FIRSTCASH, INC - FORM 10-Q - October 22, 2014

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EXCEL - IDEA: XBRL DOCUMENT - FIRSTCASH, INC	Financial_Report.xls
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - FIRSTCASH, INC	fcfs09302014exhibit311.htm
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - FIRSTCASH, INC	fcfs09302014exhibit312.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION - FIRSTCASH, INC	fcfs09302014exhibit322.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION - FIRSTCASH, INC	fcfs09302014exhibit321.htm



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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2014



[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission file number 0-19133

FIRST CASH FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)



Delaware	75-2237318
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
690 East Lamar Blvd., Suite 400	76011
Arlington, Texas	(Zip Code)
(Address of principal executive offices)

(817) 460-3947

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



x Large accelerated filer	o Accelerated filer
o Non-accelerated filer (Do not check if a smaller reporting company)	o Smaller reporting company

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

As of October 20, 2014, there were 28,306,979 shares of common stock outstanding.



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FIRST CASH FINANCIAL SERVICES, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2014

INDEX



PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Changes in Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38

SIGNATURES		39



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CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Information

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

Forward-looking statements in this quarterly report include, without limitation, the Company’s expectations of earnings per share, earnings growth, expansion strategies, regulatory exposures, store openings, liquidity (including the availability of capital under existing credit facilities), cash flow, consumer demand for the Company’s products and services, income tax rates, currency exchange rates and the price of gold and the impacts thereof, earnings and related transaction expenses from acquisitions, the ability to successfully integrate acquisitions and other performance results. These statements are made to provide the public with management’s current assessment of the Company’s business. Although the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this quarterly report. Such factors are difficult to predict and many are beyond the control of the Company and may include, without limitation, the following:


•	changes in regional, national or international economic conditions, including inflation rates, unemployment rates and energy prices;


•	changes in consumer demand, including purchasing, borrowing and repayment behaviors;


•	changes in pawn forfeiture rates and credit loss provisions;


•	changes in the market value of pawn collateral and merchandise inventories, including gold prices and the value of consumer electronics and other products;


•	changes or increases in competition;


•	the ability to locate, open and staff new stores and successfully integrate acquisitions;


•	the availability or access to sources of used merchandise inventory;


•	changes in credit markets, interest rates and the ability to establish, renew and/or extend the Company’s debt financing;


•	the ability to maintain banking relationships for treasury services and processing of certain consumer lending transactions;


•	the ability to hire and retain key management personnel;


•	new federal, state or local legislative initiatives or governmental regulations (or changes to existing laws and regulations) affecting pawn businesses, consumer loan businesses and credit services organizations (in both the United States and Mexico);


•	risks and uncertainties related to foreign operations in Mexico;


•	changes in import/export regulations and tariffs or duties;


•	changes in anti-money laundering and gun control regulations;


•	unforeseen litigation;


•	changes in tax rates or policies in the U.S. and Mexico;


•	changes in foreign currency exchange rates;


•	inclement weather, natural disasters and public health issues;


•	security breaches, cyber attacks or fraudulent activity;


•	a prolonged interruption in the Company’s operations of its facilities, systems, and business functions, including its information technology and other business systems;


•	the implementation of new, or changes in the interpretation of existing, accounting principles or financial reporting requirements; and


•	future business decisions.



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These and other risks, uncertainties and regulatory developments are further and more completely described in the Company’s 2013 annual report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2014, including the risks described in "Risk Factors" of the Company's annual report and this quarterly report. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)

	September 30,						December 31,
	2014			2013			2013
ASSETS
Cash and cash equivalents	$	42,760		$	30,539		$	70,643
Pawn loan fees and service charges receivable	19,481			17,673			16,689
Pawn loans	136,981			121,187			115,234
Consumer loans, net	1,510			1,375			1,450
Inventories	94,890			82,569			77,793
Prepaid expenses and other current assets	6,292			4,780			3,369
Deferred tax assets	6,299			3,348			5,044
Total current assets	308,213			261,471			290,222

Property and equipment, net	115,115			102,029			108,137
Goodwill, net	264,875			230,477			251,241
Other non-current assets	16,464			8,677			9,373
Total assets	$	704,667		$	602,654		$	658,973

LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable	$	—		$	3,297		$	3,326
Accounts payable and accrued liabilities	50,178			35,446			38,023
Income taxes payable	—			9,718			7,412
Total current liabilities	50,178			48,461			48,761

