<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______________ TO _____________
COMMISSION FILE NUMBER 0-19424
-------------------------------
EZCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-2540145
-------------- -----------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
1901 CAPITAL PARKWAY
AUSTIN, TEXAS 78746
-------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(512) 314-3400
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NA
--
(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__
APPLICABLE ONLY TO CORPORATE ISSUERS:
The only class of voting securities of the registrant issued and outstanding is
the Class B Voting Common Stock, par value $.01 per share, 100% of which is
owned by one record holder who is an affiliate of the registrant. There is no
trading market for the Class B Voting Common Stock.
As of March 31, 2000, 10,822,010 shares of the registrant's Class A Non-voting
Common Stock, par value $.01 per share and 1,190,057 shares of the registrant's
Class B Voting Common Stock, par value $.01 per share were outstanding.
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<PAGE> 2
EZCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2000, March 31, 1999 and September
30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended
March 31, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Interim Condensed Consolidated Financial Statements . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 3
PART I
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets (Unaudited)
March 31, March 31, September 30,
---------------------------------------------------
2000 1999 1999
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 1,816 $ 2,717 $ 2,899
Pawn loans 39,227 42,786 53,940
Service charges receivable 7,466 12,807 16,671
Inventory, net 40,433 47,750 58,241
Deferred tax asset 7,427 1,882 1,824
Federal income tax receivable 1,201 -- 1,695
Prepaid expenses and other current assets 2,881 3,868 3,787
--------- --------- ---------
Total current assets 100,451 111,810 139,057
Investment in unconsolidated affiliate 13,480 13,065 13,195
Property and equipment, net 64,501 52,749 60,608
Other assets:
Goodwill, net 13,568 13,957 13,868
Other intangible assets, net 3,187 3,105 3,153
Notes receivable from related parties 3,240 3,000 3,000
Other assets, net 1,195 1,486 1,196
--------- --------- ---------
Total assets $ 199,622 $ 199,172 $ 234,077
========= ========= =========
Liabilities and stockholders' equity:
Current liabilities:
Current maturities of long-term debt $ 11 $ 10 $ 11
Accounts payable and other accrued expenses 9,325 9,148 11,049
Customer layaway deposits 2,591 2,617 2,422
Income taxes payable -- 1,391 --
--------- --------- ---------
Total current liabilities 11,927 13,166 13,482
Long-term debt, less current maturities 63,606 51,118 83,112
Deferred tax liability 1,696 24 1,696
Other long-term liabilities 394 127 102
--------- --------- ---------
Total long-term liabilities 65,696 51,269 84,910
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $.01 per share;
Authorized 5,000,000 shares; none issued and
outstanding -- -- --
Class A Non-voting Common Stock, par value $.01 per
share; Authorized 40,000,000 shares; 10,831,043 issued
and 10,822,010 outstanding at March 31, 2000 and
September 30, 1999; 10,820,586 issued and 10,811,553
outstanding at March 31, 1999 108 108 108
Class B Voting Common Stock, convertible, par value $.01
per share; Authorized 1,198,990 shares; 1,190,057 issued
and outstanding at March 31, 2000, March 31, 1999, and
September 30, 1999 12 12 12
Additional paid-in capital 114,501 114,398 114,470
Retained earnings 7,700 21,060 21,715
--------- --------- ---------
122,321 135,578 136,305
Treasury stock (9,033 shares) (35) (35) (35)
Receivable from stockholder (729) (729) (729)
Accumulated other comprehensive income 442 (77) 144
--------- --------- ---------
Total stockholders' equity 121,999 134,737 135,685
--------- --------- ---------
Total liabilities and stockholders' equity $ 199,622 $ 199,172 $ 234,077
========= ========= =========
See Notes to Interim Condensed Consolidated Financial Statements (unaudited).
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
----------------------------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
Revenues:
<S> <C> <C> <C> <C>
Sales $ 39,436 $ 36,325 $ 77,525 $ 70,759
Pawn service charges 13,981 23,542 29,575 49,373
Other 280 216 537 366
---------- ---------- ---------- ----------
53,697 60,083 107,637 120,498
Cost of goods sold 24,850 31,101 47,482 60,122
---------- ---------- ---------- ----------
Net revenues 28,847 28,982 60,155 60,376
Operating expenses:
Operations 21,970 20,047 43,778 40,164
Administrative 5,171 2,597 9,498 6,945
Depreciation and amortization 2,561 2,196 5,083 4,481
---------- ---------- ---------- ----------
29,702 24,840 58,359 51,590
---------- ---------- ---------- ----------
Operating income (loss) (855) 4,142 1,796 8,786
Interest expense, net 1,200 819 2,532 1,665
Equity in net income of unconsolidated affiliate (83) (163) (148) (273)
(Gain) loss on sale of assets 129 17 (451) 88
---------- ---------- ---------- ----------
Income (loss) before income taxes (2,101) 3,469 (137) 7,306
Income tax expense (benefit) (714) 1,318 (47) 2,776
---------- ---------- ---------- ----------
Income (loss) before cumulative effect of a change in
accounting principle (1,387) 2,151 (90) 4,530
Cumulative effect on prior years (to September 30, 1999) of
change in method of revenue recognition, net of tax -- -- (13,625) --
---------- ---------- ---------- ----------
Net income (loss) $ (1,387) $ 2,151 $ (13,715) $ 4,530
========== ========== ========== ==========
Amounts per common share (fully diluted):
Income (loss) before cumulative effect of a change in
accounting principle $ (0.12) $ 0.18 $ (0.01) $ 0.38
Cumulative effect on prior years (to September 30, 1999) of
change in method of revenue recognition, net of tax $ -- $ -- $ (1.13) $ --
---------- ---------- ---------- ----------
Net income (loss) $ (0.12) $ 0.18 $ (1.14) $ 0.38
========== ========== ========== ==========
Weighted average shares outstanding:
Basic 12,012 12,002 12,012 12,002
========== ========== ========== ==========
Fully diluted 12,014 12,007 12,013 12,008
========== ========== ========== ==========
Cash dividends per common share $ -- $ 0.0125 $ 0.0125 $ 0.0250
---------- ---------- ---------- ----------
Pro forma amounts assuming the new revenue recognition
method is applied retroactively:
Net income (loss) $ (1,387) $ 2,459 $ (90) $ 3,833
Net income (loss) per diluted share $ (0.12) $ 0.20 $ (0.01) $ 0.33
---------- ---------- ---------- ----------
See Notes to Interim Condensed Consolidated Financial Statements (unaudited).
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
March 31,
------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Operating Activities:
Net income (loss) $ (13,715) $ 4,530
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Cumulative effect of a change in accounting principle 13,625 --
Depreciation and amortization 5,083 4,481
Deferred income taxes 1,722 --
Net (gain)/loss on sale or disposal of assets (451) 88
Income from investment in unconsolidated affiliate (148) (273)
Changes in operating assets and liabilities:
Service charges receivable 2,036 2,036
Inventory 4,202 (3,597)
Notes receivable from related parties (240) --
Prepaid expenses, other current assets, and other assets, net 1141 (189)
Accounts payable and accrued expenses (1,649) 274
Customer layaway deposits 169 439
Other long-term liabilities (114) (25)
Federal income taxes receivable 319 840
Federal income taxes payable -- 1,391
---------- ----------
Net cash provided by operating activities 11,980 9,995
Investing Activities:
Pawn loans forfeited and transferred to inventory 39,356 38,881
Pawn loans made (90,211) (97,761)
Pawn loans repaid 65,568 65,953
---------- ----------
Net decrease in loans 14,713 7,073
Additions to property, plant, and equipment (11,735) (13,205)
Additions to intangible assets (488) (1,738)
Acquisitions, net of cash acquired -- (1,501)
Investment in unconsolidated affiliate 161 (1,930)
Proceeds from sale of assets 4,092 --
---------- ----------
Net cash provided by (used in) investing activities 6,743 (11,301)
Financing Activities:
Proceeds from bank borrowings 14,500 18,000
Payments on borrowings (34,006) (15,005)
Payment of dividends (300) (300)
---------- ----------
Net cash provided by (used in) financing activities (19,806) 2,695
---------- ----------
Change in cash and cash equivalents (1,083) 1,389
Cash and cash equivalents at beginning of period 2,899 1,328
---------- ----------
Cash and cash equivalents at end of period $ 1,816 $ 2,717
========== ==========
Non-cash Investing and Financing Activities:
Foreign currency translation adjustment $ 298 $ (47)
Issuance of stock options $ 31 $ --
See Notes to Interim Condensed Consolidated Financial Statements (unaudited).
