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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, 2003, 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act). Yes [ X ] No [ ]
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 June 30, 2003, the last trading date of registrant's most
recently completed second fiscal quarter is $101,474,089.
As of March 8, 2004, there were 10,499,887 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 15, 2004 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, 2003
TABLE OF CONTENTS
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PART I
Item 1. Business............................................. 1
Item 2. Properties........................................... 10
Item 3. Legal Proceedings ................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.. 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 11
Item 6. Selected Financial Data ............................. 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 14
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk........................................ 20
Item 8. Financial Statements and Supplementary Data ......... 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 21
Item 9a. Controls and Procedures.............................. 21
PART III
Item 10. Directors and Executive Officers of the Registrant... 21
Item 11. Executive Compensation .............................. 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters......... 22
Item 13. Certain Relationships and Related Transactions ...... 22
PART IV
Item 14. Principal Accounting Fees and Services............... 22
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................ 23
SIGNATURES...................................................... 24
PART I
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Forward Looking Information
This annual report may contain forward-looking statements about the
business, financial condition and prospects of First Cash Financial
Services, Inc. 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 in
this annual report include, without limitation, the earnings per share
discussion, the expectation of growth in the Company's pawn and short-term
advance products and the expectation for additional store openings. 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, national or international economic conditions,
the ability to open and 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, changes in foreign currency exchange rates,
changes in tax rates or policies, changes in gold prices, future business
decisions and other uncertainties.
Item 1. Business
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General
First Cash Financial Services, Inc. (the "Company") is a leading
provider of specialty consumer finance products. The Company has 243
locations in eleven U.S. states and Mexico and is the nation's third largest
publicly traded pawnshop operator. The Company's pawn stores engage in both
consumer finance and retail sales activities and are a convenient source for
small consumer loans, advancing money against pledged tangible personal
property such as jewelry, electronic equipment, tools, sporting goods and
musical equipment. The pawn stores also retail previously owned merchandise
acquired through collateral forfeitures and over-the-counter purchases from
customers. Many of the Company's pawn stores offer short-term, unsecured
advances ("short-term advances"), which are also known as payday loans.
The Company also operates stand-alone check cashing/short-term advance
stores in several U.S. states. These stores provide a broad range of
consumer financial services products, including check cashing, short-term
advances, money order sales, money transfers and bill payment services. In
addition, the Company is a 50% partner in Cash & Go, Ltd., a Texas limited
partnership, which currently owns and operates 40 kiosks located inside
convenience stores, which offer short-term advances and check cashing.
For the year ended December 31, 2003, the Company's revenues were
derived as follows: 49% from pawn and short-term advance lending
activities, 48% from merchandise sales, and 3% from other sources, primarily
check cashing fees.
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., WR Financial, Inc., Famous
Pawn, Inc., JB Pawn, Inc., Cash & Go, Inc., One Iron Ventures, Inc., Capital
Pawnbrokers, Inc., Silver Hill Pawn, Inc., Elegant Floors, Inc., First Cash,
S.A. de C.V., American Loan Employee Services, 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.
Management believes the pawnshop industry is highly fragmented with
approximately 15,000 stores in the United States. The three publicly traded
pawnshop companies currently operate less than 1,000 of the pawnshops in the
United States. The Company believes that individuals operating one to three
locations own the majority of pawnshops. 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 short-term advance industry is a relatively new industry that is
experiencing rapid growth. A leading industry analyst estimates that there
are approximately 22,000 short-term advance locations throughout the United
States. There are several privately held chains that operate from 100 to up
approximately 2,000 stores each. The four largest publicly held operators
of check cashing/short-term advance stores, which includes First Cash
Financial Services, Inc., operate a combined total of approximately 2,500
stores. 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 "short-term
advances."
Business Strategy
The Company's primary business plan is to significantly expand its
operations by opening new pawnshops and check cashing/short-term advance
stores. In addition, it will continue to remain focused on increasing the
revenues and operating profits in its existing stores.
New Store Openings
The Company has opened 78 new pawn stores and 54 new check
cashing/short-term advance stores since its inception and currently intends
to open both additional pawn stores and check cashing/short-term advance
stores in locations where management believes appropriate demand and other
favorable conditions exist. During the years ended December 31, 2003, 2002
and 2001, the Company opened 31, 25 and 4 new pawn stores, respectively, and
over the same three years, the Company opened 16, 13 and 14 new check
cashing/short-term advance stores, respectively.
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 open for business within six to eight weeks. The
investment required to open a new pawn store includes store operating cash,
inventory, funds available for pawns loans, leasehold improvements, 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. The Company also estimates that between $200,000 and $300,000 is
required to fund a new check cashing/short-term advance store for the first
six months of operation, which includes investments for leasehold
improvements, security and computer equipment, funds available for short-
term advances, store operating cash, and start-up losses.
The Company currently plans to continue its expansion in existing
markets, with the primary focus being in Texas and Mexico. The Company
continues to evaluate new markets in other states with favorable
demographics and regulatory environments. The Company has an organizational
structure that it believes is capable of supporting a larger, multi-country
and multi-state store base.
Enhance Productivity of Existing and Newly Opened Stores
The primary factors affecting the profitability of the Company's
existing store base are the volume of retail sales, the gross profit on
retail sales, the level of pawn loans outstanding, the level of short-term
advances outstanding, the volume of check cashing and other consumer
financial services, and the control of store expenses, including bad debt
expenses related to short-term advances. 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/short-term advance stores and to
make customers feel more comfortable. In addition to well-lit parking
facilities, typically 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.
The Company has implemented an employee training program for both
store and corporate-level personnel that stresses productivity and
professionalism. The Company utilizes a proprietary computer information
system that provides fully integrated functionality to support point-of-sale
retail operations, inventory management and loan processing. Each store is
connected on a real-time basis to a secured off-site data center located in
Allen, Texas that houses the centralized database and operating system. The
system provides management the ability to continuously monitor store
transactions and operating results. The Company maintains a well-trained
internal audit staff that conducts regular store visits to test compliance
with financial and operational controls. 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.
Acquisitions
Because of the highly fragmented nature of both the pawn industry and
the check cashing/short-term advance industry, as well as the availability
of "mom & pop" sole proprietors willing to sell their stores, the Company
believes that certain acquisition opportunities may arise from time to time.
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 pawn
transactions, outstanding receivable 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/short-term 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 short-term advance product.
Pawn Lending Activities
The Company's pawn stores advance 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 the only security to the
Company for the repayment of the pawn, as pawns cannot result in 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. Receivables
from pawn loans at December 31, 2003 and 2002 were $20,037,000 and
$16,624,000, respectively.
At the time a pawn transaction is entered into, an agreement, commonly
referred to as a pawn ticket, is delivered to the borrower for signature
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.
Pledged property is held through the term of the pawn, which is 30 days
in Texas, South Carolina, Missouri, Virginia, and Oklahoma, with an
automatic extension period of 15 to 60 days depending on state laws, unless
the pawn is earlier paid or renewed. In Maryland, Washington, D.C. and
Mexico, pledged property is held for 30 days. In the event the borrower
does not pay or renew a pawn within 90 days in South Carolina and Missouri,
60 days in Texas and Oklahoma, 45 days in Virginia, and 30 days in Maryland,
Washington, D.C. and Mexico, the unredeemed collateral is forfeited to the
Company and becomes inventory available for general liquidation or sale
in one of the Company's stores. If a pawn 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 principal amount of the loan, exclusive of accrued interest.
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 pawn 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 integrated computer information
system 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 pawn 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 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 pawned.
The Company contracts for a pawn service charge in lieu of interest to
compensate it for the pawn loan. The statutory service charges on pawns at
its Texas stores range from 12% to 240% on an annualized basis depending on
the size of the pawn, and from 39% to 240% on an annualized basis at the
Company's Oklahoma stores. Pawns made in the Maryland stores bear service
charges of 144% to 240% on an annualized basis with a $6 minimum charge per
month, while pawns in Virginia earn 120% to 144% annually with a $5 minimum
charge per month. In Washington D.C., a flat $2 charge per month applies to
all pawns up to $40, and an 18% to 60% annualized service charge applies to
pawns of greater than $40. In Missouri, pawns bear a total service and
storage charge of 180% to 240% on an annualized basis with a $2.50 minimum
charge per month, and South Carolina rates range from 100% to 300%. In
Mexico, pawns bear an annualized rate of 240%. As of December 31, 2003, the
Company's average pawn per pawn ticket was approximately $61. Service
charge revenues for pawns during the fiscal years ended December 31, 2003,
2002 and 2001 were $28,804,000, $21,723,000 and $19,714,000, respectively,
and accounted for approximately 40%, 37% and 37%, respectively, of the
Company's total service charge revenues. For the fiscal years ended
December 31, 2003, 2002 and 2001, the Company's annualized yields on average
pawn balances were 157%, 143% and 141%, respectively.
Short-term Advance Activities
The Company's check cashing/short-term advance stores and pawn stores,
in selected markets, make unsecured, short-term advances for a term
of thirty days or less. To qualify for a short-term 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 customer's
check into its checking account. Receivables from short-term advances, net
of bad debt valuation allowances, at December 31, 2003 and 2002 were
$13,759,000 and $10,690,000, respectively.
Fees charged for short-term advances are generally regulated by state
law and range from 13.9% to 40% of the amount advanced per transaction.
Service charge revenues for short-term advances during the fiscal years
ended December 31, 2003, 2002 and 2001 were $42,939,000, $36,473,000 and
$33,314,000, respectively, and accounted for approximately 60%, 63% and 63%,
respectively, of the Company's total service charge revenues.
The bank returns a significant number of customer short-term advance
checks deposited by the Company; however, the Company subsequently collects
a large percentage of these bad debts. The profitability of the Company's
short-term advance operations is dependent upon adequate collection of these
returned items. The bad debt valuation allowances were $462,000 and
$422,000 at December 31, 2003 and 2002, respectively. The net bad debt
expenses associated with short-term advances during the fiscal years ended
December 31, 2003, 2002 and 2001 were $9,878,000, $8,669,000 and $8,684,000,
respectively, which represented 23%, 24% and 26%, respectively, of service
charge revenues from short-term advances.
Merchandise Sales
The Company's merchandise sales are primarily retail sales to the
general public in its pawn stores. The items retailed are primarily used
jewelry, consumer electronics, tools, musical instruments and sporting
goods. The Company also melts down limited quantities of scrap gold jewelry
and sells the gold at market commodity prices. Total merchandise sales
during the years ended December 31, 2003, 2002 and 2001 accounted for
approximately 48%, 48% and 49%, respectively, of the Company's total
revenues for these periods. For the years ended December 31, 2003, 2002 and
2001 the Company realized gross profit margins on merchandise sales of 41%,
42% and 36%, respectively.
