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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
September 30, 2002 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(State of Incorporation) (IRS Employers
Identification Number)
690 East Lamar, Suite 400
Arlington, Texas
(Address of principal executive 76011
offices) (Zip Code)
(817)460-3947
(Registrant's telephone number, including area code)
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 ___
As of November 12, 2002, there were 8,871,187 shares of Company common
stock, par value $.01 per share ("Common Stock"), issued and outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
------- -------
(unaudited)
(in thousands, except share data)
ASSETS
Cash and cash equivalents................... $ 12,005 $ 11,252
Service charges receivable.................. 2,995 2,817
Receivables................................. 25,646 23,556
Inventories................................. 13,093 12,681
Prepaid expenses and other current assets... 1,466 1,226
Income taxes receivable..................... 1,304 434
------- -------
Total current assets .................... 56,509 51,966
Property and equipment, net................. 10,597 10,034
Intangible assets, net...................... 53,194 53,194
Receivable from Cash & Go, Ltd.............. 7,271 7,455
Other....................................... 62 157
------- -------
$127,633 $122,806
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and
notes payable............................. $ 1,200 $ 1,385
Accounts payable and accrued expenses....... 9,767 10,041
Revolving credit facility................... - 32,000
------- -------
Total current liabilities ............... 10,967 43,426
Revolving credit facility................... 29,000 -
Long-term debt and notes payable, net of
current portion........................... 627 1,608
Deferred income taxes....................... 4,750 3,669
------- -------
45,344 48,703
------- -------
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; 9,525,368 and
9,417,868 shares issued, respectively;
8,871,187 and 8,763,687 shares
outstanding, respectively .............. 96 95
Additional paid-in capital ............... 51,907 51,255
Retained earnings ........................ 38,450 30,819
Common stock receivables from officers ... (5,149) (5,051)
Common stock held in treasury, at cost,
654,181 shares ......................... (3,015) (3,015)
------- -------
82,289 74,103
------- -------
$127,633 $122,806
======= =======
The accompanying notes are an integral
part of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
------------------- ------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
------- ------- ------- -------
(unaudited, in thousands, except per share amounts)
Revenues:
Merchandise sales................... $ 13,282 $ 11,817 $ 40,615 $ 39,106
Service charges..................... 15,552 13,470 41,665 38,847
Check cashing fees.................. 642 529 2,026 1,709
Other............................... 279 278 767 975
------- ------- ------- -------
29,755 26,094 85,073 80,637
------- ------- ------- -------
Cost of goods sold and expenses:
Cost of goods sold.................. 7,628 7,437 23,620 25,753
Operating expenses.................. 14,161 12,342 38,929 35,462
Interest expense.................... 77 326 271 1,154
Depreciation........................ 718 550 1,859 1,641
Amortization........................ - 382 - 1,146
Administrative expenses............. 3,143 2,214 8,471 6,884
------- ------- ------- -------
25,727 23,251 73,150 72,040
------- ------- ------- -------
Income before income taxes............... 4,028 2,843 11,923 8,597
Provision for income taxes............... 1,450 1,024 4,292 3,095
------- ------- ------- -------
Income from continuing operations........ 2,578 1,819 7,631 5,502
Gain from discontinued operations,
net of taxes........................... - 54 - 47
------- ------- ------- -------
Net income............................... $ 2,578 $ 1,873 $ 7,631 $ 5,549
======= ======= ======= =======
Net income per share:
Basic
Income from continuing operations.... $ 0.29 $ 0.22 $ 0.87 $ 0.64
Gain from discontinued operations.... - - - -
------- ------- ------- -------
Net income .......................... $ 0.29 $ 0.22 $ 0.87 $ 0.64
======= ======= ======= =======
Diluted
Income from continuing operations.... $ 0.27 $ 0.20 $ 0.80 $ 0.60
Gain from discontinued operations.... - - - -
------- ------- ------- -------