Revolving unsecured credit facility	17,500			152,500			182,000
Notes payable, net of current portion	—			5,868			5,026
Senior unsecured notes	200,000			—			—
Deferred tax liabilities	7,535			8,313			8,827
Total liabilities	275,213			215,142			244,614

Stockholders' equity:
Preferred stock	—			—			—
Common stock	395			393			394
Additional paid-in capital	182,119			176,018			176,675
Retained earnings	555,953			472,950			497,728
Accumulated other comprehensive income (loss) from
cumulative foreign currency translation adjustments	(12,379		)	(9,162		)	(7,751		)
Common stock held in treasury, at cost	(296,634		)	(252,687		)	(252,687		)
Total stockholders' equity	429,454			387,512			414,359
Total liabilities and stockholders' equity	$	704,667		$	602,654		$	658,973

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



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FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenue:
Retail merchandise sales	$	101,950		$	89,772		$	297,846		$	255,442
Pawn loan fees	51,778			47,455			146,971			133,658
Consumer loan and credit services fees	9,474			10,918			27,674			32,770
Wholesale scrap jewelry revenue	11,798			25,234			37,612			53,775
Total revenue	175,000			173,379			510,103			475,645

Cost of revenue:
Cost of retail merchandise sold	62,780			53,546			182,363			152,677
Consumer loan and credit services loss provision	2,913			3,464			6,892			8,088
Cost of wholesale scrap jewelry sold	10,444			22,394			31,608			45,498
Total cost of revenue	76,137			79,404			220,863			206,263

Net revenue	98,863			93,975			289,240			269,382

Expenses and other income:
Store operating expenses	49,293			46,649			146,719			132,762
Administrative expenses	13,406			12,834			40,350			38,690
Depreciation and amortization	4,404			3,988			13,001			11,346
Interest expense	4,059			1,122			9,405			2,474
Interest income	(179		)	(69		)	(522		)	(267		)
Total expenses and other income	70,983			64,524			208,953			185,005

Income from continuing operations before income taxes	27,880			29,451			80,287			84,377

Provision for income taxes	8,352			6,324			21,790			25,416

Income from continuing operations	19,528			23,127			58,497			58,961

Income (loss) from discontinued operations, net of tax	—			14			(272		)	107
Net income	$	19,528		$	23,141		$	58,225		$	59,068

Basic income per share:
Income from continuing operations	$	0.69		$	0.80		$	2.03		$	2.03
Income (loss) from discontinued operations	—			—			(0.01		)	—
Net income per basic share	$	0.69		$	0.80		$	2.02		$	2.03

Diluted income per share:
Income from continuing operations	$	0.68		$	0.79		$	2.01		$	1.99
Income (loss) from discontinued operations	—			—			(0.01		)	—
Net income per diluted share	$	0.68		$	0.79		$	2.00		$	1.99

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



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FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	19,528		$	23,141		$	58,225		$	59,068
Other comprehensive income (loss):
Currency translation adjustment, gross	(7,600		)	(1,996		)	(7,120		)	(2,632		)
Tax (expense) benefit	2,660			102			2,492			410
Comprehensive income	$	14,588		$	21,247		$	53,597		$	56,846

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



FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)

	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Accum- ulated Other Compre- hensive Income (Loss)			Common Stock Held in Treasury				Total Stock- holders' Equity
	Shares	Amount		Shares	Amount									Shares	Amount
Balance at 12/31/2013	—	$	—	39,377	$	394	$	176,675	$	497,728	$	(7,751	)	10,429	$	(252,687	)	$	414,359
Shares issued under share-based com-pensation plan	—	—		5	—		—		—		—			—	—			—
Exercise of stock options	—	—		125	1		2,261		—		—			—	—			2,262
Income tax benefit from exercise of stock options	—	—		—	—		1,813		—		—			—	—			1,813
Share-based compensation expense	—	—		—	—		1,370		—		—			—	—			1,370
Net income	—	—		—	—		—		58,225		—			—	—			58,225
Currency translation adjustment, net of tax	—	—		—	—		—		—		(4,628		)	—	—			(4,628		)
Repurchases of treasury stock	—	—		—	—		—		—		—			771	(43,947		)	(43,947		)
Balance at 9/30/2014	—	$	—	39,507	$	395	$	182,119	$	555,953	$	(12,379	)	11,200	$	(296,634	)	$	429,454

