UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2009
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 000-50840
QC H
OLDINGS
, I
NC
.
(Exact name of registrant as specified in its charter)
|
|
|
Kansas
|
|
48-1209939
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
9401 Indian Creek Parkway, Suite 1500
Overland Park, Kansas
|
|
66210
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(913) 234-5000
(Registrants telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
|
|
|
|
|
|
|
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
¨
|
|
|
|
|
Non-accelerated filer
|
|
¨
|
|
Smaller reporting company
|
|
x
|
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act). Yes
¨
No
x
The number of shares outstanding of the registrants common stock, as of October 30, 2009:
Common Stock $0.01 per share par value 17,406,845 Shares
QC H
OLDINGS
, I
NC
.
Form 10-Q
September 30, 2009
Index
QC H
OLDINGS
, I
NC
.
F
ORM
10-Q
S
EPTEMBER
30, 2009
PART I -
FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
INTRODUCTORY COMMENTS
The consolidated financial statements included in this report have been prepared by QC Holdings,
Inc. (the Company or QC), without audit, under the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted under those rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These
consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations, included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2008. Results for the nine months ended September 30, 2009 are not necessarily indicative of the results expected for the full year 2009.
QC H
OLDINGS
, I
NC
.
AND
S
UBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
September 30,
2009
|
|
|
|
|
|
|
Unaudited
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,314
|
|
|
$
|
14,243
|
|
Loans receivable, less allowance for losses of $6,648 at December 31, 2008 and $10,438 at September 30,
2009
|
|
|
73,711
|
|
|
|
71,252
|
|
Deferred income taxes
|
|
|
2,128
|
|
|
|
4,551
|
|
Prepaid expenses and other current assets
|
|
|
4,357
|
|
|
|
4,834
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
97,510
|
|
|
|
94,880
|
|
|
|
|
Property and equipment, net
|
|
|
23,664
|
|
|
|
19,525
|
|
|
|
|
Goodwill
|
|
|
16,144
|
|
|
|
16,491
|
|
|
|
|
Deferred income taxes
|
|
|
85
|
|
|
|
759
|
|
Other assets, net
|
|
|
5,639
|
|
|
|
6,023
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
143,042
|
|
|
$
|
137,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
298
|
|
|
$
|
570
|
|
Accrued expenses and other liabilities
|
|
|
5,017
|
|
|
|
4,958
|
|
Accrued compensation and benefits
|
|
|
7,258
|
|
|
|
6,962
|
|
Deferred revenue
|
|
|
4,802
|
|
|
|
3,793
|
|
Income taxes payable
|
|
|
1,112
|
|
|
|
473
|
|
Debt due within one year
|
|
|
33,143
|
|
|
|
20,750
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
51,630
|
|
|
|
37,506
|
|
|
|
|
Long-term debt
|
|
|
37,607
|
|
|
|
33,107
|
|
Other non-current liabilities
|
|
|
4,386
|
|
|
|
4,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
93,623
|
|
|
|
75,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: 75,000,000 shares authorized; 20,700,250 shares issued and 17,451,721 outstanding at
December 31, 2008; 20,700,250 shares issued and 17,406,845 outstanding at September 30, 2009
|
|
|
207
|
|
|
|
207
|
|
Additional paid-in capital
|
|
|
67,347
|
|
|
|
67,353
|
|
Retained earnings
|
|
|
17,737
|
|
|
|
29,687
|
|
Treasury stock, at cost
|
|
|
(34,782
|
)
|
|
|
(34,073
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(1,090
|
)
|
|
|
(865
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
49,419
|
|
|
|
62,309
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
143,042
|
|
|
$
|
137,678
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
Page 2
QC H
OLDINGS
, I
NC
.
AND
S
UBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payday loan fees
|
|
$
|
46,628
|
|
|
$
|
43,158
|
|
|
$
|
132,204
|
|
|
$
|
120,879
|
|
Other
|
|
|
11,478
|
|
|
|
13,638
|
|
|
|
30,802
|
|
|
|
42,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
58,106
|
|
|
|
56,796
|
|
|
|
163,006
|
|
|
|
163,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,354
|
|
|
|
11,371
|
|
|
|
35,645
|
|
|
|
34,324
|
|
Provision for losses
|
|
|
16,519
|
|
|
|
14,697
|
|
|
|
38,877
|
|
|
|
34,957
|
|
Occupancy
|
|
|
6,508
|
|
|
|
5,974
|
|
|
|
19,243
|
|
|
|
18,228
|
|
Depreciation and amortization
|
|
|
1,067
|
|
|
|
999
|
|
|
|
3,224
|
|
|
|
3,060
|
|
Other
|
|
|
4,577
|
|
|
|
4,924
|
|
|
|
12,384
|
|
|
|
14,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total branch expenses
|
|
|
41,025
|
|
|
|
37,965
|
|
|
|
109,373
|
|
|
|
105,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch gross profit
|
|
|
17,081
|
|
|
|
18,831
|
|
|
|
53,633
|
|
|
|
58,322
|
|
|
|
|
|
|
Regional expenses
|
|
|
3,247
|
|
|
|
3,411
|
|
|
|
9,999
|
|
|
|
10,257
|
|
Corporate expenses
|
|
|
6,349
|
|
|
|
6,238
|
|
|
|
19,380
|
|
|
|
17,414
|
|
Depreciation and amortization
|
|
|
678
|
|
|
|
710
|
|
|
|
2,042
|
|
|
|
2,270
|
|
Interest expense, net
|
|
|
1,070
|
|
|
|
790
|
|
|
|
3,277
|
|
|
|
2,648
|
|
Other expense, net
|
|
|
88
|
|
|
|
30
|
|
|
|
407
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
|
5,649
|
|
|
|
7,652
|
|
|
|
18,528
|
|
|
|
25,550
|
|
Provision for income taxes
|
|
|
2,687
|
|
|
|
2,912
|
|
|
|
7,717
|
|
|
|
9,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
2,962
|
|
|
|
4,740
|
|
|
|
10,811
|
|
|
|
15,735
|
|
Loss from discontinued operations, net of income tax
|
|
|
(216
|
)
|
|
|
(108
|
)
|
|
|
(1,176
|
)
|
|
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,746
|
|
|
$
|
4,632
|
|
|
$
|
9,635
|
|
|
$
|
14,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,555
|
|
|
|
17,408
|
|
|
|
18,006
|
|
|
|
17,446
|
|
Diluted
|
|
|
17,664
|
|
|
|
17,589
|
|
|
|
18,114
|
|
|
|
17,577
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.17
|
|
|
$
|
0.26
|
|
|
$
|
0.60
|
|
|
$
|
0.88
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
$
|
0.54
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.17
|
|
|
$
|
0.26
|
|
|
$
|
0.59
|
|
|
$
|
0.87
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
$
|
0.53
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
QC H
OLDINGS
, I
NC
.
AND
S
UBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,635
|
|
|
$
|
14,646
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,438
|
|
|
|
5,368
|
|
Provision for losses
|
|
|
41,581
|
|
|
|
35,587
|
|
Deferred income taxes
|
|
|
(2,474
|
)
|
|
|
(3,235
|
)
|
Loss on disposal of property and equipment
|
|
|
961
|
|
|
|
921
|
|
Stock-based compensation
|
|
|
1,708
|
|
|
|
1,991
|
|
Stock option income tax benefits
|
|
|
(184
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
(39,761
|
)
|
|
|
(30,385
|
)
|
Prepaid expenses and other assets
|
|
|
(999
|
)
|
|
|
165
|
|
Other assets
|
|
|
(88
|
)
|
|
|
(910
|
)
|
Accounts payable
|
|
|
(397
|
)
|
|
|
272
|
|
Accrued expenses, other liabilities, accrued compensation and benefits and deferred revenue
|
|
|
(1,628
|
)
|
|
|
(1,001
|
)
|
Income taxes
|
|
|
503
|
|
|
|
(781
|
)
|
Other non-current liabilities
|
|
|
1,392
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
Net operating
|
|
|
15,687
|
|
|
|
23,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(3,838
|
)
|
|
|
(1,213
|
)
|
Proceeds from sale of property and equipment
|
|
|
30
|
|
|
|
18
|
|
Acquisition costs, net
|
|
|
(205
|
)
|
|
|
(4,162
|
)
|
|
|
|
|
|
|
|
|
|
Net investing
|
|
|
(4,013
|
)
|
|
|
(5,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Borrowings under credit facility
|
|
|
25,050
|
|
|
|
16,750
|
|
Repayments under credit facility
|
|
|
(27,300
|
)
|
|
|
(26,500
|
)
|
Repayments on long-term debt
|
|
|
(3,000
|
)
|
|
|
(7,143
|
)
|
Dividends to stockholders
|
|
|
(2,686
|
)
|
|
|
(2,696
|
)
|
Repurchase of common stock
|
|
|
(11,879
|
)
|
|
|
(1,282
|
)
|
Excess tax benefits from stock-based payment arrangements
|
|
|
184
|
|
|
|
|
|
Exercise of stock options
|
|
|
229
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
Net financing
|
|
|
(19,402
|
)
|
|
|
(20,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Net decrease
|
|
|
(7,728
|
)
|
|
|
(3,071
|
)
|
At beginning of year
|
|
|
24,145
|
|
|
|
17,314
|
|
|
|
|
|
|
|
|
|
|
At end of period
|
|
$
|
16,417
|
|
|
$
|
14,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary schedule of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,454
|
|
|
$
|
2,682
|
|
Income taxes
|
|
|
9,020
|
|
|
|
13,122
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
QC H
OLDINGS
, I
NC
.
AND
S
UBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
shares
|
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
|
Retained
earnings
|
|
|
Treasury
stock
|
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
Total
stockholders
equity
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
18,787
|
|
|
$
|
207
|
|
$
|
67,446
|
|
|
$
|
9,502
|
|
|
$
|
(24,929
|
)
|
|
$
|
|
|
|
$
|
52,226
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
13,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivative instrument, net of deferred taxes of $666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,090
|
)
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,489
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,547
|
)
|
|
|
|
|
|
|
(12,547
|
)
|
|
|
|
|
|
|
|
|
Dividends to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,344
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,344
|
)
|
|
|
|
|
|
|
|
|
Issuance of restricted stock awards
|
|
105
|
|
|
|
|
|
|
(1,339
|
)
|
|
|
|
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
123
|
|
|
|
|
|
|
(1,126
|
)
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
Tax impact of stock-based compensation
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
17,452
|
|
|
|
207
|
|
|
67,347
|
|
|
|
17,737
|
|
|
|
(34,782
|
)
|
|
|
(1,090
|
)
|
|
|
49,419
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
14,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instrument, net of deferred taxes of $138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,871
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,282
|
)
|
|
|
|
|
|
|
(1,282
|
)
|
|
|
|
|
|
|
|
|
Dividends to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,696
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,696
|
)
|
|
|
|
|
|
|
|
|
Issuance of restricted stock awards
|
|
113
|
|
|
|
|
|
|
(1,204
|
)
|
|
|
|
|
|
|
1,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
1,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,991
|
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
75
|
|
|
|
|
|
|
(641
|
)
|
|
|
|
|
|
|
787
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
Tax impact of stock-based compensation
|
|
|
|
|
|
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 (Unaudited)
|
|
17,407
|
|
|
$
|
207
|
|
$
|
67,353
|
|
|
$
|
29,687
|
|
|
$
|
(34,073
|
)
|
|
$
|
(865
|
)
|
|
$
|
62,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
QC H
OLDINGS
, I
NC
.
AND
SUBSIDIARIES
N
OTES
TO
C
ONSOLIDATED
F
INANCIAL
S
TATEMENTS
(Unaudited)
Note 1 The Company and Basis of Presentation
Business.
The accompanying consolidated financial statements include the accounts of QC Holdings, Inc. and its wholly-owned
subsidiaries, QC Financial Services, Inc., QC Auto Services, Inc., QC Loan Services, Inc. and QC E-Services, Inc. (collectively the Company). QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial
Services of North Carolina, Inc., QC Financial Services of Texas, Inc., Express Check Advance of South Carolina, LLC, QC Advance, Inc., Cash Title Loans, Inc. and QC Properties, LLC. QC Holdings, Inc., incorporated in 1998 under the laws of the
State of Kansas, was founded in 1984, and has provided various retail consumer financial products and services throughout its 25-year history. The Companys common stock trades on the NASDAQ Global Market exchange under the symbol
QCCO.
Since 1998, the Company has been primarily engaged in the business of providing short-term consumer loans,
known as payday loans, with principal values that typically range from $100 to $500. Payday loans provide customers with cash in exchange for a promissory note with a maturity of generally two to three weeks and supported by that customers
personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state, based on applicable regulations and generally ranges from $15 to $20 per $100 borrowed. To repay the cash advance, customers may redeem
their check by paying cash or they may allow the check to be presented to the bank for collection.
The Company also provides
other consumer financial products and services, such as installment loans, credit services, check cashing services, title loans, open-end credit, money transfers and money orders. All of the Companys loans and other services are subject to
state regulation, which vary from state to state, as well as to federal and local regulation, where applicable. As of September 30, 2009, the Company operated 558 short-term lending branches with locations in Alabama, Arizona, California,
Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah, Virginia, Washington and Wisconsin.
In September 2007, the Company entered into the buy here, pay here segment of the used automotive market in connection with ongoing efforts
to evaluate alternative products that serve the Companys customer base. In January 2009, the Company purchased two buy here, pay here locations in Missouri for approximately $4.1 million. As of September 30, 2009, the Company operated
five buy here, pay here lots, which are located in Missouri and Kansas. These locations sell used vehicles and earn finance charges from the related vehicle financing contracts. The average principal amount for buy here, pay here loans originated
during the first nine months of 2009 was approximately $8,800 and the average term of the loan was 31 months.
Basis of
Presentation.
The consolidated financial statements of QC Holdings, Inc. included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to enable a reasonable understanding of the information presented. The Consolidated Balance Sheet as of December 31, 2008 was derived from the audited financial statements of the Company, but does not
include all disclosures required by GAAP. These consolidated financial statements should be read in conjunction with the Companys audited financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for
the year ended December 31, 2008.
