F I R S T C A S H F I N A N C I A L S E R V I C E S ,
I N C .
2 0 0 7 A N N U A L R E P O R T
7
0
0
2
F I R S T C A S H F I N A N C I A L S E R V I C E S , I N C .
First Cash Financial Services, Inc. is a leading specialty retailer and provider of consumer financial services. Its pawn stores make
small loans secured by pledged personal property, retail a wide variety of jewelry, electronics, tools and other merchandise, and in
many locations, provide short-term loans and credit services products. The Company’s short-term loan locations provide short-term
loan products including check cashing, credit services and other financial services products. First Cash also operates automobile
dealerships in the “buy-here/pay-here” segment of the used-vehicle retail market. In total, the Company owns and operates over 475
stores in thirteen U.S. states and twelve states in Mexico. First Cash is also an equal partner in Cash & Go, Ltd., a joint venture,
which owns and operates 39 check cashing and short-term loan kiosks located inside convenience stores. First Cash is a component
company in both the Standard & Poor’s SmallCap 600 Index® and the Russell 2000 Index®. First Cash’s common stock (ticker symbol
"FCFS") is traded on the Nasdaq Global Select Market, which has the highest initial listing standards of any stock exchange in the
world based on financial and liquidity requirements.
F I N A N C I A L H I G H L I G H T S
I N T H O U S A N D S, E X C E P T P E R S H A R E A M O U N T S A N D N U M B E R O F S T O R E S
Year Ended December 31,
2007
2006
% increase
Revenues
Income from continuing operations
Diluted earnings per share from continuing operations
Total assets
Total stockholders’ equity
Number of stores
$388,450
$32,710
$1.00
$291,548
$201,209
475
$262,123
$28,775
$0.88
$233,842
$188,596
402
48%
14%
14%
25%
7%
18%
R E V E N U E ( I N M I L L I O N S )
2007
2006
2005
2004
2003
1999
2000
2002
2001
1997
1998
1996
1995
1994
1993
1992
1991
$2
$9
$16
$21
$32
$38
$49
$59
$98
$102
$107
$115
$140
$174
$201
$262
$388
L E T T E R T O T H E S H A R E H O L D E R S
Dear Fellow Shareholders:
W
e are pleased to report our operating results for 2007, as First Cash achieved record-setting levels of revenues, earnings
and new store openings. Our continued growth and success is due to our ability to identify and execute on our proven
strategies for expanding our geographic reach and product offerings.
2007 Financial and Operating Highlights
Key financial and operating highlights for fiscal 2007 included:
• Consolidated revenues of $388 million, an increase of 48% compared to the prior year.
• Net income from continuing operations of $32.7 million, an increase of 14%.
• Same-store revenue growth of 9% in the pawn and short-term loan stores.
• Total pawn receivable balances at December 31, 2007 increased by 28% compared to the prior year. The
increase was comprised of a 52% increase in receivables in the Mexico stores and a 16% increase in the
fully-mature U.S. stores.
• Total short-term loans, including third-party credit services loans outstanding, increased by 20% compared to the
prior year.
• Opening of 78 new locations during 2007, which increased the total store count to 475 locations.
• Return on stockholders’ equity of 15.8%.
In 2007, our domestic pawn stores continued to post strong growth in same-store revenues, store profits and loan growth, and generated
significant cash flows, which funded our expansion in other areas. In Mexico, where we opened 52 new stores in 2007, we continued to
expand into new markets with strong customer demographics. Total revenues in 2007 from Mexico grew 32% as compared to the prior
year. Our U.S. short-term loan revenues grew by 12% in 2007 through the opening of 21 new stores and the continued maturation of
existing stores.
The operating results of the Company’s Auto Master division were below expectations, especially in the fourth quarter, as deteriorating
economic conditions for Auto Master’s customer base negatively affected both retail sales and the credit loss provision. Auto Master
increased its credit loss reserves on a one-time basis by $3.6 million in December 2007 to reflect the expected continuation of these
trends into 2008. We have aggresively taken steps to reduce Auto Master’s credit losses in 2008 and better adapt the business to the
current economic climate. The Company’s earnings from continuing operations for 2007 also reflect the decision to discontinue
short-term loan operations in the District of Columbia (“D.C.”) in December 2007.
I N C O M E F R O M C O N T I N U I N G O P E R AT I O N S
( I N M I L L I O N S )
N U M B E R O F S TO R E S
$35
$30
$25
$20
$15
$10
$5
$0
‘03
$14
‘04
$19
‘05
$23
‘06
$29
‘07
$33
500
450
400
350
300
250
200
150
100
50
0
2
0
0
7
‘03
230
‘04
279
‘05
323
‘06
402
‘07
475
TOTA L A S S E T S
( I N M I L L I O N S )
S TO C K H O L D E R S ’ E Q U I T Y
( I N M I L L I O N S )
$300
$275
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
‘03
$140
‘04
$162
‘05
$186
‘06
$234
‘07
$292
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
‘03
$117
‘04
$144
‘05
$163
‘06
$189
‘07
$201
Growth Strategy
First Cash continued to execute on its strategy of opening new stores in selected high-potential markets during 2007. In total, we have opened
or acquired approximately 300 new stores since 2002, representing a 157% increase in our store count over the past 5 years. In addition, the
Company expanded its product offerings in 2007 through the introduction of its CashYa! consumer loan stores in Mexico and the addition
of an installment loan product in over 150 U.S. stores. The Company plans to continue its diversified expansion program in 2008, as we expect
to open approximately 80 new locations. Approximately 60 of the store openings are expected to be First Cash Pawn and CashYa! locations
in Mexico.
Financial Strength
The Company’s balance sheet and cash flows remain strong. During 2007, the Company continued to fund the majority of its working capital
needs and store expansion program through operating cash flows. In addition, the Company repurchased $32 million of its common stock
during 2007. Total outstanding debt is well below the Company’s 2007 EBITDA of approximately $65 million. Stockholders’ equity continued
to increase in 2007, and stands at $201 million as of December 31, 2007, compared to $189 million at the end of 2006. The strength of our
balance sheet and expected future cash flows should provide tremendous flexibility in funding continued growth.
Looking Ahead
The growth engine driven by our core pawn and short-term loan expansion strategy is stronger than ever. In Mexico, our newer stores are
ramping to profitability at a record pace, and we continue to identify and secure new markets and products for growth. Our diversified product
portfolio and geographic footprint position us to grow, even in uncertain economic conditions. First Cash’s ability to serve its core customer
base through a diversified set of products and convenient locations is key to our success and is innovative and unique within our industry. We
have developed a sustainable, long-term growth strategy that allows us to significantly improve our top line revenues while driving bottom line
profitability, which is validated by the results we have accomplished to date. On behalf of the Board of Directors, officers, and staff of First Cash
Financial Services, we thank you for your continued support.
Sincerely,
Rick L. Wessel
Vice Chairman of the Board,
President and Chief Executive Officer
R. Douglas Orr
Executive Vice President and
Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ]
For the fiscal year ended December 31, 2007
[ ]
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
(state or other jurisdiction of incorporation or organization)
690 East Lamar Blvd., Suite 400
Arlington, Texas
(Address of principal executive offices)
75-2237318
(I.R.S. Employer Identification No.)
76011
(Zip Code)
Registrant’s telephone number, including area code:
(817) 460-3947
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of Exchange on Which Registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
No
Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
No
Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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.
Yes
Large accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the last reported
sales price on the Nasdaq National Market on June 30, 2007, is $672,419,000.
As of March 12, 2008, there were 30,651,154 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company’s Proxy Statement in connection with its Annual Meeting of Stockholders to be held on June 19,
2008, is incorporated by reference in Part III, Items 10, 11, 12 and 13.
FIRST CASH FINANCIAL SERVICES, INC.
FORM 10-K
For the Year Ended December 31, 2007
PART I
TABLE OF CONTENTS
Item 1.
Business .......................................................................................................................................................1
Item 1A. Risk Factors ...............................................................................................................................................15
Item 1B. Unresolved Staff Comments......................................................................................................................17
Properties ...................................................................................................................................................17
Item 2.
Legal Proceedings......................................................................................................................................18
Item 3.
Submission of Matters to a Vote of Security Holders ...............................................................................18
Item 4.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities........................................................................................................................................18
Item 6.
Selected Financial Data .............................................................................................................................20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................................36
Item 8.
Financial Statements and Supplementary Data..........................................................................................37
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................37
Item 9.
Item 9A. Controls and Procedures............................................................................................................................37
Item 9B. Other Information ......................................................................................................................................40
PART III
Item 10. Directors, Executive Officers and Corporate Governance ........................................................................40
Item 11. Executive Compensation ...........................................................................................................................40
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..40
Item 13. Certain Relationships and Related Transactions, and Director Independence ..........................................41
Item 14. Principal Accounting Fees and Services....................................................................................................41
PART IV
Item 15. Exhibits and Financial Statement Schedules .............................................................................................42
SIGNATURES ............................................................................................................................................................44
FORWARD-LOOKING INFORMATION
This annual report may contain forward-looking statements about the business, financial condition and prospects of
First Cash Financial Services, Inc. (“First Cash” or 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,” “intends,” “could,” or
“anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of
strategy. 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 annual report include, without
limitation, the Company’s expectations of earnings per share, earnings growth, expansion strategies, store and
dealership openings, liquidity, cash flows, credit losses and related provisions, debt repayments, consumer demand
for the Company’s products and services, competition, 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 that the expectations reflected in forward-looking statements are reasonable, there can be no assurances that
such expectations will prove to be accurate. Security holders are cautioned that such forward-looking statements
involve risks and uncertainties. The forward-looking statements contained in this annual report speak only as of the
date of this statement, 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. Certain factors may cause results to differ
materially from those anticipated by some of the statements made in this annual report. Such factors are difficult to
predict and many are beyond the control of the Company and may include changes in regional, national or
international economic conditions, changes in consumer borrowing and repayment behaviors, changes in credit
markets, credit losses, changes or increases in competition, the ability to locate, open and staff new stores and
dealerships, the availability or access to sources of inventory, inclement weather, the ability to successfully integrate
acquisitions, the ability to retain key management personnel, the ability to operate with limited regulation as a credit
services organization in Texas, new legislative initiatives or governmental regulations (or changes to existing laws
and regulations) affecting short-term loan businesses, credit services organizations, pawn businesses and buy-
here/pay-here automotive businesses in both the U.S. and Mexico, unforeseen litigation, changes in interest rates,
changes in tax rates or policies, changes in gold prices, changes in energy prices, changes in used-vehicle prices,
cost of funds, changes in foreign currency exchange rates, future business decisions, and other uncertainties. These
and other risks and uncertainties are further and more completely described in “Item 1A. Risk Factors.”
PART I
Item 1. Business
General
First Cash is a leading provider of consumer financial services and related specialty retail products. The Company
has over 475 locations in thirteen U.S. states and eleven states in Mexico as of March 12, 2008.
The Company’s pawn stores engage in both consumer finance and retail sales activities. They are a convenient
source for small consumer loans, advancing money against pledged tangible personal property such as jewelry,
electronic equipment, tools, sporting goods and musical equipment. The pawn stores also retail previously-owned
merchandise acquired through collateral forfeitures and over-the-counter purchases from customers. In addition,
many of the Company’s pawn stores offer short-term loans or credit services products.
The Company operates stand-alone short-term loan stores in six U.S. states and seven states in Mexico. These
stores provide consumer financial services products including short-term loans, credit services, check cashing,
money orders, money transfers and prepaid card products. The exact product mix varies by location. In addition,
the Company is a 50% partner in Cash & Go, Ltd., a Texas limited partnership, which currently owns and operates
kiosks located inside convenience stores that offer the credit services program and check cashing.
1
1
The Company operates automobile dealerships focused on the buy-here/pay-here segment of the used-vehicle sales
and financing industry. These automotive dealerships sell used vehicles and earn finance charges from the related
vehicle financing contracts.
In the District of Columbia (“D.C.”), legislation was passed in 2007 which set the maximum annual percentage rate
charged on short-term loans at 24%. The rate restrictions in D.C. made the short-term loan product financially
unviable; therefore, the Company discontinued these operations effective December 2007. All revenues, expenses
and income reported herein have been adjusted to reflect reclassification of the discontinued D.C. operations.
The Company was formed as a Texas corporation in July 1988 and in April 1991, the Company reincorporated as a
Delaware corporation. Except as otherwise indicated, the term “Company” includes its wholly-owned subsidiaries,
which are detailed in Exhibit 21.1.
The Company’s principal executive offices are located at 690 East Lamar Blvd., Suite 400, Arlington, Texas 76011,
and its telephone number is (817) 460-3947.
Industry
We believe that specialty consumer finance continues to represent a growing segment of the overall financial
services industry. This segment focuses on providing a quick and convenient source of short-term credit to
unbanked, underbanked and credit-challenged customers. These consumers are typically not effectively or
efficiently served by traditional lenders such as banks, credit unions or credit card providers. First Cash competes
directly in the specialty consumer finance industry with its pawn, short-term loan and buy-here/pay-here automotive
products and services.
The pawnshop industry in the United States is an established industry, with the highest concentration of pawnshops
located in the Southeast and Southwest regions of the country. The operation of pawnshops is governed primarily
by state laws, and accordingly, states that maintain pawn laws most conducive to profitable operations have
historically seen the greatest concentration of pawnshops. Management believes the U.S. pawnshop industry is
fragmented, with approximately 15,000 stores in the country. The three major publicly traded pawnshop
companies, which include First Cash, currently operate approximately 1,000 of the pawnshops in the United States.
The Company believes that individuals operating one to three locations own the majority of pawnshops.
Management further believes that the highly fragmented nature of the industry is due in part to the lack of qualified
management personnel, the difficulty of developing adequate financial controls and reporting systems, and the lack
of financial resources.
The pawnshop industry in Mexico is substantially less developed, as compared to the U.S., with fewer than 5,000
stores in the entire country. Management believes the Mexican pawnshop industry is also fragmented. The
Company currently operates over 205 pawnshops in Mexico and is the only major publicly traded U.S. company
with significant pawnshop operations in Mexico. A large percentage of the population in Mexico is unbanked or
underbanked and has limited access to consumer credit. The Company sees significant opportunity for future
expansion in Mexico due to the large potential consumer base and limited competition in that country.
The short-term loan industry has experienced significant growth over the past decade in the U.S. A leading industry
analyst estimates that there are approximately 24,000 short-term loan locations throughout the United States and
expects the number of locations to reach approximately 29,000 over the next decade. There are several privately
held chains that operate from 100 to approximately 1,500 stores each. The eight largest publicly held operators of
short-term loan stores, which include First Cash, operate a combined total of over 6,000 U.S. stores.
The market for used car sales and related financing in the United States is significant as well. Retail used car sales
typically occur through franchised new car dealerships that sell used cars or independent used car dealerships. The
Company operates in the buy-here/pay-here segment of the independent used car sales and finance market. Buy-
here/pay-here dealers sell and finance used cars to individuals who are unbanked, have limited credit histories or
past credit problems. Buy-here/pay-here dealers typically offer their customers certain advantages over more
traditional financing sources, such as broader and more flexible underwriting guidelines, flexible payment terms
(including scheduling payments on a weekly or bi-weekly basis to coincide with a customer’s payday), and the
ability to make payments in person, an important feature to individuals who may not have a checking account.
2
2
The used automobile financing industry is served by traditional lending sources such as banks, savings and loans,
and captive finance subsidiaries of automobile manufacturers, as well as by independent finance companies and
buy-here/pay-here dealers. Despite significant opportunities, many of the traditional lending sources do not
consistently provide financing to individuals with limited credit histories or past credit problems. Management
believes traditional lenders avoid this market because of the credit risk and the associated collection efforts.
Business Strategy
The Company’s business plan is to continue the expansion of its operations by opening new retail locations and to
remain focused on increasing the revenues and operating profits in its existing stores and dealerships.
New Store Openings
The Company has opened or acquired 185 new pawn stores, 142 new short-term loan stores and 15 buy-here/pay-
here automotive dealerships in the last six years and currently intends to open additional pawn stores, short-term
loan stores and buy-here/pay-here automotive dealerships in locations where management believes appropriate
demand and other favorable conditions exist. The following chart details store openings over the past six years:
Pawn stores
Short-term loan stores
Buy-here/pay-here dealerships
Total
2007
28
45
5
78
2006
26
44
10
80
2005
35
15
-
50
2004
40
12
-
52
2003
31
16
-
47
2002
25
10
-
35
The Company plans to continue opening new pawn stores, primarily in Mexico, and new short-term loan stores in
the U.S. and Mexico. The Company continues to evaluate new markets in both Mexico and the U.S. with favorable
demographics and regulatory environment for expansion opportunities and it believes that its organizational
structure is capable of supporting a larger, multi-country and multi-state store base.
Management opens new stores in markets where demographics are favorable and competition is limited. It is the
Company’s experience that after a suitable location has been identified and a lease and licenses are obtained, a new
store or dealership can be open for business within six to twelve weeks. The investment required to open a new
location includes store operating cash, inventory, funds for pawn and short-term loans, leasehold improvements,
store fixtures, security systems, computer equipment and start-up losses.
Enhance Productivity of Existing and Newly Opened Stores
The primary factors affecting the profitability of the Company’s existing store base are the volume and gross profit
of merchandise sales, the volume and yield on customer receivables outstanding, the volume and fees on credit
services transactions, check cashing transactions and other consumer financial services transactions, and the control
of store expenses, including the loss provision expense related to short-term loans, credit services, and buy-
here/pay-here receivables. To increase customer traffic, which management believes is a key determinant to
increasing its stores’ profitability, the Company has taken several steps to distinguish its stores and to make
customers feel more comfortable. In addition to well-lit parking facilities, the stores’ exteriors typically display
attractive and distinctive signage similar to those used by contemporary specialty retailers.
The Company has an employee-training program for both store and corporate-level personnel that stresses customer
service, productivity and professionalism. The Company utilizes a proprietary computer information system that
provides fully integrated functionality to support point-of-sale retail operations, inventory management and loan
processing. Each store is connected on a real-time basis to a secured off-site data center that houses the centralized
databases and operating systems. The information systems provide management with the ability to continuously
monitor store transactions and operating results. The Company maintains a well-trained internal audit staff that
conducts regular store visits to test compliance of financial and operational controls. Management believes that the
current operating and financial controls and systems are adequate for the Company’s existing store base and can
accommodate reasonably foreseeable growth in the near term.
3
3
Acquisitions
Because of the highly fragmented nature of the pawn, short-term loan and buy-here/pay-here automotive industries,
as well as the availability of certain regional chains, the Company believes that certain acquisition opportunities
may arise from time to time. The timing of any future acquisitions is based on identifying suitable stores and
purchasing them on terms that are viewed as favorable to the Company. Before making an acquisition, management
typically studies a demographic analysis of the surrounding area, considers the number and size of competing stores,
and researches state and local regulatory issues. Specific pawn store acquisition criteria include an evaluation of the
volume of annual pawn transactions, outstanding receivable balances, historical redemption rates, the quality and
quantity of inventory on hand, and location and condition of the facility, including lease terms. Factors involved in
evaluating the acquisition of short-term loan stores include the annual volume of transactions, locations and
conditions of facilities, and a demographic evaluation of the surrounding area to determine the potential for the
Company’s short-term loan and credit services products. Factors involved in evaluating the acquisition of buy-
here/pay-here automotive dealerships include the annual volume of transactions, outstanding receivables balance,
the quality and quantity of inventory on hand, locations and conditions of facilities, and a demographic evaluation
of the surrounding area to determine the potential for the Company’s retail vehicle and related financing products.
Pawn Lending Activities
The Company’s pawn stores advance money to their customers against the security of pledged goods provided by
their customers. The pledged goods are tangible personal property such as jewelry, electronic equipment, tools,
sporting goods and musical equipment. The pledged goods provide the only security to the Company for the
repayment of the pawn, as pawns cannot result in personal liability to the borrower. Accordingly, the Company
does not investigate the creditworthiness of the borrower, relying instead on the marketability and sales value of
pledged goods as a basis for its credit decision.
At the time a pawn transaction is entered into, an agreement, commonly referred to as a pawn ticket, is delivered to
the borrower for signature that sets forth, among other items, the name and address of the pawnshop, borrower’s
name, borrower’s identification number from his/her driver’s license or other identification, date, identification and
description of the pledged goods, including applicable serial numbers, amount financed, pawn service fee, maturity
date, total amount that must be paid to redeem the pledged goods on the maturity date, and the annual percentage
rate.
Pledged property is held through the term of the pawn, which is 30 days in Texas, South Carolina, Missouri,
Virginia, and Oklahoma, with an automatic extension period of 15 to 60 days depending on state laws, unless the
pawn is paid earlier or renewed. In Maryland, Washington, D.C., and Mexico, pledged property is held for 30 days.
In the event the borrower does not pay or renew a pawn within 90 days in South Carolina and Missouri, 60 days in
Texas and Oklahoma, 45 days in Virginia, 44 days in Washington, D.C. and Mexico and 40 days in Maryland, the
unredeemed collateral is forfeited to the Company and becomes inventory available for general liquidation or sale in
one of the Company’s stores. If a pawn is not repaid prior to the expiration of the automatic extension period, if
applicable, the property is forfeited to the Company and transferred to inventory at a value equal to the principal
amount of the loan, exclusive of accrued interest.
The amount the Company is willing to finance typically is based on a percentage of the estimated sale value of the
collateral. There are no minimum or maximum pawn to fair market value restrictions in connection with the
Company’s lending activities. The basis for the Company’s determination of the sale value includes such sources as
catalogs, blue books, on-line auction sites and newspapers. The Company also utilizes its integrated computer
information system to recall recent selling prices of similar merchandise in its own stores. These sources, together
with the employees’ experience in selling similar items of merchandise in particular stores, influence the
determination of the estimated sale value of such items. The Company does not utilize a standard or mandated
percentage of estimated sale value in determining the amount to be financed. Rather, the employee has the authority
to set the percentage for a particular item and to determine the ratio of pawn amount to estimated sale value with the
expectation that, if the item is forfeited to the pawnshop, its subsequent sale should yield a gross profit margin
consistent with the Company’s historical experience. It is the Company’s policy to value merchandise on a
conservative basis to avoid the risks associated with over-valuation. The recovery of the principal and realization of
gross profit on sales of inventory is dependent on the Company’s initial assessment of the property’s estimated sale
value. Improper assessment of the sale value of the collateral in the lending function can result in reduced
marketability of the property and sale of the property for an amount less than the principal amount pawned.
4
4
The Company contracts for a pawn service charge in lieu of interest to compensate it for the pawn loan. The
statutory service fees on pawns at its Texas stores range from 12% to 240% on an annualized basis depending on
the size of the pawn, and from 39% to 240% on an annualized basis at the Company’s Oklahoma stores. Pawns
made in the Maryland stores bear service fees of 144% to 240% on an annualized basis with a $6 minimum charge
per month, while pawns in Virginia earn 120% to 144% annually with a $5 minimum charge per month. In
Washington, D.C., a flat $2 charge per month applies to all pawns up to $40, and an 18% to 60% annualized service
charge applies to pawns greater than $40. In Missouri, pawns bear a total service and storage charge of 180% to
240% on an annualized basis with a $2.50 minimum charge per month, and South Carolina rates range from 100%
to 300%. In Mexico, pawns bear an annualized rate of 240%. As of December 31, 2007, the Company’s average
pawn loan was approximately $109.
