FCFS 09.30.2012 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012

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
(State or other jurisdiction of incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas
(Address of principal executive offices)
75-2237318
(I.R.S. Employer Identification No.)
76011
(Zip Code)
(817) 460-3947
(Registrant’s telephone number, including area code)

NONE
(Former name, former address and former fiscal year, if changed since last report)

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.      xYes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     xYes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
x  Large accelerated filer
o  Accelerated filer
o  Non-accelerated filer (Do not check if a smaller reporting company)
o  Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         oYes   x No

As of October 22, 2012, there were 28,640,806 shares of common stock outstanding.




PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
 
 
 
 
 
 
September 30,
 
December 31,
 
 
2012
 
2011
 
2011
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
25,744

 
$
48,410

 
$
70,296

Pawn loan fees and service charges receivable
 
15,888

 
11,472

 
10,842

Pawn loans
 
107,714

 
77,973

 
73,287

Consumer loans, net
 
2,027

 
929

 
858

Inventories
 
65,692

 
54,916

 
44,412

Prepaid expenses and other current assets
 
11,363

 
6,745

 
9,705

Deferred tax assets
 
1,078

 

 
1,078

Total current assets
 
229,506

 
200,445

 
210,478

 
 
 
 
 
 
 
Property and equipment, net
 
89,621

 
68,620

 
73,451

Goodwill, net
 
162,675

 
68,704

 
69,695

Other non-current assets
 
6,418

 
3,504

 
3,472

Total assets
 
$
488,220

 
$
341,273

 
$
357,096

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
Current portion of notes payable
 
$
3,184

 
$
487

 
$

Accounts payable and accrued liabilities
 
35,707

 
31,140

 
25,629

Income taxes payable
 

 
6,289

 
9,776

Deferred taxes payable
 

 
991

 

Total current liabilities
 
38,891

 
38,907

 
35,405

 
 
 
 
 
 
 
Revolving unsecured credit facility
 
111,000

 

 

Notes payable, net of current portion
 
9,165

 
1,018

 

Deferred income tax liabilities
 
12,278

 
5,461

 
6,319

Total liabilities
 
171,334

 
45,386

 
41,724

 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
Preferred stock
 

 

 

Common stock
 
383

 
383

 
383

Additional paid-in capital
 
149,606

 
147,385

 
147,649

Retained earnings
 
386,273

 
312,068

 
333,523

Accumulated other comprehensive income (loss) from
 
 
 
 
 
 
cumulative foreign currency translation adjustments
 
(5,381
)
 
(11,229
)
 
(13,463
)
Common stock held in treasury, at cost
 
(213,995
)
 
(152,720
)
 
(152,720
)
Total stockholders' equity
 
316,886

 
295,887

 
315,372

Total liabilities and stockholders' equity
 
$
488,220

 
$
341,273

 
$
357,096

 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

2



FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
 
Merchandise sales
 
$
96,006

 
$
87,794

 
$
269,204

 
$
243,447

Pawn loan fees
 
39,768

 
31,741

 
108,612

 
91,277

Consumer loan and credit services fees
 
13,717

 
13,078

 
38,157

 
37,831

Other revenue
 
204

 
239

 
733

 
808

Total revenue
 
149,695

 
132,852

 
416,706

 
373,363

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of goods sold
 
59,328

 
53,164

 
168,212

 
150,278

Consumer loan and credit services loss provision
 
4,397

 
3,908

 
9,587

 
8,587

Other cost of revenue
 
32

 
54

 
80

 
147

Total cost of revenue
 
63,757

 
57,126

 
177,879

 
159,012

 
 
 
 
 
 
 
 
 
Net revenue
 
85,938

 
75,726

 
238,827

 
214,351

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
39,889

 
33,313

 
111,003

 
96,352

Administrative expenses
 
12,330

 
11,531

 
36,248

 
33,995

Depreciation and amortization
 
3,328

 
2,815

 
9,467

 
8,259

Interest expense
 
444

 
39

 
697

 
105

Interest income
 
(30
)
 
(56
)
 
(147
)
 
(221
)
Total expenses and other income
 
55,961

 
47,642

 
157,268

 
138,490

 
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
 
29,977

 
28,084

 
81,559

 
75,861

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
10,341

 
9,832

 
28,138

 
26,554

 
 
 
 
 
 
 
 
 
Income from continuing operations
 
19,636

 
18,252

 
53,421

 
49,307

 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax
 
(747
)
 
181

 
(671
)
 
7,020

Net income
 
$
18,889

 
$
18,433

 
$
52,750

 
$
56,327

 
 
 
 
 
 
 
 
 
Basic income per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.69

 
$
0.60

 
$
1.85

 
$
1.59

Income (loss) from discontinued operations
 
(0.03
)
 

 
(0.03
)
 
0.23

Net income per basic share
 
$
0.66

 
$
0.60

 
$
1.82

 
$
1.82

 
 
 
 
 
 
 
 
 
Diluted income per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.67

 
$
0.58

 
$
1.80

 
$
1.55

Income (loss) from discontinued operations
 
(0.03
)
 
0.01

 
(0.03
)
 
0.23

Net income per diluted share
 
$
0.64

 
$
0.59

 
$
1.77

 
$
1.78

 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

3



FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
Net income
 
$
18,889

 
$
18,433

 
$
52,750

 
$
56,327

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Currency translation adjustment, gross
 
9,782

 
(19,252
)
 
12,339

 
(12,518
)
Tax (expense) benefit
 
(3,375
)
 
6,738

 
(4,257
)
 
4,338

Comprehensive income
 
$
25,296

 
$
5,919

 
$
60,832

 
$
48,147

 
 
 
 
 
 
 
 
 
 The accompanying notes are an integral part
of these condensed consolidated financial statements.