Page 6
In the opinion of the Companys management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal closing procedures) necessary to present fairly the financial position of the Company and its subsidiary companies as of December 31, 2008 and September 30, 2009, and the
results of operations and cash flows for the three and nine months ended September 30, 2008 and 2009, in conformity with GAAP. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative
of the results to be expected for the full year 2009.
Note 2 Accounting Developments
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
Topic 105,
Generally Accepted Accounting Principles
. ASC Topic 105 establishes the
FASB Accounting Standards Codification
(Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature
not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASUs). The
FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for the Codification.
Effective April 1,
2009, the Company adopted FASB ASC 820-10-65,
Fair Value Measurements and Disclosures Overall Transition and Open Effective Date Information
(ASC 820-10-65). ASC 820-10-65 clarifies the objective and method of fair value
measurement even when there has been a significant decrease in market activity for the asset being measured. ASC 820-10-65 also includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of ASC 820-10-65
did not have an impact on the Companys consolidated financial statements.
Effective April 1, 2009, the Company
adopted FASB ASC 320-10-65,
Investments Debt and Equity Securities Overall Transition and Open Effective Date Information
(ASC 320-10-65). ASC 320-10-65 establishes a new model for measuring other-than-temporary
impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. The adoption of ASC 320-10-65 did not have a material impact on the Companys consolidated
financial statements.
Effective April 1, 2009, the Company adopted FASB ASC 825-10-65,
Financial Instruments
Overall Transition and Open Effective Date Information
(ASC 825-10-65). ASC 825-10-65 amends FASB ASC 825-10,
Financial Instruments
, to require disclosures about fair value of financial instruments in all interim financial
statements. The adoption of ASC 825-10-65 did not have a material impact on the Companys consolidated financial statements. See Note 3 for additional information.
Effective June 30, 2009, the Company adopted FASB ASC Topic 855,
Subsequent Events
. ASC Topic 855 establishes principles and standards related to the accounting for and disclosure of events
that occur after the balance sheet date but before the financial statements are issued. This pronouncement requires an entity to recognize, in the financial statements, subsequent events that provide additional information regarding conditions that
existed at the balance sheet date. Subsequent events that provide information about conditions that did not exist at the balance sheet date shall not be recognized in the financial statements. The adoption of this pronouncement did not have a
material effect on the Companys consolidated financial statements. The Company has evaluated events and transactions for potential recognition or disclosure through November 6, 2009, the date the financial statements were issued.
Page 7
In June 2008, the FASB issued guidance now codified as FASB ASC Topic 260,
Earnings
Per Share.
Under ASC Topic 260, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing
earnings per share. In the last few years, the Company has issued restricted stock to employees and independent directors that contain non-forfeitable rights to dividends. As required upon adoption, we retrospectively adjusted prior period earnings
per share data to conform to the provisions of this guidance. See Note 6 for additional information.
Effective
January 1, 2009, the Company adopted FASB ASC Topic 805,
Business Combinations
. ASC Topic 805 extended its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. The
pronouncement broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. The pronouncement also expands on required disclosures to improve the
statement users abilities to evaluate the nature and financial effects of business combinations. The adoption of ASC Topic 805 did not have a material effect on the Companys consolidated financial statements.
In April 2009, the FASB issued updated guidance related to business combinations, which is included in the Codification in ASC 805-20,
Business Combinations Identifiable Assets, Liabilities and Any Noncontrolling Interest
(ASC 805-20). ASC 805-20 amends and clarifies ASC Topic 805 to address application issues regarding initial recognition and measurement, subsequent
measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. In circumstances where the acquisition-date fair value for a contingency cannot be determined during the measurement period and
it is concluded that it is probable that an asset or liability exists as of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as of the acquisition date based on the estimated amount. ASC 805-20 is
effective for assets or liabilities arising from contingencies in 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. The adoption of
ASC 805-20 did not have a material impact on the Companys consolidated financial statements.
Note 3 Fair Value Measurements
Effective January 1, 2008, the Company adopted FASB ASC Topic 820,
Fair Value Measurements and Disclosures
with respect to its financial assets and liabilities. In February 2008, the FASB issued updated guidance related to fair value measurements, which is included in the Codification in ASC 820-10-55,
Fair Value Measurements and Disclosures
Overall Implementation Guidance and Illustrations
. The updated guidance provided a one-year deferral of the effective date of ASC Topic 820 for non-financial assets and non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value at least annually. Therefore, the Company adopted the provisions of ASC Topic 820 for non-financial assets and non-financial liabilities effective January 1, 2009, and such adoption did not
have a material impact on the Companys consolidated financial statements.
Fair Value Hierarchy Tables.
ASC Topic
820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the
asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may
fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the
fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.
Page 8
The following table presents fair value measurements as of September 30, 2009
(in
thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Liability at
fair value
|
|
|
|
|
|
Interest rate swap agreement
|
|
$
|
|
|
$
|
1,393
|
|
$
|
|
|
$
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
1,393
|
|
$
|
|
|
$
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the fair value of the interest rate swap agreement was
a liability of $1.8 million. For the nine months ended September 30, 2009, the Company recorded unrealized gain of $363,000 on the interest rate swap agreement in other comprehensive income. For additional information on the interest rate swap
agreement, see Note 12.
Note 4 Significant Business Transactions
Closure of Branches.
During the first nine months of 2009, the Company closed 30 of its lower performing branches in various states
(which included five branches that were consolidated into nearby branches). The Company recorded approximately $1.5 million in pre-tax charges during the nine months ended September 30, 2009 associated with these closings. The charges included
an $855,000 loss for the disposition of fixed assets, $599,000 for lease terminations and other related occupancy costs, $15,000 in severance and benefit costs and $12,000 for other costs.
During third quarter 2008, the Company closed 13 of its 32 branches in Ohio, primarily due to a new law that went into effect on
September 1, 2008 that effectively precludes payday loans. The Company recorded approximately $943,000 in pre-tax charges during 2008 associated with these closings. The charges included a $554,000 loss for the disposition of fixed assets,
$342,000 for lease terminations and other related occupancy costs, $40,000 in severance and benefit costs and $7,000 for other costs.
The following table summarizes the accrued costs associated with the closure of branches and the activity related to those charges as of September 30, 2009
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2008
|
|
Additions
|
|
Reductions
|
|
|
Balance at
September 30,
2009
|
|
|
|
|
|
Lease and related occupancy costs (a)
|
|
$
|
318
|
|
$
|
848
|
|
$
|
(721
|
)
|
|
$
|
445
|
Severance
|
|
|
|
|
|
15
|
|
|
(15
|
)
|
|
|
|
Other
|
|
|
|
|
|
12
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
318
|
|
$
|
875
|
|
$
|
(748
|
)
|
|
$
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The additions include charges of $182,000 during the nine months ended September 30, 2009 to increase the lease liabilities for branches that were closed prior to
January 1, 2009 and not included in discontinued operations. The increase was primarily due to changes in estimates based on the Companys ability to sub-lease space in branch locations.
|
As of September 30, 2009, the balance of $445,000 for accrued costs associated with the closure of branches is included as a current
liability on the Consolidated Balance Sheet as the Company expects that the liabilities for these costs will be settled within one year.
Page 9
Note 5 Discontinued Operations
As noted above, the closure of branches during first nine months of 2009 included 25 branches that were not consolidated into nearby
branches. These branches and the Ohio branches that closed during third quarter 2008 are reported as discontinued operations in the Consolidated Statements of Income and related disclosures in the accompanying notes for all periods presented. With
respect to the Consolidated Balance Sheets, the Consolidated Statements of Cash Flows and related disclosures in the accompanying notes, the items associated with the discontinued operations are included with the continuing operations for all
periods presented.
Summarized financial information for discontinued operations during the three and nine months ended
September 30, 2008 and 2009 is presented below
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Total revenues
|
|
$
|
1,277
|
|
|
$
|
44
|
|
|
$
|
4,711
|
|
|
$
|
1,019
|
|
|
|
|
|
|
Provision for losses
|
|
|
881
|
|
|
|
58
|
|
|
|
2,704
|
|
|
|
630
|
|
Other branch expenses
|
|
|
746
|
|
|
|
121
|
|
|
|
3,372
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch gross loss
|
|
|
(350
|
)
|
|
|
(135
|
)
|
|
|
(1,365
|
)
|
|
|
(1,058
|
)
|
Other, net
|
|
|
(7
|
)
|
|
|
(44
|
)
|
|
|
(579
|
)
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(357
|
)
|
|
|
(179
|
)
|
|
|
(1,944
|
)
|
|
|
(1,800
|
)
|
Benefit for income taxes
|
|
|
141
|
|
|
|
71
|
|
|
|
768
|
|
|
|
711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(216
|
)
|
|
$
|
(108
|
)
|
|
$
|
(1,176
|
)
|
|
$
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Earnings Per Share
Basic and diluted earnings per share are computed by dividing income available to common stockholders by the weighted average number of
common shares outstanding during the period. The computation of diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the period. The effect of stock options and unvested restricted stock
represent the only differences between the weighted average shares used for the basic earnings per share computation compared to the diluted earnings per share computation for each period presented.
As noted above, the Company has issued restricted stock to employees and independent directors that contain non-forfeitable rights to
dividends. Prior to January 1, 2009, unvested share-based payment awards with non-forfeitable rights to dividends were included in the calculation of diluted earning per share using the treasury stock method. Unvested share-based payment awards
that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing earnings per share.
For the three and nine months ended September 30, 2008, there was no impact from using the two-class method on previously reported
basic and diluted earnings per share.
Page 10
The following table presents the computations of basic and diluted earnings per share for
each of the periods indicated
(in thousands, except per share data)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Income available to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2,962
|
|
|
$
|
4,740
|
|
|
$
|
10,811
|
|
|
$
|
15,735
|
|
Discontinued operations, net of income tax
|
|
|
(216
|
)
|
|
|
(108
|
)
|
|
|
(1,176
|
)
|
|
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,746
|
|
|
$
|
4,632
|
|
|
$
|
9,635
|
|
|
$
|
14,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
17,555
|
|
|
|
17,408
|
|
|
|
18,006
|
|
|
|
17,446
|
|
Dilutive effect of stock options and unvested restricted stock
|
|
|
109
|
|
|
|
181
|
|
|
|
108
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
17,664
|
|
|
|
17,589
|
|
|
|
18,114
|
|
|
|
17,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.17
|
|
|
$
|
0.26
|
|
|
$
|
0.60
|
|
|
$
|
0.88
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
$
|
0.54
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.17
|
|
|
$
|
0.26
|
|
|
$
|
0.59
|
|
|
$
|
0.87
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
$
|
0.53
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities.
Options to purchase 2.3 million shares of
common stock were excluded from the diluted earnings per share calculation for the three and nine months ended September 30, 2009, because they were anti-dilutive. Options to purchase 2.3 million shares of common stock were excluded from
the diluted earnings per share calculation for the three and nine months ended September 30, 2008, because they were anti-dilutive.
Note 7 Allowance for Doubtful Accounts and Provision for Losses
When the Company enters into a payday
loan with a customer, the Company records a loan receivable for the amount loaned to the customer plus the fee charged by the Company, which varies from state to state based on applicable regulations.
The following table summarizes certain data with respect to the Companys payday loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
Average loan to customer (principal plus fee)
|
|
$
|
370.74
|
|
$
|
367.01
|
|
$
|
370.09
|
|
$
|
367.96
|
Average fee received by the Company
|
|
$
|
53.73
|
|
$
|
54.12
|
|
$
|
53.59
|
|
$
|
53.60
|
Average term of the loan (days)
|
|
|
16
|
|
|
16
|
|
|
16
|
|
|
16
|
When checks are presented to the bank for payment and returned as uncollected, all
accrued fees, interest and outstanding principal are charged-off as uncollectible, generally within 14 days after the due date. Accordingly, payday loans included in the receivable balance at any given point in time are typically not older than 30
days. During the three months and nine months ended September 30, 2009, the Company received approximately $239,000 and $792,000, respectively from the sale of certain payday loan receivables that the Company had previously charged off. The
sales were recorded as a recovery within the allowance for loan losses.
Page 11
With respect to the loans receivable at the end of each reporting period, the Company
maintains an aggregate allowance for loan losses (including fees and interest) for payday loans, title loans, installment loans and auto loans at levels estimated to be adequate to absorb estimated incurred losses in the respective outstanding loan
portfolios. The Company does not specifically reserve for any individual loan.
The methodology for estimating the allowance
for payday and title loan losses utilizes a four-step approach, which reflects the short-term nature of the loan portfolio at each period-end, the historical collection experience in the month following each reporting period-end and any fluctuations
in recent general economic conditions. There were no qualitative adjustments made to the allowance as of December 31, 2008 and September 30, 2009.
The Company maintains an allowance for installment loans at a level it considers sufficient to cover estimated losses in the collection of its installment loans. The allowance calculation for installment
loans is based upon historical charge-off experience (primarily a six-month trailing average of charge-offs to total volume) and qualitative factors, with consideration given to recent credit loss trends and economic factors. As of December 31,
2008, the Company recorded a qualitative adjustment to increase the allowance for installment loans by $356,000, as a result of its review of these factors. As of September 30, 2009, the Company reviewed the qualitative factors and determined
that no qualitative adjustment was needed.
The Company records an allowance for the open-end credit receivables based upon an
analysis that gives consideration to payment recency, delinquency levels and other general economic conditions. The Company discontinued offering the open-end credit product to its Virginia customers in the second quarter of 2009. With the
discontinuance of the product, the Company has recorded a higher level of allowance with respect to these open-end loans at September 30, 2009.
The allowance calculation for auto loans is based upon the Companys review of industry loss experience and qualitative factors with consideration given to changes in loan characteristics,
delinquency levels, collateral values and other general economic conditions. Industry loss rates typically range between 24% and 28% of revenues, with higher ratios during more difficult macroeconomic periods. In 2008, the automotive sales industry
experienced an increase in delinquencies and, as a result, an increase in losses. The Companys level of allowance with respect to automotive loans at September 30, 2009 is higher than levels expected in future years due to the
Companys relative inexperience in the buy here, pay here business, as well as the age of the new locations and the generally negative industry and macroeconomic environment. As of December 31, 2008, the Company recorded a qualitative
adjustment to increase the allowance for auto loans by $300,000, as a result of its review of these factors. As of September 30, 2009, the Company reviewed the qualitative factors and determined that no qualitative adjustment was needed.