Short-Term Loan and Credit Services Activities
The Company’s short-term loan stores and many of its pawn stores generally make short-term loans, also known as
payday advances, for a term typically thirty-one days or less. The typical short-term loan is for amounts ranging
from $100 to $1,000 with an average short-term loan being $455. To qualify for a short-term loan, a customer
generally must have proof of steady income, a checking account with a minimum of returned items within a
specified period, and valid identification. Upon completing an application and subsequent approval, the customer
writes a check on his or her personal checking account for the amount of the advance, plus applicable fees. At
maturity, the customer typically returns to the store to pay off the advance and related fee with cash, in which case
the check is returned to the customer. If the customer fails to repay the loan, the store then deposits the customer’s
check. Short-term loan transactions are subject to federal truth-in-lending regulations and fair debt collection
practice regulations. In addition, state and local regulations exist in certain markets, which, among other things,
limit the number of consecutive short-term loans a customer can obtain, limit the total transactions over a specified
time period, or limit the number of outstanding advances a consumer may have with any combination of lenders.
The term of the short-term loan generally ranges from 7 to 31 days. In California, Washington, Illinois, Oregon,
South Carolina, Oklahoma and Michigan, the maximum loan term is 31, 45, 45, 60, 31, 45 and 31 days,
respectively. Only Oregon and Oklahoma have a minimum term which is 31 and 12 days, respectively. Fees
charged for short-term loans are generally regulated by state law. In California, the service fee is 15% of the
check’s face value. Short-term loans made in Washington bear service fees of 15% on loan amounts up to $500 and
10% on loan amounts exceeding $500; the maximum loan amount being $700. Short-term loans made in Oregon
bear service fees at a 36% annual percentage rate on loan amounts up to $700 plus a $10 application fee. In South
Carolina, the service fee is 15% on loan amounts up to $300. Short-term loans made in Oklahoma bear service fees
of 15% on loan amounts up to $300 and 10% on loan amounts exceeding $300; the maximum loan amount being
$500. Short-term loans made in Michigan bear service fees ranging from 13% to 15% on loan amounts up to
$600. Short-term loans made in Illinois are limited to 15.5% per $100 advanced. In Illinois, the Company also
offers an installment loan product with terms of 14 to 180 days at fees which range from $16 to $35 per $100
advanced.
Banks return a significant number of customer short-term loan checks deposited by the Company due to insufficient
funds in the customers’ accounts. However, the Company subsequently collects a large percentage of these bad
debts by redepositing the customers’ checks or subsequent cash repayments by the customers. The profitability of
the Company’s short-term loan operations is dependent upon adequate collection of these returned items.
In the Company’s Texas locations, First Cash Credit, Ltd. (“FCC”), a wholly-owned subsidiary of the Company,
offers a fee-based credit services organization (“CSO”) program to assist consumers in obtaining credit. Under the
CSO program, FCC assists customers in applying for a short-term loan from an independent, non-bank, consumer
lending company (the “Independent Lender”) and issues the Independent Lender a letter of credit to guarantee the
repayment of the loan. The loans made by the Independent Lender to credit services customers of FCC range in
amount from $50 to $1,500, have terms of 7 to 180 days and bear interest at a rate of 9.9% on an annualized basis.
FCC typically charges a credit services fee of $15 to $22 per $100 advanced. If the loan is not repaid prior to the
expiration of the term, the customer’s personal check is deposited into the Independent Lender’s bank account.
Banks return a significant number of customer checks deposited into the Independent Lender’s account due to
insufficient funds in the customers’ accounts. If the loan is unpaid after 16 days from its due date, FCC reimburses
the Independent Lender, under the terms of its letter of credit, for the outstanding principal amount, accrued interest,
applicable late fees and returned check fees. FCC subsequently collects a large percentage of these bad debts by
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redepositing the customers’ checks or subsequent cash repayments by the customers. The profitability of the
Company’s credit services operations is dependent upon adequate collection of these returned items.
Pawn Merchandise Sales
The Company’s pawn merchandise sales are primarily retail sales to the general public in its pawn stores. The items
retailed are primarily used jewelry, consumer electronics, tools, musical instruments, and sporting goods. The
Company also melts down certain quantities of scrap gold jewelry and sells the gold at market commodity prices.
The Company acquires pawn merchandise inventory primarily through forfeited pawns and, to a lesser extent,
through purchases of used goods directly from the general public. Merchandise acquired by the Company through
defaulted pawns is carried in inventory at the amount of the related pawn loan, exclusive of any accrued service
fees.
The Company does not provide financing to purchasers 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
item is returned to inventory and previous payments are forfeited to the Company.
Buy-Here/Pay-Here Automotive Sales and Financing Activities
The Company’s buy-here/pay-here merchandise sales are retail sales of used vehicles to the general public at its
automotive dealerships. The Company purchases vehicles primarily through wholesalers, new car dealers and
auctions. The majority of vehicle purchasing is performed by the Company’s buyers. Senior management monitors
the quantity and quality of vehicles purchased and compares the cost of similar vehicles purchased among different
buyers. Vehicles acquired by the Company are carried in inventory at the amount of the purchase price plus vehicle
reconditioning costs.
The Company provides financing to substantially all of its customers who purchase a vehicle at one of its
dealerships. The Company only provides financing to its customers for the purchase of its vehicles, and the
Company does not provide any type of financing to non-retail customers. The Company’s finance contracts
typically include down payments and/or trade-in allowances ranging from 4% to 9% of the purchase price, and an
average term of 30 months. Missouri, Oklahoma and Arkansas state regulations limit interest rates to 22.99%,
21.99% and the Federal Reserve Discount Window Primary Rate (approx 3%) plus 5%, respectively. The
maximum rate in Texas varies by the year model, or a dealer can charge 18.99% without regard to the year model.
In Missouri, Oklahoma and Texas, the Company charges rates that are lower than those allowed by law and
generally lower than those charged by many of its competitors. Currently, the Company charges 7.9% interest on
all new sales in Arkansas, 16.99% on all sales in Oklahoma and Missouri and 17.9% on all new sales in Texas.
The Company requires payments be made on a weekly, bi-weekly, semi-monthly or monthly basis to coincide with
the customer’s pay date. Upon the customer and the Company reaching a preliminary agreement as to financing
terms, the Company obtains a credit application from the customer which includes information regarding
employment, residency, credit history and personal references, which is then verified by the Company’s
underwriting personnel. After the verification process, the underwriter makes the decision to accept, reject or
modify (perhaps obtain a greater down payment or require an acceptable co-buyer) the proposed transaction.
Financial Information about Segments
Additional financial information regarding the Company’s revenues and assets by each of its two operating
segments is provided in Note 15 of Notes to Consolidated Financial Statements.
Financial Information about Geographic Areas
Additional financial information regarding the Company’s revenues and long-lived assets by geographic areas is
provided in Note 16 of Notes to Consolidated Financial Statements.
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Locations and Operations
The Company seeks to establish clusters of several stores in specific geographic areas in order to achieve certain
economies of scale relative to supervision, purchasing and marketing. Financial information about geographic areas
is provided in Results of Operations and Note 16 of the Notes to the Consolidated Financial Statements. Of the
Company’s 278 pawn stores, 65 pawn stores also offer the short-term loan or credit services product. As of
December 31, 2007, the Company’s stores were located in the following states:
United States:
Texas
Maryland
California
Michigan
Illinois
Arkansas
South Carolina
Missouri
Oklahoma
Oregon
District of Columbia
Washington
Virginia
Mexico:
Tamaulipas
Chihuahua
Baja California
Coahuila
Nuevo Leon
Jalisco
Guanujuato
Aguascalientes
Durango
Queretaro
Sonora
Total
Short-Term
Loan/
Check
Cashing
Stores
Buy-Here/
Pay-Here
Automotive
Dealerships
Pawn
Stores
Total
Locations
57
21
-
-
-
-
6
3
3
4
2
-
-
40
31
30
28
26
12
6
4
3
1
1
278
112
-
15
12
10
-
-
-
-
-
-
-
-
-
5
3
3
3
1
7
6
4
1
-
182
2
9
2
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
171
21
15
12
10
9
6
5
5
5
4
3
2
40
34
33
28
27
19
12
8
3
2
1
475
In addition, at December 31, 2007, the Company’s 50% owned joint venture, Cash & Go, Ltd., operated a total of
39 staffed kiosks located inside convenience stores in the state of Texas. These kiosks offer credit services and
check cashing. During the year ended December 31, 2007, the Company closed one Cash & Go, Ltd. kiosk.
Pawn Store Operations
The typical Company pawn store is a freestanding building or part of a small retail strip shopping center with
adequate, well-lit parking. Management has established a standard store design intended to distinguish the
Company’s stores from the competition. The design consists of a well-illuminated exterior with distinctive signage
and a layout similar to a contemporary specialty retailer. The Company’s stores are typically open six to seven days
a week from 9:00 a.m. to between 6:00 p.m. and 9:00 p.m.
The Company’s computer system permits a store manager or clerk to rapidly recall the cost of an item in inventory,
the date it was purchased as well as the prior transaction history of a particular customer. It also facilitates the
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timely valuation of goods by showing values assigned to similar goods in the past. The Company has networked its
stores to permit the Company’s headquarters to more efficiently monitor each store’s operations, including
merchandise sales, service charge revenues, pawns written and redeemed, and changes in inventory.
The Company attempts to attract retail shoppers seeking value prices through the use of seasonal promotions,
special discounts for regular customers, prominent display of impulse purchase items such as jewelry, electronics
and tools, tent and sidewalk sales, and a layaway purchasing plan. The Company attempts to attract and retain pawn
customers by lending a competitive percentage of the estimated sale value of items presented for pledge and by
providing quick financing, renewal and redemption services in an appealing atmosphere.
Each pawnshop employs a manager, one or two assistant managers, and between one and eight sales personnel,
depending upon the size, sales volume and location of the store. The store manager is responsible for supervising
personnel and assuring that the store is managed in accordance with Company guidelines and established policies
and procedures. Each manager reports to an area supervisor who typically oversees four to seven store managers.
Area supervisors typically report to a regional market manager, who in turn reports to a Vice-President of
Operations.
The Company believes that profitability of its pawnshops is dependent, among other factors, upon its employees’
ability to make pawns that achieve optimum redemption rates, to be effective sales people and to provide prompt
and courteous service. Therefore, the Company trains its employees through direct instruction and on-the-job pawn
and sales experience. The new employee is introduced to the business through an orientation and training program
that includes on-the-job training in lending practices, layaways, merchandise valuation, and general administration
of store operations. Certain experienced employees receive training and an introduction to the fundamentals of
management to acquire the skills necessary to advance into management positions within the organization.
Management training typically involves exposure to income maximization, recruitment, inventory control and cost
efficiency. The Company maintains a performance-based compensation plan for all store employees based on sales,
gross profit and special promotional contests.
Short-Term Loan and Credit Services Operations
The Company’s short-term loan locations are typically part of a retail strip shopping center with good visibility from
a major street and easy access to parking. Management has established a standard store design intended to
distinguish the Company’s stores from the competition. The design consists of a well-illuminated exterior with
lighted signage. The interiors typically feature an ample lobby, separated from employee work areas by glass teller
windows. The Company’s stores are typically open six to seven days a week from 9:00 a.m. to between 6:00 p.m.
and 9:00 p.m.
Computer operating systems in the Company’s short-term loan stores allow a store manager or clerk to rapidly
recall customer check cashing histories, short-term loan histories, and other vital information. The Company
attempts to attract customers primarily through the stores’ visibility and television and yellow page advertisements
in certain markets.
Each short-term loan store employs a manager and between one and eight tellers, depending upon the size, loan
volume and location of the store. The store manager is responsible for supervising personnel and assuring that the
store is managed in accordance with Company guidelines and established policies and procedures. Each store
manager reports to an area supervisor who typically oversees two to five store managers. Area supervisors typically
report to a regional market manager, who in turn reports to a Vice-President of Operations.
The kiosks operated by the Cash & Go, Ltd. joint venture are located inside convenience stores. Each kiosk is a
physically secured area with its own counter space within the convenience store. Each kiosk is typically staffed by
one or two employees at any point in time.
The Company believes that profitability of its short-term loan locations is dependent upon its employees' ability to
make loans and extend credit services that achieve optimum loan performance, to manage bad debt expense and to
provide excellent customer service. Company employees are trained through direct instruction and on-the-job
lending, collections and customer service experience. The new employee is introduced to the business through a
training program that includes on-the-job training in lending practices, collections efforts and general administration
of store operations. Certain experienced employees receive training and an introduction to the fundamentals of
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management, such as income maximization, recruitment and cost efficiency, to acquire the skills necessary to
advance into management positions throughout the Company. The Company maintains a performance-based
compensation plan for all short-term loan and credit services store employees based on gross profit, net income and
other seasonal contests.
Buy-Here/Pay-Here Automotive Operations
The typical Company buy-here/pay-here automotive dealership is a freestanding building with adequate, well-lit
parking. Management has established a standard store design intended to distinguish the Company’s stores from the
competition. The design consists of a well-illuminated exterior with distinctive signage and a layout similar to other
automobile retailers. The Company’s dealerships are typically open six days a week from 9:00 a.m. to between 6:00
p.m. and 8:00 p.m. All stores are located on property between one and three acres in size.
Computer operating systems in the Company’s buy-here/pay-here dealerships allow a store manager or clerk to
rapidly recall the cost of a vehicle in inventory, the date it was purchased as well as the prior transaction history of a
particular customer and other vital information. The Company attempts to attract customers primarily through its
stores’ visibility, television, radio and internet advertisements. Another significant source of customers is repeat
customers and referrals. As a result, the Company offers special promotions to customers nearing the end of their
current contract or to previous customers that have paid out contracts. The Company also actively manages a
website, network of billboards, and a toll-free hotline, all of which drive traffic to individual stores.
Each dealership employs a manager, a team captain, and between three and eight sales personnel, depending upon
the size, sales volume and location of the dealership. The store manager is responsible for supervising personnel
and assuring that the store is managed in accordance with Company guidelines and established policies and
procedures. Each manager reports to a regional sales manager who typically oversees four to six store managers.
Regional sales managers report to Auto Master’s Vice-President of Operations.
The Company believes that profitability of its buy-here/pay-here dealerships is dependent upon its employees'
ability to sell vehicles and extend credit that achieves optimum loan performance, to manage bad debt expense and
to provide excellent customer service. Company employees are trained through direct instruction and on-the-job
sales, collections and customer service experience. New employees are introduced to the business through a
training program that includes on-the-job sales training in selling and financing practices and general administration
of store operations. The Company maintains a performance-based compensation plan for a substantial portion of all
buy-here/pay-here employees based on gross profit, net income and other types of programs related to the
advancement of functional and organizational goals and objectives.
The Company utilizes a highly centralized operating model. Key functions such as inventory purchasing, inventory
management, reconditioning, pricing, underwriting, marketing and collections are managed and executed at a
corporate and/or regional level. The Company believes it gains certain economies of scale and greater consistency
in operations by centralizing its operations.
The Company employs a full-time staff of buyers who purchase used cars from vehicle auctions, wholesalers, and
new vehicle dealers. The ability to purchase vehicles from multiple regions of the country protects the Company
from local and regional supply shortages while allowing it to showcase a much greater selection of quality vehicles.
Vehicle quality is important as it impacts front end sales, customer satisfaction and referrals, repeat business and
loan quality; a customer is more likely to make payments on a vehicle that is operational. Each vehicle purchased
by the Company is sent to a centralized reconditioning facility for inspection, necessary repairs, and detailing. This
is in contrast to many competitors, whose vehicles go directly from the auction or wholesaler to the retail location.
Adjacent to the Auto Master headquarters, reconditioning facilities are equipped with skilled technicians, bays to
accommodate 48 vehicles and a parts shop stocked with most commonly needed items. Upon arrival, each vehicle
is thoroughly inspected to determine the level of reconditioning necessary for the unit to meet the Company's retail
standards. Approximately 8% to 10% of vehicles purchased do not pass this inspection, and are therefore
wholesaled. Each remaining vehicle is assigned to a technician who completes the work mandated by the
inspection. The most common modifications are tune-ups and the replacement of parts which routinely wear
down such as brakes and tires; however, the Company's technicians are equipped to handle most major repairs as
well. Upon completion of all necessary repairs, each vehicle is then sent to the Company’s detail facility, where it is
cleaned, inside and out, by the detail staff.
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9
Corporate management monitors and controls inventory by working directly with the Company's buyers as well as its
retail location managers to ensure that each retail location has the appropriate mix of vehicle models and price ranges.
Based on each location's needs, management assigns the newly reconditioned vehicles to an individual retail location.
The Company's loan approval process begins as soon as the customer arrives at the retail location. Applications
which meet initial qualifications are sent to underwriting. The Company has a staff of full-time underwriters, all
of which are based in the Auto Master corporate office. Upon receipt of a credit application, an underwriter verifies
that it is within the Company's loan underwriting guidelines, checks the customer's credit and contacts the
customer's references. The Company has developed standardized loan underwriting guidelines which make the
approval process objective rather than subjective. Following approval from underwriting, sales management closes
the transaction, and the customer takes delivery of the vehicle.
Competition
The Company encounters significant competition in connection with all aspects of its business operations. These
competitive conditions may adversely affect the Company’s revenues, profitability, and ability to expand.
The Company competes primarily with other pawn store operators, short-term loan operators and buy-here/pay-here
dealership operators. Of the three largest publicly-held pawnshop operators, eight publicly-held short-term
loan/check cashing operators and two publicly-held buy-here/pay-here operators, all have more locations than the
Company. There are many privately held operators of short-term loan stores and buy-here/pay-here dealerships,
some of which are significantly larger than the Company. In addition, the pawnshop, short-term loan and buy-
here/pay-here industries are characterized by a large number of independent owner-operators, some of whom own
and operate multiple locations. The Company believes that the primary elements of competition in these businesses
are store location, the ability to lend competitive amounts on pawns and short-term loans, customer service, and
management of store employees. In addition, the Company competes with financial institutions, such as banks and
consumer finance companies, which generally lend on an unsecured as well as a secured basis. Other lenders may
and do lend money on terms more favorable than those offered by the Company. Many of these competitors have
greater financial resources than the Company.
In its retail operations, the Company’s competitors include numerous retail and wholesale stores, including jewelry
stores, discount retail stores, consumer electronics stores, on-line retailers, on-line auction sites and other
pawnshops. Competitive factors in the Company’s retail operations include the ability to provide the customer with
a variety of merchandise items at attractive prices. Many retailers have significantly greater financial resources than
the Company.
In the used automotive retail industry, the Company competes principally with other independent buy-here/pay-here
dealers, and to a lesser degree with used vehicle retail operations of franchised automobile dealerships, national or
regional, independent used vehicle dealers, and individuals who sell used vehicles in private transactions. The
Company competes for both the purchase and resale of used vehicles.
Governmental Regulation
General
The Company is subject to extensive regulation of its pawnshop, short-term loan, credit services, check cashing and
buy-here/pay-here automotive retailing operations in most jurisdictions in which it operates. These regulations are
provided through numerous laws, ordinances and regulatory pronouncements from various federal, state and local
governmental entities in the United States and Mexico. In many jurisdictions, the Company must obtain and
maintain regulatory operating licenses. In addition, many statutes and regulations prescribe, among other things, the
general terms of the Company’s loan agreements and the maximum service fees and/or interest rates that may be
charged. These regulatory agencies have broad discretionary authority. The Company is also subject to U.S.
federal and state regulations relating to the reporting and recording of certain currency transactions. The
Company’s pawn operations in Mexico are also subject to, and must comply with pawnshop and other general
business, tax, employment and consumer protection regulations from various federal, state and local governmental
agencies in Mexico.
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Governmental action to further prohibit or restrict, in particular, cash or payday advances and credit services
products has been advocated over the past few years by consumer advocacy groups and by media reports and
stories. The consumer groups and media stories typically focus on the cost to a consumer for short-term loans,
which is higher than the interest generally charged by credit card issuers to a more creditworthy consumer. The
consumer groups and media stories often characterize short-term loan activities as abusive toward consumers.
During the last few years, legislation has been introduced and/or enacted in the United States Congress, in certain
state legislatures and in various local jurisdictions to prohibit or restrict short-term loans and the related service
charges. In addition, regulatory authorities in various levels of government have proposed or publicly addressed,
from time to time, the possibility of proposing new or expanded regulations that would prohibit or further restrict
short-term loans.
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 at some future date that could
inhibit the ability of the Company to offer pawn loans, short-term loans, credit services and buy-here/pay-here
automotive retailing/financing, significantly decrease the service fees for lending money, or prohibit or more
stringently regulate the sale of certain goods, any of which could cause a significant, adverse effect on the
Company's future results. If legislative or regulatory actions that had negative effects on the pawn, short-term loan,
credit services or buy-here/pay-here automotive industries were taken at a federal level in the United States or
Mexico, or in U.S. or Mexican states or municipalities where the Company has a significant number of stores, those
actions could have a materially adverse effect on the Company’s lending, credit services and retail activities and
revenues. There can be no assurance that additional federal, state or local legislation in the U.S. or Mexico will not
be enacted, or that existing laws and regulations will not be amended, which would have a materially adverse
impact on the Company's operations and financial condition.
U.S. State and Local Regulations
The Company operates pawn stores in seven U.S. states, all of which have licensing and/or fee regulations on
pawnshop operations, which includes Texas, Oklahoma, Maryland, Virginia, South Carolina, Washington, D.C.,
and Missouri. The Company is licensed in each of the states in which a license is currently required for it to operate
as a pawnbroker. The Company's fee structures are at or below the applicable rate ceilings adopted by each of these
states. In addition, the Company is in compliance with the net asset requirements in states where it is required to
maintain certain levels of liquid assets for each pawn store it operates in the applicable state.
Under some county and municipal ordinances, pawn stores must provide local law enforcement agencies with
copies of all daily transactions involving pawns and over-the-counter purchases. These daily transaction reports are
designed to provide the local law enforcement officials with a detailed description of the goods involved, including
serial numbers, if any, and the name and address of the owner obtained from a valid identification card. Goods held
to secure pawns or goods purchased that are determined to belong to an owner other than the borrower or seller are
subject to recovery by the rightful owners. Historically, the Company has not found these claims to have a material,
adverse effect upon results of operations. The Company does not maintain insurance to cover the costs of returning
merchandise to its rightful owners.
The Company currently provides short-term loans, also known as payday advances, in seven U.S. states that have
licensing and/or fee and operating regulations related to its payday advance operations, which includes California,
Washington, Oklahoma, South Carolina, Oregon, Illinois and Michigan. The Company is licensed in each of the
states in which a license is currently required for it to operate as a payday advance provider. The Company's fee
structures are at or below the applicable rate ceilings adopted by each of these states. Regulations in certain states
limit the maximum number of consecutive payday advances that may be provided to a customer and/or limit the
total advances a customer may have outstanding at any point in time. As an example of such restrictive regulation,
states such as Illinois and Michigan have enacted payday advance laws that require payday advance lenders to
report their customers’ payday advance activities to a state-wide database. Short-term loan lenders operating in
conjunction with a state-wide database are generally restricted from making payday advance loans to customers
who may have a certain number of payday advances outstanding with other lenders. These database restrictions can
have the effect of preventing customers from obtaining the short-term loans they need and want. It is possible that
legislators and regulators could pursue database or other restrictive legislation in other states, despite the increasing
consumer demand for cash or payday advance products.
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The state of Oregon enacted legislation that provided for significantly more restrictive regulation of the payday loan
industry beginning in July 2007. The implementation of these more restrictive regulations, which capped payday
advance service fees at a 36% annual percentage rate plus a $10 application fee, had a significant negative effect on
the Company’s payday advance revenues in Oregon, beginning in July 2007. As a result, the Company closed two
of its seven locations in Oregon in July 2007. The impact of this change reduced the Company’s net income by
approximately $0.02 per share for the six-month period ended December 31, 2007, and could affect future periods
similarly.
