SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2003, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-2237318
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(state or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas 76011
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 460-3947
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act). Yes [ X ] No [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the last reported sales price on the Nasdaq
National Market on June 30, 2003, the last trading date of registrant's most
recently completed second fiscal quarter is $101,474,089.
As of March 8, 2004, there were 10,499,887 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement in connection with its Annual Meeting of
Stockholders to be held on June 15, 2004 is incorporated by reference in
Part III, Items 10, 11, 12 and 13.
FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-K/A
(Amendment No. 1)
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For the Year Ended December 31, 2003
EXPLANATORY NOTE
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This Amendment No. 1 on Form 10-K/A (this "Amendment") amends the
Annual Report on Form 10-K for the year ended December 31, 2003 filed on
March 12, 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 year 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 Statements of Cash Flows is provided in Note 17
to the Consolidated Financial Statements. This Amendment also includes
corresponding textual changes in Item 7, Management's Discussion and
Analysis of Results of Operations, Liquidity and Capital Resources and an
addition to related information in Item 9a., Controls and Procedures. This
Amendment has no effect on the Balance Sheets, Statements of Income, and
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.
TABLE OF CONTENTS
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PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Item 9a. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
SIGNATURES
PART I
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Forward Looking Information
This annual report may contain forward-looking statements about the
business, financial condition and prospects of First Cash Financial
Services, Inc. Forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "projects," "expects,"
"may," "estimates," "will," "should," "plans," "intends," or "anticipates"
or the negative thereof, or other variations thereon, or comparable
terminology, or by discussions of strategy. Forward-looking statements in
this annual report include, without limitation, the earnings per share
discussion, the expectation of growth in the Company's pawn and short-term
advance products and the expectation for additional store openings. These
statements are made to provide the public with management's assessment of
the Company's business. Although the Company believes that the expectations
reflected in forward-looking statements are reasonable, there can be no
assurances that such expectations will prove to be accurate. Security
holders are cautioned that such forward-looking statements involve risks and
uncertainties. The forward-looking statements contained in this report
speak only as of the date of this report, and the Company expressly
disclaims any obligation or undertaking to release any updates or revisions
to any such statement to reflect any change in the Company's expectations or
any change in events, conditions or circumstance on which any such statement
is based. Certain factors may cause results to differ materially from those
anticipated by some of the statements made in this report. Such factors are
difficult to predict and many are beyond the control of the Company, but may
include changes in regional, national or international economic conditions,
the ability to open and integrate new stores, the ability to maintain
favorable banking relationships as it relates to short-term lending
products, changes in governmental regulations, unforeseen litigation,
changes in interest rates, changes in foreign currency exchange rates,
changes in tax rates or policies, changes in gold prices, future business
decisions and other uncertainties.
Item 1. Business
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General
First Cash Financial Services, Inc. (the "Company") is a leading
provider of specialty consumer finance products. The Company has 243
locations in eleven U.S. states and Mexico and is the nation's third largest
publicly traded pawnshop operator. The Company's pawn stores engage in both
consumer finance and retail sales activities and are a convenient source for
small consumer loans, advancing money against pledged tangible personal
property such as jewelry, electronic equipment, tools, sporting goods and
musical equipment. The pawn stores also retail previously owned merchandise
acquired through collateral forfeitures and over-the-counter purchases from
customers. Many of the Company's pawn stores offer short-term, unsecured
advances ("short-term advances"), which are also known as payday loans.
The Company also operates stand-alone check cashing/short-term advance
stores in several U.S. states. These stores provide a broad range of
consumer financial services products, including check cashing, short-term
advances, money order sales, money transfers and bill payment services. In
addition, the Company is a 50% partner in Cash & Go, Ltd., a Texas limited
partnership, which currently owns and operates 40 kiosks located inside
convenience stores, which offer short-term advances and check cashing.
For the year ended December 31, 2003, the Company's revenues were
derived as follows: 49% from pawn and short-term advance lending
activities, 48% from merchandise sales, and 3% from other sources, primarily
check cashing fees.
The Company was formed as a Texas corporation in July 1988 and in April
1991 the Company reincorporated as a Delaware corporation. Except as
otherwise indicated, the term "Company" includes its wholly owned
subsidiaries, American Loan & Jewelry, Inc., WR Financial, Inc., Famous
Pawn, Inc., JB Pawn, Inc., Cash & Go, Inc., One Iron Ventures, Inc., Capital
Pawnbrokers, Inc., Silver Hill Pawn, Inc., Elegant Floors, Inc., First Cash,
S.A. de C.V., American Loan Employee Services, S.A. de C.V., First Cash,
Ltd., First Cash Corp, First Cash Management, LLC, and First Cash, Inc.
The Company's principal executive offices are located at 690 East Lamar
Blvd., Suite 400, Arlington, Texas 76011, and its telephone number is (817)
460-3947.
Industry
The pawnshop industry in the United States is an established industry,
with the highest concentration of pawnshops being in the Southeast and
Southwest. The operation of pawnshops is governed primarily by state laws,
and accordingly, states that maintain pawn laws most conducive to profitable
operations have historically seen the greatest development of pawnshops.
Management believes the pawnshop industry is highly fragmented with
approximately 15,000 stores in the United States. The three publicly traded
pawnshop companies currently operate less than 1,000 of the pawnshops in the
United States. The Company believes that individuals operating one to three
locations own the majority of pawnshops. Management further believes that
the highly fragmented nature of the industry is due in part to the lack of
qualified management personnel, the difficulty of developing adequate
financial controls and reporting systems, and the lack of financial
resources.
The short-term advance industry is a relatively new industry that is
experiencing rapid growth. A leading industry analyst estimates that there
are approximately 22,000 short-term advance locations throughout the United
States. There are several privately held chains that operate from 100 to up
approximately 2,000 stores each. The four largest publicly held operators
of check cashing/short-term advance stores, which includes First Cash
Financial Services, Inc., operate a combined total of approximately 2,500
stores. Some states have enacted formal check cashing laws which regulate
the amount of fees that operators may charge for cashing checks, and in some
cases states have regulated the amount of service charges that may be
charged on small consumer advances, commonly referred to as "short-term
advances."
Business Strategy
The Company's primary business plan is to significantly expand its
operations by opening new pawnshops and check cashing/short-term advance
stores. In addition, it will continue to remain focused on increasing the
revenues and operating profits in its existing stores.
New Store Openings
The Company has opened 78 new pawn stores and 54 new check
cashing/short-term advance stores since its inception and currently intends
to open both additional pawn stores and check cashing/short-term advance
stores in locations where management believes appropriate demand and other
favorable conditions exist. During the years ended December 31, 2003, 2002
and 2001, the Company opened 31, 25 and 4 new pawn stores, respectively, and
over the same three years, the Company opened 16, 13 and 14 new check
cashing/short-term advance stores, respectively.
Management seeks to locate new stores where demographics are favorable
and competition is limited. It is the Company's experience that after a
suitable location has been identified and a lease and licenses are obtained,
a new store can be open for business within six to eight weeks. The
investment required to open a new pawn store includes store operating cash,
inventory, funds available for pawns loans, leasehold improvements, store
fixtures, security systems, computer equipment and start-up losses.
Although the total investment varies and is difficult to predict for each
location, it has been the Company's experience that between $200,000 and
$300,000 is required to fund a new pawn store for the first six months of
operation. The Company also estimates that between $200,000 and $300,000 is
required to fund a new check cashing/short-term advance store for the first
six months of operation, which includes investments for leasehold
improvements, security and computer equipment, funds available for short-
term advances, store operating cash, and start-up losses.
The Company currently plans to continue its expansion in existing
markets, with the primary focus being in Texas and Mexico. The Company
continues to evaluate new markets in other states with favorable
demographics and regulatory environments. The Company has an organizational
structure that it believes is capable of supporting a larger, multi-country
and multi-state store base.
Enhance Productivity of Existing and Newly Opened Stores
The primary factors affecting the profitability of the Company's
existing store base are the volume of retail sales, the gross profit on
retail sales, the level of pawn loans outstanding, the level of short-term
advances outstanding, the volume of check cashing and other consumer
financial services, and the control of store expenses, including bad debt
expenses related to short-term advances. To increase customer traffic,
which management believes is a key determinant to increasing its stores'
profitability, the Company has taken several steps to distinguish its stores
from traditional pawn and check cashing/short-term advance stores and to
make customers feel more comfortable. In addition to well-lit parking
facilities, typically the stores' exteriors display an attractive and
distinctive awning similar to those used by contemporary convenience and
video rental stores. The Company also has upgraded or refurbished the
interior of certain of its stores and improved merchandise presentation by
categorizing items into departments, improving the lighting and installing
better in-store signage.
The Company has implemented an employee training program for both
store and corporate-level personnel that stresses productivity and
professionalism. The Company utilizes a proprietary computer information
system that provides fully integrated functionality to support point-of-sale
retail operations, inventory management and loan processing. Each store is
connected on a real-time basis to a secured off-site data center located in
Allen, Texas that houses the centralized database and operating system. The
system provides management the ability to continuously monitor store
transactions and operating results. The Company maintains a well-trained
internal audit staff that conducts regular store visits to test compliance
with financial and operational controls. Management believes that the
current operating and financial controls and systems are adequate for the
Company's existing store base and can accommodate reasonably foreseeable
growth in the near-term.
Acquisitions
Because of the highly fragmented nature of both the pawn industry and
the check cashing/short-term advance industry, as well as the availability
of "mom & pop" sole proprietors willing to sell their stores, the Company
believes that certain acquisition opportunities may arise from time to time.
The timing of any future acquisitions is based on identifying suitable
stores and purchasing them on terms that are viewed as favorable to the
Company. Before making an acquisition, management typically studies a
demographic analysis of the surrounding area, considers the number and size
of competing stores, and researches regulatory issues. Specific pawn store
acquisition criteria include an evaluation of the volume of annual pawn
transactions, outstanding receivable balances, historical redemption rates,
the quality and quantity of inventory on hand, and location and condition of
the facility, including lease terms. Factors involved in evaluating the
acquisition of check cashing/short-term advance stores include the annual
volume of transactions, location and condition of facilities, and a
demographic evaluation of the surrounding area to determine the potential
for the Company's short-term advance product.
Pawn Lending Activities
The Company's pawn stores advance money against the security of
pledged goods. The pledged goods are tangible personal property generally
consisting of jewelry, electronic equipment, tools, sporting goods and
musical equipment. The pledged goods provide the only security to the
Company for the repayment of the pawn, as pawns cannot result in personal
liability to the borrower. Therefore, the Company does not investigate the
creditworthiness of the borrower, relying instead on the marketability and
sale value of pledged goods as a basis for its credit decision. Receivables
from pawn loans at December 31, 2003 and 2002 were $20,037,000 and
$16,624,000, respectively.
At the time a pawn transaction is entered into, an agreement, commonly
referred to as a pawn ticket, is delivered to the borrower for signature
that sets forth, among other items, the name and address of the pawnshop,
borrower's name, borrower's identification number from his/her driver's
license or other identification, date, identification and description of the
pledged goods, including applicable serial numbers, amount financed, pawn
service charge, maturity date, total amount that must be paid to redeem the
pledged goods on the maturity date, and the annual percentage rate.
Pledged property is held through the term of the pawn, which is 30 days
in Texas, South Carolina, Missouri, Virginia, and Oklahoma, with an
automatic extension period of 15 to 60 days depending on state laws, unless
the pawn is earlier paid or renewed. In Maryland, Washington, D.C. and
Mexico, pledged property is held for 30 days. In the event the borrower
does not pay or renew a pawn within 90 days in South Carolina and Missouri,
60 days in Texas and Oklahoma, 45 days in Virginia, and 30 days in Maryland,
Washington, D.C. and Mexico, the unredeemed collateral is forfeited to the
Company and becomes inventory available for general liquidation or sale
in one of the Company's stores. If a pawn is not repaid prior to the
expiration of the automatic extension period, if applicable, the property is
forfeited to the Company and transferred to inventory at a value equal to
the principal amount of the loan, exclusive of accrued interest.
The amount the Company is willing to finance typically is based on a
percentage of the estimated sale value of the collateral. There are no
minimum or maximum pawn to fair market value restrictions in connection with
the Company's lending activities. The basis for the Company's determination
of the sale value includes such sources as catalogs, blue books, and
newspapers. The Company also utilizes its integrated computer information
system to recall recent selling prices of similar merchandise in its own
stores. These sources, together with the employees' experience in selling
similar items of merchandise in particular stores, influence the
determination of the estimated sale value of such items. The Company does
not utilize a standard or mandated percentage of estimated sale value in
determining the amount to be financed. Rather, the employee has the
authority to set the percentage for a particular item and to determine the
ratio of pawn amount to estimated sale value with the expectation that, if
the item is forfeited to the pawnshop, its subsequent sale should yield a
gross profit margin consistent with the Company's historical experience. It
is the Company's policy to value merchandise on a conservative basis to
avoid the risks associated with over-valuation. The recovery of the
principal and realization of gross profit on sales of inventory is dependent
on the Company's initial assessment of the property's estimated sale value.
Improper assessment of the sale value of the collateral in the lending
function can result in reduced marketability of the property and sale of the
property for an amount less than the principal amount pawned.
The Company contracts for a pawn service charge in lieu of interest to
compensate it for the pawn loan. The statutory service charges on pawns at
its Texas stores range from 12% to 240% on an annualized basis depending on
the size of the pawn, and from 39% to 240% on an annualized basis at the
Company's Oklahoma stores. Pawns made in the Maryland stores bear service
charges of 144% to 240% on an annualized basis with a $6 minimum charge per
month, while pawns in Virginia earn 120% to 144% annually with a $5 minimum
charge per month. In Washington D.C., a flat $2 charge per month applies to
all pawns up to $40, and an 18% to 60% annualized service charge applies to
pawns of greater than $40. In Missouri, pawns bear a total service and
storage charge of 180% to 240% on an annualized basis with a $2.50 minimum
charge per month, and South Carolina rates range from 100% to 300%. In
Mexico, pawns bear an annualized rate of 240%. As of December 31, 2003, the
Company's average pawn per pawn ticket was approximately $61. Service
charge revenues for pawns during the fiscal years ended December 31, 2003,
2002 and 2001 were $28,804,000, $21,723,000 and $19,714,000, respectively,
and accounted for approximately 40%, 37% and 37%, respectively, of the
Company's total service charge revenues. For the fiscal years ended
December 31, 2003, 2002 and 2001, the Company's annualized yields on average
pawn balances were 157%, 143% and 141%, respectively.
Short-term Advance Activities
The Company's check cashing/short-term advance stores and pawn stores,
in selected markets, make unsecured, short-term advances for a term
of thirty days or less. To qualify for a short-term advance, customers
generally must have proof of steady income, a checking account with a
minimum of returned items within a specified period, and valid
identification. Upon completing an application and subsequent approval, the
customer writes a check on their personal checking account for the amount of
the advance, plus applicable fees. At maturity, the customer may either
return to the store and pay off the advance with cash, in which case the
check is returned to the customer, or the store can deposit the customer's
check into its checking account. Receivables from short-term advances, net
of bad debt valuation allowances, at December 31, 2003 and 2002 were
$13,759,000 and $10,690,000, respectively.
Fees charged for short-term advances are generally regulated by state
law and range from 13.9% to 40% of the amount advanced per transaction.
Service charge revenues for short-term advances during the fiscal years
ended December 31, 2003, 2002 and 2001 were $42,939,000, $36,473,000 and
$33,314,000, respectively, and accounted for approximately 60%, 63% and 63%,
respectively, of the Company's total service charge revenues.
The bank returns a significant number of customer short-term advance
checks deposited by the Company; however, the Company subsequently collects
a large percentage of these bad debts. The profitability of the Company's
short-term advance operations is dependent upon adequate collection of these
returned items. The bad debt valuation allowances were $462,000 and
$422,000 at December 31, 2003 and 2002, respectively. The net bad debt
expenses associated with short-term advances during the fiscal years ended
December 31, 2003, 2002 and 2001 were $9,878,000, $8,669,000 and $8,684,000,
respectively, which represented 23%, 24% and 26%, respectively, of service
charge revenues from short-term advances.
Merchandise Sales
The Company's merchandise sales are primarily retail sales to the
general public in its pawn stores. The items retailed are primarily used
jewelry, consumer electronics, tools, musical instruments and sporting
goods. The Company also melts down limited quantities of scrap gold jewelry
and sells the gold at market commodity prices. Total merchandise sales
during the years ended December 31, 2003, 2002 and 2001 accounted for
approximately 48%, 48% and 49%, respectively, of the Company's total
revenues for these periods. For the years ended December 31, 2003, 2002 and
2001 the Company realized gross profit margins on merchandise sales of 41%,
42% and 36%, respectively.
The Company acquires merchandise inventory primarily through forfeited
pawns and purchases of used goods directly from the general public.
Merchandise acquired by the Company through defaulted pawns is carried in
inventory at the amount of the related pawn loan, exclusive of any accrued
service charges. Management believes that this practice lessens the
likelihood that the Company will incur significant, unexpected inventory
devaluations.
The Company does not provide financing to purchasers of its merchandise
nor does it provide the prospective buyer warranties on the merchandise
purchased. Nevertheless, the Company may, at its discretion, refund
purchases if merchandise is returned because it was damaged or not in good
working order when purchased. The Company permits its customers to purchase
inventory on a "layaway" plan. Should the customer fail to make a required
payment, the item is returned to inventory and previous payments are
forfeited to the Company.
Operations and Locations
As of March 8, 2004, the Company operated stores in the following
markets:
Check cashing/
Pawn Short-term advance Total
Stores Stores Stores
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District of Columbia (1). 2 7 9
Washington............... - 3 3
Oregon................... - 4 4
Illinois................. - 10 10
California............... - 15 15
Maryland................. 21 - 21
Missouri................. 3 - 3
Oklahoma (1)............. 3 - 3
South Carolina (1)....... 8 - 8
Texas (1)................ 59 37 96
Virginia................. 2 - 2
Mexico (2)............... 69 - 69
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Total 167 76 243
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(1) Pawn stores in these states also offer the short-term advance
product.
(2) See Note 15 of the Consolidated Financial Statements regarding
geographic areas.
In addition, at March 8, 2004, the Company's 50% owned joint venture,
Cash & Go, Ltd. operated a total of 40 kiosks located inside convenience
stores in the state of Texas.
The Company seeks to establish clusters of several stores in a specific
geographic area in order to achieve certain economies of scale relative to
supervision, purchasing and marketing. In Texas, such clusters have been
established in the Dallas/Fort Worth metropolitan area, the greater Houston
metropolitan area, the Rio Grande Valley area, the Corpus Christi area, the
El Paso area, the central Texas area (Austin, San Antonio and surrounding
cities) and the west Texas area. Store clusters have also been established
in the St. Louis, Missouri area, the Oklahoma City, Oklahoma area, in
Washington, D.C. and its surrounding Maryland suburbs, in Baltimore,
Maryland, in northern California, in the Chicago, Illinois area, in South
Carolina, in the Pacific Northwest, and in northern Mexico.
Pawn Store Operations
The typical Company pawn store is a freestanding building or part of a
small retail strip shopping center with adequate, well-lit parking.
Management has established a standard store design intended to distinguish
the Company's stores from the competition. The design consists of a well-
illuminated exterior with a distinctive awning and a layout similar to a
contemporary convenience store or video rental store. The Company's stores
are typically open six to seven days a week from 9:00 a.m. to between 6:00
p.m. and 9:00 p.m.
The Company's computer system permits a store manager or clerk to
recall rapidly the cost of an item in inventory, the date it was purchased
as well as the prior transaction history of a particular customer. It also
facilitates the timely valuation of goods by showing values assigned to
similar goods in the past. The Company has networked its stores to permit
the Company's headquarters to more efficiently monitor each store's
operations, including merchandise sales, service charge revenues, pawns
written and redeemed, and changes in inventory.
The Company attempts to attract retail shoppers seeking bargain prices
through the use of seasonal promotions, special discounts for regular
customers, prominent display of impulse purchase items such as jewelry and
tools, tent sales and sidewalk sales, and a layaway purchasing plan. The
Company attempts to attract and retain pawn customers by lending a
competitive percentage of the estimated sale value of items presented for
pledge and by providing quick financing, renewal and redemption services in
an appealing atmosphere.
Each pawnshop employs a manager, one or two assistant managers, and
between one and eight sales personnel, depending upon the size, sales volume
and location of the store. The store manager is responsible for supervising
personnel and assuring that the store is managed in accordance with Company
guidelines and established policies and procedures. Each manager reports to
an area supervisor who typically oversees four to seven store managers.
Each supervisor reports to one of three regional vice-presidents.
The Company believes that profitability of its pawnshops is dependent,
among other factors, upon its employees' ability to make pawns that achieve
optimum redemption rates, to be effective sales people and to provide prompt
and courteous service. Therefore, the Company trains its employees through
direct instruction and on-the-job pawn and sales experience. The new
employee is introduced to the business through an orientation and training
program that includes on-the-job training in lending practices, layaways,
merchandise valuation and general administration of store operations.
Certain experienced employees receive training and an introduction to the
fundamentals of management to acquire the skills necessary to advance into
management positions within the organization. Management training typically
involves exposure to income maximization, recruitment, inventory control and
cost efficiency. The Company maintains a performance-based compensation
plan for all store employees, based, among other factors, on sales, gross
profit and special promotional contests.
Check Cashing/Short-term Advance Operations
The Company's check cashing/short-term advance locations are typically
part of a retail strip shopping center with adequate, well-lit parking.
Management has established a standard store design intended to distinguish
the Company's stores from the competition. The design consists of a well-
illuminated exterior with a lighted sign, and distinctive, conservative
window signage. The interiors typically feature an ample lobby, separated
from employee work areas by floor-to-ceiling teller windows. The Company's
stores are typically open six to seven days a week from 9:00 a.m. to between
6:00 p.m. and 9:00 p.m.
Computer operating systems in the Company's check cashing/short-term
advance stores allow a store manager or clerk to recall rapidly customer
check cashing histories, short-term advance histories, and other vital
information. The Company attempts to attract customers primarily through
television advertisements and yellow page advertisements.
Each check cashing/short-term loan store employs a manager, and between
one and eight tellers, depending upon the size, sales volume and location of
the store. The store manager is responsible for supervising personnel and
assuring that the store is managed in accordance with Company guidelines and
established policies and procedures. Each store manager reports to an area
manager who typically oversees two to five store managers. Each supervisor
reports to one of two regional vice-presidents.
The kiosks operated by the Cash & Go, Ltd. joint venture are located
inside convenience stores. Each kiosk is a physically secured area with its
own counter space within the convenience store. Each kiosk is typically
staffed by one or two employees at any point in time.
Competition
The Company encounters significant competition in connection with all
aspects of its business operations. These competitive conditions may
adversely affect the Company's revenues, profitability and ability to
expand.
