FCFS 03.31.2015 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 March 31, 2015
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 April 20, 2015, there were 28,195,392 shares of common stock outstanding.


 
 

FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2015

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 and earnings before interest, taxes, depreciation and amortization growth, expansion strategies, the impact of new or existing regulations, 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, future share repurchases and the price of gold and the impacts thereof, earnings and related transaction expenses from acquisitions and mergers, 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 foreign currency exchange rates and the U.S. dollar to Mexican peso exchange rate in particular;
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), including administrative or legal interpretations thereto;
risks and uncertainties related to foreign operations in Mexico;
changes in import/export regulations and tariffs or duties;
changes in banking, anti-money laundering or gun control regulations;
unforeseen litigation;
changes in tax rates or policies in the U.S. and Mexico;
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 2014 annual report on Form 10-K filed with the Securities and Exchange Commission on February 12, 2015, including the risks described in “Risk Factors” of the Company’s annual 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)
 
 
 
 
 
 
 
March 31,
 
December 31,
 
 
2015
 
2014
 
2014
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
75,803

 
$
94,929

 
$
67,992

Pawn loan fees and service charges receivable
 
16,232

 
16,539

 
16,926

Pawn loans
 
114,306

 
113,938

 
118,536

Consumer loans, net
 
977

 
1,239

 
1,241

Inventories
 
82,554

 
72,279

 
91,088

Prepaid expenses and other current assets
 
3,302

 
2,425

 
4,970

Deferred tax assets
 
7,056

 
5,190

 
7,122

Total current assets
 
300,230

 
306,539

 
307,875

 
 
 
 
 
 
 
Property and equipment, net
 
112,587

 
109,882

 
113,750

Goodwill, net
 
276,545

 
254,790

 
276,882

Other non-current assets
 
15,478

 
15,978

 
16,168

Deferred tax assets
 
448

 

 

Total assets
 
$
705,288

 
$
687,189

 
$
714,675

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
41,704

 
$
37,184

 
$
42,559

Income taxes payable
 
50

 
3,377

 

Total current liabilities
 
41,754

 
40,561

 
42,559

 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
14,500

 

 
22,400

Senior unsecured notes
 
200,000

 
200,000

 
200,000

Deferred tax liabilities
 

 
9,292

 
1,165

Total liabilities
 
256,254

 
249,853

 
266,124

 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
Preferred stock
 

 

 

Common stock
 
399

 
394

 
397

Additional paid-in capital
 
193,278

 
177,225

 
188,062

Retained earnings
 
599,682

 
520,410

 
582,894

Accumulated other comprehensive loss from
 
 
 
 
 
 
cumulative foreign currency translation adjustments
 
(30,717
)
 
(8,006
)
 
(26,168
)
Common stock held in treasury, at cost
 
(313,608
)
 
(252,687
)
 
(296,634
)
Total stockholders’ equity
 
449,034

 
437,336

 
448,551

Total liabilities and stockholders’ equity
 
$
705,288

 
$
687,189

 
$
714,675

 
 
 
 
 
 
 
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
 
 
March 31,
 
 
2015
 
2014
Revenue:
 
 
 
 
Retail merchandise sales
 
$
110,454

 
$
98,708

Pawn loan fees
 
48,654

 
47,638

Consumer loan and credit services fees
 
7,595

 
9,784

Wholesale scrap jewelry revenue
 
9,320

 
13,647

Total revenue
 
176,023

 
169,777

 
 
 
 
 
Cost of revenue:
 
 
 
 
Cost of retail merchandise sold
 
68,246

 
60,490

Consumer loan and credit services loss provision
 
997

 
1,743

Cost of wholesale scrap jewelry sold
 
8,009

 
11,088

Total cost of revenue
 
77,252

 
73,321

 
 
 
 
 
Net revenue
 
98,771

 
96,456

 
 
 
 
 
Expenses and other income:
 
 
 
 
Store operating expenses
 
52,321

 
48,492

Administrative expenses
 
13,838

 
13,329

Depreciation and amortization
 
4,547

 
4,272

Interest expense
 
4,020

 
1,436

Interest income
 
(344
)
 
(81
)
Total expenses and other income
 
74,382

 
67,448

 
 
 
 
 
Income from continuing operations before income taxes
 
24,389

 
29,008

 
 
 
 
 
Provision for income taxes
 
7,601

 
6,054

 
 
 
 
 
Income from continuing operations
 
16,788

 
22,954

 
 
 
 
 
Loss from discontinued operations, net of tax
 

 
(272
)
 
