Document
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017
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 001-10960

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11865297&doc=12
FIRSTCASH, INC.
(Exact name of registrant as specified in its charter)
Delaware
75-2237318
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1600 West 7th Street, Fort Worth, Texas
76102
(Address of principal executive offices)
(Zip Code)

(817) 335-1100
(Registrant’s telephone number, including area code)

NONE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     xYes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     xYes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x  Large accelerated filer
o  Accelerated filer
o  Non-accelerated filer (Do not check if a smaller reporting company)
o  Smaller reporting company
 
o  Emerging growth company



 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     oYes   x No

As of October 25, 2017, there were 47,186,687 shares of common stock outstanding.





 
 

FIRSTCASH, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2017

INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Information

This quarterly report contains forward-looking statements about the business, financial condition and prospects of FirstCash, Inc. and its wholly owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations and future plans. Forward-looking statements can also be identified by the fact these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.

These forward-looking statements are made to provide the public with management’s current assessment of the Company’s business. Although the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this quarterly report. Such factors may include, without limitation, the risks, uncertainties and regulatory developments discussed and described in (i) the Company’s 2016 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2017, including the risks described in Part 1, Item 1A, “Risk Factors” thereof, (ii) in this quarterly report, and (iii) the other reports filed with the SEC. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.




 
 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
FIRSTCASH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
 
 
 
 
 
 
September 30,
 
December 31,
 
 
2017
 
2016
 
2016
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
93,411

 
$
83,356

 
$
89,955

Fees and service charges receivable
 
45,134

 
45,708

 
41,013

Pawn loans
 
371,367

 
373,169

 
350,506

Consumer loans, net
 
24,515

 
27,792

 
29,204

Inventories
 
308,683

 
332,862

 
330,683

Income taxes receivable
 
27,867

 
36,449

 
25,510

Prepaid expenses and other current assets
 
23,818

 
31,935

 
25,264

Investment in common stock of Enova
 

 
54,786

 

Total current assets
 
894,795

 
986,057

 
892,135

 
 
 
 
 
 
 
Property and equipment, net
 
234,309

 
240,749

 
236,057

Goodwill
 
834,883

 
865,350

 
831,151

Intangible assets, net
 
95,991

 
106,502

 
104,474

Other assets
 
59,054

 
69,125

 
71,679

Deferred tax assets
 
12,694

 
9,912

 
9,707

Total assets
 
$
2,131,726

 
$
2,277,695

 
$
2,145,203

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
94,769

 
$
129,997

 
$
109,354

Customer deposits
 
37,626

 
37,591

 
33,536

Income taxes payable
 
3,763

 
910

 
738

Total current liabilities
 
136,158

 
168,498

 
143,628

 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
140,000

 
360,000

 
260,000

Senior unsecured notes
 
294,961

 
196,373

 
196,545

Deferred tax liabilities
 
73,203

 
42,125

 
61,275

Other liabilities
 
19,725

 
77,645

 
33,769

Total liabilities
 
664,047

 
844,641

 
695,217

 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
Preferred stock
 

 

 

Common stock
 
493

 
493

 
493

Additional paid-in capital
 
1,219,589

 
1,217,820

 
1,217,969

Retained earnings
 
436,159

 
359,926

 
387,401

Accumulated other comprehensive loss
 
(88,445
)
 
(109,114
)
 
(119,806
)
Common stock held in treasury, at cost
 
(100,117
)
 
(36,071
)
 
(36,071
)
Total stockholders’ equity
 
1,467,679

 
1,433,054

 
1,449,986

Total liabilities and stockholders’ equity
 
$
2,131,726

 
$
2,277,695

 
$
2,145,203

 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

1

 
 

FIRSTCASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited, in thousands, except per share amounts)
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
246,334

