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:
September 30, 2000 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2237318
(State of Incorporation) (IRS Employers
Identification
690 East Lamar, Suite 400 Number)
Arlington, Texas
(Address of principal executive 76011
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 November 10, 2000, there were 8,796,027 shares of Company common
stock, par value $.01 per share ("Common Stock"), issued and outstanding.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
------- -------
(unaudited, amounts in thousands
except share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 8,885 $ 10,717
Service charges receivable................... 2,652 3,826
Receivables.................................. 21,073 23,568
Inventories.................................. 18,153 21,091
Prepaid expenses and other current assets.... 2,828 4,487
------- -------
Total current assets ..................... 53,591 63,689
Property and equipment, net.................. 11,066 10,954
Intangible assets, net....................... 53,467 54,600
Other........................................ 4,381 2,196
------- -------
$122,505 $131,439
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt and
notes payable.............................. $ 1,689 $ 1,689
Accounts payable and accrued expenses........ 6,741 4,892
Income taxes payable......................... 179 183
------- -------
Total current liabilities ................ 8,609 6,764
Revolving credit facility.................... 43,000 47,000
Long-term debt and notes payable,
net of current portion..................... 3,755 5,020
Deferred income taxes........................ 2,867 3,540
------- -------
58,231 62,324
------- -------
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; 9,320,868 and
9,320,868 shares issued, respectively;
8,796,027 and 8,849,909 shares
outstanding, respectively ............... 94 93
Additional paid-in capital ................ 50,952 50,953
Retained earnings ......................... 21,486 20,334
Common stock receivables from officers .... (5,743) -
Common stock held in treasury, at cost,
524,841 and 470,959 shares, respectively. (2,515) (2,265)
------- -------
64,274 69,115
------- -------
$122,505 $131,439
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------- ------- ------- -------
(unaudited, in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Merchandise sales....... $ 12,662 $ 11,879 $ 40,663 $ 37,807
Service charges......... 12,004 10,532 33,975 28,789
Check cashing fees...... 536 530 1,687 1,639
Other................... 505 408 1,703 1,440
------- ------- ------- -------
25,707 23,349 78,028 69,675
------- ------- ------- -------
Cost of goods sold and expenses:
Cost of goods sold...... 8,071 8,178 26,482 25,517
Operating expenses...... 11,685 9,844 34,992 28,154
Interest expense........ 721 733 2,185 1,917
Depreciation............ 564 405 1,618 1,121
Amortization............ 379 375 1,137 1,119
Administrative expenses. 2,494 1,512 6,069 4,270
------- ------- ------- -------
23,914 21,047 72,483 62,098
------- ------- ------- -------
Income before income taxes... 1,793 2,302 5,545 7,577
Provision for income taxes... 690 933 2,107 2,914
------- ------- ------- -------
Income before cumulative
effect of change in
accounting principle....... 1,103 1,369 3,438 4,663
Cumulative effect on prior
years of change in
accounting principle....... - - (2,287) -
------- ------- ------- -------
Net income................... $ 1,103 $ 1,369 $ 1,151 $ 4,663
======= ======= ======= =======
Net income per share:
Basic
Income before cumulative
effect of change
in accounting principle $ 0.13 $ 0.16 $ 0.39 $ 0.54
Cumulative effect of
change in accounting
principle ............. - - (0.26) -
------- ------- ------- -------
Net income .............. $ 0.13 $ 0.16 $ 0.13 $ 0.54
======= ======= ======= =======