 
 
 
 
Net income
 
$
16,788

 
$
22,682

 
 
 
 
 
Basic income per share:
 
 
 
 
Income from continuing operations
 
$
0.59

 
$
0.79

Loss from discontinued operations
 

 
(0.01
)
Net income per basic share
 
$
0.59

 
$
0.78

 
 
 
 
 
Diluted income per share:
 
 
 
 
Income from continuing operations
 
$
0.59

 
$
0.78

Loss from discontinued operations
 

 
(0.01
)
Net income per diluted share
 
$
0.59

 
$
0.77

 
 
 
 
 
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
 
 
March 31,
 
 
2015
 
2014
Net income
 
$
16,788

 
$
22,682

Other comprehensive income (loss):
 
 
 
 
Currency translation adjustment, gross
 
(6,998
)
 
(393
)
Tax benefit
 
2,449

 
138

Comprehensive income
 
$
12,239

 
$
22,427

 
 
 
 
 
 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
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-
holders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2014
 

 
$

 
39,708

 
$
397

 
$
188,062

 
$
582,894

 
$
(26,168
)
 
11,200

 
$
(296,634
)
 
$
448,551

Shares issued under share-based com-pensation plan
 

 

 
5

 

 

 

 

 

 

 

Exercise of stock options
 

 

 
145

 
2

 
2,899

 

 

 

 

 
2,901

Income tax benefit from exercise of stock options
 

 

 

 

 
1,617

 

 

 

 

 
1,617

Share-based compensation expense
 

 

 

 

 
700

 

 

 

 

 
700

Net income
 

 

 

 

 

 
16,788

 

 

 

 
16,788

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
(4,549
)
 

 

 
(4,549
)
Repurchases of treasury stock
 

 

 

 

 

 

 

 
336

 
(16,974
)
 
(16,974
)
Balance at 3/31/2015
 

 
$

 
39,858

 
$
399

 
$
193,278

 
$
599,682

 
$
(30,717
)
 
11,536

 
$
(313,608
)
 
$
449,034

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
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

 

 

 

 

 

 

 

Share-based compensation expense
 

 

 

 

 
550

 

 

 

 

 
550

Net income
 

 

 

 

 

 
22,682

 

 

 

 
22,682

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
(255
)
 

 

 
(255
)
Balance at 3/31/2014
 

 
$

 
39,382

 
$
394

 
$
177,225

 
$
520,410

 
$
(8,006
)
 
10,429

 
$
(252,687
)
 
$
437,336

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
 
Three Months Ended
 
 
March 31,
 
 
2015
 
2014
Cash flow from operating activities:
 
 
 
 
Net income
 
$
16,788

 
$
22,682

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Non-cash portion of credit loss provision
 
79

 
213

Share-based compensation expense
 
700

 
550

Depreciation and amortization expense
 
4,547

 
4,272

Amortization of debt issuance costs
 
256

 
95

Deferred income taxes
 
640

 
451

Changes in operating assets and liabilities, net of business combinations:
 
 
 
 
Pawn fees and service charges receivable
 
480

 
154

Merchandise inventories
 
2,354

 
1,805

Prepaid expenses and other assets
 
1,070

 
(519
)
Accounts payable and accrued expenses
 
(10
)
 
(459
)
Income taxes payable, current
 
526

 
(4,051
)
Net cash flow provided by operating activities
 
27,430

 
25,193

Cash flow from investing activities:
 
 
 
 
Loan receivables, net of cash repayments
 
8,312

 
5,773

Purchases of property and equipment
 
(4,386
)
 
(5,674
)
Acquisitions of pawn stores, net of cash acquired
 
(1,550
)
 
(4,889
)
Net cash flow provided by (used in) investing activities
 
2,376

 
(4,790
)
Cash flow from financing activities:
 
 
 
 
Borrowings from revolving credit facilities
 
21,555

 
2,500

Repayments of revolving credit facilities
 
(29,455
)
 
(184,500
)
Repayments of notes payable
 

 
(8,352
)
Issuance of senior unsecured notes
 

 
200,000

Debt issuance costs paid
 

 
(5,508
)
Purchases of treasury stock
 
(16,974
)
 

Proceeds from exercise of share-based compensation awards
 
2,901

 

Income tax benefit from exercise of stock options
 
1,617

 

Net cash flow provided by (used in) financing activities
 
(20,356
)
 
4,140

Effect of exchange rates on cash
 
(1,639
)
 
(257
)
Change in cash and cash equivalents
 
7,811

 
24,286

Cash and cash equivalents at beginning of the period
 
67,992

 
70,643

Cash and cash equivalents at end of the period
 
$
75,803

 
$
94,929

 
 
 
 
 
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, 2014, 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, 2014, on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 12, 2015. The condensed consolidated financial statements as of March 31, 2015 and 2014, and for the three month periods ended March 31, 2015 and 2014, 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 period ended March 31, 2015 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 operating 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 year-to-date periods.

