FCFS 06.30.2015 10-Q
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________

Commission file number 0-19133
FIRST CASH FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware
75-2237318
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
690 East Lamar Blvd., Suite 400
76011
Arlington, Texas
(Zip Code)
(Address of principal executive offices)
 
(817) 460-3947
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
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.     xYes   o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     xYes   o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
x  Large accelerated filer
o  Accelerated filer
o  Non-accelerated filer (Do not check if a smaller reporting company)
o  Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     oYes   x No
As of July 20, 2015, there were 27,997,019 shares of common stock outstanding.


 
 

FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2015

INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Information
This quarterly report contains forward-looking statements about the business, financial condition and prospects of First Cash Financial Services, Inc. and its wholly owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy or objectives. Forward-looking statements can also be identified by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.
Forward-looking statements in this quarterly report include, without limitation, the Company’s expectations of earnings per share, earnings growth, expansion strategies, the impact of new or existing regulations, store openings, liquidity (including the availability of capital under existing credit facilities), cash flow, consumer demand for the Company’s products and services, income tax rates, currency exchange rates, future share repurchases and the price of gold and the impacts thereof, earnings and related transaction expenses from acquisitions and mergers, the ability to successfully integrate acquisitions and other performance results. These statements are made to provide the public with management’s current assessment of the Company’s business. Although the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this quarterly report. Such factors are difficult to predict and many are beyond the control of the Company and may include, without limitation, the following:
changes in regional, national or international economic conditions, including inflation rates, unemployment rates and energy prices;
changes in foreign currency exchange rates and the Mexican peso to U.S. dollar exchange rate in particular;
changes in consumer demand, including purchasing, borrowing and repayment behaviors;
changes in pawn forfeiture rates and credit loss provisions;
changes in the market value of pawn collateral and merchandise inventories, including gold prices and the value of consumer electronics and other products;
changes or increases in competition;
the ability to locate, open and staff new stores and successfully integrate acquisitions;
the availability or access to sources of used merchandise inventory;
changes in credit markets, interest rates and the ability to establish, renew and/or extend the Company’s debt financing;
the ability to maintain banking relationships for treasury services and processing of certain consumer lending transactions;
the ability to hire and retain key management personnel;
new federal, state or local legislative initiatives or governmental regulations (or changes to existing laws and regulations) affecting pawn businesses, consumer loan businesses and credit services organizations (in both the United States and Mexico), including administrative or legal interpretations thereto;
risks and uncertainties related to foreign operations in Mexico;
changes in import/export regulations and tariffs or duties;
changes in banking, anti-money laundering or gun control regulations;
unforeseen litigation or regulatory investigations;
changes in tax rates or policies in the U.S. and Mexico;
inclement weather, natural disasters and public health issues;
security breaches, cyber attacks or fraudulent activity;
a prolonged interruption in the Company’s operations of its facilities, systems, and business functions, including its information technology and other business systems;
the implementation of new, or changes in the interpretation of existing, accounting principles or financial reporting requirements; and
future business decisions.



 
 

These and other risks, uncertainties and regulatory developments are further and more completely described in the Company’s 2014 annual report on Form 10-K filed with the Securities and Exchange Commission on February 12, 2015, including the risks described in the “Risk Factors” section of the Company’s annual report. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.



 
 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
2015
 
2014
 
2014
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
77,430

 
$
84,055

 
$
67,992

Pawn loan fees and service charges receivable
 
17,611

 
17,808

 
16,926

Pawn loans
 
124,969

 
123,901

 
118,536

Consumer loans, net
 
1,070

 
1,339

 
1,241

Inventories
 
88,080

 
77,587

 
91,088

Prepaid expenses and other current assets
 
3,853

 
1,724

 
4,970

Deferred tax assets
 
7,009

 
5,348

 
7,122

Total current assets
 
320,022

 
311,762

 
307,875

 
 
 
 
 
 
 
Property and equipment, net
 
111,754

 
112,488

 
113,750

Goodwill, net
 
300,378

 
254,918

 
276,882

Other non-current assets
 
15,174

 
15,559

 
16,168

Deferred tax assets
 
2,246

 

 

Total assets
 
$
749,574

 
$
694,727

 
$
714,675

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
39,496

 
$
42,400

 
$
42,559

Income taxes payable
 
1,333

 

 

Total current liabilities
 
40,829

 
42,400

 
42,559

 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
56,000

 

 
22,400

Senior unsecured notes
 
200,000

 
200,000

 
200,000

Deferred tax liabilities
 

 
9,970

 
1,165

Total liabilities
 
296,829

 
252,370

 
266,124

 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
Preferred stock
 

 

 

Common stock
 
399

 
394

 
397

Additional paid-in capital
 
193,977

 
178,978

 
188,062

Retained earnings
 
613,021

 
536,425

 
582,894

Accumulated other comprehensive loss from
 
 
 
 
 
 
cumulative foreign currency translation adjustments
 
(35,044
)
 
(7,439
)
 
(26,168
)
Common stock held in treasury, at cost
 
(319,608
)
 
(266,001
)
 
(296,634
)
Total stockholders’ equity
 
452,745

 
442,357

 
448,551

Total liabilities and stockholders’ equity
 
$
749,574

 
$
694,727

 
$
714,675

 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

1

 
 

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
105,625

 
$
97,188

 
$
216,079

 
$
195,896

Pawn loan fees
 
47,583

 
47,555

 
96,237

 
95,193

Consumer loan and credit services fees
 
6,710

 
8,416

 
14,305

 
18,200

Wholesale scrap jewelry revenue
 
7,705

 
12,167

 
17,025

 
25,814

Total revenue
 
167,623

 
165,326

 
343,646

 
335,103

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
65,636

 
59,093

 
133,882

 
119,583

Consumer loan and credit services loss provision
 
1,709

 
2,236

 
2,706

 
3,979

Cost of wholesale scrap jewelry sold
 
6,232

 
10,076

 
14,241

 
21,164

Total cost of revenue
 
73,577

 
71,405

 
150,829

 
144,726

 
 
 
 
 
 
 
 
 
Net revenue
 
94,046

 
93,921

 
192,817

 
190,377

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
51,746

 
48,934

 
104,067

 
97,426

Administrative expenses
 
14,669

 
13,615

 
28,507

 
26,944

Depreciation and amortization
 
4,467

 
4,325

 
9,014

 
8,597

Interest expense
 
4,126

 
3,910

 
8,146

 
5,346

Interest income
 
(393
)
 
(262
)
 
(737
)
 
(343
)
Total expenses and other income
 
74,615

 
70,522

 
148,997

 
137,970

 
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
 
19,431

 
23,399

 
43,820

 
52,407

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
6,092

 
7,384

 
13,693

 
13,438

 
 
 
 
 
 
 
 
 
Income from continuing operations
 
13,339

 
16,015

 
30,127

 
38,969

 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
 

 

 

 
(272
)
 
 
 
 
 
 
 
 
 
Net income
 
$
13,339

 
$
16,015

 
$
30,127

 
$
38,697

 
 
 
 
 
 
 
 
 
Basic income per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.35

Loss from discontinued operations
 

 

 

 
(0.01
)
Net income per basic share
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.34

 
 
 
 
 
 
 
 
 
Diluted income per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.33

Loss from discontinued operations
 

 

 

 
(0.01
)
Net income per diluted share
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.32

 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

2

 
 

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
13,339

 
$
16,015

 
$
30,127

 
$
38,697

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Currency translation adjustment, gross
 
(6,657
)
 
873

 
(13,655
)
 
480

Tax (expense) benefit
 
2,330

 
(306
)
 
4,779

 
(168
)
Comprehensive income
 
$
9,012

 
$
16,582

 
$
21,251

 
$
39,009

 
 
 
 
 
 
 
 
 
 The accompanying notes are an integral part
of these condensed consolidated financial statements.

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-
holders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2014
 

 
$

 
39,708

 
$
397

 
$
188,062

 
$
582,894

 
$
(26,168
)
 
11,200

 
$
(296,634
)
 
$
448,551

Shares issued under share-based com-pensation plan
 

 

 
5

 

 

 

 

 

 

 

Exercise of stock options
 

 

 
145

 
2

 
2,899

 

 

 

 

 
2,901

Income tax benefit from exercise of stock options
 

 

 

 

 
1,617

 

 

 

 

 
1,617

Share-based compensation expense
 

 

 

 

 
1,399

 

 

 

 

 
1,399

Net income
 

 

 

 

 

 
30,127

 

 

 

 
30,127

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
(8,876
)
 

 

 
(8,876
)
Repurchases of treasury stock
 

 

 

 

 

 

 

 
463

 
(22,974
)
 
(22,974
)
Balance at 6/30/2015
 

 
$

 
39,858

 
$
399

 
$
193,977

 
$
613,021

 
$
(35,044
)
 
11,663

 
$
(319,608
)
 
$
452,745

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.




3

 
 

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CONTINUED
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-
holders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
Balance at 12/31/2013
 

 
$

 
39,377

 
$
394

 
$
176,675

 
$
497,728

 
$
(7,751
)
 
10,429

 
$
(252,687
)
 
$
414,359

Shares issued under share-based com-pensation plan
 

 

 
5

 

 

 

 

 

 

 

Exercise of stock options
 

 

 
45

 

 
712

 

 

 

 

 
712

Income tax benefit from exercise of stock options
 

 

 

 

 
677

 

 

 

 

 
677

Share-based compensation expense
 

 

 

 

 
914

 

 

 

 

 
914

Net income
 

 

 

 

 

 
38,697

 

 

 

 
38,697

Currency translation adjustment, net of tax
 

 

 

 

 

 

 
312

 

 

 
312

Repurchases of treasury stock
 

 

 

 

 

 

 

 
235

 
(13,314
)
 
(13,314
)
Balance at 6/30/2014
 

 
$

 
39,427

 
$
394

 
$
178,978

 
$
536,425

 
$
(7,439
)
 
10,664

 
$
(266,001
)
 
$
442,357

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

4

 
 

FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
Six Months Ended
 
 
June 30,
 
 
2015
 
2014
Cash flow from operating activities:
 
 
 
 
Net income
 
$
30,127

 
$
38,697

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Non-cash portion of credit loss provision
 
208

 
486

Share-based compensation expense
 
1,399

 
914

Depreciation and amortization expense
 
9,014

 
8,597

Amortization of debt issuance costs
 
484

 
368

Deferred income taxes
 
983

 
692

Changes in operating assets and liabilities, net of business combinations:
 
 
 
 
Pawn fees and service charges receivable
 
(935
)
 
(1,092
)
Merchandise inventories
 
1,032

 
211

Prepaid expenses and other assets
 
459

 
1,306

Accounts payable and accrued expenses
 
(2,672
)
 
6,202

Income taxes payable, current
 
1,810

 
(7,842
)
Net cash flow provided by operating activities
 
41,909

 
48,539

Cash flow from investing activities:
 
 
 
 
Loan receivables, net of cash repayments
 
(3,971
)
 
(7,958
)
Purchases of property and equipment
 
(8,600
)
 
(12,059
)
Acquisitions of pawn stores, net of cash acquired
 
(31,600
)
 
(6,389
)
Net cash flow used in investing activities
 
(44,171
)
 
(26,406
)
Cash flow from financing activities:
 
 
 
 
Borrowings from revolving credit facilities
 
63,055

 
2,500

Repayments of revolving credit facilities
 
(29,455
)
 
(184,500
)
Repayments of notes payable
 

 
(8,352
)
Issuance of senior unsecured notes
 

 
200,000

Debt issuance costs paid
 

 
(6,397
)
Purchases of treasury stock
 
(22,974
)
 
(13,314
)
Proceeds from exercise of share-based compensation awards
 
2,901

 
712

Income tax benefit from exercise of stock options
 
1,617

 
677

Net cash flow provided by (used in) financing activities
 
15,144

 
(8,674
)
Effect of exchange rates on cash
 
(3,444
)
 
(47
)
Change in cash and cash equivalents
 
9,438

 
13,412

Cash and cash equivalents at beginning of the period
 
67,992

 
70,643

Cash and cash equivalents at end of the period
 
$
77,430

 
$
84,055

 
 
 
 
 
The accompanying notes are an integral part
of these condensed consolidated financial statements.

5

 
 

FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet at December 31, 2014, which is derived from audited financial statements, and the unaudited condensed consolidated financial statements, including the notes thereto, include the accounts of First Cash Financial Services, Inc. and its wholly-owned subsidiaries (together, the “Company”). All significant intercompany accounts and transactions have been eliminated.

These unaudited consolidated financial statements are condensed and do not include all disclosures and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. These interim period financial statements should be read in conjunction with the Company’s consolidated financial statements, which are included in the Company’s annual report for the year ended December 31, 2014, on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 12, 2015. The condensed consolidated financial statements as of June 30, 2015 and 2014, and for the three month and six month periods ended June 30, 2015 and 2014, 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 flow for such interim periods. Operating results for the periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the full fiscal year.

