UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006, 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.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas 76011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 460-3947
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. Large accelerated
filer [ ] Accelerated filer [ X ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
As of November 8, 2006 there were 31,536,004 shares of Common Stock
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
-------------------- ------------
2006 2005 2005
------- ------- -------
(unaudited)
(in thousands, except per share data)
ASSETS
Cash and cash equivalents $ 20,789 $ 29,657 $ 42,741
Service fees receivable 5,203 4,227 4,176
Customer receivables, net of allowance
of $9,391, $246 and $242, respectively 71,692 35,750 33,802
Inventories 28,018 21,461 21,987
Prepaid expenses and other current assets 7,026 4,005 5,430
------- ------- -------
Total current assets 132,728 95,100 108,136
Property and equipment, net 29,119 22,396 23,565
Goodwill and other intangible assets 72,631 53,237 53,237
Other 1,208 938 1,016
------- ------- -------
Total assets $235,686 $171,671 $185,954
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable $ 2,250 $ - $ -
Accounts payable 2,091 945 908
Accrued liabilities 14,228 9,242 13,722
------- ------- -------
Total current liabilities 18,569 10,187 14,630
Revolving credit facility 31,000 - -
Notes payable, net of current portion 7,750 - -
Deferred income taxes payable 9,245 8,569 8,616
------- ------- -------
Total liabilities 66,564 18,756 23,246
Stockholders' equity:
Preferred stock; $.01 par value;
10,000,000 shares authorized - - -
Common stock; $.01 par value;
90,000,000 shares authorized 347 336 340
Additional paid-in capital 92,173 80,997 83,065
Retained earnings 124,875 95,102 102,823
Common stock held in treasury (48,273) (23,520) (23,520)
------- ------- -------
Total stockholders' equity 169,122 152,915 162,708
------- ------- -------
Total liabilities and
stockholders' equity $235,686 $171,671 $185,954
======= ======= =======
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2006 2005 2006 2005
------- ------- ------- -------
(unaudited, in thousands, except per share amounts)
Revenues:
Merchandise sales $ 36,988 $ 25,441 $ 95,850 $ 72,222
Finance and service charges 31,479 27,932 82,685 72,386
Other 1,005 934 3,012 3,026
------- ------- ------- -------
69,472 54,307 181,547 147,634
------- ------- ------- -------
Cost of revenues:
Cost of goods sold 20,781 15,635 55,314 43,605
Credit loss provision 6,789 4,257 11,328 8,856
Other 122 72 312 206
------- ------- ------- -------
27,692 19,964 66,954 52,667
------- ------- ------- -------
Net revenues 41,780 34,343 114,593 94,967
------- ------- ------- -------
Expenses and other income:
Store operating expenses 21,086 17,574 57,853 49,499
Administrative expenses 6,031 5,251 16,801 13,676
Depreciation and amortization 2,090 1,533 5,690 4,195
Interest expense 219 - 219 -
Interest income (141) (46) (691) (217)
------- ------- ------- -------
29,285 24,312 79,872 67,153
------- ------- ------- -------
Income before income taxes 12,495 10,031 34,721 27,814
Provision for income taxes 4,560 3,661 12,669 10,152
------- ------- ------- -------
Net income $ 7,935 $ 6,370 $ 22,052 $ 17,662
======= ======= ======= =======
Net income per share:
Basic $ 0.26 $ 0.20 $ 0.70 $ 0.56
======= ======= ======= =======
Diluted $ 0.25 $ 0.19 $ 0.67 $ 0.53
======= ======= ======= =======
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
--------------------
2006 2005
-------- --------
(unaudited, in thousands)
Cash flows from operating activities:
Net income $ 22,052 $ 17,662
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 5,690 4,195
Share-based compensation 560 -
Non-cash portion of credit loss provision 4,289 6,462
Stock option and warrant income tax benefit - 1,147
Changes in operating assets and liabilities:
Service fees receivable (1,027) 285
Inventories (1,326) (1,412)
Prepaid expenses and other assets (294) (573)
Accounts payable and accrued liabilities (832) 645
Current and deferred income taxes (1,293) (108)
-------- --------
Net cash flows from operating activities 27,819 28,303
-------- --------
Cash flows from investing activities:
Customer receivables, originations
net of collections (15,503) (5,723)
Purchases of property and equipment (10,928) (9,215)
Acquisition of Auto Master buy-here/pay-here
automotive division (23,652) -
-------- --------
Net cash flows from investing activities (50,083) (14,938)
-------- --------
Cash flows from financing activities:
Proceeds from debt 31,000 -
Payments of debt (14,490) -
Purchase of treasury stock (24,753) (11,404)
Proceeds from exercise of stock options and warrants 5,582 1,464
Stock option and warrant income tax benefit 2,973 -
-------- --------
Net cash flows from financing activities 312 (9,940)
-------- --------
Change in cash and cash equivalents (21,952) 3,425
Cash and cash equivalents at beginning
of the period 42,741 26,232
-------- --------
Cash and cash equivalents at end of the period $ 20,789 $ 29,657
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 148 $ -
======== ========
Income taxes $ 11,310 $ 9,513
======== ========
Supplemental disclosure of non-cash investing activity:
Non-cash transactions in connection with pawn
receivables settled through forfeitures of
collateral transferred to inventories $ 35,379 $ 29,876
======== ========
Supplemental disclosure of non-cash financing activity:
Notes payable issued in connection with the
acquisition of Auto Master $ 10,000 $ -
======== ========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
including the notes thereto, include the accounts of First Cash Financial
Services, Inc. (the "Company"), and its wholly-owned subsidiaries. In
addition, the accompanying consolidated financial statements include the
accounts of Cash & Go, Ltd., a Texas limited partnership that operates
financial services kiosks inside convenience stores, in which the Company
has a 50% ownership interest. All significant intercompany accounts and
transactions have been eliminated.
On August 25, 2006, the Company acquired Guaranteed Auto Finance, Inc.
and SHAC, Inc. (collectively doing business as "Auto Master"). Accordingly,
the Consolidated Balance Sheets include the accounts of Auto Master as of
September 30, 2006 and the Consolidated Statements of Income include the
results of Auto Master for the period August 26, 2006 through September 30,
2006. All significant intercompany accounts and transactions have been
eliminated.
Such unaudited consolidated financial statements are condensed and do
not include all disclosures and footnotes required by generally accepted
accounting principles in the United States of America for complete financial
statements. Such interim period financial statements should be read in
conjunction with the Company's consolidated financial statements, which are
included in the Company's December 31, 2005 Annual Report on Form 10-K. The
condensed consolidated financial statements as of September 30, 2006 and for
the three and nine-month periods ended September 30, 2006 and 2005, are
unaudited, but in management's opinion, include all adjustments (consisting
of only normal recurring adjustments) considered necessary to present fairly
the financial position, results of operations and cash flows for such
interim periods. Operating results for the periods ended September 30, 2006
are not necessarily indicative of the results that may be expected for the
full fiscal year.
Certain amounts in prior year comparative presentations have been
reclassified in order to conform to the 2006 presentation.
Note 2 - Stock Split
In January 2006, the Company's Board of Directors approved a two-for-
one stock split in the form of a stock dividend to shareholders of record on
February 6, 2006. The additional shares were distributed on February 20,
2006. Common stock and all share and per share amounts (except authorized
shares and par value) have been retroactively adjusted to reflect the split.
Note 3 - Revolving Credit Facility and Notes Payable
The Company maintains a long-term line of credit with two commercial
lenders (the "Credit Facility") which was amended during the third quarter
of 2006 to increase the amount available under the line of credit from
$25,000,000 to $50,000,000 and to extend the term of the facility until
April 2009. The Credit Facility bears interest at the prevailing LIBOR rate
(which was approximately 5.3% at September 30, 2006) plus a fixed interest
rate margin of 1.375%. Amounts available under the Credit Facility are
limited to 300% of the Company's earnings before income taxes, interest, and
depreciation for the trailing twelve months. At September 30, 2006, the
Company had $31,000,000 outstanding under the Credit Facility and the
Company had $19,000,000 available for 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
September 30, 2006, and November 8, 2006. The Company is required to pay an
annual commitment fee of 1/8 of 1% on the average daily unused portion of
the Credit Facility commitment. The Company's Credit Facility contains
provisions that 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.
The Company has notes payable to individuals arising from the Auto
Master acquisition which total $10,000,000 in aggregate and bear interest at
7%, with quarterly payments of principal and interest scheduled over the
next four years. Of the $10,000,000 in notes payable, $2,250,000 is
classified as a current liability and $7,750,000 is classified as long-term
debt. One of the notes payable, in the principal amount of $1,000,000, is
convertible after one year into 55,555 shares of the Company's common stock
at a conversion price of $18.00 per share.