Certain amounts in prior year comparative presentations have been reclassified in order to conform to the 2015 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”). ASU 2014-08 requires 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. ASU 2014-08 also expands the disclosure requirements for discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014. The adoption of ASU 2014-08 did not 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 disclosures 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

6

 
 

periods, and interim periods within that period, beginning after December 15, 2016. In April 2015, the Financial Accounting Standards Board voted for a one-year deferral of the effective date of ASU 2014-09 and is expected to issue an exposure draft during the second quarter of 2015. 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.

In April 2015, the Financial Accounting Standards Board issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application and represents a change in accounting principle. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect ASU 2015-03 to have a material effect on the Company’s results of operations, however, it will impact future balance sheet presentation and financial statement disclosures related to the Company’s debt issuance costs.

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
 
 
March 31,
 
 
2015
 
2014
Numerator:
 
 
 
 
Income from continuing operations for calculating basic and diluted earnings per share
 
$
16,788

 
$
22,954

Loss from discontinued operations
 

 
(272
)
Net income for calculating basic and diluted earnings per share
 
$
16,788

 
$
22,682

 
 
 
 
 
Denominator:
 
 
 
 
Weighted-average common shares for calculating basic earnings per share
 
28,402

 
28,952

Effect of dilutive securities:
 
 
 
 
Stock options and nonvested awards
 
218

 
390

Weighted-average common shares for calculating diluted earnings per share
 
28,620

 
29,342

 
 
 
 
 
Basic earnings per share:
 
 
 
 
Income from continuing operations
 
$
0.59

 
$
0.79

Loss from discontinued operations
 

 
(0.01
)
Net income per basic share
 
$
0.59

 
$
0.78

 
 
 
 
 
Diluted earnings per share:
 
 
 
 
Income from continuing operations
 
$
0.59

 
$
0.78

Loss from discontinued operations
 

 
(0.01
)
Net income per diluted share
 
$
0.59

 
$
0.77



7

 
 

Note 3 - Long-Term Debt

Senior Unsecured Notes

On March 24, 2014, the Company issued $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 allow the Company to repurchase shares of its stock and to pay cash dividends within certain parameters.

Revolving Credit Facilities

At March 31, 2015, the Company maintained a line of credit with a group of U.S. based commercial lenders (the “2014 Credit Facility”) in the amount of $160,000,000, which matures in February 2019. At March 31, 2015, the Company had $14,500,000 outstanding under the 2014 Credit Facility and $145,500,000 was available for borrowings. The 2014 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (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 interest rate on amounts outstanding under the 2014 Credit Facility at March 31, 2015 was 2.69% based on the prevailing 30-day LIBOR rate. The 2014 Credit Facility allows the Company to repurchase shares of its stock and to pay cash dividends within certain parameters and requires the Company to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the 2014 Credit Facility as of March 31, 2015. During the three months ended March 31, 2015, the Company made net payments of $7,900,000 on the 2014 Credit Facility.

On March 9, 2015, the Company entered into an agreement with a bank in Mexico to establish a revolving credit facility (the “Mexico Credit Facility”) in the amount of $10,000,000. The Mexico Credit Facility bears interest at the prevailing 30-day LIBOR rate plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of March 31, 2015. The Company is required to pay a one-time commitment fee of $25,000 due when the first amount is drawn/borrowed. At March 31, 2015, the Company had no amount outstanding under the Mexico Credit Facility and $10,000,000 was available for borrowings.

Note 4 - 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):
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 Company’s credit facilities (as described in Note 3) approximated fair value for all periods presented. The fair value of the Notes was approximately $206,000,000, $200,000,000 and $207,000,000 as of March 31, 2015, 2014 and December 31, 2014, respectively, 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.


8

 
 

Note 5 - 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.

