FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
October 31, 1997 0-19133
FIRST CASH, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(State of Incorporation) (IRS Employers Identification Number)
690 East Lamar, Suite 400
Arlington, Texas 76011
(Address of principal executive offices) (Zip Code)
(817)460-3947
(Registrant's telephone number, including area code)
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.
Yes x No
--- ---
As of December 15, 1997, there were 4,465,792 shares of Company common stock,
par value $.01 per share ("Common Stock"), issued and outstanding.
Part I. Financial Information
Item 1. Financial Statements
- -----------------------------
<TABLE>
FIRST CASH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1997 1997
---- ----
(unaudited)
(in thousands, except share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 1,002 $ 1,139
Service charges receivable.................... 2,055 1,949
Loans......................................... 13,651 12,877
Inventories................................... 10,969 10,035
Prepaid expenses and other current assets..... 1,987 1,122
-------- --------
Total current assets..................... 29,664 27,122
Property and equipment, net................... 6,563 6,554
Intangible assets, net........................ 22,509 22,256
Other......................................... 720 745
-------- --------
$ 59,456 $ 56,677
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and
notes payable............................... $ 365 $ 942
Accounts payable and accrued expenses......... 2,193 2,437
Income taxes payable.......................... 474 127
-------- --------
Total current liabilities................ 3,032 3,506
Revolving credit facility..................... 18,725 15,575
Long-term debt and notes payable, net of
current portion............................. 1,937 2,735
Debentures Due 1999........................... 6,022 6,022
Debentures Due 2004........................... 500 500
Deferred income taxes......................... 2,181 2,060
-------- --------
32,397 30,398
-------- --------
Stockholders' equity:
Preferred stock; $.01 par value; 10,000,000
shares authorized; no shares issued or
outstanding............................... - -
Common stock; $.01 par value; 20,000,000
shares authorized; 4,936,751 and 4,931,376
shares issued, respectively; 4,465,792 and
4,460,417 shares outstanding, respectively 50 50
Additional paid-in capital.................. 21,027 21,005
Retained earnings........................... 8,247 7,489
Common stock held in treasury, at cost,
470,959 shares............................ (2,265) (2,265)
-------- --------
27,059 26,279
-------- --------
$ 59,456 $ 56,677
======== ========
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
<TABLE>
FIRST CASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended October 31,
------------------------------
1997 1996
---- ----
(unaudited) (unaudited)
(in thousands, except per
share amounts)
<S> <C> <C>
Revenues:
Merchandise sales......................... $ 8,473 $ 6,748
Pawn service charges...................... 4,631 4,061
Other..................................... 75 71
-------- --------
13,179 10,880
-------- --------
Cost of goods sold and expenses:
Cost of goods sold........................ 5,839 4,629
Operating expenses........................ 4,239 3,610
Interest expense.......................... 546 564
Depreciation.............................. 196 162
Amortization.............................. 166 155
Administrative expenses................... 961 872
-------- --------
11,947 9,992
-------- --------
Income before income taxes..................... 1,232 888
Provision for income taxes..................... 474 335
-------- --------
Net income..................................... $ 758 $ 553
======== ========
Primary earnings per share..................... $ .15 $ .13
Fully diluted earnings per share............... $ .14 $ .12
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
<TABLE>
FIRST CASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended October 31,
------------------------------
1997 1996
---- ----
(unaudited) (unaudited)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income................................ $ 758 $ 553
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation and amortization......... 362 317
Changes in operating assets and
liabilities, net of effect of purchases
of existing stores:
Service charges receivable............ (72) (34)
Inventories........................... (813) (1,656)
Prepaid expenses and other assets..... (840) (508)
Accounts payable and accrued expenses. (244) 715
Current and deferred income taxes..... 468 103
-------- --------
Net cash flows from operating
activities......................... (381) (510)
-------- --------
Cash flows from investing activities:
Net increase in loans..................... (549) (347)
Purchases of property and equipment....... (130) (39)
Acquisition of existing pawnshops......... (874) (1,808)
-------- --------
Net cash flows from investing
activities......................... (1,553) (2,194)
-------- --------
Cash flows from financing activities:
Proceeds from debt........................ 1,975 4,850
Repayments of debt........................ (200) (2,323)
Proceeds from exercise of stock options... 22 -
-------- --------
Net cash flows from financing
activities......................... 1,797 2,527
-------- --------
Increase (decrease) in cash and cash
equivalents................................... (137) (177)
Cash and cash equivalents at beginning of
the period.................................... 1,139 680
-------- --------
Cash and cash equivalents at end of
the period.................................... $ 1,002 $ 503
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................. $ 552 $ 589
======== ========
Income taxes......................... $ 8 $ 253
======== ========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
FIRST CASH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements, including the
notes thereto, include the accounts of First Cash, Inc. and its wholly-owned
subsidiaries, American Loan & Jewelry, Inc. and Famous Pawn, Inc. Such
unaudited consolidated financial statements are condensed and do not include all
disclosures and footnotes required by generally accepted accounting principles
for complete financial statements. Such interim period financial statements
should be read in conjunction with the Company's consolidated financial
statements which are included in the Company's 1997 Annual Report to
Stockholders. All significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financial statements as of
October 31, 1997 and for the periods ended October 31, 1997 and 1996 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 flows for such interim
periods. Operating results for the period ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the full fiscal
year.