Note 4 - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------
2006 2005 2006 2005
------ ------ ------ ------
Numerator:
Net income for calculating basic
and diluted earnings per share $ 7,935 $ 6,370 $22,052 $17,662
====== ====== ====== ======
Denominator:
Weighted-average common shares for
calculating basic earnings per share 30,938 31,142 31,514 31,542
Effect of dilutive securities:
Stock options and warrants 1,345 1,724 1,352 1,700
------ ------ ------ ------
Weighted-average common shares
for calculating diluted earnings
per share 32,283 32,866 32,866 33,242
====== ====== ====== ======
Basic earnings per share $ 0.26 $ 0.20 $ 0.70 $ 0.56
====== ====== ====== ======
Diluted earnings per share $ 0.25 $ 0.19 $ 0.67 $ 0.53
====== ====== ====== ======
Note 5 - Share-Based Compensation Expense
Under the Company's equity compensation plans, including the board-
approved 1990 Stock Option Plan, the shareholder-approved 1999 Stock
Option Plan and the shareholder-approved 2004 Long-Term Incentive Plan
(collectively described as the "Plans"), it has granted qualified and non-
qualified stock options to officers, directors and other key employees. At
September 30, 2006, 129,000 shares of unissued common stock of the Company
were available for granting under the Plans. In addition, the Company has
issued warrants to purchase shares of common stock to certain key members of
management, directors and other third parties.
Prior to January 1, 2006, the Company applied the recognition and
measurement principles of APB 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for awards of stock options and
warrants, whereby at the date of grant, no compensation expense was
reflected in income, as all stock options and warrants granted had an
exercise price equal to or greater than the market value of the underlying
common stock on the date of grant. Pro forma information regarding net
income and earnings per share was provided in accordance with Statement of
Financial Accounting Standards ("SFAS") 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, as if the fair value method
defined by SFAS 123, Accounting for Stock-Based Compensation had been
applied to stock-based compensation. For purposes of the pro forma
disclosures, the estimated fair value of stock options was amortized to
expense over the options' vesting period.
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-
Based Payments, which replaces SFAS 123 and supersedes APB 25. SFAS 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their
fair values. The Company adopted SFAS 123(R) using the modified-prospective
transition method, which requires the Company, beginning January 1, 2006 and
thereafter, to expense the grant-date fair value of all share-based awards
over their remaining vesting periods to the extent the awards were not fully
vested as of the date of adoption and to expense the fair value of all
share-based awards granted subsequent to December 31, 2005 over their
requisite service periods. Stock-based compensation expense for all share-
based payment awards granted after January 1, 2006 is based on the grant-
date fair value estimated in accordance with the provisions of SFAS 123(R).
The Company recognizes compensation cost net of a forfeiture rate and
recognizes the compensation cost for only those awards expected to vest on a
straight-line basis over the requisite service period of the award, which is
generally the vesting term. The Company estimated the forfeiture rate based
on its historical experience and its expectations of future forfeitures. As
required under the modified-prospective transition method, prior periods
have not been restated. In March 2005, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") 107 regarding
the SEC's interpretation of SFAS 123(R) and the valuation of share-based
payments for public companies. The Company has applied the provisions of
SAB 107 in its adoption of SFAS 123(R). The Company records share-based
compensation cost as an administrative expense.
Historically, stock options and warrants have been granted to purchase
the Company's common stock at an exercise price equal to or greater than the
fair market value at the date of grant and generally have a maximum duration
of ten years. Stock options and warrants granted prior to January 1, 2005
were either fully vested and exercisable on the grant date, or vested and
become exercisable ratably over a five year period beginning five years from
the date of grant. In addition, certain of the options with vesting
provisions granted prior to January 1, 2005 included accelerated vesting
provisions tied to increases in the market value of Company stock. All
stock options granted during fiscal 2005 were fully vested on the date of
grant, of which 594,000 options were granted with an exercise price equal to
the market price of the stock on the date of grant and 5,264,000 options
were granted with an exercise price that exceeded the market price on the
date of grant ("premium-priced options"). The options granted in fiscal
2005 at market price had a weighted-average exercise price of $12.50 and a
weighted-average fair value of $3.46. The premium-priced options granted in
fiscal 2005 had a weighted-average exercise price of $19.89 and a weighted-
average fair value price of $3.75.
As a result of adopting SFAS 123(R) on January 1, 2006, the Company's
income before income taxes and net income for the three months ended
September 30, 2006 were approximately $40,000 and $25,000, respectively,
less than if it had continued to account for share-based compensation
under the recognition and measurement provisions of APB 25, and related
interpretations, as permitted by SFAS 123. Basic and diluted net income per
share for the three months ended September 30, 2006 would not have been
affected if the Company had not adopted SFAS 123(R). The Company's income
before income taxes and net income for the nine months ended September 30,
2006 were approximately $560,000 and $365,000, respectively, less than if it
had continued to account for share-based compensation under the recognition
and measurement provisions of APB 25. Basic and diluted net income per
share for the nine months ended September 30, 2006 would have each increased
by $0.01, to $0.71 and $0.68, respectively, if the Company had not adopted
SFAS 123(R). SFAS 123(R) requires that cash flows from tax benefits
resulting from tax deductions in excess of the compensation cost recognized
for stock-based awards (excess tax benefits) be classified as financing cash
flows prospectively from January 1, 2006. Prior to the adoption of SFAS
123(R), such excess tax benefits were presented as operating cash flows.
Accordingly, $2,973,000 of excess tax benefits has been classified as a
financing cash inflow in the 2006 year-to-date Consolidated Statement of
Cash Flows. For the nine months ended September 30, 2005, such excess tax
benefits amounted to $1,147,000 and were classified as an operating activity
cash inflow.
During the third quarter of 2006, the Company issued 85,000 qualified
stock options at or above market price to certain employees. The Company
has recorded the estimated cost of the options, which it considers to be
an immaterial amount, in its share-based compensation expense, based on
preliminary assumptions of expected life, expected volatility, the risk-free
interest rate and expected forfeitures. A more precise calculation of the
weighted-average grant-date fair value and disclosure of the underlying
assumptions used in the fair value calculation will be provided in the
Company's Annual Report on Form 10-K.
Of the total share-based compensation expense (before tax benefit)
of $560,000 for the nine months ended September 30, 2006, approximately
$490,000 related to accelerated vesting of previously issued options as a
result of an increase in the market value of the Company's common stock
during the first quarter of 2006. As of September 30, 2006, there were
no outstanding, unvested options with accelerated vesting features. The
Company anticipates that it will record approximately an additional $75,000
of share-based compensation expense in the remaining quarter of fiscal 2006.
Total share-based compensation expense, before tax benefit, for fiscal 2006
is anticipated to be approximately $635,000.
A summary of stock option and warrant activity during the nine months
ended September 30, 2006 is presented below:
Weighted-
Weighted- Average Aggregate
Underlying Average Remaining Intrinsic
Shares Exercise Contractual Value
(thousands) Price Term (years) (thousands)
----------- -------- ------------ -----------
Outstanding at
December 31, 2005 6,631 $12.04 8.5 $ 26,099
Granted 85 20.00 9.9 50
Exercised (821) 6.83 7.4 8,434
Canceled or forfeited - - - -
-----
Outstanding at
September 30, 2006 5,895 12.89 7.9 45,410
=====
Vested and expected to vest
at September 30, 2006 5,895 12.89 7.9 45,410
=====
Exercisable at
September 30, 2006 5,633 12.51 7.9 42,228
=====
The aggregate intrinsic value in the above table reflects the total
pretax intrinsic value (the difference between the Company's closing stock
price on the last trading day of the period and the exercise price of the
options and warrants, multiplied by the number of in-the-money options and
warrants) that would have been received by the option and warrant holders
had all option and warrant holders exercised their options and warrants on
September 30, 2006. The intrinsic value of the stock options and warrants
exercised are based on the closing price of the Company's stock on the date
of exercise. The total intrinsic value of options and warrants exercised
for the nine months ended September 30, 2005 was $3,319,000. The Company
typically issues shares of common stock to satisfy option and warrant
exercises.