Net income .......................... $ 0.27 $ 0.20 $ 0.80 $ 0.60
======= ======= ======= =======
The accompanying notes are an integral
part of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Period
Ended September 30,
--------------------
2002 2001
-------- --------
(unaudited, in thousands)
Cash flows from operating activities:
Net income from continuing operations .......... $ 7,631 $ 5,502
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization................ 1,859 2,787
Discontinued operations...................... - 442
Changes in operating assets and liabilities:
Increase in service charges receivable ........ (178) (124)
(Increase) decrease in inventories ............ (412) 4,477
Increase in prepaid expenses and other assets.. (145) (787)
Increase (decrease) in accounts payable and
accrued expenses ............................ (274) 2,326
Increase in income taxes payable .............. 211 248
-------- --------
Net cash flows from operating activities .... 8,692 14,871
-------- --------
Cash flows from investing activities:
Net increase in receivables .................... (2,090) (945)
Purchases of property and equipment ............ (2,422) (1,252)
(Increase) decrease in receivable from
Cash & Go, Ltd ............................... 184 (2,702)
-------- --------
Net cash flows from investing activities ....... (4,328) (4,899)
-------- --------
Cash flows from financing activities:
Proceeds from debt ............................. 7,000 10,200
Repayments of debt ............................. (11,166) (16,957)
Common stock receivables from officers ......... (98) 820
Proceeds from options exercised ................ 653 -
Purchase of treasury stock ..................... - (500)
-------- --------
Net cash flows from financing activities .... (3,611) (6,437)
-------- --------
Increase in cash and cash equivalents............. 753 3,535
Cash and cash equivalents at beginning
of the period .................................. 11,252 6,611
-------- --------
Cash and cash equivalents at end of the period $ 12,005 $ 10,146
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ...................................... $ 717 $ 1,966
======== ========
Income taxes .................................. $ 4,034 $ 2,873
======== ========
The accompanying notes are an integral
part of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
including the notes thereto, include the accounts of First Cash Financial
Services, Inc. (the "Company") and its wholly owned subsidiaries. Such
unaudited consolidated financial statements are condensed and do not include
all disclosures and footnotes required by generally accepted accounting
principles in the United States of America for complete financial
statements. Such interim period financial statements should be read in
conjunction with the Company's consolidated financial statements which are
included in the Company's December 31, 2001 Annual Report on Form 10-K. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The consolidated financial statements as of September 30,
2002 and for the periods ended September 30, 2002 and 2001 are unaudited,
but in management's opinion, include all adjustments (consisting of only
normal recurring adjustments) considered necessary to present fairly the
financial position, results of operations and cash flows for such interim
periods. Operating results for the period ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the full
fiscal year.
Note 2 - Revolving Credit Facility
The Company maintains a long-term line of credit, which was renewed and
extended on August 9, 2002, with a group of commercial lenders (the "Credit
Facility"). The Credit Facility provides a $30,000,000 long-term line of
credit that matures on August 9, 2005 and bears interest at the prevailing
LIBOR rate (which was approximately 1.8% at September 30, 2002) 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. The Company currently has $1,000,000 of
available and unused funds under the line of credit. 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 these requirements as of September 30, 2002 and as of
November 12, 2002.
Note 3 - Costs in Excess of Net Assets Acquired
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 has completed the initial step of a transitional fair value
impairment test during the quarter ending June 30, 2002 and determined that
no impairment of recorded goodwill existed at January 1, 2002.