4




FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)

 
 
Preferred
Stock
 
Common
Stock
 
Additional Paid-In Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Comp-
rehensive
Income
(Loss)
 
Common Stock
Held in Treasury
 
Total
Stock-
holders'
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2011
 

 
$

 
38,291

 
$
383

 
$
147,649

 
$
333,523

 
$
(13,463
)
 
8,200

 
$
(152,720
)
 
$
315,372

Shares issued under share-based comp-ensation plan
 

 

 
50

 

 

 

 

 

 

 

Exercise of stock options and warrants
 

 

 

 

 
506

 

 

 

 

 
506

Income tax benefit from exercise of stock options and warrants
 

 

 

 

 
476

 

 

 

 

 
476

Share-based compensation expense
 

 

 

 

 
975

 

 

 

 

 
975

Net income
 

 

 

 

 

 
52,750

 

 

 

 
52,750

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
8,082

 

 

 
8,082

Repurchases of treasury stock
 

 

 

 

 

 

 

 
1,500

 
(61,275
)
 
(61,275
)
Balance at 9/30/2012
 

 
$

 
38,341

 
$
383

 
$
149,606

 
$
386,273

 
$
(5,381
)
 
9,700

 
$
(213,995
)
 
$
316,886

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.




5




FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CONTINUED
(unaudited, in thousands)

 
 
Preferred
Stock
 
Common
Stock
 
Additional Paid-In Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Comp-
rehensive
Income
(Loss)
 
Common Stock
Held in Treasury
 
Total
Stock-
holders'
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2010
 

 
$

 
38,002

 
$
380

 
$
142,344

 
$
255,741

 
$
(3,049
)
 
6,840

 
$
(97,412
)
 
$
298,004

Shares issued under share-based comp-ensation plan
 

 

 
268

 
3

 

 

 

 

 

 
3

Exercise of stock options and warrants
 

 

 

 

 
2,458

 

 

 

 

 
2,458

Income tax benefit from exercise of stock options and warrants
 

 

 

 

 
2,088

 

 

 

 

 
2,088

Share-based compensation expense
 

 

 

 

 
495

 

 

 

 

 
495

Net income
 

 

 

 

 

 
56,327

 

 

 

 
56,327

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
(8,180
)
 

 

 
(8,180
)
Repurchases of treasury stock
 

 

 

 

 

 

 

 
1,360

 
(55,308
)
 
(55,308
)
Balance at 9/30/2011
 

 
$

 
38,270

 
$
383

 
$
147,385

 
$
312,068

 
$
(11,229
)
 
8,200

 
$
(152,720
)
 
$
295,887

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

6



FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
Nine Months Ended
 
 
September 30,
 
 
2012
 
2011
Cash flow from operating activities:
 
 
 
 
Net income
 
$
52,750

 
$
56,327

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Non-cash portion of credit loss provision
 
536

 
96

Share-based compensation expense
 
975

 
495

Depreciation and amortization expense
 
9,486

 
8,305

Deferred income taxes
 
1,702

 
1,365

Loss (gain) on disposition of consumer loan stores
 
633

 
(9,965
)
Changes in operating assets and liabilities, net of business combinations:
 
 
 
 
Pawn fees and service charges receivable
 
(3,642
)
 
(1,314
)
Merchandise inventories
 
(4,418
)
 
(3,771
)
Prepaid expenses and other assets
 
(671
)
 
(1,098
)
Accounts payable and accrued expenses
 
6,642

 
4,450

Income taxes payable, current
 
(9,517
)
 
(272
)
Net cash flow provided by operating activities
 
54,476

 
54,618

Cash flow from investing activities:
 
 
 
 
Pawn loan receivables
 
(25,272
)
 
(17,018
)
Consumer loans
 
(433
)
 
(102
)
Purchases of property and equipment
 
(16,240
)
 
(21,135
)
Proceeds from disposition of consumer loan stores
 

 
19,857

Acquisitions of pawn stores, net of cash acquired
 
(108,027
)
 
(3,950
)
Net cash flow used in investing activities
 
(149,972
)
 
(22,348
)
Cash flow from financing activities:
 
 
 
 
Change in line of credit, net
 
111,000

 

Payments of notes payable
 
(1,051
)
 
(346
)
Purchases of treasury stock
 
(61,275
)
 
(55,308
)
Proceeds from exercise of share-based compensation awards
 
506

 
2,461

Income tax benefit from exercise of stock options and warrants
 
476

 
2,088

Net cash flow provided by (used in) financing activities
 
49,656

 
(51,105
)
Effect of exchange rates on cash
 
1,288

 
5

Change in cash and cash equivalents
 
(44,552
)
 
(18,830
)
Cash and cash equivalents at beginning of the period
 
70,296

 
67,240

Cash and cash equivalents at end of the period
 
$
25,744

 
$
48,410

 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

7



FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Significant Accounting Policies

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. All significant intercompany accounts and transactions have been eliminated.