The Company competes primarily with other pawn store operators and
check cashing/short-term advance operators. There are two publicly held
pawnshop operators and one publicly held check cashing/short-term advance
operator, all of which have more locations than the Company. There are
several privately held operators of check cashing/short-term advance stores,
some of which are significantly larger than the Company. In addition, both
the pawnshop and check cashing/short-term advance industries are
characterized by a large number of independent owner-operators, some of whom
own and operate multiple locations. The Company believes that the primary
elements of competition in these businesses are store location, the ability
to lend competitive amounts on pawns and short-term advances, customer
service, and management of store employees. In addition, the Company
competes with financial institutions, such as consumer finance companies,
which generally lend on an unsecured as well as on a secured basis. Other
lenders may and do lend money on terms more favorable than those offered by
the Company. Many of these competitors have greater financial resources
than the Company.
In its retail operations, the Company's competitors include numerous
retail and wholesale stores, including jewelry stores, discount retail
stores, consumer electronics stores and other pawnshops. Competitive
factors in the Company's retail operations include the ability to provide
the customer with a variety of merchandise items at attractive prices. Many
retailers have significantly greater financial resources than the Company.
Governmental Regulation
General
The Company is subject to extensive regulation in most jurisdictions in
which it operates, including jurisdictions that regulate pawn lending,
short-term advance and check cashing. The Company's pawnshop and short-term
advance operations in the United States are subject to, and must comply
with, extensive regulation, supervision and licensing from various federal,
state and local statutes, ordinances and regulations. These statutes
prescribe, among other things, the general terms of the loans and the
service charges and/or interest rates that may be charged. These regulatory
agencies have broad discretionary authority. The Company is also subject to
federal and state regulation relating to the reporting and recording of
certain currency transactions. The Company's pawnshop operations in Mexico
are also subject to, and must comply with, general business, tax and
consumer protection regulations from various federal, state and local
governmental agencies in Mexico. There can be no assurance that additional
state or federal statutes or regulations in either the United States or
Mexico will not be enacted or that existing laws and regulations will not be
amended at some future date which could inhibit the ability of the Company
to offer pawn loans and short-term advances, significantly decrease the
service charges for lending money, or prohibit or more stringently regulate
the sale of certain goods, any of which could cause a significant adverse
effect on the Company's future prospects.
State and Local Regulations
The Company operates in seven states that have licensing and/or fee
regulations on pawns, including Texas, Oklahoma, Maryland, Virginia, South
Carolina, Washington, D.C., and Missouri. The Company is licensed in each
of the states in which a license is currently required for it to operate as
a pawnbroker. The Company's fee structures are at or below the applicable
rate ceilings adopted by each of these states. In addition, the Company is
in compliance with the net asset requirements in states where it is required
to maintain certain levels of liquid assets for each pawn store it operates
in the applicable state.
Under some county and municipal ordinances, pawn stores must provide
local law enforcement agencies with copies of all daily transactions
involving pawns and over-the-counter purchases. These daily transaction
reports are designed to provide the local law enforcements officials with a
detailed description of the goods involved, including serial numbers, if
any, and the name and address of the owner obtained from a valid
identification card. If these ordinances are applicable, a copy of the
transaction ticket is provided to local law enforcement agencies for
processing by the National Crime Investigative Computer to determine
rightful ownership. Goods held to secure pawns or goods purchased which are
determined to belong to an owner other than the borrower or seller are
subject to recovery by the rightful owners. Historically, the Company has
not found these claims to have a material adverse effect upon results of
operations. The Company does not maintain insurance to cover the costs of
returning merchandise to its rightful owners.
The Company also operates in states that have licensing, and/or fee
regulations on check cashing and short-term advances, including California,
Washington, Oklahoma, South Carolina, Oregon, Illinois and Washington, D.C.
The Company is licensed in each of the states in which a license is
currently required for it to operate as a check casher and/or short-term
lender. In addition, in some jurisdictions, check cashing companies or
money transmission agents are required to meet minimum bonding or capital
requirements and are subject to record-keeping requirements.
In Texas, which does not have favorable short-term lending service
charge rates, the Company has entered into an agreement with County Bank of
Rehoboth Beach, Delaware, a federally insured state of Delaware chartered
financial institution, to act as a loan servicer within the state of Texas
for County Bank. The Company is licensed as a regulated servicing agent by
the State of Texas. As compensation for the Company acting as County Bank's
loan servicer, the Company is entitled to purchase a participation in the
loans made by County Bank. The Company's ability to continue to maintain
its current relationship with County Bank and to continue to service County
Bank loans within the state of Texas is subject to County Bank's ability to
continue to export its loan product to the state of Texas. There can be no
assurance that County Bank will be able to continue to export its loan
product to the state of Texas, and the bank's failure to do so could have a
materially adverse impact on the Company's operations and financial
condition.
Federal Regulations
The U.S. Office of Comptroller of the Currency has significantly
restricted the ability of nationally chartered banks to establish or
maintain relationships with loan servicers in order to make out-of-state
short-term advance loans. The Company does not currently maintain nor intend
in the future to establish loan-servicing relationships with nationally
chartered banks. In 2003, the Federal Deposit Insurance Corporation
("FDIC"), which regulates the ability of state chartered banks to enter into
relationships with loan servicers, issued examiner guidelines under which
such arrangements are permitted. Texas is the only state in which the
Company functions as loan servicer through a relationship with a state
chartered bank, County Bank of Rehoboth Beach, Delaware, that is subject to
the FDIC examiner guidelines. The ultimate effect of the new guidelines,
which are still being implemented, on the Company's ability to offer short-
term advances in Texas under its current loan servicing arrangement with
County Bank is unknown at this time. If the FDIC's new guidelines
ultimately restrict the ability of state banks to maintain relationships
with loans servicers, it could have a materially adverse impact on the
Company's operations and financial condition.
Under the Bank Secrecy Act regulations of the U.S. Department of the
Treasury (the "Treasury Department"), transactions involving currency in an
amount greater than $10,000 or the purchase of monetary instruments for cash
in amounts from $3,000 to $10,000 must be recorded. In general, every
financial institution, including the Company, must report each deposit,
withdrawal, exchange of currency or other payment or transfer, whether by,
through or to the financial institution, that involves currency in an amount
greater than $10,000. In addition, multiple currency transactions must be
treated as single transactions if the financial institution has knowledge
that the transactions are by, or on behalf of, any person and result in
either cash in or cash out totaling more than $10,000 during any one
business day.
The Money Laundering Suppression Act of 1994 added a section to the
Bank Secrecy Act requiring the registration of "money services businesses,"
like the Company, that engage in check cashing, currency exchange, money
transmission, or the issuance or redemption of money orders, traveler's
checks, and similar instruments. The purpose of the registration is to
enable governmental authorities to better enforce laws prohibiting money
laundering and other illegal activities. The regulations require money
services businesses to register with the Treasury Department by filing a
form, adopted by the Financial Crimes Enforcement Network of the Treasury
Department ("FinCEN"), and to re-register at least every two years
thereafter. The regulations also require that a money services business
maintain a list of names and addresses of, and other information about, its
agents and that the list be made available to any requesting law enforcement
agency (through FinCEN). The agent list must be updated annually.
In March 2000, FinCEN adopted additional regulations, implementing the
Bank Secrecy Act that is also addressed to money services businesses. These
regulations require money services businesses, such as the Company, to
report suspicious transactions involving at least $2,000 to FinCEN. The
regulations generally describe three classes of reportable suspicious
transactions - one or more related transactions that the money services
business knows, suspects, or has reason to suspect (1) involve funds derived
from illegal activity or are intended to hide or disguise such funds, (2)
are designed to evade the requirements of the Bank Secrecy Act, or (3)
appear to serve no business or lawful purpose.
Under the USA PATRIOT Act passed by Congress in 2001, the Company is
required to maintain an anti-money laundering compliance program. The
program must include (1) the development of internal policies, procedures
and controls; (2) the designation of a compliance officer; (3) an ongoing
employee training program; and (4) an independent audit function to test the
program. The United States Department of Treasury is expected to issue
regulations specifying the appropriate features and elements of the anti-
money laundering compliance programs for the pawnbrokering and short-term
advance industries.
The Gramm-Leach-Bliley Act requires the Company to generally protect
the confidentiality of its customers' nonpublic personal information and to
disclose to its customers its privacy policy and practices, including those
regarding sharing the customers' nonpublic personal information with third
parties. Such disclosure must be made to customers at the time the customer
relationship is established, at least annually thereafter, and if there is a
change in the Company's privacy policy.
With respect to firearms sales, the Company must comply with the
regulations promulgated by the Department of the Treasury-Bureau of Alcohol,
Tobacco and Firearms, which requires firearms dealers to maintain a
permanent written record of all firearms that it receives or sells. The
Company does not currently sell firearms to the public.
Proposed Regulations
Governmental action to prohibit or restrict short-term advances has
been advocated over the past few years by consumer advocacy groups and by
media reports and stories. The consumer groups and media stories typically
focus on the cost to a consumer for that type of short-term advance, which
is higher than the interest generally charged by credit-card issuers to a
more creditworthy consumer. The consumer groups and media stories often
characterize short-term advance activities as abusive toward consumers.
During the last few years, legislation has been introduced in the United
States Congress and in certain state legislatures, and regulatory
authorities have proposed or publicly addressed the possibility of proposing
regulations, that would prohibit or restrict short-term advances.
Legislation and regulatory action at the state level that affects
consumer lending has recently become effective in a few states and may be
taken in other states. The Company intends to continue, with others in the
short-term advance industry, to oppose legislative or regulatory action that
would prohibit or restrict short-term advances. But if legislative or
regulatory action with that effect were taken on the federal level or in
states such as Texas, in which the Company has a significant number of
stores, that action could have a material adverse effect on the Company's
short-term advance-related activities and revenues. There can be no
assurance that additional local, state, or federal legislation will not be
enacted or that existing laws and regulations will not be amended, which
would materially, adversely impact the Company's operations and financial
condition.
Employees
The Company had approximately 1,531 employees as of March 8, 2004,
including approximately 90 persons employed in executive, administrative and
accounting functions. In addition, Cash & Go, Ltd. had approximately 88
employees as of March 8, 2004. None of the Company's employees are covered
by collective bargaining agreements. The Company considers its employee
relations to be satisfactory.
First Cash Website
The Company's primary website is at http://www.firstcash.com. The
Company makes available, free of charge, at its corporate website its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as
soon as reasonably practicable after they are electronically filed with the
SEC.
Insurance
The Company maintains fire, casualty, theft and public liability
insurance for each of its pawn stores and check cashing/short-term advance
locations in amounts management believes to be adequate. The Company
maintains workers' compensation insurance in Maryland, Missouri, California,
Virginia, Washington, Oregon, South Carolina, Illinois, Washington, D.C.,
Oklahoma, as well as excess employer's indemnification insurance in Texas
and equivalent coverage in Mexico. The Company is a non-subscriber under
the Texas Workers' Compensation Act.
Item 2. Properties
-------------------
The Company currently owns the real estate and buildings for three of
its pawn stores and leases 257 pawn stores and check cashing/short-term
advance locations that are currently open or are in the process of opening.
Leased facilities are generally leased for a term of two to eight years with
one or more options to renew. The Company's existing leases expire on dates
ranging between 2004 and 2016. All current store leases provide for
specified periodic rental payments ranging from approximately $800 to $9,100
per month.
Most leases require the Company to maintain the property and pay the
cost of insurance and property taxes. The Company believes that termination
of any particular lease would not have a material adverse effect on the
Company's operations. The Company's strategy is generally to lease, rather
than purchase, space for its pawnshop and check cashing locations unless the
Company finds what it believes is a superior location at an attractive
price. The Company believes that the facilities currently owned and leased
by it as pawn stores and check cashing/short-term advance locations are
suitable for such purpose. The Company considers its equipment, furniture
and fixtures to be in good condition.
The Company currently leases approximately 14,000 square feet in
Arlington, Texas for its executive offices. The lease, which expires March
31, 2005, currently provides for monthly rental payments of approximately
$24,000. The Company's 50% owned joint venture, Cash & Go, Ltd. leases its
kiosk locations under operating leases generally with terms ranging from one
to five years, with renewal options for certain locations. The joint
venture's existing leases expire on dates ranging between 2004 and 2008.
All current leases provide for specified periodic rental payments ranging
from approximately $1,000 to $1,400 per month.
Item 3. Legal Proceedings
--------------------------
In May 2000, three plaintiffs filed a complaint against Famous Pawn,
Inc., a wholly owned subsidiary of the Company, in the United States
District Court for the District of Maryland (Northern Division). The
allegations consisted of five counts: (1) violation of the federal Truth in
Lending Act; (2) violation of the federal Racketeer Influenced and Corrupt
Organizations Act; (3) violation of the Maryland Interest and Usury Statute;
(4) violation of the Maryland Consumer Loan Law; and (5) violation of the
Maryland Consumer Protection Act. In February 2003, the Company and
plaintiffs reached a settlement of the complaint, which was subsequently
approved by the District Court. Under the terms of the settlement as
approved by the District Court, the plaintiffs agreed to dismiss all
allegations and monetary claims made against the Company. The Company, in
order to expedite the conclusion of this matter and avoid the expenses
associated with a trial, agreed to pay the plaintiffs approximately
$1,100,000, including the plaintiffs' legal fees, and forgive all the
outstanding debt of such customers in the amount of approximately $800,000.
The Company had previously reserved and expensed in prior years an amount
equal to this settlement, and accordingly, the settlement has no impact on
the Company's current operating results. The settlement was completed and
funded in January 2004.
Additionally, the Company is from time to time a defendant (actual or
threatened) in certain other lawsuits and arbitration claims encountered in
the ordinary course of its business, the resolution of which, in the opinion
of management, should not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 2003.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------
The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol "FCFS". The following table sets forth the quarterly high
and low closing sales prices per share for the Common Stock, as reported by
the Nasdaq National Market.
Common Stock
Price Range
---------------------
High Low
------- -------
Year Ended December 31, 2002:
Quarter Ended March 31, 2002.......... $ 8.30 $ 7.10
Quarter Ended June 30, 2002........... 10.60 8.00
Quarter Ended September 30, 2002...... 9.57 6.99
Quarter Ended December 31, 2002....... 11.00 7.85
Year Ended December 31, 2003:
Quarter Ended March 31, 2003.......... $ 10.72 $ 8.56
Quarter Ended June 30, 2003........... 15.14 9.95
Quarter Ended September 30, 2003...... 23.99 14.10
Quarter Ended December 31, 2003....... 27.05 20.04
On March 8, 2004, the closing sales price for the Common Stock as
reported by the Nasdaq National Market was $36.00 per share. On March 8,
2004, there were approximately 55 stockholders of record of the Common
Stock.
No cash dividends have been paid by the Company on its Common Stock.
The dividend and earning retention policies are reviewed by the Board of
Directors of the Company from time to time in light of, among other things,
the Company's earnings, cash flows and financial position.
Item 6. Selected Financial Data
--------------------------------
The information below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7 and the Company's Consolidated Financial Statements and
related notes thereto required by Item 8.
Year Ended December 31,
----------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(in thousands, except per share amounts and certain operating data)
Income Statement Data:
Revenues:
Merchandise sales $ 69,808 $ 56,916 $ 53,893 $ 53,177 $ 50,071
Service charges 71,743 58,196 53,028 46,597 40,630
Check cashing fees 2,749 2,659 2,264 2,216 2,184
Other 1,168 1,022 1,242 1,737 1,158
-------- -------- -------- -------- --------
145,468 118,793 110,427 103,727 94,043
-------- -------- -------- -------- --------
Cost of goods sold and expenses:
Cost of goods sold 41,110 32,890 34,619 34,366 35,157
Operating expenses 61,926 54,090 48,661 44,836 37,199
Interest expense 472 939 2,307 3,749 2,905
Interest income (595) (645) (912) (890) (303)
Depreciation 3,019 2,548 2,283 2,612 1,527
Amortization - - 1,530 1,694 1,475
Administrative expenses 14,807 11,580 9,420 8,217 6,739
-------- -------- -------- -------- --------
120,739 101,402 97,908 94,584 84,699
-------- -------- -------- -------- --------
Income before income taxes 24,729 17,391 12,519 9,143 9,344
Provision for income taxes 9,397 6,451 4,507 3,476 3,097
-------- -------- -------- -------- --------
Income from continuing operations 15,332 10,940 8,012 5,667 6,247
-------- -------- -------- -------- --------
Discontinued operations
Income (loss) from discontinued
operations, net of taxes - - 33 (765) 231
Loss on sale of subsidiary,
net of tax - - (175) - -
-------- -------- -------- -------- --------
Income (loss) from discontinued
operations - - (142) (765) 231
-------- -------- -------- -------- --------
Cumulative effect of change
in accounting principle,
net of taxes (357) - - (2,287) -
-------- -------- -------- -------- --------
Net income $ 14,975 $ 10,940 $ 7,870 $ 2,615 $ 6,478
======== ======== ======== ======== ========
Net income per share:
Basic
Income from continuing
operations $ 1.64 $ 1.24 $ 0.92 $ 0.64 $ 0.72
Income (loss) from
discontinued operations - - (0.02) (0.08) 0.03
Cumulative effect of change
in accounting principle (0.03) - - (0.26) -
-------- -------- -------- -------- --------
Net income $ 1.61 $ 1.24 $ 0.90 $ 0.30 $ 0.75
======== ======== ======== ======== ========
Diluted
Income from continuing
operations $ 1.46 $ 1.14 $ 0.87 $ 0.63 $ 0.67
Income (loss) from
discontinued operations - - (0.02) (0.08) 0.03
Cumulative effect of change
in accounting principle (0.03) - - (0.26) -
-------- -------- -------- -------- --------
Net income $ 1.43 $ 1.14 $ 0.85 $ 0.29 $ 0.70
======== ======== ======== ======== ========
Unaudited pro forma amounts
assuming retroactive
application of change in
accounting principle:
Revenues from continuing
operations $ 152,162 $ 125,886 $ 117,260 $ 107,239 $ 89,439
Income from continuing
operations 15,362 10,790 7,951 5,564 5,535
Basic earnings per share
from continuing operations 1.65 1.22 0.91 0.63 0.64
Diluted earning per share
from continuing operations 1.46 1.12 0.86 0.63 0.60
Operating Data:
Company operated stores:
Locations in operation:
Beginning of the year 190 158 148 147 133
Acquisitions - - 7 2 4
Opened 47 38 11 2 10
Consolidated/closed (2) (6) (8) (3) -
-------- -------- -------- -------- --------
End of the year 235 190 158 148 147
======== ======== ======== ======== ========
End of year location counts:
Pawn stores 160 131 112 116 114
Check cashing/short-term
advance stores 75 59 46 32 33
Pawn receivables $ 20,037 $ 16,624 $ 13,849 $ 14,142 $ 18,326
Average pawn receivables
balance per pawn store $ 125 $ 127 $ 124 $ 122 $ 161
Average inventory per
pawn store $ 97 $ 104 $ 113 $ 148 $ 183
Annualized inventory turnover 2.8x 2.7x 2.3x 1.8x 1.8x
Gross profit percentage on
merchandise sales 41.1% 42.2% 35.8% 35.4% 29.8%
Short-term advance receivables
in pawn stores $ 3,414 $ 3,550 $ 4,200 $ 3,911 $ 2,193
Average short-term advance
receivables in pawn stores
offering short-term advances 47 51 57 51 29
Short-term advance receivables
in check cashing/short-term
advance stores (excluding
Cash & Go, Ltd.) $ 8,609 $ 7,140 $ 5,507 $ 3,990 $ 3,933
Average short-term advance
receivables in check
cashing/short-term advance
stores (excluding Cash &
Go, Ltd.) 115 121 120 125 119
Cash & Go, Ltd. joint venture
kiosks:
End of year location counts 40 59 59 32 10
Short-term advance receivables $ 1,736 $ 1,790 $ 1,885 $ 1,364 $ 228
Average receivables balance
per location $ 43 $ 30 $ 32 $ 43 $ 23 -
Balance Sheet Data:
Working capital $ 60,840 $ 47,187 $ 8,540 $ 41,835 $ 54,333
Total assets 140,064 130,999 122,806 119,118 128,847
Long-term liabilities 11,955 33,525 5,277 44,833 55,560
Total liabilities 22,841 44,479 48,703 53,464 62,324
Stockholders' equity 117,223 86,520 74,103 65,654 66,523
Item 7. Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------------
Results of Operations
---------------------
General
The Company's pawn store revenues are derived primarily from service
charges on pawns, service charges from short-term, unsecured advances
("short-term advances") and the sale of unredeemed goods, or "merchandise
sales." Pledged property is held through the term of the pawn, which is 30
days in Texas, South Carolina, Missouri, Virginia, and Oklahoma, with an
automatic extension period of 15 to 60 days depending on state laws, unless
the pawn is earlier paid or renewed. In Maryland, Washington, D.C. and
Mexico, pledged property is held for 30 days. In the event the borrower
does not pay or renew a pawn within 90 days in South Carolina and Missouri,
60 days in Texas and Oklahoma, 45 days in Virginia, and 30 days in Maryland,
Washington, D.C. and Mexico, the unredeemed collateral is forfeited to the
Company and becomes inventory available for general liquidation or sale in
one of the Company's stores. The statutory service charges on pawns at its
Texas stores range from 12% to 240% on an annualized basis depending on the
size of the pawn, and from 39% to 240% on an annualized basis at the
Company's Oklahoma stores. Pawns made in the Maryland stores bear service
charges of 144% to 240% on an annualized basis with a $6 minimum charge per
month, while pawns in Virginia earn 120% to 144% annually with a $5 minimum
charge per month. In Washington D.C., a flat $2 charge per month applies to
all pawns up to $40, and a, 18% to 60% annualized service charge applies to
pawns of greater than $40. In Missouri, pawns bear a total service and
storage charge of 180% to 240% on an annualized basis with a $2.50 minimum
charge per month, and South Carolina rates range from 100% to 300%. In
Mexico, pawns bear an annualized rate of 240%. The Company accrues pawn
service charge revenue on a constant yield basis over the life of the pawn
for all pawns that the Company deems collection to be probable based on
historical pawn redemption statistics. If a pawn is not repaid prior to the
expiration of the automatic extension period, if applicable, the property is
forfeited to the Company and transferred to inventory at a value equal to
the principal amount of the loan, exclusive of accrued interest.
The Company's check cashing and short-term advance revenues are derived
primarily from check cashing fees, fees on short-term advances, and fees
from the sale of money orders and wire transfers. Short-term advances carry
a 13.9% to 40% service charge, which vary by state and life of the advance.
The Company recognizes service charge income on short-term advances on a
constant-yield basis over the life of the advance, which is generally 30
days or less. The net defaults on short-term advances and changes in the
bad debt valuation reserve are charged to bad debt expense.
Although the Company has had significant increases in revenues due
primarily to new store openings, the Company has also incurred increases in
operating expenses attributable to the additional stores, and increases in
administrative expenses attributable to building a management team and the
support personnel required by the Company's growth. Operating expenses
consist of all items directly related to the operation of the Company's
stores, including salaries and related payroll costs, rent, utilities,
equipment depreciation, advertising, property taxes, licenses, supplies,
security and bad debt and collection expenses for both check cashing and
short-term advances. Administrative expenses consist of items relating to
the operation of the corporate office, including the salaries of corporate
officers, area supervisors and other management, accounting and
administrative costs, liability and casualty insurance, outside legal and
accounting fees and stockholder-related expenses.
