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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 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 000-19424
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EZCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2540145
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
1901 CAPITAL PARKWAY
AUSTIN, TEXAS 78746
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (512) 314-3400
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Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange
------------------- on Which Registered
Class A Non-voting Common Stock -------------------
$.01 par value per share The Nasdaq Stock Market
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
--- ---
Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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. The aggregate market value
of the Class A Non-voting Common Stock held by non-affiliates of the registrant
as of December 1, 2000, based on the closing price on The Nasdaq Stock Market
on such date, was $16 million.
As of December 1, 2000, 10,897,040 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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EZCORP, INC.
YEAR ENDED SEPTEMBER 30, 2000
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
Item Page
No. No.
---- ----
<S> <C> <C>
INTRODUCTION
PART I.
1. Business 3
2. Properties 15
3. Legal Proceedings 17
4. Submission of Matters to a Vote of Security Holders 17
PART II.
5. Market for Registrant's Common Equity and Related Stockholder Matters 18
6. Selected Financial Data 19
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 20
7A. Qualitative and Quantitative Disclosures About Market Risk 25
8. Financial Statements and Supplementary Data 26
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 47
PART III.
10. Directors and Executive Officers of the Registrant 48
11. Executive Compensation 51
12. Security Ownership of Certain Beneficial Owners and Management 56
13. Certain Relationships and Related Party Transactions 58
PART IV.
14. Financial Statement Schedules, Exhibits, and Reports on Form 8K 59
SIGNATURES
</TABLE>
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PART I
ITEM 1. BUSINESS
EZCORP, Inc. (the "Company") is a Delaware corporation with its principal
executive offices located at 1901 Capital Parkway, Austin, Texas 78746. Its
telephone number is (512) 314-3400. References to the Company include the
subsidiaries listed in Exhibit 22.1.
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.
GENERAL
The Company is primarily engaged in establishing, acquiring, and operating
pawnshops which function as convenient sources of consumer credit and as
value-oriented specialty retailers of primarily previously owned merchandise.
Through its lending function, the Company makes relatively small, non-recourse
loans secured by pledges of tangible personal property. The Company contracts
for a pawn service charge to compensate it for each pawn loan. Pawn service
charges, which generally range from 12% to 300% per annum, are calculated based
on the dollar amount and duration of the loan and accounted for approximately
29% of the Company's revenues for the year ended September 30, 2000 ("Fiscal
2000"). In Fiscal 2000, approximately 77% of the loans made by the Company were
redeemed in full or were renewed or extended through the payment of the pawn
service charges. In most states in which the Company operates, collateral is
held one month with a 60-day extension period after which such collateral is
forfeited for resale.
As of December 1, 2000, the Company operated 297 locations: 187 in Texas, 24 in
Colorado, 21 in Oklahoma, 18 in Indiana, 18 in Florida, 8 in Alabama, 7 in
California, 3 in Tennessee, 4 in Nevada, 3 in Louisiana, 3 in Mississippi and 1
in Arkansas. During the Company's fourth fiscal quarter, the Company made the
decision to close fifty-four under-performing stores. As of the end of
September 30, 2000, twenty-three of these fifty-four stores had been closed.
The pawnshop industry in the United States is large and highly fragmented. The
industry consists of over 10,000 pawnshops owned primarily by independent
operators who typically own one to three locations.
LENDING ACTIVITIES
The Company is primarily engaged in the business of making pawn loans, which
typically are relatively small, non-recourse loans secured by pledges of
tangible personal property. As of September 30, 2000, the Company had
approximately 670,000 loans outstanding, representing an aggregate principal
balance of $46.9 million. The Company contracts for a pawn service charge to
compensate it for a pawn loan. A majority of the Company's outstanding pawn
loans are in an amount that permits pawn service charges of 20% per month or
240% per annum. For Fiscal 2000, pawn service charges accounted for
approximately 29% of the Company's total revenues.
Collateral for the Company's pawn loans consists of tangible personal property,
generally jewelry, consumer electronics, tools, and musical instruments. The
Company does not investigate the creditworthiness of a borrower, but relies on
the estimated resale value of the pledged property, the perceived probability
of its redemption, and the estimated time required to sell the item as a basis
for its credit decision. The amount that the Company is willing to lend
generally ranges from 20% to 65% of the pledged property's estimated resale
value depending on an evaluation of these factors. The sources for the
Company's determination of the resale value of collateral include catalogues,
blue books, newspaper advertisements, and previous sales of similar
merchandise.
The pledged property is held through the term of the loan, which in Texas is
one month with an automatic 60-day grace period, unless repaid or renewed
earlier. The Company seeks to maintain a redemption rate between 70% and 80%,
and in each of the Company's last three fiscal periods, it achieved this
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targeted redemption rate. The redemption rate is maintained through loan policy
and proper implementation of such policy at the store level. If a borrower does
not repay, extend, or renew a loan, the collateral is forfeited to the Company
and then becomes inventory available for sale in the Company's pawnshops. The
Company does not record loan losses or charge-offs because the principal amount
of an unpaid loan becomes the carrying cost of the forfeited collateral. The
Company evaluates the salability of inventory and provides an allowance for
valuation of inventory, based on the type of merchandise, recent sales trends
and margins, and the age of merchandise.
The table below shows the dollar amount of loan activity by the Company for the
fiscal years ended September 30, 1998, 1999 and 2000:
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
--------------------------------
1998 1999 2000
-------- -------- --------
(dollars in millions)
<S> <C> <C> <C>
Loans made $ 180.9 $ 208.2 $ 187.6
Loans repaid (114.4) (126.3) (122.2)
Loans forfeited (60.3) (77.9) (71.8)
Loans acquired (sold) 0.6 0.3 (0.6)
------- ------- -------
Net increase (decrease) in pawn loans outstanding at the end of the
year $ 6.8 $ 4.3 $ (7.0)
</TABLE>
The realization of gross profit on sales of inventory primarily depends on the
Company's initial assessment of the property's estimated resale value. Improper
assessment of the resale value of the collateral in the lending function can
result in reduced marketability of the property and the realization of a lower
margin. Jewelry, which constitutes approximately 60% of the principal amount of
items pledged, can be evaluated primarily based on weight, carat content, and
value of gemstones, if any. The other items pawned typically consist of
consumer electronics, tools, and musical instruments. These can be evaluated
based on recent sales experience and the selling price of similar new
merchandise, adjusted for age, wear, and obsolescence.
At the time a pawn transaction is made, a pawn loan agreement, commonly
referred to as a pawn ticket, is delivered to the borrower. It sets forth,
among other things, the name and address of the pawnshop and the borrower, the
borrower's identification number from his driver's license, military
identification or other official number, the date of the loan, an
identification and description of the pledged goods (including applicable
serial numbers), the amount financed, the pawn service charge, the maturity
date of the loan, the total amount that must be paid to redeem the pledged
goods on the maturity date, and the annual percentage rate.
Of the Company's 297 locations in operation as of December 1, 2000, 187 were
stores located in Texas. Accordingly, Texas pawnshop laws and regulations
govern most of the Company's operations. In Texas, pawnshop operations are
regulated by the State of Texas Office of Consumer Credit Commissioner in
accordance with Chapter 371 of the Texas Finance Code, commonly known as the
Texas Pawnshop Act (the "Pawnshop Act") and Rules of Operation for Pawnshops
(the "Rules"). See "Regulation".
The maximum allowable pawn service charges for stratified loan amounts made in
the State of Texas are set in accordance with Texas law under the Pawnshop Act.
Historically, the maximum allowable pawn service charges under Texas law have
not changed; however, the stratified loan amounts have been adjusted upward by
nominal amounts each year. The maximum allowable pawn service charges under the
Pawnshop Act for the various stratified loan amounts for the year beginning
July 1, 1999 and ending June 30, 2000 and for the year beginning July 1, 2000
and ending June 30, 2001 are as follows:
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SCHEDULE OF APPLICABLE LOAN SERVICE CHARGES FOR TEXAS
<TABLE>
<CAPTION>
Year Ended June 30, 2000 Year Ending June 30, 2001
-------------------------------- ---------------------------------
Maximum Maximum
Allowable Allowable
Annual Annual
Amount Financed Percentage Amount Financed Percentage
Per Pawn Loan Rate Per Pawn Loan Rate
----------------- ---------- ----------------- ----------
<S> <C> <C> <C>
$1 to $141 240% $1 to $144 240%
$142 to $470 180% $145 to $480 180%
$471 to $1,410 30% $481 to $1440 30%
$1,411 to $11,750 12% $1,441 to $12,000 12%
</TABLE>
Under Texas law, there is a ceiling on the maximum allowable pawn loan. For the
period July 1, 1999 through June 30, 2000, the loan ceiling was $11,750. For
the period July 1, 2000 through June 30, 2001, the loan ceiling is $12,000. The
Company's average loan amount at the end of Fiscal 2000 was approximately $70.
RETAIL ACTIVITIES
Jewelry sales represent approximately 45% of the Company's merchandise sales
with the remaining sales consisting primarily of consumer electronics, tools,
and musical instruments. The Company believes its ability to offer quality used
merchandise at prices significantly lower than original retail prices attracts
value-conscious customers. The Company obtains its inventory primarily from
unredeemed collateral, and to a lesser extent, from purchases from the general
public and from wholesale sources. For Fiscal 2000, purchases from the general
public and from wholesale sources constituted approximately 11% of the dollar
value of inflows to inventory. During Fiscal 2000, $71.8 million of merchandise
was added to inventory through forfeited collateral. For Fiscal 2000, retail
activities accounted for approximately 71% of the Company's total revenues, but
only 47% of the Company's net revenue, after deducting cost of goods sold on
merchandise sales.
Analysis of the sales and inventory data provided by the Company's management
information systems facilitates the design and development of promotional and
merchandising programs and merchandise pricing decisions. Regional and area
managers implement these promotional and merchandising programs, review
merchandise pricing decisions, and balance inventory levels within markets.
The Company does not give prospective buyers any warranties on most merchandise
sold through its retail operations, except for certain purchases of new,
wholesale-purchased merchandise, which may have a limited manufacturer's
warranty. Prospective buyers may purchase an item on layaway, whereby a
prospective purchaser will typically put down a minimum of 20% of an item's
purchase price as a customer layaway deposit. The Company will hold the item
for a 90-day period during which the customer is required to pay for the item
in full. As of September 30, 2000, the Company had $2.3 million in customer
layaway deposits and related payments.
The Company's overall inventory is stated at the lower of cost or market. The
Company provides inventory reserves for shrinkage and cost in excess of market
value. The Company estimates these reserves through study and analysis of sales
trends, inventory turnover, inventory aging, margins achieved on recent sales,
and shrinkage. Valuation allowances, including shrinkage reserves, amounted to
$2.2 million as of September 30, 2000. At September 30, 2000, total inventory
on hand was $35.7 million, after deducting such allowance for shrinkage and
valuation of inventory.
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SEASONALITY
Historically, pawn service charge revenues are highest in the Company's fiscal
fourth quarter (July, August, and September) due to higher loan demand during
the summer months. Merchandise sales are highest in the Company's first and
second fiscal quarters (October through March) due to the holiday season and
tax refunds.
OPERATIONS
GENERAL
The typical Company location is a freestanding building or part of a retail
strip center. Nearly all of the Company's pawnshop locations have contiguous
parking available. Store interiors are designed to resemble small discount
operations and attractively display merchandise by category. Distinctive
exterior design and attractive in-store signage provide an appealing atmosphere
to customers. The typical store has approximately 1,800 square feet of retail
space and approximately 3,200 square feet dedicated to lending activities
(principally collateral storage). The Company maintains property and general
liability insurance for each of its pawnshops. The Company's stores are open
six or seven days a week, depending on location.
STORE MANAGEMENT
A typical Company store employs five to six people consisting of a manager, an
assistant manager, and three to four sales and lending representatives. Store
managers are specifically responsible for ensuring that their store is run in
accordance with the Company's established policies and procedures, and for
operating their store according to performance parameters consistent with the
Company's store operating guidelines. Each store manager reports to one of
approximately 34 area managers who are responsible for the stores within a
specific operating region. Area managers are responsible for the performance of
all stores within their area and report to one of five regional directors.
Regional directors, area managers, store managers, and assistant managers
receive incentive compensation based on their region, area, or store
performance to an operating budget. This incentive compensation ranges between
10% and 20% of their total compensation.
MANAGEMENT INFORMATION SYSTEMS AND CONTROLS
The Company has a store level point of sale (POS) system that automates the
recording of all store-level transactions. Financial summary data from all
stores is retrieved and processed at the corporate office each day and is
available for management review by early morning for the preceding day's
transactions. This information is available to field management via the
Company's internal network. The Company's communications network provides
access to each store from the corporate offices.