These 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. These 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, 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012. The condensed consolidated financial statements as of September 30, 2012, and for the three and nine month periods ended September 30, 2012, and 2011 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 flow for such interim periods. Operating results for the periods ended September 30, 2012, are not necessarily indicative of the results that may be expected for the full fiscal year.

The Company manages its pawn and consumer loan operations under three operating segments:  U.S. pawn operations, U.S. consumer loan operations and Mexico operations. The three operating segments have been aggregated into one reportable segment because they have similar economic characteristics and similar long-term financial performance metrics. Additionally, all three segments offer similar and overlapping products and services to a similar customer demographic, operate in similar regulatory environments, and are supported by a single, centralized administrative support platform.

The functional currency for the Company’s Mexican subsidiaries is the Mexican peso. Accordingly, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenue and expenses are translated at the monthly average exchange rates occurring during each period.

Certain amounts in prior year comparative presentations have been reclassified in order to conform to the 2012 presentation.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The amendments in ASU 2011-04 generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). The provisions of ASU 2011-04 are effective prospectively for interim and annual periods beginning after December 15, 2011. Early adoption was prohibited. The adoption of ASU 2011-04 did not have a material effect on the Company’s financial position, results of operations or financial statement disclosures.

In July 2012, the FASB issued ASU No. 2012-02, “Intangibles - Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test described in Subtopic 350-30. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, and the Company plans to adopt ASU 2012-02 as of December 31, 2012. The Company does not expect ASU 2012-02 to have a material effect on the Company's financial position, results of operations or financial statement disclosures, as the value of indefinite-lived intangible assets will not be affected by the adoption of this standard.


8



In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22" ("ASU 2012-03"). This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114 and was effective upon issuance. The adoption of ASU 2012-03 did not have a material effect on the Company’s financial position, results of operations or financial statement disclosures.

In October 2012, the FASB issued ASU 2012-04, “Technical Corrections and Improvements” ("ASU 2012-04"). The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in ASU 2012-04 will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material effect on the Company’s financial position, results of operations or financial statement disclosures.

Note 2 - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (unaudited, in thousands, except per share data):
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
Numerator:
 
 
 
 
 
 
 
 
Income from continuing operations for calculating basic and diluted earnings per share
 
$
19,636

 
$
18,252

 
$
53,421

 
$
49,307

Income (loss) from discontinued operations
 
(747
)
 
181

 
(671
)
 
7,020

Net income for calculating basic and diluted earnings per share
 
$
18,889

 
$
18,433

 
$
52,750

 
$
56,327

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted-average common shares for calculating basic earnings per share
 
28,616

 
30,348

 
28,951

 
30,915

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options, warrants and nonvested awards
 
814

 
847

 
778

 
798

Weighted-average common shares for calculating diluted earnings per share
 
29,430

 
31,195

 
29,729

 
31,713

 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.69

 
$
0.60

 
$
1.85

 
$
1.59

Income (loss) from discontinued operations
 
(0.03
)
 

 
(0.03
)
 
0.23

Net income per basic share
 
$
0.66

 
$
0.60

 
$
1.82

 
$
1.82

 
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.67

 
$
0.58

 
$
1.80

 
$
1.55

Income (loss) from discontinued operations
 
(0.03
)
 
0.01

 
(0.03
)
 
0.23

Net income per diluted share
 
$
0.64

 
$
0.59

 
$
1.77

 
$
1.78


Note 3 - Acquisitions

Consistent with the Company’s strategy to continue its expansion of pawn stores in selected markets, in September 2012, the Company acquired the stock of LTS, Incorporated, the operating entity owning the pawn loans, inventory, layaways and other operating assets and liabilities of 16 large format Fast Cash Pawn stores located in Colorado. The purchase price for the transaction was $45,924,000, net of cash acquired, and was composed of $37,424,000 in cash and notes payable to the selling shareholders of $8,500,000. The notes payable bear interest at 4.0% per annum and the remaining balance is being paid in monthly payments of principal and interest scheduled through September 2017. The acquisition has been accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to assets and liabilities acquired based upon their estimated fair

9



market values at the date of acquisition. The excess purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill of approximately $34,431,000, which is deductible for income tax purposes. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company with LTS, Incorporated. The estimated fair values of the goodwill and intangible assets acquired are preliminary, as the Company is gathering information to finalize the valuation of these assets by year end. The assets, liabilities and results of operations of the locations were included in the Company’s consolidated results as of the acquisition date, September 14, 2012.

Consistent with the Company’s strategy to continue its expansion of pawn stores in selected markets, in June 2012, the Company acquired from Mister Money Investments, Inc., L&W Properties, LLC, Mister Money - - RM, Inc., Mister Money - - KY, Inc., LWC, LLC and MMRD, LLC (collectively “Mister Money”), the assets of 21 stores located in Colorado, Kentucky, Wyoming and Nebraska, and certain operating entities owning the pawn loans, inventory, layaways and other operating assets and liabilities of three other pawn stores located in Colorado and Kentucky. The combined purchase price for all 24 stores was $25,615,000, net of cash acquired, and was composed of $25,315,000 in cash paid at closing and an additional $300,000 payable to the sellers in December 2012. The acquisition has been accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to assets and liabilities acquired based upon their estimated fair market values at the date of acquisition. The excess purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill of approximately $15,694,000, which is deductible for income tax purposes. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company with Mister Money. The estimated fair values of the goodwill and intangible assets acquired are preliminary, as the Company is gathering information to finalize the valuation of these assets by year end. The assets, liabilities and results of operations of the locations were included in the Company’s consolidated results as of the acquisition date, June 15, 2012.