The Company manages its pawn and consumer loan operations under three operating segments: U.S. pawn operations, U.S. consumer loan operations and Mexico operations. The three operating segments have been aggregated into one reportable segment because they have similar economic characteristics and similar long-term financial performance metrics. Additionally, all three segments offer similar and overlapping products and services to a similar customer demographic, operate in similar regulatory environments and are supported by a single, centralized administrative support platform.

The Company has significant operations in Mexico where the functional currency for the Company’s operating subsidiaries is the Mexican peso. Accordingly, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenue and expenses are translated at the average exchange rates occurring during the three-month and year-to-date periods.

Certain amounts in prior year comparative presentations have been reclassified in order to conform to the 2015 presentation.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360)” (“ASU 2014-08”). ASU 2014-08 requires a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. ASU 2014-08 also expands the disclosure requirements for discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014. The adoption of ASU 2014-08 did not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures, however, it may impact the reporting of future discontinued operations if and when they occur.

In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. On July 9, 2015, the Financial Accounting Standards Board delayed the effective date of ASU 2014-09 by one year resulting in it becoming effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017 for public companies. Early adoption is permitted but not before annual reporting periods beginning after December 15, 2016. The Company is currently assessing the potential impact of ASU 2014-09 on its consolidated financial statements.

6

 
 

In April 2015, the Financial Accounting Standards Board issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application and represents a change in accounting principle. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect ASU 2015-03 to have a material effect on the Company’s results of operations, however, it will impact future balance sheet presentation and financial statement disclosures related to the Company’s debt issuance costs, upon adoption.

Note 2 - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (unaudited, in thousands, except per share data):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
 
Income from continuing operations for calculating basic and diluted earnings per share
 
$
13,339

 
$
16,015

 
$
30,127

 
$
38,969

Loss from discontinued operations
 

 

 

 
(272
)
Net income for calculating basic and diluted earnings per share
 
$
13,339

 
$
16,015

 
$
30,127

 
$
38,697

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted-average common shares for calculating basic earnings per share
 
28,196

 
28,938

 
28,299

 
28,945

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and nonvested awards
 
215

 
403

 
216

 
396

Weighted-average common shares for calculating diluted earnings per share
 
28,411

 
29,341

 
28,515

 
29,341

 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.35

Loss from discontinued operations
 

 

 

 
(0.01
)
Net income per basic share
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.34

 
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.33

Loss from discontinued operations
 

 

 

 
(0.01
)
Net income per diluted share
 
$
0.47

 
$
0.55

 
$
1.06

 
$
1.32



7

 
 

Note 3 - Acquisitions

The Company completed acquisitions during the six months ended June 30, 2015 as described below consistent with its strategy to continue its expansion of pawn stores in selected markets. The purchase price of each acquisition was allocated to assets and liabilities acquired based upon their estimated fair market values at the date of acquisition. The excess purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill. The goodwill arising from these acquisitions consists largely of the synergies and economies of scale expected from combining the operations of the Company and the pawn stores acquired.

During the six months ended June 30, 2015, 29 pawn stores located in four U.S. states were acquired by the Company in four separate asset purchase transactions (“U.S. Acquisitions”) for an aggregate purchase price of $31,825,000, net of cash acquired, and was composed of $30,675,000 in cash and payables to the sellers of $1,150,000. During the six months ended June 30, 2015, the Company also paid $925,000 of purchase price amounts payable related to prior-year acquisitions.

The preliminary allocations of the purchase prices for the U.S. Acquisitions are as follows (in thousands):
 
U.S. Acquisitions
Pawn loans
$
3,217

Pawn loan fees and service charges receivable
192

Inventory
2,585

Other current assets
6

Property and equipment
285

Goodwill (1)
25,370

Intangible assets (2)
493

Other non-current assets
5

Current liabilities
(328
)
Purchase price
$
31,825


(1)
Substantially all of the goodwill is expected to be deductible for U.S. income tax purposes.

(2)
Intangible assets primarily consist of customer relationships, which are included in other non-current assets in the accompanying condensed consolidated balance sheets. Customer relationships are generally amortized over five years.

During the six months ended June 30, 2015, revenue from the U.S. Acquisitions since the acquisition dates was $907,000. During the six months ended June 30, 2015, the net loss from the U.S. Acquisitions since the acquisition dates (including acquisition and integration costs) was $658,000. Combined transaction and integration costs related to acquisitions during the six months ended June 30, 2015 were approximately $1,175,000, which are primarily included in administrative expenses in the accompanying condensed consolidated statements of income.

8

 
 

Note 4 - Long-Term Debt

Senior Unsecured Notes

On March 24, 2014, the Company issued $200,000,000 of 6.75% senior notes due on April 1, 2021 (the “Notes”). Interest on the Notes is payable semi-annually in arrears on April 1 and October 1. The Notes allow the Company to repurchase shares of its stock and to pay cash dividends within certain parameters.

Revolving Credit Facilities

At June 30, 2015, the Company maintained a line of credit with a group of U.S. based commercial lenders (the “2014 Credit Facility”) in the amount of $160,000,000, which matures in February 2019. At June 30, 2015, the Company had $56,000,000 outstanding under the 2014 Credit Facility and $104,000,000 was available for borrowings. The 2014 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The interest rate on amounts outstanding under the 2014 Credit Facility at June 30, 2015 was 2.69% based on the prevailing 30-day LIBOR rate. The 2014 Credit Facility allows the Company to repurchase shares of its stock and to pay cash dividends within certain parameters and requires the Company to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the 2014 Credit Facility as of June 30, 2015. During the six months ended June 30, 2015, the Company had net proceeds of $33,600,000 on the 2014 Credit Facility.

On March 9, 2015, the Company entered into an agreement with a bank in Mexico to establish a revolving credit facility (the “Mexico Credit Facility”) in the amount of $10,000,000. The Mexico Credit Facility bears interest at the prevailing 30-day LIBOR rate plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of June 30, 2015. The Company is required to pay a one-time commitment fee of $25,000 due when the first amount is drawn/borrowed. At June 30, 2015, the Company had no amount outstanding under the Mexico Credit Facility and $10,000,000 was available for borrowings.

Note 5 - Fair Value of Financial Instruments

The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three levels are (from highest to lowest):

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

As cash and cash equivalents have maturities of less than three months, the carrying values of cash and cash equivalents approximate fair value (Level 1 of the fair value hierarchy). Due to their short-term maturities, pawn loans, consumer loans (net), pawn loan fees and service charges receivable approximate fair value (Level 3 of the fair value hierarchy).

The carrying value of the 2014 Credit Facility and the Mexico Credit Facility approximated fair value for all periods presented. The fair value of the Notes was approximately $211,000,000, $214,000,000 and $207,000,000 as of June 30, 2015, 2014 and December 31, 2014, respectively, compared to a carrying value of $200,000,000. These fair values have been estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the rate that would be used by market participants (Level 2 of the fair value hierarchy). Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.


9

 
 

Note 6 - Condensed Consolidating Guarantor Financial Statements

In connection with the issuance of the Notes, certain of the Company’s domestic subsidiaries (collectively, “Guarantor Subsidiaries”), fully, unconditionally, jointly and severally guaranteed the payment obligations under the Notes. Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by the Company. The following supplemental financial information sets forth, on a consolidating basis, the balance sheets, statements of comprehensive income and statements of cash flows of First Cash Financial Services, Inc. (the “Parent Company”), the Guarantor Subsidiaries and the Parent Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”).

The supplemental condensed consolidating financial information has been prepared pursuant to SEC rules and regulations for interim condensed financial information and does not include the more complete disclosures included in annual financial statements. Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the Guarantor Subsidiaries or Non-Guarantor Subsidiaries operated as independent entities.

10

 
 

Condensed Consolidating Balance Sheet
June 30, 2015
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
5,704

 
$
2,465

 
$
69,261

 
$

 
$
77,430

Pawn loan fees and service charges receivable
 

 
6,594

 
11,017

 

 
17,611

Pawn loans
 

 
53,463

 
71,506

 

 
124,969

Consumer loans, net
 

 
510

 
560

 

 
1,070

Inventories
 

 
32,143

 
55,937

 

 
88,080

Prepaid expenses and other current assets
 
2,789

 

 
1,064

 

 
3,853

Deferred tax assets
 
1,069

 

 
5,940

 

 
7,009

Total current assets
 
9,562

 
95,175

 
215,285

 

 
320,022

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
4,082

 
50,655

 
57,017

 

 
111,754

Goodwill, net
 

 
158,568

 
141,810

 

 
300,378

Other non-current assets
 
5,483

 
4,270

 
5,421

 

 
15,174

Deferred tax assets
 

 

 
21,636

 
(19,390
)
 
2,246

Intercompany receivable
 

 

 
175,054

 
(175,054
)
 

Investments in subsidiaries
 
879,127

 

 

 
(879,127
)
 

Total assets
 
$
898,254

 
$
308,668

 
$
616,223

 
$
(1,073,571
)
 
$
749,574

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
13,366

 
$
6,696

 
$
19,434

 
$

 
$
39,496

Income taxes payable
 
1,088

 

 
245

 

 
1,333

Total current liabilities
 
14,454

 
6,696

 
19,679

 

 
40,829

 
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
56,000

 

 

 

 
56,000

Senior unsecured notes
 
200,000

 

 

 

 
200,000

Deferred tax liabilities
 

 
13,322

 
6,068

 
(19,390
)
 

Intercompany payable
 
175,054

 

 

 
(175,054
)
 

Total liabilities
 
445,508

 
20,018

 
25,747

 
(194,444
)
 
296,829

 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
399

 

 

 

 
399

Additional paid-in capital
 
193,977

 

 

 

 
193,977

Retained earnings
 
577,978

 
288,650

 
625,520

 
(879,127
)
 
613,021

Accumulated other comprehensive loss
 

 

 
(35,044
)
 

 
(35,044
)
Common stock held in treasury, at cost
 
(319,608
)
 

 

 

 
(319,608
)
Total stockholders’ equity
 
452,746

 
288,650

 
590,476

 
(879,127
)
 
452,745

Total liabilities and stockholders’ equity
 
$
898,254

 
$
308,668

 
$
616,223

 
$
(1,073,571
)
 
$
749,574



11

 
 

Condensed Consolidating Balance Sheet
June 30, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
37,132

 
$
2,555

 
$
44,368

 
$

 
$
84,055

Pawn loan fees and service charges receivable
 

 
7,014

 
10,794

 

 
17,808

Pawn loans
 

 
53,764

 
70,137

 

 
123,901

Consumer loans, net
 

 
665

 
674

 

 
1,339

Inventories
 

 
30,115

 
47,472

 

 
77,587

Prepaid expenses and other current assets
 
1,717

 

 
7

 

 
1,724

Deferred tax assets
 
906

 

 
4,442

 

 
5,348

Total current assets
 
39,755

 
94,113

 
177,894

 

 
311,762

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
4,188

 
49,246

 
59,054

 

 
112,488

Goodwill, net
 

 
152,981

 
101,937

 

 
254,918

Other non-current assets
 

 
11,380

 
4,179

 

 
15,559

Deferred tax assets
 

 

 
7,071

 
(7,071
)
 

Intercompany receivable
 

 

 
165,480

 
(165,480
)
 

Investments in subsidiaries
 
778,645

 

 

 
(778,645
)
 

Total assets
 
$
822,588

 
$
307,720

 
$
515,615

 
$
(951,196
)
 
$
694,727

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
14,689

 
$
9,386

 
$
18,325

 
$

 
$
42,400

Total current liabilities
 
14,689

 
9,386

 
18,325

 

 
42,400

 
 
 
 
 
 
 
 
 
 
 
Senior unsecured notes
 
200,000

 

 

 

 
200,000

Deferred tax liabilities
 
62

 
14,177

 
2,802

 
(7,071
)
 
9,970

Intercompany payable
 
165,480

 

 

 
(165,480
)
 

Total liabilities
 
380,231

 
23,563

 
21,127

 
(172,551
)
 
252,370

 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
394

 

 

 

 
394

Additional paid-in capital
 
178,978

 

 

 

 
178,978

Retained earnings
 
529,289

 
284,157

 
501,624

 
(778,645
)
 
536,425

Accumulated other comprehensive loss
 
(303
)
 

 
(7,136
)
 

 
(7,439
)
Common stock held in treasury, at cost
 
(266,001
)
 

 

 

 
(266,001
)
Total stockholders’ equity
 
442,357

 
284,157

 
494,488

 
(778,645
)
 
442,357

Total liabilities and stockholders’ equity
 
$
822,588

 
$
307,720

 
$
515,615

 
$
(951,196
)
 
$
694,727


12

 
 

Condensed Consolidating Balance Sheet
December 31, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,799

 
$
2,906

 
$
57,287

 
$

 
$
67,992

Pawn loan fees and service charges receivable
 

 
7,120

 
9,806

 

 
16,926

Pawn loans
 

 
55,709

 
62,827

 

 
118,536

Consumer loans, net
 

 
655

 
586

 

 
1,241

Inventories
 

 
35,206

 
55,882

 

 
91,088

Prepaid expenses and other current assets
 
1,881

 

 
3,089

 

 
4,970

Deferred tax assets
 
1,069

 

 
6,053

 