</TABLE>
3
<PAGE> 6
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
EZCORP, Inc. and Subsidiaries have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring entries)
considered necessary for a fair presentation have been included. The
accompanying financial statements should be read with the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended September 30, 1999.
The Company's business is subject to seasonal variations, and operating results
for the six-month period ended March 31, 2000 are not necessarily indicative of
the results of operations for the full fiscal year.
NOTE B: CHANGE IN ACCOUNTING PRINCIPLE
During the second quarter of fiscal 2000, the Company changed its method of
revenue recognition on pawn loans by reducing the accrual of pawn service
charge revenue to the estimated amount which will be realized through loan
collection and recording forfeited collateral at the lower of cost (the
principal amount of the loan) or market. Previously, pawn service charges were
accrued on all loans, and the carrying value of the forfeited collateral was
the lower of cost (principal amount of loan plus accrued pawn service charges)
or market.
The Company believes the new method of revenue recognition is preferable in
that it better aligns reported net revenues and earnings with current economic
trends in its business and the management of the Company. In addition, the
Company believes the new method improves comparability of its operating results
and financial position with similar companies.
The new method has been applied as of the beginning of the current fiscal year
(October 1, 1999). The charge of $13.6 million included in the accompanying
income statement for the six months ended March 31, 2000 represents the
cumulative effect of applying the new method retroactively (net of an income
tax benefit of $7.0 million). The effect of the accounting change on the three
months ended March 31, 2000 was to reduce net loss by $2.0 million ($0.17 per
share). The effect of the change on the six months ended March 31, 2000,
excluding the cumulative effect of $13.6 million was to decrease the net loss
by $2.8 million ($0.23 per share). The pro forma amounts presented on the
accompanying statements of operations for prior periods represent the effect of
retroactive application assuming the new accounting method, net of related
income taxes, to prior periods.
4
<PAGE> 7
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
The effect of the change on the three months ended December 31, 1999 is as
follows (in thousands, except per share amounts):
<TABLE>
<S> <C>
Net income as previously reported $ 450
Effect of change in revenue recognition method 847
------------
Income before cumulative effect of a change in
accounting principle 1,297
Cumulative effect on prior years (to September 30, 1999) of
change in method of revenue recognition, net of tax (13,625)
------------
Net loss $ (12,328)
============
Amounts per common share (fully diluted):
Net income as previously reported $ 0.04
Effect of change in revenue recognition method 0.07
------------
Income before cumulative effect of a change in
accounting principle 0.11
Cumulative effect on prior years (to September 30, 1999)
of change in method of revenue recognition, net of tax (1.13)
------------
Net loss $ (1.02)
============
</TABLE>
NOTE C: ACCOUNTING PRINCIPLES AND PRACTICES
The provision for federal income taxes has been calculated based on the
Company's estimate of its effective tax rate for the full fiscal year.
The Company provides inventory reserves for shrinkage and cost in excess of
estimated market value. The Company estimates these reserves using analysis of
sales trends, inventory aging, sales margins and shrinkage on inventory. At
March 31, 2000 (after giving effect to the change in accounting principle
discussed in Note B), inventory reserves were $1.3 million. Inventory reserves
at March 31, 1999 and September 30, 1999 amounted to $6.9 million and $8.3
million, respectively ($1.1 million and $1.4 million, respectively, pro forma
for the effect of the accounting change).
Property and equipment is shown net of accumulated depreciation of $41.8
million, $33.4 million, and $37.6 million at March 31, 2000, March 31, 1999,
and September 30, 1999, respectively.
Certain prior year balances have been reclassified to conform to the fiscal
2000 presentation.
5
<PAGE> 8
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE D: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator
Numerator for basic and diluted earnings per
share: net income (loss) $ (1,387) $ 2,151 $ (13,715) $ 4,530
========== ========== ========== ==========
Denominator
Denominator for basic earnings per share:
Weighted average shares 12,012 12,002 12,012 12,002
Effect of dilutive securities:
Employee Stock Options
2 -- 1 --
Warrants
-- 5 -- 6
---------- ---------- ---------- ----------
Dilutive potential common shares
2 5 1 6
---------- ---------- ---------- ----------
Denominator for diluted earnings per share:
adjusted weighted average shares and assumed
conversions 12,014 12,007 12,013 12,008
========== ========== ========== ==========
Basic earnings (loss) per share $ (0.12) $ 0.18 $ (1.14) $ 0.38
========== ========== ========== ==========
Diluted earnings (loss) per share $ (0.12) $ 0.18 $ (1.14) $ 0.38
========== ========== ========== ==========
</TABLE>
For the three months ended March 31, 2000, options to purchase 1,583,872
weighted average shares of common stock at an average price of $11.20 per share
were outstanding. Options to purchase 1,563,543 weighted average shares of
common stock at an average price of $11.29 were excluded from the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares and, therefore, the effect
would be anti-dilutive. For the six months ended March 31, 2000, options to
purchase 1,595,220 weighted average shares of common stock at an average price
of $11.20 per share were outstanding. Options to purchase 1,585,111 weighted
average shares of common stock at an average price of $11.25 were excluded from
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be anti-dilutive.
For the three months ended March 31, 1999, options to purchase 1,655,992
weighted average shares of common stock at an average price of $11.23 per share
were outstanding. For the six months ended March 31, 1999, options to purchase
1,459,771 weighted average shares of common stock at an average price of $11.40
per share were outstanding. These options were excluded from the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares and, therefore, the effect would
be anti-dilutive.
NOTE E: INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company owns 13,276,666 common shares of Albemarle & Bond Holdings, plc
("A&B"), representing 29.86% of A&B's outstanding shares.
The Company accounts for its investment in A&B using the equity method. Since
A&B's fiscal year ends three months prior to the Company's fiscal year, the
income reported by the Company for its investment in A&B is on a
6
<PAGE> 9
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
three month lag. The income reported for the Company's six month periods ended
March 31, 2000 and 1999 represents its percentage interest in the results of
A&B's operations, reduced by the amortization of the excess purchase price over
fair market value, from July 1, 1999 to December 31, 1999 and from July 1, 1998
to December 31, 1998, respectively.
NOTE F: LONG-TERM DEBT
At March 31, 2000 the Company was in violation of the leverage ratio and the
fixed charge coverage ratio covenants of its credit agreement with several
banks. The banks have agreed to waive these violations in consideration of
certain amendments to the credit agreement. Among other provisions, the amended
credit agreement reduces the banks' aggregate commitment from $110 million to
$85 million, requires the Company to pledge substantially all its assets as
security for amounts advanced, and adjusts the interest rate to the agent bank's
Prime Rate or Eurodollar rate plus 0 to 450 basis points, depending on certain
performance criteria. During the next quarter, the Company will review with the
banks a plan and financial projection for the balance of the term of the credit
agreement, which matures on December 3, 2001. It is management's opinion that
mutually satisfactory covenants will be negotiated based on this plan. At March
31, 2000, the Company had $64 million outstanding under this credit agreement.
NOTE G: CONTINGENCIES
From time to time, the Company is involved in litigation relating to claims
arising from its normal business operations. Currently, the Company is a
defendant in several lawsuits, some of which involve claims for substantial
amounts. While the ultimate outcome of these lawsuits cannot be predicted at
this time, based upon consultation with its legal counsel, the Company believes
the resolution of these matters will not have a material adverse effect on the
Company's financial condition or results of operations. However, there can be
no assurance as to the ultimate outcome of these matters.
NOTE H: COMPREHENSIVE INCOME/(LOSS)
Comprehensive income (loss) includes net income and other revenues, expenses,
gains and losses that are excluded from net income but are included as a
component of total shareholders' equity. Comprehensive loss for the three and
six months ended March 31, 2000 was approximately $(1.1) million and $(13.4)
million, and the comprehensive income for the three and six months ended March
31, 1999 was approximately $2.0 million and $4.5 million, respectively. The
difference between comprehensive income (loss) and net income (loss) results
primarily from the effect of foreign currency translation adjustments in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." The accumulated balance of foreign currency activity
excluded from net income is presented in the Condensed Consolidated Balance
Sheets as "Accumulated other comprehensive income."
7
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion in this section of this report contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in this section and those discussed elsewhere in this report.
