Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FCFS > SEC Filings for FCFS > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for FIRST CASH FINANCIAL SERVICES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FIRST CASH FINANCIAL SERVICES INC


8-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Pawn operations accounted for approximately 92% of the Company's revenue from continuing operations during the first three months of 2013. The Company's pawn revenue is derived primarily from merchandise sales of forfeited pawn collateral and used goods purchased directly from the general public. The Company accrues pawn loan fee 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 consumer loan and credit services revenue, which was approximately 8% of consolidated year-to-date revenue from continuing operations, was derived primarily from credit services fees. The Company recognizes service fee income on consumer loans and credit services transactions on a constant-yield basis over the life of the loan or credit extension, which is generally 180 days or less. The net defaults on consumer loans and credit services transactions and changes in the valuation reserve are charged to the consumer loan credit loss provision. The credit loss provision associated with the CSO Program and consumer loans are 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. See additional discussion of the credit loss provision and related allowances and accruals in the section titled "Results of Continuing Operations."

The business is subject to seasonal variations, and operating results for the current quarter are not necessarily indicative of the results of operations for the full year. Typically, the Company experiences seasonal growth of service fees in the third and fourth quarter of each year due to loan balance growth that occurs after the heavy repayment period of pawn loans in late December in Mexico, which is associated with statutory Christmas bonuses received by customers, and in the first quarter in the United States, which is associated with tax refund proceeds received by customers. Retail sales are seasonally higher in the fourth quarter associated with holiday shopping.


Table of Contents

OPERATIONS AND LOCATIONS

The Company has operations in the United States and Mexico. For the three months ended March 31, 2013, approximately 51% of total revenue was generated in Mexico and 49% from the United States.

As of March 31, 2013, the Company had 836 locations in twelve U.S. states and 24 states in Mexico, which represents a net store-count increase of 15% over the trailing twelve months. A total of 22 new store locations were added during the first quarter of 2013.

The following table details store openings for the three months ended March 31, 2013:

                                                 Pawn Locations                Consumer
                                              Large             Small            Loan            Total
                                           Format (1)         Format (2)     Locations (3)     Locations
Domestic:
Total locations, beginning of period          184                    27                65            276
Locations acquired                              1                     -                 -              1
Total locations, end of period                185                    27                65            277

International:
Total locations, beginning of period          485                    19                34            538
New locations opened                           21                     -                 -             21
Total locations, end of period                506                    19                34            559

Total:
Total locations, beginning of period          669                    46                99            814
New locations opened                           21                     -                 -             21
Locations acquired                              1                     -                 -              1
Total locations, end of period                691                    46                99            836

(1) The large format locations include retail showrooms and accept a broad array of pawn collateral including electronics, appliances, tools, jewelry and other consumer hard goods. At March 31, 2013, 111 of the U.S. large format pawn stores also offered consumer loans or credit services products.

(2) The small format locations typically have limited retail operations and primarily accept jewelry and small electronic items as pawn collateral. At March 31, 2013, all of the Texas and Mexico small format pawn stores also offered consumer loans or credit services products.

(3) The Company's U.S. free-standing, small format consumer loan locations offer a credit services product and are all located in Texas. The Mexico locations offer small, short-term consumer loans. In addition to stores shown on this chart, First Cash is also an equal partner in Cash & Go, Ltd., a joint venture, which owns and operates 38 check cashing and financial services kiosks located inside convenience stores in the state of Texas. The Company's credit services operations also include an internet distribution channel for customers residing in the state of 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. 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 2012 annual report on Form 10-K.


Table of Contents

The Company has significant operations in Mexico, where 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 month.

The Company's management reviews and analyzes certain operating results, in Mexico, on a constant currency basis because the Company believes this better represents the Company's underlying business trends. Amounts presented on a constant currency basis will be denoted as such. See additional discussion of constant currency operating results provided in the section titled "Non-GAAP Financial Information."

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 remained open through the end of the measurement period. 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. Unless otherwise stated, 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 and administrative 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.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that had a material effect on the Company's financial position, results of operations or financial statement disclosures.