During Fiscal 2000, the Company completed the development of a new, three-tier
architecture, store-level system. This new system will provide additional store
level functionality, increase service offerings, enhance reporting and
controls, and provide software and hardware scalability. The Company plans to
roll out this new system starting in its first Fiscal 2001 quarter and complete
the roll out by the end of Fiscal 2001.
The Company has an internal audit staff of approximately 20 employees to ensure
that the Company's policies and procedures are consistently followed. In
addition, the audit department carefully monitors, among other matters, the
Company's perpetual inventory system, lending practices, and regulatory
compliance.
HUMAN RESOURCES
As of September 30, 2000, the Company employed approximately 2,100 people. The
Company believes that its profitability is dependent upon its employees'
ability to make loans that achieve optimum redemption rates, to sell retail
merchandise effectively, and to provide prompt and courteous customer service.
The Company seeks to hire people who will become long-term, career employees.
To achieve the Company's long-range personnel goals, the Company strives to
develop its employees through a combination of learner-controlled instruction,
classroom training, and supervised on-the-job loan and
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sales training for new employees. All employees go through periodic competency
checks and all new employees go through a leaner-controlled instruction program.
Managers attend on-going management skills and operations performance training.
Regional directors and area managers receive training on how to effectively
motivate employees and how to increase each store's profitability. The Company's
management believes that its managers, at all levels, are the principal trainers
in the organization.
The Company anticipates that store manager candidates will be promoted
primarily from the ranks of existing store employees and has created a process
for forecasting future needs and identifying potential internal candidates for
position openings. The Company's career development plan not only develops and
advances employees within the Company, but also provides training for the
efficient integration of experienced retail managers and pawnbrokers from
outside the Company.
In Texas, each pawnshop employee is required to be licensed in order to make
loans or sell merchandise and is required to file for that license within 75
days of the date of hire. The licensing fee is $25 and the licensing process
includes a review of the individual's background. Licenses are renewed annually
at a fee of $25; renewals also include a review of each individual's
background.
TRADE NAME
The Company currently operates virtually all of its pawnshops under the name
"EZ Pawn," which it has registered with the United States Patent and Trademark
Office. The Company also uses and has registered the following marks: "E-Z
PAWN," "EZCORP," "JEWELRYLAND OUTLET," "EZ MONEY," and "EZ MONEY CENTER."
GROWTH AND EXPANSION
In Fiscal 1998, the Company began expanding rapidly. In Fiscal 1998 and Fiscal
1999, the Company added a net 37 and 45 stores. Typically new stores turn
profitable during their second full year of operation as they build their loan
and sales customer base. During Fiscal 2000, the Company decided to
significantly slow its new store expansion. As a result, the Company opened
only five newly established stores. During the Company's fourth fiscal quarter
of 2000, the Company made the decision to close fifty-four under-performing
stores, 10 of which had been open less than two years. As of the end of
September 30, 2000, twenty-three of these fifty-four stores had been closed.
The five most recently established stores with 12 full months of operating
data, opened by the Company through September 30, 2000, required an average
gross investment (including inventory, pawn loans, property, plant, and
equipment) of approximately $500,000 per pawnshop during the first 12 months of
operation.
The Company's ability to add new stores is dependent on several variables, such
as the availability of acceptable sites or acquisition candidates, the
regulatory environment, and the availability of qualified personnel. The
Company's ability to add newly established stores in Texas counties having a
population of 250,000 or more has been adversely affected by Texas law which
became effective September 1, 1991, which required a finding of public need and
probable profitability by the Texas Consumer Credit Commissioner as a condition
to the issuance of any new pawnshop license in such counties. Since September
1, 1991, the Company has opened or acquired 73 locations in Texas counties
having a population of less than 250,000. Effective September 1, 1999,
applicable Texas law was amended to provide that, in counties with 250,000 or
more residents, applications for new licenses will be approved only at proposed
locations which are not less than two miles from another licensed pawnshop and
applications to relocate a licensed pawnshop will be approved only for proposed
locations which are not less than one mile from another licensed pawnshop.
Additionally, any store may relocate to within one mile of its present
location, regardless of the existence of other pawnshops. The Company's ability
to add newly established stores in such counties may be adversely affected by
such regulation. See "Regulation".
COMPETITION
The Company encounters significant competition in connection with the operation
of its business. These competitive conditions may adversely affect the
Company's revenues, profitability, and its ability to
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expand. In connection with the lending of money, the Company competes primarily
with other pawnshops. The majority of the Company's competitors are
independently owned pawnshops. The Company is the second largest publicly held
chain of pawnshops in the United States. The Company believes that the primary
elements of competition in the pawnshop business are store location and design,
the ability to loan competitive amounts on items pawned, management of
store-level employees, and the quality of customer service. In addition, as the
pawnshop industry consolidates, the Company believes that the ability to compete
effectively will be based increasingly on strong general management, regional
market focus, automated management information systems, and access to capital.
Some of the Company's competitors may have greater financial resources than the
Company.
To a certain extent, the Company also competes with other types of financial
institutions such as consumer finance companies and companies making what are
referred to as "deferred deposit" or "payday" loans. Other lenders may and do
lend money on an unsecured basis, at interest rates which are lower than the
service charges of the Company, and on other terms more favorable than those
offered by the Company.
The Company's competitors, in connection with the sale of merchandise, include
numerous retail and wholesale stores, including jewelry stores, discount retail
stores, consumer electronics stores, other pawnshops, other retailers of
previously owned merchandise, electronic commerce retailers, and auction sites.
Competitive factors in the Company's retail operations include the ability to
provide the customer with a variety of merchandise at an exceptional value. On
a retail level, the Company competes with numerous other retailers who have
significantly greater financial resources than the Company.
REGULATION
PAWNSHOP OPERATIONS
The Company's pawnshop operations are subject to extensive regulation,
supervision, and licensing under various federal, state, and local statutes,
ordinances, and regulations. Of the Company's 297 locations as of December 1,
2000, 187 were in Texas. Accordingly, Texas pawnshop laws govern most of the
Company's operations. The laws of Colorado, Oklahoma, Indiana, Florida,
Alabama, California, Tennessee, Nevada, Louisiana, Mississippi, and Arkansas
apply to the Company's pawnshop operations in those states. At December 1,
2000, the Company operated 297 locations: 187 in Texas, 24 in Colorado, 21 in
Oklahoma, 18 in Indiana, 18 in Florida, 8 in Alabama, 7 in California, 3 in
Tennessee, 4 in Nevada, 3 in Louisiana, 3 in Mississippi, and 1 in Arkansas. In
the states in which the Company operates other than Texas, Oklahoma, and
Alabama, pawnshops are subject to local regulation at the municipal and county
level, which regulation may affect the ability of the Company to expand its
operations in those states. As of September 30, 2000, the Company has closed
its pawnshops operating in Georgia and North Carolina.
TEXAS PAWNSHOP REGULATIONS
In Texas, pawnshops are governed by the Texas Pawnshop Act and the Rules of
Operation for Pawnshops promulgated thereunder, and are subject to licensing by
and supervision of the State of Texas Office of Consumer Credit Commissioner.
In addition, pawnshops and pawnshop employees in Texas are required to be
licensed by the Texas Consumer Credit Commissioner. Furthermore, the Company is
required to supply the Texas Consumer Credit Commissioner with copies of
information filed with the Securities and Exchange Commission.
The maximum allowable pawn service charges for stratified loan amounts made in
the State of Texas are set in accordance with the Texas Pawnshop Act.
Historically, the maximum allowable pawn service charges under Texas law have
not changed; however, the stratified loan amounts have been adjusted upward by
nominal amounts each year. Under Texas law, there is a ceiling on the maximum
allowable pawn loan. For the period July 1, 1999 to June 30, 2000, the loan
ceiling was $11,750. For the period July 1, 2000 through June 30, 2001, the
loan ceiling is $12,000. A table of the maximum allowable pawn service charges
under the Texas Pawnshop Act for the various stratified loan amounts for July
1, 2000 to June 30, 2001 is presented in "Lending Activities".
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To be eligible for a license to operate a pawnshop in Texas, an applicant must:
(i) be of good moral character, which in the case of a business entity applies
to each officer, director, and holder of five percent or more of the entity's
outstanding shares; (ii) have net unencumbered assets (as defined in the Texas
Pawnshop Act) of at least $150,000 readily available for use in conducting the
business of each licensed pawnshop; (iii) demonstrate that the applicant has
the financial responsibility, experience, character, and general fitness to
command the confidence of the public in its operation; and (iv) demonstrate
that the pawnshop will be operated lawfully and fairly in accordance with the
Texas Pawnshop Act and Rules. Current applications to the Texas Consumer Credit
Commissioner inquire, among other matters, into the applicant's credit history
and criminal record.
In addition, for new pawnshop applications filed after September 1, 1999 to be
operated in counties with 250,000 or more people, applications for new licenses
will be approved only at proposed locations which are not less than two miles
from another licensed pawnshop, and applications to relocate a license will be
approved only for proposed locations which are not less than one mile from
another licensed pawnshop. Additionally, any store may relocate to within one
mile of its present location, regardless of the existence of other pawnshops.
The Company's ability to add newly established stores in such counties may be
adversely affected by such regulation.
Historically, for new pawnshop applications filed between September 1, 1991 and
September 1, 1999, the Texas Pawnshop Act required the Texas Consumer Credit
Commissioner to make a determination of public need and probable profitability,
in counties with a population of 250,000 or more, for a new pawnshop license,
or for a relocation of a pawnshop more than one mile away from the existing
address. The determination of public need and probable profitability may be
made administratively by the Commissioner; however, if a public hearing is
requested by the Commissioner or by any pawnshop licensee that would be
affected by the granting of the proposed application, the determination of
public need and probable profitability must be made in a public hearing with
notice and opportunity for all affected parties to participate. For a new
license application in any Texas county, the Commissioner provides notice of
the application, and the opportunity for a public hearing, to the other
licensed pawnshops in the county in which the applicant proposes to operate.
The timeframe for the license application approval process generally requires
the Commissioner's office to process an application within 60 days of its
receipt of a complete application file. When a public hearing is requested,
however, the public hearing process can increase the timeframe substantially or
result in no application approval at all. The Company's ability to add newly
established stores, particularly in Texas counties having a population of
250,000 or more where public need and probable profitability must be shown, has
been adversely affected by the referenced provisions of the Texas Pawnshop Act.
The Texas Consumer Credit Commission may, after notice and hearing, suspend or
revoke any license for a Texas pawnshop upon finding, among other matters,
that: (i) any fees or charges have not been paid; (ii) the licensee has
violated (whether knowingly or unknowingly without due care) any provisions of
the Texas Pawnshop Act or any regulation or order thereunder; or (iii) any fact
or condition exists which, if it had existed at the time the original
application was filed for a license, would have justified the Commissioner in
refusing such license.
The Texas Pawnshop Act also contains rules about the operation of pawnshops and
authorizes the promulgation of administrative rules called the Rules of
Operation of Pawnshops (the "Rules") which regulate the day-to-day management
of the Company's pawnshops. Under the Pawnshop Act and the Rules, a pawnbroker
may not do any of the following: accept a pledge from a person under the age of
18 years; make any agreement requiring the personal liability of the borrower;
accept any waiver of any right or protection accorded to a pledgor under the
Texas Pawnshop Act; fail to exercise reasonable care to protect pledged goods
from loss or damage; fail to return pledged goods to a pledgor upon payment of
the full amount due; make any charge for insurance in connection with a pawn
transaction; enter into any pawn transaction that has a maturity date of more
than one month; display for sale in storefront windows or sidewalk display
cases, pistols, swords, canes, blackjacks or similar weapons; purchase used or
second hand personal property unless a record is established containing the
name, address, and identification of the seller, a complete description of the
property, including serial number and a signed statement that the seller has
the right to sell the property; or accept into pawn or purchase stolen goods.
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COLORADO PAWNSHOP REGULATIONS
Colorado law provides for the licensing and bonding of pawnbrokers in that
state. It also requires that pawn transactions be reported to local authorities
and that certain bookkeeping records be maintained. Under Colorado law, the
maximum allowable pawn service charge is 240% annually for pawn loans up to
$50, and 120% annually for pawn loans in excess of $50.
OKLAHOMA PAWNSHOP REGULATIONS
The Company's Oklahoma operations are subject to the Oklahoma Pawnshop Act.
Following substantially the same statutory scheme as the Texas Pawnshop Act,
the Oklahoma Pawnshop Act provides for, among other matters, the licensing and
bonding of pawnbrokers in Oklahoma and provides for the Oklahoma Administrator
of Consumer Credit to investigate the general fitness of the applicant and
generally regulate pawnshops in that state. The Administrator has broad
rule-making authority with respect to Oklahoma pawnshops.