The following tables summarize the activity in the allowance for loan losses during the three and nine months ended
September 30, 2008 and 2009
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Allowance for loan losses
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Balance, beginning of period
|
|
$
|
4,066
|
|
|
$
|
9,470
|
|
|
$
|
4,442
|
|
|
$
|
6,648
|
|
Charge-offs
|
|
|
(26,906
|
)
|
|
|
(23,073
|
)
|
|
|
(73,942
|
)
|
|
|
(62,209
|
)
|
Recoveries
|
|
|
11,618
|
|
|
|
9,948
|
|
|
|
35,613
|
|
|
|
32,178
|
|
Provision for losses
|
|
|
16,293
|
|
|
|
14,093
|
|
|
|
38,958
|
|
|
|
33,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
5,071
|
|
|
$
|
10,438
|
|
|
$
|
5,071
|
|
|
$
|
10,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for losses in the Consolidated Statements of Income includes losses
associated with the credit service organization (see note 14 for additional information) and excludes loss activity related to discontinued operations (see note 5 for additional information).
Page 12
Note 8 Other Revenues
The components of Other revenues as reported in the statements of income are as follows
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
Installment loan interest
|
|
$
|
5,072
|
|
$
|
4,571
|
|
$
|
13,860
|
|
$
|
13,186
|
Buy here, pay here sales and interest
|
|
|
1,926
|
|
|
3,810
|
|
|
3,105
|
|
|
11,436
|
Credit service fees
|
|
|
1,633
|
|
|
1,802
|
|
|
4,449
|
|
|
4,885
|
Check cashing fees
|
|
|
1,197
|
|
|
1,174
|
|
|
4,493
|
|
|
4,365
|
Title loan fees
|
|
|
940
|
|
|
807
|
|
|
2,778
|
|
|
2,362
|
Open-end credit fees
|
|
|
|
|
|
583
|
|
|
|
|
|
4,012
|
Other fees
|
|
|
710
|
|
|
891
|
|
|
2,117
|
|
|
2,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,478
|
|
$
|
13,638
|
|
$
|
30,802
|
|
$
|
42,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Property and Equipment
Property and equipment consisted of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
September 30,
2009
|
|
Buildings
|
|
$
|
3,824
|
|
|
$
|
3,497
|
|
Leasehold improvements
|
|
|
20,923
|
|
|
|
20,625
|
|
Furniture and equipment
|
|
|
23,801
|
|
|
|
23,480
|
|
Land
|
|
|
512
|
|
|
|
512
|
|
Vehicles
|
|
|
939
|
|
|
|
953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,999
|
|
|
|
49,067
|
|
Less: Accumulated depreciation and amortization
|
|
|
(26,335
|
)
|
|
|
(29,542
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,664
|
|
|
$
|
19,525
|
|
|
|
|
|
|
|
|
|
|
In February 2005, the Company entered into a seven-year lease to relocate its
corporate headquarters to office space in Overland Park, Kansas. As part of the lease agreement, the Company received a tenant allowance from the landlord for leasehold improvements totaling $976,000. The tenant allowance was recorded by the Company
as a deferred rent liability and is being amortized as a reduction of rent expense over the life of the lease. As of December 31, 2008, the balance of the deferred rent liability was approximately $464,000, of which $325,000 is classified as a
non-current liability. As of September 30, 2009, the balance of the deferred rent liability was approximately $360,000 of which $221,000 is classified as a non-current liability.
Note 10 Acquisitions, Goodwill and Intangible Assets
Acquisitions.
In January 2009, the Company purchased two buy here, pay here locations in Missouri for approximately $4.2 million, which included loans receivable of approximately $2.7 million and inventory of $642,000. The Company
used the purchase method of accounting. The excess of the total acquisition cost over the fair value of the net tangible assets acquired totaled $765,000. Of this amount, the Company recorded $347,000 to goodwill, $141,000 to customer relationships,
$183,000 to non-compete agreements and $94,000 to trade name. The pro forma results of operations have not been presented because the results of operations for the Company would not have been materially different from those reported for the year
ended December 31, 2008.
Page 13
Goodwill.
The following table summarizes the changes in the carrying amount of
goodwill
(in thousands)
:
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
September 30,
2009
|
Balance at beginning of period
|
|
$
|
16,081
|
|
$
|
16,144
|
Acquisitions
|
|
|
63
|
|
|
347
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
16,144
|
|
$
|
16,491
|
|
|
|
|
|
|
|
Intangible Assets.
The following table summarizes intangible assets
(in
thousands)
:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
September 30,
2009
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,327
|
|
|
$
|
2,478
|
|
Non-compete agreements
|
|
|
918
|
|
|
|
1,104
|
|
Debt issue costs
|
|
|
1,591
|
|
|
|
1,591
|
|
Other
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,851
|
|
|
|
5,188
|
|
|
|
|
Non-amortized intangible assets:
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
600
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
5,451
|
|
|
|
5,882
|
|
Less: Accumulated amortization
|
|
|
(1,934
|
)
|
|
|
(2,891
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
$
|
3,517
|
|
|
$
|
2,991
|
|
|
|
|
|
|
|
|
|
|
Intangible assets at December 31, 2008 and September 30, 2009 include
customer relationships, non-compete agreements, trade names and debt financing costs. Customer relationships are amortized using the straight-line method over the weighted average useful lives ranging from 4 to 15 years. Non-compete agreements are
currently amortized using the straight-line method over the term of the agreements, ranging from three to five years. The amount recorded for trade names are generally considered an indefinite life intangible and not subject to amortization. Costs
paid to obtain debt financing are amortized over the term of each related debt agreement using the straight-line method, which approximates the effective interest method.
Note 11 Indebtedness
The following table summarizes long-term debt
at December 31, 2008 and September 30, 2009
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
September 30,
2009
|
|
Term loan
|
|
$
|
46,000
|
|
|
$
|
38,857
|
|
Revolving credit facility
|
|
|
24,750
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
70,750
|
|
|
|
53,857
|
|
Less: debt due within one year
|
|
|
(33,143
|
)
|
|
|
(20,750
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
37,607
|
|
|
$
|
33,107
|
|
|
|
|
|
|
|
|
|
|
On December 7, 2007, the Company entered into an Amended and Restated Credit
Agreement with a syndicate of banks to replace its existing line of credit facility. The previous line of credit facility had a total commitment of $45.0 million. The amended credit agreement provides for a five-year term loan of $50.0 million and a
revolving line of credit (including provisions permitting the issuance of letters of credit and swingline loans) of up to $45.0 million. The maximum borrowings under the credit facility, as amended on March 7, 2008, may be increased by $25.0
million pursuant to bank approval and subject to terms and conditions set forth therein.
Page 14
The credit facility is guaranteed by each subsidiary and is secured by all the capital stock
of each subsidiary of the Company and all personal property (including all present and future accounts receivable, inventory, property and equipment, general intangibles (including intellectual property), instruments, deposit accounts, investment
property and the proceeds thereof). Borrowings under the term loan and the facility are available based on two types of loans, Base Rate loans or LIBOR Rate loans. Base Rate loans bear interest at the higher of the Prime Rate or the Federal Funds
Rate plus 0.50%. LIBOR Rate loans bear interest at rates based on the LIBOR rate for the applicable loan period with a maximum margin over LIBOR of 3.50%. The loan period for a LIBOR Rate loan may be one month, two months, three months or six months
and the loan may be renewed upon notice to the agent provided that no default has occurred. As a result, the revolving credit facility is classified as debt due within one year, although the revolving credit facility, by its terms, does not mature
until December 6, 2012. The credit facility has a grid that adjusts the borrowing rates for both Base Rate loans and LIBOR Rate loans based upon the Companys leverage ratio. Leverage ratio is defined as the ratio of total debt to earnings
before interest, taxes, depreciation and amortization (EBITDA). The credit facility also includes a non-use fee ranging from 0.25% to 0.375%, which is based upon the Companys leverage ratio. Among other provisions, the amended credit agreement
contains certain financial covenants related to EBITDA, fixed charges, leverage ratio, working capital ratio, total indebtedness, and maximum loss ratio. As of September 30, 2009, the Company was in compliance with all of its debt covenants.
In accordance with GAAP, amounts drawn on the revolving credit facility are shown as debt due within one year. Under the
terms of the credit agreement, however, the revolving credit facility does not mature until December 2012, and no amounts are due thereon prior to the maturity of the credit facility. Accordingly, so long as the Company is in compliance with its
financial and other covenants in the credit facility, the Company does not face a refinancing risk until the term loan and the revolving credit facility mature in December 2012.
In addition to scheduled repayments, the term loan contains mandatory prepayment provisions beginning in 2009 whereby the Company is
required to reduce the outstanding principal amounts of the term loan based on the Companys excess cash flow (as defined in the agreement) and the Companys leverage ratio as of the most recent completed fiscal year. For the nine months
ended September 30, 2009, the Company paid $7.1 million on the term loan, which included $2.7 million required under the mandatory prepayment provisions, $3.7 million scheduled payment and an additional voluntary prepayment of $725,000 to
reduce the balance of the term loan.
Note 12 Derivative Instruments
Derivative instruments are accounted for at fair value. The accounting for changes in the fair value of a derivative depends on the intended
use and designation of the derivative instrument. For a derivative instrument designated as a fair value hedge, the gain or loss on the derivative is recognized in earnings in the period of change in fair value together with the offsetting gain or
loss on the hedged item. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivatives gain or loss is initially reported as a component of Other Comprehensive Income (OCI) and is subsequently recognized
in earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is recognized in earnings. Gains or losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are
recognized currently in earnings.
The Company is exposed to certain risks relating to adverse changes in interest rates on
its long-term debt and manages this risk through the use of a derivative. The Company does not enter into derivative instruments for trading or speculative purposes.
Page 15
Cash Flow Hedge.
The Company entered into an interest rate swap agreement during
first quarter 2008 for $49 million of its outstanding debt as a cash flow hedge to interest rate fluctuations under its credit facility. The swap agreement is designated as a cash flow hedge, and effectively changes the floating rate interest
obligation associated with the $50 million term loan into a fixed rate. The swap agreement has a maturity date of December 6, 2012. Under the swap, the Company pays a fixed interest rate of 3.43% and receives interest at a rate of LIBOR. As of
September 30, 2009, approximately $38.3 million (representing the majority of the unpaid principal of the term loan) is subject to the interest rate swap agreement. The hedge is highly effective and, therefore, the Company reported no net gain
or loss during the three and nine months ended September 30, 2009. The Company expects approximately $1.1 million of losses in other comprehensive income to be reclassified into earnings within the next 12 months.
The following table summarizes the fair value and location in the Consolidated Balance Sheet of all derivatives held by the Company as of
September 30, 2009
(in thousands
).
|
|
|
|
|
|
Derivatives Designated as Hedging
Instruments under ASC Topic 815
|
|
Balance Sheet Classification
|
|
Fair Value
|
Liabilities:
|
|
|
|
|
|
Interest rate swaps
|
|
Accrued expenses and other liabilities
|
|
$
|
1,393
|
|
|
|
|
|
|
The following table summarizes the gains (losses) recognized in Other Comprehensive
Income
(in thousands)
related to the interest rate swap agreement for the nine months ended September 30, 2009.
|
|
|
|
|
|
|
Derivatives Designated as Hedging
Instruments under ASC Topic 815
|
|
|
|
Gain (Loss)
Recognized
in OCI
|
|
Cash flow hedges:
|
|
|
|
|
|
|
Loss recognized in other comprehensive income
|
|
$
|
(377
|
)
|
Amount reclassified from accumulated other comprehensive income to interest expense
|
|
|
740
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
363
|
|
|
|
|
|
|
|
|
Note 13 Income taxes
The Company had unrecognized tax benefits of approximately $50,000 as of December 31, 2008 and September 30, 2009. The unrecognized
tax benefits of $50,000 at September 30, 2009, which if ultimately recognized, would impact the Companys annual effective tax rate.
The Company records accruals for interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively. Interest and penalties and associated accruals were
not material as of September 30, 2009.
The Company is subject to U.S federal income tax and various state income taxes.
Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the ordinary course of business, transactions occur for which the ultimate tax outcome
is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax
jurisdictions. During 2006, the Company settled two open tax years, 2003 and 2004, which were undergoing audit by the United States Internal Revenue Service. The 2006, 2007 and 2008 federal income tax returns are the only tax years for which the
statute of limitations is still open. Generally, state income tax returns for all years after 2004 are subject to potential future audit by tax authorities in the Companys state tax jurisdictions.
Page 16
Note 14 Credit Services Organization
Payday loans are originated by the Company at all of its branches, except branches in Texas. For its locations in Texas, the Company began
operating as a credit service organization (CSO), through one of its subsidiaries, in September 2005. As a CSO, the Company acts as a credit services organization on behalf of consumers in accordance with Texas laws. The Company charges the consumer
a fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender. The Company also services the loan
for the lender. The CSO fee is recognized ratably over the term of the loan. The Company is not involved in the loan approval process or in determining the loan approval procedures or criteria. As a result, loans made by the lender are not included
in the Companys loans receivable balance and are not reflected in the Consolidated Balance Sheets. As noted above, however, the Company absorbs all risk of loss through its guarantee of the consumers loan from the lender. As of
December 31, 2008 and September 30, 2009, the consumers had total loans outstanding with the lender of approximately $3.6 million and $2.4 million, respectively. The decline in loans outstanding was due to the closure of 11 branches in
Texas during first quarter 2009. Because of the economic exposure for potential losses related to the guarantee of these loans, the Company records a payable at fair value to reflect the anticipated losses related to uncollected loans. The balance
of the liability for estimated losses reported in accrued liabilities was approximately $180,000 as of December 31, 2008 and $100,000 as of September 30, 2009. With respect to the CSO, the Company recorded a provision for losses for the
nine months ended September 30, 2008 and 2009 totaling $2.6 million and $1.8 million, respectively. For the nine months ended September 30, 2009, charge-offs and recoveries associated with the CSO were $2.5 million and $660,000,
respectively.