The Company acquires merchandise inventory primarily through forfeited
pawns and purchases of used goods directly from the general public.
Merchandise acquired by the Company through defaulted pawns is carried in
inventory at the amount of the related pawn loan, exclusive of any accrued
service charges. 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 provide the prospective buyer 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.
Operations and Locations
As of March 8, 2004, the Company operated stores in the following
markets:
Check cashing/
Pawn Short-term advance Total
Stores Stores Stores
------------------------------------
District of Columbia (1). 2 7 9
Washington............... - 3 3
Oregon................... - 4 4
Illinois................. - 10 10
California............... - 15 15
Maryland................. 21 - 21
Missouri................. 3 - 3
Oklahoma (1)............. 3 - 3
South Carolina (1)....... 8 - 8
Texas (1)................ 59 37 96
Virginia................. 2 - 2
Mexico (2)............... 69 - 69
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Total 167 76 243
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(1) Pawn stores in these states also offer the short-term advance
product.
(2) See Note 15 of the Consolidated Financial Statements regarding
geographic areas.
In addition, at March 8, 2004, the Company's 50% owned joint venture,
Cash & Go, Ltd. operated a total of 40 kiosks located inside convenience
stores in the state of Texas.
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 metropolitan area, the greater Houston
metropolitan area, the Rio Grande Valley area, the Corpus Christi area, the
El Paso area, the central Texas area (Austin, San Antonio and surrounding
cities) and the west Texas 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, in the Pacific Northwest, and in northern Mexico.
Pawn Store Operations
The typical Company pawn store is a freestanding 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 merchandise sales, service charge revenues, pawns
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 customers by lending a
competitive percentage of the estimated sale value of items presented for
pledge and by providing quick financing, renewal and redemption services in
an appealing atmosphere.
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 supervisor reports to one of three regional vice-presidents.
The Company believes that profitability of its pawnshops is dependent,
among other factors, upon its employees' ability to make pawns 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 pawn 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
profit and special promotional contests.
Check Cashing/Short-term Advance Operations
The Company's check cashing/short-term advance locations are typically
part of a 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 typically 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/short-term
advance stores allow a store manager or clerk to recall rapidly customer
check cashing histories, short-term advance histories, and other vital
information. The Company attempts to attract customers primarily through
television advertisements and yellow page advertisements.
Each check cashing/short-term loan store employs a manager, and between
one 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 store manager reports to an area
manager who typically oversees two to five store managers. Each supervisor
reports to one of two regional vice-presidents.
The kiosks operated by the Cash & Go, Ltd. joint venture are located
inside convenience stores. Each kiosk is a physically secured area with its
own counter space within the convenience store. Each kiosk is typically
staffed by one or two employees at any point in time.
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/short-term advance operators. There are two publicly held
pawnshop operators and one publicly held check cashing/short-term advance
operator, all of which have more locations than the Company. There are
several privately held operators of check cashing/short-term advance stores,
some of which are significantly larger than the Company. In addition, both
the pawnshop and check cashing/short-term 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 pawns and short-term 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, 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.
Governmental Regulation
General
The Company is subject to extensive regulation in most jurisdictions in
which it operates, including jurisdictions that regulate pawn lending,
short-term advance and check cashing. The Company's pawnshop and short-term
advance operations in the United States are subject to, and must comply
with, extensive regulation, supervision and licensing from various federal,
state and local statutes, ordinances and regulations. These statutes
prescribe, among other things, the general terms of the loans and the
service charges and/or interest rates that may be charged. These regulatory
agencies have broad discretionary authority. The Company is also subject to
federal and state regulation relating to the reporting and recording of
certain currency transactions. The Company's pawnshop operations in Mexico
are also subject to, and must comply with, general business, tax and
consumer protection regulations from various federal, state and local
governmental agencies in Mexico. There can be no assurance that additional
state or federal statutes or regulations in either the United States or
Mexico will not be enacted or that existing laws and regulations will not be
amended at some future date which could inhibit the ability of the Company
to offer pawn loans and short-term advances, 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 and Local Regulations
The Company operates in seven states that have licensing and/or fee
regulations on pawns, 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 pawnbroker. 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.
Under some county and municipal ordinances, pawn stores must provide
local law enforcement agencies with copies of all daily transactions
involving pawns and over-the-counter purchases. These daily transaction
reports are designed to provide the local law enforcements officials 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 pawns 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. 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 also operates in states that have licensing, and/or fee
regulations on check cashing and short-term advances, including California,
Washington, Oklahoma, 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 short-term
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.
In Texas, which does not have favorable short-term lending service
charge rates, the Company has entered into an agreement with County Bank of
Rehoboth Beach, Delaware, a federally insured state of Delaware chartered
financial institution, to act as a loan servicer within the state of Texas
for County Bank. The Company is licensed as a regulated servicing agent by
the State of Texas. As compensation for the Company acting as County Bank's
loan servicer, the Company is entitled to purchase a participation in the
loans made by County Bank. The Company's ability to continue to maintain
its current relationship with County Bank and to continue to service County
Bank loans within the state of Texas is subject to County Bank's ability to
continue to export its loan product to the state of Texas. There can be no
assurance that County Bank will be able to continue to export its loan
product to the state of Texas, and the bank's failure to do so could have a
materially adverse impact on the Company's operations and financial
condition.
Federal Regulations
The U.S. Office of Comptroller of the Currency has significantly
restricted 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. In 2003, the Federal Deposit Insurance Corporation
("FDIC"), which regulates the ability of state chartered banks to enter into
relationships with loan servicers, issued 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 FDIC examiner guidelines. The ultimate effect of the new guidelines,
which are still being implemented, 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. If the FDIC's new guidelines
ultimately restrict the ability of state banks to maintain relationships
with loans servicers, it could have a materially adverse impact on the
Company's operations and financial condition.
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.
The Money Laundering Suppression Act of 1994 added a section to the
Bank Secrecy Act requiring the registration of "money services businesses,"
like the Company, that engage in check cashing, currency exchange, money
transmission, or the issuance or redemption of money orders, traveler's
checks, and similar instruments. The purpose of the registration is to
enable governmental authorities to better enforce laws prohibiting money
laundering and other illegal activities. The regulations require money
services businesses to register with the Treasury Department by filing a
form, adopted by the Financial Crimes Enforcement Network of the Treasury
Department ("FinCEN"), and to re-register at least every two years
thereafter. The regulations also require that a money services business
maintain a list of names and addresses of, and other information about, its
agents and that the list be made available to any requesting law enforcement
agency (through FinCEN). The agent list must be updated annually.
In March 2000, FinCEN adopted additional regulations, implementing the
Bank Secrecy Act that is also addressed to money services businesses. These
regulations require money services businesses, such as the Company, to
report suspicious transactions involving at least $2,000 to FinCEN. The
regulations generally describe three classes of reportable suspicious
transactions - one or more related transactions that the money services
business knows, suspects, or has reason to suspect (1) involve funds derived
from illegal activity or are intended to hide or disguise such funds, (2)
are designed to evade the requirements of the Bank Secrecy Act, or (3)
appear to serve no business or lawful purpose.
Under the USA PATRIOT Act passed by Congress in 2001, the Company is
required to maintain an anti-money laundering compliance program. The
program must include (1) the development of internal policies, procedures
and controls; (2) the designation of a compliance officer; (3) an ongoing
employee training program; and (4) an independent audit function to test the
program. The United States Department of Treasury is expected to issue
regulations specifying the appropriate features and elements of the anti-
money laundering compliance programs for the pawnbrokering and short-term
advance industries.
The Gramm-Leach-Bliley Act requires the Company to generally protect
the confidentiality of its customers' nonpublic personal information and to
disclose to its customers its privacy policy and practices, including those
regarding sharing the customers' nonpublic personal information with third
parties. Such disclosure must be made to customers at the time the customer
relationship is established, at least annually thereafter, and if there is a
change in the Company's privacy policy.
With respect to firearms sales, the Company must comply with the
regulations promulgated by the Department of the Treasury-Bureau of Alcohol,
Tobacco and Firearms, which requires firearms dealers to maintain a
permanent written record of all firearms that it receives or sells. The
Company does not currently sell firearms to the public.
Proposed Regulations
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 generally charged by credit-card issuers to a
more creditworthy consumer. The consumer groups and media stories often
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.
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.
Employees
The Company had approximately 1,531 employees as of March 8, 2004,
including approximately 90 persons employed in executive, administrative and
accounting functions. In addition, Cash & Go, Ltd. had approximately 88
employees as of March 8, 2004. None of the Company's employees are covered
by collective bargaining agreements. The Company considers its employee
relations to be satisfactory.
First Cash Website
The Company's primary website is at http://www.firstcash.com. The
Company makes available, free of charge, at its corporate website its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as
soon as reasonably practicable after they are electronically filed with the
SEC.
Insurance
The Company maintains fire, casualty, theft and public liability
insurance for each of its pawn stores and check cashing/short-term 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.,
Oklahoma, as well as excess employer's indemnification insurance in Texas
and equivalent coverage in Mexico. The Company is a non-subscriber under
the Texas Workers' Compensation Act.
Item 2. Properties
-------------------
The Company currently owns the real estate and buildings for three of
its pawn stores and leases 257 pawn stores and check cashing/short-term
advance locations that are currently open or are in the process of opening.
Leased facilities are generally leased for a term of two to eight years with
one or more options to renew. The Company's existing leases expire on dates
ranging between 2004 and 2016. All current store leases provide for
specified periodic rental payments ranging from approximately $800 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/short-term 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 14,000 square feet in
Arlington, Texas for its executive offices. The lease, which expires March
31, 2005, currently provides for monthly rental payments of approximately
$24,000. The Company's 50% owned joint venture, Cash & Go, Ltd. leases its
kiosk locations under operating leases generally with terms ranging from one
to five years, with renewal options for certain locations. The joint
venture's existing leases expire on dates ranging between 2004 and 2008.
All current leases provide for specified periodic rental payments ranging
from approximately $1,000 to $1,400 per month.
Item 3. Legal Proceedings
--------------------------
In May 2000, three plaintiffs filed a complaint against Famous Pawn,
Inc., a wholly owned subsidiary of the Company, in the United States
District Court for the District of Maryland (Northern Division). The
allegations consisted of five counts: (1) violation of the federal Truth in
Lending Act; (2) violation of the federal Racketeer Influenced and Corrupt
Organizations Act; (3) violation of the Maryland Interest and Usury Statute;
(4) violation of the Maryland Consumer Loan Law; and (5) violation of the
Maryland Consumer Protection Act. In February 2003, the Company and
plaintiffs reached a settlement of the complaint, which was subsequently
approved by the District Court. Under the terms of the settlement as
approved by the District Court, the plaintiffs agreed to dismiss all
allegations and monetary claims made against the Company. The Company, in
order to expedite the conclusion of this matter and avoid the expenses
associated with a trial, agreed to pay the plaintiffs approximately
$1,100,000, including the plaintiffs' legal fees, and forgive all the
outstanding debt of such customers in the amount of approximately $800,000.