In general, the Oklahoma Pawnshop Act prescribes stratified loan amounts and
maximum rates of service charges which pawnbrokers in Oklahoma may charge for
lending money in Oklahoma within each stratified range of loan amounts. The
regulations provide for a graduated rate structure, similar to the graduated
rate structure utilized in federal income tax computations. Under this method
of calculation, a $500 loan, for example, earns interest as follows: (1) first
$150 at 240% annually, (2) next $100 at 180% annually, and (3) the remaining
$250 at 120% annually. The maximum allowable pawn service charges for the
various stratified loan amounts under the Oklahoma statute are as follows:
<TABLE>
<CAPTION>
Maximum Allowable
Amount Financed Annual Percentage
Per Pawn Loan Rate
----------------- -----------------
<S> <C>
$1 to $150 240%
$151 to $250 180%
$251 to $500 120%
$501 to $1,000 60%
$1,001 to $25,000 36%
</TABLE>
The amount financed in Oklahoma may not exceed $25,000 per pawn transaction. In
addition, the Oklahoma Pawnshop Act requires each applicant to (1) be of good
moral character; (2) have net assets of at least $25,000; (3) show that the
pawnshop will be operated lawfully and fairly within the purpose of the
Oklahoma Pawnshop Act; and (4) not have been convicted of any felony which
directly relates to the duties and responsibilities of the occupation of
pawnbroker.
INDIANA PAWNSHOP REGULATION
The Company's Indiana operations are regulated by the Department of Financial
Institutions. The Department requires all persons or entities to obtain a
license to act as a pawnbroker. The Indiana Pawnbroker's Act provides for the
Department of Financial Institutions to investigate the general fitness of the
applicant, to determine whether the convenience and needs of the public will be
served by granting an applicant a license, and generally to regulate pawnshops
in the state.
The Department of Financial Institutions has broad investigatory and
enforcement authority under the statute. The Department may grant, revoke, and
suspend licenses. For compliance purposes, pawnshops are required to keep such
books, accounts, and records as will enable the Department to determine if the
pawnshop is complying with the statute. Each pawnshop is required to give
authorized agents of the Department of Financial Institutions free access to
its books and accounts for these purposes. The Indiana statute allows the
following annual rates of interest plus pawn service charges: 276% annually on
transactions of $300 or less; 261% annually on transactions greater than $300
but not exceeding $1,000, and 255% annually on transactions greater than
$1,000.
10
<PAGE> 11
FLORIDA PAWNSHOP REGULATIONS
Pawnshop transactions in Florida are subject to Florida regulations codified in
Chapter 539 of the Florida Statutes. Under such regulations, licensing of
pawnshops and regulatory enforcement of such shops is performed by the Division
of Consumer Services of the Department of Agriculture and Consumer Services.
Such regulations require, among other things, that the pawnshop fill out a
Pawnbroker Transaction Form showing the customer name, type of item pawned, and
disclosing the amount of the pawn loan and the applicable finance charges. A
copy of each form must be delivered to local law enforcement officials at the
end of each business day.
Pawn loans in Florida typically have a 30 day maturity date. If the customer
does not redeem the loan within 30 days following the maturity date (or the
next business day, whichever is later), all right, title, and interest to the
property vests in the pawnbroker. The pawnbroker is entitled to charge two
percent of the amount financed for each 30 days as interest, and an additional
amount as pawn service charges, provided the total amount of such charge,
inclusive of interest, does not exceed 25% of the amount financed for each 30
day period in a pawn transaction. The pawnbroker may charge a minimum pawn
service charge of $5.00 for each 30 day period. Pawns may be extended by
agreement, with the charge applicable being one-thirtieth of the original total
pawn service charge for each day by which the loan is extended. For loans
redeemed greater than 60 days after the date made, pawn service charges
continue to accrue at the daily rate of one-thirtieth of the original total
pawn service charge.
GEORGIA PAWNSHOP REGULATIONS
Georgia state law requires pawnbrokers to maintain detailed permanent records
concerning pawn transactions and to keep them available for inspection by duly
authorized law enforcement authorities. The Georgia statute prohibits
pawnbrokers from failing to make entries of material matters in their permanent
records, and allows duly authorized officers to inspect such records. Under
applicable Georgia statutes, municipal authorities may license pawnbrokers,
define their powers, and privileges by ordinance, impose taxes upon them,
revoke their licenses, and exercise such general supervision as will ensure
fair dealing between the pawnbroker and the pawnshop customers.
Georgia law establishes a maximum allowable rate of interest and service charge
of 25% of the principal amount of a pawn transaction for each 30 day period.
This annual rate is in effect for the first 90 days of any pawn transaction or
extension or continuation thereof. Thereafter, the maximum allowable charge for
interest and service charges is reduced to 12.5% for each 30 day period.
Georgia law requires a grace period after default on a pawn transaction. During
the grace period, the pawnbroker may not sell the pledged item. The grace
period is 30 days for motor vehicles and 10 days for all other pawn collateral.
ALABAMA PAWNSHOP REGULATIONS
The Alabama Pawnshop Act regulates the licensing and operation of pawnshops in
that state. The general fitness of pawnshop applicants is investigated by the
Supervisor of the Bureau of Loans of the State Department of Banking. The
Supervisor also issues pawnshop licenses. The Alabama Pawnshop Act requires
that certain bookkeeping records be maintained and made available to the
Supervisor and to local law enforcement authorities. The Alabama Pawnshop Act
establishes a maximum allowable pawn service charge of 300% annually.
CALIFORNIA REGULATIONS
In California, both state and city or county licenses are required. Applicants
must pass a state and local background check, post a bond in the amount of
$20,000, and maintain net assets of at least $100,000 per location. Pawn loans
in California require a written contract, which must provide for a four-month
loan period. If the pledgor does not redeem the loan within such period, the
pawnbroker must, within 30 days thereafter, send a notification to the pledgor
giving him ten days from the date of the mailing to redeem the pawn. The
pawnbroker may charge up to $2 for this notice.
In California, a pawnbroker may charge an initial set up fee of $2 on a pawn
transaction. In addition, a pawnbroker may charge interest of 2.5% per month on
loans up to $225; 2.0% per month on the portion of any loan between $225.01 and
$900; 1.5% per month on the portion of any loan between $900.01 and $1,650; and
1.0% per month on the portion of any loan that is $1,650.01 and above.
Pawnbrokers may
11
<PAGE> 12
also charge storage fees of $3 for any article that cannot be contained within
one cubic foot, $9 for any article that cannot be contained within three cubic
feet, and $18 for any article that cannot be contained within six cubic feet.
Additionally, pawnbrokers may make service charges consistent with the following
schedule:
For loans not more than 30 days:
<TABLE>
<CAPTION>
Amount Financed Maximum Allowable
Per Pawn Loan Charge
--------------- -----------------
<S> <C>
$1 to $14.99 $1.00
</TABLE>
For loans not more than 90 days:
<TABLE>
<CAPTION>
Amount Financed Maximum Allowable
Per Pawn Loan Charge
--------------- -----------------
<S> <C>
$15 to $19.99 $3.00
$20 to $24.99 $4.00
$25 to $39.99 $5.00
$40 to $49.99 $6.00
$50 to $64.99 $7.50
$65 to $74.99 $8.50
$75 to $99.99 $10.00
$100 to $124.99 $12.50
$125 to $149.99 $13.50
$150 to $224.99 $15.00
$225 to $324.99 $20.00
$325 to $449.99 $25.00
$450 to $599.99 $35.00
$600 to $799.99 $45.00
$800 to $999.99 $55.00
</TABLE>
<TABLE>
<CAPTION>
Amount Financed Maximum Allowable
Per Pawn Loan Charge
------------------ -----------------
<S> <C>
$1,000 to 1,199.99 $70
$1,200 to 1,499.99 $85
$1,500 to 1,799.99 $100
$1,800 to 2,099.99 $120
$2,100 to 2,499.99 $140
</TABLE>
TENNESSEE PAWNSHOP REGULATIONS
Tennessee law provides for the licensing of pawnbrokers in that state. It
further requires (1) that pawn transactions be reported to local law
enforcement agencies, (2) requires pawnbrokers to maintain insurance coverage
on the property held in pledge for the benefit of the pledgor, (3) establishes
certain hours during which pawnshops may be opened for business, and (4)
requires certain bookkeeping records be maintained. Tennessee law prohibits
pawnbrokers from selling, redeeming, or disposing of any goods pledged or
pawned to or with them within 48 hours after making their report to local law
enforcement agencies.
Applicable Tennessee law provides that pawnbrokers may charge interest of 2%
per month, plus service charges of 20% or one-fifth of the amount of the loan
for investigating the title, storing, and insuring the pledged goods, closing
the loan, and for other expenses and losses associated with the loan.
12
<PAGE> 13
NEVADA REGULATIONS
In Nevada, all pawn loans must be held for redemption for at least 120 days
after the date the loan is made. A pawnbroker may charge interest at the rate
of 10% per month for money loaned on the security of personal property actually
received. In addition, the pawnbroker may collect an initial set up fee of $5.
Property received in pledge may not be removed from the pawnshop, except when
redeemed by the owner, after a report of the receipt of such property is
reported to the sheriff or chief of police.
LOUISIANA PAWNSHOP REGULATIONS
The Company's Louisiana operations are governed by the Louisiana Pawnshop Act.
The statute gives regulatory and enforcement powers to the Commissioner of the
Office of Financial Institutions within the Department of Economic Development.
This statute provides for, among other things, the licensing and bonding of all
pawnbrokers in Louisiana.
Under Louisiana law, the maximum allowable interest charge is 120% annually. In
addition, pawnshops may collect a 10% service charge for the first month of a
pawn transaction. Louisiana law requires that a pawnbroker hold jewelry that is
pledged as collateral until the lapse of six months prior to resale from the
time the loan was entered or extended. The law requires a three-month lapse on
other items.
MISSISSIPPI PAWNSHOP REGULATIONS
The Company's Mississippi operations are subject to the Mississippi Pawnshop
Act. The Commissioner of Banking administers the Mississippi Pawnshop Act.
Municipalities in the state may enact ordinances which are in compliance with,
but not more restrictive than those in the Mississippi Pawnshop Act.
The Mississippi Pawnshop Act provides for, among other matters, the licensing
of pawnbrokers. The Act also provides for the Commissioner of Banking to
investigate the general fitness of the applicant and generally to regulate
pawnshops in the state. The Commissioner has broad rule-making authority with
respect to Mississippi pawnshops. The Mississippi Pawnshop Act establishes a
maximum allowable pawn service charge of 300% annually.
NORTH CAROLINA PAWNSHOP REGULATIONS
In North Carolina, a pawnbroker must obtain a license by showing sufficient net
assets and moral character to demonstrate that it will not operate to the
detriment of the public. The applicable interest and service charges are two
percent per month interest, and a monthly fee not to exceed 20% for the
following: (1) title investigation, (2) handling, appraisal and storage, (3)
insuring and security, (4) application fee, (5) making daily reports to law
enforcement or other services. The total monthly fees may not exceed $100 in
the first month, $75 in the second month, $75 in the third month, $50 in the
fourth month, and for any subsequent months. Pawn loans in North Carolina are
to have a 30 day loan term, with a 60 day grace period, after which time the
collateral is subject to resale by the pawnbroker.
ARKANSAS PAWNSHOP REGULATIONS
Arkansas law does not provide for the licensing of pawnbrokers or pawnshops in
that state. By statute, pawnbrokers must maintain certain records of each pawn
transaction and make those records available to local law enforcement agencies.
Arkansas law establishes a maximum allowable interest rate of 17% annually;
however, a pawnshop operator may charge reasonable fees for investigating
title, storage, and other services.
LOCAL REGULATIONS
At the local level, each pawnshop, voluntarily or pursuant to municipal
ordinance, provides copies of transactions involving pawn loans and
over-the-counter purchases to the local police department. These daily
transaction reports are designed to provide the local police with a detailed
description of the goods involved, including serial numbers, if any, and the
names and addresses of the owners obtained from valid identification cards.
A copy of each transaction ticket is provided to local law enforcement agencies
for processing by the National Crime Investigative Computer to determine
rightful ownership. Goods held to secure pawn loans or goods purchased which
are determined to belong to an owner other than the borrower or seller are
13
<PAGE> 14
subject to recovery by the rightful owner. While a risk exists that pledged or
purchased merchandise may be subject to claims of rightful owners,
historically, the Company has experienced such claims with respect to less than
0.5% of pawn loans made.
There can be no assurance that additional local, state, or federal legislation
will not be enacted or that existing laws and regulations will not be amended
which would materially, adversely impact the Company's operations and financial
condition.
FIREARMS REGULATIONS
With respect to firearm sales, each pawnshop that sells firearms must comply
with the regulations promulgated by the Federal Bureau of Alcohol, Tobacco, and
Firearms (BATF) which require each pawnshop dealing in firearms to maintain a
permanent written record of all transactions involving the receipt or
disposition of guns.