 
$
152,215

 
$
750,150

 
$
386,534

Pawn loan fees
 
132,545

 
79,505

 
383,428

 
182,816

Wholesale scrap jewelry sales
 
37,528

 
18,956

 
107,285

 
35,906

Consumer loan and credit services fees
 
19,005

 
10,477

 
58,754

 
21,079

Total revenue
 
435,412

 
261,153

 
1,299,617

 
626,335

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
161,350

 
93,399

 
483,458

 
239,166

Cost of wholesale scrap jewelry sold
 
36,831

 
16,977

 
102,370

 
30,701

Consumer loan and credit services loss provision
 
6,185

 
3,413

 
15,419

 
5,780

Total cost of revenue
 
204,366

 
113,789

 
601,247

 
275,647

 
 
 
 
 
 
 
 
 
Net revenue
 
231,046

 
147,364

 
698,370

 
350,688

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
138,966

 
80,574

 
412,780

 
190,563

Administrative expenses
 
29,999

 
24,500

 
93,542

 
58,277

Depreciation and amortization
 
13,872

 
7,281

 
42,804

 
17,165

Interest expense
 
6,129

 
5,073

 
17,827

 
13,859

Interest income
 
(418
)
 
(138
)
 
(1,138
)
 
(636
)
Merger and other acquisition expenses
 
911

 
29,398

 
3,164

 
33,877

Loss on extinguishment of debt
 
20

 

 
14,114

 

Net loss on sale of common stock of Enova
 

 
253

 

 
253

Total expenses and other income
 
189,479

 
146,941

 
583,093

 
313,358

 
 
 
 
 
 
 
 
 
Income before income taxes
 
41,567

 
423

 
115,277

 
37,330

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
13,293

 
1,835

 
39,119

 
13,895

 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
28,274

 
$
(1,412
)
 
$
76,158

 
$
23,435

 
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.59

 
$
(0.04
)
 
$
1.58

 
$
0.77

Diluted
 
$
0.59

 
$
(0.04
)
 
$
1.58

 
$
0.77

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.190

 
$
0.125

 
$
0.570

 
$
0.375

 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

2

 
 

FIRSTCASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
28,274

 
$
(1,412
)
 
$
76,158

 
$
23,435

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Currency translation adjustment
 
(4,981
)
 
(12,248
)
 
31,361

 
(28,951
)
Change in fair value of investment in common stock of Enova (1)
 

 
(1,753
)
 

 
(1,753
)
Comprehensive income (loss)
 
$
23,293

 
$
(15,413
)
 
$
107,519

 
$
(7,269
)
 
 
 
 
 
 
 
 
 
(1) Net of tax benefit of $1,031 for the three and nine months ended September 30, 2016.
 
 
 
 
 
 
 
 
 
 The accompanying notes are an integral part
of these condensed consolidated financial statements.

FIRSTCASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-
holders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2016
 

 
$

 
49,276

 
$
493

 
$
1,217,969

 
$
387,401

 
$
(119,806
)
 
769

 
$
(36,071
)
 
$
1,449,986

Shares issued under share-based com-pensation plan
 

 

 

 

 
(440
)
 

 

 
(10
)
 
440

 

Exercise of stock options
 

 

 

 

 
(242
)
 

 

 
(13
)
 
549

 
307

Share-based compensa-tion expense
 

 

 

 

 
2,302

 

 

 

 

 
2,302

Net income
 

 

 

 

 

 
76,158

 

 

 

 
76,158

Dividends paid
 

 

 

 

 

 
(27,400
)
 

 

 

 
(27,400
)
Currency translation adjustment
 

 

 

 

 

 

 
31,361

 

 

 
31,361

Repurchases of treasury stock
 

 

 

 

 

 

 

 
1,182

 
(65,035
)
 
(65,035
)
Balance at 9/30/2017
 

 
$

 
49,276

 
$
493

 
$
1,219,589

 
$
436,159

 
$
(88,445
)
 
1,928

 
$
(100,117
)
 
$
1,467,679

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

3

 
 

FIRSTCASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CONTINUED
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-
holders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2015
 

 
$

 
40,288

 
$
403

 
$
202,393

 
$
643,604

 
$
(78,410
)
 
12,052

 
$
(336,608
)
 
$
431,382

Shares issued under share-based com-pensation plan
 

 