9

 
 

Condensed Consolidating Balance Sheet
March 31, 2015
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
13,136

 
$
2,481

 
$
60,186

 
$

 
$
75,803

Pawn loan fees and service charges receivable
 

 
5,860

 
10,372

 

 
16,232

Pawn loans
 

 
47,433

 
66,873

 

 
114,306

Consumer loans, net
 

 
411

 
566

 

 
977

Inventories
 

 
30,718

 
51,836

 

 
82,554

Prepaid expenses and other current assets
 
1,647

 

 
2,145

 
(490
)
 
3,302

Deferred tax assets
 
1,069

 

 
5,987

 

 
7,056

Total current assets
 
15,852

 
86,903

 
197,965

 
(490
)
 
300,230

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
3,916

 
50,099

 
58,572

 

 
112,587

Goodwill, net
 

 
158,568

 
117,977

 

 
276,545

Other non-current assets
 
5,711

 
4,518

 
5,249

 

 
15,478

Deferred tax assets
 
531

 

 
19,416

 
(19,499
)
 
448

Intercompany receivable
 

 

 
172,866

 
(172,866
)
 

Investments in subsidiaries
 
826,784

 

 

 
(826,784
)
 

Total assets
 
$
852,794

 
$
300,088

 
$
572,045

 
$
(1,019,639
)
 
$
705,288

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
15,854

 
$
6,850

 
$
19,000

 
$

 
$
41,704

Income taxes payable
 
540

 

 

 
(490
)
 
50

Total current liabilities
 
16,394

 
6,850

 
19,000

 
(490
)
 
41,754

 
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
14,500

 

 

 

 
14,500

Senior unsecured notes
 
200,000

 

 

 

 
200,000

Deferred tax liabilities
 

 
15,108

 
4,391

 
(19,499
)
 

Intercompany payable
 
172,866

 

 

 
(172,866
)
 

Total liabilities
 
403,760

 
21,958

 
23,391

 
(192,855
)
 
256,254

 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
399

 

 

 

 
399

Additional paid-in capital
 
193,278

 

 

 

 
193,278

Retained earnings
 
568,965

 
278,130

 
579,371

 
(826,784
)
 
599,682

Accumulated other comprehensive loss
 

 

 
(30,717
)
 

 
(30,717
)
Common stock held in treasury, at cost
 
(313,608
)
 

 

 

 
(313,608
)
Total stockholders’ equity
 
449,034

 
278,130

 
548,654

 
(826,784
)
 
449,034

Total liabilities and stockholders’ equity
 
$
852,794

 
$
300,088

 
$
572,045

 
$
(1,019,639
)
 
$
705,288



10

 
 

Condensed Consolidating Balance Sheet
March 31, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
51,606

 
$
2,812

 
$
40,511

 
$

 
$
94,929

Pawn loan fees and service charges receivable
 

 
6,278

 
10,261

 

 
16,539

Pawn loans
 

 
47,361

 
66,577

 

 
113,938

Consumer loans, net
 

 
518

 
721

 

 
1,239

Inventories
 

 
29,770

 
42,509

 

 
72,279

Prepaid expenses and other current assets
 
1,365

 

 
1,060

 

 
2,425

Deferred tax assets
 
906

 

 
4,284

 

 
5,190

Total current assets
 
53,877

 
86,739

 
165,923

 

 
306,539

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
4,025

 
47,687

 
58,170

 

 
109,882

Goodwill, net
 

 
152,981

 
101,809

 

 
254,790

Other non-current assets
 
6,805

 
4,037

 
5,136

 

 
15,978

Deferred tax assets
 

 

 
7,249

 
(7,249
)
 

Intercompany receivable
 

 

 
161,272

 
(161,272
)
 

Investments in subsidiaries
 
748,735

 

 

 
(748,735
)
 

Total assets
 
$
813,442

 
$
291,444

 
$
499,559

 
$
(917,256
)
 
$
687,189

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
12,064

 
$
7,217

 
$
17,903

 
$

 
$
37,184

Income taxes payable
 
1,887

 

 
1,490

 

 
3,377

Total current liabilities
 
13,951

 
7,217

 
19,393

 

 
40,561

 
 
 
 
 
 
 
 
 
 
 
Senior unsecured notes
 
200,000

 

 

 

 
200,000

Deferred tax liabilities
 
883

 
10,689

 
4,969

 
(7,249
)
 
9,292

Intercompany payable
 
161,272

 

 

 
(161,272
)
 

Total liabilities
 
376,106

 
17,906

 
24,362

 
(168,521
)
 
249,853

 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
394

 

 

 

 
394

Additional paid-in capital
 
177,225

 

 

 

 
177,225

Retained earnings
 
512,404

 
273,538

 
483,203

 
(748,735
)
 
520,410

Accumulated other comprehensive loss
 

 

 
(8,006
)
 

