighted-average exercise price of $12.50 and a
weighted-average fair value of $3.46. The premium-priced options granted in
fiscal 2005 had a weighted-average exercise price of $19.89 and a weighted-
average fair value price of $3.75. No options or warrants were granted
during the three month period ended March 31, 2006.
As a result of adopting SFAS 123(R) on January 1, 2006 the Company's
income before income taxes and net income for the three months ended
March 31, 2006 were $506,000 and $321,000, respectively, less than if it had
continued to account for share-based compensation under the recognition and
measurement provisions of APB 25, and related Interpretations, as permitted
by SFAS 123. Basic and diluted net income per share for the three months
ended March 31, 2006 would have each increased by $0.01, to $0.25 and $0.24,
respectively, if the Company had not adopted SFAS 123(R). SFAS 123(R)
requires that cash flows from tax benefits resulting from tax deductions in
excess of the compensation cost recognized for stock-based awards (excess
tax benefits) be classified as financing cash flows prospectively from
January 1, 2006. Prior to the adoption of SFAS 123(R), such excess tax
benefits were presented as operating cash flows. Accordingly, $2,112,000 of
excess tax benefits has been classified as a financing cash inflow in the
2006 first quarter Consolidated Statement of Cash Flows. For the quarter
ended March 31, 2005, such excess tax benefits amounted to $598,000.
Of the total share-based compensation expense (before tax benefit) of
$506,000 for the three months ended March 31, 2006, approximately $490,000
related to accelerated vesting of previously issued options as a result of
an increase in the market value of the Company's common stock during the
three months ended March 31, 2006. As of March 31, 2006, there are no
outstanding, unvested options with accelerated vesting features. The
Company anticipates that it will record an additional $16,000 of share-based
compensation expense in each remaining quarter of fiscal 2006. Total share-
based compensation expense, before tax benefit, for fiscal 2006 is
anticipated to be $556,000. As of March 31, 2006, total future unrecognized
share-based compensation cost related to stock options and warrants of
$250,000, before tax benefit, is expected to be recognized over a weighted-
average period of 1.9 years.
A summary of stock option and warrant activity during the three-months
ended March 31, 2006 is presented below:
Weighted-
Weighted- Average Aggregate
Underlying Average Remaining Intrinsic
Shares Exercise Contractual Value
(thousands) Price Term (years) (thousands)
----------- -------- ------------ -----------
Outstanding at
December 31, 2005 6,631 $12.04 8.5 $ 26,099
Granted - - - -
Exercised (550) 5.66 7.4 6,154
Canceled or forfeited - - - -
-----
Outstanding at
March 31, 2006 6,081 12.62 8.3 44,806
=====
Vested and expected to
vest at March 31, 2006 6,081 12.62 8.3 44,806
=====
Exercisable at
March 31, 2006 5,904 12.91 8.4 41,780
=====
The aggregate intrinsic value in the above table reflects the total
pretax intrinsic value (the difference between the Company's closing stock
price on the last trading day of the period and the exercise price of the
options and warrants, multiplied by the number of in-the-money options and
warrants) that would have been received by the option and warrants holders
had all option and warrant holders exercised their options and warrants on
March 31, 2006. The intrinsic value of the stock options and warrants
exercised are based on the closing price of the Company's stock on the date
of exercise. The total intrinsic value of options and warrants exercised
for the three months ended March 31, 2005 was $1,794,000. The Company
typically issues new shares of common stock to satisfy option and warrant
exercises.
Prior to the adoption of SFAS 123(R), the Company accounted for share-
based compensation plans under the provisions of APB 25, Accounting for
Stock Issued to Employees, and related interpretations. If compensation
cost for our stock-based compensation plans had been determined based on the
fair value method (estimated using the Black-Scholes option pricing model)
at the grant dates in accordance with SFAS 123, pro forma net income and
earnings per share for the three months ended March 31, 2005, would have
been as follows:
Three Months Ended
March 31, 2005
--------------
Net income, as reported $ 6,069
Less: Pro forma stock-based employee compensation
determined under the fair value requirements of
SFAS 123, net of income tax benefits 7,392
------
Adjusted net income (loss) $(1,323)
======
Earnings (loss) per share:
Basic, as reported $ 0.19
======
Basic, adjusted $ (0.04)
======
Diluted, as reported $ 0.18
======
Diluted, adjusted $ (0.04)
======
The estimated per share weighted-average grant-date fair value of stock
options granted during the three months ended 2005, was $15.13, as
determined using the Black-Scholes option pricing model based on the
following assumptions:
Dividend yield -
Volatility 45.0%
Risk-free interest rate 3.5%
Expected life 5.0 years
On November 10, 2005, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position No. SFAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards ("FSP 123(R)-3").