 
7

 

 
(3,903
)
 

 

 
(83
)
 
3,903

 

Shares issued upon merger with Cash America
 

 

 
20,181

 
202

 
1,015,305

 

 

 

 

 
1,015,507

Share-based compensa-tion expense
 

 

 

 

 
4,025

 

 

 

 

 
4,025

Net income
 

 

 

 

 

 
23,435

 

 

 

 
23,435

Dividends paid
 

 

 

 

 

 
(10,591
)
 

 

 

 
(10,591
)
Change in fair value of investment in common stock of Enova, net of tax
 

 

 

 

 

 

 
(1,753
)
 

 

 
(1,753
)
Currency translation adjustment
 

 

 

 

 

 

 
(28,951
)
 

 

 
(28,951
)
Retirement of treasury stock
 

 

 
(11,200
)
 
(112
)
 

 
(296,522
)
 

 
(11,200
)
 
296,634

 

Balance at 9/30/2016
 

 
$

 
49,276

 
$
493

 
$
1,217,820

 
$
359,926

 
$
(109,114
)
 
769

 
$
(36,071
)
 
$
1,433,054

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

4

 
 

FIRSTCASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
Nine Months Ended
 
 
September 30,
 
 
2017
 
2016
Cash flow from operating activities:
 
 
 
 
Net income
 
$
76,158

 
$
23,435

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Non-cash portion of credit loss provision
 
10,012

 
2,368

Share-based compensation expense
 
2,302

 
4,025

Net loss on sale of common stock of Enova
 

 
253

Depreciation and amortization expense
 
42,804

 
17,165

Amortization of debt issuance costs
 
1,322

 
1,083

Amortization of favorable/(unfavorable) lease intangibles, net
 
(744
)
 
(58
)
Loss on extinguishment of debt
 
14,114

 

Deferred income taxes, net
 
11,137

 
8,665

Changes in operating assets and liabilities, net of business combinations:
 
 
 
 
Fees and service charges receivable
 
(3,017
)
 
(2,630
)
Inventories
 
5,206

 
(4,924
)
Prepaid expenses and other assets
 
7,819

 
1,774

Accounts payable, accrued liabilities and other liabilities
 
(21,036
)
 
2,990

Income taxes
 
2,769

 
(13,672
)
Net cash flow provided by operating activities
 
148,846

 
40,474

Cash flow from investing activities:
 
 
 
 
Loan receivables, net of cash repayments
 
5,261

 
(31,486
)
Purchases of property and equipment
 
(26,595
)
 
(23,426
)
Portion of aggregate merger consideration paid in cash, net of cash acquired
 

 
(8,251
)
Acquisitions of pawn stores, net of cash acquired
 
(1,141
)
 
(28,756
)
Proceeds from sale of common stock of Enova
 

 
2,962

Net cash flow used in investing activities
 
(22,475
)
 
(88,957
)
Cash flow from financing activities:
 
 
 
 
Borrowings from revolving credit facilities
 
181,000

 
396,000

Repayments of revolving credit facilities
 
(301,000
)
 
(94,000
)
Repayments of debt assumed from acquisitions
 

 
(238,532
)
Issuance of senior unsecured notes
 
300,000

 

Repurchase/redemption of senior unsecured notes
 
(200,000
)
 

Repurchase/redemption premiums paid on senior unsecured notes
 
(10,895
)
 

Debt issuance costs paid
 
(5,342
)
 
(2,340
)
Purchases of treasury stock
 
(65,035
)
 

Proceeds from exercise of share-based compensation awards
 
307

 

Dividends paid
 
(27,400
)
 
(10,591
)
Net cash flow provided by (used in) financing activities
 
(128,365
)
 
50,537

Effect of exchange rates on cash
 
5,450

 
(5,652
)
Change in cash and cash equivalents
 
3,456

 
(3,598
)
Cash and cash equivalents at beginning of the period
 
89,955

 
86,954

Cash and cash equivalents at end of the period
 
$
93,411

 
$
83,356

 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

5

 
 

FIRSTCASH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands except per share amounts, unless otherwise indicated)

Note 1 - Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet at December 31, 2016, which is derived from audited financial statements, and the unaudited condensed consolidated financial statements, including the notes thereto, include the accounts of FirstCash, Inc. and its wholly-owned subsidiaries (together, the “Company”). The Company regularly makes acquisitions and the results of operations for the acquired stores have been consolidated since the acquisition dates. All significant intercompany accounts and transactions have been eliminated.