Note 2 - Earnings Per Share
- ---------------------------
Earnings per common share is calculated using the Modified Treasury Stock
Method as required by Accounting Principles Board Opinion No.15 ("APB 15"),
which requires a dual computation. The first computation divides net income
available to common shareholders by the weighted average shares of common stock
outstanding during the period. The second computation requires all common stock
equivalents, whether dilutive or anti-dilutive, be included in an aggregate
computation, however, the number of common shares assumed to be repurchased into
treasury is limited to 20% of the number of common shares outstanding at the end
of the period. The remaining excess proceeds are then assumed to first retire
outstanding debt, and second, to purchase certain "risk-free" securities.
Pursuant to APB 15, if the result of the aggregate computation is dilutive, when
compared to the first computation, its result must be reported as earnings per
share; otherwise, the result of the first computation is reported. As a result
of this computation, the proceeds from the assumed exercise of common stock
equivalents were assumed to be used to repurchase 20% of the outstanding common
shares at the average stock price during the quarter and the remaining proceeds
were used to retire debt and invest in 5.25% securities. This increased
adjusted net income by $221,000 and $263,000, respectively, and increased the
share count by 2,233,000 and 2,690,000 shares, respectively, for the three
months ended October 31, 1997 and 1996. Thus, the adjusted net income and share
count used in computing primary earnings per share were $979,000 and $816,000,
respectively, and 6,694,000 and 6,409,000 shares, respectively, for the three
months ended October 31, 1997 and 1996. For purposes of calculating primary
earnings per share, convertible debentures are not included as they are not
considered common stock equivalents. Fully diluted earnings per share is
calculated in a similar manner except that all convertible debentures are also
included in this computation and the higher of the closing stock price or
average stock price for the quarter is used. Fully diluted earnings per share's
adjusted net income increased $337,000 and $435,000, respectively, and the share
count increased 3,631,000 and 4,790,000 shares, respectively, for the three
months ended October 31, 1997 and 1996. Thus, the adjusted net income and share
count used in computing fully diluted earnings per share were $1,095,000 and
$988,000, respectively, and 8,096,000 and 8,509,000 shares, respectively, for
the three months ended October 31, 1997 and 1996.
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"),
which the Company is required to adopt during the quarter beginning November 1,
1997. FAS 128 permits a pro forma disclosure of the new earnings per share
computations in periods prior to adoption. Using the computations in FAS 128,
the Company's basic and diluted earnings per share for the three months ended
October 31, 1997 would be $0.17 and $0.13, respectively, compared to basic and
diluted earnings per share of $0.15 and $0.12, respectively for the three months
ended October 31, 1996.
Note 3 - Revolving Credit Facility
- ----------------------------------
Effective November 1, 1997, the Company increased its long-term line of
credit with its senior commercial lender to $35,000,000 (the "Credit Facility").
At October 31, 1997, $18,725,000 was outstanding under this Credit Facility and
an additional $6,275,000 would have been available to the Company pursuant to
the available borrowing base under its November 1, 1997 loan agreement. The
Credit Facility bears interest at the prevailing LIBOR rate plus one percent,
and matures on November 1, 2000. Amounts available under the Credit Facility
are limited to 325% of the Company's earnings before income taxes, interest,
depreciation and amortization for the trailing twelve months. Under the terms
of the Credit Facility, the Company is required to maintain certain financial
ratios and comply with certain technical covenants. The Company was in
compliance with these requirements and covenants during the first three months
of fiscal 1998 and as of December 15, 1997.
