10-Q 1 a16-11479_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to                      to                      

 

Commission File Number: 001-35537

 

COMMUNITY CHOICE FINANCIAL INC.

(Exact name of registrant as specified in its charter)

 

Ohio

 

45-1536453

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

Identification No.)

 

 

 

6785 Bobcat Way, Suite 200, Dublin, Ohio

 

43016

(Address of principal executive offices)

 

(Zip Code)

 

(614) 798-5900

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act.) Yes o  No x

 

There is no market for the registrant’s equity. As of June 30, 2016, there were 7,981,536 shares outstanding.

 

 

 



Table of Contents

 

Community Choice Financial Inc. and Subsidiaries

 

Form 10-Q for the Quarterly Period Ended June 30, 2016

 

Table of Contents

 

 

 

Page

 

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015

3

 

 

 

 

Consolidated Statements of Operations for the three months and six months ended June 30, 2016 (unaudited) and June 30, 2015 (unaudited)

4

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2016 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2016 (unaudited) and June 30, 2015 (unaudited)

6

 

 

 

 

Notes to unaudited Consolidated Financial Statements

7 - 27

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Result of Operations

28 – 46

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

46

 

 

 

Item 4.

Controls and Procedures

46

 

 

 

Part II

Other Information

 

 

 

 

Item 1.

Legal Proceedings

47

 

 

 

Item 1A.

Risk Factors

47

 

 

 

Item 6.

Exhibits

47

 

 

 

 

Signatures

48

 

2



Table of Contents

 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

June 30, 2016 and December 31, 2015

 

(In thousands, except per share data)

 

 

 

June 30,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

 

$

89,748

 

$

98,941

 

Restricted cash

 

3,300

 

3,460

 

Finance receivables, net of allowance for loan losses of $15,200 and $20,552

 

101,258

 

119,704

 

Short-term investments, certificates of deposit

 

400

 

1,115

 

Card related pre-funding and receivables

 

1,702

 

1,674

 

Other current assets

 

17,551

 

17,024

 

Total current assets

 

213,959

 

241,918

 

Noncurrent Assets

 

 

 

 

 

Finance receivables, net of allowance for loan losses of $3,102 and $3,340

 

7,967

 

8,797

 

Property, leasehold improvements and equipment, net

 

40,154

 

46,085

 

Goodwill

 

146,877

 

152,568

 

Other intangible assets

 

1,336

 

1,913

 

Security deposits

 

2,741

 

3,098

 

Deferred tax asset, net

 

1,424

 

5,165

 

Total assets

 

$

414,458

 

$

459,544

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

29,096

 

$

34,616

 

Money orders payable

 

7,106

 

11,233

 

Accrued interest

 

4,805

 

6,707

 

Current portion of capital lease obligation

 

1,387

 

1,567

 

Current portion of line of credit, net of deferred issuance costs of $341 and $-0-

 

31,359

 

 

Current portion of related party Florida seller notes

 

 

10,097

 

Current portion of subsidiary notes payable, net of deferred issuance costs of $101 and $3

 

8,110

 

211

 

Deferred revenue

 

2,759

 

3,154

 

Total current liabilities

 

84,622

 

67,585

 

Noncurrent Liabilities

 

 

 

 

 

Lease termination payable

 

1,400

 

1,322

 

Capital lease obligation

 

783

 

1,485

 

Stock repurchase obligation

 

 

3,130

 

Lines of credit, net of deferred issuance costs of $26 and $575

 

2,224

 

26,625

 

Subsidiary notes payable, net of deferred issuance costs of $951 and $434

 

40,565

 

35,506

 

Senior secured notes, net of deferred issuance costs of $3,522 and $5,803

 

250,905

 

347,913

 

Deferred revenue

 

9,900

 

 

Total liabilities

 

390,399

 

483,566

 

Commitments and Contingencies

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Preferred stock, par value $.01 per share, 3,000 shares authorized, no shares issued and outstanding

 

 

 

Common stock, par value $.01 per share, 300,000 authorized shares and 7,982 outstanding shares at June 30, 2016 and 8,982 outstanding shares at December 31, 2015

 

90

 

90

 

Additional paid-in capital

 

129,601

 

128,331

 

Retained deficit

 

(105,582

)

(152,443

)

Treasury stock

 

(50

)

 

Total stockholders’ equity (deficit)

 

24,059

 

(24,022

)

Total liabilities and stockholders’ equity

 

$

414,458

 

$

459,544

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

3



Table of Contents

 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Operations

 

Three Months and Six Months Ended June 30, 2016 and 2015

 

(In thousands)

 

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

Finance receivable fees

 

$

57,952

 

$

80,410

 

$

121,836

 

$

163,029

 

Credit service fees

 

21,170

 

25,547

 

43,273

 

52,934

 

Check cashing fees

 

11,975

 

16,261

 

25,330

 

33,438

 

Card fees

 

2,040

 

2,191

 

4,188

 

4,483

 

Other

 

5,192

 

5,855

 

11,259

 

12,814

 

Total revenues

 

98,329

 

130,264

 

205,886

 

266,698

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

17,069

 

20,575

 

35,348

 

41,136

 

Provision for loan losses

 

30,272

 

51,916

 

56,747

 

91,826

 

Occupancy

 

6,578

 

7,719

 

13,238

 

15,296

 

Advertising and marketing

 

2,539

 

7,501

 

5,217

 

12,303

 

Lease termination

 

1,101

 

826

 

1,101

 

826

 

Depreciation and amortization

 

2,540

 

2,491

 

5,274

 

4,884

 

Other

 

15,324

 

14,793

 

27,936

 

28,837

 

Total operating expenses

 

75,423

 

105,821

 

144,861

 

195,108

 

Operating gross profit

 

22,906

 

24,443

 

61,025

 

71,590

 

Corporate and other expenses

 

 

 

 

 

 

 

 

 

Corporate expenses

 

22,801

 

21,702

 

44,386

 

42,521

 

Depreciation and amortization

 

1,222

 

1,395

 

2,431

 

2,810

 

Interest expense, net

 

10,847

 

15,151

 

22,310

 

29,359

 

Loss on sale of subsidiary

 

 

 

1,569

 

 

Gain on debt extinguishment

 

 

 

(62,852

)

 

Market value of stock repurchase obligation

 

 

1,020

 

 

1,010

 

Total corporate and other expenses

 

34,870

 

39,268

 

7,844

 

75,700

 

Income (loss) from operations, before tax

 

(11,964

)

(14,825

)

53,181

 

(4,110

)

Provision (benefit) for income taxes

 

(3,024

)

(5,911

)

6,320

 

(1,639

)

Net income (loss)

 

$

(8,940

)

$

(8,914

)

$

46,861

 

$

(2,471

)

 

See Notes to Unaudited Consolidated Financial Statements.