The BATF promulgated rules under the Brady Handgun Violence Prevention Act (the
"Brady Act") on February 28, 1994. The rules, in effect until November 30,
1998, basically required that all licensees, in either selling inventoried
firearms or releasing pawned firearms to people other than the original
pledgor, have the buyer complete appropriate forms, and wait the requisite
five-day period prior to completing the sale and delivering the firearm. On
November 30, 1998, the permanent provisions of the Brady Act took effect. From
that date, all purchases of firearms and all people redeeming pledged firearm
property must complete a background check before the transfer of the firearm
can be completed.
The Company complies with the Brady Act, and rules promulgated by the United
States Department of the Treasury relating thereto. The Company does not
believe that compliance with the Brady Act and the new rules promulgated
thereunder have materially affected the Company's operations. There can be no
assurance, however, that compliance with the Brady Act will not adversely
affect the Company's operations.
14
<PAGE> 15
ITEM 2. PROPERTIES
As of December 1, 2000, the Company owned the real estate and buildings for 45
of its pawnshops and leased 252 of its operating pawnshop locations. The
Company generally leases facilities for a term of five to ten years with one or
more options to renew. The Company's existing leases expire on dates ranging
between January 1, 2001 and June 30, 2009. All leases provide for specified
periodic rental payments and such leases provide for market rental rates. Most
leases require the Company to maintain the property and pay the cost of
insurance and taxes. The Company believes that the termination of a particular
lease would not have a material adverse effect on the Company's operations. The
Company's strategy is generally to lease, rather than acquire, space for its
pawnshop locations unless the Company finds what it believes is a superior
location at an attractive price. The Company anticipates completing
sale/leaseback transactions on several of its owned locations during Fiscal
2001. The Company believes that the facilities owned and leased by it as
pawnshop locations are suitable for such purpose.
The following table presents the metropolitan areas or regions (as defined by
the Company) generally served by the Company and the number of retail locations
serving each such market as of December 1, 2000:
<TABLE>
<CAPTION>
Number of
Locations in
Area/Region Each Area
----------- ------------
<S> <C>
Texas:
Houston 58
San Antonio 21
Austin Area 10
Valley 26
Central and Northeast 15
Dallas 12
Laredo Area 17
North Texas 15
Panhandle 6
Corpus Christi 7
---
Total Texas 187
Colorado:
Denver Area 17
Colorado Springs Area 5
Pueblo 2
---
Total Colorado 24
Oklahoma:
Oklahoma City Area 8
Tulsa Area 10
Other Areas 3
---
Total Oklahoma 21
Indiana:
Indianapolis Area 11
Fort Wayne Area 3
Other Areas 4
---
Total Indiana 18
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Number of
Locations in
Area/Region Each Area
----------- ------------
<S> <C>
Florida:
Tampa 9
Orlando 5
Other Areas 4
---
Total Florida 18
Alabama:
Birmingham Area 5
Mobile 2
Other Areas 1
---
Total Alabama 8
California:
Sacramento 7
---
Total California 7
Tennessee:
Memphis 3
---
Total Tennessee 3
Nevada:
Las Vegas 4
---
Total Nevada 4
Louisiana:
New Orleans Area 2
Other Areas 1
---
Total Louisiana 3
Mississippi:
Jackson 2
Other Areas 1
---
Total Mississippi 3
Arkansas:
West Helena 1
---
Total Arkansas 1
---
Total Company 297
===
</TABLE>
In addition to its store locations, the Company owns its 27,400 square foot
corporate offices located in Austin, Texas and leases certain warehouse
facilities. The Company also leases approximately 8,100 square feet for its
Central Jewelry Processing Center under a five-year lease agreement with one
five-year option to renew.
16
<PAGE> 17
ITEM 3. 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. There can be no assurance, however, that this
will be the case.
Pursuant to a settlement agreement dated February 4, 1998, the Company and its
founder and former President and Chief Executive Officer, Courtland L. Logue,
Jr., reached an out of court settlement in the lawsuit styled EZCORP, Inc. v.
Courtland L. Logue, Jr., in the 201st District Court of Travis County, Texas.
Under the terms of the settlement, which closed February 18, 1998, both the
Company and Mr. Logue released their claims against each other, including all
claims under Mr. Logue's employment agreement, and neither party admitted any
liability nor paid any cash consideration to the other.
The Company agreed to accelerate the release of contractual restrictions on the
transfer of Mr. Logue's 967,742 shares of common stock, which converted, as of
February 18, 1998, to publicly traded Class A Non-voting Common Stock. In
exchange, Mr. Logue agreed to assign 10,000 shares of his stock to the Company.
The settlement released 191,548 shares immediately from certain restrictions
against transfer, and a like amount was released as of October 29, 1998. An
additional 95,774 shares were released from restrictions on each of October 29,
1999 and October 29, 2000, with the remaining 40% of the shares to be released
in July 2001, as originally scheduled. The Company and Mr. Logue also clarified
the scope of Mr. Logue's continuing non-competition agreement, agreed to a
five-year limitation on Mr. Logue's financial investments in competing pawnshop
businesses and agreed to renewal options with respect to certain existing real
estate leases for store locations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since August 27, 1991, the Company's Class A Non-voting Common Stock ("Class A
Common Stock") has traded on The NASDAQ Stock Market under the symbol EZPW. As
of December 1, 2000, there were 194 stockholders of record of the Company's
Class A Common Stock. There is no trading market for the Company's Class B
Voting Common Stock ("Class B Common Stock"), and as of December 1, 2000, such
stock was held by one stockholder of record.
The high and low per share price for the Company's Class A Common Stock for the
past two fiscal years, as reported by The NASDAQ Stock Market, were as follows:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1999:
First quarter ended December 31, 1998 $ 9.65 $ 7.31
Second quarter ended March 31, 1999 8.42 6.82
Third quarter ended June 30, 1999 7.83 6.45
Fourth quarter ended September 30, 1999 6.83 4.67
Fiscal 2000:
First quarter ended December 31, 1999 $ 5.28 $ 3.43
Second quarter ended March 31, 2000 6.25 3.75
Third quarter ended June 30, 2000 4.00 1.63
Fourth quarter ended September 30, 2000 2.00 1.03
</TABLE>
As of December 1, 2000, the Company's Class A Common Stock closed at $1.44 per
share.
The Company's restated certificate of incorporation provides that cash
dividends on common stock, when declared, must be declared and paid share and
share alike on the Class A Common Stock and the Class B Common Stock. On July
27, 1998, the Board of Directors approved an annual cash dividend of $0.05 per
share payable quarterly on both the Class A Common Stock and the Class B Common
Stock. Effective May 2, 2000, the Board of Directors suspended payment of this
dividend.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information should be read in conjunction
with, and is qualified in its entirety by reference to the financial statements
of the Company and the notes thereto included elsewhere in this Form 10-K:
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years Ended September 30
--------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per share and store figures)
<S> <C> <C> <C> <C> <C>
Operating Data:
Sales $ 103,511 $ 101,454 $ 112,307 $ 130,077 $ 139,924
Pawn service charges 70,115 78,845 85,087 101,892 57,475
--------- --------- --------- --------- ---------
Total revenues 173,626 180,299 197,394 231,969 197,399
Cost of goods sold 88,953 84,468 94,084 113,824 88,054
--------- --------- --------- --------- ---------
Net revenues 84,673 95,831 103,310 118,145 109,345
Store operating expenses 58,969 60,735 66,742 81,963 85,513
Corporate administrative expenses 10,712 13,320 12,838 14,387 19,324
Depreciation and amortization 7,573 7,616 7,596 9,435 10,255
Restructuring expense -- -- -- -- 10,572
Interest expense 1,884 982 1,398 3,691 6,201
Equity in net income of unconsolidated
affiliate -- -- (95) (304) (225)
(Gain) loss on sale of assets -- -- (28) 268 (280)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 5,535 13,178 14,859 8,705 (22,015)
Income tax expense (benefit) 1,992 4,745 5,646 3,220 (3,785)
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle 3,543 8,433 9,213 5,485 (18,230)
Cumulative effect of change in accounting
principle -- -- -- -- (14,344)
--------- --------- --------- --------- ---------
Net income (loss) $ 3,543 $ 8,433 $ 9,213 $ 5,485 $ (32,574)
========= ========= ========= ========= =========
Earnings (loss) per common share, diluted $ 0.30 $ 0.70 $ 0.77 $ 0.46 $ (2.71)
Cash dividends per common share $ -- $ -- $ 0.0125 $ 0.05 $ 0.025
Weighted average common shares and
share equivalents-diluted 11,988 12,002 12,014 12,008 12,017
Stores operated at end of period 246 249 286 331 313
</TABLE>
<TABLE>
<CAPTION>
September 30
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Pawn loans $ 34,636 $ 42,837 $ 49,632 $ 53,940 $ 46,916
Inventory 35,834 39,258 44,011 58,241 35,660
Working capital 76,158 89,451 104,648 125,575 72,498
Total assets 140,366 151,051 189,911 234,077 203,793
Long-term debt 16,416 19,142 48,133 83,123 81,112
Stockholders' equity 112,991 121,4610 130,554 135,685 102,671
</TABLE>
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis compares the results of operations for the 12
month periods ending September 30, 2000, 1999, and 1998 (designated as "Fiscal
2000", "Fiscal 1999", and "Fiscal 1998"). The discussion should be read in
conjunction with, and is qualified in its entirety by, the accompanying
financial statements and related notes.
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 results 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 $14.3 million cumulative effect of this accounting change on prior years
(net of a tax benefit of $7.4 million) increased net loss for the year ended
September 30, 2000. Of the $2.71 net loss per share for the year ended
September 30, 2000, $1.19 per share is attributable to the cumulative effect of
the accounting change.
20
<PAGE> 21
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years Ended September 30
-------------------------------------
1998 1999 2000
---------- ---------- ----------
(Pro forma) (Pro forma)
(Dollars in thousands, except as indicated)
<S> <C> <C> <C>
OPERATIONS:
Sales $ 112,307 $ 130,077 $ 139,924
Pawn service charges 52,870 58,702 57,475
--------- --------- ---------
Total revenues 165,177 188,779 197,399
Cost of sales 63,739 76,475 88,054
--------- --------- ---------
Net revenues 101,438 112,304 109,345
Restructuring expense -- -- 10,572
Income (loss) before cumulative effect of a change in
accounting principle 8,052 1,748 (18,230)
Cumulative effect on prior years (to September 30,
1999) of change in method of revenue recognition,
net -- -- (14,344)
Net Income (loss) $ 8,052 $ 1,748 $ (32,574)
========= ========= =========
OTHER DATA:
Gross margin 43.3% 41.2% 37.1%
Average annual inventory turnover 2.4x 2.3x 2.1x
Average inventory per location at year end $ 117 $ 132 $ 114
Average loan balance per location at year end $ 174 $ 163 $ 150
Average pawn loan at year end (whole dollars) $ 71 $ 69 $ 70
Average yield on loan portfolio 129% 120% 125%
Redemption rate 78% 76% 77%
EXPENSES AND INCOME AS A PERCENTAGE OF TOTAL REVENUE (%):
Store operating 40.4 43.4 43.3
Administrative 7.8 7.8 9.8
Depreciation and amortization 4.6 5.0 5.2
Interest 0.8 2.0 3.1
Income (loss) before income taxes 7.9 1.5 (11.2)
Income (loss) before cumulative effect 4.9 0.9 (9.2)
STORES IN OPERATION:
Beginning of year 249 286 331
Acquired 3 4 0
New openings 35 43 5
Sold, combined, or closed (1) (2) (23)
--------- --------- ---------
End of year 286 331 313
Average number of locations during the year(1) 268 309 333
</TABLE>
--------------
(1) Average locations in operation during the period is calculated based on the
average of the stores operating at the beginning and end of each month during
such period.
RESTRUCTURING
In Fiscal 2000 the Company reviewed its store portfolio to determine whether
closing certain stores would improve the Company's profitability and to
determine whether certain stores were strategically viable. As a result of this
review and the continuing evaluation of such assets for impairment, the Company
decided to close 54 stores and recorded a pretax charge of $11.8 million ($7.8
million net of tax) during the fourth quarter of Fiscal 2000.
The total pretax charge included $9.6 million (included in Restructuring
expense on the Consolidated Statement of Operations) for the write-down to
realizable value the closed stores' property, equipment, pawn loans
outstanding, intangible assets, and the estimated costs for the settlement of
lease obligations,
21
<PAGE> 22
administrative costs, severance costs, and other exit costs. Also included in
the total charge is approximately $1.0 million (included in Restructuring
expense on the Consolidated Statement of Operations) related to other
restructuring charges, primarily severance for administrative staff reductions.
