Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - FIRSTCASH, INC | Financial_Report.xls |
| EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION - FIRSTCASH, INC | fcfs03312015exhibit322.htm |
| EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - FIRSTCASH, INC | fcfs03312015exhibit312.htm |
| EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - FIRSTCASH, INC | fcfs03312015exhibit311.htm |
| EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION - FIRSTCASH, INC | fcfs03312015exhibit321.htm |
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 March 31, 2015
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
Commission file number 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 75-2237318 |
(State or other jurisdiction 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 April 20, 2015, there were 28,195,392 shares of common stock outstanding.
FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2015
INDEX
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 and earnings before interest, taxes, depreciation and amortization growth, expansion strategies, the impact of new or existing regulations, 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, future share repurchases and the price of gold and the impacts thereof, earnings and related transaction expenses from acquisitions and mergers, 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 foreign currency exchange rates and the U.S. dollar to Mexican peso exchange rate in particular; |
• | 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), including administrative or legal interpretations thereto; |
• | risks and uncertainties related to foreign operations in Mexico; |
• | changes in import/export regulations and tariffs or duties; |
• | changes in banking, anti-money laundering or gun control regulations; |
• | unforeseen litigation; |
• | changes in tax rates or policies in the U.S. and Mexico; |
• | 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. |
These and other risks, uncertainties and regulatory developments are further and more completely described in the Company’s 2014 annual report on Form 10-K filed with the Securities and Exchange Commission on February 12, 2015, including the risks described in “Risk Factors” of the Company’s annual 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CASH FINANCIAL SERVICES, INC. | ||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||||
(unaudited, in thousands) | ||||||||||||
March 31, | December 31, | |||||||||||
2015 | 2014 | 2014 | ||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 75,803 | $ | 94,929 | $ | 67,992 | ||||||
Pawn loan fees and service charges receivable | 16,232 | 16,539 | 16,926 | |||||||||
Pawn loans | 114,306 | 113,938 | 118,536 | |||||||||
Consumer loans, net | 977 | 1,239 | 1,241 | |||||||||
Inventories | 82,554 | 72,279 | 91,088 | |||||||||
Prepaid expenses and other current assets | 3,302 | 2,425 | 4,970 | |||||||||
Deferred tax assets | 7,056 | 5,190 | 7,122 | |||||||||
Total current assets | 300,230 | 306,539 | 307,875 | |||||||||
Property and equipment, net | 112,587 | 109,882 | 113,750 | |||||||||
Goodwill, net | 276,545 | 254,790 | 276,882 | |||||||||
Other non-current assets | 15,478 | 15,978 | 16,168 | |||||||||
Deferred tax assets | 448 | — | — | |||||||||
Total assets | $ | 705,288 | $ | 687,189 | $ | 714,675 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Accounts payable and accrued liabilities | $ | 41,704 | $ | 37,184 | $ | 42,559 | ||||||
Income taxes payable | 50 | 3,377 | — | |||||||||
Total current liabilities | 41,754 | 40,561 | 42,559 | |||||||||
Revolving unsecured credit facilities | 14,500 | — | 22,400 | |||||||||
Senior unsecured notes | 200,000 | 200,000 | 200,000 | |||||||||
Deferred tax liabilities | — | 9,292 | 1,165 | |||||||||
Total liabilities | 256,254 | 249,853 | 266,124 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 399 | 394 | 397 | |||||||||
Additional paid-in capital | 193,278 | 177,225 | 188,062 | |||||||||
Retained earnings | 599,682 | 520,410 | 582,894 | |||||||||
Accumulated other comprehensive loss from | ||||||||||||
cumulative foreign currency translation adjustments | (30,717 | ) | (8,006 | ) | (26,168 | ) | ||||||
Common stock held in treasury, at cost | (313,608 | ) | (252,687 | ) | (296,634 | ) | ||||||
Total stockholders’ equity | 449,034 | 437,336 | 448,551 | |||||||||
Total liabilities and stockholders’ equity | $ | 705,288 | $ | 687,189 | $ | 714,675 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||||||
1
FIRST CASH FINANCIAL SERVICES, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(unaudited, in thousands, except per share amounts) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Revenue: | ||||||||
Retail merchandise sales | $ | 110,454 | $ | 98,708 | ||||
