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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
For the year ended December 31, 2000, or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
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(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
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(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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the last reported sales price on the Nasdaq
National Market on March 26, 2001 is $24,148,740. As of March 26, 2001,
there were 8,666,687 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 June 27, 2001 is incorporated by reference in
Part III, Items 10, 11, 12 and 13.
FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-K
For the Year Ended December 31, 2000
TABLE OF CONTENTS
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PART I
Item 1 Business............................................. 1
Item 2 Properties........................................... 8
Item 3. Legal Proceedings ................................... 9
Item 4. Submission of Matters to a Vote of Security Holders.. 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 9
Item 6. Selected Financial Data ............................. 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 11
Item 8. Financial Statements and Supplementary Data ......... 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 17
PART III........................................................ 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K....................................... 18
SIGNATURES..................................................... 19
PART I
Item 1. Business
General
First Cash Financial Services, Inc. (the "Company") is the nation's
third largest publicly traded pawnshop operator and currently owns 116 pawn
stores in Texas, Oklahoma, Washington, D.C., Maryland, Missouri, South
Carolina, Virginia and Mexico. The Company's pawn stores engage in both
consumer finance and retail sales activities. The Company's pawn stores
provide a convenient source for consumer loans, lending money against
pledged tangible personal property such as jewelry, electronic equipment,
tools, sporting goods and musical equipment. These pawn stores also
function as retailers of previously-owned merchandise acquired in forfeited
pawn transactions and over-the-counter purchases from customers. The
Company's pawn stores also offer short-term, secured advances ("payday
advances"). The Company's primary business plan is to significantly expand
its payday advance operations by opening new stores in Texas and other
states, by accelerating the growth of its joint venture, Cash & Go, Ltd,
which operates payday advance and check cashing kiosks inside convenience
stores, and by expanding its payday advance operations in its existing pawn
stores.
The Company also currently owns 33 check cashing and payday advance
stores in California, Washington, Oregon, Illinois, and Washington, D.C.
These stores provide a broad range of consumer financial services, including
check cashing, money order sales, wire transfers, bill payment services and
payday advances. The Company also owns Answers, etc., a company which
provides computer hardware and software to third party check cashing and
payday advance operators throughout the country, as well as ongoing
technical support. In addition, the Company is a 50% partner in Cash & Go,
Ltd., a joint venture, which currently owns and operates 36 financial
services kiosks located inside convenience stores. For the year ended
December 31, 2000, the Company's revenues were derived 52% from retail
activities, 44% from lending activities, and 4% from other sources,
including check-cashing fees.
Management believes the pawnshop industry is highly fragmented with
approximately 15,000 stores in the United States. The four publicly traded
pawnshop companies currently operate approximately 975, or less than 7%, of
the 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. In addition, management believes
that revenues and operating income of its existing pawn stores can be
enhanced by continuing to add consumer financial services, such as payday
advances, which will attract new customers to its pawn stores, and provide a
broader array of services to its existing customer base. During the years
ended December 31, 2000 and 1999, the five months ended December 31, 1998,
and the year ended July 31, 1998 , the Company added 2, 10, 20 and 29 pawn
stores to its network, respectively.
The Company made its initial entry into the check cashing and payday
advance business during the twelve months ended July 31, 1998, with the
purchase of 11 stores in California and Washington. Management estimates
there are approximately 7,000 such check cashing and payday advance
locations throughout the United States. The check cashing and payday
advance industry is experiencing rapid growth. During the years ended
December 31, 2000 and 1999, the five months ended December 31, 1998, and the
year ended July 31, 1998, the Company added 2, 4, 16 and 11 check cashing
and payday advance stores to its network, respectively.
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., Famous Pawn, Inc., JB Pawn,
Inc., Miraglia, Inc., One Iron Ventures, Inc., Capital Pawnbrokers, Inc.,
Silver Hill Pawn, Inc., Elegant Floors, Inc. and First Cash, S.A. De C.V.,
First Cash, Ltd., First Cash Corp, First Cash Management, LLC, and First
Cash, 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.
Industry
The pawnshop industry in the United States is an established industry,
with the highest concentration of pawnshops 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 in part to the lack of
qualified management personnel, the difficulty of developing adequate
financial controls and reporting systems, and the lack of financial
resources.
The check cashing and payday advance industry is a relatively new
industry, and management estimates that there are approximately 7,000 check
cashing and payday advance locations throughout the United States. Some
states have enacted formal check cashing laws which regulate the amount of
fees that operators may charge for cashing checks, and in some cases states
have regulated the amount of service charges that may be charged on small
consumer advances, commonly referred to as "payday advances". Management
believes that at least half of the check cashing locations in the United
States are operated by individuals owning from one to ten locations.
Management further believes that this 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.
Business Strategy
The Company's primary business plan is to significantly expand its
payday advance operations by opening new stores in Texas and other states,
by accelerating the growth of its joint venture, Cash & Go, Ltd, which
operates payday advance and check cashing kiosks inside convenience stores,
and by expanding its payday advance operations in its existing pawn stores.
Secondarily, the Company also plans to open new pawn stores in selective
markets, including Mexico, and to selectively acquire check cashing and
payday advance stores.
New Store Openings
The Company has opened 18 new pawn stores and 8 new check
cashing/payday advance stores since its inception and currently intends to
open additional check cashing and payday advance stores in locations where
management believes appropriate demand and other favorable conditions exist.
In addition, the Company's joint venture, Cash & Go, Ltd., has opened 36
financial services kiosks inside convenience stores since its inception in
August 1999. 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 pawn store includes inventory, funds
available for pawn loans, store fixtures, security systems, computer
equipment, and start-up losses. Although the total investment varies and is
difficult to predict for each location, it has been the Company's experience
that between $200,000 and $300,000 is required to fund a new pawn store for
the first six months of operation. Because existing pawn 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. The Company estimates that approximately $100,000 to
$150,000 is required to fund a new check cashing/payday advance store for
the first six months of operation, which includes investments for leasehold
improvements, equipment, loan portfolio, store operating cash, and start-up
losses.
Acquisitions
Because of the highly fragmented nature of both the pawn industry and
the check cashing/payday advance industry, as well as the availability of
"mom & pop" sole proprietors willing to sell their stores, the Company
believes that acquisition opportunities as well as favorable new store
locations exist.
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 pawn 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, and location and condition of the
facility, including lease terms. Factors involved in evaluating the
acquisition of check cashing/payday advance stores include the annual volume
of transactions, location and condition of facilities, and a demographic
evaluation of the surrounding area to determine the potential for the
Company's payday advance product.
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 area, the Corpus
Christi area, and the El Paso area. Store clusters have also been
established in the St. Louis, Missouri area, the Oklahoma City, Oklahoma
area, in Washington D.C. and its surrounding Maryland suburbs, in Baltimore,
Maryland, in Northern California, in the Chicago, Illinois area, in South
Carolina, and in the Pacific Northwest. The Company currently plans to
continue its expansion in existing markets in Texas, Northern California,
the Pacific Northwest and Mexico, 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, the volume of check cashing and
related consumer financial services, 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 pawn and check cashing/payday
advance stores and to make customers feel more comfortable. In addition to
well-lit parking facilities, several of the stores' exteriors display an
attractive and distinctive 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
monitored on a daily basis from corporate headquarters via an online, real-
time computer network, 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.
Pawn Lending Activities
The Company's pawn stores loan money against the security of pledged
goods. The pledged goods are tangible personal property generally
consisting of jewelry, electronic equipment, tools, 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, while loans in Virginia earn 120% to 180%
annually. In Washington, D.C., a flat $2 charge per month applies to all
loans of up to $40, and a 48% to 60% annualized service charge applies to
loans of greater than $40. In Missouri, loans bear a total service and
storage charge of 240% on an annualized basis, and South Carolina rates
range from 60% to 300%. As of December 31, 2000, the Company's average loan
per pawn ticket was approximately $86. Service charges from pawn loans
during the years ended December 31, 2000 and 1999, the five months ended
December 31, 1998, and the year ended July 31, 1998 accounted for
approximately 19%, 27%, 29%, and 33%, respectively, of the Company's total
revenues.
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 includes such sources as catalogs, blue books, and
newspapers. The Company also utilizes its computer network to recall recent
selling prices of similar merchandise in its own stores. 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, South Carolina, Missouri, Virginia, 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 for 30 days. In the event the borrower does
not pay or renew a loan within 90 days in Texas, South Carolina and
Missouri, 60 days in Oklahoma, 45 days in Maryland and Virginia, and 30 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 becomes
the carrying cost of the forfeited collateral ("inventory") that is
recovered by sale.
The recovery of the principal and 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 amount loaned. For the years ended December 31, 2000 and 1999,
the five months ended December 31, 1998, and the year ended July 31, 1998,
the Company's annualized yield on average pawn loan balance was 127%, 145%,
142%, and 136%, respectively.
Payday Advance Activities
The Company's check cashing/payday advance stores make secured, short-
term advances in which the customer writes the store a personal check in
exchange for cash, net of a transaction fee. Fees for payday advances may
be regulated by state law and are generally 15% to 18% of the amount
advanced per transaction. The term of these advances is thirty days or
less. Service charges from payday advances during the years ended December
31, 2000 and 1999, the five months ended December 31, 1998, and the year
ended July 31, 1998 accounted for approximately 25%, 15%, 7%, and 1%,
respectively, of the Company's total revenues.
To qualify for a payday advance, customers generally must have proof of
steady income, a checking account with a minimum of returned items within a
specified period, and valid identification. Upon completing an application
and subsequent approval, the customer writes a check on their personal
checking account for the amount of the advance, plus applicable fees. At
maturity, the customer may either return to the store and pay off the
advance with cash, in which case the check is returned to the customer, or
the store can deposit the check into its checking account. A significant
amount of payday advance checks deposited by the Company are returned by the
bank; however, a large percentage of these bad debts are subsequently
collected by the Company through various means. The profitability of the
Company's check cashing stores is dependent upon adequate collection of
these returned items.
