FCFS 09.30.2014 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, 2014
OR
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________

Commission file number 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware
75-2237318
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
690 East Lamar Blvd., Suite 400
76011
Arlington, Texas
(Zip Code)
(Address of principal executive offices)
 
(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 20, 2014, there were 28,306,979 shares of common stock outstanding.


 
 

FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2014

INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Information
This quarterly report contains forward-looking statements about the business, financial condition and prospects of First Cash Financial Services, Inc. and its wholly owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy or objectives. Forward-looking statements can also be identified by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.
Forward-looking statements in this quarterly report include, without limitation, the Company’s expectations of earnings per share, earnings growth, expansion strategies, regulatory exposures, store openings, liquidity (including the availability of capital under existing credit facilities), cash flow, consumer demand for the Company’s products and services, income tax rates, currency exchange rates and the price of gold and the impacts thereof, earnings and related transaction expenses from acquisitions, the ability to successfully integrate acquisitions and other performance results. These statements are made to provide the public with management’s current assessment of the Company’s business. Although the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this quarterly report. Such factors are difficult to predict and many are beyond the control of the Company and may include, without limitation, the following:
changes in regional, national or international economic conditions, including inflation rates, unemployment rates and energy prices;
changes in consumer demand, including purchasing, borrowing and repayment behaviors;
changes in pawn forfeiture rates and credit loss provisions;
changes in the market value of pawn collateral and merchandise inventories, including gold prices and the value of consumer electronics and other products;
changes or increases in competition;
the ability to locate, open and staff new stores and successfully integrate acquisitions;
the availability or access to sources of used merchandise inventory;
changes in credit markets, interest rates and the ability to establish, renew and/or extend the Company’s debt financing;
the ability to maintain banking relationships for treasury services and processing of certain consumer lending transactions;
the ability to hire and retain key management personnel;
new federal, state or local legislative initiatives or governmental regulations (or changes to existing laws and regulations) affecting pawn businesses, consumer loan businesses and credit services organizations (in both the United States and Mexico);
risks and uncertainties related to foreign operations in Mexico;
changes in import/export regulations and tariffs or duties;
changes in anti-money laundering and gun control regulations;
unforeseen litigation;
changes in tax rates or policies in the U.S. and Mexico;
changes in foreign currency exchange rates;
inclement weather, natural disasters and public health issues;
security breaches, cyber attacks or fraudulent activity;
a prolonged interruption in the Company’s operations of its facilities, systems, and business functions, including its information technology and other business systems;
the implementation of new, or changes in the interpretation of existing, accounting principles or financial reporting requirements; and
future business decisions.



 
 

These and other risks, uncertainties and regulatory developments are further and more completely described in the Company’s 2013 annual report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2014, including the risks described in "Risk Factors" of the Company's annual report and this quarterly report. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.



 
 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
 
 
 
 
 
 
September 30,
 
December 31,
 
 
2014
 
2013
 
2013
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
42,760

 
$
30,539

 
$
70,643

Pawn loan fees and service charges receivable
 
19,481

 
17,673

 
16,689

Pawn loans
 
136,981

 
121,187

 
115,234

Consumer loans, net
 
1,510

 
1,375

 
1,450

Inventories
 
94,890

 
82,569

 
77,793

Prepaid expenses and other current assets
 
6,292

 
4,780

 
3,369

Deferred tax assets
 
6,299

 
3,348

 
5,044

Total current assets
 
308,213

 
261,471

 
290,222

 
 
 
 
 
 
 
Property and equipment, net
 
115,115

 
102,029

 
108,137

Goodwill, net
 
264,875

 
230,477

 
251,241

Other non-current assets
 
16,464

 
8,677

 
9,373

Total assets
 
$
704,667

 
$
602,654

 
$
658,973

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
Current portion of notes payable
 
$

 
$
3,297

 
$
3,326

Accounts payable and accrued liabilities
 
50,178

 
35,446

 
38,023

Income taxes payable
 

 
9,718

 
7,412

Total current liabilities
 
50,178

 
48,461

 
48,761

 
 