Pawn loan fees | 48,654 | 47,638 | ||||||
Consumer loan and credit services fees | 7,595 | 9,784 | ||||||
Wholesale scrap jewelry revenue | 9,320 | 13,647 | ||||||
Total revenue | 176,023 | 169,777 | ||||||
Cost of revenue: | ||||||||
Cost of retail merchandise sold | 68,246 | 60,490 | ||||||
Consumer loan and credit services loss provision | 997 | 1,743 | ||||||
Cost of wholesale scrap jewelry sold | 8,009 | 11,088 | ||||||
Total cost of revenue | 77,252 | 73,321 | ||||||
Net revenue | 98,771 | 96,456 | ||||||
Expenses and other income: | ||||||||
Store operating expenses | 52,321 | 48,492 | ||||||
Administrative expenses | 13,838 | 13,329 | ||||||
Depreciation and amortization | 4,547 | 4,272 | ||||||
Interest expense | 4,020 | 1,436 | ||||||
Interest income | (344 | ) | (81 | ) | ||||
Total expenses and other income | 74,382 | 67,448 | ||||||
Income from continuing operations before income taxes | 24,389 | 29,008 | ||||||
Provision for income taxes | 7,601 | 6,054 | ||||||
Income from continuing operations | 16,788 | 22,954 | ||||||
Loss from discontinued operations, net of tax | — | (272 | ) | |||||
Net income | $ | 16,788 | $ | 22,682 | ||||
Basic income per share: | ||||||||
Income from continuing operations | $ | 0.59 | $ | 0.79 | ||||
Loss from discontinued operations | — | (0.01 | ) | |||||
Net income per basic share | $ | 0.59 | $ | 0.78 | ||||
Diluted income per share: | ||||||||
Income from continuing operations | $ | 0.59 | $ | 0.78 | ||||
Loss from discontinued operations | — | (0.01 | ) | |||||
Net income per diluted share | $ | 0.59 | $ | 0.77 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||
2
FIRST CASH FINANCIAL SERVICES, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||
(unaudited, in thousands) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Net income | $ | 16,788 | $ | 22,682 | ||||
Other comprehensive income (loss): | ||||||||
Currency translation adjustment, gross | (6,998 | ) | (393 | ) | ||||
Tax benefit | 2,449 | 138 | ||||||
Comprehensive income | $ | 12,239 | $ | 22,427 | ||||
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 Loss | Common Stock Held in Treasury | Total Stock- holders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||
Balance at 12/31/2014 | — | $ | — | 39,708 | $ | 397 | $ | 188,062 | $ | 582,894 | $ | (26,168 | ) | 11,200 | $ | (296,634 | ) | $ | 448,551 | ||||||||||||||||||
Shares issued under share-based com-pensation plan | — | — | 5 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Exercise of stock options | — | — | 145 | 2 | 2,899 | — | — | — | — | 2,901 | |||||||||||||||||||||||||||
Income tax benefit from exercise of stock options | — | — | — | — | 1,617 | — | — | — | — | 1,617 | |||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 700 | — | — | — | — | 700 | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | 16,788 | — | — | — | 16,788 | |||||||||||||||||||||||||||
Currency translation adjustment, net of tax | — | — | — | — | — | — | (4,549 | ) | — | — | (4,549 | ) | |||||||||||||||||||||||||
Repurchases of treasury stock | — | — | — | — | — | — | — | 336 | (16,974 | ) | (16,974 | ) | |||||||||||||||||||||||||
Balance at 3/31/2015 | — | $ | — | 39,858 | $ | 399 | $ | 193,278 | $ | 599,682 | $ | (30,717 | ) | 11,536 | $ | (313,608 | ) | $ | 449,034 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||
3
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 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 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 550 | — | — | — | — | 550 | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | 22,682 | — | — | — | 22,682 | |||||||||||||||||||||||||||
Currency translation adjustment, net of tax | — | — | — | — | — | — | (255 | ) | — | — | (255 | ) | |||||||||||||||||||||||||
Balance at 3/31/2014 | — | $ | — | 39,382 | $ | 394 | $ | 177,225 | $ | 520,410 | $ | (8,006 | ) | 10,429 | $ | (252,687 | ) | $ | 437,336 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||
4
FIRST CASH FINANCIAL SERVICES, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(unaudited, in thousands) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Cash flow from operating activities: | ||||||||
Net income | $ | 16,788 | $ | 22,682 | ||||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||
Non-cash portion of credit loss provision | 79 | 213 | ||||||
Share-based compensation expense | 700 | 550 | ||||||
Depreciation and amortization expense | 4,547 | 4,272 | ||||||
Amortization of debt issuance costs | 256 | 95 | ||||||
Deferred income taxes | 640 | 451 | ||||||
Changes in operating assets and liabilities, net of business combinations: | ||||||||
Pawn fees and service charges receivable | 480 | 154 | ||||||
Merchandise inventories | 2,354 | 1,805 | ||||||
Prepaid expenses and other assets | 1,070 | (519 | ) | |||||