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 three months and nine months ended
September 30, 2001, the Company's net income would have been as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
------ ------ ------ ------
Reported net income $ 2,578 $ 1,873 $ 7,631 $ 5,549
Add: amortization of costs in excess
of net assets acquired, net of tax - 245 - 733
------ ------ ------ ------
Adjusted net income $ 2,578 $ 2,118 $ 7,631 $ 6,282
====== ====== ====== ======
Note 4 - Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share (in thousands):
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
------ ------ ------ ------
Numerator:
Income from continuing operations
for calculating basic and diluted
earnings per share $ 2,578 $ 1,819 $ 7,631 $ 5,502
Gain from discontinued
operations for calculating basic
and diluted earnings per share - 54 - 47
------ ------ ------ ------
Net income for calculating basic
and diluted earnings per share $ 2,578 $ 1,873 $ 7,631 $ 5,549
====== ====== ====== ======
Denominator:
Weighted-average common shares
for calculating basic earnings
per share 8,871 8,667 8,820 8,690
Effect of dilutive securities:
Stock options and warrants 699 744 769 532
------ ------ ------ ------
Weighted-average common
shares for calculating diluted
earnings per share 9,570 9,411 9,589 9,222
====== ====== ====== ======
For the nine months ended September 30, 2002 and 2001, options of
437,500 and 978,925, respectively, have been excluded from the computation
of diluted earnings per share because the options exercise price was greater
than the average market price of the common shares and, therefore, the
effect would be anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
First Cash Financial Services, Inc. (the "Company") is the nation's
third largest publicly traded pawnshop operator and currently owns pawn
stores in Texas, Oklahoma, Washington, D.C., Maryland, Missouri, South
Carolina, Virginia and Mexico. The Company's pawn stores engage in both
consumer finance and retail sales activities. The Company's pawn stores
provide a convenient source for consumer advances ("pawn loans"), advancing
money against pledged tangible personal property such as jewelry, electronic
equipment, tools, sporting goods and musical equipment. These pawn stores
also function as retailers of previously owned merchandise acquired in
forfeited pawn transactions and over-the-counter purchases from customers.
The Company's pawn stores also offer short-term, secured advances ("short-
term advances").
The Company also owns and operates check cashing and short-term advance
stores in Texas, California, Washington, Oregon, Illinois, South Carolina
and Washington, D.C. These stores provide a broad range of consumer
financial services, including check cashing, money order sales, wire
transfers, bill payment services and short-term advances. The actual range
and mix of products in each store varies by geographic market. In addition,
the Company is a 50% partner in Cash & Go, Ltd., a Texas limited
partnership, which currently owns and operates 59 check cashing and short-
term advance kiosks located inside convenience stores.
For the quarter ended September 30, 2002 the Company's revenues were
derived 45% from retail activities, 52% from lending activities, and 3% from
other sources, including check-cashing fees. The Company's business plan is
to significantly expand its short-term advance operations by opening new
domestic check cashing and short-term advance stores, expanding short-term
advance operations in its existing domestic pawn stores and opening new pawn
stores in selected geographic markets, primarily in Mexico.
Although the Company has had significant increases in revenues due
primarily to new store openings, and secondarily to increased same-store
revenues, 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
net bad debts for both check cashing and short term advances.
Administrative expenses consist of items relating to the operation of the
corporate office, including the compensation 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.
RESULTS OF OPERATIONS
Three months ended September 30, 2002 compared to the three months ended
September 30, 2001
Total revenues increased 14% or $3,661,000 to $29,755,000 for the three
months ended September 30, 2002 ("the Third Quarter of 2002") as compared to
revenues of $26,094,000 for the three months ended September 30, 2001 ("the
Third Quarter of 2001"). Of the $3,661,000 increase in total revenues,
$1,422,000 was attributable to increased retail merchandise sales,
$2,082,000 was attributable to increased service charges, while other income
and check cashing fees increased $114,000 and jewelry scrap sales increased
$43,000. Merchandise sales, service charges and check cashing fees and
other income remained unchanged at 45%, 52% and 3%, respectively, as a
percentage of total revenues during both the Third Quarter of 2001 and the
Third Quarter of 2002. Same store revenues, net of jewelry scrap sales,
increased 9% for the Third Quarter of 2002 compared to the Third Quarter of
2001.