In the District of Columbia, where the Company operated nine locations offering short-term/payday loans, a city
ordinance was enacted in the fourth quarter of 2007 to cap the maximum annual percentage rate charged on short-
term/payday loans at 24%. These rate restrictions in D.C. made the short-term loan product financially unviable,
and as a result, the Company discontinued D.C. payday operations effective December 2007, which is described
more fully in Note 5 of Notes to Consolidated Financial Statements.
The laws in the state of Texas permit licensed payday advance operations; however, restrictions on the maximum
fees that can be charged do not permit the Company to operate profitably as a payday advance lender.
Accordingly, in the state of Texas, the Company provides a credit services program to customers seeking short-term
loans. First Cash Credit, Ltd., a wholly-owned subsidiary of the Company, operates as a registered credit services
organization in the state of Texas as provided under Section 393 of the Texas Finance Code. As a credit services
organization, First Cash Credit, Ltd. assists customers, for a fee, in obtaining a short-term loan from an independent
lender. A credit services organization must provide the consumer with a disclosure statement and a credit services
agreement that describe in detail, among other things, the services the credit services organization will provide to
the consumer, the fees the consumer will be charged by the credit services organization for these services, the
details of the surety bond and the availability of the surety bond if the consumer believes the credit services
organization has violated the law, the consumer’s right to review his or her file, the procedures a consumer may
follow to dispute information contained in his or her file, and the availability of non-profit credit counseling
services. The credit services organization must also give a consumer the right to cancel the credit services
agreement without penalty within three days after the agreement is signed. In addition, under the provisions of the
credit services statute, each First Cash Credit, Ltd.’s credit services location must be registered as a credit services
organization and pay a registration fee. There can be no assurance that new legislative or regulatory initiatives will
not be enacted which would eliminate or restrict the Company’s ability to operate as a credit services organization
in the state of Texas.
Additional restrictive legislative and regulatory activity in other states or municipalities affecting short-term loan
and credit services products, if passed, could also adversely affect the Company’s short-term loan/credit services
business. Such restrictive legislation has been recently introduced in the states of Virginia, New Hampshire, Ohio,
South Carolina, Colorado, Washington and California. The Company has 15 short-term loan stores in California
and five pawn shops in South Carolina which offer short-term loans/payday advances. If payday advances were
significantly restricted or eliminated in the state of California, it could have a material adverse impact on the
Company’s financial condition and results of operations.
The Company’s buy-here/pay-here operations are subject to various state and local laws, ordinances and regulations
pertaining to the sale and financing of vehicles. Under these state laws, the Company’s dealerships must obtain a
license in order to operate or relocate. These laws also regulate advertising and sales practices. The Company’s
financing activities are subject to state and local motor vehicle finance laws, installment finance laws, usury laws
and other installment sales laws. Among other things, these laws require that the Company limit or prescribe terms
of the contracts it originates, require specified disclosures to customers, restrict collection practices, limit the
Company’s right to repossess and sell collateral, and prohibit discrimination against customers on the basis of
certain characteristics including age, race, gender and marital status.
The states in which the Company operates impose limits on interest rates the Company can charge on its loans.
These limits are generally based on either (i) a specified margin above the federal primary credit rate, (ii) the age of
the vehicle, or (iii) a fixed rate. Management believes the Company is in compliance in all material respects with all
applicable federal, state and local laws, ordinances and regulations. However, the adoption of additional laws,
changes in the interpretation of existing laws, or the Company’s entrance into jurisdictions with more stringent
regulatory requirements could have a material adverse effect on the Company’s used vehicle sales and finance
business.
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12
In some jurisdictions, check cashing companies or money transmission agents are required to meet minimum
bonding or capital requirements and are subject to record-keeping requirements.
U.S. Federal Regulations
Direct federal regulation of the pawn, short-term loan or buy-here/pay-here automotive retailing/financing industries
is generally limited. The federal government regulates, and generally prohibits, the ability of state and nationally
chartered banks to participate in the short-term loan industry through regulations established by both the U.S. Office
of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
During 2006, the United States Congress enacted legislation that caps the annual percentage rate charged on short-
term advance/payday loans made to active military personnel at 36%; this legislation became effective in
October 2007. The Company does not have any short-term/payday loan or credit services products bearing an
effective interest rate of 36% per annum or less, nor does the Company intend to develop any such product, as the
Company believes the losses and servicing costs associated with lending to the Company’s traditional customer base
would exceed the revenue produced at that rate. This new legislation did not have a material adverse effect on the
Company’s financial condition or results of operations. However, there can be no assurance that additional
restrictive legislative and regulatory activity at the federal level affecting all short-term loan and credit services
products will not be enacted. If such legislation were enacted it would have a material adverse effect on the
Company’s financial condition and results of operations.
In connection with short-term loan and automobile finance transactions, the Company must comply with the various
disclosure requirements under the Federal Truth in Lending Act (and Federal Reserve Regulation Z under that Act).
These disclosures include, among other things, the total amount of the finance charges and annualized percentage
rate of the finance charges associated with each short-term loan and vehicle financing transaction.
Under the Bank Secrecy Act regulations of the U.S. Department of the Treasury (the “Treasury Department”),
transactions involving currency in an amount greater than $10,000 or the purchase of monetary instruments for cash
in amounts from $3,000 to $10,000 must be recorded. In general, every financial institution, including the
Company, must report each deposit, withdrawal, exchange of currency or other payment or transfer, whether by,
through or to the financial institution, that involves currency in an amount greater than $10,000. In addition,
multiple currency transactions must be treated as single transactions if the financial institution has knowledge that
the transactions are by, or on behalf of, any one person and result in either cash in or cash out totaling more than
$10,000 during any one business day.
The Money Laundering Suppression Act of 1994 added a section to the Bank Secrecy Act requiring the registration
of “money services businesses,” like the Company, that engage in check cashing, currency exchange, money
transmission, or the issuance or redemption of money orders, traveler’s checks, and similar instruments. The
purpose of the registration is to enable governmental authorities to better enforce laws prohibiting money laundering
and other illegal activities. The regulations require money services businesses to register with the Treasury
Department by filing a form, adopted by the Financial Crimes Enforcement Network of the Treasury Department
(“FinCEN”), and to re-register at least every two years thereafter. The regulations also require that a money
services business maintain a list of names and addresses of, and other information about, its agents and that the list
be made available to any requesting law enforcement agency (through FinCEN). The agent list must be updated
annually.
In March 2000, FinCEN adopted additional regulations, implementing the Bank Secrecy Act that is also addressed
to money services businesses. These regulations require money services businesses, such as the Company, to report
suspicious transactions involving at least $2,000 to FinCEN. The regulations generally describe three classes of
reportable suspicious transactions – one or more related transactions that the money services business knows,
suspects, or has reason to suspect (1) involve funds derived from illegal activity or are intended to hide or disguise
such funds; (2) are designed to evade the requirements of the Bank Secrecy Act; or (3) appear to serve no business
or lawful purpose.
Under the USA PATRIOT Act passed by Congress in 2001 and revised in 2006, the Company is required to
maintain an anti-money laundering compliance program. The program must include (1) the development of internal
policies, procedures and controls; (2) the designation of a compliance officer; (3) an ongoing employee-training
program; and (4) an independent audit function to test the program. The Treasury Department is expected to issue
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regulations specifying the appropriate features and elements of the anti-money laundering compliance programs for
the pawn brokering and short-term loan industries.
The Gramm-Leach-Bliley Act requires the Company to generally protect the confidentiality of its customers’
nonpublic personal information and to disclose to its customers its privacy policy and practices, including those
regarding sharing the customers’ nonpublic personal information with third parties. Such disclosure must be made
to customers at the time the customer relationship is established, at least annually thereafter, and if there is a change
in the Company’s privacy policy.
The federal Equal Credit Opportunity Act (“ECOA”) prohibits discrimination against any credit applicant on the
basis of any protected category, such as race, color, religion, national origin, sex, marital status, or age, and requires
the Company to notify credit applicants of any action taken on the individual’s credit application. The Company
must provide a loan applicant a Notice of Adverse Action (“NOAA”) when the Company denies an application for
credit. The NOAA must inform the applicant of (1) the action taken regarding the credit application, (2) a statement
of the ECOA’s prohibition on discrimination, (3) the name and address of both the creditor and the federal agency
that monitors compliance with the ECOA, and (4) the applicant’s right to learn the specific reasons for the denial of
credit and the contact information for the parties the applicant can contact to obtain those reasons. The Company
provides NOAA letters and maintains records of all such letters as required by the ECOA and its implementing
regulations.
Mexico Regulations
The pawnshop and consumer finance industries in Mexico are subject to various general business regulations in the
areas of tax compliance, customs, consumer protections and employment matters, among others, by various federal,
state and local governmental agencies in Mexico. In addition, federal legislation in Mexico was recently enacted
which provides for administrative regulation of the pawnshop industry by PROFECO, the federal consumer
protection agency. Under these regulations, PROFECO regulates the form of pawn loan contracts and certain
operating procedures of pawnshops. PROFECO does not currently have regulatory authority over the interest rates
and fees charged to pawn customers. The Company’s short-term lending operations in Mexico are also subject to
regulation by federal banking regulations which require the Company to register its operations and contracts and
provide that the Company disclose the annualized percentage rate charged on short-term loan transactions. There
can be no assurance that additional federal, state or local statutes or regulations in Mexico will not be enacted, or
that existing laws and regulations will not be amended, which could have a materially adverse impact on the
Company's results of operations and financial condition.
Employees
The Company had approximately 3,300 employees as of March 12, 2008, including approximately 200 persons
employed in executive, administrative and accounting functions. In addition, Cash & Go, Ltd. had approximately
80 employees as of March 12, 2008. None of the Company’s employees are covered by collective bargaining
agreements. The Company considers its employee relations to be satisfactory.
First Cash Website
The Company’s primary website is at www.firstcash.com. The Company makes available, free of charge, at its
corporate website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), as soon as reasonably practicable after they are electronically filed with
the SEC.
Insurance
The Company maintains property risk coverage and liability insurance for each of its locations in amounts
management believes to be adequate. The Company maintains workers’ compensation insurance in Maryland,
Missouri, California, Virginia, Washington, Oregon, South Carolina, Illinois, Washington, D.C., Oklahoma,
Michigan, Arkansas, as well as excess employer’s indemnification insurance in Texas and equivalent coverage in
Mexico. The Company is a non-subscriber under the Texas Workers’ Compensation Act.
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Item 1A. Risk Factors
Important risk factors that could cause results or events to differ from current expectations are described below.
These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the
operations, performance, development and results of the Company's business.
Short-term consumer loan products have come under increased regulation and scrutiny. If changes in
regulations affecting the Company's pawn, short-term loan, automotive finance and credit services
businesses create increased restrictions, or have the effect of prohibiting loans in the countries and states
where the Company offers short-term consumer loans, such regulations could materially reduce the
Company's pawn, short-term loan, automotive finance and credit services businesses and limit its expansion
into new markets. The Company's products and services are subject to extensive regulation and supervision under
various federal, state and local laws, ordinances and regulations in both the United States and Mexico. The
Company faces the risk that restrictions or limitations on loan amounts, loan yields and customer acceptance of loan
products resulting from the enactment, change, or interpretation of laws and regulations in the United States or
Mexico could have a negative effect on the Company's business activities. In particular, short-term consumer loans,
including cash and payday advances, have come under increased scrutiny and increasingly restrictive regulation in
recent years. Some regulatory activity may limit the number of short-term loans that customers may receive or have
outstanding and regulations adopted by some states require that all borrowers of certain short-term loan products be
listed on a database, limiting the yield on short-term loans and limiting the number of such loans they may have
outstanding. Certain consumer advocacy groups and federal and state legislators have also asserted that laws and
regulations should be tightened so as to severely limit, if not eliminate, the availability of the short-term loan and
credit services products to consumers, despite the significant demand for it. In Mexico, similar restrictions and
regulations affecting the pawn industry, including limits on loan service fees, have been proposed from time to time.
Adoption of such federal, state or local regulation or legislation in the United States and Mexico could restrict, or
even eliminate, the availability of specialty consumer finance products at some or all of the Company's locations,
which would adversely affect the Company’s operations and financial condition.
The Company’s allowance for automotive finance and short-term loan credit losses may not be sufficient to
cover actual credit losses which could adversely affect its financial condition and operating results. The
Company has significant customer receivables arising from its buy-here/pay-here automotive finance operations and
its short-term loan portfolios. The Company has to recognize losses resulting from the inability of certain borrowers
to repay such receivables or loans and the insufficient realizable value of the collateral securing the loans. The
Company maintains an allowance for credit losses in an attempt to cover credit losses inherent in its automotive
finance and short-term loan portfolios. Additional credit losses will likely occur in the future and may occur at a rate
greater than the Company has experienced to date. The allowance for credit losses is based primarily upon historical
credit loss experience, with consideration given to delinquency levels, collateral values, economic conditions and
underwriting and collection practices. This evaluation is inherently subjective as it requires estimates of material
factors that may be susceptible to significant change. If the Company’s assumptions and judgments prove to be
incorrect, its current allowance may not be sufficient and adjustments may be necessary to allow for different
economic conditions or adverse developments in its loan portfolio.
The failure of third-parties who provide products, services or support to the Company to maintain their
products, services or support could disrupt Company operations or result in a loss of revenue. The
Company's credit services revenues depend in part on the willingness and ability of an unaffiliated third-party
lender to make loans to its customers. The loss of the relationship with this lender, and an inability to replace it with
a new lender or lenders, or the failure of the lender to fund new loans and to maintain quality and consistency in its
loan programs, could cause the Company to lose customers and substantially decrease the revenues and earnings of
the Company's credit services business. In addition, the Company’s lending and retail operations are dependent
upon the Company’s ability to maintain retail banking relationships with commercial banks.
Media reports and public perception of short-term consumer loans, such as payday advances or pawn loans,
as being predatory or abusive could materially adversely affect the Company's short-term loan, credit
services and pawn businesses. In recent years, consumer advocacy groups and some media reports, in both
the United States and Mexico, have advocated governmental action to prohibit or place severe restrictions on
short-term consumer loans. The consumer advocacy groups and media reports generally focus on the cost to a
consumer for this type of loan, which is higher than the interest typically charged by banks to consumers with better
credit histories. Though the consumer advocacy groups and media reports do not discuss the lack of viable
15
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alternatives for our customers' borrowing needs, they do typically characterize these short-term consumer loans as
predatory or abusive despite the large customer demand for these loans. If the negative characterization of these
types of loans becomes increasingly accepted by consumers, demand for the short-term loan products could
significantly decrease, which could materially affect the Company's results of operations and financial condition.
Additionally, if the negative characterization of these types of loans becomes increasingly accepted by legislators
and regulators, the Company could become subject to more restrictive laws and regulations that could materially
adversely affect the Company's financial condition and results of operations.
The Company's growth is subject to external factors and other circumstances over which the Company has
limited control or that are beyond the Company's control. These factors and circumstances could adversely
affect the Company's ability to grow through the opening of new store locations. The success of this strategy
is subject to numerous external factors, such as the availability of sites with favorable customer demographics,
limited competition, acceptable regulatory restrictions and suitable lease terms, the Company's ability to attract, train
and retain qualified unit management personnel and the ability to obtain required government permits and licenses.
Some of these factors are beyond the Company's control. The failure to execute this expansion strategy would
adversely affect the Company's ability to expand its business and could materially adversely affect its business,
prospects, results of operations and financial condition.
Increased competition from banks, savings and loans, other short-term consumer lenders, and other entities
offering similar financial services, as well as retail businesses that offer products and services offered by the
Company, could adversely affect the Company's results of operations. The Company has many competitors
to its core lending and merchandise sales operations. The Company’s principal competitors are other
pawnshops, short-term loan companies, internet-based lenders, automotive retailers, consumer finance companies
and other financial institutions that serve the Company's primary customer base. Many other financial institutions or
other businesses that do not now offer products or services directed toward the Company's traditional customer
base, many of whom may be much larger than the Company, could begin doing so. Significant increases in the
number and size of competitors for the Company's business could result in a decrease in the number of short-term
loans or pawn loans that the Company writes, resulting in lower levels of revenues and earnings in these categories.
Furthermore, the Company has many competitors to its retail operations, such as retailers of new merchandise and
automobiles, retailers of pre-owned merchandise and automobiles, other pawnshops, thrift shops, online retailers
and online auction sites. Increased competition or aggressive marketing and pricing practices by these competitors
could result in decreased revenues, margins and turnover rates in the Company's retail operations. In Mexico, the
Company competes directly with certain pawn stores owned by a governmental entity. The government could take
actions that would harm the Company’s ability to compete in the Mexico market.
A sustained deterioration of economic conditions could reduce demand for the Company's products and
services and increase credit losses which would result in reduced earnings. A sustained deterioration in the
economy could cause deterioration in the performance of the Company’s pawn loan portfolios and in consumer
demand for pre-owned merchandise such as that sold in the Company’s pawnshops. While the credit risk for much
of the Company’s pawn lending is mitigated by the collateralized nature of pawn lending, a sustained deterioration
in the economy could reduce the demand and resale value of pre-owned merchandise and reduce the amount that the
Company could effectively lend on an item of collateral. Such reductions could adversely affect pawn loan
balances, pawn loan redemption rates, inventory balances, inventory mixes and gross profit margins. An economic
slowdown could result in an increase in loan defaults in our short-term loan products. During such a slowdown, the
Company could be required to tighten its underwriting standards, which would reduce short-term loan balances, and
could face more difficulty in collecting defaulted short-term loans, which could lead to an increase in loan losses.
An economic slowdown could result in reduced automobile sales and an increase in loan defaults in our automotive
finance product. During such a slowdown, the Company could be required to tighten its underwriting standards,
which would reduce automobile sales, and could increase the amount of loans written-off.
Adverse gold market fluctuations could affect the Company’s profits. The Company holds significant gold
inventories and a significant portion of its pawn receivables are secured by gold jewelry collateral. A significant
decline in gold prices could result in decreased merchandise sales margins, decreased inventory valuations and sub-
standard collateralization of outstanding pawn loans. In addition, a decline in gold prices could result in a lower
balance of pawn loans outstanding for the Company, as customers would receive lower loan amounts for individual
pieces of jewelry.
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Risks and uncertainties related to the Company’s foreign operations could negatively impact the Company’s
operating results. The Company has a significant number of locations in Mexico, a country in which there are
potential risks related to geo-political events, enforcement of property rights, governmental regulations, public
safety and security among others. Actions or events could occur in Mexico that are beyond the Company’s control,
which could restrict or eliminate the Company’s ability to operate its locations in Mexico or significantly reduce the
profitability of such operations. In addition, the Company conducts a significant number of transactions in pesos,
the national currency in Mexico, and holds significant financial assets that are denominated in pesos. Significant
fluctuations in the value of the peso compared to the U.S. dollar could negatively impact the Company’s operating
results.
The Company is dependent on the availability of used vehicle inventory and access to such inventory. Auto
Master acquires vehicles primarily through auction wholesalers and new car dealers. There can be no assurance that
sufficient inventory will continue to be available to the Company or will be available at comparable costs. Any
reduction in the availability of inventory or increases in the cost of vehicles would adversely affect gross profit
percentages as the Company focuses on keeping payments affordable to its customer base. The Company could
have to absorb cost increases.
A decreased demand for the Company's products and services and failure of the Company to adapt to such
decrease could adversely affect results. Although the Company's products and services are a staple of its
customer base, the demand for a particular product or service may decrease due to a variety of factors, such as the
availability of competing products, changes in customers' financial conditions, or regulatory restrictions that reduce
customer access to particular products. Should the Company fail to adapt to a significant change in its customers'
demand for, or access to, its products, the Company's revenues could decrease significantly. Even if the Company
does make adaptations, customers may resist or may reject products whose adaptations make them less attractive or
less available. In any event, the effect of any product change on the results of the Company's business may not be
fully ascertainable until the change has been in effect for some time. In particular, the Company has changed, and
will continue to change, some of the short-term loan products and services it offers due to regulatory developments.
Changes in the capital markets or the Company’s financial condition could reduce available capital. The
Company regularly accesses the debt capital markets to refinance existing debt obligations and to obtain capital to
finance growth. Efficient access to these markets is critical to the Company’s ongoing financial success; however,
the Company’s future access to the debt capital markets could become restricted due to a variety of factors,
including a deterioration of the Company’s earnings, cash flows, balance sheet quality, or overall business or
industry prospects, a significant deterioration in the state of the capital markets or a negative bias toward the
Company’s industry by market participants.
Inclement weather can adversely impact the Company’s operating results. The occurrence of weather events,
such as rain, cold weather, snow, wind, storms, hurricanes, or other natural disasters, adversely affecting consumer
traffic and collection activities at the Company’s stores and dealerships, could negatively impact the Company’s
operating results.
Other risk factors are discussed under Quantitative and Qualitative Disclosures about Market Risk.
Other risks that are indicated in the Company's filings with the Securities and Exchange Commission may
apply as well.
Item 1B. Unresolved Staff Comments
As of December 31, 2007, the Company had no unresolved SEC staff comments.
Item 2. Properties
The Company owns the real estate and buildings for five of its pawn stores and two of its buy-here/pay-here
automotive dealerships. The Company leases 478 pawn, short-term loan and buy-here/pay-here automotive
dealership locations that are currently open or are in the process of opening. Leased facilities are generally leased
for a term of three to five years with one or more options to renew. The Company’s existing leases expire on dates
ranging between 2008 and 2017. All current store and dealership leases provide for specified periodic rental
payments ranging from approximately $750 to $10,800 per month.
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The Company currently leases approximately 19,500 square feet of office space in Arlington, Texas for its
corporate offices. The lease, which expires April 30, 2010, currently provides for monthly rental payments of
approximately $30,000. The Company leases approximately 7,500 square feet of office space in Monterrey,
Mexico for its Mexico administrative offices. The lease, which expires July 30, 2009, currently provides for
monthly rental payments of approximately $3,600. The Company leases approximately 13.5 acres and buildings in
Tontitown, Arkansas for the Auto Master corporate offices, reconditioning facility and detail center of
approximately 5,500, 11,800 and 9,600 square feet, respectively. The lease, which expires December 31, 2010,
currently provides for monthly rental payments of approximately $22,000. The Company also leases
approximately 12,000 square feet of office space in Euless, Texas for its collection services center. The lease,
which expires February 28, 2013, currently provides for monthly rental payments of approximately $6,200.
The Company’s 50% owned joint venture, Cash & Go, Ltd., leases its kiosk locations under operating leases
generally with terms ranging from one to five years, with renewal options for certain locations. The joint venture’s
existing leases expire on dates ranging between 2008 and 2009. All current Cash & Go, Ltd. leases provide for
specified periodic rental payments ranging from approximately $1,200 to $1,900 per month.
Most leases require the Company to maintain the property and pay the cost of insurance and property taxes. The
Company believes that termination of any particular lease would not have a materially adverse effect on the
Company’s operations. The Company’s strategy is generally to lease, rather than purchase, space for its pawnshop,
short-term loan and buy-here/pay-here automotive locations, unless the Company finds what it believes is a superior
location at an attractive price. The Company believes that the facilities currently owned and leased by it as pawn
stores, short-term loan stores and buy-here/pay-here automotive dealerships are suitable for such purposes. The
Company considers its equipment, furniture and fixtures to be in good condition.