The alternative transition method includes simplified methods to establish
the beginning balance of the additional paid-in capital pool ("APIC pool")
related to the tax effects of employee stock-based compensation, and to
determine the subsequent impact on the APIC pool and Consolidated Statements
of Cash Flows of the tax effects of employee stock-based compensation awards
that are outstanding upon adoption of SFAS 123(R). The Company has until
January 1, 2007 to make a one-time election to adopt the transition
method described in FSP 123(R)-3. The Company is currently evaluating FSP
123(R)-3; however, if the Company were to make the one-time election, it is
not expected to affect operating income or net income.
Note 6 - Guarantees
Effective July 1, 2005, First Cash Credit, Ltd. ("FCC"), a wholly-owned
subsidiary of the Company, began offering a fee-based credit services
program ("CSO program") to assist consumers in its Texas markets in
obtaining credit. Under the CSO program, FCC assists customers in applying
for a short-term loan from an independent, non-bank, consumer lending
company (the "Independent Lender") and issues the Independent Lender a
letter of credit to guarantee the repayment of the loan. The loans made by
the Independent Lender to credit services customers of FCC range in amount
from $100 to $1,000, have terms of 7 to 31 days and bear interest at a rate
of less than 10% on an annualized basis.
These letters of credit constitute a guarantee for which the Company is
required to recognize, at the inception of the guarantee, a liability for
the fair value of the obligation undertaken by issuing the letters of
credit. The Independent Lender may present the letter of credit to FCC for
payment if the customer fails to repay the full amount of the loan and
accrued interest after the due date of the loan. Each letter of credit
expires within 60 days from the inception of the associated lending
transaction. FCC's maximum loss exposure under all of the outstanding
letters of credit issued on behalf of its customers to the Independent
Lender as of March 31, 2006 was $8,535,000. There were no outstanding
letters of credit at March 31, 2005. According to the letter of credit, if
the borrower defaults on the loan, the Company will pay the Independent
Lender the principal, accrued interest, insufficient funds fee, and late
fees, all of which the Company records as bad debt in the short-term advance
and credit services loss provision. FCC is entitled to seek recovery
directly from its customers for amounts it pays the Independent Lender in
performing under the letters of credit. The Company records the estimated
fair value of the liability under the letters of credit in accrued
liabilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's pawn store revenues are derived primarily from service
fees on pawns, service fees from short-term advances, also known as
payday loans, credit services fees and the sale of unredeemed goods
(merchandise sales). The Company accrues pawn service charge revenue on a
constant-yield basis over the life of the pawn for all pawns that the
Company deems collection to be probable based on historical pawn redemption
statistics. If a pawn is not repaid prior to the expiration of the
automatic extension period, if applicable, the property is forfeited to the
Company and transferred to inventory at a value equal to the principal
amount of the loan, exclusive of accrued interest.
The Company's payday advance store revenues are derived primarily from
fees on short-term/payday advances, credit services fees, check cashing fees
and fees from the sale of money orders, money transfers and prepaid card
products. The Company recognizes service fee income on short-term advances
on a constant-yield basis over the life of the advance, which is generally
thirty-one days or less. The net defaults on short-term advances and
changes in the short-term advance valuation reserve are charged to the
short-term advance loss provision.
Effective July 1, 2005, First Cash Credit, Ltd., a wholly-owned
subsidiary of the Company, began offering a fee-based credit services
organization program to assist consumers in its Texas markets in obtaining
credit. Under the CSO program, FCC assists customers in applying for a
short-term loan from an independent, non-bank, consumer lending company and
issues the Independent Lender a letter of credit to guarantee the repayment
of the loan. The Company recognizes credit services fees, which are
collected from the customer at the inception, ratably over the life of the
loan made by the Independent Lender. The loans made by the Independent
Lender to credit services customers of FCC have terms of seven to thirty-one
days. The Company records a liability for collected, but unearned, credit
services fees received from its customers.
OPERATIONS AND LOCATIONS
As of March 31, 2006, the Company had 348 locations in eleven U.S.
states and seven states in Mexico. Included in this total, the Company has
235 pawn shops of which 96 are located in the U.S. and 139 are located in
Mexico. In addition, the Company has 113 payday advance stores, all of
which are located in the U.S. Approximately 69 of the U.S. pawn stores also
offer the payday advance or credit services products in addition to pawn
loans and retail sales. The following table details store counts for the
three month period ended March 31, 2006:
Three Months Ended March 31, 2006
-----------------------------------
Pawn Payday Advance Total
Stores Stores Stores
------ ------ ------
Beginning of period count 226 102 328
New stores opened 9 11 20
Stores closed or consolidated - - -
------ ------ ------
End of period count 235 113 348
====== ====== ======
For the three months ended March 31, 2006, all of the new pawn stores
opened were located in Mexico, while all of the new payday stores opened
were located in the U.S. The Company's 50% owned joint venture, Cash & Go,
Ltd., operates a total of 40 kiosks located inside convenience stores in the
state of Texas, which are not included in the above table. No kiosks were
opened or closed during the three months ended March 31, 2006.
