Add
FCFS to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FCFS > SEC Filings for FCFS > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
GENERAL
The Company's pawn operations generated 81% of its revenue from its continuing operations during the first quarter of 2009. The Company derived approximately 19% of revenue from its continuing operations from short-term consumer loan operations during the first quarter of 2009, which are primarily payday advance and credit services products.
The Company's pawn revenue is derived primarily from service fees on pawn loans 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 short-term 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 credit 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 customers, 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.
OPERATIONS AND LOCATIONS
As of March 31, 2009, the Company had 525 locations in eleven U.S. states and 17
states in Mexico, which represents a net store-count increase of 17% over the
past twelve months. A total of 18 new retail locations were opened during the
first quarter of 2009. The openings were a combination of pawn stores and
short-term loan stores. The following table details store counts for the three
months ended March 31, 2009:
Mexico
U.S. Locations Locations
------------------ ----------
Pawn/
Short-Term Short-Term
Pawn Loan Loan Total
Stores Stores Stores Locations
------ ---------- ---------- ---------
Three Months Ended March 31, 2009
Total locations, beginning of period 94 162 269 525
New locations opened - 3 15 18
Locations closed or consolidated - (1) - (1)
Discontinued short-term loan operations - (17) - (17)
------ ---------- ---------- ---------
Total locations, end of period 94 147 284 525
|
For the three months ended March 31, 2009, the Company's 50% owned joint venture, Cash & Go, Ltd., operated a total of 39 kiosks located inside convenience stores in the state of Texas, which are not included in the above table.
At March 31, 2009, the Company's credit services operations also include an internet distribution channel for customers in the states of Maryland and Texas.
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. Both the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating the reported financial results and the effects of recent accounting pronouncements have been reported in the Company's 2008 Annual Report on Form 10-K.
The functional currency for the Company's Mexican subsidiaries is the Mexican peso. 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 monthly average exchange rates occurring during each year.
Stores included in the same-store revenue calculations are those stores that were opened prior to the beginning of the prior year comparative 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. Non-retail sales of scrap jewelry are included in same-store revenue calculations.
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 office, 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.
Recent Accounting Pronouncements
See discussion in Note 1 of Notes to Condensed Consolidated Financial Statements.
RESULTS OF CONTINUING OPERATIONS
Three months ended March 31, 2009, compared to the three months ended March 31, 2008
The following table details the components of revenue for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008 (unaudited, in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. The Company's management reviews and analyzes business results in a constant currency because the Company believes this better represents the Company's underlying business trends.
Three Months Ended Increase/
(Decrease)
March 31, Constant
--------------------------- Currency
2009 2008 Increase/(Decrease) Basis
Domestic revenue:
Pawn retail merchandise $ 17,086 $ 16,724 $ 362 2% 2%
sales
Pawn scrap jewelry sales 6,781 6,608 173 3% 3%
Pawn service fees 8,702 8,419 283 3% 3%
Short-term loan and 13,700 15,269 (1,569) (10)% (10)%
credit services fees
Other 917 1,027 (110) (11)% (11)%
-------- -------- -------------
47,186 48,047 (861) (2)% (2)%
-------- -------- -------------
Foreign revenue:
Pawn retail merchandise 16,627 12,090 4,537 38% 64%
sales
Pawn scrap jewelry sales 9,137 8,581 556 6% 6%
Pawn service fees 8,911 8,034 877 11% 32%
Short-term loan and 811 476 335 70% 101%
credit services fees
Other 24 - 24 - -
-------- -------- -------------
35,510 29,181 6,329 22% 39%
-------- -------- -------------
Total revenue:
Pawn retail merchandise 33,713 28,814 4,899 17% 28%
sales
Pawn scrap jewelry sales 15,918 15,189 729 5% 5%
Pawn service fees 17,613 16,453 1,160 7% 17%
Short-term loan and 14,511 15,745 (1,234) (8)% (7)%
credit services fees
Other 941 1,027 (86) (8)% (7)%
-------- -------- -------------
$ 82,696 $ 77,228 $ 5,468 7% 14%
|
The following table details pawn receivables, short-term loan receivables, and active CSO loans outstanding from an independent third-party lender as of March 31, 2009, as compared to March 31, 2008 (unaudited, in thousands):
Increase/
(Decrease)
Balance at March 31, Constant
----------------------------- Currency
2009 2008 Increase/(Decrease) Basis
Domestic customer receivables and CSO loans
outstanding:
Pawn receivables $ 22,903 $ 22,212 $ 691 3% 3%
Short-term loan receivables, net of 3,472 4,235 (763) (18)% (18)%
allowance
CSO short-term loans held by
independent
third-party (1) 9,745 10,196 (451) (4)% (4)%
--------- ------- ----------
36,120 36,643 (523) (1)% (1)%
--------- ------- ----------
Foreign customer receivables:
Pawn receivables 20,376 19,242 1,134 6% 27%
Short-term loan receivables, net of 697 438 259 59% 90%
allowance
--------- ------- ----------
21,073 19,680 1,393 7% 29%
--------- ------- ----------
Total customer receivables and CSO loans
outstanding:
Pawn receivables 43,279 41,454 1,825 4% 14%
Short-term loan receivables, net of 4,169 4,673 (504) (11)% (8)%
allowance
CSO short-term loans held by
independent
third-party (1) 9,745 10,196 (451) (4)% (4)%
--------- ------- ----------
$ 57,193 $ 56,323 $ 870 2% 9%
|
(1) CSO short-term loans outstanding are comprised of the principal portion of active CSO loans outstanding from an 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.