Prior to the adoption of SFAS 123(R), the Company accounted for share-
based compensation plans under the provisions of APB 25, Accounting for
Stock Issued to Employees, and related interpretations. If compensation
cost for stock-based compensation plans had been determined based on the
fair value method (estimated using the Black-Scholes option pricing model)
recognized over the vesting period in accordance with SFAS 123, pro forma
net income and earnings per share for the three and nine-month periods ended
September 30, 2005, would have been as follows:
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
------------------ ------------------
Net income, as reported $ 6,370 $17,662
Less: Pro forma stock-based employee
compensation determined under the
fair value requirements of SFAS 123,
net of income tax benefits 46 7,485
------ ------
Adjusted net income (loss) $ 6,324 $10,177
====== ======
Earnings (loss) per share:
Basic, as reported $ 0.20 $ 0.56
====== ======
Basic, adjusted $ 0.20 $ 0.32
====== ======
Diluted, as reported $ 0.19 $ 0.53
====== ======
Diluted, adjusted $ 0.19 $ 0.31
====== ======
No options were granted during the three month period ended September
30, 2005. The estimated per share weighted-average grant-date fair value of
stock options granted during the nine-month period ended September 30, 2005,
was $15.13, as determined using the Black-Scholes option pricing model based
on the following assumptions:
Dividend yield -
Volatility 45.0 %
Risk-free interest rate 3.5 %
Expected life 5.0 years
On November 10, 2005, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position No. SFAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards ("FSP 123(R)-3").
The alternative transition method includes simplified methods to establish
the beginning balance of the additional paid-in capital pool ("APIC pool")
related to the tax effects of employee stock-based compensation, and to
determine the subsequent impact on the APIC pool and Consolidated Statements
of Cash Flows of the tax effects of employee stock-based compensation awards
that are outstanding upon adoption of SFAS 123(R). The Company has until
January 1, 2007 to make a one-time election to adopt the transition method
described in FSP 123(R)-3. The Company is currently evaluating FSP 123(R)-
3; however, if the Company were to make the one-time election, it is not
expected to affect operating income or net income.
Note 6 - Guarantees
First Cash Credit, Ltd. ("FCC"), a wholly-owned subsidiary of the
Company, offers a fee-based credit services program ("CSO program") to
assist consumers in its Texas markets in obtaining credit. Under the CSO
program, FCC assists customers in applying for a short-term loan from an
independent, non-bank, consumer lending company (the "Independent Lender")
and issues the Independent Lender a letter of credit to guarantee the
repayment of the loan. The loans made by the Independent Lender to credit
services customers of FCC range in amount from $100 to $1,000, have terms of
7 to 31 days and bear interest at a rate of less than 10% on an annualized
basis.
These letters of credit constitute a guarantee for which the Company is
required to recognize, at the inception of the guarantee, a liability for
the fair value of the obligation undertaken by issuing the letters of
credit. The Independent Lender may present the letter of credit to FCC for
payment if the customer fails to repay the full amount of the loan and
accrued interest after the due date of the loan. Each letter of credit
expires within 60 days from the inception of the associated lending
transaction. FCC's maximum loss exposure under all of the outstanding
letters of credit issued on behalf of its customers to the Independent
Lender as of September 30, 2006 was $12,823,000 compared to $11,129,000 at
September 30, 2005. According to the letter of credit, if the borrower
defaults on the loan, the Company will pay the Independent Lender the
principal, accrued interest, insufficient funds fee, and late fees, all of
which the Company records as bad debt in the short-term advance and credit
services loss provision. FCC is entitled to seek recovery directly from its
customers for amounts it pays the Independent Lender in performing under the
letters of credit. The Company records the estimated fair value of the
liability under the letters of credit in accrued liabilities.
Note 7 - Acquisition
Pursuant to the Company's strategic initiative to grow and diversify
its product suite within the specialty consumer finance industry, the
Company acquired two affiliated companies, collectively doing business as
Auto Master, an automotive retailer and related finance company focused
exclusively on the "buy-here/pay-here" segment of the retail used vehicle
market. Auto Master, based in Northwest Arkansas, owns and operates eight
buy-here/pay-here automobile dealerships located in Arkansas, Missouri and
Oklahoma, which specialize in the sale of clean, moderately-priced used
vehicles. The definitive stock purchase agreement for the privately-held
Auto Master group of companies was signed and closed on August 25, 2006.
The purchase price, in the amount of $33.7 million, was funded through a
combination of $23.7 million in cash and notes payable to the sellers in the
amount of $10 million. In addition, the Company retired approximately $14
million of the outstanding interest-bearing debt of Auto Master subsequent
to closing the purchase transaction.
The acquisition has 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
date of acquisition. The excess purchase price over the estimated fair
market value of the net tangible assets acquired and identifiable intangible
assets has been recorded as goodwill. The total amount of goodwill and
identified intangible assets, currently estimated at approximately $19.4
million, is expected to be deductible for tax purposes. The actual fair
market value of the assets acquired is currently being evaluated. The
results of operations of the acquired company are included in the
consolidated financial statements from its date of acquisition.
The preliminary allocation of the purchase price is presented below (in
thousands):
Cash $ 7
Fair market value of net tangible assets 28,723
Goodwill and intangible assets 19,420
Less: assumed debt (14,490)
---------
$ 33,660
=========
Note 8 - Operating Segment Information
The Company manages its business on the basis of two reportable
segments: the pawn and short-term advance segment and the buy-here/pay-here
automotive segment. There are no intersegmental sales and each segment is
supervised separately. The following tables detail selected balance sheet
information regarding the operating segments as of September 30, 2006 and
September 30, 2005 (amounts shown in thousands):
Pawn and Buy-Here/
Short-term Pay-Here
Advance Automotive Consolidated
---------- ---------- ------------
September 30, 2006
------------------
Service fees receivable $ 5,128 $ 75 $ 5,203
Customer receivables,
net of allowance 41,158 30,534 71,692
Inventories 24,912 3,106 28,018
September 30, 2005
------------------
Service fees receivable $ 4,227 $ - $ 4,227
Customer receivables,
net of allowance 35,750 - 35,750
Inventories 21,461 - 21,461
The following tables detail revenues, cost of revenues, net revenues
and certain expenses by operating segment for the three months ended
September 30, 2006 and September 30, 2005 (amounts shown in thousands):
Pawn and Buy-Here/
Short-term Pay-Here
Advance Automotive Total
---------- ---------- ---------
Three Months Ended September 30, 2006
-------------------------------------
Revenues:
Merchandise sales $ 30,620 $ 6,368 $ 36,988
Finance and service charges 31,150 329 31,479
Other 979 26 1,005
-------- ------- --------
62,749 6,723 69,472
-------- ------- --------
Cost of revenues:
Cost of goods sold 17,822 2,959 20,781
Credit loss provision 5,237 1,552 6,789
Other 122 - 122
-------- ------- --------
23,181 4,511 27,692
-------- ------- --------
Net revenues 39,568 2,212 41,780
Expenses and other income:
Store operating expenses 20,277 809 21,086
Store depreciation and amortization 1,867 4 1,871
-------- ------- --------
22,144 813 22,957
-------- ------- --------
Net store contribution $ 17,424 $ 1,399 $ 18,823
======== ======= ========
Three Months Ended September 30, 2005
-------------------------------------
Revenues:
Merchandise sales $ 25,441 $ - $ 25,441
Finance and service charges 27,932 - 27,932
Other 934 - 934
-------- ------- --------
54,307 - 54,307
-------- ------- --------
Cost of revenues:
Cost of goods sold 15,635 - 15,635
Credit loss provision 4,257 - 4,257
Other 72 - 72
-------- ------- --------
19,964 - 19,964
-------- ------- --------
Net revenues 34,343 - 34,343
Expenses and other income:
Store operating expenses 17,574 - 17,574
Store depreciation and amortization 1,366 - 1,366
-------- ------- --------
18,940 - 18,940
-------- ------- --------
Net store contribution $ 15,403 $ - $ 15,403
======== ======= ========
The following tables detail revenues, cost of revenues, net revenues
and certain expenses by operating segment for the nine months ended
September 30, 2006 and September 30, 2005 (amounts shown in thousands):
Pawn and Buy-Here/
Short-term Pay-Here
Advance Automotive Total
---------- ---------- ---------
Nine Months Ended September 30, 2006
------------------------------------
Revenues:
Merchandise sales $ 89,482 $ 6,368 $ 95,850
Finance and service charges 82,356 329 82,685
Other 2,986 26 3,012
-------- ------- --------
174,824 6,723 181,547
-------- ------- --------
Cost of revenues:
Cost of goods sold 52,355 2,959 55,314
Credit loss provision 9,776 1,552 11,328
Other 312 - 312
-------- ------- --------
62,443 4,511 66,954
-------- ------- --------
Net revenues 112,381 2,212 114,593
Expenses and other income:
Store operating expenses 57,044 809 57,853
Store depreciation and amortization 5,126 4 5,130
-------- ------- --------
62,170 813 62,983
-------- ------- --------
Net store contribution $ 50,211 $ 1,399 $ 51,610
======== ======= ========
Nine Months Ended September 30, 2005
------------------------------------
Revenues:
Merchandise sales $ 72,222 $ - $ 72,222
Finance and service charges 72,386 - 72,386
Other 3,026 - 3,026
-------- ------- --------
147,634 - 147,634
-------- ------- --------
Cost of revenues:
Cost of goods sold 43,605 - 43,605
Credit loss provision 8,856 - 8,856
Other 206 - 206
-------- ------- --------
52,667 - 52,667
-------- ------- --------
Net revenues 94,967 - 94,967
Expenses and other income:
Store operating expenses 49,499 - 49,499
Store depreciation and amortization 3,757 - 3,757
-------- ------- --------
53,256 - 53,256
-------- ------- --------
Net store contribution $ 41,711 $ - $ 41,711
======== ======= ========
The following table reconciles net store contribution, as presented
above, to net income for each period presented:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------
2006 2005 2006 2005
------ ------ ------ ------
Total net store contribution
for reportable segments $18,823 $15,403 $51,610 $41,711
Administrative depreciation
and amortization (219) (167) (560) (438)
Administrative expenses (6,031) (5,251) (16,801) (13,676)
Interest expense (219) - (219) -
Interest income 141 46 691 217
Provision for income taxes (4,560) (3,661) (12,669) (10,152)
------ ------ ------ ------
Net income $ 7,935 $ 6,370 $22,052 $17,662
====== ====== ====== ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's pawn store revenues are derived primarily from service
fees on pawns and the sale of unredeemed goods (merchandise sales). 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 short-term advance store revenues are derived primarily
from fees on short-term advances and credit services transactions. The
Company recognizes service fee income on short-term advances on a constant-
yield basis over the life of the advance, which is generally thirty-one days
or less. The net defaults on short-term advances and changes in the short-
term advance valuation reserve are charged to the short-term advance loss
provision. The Company recognizes credit services fees, which are collected
from the customer at the inception of the loan, ratably over the life of the
loan made by the Independent Lender. The loans made by the Independent
Lender to credit services customers of FCC have terms of seven to thirty-one
days. The Company records a liability for collected, but unearned, credit
services fees received from its customers.
