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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
March 31, 2004 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas 76011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 460-3947
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act). Yes X No ___
As of May 4, 2004 there were 16,112,455 shares of Common Stock outstanding.
FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-Q/A
(Amendment No. 1)
For the Three Months Ended March 31, 2004
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A (this "Amendment") amends the
Quarterly Report on Form 10-Q for the Three Months Ended March 31, 2004
filed on May 5, 2004 (the "Original Filing"). First Cash Financial
Services, Inc. (the "Company") has filed this Amendment to correct the
classification of certain transactions presented in the Statements of Cash
Flows in the Original Filing. The net effect of the corrections of these
classifications in each period presented is to increase operating cash
flows, while decreasing investing and financing cash flows. These changes
were identified during the course of the Company preparing its response to a
comment letter from the U.S. Securities and Exchange Commission regarding
the Original Filing.
A description of these reclassifications and a summary showing their
effect on the restated Condensed Consolidated Statements of Cash Flows is
provided in Part I, Note 5 to the Consolidated Financial Statements. This
Amendment also includes corresponding textual changes in Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources and an addition to related
information in Part II, Item 4, Controls and Procedures. This Amendment has
no effect on the Condensed Consolidated Balance Sheets, Condensed
Consolidated Statements of Income, and Condensed Consolidated Statements of
Changes in Stockholders' Equity, and more specifically, does not affect net
income, earnings per share, total cash flows, current assets, total assets,
current liabilities, total stockholders' equity or other information as
presented in the Original Filing.
Other information contained herein has not been updated. Therefore,
this Amendment should be read together with other documents that the Company
has filed with the Securities and Exchange Commission subsequent to the
filing of the Original Filing. Information in such reports and documents
updates and supersedes certain information contained in this Amendment. The
filing of this Amendment shall not be deemed an admission that the Original
Filing, when made, included any known, untrue statement of material fact or
knowingly omitted to state a material fact necessary to make a statement not
misleading.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
-------------------- -----------
2004 2003 2003
------- ------- -------
(unaudited)
(in thousands, except share data)
ASSETS
Cash and cash equivalents................ $ 19,482 $ 13,106 $ 15,847
Service charges receivable............... 3,565 2,806 3,918
Receivables.............................. 30,565 24,119 33,796
Inventories.............................. 14,467 12,330 15,588
Prepaid expenses and other current assets 900 960 964
Income taxes receivable.................. 3,141 - 1,613
------- ------- -------
Total current assets ................. 72,120 53,321 71,726
Property and equipment, net.............. 15,012 11,963 14,418
Goodwill................................. 53,237 53,194 53,237
Receivable from Cash & Go, Ltd........... - 4,853 -
Other.................................... 737 624 683
------- ------- -------
$141,106 $123,955 $140,064
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........ $ - $ 600 $ -
Accounts payable......................... 644 584 1,054
Accrued expenses......................... 5,930 8,837 9,832
Income taxes payable..................... - 1,016 -
------- ------- -------
Total current liabilities ............ 6,574 11,037 10,886
Revolving credit facility................ - 17,000 6,000
Other long-term debt, net of
current portion........................ - 575 -
Deferred income taxes.................... 6,255 5,223 5,955
------- ------- -------
12,829 33,835 22,841
------- ------- -------
Stockholders' equity:
Preferred stock; $.01 par value;
10,000,000 shares authorized; no
shares issued or outstanding ........ - - -
Common stock; $.01 par value;
20,000,000 shares authorized ........ 158 96 109
Additional paid-in capital ............ 66,207 52,037 63,395
Retained earnings ..................... 61,912 45,257 56,734
Notes receivable from officers ........ - (4,255) -
Common stock held in treasury, at cost;
981,271 shares in 2003 .............. - (3,015) (3,015)
------- ------- -------
128,277 90,120 117,223
------- ------- -------
$141,106 $123,955 $140,064
======= ======= =======
The accompanying notes are an integral
part of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
----------------------
March 31, March 31,
2004 2003
------- -------
(unaudited) (unaudited)
(in thousands, except per
share amounts)
Revenues:
Merchandise sales ............................ $ 20,471 $ 17,153
Service charges .............................. 20,137 16,013
Check cashing fees ........................... 910 772
Other ........................................ 332 306
------- -------
41,850 34,244
------- -------
Cost of goods sold and expenses:
Cost of goods sold ........................... 12,070 10,347
Operating expenses ........................... 16,239 13,911
Interest expense ............................. 43 182
Interest income .............................. (14) (183)
Depreciation ................................. 921 662
Administrative expenses ...................... 4,412 3,734
------- -------
33,671 28,653
------- -------
Income before income taxes..................... 8,179 5,591