 
 
 
 
 
Revolving unsecured credit facility
 
17,500

 
152,500

 
182,000

Notes payable, net of current portion
 

 
5,868

 
5,026

Senior unsecured notes
 
200,000

 

 

Deferred tax liabilities
 
7,535

 
8,313

 
8,827

Total liabilities
 
275,213

 
215,142

 
244,614

 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
Preferred stock
 

 

 

Common stock
 
395

 
393

 
394

Additional paid-in capital
 
182,119

 
176,018

 
176,675

Retained earnings
 
555,953

 
472,950

 
497,728

Accumulated other comprehensive income (loss) from
 
 
 
 
 
 
cumulative foreign currency translation adjustments
 
(12,379
)
 
(9,162
)
 
(7,751
)
Common stock held in treasury, at cost
 
(296,634
)
 
(252,687
)
 
(252,687
)
Total stockholders' equity
 
429,454

 
387,512

 
414,359

Total liabilities and stockholders' equity
 
$
704,667

 
$
602,654

 
$
658,973

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

1

 
 

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,
 
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
101,950

 
$
89,772

 
$
297,846

 
$
255,442

Pawn loan fees
 
51,778

 
47,455

 
146,971

 
133,658

Consumer loan and credit services fees
 
9,474

 
10,918

 
27,674

 
32,770

Wholesale scrap jewelry revenue
 
11,798

 
25,234

 
37,612

 
53,775

Total revenue
 
175,000

 
173,379

 
510,103

 
475,645

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
62,780

 
53,546

 
182,363

 
152,677

Consumer loan and credit services loss provision
 
2,913

 
3,464

 
6,892

 
8,088

Cost of wholesale scrap jewelry sold
 
10,444

 
22,394

 
31,608

 
45,498

Total cost of revenue
 
76,137

 
79,404

 
220,863

 
206,263

 
 
 
 
 
 
 
 
 
Net revenue
 
98,863

 
93,975

 
289,240

 
269,382

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
49,293

 
46,649

 
146,719

 
132,762

Administrative expenses
 
13,406

 
12,834

 
40,350

 
38,690

Depreciation and amortization
 
4,404

 
3,988

 
13,001

 
11,346

Interest expense
 
4,059

 
1,122

 
9,405

 
2,474

Interest income
 
(179
)
 
(69
)
 
(522
)
 
(267
)
Total expenses and other income
 
70,983

 
64,524

 
208,953

 
185,005

 
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
 
27,880

 
29,451

 
80,287

 
84,377

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
8,352

 
6,324

 
21,790

 
25,416

 
 
 
 
 
 
 
 
 
Income from continuing operations
 
19,528

 
23,127

 
58,497

 
58,961

 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax
 

 
14

 
(272
)
 
107

Net income
 
$
19,528

 
$
23,141

 
$
58,225

 
$
59,068

 
 
 
 
 
 
 
 
 
Basic income per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.69

 
$
0.80

 
$
2.03

 
$
2.03

Income (loss) from discontinued operations
 

 

 
(0.01
)
 

Net income per basic share
 
$
0.69

 
$
0.80

 
$
2.02

 
$
2.03

 
 
 
 
 
 
 
 
 
Diluted income per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.68

 
$
0.79

 
$
2.01

 
$
1.99

Income (loss) from discontinued operations
 

 

 
(0.01
)
 

Net income per diluted share
 
$
0.68

 
$
0.79

 
$
2.00

 
$
1.99

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

2

 
 

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
Net income
 
$
19,528

 
$
23,141

 
$
58,225

 
$
59,068

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Currency translation adjustment, gross
 
(7,600
)
 
(1,996
)
 
(7,120
)
 
(2,632
)
Tax (expense) benefit
 
2,660

 
102

 
2,492

 
410

Comprehensive income
 
$
14,588

 
$
21,247

 
$
53,597

 
$
56,846

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

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
Compre-
hensive
Income
(Loss)
 