Item 3. Legal Proceedings
The Company is from time to time a defendant (actual or threatened) in certain lawsuits and arbitration claims
encountered in the ordinary course of its business, the resolution of which, in the opinion of management, should
not have a materially adverse effect on the Company’s financial position, results of operations, or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company’s security holders during the fourth quarter of fiscal 2007.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
General Market Information
The Company’s common stock is quoted on the Nasdaq Global Select Market under the symbol “FCFS.” The
following table sets forth the quarterly high and low closing sales prices per share for the common stock, as reported
by the Nasdaq National Market:
2007
2006
High
Low
High
Low
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
25.22
20.36
21.00
14.39
$
$
25.58
21.46
22.37
18.60
$
$
24.07
20.38
21.70
16.85
25.15
14.43
26.12
19.66
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On March 12, 2008, the closing sales price for the common stock as reported by the Nasdaq National Market was
$8.23 per share. On March 12, 2008, there were approximately 54 stockholders of record of the common stock.
No cash dividends have been paid by the Company on its common stock. The dividend and earnings retention
policies are reviewed by the Board of Directors of the Company from time to time in light of, among other things,
the Company’s earnings, cash flows, and financial position. The Company’s revolving credit facility contains
provisions that allow the Company to pay cash dividends within certain parameters.
Recent Issuances of Common Stock
During the period from January 1, 2007, through December 31, 2007, the Company issued 527,000 shares of
common stock relating to the exercise of outstanding stock options for an aggregate exercise price of $8,736,000
(including income tax benefit). During the period from January 1, 2007, through December 31, 2007, the Company
issued 56,000 shares of common stock relating to the exercise of outstanding stock warrants for an aggregate price
of $561,000 (including income tax effect). The issuance of the derivative securities to officers and employees was
exempt under Section 4(2) of the Act, and all holders had access to and/or reviewed copies of Exchange Act filings.
No sales commissions were paid with respect to these issuances.
Issuer Purchases of Equity Securities
In June 2006, the Company’s Board of Directors authorized the repurchase of up to 2,000,000 shares of the
Company’s outstanding common stock. During 2006, the Company repurchased a total of 461,000 common shares
under the stock repurchase program for an aggregate purchase price of $8,848,000 or $19.21 per share. During
2007, the Company repurchased approximately 1,539,000 shares to close out the 2006-authorized program for an
aggregate purchase price of $32,142,000 or $20.88 per share. The aggregate repurchase price of the 2,000,000
shares repurchased under this plan was $40,990,000, or a weighted-average of $20.49 per share. 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 fiscal 2007:
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, 2007
February 1 through February 28, 2007
March 1 through March 31, 2007
April 1 through April 30, 2007
May 1 through May 31, 2007
June 1 through June 30, 2007
July 1 through July 31, 2007
August 1 through August 31, 2007
September 1 through September 30, 2007
October 1 through October 31, 2007
November 1 through November 30, 2007
December 1 through December 31, 2007
Total
-
-
-
-
-
-
437,836
385,000
-
716,508
-
-
1,539,344
-
-
-
-
-
-
23.14
20.90
-
19.49
-
-
20.88
$
$
$
$
-
-
-
-
-
-
437,836
385,000
-
716,508
-
-
1,539,344
1,539,344
1,539,344
1,539,344
1,539,344
1,539,344
1,539,344
1,101,508
716,508
716,508
-
1,000,000
1,000,000
In November 2007, the Company’s Board of Directors authorized a repurchase program for up to 1,000,000 shares
of First Cash’s outstanding common stock, and no shares were repurchased under this 2007-authorized program
during fiscal 2007.
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Item 6. Selected Financial Data
The information below should be read in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7 and the Company’s Consolidated Financial Statements and
related notes thereto required by Item 8.
Income Statement Data:
Total revenues
Cost of revenues
Net revenues
Total expenses and other income
Income from continuing operations
before income taxes
Provision for income taxes
Income from continuing operations
before change in accounting
principle
Cumulative effect of change in
2007
Year Ended December 31,
2005
2004
2006
2003
(in thousands, except per share amounts and certain operating data)
$
388,450
193,113
195,337
143,907
51,430
18,720
$
262,123
105,121
157,002
112,041
44,961
16,186
$
200,714
74,661
126,053
90,439
35,614
12,832
$
173,799
62,972
110,827
81,203
29,624
10,961
$
140,374
50,276
90,098
67,904
22,194
8,434
32,710
28,775
22,782
18,663
13,760
accounting principle, net of taxes
-
Income from discontinued
operations, net of tax
Loss on disposal, net of tax
Net income
3,386
(808)
35,288
-
2,969
-
31,744
-
2,601
-
25,383
-
(357)
2,043
-
20,706
1,572
-
14,975
Net income per share:
Basic:
Income from continuing operations
before change in accounting
principle
Net income
Diluted:
Income from continuing operations
before change in accounting
principle
Net income
Unaudited pro forma amounts assuming
retroactive application of change in
accounting principle:
Revenues
Income from continuing operations
Basic earnings from continuing
operations per share
Diluted earnings from continuing
operations per share
$
$
1.04
1.12
$
0.92
1.01
$
0.73
0.81
$
0.60
0.66
0.49
0.54
1.00
1.08
0.88
0.97
0.68
0.76
0.55
0.61
0.44
0.48
$
388,450
32,710
$
262,123
28,775
$
200,714
22,782
$
173,799
18,663
$
147,068
14,147
1.04
1.00
0.92
0.88
0.73
0.68
0.60
0.55
0.50
0.44
20
20
Balance Sheet Data:
Working capital
Total assets
Long-term liabilities
Total liabilities
Stockholders' equity
End of Year Location Counts:
Pawn-only stores
Pawn stores offering short-term loans (1)
Short-term loan stores (excluding
Cash & Go, Ltd.) (1)
Buy-here/pay-here dealerships
2007
Year Ended December 31,
2005
2006
2004
2003
(in thousands, except per share amounts and certain operating data)
$
121,750
291,548
69,291
90,339
201,209
$
93,653
233,842
23,485
45,246
188,596
$
93,506
185,954
8,616
23,246
162,708
$
81,389
162,343
8,755
18,297
144,046
$
60,840
140,064
11,955
22,841
117,223
213
65
182
15
475
183
69
140
10
402
157
69
97
-
323
127
70
82
-
279
89
71
70
-
230
(1) Includes locations where short-term loans are provided through the CSO program.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The Company’s pawn revenues are derived primarily from service fees on pawns and merchandise sales of forfeited
pawn collateral. The Company accrues pawn service charge revenue on a constant-yield basis over the life of the
pawn for all pawns that the Company deems collection to be probable based on historical pawn redemption
statistics. If a pawn is not repaid prior to the expiration of the automatic extension period, if applicable, the property
is forfeited to the Company and transferred to inventory at a value equal to the principal amount of the loan,
exclusive of accrued interest.
The Company’s short-term loan revenues are derived primarily from fees on short-term loans and credit services
fees. The Company recognizes service fee income on short-term loans on a constant-yield basis over the life of the
loan, which is generally thirty-one days or less. The net defaults on short-term loans and changes in the short-term
loan valuation reserve are charged to the short-term loan loss provision. The credit loss provision is based primarily
upon historical credit loss experience, with consideration given to recent credit loss trends, delinquency, economic
conditions and management’s expectations of future credit losses.
First Cash Credit, Ltd., a wholly-owned subsidiary of the Company, offers a fee-based credit services organization
program to assist customers in all of the Company’s Texas locations in obtaining credit. Under the CSO program,
FCC assists customers in applying for a short-term loan from an independent, non-bank, consumer lending company
and issues the Independent Lender a letter of credit to guarantee the repayment of the loan. The Company
recognizes credit services fees ratably over the life of the loan made by the Independent Lender. The loans made by
the Independent Lender to credit services customers of FCC have terms of seven to thirty-one days. The Company
records a liability for the estimated fair value of the liability under the letters of credit.
The Company discontinued its short-term loan operations in the Washington, D.C. market effective December 2007.
See discussion of Discontinued Operations below and in Note 5 of Notes to Consolidated Financial Statements.
The Company’s buy-here/pay-here automotive revenues are derived primarily from the sale of used vehicles and the
finance charges from related vehicle financing contracts. Revenues from the sale of used vehicles are recognized
when the sales contract and related finance agreement is signed and the customer has taken possession of the
vehicle. Interest income is recognized on all active finance receivable accounts on a constant-yield basis. Late
payment fees are recognized when collected and are included in revenue. The Company maintains an allowance for
credit losses, on an aggregate basis, at a level it considers sufficient to cover estimated losses in the collection of its
21
21
finance receivables. The credit loss provision is based primarily upon historical credit loss experience, with
consideration given to recent credit loss trends, delinquency, economic conditions and management’s expectations
of future credit losses.
The following table details certain metrics regarding the Company’s loan products, inventories, and store locations:
Year Ended December 31,
2006
2005
2007
Customer receivable balances at end of period, in thousands:
Pawn receivables
Short-term loan receivables, net of allowance
CSO loans held by independent third-party lender (1)
Buy-here/pay-here automotive receivables, net of allowance
Short-term loan receivables, net of allowance,
and CSO loans at end of period, in thousands (1):
Pawn stores
Short-term loan stores
Cash & Go, Ltd. joint venture kiosks
Inventories at end of period, in thousands:
Pawn stores
Buy-here/pay-here dealerships
Annualized inventory turnover:
Pawn stores
Buy-here/pay-here dealerships
Annualized service/finance fee yield (2):
Pawn receivables
Short-term loan receivables, net of credit loss provision
Buy-here/pay-here receivables
Net short-term loan and credit services loss provision as a
percentage of service fees (1)
Net buy-here/pay-here loss provision as a percentage of retail sales
Locations in operation (excluding joint venture kiosks):
Beginning of the year
Opened
Acquired
Consolidated/closed
End of the year
Number of locations at end of period:
Pawn-only stores
Pawn stores also offering short-term loans (3)
Short-term loan stores (3)
Cash & Go, Ltd. joint venture kiosks (3)
Buy-here/pay-here automotive dealerships
$
$
$
$
$
$
41,599
5,448
14,725
58,703
3,046
15,609
1,518
26,870
8,742
$
$
$
32,459
4,823
12,163
34,295
2,918
12,314
1,754
25,034
3,727
3.4x
6.4x
159%
295%
15%
29%
40%
402
78
-
(5)
475
213
65
182
39
15
3.2x
9.2x
160%
359%
12%
24%
27%
323
72
8
(1)
402
183
69
140
40
10
27,314
4,161
10,216
-
3,142
9,447
1,788
21,987
-
3.2x
-
158%
333%
-
24%
-
279
50
-
(6)
323
157
69
97
40
-
22
22
Average receivables and CSO loan balances per location at
end of period, in thousands:
Pawn receivables in pawn stores
Short-term loans in pawn stores (1)
Short-term loans in short-term loan stores
(excluding Cash & Go, Ltd.) (1)
Short-term loans in Cash & Go, Ltd. joint venture kiosks (1)
Buy-here/pay-here finance receivables in dealerships
Average inventories per location, in thousands:
Pawn stores
Buy-here/pay-here dealerships
Average outstanding loan at December 31, 2007:
Pawn receivables
Short-term loan receivables
CSO loans held by independent third-party lender (4)
Buy-here/pay-here receivables
Year Ended December 31,
2006
2005
2007
$
$
$
$
150
47
$
129
42
99
39
3,914
97
583
109
388
494
7,748
$
$
85
44
3,430
99
373
99
359
439
6,335
$
$
121
46
93
45
-
97
-
95
343
454
-
(1)
(2)
(3)
(4)
Short-term loan amount includes short-term loans recorded on the Company’s balance sheet and active
CSO loans outstanding from the independent
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 loans.
third-party lender, which are not
The annualized yield on pawn receivables is calculated by dividing total pawn service fees by the
average quarterly pawn receivable balance for the year. The annualized yield, net of loss provision, for
short-term loans is calculated by dividing total short-term loan service fees, net of the short-term loan
loss provision, by the average quarterly short-term loan receivable balance for the year. The annualized
yield calculation for short-term loans does not include credit services fees or the related credit services
loss provision. The annualized yield on buy-here/pay-here receivables is calculated by dividing total buy-
here/pay-here finance fees by the average quarterly net buy-here/pay-here receivable balance for the
year.
Includes locations where short-term loans are provided through the CSO program.
Active CSO loans outstanding from the independent
Company’s balance sheet.
third-party lender are not
included on the
Stores included in the same-store revenue calculations are those stores that were opened prior to the beginning of
the prior year comparative fiscal period and are still open. Also included are stores that were relocated during the
year within a specified distance serving the same market, where there is not a significant change in store size and
where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the
existing store. During the third quarter of 2006, the Company relocated one pawn store that involved a significant
change in the size of its retail showroom, and accordingly, the expanded store has been excluded from the same-
store calculations. Non-retail sales of scrap jewelry are included in same-store revenue calculations. The Auto
Master buy-here/pay-here automotive dealerships, acquired in August 2006, were not included in the same-store
revenue calculations.
While the Company has had significant increases in revenues due to new store openings and acquisitions, the
Company has also incurred increases in operating expenses attributable to the additional locations. Operating
expenses consist of all items directly related to the operation of the Company’s stores and dealerships, including
23
23
salaries and related payroll costs, rent, utilities, equipment, advertising, property taxes, licenses, supplies and
security. Administrative expenses consist of items relating to the operation of the corporate offices, including the
compensation and benefit costs of corporate management, area supervisors and other operations management
personnel, collections operations and personnel, accounting and administrative costs, information technology costs,
liability and casualty insurance, outside legal and accounting fees and stockholder-related expenses.
Income statement items as a percent of total revenues:
Revenues:
Merchandise sales
Finance and service charges
Other
Cost of revenues:
Cost of goods sold
Credit loss provision
Other
Year Ended December 31,
2007
2006
2005
65.0 %
34.0
1.0
34.7 %
15.0
0.1
57.0 %
41.5
1.5
50.9 %
47.2
1.9
32.1 %
30.7 %
7.8
0.2
6.3
0.1
Net revenues
50.3 %
59.9 %
62.8 %
Expenses and other income:
Store operating expenses
Administrative expenses
Depreciation
Amortization
Interest expense
`
26.1 %
30.2 %
32.7 %
7.5
2.7
0.1
0.6
-
9.4
3.0
-
0.3
(0.3)
9.7
2.9
-
-
(0.2)
Merchandise sales gross profit
46.7 %
43.6 %
39.6 %
Discontinued Operations
The Company elected to discontinue its short-term loan operations in the District of Columbia (“D.C.”) effective
December 2007. This decision was the result of legislation enacted in the fourth quarter of 2007 to cap the
maximum annual percentage rate charged on short-term loans at 24%. These rate restrictions made the short-term
loan product financially unviable; therefore, the Company closed its seven short-term loan stores in D.C. All
revenues, expenses and income reported in this report have been adjusted to reflect reclassification of the
discontinued D.C. operations. For 2007, the net effect of this reclassification is to decrease diluted earnings from
continuing operations by $3,386,000 or $0.10 per share, net of tax, and report this same amount as income from
discontinued operations. The Company recorded, as a component of discontinued operations, a one-time charge of
$808,000 or $0.02 per share for store closing expenses. After the adjustment for closing the D.C. stores, diluted
earnings per share from continuing operations were $0.18 for the fourth quarter of 2007, compared to $0.27 in the
fourth quarter of 2006. Diluted earnings per share from continuing operations for fiscal 2007 were $1.00. This
represents 14% growth over 2006 diluted earnings per share of $0.88.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the
financial statements. Such estimates and assumptions are subject to a number of risks and uncertainties, which may
cause actual results to differ materially from the Company’s estimates. The significant accounting policies that we
believe are the most critical to aid in fully understanding and evaluating our reported financial results include the
following:
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24
Principles of consolidation - The accompanying consolidated financial statements of the Company include the
accounts of its wholly-owned subsidiaries. The Company is a 50% partner in Cash & Go, Ltd., a Texas limited
partnership, and in accordance with FASB Interpretation No. 46(R) - Consolidation of Variable Interest Entities, the
consolidated operating results include those of Cash & Go, Ltd. On August 25, 2006, the Company acquired
Guaranteed Auto Finance, Inc. and SHAC, Inc. (collectively doing business as "Auto Master"). Accordingly, the
operating results of Auto Master are not included in consolidated operating results prior to August 25, 2006. See
Note 4 of Notes to Consolidated Financial Statements. All significant intercompany accounts and transactions have
been eliminated.
Receivables and income recognition - Receivables on the balance sheet consist of pawn, short-term loans and buy-
here/pay-here automotive customer receivables. Pawns are made on the pledge of tangible personal property. The
Company accrues pawn service charge revenue on a constant-yield basis over the life of the pawn for all pawns that
the Company deems collection to be probable based on historical pawn redemption statistics. The typical pawn loan
has an initial term of thirty days, which, depending on state law, can generally be extended from 15 to 60 days. If
the pawn is not repaid, the principal amount pawned becomes the carrying value of the forfeited collateral
(inventory), which is held for sale. The Company accrues short-term loan service fees on a constant-yield basis
over the term of the short-term loan. Short-term loans have terms that range from seven to thirty-one days. The
Company recognizes credit services fees ratably over the life of the loan made by the Independent Lender. The
loans made by the Independent Lender to credit services customers have terms of seven to 180 days. The Company
records a liability for collected, but unearned, credit services fees received from its customers. The Company’s buy-
here/pay-here revenues are earned primarily from retail sales of used vehicles to the general public in its automotive
dealerships. The Company provides financing to substantially all of its customers who purchase a vehicle at one of
its dealerships. The Company’s vehicle sales and finance contracts typically include down payments ranging from
4% to 9%, an average term of 30 months, and typical annual finance charges ranging from 8% to 19%.
Short-term loan and credit services loss provision - An allowance is provided for losses on active short-term loans
and service fees receivable based upon expected default rates, net of estimated future recoveries of previously
defaulted short-term loans and service fees receivable. The Company considers short-term loans to be in default if
they are not repaid on the due date, and writes off the principal amount and service fees receivable as of the default
date, leaving only active advances in the reported balance. Net defaults and changes in the short-term loan
allowance are charged to the short-term loan loss provision. Under the CSO program, letters of credit issued by
FCC to the Independent Lender constitute a guarantee for which the Company is required to recognize, at the
inception of the guarantee, a liability for the fair value of the obligation undertaken by issuing the letters of credit.
The Independent Lender may present the letter of credit to FCC for payment if the customer fails to repay the full
amount of the loan and accrued interest after the due date of the loan. Each letter of credit expires within 60 days
from the inception of the associated lending transaction. FCC’s maximum loss exposure under all of the
outstanding letters of credit issued on behalf of its customers to the Independent Lender as of December 31, 2007
was $17,255,000. According to the letter of credit, if the borrower defaults on the loan, the Company will pay the
Independent Lender the principal, accrued interest, insufficient funds fees, and late fees, all of which the Company
records in the short-term loan and credit services loss provision. FCC is entitled to seek recovery directly from its
customers for amounts it pays the Independent Lender in performing under the letters of credit. The Company
records the estimated fair value of the liability under the letters of credit in accrued liabilities. This fair value
estimate is based in part upon the Company’s historical credit losses for the short-term loan product, which the
Company considers to be a similar credit risk.
Buy-here/pay-here credit loss provision - The Company maintains an allowance for credit losses on an aggregate
basis at a level it considers sufficient to cover estimated losses in the collection of its finance receivables. The
allowance for credit losses is based primarily upon historical credit loss experience, with consideration given to
recent credit loss trends and changes in loan characteristics (e.g., average amount financed and term), delinquency
levels, collateral values, economic conditions, age of dealership and underwriting and collection practices. The
allowance for credit losses is regularly reviewed by management with any changes reflected in current operating
results. Although it is at least reasonably possible that events or circumstances could occur in the future that are not
presently foreseen which could cause actual credit losses to be materially different from the recorded allowance for
credit losses, the Company believes that it has given appropriate consideration to all relevant factors and has made
reasonable assumptions in determining the allowance for credit losses.
25
25
Inventories - Pawn inventories represent merchandise purchased directly from the public and merchandise acquired
from forfeited pawns. Inventories purchased directly from customers are recorded at cost. Inventories from
forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods. Vehicle inventories
consist of used vehicles acquired from auctions, new car dealerships and trade-ins. Vehicle transportation and
reconditioning costs are capitalized as a component of inventory. Repossessed vehicles are recorded at fair value,
which approximates wholesale value. The cost of pawn and vehicle inventories is determined on the specific
identification method. Pawn and vehicle inventories are stated at the lower of cost or market; accordingly,
inventory valuation allowances are established when inventory carrying values are in excess of estimated selling
prices, net of direct costs of disposal. Management has evaluated inventories and determined that a valuation
allowance is not necessary.
Long-lived assets - Property, plant and equipment and non-current assets are reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of the asset may not be recoverable. An
impairment loss is recognized if the sum of the expected future cash flows (undiscounted and before interest) from
the use of the asset is less than the net book value of the asset. Generally, the amount of the impairment loss is
measured as the difference between the net book value of the asset and the estimated fair value of the related asset.
Management does not believe any of these assets have been impaired at December 31, 2007. Goodwill is reviewed
annually for impairment based upon its fair value, or more frequently if certain indicators arise. Management has
determined that goodwill has not been impaired at December 31, 2007.
Stock-based compensation - Prior to January 1, 2006, the Company accounted for its share-based employee
compensation plans under the recognition and measurement provisions of APB 25, as permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation." Effective January 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R), as described in Note 13, "Equity Compensation Plans and Share-Based
Compensation."
Guarantees - In accordance with the provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” the Company
has determined that the letters of credit issued by FCC to the Independent Lender as part of the CSO program
constitute a guarantee for which the Company is required to recognize a liability for the fair value of the obligation
undertaken by issuing the letters of credit. Each letter of credit is issued at the time that a FCC credit services
customer enters into a loan agreement with the Independent Lender. The Independent Lender may present the letter
of credit to FCC for payment if the customer fails to repay the full amount of the loan and accrued interest after the
due date of the loan. Each letter of credit expires within 60 days from the inception of the associated lending
transaction. FCC is entitled to seek recovery directly from its customers for amounts it pays the Independent Lender
in performing under the letters of credit. The Company records the estimated fair value of the liabilities under the
letters of credit in accrued liabilities.
26
26
Results of Continuing Operations
Twelve Months Ended December 31, 2007 compared to Twelve Months Ended December 31, 2006.
The following table (in thousands) details the components of revenues for the fiscal year ended December 31, 2007,
as compared to the fiscal year ended December 31, 2006:
Domestic revenues:
Pawn retail merchandise sales
Pawn scrap jewelry sales
Pawn service charges
Short-term loan and credit services fees
Buy-here/pay-here retail automobile sales
Buy-here/pay-here wholesale automobile sales
Buy-here/pay-here finance charges
Other
Foreign revenues:
Pawn retail merchandise sales
Pawn scrap jewelry sales
Pawn service charges
Total revenues:
Pawn retail merchandise sales
Pawn scrap jewelry sales
Pawn service charges
Short-term loan and credit services fees
Buy-here/pay-here retail automobile sales
Buy-here/pay-here wholesale automobile sales
Buy-here/pay-here finance charges
Other
Fiscal Year Ended December 31,
2007
2006
Increase/Decrease
$
$
$
$
$
$
63,068
16,208
31,256
65,404
98,358
2,365
7,295
4,168
288,122
49,248
23,102
27,978
100,328
112,316
39,310
59,234
65,404
98,358
2,365
7,295
4,168
388,450
$
$
$
$
$
$
60,097
11,337
27,847
58,657
22,507
530
1,348
3,973
186,296
34,667
20,335
20,825
75,827
94,764
31,672
48,672
58,657
22,507
530
1,348
3,973
262,123
$
$
$
$
$
$
2,971
4,871
3,409
6,747
75,851
1,835
5,947
195
101,826
14,581
2,767
7,153
24,501
17,552
7,638
10,562
6,747
75,851
1,835
5,947
195
126,327
5%
43%
12%
12%
337%
346%
441%
5%
55%
42%
14%
34%
32%
19%
24%
22%
12%
337%
346%
441%
5%
48%
27
27
The following table (in thousands) details pawn receivables, short-term loan receivables, active CSO loans
outstanding from an independent third-party lender and buy-here/pay-here automotive receivables as of December
31, 2007, as compared to December 31, 2006:
Domestic customer receivables & CSO loans outstanding:
Pawn receivables
Short-term loan receivables, net of allowance
CSO loans held by independent third-party lender (1)
Buy-here/pay-here receivables, net of allowance
Foreign customer receivables:
Pawn receivables
Total customer receivables and CSO loans outstanding:
Pawn receivables
Short-term loan receivables, net of allowance
CSO loans held by independent third-party lender (1)
Buy-here/pay-here receivables, net of allowance
Balance at December 31,
2006
2007
Increase/Decrease
$
$
$
$
$
24,747
5,448
14,725
58,703
103,623
16,852
41,599
5,448
14,725
58,703
120,475
$
$
$
$
$
21,350
4,823
12,163
34,295
72,631
11,109
32,459
4,823
12,163
34,295
83,740
$
$
$
$
$
3,397
625
2,562
24,408
30,992
16%
13%
21%
71%
43%
5,743
52%
9,140
625
2,562
24,408
36,735
28%
13%
21%
71%
44%
(1)
CSO loans outstanding are comprised of active CSO loans outstanding from 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 loans.
