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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended July 31, 1996, or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19133 --------- ----------
FIRST CASH, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(state or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas 76011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 460-3947
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant, based upon the last reported sales price on the Nasdaq Stock
Market on October 21, 1996 is $19,525,385. As of October 21, 1996, there were
3,719,121 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement in connection with its Annual Meeting of
Stockholders to be held on January 16, 1997 is incorporated by reference in
Part III, Items 10, 11, 12 and 13.
FIRST CASH, INC.
FORM 10-K
For the Fiscal Year Ended July 31, 1996
TABLE OF CONTENTS
-----------------
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
SIGNATURES
PART I
------
ITEM 1. BUSINESS
- -----------------
GENERAL
First Cash, Inc. (the "Company") is the third largest publicly traded
pawnshop operator in the United States with 54 stores in Texas, Oklahoma,
Maryland and Washington, D.C. as of October 21, 1996. The Company engages in
both consumer finance and retail sales activities. The Company provides a
convenient source for consumer loans, lending money against pledged tangible
personal property such as jewelry, electronic equipment, tools, firearms,
sporting goods and musical equipment. The Company also functions as a
retailer of previously-owned merchandise acquired in forfeited pawn
transactions and over-the-counter purchases from customers, as well as new
merchandise acquired in close-out purchases. For the fiscal year ended July
31, 1996, the Company's revenues were derived 65% from retail activities, and
35% from lending activities. The Company provides its customer base timely and
convenient access to short-term credit not generally available from commercial
banks, finance companies or other financial institutions.
Management believes the pawnshop industry is highly fragmented with
approximately 9,000 stores in the United States and is in the early stages of
achieving greater efficiencies through consolidation. The four publicly
traded pawnshop companies operate less than 8% of the total pawnshops in the
United States. Management believes significant economies of scale, increased
operating efficiencies, and revenue growth are achievable by increasing the
number of stores under operation and introducing modern merchandising
techniques, point-of-sale systems, improved inventory management and store
remodeling. The Company's objectives are to increase consumer loans and
retail sales through selected acquisitions and new store openings and to
enhance operating efficiencies and productivity. During fiscal 1996, 1995 and
1994, the Company added 7, 7 and 10 stores to its network, respectively, net
of stores sold or consolidated.
The Company was formed as a Texas corporation in July 1988 and in April
1991 the Company reincorporated as a Delaware corporation. Except as
otherwise indicated, the term "Company" includes its wholly owned
subsidiaries, American Loan & Jewelry, Inc. and Famous Pawn, Inc. The
Company's principal executive offices are located at 690 East Lamar Blvd.,
Suite 400, Arlington, Texas 76011, and its telephone number is (817)460-3947.
RECENT DEVELOPMENTS
In May 1996, the Company acquired three pawnshops in Baltimore, Maryland
in an asset purchase including fixed assets, layaways and pawn loans from an
unaffiliated corporation which is wholly-owned by a former employee of the
Company, for an aggregate purchase price of $2,446,000 consisting of
$2,400,000 cash paid to the seller, and legal, consulting and other fees of
$46,000. In June 1996, the Company acquired three additional pawnshops in
Baltimore, Maryland in an asset purchase including fixed assets, layaways,
pawn loans and inventory from an unaffiliated corporation for an aggregate
cash purchase price of $1,662,000 consisting of $1,590,000 paid to the seller,
and legal, consulting and other fees of $72,000. The Company financed
substantially all of the cash purchase price for both of these acquisitions
through its credit facility. The purchase price for these acquisitions was
determined based upon the volume of annual loan and sales transactions,
outstanding loan balances, inventory on hand, and location and condition of
the facilities.
In August 1996, the Company entered into a management agreement to
operate and manage pawnshops for JB Pawn, Inc., a Texas corporation. JB Pawn,
Inc. will own and provide 100% of the financing for the pawnshops, and will
incur all direct costs to operate the pawnshops, including but not limited to
payroll, store operating expenses, cost of inventory, and pawn loans. The
Company will receive a monthly management fee for each store managed, and will
provide computer support, accounting, auditing, oversight and management of
these stores. JB Pawn, Inc. is 100% owned and controlled by Mr. Jon Burke, a
brother of a director of the Company. In the event that JB Pawn, Inc.
receives an offer to purchase any of its pawnshops, the Company shall have a
first right of refusal to match such offer.
INDUSTRY
The pawnshop industry in the United States is a growing industry, with
the highest concentration being in the Southeast and Southwest. The operation
of pawnshops is governed primarily by state laws, and accordingly, states that
maintain pawn laws most conducive to profitable operations have historically
seen the greatest development of pawnshops. The Company believes that the
majority of pawnshops are owned by individuals operating one to three
locations. Management further believes that the highly fragmented nature of
the industry is due among other factors to the lack of qualified management
personnel, the difficulty of developing adequate financial controls and
reporting systems, and the lack of financial resources.
In recent years, several operators have begun to develop multi-unit
chains through acquisitions and new store openings. As of September 30, 1996,
the four publicly traded pawnshop companies operated approximately 650 stores
in the United States. Accordingly, management believes that the industry is
in the early stages of consolidation.
BUSINESS STRATEGY
The Company's business plan is to continue a growth strategy of expansion
through selected acquisitions and new store openings and to enhance operating
efficiencies and productivity at both newly acquired and existing stores.
Acquisitions and New Store Openings
Because of the highly fragmented nature of the pawnshop industry and the
availability of "mom & pop" sole proprietor pawnshops willing to sell their
stores, the Company believes that acquisition opportunities as well as
favorable new store locations exist. Therefore, the Company intends to expand
through a combination of acquisitions and start-up stores.
The timing of any future acquisitions is based on identifying suitable
stores and purchasing them on terms that are viewed as favorable to the
Company. Before making an acquisition, management typically studies a
demographic analysis of the surrounding area, considers the number and size of
competing stores, and researches regulatory issues. Specific store
acquisition criteria include an evaluation of the volume of annual loan
transactions, outstanding loan balances, historical redemption rates, the
quality and quantity of inventory on hand, management expertise, and location
and condition of the facility, including lease terms.
The Company has opened nine new stores since its inception and currently
intends to open additional stores in locations where management believes
appropriate demand and other favorable conditions exist. Management seeks to
locate new stores where demographics are favorable and competition is limited.
It is the Company's experience that after a suitable location has been
identified and a lease and licenses are obtained, a new store can be ready for
business within six weeks. The investment required to open a new store
includes inventory, funds available for pawn loans, store fixtures, security
systems, and a computer system. Although the total investment varies and is
difficult to predict for each location, it has been the Company's experience
that between $150,000 and $200,000 is required to fund a new store for the
first six months of operation. Because existing stores already have an
established customer base, loan portfolio, and retail-sales business,
acquisitions generally contribute more quickly to revenues than do start-up
stores.
Store Clusters
Whether acquiring an existing store or opening a new store, the Company
seeks to establish clusters of several stores in a specific geographic area in
order to achieve certain economies of scale relative to supervision,
purchasing and marketing. In Texas, such clusters have been established in
the Dallas/Fort Worth metroplex, the Rio Grande Valley and the Corpus Christi
areas. Store clusters have also been established in the Oklahoma City,
Oklahoma area, Washington D.C. and its surrounding suburbs, and in Baltimore,
Maryland. The Company currently plans to continue its expansion in existing
markets in Texas and Maryland, and to enter new markets in other states with
favorable demographics and regulatory environments.
Enhance Productivity of Existing and Acquired Stores
The primary factors affecting the profitability of the Company's existing
store base are the level of loans outstanding, the volume of retail sales and
gross profit on retail sales, and the control of store expenses. To increase
customer traffic, which management believes is a key determinant to increasing
its stores' profitability, the Company has taken several steps to distinguish
its stores from traditional pawnshops and to make customers feel more
comfortable with the pawn-shopping experience. In addition to well-lit
parking facilities, several of the stores' exteriors display an attractive and
distinctive blue and yellow awning similar to those used by contemporary
convenience and video rental stores. The Company also has upgraded or
refurbished the interior of certain of its stores and improved merchandise
presentation by categorizing items into departments, improving the lighting
and installing better in-store signage.
Operating Controls
The Company has an organizational structure that it believes is capable
of supporting a larger, multi-state store base. Moreover, the Company has
installed an employee training program for both store and corporate-level
personnel that stresses productivity and professionalism. Each store is
computerized, and the Company has strengthened its operating and financial
controls by increasing its internal audit staff as well as the frequency of
store audit visits. Management believes that the current operating and
financial controls and systems are adequate for the Company's existing store
base and can accommodate reasonably foreseeable growth in the near-term.
LENDING ACTIVITIES
The Company loans money against the security of pledged goods. The
pledged goods are tangible personal property generally consisting of jewelry,
electronic equipment, tools, firearms, sporting goods and musical equipment.
The pledged goods provide security to the Company for the repayment of the
loan, as pawn loans cannot be made with personal liability to the borrower.
Therefore, the Company does not investigate the creditworthiness of the
borrower, relying instead on the marketability and sale value of pledged goods
as a basis for its credit decision. The Company contracts for a pawn service
charge in lieu of interest to compensate it for the loan. The statutory
service charges on loans at its Texas stores range from 12% to 240% on an
annualized basis depending on the size of the loan, and from 36% to 240% on an
annualized basis at the Company's Oklahoma stores. Loans made in the Maryland
stores bear service charges of 144% to 240% on an annualized basis. In
Washington, D.C., a flat $5 charge per month applies to all loans of up to
$40, and a 60% annualized service charge applies to loans of greater than $40.
As of July 31, 1996, the Company's average loan per pawn ticket was
approximately $77. Pawn service charges during fiscal 1996, 1995 and 1994
accounted for approximately 62%, 61% and 67%, respectively, of the Company's
total revenues (net of cost of goods sold).
At the time a pawn transaction is entered into, a pawn loan agreement,
commonly referred to as a pawn ticket, is delivered to the borrower that sets
forth, among other items, the name and address of the pawnshop, borrower's
name, borrower's identification number from his/her driver's license or other
identification, date, identification and description of the pledged goods,
including applicable serial numbers, amount financed, pawn service charge,
maturity date, total amount that must be paid to redeem the pledged goods on
the maturity date, and the annual percentage rate.
The amount the Company is willing to finance typically is based on a
percentage of the estimated sale value of the collateral. There are no
minimum or maximum loan to fair market value restrictions in connection with
the Company's lending activities. The basis for the Company's determination
of the sale value include such sources as catalogs, blue books, newspapers and
previously made similar pawn loan transactions. These sources, together with
the employees' experience in selling similar items of merchandise in
particular stores, influence the determination of the estimated sale value of
such items. The Company does not utilize a standard or mandated percentage of
estimated sale value in determining the amount to be financed. Rather, the
employee has the authority to set the percentage for a particular item and to
determine the ratio of loan amount to estimated sale value with the
expectation that, if the item is forfeited to the pawnshop, its subsequent
sale should yield a gross profit margin consistent with the Company's
historical experience. It is the Company's policy to value merchandise on a
conservative basis to avoid the risks associated with over-valuation. The
pledged property is held through the term of the loan, which is 30 days in
Texas, Oklahoma and Maryland, with an automatic extension period of 15 to 60
days depending on state laws, unless the loan is earlier paid or renewed. In
Washington, D.C., pledged property is held through the term of the loan which
is 120 days. Historically, approximately 70% of loans made have either been
paid in full or renewed. In the event the borrower does not pay or renew a
loan within 90 days in Texas, 60 days in Oklahoma, 45 days in Maryland and 120
days in Washington, D.C., the unredeemed collateral is forfeited to the
Company and becomes inventory available for general liquidation or sale in one
of the Company's stores. The Company does not record loan losses or charge
offs because if the loan is not paid, the principal amount loaned plus the 30
days of accrued pawn service charges becomes the carrying cost of the
forfeited collateral ("inventory") that is recovered by sale.