 
(8,006
)
Common stock held in treasury, at cost
 
(252,687
)
 

 

 

 
(252,687
)
Total stockholders’ equity
 
437,336

 
273,538

 
475,197

 
(748,735
)
 
437,336

Total liabilities and stockholders’ equity
 
$
813,442

 
$
291,444

 
$
499,559

 
$
(917,256
)
 
$
687,189


11

 
 

Condensed Consolidating Balance Sheet
December 31, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,799

 
$
2,906

 
$
57,287

 
$

 
$
67,992

Pawn loan fees and service charges receivable
 

 
7,120

 
9,806

 

 
16,926

Pawn loans
 

 
55,709

 
62,827

 

 
118,536

Consumer loans, net
 

 
655

 
586

 

 
1,241

Inventories
 

 
35,206

 
55,882

 

 
91,088

Prepaid expenses and other current assets
 
1,881

 

 
3,089

 

 
4,970

Deferred tax assets
 
1,069

 

 
6,053

 

 
7,122

Total current assets
 
10,749

 
101,596

 
195,530

 

 
307,875

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
3,997

 
50,184

 
59,569

 

 
113,750

Goodwill, net
 

 
158,308

 
118,574

 

 
276,882

Other non-current assets
 
5,967

 
4,744

 
5,457

 

 
16,168

Deferred tax assets
 

 

 
17,127

 
(17,127
)
 

Intercompany receivable
 

 

 
170,132

 
(170,132
)
 

Investments in subsidiaries
 
837,486

 

 

 
(837,486
)
 

Total assets
 
$
858,199

 
$
314,832

 
$
566,389

 
$
(1,024,745
)
 
$
714,675

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
16,940

 
$
6,459

 
$
19,160

 
$

 
$
42,559

Total current liabilities
 
16,940

 
6,459

 
19,160

 

 
42,559

 
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facility
 
22,400

 

 

 

 
22,400

Senior unsecured notes
 
200,000

 

 

 

 
200,000

Deferred tax liabilities
 
176

 
14,069

 
4,047

 
(17,127
)
 
1,165

Intercompany payable
 
170,132

 

 

 
(170,132
)
 

Total liabilities
 
409,648

 
20,528

 
23,207

 
(187,259
)
 
266,124

 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
397

 

 

 

 
397

Additional paid-in capital
 
188,062

 

 

 

 
188,062

Retained earnings
 
556,726

 
294,304

 
569,350

 
(837,486
)
 
582,894

Accumulated other comprehensive loss
 

 

 
(26,168
)
 

 
(26,168
)
Common stock held in treasury, at cost
 
(296,634
)
 

 

 

 
(296,634
)
Total stockholders’ equity
 
448,551

 
294,304

 
543,182

 
(837,486
)
 
448,551

Total liabilities and stockholders’ equity
 
$
858,199

 
$
314,832

 
$
566,389

 
$
(1,024,745
)
 
$
714,675


12

 
 

Condensed Consolidating Statement of Comprehensive Income
Three Months Ended March 31, 2015
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$

 
$
37,576

 
$
72,878

 
$

 
$
110,454

Pawn loan fees
 

 
19,269

 
29,385

 

 
48,654

Consumer loan and credit services fees
 

 
6,944

 
651

 

 
7,595

Wholesale scrap jewelry revenue
 

 
4,828

 
4,492

 

 
9,320

Total revenue
 

 
68,617

 
107,406

 

 
176,023

 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 

 
21,459

 
46,787

 

 
68,246

Consumer loan and credit services loss provision
 

 
921

 
76

 

 
997

Cost of wholesale scrap jewelry sold
 

 
4,417

 
3,592

 

 
8,009

Total cost of revenue
 

 
26,797

 
50,455

 

 
77,252

 
 
 
 
 
 
 
 
 
 
 
Net revenue
 

 
41,820

 
56,951

 

 
98,771

 
 
 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
 
 
Store operating expenses
 

 
20,423

 
31,898

 

 
52,321

Administrative expenses
 
6,572

 

 
7,266

 

 
13,838

Depreciation and amortization
 
219

 
1,521

 
2,807

 

 
4,547

Interest expense
 
4,020

 

 

 

 
4,020

Interest income
 
(1
)
 

 
(343
)
 

 
(344
)
Total expenses and other income
 
10,810

 
21,944

 
41,628

 

 
74,382

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(10,810
)
 
19,876

 
15,323

 

 
24,389

 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(3,718
)
 
7,354

 
3,965

 

 
7,601

 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(7,092
)
 
$