Year-over-year revenue increases for pawn retail merchandise sales, pawn service fees and short-term loan/credit
services fees were due to a combination of same-store revenue growth and the opening of new stores. Same-store
revenues (stores that were in operation during all of the year of both fiscal 2006 and fiscal 2007) increased 9% or
$20,782,000 for fiscal 2007 as compared to fiscal 2006. Revenues generated by the 54 new pawn stores and the 89
new short-term loan stores which have opened since January 1, 2006 increased by $23,078,000, compared to fiscal
2006. The strong growth in foreign revenues is reflective of continued significant expansion in Mexico, where the
Company has concentrated the majority of its store openings over the past several years.
The consolidated increase in scrap jewelry sales during fiscal 2007 was primarily due to a 7% increase in the
quantity of scrap jewelry sold and a 16% increase in the weighted-average selling price of gold.
The Company acquired Auto Master on August 25, 2006, and accordingly, the buy-here/pay-here automotive
revenues for fiscal 2006 do not include the results of Auto Master prior to August 25, 2006. During fiscal 2007, the
Company operated a weighted-average number of dealerships of 13, compared to fiscal 2006 when the Company
operated a weighted-average of 4 dealerships over approximately four months. During fiscal 2007, Auto Master
sold approximately 9,700 vehicles to retail customers for an average selling price of $10,400 per vehicle. The
Company noted a significant decline in 2007 fourth quarter retail sales, as compared to earlier quarters, which it
attributes primarily to weakening general economic conditions which decreased customer traffic to the dealerships
and negatively impacted customers’ ability to qualify for financing.
The gross profit margin on total pawn merchandise sales was 41% during fiscal 2007, compared to 42% during
fiscal 2006. Retail pawn merchandise margins, which exclude scrap jewelry sales, were 44% during fiscal 2007 and
fiscal 2006. The gross margin on wholesale scrap jewelry sales was 35% during fiscal 2007, compared to 34%
during fiscal 2006. The gross margin on buy-here/pay-here retail automobile sales was 57% for fiscal 2007, which
equaled the prior year period.
28
28
The Company’s short-term loan and credit services loss provision increased to 29% of short-term loan and credit
services fee revenues during fiscal 2007, from 24% during fiscal 2006. The Company attributes this to an increased
percentage of revenues from newer stores, which historically have had greater credit loss provisions, and to reduced
sales of charged-off accounts, which help offset the loss provision. During fiscal 2007, the Company sold bad debt
portfolios generated from short-term loan and credit services guarantees for an aggregate price of $664,000,
compared to proceeds of $1,883,000 for similar transactions in the prior year period, which accounted for 220 basis
points of the increase in the loss provision ratio. The Company’s loss reserve on short-term loan receivables
increased to $326,000 at December 31, 2007, from $146,000 at December 31, 2006, primarily as a result of
increased loan receivable balances and credit loss experience in 2007. The estimated fair value of liabilities under
the CSO letters of credit, net of anticipated recoveries from customers, was $811,000 at December 31, 2007,
compared to $569,000 at December 31, 2006, which is included as a component of the Company’s accrued
liabilities. The increase was consistent with the overall increase in credit services loans outstanding and credit loss
experience in 2007.
The buy-here/pay-here automotive credit loss provision was $39,482,000 for fiscal 2007, which represented 40% of
retail automobile sales compared to 27% in fiscal 2006. This increase was the result of increased levels of charge-
offs experienced in 2007, especially in the fourth quarter, and the Company’s election to take a non-cash charge of
approximately $3.6 million in the fourth quarter to increase the reserve allowance on automotive receivables to 26%
of the outstanding notes receivable, compared to the previous reserve of 22%. The increased level of charge-offs
and the increase in the reserve was reflective of deteriorating credit trends affecting the U.S. economy in general
and automobile finance receivables, in particular beginning in the fourth quarter of 2007. The Company’s loss
reserve on buy-here/pay-here automotive receivables was $20,455,000 at December 31, 2007, compared to
$9,532,000 at December 31, 2006, which reflects the increase in notes receivable and the increase in the allowance
percentage described above.
Pawn and short-term loan store operating expenses increased 17% to $89,418,000 during fiscal 2007 compared to
$76,342,000 during fiscal 2006, primarily as a result of the net addition of 137 pawn and check cashing/short-term
loan stores since January 1, 2006, which is a 42% increase in the store count. Buy-here/pay-here automotive
dealership operating expenses totaled $12,036,000 for fiscal 2007 compared to $2,861,000 during fiscal 2006,
primarily due to the increased number of weighted-average dealerships. Administrative expenses increased 19% to
$29,290,000 during fiscal 2007 compared to $24,671,000 during fiscal 2006, which is primarily attributable to the
increased store count and the first full year of Auto Master administrative expenses. The Company incurred interest
expense in fiscal 2007 of $2,438,000 compared to $916,000 during fiscal 2006 due primarily to higher amounts of
interest-bearing debt related to the acquisition of Auto Master and stock repurchases. Interest income decreased to
$78,000 in fiscal 2007 from $727,000 in fiscal 2006, due primarily to lower levels of invested cash.
For fiscal 2007 and 2006, the Company’s effective federal income tax rates of 36.4% and 36.0%, respectively,
differed from the federal statutory tax rate of approximately 35%, primarily as a result of state income taxes. The
increase in the tax rate was due primarily to an increase in the effective corporate income tax rate in the state of
Texas.
Income from continuing operations increased 14% to $32,710,000 during fiscal 2007 compared to $28,775,000
during fiscal 2006. Net income increased 11% to $35,288,000 during fiscal 2007 compared to $31,744,000 during
fiscal 2006.
29
29
Twelve Months Ended December 31, 2006 Compared to Twelve Months Ended December 31, 2005
The following table (in thousands) details the components of revenues for the fiscal year ended December 31, 2006,
as compared to the fiscal year ended December 31, 2005:
Domestic revenues:
Pawn retail merchandise sales
Pawn scrap jewelry sales
Pawn service charges
Short-term loan and credit services fees
Buy-here/pay-here retail automobile sales
Buy-here/pay-here wholesale automobile sales
Buy-here/pay-here finance charges
Other
Foreign revenues:
Pawn retail merchandise sales
Pawn scrap jewelry sales
Pawn service charges
Total revenues:
Pawn retail merchandise sales
Pawn scrap jewelry sales
Pawn service charges
Short-term loan and credit services fees
Buy-here/pay-here retail automobile sales
Buy-here/pay-here wholesale automobile sales
Buy-here/pay-here finance charges
Other
Fiscal Year Ended December 31,
2006
2005
Increase/Decrease
$
$
$
$
$
$
60,097
11,337
27,847
58,657
22,507
530
1,348
3,973
186,296
34,667
20,335
20,825
75,827
94,764
31,672
48,672
58,657
22,507
530
1,348
3,973
262,123
$
$
$
$
$
$
57,174
7,230
25,429
53,903
-
-
-
3,852
147,588
24,165
13,570
15,391
53,126
81,339
20,800
40,820
53,903
-
-
-
3,852
200,714
$
$
$
$
$
$
2,923
4,107
2,418
4,754
22,507
530
1,348
121
38,708
10,502
6,765
5,434
22,701
13,425
10,872
7,852
4,754
22,507
530
1,348
121
61,409
5%
57%
10%
9%
-
-
-
3%
26%
43%
50%
35%
43%
17%
52%
19%
9%
-
-
-
3%
31%
30
30
The following table (in thousands) details pawn receivables, short-term loan receivables and active CSO loans
outstanding from an independent third-party lender as of December 31, 2006, as compared to December 31, 2005:
Domestic customer receivables & CSO loans outstanding:
Pawn receivables
Short-term loan receivables, net of allowance
CSO loans held by independent third-party lender (1)
Buy-here/pay-here receivables, net of allowance
Foreign customer receivables:
Pawn receivables
Total customer receivables and CSO loans outstanding:
Pawn receivables
Short-term loan receivables, net of allowance
CSO loans held by independent third-party lender (1)
Buy-here/pay-here receivables, net of allowance
Balance at December 31,
2005
2006
Increase/Decrease
$
$
$
$
$
21,350
4,823
12,163
34,295
72,631
11,109
32,459
4,823
12,163
34,295
83,740
$
$
$
$
$
18,603
4,161
10,216
-
32,980
8,711
27,314
4,161
10,216
-
41,691
$
$
$
$
$
2,747
662
1,947
34,295
39,651
15%
16%
19%
-
120%
2,398
28%
5,145
662
1,947
34,295
42,049
19%
16%
19%
-
101%
(1)
CSO loans outstanding are comprised of active CSO loans outstanding from 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 loans.
The Company introduced its credit services program in its Texas locations in July 2005. Credit services fees, which
are included in reported short-term loan and credit services fees, totaled $43,344,000 and $18,657,000 for fiscal
2006 and fiscal 2005, respectively.
Year-over-year revenue increases for pawn retail merchandise sales, pawn service fees and short-term loan/credit
services fees were due to a combination of same-store revenue growth and the opening of new stores. Same-store
revenues (stores that were in operation during all of the year of both fiscal 2005 and fiscal 2006) increased 9% or
$18,358,000 for fiscal 2006 as compared to fiscal 2005. Revenues generated by the 62 new pawn and short-term
loan stores that have opened since January 1, 2005 increased by $19,534,000, compared to fiscal 2005. Revenues
from the eight buy-here/pay-here automobile dealerships acquired in August 2006 and the two dealerships opened
in November 2006 totaled $24,466,000.
The gross profit margin on total pawn merchandise sales was 42% during fiscal 2006, compared to 40% during
fiscal 2005, primarily as a result of improved margins on wholesale scrap jewelry revenues. Retail pawn
merchandise margins, which exclude scrap jewelry sales, were 44% during fiscal 2006 and fiscal 2005. The gross
margin on wholesale scrap jewelry sales was 34% during fiscal 2006, compared to 22% during fiscal 2005. This
difference was primarily the result of increased selling prices for gold during the applicable periods. The volume-
weight of scrap jewelry sold during fiscal 2006 increased approximately 13% compared to fiscal 2005. The margin
on buy-here/pay-here retail automobile sales was 57% for the period August 26, 2006 through December 31, 2006.
The Company’s short-term loan and credit services loss provision for fiscal 2006 was unchanged from fiscal 2005 at
24% of short-term loan and credit services fee revenues. During fiscal 2006, the Company sold certain bad debt
portfolios generated from short-term loan and credit services guarantees for an aggregate price of $1,883,000,
compared to proceeds of $1,569,000 for similar transactions in the prior year period. The sales were recorded as
reductions of the short-term loan and credit services loss provision. The buy-here/pay-here automotive credit loss
provision was $6,137,000 for the period August 26, 2006 through December 31, 2006, which represented 27% of
retail automobile sales. The Company’s loss reserve on short-term loan receivables decreased to $146,000 at
31
31
December 31, 2006, from $155,000 at December 31, 2005. The estimated fair value of liabilities under the CSO
letters of credit, net of anticipated recoveries from customers, was $569,000 at December 31, 2006 compared to
$508,000 at December 31, 2005, which is included as a component of the Company’s accrued liabilities. The loss
reserve on buy-here/pay-here automotive receivables was $9,532,000 at December 31, 2006.
Pawn and short-term loan store operating expenses increased 16% to $76,342,000 during fiscal 2006 compared to
$65,592,000 during fiscal 2005, primarily as a result of the net addition of 113 pawn and short-term loan stores
since January 1, 2005, which is a 40% increase in the store count. Buy-here/pay-here automotive dealership
operating expenses totaled $2,861,000 for the period August 26, 2006 through December 31, 2006. Administrative
expenses increased 27% to $24,671,000 during fiscal 2006 compared to $19,412,000 during fiscal 2005, which is
primarily attributable to increased management and supervisory compensation expense, additional administrative
expenses related to new store openings, the Auto Master acquisition and a non-cash charge of approximately
$583,000 for share-based compensation expense as a result of the adoption of SFAS 123(R), effective January 1,
2006. The Company incurred interest expense on acquisition-related debt in the third and fourth quarters of 2006 of
$916,000. There was no debt outstanding during fiscal 2005. Interest income increased to $727,000 in fiscal 2006,
from $317,000 in fiscal 2005, due primarily to interest income earned on increased levels of invested cash and cash
equivalents.
For both Fiscal 2006 and 2005, the Company’s effective federal income tax rate of 36% differed from the federal
statutory tax rate of approximately 35%, primarily as a result of state income taxes.
Income from continuing operations increased 26% to $28,775,000 during fiscal 2006 compared to $22,782,000
during fiscal 2005. Net income increased 25% to $31,744,000 during fiscal 2006 compared to $25,383,000 during
fiscal 2005.
Liquidity and Capital Resources
As of December 31, 2007, the Company’s primary sources of liquidity were $14,175,000 in cash and cash
equivalents, $113,617,000 in receivables, $35,612,000 in inventories and $35,000,000 of available and unused
funds under the Company's long-term line of credit with two commercial lenders (the “Credit Facility”). The
Company had working capital of $121,750,000 as of December 31, 2007, and total equity exceeded total liabilities
by a ratio of 2.23 to 1.
The Credit Facility was amended during the third quarter of 2007 to increase the amount available under the line of
credit from $50,000,000 to $90,000,000 and to extend the term of the facility until April 2010. The Credit Facility
bears interest at the prevailing LIBOR rate (which was approximately 4.6% at December 31, 2007) plus a fixed
interest rate margin of 1.375%. Amounts available under the Credit Facility are limited to 300% of the Company’s
earnings before income taxes, interest, depreciation and amortization for the trailing twelve months. At December
31, 2007, the Company had $55,000,000 outstanding under the Credit Facility and the Company had $35,000,000
available for borrowings. Under the terms of the Credit Facility, the Company is required to maintain certain
financial ratios and comply with certain technical covenants. The Company was in compliance with the
requirements and covenants of the Credit Facility as of December 31, 2007, and March 12, 2008. The Company is
required to pay an annual commitment fee of 1/8 of 1% on the average daily-unused portion of the Credit Facility
commitment. The Company’s Credit Facility contains provisions that allow the Company to repurchase stock
and/or pay cash dividends within certain parameters. Substantially all of the unencumbered assets of the Company
have been pledged as collateral against indebtedness under the Credit Facility.
At December 31, 2007, the Company had notes payable to individuals arising from the Auto Master acquisition
which total $6,188,000 in aggregate and bear interest at 7%, with quarterly payments of principal and interest
scheduled over the next four years. Of the $6,188,000 in notes payable, $2,250,000 is classified as a current
liability and $3,938,000 is classified as long-term debt. One of the notes payable, in the principal amount of
$1,000,000, was retired in December 2007.
32
32
The following table sets forth certain historical information with respect to the Company’s statements of cash flows:
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization
Share-based compensation
Non-cash portion of credit loss provision
Stock option and warrant income tax benefit
Changes in operating assets and liabilities:
Buy-here/pay-here automotive customer receivables
Finance and service fees receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Current and deferred income taxes
Net cash flows from operating activities
Cash flows from investing activities:
Pawn customer receivables
Short-term loan customer receivables
Purchases of property and equipment
Distribution to minority interest in Cash & Go, Ltd. joint venture
Acquisition of Auto Master buy-here/pay-here automotive division
Net cash flows from investing activities
Cash flows from financing activities:
Proceeds from debt
Payments of debt
Purchase of treasury stock
Proceeds from exercise of stock options and warrants
Stock option and warrant income tax benefit
Net cash flows from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
2007
Year Ended December 31,
2006
(in thousands)
2005
$
35,288
$
31,744
$
25,383
11,074
233
43,619
-
(66,793)
(2,901)
(2,736)
(5,463)
(713)
4,115
15,723
(10,352)
(3,584)
(23,989)
(63)
-
(37,988)
78,875
(35,125)
(32,142)
6,816
2,481
20,905
(1,360)
15,535
14,175 $
$
8,041
583
9,920
-
(12,211)
(790)
(1,964)
438
2,660
(1,868)
36,553
(7,095)
(4,805)
(14,716)
-
(23,652)
(50,268)
31,000
(38,052)
(24,753)
13,570
4,744
(13,491)
(27,206)
42,741
15,535
$
5,804
-
7,118
2,066
-
336
(1,563)
(2,832)
5,088
695
42,095
(6,665)
1,859
(11,993)
-
-
(16,799)
-
-
(11,404)
2,617
-
(8,787)
16,509
26,232
42,741
During fiscal 2007, the Company utilized cash flows to repurchase $32,142,000 of common stock for a total of
1,539,000 shares to close out the 2006-authorized program. During the second quarter of 2006, the Company
completed its 3,200,000 share repurchase plan authorized in July 2004. The Board of Directors subsequently
authorized an additional 2,000,000 share repurchase. During fiscal 2006, the Company utilized excess cash flows to
repurchase $24,753,000 of common stock for a total of 1,262,000 shares under the two authorizations.
For purposes of its internal liquidity assessments, the Company considers net cash changes in pawn and short-term
loan customer receivables to be closely related to operating cash flows. For fiscal 2007, net cash flows from
operations were $15,723,000, while net cash outflows related to pawn receivables activity was $10,352,000 and the
net cash outflows related to short-term loan receivables activity was $3,584,000. The combined net cash flows from
operations and pawn and short-term loan receivables totaled $1,787,000 during fiscal 2007. For fiscal 2006, net
cash flows from operations were $36,553,000, while net cash outflows related to pawn receivables activity was
$7,095,000 and the net cash outflows related to short-term loan receivables activity was $4,805,000. The combined
net cash flows from operations and pawn and short-term loan receivables totaled $24,653,000 during fiscal 2006.
For fiscal 2005, net cash flows from operations were $42,095,000 and net cash outflows related to pawn receivables
activity was $6,665,000 and the net cash inflows related to short-term loan receivables activity was $1,859,000.
33
33
The combined net cash flows from operations and pawn and short-term loan receivables totaled $37,289,000 during
fiscal 2005, which included a non-recurring operating cash flow benefit of approximately $7,454,000 related to the
replacement of the short-term loan product with the credit services product in Texas during the third quarter of
2005.
The profitability and liquidity of the Company is affected by the amount of customer receivables outstanding and
related collections of such receivables. In general, revenue growth is dependent upon the Company’s ability to fund
the growth of customer receivable balances and inventories and the ability to absorb related credit losses. In
addition to these factors, merchandise sales and the pace of store and dealership expansions affect the Company’s
liquidity.
Management believes that the Credit Facility and cash generated from operations will be sufficient to accommodate
the Company’s current operations and store expansion plans for fiscal 2008. Other than the Credit Facility, the
Company currently has no written commitments for additional borrowings or future acquisitions; however, the
Company intends to continue to grow and may seek additional capital to facilitate expansion.
The Company intends to continue expansion primarily through new store openings. The Company opened 78 new
stores in 2007 and plans to continue its new store expansion program in 2008, with a total of approximately 70 to 85
new pawn and short-term loan stores anticipated for opening. These stores will primarily be pawn stores in Mexico
and short-term loan stores, both in the U.S. and Mexico. The majority of capital expenditures, working capital
requirements and start-up losses related to this expansion are expected to be funded through operating cash flows
and the Credit Facility. While the Company continually looks for, and is presented with potential acquisition
opportunities, the Company currently has no definitive plans or commitments for acquisitions. The Company will
evaluate potential acquisitions, if any, based upon growth potential, purchase price, strategic fit and quality of
management personnel, among other factors. If the Company encounters an attractive acquisition opportunity or
additional expansion opportunity in the near future, the Company may seek additional financing, the terms of which
will be negotiated on a case-by-case basis. The Company has no significant capital commitments.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for fiscal 2007 totaled $64,593,000, an
increase of 22% compared to $53,128,000 for fiscal 2006. The EBITDA margin, which is EBITDA as a percentage
of revenues, for fiscal 2007 was 16.6%, compared to 20.3% for the comparable prior year period.
EBITDA is commonly used by investors to assess a company’s leverage capacity, liquidity and financial
performance. EBITDA is not considered a measure of financial performance under U.S. generally accepted
accounting principles ("GAAP"), and the items excluded from EBITDA are significant components in
understanding and assessing the Company’s financial performance. Since EBITDA is not a measure determined in
accordance with GAAP and is thus susceptible to varying calculations, EBITDA, as presented, may not be
comparable to other similarly titled measures of other companies. EBITDA should not be considered as an
alternative to net income, cash flows provided by or used in operating, investing or financing activities or other
financial statement data presented in the Company’s consolidated financial statements as an indicator of financial
performance or liquidity. Non-GAAP measures should be evaluated in conjunction with, and are not a substitute
for, GAAP financial measures. The following table provides a reconciliation of net income to EBITDA (amounts in
thousands):
Twelve Months Ended December 31,
2007
2006
Income from continuing operations
$
32,710
$
28,775
Adjustments:
Interest expense
Interest income
Income taxes
Depreciation and amortization
Earnings before interest, income taxes, depreciation and amortization
$
2,438
(78)
18,720
10,803
64,593
916
(727)
16,186
7,978
53,128
$
34
34
Contractual Commitments
A tabular disclosure of contractual obligations at December 31, 2007, including Cash & Go, Ltd. is as follows:
Payments Due by Period
(in thousands)
Less
than 1
year
Total
1 -- 3
years
3 -- 5
years
More
than 5
years
Operating leases
Employment and consulting contracts
for officers and directors
Revolving credit facility (1)
Notes payable
Interest on notes payable
Total
$
62,769
$
18,707
$
28,159
$
12,041
$
3,862
7,700
55,000
6,188
651
$ 132,308
1,300
-
2,250
375
22,632
$
2,600
55,000
3,938
276
89,973
$
2,600
-
-
-
14,641
$
1,200
-
-
-
5,062
$
(1)
Excludes interest obligations under the line of credit agreement. See Note 9 of Notes to Consolidated
Financial Statements.
Off-Balance Sheet Arrangements
In the Company’s Texas locations, First Cash Credit, Ltd. (“FCC”), a wholly-owned subsidiary of the Company,
offers a fee-based credit services organization (“CSO”) program to assist consumers in obtaining credit. Under the
CSO program, FCC assists customers in applying for a short-term loan from an independent, non-bank, consumer
lending company (the “Independent Lender”) and issues the Independent Lender a letter of credit to guarantee the
repayment of the loan. When a consumer executes a credit services agreement with the Company, the Company
agrees, for a fee payable to the Company by the consumer, to provide a variety of credit services to the consumer,
one of which is to guarantee the consumer’s obligation to repay the loan received by the consumer from the
Independent Lender if the consumer fails to do so.
