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, 2001 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 76011
(Address of principal executive (Zip Code)
offices)
(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 11, 2001, there were 8,666,687 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,
2001 2000
------- -------
(unaudited)
(in thousands, except share data)
ASSETS
Cash and cash equivalents................... $ 7,254 $ 6,611
Service charges receivable.................. 2,443 2,707
Receivables................................. 19,773 22,043
Inventories................................. 14,182 17,221
Prepaid expenses and other current assets... 1,536 1,884
------- -------
Total current assets .................... 45,188 50,466
Property and equipment, net................. 10,129 10,378
Intangible assets, net...................... 53,126 53,508
Receivable from Cash & Go, Ltd.............. 4,639 4,580
Other....................................... 259 186
------- -------
$113,341 $119,118
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and
notes payable............................. $ 1,643 $ 1,643
Accounts payable and accrued expenses....... 7,806 6,460
Income taxes payable........................ 1,046 528
------- -------
Total current liabilities ............... 10,495 8,631
Revolving credit facility................... 30,000 39,000
Long-term debt and notes payable, net of
current portion........................... 2,602 3,019
Deferred income taxes....................... 3,054 2,814
------- -------
46,151 53,464
------- -------
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; 9,320,868 and
9,320,868 shares issued, respectively;
8,666,687 and 8,796,027 shares
outstanding, respectively .............. 93 93
Additional paid-in capital ............... 50,953 50,953
Retained earnings ........................ 25,075 22,949
Common stock receivables from officers ... (5,916) (5,826)
Common stock held in treasury, at cost,
654,181 and 524,841 shares, respectively (3,015) (2,515)
------- -------
67,190 65,654
------- -------
$113,341 $119,118
======= =======
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,
2001 2000
------- -------
(unaudited) (unaudited)
(in thousands, except per
share amounts)
Revenues:
Merchandise sales ............................ $ 14,817 $ 15,275
Service charges .............................. 12,699 11,059
Check cashing fees ........................... 625 608
Other ........................................ 562 623
------- -------
28,703 27,565
------- -------
Cost of goods sold and expenses:
Cost of goods sold ........................... 9,561 10,299
Operating expenses ........................... 11,529 11,340
Interest expense ............................. 489 763
Depreciation ................................. 584 512
Amortization ................................. 382 379
Administrative expenses ...................... 2,836 1,745
------- -------
25,381 25,038
------- -------
Income before income taxes..................... 3,322 2,527
Provision for income taxes..................... 1,196 948
------- -------
Income before cumulative effect of change in
accounting principle ........................ 2,126 1,579
Cumulative effect on prior years of change
in accounting principle, net of tax ......... - (2,287)
------- -------
Net income (loss).............................. $ 2,126 $ (708)
======= =======
Net income (loss) per share:
Basic
Income before cumulative effect of change in
accounting principle...................... $ 0.24 $ 0.18
Cumulative effect of change in accounting
principle - (0.26)
------- -------
Net income (loss) .......................... $ 0.24 $ (0.08)
======= =======
Diluted
Income before cumulative effect of change in
accounting principle...................... $ 0.24 $ 0.17
Cumulative effect of change in accounting
principle - (0.25)
------- -------
Net income (loss) .......................... $ 0.24 $ (0.08)
======= =======
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,
2001 2000
-------- --------
(unaudited)(unaudited)
(in thousands)
Cash flows from operating activities:
Net income (loss) .............................. $ 2,126 $ (708)
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization .............. 966 891
Cumulative effect of change in accounting
principle - 2,287
Changes in operating assets and liabilities,
net of effect of purchases of existing stores:
Service charges receivable ................... 264 365
Inventories .................................. 3,039 1,031
Prepaid expenses and other assets ............ 275 (133)
Accounts payable and accrued expenses ........ 1,346 462
Current and deferred income taxes ........... 758 911
-------- --------
Net cash flows from operating activities.... 8,774 5,106
-------- --------
Cash flows from investing activities:
Net decrease in receivables .................... 2,270 2,827
Purchases of property and equipment ............ (335) (781)
Increase in receivable from Cash & Go, Ltd ..... (59) (1,026)
-------- --------
Net cash flows from investing activities ... 1,876 1,020
-------- --------
Cash flows from financing activities:
Proceeds from debt ............................. 600 277
Repayments of debt ............................. (10,017) (8,198)
Common stock receivables from officers ......... (90) (157)
Purchase of treasury stock ..................... (500) -
-------- --------
Net cash flows from financing activities ... (10,007) (8,078)
-------- --------
Increase (decrease) in cash and cash equivalents. 643 (1,952)
Cash and cash equivalents at beginning
of the period ................................. 6,611 10,717
-------- --------
Cash and cash equivalents at end of the period. $ 7,254 $ 8,765
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................... $ 833 $ 764
======== ========
Income taxes ............................... $ 438 $ 36
======== ========
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 generally accepted accounting
principles 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, 2000
Annual Report on Form 10-K. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements as of March 31, 2001 and December 31, 2000 and for the
periods ended March 31, 2001 and 2000 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, 2001 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 long-term line of credit
with a group of commercial lenders (the "Credit Facility"). At March 31,
2001, $30,000,000 was outstanding under this Credit Facility and an
additional $18,839,000 was available to the Company pursuant to the
available borrowing base. The Credit Facility bears interest at the
prevailing LIBOR rate (which was approximately 4.5% at March 31, 2001) 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, 2001 and as of May 11,
2001.