Provision for income taxes..................... 3,001 2,093
------- -------
Net income..................................... $ 5,178 $ 3,498
======= =======
Net income per share:
Basic ...................................... $ 0.34 $ 0.26
======= =======
Diluted ..................................... $ 0.30 $ 0.24
======= =======
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
----------------------
March 31, March 31,
2004 2003
------- -------
(unaudited) (unaudited)
(in thousands)
(as restated, see Note 5)
Cash flows from operating activities:
Net income ................................... $ 5,178 $ 3,498
Adjustment to reconcile net income to net cash
flows from operating activities:
Depreciation ............................ 921 662
Short-term advance loss provision ........ 1,399 1,438
Tax benefit from exercise of employee
stock options .......................... 3,953 -
Changes in operating assets and liabilities:
Service charges receivable ................. 353 368
Inventories ................................ 392 448
Prepaid expenses and other assets .......... 10 249
Accounts payable and accrued expenses ...... (4,312) (633)
Current and deferred income taxes ......... (1,228) 1,316
------- -------
Net cash flows from operating activities . 6,666 7,346
------- -------
Cash flows from investing activities:
Pawn receivables, net ........................ 982 1,794
Short-term advance receivables, net .......... 1,579 833
Purchases of property and equipment .......... (1,515) (875)
Decrease in receivable from Cash & Go, Ltd ... - 2,498
------- -------
Net cash flows from investing activities . 1,046 4,250
------- -------
Cash flows from financing activities:
Net repayments of debt ....................... (6,000) (11,327)
Notes receivable from officers ............... - (27)
Proceeds from exercise of options and warrants 3,270 129
Purchase of treasury stock ................... (1,347) -
------- -------
Net cash flows from financing activities (4,077) (11,225)
------- -------
Change in cash and cash equivalents............ 3,635 371
Cash and cash equivalents at beginning
of the period................................ 15,847 12,735
------- -------
Cash and cash equivalents at end of the period. $ 19,482 $ 13,106
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................... $ 43 $ 197
======= =======
Income taxes ............................... $ 277 $ 610
======= =======
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 also include the
accounts of Cash & Go, Ltd., a Texas limited partnership, which owns
financial services kiosks inside convenience stores. The Company has a 50%
ownership interest in the partnership, which it has historically accounted
for by the equity method of accounting as neither partner has control.
Effective December 31, 2003, when the Company adopted FASB Interpretation
No. 46(R) - Consolidation of Variable Interest Entities, the Company's
consolidated balance sheet includes the assets and liabilities of Cash & Go,
Ltd. The operating results of Cash & Go, Ltd. are included in the Company's
consolidated operating results effective for accounting periods beginning
January 1, 2004. 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, 2003 Annual Report on Form 10-K. The
consolidated financial statements as of March 31, 2004 and for the periods
ended March 31, 2004 and 2003 are unaudited, but in management's opinion,
include all adjustments (consisting of only normal recurring adjustments)
considered necessary to present fairly the financial position, results of
operations and cash flows for such interim periods. Operating results for
the period ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the full fiscal year.
All share amounts and earnings per share amounts included in these
financial statements reflect a three-for-two stock split effective April 6,
2004.
Note 2 - Revolving Credit Facility
The Company maintains a combined long-term line of credit with two
commercial lenders (the "Credit Facility"). The Credit Facility provides a
$25,000,000 long-term line of credit that matures on April 15, 2006 and
bears interest at the prevailing LIBOR rate (which was approximately 1.1% at
March 31, 2004) 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, depreciation and amortization for
the trailing twelve months. At March 31, 2004, the Company had no
outstanding amounts due under the facility and had $25,000,000 available for
future borrowings. Under the terms of the Credit Facility, the Company is
required to maintain certain financial ratios and comply with certain
technical covenants. The Company was in compliance with the requirements
and covenants of the Credit Facility as of March 31, 2004 and May 4, 2004.
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 will allow the Company to
repurchase stock and/or pay cash dividends within certain parameters.
Substantially all of the unencumbered assets of the Company have been
pledged as collateral against indebtedness under the Credit Facility.
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share (in thousands, except per share data):
Three Months Ended
--------------------
March 31, March 31,
2004 2003
------ ------
Numerator:
Net income for calculating basic
and diluted earnings per share $ 5,178 $ 3,498
====== ======
Denominator:
Weighted-average common
shares for calculating basic
earnings per share 15,431 13,331
Effect of dilutive securities:
Stock options and warrants 1,648 1,353
------ ------
Weighted-average common
shares for calculating diluted
earnings per share 17,079 14,684
====== ======
Basic earnings per share $ 0.34 $ 0.26
====== ======
Diluted earnings per share $ 0.30 $ 0.24
====== ======
There were no shares excluded from the calculation of diluted earnings
per share.