Note 15 Stockholders Equity
Comprehensive income (loss)
. Components of comprehensive income (loss) consist of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Net income
|
|
$
|
2,746
|
|
|
$
|
4,632
|
|
|
$
|
9,635
|
|
|
$
|
14,646
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swap
|
|
|
(275
|
)
|
|
|
(371
|
)
|
|
|
77
|
|
|
|
(377
|
)
|
Amount reclassed to interest expense related to interest rate swap
|
|
|
77
|
|
|
|
286
|
|
|
|
168
|
|
|
|
740
|
|
Deferred income taxes
|
|
|
74
|
|
|
|
32
|
|
|
|
(93
|
)
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
(124
|
)
|
|
|
(53
|
)
|
|
|
152
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,622
|
|
|
$
|
4,579
|
|
|
$
|
9,787
|
|
|
$
|
14,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Repurchases.
The board of directors has authorized the
Company to repurchase up to $60 million of its common stock in the open market and through private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in stock-based compensation programs. As of
September 30, 2009, the Company had repurchased 4.7 million shares at a total cost of approximately $51.8 million, which leaves approximately $8.2 million that may yet be purchased under the current program.
Dividends.
On July 29, 2009, the Companys board of directors declared a cash dividend of $0.05 per common share. The
dividend was paid on September 1, 2009 to stockholders of record as of August 18, 2009. The total amount of the dividend paid was approximately $900,000.
Page 17
Note 16 Stock-Based Compensation
The following table summarizes the stock-based compensation expense reported in net income (
in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
Employee stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
297
|
|
$
|
247
|
|
$
|
855
|
|
$
|
896
|
Restricted stock awards
|
|
|
222
|
|
|
299
|
|
|
637
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519
|
|
|
546
|
|
|
1,492
|
|
|
1,761
|
|
|
|
|
|
Non-employee director stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
|
|
|
|
|
|
216
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
519
|
|
$
|
546
|
|
$
|
1,708
|
|
$
|
1,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option grants.
The Company granted 530,492 stock options during first
quarter 2009 to certain employees under the 2004 Equity Incentive Plan. These stock options vest equally over four years. The Company estimated that the fair value of these option grants was approximately $811,000. The fair value of the options was
calculated at the grant date using a Black-Scholes option-pricing model assuming 53.53% expected volatility, a risk-free interest rate of 2.37%, a 4.56% expected dividend yield and an expected life of 6.25 years.
A summary of stock option activity for the nine months ended September 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
Outstanding, January 1, 2009
|
|
2,551,534
|
|
|
$
|
10.53
|
Granted
|
|
530,492
|
|
|
|
4.39
|
Exercised
|
|
(75,000
|
)
|
|
|
1.95
|
Terminated/Cancelled
|
|
(52,794
|
)
|
|
|
11.10
|
|
|
|
|
|
|
|
Outstanding, September 30, 2009
|
|
2,954,232
|
|
|
$
|
9.63
|
|
|
|
|
|
|
|
Exercisable, September 30, 2009
|
|
2,008,483
|
|
|
$
|
10.98
|
|
|
|
|
|
|
|
Restricted stock grants.
During first quarter 2009, the Company granted
411,744 shares of restricted stock to various employees and non-employee directors under the 2004 Equity Incentive Plan pursuant to restricted stock agreements. The grants consisted of 359,464 shares granted to employees that vest equally over four
years and 52,280 shares granted to non-employee directors that vested immediately upon grant subject to an agreed-upon six-month holding period. The Company estimated that the fair market value of these restricted stock grants was approximately $1.8
million. For the three and nine months ended September 30, 2009, the Company recognized $94,000 and $479,000, respectively in stock-based compensation expense related to these restricted stock grants. As of September 30, 2009, there was
$1.2 million of total unrecognized compensation costs related to these restricted stock grants. The Company expects that these costs will be amortized over a weighted average period of 3.3 years.
Page 18
A summary of all restricted stock activity under the equity compensation plans for the nine
months ended September 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
Restricted
Stock
|
|
|
Weighted
Average Grant
Date Fair Value
|
Non-vested balance, January 1, 2009
|
|
223,292
|
|
|
$
|
11.92
|
Granted
|
|
411,744
|
|
|
|
4.39
|
Vested
|
|
(113,372
|
)
|
|
|
6.71
|
Forfeited
|
|
(7,766
|
)
|
|
|
7.27
|
|
|
|
|
|
|
|
Non-vested balance, September 30, 2009
|
|
513,898
|
|
|
$
|
6.73
|
|
|
|
|
|
|
|
Note 17 Commitments and Contingencies
Litigation.
The Company is subject to various legal proceedings arising from normal business operations. Although there can be no
assurances, based on the information currently available, management believes that it is probable that the ultimate outcome of each of the actions will not have a material adverse effect on the consolidated financial statements. However, an adverse
outcome in any of the actions could have a material adverse effect on the financial results of the Company in the period in which it is recorded.
Missouri.
On October 13, 2006, one of the Companys Missouri customers sued the Company in the Circuit Court of St. Louis County, Missouri in a purported class action. The lawsuit alleges
violations of the Missouri statute pertaining to unsecured loans under $500 and the Missouri Merchandising Practices Act. The lawsuit seeks monetary damages and a declaratory judgment that the arbitration agreement with the plaintiff is not
enforceable on a variety of theories. The Company moved to compel arbitration of this matter. In December 2007, the court entered an order striking the class action waiver provision in the Companys customer arbitration agreement, ordered the
case to arbitration and dismissed the lawsuit filed in Circuit Court. In July 2008, the Company filed its appeal of the courts order with the Missouri Court of Appeals. In December 2008, the Court of Appeals affirmed the decision of the trial
court and ordered the case to arbitration, but struck the class action waiver provision. In September 2009, the plaintiff filed her action in arbitration. The Company has filed its answer, and a three-person arbitration panel has been chosen.
North Carolina.
On February 8, 2005, the Company, two of its subsidiaries, including its subsidiary doing
business in North Carolina, and Mr. Don Early, the Companys Chairman of the Board and Chief Executive Officer, were sued in Superior Court of New Hanover County, North Carolina in a putative class action lawsuit filed by James B.
Torrence, Sr. and Ben Hubert Cline, who were customers of a Delaware state-chartered bank for whom the Company provided certain services in connection with the banks origination of payday loans in North Carolina, prior to the closing of the
Companys North Carolina branches in fourth quarter 2005. The lawsuit alleges that the Company violated various North Carolina laws, including the North Carolina Consumer Finance Act, the North Carolina Check Cashers Act, the North Carolina
Loan Brokers Act, the state unfair trade practices statute and the state usury statute, in connection with payday loans made by the bank to the two plaintiffs through the Companys retail locations in North Carolina. The lawsuit alleges that
the Company made the payday loans to the plaintiffs in violation of various state statutes, and that if the Company is not viewed as the actual lenders or makers of the payday loans, its services to the bank that made the loans violated
various North Carolina statutes. Plaintiffs are seeking certification as a class, unspecified monetary damages, and treble damages and attorneys fees under specified North Carolina statutes. Plaintiffs have not sued the bank in this matter and have
specifically stated in the complaint that plaintiffs do not challenge the right of out-of-state banks to enter into loans with North Carolina residents at such rates as the banks home state may permit, all as authorized by North Carolina and
federal law. This case is in the preliminary stages.
Page 19
There are three similar purported class action lawsuits filed in North Carolina against
three other companies unrelated to the Company. In December 2005, the judge in those three cases (1) granted the defendants motions to stay the purported class action lawsuits and to compel arbitration in accordance with the terms of the
arbitration provisions contained in the consumer loan contracts, (2) ruled that the class action waivers in those consumer loan contracts are valid, and (3) denied plaintiffs motions for class certifications. The plaintiffs in those
three cases, who are represented by the same law firms as the plaintiffs in the case filed against the Company, appealed that ruling. In January 2007, the North Carolina Court of Appeals heard the appeal in the three companion cases. In May 2008,
the appellate court remanded the three companion cases to the state court to review its ruling in light of a recent North Carolina Supreme Court decision. In June 2009, the trial court denied defendants motion to compel arbitration and granted
each of the respective plaintiffs motions for class certification. It is expected that defendants will appeal these rulings.
The judge handling the lawsuit against the Company in North Carolina is the same judge who is handing the three companion cases. The Company has not had a ruling on the similar pending motions by the plaintiffs and the Company in its North
Carolina case. While the companion cases are on appeal, it is expected that the stay in the Companys case will be lifted. As a result, the Company will begin limited motion-related discovery. It is expected that the issues of arbitration and
class certification will be addressed by the Court in Spring 2010.
South Carolina
. On October 30, 2008, a
subsidiary of the Company was sued in the Fifth Judicial Circuit Court of Common Pleas in South Carolina in a putative class action lawsuit filed by Carl G. Ferrell, a customer of the South Carolina subsidiary. Mr. Ferrell alleges that the
subsidiary violated the South Carolina Deferred Presentment Services Act by including an arbitration provision and class action waiver in its loan agreements. Mr. Ferrell alleges further that the subsidiary did not appropriately take into
account his ability to repay his loan with the subsidiary, and it is his contention that this alleged failure violates the South Carolina Deferred Presentment Services Act, is negligent, breaches the covenant of good faith and fair dealing, and
serves as the basis for a civil conspiracy. Mr. Ferrell makes the same allegations in the same case against several other lenders.
On December 11, 2008, the Company removed the case from state court to the United States District Court for the District of South Carolina based upon the diversity of citizenship between the
subsidiary and the proposed class. On December 18, 2008, the Company filed a motion to dismiss the case based upon the parties arbitration agreement. Mr. Ferrell has challenged both the removal of the case to federal court and the
Companys motion to dismiss. In March 2009, the federal court ruled against the Companys efforts to remove the case to federal court and remanded the case to state court. It did not rule on the Companys motion to dismiss. In May
2009, the federal court issued its written ruling. The Company has appealed this decision to the Fourth Circuit Court of Appeals.
California.
On September 5, 2008, a subsidiary of the Company was sued in the Superior Court of California, San Diego County in a putative class action lawsuit filed by Jennifer M. Winters, a customer of the California
subsidiary. Ms. Winters alleges that the Company violated Californias Deferred Deposit Transaction Law, Unfair Competition Law, and Consumer Legal Remedies Act. Ms. Winters alleges that the Company improperly charged California
consumers a fee to extend or roll over their loan transactions, that the Company did not have authority to deduct funds electronically, and that the Companys use of a class action waiver in its loan agreements is unconscionable. In
October 2008, the Company filed its answer, denying all allegations. It also filed a claim against Ms. Winters for failing to pay her final loan. The parties are currently engaged in discovery on plaintiffs class action allegations.
Because this case is in its preliminary stages, it is unlikely any ruling on the merits of the claims will occur until early 2010 or later.
Other Matters.
The Company is also currently involved in ordinary, routine litigation and administrative proceedings incidental to its business, including customer bankruptcy and employment-related
matters. The Company believes the likely outcome of these other cases and proceedings will not be material to its business or its financial condition.
Page 20
Note 18 Certain Concentrations of Risk
The Company is subject to regulation by federal and state governments that affect the products and services provided by the Company,
particularly payday loans. The Company currently operates in 24 states throughout the United States. The level and type of regulation of payday loans varies greatly from state to state, ranging from states with no regulations or legislation to other
states with very strict guidelines and requirements.
Company branches located in the states of Missouri, California, Kansas,
Arizona, South Carolina, Washington and Illinois represented approximately 25%, 13%, 8%, 8%, 7%, 5% and 5%, respectively, of total revenues for the nine months ended September 30, 2009. Company branches located in the states of Missouri,
California, Arizona, Illinois, South Carolina and Kansas represented approximately 28%, 11%, 11%, 6%, 6%, and 6%, respectively, of total branch gross profit for the nine months ended September 30, 2009. To the extent that laws and regulations
are passed that affect the Companys ability to offer loans or the manner in which the Company offers its loans in any one of those states, the Companys financial position, results of operations and cash flows could be adversely affected.
For example, the law under which the Company provides short-term loans in Arizona terminates on June 30, 2010. To the extent that the industry is not able to obtain an amendment of the termination clause in the law or the Company is not able to
develop alternative products that serve its customers, the revenues and gross profit derived from Arizona would cease. Also, amendments to the Washington law become effective January 1, 2010, which are likely to adversely affect the revenues
and profitability of the Washington branches.
Note 19 Subsequent Events
Dividends.
On November 2, 2009, the Companys board of directors declared a quarterly dividend of $0.05 per common share and
a special dividend of $0.10 per common share. The dividends are payable on December 2, 2009 to stockholders of record as of November 18, 2009. The Company estimates that the total amount of the dividend will be approximately $2.7 million.
The Company has evaluated events and transactions subsequent to the balance sheet date through November 6, 2009, the
date these financial statements were issued.
Page 21
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
FORWARD-LOOKING STATEMENTS
The discussion below includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, our plans, strategies and prospects, both business and financial. All
statements other than statements of current or historical fact contained in this discussion are forward-looking statements. The words believe, expect, anticipate, should, would,
could, plan, will, may, intend, estimate, potential, continue or similar expressions or the negative of these terms are intended to identify
forward-looking statements.
These forward-looking statements are based on our current expectations and are subject to a
number of risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. These risks include (1) changes in laws or regulations or governmental interpretations of existing laws and
regulations governing consumer protection or payday lending practices, (2) litigation or regulatory action directed towards us or the payday loan industry, (3) volatility in our earnings, primarily as a result of fluctuations in loan loss
experience and the rate of growth in or closure of branches, (4) risks associated with the leverage of the Company, (5) negative media reports and public perception of the payday loan industry and the impact on federal and state
legislatures and federal and state regulators, (6) changes in our key management personnel, (7) integration risks and costs associated with future acquisitions, and (8) the other risks detailed under Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission
.
In light of these risks, uncertainties and assumptions, the forward-looking statements in this report
may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. When investors consider these forward-looking statements, they should keep in mind the risk factors and other cautionary
statements in this discussion.
Our forward-looking statements speak only as of the date they are made. We undertake no
obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The discussion in this item is intended to clarify and focus on our results of operations, certain changes in financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial
statements included under Item 1 of this Form 10-Q. This discussion should be read in conjunction with these consolidated financial statements, the audited financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2008, and the related notes thereto and is qualified by reference thereto.