Accounting Change
During the second quarter of fiscal 2000, the Company changed
its method of revenue recognition on pawn loans by reducing the accrual of pawn
service charge revenues to the estimated amount that will be realized through
loan collection, and recording forfeited collateral at the lower of the
principal balance of the loan or estimated market value. Previously, pawn
service charges were accrued on all loans, and the carrying value of the
forfeited collateral was the lower of cost (principal amount of loan plus
accrued pawn service charges) or market. The Company believes the new method of
revenue recognition is preferable in that it better aligns reported net
revenues and earnings with current economic trends in its business and the
management of the Company. Additionally, the new method improves the
comparability of the Company's financial position and operating result with
similar companies. This change was made effective October 1, 1999, the first
day of the Company's fiscal year.
During the period of time between the inception of a pawn loan and the later
sale of the forfeited collateral, the change in accounting principle will not
affect the amount of net revenues or earnings reported by the Company. It will
affect only the timing of net revenues and earnings recognition. The new method
will more closely align net revenues and earnings recognition with the actual
collection of cash from loan payments and the sale of forfeited collateral.
Additionally, the new method will reduce the impact of short-term or permanent
changes in the market value of forfeited collateral on inventory reserve
requirements. In management's opinion, these factors will reduce the reliance
upon accounting estimates in reporting the Company's results of operations.
Management has implemented changes in the Company's operating practices and
taken other actions, including the modification of employee compensation
programs, to provide additional incentives for cash returns on capital
employed. Adoption of the new accounting method is consistent with these
actions and will present external financial statements on a basis more
reflective of how the Company is managed internally.
The $13.6 million cumulative effect of this accounting change on prior years
(net of a tax benefit of $7.0 million) increased net loss for the six months
ended March 31, 2000. Of the $1.14 net loss per share for the six months ended
March 31, 2000, $1.13 per share is attributable to the cumulative effect of the
accounting change. The net loss per share for the second quarter was $0.12,
compared to a pro forma net income per share of $0.20 for the second quarter of
1999 assuming retroactive application of the accounting change.
8
<PAGE> 11
Second Quarter Ended March 31, 2000 vs. Second Quarter Ended March 31, 1999
The following table sets forth selected, unaudited, consolidated financial data
with respect to the Company for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended % or
March 31, (a) Point
2000 1999 Change(b)
---------- ---------- --------------
(Pro Forma)
Net revenues:
<S> <C> <C> <C>
Sales $ 39,436 $ 36,325 8.6%
Pawn service charges 13,981 14,449 (3.2)%
Other 280 216 29.6%
---------- ----------
Total revenues 53,697 50,989 5.3%
Cost of goods sold 24,850 21,445 15.9%
---------- ----------
Net revenues $ 28,847 $ 29,544 (2.4)%
========== ==========
Other data:
Gross profit as a percent of sales 37.0% 41.0% (4.0) pts.
Average annual inventory turnover 2.2x 2.2x 0.0x
Inventory per store at end of the period $ 120 $ 115 4.3%
Loan balance per store at end of period $ 117 $ 135 (13.3)%
Average annualized yield on loan portfolio 132% 129% 3.0 pts.
Redemption rate 79% 77% 2.0 pts.
Expenses as a percent of total revenues:
Operating 40.9% 39.3% 1.6 pts.
Administrative 9.6% 5.1% 4.5 pts.
Depreciation and amortization 4.8% 4.3% 0.5 pt.
Interest, net 2.2% 1.6% 0.6 pt.
Locations in operation:
Beginning of period 334 304
Acquired -- 2
Established 2 12
Sold, combined or closed -- --
---------- ----------
End of period 336 318
========== ==========
</TABLE>
- --------------
(a) In thousands, except percentages, inventory turnover and store count.
(b) In comparing the period differences between dollar amounts or per store
counts, a percentage change is used. In comparing the period
differences between two percentages, a percentage point (pt.) change is
used.
9
<PAGE> 12
Six Months Ended March 31, 2000 vs. Six Months Ended March 31,1999
The following table sets forth selected, unaudited, consolidated financial data
with respect to the Company for the six months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Six Months Ended % or
March 31, (a) Point
2000 1999 Change(b)
---------- ---------- -------------
(Pro Forma)
<S> <C> <C> <C>
Net revenues:
Sales $ 77,525 $ 70,759 9.6%
Pawn service charges 29,575 29,039 1.8%
Other 537 366 46.7%
---------- ----------
Total revenues 107,637 100,164 7.5%
Cost of goods sold 47,482 40,811 16.3%
---------- ----------
Net revenues $ 60,155 $ 59,353 1.4%
========== ==========
Other data:
Gross profit as a percent of sales 38.8% 42.3% (3.5) pts.
Average annual inventory turnover 2.0x 2.1x (0.1)x
Inventory per store at end of the period $ 120 $ 115 4.3%
Loan balance per store at end of period $ 117 $ 135 (13.3)%
Average annualized yield on loan portfolio 127% 123% 4.0 pts.
Redemption rate 76.5% 75.7% 0.8 pt.
Expenses as a percent of total revenues:
Operating 40.7% 40.1% 0.6 pt.
Administrative 8.8% 6.9% 1.9 pts.
Depreciation and amortization 4.7% 4.5% 0.2 pt.
Interest, net 2.4% 1.7% .07 pt.
Locations in operation:
Beginning of period 331 286
Acquired -- 29
Established 5 3
Sold, combined or closed -- --
---------- ----------
End of period 336 318
========== ==========
</TABLE>
- ---------
(a) In thousands, except percentages, inventory turnover and store count.
(b) In comparing the period differences between dollar amounts or per store
counts, a percentage change is used. In comparing the period
differences between two percentages, a percentage point (pt.) change is
used.
10
<PAGE> 13
RESULTS OF OPERATIONS
The following discussion compares results for the three and six month periods
ended March 31, 2000 ("Fiscal 2000 Periods") to the three and six month periods
ended March 31, 1999 ("Fiscal 1999 Periods"). The discussion should be read in
conjunction with the accompanying financial statements and related notes. For
purposes of management's discussion and analysis of results of operations and
financial condition, all comparisons to the Fiscal 2000 Periods reflect the pro
forma effects of applying the new accounting principle to the consolidated
financial statements as if the change had occurred on September 30, 1998.
The Company's primary activity is the making of small, non-recourse loans
secured by tangible personal property. The income earned on this activity is
pawn service charge revenue. For the three month Fiscal 2000 Period, pawn
service charge revenue decreased $0.5 million from the three month Fiscal 1999
Period to $14.0 million. This resulted from a decrease in same store pawn
service charge revenues ($1.0 million) primarily due to a 25 percent reduction
in average same store pawn loan balances, offset by an increase in pawn service
charge revenues from new stores not open the full three-month period ($0.5
million). The annualized yield on the average pawn loan balance increased 3.0
percentage points from the Three-month Fiscal 1999 Period to 132 percent.
For the Six-month Fiscal 2000 Period, pawn service charge revenue increased
$0.5 million from the Six-month Fiscal 1999 Period to $29.6 million. This
resulted from an increase in pawn service charge revenues from new stores not
open the full six-month period ($1.7 million), offset by a decrease in same
store pawn service charge revenues ($1.2 million) primarily due to a 21 percent
reduction in average same store pawn loan balances. The annualized yield on the
average pawn loan balance increased four percentage points from the Six-month
Fiscal 1999 Period to 127 percent. Variations in the annualized loan yield, as
we saw between these periods, are due generally to changes in the loan
redemption rate and a mix shift in the loan portfolio between loans with
different loan yields.
In response to falling general merchandise prices, primarily on consumer
electronics, and volatile gold prices, the Company, in recent quarters, lowered
the amount it will lend on certain general merchandise categories by
approximately 10% and on jewelry by approximately 8%. These changes have
reduced the loan balances in stores open more than a year and slowed loan
growth in new stores. The Company expects these changes in lending practices to
slow loan growth for the next two to three quarters.
A secondary, but related, activity of the Company is the sale of merchandise,
primarily collateral forfeited from its lending activity. For the Three-month
Fiscal 2000 Period, sales increased $3.1 million from the Three-month Fiscal
1999 Period to approximately $39.4 million. This resulted from an increase in
same store merchandise sales ($1.2 million) and new store sales ($1.9 million).
Annualized inventory turnover for the Three-month Fiscal 2000 Period, at 2.2
times, was unchanged from the turnover for the comparable period of 1999.