These unaudited consolidated financial statements are condensed and do not include all disclosures and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. These interim period financial statements should be read in conjunction with the Company’s consolidated financial statements, which are included in the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2017. The condensed consolidated financial statements as of September 30, 2017 and 2016, and for the three month and nine month periods ended September 30, 2017 and 2016, are unaudited, but in management’s opinion include all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flow for such interim periods. Operating results for the periods ended September 30, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year.

On September 1, 2016, the Company completed its merger with Cash America International, Inc. (“Cash America”), whereby Cash America merged with and into a wholly owned subsidiary of the Company (the “Merger”). The accompanying unaudited condensed consolidated results of operations for the three month and nine month periods ended September 30, 2017 include the results of operations for Cash America, while the comparable prior-year periods include the results of operations for Cash America for the period September 2, 2016 to September 30, 2016, affecting comparability of 2017 and 2016 amounts. The Company has performed a valuation analysis of identifiable assets acquired and liabilities assumed and allocated the aggregate Merger consideration based on the fair values of those identifiable assets and liabilities.

The Company has significant operations in Latin America, where in Mexico and Guatemala the functional currency is the Mexican peso and Guatemalan quetzal, respectively. Accordingly, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenues and expenses are translated at the average exchange rates occurring during the three month and nine month periods ended September 30, 2017 and 2016. The Company also has operations in El Salvador where the reporting and functional currency is the U.S. dollar.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the Financial Accounting Standards Board issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606),” which delayed the effective date of ASU 2014-09 by one year. In addition, between March 2016 and December 2016, the Financial Accounting Standards Board issued ASU No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting revenue gross versus net)” (“ASU 2016-08”), ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), and ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”). ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 clarify certain aspects of ASU 2014-09 and provide additional implementation guidance. ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 (collectively, “ASC 606”) become effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017 for public companies. Early adoption is permitted but not before annual reporting periods beginning after December 15, 2016. Entities are permitted to adopt ASC 606 using one of two methods: (a) full retrospective

6

 
 

adoption, meaning the standard is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance.

The Company plans to adopt ASC 606 using the modified retrospective method. The Company does not believe the adoption of ASC 606 will impact the Company’s revenue recognition for pawn loan fees or consumer loan fees, as it believes neither is within the scope of ASC 606. Further, the Company has not identified any impacts to its consolidated financial statements that it believes will be material as a result of the adoption of ASC 606 for other revenue streams (retail merchandise sales, credit services fees and wholesale scrap jewelry sales), although it continues to evaluate the impact of adoption.

In July 2015, the Financial Accounting Standards Board issued ASU No. 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires inventory be measured at the lower of cost or net realizable value. ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory measured using last-in, first-out (“LIFO”) or the retail inventory method are excluded from the scope of this update. ASU 2015-11 requires prospective application and is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2015-11 as of January 1, 2017, and the guidance was applied prospectively. There were no changes to the Company’s financial position, results of operations, financial statement disclosures or valuation of inventory.

In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires a lessee to recognize, in the statement of financial position, a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. Lessor accounting remains largely unchanged. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. An entity will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently assessing the potential impact of ASU 2016-02 on its consolidated financial statements.

In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact of ASU 2016-13 on its consolidated financial statements.

In August 2016, the Financial Accounting Standards Board issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing existing diversity in practice. ASU 2016-15 is effective for public entities for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company does not expect ASU 2016-15 to have a material effect on the Company’s consolidated financial statements or current financial statement disclosures.

