Add
FCFS to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FCFS > SEC Filings for FCFS > Form 10-K on 16-Mar-2009 | All Recent SEC Filings |
16-Mar-2009
Annual Report
General
The Company generates revenue from its continuing operations from two primary products and services: pawn store operations and short-term consumer loan operations.
The Company's pawn revenue is derived primarily from service fees on pawns and merchandise sales of forfeited pawn collateral and used goods purchased directly from the general public. The Company accrues pawn service charge revenue on a constant-yield basis over the life of the pawn loan for all pawns that the Company deems collection to be probable based on historical pawn redemption statistics. If a pawn loan is not repaid prior to the expiration of the automatic extension period, if applicable, the property is forfeited to the Company and transferred to inventory at a value equal to the principal amount of the loan, exclusive of accrued interest.
The Company's short-term consumer loan revenue is derived primarily from fees on short-term loans and credit services fees. The Company recognizes service fee income on short-term loans on a constant-yield basis over the life of the loan, which is generally thirty-one days or less. The net defaults on short-term loans and changes in the short-term loan valuation reserve are charged to the short-term loan loss provision. The credit loss provision is based primarily upon historical credit loss experience, with consideration given to recent credit loss trends, delinquency rates, economic conditions and management's expectations of future credit losses.
The Company offers a fee-based credit services organization program ("CSO program") to assist consumers, primarily in Texas markets, in obtaining credit. Under the CSO program, the Company assists customers in applying for a short-term loan from an independent, non-bank, consumer lending company (the "Independent Lender") and issues the Independent Lender a letter of credit to guarantee the repayment of the loan. The Company recognizes credit services fees ratably over the life of the loan made by the Independent Lender. The loans made by the Independent Lender to credit services customers of the Company have terms of 7 to 180 days. The Company records a liability for the estimated fair value of the liability under the letters of credit.
The Company discontinued its short-term loan operations in the Washington, D.C. market effective December 2007. The Company also discontinued its Auto Master buy-here/pay-here operation, effective September 2008. See discussion of discontinued operations below and in Note 5 of Notes to Consolidated Financial Statements.
The following table details certain metrics regarding the Company's loan products, inventories, and store locations:
Year Ended December 31,
-----------------------------------------
2008 2007 2006
Customer receivable balances at end of period, in thousands:
Pawn receivables $ 44,170 $ 41,285 $ 32,459
Short-term loan receivables, net of allowance 5,865 5,762 4,823
CSO short-term loans held by independent third-party 12,918 14,725 12,163
lender (1)
Short-term loan receivables and CSO short-term loans at end of
period, in thousands (4):
Pawn stores $ 2,717 $ 3,217 $ 3,049
Short-term loan stores 14,705 16,804 12,812
Internet operations 1,010 - -
Cash & Go, Ltd. joint venture kiosks 1,383 1,603 1,840
Pawn store inventories at end of period, in thousands: $ 28,738 $ 26,870 $ 25,034
Pawn store annualized inventory turnover: 3.8x 3.4x 3.2x
Annualized service/finance fee yield (2):
Pawn receivables 157% 157% 160%
Short-term loan receivables, net of credit loss 270% 303% 359%
provision
Net short-term loan and credit services loss provision as a
percentage of service fees (1) 28% 28% 24%
Locations in operation (excluding joint venture kiosks):
Beginning of the year 460 392 323
Opened 56 73 70
Acquired 16 - -
Consolidated/closed (7) (5) (1)
-------- -------- --------
End of the year 525 460 392
Number of locations at end of period:
Pawn-only stores 256 211 183
Pawn stores also offering short-term loans (3) 64 65 69
Short-term loan stores (3) 188 169 138
Short-term loan stores also offering pawn loans (3) 17 15 2
Cash & Go, Ltd. joint venture kiosks (3) 39 39 40
Average receivables and CSO loan balances per location at
end of period, in thousands:
Pawn receivables in pawn stores $ 138 $ 149 $ 129
Pawn receivables in short-term loan stores 2 3 3
Short-term loans in pawn stores (1) 42 49 44
Short-term loans in short-term loan stores
(excluding Cash & Go, Ltd.) (1) 72 91 88
Short-term loans in Cash & Go, Ltd. joint venture 35 41 46
kiosks (1)
Pawn store average inventories per location, in thousands: $ 90 $ 97 $ 99
Average outstanding loan at December 31:
Pawn receivables $ 98 $ 109 $ 99
Short-term loan receivables 237 288 280
CSO short-term loans held by independent third-party 445 494 439
lender (4)
|
(1) Short-term loan amount includes short-term loans recorded on the Company's balance sheet and
active CSO short-term loans outstanding from the independent third-party lender, which are not
included on the Company's balance sheet, net of the Company's estimated fair value of its
liability under the letters of credit guaranteeing the loans.
