FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
March 31, 2002 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(State of Incorporation) (IRS Employers
Identification Number)
690 East Lamar, Suite 400
Arlington, Texas
(Address of principal executive 76011
offices) (Zip Code)
(817)460-3947
(Registrant's telephone number, including area code)
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 ___
As of May 14, 2002, there were 8,818,187 shares of Company common stock, par
value $.01 per share ("Common Stock"), issued and outstanding.
Part I. Financial Information
Item 1. Financial Statements
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
------- -------
(unaudited)
(in thousands, except share data)
ASSETS
Cash and cash equivalents.................... $ 12,002 $ 11,252
Service charges receivable................... 2,106 2,817
Receivables.................................. 19,020 23,556
Inventories.................................. 10,812 12,681
Prepaid expenses and other current assets.... 1,149 1,226
Income taxes receivable...................... - 434
------- -------
Total current assets ..................... 45,089 51,966
Property and equipment, net.................. 10,151 10,034
Intangible assets, net....................... 53,194 53,194
Receivable from Cash & Go, Ltd............... 6,268 7,455
Other........................................ 217 157
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$114,919 $122,806
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and
notes payable.............................. $ 1,316 $ 1,385
Accounts payable and accrued expenses........ 8,872 10,041
Revolving credit facility.................... 22,000 32,000
Income taxes payable......................... 674 -
------- -------
Total current liabilities ................ 32,862 43,426
Long-term debt and notes payable, net of
current portion ........................... 1,283 1,608
Deferred income taxes........................ 3,910 3,669
------- -------
38,055 48,703
Stockholders' equity:
Preferred stock; $.01 par value; 10,000,000
shares authorized; no shares issued or
outstanding ............................. - -
Common stock; $.01 par value; 20,000,000
shares authorized; 9,417,868 and
9,417,868 shares issued, respectively;
8,763,687 and 8,763,687 shares
outstanding, respectively ............... 95 95
Additional paid-in capital ................ 51,255 51,255
Retained earnings ......................... 33,613 30,819
Common stock receivables from officers .... (5,084) (5,051)
Common stock held in treasury, at cost,
654,181 and 654,181 shares, respectively. (3,015) (3,015)
------- -------
76,864 74,103
------- -------
$114,919 $122,806
======= =======
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,
----------------------------
2002 2001
------- -------
(unaudited) (unaudited)
(in thousands, except per
share amounts)
Revenues:
Merchandise sales ............................ $ 14,755 $ 14,496
Service charges .............................. 12,745 12,699
Check cashing fees ........................... 731 625
Other ........................................ 220 324
------- -------
28,451 28,144
------- -------
Cost of goods sold and expenses:
Cost of goods sold ........................... 8,910 9,395
Operating expenses ........................... 12,035 11,127
Interest expense ............................. 106 489
Depreciation ................................. 555 542
Amortization ................................. - 382
Administrative expenses ...................... 2,480 2,836
------- -------
24,086 24,771
------- -------
Income from continuing operations before
income taxes ................................ 4,365 3,373
Provision for income taxes..................... 1,571 1,214
------- -------
Income from continuing operations.............. 2,794 2,159
Loss from discontinued operations,
net of taxes (1) ............................ - (33)
------- -------
Net income .................................... $ 2,794 $ 2,126
======= =======
Net income per share:
Basic
Income from continuing operations .......... $ 0.32 $ 0.24
Loss from discontinued operations (1) ...... - -
------- -------
Net income ................................. $ 0.32 $ 0.24
======= =======
Diluted
Income from continuing operations .......... $ 0.30 $ 0.24
Loss from discontinued operations (1) ...... - -
------- -------
Net income ................................. $ 0.30 $ 0.24
======= =======
(1) During the fourth quarter of fiscal 2001, the Company sold its
check cashing software business and discontinued that particular facet of
the software business unit. In accordance with Accounting Principles Board
Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" ("APB 30"), the above
Selected Operating Information of the Company has been reclassified to
reflect the disposal of the Company's check cashing software business unit.
Accordingly, the sale proceeds, revenues, expenses and costs have been
segregated in the above results and reported as "Loss From Discontinued
Operations".