All charges for severance included in the restructuring related to employees
notified of their position elimination prior to September 30, 2000. The $11.8
million pretax charge includes a $1.2 million write down of inventory (included
in Cost of goods sold on the Consolidated Statement of Operations) for discounts
expected in liquidating these stores' remaining inventory. Of the 54 stores, 23
were closed as of September 30, 2000, and the remaining 31 are expected to close
in Fiscal 2001.
The results of operations from the 54 stores scheduled for closure were as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
--------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Total revenues $15,871 $18,461 $17,946
Operating loss (2,343) (2,379) (3,222)
</TABLE>
At September 30, 2000, the Company had a remaining restructuring reserve of
$1.6 million and a remaining inventory valuation reserve related to store
closures of $1.1 million. It is anticipated that all remaining material cash
outlays required for these store closings and related restructuring costs will
be made during Fiscal 2001.
RESULTS OF OPERATIONS
This discussion and analysis compares the results of operations for the 12
month periods ending September 30, 2000, 1999, and 1998 (designated as "Fiscal
2000", "Fiscal 1999", and "Fiscal 1998"). The discussion should be read in
conjunction with, and is qualified in its entirety by, the accompanying
financial statements and related notes. For purposes of management's discussion
and analysis of results of operations and financial condition, all comparisons
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, 1997.
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 Fiscal 2000, pawn service charge revenue
decreased $1.2 million from Fiscal 1999 to $57.5 million as a result of a
decrease in same store pawn service charge revenue ($2.7 million), offset
somewhat by pawn service charge revenue from new stores not open the full 12
month period ($1.5 million). At September 30, 2000, same store pawn loan
balances were 11.5% below September 30, 1999 and the annualized yield on the
average pawn loan balance increased 5 percentage points to 125%. Variations in
the annualized loan yield, as we saw between these periods, are due generally
to changes in loan redemption rates and a mix shift between loans with
different yields.
For Fiscal 1999, pawn service charge revenue increased $5.8 million from Fiscal
1998 to $58.7 million as a result of an increase in same store pawn service
charge revenue ($2.1 million) and pawn service charge revenue from new stores
not open the full 12 month period ($3.7 million). At September 30, 1999, same
store pawn loan balances were 3% above September 30, 1998 and the annualized
yield on the average pawn loan balance decreased by nine percentage points to
120%.
A secondary, but related, activity of the Company is the sale of merchandise,
primarily collateral forfeited from its lending activity. For Fiscal 2000,
merchandise sales increased approximately $9.8 million from Fiscal 1999 to
$139.9 million. Increases in wholesale jewelry sales ($5.7 million), new
stores' merchandise sales ($4.4 million), and other revenues ($0.3 million)
were offset by a decrease in same store merchandise sales ($0.6 million). Same
store sales for Fiscal 2000 decreased 0.5% from Fiscal 1999.
For Fiscal 1999, merchandise sales increased approximately $17.8 million from
Fiscal 1998 to $130.1 million. Increases in same store merchandise sales ($6.7
million), new stores' merchandise sales ($10.6 million), wholesale jewelry
sales ($0.3 million), and other revenues ($0.6 million) were offset by
22
<PAGE> 23
merchandise sales of the closed stores ($0.4 million). Same store sales for
Fiscal 1999 increased 6.1% from Fiscal 1998.
For Fiscal 2000, gross margins on merchandise sales decreased 4.1 percentage
points from Fiscal 1999 to 37.1%. This decrease was largely due to the impact
of increased jewelry scrapping activity (5.4 percentage points), and the charge
to cost of goods related to the fourth quarter restructuring discussed above
(0.8 of a percentage point). Improved margins on merchandise sales (2.1
percentage points) and lower levels of inventory shrinkage (1.1% in Fiscal 2000
v. 1.2% in Fiscal 1999) partially offset the impact from jewelry scrapping and
the restructuring charge. During the Fiscal 2000 fourth quarter, the Company
identified specific categories of jewelry that were overstocked. This excess
inventory had a cost basis of approximately $7.7 million and generated cash
proceeds of approximately $5.9 million.
For Fiscal 1999, gross margins on merchandise sales decreased 2.1 percentage
points from Fiscal 1998 to 41.2%. Of the total decrease, 1.6 percentage points
were attributable to a decline in margins on merchandise sales. During 1999,
the Company reduced its merchandise pricing and loan guidelines in response to
a reduction in competitive retail prices, primarily in jewelry and electronics.
These changes caused a decrease in margins on merchandise sales. Inventory
shrinkage measured as a percentage of merchandise sales increased 0.3
percentage points to 1.2%.
In Fiscal 2000, store operating expenses as a percent of total revenues
decreased 0.1 of a percentage point from Fiscal 1999 to 43.3%. Exclusive of
stores opened in the past two years, store operating expenses decreased from
39.9% in Fiscal 1999 to 38.1% of total revenues in Fiscal 2000. Newer stores
generally have a higher level of operating expense relative to revenues than do
mature stores. Administrative expenses measured as a percentage of total
revenues increased 2.0 percentage points from Fiscal 1999 to 9.8%, primarily
due to non-capitalizable software development costs (approximately $1.4
million), higher labor related costs, and other inflationary cost increases.
In Fiscal 1999, store operating expenses as a percent of total revenues
increased 3.0 percentage points from Fiscal 1998 to 43.4%, primarily as a
result of new store openings. Exclusive of stores opened in the past two years,
store operating expenses decreased from 40.4% in Fiscal 1998 to 39.9% of total
revenues in Fiscal 1999. Newer stores generally have a higher level of
operating expense relative to revenues than do mature stores. Fiscal 1999
administrative expenses remained flat at 7.8% of total revenues when compared
to Fiscal 1998.
Depreciation and amortization expense, when measured as a percent of total
revenue, increased 0.2 of a percentage point in Fiscal 2000 to 5.2%. The
increase is a net effect of greater revenues and an increase in depreciation
and amortization expense, primarily due to investments made in new stores.
Depreciation and amortization expense increased to 5.0% in Fiscal 1999 from
4.6% in Fiscal 1998. As in Fiscal 2000, the increase is a net effect of greater
revenues and an increase in depreciation and amortization expense from
investments made in new stores.
In Fiscal 2000, interest expense increased $2.5 million to $6.2 million. The
increase was primarily due to higher interest rates coupled with increased
average debt balances needed to fund new store expansion and other capital
expenditures. In Fiscal 1999, interest expense increased to $3.7 million from
$1.4 million in Fiscal 1998. This increase was due largely to higher average
debt balances needed to fund new store expansion.
The income tax benefit for Fiscal 2000 was $3.8 million (17% of pretax income)
compared to an income tax expense of $1.1 million (39% of pretax income) for
Fiscal 1999 and $4.9 million (38% of pretax income) for Fiscal 1998. The
decrease in effective tax rate for Fiscal 2000 is due primarily to the
recognition of a valuation allowance on the Company's deferred tax asset.
Exclusive of the valuation allowance, the Fiscal 2000 income tax benefit was
$7.5 million (34% of pretax income). The remaining effective tax rate variances
were due to changes in effective state income taxes in some states in which the
Company operates.
23
<PAGE> 24
Net loss for Fiscal 2000 was $32.6 million compared to net income of $1.7
million for Fiscal 1999. The increase in net loss results from several factors,
including the cumulative effect of changing to a preferable revenue recognition
method ($14.3 million), recognition of a restructuring charge ($11.8 million),
lower gross margins on merchandise sales ($4.5 million), and higher operating,
administrative, and interest expenses. Pro forma net income for Fiscal 1999 was
$1.7 million compared to pro forma net income of $8.1 million for Fiscal 1998.
The decrease in net income results primarily from lower gross margins on
merchandise sales and higher operating and interest expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased from $0.6 million in Fiscal
1999 to $10.9 million in Fiscal 2000. Excluding restructuring expenses of $10.6
million and the $14.3 million cumulative effect of a change in accounting
principle, the Company's most significant item in reconciling net loss to cash
flow from operations was a $7.5 million decrease in inventory, compared to a
$14.1 million increase in inventory in the year earlier period. Net cash
provided by operating activities in Fiscal 1999 declined to $0.6 million
compared to $10.8 million provided in Fiscal 1998, primarily due to the $14.1
million increase in the Company's inventory, partially offset by smaller
changes in other working capital accounts.
In Fiscal 2000, the Company invested $19.4 million in property, equipment, and
an unconsolidated affiliate. These investments and a $2.0 million net reduction
of bank borrowings were funded by cash flow from operating activities, a $6.4
million decrease in pawn loans, and $4.6 million in proceeds from the sale of
assets.
In the third quarter of fiscal 2000, the Company ceased its store expansion and
prior to September 30, 2000, committed to close fifty-four unprofitable stores
as part of its restructuring, twenty-three of which were closed by September
30, 2000. Excluding these stores, cash flow from operations would have been
approximately $2.0 million higher in Fiscal 2000. During Fiscal 2001, the
Company also plans to sell certain non-core assets and complete sale-leaseback
transactions of some of its owned properties. The Company anticipates that cash
flow from operations and proceeds from the sale-leaseback transaction will be
adequate to fund planned capital expenditures, working capital requirements,
and mandatory debt payments during the coming year. However, there can be no
assurance that the sale of these assets will be completed or that cash flow
from operating activities will be adequate for these expenditures.
On December 15, 2000, the Company amended and restated its $85 million secured
credit agreement, which matures December 3, 2001. The amended credit agreement
provides for a $45 million revolving credit facility and two term loan
facilities totaling $40 million. Availability under the revolving credit
facility will be tied to pawn loan and inventory balances. The term facilities
require principal payments of $22.1 million during Fiscal 2001. These principal
payments will be made from operating cash flow, the sale of assets, primarily
sale-leaseback transactions of various owned properties, and a tax refund
resulting from the Company's Fiscal 2000 operating loss. Interest on the
facility will be tied to the agent bank's prime rate plus 250 to 350 basis
points. The Company pays a commitment fee of 25 basis points on the unused
amount of the revolving facility.
Earlier in Fiscal 2000, the Company amended its $110 million credit agreement
in an amendment dated March 31, 2000. Among other provisions, this amendment
reduced the aggregate commitment under the facility to $85 million, secured the
facility with substantially all the assets of the Company, and adjusted the
interest rates charged on outstanding borrowings.
The Company believes that the financial covenants established in the amended
and restated credit facility will be achieved based upon the Company's current
and anticipated performance. Based upon management's Fiscal 2001 operating
plan, including the sale/leaseback of certain assets and the availability under
the revolving credit facility, the Company believes that there is adequate
liquidity to fund the Company's operations and to make the required principal
payments under the two term loans during Fiscal 2001. However, material
shortfalls or variances from anticipated performance or the delay in the sale
of certain of its assets could require the Company to seek a further amendment
to the amended and restated credit facility or alternate sources of financing,
or to limit capital expenditures to an amount less than that currently
anticipated or permitted under the amended and restated credit facility.
24
<PAGE> 25
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.
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K 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 statements 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 yields on loan portfolios, redemption rates, labor and employment
matters, competition, operating risk, acquisition, and expansion risk,
liquidity, and capital requirements and the effect of government and
environmental regulations, and (ii) adverse changes in the market for the
Company's services. Readers are cautioned 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.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSURES
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 September 30, 2000 is comprised of
variable-rate debt instruments. If interest rates average 25 basis points more
in 2001 than they did in 2000, the Company's annual interest expense would be
increased by approximately $203,000. This amount is determined by considering
the impact of the hypothetical interest rates on the Company's variable-rate
long-term debt at September 30, 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 Fiscal 2000 was approximately $240,000. On December 1,
2000, the U.K. pound closed at 0.7007 to 1.00 U.S. dollar, an increase from
0.6831 at September 30, 2000. 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.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 27
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1999 and 2000 28
Consolidated Statements of Operations for each of the Three Fiscal Years
Ended September 30, 2000 29
Consolidated Statements of Cash Flows for each of the Three Fiscal Years
Ended September 30, 2000 30
Consolidated Statements of Stockholders' Equity for each of the Three Fiscal Years
Ended September 30, 2000 31
Notes to Consolidated Financial Statements 32
</TABLE>
26
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EZCORP, Inc.
We have audited the accompanying consolidated balance sheets of EZCORP, Inc.
and its subsidiaries as of September 30, 1999 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(2).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
EZCORP, Inc. and its subsidiaries at September 30, 1999 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note B to the financial statements, in the year ended September
30, 2000 the Company changed its method of accounting for revenue recognition
on pawn loans.
ERNST & YOUNG LLP
Austin, Texas
November 10, 2000 except for Note H,
as to which the date is December 15, 2000.