For short-term loan products originated by the Independent Lender, the Independent Lender is responsible for
evaluating each of its customers’ applications, determining whether to approve a short-term loan based on an
application and determining the amount of the short-term loan. The Company is not involved in the Independent
Lender’s short-term loan approval processes or in determining the lenders’ approval procedures or criteria. At
December 31, 2007, the outstanding amount of active short-term loans originated by the Independent Lender was
$15.5 million.
Since the Company may not be successful in collection of these delinquent accounts, the Company’s short-term loan
loss provision includes amounts estimated to be adequate to absorb credit losses from short-term loans in the
aggregate short-term loan portfolio, including those expected to be assigned to the Company or acquired by the
Company as a result of its guaranty obligations. Accrued losses of $811,000 on portfolios owned by the
Independent Lender are included in “accrued liabilities” in the consolidated balance sheets. The Company believes
that this amount is adequate to absorb credit losses from short-term loans expected to be assigned to the Company
or acquired by the Company as a result of its guaranty obligations.
Inflation
The Company does not believe that inflation has had a material effect on the volume of customer receivables
originated, merchandise sales, or results of operation.
35
35
Seasonality
The Company’s retail pawn business is seasonal in nature with its highest volume of merchandise sales occurring
during the first and fourth calendar quarters of each year which coincides with Valentine’s Day and Christmas. The
Company’s pawn lending and short-term loan activities are also seasonal, with the highest volume of lending
activity occurring during the third and fourth calendar quarters of each year. The Company’s buy-here/pay-here
automotive business is less seasonal, although the Company typically experiences stronger sales and collection
volumes in the first quarter as a result of customers receiving tax refunds.
Recent Accounting Pronouncements
See discussion in Note 2 of Notes to Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to the Company’s operations result primarily from changes in interest rates, foreign exchange
rates, and gold prices. The Company does not engage in speculative or leveraged transactions, nor does it hold or
issue financial instruments for trading purposes.
Interest Rate Risk
The Company is potentially exposed to market risk in the form of interest rate risk in regards to its long-term line of
credit and notes payable. At December 31, 2007, the Company had $55,000,000 outstanding under its revolving
line of credit. This revolving line is priced with a variable rate based on LIBOR or a base rate, plus an applicable
margin based on a defined leverage ratio for the Company. See "Note 9 - Revolving Credit Facility and Notes
Payable." Based on the average outstanding indebtedness during the year ended December 31, 2007, a 10%
increase in interest rates would have increased the Company's interest expense by approximately $198,000 for the
year ended December 31, 2007.
The Company’s cash and cash equivalents are invested in money market accounts. Accordingly, the Company is
subject to changes in market interest rates. However, the Company does not believe a change in these rates would
have a materially adverse effect on the Company’s operating results, financial condition, or cash flows.
The Company generates long-term receivables (up to 32 months) through the operation of its automobile finance
activities. The long-term financing contracts include fixed interest rates, which expose the Company to the risk that
rising interest rates will cause the fair value of the receivables to decline. Because the Company’s practice and
intention is to hold non-delinquent long-term receivables to maturity, such declines would not be reflected in the
Company’s Consolidated Balance Sheets. In the event of rising interest rates, the Company would consider
increasing the interest rates charged to customers to the extent allowable by applicable law and competitive
conditions.
Foreign Currency Risk
The Company bears certain exchange rate risks from its operations in Mexico as approximately $6,706,000 of the
Company’s outstanding loans in Mexico at December 31, 2007 were contracted and expected to be settled in
Mexican pesos. The Company also maintained certain peso-denominated bank balances at December 31, 2007,
which converted to a U.S. dollar equivalent of $1,164,000. A 10% increase in the peso to U.S. dollar exchange rate
would increase the Company’s foreign currency translation exposure on its loan balances and cash by
approximately $610,000 and $106,000, respectively.
36
36
Gold Price Risk
At December 31, 2007, the Company holds approximately $14,198,000 in jewelry inventories. A significant and
sustained decline in the price of gold would negatively impact the value of jewelry inventories held by the Company
and the value of jewelry pledged as collateral by pawn customers. As a result, the Company’s profit margins on
existing jewelry inventories would be negatively impacted, as would be the potential profit margins on jewelry
currently pledged as collateral by pawn customers in the event it is forfeited by the pawn customer. In addition, a
decline in gold prices could result in a lower balance of pawn loans outstanding for the Company, as customers
would receive lower loan amounts for individual pieces of jewelry. The Company believes that many customers
would be willing to add additional items of value to their pledge in order to obtain the desired loan amount, thus
mitigating a portion of this risk.
Item 8. Financial Statements and Supplementary Data
The financial statements prepared in accordance with Regulation S-X are included in a separate section of this
report. See the index to Financial Statements at Item 15(a)(1) and (2) of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure 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) as of December 31, 2007 (“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 us in reports that the Company
files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission 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 our management, including the Company’s Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosures.
The Report of Management on Internal Control Over Financial Reporting is included in Item 9A of this annual
report on Form 10-K. There was no change in the Company’s internal control over financial reporting during the
quarter ended December 31, 2007, 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 financial controls and procedures are effective at that reasonable assurance level.
37
37
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. This
internal control system has been designed to provide reasonable assurance to the Company’s management and board
of directors regarding the preparation and fair presentation of the Company’s published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2007. To make this assessment, management used the criteria for effective internal control over
financial reporting described in Internal Control-Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December
31, 2007, the Company’s internal control over financial reporting is effective based on those criteria.
Hein & Associates LLP, an independent registered public accounting firm, has audited the consolidated financial
statements prepared by management. Their report on the consolidated financial statements is included in Part IV,
Item 15. Hein & Associates LLP’s report on the Company’s internal control over financial reporting appears on the
following page.
38
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of First Cash Financial Services, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited First Cash Financial Services, Inc.’s internal control over financial reporting as of December 31,
To the Board of Directors and Stockholders of First Cash Financial Services, Inc.
2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Company management is responsible for
We have audited First Cash Financial Services, Inc.’s internal control over financial reporting as of December 31,
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
control over financial reporting included in the accompanying Management’s Report on Internal Control Over
Sponsoring Organizations of the Treadway Commission (“COSO”). Company management is responsible for
Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting based on our audit.
control over financial reporting included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
control over financial reporting based on our audit.
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
included obtaining an understanding of internal control over financial reporting, testing and evaluating the design
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
and operating effectiveness of internal control, and performing such other procedures as we considered necessary in
whether effective internal control over financial reporting was maintained in all material respects. Our audit
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
included obtaining an understanding of internal control over financial reporting, testing and evaluating the design
and operating effectiveness of internal control, and performing such other procedures as we considered necessary in
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
Company’s assets that could have a material effect on the financial statements.
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Company’s assets that could have a material effect on the financial statements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
procedures may deteriorate.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
procedures may deteriorate.
as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the
We also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
States), the consolidated balance sheets of First Cash Financial Services, Inc., as of December 31, 2007 and 2006,
and the related consolidated statements of operations, stockholders’ equity, and cash flows for the three years in the
We also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
period ended December 31, 2007 and our report dated March 12, 2008 expressed an unqualified opinion thereon.
States), the consolidated balance sheets of First Cash Financial Services, Inc., as of December 31, 2007 and 2006,
and the related consolidated statements of operations, stockholders’ equity, and cash flows for the three years in the
Hein & Associates LLP
period ended December 31, 2007 and our report dated March 12, 2008 expressed an unqualified opinion thereon.
Dallas, Texas
March 12, 2008
Hein & Associates LLP
Dallas, Texas
March 12, 2008
39
39
39
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item with respect to the directors, executive officers and compliance with Section
16(a) of the Exchange Act is incorporated by reference from the information provided under the headings “Election
of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance,” respectively,
contained in the Company’s Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for the Company’s Annual Meeting of Stockholders.
The Company has adopted a Code of Ethics that applies to all of its directors, officers, and employees. This Code is
publicly available on the Company’s website at www.firstcash.com. Copies of the Company’s Code of Ethics are
available, free of charge, by submitting a written request to First Cash Financial Services, Inc., Investor Relations,
690 E. Lamar Blvd., Suite 400, Arlington, Texas 76011.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the information provided under the heading
“Executive Compensation” of the Company’s Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Equity Compensation Plan Information
The following table gives information about the Company’s common stock that may be issued upon the exercise of
options under shareholder-approved plans, including its 1990 Stock Option Plan, its 1999 Stock Option Plan, and its
2004 Long-Term Incentive Plan as of December 31, 2007. Additionally, the Company issues warrants to purchase
shares of common stock to certain key members of management, members of the Board of Directors that are not
employees or officers, and to other third parties. The issuance of warrants is not approved by shareholders, and
each issuance is generally negotiated between the Company and such recipients.
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted average exercise
price of outstanding
options, warrants and rights
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column A)
(A)
(B)
(C)
3,568,900
775,800
4,344,700
$
$
14.71
3.03
12.62
472,288
-
472,288
Plan Category
Equity Compensation Plans
Approved by Security
Holders
Equity Compensation Plans
Not Approved by Security
Holders
Total
Other information required by this item is incorporated herein by reference from the information provided under the
heading “Security Ownership of Certain Beneficial Owners and Management” of the Company’s Proxy Statement.
40
40
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference from the information provided in the
Company’s Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference from the information provided in the Company's
Proxy Statement under the discussion of the Company Audit Committee and under the item regarding shareholder
ratification of the Company's independent accountants.
41
41
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements:
Page
Report of Independent Registered Public Accounting Firm .................................................... F-1
Consolidated Balance Sheets ................................................................................................... F-2
Consolidated Statements of Income......................................................................................... F-3
Consolidated Statements of Cash Flows ................................................................................. F-4
Consolidated Statements of Changes in Stockholders’ Equity ................................................ F-6
Notes to Consolidated Financial Statements............................................................................ F-7
(2) All schedules are omitted because they are not applicable or the required information is shown in
the financial statements or the notes thereto.
(3) Exhibits:
Amended Certificate of Incorporation
3.1(7)
Amended Bylaws
3.2(5)
Common Stock Specimen
4.1(2)
First Cash, Inc. 1990 Stock Option Plan
10.1(1)
Consulting Agreement - Phillip E. Powell
10.2(8)
Employment Agreement - Rick L. Wessel
10.3(8)
Acquisition Agreement - Miraglia, Inc.
10.4(3)
Acquisition Agreement for Twelve Pawnshops in South Carolina
10.5(4)
Acquisition Agreement for One Iron Ventures, Inc.
10.6(4)
First Cash Financial Services, Inc. 1999 Stock Option Plan
10.7(4)
Executive Incentive Compensation Plan
10.8(6)
2004 Long-Term Incentive Plan
10.9(7)
Stock Purchase Agreement - Auto Master
10.10(9)
Third Amendment to the Credit Agreement
10.11(9)
10.12(10) Amendment to Consulting Agreement - Phillip E. Powell
10.13(10) Amendment to Employment Agreement - Rick L. Wessel
10.14(11) Amended and Restated Employment Agreement - Rick L. Wessel
10.15(12) Fourth Amendment to the Credit Agreement
14.1(8)
21.1(13)
23.1(13) Consent of Independent Registered Public Accounting Firm, Hein & Associates LLP
31.1(13) Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-
Code of Ethics
Subsidiaries
Oxley Act of 2002
31.2(13) Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1(13) Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2(13) Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as
adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
(2)
(3)
(4)
(5)
Filed as an exhibit to the Company’s Registration Statement on Form S-18 (No. 33-37760-FW) and
incorporated herein by reference.
Filed as an exhibit to the Company’s Registration Statement on Form S-1 (No. 33-48436) and incorporated
herein by reference.
Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended July 31, 1998 (File No.
0 - 19133) and incorporated herein by reference.
Filed as an exhibit to the Company's Registration Statement on Form S-3 dated January 22, 1999 (File No.
333-71077) and incorporated herein by reference.
Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1999 (File No.
42
42
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
0 - 19133) and incorporated herein by reference.
Filed as Exhibit A to the Company’s Definitive Proxy Statement filed on April 30, 2003.
Filed as Exhibit A to the Company’s Definitive Proxy Statement filed on April 29, 2004.
Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2004 (File No.
0 - 19133) and incorporated herein by reference.
Filed as an exhibit to the Current Report on Form 8-K dated August 22, 2006 (File No.
0 - 19133) and incorporated herein by reference.
Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2006 (File No.
0 - 19133) and incorporated herein by reference.
Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 (File
No. 0 - 19133) and incorporated herein by reference.
Filed as an exhibit to the Current Report on Form 8-K dated September 7, 2007 (File No.
0 - 19133) and incorporated herein by reference.
Filed herewith.
43
43
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Dated: March 12, 2008
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)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ PHILLIP E. POWELL
Phillip E. Powell
/s/ RICK L. WESSEL
Rick L. Wessel
/s/ R. NEIL IRWIN
R. Neil Irwin
/s/ RICHARD T. BURKE
Richard T. Burke
/s/ TARA MACMAHON
Tara MacMahon
Chairman of the Board
March 12, 2008
Vice Chairman of the Board,
President, Chief Executive Officer
March 12, 2008
Director
Director
Director
March 12, 2008
March 12, 2008
March 12, 2008
44
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
First Cash Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of First Cash Financial Services, Inc., and
subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’
equity, and cash flows for the three years in the period ended December 31, 2007. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of First Cash Financial Services, Inc., and subsidiaries at December 31, 2007 and 2006, and
the consolidated results of their operations and their cash flows for the three years in the period ended December
31, 2007, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated March 12, 2008, expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Hein & Associates LLP
Dallas, Texas
March 12, 2008
F-1
F-1
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Cash and cash equivalents
Finance and service charges receivable
Customer receivables, net of allowance of $9,903 and $5,783, respectively
Inventories
Prepaid expenses and other current assets
Discontinued operations
Total current assets
Customer receivables with long-term maturities, net of allowance of
$10,878 and $3,895, respectively
Property and equipment, net
Goodwill and other intangible assets, net
Other
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable
Accounts payable
Accrued liabilities
Total current liabilities
Revolving credit facility
Notes payable, net of current portion
Deferred income taxes payable
Total liabilities
Commitments and contingencies (Notes 2 and 11)
Stockholders' equity:
Preferred stock; $.01 par value; 10,000 shares authorized;
no shares issued or outstanding
Common stock; $.01 par value; 90,000 shares authorized;
35,923 and 35,339 shares issued, respectively;
30,723 and 31,679 shares outstanding, respectively
Additional paid-in capital
Retained earnings
Common stock held in treasury, 5,200 and 3,661 shares
at cost, respectively
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2007
(in thousands, except per share data)
2006
14,175
7,867
74,532
35,612
9,103
1,509
142,798
31,218
43,762
72,340
1,430
291,548
2,250
1,732
17,066
21,048
55,000
3,938
10,353
90,339
$
$
$
15,535
4,966
57,564
28,761
5,901
2,687
115,414
14,013
30,643
72,544
1,228
233,842
2,250
1,535
17,976
21,761
8,000
7,188
8,297
45,246
-
-
359
111,410
169,855
(80,415)
201,209
291,548
353
101,949
134,567
(48,273)
188,596
233,842
$
$
$
$
$
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
F-2
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2006
2005
2007
(in thousands, except per share amounts)
Revenues:
Merchandise sales
Finance and service charges
Other
$
Cost of revenues:
Cost of goods sold
Credit loss provision
Other
Net revenues
Expenses and other income:
Store operating expenses
Administrative expenses
Depreciation
Amortization
Interest expense
Interest income
Income from continuing operations before
income taxes
Provision for income taxes
Income from continuing operations
$
252,349
131,933
4,168
388,450
134,615
58,140
358
193,113
195,337
101,454
29,290
10,599
204
2,438
(78)
143,907
51,430
18,720
32,710
Income from discontinued operations, net of
tax of $1,938, $1,670 and $1,464, respectively
3,386
Loss from disposal of discontinued operations,
net of tax benefit of $462
Net income
(808)
35,288
$
$
Basic income per share (Note 3):
Income from continuing operations
Income from discontinued operations
Loss from disposal of discontinued operations
Net income per basic share
Diluted income per share (Note 3):
Income from continuing operations
Income from discontinued operations
Loss from disposal of discontinued operations
Net income per diluted share
$
$
$
$
1.04
0.11
(0.03)
1.12
1.00
0.10
(0.02)
1.08
$
$
$
$
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
F-3
149,473
108,677
3,973
262,123
84,229
20,452
440
105,121
157,002
79,203
24,671
7,866
112
916
(727)
112,041
44,961
16,186
28,775
2,969
-
31,744
0.92
0.09
-
1.01
0.88
0.09
-
0.97
$
$
$
$
$
$
102,139
94,723
3,852
200,714
61,659
12,702
300
74,661
126,053
65,592
19,412
5,752
-
-
(317)
90,439
35,614
12,832
22,782
2,601
-
25,383
0.73
0.08
-
0.81
0.68
0.08
-
0.76
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization
Share-based compensation
Non-cash portion of credit loss provision
Stock option and warrant income tax benefit
Changes in operating assets and liabilities:
Buy-here/pay-here automotive customer receivables
Finance and service fees receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Current and deferred income taxes
Net cash flows from operating activities
Cash flows from investing activities:
Pawn customer receivables
Short-term loan customer receivables
Purchases of property and equipment
Distribution to minority interest in Cash & Go, Ltd. joint venture
Acquisition of Auto Master buy-here/pay-here automotive division
Net cash flows from investing activities
Cash flows from financing activities:
Proceeds from debt
Payments of debt
Purchase of treasury stock
Proceeds from exercise of stock options and warrants
Stock option and warrant income tax benefit
Net cash flows from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Year Ended December 31,
2006
2005
2007
(in thousands)
$
35,288
$
31,744
$
25,383
11,074
233
43,619
-
(66,793)
(2,901)
(2,736)
(5,463)
(713)
4,115
15,723
(10,352)
(3,584)
(23,989)
(63)
-
(37,988)
78,875
(35,125)
(32,142)
6,816
2,481
20,905
(1,360)
15,535
14,175
8,041
583
9,920
-
(12,211)
(790)
(1,964)
438
2,660
(1,868)
36,553
(7,095)
(4,805)
(14,716)
-
(23,652)
(50,268)
31,000
(38,052)
(24,753)
13,570
4,744
(13,491)
(27,206)
42,741
15,535
$
5,804
-
7,118
2,066
-
336
(1,563)
(2,832)
5,088
695
42,095
(6,665)
1,859
(11,993)
-
-
(16,799)
-
-
(11,404)
2,617
-
(8,787)
16,509
26,232
42,741
$
$
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
F-4
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
Income taxes
Supplemental disclosure of non-cash operating activity:
Inventory acquired in repossession
Supplemental disclosure of non-cash investing activity:
Non-cash transactions in connection with pawn receivables settled
through forfeitures of collateral transferred to inventories
Supplemental disclosure of non-cash financing activity:
Notes payable issued in connection with the acquisition of Auto Master
Year Ended December 31,
2006
2005
2007
(in thousands)
$
$
$
$
$
2,422
13,348
2,903
59,789
-
$
$
$
$
$
738
14,576
310
49,138
10,000
$
$
$
$
$
-
11,380
-
42,241
-
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
F-5
FIRST CASH FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Preferred Stock
Common stock:
Balance at beginning of year
Exercise of stock options and warrants
Balance at end of year
Additional paid-in capital:
Balance at beginning of year
Exercise of stock options and warrants, including income tax
benefit of $2,481, $4,744, $2,066, respectively
Stock option expense
Distribution to minority interest in Cash & Go, Ltd. joint venture
Balance at end of year
Retained earnings:
Balance at beginning of year
Net income
Balance at end of year
Treasury stock:
Balance at beginning of year
Repurchases of treasury stock
Balance at end of year
Year Ended December 31,
2006
2005
2007
(in thousands)
-
353
6
359
$
-
340
13
353
$
-
332
8
340
$
101,949
83,065
9,291
233
(63)
111,410
134,567
35,288
169,855
(48,273)
(32,142)
(80,415)
18,301
583
-
101,949
102,823
31,744
134,567
(23,520)
(24,753)
(48,273)
78,390
4,675
-
-
83,065
77,440
25,383
102,823
(12,116)
(11,404)
(23,520)
Total stockholders' equity
$
201,209
$
188,596
$
162,708
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
F-6
FIRST CASH FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY
First Cash Financial Services, Inc., (the “Company”) was incorporated in Texas on July 5, 1988, and was
reincorporated in Delaware in April 1991. The Company is engaged in the operation of pawn stores, which lend
money on the collateral of pledged personal property and retail previously owned merchandise acquired through
pawn forfeitures and purchases directly from the general public. In addition to making short-term secured pawns,
many of the Company’s pawn stores offer short-term loans and credit services. The Company also operates short-
term loan stores that provide short-term loans, credit services, check cashing, and other related financial services.
On August 25, 2006, the Company acquired Guaranteed Auto Finance, Inc. and SHAC, Inc. (collectively doing
business as "Auto Master"), which operates automobile dealerships in the buy-here/pay-here segment of the used-
vehicle sales and financing market. The automotive dealerships sell used vehicles and earn finance charges from
the related vehicle financing contracts. As of December 31, 2007, the Company owned and operated 278 pawn
stores, 182 short-term loan stores and 15 buy-here/pay-here automotive dealerships. The Company is also a 50%
owner of Cash & Go, Ltd., a Texas limited partnership that owns and operates 39 financial services kiosks inside
convenience stores.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the preparation of these financial
statements:
Principles of consolidation - The accompanying consolidated financial statements of the Company include the
accounts of its wholly-owned subsidiaries. The Company is a 50% partner in Cash & Go, Ltd., a Texas limited
partnership, and in accordance with FASB Interpretation No. 46(R) - Consolidation of Variable Interest Entities, the
consolidated operating results include those of Cash & Go, Ltd.
On August 25, 2006, the Company acquired Guaranteed Auto Finance, Inc. and SHAC, Inc. (collectively doing
business as "Auto Master"). Accordingly, the Consolidated Statements of Income for the twelve months ended
December 31, 2006 do not include the results of Auto Master prior to August 25, 2006. See Note 4 of Notes to
Consolidated Financial Statements. All significant intercompany accounts and transactions have been eliminated.
Foreign Currency Transactions - The Company conducts its operations in Mexico through foreign subsidiaries
having the U.S. dollar as their functional currency. Local currency transactions of international subsidiaries that
have the U.S. dollar as their functional currency are re-measured into U.S. dollars using current rates of exchange
for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities. Gains and
losses from re-measurement of monetary assets and liabilities are included in store operating expenses.
Cash and cash equivalents - The Company considers any highly liquid investments with an original maturity of
three months or less at date of acquisition to be cash equivalents.
Customer receivables and revenue recognition - Pawn receivables are short-term loans secured by the customer’s
pledge of tangible personal property. The Company accrues pawn service charge revenue on a constant-yield basis
over the life of the pawn loan for all pawns that the Company deems collection to be probable based on historical
pawn redemption statistics. If the pawn is not repaid, the principal amount loaned becomes the carrying value of the
forfeited collateral (“inventory”), which is recovered through sale. Short-term loans are cash advances and
installment loans with terms that range from seven to 180 days. The Company accrues short-term loan service fees
on a constant-yield basis over the term of the short-term loan. In its Texas markets, the Company offers a credit
services product (“CSO Program”) to assist customers in obtaining a short-term loan from an independent, non-
bank, consumer lending company (the “Independent Lender”). The Company recognizes credit services fees ratably
over the life of the loan made by the Independent Lender. The loans made by the Independent Lender to credit
services customers of FCC have terms of seven to 180 days. The Company records a liability for collected, but
unearned, credit services fees received from its customers. The Company originates installment loan contracts from
the sale of used vehicles at its dealerships. Such automotive receivables are collateralized by vehicles sold and
consist of contractually scheduled payments from installment contracts, net of unearned finance charges and an
F-7
F-7
allowance for credit losses. Unearned finance charges represent the balance of interest income remaining from the
total interest to be earned over the term of the related installment contract.