EXECUTIVE SUMMARY
We operate primarily through our wholly-owned subsidiaries, QC Financial Services, Inc., QC Auto Services, Inc., QC Loan Services, Inc. and
QC E-Services, Inc. QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Financial Services of Texas, Inc., Express Check Advance of South Carolina, LLC, QC
Advance, Inc., Cash Title Loans, Inc. and QC Properties, LLC.
We derive our revenues primarily by providing short-term
consumer loans, known as payday loans, which represented approximately 73.8% of our total revenues for the nine months ended September 30, 2009. We earn fees for various other financial services, such as installment loans, credit services,
check cashing services, title loans, open-end credit, money transfers and money orders. We operated 558 short-term lending branches in 24 states at September 30, 2009. In all but one of these states, Texas, we fund our payday loans directly to
the customer and receive a fee. Fees charged to customers vary from state to state, generally ranging from $15 to $20 per $100 borrowed, and in most cases, are limited by state law. Through five locations in the Kansas City area, we also sell used
automobiles and finance most of those sales, earning income on the automotive sales and interest on the automotive loans.
Page 22
In Texas, through one of our subsidiaries, we operate as a credit service organization (CSO)
on behalf of consumers in accordance with Texas laws. We charge the consumer a CSO fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the
consumers obligation to the third-party lender. In Illinois, New Mexico, Arizona and Montana, we offer an installment loan product, which is an amortizing loan generally over four to twelve months with principal amounts ranging between $300
and $1,000.
Our expenses primarily relate to the operations of our branch network. The most significant expenses include
salaries and benefits for our branch employees, provisions for losses and occupancy expense for our leased real estate. Regional and corporate expenses, which include compensation of employees, professional fees and equity award charges, are our
other primary costs.
We evaluate our branches based on revenue growth, gross profit contributions and loss ratio (which is
losses as a percentage of revenues), with consideration given to the length of time the branch has been open and its geographic location. We evaluate changes in comparable branch metrics on a routine basis to assess operating efficiency. We define
comparable branches as those branches that are open during the full periods for which a comparison is being made. For example, comparable branches for the quarterly analysis as of September 30, 2009 have been open at least 15 months on that
date. We monitor newer branches for their progress to profitability and rate of loan growth.
With respect to our cost
structure, salaries and benefits are one of our largest costs and have historically been driven by the addition of branches throughout the year and growth in loan volumes. Our provision for losses is also a significant expense. If a customers
check is returned by the bank as uncollected, we make an immediate charge-off for the amount of the customers loan, which includes accrued fees and interest. If any amount is collected on loans previously charged off, we record it as a
recovery. We have experienced seasonality in our operations, with the first and fourth quarters typically being our strongest periods as a result of broader economic factors, such as holiday spending habits at the end of each year and income tax
refunds during the first quarter.
Over the last five years, we have grown from 294 branches to 558 branches through a
combination of acquisitions and new branch openings. During this period, we opened 309 de novo branches, acquired 104 branches and closed 149 branches. In response to changes in the overall market, over the past three years we have generally ceased
our de novo branch expansion efforts, and have reduced our overall number of branches from 613 at December 31, 2006 to 558 at September 30, 2009. During the first nine months of 2009, we closed 30 of our lower performing branches in
various states (which included five branches that were consolidated into nearby branches). We recorded approximately $1.5 million in pre-tax charges during the nine months ended September 30, 2009 associated with these closings.
The following table summarizes our changes in the number of short-term lending branches locations since January 1, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
September 30,
2009
|
|
Beginning branch locations
|
|
294
|
|
|
371
|
|
|
532
|
|
|
613
|
|
|
596
|
|
|
585
|
|
De novo branches opened during period
|
|
54
|
|
|
174
|
|
|
46
|
|
|
20
|
|
|
12
|
|
|
3
|
|
Acquired branches during period
|
|
29
|
|
|
10
|
|
|
51
|
|
|
13
|
|
|
1
|
|
|
|
|
Branches closed during period
|
|
(6
|
)
|
|
(23
|
)
|
|
(16
|
)
|
|
(50
|
)
|
|
(24
|
)
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending branch locations
|
|
371
|
|
|
532
|
|
|
613
|
|
|
596
|
|
|
585
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 23
We intend to evaluate opportunities for new branch development to complement existing
branches within a given state or market. Additionally, we utilize a disciplined acquisition strategy for both the payday and the buy here, pay here businesses. During the remainder of 2009, we expect to open up to 3 payday-focused branches. In
January 2009, we acquired the assets related to two automotive sale and finance locations in Missouri.
According to the
Community Financial Services Association of America (CFSA), industry analysts estimate that the industry has approximately 22,000 payday loan branches in the United States and these branches extend approximately $40 billion in short-term credit to
millions of middle-class households that experience cash-flow shortfalls between paydays. We believe our industry is highly fragmented as 10 companies operate approximately 10,100 branches in the United States. After a number of years of growth, the
industry has contracted slightly in the last two years, primarily due to changes in laws that govern the payday product. Absent changes in regulations and laws, we do not expect significant fluctuations in the industrys number of branches in
the foreseeable future.
The payday loan industry has followed, and continues to be significantly affected by, payday lending
legislation and regulation in the various states and nationally. We actively monitor and evaluate legislative and regulatory initiatives in each of the states and nationally, and are closely involved with the efforts of the CFSA. To the extent that
states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business has been adversely affected in the past and could be further adversely affected in the future. Over
the last two years a few states have enacted interest rate caps from 28% to 36% per annum on payday lending. A 36% per annum interest rate translates to approximately $1.38 per $100 loaned, which effectively precludes us from offering
payday loans in those states.
During 2009, payday loan-related legislation was passed in various states, including South
Carolina and Washington, that may affect our profitability beginning in 2010. We will continue to monitor and evaluate the laws as they are finalized in each of these states. During 2008, the industry undertook ballot initiatives in Arizona and Ohio
in an effort to stabilize the regulatory environment with respect to providing short-term loans to customers in those states. While the outcome of those initiatives was not favorable, there is little immediate impact on us. In Arizona, we will
continue to operate under the existing legislation, while working to eliminate the June 30, 2010 sunset provision that would remove short-term loans as an alternative for Arizona customers. In Ohio, we closed 13 branches in the third quarter of
2008 in response to legislation that effectively precludes payday lending in that state, but are offering customers a new product at our remaining Ohio branches under a different statute.
Page 24
RESULTS OF OPERATIONS
Three Months Ended September 30, 2009 Compared with the Three Months Ended September 30, 2008
The following table sets forth our results of operations for the three months ended September 30, 2009 compared to the three months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
(percentage of revenues)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payday loan fees
|
|
$
|
46,628
|
|
|
$
|
43,158
|
|
|
80.2
|
%
|
|
76.0
|
%
|
Other
|
|
|
11,478
|
|
|
|
13,638
|
|
|
19.8
|
%
|
|
24.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
58,106
|
|
|
|
56,796
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,354
|
|
|
|
11,371
|
|
|
21.3
|
%
|
|
20.0
|
%
|
Provision for losses
|
|
|
16,519
|
|
|
|
14,697
|
|
|
28.4
|
%
|
|
25.9
|
%
|
Occupancy
|
|
|
6,508
|
|
|
|
5,974
|
|
|
11.2
|
%
|
|
10.5
|
%
|
Depreciation and amortization
|
|
|
1,067
|
|
|
|
999
|
|
|
1.8
|
%
|
|
1.8
|
%
|
Other
|
|
|
4,577
|
|
|
|
4,924
|
|
|
7.9
|
%
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total branch expenses
|
|
|
41,025
|
|
|
|
37,965
|
|
|
70.6
|
%
|
|
66.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch gross profit
|
|
|
17,081
|
|
|
|
18,831
|
|
|
29.4
|
%
|
|
33.2
|
%
|
|
|
|
|
|
Regional expenses
|
|
|
3,247
|
|
|
|
3,411
|
|
|
5.6
|
%
|
|
6.0
|
%
|
Corporate expenses
|
|
|
6,349
|
|
|
|
6,238
|
|
|
10.9
|
%
|
|
11.0
|
%
|
Depreciation and amortization
|
|
|
678
|
|
|
|
710
|
|
|
1.2
|
%
|
|
1.3
|
%
|
Interest expense, net
|
|
|
1,070
|
|
|
|
790
|
|
|
1.8
|
%
|
|
1.3
|
%
|
Other expense, net
|
|
|
88
|
|
|
|
30
|
|
|
0.2
|
%
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
5,649
|
|
|
|
7,652
|
|
|
9.7
|
%
|
|
13.5
|
%
|
Provision for income taxes
|
|
|
2,687
|
|
|
|
2,912
|
|
|
4.6
|
%
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
2,962
|
|
|
|
4,740
|
|
|
5.1
|
%
|
|
8.4
|
%
|
Loss from discontinued operations, net of income tax
|
|
|
(216
|
)
|
|
|
(108
|
)
|
|
(0.4
|
)%
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,746
|
|
|
$
|
4,632
|
|
|
4.7
|
%
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth selected information of our comparable branches for
the three months ended September 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
2008
|
|
2009
|
Comparable Branch Information (a):
|
|
|
|
|
|
|
Total revenues generated by all comparable branches
(in thousands)
|
|
$
|
55,681
|
|
$
|
52,640
|
Total number of comparable branches
|
|
|
550
|
|
|
550
|
Average revenue per comparable branch
|
|
$
|
101,238
|
|
$
|
95,709
|
(a)
|
Comparable branches are those branches that were open for all of the two periods being compared, which means the 15 months since June 30, 2008.
|
Page 25
The following table sets forth selected financial and statistical information for the three
months ended September 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
Branch Information:
|
|
|
|
|
|
|
|
|
Number of branches, beginning of period
|
|
|
597
|
|
|
|
557
|
|
De novo branches opened
|
|
|
3
|
|
|
|
2
|
|
Acquired branches
|
|
|
|
|
|
|
|
|
Branches closed
|
|
|
(15
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Number of branches, end of period
|
|
|
585
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of branches open during period (excluding branches reported as discontinued operations)
|
|
|
561
|
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information:
|
|
|
|
|
|
|
|
|
Payday Loans:
|
|
|
|
|
|
|
|
|
Payday loan volume
(in thousands)
|
|
$
|
330,511
|
|
|
$
|
300,468
|
|
Average loan (principal plus fee)
|
|
|
370.74
|
|
|
|
367.01
|
|
Average fees per loan
|
|
|
53.73
|
|
|
|
54.12
|
|
|
|
|
Installment Loans:
|
|
|
|
|
|
|
|
|
Installment loan volume
(in thousands)
|
|
$
|
9,648
|
|
|
$
|
7,877
|
|
Average loan (principal)
|
|
|
509.27
|
|
|
|
501.63
|
|
Average term (days)
|
|
|
186
|
|
|
|
185
|
|
|
|
|
Automotive Loans:
|
|
|
|
|
|
|
|
|
Automotive loan volume
(in thousands)
|
|
$
|
1,682
|
|
|
$
|
3,074
|
|
Average loan (principal)
|
|
|
8,452
|
|
|
|
8,910
|
|
Average term (months)
|
|
|
37
|
|
|
|
31
|
|
Locations, end of period
|
|
|
2
|
|
|
|
5
|
|
Income from continuing operations.
For the three months ended
September 30, 2009, income from continuing operations was $4.7 million compared to $3.0 million for the same period in 2008. A discussion of the various components of net income follows.
Revenues.
For the three months ended September 30, 2009, revenues were $56.8 million, a decrease of 2.2% from $58.1 million
during the three months ended September 30, 2008. The decrease in revenues was primarily due to reduced payday loan volumes, largely offset by higher automotive loan volumes (due to an increase in locations).
Revenues from our payday loan product represent our largest source of revenues and were approximately 76.0% of total revenues for the three
months ended September 30, 2009. With respect to payday loan volume, we originated approximately $300.5 million in loans during third quarter 2009, which was a decline of 9.1% from the $330.5 million during third quarter 2008. This decline is
attributable to reduced payday loan demand in most states, including Virginia, where we began offering an open-end credit product in late 2008. During second quarter 2009, we re-introduced the payday loan product in Virginia and discontinued the
open-end product. The average payday loan (including fee) totaled $367.01 in third quarter 2009 versus $370.74 during third quarter 2008. Average fees received from customers per loan increased from $53.73 in third quarter 2008 to $54.12 in third
quarter 2009. Our average fee rate per $100 for third quarter 2009 was $17.30 compared to $16.95 in third quarter 2008.
Page 26
The following table summarizes other revenues
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Three Months Ended
September 30,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
(percentage of revenues)
|
|
Installment loan interest
|
|
$
|
5,072
|
|
$
|
4,571
|
|
8.7
|
%
|
|
8.0
|
%
|
Buy here, pay here sales and interest
|
|
|
1,926
|
|
|
3,810
|
|
3.3
|
%
|
|
6.7
|
%
|
Credit service fees
|
|
|
1,633
|
|
|
1,802
|
|
2.8
|
%
|
|
3.2
|
%
|
Check cashing fees
|
|
|
1,197
|
|
|
1,174
|
|
2.1
|
%
|
|
2.1
|
%
|
Title loan fees
|
|
|
940
|
|
|
807
|
|
1.6
|
%
|
|
1.4
|
%
|
Open-end credit interest and fees
|
|
|
|
|
|
583
|
|
|
|
|
1.0
|
%
|
Other fees
|
|
|
710
|
|
|
891
|
|
1.3
|
%
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,478
|
|
$
|
13,638
|
|
19.8
|
%
|
|
24.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from installment loans, CSO fees, check cashing, title loans, buy here, pay
here and other sources totaled $13.6 million during third quarter 2009, up approximately $2.1 million or 18.3% from $11.5 million in the comparable prior year quarter.
The increase in revenues from our buy here, pay here operations was a result of operating five branches during third quarter 2009 compared to two branches during third quarter 2008. The revenues from the
open-end credit reflect the introduction of the product in Virginia in late 2008. As noted above, we are no longer offering this product in Virginia and have re-introduced the payday product. The decline in installment loans, check cashing fees and
title loan fees reflects a decrease in customer demand for these products.
