FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from Commission File Number:
November 1, 1998 to December 31, 1998 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(State of Incorporation) (IRS Employer Identification Number)
690 East Lamar Blvd., 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 February 15, 1999, there were 8,618,346 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 FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
December 31, July 31,
1998 1998
---- ----
(unaudited)
(amounts in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents............................. $ 4,458 $ 1,582
Service charges receivable............................ 2,707 2,436
Receivables........................................... 20,392 17,054
Inventories........................................... 17,403 13,254
Income taxes receivable............................... 1,471 1,471
Prepaid expenses and other current assets............. 2,908 1,268
-------- --------
Total current assets............................. 49,339 37,065
Property and equipment, net........................... 9,146 7,890
Intangible assets, net................................ 54,494 45,873
Other................................................. 346 300
-------- --------
$113,325 $ 91,128
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and notes payable... $ 2,177 $ 1,587
Accounts payable and accrued expenses................. 6,752 3,283
Income taxes payable.................................. 989 208
-------- --------
Total current liabilities........................ 9,918 5,078
Revolving credit facility............................. 33,450 25,450
Long-term debt and notes payable, net of
current portion..................................... 6,283 6,367
Deferred income taxes................................. 2,966 2,716
-------- --------
52,617 39,611
-------- --------
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; 9,089,305 and 8,334,305 shares
issued, respectively; 8,618,346 and 7,863,346
shares outstanding, respectively................ 91 83
Additional paid-in capital........................ 49,026 42,412
Retained earnings................................. 13,856 11,287
Common stock held in treasury, at cost,
470,959 shares.................................. (2,265) (2,265)
-------- --------
60,708 51,517
-------- --------
$113,325 $ 91,128
======== ========
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
<TABLE>
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
--------------------------------------------
Two Months Ended Five Months Ended
---------------- -----------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
(amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Merchandise sales............... $ 9,830 $ 6,814 $ 20,418 $ 15,287
Service charges................. 5,254 3,106 12,434 7,737
Check cashing fees.............. 323 - 754 -
Other........................... 222 61 472 136
-------- -------- -------- --------
15,629 9,981 34,078 23,160
-------- -------- -------- --------
Cost of goods sold and expenses:
Cost of goods sold.............. 6,300 4,605 13,157 10,444
Operating expenses.............. 5,342 2,974 12,335 7,213
Interest expense................ 453 358 1,122 904
Depreciation.................... 205 140 475 337
Amortization.................... 237 111 563 277
Administrative expenses......... 1,040 662 2,249 1,622
-------- -------- -------- --------
13,577 8,850 29,901 20,797
-------- -------- -------- --------
Income before income taxes.......... 2,052 1,131 4,177 2,363
Provision for income taxes.......... 822 435 1,608 910
-------- -------- -------- --------
Net income.......................... $ 1,230 $ 696 $ 2,569 $ 1,453
======== ======== ======== ========
Basic earnings per share............ $ .15 $ .16 $ .32 $ .33
Diluted earnings per share.......... $ .14 $ .11 $ .29 $ .24
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
<TABLE>
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
-----------------------------------------------
Five-Month Period
Ended December 31,
------------------
1998 1997
---- ----
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 2,569 $ 1,453
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization.................. 1,038 614
(Increase) decrease in:
Service charges receivable................... 10 8
Inventories.................................. (2,551) (958)
Prepaid expenses and other assets............ (1,302) (1,333)
Increase (decrease) in:
Accounts payable and accrued expenses........ 773 8
Income taxes payable......................... 985 654
-------- --------
Net cash flows from operating activities... 1,522 446
-------- --------
Cash flows from investing activities:
Net increase in receivables.................... (1,130) (122)
Purchases of property and equipment............ (997) (286)
Acquisition of existing stores................. (4,734) (1,494)
-------- --------
Net cash flows from investing activities... (6,861) (1,902)
-------- --------
Cash flows from financing activities:
Proceeds from debt............................. 12,250 2,525
Repayments of debt............................. (4,856) (641)
Exercise of stock options and warrants......... 821 21
-------- --------
Net cash flows from financing activities... 8,215 1,905
-------- --------
Increase in cash and cash equivalents............... 2,876 449
Cash and cash equivalents at beginning of
the period........................................ 1,582 1,139
-------- --------
Cash and cash equivalents at end of the period...... $ 4,458 $ 1,588
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest..................................... $ 1,061 $ 973
======== ========
Income taxes................................. $ - $ 258
======== ========
Supplemental disclosure of noncash investing and
financing activities:
Noncash transactions in connection with
various acquisitions:
Fair market value of assets acquired
and goodwill............................ $ 13,164 $ 1,500
Less issuance of common stock........ (4,622) -
Less amounts payable in cash or
common stock........................ (2,331) -
Less issuance of debt................ (1,070) -
Less assumption of liabilities and
costs of acquisition................ (407) (6)
-------- --------
Net cash paid............................ $ 4,734 $ 1,494
======== ========
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
FIRST CASH FINANCIAL SERVICES, 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 Financial Services, Inc. (the
"Company") and its wholly-owned subsidiaries. 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. Effective December 7, 1998, the Company changed its
fiscal year from July 31 to December 31. The interim period financial
statements for the two and five months ended December 31, 1998 should be read in
conjunction with the Company's consolidated financial statements which are
included in the Company's July 31, 1998 Annual Report to Stockholders. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements 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 December 31, 1998 are not necessarily
indicative of the results that may be expected for a full fiscal year.