Note 4 - Business Acquisitions
- ------------------------------
In August, September, and October 1997, the Company acquired the assets of
seven individual stores in various regions where the Company operates. These
acquisitions were financed with proceeds from the Company's Credit Facility. In
December 1997, the Company acquired 100% of the common stock of Silver Hill
Pawn, Inc. and Capital Pawnbrokers, Inc., which operate one store each.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
The Company's revenues are derived primarily from service charges on pawn
loans and the sale of unredeemed goods, or "merchandise sales". Loans are made
for a 30-day term with an automatic extension of 60 days in Texas, 30 days in
Oklahoma and 15 to 45 days in Maryland and Washington, DC. All loans are
collateralized by tangible personal property placed in the custody of the
Company. The annualized service charge rates on the loans are set by state laws
and range between 12% and 240% in Texas and 36% and 240% in Oklahoma, depending
on the amount of the loan. In Maryland, annualized service charge rates range
from 144% to 240%, with a $6 monthly minimum. In Washington, DC, loans up to
$40 bear a flat $2 charge per month, while loans over $40 bear a 60% annualized
rate. In its Texas stores, the Company recognizes service charges at the
inception of the loan at the lesser of the statutory amount for the initial 30-
day term or $15, in accordance with state law. In Oklahoma, Maryland and
Washington, DC the Company recognizes service charges at the inception of the
loan at the amount allowed by law for the first 30 days. Pawn service charge
income applicable to the remaining term and/or extension period is not
recognized until the loan is repaid or renewed. If a loan is not repaid prior
to the expiration of the automatic extension period, the property is forfeited
to the Company and held for resale.
As a result of the Company's policy of accruing pawn service charges only
for the initial 30-day term, unredeemed merchandise is transferred to inventory
at a value equal to the loan principal plus one-month's accrued interest. The
Company's accounting policy defers recognition of an amount of income equal to
the amount of pawn service charges relating to the remaining term and/or
extension period until the loan is repaid, renewed, or until the merchandise is
resold. As a result of this policy, the Company's annualized loan yield is
lower than certain of its publicly traded competitors. Conversely, this revenue
recognition policy results in inventory being recorded at a lower value, which
results in realization of a larger gross profit margin on merchandise sales than
would be realized by certain of its publicly traded competitors, which lessens
the risk that the inventory's cost will exceed its realizable value when sold.
However, if the pawn loan is repaid or renewed, or if the forfeited merchandise
is resold, the amount of income which would be recognized by the Company or
certain of its publicly traded competitors would be the same over time.
Although the Company has had significant increases in revenues due to
acquisitions and store openings, the Company has also incurred increases in
operating expenses attributable to the additional stores and increases in
administrative expenses attributable to establishing a management team and
supporting personnel associated with the Company's growth. 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
depreciation, advertising, property taxes, licenses, supplies and security.
Administrative expenses consist of items relating to the operation of the
corporate office, including the salaries of corporate officers, area supervisors
and other management, accounting and administrative costs, liability and
casualty insurance, outside legal and accounting fees and stockholder-related
expenses.
RESULTS OF OPERATIONS
- ---------------------
Three months ended October 31, 1997 compared to the three months ended
October 31, 1996
Total revenues increased 21% to $13,179,000 for the three month period
ended October 31, 1997 ("the First Quarter of Fiscal 1998") as compared to
$10,880,000 for the three month period ended October 31, 1996 ("the First
Quarter of Fiscal 1997"). The increase resulted from $1,101,000 of revenues
generated by the 14 stores which were opened or acquired on or subsequent to
August 1, 1996, and an increase of $1,198,000 for the 50 stores which were in
operation during all of the First Quarter of Fiscal 1997 and the First Quarter
of Fiscal 1998. Of the $2,299,000 increase in total revenues, 75%, or
$1,725,000, was attributable to increased merchandise sales, 25%, or $570,000,
was attributable to increased pawn service charges, and the remaining increase
of $4,000 was attributable to an increase in other income. As a percentage of
total revenues, merchandise sales increased from 62% to 64%, pawn service
charges decreased from 37% to 35%, and other income remained 1% during the First
Quarter of Fiscal 1998 as compared to the First Quarter of Fiscal 1997. The
gross profit as a percentage of merchandise sales was 31% during the First
Quarter of Fiscal 1998 and the First Quarter of Fiscal 1997.