Diluted
Income before cumulative
effect of change
in accounting principle $ 0.13 $ 0.15 $ 0.39 $ 0.50
Cumulative effect of
change in accounting
principle ............. - - (0.26) -
------- ------- ------- -------
Net income .............. $ 0.13 $ 0.15 $ 0.13 $ 0.50
======= ======= ======= =======
Unaudited pro forma amounts
assuming retroactive
application of change
in accounting principle:
Revenues .................. $ 25,707 $ 22,215 $ 78,028 $ 66,234
Net income ................ 1,103 1,214 3,438 4,195
Basic earnings per share .. 0.13 0.14 0.39 0.49
Diluted earnings per share 0.13 0.13 0.39 0.45
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Period
Ended September 30,
2000 1999
------- -------
(unaudited, in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income .............................. $ 1,151 $ 4,663
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization......... 2,755 2,240
Cumulative effect of change in
accounting principle................ 2,287 -
Adjustments to reconcile net income to net
cash provided (used) by Operating activities:
Service charges receivable ............. 298 (270)
Inventories ............................ 409 (3,030)
Prepaid expenses and other assets ...... (3,096) (1,359)
Accounts payable and accrued expenses ... 1,849 345
Income taxes payable .................. 695 244
------- -------
Net cash flows provided by operating
activities ........................... 6,348 2,833
------- -------
Cash flows from investing activities:
Net (increase) decrease in receivables .. 2,241 (2,303)
Purchases of property and equipment ..... (1,730) (2,220)
Acquisition of existing stores .......... (4) (1,008)
------- -------
Net cash flows provided (used) by
investing activities ............... 507 (5,531)
------- -------
Cash flows from financing activities:
Proceeds from debt ...................... 6,272 15,800
Repayments of debt ...................... (11,537) (9,502)
Purchase of treasury stock .............. (250) -
Common stock receivable from officers ... (3,172) (608)
Registration fees ....................... - (12)
Proceeds from exercise of stock options . - 81
------- -------
Net cash flows provided (used) by
financing activities ............... (8,687) 5,759
------- -------
Change in cash and cash equivalents........ (1,832) 3,061
Cash and cash equivalents at beginning of
the period 10,717 4,458
------- -------
Cash and cash equivalents at end of the period $ 8,885 $ 7,519
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................... $ 2,148 $ 1,934
Income taxes ........................... $ 1,418 $ 1,585
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed 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. Such interim period financial
statements should be read in conjunction with the Company's consolidated
financial statements which are included in the Company's December 31, 1999
Annual Report on Form 10-K. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements as of September 30, 2000 and December 31, 1999 and for
the periods ended September 30, 2000 and 1999 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 September 30, 2000 are not
necessarily indicative of the results that may be expected for the full
fiscal year.
Note 2 - Revolving Credit Facility
The Company currently maintains a $55,000,000 long-term line of credit
with a group of commercial lenders (the "Credit Facility"). At September
30, 2000, $43,000,000 was outstanding under this Credit Facility and an
additional $4,400,000 was available to the Company pursuant to the available
borrowing base. The Credit Facility bears interest at the prevailing LIBOR
rate (which was approximately 6.6% at September 30, 2000) plus one percent,
and matures on September 1, 2002. 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
nine months ended September 30, 2000 and as of November 10, 2000.