The Company had previously reserved and expensed in prior years an amount
equal to this settlement, and accordingly, the settlement has no impact on
the Company's current operating results. The settlement was completed and
funded in January 2004.
Additionally, the Company is from time to time a defendant (actual or
threatened) in certain other lawsuits and arbitration claims 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 2003.
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, 2002:
Quarter Ended March 31, 2002.......... $ 8.30 $ 7.10
Quarter Ended June 30, 2002........... 10.60 8.00
Quarter Ended September 30, 2002...... 9.57 6.99
Quarter Ended December 31, 2002....... 11.00 7.85
Year Ended December 31, 2003:
Quarter Ended March 31, 2003.......... $ 10.72 $ 8.56
Quarter Ended June 30, 2003........... 15.14 9.95
Quarter Ended September 30, 2003...... 23.99 14.10
Quarter Ended December 31, 2003....... 27.05 20.04
On March 8, 2004, the closing sales price for the Common Stock as
reported by the Nasdaq National Market was $36.00 per share. On March 8,
2004, there were approximately 55 stockholders of record of the Common
Stock.
No cash dividends have been paid by the Company on its Common Stock.
The dividend and earning retention policies are reviewed by the Board of
Directors of the Company from time to time in light of, among other things,
the Company's earnings, cash flows and financial position.
Item 6. Selected Financial Data
--------------------------------
The information below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7 and the Company's Consolidated Financial Statements and
related notes thereto required by Item 8.
Year Ended December 31,
----------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(in thousands, except per share amounts and certain operating data)
Income Statement Data:
Revenues:
Merchandise sales $ 69,808 $ 56,916 $ 53,893 $ 53,177 $ 50,071
Service charges 71,743 58,196 53,028 46,597 40,630
Check cashing fees 2,749 2,659 2,264 2,216 2,184
Other 1,168 1,022 1,242 1,737 1,158
-------- -------- -------- -------- --------
145,468 118,793 110,427 103,727 94,043
-------- -------- -------- -------- --------
Cost of goods sold and expenses:
Cost of goods sold 41,110 32,890 34,619 34,366 35,157
Operating expenses 61,926 54,090 48,661 44,836 37,199
Interest expense 472 939 2,307 3,749 2,905
Interest income (595) (645) (912) (890) (303)
Depreciation 3,019 2,548 2,283 2,612 1,527
Amortization - - 1,530 1,694 1,475
Administrative expenses 14,807 11,580 9,420 8,217 6,739
-------- -------- -------- -------- --------
120,739 101,402 97,908 94,584 84,699
-------- -------- -------- -------- --------
Income before income taxes 24,729 17,391 12,519 9,143 9,344
Provision for income taxes 9,397 6,451 4,507 3,476 3,097
-------- -------- -------- -------- --------
Income from continuing operations 15,332 10,940 8,012 5,667 6,247
-------- -------- -------- -------- --------
Discontinued operations
Income (loss) from discontinued
operations, net of taxes - - 33 (765) 231
Loss on sale of subsidiary,
net of tax - - (175) - -
-------- -------- -------- -------- --------
Income (loss) from discontinued
operations - - (142) (765) 231
-------- -------- -------- -------- --------
Cumulative effect of change
in accounting principle,
net of taxes (357) - - (2,287) -
-------- -------- -------- -------- --------
Net income $ 14,975 $ 10,940 $ 7,870 $ 2,615 $ 6,478
======== ======== ======== ======== ========
Net income per share:
Basic
Income from continuing
operations $ 1.64 $ 1.24 $ 0.92 $ 0.64 $ 0.72
Income (loss) from
discontinued operations - - (0.02) (0.08) 0.03
Cumulative effect of change
in accounting principle (0.03) - - (0.26) -
-------- -------- -------- -------- --------
Net income $ 1.61 $ 1.24 $ 0.90 $ 0.30 $ 0.75
======== ======== ======== ======== ========
Diluted
Income from continuing
operations $ 1.46 $ 1.14 $ 0.87 $ 0.63 $ 0.67
Income (loss) from
discontinued operations - - (0.02) (0.08) 0.03
Cumulative effect of change
in accounting principle (0.03) - - (0.26) -
-------- -------- -------- -------- --------
Net income $ 1.43 $ 1.14 $ 0.85 $ 0.29 $ 0.70
======== ======== ======== ======== ========
Unaudited pro forma amounts
assuming retroactive
application of change in
accounting principle:
Revenues from continuing
operations $ 152,162 $ 125,886 $ 117,260 $ 107,239 $ 89,439
Income from continuing
operations 15,362 10,790 7,951 5,564 5,535
Basic earnings per share
from continuing operations 1.65 1.22 0.91 0.63 0.64
Diluted earning per share
from continuing operations 1.46 1.12 0.86 0.63 0.60
Operating Data:
Company operated stores:
Locations in operation:
Beginning of the year 190 158 148 147 133
Acquisitions - - 7 2 4
Opened 47 38 11 2 10
Consolidated/closed (2) (6) (8) (3) -
-------- -------- -------- -------- --------
End of the year 235 190 158 148 147
======== ======== ======== ======== ========
End of year location counts:
Pawn stores 160 131 112 116 114
Check cashing/short-term
advance stores 75 59 46 32 33
Pawn receivables $ 20,037 $ 16,624 $ 13,849 $ 14,142 $ 18,326
Average pawn receivables
balance per pawn store $ 125 $ 127 $ 124 $ 122 $ 161
Average inventory per
pawn store $ 97 $ 104 $ 113 $ 148 $ 183
Annualized inventory turnover 2.8x 2.7x 2.3x 1.8x 1.8x
Gross profit percentage on
merchandise sales 41.1% 42.2% 35.8% 35.4% 29.8%
Short-term advance receivables
in pawn stores $ 3,414 $ 3,550 $ 4,200 $ 3,911 $ 2,193
Average short-term advance
receivables in pawn stores
offering short-term advances 47 51 57 51 29
Short-term advance receivables
in check cashing/short-term
advance stores (excluding
Cash & Go, Ltd.) $ 8,609 $ 7,140 $ 5,507 $ 3,990 $ 3,933
Average short-term advance
receivables in check
cashing/short-term advance
stores (excluding Cash &
Go, Ltd.) 115 121 120 125 119
Cash & Go, Ltd. joint venture
kiosks:
End of year location counts 40 59 59 32 10
Short-term advance receivables $ 1,736 $ 1,790 $ 1,885 $ 1,364 $ 228
Average receivables balance
per location $ 43 $ 30 $ 32 $ 43 $ 23 -
Balance Sheet Data:
Working capital $ 60,840 $ 47,187 $ 8,540 $ 41,835 $ 54,333
Total assets 140,064 130,999 122,806 119,118 128,847
Long-term liabilities 11,955 33,525 5,277 44,833 55,560
Total liabilities 22,841 44,479 48,703 53,464 62,324
Stockholders' equity 117,223 86,520 74,103 65,654 66,523
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 pawns, service charges from short-term, unsecured advances
("short-term advances") and the sale of unredeemed goods, or "merchandise
sales." Pledged property is held through the term of the pawn, which is 30
days in Texas, South Carolina, Missouri, Virginia, and Oklahoma, with an
automatic extension period of 15 to 60 days depending on state laws, unless
the pawn is earlier paid or renewed. In Maryland, Washington, D.C. and
Mexico, pledged property is held for 30 days. In the event the borrower
does not pay or renew a pawn within 90 days in South Carolina and Missouri,
60 days in Texas and Oklahoma, 45 days in Virginia, and 30 days in Maryland,
Washington, D.C. and Mexico, 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 statutory service charges on pawns at its
Texas stores range from 12% to 240% on an annualized basis depending on the
size of the pawn, and from 39% to 240% on an annualized basis at the
Company's Oklahoma stores. Pawns made in the Maryland stores bear service
charges of 144% to 240% on an annualized basis with a $6 minimum charge per
month, while pawns in Virginia earn 120% to 144% annually with a $5 minimum
charge per month. In Washington D.C., a flat $2 charge per month applies to
all pawns up to $40, and a, 18% to 60% annualized service charge applies to
pawns of greater than $40. In Missouri, pawns bear a total service and
storage charge of 180% to 240% on an annualized basis with a $2.50 minimum
charge per month, and South Carolina rates range from 100% to 300%. In
Mexico, pawns bear an annualized rate of 240%. The Company accrues pawn
service charge revenue on a constant yield basis over the life of the pawn
for all pawns that the Company deems collection to be probable based on
historical pawn redemption statistics. If a pawn 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 principal amount of the loan, exclusive of accrued interest.
The Company's check cashing and short-term advance revenues are derived
primarily from check cashing fees, fees on short-term advances, and fees
from the sale of money orders and wire transfers. Short-term advances carry
a 13.9% to 40% service charge, which vary by state and life of the advance.
The Company recognizes service charge income on short-term advances on a
constant-yield basis over the life of the advance, which is generally 30
days or less. The net defaults on short-term advances and changes in the
bad debt valuation reserve are charged to bad debt expense.
Although the Company has had significant increases in revenues due
primarily 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 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.
Year Ended December 31,
------------------------
2003 2002 2001
---- ---- ----
Income statement items as a
percent of total revenues:
Revenues:
Merchandise sales .......... 48.0% 47.9% 48.8%
Service charges ............ 49.3 49.0 48.0
Check cashing fees ......... 1.9 2.1 2.1
Other ...................... 0.8 1.0 1.1
Expenses:
Operating expenses ......... 42.6 45.5 44.1
Interest expense ........... 0.3 0.8 1.3
Interest income ............ (0.4) (0.6) (0.1)
Depreciation ............... 2.1 2.1 2.0
Amortization ............... - - 1.4
Administrative expenses .... 10.2 9.7 8.5
Gross profit as a percent of
merchandise sales .......... 41.1 42.2 35.8
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles 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. The significant accounting policies which we
believe are the most critical to aid in fully understanding and evaluating
our reported financial results include the following:
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 addition, effective December 31, 2003, the accompanying
consolidated financial statements also include the accounts of Cash & Go,
Ltd., a Texas limited partnership, which owns financial services kiosks
inside convenience stores. The Company presently has a 50% ownership
interest in the partnership, which it has historically accounted for by the
equity method of accounting as neither partner has control. Through
December 31, 2003, the Company recorded its 50% share of the partnership's
earnings or losses in its consolidated financial statements. Effective
December 31, 2003, when the Company adopted FASB Interpretation No. 46(R) -
Consolidation of Variable Interest Entities, the Company included the
balance sheet accounts of Cash & Go, Ltd., in its consolidated financial
statements. The Company recorded a non-recurring change in accounting
principle charge of $357,000 net of income tax benefit on December 31, 2003
in order to reflect the other partner's share of accumulated losses in the
partnership.