For the Six-month Fiscal 1999 Period, sales increased $6.8 million from the
Six-month Fiscal 1999 Period to approximately $77.5 million. This resulted from
an increase in same store merchandise sales ($1.0 million), new store sales
($5.6 million), and an increase in jewelry which was sold to scrap dealers or
through wholesale channels ($0.2 million). Annualized inventory turnover, at
2.0 times, was slightly lower in the Six-month Fiscal 2000 Period compared to
the Six-month Fiscal 1999 Period largely due to new stores, which typically
have slower inventory turnover.
For the Three-month Fiscal 2000 Period, gross profits as a percentage of sales
decreased four percentage points from the Three-month Fiscal 1999 Period to
37.0 percent. This decrease results from lower gross margins on merchandise
sales (3.8 percentage points), a decrease in inventory shrinkage when measured
as a percentage of merchandise sales (down 0.2 of a percentage point to
approximately 1.2 percent) and lower gross margins on wholesale and scrap
jewelry sales (0.4 of a percentage point). Over the last several quarters, the
Company reduced its merchandise pricing and loan guidelines in response to a
reduction in competitive retail prices, primarily in jewelry and electronics.
The majority of the reduction in gross margins on merchandise sales was due to
these price reductions and inventory forfeited by customers or acquired during
these periods.
11
<PAGE> 14
For the Six-month Fiscal 2000 Period, gross profits as a percentage of sales
decreased 3.5 percentage points from the Six-month Fiscal 1999 Period to 38.8%.
This decrease results from lower margins on merchandise sales (3.1 percentage
points) and lower margins on wholesale and scrap jewelry sales (0.4 of a
percentage point). Inventory shrinkage for the Six-month Fiscal 2000 Period was
unchanged from the same period of the prior year at 1.1 percent, when measured
as a percent of merchandise sales.
In the Three-month Fiscal 2000 Period, operating expenses as a percentage of
total revenues increased 1.6 percentage points from the Three-month Fiscal 1999
Period to 40.9 percent. This increase results primarily from new stores, which
typically experience higher levels of operating expense relative to revenues
(1.3 percentage points) and an increase in same store operating expenses,
primarily labor (0.3 of a percentage point). Administrative expenses increased
4.5 percentage points to 9.6 percent, primarily due to higher labor and
incentive compensation expense (2.2 percentage points), the write-down of a
past due note receivable (0.8 of a percentage point), and non-capitalizable
software development costs (0.6 of a percentage point).
In the Six-month Fiscal 2000 Period, operating expenses as a percentage of
total revenues increased 0.6 of a percentage point from the Six-month Fiscal
1999 Period to 40.7 percent. This increase results primarily from new stores,
which typically experience higher levels of operating expense relative to
revenues (0.8 of a percentage point), offset by a reduction in same store
operating expenses (0.2 of a percentage point). Administrative expenses
increased 1.9 percentage points to 8.8 percent, primarily from higher labor and
incentive compensation expense (0.7 of a percentage point), the write-down of a
past due note receivable (0.3 of a percentage point), and non-capitalizable
software development costs (0.3 of a percentage point).
Interest expense increased by 0.6 and 0.7 of a percentage point, respectively,
from the Fiscal 1999 Periods largely due to increased average debt balances.
Liquidity and Capital Resources
Net cash provided by operating activities for the Six-month Fiscal 2000 Period
was $12.0 million compared to $10.0 million provided in the Fiscal 1999 Period,
an increase of $2.0 million. The decrease in inventory, which increases the
cash provided by operating activities, was $4.2 million in the Fiscal 2000
Period compared to an increase in inventory of $3.6 million in the comparable
Fiscal 1999 Period, comprising $7.8 million of the net increase in cash
provided by operating activities. Partially offsetting this source of cash was
a $4.6 million reduction in the net income prior to the cumulative effect of a
change in accounting principles and a decrease in accounts payable and accrued
expenses which was $1.9 million larger than the change in the Fiscal 1999
Period. Smaller changes in other operating assets and liabilities reduced cash
provided by operating activities $0.8 million, as did a gain of $0.5 million on
the sale of assets in the Fiscal 2000 Period. Net cash provided by investing
activities was $6.7 million for the Fiscal 2000 Period compared to $11.3
million used in the Fiscal 1999 Period. The change is due to larger decreases
in pawn loan balances in the Fiscal 2000 Period compared to the Fiscal 1999
Period, lower levels of capital expenditures and investments, and proceeds of
$4.1 million from the sale of certain assets. The change in accounting
principle had no impact on cash generated from operating activities.
In the Fiscal 2000 Period, the Company invested approximately $11.7 million to
upgrade or replace existing equipment and computer systems, open five newly
established stores, and make improvements to several existing stores. The
Company funded these expenditures from cash flow provided by operating
activities while reducing bank borrowings by approximately $19.5 million. The
Company plans to significantly reduce its new store expansion to six stores
during fiscal 2000, including the five stores already opened. The Company
anticipates that cash flow from operations and funds available under its
amended bank line of credit will be adequate to fund planned capital
expenditures and working capital requirements for the remainder of the fiscal
year. However, there can be no assurance that the Company's cash flow from
operating activities and funds available under the line of credit will be
adequate for these expenditures.
At March 31, 2000 the Company was in violation of the leverage ratio and the
fixed charge coverage ratio covenants of its credit agreement with several
banks. The banks have agreed to waive these violations in consideration of
certain amendments to the credit agreement. Among other provisions, the amended
credit agreement reduces the banks' aggregate commitment from $110 million to
$85 million, requires the Company to pledge substantially all its assets as
security for amounts advanced, and adjusts the interest rate to the agent bank's
Prime Rate or Eurodollar rate plus 0 to 450 basis points, depending on certain
performance criteria. During the next quarter, the Company will review with the
banks a plan and financial projection for the balance of the term of the credit
agreement, which matures on December 3, 2001. It is management's opinion that
mutually satisfactory covenants will be negotiated based on this plan. At March
31, 2000, the Company had $64 million outstanding under this credit agreement.
12
<PAGE> 15
Seasonality
Historically, pawn service charge revenues are highest in the fourth fiscal
quarter (July, August and September) due to higher loan demand during the
summer months and merchandise sales are highest in the first and second fiscal
quarters (October through March) due to the holiday season and tax refunds.
Qualitative and Quantitative Disclosures about Market Risk
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not use derivative financial instruments.
The Company's earnings are affected by changes in interest rates due to the
impact those changes have on its variable-rate debt instruments. The majority
of the Company's long-term debt at March 31, 2000 is comprised of variable-rate
debt instruments. At March 31, 2000, the interest rate on the majority of the
Company's variable-rate debt instruments was 131 basis points higher than it
was at September 30, 1999. If interest rates average 131 basis points more
during fiscal 2000, the Company's interest expense for the year would increase
by approximately $0.8 million. This amount is determined by considering the
impact of the recent interest rate increase on the Company's variable rate
long-term debt at March 31, 2000.
The Company's earnings and financial position are affected by foreign exchange
rate fluctuations related to the equity investment in Albemarle & Bond Holdings,
plc ("A&B"). A&B's functional currency is the U.K. pound. The U.K. pound
exchange rate can directly and indirectly impact the Company's results of
operations and financial position in several ways, including potential economic
recession in the U.K. resulting from a devalued pound. The impact on the
Company's financial position and results of operations of a hypothetical change
in the exchange rate between the U.S. dollar and the U.K. pound cannot be
reasonably estimated. The translation adjustment representing the weakening in
the U.K. pound during the quarter ended March 31, 2000 was approximately $0.3
million. On March 31, 2000, the U.K. pound closed at 0.6266 to 1.00 U.S. dollar,
an increase from 0.6186 at December 31, 1999. No assurance can be given as to
the future valuation of the U.K. pound and how further movements in the pound
could effect future earnings or the financial position of the Company.
Forward-Looking Information
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statement of historical information provided herein are
forward-looking and may contain information about financial results, economic
conditions, trends and known uncertainties. The Company cautions the reader that
actual results could differ materially from those expected by the Company
depending on the outcome of certain factors, including without limitation (i)
fluctuations in the Company's inventory and loan balances, inventory turnover,
average yield on loan portfolio, redemption rates, labor and employment matters,
competition, operating risk, acquisition and expansion risk, liquidity and
capital requirements, the Company's ability to amend its credit agreement with
mutually satisfactory covenants, and the effect of government and environmental
regulations and (ii) adverse changes in the market for the Company's services.
Readers are cautioned
13
<PAGE> 16
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligations to release
publicly the results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereon, including
without limitation, changes in the Company's business strategy or planned
capital expenditures, or to reflect the occurrence of unanticipated events.