RESULTS OF CONTINUING OPERATIONS

Three Months Ended March 31, 2013, Compared To The Three Months Ended March 31, 2012

The following table details the components of revenue for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012 (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 average value of the Mexican peso to the U.S. dollar increased from 13.0 to 1 in the first quarter of 2012 to 12.7 to 1 in the first quarter of 2013. The end-of-period value of the Mexican peso to the U.S. dollar increased from 12.8 to 1 at March 31, 2012, to 12.4 to 1 at March 31, 2013. As a result of these currency exchange movements, revenue and net assets of Mexican operations translated into more U.S. dollars relative to the prior-year period. While the strengthening of the Mexican peso positively increased the translated dollar-value of revenue, the cost of sales and operating expenses were increased as well. The scrap jewelry generated in Mexico is exported and sold in U.S. dollars, which does not contribute to the Company's peso-denominated earnings stream.


Table of Contents

                               Three Months Ended                                           Increase/(Decrease)
                                   March 31,                                                 Constant Currency
                              2013            2012             Increase/(Decrease)                 Basis
Domestic revenue:
Retail merchandise
sales                    $     33,712     $    25,062     $      8,650            35  %              35  %
Scrap jewelry sales            13,950          15,026           (1,076 )          (7 )%              (7 )%
Pawn loan fees                 18,839          14,539            4,300            30  %              30  %
Consumer loan and
credit services fees           11,597          11,515               82             1  %               1  %
Other revenue                     218             302              (84 )         (28 )%             (28 )%
                               78,316          66,444           11,872            18  %              18  %
International revenue:
Retail merchandise
sales                          48,058          37,582           10,476            28  %              24  %
Scrap jewelry sales             9,274           9,226               48             1  %               1  %
Pawn loan fees                 24,312          20,373            3,939            19  %              16  %
Consumer loan and
credit services fees              876           1,001             (125 )         (12 )%             (15 )%
Other revenue                       3               -                3             -  %               -  %
                               82,523          68,182           14,341            21  %              18  %
Total revenue:
Retail merchandise
sales                          81,770          62,644           19,126            31  %              28  %
Scrap jewelry sales            23,224          24,252           (1,028 )          (4 )%              (4 )%
Pawn loan fees                 43,151          34,912            8,239            24  %              22  %
Consumer loan and
credit services fees           12,473          12,516              (43 )           -  %              (1 )%
Other revenue                     221             302              (81 )         (27 )%             (27 )%
                         $    160,839     $   134,626     $     26,213            19  %              18  %

Domestic revenue accounted for approximately 49% of the total revenue for the current quarter, while international revenue (from Mexico) accounted for 51% of total revenue.

The following table details customer loans and inventories held by the Company and active CSO credit extensions from an independent third-party lender as of March 31, 2013, as compared to March 31, 2012 (unaudited, in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year balances at the prior year end-of-period exchange rate.


Table of Contents

                                                                                                 Increase/(Decrease)
                                   Balance at March 31,                                           Constant Currency
                                   2013              2012           Increase/(Decrease)                 Basis
Domestic:
Pawn loans                   $     46,094        $   34,295     $    11,799           34  %                34  %
CSO credit extensions held
by independent third-party
(1)                                11,184            10,898             286            3  %                 3  %
Other consumer loans                  838                46             792        1,722  %             1,722  %
                                   58,116            45,239          12,877           28  %                28  %
International:
Pawn loans                         58,542            46,701          11,841           25  %                21  %
Other consumer loans                  780               882            (102 )        (12 )%               (15 )%
                                   59,322            47,583          11,739           25  %                20  %
Total:
Pawn loans                        104,636            80,996          23,640           29  %                26  %
CSO credit extensions held
by independent third-party
(1)                                11,184            10,898             286            3  %                 3  %
Other consumer loans                1,618               928             690           74  %                71  %
                             $    117,438        $   92,822     $    24,616           27  %                24  %
Pawn inventories:
Domestic pawn inventories    $     28,044        $   19,676     $     8,368           43  %                43  %
International pawn
inventories                        36,727            27,430           9,297           34  %                29  %
                             $     64,771        $   47,106     $    17,665           38  %                35  %

(1) CSO amounts outstanding are composed of the principal portion of active CSO extensions of credit by 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 extensions of credit.

Store Operations

The overall increase in quarter-over-quarter revenue of 18% (constant currency basis) was due primarily to revenue from new pawn stores. First quarter revenue generated by the stores opened or acquired since January 1, 2012, increased by $6,901,000 in Mexico and $16,890,000 in the United States, compared to the same quarter last year. Overall, same-store revenue grew (on a constant currency basis) by 1%. Excluding wholesale scrap jewelry sales, same-store revenue in pawn stores increased 12% in Mexico, 2% in the U.S. and 7% overall, on a constant currency basis. Same-store scrap revenue in pawn stores decreased 24% in total, with a 34% decrease in the U.S. and a 7% decrease in Mexico.