The aggregate loan balance increased 10% from $12,467,000 as of October 31,
1996 to $13,651,000 as of October 31, 1997. Of the $1,184,000 increase,
$525,000 was attributable to the addition of 10 stores acquired subsequent to
October 31, 1996. The remaining increase was attributable to increases in
aggregate loan balances of $659,000 at the 54 stores in operation at both
October 31, 1996 and October 31, 1997.
Operating expenses increased 17% to $4,239,000 during the First Quarter of
Fiscal 1998 compared to $3,610,000 during the First Quarter of Fiscal 1997,
primarily as a result of the addition of the 14 stores subsequent to August 1,
1996. Administrative expenses increased 10% to $961,000 during the First
Quarter of Fiscal 1998 compared to $872,000 during the First Quarter of Fiscal
1997, primarily due to the addition of supervisory staff and other overhead
related to the above-mentioned 14 stores acquired. Interest expense decreased
from $564,000 in the First Quarter of Fiscal 1997 to $546,000 in the First
Quarter of Fiscal 1998. This decrease resulted primarily from interest expense
savings due to the conversion into common stock of certain convertible
debentures during fiscal 1997.
For the First Quarter of Fiscal 1998 and the First Quarter of Fiscal 1997,
the Company's tax provision of 38% of income before income taxes differed from
the statutory federal rate of 34% primarily due to state income taxes, net of
the federal tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's operations and acquisitions have been financed with funds
generated from operations, bank borrowings, seller-financed indebtedness, the
private placement of convertible debentures.
Effective November 1, 1997, the Company increased its long-term line of
credit with its senior commercial lender to $35,000,000 (the "Credit Facility").
At October 31, 1997, $18,725,000 was outstanding under this Credit Facility and
an additional $6,275,000 would have been available to the Company pursuant to
the available borrowing base under its November 1, 1997 loan agreement. The
Credit Facility bears interest at the prevailing LIBOR rate plus one percent,
and matures on November 1, 2000. Amounts available under the Credit Facility
are limited to 325% of the Company's earnings before income taxes, interest,
depreciation and amortization for the trailing twelve months. Under the terms
of the Credit Facility, the Company is required to maintain certain financial
ratios and comply with certain technical covenants. The Company was in
compliance with these requirements and covenants during the first three months
of fiscal 1998 and as of December 15, 1997.
In August, September, and October 1997, the Company acquired seven
individual stores in various regions where the Company operates. These
acquisitions were financed with proceeds from the Company's Credit Facility. In
December 1997, the Company acquired 100% of the common stock of Silver Hill
Pawn, Inc. and Capital Pawnbrokers, Inc., which operate one store each.
As of October 31, 1997, the Company's primary sources of liquidity were
$1,002,000 in cash and cash equivalents, $2,055,000 in service charges
receivable, $13,651,000 in loans, $10,969,000 in inventories and $6,275,000 of
available and unused funds under the Company's Credit Facility. The Company had
working capital as of October 31, 1997 of $26,632,000 and a total liabilities to
equity ratio of 1.2 to 1. During the First Quarter of Fiscal 1998, the Company
received proceeds of $22,000 from the issuance of 5,375 shares of common stock
relating to the exercise of outstanding common stock warrants and options.
Net cash used by operating activities for the Company during the First
Quarter of Fiscal 1998 was $381,000 as compared with $510,000 used for operating
activities during the First Quarter of Fiscal 1997. Net cash used for investing
activities during the First Quarter of Fiscal 1998 was $1,553,000 as compared
with $2,194,000 used for investing activities during the First Quarter of Fiscal
1997. Net cash provided by financing activities of $1,797,000 during the First
Quarter of Fiscal 1998 compares to net cash provided by financing activities of
$2,527,000 during the First Quarter of Fiscal 1997.