The Company's buy-here/pay-here automotive revenues are derived
primarily from the sale of used vehicles and the finance charges from
related vehicle financing contracts. Revenues from the sale of used
vehicles are recognized when the sales contract and related finance
agreement is signed and the customer has taken possession of the vehicle.
Interest income is recognized on all active finance receivable accounts on a
constant yield basis. Late payment fees are recognized when collected and
are included in revenue. The Company maintains an allowance for credit
losses, on an aggregate basis, at a level it considers sufficient to cover
estimated losses in the collection of its finance receivables. The credit
loss provision is based primarily upon historical credit loss experience,
with consideration given to recent credit loss trends, delinquency, economic
conditions and management's expectations of future credit losses. The
credit loss provision is periodically reviewed by management with any
changes reflected in current operations. Although it is at least reasonably
possible that events or circumstances could occur in the future that are not
presently foreseen which could cause actual credit losses to be materially
different from the recorded allowance for credit losses, the Company
believes that is has given appropriate consideration to all relevant factors
and has made reasonable assumptions in determining the credit loss
provision.
OPERATIONS AND LOCATIONS
As of September 30, 2006, the Company had 398 locations in thirteen
U.S. states and eight states in Mexico. Approximately 68 of the pawn stores
also offer short-term advances or credit services products in addition to
pawn loans and retail sales. In addition, the Company operates eight buy-
here/pay-here automotive dealerships. The following table details store
counts for the three and nine-month periods ended September 30, 2006:
Buy-Here/
Short-term Pay-Here
Pawn Advance Automotive Total
Stores Stores Dealerships Locations
------ ------ ----------- ---------
Three Months Ended September 30, 2006
-------------------------------------
Total locations, beginning of period 244 126 - 370
New locations opened 5 15 - 20
Locations acquired - - 8 8
Locations closed or consolidated - - - -
------ ------ ----------- ---------
Total locations, end of period 249 141 8 398
====== ====== =========== =========
Nine Months Ended September 30, 2006
------------------------------------
Total locations, beginning of period 226 102 - 328
New locations opened 24 39 - 63
Locations acquired - - 8 8
Locations closed or consolidated (1) - - (1)
------ ------ ----------- ---------
Total locations, end of period 249 141 8 398
====== ====== =========== =========
The Company's 50% owned joint venture, Cash & Go, Ltd., operates a
total of 40 kiosks located inside convenience stores in the state of Texas,
which are not included in the above table. No kiosks were opened or closed
during the three and nine-month periods ended September 30, 2006.
While the Company has had significant increases in revenues due to new
store openings and acquisitions in 2005 and 2006, the Company has also
incurred increases in operating expenses attributable to the additional
locations. Operating expenses consist of all items directly related to the
operation of the Company's stores and dealerships, including salaries and
related payroll costs, rent, utilities, equipment, advertising, property
taxes, licenses, supplies and security. Administrative expenses consist of
items relating to the operation of the corporate office, including the
compensation and benefit costs of corporate management, area supervisors and
other operations management personnel, collections operations and personnel,
accounting and administrative costs, information technology costs, liability
and casualty insurance, outside legal and accounting fees and stockholder-
related expenses.
Stores included in the same-store revenue calculations are those stores
that were opened prior to the beginning of the prior year comparative fiscal
period and are still open. Also included are stores that were relocated
during the year within a specified distance serving the same market, where
there is not a significant change in store size and where there is not a
significant overlap or gap in timing between the opening of the new store
and the closing of the existing store. During the third quarter of 2006,
the Company relocated one store that involved a significant change in the
size of its retail showroom, and accordingly, the expanded store has been
excluded from the same-store calculations. Non-retail sales of scrap
jewelry are included in same-store revenue calculations. The Auto Master
buy-here/pay-here automotive dealerships, acquired in August 2006, were not
included in the same-store revenue calculations.
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, related revenues and expenses, and
disclosure of gain and loss contingencies at the date of the financial
statements. Such estimates and assumptions are subject to a number of risks
and uncertainties, which may cause actual results to differ materially from
the Company's estimates. Both the significant accounting policies that
management believes are the most critical to aid in fully understanding and
evaluating the reported financial results and the effects of recent
accounting pronouncements have been reported in the Company's 2005 Annual
Report on Form 10-K.
Effective January 1, 2006, the Company adopted Financial Accounting
Standards Board Statement No. 123(R), Share-Based Payments ("SFAS 123(R)").
SFAS 123(R) establishes the accounting required for share-based
compensation, and requires companies to measure and recognize compensation
expense for all share-based payments at the grant date based on the fair
value of the award, as defined in SFAS 123(R), and include such costs as an
expense in their statements of operations over the requisite service
(vesting) period. The Company elected to adopt SFAS 123(R) using a
modified-prospective application, whereby the provisions of the statement
will apply going forward only from the date of adoption to new stock option
awards (issued subsequent to December 31, 2005) and for the portion of any
previously issued and outstanding stock option awards for which the
requisite service is rendered after the date of adoption. Thus, the Company
recognizes as expense the fair value of stock options issued prior to
January 1, 2006, but vesting after January 1, 2006, over the remaining
vesting period. In addition, compensation expense must be recognized for
any awards modified, repurchased, or canceled after the date of adoption.
Under the modified-prospective application, no restatement of previously
issued results is required. The Black-Scholes option pricing model is used
to measure fair value, which is the same method used in prior years for
disclosure purposes.
Effective July 1, 2005, First Cash Credit, Ltd. ("FCC"), a wholly-owned
subsidiary of the Company, began offering a fee-based credit services
program ("CSO program") to assist consumers in its Texas markets in
obtaining credit. Under the CSO program, FCC assists customers in applying
for a short-term loan from an independent, non-bank, consumer lending
company (the "Independent Lender") and issues the Independent Lender a
letter of credit to guarantee the repayment of the loan. The loans made by
the Independent Lender to credit services customers of FCC range in amount
from $100 to $1,000, have terms of 7 to 31 days and bear interest at a rate
of less than 10% on an annualized basis.
In accordance with the provisions of FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, the Company has determined
that the letters of credit issued by FCC to the Independent Lender as part
of the CSO program constitute a guarantee for which the Company is required
to recognize, at the inception of the guarantee, a liability for the fair
value of the obligation undertaken by issuing the letters of credit. Each
letter of credit is issued at the time that a FCC credit services customer
enters into a loan agreement with the Independent Lender. The Independent
Lender may present the letter of credit to FCC for payment if the customer
fails to repay the full amount of the loan and accrued interest after the
due date of the loan. Each letter of credit expires within 60 days from the
inception of the associated lending transaction. FCC is entitled to seek
recovery directly from its customers for amounts it pays the Independent
Lender in performing under the letters of credit. The Company records the
estimated fair value of the liabilities under the letters of credit in
accrued liabilities.
