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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
March 31, 2003 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas 76011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 460-3947
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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act). Yes ___ No X
As of May 8, 2003, there were 8,887,187 shares of Common Stock outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
-------------------- -----------
2003 2002 2002
------- ------- -------
(unaudited)
(in thousands, except share data)
ASSETS
Cash and cash equivalents................ $ 13,106 $ 12,002 $ 12,735
Service charges receivable............... 2,806 2,106 3,174
Receivables.............................. 24,119 19,020 27,314
Inventories.............................. 12,330 10,812 13,648
Prepaid expenses and other current assets 960 1,149 1,161
Income taxes receivable.................. - - 109
------- ------- -------
Total current assets ................. 53,321 45,089 58,141
Property and equipment, net.............. 11,963 10,151 11,750
Intangible assets, net of accumulated
amortization of $8,448................. 53,194 53,194 53,194
Receivable from Cash & Go, Ltd........... 4,853 6,071 7,351
Other.................................... 624 414 563
------- ------- -------
$123,955 $114,919 $130,999
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........ $ 600 $ 1,316 $ 900
Accounts payable and accrued expenses.... 9,421 8,872 10,054
Income taxes payable..................... 1,016 674 -
Revolving credit facility................ - 22,000 -
------- ------- -------
Total current liabilities ............ 11,037 32,862 10,954
Revolving credit facility................ 17,000 - 28,000
Other long-term debt, net of
current portion........................ 575 1,283 602
Deferred income taxes.................... 5,223 3,910 4,923
------- ------- -------
33,835 38,055 44,479
------- ------- -------
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......... 96 95 96
Additional paid-in capital ............ 52,037 51,255 51,908
Retained earnings ..................... 45,257 33,613 41,759
Notes receivable from officers ........ (4,255) (5,084) (4,228)
Common stock held in treasury,
at cost, 654,181 shares.............. (3,015) (3,015) (3,015)
------- ------- -------
90,120 76,864 86,520
------- ------- -------
$123,955 $114,919 $130,999
======= ======= =======
The accompanying notes are an integral
part of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
----------------------
March 31, March 31,
2003 2002
------- -------
(unaudited) (unaudited)
(in thousands, except per
share amounts)
Revenues:
Merchandise sales ............................ $ 17,153 $ 14,755
Service charges .............................. 16,013 12,745
Check cashing fees ........................... 772 731
Other ........................................ 306 220
------- -------
34,244 28,451
------- -------
Cost of goods sold and expenses:
Cost of goods sold ........................... 10,347 8,910
Operating expenses ........................... 13,911 12,035
Interest expense ............................. 182 255
Interest income .............................. (183) (149)
Depreciation ................................. 662 555
Administrative expenses ...................... 3,734 2,480
------- -------
28,653 24,086
------- -------
Income before income taxes..................... 5,591 4,365
Provision for income taxes..................... 2,093 1,571
------- -------
Net income..................................... $ 3,498 $ 2,794
======= =======
Net income per share:
Basic ...................................... $ 0.39 $ 0.32
======= =======
Diluted ..................................... $ 0.36 $ 0.30
======= =======
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
----------------------
March 31, March 31,
2003 2002
------- -------
(unaudited) (unaudited)
(in thousands)
Cash flows from operating activities:
Net income ................................... $ 3,498 $ 2,794
Adjustment to reconcile net income to net cash
flows from operating activities:
Depreciation ............................ 662 555
Changes in operating assets and liabilities:
Service charges receivable ............... 368 711
Inventories ................................ 1,318 1,869
Prepaid expenses and other assets .......... 249 451
Accounts payable and accrued expenses ...... (633) (1,169)
Current and deferred income taxes ......... 1,316 915
------- -------
Net cash flows from operating activities.. 6,778 6,126
------- -------
Cash flows from investing activities:
Net decrease in receivables .................. 3,195 4,536
Purchases of property and equipment .......... (875) (672)
Decrease in receivable from Cash & Go, Ltd ... 2,498 1,187
------- -------
Net cash flows from investing activities.. 4,818 5,051
------- -------
Cash flows from financing activities:
Repayments of debt ........................... (11,327) (10,394)
Notes receivable from officers ............... (27) (33)
Proceeds from exercise of options and warrants 129 -
------- -------
Net cash flows from financing activities (11,225) (10,427)
------- -------
Change in cash and cash equivalents............ 371 750
Cash and cash equivalents at beginning
of the period................................ 12,735 11,252
------- -------
Cash and cash equivalents at end of the period. $ 13,106 $ 12,002