Gross profit as a percentage of merchandise sales, the retail margin,
increased to 43% during the Third Quarter of 2002 compared to 37% during the
Third Quarter of 2001. Excluding jewelry scrap sales, the Company's retail
margins increased from 42% in during the Third Quarter of 2001 to 45% in the
Third Quarter of 2002. This increase in retail margin is a result of the
Company's ongoing initiatives to control expenses, including the strategic
decision beginning in 2000 to lower loan-to-value ratios used to calculate
pawn loan amounts. The reduction in the loan-to-value ratios has served to
reduce the cost of inventory acquired through pawn forfeitures and has been
implemented without a significant impact on the volume of pawn loans
written.
The aggregate receivables balance (pawn loans plus short-term advances)
increased 12% from $22,988,000 as of September 30, 2001 to $25,646,000 as of
September 30, 2002. Of the $2,658,000 increase, $1,934,000 was attributable
to the net addition of 33 stores acquired or opened subsequent to September
30, 2001. The remaining increase of $724,000 was derived from higher
aggregate receivable balances at the 145 stores in operation at both
September 30, 2001 and September 30, 2002.
Operating expenses increased 15% to $14,161,000 during the Third
Quarter of 2002 compared to $12,342,000 during the Third Quarter of 2001
primarily due to the net addition of 36 stores since July 1, 2001, which is
an 25% increase in the total store count, and to bad debt expense related to
the increased volume of short-term advances. Administrative expenses
increased $929,000 to $3,143,000 during the Third Quarter of 2002 compared
to $2,214,000 during the Third Quarter of 2001. This variance relates to
increased administrative staffing, store management commissions and bonus
accruals during the Third Quarter 2002, which are reflective of the
Company's growth and increased profitability. Net interest expense decreased
76% from $326,000 in the Third Quarter of 2001 to $77,000 in the Third
Quarter of 2002, due to lower interest rates and an overall lower level of
debt during the Third Quarter of 2002 compared to the Third Quarter of 2001.
Interest income, a component of net interest expense, decreased from
$247,000 for the Third Quarter of 2001 to $161,000 for the Third Quarter of
2002 due primarily to lower interest rates.
For the Third Quarter of 2002 and the Third Quarter of 2001, the
Company's tax provision of 36% of income before income taxes differed from
the statutory federal rate of 34% primarily due to state income taxes, net
of the federal tax benefit.
Nine months ended September 30, 2002 compared to nine months ended September
30, 2001
Total revenues increased 6% to $85,073,000 for the nine months ended
September 30, 2002 (the "Nine-Month 2002 Period") as compared to $80,637,000
for the nine months ended September 30, 2001 (the "Nine-Month 2001 Period").
Of the $4,436,000 increase in total revenues, $3,264,000 was attributable to
an increase in retail merchandise sales, $2,818,000 was attributable to
increased service charges, while check cashing fees and other income
increased $109,000 and jewelry scrap sales decreased $1,755,000. Excluding
the impact of jewelry scrap sales, the Company's revenues increased 8% in
the first nine months of 2002 compared to the same period of 2001. As a
percentage of total revenues, merchandise sales decreased from 49% to 48%
during the Nine-Month 2002 Period compared to the Nine-Month 2001 Period,
while service charges increased from 48% to 49% during the Nine-Month 2002
Period compared to the Nine-Month 2001 Period, while check cashing fees and
other income remained flat at 3% of total revenues in the Nine-Month 2002
Period and the Nine-Month 2001 Period. Same store revenues, net of jewelry
scrap sales, increased 4% for the Nine-Month 2002 Period compared to the
Nine-Month 2001 Period.
Gross profit as a percentage of merchandise sales, the retail margin,
increased from 34% in the Nine-Month 2001 Period to 42% in the Nine-Month
2002 Period. Excluding jewelry scrap sales, the Company's retail margins
increased from 41% in 2001 to 44% in 2002. This increase in retail margin
is a result of the Company's ongoing initiatives to control expenses,
including the strategic decision beginning in 2000 to lower loan-to-value
ratios used to calculate pawn loan amounts. The reduction in the loan-to-
value ratios has served to reduce the cost of inventory acquired through
pawn forfeitures and has been implemented without a significant impact on
the volume of pawn loans written.