In January 2017, the Financial Accounting Standards Board issued ASU No. 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides amendments to clarify the definition of a business and affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied prospectively as of the beginning of the period of adoption. Early adoption is permitted under certain circumstances. The Company does not expect ASU 2017-01 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In January 2017, the Financial Accounting Standards Board issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). These amendments eliminate step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1,

7

 
 

2017 and should be adopted on a prospective basis. The Company does not expect ASU 2017-04 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

Note 2 - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
28,274

 
$
(1,412
)
 
$
76,158

 
$
23,435

 
 
 
 
 
 
 
 
 
Denominator (in thousands):
 
 
 
 
 
 
 
 
Weighted-average common shares for calculating basic earnings per share
 
47,628

 
34,631

 
48,090

 
30,372

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and nonvested stock awards
 
40

 

 
27

 

Weighted-average common shares for calculating diluted earnings per share
 
47,668

 
34,631

 
48,117

 
30,372

 
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.59

 
$
(0.04
)
 
$
1.58

 
$
0.77

Diluted
 
$
0.59

 
$
(0.04
)
 
$
1.58

 
$
0.77


Note 3 - Long-Term Debt

The following table details the Company’s long-term debt at the respective principal amounts, net of unamortized debt issuance costs:

 
September 30,
 
December 31,
 
2017
 
2016
 
2016
Senior unsecured notes:
 
 
 
 
 
5.375% senior notes due 2024 (1)
$
294,961

 
$

 
$

6.75% senior notes due 2021 (2)

 
196,373

 
196,545

 
$
294,961

 
$
196,373

 
$
196,545

 
 
 
 
 
 
Revolving unsecured credit facility, maturing 2022
$
140,000

 
$
360,000

 
$
260,000


(1)
As of September 30, 2017, deferred debt issuance costs of $5,039 are included as a direct deduction from the carrying amount of the senior unsecured notes due 2024 in the accompanying condensed consolidated balance sheets.

(2) 
As of September 30, 2016 and December 31, 2016, deferred debt issuance costs of $3,627 and $3,455, respectively, are included as a direct deduction from the carrying amount of the senior unsecured notes due 2021 in the accompanying condensed consolidated balance sheets.

8

 
 

Senior Unsecured Notes

On May 30, 2017, the Company completed an offering of $300,000 of 5.375% senior notes due on June 1, 2024 (the “Notes”). Interest on the Notes will be payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2017. The Notes were sold to the placement agents as initial purchasers for resale only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in accordance with Regulation S under the Securities Act. The Company used the proceeds from the offering to repurchase, or otherwise redeem, its outstanding $200,000, 6.75% senior notes due 2021 (the “2021 Notes”), to repay borrowings under the Company’s credit facility and to pay related fees and expenses associated with the Notes offering and the repurchase and redemption of the 2021 Notes. The Company capitalized approximately $5,200 in issuance costs, which consisted primarily of placement agent fees and legal and other professional expenses. The issuance costs are being amortized over the life of the Notes as a component of interest expense and are carried as a direct deduction from the carrying amount of the Notes in the accompanying condensed consolidated balance sheets.

The Notes are fully and unconditionally guaranteed on a senior unsecured basis jointly and severally by all of the Company's existing and future domestic subsidiaries that guarantee its primary revolving bank credit facility. The Notes will permit the Company to make share repurchases of up to $100,000 with the net proceeds of the Notes and other available funds and to make restricted payments, such as purchasing shares of its stock and paying cash dividends, in an unlimited amount if, after giving pro forma effect to the incurrence of any indebtedness to make such payment, the Company's consolidated total debt ratio (“Net Debt Ratio”) is less than 2.25 to 1.00. The Net Debt Ratio is defined generally in the indenture governing the Notes (the “Indenture”) as the ratio of (1) the total consolidated debt of the Company minus cash and cash equivalents of the Company to (2) the Company’s consolidated trailing twelve months EBITDA, as adjusted to exclude certain non-recurring expenses and giving pro forma effect to operations acquired during the measurement period.