The recovery of the principal and accrued pawn service charge as well as
realization of gross profit on sales of inventory is dependent on the
Company's initial assessment of the property's estimated sale value. Improper
assessment of the sale value of the collateral in the lending function can
result in reduced marketability of the property and sale of the property for
an amount less than the principal plus accrued pawn service charge. For
fiscal 1996, 1995 and 1994, the Company's annualized yield on average loan
balance was 137%, 137% and 141%, respectively.
RETAIL ACTIVITIES
The Company acquires merchandise inventory primarily through forfeited
pawn loans and purchases of used goods from the general public, and to a
lesser extent, purchases of new goods from vendors. New goods consist
primarily of merchandise which complements certain product lines, such as
jewelry and tools. Sales of inventory during fiscal 1996, 1995 and 1994
accounted for approximately 65.3%, 64.3% and 59.1%, respectively, of the
Company's total revenues for these periods. For fiscal 1996, 1995 and 1994,
the Company realized gross profit margins on merchandise sales of 32.7%, 34.1%
and 32.2%, respectively.
By operating multiple stores, the Company is able to transfer inventory
between stores to best meet consumer demand. The Company has established the
necessary internal financial controls to implement such inter-store transfers.
Merchandise acquired by the Company through defaulted pawn loans is
carried in inventory at the amount of the related pawn loan plus service
charges accrued for the initial 30-day term. Management believes that this
practice lessens the likelihood that the Company will incur significant,
unexpected inventory devaluations.
The Company does not provide financing to purchasers of its merchandise
nor does it give the prospective buyer any warranties on the merchandise
purchased. Nevertheless, the Company may, at its discretion, refund purchases
if merchandise is returned because it was damaged or not in good working order
when purchased. The Company permits its customers to purchase inventory on a
"layaway" plan. Should the customer fail to make a required payment, the item
is returned to inventory and previous payments are forfeited to the Company.
PAWNSHOP OPERATIONS
The typical Company store is a free-standing building or part of a small
retail strip shopping center with adequate, well-lit parking. Management has
established a standard store design intended to distinguish the Company's
stores from the competition. The design consists of a well-illuminated
exterior with a distinctive blue and yellow awning and a layout similar to a
contemporary convenience store or video rental store. The Company's stores
are typically open six to seven days a week from 9:00 a.m. to between 6:00
p.m. and 9:00 p.m.
The Company's recently upgraded computer system permits a store manager
or clerk to recall rapidly the cost of an item in inventory, the date it was
purchased as well as the prior transaction history of a particular customer.
It also facilitates the timely valuation of goods by showing values assigned
to similar goods in the past. The Company has networked approximately 80% of
its stores to permit the Company's headquarters to more efficiently monitor
each store's operations, including sales, interest income, loans written and
redeemed, and changes in inventory. The Company plans to complete the
networking of the remaining stores by the end of calendar 1996.
The Company attempts to attract retail shoppers seeking bargain prices
through the use of seasonal promotions, special discounts for regular
customers, prominent display of impulse purchase items such as jewelry and
tools, tent sales and sidewalk sales, and a layaway purchasing plan. The
Company attempts to attract and retain pawn loan customers by lending a
competitively large percentage of the estimated sale value of items presented
for pledge and by providing quick loan, renewal and redemption service in an
appealing atmosphere.
As of July 31, 1996, the Company operated stores in the following
markets:
Number of
Locations
---------
Texas:
------
Corpus Christi............................................. 3
Dallas/Fort Worth metropolitan area........................ 15
South Texas (Brownsville/McAllen/Harlingen/Weslaco/Pharr).. 9
Tyler...................................................... 1
--
28
--
Oklahoma:
Oklahoma City.............................................. 5
--
5
--
Maryland and Washington, D.C. Metropolitan Area :
Maryland................................................... 15
Washington, D.C. .......................................... 2
--
17
--
Total...................................................... 50
==
Each pawnshop employs a manager, one or two assistant managers, and
between one and eight sales personnel, depending upon the size, sales volume
and location of the store. The store manager is responsible for supervising
personnel and assuring that the store is managed in accordance with Company
guidelines and established policies and procedures. Each manager reports to
an area supervisor who typically oversees three to five store managers. The
Company's thirteen area supervisors have an average of seven years experience
in the pawn industry.
The Company believes that its profitability is dependent, among other
factors, upon its employees' ability to make loans that achieve optimum
redemption rates, to be effective sales people and to provide prompt and
courteous service. Therefore, the Company trains its employees through direct
instruction and on-the-job loan and sales experience. The new employee is
introduced to the business through an orientation and training program that
includes on-the-job training in lending practices, layaways, merchandise
valuation and general administration of store operations. Certain experienced
employees receive training and an introduction to the fundamentals of
management to acquire the skills necessary to advance into management
positions within the organization. Management training typically involves
exposure to income maximization, recruitment, inventory control and cost
efficiency. The Company maintains a performance-based compensation plan for
all store employees, based, among other factors, on gross profits and special
promotional contests.
COMPETITION
The Company encounters significant competition in connection with all
aspects of its business operations. These competitive conditions may
adversely affect the Company's revenues, profitability and ability to expand.
The Company, in connection with lending money, competes primarily with
other pawnshops. The pawnshop industry is characterized by a large number of
independent owner-operators, some of whom own and operate multiple pawnshops.
The Company believes that the primary elements of competition in the pawnshop
business are store location, the ability to lend competitive amounts on items
pawned, customer service, and management of store employees. In addition, the
Company competes with financial institutions, such as consumer finance
companies, which generally lend on an unsecured as well as on a secured basis.
Other lenders may and do lend money on terms more favorable than those offered
by the Company. Many of these competitors have greater financial resources
than the Company.
In its retail operations, the Company's competitors include numerous
retail and wholesale stores, including jewelry stores, gun stores, discount
retail stores, consumer electronics stores and other pawnshops. Competitive
factors in the Company's retail operations include the ability to provide the
customer with a variety of merchandise items at attractive prices. Many
retailers have significantly greater financial resources than the Company.
In addition, the Company faces competition in its acquisition program.
There are several other publicly held pawnshop companies, including Cash
America International, Inc. and EZCORP, Inc., that have announced active
expansion and acquisition programs as well. Management believes that the
increased competition for attractive acquisition candidates may increase
acquisition costs.
REGULATION
The Company is subject to extensive regulation, supervision and licensing
under various federal, state and local statutes, ordinances and regulations.
Texas
Pursuant to the terms of the Texas Pawnshop Act, the Texas Consumer
Credit Commission ("TCCC") has primary responsibility for the regulation of
pawnshops and enforcement of laws relating to pawnshops in Texas.
The Texas Pawnshop Act prescribes the stratified loan amounts and the
maximum allowable pawn service charges which pawnbrokers in Texas may charge
for the lending of money within each stratified range of loan amounts. The
maximum allowable pawn service charges were established and have not been
revised since 1971 when the Texas Pawnshop Act was enacted. Since 1981, the
ceiling amounts for stratification of the loan amounts to which those rates
apply have been revised and will continue to be reviewed and be subject to
annual revision on July 1 in relation to the Consumer Price Index. These
rates are reviewed and established annually. The Texas Pawnshop Act also
prescribes the maximum allowable pawn loan, which is currently $11,000. The
maximum allowable pawn service charges under the Texas Pawnshop Act for the
various loan amounts for the previous and current year are as follows:
Year Ended June 30, 1996 Year Ending June 30, 1997
------------------------ -------------------------
Maximum Maximum
Allowable Allowable
Annual Annual
Amount Financed Percentage Amount Financed Percentage
Per Pawn Loan Rate Per Pawn Loan Rate
------------- ---------- ------------- ----------
$ 1 to $ 129 240% $ 1 to $ 132 240%
$ 130 to $ 430 180% $ 133 to $ 440 180%
$ 431 to $ 1,290 30% $ 441 to $ 1,320 30%
$1,291 to $10,750 12% $1,321 to $11,000 12%
In addition to establishing maximum allowable service charges and loan
ceilings, the Texas Pawnshop Act also provides for the licensing of pawnshops
and pawnshop employees. To be eligible for a pawnshop license in Texas, an
applicant must (i) be of good moral character, (ii) maintain net assets, as
defined in the Texas Pawnshop Act, of at least $150,000 readily available for
use in conducting the business of each licensed pawnshop, (iii) show that the
pawnshop will be operated lawfully and fairly in accordance with the Texas
Pawnshop Act, and (iv) show that the applicant has the financial
responsibility, experience, character and general fitness to command the
confidence of the public in its operations. In the case of a business entity,
the good moral character requirements apply to each officer, director and
holder of 5% or more of the entity's outstanding shares.
As part of the license application process, any existing pawnshop
licensee who would be affected by the granting of the proposed application may
request a public hearing at which to appear and present evidence for or
against the application. For an application for a new license in a county
with a population of 250,000 or more, the TCCC must find not only that the
applicant meets the other requirements for a license, but also that (i) there
is a public need for the proposed pawnshop and (ii) the volume of business in
the community in which the pawnshop will conduct business indicates that a
profitable operation is probable.
The TCCC may, after notice and hearing, suspend or revoke any license for
a Texas pawnshop upon finding, among other things, that (i) any fees or
charges have not been paid; (ii) the licensee violates (whether knowingly or
without the exercise of due care) any provision of the Texas Pawnshop Act or
any regulation or order thereunder; or (iii) a fact or condition exists which,
if it had existed at the time the original application was filed for a
license, would have justified the TCCC in refusing such license.
Under the Texas Pawnshop Act, a pawnbroker may not accept a pledge from a
person under the age of 18 years; make any agreement requiring the personal
liability of the borrower; accept any waiver of any right or protection
accorded a pledgor under the Texas Pawnshop Act; fail to exercise reasonable
care to protect pledged goods from loss or damage; fail to return pledged
goods to a pledgor upon payment of the full amount due; make any charge for
insurance in connection with a pawn transaction; enter into any pawn
transaction that has a maturity date of more than one month; display for sale
in storefront windows or sidewalk display cases, pistols, sword canes,
blackjacks, and certain other types of knives and similar weapons; or purchase
used or second hand personal property or accept building construction
materials as pledged goods unless a record is established containing the name,
address and identification of the seller, a complete description of the
property, including serial number, and a signed statement that the seller has
the right to sell the property.
Oklahoma
In Oklahoma, the maximum allowable service charge was established in 1972
when the Oklahoma Pawnshop Act was enacted. Under current Oklahoma law, a
pawn loan may not exceed $25,000. The maximum allowable pawn service charges
under the Oklahoma Pawnshop Act for the various loan amounts are currently as
follows:
Maximum
Allowable
Annual
Amount Financed Percentage
Per Pawn Loan Rate
------------- ----------
$ 1 to $ 150 240%
$ 151 to $ 250 180%
$ 251 to $ 500 120%
$ 501 to $ 1,000 60%
$1,001 to $25,000 36%
In addition to establishing maximum allowable service charge and loan
ceilings, the Oklahoma Pawnshop Act also provides for the licensing of
pawnshops. To be eligible for a pawnshop license in Oklahoma, an applicant
must (i) be of good moral character, (ii) maintain net assets, as determined
by the Oklahoma Administrator of Consumer Affairs ("OACA"), of at least
$25,000, (iii) show that the pawnshop will be operated lawfully and fairly in
accordance with the Oklahoma Pawnshop Act, and (iv) not have been convicted of
any felony which directly relates to the duties and responsibilities of the
occupation of pawnbroker.
The OACA may, after notice and hearing, suspend or revoke any license for
an Oklahoma pawnshop upon finding, among other things, that (i) any fees or
charges imposed by the OACA have not been paid; (ii) the licensee violates
(whether knowingly or without exercise of due care) any provision of the
Oklahoma Pawnshop Act or any regulation or order thereunder; or (iii) a fact
or condition exists which, if it had existed at the time of the original
application was filed for a license, would have justified the OACA in refusing
such license.