<PAGE>
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share including the unaudited pro forma amounts reflecting the
effect of retroactive application of the change in accounting principle for
income recognition on pawn service loans (in thousands, except per share
data):
<TABLE>
Three Months Ended Nine Months Ended
------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Income before cumulative effect
of change in accounting principle
for calculating basic and diluted
earnings per share $ 1,103 $ 1,369 $ 3,438 $ 4,663
Cumulative effect on prior years
of change in accounting principle
for calculating basic and diluted
earnings per share - - (2,287) -
------- ------- ------- -------
Net income for calculating basic
and diluted earnings per share $ 1,103 $ 1,369 $ 1,151 $ 4,663
======= ======= ======= =======
Pro forma net income assuming
retroactive application of change
in accounting principle $ 1,103 $ 1,214 $ 3,438 $ 4,195
======= ======= ======= =======
Denominator:
Weighted-average common
shares for calculating basic
earnings per share 8,796 8,630 8,819 8,624
Effect of dilutive securities:
Stock options and warrants - 560 71 530
Contingently issuable shares
due to acquisitions - 212 - 214
------- ------- ------- -------
Weighted-average common
shares for calculating diluted
earnings per share 8,796 9,402 8,890 9,368
======= ======= ======= =======
Basic earnings per share:
Income before cumulative effect
of change in accounting principle $ 0.13 $ 0.16 $ 0.39 $ 0.54
Cumulative effect of change in
accounting principle - - (0.26) -
------- ------- ------- -------
Net income $ 0.13 $ 0.16 $ 0.13 $ 0.54
======= ======= ======= =======
Pro forma net income $ 0.13 $ 0.14 $ 0.39 $ 0.49
======= ======= ======= =======
Diluted earnings per share:
Income before cumulative effect
of change in accounting principle $ 0.13 $ 0.15 $ 0.39 $ 0.50
Cumulative effect of change in
accounting principle - - (0.26) -
------- ------- ------- -------
Net income $ 0.13 $ 0.15 $ 0.13 $ 0.50
======= ======= ======= =======
Pro forma net income $ 0.13 $ 0.13 $ 0.39 $ 0.45
======= ======= ======= =======
</TABLE>
<PAGE>
Note 4 - Change in Accounting Principle
Effective January 1, 2000, the Company changed its method of income
recognition on pawn loans. The Company accrues pawn service charge revenue
on a constant yield basis for all pawn loans that the Company deems
collection to be probable based on historical loan redemption statistics.
For loans not repaid, the cost of forfeited collateral (inventory) is stated
at the lower of cost (cash amount loaned) or market. Prior to 2000, the
Company recognized service charge income on a constant yield basis over the
initial loan period for all pawn loans written. Service charges applicable
to the extension periods or additional loan periods were not recognized as
income until the loan was repaid or renewed. If the loan was not repaid,
the carrying value of the forfeited collateral (inventory) was stated at the
lower of cost (the principal amount loaned plus accrued service charges) or
market. The Company believes the accounting change provides a more timely
matching of revenues and expenses with which to measure results of
operations. The cumulative effect of the accounting method change on all
periods since inception of the Company through December 31, 1999 is
$2,287,000 (after an income tax benefit of $1,373,000) and is included as a
one-time reduction to net income for the nine months ended September 30,
2000. Operating results for the three and nine months ended September 30,
2000 have been calculated using the new accounting method. The unaudited
pro forma amounts shown in the statements of income reflect the effect of
retroactive application on pawn service charges, cost of sales and related
income taxes.
Note 5 - Operating Segment Information
The Company has three reportable operating segments: pawn lending
stores, check cashing/payday advance stores, and a software and hardware
provider. The Company's pawn stores offer non-recourse loans on the
collateral of pledged tangible personal property. The Company's check
cashing and payday advance stores provide check cashing services, short-term
unsecured consumer loans, bill payment services, money transfer services and
money order sales. The Company's computer software subsidiary, Answers,
etc., provides turnkey point of sale operating systems to other check
cashing and payday advance operators unaffiliated with the Company.