Note 4 - Employee Stock Incentive Plans
The Company accounts for its employee stock incentive plans under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees and the related interpretations under Financial
Accounting Standards Board (FASB) Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation. Accordingly, no stock-
based employee compensation cost is reflected in net income as all options
and warrants granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. In accordance with SFAS No.
148, Accounting for Stock-Based Compensation - Transition and Disclosure,
the following table illustrates the effect on net income and earnings per
share as if the Company had applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
Three Months Ended
--------------------
March 31, March 31,
2004 2003
------ ------
Net income, as reported $ 5,178 $ 3,498
Less: Stock based employee
compensation determined under the
fair value requirements of SFAS 123,
net of income tax benefits 2,356 88
------ ------
Adjusted net income $ 2,822 $ 3,410
====== ======
Earnings per share:
Basic, as reported $ 0.34 $ 0.26
Basic, adjusted 0.18 0.26
Diluted, as reported 0.30 0.24
Diluted, adjusted 0.17 0.23
The fair values were determined using a Black-Scholes option-pricing
model using the following assumptions:
Three Months Ended
--------------------
March 31, March 31,
2004 2003
------ ------
Expected dividend yield........ - -
Expected volatility............ 52.7% 58.1%
Risk-free interest rate........ 3.5% 3.5%
Average expected life.......... 5.5 years 7.0 years
During the period from January 1, 2004 through March 31, 2004, the
Company issued 680,117 shares of common stock relating to the exercise of
outstanding stock options and warrants for an aggregate exercise price of
$7,223,000, including income tax benefit.
Note 5 - Restatement of the Condensed Consolidated Statements of Cash Flows
The Statements of Cash Flows for the three-month periods ended March
31, 2004 and 2003 have been restated to correct the classification of
certain transactions between sections of the Statements of Cash Flows. The
Company determined that it had incorrectly classified the short-term advance
loss provision as an investing activity rather than an operating activity.
The effect of the adjustment to correct the misclassification is to increase
cash flows from operating activities and to decrease cash flows from
investing activities in the amounts of $1,399,000, and $1,438,000 for
the three-month periods ended March 31, 2004 and 2003, respectively. In
addition, the Company has reviewed its recording and classification of cash
flows arising from the forfeiture and subsequent sale of pawn collateral
and determined that investing cash flows representing a return of pawn
receivables were incorrectly recorded on the dates of forfeiture rather
than on the dates that the forfeited collateral was sold. Accordingly,
the previously reported cash flows related to forfeited collateral have
been corrected to remove the non-cash impact of increases and decreases
in on-hand inventories. The effect of the adjustment to correct the
misclassification is to increase cash flows from investing activities and to
decrease cash flows from operating activities in the amounts of $729,000
and $870,000 for the three-month periods ended March 31, 2004 and 2003,
respectively. The Company has also reviewed the cash flow presentation of
the tax benefit associated with the exercise of employee stock options.
This amount was previously included in the change in current and deferred
taxes, a component of cash flows from operating activities. In the restated
Condensed Statements of Cash Flows, the tax benefit is reported separately
as an adjustment to reconcile net income to net cash flows, which is also a
component of cash flows from operating activities. Accordingly, there is no
effect from this reclassification which would increase or decrease the
totals from any section within the Condensed Statements of Cash Flows.
A summary of the effects of these corrections are as follows:
Quarter Ended March 31, 2004
---------------------------------
As
Previously As
Reported Adjustments Restated
-------- ----------- --------
(in thousands)
Net cash flows from operating activities $ 5,996 $ 670 $ 6,666
Net cash flows from investing activities 1,716 (670) 1,046
Net cash flows from financing activities (4,077) - (4,077)
-------- ----------- --------
Change in cash and cash equivalents 3,635 - 3,635
Cash and cash equivalents at beginning
of the period 15,847 - 15,847
-------- ----------- --------
Cash and cash equivalents at end
of the period $ 19,482 $ - $ 19,482
======== =========== ========
Quarter Ended March 31, 2003
---------------------------------
As
Previously As
Reported Adjustments Restated
-------- ----------- --------
(in thousands)
Net cash flows from operating activities $ 6,778 $ 568 $ 7,346
Net cash flows from investing activities 4,818 (568) 4,250
Net cash flows from financing activities (11,225) - (11,225)
-------- ----------- --------
Change in cash and cash equivalents 371 - 371
Cash and cash equivalents at beginning
of the period 12,735 - 12,735
-------- ----------- --------
Cash and cash equivalents at end
of the period $ 13,106 $ - $ 13,106
======== =========== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
First Cash Financial Services, Inc. (the "Company") is a leading
provider of specialty consumer finance products. The Company currently has
251 locations in eleven U.S. states and Mexico and is the nation's third
largest publicly traded pawnshop operator. The Company's pawn stores engage
in both consumer finance and retail sales activities and are a convenient
source for small consumer loans, advancing money against pledged tangible
personal property such as jewelry, electronic equipment, tools, sporting
goods and musical equipment. The pawn stores also retail previously-owned
merchandise acquired through collateral forfeitures and over-the-counter
purchases from customers. Many of the Company's pawn stores offer short-
term, unsecured advances ("short-term advances"), which are also known as
payday loans.