Note 2 - Revolving Credit Facility
- ----------------------------------
The Company currently maintains a $40,000,000 long-term line of credit with
its senior commercial lender (the "Credit Facility"). At December 31, 1998,
$33,450,000 was outstanding under this Credit Facility and an additional
$5,985,000 was available to the Company pursuant to the available borrowing
base. 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 five months ended
December 31, 1998 and as of February 15, 1999.
Note 3 - Business Acquisitions
- ------------------------------
During the five months ended December 31, 1998, the Company acquired or
opened twenty pawnshops and sixteen check cashing stores. The Company acquired
five pawnshops in El Paso, Texas, twelve pawnshops in South Carolina, and eleven
check cashing stores in Chicago, Illinois, all of which were new geographic
markets for the Company. The remaining pawnshop and check cashing additions
were in regions where the Company already operated. These acquisitions and
openings brought the Company's total number of stores owned to 133 as of
December 31, 1998. The acquisition of eleven check cashing stores in Chicago
was made in exchange for the issuance of 430,000 shares of the Company's common
stock issued to the seller and valued at $10.75 per share. All remaining
acquisitions were financed primarily with proceeds from the Company's Credit
Facility, and seller-financed debt.
Note 4 - Earnings Per Share
- ---------------------------
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
Two Months Ended Five Months Ended
---------------- -----------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income for calculating
basic earnings per share......... $ 1,230 $ 696 $ 2,569 $ 1,453
Plus interest expense,
net of taxes, relating to
convertible debentures........... - 79 - 200
-------- -------- -------- --------
Net income for calculating
diluted earnings per share....... $ 1,230 $ 775 $ 2,569 $ 1,653
======== ======== ======== ========
Denominator:
Weighted-average common
shares for calculating basic
earnings per share............... 8,274 4,466 8,030 4,463
Effect of dilutive securities:
Stock options and warrants..... 557 977 667 908
Contingently issuable shares
due to acquisitions........... 167 - 71 -
Convertible debentures......... - 1,402 - 1,402
-------- -------- -------- --------
Weighted-average common
shares for calculating diluted
earnings per share............... 8,998 6,845 8,768 6,773
======== ======== ======== ========
Basic earnings per share.............. $ .15 $ .16 $ .32 $ .33
Diluted earnings per share............ $ .14 $ .11 $ .29 $ .24
</TABLE>
Note 5 - Warrant Exercises
- --------------------------
During the five months ending December 31, 1998, the Company issued 325,000
shares of common stock relating to the exercise of outstanding stock warrants
and options for an aggregate exercise price of $2,000,000 (including income tax
benefit).
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
GENERAL
- -------
The Company's pawnshop revenues are derived primarily from service charges
on pawn loans, and the sale of unredeemed goods, or "merchandise sales". Pawn
loans are made for a 30-day term with an automatic extension of 60 days in
Texas, South Carolina and Missouri, 30 days in Oklahoma and 15 days in Maryland
and Virginia. Pawn loans made in Washington, D.C. are made for a 30 day term
with no automatic extension. All pawn loans are collateralized by tangible
personal property placed in the custody of the Company. The annualized service
charge rates on pawn loans are set by state laws and range between 12% and 240%
in Texas and 36% and 240% in Oklahoma, depending on the size of the loan.