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................... $ 197 $ 268
======= =======
Income taxes ............................... $ 610 $ 243
======= =======
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
including the notes thereto, include the accounts of First Cash Financial
Services, Inc. (the "Company") and its wholly owned subsidiaries. Such
unaudited consolidated financial statements are condensed and do not include
all disclosures and footnotes required by generally accepted accounting
principles in the United States of America for complete financial
statements. Such interim period financial statements should be read in
conjunction with the Company's consolidated financial statements which are
included in the Company's December 31, 2002 Annual Report on Form 10-K. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The consolidated financial statements as of March 31, 2003
and for the periods ended March 31, 2003 and 2002 are unaudited, but in
management's opinion, include all adjustments (consisting of only normal
recurring adjustments) considered necessary to present fairly the financial
position, results of operations and cash flows for such interim periods.
Operating results for the period ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the full fiscal year.
Note 2 - Revolving Credit Facility
The Company maintains a long-term line of credit with a group of
commercial lenders (the "Credit Facility"). The Credit Facility provides a
$30,000,000 long-term line of credit that matures on August 9, 2005 and
bears interest at the prevailing LIBOR rate (which was approximately 1.3% at
March 31, 2003) plus an applicable margin based on a defined leverage ratio
for the Company. Based on the Company's existing leverage ratio, the margin
is currently 1.375%, the most favorable rate provided under the terms of the
agreement. Amounts available under the Credit Facility are limited to 300%
of the Company's earnings before income taxes, interest, depreciation and
amortization for the trailing twelve months. At March 31, 2003, the Company
had $13,000,000 available for additional borrowings. 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 the requirements and covenants of the Credit Facility as of
March 31, 2003 and May 8, 2003. The Company is required to pay an annual
commitment fee of 1/5 of 1% on the average daily-unused portion of
the Credit Facility commitment. The Company's Credit Facility contains
provisions, which will allow the Company to repurchase stock and/or pay cash
dividends within certain parameters. Substantially all of the unencumbered
assets of the Company have been pledged as collateral against indebtedness
under the Credit Facility.
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended
--------------------
March 31, March 31,
2003 2002
------ ------
Numerator:
Net income for calculating basic
and diluted earnings per share $ 3,498 $ 2,794
====== ======
Denominator:
Weighted-average common
shares for calculating basic
earnings per share 8,887 8,764
Effect of dilutive securities:
Stock options and warrants 902 693
------ ------
Weighted-average common
shares for calculating diluted
earnings per share 9,789 9,457
====== ======
Note 4 - Employee Stock Incentive Plans
The Company accounts for its employee stock incentive plans under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees and the related interpretations under Financial
Accounting Standards Board (FASB) Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation. Accordingly, no stock-
based employee compensation cost is reflected in net income as all options
granted had an exercise price equal to the market value of the underlying
common stock on the date of grant. In accordance with SFAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, the
following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
Three Months Ended
--------------------
March 31, March 31,
2003 2002
------ ------
Net income, as reported $ 3,498 $ 2,794
Less: Stock based employee
compensation determined under the
fair value requirements of SFAS 123,
net of income tax benefits 88 8
------ ------
Adjusted net income $ 3,410 $ 2,786
====== ======
Earnings per share:
Basic, as reported $ 0.39 $ 0.32
Basic, adjusted 0.38 0.32
Diluted, as reported 0.36 0.30
Diluted, adjusted 0.35 0.29
The fair values were determined using a Black-Scholes option-pricing
model using the following assumptions:
Three Months Ended
--------------------
March 31, March 31,
2003 2002
------ ------
Dividend yield................. - -
Volatility..................... 58.1% 58.0%
Risk-free interest rate........ 3.5% 3.5%
Expected life.................. 7 years 7 years
Note 5 - Subsequent Event
On April 11, 2003 the Company received approximately $1,371,000 in
partial payment of the outstanding notes receivable from officers. This
reduced the balance of the total notes receivable from officers as of that
date to approximately $2,884,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
First Cash Financial Services, Inc. (the "Company") is the nation's
third largest publicly traded pawnshop operator and currently owns 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 advances, advancing 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. Certain of
the Company's pawn stores also offer short-term, unsecured advances ("short-
term advances").