Retail Activities
The Company acquires merchandise inventory primarily through forfeited
pawn loans and purchases of used goods from the general public. Sales of
inventory during the years ended December 31, 2000 and 1999, the five months
ended December 31, 1998, and the year ended July 31, 1998, accounted for
approximately 52%, 54%, 60%, and 64%, respectively, of the Company's total
revenues for these periods. For the years ended December 31, 2000 and 1999,
the five months ended December 31, 1998, and the year ended July 31, 1998,
the Company realized gross profit margins on merchandise sales of 36%, 32%,
36%, and 33%, 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. 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 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 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 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 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 March 26, 2001, the Company operated pawn stores in the following
markets:
Number of
Locations
---------
Texas:
-----
Dallas/Fort Worth metropolitan area 27
Corpus Christi..................... 8
South Texas........................ 17
El Paso............................ 6
---
58
Missouri:
--------
St. Louis metropolitan area........ 3
---
3
Oklahoma:
--------
Oklahoma City...................... 5
---
5
South Carolina:
--------------
South Carolina..................... 13
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13
Mexico:
------
Mexico............................. 5
---
5
Mid Atlantic:
------------
Baltimore, Maryland................ 7
Washington, D.C. and surrounding
Maryland suburbs.................. 23
Virginia........................... 2
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32
---
Total.............................. 116
===
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 four to seven store managers.
Each area supervisor reports to one of four regional vice-presidents.
The Company believes that profitability of its pawnshops 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 sales, gross
profits and special promotional contests.
Check Cashing/Payday Advance Operations
The Company's check cashing/payday advance locations are typically 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 lighted sign, and distinctive, conservative
window signage. The interiors usually feature an ample lobby, separated
from employee work areas by floor-to-ceiling teller windows. 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.
Computer operating systems in the Company's check cashing/payday
advance stores allow a store manager or clerk to recall rapidly customer
check cashing histories, payday advance histories, and other vital
information. The Company attempts to attract customers primarily through
television advertisements and yellow page advertisements.
As of March 26, 2001, the Company operated check cashing/payday advance
stores in the following markets:
Number of
Locations
---------
Chicago, Illinois........................... 10
Washington, D.C............................. 3
Oregon...................................... 2
Northern California......................... 15
Washington.................................. 3
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33
===
Each check cashing store employs a manager, an assistant manager, and
between three and eight tellers, 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
a district manager who typically oversees two to five store managers.
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 competes primarily with other pawn store operators and
check cashing/payday advance operators. Both the pawnshop and check
cashing/payday advance industries are characterized by a large number of
independent owner-operators, some of whom own and operate multiple
locations. The Company believes that the primary elements of competition in
these businesses are store location, the ability to lend competitive amounts
on both pawn loans and payday advances, 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 and check cashing companies,
including Cash America International, Inc., ACE Cash Express, 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
General
The Company is subject to extensive regulation in several jurisdictions
in which it operates, including jurisdictions that regulate pawn lending,
payday advance fees and check cashing fees. The Company is also subject to
federal and state regulation relating to the reporting and recording of
certain currency transactions. There can be no assurance that additional
state or federal statutes or regulations will not be enacted at some future
date which could inhibit the ability of the Company to expand, significantly
decrease the service charges for lending money, or prohibit or more
stringently regulate the sale of certain goods, any of which could cause a
significant adverse effect on the Company's future prospects.
State Regulations
The Company operates in seven states that have licensing and/or fee
regulations on pawn loans, including Texas, Oklahoma, Maryland, Virginia,
South Carolina, Washington, D.C., and Missouri. The Company is licensed in
each of the states in which a license is currently required for it to
operate as a pawn lender. The Company's fee structures are at or below the
applicable rate ceilings adopted by each of these states. In addition, the
Company is in compliance with the net asset requirements in states where it
is required to maintain certain levels of liquid assets for each pawn store
it operates in the applicable state.
The Company also operates in states which have licensing and/or fee
regulations on check cashing and payday advances, including California,
Washington, Missouri, South Carolina, Oregon, Illinois and Washington, D.C.
The Company is licensed in each of the states in which a license is
currently required for it to operate as a check casher and/or payday lender.
In addition, in some jurisdictions, check cashing companies or money
transmission agents are required to meet minimum bonding or capital
requirements and are subject to record-keeping requirements.
Federal Regulations
Under the Bank Secrecy Act regulations of the U.S. Department of the
Treasury (the "Treasury Department"), transactions involving currency in an
amount greater than $10,000 or the purchase of monetary instruments for cash
in amounts from $3,000 to $10,000 must be recorded. In general, every
financial institution, including the Company, must report each deposit,
withdrawal, exchange of currency or other payment or transfer, whether by,
through or to the financial institution, that involves currency in an amount
greater than $10,000. In addition, multiple currency transactions must be
treated as single transactions if the financial institution has knowledge
that the transactions are by, or on behalf of, any person and result in
either cash in or cash out totaling more than $10,000 during any one
business day.
Other
In jurisdictions that do not have favorable payday lending laws, the
Company has entered into agreements with out-of-state federally insured
financial institutions to act as a loan servicer for such banks in that
jurisdiction. The Company receives a fee from the financial institution for
acting as that institution's loan servicer.
With respect to firearms and ammunition sales, each pawn store must
comply with the regulations promulgated by the Department of the Treasury-
Bureau of Alcohol, Tobacco and Firearms, which requires each pawn store
dealing in firearms to maintain a permanent written record of all firearms
received or disposed of and a similar record for all ammunition sales. The
Company does not currently sell handguns to the public.
Under some municipal ordinances, pawn stores 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.
The Company's pawnshop and payday advance operations are subject to,
and must comply with, extensive regulation, supervision and licensing from
various federal, state and local statutes, ordinances and regulations. These
statutes prescribed, among other things, service charges and interest rates
that may be charged. These regulatory agencies have broad discretionary
authority. 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 an adverse impact on the
Company's operations and financial condition.
Employees
The Company had approximately 1,090 employees as of March 18, 2001,
including approximately 53 persons 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 pawn stores and check cashing/payday advance
locations in amounts management believes to be adequate. The Company
maintains workers' compensation insurance in Maryland, Missouri, California,
Virginia, Washington, Oregon, South Carolina, Illinois, 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.
Item 2. Properties
The Company currently owns the real estate and buildings for three of
its pawn stores and leases 146 pawn stores and check cashing/payday advance
locations. Leased facilities are generally leased for a term of two to ten
years with one or more options to renew. The Company's existing leases
expire on dates ranging between 2001 and 2016. All current leases provide
for specified periodic rental payments ranging from approximately $500 to
$9,100 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 and check cashing 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 pawn stores and check cashing/payday advance locations
are suitable for such purpose. The Company considers its equipment,
furniture and fixtures to be in good condition.
The Company currently leases approximately 17,000 square feet in
Arlington, Texas for its executive offices. The lease, which expires
December 31, 2001, currently provides for monthly rental payments of
approximately $25,000.
Item 3. Legal Proceedings
The Company was sued by three plaintiffs, who alleged that the Company
engaged in deferred presentment transactions which violate the Federal
Racketeering Influenced and Corrupt Organizations Act, the Federal Truth and
Lending Act, common law and various state statutes and regulations. Class
certification has been requested, but not yet been obtained. The Company
intends to vigorously defend this claim. Since discovery has not yet
commenced, nor the scope of the case been determined, management can provide
no assurance as to the outcome of such litigation.
Additionally, the Company is from time to time a defendant (actual or
threatened) in certain other 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,
results of operations, or cash flows.
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 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol "FCFS". The following table sets forth the quarterly high
and low closing sales prices per share for the Common Stock, as reported by
the Nasdaq National Market.
Common Stock
Price Range
------------
High Low
----- ----
Year Ended December 31, 1999
Quarter Ended March 31, 1999.......... $14.38 $9.13
Quarter Ended June 30, 1999........... 11.63 9.00
Quarter Ended September 30, 1999...... 12.75 9.75
Quarter Ended December 31, 1999....... 11.00 7.00
Year Ended December 31, 2000
Quarter Ended March 31, 2000.......... $ 8.38 $6.13
Quarter Ended June 30, 2000........... 6.38 3.00
Quarter Ended September 30, 2000...... 3.20 2.00
Quarter Ended December 31, 2000....... 2.88 1.66
On March 26, 2001, the closing sales price for the Common Stock as
reported by the Nasdaq National Market was $4.94 per share. On March 26,
2001, there were approximately 83 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 its syndicate of commercial lenders (the
"Credit Facility"). Pursuant to the terms of its agreement with its
lenders, 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.