Accounts payable and accrued expenses | (10 | ) | (459 | ) | ||||
Income taxes payable, current | 526 | (4,051 | ) | |||||
Net cash flow provided by operating activities | 27,430 | 25,193 | ||||||
Cash flow from investing activities: | ||||||||
Loan receivables, net of cash repayments | 8,312 | 5,773 | ||||||
Purchases of property and equipment | (4,386 | ) | (5,674 | ) | ||||
Acquisitions of pawn stores, net of cash acquired | (1,550 | ) | (4,889 | ) | ||||
Net cash flow provided by (used in) investing activities | 2,376 | (4,790 | ) | |||||
Cash flow from financing activities: | ||||||||
Borrowings from revolving credit facilities | 21,555 | 2,500 | ||||||
Repayments of revolving credit facilities | (29,455 | ) | (184,500 | ) | ||||
Repayments of notes payable | — | (8,352 | ) | |||||
Issuance of senior unsecured notes | — | 200,000 | ||||||
Debt issuance costs paid | — | (5,508 | ) | |||||
Purchases of treasury stock | (16,974 | ) | — | |||||
Proceeds from exercise of share-based compensation awards | 2,901 | — | ||||||
Income tax benefit from exercise of stock options | 1,617 | — | ||||||
Net cash flow provided by (used in) financing activities | (20,356 | ) | 4,140 | |||||
Effect of exchange rates on cash | (1,639 | ) | (257 | ) | ||||
Change in cash and cash equivalents | 7,811 | 24,286 | ||||||
Cash and cash equivalents at beginning of the period | 67,992 | 70,643 | ||||||
Cash and cash equivalents at end of the period | $ | 75,803 | $ | 94,929 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||
5
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, 2014, 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, 2014, on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 12, 2015. The condensed consolidated financial statements as of March 31, 2015 and 2014, and for the three month periods ended March 31, 2015 and 2014, 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 period ended March 31, 2015 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 operating 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 year-to-date periods.
Certain amounts in prior year comparative presentations have been reclassified in order to conform to the 2015 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”). ASU 2014-08 requires 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. ASU 2014-08 also expands the disclosure requirements for discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014. The adoption of ASU 2014-08 did not 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 disclosures 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
6
periods, and interim periods within that period, beginning after December 15, 2016. In April 2015, the Financial Accounting Standards Board voted for a one-year deferral of the effective date of ASU 2014-09 and is expected to issue an exposure draft during the second quarter of 2015. 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.
In April 2015, the Financial Accounting Standards Board issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application and represents a change in accounting principle. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect ASU 2015-03 to have a material effect on the Company’s results of operations, however, it will impact future balance sheet presentation and financial statement disclosures related to the Company’s debt issuance costs.
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 | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Numerator: | ||||||||
Income from continuing operations for calculating basic and diluted earnings per share | $ | 16,788 | $ | 22,954 | ||||
Loss from discontinued operations | — | (272 | ) | |||||
Net income for calculating basic and diluted earnings per share | $ | 16,788 | $ | 22,682 | ||||
Denominator: | ||||||||
Weighted-average common shares for calculating basic earnings per share | 28,402 | 28,952 | ||||||
Effect of dilutive securities: | ||||||||
Stock options and nonvested awards | 218 | 390 | ||||||
Weighted-average common shares for calculating diluted earnings per share | 28,620 | 29,342 | ||||||
Basic earnings per share: | ||||||||
Income from continuing operations | $ | 0.59 | $ | 0.79 | ||||
Loss from discontinued operations | — | (0.01 | ) | |||||
Net income per basic share | $ | 0.59 | $ | 0.78 | ||||
Diluted earnings per share: | ||||||||
Income from continuing operations | $ | 0.59 | $ | 0.78 | ||||
Loss from discontinued operations | — | (0.01 | ) | |||||
Net income per diluted share | $ | 0.59 | $ | 0.77 | ||||
7
Note 3 - Long-Term Debt
Senior Unsecured Notes
On March 24, 2014, the Company issued $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 allow the Company to repurchase shares of its stock and to pay cash dividends within certain parameters.