RESULTS OF OPERATIONS
Three months ended September 30, 2006, compared to the three months ended
September 30, 2005
The following table (amounts shown in thousands) details the components
of revenues for the three months ended September 30, 2006 (the "Third
Quarter of 2006"), as compared to the three months ended September 30, 2005
(the "Third Quarter of 2005"):
Three Months Ended September 30,
--------------------------------
2006 2005 Increase/Decrease
-------- -------- -----------------
Domestic revenues:
Pawn retail merchandise sales $ 13,864 $ 13,371 $ 493 4%
Pawn scrap jewelry sales 3,399 2,128 1,271 60%
Pawn service charges 7,523 6,551 972 15%
Short-term advance and credit
services fees 18,244 17,200 1,044 6%
Buy-here/pay-here retail
automobile sales 6,221 - 6,221 -
Buy-here/pay-here wholesale
automobile sales 147 - 147 -
Buy-here/pay-here finance charges 329 - 329 -
Other 1,005 934 71 8%
-------- -------- ------- ----
$ 50,732 $ 40,184 $ 10,548 26%
======== ======== ======= ====
Foreign revenues:
Pawn retail merchandise sales $ 8,223 $ 5,874 $ 2,349 40%
Pawn scrap jewelry sales 5,134 4,068 1,066 26%
Pawn service charges 5,383 4,181 1,202 29%
-------- -------- ------- ----
$ 18,740 $ 14,123 $ 4,617 33%
======== ======== ======= ====
Total revenues:
Pawn retail merchandise sales 22,087 $ 19,245 2,842 15%
Pawn scrap jewelry sales 8,533 6,196 2,337 38%
Pawn service charges 12,906 10,732 2,174 20%
Short-term advance and credit
services fees 18,244 17,200 1,044 6%
Buy-here/pay-here retail
automobile sales 6,221 - 6,221 -
Buy-here/pay-here wholesale
automobile sales 147 - 147 -
Buy-here/pay-here finance charges 329 - 329 -
Other 1,005 934 71 8%
-------- -------- ------- ----
$ 69,472 $ 54,307 $ 15,165 28%
======== ======== ======= ====
Year-over-year revenue increases for retail merchandise sales, pawn
service fees and short-term advance/credit service fees were due to a
combination of same-store revenue growth and the opening of new stores.
Same-store revenues (stores that were in operation during all of the Third
Quarter of both 2005 and 2006) increased 9% or $4,761,000 for the Third
Quarter of 2006 as compared to the same quarter last year. Revenues
generated by the 40 new pawn stores and the 48 new short-term advance stores
opened since July 1, 2005 increased by $3,787,000, compared to the same
quarter last year.
The increase in scrap jewelry sales during the Third Quarter of 2006,
as compared to the Third Quarter of 2005, was primarily due to higher
selling prices of gold in the Third Quarter of 2006, compared to the prior-
year quarter. Aggregate short-term advances and credit services fees
increased 6% over the same period, although revenues in the Company's ten
Illinois locations decreased due to new short-term advance regulations in
that state. Excluding the Illinois locations, revenues from short-term
advances and credit services offered from short-term advance locations
increased by 17% compared to the prior year quarter. The Company introduced
its credit services program in its Texas locations in July 2005. Credit
services fees, which are included in reported short-term advance and credit
services fees, totaled $12,102,000 for the Third Quarter of 2006, compared
to $7,361,000 for the Third Quarter of 2005.
The Company acquired Auto Master on August 25, 2006, and accordingly,
the buy-here/pay-here automotive revenues represent the results of the eight
Auto Master dealerships for the period August 26, 2006 through September 30,
2006. During this period, Auto Master sold 643 vehicles to retail customers
for an average selling price of $9,675 per vehicle.
The following table (amounts shown in thousands) details pawn
receivables, short-term advance receivables, active CSO loans outstanding
from an independent third-party lender and buy-here/pay-here automotive
receivables as of September 30, 2006, as compared to September 30, 2005:
Balance at September 30,
------------------------
2006 2005 Increase/Decrease
-------- -------- -----------------
Domestic customer receivables & CSO
loans outstanding:
Pawn receivables $ 21,398 $ 18,894 $ 2,504 13%
Short-term advance receivables,
net of allowance 6,459 6,598 (139) (2%)
CSO loans held by independent
third-party lender (1) 11,457 9,994 1,463 15%
Buy-here/pay-here receivables,
net of allowance 30,534 - 30,534 -
-------- -------- ------- ----
69,848 35,486 34,362 97%
======== ======== ======= ====
Foreign customer receivables:
Pawn receivables 13,301 10,258 3,043 30%
-------- -------- ------- -----
Total customer receivables and
CSO loans outstanding:
Pawn receivables 34,699 29,152 5,547 19%
Short-term advance receivables,
net of allowance 6,459 6,598 (139) (2%)
CSO loans held by independent
third-party lender (1) 11,457 9,994 1,463 15%
Buy-here/pay-here receivables,
net of allowance 30,534 - 30,534 -
-------- -------- ------- ----
$ 83,149 $ 45,744 $ 37,405 82%
======== ======== ======= ====
(1) CSO loans outstanding are comprised of the principal portion of active
CSO loans outstanding from an independent third-party lender, which are
not included on the Company's balance sheet.
Of the $5,547,000 total increase in pawn receivables, $3,881,000 was
attributable to growth at stores that were in operation as of September 30,
2006 and 2005, and $1,666,000 was attributable to the 32 new pawn stores
opened since September 30, 2005. The decrease in short-term advance
receivables was due primarily to the introduction of the credit services
program in the Company's Texas locations in July 2005. As a result, the
Company had no short-term advance receivables in its Texas locations,
including the Cash & Go, Ltd, joint venture kiosks, at September 30, 2006,
compared to $319,000 at September 30, 2005. Combined short-term advance and
third-party credit services loans outstanding totaled $17,916,000 at
September 30, 2006. Excluding the Company's ten locations in Illinois,
where loan balances have decreased due to new legislation, short-term
advance and third-party credit services loan balances outstanding in the
Company's short-term advance locations increased 20% year over year. The
Company's loss reserve on short-term advance receivables decreased from
$246,000 at September 30, 2005, to $239,000 at September 30, 2006. The
estimated fair value of the liabilities under the letters of credit, net of
anticipated recoveries from customers, was $438,000 at September 30, 2006,
compared to $425,000 at September 30, 2005, which is included as a component
of the Company's accrued liabilities. The Company's loss reserve on buy-
here/pay-here automotive receivables was $9,152,000 at September 30, 2006.
The gross profit margin on total pawn merchandise sales was 41.8%
during the Third Quarter of 2006, compared to 38.5% during the Third Quarter
of 2005, due primarily to increased margins on scrap jewelry sales. The
retail pawn merchandise margin, which excludes scrap jewelry sales, was
44.4% during the Third Quarter of 2006, compared to 45.0% in the Third
Quarter of 2005. Gross margin on sales of scrap jewelry increased from
18.6% in the Third Quarter of 2005 to 35.1% in the Third Quarter of 2006,
due primarily to increased selling prices of scrap gold. The gross profit
margin, before the credit loss provision, on buy-here/pay-here retail
automobile sales was 55.8% for the period August 26, 2006 through September
30, 2006.
The Company's short-term advance and credit services loss provision
increased from 24.7% of short-term advance and credit services fee revenues
during the Third Quarter of 2005 to 28.7% during the Third Quarter of 2006.
The increase in the provision was primarily related to an increased
proportion of new stores, which typically have greater early credit losses
and higher charge-offs associated with new customers and employees. During
the Third Quarter of 2006, the Company sold certain bad debt portfolios
generated from short-term advances and credit services agreements for an
aggregate price of $439,000, compared to $941,000 in the prior year quarter.
The sales were recorded as a credit to the short-term advance and credit
services loss provision. Excluding non-recurring sales of certain old bad
debt portfolios in the Third Quarter of 2005, the Third Quarter 2006 credit
provision as a percent of fees decreased, or improved, as compared to the
prior-year quarter. The buy-here/pay-here automotive credit loss provision
was $1,552,000 for the period August 26, 2006 through September 30, 2006,
which represented 25% of retail automobile sales.
Pawn and short-term advance store operating expenses increased 15% to
$20,277,000 during the Third Quarter of 2006, compared to $17,574,000 during
the Third Quarter of 2005, primarily as a result of the net addition of 83
pawn and check cashing/short-term advance stores since July 1, 2005,
which is a 27% increase in the store count. Buy-here/pay-here automotive
dealership operating expenses totaled $809,000 for the period August 26,
2006 through September 30, 2006. Administrative expenses increased 15% to
$6,031,000 during the Third Quarter of 2006 compared to $5,251,000 during
the Third Quarter of 2005, which is primarily attributable to increased
management and supervisory compensation expense and to additional
administrative expenses related to new store openings and the Auto Master
acquisition. The Company incurred interest expense on acquisition-related
debt in the Third Quarter of 2006 of $219,000. There was no debt
outstanding the Third Quarter of 2005. Interest income increased from
$46,000 in the Third Quarter of 2005 to $141,000 in the Third Quarter of
2006, due primarily to greater levels of invested cash and to higher
interest rates.