Receivables and income recognition - Receivables on the balance sheet
consist of pawn and short-term advances. Pawns 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 pawn for all pawns that the
Company deems collection to be probable based on historical pawn redemption
statistics. If the pawn is not repaid, the principal amount pawned becomes
the carrying value of the forfeited collateral (inventory), which is held
for sale. Short-term advances are made for thirty days or less. The
Company recognizes the service charges associated with short-term advances
on a constant-yield basis over the term of the short-term advance.
Bad Debts - An allowance is provided for losses 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 advances in the reported balance. Net defaults
and changes in the short-term advance allowance are charged to bad debt
expense, which is included in operating expenses.
Inventories - Inventories represent merchandise purchased directly from
the public and merchandise acquired from forfeited pawns. Inventories
purchased directly from customers are recorded at cost. Inventories from
forfeited pawns are recorded at the amount of the pawn 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.
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.
Management does not believe any assets have been impaired at December 31,
2003.
Goodwill - Goodwill consists of the excess of purchase price over net
assets acquired. Excess purchase price over net assets acquired was
amortized on a straight-line basis over an estimated useful life of forty
years through December 31, 2001, in June 2001, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets, which is effective as of January 1, 2002. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002. Under SFAS
No. 142, goodwill is no longer amortized, but reviewed for impairment
annually, or more frequently if certain indicators arise. The Company
completed the transitional fair value impairment test and determined that no
impairment of recorded goodwill existed at January 1, 2002. The Company has
also determined that no impairment existed at December 31, 2002 and 2003.
Subsequent impairment losses, if any will be reflected in operating income
or loss in the consolidated statement of income for the period in which such
loss is realized.
Results of Operations
Twelve Months Ended December 31, 2003 Compared to Twelve Months Ended
December 31, 2002
Total revenues increased 22% to $145,468,000 for the fiscal year ended
December 31, 2003 ("Fiscal 2003") as compared to $118,793,000 for the fiscal
year ended December 31, 2002 ("Fiscal 2002"). The change resulted from an
increase in revenues of $15,193,000 generated by the 85 pawn and check
cashing/short-term advance stores which were opened during Fiscal 2002 and
Fiscal 2003, an increase of $13,121,000 at the 150 stores which were in
operation during all of Fiscal 2002 and Fiscal 2003, net of a decrease in
revenues of $1,639,000 from the 8 stores closed or consolidated during
Fiscal 2002 and Fiscal 2003. The Company attributes the increased revenues
in its existing stores to the maturation of 18 stores opened in 2001 and to
favorable economic and demographic trends that increased demand for the
Company's products and services. Of the $26,675,000 increase in total
revenues, 48%, or $12,892,000, was attributable to increased merchandise
sales, 51%, or $13,547,000 was attributable to a net increase in service
charges on pawn and short-term advances, the remaining 1%, or $236,000 was
attributable to increased check cashing fees and other income. Service
charges from short-term advances increased from $36,473,000 in Fiscal 2002
to $42,939,000 in Fiscal 2003, while service charges from pawns increased
from $21,723,000 in Fiscal 2002 to $28,804,000 in Fiscal 2003. Of the
$13,547,000 net increase in service charges, an increase of $6,466,000 was
attributable to short-term advance service charges, while $7,081,000 was
attributable to an increase in pawn service charges. As a percentage of
total revenues, merchandise sales remained unchanged at 48% during Fiscal
2003 and Fiscal 2002, service charges remained unchanged at 49% during
Fiscal 2003 and Fiscal 2002, and check cashing fees and other income
remained unchanged at 3% during Fiscal 2003 and Fiscal 2002.
The aggregate receivables balance increased 24% from $27,314,000 at
December 31, 2002 to $33,796,000 at December 31, 2003. Of the $6,482,000
increase, an increase of $1,736,000 was attributable to the consolidation of
Cash & Go, Ltd., the Company's 50% owned joint venture, an increase of
$1,803,000 was attributable to growth at the 47 pawn and check
cashing/short-term advance stores opened since December 31, 2002, and an
increase of $2,943,000 was attributable to the 188 pawn stores and check
cashing/short-term advance stores, which were in operation as of December
31, 2003 and 2002. The aggregate receivables balance at December 31, 2003
was comprised of $20,037,000 of pawn loan receivables and $13,759,000 of
short-term advance receivables, compared to $16,624,000 of pawn loan
receivables and $10,690,000 of short-term advance receivables at December
31, 2002. The annualized yield on the average pawn loan receivables balance
was 157% during Fiscal 2003 compared to 143% during Fiscal 2002. The
annualized yield, net of bad debt expense, on the average short-term advance
receivables balance was 270% during Fiscal 2003 compared to 273% during
Fiscal 2002.
Gross profit as a percentage of merchandise sales decreased from 42%
during Fiscal 2002 to 41% during Fiscal 2003. Sales of scrap jewelry had a
negative effect on gross profit margins during Fiscal 2002 and Fiscal 2003.
Factoring out the negative impact of scrap jewelry sales, margins would have
been 44% and 45% during Fiscal 2002 and Fiscal 2003, respectively.
Operating expenses increased 14% to $61,926,000 during Fiscal 2003
compared to $54,090,000 during Fiscal 2002, primarily as a result of the net
addition of 45 pawn stores and check cashing/short-term advance stores in
Fiscal 2003, which is a 24% increase in store count. The Company's net bad
debt expense relating to short-term advances increased from $8,669,000 in
Fiscal 2002 to $9,878,000 in Fiscal 2003 as a result of the increased short-
term advance service charges. Administrative expenses increased 28% to
$14,807,000 during Fiscal 2003 compared to $11,580,000 during Fiscal 2002
due primarily to additional employee costs necessary to support the growth
in store counts. Interest expense decreased to $472,000 in Fiscal 2003
compared to $939,000 in Fiscal 2002 as a result of lower average outstanding
debt balances and lower average interest rates during Fiscal 2003. Interest
income decreased to $595,000 in Fiscal 2003, compared to $645,000 in Fiscal
2002.
For Fiscal 2003 and 2002, the Company's effective federal income tax
rates of 38% and 37%, respectively, differed from the statutory tax rate of
approximately 34% primarily as a result of state income taxes, utilization
of tax net operating loss carry forwards from acquisitions, and amortization
of non-deductible intangible assets.
Twelve Months Ended December 31, 2002 Compared to Twelve Months Ended
December 31, 2001
Total revenues increased 8% to $118,793,000 for the fiscal year ended
December 31, 2002 ("Fiscal 2002") as compared to $110,427,000 for the fiscal
year ended December 31, 2001 ("Fiscal 2001"). The change resulted from an
increase in revenues of $7,266,000 generated by the 56 pawn and check
cashing/short-term advance stores which were opened during Fiscal 2001 and
Fiscal 2002, an increase of $4,576,000 at the 134 stores which were in
operation during all of Fiscal 2001 and Fiscal 2002, net of a decrease in
revenues of $3,476,000 from the 14 stores closed or consolidated during
Fiscal 2001 and Fiscal 2002. The Company attributes the increased revenues
in its existing stores to favorable economic and demographic trends that
increased demand for the Company's products and services. Of the $8,366,000
increase in total revenues, 36%, or $3,023,000, was attributable to
increased merchandise sales, 62%, or $5,168,000 was attributable to a net
increase in service charges on pawn and short-term advances, 5%, or $395,000
was attributable to increased check cashing fees, and the remaining decrease
of $220,000, or 3%, was attributable to a decrease in other income. Service
charges from short-term advances increased from $33,314,000 in Fiscal 2001
to $36,473,000 in Fiscal 2002, while service charges from pawns increased
from $19,714,000 in Fiscal 2001 to $21,723,000 in Fiscal 2002. Of the
$5,168,000 net increase in service charges, an increase of $3,159,000 was
attributable to short-term advance service charges, while $2,009,000 was
attributable to an increase in pawn service charges. As a percentage of
total revenues, merchandise sales decreased from 49% to 48% during Fiscal
2002 as compared to Fiscal 2001, service charges increased from 48% to 49%,
and check cashing fees and other income remained unchanged at 3% during
Fiscal 2002 and Fiscal 2001.
The aggregate receivables balance increased 16% from $23,556,000 at
December 31, 2001 to $27,314,000 at December 31, 2002. Of the $3,758,000
increase, an increase of $1,798,000 was attributable to growth at the 38
pawn and check cashing/short-term advance stores opened since December 31,
2001, and an increase of $1,960,000 was attributable to the 152 pawn stores
and check cashing/short-term advance stores, which were in operation as of
December 31, 2002 and 2001. The aggregate receivables balance at December
31, 2002 was comprised of $16,624,000 of pawn loan receivables and
$10,690,000 of short-term advance receivables, compared to $13,849,000 of
pawn loan receivables and $9,707,000 of short-term advance receivables at
December 31, 2001. The annualized yield on the average pawn loan receivables
balance was 143% during Fiscal 2002 compared to 141% during Fiscal 2001.
The annualized yield, net of bad debt expense, on the average short-term
advance receivables balance was 273% during Fiscal 2002 compared to 280%
during Fiscal 2001.
Gross profit as a percentage of merchandise sales increased from 36%
during Fiscal 2001 to 42% during Fiscal 2002. Sales of scrap jewelry had a
negative effect on gross profit margins during Fiscal 2001 and Fiscal 2002.
Factoring out the negative impact of scrap jewelry sales, margins would have
been 41% and 44% during Fiscal 2001 and Fiscal 2002, respectively.
Operating expenses increased 11% to $54,090,000 during Fiscal 2002
compared to $48,661,000 during Fiscal 2001, primarily as a result of the net
addition of 32 pawn stores and check cashing/short-term advance stores in
Fiscal 2002, which is a 20% increase in store count. The Company's net bad
debt expense relating to short-term advances decreased from $8,684,000 in
Fiscal 2001 to $8,669,000 in Fiscal 2002 as a result of increased focus on
collection efforts. Administrative expenses increased 23% to $11,580,000
during Fiscal 2002 compared to $9,420,000 during Fiscal 2001 due primarily
to additional employee costs necessary to support the growth in store
counts. Interest expense decreased to $939,000 in Fiscal 2002 compared to
$2,307,000 in Fiscal 2001 as a result of lower average outstanding debt
balances and lower average interest rates during Fiscal 2002. Interest
income decreased to $645,000 in Fiscal 2002 compared to $912,000 in Fiscal
2001. Amortization expense was not recorded in Fiscal 2002 due to the
January 1, 2002 implementation of a new accounting pronouncement, SFAS 142,
which eliminated the amortization of goodwill. Amortization expense in
Fiscal 2001 was $1,530,000.