Credit loss provisions - The Company maintains an allowance for credit losses on an aggregate basis at a level it
considers sufficient to cover estimated losses in the collection of its short-term loan and automobile finance
receivables. The allowance for credit losses is based primarily upon historical credit loss experience, with
consideration given to recent credit loss trends and changes in loan characteristics (i.e., average amount financed
and term), delinquency levels, collateral values, economic conditions and underwriting and collection practices. The
allowances for credit losses are periodically reviewed by management with any changes reflected in current
operations. Although it is at least reasonably possible that events or circumstances could occur in the future that are
not presently foreseen which could cause actual credit losses to be materially different from the recorded allowance
for credit losses, the Company believes that it has given appropriate consideration to all relevant factors and has
made reasonable assumptions in determining the allowance for credit losses. The Company considers short-term
loans to be in default if they are not repaid on the due date, and writes off the principal amount and service charge
receivable as of the default date. Net defaults and changes in the short-term loan allowance are charged to the short-
term loan loss provision. Under the CSO program, the Company issues the Independent Lender a letter of credit to
guarantee the repayment of the loan. These letters of credit constitute a guarantee for which the Company is
required to recognize a liability for the fair value of the obligation undertaken by issuing the letters of credit.
According to the letter of credit, if the borrower defaults on the loan, the Company will pay the Independent Lender
the principal, accrued interest, insufficient funds fee, and late fees, all of which the Company records as bad debt in
the short-term loan and credit services loss provision. FCC is entitled to seek recovery directly from its customers
for amounts it pays the Independent Lender in performing under the letters of credit. The Company records the
estimated fair value of the liability under the letters of credit in accrued liabilities. An automotive finance
receivable account is considered delinquent when a contractually scheduled payment has not been received by the
scheduled payment date. The Company considers automotive finance receivables to be in default when a
contractually scheduled payment is 90 days past due.
Store operating expenses - Costs incurred in operating the pawn stores, short-term loan stores and buy-here/pay-
here dealerships have been classified as store operating expenses. Operating expenses include salary and benefit
expense of store employees, rent and other occupancy costs, bank charges, security, insurance, utilities, cash
shortages and other costs incurred by the stores.
Layaway and deferred revenue - Interim payments from customers on layaway sales are credited to deferred
revenue and subsequently recorded as income during the period in which final payment is received.
Inventories - Pawn inventories represent merchandise purchased directly from the public and merchandise acquired
from forfeited pawns. Certain pawn inventories are purchased directly from customers and are recorded at cost.
Inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods.
Vehicle inventories consist of used vehicles acquired from auctions, new car dealerships and trade-ins. Vehicle
transportation and reconditioning costs are capitalized as a component of inventory. Repossessed vehicles are
recorded at fair value, which approximates wholesale value. The cost of pawn and vehicle inventories is determined
on the specific identification method. Pawn and vehicle inventories are stated at the lower of cost or market;
accordingly, inventory valuation allowances are established when inventory carrying values are in excess of
estimated selling prices, net of direct costs of disposal. Management has evaluated inventories and determined that
a valuation allowance is not necessary.
Property and equipment - Property and equipment are recorded at cost. Depreciation is determined on the straight-
line method based on estimated useful lives of fifteen years for buildings and three to five years for equipment. The
costs of improvements on leased stores are capitalized as leasehold improvements and are amortized on the straight-
line method over the applicable lease period, or useful life, if shorter.
Maintenance and repairs are charged to expense as incurred; renewals and betterments are charged to the
appropriate property and equipment accounts. Upon sale or retirement of depreciable assets, the cost and related
accumulated depreciation is removed from the accounts, and the resulting gain or loss is included in the results of
operations in the period the assets are sold or retired.
F-8
F-8
Long-lived assets - Property, plant and equipment and non-current assets are reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of the asset may not be recoverable. An
impairment loss is recognized if the sum of the expected future cash flows (undiscounted and before interest) from
the use of the asset is less than the net book value of the asset. Generally, the amount of the impairment loss is
measured as the difference between the net book value of the assets and the estimated fair value of the related
assets. Management does not believe any of these assets have been impaired at December 31, 2007. Goodwill is
reviewed annually for impairment based upon its fair value, or more frequently if certain indicators arise.
Management has determined that goodwill has not been impaired at December 31, 2007.
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. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values, due primarily to their cash nature.
Income taxes - The Company uses the liability method of computing deferred income taxes on all material
temporary differences. Temporary differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Also see Note 10 of Notes to Consolidated Financial Statements.
Advertising - The Company expenses the costs of advertising the first time the advertising takes place. Advertising
expense for the fiscal years ended December 31, 2007, 2006 and 2005, was $3,739,000, $2,489,000, and
$1,964,000, respectively.
Share-based compensation - Prior to January 1, 2006, the Company applied the recognition and measurement
principles of APB 25, Accounting for Stock Issued to Employees, and related interpretations, as permitted by SFAS
123, Accounting for Stock-Based Compensation, in accounting for awards of stock options and warrants, whereby at
the date of grant, no compensation expense was reflected in income, as all stock options and warrants granted had
an exercise price equal to or greater than the market value of the underlying common stock on the date of grant.
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payments, which replaces SFAS
123 and supersedes APB 25 (see Note 13 of Notes to Consolidated Financial Statements).
Earnings per share - Basic income per share is computed by dividing income by the weighted average number of
shares outstanding during the year. Diluted income per share is calculated by giving effect to the potential dilution
that could occur if securities or other contracts to issue common shares were exercised and converted into common
shares during the year. All share amounts have been retroactively adjusted to give effect to a two-for-one split of the
Company’s common stock in February 2006 (see Note 3 of Notes to Consolidated Financial Statements).
F-9
F-9
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per
share data):
Numerator:
Income from continuing operations for calculating
basic and diluted earnings per share
Income from discontinued operations
Loss from disposal of discontinued operations
Net income from continuing operations for calculating
basic and diluted earnings per share
Denominator:
Weighted-average common shares for calculating
basic earnings per share
Effect of dilutive securities:
Convertible note payable
Stock options and warrants
Weighted-average common shares for calculating
diluted earnings per share
Basic income per share:
Income from continuing operations
Income from discontinued operations
Loss from disposal of discontinued operations
Net income per basic share
Diluted income per share:
Income from continuing operations
Income from discontinued operations
Loss from disposal of discontinued operations
Net income per diluted share
Year Ended December 31,
2006
2005
2007
32,710
3,386
(808)
35,288
$
$
28,775
2,969
-
31,744
$
$
22,782
2,601
-
25,383
31,564
31,448
31,506
54
1,206
19
1,392
-
1,719
32,824
32,859
33,225
1.04
0.11
(0.03)
1.12
1.00
0.10
(0.02)
1.08
$
$
$
$
0.92
0.09
-
1.01
0.88
0.09
-
0.97
$
$
$
$
0.73
0.08
-
0.81
0.68
0.08
-
0.76
$
$
$
$
$
$
Pervasiveness of estimates - The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and related revenues and expenses, and the disclosure of gain
and loss contingencies at the date of the financial statements. Such estimates and assumptions are subject to a
number of risks and uncertainties, which may cause actual results to differ materially from the Company’s
estimates. Significant estimates include allowances for doubtful accounts receivable and related credit loss
provisions and impairment of goodwill.
Reclassification - Certain amounts for the years ended December 31, 2005 and 2006 have been reclassified in order
to conform to the 2007 presentation.
Recent accounting pronouncements - In June 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 requires that a
more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the financial
statements and prescribes how such benefit should be measured. It requires that the new standard be applied to the
balances of assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment
be made to the opening balance of retained earnings. Effective January 1, 2007, the Company adopted FIN 48, as
described in Note 10 of Notes to Consolidated Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value to be the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date and
F-10
F-10
emphasizes that fair value is a market-based measurement, not an entity-specific measurement. It establishes a fair
value hierarchy and expands disclosures about fair value measurements in both interim and annual periods. SFAS
157 will be effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal
years. The Company does not expect SFAS 157 to have a material effect on the Company’s consolidated financial
position or results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose, at specified
election dates, to measure eligible items at fair value (the “fair value option”) and requires an entity to report
unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent
reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized
in earnings as incurred and not deferred. SFAS 159 will be effective for fiscal years beginning after November 15,
2007. The Company does not expect SFAS 159 to have a material effect on the Company’s consolidated financial
position or results of operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141, “Business
Combinations – Revised” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an
acquirer in a business combination: recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the acquiree; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase price; and, determines what
information to disclose to enable users of the consolidated financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15,
2008. In the past, the Company has completed significant acquisitions. The application of SFAS 141(R) will cause
management to evaluate future transaction returns under different conditions, particularly the near term and long
term economic impact of expensing transaction costs up front.
NOTE 3 - CAPITAL STOCK
In January 2006, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock
dividend to shareholders of record on February 6, 2006. The additional shares were distributed on February 20,
2006. Common stock and all share and per share amounts (except authorized shares and par value) have been
retroactively adjusted to reflect the split.
In November 2007, the Company’s Board of Directors authorized a repurchase program for up to 1,000,000 shares
of First Cash’s outstanding common stock. No shares were repurchased under the 2007-authorized program as of
the report date.
In June 2006, the Company’s Board of Directors authorized the repurchase of up to 2,000,000 shares of the
Company’s outstanding common stock. During 2006, the Company repurchased a total of 461,000 common shares
under the stock repurchase program for an aggregate purchase price of $8,848,000 or $19.21 per share. During
2007, the Company repurchased approximately 1,539,000 shares to close out the 2006-authorized program for an
aggregate purchase price of $32,142,000 or $20.88 per share. The aggregate repurchase price of the 2,000,000
shares repurchased under this plan was $40,990,000, or a weighted-average of $20.49 per share.
In July 2004, the Company’s Board of Directors authorized the repurchase of up to 3,200,000 shares of the
Company’s outstanding common stock. During 2005, the Company repurchased a total of 1,153,000 common
shares under the stock repurchase program for an aggregate purchase price of $11,404,000. During 2006, First
Cash repurchased approximately 802,000 shares for an aggregate purchase price of $15,905,000 to close out the
2004-authorized program. The weighted average repurchase price of the 3,200,000 shares repurchased under this
plan from 2004 through 2006 was $12.32 per share or a total of $39,425,000.
F-11
F-11
NOTE 4 - ACQUISITION
Pursuant to the Company’s strategic initiative to grow and diversify its product suite within the specialty consumer
finance and retail industries, the Company acquired two affiliated companies, collectively doing business as Auto
Master, an automotive retailer and related finance company focused exclusively on the “buy-here/pay-here”
segment of the retail used vehicle market. Auto Master, based in Northwest Arkansas, owns and operates buy-
here/pay-here automobile dealerships located in Arkansas, Missouri and Oklahoma, which specialize in the sale of
clean, moderately-priced used vehicles. The definitive stock purchase agreement for the privately-held Auto Master
group of companies was signed and closed on August 25, 2006. The purchase price, in the amount of $33.7 million,
was funded through a combination of $23.7 million in cash and notes payable to the sellers in the amount of $10
million. In addition, the Company retired approximately $14 million of the outstanding interest-bearing debt of
Auto Master subsequent to closing the purchase transaction.
The acquisition has been accounted for using the purchase method of accounting. Accordingly, the purchase price
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 tangible assets acquired and
identifiable intangible assets has been recorded as goodwill. The total amount of goodwill and identified intangible
assets of approximately $19.4 million is expected to be deductible for tax purposes. The results of operations of the
acquired company are included in the consolidated financial statements from its date of acquisition.
The allocation of the purchase price is as follows (in thousands):
Cash
Customer receivables
Inventory
Other current assets
Property, plant and equipment
Customer relationships
Trade name
Goodwill
Current liabilities
Debt
Purchase price
$
$
7
28,531
2,578
36
297
1,423
4,360
13,637
(2,719)
(14,490)
33,660
The following unaudited pro forma information presents the Company’s revenues, income from continuing
operations, and diluted earnings from continuing operations per share as if the Auto Master acquisition had occurred
on January 1, 2006 or 2005 (in thousands, except per share amounts):
Revenues
Income from continuing operations
Diluted earnings per share from continuing operations
Pro Forma
Twelve Months Ended December 31,
2006
298,554
32,566
0.99
$
$
$
2005
245,146
26,468
0.80
$
$
$
Pro forma adjustments have been made to reflect depreciation and amortization using the asset values after applying
purchase accounting adjustments, interest expense on borrowings used to finance the acquisition and income taxes.
This pro forma information is presented for informational purposes only and is not necessarily indicative of actual
results had the acquisition been effected at the beginning of the years presented. This information is also not
indicative of future results and does not reflect potential synergies, integration costs or other such costs or savings.
F-12
F-12
NOTE 5 - DISCONTINUED OPERATIONS
The Company elected to discontinue its short-term loan operations in the District of Columbia (“D.C.”) effective
December 2007. This decision was the result of legislation enacted by the D.C. city council in the fourth quarter of
2007 to cap the maximum annual percentage rate charged on short-term loans at 24%. These rate restrictions made
the Company’s short-term loan product financially unviable; therefore, the Company made the decision to
discontinue the product and close its seven short-term loan stores in D.C. All revenues, expenses and income
reported in these financial statements have been adjusted to reflect reclassification of the discontinued D.C.
operations. For 2007, the net effect of this reclassification is to decrease diluted earnings from continuing
operations by $3,386,000 or $0.10 per share, net of tax, and report this same amount as income from discontinued
operations. The Company also recorded, as a component of discontinued operations, a charge of $808,000 or $0.02
per share, net of tax, for store closing expenses and expected credit losses on outstanding short-terms loans
receivable.
The carrying amounts of the major classes of assets for the discontinued operations at December 31, 2007 included
customer receivables of $1,509,000, net of an allowance for doubtful accounts of $1,006,000, which was classified
as a component of current assets. The carrying amounts of liabilities for the discontinued operations at December
31, 2007 were immaterial.
The following table summarizes the operating results of the D.C. short-term loan stores which have been
reclassified as discontinued operations in the consolidated statements of operations for the years ended December
31, 2007, 2006 and 2005 (in thousands):
Revenues:
Finance and service charges
Other
$
Cost of revenues:
Credit loss provision
Net revenues
Expenses and other income:
Store operating expenses
Store depreciation and amortization
Net store contribution before taxes
$
Year Ended December 31,
2006
2007
2005
8,798
90
8,888
2,658
6,230
1,905
271
2,176
4,054
$
$
7,510
89
7,599
1,011
6,588
1,886
63
1,949
4,639
$
$
6,979
82
7,061
1,107
5,954
1,838
51
1,889
4,065
F-13
F-13
NOTE 6 - CUSTOMER RECEIVABLES AND VALUATION ACCOUNTS
Customer receivables, net of unearned finance charges, consist of the following (in thousands):
December 31, 2007
Customer receivables with short-term maturities
Less allowance for doubtful accounts
Customer receivables with long-term maturities
Less allowance for doubtful accounts
Total customer receivables
Less allowance for doubtful accounts
December 31, 2006
Customer receivables with short-term maturities
Less allowance for doubtful accounts
Customer receivables with long-term maturities
Less allowance for doubtful accounts
Total customer receivables
Less allowance for doubtful accounts
Short-Term
Loan
Buy-Here/
Pay-Here
Automotive
$
$
$
$
5,774
(326)
5,448
-
-
-
5,774
(326)
5,448
4,969
(146)
4,823
-
-
-
4,969
(146)
4,823
$
$
$
$
37,062
(9,577)
27,485
42,096
(10,878)
31,218
79,158
(20,455)
58,703
25,919
(5,637)
20,282
17,908
(3,895)
14,013
43,827
(9,532)
34,295
Total
84,435
(9,903)
74,532
42,096
(10,878)
31,218
126,531
(20,781)
105,750
63,347
(5,783)
57,564
17,908
(3,895)
14,013
81,255
(9,678)
71,577
$
$
$
$
Pawn
41,599
-
41,599
-
-
-
41,599
-
41,599
32,459
-
32,459
-
-
-
32,459
-
32,459
$
$
$
$
Changes in the allowance for credit losses are as follows (in thousands):
December 31, 2007
Balance, beginning of the year
Provision for credit losses
Charge-offs, net of recoveries
Balance at end of year
December 31, 2006
Balance, beginning of the year (1)
Provision for credit losses
Charge-offs, net of recoveries
Balance at end of year
Short-Term
Loan
Buy-Here/
Pay-Here
Automotive
$
$
$
$
146
4,137
(3,957)
326
155
1,647
(1,656)
146
$
$
$
$
9,532
39,482
(28,559)
20,455
9,299
6,137
(5,904)
9,532
$
$
$
$
Total
9,678
43,619
(32,516)
20,781
9,454
7,784
(7,560)
9,678
(1) Buy-here/pay-here beginning balance is as of August 25, 2006, the date of acquistion.
F-14
F-14
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
Land
Buildings
Furniture, fixtures, equipment and leasehold improvements
Less: accumulated depreciation
NOTE 8 - ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
Accrued compensation
Deferred revenue
Sales and property taxes payable
Reserves for expected losses on outstanding CSO letters of credit
Money order and money transfer settlements payable
Third-party lending settlements payable
Other
Year Ended December 31,
2007
2006
$
$
4,648
1,002
81,695
87,345
(43,583)
43,762
$
$
715
1,002
62,611
64,328
(33,685)
30,643
Year Ended December 31,
2007
2006
$
$
4,398
3,686
2,253
811
678
341
4,899
17,066
$
$
5,476
4,102
1,289
569
743
2,909
2,888
17,976
Auto Master provides a limited warranty with each vehicle sold that covers the first six months or 6,000 miles from
the date of purchase. The Company records liabilities at the time of sale for the estimated costs that may be incurred
under the limited warranty. The liability is reduced by actual expenses as they are incurred. Adjustments to the
liability are made as management reviews these estimates on a regular basis and adjusts the policy or limited
warranty provisions as actual experience differs from historical estimates or other information becomes available.
The limited warranty liability, included in “other” accrued liabilities above, is computed as follows (in thousands):
Beginning balance (1)
Payments
Increase in liability (limited warranty plans issued during period)
Ending balance
Year Ended December 31,
2007
2006
$
$
523
(4,860)
5,139
802
$
$
280
(701)
944
523
(1) The 2006 beginning balance is as of August 25, 2006, the date of the Auto Master acquisition.
F-15
F-15
NOTE 9 - REVOLVING CREDIT FACILITY AND NOTES PAYABLE
The Company maintains a long-term line of credit with two commercial lenders (“the Credit Facility”) which was
amended during the third quarter of 2007 to increase the amount available under the line of credit from $50,000,000
to $90,000,000 and to extend the term of the facility until April 2010. The Credit Facility bears interest at the
prevailing LIBOR rate (which was approximately 4.6% at December 31, 2007) plus a fixed interest rate margin of
1.375%. Amounts available under the Credit Facility are limited to 300% of the Company’s earnings before income
taxes, interest, depreciation and amortization for the trailing twelve months. At December 31, 2007, the Company
had $55,000,000 outstanding under the Credit Facility and the Company had $35,000,000 available for borrowings.
Under the terms of the Credit Facility, the Company is required to maintain certain financial ratios and comply with
certain technical covenants. The Company was in compliance with the requirements and covenants of the Credit
Facility as of December 31, 2007, and March 12, 2008. The Company is required to pay an annual commitment fee
of 1/8 of 1% on the average daily-unused portion of the Credit Facility commitment. The Company’s Credit
Facility contains provisions that allow the Company to repurchase stock and/or pay cash dividends within certain
parameters. Substantially all of the unencumbered assets of the Company have been pledged as collateral against
indebtedness under the Credit Facility.
At December 31, 2007, the Company had notes payable to individuals arising from the Auto Master acquisition
which total $6,188,000 in aggregate and bear interest at 7%, with quarterly payments of principal and interest
scheduled over the next four years. Of the $6,188,000 in notes payable, $2,250,000 is classified as a current
liability and $3,938,000 is classified as long-term debt. One of the notes payable, in the principal amount of
$1,000,000, was retired in December 2007.
NOTE 10 - INCOME TAXES
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
settlement. FIN 48 also provides guidance on penalties and interest related to income taxes and requires increased
disclosures. Interest and penalties related to income tax liabilities that could arise subsequent to the adoption of FIN
48 would be classified as interest expense in the Consolidated Statements of Income.
As of January 1, 2007 and December 31, 2007, the Company had no unrecognized tax benefits and therefore, the
Company did not have a liability for accrued interest and penalties. The adoption of FIN 48 resulted in no
adjustment to beginning retained earnings.
The Company files federal income tax returns in the United States and Mexico, as well as multiple state and local
income tax returns in the United States. The Company’s U.S. federal and state income tax returns are not subject to
examination for the tax years prior to 2004 with the exception of two states. With respect to Mexico, the years prior
to 2002 are closed to examination. The Company does not currently have any federal, foreign or state income tax
returns under examination. The Company does not believe that its unrecognized tax benefits will significantly
change over the next twelve months.
F-16
F-16
Components of the provision for income taxes and the income to which it relates for the years ended December 31,
2007, 2006 and 2005 consist of the following (in thousands):
Income from continuing operations before income taxes
Current:
Federal
State and foreign
Deferred
Year Ended December 31,
2006
2005
2007
51,430
$
44,961
$
35,614
9,695
4,901
14,596
4,124
18,720
$
$
14,409
2,925
17,334
(1,148)
16,186
$
$
10,599
2,406
13,005
(173)
12,832
$
$
$
The principal current and non-current deferred tax assets and liabilities consist of the following (in thousands):
Deferred tax assets:
Inventory tax-basis difference
Foreign tax credits
Receivables tax-basis difference
Receivables allowance
Interest accrual on pawn forfeits
Other
Total deferred tax assets
Deferred tax liabilities:
Intangible asset amortization
Depreciation
Contract discount on auto receivables
State income taxes, net
Other
Total deferred tax liabilities
Net deferred tax liablities
Reported as:
Other current assets
Non-current liabilities - deferred income taxes
Net deferred tax liabilities
Year Ended December 31,
2007
2006
$
$
$
$
-
4,438
1,064
4,000
677
1,775
11,954
11,428
447
9,179
547
507
22,108
(10,154)
199
(10,353)
(10,154)
$
$
$
$
1,385
2,580
266
177
-
1,123
5,531
9,984
745
-
324
508
11,561
(6,030)
2,267
(8,297)
(6,030)
F-17
F-17
The effective rate on income from continuing operations differs from the federal statutory rate of 35%. The
following is a reconciliation of such differences (in thousands):
Tax at the federal statuatory rate
State and foreign income taxes, net of federal tax benefit
for state taxes of $365, $350 and $271, respectively, and
foreign tax credits of $3,751, $1,861 and $1,574, respectively
Other, net
Year Ended December 31,
2006
2007
2005
$
18,001
$
15,736
$
12,465
727
(8)
18,720
$
689
(239)
16,186
538
(171)
12,832
$
$
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Leases - The Company leases certain of its facilities and equipment under operating leases with terms generally
ranging from three to five years. Most facility leases contain renewal options. Remaining future minimum rentals
due under non-cancelable operating leases, including Cash & Go, Ltd., are as follows (in thousands):
Fiscal
2008
2009
2010
2011
2012
Thereafter
$
$
18,707
15,653
12,506
7,827
4,214
3,862
62,769
Rent expense under such leases was $18,556,000, $15,268,000, and $12,513,000 for the years ended December 31,
2007, 2006 and 2005, respectively.