Common Stock
Held in Treasury
 
Total
Stock-
holders'
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2013
 

 
$

 
39,377

 
$
394

 
$
176,675

 
$
497,728

 
$
(7,751
)
 
10,429

 
$
(252,687
)
 
$
414,359

Shares issued under share-based com-pensation plan
 

 

 
5

 

 

 

 

 

 

 

Exercise of stock options
 

 

 
125

 
1

 
2,261

 

 

 

 

 
2,262

Income tax benefit from exercise of stock options
 

 

 

 

 
1,813

 

 

 

 

 
1,813

Share-based compensation expense
 

 

 

 

 
1,370

 

 

 

 

 
1,370

Net income
 

 

 

 

 

 
58,225

 

 

 

 
58,225

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
(4,628
)
 

 

 
(4,628
)
Repurchases of treasury stock
 

 

 

 

 

 

 

 
771

 
(43,947
)
 
(43,947
)
Balance at 9/30/2014
 

 
$

 
39,507

 
$
395

 
$
182,119

 
$
555,953

 
$
(12,379
)
 
11,200

 
$
(296,634
)
 
$
429,454

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



3

 
 


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
Compre-
hensive
Income
(Loss)
 
Common Stock
Held in Treasury
 
Total
Stock-
holders'
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2012
 

 
$

 
38,796

 
$
388

 
$
159,081

 
$
413,882

 
$
(6,940
)
 
9,700

 
$
(213,995
)
 
$
352,416

Shares issued under share-based com-pensation plan
 

 

 
4

 

 

 

 

 

 

 

Exercise of stock options
 

 

 
533

 
5

 
8,437

 

 

 

 

 
8,442

Income tax benefit from exercise of stock options
 

 

 

 

 
7,232

 

 

 

 

 
7,232

Share-based compensation expense
 

 

 

 

 
1,268

 

 

 

 

 
1,268

Net income
 

 

 

 

 

 
59,068

 

 

 

 
59,068

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
(2,222
)
 

 

 
(2,222
)
Repurchases of treasury stock
 

 

 

 

 

 

 

 
729

 
(38,692
)
 
(38,692
)
Balance at 9/30/2013
 

 
$

 
39,333

 
$
393

 
$
176,018

 
$
472,950

 
$
(9,162
)
 
10,429

 
$
(252,687
)
 
$
387,512

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

4

 
 

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
Nine Months Ended
 
 
September 30,
 
 
2014
 
2013
Cash flow from operating activities:
 
 
 
 
Net income
 
$
58,225

 
$
59,068

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Non-cash portion of credit loss provision
 
797

 
808

Share-based compensation expense
 
1,370

 
1,268

Depreciation and amortization expense
 
13,001

 
11,346

Amortization of debt issuance costs
 
633

 

Deferred income taxes
 
1,488

 
(6,947
)
Changes in operating assets and liabilities, net of business combinations:
 
 
 
 
Pawn fees and service charges receivable
 
(3,084
)
 
(2,623
)
Merchandise inventories
 
(3,548
)
 
(4,047
)
Prepaid expenses and other assets
 
(906
)
 
35

Accounts payable and accrued expenses
 
10,502

 
5,590

Income taxes payable, current
 
(9,150
)
 
9,521

Net cash flow provided by operating activities
 
69,328

 
74,019

Cash flow from investing activities:
 
 
 
 
Loan receivables, net of cash repayments
 
(24,324
)
 
(16,640
)
Purchases of property and equipment
 
(17,801
)
 
(17,945
)
Acquisitions of pawn stores, net of cash acquired
 
(34,873
)
 
(84,353
)
Net cash flow used in investing activities
 
(76,998
)
 
(118,938
)
Cash flow from financing activities:
 
 
 
 
Borrowings from revolving credit facilities
 
25,500

 
121,900

Repayments of revolving credit facilities
 
(190,000
)
 