<PAGE>
Management of the Company evaluates performance based on the operating
income of each segment. There are no intersegmental sales. Each of the
segments are supervised separately. Information concerning the segments is
set forth below (in thousands):
<TABLE>
Check Cashing/
Pawn Payday Advance
Stores Stores Software Consolidated
------- ------- ------- -------
<S> <C> <C> <C> <C>
Three Months Ended September 30, 2000
-------------------------------------
Total revenues $ 20,869 $ 4,359 $ 479 $ 25,707
Depreciation and amortization 853 48 42 943
Income before interest and
income taxes 1,040 1,736 (262) 2,514
Total assets at September 30, 2000 87,809 32,421 2,275 122,505
Capital expenditures 338 29 21 388
Three Months Ended September 30, 1999
-------------------------------------
Total revenues (pro forma) 17,214 3,951 1,050 22,215
Depreciation and amortization 733 29 18 780
Income before interest and income
taxes (pro forma) 1,141 1,393 241 2,775
Total assets at September 30, 1999 91,084 31,823 2,568 125,475
Capital expenditures 633 131 85 849
Nine Months Ended September 30, 2000
------------------------------------
Total revenues 64,085 12,324 1,619 78,028
Depreciation and amortization 2,507 137 111 2,755
Income before interest and income
taxes 3,798 4,703 (771) 7,730
Total assets at September 30, 2000 87,809 32,421 2,275 122,505
Capital expenditures 1,244 281 177 1,702
Nine Months Ended September 30, 1999
------------------------------------
Total revenues (pro forma) 53,126 10,405 2,703 66,234
Depreciation and amortization 1,771 402 67 2,240
Income before interest and income
taxes (pro forma) 4,497 3,762 479 8,738
Total assets at September 30, 1999 91,084 31,823 2,568 125,475
Capital expenditures 1,667 331 248 2,246
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First Cash Financial Services, Inc. is the nation's third largest
publicly traded pawnshop operator and currently owns and operates pawn
stores in Texas, Oklahoma, Washington, D.C., Maryland, Missouri, South
Carolina, Virginia and Mexico. The Company's pawn stores engage in both
consumer finance and retail sales activities. The Company's pawn stores
provide a convenient source for consumer loans, lending money against
pledged tangible personal property such as jewelry, electronic equipment,
tools, sporting goods and musical equipment. These pawn stores also
function as retailers of previously-owned merchandise acquired in forfeited
pawn transactions and over-the-counter purchases from customers. The
Company's pawn stores also offer short-term, unsecured advances ("payday
advances").
The Company also currently owns check cashing and payday advance stores
in California, Washington, Oregon, Illinois and Washington, D.C. These
stores provide a broad range of consumer financial services, including check
cashing, money order sales, wire transfers, bill payment services and payday
advances. The Company also owns Answers, etc., a company which provides
computer hardware and software to over 1,900 third party check cashing and
payday advance operators throughout the country, as well as ongoing
technical support. In addition, the Company is a 50% partner in Cash & Go,
Ltd., a joint venture which owns financial service kiosks located inside
convenience stores.
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, 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 expenses, claims and legal settlements, and accounting fees
and stockholder-related expenses.
<PAGE>
Effective January 1, 2000, the Company changed its method of income
recognition on pawn loans. The Company accrues pawn service charge revenue
on a constant yield basis for all pawn loans that the Company deems
collection to be probable based on historical loan redemption statistics.
For loans not repaid, the cost of forfeited collateral (inventory) is stated
at the lower of cost (cash amount loaned) or market. Prior to 2000, the
Company recognized service charge income on a constant yield basis over the
initial loan period for all pawn loans written. Service charges applicable
to the extension periods or additional loan periods were not recognized as
income until the loan was repaid or renewed. If the loan was not repaid,
the carrying value of the forfeited collateral (inventory) was stated at the
lower of cost (the principal amount loaned plus accrued service charges) or
market. The Company believes the accounting change provides a more timely
matching of revenues and expenses with which to measure results of
operations. The cumulative effect of the accounting method change on all
periods since inception of the Company through December 31, 1999 is
$2,287,000 (after an income tax benefit of $1,373,000) and is included as a
one-time reduction to net income for the nine months ended September 30,
2000.
For purposes of comparison and discussion of the financial results, the
following analysis compares the three and nine months ended September 30,
2000 to the three and nine months ended September 30, 1999 based on an
unaudited pro forma retroactive application using the changed accounting
principle for the three and nine months ended September 30, 1999.