Note 3 - 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,
2001 2000
------ ------
Numerator:
Income before cumulative effect
of change in accounting principle
for calculating basic and diluted
earnings per share $ 2,126 $ 1,579
Cumulative effect on prior years
of change in accounting principle
for calculating basic and diluted
earnings per share - (2,287)
------ ------
Net income for calculating basic
and diluted earnings per share $ 2,126 $ (708)
====== ======
Denominator:
Weighted-average common
shares for calculating basic
earnings per share 8,736 8,850
Effect of dilutive securities:
Stock options and warrants 235 213
------ ------
Weighted-average common
shares for calculating diluted
earnings per share 8,971 9,063
====== ======
Note 4 - Change in Accounting Principle
Effective January 1, 2000, the Company changed its method of income
recognition on pawn loans. The Company accrues pawn service charge revenue
on a constant yield basis for all pawn loans that the Company deems
collection to be probable based on historical loan redemption statistics.
For loans not repaid, the cost of forfeited collateral (inventory) is stated
at the lower of cost (cash amount loaned) or market. Prior to 2000, the
Company recognized service charge income on a constant yield basis over the
initial loan period for all pawn loans written. Service charges applicable
to the extension periods or additional loan periods were not recognized as
income until the loan was repaid or renewed. If the loan was not repaid,
the carrying value of the forfeited collateral (inventory) was stated at the
lower of cost (the principal amount loaned plus accrued service charges) or
market. The Company believes the accounting change provides a more timely
matching of revenues and expenses with which to measure results of
operations. The cumulative effect of the accounting method change on all
periods since inception of the Company through December 31, 1999 is
$2,287,000 (after an income tax benefit of $1,373,000) and is included as a
one-time reduction to net income for the quarter ended March 31, 2000.
Operating results for the three months ended March 31, 2000 have been
calculated using the new accounting method. The effect for the quarter
ended March 31, 2000 of adopting the change in income recognition on pawn
loans was to increase income before cumulative effect of change in
accounting principle by $195,000 ($0.02 per diluted share) and decrease net
income $2,092,000 ($0.23 per diluted share).
Note 5 - Operating Segment Information
The Company has three reportable operating segments: pawn lending
stores, check cashing and payday advance stores, and a software and hardware
provider. The Company's pawn stores offer non-recourse loans on the
collateral of pledged tangible personal property as well as short-term
secured consumer loans commonly referred to as payroll advances. The
Company's check cashing and payday advance stores provide check cashing
services, short-term secured consumer loans, bill payment services, money
transfer services and money order sales. The Company's computer software
subsidiary, Answers, etc., provides turnkey point of sale operating systems
to other check cashing and payday advance operators unaffiliated with the
Company.