Under the Oklahoma Pawnshop Act, a pawnbroker may not accept a pledge
from a person under the age of 18 years; accept any waiver of any right or
protection accorded a customer under the Oklahoma Pawnshop Act; fail to
exercise reasonable care to protect pledged goods from loss or damage; fail to
return pledged goods to a customer upon payment of the full amount due the
pawnbroker on the pawn transaction; make any charge for insurance in
connection with a pawn transaction; enter into any pawn transaction which has
a maturity date of more than one month; or accept collateral or buy
merchandise from a person unable to supply verification of identity by photo
identification by either a state-issued identification card, driver's license,
or federal government-issued identification card or by readable fingerprint of
right or left index finger on the back of the pawn or purchase receipt to be
retained for the pawnbroker's record.
Maryland
In Maryland, there is no statutory service charge schedule. The Company
charges 12% to 20% per month on loans at its Maryland stores, with a minimum
monthly charge of $6, which is consistent with service charges levied by other
pawnshops in these areas. The state of Maryland also does not prescribe any
maximum loan amounts.
Article 56 of the Annotated Code of Maryland provides for the licensing
of pawnshops. To be eligible for a pawnshop license in Maryland, an applicant
must (i) file a signed application verified under oath, (ii) provide the
Secretary of the Maryland Department of Licensing and Regulation ("MDLR") with
a detail of the applicants business dealings for the previous 36 months, (iii)
pay an application fee of $100 plus $25 for each employee, (iv) not have had a
similar license suspended, revoked, or refused in another jurisdiction, and
(v) not have been convicted of any felony, theft offense, or crime involving
moral turpitude within 3 years of the application, or any time after the
application, or employ such person.
The MDLR may, after notice and hearing, suspend or revoke any license for
a Maryland pawnshop upon finding, among other things, that (i) any fees or
charges imposed by the MDLR have not been paid, or (ii) the licensee cannot
verify that the information supplied with the original application if current.
Under Article 56 of the Annotated Code of Maryland, a pawnbroker may not
accept a pledge from a person under the age of 18 years; prohibit any police
officer from inspecting a dealer's records during business hours; fail to
exercise reasonable care to protect pledged goods from loss or damage; fail to
return pledged goods to a customer upon payment of the full amount due the
pawnbroker on the pawn transaction; or accept collateral or buy merchandise
from a person unable to supply verification of identity by photo
identification by either a state-issued identification card, driver's license,
passport, or federal government-issued identification card and one other
corroborating form of identification.
Washington, D.C.
Pursuant to the terms of the "Act to Regulate and License Pawnbrokers in
the District of Columbia" ("Act"), the Director of the D.C. Department of
Licenses, Investigations and Inspections ("Director") has primary
responsibility for the regulation of pawnshops and enforcement of laws
relating to pawnshops in Washington, D.C..
The Act prescribes the maximum rates of interest for which a pawnbroker
may contract and which he may receive. The maximum rates are a flat $5 per
month charge on all loans of $40 or less, and a 5% per month charge on loans
of greater than $40.
In addition to establishing maximum allowable service charges and loan
ceilings, the Act also provides for the licensing of pawnshops and pawnshop
employees. To be eligible for a pawnshop license in Washington, D.C., an
applicant must submit an application to both the Director and the Washington,
D.C. Chief of Police. After an investigation has been performed by the Chief
of Police, a report of the applicant's moral character must be forwarded to
the Director who then determines whether to issue a license.
Under the Act, a pawnbroker must file an annual report to the director on
or before the fifteenth day of March of each year which must contain, among
other things, the number of redeemed and unredeemed pledges, the total amount
of cash loaned, cash balances on hand, total interest collected and any other
information requested by the Director. In addition, pawnbrokers must maintain
a pawn record ledger which details pertinent information on all loans.
Other
With respect to firearms and ammunition sales, each pawnshop must comply
with the regulations promulgated by the Department of the Treasury-Bureau of
Alcohol, Tobacco and Firearms which require each pawnshop dealing in firearms
to maintain a permanent written record of all firearms received or disposed of
and a similar record for all ammunition sales.
Under some municipal ordinances, pawnshops must provide the police
department having jurisdiction copies of all daily transactions involving pawn
loans and over-the-counter purchases. These daily transaction reports are
designed to provide the local police with a detailed description of the goods
involved including serial numbers, if any, and the name and address of the
owner obtained from a valid identification card. If these ordinances are
applicable, a copy of the transaction ticket is provided to local law
enforcement agencies for processing by the National Crime Investigative
Computer to determine rightful ownership. Goods held to secure pawn loans or
goods purchased which are determined to belong to an owner other than the
borrower or seller are subject to recovery by the rightful owners.
In connection with pawnshops operated by the Company, there is a risk
that acquired merchandise may be subject to claims of rightful owners.
Historically, the Company has not found these claims to have a material
adverse effect upon results of operations. The Company does not maintain
insurance to cover the costs of returning merchandise to its rightful owners.
There can be no assurance that additional local, state or federal
legislation will not be enacted or that existing laws and regulations will not
be amended which could have a material adverse effect on the Company's
operations and financial condition.
EMPLOYEES
The Company had approximately 419 employees as of October 22, 1996. At
that date, approximately 19 persons were employed in executive, administrative
and accounting functions. None of the Company's employees are covered by
collective bargaining agreements. The Company considers its employee
relations to be satisfactory.
INSURANCE
The Company maintains fire, casualty, theft and public liability
insurance for each of its pawnshop locations in amounts management believes to
be adequate. The Company maintains workers' compensation insurance in
Maryland, Washington, D.C. and Oklahoma, as well as excess employer's
indemnification insurance in Texas. The Company is a non-subscriber under the
Texas Workers' Compensation Act and does not maintain other business risk
insurance.
FUTURE PLANS
The Company's long-term business plan includes continuing to acquire
existing pawnshops in Texas, Maryland and the Washington, D.C. metropolitan
area, and possibly other states. The acquisitions may involve a purchase of
assets for cash or a combination of cash, Company securities and/or debt.
From time to time, the Company may also open new pawnshops where desirable
opportunities are presented.
ITEM 2. PROPERTIES
- -------------------
The Company owns the real estate and buildings for three of its pawnshops
and leases 47 pawnshop locations. Leased facilities are generally leased for
a term of two to 10 years with one or more options to renew. The Company's
existing leases expire on dates ranging between 1997 and 2010. All current
leases provide for specified periodic rental payments ranging from
approximately $1,200 to $8,000 per month. Most leases require the Company to
maintain the property and pay the cost of insurance and property taxes. The
Company believes that termination of any particular lease would not have a
material adverse effect on the Company's operations. The Company's strategy
is generally to lease, rather than purchase, space for its pawnshop locations
unless the Company finds what it believes is a superior location at an
attractive price. The Company believes that the facilities currently owned
and leased by it as pawnshop locations are suitable for such purpose. The
Company considers its equipment, furniture and fixtures to be in good
condition.
The Company currently leases approximately 8,500 square feet in
Arlington, Texas for its executive offices. The lease, which expires February
2000, currently provides for monthly rental payments of approximately $9,000.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is aware of no material legal proceedings pending to which it
is a party, or its property is subject. From time to time the Company is a
defendant (actual or threatened) in certain lawsuits encountered in the
ordinary course of its business, the resolution of which, in the opinion of
management, should not have a material adverse effect on the Company's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the Nasdaq Stock Market under the symbol "PAWN". The following
table sets forth the quarterly high and low last sales prices per share for
the Common Stock, as reported by the Nasdaq Stock Market.
Common Stock
Price Range
-----------
High Low
---- ---
1995
First Quarter.................................. $ 4.13 $ 3.50
Second Quarter................................. 4.00 3.38
Third Quarter.................................. 4.00 3.00
Fourth Quarter................................. 3.75 3.00
1996
First Quarter.................................. $ 4.63 $ 3.13
Second Quarter................................. 4.25 3.63
Third Quarter.................................. 6.25 3.63
Fourth Quarter................................. 6.38 4.63
On October 21, 1996, the last sales price for the Common Stock as
reported by the Nasdaq Stock Market was $5.25 per share. On October 17, 1996,
there were approximately 84 stockholders of record of the Common Stock.
No cash dividends have been paid by the Company on its Common Stock, and
the Company does not currently intend to pay cash dividends on its Common
Stock. The current policy of the Company's Board of Directors is to retain
earnings, if any, to provide funds for operation and expansion of the
Company's business. Such policy will be reviewed by the Board of Directors of
the Company from time to time in light of, among other things, the Company's
earnings and financial position and limitations imposed by its revolving line
of credit with Bank One, Texas, NA (the "Credit Facility"). Pursuant to the
terms of its agreement with its lender, the Company is prohibited from paying
any dividends until payment in full of its obligations under the Credit
Facility.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7 and the Company's Consolidated Financial Statements and
related notes thereto required by Item 8.
Year Ended July 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share amounts and
certain operating data)
Income Statement Data:
Revenues:
Merchandise sales................ $ 24,823 $ 20,709 $ 12,174 $ 9,445 $ 5,340
Pawn service charges............. 13,149 11,298 8,279 6,251 3,359
Other............................ 51 177 130 131 107
-------- -------- -------- -------- --------
38,023 32,184 20,583 15,827 8,806
-------- -------- -------- -------- --------
Cost of goods sold and expenses:
Cost of goods sold............... 16,714 13,648 8,258 6,012 3,280
Operating expenses............... 12,573 10,678 7,356 5,656 3,040
Interest expense................. 2,124 2,116 819 434 404
Depreciation..................... 540 506 361 314 153
Amortization..................... 565 531 377 322 140
Administrative expenses.......... 3,150 3,013 1,815 1,188 603
-------- -------- -------- -------- --------
35,666 30,492 18,986 13,926 7,620
-------- -------- -------- -------- --------
Income before income taxes......... 2,357 1,692 1,597 1,901 1,186
Provision for income taxes......... 917 592 462 784 486
-------- -------- -------- -------- --------
Net income......................... 1,440 1,100 1,135 1,117 700
Dividends on preferred stock....... - - 120 124 -
-------- -------- -------- -------- --------
Net income attributable to
common stockholders.............. $ 1,440 $ 1,100 $ 1,015 $ 993 $ 700
======== ======== ======== ======== ========
Net income per common share
available to common stockholders.. $ .39 $ .30 $ .27 $ .30 $ .39
Weighted average common
shares outstanding............... 3,669 3,719 3,792 3,358 1,809
Operating Data:
Locations in operation:
Beginning of the period.......... 43 36 26 23 8
Acquisitions..................... 7 5 10 3 13
Opened........................... 1 2 2 - 2
Sold............................. - - (1) - -
Consolidated..................... (1) - (1) - -
--- --- --- --- ---
End of the period................ 50 43 36 26 23
=== === === === ===
Pawn loans......................... $ 11,701 $ 9,158 $ 7,320 $ 5,048 $ 4,021
Average loan balance per store..... $ 234 $ 213 $ 203 $ 194 $ 175
Redemption rate.................... 70% 71% 73% 73% 70%
Average inventory per store........ $ 175 $ 178 $ 167 $ 162 $ 125
Annualized inventory turnover...... 2.1x 2.0x 1.6x 1.8x 1.7x
Gross profit percentage on
merchandise sales................ 32.7% 34.1% 32.2% 36.3% 38.6%
Balance Sheet Data:
Working capital (deficit).......... $ 21,098 $ 17,027 $ 14,159 $ 3,966 $ (4,856)
Total assets....................... 51,945 43,755 37,814 27,025 22,189
Long-term liabilities.............. 28,655 22,964 18,657 392 212
Total liabilities.................. 31,362 24,808 19,804 7,278 14,508
Series A preferred stock........... - - - 2,000 -
Stockholders' equity............... 20,583 18,947 18,010 17,747 7,681
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------
GENERAL
The Company's revenues are derived primarily from service charges on pawn
loans and the sale of unredeemed goods, or "merchandise sales". Loans are
made for a 30-day term with an automatic extension of 60 days in Texas, 30
days in Oklahoma and 15 days in Maryland. Loans made in Washington, D.C. are
made for a 120-day term with no automatic extension. All loans are
collateralized by tangible personal property placed in the custody of the
Company. The annualized service charge rates on the loans are set by state
laws and range between 12% and 240% in Texas and 36% and 240% in Oklahoma,
depending on the size of the loan. Service charge rates are 144% to 240% on
an annualized basis in Maryland, with a $6 monthly minimum charge. In
Washington, D.C., loans up to $40 bear a flat $5 charge per month, while loans
over $40 bear a 60% annualized rate. In its Texas stores, the Company
recognizes service charges at the inception of the loan at the lesser of the
amount allowed by the state law for the initial 30-day term or $15, in
accordance with state law. In Oklahoma, Maryland and Washington, D.C., the
Company recognizes service charges at the inception of the loan at the amount
allowed by law for the first 30 days. Pawn service charge income applicable
to the remaining term and/or extension period is not recognized until the loan
is repaid or renewed. If a loan is not repaid prior to the expiration of the
automatic extension period, if applicable, the property is forfeited to the
Company and held for resale.
