Merger and Other Acquisitions

Cash America Merger

On September 1, 2016, the Company completed its previously announced merger of equals business combination with Cash America as contemplated by the Agreement and Plan of Merger, dated as of April 28, 2016 (the “Merger Agreement”), by and among the Company, Cash America, and Frontier Merger Sub LLC, a wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the Merger Agreement, Cash America merged with and into Merger Sub, with Merger Sub continuing as the surviving entity in the Merger and a wholly owned subsidiary of the Company.

In conjunction with the closing of the Merger, the Company changed its name to FirstCash, Inc. and listed its common stock on the New York Stock Exchange under the ticker symbol “FCFS.” The headquarters of the combined company was moved to the former Cash America headquarters in Fort Worth, Texas. The Merger creates the largest combined retail pawn store operator in Latin America and the United States, with over 2,000 locations across four countries. The combined company provides significant scale and a unified platform for leadership in the pawn industry while keeping the strong local presence and established brands from both companies.

Under the terms of the Merger Agreement, each former share of Cash America common stock issued and outstanding immediately prior to September 1, 2016 was converted to 0.84 shares of the Company’s common stock with fractional shares paid in cash. As a result, the Company issued approximately 20,181,000 shares of its common stock to former holders of Cash America common stock. Immediately following the Merger, the Company’s shareholders owned approximately 58% of the common stock of the Company, and the former Cash America shareholders owned approximately 42%. Additionally, Cash America employee and director based restricted stock awards outstanding immediately prior to the Merger were fully-vested and paid out in cash in conjunction with the closing of the Merger. The Company was determined to be the accounting acquirer in the Merger.

The following table summarizes the consideration transferred in connection with the merger:



	Cash America Merger
Cash America shares outstanding at September 1, 2016 (in thousands)	24,025
Exchange ratio	0.84
Shares of First Cash common stock issued (in thousands)	20,181
Company common stock per share price at September 1, 2016	$	50.32
Fair value of Company common stock issued to Cash America shareholders	$	1,015,507
Cash in lieu of fractional shares paid by the Company	10
Cash America outstanding stock awards settled in cash	50,760
Aggregate merger consideration	$	1,066,277

The Company has performed a preliminary valuation analysis of identifiable assets acquired and liabilities assumed and allocated the aggregate merger consideration based on the preliminary fair values of those identifiable assets and liabilities. The preliminary purchase price allocation is subject to change as the Company completes the analysis of the fair value at the date of the Merger. The final determination of the fair value of assets acquired and liabilities assumed will be completed within the 12-month measurement period from the date of the Merger as required by applicable accounting guidance. Due to the significance of the Merger, the Company may use all of this measurement period to adequately analyze and assess the fair values of assets acquired and liabilities assumed.

The preliminary allocation of the aggregate merger consideration is as follows:



	Cash America Merger
Cash and cash equivalents	$	42,520
Pawn loans	234,761
Pawn loan fees and service charges receivable	26,893
Consumer loans, net	27,549
Inventory	224,948
Income taxes receivable	23,095
Other current assets	27,018
Investment in common stock of Enova International, Inc.	60,785
Property and equipment	119,414
Goodwill ⁽¹⁾	555,096
Intangible assets ⁽²⁾	102,000
Other non-current assets	62,993
Current liabilities ⁽³⁾	(96,080		)
Customer deposits	(21,536		)
Revolving unsecured credit facility ⁽⁴⁾	(232,000		)
Deferred tax liabilities	(13,517		)
Other liabilities	(77,662		)
Aggregate merger consideration	$	1,066,277

⁽¹⁾

The goodwill is attributable to the excess of the aggregate merger consideration over the fair value of the net tangible and intangible assets acquired and liabilities assumed and is considered to represent the synergies and economies of scale expected from combining the operations of the Company and Cash America. This goodwill has been assigned to the U.S. pawn operations reporting unit. Approximately $223,000 of the goodwill arising from the Merger is expected to be deductible for U.S. income tax purposes.


⁽²⁾	Intangible assets acquired and the respective useful lives assigned consist of the following:



	Amount		Useful life (in years)
Trade names	$	46,300	Indefinite
Pawn licenses	32,300		Indefinite
Customer relationships	14,700		Five
Non-compete agreements	8,700		Two
	$	102,000

The customer relationships are being amortized using an accelerated amortization method that reflects the future cash flows expected from the returning pawn customers of Cash America. The non-compete agreements are being amortized over a straight-line basis over the life of the non-compete agreements. As the trade names and pawn licenses have indefinite lives, they are not amortized.


⁽³⁾	Includes acquired contingent liabilities of approximately $21,500.


⁽⁴⁾	Represents outstanding borrowings under Cash America’s revolving unsecured credit facility that became due upon completion of the Merger. The Cash America revolving unsecured credit facility was repaid by the Company using proceeds from the 2016 Credit Facility (as described in Note 6) and was terminated upon completion of the Merger.

Transaction costs associated with the Merger are being expensed as incurred and are presented in the condensed consolidated statements of income as merger and other acquisition expenses. These expenses include investment banking, legal, accounting, and other related third party costs associated with the Merger, including preparation for regulatory filings and shareholder approvals. See Note 4 for further information about merger and other acquisition expenses.