The Company also owns and operates check cashing and short-term advance
stores in Texas, California, Washington, Oregon, Illinois, South Carolina
and Washington, D.C. These stores provide a broad range of consumer
financial services, including check cashing, short-term advances, money
order sales, wire transfers and bill payment services. In addition, the
Company is a 50% partner in Cash & Go, Ltd., a Texas limited partnership,
which owns and operates financial services kiosks located inside convenience
stores.
The Company opened a total of eleven stores during the quarter ended
March 31, 2003, bringing the total store count to 201 units. For the quarter
ended March 31, 2003, the Company's revenues were derived 50% from
merchandise sales, 47% from service charges on pawn loans and short-term
advances, and 3% from other sources, primarily check-cashing fees. The
Company's business plan is to continue to expand its operations by opening
both new check cashing/short-term advance stores and new pawn stores in
selected geographic markets.
Although the Company has had significant increases in revenues
due 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 bad debt and collection expenses for both check cashing and
short-term advances. Administrative expenses consist of items relating to
the operation of the corporate office, including the compensation and
benefit costs 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.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principals generally accepted in the United States of America 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. Both the significant accounting policies which
management believes are the most critical to aid in fully understanding and
evaluating the reported financial results and the effects of recent
accounting pronouncements have been reported in the Company's 2002 Annual
Report for Form 10-K. There have been no subsequent changes in the
Company's accounting policies nor have there been subsequently issued
accounting pronouncements which materially affect the preparation of the
Company's financial statements.
RESULTS OF OPERATIONS
Three months ended March 31, 2003 compared to the three months ended March
31, 2002
Total revenues increased 20% to $34,244,000 for the three months ended
March 31, 2003 ("the First Quarter of 2003") as compared to $28,451,000 for
the three months ended March 31, 2002 ("the First Quarter of 2002"). The
change resulted from an increase in revenues of $2,346,000 generated by the
49 pawn and check cashing/short-term advance stores which were opened since
January 1, 2002, an increase of $3,988,000 at the 158 stores which were in
operation during all of the First Quarter of 2002 and the First Quarter of
2003, net of a decrease in revenues of $541,000 from the 6 stores closed or
consolidated since January 1, 2002. Of the $5,793,000 increase in total
revenues, 41%, or $2,398,000, was attributable to increased merchandise
sales, 56%, or $3,268,000 was attributable to a net increase in service
charges on pawn and short-term advances, 1% or $41,000 was attributable to
increased check cashing fees, and the remaining increase of $86,000, or 1%,
was attributable to an increase in other income. A significant component of
the increase in merchandise sales was non-retail bulk sales of scrap jewelry
merchandise, which increased from $677,000 in the First Quarter of 2002 to
$2,388,000 in the First Quarter of 2003. Service charges from short-term
advances increased from $7,965,000 in the First Quarter of 2002 to
$9,519,000 in the First Quarter of 2003, while service charges from pawns
increased from $4,780,000 in the First Quarter of 2002 to $6,494,000 in the
First Quarter of 2003. As a percentage of total revenues, merchandise sales
decreased from 52% to 50% during the First Quarter of 2003 as compared to
the First Quarter of 2002, service charges increased from 45% to 47%, check-
cashing fees and other income as a percentage of total revenues were 3%
during the First Quarter of 2003 and the First Quarter of 2002.