(2) The annualized yield on pawn receivables is calculated by dividing total pawn service fees by
the average quarterly pawn receivable balance for the year. The annualized yield, net of loss
provision, for short-term loans is calculated by dividing total short-term loan service fees,
net of the short-term loan loss provision, by the average quarterly short-term loan receivable
balance for the year. The annualized yield calculation for short-term loans does not include
credit services fees or the related credit services loss provision.
(3) Includes locations where short-term loans are provided through the CSO program.
(4) Active CSO short-term loans outstanding from the independent third-party lender are not included
on the Company's balance sheet.
Stores included in the same-store revenue calculations are those stores that were opened prior to the beginning of the prior year comparative fiscal period and are still open. Also included are stores that were relocated during the year within a specified distance serving the same market, where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store. During the third quarter of 2006, the Company relocated one pawn store that involved a significant change in the size of its retail showroom, and accordingly, the expanded store has been excluded from the same-store calculations. Non-retail sales of scrap jewelry are included in same-store revenue calculations.
While the Company has had significant increases in revenue due to new store openings and acquisitions, the Company has also incurred increases in operating expenses attributable to the additional locations. Operating expenses consist of all items directly related to the operation of the Company's stores, including salaries and related payroll costs, rent, utilities, equipment, advertising, property taxes, licenses, supplies and security. Administrative expenses consist of items relating to the operation of the corporate offices, including the compensation and benefit costs of corporate management, area supervisors and other operations management personnel, collections operations and personnel, accounting and administrative costs, information technology costs, liability and casualty insurance, outside legal and accounting fees and stockholder-related expenses.
Year Ended December 31,
------------------------------------------
2008 2007 2006
Income statement items as a percent of total
revenue:
Revenue:
Pawn merchandise sales 58.0 % 54.1 % 53.2 %
Finance and service fees 40.9 44.5 45.2
Other 1.1 1.4 1.6
Cost of revenue:
Cost of goods sold 33.5 % 31.7 % 31.0 %
Short-term loan and credit services 5.6 6.7 6.0
loss provision
Other 0.1 0.1 0.2
Net revenues 60.8 % 61.5 % 62.8 %
Expenses and other income:
Store operating expenses 30.3 % 31.9 % 32.1 %
Administrative expenses 8.8 8.9 10.0
Depreciation 3.3 3.6 3.3
Interest expense (income) 0.2 0.0 (0.1)
Pawn merchandise sales gross profit 42.1 % 41.5 % 41.7 %
|
Discontinued Operations
In September 2008, the Company announced it would dispose of the Auto Master buy-here/pay-here automotive operation. Associated with this decision, a non-cash charge of $1.71 per share, or $51,782,000, net of tax, was included as a component of discontinued operations for the year ending December 31, 2008. Under the terms of a disposition agreement announced on December 8, 2008 with Interstate Auto Group, Inc. (dba "CarHop"), CarHop purchased Auto Master's automobile inventories, assumed leases at all existing dealership locations and hired a significant number of Auto Master's personnel. In addition, under a fee-based agreement, CarHop is managing the collection of Auto Master's outstanding portfolio of customer notes receivable. All revenue, expenses and income from continuing operations reported in this report exclude gains and losses of the discontinued Auto Master operation.
Effective December 2007, the Company discontinued its short-term loan operations in the District of Columbia ("D.C."). This was the result of legislation enacted in the fourth quarter of 2007 to cap the maximum annual percentage rate charged on short-term loans at 24%, which made the short-term loan product financially unviable; therefore, the Company closed its seven short-term loan stores in D.C. All revenue, expenses and income reported in this report have been adjusted to reflect reclassification of the discontinued D.C. operations. For 2008, the net effect of this reclassification was to decrease diluted earnings from continuing operations by $243,000 or $0.01 per share, net of tax, and report this same amount as income from discontinued operations. For 2007, the net effect of this reclassification was to decrease diluted earnings from continuing operations by $3,386,000 or $0.10 per share, net of tax, and report this same amount as income from discontinued operations. The Company recorded, as a component of discontinued operations, a one-time charge of $808,000 or $0.02 per share, net of tax, for store closing expenses.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related revenue and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. Such estimates and assumptions are subject to a number of risks and uncertainties, which may cause actual results to differ materially from the Company's estimates. The significant accounting policies that the Company believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following:
Principles of consolidation - The accompanying consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries. The Company is a 50% partner in Cash & Go, Ltd., a Texas limited partnership, and in accordance with FASB Interpretation No. 46(R) - Consolidation of Variable Interest Entities, the consolidated operating results include those of Cash & Go, Ltd. On August 25, 2006, the Company acquired Guaranteed Auto Finance, Inc. and SHAC, Inc. (collectively doing business as "Auto Master"). Subsequently, the Auto Master operation was discontinued in September 2008. Accordingly, the operating results of Auto Master have been included in discontinued operations. See Note 5 of Notes to Consolidated Financial Statements. On December 5, 2008, the Company acquired Central America Capital, S.A. de C.V. (a Mexican corporation using the trade name "Presta Max"). Accordingly, the operating results of Presta Max are not included in consolidated operating results prior to December 5, 2008. See Note 4 of Notes to Consolidated Financial Statements. All significant intercompany accounts and transactions have been eliminated.