Pawn & Short-Term Loan Operations
The average value of the Mexican peso to the U.S. dollar decreased from 10.8 to 1 in the first quarter of 2008 to 14.4 to 1 in the first quarter of 2009. As a result, the translated revenue results of the Mexican operations into U.S. dollars were diminished by this currency rate fluctuation, especially in the Company's interior (off-border) stores where the majority of transactions are conducted in pesos. However, while the weakening of the Mexican peso negatively affected the translated dollar-value of peso-denominated revenue from Mexico stores located in the interior of the country, the Company benefited from the translation of peso-denominated expenses across all stores in Mexico, in the form of lower reported expenses on a U.S. dollar basis. As a result of this and other natural currency hedges maintained by the Company, the impact of the currency rate fluctuation on first quarter net income and earnings per share was minimal.
The overall increase in year-over-year revenue from the pawn and short-term loan operations was due to a combination of significant same-store pawn revenue growth and the opening of new pawn stores, partially offset by declining U.S. short-term loan revenue. Same-store revenue in the pawn stores (stores that were in operation during all of the first quarter of both 2008 and 2009) increased by 7% on a constant currency basis for the first quarter of 2009. In Mexico, same-store sales increased by 13% on a constant currency basis, while same-store sales in the Company's U.S. pawn stores, which have a mature store base, increased by 2%. Same-store sales declined by 16% in the Company's U.S. short-term-payday loan stores, as a result of increased competition and slowing customer demand. Revenue generated by the new pawn and short-term loan stores opened since January 1, 2008 increased by $8,292,000 on a constant currency basis, compared to the same quarter last year. The strong growth in revenue from Mexico is reflective of continued significant expansion in Mexico, where the Company has concentrated the majority of its store openings over the past several years.
Combined pawn retail and scrap jewelry sales increased by 13% for the quarter, with Mexico stores recording 40% growth on a constant currency basis, and U.S. stores 2% growth. The 5% increase in pawn scrap jewelry sales during the first quarter of 2009 was primarily due to a 2% increase in the quantity of scrap jewelry sold and a 1% increase in the weighted-average selling price of scrap gold. The total volume of gold scrap jewelry sold in the first quarter of 2009 was 16,600 ounces at an average cost of $594 per ounce and an average selling price of $921 per ounce.
Pawn receivables grew by 3% in the U.S., which has a mature store base, while in Mexico, pawn receivables grew by 27% on a constant currency basis. The 7% increase in pawn service charge revenue (17% on a constant currency basis) was consistent with the increase in pawn loan activity, which reflected increased consumer demand in all markets and continued expansion in Mexico. Service fees from short-term loans and credit services decreased 8% compared to the first quarter of 2008, which was reflective of a decline in outstanding U.S. short-term loans and CSO loans.
The gross profit margin on pawn merchandise sales was 42% during the first quarter of 2009, compared to 44% during the first quarter of 2008. The retail pawn merchandise margin, which excludes scrap jewelry sales, was 43% during the first quarter of 2009, compared to 45% in the first quarter of 2008. Gross margin on sales of scrap jewelry was 41% during the first quarter of 2009, which was equal to the first quarter of 2008. The decrease in retail margins was reflective of the current consumer retailing environment. Pawn inventories decreased over the prior year by 3%, which reflected strong retail sales, especially in Mexico. At March 31, 2009, the Company's pawn inventories were comprised of 48% gold jewelry, 34% electronics, 8% tools and 10% other.
The Company's short-term loan and credit services loss provision was 17% of short-term loan and credit services fee revenue during the first quarter of 2009, compared to 23% in the first quarter of 2008. The significant improvement in the credit loss provision reflected the maturation of existing stores and fewer new store openings. During the first quarter of 2009, the Company did not sell any bad debt portfolios generated from short-term loan and credit services guarantees, while in the prior-year period, the Company sold bad debt portfolios for proceeds of $196,000.
Pawn and short-term loan store operating expenses increased 8% to $25,725,000 during the first quarter of 2009 compared to $23,856,000 during the first quarter of 2008, primarily as a result of the net addition of 82 new pawn and short-term loan stores since January 1, 2008, which is a 19% increase in the store count. Operating expenses increased approximately 22% on a constant currency basis.
The net store profit contribution from the pawn and short-term loan operations for the current-year quarter was $23,773,000, which equates to a store-level operating margin of 29%, the same rate experienced in 2008.
Administrative Expenses, Interest, Taxes & Income
Administrative expenses increased 26% to $8,086,000 during the first quarter of 2009 compared to $6,440,000 during the first quarter of 2008, which is primarily attributable to increased administrative expenses in Mexico and increased general management and supervisory compensation expenses, especially in Mexico.