(71,900
)
Repayments of notes payable
 
(8,352
)
 
(2,398
)
Issuance of senior unsecured notes
 
200,000

 

Debt issuance costs paid
 
(6,601
)
 

Purchases of treasury stock
 
(43,947
)
 
(38,692
)
Proceeds from exercise of share-based compensation awards
 
2,262

 
8,442

Income tax benefit from exercise of stock options
 
1,813

 
7,232

Net cash flow provided by (used in) financing activities
 
(19,325
)
 
24,584

Effect of exchange rates on cash
 
(888
)
 
589

Change in cash and cash equivalents
 
(27,883
)
 
(19,746
)
Cash and cash equivalents at beginning of the period
 
70,643

 
50,285

Cash and cash equivalents at end of the period
 
$
42,760

 
$
30,539

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

5

 
 

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

Note 1 - Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet at December 31, 2013, which is derived from audited financial statements, and the unaudited condensed consolidated financial statements, including the notes thereto, include the accounts of First Cash Financial Services, Inc. and its wholly-owned subsidiaries (together, the “Company”). 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 annual report for the year ended December 31, 2013, on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2014. The condensed consolidated financial statements as of September 30, 2014 and 2013, and for the three month and nine month periods ended September 30, 2014 and 2013, 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, 2014 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 Company has significant operations in Mexico where 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 average exchange rates occurring during the three-month and year-to-date periods.

Certain amounts in prior year comparative presentations have been reclassified in order to conform to the 2014 presentation.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360)” (“ASU 2014-08”). The amendments in ASU 2014-08 require that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The Company does not expect ASU 2014-08 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures, however, it may impact the reporting of future discontinued operations if and when they occur.

In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2016 and early adoption is not permitted. The Company does not expect ASU 2014-09 to have a material effect on the Company’s current financial position or results of operations, however, it may impact the reporting of future financial statement disclosures.

6

 
 

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,
 
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
 
Income from continuing operations for calculating basic and diluted earnings per share
 
$
19,528

 
$
23,127

 
$
58,497

 
$
58,961

Income (loss) from discontinued operations
 

 
14

 
(272
)
 
107

Net income for calculating basic and diluted earnings per share
 
$
19,528

 
$
23,141

 
$
58,225

 
$
59,068

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted-average common shares for calculating basic earnings per share
 
28,397

 
28,904

 
28,762

 
29,128

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and nonvested awards
 
408

 
449

 
398

 
509

Weighted-average common shares for calculating diluted earnings per share
 
28,805

 
29,353

 
29,160

 
29,637

 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.69

 
$
0.80

 
$
2.03

 
$
2.03

Income (loss) from discontinued operations
 

 

 
(0.01
)
 

Net income per basic share
 
$
0.69

 
$
0.80

 
$
2.02

 
$
2.03

 
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.68

 
$
0.79

 
$
2.01

 
$
1.99

Income (loss) from discontinued operations
 

 

 
(0.01
)
 

Net income per diluted share
 
$
0.68

 
$
0.79

 
$
2.00

 
$
1.99


Note 3 - Acquisitions

The Company completed acquisitions during the nine months ended September 30, 2014 as described below consistent with its strategy to continue its expansion of pawn stores in selected markets. The purchase price of each acquisition 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. The goodwill arising from these acquisitions consist largely of the synergies and economies of scale expected from combining the operations of the Company and the pawn stores acquired.

In August 2014, the Company acquired from Cash America of Mexico, Inc. the operating entity owning the pawn loans, inventory, layaways and other operating assets and liabilities of 47 large format pawn stores located in 13 states in Mexico (“Mexico Acquisition”). The purchase price for the all-cash transaction was approximately $18,481,000, net of cash acquired and subject to certain working capital adjustments. The estimated fair values of the assets and liabilities acquired are preliminary, as the Company is gathering information to finalize the valuation of these assets and liabilities. The assets, liabilities and results of operations of the locations are included in the Company’s consolidated results as of the acquisition date, August 25, 2014.