We evaluate our branches based on revenue growth,
with consideration given to the length of time a branch has been open. The following table summarizes our revenues and average revenue per branch per month for the three months ended September 30, 2008 and 2009 based on the year that a branch
was opened or acquired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Opened/Acquired
|
|
Number of
Branches
|
|
Revenues
|
|
|
Average
Revenue/Branch/Month
|
|
|
2008
|
|
2009
|
|
% Change
|
|
|
2008
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
|
|
(in thousands)
|
Pre - 1999
|
|
33
|
|
$
|
6,378
|
|
$
|
5,937
|
|
(6.9
|
)%
|
|
$
|
64
|
|
$
|
60
|
1999
|
|
38
|
|
|
5,153
|
|
|
4,902
|
|
(4.9
|
)%
|
|
|
45
|
|
|
43
|
2000
|
|
45
|
|
|
5,394
|
|
|
5,044
|
|
(6.5
|
)%
|
|
|
40
|
|
|
37
|
2001
|
|
31
|
|
|
3,784
|
|
|
3,552
|
|
(6.1
|
)%
|
|
|
41
|
|
|
38
|
2002
|
|
51
|
|
|
5,654
|
|
|
5,072
|
|
(10.3
|
)%
|
|
|
37
|
|
|
33
|
2003
|
|
41
|
|
|
4,335
|
|
|
3,840
|
|
(11.4
|
)%
|
|
|
35
|
|
|
31
|
2004
|
|
66
|
|
|
5,622
|
|
|
5,429
|
|
(3.4
|
)%
|
|
|
28
|
|
|
27
|
2005
|
|
136
|
|
|
11,175
|
|
|
10,857
|
|
(2.8
|
)%
|
|
|
27
|
|
|
27
|
2006
|
|
83
|
|
|
6,239
|
|
|
5,936
|
|
(4.9
|
)%
|
|
|
25
|
|
|
24
|
2007
|
|
19
|
|
|
1,502
|
|
|
1,506
|
|
0.2
|
%
|
|
|
26
|
|
|
26
|
2008
|
|
12
|
|
|
476
|
|
|
820
|
|
(b
|
)
|
|
|
13
|
|
|
23
|
2009
|
|
3
|
|
|
|
|
|
49
|
|
(b
|
)
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
558
|
|
|
55,712
|
|
|
52,944
|
|
(5.0
|
)%
|
|
$
|
33
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated branches (a)
|
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy here, pay here
|
|
|
|
|
1,926
|
|
|
3,810
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
38
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
58,106
|
|
$
|
56,796
|
|
(2.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts represent branches that were consolidated into nearby branches and therefore were not reported as discontinued operations.
|
Page 27
We define comparable branches as those branches that are open during the full periods for
which a comparison is being made. For example, comparable branches for the quarterly analysis as of September 30, 2009 have been open at least 15 months. Our revenues from comparable branches decreased by $3.1 million, from $55.7 million during
third quarter 2008 to $52.6 million in third quarter 2009. This decrease is primarily attributable to reduced customer demand across most states.
We expect that the remainder of 2009 will present various challenges and opportunities for our customers and our branch operations given the dynamic state of the economy and markets. We believe that our
customers used 2008 stimulus checks to reduce their borrowings, including borrowings with us. Likewise, we believe our customers used stimulus checks and refundable tax credits during 2009 to reduce their borrowings, including borrowings with us.
With increasing unemployment rates, low consumer spending and negative consumer confidence, we anticipate that customer demand will continue to be lower than the prior year and therefore, revenue improvements will be unlikely during the balance of
2009 (compared to fourth quarter 2008) for our core short-term lending branches. Prior to second quarter 2009, we had expected 2009 revenues from our buy here, pay here operations to improve by $12 million to $15 million over 2008, due to the two
locations we acquired in January 2009 and the continued growth in our three existing locations. Based on macroeconomic factors, we now expect that 2009 revenues from our buy here, pay here operations will improve by $8 million to $12 million over
2008.
Branch Expenses.
Total branch expenses decreased $3.0 million, or 7.3%, from $41.0 million during third quarter
2008 to $38.0 million in third quarter 2009. Branch operating costs, exclusive of loan losses, decreased to $23.3 million during third quarter 2009 compared to $24.5 million in third quarter 2008. The decrease was attributable to a reduction in
overtime compensation and occupancy costs, partially offset by higher cost of sales associated with our automotive sales locations.
The provision for losses decreased from $16.5 million in third quarter 2008 to $14.7 million during third quarter 2009. Our loss ratio was 25.9% in third quarter 2009 and 28.4% in third quarter 2008. This improvement reflects lower returned
items quarter-to-quarter, partially offset by a higher allowance associated with our open-end credit product in Virginia. Our charge-offs as a percentage of revenue were 42.0% during third quarter 2009 and 46.5% during third quarter 2008. Our
collections as a percentage of charge-offs were 42.6% during third quarter 2009 and 42.6% during third quarter 2008. We received approximately $239,000 from the sale of certain payday loan receivables during third quarter 2009 that had previously
been written off compared to $205,000 during third quarter 2008.
With respect to the remainder of 2009, we believe that our
collections experience will be consistent with historical levels, as customers continue to adapt to the current state of the economy. We also anticipate that our loss ratio will continue to be negatively affected by the transition in Virginia from
the open-end product back to the payday loan product. Our past experience has indicated that the introduction of new products has increased our loss ratio as our customers transition to the new product (e.g., from payday loans to installment loans
in Illinois and New Mexico).
Comparable branches totaled $13.6 million in loan losses during third quarter 2009 compared to
$16.1 million for the same period in the prior year. In our comparable branches, the loss ratio was 25.9% during third quarter 2009 compared to 28.9% during third quarter 2008.
Branch Gross Profit.
Branch gross profit was $18.8 million in third quarter 2009 versus $17.1 million in third quarter 2008. Branch
gross margin, which is branch gross profit as a percentage of revenues, increased from 29.4% during third quarter 2008 to 33.2% during third quarter 2009. Comparable branches during third quarter 2009 reported a gross margin of 34.3% versus 32.0% in
third quarter 2008.
Page 28
The following table summarizes our gross profit (loss), gross margin (gross profit as a
percentage of revenues) and loss ratio (losses as a percentage of revenues) of branches for the three months ended September 30, 2008 and 2009 based on the year that a branch was opened or acquired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Opened/Acquired
|
|
Branches
|
|
Gross Profit (Loss)
|
|
|
Gross Margin %
|
|
|
Loss Ratio
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre - 1999
|
|
33
|
|
$
|
2,913
|
|
|
$
|
2,844
|
|
|
45.7
|
%
|
|
47.9
|
%
|
|
23.6
|
%
|
|
22.0
|
%
|
1999
|
|
38
|
|
|
1,804
|
|
|
|
1,860
|
|
|
35.0
|
%
|
|
37.9
|
%
|
|
26.0
|
%
|
|
22.6
|
%
|
2000
|
|
45
|
|
|
1,853
|
|
|
|
2,033
|
|
|
34.4
|
%
|
|
40.3
|
%
|
|
31.6
|
%
|
|
24.3
|
%
|
2001
|
|
31
|
|
|
1,524
|
|
|
|
1,547
|
|
|
40.3
|
%
|
|
43.5
|
%
|
|
25.3
|
%
|
|
22.0
|
%
|
2002
|
|
51
|
|
|
2,163
|
|
|
|
1,618
|
|
|
38.3
|
%
|
|
31.9
|
%
|
|
27.3
|
%
|
|
30.4
|
%
|
2003
|
|
41
|
|
|
1,650
|
|
|
|
1,302
|
|
|
38.1
|
%
|
|
33.9
|
%
|
|
26.0
|
%
|
|
26.7
|
%
|
2004
|
|
66
|
|
|
1,824
|
|
|
|
1,881
|
|
|
32.4
|
%
|
|
34.6
|
%
|
|
23.6
|
%
|
|
21.6
|
%
|
2005
|
|
136
|
|
|
2,571
|
|
|
|
2,933
|
|
|
23.0
|
%
|
|
27.0
|
%
|
|
32.4
|
%
|
|
28.0
|
%
|
2006
|
|
83
|
|
|
1,280
|
|
|
|
1,526
|
|
|
20.5
|
%
|
|
25.7
|
%
|
|
34.9
|
%
|
|
30.0
|
%
|
2007
|
|
19
|
|
|
190
|
|
|
|
281
|
|
|
12.6
|
%
|
|
18.7
|
%
|
|
41.3
|
%
|
|
35.0
|
%
|
2008
|
|
12
|
|
|
(24
|
)
|
|
|
240
|
|
|
(5.0
|
)%
|
|
29.3
|
%
|
|
31.8
|
%
|
|
22.6
|
%
|
2009
|
|
3
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
(c
|
)
|
|
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
558
|
|
|
17,748
|
|
|
|
17,983
|
|
|
31.9
|
%
|
|
34.0
|
%
|
|
28.9
|
%
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated branches (a)
|
|
|
|
|
(104
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy here, pay here
|
|
|
|
|
(311
|
)
|
|
|
78
|
|
|
(16.2
|
)%
|
|
2.0
|
%
|
|
48.4
|
%
|
|
33.4
|
%
|
Other (b)
|
|
|
|
|
(252
|
)
|
|
|
807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
17,081
|
|
|
$
|
18,831
|
|
|
29.4
|
%
|
|
33.2
|
%
|
|
28.4
|
%
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts represent branches that were consolidated into nearby branches and therefore were not reported as discontinued operations.
|
|
(b)
|
Includes the sale of older debt for approximately $239,000 and $205,000 for the three months ended September 30, 2009 and 2008, respectively.
|
Regional
and Corporate Expenses.
Regional and corporate expenses were $9.6 million in third quarter 2008 and $9.6 million in third quarter 2009. The third quarter 2008 included costs attributable to higher governmental affairs spending associated with
contested states. In Arizona, the Company joined with other short-term loan companies in 2008 to support a ballot initiative to remove the sunset provision of the existing payday lending law currently scheduled to expire in June 2010 and to put into
place a series of consumer friendly reforms. In addition, in 2008 the Company joined other short-term loan companies in Ohio to support a referendum effort designed to allow citizens a choice in deciding whether to have access to a regulated payday
advance product. These expenses totaled approximately $583,000 for the three months ended September 30, 2008. Third quarter 2009 includes higher performance-based incentive compensation compared to prior years third quarter.
Income Tax Provision.
The effective income tax rate during third quarter 2009 declined to 38.1% from 47.6% in prior years
third quarter. The decline is primarily due to certain expenses for government affairs that were not deductible for income tax purposes during third quarter 2008.
Page 29
Nine Months Ended September 30, 2009 Compared with the Nine Months Ended September 30, 2008
The following table sets forth our results of operations for the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
(percentage of revenues)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payday loan fees
|
|
$
|
132,204
|
|
|
$
|
120,879
|
|
|
81.1
|
%
|
|
73.8
|
%
|
Other
|
|
|
30,802
|
|
|
|
42,879
|
|
|
18.9
|
%
|
|
26.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
163,006
|
|
|
|
163,758
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
35,645
|
|
|
|
34,324
|
|
|
21.9
|
%
|
|
21.0
|
%
|
Provision for losses
|
|
|
38,877
|
|
|
|
34,957
|
|
|
23.9
|
%
|
|
21.3
|
%
|
Occupancy
|
|
|
19,243
|
|
|
|
18,228
|
|
|
11.8
|
%
|
|
11.1
|
%
|
Depreciation and amortization
|
|
|
3,224
|
|
|
|
3,060
|
|
|
2.0
|
%
|
|
1.9
|
%
|
Other
|
|
|
12,384
|
|
|
|
14,867
|
|
|
7.5
|
%
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total branch expenses
|
|
|
109,373
|
|
|
|
105,436
|
|
|
67.1
|
%
|
|
64.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch gross profit
|
|
|
53,633
|
|
|
|
58,322
|
|
|
32.9
|
%
|
|
35.6
|
%
|
|
|
|
|
|
Regional expenses
|
|
|
9,999
|
|
|
|
10,257
|
|
|
6.1
|
%
|
|
6.3
|
%
|
Corporate expenses
|
|
|
19,380
|
|
|
|
17,414
|
|
|
11.9
|
%
|
|
10.6
|
%
|
Depreciation and amortization
|
|
|
2,042
|
|
|
|
2,270
|
|
|
1.3
|
%
|
|
1.4
|
%
|
Interest expense, net
|
|
|
3,277
|
|
|
|
2,648
|
|
|
2.0
|
%
|
|
1.6
|
%
|
Other expense, net
|
|
|
407
|
|
|
|
183
|
|
|
0.3
|
%
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
18,528
|
|
|
|
25,550
|
|
|
11.3
|
%
|
|
15.6
|
%
|
Provision for income taxes
|
|
|
7,717
|
|
|
|
9,815
|
|
|
4.7
|
%
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
10,811
|
|
|
|
15,735
|
|
|
6.6
|
%
|
|
9.6
|
%
|
Loss from discontinued operations, net of income tax
|
|
|
(1,176
|
)
|
|
|
(1,089
|
)
|
|
(0.7
|
)%
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,635
|
|
|
$
|
14,646
|
|
|
5.9
|
%
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth selected information of our comparable branches for
the nine months ended September 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2008
|
|
2009
|
Comparable Branch Information (a):
|
|
|
|
|
|
|
Total revenues generated by all comparable branches
(in thousands)
|
|
$
|
157,345
|
|
$
|
149,835
|
Total number of comparable branches
|
|
|
543
|
|
|
543
|
Average revenue per comparable branch
|
|
$
|
289,770
|
|
$
|
275,939
|
(a)
|
Comparable branches are those branches that were open for all of the two periods being compared, which means the 21 months since December 31, 2007.
|
Page 30
The following table sets forth selected financial and statistical information for the nine
months ended September 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
Branch Information:
|
|
|
|
|
|
|
|
|
Number of branches, beginning of period
|
|
|
596
|
|
|
|
585
|
|
De novo branches opened
|
|
|
9
|
|
|
|
3
|
|
Acquired branches
|
|
|
1
|
|
|
|
|
|
Branches closed
|
|
|
(21
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Number of branches, end of period
|
|
|
585
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of branches open during period (excluding branches reported as discontinued operations)
|
|
|
560
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information:
|
|
|
|
|
|
|
|
|
Payday loans:
|
|
|
|
|
|
|
|
|
Payday loan volume
(in thousands)
|
|
$
|
935,746
|
|
|
$
|
851,304
|
|
Average loan (principal plus fee)
|
|
|
370.09
|
|
|
|
367.96
|
|
Average fees per loan
|
|
|
53.59
|
|
|
|
53.60
|
|
|
|
|
Installment Loans:
|
|
|
|
|
|
|
|
|
Installment loan volume
(in thousands)
|
|
$
|
23,251
|
|
|
$
|
21,792
|
|
Average loan (principal)
|
|
|
518.00
|
|
|
|
500.51
|
|
Average term (days)
|
|
|
187
|
|
|
|
184
|
|
|
|
|
Automotive Loans:
|
|
|
|
|
|
|
|
|
Automotive loan volume
(in thousands)
|
|
$
|
2,493
|
|
|
$
|
9,470
|
|
Average loan (principal)
|
|
|
8,227
|
|
|
|
8,784
|
|
Average term (months)
|
|
|
35
|
|
|
|
31
|
|
Locations, end of period
|
|
|
2
|
|
|
|
5
|
|
Income from continuing operations.