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



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FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CONTINUED
(unaudited, in thousands)

	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Accum- ulated Other Compre- hensive Income (Loss)			Common Stock Held in Treasury				Total Stock- holders' Equity
	Shares	Amount		Shares	Amount									Shares	Amount
Balance at 12/31/2012	—	$	—	38,796	$	388	$	159,081	$	413,882	$	(6,940	)	9,700	$	(213,995	)	$	352,416
Shares issued under share-based com-pensation plan	—	—		4	—		—		—		—			—	—			—
Exercise of stock options	—	—		533	5		8,437		—		—			—	—			8,442
Income tax benefit from exercise of stock options	—	—		—	—		7,232		—		—			—	—			7,232
Share-based compensation expense	—	—		—	—		1,268		—		—			—	—			1,268
Net income	—	—		—	—		—		59,068		—			—	—			59,068
Currency translation adjustment, net of tax	—	—		—	—		—		—		(2,222		)	—	—			(2,222		)
Repurchases of treasury stock	—	—		—	—		—		—		—			729	(38,692		)	(38,692		)
Balance at 9/30/2013	—	$	—	39,333	$	393	$	176,018	$	472,950	$	(9,162	)	10,429	$	(252,687	)	$	387,512

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



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FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
	Nine Months Ended
	September 30,
	2014			2013
Cash flow from operating activities:
Net income	$	58,225		$	59,068
Adjustments to reconcile net income to net cash flow provided by operating activities:
Non-cash portion of credit loss provision	797			808
Share-based compensation expense	1,370			1,268
Depreciation and amortization expense	13,001			11,346
Amortization of debt issuance costs	633			—
Deferred income taxes	1,488			(6,947		)
Changes in operating assets and liabilities, net of business combinations:
Pawn fees and service charges receivable	(3,084		)	(2,623		)
Merchandise inventories	(3,548		)	(4,047		)
Prepaid expenses and other assets	(906		)	35
Accounts payable and accrued expenses	10,502			5,590
Income taxes payable, current	(9,150		)	9,521
Net cash flow provided by operating activities	69,328			74,019
Cash flow from investing activities:
Loan receivables, net of cash repayments	(24,324		)	(16,640		)
Purchases of property and equipment	(17,801		)	(17,945		)
Acquisitions of pawn stores, net of cash acquired	(34,873		)	(84,353		)
Net cash flow used in investing activities	(76,998		)	(118,938		)
Cash flow from financing activities:
Borrowings from revolving credit facilities	25,500			121,900
Repayments of revolving credit facilities	(190,000		)	(71,900		)
Repayments of notes payable	(8,352		)	(2,398		)
Issuance of senior unsecured notes	200,000			—
Debt issuance costs paid	(6,601		)	—
Purchases of treasury stock	(43,947		)	(38,692		)
Proceeds from exercise of share-based compensation awards	2,262			8,442
Income tax benefit from exercise of stock options	1,813			7,232
Net cash flow provided by (used in) financing activities	(19,325		)	24,584
Effect of exchange rates on cash	(888		)	589
Change in cash and cash equivalents	(27,883		)	(19,746		)
Cash and cash equivalents at beginning of the period	70,643			50,285
Cash and cash equivalents at end of the period	$	42,760		$	30,539

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



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FIRST CASH FINANCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet at December 31, 2013, which is derived from audited financial statements, and the unaudited condensed consolidated financial statements, including the notes thereto, include the accounts of First Cash Financial Services, Inc. and its wholly-owned subsidiaries (together, the “Company”). All significant intercompany accounts and transactions have been eliminated.

These unaudited consolidated financial statements are condensed and do not include all disclosures and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. These interim period financial statements should be read in conjunction with the Company's consolidated financial statements, which are included in the Company's annual report for the year ended December 31, 2013, on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2014. The condensed consolidated financial statements as of September 30, 2014 and 2013, and for the three month and nine month periods ended September 30, 2014 and 2013, are unaudited, but in management's opinion, include all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flow for such interim periods. Operating results for the periods ended September 30, 2014 are not necessarily indicative of the results that may be expected for the full fiscal year.