The aggregate receivables balance (pawn loans plus short-term advances)
increased 12% from $22,988,000 as of September 30, 2001 to $25,646,000 as of
September 30, 2002. Of the $2,658,000 increase, $1,934,000 was attributable
to the net addition of 33 stores acquired or opened subsequent to September
30, 2001. The remaining increase of $724,000 was derived from higher
aggregate receivable balances at the 145 stores in operation at both
September 30, 2001 and September 30, 2002.
Operating expenses increased 10% to $38,929,000 during the Nine-Month
2002 Period compared to $35,462,000 during the Nine-Month 2001 Period
primarily due to the net addition of 32 stores since January 1, 2001, which
is a 22% increase in the total store count, and to bad debt expense related
to the increased volume of short-term advances. Administrative expenses
increased $1,587,000 to $8,471,000 during the Nine-Month 2002 Period
compared to $6,884,000 during the Nine-Month 2001 Period, primarily due to
increased administrative staffing, store management commissions and bonus
accruals, which are reflective of the Company's growth and increased
profitability. Interest expense decreased to $271,000 in the Nine-Month 2002
Period compared to $1,154,000 in the Nine-Month 2001 Period, primarily due
to significantly lower interest rates and an overall lower level of debt
during the Nine-Month 2002 Period compared to the Nine-Month 2001 Period.
Interest income, a component of net interest expense, decreased from $726,00
for the Nine-Month 2001 Period to $427,000 for the Nine-Month 2002 Period
due primarily to lower interest rates.
For both the Nine-Month 2002 and 2001 Periods, the Company's tax
provision of 36% of income before income taxes differed from the statutory
rate of 34% primarily due to state income taxes, net of the federal tax
benefit.
LIQUIDITY & CAPITAL RESOURCES
The Company's operations and acquisitions have been financed with funds
generated from operations, bank and other borrowings, and the issuance of
the Company's securities.
The Company maintains a long-term line of credit with a group of
commercial lenders (the "Credit Facility"). The Credit Facility provides a
$30,000,000 long-term line of credit that matures on August 9, 2005 and
bears interest at the prevailing LIBOR rate (which was approximately 1.8% at
September 30, 2002) 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. Under the
terms of the Credit Facility, the Company is required to maintain certain
financial ratios and comply with certain technical covenants. The Company
was in compliance with the requirements and covenants of the Credit Facility
as of September 30, 2002 and November 12, 2002. 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.
As of September 30, 2002, the Company's primary sources of liquidity
were $12,005,000 in cash and cash equivalents, $2,995,000 in service charges
receivable, $25,646,000 in receivables, $13,093,000 in inventories and
$1,000,000 of available and unused funds under the Company's Credit
Facility. The Company had working capital as of September 30, 2002 of
$45,542,000 and a total-liabilities-to-equity ratio of 0.55 to 1.
Net cash provided by operating activities for the Company during the
Nine-Month 2002 Period was $8,692,000 as compared with $14,871,000 provided
by operating activities during the Nine-Month 2001 Period, primarily due to
the decrease in inventory levels during the Nine-Month 2001 period. Net
cash flows used in investing activities during the Nine-Month 2002 Period
were $4,328,000 as compared with $4,899,000 used by investing activities
during the Nine-Month 2001 Period, primarily due to a decrease in the
receivable from Cash & Go, Ltd. during the Nine-Month 2002 period compared
to an increase in the comparable 2001 period. Net cash used for financing
activities during the Nine-Month 2002 Period was $3,611,000 as compared to
$6,437,000 during the Nine-Month 2001 Period, primarily due to a decrease in
the revolving credit facility during both the Nine-Month 2002 Period and the
Nine-Month 2001 Period.