For Fiscal 2002 and 2001, 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 income taxes, utilization
of tax net operating loss carry forwards from acquisitions, and amortization
of non-deductible intangible assets.
Liquidity and Capital Resources
The Company's operations and growth have been financed with funds
generated from operations and bank borrowings.
The Company maintains a combined long-term line of credit with two
commercial lenders (the "Credit Facility"). The Credit Facility provides a
$25,000,000 long-term line of credit that matures on August 9, 2005 and
bears interest at the prevailing LIBOR rate (which was approximately 1.1% at
December 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 December
31, 2003, the Company had $19,000,000 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 December 31, 2003 and March 8, 2004. 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.
Subsequent to December 31, 2003, the Company renewed and extended its
long-term line of credit. The Credit Facility now matures on April 15,
2006. In addition, certain terms in the agreement were modified. The
interest rate margin added to the LIBOR rate is fixed at 1.375%. The annual
commitment of the average daily-unused portion of Credit Facility commitment
is reduced to 1/8 of 1%. As of March 8, 2004, the Company had repaid all
amounts owed under the Credit Facility and had no interest-bearing debt
outstanding.
As of December 31, 2003, the Company's primary sources of liquidity
were $15,847,000 in cash and cash equivalents, $3,918,000 in service charges
receivable, $33,796,000 in receivables, $15,588,000 in inventories and
$19,000,000 of available and unused funds under the Company's Credit
Facility. The Company had working capital as of December 31, 2003 of
$60,840,000 and liabilities to equity ratio of 0.2 to 1.
The Company utilized positive cash flows from operations in 2003 to
fund investing and financing activities primarily related to opening new
stores, to fund growth of receivables and inventory balances in existing
stores and to reduce outstanding debt. Net cash provided by operating
activities of the Company during the year ended December 31, 2003 was
$16,098,000, consisting primarily of income from continuing operations
before non-cash depreciation of $18,351,000, less an increase in accrued
service charges receivable and inventory of $553,000 and $1,940,000,
respectively, in addition to a decrease in prepaid expenses and an increase
in accounts payable of $167,000 and $545,000, respectively, net of an
increase in deferred taxes of $472,000. Net cash used for investing
activities during the year ended December 31, 2003 was $5,212,000, which was
primarily comprised of cash used in increasing receivables of $4,746,000,
cash paid for fixed asset additions of $5,202,000, net of a decrease in the
Cash & Go, Ltd. joint venture receivable of $2,633,000 and the cash effect
from consolidation of Cash & Go, Ltd. of $2,103,000. The opening of 47 new
stores in 2003 contributed significantly to the increase in receivables and
the volume of fixed asset additions. Net cash used by financing activities
was $7,774,000 during the year ended December 31, 2003, which consisted of
net repayments of the Company's debt of $23,502,000, net of a decrease in
notes receivable from officers of $4,228,000 and proceeds, including tax
benefit, from exercises of stock options and warrants of $11,500,000. The
non-recurring cash flows from the repayment of the notes receivable from
officers and the proceeds from exercises of stock options and warrants were
utilized to reduce the Company's debt.
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 2004. 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.
The Company currently intends to continue to engage in a plan of
expansion primarily through new store openings. During fiscal 2004, the
Company currently plans to open 50 new stores, comprised of both check
cashing/short-term advance locations, primarily located in Texas, and
pawnshops, primarily in Mexico. The majority of this expansion will be
funded through operating cash flows. Management believes that the Company
has the ability to obtain an increase to the Credit Facility if necessary to
complete funding of the expansion plans. 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 new stores 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, 2004
and March 8, 2004, the Company opened 1 new check cashing/short-term advance
location and 9 pawnshops, while 2 pawnshops located in the U.S. were
closed.
Contractual Commitments.
A tabular disclosure of contractual obligations at December 31, 2003
including Cash & Go, Ltd. is as follows:
Payments due by period
-----------------------------------------------
(in thousands)
Less More
than 1 1 - 3 3 - 5 than 5
Total year years years years
------ ------ ------ ------ ------
Long-term debt ......... $ 6,000 $ - $ 6,000 $ - $ -
Operating leases ....... 39,752 9,652 22,044 5,601 2,455
------ ------ ------ ------ ------
Total $45,752 $ 9,652 $28,044 $ 5,601 $ 2,455
====== ====== ====== ====== ======
Off-Balance Sheet Arrangements
As of December 31, 2003, the Company had no off-balance sheet
arrangements.
Inflation
The Company does not believe that inflation has had a material effect
on the amount of pawns and short-term 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 merchandise sales occurring during the first and fourth calendar
quarters of each year. The Company's lending and short-term advance
activities are also seasonal, with the highest volume of lending activity
occurring during the third and fourth calendar quarters of each year.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46(R) ("FIN 46"),
Consolidation of Variable Interest Entities. FIN 46 addresses consolidation
by business enterprises of variable interest entities (formerly special
purpose entities). In general, a variable interest entity is a corporation,
partnership, trust or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. The objective of FIN 46 is not to
restrict the use of variable interest entities, but to improve financial
reporting by companies involved with variable interest entities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements are
effective for the first period that ends after March 15, 2004, however, the
Company has elected to adopt the requirements effective December 31, 2003.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------
Market risks relating to the Company's operations result primarily from
changes in interest rates, foreign exchange rates, and gold prices. The
Company does not engage in speculative or leveraged transactions, nor does
it hold or issue financial instruments for trading purposes.
Interest Rate Risk
The Company is exposed to market risk in the form of interest rate risk
in regards to its long-term line of credit. As of March 8, 2004 the line of
credit had no balance outstanding, therefore the Company's interest rate
risk for 2004 is immaterial.
The Company's cash and cash equivalents are invested in money market
accounts. Accordingly, the Company is subject to changes in market interest
rates. However, the Company does not believe a change in these rates would
have a material adverse effect on the Company's operating results, financial
condition, and cash flows.
Foreign Currency Risk
A majority of the Company's pawn loans in Mexico are currently
contracted and settled in U.S. dollars and therefore the Company bears
limited exchange risk from its operations in Mexico. The Company maintained
certain Mexican peso denominated pawn loan balances at December 31, 2003,
which converted to a U.S. dollar equivalent of $879,000. The Company also
maintained certain peso denominated bank balances at December 31, 2003,
which converted to a U.S. dollar equivalent of $122,000. A 10% increase in
the peso to U.S. dollar exchange rate would increase the Company's foreign
currency translation exposure by approximately $100,000.
Gold Price Risk
A significant and sustained decline in the price of gold would
negatively impact the value of jewelry inventories held by the Company and
the value of jewelry pledged as collateral by pawn customers. As a result,
the Company's profit margins on existing jewelry inventories would be
negatively impacted, as would be the potential profit margins on jewelry
currently pledged as collateral by pawn customers in the event it is
forfeited by the pawn customer. In addition, a decline in gold prices could
result in a lower balance of pawn loans outstanding for the Company, as
customers would receive lower loan amounts for individual pieces of jewelry.
The Company believes that many customers would be willing to add additional
items of value to their pledge in order to obtain the desired loan amount,
thus mitigating a portion of this risk.
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 15(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.
Item 9a. Controls and Procedures
---------------------------------
Based on their evaluation as of December 31, 2003, the Company's
principal executive officer and principal financial officer have concluded
that the Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Exchange Act) are effective to ensure that
information required to be disclosed by the Company in reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation. There
were no significant deficiencies or material weaknesses, and therefore there
were no corrective actions taken.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
------------------------------------------------------------
The information required by this item with respect to the directors,
executive officers and compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the information provided under the headings
"Election of Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance," respectively, contained in the Company's
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for the Company's Annual Meeting
of Stockholders.
Item 11. Executive Compensation
--------------------------------
The information required by this item is incorporated by reference from
the information provided under the heading "Executive Compensation" of the
Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
----------------------------------------------------------------------------
Related Stockholder Matters
---------------------------
Equity Compensation Plan Information
The following table gives information about the Company's common stock
that may be issued upon the exercise of options under its 1990 Stock Option
Plan (approved by the shareholders) and 1999 Stock Option Plan (approved by
the shareholders) as of December 31, 2003. Additionally, the Company issues
warrants to purchase shares of common stock to certain key members of
management, members of the Board of Directors that are not employees or
officers, and to other third parties. The issuance of warrants is not
approved by shareholders, and each issuance is generally negotiated between
the Company and such recipients. The issuance of warrants to outside
consultants is accounted for using the fair value method prescribed by FAS
No. 123.
Number of securities
remaining available for
Number of securities to Weighted average future issuance under
be issued upon exercise exercise price equity compensation plans
of outstanding options, of outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column A)
Plan Category (A) (B) (C)
------------- --- --- ---
Equity Compensation Plans
Approved by Security
Holders 630,000 $13.69 1,088,000
Equity Compensation Plans
Not Approved by
Security Holders 1,217,711 $ 8.07 -
--------- ---------
Total 1,847,711 $ 9.98 1,088,000
========= =========
Other information required by this item is incorporated herein by
reference from the information provided under the heading "Security
Ownership of Certain Beneficial Owners and Management" of the Company's
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
--------------------------------------------------------
The information required by this item is incorporated herein by reference
from the information provided in the Company's Proxy Statement.
Item 14. Principal Accounting Fees and Services
-----------------------------------------------
The information required by this item is incorporated by reference from
the information provided in the Company's proxy Statement under the
discussion of the Company Audit Committee and under the item regarding
shareholder ratification of the Company's independent accountants.
PART IV
-------
Item 15. 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
Independent Auditors' Report....................... 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) Reports on Form 8-K:
October 22, 2003 Item 12. Results of Operations and
Financial Condition. The
Company reported its financial
results for its quarter ended
September 30, 2003.
(c) Exhibits:
3.1(4) Amended Certificate of Incorporation
3.2(5) Amended Bylaws
4.1(2) Common Stock Specimen
10.1(1) First Cash, Inc. 1990 Stock Option Plan
10.2(7) Employment Agreement -- Rick Powell
10.3(7) Employment Agreement -- Rick L. Wessel
10.4(11) Employment Agreement -- Alan Barron
10.5(3) Acquisition Agreement -- Miraglia, Inc.