27
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-----------------------
1999 2000
---------- ----------
<S> <C> <C>
Assets: (In thousands)
Current assets:
Cash and cash equivalents $ 2,899 $ 3,126
Pawn loans 53,940 46,916
Service charges receivable 16,671 8,629
Inventory, net 58,241 35,660
Deferred tax asset 1,824 9,636
Federal income tax receivable 1,695 5,045
Prepaid expenses and other assets 3,787 1,565
--------- ---------
Total current assets 139,057 110,577
Investment in unconsolidated affiliates 13,195 14,021
Property and equipment, net 60,608 61,130
Other assets:
Goodwill, net 13,868 12,160
Notes receivable from related parties 3,000 3,156
Other assets, net 4,349 2,749
--------- ---------
Total assets $ 234,077 $ 203,793
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 11 $ 22,087
Accounts payable and other accrued expenses 11,049 12,011
Restructuring reserve -- 1,649
Customer layaway deposits 2,422 2,332
--------- ---------
Total current liabilities 13,482 38,079
Long-term debt, less current maturities 83,112 59,025
Deferred tax liability 1,696 3,639
Other long-term liabilities 102 379
--------- ---------
Total long-term liabilities 84,910 63,043
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 in 1999; 10,906,073 issued
and 10,897,040 outstanding in 2000 108 109
Class B Voting Common Stock, convertible, par value $.01
Per share; Authorized 1,198,990 shares; 1,190,057
issued and outstanding 12 12
Additional paid-in capital 114,470 114,569
Retained earnings (deficit) 21,715 (11,159)
--------- ---------
136,305 103,531
Treasury stock (9,033 shares) (35) (35)
Receivable from stockholder (729) (729)
Accumulated other comprehensive income 144 (96)
--------- ---------
Total stockholder's equity 135,685 102,671
--------- ---------
Total liabilities and stockholders' equity $ 234,077 $ 203,793
========= =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------
1998 1999 2000
---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Sales $ 112,307 $ 130,077 $ 139,924
Pawn service charges 85,087 101,892 57,475
--------- --------- ---------
Total revenues 197,394 231,969 197,399
Costs of goods sold 94,084 113,824 88,054
--------- --------- ---------
Net revenues 103,310 118,145 109,345
Operating Expenses
Operations 66,742 81,963 85,513
Administrative 12,838 14,387 19,324
Depreciation 6,895 8,503 9,389
Amortization 701 932 866
Restructuring expense -- -- 10,572
--------- --------- ---------
Total operating expenses 87,176 105,785 125,664
--------- --------- ---------
Operating income (loss) 16,134 12,360 (16,319)
Interest expense, net 1,398 3,691 6,201
Equity in net income of unconsolidated affiliate (95) (304) (225)
(Gain) loss on sale of assets (28) 268 (280)
--------- --------- ---------
Income (loss) before income taxes 14,859 8,705 (22,015)
Income tax expense (benefit) 5,646 3,220 (3,785)
--------- --------- ---------
Income (loss) before cumulative effect of a change in
accounting principle $ 9,213 $ 5,485 $ (18,230)
Cumulative effect on prior years (to September 30, 1999) of
change in method of revenue recognition, net of tax -- -- (14,344)
--------- --------- ---------
Net Income (loss) $ 9,213 $ 5,485 $ (32,574)
========= ========= =========
Income (loss) per common share (basic and diluted):
Income (loss) before cumulative effect of a change in
accounting principle $ 0.77 $ 0.46 $ (1.52)
Cumulative effect on prior years (to September 30, 1999)
of change in method of revenue recognition, net of tax $ -- $ -- $ (1.19)
--------- --------- ---------
Net income (loss) $ 0.77 $ 0.46 $ (2.71)
========= ========= =========
Weighted average shares outstanding
Basic 11,999 12,004 12,017
Assuming dilution 12,014 12,008 12,017
Pro forma amounts assuming the new revenue recognition
method is applied retroactively:
Net income (loss) $ 8,052 $ 1,748 $ (18,230)
Net income (loss) per common share (basic and diluted) $ 0.67 $ 0.15 $ (1.52)
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------
1998 1999 2000
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ 9,213 $ 5,485 $ (32,574)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle -- -- 14,344
Depreciation and amortization 7,596 9,435 10,255
Restructuring expenses -- -- 10,572
Net (gain)/loss on sale or disposal of assets (32) 269 (280)
Deferred compensation expense -- -- 4
Income from investment in unconsolidated affiliate (95) (304) (225)
Changes in operating assets and liabilities:
Service charges receivable (1,575) (1,828) 704
Inventory (4,303) (14,080) 7,512
Notes receivable related parties 33 -- (201)
Prepaid expenses, other current assets, and other
assets, net (1,689) (1,727) 1,539
Accounts payable and accrued expenses 1,169 2,247 1,340
Customer layaway deposits 251 244 (90)
Other long-term liabilities 152 (50) (129)
Federal income taxes payable (819) -- --
Deferred taxes 1,761 1,730 1,517
Federal income taxes receivable (840) (855) (3,350)
--------- --------- ---------
Net cash provided by operating activities 10,822 566 10,938
Investing Activities:
Pawn loans forfeited and transferred to inventory 60,297 77,908 71,800
Pawn loans made (180,894) (208,201) (187,600)
Pawn loans repaid 114,429 126,311 122,190
--------- --------- ---------
(6,168) (3,982) 6,390
Additions to property, plant and equipment (17,830) (25,793) (18,534)
Acquisitions, net of cash acquired (3,600) (1,802) --
Purchase of pawn related assets (925) -- --
Investment in unconsolidated affiliate (10,844) (1,808) (841)
Proceeds from sale of assets 203 -- 4,585
--------- --------- ---------
Net cash used in investing activities (39,164) (33,385) (8,400)
Financing Activities:
Proceeds from bank borrowings 48,000 52,000 52,000
Payments on bank borrowings (19,009) (17,010) (54,011)
Payment of dividends (150) (600) (300)
--------- --------- ---------
Net cash provided by (used in) financing activities 28,841 34,390 (2,311)
--------- --------- ---------
Change in cash and equivalents 499 1,571 227
Cash and equivalents at beginning of period 829 1,328 2,899
--------- --------- ---------
Cash and equivalents at end of period $ 1,328 $ 2,899 $ 3,126
========= ========= =========
Cash paid during the periods for:
Interest $ 1,850 $ 3,911 $ 7,549
Income taxes $ 5,934 $ 2,325 $ 311
Non-cash investing and financing activities:
Issuance of common stock to 401(k) plan $ 60 $ 72 $ 96
Accumulated foreign currency translation adjustment $ (30) $ 174 $ (240)
Receivable from insurer for loss of fixed asset $ -- $ 79 $ --
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Retained Receivable Other
Common Stock Paid In Earnings/ Treasury From Comprehensive
Shares Par Value Capital (Deficit) Stock Stockholder Income (loss) Total
--------- --------- ---------- --------- ---------- ----------- ------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1997 12,004 $ 120 $ 114,338 $ 7,767 $ (35) $ (729) $ -- $ 121,461
Issuance of common stock to
401(k) plan 7 -- 60 -- -- -- -- 60
Payment of dividends -- -- -- (150) -- -- -- (150)
Foreign currency translation
Adjustment -- -- -- -- -- -- (30) (30)
Net income -- -- -- 9,213 -- -- -- 9,213
---------
Total comprehensive income -- -- -- -- -- -- -- 9,183
--------- --------- --------- --------- --------- --------- --------- ---------
Balances at September 30, 1998 12,011 120 114,398 16,830 (35) (729) (30) 130,554
Issuance of common stock to
401(k) plan 10 -- 72 -- -- -- -- 72
Payment of dividends -- -- -- (600) -- -- -- (600)
Foreign currency translation
Adjustment -- -- -- -- -- -- 174 174
Net income -- -- -- 5,485 -- -- -- 5,485
----------
Total comprehensive income -- -- -- -- -- -- -- 5,659
--------- --------- --------- --------- --------- --------- --------- ---------
Balances at September 30, 1999 12,021 120 114,470 21,715 (35) (729) 144 135,685
Issuance of common stock to
401(k) plan 75 1 95 -- -- -- -- 96
Payment of dividends -- -- -- (300) -- -- -- (300)
Amortization of stock option
compensation -- -- 4 -- -- -- -- 4
Foreign currency translation
adjustment -- -- -- -- -- -- (240) (240)
Cumulative effect of change in
accounting method -- -- -- (14,344) -- -- -- (14,344)
Net loss -- -- -- (18,230) -- -- -- (18,230)
---------
Total comprehensive loss -- -- -- -- -- -- -- (32,814)
--------- --------- --------- --------- --------- --------- --------- ---------
Balances at September 30, 2000 12,096 $ 121 $ 114,569 $ (11,159) $ (35) $ (729) $ (96) $ 102,671
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: EZ Corp., Inc. (the "Company") is primarily engaged in
establishing, acquiring, and operating pawnshops. As of September 30, 2000, the
Company operated 313 locations in 12 states. At December 1, 2000, the Company
operated 297 stores in 10 states. The pawnshops function as sources of customer
credit and as specialty retailers primarily of previously owned merchandise.
CONSOLIDATION: The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company
accounts for its 29.9% interest in Albemarle & Bond Holdings, plc ("A&B") using
the equity method.
REVENUE RECOGNITION: Pawn loans ("loans") are generally made on the pledge of
tangible personal property for one month with an automatic 60 day grace period
(the "loan term"). Pawn service charges on loans are recorded based on the
interest method based on estimated amounts to be collected (see Note B). If the
loan is not repaid, the forfeited collateral (inventory) is valued at the lower
of cost (loan principal) or market (net realizable value) of the property. When
this inventory is sold, sales revenue and the related cost are recorded at the
time of sale.
CONCENTRATIONS OF CREDIT RISK: Collateral for the Company's pawn loans consists
of tangible personal property, generally jewelry, consumer electronics, tools,
and musical instruments. The Company does not investigate the creditworthiness
of a borrower, but relies on the estimated resale value of the pledged
property, the perceived probability of its redemption, and the estimated time
required to sell the item as a basis for its credit decision. As a result, the
Company believes it has very little credit risk.
CASH AND CASH EQUIVALENTS: The Company considers investments with maturities of
90 days or less when purchased to be cash equivalents.
INVENTORY: Inventory is stated at the lower of cost (specific identification)
or market (net realizable value). Inventory consists of merchandise acquired
from forfeited loans, merchandise purchased from customers, merchandise
acquired from the acquisition of other pawnshops, and new merchandise purchased
from vendors. The Company provides an allowance for shrinkage and valuation
based on management's evaluation of the market value of the merchandise. At
September 30, 2000 (after giving effect to the change in accounting principle
discussed in Note B), the valuation allowance deducted from the carrying value
of inventory amounted to $2,238,000. The valuation allowance at September 30,
1999 amounted to $8,313,000 ($1,350,000 pro forma for the effect of the
accounting change.).
SOFTWARE DEVELOPMENT COSTS: The Company accounts for software development costs
in accordance with SOP 98-1, Accounting for the Costs of Computer Software
Developed for or Obtained for Internal Use, which requires the capitalization
of certain costs incurred in connection with developing or obtaining software
for internal use. During 1999 and 2000, approximately $5,393,000 and $8,055,000
were capitalized in connection with the development of internal software
systems. Included in these amounts are $285,000 and $942,000 of capitalized
interest in 1999 and 2000. Capitalized costs are amortized over the estimated
useful lives of each system when complete and ready for its intended use.
CUSTOMER LAYAWAY DEPOSITS: Customer layaway deposits are recorded as deferred
revenue until the entire related sales price has been collected and the related
merchandise has been delivered to the customer.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Provisions
for depreciation are computed on a straight line basis using estimated useful
lives of 30 years for buildings and 5 to 10 years for furniture, equipment,
leasehold improvements, and software development costs.
32
<PAGE> 33
INTANGIBLE ASSETS: Intangible assets consist primarily of excess purchase price
over net assets acquired in acquisitions. Excess cost over fair value of net
assets acquired (or goodwill) is amortized on a straight-line basis over 20 to
40 years (the expected period of benefit). Accumulated amortization of goodwill
was approximately $6,811,000 and $5,353,000 at September 30, 1999 and 2000,
respectively. Accumulated amortization of all other intangible assets was
approximately $6,795,000 and $1,594,000 at September 30, 1999 and 2000,
respectively.
LONG-LIVED ASSETS: Long-lived assets (i.e., property, equipment, and intangible
assets) are reviewed for impairment whenever events or changes in circumstances
indicate that the net book value of the asset may not be recoverable. An
impairment loss is recognized if the sum of the expected future cash flows
(undiscounted and before interest) from the use of the asset is less than the
net book value of the asset. The amount of the impairment loss, if any, is
measured as the difference between the net book value and the estimated fair
value of the related assets (see Note C).
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial instruments is
determined by reference to various market data and other valuation techniques,
as appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values, due primarily to their short
term nature.