The Company manages its pawn and consumer loan operations under three operating segments: U.S. pawn operations, U.S. consumer loan operations and Mexico operations. The three operating segments have been aggregated into one reportable segment because they have similar economic characteristics and similar long-term financial performance metrics. Additionally, all three segments offer similar and overlapping products and services to a similar customer demographic, operate in similar regulatory environments, and are supported by a single, centralized administrative support platform.

The Company has significant operations in Mexico where the functional currency for the Company's Mexican subsidiaries is the Mexican peso. Accordingly, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenue and expenses are translated at the average exchange rates occurring during the three-month and year-to-date periods.

Certain amounts in prior year comparative presentations have been reclassified in order to conform to the 2014 presentation.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360)” (“ASU 2014-08”). The amendments in ASU 2014-08 require that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The Company does not expect ASU 2014-08 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures, however, it may impact the reporting of future discontinued operations if and when they occur.

In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2016 and early adoption is not permitted. The Company does not expect ASU 2014-09 to have a material effect on the Company’s current financial position or results of operations, however, it may impact the reporting of future financial statement disclosures.



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Note 2 - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (unaudited, in thousands, except per share data):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014			2013
Numerator:
Income from continuing operations for calculating basic and diluted earnings per share	$	19,528	$	23,127	$	58,497		$	58,961
Income (loss) from discontinued operations	—		14		(272		)	107
Net income for calculating basic and diluted earnings per share	$	19,528	$	23,141	$	58,225		$	59,068

Denominator:
Weighted-average common shares for calculating basic earnings per share	28,397		28,904		28,762			29,128
Effect of dilutive securities:
Stock options and nonvested awards	408		449		398			509
Weighted-average common shares for calculating diluted earnings per share	28,805		29,353		29,160			29,637

Basic earnings per share:
Income from continuing operations	$	0.69	$	0.80	$	2.03		$	2.03
Income (loss) from discontinued operations	—		—		(0.01		)	—
Net income per basic share	$	0.69	$	0.80	$	2.02		$	2.03

Diluted earnings per share:
Income from continuing operations	$	0.68	$	0.79	$	2.01		$	1.99
Income (loss) from discontinued operations	—		—		(0.01		)	—
Net income per diluted share	$	0.68	$	0.79	$	2.00		$	1.99

Note 3 - Acquisitions

The Company completed acquisitions during the nine months ended September 30, 2014 as described below consistent with its strategy to continue its expansion of pawn stores in selected markets. The purchase price of each acquisition was allocated to assets and liabilities acquired based upon their estimated fair market values at the date of acquisition. The excess purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill. The goodwill arising from these acquisitions consist largely of the synergies and economies of scale expected from combining the operations of the Company and the pawn stores acquired.

In August 2014, the Company acquired from Cash America of Mexico, Inc. the operating entity owning the pawn loans, inventory, layaways and other operating assets and liabilities of 47 large format pawn stores located in 13 states in Mexico (“Mexico Acquisition”). The purchase price for the all-cash transaction was approximately $18,481,000, net of cash acquired and subject to certain working capital adjustments. The estimated fair values of the assets and liabilities acquired are preliminary, as the Company is gathering information to finalize the valuation of these assets and liabilities. The assets, liabilities and results of operations of the locations are included in the Company’s consolidated results as of the acquisition date, August 25, 2014.

Additionally, during the nine months ended September 30, 2014, 10 pawn stores located in two U.S. states were acquired in three separate asset purchase transactions (“Other U.S. Acquisitions”) for an aggregate purchase price of $14,534,000, net of cash acquired, and was composed of $14,384,000 in cash and payables to the sellers of $150,000.



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The preliminary allocations of the purchase prices for the Company's acquisitions during the nine months ended September 30, 2014 (the “2014 acquisitions”) are as follows (in thousands):



	Mexico Acquisition			Other U.S. Acquisitions			Total
Pawn loans	$	5,355		$	2,523		$	7,878
Consumer loans, net	—			306			306
Inventory	5,052			2,090			7,142
Other current assets	691			254			945
Deferred tax assets, current	1,372			—			1,372
Property and equipment	2,343			328			2,671
Goodwill (1)	5,784			8,844			14,628
Intangible assets (2)	1,100			650			1,750
Other non-current assets	25			15			40
Deferred tax assets, non-current	426			—			426
Current liabilities	(3,667		)	(476		)	(4,143		)
Purchase price	$	18,481		$	14,534		$	33,015


(1)	Substantially all of the goodwill is expected to be deductible for foreign and U.S. income tax purposes.