The Company also operates stand-alone check cashing/short-term advance
stores in several U.S. states. These stores provide a broad range of
consumer financial services products, including check cashing, short-term
advances, money order sales, money transfers and bill payment services. In
addition, the Company is a 50% partner in Cash & Go, Ltd., a Texas limited
partnership, which currently owns and operates 40 kiosks located inside
convenience stores, which offer short-term advances and check cashing.
OPERATIONS AND LOCATIONS
The following table details store openings and closings for the three
months ended March 31, 2004.
Check Cashing/
Pawn Short-term Advance Total
Stores Stores Stores
------ ------ ------
Beginning count at January 1, 2004.. 160 75 235
New stores opened................... 12 2 14
Closed stores....................... (2) - (2)
------ ------ ------
Ending Count at March 31, 2004...... 170 77 247
====== ====== ======
The Company's business plan is to continue to expand its operations by
opening both new check cashing/short-term advance stores and new pawn stores
in selected geographic markets. In addition, for the three months ended
March 31, 2004, the Company's 50% owned joint venture, Cash & Go, Ltd.
operated a total of 40 kiosks located inside convenience stores in the state
of Texas. No kiosks were opened or closed during the quarter.
For the quarter ended March 31, 2004, the Company's revenues were
derived 49% from merchandise sales, 48% from service charges on pawn loans
and short-term advances, and 3% from other sources, primarily check cashing
fees.
Although the Company has had significant increases in revenues due to
new store openings in 2003 and 2004, the Company has also incurred increases
in operating expenses attributable to the additional stores and increases in
administrative expenses attributable to building a management team and the
support personnel required by the Company's growth. Operating expenses
consist of all items directly related to the operation of the Company's
stores, including salaries and related payroll costs, rent, utilities,
equipment depreciation, advertising, property taxes, licenses, supplies,
security and bad debt and collection expenses for both check cashing and
short-term advances. Administrative expenses consist of items relating to
the operation of the corporate office, including the compensation and
benefit costs of corporate officers, area supervisors and other operations
management, accounting and administrative costs, information technology
costs, liability and casualty insurance, outside legal and accounting fees
and stockholder-related expenses.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and related revenues and expenses and
disclosure of gain and loss contingencies at the date of the financial
statements. Such estimates and assumptions are subject to a number of risks
and uncertainties, which may cause actual results to differ materially from
the Company's estimates. Both the significant accounting policies which
management believes are the most critical to aid in fully understanding and
evaluating the reported financial results and the effects of recent
accounting pronouncements have been reported in the Company's 2003 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
Three months ended March 31, 2004 compared to the three months ended March
31, 2003
Total revenues increased 22% to $41,850,000 for the three months ended
March 31, 2004 ("the first quarter of 2004") as compared to $34,244,000 for
the three months ended March 31, 2003 ("the first quarter of 2003"). The
change was comprised of an increase in revenues of $2,568,000 generated by
the 61 new pawn and check cashing/short-term advance stores which were
opened since January 1, 2003, an increase of $4,005,000 at the stores which
were in operation during all of the first quarter of 2003 and the first
quarter of 2004, an increase of $1,424,000 related to the consolidation of
the 40 Cash & Go, Ltd. kiosks, net of a decrease in revenues of $391,000
from the four stores closed since January 1, 2003. Same store revenues
increased 12% primarily due to increased consumer demand for short-term loan
products and continued maturation of newer stores opened in 2002 and prior.
