FIRSTCASH, INC - FORM 10-Q

Attached files

file	filename
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - FIRSTCASH, INC	fcfs06302015exhibit312.htm
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - FIRSTCASH, INC	fcfs06302015exhibit311.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION - FIRSTCASH, INC	fcfs06302015exhibit321.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION - FIRSTCASH, INC	fcfs06302015exhibit322.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 June 30, 2015



[ ]	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 July 20, 2015, there were 27,997,019 shares of common stock outstanding.



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FIRST CASH FINANCIAL SERVICES, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2015

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	36
Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

SIGNATURES		40



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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, 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 Mexican peso to U.S. dollar 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 or regulatory investigations;


•	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.



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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 the “Risk Factors” section 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.



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



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

	June 30,						December 31,
	2015			2014			2014
ASSETS
Cash and cash equivalents	$	77,430		$	84,055		$	67,992
Pawn loan fees and service charges receivable	17,611			17,808			16,926
Pawn loans	124,969			123,901			118,536
Consumer loans, net	1,070			1,339			1,241
Inventories	88,080			77,587			91,088
Prepaid expenses and other current assets	3,853			1,724			4,970
Deferred tax assets	7,009			5,348			7,122
Total current assets	320,022			311,762			307,875

Property and equipment, net	111,754			112,488			113,750
Goodwill, net	300,378			254,918			276,882
Other non-current assets	15,174			15,559			16,168
Deferred tax assets	2,246			—			—
Total assets	$	749,574		$	694,727		$	714,675

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	39,496		$	42,400		$	42,559
Income taxes payable	1,333			—			—
Total current liabilities	40,829			42,400			42,559

Revolving unsecured credit facilities	56,000			—			22,400
Senior unsecured notes	200,000			200,000			200,000
Deferred tax liabilities	—			9,970			1,165
Total liabilities	296,829			252,370			266,124

Stockholders’ equity:
Preferred stock	—			—			—
Common stock	399			394			397
Additional paid-in capital	193,977			178,978			188,062
Retained earnings	613,021			536,425			582,894
Accumulated other comprehensive loss from
cumulative foreign currency translation adjustments	(35,044		)	(7,439		)	(26,168		)
Common stock held in treasury, at cost	(319,608		)	(266,001		)	(296,634		)
Total stockholders’ equity	452,745			442,357			448,551
Total liabilities and stockholders’ equity	$	749,574		$	694,727		$	714,675

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						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenue:
Retail merchandise sales	$	105,625		$	97,188		$	216,079		$	195,896
Pawn loan fees	47,583			47,555			96,237			95,193
Consumer loan and credit services fees	6,710			8,416			14,305			18,200
Wholesale scrap jewelry revenue	7,705			12,167			17,025			25,814
Total revenue	167,623			165,326			343,646			335,103

Cost of revenue:
Cost of retail merchandise sold	65,636			59,093			133,882			119,583
Consumer loan and credit services loss provision	1,709			2,236			2,706			3,979
Cost of wholesale scrap jewelry sold	6,232			10,076			14,241			21,164
Total cost of revenue	73,577			71,405			150,829			144,726

Net revenue	94,046			93,921			192,817			190,377

Expenses and other income:
Store operating expenses	51,746			48,934			104,067			97,426
Administrative expenses	14,669			13,615			28,507			26,944
Depreciation and amortization	4,467			4,325			9,014			8,597
Interest expense	4,126			3,910			8,146			5,346
Interest income	(393		)	(262		)	(737		)	(343		)
Total expenses and other income	74,615			70,522			148,997			137,970

Income from continuing operations before income taxes	19,431			23,399			43,820			52,407

Provision for income taxes	6,092			7,384			13,693			13,438

Income from continuing operations	13,339			16,015			30,127			38,969

Loss from discontinued operations, net of tax	—			—			—			(272		)

Net income	$	13,339		$	16,015		$	30,127		$	38,697

Basic income per share:
Income from continuing operations	$	0.47		$	0.55		$	1.06		$	1.35
Loss from discontinued operations	—			—			—			(0.01		)
Net income per basic share	$	0.47		$	0.55		$	1.06		$	1.34