As a result of the Company's policy of accruing pawn service charges only
for the initial 30-day term, unredeemed merchandise is transferred to
inventory at a value equal to the loan principal plus one-month's accrued
interest. The Company's accounting policy defers recognition of an amount of
income equal to the amount of pawn service charges relating to the extension
period until the loan is repaid or renewed, or until the merchandise is
resold. As a result of this policy, the Company's annualized loan yield is
lower than certain of its publicly traded competitors. Conversely, this
revenue recognition policy results in inventory being recorded at a lower
value, which results in realization of a larger gross profit margin on
merchandise sales than would be realized by certain of the Company's publicly
traded competitors. This policy, in the Company's opinion, lessens the risk
that the inventory's cost will exceed its realizable value when sold.
However, if the pawn loan is repaid or renewed, or if the forfeited
merchandise is resold, the amount of income which would be recognized by the
Company or certain of its publicly traded competitors would be the same over
time.
Although the Company has had significant increases in revenues due
primarily to acquisitions and secondarily to new store openings, the Company
has also incurred increases in operating expenses attributable to the
additional stores and increases in administrative expenses attributable to
building a management team and the support personnel required by the Company's
growth. Operating expenses consist of all items directly related to the
operation of the Company's stores, including salaries and related payroll
costs, rent, utilities, equipment depreciation, advertising, property taxes,
licenses, supplies and security. Administrative expenses consist of items
relating to the operation of the corporate office, including the salaries of
corporate officers, area supervisors and other management, accounting and
administrative costs, liability and casualty insurance, outside legal and
accounting fees and stockholder-related expenses.
Presented below are selected consolidated data for the Company for the
three years ended July 31, 1996. The following table, as well as the
discussion following, should be read in conjunction with Selected Financial
Data included in Item 6 and the Consolidated Financial Statements and notes
thereto of the Company required by Item 8.
Year Ended July 31,
1996 1995 1994
---- ---- ----
Income statement items as a
percent of total revenues:
Revenues:
Merchandise sales.................. 65.3% 64.3% 59.1%
Pawn service charges............... 34.6 35.1 40.2
Other.............................. .1 .6 .6
Expenses:
Operating expenses................. 33.1 33.2 35.7
Interest expense................... 5.6 6.6 4.0
Depreciation....................... 1.4 1.6 1.8
Amortization....................... 1.5 1.6 1.8
Administrative expenses............ 8.3 9.4 8.8
Gross profit as a percent of
merchandise sales................... 32.7 34.1 32.2
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Total revenues increased 18% to $38,023,000 for the fiscal year ended
July 31, 1996 ("Fiscal 1996") as compared to $32,184,000 for the fiscal year
ended July 31, 1995 ("Fiscal 1995"). The change resulted from an increase in
revenues of $2,433,000 generated by the 14 stores which were opened or
acquired during Fiscal 1995 and Fiscal 1996 and an increase of $4,119,000 at
the 36 stores which were in operation during all of Fiscal 1995 and Fiscal
1996. These increases were offset by a $713,000 decrease resulting from the
consolidation of a store into an existing store subsequent to August 1, 1995.
Of the $5,839,000 increase in total revenues, 70%, or $4,114,000, was
attributable to increased merchandise sales, 32%, or $1,851,000 was
attributable to increased pawn service charges, and the remaining decrease of
$126,000, or 2% was attributable to the decrease in other income. As a
percentage of total revenues, merchandise sales increased from 64.3% to 65.3%
during Fiscal 1996 as compared to Fiscal 1995, while pawn service charges
declined from 35.1% to 34.6%.
The aggregate loan balance increased 28% from $9,158,000 at July 31, 1995
to $11,701,000 at July 31, 1996. Of the $2,543,000 increase, $1,641,000 was
attributable to growth at the 42 stores in operation at July 31, 1996 and July
31, 1995, while $902,000 was attributable to the addition of 8 stores during
Fiscal 1996, net of one store consolidated.
Gross profit as a percentage of merchandise sales decreased from 34.1%
during Fiscal 1995 to 32.7% during Fiscal 1996. This decrease in the
Company's gross profit margin was primarily the result of increased jewelry
scrap sales during Fiscal 1996, which generally yield a significantly lower
margin than the Company's regular retail sales, but improve the Company's
liquidity.
Operating expenses increased 18% to $12,573,000 during Fiscal 1996
compared to $10,678,000 during Fiscal 1995, primarily as a result of the
addition of 14 stores (net) in Fiscal 1995 and Fiscal 1996,and the addition of
personnel viewed as necessary to support the increased number of store level
transactions. Administrative expenses increased 5% to $3,150,000 during
Fiscal 1996 compared to $3,013,000 during Fiscal 1995 due primarily to the
addition of personnel to supervise store operations. Interest expense
increased to $2,124,000 in Fiscal 1996 compared to $2,116,000 in Fiscal 1995
as a result of borrowings associated with expansion of the Company's store
base.
For Fiscal 1996 and 1995, the Company's effective federal income tax
rates of 39% and 35%, respectively, differed from the statutory tax rate of
34% primarily as a result of state income taxes and amortization of non
deductible intangible assets.
Fiscal 1995 Compared to Fiscal 1994
Total revenues increased 56% to $32,184,000 for the fiscal year ended
July 31, 1995 ("Fiscal 1995") as compared to $20,583,000 for the fiscal year
ended July 31, 1994 ("Fiscal 1994"). The change resulted from an increase in
revenues of $10,727,000 generated by the 19 stores which were opened or
acquired during Fiscal 1994 and Fiscal 1995 and an increase of $1,199,000 at
the 24 stores which were in operation during all of Fiscal 1994 and Fiscal
1995. These increases were offset by a $325,000 decrease resulting from the
sale of one store and the consolidation of a store into an existing store
subsequent to August 1, 1993. Of the $11,601,000 increase in total revenues,
74%, or $8,535,000, was attributable to increased merchandise sales, 26%, or
$3,019,000, was attributable to increased pawn service charges, and the
remaining increase of $47,000 was attributable to the increase in other
income. As a percentage of total revenues, merchandise sales increased from
59.1% to 64.3% during Fiscal 1995 as compared to Fiscal 1994 primarily due to
increased inventory turnover, while pawn service charges declined from 40.2%
to 35.1%, primarily due to lower service charge rates in the Company's
Maryland and Washington, D.C. stores.
The aggregate loan balance increased 25% from $7,320,000 at July 31, 1994
to $9,158,000 at July 31, 1995. Of the $1,838,000 increase, $574,000 was
attributable to growth at the 36 stores in operation at July 31, 1994,
$1,264,000 was attributable to the addition of 7 stores during Fiscal 1995.
Gross profit as a percentage of merchandise sales increased from 32.2%
during Fiscal 1994 to 34.1% during Fiscal 1995. This increase in the
Company's gross profit margin was primarily the result of lower loan to value
ratios in the Company's Mid-Atlantic division, which results in lower
inventory costs and higher margins in that market.
Operating expenses increased 45% to $10,678,000 during Fiscal 1995
compared to $7,356,000 during Fiscal 1994, primarily as a result of the
addition of 17 stores (net) in Fiscal 1994 and Fiscal 1995, additional
personnel viewed as necessary to transact the increased number of store level
transactions, and the conversion of the Company's store computer system.
Administrative expenses increased 66% to $3,013,000 during Fiscal 1995
compared to $1,815,000 during Fiscal 1994 due to the addition of personnel to
direct the store operations, increases in the Company's internal audit staff,
an increase in the Company's liability insurance expense, and an increase in
investor relations costs in an effort to improve the Company's profile in the
investment community. Interest expense increased to $2,116,000 in Fiscal 1995
compared to $819,000 in Fiscal 1994 as a result of borrowings associated with
expansion of the Company's store base.
For Fiscal 1995, the Company's effective federal income tax rate of 35%
differed from the statutory tax rate of 34% primarily as a result of state
income taxes. The Fiscal 1994 effective tax rate of 29% differed from the
statutory tax rate of 34% due to the cumulative financial statement impact in
the amount of $131,000, which represents the tax effect of the Fiscal 1992 and
1993 amortization of intangible assets that had previously been nondeductible
for income tax purposes, but which is now deductible as a result of the tax
law change.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and acquisitions during the past three years
have been financed with funds generated from operations, bank borrowings,
seller-financed indebtedness and the private placement of convertible
debentures in April and May of 1994.
The Company maintains a $20,000,000 long-term line of credit with Bank
One, Texas, NA (the "Credit Facility"). The Credit Facility bears interest
between the bank's prime lending rate and the bank's prime lending rate minus
one-half of one percent, and matures in December 1997. The Credit Facility
allows the Company to borrow funds based upon 80% of loans and service charges
receivable and 60% of inventory of the Company. As of July 31, 1996,
$14,550,000 was drawn under this Credit Facility and an additional $1,501,000
was available to the Company pursuant to the available borrowing base. The
Credit Facility requires that interest be paid monthly with the principal due
upon maturity. It is secured by substantially all of the Company's assets.
Under the terms of the Credit Facility, the Company is required to maintain
certain financial ratios and comply with certain technical covenants. The
Company was in compliance with these requirements and covenants during Fiscal
1996 and as of October 21, 1996.
In May 1996, the Company acquired three pawnshops in Baltimore, Maryland
in an asset purchase including fixed assets, layaways and pawn loans from an
unaffiliated corporation which is wholly-owned by a former employee of the
Company, for an aggregate purchase price of $2,446,000 consisting of
$2,400,000 cash paid to the seller, and legal, consulting and other fees of
$46,000. In June 1996, the Company acquired three additional pawnshops in
Baltimore, Maryland in an asset purchase including fixed assets, layaways,
pawn loans and inventory from an unaffiliated corporation for an aggregate
cash purchase price of $1,662,000 consisting of $1,590,000 paid to the seller,
and legal, consulting and other fees of $72,000. The Company financed
substantially all of the cash purchase price for both of these acquisitions
through its credit facility. The purchase price for these acquisitions was
determined based upon the volume of annual loan and sales transactions,
outstanding loan balances, inventory on hand, and location and condition of
the facilities.
As of July 31, 1996, the Company's primary sources of liquidity were
$680,000 in cash and cash equivalents, $1,783,000 in service charge
receivables, $11,701,000 in loans, $8,772,000 in inventories and $1,501,000 of
available and unused funds under the Company's Credit Facility. The Company
had working capital as of July 31, 1996 of $21,098,000 and a liabilities to
equity ratio of 1.5 to 1.
Net cash provided by operating activities of the Company during Fiscal
1996 was $1,952,000, consisting primarily of net income before non-cash
depreciation and amortization of $2,545,000, less cash used to fund the
increase of balance sheet items of $593,000. Net cash used for investing
activities during Fiscal 1996 was $7,258,000, which was comprised of cash used
for increasing pawn loans of $1,606,000, and cash paid for acquisitions and
other fixed asset additions of $5,652,000 during Fiscal 1996. Net cash
provided by financing activities was $5,720,000 during Fiscal 1996, which
consisted of net increases in the Company's debt of $5,524,000, supplemented
by cash provided from the exercise of stock options and warrants of $196,000.