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,
----------------------------
2002 2001
------- -------
(unaudited) (unaudited)
(in thousands)
Cash flows from operating activities:
Net income from continuing operations .......... $ 2,794 $ 2,159
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization ............. 555 924
Discontinued operations .................... - 229
Changes in operating assets and liabilities,
net of effect of purchases of existing stores:
Service charges receivable ................... 711 264
Inventories .................................. 1,869 3,030
Prepaid expenses and other assets ............ 451 22
Accounts payable and accrued expenses ........ (1,169) 1,346
Current and deferred income taxes ........... 915 758
------- -------
Net cash flows from operating activities... 6,126 8,732
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Cash flows from investing activities:
Net decrease in receivables .................... 4,536 2,270
Purchases of property and equipment ............ (672) (293)
Receivable from Cash & Go, Ltd ................. 1,187 (59)
------- -------
Net cash flows from investing activities ... 5,051 1,918
------- -------
Cash flows from financing activities:
Proceeds from debt ............................. - 600
Repayments of debt ............................. (10,394) (10,017)
Common stock receivables from officers ......... (33) (90)
Purchase of treasury stock ..................... - (500)
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Net cash flows used in financing activities. (10,427) (10,007)
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Increase in cash and cash equivalents............ 750 643
Cash and cash equivalents at beginning
of the period ................................. 11,252 6,611
------- -------
Cash and cash equivalents at end of the period... $ 12,002 $ 7,254
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ..................................... $ 268 $ 833
======= =======
Income taxes ................................. $ 243 $ 438
======= =======
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. Such
unaudited consolidated financial statements are condensed and do not include
all disclosures and footnotes required by accounting principles generally
accepted 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, 2001 Annual Report on Form 10-K. All significant
inter-company accounts and transactions have been eliminated in
consolidation. The consolidated financial statements as of March 31, 2002
and December 31, 2001 and for the periods ended March 31, 2002 and 2001 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, 2002 are
not necessarily indicative of the results that may be expected for the full
fiscal year.
Note 2 - Revolving Credit Facility
The Company currently maintains a $50,000,000 line of credit with a
group of commercial lenders (the "Credit Facility"). At March 31, 2002,
$22,000,000 was outstanding under this Credit Facility and an additional
$28,000,000 was available to the Company pursuant to the available borrowing
base. The Credit Facility bears interest at the prevailing LIBOR rate
(which was approximately 1.9% at March 31, 2002) plus one percent, and
matures on September 1, 2002. Amounts available under the Credit Facility
are limited to 325% of the Company's earnings before income taxes, interest,
depreciation and amortization for the trailing twelve months. 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 these requirements and covenants during the three
months ended March 31, 2002 and as of May 14, 2002.
Note 3 - Costs in Excess of Net Assets Acquired
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets, effective July 1,
2001. Under SFAS No. 142, goodwill is no longer amortized but reviewed for
impairment annually, or more frequently if certain indicators arise. The
Company is required to complete the initial step of a transitional
impairment test within six months of adoption of SFAS No. 142 and to
complete the final step of the transitional impairment test by the end of
the current fiscal year.
Any impairment loss resulting from the transitional impairment test
would be recorded as a cumulative effect of a change in accounting principle
attributable to the three-month period ended March 31, 2002. Subsequent
impairment losses will be reflected in operating income in the consolidated
statement of income for the period in which such loss is realized. Had the
Company been accounting for its goodwill under SFAS No. 142 for both three-
month periods presented, the Company's net income and basic and diluted net
income per share would have been as follows:
Three Months Ended
------------------
March 31, March 31,
2002 2001
------ ------
Reported net income $ 2,794 $ 2,126
Add: amortization of costs in excess
of net assets acquired, net of tax - 245
------ ------
Pro forma adjusted net income $ 2,794 $ 2,371
====== ======
Note 4 - Earnings Per Share
The following table sets forth the computation of the amounts used
in calculating basic and diluted earnings per share:
Three Months Ended
------------------
March 31, March 31,
2002 2001
------ ------
Numerator:
Income from continuing operations
for calculating basic and diluted
earnings per share $ 2,794 $ 2,126
Income (loss) from discontinued
operations for calculating basic
and diluted earnings per share - -
------ ------
Net income for calculating basic
and diluted earnings per share $ 2,794 $ 2,126
====== ======
Denominator:
Weighted-average common
shares for calculating basic
earnings per share 8,764 8,736
Effect of dilutive securities:
Stock options and warrants 693 235
------ ------
Weighted-average common
shares for calculating diluted
earnings per share 9,457 8,971
====== ======
Other outstanding options and warrants were not dilutive for
periods presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First Cash Financial Services, Inc. (the "Company") is the nation's
third largest publicly traded pawnshop operator and currently owns pawn
stores in Texas, Oklahoma, Washington, D.C., Maryland, Missouri, South
Carolina, Virginia and Mexico. The Company's pawn stores engage in both
consumer finance and retail sales activities. The Company's pawn stores
provide a convenient source for consumer advances, advancing money against
pledged tangible personal property such as jewelry, electronic equipment,
tools, sporting goods and musical equipment. These pawn stores also
function as retailers of previously owned merchandise acquired in forfeited
pawn transactions and over-the-counter purchases from customers. The
Company's pawn stores also offer short-term, secured advances ("short-term
advances").