The increase in pawn loan fees was primarily the result of an increase in the average outstanding pawn receivables. Consolidated pawn receivables increased 29% as of March 31, 2013 (26% on a constant currency basis). In Mexico, pawn receivables increased 25% (21% on a constant currency basis), driven by 11% same-store receivable growth and the continued increase in store counts. Pawn receivables in the U.S. increased by 34% versus the prior year, primarily driven by store count growth.

The increase in store-based retail sales reflected new stores, maturation of existing stores and an increased mix of consumer hard good (primarily consumer electronics and power tools) inventories. Scrap jewelry sales decreased 4% compared to the prior year, which reflected a 4% decrease in the weighted-average selling price per ounce of scrap gold offset by a 1% increase in the quantity of scrap gold sold. The total volume of gold scrap jewelry sold in the first quarter of 2013 was approximately 12,000 ounces at an average cost of $1,487 per ounce and an average selling price of $1,650 per ounce.

Service fees from consumer loans and credit services transactions were flat compared to the first quarter of 2012. The majority of the payday loan revenues are generated in the Company's stand-alone stores in Texas, which experienced a revenue decline of 5% during the first quarter of 2013. Payday loan-related products comprised 8% of total revenue for the first quarter of 2013.

The gross profit margin on total merchandise (retail and scrap) sales was 37% during the first quarter of 2013, compared to 38% in the same period in the prior year. The retail merchandise margin, which excludes scrap jewelry sales, was 41% during the first


Table of Contents

quarter of 2013, while the margin on wholesale scrap jewelry was 20%, compared to prior-year margins of 41% and 28%, respectively. The decrease in scrap margins reflected higher acquisition costs for gold. Pawn inventories increased from the prior year by 35% on a constant currency basis. The increase reflected a higher store count compared to the prior year and same-store inventory growth. At March 31, 2013, the Company's pawn inventories, at cost, were composed of:
36% jewelry (primarily gold), 42% electronics and appliances, 9% tools and 13% other. At March 31, 2013, 97% of total inventories, at cost, had been held for one year or less, while 3% had been held for more than one year.

The Company's consumer loan and credit services loss provision was 18% of consumer loan and credit services fee revenue during the first quarter of 2013, which equaled the first quarter of 2012. The estimated fair value of liabilities under the CSO letters of credit, net of anticipated recoveries from customers, was $540,000, or 4.6% of the gross loan balance at March 31, 2013, compared to $625,000, or 5.4% of the gross loan balance at March 31, 2012, which is included as a component of the Company's accrued liabilities. The Company's loss reserve on consumer loans was $94,000, or 5.5% of the gross loan balance at March 31, 2013, compared to $48,000, or 4.9% of the gross loan balance at March 31, 2012.

Store operating expenses of $43,476,000 during the first quarter of 2013 increased by 20% compared to $36,089,000 during the first quarter of 2012, primarily as a result of a 16% increase in the weighted-average store count and the increase in the value of the Mexican peso. As a percentage of revenue, store operating expenses were 27% in both 2013 and 2012.

The net store profit contribution from continuing operations for the current-year quarter was $45,596,000, which equates to a store-level operating margin of 28%, compared to 29% in the prior-year quarter.

Administrative Expenses, Interest, Taxes & Income

Administrative expenses increased 7% to $13,113,000 during the first quarter of 2013, compared to $12,306,000 during the first quarter of 2012, primarily due to the 16% increase in the weighted-average store count and additional general management and supervisory compensation expenses and other support expenses required for such growth. As a percentage of revenue, administrative expenses decreased from 9% in 2012 to 8% in 2013.

Interest expense increased to $719,000 in the first quarter of 2013, compared to $77,000 for the first quarter of 2012, reflecting increased borrowing levels under the existing credit facilities.

For the first quarter of 2013 and 2012, the Company's effective federal income tax rates were 35.3% and 34.5%, respectively. The increase in the overall rate for 2013 relates primarily to the increased percentage of income being generated in U.S. states with higher tax rates, such as Colorado, Maryland and Kentucky.

Income from continuing operations increased 16% to $20,264,000 during the first quarter of 2013, compared to $17,452,000 during the first quarter of 2012. Net income was $20,264,000 during the first quarter of 2013, compared to $17,512,000 during the first quarter of 2012, which included the results of discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2013, the Company's primary sources of liquidity were $38,339,000 in cash and cash equivalents, $121,958,000 in customer loans, $64,771,000 in inventories and $123,000,000 of available and unused funds under the Company's long-term line of credit with its commercial lenders (the "Unsecured Credit Facility"). The Company had working capital of $199,299,000 as of March 31, 2013, and total equity exceeded liabilities by a ratio of 3.6 to 1.