While the Company has had significant increases in revenues due to new
store openings in 2005 and 2006, the Company has also incurred increases
in operating expenses attributable to the additional stores. Operating
expenses consist of all items directly related to the operation of the
Company's stores, including salaries and related payroll costs, rent,
utilities, equipment, advertising, property taxes, licenses, supplies
and security. Administrative expenses consist of items relating to the
operation of the corporate office, including the compensation and benefit
costs of corporate management, area supervisors and other operations
management personnel, accounting and administrative costs, information
technology costs, liability and casualty insurance, outside legal and
accounting fees and stockholder-related expenses.
Stores included in the same-store revenue calculations are those stores
that were opened prior to the beginning of the prior year comparative fiscal
period and are still open. Also included are stores that were relocated
during the year within a specified distance serving the same market, where
there is not a significant change in store size and where there is not a
significant overlap or gap in timing between the opening of the new store
and the closing of the existing store. During the periods reported, the
Company has not had store expansions that involved a significant change in
the size of retail showrooms, and accordingly, no expanded stores have been
excluded from the same-store calculations. Non-retail sales of scrap
jewelry are included in same-store revenue calculations.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, related revenues and expenses, and
disclosure of gain and loss contingencies at the date of the financial
statements. Such estimates and assumptions are subject to a number of risks
and uncertainties, which may cause actual results to differ materially from
the Company's estimates. Both the significant accounting policies that
management believes are the most critical to aid in fully understanding and
evaluating the reported financial results and the effects of recent
accounting pronouncements have been reported in the Company's 2005 Annual
Report on Form 10-K.
Effective January 1, 2006, the Company adopted Financial Accounting
Standards Board Statement No. 123(R), Share-Based Payments ("SFAS
123(R)"). SFAS 123(R) establishes the accounting required for share-based
compensation, and requires companies to measure and recognize compensation
expense for all share-based payments at the grant date based on the fair
value of the award, as defined in SFAS 123(R), and include such costs as an
expense in their statements of operations over the requisite service
(vesting) period. The Company elected to adopt SFAS 123(R) using a modified-
prospective application, whereby the provisions of the statement will apply
going forward only from the date of adoption to new stock option awards
(issued subsequent to December 31, 2005) and for the portion of any
previously issued and outstanding stock option awards for which the
requisite service is rendered after the date of adoption. Thus, the Company
recognizes as expense the fair value of stock options issued prior to
January 1, 2006, but vesting after January 1, 2006, over the remaining
vesting period. In addition, compensation expense must be recognized for any
awards modified, repurchased, or canceled after the date of adoption. Under
the modified-prospective application, no restatement of previously issued
results is required. The Black-Scholes option pricing model is used to
measure fair value, which is the same method used in prior years for
disclosure purposes.
Effective July 1, 2005, First Cash Credit, Ltd. ("FCC"), a wholly-owned
subsidiary of the Company, began offering a fee-based credit services
program ("CSO program") to assist consumers in its Texas markets in
obtaining credit. Under the CSO program, FCC assists customers in applying
for a short-term loan from an independent, non-bank, consumer lending
company (the "Independent Lender") and issues the Independent Lender a
letter of credit to guarantee the repayment of the loan. The loans made by
the Independent Lender to credit services customers of FCC range in amount
from $100 to $1,000, have terms of 7 to 31 days and bear interest at a rate
of less than 10% on an annualized basis.
In accordance with the provisions of FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, the Company has determined
that the letters of credit issued by FCC to the Independent Lender as part
of the CSO program constitute a guarantee for which the Company is required
to recognize, at the inception of the guarantee, a liability for the fair
value of the obligation undertaken by issuing the letters of credit. Each
letter of credit is issued at the time that a FCC credit services customer
enters into a loan agreement with the Independent Lender. The Independent
Lender may present the letter of credit to FCC for payment if the customer
fails to repay the full amount of the loan and accrued interest after the
due date of the loan. Each letter of credit expires within 60 days from the
inception of the associated lending transaction. FCC is entitled to seek
recovery directly from its customers for amounts it pays the Independent
Lender in performing under the letters of credit. The Company records the
estimated fair value of the liabilities under the letters of credit in
accrued liabilities.