The Company also currently owns check cashing and short-term advance
stores in Texas, California, Washington, Oregon, Illinois, and Washington,
D.C. These stores provide a broad range of consumer financial services,
including check cashing, money order sales, wire transfers, bill payment
services and short-term advances. In addition, the Company is a 50% partner
in Cash & Go, Ltd., a Texas limited partnership, which currently owns and
operates 59 financial services kiosks located inside convenience stores.
For the quarter ended March 31, 2002 the Company's revenues were derived 52%
from retail activities, 47% from lending activities, and 1% from other
sources, including check-cashing fees. The Company's primary business plan
is to significantly expand its short-term advance operations by opening new
stores in Texas and other states, by accelerating the growth of its pawn
operations in Mexico and by expanding its short-term advance operations in
its existing pawn stores.
Although the Company has had significant increases in revenues due
primarily to new store openings, and secondarily to acquisitions, the
Company has also incurred increases in operating expenses attributable to
the additional stores and increases in administrative expenses attributable
to building a management team and the support personnel required by the
Company's growth. 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 depreciation, advertising,
property taxes, licenses, supplies, security and net returned checks (net
bad debts) for both check cashing and short term advances. Administrative
expenses consist of items relating to the operation of the corporate office,
including the salaries of corporate officers, area supervisors and other
management, accounting and administrative costs, liability and casualty
insurance, outside legal and accounting fees and stockholder-related
expenses.
RESULTS OF OPERATIONS
Three months ended March 31, 2002 compared to the three months ended March
31, 2001
Total revenues increased 1% to $28,451,000 for the three months ended
March 31, 2002 ("the First Quarter of 2002") as compared to revenues of
$28,144,000 for the three months ended March 31, 2001 ("the First Quarter
of 2001"). Of the $307,000 increase in total revenues, $259,000 was
attributable to an increase in merchandise sales, $46,000 was attributable
to increased service charges, $106,000 was attributable to increased check
cashing fees, and the remaining decrease of $104,000, was attributable to
other income. As a percentage of total revenues, merchandise sales remained
at 52%, service charges remained at 45%, and check cashing fees and other
income were 3% of total revenues during both the First Quarter of 2002 and
the First Quarter of 2001. The gross profit margin as a percentage of
merchandise sales increased to 40% during the First Quarter of 2002 compared
to 35% during the First Quarter of 2001. The aggregate receivables balance
(pawn loans plus short-term advances) decreased 4% from $19,773,000 as of
March 31, 2001 to $19,020,000 as of March 31, 2002. Of the $753,000
decrease, $903,000 relates to a decrease in pawn receivables, while short-
term advance receivables increased $150,000 during the First Quarter of 2002
compared to the First Quarter of 2001.
Operating expenses increased 8% to $12,035,000 during the First Quarter
of 2002 compared to $11,127,000 during the First Quarter of 2001, primarily
as a result of increased operating expenses related to additional stores
that were open during the First Quarter of 2002 compared to the First
Quarter of 2001. Administrative expenses decreased 13% to $2,480,000 during
the First Quarter of 2002 compared to $2,836,000 during the First Quarter of
2001, primarily due to lower legal expense incurred in the First Quarter of
2002. Interest expense decreased 78% from $489,000 in the First Quarter of
2001 to $106,000 in the First Quarter of 2002, primarily due to the
significantly lower level of debt and lower interest rates during the First
Quarter of 2002 compared to the First Quarter of 2001.
For the First Quarter of 2002 and the First Quarter of 2001, the
Company's tax provisions of 36% and 36%, respectively, of income before
income taxes differed from the statutory federal rate of 34% primarily due
to state income taxes, net of the federal tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and acquisitions have been financed with funds
generated from operations, bank and other borrowings, and the issuance of
the Company's securities.
The Company currently maintains a $50,000,000 long-term line of credit
with a group of commercial lenders (the "Credit Facility"). At March 31,
2002, $22,000,000 was outstanding under this Credit Facility and an
additional $28,000,000 was available to the Company pursuant to the
available borrowing base. The Credit Facility bears interest at the
prevailing LIBOR rate (which was approximately 1.9% at March 31, 2002) plus
one percent, and matures on September 1, 2002. Amounts available under the
Credit Facility are limited to 325% of the Company's earnings before income
taxes, interest, depreciation and amortization for the trailing twelve
months. 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 these requirements and
covenants during the quarter ended March 31, 2002 and as of May 14, 2002.
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 is prohibited from paying dividends to its stockholders.