Service charge rates are 144% to 240% on an annualized basis in Maryland, with a
$6 monthly minimum charge. In Washington, D.C., loans up to $40 bear a flat $2
charge per month, while loans over $40 bear a 48% to 60% annualized rate.
Missouri pawn loans bear service and storage charges totaling 240% per year,
Virginia rates range from 120% to 180% annually, and South Carolina rates range
from 60% to 300%. In its Texas stores, the Company recognizes service charges
at the inception of the pawn loan at the lesser of the amount allowed by the
state law for the initial 30-day term or $15, in accordance with state law. In
Oklahoma, Maryland, Virginia, South Carolina, Missouri and Washington, D.C., 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, if applicable, 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 extension period until the
loan is repaid or renewed, or until the merchandise is resold. This policy, in
the Company's opinion, lessens the risk that the inventory's cost will exceed
its realizable value when sold.
Revenues at the Company's check cashing stores are derived primarily from
check cashing fees, fees on payday advances, and fees from the sale of money
orders and wire transfers. Payday advances have a term of thirty days or less,
and carry a 15% service charge in both California and Washington, and a 10%
service charge in Illinois. The Company recognizes service charge income on
payday advances at the inception of the advance. Bad debts on payday advances
are charged to operating expense in the month that the items are returned by the
bank, and are credited to operating expense in the period the items are
subsequently collected.
Although the Company has had significant increases in revenues due
primarily to acquisitions and secondarily to new store openings, the Company has
also incurred increases in operating expenses attributable to the additional
stores and increases in administrative expenses attributable to building a
management team and the support personnel required by 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,
security and net returned checks. 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
- ---------------------
Five months ended December 31, 1998 compared to five months ended December 31,
1997
- ------------------------------------------------------------------------------
Total revenues increased 47% to $34,078,000 for the five months ended
December 31, 1998 (the "Five-Month 1998 Period") as compared to $23,160,000 for
the five months ended December 31, 1997 (the "Five-Month 1997 Period"). Of the
$10,918,000 increase in total revenues, $11,565,000 relates to revenues
generated by the 75 stores acquired or opened subsequent to August 1, 1997. The
remaining decrease of $647,000 relates to the 3% same store revenue decline at
the 58 stores which were in operation throughout both the Five-Month 1997 Period
and the Five-Month 1998 Period. In addition, 47% of the increase in total
revenues, or $5,131,000, was attributable to increased merchandise sales, 43%,
or $4,697,000, was attributable to increased service charges, 7%, or $754,000
was attributable of increased check cashing fees, and the remaining increase of
$336,000, or 3%, was attributable to the increase in other income. As a
percentage of total revenues, merchandise sales decreased from 66% to 60%,
service charges increased from 33% to 37%, check cashing fees increased from
zero to 2%, and other income remained at 1% during both the Five-Month 1997
Period and the Five-Month 1998 Period. Gross profit as a percentage of
merchandise sales increased from 32% during the Five-Month 1997 Period to 36%
during the Five-Month 1998 Period.
The aggregate receivables balance (pawn loans plus payday advances)
increased 52% from $13,444,000 at December 31, 1997 to $20,392,000 at December
31, 1998. Of the $6,948,000 increase, $6,213,000 was attributable to the
addition of 67 stores since December 31, 1997. The remaining increase of
$735,000 was due to the 6% increase in same-store receivable balances at the 66
stores in operation at both December 31, 1997 and December 31, 1998. The
annualized yield on the average aggregate receivable balance was 159% during the
Five-Month 1998 Period compared to 141% during the Five-Month 1997 Period. The
Company's average receivable balance per store decreased from $204,000 as of
December 31, 1997 to $153,000 as of December 31, 1998, primarily due to the
large number of stores less than a year old as of December 31, 1998.
Operating expenses increased 71% to $12,335,000 during the Five-Month 1998
Period compared to $7,213,000 during the Five-Month 1997 Period, primarily as a
result of the addition of 75 stores subsequent to August 1, 1997.