 

4



Table of Contents

 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Stockholders’ Equity

 

Six Months Ended June 30, 2016

 

(Dollars in thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Common Stock

 

Treasury

 

Paid-In

 

Retained

 

 

 

 

 

Shares

 

Amount

 

Stock

 

Capital

 

Deficit

 

Total

 

Balance, December 31, 2015

 

8,981,536

 

$

90

 

$

 

$

128,331

 

$

(152,443

)

$

(24,022

)

Reacquired stock

 

(1,000,000

)

 

 

(50

)

 

 

 

 

(50

)

Stock-based compensation expense

 

 

 

 

1,270

 

 

1,270

 

Net income

 

 

 

 

 

46,861

 

46,861

 

Balance, June 30, 2016

 

7,981,536

 

$

90

 

$

(50

)

$

129,601

 

$

(105,582

)

$

24,059

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

5



Table of Contents

 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Cash Flows

 

Six months Ended June 30, 2016 and 2015

 

(In thousands)

 

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

2015

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

46,861

 

$

(2,471

)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

56,747

 

91,826

 

Loss on disposal of assets

 

1,283

 

354

 

Gain on debt extinguishment

 

(62,852

)

 

Loss on sale of subsidiary

 

1,569

 

 

Depreciation

 

7,288

 

6,582

 

Amortization of note discount and deferred debt issuance costs

 

1,280

 

1,471

 

Amortization of intangibles

 

417

 

1,111

 

Deferred (benefit from) income taxes

 

3,741

 

(748

)

Change in fair value of stock repurchase obligation

 

 

1,010

 

Stock-based compensation

 

1,270

 

372

 

Changes in assets and liabilities:

 

 

 

 

 

Short term investments

 

715

 

 

Card related pre-funding and receivables

 

(28

)

59

 

Restricted cash

 

160

 

(896

)

Other assets

 

(2,581

)

1,408

 

Deferred revenue

 

9,505

 

(1,419

)

Accrued interest

 

(1,779

)

10

 

Money orders payable

 

(4,127

)

3,384

 

Lease termination payable

 

78

 

 

Accounts payable and accrued expenses

 

(5,273

)

(4,776

)

Net cash provided by operating activities

 

54,274

 

97,277

 

Cash flows from investing activities

 

 

 

 

 

Net receivables originated

 

(42,058

)

(81,480

)

Net acquired assets, net of cash

 

(296

)

(810

)

Purchase of leasehold improvements and equipment

 

(4,904

)

(11,624

)

Net cash used in investing activities

 

(47,258

)

(93,914

)

Cash flows from financing activities

 

 

 

 

 

Repurchase of senior secured notes

 

(36,437

)

 

Proceeds from subsidiary note

 

13,765

 

2,400

 

Payments on subsidiary note

 

(192

)

(200

)

Payments on related party Florida seller notes

 

 

(1,500

)

Payments on capital lease obligations

 

(717

)

(998

)

Proceeds on lines of credit

 

6,750

 

31,700

 

Debt issuance costs

 

622

 

(1,084

)

Net cash provided by (used in) financing activities

 

(16,209

)

30,318

 

Net increase (decrease) in cash and cash equivalents

 

(9,193

)

33,681

 

Cash and cash equivalents:

 

 

 

 

 

Beginning

 

98,941

 

77,734

 

Ending

 

$

89,748

 

$

111,415

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

6



Table of Contents

 

Community Choice Financial Inc. and Subsidiaries

 

Notes to Unaudited Consolidated Financial Statements

 

(Dollars in thousands, except per share data)

 

Note 1. Ownership, Nature of Business, and Significant Accounting Policies

 

Nature of business:  Community Choice Financial Inc. (together with its consolidated subsidiaries, “CCFI” or “the Company”) was formed on April 6, 2011, under the laws of the State of Ohio. As of June 30, 2016, the Company owned and operated 466 retail locations in 15 states and is licensed to deliver similar financial services over the internet in 31 states. Through its network of retail locations and over the internet, the Company provides customers a variety of financial products and services, including secured and unsecured, short and medium-term consumer loans, check cashing, prepaid debit cards, and other services that address the specific needs of its individual customers.

 

A summary of the Company’s significant accounting policies follows:

 

Basis of presentation:  The accompanying interim unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. They do not include all information and footnotes required by GAAP for complete financial statements. Although management believes that the disclosures are adequate to prevent the information from being misleading, the interim unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K filed with the Securities & Exchange Commission on March 30, 2016. In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial condition, have been included. The results for any interim period are not necessarily indicative of results to be expected for the year ending December 31, 2016.

 

Basis of consolidation:  The accompanying consolidated financial statements include the accounts of CCFI. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Reclassifications:  Certain amounts reported in the consolidated financial statements for the three months and six months ended June 30, 2015, have been reclassified to conform to classifications presented in the consolidated financial statements for the three months and six months ended June 30, 2016, without affecting the previously reported net income or stockholders’ equity.

 

Business segments:  FASB Accounting Standards Codification (“ASC”) Topic 280 Segment Reporting requires that a public enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the way operating segments were determined and other items. The Company reports operating segments in accordance with FASB ASC Topic 280. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in determining how to allocate resources and assess performance. The Company operates in two segments: Retail financial services and Internet financial services.

 

Revenue recognition:  Transactions include loans, credit service fees, check cashing, bill payment, money transfer, money order sales, and other miscellaneous products and services. The full amount of the check cashing fee is recognized as revenue at the time of the transaction. Fees and direct costs incurred for the origination of loans are deferred and amortized over the loan period using the interest method. The Company acts in an agency capacity regarding bill payment services, money transfers, card products, and money orders offered and sold at its branches. The Company records the net amount retained as revenue because the supplier is the primary obligor in the arrangement, the amount earned by the Company is fixed, and the supplier is determined to have the ultimate credit risk. Revenue on loans determined to be troubled debt restructurings are recognized at the impaired loans’ original interest rates until the impaired loans are charged off or paid by the customer. Credit service organization (“CSO”) fees are recognized over the arranged credit service period.

 

Finance receivables:  Finance receivables consist of short term and medium-term consumer loans.