Five Months
Year Ended December 31, Ended Year Ended July 31,
----------------------- December 31, ------------------------------
2000 1999 1998 1998 1997 1996
-------- -------- -------- -------- -------- --------
(in thousands, except per share amounts and certain operating data)
Income Statement Data:
Revenues:
Merchandise sales ....... $ 54,797 $ 52,977 $ 20,418 $ 37,998 $ 32,628 $ 24,823
Service charges ......... 46,597 40,630 12,434 20,332 16,517 13,149
Check cashing fees ...... 2,216 2,184 754 255 - -
Other ................... 2,248 1,960 472 419 286 51
-------- -------- -------- -------- -------- --------
105,858 97,751 34,078 59,004 49,431 38,023
-------- -------- -------- -------- -------- --------
Cost of goods sold and
expenses:
Cost of goods sold ...... 35,140 36,260 13,157 25,463 22,502 16,714
Operating expenses ...... 47,082 39,243 12,335 19,608 15,774 12,573
Interest expense ........ 2,859 2,602 1,122 2,031 2,340 2,124
Depreciation ............ 2,765 1,590 475 922 717 540
Amortization ............ 1,718 1,500 563 783 636 565
Administrative expenses.. 8,387 6,867 2,249 4,134 3,831 3,150
-------- -------- -------- -------- -------- --------
97,951 88,062 29,901 52,941 45,800 35,666
-------- -------- -------- -------- -------- --------
Income before income taxes 7,907 9,689 4,177 6,063 3,631 2,357
Provision for income taxes 3,005 3,211 1,608 2,265 1,337 917
-------- -------- -------- -------- -------- --------
Income before cumulative
effect of change in
accounting principle.... 4,902 6,478 2,569 3,798 2,294 1,440
Cumulative effect of change
in accounting principle.. (2,287) - - - - -
-------- -------- -------- -------- -------- --------
Net income................. $ 2,615 $ 6,478 $ 2,569 $ 3,798 $ 2,294 $ 1,440
======== ======== ======== ======== ======== ========
Net income per share:
Basic
Income before cumulative
effect of change in
accounting principle... $ .56 $ .75 $ .32 $ .74 $ .60 $ .39
Cumulative effect of change
in accounting principle (.26) - - - - -
-------- -------- -------- -------- -------- --------
Net income .............. $ .30 $ .75 $ .32 $ .74 $ .60 $ .39
======== ======== ======== ======== ======== ========
Diluted
Income before cumulative
effect of change in
accounting principle... $ .55 $ .70 $ .29 $ .59 $ .46 $ .35
Cumulative effect of change
in accounting principle (.26) - - - - -
-------- -------- -------- -------- -------- --------
Net income .............. $ .29 $ .70 $ .29 $ .59 $ .46 $ .35
======== ======== ======== ======== ======== ========
Unaudited pro forma amounts
assuming retroactive
application of change in
accounting principle:
Revenues ................ $ 105,858 $ 93,028 $ 32,351 $ 55,621 $ 46,702 $ 35,792
Net income .............. 4,902 5,850 2,267 3,218 2,144 1,207
Basic earnings per share .56 .68 .28 .63 .56 .33
Diluted earning per share .55 .63 .26 .51 .44 .31
Operating Data:
Locations in operation:
Beginning of the period.. 147 133 97 57 50 43
Acquisitions ............ 2 4 34 38 7 7
Opened .................. 2 10 2 2 - 1
Consolidated/closed ..... (3) - - - - (1)
-------- -------- -------- -------- -------- --------
End of the period ....... 148 147 133 97 57 50
======== ======== ======== ======== ======== ========
Receivables............... $ 22,043 $ 23,568 $ 20,392 $ 17,054 $ 12,877 $ 11,701
Average receivables balance
per store............... $ 149 $ 160 $ 153 $ 176 $ 226 $ 234
Average inventory per pawn
store................... $ 148 $ 182 $ 164 $ 154 $ 176 $ 175
Annualized inventory
turnover................ 1.8x 1.9x 2.1x 2.2x 2.4x 2.1x
Gross profit percentage on
merchandise sales ....... 35.9% 31.6% 35.6% 33.0% 31.0% 32.7%
Balance Sheet Data:
Working capital........... $ 41,835 $ 54,333 $ 39,421 $ 31,987 $ 23,616 $ 21,098
Total assets.............. 119,118 128,847 131,325 91,128 56,677 51,945
Long-term liabilities..... 44,833 55,560 42,699 34,533 26,892 28,655
Total liabilities......... 53,464 62,324 52,617 39,611 30,398 31,362
Stockholders' equity..... 65,654 66,523 60,708 51,517 26,279 20,583
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's pawn store revenues are derived primarily from service
charges on pawn loans, service charges from short term, secured advances
("payday advances"), and the sale of unredeemed goods, or "merchandise
sales." Pawn loans are made for a 30-day term with an automatic extension
of 60 days in Texas, South Carolina and Missouri, 30 days in Oklahoma and 15
days in Maryland and Virginia. Pawn loans made in Washington, D.C. are made
for a 120 day term with no automatic extension. All pawn loans are
collateralized by tangible personal property placed in the custody of the
Company. The annualized service charge rates on pawn 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 $2 charge per month, while
loans over $40 bear a 48% to 60% annualized rate. Missouri pawn loans bear
service and storage charges totaling 240% per year, and in Virginia rates
range from 120% to 180% annually. Annualized rates in South Carolina range
from 60% to 300%. The Company now accrues pawn service charge revenue on a
constant yield basis over the life of the loan for all pawn loans that the
Company deems collection to be probable based on historical loan redemption
statistics. 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 transferred to inventory at a value equal to the loan principal.
Service charges from payday advances, which range from 15% to 18% of the
amount advanced, are recognized on a constant-yield basis over the life of
the advance, which is generally 30 days or less.
Effective January 1, 2000, the Company changed its method of
income recognition on pawn loans. The Company now accrues pawn service
charge revenue on a constant yield basis over the life of the loan for all
pawn loans that the Company deems collection to be probable based on
historical loan redemption statistics. For loans not repaid, the cost of
the forfeited collateral (inventory) is the cash amount originally loaned.
Prior to 2000, the Company recognized service charge income on a constant
yield basis over the initial loan period for all pawn loans written. Service
charges applicable to the extension periods or additional loan periods were
not recognized as income until the loan was repaid or renewed. If the loan
was not repaid, the carrying value of the forfeited collateral (inventory)
was stated at the lower of cost (the principal amount loaned plus accrued
service charges) or market. The Company believes the accounting change
provides a more timely matching of revenues and expenses with which to
measure the results of operations. The cumulative effect of the accounting
method change on all periods since inception through December 31, 1999 is
$2,287,000 (after an income tax benefit of $1,373,000) and is included as a
one-time reduction of net income for the year ended December 31, 2000.
Revenues at the Company's check cashing and payday advance stores are
derived primarily from check cashing fees, fees on payday advances, and fees
from the sale of money orders and wire transfers. Payday advances carry a
15% to 18% service charge. The Company recognizes service charge income on
payday advances on a constant-yield basis over the life of the advance,
which is generally 30 days or less. The Company charges operating expense
for the estimated net potential losses on returned checks in the same period
in which revenues from the payday advances are recognized.
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, security and net returned checks (bad
debts). 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. 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 Year Five Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, July 31,
2000 1999 1998 1998
---- ---- ---- ----
Income statement items as a
percent of total revenues:
Revenues:
Merchandise sales .......... 51.8% 54.2% 59.9% 64.4%
Service charges ............ 44.0 41.6 36.5 34.5
Check cashing fees ......... 2.1 2.2 2.2 .4
Other ...................... 2.1 2.0 1.4 .7
Expenses:
Operating expenses ......... 44.5 40.1 36.2 33.2
Interest expense ........... 2.7 2.7 3.3 3.4
Depreciation ............... 2.6 1.6 1.4 1.6
Amortization ............... 1.6 1.5 1.7 1.3
Administrative expenses .... 7.9 7.0 6.6 7.0
Gross profit as a percent of
merchandise sales........... 35.9 31.6 35.6 33.0
The Company has three primary operating segments: pawn lending stores,
check cashing and payday advance stores, and a software and hardware
provider. The Company's pawn stores offer non-recourse loans on the
collateral of pledged tangible personal property. The Company's pawn stores
also offer short-term secured consumer loans commonly referred to as payroll
advances. The Company's check cashing and payday advance stores provide
check cashing services, short-term secured consumer loans, bill payment
services, money transfer services and money order sales. The Company's
computer software subsidiary, Answers, etc., provides turnkey point of sale
operating systems to other check cashing and payday advance operators
unaffiliated with the Company. Information concerning the segments is set
forth below (in thousands):
Check Cashing/
Pawn Payday Advance
Stores Stores Software Consolidated
------ ------ -------- ------------
Year Ended December 31, 2000
----------------------------
Total revenues $ 87,145 $ 16,582 $ 2,131 $ 105,858
Depreciation and amortization 3,501 804 178 4,483
Income before interest and
income taxes 7,420 4,582 (1,236) 10,766
Total assets at December 31, 2000 89,208 27,093 2,817 119,118
Capital expenditures 1,523 349 183 2,055
Year Ended December 31, 1999
----------------------------
Total revenues 79,470 14,573 3,708 97,751
Depreciation and amortization 2,293 709 88 3,090
Income before interest and
income taxes 8,019 3,927 345 12,291
Total assets at December 31, 1999 91,516 34,800 2,531 128,847
Capital expenditures 2,539 431 312 3,282
Five Months Ended
December 31, 1998
-------------------
Total revenues 29,140 3,484 1,454 34,078
Depreciation and amortization 804 221 13 1,038
Income before interest and
income taxes 4,051 1,036 212 5,299
Total assets at December 31, 1998 80,586 30,495 2,244 113,325
Capital expenditures 806 145 46 997
Year Ended July 31, 1998
------------------------
Total revenues 57,082 1,133 789 59,004
Depreciation and amortization 1,627 74 4 1,705
Income before interest and
income taxes 7,700 272 122 8,094
Total assets at July 31, 1998 68,143 21,411 1,574 91,128
Capital expenditures 999 11 11 1,021
Results of Operations
Twelve Months Ended December 31, 2000 Compared to Twelve Months Ended
December 31, 1999
Total revenues increased 8% to $105,858,000 for the fiscal year ended
December 31, 2000 ("Fiscal 2000") as compared to $97,751,000 for the fiscal
year ended December 31, 1999 ("Fiscal 1999"). The change resulted from an
increase in revenues of $663,000 generated by the 18 pawn and check
cashing/payday advance stores which were opened or acquired during Fiscal
1999 and Fiscal 2000, and an increase of $7,444,000, at the 130 stores which
were in operation during all of Fiscal 1999 and Fiscal 2000. Of the
$8,107,000 increase in total revenues, 22%, or $1,820,000, was attributable
to increased merchandise sales, 74%, or $5,967,000 was attributable to
increased service charges on pawn loans and payday advances, $32,000 was
attributable to increased check cashing fees, and the remaining increase of
$288,000, or 4% was attributable to the increase in other income. As a
percentage of total revenues, merchandise sales decreased from 54% to 52%
during Fiscal 2000 as compared to Fiscal 1999, service charges increased
from 42% to 44%, check cashing fees and other income remained at 4%.
The aggregate receivables balance decreased 6% from $23,568,000 at
December 31, 1999 to $22,043,000 at December 31, 2000. Of the $1,525,000
decrease, an increase of $1,594,000 was attributable to growth at the 18
pawn and check cashing/payday advance stores opened or acquired during
Fiscal 1999 and Fiscal 2000, while a $3,119,000 decrease was attributable
to the 130 pawn stores and check cashing/payday advance stores which were in
operation during all of Fiscal 1999 and Fiscal 2000. The annualized yield on
the average aggregate receivables balance was 204% during Fiscal 2000
compared to 183% during Fiscal 1999. The Company's average receivables
balance per store decreased from $160,000 as of December 31, 1999 to
$149,000 as of December 31, 2000, primarily due to our lowering of our loan
to value ratio on pawn loans during 2000; as well as a higher ratio of
payday advance stores in the Company's store count as of December 31, 2000,
which generally have lower per-store receivables balances than the Company's
pawn stores.
Gross profit as a percentage of merchandise sales increased from 32%
during Fiscal 1999 to 36% during Fiscal 2000. This increase in the
Company's gross profit margin was primarily the result of the change in
accounting principle in Fiscal 2000. The 1999 pro forma gross profit as a
percentage of merchandise sales was 39%. Sales of scrap gold had a negative
effect on gross profit margins during Fiscal 1999 and Fiscal 2000.
Factoring out the negative impact of scrap sales, pro forma margins would
have been 41% and 39% during Fiscal 1999 and Fiscal 2000, respectively.