The receivables balance increased 27% from $19,020,000 at March 31,
2002 to $24,119,000 at March 31, 2003. Of the $5,099,000 increase, an
increase of $3,588,000 was attributable to the 160 pawn stores and check
cashing/short-term advance stores which were in operation as of March 31,
2003 and 2002 and an increase of $1,511,000 was attributable to growth at
the 41 pawn and check cashing/short-term advance stores opened or acquired
since March 31, 2002, net of closed stores. The aggregate receivables
balance at March 31, 2003 was comprised of $15,700,000 of pawn loan
receivables and $8,419,000 of short-term advance receivables, compared to
$12,015,000 of pawn loan receivables and $7,005,000 of short-term advance
receivables at March 31, 2002.
Gross profit margins as a percentage of total merchandise sales were
40% during the First Quarter of 2003, which was consistent with overall
margins during the First Quarter of 2002. Retail merchandise margins, which
do not include bulk scrap jewelry sales, increased from 41% to 45% over the
same period.
Operating expenses increased 16% to $13,911,000 during the First
Quarter of 2003 compared to $12,035,000 during the First Quarter of 2002,
primarily as a result of the net addition of 43 pawn stores and check
cashing/short-term advance stores since January 1, 2002, which is a 27%
increase in store count. The Company's net bad debt expense relating to
short-term advances increased from $1,254,000 in the First Quarter of 2002
to $1,438,000 in the First Quarter of 2003 as a result of an increase in
volume of short-term advances. Administrative expenses increased 51% to
$3,734,000 during the First Quarter of 2003 compared to $2,480,000 during
the First Quarter of 2002 due primarily to increased costs including
administrative/supervisory compensation and benefits, insurance, accounting
and legal fees and other expenses necessary to support the Company's growth
strategy and increase in store counts. Interest expense decreased to
$182,000 in the First Quarter of 2003 compared to interest expense of
$255,000 in the First Quarter of 2002 as a result of lower average
outstanding debt balances and lower average interest rates during the First
Quarter of 2003. Interest income increased to $183,000 in the First Quarter
of 2003 compared to $149,000 in the First Quarter of 2002, due primarily to
an increase in the contractual rate of interest on the note receivable from
Cash & Go, Ltd.
For the First Quarter of 2003 and 2002, the Company's effective federal
income tax rates of 37% and 36%, respectively, differed from the statutory
tax rate of approximately 34% primarily as a result of state and foreign
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations, acquisitions and store openings have been
financed with funds generated from operations, bank and other borrowings,
and the issuance of the Company's securities.
The Company's Credit Facility provides a $30,000,000 long-term line
of credit that matures on August 9, 2005 and bears interest at the
prevailing LIBOR rate (which was approximately 1.3% at March 31, 2003) plus
an applicable margin based on a defined leverage ratio for the Company.
Based on the Company's current leverage ratio, the margin is 1.375%, the
most favorable rate provided under the terms of the agreement. Amounts
available under the Credit Facility are limited to 300% 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 the
requirements and covenants of the Credit Facility as of March 31, 2003 and
May 8, 2003. The Company is required to pay an annual commitment fee of 1/5
of 1% on the average daily-unused portion of the Credit Facility commitment.
The Company's Credit Facility contains provisions, which will allow the
Company to repurchase stock and/or pay cash dividends within certain
parameters. Substantially all of the unencumbered assets of the Company
have been pledged as collateral against indebtedness under the Credit
Facility.
As of March 31, 2003, the Company's primary sources of liquidity were
$13,106,000 in cash and cash equivalents, $24,119,000 in receivables,
$12,330,000 in inventories and $13,000,000 of available and unused funds
under the Company's Credit Facility. The Company had working capital as of
March 31, 2003 of $42,284,000 and liabilities to equity ratio of 0.4 to 1.
The Company utilized positive cash flows from operations in the First
Quarter of 2003 to fund investing and financing activities primarily related
to new stores and reduction of debt. Net cash provided by operating
activities of the Company during the three months ended March 31, 2003 was
$6,778,000, consisting primarily of net income before non-cash depreciation
of $4,160,000, plus a decrease in accrued service charges receivable and
inventory of $368,000 and $1,318,000, respectively, in addition to a
decrease in prepaid expenses and an increase in current and deferred taxes
of $249,000 and $1,316,000, respectively. Net cash provided by investing
activities during the three months ended March 31, 2003 was $4,818,000,
which was primarily comprised of a decrease in receivables of $3,195,000, a
decrease in the receivable from the Cash & Go, Ltd. joint venture of
$2,498,000, net of cash paid for fixed asset additions of $875,000. The
opening of 11 new stores in 2003 contributed significantly to the volume
of fixed asset additions. Net cash used by financing activities was
$11,225,000 during the three months ended March 31, 2003, which primarily
consisted of a decrease in the Company's debt of $11,327,000 net of accrued
interest on notes receivable from officers of $27,000 and proceeds,
including tax benefit, from exercises of stock options and warrants of
$129,000.