The Company may redeem the Notes at any time on or after June 1, 2020, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any. In addition, prior to June 1, 2020, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make-whole” premium set forth in the Indenture. The Company may redeem up to 35% of the Notes prior to June 1, 2020, with the proceeds of certain equity offerings at a redemption price of 105.375% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any. In addition, upon a change of control, noteholders have the right to require the Company to purchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any.

For the nine months ended September 30, 2017, the Company recognized a $14,114 loss on extinguishment of debt related to the repurchase or redemption of the 2021 Notes which includes the tender or redemption premiums paid over the outstanding $200,000 principal amount of the 2021 Notes and other reacquisition costs of $10,895 and the write off of unamortized debt issuance costs of $3,219.
Revolving Credit Facilities

At September 30, 2017, the Company maintained a line of credit with a group of U.S. based commercial lenders (the “2016 Credit Facility”) in the amount of $400,000. In May 2017, the term of the 2016 Credit Facility was extended through September 2, 2022. The calculation of the fixed charge coverage ratio was also amended to remove share repurchases from the calculation to provide greater flexibility for making future share repurchases and paying cash dividends.

At September 30, 2017, the Company had $140,000 in outstanding borrowings and a $4,456 outstanding letter of credit under the 2016 Credit Facility, leaving $255,544 available for future borrowings. The 2016 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1 week or 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The agreement has a LIBOR floor of 0%. Additionally, the Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the 2016 Credit Facility commitment. The weighted-average interest rate on amounts outstanding under the 2016 Credit Facility at September 30, 2017 was 3.75% based on 1 week LIBOR. Under the terms of the 2016 Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The 2016 Credit Facility also contains customary restrictions on the Company’s ability to incur additional debt, grant liens, make investments, consummate acquisitions and similar negative covenants with customary carve-outs and baskets. The Company was in compliance with the requirements and covenants of the 2016 Credit Facility as of September 30, 2017. During the nine months ended September 30, 2017, the Company made net payments of $120,000 pursuant to the 2016 Credit Facility.


9

 
 

At September 30, 2017, the Company maintained a U.S. dollar denominated line of credit with a bank in Mexico (the “Mexico Credit Facility”) in the amount of $10,000. The Mexico Credit Facility bears interest at 30-day LIBOR plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of September 30, 2017. The Company is required to pay a one-time commitment fee of $25 due when the first amount is drawn/borrowed. At September 30, 2017, the Company had no amount outstanding under the Mexico Credit Facility and $10,000 was available for borrowings.

Note 4 - Fair Value of Financial Instruments

The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three fair value levels are (from highest to lowest):

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

Recurring Fair Value Measurements

As of September 30, 2017, the Company did not have any financial assets or liabilities that are measured at fair value on a recurring basis. The Company’s financial assets that were measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2016 were as follows:

 
 
September 30,
 
Fair Value Measurements Using
Financial assets:
 
2016
 
Level 1
 
Level 2
 
Level 3
Cash America nonqualified savings plan-related assets
 
$
12,229

 
$
12,229

 
$

 
$

Investment in common stock of Enova
 
54,786

 
54,786

 

 

 
 
$
67,015

 
$
67,015

 
$

 
$


 
 
December 31,
 
Fair Value Measurements Using
 
 
2016
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
Cash America nonqualified savings plan-related assets
 
$
12,663

 
$
12,663

 
$

 
$

 
 
$
12,663

 
$
12,663

 
$

 
$


Prior to the Merger, Cash America had a nonqualified savings plan that was available to certain members of its management. Upon completion of the Merger, the nonqualified savings plan was terminated and during the three months ended March 31, 2017, the Company dissolved the plan and distributed the remaining assets to the participants. As of September 30, 2016 and December 31, 2016, the assets of the nonqualified savings plan included marketable equity securities, which were classified as Level 1 and the fair values were based on quoted market prices. The nonqualified savings plan assets were included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet with an offsetting liability of equal amount, which is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet.

The Company’s investment in common stock of Enova represented the Company’s available-for-sale shares of Enova International, Inc. (“Enova”) common stock. As of September 30, 2016, the equity securities representing Enova common stock were classified as Level 1 and based on the market determined stock price of Enova. During 2016, the Company sold all of the Enova shares in open market transactions.