 
7,122

Total current assets
 
10,749

 
101,596

 
195,530

 

 
307,875

 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
3,997

 
50,184

 
59,569

 

 
113,750

Goodwill, net
 

 
158,308

 
118,574

 

 
276,882

Other non-current assets
 
5,967

 
4,744

 
5,457

 

 
16,168

Deferred tax assets
 

 

 
17,127

 
(17,127
)
 

Intercompany receivable
 

 

 
170,132

 
(170,132
)
 

Investments in subsidiaries
 
837,486

 

 

 
(837,486
)
 

Total assets
 
$
858,199

 
$
314,832

 
$
566,389

 
$
(1,024,745
)
 
$
714,675

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
16,940

 
$
6,459

 
$
19,160

 
$

 
$
42,559

Total current liabilities
 
16,940

 
6,459

 
19,160

 

 
42,559

 
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facility
 
22,400

 

 

 

 
22,400

Senior unsecured notes
 
200,000

 

 

 

 
200,000

Deferred tax liabilities
 
176

 
14,069

 
4,047

 
(17,127
)
 
1,165

Intercompany payable
 
170,132

 

 

 
(170,132
)
 

Total liabilities
 
409,648

 
20,528

 
23,207

 
(187,259
)
 
266,124

 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
397

 

 

 

 
397

Additional paid-in capital
 
188,062

 

 

 

 
188,062

Retained earnings
 
556,726

 
294,304

 
569,350

 
(837,486
)
 
582,894

Accumulated other comprehensive loss
 

 

 
(26,168
)
 

 
(26,168
)
Common stock held in treasury, at cost
 
(296,634
)
 

 

 

 
(296,634
)
Total stockholders’ equity
 
448,551

 
294,304

 
543,182

 
(837,486
)
 
448,551

Total liabilities and stockholders’ equity
 
$
858,199

 
$
314,832

 
$
566,389

 
$
(1,024,745
)
 
$
714,675


13

 
 

Condensed Consolidating Statement of Comprehensive Income
Three Months Ended June 30, 2015
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$

 
$
32,203

 
$
73,422

 
$

 
$
105,625

Pawn loan fees
 

 
17,840

 
29,743

 

 
47,583

Consumer loan and credit services fees
 

 
6,040

 
670

 

 
6,710

Wholesale scrap jewelry revenue
 

 
3,811

 
3,894

 

 
7,705

Total revenue
 

 
59,894

 
107,729

 

 
167,623

 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 

 
18,422

 
47,214

 

 
65,636

Consumer loan and credit services loss provision
 

 
1,616

 
93

 

 
1,709

Cost of wholesale scrap jewelry sold
 

 
3,261

 
2,971

 

 
6,232

Total cost of revenue
 

 
23,299

 
50,278

 

 
73,577

 
 
 
 
 
 
 
 
 
 
 
Net revenue
 

 
36,595

 
57,451

 

 
94,046

 
 
 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
 
 
Store operating expenses
 

 
19,894

 
31,852

 

 
51,746

Administrative expenses
 
7,300

 

 
7,369

 

 
14,669

Depreciation and amortization
 
186

 
1,562

 
2,719

 

 
4,467

Interest expense
 
4,126

 

 

 

 
4,126

Interest income
 
(2
)
 

 
(391
)
 

 
(393
)
Total expenses and other income
 
11,610

 
21,456

 
41,549

 

 
74,615

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(11,610
)
 
15,139

 
15,902

 

 
19,431

 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(4,141
)
 
5,602

 
4,631

 

 
6,092

 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(7,469
)
 
$
9,537

 
$
11,271

 
$

 
$
13,339

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment, net of tax expense or benefit
 

 

 
(4,327
)
 

 
(4,327
)
Comprehensive income (loss)
 
$
(7,469
)
 
$
9,537

 
$
6,944

 
$

 
$
9,012




14

 
 

Condensed Consolidating Statement of Comprehensive Income
Three Months Ended June 30, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$

 
$
31,258

 
$
65,930

 
$

 
$
97,188

Pawn loan fees
 

 
17,677

 
29,878

 

 
47,555

Consumer loan and credit services fees
 

 
7,565

 
851

 

 
8,416

Wholesale scrap jewelry revenue
 

 
6,031

 
6,136

 

 
12,167

Total revenue
 

 
62,531

 
102,795

 

 
165,326

 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 

 
17,264

 
41,829

 

 
59,093

Consumer loan and credit services loss provision
 

 
2,052

 
184

 

 
2,236

Cost of wholesale scrap jewelry sold
 

 
5,053

 
5,023

 

 
10,076

Total cost of revenue
 

 
24,369

 
47,036

 

 
71,405

 
 
 
 
 
 
 
 
 
 
 
Net revenue
 

 
38,162

 
55,759

 

 
93,921

 
 
 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
 
 
Store operating expenses
 

 
20,082

 
28,852

 

 
48,934

Administrative expenses
 
5,773

 

 
7,842

 

 
13,615

Depreciation and amortization
 
273

 
1,339

 
2,713

 

 
4,325

Interest expense
 
3,910

 

 

 

 
3,910

Interest income
 
6

 
(25
)
 
(243
)
 

 
(262
)
Total expenses and other income
 
9,962

 
21,396

 
39,164

 

 
70,522

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(9,962
)
 
16,766

 
16,595

 

 
23,399

 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(1,283
)
 
5,868

 
2,799

 

 
7,384

 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(8,679
)
 
$
10,898

 
$
13,796

 
$

 
$
16,015

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment, net of tax expense or benefit
 

 

 
567

 

 
567

Comprehensive income (loss)
 
$
(8,679
)
 
$
10,898

 
$
14,363

 
$

 
$
16,582




15

 
 

Condensed Consolidating Statement of Comprehensive Income
Six Months Ended June 30, 2015
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$

 
$
69,779

 
$
146,300

 
$

 
$
216,079

Pawn loan fees
 

 
37,109

 
59,128

 

 
96,237

Consumer loan and credit services fees
 

 
12,984

 
1,321

 

 
14,305

Wholesale scrap jewelry revenue
 

 
8,639

 
8,386

 

 
17,025

Total revenue
 

 
128,511

 
215,135

 

 
343,646

 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 

 
39,881

 
94,001

 

 
133,882

Consumer loan and credit services loss provision
 

 
2,537

 
169

 

 
2,706

Cost of wholesale scrap jewelry sold
 

 
7,678

 
6,563

 

 
14,241

Total cost of revenue
 

 
50,096

 
100,733

 

 
150,829

 
 
 
 
 
 
 
 
 
 
 
Net revenue
 

 
78,415

 
114,402

 

 
192,817

 
 
 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
 
 
Store operating expenses
 

 
40,317

 
63,750

 

 
104,067

Administrative expenses
 
13,872

 

 
14,635

 

 
28,507

Depreciation and amortization
 
405

 
3,083

 
5,526

 

 
9,014

Interest expense
 
8,146

 

 

 

 
8,146

Interest income
 
(3
)
 

 
(734
)
 

 
(737
)
Total expenses and other income
 
22,420

 
43,400

 
83,177

 

 
148,997

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(22,420
)
 
35,015

 
31,225

 

 
43,820

 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(7,859
)
 
12,956

 
8,596

 

 
13,693

 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(14,561
)
 
$
22,059

 
$
22,629

 
$

 
$
30,127

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment, net of tax expense or benefit
 

 

 
(8,876
)
 

 
(8,876
)
Comprehensive income (loss)
 
$
(14,561
)
 
$
22,059

 
$
13,753

 
$

 
$
21,251


16

 
 

Condensed Consolidating Statement of Comprehensive Income
Six Months Ended June 30, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$

 
$
68,616

 
$
127,280

 
$

 
$
195,896

Pawn loan fees
 

 
37,143

 
58,050

 

 
95,193

Consumer loan and credit services fees
 

 
16,528

 
1,672

 

 
18,200

Wholesale scrap jewelry revenue
 

 
13,538

 
12,276

 

 
25,814

Total revenue
 

 
135,825

 
199,278

 

 
335,103

 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 

 
38,400

 
81,183

 

 
119,583

Consumer loan and credit services loss provision
 

 
3,617

 
362

 

 
3,979

Cost of wholesale scrap jewelry sold
 

 
11,172

 
9,992

 

 
21,164

Total cost of revenue
 

 
53,189

 
91,537

 

 
144,726

 
 
 
 
 
 
 
 
 
 
 
Net revenue
 

 
82,636

 
107,741

 

 
190,377

 
 
 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
 
 
Store operating expenses
 

 
41,269

 
56,157

 

 
97,426

Administrative expenses
 
12,824

 

 
14,120

 

 
26,944

Depreciation and amortization
 
563

 
2,789

 
5,245

 

 
8,597

Interest expense
 
5,346

 

 

 

 
5,346

Interest income
 
(23
)
 

 
(320
)
 

 
(343
)
Total expenses and other income
 
18,710

 
44,058

 
75,202

 

 
137,970

 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes
 
(18,710
)
 
38,578

 
32,539

 

 
52,407

 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(7,780
)
 
13,502

 
7,716

 

 
13,438

 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
(10,930
)
 
25,076

 
24,823

 

 
38,969

 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
 

 

 
(272
)
 

 
(272
)
Net income (loss)
 
$
(10,930
)
 
$
25,076

 
$
24,551

 
$

 
$
38,697

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment, net of tax expense or benefit
 

 

 
312

 

 
312

Comprehensive income (loss)
 
$
(10,930
)
 
$
25,076

 
$
24,863

 
$

 
$
39,009



17

 
 

Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2015
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Cash flow from operating activities:
 
 
 
 
 
 
 
 
 
 
Net cash flow provided by (used in) operating activities
 
$
(21,671
)
 
$
(1,300
)
 
$
64,880

 
$

 
$
41,909

Cash flow from investing activities:
 
 
 
 
 
 
 
 
 
 
Loan receivables, net of cash repayments
 

 
4,421

 
(8,392
)
 

 
(3,971
)
Purchases of property and equipment
 
(490
)
 
(3,043
)
 
(5,067
)
 

 
(8,600
)
Acquisitions of pawn stores, net of cash acquired
 

 
(519
)
 
(31,081
)
 

 
(31,600
)
Investing activity with subsidiaries
 
4,922

 

 
(4,922
)
 

 

Net cash flow provided by (used in) investing activities
 
4,432

 
859

 
(49,462
)
 

 
(44,171
)
Cash flow from financing activities:
 
 
 
 
 
 
 
 
 
 
Borrowings from revolving credit facilities
 
63,055

 

 

 

 
63,055

Repayments of revolving credit facilities
 
(29,455
)
 

 

 

 
(29,455
)
Purchases of treasury stock
 
(22,974
)
 

 

 

 
(22,974
)
Proceeds from exercise of share-based compensation awards
 
2,901

 

 

 

 
2,901

Income tax benefit from exercise of stock options
 
1,617

 

 

 

 
1,617

Net cash flow provided by financing activities
 
15,144

 

 

 

 
15,144

Effect of exchange rates on cash
 

 

 
(3,444
)
 

 
(3,444
)
Change in cash and cash equivalents
 
(2,095
)
 
(441
)
 
11,974

 

 
9,438

Cash and cash equivalents at beginning of the period
 
7,799

 
2,906

 
57,287

 

 
67,992

Cash and cash equivalents at end of the period
 
$
5,704

 
$
2,465

 
$
69,261

 
$

 
$
77,430



18

 
 

Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2014
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Cash flow from operating activities:
 
 
 
 
 
 
 
 
 
 
Net cash flow provided by operating activities
 
$
13,042

 
$
2,883

 
$
32,614

 
$

 
$
48,539

Cash flow from investing activities:
 
 
 
 
 
 
 
 
 
 
Loan receivables, net of cash repayments
 

 
5,966

 
(13,924
)
 

 
(7,958
)
Purchases of property and equipment
 
(596
)
 
(4,145
)
 
(7,318
)
 

 
(12,059
)
Acquisitions of pawn stores, net of cash acquired
 

 
(6,389
)
 

 

 
(6,389
)
Investing activity with subsidiaries
 
8,686

 

 
(8,686
)
 

 

Net cash flow provided by (used in) investing activities
 
8,090

 
(4,568
)
 
(29,928
)
 

 
(26,406
)
Cash flow from financing activities:
 
 
 
 
 
 
 
 
 
 
Borrowings from revolving credit facilities
 
2,500

 

 

 

 
2,500

Repayments of revolving credit facilities
 
(184,500
)
 

 

 

 
(184,500
)
Repayments of notes payable
 
(8,352
)
 

 

 

 
(8,352
)
Issuance of senior notes
 
200,000

 

 

 

 
200,000

Debt issuance costs paid
 
(6,397
)
 

 

 

 
(6,397
)
Purchases of treasury stock
 
(13,314
)
 

 

 

 
(13,314
)
Proceeds from exercise of share-based compensation awards
 
712

 

 

 

 
712

Income tax benefit from exercise of stock options
 
677

 

 

 

 
677

Net cash flow used in financing activities
 
(8,674
)
 

 

 

 
(8,674
)
Effect of exchange rates on cash
 

 

 
(47
)
 

 
(47
)
Change in cash and cash equivalents
 
12,458

 
(1,685
)
 
2,639

 

 
13,412

Cash and cash equivalents at beginning of the period
 
24,674

 
4,240

 
41,729

 

 
70,643

Cash and cash equivalents at end of the period
 
$
37,132

 
$
2,555

 
$
44,368

 
$

 
$
84,055




19

 
 

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

The following discussion of financial condition, results of operations, liquidity and capital resources of First Cash Financial Services, Inc. and its wholly-owned subsidiaries (the “Company”) should be read in conjunction with the Company’s condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K for the year ended December 31, 2014. References in this quarterly report on Form 10-Q to “year-to-date” refer to the six-month period from January 1, 2015 to June 30, 2015.