Operating expenses increased 20% to $47,082,000 during Fiscal 2000
compared to $39,243,000 during Fiscal 1999, primarily as a result of the
addition of 18 pawn stores and check cashing/payday advance stores in Fiscal
1999 and Fiscal 2000, and increases in net bad debt expense in 2000 due to
increases in the volume of payday advances in the pawnshops. During the
fourth quarter of 2000 the Company recorded a one-time non-cash pretax
charge in the amount of $765,000 to write-off fixed assets and goodwill
relating to approximately nine stores. These stores are primarily located
in the Company's East Coast market, and continue to be unprofitable or under
performing locations. This one-time store closing charge had a $0.05 per
share impact on the Company's earnings per share. The Company will continue
to evaluate and aggressively address any stores that do not measure up to
the Company's earnings expectations. Administrative expenses increased 22%
to $8,387,000 during Fiscal 2000 compared to $6,867,000 during Fiscal 1999
due primarily to the addition of personnel to supervise store operations.
Interest expense increased to $2,859,000 in Fiscal 2000 compared to
$2,602,000 in Fiscal 1999 as a result of higher average outstanding debt
balances and higher average interest rates during Fiscal 2000.
For Fiscal 2000 and 1999, the Company's effective federal income tax
rates of 38% and 33%, respectively, differed from the statutory tax rate of
34% primarily as a result of state income taxes, utilization of tax net
operating loss carryforwards from acquisitions, and amortization of non-
deductible intangible assets.
Twelve Months Ended December 31, 1999 Compared to Twelve Months Ended July
31, 1998
Total revenues increased 66% to $97,751,000 for the fiscal year ended
December 31, 1999 ("Fiscal 1999") as compared to $59,004,000 for the fiscal
year ended July 31, 1998 ("Fiscal 1998"). The change resulted from an
increase in revenues of $37,948,000 generated by the 90 pawn and check
cashing/payday advance stores which were opened or acquired during Fiscal
1998, the five months ended December 31, 1998 and Fiscal 1999, and an
increase of $799,000, or 2%, at the 57 stores which were in operation during
all of Fiscal 1998 and Fiscal 1999. Of the $38,747,000 increase in total
revenues, 39%, or $14,979,000, was attributable to increased merchandise
sales, 52%, or $20,298,000 was attributable to increased service charges on
pawn loans and payday advances, 5%, or $1,929,000 was attributable to
increased check cashing fees, and the remaining increase of $1,541,000, or
4% was attributable to the increase in other income. As a percentage of
total revenues, merchandise sales decreased from 64% to 54% during Fiscal
1999 as compared to Fiscal 1998, service charges increased from 35% to 42%,
check cashing fees increased from 0% to 2%, and other income increased from
1% to 2%, respectively.
The aggregate receivables balance increased 38% from $17,054,000 at
July 31, 1998 to $23,568,000 at December 31, 1999. Of the $6,514,000
increase, $2,668,000 was attributable to growth at the 97 pawn and check
cashing/payday advance stores in operation at July 31, 1998 and December 31,
1999, while $3,846,000 was attributable to the addition of 50 pawn stores
and check cashing/payday advance stores since August 1, 1998. The annualized
yield on the average aggregate receivables balance was 183% during Fiscal
1999 compared to 136% during Fiscal 1998. The Company's average receivables
balance per store decreased from $176,000 as of July 31, 1998 to $160,000 as
of December 31, 1999, primarily due to a higher ratio of payday advance
stores in the Company's store count as of December 31, 1999, which generally
have lower per-store receivables balances than the Company's pawn stores.
Gross profit as a percentage of merchandise sales decreased from 33%
during Fiscal 1998 to 32% during Fiscal 1999. This decrease in the
Company's gross profit margin was primarily the result of lower gold prices
during Fiscal 1999 compared to Fiscal 1998, which yielded lower margins on
scrap jewelry sales during Fiscal 1999.
Operating expenses increased 100% to $39,243,000 during Fiscal 1999
compared to $19,608,000 during Fiscal 1998, primarily as a result of the
addition of 90 pawn stores and check cashing/payday advance stores in Fiscal
1998, the five months ended December 31, 1998 and Fiscal 1999, and the
addition of personnel viewed as necessary to support the increased number of
store level transactions. Administrative expenses increased 66% to
$6,867,000 during Fiscal 1999 compared to $4,134,000 during Fiscal 1998 due
primarily to the addition of personnel to supervise store operations.
Interest expense increased to $2,602,000 in Fiscal 1999 compared to
$2,031,000 in Fiscal 1998 as a result of higher average outstanding debt
balances during Fiscal 1999.
For Fiscal 1999 and 1998, the Company's effective federal income tax
rates of 33% and 37%, respectively, differed from the statutory tax rate of
34% primarily as a result of state income taxes, utilization of tax net
operating loss carryforwards from acquisitions, and amortization of non-
deductible intangible assets.
Liquidity and Capital Resources
The Company's operations and acquisitions have been financed with funds
generated from operations, bank and other borrowings, and the issuance of
the Company's securities.
The Company currently maintains a $50,000,000 long-term line of credit
with a group of commercial lenders (the "Credit Facility"). At December 31,
2000, $39,000,000 was outstanding under this Credit Facility and an
additional $9,327,000 was available to the Company pursuant to the available
borrowing base. The Credit Facility bears interest at the prevailing LIBOR
rate (which was approximately 6.6% at December 31, 2000) plus one percent,
and matures on September 1, 2002. Amounts available under the Credit
Facility are limited to 325% of the Company's earnings before income taxes,
interest, depreciation and amortization for the trailing twelve months.
Under the terms of the Credit Facility, the Company is required to maintain
certain financial ratios and comply with certain technical covenants. The
Company was in compliance with these requirements and covenants during the
year ended December 31, 2000 and as of March 26, 2001. The Company is
required to pay an annual commitment fee of 1/8 of 1% on the average daily
unused portion of the Credit Facility commitment. The Company is prohibited
from paying dividends to its stockholders. Substantially all of the
unencumbered assets of the Company have been pledged as collateral against
indebtedness under the Credit Facility.
In December 2000, the Company acquired the assets of one pawn store in
LaFeria, Texas and one pawn store in Laredo, Texas. The aggregate purchase
price for these two acquisitions was $1,200,000. The Company financed
substantially all of the cash purchase price for its Fiscal 2000
acquisitions through its Credit Facility. The purchase price for these
acquisitions was determined based upon the volume of annual loan and sales
transactions, outstanding receivable balances, inventory on hand, location
and condition of the facilities, and projected future operating results.
In February 1999, the Company acquired the assets of two pawn stores in
El Paso, Texas. In September 1999, the Company acquired the assets of one
pawn store in Arlington, Virginia, and in October 1999, the Company acquired
the assets of one pawn store in Palm View, Texas. The aggregate purchase
price for these four acquisitions was $2,019,000, including legal,
consulting, assumed liabilities and other costs incidental to the
acquisitions. The Company financed substantially all of the cash purchase
price for its fiscal 1999 acquisitions through its Credit Facility. The
purchase price for these acquisitions was determined based upon the volume
of annual loan and sales transactions, outstanding receivable balances,
inventory on hand, location and condition of the facilities, and projected
future operating results.
The Company acquired the assets of one pawn store in Alice, Texas in
September 1998, five pawn stores in El Paso, Texas in October 1998, one pawn
store in Dallas, Texas in October 1998, and twelve pawn stores in South
Carolina in November 1998. In addition, the Company acquired the assets of
three check cashing and payday advance stores in California in August 1998,
and one check cashing and payday advance store in San Francisco, California
in December 1998. The aggregate purchase price for these 23 stores acquired
during the five months ended December 31, 1998 was $8,175,000, including
legal, consulting, assumed liabilities and other costs incidental to the
acquisitions. In December 1998, the Company also acquired 100% of the
outstanding common stock of One Iron Ventures, Inc., which operates eleven
payday advance stores in the Chicago, Illinois area, for a total purchase
price of $5,704,000 consisting of 430,000 shares of First Cash Financial
Services, Inc. common stock valued at $4,623,000, or $10.75 per share,
assumed liabilities of $904,000, and legal, consulting and assumed
liabilities totaling $177,000. The Company financed substantially all of
the cash purchase price for acquisitions made during the five months ended
December 31, 1998 through its Credit Facility. The purchase price for these
acquisitions was determined based upon the volume of annual loan and sales
transactions, outstanding receivable balances, inventory on hand, location
and condition of the facilities, and projected future operating results.
As of December 31, 2000, the Company's primary sources of liquidity
were $6,611,000 in cash and cash equivalents, $2,707,000 in service charges
receivable, $22,043,000 in receivables, $17,221,000 in inventories and
$9,327,000 of available and unused funds under the Company's Credit
Facility. The Company had working capital as of December 31, 2000 of
$41,835,000 and a liabilities to equity ratio of 0.8 to 1.
Net cash provided by operating activities of the Company during the
year ended December 31, 2000 was $14,628,000, consisting primarily of net
income before non-cash depreciation and amortization and cumulative effect
of change in accounting principle of $9,385,000, plus decreases in inventory
and accrued service fees of $1,568,000 and $728,000 respectively. Net cash
used for investing activities during the year ended December 31, 2000 was
$4,998,000, which was primarily comprised of cash provided from decreasing
receivables of $1,021,000, and cash paid for acquisitions, other fixed asset
additions, and cash paid to fund the expansion of our Cash & Go, Ltd.
joint venture of $6,019,000. Net cash used by financing activities was
$13,736,000 during the year ended December 31, 2000, which primarily
consisted of a net decrease in the Company's debt of $10,252,000 and an
increase in common stock receivables from officers of $3,234,000.
The profitability and liquidity of the Company is affected by the
amount of pawn loans outstanding, which is controlled in part by the
Company's lending decisions. The Company is able to influence the frequency
of loan redemption 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. 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 and cash generated from
operations will be sufficient to accommodate the Company's current
operations for fiscal 2001. The Company has no significant capital
commitments. 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. The
Company currently plans to open between 10 and 15 check cashing/payday
advance locations; as well as 25 to 30 check cashing/payday advance kiosks
for Cash & Go, Ltd., the Company's 50% convenience store joint venture.
These new locations will be funded through the Company's Credit Facility.
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. Between January 1, 2001 and March 26, 2001, the Company opened
one new check cashing/payday advance location.