10

 
 

Fair Value Measurements on a Nonrecurring Basis

The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a nonrecurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired.

Financial Assets and Liabilities Not Measured at Fair Value

The Company’s financial assets and liabilities as of September 30, 2017, 2016 and December 31, 2016 that are not measured at fair value in the condensed consolidated balance sheets are as follows:

 
 
Carrying Value
 
Estimated Fair Value
 
 
September 30,
 
September 30,
 
Fair Value Measurements Using
 
 
2017
 
2017
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
93,411

 
$
93,411

 
$
93,411

 
$

 
$

Pawn loans
 
371,367

 
371,367

 

 

 
371,367

Consumer loans, net
 
24,515

 
24,515

 

 

 
24,515

Fees and service charges receivable
 
45,134

 
45,134

 

 

 
45,134

 
 
$
534,427

 
$
534,427

 
$
93,411

 
$

 
$
441,016

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
$
140,000

 
$
140,000

 
$

 
$
140,000

 
$

Senior unsecured notes, outstanding principal
 
300,000

 
314,000

 

 
314,000

 

 
 
$
440,000

 
$
454,000

 
$

 
$
454,000

 
$


 
 
Carrying Value
 
Estimated Fair Value
 
 
September 30,
 
September 30,
 
Fair Value Measurements Using
 
 
2016
 
2016
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
83,356

 
$
83,356

 
$
83,356

 
$

 
$

Pawn loans
 
373,169

 
373,169

 

 

 
373,169

Consumer loans, net
 
27,792

 
27,792

 

 

 
27,792

Fees and service charges receivable
 
45,708

 
45,708

 

 

 
45,708

 
 
$
530,025

 
$
530,025

 
$
83,356

 
$

 
$
446,669

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
$
360,000

 
$
360,000

 
$

 
$
360,000

 
$

Senior unsecured notes, outstanding principal
 
200,000

 
210,000

 

 
210,000

 

 
 
$
560,000

 
$
570,000

 
$

 
$
570,000

 
$



11

 
 

 
 
Carrying Value
 
Estimated Fair Value
 
 
December 31,
 
December 31,
 
Fair Value Measurements Using
 
 
2016
 
2016
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
89,955

 
$
89,955

 
$
89,955

 
$

 
$

Pawn loans
 
350,506

 
350,506

 

 

 
350,506

Consumer loans, net
 
29,204

 
29,204

 

 

 
29,204

Fees and service charges receivable
 
41,013

 
41,013

 

 

 
41,013

 
 
$
510,678

 
$
510,678

 
$
89,955

 
$

 
$
420,723

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
$
260,000

 
$
260,000

 
$

 
$
260,000

 
$

Senior unsecured notes, outstanding principal
 
200,000

 
208,000

 

 
208,000

 

 
 
$
460,000

 
$
468,000

 
$

 
$
468,000

 
$


As cash and cash equivalents have maturities of less than three months, the carrying value of cash and cash equivalents approximates fair value. Due to their short-term maturities, the carrying value of pawn loans and fees and service charges receivable approximate fair value. Short-term loans and installment loans, collectively, represent consumer loans, net on the accompanying condensed consolidated balance sheets and are carried net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value approximates the fair value.

The carrying value of the Company’s prior credit facilities approximates fair value as of September 30, 2016. The carrying value of the Company’s current credit facilities (the 2016 Credit Facility and the Mexico Credit Facility) approximates fair value as of September 30, 2017 and December 31, 2016. The fair value of the senior unsecured notes have been estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the rate that would be used by market participants. Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.