GENERAL   

The Company is a leading operator of retail-based pawn stores in the United States and Mexico. The Company’s pawn stores generate significant retail sales from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers. The Company’s pawn stores are also a convenient source for small consumer loans to help customers meet their short-term cash needs. Personal property such as consumer electronics, jewelry, power tools, household appliances, sporting goods and musical instruments are pledged as collateral for the loans. In addition, some of the Company’s pawn stores offer consumer loans or credit services products. The Company’s strategy is to focus on growing its retail-based pawn operations in the United States and Mexico through new store openings and strategic acquisition opportunities as they arise. Pawn operations accounted for approximately 96% of the Company’s consolidated revenue from continuing operations during the six months ended June 30, 2015 compared to 95% during the six months ended June 30, 2014.

The Company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawn loans that the Company deems collection to be probable based on historical redemption statistics. If a pawn loan is not repaid prior to the expiration of the loan term, including any automatic extension period, if applicable, the property is forfeited to the Company and transferred to inventory at a value equal to the principal amount of the loan, exclusive of accrued interest. The Company records merchandise sales revenue at the time of the sale. The Company presents merchandise sales net of any sales or value-added taxes collected. The Company does not provide financing to customers for the purchase of its merchandise, but does permit its customers to purchase merchandise on an interest-free layaway plan. Should the customer fail to make a required payment, the previous payments are forfeited to the Company. Interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as income during the period in which final payment is received or when previous payments are forfeited to the Company. Some jewelry is melted at a third-party facility and the precious metal content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer. The Company records revenue from these transactions when a price has been agreed upon and the Company ships the jewelry to the buyer.

The Company operates a small number of stand-alone consumer finance stores in Texas and Mexico. These stores provide consumer financial services products including credit services, consumer loans and check cashing. Certain of the Company’s pawn stores also offer credit services and/or consumer loans as an ancillary product. Consumer loan and credit services revenue accounted for approximately 4% of consolidated revenue from continuing operations during the six months ended June 30, 2015 compared to 5% during the six months ended June 30, 2014, and was derived primarily from credit services fees.

The Company recognizes service fee income on consumer loans and credit services transactions on a constant-yield basis over the life of the loan or credit extension, which is generally 180 days or less. The net defaults on consumer loans and credit services transactions and changes in the valuation reserve are charged to the consumer loan credit loss provision. The credit loss provision associated with the Company’s credit services organization program (“CSO Program”) and consumer loans are based primarily upon historical credit loss experience, with consideration given to recent credit loss trends, delinquency rates, economic conditions and management’s expectations of future credit losses. For an additional discussion of the credit loss provision and related allowances and accruals, see “—Results of Continuing Operations.”

Stores included in the same-store calculations presented in this quarterly report are those stores that were opened prior to the beginning of the prior-year comparative period and remained open through the end of the measurement period. Also included are stores that were relocated during the applicable period within a specified distance serving the same market where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store. Unless otherwise stated, non-retail sales of scrap jewelry are included in same-store revenue calculations.


20

 
 

Operating expenses consist of all items directly related to the operation of the Company’s stores, including salaries and related payroll costs, rent, utilities, facilities maintenance, advertising, property taxes, licenses, supplies and security. Administrative expenses consist of items relating to the operation of the corporate offices, including the compensation and benefit costs of corporate management, area supervisors and other operations management personnel, collections operations and personnel, accounting and administrative costs, information technology costs, liability and casualty insurance, outside legal and accounting fees and stockholder-related expenses.

The Company’s business is subject to seasonal variations, therefore, operating results for the current quarter and year-to-date periods are not necessarily indicative of the results of operations for the full year. Typically, the Company experiences seasonal growth of service fees in the third and fourth quarter of each year due to loan balance growth. Service fees generally decline in the first and second quarter of each year after the heavy repayment period of pawn loans associated with statutory bonuses received by customers in the fourth quarter in Mexico and with tax refund proceeds received by customers in the first quarter in the U.S. Retail sales are seasonally higher in the fourth quarter associated with holiday shopping.

OPERATIONS AND LOCATIONS

As of June 30, 2015, the Company had 1,046 store locations in 14 U.S. states and 29 states in Mexico, which represents a net store-count increase of 13% over the number of stores at June 30, 2014. During the second quarter of 2015, the Company had net store growth of 35 locations, with a total of 36 new store locations added. Year-to-date, the Company had net store growth of 41 locations, with a total of 53 new store locations added.

The following table details store openings for the three months ended June 30, 2015:

 
 
Pawn Locations
 
Consumer
 
 
 
 
Large
 
Small
 
Loan
 
Total
 
 
Format (1)
 
Format (2)
 
Locations (3)
 
Locations
Domestic:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
256

 
11

 
58

 
325

Locations acquired
 
27

 

 

 
27

Total locations, end of period
 
283

 
11

 
58

 
352

 
 
 
 
 
 
 
 
 
International:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
643

 
15

 
28

 
686

New locations opened
 
9

 

 

 
9

Locations closed or consolidated
 
(1
)
 

 

 
(1
)
Total locations, end of period
 
651

 
15

 
28

 
694

 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
899

 
26

 
86

 
1,011

New locations opened
 
9

 

 

 
9

Locations acquired
 
27

 

 

 
27

Locations closed or consolidated
 
(1
)
 

 

 
(1
)
Total locations, end of period
 
934

 
26

 
86

 
1,046



(1)
The large format locations include retail showrooms and accept a broad array of pawn collateral including consumer electronics, appliances, power tools, jewelry and other general merchandise items. At June 30, 2015, 130 of the U.S. large format pawn stores, which are primarily located in Texas, also offered consumer loans or credit services products.

(2)
The small format locations typically have limited retail operations and primarily accept jewelry and small electronic items as pawn collateral and also offer consumer loans or credit services products.

21

 
 


(3)
The Company’s U.S. free-standing, small format consumer loan locations offer a credit services product and are all located in Texas. The Company intends to close an additional seven U.S. consumer loan locations in the second half of fiscal 2015. The Mexico locations offer small, short-term consumer loans. The Company’s credit services operations also include an internet distribution channel for customers residing in the state of Texas.

The following table details store openings for the six months ended June 30, 2015:

 
 
Pawn Locations
 
Consumer
 
 
 
 
Large
 
Small
 
Loan
 
Total
 
 
Format (1)
 
Format (2)
 
Locations (3)
 
Locations
Domestic:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
255

 
11

 
65

 
331

Locations acquired
 
29

 

 

 
29

Locations closed or consolidated
 
(1
)
 

 
(7
)
 
(8
)
Total locations, end of period
 
283

 
11

 
58

 
352

 
 
 
 
 
 
 
 
 
International:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
629

 
17

 
28

 
674

New locations opened
 
24

 

 

 
24

Locations closed or consolidated
 
(2
)
 
(2
)
 

 
(4
)
Total locations, end of period
 
651

 
15

 
28

 
694

 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
Total locations, beginning of period
 
884

 
28

 
93

 
1,005

New locations opened
 
24

 

 

 
24

Locations acquired
 
29

 

 

 
29

Locations closed or consolidated
 
(3
)
 
(2
)
 
(7
)
 
(12
)
Total locations, end of period
 
934

 
26

 
86

 
1,046


(1)
The large format locations include retail showrooms and accept a broad array of pawn collateral including consumer electronics, appliances, power tools, jewelry and other general merchandise items. At June 30, 2015, 130 of the U.S. large format pawn stores, which are primarily located in Texas, also offered consumer loans or credit services products.

(2)
The small format locations typically have limited retail operations and primarily accept jewelry and small electronic items as pawn collateral and also offer consumer loans or credit services products.

(3)
The Company’s U.S. free-standing, small format consumer loan locations offer a credit services product and are all located in Texas. The Company intends to close an additional seven U.S. consumer loan locations in the second half of fiscal 2015. The Mexico locations offer small, short-term consumer loans. The Company’s credit services operations also include an internet distribution channel for customers residing in the state of Texas.


22

 
 

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, related revenue and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. Such estimates, assumptions and judgments are subject to a number of risks and uncertainties, which may cause actual results to differ materially from the Company’s estimates. The significant accounting policies that the Company believes are the most critical to aid in fully understanding and evaluating its reported financial results have been reported in the Company’s 2014 annual report on Form 10-K. There have been no changes to the Company’s significant accounting policies for the six months ended June 30, 2015.

Recent Accounting Pronouncements

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

RESULTS OF CONTINUING OPERATIONS

The following table details customer loans and inventories held by the Company and active CSO Program credit extensions from an independent third-party lender as of June 30, 2015 as compared to June 30, 2014 (unaudited, in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current-year balances at the prior-year end-of-period exchange rate.

 
 
 
 
 
 
 
 
 
 
Increase/(Decrease)
 
 
Balance at June 30,
 
 
 
 
 
Constant Currency
 
 
2015
 
2014
 
Increase/(Decrease)
 
Basis
Domestic:
 
 
 
 
 
 
 
 
 
 
 
 
Pawn loans
 
$
69,080

 
$
63,000

 
$
6,080

 
10
 %
 
 
10
 %
 
CSO credit extensions held by independent third-party (1)
 
8,440

 
10,258

 
(1,818
)
 
(18
)%
 
 
(18
)%
 
Other consumer loans
 
626

 
772

 
(146
)
 
(19
)%
 
 
(19
)%
 
 
 
78,146

 
74,030

 
4,116

 
6
 %
 
 
6
 %
 
International:
 
 
 
 
 
 
 
 
 
 
 
 
Pawn loans
 
55,889

 
60,901

 
(5,012
)
 
(8
)%
 
 
10
 %
 
Other consumer loans
 
444

 
567

 
(123
)
 
(22
)%
 
 
(6
)%
 
 
 
56,333

 
61,468

 
(5,135
)
 
(8
)%
 
 
9
 %
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
Pawn loans
 
124,969

 
123,901

 
1,068

 
1
 %
 
 
10
 %
 
CSO credit extensions held by independent third-party (1)
 
8,440

 
10,258

 
(1,818
)
 
(18
)%
 
 
(18
)%
 
Other consumer loans
 
1,070

 
1,339

 
(269
)
 
(20
)%
 
 
(14
)%
 
 
 
$
134,479

 
$
135,498

 
$
(1,019
)
 
(1
)%
 
 
7
 %
 
Pawn inventories:
 
 
 
 
 
 
 
 
 
 
 
 
Domestic pawn inventories
 
$
48,492

 
$
36,370

 
$
12,122

 
33
 %
 
 
33
 %
 
International pawn inventories
 
39,588

 
41,217

 
(1,629
)
 
(4
)%
 
 
15
 %
 
 
 
$
88,080

 
$
77,587

 
$
10,493

 
14
 %
 
 
23
 %
 

(1)   CSO Program amounts outstanding are composed of the principal portion of active CSO Program extensions of credit by an independent third-party lender, which are not included on the Company’s balance sheet, net of the Company’s estimated fair value of its liability under the letters of credit guaranteeing the extensions of credit.


23

 
 

The following table details the composition of pawn collateral and the average outstanding pawn loan receivable as of June 30, 2015 as compared to June 30, 2014 (unaudited).

 
 
Balance at June 30,
 
 
2015
 
2014
Composition of pawn collateral:
 
 
 
 
Domestic pawn loans:
 
 
 
 
General merchandise
 
47
%
 
45
%
Jewelry
 
53
%
 
55
%
 
 
100
%
 
100
%
International pawn loans:
 
 
 
 
General merchandise
 
88
%
 
88
%
Jewelry
 
12
%
 
12
%
 
 
100
%
 
100
%
Total pawn loans:
 
 
 
 
General merchandise
 
66
%
 
66
%
Jewelry
 
34
%
 
34
%
 
 
100
%
 
100
%
 
 
 
 
 
Average outstanding pawn loan amount:
 
 
 
 
Domestic pawn loans
 
$
159

 
$
162

International pawn loans (1)
 
64

 
71

Total pawn loans (1)
 
95

 
100


(1)
Decline in average outstanding pawn loan is primarily due to the decline in the Mexican peso to U.S. dollar exchange rate in 2015.