For the nine months ended
September 30, 2009, income from continuing operations was $15.7 million compared to $10.8 million for the same period in 2008. A discussion of the various components of net income follows.
Revenues.
For the nine months ended September 30, 2009, revenues were $163.8 million, a slight increase from $163.0 million
during the nine months ended September 30, 2008. The increase in revenues reflects higher automobile sales due to increase in automotive locations, partially offset by reduced payday loan volume. We originated approximately $851.3 million
through payday loans during the nine months ended September 30, 2009, which was a decrease of 9.0% from the $935.7 million during the same period in the prior year. The average loan (including fee) totaled $367.96 during the first nine months
of 2009 versus $370.09 in comparable 2008. Average fees received from customers per loan were $53.59 during first nine months of 2008 compared to $53.60 during first nine months of 2009. Our average fee rate per $100.00 was $17.05 for the first nine
months 2009 and $16.93 for the same period in 2008.
Our average fee rate will fluctuate based on changing legislation or
regulation that dictates a specific rate as we expand in states that have higher or lower fee structures or as we implement fee increases or reductions in different states.
Page 31
The following table summarizes other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
(percentage of revenues)
|
|
Installment loan interest
|
|
$
|
13,860
|
|
$
|
13,186
|
|
8.5
|
%
|
|
8.1
|
%
|
Buy-here, pay-here sales and interest
|
|
|
3,105
|
|
|
11,436
|
|
1.9
|
%
|
|
7.0
|
%
|
Credit service fees
|
|
|
4,449
|
|
|
4,885
|
|
2.7
|
%
|
|
3.0
|
%
|
Check cashing fees
|
|
|
4,493
|
|
|
4,365
|
|
2.8
|
%
|
|
2.7
|
%
|
Title loan fees
|
|
|
2,778
|
|
|
2,362
|
|
1.7
|
%
|
|
1.4
|
%
|
Open-end credit interest and fees
|
|
|
|
|
|
4,012
|
|
|
|
|
2.4
|
%
|
Other fees
|
|
|
2,117
|
|
|
2,633
|
|
1.3
|
%
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,802
|
|
$
|
42,879
|
|
18.9
|
%
|
|
26.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from installment loans, CSO fees, check cashing, title loans, buy-here,
pay-here and other sources totaled $42.9 million and $30.8 for the nine months ended September 30, 2009 and 2008, respectively. The increase in other revenues is primarily a result of an increase in automobile sales and the introduction of the
open-end credit product during late 2008.
We evaluate our branches based on revenue growth, with consideration given to the
length of time a branch has been open. The following table summarizes our revenues and average revenue per branch per month for the nine months ended September 30, 2008 and 2009 based on the year that a branch was opened or acquired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Opened/Acquired
|
|
Number of
Branches
|
|
Revenues
|
|
|
Average
Revenue/Branch/Month
|
|
|
2008
|
|
2009
|
|
% Change
|
|
|
2008
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
|
|
(in thousands)
|
Pre - 1999
|
|
33
|
|
$
|
18,551
|
|
$
|
17,009
|
|
(8.3
|
)%
|
|
$
|
62
|
|
$
|
57
|
1999
|
|
38
|
|
|
14,735
|
|
|
13,889
|
|
(5.7
|
)%
|
|
|
43
|
|
|
41
|
2000
|
|
45
|
|
|
15,731
|
|
|
14,494
|
|
(7.9
|
)%
|
|
|
39
|
|
|
36
|
2001
|
|
31
|
|
|
10,770
|
|
|
10,127
|
|
(6.0
|
)%
|
|
|
39
|
|
|
36
|
2002
|
|
51
|
|
|
16,193
|
|
|
15,093
|
|
(6.8
|
)%
|
|
|
35
|
|
|
33
|
2003
|
|
41
|
|
|
12,349
|
|
|
11,610
|
|
(6.0
|
)%
|
|
|
33
|
|
|
31
|
2004
|
|
66
|
|
|
16,048
|
|
|
15,451
|
|
(3.7
|
)%
|
|
|
27
|
|
|
26
|
2005
|
|
136
|
|
|
31,311
|
|
|
30,766
|
|
(1.7
|
)%
|
|
|
26
|
|
|
25
|
2006
|
|
83
|
|
|
17,585
|
|
|
17,146
|
|
(2.5
|
)%
|
|
|
24
|
|
|
23
|
2007
|
|
19
|
|
|
4,072
|
|
|
4,249
|
|
4.3
|
%
|
|
|
24
|
|
|
25
|
2008
|
|
12
|
|
|
772
|
|
|
2,197
|
|
(b
|
)
|
|
|
7
|
|
|
20
|
2009
|
|
3
|
|
|
|
|
|
69
|
|
(b
|
)
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
558
|
|
|
158,117
|
|
|
152,100
|
|
(3.8
|
)%
|
|
$
|
31
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated branches (a)
|
|
|
|
|
1,701
|
|
|
118
|
|
|
|
|
|
|
|
|
|
Buy here, pay here
|
|
|
|
|
3,105
|
|
|
11,449
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
83
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
163,006
|
|
$
|
163,758
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts represent branches that were consolidated into nearby branches and therefore were not reported as discontinued operations.
|
Revenues for
comparable branches decreased 4.8%, or $7.5 million, to $149.8 million for the nine months ended September 30, 2009. This decrease is primarily attributable to reduced customer demand across most states.
Page 32
Branch Expenses.
Total branch expenses decreased by $4.0 million, or 3.7%, from
$109.4 million during first nine months of 2008 to $105.4 million in first nine months of 2009. Branch operating costs, exclusive of loan losses, was $70.5 million during the nine months ended September 30, 2009 and $70.5 million during the
same period in the prior year. Higher cost of sales for automobile purchases were offset by reduced salaries and benefits and a decrease in occupancy costs. Branch-level salaries and benefits declined by $1.3 million for the nine months ended
September 30, 2009 compared to the same period in the prior year primarily due to a reduction in overtime compensation.
The provision for losses declined from $38.9 million for the nine months ended September 30, 2008 to $35.0 million during nine months ended September 30, 2009. Our loss ratio improved to 21.3% for the nine months ended
September 30, 2009 versus 23.9% for the nine months ended September 30, 2008. The improvement was a result of fewer returned items and a better collection rate during the nine months ended September 30, 2009. Our charge-offs as a
percentage of revenue were 38.9% during the nine months ended September 30, 2009 compared to 45.0% in the same period of the prior year. Our collections as a percentage of charge-offs were 50.6% during the nine months ended September 30,
2009 compared to 47.9% during the same period in the prior year. We sold approximately $792,000 of older debt during the nine months ended September 30, 2009 compared to $448,000 during the nine months ended September 30, 2008.
Comparable branches totaled $32.2 million in loan losses for the first nine months of 2009 compared to $38.6 million in loan losses for
the first nine months of 2008. In our comparable branches, the loss ratio was 21.5% for the nine months ended September 30, 2009 compared to 24.5% for the same period in 2008.
Branch Gross Profit.
Branch gross profit increased by $4.7 million, or 8.8%, from $53.6 million for the nine months ended
September 30, 2008 to $58.3 million for the nine months ended September 30, 2009. Branch gross margin increased from 32.9% to 35.6%. The higher gross profit during 2009 reflects improvements in most states, partially offset by reduced
gross profit in Virginia as we transitioned to the open-end credit product, and then back to the payday loan product.
The
following table summarizes our gross profit (loss), gross margin (gross profit as a percentage of revenues) and loss ratio (losses as a percentage of revenues) of branches for the nine months ended September 30, 2008 and 2009 based on the year
that a branch was opened or acquired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Opened/Acquired
|
|
Branches
|
|
Gross Profit (Loss)
|
|
|
Gross Margin %
|
|
|
Loss Ratio
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre - 1999
|
|
33
|
|
$
|
8,783
|
|
|
$
|
8,785
|
|
|
47.3
|
%
|
|
51.6
|
%
|
|
20.9
|
%
|
|
17.4
|
%
|
1999
|
|
38
|
|
|
5,496
|
|
|
|
5,674
|
|
|
37.3
|
%
|
|
40.9
|
%
|
|
22.1
|
%
|
|
18.2
|
%
|
2000
|
|
45
|
|
|
5,819
|
|
|
|
6,037
|
|
|
37.0
|
%
|
|
41.6
|
%
|
|
27.1
|
%
|
|
22.0
|
%
|
2001
|
|
31
|
|
|
4,530
|
|
|
|
4,677
|
|
|
42.1
|
%
|
|
46.2
|
%
|
|
21.8
|
%
|
|
17.7
|
%
|
2002
|
|
51
|
|
|
6,759
|
|
|
|
5,616
|
|
|
41.7
|
%
|
|
37.2
|
%
|
|
22.1
|
%
|
|
25.2
|
%
|
2003
|
|
41
|
|
|
4,976
|
|
|
|
4,241
|
|
|
40.3
|
%
|
|
36.5
|
%
|
|
22.0
|
%
|
|
24.7
|
%
|
2004
|
|
66
|
|
|
5,732
|
|
|
|
5,753
|
|
|
35.7
|
%
|
|
37.2
|
%
|
|
18.6
|
%
|
|
17.2
|
%
|
2005
|
|
136
|
|
|
7,643
|
|
|
|
9,378
|
|
|
24.4
|
%
|
|
30.5
|
%
|
|
28.5
|
%
|
|
22.8
|
%
|
2006
|
|
83
|
|
|
4,409
|
|
|
|
5,178
|
|
|
25.1
|
%
|
|
30.2
|
%
|
|
28.8
|
%
|
|
24.0
|
%
|
2007
|
|
19
|
|
|
381
|
|
|
|
956
|
|
|
9.4
|
%
|
|
22.5
|
%
|
|
40.1
|
%
|
|
29.5
|
%
|
2008
|
|
12
|
|
|
(134
|
)
|
|
|
628
|
|
|
(17.4
|
)
|
|
28.6
|
%
|
|
32.7
|
%
|
|
19.0
|
%
|
2009
|
|
3
|
|
|
|
|
|
|
(222
|
)
|
|
|
|
|
(c
|
)
|
|
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
558
|
|
|
54,394
|
|
|
|
56,701
|
|
|
34.4
|
%
|
|
37.3
|
%
|
|
24.6
|
%
|
|
21.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed branches (a)
|
|
|
|
|
(474
|
)
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy here, pay here
|
|
|
|
|
(450
|
)
|
|
|
(153
|
)
|
|
(14.5
|
)%
|
|
(1.3
|
)%
|
|
39.6
|
%
|
|
35.1
|
%
|
Other (b)
|
|
|
|
|
163
|
|
|
|
2,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
53,633
|
|
|
$
|
58,322
|
|
|
32.9
|
%
|
|
35.6
|
%
|
|
23.9
|
%
|
|
21.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts represent branches that were consolidated into nearby branches and therefore were not reported as discontinued operations.
|
Page 33
|
(b)
|
Includes the sale of older debt for approximately $792,000 for the nine months ended September 30, 2009 and $448,000 for nine months ended September 30, 2008.
|
Comparable
branches for the nine months ended September 30, 2009 reported a gross margin of 37.6% versus 34.7% in the comparable prior year period, with the improvement in 2009 resulting from stronger results in the majority of states.
Regional and Corporate Expenses.
Regional and corporate expenses decreased $1.7 million from $29.4 million during the nine months
ended September 30, 2008 to $27.7 million in the current year period. This decline reflects reduced governmental affairs and public education expenditures during 2009 compared to 2008. During 2008, the industry undertook ballot initiatives in
Arizona and Ohio in an effort to stabilize the regulatory environment with respect to providing short-term loans to customers in those states. Higher performance-based incentive compensation during 2009 partially offset the decline in governmental
affairs spending period-to-period.
Interest and Other Expenses.
Interest expense totaled $2.6 million during the nine
months ended September 30, 2009 compared to interest expense of $3.3 million during the nine months ended September 30, 2008. The lower level of interest expense reflects lower average debt balances and interest rates during the nine
months ended September 30, 2009.
Income Tax Provision.
The effective income tax rate for the nine months
ended September 30, 2009 was 38.4% compared to 41.7% for the nine months ended September 30, 2008. The decline is primarily due to certain expenses for government affairs during 2008 that were not deductible for income tax purposes.
Discontinued Operations.
During the nine months ended September 30, 2009, we closed 30 of our lower performing
branches in various states (which included 25 branches reported as discontinued operations and five branches that were consolidated into nearby branches). We recorded approximately $1.3 million in pre-tax charges during the nine months ended
September 30, 2009 associated with the closings reported as discontinued operations. The charges included a $738,000 loss for the disposition of fixed assets, $540,000 for lease terminations and other related occupancy costs, $15,000 in
severance and benefit costs and $10,000 for other costs.
During third quarter 2008, the Company closed 13 of its 32 branches
in Ohio, primarily due to a new law that went into effect on September 1, 2008 that effectively precludes payday loans. The Company recorded approximately $943,000 in pre-tax charges during 2008 associated with these closings. The charges
included a $554,000 loss for the disposition of fixed assets, $342,000 for lease terminations and other related occupancy costs, $40,000 in severance and benefit costs and $7,000 for other costs.