Revolving Credit Facilities
At March 31, 2015, the Company maintained a line of credit with a group of U.S. based commercial lenders (the “2014 Credit Facility”) in the amount of $160,000,000, which matures in February 2019. At March 31, 2015, the Company had $14,500,000 outstanding under the 2014 Credit Facility and $145,500,000 was available for borrowings. The 2014 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (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 interest rate on amounts outstanding under the 2014 Credit Facility at March 31, 2015 was 2.69% based on the prevailing 30-day LIBOR rate. The 2014 Credit Facility allows the Company to repurchase shares of its stock and to pay cash dividends within certain parameters and requires the Company to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the 2014 Credit Facility as of March 31, 2015. During the three months ended March 31, 2015, the Company made net payments of $7,900,000 on the 2014 Credit Facility.
On March 9, 2015, the Company entered into an agreement with a bank in Mexico to establish a revolving credit facility (the “Mexico Credit Facility”) in the amount of $10,000,000. The Mexico Credit Facility bears interest at the prevailing 30-day LIBOR rate plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of March 31, 2015. The Company is required to pay a one-time commitment fee of $25,000 due when the first amount is drawn/borrowed. At March 31, 2015, the Company had no amount outstanding under the Mexico Credit Facility and $10,000,000 was available for borrowings.
Note 4 - 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):
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 Company’s credit facilities (as described in Note 3) approximated fair value for all periods presented. The fair value of the Notes was approximately $206,000,000, $200,000,000 and $207,000,000 as of March 31, 2015, 2014 and December 31, 2014, respectively, 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.
8
Note 5 - 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.
9
Condensed Consolidating Balance Sheet | ||||||||||||||||||||
March 31, 2015 | ||||||||||||||||||||
(unaudited, in thousands) | ||||||||||||||||||||
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 13,136 | $ | 2,481 | $ | 60,186 | $ | — | $ | 75,803 | ||||||||||
Pawn loan fees and service charges receivable | — | 5,860 | 10,372 | — | 16,232 | |||||||||||||||
Pawn loans | — | 47,433 | 66,873 | — | 114,306 | |||||||||||||||
Consumer loans, net | — | 411 | 566 | — | 977 | |||||||||||||||
Inventories | — | 30,718 | 51,836 | — | 82,554 | |||||||||||||||
Prepaid expenses and other current assets | 1,647 | — | 2,145 | (490 | ) | 3,302 | ||||||||||||||
Deferred tax assets | 1,069 | — | 5,987 | — | 7,056 | |||||||||||||||
Total current assets | 15,852 | 86,903 | 197,965 | (490 | ) | 300,230 | ||||||||||||||
Property and equipment, net | 3,916 | 50,099 | 58,572 | — | 112,587 | |||||||||||||||
Goodwill, net | — | 158,568 | 117,977 | — | 276,545 | |||||||||||||||
Other non-current assets | 5,711 | 4,518 | 5,249 | — | 15,478 | |||||||||||||||
Deferred tax assets | 531 | — | 19,416 | (19,499 | ) | 448 | ||||||||||||||
Intercompany receivable | — | — | 172,866 | (172,866 | ) | — | ||||||||||||||
Investments in subsidiaries | 826,784 | — | — | (826,784 | ) | — | ||||||||||||||
Total assets | $ | 852,794 | $ | 300,088 | $ | 572,045 | $ | (1,019,639 | ) | $ | 705,288 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 15,854 | $ | 6,850 | $ | 19,000 | $ | — | $ | 41,704 | ||||||||||
Income taxes payable | 540 | — | — | (490 | ) | 50 | ||||||||||||||
Total current liabilities | 16,394 | 6,850 | 19,000 | (490 | ) | 41,754 | ||||||||||||||