The Company funds substantially all of the working capital needs of
Cash & Go, Ltd. The Company's net receivable from the partnership was
$4,853,000 at March 31, 2003.
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 pawn redemption by increasing or decreasing the amount pawned in relation
to the resale value of the pledged property. Tighter credit decisions
generally result in smaller pawns in relation to the estimated resale value
of the pledged property and can thereby decrease the Company's aggregate
pawn balance and, consequently, decrease pawn service charges.
Additionally, small advances in relation to the pledged property's estimated
resale value tend to increase pawn redemptions and improve the Company's
liquidity. Conversely, providing larger pawns 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 pawn balances
can result in an increase in pawn 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 pawns by repaying all accrued interest on such pawns,
effectively creating a new pawn transaction.
The amount of short-term advances outstanding and related potential bad
debt expense also affect the profitability and liquidity of the Company. An
allowance for losses is provided on active short-term advances and service
charges receivable, based upon expected default rates, net of estimated
future recoveries of previously defaulted short-term advances and service
charges receivable. The Company considers short-term advances to be in
default if they are not repaid on the due date, and writes off the principal
amount and service charges receivable as of the default date, leaving only
active receivables in the reported balances. Net defaults and changes in
the short-term advance allowance are charged to bad debt expense, which is
included in operating expenses.
In addition to these factors, merchandise sales and the pace of store
expansions affect the Company's liquidity. Management believes that the
Credit Facility and cash generated from operations will be sufficient to
accommodate the Company's current operations for Fiscal 2003. 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 may 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.
While the Company continually looks for, and is presented with
potential acquisition candidates, the Company has no definitive plans
or commitments for further acquisitions. If the Company encounters an
attractive opportunity to acquire or open additional new stores in the near
future, the Company may seek additional financing, the terms of which will
be negotiated on a case-by-case basis.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT
FUTURE RESULTS
Forward-Looking Statements
This quarterly report may contain forward-looking statements about the
business, financial condition and prospects of the Company. Forward-looking
statements can be identified by the use of forward-looking terminology such
as "believes," "projects," "expects," "may," "estimates," "will," "should,"
"plans," "intends," or "anticipates" or the negative thereof, or other
variations thereon, or comparable terminology, or by discussions of
strategy. Forward-looking statements include, without limitation, the
earnings per share discussion, the expectation of increased pawn growth,
the expectation for additional store openings, and the expectation of
growth in the Company's short-term advance products. These statements
are made to provide the public with management's assessment of the
Company's business. 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. 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. Certain factors may cause results to differ materially from those
anticipated by some of the statements made in this report. Such factors are
difficult to predict and many are beyond the control of the Company, but may
include changes in regional or national economic conditions, the ability to
integrate new stores, the ability to maintain favorable banking
relationships as it relates to short-term lending products, changes in
governmental regulations, unforeseen litigation, changes in interest rates
or tax rates, changes in gold prices, future business decisions and other
uncertainties.
Regulatory Changes
Governmental action to prohibit or restrict short-term advances has
been advocated over the past few years by consumer-advocacy groups and by
media reports and stories. The consumer groups and media stories typically
focus on the cost to a consumer for that type of short-term advance, which
is higher than the interest typically charged by credit-card issuers to a
more creditworthy consumer. This difference in credit cost is more
significant if a consumer does not promptly repay the short-term advance,
but renews (or "rolls over") that short-term advance for one or more
additional short-term (e.g., two-week) periods. The consumer groups and
media stories typically characterize short-term advance activities as
abusive toward consumers. During the last few years, legislation has been
introduced in the United States Congress and in certain state legislatures,
and regulatory authorities have proposed or publicly addressed the
possibility of proposing regulations, that would prohibit or restrict short-
term advances.