(2)	Intangible assets primarily consist of customer relationships, which are included in other non-current assets in the accompanying condensed consolidated balance sheets. Customer relationships are generally amortized over 5 years.

During the nine months ended September 30, 2014, revenue from the 2014 acquisitions since the acquisition dates was $4,943,000. The combined transaction and one-time integration costs of the 2014 acquisitions recorded during the nine months ended September 30, 2014 were approximately $375,000. During the nine months ended September 30, 2014, the net earnings from the 2014 acquisitions since the acquisition dates (including acquisition and integration costs) were not material.

Note 4 - Long-Term Debt

Senior Unsecured Notes

On March 24, 2014, the Company completed the private offering of $200,000,000 of 6.75% senior notes due on April 1, 2021 (the “Notes”). Interest on the Notes is payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2014. The Notes were sold to the placement agents as initial purchasers for resale only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in accordance with Regulation S under the Securities Act. The net proceeds from the sale of the Notes were approximately $194,800,000. The Company used $153,411,000 of the net proceeds from the offering to repay all amounts then outstanding under the 2014 Credit Facility (defined below) and to pay off the remaining balances on notes payable related to previous pawn store acquisitions, leaving approximately $41,389,000 of the net proceeds available for general corporate purposes. The Company capitalized approximately $5,200,000 in issuance costs, which consisted primarily of placement agent fees and legal and other professional expenses. The issuance costs are being amortized over the life of the Notes as a component of interest expense.

The Notes are fully and unconditionally guaranteed on a senior unsecured basis jointly and severally by all of the Company's existing and future domestic subsidiaries that guarantee the 2014 Credit Facility. The Company may redeem the Notes at any time on or after April 1, 2017, at the redemption prices set forth in the indenture governing the Notes (the “Indenture”), plus accrued and unpaid interest, if any. Prior to April 1, 2017, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make-whole” premium set forth in the Indenture. The Company may also redeem up to 35% of the Notes prior to April 1, 2017, with the proceeds of certain equity offerings at a redemption price of 106.75% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any. In addition, upon a change of control, noteholders have the right to require the Company to purchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any.

On March 24, 2014, the Company entered into a registration rights agreement with the initial purchasers of the Notes. Pursuant to the registration rights agreement, the Company agreed to use commercially reasonable efforts to issue in exchange for the Notes, generally no later than approximately 245 days following the closing date of the issuance and sale of the Notes, identical new notes that have been registered under the Securities Act. In certain circumstances, the Company may be required to file a shelf



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registration statement to cover resales of the Notes. Pursuant to the registration rights agreement, the Company caused a registration statement on Form S-4 to be declared effective by the SEC in July 2014 and completed an offer to exchange the unregistered Notes with identical new notes registered under the Securities Act in September 2014.

Revolving Credit Facilities

During the period from January 1, 2014 through February 4, 2014, the Company maintained a revolving line of credit agreement with its lenders (the “2012 Credit Facility”) in the amount of $205,000,000, which was scheduled to mature in February 2015. The 2012 Credit Facility charged interest at the prevailing 30-day London Interbank Offered Rate (“LIBOR”) plus a fixed spread of 2.0%.

On February 5, 2014, the Company entered into an agreement with a group of commercial lenders to establish a new revolving credit facility (the “2014 Credit Facility”) in the amount of $160,000,000 with an accordion feature whereby the facility may be increased up to an additional $50,000,000 with the consent of any increasing or additional participating lenders. The Company used proceeds from the 2014 Credit Facility and available cash balances to retire and terminate the 2012 Credit Facility. The 2014 Credit Facility matures in February 2019 and bears interest, at the Company's option, at either (i) the prevailing LIBOR rate (with interest periods of 1, 2, 3 or 6 months at the Company's option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The Company is required to maintain certain financial ratios and comply with certain financial covenants, including compliance with a leverage ratio of no greater than 2.5 times Consolidated EBITDA (as defined in the 2014 Credit Facility) and a fixed charge coverage ratio. The 2014 Credit Facility limits the Company's ability to incur additional indebtedness, subject to customary exceptions, including permitted additional unsecured debt so long as the aggregate principal amount of the loans and commitments under the 2014 Credit Facility plus such additional unsecured debt plus foreign third-party loans does not in the aggregate exceed $500,000,000. The 2014 Credit Facility is unsecured except for the pledge of 65% of the voting equity interests of the Company's foreign subsidiaries, and the Company is restricted from pledging any of its other assets as collateral against other indebtedness. The 2014 Credit Facility is guaranteed by the Company's material U.S. operating subsidiaries. The 2014 Credit Facility allows the Company to repurchase shares of its stock and to pay cash dividends within certain parameters. The Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the 2014 Credit Facility commitment. During March 2014, the Company used $145,870,000 of the proceeds from the sale of the Notes to repay all amounts outstanding under the 2014 Credit Facility. At September 30, 2014, the Company had $17,500,000 outstanding under the 2014 Credit Facility and $142,500,000 was available for borrowings. The interest rate on amounts outstanding under the 2014 Credit Facility at September 30, 2014 was 2.69% based on the prevailing 30-day LIBOR rate.