Consistent with the Company’s strategy to continue its expansion of pawn stores in selected markets, in January 2012, the Company acquired from BBR Unlimited, LLC, the operating entity owning the pawn loans, inventory, layaways and other operating assets and liabilities of 29 pawn stores located in western Mexico. The purchase price for these stores was $46,863,000, net of cash acquired, and was composed of $41,963,000 in cash and a note payable to the seller of $4,900,000. The notes payable bear interest at 3.0% per annum and the remaining balance is being paid in monthly payments of principal and interest scheduled through January 2015. The acquisition has been accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to assets and liabilities acquired based upon their estimated fair market values at the date of acquisition. The excess purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill of $39,386,000, which is deductible for income tax purposes. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company with BBR Unlimited, LLC. The assets, liabilities and results of operations of the locations were included in the Company’s consolidated results as of the acquisition date, January 10, 2012.

During the second quarter of 2012, one pawn store in Maryland was acquired for a total purchase price of $592,000, net of cash acquired, and was composed of $533,000 in cash and a payable to the seller of $59,000. This acquisition resulted in additional recorded goodwill of $389,000. In addition, certain pawn working capital assets incorporated into an existing Texas store were acquired for a total purchase price of $311,000, net of cash acquired, and resulted in additional recorded goodwill of $182,000. During the first quarter of 2012, three pawn stores in Texas were acquired in two acquisitions for an aggregate purchase price of $2,481,000, net of cash acquired, and resulted in additional recorded goodwill of $1,056,000.

The allocation of the purchase prices for the 2012 acquisitions are as follows (in thousands):
 
Fast Cash
 
Mister Money
 
BBR Unlimited (Mexico)
 
Other
 
Total
Pawn loans
$
6,495

 
$
3,357

 
$
2,246

 
$
454

 
$
12,552

Consumer loans

 
1,202

 

 

 
1,202

Inventory
2,693

 
3,545

 
1,296

 
160

 
7,694

Other current assets
921

 
553

 
200

 
58

 
1,732

Property and equipment
131

 
497

 
4,124

 
945

 
5,697

Goodwill
34,431

 
15,694

 
39,386

 
1,627

 
91,138

Intangible assets
1,360

 
939

 
988

 
145

 
3,432

Other non-current assets
58

 
54

 
38

 

 
150

Current liabilities
(165
)
 
(226
)
 
(1,415
)
 
(5
)
 
(1,811
)
Purchase price
$
45,924

 
$
25,615

 
$
46,863

 
$
3,384

 
$
121,786



10



During the nine months ended September 30, 2012, revenue and after-tax earnings of the 2012 acquisitions since the acquisition dates were $22,421,000 and $2,168,000, respectively. The combined transaction and non-recurring integration costs of the 2012 acquisitions recorded during the nine months ended September 30, 2012, were approximately $1,300,000. The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if all the 2012 acquisitions had occurred on January 1, 2011. The unaudited pro forma financial information has been prepared for informational purposes only and does not purport to be indicative of what would have resulted had the acquisitions occurred on the date indicated or what may result in the future (in thousands, except per share data):
 
 
Nine Months Ended
 
Nine Months Ended
 
 
September 30, 2012
 
September 30, 2011
 
 
As Reported
 
Pro Forma
 
As Reported
 
Pro Forma
Total revenue from continuing operations
 
$
416,706

 
$
452,633

 
$
373,363

 
$
430,852

Income from continuing operations
 
53,421

 
57,539

 
49,307

 
56,589

Net income
 
52,750

 
56,868

 
56,327

 
63,609

Income from continuing operations per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.85

 
$
1.99

 
$
1.59

 
$
1.83

Diluted
 
1.80

 
1.94

 
1.55

 
1.78

Net income per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.82

 
$
1.96

 
$
1.82

 
$
2.06

Diluted
 
1.77

 
1.91

 
1.78

 
2.01


Note 4 - Guarantees

The Company offers a fee-based credit services organization program (“CSO Program”) to assist consumers, in Texas markets, in obtaining extensions of credit.  The Company’s CSO Program in Texas is licensed as a Credit Access Business (“CAB”) under Texas Finance Code Chapter 393 and regulated by the Texas Office of the Consumer Credit Commissioner. Under the CSO Program, the Company assists customers in applying for a short-term extension of credit 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 extension of credit.  The extensions of credit made by the Independent Lender to credit services customers of the Company range in amount from $50 to $1,500, have terms of 7 to 35 days and bear interest at a rate of 10% on an annualized basis.  The Independent Lender is considered a variable interest entity of the Company.  The Company does not have any ownership interest in the Independent Lender, does not exercise control over it and is not the primary beneficiary and, therefore, does not consolidate the Independent Lender’s results with its results.