The profitability and liquidity of the Company is affected by the amount
of loans outstanding, which is controlled in part by the Company's loan
decisions. The Company is able to influence the frequency of forfeiture of
collateral by increasing or decreasing the amount loaned in relation to the
resale value of the pledged property. Tighter credit decisions generally
result in smaller loans in relation to the estimated resale value of the
pledged property and can thereby decrease the Company's aggregate loan balance
and, consequently, decrease pawn service charges. Additionally, small loans
in relation to the pledged property's estimated resale value tends to increase
loan redemptions and improve the Company's liquidity. Conversely, providing
larger loans in relation to the estimated resale value of the pledged property
can result in an increase in the Company's pawn service charge income. Also
larger average loan balances can result in an increase in loan forfeitures,
which increases the quantity of goods on hand and, unless the Company
increases inventory turnover, reduces the Company's liquidity. In each of the
Company's last three fiscal years, at least 70% of the amounts loaned were
either paid in full or renewed, and it is management's current intent to
maintain this ratio. The Company's renewal policy allows customers to renew
pawn loans by repaying all accrued interest on such pawn loans, effectively
creating a new loan transaction. In addition to these factors, the Company's
liquidity is affected by merchandise sales and the pace of store expansions.
Management believes that the Credit Facility, current assets and cash
generated from operations will be sufficient to accommodate the Company's
current operations for fiscal 1997. The Company has no significant capital
commitments as of October 21, 1996. The Company currently has no written
commitments for additional borrowings or future acquisitions; however, the
Company intends to continue to grow and will likely seek additional capital to
facilitate expansion. The Company will evaluate acquisitions, if any, based
upon opportunities, acceptable financing, purchase price, strategic fit and
qualified management personnel.
The Company currently intends to continue to engage in a plan of
expansion through existing store acquisitions and new store openings. While
the Company continually looks for, and is presented with, potential
acquisition candidates, the Company has no definitive plans or commitments for
further acquisitions. The Company has no immediate plans to open any other new
stores. If the Company encounters an attractive opportunity to acquire or
open a new store in the near future, the Company will seek additional
financing, the terms of which will be negotiated on a case-by-case basis. In
September and October 1996, the Company acquired four individual stores in its
Mid-Atlantic division. These acquisitions were financed with proceeds from
the Company's Credit Facility and acquisition term notes provided by the
Company's primary lender.
FORWARD LOOKING INFORMATION
Certain portions of this report contain forward-looking statements,
particularly the portion captioned "Liquidity and Capital Resources" contained
in Item 7, Part II. Factors such as changes in regional or national economic
or competitive conditions, changes in government regulations, changes in
regulations governing pawn service charges, unforeseen litigation, changes in
interest rates or tax rates, future business decisions and other uncertainties
may cause results to differ materially from those anticipated by some of the
statements made in this report. Such factors are difficult to predict and
many are beyond the control of the Company.
INFLATION
The Company does not believe that inflation has had a material effect on
the amount of loans made or unredeemed goods sold by the Company or its
results of operation.
SEASONALITY
The Company's retail business is seasonal in nature with its highest
volume of sales of unredeemed goods occurring during the second fiscal quarter
of each year and its lowest volume of sales of unredeemed goods occurring
during the first fiscal quarter of each year. The Company's lending
activities are not seasonal in nature.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which is effective for fiscal years beginning after
December 15, 1995. Effective August 1, 1996, the Company will adopt FAS 123
establishing financial accounting and reporting standards for stock-based
employee compensation plans. The pronouncement defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock option compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting as prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25"). Entities electing to remain with the accounting in APB 25 must
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in FAS 123 had been applied. The
Company will account for stock-based employee compensation plans under the
intrinsic method pursuant to APB 25 and will make the disclosures in the
footnotes as required by FAS 123.
In March 1995, the FASB issued Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("FAS 121"), which is effective for fiscal years beginning
after December 15, 1995. Effective August 1, 1996, the Company will adopt FAS
121, which requires that long-lived assets (i.e., property, plant and
equipment and intangible assets) will be reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of the
asset may not be recoverable. An impairment loss will be recognized if the
sum of the expected future cash flows (undiscounted and before interest) from
the use of the asset is less than the net book value of the asset. Generally,
the amount of the impairment loss is measured as the difference between the
net book value of the assets and the estimated fair value of the related
assets. The Company does not expect any material impact on the Company's
results of operations or its financial position upon adoption of this
statement in the first quarter of fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements prepared in accordance with Regulation S-X are
included in a separate section of this report. See the index to Financial
Statements at Item 14(a)(1) and (2) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
There have been no disagreements concerning matters of accounting
principles or financial statement disclosure between the Company and its
independent accountants of the type requiring disclosure hereunder.
PART III
--------
In accordance with General Instruction G(3), a presentation of
information required in response to Items 10, 11, 12, and 13 shall appear in
the Company's definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days of the Company's year end and shall be incorporated herein
by reference when filed.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
(2) All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) Exhibits:
1.4(3) Form of William K. Woodruff & Co. Warrant
3.1(6) Amended Certificate of Incorporation
3.2(5) Amended Bylaws
4.2a(3) Common Stock Specimen
10.3(2) Registrant's Stock Option Plan and Form of Option
10.3(a)(2)Amended Stock Option Agreement -- Rick Powell
10.5(2) Lease of Registrant's Pawnshop located at South Hampton
10.6(2) Lease of Registrant's Pawnshop located at River Oaks
10.7(3) Lease of Registrant's Pawnshop located at S. Cooper
10.8(3) Employment Agreement -- Rick Powell
10.15(3) Employment Agreement -- Rick L. Wessel
10.16(3) Warrant Agreement -- Rick Powell
10.18(3) Warrant Agreement -- Rick Wessel
10.20(3) Lease of Registrant's Pawnshop located at Thornton in
Dallas, Texas
10.21(3) Lease of Registrant's Pawnshop located at MacArthur in
Oklahoma City
10.22(3) Lease of Registrant's Pawnshop located at Portland in
Oklahoma City
10.23(3) Lease of Registrant's Pawnshop located at Tyler, Texas
10.24(3) Lease of Registrant's Pawnshop located at James Avenue in
Ft. Worth, Texas
10.25(3) Lease of Registrant's Pawnshop located at Brown Trail in
Bedford, Texas
10.26(3) Lease of Registrant's Pawnshops located at Hurst and
Euless, Texas
10.27(3) Lease of Registrant's Pawnshop located at Mexico Blvd. In
Brownsville, Texas
10.28(3) Lease of Registrant's Pawnshop located at S. 23rd Street
in McAllen, Texas
10.29(3) Lease of Registrant's Pawnshop located at E. 14th Street
in Brownsville, Texas
10.30(3) Lease of Registrant's Pawnshop located at W. Tyler in
Harlingen, Texas
10.31(3) Lease of Registrant's Pawnshop located at Morgan in
Corpus Christi, Texas
10.32(3) Lease of Registrant's Pawnshop located at N. 10th in
McAllen, Texas
10.33(3) Lease of Registrant's Pawnshop located at Ayers in Corpus
Christi, Texas
10.34(3) Acquisition Agreement -- Dallas Pawn and Gun
10.35(3) Acquisition Agreement -- Pete's Pawn and Music
10.36(3) Acquisition Agreement -- Sid's E-Z Money Pawn Shop
10.37(3) Acquisition Agreement -- Granny's Pawn and Mercantile
10.38(3) Acquisition Agreement -- The Happy Hocker
10.39(3) Acquisition Agreement -- D&B Pawn Shop and Hurst Pawn
Shop
10.40(3) Acquisition Agreement -- Try Us Pawn Shop
10.41(3) Acquisition Agreement -- American Loan & Jewelry, Inc.
10.42(3) Supplement to Acquisition Agreement -- American Loan &
Jewelry, Inc.
10.43(4) Lease of Registrant's Pawnshop located at Garland, Texas
10.44(5) Amendment No. 1 to Acquisition Agreement - American Loan
& Jewelry, Inc.
10.45(6) Acquisition Agreement - First Cash Auto Pawn
10.46(6) Lease of Registrant's Pawnshop located at 5519 S.E. 15th
Street in Del City, Oklahoma
10.47(1) Acquisition Agreement - Chapel Jewelry & Loan
10.48(1) Acquisition Agreement - Outta Pawn Outlet
10.49(8) Asset Purchase Agreement Between Mr. Payne and the
Company
10.50(8) Agreement with Partridge Capital Corporation
10.51(8) First Amendment to Second Amended and Restated Loan
Agreement dated November 10, 1993.
10.52(8) Fairness Opinion dated November 19, 1993 in connection
with the Asset Sale
10.53(8) NationsBank consent to Asset Sale
10.54(7) Repurchase of First Cash, Inc. Stock from American Pawn &
Jewelry, Inc.
10.55(7) Acquisition of Famous Pawn, Inc.
10.56(9) Audited Financial Statements of Famous Pawn, Inc. for the
ten and one-half months ended May 15, 1994.
10.57(10) Acquisition Agreement of Five Pawnshops from Jeff
Gerhoff.
10.58(10) Loan Agreement between First Cash, Inc. and Bank One,
Texas, National Association, dated July 28, 1994.
11.0(11) Computation of Earnings Per Share for the Year Ended July
31, 1995.
16.0(2) Letter regarding change in certifying accountant
21.0(10) Subsidiaries
27.0(12) Financial Data Schedules for the period ended July 31,
1996
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 33-61544) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-18
(No. 33-37760-FW) and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 33-48436) and incorporated herein by reference.
(4) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended July 31, 1992 (File No. 0 - 19133) and incorporated herein by
reference.
(5) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended October 31, 1992 (File No. 0 - 19133) and incorporated herein by
reference.
(6) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended January 31, 1993 (File No. 0 - 19133) and incorporated herein by
reference.
(7) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended April 30, 1994 (File No. 0 - 19133) and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 33-70592) and incorporated herein by reference.
(9) Filed as an exhibit to Form 8-K dated July 29, 1994.
(10) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended July 31, 1994 (File No. 0 - 19133) and incorporated herein by
reference.
(11) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended July 31, 1995 (File No. 0 - 19133) and incorporated herein by
reference.
(12) Filed herein.
(b) The registrant has not filed a Form 8-K during the fourth quarter of
fiscal 1996.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST CASH, INC.