Year Ended December 31,
------------------------
2003 2002 2001
---- ---- ----
Income statement items as a
percent of total revenues:
Revenues:
Merchandise sales .......... 48.0% 47.9% 48.8%
Service charges ............ 49.3 49.0 48.0
Check cashing fees ......... 1.9 2.1 2.1
Other ...................... 0.8 1.0 1.1
Expenses:
Operating expenses ......... 42.6 45.5 44.1
Interest expense ........... 0.3 0.8 1.3
Interest income ............ (0.4) (0.6) (0.1)
Depreciation ............... 2.1 2.1 2.0
Amortization ............... - - 1.4
Administrative expenses .... 10.2 9.7 8.5
Gross profit as a percent of
merchandise sales .......... 41.1 42.2 35.8
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and related revenues and expenses and
disclosure of gain and loss contingencies at the date of the financial
statements. Such estimates and assumptions are subject to a number of risks
and uncertainties, which may cause actual results to differ materially from
the Company's estimates. The significant accounting policies which we
believe are the most critical to aid in fully understanding and evaluating
our reported financial results include the following:
Principles of consolidation - The accompanying consolidated financial
statements of the Company include the accounts of its wholly owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated. In addition, effective December 31, 2003, the accompanying
consolidated financial statements also include the accounts of Cash & Go,
Ltd., a Texas limited partnership, which owns financial services kiosks
inside convenience stores. The Company presently has a 50% ownership
interest in the partnership, which it has historically accounted for by the
equity method of accounting as neither partner has control. Through
December 31, 2003, the Company recorded its 50% share of the partnership's
earnings or losses in its consolidated financial statements. Effective
December 31, 2003, when the Company adopted FASB Interpretation No. 46(R) -
Consolidation of Variable Interest Entities, the Company included the
balance sheet accounts of Cash & Go, Ltd., in its consolidated financial
statements. The Company recorded a non-recurring change in accounting
principle charge of $357,000 net of income tax benefit on December 31, 2003
in order to reflect the other partner's share of accumulated losses in the
partnership.
Receivables and income recognition - Receivables on the balance sheet
consist of pawn and short-term advances. Pawns are made on the pledge of
tangible personal property. The Company accrues pawn service charge revenue
on a constant-yield basis over the life of the pawn for all pawns that the
Company deems collection to be probable based on historical pawn redemption
statistics. If the pawn is not repaid, the principal amount pawned becomes
the carrying value of the forfeited collateral (inventory), which is held
for sale. Short-term advances are made for thirty days or less. The
Company recognizes the service charges associated with short-term advances
on a constant-yield basis over the term of the short-term advance.
Bad Debts - An allowance is provided for losses on active short-term
advances and service charges receivable based upon expected default rates,
net of estimated future recoveries of previously defaulted short-term
advances and service charges receivable. The Company considers short-term
advances to be in default if they are not repaid on the due date, and writes
off the principal amount and service charges receivable as of the default
date, leaving only active advances in the reported balance. Net defaults
and changes in the short-term advance allowance are charged to bad debt
expense, which is included in operating expenses.
Inventories - Inventories represent merchandise purchased directly from
the public and merchandise acquired from forfeited pawns. Inventories
purchased directly from customers are recorded at cost. Inventories from
forfeited pawns are recorded at the amount of the pawn principal on the
unredeemed goods. The cost of inventories is determined on the specific
identification method. Inventories are stated at the lower of cost or
market; accordingly, inventory valuation allowances are established when
inventory carrying values are in excess of estimated selling prices, net of
direct costs of disposal. Management has evaluated inventory and determined
that a valuation allowance is not necessary.
Long-lived assets - Long-lived assets (i.e., property, plant and
equipment and intangible assets) are reviewed for impairment whenever events
or changes in circumstances indicate that the net book value of the asset
may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use
of the asset is less than the net book value of the asset. Generally, the
amount of the impairment loss is measured as the difference between the net
book value of the assets and the estimated fair value of the related assets.
Management does not believe any assets have been impaired at December 31,
2003.
Goodwill - Goodwill consists of the excess of purchase price over net
assets acquired. Excess purchase price over net assets acquired was
amortized on a straight-line basis over an estimated useful life of forty
years through December 31, 2001, in June 2001, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets, which is effective as of January 1, 2002. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002. Under SFAS
No. 142, goodwill is no longer amortized, but reviewed for impairment
annually, or more frequently if certain indicators arise. The Company
completed the transitional fair value impairment test and determined that no
impairment of recorded goodwill existed at January 1, 2002. The Company has
also determined that no impairment existed at December 31, 2002 and 2003.
Subsequent impairment losses, if any will be reflected in operating income
or loss in the consolidated statement of income for the period in which such
loss is realized.
Results of Operations
Twelve Months Ended December 31, 2003 Compared to Twelve Months Ended
December 31, 2002
Total revenues increased 22% to $145,468,000 for the fiscal year ended
December 31, 2003 ("Fiscal 2003") as compared to $118,793,000 for the fiscal
year ended December 31, 2002 ("Fiscal 2002"). The change resulted from an
increase in revenues of $15,193,000 generated by the 85 pawn and check
cashing/short-term advance stores which were opened during Fiscal 2002 and
Fiscal 2003, an increase of $13,121,000 at the 150 stores which were in
operation during all of Fiscal 2002 and Fiscal 2003, net of a decrease in
revenues of $1,639,000 from the 8 stores closed or consolidated during
Fiscal 2002 and Fiscal 2003. The Company attributes the increased revenues
in its existing stores to the maturation of 18 stores opened in 2001 and to
favorable economic and demographic trends that increased demand for the
Company's products and services. Of the $26,675,000 increase in total
revenues, 48%, or $12,892,000, was attributable to increased merchandise
sales, 51%, or $13,547,000 was attributable to a net increase in service
charges on pawn and short-term advances, the remaining 1%, or $236,000 was
attributable to increased check cashing fees and other income. Service
charges from short-term advances increased from $36,473,000 in Fiscal 2002
to $42,939,000 in Fiscal 2003, while service charges from pawns increased
from $21,723,000 in Fiscal 2002 to $28,804,000 in Fiscal 2003. Of the
$13,547,000 net increase in service charges, an increase of $6,466,000 was
attributable to short-term advance service charges, while $7,081,000 was
attributable to an increase in pawn service charges. As a percentage of
total revenues, merchandise sales remained unchanged at 48% during Fiscal
2003 and Fiscal 2002, service charges remained unchanged at 49% during
Fiscal 2003 and Fiscal 2002, and check cashing fees and other income
remained unchanged at 3% during Fiscal 2003 and Fiscal 2002.
The aggregate receivables balance increased 24% from $27,314,000 at
December 31, 2002 to $33,796,000 at December 31, 2003. Of the $6,482,000
increase, an increase of $1,736,000 was attributable to the consolidation of
Cash & Go, Ltd., the Company's 50% owned joint venture, an increase of
$1,803,000 was attributable to growth at the 47 pawn and check
cashing/short-term advance stores opened since December 31, 2002, and an
increase of $2,943,000 was attributable to the 188 pawn stores and check
cashing/short-term advance stores, which were in operation as of December
31, 2003 and 2002. The aggregate receivables balance at December 31, 2003
was comprised of $20,037,000 of pawn loan receivables and $13,759,000 of
short-term advance receivables, compared to $16,624,000 of pawn loan
receivables and $10,690,000 of short-term advance receivables at December
31, 2002. The annualized yield on the average pawn loan receivables balance
was 157% during Fiscal 2003 compared to 143% during Fiscal 2002. The
annualized yield, net of bad debt expense, on the average short-term advance
receivables balance was 270% during Fiscal 2003 compared to 273% during
Fiscal 2002.
Gross profit as a percentage of merchandise sales decreased from 42%
during Fiscal 2002 to 41% during Fiscal 2003. Sales of scrap jewelry had a
negative effect on gross profit margins during Fiscal 2002 and Fiscal 2003.
Factoring out the negative impact of scrap jewelry sales, margins would have
been 44% and 45% during Fiscal 2002 and Fiscal 2003, respectively.
Operating expenses increased 14% to $61,926,000 during Fiscal 2003
compared to $54,090,000 during Fiscal 2002, primarily as a result of the net
addition of 45 pawn stores and check cashing/short-term advance stores in
Fiscal 2003, which is a 24% increase in store count. The Company's net bad
debt expense relating to short-term advances increased from $8,669,000 in
Fiscal 2002 to $9,878,000 in Fiscal 2003 as a result of the increased short-
term advance service charges. Administrative expenses increased 28% to
$14,807,000 during Fiscal 2003 compared to $11,580,000 during Fiscal 2002
due primarily to additional employee costs necessary to support the growth
in store counts. Interest expense decreased to $472,000 in Fiscal 2003
compared to $939,000 in Fiscal 2002 as a result of lower average outstanding
debt balances and lower average interest rates during Fiscal 2003. Interest
income decreased to $595,000 in Fiscal 2003, compared to $645,000 in Fiscal
2002.
For Fiscal 2003 and 2002, the Company's effective federal income tax
rates of 38% and 37%, respectively, differed from the statutory tax rate of
approximately 34% primarily as a result of state income taxes, utilization
of tax net operating loss carry forwards from acquisitions, and amortization
of non-deductible intangible assets.
Twelve Months Ended December 31, 2002 Compared to Twelve Months Ended
December 31, 2001
Total revenues increased 8% to $118,793,000 for the fiscal year ended
December 31, 2002 ("Fiscal 2002") as compared to $110,427,000 for the fiscal
year ended December 31, 2001 ("Fiscal 2001"). The change resulted from an
increase in revenues of $7,266,000 generated by the 56 pawn and check
cashing/short-term advance stores which were opened during Fiscal 2001 and
Fiscal 2002, an increase of $4,576,000 at the 134 stores which were in
operation during all of Fiscal 2001 and Fiscal 2002, net of a decrease in
revenues of $3,476,000 from the 14 stores closed or consolidated during
Fiscal 2001 and Fiscal 2002. The Company attributes the increased revenues
in its existing stores to favorable economic and demographic trends that
increased demand for the Company's products and services. Of the $8,366,000
increase in total revenues, 36%, or $3,023,000, was attributable to
increased merchandise sales, 62%, or $5,168,000 was attributable to a net
increase in service charges on pawn and short-term advances, 5%, or $395,000
was attributable to increased check cashing fees, and the remaining decrease
of $220,000, or 3%, was attributable to a decrease in other income. Service
charges from short-term advances increased from $33,314,000 in Fiscal 2001
to $36,473,000 in Fiscal 2002, while service charges from pawns increased
from $19,714,000 in Fiscal 2001 to $21,723,000 in Fiscal 2002. Of the
$5,168,000 net increase in service charges, an increase of $3,159,000 was
attributable to short-term advance service charges, while $2,009,000 was
attributable to an increase in pawn service charges. As a percentage of
total revenues, merchandise sales decreased from 49% to 48% during Fiscal
2002 as compared to Fiscal 2001, service charges increased from 48% to 49%,
and check cashing fees and other income remained unchanged at 3% during
Fiscal 2002 and Fiscal 2001.
The aggregate receivables balance increased 16% from $23,556,000 at
December 31, 2001 to $27,314,000 at December 31, 2002. Of the $3,758,000
increase, an increase of $1,798,000 was attributable to growth at the 38
pawn and check cashing/short-term advance stores opened since December 31,
2001, and an increase of $1,960,000 was attributable to the 152 pawn stores
and check cashing/short-term advance stores, which were in operation as of
December 31, 2002 and 2001. The aggregate receivables balance at December
31, 2002 was comprised of $16,624,000 of pawn loan receivables and
$10,690,000 of short-term advance receivables, compared to $13,849,000 of
pawn loan receivables and $9,707,000 of short-term advance receivables at
December 31, 2001. The annualized yield on the average pawn loan receivables
balance was 143% during Fiscal 2002 compared to 141% during Fiscal 2001.
The annualized yield, net of bad debt expense, on the average short-term
advance receivables balance was 273% during Fiscal 2002 compared to 280%
during Fiscal 2001.
Gross profit as a percentage of merchandise sales increased from 36%
during Fiscal 2001 to 42% during Fiscal 2002. Sales of scrap jewelry had a
negative effect on gross profit margins during Fiscal 2001 and Fiscal 2002.
Factoring out the negative impact of scrap jewelry sales, margins would have
been 41% and 44% during Fiscal 2001 and Fiscal 2002, respectively.
Operating expenses increased 11% to $54,090,000 during Fiscal 2002
compared to $48,661,000 during Fiscal 2001, primarily as a result of the net
addition of 32 pawn stores and check cashing/short-term advance stores in
Fiscal 2002, which is a 20% increase in store count. The Company's net bad
debt expense relating to short-term advances decreased from $8,684,000 in
Fiscal 2001 to $8,669,000 in Fiscal 2002 as a result of increased focus on
collection efforts. Administrative expenses increased 23% to $11,580,000
during Fiscal 2002 compared to $9,420,000 during Fiscal 2001 due primarily
to additional employee costs necessary to support the growth in store
counts. Interest expense decreased to $939,000 in Fiscal 2002 compared to
$2,307,000 in Fiscal 2001 as a result of lower average outstanding debt
balances and lower average interest rates during Fiscal 2002. Interest
income decreased to $645,000 in Fiscal 2002 compared to $912,000 in Fiscal
2001. Amortization expense was not recorded in Fiscal 2002 due to the
January 1, 2002 implementation of a new accounting pronouncement, SFAS 142,
which eliminated the amortization of goodwill. Amortization expense in
Fiscal 2001 was $1,530,000.
For Fiscal 2002 and 2001, the Company's effective federal income tax
rates of 37% and 36%, respectively, differed from the statutory tax rate of
approximately 34% primarily as a result of state income taxes, utilization
of tax net operating loss carry forwards from acquisitions, and amortization
of non-deductible intangible assets.
Liquidity and Capital Resources
The Company's operations and growth have been financed with funds
generated from operations and bank borrowings.
The Company maintains a combined long-term line of credit with two
commercial lenders (the "Credit Facility"). The Credit Facility provides a
$25,000,000 long-term line of credit that matures on August 9, 2005 and
bears interest at the prevailing LIBOR rate (which was approximately 1.1% at
December 31, 2003) plus an applicable margin based on a defined leverage
ratio for the Company. Based on the Company's existing leverage ratio, the
margin is currently 1.375%, the most favorable rate provided under the terms
of the agreement. Amounts available under the Credit Facility are limited
to 300% of the Company's earnings before income taxes, interest,
depreciation and amortization for the trailing twelve months. At December
31, 2003, the Company had $19,000,000 available for additional borrowings.
Under the terms of the Credit Facility, the Company is required to maintain
certain financial ratios and comply with certain technical covenants. The
Company was in compliance with the requirements and covenants of the Credit
Facility as of December 31, 2003 and March 8, 2004. The Company is required
to pay an annual commitment fee of 1/5 of 1% on the average daily-unused
portion of the Credit Facility commitment. The Company's Credit Facility
contains provisions which will allow the Company to repurchase stock and/or
pay cash dividends within certain parameters. Substantially all of the
unencumbered assets of the Company have been pledged as collateral against
indebtedness under the Credit Facility.
Subsequent to December 31, 2003, the Company renewed and extended its
long-term line of credit. The Credit Facility now matures on April 15,
2006. In addition, certain terms in the agreement were modified. The
interest rate margin added to the LIBOR rate is fixed at 1.375%. The annual
commitment of the average daily-unused portion of Credit Facility commitment
is reduced to 1/8 of 1%. As of March 8, 2004, the Company had repaid all
amounts owed under the Credit Facility and had no interest-bearing debt
outstanding.
As of December 31, 2003, the Company's primary sources of liquidity
were $15,847,000 in cash and cash equivalents, $3,918,000 in service charges
receivable, $33,796,000 in receivables, $15,588,000 in inventories and
$19,000,000 of available and unused funds under the Company's Credit
Facility. The Company had working capital as of December 31, 2003 of
$60,840,000 and liabilities to equity ratio of 0.2 to 1.
Certain transactions presented in the restated Statements of Cash Flows
for the years ended December 31, 2003, 2002 and 2001, respectively, have
been reclassified between certain sections of the Statements of Cash Flows.
A summary of these reclassifications showing their effect on the restated
Statements of Cash Flows is provided in Note 17 to the Consolidated
Financial Statements.
The Company utilized positive cash flows from operations in 2003 to
fund investing and financing activities primarily related to opening new
stores, to fund growth of receivables and inventory balances in existing
stores and to reduce outstanding debt. Net cash provided by operating
activities of the Company during the year ended December 31, 2003 was
$32,606,000, consisting primarily of income from continuing operations of
$15,332,000 and adjusted for non-cash depreciation of $3,019,000, the tax
benefit from exercise of employee stock options of $5,408,000 and the non-
cash short-term advance loss provision of $9,878,000, less an increase in
accrued service charges receivable, inventories, and current and deferred
income taxes of $553,000, $718,000, and $472,000, respectively, in addition
to decreases in prepaid expenses, of $167,000 and increases in accounts
payable of $545,000. Net cash used for investing activities during the year
ended December 31, 2003 was $16,312,000, which was primarily comprised of
cash used to fund pawn receivables of $4,635,000, cash used to fund short-
term advance receivables of $11,211,000, cash paid for fixed asset additions
of $5,202,000, net of a decrease in the Cash & Go, Ltd. joint venture
receivable of $2,633,000 and the cash from the consolidation of Cash & Go,
Ltd. of $2,103,000. The opening of 47 new stores in 2003 contributed
significantly to the increase in receivables and the volume of fixed asset
additions. Net cash used by financing activities was $13,182,000 during the
year ended December 31, 2003, which consisted of net repayments of the
Company's debt of $23,502,000, net of a decrease in notes receivable from
officers of $4,228,000 and proceeds from exercises of stock options and
warrants of $6,092,000. The non-recurring cash flows from the repayment of
the notes receivable from officers and the proceeds from exercises of stock
options and warrants were utilized to reduce the Company's debt.
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, although in the
Statements of Cash Flows these are classified as investing cash flows. For
fiscal 2003, total cash flows from operations were $32,606,000 while net
cash outflows related to pawn receivables and short-term advance receivables
were $4,635,000 and $11,211,000, respectively. The combined net cash flows
from operations and pawn and short-term advance receivables totaled
$16,760,000 for fiscal 2003. For fiscal 2002, cash flows from operations
were $23,333,000 and net cash outflows related to pawn receivables and
short-term advance receivables were $3,413,000 and $9,652,000, respectively.
The combined net cash flows from operations and pawn and short-term advance
receivables totaled $10,268,000 for fiscal 2002. For fiscal 2001, cash flows
from operations were $25,096,000 and net cash flows related to pawn
receivables and short-term advance receivables were a $3,753,000 source of
cash and $10,266,000 use of cash, respectively. The combined net cash
flows from operations and pawn and short-term advance receivables totaled
$18,583,000 for fiscal 2001.
The profitability and liquidity of the Company is affected by the
amount of pawn loans outstanding, which is controlled in part by the
Company's lending decisions. The Company is able to influence the frequency
of pawn redemption by increasing or decreasing the amount pawned in relation
to the resale value of the pledged property. Tighter credit decisions
generally result in smaller pawns in relation to the estimated resale value
of the pledged property and can thereby decrease the Company's aggregate
pawn balance and, consequently, decrease pawn service charges.
Additionally, small advances in relation to the pledged property's estimated
resale value tend to increase pawn redemptions and improve the Company's
liquidity. Conversely, providing larger pawns in relation to the estimated
resale value of the pledged property can result in an increase in the
Company's pawn service charge income. Also, larger average pawn balances
can result in an increase in pawn forfeitures, which increases the quantity
of goods on hand and, unless the Company increases inventory turnover,
reduces the Company's liquidity. The Company's renewal policy allows
customers to renew pawns by repaying all accrued interest on such pawns,
effectively creating a new pawn transaction.
The amount of short-term advances outstanding and related potential bad
debt expense also affect the profitability and liquidity of the Company. An
allowance for losses is provided on active short-term advances and service
charges receivable, based upon expected default rates, net of estimated
future recoveries of previously defaulted short-term advances and service
charges receivable. The Company considers short-term advances to be in
default if they are not repaid on the due date, and writes off the principal
amount and service charges receivable as of the default date, leaving only
active receivables in the reported balances. Net defaults and changes in
the short-term advance allowance are charged to bad debt expense, which is
included in operating expenses.
In addition to these factors, merchandise sales and the pace of store
expansions affect the Company's liquidity. Management believes that the
Credit Facility and cash generated from operations will be sufficient to
accommodate the Company's current operations for fiscal 2004. The Company
has no significant capital commitments. The Company currently has no
written commitments for additional borrowings or future acquisitions;
however, the Company intends to continue to grow and may seek additional
capital to facilitate expansion. The Company will evaluate acquisitions, if
any, based upon opportunities, acceptable financing, purchase price,
strategic fit and qualified management personnel.
The Company currently intends to continue to engage in a plan of
expansion primarily through new store openings. During fiscal 2004, the
Company currently plans to open 50 new stores, comprised of both check
cashing/short-term advance locations, primarily located in Texas, and
pawnshops, primarily in Mexico. The majority of this expansion will be
funded through operating cash flows. Management believes that the Company
has the ability to obtain an increase to the Credit Facility if necessary to
complete funding of the expansion plans. While the Company continually
looks for, and is presented with potential acquisition candidates, the
Company has no definitive plans or commitments for further acquisitions. If
the Company encounters an attractive opportunity to acquire new stores in
the near future, the Company will seek additional financing, the terms of
which will be negotiated on a case-by-case basis. Between January 1, 2004
and March 8, 2004, the Company opened 1 new check cashing/short-term advance
location and 9 pawnshops, while 2 pawnshops located in the U.S. were
closed.
Contractual Commitments.
A tabular disclosure of contractual obligations at December 31, 2003
including Cash & Go, Ltd. is as follows:
Payments due by period
-----------------------------------------------
(in thousands)
Less More
than 1 1 - 3 3 - 5 than 5
Total year years years years
------ ------ ------ ------ ------
Long-term debt ......... $ 6,000 $ - $ 6,000 $ - $ -
Operating leases ....... 39,752 9,652 22,044 5,601 2,455
------ ------ ------ ------ ------
Total $45,752 $ 9,652 $28,044 $ 5,601 $ 2,455
====== ====== ====== ====== ======
Off-Balance Sheet Arrangements
As of December 31, 2003, the Company had no off-balance sheet
arrangements.
Inflation
The Company does not believe that inflation has had a material effect
on the amount of pawns and short-term advances made or unredeemed goods sold
by the Company or its results of operation.
Seasonality
The Company's retail business is seasonal in nature with its highest
volume of merchandise sales occurring during the first and fourth calendar
quarters of each year. The Company's lending and short-term advance
activities are also seasonal, with the highest volume of lending activity
occurring during the third and fourth calendar quarters of each year.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46(R) ("FIN 46"),
Consolidation of Variable Interest Entities. FIN 46 addresses consolidation
by business enterprises of variable interest entities (formerly special
purpose entities). In general, a variable interest entity is a corporation,
partnership, trust or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. The objective of FIN 46 is not to
restrict the use of variable interest entities, but to improve financial
reporting by companies involved with variable interest entities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements are
effective for the first period that ends after March 15, 2004, however, the
Company has elected to adopt the requirements effective December 31, 2003.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------
Market risks relating to the Company's operations result primarily from
changes in interest rates, foreign exchange rates, and gold prices. The
Company does not engage in speculative or leveraged transactions, nor does
it hold or issue financial instruments for trading purposes.