The Company is from time to time a defendant (actual or threatened) in certain lawsuits and arbitration claims
encountered in the ordinary course of its business, the resolution of which, in the opinion of management, should
not have a materially adverse effect on the Company’s financial position, results of operations, or cash flows.
Guarantees - First Cash Credit, Ltd. (“FCC”), a wholly-owned subsidiary of the Company, offers a fee-based credit
services program (“CSO program”) to assist consumers in its Texas markets in obtaining credit. Under the CSO
program, FCC assists customers in applying for a short-term loan from an independent, non-bank, consumer lending
company (the “Independent Lender”) and issues the Independent Lender a letter of credit to guarantee the
repayment of the loan. The loans made by the Independent Lender to credit services customers of FCC range in
amount from $50 to $1,500, have terms of 7 to 180 days and bear interest at a rate of less than 10% on an
annualized basis.
These letters of credit constitute a guarantee for which the Company is required to recognize a liability for the fair
value of the obligation undertaken by issuing the letters of credit. The Independent Lender may present the letter of
credit to FCC for payment if the customer fails to repay the full amount of the loan and accrued interest after the due
date of the loan. Each letter of credit expires within 60 days from the inception of the associated lending
transaction. FCC’s maximum loss exposure under all of the outstanding letters of credit issued on behalf of its
customers to the Independent Lender as of December 31, 2007 was $17,255,000 compared to $14,239,000 at
December 31, 2006. According to the letter of credit, if the borrower defaults on the loan, the Company will pay
the Independent Lender the principal, accrued interest, insufficient funds fee, and late fees, all of which the
Company records as bad debt in the short-term advance and credit services loss provision. FCC is entitled to seek
recovery directly from its customers for amounts it pays the Independent Lender in performing under the letters of
credit. The Company records the estimated fair value of the liability under the letters of credit in accrued liabilities.
F-18
F-18
NOTE 12 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets having an indefinite useful life are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the assets might be impaired. An impairment loss is
recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the asset
is less than the net book value of the asset. Management does not believe any of these assets have been impaired at
December 31, 2007. Goodwill and other intangible assets are reviewed annually for impairment based upon its fair
value, or more frequently if certain indicators arise.
Changes in the carrying value of goodwill were as follows (in thousands):
December 31, 2007
Balance, beginning of year, net of amortization of $8,461
Acquisitions
Adjustments
Balance, end of year
December 31, 2006
Balance, beginning of year, net of amortization of $8,461
Acquisitions
Adjustments
Balance, end of year
Pawn and
Short-Term
Loan
Buy-Here/
Pay-Here
Automotive
Total
$
$
$
$
53,237
-
-
53,237
53,237
-
-
53,237
$
$
$
$
13,637
-
-
13,637
-
13,637
-
13,637
$
$
$
$
66,874
-
-
66,874
53,237
13,637
-
66,874
Other acquired intangible assets were as follows (in thousands):
2007
Accumulated
Amortization
Cost
Net
Cost
2006
Accumulated
Amortization
Net
$
1,423
$
(317)
$
1,106
$
1,423
$
(112)
$
1,311
Amortized intangible assets:
Customer relationships
Unamortized intangible
assets:
Trade name
$
4,360
$
-
$
4,360
$
4,360
$
-
$
4,360
Customer relationships are generally amortized over six years based on the pattern of economic benefits provided.
Amortization expense for acquired intangible assets was $204,000 and $112,000 for fiscal 2007 and 2006,
respectively. Estimated future amortization expense is approximately $200,000 annually over the next five years.
F-19
F-19
NOTE 13 - EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION
The Company has adopted equity compensation plans to attract and retain executives, directors and key employees.
Under these plans, including the board-approved 1990 Stock Option Plan, the shareholder-approved 1999 Stock
Option Plan and the shareholder-approved 2004 Long-Term Incentive Plan (collectively described as the “Plans”), it
has granted qualified and non-qualified stock options to officers, directors and other key employees. In addition,
the Company has previously issued warrants to purchase shares of common stock to certain key members of
management, directors and other third parties.
At December 31, 2007, 472,000 shares were reserved for future grants under the Plans. Historically, stock options
and warrants have been granted to purchase the Company's common stock at an exercise price equal to or greater
than the fair market value at the date of grant and generally have a maximum duration of ten years. The Company
typically issues shares of common stock to satisfy option and warrant exercises.
Options and warrants outstanding as of December 31, 2007, are as follows (in thousands, except exercise price and
life):
Ranges of
Exercise Prices
0.67
-
-
5.01
-
10.01
-
15.01
-
20.01
$
$
$
$
$
5.00
10.00
15.00
20.00
25.00
$
$
$
$
$
Total Warrants
and Options
1,158
260
1,170
1,718
39
4,345
Weighted-Average
Remaining Life
4.5
6.0
7.4
7.6
9.3
Currently
Exercisable
1,050
260
1,170
1,668
11
4,159
A summary of stock option and warrant activity for the years ended December 31, 2007, 2006 and 2005 is as
follows (in thousands, except exercise price):
2007
2006
2005
Weighted-
Average
Exercise Underlying
Weighted-
Average
Exercise Underlying
Price
Shares
Price
Shares
Weighted-
Average
Exercise
Price
Underlying
Shares
Outstanding at beginning of year
Granted
Exercised
Canceled or forfeited
Outstanding at end of year
$
5,033
35
(583)
(140)
4,345
12.58
24.14
11.69
17.95
12.62
$
6,631
89
(1,438)
(249)
5,033
12.04
20.09
9.43
19.11
12.58
$
3,367
5,858
(677)
(1,917)
6,631
Exercisable at end of year
4,159
12.71
4,773
12.13
6,243
4.87
19.14
3.87
24.01
12.04
12.47
The tax benefit realized from share options exercised during the year ended December 31, 2007 was $2,481,000. At
December 31, 2007, the aggregate intrinsic value for the options outstanding was $16,026,000, of which
$14,768,000 million was exercisable at the end of the year, with weighted-average remaining contractual terms of
6.6 years.
The total intrinsic value of options and warrants exercised for fiscal 2007, 2006 and 2005 was $6,749,000
$13,829,000 and $5,870,000, respectively. The aggregate intrinsic value reflects the total pretax intrinsic value (the
difference between the Company's closing stock price on the last trading day of the period and the exercise price of
the options and warrants, multiplied by the number of in-the-money options and warrants) that would have been
received by the option and warrant holders had all option and warrant holders exercised their options and warrants
F-20
F-20
on December 31, 2007, 2006 and 2005, respectively. The intrinsic value of the stock options and warrants
exercised are based on the closing price of the Company's stock on the date of exercise. The Company typically
issues shares of common stock to satisfy option and warrant exercises.
Prior to January 1, 2006, the Company applied the recognition and measurement principles of APB 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for awards of stock options and warrants,
whereby at the date of grant, no compensation expense was reflected in income, as all stock options and warrants
granted had an exercise price equal to or greater than the market value of the underlying common stock on the date
of grant. Pro forma information regarding net income and earnings per share was provided in accordance with
Statement of Financial Accounting Standards (“SFAS”) 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, as if the fair value method defined by SFAS 123, Accounting for Stock-Based
Compensation had been applied to stock-based compensation. For purposes of the pro forma disclosures, the
estimated fair value of stock options was amortized to expense over the options' vesting period.
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payments, which replaces SFAS
123 and supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on their fair values. The Company
adopted SFAS 123(R) using the modified-prospective transition method, which requires the Company, beginning
January 1, 2006 and thereafter, to expense the grant-date fair value of all share-based awards over their remaining
vesting periods to the extent the awards were not fully vested as of the date of adoption and to expense the fair value
of all share-based awards granted subsequent to December 31, 2005 over their requisite service periods. Stock-
based compensation expense for all share-based payment awards granted after January 1, 2006 is based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The Company recognizes
compensation cost net of a forfeiture rate and recognizes the compensation cost for only those awards expected to
vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term. The
Company estimated the forfeiture rate based on its historical experience and its expectations of future forfeitures.
As required under the modified-prospective transition method, prior periods have not been restated. The Company
records share-based compensation cost as an administrative expense. The Company applied the alternative
transition method in calculating its pool of excess tax benefits available to absorb future tax deficiencies as provided
by FSP FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards.
The Company’s income before income taxes and net income for fiscal 2007 were approximately $233,000 and
$148,000, respectively, less than if it had continued to account for share-based compensation under the recognition
and measurement provisions of APB 25. Basic and diluted net income per share for fiscal 2007 would have each
increased by less than $0.01 if the Company had not adopted SFAS 123(R). The Company’s income before income
taxes and net income for fiscal 2006 were approximately $583,000 and $379,000, respectively, less than if it had
continued to account for share-based compensation under the recognition and measurement provisions of APB 25.
Basic and diluted net income per share for fiscal 2006 would have each increased by $0.01, to $1.02 and $0.98,
respectively, if the Company had not adopted SFAS 123(R). SFAS 123(R) requires that cash flows from tax
benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess
tax benefits) be classified as financing cash flows prospectively from January 1, 2006. Prior to the adoption of
SFAS 123(R), such excess tax benefits were presented as operating cash flows. Accordingly, $2,481,000 and
$4,744,000 of excess tax benefits has been classified as a financing cash inflow in the fiscal 2007 and fiscal 2006
Consolidated Statements of Cash Flows, respectively. For fiscal 2005, such excess tax benefits amounted to
$2,066,000 and were classified as an operating activity cash inflow. As of December 31, 2007, the total
compensation cost related to nonvested awards not yet recognized was $548,000, and is expected to be recognized
over the weighted-average period of 1.3 years.
Stock options and warrants granted prior to January 1, 2006 were either fully vested and exercisable on the grant
date, or vested and become exercisable ratably over a five year period beginning five years from the date of grant.
In addition, certain options granted prior to January 1, 2006 included accelerated vesting provisions. As of
December 31, 2007, there were no outstanding, unvested options with accelerated vesting features. Of the total
share-based compensation expense (before tax benefit) of $583,000 for fiscal 2006, approximately $490,000 related
to accelerated vesting of previously issued options as a result of an increase in the market value of the Company’s
common stock during the first quarter of 2006.
F-21
F-21
Prior to the adoption of SFAS 123(R), the Company accounted for share-based compensation plans under the
provisions of APB 25, Accounting for Stock Issued to Employees, and related interpretations. If compensation cost
for stock-based compensation plans had been determined based on the fair value method (estimated using the Black-
Scholes option pricing model) recognized over the vesting period in accordance with SFAS 123, pro forma net
income and earnings per share for fiscal 2005 would have been as follows (in thousands, except per share amounts):
Net income, as reported
Less: Pro forma stock-based employee compensation determined under the fair value
requirements of SFAS 123, net of income tax benefits
Adjusted net income
Earnings per share:
Basic, as reported
Basic, adjusted
Diluted, as reported
Diluted, adjusted
2005
25,383
11,178
14,205
0.81
0.45
0.76
0.43
$
$
$
$
$
$
The fair value of each option grant was estimated at the date of the grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
Dividend yield
Volatility
Risk-free interest rate
Expected term of options
Weighted-average fair value of options granted
2007
-
%
32.5
4.3
%
4.5
8.16
years
$
NOTE 14 - FIRST CASH 401(k) PROFIT SHARING PLAN
Year Ended December 31,
2006
-
32.5
4.0
6.8
6.79
%
%
years
$
2005
-
44.1
3.5
4.4
3.72
%
%
years
$
The First Cash 401(k) Profit Sharing Plan (the “Plan”) is provided by the Company for all full-time, U.S.-based,
employees who have been employed with the Company for six months or longer. Under the Plan, a participant may
contribute up to 100% of earnings, with the Company matching the first 6% at a rate of 40%. The employee and
Company contributions are paid to a corporate trustee and invested in various funds. Contributions made to
participants’ accounts become fully vested upon completion of five years of service. The total Company matching
contributions to the Plan were $343,000, $279,000 and $257,000 for the years ended December 31, 2007, 2006 and
2005, respectively.
F-22
F-22
NOTE 15 - OPERATING SEGMENT INFORMATION
The Company manages its business on the basis of two reportable segments: the pawn and short-term loan segment
and the buy-here/pay-here automotive segment. There are no intersegmental sales and each segment is supervised
separately. The following tables detail selected balance sheet information regarding the operating segments as of
December 31, 2007, 2006 and 2005 (in thousands):
December 31, 2007
Service fees receivable
Customer receivables, with short- and long-term
maturities, net of allowances
Inventories
Total assets
December 31, 2006
Service fees receivable
Customer receivables, with short- and long-term
maturities, net of allowances
Inventories
Total assets
December 31, 2005
Service fees receivable
Customer receivables, with short- and long-term
maturities, net of allowances
Inventories
Total assets
Pawn and
Short-Term
Loan
Buy-Here/
Pay-Here
Automotive
Consolidated
$
7,503
$
364
$
7,867
47,047
26,870
215,633
58,703
8,742
75,915
105,750
35,612
291,548
$
4,833
$
133
$
4,966
37,282
25,034
195,478
34,295
3,727
38,364
71,577
28,761
233,842
$
4,176
$
31,475
21,987
185,954
-
-
-
-
$
4,176
31,475
21,987
185,954
F-23
F-23
The following tables detail revenues, cost of revenues, net revenues, and certain expenses by operating segment for
fiscal 2007, 2006 and 2005 (in thousands):
Pawn and
Short-Term
Loan
Buy-Here/
Pay-Here
Automotive
Total
Year Ended December 31, 2007
Revenues:
Merchandise sales
Finance and service charges
Other
Cost of revenues:
Cost of goods sold
Credit loss provision
Other
Net revenues
Expenses and other income:
Store operating expenses
Store depreciation and amortization
Net store contribution
Expenditures on property and equipment
Year Ended December 31, 2006
Revenues:
Merchandise sales
Finance and service charges
Other
Cost of revenues:
Cost of goods sold
Credit loss provision
Other
Net revenues
Expenses and other income:
Store operating expenses
Store depreciation and amortization
Net store contribution
Expenditures on property and equipment
$
$
$
$
$
$
100,723
7,295
170
108,188
45,862
39,482
-
85,344
22,844
12,036
147
12,183
10,661
6,694
Buy-Here/
Pay-Here
Automotive
23,037
1,348
81
24,466
10,498
6,137
-
16,635
7,831
2,861
17
2,878
4,953
204
$
$
$
$
$
$
252,349
131,933
4,168
388,450
134,615
58,140
358
193,113
195,337
101,454
9,391
110,845
84,492
23,718
Total
149,473
108,677
3,973
262,123
84,229
20,452
440
105,121
157,002
79,203
7,117
86,320
70,682
14,716
151,626
124,638
3,998
280,262
88,753
18,658
358
107,769
172,493
89,418
9,244
98,662
73,831
17,024
Pawn and
Short-Term
Loan
$
$
$
$
126,436
107,329
3,892
237,657
73,731
14,315
440
88,486
149,171
76,342
7,100
83,442
65,729
14,512
$
$
F-24
F-24
Year Ended December 31, 2005
Revenues:
Merchandise sales
Finance and service charges
Other
Cost of revenues:
Cost of goods sold
Credit loss provision
Other
Net revenues
Expenses and other income:
Store operating expenses
Store depreciation and amortization
Net store contribution
Expenditures on property and equipment
Pawn and
Short-Term
Loan
Buy-Here/
Pay-Here
Automotive
Total
$
$
$
102,139
94,723
3,852
200,714
61,659
12,702
300
74,661
126,053
65,592
5,154
70,746
55,307
11,993
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
102,139
94,723
3,852
200,714
61,659
12,702
300
74,661
126,053
65,592
5,154
70,746
55,307
11,993
The following table reconciles net store contribution, as presented above, to income from continuing operations
before income taxes for each period presented (in thousands):
Total net store contibution for reportable segments
Administrative depreciation and amortization
Administrative expenses (1)
Interest expense
Interest income
Income from continuing operations before
2007
Year Ended December 31,
2006
2005
$
$
84,492
(1,412)
(29,290)
(2,438)
78
$
70,682
(861)
(24,671)
(916)
727
55,307
(598)
(19,412)
-
317
income taxes
$
51,430
$
44,961
$
35,614
(1) Administrative expenses are comprised of all operating expenses, except for interest, depreciation and
amortization, incurred by the Company that are not allocable to specific stores. It is the Company's policy not
to allocate such administrative expenses to specific stores or operating segments.
F-25
F-25
NOTE 16 - GEOGRAPHIC AREAS
The following table shows revenues, selected current assets and long-lived assets (all non-current assets except
goodwill) by geographic area (in thousands):
Revenues:
United States
Mexico
Customer receivables:
United States
Mexico
Inventories:
United States
Mexico
Long-lived assets:
United States
Mexico
2007
Year Ended December 31,
2006
2005
$
$
$
$
$
$
$
$
288,122
100,328
388,450
88,898
16,852
105,750
25,595
10,017
35,612
27,771
17,421
45,192
$
$
$
$
$
$
$
$
186,296
75,827
262,123
60,468
11,109
71,577
20,002
8,759
28,761
16,804
15,067
31,871
$
$
$
$
$
$
$
$
147,588
53,126
200,714
22,764
8,711
31,475
14,751
7,236
21,987
13,689
10,892
24,581
F-26
F-26
NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (in thousands, except per share data) for the fiscal years ended December 31,
2007 and 2006, are set forth below. The Company’s operations are subject to seasonal fluctuations.
March 31
June 30
September 30
December 31
Quarter Ended
$
$
2007
Total revenues
Cost of revenues
Net revenues
Total expenses and other income
Income from continuing operations
Income from discontinued operations
Loss from disposal of discontinued operations
Net income
Diluted income per share:
Income from continuing operations
Income from discontinued operations
Loss from disposal of discontinued operations
Net income
Diluted weighted average shares
2006
Total revenues
Cost of revenues
Net revenues
Total expenses and other income
Income from continuing operations
Income from discontinued operations
Net income
Diluted income per share:
Income from continuing operations
Income from discontinued operations
Net income
Diluted weighted average shares
$
$
90,568
43,015
47,553
34,868
8,026
859
-
8,885
0.24
0.03
-
0.27
33,421
54,630
20,569
34,061
24,811
5,869
626
6,495
0.18
0.02
0.20
33,223
$
$
102,564
51,598
50,966
36,155
9,501
884
-
10,385
0.29
0.03
-
0.32
32,880
67,465
27,357
40,108
28,821
7,162
773
7,935
0.22
0.03
0.25
32,307
$
$
107,197
59,195
48,002
38,919
5,777
770
(808)
5,739
0.18
0.02
(0.02)
0.18
31,815
86,044
38,957
47,087
33,600
8,801
891
9,692
0.27
0.03
0.30
32,785
88,121
39,305
48,816
33,965
9,406
873
-
10,279
0.28
0.03
-
0.31
33,179
53,984
18,238
35,746
24,809
6,943
679
7,622
0.21
0.02
0.23
33,119
F-27
F-27
EXHIBIT 21.1
FIRST CASH FINANCIAL SERVICES, INC.
SUBSIDIARIES
Subsidiary Name
Country/State of
Incorporation
Percentage
Owned
by Registrant
Famous Pawn, Inc.
Maryland
CashPlus CSO, Inc.
Maryland
Cash & Go, Inc.
California
One Iron Ventures, Inc.
Illinois
Mexico
First Cash, S.A. de C.V.
American Loan Employee Services, S.A. de C.V. Mexico
Mexico
Ya Servicios, S.A. de C.V.
Texas
First Cash, Ltd.
Delaware
First Cash Corp.
Delaware
First Cash Management, LLC
Nevada
First Cash, Inc.
Texas
Cash & Go, Ltd.
Texas
Cash & Go Management, LLC
Texas
First Cash Credit, Ltd.
Texas
First Cash Credit Management, LLC
Missouri
FCFS MO, Inc.
Oklahoma
FCFS OK, Inc.
South Carolina
FCFS SC, Inc.
Michigan
FCFS MI, Inc.
Arkansas
Guaranteed Auto Finance, Inc.
Arkansas
SHAC, Inc.
Texas
SHAC Joint Venture
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49.5%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements Nos. 333-71077 and 333-106878 on Form
S-3, and Nos. 333-73391, 333-106880, 333-106881 and 333-132665 on Form S-8 of our reports, dated March 12,
2008, relating to the financial statements of First Cash Financial Services, Inc., and to the effectiveness of internal
control over financial reporting, appearing in this Annual Report on Form 10-K of First Cash Financial Services,
Inc., for the year ended December 31, 2007.
Hein & Associates LLP
Dallas, Texas
March 12, 2008
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Rick L. Wessel, certify that:
1.
I have reviewed this Annual Report on Form 10-K of First Cash Financial Services, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
Registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation;
d. Disclosed in this report any change in the Registrant’s internal control over financial reporting
that occurred during the Registrant’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Registrant’s internal control over financial reporting;
and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the Registrant’s auditors and the audit committee of the
Registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: March 12, 2008
/s/ Rick L. Wessel
Rick L. Wessel
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, R. Douglas Orr, certify that:
1.
I have reviewed this Annual Report on Form 10-K of First Cash Financial Services, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
Registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation;
d. Disclosed in this report any change in the Registrant’s internal control over financial reporting
that occurred during the Registrant’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Registrant’s internal control over financial reporting;
and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the Registrant’s auditors and the audit committee of the
Registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: March 12, 2008
/s/ R. Douglas Orr
R. Douglas Orr
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of First Cash Financial Services, Inc. (the “Company”) on Form 10-K for the
year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Rick L. Wessel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: March 12, 2008
/s/ Rick L. Wessel
Rick L. Wessel
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of First Cash Financial Services, Inc. (the “Company”) on Form 10-K for the
year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, R. Douglas Orr, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: March 12, 2008
/s/ R. Douglas Orr
R. Douglas Orr
Chief Financial Officer
C o r p o r a t e G o v e r n a n c e
O t h e r I n f o r m a t i o n
B OA R D O F D I R E C TO R S
Phillip E. Powell
Chairman of the Board
Rick L. Wessel
Vice Chairman of the Board and
Chief Executive Officer
Richard T. Burke
Independent Director
R. Neil Irwin
Independent Director
Tara MacMahon
Independent Director
E X ECU T I V E O FFI C E R S
Rick L. Wessel
Chief Executive Officer and
President
R. Douglas Orr
Executive Vice President and
Chief Financial Officer
Stephen O. Coffman
Chief Operating Officer
C O R P O R AT E O F F I C E S
690 East Lamar Boulevard
Suite 400
Arlington, Texas 76011
817.460.3947
S TO C K L I S T I N G
Nasdaq - FCFS
I N D E P E N D E N T AC C O U N TA N T S
Hein & Associates, LLP
14755 Preston Road
Suite 320
Dallas, Texas 75254
C O M M O N S TO C K T R A NS F E R
AG E N T A N D R E G I S T R A R
Registrar and Transfer
10 Commerce Drive
Cranford, New Jersey 07016
A N NUA L S H A R E H O L D E R S ’ M E ET I N G
June 19, 2008
10:00 AM CDT
690 East Lamar Boulevard
Suite 400
Arlington, Texas 76011
John Powell
Senior Vice President and Director of Information
Technology
INVESTOR RELATIONS INFORMATION
www.firstcash.com
email: investorrelations@firstcash.com
817.505.3199
690 East Lamar Boulevard
Suite 400
Arlington, Texas 76011
SmallCap 600 Index
FIRST CASH FINANCIAL SERVICES, INC.
690 East Lamar Boulevard
Suite 400
Arlington, Texas 76011
www.firstcash.com