PHILLIP E. POWELL
----------------------------------------
Phillip E. Powell, Chief Executive Officer
October 28, 1996
RICK L. WESSEL
----------------------------------------
Rick L. Wessel, Principal Accounting Officer
October 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
PHILLIP E. POWELL Chairman of the Board and October 28, 1996
------------------------- Chief Executive Officer
Phillip E. Powell
RICK L. WESSEL Chief Financial Officer, October 28, 1996
------------------------- Secretary and Treasurer
Rick L. Wessel
JOE R. LOVE Director October 28, 1996
-------------------------
Joe R. Love
RICHARD T. BURKE Director October 28, 1996
-------------------------
Richard T. Burke
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
of First Cash, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index under Item 14 (a) (1) and (2) appearing on page 18 present
fairly, in all material respects, the financial position of First Cash, Inc.
and its subsidiaries at July 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended July 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Fort Worth, Texas
October 22, 1996
FIRST CASH, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
July 31, July 31,
1996 1995
---- ----
(in thousands, except
share data)
ASSETS
Cash and cash equivalents.................... $ 680 $ 266
Service charges receivable................... 1,783 1,360
Loans........................................ 11,701 9,158
Inventories.................................. 8,772 7,639
Prepaid expenses and other current assets.... 869 448
-------- --------
Total current assets............... 23,805 18,871
Property and equipment, net.................. 5,647 4,648
Intangible assets, net of accumulated amort-
ization of $1,934 and $1,369,respectively.. 21,547 19,343
Other........................................ 946 893
-------- --------
$ 51,945 $ 43,755
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and
notes payable.............................. $ 611 $ 373
Accounts payable and accrued expenses........ 1,672 1,198
Income taxes payable......................... 424 273
-------- --------
Total current liabilities.......... 2,707 1,844
Revolving credit facility.................... 14,550 9,700
Long-term debt and notes payable, net of
current portion............................ 2,477 2,041
Debentures Due 1999.......................... 7,500 7,500
Debentures Due 2004.......................... 2,500 2,500
Deferred income taxes........................ 1,628 1,223
-------- --------
31,362 24,808
-------- --------
Stockholders' equity:
Preferred stock; $.01 par value; 10,000,000
shares authorized, respectively; no
shares issued or outstanding.............. - -
Common stock; $.01 par value; 20,000,000
shares authorized; 4,168,459 and 4,130,084
shares issued, respectively; 3,697,500 and
3,659,125 shares outstanding, respectively 42 42
Additional paid-in capital................. 17,611 17,415
Retained earnings.......................... 5,195 3,755
Common stock held in treasury, at cost;
470,959 shares............................ (2,265) (2,265)
-------- --------
20,583 18,947
Commitments (see Note 11)
-------- --------
$ 51,945 $ 43,755
======== ========
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH, INC.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Year Ended July 31,
1996 1995 1994
---- ---- ----
(in thousands, except per share amounts)
Revenues:
Merchandise sales..................... $ 24,823 $ 20,709 $ 12,174
Pawn service charges.................. 13,149 11,298 8,279
Other................................. 51 177 130
-------- -------- --------
38,023 32,184 20,583
-------- -------- --------
Cost of goods sold and expenses:
Cost of goods sold.................... 16,714 13,648 8,258
Operating expenses.................... 12,573 10,678 7,356
Interest expense...................... 2,124 2,116 819
Depreciation.......................... 540 506 361
Amortization.......................... 565 531 377
Administrative expenses............... 3,150 3,013 1,815
-------- -------- --------
35,666 30,492 18,986
-------- -------- --------
Income before income taxes............... 2,357 1,692 1,597
Provision for income taxes............... 917 592 462
-------- -------- --------
Net income............................... 1,440 1,100 1,135
Less dividends paid on preferred stock... - - 120
-------- -------- --------
Net income attributable to
common stockholders.................... $ 1,440 $ 1,100 $ 1,015
======== ======== ========
Net income per common share available
to common stockholders................. $ .39 $ .30 $ .27
Weighted average common shares and
common stock equivalents outstanding... 3,669 3,719 3,792
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended July 31,
1996 1995 1994
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net income.................................. $ 1,440 $ 1,100 $ 1,135
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization............ 1,105 1,037 738
Changes in operating assets and
liabilities, net of effect of purchases
of existing stores:
Service charges receivable............... (227) (83) (204)
Inventories.............................. (899) (1,260) (1,616)
Prepaid expenses and other assets........ (474) 707 (2,080)
Accounts payable and accrued expenses.... 451 151 (1,032)
Current and deferred income taxes........ 556 723 10
-------- -------- --------
Net cash flows from operating activities 1,952 2,375 (3,049)
-------- -------- --------
Cash flows from investing activities:
Net increase in loans....................... (1,606) (601) (1,166)
Purchases of property and equipment......... (1,282) (1,063) (645)
Proceeds from sale of property and equipment - 375 -
Acquisition of existing pawnshops........... (4,370) (2,347) (2,280)
-------- -------- --------
Net cash flows from investing activities (7,258) (3,636) (4,091)
-------- -------- --------
Cash flows from financing activities:
Proceeds from debt.......................... 17,909 10,622 14,857
Proceeds from debentures.................... - - 7,500
Repayments of debt.......................... (12,385) (8,499) (13,101)
Purchase of treasury stock.................. - (963) (112)
Redemption of Series A Preferred Stock...... - - (2,000)
Dividend payments on preferred stock........ - - (120)
Proceeds from exercise of options
and warrants............................... 196 - -
-------- -------- --------
Net cash flows from financing activities 5,720 1,160 7,024
-------- -------- --------
Change in cash and cash equivalents........... 414 (101) (116)
Cash and cash equivalents at beginning of
the year..................................... 266 367 483
-------- -------- --------
Cash and cash equivalents at end of the year.. $ 680 $ 266 $ 367
======== ======== ========
(Continued)
FIRST CASH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
Year Ended July 31,
1996 1995 1994
---- ---- ----
(in thousands)
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest.............................. $ 2,102 $ 1,990 $ 795
======== ======== ========
Income taxes.......................... $ 361 $ 99 $ 452
======== ======== ========
Supplemental disclosure of noncash investing
and financing activities:
Noncash transactions in connection with
various pawnshop acquisitions:
Fair market value of assets acquired.. $ 4,308 $ 5,099 $ 6,921
Less issuance of common stock....... - (800) -
Less issuance of debt............... - (2,000) (2,500)
Less assumption of liabilities
and costs of acquisition........... (23) (99) (1,786)
Less inventory conveyed............. - - (355)
-------- -------- --------
Net cash paid......................... $ 4,285 $ 2,200 $ 2,280
======== ======== ========
Noncash components of transaction
with former director:
Fair market value of items received:
Non-compete agreement............... $ 170
Treasury stock...................... 319
--------
$ 489
========
Net book value of assets surrendered:
Third party receivable.............. $ 48
Pawnshop and related assets......... 441
--------
$ 489
========
Noncash transactions for the purchase of
treasury stock:
Settlement of amounts due from
American Pawn........................ $ 690
========
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
Additional
Common Stock Paid-in Preferred Stock Retained Treasury Stock
Shares Amount Capital Shares Amount Earnings Shares Amount Total
------ ------ ------- ------ ------ -------- ------ ------ -----
(in thousands)
Balance at July 31, 1993 3,930 $ 40 $16,248 - - $ 1,640 35 $ (181) $17,747
Purchase of
treasury stock......... - - - - - - 278 (1,121) (1,121)
Common stock
warrants issued
in connection
with debt offering..... - - 369 - - - - - 369
Net income.............. - - - - - 1,015 - - 1,015
----- ------ ------- ------ ------ -------- ------ ------- -------
Balance at July 31, 1994 3,930 40 16,617 - - 2,655 313 (1,302) 18,010
Common stock issued in
connection with
an acquisition......... 200 2 798 - - - - - 800
Purchase of
treasury stock......... - - - - - - 158 (963) (963)
Net income.............. - - - - - 1,100 - - 1,100
----- ------ ------- ------ ------ -------- ------ ------- -------
Balance at July 31, 1995 4,130 42 17,415 - - 3,755 471 (2,265) 18,947
Exercise of stock
options and warrants.... 38 - 196 - - - - - 196
Net income.............. - - - - - 1,440 - - 1,440
----- ------ ------- ------ ------ -------- ------ ------- -------
Balance at July 31, 1996 4,168 $ 42 $17,611 - - $ 5,195 471 $(2,265) $20,583
===== ====== ======= ====== ====== ======== ====== ======= =======
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY
- -----------------------------------------------
First Cash, Inc. (the "Company") was incorporated in Texas on July 5,
1988 and was reincorporated in Delaware in April 1991. The Company is engaged
in acquiring, establishing and operating pawnshops which lend money on the
security of pledged tangible personal property. In addition to making short
term loans, the Company offers for resale the personal property forfeited by
the individuals on loans, as well as personal property purchased outright from
customers and vendors. As of July 31, 1996 the Company operated fifty stores.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
Principles of consolidation - The accompanying consolidated financial
statements of the Company include the accounts of its wholly-owned
subsidiaries, American Loan & Jewelry, Inc. ("American Loan") and Famous Pawn,
Inc. ("Famous Pawn"). All significant intercompany accounts and transactions
have been eliminated.
Cash and cash equivalents - The Company considers any highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Loans and income recognition - Pawn loans ("loans") are made on the
pledge of tangible personal property for one month with an automatic extension
period of sixty days in Texas, thirty days in Oklahoma, and fifteen days in
Maryland. Loans are made for a period of 120 days in Washington, D.C. with no
automatic extension. In accordance with Texas state law, the Company has
recorded pawn service charges at the inception of the loan at the lesser of
the amount of interest allowed by law for the initial loan period, or $15.
Additional pawn service charges are recognized during the initial loan period
when the aggregate pawn service charges earned, determined on a constant yield
basis over the initial loan period, exceed the amount of income recognized at
the inception of the loan. Pawn service charges on loans made in Oklahoma,
Maryland and Washington, D.C. are recorded at the amount of interest allowed
by law for the first 30 days. Pawn service charges applicable to the
extension periods or additional loan periods are not recognized as income
until the loan is repaid or renewed. If the loan is not repaid, the principal
amount loaned plus accrued pawn service charges becomes the carrying value of
the forfeited collateral ("inventory") which is recovered through sale.
Layaway and deferred revenue - Interim payments from customers on layaway
sales are credited to deferred revenue and subsequently recorded as income
during the period in which final payment is received.
Inventories - Inventories represent merchandise purchased directly from
the public, merchandise acquired from forfeited loans and new merchandise
purchased from vendors. Inventories purchased directly from vendors and
customers are recorded at cost. Inventories from forfeited loans are recorded
at the amount of the loan principal plus one month's accrued pawn service
charges on the unredeemed goods. The cost of inventories is determined on the
specific identification method. Inventories are stated at the lower of cost
or market; accordingly, inventory valuation allowances are established when
inventory carrying values are in excess of estimated selling prices, net of
direct costs of disposal.
Property and equipment - Property and equipment are recorded at cost.
Depreciation is determined on the straight-line method based on estimated
useful lives of thirty-one years for buildings and five to ten years for
equipment. The costs of improvements on leased stores are capitalized as
leasehold improvements and are amortized on the straight-line method over the
applicable lease period, or useful life if shorter.
Maintenance and repairs are charged to expense as incurred; renewals and
betterments are charged to the appropriate property and equipment accounts.
Upon sale or retirement of depreciable assets, the cost and related
accumulated depreciation is removed from the accounts, and the resulting gain
or loss is included in the results of operations in the period retired.
Intangible assets - Intangible assets consist of the excess of purchase
price over net assets acquired and non-compete agreements. Excess purchase
price over net assets acquired is being amortized on a straight-line basis
over an estimated useful life of forty years and payments relative to non
compete agreements are amortized over their estimated useful lives ranging
from two to ten years. The Company's amortization policy is reviewed annually
by the Board of Directors to determine if any change is appropriate.
Management of the Company periodically evaluates the carrying value of the
excess purchase price over the net tangible assets of businesses acquired to
determine that no diminution in carrying value has occurred by comparing a
multiple of current earnings before income taxes on an undiscounted basis to
the net carrying value of the related intangibles. The multiple used in this
evaluation is consistent with the Company's acquisition model and is
determined based upon a discount to the historical trading multiple of the
Company's common stock. Upon any such diminution in value, an appropriate
amount would be charged to earnings.
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. Unless otherwise disclosed, the fair
values of financial instruments approximate their recorded values, due
primarily to their short-term nature.
Income taxes - The Company uses the liability method of computing
deferred income taxes on all material temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases.
Advertising - The Company expenses the costs of advertising the first
time the advertising takes place. Advertising expense for the fiscal years
ended July 31, 1996, 1995 and 1994 was $165,000, $225,000 and $150,000,
respectively.
Earnings per share - Primary earnings per common share is calculated
using the modified treasury stock method as defined by Accounting Principles
Board Opinion #15 ("APB 15"), which requires a dual computation. The first
computation divides net income available to common shareholders by the
weighted average shares of common stock outstanding during the period. The
second computation requires all common stock equivalents, whether dilutive or
anti-dilutive, be included in an aggregate computation, however, the number of
common shares assumed to be repurchased into treasury is limited to 20% of the
number of common shares outstanding at the end of the period. The remaining
excess proceeds are then assumed to first retire outstanding debt, and second,
to purchase certain "risk-free" securities. Pursuant to APB 15, if the result
of the aggregate computation is dilutive, when compared to the first
computation, its result must be reported as earnings per share; otherwise, the
result of the first computation is reported. For earnings per share purposes,
the preferred stock as well as all convertible debt outstanding during the
periods presented are not considered common stock equivalents since the
effective yields exceeded 66.67% of the average Aa corporate bond yield at the
dates of issuance. In computing primary earnings per share attributable to
common stockholders, preferred stock dividends are deducted from net income.