RESULTS OF OPERATIONS
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999
Total revenues increased 16% to $25,707,000 for the three months ended
September 30, 2000 ("the Third Quarter of 2000") as compared to pro forma
revenues of $22,215,000 for the three months ended September 30, 1999 ("the
Third Quarter of 1999"). Of the $3,492,000 increase in total revenues,
$737,000 relates to revenues generated by the 12 stores acquired or opened
subsequent to July 1, 1999. The remaining increase of $2,755,000 relates to
the 13% same store revenue increase at the 138 stores which were in
operation during all of the Third Quarter of 1999 and the Third Quarter of
2000. Of the $3,492,000 increase in total revenues, 23%, or $784,000 was
attributable to increased merchandise sales, 74%, or $2,601,000 was
attributable to increased service charges, 3%, or $101,000 was attributable
to increased other income, and the remaining increase of $6,000, was
attributable to an increase in check cashing fees. As a percentage of total
revenues, merchandise sales decreased from 51% to 49%, service charges
increased from 45% to 47%, check cashing fees and other income represented a
combined 4% of total revenues during both the Third Quarter of 1999 and the
Third Quarter of 2000. The pro forma gross profit as a percentage of
merchandise sales decreased to 36% during the Third Quarter of 2000 compared
to 38% during the Third Quarter of 1999.
The aggregate receivables balance (pawn loans plus payday advances)
decreased 8% from $22,970,000 as of September 30, 1999 to $21,073,000 as of
September 30, 2000. The $1,897,000 decrease consists of an increase of
$1,486,000 which was attributable to the 12 stores acquired or opened
subsequent to September 30, 1999, net of a $3,383,000 decrease in aggregate
receivable balances at the 138 stores in operation at both September 30,
1999 and September 30, 2000.
<PAGE>
Operating expenses increased 19% to $11,685,000 during the Third
Quarter of 2000 compared to $9,844,000 during the Third Quarter of 1999,
primarily as a result of an increase in net returned items related to the
introduction of payday advances in most of the Company's pawn stores
subsequent to the Third Quarter of 1999. Administrative expenses increased
65% to $2,494,000 during the Third Quarter of 2000 compared to $1,512,000
during the Third Quarter of 1999, primarily due to legal expense, legal
settlements, the addition of supervisory staff and other overhead related to
the introduction of payday advances in the Company's pawn stores. Interest
expense decreased 2% from $733,000 in the Third Quarter of 1999 to $721,000
in the Third Quarter of 2000, primarily due to the overall lower level of
debt during the Third Quarter of 2000 compared to the Third Quarter of 1999.
For the Third Quarter of 2000 and the Third Quarter of 1999, the
Company's tax provisions of 38% and 40%, respectively, 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.
Nine months ended September 30, 2000 compared to Nine months ended September
30, 1999
Total revenues increased 18% to $78,028,000 for the nine months ended
September 30, 2000 (the "Nine-Month 2000 Period") as compared to pro forma
revenues of $66,234,000 for the nine months ended September 30, 1999 (the
"Nine-Month 1999 Period"). Of the $11,794,000 increase in total revenues,
$9,138,000 relates to the 15% same store increase at the 135 stores which
were in operation throughout both the Nine-Month 1999 Period and the Nine-
Month 2000 Period. The remaining increase of $2,656,000 resulted from
revenues generated by 16 stores which were acquired or opened subsequent to
January 1, 1999. In addition, 24% of the increase in total revenues, or
$2,857,000, was attributable to increased merchandise sales, 73%, or
$8,585,000, was attributable to increased service charges, $50,000 was
attributable to increased check cashing fees, and the remaining increase of
$302,000, or 2%, was attributable to the increase in other income. As a
percentage of total revenues, merchandise sales decreased from 54% to 52%
during the Nine-Month 2000 Period compared to the Nine-Month 1999 Period,
while service charges increased from 41% to 44%. Check cashing fees and
other income represented a combined 4% of total revenues in both the Nine-
Month 1999 Period and the Nine-Month 2000 Period. The pro forma gross
profit as a percentage of merchandise sales decreased from 40% in the Nine-
Month 1999 Period to 35% in the Nine-Month 2000 Period.