At March 31, 2013, the Company maintained a line of credit with five commercial lenders (the "Unsecured Credit Facility") in the amount of $175,000,000, which matures in February 2015. The Unsecured Credit Facility bears interest at the prevailing 30-day LIBOR rate plus a fixed spread of 2.0%. At March 31, 2013, the Company had $52,000,000 outstanding under the Unsecured Credit Facility and $123,000,000 available for borrowings. The interest rate totaled 2.25% at March 31, 2013. Under the terms of the Unsecured Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants, which include a fixed charge ratio, leverage ratio and maintain a defined level of tangible net worth. The Company's Unsecured Credit Facility contains provisions that allow the Company to repurchase stock and/or pay cash dividends within certain parameters and restricts the Company from pledging any of its assets as collateral against other indebtedness. The Company was in compliance with the requirements and covenants of the Unsecured Credit Facility as of March 31, 2013, and believes it has the capacity to borrow the full amount available under the Unsecured Credit Facility under the most restrictive covenant. The Company is required to pay an annual commitment fee of 0.375% on the average daily unused portion of the Unsecured Credit Facility commitment.


Table of Contents

At March 31, 2013, the Company had notes payable arising from a 16-store pawn acquisition in September 2012, with a remaining balance of $7,724,000 bearing interest at 4.0% per annum. The remaining balance is being paid in monthly payments of principal and interest scheduled through September 2017. Of the $7,724,000 in notes payable, $1,599,000 is classified as a current liability and $6,125,000 is classified as long-term debt.

At March 31, 2013, the Company also had a note payable arising from a 29-store pawn acquisition in January 2012, with a remaining balance of $3,047,000 bearing interest at 3.0% per annum. The remaining balance is being paid in monthly payments of principal and interest scheduled through January 2015. Of the $3,047,000 in notes payable, $1,641,000 is classified as a current liability and $1,406,000 is classified as long-term debt.

In general, revenue growth is dependent upon the Company's ability to fund growth of store fronts, customer loan balances and inventories. In addition to these factors, merchandise sales, inventory levels and the pace of new store expansions/acquisitions affect the Company's liquidity. Management believes that cash flows from operations, available cash balances and the Unsecured Credit Facility will be sufficient to fund the Company's current operating liquidity needs. Regulatory developments affecting the Company's consumer lending products may also impact profitability and liquidity; such developments are discussed in greater detail in the section entitled "Regulatory Developments." The following table sets forth certain historical information with respect to the Company's sources and uses of cash and other key indicators of liquidity (unaudited, in thousands):

                                                              Three Months Ended
                                                                   March 31,
                                                           2013                 2012
Cash flow provided by operating activities            $     25,194         $     29,101
Cash flow used in investing activities                $     (3,036 )       $    (49,924 )
Cash flow used in financing activities                $    (35,652 )       $    (20,836 )

Working capital                                       $    199,299         $    134,456
Current ratio                                                 6.9x                 4.2x
Liabilities to equity ratio                                     28 %                 24 %
Inventory turns (trailing twelve months ended March
31, 2013 and 2012, respectively)                              4.1x                 4.4x

Net cash provided by operating activities decreased $3,907,000, or 13%, from $29,101,000 for the three months ended March 31, 2012, to $25,194,000 for the three months ended March 31, 2013, primarily as a result of changes in operating assets and liabilities. The primary source of operating cash flows in both years was net income from operations.

Cash flows from investing activities are utilized primarily to fund pawn store acquisitions, growth of pawn loans and purchases of property and equipment. The Company paid $1,468,000 in cash related to acquisitions in the first three months of 2013, compared to $43,866,000 in the prior-year period. As a result, net cash used in investing activities decreased $46,888,000 in the current period compared to the prior-year period.

Net cash used in financing activities increased $14,816,000 primarily due to the net repayment of $50,500,000 on the Unsecured Credit Facility during the first three months of 2013. In addition, the Company realized proceeds from the exercise of stock options and the related tax benefit of $15,640,000. During the first three months of 2012, the Company had net borrowings of $18,000,000 on the Unsecured Credit Facility and repurchased $38,751,000 of its common stock.

During the first three months of 2013, the Company opened 21 new pawn stores in . . .

  Add FCFS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FCFS - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.