Other Notes Payable

In March 2014, the Company used $7,541,000 of the proceeds from the sale of the Notes to repay the entire remaining balances on notes payable of $6,134,000 related to a September 2012 multi-store acquisition and a note payable of $1,407,000 related to a January 2012 multi-store acquisition.

Note 5 - Income Taxes

In July 2013, the Company terminated an election to include foreign subsidiaries in its consolidated U.S. federal income tax return and it is the Company's intent to indefinitely reinvest the earnings of these subsidiaries outside the U.S. Accordingly, under U.S. income tax law, as of December 31, 2013, the undistributed earnings of the foreign subsidiaries is not subject to U.S. federal income taxes. The Company recognized an estimated non-recurring net income tax benefit of approximately $3,979,000 in 2013 related primarily to changes in deferred tax assets and liabilities, net of certain one-time U.S. tax liabilities associated with the termination of the election. The Company recorded an additional benefit of $3,669,000 in March 2014 as the result of a change in its estimated U.S. federal tax liability associated with the terminated election.

Note 6 - Fair Value of Financial Instruments

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



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Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

As cash and cash equivalents have maturities of less than three months, the carrying values of cash and cash equivalents approximate fair value (Level 1 of the fair value hierarchy). Due to their short-term maturities, pawn loans, consumer loans (net), pawn loan fees and service charges receivable approximate fair value (Level 3 of the fair value hierarchy).

The carrying value of the 2012 Credit Facility approximated fair value as of September 30, 2013 and December 31, 2013. The carrying value of the 2014 Credit Facility approximated fair value as of September 30, 2014. The fair value of the Notes was approximately $209,000,000 as of September 30, 2014 compared to a carrying value of $200,000,000. These fair values have been estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the rate that would be used by market participants (Level 2 of the fair value hierarchy). Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

Note 7 - Condensed Consolidating Guarantor Financial Statements

In connection with the issuance of the Notes, certain of the Company's domestic subsidiaries (collectively, "Guarantor Subsidiaries”), fully, unconditionally, jointly and severally guaranteed the payment obligations under the Notes. Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by the Company. The following supplemental financial information sets forth, on a consolidating basis, the balance sheets, statements of comprehensive income and statements of cash flows of First Cash Financial Services, Inc. (the “Parent Company”), the Guarantor Subsidiaries and the Parent Company's other subsidiaries (the “Non-Guarantor Subsidiaries”).

The supplemental condensed consolidating financial information has been prepared pursuant to SEC rules and regulations for interim condensed financial information and does not include the more complete disclosures included in annual financial statements. Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the Guarantor Subsidiaries or Non-Guarantor Subsidiaries operated as independent entities.



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Condensed Consolidating Balance Sheet
September 30, 2014
(unaudited, in thousands)

	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	17,380		$	2,809	$	22,571		$	—		$	42,760
Pawn loan fees and service charges receivable	—			7,480		12,001			—			19,481
Pawn loans	—			57,116		79,865			—			136,981
Consumer loans, net	—			842		668			—			1,510
Inventories	—			34,915		59,975			—			94,890
Prepaid expenses and other current assets	3,708			—		2,584			—			6,292
Deferred tax assets	906			—		5,393			—			6,299
Total current assets	21,994			103,162		183,057			—			308,213