The profitability and liquidity of the Company are affected by the amount
of loans outstanding, which is controlled in part by the Company's loan
decisions. The Company is able to influence the frequency of forfeiture of
collateral by increasing or decreasing the amount loaned in relation to the
resale value of the pledged property. Tighter credit decisions generally result
in smaller loans in relation to the estimated resale value of the pledged
property and can thereby decrease the Company's aggregate loan balance and,
consequently, decrease pawn service charges. Additionally, small loans in
relation to the pledged property's estimated sale value tend to increase loan
redemptions and improve the Company's liquidity. Conversely, providing larger
loans in relation to the estimated sale value of the pledged property can result
in an increase in the Company's pawn service charge income. Also larger average
loan balances can result in an increase in loan forfeitures, which increases the
quantity of goods on hand and, unless the Company increases inventory turnover,
reduces the Company's liquidity. In each of the Company's last three fiscal
years, at least 70% of the amounts loaned were either paid in full or renewed.
The Company's renewal policy allows customers to renew pawn loans by repaying
all accrued interest on such pawn loans. In addition to these factors, the
Company's liquidity is affected by merchandise sales and the pace of store
expansions.
Management believes that the Credit Facility, current assets and cash
generated from operations will be sufficient to accommodate the Company's
current operations for at least the next twelve months. The Company has no
significant capital commitments as of December 15, 1997. The Company currently
has no written commitments for additional borrowings or future acquisitions;
however, the Company intends to continue to grow and will likely seek additional
capital to facilitate expansion. The Company will evaluate acquisitions, if
any, based upon opportunities, acceptable financing, purchase price, strategic
fit and qualified management personnel.
The Company intends to continue to engage in a plan of expansion through
existing store acquisitions and new store openings. While the Company
continually looks for, and is presented with, potential acquisition candidates,
the Company has no definitive plans or commitments for further acquisitions. If
the Company encounters an attractive opportunity to acquire or open a new store
in the near future, the Company will seek additional financing, the terms of
which will be negotiated on a case-by-case basis. Between August 1, 1997 and
December 15, 1997, the Company has acquired nine individual stores in various
regions where the Company operates. These acquisitions were financed with
proceeds from the Company's Credit Facility.
FORWARD LOOKING INFORMATION
- ---------------------------
Statements, either written or oral, which express the Company's expectation
for the future with respect to financial performance or operating strategies can
be identified as "forward-looking statements." These statements are made to
provide the public with management's assessment of the Company's business. The
Company may or may not update information contained in previously released
forward-looking statements and does not assume the duty to do so.
Certain portions of this report contain forward-looking statements,
particularly the portion captioned "Liquidity and Capital Resources". Factors
such as changes in regional or national economic or competitive conditions,
changes in government regulations, changes in regulations governing pawn service
charges, unforeseen litigation, changes in interest rates or tax rates,
significant changes in the prevailing market price of gold, future business
decisions and other uncertainties may cause results to differ materially from
those anticipated by some of the statements made in this report. Such factors
are difficult to predict and many are beyond the control of the Company.
PART II. OTHER INFORMATION
---------------------------
ITEM 4. Submission of matters to a vote of security holders
ITEM 6. Exhibits and reports on Form 8-K
a. Exhibits
27.0 Financial Data Schedules (Edgar version only).
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 15, 1997 FIRST CASH, INC.
-------------------------
(Registrant)
Phillip E. Powell Rick L. Wessel
- ------------------------- -------------------------
Phillip E. Powell Rick L. Wessel
Chairman of the Board and Chief Accounting Officer
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS
OF INCOME FOUND IN THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 1,002
<SECURITIES> 0
<RECEIVABLES> 15,706
<ALLOWANCES> 0
<INVENTORY> 10,969
<CURRENT-ASSETS> 29,664
<PP&E> 9,531
<DEPRECIATION> 2,968
<TOTAL-ASSETS> 59,456
<CURRENT-LIABILITIES> 3,032
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 27,009
<TOTAL-LIABILITY-AND-EQUITY> 27,059
<SALES> 8,473
<TOTAL-REVENUES> 13,179
<CGS> 5,839
<TOTAL-COSTS> 5,839
<OTHER-EXPENSES> 5,562
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> 1,232
<INCOME-TAX> 474
<INCOME-CONTINUING> 758
<DISCONTINUED> 0
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<NET-INCOME> 758
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