FOREIGN CURRENCY TRANSLATION: The Company's equity investment in A&B is
translated into U.S. dollars at the exchange rate as of A&B's balance sheet
date (June 30). The related interest in A&B's net income is translated at the
average exchange rate for each six month period reported by A&B. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity.
ADVERTISING: Advertising costs are expensed as incurred. Advertising expense was
approximately $1,208,000, $1,467,000, and $1,442,000 for the fiscal years ended
September 30, 1998, 1999, and 2000.
INCOME TAXES: The Company files a consolidated return with its wholly owned
subsidiaries. Deferred taxes are recorded based on the liability method and
result primarily from differences in the timing of the recognition of certain
revenue and expense items for federal income tax purposes and financial
reporting purposes.
STOCK-BASED COMPENSATION: The Company accounts for its stock based compensation
plans in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). In October 1995, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). SFAS 123 encourages expensing the fair value of employee stock options,
but allows an entity to continue to account for stock based compensation to
employees under APB 25 with disclosures of the pro forma effect on net income
had the fair value accounting provisions of SFAS 123 been adopted. The Company
has calculated the fair value of options granted in these periods using the
Black-Scholes option pricing model and has determined the pro forma impact on
net income. See Note I, Common Stock, Warrants, and Options.
SEGMENTS: The Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") in fiscal 1999.
The adoption of SFAS 131 did not have a significant effect on the disclosure of
segment information as the Company continues to consider its business
activities as a single segment.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates and
such difference may be material.
RECLASSIFICATIONS: Certain prior year financial statement balances have been
reclassified to conform to the current year presentation.
33
<PAGE> 34
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In June 1998, the FASB issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB issued SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133." SFAS 133, as deferred by SFAS 137, is effective for the
Company's fiscal 2001 year. Management of the Company expects that the adoption
of the new Statement will have no effect on results of operations or the
financial position of the Company.
NOTE B: CHANGE IN ACCOUNTING PRINCIPLE
Effective October 1, 1999, 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 $14.3 million included in the accompanying
statement of operations for the year ending September 30, 2000 represents the
cumulative effect of applying the new method retroactively (net of an income
tax benefit of $7.4 million). The pro forma amounts shown on the statements of
operations reflect the effect of retroactive application on pawn service charge
revenues and cost of goods sold had the new method been in effect, and the
related income taxes.
NOTE C: RESTRUCTURING CHARGE
In Fiscal 2000 the Company reviewed its store portfolio to determine whether
closing certain stores would improve the Company's profitability and to
determine whether certain stores were strategically viable. As a result of this
review and the continuing evaluation of such assets for impairment, the Company
decided to close 54 stores and recorded a pretax charge of $11.8 million ($7.8
million net of tax) during the fourth quarter of Fiscal 2000.
The total pretax charge included $9.6 million (included in Restructuring
expense on the Consolidated Statement of Operations) for the write-down to
realizable value the closed stores' property, equipment, pawn loans
outstanding, intangible assets, and the estimated costs for the settlement of
lease obligations, administrative costs, severance costs, and other exit costs.
Also included in the total charge is approximately $1.0 million (included in
Restructuring expense on the Consolidated Statement of Operations) related to
other restructuring charges, primarily severance for administrative staff
reductions. All charges for severance included in the restructuring related to
employees notified of their position elimination prior to September 30, 2000.
The $11.8 million pretax charge includes a $1.2 million write down of inventory
(included in Cost of goods sold on the Consolidated Statement of Operations)
for discounts expected in liquidating these stores' remaining inventory. Of the
54 stores, 23 were closed as of September 30, 2000, and the remaining 31 are
expected to close in Fiscal 2001.
Prior to September 30, 2000, employees at thirty-nine of the 54 stores
identified for closure were notified of their termination. As of September 30,
2000, approximately 84 employees were terminated, and approximately 105
additional employees will be terminated when the remaining stores close during
Fiscal 2001. The severance cost for notified employees was accrued and included
in the store closing charge noted above.
34
<PAGE> 35
The results of operations from the 54 stores scheduled for closure were as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
--------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Total revenues $ 15,871 $ 18,461 $ 17,946
Operating loss (2,343) (2,379) (3,222)
</TABLE>
At September 30, 2000, the Company had a remaining restructuring reserve of
$1.6 million. It is anticipated that all remaining material cash outlays
required for these store closings and related restructuring costs will be made
during Fiscal 2001. The following is a summary of the types and amounts
recognized as accrued expenses together with cash payments made against such
accruals for the year ended September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Write-off of
Lease Long-Lived Administrative Net Book Proceeds
Settlement Workforce and Intangible and Other Value of from Sale Total
Costs Severance Assets Exit Costs Assets Sold of Assets Reserve
---------- --------- -------------- -------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Reserve balance
at September
30, 1999 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Additions
(reductions) 693 1,159 7,669 543 1,714 (1,206) 10,572
Reserve Utilized (111) (251) (7,669) (87) (1,284) 479 (8,923)
-------- -------- -------- -------- -------- -------- --------
Reserve balance
at September
30, 2000 $ 582 $ 908 $ -- $ 456 $ 430 $ (727) $ 1,649
======== ======== ======== ======== ======== ======== ========
</TABLE>
In conjunction with the restructuring in Fiscal 2000, the Company recorded an
additional $1.2 million inventory reserve for anticipated losses on sales at
stores to be closed. This amount was charged to cost of goods sold and is
excluded from the table above. Of this inventory reserve, $0.1 million was
utilized by September 30, 2000, leaving a balance of $1.1 million in the
reserve at that date. The Company anticipates that the remaining reserve will
be utilized in Fiscal 2001 as the related inventory is sold.
35
<PAGE> 36
NOTE D: EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted
earnings per share is shown in the table below:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------
1998 1999 2000
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Numerator
Numerator for basic and diluted earnings per share:
Net income (loss) $ 9,213 $ 5,485 $(32,574)
======== ======== ========
Denominator
Denominator for basic earnings per share:
Weighted average shares 11,999 12,004 12,017
Effect of dilutive securities:
Employee stock options 3 -- --
Warrants 12 4 --
-------- -------- --------
Dilutive potential common shares 15 4 --
-------- -------- --------
Denominator for diluted earnings per share: adjusted
weighted average shares and assumed conversions 12,014 12,008 12,017
======== ======== ========
Basic and diluted earnings per share $ 0.77 $ 0.46 $ (2.71)
======== ======== ========
</TABLE>
Outstanding options to purchase shares of common stock were as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------
1998 1999 2000
-------- --------- ---------
<S> <C> <C> <C>
Weighted average shares subject to options 618,643 1,534,763 1,569,924
Average exercise price per share $ 13.36 $ 11.30 $ 11.08
</TABLE>
These options were excluded from the computation of diluted earnings per share
in 1998 and 1999 because the options' exercise prices were greater than the
average market price of common shares and, therefore, the effect would be
anti-dilutive. Options outstanding in 2000 were excluded from the computation
of loss per share because the Company incurred a loss for Fiscal 2000.
NOTE E: ACQUISITION OF PAWN STORES AND PURCHASE OF PAWN RELATED ASSETS
During the fiscal years ended September 30, 1998 and 1999, the Company paid
approximately $4.5 million and $1.8 million, respectively, for the acquisition
of pawn stores and the purchase of certain pawn related assets. The purchase
price for the acquisitions was funded primarily from an existing bank line of
credit. These acquisitions have been accounted for under the purchase method of
accounting. The operating results of the acquired locations have been included
in the Company's consolidated results of operations since their respective
purchase dates. Excess of cost over the fair value of the assets acquired of
approximately $1,538,000 and $629,000 in 1998 and 1999, respectively, is being
amortized on a straight-line basis over periods ranging from 20 to 40 years.
There were no acquisitions during the fiscal year ended September 30, 2000.
36
<PAGE> 37
Since none of these acquisitions are material to the results of operations or
financial position of the Company (individually or collectively) no pro forma
results have been presented.
On March 28, 1998, the Company acquired 29.99% of the common shares of
Albemarle & Bond Holdings, plc ("A&B") for approximately $10.8 million. On
October 16, 1998, the Company acquired an additional 1,896,666 newly issued
common shares of A&B for approximately $2 million. Following this purchase the
Company owns 13,276,666 common shares of A&B, or approximately 29.9% of the
total outstanding shares. A&B is primarily engaged in pawnbroking, retail
jewelry sales and check cashing in England and Wales. The excess of the
purchase price over the fair market value of net assets acquired of
approximately $9.0 million is being amortized over 20 years. Summarized
financial information for this equity investment is not presented since the
investment is not material in relation to the financial position or results of
operations of the Company. The acquisition is accounted for using the equity
method. Since A&B's fiscal year end is June 30, the income reported by the
Company for its investment in A&B is on a three month lag. The income reported
for the Company's fiscal year end of September 30 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 April 1 to June 30, 1998,
from July 1, 1998 to June 30, 1999, and from July 1, 1999 to June 30, 2000 for
Fiscal 1998, Fiscal 1999 and Fiscal 2000, respectively. A&B's shares are listed
on the Alternative Investment Market of the London Stock Exchange and at
September 30, 2000, the market value of this investment was approximately $6.0
million, based on the closing market price on that date.
NOTE F: PROPERTY AND EQUIPMENT
Major classifications of property and equipment were as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
1999 2000
---------- ----------
(In thousands)
<S> <C> <C>
Land $ 5,125 $ 5,293
Buildings and improvements 44,580 46,019
Furniture and equipment 35,863 36,507
Software 4,770 5,216
Construction in progress 7,823 15,110
--------- ---------
Total 98,161 108,145
Less accumulated depreciation (37,553) (47,015)
--------- ---------
$ 60,608 $ 61,130
========= =========
</TABLE>
NOTE G: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
September 30,
-----------------
1999 2000
------- -------
(In thousands)
<S> <C> <C>
Trade accounts payable $ 4,694 $ 3,570
Accrued payroll and related expenses 3,119 4,765
Other accrued expenses 3,236 3,676
------- -------
$11,049 $12,011
======= =======
</TABLE>
37
<PAGE> 38
NOTE H: LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
September 30,
-----------------
1999 2000
------- -------
(In thousands)
<S> <C> <C>
Note payable to bank under $85 million line of credit agreement dated December
10, 1998, as amended on September 29, 1999 and March 31, 2000; interest payable
monthly at prime rate or the bank's Eurodollar rate plus 0% to 4.5% (11.125% at
September 30, 2000); annual commitment fee of 0.25% of the unused portion
payable in quarterly installments; principal due December 3, 2001 $83,000 $81,000
Other 123 112
------- -------
83,123 81,112
Less current maturities 11 22,087
------- -------
$83,112 $59,025
======= =======
</TABLE>
On December 15, 2000, the Company amended and restated its $85 million secured
credit agreement, which matures December 3, 2001. The amended credit agreement
provides for a $45 million revolving credit facility and two term loan
facilities totaling $40 million which are secured by substantially all of the
Company's assets. Availability under the revolving credit facility will be tied
to pawn loan and inventory balances. The term facilities require principal
payments of $22.1 million during Fiscal 2001. These principal payments will be
made from operating cash flow, the sale of assets, primarily sale-leaseback
transactions of various owned properties, and a tax refund resulting from the
Company's Fiscal 2000 operating loss. Interest on the facility will be tied to
the agent bank's prime rate plus 250 to 350 basis points. The Company pays a
commitment fee of 25 basis points on the unused amount of the revolving
facility.
Earlier in Fiscal 2000, the Company amended its $110 million credit agreement
in an amendment dated March 31, 2000. Among other provisions, this amendment
reduced the aggregate commitment under the facility to $85 million, secured the
facility with substantially all the assets of the Company, and adjusted the
interest rates charged on outstanding borrowings.
The Company believes that the financial covenants established in the amended
credit facility will be achieved based upon the Company's current and
anticipated performance. Based upon management's Fiscal 2001 operating plan,
including the sale/leaseback of certain assets and the availability under the
revolving credit facility, the Company believes that there is adequate
liquidity to fund the Company's operations and to make the required principal
payments under the two term loans during Fiscal 2001. However, material
shortfalls or variances from anticipated performance or the delay in the sale
of certain of its assets could require the Company to seek a further amendment
to the amended credit facility or alternate sources of financing, or to limit
capital expenditures to an amount less than that currently anticipated or
permitted under the amended and restated credit facility.
The Company currently has a $691,000 letter of credit with the bank group as
required by a legal agreement relating to certain insurance policies.
NOTE I: COMMON STOCK, WARRANTS, AND OPTIONS
The capital stock of the Company consists of two classes of common stock
designated as Class A Non-voting Common Stock ("Class A Common Stock") and
Class B Voting Common Stock ("Class B Common Stock"). The rights, preferences,
and privileges of the Class A and Class B Common Stock are similar except that
each share of Class B Common Stock has one vote and each share of Class A
Common Stock has no voting privileges. All Class A Non-voting Common Stock is
publicly held. Holders of Class B
38
<PAGE> 39
Common Stock may, individually or as a class, convert some or all of their
shares into Class A Common Stock. Class A Common Stock becomes voting common
stock upon the conversion of all Class B Common Stock to Class A Common Stock.