Three Months Ended June 30, 2015 Compared To The Three Months Ended June 30, 2014

The following table details the components of the Company’s revenue for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 (unaudited, in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. The average value of the Mexican peso to the U.S. dollar decreased 18%, from 13.0 to 1 during the second quarter of 2014 to 15.3 to 1 during the second quarter of 2015. The end-of-period value of the Mexican peso to the U.S. dollar decreased 20% from 13.0 to 1 at June 30, 2014 to 15.6 to 1 at June 30, 2015. As a result of these currency exchange movements, revenue from Mexican operations translated into fewer U.S. dollars relative to the prior-year period, and net assets of Mexican operations as of June 30, 2015 translated into fewer U.S. dollars relative to the prior period end. While the strength of the U.S. dollar compared to the Mexican peso decreased the translated dollar-value of revenue generated in Mexico, the cost of sales and operating expenses decreased as well. The scrap jewelry generated in Mexico is exported and sold in U.S. dollars, which does not contribute to the Company’s peso-denominated earnings stream. See “—Non-GAAP Financial Information—Constant Currency Results” below. The Company’s exposure to foreign currency exchange rates is described further in the Company’s 2014 annual report on Form 10-K.


24

 
 

 
 
Three Months Ended
 
 
 
 
 
Increase/(Decrease)
 
 
June 30,
 
 
 
 
 
Constant Currency
 
 
2015
 
2014
 
Increase/(Decrease)
 
Basis
Domestic revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
44,323

 
$
37,877

 
$
6,446

 
17
 %
 
 
17
 %
 
Pawn loan fees
 
22,060

 
20,381

 
1,679

 
8
 %
 
 
8
 %
 
Consumer loan and credit services fees
 
6,174

 
7,710

 
(1,536
)
 
(20
)%
 
 
(20
)%
 
Wholesale scrap jewelry revenue
 
4,410

 
6,865

 
(2,455
)
 
(36
)%
 
 
(36
)%
 
 
 
76,967

 
72,833

 
4,134

 
6
 %
 
 
6
 %
 
International revenue:
 
 
 
 
 
 
 
 
 
 
 

 
Retail merchandise sales
 
61,302

 
59,311

 
1,991

 
3
 %
 
 
22
 %
 
Pawn loan fees
 
25,523

 
27,174

 
(1,651
)
 
(6
)%
 
 
11
 %
 
Consumer loan and credit services fees
 
536

 
706

 
(170
)
 
(24
)%
 
 
(11
)%
 
Wholesale scrap jewelry revenue
 
3,295

 
5,302

 
(2,007
)
 
(38
)%
 
 
(38
)%
 
 
 
90,656

 
92,493

 
(1,837
)
 
(2
)%
 
 
15
 %
 
Total revenue:
 
 
 
 
 
 
 
 

 
 
 
 
Retail merchandise sales
 
105,625

 
97,188

 
8,437

 
9
 %
 
 
20
 %
 
Pawn loan fees
 
47,583

 
47,555

 
28

 
 %
 
 
10
 %
 
Consumer loan and credit services fees
 
6,710

 
8,416

 
(1,706
)
 
(20
)%
 
 
(19
)%
 
Wholesale scrap jewelry revenue
 
7,705

 
12,167

 
(4,462
)
 
(37
)%
 
 
(37
)%
 
 
 
$
167,623

 
$
165,326

 
$
2,297

 
1
 %
 
 
11
 %
 

Domestic revenue accounted for approximately 46% of the total revenue for the current quarter, while international revenue (from Mexico) accounted for 54% of total revenue.

Retail Merchandise Sales Operations

Total retail merchandise sales increased 9% (20% on a constant currency basis) to $105,625,000 during the second quarter of 2015 compared to $97,188,000 for the second quarter of 2014. The increased retail merchandise sales in the Company’s pawn stores reflected store additions, maturation of existing stores and an increased mix of retail general merchandise inventories (primarily consumer electronics, appliances and power tools). During the second quarter of 2015, the gross profit margin on retail merchandise sales, which excludes scrap jewelry sales, was 38% compared to a gross profit margin of 39% on retail merchandise sales during the second quarter of 2014, which is consistent with the continued shift in the Company's consolidated retail product mix toward general merchandise inventory, which carries slightly lower margins than retail jewelry items.
Pawn inventories increased from $77,587,000 at June 30, 2014 to $88,080,000 at June 30, 2015, largely as a result of the 12% increase in the weighted-average store count during the second quarter of 2015, which included certain acquired stores that carried significant levels of inventory, and the maturation of existing stores. At June 30, 2015, the Company’s pawn inventories, at cost, were composed of: 30% jewelry (primarily gold jewelry held for retail sale), 40% electronics and appliances, 10% tools and 20% other. At June 30, 2014, the Company’s pawn inventories, at cost, were composed of: 30% jewelry (primarily gold jewelry held for retail sale), 43% electronics and appliances, 10% tools and 17% other. At June 30, 2015, 94% of total inventories, at cost, had been held for one year or less, while 6% had been held for more than one year. At June 30, 2014, 97% of total inventories, at cost, had been held for one year or less, while 3% had been held for more than one year. The increase in aged inventory (inventory held for more than one year) is primarily a result of recent acquisition activity. Excluding stores acquired within the last 12 months, aged inventories represented 4% of total inventories at June 30, 2015.

25

 
 

Pawn Lending Operations

Pawn loan fees increased slightly (10% on a constant currency basis) totaling $47,583,000 during the second quarter of 2015 compared to $47,555,000 for the second quarter of 2014. Consolidated pawn receivables as of June 30, 2015 increased 1% (10% increase on a constant currency basis) compared to June 30, 2014. The increase in constant currency pawn fees and receivables was primarily due to store additions. Mexico same-store pawn receivables increased slightly on a constant currency basis while U.S. same-store pawn receivables declined 4% from June 30, 2014 to June 30, 2015.

Consumer Lending Operations

Service fees from consumer loans and credit services transactions (collectively also known as payday loans) decreased 20% (19% on a constant currency basis) to $6,710,000 during the second quarter of 2015 compared to $8,416,000 for the second quarter of 2014. The Company attributes the decrease in part to increased competition and additional regulatory restrictions in many markets where the Company’s payday lending operations are focused, as well as the Company’s ongoing strategic downsizing of these operations with the closure of seven stand-alone consumer finance stores in Texas during the first quarter of 2015. Consumer/payday loan-related products comprised 4% of total revenue for the second quarter of 2015 compared to 5% for the second quarter of 2014.

The Company’s consumer loan and credit services credit loss provision of $1,709,000 was 25% of consumer loan and credit services fee revenue during the second quarter of 2015 compared to $2,236,000, or 27%, during the second quarter of 2014. The estimated fair value of liabilities under the CSO Program letters of credit, net of anticipated recoveries from customers, was $365,000, or 4.1% of the gross loan balance, at June 30, 2015 compared to $489,000, or 4.6% of the gross loan balance, at June 30, 2014, which is included as a component of the Company’s accrued liabilities. The Company’s loss reserve on consumer loans was $63,000, or 5.6% of the gross loan balance, at June 30, 2015 compared to $79,000, or 5.6% of the gross loan balance, at June 30, 2014.

Wholesale Scrap Jewelry Operations

Revenue from wholesale scrap jewelry operations decreased 37% to $7,705,000 during the second quarter of 2015 compared to $12,167,000 for the second quarter of 2014. Wholesale scrap jewelry revenue during the three months ended June 30, 2015 consisted primarily of gold sales, of which approximately 5,600 ounces were sold at an average selling price of $1,203 per ounce compared to approximately 8,000 ounces of gold sold at an average selling price of $1,318 per ounce in the prior-year period. The volume of liquidated scrap jewelry during the second quarter of 2015 decreased 30% compared to the second quarter of 2014, reflecting lower gold prices and the continued decline in transactions from customers selling gold to the Company. Gross profit from wholesale scrap jewelry operations decreased 30% (50% on a constant currency basis) to $1,473,000 during the second quarter of 2015 compared to $2,091,000 during the second quarter of 2014. The scrap gross profit margin was 19% compared to the prior-year margin of 17%. Scrap jewelry profits accounted for 2% of net revenue (gross profit) for the second quarter of 2015 and 2014. The average market price of gold during the second quarter of 2015 decreased 7% compared to the second quarter of 2014, while the ending price at June 30, 2015 decreased 11% compared to June 30, 2014. The Company’s exposure to gold price risk is described further in the Company’s 2014 annual report on Form 10-K.

Combined Revenue Results

The increase in quarter-over-quarter total revenue of 1% (11% on a constant currency basis) reflected a 6% increase (16% on a constant currency basis) in combined retail sales and pawn fee revenue from new and existing pawn stores, offset by a decrease in non-core wholesale scrap jewelry revenue and consumer loan fees. Revenue generated by the stores opened or acquired since April 1, 2014 increased by $7,849,000 in Mexico and $9,840,000 in the United States in the second quarter of 2015 compared to the second quarter of 2014.

Excluding wholesale scrap jewelry sales and consumer loan fees, the Company’s same-store core revenue from retail sales and pawn fees increased 4% on a consolidated, constant currency basis from the second quarter of 2014 to the second quarter of 2015. Same-store core sales in Mexico increased 8% (constant currency basis), offset by a decrease in same-store core sales of 1% in the U.S. as compared to the prior-year period. Same-store wholesale scrap jewelry revenue decreased 42% in total, reflecting lower gold prices and reduced volumes from customers selling gold to the Company. The Company believes it will continue to experience overall growth in pawn revenue in fiscal 2015 from acquisitions, the opening of new stores and maturation of existing stores.


26

 
 

Store Operating Expenses

Store operating expenses increased by 6% to $51,746,000 during the second quarter of 2015 compared to $48,934,000 during the second quarter of 2014, primarily as a result of a 12% increase in the weighted-average store count, which included a number of large, mature stores added through acquisitions, offset by a an 18% year-over-year decline in the average value of the Mexican peso. Same-store operating expenses increased 1% on a constant currency basis, compared to the prior-year period.
 
The net store profit contribution from continuing operations for the second quarter of 2015 was $38,557,000, which equates to a store-level operating margin of 23% compared to $41,374,000 and 25% in the prior-year quarter. The decline in the store-level operating margin related primarily to a 30% decrease (50% on a constant currency basis) in net revenue from wholesale scrap jewelry and a 19% decrease (18% on a constant currency basis) in net revenue from payday lending.

Administrative Expenses, Interest, Taxes and Income

Administrative expenses increased 8% to $14,669,000 during the second quarter of 2015 compared to $13,615,000 during the second quarter of 2014, primarily as a result of a 12% increase in the weighted-average store count resulting in additional management and supervisory compensation and other support expenses required for such growth, partially offset by an 18% decline in the average value of the Mexican peso which reduced administrative expenses in Mexico. As a percentage of revenue, administrative expenses increased slightly from 8% during the second quarter of 2014 to 9% during the second quarter of 2015.

Interest expense increased to $4,126,000 in the second quarter of 2015 compared to $3,910,000 for the second quarter of 2014, reflecting an increase in the amount of outstanding debt. See “—Liquidity and Capital Resources.”

For the second quarter of 2015 and 2014, the Company’s effective federal income tax rates were 31.4% and 31.6%, respectively. The Company expects the effective tax rate for the remainder of 2015 to be approximately 31% to 32%, reflecting the blended statutory federal tax rates of 35% in the U.S. and 30% in Mexico.

Net income decreased 17% to $13,339,000 during the second quarter of 2015 compared to $16,015,000 during the second quarter of 2014. The decrease was primarily due to the weaker value of the Mexican peso versus the U.S. dollar, accounting for $2,063,000 of the decline, coupled with the continued declines in non-core jewelry scrapping and non-core payday lending operations, which in total accounted for $1,203,000 of the decline. Comprehensive income decreased 46% to $9,012,000 during the second quarter of 2015 compared to $16,582,000 during the second quarter of 2014, as a result of the translation of the Company’s peso-denominated net assets into U.S. dollars as of June 30, 2015. Total peso-denominated net assets related to the Company’s Mexican operations were $268,052,000 as of June 30, 2015.

Six Months Ended June 30, 2015 Compared To The Six Months Ended June 30, 2014

The following table details the components of the Company’s revenue for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 (unaudited, in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. The average value of the Mexican peso to the U.S. dollar decreased 15%, from 13.1 to 1 during the six months ended June 30, 2014 to 15.1 to 1 during the six months ended June 30, 2015. The end-of-period value of the Mexican peso to the U.S. dollar decreased 20% from 13.0 to 1 at June 30, 2014 to 15.6 to 1 at June 30, 2015. As a result of these currency exchange movements, revenue from Mexican operations translated into fewer U.S. dollars relative to the prior-year period, and net assets of Mexican operations as of June 30, 2015 translated into fewer U.S. dollars relative to the prior period end. While the strength of the U.S. dollar compared to the Mexican peso decreased the translated dollar-value of revenue generated in Mexico, the cost of sales and operating expenses decreased as well. The scrap jewelry generated in Mexico is exported and sold in U.S. dollars, which does not contribute to the Company’s peso-denominated earnings stream. See “—Non-GAAP Financial Information—Constant Currency Results” below. The Company’s exposure to foreign currency exchange rates is described further in the Company’s 2014 annual report on Form 10-K.