Forward Looking Information
This annual report contains certain statements that are "forward-
looking statements" within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act. Forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans," or "anticipates"
or the negative thereof, or other variations thereon, or comparable
terminology, or by discussions of strategy. Such statements include, but
are not limited to, the discussions of the Company's operations, liquidity,
and capital resources. Forward-looking statements are included in the
"Liquidity and Capital Resources" section of this annual report. Although
the Company believes that the expectations reflected in forward-looking
statements are reasonable, there can be no assurances that such expectations
will prove to be accurate. Generally, these statements relate to business
plans, strategies, anticipated strategies, levels of capital expenditures,
liquidity and anticipated capital funding needed to effect the business
plan. All phases of the Company's operations are subject to a number of
uncertainties, risks and other influences, many of which are outside the
control of the Company and cannot be predicted with any degree of accuracy.
Factors such as changes in regional or national economic conditions, changes
in governmental regulations, unforeseen litigation, changes in interest
rates or tax rates, significant changes in the prevailing market price of
gold, future business decisions and other uncertainties may cause results to
differ materially from those anticipated by some of the statements made in
this report. In light of the significant uncertainties inherent in the
forward-looking statements made in this report, the inclusion of such
statements should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Security holders are cautioned that such forward-looking statements involve
risks and uncertainties. The forward-looking statements contained in this
report speak only as of the date of this report and the Company expressly
disclaims any obligation or undertaking to release any updates or revisions
to any such statement to reflect any change in the Company's expectations or
any change in events, conditions or circumstance on which any such statement
is based.
Inflation
The Company does not believe that inflation has had a material effect
on the amount of loans and payday advances 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 first and fourth
calendar quarters of each year. The Company's lending and payday advance
activities are also seasonal, with the highest volume of lending activity
occurring during the second and third calendar quarters of each year.
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," is effective for all
fiscal years beginning after June 15, 2000. SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. Under SFAS 133, certain contracts that were not
formerly considered derivatives may now meet the definition of a derivative.
The Company adopted SFAS 133 effective January 1, 2001. The adoption of SFAS
133 did not have a significant impact on the financial position, results of
operations, or cash flows of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB101") "Revenue Recognition In
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The adoption of SAB 101 did not have a material effect
on the Company's financial position or results of operations.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk in the form of interest rate
risk. At December 31, 2000, the Company had $39 million outstanding under
its revolving line of credit. This revolving line is priced with a variable
rate based on LIBOR or a base rate, plus one percent. See "Note 8 -
Revolving Credit Facility". Based on the average outstanding indebtedness
during the year ended December 31, 2000, a 10% increase in interest rates
would have increased the Company's interest expense by approximately
$310,000 for the year ended December 31, 2000.
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
Deloitte & Touche LLP 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: Page
Report of Independent Auditors..................... F-1
Consolidated Balance Sheets........................ F-2
Consolidated Statements of Income.................. F-3
Consolidated Statements of Cash Flows.............. F-4
Consolidated Statements of Changes in Stockholders'
Equity........................................... F-5
Notes to Consolidated Financial Statements......... F-6
(b) During Fiscal 2000 the Company filed no reports on Form 8-K.
(c) Exhibits:
3.1(5) Amended Certificate of Incorporation
3.2(6) Amended Bylaws
4.2a(2) Common Stock Specimen
10.3(1) First Cash, Inc. 1990 Stock Option Plan
10.8(8) Employment Agreement -- Rick Powell
10.15(8) Employment Agreement -- Rick L. Wessel
10.59(4) Acquisition Agreement - Miraglia, Inc.
10.60(3) Audited Financial Statements of Miraglia,
Inc. for the ten months ended May 31, 1998.
10.61(5) Acquisition Agreement for Twelve Pawnshops
in South Carolina
10.62(5) Acquisition Agreement for One Iron Ventures, Inc.
10.63(5) First Cash Financial Services, Inc. 1999 Stock
Option Plan
18.1(7) Letter re Change in Accounting Principle
21.0(8) Subsidiaries
23.1(8) Independent Auditors' Consent of Deloitte & Touche LLP
23.2(8) Consent of Brewer & Pritchard, P.C.
(d) All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-18 (No. 33-37760-FW) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
S-1 (No. 33-48436) and incorporated herein by reference.
(3) Filed as an exhibit to Form 8-K dated September 22, 1998.
(4) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal
year ended July 31, 1998 (File No. 0 - 19133) and incorporated herein
by reference.
(5) Filed as an exhibit to the Company's Registration Statement on Form S-3
dated January 22, 1999 (File No. 333-71077) and incorporated herein by
reference.
(6) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 1999 (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 March 31, 2000 (File No. 0 - 19133) and incorporated
herein by reference.
(8) Filed herein.
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 FINANCIAL SERVICES, INC.
/S/ PHILLIP E. POWELL
------------------------------------------
Phillip E. Powell, Chief Executive Officer
March 26, 2001
/S/ RICK L. WESSEL
--------------------------------------------
Rick L. Wessel, Principal Accounting Officer
March 26, 2001
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
--------- -------- ----
/S/ PHILLIP E. POWELL Chairman of the Board and March 26, 2001
--------------------- Chief Executive Officer
Phillip E. Powell
/S/ RICK L. WESSEL President, Chief Financial March 26, 2001
--------------------- Officer, Secretary and
Rick L. Wessel Treasurer
/S/ JOE R. LOVE Director March 26, 2001
---------------------
Joe R. Love
/S/ RICHARD T. BURKE Director March 26, 2001
---------------------
Richard T. Burke
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
First Cash Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of First Cash
Financial Services, Inc. and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years ended December 31, 2000 and
1999, the five months ended December 31, 1998 and the year ended July 31,
1998. These consolidated 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 in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of First Cash
Financial Services, Inc. and subsidiaries at December 31, 2000 and 1999,
and the consolidated results of its operations and its cash flows for each
of the years ended December 31, 2000 and 1999, the five months ended
December 31, 1998 and the year ended July 31, 1998 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the financial statements, the Company changed
its method of accounting for income recognition on pawn loans in 2000.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
February 6, 2001
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2000 1999
------- -------
(in thousands, except share data)
ASSETS
Cash and cash equivalents.................... $ 6,611 $ 10,717
Service charges receivable................... 2,707 3,826
Receivables.................................. 22,043 23,568
Inventories.................................. 17,221 21,091
Prepaid expenses and other current assets.... 1,884 1,895
------- -------
Total current assets....................... 50,466 61,097
Property and equipment, net.................. 10,378 10,954
Intangible assets, net of accumulated
amortization of $7,136 and $5,418,
respectively............................... 53,508 54,600
Receivable from Cash & Go, Ltd............... 4,580 1,816
Other........................................ 186 380
------- -------
$119,118 $128,847
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and notes
payable.................................... $ 1,643 $ 1,689
Accounts payable and accrued expenses........ 6,460 4,892
Income taxes payable......................... 528 183
------- -------
Total current liabilities ................. 8,631 6,764
Revolving credit facility.................... 39,000 47,000
Long-term debt and notes payable, net of
current portion............................ 3,019 5,020
Deferred income taxes........................ 2,814 3,540
------- -------
53,464 62,324
------- -------
Stockholders' equity:
Preferred stock; $.01 par value; 10,000,000
shares authorized; no shares issued or
outstanding.............................. - -
Common stock; $.01 par value; 20,000,000
shares authorized; 9,320,868 and
9,320,868 shares issued, respectively;
8,796,027 and 8,849,909 shares
outstanding, respectively................ 93 93
Additional paid-in capital................. 50,953 50,953
Retained earnings.......................... 22,949 20,334
Common stock receivables from officers..... (5,826) (2,592)
Common stock held in treasury, at cost,
524,841 and 470,959 shares, respectively (2,515) (2,265)
------- -------
65,654 66,523
------- -------
$119,118 $128,847
======= =======
Commitments and contingencies (see Note 11)
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Year Five Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, July 31,
2000 1999 1998 1998
------- ------- ------- -------
(in thousands, except per share amounts)
Revenues:
Merchandise sales .......... $ 54,797 $ 52,977 $ 20,418 $ 37,998
Service charges ............ 46,597 40,630 12,434 20,332
Check cashing fees ......... 2,216 2,184 754 255
Other ...................... 2,248 1,960 472 419
------- ------- ------- -------
105,858 97,751 34,078 59,004
------- ------- ------- -------
Cost of goods sold and expenses:
Cost of goods sold ......... 35,140 36,260 13,157 25,463
Operating expenses ......... 47,082 39,243 12,335 19,608
Interest expense ........... 2,859 2,602 1,122 2,031
Depreciation ............... 2,765 1,590 475 922
Amortization ............... 1,718 1,500 563 783
Administrative expenses .... 8,387 6,867 2,249 4,134
------- ------- ------- -------
97,951 88,062 29,901 52,941
------- ------- ------- -------
Income before income taxes..... 7,907 9,689 4,177 6,063
Provision for income taxes..... 3,005 3,211 1,608 2,265
------- ------- ------- -------
Income before cumulative effect
of change in accounting
principle .................. 4,902 6,478 2,569 3,798
Cumulative effect of change in
accounting principle (2,287) - - -
------- ------- ------- -------
Net income..................... $ 2,615 $ 6,478 $ 2,569 $ 3,798
======= ======= ======= =======
Net income per share:
Basic
Income before cumulative
effect of change in
accounting principle $ 0.56 $ 0.75 $ 0.32 $ 0.74
Cumulative effect of
change in accounting
principle .............. (0.26) - - -
------- ------- ------- -------
Net income................ $ 0.30 $ 0.75 $ 0.32 $ 0.74
======= ======= ======= =======
Diluted
Income before cumulative
effect of change in
accounting principle $ 0.55 $ 0.70 $ 0.29 $ 0.59
Cumulative effect of
change in accounting
principle .............. (0.26) - - -
------- ------- ------- -------
Net income................ $ 0.29 $ 0.70 $ 0.29 $ 0.59
======= ======= ======= =======
Unaudited pro forma amounts
assuming retroactive
application of change
in accounting principle:
Revenues ................... $105,858 $ 93,028 $ 32,351 $ 55,621
Net income ................. 4,902 5,850 2,267 3,218
Basic earnings per share ... 0.56 0.68 0.28 0.63
Diluted earnings per share . 0.55 0.63 0.26 0.51
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Year Five Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, July 31,
2000 1999 1998 1998
------- ------- ------- -------
Cash flows from operating activities: (in thousands)
Net income ..................... $ 2,615 $ 6,478 $ 2,569 $ 3,798
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 4,483 3,090 1,038 1,705
Cumulative effect of change in
accounting principle.................. 2,287 - - -
Changes in operating assets and