Of the $7,606,000 increase in total revenues, 44%, or $3,318,000, was
attributable to increased merchandise sales, 54%, or $4,124,000, was
attributable to a net increase in service charges on pawn and short-term
advances, and 2% or $164,000 was attributable to other income, comprised
primarily of check cashing fees. A significant component of the increase
in merchandise sales was non-retail bulk sales of scrap jewelry merchandise,
which increased from $2,388,000 in the first quarter of 2003 to $3,439,000
in the first quarter of 2004. Service charges from short-term advances
increased from $9,519,000 in the first quarter of 2003 to $12,003,000 in the
first quarter of 2004, while service charges from pawns increased from
$6,494,000 in the first quarter of 2003 to $8,134,000 in the first quarter
of 2004. As a percentage of total revenues, merchandise sales decreased
from 50% to 49% during the first quarter of 2004 as compared to the first
quarter of 2003, service charges increased from 47% to 48%, and check
cashing fees and other income as a percentage of total revenues were 3%
during both the first quarter of 2004 and the first quarter of 2003.
The receivables balance increased 27% from $24,119,000 at March 31,
2003 to $30,565,000 at March 31, 2004. Of the $6,446,000 increase, an
increase of $2,807,000 was attributable to the growth in loan balances at
the 197 pawn and check cashing/short-term advance stores which were in
operation as of March 31, 2004 and 2003, an increase of $2,394,000 was
attributable to the 50 new pawn and check cashing/short-term advance stores
opened since March 31, 2003, and an increase of $1,245,000 was attributable
to the consolidation of the 40 Cash & Go, Ltd. kiosks. The aggregate
receivables balance at March 31, 2004 was comprised of $19,784,000 of pawn
loan receivables and $10,781,000 of short-term advance receivables, compared
to $15,700,000 of pawn loan receivables and $8,419,000 of short-term advance
receivables at March 31, 2003.
Gross profit margins as a percentage of total merchandise sales were
41% during the first quarter of 2004 compared to 40% during the first
quarter of 2003. Retail merchandise margins, which do not include scrap
jewelry sales, were 45% over the same periods.
Operating expenses increased 17% to $16,239,000 during the first
quarter of 2004 compared to $13,911,000 during the first quarter of 2003,
primarily as a result of the consolidation of Cash & Go, Ltd.'s operating
results and the net addition of 57 pawn and check cashing/short-term advance
stores since January 1, 2003, which is a 30% increase in store count. The
Company's net bad debt expense relating to short-term advances decreased
from $1,438,000 in the first quarter of 2003 to $1,399,000 in the first
quarter of 2004. As a percentage of short-term advance service charge
revenues, net bad debts decreased from 15% during the first quarter of 2003
to 12% during the first quarter of 2004 due to strong collections associated
with larger tax refunds during the first quarter of 2004. Administrative
expenses increased 18% to $4,412,000 during the first quarter of 2004
compared to $3,734,000 during the first quarter of 2003 primarily as a
result of the consolidation of Cash & Go, Ltd.'s operating results.
Increased costs for administrative/supervisory compensation and benefits,
insurance, accounting and legal fees and other expenses necessary to support
the Company's growth strategy and increase in store counts were partially
offset by a $570,000 non-recurring insurance recovery related to an
unreimbursed employment-related insurance claim. Interest expense decreased
to $43,000 in the first quarter of 2004 compared to interest expense of
$182,000 in the first quarter of 2003 due to the reduction, and subsequent
elimination of interest-bearing debt during the first quarter of 2004.
Interest income decreased from $183,000 in the first quarter of 2003 to
$14,000 in the first quarter of 2004, due primarily to the elimination of
interest income associated with the consolidation of Cash & Go, Ltd.
For the first quarter of 2004 and 2003, the Company's effective federal
income tax rate of 37% differed from the statutory tax rate of approximately
34% primarily as a result of state and foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and store openings have been financed with
funds generated from operations, bank and other borrowings, and the issuance
of the Company's securities.
The Company's Credit Facility provides a $25,000,000 long-term line of
credit that matures on April 15, 2006 and bears interest at the prevailing
LIBOR rate (which was approximately 1.1% at March 31, 2004) 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,
depreciation and amortization for the trailing twelve months. At March 31,
2004, the Company had no outstanding amounts due under the facility and the
Company had $25,000,000 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
March 31, 2004 and May 4, 2004. 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 will allow the Company to repurchase stock and/or pay cash
dividends within certain parameters. Substantially all of the unencumbered
assets of the Company have been pledged as collateral against indebtedness
under the Credit Facility.
As of March 31, 2004, the Company's primary sources of liquidity were
$19,482,000 in cash and cash equivalents, $34,130,000 in receivables,
$14,467,000 in inventories and $25,000,000 of available and unused funds
under the Company's Credit Facility. The Company had working capital of
$65,546,000 as of March 31, 2004, and total liabilities to equity ratio of
0.1 to 1.
Certain transactions presented in the restated Condensed Statements of
Cash Flows for the quarters ended March 31, 2004 and 2003, respectively,
have been reclassified between certain sections of the Condensed Statements
of Cash Flows. A summary of these reclassifications showing their effect
on the Condensed Statements of Cash Flows is provided in Note 5 to the
Condensed Consolidated Financial Statements.