Additionally, during the nine months ended September 30, 2014, 10 pawn stores located in two U.S. states were acquired in three separate asset purchase transactions (“Other U.S. Acquisitions”) for an aggregate purchase price of $14,534,000, net of cash acquired, and was composed of $14,384,000 in cash and payables to the sellers of $150,000.


7

 
 

The preliminary allocations of the purchase prices for the Company's acquisitions during the nine months ended September 30, 2014 (the “2014 acquisitions”) are as follows (in thousands):
 
Mexico Acquisition
 
Other U.S. Acquisitions
 
Total
Pawn loans
$
5,355

 
$
2,523

 
$
7,878

Consumer loans, net

 
306

 
306

Inventory
5,052

 
2,090

 
7,142

Other current assets
691

 
254

 
945

Deferred tax assets, current
1,372

 

 
1,372

Property and equipment
2,343

 
328

 
2,671

Goodwill (1)
5,784

 
8,844

 
14,628

Intangible assets (2)
1,100

 
650

 
1,750

Other non-current assets
25

 
15

 
40

Deferred tax assets, non-current
426

 

 
426

Current liabilities
(3,667
)
 
(476
)
 
(4,143
)
Purchase price
$
18,481

 
$
14,534

 
$
33,015


(1)
Substantially all of the goodwill is expected to be deductible for foreign and U.S. income tax purposes.

(2)
Intangible assets primarily consist of customer relationships, which are included in other non-current assets in the accompanying condensed consolidated balance sheets. Customer relationships are generally amortized over 5 years.

During the nine months ended September 30, 2014, revenue from the 2014 acquisitions since the acquisition dates was $4,943,000. The combined transaction and one-time integration costs of the 2014 acquisitions recorded during the nine months ended September 30, 2014 were approximately $375,000. During the nine months ended September 30, 2014, the net earnings from the 2014 acquisitions since the acquisition dates (including acquisition and integration costs) were not material.

Note 4 - Long-Term Debt

Senior Unsecured Notes

On March 24, 2014, the Company completed the private offering of $200,000,000 of 6.75% senior notes due on April 1, 2021 (the “Notes”). Interest on the Notes is payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2014. The Notes were sold to the placement agents as initial purchasers for resale only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in accordance with Regulation S under the Securities Act. The net proceeds from the sale of the Notes were approximately $194,800,000. The Company used $153,411,000 of the net proceeds from the offering to repay all amounts then outstanding under the 2014 Credit Facility (defined below) and to pay off the remaining balances on notes payable related to previous pawn store acquisitions, leaving approximately $41,389,000 of the net proceeds available for general corporate purposes. The Company capitalized approximately $5,200,000 in issuance costs, which consisted primarily of placement agent fees and legal and other professional expenses. The issuance costs are being amortized over the life of the Notes as a component of interest expense.

The Notes are fully and unconditionally guaranteed on a senior unsecured basis jointly and severally by all of the Company's existing and future domestic subsidiaries that guarantee the 2014 Credit Facility. The Company may redeem the Notes at any time on or after April 1, 2017, at the redemption prices set forth in the indenture governing the Notes (the “Indenture”), plus accrued and unpaid interest, if any. Prior to April 1, 2017, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make-whole” premium set forth in the Indenture. The Company may also redeem up to 35% of the Notes prior to April 1, 2017, with the proceeds of certain equity offerings at a redemption price of 106.75% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any. In addition, upon a change of control, noteholders have the right to require the Company to purchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any.

On March 24, 2014, the Company entered into a registration rights agreement with the initial purchasers of the Notes. Pursuant to the registration rights agreement, the Company agreed to use commercially reasonable efforts to issue in exchange for the Notes, generally no later than approximately 245 days following the closing date of the issuance and sale of the Notes, identical new notes that have been registered under the Securities Act. In certain circumstances, the Company may be required to file a shelf

8

 
 

registration statement to cover resales of the Notes. Pursuant to the registration rights agreement, the Company caused a registration statement on Form S-4 to be declared effective by the SEC in July 2014 and completed an offer to exchange the unregistered Notes with identical new notes registered under the Securities Act in September 2014.