Interest Rate Risk
The Company is exposed to market risk in the form of interest rate risk
in regards to its long-term line of credit. As of March 8, 2004 the line of
credit had no balance outstanding, therefore the Company's interest rate
risk for 2004 is immaterial.
The Company's cash and cash equivalents are invested in money market
accounts. Accordingly, the Company is subject to changes in market interest
rates. However, the Company does not believe a change in these rates would
have a material adverse effect on the Company's operating results, financial
condition, and cash flows.
Foreign Currency Risk
A majority of the Company's pawn loans in Mexico are currently
contracted and settled in U.S. dollars and therefore the Company bears
limited exchange risk from its operations in Mexico. The Company maintained
certain Mexican peso denominated pawn loan balances at December 31, 2003,
which converted to a U.S. dollar equivalent of $879,000. The Company also
maintained certain peso denominated bank balances at December 31, 2003,
which converted to a U.S. dollar equivalent of $122,000. A 10% increase in
the peso to U.S. dollar exchange rate would increase the Company's foreign
currency translation exposure by approximately $100,000.
Gold Price Risk
A significant and sustained decline in the price of gold would
negatively impact the value of jewelry inventories held by the Company and
the value of jewelry pledged as collateral by pawn customers. As a result,
the Company's profit margins on existing jewelry inventories would be
negatively impacted, as would be the potential profit margins on jewelry
currently pledged as collateral by pawn customers in the event it is
forfeited by the pawn customer. In addition, a decline in gold prices could
result in a lower balance of pawn loans outstanding for the Company, as
customers would receive lower loan amounts for individual pieces of jewelry.
The Company believes that many customers would be willing to add additional
items of value to their pledge in order to obtain the desired loan amount,
thus mitigating a portion of this risk.
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
The financial statements prepared in accordance with Regulation S-X are
included in a separate section of this report. See the index to Financial
Statements at Item 15(a)(1) and (2) of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------
There have been no disagreements concerning matters of accounting
principles or financial statement disclosure between the Company and
Deloitte & Touche LLP requiring disclosure hereunder.
Item 9a. Controls and Procedures
---------------------------------
Subsequent to the filing of the Company's original Form 10-K for the
period ended December 31, 2003, the Company discovered certain errors in the
classification of certain transaction types presented in its Statements of
Cash Flows, which are described in Note 17 to these 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 December 31, 2003, 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 Statements of Cash Flows and did not affect the Company's
general ledger account balances nor its prepared Balance Sheets, Statements
of Income, Statements of Changes in Stockholders' Equity or Notes to the
Consolidated Financial Statements. Accordingly, based on their evaluation
as of December 31, 2003, the Company's principal executive officer and
principal financial officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
There 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 III
--------
Item 10. Directors and Executive Officers of the Registrant
------------------------------------------------------------
The information required by this item with respect to the directors,
executive officers and compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the information provided under the headings
"Election of Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance," respectively, contained in the Company's
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for the Company's Annual Meeting
of Stockholders.
Item 11. Executive Compensation
--------------------------------
The information required by this item is incorporated by reference from
the information provided under the heading "Executive Compensation" of the
Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
----------------------------------------------------------------------------
Related Stockholder Matters
---------------------------
Equity Compensation Plan Information
The following table gives information about the Company's common stock
that may be issued upon the exercise of options under its 1990 Stock Option
Plan (approved by the shareholders) and 1999 Stock Option Plan (approved by
the shareholders) as of December 31, 2003. Additionally, the Company issues
warrants to purchase shares of common stock to certain key members of
management, members of the Board of Directors that are not employees or
officers, and to other third parties. The issuance of warrants is not
approved by shareholders, and each issuance is generally negotiated between
the Company and such recipients. The issuance of warrants to outside
consultants is accounted for using the fair value method prescribed by FAS
No. 123.
Number of securities
remaining available for
Number of securities to Weighted average future issuance under
be issued upon exercise exercise price equity compensation plans
of outstanding options, of outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column A)
Plan Category (A) (B) (C)
------------- --- --- ---
Equity Compensation Plans
Approved by Security
Holders 630,000 $13.69 1,088,000
Equity Compensation Plans
Not Approved by
Security Holders 1,217,711 $ 8.07 -
--------- ---------
Total 1,847,711 $ 9.98 1,088,000
========= =========
Other information required by this item is incorporated herein by
reference from the information provided under the heading "Security
Ownership of Certain Beneficial Owners and Management" of the Company's
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
--------------------------------------------------------
The information required by this item is incorporated herein by reference
from the information provided in the Company's Proxy Statement.
Item 14. Principal Accounting Fees and Services
-----------------------------------------------
The information required by this item is incorporated by reference from
the information provided in the Company's proxy Statement under the
discussion of the Company Audit Committee and under the item regarding
shareholder ratification of the Company's independent accountants.
PART IV
-------
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements: Page
Report of Independent Registered Public
Accounting Firm.................................. F-1
Consolidated Balance Sheets........................ F-2
Consolidated Statements of Income.................. F-3
Consolidated Statements of Cash Flows (as restated) F-4
Consolidated Statements of Changes in Stockholders'
Equity........................................... F-5
Notes to Consolidated Financial Statements......... F-6
(b) Reports on Form 8-K.
October 22, 2003 Item 12. Results of Operations and
Financial Condition. The
Company reported its financial
results for its quarter ended
September 30, 2003.
(c) Exhibits:
3.1(4) Amended Certificate of Incorporation
3.2(5) Amended Bylaws
4.1(2) Common Stock Specimen
10.1(1) First Cash, Inc. 1990 Stock Option Plan
10.2(7) Employment Agreement -- Rick Powell
10.3(7) Employment Agreement -- Rick L. Wessel
10.4(11) Employment Agreement -- Alan Barron
10.5(3) Acquisition Agreement -- Miraglia, Inc.
10.6(4) Acquisition Agreement for Twelve Pawnshops
in South Carolina
10.7(4) Acquisition Agreement for One Iron Ventures, Inc.
10.8(4) First Cash Financial Services, Inc. 1999 Stock
Option Plan
10.9(8) First Addendum to Executive Employment
Agreement - Rick Powell
10.10(8) First Addendum to Executive Employment
Agreement - Rick Wessel
10.11(9) Second Addendum to Executive Employment
Agreement - Rick Powell
10.12(9) Second Addendum to Executive Employment
Agreement - Rick Wessel
10.13(11) Third Addendum to Executive Employment
Agreement - Rick Powell
10.14(11) Third Addendum to Executive Employment
Agreement - Rick Wessel
10.15(11) First Addendum to Executive Employment
Agreement - Alan Barron
10.16(10) Executive Incentive Compensation Plan
14.1(11) Code of Ethics
21.1(11) Subsidiaries
23.1(11) Consent of Independent Registered Public Accounting
Firm, Deloitte & Touche LLP
31.1(11) Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2(11) Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(11) Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 as adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2(11) Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 as adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(1) Filed as an exhibit to the Company's Registration Statement on
Form S-18 (No. 33-37760-FW) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 33-48436) and incorporated herein by reference.
(3) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal
year ended July 31, 1998 (File No. 0 - 19133) and incorporated herein
by reference.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-3
dated January 22, 1999 (File No. 333-71077) and incorporated herein by
reference.
(5) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0 - 19133) and incorporated herein
by reference.
(6) Filed as an exhibit to the quarterly report on Form 10-Q for the
quarter ended March 31, 2000 (File No. 0 - 19133) and incorporated
herein by reference.
(7) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2000 (File No. 0 - 19133) and incorporated herein
by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2001 (File No. 0 - 19133) and incorporated herein
by reference.
(9) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2002 (File No. 0 - 19133) and incorporated herein
by reference.
(10) Filed as Exhibit A to the Company's Definitive Proxy Statement filed
on April 30, 2003.
(11) Filed herewith.
(d) All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FIRST CASH FINANCIAL SERVICES, INC.
/s/PHILLIP E. POWELL
--------------------------------------------
Phillip E. Powell, Chief Executive Officer
October 8, 2004
/s/R. DOUGLAS ORR
--------------------------------------------
R. Douglas Orr, Principal Accounting Officer
October 8, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/PHILLIP E. POWELL Chairman of the Board and October 8, 2004
--------------------- Chief Executive Officer
Phillip E. Powell
/s/RICK L. WESSEL Director, President, October 8, 2004
--------------------- Secretary and Treasurer
Rick L. Wessel
/s/JOE R. LOVE Director October 8, 2004
---------------------
Joe R. Love
/s/RICHARD T. BURKE Director October 8, 2004
---------------------
Richard T. Burke
/s/TARA SCHUCHMANN Director October 8, 2004
---------------------
Tara Schuchmann
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
First Cash Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of First Cash
Financial Services, Inc. and subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of First Cash
Financial Services, Inc. and subsidiaries at December 31, 2003 and 2002,
and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2003 in conformity
with accounting principles generally accepted in the United States of
America.
As described in Note 2, effective January 1, 2002, in connection with the
adoption of Statement of Financial Accounting Standards No. 142 Goodwill
and Other Intangible Assets, the Company ceased amortization of goodwill.
As described in Note 3, effective December 31, 2003, in connection with
the adoption of Financial Accounting Standards Board Interpretation
No. 46(R) Consolidation of Variable Interest Entities, the Company
consolidated into its financial statements its 50% owned joint venture,
Cash & Go, Ltd.
As described in Note 17, the statements of cash flows for the years ended
December 31, 2003, 2002 and 2001 have been restated.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
March 8, 2004 (October 8, 2004 as to the effects of the restatement
described in Note 17)
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2003 2002
------- -------
(in thousands, except share data)
ASSETS
Cash and cash equivalents..................... $ 15,847 $ 12,735
Service charges receivable.................... 3,918 3,174
Receivables................................... 33,796 27,314
Inventories................................... 15,588 13,648
Prepaid expenses and other current assets..... 964 1,161
Income taxes receivable....................... 1,613 109
------- -------
Total current assets ........................ 71,726 58,141
Property and equipment, net................... 14,418 11,750
Goodwill...................................... 53,237 53,194
Receivable from Cash & Go, Ltd................ - 7,351
Other......................................... 683 563
------- -------
$140,064 $130,999
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt............. $ - $ 900
Accounts payable ............................. 1,054 1,104
Accrued expenses.............................. 9,832 8,950
------- -------
Total current liabilities ................... 10,886 10,954
Revolving credit facility..................... 6,000 28,000
Long-term debt, net of current portion........ - 602
Deferred income taxes......................... 5,955 4,923
------- -------
22,841 44,479
------- -------
Commitments and contingencies (see Note 11)
Stockholders' equity:
Preferred stock; $.01 par value; 10,000,000
shares authorized; no shares issued or
outstanding................................ - -
Common stock; $.01 par value; 20,000,000
shares authorized; 10,765,568 and 9,525,368
shares issued, respectively; 10,111,387 and
8,871,187 shares outstanding, respectively 109 96
Additional paid-in capital .................. 63,395 51,908
Retained earnings ........................... 56,734 41,759
Notes receivable from officers .............. - (4,228)
Common stock held in treasury, at cost,
654,181 shares ............................ (3,015) (3,015)
------- -------
117,223 86,520
------- -------
$140,064 $130,999
======= =======
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
(in thousands, except per share amounts)
Revenues:
Merchandise sales ..................... $ 69,808 $ 56,916 $ 53,893
Service charges ....................... 71,743 58,196 53,028
Check cashing fees .................... 2,749 2,659 2,264
Other ................................. 1,168 1,022 1,242
------- ------- -------
145,468 118,793 110,427
------- ------- -------
Cost of goods sold and expenses:
Cost of goods sold .................... 41,110 32,890 34,619
Operating expenses .................... 61,926 54,090 48,661
Interest expense ...................... 472 939 2,307
Interest income ....................... (595) (645) (912)
Depreciation .......................... 3,019 2,548 2,283
Amortization .......................... - - 1,530
Administrative expenses ............... 14,807 11,580 9,420
------- ------- -------
120,739 101,402 97,908
------- ------- -------
Income before income taxes ............... 24,729 17,391 12,519
Provision for income taxes ............... 9,397 6,451 4,507
------- ------- -------
Income from continuing operations......... 15,332 10,940 8,012
------- ------- -------
Discontinued operations (see Note 14):
Income from discontinued operations,
net of tax........................... - - 33
Loss on sale of subsidiary, net of tax. - - (175)
------- ------- -------
Loss from discontinued operations,
net of tax .......................... - - (142)
------- ------- -------
Cumulative effect of change in accounting
principle, net of tax (see Note 3) ..... (357) - -
------- ------- -------
Net income ............................... $ 14,975 $ 10,940 $ 7,870
======= ======= =======
Net income per share:
Basic
Income from continuing operations.... $ 1.64 $ 1.24 $ 0.92
Loss from discontinued operations.... - - (0.02)
Cumulative effect of change
in accounting principle ........... (0.03) - -
------- ------- -------
Net income........................... $ 1.61 $ 1.24 $ 0.90
======= ======= =======
Diluted
Income from continuing operations.... $ 1.46 $ 1.14 $ 0.87
Loss from discontinued operations.... - - (0.02)
Cumulative effect of change
in accounting principle ........... (0.03) - -
------- ------- -------
Net income........................... $ 1.43 $ 1.14 $ 0.85
======= ======= =======
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
(in thousands)
(as restated, see Note 17)
Cash flows from operating activities:
Income before discontinued operations and
change in accounting principle .......... $ 15,332 $ 10,940 $ 8,012
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization ......... 3,019 2,548 3,813
Short-term advance loss provision ..... 9,878 8,669 8,684
Tax benefit from exercise of employee
stock options ....................... 5,408 229 22
Income from discontinued operations ... - - 592
Changes in operating assets and
liabilities, net of effect of Cash & Go,
Ltd., consolidation and acquisition:
Service charges receivable ............ (553) (357) (89)
Inventories ........................... (718) (329) 1,406
Prepaid expenses and other assets ..... 167 41 (746)
Accounts payable and accrued expenses.. 545 13 3,509
Current and deferred income taxes ..... (472) 1,579 (107)
------- ------- -------
Net cash flows from operating activities 32,606 23,333 25,096
------- ------- -------
Cash flows from investing activities:
Pawn receivables, net .................... (4,635) (3,413) 3,753
Short-term advance receivables, net....... (11,211) (9,652) (10,266)
Purchases of property and equipment....... (5,202) (4,264) (1,891)
Acquisition of existing operations........ - - (1,394)
Cash from consolidation of Cash & Go, Ltd. 2,103 - -
Proceeds from sale of discontinued
operations.............................. - - 230
(Increase) decrease in receivable from
Cash & Go, Ltd.......................... 2,633 (278) (2,775)
------- ------- -------
Net cash flows from investing activities.. (16,312) (17,607) (12,343)
------- ------- -------
Cash flows from financing activities:
Proceeds from debt ....................... - 7,000 14,200
Repayments of debt ....................... (23,502) (12,491) (22,869)
Notes receivable from officers ........... 4,228 823 775
Purchase of treasury stock ............... - - (500)
Proceeds from exercise of options and
warrants................................ 6,092 425 282
------- ------- -------
Net cash flows from financing activities (13,182) (4,243) (8,112)
------- ------- -------
Change in cash and cash equivalents......... 3,112 1,483 4,641
Cash and cash equivalents at beginning
of the year............................... 12,735 11,252 6,611
------- ------- -------
Cash and cash equivalents at end of the year $ 15,847 $ 12,735 $ 11,252
======= ======= =======
Supplemental disclosure of
cash flow information:
Cash paid during the year for:
Interest ................................ $ 498 $ 964 $ 2,394
======= ======= =======
Income taxes ............................ $ 4,256 $ 4,907 $ 4,533
======= ======= =======
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
(in thousands)
(as restated, see Note 17)
Supplemental disclosure of non-cash
investing and financing activities:
Non-cash transactions in connection with
acquisition:
Fair market value of assets acquired
and goodwill......................... $ - $ - $ 2,302
Less assumption of liabilities and
costs of acquisition............... - - (908)
------- ------- -------
Net cash paid.......................... $ - $ - $ 1,394
======= ======= =======
Non-cash transactions in connection with
consolidation of Cash & Go, Ltd.:
Fair market value of assets consolidated $ 4,648 $ - $ -
Less assumption of liabilities from
consolidation....................... (5,791) - -
------- ------- -------
Net liabilities resulting from consolidation $ (1,143) $ - $ -
======= ======= =======
Non-cash transactions in connection
with pawn receivables settled through
forfeitures of collateral transferred
to inventories .......................... $ 27,112 $ 22,346 $ 20,952
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Notes
Common Stock Additional Preferred Stock Receivable Treasury Stock
-------------- Paid-in --------------- Retained From --------------
Shares Amount Capital Shares Amount Earnings Officers Shares Amount Total
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
(in thousands)
Balance at December 31, 2000 9,321 $ 93 $ 50,953 - - $ 22,949 $ (5,826) 525 $(2,515) $ 65,654
Exercise of stock options
and warrants, including
income tax benefit of $22 97 2 302 - - - - - - 304
Notes receivable from
officers - - - - - - 775 - - 775
Purchase of treasury stock - - - - - - - 129 (500) (500)
Net income - - - - - 7,870 - - - 7,870
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 2001 9,418 95 51,255 - - 30,819 (5,051) 654 (3,015) 74,103
Exercise of stock options
and warrants, including
income tax benefit of $229 107 1 653 - - - - - - 654
Notes receivable from
officers - - - - - - 823 - - 823
Net income - - - - - 10,940 - - - 10,940
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 2002 9,525 96 51,908 - - 41,759 (4,228) 654 (3,015) 86,520
Exercise of stock options
and warrants, including
income tax benefit of $5,408 1,241 13 11,487 - - - - - - 11,500
Notes receivable from
officers - - - - - - 4,228 - - 4,228
Net income - - - - - 14,975 - - - 14,975
------ ------ ------- ------ ------ -------- -------- ------ ------ -------
Balance at December 31, 2003 10,766 $ 109 $ 63,395 - - $ 56,734 $ - 654 $(3,015) $117,223
====== ====== ======= ====== ====== ======== ======== ====== ====== =======
The accompanying notes are an
integral part of these consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY
First Cash Financial Services, Inc. (the "Company") was incorporated in
Texas on July 5, 1988 and was reincorporated in Delaware in April 1991. The
Company is engaged in the operation of pawn stores which lend money on the
collateral of pledged personal property, and which retail previously-owned
merchandise acquired through pawn forfeitures. In addition to making short-
term secured pawns, most of the Company's pawn stores offer short-term
unsecured advances ("short-term advances"). The Company also operates check
cashing/short-term advance stores that provide short-term advances, check
cashing services, and other related financial services. As of December 31,
2003, the Company owned and operated 160 pawn stores and 75 check
cashing/short-term advance stores. In addition the Company is a 50% owner
of Cash & Go, Ltd., a Texas limited partnership that owns and operates 40
financial services kiosks inside convenience stores.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
in the preparation of these financial statements.
Principles of consolidation - The accompanying consolidated financial
statements of the Company include the accounts of its wholly owned
subsidiaries. In addition, effective December 31, 2003, the accompanying
consolidated financial statements also include the balance sheet accounts of
Cash & Go, Ltd., a Texas limited partnership, which owns financial services
kiosks inside convenience stores. The operating results of the partnership
will be included in the consolidated financial statements effective January
1, 2004. All significant intercompany accounts and transactions have been
eliminated (See Note 3).
Cash and cash equivalents - The Company considers any highly liquid
investments with an original maturity of three months or less at date of
acquisition to be cash equivalents.
Receivables and income recognition - Receivables on the accompanying
balance sheet consist of pawn and short-term advances. Pawns are made on
the pledge of tangible personal property. The Company accrues pawn service
charge revenue on a constant-yield basis over the life of the pawn for all
pawns that the Company deems collection to be probable based on historical
pawn redemption statistics. If the pawn is not repaid, the principal amount
pawned becomes the carrying value of the forfeited collateral ("inventory"),
which is recovered through sale. Short-term advances are made for thirty
days or less. The Company recognizes the service charges associated with
short-term advances on a constant-yield basis over the term of the short-
term advance.
Bad Debts - An allowance is provided on current short-term advances and
service charges receivable, based upon expected default rates, net of
estimated future recoveries of previously defaulted short-term advances and
service charges receivable. The Company considers short-term advances to be
in default if they are not repaid on the due date, and writes off the
principal amount and service charges receivable as of the default date. Net
defaults and changes in the short-term advance allowance are charged to bad
debt expense, which is included in operating expenses. Bad debt expense for
the years ended December 31, 2003, 2002 and 2001 was $9,878,000, $8,669,000
and $8,684,000, respectively.
Operating expenses - Costs incurred in operating the pawn stores and
check cashing/short-term advance stores have been classified as operating
expenses. Operating expenses include salary and benefit expense of store
employees, rent and other occupancy costs, bank charges, security, net
returned checks, utilities, cash shortages and other costs incurred by the
stores.
Layaway and deferred revenue - Interim payments from customers on
layaway sales are credited to deferred revenue and subsequently recorded as
income during the period in which final payment is received.
Inventories - Inventories represent merchandise purchased directly from
the public and merchandise acquired from forfeited pawns. Inventories
purchased directly from customers are recorded at cost. Inventories from
forfeited pawns are recorded at the amount of the pawn principal on the
unredeemed goods. The cost of inventories is determined on the specific
identification method. Inventories are stated at the lower of cost or
market; accordingly, inventory valuation allowances are established when
inventory carrying values are in excess of estimated selling prices, net of
direct costs of disposal. Management has evaluated inventory and determined
that a valuation allowance is not necessary.
Property and equipment - Property and equipment are recorded at cost.
Depreciation is determined on the straight-line method based on estimated
useful lives of thirty-one years for buildings and three to five years for
equipment. The costs of improvements on leased stores are capitalized as
leasehold improvements and are amortized on the straight-line method over
the applicable lease period, or useful life if shorter.
Maintenance and repairs are charged to expense as incurred; renewals
and betterments are charged to the appropriate property and equipment
accounts. Upon sale or retirement of depreciable assets, the cost and
related accumulated depreciation is removed from the accounts, and the
resulting gain or loss is included in the results of operations in the
period retired.
Goodwill - Goodwill consists of the excess of purchase price over net
assets acquired. Excess purchase price over net assets acquired was
amortized on a straight-line basis over an estimated useful life of forty
years through December 31, 2001. In June 2001, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets, which was effective as of January 1, 2002. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002. Under SFAS
No. 142, goodwill is no longer amortized, but reviewed for impairment
annually, or more frequently if certain indicators arise. The Company
completed the transitional fair value impairment test and determined that no
impairment of recorded goodwill existed at January 1, 2002. The Company has
also determined that no impairment existed at December 31, 2002 and 2003.