The profitability and liquidity of the Company is affected by the
amount of pawn loans outstanding, which is controlled in part by the
Company's lending decisions. The Company is able to influence the frequency
of pawn redemption by increasing or decreasing the amount 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 paying all accrued interest on such pawns,
effectively creating a new pawn transaction.
The profitability and liquidity of the Company is also affected by the
amount of short-term advances outstanding and related net potential losses.
The Company considers short-term advances to be in default if the customer
fails to repay the advance on the due date and the customer's check provided
in repayment of the advance is returned for any reason by the customer's
bank. The Company records a valuation allowance on short-term advances,
based on recent and anticipated net default rates. Net defaults and changes
in the valuation allowance are charged to bad debt expense.
In addition to these factors, merchandise sales and the pace of store
expansions affect the Company's liquidity. The Company continues to add
stores in accordance with its growth strategy and targeted locations in the
U.S. and Mexico. During the Third Quarter of 2002, a total of ten new
stores were opened, bringing the total of new stores added during the Nine-
Month 2002 Period to 24. This compares to a total of six stores that were
opened during the Nine-Month 2001 Period. For the remainder of fiscal 2002,
the Company currently plans to open approximately 15 stores in markets
previously identified for strategic expansion. Secondarily, the Company
plans to increase its short-term advance operations in its existing pawn
stores. This expansion will be funded through the Company's credit
facility.
Management believes that the Credit Facility and cash generated from
operations will be sufficient to accommodate the Company's current
operations through September 30, 2003. The Company has no significant
capital commitments. The Company currently has no written commitments for
additional borrowings, future acquisitions or additional capital. The
Company will evaluate acquisitions, if any, based upon opportunities,
acceptable financing, purchase price, strategic fit and qualified management
personnel.
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 or open a new store in the near future,
the Company will seek additional financing, the terms of which will be
negotiated on a case-by-case basis.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT
FUTURE RESULTS
Forward-Looking Statements
This release may contain forward-looking statements about the business,
financial condition and prospects of the Company. Forward-looking
statements can be identified by the use of forward-looking terminology such
as "believes," "expects," "may," "estimates," "will," "should," "plans,"
"intends," or "anticipates" or the negative thereof, or other variations
thereon, or comparable terminology, or by discussions of strategy. Forward-
looking statements in this release include, without limitation, the earnings
per share discussion above, the expectation of increased loan growth, the
expectation for additional store openings, and the expectation of growth in
the Company's short-term advance products. 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.
Regulatory Changes
Governmental action to prohibit or restrict short-term advances has
been advocated over the past few years by consumer-advocacy groups and by
media reports and stories. The consumer groups and media stories typically
focus on the cost to a consumer for that type of short-term advance, which
is higher than the interest typically charged by credit-card issuers to a
more creditworthy consumer. 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. So far as the Company is aware, no such federal legislation
or federal regulatory proposal has made any significant progress in the
legislative or regulatory process. But legislation and regulatory action
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.
Other
Certain factors may cause results to differ materially from those
anticipated by some of the statements made in this report. Such factors are
difficult to predict and many are beyond the control of the Company, but may
include changes in regional or national economic conditions, changes in
competition from various sources including both financial services entities
and retail businesses, the ability to integrate new stores, changes in
governmental regulations, unforeseen litigation, changes in capital markets,
changes in interest rates or tax rates, the ability to maintain a loan
servicing relationship with an out-of-state bank necessary to generate
service charges from short-term advances in the Texas market, future
business decisions, other risks indicated in the Company's 2001 Annual
Report to Stockholders and other uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk relating to the Company's operations result primarily from
changes in interest 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. There have been no material changes to
the Company's exposure to market risks since December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Accounting Officer, management of
the Company has evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of
1934) as of a date (the "Evaluation Date") within 90 days prior to
the filing date of this report. Based upon that evaluation, the
Chief Executive Officer and Chief Accounting Officer concluded
that, as of the Evaluation Date, the Company's disclosure controls
and procedures are effective in timely alerting them to the
material information relating to the Company required to be
included in its periodic filings with the Securities and Exchange
Commission.