The U.S. Office of Comptroller of the Currency has recently initiated
enforcement actions to restrict the ability of nationally chartered banks to
establish or maintain relationships with loan servicers in order to make
out-of-state short-term advance loans. The Company does not currently
maintain nor intend in the future to establish loan-servicing relationships
with nationally chartered banks. The Federal Deposit Insurance Corporation,
("FDIC"), which regulates the ability of state chartered banks to enter into
relationships with loan servicers, has recently proposed draft examiner
guidelines under which such arrangements are permitted. Texas is the only
state in which the Company functions as loan servicer through a relationship
with a state chartered bank, County Bank of Rehoboth Beach, Delaware, that
is subject to the draft FDIC examiner guidelines. The effect of the draft
guidelines on the Company's ability to offer short-term advances in Texas
under its current loan servicing arrangement with County Bank is unknown
at this time. The Company is not aware of any other federal regulatory
initiatives.
Legislation and regulatory action at the state level that affects
consumer lending has recently become effective in a few states and may be
taken in other states. The Company intends to continue, with others in the
short-term advance industry, to oppose legislative or regulatory action that
would prohibit or restrict short-term advances. But if legislative or
regulatory action with that effect were taken on the federal level or in
states such as Texas, in which the Company has a significant number of
stores, that action could have a material adverse effect on the Company's
short-term advance-related activities and revenues. 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
would materially, adversely impact the Company's operations and financial
condition.
Other
Certain factors may cause results to differ materially from those
anticipated by some of the statements made in this report. Such factors are
difficult to predict and many are beyond the control of the Company, but may
include changes in regional or national economic conditions, changes in
competition from various sources including both financial services entities
and retail businesses, the ability to integrate new stores, changes in
governmental regulations, unforeseen litigation, changes in capital markets,
changes in interest rates or tax rates, the ability to maintain a loan
servicing relationship with an out-of-state bank necessary to generate
service charges from short-term advances in the Texas market, future
business decisions, other risks indicated in the Company's 2002 Annual
Report to Stockholders and other uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates, gold prices and foreign currency exchange rates
and are described in detail in the Company's 2002 Annual Report on Form 10-
K. The Company does not engage in speculative or leveraged transactions,
nor does it hold or issue financial instruments for trading purposes.
There have been no material changes to the Company's exposure to market
risks since December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, management of
the Company has evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of 1934)
as of a date (the "Evaluation Date") within 90 days prior to the
filing date of this report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as
of the Evaluation Date, the Company's disclosure controls and
procedures are effective in timely alerting them to the material
information relating to the Company required to be included in its
periodic filings with the Securities and Exchange Commission.
(b) During the period covered by this report, there were no significant
changes in the Company's internal controls or, to management's
knowledge, in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the litigation and
arbitration "previously reported" in the Company's 2002 Annual Report
to Stockholders filed on Form 10-K.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits:
99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
(2) Reports on Form 8-K:
March 31, 2003 Item 5. Other Events
April 24, 2003 Item 9. Regulation FD Disclosure
Item 12. Results of Operations and Financial
Condition
SIGNATURES
Pursuant to the requirements 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.
Dated: May 8, 2003 FIRST CASH FINANCIAL SERVICES, INC.
-----------------------------------
(Registrant)
/s/ PHILLIP E. POWELL
---------------------
Phillip E. Powell
Chief Executive Officer
/s/ R. DOUGLAS ORR
------------------
R. Douglas Orr
Chief Financial Officer
CERTIFICATION
I, Phillip E. Powell, Chief Executive Officer of First Cash
Financial Services, Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 8, 2003
/s/ PHILLIP E. POWELL
--------------------------------------
Phillip E. Powell
Chief Executive Officer
CERTIFICATION
I, R. Douglas Orr, Chief Financial Officer of First Cash Financial
Services, Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 8, 2003
/s/ R. DOUGLAS ORR
--------------------------------------
R. Douglas Orr
Chief Financial Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350