Revolving unsecured credit facilities | 14,500 | — | — | — | 14,500 | |||||||||||||||
Senior unsecured notes | 200,000 | — | — | — | 200,000 | |||||||||||||||
Deferred tax liabilities | — | 15,108 | 4,391 | (19,499 | ) | — | ||||||||||||||
Intercompany payable | 172,866 | — | — | (172,866 | ) | — | ||||||||||||||
Total liabilities | 403,760 | 21,958 | 23,391 | (192,855 | ) | 256,254 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||
Common stock | 399 | — | — | — | 399 | |||||||||||||||
Additional paid-in capital | 193,278 | — | — | — | 193,278 | |||||||||||||||
Retained earnings | 568,965 | 278,130 | 579,371 | (826,784 | ) | 599,682 | ||||||||||||||
Accumulated other comprehensive loss | — | — | (30,717 | ) | — | (30,717 | ) | |||||||||||||
Common stock held in treasury, at cost | (313,608 | ) | — | — | — | (313,608 | ) | |||||||||||||
Total stockholders’ equity | 449,034 | 278,130 | 548,654 | (826,784 | ) | 449,034 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 852,794 | $ | 300,088 | $ | 572,045 | $ | (1,019,639 | ) | $ | 705,288 | |||||||||
10
Condensed Consolidating Balance Sheet | ||||||||||||||||||||
March 31, 2014 | ||||||||||||||||||||
(unaudited, in thousands) | ||||||||||||||||||||
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 51,606 | $ | 2,812 | $ | 40,511 | $ | — | $ | 94,929 | ||||||||||
Pawn loan fees and service charges receivable | — | 6,278 | 10,261 | — | 16,539 | |||||||||||||||
Pawn loans | — | 47,361 | 66,577 | — | 113,938 | |||||||||||||||
Consumer loans, net | — | 518 | 721 | — | 1,239 | |||||||||||||||
Inventories | — | 29,770 | 42,509 | — | 72,279 | |||||||||||||||
Prepaid expenses and other current assets | 1,365 | — | 1,060 | — | 2,425 | |||||||||||||||
Deferred tax assets | 906 | — | 4,284 | — | 5,190 | |||||||||||||||
Total current assets | 53,877 | 86,739 | 165,923 | — | 306,539 | |||||||||||||||
Property and equipment, net | 4,025 | 47,687 | 58,170 | — | 109,882 | |||||||||||||||
Goodwill, net | — | 152,981 | 101,809 | — | 254,790 | |||||||||||||||
Other non-current assets | 6,805 | 4,037 | 5,136 | — | 15,978 | |||||||||||||||
Deferred tax assets | — | — | 7,249 | (7,249 | ) | — | ||||||||||||||
Intercompany receivable | — | — | 161,272 | (161,272 | ) | — | ||||||||||||||
Investments in subsidiaries | 748,735 | — | — | (748,735 | ) | — | ||||||||||||||
Total assets | $ | 813,442 | $ | 291,444 | $ | 499,559 | $ | (917,256 | ) | $ | 687,189 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 12,064 | $ | 7,217 | $ | 17,903 | $ | — | $ | 37,184 | ||||||||||
Income taxes payable | 1,887 | — | 1,490 | — | 3,377 | |||||||||||||||
Total current liabilities | 13,951 | 7,217 | 19,393 | — | 40,561 | |||||||||||||||
Senior unsecured notes | 200,000 | — | — | — | 200,000 | |||||||||||||||
Deferred tax liabilities | 883 | 10,689 | 4,969 | (7,249 | ) | 9,292 | ||||||||||||||
Intercompany payable | 161,272 | — | — | (161,272 | ) | — | ||||||||||||||
Total liabilities | 376,106 | 17,906 | 24,362 | (168,521 | ) | 249,853 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||
Common stock | 394 | — | — | — | 394 | |||||||||||||||
Additional paid-in capital | 177,225 | — | — | — | 177,225 | |||||||||||||||
Retained earnings | 512,404 | 273,538 | 483,203 | (748,735 | ) | 520,410 | ||||||||||||||
Accumulated other comprehensive loss | — | — | (8,006 | ) | — | (8,006 | ) | |||||||||||||
Common stock held in treasury, at cost | (252,687 | ) | — | — | — | (252,687 | ) | |||||||||||||
Total stockholders’ equity | 437,336 | 273,538 | 475,197 | (748,735 | ) | 437,336 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 813,442 | $ | 291,444 | $ | 499,559 | $ | (917,256 | ) | $ | 687,189 | |||||||||
11
Condensed Consolidating Balance Sheet | ||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||