RESULTS OF OPERATIONS
Three months ended March 31, 2006, compared to the three months ended
March 31, 2005
The following table (amounts shown in thousands) details the components
of revenues for the three months ended March 31, 2006 (the "First Quarter of
2006"), as compared to the three months ended March 31, 2005 (the "First
Quarter of 2005"):
Three Months Ended March 31,
--------------------------------------
2006 2005 Increase/Decrease
-------- -------- -----------------
Domestic revenues:
Retail merchandise sales $ 15,816 $ 14,559 $ 1,257 9%
Scrap jewelry sales 2,320 1,857 463 25%
Pawn service fees 6,746 6,053 693 11%
Short-term advance and
credit services fees 14,040 12,669 1,371 11%
Check cashing fees 886 826 60 7%
Other 199 313 (114) (36%)
-------- -------- -------
40,007 36,277 3,730 10%
-------- -------- -------
Foreign revenues:
Retail merchandise sales 6,786 4,409 2,377 54%
Scrap jewelry sales 4,587 3,412 1,175 34%
Pawn service fees 4,320 2,901 1,419 49%
-------- -------- -------
15,693 10,722 4,971 46%
-------- -------- -------
Total revenues:
Retail merchandise sales 22,602 18,968 3,634 19%
Scrap jewelry sales 6,907 5,269 1,638 31%
Pawn service fees 11,066 8,954 2,112 24%
Short-term advance and
credit services fees 14,040 12,669 1,371 11%
Check cashing fees 886 826 60 7%
Other 199 313 (114) (36%)
-------- -------- -------
$ 55,700 $ 46,999 $ 8,701 19%
======== ======== =======
Year-over-year revenue increases for retail merchandise sales, pawn
service fees and short-term advance/credit service fees were due to a
combination of same-store revenue growth and the addition of new stores.
Same-store revenues (stores that were in operation during all of the First
Quarter of both 2005 and 2006) increased 13% or $5,860,000 for the First
Quarter of 2006 as compared to the same quarter last year. Revenues
generated by the 44 new pawn stores located in Mexico and the 26 new payday
advance stores located in the U.S. which have opened since January 1, 2005
increased by $3,128,000, compared to the same quarter last year.
The increase in scrap jewelry sales during the First Quarter of 2006,
as compared to the First Quarter of 2005, was due primarily to higher
selling prices of gold. The volume-weight of scrap jewelry sold in the
First Quarter of 2006 was essentially flat compared to the prior-year
quarter.
Aggregate short-term advance and credit services fees increased 11%
over the same period, although revenues in the Company's ten Illinois
locations decreased due to new payday advance regulations in that state.
Excluding the Illinois locations, revenues from short-term advances and
credit services increased by 19% compared to the prior year quarter. The
Company introduced its credit services program in its Texas locations in
July 2005. Credit services fees, which are included in reported short-term
advance and credit services fees, totaled $9,037,000 for the First Quarter
of 2006.
The following table (amounts shown in thousands) details pawn
receivables, short-term advance receivables and active CSO loans outstanding
from an independent third-party lender as of March 31, 2006, as compared to
March 31, 2005:
Balance at March 31,
----------------------------------
2006 2005 Increase/Decrease
------ ------ -----------------
Domestic receivables & CSO
loans outstanding:
Pawn receivables $16,355 $14,886 $ 1,469 10%
Short-term advance receivables 4,599 11,575 (6,976) (60%)
CSO loans held by independent
third-party lender (1) 7,623 - 7,623 -
------ ------ ------
28,577 26,461 2,116 8%
------ ------ ------
Foreign receivables:
Pawn receivables 10,388 7,549 2,839 38%
------ ------ ------
Total receivables & CSO
loans outstanding:
Pawn receivables 26,743 22,435 4,308 19%
Short-term advance receivables 4,599 11,575 (6,976) (60%)
CSO loans held by independent
third-party lender (1) 7,623 - 7,623 -
------ ------ ------
$38,965 $34,010 $ 4,955 15%
====== ====== ======
(1) CSO loans outstanding are comprised of the principal portion of active
CSO loans outstanding from an independent third-party lender, the
balance of which is not included on the Company's balance sheet.
Of the $4,308,000 total increase in pawn receivables, $2,921,000 was
attributable to growth at stores that were in operation as of March 31, 2006
and 2005, and $1,387,000 was attributable to the 55 new stores opened since
March 31, 2005. The decrease in short-term advance receivables was due
primarily to the introduction of the credit services program in the
Company's Texas locations in July 2005. As a result, the Company had no
short-term advance receivables in its Texas locations, including the Cash &
Go, Ltd, joint venture kiosks, at March 31, 2006, compared to $6,287,000 at
March 31, 2005. Short-term advance receivables in the Company's non-Texas
locations decreased from $5,288,000 at March 31, 2005, to $4,599,000 at
March 31, 2006, primarily due to the introduction of more restrictive payday
advance regulations in the State of Illinois, which negatively affected
short-term receivables in the Company's ten Illinois locations. The
Company's loss reserve on short-term advance receivables decreased from
$416,000 at March 31, 2005, to $171,000 at March 31, 2006 as a result of the
decrease in outstanding short-term advance receivables. The estimated fair
value of the liabilities under the letters of credit, net of anticipated
recoveries from customers, was $324,000 at March 31, 2006, which is included
as a component of the Company's accrued liabilities. There were no
outstanding letters of credit or related liabilities at March 31, 2005.