Other Acquisitions

The Company completed other acquisitions during the nine months ended September 30, 2016, as described below, consistent with its strategy to continue its expansion of pawn stores in selected markets. The purchase price of each acquisition was allocated to assets and liabilities acquired based upon their estimated fair market values at the date of acquisition. The excess purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill. The goodwill arising from these acquisitions consists largely of the synergies and economies of scale expected from combining the operations of the Company and the pawn stores acquired.

The Company acquired the operating entity owning the pawn loans, inventory, layaways and other operating assets and liabilities of 166 pawn stores located in Mexico on January 6, 2016 and the assets of 13 pawn stores located in El Salvador on February 2, 2016 in related transactions (collectively the “Latin America Acquisition”). The combined purchase price for the all-cash transaction was $30,123, net of cash acquired before certain post-closing adjustments. Subsequent to the acquisition, $229 of post closing adjustments were identified, resulting in a combined purchase price of $29,894, net of cash acquired and is subject to further post-closing adjustments. The purchase was composed of $27,357 in cash paid during the nine months ended September 30, 2016 and remaining payables to the sellers of approximately $2,537. In addition, the Company assumed approximately $6,630 in peso-denominated debt from these acquisitions which was repaid in full by the Company in January 2016. The estimated fair values of the assets acquired and liabilities assumed are preliminary, as the Company is gathering information to finalize the valuation of these assets and liabilities. The assets, liabilities and results of operations of the locations are included in the Company’s consolidated results as of the acquisition dates.

During the nine months ended September 30, 2016, one pawn store located in the U.S. was acquired by the Company (“U.S. Acquisition”) for an all-cash aggregate purchase price of $824, net of cash acquired. During the nine months ended September 30, 2016, the Company also paid $575 of deferred purchase price amounts payable related to prior-year acquisitions.

The preliminary allocations of the purchase prices for the Company’s other acquisitions during the nine months ended September 30, 2016 (the “2016 Acquisitions”) are as follows:



	Latin America Acquisition			U.S. Acquisition			Total
Pawn loans	$	10,586		$	138		$	10,724
Pawn loan fees and service charges receivable	885			6			891
Inventory	3,031			98			3,129
Other current assets	2,039			—			2,039
Property and equipment	6,950			10			6,960
Goodwill ⁽¹⁾	19,666			580			20,246
Intangible assets ⁽²⁾	405			16			421
Other non-current assets	512			—			512
Deferred tax assets	2,392			—			2,392
Current liabilities	(9,942		)	(24		)	(9,966		)
Notes payable	(6,630		)	—			(6,630		)
Purchase price	$	29,894		$	824		$	30,718


⁽¹⁾	Substantially all of the goodwill for the U.S. Acquisition is expected to be deductible for U.S. income tax purposes. However, the goodwill for the Latin America Acquisition is not expected to be deductible for Mexico and El Salvador income tax purposes.


⁽²⁾	Intangible assets primarily consist of customer relationships, which are generally amortized over five years.

During the nine months ended September 30, 2016, revenue from the Merger and the 2016 Acquisitions since the respective closing dates was $112,185. During the nine months ended September 30, 2016, the net earnings from the Merger and the 2016 Acquisitions since the acquisition dates (excluding acquisition and integration costs) was $13,184. Combined transaction and integration costs related to the Merger and 2016 Acquisitions were $33,877, which are further described in Note 4.

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the Merger and the 2016 Acquisitions had occurred on January 1, 2015:



	Nine Months Ended				Nine Months Ended
	September 30, 2016				September 30, 2015
	As Reported		Pro Forma		As Reported		Pro Forma
Total revenue	$	626,335	$	1,308,967	$	513,178	$	1,304,906
Net income	23,435		80,556		41,300		34,291

Net income per share:
Basic	$	0.77	$	1.66	$	1.46	$	0.71
Diluted	0.77		1.66		1.45		0.71

Pro forma adjustments are included only to the extent they are directly attributable to the Merger and 2016 Acquisitions. The unaudited pro forma results have been adjusted with respect to certain aspects of the Merger and 2016 Acquisitions primarily to reflect:


•	depreciation and amortization expense that would have been recognized assuming fair value adjustments to the existing tangible and intangible assets acquired and liabilities assumed;


•	interest expense based on a lower combined weighted-average interest rate on borrowings (see Note 6 - Long-Term Debt) partially offset by an increase in total indebtedness primarily incurred to finance certain cash payments and transaction costs related to the Merger;


•	the elimination of losses on extinguishment of debt recognized in Cash America’s historical financial statements as the related debt was terminated upon completion of the Merger; and


•	the inclusion in the pro forma nine months ended September 30, 2015 of $66,324 in merger and other acquisition expenses incurred by both the acquirees and acquirer (excluded from the pro forma nine months ended September 30, 2016).

The unaudited pro forma financial information has been prepared for informational purposes only and does not include any anticipated synergies or other potential benefits of the Merger or 2016 Acquisitions. It also does not give effect to certain future charges that the Company expects to incur in connection with the Merger and 2016 Acquisitions, including, but not limited to, additional professional fees, legal expenses, severance, retention and other employee-related costs, contract breakage costs and costs related to consolidation of technology systems and corporate facilities. The unaudited pro forma information is based on the Company’s preliminary valuation analysis of identifiable assets acquired and liabilities assumed and therefore subject to change. Pro forma results do not purport to be indicative of what would have resulted had the acquisitions occurred on the date indicated or what may result in the future.