Subsequent impairment losses, if any, will be reflected in operating income
or loss in the consolidated statement of income for the period in which such
loss is realized. Had the Company been accounting for its goodwill under
SFAS No. 142 for the years ended December 31, 2003, 2002 and 2001, the
Company's net income would have been as follows (in thousands, except per
share data):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Reported net income $ 14,975 $ 10,940 $ 7,870
Add: amortization of costs in excess
of net assets acquired, net of tax - - 979
------- ------- -------
Adjusted net income $ 14,975 $ 10,940 $ 8,849
======= ======= =======
Basic earnings per share:
Reported net income $ 1.61 $ 1.24 $ 0.90
Adjusted net income $ 1.61 $ 1.24 $ 1.01
Diluted earnings per share:
Reported net income $ 1.43 $ 1.14 $ 0.85
Adjusted net income $ 1.43 $ 1.14 $ 0.96
Long-lived assets - Long-lived assets (i.e., property, plant and
equipment and intangible assets with definite lives) are reviewed for
impairment whenever events or changes in circumstances indicate that the net
book value of the asset may not be recoverable. An impairment loss is
recognized if the sum of the expected future cash flows (undiscounted and
before interest) from the use of the asset is less than the net book value
of the asset. Generally, the amount of the impairment loss is measured as
the difference between the net book value of the assets and the estimated
fair value of the related assets. Management does not believe that any
impairments exist at December 31, 2003.
Fair value of financial instruments - The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques, as appropriate. Unless otherwise disclosed, the fair
values of financial instruments approximate their recorded values, due
primarily to their short-term nature.
Income taxes - The Company uses the liability method of computing
deferred income taxes on all material temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases.
Advertising - The Company expenses the costs of advertising the first
time the advertising takes place. Advertising expense for the fiscal years
ended December 31, 2003, 2002 and 2001, was $1,567,000, $1,332,000 and
$1,070,000, respectively.
Stock-Based Compensation - The Company's stock-based employee
compensation plan is described in Note 12. The expense recognition and
measurement principles of APB 25, Accounting for Stock Issued to Employees,
and related interpretations are followed in accounting for this plan. No
stock-based employee compensation has been charged to earnings because the
exercise prices of all stock options granted under this plan have been equal
to the market value of the Company's common stock at the date of the grant.
The following presents information about net income and earnings per share
as if the Company had applied the fair value expense recognition
requirements of Statement of Financial Accounting Standards ("SFAS") 123,
Accounting for Stock-Based Compensation, to all employee stock options
granted under the plan (in thousands, except per share data).
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Net income, as reported................ $ 14,975 $ 10,940 $ 7,870
Less: Stock-based employee compensation
determined under the fair value
requirements of SFAS 123, net of
income tax benefits.................. 2,261 1,252 899
------- ------- -------
Pro forma net income................... $ 12,714 $ 9,688 $ 6,971
======= ======= =======
Earnings per share:
Basic, as reported................... $ 1.61 $ 1.24 $ 0.90
Basic, pro forma..................... $ 1.36 $ 1.10 $ 0.80
Diluted, as reported................. $ 1.43 $ 1.14 $ 0.85
Diluted, pro forma................... $ 1.21 $ 1.01 $ 0.75
Pursuant to the requirements of SFAS 123, the weighted-average fair
value of the individual employee stock options and warrants granted during
2003, 2002 and 2001 have been estimated as $8.89, $4.66 and $2.90,
respectively, on the date of the grant. The fair values were determined
using a Black-Scholes option-pricing model using the following assumptions:
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Dividend yield.............. - - -
Volatility.................. 54.0% 58.0% 55.0%
Risk-free interest rate..... 3.5% 3.5% 3.8%
Expected life............... 7 years 7 years 7 years
Earnings per share - Basic net income per share is computed by dividing
net income by the weighted average number of shares outstanding during the
year. Diluted net income per share is calculated by giving effect to the
potential dilution that could occur if securities or other contracts to
issue common shares were exercised and converted into common shares during
the year.
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Numerator:
Net income for calculating
basic and diluted earnings per share $ 14,975 $ 10,940 $ 7,870
======= ======= =======
Denominator:
Weighted-average common shares for
calculating basic earnings per share 9,324 8,833 8,699
Effect of dilutive stock options
and warrants 1,180 794 569
------- ------- -------
Weighted-average common shares for
calculating diluted earnings per share 10,504 9,627 9,268
======= ======= =======
Basic earnings per share $ 1.61 $ 1.24 $ 0.90
Diluted earnings per share $ 1.43 $ 1.14 $ 0.85
Pervasiveness of estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and related revenues
and expenses and disclosure of gain and loss contingencies at the date of
the financial statements. Such estimates and assumptions are subject to a
number of risks and uncertainties, which may cause actual results to differ
materially from the Company's estimates.
Reclassification - Certain amounts for the year ended December 31, 2002
have been reclassified in order to conform to the 2003 presentation.
NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLE
In December 2003, the FASB issued Interpretation No. 46(R) ("FIN 46"),
Consolidation of Variable Interest Entities. FIN 46 addresses consolidation
by business enterprises of variable interest entities (formerly special
purpose entities). In general, a variable interest entity is a corporation,
partnership, trust or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities
or entitled to receive a majority of the entity's residual returns or both.
The Company has a 50% ownership interest in a joint venture, Cash & Go,
Ltd., a Texas limited partnership, which owns and operates 40 check
cashing/short-term advance kiosks inside convenience stores. The Company
has historically accounted for its share of the joint venture's operating
results using the equity method of accounting, as neither joint venture
partner has control. Through December 31, 2003 the Company has recorded its
50% share of the partnership's earnings or losses in its consolidated
financial statements. As defined in FIN 46, Cash & Go, Ltd. meets the
requirements of a variable interest entity that must be consolidated by the
Company. The Company implemented FIN 46 on December 31, 2003 at which time
it recorded a change in accounting principle charge of $357,000, net of
income tax benefit, which was necessary to recognize the other joint venture
partner's share of the Cash & Go, Ltd.'s accumulated operating losses as
part of the initial consolidation accounting. As of December 31, 2003, the
Company's consolidated balance sheet includes the assets and liabilities of
Cash & Go, Ltd., net of intercompany accounts, including the loan described
below, which have been eliminated. The operating results of Cash & Go, Ltd.
will be included in the Company's consolidated operating results effective
for accounting periods beginning January 1, 2004.
The Company funds substantially all of the working capital requirements
of Cash & Go, Ltd. in the form of a loan to the joint venture. This loan is
callable at any time by the Company, bears interest at the prime rate plus
5%, and is secured by substantially all of Cash & Go, Ltd.'s assets.
Summarized financial information for Cash & Go, Ltd. as of December 31, 2003
and 2002 and for the years ended December 31, 2003, 2002 and 2001 are as
follows:
December 31, December 31,
2003 2002
------- -------
(in thousands)
Current assets .......................... $ 4,120 $ 6,191
Non-current assets ..................... 528 950
Current note payable to First Cash
Financial Services, Inc................ (5,504) (7,972)
Other current liabilities ............... (287) (411)
------- -------
Net liabilities ..................... $ (1,143) $ (1,242)
======= =======
Company's net receivable from Cash & Go, Ltd.:
Note receivable from Cash & Go, Ltd.. $ 5,504 $ 7,972
Company's share of net liabilities .. (572) (621)
------- -------
$ 4,932 $ 7,351
======= =======
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
(in thousands)
Revenues ..................... $ 6,694 $ 7,093 $ 6,788
Expenses ..................... 6,596 7,571 6,979
------- ------- -------
Income (loss) before taxes $ 98 $ (478) $ (191)
======= ======= =======
Company's share of income (loss),
as accounted for using the equity
method through December 31, 2003 $ 49 $ (239) $ (96)
======= ======= =======
Had the Company been accounting for its investment in Cash & Go, Ltd. under
FIN 46 for the years ended December 31, 2003, 2002 and 2001, the Company's
net income would have been as follows (in thousands, except per share data):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Reported net income $ 14,975 $ 10,940 $ 7,870
Additional net income (loss) related
to consolidation of Cash & Go,
Ltd., net of tax 387 (150) (61)
------- ------- -------
Adjusted net income $ 15,362 $ 10,790 $ 7,809
======= ======= =======
Basic earnings per share:
Reported net income $ 1.61 $ 1.24 $ 0.90
Adjusted net income $ 1.65 $ 1.22 $ 0.90
Diluted earnings per share:
Reported net income $ 1.43 $ 1.14 $ 0.85
Adjusted net income $ 1.46 $ 1.12 $ 0.84
NOTE 4 - BUSINESS ACQUISITIONS
In December 2001, the Company acquired 100% of the outstanding common
stock of WR Financial, Inc., which operated seven stores in Texas, for a
total purchase price of $1,394,000, paid in cash. The Company financed
substantially all of the cash purchase price for this acquisition through
its Credit Facility. The purchase price for this acquisition was determined
based upon the volume of annual pawn and sales transactions, outstanding
receivable balances, inventory on hand, location and condition of the
facilities, and projected future operating results.
Acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets and
liabilities acquired based upon their estimated fair market values at the
dates of acquisition. The excess purchase price over the fair market value
of the net tangible assets acquired and identifiable intangible assets has
been recorded as goodwill. Goodwill, net of accumulated amortization,
resulting from acquisitions was $53,237,000 and $53,194,000 as of December
31, 2003 and 2002, respectively. The results of operations of the acquired
companies are included in the consolidated financial statements from their
respective dates of acquisition.
NOTE 5 - RELATED PARTY TRANSACTIONS
As of December 31, 2002, the Company had notes receivable outstanding
from certain of its officers totaling $4,228,000. Repayment of these notes
was completed during Fiscal 2003. The notes bore interest at 3%.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31, December 31,
2003 2002
------- -------
Land ............................ $ 672 $ 672
Buildings ....................... 1,002 1,002
Leasehold improvements .......... 1,792 1,794
Furniture, fixtures and equipment 26,405 20,109
------- -------
29,871 23,577
Less: accumulated depreciation.. (15,453) (11,827)
------- -------
$ 14,418 $ 11,750
======= =======
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31, December 31,
2003 2002
------- -------
Money orders and wire transfers payable $ 726 $ 791
Accrued compensation .................. 2,979 2,692
Layaway deposits ...................... 1,655 1,382
Sales and property taxes payable....... 1,144 959
Lending activity settlements payable 1,462 1,123
Other ................................. 1,866 2,003
------- -------
$ 9,832 $ 8,950
======= =======
NOTE 8 - REVOLVING CREDIT FACILITY
The Company maintains a combined long-term line of credit with two
commercial lenders (the "Credit Facility"). The Credit Facility provides a
$25,000,000 long-term line of credit that matures on August 9, 2005 and
bears interest at the prevailing LIBOR rate (which was approximately 1.1% at
December 31, 2003) plus an applicable margin based on a defined leverage
ratio for the Company. Based on the Company's existing leverage ratio, the
margin is currently 1.375%, the most favorable rate provided under the terms
of the agreement. Amounts available under the Credit Facility are limited
to 300% of the Company's earnings before income taxes, interest,
depreciation and amortization for the trailing twelve months. At December
31, 2003, the Company had $19,000,000 available for additional borrowings.
Under the terms of the Credit Facility, the Company is required to maintain
certain financial ratios and comply with certain technical covenants. The
Company was in compliance with the requirements and covenants of the Credit
Facility as of December 31, 2003 and March 8, 2004. The Company is required
to pay an annual commitment fee of 1/5th of 1% on the average daily-unused
portion of the Credit Facility commitment. The Company's Credit Facility
contains provisions which will allow the Company to repurchase stock and/or
pay cash dividends within certain parameters. Substantially all of the
unencumbered assets of the Company have been pledged as collateral against
indebtedness under the Credit Facility.
Subsequent to December 31, 2003, the Company renewed and extended its
long-term line of credit. The Credit Facility now matures on April 15,
2006. In addition, certain terms in the agreement were modified. The
interest rate margin added to the LIBOR rate is fixed at 1.375%. The annual
commitment fee on the average daily unused portion of Credit Facility
commitment is reduced to 1/8th of 1%.
NOTE 9 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands, except payment
information):
December 31, December 31,
2003 2002
------- -------
Note payable to a bank; bearing interest at
LIBOR plus 2%; monthly principal and interest
payments of $5,257; retired in June 2003 $ - $ 392
Note payable to a bank; bearing interest at
LIBOR plus 2%; monthly principal and interest
payments of $5,518; retired in June 2003 - 310
Notes payable to five former shareholders of
Miraglia, Inc.; bearing interest at 7%;
quarterly principal payments of $300,000
and quarterly interest payments based upon
the unpaid balance; retired in July 2003. - 800
------- -------
- 1,502
Less: current portion - (900)
------- -------
$ - $ 602
======= =======
NOTE 10 - INCOME TAXES
Components of the provision for income taxes consist of the following
(in thousands):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Current:
Federal ................... $ 7,495 $ 4,437 $ 2,609
State and foreign ......... 870 760 1,042
------- ------- -------
8,365 5,197 3,651
Deferred ..................... 1,032 1,254 856
------- ------- -------
$ 9,397 $ 6,451 $ 4,507
======= ======= =======
The principal current and non-current deferred tax liabilities consist
of the following at December 31, 2003 and 2002 (in thousands):
December 31, December 31,
2003 2002
------- -------
Deferred tax assets:
Inventory tax-basis difference ... $ 1,520 $ 1,288
Legal accruals ................... 430 430
------- -------
1,950 1,718
------- -------
Deferred tax liabilities:
Intangible asset amortization .... 6,120 4,951
Depreciation ..................... 1,248 1,181
State income tax effect of
deferred tax items.............. 329 272
Other ............................ 208 237
------- -------
7,905 6,641
------- -------
Net deferred tax liability ......... $ 5,955 $ 4,923
Reported as: ======= =======
Non-current liabilities - deferred
income taxes $ 5,955 $ 4,923
======= =======
The provision for income taxes differs from the amounts determined by
applying the expected federal statutory tax rate to income from continuing
operations before income taxes. The following is a reconciliation of such
differences (in thousands):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Tax at the federal statutory rate $ 8,408 $ 5,913 $ 4,256
State and foreign income taxes,
net of federal tax benefit 558 400 646
Other, net 431 138 (395)
------- ------- -------
$ 9,397 $ 6,451 $ 4,507
======= ======= =======
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under
operating leases with terms generally ranging from three to ten years. Most
facility leases contain renewal and/or purchase options. Remaining future
minimum rentals due under non-cancelable operating leases are as follows (in
thousands):
Fiscal
------
2004 ............... $ 9,652
2005 ................ 8,668
2006 ................ 7,389
2007 ................ 5,987
2008 ................ 3,577
Thereafter .......... 4,479
-------
$ 39,752
=======
Rent expense under such leases was $8,664,000, $7,251,000 and
$6,515,000 for the years ended December 31, 2003, 2002 and 2001,
respectively.
In May 2000, three plaintiffs filed a complaint against Famous Pawn,
Inc., a wholly owned subsidiary of the Company, in the United States
District Court for the District of Maryland (Northern Division). The
allegations consisted of five counts: (1) violation of the federal Truth in
Lending Act; (2) violation of the federal Racketeer Influenced and Corrupt
Organizations Act; (3) violation of the Maryland Interest and Usury Statute;
(4) violation of the Maryland Consumer Loan Law; and (5) violation of the
Maryland Consumer Protection Act. In February 2003, the Company and
plaintiffs reached a settlement of the complaint, which was subsequently
approved by the District Court. Under the terms of the settlement, the
plaintiffs agreed to dismiss all allegations and monetary claims made
against the Company. The Company, in order to expedite the conclusion of
this matter and avoid the expenses associated with a trial, agreed to pay
the plaintiffs approximately $1,100,000, including the plaintiffs' legal
fees, and forgive all the outstanding debt of such customers in the amount
of approximately $800,000. The Company had previously reserved and expensed
in prior years an amount equal to this settlement, and accordingly, the
settlement has no impact on the Company's 2003 operating results. The
settlement was completed and funded in January 2004.
Additionally, the Company is from time to time a defendant (actual or
threatened) in certain other lawsuits and arbitration claims encountered in
the ordinary course of its business, the resolution of which, in the opinion
of management, should not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
NOTE 12 - EMPLOYEE STOCK OPTION PLAN AND OUTSTANDING WARRANTS
On October 30, 1990, the Company's Board of Directors adopted the 1990
Stock Option Plan (the "1990 Plan"). The 1990 Plan provides for the
issuance of incentive stock options and non-qualified stock options to key
employees and directors of the Company. The total number of shares of
Common Stock authorized and reserved for issuance under the 1990 Plan is
250,000 shares. The exercise price for each stock option granted under the
1990 Plan may not be less than the fair market value of the Common Stock on
the date of the grant, unless, in the case of incentive stock options, the
optionee owns greater than 10% of the total combined voting power of all
classes of capital stock of the Company, in which case the exercise price
may not be less than 110% of the fair market value of the Common Stock on
the date of the grant. Unless otherwise determined by the Board, options
granted under the 1990 Plan have a maximum duration of five years and vest
in up to four equal installments, commencing on the first anniversary of the
date of grant. As of December 31, 2003, no options to purchase shares of
Common Stock were available for grant under the 1990 Plan. Options to
purchase 1,000 shares were vested at December 31, 2003.
On January 14, 1999, the Company's shareholders adopted the 1999 Stock
Option Plan (the "1999 Plan"). The 1999 Plan provides for the issuance of
incentive stock options and non-qualified stock options to key employees and
directors of the Company. The total number of shares of Common Stock
authorized and reserved for issuance under the 1999 Plan is 2,500,000
shares. The exercise price for each stock option granted under the 1999
Plan may not be less than the fair market value of the Common Stock on the
date of the grant, unless, in the case of incentive stock options, the
optionee owns greater than 10% of the total combined voting power of all
classes of capital stock of the Company, in which case the exercise price
may not be less than 110% of the fair market value of the Common Stock on
the date of the grant. Unless otherwise determined by the Board, options
granted under the 1999 Plan have a maximum duration of ten years unless, in
the case of incentive stock options, the optionee owns at least 10% of the
total combined voting power of all classes of capital stock of the Company,
in which case the maximum duration is five years. As of December 31, 2003,
options to purchase 1,088,000 shares of Common Stock were available for
grant under the 1999 Plan. Options to purchase 478,000 shares of common
stock under the 1999 Plan were vested as of December 31, 2003.
The Company also issues warrants to purchase shares of Common Stock to
certain key members of management, to members of the Board of Directors who
are not employees or officers of the Company and to outside consultants and
advisors in connection with various acquisitions, debt offerings and
consulting engagements. In accordance with the provisions of FAS 123, the
issuance of warrants to outside consultants and advisors is accounted for
using the fair value method prescribed by FAS 123. Warrants granted to
outside consultants and advisors prior to December 15, 1995 are accounted
for using methods prescribed by APB 25.
Stock option and warrant activity for fiscal 2001, 2002 and 2003 is
summarized in the accompanying chart (in thousands, except exercise price).
Exercisable
-----------------
Weighted
Weighted Average
Average Exercise
Options Warrants Exercise Price Number Price
------- -------- -------------- ------ -----
December 31, 2000 1,051 1,261 $ 6.92 1,816 $ 6.28
Granted 270 65 4.48
Exercised (84) (13) 3.12
Cancelled (57) (310) 11.24
----- -----
December 31, 2001 1,180 1,003 5.99 1,689 5.30
Granted 130 522 8.00
Exercised (62) (45) 4.13
Cancelled (137) (90) 10.56
----- -----
December 31, 2002 1,111 1,390 6.18 2,186 6.01
Granted 335 270 15.27
Exercised (798) (442) 4.91
Cancelled (18) - 8.00
----- -----
December 31, 2003 630 1,218 $ 9.98 1,642 $ 9.67
===== =====
Options and warrants outstanding as of December 31, 2003 are as follows
(in thousands, except exercise price and life):
Total Warrants
Exercise and Remaining Currently
Price Options Life Exercisable
----- ------- ---- -----------
$2.00 14 2.4 14
2.00 50 7.0 50
4.00 9 2.4 9
4.00 5 7.1 -
4.63 17 2.4 17
4.63 202 7.1 202
8.00 14 1.3 14
8.00 16 4.2 16
8.00 436 8.3 340
8.00 10 8.8 -
8.00 260 9.2 260
10.00 14 2.4 14
10.00 195 5.3 195
10.00 40 9.1 20
10.00 230 9.3 230
12.00 11 2.4 11
13.00 40 9.4 40
20.05 285 9.8 210
----- -----
1,848 1,642
===== =====
NOTE 13 - FIRST CASH 401(k) PLAN
The First Cash 401(k) Plan (the "Plan") is provided by the Company for
all full-time employees who have been employed with the Company for one
year. Under the Plan, a participant may contribute up to 15% of earnings,
with the Company matching the first 3% at a rate of 50%. The employee and
company contributions are paid to a corporate trustee and invested in
various funds. Contributions made to participants' accounts become fully
vested upon completion of five years of service. The total Company matching
contributions to the Plan were $213,000, $220,000 and $162,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.
NOTE 14 - DISCONTINUED OPERATIONS INFORMATION
On November 30, 2001, the Company sold all of its common stock of its
subsidiary, Miraglia, Inc. to a former employee of the Company for
approximately $230,000 in cash. The sale resulted in a pretax loss of
$273,000. The disposal of the software company and, accordingly, its
operating results are segregated and reported as discontinued operations in
the accompanying Consolidated Statements of Income.
The condensed statements of operations relating to the discontinued
software operations for the year ended December 31, 2001 is presented below:
Revenues $ 1,897
Costs and expenses 1,846
------
Income before income taxes 51
Income tax expense 18
------
Net income $ 33
======
NOTE 15 - GEOGRAPHIC AREAS
The Company manages its business on the basis of one reportable segment. See
Note 1 for a brief description of the Company's business. Long-lived assets
include all non-current assets except goodwill.
The following table shows revenues and long-lived assets by geographic area
(in thousands):
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Revenues:
United States .......... $126,707 $112,720 $107,400
Mexico ................. 18,761 6,073 3,027
------- ------- -------
Total .................. $145,468 $118,793 $110,427
======= ======= =======
Long-lived assets:
United States .......... $ 11,391 $ 16,706 $ 17,432
Mexico ................. 3,710 2,958 214
------- ------- -------
Total .................. $ 15,101 $ 19,664 $ 17,646
======= ======= =======
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (in thousands, except per share data)
for the fiscal years ended December 31, 2003 and 2002 are set forth below.