The Company utilized positive cash flows from operations in the three-
month 2004 period to fund investing and financing activities primarily
related to opening new stores and the elimination of debt. Net cash
provided by operating activities of the Company during the three months
ended March 31, 2004 was $6,666,000, consisting primarily of net income of
$5,178,000 plus non-cash adjustments for depreciation of $921,000, the
short-term advance loss provision of $1,399,000, and the tax benefit from
the exercise of employee stock options of $3,953,000 in addition to a
decrease in service charge receivables and inventory of $353,000 and
$392,000, respectively, net of a decrease in accounts payable and accrued
expenses of $4,312,000, and a change in tax balances of $1,228,000. Net cash
provided by investing activities during the three months ended March 31,
2004 was $1,046,000, which was primarily comprised of net cash inflows
related to pawn receivable activity of $982,000 and a decrease in short-term
advance receivable activity of $1,579,000, net of cash paid for fixed asset
additions of $1,515,000. The opening of 14 new stores during the first
quarter of 2004 contributed significantly to the volume of fixed asset
additions. Net cash used by financing activities was $4,077,000 during the
three months ended March 31, 2004, which primarily consisted of a decrease
in the Company's debt of $6,000,000, a purchase of treasury stock in the
amount of $1,347,000 and proceeds from exercises of stock options and
warrants of $3,270,000.
For purposes of its internal liquidity assessments, the Company
considers net cash changes in pawn receivables and short-term advance
receivables to be closely related to operating cash flows. For the Three-
Month 2004 Period the total cash flows from operations were $6,666,000,
while net cash inflows related to pawn receivables and short-term advance
receivables were $982,000 and $1,579,000, respectively. The combined net
cash flows from operations and pawn and short-term advance receivables
totaled $9,227,000 for the Three-Month 2004 Period. For the comparable
Three-Month 2003 Period, cash flows from operations were $7,346,000 and net
cash inflows related to pawn receivables and short-term advance receivables
were $1,794,000 and $833,000, respectively. The combined net cash flows
from operations and pawn and short-term advance receivables totaled
$9,973,000 for the Three-Month 2003 Period.
The profitability and liquidity of the Company is affected by the
amount of pawn loans outstanding, which is controlled in part by the
Company's lending decisions. The Company is able to influence the frequency
of pawn redemption by increasing or decreasing the amount loaned in relation
to the resale value of the pawned property. Tighter credit decisions
generally result in smaller pawn loans in relation to the estimated resale
value of the pledged property and can thereby decrease the Company's
aggregate pawn loan balance and, consequently, decrease pawn service
charges. Additionally, small advances in relation to the pledged property's
estimated resale value tend to increase pawn redemptions and improve the
Company's liquidity. Conversely, providing larger pawn loans in relation to
the estimated resale value of the pledged property can result in an increase
in the Company's pawn service charge income. Also, larger average pawn loan
balances can result in an increase in pawn forfeitures, which increases the
quantity of goods on hand and, unless the Company increases inventory
turnover, reduces the Company's liquidity. The Company's renewal policy
allows customers to renew pawns by repaying all accrued interest on such
pawns, effectively creating a new pawn transaction.
The amount of short-term advances outstanding and related potential bad
debt expense also affect the profitability and liquidity of the Company. An
allowance for losses is provided on active short-term advances and service
charges receivable, based upon expected default rates, net of estimated
future recoveries of previously defaulted short-term advances and service
charges receivable. The Company considers short-term advances to be in
default if they are not repaid on the due date, and writes off the principal
amount and service charges receivable as of the default date, leaving only
active receivables in the reported balances. Net defaults and changes in
the short-term advance allowance are charged to bad debt expense, which is
included in operating expenses.
In addition to these factors, merchandise sales and the pace of store
expansions affect the Company's liquidity. Management believes that cash
generated from operations will be sufficient to accommodate the Company's
current operations for Fiscal 2004. The Company has no significant
capital commitments. The Company currently has no written commitments for
additional borrowings or future acquisitions; however, the Company intends
to continue to grow and may seek additional capital to facilitate expansion.
While the Company continually looks for, and is presented with
potential acquisition candidates, the Company has no definitive plans
or commitments for further acquisitions. The Company will evaluate
acquisitions, if any, based upon opportunities, acceptable financing,
purchase price, strategic fit and qualified management personnel. If the
Company encounters an attractive opportunity to acquire or open additional
new stores in the near future, the Company may seek additional financing,
the terms of which will be negotiated on a case-by-case basis.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT
FUTURE RESULTS
Forward-Looking Statements
This release may contain forward-looking statements about the business,
financial condition and prospects of First Cash Financial Services, Inc.
Forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "projects," "expects," "may," "estimates,"
"will," "should," "plans," "intends," or "anticipates" or the negative
thereof, or other variations thereon, or comparable terminology, or by
discussions of strategy. Forward-looking statements in this release
include, without limitation, the earnings per share discussion, the
expectations of revenue growth and increased profitability, the expectation
for additional store openings, and the expectation for future operating cash
flows. These statements are made to provide the public with management's
assessment of the Company's business. Although the Company believes that
the expectations reflected in forward-looking statements are reasonable,
there can be no assurances that such expectations will prove to be accurate.
Security holders are cautioned that such forward-looking statements involve
risks and uncertainties. The forward-looking statements contained in this
release speak only as of the date of this statement, and the Company
expressly disclaims any obligation or undertaking to release any updates or
revisions to any such statement to reflect any change in the Company's
expectations or any change in events, conditions or circumstance on which
any such statement is based. Certain factors may cause results to differ
materially from those anticipated by some of the statements made in this
release. Such factors are difficult to predict and many are beyond the
control of the Company, but may include changes in regional, national or
international economic conditions, the ability to open and integrate new
stores, the ability to maintain favorable banking relationships as it
relates to short-term lending products, changes in governmental regulations,
unforeseen litigation, changes in interest rates, changes in tax rates or
policies, changes in gold prices, changes in foreign currency exchange
rates, future business decisions, and other uncertainties.
Regulatory Changes
Governmental action to prohibit or restrict short-term advances has
been advocated over the past few years by consumer-advocacy groups and by
media reports and stories. The consumer groups and media stories typically
focus on the cost to a consumer for that type of short-term advance, which
is higher than the interest typically charged by credit-card issuers to a
more creditworthy consumer. The consumer groups and media stories typically
characterize short-term advance activities as abusive toward consumers.
During the last few years, legislation has been introduced in the United
States Congress and in certain state legislatures, and regulatory
authorities have proposed or publicly addressed the possibility of proposing
regulations, that would prohibit or restrict short-term advances.
The U.S. Office of Comptroller of the Currency has effectively
eliminated the ability of nationally chartered banks to establish or
maintain relationships with loan servicers in order to make out-of-state
short-term advance loans. The Company does not currently maintain nor intend
in the future to establish loan-servicing relationships with nationally
chartered banks. The Federal Deposit Insurance Corporation, ("FDIC"), which
regulates the ability of state chartered banks to enter into relationships
with loan servicers, enacted new examiner guidelines in July 2003 under
which such arrangements are permitted. Texas is the only state in which the
Company functions as loan servicer through a relationship with a state
chartered bank, County Bank of Rehoboth Beach, Delaware, that is subject to
the new FDIC examiner guidelines. The ultimate effect of the new
guidelines, which are currently being implemented, on the Company's ability
to offer short term advances in Texas under its current loan servicing
arrangement with County Bank is unknown at this time. If the implementation
of the FDIC's new guidelines were to ultimately restrict the ability of all
or certain state banks to maintain relationships with loan servicers, it
could have a materially adverse impact on the Company's operations and
financial results.
Legislation and regulatory developments at a state level continue to
affect consumer-lending activities. While some states have recently enacted
legislation that is favorable to short-term advance providers, other states
are restricting, or attempting to restrict, short-term advance lending
activities. The Company intends to continue, with others in the short-term
advance industry, to oppose legislative or regulatory action that would
prohibit or restrict short-term advances. But if legislative or regulatory
action with that effect were taken at the state level in states such as
Texas, in which the Company has a significant number of stores, that action
could have a material adverse effect on the Company's short-term advance-
related activities and revenues.
There can be no assurance that additional local, state, or federal
legislation will not be enacted or that existing laws and regulations will
not be amended, which would materially, adversely impact the Company's
operations and financial condition.
Other
Certain factors may cause results to differ materially from those
anticipated by some of the statements made in this report. Such factors are
difficult to predict and many are beyond the control of the Company, but may
include changes in regional or national economic conditions, changes in
competition from various sources including both financial services entities
and retail businesses, the ability to integrate new stores, changes in
governmental regulations, unforeseen litigation, changes in capital markets,
changes in interest rates or tax rates, the ability to maintain a loan
servicing relationship with an out-of-state bank necessary to generate
service charges from short-term advances in the Texas market, future
business decisions, changes in gold prices, changes in foreign currency
exchange rates, other risks indicated in the Company's 2003 Annual Report to
Stockholders and other uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates, gold prices and foreign currency exchange rates
and are described in detail in the Company's 2003 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, 2003.