Receivables and income recognition - Receivables on the balance sheet consist of pawn loans, short-term loans and buy-here/pay-here automotive customer receivables. Pawn loans are collateralized by pledged tangible personal property. The Company accrues pawn service charge revenue on a constant-yield basis over the life of the pawn for all pawns that the Company deems collection to be probable based on historical pawn redemption statistics. The typical pawn loan has an initial term of thirty days, which, depending on state law, can generally be extended from 15 to 60 days. If the pawn is not repaid, the principal amount pawned becomes the carrying value of the forfeited collateral (inventory), which is held for sale. The Company accrues short-term loan service fees on a constant-yield basis over the term of the short-term loan. Short-term loans have terms that range from 7 to 180 days. The Company recognizes credit services fees ratably over the life of the loan made by the Independent Lender. The loans made by the Independent Lender to credit services customers have terms of 7 to 180 days. The Company records a liability for collected, but unearned, credit services fees received from its customers.
Short-term loan and credit services loss provision - An allowance is provided for losses on active short-term loans and service fees receivable based upon expected default rates, net of estimated future recoveries of previously defaulted short-term loans and service fees receivable. The Company considers short-term loans to be in default if they are not repaid on the due date, and writes off the principal amount and service fees receivable as of the default date, leaving only active advances in the reported balance. Net defaults and changes in the short-term loan allowance are charged to the short-term loan loss provision. Under the CSO program, letters of credit issued by the Company to the Independent Lender constitute a guarantee for which the Company is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken by issuing the letters of credit. The Independent Lender may present the letter of credit to the Company for payment if the customer fails to repay the full amount of the loan and accrued interest after the due date of the loan. Each letter of credit expires approximately 30 days after the due date of the loan. The Company's maximum loss exposure under all of the outstanding letters of credit issued on behalf of its customers to the Independent Lender as of December 31, 2008 was $15,181,000. According to the letter of credit, if the borrower defaults on the loan, the Company will pay the Independent Lender the principal, accrued interest, insufficient funds fees, and late fees, all of which the Company records in the short-term loan and credit services loss provision. The Company is entitled to seek recovery directly from its customers for amounts it pays the Independent Lender in performing under the letters of credit. The Company records the estimated fair value of the liability under the letters of credit in accrued liabilities. This fair value estimate is based in part upon the Company's historical credit losses for the short-term loan product, which the Company considers to be a similar credit risk.
Buy-here/pay-here credit loss provision - The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses in the collection of its finance receivables. The allowance for credit losses is based primarily upon historical credit loss experience, with consideration given to recent credit loss trends and changes in loan characteristics (e.g., average amount financed and term), delinquency levels, collateral values, economic conditions, age of dealership and underwriting and collection practices. The allowance for credit losses is regularly reviewed by management with any changes reflected in current operating results. Although it is at least reasonably possible that events or circumstances could occur in the future that are not presently foreseen which could cause actual credit losses to be materially different from the recorded allowance for credit losses, the Company believes that it has given appropriate consideration to all relevant factors and has made reasonable assumptions in determining the allowance for credit losses.
Inventories - Pawn inventories represent merchandise purchased directly from the public and merchandise acquired from forfeited pawns. Inventories purchased directly from customers are recorded at cost. Inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods. The cost of pawn inventories is determined on the specific identification method. Pawn inventories are stated at the lower of cost or market; accordingly, inventory valuation allowances are established, if necessary, when inventory carrying values are in excess of estimated selling prices, net of direct costs of disposal. Management has evaluated inventories and determined that a valuation allowance is not necessary. The Company presents merchandise sales net of any sales taxes collected.
Long-lived assets - Property, plant and equipment and non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the asset may not be recoverable. An impairment loss is recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the asset is less than the net book value of the asset. Generally, the amount of the impairment loss is measured as the difference between the net book value of the asset and the estimated fair value of the related asset. Other than disclosed in Note 5 of Notes to Consolidated Financial Statements, management does not believe any of these assets have been impaired at December 31, 2008. Goodwill is reviewed annually for impairment based upon its fair value, or more frequently if certain indicators arise. Goodwill related to the Auto Master acquisition was determined to be impaired as of September 2008 and was written-off. See Note 5 of Notes to Consolidated Financial Statements. Management has determined that the remaining goodwill has not been impaired at December 31, 2008.