27

 
 

 
 
Six Months Ended
 
 
 
 
 
Increase/(Decrease)
 
 
June 30,
 
 
 
 
 
Constant Currency
 
 
2015
 
2014
 
Increase/(Decrease)
 
Basis
Domestic revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
96,329

 
$
83,452

 
$
12,877

 
15
 %
 
 
15
 %
 
Pawn loan fees
 
45,966

 
43,283

 
2,683

 
6
 %
 
 
6
 %
 
Consumer loan and credit services fees
 
13,238

 
16,822

 
(3,584
)
 
(21
)%
 
 
(21
)%
 
Wholesale scrap jewelry revenue
 
10,148

 
15,408

 
(5,260
)
 
(34
)%
 
 
(34
)%
 
 
 
165,681

 
158,965

 
6,716

 
4
 %
 
 
4
 %
 
International revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
119,750

 
112,444

 
7,306

 
6
 %
 
 
23
 %
 
Pawn loan fees
 
50,271

 
51,910

 
(1,639
)
 
(3
)%
 
 
12
 %
 
Consumer loan and credit services fees
 
1,067

 
1,378

 
(311
)
 
(23
)%
 
 
(11
)%
 
Wholesale scrap jewelry revenue
 
6,877

 
10,406

 
(3,529
)
 
(34
)%
 
 
(34
)%
 
 
 
177,965

 
176,138

 
1,827

 
1
 %
 
 
16
 %
 
Total revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
216,079

 
195,896

 
20,183

 
10
 %
 
 
20
 %
 
Pawn loan fees
 
96,237

 
95,193

 
1,044

 
1
 %
 
 
9
 %
 
Consumer loan and credit services fees
 
14,305

 
18,200

 
(3,895
)
 
(21
)%
 
 
(21
)%
 
Wholesale scrap jewelry revenue
 
17,025

 
25,814

 
(8,789
)
 
(34
)%
 
 
(34
)%
 
 
 
$
343,646

 
$
335,103

 
$
8,543

 
3
 %
 
 
10
 %
 

Domestic revenue accounted for approximately 48% of the total revenue for the six months ended June 30, 2015, while international revenue (from Mexico) accounted for 52% of total revenue.

Retail Merchandise Sales Operations

Total retail merchandise sales increased 10% (20% on a constant currency basis) to $216,079,000 during the six months ended June 30, 2015 compared to $195,896,000 for the six months ended June 30, 2014. The increased retail merchandise sales in the Company’s pawn stores reflected store additions, maturation of existing stores and an increased mix of retail general merchandise inventories (primarily consumer electronics, appliances and power tools). During the six months ended June 30, 2015, the gross profit margin on retail merchandise sales, which excludes scrap jewelry sales, was 38% compared to a gross profit margin of 39% on retail merchandise sales during the six months ended June 30, 2014, which is consistent with the continued shift in the Company's consolidated retail product mix toward general merchandise inventory that carries slightly lower margins than retail jewelry items.
Pawn inventories increased from $77,587,000 at June 30, 2014 to $88,080,000 at June 30, 2015, largely as a result of the 12% increase in the weighted-average store count during the six months ended June 30, 2015, which included certain acquired stores that carried significant levels of inventory, and the maturation of existing stores. At June 30, 2015, the Company’s pawn inventories, at cost, were composed of: 30% jewelry (primarily gold jewelry held for retail sale), 40% electronics and appliances, 10% tools and 20% other. At June 30, 2014, the Company’s pawn inventories, at cost, were composed of: 30% jewelry (primarily gold jewelry held for retail sale), 43% electronics and appliances, 10% tools and 17% other. At June 30, 2015, 94% of total inventories, at cost, had been held for one year or less, while 6% had been held for more than one year. At June 30, 2014, 97% of total inventories, at cost, had been held for one year or less, while 3% had been held for more than one year. The increase in aged inventory (inventory held for more than one year) is primarily a result of recent acquisition activity. Excluding stores acquired within the last 12 months, aged inventories represented 4% of total inventories at June 30, 2015.

28

 
 

Pawn Lending Operations

Pawn loan fees increased 1% (9% on a constant currency basis) to $96,237,000 during the six months ended June 30, 2015 compared to $95,193,000 for the six months ended June 30, 2014. Consolidated pawn receivables as of June 30, 2015 increased 1% (10% on a constant currency basis) compared to June 30, 2014. The increase in constant currency pawn fees and receivables was primarily due to store additions. Mexico same-store pawn receivables increased slightly on a constant currency basis while U.S. same-store pawn receivables declined 4% from June 30, 2014 to June 30, 2015.

Consumer Lending Operations

Service fees from consumer loans and credit services transactions (collectively also known as payday loans) decreased 21% (on a reported and constant currency basis) to $14,305,000 during the six months ended June 30, 2015 compared to $18,200,000 for the six months ended June 30, 2014. The Company attributes the decrease in part to increased competition and additional regulatory restrictions in many markets where the Company’s payday lending operations are focused, as well as the Company’s ongoing strategic downsizing of these operations with the closure of seven stand-alone consumer finance stores in Texas during the first quarter of 2015. Consumer/payday loan-related products comprised 4% of total revenue during the six months ended June 30, 2015 compared to 5% for the six months ended June 30, 2014.

The Company’s consumer loan and credit services credit loss provision of $2,706,000 was 19% of consumer loan and credit services fee revenue during the six months ended June 30, 2015 compared to $3,979,000, or 22%, during the six months ended June 30, 2014. The estimated fair value of liabilities under the CSO Program letters of credit, net of anticipated recoveries from customers, was $365,000, or 4.1% of the gross loan balance, at June 30, 2015 compared to $489,000, or 4.6% of the gross loan balance, at June 30, 2014, which is included as a component of the Company’s accrued liabilities. The Company’s loss reserve on consumer loans was $63,000, or 5.6% of the gross loan balance, at June 30, 2015 compared to $79,000, or 5.6% of the gross loan balance, at June 30, 2014.

Wholesale Scrap Jewelry Operations

Revenue from wholesale scrap jewelry operations decreased 34% to $17,025,000 during the six months ended June 30, 2015 compared to $25,814,000 for the six months ended June 30, 2014. Wholesale scrap jewelry revenue during the six months ended June 30, 2015 consisted primarily of gold sales, of which approximately 12,200 ounces were sold at an average selling price of $1,201 per ounce compared to approximately 16,900 ounces of gold sold at an average selling price of $1,311 per ounce in the prior-year period. The volume of liquidated scrap jewelry during the six months ended June 30, 2015 decreased 28% compared to the six months ended June 30, 2014, reflecting lower gold prices and the continued decline in transactions from customers selling gold to the Company. Gross profit from wholesale scrap jewelry operations decreased 40% (57% on a constant currency basis) to $2,784,000 during six months ended June 30, 2015 compared to $4,650,000 during the six months ended June 30, 2014. The scrap gross profit margin was 16% compared to the prior-period margin of 18%. Scrap jewelry profits accounted for 1% of net revenue (gross profit) for the six months ended June 30, 2015 compared to 2% in the six months ended June 30, 2014. The average market price of gold during the six months ended June 30, 2015 decreased 7% compared to the six months ended June 30, 2014, while the ending price at June 30, 2015 decreased 11% compared to June 30, 2014. The Company’s exposure to gold price risk is described further in the Company’s 2014 annual report on Form 10-K.

Combined Revenue Results

The increase in year-to-date total revenue of 3% (10% on a constant currency basis) reflected a 7% increase (16% on a constant currency basis) in combined retail sales and pawn fee revenue from new and existing pawn stores, offset by a decrease in non-core wholesale scrap jewelry revenue and consumer loan fees. Revenue generated by the stores opened or acquired since January 1, 2014 increased by $16,260,000 in Mexico and $20,804,000 in the United States in the six months ended June 30, 2015 compared to the six months ended June 30, 2014.

Excluding wholesale scrap jewelry sales and consumer loan fees, the Company’s same-store core revenue from retail sales and pawn fees increased 4% on a consolidated, constant currency basis from the six months ended June 30, 2014 to the six months ended June 30, 2015. Same-store core sales in Mexico increased 8% (constant currency basis), offset by a decrease in same-store core sales of 2% in the U.S. as compared to the prior-year period. Same-store wholesale scrap jewelry revenue decreased 40% in total, reflecting lower gold prices and reduced volumes from customers selling gold to the Company. The Company believes it will continue to experience overall growth in pawn revenue in fiscal 2015 from acquisitions, the opening of new stores and maturation of existing stores.


29

 
 

Store Operating Expenses

Store operating expenses increased by 7% to $104,067,000 during the six months ended June 30, 2015 compared to $97,426,000 during the six months ended June 30, 2014, primarily as a result of a 12% increase in the weighted-average store count which included a number of large, mature stores added through acquisitions, offset by a 15% year-over-year decline in the average value of the Mexican peso. Same-store operating expenses increased 1% on a constant currency basis, compared to the prior-year period.

The net store profit contribution from continuing operations for the six months ended June 30, 2015 was $81,220,000, which equates to a store-level operating margin of 24% compared to $85,795,000 and 26% in the prior-year period. The decline in the store-level operating margin related primarily to a 40% decrease (57% on a constant currency basis) in net revenue from wholesale scrap jewelry and an 18% decrease (17% on a constant currency basis) in net revenue from payday lending.

Administrative Expenses, Interest, Taxes and Income

Administrative expenses increased 6% to $28,507,000 during the six months ended June 30, 2015 compared to $26,944,000 during the six months ended June 30, 2014, primarily as a result of a 12% increase in the weighted-average store count resulting in additional management and supervisory compensation and other support expenses required for such growth. This increase was partially offset by a 15% decline in the average value of the Mexican peso which reduced administrative expenses in Mexico. As a percentage of revenue, administrative expenses were 8% in both the six months ended June 30, 2015 and 2014.

Interest expense increased to $8,146,000 during the six months ended June 30, 2015 compared to $5,346,000 for the six months ended June 30, 2014, primarily due to the issuance of the Company’s 6.75% senior notes in March 2014 and, to a lesser extent, an increase in the amount outstanding on the Company’s 2014 Credit Facility, as defined below. See “—Liquidity and Capital Resources.”

For the six months ended June 30, 2015 and 2014, the Company’s effective federal income tax rates were 31.2% and 25.6%, respectively. The Company recognized an estimated non-recurring income tax benefit of $3,669,000 in March 2014 as a result of a change in its estimated U.S. federal liability associated with the 2013 termination of its election to include foreign subsidiaries in its consolidated U.S. federal income tax return. Excluding the non-recurring benefit, the consolidated tax rate for the six months ended June 30, 2014 was 32.6% compared to an effective rate of 31.2% in the six months ended June 30, 2015. The Company expects the effective tax rate for the remainder of 2015 to be approximately 31% to 32%, reflecting the blended statutory federal tax rates of 35% in the U.S. and 30% in Mexico.

Net income decreased 22% to $30,127,000 during the six months ended June 30, 2015 compared to $38,697,000 during the six months ended June 30, 2014. The decrease was primarily due to the weaker value of the Mexican peso versus the U.S. dollar, accounting for $3,323,000 of the decline, coupled with the continued declines in non-core jewelry scrapping and non-core payday lending operations, which in total accounted for $3,002,000 of the decline, and an increase in interest expense due to the issuance of the Company’s 6.75% senior notes in March 2014. In addition, the year-to-date 2014 earnings included a non-recurring tax benefit of $3,669,000. Comprehensive income decreased 46% to $21,251,000 during the six months ended June 30, 2015 compared to $39,009,000 during the six months ended June 30, 2014, as a result of the translation of the Company’s peso-denominated net assets into U.S. dollars as of June 30, 2015. Total peso-denominated net assets related to the Company’s Mexican operations were $268,052,000 as of June 30, 2015.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2015, the Company’s primary sources of liquidity were $77,430,000 in cash and cash equivalents, $114,000,000 of available and unused funds under the Company’s long-term lines of credit with its commercial lenders, $143,650,000 in customer loans and $88,080,000 in inventories. As of June 30, 2015, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $68,451,000, which is primarily held in Mexican pesos. The Company had working capital of $279,193,000 as of June 30, 2015 and total equity exceeded liabilities by a ratio of 1.5 to 1.

On March 24, 2014, the Company issued $200,000,000 of 6.75% senior notes due on April 1, 2021 (the “Notes”). Interest on the Notes is payable semi-annually in arrears on April 1 and October 1. The Notes allow the Company to repurchase shares of its stock and to pay cash dividends within certain parameters.


30

 
 

At June 30, 2015, the Company maintained a line of credit with a group of U.S. based commercial lenders (the "2014 Credit Facility") in the amount of $160,000,000, which matures in February 2019. At June 30, 2015, the Company had $56,000,000 outstanding under the 2014 Credit Facility and $104,000,000 was available for borrowings. The 2014 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The interest rate on amounts outstanding under the 2014 Credit Facility at June 30, 2015 was 2.69% based on the prevailing 30-day LIBOR rate. The 2014 Credit Facility allows the Company to repurchase shares of its stock and to pay cash dividends within certain parameters and requires the Company to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the 2014 Credit Facility as of June 30, 2015, and believes it has the capacity to borrow the full amount available under the 2014 Credit Facility under the most restrictive covenant. During the six months ended June 30, 2015, the Company had net proceeds of $33,600,000 on the 2014 Credit Facility.