12

 
 

Note 5 - Segment Information

The Company organizes its operations into two reportable segments as follows:

U.S. operations - Includes all pawn and consumer loan operations in the U.S.
Latin America operations - Includes all pawn and consumer loan operations in Latin America, which currently includes operations in Mexico, Guatemala and El Salvador

The following tables present reportable segment information for the three and nine month periods ended September 30, 2017 and 2016:

 
 
Three Months Ended September 30, 2017
 
 
U.S.
Operations
 
Latin America
Operations
 
Corporate
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
160,598

 
$
85,736

 
$

 
$
246,334

Pawn loan fees
 
95,266

 
37,279

 

 
132,545

Wholesale scrap jewelry sales
 
32,397

 
5,131

 

 
37,528

Consumer loan and credit services fees
 
18,525

 
480

 

 
19,005

Total revenue
 
306,786

 
128,626

 

 
435,412

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
107,561

 
53,789

 

 
161,350

Cost of wholesale scrap jewelry sold
 
31,518

 
5,313

 

 
36,831

Consumer loan and credit services loss provision
 
6,068

 
117

 

 
6,185

Total cost of revenue
 
145,147

 
59,219

 

 
204,366

 
 
 
 
 
 
 
 
 
Net revenue
 
161,639

 
69,407

 

 
231,046

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
104,555

 
34,411

 

 
138,966

Administrative expenses
 

 

 
29,999

 
29,999

Depreciation and amortization
 
5,919

 
2,704

 
5,249

 
13,872

Interest expense
 

 

 
6,129

 
6,129

Interest income
 

 

 
(418
)
 
(418
)
Merger and other acquisition expenses
 

 

 
911

 
911

Loss on extinguishment of debt
 

 

 
20

 
20

Total expenses and other income
 
110,474

 
37,115

 
41,890

 
189,479

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
$
51,165

 
$
32,292

 
$
(41,890
)
 
$
41,567



13

 
 

 
 
Three Months Ended September 30, 2016
 
 
U.S.
Operations
 
Latin America
Operations
 
Corporate
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
84,547

 
$
67,668

 
$

 
$
152,215

Pawn loan fees
 
48,840

 
30,665

 

 
79,505

Wholesale scrap jewelry sales
 
15,046

 
3,910

 

 
18,956

Consumer loan and credit services fees
 
9,991

 
486

 

 
10,477

Total revenue
 
158,424

 
102,729

 

 
261,153

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
51,922

 
41,477

 

 
93,399

Cost of wholesale scrap jewelry sold
 
13,955

 
3,022

 

 
16,977

Consumer loan and credit services loss provision
 
3,275

 
138

 

 
3,413

Total cost of revenue
 
69,152

 
44,637

 

 
113,789

 
 
 
 
 
 
 
 
 
Net revenue
 
89,272

 
58,092

 

 
147,364

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
52,480

 
28,094

 

 
80,574

Administrative expenses
 

 

 
24,500

 
24,500

Depreciation and amortization
 
2,906

 
2,602

 
1,773

 
7,281

Interest expense
 

 

 
5,073

 
5,073

Interest income
 

 

 
(138
)
 
(138
)
Merger and other acquisition expenses
 

 

 
29,398

 
29,398

Net loss on sale of common stock of Enova
 

 

 
253

 
253

Total expenses and other income
 
55,386

 
30,696

 
60,859

 
146,941

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
$
33,886

 
$
27,396

 
$
(60,859
)
 
$
423



14

 
 

 
 
Nine Months Ended September 30, 2017
 
 
U.S.
Operations
 
Latin America
Operations
 
Corporate
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
519,116

 
$
231,034

 
$

 
$
750,150

Pawn loan fees
 
287,338

 
96,090

 

 
383,428

Wholesale scrap jewelry sales
 
91,430

 
15,855

 

 
107,285

Consumer loan and credit services fees
 
57,425

 
1,329

 

 
58,754

Total revenue
 
955,309

 
344,308

 

 
1,299,617

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
337,789

 
145,669

 

 
483,458

Cost of wholesale scrap jewelry sold
 
87,600

 
14,770

 

 
102,370

Consumer loan and credit services loss provision
 
15,115

 
304

 

 
15,419

Total cost of revenue
 
440,504

 
160,743

 

 
601,247

 
 
 
 
 
 
 
 
 
Net revenue
 
514,805

 
183,565