(b) During the period covered by this report, there were no significant
changes in the Company's internal controls or, to management's
knowledge, in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
ITEM 1. 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 consists 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. The plaintiffs have requested the
following relief: actual and punitive damages, attorneys' fees, expenses,
costs, injunctive relief and treble damages, if available. In April 2001,
the court certified a TILA class in this matter. Later that month, Famous
Pawn, Inc. filed a motion to modify the class definition to exclude from the
class those customers who signed arbitration agreements. In August 2001,
the court denied that motion. Famous Pawn, Inc. next filed a motion to
reconsider the motion to modify the class definition, and filed a separate
motion to stay the proceedings and compel arbitration. In September 2002,
Famous Pawn, Inc.'s motion for reconsideration, motion for an interlocutory
appeal to stay the proceeding and motion for summary judgment were denied,
in the same order Famous Pawn Inc.'s motion to decertify the conditional
class was granted and the plaintiffs' motion for entry of a scheduling order
was denied. Famous Pawn, Inc. filed a motion to clarify the order, which
was denied November 2002, and also filed an appeal of the motion for
reconsideration and motion for summary judgment which is still pending.
Since discovery has not yet commenced, nor the scope of the case been
determined, management can provide no assurance as to the outcome of such
litigation.
See the Company's 2001 Annual Report to Stockholders filed on Form 10-K
regarding other legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 18, 2002, the Company held the annual meeting of its
stockholders. Of the 8,871,187 issued and outstanding common shares
entitled to vote at the meeting, 8,475,547 of the common shares voted in
person or by proxy. The shareholders voted affirmatively on the following
three proposals:
1. The stockholders ratified the re-election of Phillip E. Powell as
director.
FOR % WITHOLD %
--------- ---- --------- ----
7,701,607 90.9 773,940 9.1
2. The stockholders ratified the selection of Deloitte & Touche LLP as
independent auditors of the Company for the year ended December 31,
2002.
FOR % AGAINST % ABSTAIN % NON-VOTE %
--------- ---- --------- ---- ------ --- --------- ----
4,725,215 55.8 153,234 1.8 13,050 0.2 3,584,048 42.3
3. The stockholders approved an increase in the number of shares
available for issuance in the Company's 1999 Stock Option Plan
from 1,200,000 shares of common stock to 2,500,000 shares of
common stock.
FOR % AGAINST % ABSTAIN % NON-VOTE %
--------- ---- --------- ---- ------ --- --------- ----
3,530,603 41.7 1,297,546 15.3 63,350 0.7 3,584,048 42.3
ITEM 5. OTHER INFORMATION
On October 4, 2002, the Company accepted the resignation of Blake R.
Miraglia, President - Check Cashing Operations. Other employees of the
Company have assumed Mr. Miraglia's duties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits:
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
99.2 Certification of Chief Accounting Officer Pursuant to 18
U.S.C. Section 1350
(2) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 2002 FIRST CASH FINANCIAL SERVICES, INC.
----------------------------------
(Registrant)
/s/Phillip E. Powell /s/Rick L. Wessel
--------------------- ------------------------
Phillip E. Powell Rick L. Wessel
Chairman of the Board and Chief Accounting Officer
Chief Executive Officer
CERTIFICATION
I, Phillip E. Powell, Chairman of the Board and Chief Executive
Officer of First Cash Financial Services, Inc. (the "registrant"), certify
that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant
and we 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Phillip E. Powell
--------------------------------------
Phillip E. Powell
Chairman of the Board and Chief Executive Officer
CERTIFICATION
I, Rick L. Wessel, President and Chief Accounting Officer of First
Cash Financial Services, Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant
and we 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Rick L. Wessel
--------------------------------------
Rick L. Wessel
President and Chief Accounting Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
99.2 Certification of Chief Accounting Officer Pursuant to 18 U.S.C.
Section 1350