Administrative expenses increased 39% to $2,249,000 during the Five-Month 1998
Period compared to $1,622,000 during the Five-Month 1997 Period, primarily due
to the addition of corporate personnel to support the increased number of
stores. Interest expense increased to $1,122,000 in the Five-Month 1998 Period
compared to $904,000 in the Five-Month 1997 Period as a result of borrowings
associated with the Company's acquisitions since August 1, 1997.
For the Five-Month 1998 and 1997 Periods, the Company's tax provisions of
38.5% of income before income taxes differed from the statutory rate of 34%
primarily due to state income taxes, net of the federal tax benefit.
Two months ended December 31, 1998 compared to the two months ended December 31,
1997
- --------------------------------------------------------------------------------
Total revenues increased 57% to $15,629,000 for the two month period ended
December 31, 1998 ("the Two-Month 1998 Period") as compared to $9,981,000 for
the two month period ended December 31, 1997 ("the Two-Month 1997 Period"). Of
the $5,648,000 increase in total revenues, $139,000 relates to the 1% same-store
revenue increase at the 64 stores which were in operation throughout both the
Two-Month 1997 Period and the Two-Month 1998 Period. The remaining increase of
$5,509,000 resulted from revenues generated by 69 stores which were acquired or
opened subsequent to November 1, 1997. In addition, 53% or $3,016,000 of the
increase in total revenues was attributable to increased merchandise sales, 38%
or $2,148,000 was attributable to increased service charges, 6%, or $323,000 was
attributable to increased check cashing fees, and the remaining 3%, or $161,000
increase was attributable to the increase in other income. As a percentage of
total revenues, merchandise sales decreased from 68% to 63%, service charges
increased from 31% to 34%, check cashing fees increased from zero to 2%, and
other income remained 1% during the Two-Month 1998 Period as compared to the
Two-Month 1997 Period. Gross profit as a percentage of merchandise sales
increased from 32% during the Two-Month 1997 Period to 36% during the Two-Month
1998 Period.
The aggregate receivables balance (pawn loans plus payday advances)
increased 52% from $13,444,000 at December 31, 1997 to $20,392,000 at December
31, 1998. Of the $6,948,000 increase, $6,213,000 was attributable to the
addition of 67 stores since December 31, 1997. The remaining increase of
$735,000 was due to the 6% increase in same-store receivable balances at the 66
stores in operation at both December 31, 1997 and December 31, 1998. The
annualized yield on the average aggregate receivable balance was 163% during the
Two-Month 1998 Period compared to 138% during the Two-Month 1997 Period. The
Company's average receivable balance per store decreased from $204,000 as of
December 31, 1997 to $153,000 as of December 31, 1998, primarily due to the
large number of stores less than a year old as of December 31, 1998.
Operating expenses increased 80% to $5,342,000 during the Two-Month 1998
Period compared to $2,974,000 during the Two-Month 1997 Period, primarily as a
result of the 69 stores added subsequent to November 1, 1997. Administrative
expenses increased 57% to $1,040,000 during the Two-Month 1998 Period compared
to $662,000 during the Two-Month 1997 Period, primarily due to the addition of
corporate personnel to support the increased number of stores. Interest expense
increased to $453,000 in the Two-Month 1998 Period compared to $358,000 in the
Two-Month 1997 Period, primarily due to borrowings associated with the Company's
acquisitions since November 1, 1997.
For the Two-Month 1998 Period and the Two-Month 1997 Period, the Company's
tax provision of 40% and 38%, respectively, of income before income taxes
differed from the statutory 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, and seller-financed indebtedness.
The Company currently maintains a $40,000,000 long-term line of credit with
its senior commercial lender (the "Credit Facility"). At December 31, 1998,
$33,450,000 was outstanding under this Credit Facility and an additional
$5,985,000 was available to the Company pursuant to the available borrowing
base. 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 five months ended
December 31, 1998 and as of February 15, 1999.
During the five months ended December 31, 1998, the Company acquired or
opened twenty pawnshops and sixteen check cashing stores. The Company acquired
five pawnshops in El Paso, Texas, twelve pawnshops in South Carolina, and eleven
check cashing stores in Chicago, Illinois, all of which were new geographic
markets for the Company. The remaining pawnshop and check cashing additions
were in regions where the Company already operated. These acquisitions and
openings brought the Company's total number of stores owned to 133 as of
December 31, 1998. All acquisitions were financed primarily with proceeds from
the Company's Credit Facility, and seller-financed debt.