Property and equipment, net	4,050			50,094		60,971			—			115,115
Goodwill, net	—			158,308		106,567			—			264,875
Other non-current assets	6,354			4,981		5,129			—			16,464
Deferred tax assets	—			—		10,106			(10,106		)	—
Intercompany receivable	—			—		169,711			(169,711		)	—
Investments in subsidiaries	804,310			—		—			(804,310		)	—
Total assets	$	836,708		$	316,545	$	535,541		$	(984,127	)	$	704,667

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities	$	19,979		$	6,684	$	23,515		$	—		$	50,178
Total current liabilities	19,979			6,684		23,515			—			50,178

Revolving unsecured credit facility	17,500			—		—			—			17,500
Senior unsecured notes	200,000			—		—			—			200,000
Deferred tax liabilities	64			14,761		2,816			(10,106		)	7,535
Intercompany payable	169,711			—		—			(169,711		)	—
Total liabilities	407,254			21,445		26,331			(179,817		)	275,213

Stockholders' equity:
Preferred stock	—			—		—			—			—
Common stock	395			—		—			—			395
Additional paid-in capital	182,119			—		—			—			182,119
Retained earnings	543,877			295,100		521,286			(804,310		)	555,953
Accumulated other comprehensive income (loss)	(303		)	—		(12,076		)	—			(12,379		)
Common stock held in treasury, at cost	(296,634		)	—		—			—			(296,634		)
Total stockholders' equity	429,454			295,100		509,210			(804,310		)	429,454
Total liabilities and stockholders' equity	$	836,708		$	316,545	$	535,541		$	(984,127	)	$	704,667



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Condensed Consolidating Balance Sheet
September 30, 2013
(unaudited, in thousands)

	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	14,255		$	3,952	$	12,332		$	—		$	30,539
Pawn loan fees and service charges receivable	—			7,595		10,078			—			17,673
Pawn loans	—			55,425		65,762			—			121,187
Consumer loans, net	—			552		823			—			1,375
Inventories	—			33,393		49,176			—			82,569
Prepaid expenses and other current assets	2,535			11		10,387			(8,153		)	4,780
Deferred tax assets	1,148			—		2,200			—			3,348
Total current assets	17,938			100,928		150,758			(8,153		)	261,471

Property and equipment, net	4,443			42,666		54,920			—			102,029
Goodwill, net	—			149,379		81,098			—			230,477
Other non-current assets	—			5,304		3,373			—			8,677
Deferred tax assets	—			—		7,146			(7,146		)	—
Intercompany receivable	—			—		139,228			(139,228		)	—
Investments in subsidiaries	696,368			—		—			(696,368		)	—
Total assets	$	718,749		$	298,277	$	436,523		$	(850,895	)	$	602,654

LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable	$	3,297		$	—	$	—		$	—		$	3,297
Accounts payable and accrued liabilities	11,597			7,046		16,803			—			35,446
Income taxes payable	17,871			—		—			(8,153		)	9,718
Total current liabilities	32,765			7,046		16,803			(8,153		)	48,461

Revolving unsecured credit facility	152,500			—		—			—			152,500
Notes payable, net of current portion	5,868			—		—			—			5,868
Deferred tax liabilities	876			13,750		833			(7,146		)	8,313
Intercompany payable	139,228			—		—			(139,228		)	—
Total liabilities	331,237			20,796		17,636			(154,527		)	215,142

Stockholders' equity:
Preferred stock	—			—		—			—			—
Common stock	393			—		—			—			393
Additional paid-in capital	176,018			—		—			—			176,018
Retained earnings	464,007			277,481		427,830			(696,368		)	472,950
Accumulated other comprehensive income (loss)	(219		)	—		(8,943		)	—			(9,162		)
Common stock held in treasury, at cost	(252,687		)	—		—			—			(252,687		)
Total stockholders' equity	387,512			277,481		418,887			(696,368		)	387,512
Total liabilities and stockholders' equity	$	718,749		$	298,277	$	436,523		$	(850,895	)	$	602,654



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Condensed Consolidating Balance Sheet
December 31, 2013
(unaudited, in thousands)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Eliminations		Consolidated
ASSETS
Cash and cash equivalents	$	24,674	$	4,240	$	41,729	$	—	$	70,643
Pawn loan fees and service charges receivable	—		7,934		8,755		—		16,689
Pawn loans	—		56,566		58,668		—		115,234
Consumer loans, net	—		694		756		—		1,450
Inventories	—		33,817		43,976		—		77,793
Prepaid expenses and other current assets	1,971		—		1,398