Diluted income per share:
Income from continuing operations	$	0.47		$	0.55		$	1.06		$	1.33
Loss from discontinued operations	—			—			—			(0.01		)
Net income per diluted share	$	0.47		$	0.55		$	1.06		$	1.32

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						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Net income	$	13,339		$	16,015		$	30,127		$	38,697
Other comprehensive income (loss):
Currency translation adjustment, gross	(6,657		)	873			(13,655		)	480
Tax (expense) benefit	2,330			(306		)	4,779			(168		)
Comprehensive income	$	9,012		$	16,582		$	21,251		$	39,009

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	—	—		—	—		1,399		—		—			—	—			1,399
Net income	—	—		—	—		—		30,127		—			—	—			30,127
Currency translation adjustment, net of tax	—	—		—	—		—		—		(8,876		)	—	—			(8,876		)
Repurchases of treasury stock	—	—		—	—		—		—		—			463	(22,974		)	(22,974		)
Balance at 6/30/2015	—	$	—	39,858	$	399	$	193,977	$	613,021	$	(35,044	)	11,663	$	(319,608	)	$	452,745

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 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	—	—		45	—		712		—		—			—	—			712
Income tax benefit from exercise of stock options	—	—		—	—		677		—		—			—	—			677
Share-based compensation expense	—	—		—	—		914		—		—			—	—			914
Net income	—	—		—	—		—		38,697		—			—	—			38,697
Currency translation adjustment, net of tax	—	—		—	—		—		—		312			—	—			312
Repurchases of treasury stock	—	—		—	—		—		—		—			235	(13,314		)	(13,314		)
Balance at 6/30/2014	—	$	—	39,427	$	394	$	178,978	$	536,425	$	(7,439	)	10,664	$	(266,001	)	$	442,357

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)
	Six Months Ended
	June 30,
	2015			2014
Cash flow from operating activities:
Net income	$	30,127		$	38,697
Adjustments to reconcile net income to net cash flow provided by operating activities:
Non-cash portion of credit loss provision	208			486
Share-based compensation expense	1,399			914
Depreciation and amortization expense	9,014			8,597
Amortization of debt issuance costs	484			368
Deferred income taxes	983			692
Changes in operating assets and liabilities, net of business combinations:
Pawn fees and service charges receivable	(935		)	(1,092		)
Merchandise inventories	1,032			211
Prepaid expenses and other assets	459			1,306
Accounts payable and accrued expenses	(2,672		)	6,202
Income taxes payable, current	1,810			(7,842		)
Net cash flow provided by operating activities	41,909			48,539
Cash flow from investing activities:
Loan receivables, net of cash repayments	(3,971		)	(7,958		)
Purchases of property and equipment	(8,600		)	(12,059		)
Acquisitions of pawn stores, net of cash acquired	(31,600		)	(6,389		)
Net cash flow used in investing activities	(44,171		)	(26,406		)
Cash flow from financing activities:
Borrowings from revolving credit facilities	63,055			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	—			(6,397		)
Purchases of treasury stock	(22,974		)	(13,314		)
Proceeds from exercise of share-based compensation awards	2,901			712
Income tax benefit from exercise of stock options	1,617			677
Net cash flow provided by (used in) financing activities	15,144			(8,674		)
Effect of exchange rates on cash	(3,444		)	(47		)
Change in cash and cash equivalents	9,438			13,412
Cash and cash equivalents at beginning of the period	67,992			70,643
Cash and cash equivalents at end of the period	$	77,430		$	84,055

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, 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 June 30, 2015 and 2014, and for the three month and six month periods ended June 30, 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 periods ended June 30, 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 three-month and 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 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. On July 9, 2015, the Financial Accounting Standards Board delayed the effective date of ASU 2014-09 by one year resulting in it becoming effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017 for public companies. Early adoption is permitted but not before annual reporting periods beginning after December 15, 2016. The Company is currently assessing the potential impact of ASU 2014-09 on its consolidated financial statements.