Fully diluted earnings per share is not presented since the assumed conversion
of both the preferred shares and convertible debentures would be either anti
dilutive or result in dilution of less than 3%.
Pervasiveness of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, and related revenues and expenses and disclosure of gain and
loss contingencies at the date of the financial statements. Actual results
could differ from those estimates.
New accounting pronouncements - In October 1995, the Financial Accounting
Standards Board ("FASB") issued Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), which is effective for
fiscal years beginning after December 15, 1995. Effective August 1, 1996, the
Company will adopt FAS 123 establishing financial accounting and reporting
standards for stock-based employee compensation plans. The pronouncement
defines a fair value based method of accounting for an employee stock option
or similar equity instrument and encourages all entities to adopt that method
of accounting for all of their employee stock option compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting as prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"). Entities electing to remain with the accounting in APB
25 must make pro forma disclosures of net income and earnings per share as if
the fair value based method of accounting defined in FAS 123 had been applied.
The Company will account for stock-based employee compensation plans under the
intrinsic method pursuant to APB 25 and will make the disclosures in the
footnotes as required by FAS 123.
In March 1995, the FASB issued Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("FAS 121"), which is effective for fiscal years beginning
after December 15, 1995. Effective August 1, 1996, the Company will adopt FAS
121, which requires that long-lived assets (i.e., property, plant and
equipment and intangible assets) will be reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of the
asset may not be recoverable. An impairment loss will be recognized if the
sum of the expected future cash flows (undiscounted and before interest) from
the use of the asset is less than the net book value of the asset. Generally,
the amount of the impairment loss is measured as the difference between the
net book value of the assets and the estimated fair value of the related
assets.
NOTE 3 - BUSINESS ACQUISITIONS
- ------------------------------
In May 1996, the Company acquired three pawnshops in Baltimore, Maryland
in an asset purchase including fixed assets, layaways and pawn loans from an
unaffiliated corporation which is wholly-owned by a former employee of the
Company, for an aggregate purchase price of $2,446,000 consisting of
$2,400,000 cash paid to the seller, and legal, consulting and other fees of
$46,000. In June 1996, the Company acquired three additional pawnshops in
Baltimore, Maryland in an asset purchase including fixed assets, layaways,
pawn loans and inventory from an unaffiliated corporation for an aggregate
cash purchase price of $1,662,000 consisting of $1,590,000 paid to the seller,
and legal, consulting and other fees of $72,000. The Company financed
substantially all of the cash purchase price for both of these acquisitions
through its credit facility. The purchase price for these acquisitions was
determined based upon the volume of annual loan and sales transactions,
outstanding loan balances, inventory on hand, and location and condition of
the facilities.
In October 1994, the Company acquired five pawnshops in Maryland and the
Washington, D.C. Metropolitan area in an asset purchase including fixed
assets, layaways, deposits, pawn loans and inventory from five unaffiliated
corporations, four of which received cash and the fifth corporation, National
Trade Center, Inc. received a combination of cash, stock and a note payable.
The five pawnshops and related assets were acquired for a purchase price of
$5,099,000 consisting of $2,200,000 cash, a five year unsecured $2,000,000
promissory note with principal and interest payable monthly at the rate of 7%
per annum, the issuance of 200,000 shares of the Company's Common Stock valued
at the then market price of $4 per share, and assumed liabilities, legal,
accounting and transaction fees of $99,000. The Company financed
substantially all of the cash purchase price through its credit facility. The
purchase price of the transaction was determined based upon the volume of
annual loan and sales transactions, outstanding loan balances, inventory on
hand, and location and condition of the facilities.
In May 1994, the Company acquired 100% of the issued and outstanding
common stock of Famous Pawn, which operates seven stores in the Maryland and
Washington, D.C. metropolitan area, from an unaffiliated third party. The
total purchase price was $3,950,000 consisting of $1,450,000 cash and a
$2,500,000 7% Convertible Subordinated Debenture Due 2004. The Company
incurred legal, accounting and transaction fees of $174,000 in conjunction
with the acquisition.
The following unaudited pro forma summary data for the year ended July
31, 1995 and 1994 (in thousands, except per share amounts) combines the
results of operations of the Company, Famous Pawn, Inc. and National Trade
Center, Inc. as if the acquisitions had occurred as of August 1, 1993, after
giving effect to certain adjustments, including increased interest expense on
acquisition debt, increased depreciation and amortization expense on assets
acquired, and the related income tax effects. The unaudited pro forma Fiscal
1995 and 1994 results do not necessarily represent results which would have
occurred if the Company had acquired Famous Pawn, Inc. and National Trade
Center, Inc. on August 1, 1993, nor are they necessarily indicative of the
results of future consolidated operations.
Pro Forma Pro Forma
1995 1994
---- ----
(unaudited) (unaudited)
Revenues........................... $ 32,670 $ 28,024
Net income......................... 1,111 1,357
Net income per share............... $ .30 $ .34
In January 1994, the Company acquired from unaffiliated parties certain
assets of two pawnshops in Oklahoma City. The purchase price was $100,000
cash, and commissions and legal costs of the acquisitions amounted to $17,000.
In May 1994, the Company acquired, in three separate transactions, one
pawnshop each in Corpus Christi, Weslaco and Dallas, Texas. The aggregate
purchase price was $854,000, consisting of $495,000 cash and inventory of
$359,000. Related commissions and legal costs aggregated $44,000. In
addition, the Company acquired pawn licenses in Brownsville and Laredo for a
combined purchase price of $56,000.
All of these acquisitions have 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
dates of acquisition. The excess purchase price over the fair market value of
the net tangible assets acquired and identifiable intangible assets has been
recorded as goodwill. Goodwill and other intangible assets, net of
accumulated amortization, resulting from acquisitions was $21,547,000 and
$19,343,000 as of July 31, 1996 and 1995, respectively. The results of
operations of the acquired companies are included in the consolidated
financial statements from their respective dates of acquisition. In connection
with these acquisitions, the Company entered into 2 to 10 year non-compete
agreements with the former owners.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
On February 1, 1992, the Company acquired 100% of the issued and
outstanding common stock of American Loan, a wholly-owned subsidiary of
American Pawn & Jewelry, Inc. ("American Pawn"). American Loan owns and
operates seven pawnshops in South Texas. The purchase price was $9,803,000,
consisting of $8,600,000 in a seller-financed note payable, 200,000 shares of
Common Stock recorded at the then market price of $5 per share, $89,000 in
assumed liabilities and $114,000 in cash. During fiscal 1993, $2,000,000 of
the seller-financed note was converted into 250,000 shares of Series A
preferred stock. During May 1994, the Company and American Pawn entered into
an agreement for the Company to redeem the 250,000 shares of its preferred
stock held by American Pawn, repurchase 200,000 shares of common stock of the
Company held by American Pawn and recover amounts the Company believed were
due to it from American Pawn or its shareholders. The Series A preferred
stock was contractually redeemable for $2,000,000, and the common stock had a
quoted market value of $800,000. As consideration, the Company paid
$2,100,000 to American Pawn, granted American Pawn a three-year warrant to
purchase 100,000 shares of the Company's common stock at $4.50 per share and
agreed to settle amounts approximating $668,000 which the Company had incurred
on behalf of American Pawn or its shareholders, of which $544,000 had been
recorded as store operating and administrative expense and $124,000 had been
recorded as a receivable in the Company's financial statements. Upon reaching
an agreement with American Pawn, the Company recorded the recovery of these
costs by reducing store operating and administrative expense by an aggregate
of $544,000, which, net of taxes, increased net income for the fourth quarter
of fiscal 1994 by approximately $343,000. Concurrent with this transaction,
Messrs. Charles R. Jones and C. Morgan Jones, affiliates of American Pawn and
directors of the Company, resigned from the Company's Board of Directors. For
the fiscal year ended July 31, 1994, the Company paid American Pawn preferred
stock dividends of $120,000.
In conjunction with the acquisition of American Loan, the Company agreed
to lease the acquired locations from American Pawn. The commitments relating
to such leases are included in the lease commitments in Note 11 to these
financial statements. As discussed in Note 3, the Company repurchased all of
the Series A Preferred Stock and all of the Common Stock held by American
Pawn, and Mr. Jones resigned as a director of the Company effective May 6,
1994. Thus, after May 6, 1994, American Pawn and Mr. Jones ceased to be
related parties. During fiscal 1994, the Company recorded rent expense of
$350,000 under such leases up until the date American Pawn and Mr. Jones
ceased to be related parties.
On December 1, 1993, the Company completed a transaction with John R.
Payne, formerly a director of the Company, by which the Company (i) acquired
from Mr. Payne an aggregate of 75,000 shares of Common Stock of the Company,
(ii) retired incentive options to purchase 100,000 shares of Common Stock held
by Mr. Payne, (iii) purchased from Mr. Payne certain real estate for $35,000,
(iv) entered into a non-compete agreement with Mr. Payne, and (v) entered into
a five-year consulting agreement with Mr. Payne providing maximum compensation
in the amount of $100,000 per year for a period of five years, in exchange for
the transfer to Mr. Payne of one pawnshop location, including operating
permits, pawn loans, inventory, furniture, fixtures, equipment, a leasehold
interest in the real property underlying the location, all having a net book
value of $441,000, and a note receivable from an unaffiliated party in the
approximate amount of $48,000 including principal and accrued interest (this
transaction is referred to as the "Payne Transaction"). The store
transferred from the Company to Mr. Payne had been owned by the Company for
more than five years. The Company valued the shares of Common Stock and the
non-compete agreement at approximately $489,000 and recognized no significant
gain or loss from this transaction. The Company entered into the consulting
agreement with Mr. Payne in order to utilize his expertise in identifying,
evaluating and negotiating pawnshop acquisitions consistent with the Company's
expansion strategy. During fiscal 1996, the Company prepaid the remainder of
the consulting agreement with Mr. Payne, $242,000 of which is reflected in
other assets in the Company's balance sheet as of July 31, 1996.
The closing of the Payne Transaction was conditioned upon (i) the
Company's secured lender releasing the assets as collateral, (ii) obtaining a
fairness opinion from an investment banking firm that the Payne Transaction
was fair to the Company from a financial point of view, and (iii) the closing
of the sale of 590,000 shares of Common Stock by Messrs. Payne, Hudiburg and
Abbott, former directors of the Company, to six purchasers at a purchase price
of $4 per share pursuant to a registration statement filed by the Company.
Prior to closing, the Company obtained a fairness opinion from the Company's
financial advisor as well as a consent from its secured lender. The Company's
financial advisor advised the Board of Directors that, in its opinion, the
Payne Transaction was fair to the Company's stockholders from a financial
point of view. Upon the closing of the Payne Transaction, Messrs. Payne,
Hudiburg, Abbott, Delp and Gibson resigned as directors of the Company. None
of the resigning directors expressed a disagreement with the Company in any
matter relating to the Company's operations, policies or practices.
In December 1993, October 1994 and January 1996, the Company issued to
Mr. Jon Burke, the brother of a director of the Company, Mr. Richard T. Burke,
warrants to purchase 50,000 shares, 5,000 shares and 50,000 shares,
respectively, of the Company's Common Stock at exercise prices of $4, $4.625
and $4.625 per share, respectively, for consulting services to be provided
through January 2001. The warrants vest over a five-year period. During
fiscal 1996, the Company paid to Joe R. Love, a director of the Company, a
consulting fee of $75,000 for services rendered in connection with certain
acquisitions.