10.6(4) Acquisition Agreement for Twelve Pawnshops
in South Carolina
10.7(4) Acquisition Agreement for One Iron Ventures, Inc.
10.8(4) First Cash Financial Services, Inc. 1999 Stock
Option Plan
10.9(8) First Addendum to Executive Employment
Agreement - Rick Powell
10.10(8) First Addendum to Executive Employment
Agreement - Rick Wessel
10.11(9) Second Addendum to Executive Employment
Agreement - Rick Powell
10.12(9) Second Addendum to Executive Employment
Agreement - Rick Wessel
10.13(11) Third Addendum to Executive Employment
Agreement - Rick Powell
10.14(11) Third Addendum to Executive Employment
Agreement - Rick Wessel
10.15(11) First Addendum to Executive Employment
Agreement - Alan Barron
10.16(10) Executive Incentive Compensation Plan
14.1(11) Code of Ethics
21.1(11) Subsidiaries
23.1(11) Independent Auditors' Consent of Deloitte & Touche LLP
31.1(11) Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2(11) Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(11) Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 as adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2(11) Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 as adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(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 the Annual Report on Form 10-K for the fiscal
year ended July 31, 1998 (File No. 0 - 19133) and incorporated herein
by reference.
(4) 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.
(5) 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.
(6) 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.
(7) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2000 (File No. 0 - 19133) and incorporated herein
by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2001 (File No. 0 - 19133) and incorporated herein
by reference.
(9) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2002 (File No. 0 - 19133) and incorporated herein
by reference.
(10) Filed as Exhibit A to the Company's Definitive Proxy Statement filed
on April 30, 2003.
(11) Filed herewith.
(d) All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
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 8, 2004
/s/R. DOUGLAS ORR
--------------------------------------------
R. Douglas Orr, Principal Accounting Officer
March 8, 2004
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 8, 2004
--------------------- Chief Executive Officer
Phillip E. Powell
/s/RICK L. WESSEL Director, President, March 8, 2004
--------------------- Secretary and Treasurer
Rick L. Wessel
/s/JOE R. LOVE Director March 8, 2004
---------------------
Joe R. Love
/s/RICHARD T. BURKE Director March 8, 2004
---------------------
Richard T. Burke
/s/TARA SCHUCHMANN Director March 8, 2004
---------------------
Tara Schuchmann
INDEPENDENT AUDITORS' REPORT
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, 2003 and
2002, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2003. 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, 2003 and 2002,
and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2003 in conformity
with accounting principles generally accepted in the United States of
America.
As described in Note 2, effective January 1, 2002, in connection with the
adoption of Statement of Financial Accounting Standards No. 142 Goodwill
and Other Intangible Assets, the Company ceased amortization of goodwill.
As described in Note 3, effective December 31, 2003, in connection with
the adoption of Financial Accounting Standards Board Interpretation No.
46(R) Consolidation of Variable Interest Entities, the Company
consolidated into its financial statements its 50% owned joint venture,
Cash & Go, Ltd.
DELOITTE LLP
Fort Worth, Texas
March 8, 2004
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2003 2002
------- -------
(in thousands, except share data)
ASSETS
Cash and cash equivalents..................... $ 15,847 $ 12,735
Service charges receivable.................... 3,918 3,174
Receivables................................... 33,796 27,314
Inventories................................... 15,588 13,648
Prepaid expenses and other current assets..... 964 1,161
Income taxes receivable....................... 1,613 109
------- -------
Total current assets ........................ 71,726 58,141
Property and equipment, net................... 14,418 11,750
Goodwill...................................... 53,237 53,194
Receivable from Cash & Go, Ltd................ - 7,351
Other......................................... 683 563
------- -------
$140,064 $130,999
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt............. $ - $ 900
Accounts payable ............................. 1,054 1,104
Accrued expenses.............................. 9,832 8,950
------- -------
Total current liabilities ................... 10,886 10,954
Revolving credit facility..................... 6,000 28,000
Long-term debt, net of current portion........ - 602
Deferred income taxes......................... 5,955 4,923
------- -------
22,841 44,479
------- -------
Commitments and contingencies (see Note 11)
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; 10,765,568 and 9,525,368
shares issued, respectively; 10,111,387 and
8,871,187 shares outstanding, respectively 109 96
Additional paid-in capital .................. 63,395 51,908
Retained earnings ........................... 56,734 41,759
Notes receivable from officers .............. - (4,228)
Common stock held in treasury, at cost,
654,181 shares ............................ (3,015) (3,015)
------- -------
117,223 86,520
------- -------
$140,064 $130,999
======= =======
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
(in thousands, except per share amounts)
Revenues:
Merchandise sales ..................... $ 69,808 $ 56,916 $ 53,893
Service charges ....................... 71,743 58,196 53,028
Check cashing fees .................... 2,749 2,659 2,264
Other ................................. 1,168 1,022 1,242
------- ------- -------
145,468 118,793 110,427
------- ------- -------
Cost of goods sold and expenses:
Cost of goods sold .................... 41,110 32,890 34,619
Operating expenses .................... 61,926 54,090 48,661
Interest expense ...................... 472 939 2,307
Interest income ....................... (595) (645) (912)
Depreciation .......................... 3,019 2,548 2,283
Amortization .......................... - - 1,530
Administrative expenses ............... 14,807 11,580 9,420
------- ------- -------
120,739 101,402 97,908
------- ------- -------
Income before income taxes ............... 24,729 17,391 12,519
Provision for income taxes ............... 9,397 6,451 4,507
------- ------- -------
Income from continuing operations......... 15,332 10,940 8,012
------- ------- -------
Discontinued operations (see Note 14):
Income from discontinued operations,
net of tax........................... - - 33
Loss on sale of subsidiary, net of tax. - - (175)
------- ------- -------
Loss from discontinued operations,
net of tax .......................... - - (142)
------- ------- -------
Cumulative effect of change in accounting
principle, net of tax (see Note 3) ..... (357) - -
------- ------- -------
Net income ............................... $ 14,975 $ 10,940 $ 7,870
======= ======= =======
Net income per share:
Basic
Income from continuing operations.... $ 1.64 $ 1.24 $ 0.92
Loss from discontinued operations.... - - (0.02)
Cumulative effect of change
in accounting principle ........... (0.03) - -
------- ------- -------
Net income........................... $ 1.61 $ 1.24 $ 0.90
======= ======= =======
Diluted
Income from continuing operations.... $ 1.46 $ 1.14 $ 0.87
Loss from discontinued operations.... - - (0.02)
Cumulative effect of change
in accounting principle ........... (0.03) - -
------- ------- -------
Net income........................... $ 1.43 $ 1.14 $ 0.85
======= ======= =======
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
(in thousands)
Cash flows from operating activities:
Income before discontinued operations and
change in accounting principle .......... $ 15,332 $ 10,940 $ 8,012
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization ......... 3,019 2,548 3,813
Income from discontinued operations ... - - 592
Changes in operating assets and
liabilities, net of effect of Cash & Go,
Ltd., consolidation and acquisition:
Service charges receivable ............ (553) (357) (89)
Inventories ........................... (1,940) (967) 4,687
Prepaid expenses and other assets ..... 167 41 (746)
Accounts payable and accrued expenses.. 545 13 3,509
Current and deferred income taxes ..... (472) 1,579 (107)
------- ------- -------
Net cash flows from operating activities 16,098 13,797 19,671
------- ------- -------
Cash flows from investing activities:
Net increase in receivables .............. (4,746) (3,758) (1,110)
Purchases of property and equipment....... (5,202) (4,264) (1,891)
Acquisition of existing operations........ - - (1,394)
Consolidation of Cash & Go, Ltd........... 2,103 - -
Proceeds from sale of discontinued
operations.............................. - - 230
(Increase) decrease in receivable from
Cash & Go, Ltd.......................... 2,633 (278) (2,775)
------- ------- -------
Net cash flows from investing activities.. (5,212) (8,300) (6,940)
------- ------- -------
Cash flows from financing activities:
Proceeds from debt ....................... - 7,000 14,200
Repayments of debt ....................... (23,502) (12,491) (22,869)
Notes receivable from officers ........... 4,228 823 775
Purchase of treasury stock ............... - - (500)
Proceeds from exercise of options and
warrants................................ 11,500 654 304
------- ------- -------
Net cash flows from financing activities (7,774) (4,014) (8,090)
------- ------- -------
Change in cash and cash equivalents......... 3,112 1,483 4,641
Cash and cash equivalents at beginning
of the year............................... 12,735 11,252 6,611
------- ------- -------
Cash and cash equivalents at end of the year $ 15,847 $ 12,735 $ 11,252
======= ======= =======
Supplemental disclosure of
cash flow information:
Cash paid during the year for:
Interest ................................ $ 498 $ 964 $ 2,394
======= ======= =======
Income taxes ............................ $ 4,256 $ 4,907 $ 4,533
======= ======= =======
Supplemental disclosure of non-cash
investing and financing activities:
Non-cash transactions in connection with
acquisition:
Fair market value of assets acquired
and goodwill......................... $ - $ - $ 2,302
Less assumption of liabilities and
costs of acquisition............... - - (908)
------- ------- -------
Net cash paid.......................... $ - $ - $ 1,394
======= ======= =======
Non-cash transactions in connection with
consolidation of Cash & Go, Ltd.:
Fair market value of assets consolidated $ 4,648 $ - $ -
Less assumption of liabilities from
consolidation....................... (5,791) - -
------- ------- -------
Net liabilities resulting from consolidation $ (1,143) $ - $ -
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Notes
Common Stock Additional Preferred Stock Receivable Treasury Stock
-------------- Paid-in --------------- Retained From --------------
Shares Amount Capital Shares Amount Earnings Officers Shares Amount Total
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
(in thousands)
Balance at December 31, 2000 9,321 $ 93 $ 50,953 - - $ 22,949 $ (5,826) 525 $(2,515) $ 65,654
Exercise of stock options
and warrants, including
income tax benefit of $22 97 2 302 - - - - - - 304
Notes receivable from
officers - - - - - - 775 - - 775
Purchase of treasury stock - - - - - - - 129 (500) (500)
Net income - - - - - 7,870 - - - 7,870
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 2001 9,418 95 51,255 - - 30,819 (5,051) 654 (3,015) 74,103
Exercise of stock options
and warrants, including
income tax benefit of $229 107 1 653 - - - - - - 654
Notes receivable from
officers - - - - - - 823 - - 823
Net income - - - - - 10,940 - - - 10,940
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 2002 9,525 96 51,908 - - 41,759 (4,228) 654 (3,015) 86,520
Exercise of stock options
and warrants, including
income tax benefit of $5,408 1,241 13 11,487 - - - - - - 11,500
Notes receivable from
officers - - - - - - 4,228 - - 4,228
Net income - - - - - 14,975 - - - 14,975
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 2003 10,766 $ 109 $ 63,395 - - $ 56,734 $ - 654 $(3,015) $117,223
====== ====== ======= ====== ====== ======== ======== ====== ====== =======
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 pawn forfeitures. In addition to making short-
term secured pawns, most of the Company's pawn stores offer short-term
unsecured advances ("short-term advances"). The Company also operates check
cashing/short-term advance stores that provide short-term advances, check
cashing services, and other related financial services. As of December 31,
2003, the Company owned and operated 160 pawn stores and 75 check
cashing/short-term advance stores. In addition the Company is a 50% owner
of Cash & Go, Ltd., a Texas limited partnership that owns and operates 40
financial services kiosks inside convenience 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. In addition, effective December 31, 2003, the accompanying
consolidated financial statements also include the balance sheet accounts of
Cash & Go, Ltd., a Texas limited partnership, which owns financial services
kiosks inside convenience stores. The operating results of the partnership
will be included in the consolidated financial statements effective January
1, 2004. All significant intercompany accounts and transactions have been
eliminated (See Note 3).