Revolving Credit Facilities

During the period from January 1, 2014 through February 4, 2014, the Company maintained a revolving line of credit agreement with its lenders (the “2012 Credit Facility”) in the amount of $205,000,000, which was scheduled to mature in February 2015. The 2012 Credit Facility charged interest at the prevailing 30-day London Interbank Offered Rate (“LIBOR”) plus a fixed spread of 2.0%.

On February 5, 2014, the Company entered into an agreement with a group of commercial lenders to establish a new revolving credit facility (the “2014 Credit Facility”) in the amount of $160,000,000 with an accordion feature whereby the facility may be increased up to an additional $50,000,000 with the consent of any increasing or additional participating lenders. The Company used proceeds from the 2014 Credit Facility and available cash balances to retire and terminate the 2012 Credit Facility. The 2014 Credit Facility matures in February 2019 and bears interest, at the Company's option, at either (i) the prevailing LIBOR rate (with interest periods of 1, 2, 3 or 6 months at the Company's option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The Company is required to maintain certain financial ratios and comply with certain financial covenants, including compliance with a leverage ratio of no greater than 2.5 times Consolidated EBITDA (as defined in the 2014 Credit Facility) and a fixed charge coverage ratio. The 2014 Credit Facility limits the Company's ability to incur additional indebtedness, subject to customary exceptions, including permitted additional unsecured debt so long as the aggregate principal amount of the loans and commitments under the 2014 Credit Facility plus such additional unsecured debt plus foreign third-party loans does not in the aggregate exceed $500,000,000. The 2014 Credit Facility is unsecured except for the pledge of 65% of the voting equity interests of the Company's foreign subsidiaries, and the Company is restricted from pledging any of its other assets as collateral against other indebtedness. The 2014 Credit Facility is guaranteed by the Company's material U.S. operating subsidiaries. The 2014 Credit Facility allows the Company to repurchase shares of its stock and to pay cash dividends within certain parameters. The Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the 2014 Credit Facility commitment. During March 2014, the Company used $145,870,000 of the proceeds from the sale of the Notes to repay all amounts outstanding under the 2014 Credit Facility. At September 30, 2014, the Company had $17,500,000 outstanding under the 2014 Credit Facility and $142,500,000 was available for borrowings. The interest rate on amounts outstanding under the 2014 Credit Facility at September 30, 2014 was 2.69% based on the prevailing 30-day LIBOR rate.

Other Notes Payable

In March 2014, the Company used $7,541,000 of the proceeds from the sale of the Notes to repay the entire remaining balances on notes payable of $6,134,000 related to a September 2012 multi-store acquisition and a note payable of $1,407,000 related to a January 2012 multi-store acquisition.

Note 5 - Income Taxes

In July 2013, the Company terminated an election to include foreign subsidiaries in its consolidated U.S. federal income tax return and it is the Company's intent to indefinitely reinvest the earnings of these subsidiaries outside the U.S. Accordingly, under U.S. income tax law, as of December 31, 2013, the undistributed earnings of the foreign subsidiaries is not subject to U.S. federal income taxes. The Company recognized an estimated non-recurring net income tax benefit of approximately $3,979,000 in 2013 related primarily to changes in deferred tax assets and liabilities, net of certain one-time U.S. tax liabilities associated with the termination of the election. The Company recorded an additional benefit of $3,669,000 in March 2014 as the result of a change in its estimated U.S. federal tax liability associated with the terminated election.

Note 6 - Fair Value of Financial Instruments

The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three levels are (from highest to lowest):

9

 
 

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

As cash and cash equivalents have maturities of less than three months, the carrying values of cash and cash equivalents approximate fair value (Level 1 of the fair value hierarchy). Due to their short-term maturities, pawn loans, consumer loans (net), pawn loan fees and service charges receivable approximate fair value (Level 3 of the fair value hierarchy).