Management of the Company evaluates performance based on the operating
income of each segment. There are no intersegmental sales. Each of the
segments are supervised separately. Information concerning the segments is
set forth below (in thousands):
Check Cashing/
Pawn Payday Advance
Stores Stores Software Consolidated
------ ------ -------- ------------
Three Months Ended March 31, 2001
---------------------------------
Total revenues $24,025 $ 4,119 $ 559 $ 28,703
Depreciation and amortization 711 202 53 966
Income before interest and
income taxes 2,925 1,049 (163) 3,811
Total assets at March 31, 2001 82,850 28,284 2,207 113,341
Capital expenditures 278 42 15 335
Three Months Ended March 31, 2000
---------------------------------
Total revenues 22,969 3,926 670 27,565
Depreciation and amortization 663 189 39 891
Income before interest and
income taxes 2,099 1,351 (160) 3,290
Total assets at March 31, 2000 85,966 31,607 2,490 120,063
Capital expenditures 505 167 109 781
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First Cash Financial Services, Inc. is the nation's third largest
publicly traded pawnshop operator and currently owns and operates 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 loans, lending 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 ("payroll
advances").
The Company also currently owns check cashing and payday advance stores
in 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 payday
advances. The Company also owns Answers, etc., a company which provides
computer hardware and software to third party check cashing and payday
advance operators throughout the country, as well as ongoing technical
support. In addition, the Company is a 50% partner in Cash & Go, Ltd., a
joint venture which owns financial service kiosks located inside convenience
stores.
Although the Company has had significant increases in revenues due
primarily to acquisitions and secondarily to new store openings, 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, advertising, property taxes, licenses,
supplies, security and net returned checks. 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.
Effective January 1, 2000, the Company changed its method of income
recognition on pawn loans. The Company accrues pawn service charge revenue
on a constant yield basis for all pawn loans that the Company deems
collection to be probable based on historical loan redemption statistics.
For loans not repaid, the cost of forfeited collateral (inventory) is stated
at the lower of cost (cash amount loaned) or market. Prior to 2000, the
Company recognized service charge income on a constant yield basis over the
initial loan period for all pawn loans written. Service charges applicable
to the extension periods or additional loan periods were not recognized as
income until the loan was repaid or renewed. If the loan was not repaid,
the carrying value of the forfeited collateral (inventory) was stated at the
lower of cost (the principal amount loaned plus accrued service charges) or
market. The Company believes the accounting change provides a more timely
matching of revenues and expenses with which to measure results of
operations. The cumulative effect of the accounting method change on all
periods since inception of the Company through December 31, 1999 is
$2,287,000 (after an income tax benefit of $1,373,000) and is included as a
one-time reduction to net income for the quarter ended March 31, 2000.
RESULTS OF OPERATIONS
Three months ended March 31, 2001 compared to the three months ended March
31, 2000
Total revenues increased 4% to $28,703,000 for the three months ended
March 31, 2001 ("the First Quarter of 2001") as compared to revenues of
$27,565,000 for the three months ended March 31, 2000 ("the First Quarter of
2000"). Of the $1,138,000 increase in total revenues, $458,000 was
attributable to a decrease in merchandise sales, $1,640,000 was attributable
to increased service charges, $17,000 was attributable to increased check
cashing fees, and the remaining decrease of $61,000, was attributable
to other income. As a percentage of total revenues, merchandise sales
decreased from 56% to 52%, service charges increased from 40% to 44%, while
check cashing fees and other income were each 2% of total revenues during
both the First Quarter of 2000 and the First Quarter of 2001. The gross
profit margin as a percentage of merchandise sales increased to 35% during
the First Quarter of 2001 compared to 33% during the First Quarter of
2000. The aggregate receivables balance (pawn loans plus payday advances)
decreased 3% from $20,487,000 as of March 31, 2000 to $19,773,000 as of
March 31, 2001.
Operating expenses increased 2% to $11,529,000 during the First Quarter
of 2001 compared to $11,340,000 during the First Quarter of 2000, primarily
as a result of increased bad debt related to the introduction of payday
advances in most of the Company's pawn stores subsequent to the First
Quarter of 1999. Administrative expenses increased 63% to $2,836,000 during
the First Quarter of 2001 compared to $1,745,000 during the First Quarter of
2000, primarily due to a legal accrual and the addition of supervisory staff
and other overhead related to the introduction of payday advances in the
Company's pawn stores. Interest expense decreased 36% from $763,000 in the
First Quarter of 2000 to $489,000 in the First Quarter of 2001, primarily
due to the significantly lower level of debt during the First Quarter of
2001 compared to the First Quarter of 2000.
For the First Quarter of 2001 and the First Quarter of 2000, the
Company's tax provisions of 36% and 38%, 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,
2001, $30,000,000 was outstanding under this Credit Facility and an
additional $18,839,000 was available to the Company pursuant to the
available borrowing base. The Credit Facility bears interest at the
prevailing LIBOR rate (which was approximately 4.5% at March 31, 2001) 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, 2001 and as of May 11, 2001.