The letters of credit under 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.  The Independent Lender may present the letter of credit to the Company for payment if the customer fails to repay the full amount of the extension of credit and accrued interest after the due date of the extension of credit.  Each letter of credit expires approximately 30 days after the due date of the extension of credit.  The Company’s maximum loss exposure under all of the outstanding letters of credit issued on behalf of its customers to the Independent Lender as of September 30, 2012, was $16,191,000 compared to $14,507,000 at September 30, 2011. According to the letter of credit, if the borrower defaults on the extension of credit, the Company will pay the Independent Lender the principal, accrued interest, insufficient funds fee, and late fees, all of which the Company records as a component of its credit loss provision.  The Company is entitled to seek recovery, directly from its customers, of the amounts it pays the Independent Lender in performing under the letters of credit.  The Company records the estimated fair value of the liability, which was immaterial at September 30, 2012, under the letters of credit in accrued liabilities.  The loss provision associated with the CSO Program is based primarily upon historical loss experience, with consideration given to recent loss trends, delinquency rates, economic conditions and management’s expectations of future credit losses.  See additional discussion of the loss provision and related allowances and accruals in the section titled “Results of Continuing Operations.”

Note 5 - Discontinued Operations     

The Company’s strategy has been to grow its pawn operations while reducing regulatory exposure from other consumer lending products, which include certain consumer loan and credit services products offered in the United States. In September 2012, the Company closed seven of its consumer loan stores located in the Texas cities of Austin and Dallas due in part to recently enacted ordinances in these cities, which significantly restrict the Company's ability to provide credit services products. The Company recorded a loss on disposal of $633,000, net of tax, or $0.03 per share, from these stores. The after-tax operating results from operations for these Texas stores were immaterial during the nine months ended September 30, 2012, and 2011.

11




In March 2011, the Company sold all ten of its consumer loan stores located in Illinois to a privately-held operator of check cashing and consumer lending stores. Under the terms of the agreement, the buyer purchased the outstanding customer loans, customer account lists and fixed assets, assumed leases at all the store locations and hired all of the store-level employees. During the nine months ended September 30, 2011, the Company recorded a gain of approximately $5,979,000, net of tax, or $0.19 per share, from the sale of these stores. The after-tax earnings from operations for the Illinois stores were an additional $514,000, or $0.02 per share during the nine months ended September 30, 2011.

All revenue, expenses and income reported in these financial statements have been adjusted to reflect reclassification of all discontinued operations. The carrying amounts of the assets and liabilities for discontinued operations at September 30, 2012, and 2011 were immaterial.

The following table summarizes the operating results, including gains from dispositions, of all the operations which have been reclassified as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2012, and 2011 (unaudited, in thousands, except per share data):

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
Consumer loan and credit services fees
 
$
58

 
$
497

 
$
941

 
$
2,863

Consumer loan and credit services loss provision
 
(64
)
 
(193
)
 
(370
)
 
(511
)
Net revenue
 
(6
)
 
304

 
571

 
2,352

 
 
 
 
 
 
 
 
 
Expenses and other (gain) loss:
 
 
 
 
 
 
 
 
Operating and administrative expenses
 
165

 
244

 
610

 
1,317

Depreciation and amortization
 
3

 
10

 
19

 
46

Loss (gain) on disposition of consumer loan stores
 
966

 
(133
)
 
966

 
(9,965
)
Gain on excess collections of notes receivable
 

 
(115
)
 

 
(735
)
Total expenses and other (gains)/losses
 
1,134

 
6

 
1,595

 
(9,337
)
Income (loss) from discontinued operations before income taxes
 
(1,140
)
 
298

 
(1,024
)
 
11,689

Tax benefit (expense)
 
393

 
(117
)
 
353

 
(4,669
)
Income (loss) from discontinued operations, net of tax
 
$
(747
)
 
$
181

 
$
(671
)
 
$
7,020

Income (loss) from discontinued operations (basic)
 
$
(0.03
)
 
$

 
$
(0.03
)
 
$
0.23

Income (loss) from discontinued operations (diluted)
 
$
(0.03
)
 
$
0.01

 
$
(0.03
)
 
$
0.23


Note 6 - Commitments and Contingencies

Forward Sales Commitments

The Company periodically uses forward sale agreements with a major gold bullion bank to sell a portion of the expected amount of scrap gold and silver jewelry, which is typically broken or of low retail value, produced in the normal course of business from its liquidation of such merchandise. As of September 30, 2012, the Company had forward sales commitments through June 2013 for 54,000 silver ounces and forward sales commitments through November 2012 for 4,000 gold ounces of its expected scrap jewelry sales. These commitments qualify for an exemption as normal sales, based on historical terms, conditions and quantities, and are therefore not recorded on the Company’s balance sheet.


12



Contingent Assessment

The Company transfers scrap jewelry generated by its pawn operations in Mexico into the United States, where such jewelry is melted and sold for its precious metals content, which is primarily gold. These cross-border transfers are subject to numerous import/export regulations by customs and border security authorities in both Mexico and the United States. The Company’s long-standing practice, as previously approved by customs authorities, has been to import such materials designated for remelting into the United States under certain duty-free provisions of the Harmonized Tariff Schedule of the United States.  The United States Customs and Border Protection Agency (“CBP”) has requested certain transaction records pertaining to the Company’s cross-border remelting processes. In addition, CBP assessed duties on certain cross-border remelting transactions occurring in 2008 and 2009 totaling approximately $634,000 including accrued interest.  The Company cannot currently estimate the likelihood that additional assessments will be issued by CBP.  The Company is in the process of appealing the assessments issued to date by CBP; however, it cannot assess the likelihood that such appeals will be successful.