The carrying value of the 2012 Credit Facility approximated fair value as of September 30, 2013 and December 31, 2013. The carrying value of the 2014 Credit Facility approximated fair value as of September 30, 2014. The fair value of the Notes was approximately $209,000,000 as of September 30, 2014 compared to a carrying value of $200,000,000. These fair values have been estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the rate that would be used by market participants (Level 2 of the fair value hierarchy). Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

Note 7 - Condensed Consolidating Guarantor Financial Statements

In connection with the issuance of the Notes, certain of the Company's domestic subsidiaries (collectively, "Guarantor Subsidiaries”), fully, unconditionally, jointly and severally guaranteed the payment obligations under the Notes. Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by the Company. The following supplemental financial information sets forth, on a consolidating basis, the balance sheets, statements of comprehensive income and statements of cash flows of First Cash Financial Services, Inc. (the “Parent Company”), the Guarantor Subsidiaries and the Parent Company's other subsidiaries (the “Non-Guarantor Subsidiaries”).

The supplemental condensed consolidating financial information has been prepared pursuant to SEC rules and regulations for interim condensed financial information and does not include the more complete disclosures included in annual financial statements. Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the Guarantor Subsidiaries or Non-Guarantor Subsidiaries operated as independent entities.

10

 
 

Condensed Consolidating Balance Sheet
September 30, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
17,380

 
$
2,809

 
$
22,571

 
$

 
$
42,760

Pawn loan fees and service charges receivable
 

 
7,480

 
12,001

 

 
19,481

Pawn loans
 

 
57,116

 
79,865

 

 
136,981

Consumer loans, net
 

 
842

 
668

 

 
1,510

Inventories
 

 
34,915

 
59,975

 

 
94,890

Prepaid expenses and other current assets
 
3,708

 

 
2,584

 

 
6,292

Deferred tax assets
 
906

 

 
5,393

 

 
6,299

Total current assets
 
21,994

 
103,162

 
183,057

 

 
308,213

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
4,050

 
50,094

 
60,971

 

 
115,115

Goodwill, net
 

 
158,308

 
106,567

 

 
264,875

Other non-current assets
 
6,354

 
4,981

 
5,129

 

 
16,464

Deferred tax assets
 

 

 
10,106

 
(10,106
)
 

Intercompany receivable
 

 

 
169,711

 
(169,711
)
 

Investments in subsidiaries
 
804,310

 

 

 
(804,310
)
 

Total assets
 
$
836,708

 
$
316,545

 
$
535,541

 
$
(984,127
)
 
$
704,667

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
19,979

 
$
6,684

 
$
23,515

 
$

 
$
50,178

Total current liabilities
 
19,979

 
6,684

 
23,515

 

 
50,178

 
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facility
 
17,500

 

 

 

 
17,500

Senior unsecured notes
 
200,000

 

 

 

 
200,000

Deferred tax liabilities
 
64

 
14,761

 
2,816

 
(10,106
)
 
7,535

Intercompany payable
 
169,711

 

 

 
(169,711
)
 

Total liabilities
 
407,254

 
21,445

 
26,331

 
(179,817
)
 
275,213

 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
395

 

 

 

 
395

Additional paid-in capital
 
182,119

 

 

 

 
182,119

Retained earnings
 
543,877

 
295,100

 
521,286

 
(804,310
)
 
555,953

Accumulated other comprehensive income (loss)
 
(303
)
 

 
(12,076
)
 

 
(12,379
)
Common stock held in treasury, at cost
 
(296,634
)
 

 

 

 
(296,634
)
Total stockholders' equity
 
429,454

 
295,100

 
509,210

 
(804,310
)
 
429,454

Total liabilities and stockholders' equity
 
$
836,708

 
$
316,545

 
$
535,541

 
$
(984,127
)
 
$
704,667



11

 
 

Condensed Consolidating Balance Sheet
September 30, 2013
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
14,255