14
<PAGE> 17
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising from its normal business operations. Currently, the Company is a
defendant in several lawsuits. Some of these lawsuits involve claims for
substantial amounts. While the ultimate outcome of these lawsuits cannot be
ascertained, after consultation with counsel, the Company believes the
resolution of these suits will not have a material adverse effect on the
Company's financial condition or results of operations. However, there can be
no assurance as to the ultimate outcome of these matters.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At March 31, 2000, the Company obtained a waiver from its credit agreement
lenders for the breach of its leverage ratio covenant and its fixed charge
coverage ratio covenant at that date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit Incorporated by
Number Description Reference to
------- ----------- ---------------
<S> <C> <C> <C>
10.79 Second Amendment to Credit Agreement and
Waiver between the Company and Wells
Fargo Bank Texas, N.A., as Agent and
Issuing Bank, re: $85 million Revolving
Credit Loan. Filed herewith
18 Letter from Ernst & Young LLP re: change
in accounting principle Filed herewith
27 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K for the
quarter ended March 31, 2000.
</TABLE>
15
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EZCORP, INC.
(Registrant)
Date: May 15, 2000 By: /s/ DAN N. TONISSEN
--------------------
(Signature)
Daniel N. Tonissen
Senior Vice President,
Chief Financial Officer &
Director
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
(a) Exhibit Incorporated by
Number Description Reference to
------- ----------- ---------------
<S> <C> <C> <C>
10.79 Second Amendment to Credit Agreement and
Waiver between the Company and Wells
Fargo Bank Texas, N.A., as Agent and
Issuing Bank, re: $85 million Revolving
Credit Loan. Filed herewith
18 Letter from Ernst & Young LLP re: change in
accounting principle Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
<PAGE> 1
EXHIBIT 10.79
EZCORP, INC.
SECOND AMENDMENT TO
CREDIT AGREEMENT
AND WAIVER
AMENDED AS OF MARCH 31, 2000
WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION
AS AGENT
AND
ISSUING BANK
<PAGE> 2
SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER
THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this
"AMENDMENT") entered into as of March 31, 2000, is among EZCORP, INC., a
Delaware corporation ("BORROWER"), each of the Lenders, and WELLS FARGO BANK
TEXAS, NATIONAL ASSOCIATION (successor by consolidation to Wells Fargo Bank
(Texas), National Association), a national banking association, as Agent for
itself and the other Lenders (in such capacity, together with its successors in
such capacity the "AGENT"), and as the Issuing Bank.
RECITALS:
A. Borrower, Agent, Lenders and Issuing Bank have previously entered
into that certain Credit Agreement dated as of December 10, 1998, as amended by
that certain First Amendment to Credit Agreement dated as of September 29, 1999
(as amended, the "AGREEMENT").
B. Borrower, Agent, Lenders and Issuing Bank now desire to amend the
Agreement to (i) reduce the aggregate Commitment from One Hundred Ten Million
Dollars ($110,000,000) to Eighty-Five Million Dollars ($85,000,000), (ii)
provide collateral to secure the Obligations, (iii) modify certain financial
covenants, (iv) modify the pricing table in Section 2.10 of the Agreement, and
(v) make such other modifications, in each case as hereinafter more
specifically provided.
C. Borrower has advised Agent and Lenders that a Default has occurred
under the Agreement and has requested a waiver thereof. The Required Lenders
desire to grant such waiver as herein provided.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section I.1 Definitions. All capitalized terms not otherwise defined
herein, shall have the same meanings as in the Agreement, as amended hereby.
ARTICLE II
Amendments and Waiver
Section II.1 Recitals. Effective as of the date hereof, the reference
in the recitals to the Agreement to the dollar amount "One Hundred Ten Million
and No/100 Dollars ($110,000,000.00)" is hereby deleted and the reference to
the dollar amount "Eighty-Five Million and No/100 Dollars ($85,000,000.00)" is
inserted in lieu thereof.
Section II.2 Definitions. (a) Effective as of the date hereof, the
definition "Loan Documents" is hereby amended and restated to read as follows:
"Loan Documents" means this Agreement, the Notes, the
Guaranties, the Contribution and Indemnification Agreement, the
Borrower Security Agreement, the Subsidiary Security Agreement, the
Borrower Pledge Agreement, the Subsidiary Pledge
<PAGE> 3
Agreement, the Real Property Security Documents and all other
promissory notes, security agreements, assignments, deeds of trust,
guaranties, and other instruments, documents, and agreements now or
hereafter executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be
amended, modified, renewed, extended, or supplemented from time to
time.
(b) Effective as of the date hereof, the following definitions are
added to Section 1.1 of the Agreement in appropriate alphabetical order:
"Borrower Pledge Agreement" means the Borrower Pledge
Agreement of the Borrower in favor of the Agent for the benefit of the
Lenders in substantially the form of Exhibit "G-1" hereto, as the same
may be amended, supplemented, or modified.
"Borrower Security Agreement" means the Borrower Security
Agreement of the Borrower in favor of the Agent for the benefit of the
Lenders in substantially the form of Exhibit "F-1" hereto, as the same
may be amended, supplemented, or modified.
"Collateral" means the property in which Liens have been
granted to the Agent for the benefit of the Lenders pursuant to the
Borrower Security Agreement, the Borrower Pledge Agreement, the
Subsidiary Security Agreement, the Subsidiary Pledge Agreement, the
Real Property Security Documents, or any other agreement, document, or
instrument executed by the Borrower or a Guarantor in accordance with
Section 8.13, whether such Liens are now existing or hereafter arise.
"Real Property" means the fee owned real property and
interests in fee owned real property of the Borrower and the
Subsidiaries, including without limitation, that fee owned real
property identified on Schedule 1.1(c) attached hereto, and all
improvements and fixtures thereon and all appurtenances thereto,
whether now existing or hereinafter arising.
"Real Property Security Documents" means all deeds of trust,
mortgages and other instruments, documents and agreements executed and
delivered by the Borrower or any Guarantor in favor of the Agent for
the benefit of the Lenders, which creates a Lien on such Person's
interests in the Real Property, as the same may be amended,
supplemented or modified.
"Subsidiary Pledge Agreement" means the Subsidiary Pledge
Agreement of each Guarantor in favor of the Agent for the benefit of
the Lenders in substantially the form of Exhibit "G-2" hereto, as the
same may be amended, supplemented or modified.
"Subsidiary Security Agreement" means the Subsidiary Security
Agreement of each Guarantor in favor of the Agent for the benefit of
the Lenders in substantially the form of Exhibit "F-2" hereto, as the
same may be amended, supplemented, or modified.
Section II.3 Amendment to Pricing Table in Section 2.10. (a) Effective
as of May 15, 2000, the table set forth in Section 2.10 of the Agreement is
hereby amended and restated to read in its entirety as follows:
<TABLE>
<CAPTION>
================================== ======================== ===================== ===================
Leverage Ratio Commitment Eurodollar Base Rate
Fee Margin Margin
---------------------------------- ------------------------ --------------------- -------------------
<S> <C> <C> <C>
Greater than or equal to 5.5 to 0.25% 4.50% 2.50%
1.0
---------------------------------- ------------------------ --------------------- -------------------
Greater than or equal to 4.5 to 0.25% 3.75% 1.75%
1.0 but less than 5.5 to 1.0
---------------------------------- ------------------------ --------------------- -------------------
Greater than or equal to 3.5 to 0.25% 3.00% 1.0%
1.0 but less than 4.5 to 1.0
---------------------------------- ------------------------ --------------------- -------------------
Greater than or equal to 3.0 to 0.25% 2.000% 0%
1.0 but less than 3.5 to 1.0
---------------------------------- ------------------------ --------------------- -------------------
Greater than or equal to 2.0 to 0.25% 1.375% 0%
1.0 but less than 3.0 to 1.0
---------------------------------- ------------------------ --------------------- -------------------
Less than 2.0 to 1.0 0.25% 1.00% 0%
================================== ======================== ===================== ===================
</TABLE>
<PAGE> 4
(b) Effective as of the date hereof, the following is added to the end
of Section 2.10 of the Agreement, to read as follows:
Notwithstanding anything contained herein to the contrary, for the
period beginning May 15, 2000 until the next Adjustment Date, the
Commitment Fee, the Eurodollar Margin and the Base Rate Margin shall
automatically be adjusted to the highest applicable percentage set
forth in the grid above.