Note 7 - Revolving Credit Facility

On September 11, 2012, the Company entered into an agreement to amend and restate its existing bank credit facility (the “Unsecured Credit Facility”). The number of commercial bank lenders participating in the facility increased from two to five lenders and the amount of the Unsecured Credit Facility was increased from $100,000,000 to $175,000,000. The Unsecured Credit Facility now bears interest at the prevailing LIBOR rate plus a fixed spread of 2.0% and matures in February 2015.

Under the terms of the Unsecured Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company's Unsecured Credit Facility contains provisions that allow the Company to repurchase stock and/or pay cash dividends within certain parameters and restricts the Company from pledging any of its assets as collateral against other indebtedness. The Company was in compliance with the requirements and covenants of the Unsecured Credit Facility as of September 30, 2012. The Company is required to pay an annual commitment fee of 0.375% on the average daily unused portion of the Unsecured Credit Facility commitment.

13



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL   

Pawn operations accounted for approximately 91% of the Company’s revenue from continuing operations during the first nine months of 2012. The Company’s pawn revenue is derived primarily from service fees on pawn loans and merchandise sales of forfeited pawn collateral and used goods purchased directly from the general public. The Company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawns that the Company deems collection to be probable based on historical pawn redemption statistics. If a pawn loan 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 consumer loan and credit services revenue, which is approximately 9% of consolidated year-to-date revenue from continuing operations, is derived primarily from credit services fees. The Company recognizes service fee income on consumer loans and credit services transactions on a constant-yield basis over the life of the loan or credit extension, which is generally 180 days or less. The net defaults on consumer loans and credit services transactions and changes in the valuation reserve are charged to the consumer loan credit loss provision. The credit loss provision associated with the CSO Program and consumer loans are based primarily upon historical credit loss experience, with consideration given to recent credit loss trends, delinquency rates, economic conditions and management’s expectations of future credit losses. See additional discussion of the credit loss provision and related allowances and accruals in the section titled “Results of Continuing Operations.”

The business is subject to seasonal variations, and operating results for the current quarter and year-to-date periods are not necessarily indicative of the results of operations for the full year. Typically, the Company experiences seasonal growth of service fees in the third and fourth quarter of each year due to loan balance growth that occurs after the heavy repayment period of pawn loans in late December in Mexico, which is associated with statutory Christmas bonuses received by customers, and in the first quarter in the United States, which is associated with tax refund proceeds received by customers. Retail sales are seasonally higher in the fourth quarter associated with holiday shopping.

OPERATIONS AND LOCATIONS

The Company has operations in the United States and Mexico. For the three and nine months ended September 30, 2012, approximately 54% of total revenue was generated in Mexico and 46% from the United States.

As of September 30, 2012, the Company had 810 locations in twelve U.S. states and 24 states in Mexico, which represents a net store-count increase of 23% over the trailing twelve months. A total of 36 new store locations were added during the third quarter of 2012 and 139 have been added year-to-date.


14



The following table details store openings for the three months ended September 30, 2012:

 
 
Pawn Locations
 
Consumer Loan Locations (3)
 
Total Locations
 
 
Large
Format (1)
 
Small
Format (2)
 
 
United States:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
164

 
27

 
72

 
263

New locations opened
 
2

 

 

 
2

Locations acquired
 
16

 

 

 
16

Discontinued consumer loan operations
 

 

 
(7
)
 
(7
)
Total locations, end of period
 
182

 
27

 
65

 
274

 
 
 
 
 
 
 
 
 
Mexico:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
465

 
19

 
34

 
518

New locations opened
 
18

 

 

 
18

Total locations, end of period
 
483

 
19

 
34

 
536

 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
629

 
46

 
106

 
781

New locations opened
 
20

 

 

 
20

Locations acquired
 
16

 

 

 
16

Discontinued consumer loan operations
 

 

 
(7
)
 
(7
)
Total locations, end of period
 
665

 
46

 
99

 
810


(1)
The large format locations include retail showrooms and accept a broad array of pawn collateral including jewelry, electronics, appliances, tools and other consumer hard goods. At September 30, 2012, 111 of the U.S. large format pawn stores also offered consumer loans or credit services products, which includes the 24 locations acquired from Mister Money.

(2)
The small format locations typically have limited retail operations and primarily accept jewelry and small electronic items as pawn collateral. At September 30, 2012, all of the Texas and Mexico small format pawn stores also offered consumer loans or credit services products.

(3)
The Company’s U.S. free-standing, small format consumer loan locations offer a credit services product and are all located in Texas. The Mexico locations offer small, short-term consumer loans. In addition to stores shown on this chart, First Cash is also an equal partner in Cash & Go, Ltd., a joint venture, which owns and operates 38 check cashing and financial services kiosks located inside convenience stores in the state of Texas. The Company’s credit services operations also include an internet distribution channel for customers in the state of Texas.