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, 2001, the Company's primary sources of liquidity were
$7,254,000 in cash and cash equivalents, $2,443,000 in service charges
receivable, $19,773,000 in receivables, $14,182,000 in inventories and
$18,839,000 of available and unused funds under the Company's Credit
Facility. The Company had working capital as of March 31, 2001 of
$34,693,000 and a total liabilities to equity ratio of 0.69 to 1.
Net cash provided by operating activities for the Company during the
First Quarter of 2001 was $8,774,000 as compared with $5,106,000 provided by
operating activities during the First Quarter of 2000. Net cash provided by
investing activities during the First Quarter of 2001 was $1,876,000 as
compared with $1,020,000 provided by investing activities during the First
Quarter of 2000. Net cash used for financing activities of $10,007,000
during the First Quarter of 2001 compares to net cash used for financing
activities of $8,078,000 during the First Quarter of 2000.
The profitability and liquidity of the Company are affected by the
amount of pawn loans outstanding, which is controlled in part by the
Company's pawn lending decisions. The Company is able to influence the
frequency of forfeiture of collateral by increasing or decreasing the amount
loaned in relation to the resale value of the pledged property. Tighter
credit decisions generally result in smaller loans in relation to the
estimated resale value of the pledged property and can thereby decrease the
Company's aggregate loan balance and, consequently, decrease pawn service
charges. Additionally, small loans in relation to the pledged property's
estimated sale value tend to increase loan redemptions and improve the
Company's liquidity. Conversely, providing larger loans in relation to the
estimated sale value of the pledged property can result in an increase in
the Company's pawn service charge income. Also larger average loan balances
can result in an increase in loan forfeitures, which increases the quantity
of goods on hand and, unless the Company increases inventory turnover,
reduces the Company's liquidity. In each of the Company's last three fiscal
years, at least 70% of the amounts loaned were either paid in full or
renewed. The Company's renewal policy allows customers to renew pawn loans
by repaying all accrued interest on such pawn loans. In addition to these
factors, the Company's liquidity is affected by merchandise sales and the
pace of store expansions.
Management believes that the Credit Facility, current assets and cash
generated from operations will be sufficient to accommodate the Company's
current operations for at least the next twelve months. The Company has no
significant capital commitments as of May 11, 2001. 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 intends to continue to engage in a plan of expansion
primarily through new store openings in both check cashing/payday advance
locations for the Company, and kiosks for Cash & Go, Ltd., the Company's 50%
convenience store joint venture. Secondarily, the Company will selectively
expand through existing store acquisitions. 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. Between April 1,
2001 and May 11, 2001, the Company opened one new store. All store openings
and acquisitions during the quarter ended March 31, 2001 were financed with
proceeds from the Company's Credit Facility and with cash generated from
operations.
FORWARD LOOKING INFORMATION
This report contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. Forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans," or "anticipates"
or the negative thereof, or other variations thereon, or comparable
terminology, or by discussions of strategy. Such statements include, but
are not limited to, the discussions of the Company's operations, liquidity,
and capital resources. Forward-looking statements are included in the
"Liquidity and Capital Resources" section of this annual report. 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. Generally, these statements relate to business
plans, strategies, anticipated strategies, levels of capital expenditures,
liquidity and anticipated capital funding needed to effect the business
plan. All phases of the Company's operations are subject to a number of
uncertainties, risks and other influences, many of which are outside the
control of the Company and cannot be predicted with any degree of accuracy.
Factors such as changes in regional or national economic conditions, changes
in governmental regulations, unforeseen litigation, changes in interest
rates or tax rates, significant changes in the prevailing market price of
gold, future business decisions and other uncertainties may cause results to
differ materially from those anticipated by some of the statements made in
this report. In light of the significant uncertainties inherent in the
forward-looking statements made in this report, the inclusion of such
statements should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Security holders are cautioned that such forward-looking statements involve
risks and uncertainties. The forward-looking statements contained 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.
PART II. OTHER INFORMATION
ITEM 2. Changes in securities
b. Between January 1, 2001 and March 31, 2001, the Company repurchased
129,340 shares of common stock for an average purchase price of
$3.87 per share.
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 11, 2001 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