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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 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, upon adoption.

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				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Numerator:
Income from continuing operations for calculating basic and diluted earnings per share	$	13,339	$	16,015	$	30,127	$	38,969
Loss from discontinued operations	—		—		—		(272		)
Net income for calculating basic and diluted earnings per share	$	13,339	$	16,015	$	30,127	$	38,697

Denominator:
Weighted-average common shares for calculating basic earnings per share	28,196		28,938		28,299		28,945
Effect of dilutive securities:
Stock options and nonvested awards	215		403		216		396
Weighted-average common shares for calculating diluted earnings per share	28,411		29,341		28,515		29,341

Basic earnings per share:
Income from continuing operations	$	0.47	$	0.55	$	1.06	$	1.35
Loss from discontinued operations	—		—		—		(0.01		)
Net income per basic share	$	0.47	$	0.55	$	1.06	$	1.34

Diluted earnings per share:
Income from continuing operations	$	0.47	$	0.55	$	1.06	$	1.33
Loss from discontinued operations	—		—		—		(0.01		)
Net income per diluted share	$	0.47	$	0.55	$	1.06	$	1.32



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Note 3 - Acquisitions

The Company completed acquisitions during the six months ended June 30, 2015 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 consists largely of the synergies and economies of scale expected from combining the operations of the Company and the pawn stores acquired.

During the six months ended June 30, 2015, 29 pawn stores located in four U.S. states were acquired by the Company in four separate asset purchase transactions (“U.S. Acquisitions”) for an aggregate purchase price of $31,825,000, net of cash acquired, and was composed of $30,675,000 in cash and payables to the sellers of $1,150,000. During the six months ended June 30, 2015, the Company also paid $925,000 of purchase price amounts payable related to prior-year acquisitions.

The preliminary allocations of the purchase prices for the U.S. Acquisitions are as follows (in thousands):



	U.S. Acquisitions
Pawn loans	$	3,217
Pawn loan fees and service charges receivable	192
Inventory	2,585
Other current assets	6
Property and equipment	285
Goodwill (1)	25,370
Intangible assets (2)	493
Other non-current assets	5
Current liabilities	(328		)
Purchase price	$	31,825


(1)	Substantially all of the goodwill is expected to be deductible for 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 five years.

During the six months ended June 30, 2015, revenue from the U.S. Acquisitions since the acquisition dates was $907,000. During the six months ended June 30, 2015, the net loss from the U.S. Acquisitions since the acquisition dates (including acquisition and integration costs) was $658,000. Combined transaction and integration costs related to acquisitions during the six months ended June 30, 2015 were approximately $1,175,000, which are primarily included in administrative expenses in the accompanying condensed consolidated statements of income.



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Note 4 - 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. The Notes allow the Company to repurchase shares of its stock and to pay cash dividends within certain parameters.

Revolving Credit Facilities

At June 30, 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 June 30, 2015, the Company had $56,000,000 outstanding under the 2014 Credit Facility and $104,000,000 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 June 30, 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 June 30, 2015. During the six months ended June 30, 2015, the Company had net proceeds of $33,600,000 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 June 30, 2015. The Company is required to pay a one-time commitment fee of $25,000 due when the first amount is drawn/borrowed. At June 30, 2015, the Company had no amount outstanding under the Mexico Credit Facility and $10,000,000 was available for borrowings.

Note 5 - 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 2014 Credit Facility and the Mexico Credit Facility approximated fair value for all periods presented. The fair value of the Notes was approximately $211,000,000, $214,000,000 and $207,000,000 as of June 30, 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.