15



The following table details store openings for the nine months ended September 30, 2012:

 
 
Pawn Locations
 
Consumer Loan Locations (3)
 
Total Locations
 
 
Large
Format (1)
 
Small
Format (2)
 
 
United States:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
132

 
25

 
74

 
231

New locations opened
 
6

 

 

 
6

Locations acquired
 
44

 

 

 
44

Store format conversions
 

 
2

 
(2
)
 

Discontinued consumer loan operations
 

 

 
(7
)
 
(7
)
Total locations, end of period
 
182

 
27

 
65

 
274

 
 
 
 
 
 
 
 
 
Mexico:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
394

 
19

 
34

 
447

New locations opened
 
60

 

 

 
60

Locations acquired
 
29

 

 

 
29

Total locations, end of period
 
483

 
19

 
34

 
536

 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
526

 
44

 
108

 
678

New locations opened
 
66

 

 

 
66

Locations acquired
 
73

 

 

 
73

Store format conversions
 

 
2

 
(2
)
 

Discontinued consumer loan operations
 

 

 
(7
)
 
(7
)
Total locations, end of period
 
665

 
46

 
99

 
810


(1)
The large format locations include retail showrooms and accept a broad array of pawn collateral including jewelry, electronics, appliances, tools and other consumer hard goods. At September 30, 2012, 111 of the U.S. large format pawn stores also offered consumer loans or credit services products, which includes the 24 locations acquired from Mister Money.

(2)
The small format locations typically have limited retail operations and primarily accept jewelry and small electronic items as pawn collateral. At September 30, 2012, all of the Texas and Mexico small format pawn stores also offered consumer loans or credit services products.

(3)
The Company’s U.S. free-standing, small format consumer loan locations offer a credit services product and are all located in Texas. The Mexico locations offer small, short-term consumer loans. In addition to stores shown on this chart, First Cash is also an equal partner in Cash & Go, Ltd., a joint venture, which owns and operates 38 check cashing and financial services kiosks located inside convenience stores in the state of Texas. The Company’s credit services operations also include an internet distribution channel for customers in the state of Texas.

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 revenue 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. 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 2011 Annual Report on Form 10-K.

The Company has significant operations in Mexico, where the functional currency for the Company’s Mexican subsidiaries is the Mexican peso. The assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenue and expenses are translated at the monthly average exchange rates occurring during each month.

16



The Company’s management reviews and analyzes certain operating results, in Mexico, on a constant currency basis because the Company believes this better represents the Company’s underlying business trends. Amounts presented on a constant currency basis will be denoted as such. See additional discussion of constant currency operating results provided in the section titled “Non-GAAP Financial Information.”

Stores included in the same-store revenue calculations are those stores that were opened prior to the beginning of the prior-year comparative 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. Non-retail sales of scrap jewelry are included in same-store revenue calculations.

While the Company has had significant increases in revenue due to new store openings and acquisitions, the Company has also incurred increases in operating expenses attributable to the additional locations. 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 offices, including the compensation and benefit costs of corporate management, area supervisors and other operations management personnel, collections operations and personnel, accounting and administrative costs, information technology costs, liability and casualty insurance, outside legal and accounting fees and stockholder-related expenses.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that had a material effect on the Company’s financial position, results of operations or financial statement disclosures.

RESULTS OF CONTINUING OPERATIONS

Three Months Ended September 30, 2012, Compared To The Three Months Ended September 30, 2011

The following table details the components of revenue for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011 (unaudited, in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. The average value of the Mexican peso to the U.S. dollar decreased from 12.3 to 1 in the third quarter of 2011 to 13.2 to 1 in the third quarter of 2012. The end-of-period value of the Mexican peso to the U.S. dollar increased from 13.5 to 1 at September 30, 2011, to 12.9 to 1 at September 30, 2012. As a result of these currency exchange movements, revenue from Mexican operations translated into fewer U.S. dollars relative to the prior-year period, and net assets from Mexican operations translated into more U.S. dollars relative to the prior-year period. While the weakening of the Mexican peso negatively affected the translated dollar-value of revenue, the cost of sales and operating expenses were reduced as well. The scrap jewelry generated in Mexico is exported and sold in U.S. dollars, which reduces the Company’s net peso-denominated earnings stream. The Company’s management reviews and analyzes business results in a constant currency because the Company believes this is a meaningful indicator of the Company’s underlying business trends.


17



 
 
Three Months Ended
 
 
 
 
 
Increase/(Decrease)
 
 
September 30,
 
 
 
 
 
Constant Currency
 
 
2012
 
2011
 
Increase/(Decrease)
 
Basis
United States revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
25,801

 
$
20,000

 
$
5,801

 
29
 %
 
 
29
 %
 
Scrap jewelry sales
 
13,822

 
15,653

 
(1,831
)
 
(12
)%
 
 
(12
)%
 
Pawn loan fees
 
16,747

 
13,452

 
3,295

 
24
 %
 
 
24
 %
 
Consumer loan and credit services fees
 
12,785

 
11,887

 
898

 
8
 %
 
 
8
 %
 
Other revenue
 
204

 
239

 
(35
)
 
(15
)%
 
 
(15
)%
 
 
 
69,359

 
61,231

 
8,128

 
13
 %
 
 
13
 %
 
Mexico revenue:
 
 
 
 
 
 
 
 
 
 
 

 
Retail merchandise sales
 
44,137

 
38,157

 
5,980

 
16
 %
 
 
24
 %
 
Scrap jewelry sales
 
12,246

 
13,984

 
(1,738
)
 
(12
)%
 
 
(12
)%
 
Pawn loan fees
 
23,021

 
18,289

 
4,732

 
26
 %
 
 
35
 %
 
Consumer loan and credit services fees
 
932

 
1,191

 
(259
)
 
(22
)%
 
 
(16
)%
 
 
 
80,336

 
71,621

 
8,715

 
12
 %
 
 
19
 %
 
Total revenue:
 