 

Short-term consumer loans can be unsecured or secured with a maturity up to ninety days. Unsecured short-term loan products typically range in principal from $100 to $1,000, with a maturity between fourteen and thirty days, and include a written agreement to defer the presentment of the customer’s personal check or preauthorized debit for the aggregate amount of the advance plus fees. This form of lending is based on applicable laws and regulations, which vary by state. State statutes vary from charging fees of 15% to 20%, to charging interest at 25% per annum plus origination fees. The customers repay the cash advance by making cash payments or allowing a check or preauthorized debit to be presented. Secured consumer loans with a maturity of ninety days or less are included in this category and represented 17.8% and 17.7% of short-term consumer loans at June 30, 2016 and December 31, 2015, respectively.

 

7



Table of Contents

 

Medium-term consumer loans can be unsecured or secured with a maturity greater than ninety days up to thirty-six months. Unsecured medium-term products typically range from $100 to $5,000, and are evidenced by a promissory note with a maturity between three and thirty-six months. These consumer loans vary in structure depending upon the applicable laws and regulations where they are offered. The medium-term consumer loans are payable in installments or provide for a line of credit with periodic payments. Secured consumer loans with a maturity greater than ninety days are included in this category and represented 13.2% and 13.7% of medium-term consumer loans at June 30, 2016, and December 31, 2015, respectively.

 

Allowance for loan losses:  Provisions for loan losses are charged to income in amounts sufficient to maintain an adequate allowance for loan losses and an adequate accrual for losses related to guaranteed loans processed for third-party lenders. The factors used in assessing the overall adequacy of the allowance for loan losses, the accrual for losses related to guaranteed loans made by third-party lenders and the resulting provision for loan losses include an evaluation by product by market based on historical loan loss experience and delinquency of certain medium-term consumer loans. The Company evaluates various qualitative factors that may or may not affect the computed initial estimate of the allowance for loan losses, by using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions.

 

For short term unsecured consumer loans, the Company’s policy is to charge off loans when they become past due. The Company’s policy dictates that, where a customer has provided a check or ACH authorization for presentment upon the maturity of a loan, if the customer has not paid off the loan by the due date, the Company will deposit the customer’s check or draft the customer’s bank account for the amount due. If the check or draft is returned as unpaid, all accrued fees and outstanding principal are charged-off as uncollectible. For short term secured loans, the Company’s policy requires that balances be charged off when accounts are thirty days past due.

 

For medium term secured and unsecured consumer loans which have a term of one year or less, the Company’s policy requires that balances be charged off when accounts are sixty days past due. For medium term secured and unsecured consumer loans which have an initial maturity of greater than one year, the Company’s policy requires that balances be charged off when accounts are ninety-one days past due.

 

In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. These reduced interest rates and changed payment terms were limited to loans that the Company believed the customer had the ability to pay in the foreseeable future. These loans were accounted for as troubled debt restructurings and represent the only loans considered impaired due to the nature of the Company’s charge-off policy.

 

Recoveries of amounts previously charged off are recorded to the allowance for loan losses or the accrual for third-party losses in the period in which they are received.

 

Change in accounting principle: As of January 1, 2016, the Company adopted new guidance related to the presentation of deferred debt issuance costs in its balance sheet. Under the new guidance, deferred debt issuance costs are reported as a direct deduction from the carrying amount of the related debt. Previously, deferred debt issuance costs were presented as a noncurrent asset. The new presentation requirements have been applied retrospectively and amounts reported in the December 2015 consolidated balance sheet have been adjusted to apply the new guidance.  The change in accounting principle resulted in a reduction of noncurrent assets of $6,828, an increase in current assets of $13, a reduction of current liabilities of $3, and a reduction of noncurrent liabilities of $6,812 in the December 31, 2015 balance sheet.

 

Fair value of financial instruments:  Financial assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:

 

·                  Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

·                  Level 2—Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less attractive.

 

·                  Level 3—Unobservable inputs for assets and liabilities reflecting the reporting entity’s own assumptions.

 

The Company follows the provisions of ASC 820-10, which applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820-10 requires a disclosure that establishes a framework for measuring fair value within GAAP and expands the disclosure about fair value measurements. This standard enables a reader of consolidated financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the

 

8



Table of Contents

 

information used to determine fair values. The standard requires that assets and liabilities carried at fair value be classified and disclosed in one of the three categories.

 

In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820-10. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The Company’s financial instruments consist primarily of cash and cash equivalents, finance receivables, short-term investments, and lines of credit. For all such instruments, other than senior secured notes, notes payable, and stock repurchase obligation at June 30, 2016, and December 31, 2015, the carrying amounts in the consolidated financial statements approximate their fair values. Finance receivables are short term in nature and are originated at prevailing market rates and lines of credit bear interest at current market rates. The fair value of finance receivables at June 30, 2016 and December 31, 2015 approximates carrying value and is measured using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions.

 

The fair value of the Company’s 10.75% senior secured notes due 2019 (the “2019 notes”) and the 12.75% senior secured notes due 2020 (the “2020 notes”) were determined based on market yield on trades of the 2019 notes at the end of the recent reporting period.

 

The fair value of related party Florida seller notes payable was determined based on applicable market yields of similar debt and the fair value of the stock repurchase obligation was determined based on a probability-adjusted Black Scholes option valuation model.

 

 

 

June 30, 2016

 

 

 

Carrying

 

 

 

 

 

 

 

Amount

 

Fair Value

 

Level

 

Financial assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

89,748

 

$

89,748

 

1

 

Restricted cash

 

3,300

 

3,300

 

1

 

Finance receivables

 

109,225

 

109,225

 

3

 

Short-term investments, certificates of deposit

 

400

 

400

 

2

 

Financial liabilities:

 

 

 

 

 

 

 

10.75% Senior secured notes

 

241,927

 

98,585

 

1

 

12.75% Senior secured notes

 

12,500

 

6,041

 

2

 

Subsidiary Note payable

 

49,727

 

49,727

 

2

 

Lines of Credit

 

33,950

 

33,950

 

2

 

 

 

 

December 31, 2015

 

 

 

Carrying

 

 

 

 

 

 

 

Amount

 

Fair Value

 

Level

 

Financial assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

98,941

 

$

98,941

 

1

 

Restricted cash

 

3,460

 

3,460

 

1

 

Finance receivables

 

128,501

 

128,501

 

3

 

Short-term investments, certificates of deposit

 

1,115

 

1,115

 

2

 

Financial liabilities:

 

 

 

 

 

 

 

10.75% Senior secured notes

 

328,716

 

77,248

 

1

 

12.75% Senior secured notes

 

25,000

 

9,063

 

2

 

Related party Florida seller notes

 

10,097

 

10,097

 

2

 

Subsidiary Note payable

 

36,154

 

36,154

 

2

 

Lines of Credit

 

27,200

 

27,200

 

2

 

Stock repurchase obligation

 

3,130

 

3,130

 

2

 

 

Treasury Stock:  Treasury stock is reported at cost and consists of one million common shares at June 30, 2016. There were no shares held in treasury at December 31, 2015.