Gross profit margin on total merchandise sales was 41% during the First
Quarter of 2006, compared to 40% during the First Quarter of 2005, primarily
due to increased margin on scrap jewelry sales. Retail merchandise margin,
which excludes scrap jewelry sales, was 43% during the First Quarter of
2006, compared to 44% during the First Quarter of 2005. Gross margin on
sales of scrap jewelry increased from 25% in the First Quarter of 2005 to
32% in the First Quarter of 2006 due to increased selling prices of gold.
The Company's payday advance and credit services loss provision
decreased from 12% of short-term advance and credit services fee revenues
during the First Quarter of 2005 to 6% during the First Quarter of 2006.
During the First Quarter of 2006, the Company sold certain bad debt
portfolios generated from short-term advances and credit services
agreements. The sales were recorded as a credit to the short-term advance
and credit services loss provision, as are all recoveries of previously
written-off short-term advance and credit services bad debt portfolios. It
is anticipated that the regular sale of additional 2005 and 2006 bad debt
portfolios will continue into future periods in 2006 and beyond for the
purpose of ongoing reduction of the payday advance and credit services loss
provision. Excluding the benefit of all such sales, the current quarter
loss provision would have been 13%.
Store operating expenses increased 15% to $18,119,000 during the First
Quarter of 2006, compared to $15,761,000 during the First Quarter of 2005,
primarily as a result of the net addition of 64 pawn and check
cashing/short-term advance stores since January 1, 2005, which is a 23%
increase in the store count. Administrative expenses increased 35% to
$5,706,000 during the First Quarter of 2006 compared to $4,216,000 during
the First Quarter of 2005, which is primarily attributable to increased
costs related to variable management and supervisory compensation expense
and a non-cash charge of approximately $506,000 for share-based compensation
expense as a result of the adoption of SFAS 123(R), effective January 1,
2006. Interest income increased from $84,000 in the First Quarter of 2005
to $221,000 in the First Quarter of 2006, due primarily to interest income
earned on increased levels of invested cash and cash equivalents.
For both the First Quarter of 2006 and 2005, the Company's effective
federal income tax rate of 36.5% differed from the federal statutory tax
rate of 35%, primarily as a result of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2006, the Company's primary sources of liquidity were
$56,367,000 in cash and cash equivalents, $35,276,000 in receivables,
$20,701,000 in inventories and $25,000,000 of available and unused funds
under the Company's Credit Facility. The Company had working capital
of $105,177,000 as of March 31, 2006, and total equity exceeded total
liabilities by a ratio of 9 to 1. The Company's operations and store
openings have been financed with funds generated primarily from operations.
The Company maintains a long-term line of credit with two commercial
lenders (the "Credit Facility"). The Credit Facility provides a $25,000,000
long-term line of credit that matures on April 15, 2007, and bears interest
at the prevailing LIBOR rate (which was approximately 4.8% at March 31,
2006) plus a fixed interest rate margin of 1.375%. Amounts available under
the Credit Facility are limited to 300% of the Company's earnings before
income taxes, interest, depreciation and amortization for the trailing
twelve months. At March 31, 2006, the Company had no amounts outstanding
under the Credit Facility and $25,000,000 available for borrowings. Under
the terms of the Credit Facility, the Company is required to maintain
certain financial ratios and comply with certain technical covenants. The
Company was in compliance with the requirements and covenants of the Credit
Facility as of March 31, 2006, and May 8, 2006. The Company is required to
pay an annual commitment fee of 1/8 of 1% on the average daily unused
portion of the Credit Facility commitment. The Company's Credit Facility
contains provisions that allow the Company to repurchase stock and/or
pay cash dividends within certain parameters. Substantially all of the
unencumbered assets of the Company have been pledged as collateral against
indebtedness under the Credit Facility.
Net cash provided by operating activities of the Company during the
First Quarter of 2006, was $9,044,000, consisting primarily of net income
of $7,622,000 plus non-cash adjustments for depreciation, share-based
compensation, and the short-term advance loss provision of $1,705,000,
$506,000, and $416,000 respectively. Net changes in operating assets and
liabilities reduced cash used by operating activities in the amount of
$1,205,000. Net cash used by investing activities during the three months
ended March 31, 2006, was $640,000, which was primarily comprised of net
cash inflows from pawn receivables and short-term advance receivables
activity of $1,407,000 and $1,473,000, respectively, net of cash paid for
fixed asset additions of $3,520,000. Net inflows from short-term advance
activity were due to the reduction in outstanding short-term advances in the
Company's Texas locations resulting from the introduction of the credit
services program in July 2005. The opening of 20 new stores during the
First Quarter of 2006 contributed significantly to the volume of fixed asset
additions. Net cash provided by financing activities was $5,222,000 during
the First Quarter of 2006, which consisted of proceeds from exercises of
stock options and warrants and the tax benefit from the exercise of employee
stock options of $3,110,000 and $2,112,000, respectively.