The Company's operations are subject to seasonal fluctuations.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2003
----
Total revenues $ 34,244 $ 33,418 $ 37,241 $ 40,565
Total expenses 28,653 28,511 30,760 32,815
Income before change in
accounting principle 3,498 3,001 4,016 4,817
Cumulative effect of change
in accounting principle - - - (357)
Net income 3,498 3,001 4,016 4,460
Diluted earnings per share
from continuing operations 0.36 0.30 0.37 0.43
Diluted earnings per share from
cumulative effect of change
in accounting principle - - - (0.03)
Diluted earnings per share
from net income 0.36 0.30 0.37 0.40
Diluted weighted average shares 9,789 10,106 10,905 11,182
2002
----
Total revenues $ 28,451 $ 26,867 $ 29,755 $ 33,720
Total expenses 24,086 23,337 25,727 28,252
Net income 2,794 2,259 2,578 3,309
Diluted earnings per share
from net income 0.30 0.23 0.27 0.34
Diluted weighted average shares 9,457 9,742 9,570 9,741
NOTE 17 - RESTATEMENT OF THE STATEMENTS OF CASH FLOWS
The Statements of Cash Flows for the years ended December 31, 2003,
2002 and 2001 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 cash flows arising from tax
benefits associated with the exercise of stock options and warrants. The
effect of the adjustment to correct the misclassification is to increase
cash flows from operating activities and to decrease cash flows from
financing activities in the amounts of $5,408,000, $229,000 and $22,000 for
years ended December 31, 2003, 2002 and 2001, respectively. The Company
also 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 $9,878,000, $8,669,000 and $8,684,000
for the years ended December 31, 2003, 2002 and 2001, 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 operating activities and to
decrease cash flows from investing activities in the amounts of $1,222,000
and $638,000 for the years ended December 31, 2003 and 2002, respectively,
and to decrease cash flows from operating activities and to increase cash
flows from investing activities in the amount of $3,281,000 for the year
ended December 31, 2001.
A summary of the effects of these corrections are as follows:
Year Ended December 31, 2003
---------------------------------
As
Previously As
Reported Adjustments Restated
-------- ----------- --------
(in thousands)
Net cash flows from operating activities $ 16,098 $ 16,508 $ 32,606
Net cash flows from investing activities (5,212) (11,100) (16,312)
Net cash flows from financing activities (7,774) (5,408) (13,182)
-------- ----------- --------
Change in cash and cash equivalents 3,112 - 3,112
Cash and cash equivalents at beginning
of the year 12,735 - 12,735
-------- ----------- --------
Cash and cash equivalents at end
of the year $ 15,847 $ - $ 15,847
======== =========== ========
Year Ended December 31, 2002
---------------------------------
As
Previously As
Reported Adjustments Restated
-------- ----------- --------
(in thousands)
Net cash flows from operating activities $ 13,797 $ 9,536 $ 23,333
Net cash flows from investing activities (8,300) (9,307) (17,607)
Net cash flows form financing activities (4,014) (229) (4,243)
-------- ----------- --------
Change in cash and cash equivalents 1,483 - 1,483
Cash and cash equivalents at beginning
of the year 11,252 - 11,252
-------- ----------- --------
Cash and cash equivalents at end
of the year $ 12,735 $ - $ 12,735
======== =========== ========
Year Ended December 31, 2001
---------------------------------
As
Previously As
Reported Adjustments Restated
-------- ----------- --------
(in thousands)
Net cash flows from operating activities $ 19,671 $ 5,425 $ 25,096
Net cash flows from investing activities (6,940) (5,403) (12,343)
Net cash flows form financing activities (8,090) (22) (8,112)
-------- ----------- --------
Change in cash and cash equivalents 4,641 - 4,641
Cash and cash equivalents at beginning
of the year 6,611 - 6,611
-------- ----------- --------
Cash and cash equivalents at end
of the year $ 11,252 $ - $ 11,252
======== =========== ========
Exhibit 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT IS SUBJECT TO MANDATORY AND BINDING ARBITRATION
This Employment Agreement (the "Agreement") is entered into as of
January 1, 2003 (the "Effective Date"), by and between First Cash Financial
Services, Inc. (the "Company"), a Delaware corporation, and J. Alan Barron
(the "Executive").
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT.
The Company desires to continue to employ the Executive, and the
Executive agrees to continue to work in the employ of the Company, according
to the following terms and conditions.
2. DUTIES.
(a) The Company will continue to employ the Executive as Chief
Operating Officer ("COO") of the Company.
(b) The Executive will serve in the Company's employ in that position.
(c) Under the direction of the Chief Executive Officer and President of
the Company, the Executive shall have such powers, functions, duties,
responsibilities and authority as are customarily required of and given to a
COO and such other duties and responsibilities commensurate with such
position. Such powers, functions, authority, duties and responsibilities
shall include, but not be limited to: the day-to-day management of the
Company's stores and kiosks; management, promotion, acquisition, retention
and termination of operational personnel; marketing of the Company's
products and services; increasing the financial performance of the Company's
stores and kiosks; selection of locations for and development of new stores
and kiosks; identification and assessment of new geographic markets;
maintaining, safe guarding, and maximizing the Company's assets; and
ensuring that all operations are in compliance with laws and regulations
applicable to the Company and its affiliates. The Executive also shall have
such additional powers, authority, functions, duties and responsibilities as
may be assigned to him by the Chief Executive Officer or President.
Executive shall use his best efforts to achieve all performance goals and
criteria established by the Chief Executive Officer or President. Executive
shall exercise such powers and authority and perform all such functions,
duties and responsibilities consistent with Company practices and policies.
3. TERM OF EMPLOYMENT.
The term of employment of Executive is through December 31, 2005.
Subject to the provisions of Section 8, the term of the Executive's
Employment hereunder shall commence on January 1, 2003. At the discretion
of the Board, the term of employment shall be extended for additional
successive periods of one year, each year beginning on January 1, 2004, and
each anniversary date thereafter, provided that during the previous year,
the Executive met the stipulated performance criteria established by the
Board.
4. EXTENT OF SERVICES.
The Executive shall not at any time during his Employment engage in any
other business related activities unless those activities do not interfere
materially with the Executive's duties and responsibilities to the Company
at that time. The foregoing, however, shall not preclude the Executive from
engaging in appropriate civic, charitable, professional or trade association
activities or from serving on one or more other boards of directors of
public or private companies, as long as such activities and services do not
conflict with his responsibilities to the Company.
5. NO FORCED RELOCATION.
The Executive shall not be required to move his principal place of
residence from the Dallas/Fort Worth, Texas metropolitan area or to perform
regular duties that could reasonably be expected to require either such move
against his wish or to spend amounts of time each week outside the
Dallas/Fort Worth, Texas metropolitan area which are unreasonable in
relation to the duties and responsibilities of the Executive hereunder, and
the Company agrees that, if it requests the Executive to make such a move
and the Executive declines that request, (a) that declination shall not
constitute any basis for a termination of the Executive's Employment and (b)
no animosity or prejudice will be held against Executive. Executive agrees
that future travel in amounts reasonably consistent with Executive's
previous amount of travel shall not be deemed unreasonable.
6. COMPENSATION.
(a) SALARY.
An annual base salary shall be payable to the Executive by the Company
as a guaranteed minimum amount under this Agreement for each calendar year
during the period from January 1, 2003 to the termination date of the
Executive's Employment. That annual base salary shall (i) accrue daily on
the basis of a 365-day year, (ii) be payable to the Executive in the
intervals consistent with the Company's normal payroll schedules (but in no
event less frequently than semi-monthly) and (iii) be payable beginning
January 1, 2003 at an initial annual rate of $350,000. The Executive's
annual base salary shall not be decreased, but shall be adjusted annually in
each December to reflect such adjustments, if any, as the compensation
committee of the Board determines appropriate based on the Executive's
performance during the most recent performance period, in accordance with
the Company's compensation policies. A failure of the Company to increase
the Executive's annual base salary shall not constitute a breach or
violation of this Agreement by the Company.
(b) BONUS.
At the discretion of the Board's compensation committee, Executive
shall be eligible to be paid an annual bonus by the Company for each
calendar year during the period from January 1, 2003 to the termination date
of the Executive's Employment. That annual bonus shall be payable at such
rate and in such amount as is determined by the compensation committee of
the board of directors. The Executive's annual bonus, if any, shall be
adjusted annually in each December to reflect such adjustments, if any, as
the Board's compensation committee determines appropriate based on the
Executive's performance during the most recent performance period, in
accordance with the Company's compensation policies. A failure of the
Company to pay Executive an annual bonus shall not constitute a breach or
violation of this Agreement by the Company.
(c) OTHER COMPENSATION.
The Executive shall be entitled to participate in all Compensation
Plans from time to time in effect while in the Employment of the Company,
regardless of whether the Executive is an Executive Officer. All awards to
the Executive under all Incentive Plans shall take into account the
Executive's positions with and duties and responsibilities to the Company
and its subsidiaries and affiliates. The Company shall supply Executive
with an automobile allowance, the make and model of which is subject to the
approval of the compensation committee of the Board, and be responsible for
all expenses related thereto throughout the term of this Agreement.
Executive may select an automobile of his own choosing which is reasonable
in cost, appearance and function, taking into account the powers, authority,
functions, duties and responsibilities of Executive, and the financial
position and condition of the Company. In consideration and in support of
Executive's duties under this Agreement, which include fostering the
goodwill, growth and earnings of the Company, the Company shall pay for a
private club membership for Executive, for such amount as is reasonable
taking into account the powers, authority, functions, duties and
responsibilities of Executive, subject to approval of the compensation
committee of the Board.
(d) EXPENSES.
The Executive shall be entitled to prompt reimbursement of all
reasonable business expenses incurred by him in the performance of his
duties during the term of this Agreement, subject to the presenting of
appropriate vouchers and receipts in accordance with the Company's policies.
7. OTHER BENEFITS.
(a) EMPLOYEE BENEFITS AND PROGRAMS.
During the term of this Agreement, the Executive and the members of his
immediate family shall be entitled to participate in any employee benefit
plans or programs of the Company to the extent that his position, tenure,
salary, age, health and other qualifications make him or them, as the case
may be, eligible to participate, subject to the rules and regulations
applicable thereto.
(b) SUBSCRIPTIONS AND MEMBERSHIPS.
The Company shall pay periodical subscription costs and membership fees
and dues for the Executive to join professional organizations appropriate
for the Executive, and which further the interests of the Company. The
Company shall also pay or reimburse Executive for Executive's membership in
such additional clubs and organizations as may be agreed upon as reasonable
and appropriate between Executive and the Company.
(c) VACATION.
The Executive shall be entitled to four weeks of vacation leave with
full pay during each year of this Agreement (each such year being a 12-month
period ending on the one year anniversary date of the commencement of the
Executive's employment.) The times for such vacations shall be selected by
the Executive, provided the dates selected do not interfere materially with
the performance of Executive's duties and responsibilities under this
agreement. The Executive may accrue up to four weeks of vacation time from
year to year, but vacation time otherwise shall not accrue from year to
year.
(d) ACCOUNTING
The Executive shall be entitled to Company paid or reimbursed annual
accounting services of up to $500 per year.
(e) INSURANCE
For the term of this Agreement, the Company will provide, at no cost to
Executive, term life insurance benefits. The policy shall be in the amount
of $500,000 with the loss payee designated by the Executive. In the
discretion of the Board, during the term of this Agreement, the Company
shall also provide, at no cost to Executive, disability insurance sufficient
to provide, in the event Executive becomes disabled, payments that would be
made to Executive equal or up to the amount equal to Executive's base
salary, as of the date of disability, provided such coverage is reasonably
available at reasonable cost. Executive may procure his own disability
coverage and at the discretion of the Board the cost of such disability
coverage may be reimbursed, if the same is not provided by the Company.
8. TERMINATION.
The Executive's Employment hereunder may be terminated prior to the
term provided for in Section 3 only under the following circumstances:
(a) DEATH.
The Executive's Employment shall terminate automatically on the date of
his death.
(b) DISABILITY.
If a Disability occurs and is continuing, the Executive's Employment
shall terminate 180 days after the Company gives the Executive written
notice that it intends to terminate his Employment on account of that
Disability, or on such later date as the Company specifies in such notice.
If the Executive resumes the performance of substantially all of his duties
under this Agreement before the termination becomes effective, the notice of
intent to terminate shall be deemed to have been revoked. Disability of
Executive shall not prevent the Company from making necessary changes during
the period of Executive's Disability to conduct its affairs.
(c) VOLUNTARY TERMINATION.
The Executive may terminate his Employment at any time and without Good
Cause with 90 days' prior written notice to the Company.
(d) TERMINATION FOR GOOD CAUSE.
The Executive may terminate his Employment for Good Cause at any time
within 180 days (one year if the Good Cause is the occurrence of a Change of
Control) after the Executive becomes consciously aware that the facts and
circumstances constituting Good Cause exist are continuing and by giving the
Company 30 days' prior written notice that the Executive intends to
terminate his Employment for Good Cause, which notice will state with
specificity the basis for Executive's contention that Good Cause exists;
provided, however, that if Executive terminates for Good Cause due to a
Change in Control, the Change in Control must actually occur. A Change in
Control will not be deemed to have actually occurred merely because of a
pending or possible event. The Executive shall not have Good Cause to
terminate his Employment solely by reason of the occurrence of a Change in
Control until one year after the date such Change in Control actually
occurs. The Executive may not terminate for Good Cause if the facts and
circumstances constituting Good Cause are substantially cured by the Company
within 30 days following notice to the Company.
(e) INVOLUNTARY TERMINATION.
The Executive's Employment is at will. The Company reserves the right
to terminate the Executive's Employment at anytime whatsoever, without
cause, with 30 days' prior written notice to the Executive.
(f) INVOLUNTARY TERMINATION FOR CAUSE.
The Company reserves the right to terminate the Executive's Employment
for Cause. In the event that the Company determines that Cause exists under
Section 12(f)(i) for the termination of the Executive's Employment, the
Company shall provide in writing (the "Notice of Cause"), the basis for that
determination and the manner, if any, in which the breach or neglect can be
cured. If either the Company has determined that the breach or neglect
cannot be cured, as set forth in the Notice of Cause, or has advised the
Executive in the Notice of Cause of the manner in which the breach or
neglect can be cured, but the Executive fails to substantially effect that
cure within 30 days after his receipt of the Notice of Cause, the Company
shall be entitled to give the Executive written notice of the Company's
intention to terminate Executive's Employment for Cause (the "Notice of
Intent to Terminate"). Executive shall have the right to object to any
Notice of Intent to Terminate Executive's Employment for Cause, by
furnishing the Company within ten days of receipt by Executive of the Notice
of Intent to Terminate Executive's Employment for Cause, written notice
specifying the reasons Executive contends either (i) Cause under Section
12(f)(i) does not exist or has been timely cured or (ii) in the circumstance
of a Notice of Intent to Terminate Executive's Employment for Cause under
Section 12(f)(ii), that such Cause does not exist (the "Notice of Intent to
Join Issue over Cause"). The failure of Executive to timely furnish the
Company with a Notice of Intent to Join Issue over Cause shall serve to
conclusively establish Cause hereunder, and the right of the Company to
terminate the Executive's Employment for Cause. Within 30 days following
its receipt of a timely Notice of Intent to Join Issue Over Cause, the
Company must either rescind the Notice of Intent to Terminate the
Executive's Employment for Cause, or file a demand for arbitration in
accordance with Section 26, to determine whether the Company is entitled to
terminate Executive's Employment for Cause. During the pendency of the
arbitration proceeding, and until such time as Executive's Employment is
terminated, Executive shall be entitled to receive Compensation under this
Agreement. In the discretion of the Board, however, the Executive may be
reassigned or suspended with pay, during not only the pendency of the
arbitration proceeding, but during the period from the date the Company
furnishes Executive with a Notice of Intent to Terminate the Executive's
Employment for Cause until such date as the notice is rescinded, a
determination that Cause does not exist is made in the arbitration
proceeding or in the event of a determination that Cause does exist in the
arbitration proceeding, the effective date of the termination of Executive's
Employment for Cause. In the event that the Company determines that Cause
exists under Section 12(f)(ii) for the termination of the Executive's
Employment, it shall be entitled to immediately furnish Executive with a
Notice of Intent to Terminate Executive's Employment without providing a
Notice of Cause or any opportunity prior to that notice to contest that
determination. Any termination of the Executive's Employment for Cause
pursuant to this Section 8(f) shall be effective immediately upon the
Executive's receipt of the Company's written notice of that termination and
the Cause therefore.
(g) VOLUNTARY TERMINATION AT CONCLUSION OF TERM
At the expiration of the term of employment as stated in Section 3,
either party may terminate this Agreement by giving the other party written
notice at least 90 days for the Executive and 30 days for the Company before
the expiration of the term of employment stated in Section 3.
9. SEVERANCE PAYMENTS.
Unless effected under Section 8(g), if the Executive's Employment is
terminated during the term of this Agreement, the Executive shall be
entitled to receive severance payments as follows:
(a) If the Executive's Employment is terminated under Section 8(a),
(b), (d), (e) or (g), the Company will pay or cause to be paid to the
Executive (or, in the case of a termination under Section 8(a), the
beneficiary the Executive has designated in writing to the Company to
receive payment pursuant to this Section 9(a) or, in the absence of such
designation, the Executive's estate): (i) the Accrued Salary; (ii) the
Other Earned Compensation; (iii) the Reimbursable Expenses; and (iv) the
Severance Benefit.
(b) If the Executive's Employment is terminated under Section 8(c) or
(f), the Company will pay or cause to be paid to the Executive: (i) the
Accrued Salary determined as of and through the termination date of the
Executive's Employment; (ii) the Other Earned Compensation; and (iii) the
Reimbursable Expenses.
(c) Any payments to which the Executive (or his designated
beneficiary or estate, if Section 8(a) applies) is entitled pursuant to
paragraph (i) of subsection (a) of this Section 9 or paragraph (i) of
subsection (b) of this Section 9, as applicable, will be paid in a single
lump sum within thirty days after the termination date of the Executive's
Employment. At the sole option and election of the Executive (or his
designated beneficiary or estate, if Section 8(a) applies), which election
shall be made within 30 days of the termination of Executive's Employment,
the Company shall pay the executive the Severance Benefit, if at all, (1) in
a lump sum on a present value basis; (2) on a semi-monthly basis (as if
Executive's employment had continued), or (3) on such other periodic basis
reasonably requested by Executive (or his designated beneficiary or estate,
if Section 8(a) applies), in which event, the payments will be discounted to
the extent the periodic basis selected by Executive (or his designated
beneficiary or estate, if Section 8(a) applies) results in an earlier payout
to Executive (or his designated beneficiary or estate, if Section 8(a)
applies) than if Executive were paid on a semi-monthly basis. The Company
shall be given credit for all life or disability insurance proceeds paid to
Executive (or his designated beneficiary or estate, if Section 8(a)
applies) on any policy procured, paid for or reimbursed by the Company
pursuant to this Agreement (up to $2 million in the case of life insurance).
Upon the failure of the Executive to timely make an election as provided
herein, such option and election shall revert to the Company. However, if
Section 8(a) applies and the Executive's designated beneficiary or estate is
the beneficiary of one or more insurance policies purchased by the Company
and then in effect the proceeds of which are payable to that beneficiary by
reason of the Executive's death, then (i) the Company, at its option, may
credit the amount of those proceeds, as and when paid by the insurer to that
beneficiary, against the payment to which the Executive's designated
beneficiary or estate is entitled pursuant to paragraph (iv) of subsection
(a) of this Section 9 and, if it exercises that option, (ii) the payment
otherwise due pursuant to that paragraph (iv) will bear interest on the
outstanding balance thereof from and including the fifth day after that
termination date to the date of payment by the insurer to that beneficiary
at the rate of interest specified in Section 31; and provided, further, that
if Section 9(b) applies and the Executive is the beneficiary of disability
insurance purchased by the Company and then in effect, the Company, at its
option, may credit the proceeds of that insurance which are payable to the
Executive, valued at their present value as of that termination date using
the interest rate specified in Section 31 and then in effect as the discount
rate, against the payment to which the Executive is entitled pursuant to
paragraph (iv) of subsection (a) of this Section 9. Any payments to which
the Executive (or his designated beneficiary or estate, if Section 8(a)
applies) is entitled pursuant to paragraphs (ii) and (iii) of subsection (a)
or (b) of this Section 9, as applicable, will be paid in a single lump sum
within five days after the termination date of the Executive's Employment or
as soon thereafter as is administratively feasible, together with interest
accrued thereon from and including the fifth day after that termination date
to the date of payment at the rate of interest specified in Section 31.
(d) Except as provided in Sections 14, 24 and this Section, the Company
will have no payment obligations under this Agreement to the Executive (or
his designated beneficiary or estate, if Section 8(a) applies) after the
termination date of the Executive's Employment.
10. RESIGNATIONS.
Upon termination of Executive's employment with or without cause,
Executive shall resign as an officer and director of the Company and will
thereafter refuse election as an officer or director of the Company.
11. RETURN OF DOCUMENTS.
Upon termination of Executive's employment with or without cause,
Executive shall immediately return and deliver to the Company and shall not
retain any originals or copies of any books, papers, price lists, customer
contracts, bids, customer lists, files, notebooks or any other documents
containing any of the Confidential information or otherwise relating to
Executive's performance of duties under this Agreement. Executive further
acknowledges and agrees that all such documents are the Company's sole and
exclusive property.
12. DEFINITION OF TERMS.
The following terms used in this Agreement when capitalized shall have
the following meanings:
(a) ACCRUED SALARY.
"Accrued Salary" shall mean the salary that has accrued, and the salary
that would accrue through and including the last day of the pay period in
which the termination date of the Executive's Employment occurs, under
Section 6(a), which has not been paid to the Executive as of that
termination date.
(b) ACQUIRING PERSON.
"Acquiring Person" shall mean any person who or which, together with
all Affiliates and Associates of such person, is or are the Beneficial Owner
of 50 percent or more of the shares of Common Stock then outstanding, but
does not include any Exempt Person; provided, however, that a person shall
not be or become an Acquiring Person if such person, together with its
Affiliates and Associates, shall become the Beneficial Owner of 50 percent
or more of the shares of Common Stock then outstanding solely as a result of
a reduction in the number of shares of Common Stock outstanding due to the
repurchase of Common Stock by the Company, unless and until such time as
such person or any Affiliate or Associate of such person shall purchase or
otherwise become the Beneficial Owner of additional shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
any other person (or persons) who is (or collectively are) the Beneficial
Owner of shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock shall become an Affiliate or Associate of
such person, unless, in either such case, such person, together with all
Affiliates and Associates of such person, is not then the Beneficial Owner
of 50% or more of the shares of Common Stock then outstanding.
(c) AFFILIATE.
"Affiliate" has the meaning ascribed to that term in Rule 405 of
Regulation C.
(d) ASSOCIATE.
"Associate" shall mean, with reference to any person, (i) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of
which that person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the Beneficial
Owner of 10% or more of any class of its equity securities, (ii) any trust
or other estate in which that person has a substantial beneficial interest
or for or of which that person serves as trustee or in a similar fiduciary
capacity and (iii) any relative or spouse of that person, or any relative of
that spouse, who has the same home as that person.
(e) BENEFICIAL OWNER.