 

Subsequent events:  The Company has evaluated its subsequent events (events occurring after June 30, 2016) through the issuance date of August 12, 2016.

 

9



Table of Contents

 

Note 2. Finance Receivables, Credit Quality Information and Allowance for Loan Losses

 

Finance receivables representing amounts due from customers for advances at June 30, 2016, and December 31, 2015, consisted of the following:

 

 

 

June 30,

 

December 31,

 

 

 

2016

 

2015

 

Short-term consumer loans

 

$

64,479

 

$

76,631

 

Medium-term consumer loans

 

65,210

 

78,665

 

Gross receivables

 

129,689

 

155,296

 

Unearned advance fees, net of deferred loan origination costs

 

(2,162

)

(2,903

)

Finance receivables before allowance for loan losses

 

127,527

 

152,393

 

Allowance for loan losses

 

(18,302

)

(23,892

)

Finance receivables, net

 

$

109,225

 

$

128,501

 

 

 

 

 

 

 

Finance receivables, net

 

 

 

 

 

Current portion

 

$

101,258

 

$

119,704

 

Non-current portion

 

7,967

 

8,797

 

Total finance receivables, net

 

$

109,225

 

$

128,501

 

 

Changes in the allowance for loan losses by product type for the three months ended June 30, 2016, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

 

4/1/2016

 

Provision

 

Charge-Offs

 

Recoveries

 

6/30/2016

 

6/30/2016

 

of receivable

 

Short-term consumer loans

 

$

2,838

 

$

10,968

 

$

(26,600

)

$

15,555

 

$

2,761

 

$

64,479

 

4.28

%

Medium-term consumer loans

 

16,444

 

10,357

 

(14,389

)

3,129

 

15,541

 

65,210

 

23.83

%

 

 

$

19,282

 

$

21,325

 

$

(40,989

)

$

18,684

 

$

18,302

 

$

129,689

 

14.11

%

 

The provision for loan losses for the three months ended June 30, 2016, also includes losses from returned items from check cashing of $1,412.

 

The provision for short-term consumer loans of $10,968 is net of debt sales of $527 for the three months ended June 30, 2016.

 

The provision for medium-term consumer loans of $10,357 is net of debt sales of $1,850 for the three months ended June 30, 2016.

 

The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for medium-term loans that have been modified and classified as troubled debt restructurings, which are individually evaluated for impairment. In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The provision and subsequent charge off related to these loans totaled $33 and is included in the provision for medium-term consumer loans for the three months ended June 30, 2016. For these loans evaluated for impairment, there were $391 of payment defaults during the three months ended June 30, 2016. The troubled debt restructurings during the three months ended June 30, 2016 are subject to an allowance of $18 with a net carrying value of $47 at June 30, 2016.

 

Changes in the allowance for loan losses by product type for the six months ended June 30, 2016, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

 

1/1/2016

 

Provision

 

Charge-Offs

 

Recoveries

 

6/30/2016

 

6/30/2016

 

of receivable

 

Short-term consumer loans

 

$

3,676

 

$

18,699

 

$

(53,518

)

$

33,904

 

$

2,761

 

$

64,479

 

4.28

%

Medium-term consumer loans

 

20,216

 

22,335

 

(32,369

)

5,359

 

15,541

 

65,210

 

23.83

%

 

 

$

23,892

 

$

41,034

 

$

(85,887

)

$

39,263

 

$

18,302

 

$

129,689

 

14.11

%

 

The provision for loan losses for the six months ended June 30, 2016, also includes losses from returned items from check cashing of $2,977.

 

The provision for short-term consumer loans of $18,699 is net of debt sales of $944 for the six months ended June 30, 2016.

 

10



Table of Contents

 

The provision for medium-term consumer loans of $22,335 is net of debt sales of $1,850 for the six months ended June 30, 2016.

 

The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for medium-term loans that have been modified and classified as troubled debt restructurings, which are individually evaluated for impairment. In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The provision and subsequent charge off related to these loans totaled $389 and is included in the provision for medium-term consumer loans for the six months ended June 30, 2016. For these loans evaluated for impairment, there were $768 of payment defaults during the six months ended June 30, 2016. The troubled debt restructurings during the six months ended June 30, 2016 are subject to an allowance of $114 with a net carrying value of $335 at June 30, 2016.

 

Changes in the allowance for loan losses by product type for the three months ended June 30, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

 

4/1/2015

 

Provision

 

Charge-Offs

 

Recoveries

 

6/30/2015

 

6/30/2015

 

of receivable

 

Short-term consumer loans

 

$

4,024

 

$

18,635

 

$

(37,156

)

$

18,959

 

$

4,462

 

$

86,431

 

5.16

%

Medium-term consumer loans

 

21,734

 

21,644

 

(20,394

)

1,837

 

24,821

 

94,989

 

26.13

%

 

 

$

25,758

 

$

40,279

 

$

(57,550

)

$

20,796

 

$

29,283

 

$

181,420

 

16.14

%

 

The provision for loan losses for the three months ended June 30, 2015, also includes losses from returned items from check cashing of $2,283.

 

The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for medium-term loans that have been modified and classified as troubled debt restructurings, which are individually evaluated for impairment. In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The provision and subsequent charge off related to these loans totaled $163 and is included in the provision for medium-term consumer loans for the three months ended June 30, 2015. For these loans evaluated for impairment, there were $502 of payment defaults during the three months ended June 30, 2015. The troubled debt restructurings during the three months ended June 30, 2015 are subject to an allowance of $68 with a net carrying value of $182 at June 30, 2015.