 
 
 
 
 
 
 

 
 
 
 
Retail merchandise sales
 
69,938

 
58,157

 
11,781

 
20
 %
 
 
26
 %
 
Scrap jewelry sales
 
26,068

 
29,637

 
(3,569
)
 
(12
)%
 
 
(12
)%
 
Pawn loan fees
 
39,768

 
31,741

 
8,027

 
25
 %
 
 
31
 %
 
Consumer loan and credit services fees
 
13,717

 
13,078

 
639

 
5
 %
 
 
5
 %
 
Other revenue
 
204

 
239

 
(35
)
 
(15
)%
 
 
(15
)%
 
 
 
$
149,695

 
$
132,852

 
$
16,843

 
13
 %
 
 
16
 %
 

Domestic revenue accounted for approximately 46% of the total revenue for the current quarter, while foreign revenue from Mexico accounted for 54% of total revenue.

The following table details customer loans and inventories held by the Company and active CSO credit extensions from an independent third-party lender as of September 30, 2012, as compared to September 30, 2011 (unaudited, in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year balances at the prior year end-of-period exchange rate.

18



 
 
 
 
 
 
 
 
 
 
Increase/(Decrease)
 
 
Balance at September 30,
 
 
 
 
 
Constant Currency
 
 
2012
 
2011
 
Increase/(Decrease)
 
Basis
United States:
 
 
 
 
 
 
 
 
 
 
 
 
Pawn loans
 
$
51,875

 
$
38,791

 
$
13,084

 
34
 %
 
 
34
 %
 
CSO credit extensions held by independent third-party (1)
 
14,048

 
12,226

 
1,822

 
15
 %
 
 
15
 %
 
Other consumer loans
 
1,194

 
41

 
1,153

 
2,812
 %
 
 
2,812
 %
 
 
 
67,117

 
51,058

 
16,059

 
31
 %
 
 
31
 %
 
Mexico:
 
 
 
 
 
 
 
 
 
 
 
 
Pawn loans
 
55,839

 
39,182

 
16,657

 
43
 %
 
 
36
 %
 
Other consumer loans
 
833

 
888

 
(55
)
 
(6
)%
 
 
(10
)%
 
 
 
56,672

 
40,070

 
16,602

 
41
 %
 
 
35
 %
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
Pawn loans
 
107,714

 
77,973

 
29,741

 
38
 %
 
 
35
 %
 
CSO credit extensions held by independent third-party (1)
 
14,048

 
12,226

 
1,822

 
15
 %
 
 
15
 %
 
Other consumer loans
 
2,027

 
929

 
1,098

 
118
 %
 
 
114
 %
 
 
 
$
123,789

 
$
91,128

 
$
32,661

 
36
 %
 
 
33
 %
 
Pawn inventories:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. pawn inventories
 
$
29,649

 
$
23,149

 
$
6,500

 
28
 %
 
 
28
 %
 
Mexico pawn inventories
 
36,043

 
31,767

 
4,276

 
13
 %
 
 
8
 %
 
 
 
$
65,692

 
$
54,916

 
$
10,776

 
20
 %
 
 
17
 %
 

(1)   CSO amounts outstanding are composed of the principal portion of active CSO extensions of credit by an independent third-party lender, which are not included on the Company's balance sheet, net of the Company's estimated fair value of its liability under the letters of credit guaranteeing the extensions of credit.

Store Operations

The overall increase in quarter-over-quarter revenue of 16% (constant currency basis) was due primarily to revenue from new and acquired pawn stores. The 12% decrease in total scrap jewelry revenue caused consolidated same-store revenue to be flat, on a constant currency basis, in the third quarter. Excluding scrap jewelry sales, same-store revenue increased 9% in Mexico, 3% in the U.S. and 6% overall, on a constant currency basis. Same-store pawn service fees increased 12% on a consolidated basis, with 17% growth in Mexico and 7% growth in the U.S., on a constant currency basis. Same-store retail sales (constant currency basis) increased 7% in Mexico, were flat in the U.S. and increased 4% in total. Same-store scrap revenue (constant currency basis) decreased 22% in total, with a 23% decrease in the U.S. and a 21% decrease in Mexico. Third quarter revenue generated by the stores opened or acquired since July 1, 2011, increased by $10,550,000 in Mexico and $10,643,000 in the United States, compared to the same quarter last year.  

Revenue from pawn loan fees increased 31% on a constant currency basis, which was composed of a 24% increase in the United States and a 35% increase in Mexico. The increase was primarily the result of an increase in the average outstanding pawn receivables.

On a constant currency basis, store-based retail sales increased by 26%, and scrap jewelry sales decreased 12% compared to the prior year, which reflected an 8% increase in the weighted-average selling price per ounce of scrap gold offset by an 18% decrease in the quantity of scrap gold sold. The decline in scrap quantity reflects an increased mix of non-jewelry loans in Mexico and less traffic from customers looking to sell gold. The total volume of gold scrap jewelry sold in the third quarter of 2012 was approximately 14,000 ounces at an average cost of $1,376 per ounce and an average selling price of $1,666 per ounce.

Service fees from consumer loans and credit services transactions increased 5%, on a constant currency basis, compared to the third quarter of 2011, primarily generated by revenues from the acquired Mister Money pawn stores.


19



The gross profit margin on total merchandise sales was 38% during the