As noted above, the closure of branches during nine months ended September 30, 2009 included 25 branches that were not consolidated
into nearby branches. These branches and the Ohio branches that closed during third quarter 2008 are reported as discontinued operations in the Consolidated Statements of Income and related disclosures in the accompanying notes for all periods
presented. With respect to the Consolidated Balance Sheets, the Consolidated Statements of Cash Flows and related disclosures in the accompanying notes, the items associated with the discontinued operations are included with the continuing
operations for all periods presented. Summarized financial information for discontinued operations during the three and nine months ended September 30, 2008 and 2009 is presented below
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Total revenues
|
|
$
|
1,277
|
|
|
$
|
44
|
|
|
$
|
4,711
|
|
|
$
|
1,019
|
|
Provision for losses
|
|
|
881
|
|
|
|
58
|
|
|
|
2,704
|
|
|
|
630
|
|
Other branch expenses
|
|
|
746
|
|
|
|
121
|
|
|
|
3,372
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch gross loss
|
|
|
(350
|
)
|
|
|
(135
|
)
|
|
|
(1,365
|
)
|
|
|
(1,058
|
)
|
Other, net
|
|
|
(7
|
)
|
|
|
(44
|
)
|
|
|
(579
|
)
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(357
|
)
|
|
|
(179
|
)
|
|
|
(1,944
|
)
|
|
|
(1,800
|
)
|
Benefit for income taxes
|
|
|
141
|
|
|
|
71
|
|
|
|
768
|
|
|
|
711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(216
|
)
|
|
$
|
(108
|
)
|
|
$
|
(1,176
|
)
|
|
$
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 34
LIQUIDITY AND CAPITAL RESOURCES
Summary cash flow data is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
Cash flows provided by (used for):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
15,687
|
|
|
$
|
23,011
|
|
Investing activities
|
|
|
(4,013
|
)
|
|
|
(5,357
|
)
|
Financing activities
|
|
|
(19,402
|
)
|
|
|
(20,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(7,728
|
)
|
|
|
(3,071
|
)
|
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
24,145
|
|
|
|
17,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
16,417
|
|
|
$
|
14,243
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Discussion.
Our primary source of liquidity is cash provided by
operations. On December 7, 2007, we entered into an Amended and Restated Credit Agreement with a syndicate of banks that provides for a term loan of $50 million and a revolving line of credit (including provisions permitting the issuance of
letters of credit and swingline loans) in the aggregate principal amount of up to $45 million. The credit facility expires on December 6, 2012. The maximum borrowings under the amended credit facility may be increased by $25 million pursuant to
bank approval in accordance with the terms set forth in the credit facility. We used the proceeds of the term loan to pay a $2.50 per common share special cash dividend in December 2007.
Recently, the capital and credit markets have become increasingly volatile as a result of adverse conditions that have caused the failure or
near failure of a number of large financial services companies. If the capital and credit markets continue to experience volatility and the availability of funds remains limited, it is possible that our ability to access the capital and credit
markets may be limited at a time when we would like or need to do so, which could have an impact on our ability to fund our operations, refinance maturing debt or react to changing economic and business conditions. At this time, we believe that our
available short-term and long-term capital resources are sufficient to fund our working capital requirements, scheduled debt payments, interest payments, capital expenditures, income tax obligations, anticipated dividends to our stockholders, and
anticipated share repurchases for the foreseeable future.
In accordance with GAAP, amounts drawn on our revolving credit
facility are shown as debt due within one year. Under the terms of our credit agreement, however, our revolving credit facility does not mature until December 2012, and no amounts are due thereon prior to the maturity of the credit facility.
Accordingly, so long as we are in compliance with our financial and other covenants in the credit facility, we do not face a refinancing risk until the term loan and the revolving credit facility mature in December 2012.
Page 35
Net cash provided by operating activities for the nine months ended September 30, 2009
was $23.0 million, approximately $7.3 million higher than the $15.7 million in comparable 2008. This increase is primarily attributable to net income and changes in working capital items, which can vary from period to period based on the timing of
cash receipts and cash payments.
Net cash used by investing activities for the nine months ended September 30, 2009 was
$5.4 million, which consisted of approximately $4.2 million for the acquisition of two buy here, pay here locations in Missouri and $1.2 million for capital expenditures. The capital expenditures primarily included $582,000 for renovations to
existing and acquired branches and $337,000 for technology and other furnishings at the corporate office. Net cash used by investing activities for the nine months ended September 30, 2008 was $4.0 million, which consisted of approximately $3.8
million for capital expenditures and approximately $205,000 in acquisition costs. The capital expenditures included $1.6 million for the purchase of an auto sales facility, which included three buildings and approximately 1.6 acres of land, $485,000
to open nine de novo branches in 2008, $906,000 for renovations to existing and acquired branches, $547,000 for technology and other furnishings at the corporate office and $340,000 for other expenditures.
Net cash used for financing activities for the nine months ended September 30, 2009 was $20.7 million, which primarily consisted of
$26.5 million in repayments of indebtedness under the credit facility, $7.1 million in repayments on the term loan, $2.7 million in dividend payments to stockholders and $1.3 million for the repurchase of 233,000 shares of common stock. These items
were partially offset by proceeds received from the borrowing of $16.8 million under the credit facility. Cash used for financing activities for the nine months ended September 30, 2008 was $19.4 million, which primarily consisted of $27.3
million in repayments of indebtedness under the credit facility, $3.0 million in repayments on the term loan and $11.9 million for the repurchase of 1.5 million shares of common stock. These items were partially offset by proceeds received from
the borrowing of $25.1 million under the credit facility.
The normal seasonality of our business results in a substantial
decrease in loans receivable in the first quarter of each calendar year and a corresponding increase in cash or reduction of our revolving credit facility. Throughout the rest of the year, the loans receivable balance typically grows in accordance
with increasing customer demand. This growth is funded either with operating cash or borrowings under the revolving credit facility.
Future Capital Requirements.
We believe that our available cash, expected cash flow from operations, and borrowings available under our revolving credit facility will be sufficient to fund our liquidity and capital expenditure
requirements during 2009. Expected short-term uses of cash include funding of any increases in payday loans, automotive inventory, debt repayments (including any mandatory prepayment of our term loan), interest payments on outstanding debt, dividend
payments, to the extent approved by the board of directors, repurchases of company stock, and financing of new branch expansion and acquisitions, if any. We funded the purchase of the assets associated with two buy here, pay here locations with a
draw on our credit facility. We expect that the majority of our cash requirements will be satisfied through internally generated cash flows, with any shortfall being funded through borrowings under our revolving credit facility.
In November 2008, our board of directors established a regular quarterly dividend of $0.05 per common share. The declaration of dividends is
subject to the discretion of our board of directors and will depend on our operating results, financial condition, cash and capital requirements and other factors that the board of directors deems relevant. On November 2, 2009, our board of
directors declared a quarterly dividend of $0.05 per common share and a special dividend of $0.10 per common share. The dividends are payable December 2, 2009, to stockholders of record as of November 18, 2009.
Our credit agreement requires us to maintain a fixed charge coverage ratio (computed in accordance with the credit agreement) of not less
than 1.25 to 1. Under our credit agreement, we are required to subtract any cash dividends paid on our common stock from our operating cash flow (as defined in the agreement) amount used in computing our fixed charge coverage ratio. Thus, our credit
agreement may restrict our ability to pay cash dividends in the future.
Page 36
As part of our business strategy, we intend to open de novo branches and consider
acquisitions in existing and new markets. We believe our current cash position, the availability under the credit facility and our expected cash flow from operations should provide the capital needed to fund this level of branch growth, assuming no
material acquisitions in 2009.
In response to changes in the overall market, over the past three years we have generally
ceased our de novo branch expansion efforts. Since January 1, 2007, we have opened 35 branches with the majority (32) of those opened during 2007 and 2008. The capital costs of opening a de novo branch include leasehold improvements,
signage, computer equipment and security systems, and the costs vary depending on the branch size, location and the services being offered. The average cost of capital expenditures for branches opened during 2007 and 2008 was approximately $44,000
per branch. Existing branches require minimal ongoing capital expenditure, with the majority of any expenditures related to discretionary renovation or relocation projects.
As of December 31, 2008, we had three buy here, pay here locations. In addition, we purchased two buy here, pay here lots in January
2009 for approximately $4.2 million. During the start-up of these operations, capital requirements are not material. As the business grows, however, the business requires ongoing replenishment of automotive inventory. Sales of automobiles are
typically completed through a small down payment and an installment loan. As a result, the initial phase of a buy here, pay here operation is cash flow negative. Based on initial information and industry research, it appears that a typical location
requires approximately $2.5 million to $3.5 million of capital availability over a two to four year period. As this business progresses, we will evaluate the capital requirements and the associated return on investment. We have the ability to manage
the capital needs of the business through reduction of the number of automobiles held at each location, although reduced inventory levels may limit sales because of the appearance of limited vehicle selection for the customer.
Concentration of Risk
. Our branches located in the states of Missouri, California, Kansas, Arizona, South Carolina, Washington and
Illinois represented approximately 25%, 13%, 8%, 8%, 7%, 5% and 5%, respectively, of total revenues for the nine months ended September 30, 2009. Our branches located in the states of Missouri, California, Arizona, Illinois, South Carolina, and
Kansas represented approximately 28%, 11%, 11%, 6%, 6% and 6%, respectively, of total branch gross profit for the nine months ended September 30, 2009. To the extent that laws and regulations are passed that affect our ability to offer payday
loans or the manner in which we offer payday loans in any one of those states, our financial position, results of operations and cash flows could be adversely affected. The current Arizona payday loan statutory authority expires by its terms on
June 30, 2010, and amendments to the Washington law become effective January 1, 2010. Each of these changes is likely to adversely affect revenues and profitability in our branches.
Seasonality
Our business
is seasonal due to fluctuating demand for payday loans during the year. Historically, we have experienced our highest demand for payday loans in January and in the fourth calendar quarter. As a result, to the extent that internally generated cash
flows are not sufficient to fund the growth in loans receivable, fourth quarter and the month of January are the most likely periods of time for utilization or increase in borrowings under our credit facility. Due to the receipt by customers of
their income tax refunds, demand for payday loans has historically declined in the balance of the first quarter of each calendar year and the first month of the second quarter. Accordingly, this period is typically when any outstanding borrowings
under the credit facility would be repaid (exclusive of any other capital-usage activity, such as acquisitions, significant stock repurchases, etc.). Our loss ratio historically fluctuates with these changes in payday loan demand, with a higher loss
ratio in the second and third quarters of each calendar year and a lower loss ratio in the first and fourth quarters of each calendar year. During mid-second quarter through third quarter, periodic utilization of our credit facility is not unusual,
based on the level of loan losses and other capital-usage activities. Due to the seasonality of our business, results of operations for any quarter are not necessarily indicative of the results of operations that may be achieved for the full year.
Page 37
Off-Balance Sheet Arrangements
In September 2005, we began operating through a subsidiary as a CSO in our Texas branches. As a CSO, we act as a credit services organization
on behalf of consumers in accordance with Texas laws. We charge the consumer a fee for arranging for an unrelated third-party lender to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the
consumers obligation to the third-party lender. We also service the loan for the lender. We are not involved in the loan approval process or in determining the loan approval procedures or criteria, and we do not acquire or own any
participation interest in the loans. Consequently, loans made by the lender will not be included in our loans receivable balance and will not be reflected in the Consolidated Balance Sheet. Under the agreement with the current lender, however, we
absorb all risk of loss through our guarantee of the consumers loan from the lender. As of December 31, 2008 and September 30, 2009, consumers had total loans outstanding with the lender of approximately $3.6 million and $2.4
million, respectively. The decline in loans outstanding was primarily due to the closure of 11 branches in Texas during first quarter 2009. Because of the economic exposure for potential losses related to the guarantee of these loans, we record a
payable at fair value to reflect the anticipated losses related to uncollected loans. The balance of the liability for estimated losses reported in accrued liabilities was approximately $180,000 as of December 31, 2008 and $100,000 as of
September 30, 2009. With respect to the CSO, we recorded a provision for losses for the nine months ended September 30, 2008 and 2009 totaling $2.6 million and $1.8 million, respectively. For the nine months ended September 30, 2009,
charge-offs and recoveries associated with the CSO were $2.5 million and $660,000, respectively.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
We have had no significant changes in our Quantitative and Qualitative Disclosures About Market Risk from that previously reported in our Annual Report on Form 10-K for the year ended December 31,
2008.
Item 4.
|
Controls and Procedures
|
We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this report, have concluded that our
disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.
Our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been detected.
Page 38
PART II - OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
There
have been no material developments in the third quarter 2009 in any cases material to the Company as reported in our 2008 Annual Report on Form 10-K. See Note 17 of notes to consolidated financial statements in Part I of this report.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Issuer Purchases of Equity Securities.
The following table sets forth certain information about the shares of common stock we repurchased during the third quarter 2009.
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price Paid
Per Share
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program
|
|
Maximum
Approximate
Dollar Value of
Shares that May
Yet
Be
Purchased Under
the Program
|
|
|
|
|
|
July 1 July 31
|
|
|
|
$
|
|
|
|
|
$
|
8,231,589
|
August 1 August 31
|
|
5,500
|
|
|
5.49
|
|
5,500
|
|
|
8,201,394
|
September 1 September 30
|
|
58
|
|
|
6.98
|
|
|
|
|
8,201,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
5,558
|
|
$
|
5.51
|
|
5,500
|
|
$
|
8,201,394
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Stock repurchase of 58 shares in September 2009 was made in connection with the funding of employee income tax withholding obligations arising from the vesting of
restricted shares.
|
On June 3, 2009, our board of directors extended our common stock repurchase program
through June 30, 2011. The board of directors has previously authorized us to repurchase up to $60 million of our common stock in the open market and through private purchases. As of September 30, 2009, we have repurchased 4.7 million
shares at a total cost of approximately $51.8 million, which leaves approximately $8.2 million that may yet be purchased under the current program.
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Rule 13-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Rule 13-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Page 39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized and in the capacities indicated on November 6, 2009.
|
QC Holdings, Inc.
|
|
/
S
/ D
ARRIN
J.
A
NDERSEN
|
Darrin J. Andersen
|
President and Chief Operating Officer
|
|
/
S
/ D
OUGLAS
E.
N
ICKERSON
|
Douglas E. Nickerson
|
Chief Financial Officer
|
(Principal Financial and Accounting Officer)
|
Page 40
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