For purposes of its internal liquidity assessments, the Company
considers net cash changes in pawn receivables and short-term advance
receivables to be closely related to operating cash flows. For the First
Quarter of 2006, net cash flows from operations were $9,044,000, while net
cash inflows related to pawn receivables and short-term advance receivables
activity was $1,407,000 and $1,473,000. The combined net cash flows from
operations and pawn and short-term advance receivables totaled $11,924,000
for the First Quarter of 2006. For the comparable prior year period, net
cash flows from operations were $10,036,000, and net cash inflows related to
pawn receivables and short-term advance receivables were $1,980,000 and
$2,309,000, respectively. The combined net cash flows from operations and
pawn and short-term advance receivables totaled $14,325,000 for the First
Quarter of 2005.
The profitability and liquidity of the Company is affected by the
amount of pawn receivables outstanding, which is controlled in part by the
Company's pawn lending decisions. The Company is able to influence the
frequency of pawn redemptions by increasing or decreasing the amount
advanced in relation to the resale value of the pawned property. Tighter
credit decisions generally result in smaller pawn advances in relation to
the estimated resale value of the pledged property and can thereby decrease
the Company's aggregate pawn receivables balance and, consequently, decrease
pawn service fees. Additionally, small advances in relation to the pledged
property's estimated resale value tend to increase pawn redemptions and
improve the Company's liquidity. Conversely, providing larger pawns in
relation to the estimated resale value of the pledged property can result in
an increase in the Company's pawn service charge income. Also, larger
average pawn balances can result in an increase in pawn forfeitures, which
increases the quantity of goods on hand, and unless the Company increases
inventory turnover, reduces the Company's liquidity. The Company's renewal
policy allows customers to renew pawns by repaying all accrued interest on
such pawns, effectively creating a new pawn transaction.
The amount of short-term advances outstanding and the related loss
provision also affect the profitability and liquidity of the Company. An
allowance for losses is provided on active short-term advances and service
fees receivable, based upon expected default rates, net of estimated future
recoveries of previously defaulted short-term advances and service fees
receivable. The Company considers short-term advances to be in default if
they are not repaid on the due date, and writes off the principal amount and
service fees receivable as of the default date, leaving only active
receivables in the reported balances. Net defaults and changes in the
short-term advance allowance are charged to the short-term advance and
credit services loss provision.
In addition to these factors, merchandise sales and the pace of store
expansions affect the Company's liquidity. Management believes that the
Credit Facility and cash generated from operations will be sufficient to
accommodate the Company's current operations for fiscal 2006. The Company
has no significant capital commitments. The Company currently has no
written commitments for additional borrowings or future acquisitions;
however, the Company intends to continue to grow and may seek additional
capital to facilitate expansion. The Company will evaluate acquisitions,
if any, based upon opportunities, acceptable financing, purchase price,
strategic fit and qualified management personnel.
The Company currently intends to continue to engage in a plan of
expansion primarily through new store openings. During fiscal 2006, the
Company currently plans to open approximately 60 to 70 new stores, comprised
of both payday advance locations, located primarily in Texas and Michigan,
and pawn shops, located primarily in Mexico. All capital expenditures,
working capital requirements and start-up losses related to this expansion
are expected to be funded entirely through operating cash flows. While the
Company continually looks for, and is presented with potential acquisition
opportunities, the Company currently has no definitive plans or commitments
for acquisitions. The Company will evaluate potential acquisitions, if any,
based upon growth potential, purchase price, strategic fit and quality of
management personnel, among other factors. If the Company encounters an
attractive opportunity to acquire new stores in the near future, the Company
may seek additional financing, the terms of which will be negotiated on a
case-by-case basis.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") for the trailing twelve month period ended March 31, 2006 totaled
$47,881,000, an increase of 24% compared to $38,682,000 for the trailing
twelve month period ended March 31, 2005. The EBITDA margin, which is
EBITDA as a percentage of revenues, for the trailing twelve month period
ended March 31, 2006 was 22%, compared to 21% for the comparable prior year
period.
EBITDA is commonly used by investors to assess a company's leverage
capacity, liquidity and financial performance. EBITDA is not considered a
measure of financial performance under U.S. generally accepted accounting
principles ("GAAP"), and the items excluded from EBITDA are significant
components in understanding and assessing the Company's financial
performance. Since EBITDA is not a measure determined in accordance with
GAAP and is thus susceptible to varying calculations, EBITDA, as presented,
may not be comparable to other similarly titled measures of other companies.
EBITDA should not be considered as an alternative to net income, cash flows
provided by or used in operating, investing or financing activities or other
financial statement data presented in the Company's consolidated financial
statements as an indicator of financial performance or liquidity. Non-GAAP
measures should be evaluated in conjunction with, and are not a substitute
for, GAAP financial measures.