Section II.4 Mandatory Reduction or Termination of Commitments.
Effective as of the date hereof, the following is added to the end of Section
2.11(b) of the Agreement, to read as follows:
In addition, on the date the Borrower or any Subsidiary receives funds
from mortgages on Real Property, the Commitments shall automatically
be reduced by the amount of such funds received, which amount shall
not be less than 75% of the appraisal value of such Real Property as
determined by the appraisal described in Section 8.13(f) and the
Borrower shall simultaneously prepay the amount by which the unpaid
principal amount of the Advances plus the Letter of Credit Liabilities
exceeds the Commitments (after giving effect to such reduction) plus
accrued and unpaid interest on the principal amount so prepaid.
Section II.5 Further Assurances. Effective as of the date hereof,
Section 8.10 of the Agreement is hereby amended and restated to read in its
entirety as follows:
Section 8.10 Further Assurances. The Borrower will, and will
cause each Subsidiary to, execute and deliver such further agreements
and instruments and take such further action as may be reasonably
requested by the Agent to carry out the provisions and purposes of
this Agreement and the other Loan Documents. Without limiting the
foregoing, upon the creation or acquisition of any Subsidiary or a new
store by a new Subsidiary or by an existing Subsidiary in a new state,
the Borrower shall (a) provide written notice of such event to the
Agent within five (5) Business Days following the date the Borrower
has knowledge thereof, and (b) cause each such domestic Subsidiary to
execute and deliver a Guaranty, a Contribution and Indemnification
Agreement, a Subsidiary Security Agreement, a Subsidiary Pledge
Agreement, Real Property Security Documents and Uniform Commercial
Code financing statements and such other documents required by Section
8.13, each in form and substance satisfactory to the Agent, within
thirty (30) calendar days following the date the Borrower has
knowledge thereof. If any Subsidiary is created or acquired after the
date hereof, the Borrower shall execute and deliver to the Agent (a)
an amendment to this Agreement to amend Schedule 7.14 to this
Agreement (which only needs the signature of the Agent to be effective
if the only change is the addition of the new Subsidiary and (b) any
other documents which would have otherwise been required to be
delivered to the Agent and the Lenders if such Subsidiary had been a
Subsidiary as of March 31, 2000.
<PAGE> 5
Section II.6 Post-Closing Items; Real Property Security Documents.
Effective as of the date hereof, a new Section 8.13 is hereby added to Article
VIII of to the Agreement to read in its entirety as follows:
Section 8.13 Post-Closing Items; Real Property Security
Documents. The Borrower agrees that it shall, and shall cause each
Significant Subsidiary, to:
(a) Use its best efforts to obtain and deliver to
the Agent on or before August 15, 2000 from each landlord of
each real property leased to the Borrower or any Subsidiary,
waivers or subordinations to the grant by the Borrower and
the Subsidiaries of a Lien to the Agent in the personal
property Collateral located on such leased real property, in
each case in form and substance reasonably satisfactory to
the Agent;
(b) Execute and deliver to the Agent on or before
July 7, 2000 Real Estate Security Documents, all in form and
substance reasonably satisfactory to the Agent, covering each
parcel of the Real Property, with a metes and bounds or other
description of each such parcel attached thereto sufficient
to permit the filing of such Real Property Security Documents
in the applicable real property records;
(c) Deliver to the Agent as soon as available but in
any event on or before June 30, 2000, with respect to each
parcel of the Real Property, a title insurance commitment
issued by a title insurance company selected by the Borrower
and reasonably acceptable to the Agent, and all documentation
evidencing any exceptions to title reflected thereon, all of
which shall be in form and substance reasonably satisfactory
to the Agent;
(d) Deliver to the Agent on or before August 31,
2000, with respect to each parcel of the Real Property, a
survey of such Real Property and certified by a licensed
surveyor selected by the Borrower and reasonably acceptable
to the Agent, in form and substance reasonably satisfactory
to the Agent;
(e) Deliver to the Agent as soon as available but in
any event on or before August 31, 2000, with respect to each
parcel of the Real Property, a phase I environmental report
for such Real Property, prepared by a third party
environmental engineer selected by the Borrower and
reasonably acceptable to the Agent;
(f) Deliver to the Agent as soon as available but in
any event on or before July 31, 2000, with respect to each
parcel of the Real Property, an appraisal for such Real
Property by a licensed appraiser selected by the Agent in
form and substance satisfactory to the Agent;
(g) Deliver to the Agent as soon as available but in
any event on or before September 30, 2000, with respect to
each parcel of the Real Property, a lender's title insurance
policy (together with any required endorsements thereto)
issued by a title insurer selected by the Borrower and
reasonably satisfactory to the Agent in an amount equal to
the fair market value of the underlying property as
determined by the appraisal described in subsection (f)
above; and
(h) Deliver to the Agent as soon as available but in
any event on or before June 15, 2000, certificates of the
appropriate government officials of each state in which
EZPAWN Alabama, Inc. is required to qualify to do business
and where failure to so qualify could reasonably be expected
to have a Material Adverse Effect, all dated after May 1,
2000.
<PAGE> 6
Section II.7 Debt. Effective as of the date hereof, Section 9.1(c) of
the Agreement is hereby amended and restated to read as follows:
(c) Debt incurred in connection with refinancings secured by
mortgages on Real Property described in Section 2.11(b), provided that
proceeds from such Debt permanently reduce the Commitments pursuant to
Section 2.11(b).
Section II.8 Limitations on Liens. (a) Effective as of the date
hereof, (i) the word "and" appearing as the last word of Section 9.2(d) of the
Agreement is hereby deleted and (ii) Section 9.2(e) of the Agreement is hereby
amended and restated to read in its entirety as follows:
(e) Purchase money Liens securing Permitted Debt described in
Section 9.1(b); provided that, the Debt secured by any such Lien
encumbers only the assets so purchased; and
(b) Effective as of the date hereof, a new Section 9.2(f) is hereby
added to Article IX of the Agreement to read in its entirety as follows:
(f) Liens securing Permitted Debt described in Section
9.1(c); provided that, the Debt secured by any such Lien encumbers
only the Real Property refinanced by such Permitted Debt.
Section II.9 Restricted Payments. Effective as of the date hereof,
Section 9.4 of the Agreement is hereby amended and restated to read as follows:
Section 9.4 Restricted Payments. The Borrower will not
declare or pay any dividends or make any other payment or distribution
(whether in cash, property, or obligations) on account of its capital
stock, or redeem, purchase, retire, or otherwise acquire any of its
capital stock, or permit any of its Subsidiaries to purchase or
otherwise acquire any capital stock of the Borrower or another
Subsidiary, or set apart any money for a sinking or other analogous
fund for any dividend or other distribution on its capital stock or
for any redemption, purchase, retirement, or other acquisition of any
of its capital stock.
Section II.10 Investments. Effective as of the date hereof, Section 9.5
of the Agreement is hereby amended and restated to read as follows:
Section 9.5 Investments. The Borrower will not make, and will
not permit any Subsidiary to make, any advance, loan, extension of
credit, or capital contribution to or investment in, or purchase to
own, or permit any Subsidiary to purchase or own, any stock, bonds,
notes, debentures, or other securities of any Person, except:
(a) loans and investments listed on Schedule 9.5; and
(b) any loans and investments not covered in the
previous section of this Section 9.5 not to exceed One
Million Dollars ($1,000,000) in the aggregate.
Section II.11 Dispositions of Assets. Effective as of the date hereof,
(a) the reference in Section 9.8(d) of the Agreement to the dollar amount
"Fifteen Million Dollars ($15,000,000)" is deleted and the reference to the
dollar amount "Seventeen Million Dollars ($17,000,000)" is inserted in lieu
thereof and (b) the reference in Section 9.8(d) of the Agreement to the date
"September 30, 1998" is deleted and the reference to the date "March 31, 2000"
is inserted in lieu thereof.
Section II.12 Consolidated Net Worth. Effective as of the date hereof,
Section 10.1 of the Agreement is hereby amended and restated in its entirety to
read as follows:
<PAGE> 7
Section 10.1 Consolidated Net Worth. Beginning with the
Fiscal Quarter ending March 31, 2000, the Borrower will at all times
maintain Consolidated Net Worth in an amount not less than (a) One
Hundred Fifteen Million Dollars ($115,000,000), plus (b) an amount
equal to one hundred percent (100%) of Consolidated Net Income (not
less than zero dollars [$0.00]) for all periods subsequent to the
Fiscal Quarter ending March 31, 2000, plus (c) an amount equal to one
hundred percent (100%) of the Net Proceeds of all equity offerings
(including conversions of debt securities into common stock) of the
Borrower subsequent to March 31, 2000.