For both the Third Quarter of 2006 and 2005, the Company's effective
federal income tax rate of 36.5% differed from the federal statutory tax
rate of 35%, primarily as a result of state income taxes.
Nine months ended September 30, 2006, compared to the nine months ended
September 30, 2005
The following table (amounts shown in thousands) details the components
of revenues for the nine months ended September 30, 2006 (the "Nine-Month
2006 Period"), as compared to the nine months ended September 30, 2005 (the
"Nine-Month 2005 Period"):
Nine Months Ended September 30,
-------------------------------
2006 2005 Increase/Decrease
-------- -------- -----------------
Domestic revenues:
Pawn retail merchandise sales $ 43,242 $ 41,113 $ 2,129 5%
Pawn scrap jewelry sales 8,397 5,320 3,077 58%
Pawn service charges 20,650 18,599 2,051 11%
Short-term advance and credit
services fees 47,050 43,131 3,919 9%
Buy-here/pay-here retail
automobile sales 6,221 - 6,221 -
Buy-here/pay-here wholesale
automobile sales 147 - 147 -
Buy-here/pay-here finance charges 329 - 329 -
Other 3,012 3,026 (14) -
-------- -------- ------- ----
$ 129,048 $ 111,189 $ 17,859 16%
======== ======== ======= ====
Foreign revenues:
Pawn retail merchandise sales $ 22,616 $ 15,677 $ 6,939 44%
Pawn scrap jewelry sales 15,227 10,112 5,115 51%
Pawn service charges 14,656 10,656 4,000 38%
-------- -------- ------- ----
$ 52,499 $ 36,445 $ 16,054 44%
======== ======== ======= ====
Total revenues:
Pawn retail merchandise sales $ 65,858 $ 56,790 $ 9,068 16%
Pawn scrap jewelry sales 23,624 15,432 8,192 53%
Pawn service charges 35,306 29,255 6,051 21%
Short-term advance and credit
services fees 47,050 43,131 3,919 9%
Buy-here/pay-here retail
automobile sales 6,221 - 6,221 -
Buy-here/pay-here
automobile wholesale sales 147 - 147 -
Buy-here/pay-here finance charges 329 - 329 -
Other 3,012 3,026 (14) -
-------- -------- ------- ----
$ 181,547 $ 147,634 $ 33,913 23%
======== ======== ======= ====
Year-over-year revenue increases for retail merchandise sales, pawn
service fees and short-term advance/credit service fees were due to a
combination of same-store revenue growth and the opening of new stores.
Same-store revenues (stores that were in operation during all of the first
nine months of both 2005 and 2006) increased 10% or $15,072,000 for the
Nine-Month 2006 Period as compared to the same period last year. Revenues
generated by the 59 new pawn stores and the 54 new short-term advance
stores which have opened since January 1, 2005 increased by $12,721,000,
compared to the same period last year.
The increase in scrap jewelry sales during the Nine-Month 2006 Period,
as compared to the Nine-Month 2005 Period, was due to both higher selling
prices of gold and a 10% increase in the volume-weight of scrap jewelry sold
in the Nine-Month 2006 Period, compared to the prior-year period. Aggregate
short-term advance and credit services fees increased 9% over the same
period, although revenues in the Company's ten Illinois locations decreased
due to new short-term advance regulations in that state. Excluding the
Illinois locations, revenues from short-term advances and credit services
offered from short-term advance locations increased by 20% compared to the
prior year period. The Company introduced its credit services program in
its Texas locations in July 2005. Credit services fees, which are included
in reported short-term advance and credit services fees, totaled $30,968,000
for the Nine-Month 2006 Period, compared to $7,361,000 for the Nine-Month
2005 Period.
The Company acquired Auto Master on August 25, 2006, and accordingly,
the buy-here/pay-here automotive revenues represent the results of the eight
Auto Master dealerships for the period August 26, 2006 through September 30,
2006. During this period, Auto Master sold 643 vehicles to retail customers
for an average selling price of $9,675 per vehicle.
The gross profit margin on total pawn merchandise sales was 41.5%
during the Nine-Month 2006 Period, compared to 39.6% during the Nine-Month
2005 Period, primarily due to increased margin on scrap jewelry sales. The
retail pawn merchandise margin, which excludes scrap jewelry sales, was
44.4% during the Nine-Month 2006 Period, compared to 44.5% during the Nine-
Month 2005 Period. Gross margin on sales of scrap jewelry increased from
21.7% in the Nine-Month 2005 Period to 33.5% in the Nine-Month 2006 Period,
primarily due to increased selling prices of scrap gold. The gross profit
margin, before the credit loss provision, on buy-here/pay-here retail
automobile sales was 55.8% for the period August 26, 2006 through September
30, 2006.
The Company's short-term advance and credit services loss provision
increased from 20.5% of short-term advance and credit services fee revenues
during the Nine-Month 2005 Period to 20.8% during the Nine-Month 2006
Period. The increase in the provision was primarily related to an increased
proportion of new stores, which typically have greater early credit losses
and higher charge-offs associated with new customers and employees. During
the Nine-Month 2006 Period, the Company sold bad debt portfolios generated
from short-term advances and credit services agreements for an aggregate
price of $1,883,000, compared to $1,386,000 in the prior year period. The
sales were recorded as a credit to the short-term advance and credit
services loss provision. Excluding non-recurring sales of certain old bad
debt portfolios in the Nine-Month 2005 Period, the credit provision as a
percent of fees for the Nine-Month 2006 Period decreased, or improved, as
compared to the prior-year period. The buy-here/pay-here automotive credit
loss provision was $1,552,000 for the period August 26, 2006 through
September 30, 2006, which represented 25% of retail automobile sales.
Pawn and short-term advance store operating expenses increased 15% to
$57,044,000 during the Nine-Month 2006 Period, compared to $49,499,000
during the Nine-Month 2005 Period, primarily as a result of the net addition
of 106 pawn and check cashing/short-term advance stores since January
1, 2005, which is a 37% increase in the store count. Buy-here/pay-here
automotive dealership operating expenses totaled $809,000 for the period
August 26, 2006 through September 30, 2006. Administrative expenses
increased 23% to $16,801,000 during the Nine-Month 2006 Period compared
to $13,676,000 during the Nine-Month 2005 Period, which is primarily
attributable to increased management and supervisory compensation expense,
additional administrative expenses related to new store openings, the Auto
Master acquisition and a non-cash charge of approximately $560,000 for
share-based compensation expense as a result of the adoption of SFAS 123(R),
effective January 1, 2006. The Company incurred interest expense on
acquisition-related debt in the Third Quarter of 2006 of $219,000. There
was no debt outstanding during the Nine-Month 2005 Period. Interest income
increased from $217,000 in the Nine-Month 2005 Period to $691,000 in the
Nine-Month 2006 Period, due primarily to greater levels of invested cash and
to higher interest rates.
For both the Nine-Month 2006 Period and Nine-Month 2005 Period, the
Company's effective federal income tax rate of 36.5% differed from the
federal statutory tax rate of 35%, primarily as a result of state income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2006, the Company's primary sources of liquidity
were $20,789,000 in cash and cash equivalents, $76,895,000 in receivables,
$28,018,000 in inventories and $19,000,000 of available and unused funds
under the Company's Credit Facility. The Company had working capital of
$114,159,000 as of September 30, 2006, and total equity exceeded total
liabilities by a ratio of 3 to 1. The Company's operations and store
openings have been financed with funds generated primarily from operations.
The Company maintains a long-term line of credit with two commercial
lenders (the "Credit Facility") which was amended during the third quarter
of 2006 to increase the amount available under the line of credit from
$25,000,000 to $50,000,000 and to extend the term of the facility until
April 2009. The Credit Facility bears interest at the prevailing LIBOR rate
(which was approximately 5.3% at September 30, 2006) plus a fixed interest
rate margin of 1.375%. Amounts available under the Credit Facility are
limited to 300% of the Company's earnings before income taxes, interest, and
depreciation for the trailing twelve months. At September 30, 2006, the
Company had $31,000,000 outstanding under the Credit Facility and the
Company had $19,000,000 available for 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
September 30, 2006, and November 8, 2006. The Company is required to pay an
annual commitment fee of 1/8 of 1% on the average daily unused portion of
the Credit Facility commitment. The Company's Credit Facility contains
provisions that 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.