At June 30, 2015, the Company maintained a line of credit with a bank in Mexico (the “Mexico Credit Facility”) in the amount of $10,000,000. The Mexico Credit Facility bears interest at the prevailing 30-day LIBOR rate plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of June 30, 2015, and believes it has the capacity to borrow the full amount available under the Mexico Credit Facility under the most restrictive covenant. The Company is required to pay a one-time commitment fee of $25,000 due when the first amount is drawn/borrowed. At June 30, 2015, the Company had no amount outstanding under the Mexico Credit Facility and $10,000,000 was available for borrowings.

In general, revenue growth is dependent upon the Company’s ability to fund growth of store locations, customer loan balances and inventories. In addition to these factors, changes in loan balances, collection of pawn fees, merchandise sales, inventory levels, operating expenses, administrative expenses, tax rates, gold prices, foreign currency exchange rates and the pace of new store expansions and acquisitions affect the Company’s liquidity. Management believes that cash on hand, the borrowings available under its credit facilities, anticipated cash generated from operations (including the normal seasonal increases in operating cash flows occurring in the first and fourth quarters) and other current working capital will be sufficient to meet the Company’s anticipated capital requirements for its business for at least the next 12 months. Where appropriate or desirable, in connection with the Company’s efficient management of its liquidity position, the Company could seek to raise additional funds from a variety of sources, including the sale of assets, reductions in capital spending, the issuance of debt or equity securities and/or changes to its management of current assets. The characteristics of the Company’s current assets, specifically the ability to rapidly liquidate gold jewelry inventory and adjust outflows of cash in its lending practices, gives the Company flexibility to quickly modify its business strategy to increase cash flow from its business, if necessary. Regulatory developments affecting the Company’s operations may also impact profitability and liquidity. See “—Regulatory Developments.”

The following tables set forth certain historical information with respect to the Company’s sources and uses of cash and other key indicators of liquidity (unaudited, dollar amounts in thousands):
 
 
Six Months Ended
 
 
June 30,
 
 
2015
 
2014
Cash flow provided by operating activities
 
$
41,909

 
$
48,539

Cash flow used in investing activities
 
$
(44,171
)
 
$
(26,406
)
Cash flow provided by (used in) financing activities
 
$
15,144

 
$
(8,674
)

 
 
Balance at June 30,
 
 
2015
 
2014
Working capital
 
$
279,193

 
$
269,362

Current ratio
 
7.84:1

 
7.35:1

Leverage ratio (trailing twelve months)
 
1.8:1

 
1.4:1

Liabilities to equity
 
66
%
 
57
%
Inventory turns (trailing twelve months)
 
3.5x

 
3.8x



31

 
 

Net cash provided by operating activities decreased $6,630,000, or 14%, from $48,539,000 for the six months ended June 30, 2014 to $41,909,000 for the six months ended June 30, 2015, due primarily to the change in income taxes payable offset by other net changes in certain operating assets and liabilities (as noted in the consolidated statements of cash flows) and a decrease in net income of $8,570,000.

Net cash used in investing activities increased $17,765,000, or 67%, from $26,406,000 for the six months ended June 30, 2014 to $44,171,000 for the six months ended June 30, 2015. Cash flows from investing activities are utilized primarily to fund pawn store acquisitions, growth of pawn loans and purchases of property and equipment. The Company paid $31,600,000 in cash related to acquisitions during the six months ended June 30, 2015 compared to $6,389,000 in the prior-year period. The Company funded loans of $3,971,000 during the six months ended June 30, 2015 compared to $7,958,000 during the six months ended June 30, 2014.

Net cash provided by financing activities increased $23,818,000, or 275%, from net cash used in financing activities of $8,674,000 for the six months ended June 30, 2014 to net cash provided by financing activities of $15,144,000 for the six months ended June 30, 2015. Net payments on the Company’s prior credit facility and the 2014 Credit Facility were $182,000,000 during the six months ended June 30, 2014 compared to net proceeds of $33,600,000 from the 2014 Credit Facility during the six months ended June 30, 2015, and the Company paid $1,410,000 of debt issuance costs related to the 2014 Credit Facility during the six months ended June 30, 2014. The Company received proceeds from the offering of the Notes of $200,000,000 and paid $4,987,000 of related debt issuance costs during the six months ended June 30, 2014. The Company repurchased its common stock ($22,974,000 during the six months ended June 30, 2015 compared to $13,314,000 during the six months ended June 30, 2014), and realized proceeds from the exercise of stock options and the related tax benefit of $4,518,000 during the six months ended June 30, 2015 compared to $1,389,000 during the six months ended June 30, 2014.

During the six months ended June 30, 2015, the Company opened 24 new pawn stores in Mexico and acquired 29 pawn stores in the United States. The purchase price of the 2015 acquisitions, net of cash acquired, was $31,825,000 and was composed of $30,675,000 in cash paid at closing and an additional $1,150,000 payable on or before June 2016. During the six months ended June 30, 2015, the Company paid $925,000 of amounts payable related to previous acquisitions. The Company funded $8,600,000 in capital expenditures, primarily for new stores, during the six months ended June 30, 2015 and expects to fund capital expenditures at a slightly increased annualized rate in the remainder of 2015. Acquisition purchase prices, capital expenditures, working capital requirements and start-up losses related to this expansion have been primarily funded through cash balances, operating cash flows and the Company’s credit facilities. The Company’s cash flow and liquidity available to fund expansion in 2015 included net cash flow from operating activities of $41,909,000 for the six months ended June 30, 2015.

The Company intends to continue expansion primarily through acquisitions and new store openings. For fiscal 2015, the Company expects to add approximately 80 to 90 stores. Management believes that cash on hand, the amounts available to be drawn under the credit facilities and cash generated from operations will be sufficient to accommodate the Company’s current operations and store expansion plans for the remainder of 2015.

The Company continually looks for, and is presented with, potential acquisition opportunities. The Company currently has no contractual commitments for materially significant future acquisitions or other capital commitments. The Company will evaluate potential acquisitions based upon growth potential, purchase price, available liquidity, strategic fit and quality of management personnel, among other factors. If the Company encounters an attractive opportunity to acquire new stores in the near future, the Company may seek additional financing, the terms of which will be negotiated on a case-by-case basis.

In January 2015, the Company’s Board of Directors authorized a new common stock repurchase program for up to 2,000,000 shares of the Company’s outstanding common stock. During the six months ended June 30, 2015, the Company repurchased 463,000 shares of its common stock at an aggregate cost of $22,974,000 at an average price of $49.65 per share and 1,537,000 shares remain available for repurchase under the repurchase program. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, regulatory requirements, the market price of the Company's stock and the availability of alternative investment opportunities. No time limit was set for completion of repurchases under the new authorization and the program may be suspended or discontinued at any time.



32

 
 

Non-GAAP Financial Information

The Company uses certain financial calculations such as EBITDA from continuing operations, free cash flow and constant currency results (as defined or explained below) as factors in the measurement and evaluation of the Company’s operating performance and period-over-period growth. The Company derives these financial calculations on the basis of methodologies other than generally accepted accounting principles (“GAAP”), primarily by excluding from a comparable GAAP measure certain items that the Company does not consider to be representative of its actual operating performance. These financial calculations are “non-GAAP financial measures” as defined in SEC rules. The Company uses these financial calculations in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items and other infrequent charges. The Company presents these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the Company’s operating performance and because management believes they provide greater transparency into the Company’s results of operations. However, items that are excluded and other adjustments and assumptions that are made in calculating EBITDA from continuing operations, free cash flow and constant currency results are significant components in understanding and assessing the Company’s financial performance. These non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company’s GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP and are thus susceptible to varying calculations, EBITDA from continuing operations, free cash flow and constant currency results, as presented, may not be comparable to other similarly titled measures of other companies.

Earnings from Continuing Operations Before Interest, Taxes, Depreciation and Amortization

The Company defines EBITDA from continuing operations as net income (loss) before income (loss) from discontinued operations net of tax, income taxes, depreciation and amortization, interest expense and interest income. EBITDA from continuing operations is commonly used by investors to assess a company’s leverage capacity, liquidity and financial performance. However, EBITDA from continuing operations has limitations as an analytical tool and should not be considered in isolation or as a substitute for net income (loss) or other statement of income data prepared in accordance with GAAP. The following table provides a reconciliation of net income to EBITDA from continuing operations (unaudited, in thousands):  

33

 
 

 
 
 
 
 
 
 
 
 
 
Trailing Twelve
 
 
Three Months Ended
 
Six Months Ended
 
Months Ended
 
 
June 30,
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Net income
 
$
13,339

 
$
16,015

 
$
30,127

 
$
38,697

 
$
76,596

 
$
86,616

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Income taxes
 
6,092

 
7,384

 
13,693

 
13,438

 
31,797

 
30,059

Depreciation and amortization
 
4,467

 
4,325

 
9,014

 
8,597

 
17,893

 
16,600

Interest expense
 
4,126

 
3,910

 
8,146

 
5,346

 
16,327

 
7,486

Interest income
 
(393
)
 
(262
)
 
(737
)
 
(343
)
 
(1,076
)
 
(467
)
EBITDA
 
$
27,631

 
$
31,372

 
$
60,243

 
$
65,735

 
$
141,537

 
$
140,294

Loss from discontinued operations, net of tax
 

 

 

 
272

 

 
998

EBITDA from continuing operations
 
$
27,631

 
$
31,372

 
$
60,243

 
$
66,007

 
$
141,537

 
$
141,292

 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA from continuing operations margin calculated as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from continuing operations
 
$
167,623

 
$
165,326

 
$
343,646

 
$
335,103

 
$
721,420

 
$
693,685

EBITDA from continuing operations
 
$
27,631

 
$
31,372

 
$
60,243

 
$
66,007

 
$
141,537

 
$
141,292

EBITDA from continuing operations as a percentage of revenue
 
16
%
 
19
%
 
18
%
 
20
%
 
20
%
 
20
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage ratio (indebtedness divided by EBITDA from continuing operations):
 
 
 
 
 
 
 
 
 
 
 
 
Indebtedness
 
 
 
 
 
 
 
 
 
$
256,000

 
$
200,000

EBITDA from continuing operations
 


 


 


 


 
$
141,537

 
$
141,292

Leverage ratio
 
 
 
 
 
 
 
 
 
1.8:1

 
1.4:1


Free Cash Flow

For purposes of its internal liquidity assessments, the Company considers free cash flow, which is defined as cash flow from the operating activities of continuing and discontinued operations reduced by purchases of property and equipment and net cash outflow from loan receivables. Free cash flow is commonly used by investors as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to invest in future growth through new business development activities or acquisitions, repurchase stock, or repay debt obligations prior to their maturities. These metrics can also be used to evaluate the Company’s ability to generate cash flow from business operations and the impact that this cash flow has on the Company’s liquidity. However, free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for cash flow from operating activities, including discontinued operations, or other income statement data prepared in accordance with GAAP. The following table reconciles “net cash flow from operating activities, including discontinued operations” to “free cash flow” (unaudited, in thousands):

34

 
 

 
 
Trailing Twelve Months Ended
 
 
June 30,
 
 
2015
 
2014
Cash flow from operating activities, including discontinued operations
 
$
91,049

 
$
110,210

Cash flow from investing activities:
 
 
 
 
Loan receivables
 
1,517

 
(1,007
)
Purchases of property and equipment
 
(20,495
)
 
(28,357
)
Free cash flow
 
$
72,071

 
$
80,846


Constant Currency Results

The Company’s reporting currency is the U.S. dollar. However, certain performance metrics discussed in this report are presented on a “constant currency” basis, which may be considered a non-GAAP measurement of financial performance. The Company’s management uses constant currency results to evaluate operating results of certain business operations in Mexico, which are transacted in Mexican pesos. Pawn scrap jewelry in Mexico is sold in U.S. dollars and, accordingly, does not require a constant currency adjustment. Constant currency results reported herein are calculated by translating certain balance sheet and income statement items denominated in Mexican pesos using the exchange rate from the prior-year comparable period, as opposed to the current comparable period, in order to exclude the effects of foreign currency rate fluctuations for purposes of evaluating period-over-period comparisons. For balance sheet items, the end-of-period exchange rate of 13.0 Mexican pesos / U.S. dollar at June 30, 2014 was used compared to the exchange rate of 15.6 Mexican pesos / U.S. dollar at June 30, 2015. For income statement items, the average exchange rate for the prior-year quarter ended June 30, 2014 of 13.0 Mexican pesos / U.S. dollar was used compared to the current quarter rate of 15.3 Mexican pesos / U.S. dollar. The average exchange rate for the prior-year six-month period ended June 30, 2014 was 13.1 Mexican pesos / U.S. dollar was used compared to the current year-to-date rate of 15.1 Mexican pesos / U.S. dollar.  