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 and short-term advances. Pawns 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 pawn for all
pawns that the Company deems collection to be probable based on historical
pawn redemption statistics. If the pawn is not repaid, the principal amount
pawned becomes the carrying value of the forfeited collateral ("inventory"),
which is recovered through sale. Short-term advances are made for thirty
days or less. The Company recognizes the service charges associated with
short-term advances on a constant-yield basis over the term of the short-
term advance.
Bad Debts - An allowance is provided on current 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. Net
defaults and changes in the short-term advance allowance are charged to bad
debt expense, which is included in operating expenses. Bad debt expense for
the years ended December 31, 2003, 2002 and 2001 was $9,878,000, $8,669,000
and $8,684,000, respectively.
Operating expenses - Costs incurred in operating the pawn stores and
check cashing/short-term advance 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 pawns. Inventories
purchased directly from customers are recorded at cost. Inventories from
forfeited pawns are recorded at the amount of the pawn 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 five 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.
Goodwill - Goodwill consists of the excess of purchase price over net
assets acquired. Excess purchase price over net assets acquired was
amortized on a straight-line basis over an estimated useful life of forty
years through December 31, 2001. In June 2001, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets, which was effective as of January 1, 2002. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002. Under SFAS
No. 142, goodwill is no longer amortized, but reviewed for impairment
annually, or more frequently if certain indicators arise. The Company
completed the transitional fair value impairment test and determined that no
impairment of recorded goodwill existed at January 1, 2002. The Company has
also determined that no impairment existed at December 31, 2002 and 2003.
Subsequent impairment losses, if any, will be reflected in operating income
or loss in the consolidated statement of income for the period in which such
loss is realized. Had the Company been accounting for its goodwill under
SFAS No. 142 for the years ended December 31, 2003, 2002 and 2001, the
Company's net income would have been as follows (in thousands, except per
share data):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Reported net income $ 14,975 $ 10,940 $ 7,870
Add: amortization of costs in excess
of net assets acquired, net of tax - - 979
------- ------- -------
Adjusted net income $ 14,975 $ 10,940 $ 8,849
======= ======= =======
Basic earnings per share:
Reported net income $ 1.61 $ 1.24 $ 0.90
Adjusted net income $ 1.61 $ 1.24 $ 1.01
Diluted earnings per share:
Reported net income $ 1.43 $ 1.14 $ 0.85
Adjusted net income $ 1.43 $ 1.14 $ 0.96
Long-lived assets - Long-lived assets (i.e., property, plant and
equipment and intangible assets with definite lives) 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. Management does not believe that any
impairments exist at December 31, 2003.
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, 2003, 2002 and 2001, was $1,567,000, $1,332,000 and
$1,070,000, respectively.
Stock-Based Compensation - The Company's stock-based employee
compensation plan is described in Note 12. The expense recognition and
measurement principles of APB 25, Accounting for Stock Issued to Employees,
and related interpretations are followed in accounting for this plan. No
stock-based employee compensation has been charged to earnings because the
exercise prices of all stock options granted under this plan have been equal
to the market value of the Company's common stock at the date of the grant.
The following presents information about net income and earnings per share
as if the Company had applied the fair value expense recognition
requirements of Statement of Financial Accounting Standards ("SFAS") 123,
Accounting for Stock-Based Compensation, to all employee stock options
granted under the plan (in thousands, except per share data).
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Net income, as reported................ $ 14,975 $ 10,940 $ 7,870
Less: Stock-based employee compensation
determined under the fair value
requirements of SFAS 123, net of
income tax benefits.................. 2,261 1,252 899
------- ------- -------
Pro forma net income................... $ 12,714 $ 9,688 $ 6,971
======= ======= =======
Earnings per share:
Basic, as reported................... $ 1.61 $ 1.24 $ 0.90
Basic, pro forma..................... $ 1.36 $ 1.10 $ 0.80
Diluted, as reported................. $ 1.43 $ 1.14 $ 0.85
Diluted, pro forma................... $ 1.21 $ 1.01 $ 0.75
Pursuant to the requirements of SFAS 123, the weighted-average fair
value of the individual employee stock options and warrants granted during
2003, 2002 and 2001 have been estimated as $8.89, $4.66 and $2.90,
respectively, on the date of the grant. The fair values were determined
using a Black-Scholes option-pricing model using the following assumptions:
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Dividend yield.............. - - -
Volatility.................. 54.0% 58.0% 55.0%
Risk-free interest rate..... 3.5% 3.5% 3.8%
Expected life............... 7 years 7 years 7 years
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 Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Numerator:
Net income for calculating
basic and diluted earnings per share $ 14,975 $ 10,940 $ 7,870
======= ======= =======
Denominator:
Weighted-average common shares for
calculating basic earnings per share 9,324 8,833 8,699
Effect of dilutive stock options
and warrants 1,180 794 569
------- ------- -------
Weighted-average common shares for
calculating diluted earnings per share 10,504 9,627 9,268
======= ======= =======
Basic earnings per share $ 1.61 $ 1.24 $ 0.90
Diluted earnings per share $ 1.43 $ 1.14 $ 0.85
Pervasiveness of estimates - The preparation of financial statements in
conformity with accounting principles 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.
Reclassification - Certain amounts for the year ended December 31, 2002
have been reclassified in order to conform to the 2003 presentation.
NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLE
In December 2003, the FASB issued Interpretation No. 46(R) ("FIN 46"),
Consolidation of Variable Interest Entities. FIN 46 addresses consolidation
by business enterprises of variable interest entities (formerly special
purpose entities). In general, a variable interest entity is a corporation,
partnership, trust or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities
or entitled to receive a majority of the entity's residual returns or both.
The Company has a 50% ownership interest in a joint venture, Cash & Go,
Ltd., a Texas limited partnership, which owns and operates 40 check
cashing/short-term advance kiosks inside convenience stores. The Company
has historically accounted for its share of the joint venture's operating
results using the equity method of accounting, as neither joint venture
partner has control. Through December 31, 2003 the Company has recorded its
50% share of the partnership's earnings or losses in its consolidated
financial statements. As defined in FIN 46, Cash & Go, Ltd. meets the
requirements of a variable interest entity that must be consolidated by the
Company. The Company implemented FIN 46 on December 31, 2003 at which time
it recorded a change in accounting principle charge of $357,000, net of
income tax benefit, which was necessary to recognize the other joint venture
partner's share of the Cash & Go, Ltd.'s accumulated operating losses as
part of the initial consolidation accounting. As of December 31, 2003, the
Company's consolidated balance sheet includes the assets and liabilities of
Cash & Go, Ltd., net of intercompany accounts, including the loan described
below, which have been eliminated. The operating results of Cash & Go, Ltd.
will be included in the Company's consolidated operating results effective
for accounting periods beginning January 1, 2004.
The Company funds substantially all of the working capital requirements
of Cash & Go, Ltd. in the form of a loan to the joint venture. This loan is
callable at any time by the Company, bears interest at the prime rate plus
5%, and is secured by substantially all of Cash & Go, Ltd.'s assets.
Summarized financial information for Cash & Go, Ltd. as of December 31, 2003
and 2002 and for the years ended December 31, 2003, 2002 and 2001 are as
follows:
December 31, December 31,
2003 2002
------- -------
(in thousands)
Current assets .......................... $ 4,120 $ 6,191
Non-current assets ..................... 528 950
Current note payable to First Cash
Financial Services, Inc................ (5,504) (7,972)
Other current liabilities ............... (287) (411)
------- -------
Net liabilities ..................... $ (1,143) $ (1,242)
======= =======
Company's net receivable from Cash & Go, Ltd.:
Note receivable from Cash & Go, Ltd.. $ 5,504 $ 7,972
Company's share of net liabilities .. (572) (621)
------- -------
$ 4,932 $ 7,351
======= =======
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
(in thousands)
Revenues ..................... $ 6,694 $ 7,093 $ 6,788
Expenses ..................... 6,596 7,571 6,979
------- ------- -------
Net income (loss) before taxes $ 98 $ (478) $ (191)
======= ======= =======
Company's share of pretax net income
(loss), as accounted for using the
equity method through December 31, 2003 $ 49 $ (239) $ (96)
======= ======= =======
Had the Company been accounting for its investment in Cash & Go, Ltd. under
FIN 46 for the years ended December 31, 2003, 2002 and 2001, the Company's
net income would have been as follows (in thousands, except per share data):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Reported net income $ 14,975 $ 10,940 $ 7,870
Additional net income (loss) related
to consolidation of Cash & Go,
Ltd., net of tax 387 (150) (61)
------- ------- -------
Adjusted net income $ 15,362 $ 10,790 $ 7,809
======= ======= =======
Basic earnings per share:
Reported net income $ 1.61 $ 1.24 $ 0.90
Adjusted net income $ 1.65 $ 1.22 $ 0.90
Diluted earnings per share:
Reported net income $ 1.43 $ 1.14 $ 0.85
Adjusted net income $ 1.46 $ 1.12 $ 0.84
NOTE 4 - BUSINESS ACQUISITIONS
In December 2001, the Company acquired 100% of the outstanding common
stock of WR Financial, Inc., which operated seven stores in Texas, for a
total purchase price of $1,394,000, paid in cash. The Company financed
substantially all of the cash purchase price for this acquisition through
its Credit Facility. The purchase price for this acquisition was determined
based upon the volume of annual pawn and sales transactions, outstanding
receivable balances, inventory on hand, location and condition of the
facilities, and projected future operating results.