For the first quarter of 2009 and 2008, the Company's effective federal income tax rates of 36.8% and 36.9%, respectively, differed from the federal statutory tax rate of approximately 35%, primarily as a result of state income taxes.
Income from continuing operations decreased by 3% to $9,574,000 during the first quarter of 2009 compared to $9,857,000 during the first quarter of 2008. Including the results from the discontinued operations of Auto Master and the Washington, D.C., Michigan, and Texas short-term loan stores, net income was $11,243,000 during the first quarter of 2009, compared to net income of $6,695,000 during the first quarter of 2008.
Discontinued Operations
After-tax net income from the discontinued Auto Master operation during the first quarter of 2009 was $2,326,000, or $0.08 per share. As previously reported, the Company discontinued its Auto Master buy-here/pay-here automotive operation in the third quarter of 2008 and subsequently sold the inventory and retail operations to a third party. Under a related services agreement, the purchaser is collecting Auto Master's outstanding customer notes receivable, which are being reported by the Company as a discontinued asset. During the first quarter, the Company realized net cash collections of $7,019,000 on these accounts and recorded a pre-tax benefit of approximately $4,300,000 from the net of these cash collections as compared to the fair value of the receivables carried on the Company's books. Based on these first quarter results, the Company believes that future cash collections of these historical Auto Master receivables will generate positive results in the remaining quarters of 2009, although at a declining rate compared to the first quarter, as the receivable balances are collected or written-off. At March 31, 2009, the remaining Auto Master gross customer receivables, reflected as outstanding on the Company's books, totaled approximately $49,904,000, which the Company is carrying at an estimated fair value of $7,486,000 in accordance with generally accepted accounting principles. Any amounts collected in excess of this number will be reflected in future quarters as additional income from discontinued operations.
The Company elected to discontinue its short-term loan operations in Michigan and certain stores in Texas effective March 31, 2009. All revenues, expenses and income reported in these financial statements have been adjusted to reflect reclassification of these discontinued operations. As a result of the decision to discontinue the Michigan and certain Texas store operations, the Company expects a total charge in 2009 to discontinued operations, net of tax, of $0.04 to $0.05 per share, of which $0.02, or $657,000, was recorded in the first quarter of 2009 as a reduction against the $0.08 in discontinued earnings from Auto Master.
The Company elected to discontinue its short-term loan operations in the District of Columbia ("D.C.") effective December 2007.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2009, the Company's primary sources of liquidity were $20,775,000 in cash and cash equivalents, $54,435,000 in receivables, $25,916,000 in inventories, $6,483,000 in receivables of discontinued operations (primarily Auto Master) and $45,000,000 of available and unused funds under the Company's long-term line of credit with two commercial lenders (the "Credit Facility"). The Company had working capital of $87,224,000 as of March 31, 2009, and total equity exceeded liabilities by a ratio of 2 to 1.
The Company has $90,000,000 available under its Credit Facility which matures in April 2010. The Credit Facility bears interest at the prevailing LIBOR rate (which was approximately 0.50% at March 31, 2009 and approximately 0.40% at May 6, 2009) plus a fixed interest rate margin of 1.375%. Amounts available under the Credit Facility are limited to 300% of the Company's earnings before interest, income taxes, depreciation and amortization for the trailing twelve months. At March 31, 2009, the Company had $45,000,000 outstanding under the Credit Facility and $45,000,000 available for borrowings. The Company utilized operating cash flows to reduce the amount outstanding on the Credit Facility by $23,500,000 during the first quarter of 2009. Under the terms of the 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 Credit Facility as of May 6, 2009. The Company believes it has the capacity to borrow the full amount available under the Credit Facility under the most restrictive covenant. The Company is required to pay an annual commitment fee of 1/8 of 1% on the average daily unused portion of the Credit Facility commitment. The Company's Credit Facility contains provisions that allow the Company to repurchase stock and/or pay cash dividends within certain parameters. Substantially all of the unencumbered assets of the Company have been pledged as collateral against indebtedness under the Credit Facility. The Company intends to seek a renewal/extension of the Credit Facility when it matures in 2010 and believes that the amount outstanding on the Credit Facility will be further reduced at that point in time.
At March 31, 2009, the Company had notes payable to individuals arising from the Presta Max acquisition which totaled $9,437,000 in aggregate and bear interest at 5.5% per annum. The remaining balance is being paid in monthly payments of principal and interest scheduled through December 2012. Of the $9,437,000 in notes payable, $2,330,000 is classified as a current liability and $7,107,000 is classified as long-term debt.
At March 31, 2009, the Company had notes payable to individuals arising from the Auto Master acquisition which totaled $3,375,000 in aggregate and bear interest at 7% per annum, with quarterly payments of principal and interest scheduled through July 2010. Of the $3,375,000 in notes payable, $2,250,000 is classified as a current liability and $1,125,000 is classified as long-term debt.
The following table sets forth certain historical information with respect to the Company's sources and uses of cash:
|
|