Substantially all of the unencumbered assets of the Company have been
pledged as collateral against indebtedness under the Credit Facility.
As of March 31, 2002, the Company's primary sources of liquidity were
$12,002,000 in cash and cash equivalents, $2,106,000 in service charges
receivable, $19,020,000 in receivables, $10,812,000 in inventories and
$28,000,000 of available and unused funds under the Company's Credit
Facility. The Company had working capital as of March 31, 2002 of
$12,227,000 and a total liabilities to equity ratio of 0.50 to 1.
Net cash provided by operating activities for the Company during the
First Quarter of 2002 was $6,126,000 as compared with $8,732,000 provided by
operating activities during the First Quarter of 2001. Net cash provided by
investing activities during the First Quarter of 2002 was $5,051,000 as
compared with $1,918,000 provided by investing activities during the First
Quarter of 2001. Net cash used for financing activities of $10,427,000
during the First Quarter of 2002 compares to net cash used for financing
activities of $10,007,000 during the First Quarter of 2001.
The profitability and liquidity of the Company is affected by the
amount of pawns outstanding, which is controlled in part by the Company's
lending decisions. The Company is able to influence the frequency of pawn
redemption by increasing or decreasing the amount pawned in relation to the
resale value of the pledged property. Tighter credit decisions generally
result in smaller pawns in relation to the estimated resale value of the
pledged property and can thereby decrease the Company's aggregate pawn
balance and, consequently, decrease pawn service charges. 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. 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 2002. 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 will likely 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 the remainder of
fiscal 2002, the Company currently plans to open approximately 20 check
cashing/short-term advance locations, primarily located in Texas, Washington
DC and Virginia, as well as 15 pawnshops in Mexico. Secondarily, the
Company plans to increase its short-term advance operations in its existing
pawn stores. This expansion will be funded through the Company's Credit
Facility. While the Company continually looks for, and is presented with
potential acquisition candidates, the Company has no definitive plans
or commitments for further acquisitions. If the Company encounters an
attractive opportunity to acquire or open a new store in the near future,
the Company will seek additional financing, the terms of which will be
negotiated on a case-by-case basis.
FORWARD LOOKING INFORMATION
Factors impacting 2002 will include the continued success of the
Company's short-term cash advance product, known as payday loans, and the
continued growth in pawn loan demand. Management will continue to pursue
marketing and development activities to enhance loan balances and promote
payday loans in 2002. The continued impact in 2002 of still higher loan
balances, improved bad debt collection efforts, improved margins on retail
sales, lower interest rates on outstanding debt, new store openings and the
further maturation of those already in place should lead to continued growth
in the Company's earnings per share. Overall, expectations for fiscal
2002's net income from continuing operations should be positively impacted
by the new accounting pronouncement dealing with the Company's treatment of
the amortization of goodwill and intangibles; however, the precise impact of
the Company's adoption, on January 1, 2002, of this new accounting
pronouncement has not been determined at this time. Other factors that will
determine the level of earnings in 2002 include the direction of loan
balances, bad debt collections, retail sales, margins on retail sales,
interest rates on the Company's outstanding debt and the number of new store
openings. These factors lead management to an estimated range for earnings
per share from continuing operations for fiscal 2002 of between $1.04 and
$1.11 per share.
This release may contain forward-looking statements about the business,
financial condition and prospects of First Cash Financial Services, Inc.
Forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will,"
"should," "plans," "intends," or "anticipates" or the negative thereof, or
other variations thereon, or comparable terminology, or by discussions of
strategy. Forward-looking statements in this release include, without
limitation, the earnings per share discussion above, the expectation of
increased loan growth, the expectation for additional store openings, and
the expectation of growth in the Company's payday advance products. These
statements are made to provide the public with management's 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 report
speak only as of the date of this report, and the Company expressly
disclaims any obligation or undertaking to release any updates or revisions
to any such statement to reflect any change in the Company's expectations or
any change in events, conditions or circumstance 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 report. Such factors are
difficult to predict and many are beyond the control of the Company, but may
include changes in regional or national economic conditions, the ability to
integrate new stores, changes in governmental regulations, unforeseen
litigation, changes in interest rates or tax rates, future business
decisions and other uncertainties.
PART II. OTHER INFORMATION
ITEM 2. Changes in securities
ITEM 4. Submission of matters to a vote of security holders
ITEM 6. Exhibits and reports on Form 8-K
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 14, 2002 FIRST CASH FINANCIAL SERVICES, INC.
(Registrant)
/s/ Phillip E. Powell /s/ Rick L. Wessel
--------------------- ------------------------
Phillip E. Powell Rick L. Wessel
Chairman of the Board and Chief Accounting Officer
Chief Executive Officer