 

Changes in the allowance for loan losses by product type for the six months ended June 30, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

 

1/1/2015

 

Provision

 

Charge-Offs

 

Recoveries

 

6/30/2015

 

6/30/2015

 

of receivable

 

Short-term consumer loans

 

$

5,141

 

$

30,277

 

$

(72,717

)

$

41,761

 

$

4,462

 

$

86,431

 

5.16

%

Medium-term consumer loans

 

25,222

 

39,682

 

(44,580

)

4,497

 

24,821

 

94,989

 

26.13

%

 

 

$

30,363

 

$

69,959

 

$

(117,297

)

$

46,258

 

$

29,283

 

$

181,420

 

16.14

%

 

The provision for loan losses for the six months ended June 30, 2015, also includes losses from returned items from check cashing of $4,539.

 

The provision for short-term consumer loans of $30,277 is net of debt sales of $631 for the six months ended June 30, 2015.

 

The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for medium-term loans that have been modified and classified as troubled debt restructurings, which are individually evaluated for impairment. In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The provision and subsequent charge off related to these loans totaled $667 and is included in the provision for medium-term consumer loans for the six months ended June 30, 2015. For these loans evaluated for impairment, there were $1,754 of payment defaults during the six months ended June 30, 2015. The troubled debt restructurings during the six months ended June 30, 2015 are subject to an allowance of $270 with a net carrying value of $652 at June 30, 2015.

 

11



Table of Contents

 

The Company has subsidiaries that facilitate third party lender loans. Changes in the accrual for third-party lender losses for the three months and six months ended June 30, 2016, and 2015 were as follows:

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Balance, beginning of period

 

$

2,216

 

$

3,103

 

$

2,610

 

$

4,434

 

Provision for loan losses

 

7,535

 

9,354

 

12,736

 

17,328

 

Charge-offs, net

 

(6,477

)

(9,428

)

(12,072

)

(18,733

)

Balance, end of period

 

$

3,274

 

$

3,029

 

$

3,274

 

$

3,029

 

 

Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $36,773 and $40,552 at June 30, 2016, and December 31, 2015, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement. The provision for third party lender losses of $7,535 and $12,736 for the three months and six months ended June 30, 2016 is net of debt sales of $109 and $460, respectively.

 

The Company considers the near term repayment performance of finance receivables as its primary credit quality indicator. The Company performs credit checks through consumer reporting agencies on certain borrowers. If a third-party lender provides the advance, the applicable third-party lender decides whether to approve the loan and establishes all of the underwriting criteria and terms, conditions, and features of the customer’s loan agreement.

 

The aging of receivables at June 30, 2016, and December 31, 2015, are as follows:

 

 

 

June 30, 2016

 

December 31, 2015

 

Current finance receivables

 

$

117,763

 

90.9

%

$

138,346

 

89.1

%

Past due finance receivables (1 - 30 days)

 

 

 

 

 

 

 

 

 

Short-term consumer loans

 

945

 

0.7

%

1,268

 

0.8

%

Medium-term consumer loans

 

6,606

 

5.1

%

9,433

 

6.1

%

Total past due finance receivables (1 - 30 days)

 

7,551

 

5.8

%

10,701

 

6.9

%

Past due finance receivables (31 - 60 days)

 

 

 

 

 

 

 

 

 

Medium-term consumer loans

 

2,394

 

1.8

%

3,225

 

2.1

%

Total past due finance receivables (31 - 60 days)

 

2,394

 

1.8

%

3,225

 

2.1

%

Past due finance receivables (61 - 90 days)

 

 

 

 

 

 

 

 

 

Medium-term consumer loans

 

1,981

 

1.5

%

3,024

 

1.9

%

Total past due finance receivables (61 - 90 days)

 

1,981

 

1.5

%

3,024

 

1.9

%

Total delinquent

 

11,926

 

9.1

%

16,950

 

10.9

%

 

 

$

129,689

 

100.0

%

$

155,296

 

100.0

%

 

Note 3. Related Party Transactions and Balances

 

Certain senior members of management have an interest in a vendor from which the Company purchases telecommunications services. Hardware and services were provided to the Company by the vendor at a reduced rate for the three months ended June 30, 2016 and 2015 were $958 and $233, and for the six months ended June 30, 2016 and 2015, were $1,746 and $373, respectively. If the Company were to source the services from another vendor, the overall cost of the services would likely increase.

 

The Company has a consulting agreement with a related party for information technology consulting services. Consulting services provided to the Company for the three months ended June 30, 2016 and 2015, were $128 and $66 and for the six months ended June 30, 2016 and 2015, were $266 and $147, respectively.

 

There were no additional significant new, or changes to existing, related party transactions during the six months ended June 30, 2016.

 

12



Table of Contents

 

Note 4. Goodwill and Other Intangible Assets

 

The Company performed a goodwill impairment test for the Retail services segment as required when a portion of a segment is sold. See the Sale of Subsidiary described in Note 10. The test resulted in no impairment of goodwill as of February 1, 2016.

 

Intangible amortization expense for the three months ended June 30, 2016, and 2015 were $146 and $519, respectively, and for the six months ended June 30, 2016 and 2015 were $417 and $1,111, respectively. There were no additional significant changes to goodwill and other intangible assets during the six months ended June 30, 2016.

 

Note 5. Pledged Assets and Debt

 

Lines of credit at June 30, 2016 and December 31, 2015, consisted of the following:

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

Deferred

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

Issuance

 

Net

 

 

 

Issuance

 

Net

 

 

 

Principal

 

Costs

 

Principal

 

Principal

 

Costs

 

Principal

 

$7,000 Revolving credit, secured, prime plus 1.00% with 5.00% floor, due July 2017, collateralized by all of Insight Capital, LLC’s assets

 

$

2,250

 

$

26

 

$

2,224

 

$

 

$

 

$

 

$31,700 Revolving credit, secured, interest rate as defined below, due March 2017, collateralized by all Guarantor Company assets

 

31,700

 

341

 

31,359

 

27,200

 

575

 

26,625

 

 

 

33,950

 

367

 

33,583

 

27,200

 

575

 

26,625

 

Less current maturities

 

31,700

 

341

 

31,359

 

 

 

 

Long-term portion

 

$

2,250

 

$

26

 

$

2,224

 

$

27,200

 

$

575

 

$

26,625

 

 

The deferred issuance costs of $13 were greater than the carrying value of the $7,000 Revolving credit facility as of December 31, 2015 and is included in Other Current Assets on the Consolidated Balance Sheet.

 

The interest rate is one-month LIBOR plus 14% with a 15% floor, and there is a make-whole payment if the revolving principal balance falls below 85% of the aggregate commitment on or before September 27, 2016. The 1-month LIBOR was 0.47% and 0.24% at June 30, 2016 and December 31, 2015, respectively, and the prime rate was 3.5% and 3.25% at June 30, 2016 and December 31, 2015, respectively.