A specified person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities: (i) of which that person
or any of that person's Affiliates or Associates, directly or indirectly, is
the "beneficial owner" (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise has the right to vote or dispose of, including pursuant to any
agreement, arrangement or understanding (whether or not in writing);
provided, however, that a person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own," any security under this subparagraph (i) as a
result of an agreement, arrangement or understanding to vote that security
if that agreement, arrangement or understanding: (A) arises solely from a
revocable proxy or consent given in response to a public (that is, not
including a solicitation exempted by Exchange Act Rule 14a-2(b)(2)) proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the Exchange Act; and (B) is not then reportable by
such person on Exchange Act Schedule 13D (or any comparable or successor
report); (ii) which that person or any of that person's Affiliates or
Associates, directly or indirectly, has the right or obligation to acquire
(whether that right or obligation is exercisable or effective immediately or
only after the passage of time or the occurrence of an event) pursuant to
any agreement, arrangement or understanding (whether or not in writing) or
on the exercise of conversion rights, exchange rights, other rights,
warrants or options, or otherwise; provided, however, that a person shall
not be deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer made by that
person or any of that person's Affiliates or Associates until those
tendered securities are accepted for purchase or exchange; or (iii) which
are beneficially owned, directly or indirectly, by (A) any other person (or
any Affiliate or Associate thereof) with which the specified person or any
of the specified person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or consent
as described in the proviso to subparagraph (i) of this definition) or
disposing of any voting securities of the Company or (B) any group (as that
term is used in Exchange Act Rule 13d-5(b)) of which that specified person
is a member; provided, however, that nothing in this definition shall cause
a person engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities acquired
through that person's participation in good faith in a firm commitment
underwriting until the expiration of 40 days after the date of that
acquisition. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent making a request or
demand relating to corporate action (including, without limitation, calling
a stockholder meeting) or otherwise giving an authorization (within the
meaning of Section 14(a) of the Exchange Act) in respect of such security.
(f) CAUSE.
"Cause" shall mean that the Executive has (i) willfully breached or
habitually neglected (otherwise than by reason of injury, or physical or
mental illness, or any disability as defined by the Americans with
Disabilities Act of 1990, Public Law 101-336, 42 U.S.C.A. S 12101 et seq.)
material duties which he was required to perform under the terms of this
Agreement, or (ii) committed and been charged with act(s) of dishonesty or
fraud.
(g) CHANGE OF CONTROL.
"Change of Control" shall mean the occurrence of the following events:
(i) any person or entity becomes an Acquiring Person, or (ii) a merger of
the Company with or into, or a sale by the Company of its properties and
assets substantially as an entirety to, another person or entity; (iii) a
majority of the incumbent board of directors cease for any reason to
constitute at least a majority of the Board; and (iv) immediately after the
occurrence of (i), (ii) or (iii) above, any person or entity, other than an
Exempt Person, together with all Affiliates and Associates of such person or
entity, shall be the Beneficial Owner of 50% or more of the total voting
power of the then outstanding Voting Shares of the person or entity
surviving that transaction (in the case or a merger or consolidation), or
the person or entity acquiring those properties and assets substantially as
an entirety.
(h) COMPANY.
"Company" shall mean (i) First Cash Financial Services, Inc., a
Delaware corporation, and (ii) any person or entity that assumes the
obligations of "the Company" hereunder, by operation of law, pursuant to
Section 18 or otherwise.
(i) COMPENSATION PLAN.
"Compensation Plan" shall mean any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or any
subsidiary of the Company contributes, on behalf of any Executive Officer or
any member of the immediate family of any Executive Officer by reason of his
status as such, (i) including (A) any "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (B) any other retirement or savings plan, including
any supplemental benefit arrangement relating to any plan intended to be
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or whose benefits are limited by the Code or ERISA,
(C) any "employee welfare plan" (as defined in Section 3(1) of ERISA), (D)
any arrangement, plan, policy, practice or program providing for severance
pay, deferred compensation or insurance benefit, (E) any Incentive Plan and
(F) any arrangement, plan, policy, practice or program (1) authorizing and
providing for the payment or reimbursement of expenses attributable to air
travel and hotel occupancy while traveling on business for the Company or
(2) providing for the payment of business luncheon and country club dues,
long-distance charges, mobile phone monthly air time or other recurring
monthly charges or any other fringe benefit, allowance or accommodation of
employment, but (ii) excluding any compensation arrangement, plan, policy,
practice or program to the extent it provides for annual base salary.
(j) DISABILITY.
"Disability" shall mean that the Executive, with reasonable
accommodation, has been unable to perform his essential duties under this
Agreement for a period of at least six consecutive months as a result of his
incapacity due to injury or physical or mental illness, any disability as
defined in a disability insurance policy which provides coverage for the
Executive, or any disability as defined by the Americans with Disabilities
Act of 1990, Public Law 101-336, 42 U.S.C.A. S 12101 et seq.
(k) EMPLOYMENT.
"Employment" shall mean the salaried employment of the Executive by the
Company or a subsidiary of the Company hereunder.
(l) EXECUTIVE OFFICER.
"Executive Officer" shall mean any of the chief executive officer, the
chief operating officer, the chief financial officer, the president, any
executive, regional or other group or senior vice president or any vice
president of the Company.
(m) EXEMPT PERSON.
"Exempt Person" shall mean: (i)(A) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company and (B) any person organized, appointed or established by the
Company for or pursuant to the terms of any such plan or for the purpose of
funding any such plan or funding other employee benefits for employees of
the Company or any subsidiary of the Company; (ii) the Executive, any
Affiliate of the Executive which the Executive controls or any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which the Executive or
any such Affiliate is a member.
(n) GOOD CAUSE.
"Good Cause" for the Executive's termination of his Employment shall
mean: (i) any decrease in the annual base salary under Section 6(a) or any
other violation hereof in any material respect by the Company; (ii) any
material reduction in the Executive's compensation under Section 6; (iii)
the assignment to the Executive of duties inconsistent in any material
respect with the Executive's then current positions (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by the Company which results in
a material diminution in those positions, authority, duties or
responsibilities; (iv) any unapproved relocation of the Executive; or (v)
the occurrence of a Change of Control. Good Cause shall not exist if the
Company cures within the period prescribed herein.
(o) INCENTIVE PLAN.
"Incentive Plan" shall mean any compensation arrangement, plan, policy,
practice or program established, maintained or sponsored by the Company or
any subsidiary of the Company, or to which the Company or any subsidiary of
the Company contributes, on behalf of any Executive Officer and which
provides for incentive, bonus or other performance-based awards of cash,
securities, the phantom equivalent of securities or other property,
including any stock option, stock appreciation right and restricted stock
plan, but excluding any plan intended to qualify as a plan under any one or
more of Sections 401(a), 401(k) or 423 of the Code.
(p) OTHER EARNED COMPENSATION.
"Other Earned Compensation" shall mean all the compensation earned by
the Executive prior to the termination date of his Employment as a result of
his Employment (including compensation the payment of which has been
deferred by the Executive, but excluding Accrued Salary and compensation to
be paid to the Executive in accordance with the terms of any Compensation
Plan), together with all accrued interest or earnings, if any, thereon,
which has not been paid to the Executive as of that date.
(q) REIMBURSABLE EXPENSES.
"Reimbursable Expenses" shall mean the expenses incurred by the
Executive on or prior to the termination date of his Employment which are to
be reimbursed to the Executive under Section 6(c) and which have not been
reimbursed to the Executive as of that date.
(r) SEVERANCE BENEFIT.
"Severance Benefit" shall mean all Compensation provided for under
Section 6 through the remainder of the Executive's term of employment, it
being the parties' intent that, except for a termination under Section 8(c),
(f) or (g), the Executive shall receive all Compensation as if his term of
employment continued as provided for under Section 3.
13. COVENANTS NOT TO COMPETE
(a) Executive's Acknowledgment. Executive agrees and acknowledges
that in order to assure the Company that it will retain its value
as a going concern, it is necessary that Executive undertake not
to utilize his special knowledge of the business and his
relationships with customers and vendors to compete with the
Company. Executive further acknowledges that:
(i) the Company is and will be engaged in the business of pawn
shop services, deferred presentment transactions, small loan
business, short-term loan business, pay day loan services and
check cashing services;
(ii) Executive will occupy a position of trust and confidence with
the Company prior to the date of this agreement and, during
such period and Executive's employment under this agreement,
Executive will become familiar with the Company's trade
secrets and with other proprietary and confidential
information concerning the Company;
(iii) the agreements and covenants contained in this Section 13
are essential to protect the Company and the goodwill of the
business; and
(iv) Executive's employment with the Company has special, unique
and extraordinary value to the Company and the Company would
be irreparably damaged if Executive were to provide services
to any person or entity in violation of the provisions of
this agreement.
(b) Company's Acknowledgement. The Company hereby acknowledges that
it will provide Executive with confidential and trade secret
information relating to the operation of the Company's business,
including but not limited to, customer lists, operating manuals,
internal controls, computer systems, computer controls, day-to-day
operating procedures, management of personnel, hiring and firing
of personnel, promoting personnel, marketing of the company's
products, new store site selection, selection of new geographic
markets, and details of the industries' laws and regulation.
(c) Competitive Activities. Executive hereby agrees that for a period
commencing on the date hereof and ending two years following the
later of (i) termination of Executive's employment with the
Company for whatever reason, and (ii) the conclusion of the
period, if any, during which the Company is making payments to
Executive, he will not, directly or indirectly, as employee,
agent, consultant, stockholder, director, co-partner or in any
other individual or representative capacity, own, operate, manage,
control, engage in, invest in or participate in any manner in, act
as a consultant or advisor to, render services for (alone or in
association with any person, firm, corporation or entity), or
otherwise assist any person or entity (other than the Company)
that engages in or owns, invests in, operates, manages or controls
any venture or enterprise that directly or indirectly engages or
proposes in engage in the business of pawnshops, check cashing
services, payday loan services or proposes to in engage in the
business of the distribution or sale of (i) products distributed,
sold or licensed by the Company or services provided by the
Company at the time of termination or (ii) products or services
proposed at the time of such termination to be distributed, sold,
licensed or provided by the Company within 50 miles of any of the
Company's locations (the "Territory"); provided, however, that
nothing contained herein shall be construed to prevent Executive
from investing in the stock of any competing corporation listed on
a national securities exchange or traded in the over-the-counter
market, but only if Executive is not involved in the business of
said corporation and if Executive and his associates (as such term
is defined in Regulation 14(A) promulgated under the Securities
Exchange Act of 1934, as in effect on the date hereof),
collectively, do not own more than an aggregate of two percent of
the stock of such corporation. With respect to the Territory,
Executive specifically acknowledges that the Company has conducted
the business throughout those areas comprising the Territory and
the Company intends to continue to expand the business throughout
the Territory.
(d) Blue Pencil. If an arbitrator shall at any time deem the terms of
this agreement or any restrictive covenant too lengthy or the
Territory too extensive, the other provisions of this section 13
shall nevertheless stand, the restrictive period shall be deemed
to be the longest period permissible by law under the
circumstances and the Territory shall be deemed to comprise the
largest territory permissible by law under the circumstances. The
arbitrator in each case shall reduce the restricted period and/or
the Territory to permissible duration or size.
(e) Non-Solicitation of Employees. Executive agrees that while
employed by the Company and for two (2) years after the
termination of the Executive's employment for whatever reason, the
Executive will not recruit, hire or attempt to recruit or hire,
directly or assisted by others, any other employee of the Company
with whom the Executive had contact during the Executive's
employment with the Company. For the purposes of this paragraph,
a contact means any interaction whatsoever between the Executive
and the other employee.
(f) Non-Solicitation of Customers. Executive agrees that while
employed by the Company and for two (2) years after the
termination of the Executive's employment for whatever reason, the
Executive will not directly or indirectly, for himself or on
behalf of any other person, partnership, company, corporation or
other entity, solicit or attempt to solicit, for the purpose of
engaging in competition with the Company,
(i) any person or entity whose account was serviced by Executive
at the Company; or
(ii) any person or entity who is or has been a customer of the
Company prior to Executive's termination; or
(iii) any person or entity the Company has targeted and contacted
prior to Executive's termination for the purpose of
establishing a customer relationship.
Executive agrees that these restrictions are necessary to protect
Executive's legitimate business interests, and Executive agrees that these
restrictions will not prevent Executive from earning a livelihood.
14. TAX INDEMNITY.
Should any of the payments of salary, other incentive or supplemental
compensation, benefits, allowances, awards, payments, reimbursements or
other perquisites, or any other payment in the nature of compensation,
singularly, in any combination or in the aggregate, that are provided for
hereunder to be paid to or for the benefit of the Executive be determined or
alleged to be subject to an excise or similar purpose tax pursuant to
Section 4999 of the Code, or any successor or other comparable federal,
state or local tax law by reason of being a "parachute payment" (within the
meaning of Section 280G of the Code), the parties agree to negotiate in good
faith changes to this Agreement necessary to avoid such excise or similar
purpose tax, without diminishing Executive's salary, other incentive or
supplemental compensation, benefits, allowances, awards, payments,
reimbursements or other perquisites, or any other payment in the nature of
compensation. Alternatively, the Company shall pay to the Executive such
additional compensation as is necessary (after taking into account all
federal, state and local taxes payable by the Executive as a result of the
receipt of such additional compensation) to place the Executive in the same
after-tax position (including federal, state and local taxes) he would have
been in had no such excise or similar purpose tax (or interest or penalties
thereon) been paid or incurred. The Company hereby agrees to pay such
additional compensation within the earlier to occur of (i) five business
days after the Executive notifies the Company that the Executive intends to
file a tax return taking the position that such excise or similar purpose
tax is due and payable in reliance on a written opinion of the Executive's
tax counsel (such tax counsel to be chosen solely by the Executive) that it
is more likely than not that such excise tax is due and payable or (ii) 24
hours of any notice of or action by the Company that it intends to take the
position that such excise tax is due and payable. The costs of obtaining the
tax counsel opinion referred to in clause (i) of the preceding sentence
shall be borne by the Company, and as long as such tax counsel was chosen by
the Executive in good faith, the conclusions reached in such opinion shall
not be challenged or disputed by the Company. If the Executive intends to
make any payment with respect to any such excise or similar purpose tax as a
result of an adjustment to the Executive's tax liability by any federal,
state or local tax authority, the Company will pay such additional
compensation by delivering its cashier's check payable in such amount to the
Executive within five business days after the Executive notifies the Company
of his intention to make such payment. Without limiting the obligation of
the Company hereunder, the Executive agrees, in the event the Executive
makes any payment pursuant to the preceding sentence, to negotiate with the
Company in good faith with respect to procedures reasonably requested by the
Company which would afford the Company the ability to contest the imposition
of such excise or similar purpose tax; provided, however, that the Executive
will not be required to afford the Company any right to contest the
applicability of any such excise or similar purpose tax to the extent that
the Executive reasonably determines (based upon the opinion of his tax
counsel) that such contest is inconsistent with the overall tax interests of
the Executive.
15. LOCATIONS OF PERFORMANCE.
The Executive's services shall be performed primarily in the vicinity
of Arlington, Texas. The parties acknowledge, however, that the Executive
will be required to travel in connection with the performance of his duties.
16. PROPRIETARY INFORMATION.
(a) The Executive agrees to comply fully with the Company's policies
relating to non-disclosure of the Company's trade secrets and proprietary
information and processes. Without limiting the generality of the foregoing,
the Executive will not, during the term of his Employment, disclose any such
secrets, information or processes to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever except as
may be required by law or governmental agency or legal process, nor shall
the Executive make use of any such property for his own purposes or for the
benefit of any person, firm, corporation or other entity (except the Company
or any of its subsidiaries) under any circumstances during or after the term
of his Employment, provided that after the term of his Employment this
provision shall not apply to secrets, information and processes that are
then in the public domain (provided that the Executive was not responsible,
directly or indirectly, for such secrets, information or processes entering
the public domain without the Company's consent).
(b) The Executive hereby sells, transfers and assigns to the Company
all the entire right, title and interest of the Executive in and to all
inventions, ideas, disclosures and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by
the Executive solely or jointly with others during the term of this
Agreement, which relates to the competitive businesses (pawn, payday, retail
sales or lending) of the Company. The Executive shall communicate promptly
and disclose to the Company, in such form as the Company requests, all
information, details and data pertaining to the aforementioned and, whether
during the term hereof or thereafter, the Executive shall execute and
deliver to the Company such formal transfers and assignments and such other
papers and documents as may be required of the Executive to permit the
Company to file and prosecute any patent applications relating to same and,
as to copyrightable material, to obtain copyright thereon.
(c) Trade secrets, proprietary information and processes shall not be
deemed to include information which is: (i) known to the Executive at the
time it is disclosed to him; (ii) publicly known (or becomes publicly
known) without the fault or negligence of Executive; (iii) received from a
third party without restriction and without breach of this Agreement; (iv)
approved for release by written authorization of the Company; or (v)
required to be disclosed by law or legal process; provided, however, that in
the event of a proposed disclosure pursuant to this subsection (c)(v), the
Executive shall give the Company prior written notice before such disclosure
is made in a time and manner which will best provide the Company with the
ability to oppose such disclosure.
17. ASSIGNMENT.
This Agreement may not be assigned by either party; provided that the
Company may assign this Agreement (i) in connection with a merger or
consolidation involving the Company or a sale of its business, properties
and assets substantially as an entirety to the surviving corporation or
purchaser as the case may be, so long as such assignee assumes the Company's
obligations hereunder; and (ii) so long as the assignment in the reasonable
discretion of Executive does not result in a materially increased risk of
non-performance of the Company's obligations hereunder by the assignee. The
Company shall require as a condition of such assignment any successor
(direct or indirect (including, without limitation, by becoming the sole
stockholder of the Company) and whether by purchase, merger, consolidation,
share exchange or otherwise) to the business, properties and assets of the
Company substantially as an entirety expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the Company
would have been required to perform it had no such succession taken place.
This Agreement shall be binding upon all successors and assigns. In the
event of a Change of Control, and regardless of whether the Executive's
employment is thereafter terminated, and return to Executive (or, in the
case of termination under Section 8(a), the beneficiary the Executive has
designated in writing to the Company to receive payment pursuant to Section
8(a) or in the absence of such designation, the Executive's estate) within
ten days, all property securing the payment thereof. Any taxes due by
Executive as a result of the forgiveness under this provision of the
Executive's debt to the Company will be the sole obligation of the Company.
18. NOTICES.
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to the
Executive at his residence maintained on the Company's records, or to the
Company at its address at 690 E. Lamar Blvd. Suite 400, Arlington, Texas
76011, Attention: Corporate Secretary, or such other addresses as either
party shall notify the other in accordance with the above procedure.
19. FORCE MAJEURE.
Neither party shall be liable to the other for any delay or failure to
perform hereunder, which delay or failure is due to causes beyond the
control of said party, including, but not limited to: acts of God; acts of
the public enemy; acts of the United States of America or any state,
territory or political subdivision thereof or of the District of Columbia;
fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes; provided, however, that this Section 19 will not relieve the
Company of any of its payment obligations to the Executive under this
Agreement. Notwithstanding the foregoing provisions of this Section 19, in
every case the delay or failure to perform must be beyond the control and
without the fault or negligence of the party claiming excusable delay.
20. INTEGRATION.
This Agreement represents the entire agreement and understanding
between the parties as to the subject matter hereof and supersedes all prior
or contemporaneous agreements whether written or oral. No waiver, alteration
or modification of any of the provisions of this Agreement shall be binding
unless in writing and signed by duly authorized representatives of the
parties hereto.
21. WAIVER.
Failure or delay on the part of either party hereto to enforce any
right, power or privilege hereunder shall not be deemed to constitute a
waiver thereof. Additionally, a waiver by either party of a breach of any
promise herein by the other party shall not operate as or be construed to
constitute a waiver of any subsequent breach by such other party.
22. SAVINGS CLAUSE.
If any term, covenant or condition of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the application of such
term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable shall not be affected thereby,
and each term, covenant or condition of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
23. AUTHORITY TO CONTRACT.
The Company warrants and represents to the Executive that the Company
has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict
with any other agreement to which the Company is a party or by which it may
be bound. The Company further warrants and represents to the Executive that
the individual executing this Agreement on behalf of the Company has the
full power and authority to bind the Company to the terms hereof and has
been authorized to do so in accordance with the Company's articles or
certificate of incorporation and bylaws.
24. PAYMENT OF EXPENSES.
If at any time during the term hereof or afterwards: (a) there should
exist a dispute or conflict between the Executive and the Company or another
Person as to the validity, interpretation or application of any term or
condition hereof, or as to the Executive's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of
the Executive, (b) the Executive must (i) defend the validity of this
Agreement or (ii) contest any determination by the Company concerning the
amounts payable (or reimbursable) by the Company to the Executive or (c) the
Executive must prepare responses to an Internal Revenue Service ("IRS")
audit of, or otherwise defend, his personal income tax return for any year
the subject of any such audit, or an adverse determination, administrative
proceedings or civil litigation arising therefrom, which is occasioned by or
related to an audit by the IRS of the Company's income tax returns, then the
Company hereby unconditionally agrees: (a) on written demand of the Company
by the Executive, to provide sums sufficient to advance and pay on a current
basis (either by paying directly or by reimbursing the Executive) not less
than 30 days after a written request therefor is submitted by the Executive,
all the Executive's costs and expenses (including, without limitation,
attorney's fees, expenses of investigation, travel, lodging, copying,
delivery services and disbursements for the fees and expenses of experts,
etc.) incurred by the Executive in connection with any such matter; (b) the
Executive shall be entitled, on demand in accordance with Section 26, below,
to the entry of a mandatory injunction without the necessity of posting any
bond with respect thereto which compels the Company to pay or advance such
costs and expenses on a current basis; and (c) the Company's obligations
under this Section 24 will not be affected if the Executive is not the
prevailing party in the final resolution of any such matter unless it is
determined pursuant to Section 26 that, in the case of one or more of such
matters, the Executive has acted in bad faith or without a reasonable basis
for his position, in which event and, then only with respect to such matter
or matters, the successful or prevailing party or parties shall be entitled
to recover from the Executive reasonable attorneys' fees and other costs
incurred in connection with that matter or matters (including the amounts
paid by the Company in respect of that matter or matters pursuant to this
Section 24), in addition to any other relief to which it or they may be
entitled.
25. REMEDIES.
In the event of a breach by the Executive of Section 13 or 16 of this
Agreement, in addition to other remedies provided by applicable law, the
Company will be entitled to issuance of a temporary restraining order or
preliminary injunction enforcing its rights under such Section.
26. ARBITRATION.
This Agreement Is Subject to Binding Arbitration. Any dispute or
controversy arising under or in connection with this Agreement or in any
manner associated with Employee's employment (other than those described in
Section 25 - Remedies) shall be settled exclusively by arbitration in
Arlington, Texas, in accordance with the rules of the American Arbitration
Association then in effect. The parties agree to execute and be bound by
the mutual agreement to arbitrate claims attached hereto as Attachment A.
27. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
28. WAIVER OF ACTUAL OR POTENTIAL CONFLICTS OF INTEREST
Should it become necessary for Executive to seek to enforce the terms
of this Agreement, the Company consents to Executive's use of counsel which
either then or may have in the past represented the Company, provided that
counsel agrees to undertake Executive's representation, and such
representation and waiver of actual or potential conflicts of interest is in
accordance with the Texas State Bar Rules, including the Texas Disciplinary
Rules of Professional Conduct. To the extent permitted by the Rules, the
Company waives any such actual or potential conflict of interest arising
thereby.
29. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
30. INDEMNIFICATION.
The Executive shall be indemnified by the Company to the maximum
permitted by the law of the state of the Company's incorporation, and by the
law of the state of incorporation of any subsidiary of the Company of which
the Executive is a director or an officer or employee, as the same may be in
effect from time to time.