As of December 31, 1998, the Company's primary sources of liquidity were
$4,458,000 in cash and cash equivalents, $2,707,000 in service charges
receivable, $20,392,000 in receivables, $17,403,000 in inventories and
$5,985,000 of available and unused funds under the Company's Credit Facility.
The Company had working capital as of December 31, 1998 of $39,470,000 and a
total liabilities to equity ratio of 0.87 to 1. During the Five-Month 1998
Period, the Company received cash proceeds of $821,000 (including income tax
benefit) from the issuance of 325,000 shares of common stock relating to the
exercise of outstanding stock warrants and options.
Net cash provided by operating activities for the Company during the Five
Month 1998 Period was $1,522,000 as compared with $446,000 during the Five-Month
1997 Period. Net cash used for investing activities during the Five-Month 1998
Period was $6,861,000 as compared with $1,902,000 during the Five-Month 1997
Period. Net cash provided by financing activities of $8,215,000 during the
Five-Month 1998 Period compares to net cash provided by financing activities of
$1,905,000 during the Five-Month 1997 Period.
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 February 15, 1999, except for the
Company's letter of intent to acquire 22 check cashing stores in Mississippi,
subject to the completion of due diligence procedures by the Company. 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, 1998 and
February 15, 1999, the Company has acquired 36 stores in various regions. These
acquisitions were financed with proceeds from the Company's Credit Facility,
with seller-financed debt, and with the issuance of the Company's common stock.
YEAR 2000 ISSUE
- ---------------
The "Year 2000 Issue" is the result of computer programs that use two
digits instead of four to record the applicable year. Computer programs that
have date-sensitive software might recognize a date using "00" as the Year 1900
instead of the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other events,
a temporary inability to process transactions or engage in similar normal
business activities. The Year 2000 is a leap year, which may also lead to
incorrect calculations, functions or system failure. The Company has
established a committee to gather, test, and produce information about the
Company's operations systems impacted by the Year 2000 transition. The Company
has utilized both internal and external resources to identify, correct or
reprogram, and test systems for Year 2000 compliance.
Management currently believes that the Company has acquired all of the
hardware and software necessary to be able to bring the Company's own internally
developed point-of-sale operating system into Year 2000 compliance. The Company
is currently in the process of installing such hardware and software, and
believes that its own point-of-sale system will be fully compliant by the end of
August 1999. Although the Company's Year 2000 remediation has not been
completed, management currently believes, based on available information, that
the completion of these matters will not require any additional material
expenditures, and that it will not have a material adverse impact on the
Company's financial position or it's results of operations. In addition, the
Company has contacted its significant vendors and suppliers to determine the
extent to which the Company may be vulnerable to those parties' failure to
remediate their own Year 2000 issues. While there can be no guarantee that the
systems of other companies with which the Company's systems interface will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems would not require the
Company to spend more time or money than anticipated, or even have a material
adverse effect on the Company, management currently believes that all of its
significant vendors and suppliers have achieved Year 2000 compliance.
FORWARD LOOKING INFORMATION
- ---------------------------
This report contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Forward-looking statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans," or "anticipates" or the negative
thereof, or other variations thereon, or comparable terminology, or by
discussions of strategy. Such statements include, but are not limited to, the
discussions of the Company's operations, liquidity, and capital resources.
Forward-looking statements are included in the "Liquidity and Capital Resources"
section of this annual report. Although the Company believes that the
expectations reflected in forward-looking statements are reasonable, there can
be no assurances that such expectations will prove to be accurate. Generally,
these statements relate to business plans, strategies, anticipated strategies,
levels of capital expenditures, liquidity and anticipated capital funding needed
to effect the business plan. All phases of the Company's operations are
subject to a number of uncertainties, risks and other influences, many of which
are outside the control of the Company and cannot be predicted with any degree
of accuracy. Factors such as changes in regional or national economic
conditions, changes in governmental regulations, 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. In light of the significant uncertainties inherent in the
forward-looking statements made in this report, the inclusion of such statements
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved. Security holders
are cautioned that such forward-looking statements involve risks and
uncertainties. The forward-looking statements contained this report speak only
as of the date of this report and the Company expressly disclaims any obligation
or undertaking to release any updates or revisions to any such statement to
reflect any change in the Company's expectations or any change in events,
conditions or circumstance on which any such statement is based.