liabilities, net of effect of purchases
of existing stores:
Service charges receivable ............. 728 (162) 10 (195)
Inventories ............................ 1,568 (3,354) (2,551) (1,614)
Prepaid expenses and other assets....... 205 1,161 (13) (2,115)
Accounts payable and accrued expenses... 1,546 452 773 (241)
Current and deferred income taxes....... 1,196 (232) 985 1,159
------- ------- ------- -------
Net cash flows from operating activities..... 14,628 7,433 2,811 2,497
------- ------- ------- -------
Cash flows from investing activities:
Net (increase) decrease in receivables..... 1,021 (3,587) (1,130) (1,050)
Purchases of property and equipment........ (2,055) (3,282) (997) (1,021)
Acquisition of existing operations......... (1,200) (2,060) (4,734) (11,954)
Increase in receivable from Cash & Go, Ltd. (2,764) (1,816) - -
------- ------- ------- -------
Net cash flows from investing activities..... (4,998) (10,745) (6,861) (14,025)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from debt ........................ 6,000 21,000 12,250 13,440
Repayments of debt ........................ (16,252) (10,490) (4,856) (6,227)
Common stock receivables from officers..... (3,234) (1,303) (1,289) -
Purchase of treasury stock ................ (250) - - -
Registration fees ......................... - (12) - -
Proceeds from exercise of options and
warrants.................................. - 376 821 4,758
------- ------- ------- -------
Net cash flows from financing activities..... (13,736) 9,571 6,926 11,971
------- ------- ------- -------
Change in cash and cash equivalents.......... (4,106) 6,259 2,876 443
Cash and cash equivalents at beginning
of the year................................ 10,717 4,458 1,582 1,139
------- ------- ------- -------
Cash and cash equivalents at end of the year $ 6,611 $ 10,717 $ 4,458 $ 1,582
======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest ................................. $ 2,813 $ 2,553 $ 1,061 $ 2,061
======= ======= ======= =======
Income taxes ............................. $ 2,013 $ 2,296 $ - $ 985
======= ======= ======= =======
Supplemental disclosure of noncash investing
and financing activities:
Noncash transactions in connection with
various acquisitions:
Fair market value of assets acquired
and goodwill.......................... $ 1,222 $ 2,602 13,164 $ 31,196
Less issuance of common stock......... - - (4,622) (8,712)
Less amounts payable in cash or
common stock........................ - - (2,331) -
Less issuance of debt ................ - (523) (1,070) (6,000)
Less assumption of liabilities and
costs of acquisition................ (22) (19) (407) (4,530)
Net cash paid........................... $ 1,200 $ 2,060 $ 4,734 $ 11,954
======= ======= ======= =======
Noncash conversion of subordinated
debentures into shareholders' equity .. $ - $ - $ - $ 6,522
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Common Stock
Common Stock Paid- Preferred Stock Receivables Treasury Stock
-------------- In --------------- Retained From --------------
Shares Amount Capital Shares Amount Earnings Officers Shares Amount Total
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
(in thousands)
Balance at July 31, 1997 4,931 $ 50 $ 21,005 - - $ 7,489 $ - 471 $(2,265) $ 26,279
Exercise of stock options
and warrants, including
income tax benefit of $1,894 1,151 11 6,640 - - - - - - 6,651
Conversion of debentures 1,402 14 6,063 - - - - - - 6,077
Common stock issued in con-
nection with an acquisition 850 8 8,704 - - - - - - 8,712
Net income - - - - - 3,798 - - - 3,798
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at July 31, 1998 8,334 83 42,412 - - 11,287 - 471 (2,265) 51,517
Exercise of stock options
and warrants, including
income tax benefit of $528 325 3 1,996 - - - - - - 1,999
Common stock issued in con-
nection with an acquisition 430 5 4,618 - - - - - - 4,623
Common stock receivables from
officers - - - - - - (1,289) - - (1,289)
Net income - - - - - 2,569 - - - 2,569
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 1998 9,089 91 49,026 - - 13,856 (1,289) 471 (2,265) 59,419
Exercise of stock options
and warrants, including
income tax benefit of $24 77 1 376 - - - - - - 377
Common stock issued to
retire debt 155 1 1,551 - - - - - - 1,552
Common stock receivables from
officers - - - - - - (1,303) - - (1,303)
Net income - - - - - 6,478 - - - 6,478
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 1999 9,321 93 50,953 - - 20,334 (2,592) 471 (2,265) 66,523
Common stock receivables from
officers - - - - - - (3,234) - - (3,234)
Purchase of treasury stock - - - - - - - 54 (250) (250)
Net income - - - - - 2,615 - - - 2,615
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 2000 9,321 $ 93 $ 50,953 - - $ 22,949 $ (5,826) 525 $(2,515) $ 65,654
====== ====== ======= ====== ====== ======== ======== ====== ====== =======
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY
First Cash Financial Services, Inc. (the "Company") was incorporated
in Texas on July 5, 1988 and was reincorporated in Delaware in April 1991.
The Company is engaged in the operation of pawn stores which lend money on
the collateral of pledged personal property, and which retail previously-
owned merchandise acquired through loan forfeitures. In addition to making
short-term secured loans, most of the Company's pawn stores offer short-
term secured advances ("payday advances"). The Company also operates check
cashing and payday advance stores that provide payday advances, check
cashing services, and other related financial services. The Company also
supplies computer hardware and software to third-party check cashing
operators, as well as ongoing technical support, and owns "firstcash.com",
a website offering previously-owned jewelry, electronics and other
products. As of December 31, 2000, the Company owned 116 pawn stores and
32 check cashing and payday advance 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. All significant intercompany accounts and transactions
have been eliminated. In August 1999, the Company entered into a joint
venture to form Cash & Go, Ltd., a company which owns financial services
kiosks inside convenience stores. The Company presently has a 50%
ownership interest in the partnership, which is accounted for by the equity
method of accounting whereby the Company records its 50% share of the
partnership's earnings or losses in its consolidated financial statements.
The joint venture had a pretax loss of $179,000 and $203,000 for the years
ended December 31, 2000 and 1999, respectively. The Company funds
substantially all of the capital requirements of the joint venture, and at
December 31, 2000 and 1999, had a receivable from this joint venture
totaling $4,580,000 and $1,816,000, respectively. This receivable bears
interest at the prime rate plus 1%, and matures on August 31, 2002.
Cash and cash equivalents - The Company considers any highly liquid
investments with an original maturity of three months or less at date of
acquisition to be cash equivalents.
Receivables and income recognition - Receivables on the accompanying
balance sheet consist of pawn loans and payday advances. Pawn loans
("loans") are made on the pledge of tangible personal property. The
Company accrues pawn service charge revenue on a constant yield basis over
the life of the loan for all pawn loans that the Company deems collection
to be probable based on historical loan redemption statistics. If the
loan is not repaid, the principal amount loaned becomes the carrying value
of the forfeited collateral ("inventory") which is recovered through sale.
Payday advances are made for thirty days or less. The Company recognizes
the service charges associated with payday advances on a constant yield
basis over the term of the payday advance.
Returned checks - The Company charges operating expense for the
estimated net potential losses on returned checks in the same period in
which revenues from the payday advances are recognized.
Operating expenses - Costs incurred in operating the pawn stores and
check cashing stores have been classified as operating expenses. Operating
expenses include salary and benefit expense of store employees, rent and
other occupancy costs, bank charges, security, net returned checks,
utilities, cash shortages and other costs incurred by the stores.
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 and merchandise acquired from forfeited loans. Inventories
purchased directly from customers are recorded at cost. Inventories from
forfeited loans are recorded at the amount of the loan principal 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. Management has evaluated inventory and
determined that a valuation allowance is not necessary.
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 three 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, generally ranging from five 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 expected future cash
flows, undiscounted and without interest charges, to the net carrying value
of the related intangibles. Upon any such diminution in value, an
appropriate amount would be charged to earnings.
Long-lived assets - Long-lived assets (i.e., property, plant and
equipment and intangible assets) are 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 is 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. During the fourth quarter of 2000 the Company recorded
a one-time non-cash pretax charge in the amount of $765,000 to write-off
fixed assets and goodwill relating to approximately nine stores.
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 December 31, 2000 and 1999, the five months ended December 31,
1998, and the fiscal year ended July 31, 1998 was $1,283,000, $1,112,000,
$191,000 and $248,000, respectively.
Stock-Based Compensation - Compensation expense is recorded with
respect to stock option grants and retention stock awards to employees
using the intrinsic value method 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 Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") had been applied. The Company accounts for stock-based
employee compensation plans under the intrinsic method pursuant to APB 25
and has made the disclosures in the footnotes as required by SFAS 123.
Earnings per share - Basic net income per share is computed by
dividing net income by the weighted average number of shares outstanding
during the year. Diluted net income per share is calculated by giving
effect to the potential dilution that could occur if securities or other
contracts to issue common shares were exercised and converted into common
shares during the year.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Year Year Five Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, July 31,
2000 1999 1998 1998
----- ----- ----- -----
Numerator:
Net income for calculating
basic earnings per share $2,615 $6,478 $2,569 $3,798
Plus interest expense, net of taxes,
relating to convertible debentures - - - 399
----- ----- ----- -----
Net income for calculating
diluted earnings per share $2,615 $6,478 $2,569 $4,197
===== ===== ===== =====
Denominator:
Weighted-average common shares
for calculating basic earnings
per share 8,813 8,656 8,030 5,101
Effect of dilutive securities:
Stock options and warrants 56 478 667 897
Contingently issuable shares due
to acquisitions - 133 71 -
Convertible debentures - - - 1,163
----- ----- ----- -----
Weighted-average common shares
for calculating diluted earnings
per share 8,869 9,267 8,768 7,161
===== ===== ===== =====
Basic earnings per share $ 0.30 $ 0.75 $ 0.32 $ 0.74
Diluted earnings per share $ 0.29 $ 0.70 $ 0.29 $ 0.59
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. Such estimates and assumptions are subject to a number of
risks and uncertainties which may cause actual results to differ materially
from the Company's estimates.
Reclassification - Certain amounts as of December 31, 1999 and for
the year ended December 31, 1999, the five months ended December 31, 1998,
and the year ended July 31, 1998, have been reclassified in order to
conform with the 2000 presentation.
New Accounting Standards - Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," is effective for all fiscal years beginning after June
15, 2000. SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Under
SFAS 133, certain contracts that were not formerly considered derivatives
may now meet the definition of a derivative. The Company adopted SFAS 133
effective January 1, 2001. The adoption of SFAS 133 did not have a
significant impact on the financial position, results of operations, or
cash flows of the Company.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB101") "Revenue Recognition In
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The adoption of SAB 101 did not have a material
effect on the Company's financial position or results of operations.
NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 2000, the Company changed its method of income
recognition on pawn loans. The Company now accrues pawn service charge
revenue on a constant yield basis over the life of the loan for all pawn
loans that the Company deems collection to be probable based on historical
loan redemption statistics. For loans not repaid, the cost of the
forfeited collateral (inventory) is the cash amount originally loaned.
Prior to 2000, the Company recognized service charge income on a constant
yield basis over the initial loan period for all pawn loans written.
Service charges applicable to the extension periods or additional loan
periods were not recognized as income until the loan was repaid or renewed.
If the loan was not repaid, the carrying value of the forfeited collateral
(inventory) was stated at the lower of cost (the principal amount loaned
plus accrued service charges) or market. The Company believes the
accounting change provides a more timely matching of revenues and expenses
with which to measure the results of operations. The cumulative effect of
the accounting method change on all periods since inception through
December 31, 1999 is $2,287,000 (after an income tax benefit of
$1,373,000) and is included as a one-time reduction of net income for the
year ended December 31, 2000.
Operating results for Fiscal 2000 have been calculated using the new
accounting method. The effect for Fiscal 2000 of adopting the change in
income recognition on pawn loans was to decrease net income before
cumulative effect of change in accounting principle $9,000, and decrease
net income $2,296,000 ($.26 per share.) The unaudited pro forma amounts
shown in the statements of income reflect the effect of retroactive
application on service charge revenues, cost of goods sold, and related
income taxes.
NOTE 4 - BUSINESS ACQUISITIONS
In December 2000, the Company acquired the assets of one pawn store in
LaFeria, Texas, and one pawn store in Laredo, Texas. The aggregate
purchase price for these two acquisitions was $1,200,000, including legal,
consulting, assumed liabilities and other costs incidental to the
acquisitions. The Company financed substantially all of the cash purchase
price for its fiscal 2000 acquisitions through its Credit Facility. The
purchase price for these acquisitions was determined based upon the volume
of annual loan and sales transactions, outstanding receivable balances,
inventory on hand, location and condition of the facilities, and projected
future operating results.
In February 1999, the Company acquired the assets of two pawn stores
in El Paso, Texas. In September 1999, the Company acquired the assets of
one pawn store in Arlington, Virginia, and in October 1999, the Company
acquired the assets of one pawn store in Palm View, Texas. The aggregate
purchase price for these four acquisitions was $2,019,000, including legal,
consulting, assumed liabilities and other costs incidental to the
acquisitions. The Company financed the cash purchase price for its fiscal
1999 acquisitions through its Credit Facility. The purchase price for
these acquisitions was determined based upon the volume of annual loan and
sales transactions, outstanding receivable balances, inventory on hand,
location and condition of the facilities, and projected future operating
results.
The Company acquired the assets of one pawn store in Alice, Texas in
September 1998, five pawn stores in El Paso, Texas in October 1998, one
pawn store in Dallas, Texas in October 1998, and twelve pawn stores in
South Carolina in November 1998. In addition, the Company acquired the
assets of three check cashing and payday advance stores in California in
August 1998, and one check cashing and payday advance store in San
Francisco, California in December 1998. The aggregate purchase price for
these 23 stores acquired during the five months ended December 31, 1998 was
$8,175,000, including legal, consulting, assumed liabilities and other
costs incidental to the acquisitions. In December 1998, the Company also
acquired 100% of the outstanding common stock of One Iron Ventures, Inc.,
which operates eleven payday advance stores in the Chicago, Illinois area,
for a total purchase price of $5,704,000 consisting of 430,000 shares of
First Cash Financial Services, Inc. common stock valued at $4,623,000, or
$10.75 per share, assumed liabilities of $904,000, and legal, consulting
and assumed liabilities totaling $177,000. The Company financed
substantially all of the cash purchase price for acquisitions made during
the five months ended December 31, 1998 through its credit facility. The
purchase price for these acquisitions was determined based upon the volume
of annual loan and sales transactions, outstanding receivable balances,
inventory on hand, location and condition of the facilities, and projected
future operating results.
In April 1998, the Company acquired 100% of the outstanding common
stock of JB Pawn, Inc., which operates ten pawn stores in Texas and
Maryland, for a total cash price of $2,000,000 (see Note 5 - Related Party
Transactions). In June 1998, the Company acquired 100% of the outstanding
common stock of Miraglia, Inc. for a total purchase price of $21,175,000
consisting of 850,000 shares of First Cash Financial Services common stock
valued at $8,712,000, or $10.25 per share, a $6,000,000 note payable to the
sellers, $6,300,000 cash, and legal, consulting and assumed liabilities
totaling $163,000. Miraglia, Inc. operates eleven check cashing stores
located in California and Washington, as well as Answers, etc., a provider
of software to third-party operators of check cashing stores. In addition
to JB Pawn, Inc. and Miraglia, Inc., the Company acquired a total of 19
additional individual pawnshops in various regions at various times during
the fiscal year for an aggregate purchase price of $4,813,000, including
legal, consulting, assumed liabilities and other costs incidental to the
acquisitions. The Company financed substantially all of the cash purchase
price for all of its fiscal 1998 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, location and condition of the facilities, and projected
future operating results.
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 $53,508,000 and $54,600,000 as of December 31, 2000 and
1999, 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 non-compete agreements with the former owners, generally
ranging from five to ten years.
NOTE 5 - RELATED PARTY TRANSACTIONS
From August 1996 through March 1998, the Company was involved in a
management agreement to operate and manage pawnshops for JB Pawn, Inc., a
Texas corporation which, up until March 31, 1998, was 100% owned and
controlled by Mr. Jon Burke, the brother of Mr. Richard Burke, a director
of First Cash Financial Services, Inc. Through March 31, 1998, JB Pawn,
Inc. owned and provided 100% of the financing for its pawnshops, and
incurred all direct costs to operate the pawnshops, including payroll,
store operating expenses, cost of inventory, and pawn loans. The Company
received a monthly management fee for each store managed, and provided
computer support, accounting, auditing, oversight and management of these
stores. As discussed in Note 4, the Company purchased 100% of the
outstanding common stock of JB Pawn, Inc. on April 1, 1998. The Company
recorded management fee revenue of $247,000 under this agreement during the
fiscal year ended July 31, 1998. In January 1996, the Company issued to
Mr. Jon Burke warrants to purchase 50,000 shares of the Company's common
stock at an exercise price of $4.625 per share for consulting services to
be provided through January 2001. The warrants vest over a five year
period.
In June 1998, in conjunction with the purchase of Miraglia, Inc.
(see Note 4 - Acquisitions), the Company entered into lease agreements for
one of its check cashing locations, as well as for certain office space
located in Concorde, California. These properties are partially owned by
Mr. Blake Miraglia, an employee of the Company. Total lease payments made
pursuant to these leases were $130,000, $239,000, $100,000 and $20,000
during the fiscal years ended December 31, 2000 and 1999, the five months
ended December 31, 1998, and the fiscal year ended July 31, 1998,
respectively, which approximated market rates. In addition, the Company
has an outstanding, unsecured note payable due July 5, 2003, bearing
interest at 7%, to Mr. Miraglia, which amounted to $1,281,000 and
$1,761,000 as of December 31, 2000 and December 31, 1999, respectively,
including accrued interest.
At December 31, 2000 and 1999, the Company had notes receivable
outstanding from certain of its officers totaling $5,826,000 and
$2,592,000, respectively. These notes are secured by a total of 784,000
shares of common stock of the Company owned by these individuals, term life
insurance policies, and bear interest at seven percent. These notes are
due upon the sale of the underlying shares of common stock.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31, December 31,
2000 1999
------ ------
Land ............................ $ 672 $ 672
Buildings ....................... 1,002 1,002
Leasehold improvements .......... 2,127 2,127
Furniture, fixtures and equipment 15,089 12,960
------ ------
18,890 16,761
Less: accumulated depreciation (8,512) (5,807)
------ ------
$10,378 $10,954
====== ======
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
December 31, December 31,
2000 1999
------ ------
Accounts payable ................ $ 450 $ 558
Money orders payable ............ 850 611
Wire transfers payable .......... 395 189
Accrued payroll ................. 779 592
Layaway deposits ................ 1,017 946
Sales tax payable ............... 364 367
Other ........................... 2,605 1,629
------ ------
$ 6,460 $ 4,892
====== ======
NOTE 8 - REVOLVING CREDIT FACILITY
The Company currently maintains a $50,000,000 long-term line of
credit with a group of commercial lenders (the "Credit Facility"). At
December 31, 2000, $39,000,000 was outstanding under this Credit Facility
and an additional $9,327,000 was available to the Company pursuant to the
available borrowing base. The Credit Facility bears interest at the
prevailing LIBOR rate (which was approximately 6.6% at December 31, 2000)
plus one percent, and matures on September 1, 2002. Amounts available
under the Credit Facility are limited to 325% of the Company's earnings
before income taxes, interest, depreciation and amortization for the
trailing twelve months. Under the terms of the Credit Facility, the
Company is required to maintain certain financial ratios and comply with
certain technical covenants. The Company was in compliance with these
requirements and covenants during the year ended December 31, 2000.
Pursuant to the terms of the Credit Facility, the Company is prohibited
from paying any dividends.