Stock-based compensation - Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), "Share-Based Payments," as described in Note 14 of Notes to Consolidated Financial Statements.
Guarantees - In accordance with the provisions of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," the Company has determined that the letters of credit issued by the Company to the Independent Lender as part of the CSO program constitute a guarantee for which the Company is required to recognize a liability for the fair value of the obligation undertaken by issuing the letters of credit. Each letter of credit is issued at the time that the Company's credit services customer enters into a loan agreement with the Independent Lender. The Independent Lender may present the letter of credit to the Company for payment if the customer fails to repay the full amount of the loan and accrued interest after the due date of the loan. Each letter of credit expires approximately 30 days after the due date of the loan. The Company is entitled to seek recovery directly from its customers for amounts it pays the Independent Lender in performing under the letters of credit. The Company records the estimated fair value of the liabilities under the letters of credit in accrued liabilities.
Foreign Currency Transactions - The Company operates pawn and short-term loans stores in Mexico. In accordance with the provisions of SFAS No. 52, "Foreign Currency Translation," beginning in the fourth quarter of 2008 the Mexican peso became the functional currency of the Company's Mexican-based subsidiaries due to the increase in volume of Mexican peso-denominated transactions being recorded in these stores. The peso-denominated balance sheet accounts at December 31, 2008 are translated into U.S. dollars at the exchange rate in effect at year end, and income statement items are translated at the average exchange rate during the period; resulting translation adjustments are made directly to the "other comprehensive income (loss)" component of shareholders' equity. Prior to translation, U.S. dollar-denominated transactions of the Mexican-based subsidiaries are re-measured into Mexican pesos using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities. Gains and losses from re-measurement of monetary assets and liabilities are included in store operating expenses. See Note 15 of Notes to Consolidated Financial Statements.
Results of Continuing Operations
Twelve Months Ended December 31, 2008 compared to Twelve Months Ended December 31, 2007.
The following table details the components of revenue for the fiscal year ended December 31, 2008, as compared to the fiscal year ended December 31, 2007 (in thousands):
Fiscal Year Ended December
31,
--------------------------
2008 2007 Increase/Decrease
Domestic revenue:
Pawn retail merchandise sales $ 64,204 $ 63,068 $ 1,136 2%
Pawn scrap jewelry sales 26,998 16,208 10,790 67%
Pawn service charges 35,029 31,255 3,774 12%
Short-term loan and credit 63,594 65,404 (1,810) (3)%
services fees
Other 3,868 3,998 (130) (3)%
-------- -------- --------------
$ 193,693 $ 179,933 $ 13,760 8%
Foreign revenue:
Pawn retail merchandise sales $ 64,493 $ 49,248 $ 15,245 31%
Pawn scrap jewelry sales 37,626 23,102 14,524 63%
Pawn service charges 34,841 27,116 7,725 28%
Short-term loan and credit 2,867 862 2,005 233%
services fees
Other 8 - 8 -
-------- -------- --------------
$ 139,835 $ 100,328 $ 39,507 39%
Total revenue:
Pawn retail merchandise sales $ 128,697 $ 112,316 $ 16,381 15%
Pawn scrap jewelry sales 64,624 39,310 25,314 64%
Pawn service charges 69,870 58,371 11,499 20%
Short-term loan and credit 66,461 66,266 195 -
services fees
Other 3,876 3,998 (122) (3)%
-------- -------- --------------
$ 333,528 $ 280,261 $ 53,267 19%
|
The following table details pawn receivables, short-term loan receivables, active CSO loans outstanding from an independent third-party lender and inventories as of December 31, 2008, as compared to December 31, 2007 (in thousands):
Balance at December 31,
----------------------------
2008 2007 Increase/Decrease
Domestic customer receivables & CSO
loans outstanding:
Pawn receivables $ 26,100 $ 24,747 $ 1,353 5%
Short-term loan receivables, net of 5,165 5,448 (283) (5)%
allowance
CSO loans held by independent 12,918 14,725 (1,807) (12)%
third-party lender (1)
---------- -------- -------------
$ 44,183 $ 44,920 $ (737) (2)%
Foreign customer receivables:
Pawn receivables $ 18,070 $ 16,538 $ 1,532 9%
Short-term loan receivables, net of 700 314 386 123%
allowance
---------- -------- -------------
18,770 $ 16,852 $ 1,918 11%
Total customer receivables and CSO
loans outstanding:
Pawn receivables $ 44,170 $ 41,285 $ 2,885 7%
. . .
|
|
|