PART II. OTHER INFORMATION
---------------------------
ITEM 2. Changes in securities
b. In connection with the purchase of three stores in El Paso, Texas on
October 20, 1998, the Company has an outstanding payable to the seller in
the amount of $320,000. In connection with the purchase of two stores in
El Paso, Texas on October 20, 1998, the Company has an outstanding payable
to the seller in the amount of $311,000. In connection with the purchase
of twelve stores in South Carolina on November 14, 1998, the Company has an
outstanding payable to the seller in the amount of $1,700,000. All of the
above-referenced amounts due to the sellers in these three acquisitions are
payable by the Company one year from the respective dates of acquisition
either in cash, or by the issuance of the Company's common stock valued at
the average of the closing price of the Company's common stock for the
thirty days immediately preceding the respective due date, at the option of
the Company.
In connection with the purchase of eleven stores in Chicago, Illinois
in December 1998, the Company issued the seller 430,000 shares of the
Company's common stock valued at $10.75 per share as sole consideration for
the acquisition.
During the five months ended December 31, 1998, the Company granted
374,000 stock purchase warrants with a exercise price of $12.00 per share
to various employees and directors of the Company.
During the five months ending December 31, 1998, the Company issued
325,000 shares of common stock relating to the exercise of outstanding
stock warrants and options for an aggregate exercise price of $2,000,000
(including income tax benefit).
The above-referenced issuances were exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933 and no underwriters were
utilized, or sales commissions paid, in these transaction.
ITEM 4. Submission of matters to a vote of security holders
On January 14, 1999, the Company held its annual meeting of
stockholders and its stockholders voted for (or ratified) the following
proxy proposals as a result of a majority of the Company's outstanding
capital stock voting in favor of the proposals. The proposals ratified at
the January 14, 1999 annual stockholders' meeting are as follows:
1. The stockholders re-elected Phillip E. Powell as a director of First
Cash Financial Services, Inc.
2. The stockholders ratified the selection of Deloitte & Touche LLP as
independent auditors of the Company for the five months ending December
31, 1998 and for the year ending December 31, 1999.
3. The stockholders ratified the change in the Company's name from "First
Cash, Inc." to "First Cash Financial Services, Inc."
4. The stockholders ratified the 1999 Stock Option Plan.
ITEM 6. Exhibits and reports on Form 8-K
a. Exhibits
27.0 Financial Data Schedules (Edgar version only).
b. On December 11, 1998, the Company filed a Form 8-K to report a
change in the Company's fiscal year-end from July 31 to December
31. On January 20, 1999, the Company filed a Form 8-K to report a
change in the Company's name from "First Cash, Inc." to "First Cash
Financial Services, Inc."
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: February 15, 1999 FIRST CASH FINANCIAL SERVICES, INC.
-----------------------------------
(Registrant)
/s/ Phillip E. Powell /s/ Rick L. Wessel
- --------------------- ----------------------
Phillip E. Powell Rick L. Wessel
Chairman of the Board and Chief Accounting Officer
Chief Executive Officer
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<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>
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,458
<SECURITIES> 0
<RECEIVABLES> 23,099
<ALLOWANCES> 0
<INVENTORY> 17,403
<CURRENT-ASSETS> 49,339
<PP&E> 13,255
<DEPRECIATION> 4,109
<TOTAL-ASSETS> 113,325
<CURRENT-LIABILITIES> 9,918
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 60,617
<TOTAL-LIABILITY-AND-EQUITY> 113,325
<SALES> 20,418
<TOTAL-REVENUES> 34,078
<CGS> 13,157
<TOTAL-COSTS> 13,157
<OTHER-EXPENSES> 15,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,122
<INCOME-PRETAX> 4,177
<INCOME-TAX> 1,608
<INCOME-CONTINUING> 2,569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,569
<EPS-PRIMARY> .32
<EPS-DILUTED> .29
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