Section II.13 Capital Expenditures. Effective as of the date hereof,
Section 10.3 of the Agreement is hereby amended and restated in its entirety to
read as follows:
Section 10.3 Capital Expenditures. Borrower will not permit
the aggregate amount of Capital Expenditures of the Borrower and the
Subsidiaries to exceed (a) Eighteen Million Dollars ($18,000,000)
during the Fiscal Year ending September 30, 2000 and (b) Five Million
Dollars ($5,000,000) during any Fiscal Year thereafter.
Section II.14 Events of Default. Effective as of the date hereof, the
reference in Section 11.1(c) of the Agreement to "Section 8.1" is deleted and
the reference to "Section 8.1, Section 8.13" is inserted in lieu thereof.
Section II.15 Successor Agent. Effective as of the date hereof, a new
paragraph is hereby added to Section 12.7 of the Agreement to read as follows:
In the event that the Agent, for the benefit of itself and
the Lenders, elects or is required to proceed with a foreclosure or
other enforcement of any Lien granted to the Agent for the benefit of
itself and the Lenders, the Agent may, without in any manner limiting
its available remedies, and at the request of the Required Lenders
shall, submit a bid for all Lenders (including itself) in the form of
a credit against the Obligations, and the Agent or its designee, in
the event that the Agent or its designee is the successful bidder at
any such foreclosure sale, shall accept title, for the benefit of
itself and the Lenders, to the Collateral sold at such foreclosure
sale. The Collateral purchased at any such sale held shall be owned by
the Agent, or its designee, for the benefit of the Lenders. All monies
received or collected by the Agent in respect of the Collateral in
connection with a foreclosure sale, or any other disposition of the
Collateral, shall be paid to the Lenders pro-rata consistent with
Section 4.4 hereof.
Section II.16 Amendments. Effective as of the date hereof, (i) the
word "and" appearing as the last word of Section 13.10(f) of the Agreement is
hereby deleted, (ii) the period appearing at the end of Section 13.10(g) is
hereby amended to be a semi-colon followed by the word "and," and (iii) a new
Section 13.10(h) is hereby added to the Agreement to read: "(h) release any
Collateral securing the Obligations except in accordance with and as
contemplated by the Loan Documents."
Section II.17 Reduction of Commitment. Effective as of the date hereof
the aggregate Commitment is hereby reduced from One Hundred Ten Million Dollars
($110,000,000) to Eight-Five Million Dollars ($85,000,000), and accordingly
Schedule 1.1(a) to the Agreement is hereby amended to read in the form attached
hereto as Schedule 1.1(a).
Section II.18 Exhibits "F-1", "F-2", "G-1" and "G-2" and Schedules 9.1
and 9.5 to the Agreement. Effective as of the date hereof, all references in
the Agreement to "Exhibit 'F-1'", "Exhibit 'F-2'", "Exhibit 'G-1'", "Exhibit
'G-2'", "Schedule 9.1" and "Schedule 9.5" are deemed to refer to the Exhibit
"F-1", Exhibit "F-2", Exhibit "G-1", Exhibit "G-2", Schedule 9.1 and Schedule
9.5 attached hereto.
Section II.19 Waiver. The Borrower has advised the Agent, the Issuing
Bank and the Lenders that (a) a violation of the Leverage Ratio covenant
contained in Section 10.2 of the Agreement occurred
<PAGE> 8
during the Fiscal Quarter ended March 31, 2000, and (b) a violation of the Fixed
Charge Coverage Ratio covenant contained in Section 10.5 of the Agreement
occurred during the Fiscal Quarter ended March 31, 2000 (collectively, the
"COVENANT DEFAULTS"). Effective as of the date hereof, the Required Lenders
hereby waive the Covenant Defaults.
ARTICLE III
Conditions Precedent
Section III.1 Condition. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent:
(a) Agent shall have received all of the following, each
dated (unless otherwise indicated) the date of this Amendment, in form
and substance satisfactory to the Agent:
(i) This Amendment executed by the Borrower, the
Agent, the Issuing Bank and the Required Lenders and consented
to by the Guarantors.
(ii) The Borrower Security Agreement (herein so
called) in the form attached hereto as Exhibit "F-1" executed
by the Borrower.
(iii) The Subsidiary Security Agreement (herein so
called) in the form attached hereto as Exhibit "F-2" executed
by the Guarantors.
(iv) The Borrower Pledge Agreement (herein so called)
in the form attached hereto as Exhibit "G-1" executed by the
Borrower.
(v) The Subsidiary Pledge Agreement (herein so called)
in the form attached hereto as Exhibit "G-2" executed by the
Guarantors.
(vi) UCC-1 Financing Statements (the "FINANCING
STATEMENTS") executed by the Borrower and the Guarantors in
connection with the Borrower Security Agreement, the
Subsidiary Security Agreement, the Borrower Pledge Agreement
and the Subsidiary Pledge Agreement.
(vii) Resolutions of the Board of Directors of Borrower
certified by its secretary or assistant secretary which
authorizes the execution, delivery and performance by
Borrower of this Amendment, the Borrower Security Agreement,
the Borrower Pledge Agreement, the Financing Statements and
the other Loan Documents executed in connection herewith.
(viii) A certificate of incumbency certified by the
secretary or the assistant secretary of Borrower certifying
the names of the officers thereof authorized to sign this
Amendment, the Borrower Security Agreement, the Borrower
Pledge Agreement, the Financing Statements and the other Loan
Documents together with specimen signatures of such officers.
(ix) Resolutions of the Board of Directors of each of
the Guarantors certified by its secretary or assistant
secretary which authorize the execution, delivery and
performance by each of the Guarantors of this Amendment, the
Subsidiary Security Agreement, the Subsidiary Pledge
Agreement, the Financing Statements and the other Loan
Documents executed in connection herewith.
(x) A certificate of incumbency certified by the
secretary or the assistant secretary of each Guarantor
certifying the names of the officers thereof authorized to
sign this Amendment, the Subsidiary Security Agreement, the
Subsidiary Pledge Agreement,
<PAGE> 9
the Financing Statements and the other Loan Documents together
with specimen signatures of such officers.
(xi) A bring down certificate of the Secretary or
Assistant Secretary of the Borrower and each Guarantor
certifying that the Articles of Incorporation (or Partnership
Agreement) and Bylaws have not been modified in any respect
from the copies thereof previously provided to the Agent and
the Lenders in connection with the Credit Agreement dated as
of December 10, 1998 among the Borrower, the Agent, the
Issuing Bank and the Lenders.
(xii) Certificates of the appropriate government
officials of the state of incorporation of the Borrower and
each Guarantor (and state of formation as to Texas EZPAWN
L.P. ("TELP")) as to the existence and good standing of the
Borrower and each Guarantor and certificates of the
appropriate government officials of each state in which the
Borrower and each Guarantor is required to qualify to do
business and where failure to so qualify could reasonably be
expected to have a Material Adverse Effect, all dated within
ten (10) days of May 15, 2000.
(xiii) A favorable opinion of Sheinfeld, Maley & Kay,
P.C., legal counsel to the Borrower and each Guarantor
satisfactory to the Agent as to such matters as the Agent may
reasonably request.
(b) No Default. No Default (other than the Covenant Defaults)
shall have occurred and be continuing.
(c) Representations and Warranties. All of the
representations and warranties contained in Article VII of the
Agreement, as amended hereby and in the other Loan Documents shall be
true and correct on and as of the date of this Amendment with the same
force and effect as if such representations and warranties had been
made on and as of such date, except to the extent such representations
and warranties speak to a specific date.
(d) Waiver and Amendment Fee. Borrower shall have paid to the
Agent for the account of the Lenders executing this Amendment a waiver
of default and amendment fee in an amount equal to 0.10% of such
Lender's Commitment as reduced by Section 2.17 of this Amendment.
ARTICLE IV
Ratifications, Representations and Warranties
Section IV.1 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower, Required Lenders, Issuing Bank and Agent agree that the
Agreement as amended hereby and the other Loan Documents shall continue to be
legal, valid, binding and enforceable in accordance with their respective
terms.