NOTE 9 - LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable consist of the following (in
thousands, except payment information):
December 31, December 31,
2000 1999
------ ------
Note payable to a bank; bearing interest at
LIBOR plus 2%; monthly principal and interest
payments of $5,257; matures
December 31, 2004; secured by real estate $ 474 $ 498
Note payable to a bank; bearing interest at
LIBOR plus 2%; monthly principal and interest
payments of $5,518; matures
December 31, 2004; secured by real estate 406 439
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 8.9%;
monthly principal and interest payments of
$7,367, until maturity at October 1, 2001;
secured by equipment 71 149
Note payable to a bank; bearing interest at 9.2%;
monthly principal and interest payments of
$5,797, until maturity at January 15, 2002;
secured by equipment 71 131
Note payable to a bank; bearing interest at 9.3%;
monthly principal and interest payments of
$5,452, until maturity at July 1, 2002;
secured by equipment 96 150
Note payable to a corporation; bearing interest
at 14.7%; monthly principal and interest payments
of $1,658 until maturity at August 22, 2001;
secured by equipment 13 24
Note payable to a corporation; bearing interest
at 7%; monthly principal and interest payments
were $2,566 until the entire unpaid balance
was retired in December 2000; secured by
acquired assets - 150
Note payable to a corporation; bearing interest
at 7%; monthly principal and interest payments
were $4,528 until the entire unpaid balance
was retired in December 2000; secured by
acquired assets - 266
Note payable to a corporation; bearing interest
at 7%; monthly principal and interest payments
of $16,151 until maturity at March 1, 2002;
secured by specific acquired assets 231 402
Notes payable to five former shareholders of
Miraglia, Inc.; bearing interest at 7%;
quarterly principal payments of $300,000
and quarterly interest payments based upon
the unpaid balance until maturity at July 5,
2003; unsecured 3,200 4,400
------ ------
4,662 6,709
Less: current portion (1,643) (1,689)
------ ------
$ 3,019 $ 5,020
====== ======
Long-term debt and notes payable are scheduled to mature as follows (in
thousands):
Fiscal
------
2001 ............... $1,643
2002 ............... 1,342
2003 ............... 952
2004 ............... 725
-----
$4,662
=====
NOTE 10 - INCOME TAXES
Components of the provision for income taxes consist of the following
(in thousands):
Year Year Five Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, July 31,
2000 1999 1998 1998
----- ----- ----- -----
Current:
Federal $2,156 $2,506 $ 504 $1,481
State 399 441 119 117
----- ----- ----- -----
2,555 2,947 623 1,598
Deferred 450 264 985 667
----- ----- ----- -----
$3,005 $3,211 $1,608 $2,265
===== ===== ===== =====
The principal current and non-current deferred tax liabilities consist
of the following at December 31, 2000 and December 31, 1999 (in thousands):
December 31, December 31,
2000 1999
------ ------
Deferred tax liabilities:
Intangible asset amortization $ 3,166 $ 2,624
Depreciation 1,046 1,067
Change in accounting principle (1,373) -
Net operating loss benefit carryforward (394) -
State income taxes 377 434
Service charges receivable 50 68
Legal accruals (435) -
Other 377 (653)
------ ------
Net deferred tax liability $ 2,814 $ 3,540
====== ======
Reported as:
Current liabilities - income
taxes payable $ - $ -
Non-current liabilities - deferred
income taxes 2,814 3,540
------ ------
Net deferred tax liability $ 2,814 $ 3,540
====== ======
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):
Year Year Five Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, July 31,
2000 1999 1998 1998
----- ----- ----- -----
Tax at the federal
statutory rate $2,688 $3,294 $1,420 $2,061
State income taxes, net
of federal tax benefit 278 381 153 197
Other, net 39 (464) 35 7
----- ----- ----- -----
$3,005 $3,211 $1,608 $2,265
===== ===== ===== =====
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under
operating leases with terms generally ranging from three 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
------
2001 ................ 6,218
2002 ................ 4,594
2003 ................ 3,535
2004 ................ 2,595
2005 ................ 2,068
Thereafter .......... 5,849
------
$24,859
======
Rent expense under such leases was $6,311,000, $5,708,000, $1,942,000,
and $3,596,000 for the years ended December 31, 2000 and 1999, the five
months ended December 31, 1998, and the year ended July 31, 1998,
respectively.
The Company was sued by three plaintiffs, who alleged that the Company
engaged in deferred presentment transactions which violate the Federal
Racketeering Influenced and Corrupt Organizations Act, the Federal Truth and
Lending Act, common law and various state statutes and regulations. Class
certification has been requested, but not yet been obtained. The Company
intends to vigorously defend this claim. Since discovery has not yet
commenced, nor the scope of the case been determined, management can provide
no assurance as to the outcome of such litigation.
Additionally, the Company is from time to time a defendant (actual or
threatened) in certain other 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,
results of operations, or cash flows.
NOTE 12 - EMPLOYEE STOCK OPTION PLAN AND OUTSTANDING WARRANTS
On October 30, 1990, the Company's Board of Directors adopted the 1990
Stock Option Plan (the "1990 Plan"). The 1990 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 1990 Plan is
250,000 shares. The exercise price for each stock option granted under the
1990 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 1990 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 December 31, 2000, options to purchase 17,187 shares
of Common Stock were available for grant under the 1990 Plan. Options to
purchase 113,000 shares were vested at December 31, 2000.
On January 14, 1999, the Company's shareholders adopted the 1999 Stock
Option Plan (the "1999 Plan"). The 1999 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 1999 Plan is 1,200,000
shares. The exercise price for each stock option granted under the 1999
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 1999 Plan have a maximum duration of ten years unless, in
the case of incentive stock options, the optionee owns at least 10% of the
total combined voting power of all classes of capital stock of the Company,
in which case the maximum duration is five years. As of December 31, 2000,
options to purchase 294,500 shares of Common Stock were available for grant
under the 1999 Plan. Options to purchase 625,000 shares of common stock
under the 1999 Plan were vested as of December 31, 2000.
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. In accordance with the provisions of FAS 123, the
issuance of warrants to outside consultants and advisors is accounted for
using the fair value method prescribed by FAS 123. Warrants granted to
outside consultants and advisors prior to December 15, 1995 are accounted
for using methods prescribed by APB 25.
Stock option and warrant activity from July 31, 1997 through December
31, 2000 is summarized in the accompanying chart (in thousands, except
exercise price).
Exercisable
-----------------
Weighted
Weighted Average
Average Exercise
Options Warrants Exercise Price Number Price
------- -------- -------------- ------ -----
July 31, 1997 201 2,977 $ 7.82 3,120 $7.88
Granted 27 480 8.00
Cancelled (1) (450) 14.65
Exercised (13) (1,138) 4.13
---- ------
July 31, 1998 214 1,869 8.42 2,027 8.48
Granted 22 352 12.00
Cancelled (2) - 7.26
Exercised - (325) 4.53
---- ------
December 31, 1998 234 1,896 9.65 2,075 9.66
Granted 480 - 10.07
Exercised (73) (5) 4.63
---- ------
December 31, 1999 641 1,891 9.88 2,001 9.84
Granted 475 - 2.00
Cancelled (65) (630) 14.35
---- ------
December 31, 2000 1,051 1,261 6.92 1,816 6.28
===== ======
Options and warrants outstanding as of December 31, 2000 are as follows
(in thousands, except exercise price and life):
Total Warrants Weighted Average
Exercise Price and Options Remaining Life Currently Exercisable
-------------- ----------- -------------- ---------------------
$2.00 475 10.0 425
4.63 562 10.0 562
4.75 9 10.6 9
8.00 483 2.1 380
10.00 424 8.4 200
11.00 7 8.5 -
12.00 352 2.7 240
----- -----
2,312 1,816
===== =====
The Company applies the intrinsic value method in accounting for its
stock option and warrant issuances. Accordingly, no compensation cost has
been recognized for its stock option and warrant grants. Had compensation
cost for the Company's stock options and warrants been determined based on
the fair value at the grant dates for such option and warrant awards, the
Company's net income would have been reduced by $1,349,000, $748,000,
$262,000, and $397,000 during the years ended December 31, 2000 and 1999,
the five months ended December 31, 1998, and the year ended July 31, 1998,
respectively. Basic and diluted earnings per share would have been reduced
by $0.15 and $0.15, $0.09 and $0.08, respectively, during the years ended
December 31, 2000 and 1999, by $0.03 and $0.03, respectively, during the
five months ended December 31, 1998, by $0.07 and $0.06, respectively,
during the year ended July 31, 1998.
Weighted average grant-date fair values of options issued were $1.59,
$6.62, $5.50, and $5.71 per unit during the years ended December 31, 2000
and 1999, the five months ended December 31, 1998, and the year ended July
31, 1998, respectively, which were calculated in accordance with the Black-
Scholes option pricing model, using the following assumptions:
Year Year Five Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, July 31,
2000 1999 1998 1998
----- ----- ----- -----
Expected volatility 80% 55% 50% 99%
Expected dividend yield - - - -
Expected option term 10 years 10 years 5 years 5 years
Risk-free rate of return 5.0% 5.5% 5.0% 6.0%
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
$146,000, $121,000, $48,000, and $95,000 for the years ended December 31,
2000 and 1999, the five months ended December 31, 1998, and the year ended
July 31, 1998, respectively.
NOTE 14 - OPERATING SEGMENT INFORMATION
The Company has three reportable operating segments: pawn lending
stores, check cashing/payday advance stores, and a software and hardware
provider. The Company's pawn stores offer non-recourse loans on the
collateral of pledged tangible personal property. The Company's pawn stores
also provide short-term unsecured consumer loans, commonly referred to as
payroll advances. The Company's check cashing and payday advance stores
provide check cashing services, short-term unsecured consumer loans, bill
payment services, money transfer services and money order sales. The
Company's computer software subsidiary, Answers, etc., provides turnkey
point of sale operating systems to other check cashing and payday advance
operators unaffiliated with the Company.
The accounting policies of the segments are the same as those described
in Note 2. Management of the Company evaluates performance based on the
operating income of each segment. There are no intersegmental sales. Each
segment is supervised separately. Information concerning the segments is
set forth below (in thousands):
Check Cashing/
Pawn Payday Advance
Stores Stores Software Consolidated
------ ------ -------- ------------
Year Ended December 31, 2000
- ----------------------------
Total revenues $ 87,145 $ 16,582 $ 2,131 $ 105,858
Depreciation and amortization 3,501 804 178 4,483
Income before interest and
income taxes 7,420 4,582 (1,236) 10,766
Total assets at December 31, 2000 89,208 27,093 2,817 119,118
Capital expenditures 1,523 349 183 2,055
Year Ended December 31, 1999
- ----------------------------
Total revenues 79,470 14,573 3,708 97,751
Depreciation and amortization 2,293 709 88 3,090
Income before interest and
income taxes 8,019 3,927 345 12,291
Total assets at December 31, 1999 91,516 34,800 2,531 128,847
Capital expenditures 2,539 431 312 3,282
Five Months Ended December 31, 1998
- -----------------------------------
Total revenues 29,140 3,484 1,454 34,078
Depreciation and amortization 804 221 13 1,038
Income before interest and
income taxes 4,051 1,036 212 5,299
Total assets at December 31, 1998 80,586 30,495 2,244 113,325
Capital expenditures 806 145 46 997
Year Ended July 31, 1998
- ------------------------
Total revenues 57,082 1,133 789 59,004
Depreciation and amortization 1,627 74 4 1,705
Income before interest and
income taxes 7,700 272 122 8,094
Total assets at July 31, 1998 68,143 21,411 1,574 91,128
Capital expenditures 999 11 11 1,021