The Company has notes payable to individuals arising from the Auto
Master acquisition which total $10,000,000 in aggregate and bear interest at
7%, with quarterly payments of principal and interest scheduled over the
next four years. Of the $10,000,000 in notes payable, $2,250,000 is
classified as a current liability and $7,750,000 is classified as long-term
debt. One of the notes payable, in the principal amount of $1,000,000, is
convertible after one year into 55,555 shares of the Company's common stock
at a conversion price of $18.00 per share.
Net cash provided by operating activities of the Company during the
Nine-Month 2006 Period, was $27,819,000, consisting primarily of net income
of $22,052,000 plus non-cash adjustments for depreciation, share-based
compensation and the non-cash portion of the credit loss provision of
$5,690,000, $560,000, $4,289,000, respectively. Net changes in operating
assets and liabilities reduced cash used by operating activities in the
amount of $4,772,000. Net cash used by investing activities during the nine
months ended September 30, 2006, was $50,083,000, which was primarily
comprised of net cash outflows from customer receivables activity of
$15,503,000, cash paid for the Auto Master acquisition of $23,652,000 and
cash paid for fixed asset additions of $10,928,000. The opening of 63 new
pawn and payday advance stores during the Nine-Month 2006 Period contributed
significantly to the volume of fixed asset additions. Net cash provided by
financing activities was $312,000 during the Nine-Month 2006 Period, which
consisted of proceeds from debt of $31,000,000, the exercises of stock
options and warrants of $5,582,000, the tax benefit from the exercise of
employee stock options of $2,973,000, net of the payments of assumed Auto
Master debt of $14,490,000 and purchases of treasury stock in the amount of
$24,753,000.
During the second quarter of 2006, the Company completed its 3,200,000
share repurchase plan authorized in July 2004 at an average repurchase price
of $12.32 per share. The Board of Directors subsequently authorized an
additional 2,000,000 share repurchase. Year-to-date through September 30,
2006, the Company has utilized excess cash flows to repurchase approximately
$25,000,000 of common stock for a total of 1,300,000 shares under the two
authorizations.
For purposes of its internal liquidity assessments, the Company
considers net cash changes in customer receivables to be closely related to
operating cash flows. For the Nine-Month 2006 Period, net cash flows from
operations were $27,819,000, while net cash outflows related to customer
receivables activity was $15,503,000. The combined net cash flows from
operations and customer receivables totaled $12,316,000 for the Nine-Month
2006 Period. For the comparable prior year period, net cash flows from
operations were $28,303,000, and net cash outflows related to customer
receivables activity was $5,723,000. The combined net cash flows from
operations and customer receivables totaled $22,580,000 for the Nine-Month
2005 Period, which included a non-recurring operating cash flow benefit
of approximately $7,454,000 related to the replacement of the short-term
advance product with the credit services product in Texas during the Third
Quarter of 2005.
The profitability and liquidity of the Company is affected by the
amount of customer receivables outstanding and related collections of such
receivables. In general, revenue growth is dependent upon the Company's
ability to fund growth of customer receivable balances and inventories and
the ability to absorb related credit losses. At the current time, the
majority of this growth is funded from operating cash flows. 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 2006. 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 and dealership openings. With 63
stores opened year-to-date, the Company has already attained its target of
60 to 70 new store openings for the year. The Company intends to continue
its new store expansion program in 2007, with a total of 70 to 75 new pawn
and short-term/payday advance stores anticipated for opening. In addition,
the Company expects to open 3 to 5 new Auto Master buy-here/pay-here
automotive dealerships during the remainder of 2006 and 2007. All capital
expenditures, working capital requirements and start-up losses related to
this expansion are expected to be funded through operating cash flows.
While the Company continually looks for, and is presented with potential
acquisition opportunities, the Company currently has no definitive plans
or commitments for acquisitions. The Company will evaluate potential
acquisitions, if any, based upon growth potential, purchase price, strategic
fit and quality of management personnel, among other factors. If the
Company encounters an attractive acquisition opportunity in the near future,
the Company may seek additional financing, the terms of which will be
negotiated on a case-by-case basis.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") for the trailing twelve month period ended September 30, 2006
totaled $53,312,000, an increase of 25% compared to $42,641,000 for the
trailing twelve month period ended September 30, 2005. The EBITDA margin,
which is EBITDA as a percentage of revenues, for the trailing twelve month
period ended September 30, 2006 was 22%, which equaled the comparable prior
year period.
EBITDA is commonly used by investors to assess a company's leverage
capacity, liquidity and financial performance. EBITDA is not considered a
measure of financial performance under U.S. generally accepted accounting
principles ("GAAP"), and the items excluded from EBITDA are significant
components in understanding and assessing the Company's financial
performance. Since EBITDA is not a measure determined in accordance with
GAAP and is thus susceptible to varying calculations, EBITDA, as presented,
may not be comparable to other similarly titled measures of other companies.
EBITDA should not be considered as an alternative to net income, cash flows
provided by or used in operating, investing or financing activities or other
financial statement data presented in the Company's consolidated financial
statements as an indicator of financial performance or liquidity. Non-GAAP
measures should be evaluated in conjunction with, and are not a substitute
for, GAAP financial measures.
The following table provides a reconciliation of net income to EBITDA
(amounts in thousands):
Trailing Twelve Months Ended
September 30,
----------------------------
2006 2005
-------- --------
Net income $ 29,773 $ 23,754
Adjustments:
Interest expense 219 13
Interest income (791) (242)
Income taxes 16,812 13,730
Depreciation and amortization 7,299 5,386
-------- --------
Earnings before interest, income taxes,
depreciation and amortization $ 53,312 $ 42,641
======== ========
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT
FUTURE RESULTS
Forward-Looking Information
This quarterly report may contain forward-looking statements about the
business, financial condition and prospects of First Cash Financial
Services, Inc. ("First Cash" or 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," "intends," "could," or "anticipates," or the negative thereof,
or other variations thereon, or comparable terminology, or by discussions
of strategy. Forward-looking statements can also be identified by the
fact that 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. Forward-looking
statements in this quarterly report include, without limitation, the
Company's expansion strategies, expected store and dealership openings,
future liquidity, cash flows, debt levels, expected share-based compensation
expense and other performance results. These statements are made to provide
the public with management's current 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 quarterly report speak only as
of the date of this statement, 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.
Certain factors may cause results to differ materially from those
anticipated by some of the statements made in this quarterly report. Such
factors are difficult to predict and many are beyond the control of the
Company and may include changes in regional, national or international
economic conditions, changes in consumer borrowing and repayment behaviors,
credit losses, changes or increases in competition, the ability to locate,
open and staff new stores and dealerships, the availability or access to
sources of inventory, inclement weather, the ability to successfully
integrate acquisitions, the ability to retain key management personnel, the
ability to operate with limited regulation as a credit services organization
in Texas, new legislative initiatives or governmental regulations (or
changes to existing laws and regulations) affecting short-term advance
businesses, credit services organizations, pawn businesses and buy-here/pay-
here automotive retailers in both the U.S. and Mexico, unforeseen
litigation, changes in interest rates, changes in tax rates or policies,
changes in gold prices, changes in energy prices, changes in used vehicle
prices, cost of funds, changes in foreign currency exchange rates, future
business decisions, and other uncertainties. These and other risks and
uncertainties are indicated in the Company's 2005 Annual Report on Form 10-K
(see "Item 1A. Risk Factors").
Regulatory Developments
The Company is subject to extensive regulation of its pawnshop, short-
term advance lending, credit services and buy-here/pay-here automotive
retailing operations in most jurisdictions in which it operates. These
regulations are provided through numerous laws, ordinances and regulatory
pronouncements from various federal, state and local governmental entities
in the United States and Mexico. In many jurisdictions, the Company must
obtain and maintain regulatory operating licenses. In addition, many
statutes and regulations prescribe, among other things, the general terms
of the Company's loan agreements and the maximum service fees and/or
interest rates that may be charged. These regulatory agencies have broad
discretionary authority. The Company is also subject to U.S. federal and
state regulations 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 pawnshop and other general business, tax,
employment and consumer protection regulations from various federal, state
and local governmental agencies in Mexico.
Existing regulations and recent regulatory developments are described
in greater detail in the Company's Annual Report of Form 10-K for the year
ended December 31, 2005. Subsequent to the filing of the 2005 Form 10-K,
the State of Oregon enacted legislation that provides for significantly more
restrictive regulation of the short-term advance industry beginning in
July 2007. The implementation of these more restrictive regulations, as
currently enacted, is expected to have a significant negative effect on the
revenues and profitability of the Company's operations in Oregon, beginning
in July 2007, where the Company currently has seven short-term advance
locations. In October 2006, U.S. federal legislation was enacted which will
limit the availability of certain of the Company's credit products to active
duty military personnel no later than October 2007. While the Company does
not anticipate any significant effect on its operations due to the
restriction on lending to military personnel, such effect, if any, cannot be
determined at the current time. In Mexico, certain aspects of the Company's
lending and retail operations have historically been regulated by PROFECO, a
federal government consumer protection agency. Recent federal legislation
has expanded PROFECO's specific regulatory authority over the pawn industry,
although resulting regulatory changes, if any, have not been approved or
implemented at the current time. While the Company does not anticipate any
significant effect on its operations due to expanded PROFECO regulation,
such effect, if any, cannot be determined at the current time.