The following table provides a reconciliation of net income to EBITDA
(amounts in thousands):
Trailing Twelve Months
Ended March 31,
----------------------------
2006 2005
-------- --------
Net income $ 26,936 $ 21,597
Adjustments:
Interest income, net of interest expense (454) (107)
Depreciation 6,217 4,544
Income taxes 15,182 12,648
-------- --------
Earnings before interest, income taxes,
depreciation and amortization $ 47,881 $ 38,682
======== ========
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT
FUTURE RESULTS
Forward-Looking Information
This quarterly report may contain forward-looking statements about the
business, financial condition and prospects of First Cash Financial
Services, Inc. ("First Cash" or the "Company"). Forward-looking statements,
as that term is defined in the Private Securities Litigation Reform Act of
1995, can be identified by the use of forward-looking terminology such as
"believes," "projects," "expects," "may," "estimates," "should," "plans,"
"intends," "could," or "anticipates," or the negative thereof, or other
variations thereon, or comparable terminology, or by discussions of
strategy. Forward-looking statements can also be identified by the fact
that these statements do not relate strictly to historical or current
matters. Rather, forward-looking statements relate to anticipated or
expected events, activities, trends or results. Because forward-looking
statements relate to matters that have not yet occurred, these statements
are inherently subject to risks and uncertainties. Forward-looking
statements in this quarterly report include, without limitation, the
Company's expectations of earnings per share, expansion strategy, store
openings, loss provisions, future liquidity, option-based compensation
expense and cash flows. These statements are made to provide the public
with management's current assessment of the Company's business. Although
the Company believes that the expectations reflected in forward-looking
statements are reasonable, there can be no assurances that such expectations
will prove to be accurate. Security holders are cautioned that such
forward-looking statements involve risks and uncertainties. The forward-
looking statements contained in this quarterly report speak only as of the
date of this statement, and the Company expressly disclaims any obligation
or undertaking to report any updates or revisions to any such statement to
reflect any change in the Company's expectations or any change in events,
conditions or circumstances on which any such statement is based. Certain
factors may cause results to differ materially from those anticipated by
some of the statements made in this quarterly report. Such factors are
difficult to predict and many are beyond the control of the Company and may
include changes in regional, national or international economic conditions,
changes in consumer borrowing and repayment behaviors, changes or increases
in competition, the ability to locate, open and integrate new stores, the
ability to operate as a credit services organization in Texas, the ability
to successfully refer credit services customers to an independent lender who
can provide credit to these customers, new legislative initiatives or
governmental regulations, or changes to existing laws and regulations
affecting payday advance businesses, credit services organizations and pawn
businesses in both the U.S. and Mexico, unforeseen litigation, changes in
interest rates, changes in tax rates or policies, changes in gold prices,
changes in foreign currency exchange rates, future business decisions, and
other uncertainties. These and other risks and uncertainties are indicated
in the Company's 2005 Annual Report on Form 10-K (see "Item 1A. - Risk
Factors").
Regulatory Developments
The Company is subject to extensive regulation of its pawnshop, short-
term advance/payday lending, credit services and check-cashing operations in
most jurisdictions in which it operates. These regulations are provided
through numerous laws, ordinances and regulatory pronouncements from various
federal, state and local governmental entities in the United States and
Mexico. In many jurisdictions, the Company must obtain and maintain
regulatory operating licenses. In addition, many statutes and regulations
prescribe, among other things, the general terms of the Company's loan
and credit services agreements and the maximum service fees and/or
interest rates that may be charged. These regulatory agencies have broad
discretionary authority. The Company is also subject to U.S. federal and
state regulations relating to the reporting and recording of certain
currency transactions. The Company's pawnshop operations in Mexico are also
subject to, and must comply with pawnshop and other general business, tax,
employment and consumer protection regulations from various federal, state
and local governmental agencies in Mexico.
Existing regulations and recent regulatory developments are described
in greater detail in the Company's Annual Report of Form 10-K for the year
ended December 31, 2005. Subsequent to the filing of the 2005 Form 10-K,
the State of Oregon has enacted legislation that provides for significantly
more restrictive regulation of the payday advance industry beginning in
July 2007. The implementation of these more restrictive regulations, as
currently enacted, is expected to have a significant negative effect on the
revenues and profitably of the Company's operations in Oregon, beginning in
July 2007. The Company currently has seven payday advance stores located in
Oregon.