Section IV.2 Representations and Warranties. Borrower hereby
represents and warrants to Lenders, Agent and Issuing Bank that (i) the
execution, delivery and performance of this Amendment and any and all other
Loan Documents executed and/or delivered in connection herewith have been
authorized by all requisite corporate action on the part of Borrower and will
not violate the articles of incorporation or bylaws of Borrower, (ii) the
representations and warranties contained in the Agreement, as amended hereby,
and any other Loan Document are true and correct on and as of the date hereof
as though made on and as of the date hereof, except to the extent such
representations and warranties speak to a specific date, (iii) no Event of
Default (other than the Covenant Defaults) has occurred and is continuing and
no event or condition has occurred that with the giving of notice or lapse of
time or both
<PAGE> 10
would be an Event of Default, (iv) Borrower is in full compliance with all
covenants and agreements contained in the Agreement as amended hereby, (v) the
Borrower has no Subsidiaries other than those listed on Schedule 7.14 to the
Agreement. All of the outstanding capital stock of each corporate Subsidiary has
been validly issued, is fully paid and is nonassessable.
ARTICLE V
Miscellaneous
Section V.1 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan
Document including any Loan Document furnished in connection with this
Amendment shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Lenders, Agent or Issuing Bank or
any closing shall affect the representations and warranties or the right of
Lenders or Agent or Issuing Bank to rely upon them.
Section V.2 Reference to Agreement. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Agreement shall
mean a reference to the Agreement as amended hereby.
Section V.3 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section V.4 Applicable Law. This Amendment and all other Loan
Documents executed pursuant hereto shall be deemed to have been made and to be
performable in Austin, Travis County, Texas and shall be governed by and
construed in accordance with the laws of the State of Texas.
Section V.5 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Lenders, Agent, Issuing Bank and Borrower and
their respective successors and assigns, except Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of Banks.
Section V.6 Counterparts. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same instrument. Signatures transmitted by facsimile shall be effective as
originals.
Section V.7 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY
NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS AMONG THE PARTIES HERETO.
[Remainder of Page Intentionally Left Blank]
<PAGE> 11
Executed as of the date first written above.
BORROWER:
EZCORP, INC.
By:
------------------------------------------
Daniel N. Tonissen
Chief Financial Officer
Address for Notices:
1901 Capital Parkway
Austin, TX 78746
Fax No.: (512) 314-3402
Telephone No.: (512) 329-5233
Attention: Dan Tonissen
Chief Financial Officer
<PAGE> 12
AGENT AND ISSUING BANK:
WELLS FARGO BANK TEXAS, NATIONAL
ASSOCIATION
By:
-------------------------------------
Keith Smith
Vice President
Address for Notices:
111 Congress Avenue, Suite 300
Austin, TX 78701
Fax No.: (512) 344-7318
Telephone No.: (512) 344-7011
Attention: Keith Smith
LENDERS:
WELLS FARGO BANK TEXAS, NATIONAL
ASSOCIATION
By:
-------------------------------------
Keith Smith
Vice President
Address for Notices:
111 Congress Avenue, Suite 300
Austin, TX 78701
Fax No.: (512) 344-7318
Telephone No.: (512) 344-7011
Attention: Keith Smith
Lending Office for Prime Rate Advances
and Eurodollar Advances
111 Congress Avenue
Austin, Texas 78701
<PAGE> 13
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By:
-------------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notices:
221 W. Sixth Street, Suite 219
Austin, TX 78701
Fax No.: (512) 479-5720
Telephone No.: (512) 479-5783
Attention: Chris Calvert
Lending Office for Prime Rate Advances
and Eurodollar Advances
221 W. Sixth Street, Suite 219
Austin, Texas 78701
<PAGE> 14
GUARANTY FEDERAL BANK, F.S.B.
By:
-------------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notices:
301 Congress, Suite 1500
Austin, TX 78701
Attention: Chris Harkrider
Fax No.: (512) 320-1041
Telephone No.: (512) 320-1205
Lending Office for Prime Rate Advances
and Eurodollar Advances
8333 Douglas Avenue
Dallas, TX 75255
<PAGE> 15
COMERICA BANK-TEXAS
By:
-------------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notices:
P.O. Box 2727
Austin, Texas 78768
Fax No.: (512) 427-7120
Telephone No.: (512) 427-7121
Attention: Mark Hensley
and
1601 West Elm Street
Thanksgiving Tower, 4th Floor
P.O. Box 650282
Dallas, Texas 75265-0282
Telephone No.: (214) 969-6472
Attention: Gary Orr, Chief Credit Officer
Lending Office for Prime Rate Advances
and Eurodollar Advances
804 Congress Avenue
Suite 320
Austin, Texas 78701
<PAGE> 16
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By:
-------------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notices
700 Lavaca, 2nd Floor
Austin, Texas 78701
Fax No.: (512) 479-2814
Telephone No.: (512) 479-2244
Attention: Blake Beavers
Lending Office for Prime Rate Advances
and Eurodollar Advances
700 Lavaca, 2nd Floor
Austin, Texas 78701
<PAGE> 17
Guarantors hereby consent and agree to this Amendment and agree that
each Guaranty shall remain in full force and effect and shall continue to (i)
guarantee the Obligations, and (ii) be the legal, valid and binding obligation
of Guarantors enforceable against Guarantors in accordance with their
respective terms.
GUARANTORS:
EZPAWN ALABAMA, INC.
EZPAWN ARKANSAS, INC.
EZPAWN COLORADO, INC.
EZPAWN FLORIDA, INC.
EZPAWN GEORGIA, INC.
EZPAWN HOLDINGS, INC.
EZPAWN INDIANA, INC.
EZPAWN LOUISIANA, INC.
EZPAWN NEVADA, INC.
EZPAWN NORTH CAROLINA, INC.
EZPAWN OKLAHOMA, INC.
EZPAWN TENNESSEE, INC.
TEXAS EZPAWN MANAGEMENT, INC.
EZ CAR SALES, INC.
EZPAWN CONSTRUCTION, INC.
EZPAWN KANSAS, INC.
EZPAWN KENTUCKY, INC.
EZPAWN MISSOURI, INC.
EZPAWN SOUTH CAROLINA, INC.
EZCORP INTERNATIONAL, INC.
EZ MONEY NORTH CAROLINA, INC.
By:
---------------------------------------
Daniel N. Tonissen
Senior Vice President
TEXAS EZPAWN L.P.
By: TEXAS EZPAWN MANAGEMENT, INC.,
its sole general partner
By:
--------------------------
Daniel N. Tonissen
Senior Vice President
<PAGE> 1
EXHIBIT 18
May 15, 2000
Board of Directors
EZCORP, Inc.
1901 Capital Parkway
Austin, Texas 78746
Dear Sirs:
Note B of Notes to Interim Condensed Consolidated Financial Statements
(Unaudited) of EZCORP, Inc. included in its Form 10-Q for the period ended March
31, 2000 describes a change in the method of accounting for pawn service charge
revenue recognition. After the change, the Company will accrue pawn service
charge revenues only on the percentage of loans expected to be repaid, and
inventory obtained through loan default will be recorded at the lower of cost
(the principal amount of the loan) or market. Previously, pawn service charges
were accrued on all loans, and the carrying value of the forfeited collateral
was the lower of cost (principal amount of loan plus accrued pawn service
charges) or market.
There are no authoritative criteria for determining a "preferable" pawn service
charge method based on the particular circumstances; however, we conclude that
such change in the method of accounting is to an acceptable alternative method
which, based on your business judgment to make this change and for the stated
reasons, is preferable in your circumstances. We have not conducted an audit in
accordance with generally accepted auditing standards of any financial
statements of the Company as of any date or for any period subsequent to
September 30, 1999, and therefore we do not express any opinion on any financial
statements of EZCORP, Inc. subsequent to that date.
Very truly yours,
/s/ Ernst & Young LLP
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,816
<SECURITIES> 0
<RECEIVABLES> 46,693
<ALLOWANCES> 0
<INVENTORY> 40,433
<CURRENT-ASSETS> 100,451
<PP&E> 106,349
<DEPRECIATION> 41,848
<TOTAL-ASSETS> 199,622
<CURRENT-LIABILITIES> 11,927
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 121,879
<TOTAL-LIABILITY-AND-EQUITY> 199,622
<SALES> 77,525
<TOTAL-REVENUES> 107,637
<CGS> 47,482
<TOTAL-COSTS> 105,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,532
<INCOME-PRETAX> (137)
<INCOME-TAX> (47)
<INCOME-CONTINUING> (90)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (13,625)
<NET-INCOME> (13,715)
<EPS-BASIC> (1.14)
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