There can be no assurance that additional local, 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 that could inhibit the ability of the Company to offer pawn
loans, short-term advances, credit services and buy-here/pay-here automotive
retailing/financing, significantly decrease the service fees 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 results. If legislative or regulatory actions that had negative
effects on the pawn, short-term advance, credit services or buy-here/pay-
here automotive industries were taken at a federal level in the United
States or Mexico, or in U.S. or Mexican states or municipalities where the
Company has a significant number of stores, those actions could have a
materially adverse effect on the Company's lending, credit services and
retail activities and revenues. There can be no assurance that additional
federal, state or local legislation in the U.S. or Mexico will not be
enacted, or that existing laws and regulations will not be amended, which
would have a materially adverse impact on the Company's operations and
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates, gold prices and foreign currency exchange rates
and are described in detail in the Company's 2005 Annual Report on Form 10-
K. The Company does not engage in speculative or leveraged transactions,
nor does it hold or issue financial instruments for trading purposes.
There have been no material changes to the Company's exposure to market
risks since December 31, 2005.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-
15(e) under the Exchange Act) as of the end of our third fiscal
quarter of 2006. Based on such evaluation, such officers have
concluded that the Company's disclosure controls and procedures are
effective.
(b) Changes in Internal Control Over Financial Reporting
There has been no significant change in the Company's internal
control over financial reporting that was identified in connection
with our evaluation that occurred during the quarter ended September
30, 2006, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the litigation previously
reported in the Company's 2005 Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
As a result of the acquisition of the Auto Master buy-here/pay-here
automotive division in August 2006, certain risk factors, as provided
below, have been identified in addition to those previously reported
in the Company's 2005 Annual Report on Form 10-K. In addition, certain
regulatory risk factors identified in the Company's 2005 Annual Report on
Form 10-K are updated herein under the "Regulatory Developments" section of
Item 2.
The inability to successfully integrate acquisitions could adversely
affect results. The success of the Auto Master acquisition is subject to
numerous internal and external factors, such as the ability to transfer
various data processing functions and connecting links to our systems, the
management of additional sales, administrative, operations and management
personnel, overall management of a larger organization, competitive market
forces, and general economic factors.
The Company's success depends upon the continued contributions of the
Auto Master management team. The Company is dependent upon the continued
contributions of key Auto Master employees. The loss of the services of key
employees could have a material adverse effect on the Company's results of
operations. In addition, as Auto Master opens new dealerships, the Company
will need to hire additional personnel. The market for qualified employees
in the industry and in the regions Auto Master operates is highly
competitive and may subject the Company to increased labor costs during the
periods of low unemployment.
The Company's allowance for credit losses may not be sufficient to
cover actual credit losses which could adversely affect its financial
condition and operating results. From time to time, the Company has to
recognize losses resulting from the inability of certain borrowers to repay
loans and the insufficient realizable value of the collateral securing the
loans. The Company maintains an allowance for credit losses in an attempt to
cover credit losses inherent in its loan portfolio. Additional credit losses
will likely occur in the future and may occur at a rate greater than the
Company has experienced to date. The allowance for credit losses is based
primarily upon historical credit loss experience, with consideration
given to delinquency levels, collateral values, economic conditions and
underwriting and collection practices. This evaluation is inherently
subjective as it requires estimates of material factors that may be
susceptible to significant change. If the Company's assumptions and
judgments prove to be incorrect, its current allowance may not be sufficient
and adjustments may be necessary to allow for different economic conditions
or adverse developments in its loan portfolio.
The Company is dependent on the availability of used vehicle inventory
and access to such inventory. Auto Master acquires vehicles primarily
through auction wholesalers and new car dealers. There can be no assurance
that sufficient inventory will continue to be available to the Company or
will be available at comparable costs. Any reduction in the availability
of inventory or increases in the cost of vehicles would adversely affect
gross profit percentages as the Company focuses on keeping payments
affordable to its customer base. The Company could have to absorb cost
increases.
Inclement weather can adversely impact the Company's operating results.
The occurrence of weather events, such as rain, cold weather, snow, wind,
storms, hurricanes, or other natural disasters, adversely affecting consumer
traffic at Auto Master's buy-here/pay-here automotive dealerships, could
negatively impact the Company's operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In January 2006, the Company's Board of Directors approved a two-for-
one stock split in the form of a stock dividend to shareholders of record on
February 6, 2006. The additional shares were distributed on February 20,
2006 and stock began trading at the split-adjusted price on February 22,
2006. All share and per share amounts (except authorized shares and par
value) have been retroactively adjusted to reflect the split.
During the period from January 1, 2006, through September 30, 2006, the
Company issued 484,000 shares of common stock relating to the exercise of
outstanding stock options for an aggregate exercise price of $5,920,000
(including income tax benefit). During the period from January 1, 2006,
through September 30, 2006, the Company issued 337,000 shares of common
stock relating to the exercise of outstanding stock warrants for an
aggregate exercise price of $2,657,000 (including income tax benefit).
The transactions set forth in the above paragraphs were completed
pursuant to either Section 4(2) of the Securities Act or Rule 506 of
Regulation D of the Securities Act. With respect to issuances made pursuant
to Section 4(2) of the Securities Act, the transactions did not involve any
public offering and were sold to a limited group of persons. Each recipient
either received adequate information about the Company or had access,
through employment or other relationships, to such information, and the
Company determined that each recipient had such knowledge and experience in
financial and business matters that they were able to evaluate the merits
and risks of an investment in the Company. With respect to issuances made
pursuant to Rule 506 of Regulation D of the Securities Act, the Company
determined that each purchaser was an "accredited investor" as defined in
Rule 501(a) under the Securities Act. All sales of the Company's securities
were made by officers of the Company who received no commission or
other remuneration for the solicitation of any person in connection with
the respective sales of securities described above. The recipients of
securities represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
In July 2004, the Company's Board of Directors authorized an open-ended
stock repurchase plan, with no dollar limitation, to permit future
repurchases of up to 3,200,000 shares of the Company's outstanding
common stock. During the Second Quarter of 2006, First Cash repurchased
approximately 802,000 shares to close out the 2004-authorized program. The
weighted average repurchase price of the 3,200,000 shares repurchased under
this plan was $39,425,000 or $12.32 per share.
In June 2006, the Company's Board of Directors authorized a new program
for the repurchase of up to 2,000,000 additional shares of First Cash's
outstanding common stock. During the Second Quarter of 2006, the Company
repurchased a total of 461,000 common shares under the new stock repurchase
plan for an aggregate purchase price of $8,848,000 or $19.21 per share.
There were no shares repurchased during the Third Quarter of 2006. There
are 1,539,344 total remaining shares available for repurchase under the
2006-authorized plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibits:
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act provided by Rick L. Wessel, Chief Executive Officer
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act provided by R. Douglas Orr, Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
provided by Rick L. Wessel, Chief Executive Officer and R.
Douglas Orr, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 8, 2006 FIRST CASH FINANCIAL SERVICES, INC.
-----------------------------------
(Registrant)
/s/ RICK L. WESSEL
-----------------------
Rick L. Wessel
Chief Executive Officer
(Principal Executive Officer)
/s/ R. DOUGLAS ORR
-----------------------
R. Douglas Orr
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
provided by Rick L. Wessel, Chief Executive Officer
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
provided by R. Douglas Orr, Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided
by Rick L. Wessel, Chief Executive Officer and R. Douglas Orr,
Chief Financial Officer
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Rick L. Wessel, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of First Cash
Financial Services, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of the
Registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: November 8, 2006
/s/ Rick L. Wessel
-----------------------
Rick L. Wessel
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, R. Douglas Orr, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of First Cash
Financial Services, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13(a)-15(f) and 15d-15(f)) for the Registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of
the Registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: November 8, 2006
/s/ R. Douglas Orr
-----------------------
R. Douglas Orr
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Cash Financial Services,
Inc. (the "Company") on Form 10-Q for the quarterly period ended September
30, 2006, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), we, Rick L. Wessel and R. Douglas Orr each certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: November 8, 2006
/s/ Rick L. Wessel
-----------------------
Rick L. Wessel
Chief Executive Officer
/s/ R. Douglas Orr
-----------------------
R. Douglas Orr
Chief Financial Officer