 

Senior secured notes payable at June 30, 2016, and December 31, 2015, consisted of the following:

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

Deferred

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

Issuance

 

Net

 

 

 

Issuance

 

Net

 

 

 

Principal

 

Costs

 

Principal

 

Principal

 

Costs

 

Principal

 

$395,000 Senior Note payable, 10.75 %, collateralized by all Guarantor Company assets, semi-annual interest payments with principal due April 2019

 

$

241,927

 

$

3,258

 

$

238,669

 

$

328,716

 

$

5,207

 

$

323,509

 

$25,000 Senior Note payable, 12.75 %, collateralized by all Guarantor Company assets, semi-annual interest payments with principal due May 2020

 

12,500

 

264

 

12,236

 

25,000

 

596

 

24,404

 

 

 

254,427

 

3,522

 

250,905

 

353,716

 

5,803

 

347,913

 

Less current maturities

 

 

 

 

 

 

 

Long-term portion

 

$

254,427

 

$

3,522

 

$

250,905

 

$

353,716

 

$

5,803

 

$

347,913

 

 

For the six months ended June 30, 2016, the Company repurchased $99,289 of our senior secured notes resulting in a $62,852 gain on debt extinguishment. The Company may continue to repurchase its outstanding debt, including in the open market through privately negotiated transactions, by exercising redemption rights, or otherwise and any such repurchases may be material.

 

13



Table of Contents

 

Non-guarantor notes payable at June 30, 2016, and December 31, 2015, consisted of the following related party Florida seller notes:

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

Deferred

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

Issuance

 

Net

 

 

 

Issuance

 

 

 

 

 

Principal

 

Costs

 

Principal

 

Principal

 

Costs

 

Principal

 

$8,000 non-guarantor term note, secured, 10.00%, quarterly interest payments with principal due August 2016

 

$

 

$

 

$

 

$

7,905

 

$

 

$

7,905

 

$9,000 non-guarantor term note, secured, 10.00%, quarterly principal and interest payments due August 2016

 

 

 

 

2,192

 

 

2,192

 

 

 

 

 

 

10,097

 

 

10,097

 

Less current maturities

 

 

 

 

10,097

 

 

10,097

 

Long-term portion

 

$

 

$

 

$

 

$

 

$

 

$

 

 

As part of the consideration of the Company’s sale of its Buckeye Check Cashing of Florida II LLC (“Florida II”) subsidiary on January 31, 2016, the Company was released from its liability for the two previously outstanding non-guarantor notes payable totaling $10,097. The notes were incurred in connection with the Company’s initial acquisition of this entity.

 

Subsidiary notes payable at June 30, 2016, and December 31, 2015, consisted of the following:

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

Deferred

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

Issuance

 

Net

 

 

 

Issuance

 

Net

 

 

 

Principal

 

Costs

 

Principal

 

Principal

 

Costs

 

Principal

 

$40,000 Note, secured, 16.5%, collateralized by acquired loans, due January 2018

 

$

39,500

 

$

922

 

$

38,578

 

$

35,000

 

$

425

 

$

34,575

 

$8,100 Note, secured, 18.5%, collateralized by acquired loans, due December 2016

 

8,100

 

99

 

8,001

 

 

 

 

$1,425 Term note, secured, 4.25%, collateralized by financed asset, due July 2019

 

967

 

10

 

957

 

995

 

12

 

983

 

$1,165 Term note, secured, 4.5%, collateralized by financed asset, due May 2021

 

1,160

 

21

 

1,139

 

 

 

 

$489 Term note, secured, 8.50%, collateralized by financed asset, due July 2016, paid in full June 2016

 

 

 

 

159

 

 

159

 

 

 

49,727

 

1,052

 

48,675

 

36,154

 

437

 

35,717

 

Less current maturities

 

8,211

 

101

 

8,110

 

214

 

3

 

211

 

Long-term portion

 

$

41,516

 

$

951

 

$

40,565

 

$

35,940

 

$

434

 

$

35,506

 

 

The January 2018 subsidiary note was amended on June 1, 2016 to increase the maximum credit facility to $40,000 and extend the maturity date to January 2018.

 

The December 2016 subsidiary note was amended on April 20, 2016 to increase the maximum credit facility to $8,100. The proceeds from the subsidiary note were used by a non-guarantor subsidiary for consumer loan acquisitions from guarantor subsidiaries.

 

On May 24, 2016, a guarantor subsidiary of the Company entered in to a $1,165 term note for the acquisition of a share of an airplane.

 

There were no additional significant changes to pledged assets or debt during the six months ended June 30, 2016.

 

14



Table of Contents

 

Note 6. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities at June 30, 2016, and December 31, 2015, consisted of the following:

 

 

 

June 30,

 

December 31,

 

 

 

2016

 

2015

 

Accounts payable

 

$

2,558

 

$

4,403

 

Accrued payroll and compensated absences

 

6,227

 

7,673

 

Wire transfers payable

 

1,457

 

1,795

 

Accrual for third-party losses

 

3,274

 

2,610

 

Unearned CSO Fees

 

4,558

 

4,990

 

Deferred rent

 

1,058

 

1,229

 

Bill payment

 

1,777

 

4,611

 

Lease termination

 

1,554

 

1,180

 

Federal and state tax

 

2,190

 

 

Other

 

4,443

 

6,125

 

 

 

$

29,096

 

$

34,616

 

 

Note 7. Operating and Capital Lease Commitments and Total Rental Expense

 

Rental expense, including common area maintenance and real estate tax expense, totaled $6,997 and $8,047 for the three months ended June 30, 2016, and 2015, and $14,051 and $15,956 for the six months ended June 30, 2016 and 2015, respectively.

 

Lease termination expense totaled $1,101 and $826 for the three months and six months ended June 30, 2016, and 2015, respectively.

 

There were no additional significant changes to operating and capital lease commitments during the six months ended June 30, 2016.

 

Note 8. Concentrations of Credit Risks

 

The Company’s portfolio of finance receivables is comprised of loan agreements with customers living in thirty-four states and consequently such customers’ ability to honor their contracts may be affected by economic conditions in those states. Additionally, the Company is subject to regulation by federal and state governments that affect the products and services provided by the Company. To the extent that laws and regulations are passed that affect the Company’s ability to offer loans or similar products in any of the states in which it operates, the Company’s financial position could be adversely affected.