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, net of accumulated amortization,
resulting from acquisitions was $53,237,000 and $53,194,000 as of December
31, 2003 and 2002, respectively. The results of operations of the acquired
companies are included in the consolidated financial statements from their
respective dates of acquisition.
NOTE 5 - RELATED PARTY TRANSACTIONS
As of December 31, 2002, the Company had notes receivable outstanding
from certain of its officers totaling $4,228,000. Repayment of these notes
was completed during Fiscal 2003. The notes bore interest at 3%.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31, December 31,
2003 2002
------- -------
Land ............................ $ 672 $ 672
Buildings ....................... 1,002 1,002
Leasehold improvements .......... 1,792 1,794
Furniture, fixtures and equipment 26,405 20,109
------- -------
29,871 23,577
Less: accumulated depreciation.. (15,453) (11,827)
------- -------
$ 14,418 $ 11,750
======= =======
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31, December 31,
2003 2002
------- -------
Money orders and wire transfers payable $ 726 $ 791
Accrued compensation .................. 2,979 2,692
Layaway deposits ...................... 1,655 1,382
Sales and property taxes payable....... 1,144 959
Lending activity settlements payable 1,462 1,123
Other ................................. 1,866 2,003
------- -------
$ 9,832 $ 8,950
======= =======
NOTE 8 - REVOLVING CREDIT FACILITY
The Company maintains a combined long-term line of credit with two
commercial lenders (the "Credit Facility"). The Credit Facility provides a
$25,000,000 long-term line of credit that matures on August 9, 2005 and
bears interest at the prevailing LIBOR rate (which was approximately 1.1% at
December 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 December
31, 2003, the Company had $19,000,000 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 December 31, 2003 and March 8, 2004. The Company is required
to pay an annual commitment fee of 1/5th 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.
Subsequent to December 31, 2003, the Company renewed and extended its
long-term line of credit. The Credit Facility now matures on April 15,
2006. In addition, certain terms in the agreement were modified. The
interest rate margin added to the LIBOR rate is fixed at 1.375%. The annual
commitment fee on the average daily unused portion of Credit Facility
commitment is reduced to 1/8th of 1%.
NOTE 9 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands, except payment
information):
December 31, December 31,
2003 2002
------- -------
Note payable to a bank; bearing interest at
LIBOR plus 2%; monthly principal and interest
payments of $5,257; retired in June 2003 $ - $ 392
Note payable to a bank; bearing interest at
LIBOR plus 2%; monthly principal and interest
payments of $5,518; retired in June 2003 - 310
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; retired in July 2003. - 800
------- -------
- 1,502
Less: current portion - (900)
------- -------
$ - $ 602
======= =======
NOTE 10 - INCOME TAXES
Components of the provision for income taxes consist of the following
(in thousands):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Current:
Federal ................... $ 7,495 $ 4,437 $ 2,609
State and foreign ......... 870 760 1,042
------- ------- -------
8,365 5,197 3,651
Deferred ..................... 1,032 1,254 856
------- ------- -------
$ 9,397 $ 6,451 $ 4,507
======= ======= =======
The principal current and non-current deferred tax liabilities consist
of the following at December 31, 2003 and 2002 (in thousands):
December 31, December 31,
2003 2002
------- -------
Deferred tax liabilities (assets):
Intangible asset amortization .... $ 6,120 $ 4,951
Depreciation ..................... 1,248 1,181
Inventory tax-basis difference ... (1,520) (1,288)
State income tax effect of
deferred tax items ............. 329 272
Legal accruals ................... (430) (430)
Other ............................ 208 237
------- -------
Net deferred tax liability .... $ 5,955 $ 4,923
======= =======
Reported as:
Non-current liabilities -
deferred income taxes........... $ 5,955 $ 4,923
======= =======
The provision for income taxes differs from the amounts determined by
applying the expected federal statutory tax rate to income from continuing
operations before income taxes. The following is a reconciliation of such
differences (in thousands):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Tax at the federal statutory rate $ 8,408 $ 5,913 $ 4,256
State and foreign income taxes,
net of federal tax benefit 558 400 646
Other, net 431 138 (395)
------- ------- -------
$ 9,397 $ 6,451 $ 4,507
======= ======= =======
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
------
2004 ............... $ 9,652
2005 ................ 8,668
2006 ................ 7,389
2007 ................ 5,987
2008 ................ 3,577
Thereafter .......... 4,479
-------
$ 39,752
=======
Rent expense under such leases was $8,664,000, $7,251,000 and
$6,515,000 for the years ended December 31, 2003, 2002 and 2001,
respectively.
In May 2000, three plaintiffs filed a complaint against Famous Pawn,
Inc., a wholly owned subsidiary of the Company, in the United States
District Court for the District of Maryland (Northern Division). The
allegations consisted of five counts: (1) violation of the federal Truth in
Lending Act; (2) violation of the federal Racketeer Influenced and Corrupt
Organizations Act; (3) violation of the Maryland Interest and Usury Statute;
(4) violation of the Maryland Consumer Loan Law; and (5) violation of the
Maryland Consumer Protection Act. In February 2003, the Company and
plaintiffs reached a settlement of the complaint, which was subsequently
approved by the District Court. Under the terms of the settlement, the
plaintiffs agreed to dismiss all allegations and monetary claims made
against the Company. The Company, in order to expedite the conclusion of
this matter and avoid the expenses associated with a trial, agreed to pay
the plaintiffs approximately $1,100,000, including the plaintiffs' legal
fees, and forgive all the outstanding debt of such customers in the amount
of approximately $800,000. The Company had previously reserved and expensed
in prior years an amount equal to this settlement, and accordingly, the
settlement has no impact on the Company's 2003 operating results. The
settlement was completed and funded in January 2004.
Additionally, the Company is from time to time a defendant (actual or
threatened) in certain other lawsuits and arbitration claims 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, 2003, no options to purchase shares of
Common Stock were available for grant under the 1990 Plan. Options to
purchase 1,000 shares were vested at December 31, 2003.
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 2,500,000
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, 2003,
options to purchase 1,088,000 shares of Common Stock were available for
grant under the 1999 Plan. Options to purchase 478,000 shares of common
stock under the 1999 Plan were vested as of December 31, 2003.
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 for fiscal 2001, 2002 and 2003 is
summarized in the accompanying chart (in thousands, except exercise price).
Exercisable
-----------------
Weighted
Weighted Average
Average Exercise
Options Warrants Exercise Price Number Price
------- -------- -------------- ------ -----
December 31, 2000 1,051 1,261 $ 6.92 1,816 $ 6.28
Granted 270 65 4.48
Exercised (84) (13) 3.12
Cancelled (57) (310) 11.24
----- -----
December 31, 2001 1,180 1,003 5.99 1,689 5.30
Granted 130 522 8.00
Exercised (62) (45) 4.13
Cancelled (137) (90) 10.56
----- -----
December 31, 2002 1,111 1,390 6.18 2,186 6.01
Granted 335 270 15.27
Exercised (798) (442) 4.91
Cancelled (18) - 8.00
----- -----
December 31, 2003 630 1,218 $ 9.98 1,642 $ 9.67
===== =====
Options and warrants outstanding as of December 31, 2003 are as follows
(in thousands, except exercise price and life):
Total Warrants
Exercise and Remaining Currently
Price Options Life Exercisable
----- ------- ---- -----------
$2.00 14 2.4 14
2.00 50 7.0 50
4.00 9 2.4 9
4.00 5 7.1 -
4.63 17 2.4 17
4.63 202 7.1 202
8.00 14 1.3 14
8.00 16 4.2 16
8.00 436 8.3 340
8.00 10 8.8 -
8.00 260 9.2 260
10.00 14 2.4 14
10.00 195 5.3 195
10.00 40 9.1 20
10.00 230 9.3 230
12.00 11 2.4 11
13.00 40 9.4 40
20.05 285 9.8 210
----- -----
1,848 1,642
===== =====
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 and
company contributions are paid to a corporate trustee and invested in
various funds. Contributions made to participants' accounts become fully
vested upon completion of five years of service. The total Company matching
contributions to the Plan were $213,000, $220,000 and $162,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.
NOTE 14 - DISCONTINUED OPERATIONS INFORMATION
On November 30, 2001, the Company sold all of its common stock of its
subsidiary, Miraglia, Inc. to a former employee of the Company for
approximately $230,000 in cash. The sale resulted in a pretax loss of
$273,000. The disposal of the software company and, accordingly, its
operating results are segregated and reported as discontinued operations in
the accompanying Consolidated Statements of Income.
The condensed statements of operations relating to the discontinued
software operations for the year ended December 31, 2001 is presented below:
Revenues $ 1,897
Costs and expenses 1,846
------
Income before income taxes 51
Income tax expense 18
------
Net income $ 33
======
NOTE 15 - GEOGRAPHIC AREAS
The Company manages its business on the basis of one reportable segment. See
Note 1 for a brief description of the Company's business. Long-lived assets
include all non-current assets except goodwill.
The following table shows revenues and long-lived assets by geographic area
(in thousands):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Revenues:
United States .......... $126,707 $112,720 $107,400
Mexico ................. 18,761 6,073 3,027
------- ------- -------
Total .................. $145,468 $118,793 $110,427
======= ======= =======
Long-lived assets:
United States .......... $ 11,391 $ 16,706 $ 17,432
Mexico ................. 3,710 2,958 214
------- ------- -------
Total .................. $ 15,101 $ 19,664 $ 17,646
======= ======= =======
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (in thousands, except per share data)
for the fiscal years ended December 31, 2003 and 2002 are set forth below.
The Company's operations are subject to seasonal fluctuations.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2003
----
Total revenues $ 34,244 $ 33,418 $ 37,241 $ 40,565
Total expenses 28,653 28,511 30,760 32,815
Income before change in
accounting principle 3,498 3,001 4,016 4,817
Cumulative effect of change
in accounting principle - - - (357)
Net income 3,498 3,001 4,016 4,460
Diluted earnings per share
from continuing operations 0.36 0.30 0.37 0.43
Diluted earnings per share from
cumulative effect of change
in accounting principle - - - (0.03)
Diluted earnings per share
from net income 0.36 0.30 0.37 0.40
Diluted weighted average shares 9,789 10,106 10,905 11,182
2002
----
Total revenues $ 28,451 $ 26,867 $ 29,755 $ 33,720
Total expenses 24,086 23,337 25,727 28,252
Net income 2,794 2,259 2,578 3,309
Diluted earnings per share
from net income 0.30 0.23 0.27 0.34
Diluted weighted average shares 9,457 9,742 9,570 9,741