(unaudited, in thousands) | ||||||||||||||||||||
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 7,799 | $ | 2,906 | $ | 57,287 | $ | — | $ | 67,992 | ||||||||||
Pawn loan fees and service charges receivable | — | 7,120 | 9,806 | — | 16,926 | |||||||||||||||
Pawn loans | — | 55,709 | 62,827 | — | 118,536 | |||||||||||||||
Consumer loans, net | — | 655 | 586 | — | 1,241 | |||||||||||||||
Inventories | — | 35,206 | 55,882 | — | 91,088 | |||||||||||||||
Prepaid expenses and other current assets | 1,881 | — | 3,089 | — | 4,970 | |||||||||||||||
Deferred tax assets | 1,069 | — | 6,053 | — | 7,122 | |||||||||||||||
Total current assets | 10,749 | 101,596 | 195,530 | — | 307,875 | |||||||||||||||
Property and equipment, net | 3,997 | 50,184 | 59,569 | — | 113,750 | |||||||||||||||
Goodwill, net | — | 158,308 | 118,574 | — | 276,882 | |||||||||||||||
Other non-current assets | 5,967 | 4,744 | 5,457 | — | 16,168 | |||||||||||||||
Deferred tax assets | — | — | 17,127 | (17,127 | ) | — | ||||||||||||||
Intercompany receivable | — | — | 170,132 | (170,132 | ) | — | ||||||||||||||
Investments in subsidiaries | 837,486 | — | — | (837,486 | ) | — | ||||||||||||||
Total assets | $ | 858,199 | $ | 314,832 | $ | 566,389 | $ | (1,024,745 | ) | $ | 714,675 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 16,940 | $ | 6,459 | $ | 19,160 | $ | — | $ | 42,559 | ||||||||||
Total current liabilities | 16,940 | 6,459 | 19,160 | — | 42,559 | |||||||||||||||
Revolving unsecured credit facility | 22,400 | — | — | — | 22,400 | |||||||||||||||
Senior unsecured notes | 200,000 | — | — | — | 200,000 | |||||||||||||||
Deferred tax liabilities | 176 | 14,069 | 4,047 | (17,127 | ) | 1,165 | ||||||||||||||
Intercompany payable | 170,132 | — | — | (170,132 | ) | — | ||||||||||||||
Total liabilities | 409,648 | 20,528 | 23,207 | (187,259 | ) | 266,124 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||
Common stock | 397 | — | — | — | 397 | |||||||||||||||
Additional paid-in capital | 188,062 | — | — | — | 188,062 | |||||||||||||||
Retained earnings | 556,726 | 294,304 | 569,350 | (837,486 | ) | 582,894 | ||||||||||||||
Accumulated other comprehensive loss | — | — | (26,168 | ) | — | (26,168 | ) | |||||||||||||
Common stock held in treasury, at cost | (296,634 | ) | — | — | — | (296,634 | ) | |||||||||||||
Total stockholders’ equity | 448,551 | 294,304 | 543,182 | (837,486 | ) | 448,551 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 858,199 | $ | 314,832 | $ | 566,389 | $ | (1,024,745 | ) | $ | 714,675 | |||||||||
12
Condensed Consolidating Statement of Comprehensive Income | ||||||||||||||||||||
Three Months Ended March 31, 2015 | ||||||||||||||||||||
(unaudited, in thousands) | ||||||||||||||||||||
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Eliminations | Consolidated | ||||||||||||||||
Revenue: | ||||||||||||||||||||
Retail merchandise sales | $ | — | $ | 37,576 | $ | 72,878 | $ | — | $ | 110,454 | ||||||||||
Pawn loan fees | — | 19,269 | 29,385 | — | 48,654 | |||||||||||||||
Consumer loan and credit services fees | — | 6,944 | 651 | — | 7,595 | |||||||||||||||
Wholesale scrap jewelry revenue | — | 4,828 | 4,492 | — | 9,320 | |||||||||||||||
Total revenue | — | 68,617 | 107,406 | — | 176,023 | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||
Cost of retail merchandise sold | — | 21,459 | 46,787 | — | 68,246 | |||||||||||||||
Consumer loan and credit services loss provision | — | 921 | 76 | — | 997 | |||||||||||||||
Cost of wholesale scrap jewelry sold | — | 4,417 | 3,592 | — | 8,009 | |||||||||||||||
Total cost of revenue | — | 26,797 | 50,455 | — | 77,252 | |||||||||||||||
Net revenue | — | 41,820 | 56,951 | — | 98,771 | |||||||||||||||
Expenses and other income: | </ | |||||||||||||||||||