 

The following table summarizes the allocation of the portfolio balance by state at June 30, 2016 and December 31, 2015:

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

Balance

 

Percentage of

 

Balance

 

Percentage of

 

State

 

Outstanding

 

Total Outstanding

 

Outstanding

 

Total Outstanding

 

Alabama

 

$

 14,129

 

10.9

%

$

 16,375

 

10.6

%

Arizona

 

10,871

 

8.4

 

14,137

 

9.1

 

California

 

51,029

 

39.3

 

56,586

 

36.4

 

Florida

 

4,012

 

3.1

 

8,052

 

5.2

 

Virginia

 

12,557

 

9.7

 

14,726

 

9.4

 

Other retail segment states

 

23,497

 

18.1

 

25,412

 

16.4

 

Other internet segment states

 

13,594

 

10.5

 

20,008

 

12.9

 

Total

 

$

129,689

 

100.0

%

$

155,296

 

100.0

%

 

The other retail segment states are: Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Ohio, Oregon, Tennessee, and Utah.

 

15



Table of Contents

 

The other internet segment states are: Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Minnesota, Mississippi, Missouri, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming. In the third quarter of 2015, the Company ceased all international operations in order to focus on its domestic operations.

 

In certain markets, the Company offers a CSO product to assist consumers in obtaining credit with unaffiliated third-party lenders. Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $36,773 and $40,552 at June 30, 2016, and December 31, 2015, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement.

 

Note 9. Contingencies

 

From time-to-time the Company is a defendant in various lawsuits and administrative proceedings wherein certain amounts are claimed or violations of law or regulations are asserted. In the opinion of the Company’s management, these claims are without substantial merit and should not result in judgments which in the aggregate would have a material adverse effect on the Company’s financial statements.

 

Note 10. Sale of Subsidiary

 

On February 1, 2016, Buckeye Check Cashing of Florida, Inc., a wholly-owned subsidiary of CCFI, completed the sale of the membership interests of Florida II to Buckeye Check Cashing of Florida III, LLC (“Buyer”).  Florida II most recently operated 43 stores in the South Florida market and was part of the Company’s Retail financial service operating segment.  Florida II was an unrestricted subsidiary under the Company’s outstanding senior secured debt instruments.

 

The consideration for the sale of Florida II included the following:

 

·                  1,000,000 shares of common stock of the Company held by Check Cashing USA Holdings, Inc., an affiliate of the Buyer, were assigned to the Company and recorded as treasury stock of $50. In addition, stock repurchase rights associated with the shares were cancelled, resulting in the elimination of a stock repurchase obligation of $3,130.

 

·                  The Company was released from liability for two promissory notes totaling $10,112 that were incurred in connection with the Company’s original acquisition of Florida II (the “related party Florida seller notes”).

 

In connection with the sale, the Company has also provided the Buyer with a short-term $6,000 line of credit, substantially all of which was drawn by the Buyer as part of, or concurrent with, the sale. As a result of uncertainties associated with repayment of the line of credit, the Company also recognized a $3,000 loan loss reserve that has been included in the loss on sale of Florida II.

 

The Company recognized a pre-tax loss of $1,569 on the sale of Florida II, including the goodwill of $5,691 allocated to the Florida II transaction based on relative fair value. The difference between the pre-tax loss of $1,569 and tax loss of $24,062 on the sale of Florida II reflects the difference in GAAP and tax treatment of goodwill associated with an individual acquisition.

 

Note 11. Business Combination

 

On May 18, 2016, Buckeye Check Cashing of Florida, Inc. (“BCC Florida”), a wholly-owned subsidiary of CCFI, re-acquired five south Florida retail locations, previously owned by Florida II, from the subsequent purchaser of Florida II, as described in Note 10.

 

BCC Florida agreed to accept the assets of the five retail locations in exchange for satisfying the Buyer’s remaining obligation of the line of credit from the sale of Florida II, which had a balance of $4,821.  The transaction resulted in a pre-tax gain of $296 which is included with corporate expenses on the consolidated statement of operations.

 

Note 12. Stock Based Compensation

 

On May 16, 2016, the Company cancelled 1,270,106 options and re-issued 1,243,299 options with a per share exercise price of $2.25 with 1,233,499 options vesting immediately and 9,800 options vesting on specific dates defined in the award agreements.

 

The following weighted average assumptions were used by the Company for awards re-issued during the six months ended June 30, 2016:

 

16



Table of Contents

 

Risk-free interest rate

 

1.30

%

Dividend yield

 

0.00

%

Expected volatility

 

65.00

%

Expected term (years)

 

5.00

 

Weighted average fair value of options granted

 

$

1.23

 

 

For the six months ended June 30, 2016 and 2015, the Company recorded stock-based compensation costs in the amount of $1,270 and $372, respectively. As of June 30, 2016 and December 31, 2015, unrecognized stock-based compensation costs to be recognized over future periods approximated $44 and $942, respectively. At June 30, 2016, the remaining unrecognized compensation expense is $44 for certain awards that vest over the requisite service period. The remaining compensation expense of $44 is expected to be recognized over a weighted-average period of 1.25 years. The total income tax benefit recognized in the income statement for the stock-based compensation arrangements was $508 and $149 for the six months ended June 30, 2016 and 2015, respectively.

 

Stock option activity for the six months ended June 30, 2016 is as follows (these amounts have not been rounded in thousands):

 

 

 

 

 

Weighted-Average

 

 

 

Aggregate

 

 

 

 

 

Exercise Price

 

Weighted-Average

 

Intrinsic

 

 

 

Shares

 

(actual per share
price)

 

Remaining
Contractual Term

 

Value
(thousands)

 

Outstanding at December 31, 2015

 

1,662,614

 

$

7.54

 

4.8

 

N/A

 

Granted

 

1,243,299

 

2.25

 

9.8

 

N/A

 

Exercised

 

 

 

 

N/A

 

Forfeited or expired

 

1,614,652

 

 

 

N/A

 

Outstanding at June 30, 2016

 

1,291,261

 

$

2.40

 

9.8

 

N/A

 

Exercisable at June 30, 2016

 

1,267,111

 

$

2.41

 

9.8

 

$

 

Vested or expected to vest at June 30, 2016

 

1,291,261

 

$

2.40

 

9.8

 

$

 

 

As of June 30, 2016, there are 24,150 un-vested stock options with a weighted-average fair value at grant date of $0.89.