ITEM 4. CONTROLS AND PROCEDURES
(a) Subsequent to the filing of the Company's original Form 10-Q for
the period ended March 31, 2004, the Company discovered certain
errors in the classification of certain transaction types presented
in its Statements of Cash Flows, which are described in Note 5
to these Condensed Consolidated Financial Statements. As a result,
the Company determined that a significant deficiency existed in its
disclosure controls surrounding the preparation of the Statements
of Cash Flows. The Company has taken steps to improve the control
processes surrounding the preparation and review of the Statements
of Cash Flows. Specifically, key personnel involved in the Company's
financial reporting processes have undertaken research of both
authoritative guidance and industry practices in order to improve
their understanding of cash flow presentation issues relevant to the
consumer finance industry. In addition, the Company has documented
and implemented additional review procedures related to the
preparation of the Statements of Cash Flows. There were no other
significant deficiencies, and therefore there were no other
corrective actions taken.
The Company considered the impact of the significant deficiency
described above on its original evaluation of disclosure controls
and procedures as of March 31, 2004, and in particular assessed the
magnitude of any actual or potential misstatement resulting from the
deficiency. The Company determined that the magnitude of any actual
or potential misstatement was limited to the classification of
certain transactions presented in the Condensed Consolidated
Statements of Cash Flows and did not affect the Company's general
ledger account balances nor its prepared Condensed Consolidated
Balance Sheets, Condensed Consolidated Statements of Income, or
Notes to the Condensed Consolidated Financial Statements.
Accordingly, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer,
management of the Company has evaluated the effectiveness of the
design and operation of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of March 31, 2004. Based upon
that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of March 31, 2004, the Company's
disclosure controls and procedures are effective in timely alerting
them to the material information relating to the Company required to
be included in its periodic filings with the Securities and Exchange
Commission.
(b) There has been no significant change in the Company's internal
control over financial reporting that was identified in connection
with management's evaluation, as described above, 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 and
arbitration "previously reported" in the Company's 2003 Annual Report
to Stockholders filed on Form 10-K.
ITEM 2. CHANGES IN SECURITIES
During the period from January 1, 2004 through May 4, 2004, the Company
issued 709,400 shares of common stock relating to the exercise of
outstanding stock warrants for an aggregate exercise price of $7,386,000
(including income tax effect).
During the period from January 1, 2004 through May 4, 2004, the Company
issued 333,750 shares of common stock relating to the exercise of
outstanding stock options for an aggregate exercise price of $4,297,000
(including income tax effect) and issued options to purchase 454,500 shares
of common stock at an average exercise price of $19.33, expiring in ten
years.
On March 9, 2004, the Board of Directors of First Cash Financial
Services, Inc. (the "Company") approved a three-for-two split of the
Company's common stock in the form of a common stock dividend. As a result
of the stock split, shareholders received one additional common share for
every two shares held on the record date of March 22, 2004.
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits:
31.1 Chief Executive Officer Certification Pursuant to Section
13a-14 of the Securities Exchange Act
31.2 Chief Financial Officer Certification Pursuant to Section
13a-14 of the Securities Exchange Act
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(2) Reports on Form 8-K:
January 22, 2004 Item 7. Financial Statements and Exhibits
Item 12. Results of Operations and Financial
Condition
March 9, 2004 Item 5. Other Events
March 12, 2004 Item 4. Changes to Registrant's Certifying
Accountants
Item 7. Financial Statements and Exhibits
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: October 8, 2004 FIRST CASH FINANCIAL SERVICES, INC.
-----------------------------------
(Registrant)
/s/ PHILLIP E. POWELL
---------------------
Phillip E. Powell
Chief Executive Officer
/s/ R. DOUGLAS ORR
------------------
R. Douglas Orr
Chief Financial Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
31.1 Chief Executive Officer Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act
31.2 Chief Financial Officer Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Phillip E. Powell, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A 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(s) 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
13a-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 (the registrant's
fourth fiscal quarter in the case of an annual report) 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(s) 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: October 8, 2004
/s/ PHILLIP E. POWELL
---------------------
Phillip E. Powell
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/A 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(s) 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 13a-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 (the registrant's
fourth fiscal quarter in the case of an annual report) 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(s) 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: October 8, 2004
/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/A for the quarterly period ended March 31,
2004, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Phillip E. Powell and R. Douglas Orr 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 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: October 8, 2004
/s/ PHILLIP E. POWELL
---------------------
Phillip E. Powell
Chief Executive Officer
/s/ R. DOUGLAS ORR
------------------
R. Douglas Orr
Chief Financial Officer