There can be no assurance that additional local, state or federal
statutes or regulations in either the United States or Mexico will not be
enacted or that existing laws and regulations will not be amended at some
future date that could inhibit the ability of the Company to offer pawn
loans, short-term advances and credit services, significantly decrease the
service fees for lending money, or prohibit or more stringently regulate the
sale of certain goods, any of which could cause a significant, adverse
effect on the Company's future results. If legislative or regulatory actions
that had negative effects on the pawn, payday advance or credit services
industries were taken at a federal level in the United States or Mexico, or
in U.S. or Mexican states or municipalities where the Company has a
significant number of stores, those actions could have a materially adverse
effect on the Company's lending, credit services and retail activities and
revenues. There can be no assurance that additional federal, state or local
legislation in the U.S. or Mexico will not be enacted, or that existing laws
and regulations will not be amended, which would have a materially adverse
impact on the Company's operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates, gold prices and foreign currency exchange rates
and are described in detail in the Company's 2005 Annual Report on Form 10-
K. The Company does not engage in speculative or leveraged transactions,
nor does it hold or issue financial instruments for trading purposes.
There have been no material changes to the Company's exposure to market
risks since December 31, 2005.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-
15(e) under the Exchange Act) as of the end of our first fiscal
quarter of 2006. Based on such evaluation, such officers have
concluded that the Company's disclosure controls and procedures are
effective.
(b) Changes in Internal Control Over Financial Reporting
There has been no significant change in the Company's internal
control over financial reporting that was identified in connection
with our evaluation that occurred during the quarter ended March 31,
2006, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the litigation previously
reported in the Company's 2005 Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously
reported in the Company's 2005 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In January 2006, the Company's Board of Directors approved a two-for-
one stock split in the form of a stock dividend to shareholders of record on
February 6, 2006. The additional shares were distributed on February 20,
2006 and stock began trading at the split-adjusted price on February 22,
2006. All share and per share amounts (except authorized shares and par
value) have been retroactively adjusted to reflect the split.
During the period from January 1, 2006, through March 31, 2006, the
Company issued 228,000 shares of common stock relating to the exercise of
outstanding stock options for an aggregate exercise price of $2,733,000
(including income tax benefit). During the period from January 1, 2006,
through March 31, 2006, the Company issued 322,000 shares of common stock
relating to the exercise of outstanding stock warrants for an aggregate
exercise price of $2,490,000 (including income tax benefit).
The transactions set forth in the above paragraphs were completed
pursuant to either Section 4(2) of the Securities Act or Rule 506 of
Regulation D of the Securities Act. With respect to issuances made pursuant
to Section 4(2) of the Securities Act, the transactions did not involve any
public offering and were sold to a limited group of persons. Each recipient
either received adequate information about the Company or had access,
through employment or other relationships, to such information, and the
Company determined that each recipient had such knowledge and experience in
financial and business matters that they were able to evaluate the merits
and risks of an investment in the Company. With respect to issuances made
pursuant to Rule 506 of Regulation D of the Securities Act, the Company
determined that each purchaser was an "accredited investor" as defined in
Rule 501(a) under the Securities Act. All sales of the Company's securities
were made by officers of the Company who received no commission or
other remuneration for the solicitation of any person in connection with
the respective sales of securities described above. The recipients of
securities represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
In July 2004, the Company's Board of Directors authorized an open-ended
stock repurchase plan, with no dollar limitation, to permit future
repurchases of up to 3,200,000 shares of the Company's outstanding common
stock. During 2004, the Company repurchased a total of 1,245,000 common
shares under the stock repurchase plan for an aggregate purchase price of
$12,116,000 or $9.73 per share. During 2005, the Company repurchased a
total of 1,153,000 common shares under the stock repurchase plan for an
aggregate purchase price of $11,404,000 or $9.89 per share. There were no
repurchases of the Company's common shares during the three months ended
March 31, 2006.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibits:
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act provided by J. Alan Barron, Chief Executive Officer
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act provided by R. Douglas Orr, Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
provided by J. Alan Barron, Chief Executive Officer and R.
Douglas Orr, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 8, 2006 FIRST CASH FINANCIAL SERVICES, INC.
(Registrant)
/s/ J. ALAN BARRON
-----------------------------
J. Alan Barron
Chief Executive Officer
(Principal Executive Officer)
/s/ R. DOUGLAS ORR
-----------------------------
R. Douglas Orr
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
provided by J. Alan Barron, Chief Executive Officer
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
provided by R. Douglas Orr, Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided
by J. Alan Barron, Chief Executive Officer and R. Douglas Orr,
Chief Financial Officer
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, J. Alan Barron, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of First Cash
Financial Services, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of the
Registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: May 8, 2006
/s/ J. Alan Barron
--------------------------------------
J. Alan Barron
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, R. Douglas Orr, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of First Cash
Financial Services, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13(a)-15(f) and 15d-15(f)) for the Registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of
the Registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: May 8, 2006
/s/ R. Douglas Orr
--------------------------------------
R. Douglas Orr
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Cash Financial Services,
Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31,
2006, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), we, J. Alan Barron and R. Douglas Orr each certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: May 8, 2006
/s/ J. Alan Barron
--------------------------------------
J. Alan Barron
Chief Executive Officer
/s/ R. Douglas Orr
--------------------------------------
R. Douglas Orr
Chief Financial Officer