The aggregate receivables balance (pawn loans plus payday advances)
decreased 8% from $22,970,000 as of September 30, 1999 to $21,073,000 as of
September 30, 2000. The $1,897,000 decrease consists of an increase of
$1,486,000 which was attributable to the 12 stores acquired or opened
subsequent to September 30, 1999, net of a $3,383,000 decrease in aggregate
receivable balances at the 138 stores in operation at both September 30,
1999 and September 30, 2000.
<PAGE>
Operating expenses increased 24% to $34,992,000 during the Nine-Month
2000 Period compared to $28,154,000 during the Nine-Month 1999 Period,
primarily as a result of an increase in net returned items related to the
introduction of payday advances in most of the Company's pawn stores
subsequent to January 1, 1999. Administrative expenses increased 42% to
$6,069,000 during the Nine-Month 2000 Period compared to $4,270,000 during
the Nine-Month 1999 Period primarily due to legal expense, legal
settlements, the addition of supervisory staff and other overhead related to
the introduction of payday advances in the Company's pawn stores. Interest
expense increased 14% to $2,185,000 in the Nine-Month 2000 Period compared
to $1,917,000 in the Nine-Month 1999 Period primarily due to higher interest
rates and higher debt levels in early 2000.
For both the Nine-Month 2000 and 1999 Periods, the Company's tax
provisions of 38% 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 and other borrowings, and the issuance of
the Company's securities.
The Company currently maintains a $55,000,000 long-term line of credit
with a group of commercial lenders (the "Credit Facility"). At September
30, 2000, $43,000,000 was outstanding under this Credit Facility and an
additional $4,400,000 was available to the Company pursuant to the available
borrowing base. The Credit Facility bears interest at the prevailing LIBOR
rate (which was approximately 6.6% at September 30, 2000) plus one percent,
and matures on September 1, 2002. 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
nine months ended September 30, 2000 and as of November 10, 2000. The
Company is required to pay an annual commitment fee of 1/8 of 1% on the
average daily unused portion of the Credit Facility commitment. The Company
is prohibited from paying dividends to its stockholders. Substantially all
of the unencumbered assets of the Company have been pledged as collateral
against indebtedness under the Credit Facility.
As of September 30, 2000, the Company's primary sources of liquidity
were $8,885,000 in cash and cash equivalents, $2,652,000 in service charges
receivable, $21,073,000 in receivables, $18,153,000 in inventories and
$4,400,000 of available and unused funds under the Company's Credit
Facility. The Company had working capital as of September 30, 2000 of
$44,982,000 and a total liabilities to equity ratio of 0.90 to 1.
Net cash provided by operating activities for the Company during the
Nine-Month 2000 Period was $6,348,000 as compared with $2,833,000 provided
by operating activities during the Nine-Month 1999 Period. Net cash
provided by investing activities during the Nine-Month 2000 Period was
$507,000 as compared with $5,531,000 used by investing activities during the
Nine-Month 1999 Period. Net cash used for financing activities of
$8,687,000 during the Nine-Month 2000 Period compares to net cash provided
by financing activities of $5,759,000 during the Nine-Month 1999 Period.
<PAGE>
The profitability and liquidity of the Company are affected by the
amount of pawn loans outstanding, which is controlled in part by the
Company's pawn lending 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 November 10, 2000. 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 October 1, 2000 and November 10, 2000, the Company did
not open or acquire any new stores. All store openings and acquisitions
during the nine months ended September 30, 2000 were financed with proceeds
from the Company's Credit Facility and with cash generated from operations.
<PAGE>
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 in 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. Changes in securities
b. During the quarter ended June 30, 2000, the Company repurchased
53,882 shares of common stock for an aggregate purchase price of
$250,000.
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).
<PAGE>
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: November 10, 2000 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