NOTE 5 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following (in thousands):
July 31, July 31,
1996 1995
---- ----
Land...................................... $ 719 $ 369
Buildings................................. 1,002 456
Leasehold improvements.................... 1,792 1,628
Furniture, fixtures and equipment......... 4,192 3,721
-------- --------
7,705 6,174
Less: accumulated depreciation........... (2,058) (1,526)
-------- --------
$ 5,647 $ 4,648
======== ========
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ----------------------------------------------
Accounts payable and accrued expenses consist of the following (in
thousands):
July 31, July 31,
1996 1995
---- ----
Accounts payable.......................... $ 147 $ 168
Accrued wages............................. 650 360
Layaway deposits.......................... 534 401
Sales tax payable......................... 113 96
Other..................................... 228 173
-------- --------
$ 1,672 $ 1,198
======== ========
NOTE 7 - REVOLVING CREDIT FACILITY
- ----------------------------------
On July 29, 1994, the Company entered into a long-term line of credit
facility ("Credit Facility") with a bank in the amount of $20,000,000 which
replaced the Company's previous revolving credit facility. At July 31, 1996,
$14,550,000 was outstanding under this Credit Facility and an additional
$1,501,000 was available to the Company pursuant to the available borrowing
base. Amounts outstanding bear interest at a variable rate which fluctuates
between the bank's prime lending rate and the prime lending rate minus one
half percent. Amounts available under the Credit Facility are limited to the
sum of 60% of inventory and 80% of loans and service charges receivable of the
Company. The Credit Facility is scheduled to mature on December 1, 1997.
Under the terms of the Credit Facility, the Company is required to maintain
certain financial ratios and comply with certain technical covenants. As of
July 31, 1996, the Company was in compliance with such covenants. The Company
is required to pay an annual commitment fee of 1/8 of 1% on the average daily
unused portion of the Credit Facility commitment. The Company is prohibited
from paying dividends to its stockholders. Substantially all of the
unencumbered assets of the Company have been pledged as collateral against
indebtedness under the Credit Facility.
NOTE 8 - LONG-TERM DEBT AND NOTES PAYABLE
- -----------------------------------------
Long-term debt and notes payable consist of the following (in thousands):
July 31, July 31,
1996 1995
---- ----
Note payable to a bank; bearing interest at 9.3%;
monthly principal and interest payments of
$5,257 until maturity at December 1, 2000;
secured by real estate........................... $ 564 $ 572
Note payable to a bank; bearing interest at 9%;
monthly principal and interest payments of
$5,518 until maturity at April 1, 2001;
secured by real estate........................... 538 -
Note payable to an unrelated corporation;
bearing interest at 7%; monthly principal and
interest payments of $39,604 until maturity at
October 1, 1999; unsecured....................... 1,443 1,742
Unsecured demand note payable to an individual;
bearing interest at 7%; interest payable
monthly in installments of $583.................. 100 100
Note payable to a bank; bearing interest at 9.3%;
monthly principal and interest payments of
$14,504, until maturity at July 1, 1999;
secured by equipment............................. 443 -
-------- --------
3,088 2,414
Less: current portion............................. (611) (373)
-------- --------
$ 2,477 $ 2,041
======== ========
Long-term debt and notes payable are scheduled to mature as follows (in
thousands):
Fiscal
------
1997..................... $ 611
1998..................... 601
1999..................... 649
2000..................... 255
2001..................... 972
------
$3,088
======
Interest expense related to indebtedness to former officers and directors
was approximately $247,000 for fiscal 1994.
NOTE 9 - CONVERTIBLE SUBORDINATED DEBENTURES
- --------------------------------------------
In April 1994, the Company completed the private placement of $7,500,000
of 10% Convertible Subordinated Debentures Due 1999. The debentures are
convertible into 1,621,622 shares of Common Stock, which represents a
conversion price of $4.625 per share, at the option of the debenture holders,
or may be prepaid in whole by the Company if the price of the Company's Common
Stock trades at or above $8.10 for 30 consecutive days. These debentures are
subordinated to the Credit Facility and are unsecured. A default under the
terms of the Company's Credit Facility also results in default under the
provisions of these debentures. Interest on the debentures is payable
quarterly at March 31, June 30, September 30 and December 31, and principal is
due in 1999, if not previously converted into Common Stock. Debt issue costs
of $934,000 were incurred in this transaction and are included in other assets
on the accompanying consolidated balance sheet, net of accumulated
amortization of $280,000, $160,000 and $40,000 at July 31, 1996, 1995 and
1994, respectively. As of July 31, 1996, the fair market value of these
debentures is estimated to be $7,703,000.
In conjunction with the acquisition of Famous Pawn, the Company issued
$2,500,000 of 7% Convertible Subordinated Debentures Due 2004 to the former
sole shareholder of Famous Pawn. The debentures may be converted into 500,000
shares of Common Stock at the option of the debenture holder on or after June
1, 1997, which represents a conversion price of $5 per share, or may be
prepaid in whole by the Company if the price of the Company's Common Stock
trades at or above $10 per share for 10 consecutive trading days on or after
June 1, 1997. These debentures are subordinated to the Credit Facility and
are unsecured. A default under the terms of the Company's Credit Facility
also results in default under the provisions of these debentures. Interest on
the debentures is payable monthly, and principal is due 2004, if not
previously converted into Common Stock. As of July 31, 1996, the fair market
value of these debentures is estimated to be $2,375,000.
NOTE 10 - INCOME TAXES
- ----------------------
Components of the provision for income taxes consist of the following (in
thousands):
For the year ended July 31,
1996 1995 1994
---- ---- ----
Current:
Federal.............................. $ 446 $ 40 $ 154
State................................ 67 46 38
-------- -------- --------
513 86 192
Deferred............................... 404 506 270
-------- -------- --------
$ 917 $ 592 $ 462
======== ======== ========
The Company has no deferred tax assets. The principal current and non
current deferred tax liabilities consist of the following at July 31, 1996 and
1995 (in thousands):
July 31, July 31,
1996 1995
---- ----
Deferred tax liabilities:
Intangible asset amortization.......... $ 989 $ 766
Depreciation........................... 466 356
State income taxes..................... 106 70
Service charges receivable............. 48 35
Other.................................. 67 31
-------- --------
Net deferred tax liability............. $ 1,676 $ 1,258
======== ========
Reported as:
Current liabilities - income
taxes payable......................... $ 48 $ 35
Non-current liabilities - deferred
income taxes.......................... 1,628 1,223
-------- --------
Net deferred tax liability............. $ 1,676 $ 1,258
======== ========
The provision for income taxes differs from the amounts determined by
applying the expected federal statutory tax rate to income before income
taxes. The following is a reconciliation of such differences (in thousands):
For the year ended July 31,
1996 1995 1994
---- ---- ----
Tax at the federal statutory rate........ $ 801 $ 575 $ 543
Nondeductible amortization of
intangible assets....................... 34 34 -
State income taxes, net of federal
tax benefit............................. 67 52 25
Amortization of intangible assets........ - - (131)
Other, net............................... 15 (69) 25
-------- -------- --------
$ 917 $ 592 $ 462
======== ======== ========
In August 1993, the Revenue Reconciliation Act of 1993 (the "1993 Act")
was enacted which contained provisions allowing the Company to deduct the
amortization of intangible assets acquired in connection with acquisitions
made by the Company subsequent to July 25, 1991. The Company has
approximately $19,080,000 of intangible assets which will qualify for
straight-line amortization over fifteen years for both federal and state
income tax purposes. The Company amortizes these intangible assets over forty
year periods for financial reporting purposes. The reconciling item entitled
"Amortization of intangible assets" in the table above for fiscal 1994
represents the amortization of intangible assets in fiscal 1993 and Fiscal
1992 which was nondeductible for income tax purposes prior to passage of the
1993 Act.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company leases certain of its pawnshop facilities and computer
equipment under operating leases with terms ranging from two to ten years.
Most facility leases contain renewal and/or purchase options. Remaining
future minimum rentals due under non-cancelable operating leases are as
follows (in thousands):
Fiscal
------
1997.................... $ 2,058
1998.................... 1,885
1999.................... 1,681
2000.................... 1,351
2001.................... 1,063
Thereafter.............. 1,393
--------
$ 9,431
========
Rent expense under such leases was $2,070,000, $1,964,000 and $1,186,000
for fiscal years 1996, 1995 and 1994, respectively.
NOTE 12 - EMPLOYEE STOCK OPTION PLAN AND OUTSTANDING WARRANTS
- -------------------------------------------------------------
On May 2, 1991, the Company sold 900,000 shares of Common Stock and
450,000 warrants to purchase 450,000 shares of Common Stock for net proceeds
of $3,581,000. Each warrant initially entitled the holder to purchase one
share of Common Stock for $6 per share. Prior to June 1, 1996, the Company
received $120,000 for the exercise of 20,000 warrants. The remaining 430,000
warrants expired on June 1, 1996.
On October 30, 1990, the Company's Board of Directors adopted the 1990
Stock Option Plan (the "Plan"). The Plan provides for the issuance of
incentive stock options and non-qualified stock options to key employees and
directors of the Company. The total number of shares of Common Stock
authorized and reserved for issuance under the Plan is 250,000 shares. The
exercise price for each stock option granted under the Plan may not be less
than the fair market value of the Common Stock on the date of the grant,
unless, in the case of incentive stock options, the optionee owns greater than
10% of the total combined voting power of all classes of capital stock of the
Company, in which case the exercise price may not be less than 110% of the
fair market value of the Common Stock on the date of the grant. Unless
otherwise determined by the Board, options granted under the Plan have a
maximum duration of five years and vest in up to four equal installments,
commencing on the first anniversary of the date of grant. As of July 31,
1996, options to purchase 40,000 shares of Common Stock were available for
grant under the Plan. Options to purchase 133,281 shares were fully vested at
July 31, 1996.
The Company also issues warrants to purchase shares of Common Stock to
certain key members of management, to members of the Board of Directors who
are not employees or officers of the Company and to outside consultants and
advisors in connection with various acquisitions, debt offerings and
consulting engagements.
Stock option and warrant activity from July 31, 1993 through July 31,
1996 is summarized in the accompanying chart.
Aggregate Aggregate
Exercise Exercised Exercise Exercised
Options Price Value Warrants Price Value
------- ----- ----- -------- ----- -----
July 31, 1993.......... 232,625 $5 $1,163,125 590,355 $5 to $12 $ 4,852,130
Granted................ - - - 1,370,162 $4 to $5 5,681,999
Cancelled.............. (113,250) $5 (566,250) (365,000) $5 to $10 (3,200,000)
-------- ---------- --------- -----------
July 31, 1994.......... 119,375 $5 596,875 1,595,517 $4 to $12 7,334,129
Granted................ 96,500 $4 5/8 446,313 65,000 $4 5/8 300,625
Cancelled.............. (14,250) $4 5/8 to $5 (67,172) (210,000) $4 to $6 (1,040,000)
-------- ---------- --------- -----------
July 31, 1995.......... 201,625 $4 5/8 to $5 976,016 1,450,517 $4 to $12 6,594,754
Granted................ 117,000 $4 5/8 541,125 1,908,250 $4 5/8 to $15 19,200,656
Cancelled.............. (108,625) $4 5/8 to $5 (539,891) (125,355) $6 (752,130)
Exercised.............. (3,375) $5 (16,875) (15,000) $4 (60,000)
-------- ---------- --------- -----------
July 31, 1996.......... 206,625 $4 5/8 to $5 $ 960,375 3,218,412 $4 to $15 $24,983,280
======== ========== ========= ===========
NOTE 13 - FIRST CASH 401(k) PLAN
- --------------------------------
The First Cash 401(k) Plan (the "Plan") is provided by the Company for
all full-time employees who have been employed with the Company for one year.
Under the Plan, a participant may contribute up to 15% of earnings, with the
Company matching the first 3% at a rate of 50%. The employee contributions
are paid to a corporate trustee and invested in various funds. Company
contributions are invested in its common stock, and contributions made to
participants' accounts become fully vested upon completion of five years of
service. The total Company contributions to the Plan were $34,000 for fiscal
1996.