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Note 6 - 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
June 30, 2015
(unaudited, in thousands)

	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	5,704		$	2,465	$	69,261		$	—		$	77,430
Pawn loan fees and service charges receivable	—			6,594		11,017			—			17,611
Pawn loans	—			53,463		71,506			—			124,969
Consumer loans, net	—			510		560			—			1,070
Inventories	—			32,143		55,937			—			88,080
Prepaid expenses and other current assets	2,789			—		1,064			—			3,853
Deferred tax assets	1,069			—		5,940			—			7,009
Total current assets	9,562			95,175		215,285			—			320,022

Property and equipment, net	4,082			50,655		57,017			—			111,754
Goodwill, net	—			158,568		141,810			—			300,378
Other non-current assets	5,483			4,270		5,421			—			15,174
Deferred tax assets	—			—		21,636			(19,390		)	2,246
Intercompany receivable	—			—		175,054			(175,054		)	—
Investments in subsidiaries	879,127			—		—			(879,127		)	—
Total assets	$	898,254		$	308,668	$	616,223		$	(1,073,571	)	$	749,574

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	13,366		$	6,696	$	19,434		$	—		$	39,496
Income taxes payable	1,088			—		245			—			1,333
Total current liabilities	14,454			6,696		19,679			—			40,829

Revolving unsecured credit facilities	56,000			—		—			—			56,000
Senior unsecured notes	200,000			—		—			—			200,000
Deferred tax liabilities	—			13,322		6,068			(19,390		)	—
Intercompany payable	175,054			—		—			(175,054		)	—
Total liabilities	445,508			20,018		25,747			(194,444		)	296,829

Stockholders’ equity:
Preferred stock	—			—		—			—			—
Common stock	399			—		—			—			399
Additional paid-in capital	193,977			—		—			—			193,977
Retained earnings	577,978			288,650		625,520			(879,127		)	613,021
Accumulated other comprehensive loss	—			—		(35,044		)	—			(35,044		)
Common stock held in treasury, at cost	(319,608		)	—		—			—			(319,608		)
Total stockholders’ equity	452,746			288,650		590,476			(879,127		)	452,745
Total liabilities and stockholders’ equity	$	898,254		$	308,668	$	616,223		$	(1,073,571	)	$	749,574



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

	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	37,132		$	2,555	$	44,368		$	—		$	84,055
Pawn loan fees and service charges receivable	—			7,014		10,794			—			17,808
Pawn loans	—			53,764		70,137			—			123,901
Consumer loans, net	—			665		674			—			1,339
Inventories	—			30,115		47,472			—			77,587
Prepaid expenses and other current assets	1,717			—		7			—			1,724
Deferred tax assets	906			—		4,442			—			5,348
Total current assets	39,755			94,113		177,894			—			311,762

Property and equipment, net	4,188			49,246		59,054			—			112,488
Goodwill, net	—			152,981		101,937			—			254,918
Other non-current assets	—			11,380		4,179			—			15,559
Deferred tax assets	—			—		7,071			(7,071		)	—
Intercompany receivable	—			—		165,480			(165,480		)	—
Investments in subsidiaries	778,645			—		—			(778,645		)	—
Total assets	$	822,588		$	307,720	$	515,615		$	(951,196	)	$	694,727

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	14,689		$	9,386	$	18,325		$	—		$	42,400
Total current liabilities	14,689			9,386		18,325			—			42,400

Senior unsecured notes	200,000			—		—			—			200,000
Deferred tax liabilities	62			14,177		2,802			(7,071		)	9,970
Intercompany payable	165,480			—		—			(165,480		)	—
Total liabilities	380,231			23,563		21,127			(172,551		)	252,370

Stockholders’ equity:
Preferred stock	—			—		—			—			—
Common stock	394			—		—			—			394
Additional paid-in capital	178,978			—		—			—			178,978
Retained earnings	529,289			284,157		501,624			(778,645		)	536,425
Accumulated other comprehensive loss	(303		)	—		(7,136		)	—			(7,439		)
Common stock held in treasury, at cost	(266,001		)	—		—			—			(266,001		)
Total stockholders’ equity	442,357			284,157		494,488			(778,645		)	442,357
Total liabilities and stockholders’ equity	$	822,588		$	307,720	$	515,615		$	(951,196	)	$	694,727



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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

FIRSTCASH, INC - FORM 10-Q - July 22, 2015

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