 
$
3,952

 
$
12,332

 
$

 
$
30,539

Pawn loan fees and service charges receivable
 

 
7,595

 
10,078

 

 
17,673

Pawn loans
 

 
55,425

 
65,762

 

 
121,187

Consumer loans, net
 

 
552

 
823

 

 
1,375

Inventories
 

 
33,393

 
49,176

 

 
82,569

Prepaid expenses and other current assets
 
2,535

 
11

 
10,387

 
(8,153
)
 
4,780

Deferred tax assets
 
1,148

 

 
2,200

 

 
3,348

Total current assets
 
17,938

 
100,928

 
150,758

 
(8,153
)
 
261,471

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
4,443

 
42,666

 
54,920

 

 
102,029

Goodwill, net
 

 
149,379

 
81,098

 

 
230,477

Other non-current assets
 

 
5,304

 
3,373

 

 
8,677

Deferred tax assets
 

 

 
7,146

 
(7,146
)
 

Intercompany receivable
 

 

 
139,228

 
(139,228
)
 

Investments in subsidiaries
 
696,368

 

 

 
(696,368
)
 

Total assets
 
$
718,749

 
$
298,277

 
$
436,523

 
$
(850,895
)
 
$
602,654

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current portion of notes payable
 
$
3,297

 
$

 
$

 
$

 
$
3,297

Accounts payable and accrued liabilities
 
11,597

 
7,046

 
16,803

 

 
35,446

Income taxes payable
 
17,871

 

 

 
(8,153
)
 
9,718

Total current liabilities
 
32,765

 
7,046

 
16,803

 
(8,153
)
 
48,461

 
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facility
 
152,500

 

 

 

 
152,500

Notes payable, net of current portion
 
5,868

 

 

 

 
5,868

Deferred tax liabilities
 
876

 
13,750

 
833

 
(7,146
)
 
8,313

Intercompany payable
 
139,228

 

 

 
(139,228
)
 

Total liabilities
 
331,237

 
20,796

 
17,636

 
(154,527
)
 
215,142

 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
393

 

 

 

 
393

Additional paid-in capital
 
176,018

 

 

 

 
176,018

Retained earnings
 
464,007

 
277,481

 
427,830

 
(696,368
)
 
472,950

Accumulated other comprehensive income (loss)
 
(219
)
 

 
(8,943
)
 

 
(9,162
)
Common stock held in treasury, at cost
 
(252,687
)
 

 

 

 
(252,687
)
Total stockholders' equity
 
387,512

 
277,481

 
418,887

 
(696,368
)
 
387,512

Total liabilities and stockholders' equity
 
$
718,749

 
$
298,277

 
$
436,523

 
$
(850,895
)
 
$
602,654


12

 
 

Condensed Consolidating Balance Sheet
December 31, 2013
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
24,674

 
$
4,240

 
$
41,729

 
$

 
$
70,643

Pawn loan fees and service charges receivable
 

 
7,934

 
8,755

 

 
16,689

Pawn loans
 

 
56,566

 
58,668

 

 
115,234

Consumer loans, net
 

 
694

 
756

 

 
1,450

Inventories
 

 
33,817

 
43,976

 

 
77,793

Prepaid expenses and other current assets
 
1,971

 

 
1,398

 

 
3,369

Deferred tax assets
 
907

 

 
4,137

 

 
5,044

Total current assets
 
27,552

 
103,251

 
159,419

 

 
290,222

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
4,155

 
47,374

 
56,608

 

 
108,137

Goodwill, net
 

 
149,470

 
101,771

 

 
251,241

Other non-current assets
 

 
6,020

 
3,353

 

 
9,373

Deferred tax assets
 

 

 
6,943

 
(6,943
)
 

Intercompany receivable
 

 

 
156,794

 
(156,794
)
 

Investments in subsidiaries
 
751,785

 

 

 
(751,785
)
 

Total assets
 
$
783,492

 
$
306,115

 
$
484,888

 
$
(915,522
)
 
$
658,973