31. INTEREST.
If any amounts required to be paid or reimbursed to the Executive
hereunder are not so paid or reimbursed at the times provided herein
(including amounts required to be paid by the Company pursuant to Sections
6, 14 and 24), those amounts shall bear interest at the rate of 7%, from the
date those amounts were required to have been paid or reimbursed to the
Executive until those amounts are finally and fully paid or reimbursed;
provided, however, that in no event shall the amount of interest contracted
for, charged or received hereunder exceed the maximum non-usurious amount of
interest allowed by applicable law.
32. TIME OF THE ESSENCE.
Time is of the essence with respect to any act required to be performed
by this Agreement.
33. PRIOR INSTRUMENTS UNAFFECTED.
All prior instruments between the Company and Executive shall remain in
full force and effect and the terms and conditions thereof shall not be
affected by this Agreement.
FIRST CASH FINANCIAL SERVICES, INC. EXECUTIVE
By: /s/ Rick L. Wessel By: /s/ J. Alan Barron
---------------------- -----------------------
Rick L. Wessel J. Alan Barron
President Chief Operating Officer
ATTACHMENT "A"
MUTUAL AGREEMENT TO ARBITRATE
-----------------------------
1. I, J. Alan Barron, recognize that differences could arise between First
Cash Financial Services, Inc. ("the Company") and me during or following my
employment with the Company. I understand and agree that by entering into
this Mutual Agreement to Arbitrate ("Agreement"), I gain the benefits of a
speedy, impartial dispute-resolution procedure.
2. I understand that any reference in this Agreement to the Company will
be a reference also to all stockholders, directors, officers, employees,
parents, subsidiaries and affiliated entities, all benefit plans, the
benefit plans' sponsors, fiduciaries, administrators, and all successors
and assigns of any of them.
Claims Covered by the Agreement
-------------------------------
3. The Company and I mutually agree to the resolution by arbitration of
all claims or controversies ("claims"), whether or not arising out of my
employment (or its termination), that the Company may have against me or
that I may have against the Company. The claims covered by this Agreement
include, but are not limited to, claims under my Employment Agreement,
claims for wages or other compensation due; for breach of any contract
or covenant (express or implied); tort claims; claims for discrimination
(including, but not limited to, race sex, color, religion, national origin,
age (state or federal Age Discrimination in Employment Act), marital
status, veterans status, sexual preference, medical condition, handicap
or disability); claims for benefits (except where an employee benefit or
pension plan specifies that its claims procedure shall culminate in an
arbitration procedure different from this one); and claims for violation of
any federal, state, or other law, statute, regulation, or ordinance, except
claims excluded in the following paragraphs.
Claims Not Covered by the Agreement
-----------------------------------
4. Claims I may have for workers' compensation or unemployment compensation
benefits are not covered by this Agreement.
Arbitration
-----------
5. (a) Procedure for Injunctive Relief. In the event either the Company
or myself seeks injunctive relief, the claim shall be administratively
expedited by the American Arbitration Association ("AAA"), which shall
appoint a single, neutral arbitrator for the limited purpose of deciding
such claim. Such arbitrator shall be a qualified member of the State Bar of
Texas in good standing, and preferably shall be a retired state or federal
district judge. The single arbitrator shall decide the claim for injunctive
relief immediately on hearing or receiving the parties' submissions
(unless, in the interests of justice, he must rule ex parte); provided,
however, that the single arbitrator shall rule on such claims within 24
hours of submission of the claim to the AAA. The single arbitrator's ruling
shall not extend beyond 14 calendar days and on application by the claimant,
up to an additional 14 days following which, after a hearing on the claim
for injunctive relief, a temporary injunction may issue pending the award.
Any relief granted under this procedure for injunctive relief shall be
specifically enforceable in Tarrant County District Court on an expedited,
ex parte basis and shall not be the subject of any evidentiary hearing or
further submission by either party, but the court, on application to enforce
a temporary order, shall issue such orders as necessary to its enforcement.
(b) Procedure after a Claim for Injunctive Relief or where no
Claim for Injunctive Relief Is Made. The arbitrator shall be selected
as follows: in the event the Company and I agree on one arbitrator, the
arbitration shall be conducted by such arbitrator. In the event the Company
and I do not agree, the Company and I shall each select one independent,
qualified arbitrator, and the two arbitrators so selected shall select the
third arbitrator. The arbitrator(s) are herein referred to as the "Panel."
The Company reserves the right to object to any individual arbitrator who
shall be employed by or affiliated with a competing organization.
(c) The Arbitration shall take place at Arlington, Texas, or any
other location mutually agreeable to us. At the request of either of us,
arbitration proceedings will be conducted in the utmost secrecy; in such
case all documents, testimony and records shall be received, heard and
maintained by the Panel in secrecy, available for inspection only by the
Company or me and our respective attorneys and our respective experts,
who shall agree in advance and in writing to receive all such information
confidentially and to maintain such information in secrecy until such
information shall become generally known. The Panel shall be able to award
any and all relief, including relief of an equitable nature. The award
rendered by the Panel may be enforceable in any court having jurisdiction
thereof.
(d) The Company will pay all the fees and out-of-pocket expenses
of each arbitrator selected pursuant to this Section 5 and the
AAA. In addition, the Company will pay my reasonable attorneys' fees,
unless the arbitration is the result of a termination for cause as defined
in Section 13(f)(ii) of the Executive Employment Agreement to which this
Attachment is appended.
Requirements for Modification or Revocation
-------------------------------------------
6. This Agreement to arbitrate shall survive the termination of my
employment. It can only be revoked or modified by a writing signed by the
Company and I, which specifically states a mutual intent to revoke or modify
this Agreement.
Sole and Entire Agreement
-------------------------
7. This is the complete agreement of us on the subject of arbitration
of disputes [except for any arbitration agreement in connection with any
pension or benefit plan].
This Agreement supersedes any prior or contemporaneous oral or written
understanding on the subject.
8. Neither of us is relying on any representations, oral or written, on the
subject of the effect, enforceability or meaning of this Agreement, except
as specifically set forth in this Agreement.
Construction
------------
9. If any provision of this Agreement is found to be void or otherwise
unenforceable, in whole or in part, such adjudication shall not affect the
validity of the remainder of the Agreement.
Consideration
-------------
10. The promises by the Company and by me to arbitrate differences, rather
than litigate them before courts or other bodes, provide consideration for
each other. In addition, I have entered into an Employment Agreement as
further consideration for entering into this Agreement.
Not an Employment Agreement
---------------------------
11. This Arbitration Agreement is purely procedural. It does not provide
any substantive rights in addition to those provided by applicable law or
my Employment Agreement.
Voluntary
---------
12. I acknowledge that I have carefully read this agreement, that I
understand its terms, that all understandings and agreements between the
company and me relating to the subjects covered in the agreement are
contained in it, and that I have entered into the agreement voluntarily and
not in reliance on any promises or representations by the company other than
those contained in this agreement itself.
13. The Age Discrimination in Employment Act protects individuals over
40 years of age from age discrimination. The ADEA contains some special
requirements before an employee can give up the right to file a lawsuit in
court. The following provisions are designed to comply with those
requirements.
a. I agree that this Agreement to arbitrate is valuable to me,
because it permits a faster resolution of claims that I would receive in
court.
b. I have been advised to consult an attorney before signing
this.
c. I have 21 days to consider this Agreement. However, I may
sign it sooner if I wish to do so.
d. I have 7 days following my signing this Agreement to revoke
my signature, and the Agreement will not be legally binding until the 7 day
period has gone by.
33. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS
THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF TO THAT
OPPORTUNITY TO THE EXTENT I WISH TO DO SO.
FIRST CASH FINANCIAL SERVICES, INC. EXECUTIVE
By: /s/ Rick L. Wessel By: /s/ J. Alan Barron
---------------------- -----------------------
Rick L. Wessel J. Alan Barron
President Chief Operating Officer
Exhibit 10.13
THIRD ADDENDUM TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Third Addendum to Executive Employment Agreement (the "Addendum")
is made this 21st day of October 2003, by and between First Cash Financial
Services, Inc. (the "Company"), a Delaware corporation, and Phillip Eric
Powell (the "Executive"). The Company and Executive may be hereinafter
collectively referred to as the "Parties."
RECITALS
A. Executive is employed by the Company pursuant to an Executive
Employment Agreement dated as of September 30, 2000 (the "Original
Agreement") "), as amended by the First Addendum to Executive
Employment Agreement dated March 21, 2002 and the Second Addendum to
Executive Employment Agreement dated October 24, 2002.
B. The Parties jointly wish to make additions to the Original Agreement.
C. The additions to the Original Agreement are set forth in this Addendum.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the promises, terms, covenants and
conditions set forth herein and in the Original Agreement, and for other
good and valuable consideration, the receipt of which is undisputed and
hereby acknowledged, the Parties agree as follows:
1. Extension of Term. Executive has met the stipulated performance
criteria established by the Board. Accordingly, pursuant to the Original
Agreement, Executive's term of Employment has been extended through December
31, 2008.
2. Base Salary. As a result of Executive meeting the stipulated
performance criteria established by the Board for 2001, the Executive's
annual base salary was increased to $500,000 for the period from January 1,
2002 until December 31, 2002. Again as a result of Executive meeting the
stipulated performance criteria for 2002, the Executive's annual base salary
for the period from January 1, 2003 until December 31, 2003 was increased to
$600,000. Again as a result of Executive meeting the stipulated performance
criteria for 2003, the Executive's annual base salary for the period from
January 1, 2004 until December 31, 2004 was increased to $660,000. During
the remaining term of Executive's employment, Executive's annual base salary
shall not be decreased, but shall be adjusted annually in each December at a
rate of no less than 10% of the current year's base salary. In addition,
the compensation committee of the Board may determine such other adjustments
as may be appropriate based on the Executive's performance during the most
recent performance period, in accordance with the Company's compensation
policies.
3. Interpretation.
a. No Other Additions. Sections 1 and 2 of this Addendum constitute the
only additions to the Original Agreement, all other terms and conditions
therein shall remain unaltered.
b. Definitions. All capitalized terms used herein and not otherwise
defined shall have the same meaning assigned to them in the Original
Agreement.
c. Severability. Should any one or more of the provisions of this
Addendum be determined to be illegal or unenforceable, all other provisions
of this Addendum shall be given effect separately from the provision or
provisions determined to be illegal or unenforceable and shall not be
effected thereby.
d. Choice of Law. This Addendum shall be governed by, and construed in
accordance with, the laws of the State of Texas.
f. Headings. The headings of sections and paragraphs of this Addendum
have been inserted for convenience of reference only and do not constitute a
part of this Addendum.
g. Counterparts. This Addendum may be executed in multiple counterparts
with the same effect as if all parties had signed the same document. All
such counterparts shall be deemed an original, shall be construed together
and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed and delivered as of the day first above written.
FIRST CASH FINANCIAL SERVICES, INC.
By: /s/ Richard T. Burke
--------------------
Richard T. Burke
Director
EXECUTIVE
/s/ Phillip Eric Powell
-----------------------
Phillip Eric Powell
Exhibit 10.14
THIRD ADDENDUM TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Third Addendum to Executive Employment Agreement (the "Addendum")
is made this 21st day of October 2003, by and between First Cash Financial
Services, Inc. (the "Company"), a Delaware corporation, and Rick L. Wessel
(the "Executive"). The Company and Executive may be hereinafter
collectively referred to as the "Parties."
RECITALS
A. Executive is employed by the Company pursuant to an Executive
Employment Agreement dated as of September 30, 2000 (the "Original
Agreement"), as amended by the First Addendum to Executive Employment
Agreement dated March 21, 2002 and the Second Addendum to Executive
Employment Agreement dated October 24, 2002.
B. The Parties jointly wish to make additions to the Original Agreement.
C. The additions to the Original Agreement are set forth in this Addendum.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the promises, terms, covenants and
conditions set forth herein and in the Original Agreement, and for other
good and valuable consideration, the receipt of which is undisputed and
hereby acknowledged, the Parties agree as follows:
1. Extension of Term. Executive has met the stipulated performance
criteria established by the Board. Accordingly, pursuant to the Original
Agreement, Executive's term of Employment has been extended through December
31, 2008.
2. Base Salary. As a result of Executive meeting the stipulated
performance criteria established by the Board for 2001, the Executive's
annual base salary was increased to $350,000 for the period from January 1,
2002 until December 31, 2002. Again as a result of Executive meeting the
stipulated performance criteria for 2002, the Executive's annual base salary
for the period from January 1, 2003 until December 31, 2003 was increased to
$450,000. Again as a result of Executive meeting the stipulated performance
criteria for 2003, the Executive's annual base salary for the period from
January 1, 2004 until December 31, 2004 was increased to $495,000. During
the remaining term of Executive's employment, Executive's annual base salary
shall not be decreased, but shall be adjusted annually in each December at a
rate of no less than 10% of the current year's base salary. In addition,
the compensation committee of the Board may determine such other adjustments
as may be appropriate based on the Executive's performance during the most
recent performance period, in accordance with the Company's compensation
policies.
3. Interpretation.
a. No Other Additions. Sections 1 and 2 of this Addendum constitute the
only additions to the Original Agreement, all other terms and conditions
therein shall remain unaltered.
b. Definitions. All capitalized terms used herein and not otherwise
defined shall have the same meaning assigned to them in the Original
Agreement.
c. Severability. Should any one or more of the provisions of this
Addendum be determined to be illegal or unenforceable, all other provisions
of this Addendum shall be given effect separately from the provision or
provisions determined to be illegal or unenforceable and shall not be
effected thereby.
d. Choice of Law. This Addendum shall be governed by, and construed in
accordance with, the laws of the State of Texas.
f. Headings. The headings of sections and paragraphs of this Addendum
have been inserted for convenience of reference only and do not constitute a
part of this Addendum.
g. Counterparts. This Addendum may be executed in multiple counterparts
with the same effect as if all parties had signed the same document. All
such counterparts shall be deemed an original, shall be construed together
and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed and delivered as of the day first above written.
FIRST CASH FINANCIAL SERVICES, INC.
By: /s/ Phillip E. Powell
-----------------------
Phillip E. Powell
Chief Executive Officer
EXECUTIVE
/s/ Rick L. Wessel
------------------
Rick L. Wessel
Exhibit 10.15
FIRST ADDENDUM TO
EXECUTIVE EMPLOYMENT AGREEMENT
This First Addendum to Executive Employment Agreement (the "Addendum")
is made this 21st day of October 2003, by and between First Cash Financial
Services, Inc. (the "Company"), a Delaware corporation, and J. Alan Barron
(the "Executive"). The Company and Executive may be hereinafter
collectively referred to as the "Parties."
RECITALS
A. Executive is employed by the Company pursuant to an Executive
Employment Agreement dated as of January 1, 2003 (the "Original
Agreement").
B. The Parties jointly wish to make additions to the Original Agreement.
C. The additions to the Original Agreement are set forth in this Addendum.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the promises, terms, covenants and
conditions set forth herein and in the Original Agreement, and for other
good and valuable consideration, the receipt of which is undisputed and
hereby acknowledged, the Parties agree as follows:
1. Extension of Term. Executive has met the stipulated performance
criteria established by the Board. Accordingly, pursuant to the Original
Agreement, Executive's term of Employment has been extended through December
31, 2006.
2. Base Salary. As a result of Executive meeting the stipulated
performance criteria established by the Board for 2003, the Executive's
annual base salary was increased to $385,000 for the period from January 1,
2004 until December 31, 2004. During the remaining term of Executive's
employment, Executive's annual base salary shall not be decreased, but shall
be adjusted annually in each December at a rate of no less than 10% of the
current year's base salary. In addition, the compensation committee of the
Board may determine such other adjustments as may be appropriate based on
the Executive's performance during the most recent performance period, in
accordance with the Company's compensation policies.
3. Interpretation.
a. No Other Additions. Sections 1 and 2 of this Addendum constitute the
only additions to the Original Agreement, all other terms and conditions
therein shall remain unaltered.
b. Definitions. All capitalized terms used herein and not otherwise
defined shall have the same meaning assigned to them in the Original
Agreement.
c. Severability. Should any one or more of the provisions of this
Addendum be determined to be illegal or unenforceable, all other provisions
of this Addendum shall be given effect separately from the provision or
provisions determined to be illegal or unenforceable and shall not be
effected thereby.
d. Choice of Law. This Addendum shall be governed by, and construed in
accordance with, the laws of the State of Texas.
f. Headings. The headings of sections and paragraphs of this Addendum
have been inserted for convenience of reference only and do not constitute a
part of this Addendum.
g. Counterparts. This Addendum may be executed in multiple counterparts
with the same effect as if all parties had signed the same document. All
such counterparts shall be deemed an original, shall be construed together
and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed and delivered as of the day first above written.
FIRST CASH FINANCIAL SERVICES, INC.
By: /s/ Rick L. Wessel
------------------
Rick L. Wessel
President
EXECUTIVE
/s/ J. Alan Barron
------------------
J. Alan Barron
Exhibit 14.1
FIRST CASH FINANCIAL SERVICES, INC.
CODE OF ETHICS
This Code of Ethics is designed to promote honest and ethical conduct,
full, fair, accurate, timely and understandable disclosure of financial
information in the periodic reports of First Cash Financial Services, Inc.
(the "Company"), and compliance with applicable laws, rules, and
regulations.
APPLICABILITY OF THE CODE
This Code of Ethics (the "Code") applies to the Company's chief
executive officer, president, chief operating officer, chief financial
officer, controller, and such other operations, finance, accounting, or
internal audit personnel as the chief executive officer, president or chief
financial officer may from time to time designate. The persons listed in
the preceding paragraph are referred to as the "Covered Persons."
HONEST AND ETHICAL CONDUCT
In performing his or her duties, each of the Covered Persons will act
in accordance with high standards of honest and ethical conduct including
taking appropriate actions to permit and facilitate the ethical handling and
resolution of actual or apparent conflicts of interest between personal and
professional relationships.
In addition, each of the Covered Persons will promote high standards of
honest and ethical conduct among employees who have responsibilities in the
areas of accounting, audit, tax, and financial reporting and other employees
throughout the Company.
FULL, FAIR, ACCURATE, TIMELY, AND UNDERSTANDABLE DISCLOSURE
In performing his or her duties, each of the Covered Persons will
endeavor to promote, and will take appropriate action within his or her
areas of responsibility to cause the Company to provide, full, fair,
accurate, timely, and understandable disclosure in reports and documents
that the Company files with or submits to the Securities and Exchange
Commission and in other public communications.
In performing his or her duties, each of the Covered Persons will,
within his or her areas of responsibility, engage in, and seek to promote,
full, fair and accurate disclosure of financial and other information to,
and open and honest discussions with, the Company's outside auditors.
COMPLIANCE WITH APPLICABLE GOVERNMENTAL LAWS, RULES, AND REGULATIONS
In performing his or her duties, each of the Covered Persons will
endeavor to comply, and take appropriate action within his or her areas of
responsibility to cause the Company to comply, with applicable governmental
laws, rules, and regulations and applicable rules and regulations of self-
regulatory organizations.
Each of the Covered Persons will promptly provide the Company's general
counsel or the Company's audit committee with information concerning conduct
the Covered Person reasonably believes to constitute a material violation by
the Company, or its directors or officers, of the securities laws, rules or
regulations or other laws, rules, or regulations applicable to the Company.
REPORTING VIOLATIONS OF THE CODE
Each of the Covered Persons will promptly report any violation of this
Code to the Company's general counsel or to the Company's audit committee,
as applicable.
WAIVER AND AMENDMENT OF THE CODE
The Company's audit committee, as well as the Company's board of
directors, will have the authority to approve a waiver from any provision of
this Code. The Company will publicly disclose information concerning any
waiver or an implicit waiver of this Code as required by applicable law. A
waiver means the approval of a material departure from a provision of this
Code. The Company will publicly disclose any substantive amendment of this
Code as required by applicable law.
ACCOUNTABILITY FOR ADHERENCE TO THE CODE
The Company's audit committee will assess compliance with this Code,
report violations of this Code to the Board of Directors, and, based upon
the relevant facts and circumstances, recommend to the Board appropriate
action. A violation of this Code may result in disciplinary action
including termination of employment.
Exhibit 21.1
FIRST CASH FINANCIAL SERVICES, INC.
SUBSIDIARIES
Percentage
Country/State of Owned
Subsidiary Name Incorporation by Registrant
--------------- ------------- -------------
American Loan and Jewelry, Inc. Texas 100%
WR Financial, Inc. Texas 100%
Famous Pawn, Inc. Maryland 100%
JB Pawn, Inc. Texas 100%
Cash & Go, Inc. California 100%
Capital Pawnbrokers, Inc. Maryland 100%
Silver Hill Pawn, Inc. Maryland 100%
Elegant Floors, Inc. Maryland 100%
One Iron Ventures, Inc. Illinois 100%
First Cash, S.A. de C.V. Mexico 100%
American Loan Employee Services,
S.A. de C.V. Mexico 100%
First Cash, Ltd. Texas 100%
First Cash Corp Delaware 100%
First Cash Management, LLC Delaware 100%
First Cash, Inc. Nevada 100%
Cash & Go, Ltd. Texas 49.5%
Cash & Go Management, LLC Texas 50%
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No.
333-71077 on Form S-3, Registration Statement No. 333-106878 on Form S-3,
Registration Statement No. 333-73391 on Form S-8, and Registration Statement
No. 333-106880 on Form S-8 of First Cash Financial Services, Inc. of
our report dated March 8, 2004 (October 8, 2004 as to the effect of the
restatement described in Note 17) (which report expresses an unqualified
opinion and includes explanatory paragraphs relating to the Company's
adoption of Financial Accounting Standards Board Interpretation No. 46(R)
Consolidation of Variable Interest Entities, effective December 31, 2003,
the Company's adoption of Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, effective January 1, 2002, and
the restatement of the statements of cash flows for the years ended December
31, 2003, 2002 and 2001 described in Note 17) appearing in this Annual
Report on Form 10-K/A of First Cash Financial Services, Inc. for the year
ended December 31, 2003.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
October 8, 2004
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Phillip E. Powell certify that:
1. I have reviewed this annual report on Form 10-K/A of First Cash
Financial Services, Inc. (the "registrant");
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual
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 and 15d-15e) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this annual report based on such
evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
fourth 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 controls over financial reporting,
to the registrant's auditors and the audit committee of 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 controls which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize
and report financial data; 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.
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 OF 2002
I, R. Douglas Orr certify that:
1. I have reviewed this annual report on Form 10-K/A of First Cash
Financial Services, Inc. (the "registrant");
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual
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 and 15d-15e) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this annual report based on such
evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
fourth 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 controls over financial reporting,
to the registrant's auditors and the audit committee of 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 controls which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize
and report financial data; 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.
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 SABARNES-OXLEY ACT OF 2002
In connection with the Annual Report of First Cash Financial Services, Inc.
(the "Company") on Form 10-K/A for the year ended December 31, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Phillip E. Powell certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to my 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
Chairman of the Board and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SABARNES-OXLEY ACT OF 2002
In connection with the Annual Report of First Cash Financial Services, Inc.
(the "Company") on Form 10-K/A for the year ended December 31, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, 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
my 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/ R. DOUGLAS ORR
--------------------------------------
R. Douglas Orr
Chief Financial Officer