Regulatory Developments   

The Company is subject to significant regulation of its pawn, consumer loan and general business operations in all of the jurisdictions in which it operates. These regulations are implemented through various laws, ordinances and regulatory pronouncements from federal, state and municipal governmental entities in the United States and Mexico. These regulatory bodies often have broad discretionary authority in the establishment, interpretation and enforcement of such regulations. These regulations are often subject to change, sometimes significantly, as a result of political, economic or social trends, events and media perceptions.

The Company is subject to specific laws, ordinances and regulations primarily concerning its pawn and consumer lending operations. Many statutes and regulations prescribe, among other things, the general terms of the Company’s pawn and consumer loan agreements, including maximum service and/or interest rates that may be charged and collected. In many jurisdictions, in both the United States and Mexico, the Company must obtain and maintain regulatory operating licenses and comply with regular or frequent regulatory reporting and registration requirements, including reporting and recording of pawn loans, pawned collateral, used merchandise purchased from the general public, retail sales activities, firearm transactions, export, import and transfer of merchandise, and currency transactions, among other things.

In both the United States and Mexico, governmental action to further restrict or even prohibit pawn loans and transactions or small consumer loans, such as payday advances and credit services products, has been advocated over the past few years by elected officials, regulators, consumer advocacy groups and by media. The consumer groups and media typically focus on the aggregated cost to a consumer for pawn and consumer loans, which is typically higher than the interest generally charged by banks, credit unions and credit card issuers to a more creditworthy consumer. They also focus on affordability issues such as the borrower’s ability to repay such loans, real or perceived patterns of sustained or cyclical usage of such lending products and consumer loan collection practices perceived to be unfair or abusive. The consumer groups and media articles often characterize pawn and especially payday lending activities as unfair or potentially abusive to consumers. During the last few years, in both the United States and Mexico, legislation or ordinances (on federal, state and municipal levels) have been introduced or enacted to prohibit, restrict or further regulate pawn loans and related transactions, including acceptance of pawn collateral, sale of merchandise, payday loans, consumer loans, credit services and related service fees. In addition, regulatory authorities in various levels of government in the United States and Mexico have and will likely continue to propose or publicly address new or expanded regulations that would prohibit or further restrict pawn and consumer lending activities, or other related pawn transactions. Existing regulations and recent regulatory developments are described in greater detail in the Company’s annual report on Form 10-K for the year ended December 31, 2014. This information is supplemented with the discussion provided in the following paragraphs.

35

 
 

In March 2015, the Federal Consumer Financial Protection Bureau (“CFPB”) published proposed rules significantly affecting payday loans, vehicle title loans, deposit advance products, high-cost installment and open ended loans, lines of credit and other loans (“Proposed Rules”). The Proposed Rules, among other things, require additional underwriting requirements, requiring cooling-off periods between certain loans, and limitations to prevent the sustained use of certain loans. For example, forcing lenders to analyze whether consumers can afford and repay the loans without incurring increasing costs, capping loan amounts, limiting vehicles as collateral, capping the number of rollovers at two (three loans total) and require that the principal decrease with each rollover loan so that it is repaid after the third loan or provide a no-cost “off-ramp” after the third loan. The Proposed Rules would also restrict lenders from attempting to collect payment from consumers’ bank accounts in ways that cause the consumer to incur excessive bank fees. The CFPB published the Proposed Rules under consideration in preparation for convening a Small Business Review Panel to gather feedback from industry experts, small lenders, and the business community which is the next step in the rule-making process. The Proposed Rules are not final and could change significantly.

The Company does not currently anticipate that the Proposed Rules will affect the Company’s pawn loan products; however, the Company’s consumer loan, credit services and vehicle title loan products could be affected if they are finally adopted as written. During the six months ended June 30, 2015, the Company’s consumer and vehicle loans represented approximately 4% of the Company’s overall revenues. It is not possible to accurately predict the scope, extent, nature or effect of the Proposed Rules. Further, there can be no assurance that the CFPB will not propose or adopt future rules affecting pawn or short-term lending products, such as payday, title lending and credit services products, making them materially less profitable or even impractical to offer. Fiscal 2014 domestic consumer loan and credit services fees revenue recorded by the Company was $34,051,000 and at June 30, 2015, the Company had $7,913,000 of goodwill related to its U.S. consumer loan stores.

The Company is subject to numerous other types of regulations, including but not limited to, regulations related to securities and exchange activities, including financial reporting and internal controls processes, data protection and privacy, tax compliance, labor and employment practices, real estate transactions, electronic banking, credit card transactions, marketing, and advertising and other general business activities.

There can be no assurance that additional local, state or federal statutes or regulations in either the United States or Mexico will not be enacted or that existing laws and regulations will not be amended, decreed or interpreted at some future date that could outlaw or inhibit the ability of the Company to profitably operate any or all of its services. For example, such regulations could restrict the ability of the Company to offer pawn loans, consumer loans and credit services, or significantly decrease the interest rates or service fees for such lending activities, or prohibit or more stringently regulate the acceptance of pawn collateral, sale, exportation or importation of pawn merchandise, or processing of consumer loan transactions through the banking system, any of which could have a material adverse effect on the Company’s operations and financial condition. If legislative or regulatory actions or interpretations are taken at a federal, state or local jurisdiction level in the United States or Mexico which negatively affect the pawn, consumer loan or credit services industries where the Company has a significant number of stores, those actions could have a material adverse effect on the Company’s business operations. There can be no assurance that such regulatory action at any jurisdiction level in the United States or Mexico will not be enacted, or that existing laws and regulations will not be amended, decreed or interpreted in such a way which could have a material adverse effect on the Company’s operations and financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to the Company’s operations result primarily from changes in interest rates, gold prices and foreign currency exchange rates, and are described in detail in the Company’s 2014 annual report on Form 10-K. The impact of current-year fluctuations in gold prices and foreign currency exchange rates, in particular, are further discussed in Part I, Item 2 herein. There have been no material changes to the Company’s exposure to market risks since December 31, 2014.


36

 
 

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) (the “Exchange Act”) as of June 30, 2015 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms; and (ii) to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

There was no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or internal controls will prevent all possible error and fraud. The Company’s disclosure controls and procedures are, however, designed to provide reasonable assurance of achieving their objectives, and the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective at that reasonable assurance level.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes in the status of legal proceedings previously reported in the Company’s 2014 annual report on Form 10-K.

ITEM 1A. RISK FACTORS

Important risk factors that could affect the Company’s operations and financial performance, or that could cause results or events to differ from current expectations, are described in Part I, Item 1A, “Risk Factors” of the Company’s 2014 annual report on Form 10-K. These factors are supplemented by those discussed under “Regulatory Developments” in Part I, Item 2 of this report and in “Governmental Regulation” in Part I, Item 1 of the Company’s 2014 annual report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period from January 1, 2015 through June 30, 2015, the Company issued 145,000 shares of common stock relating to the exercise of outstanding stock options for an aggregate exercise price of $4,518,000 (including income tax benefit). During the period from January 1, 2015 through June 30, 2015, the Company granted a total of 45,000 nonvested shares of restricted common stock to certain executives of the Company. A total of 43,000 previously granted restricted shares vested and were issued during the period from January 1, 2015 through June 30, 2015.

The transactions set forth in the above paragraph were completed pursuant to Section 4(2) of the Securities Act, did not involve a public offering and were sold to a limited group of persons. Each recipient either received adequate information about the Company or had access, through employment or other relationships, to such information, and the Company determined that each recipient had such knowledge and experience in financial and business matters that they were able to evaluate the merits and risks of an investment in the Company. All sales of the Company’s securities were made by officers of the Company who received no commission or other remuneration for the solicitation of any person in connection with the respective sales of securities described above.

In January 2015, the Company’s Board of Directors authorized a repurchase program for up to 2,000,000 shares of the Company’s outstanding common stock. During the six months ended June 30, 2015, the Company repurchased 463,000 shares of its common stock at an aggregate cost of $22,974,000 at an average price of $49.65 per share and 1,537,000 shares remain available for repurchase under the repurchase program. Under its share repurchase program, the Company can purchase common stock in open market transactions, block or privately negotiated transactions, and may from time to time purchase shares pursuant to a trading

37

 
 

plan in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act, or by any combination of such methods. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, regulatory requirements, the market price of the Company's stock and the availability of alternative investment opportunities. No time limit was set for completion of repurchases under the authorization and the program may be suspended or discontinued at any time.

The following table provides the information with respect to purchases made by the Company of shares of its common stock during each month that the program was in effect during the six months ended June 30, 2015:

 
 
Total
Number
Of Shares
Purchased
 
Average
Price
Paid
Per Share
 
Total Number Of
Shares Purchased
As Part Of Publicly
Announced Plans
 
Maximum Number
Of Shares That May
Yet Be Purchased
Under The Plans
January 1 through January 31, 2015
 
79,600

 
$
49.94

 
79,600

 
1,920,400

February 1 through February 28, 2015
 
256,002

 
50.78

 
256,002

 
1,664,398

March 1 through March 31, 2015
 

 

 

 
1,664,398

April 1 through April 30, 2015
 
127,115

 
47.20

 
127,115

 
1,537,283

May 1 through May 31, 2015
 

 

 

 
1,537,283

June 1 through June 30, 2015
 

 

 

 
1,537,283

Total
 
462,717

 
$
49.65

 
462,717

 
 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

38

 
 

ITEM 6. EXHIBITS
 
 
 
 
Incorporated by Reference
 
 
Exhibit No.
 
Exhibit Description
 
Form
 
File No.
 
Exhibit
 
Filing Date
 
Filed Herewith
3.1
 
Amended Certificate of Incorporation
 
DEF 14A
 
0-19133
 
A
 
04/29/2004
 
 
3.2
 
Amended Bylaws
 
10-K
 
0-19133
 
3.2
 
03/31/2000
 
 
4.1
 
Common Stock Specimen
 
S-1
 
33-48436
 
4.2a
 
06/05/1992
 
 
4.2
 
Indenture, dated as of March 24, 2014, by and among First Cash Financial Services, Inc., the guarantors listed therein and BOKF, NA, dba Bank of Texas (including the form of Note attached as an exhibit thereto)
 
8-K
 
0-19133
 
4.1
 
03/25/2014
 
 
31.1
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Rick L. Wessel, Chief Executive Officer
 
 
 
 
 
 
 
 
 
X
31.2
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by R. Douglas Orr, Chief Financial Officer
 
 
 
 
 
 
 
 
 
X
32.1
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided by Rick L. Wessel, Chief Executive Officer
 
 
 
 
 
 
 
 
 
X
32.2
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided by R. Douglas Orr, Chief Financial Officer
 
 
 
 
 
 
 
 
 
X
101 (1)
 
The following financial information from the Company's Quarterly Report on Form 10-Q for the second quarter of fiscal 2015, filed with the SEC on July 22, 2015, is formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets at June 30, 2015, June 30, 2014 and December 31, 2014, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and June 30, 2014, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and June 30, 2014, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and June 30, 2014, (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014 and (vi) Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
X

(1)
The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

39

 
 

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: July 22, 2015
FIRST CASH FINANCIAL SERVICES, INC.
 
(Registrant)
 
 
 
/s/ RICK L. WESSEL
 
Rick L. Wessel
 
Chief Executive Officer
 
(Principal Executive Officer)
 
 
 
/s/ R. DOUGLAS ORR
 
R. Douglas Orr
 
Executive Vice President and Chief Financial Officer
 
(Principal Financial and Accounting Officer)

40

 
 

INDEX TO EXHIBITS

 
 
 
 
Incorporated by Reference
 
 
Exhibit No.
 
Exhibit Description
 
Form
 
File No.
 
Exhibit
 
Filing Date
 
Filed Herewith
3.1
 
Amended Certificate of Incorporation
 
DEF 14A
 
0-19133
 
A
 
04/29/2004
 
 
3.2
 
Amended Bylaws
 
10-K
 
0-19133
 
3.2
 
03/31/2000
 
 
4.1
 
Common Stock Specimen
 
S-1
 
33-48436
 
4.2a
 
06/05/1992
 
 
4.2
 
Indenture, dated as of March 24, 2014, by and among First Cash Financial Services, Inc., the guarantors listed therein and BOKF, NA, dba Bank of Texas (including the form of Note attached as an exhibit thereto)
 
8-K
 
0-19133
 
4.1
 
03/25/2014
 
 
31.1
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Rick L. Wessel, Chief Executive Officer
 
 
 
 
 
 
 
 
 
X
31.2
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by R. Douglas Orr, Chief Financial Officer
 
 
 
 
 
 
 
 
 
X
32.1
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided by Rick L. Wessel, Chief Executive Officer
 
 
 
 
 
 
 
 
 
X
32.2
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided by R. Douglas Orr, Chief Financial Officer
 
 
 
 
 
 
 
 
 
X
101 (1)
 
The following financial information from the Company's Quarterly Report on Form 10-Q for the second quarter of fiscal 2015, filed with the SEC on July 22, 2015, is formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets at June 30, 2015, June 30, 2014 and December 31, 2014, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and June 30, 2014, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and June 30, 2014, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and June 30, 2014, (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014 and (vi) Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
X

(1)
The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

41