 

Note 13. Business Segments

 

The Company has elected to organize and report on its operations as two operating segments: Retail financial services and Internet financial services.

 

The following tables present summarized financial information for the Company’s segments:

 

 

 

As of and for the three months ended June 30, 2016

 

 

 

Retail

 

% of

 

Internet

 

% of

 

Unallocated

 

 

 

% of

 

 

 

Financial Services

 

Revenue

 

Financial Services

 

Revenue

 

(Income) Expenses

 

Consolidated

 

Revenue

 

Total Assets

 

$

336,767

 

 

 

$

77,691

 

 

 

$

 

$

414,458

 

 

 

Goodwill

 

146,877

 

 

 

 

 

 

 

146,877

 

 

 

Other Intangible Assets

 

286

 

 

 

1,050

 

 

 

 

1,336

 

 

 

Total Revenues

 

$

74,326

 

100.0

%

$

24,003

 

100.0

%

$

 

$

98,329

 

100.0

%

Provision for Loan Losses

 

17,112

 

23.0

%

13,160

 

54.8

%

 

30,272

 

30.8

%

Other Operating Expenses

 

41,316

 

55.6

%

3,835

 

16.0

%

 

45,151

 

45.9

%

Operating Gross Profit

 

15,898

 

21.4

%

7,008

 

29.2

%

 

22,906

 

23.3

%

Interest Expense, net

 

6,720

 

9.0

%

4,127

 

17.2

%

 

10,847

 

11.0

%

Depreciation and Amortization

 

1,008

 

1.4

%

214

 

0.9

%

 

1,222

 

1.2

%

Other Corporate Expenses (a)

 

 

 

 

 

22,801

 

22,801

 

23.2

%

Income (loss) from Operations, before tax

 

8,170

 

11.0

%

2,667

 

11.1

%

(22,801

)

(11,964

)

(12.2

)%

 


(a) Represents expenses not associated directly with operations that are not allocated between reportable segments. Therefore, the Company has elected to disclose other corporate expenses as unallocated.

 

There were no intersegment revenues for the three months ended June 30, 2016.

 

17



Table of Contents

 

 

 

As of and for the six months ended June 30, 2016

 

 

 

Retail

 

% of

 

Internet

 

% of

 

Unallocated

 

 

 

% of

 

 

 

Financial Services

 

Revenue

 

Financial Services

 

Revenue

 

(Income) Expenses

 

Consolidated

 

Revenue

 

Total Assets

 

$

336,767

 

 

 

$

77,691

 

 

 

$

 

$

414,458

 

 

 

Goodwill

 

146,877

 

 

 

 

 

 

 

146,877

 

 

 

Other Intangible Assets

 

286

 

 

 

1,050

 

 

 

 

1,336

 

 

 

Total Revenues

 

$

155,695

 

100.0

%

$

50,191

 

100.0

%

$

 

$

205,886

 

100.0

%

Provision for Loan Losses

 

29,677

 

19.1

%

27,070

 

53.9

%

 

56,747

 

27.6

%

Other Operating Expenses

 

80,054

 

51.4

%

8,060

 

16.1

%

 

88,114

 

42.8

%

Operating Gross Profit

 

45,964

 

29.5

%

15,061

 

30.0

%

 

61,025

 

29.6

%

Interest Expense, net

 

14,034

 

9.0

%

8,276

 

16.5

%

 

22,310

 

10.8

%

Depreciation and Amortization

 

1,975

 

1.3

%

456

 

0.9

%

 

2,431

 

1.2

%

Loss on Sale of Subsidiary

 

1,569

 

1.0

%

 

 

 

1,569

 

0.8

%

Gain on Debt Extinguishment (a)

 

 

 

 

 

(62,852

)

(62,852

)

(30.5

)%

Other Corporate Expenses (a)

 

 

 

 

 

44,386

 

44,386

 

21.6

%

Income from Operations, before tax

 

28,386

 

18.2

%

6,329

 

12.6

%

18,466

 

53,181

 

25.8

%

 


(a) Represents income and expenses not associated directly with operations that are not allocated between reportable segments. Therefore, the Company has elected to disclose the gain on debt extinguishment and all other corporate expenses as unallocated.

 

There were no intersegment revenues for the six months ended June 30, 2016.

 

 

 

As of and for the three months ended June 30, 2015

 

 

 

Retail

 

% of

 

Internet

 

% of

 

Unallocated

 

 

 

% of

 

 

 

Financial Services

 

Revenue

 

Financial Services

 

Revenue

 

(Income) Expenses

 

Consolidated

 

Revenue

 

Total Assets

 

$

524,703

 

 

 

$

82,602

 

 

 

$

 

$

607,305

 

 

 

Goodwill

 

221,667

 

 

 

 

 

 

 

221,667

 

 

 

Other Intangible Assets

 

1,058

 

 

 

1,511

 

 

 

 

2,569

 

 

 

Total Revenues

 

$

97,145

 

100.0

%

$

33,119

 

100.0

%

$

 

$

130,264

 

100.0

%

Provision for Loan Losses

 

29,555

 

30.5

%

22,361

 

67.6

%

 

51,916

 

39.9

%

Other Operating Expenses

 

46,661

 

48.0

%

7,244

 

21.9

%

 

53,905

 

41.3

%

Operating Gross Profit

 

20,929

 

21.5

%

3,514

 

10.5

%

 

24,443

 

18.8

%

Interest Expense, net

 

10,041

 

10.3

%

5,110

 

15.4

%

 

15,151

 

11.6

%

Depreciation and Amortization

 

1,109

 

1.1

%

286

 

0.9

%

 

1,395

 

1.1

%

Market Value of Stock Repurchase Obligation

 

1,020

 

1.0

%

 

 

 

1,020

 

0.8

%

Other Corporate Expenses (a)

 

 

 

 

 

21,702

 

21,702

 

16.7

%

Income (loss) from Operations, before tax

 

8,759

 

9.0

%

(1,882

)

(5.7

)%

(21,702

)

(14,825

)

(11.4

)%

 


(a) Represents expenses not associated directly with operations that are not allocated between reportable segments. Therefore, the Company has elected to disclose all other corporate expenses as unallocated.

 

Intersegment revenues of $697 for the three months ended June 30, 2015, have been eliminated.

 

 

 

As of and for the six months ended June 30, 2015

 

 

 

Retail

 

% of

 

Internet

 

% of

 

Unallocated

 

 

 

% of

 

 

 

Financial Services

 

Revenue