The Company is required to reserve such number of authorized but unissued shares
of Class A Common Stock as would be issuable upon conversion of all outstanding
shares of Class B Common Stock.
At September 30, 2000, warrants to purchase 23,579 shares of Class A Common
Stock and 4,074 shares of Class B Common Stock at $6.17 per share were
outstanding. The warrants are exercisable through July 25, 2009.
The Company has an Incentive Stock Option Plan (the "1991 Plan") under which
options to purchase Class A Common Stock could be granted to employees until
adoption of the 1998 Plan discussed below. Options granted under the 1991 Plan
were granted at exercise prices equal to or greater than the fair market value
of the Class A Common Stock on the date of grant. The options vest at 20% each
year and are fully vested in five years, with accelerated vesting upon a change
in control of the Company. They have a contractual life of ten years. No
options have been exercised pursuant to the 1991 Plan. A summary of the 1991
Plan activity for each of the three fiscal years ended September 30, 1998, 1999
and 2000 follows:
STOCK OPTION PLANS
<TABLE>
<CAPTION>
Price Range of
Number of Shares Shares Weighted Average
---------------- --------------- ----------------
<S> <C> <C> <C>
Outstanding at September 30, 1997 562,005 $ 8.75 - $21.75 $ 13.46
Granted 138,250 $12.00 - $12.50 $ 12.05
Canceled (52,745) $ 8.75 - $21.75 $ 12.91
Exercised -- -- --
-------- ----------------- -------
Outstanding at September 30, 1998 647,510 $ 8.75 - $21.75 $ 13.20
Granted -- -- --
Canceled (65,237) $ 8.75 - $21.75 $ 12.14
Exercised -- -- --
-------- ----------------- -------
Outstanding at September 30, 1999 582,273 $11.00 - $21.75 $ 13.32
Granted -- -- --
Canceled (329,567) $12.00 - $21.75 $ 12.99
Exercised -- -- --
-------- ----------------- -------
Outstanding at September 30, 2000 52,706 $11.00 - $21.75 $ 13.76
-------- ----------------- -------
</TABLE>
RANGE OF OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Weighted Exercisable
Weighted Average Shares
Number of Average Remaining Weighted
Range of Shares Exercise Contractual Avg. Exer.
Exercise Prices Outstanding Price Life (years) Exercisable Price
--------------- ----------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
$11.00-$12.75 105,406 $12.17 5.40 77,956 $12.22
$13.00-$14.50 129,700 $13.97 3.79 129,700 $13.97
$21.75-$21.75 17,600 $21.75 2.17 17,600 $21.75
------------- ------- ------ ---- ------- ------
$11.00-$21.75 252,706 $13.76 4.35 225,256 $13.97
</TABLE>
On November 5, 1998, the Compensation Committee of the Board of Directors
approved the adoption of the EZCORP, Inc. 1998 Incentive Plan (the "1998
Plan"), which provides for stock option awards of up to 1,275,000 of the
Company's Class A Common Stock. In approving such plan, the Compensation
Committee resolved that no further options would be granted under any previous
plans.
On November 5, 1998, the Compensation Committee of the Board of Directors
approved a grant of 1,023,000 options to named executives, exercisable at
$10.00 per share, and, except as provided below, vesting on October 6, 2008. As
of September 30, 2000, the Company had 450,000 options outstanding
39
<PAGE> 40
(options granted less options canceled due to employee termination). Options
under the 1998 Plan have a contractual life of ten years.
The following specified percentage of the options will vest prior to October 6,
2008 if the Company meets certain earnings per share ("EPS") targets described
below and maintains a certain debt to equity ratio.
<TABLE>
<CAPTION>
Earnings Per Share for Fiscal Year
-----------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Targeted EPS for Tranche A Options $ 0.85 $ 1.05 $ 1.30 $ 1.60 $ 2.00 $ 2.50 $ 3.10
Targeted EPS for Tranche B Options $ 0.85 $ 1.06 $ 1.43 $ 1.92 $ 2.46 $ 3.06 $ 3.66
Targeted EPS for Tranche C Options $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
</TABLE>
<TABLE>
<CAPTION>
Percent Vested if Targets Met for Fiscal Year
----------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Applicable percentage 10% 10% 15% 15% 20% 20% 10%
Amount for Tranche A and Tranche B
Applicable percentage 100% 100% 100% 100% 100% 100% 100%
Amount for Tranche C
</TABLE>
In addition, with respect to Tranche A and Tranche B Options, to the extent
that the applicable EPS target is not met for a particular fiscal year, but the
EPS target is exceeded in the next following fiscal year, the excess may be
carried back to satisfy the shortfall in the immediately prior year. Once the
EPS target for the Tranche C Options is met, 100% of the Tranche C Options
vest, and no further Tranche C Options shall vest in any subsequent year in
which the EPS target is met. Finally, if any of the above-described options
fail to qualify as incentive options under the Internal Revenue Code, the
Company has agreed to pay a bonus to each Optionee at the time and in the
amount of any tax savings actually realized by the Company resulting therefrom.
The EPS targets set forth above do not represent the Company's projections,
forecasts or forward-looking statements concerning future performance. Instead,
they have been established through negotiations with the named executives to
identify appropriate incentives as part of a broad-based executive compensation
program. To the extent the EPS targets may be deemed forward-looking
statements, they are subject in their entirety to the safe-harbor provisions
set forth elsewhere in this report.
In Fiscal 2000, the Compensation Committee of the Board of Directors approved
additional grants of options under the 1998 Plan at exercise prices ranging
from $2.00 to $15.00. The options vest at 20% each year and are fully vested in
five years. They have a contractual life of ten years. No options have been
exercised pursuant to the 1998 Plan. Total options available for grant at
September 30, 2000 were 529,400.
A summary of the 1998 Plan activity follows:
<TABLE>
<CAPTION>
STOCK OPTION PLANS
Number of Shares Price Range of Shares Weighted Average
---------------- --------------------- ----------------
<S> <C> <C> <C>
Outstanding at September 30, 1998 -- $ -- $ --
Granted 1,048,000 10.00 10.00
Canceled (23,000) 10.00 10.00
Exercised -- -- --
---------- ------------- ------
Outstanding at September 30, 1999 1,025,000 $10.00 $10.00
Granted 250,000 2.00 - 15.00 9.12
Canceled (529,400) 10.00 10.00
Exercised -- -- --
---------- ------------- ------
Outstanding at September 30, 2000 745,600 $2.00 - $15.0 $ 9.70
</TABLE>
40
<PAGE> 41
RANGE OF OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Weighted Exercisable
Weighted Average Shares
Number of Average Remaining Weighted
Range of Shares Exercise Contractual Avg. Exer.
Exercise Prices Outstanding Price Life (years) Exercisable Price
--------------- ----------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.00-$ 4.00 100,000 $ 3.80 9.51 -- $ --
$10.00-$10.00 545,600 $10.00 8.25 9,600 $10.00
$13.00-$15.00 100,000 $14.00 9.40 -- $ --
------------- ------- ------ ---- ------ ------
$ 2.00-$15.00 745,600 $ 9.70 8.58 9,600 $10.00
</TABLE>
In accordance with SFAS 123, the fair value of these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for the years ended September 30, 1999 and 2000,
respectively:
<TABLE>
<CAPTION>
September 30,
----------------------------
1999 2000
-------------- ------------
<S> <C> <C>
Risk-free interest rate 4.45% 6.00%
Dividend yield 0% 0%
Volatility factor of the expected market price of the
Company's common stock 0.410 0.890
Expected life of the options 5-10 years 5 years
Weighted average fair value of options granted:
Exercise price greater than fair value at date of grant $ 4.88 $ 3.51
Exercise price less than fair value on the date of grant $ -- $ 2.38
</TABLE>
During Fiscal 2000, options to purchase 50,000 shares were granted to an
employee below the market price on the date of grant. As a result, the Company
recorded deferred compensation of approximately $31,000, of which $4,000 was
amortized to non-cash compensation expense during the year ended September 30,
2000. The remaining unearned compensation will be recognized as non-cash
compensation expense over the remaining vesting period of approximately four
years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, this option valuation model requires the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the Black-Scholes model does not necessarily provide a
reliable single measure of the fair value of its employee stock options.
Additionally, because the provisions of SFAS 123 are not effective for options
granted prior to October 1, 1996 and due to the nature and timing of option
grants, the resulting pro forma compensation costs may not be indicative of
future compensation costs. For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the options' vesting
period. The Company's pro forma net income is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net income (loss), as reported $ 9,213 $ 5,485 $(32,574)
Less: pro forma compensation expense 110 558 13
-------- -------- --------
Net income (loss), pro forma $ 9,103 $ 4,927 $(32,587)
Basic and diluted earnings (loss) per share,
pro forma $ 0.76 $ 0.41 $ (2.71)
</TABLE>
41
<PAGE> 42
Shares of reserved common stock at September 30, 2000, were as follows:
<TABLE>
<CAPTION>
Class A Class B
--------- ---------
<S> <C> <C>
Stock option plan 1,275,000 --
Stock warrants 23,579 4,074
401(k) plan 100,000 --
Conversion of Class B Common Stock 1,198,990 --
--------- ---------
2,597,569 4,074
========= =========
</TABLE>
NOTE J: INCOME TAXES
As of September 30, 2000, the Company had federal net operating loss
carryforwards of approximately $461,000, which will expire beginning in 2020,
if not utilized. The Company has alternative minimum tax and foreign tax credit
carryforwards of approximately $330,000 and $35,000 respectively. The
alternative minimum tax credit carryforwards do not expire. The foreign tax
credit carryforwards begin to expire in 2004, if not utilized.
Utilization of the net operating loss and credit carryforwards could be subject
to a substantial limitation if a "change in ownership," as defined by the
provisions of the Internal Revenue Code of 1986, were to occur. If a change in
ownership were to occur, the annual limitation could result in the expiration
of net operating losses before utilization.
The income tax provision (benefit) attributable to continuing operations
consisted of:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------
1998 1999 2000
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current
Federal $ 3,586 $ 1,419 $(5,302)
State 298 71 --
------- ------- -------
3,884 1,490 (5,302)
Deferred
Federal 1,762 1,730 1,517
State -- -- --
------- ------- -------
$ 5,646 $ 3,220 $(3,785)
======= ======= =======
</TABLE>
Income tax expense (benefit) is included in the financial statements as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------
1998 1999 2000
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Continuing operations $ 5,646 $ 3,220 $ (3,785)
Cumulative effect of change in accounting principle -- -- (7,390)
-------- -------- --------
$ 5,646 $ 3,220 $(11,175)
======== ======== ========
</TABLE>
42
<PAGE> 43
A reconciliation of income taxes calculated at the statutory rate and the
provision (benefit) for income taxes attributable to continuing operations is
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------
1998 1999 2000
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Income taxes at the federal statutory rate $ 5,201 $ 3,047 $(7,485)
Effect of nondeductible amortization of intangible assets 27 27 27
State income tax, net of federal benefit 298 73 --
Change in valuation allowance -- -- 3,700
Other 120 73 (27)
------- ------- -------
$ 5,646 $ 3,220 $(3,785)
======= ======= =======
</TABLE>
Income before income taxes for continuing operations on the statements of
operations differs from taxable income due to the following, which are
accounted for differently for financial statement purposes than for federal
income tax purposes and result in deferred tax expense (benefit):
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------
1998 1999 2000
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Inventory basis $ (312) $ (133) $ 480
Provision for store closings and related charges 302 71 (3,240)
Software basis 1,949 1,870 2,611
General reserves 20 126 (981)
Tax carryforwards -- -- (522)
Valuation allowance -- -- 3,700
Other (197) (204) (531)
------- ------- -------
$ 1,762 $ 1,730 $ 1,517
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets as
of September 30 are as follows:
<TABLE>
<CAPTION>
1999 2000
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Amortization of software costs $ 3,953 $ 6,707
Prepaid expenses 642 314
Other -- 160
-------- --------
Total deferred tax liabilities 4,595 7,181
Deferred tax assets:
Book over tax depreciation 2,314 3,677
Tax over book inventory 2,161 7,560
Accrued liabilities 248 153
Provision for store closings and related charges -- 3,031
Pawn service charge receivable -- 1,935
Tax carryforwards -- 522
-------- --------
Total deferred tax assets 4,723 16,878
-------- --------
Net deferred tax asset 128 9,697
Valuation allowance -- (3,700)
-------- --------
Net deferred taxes $ 128 $ 5,997
======== ========
</TABLE>
The Company established a valuation allowance of $3.7 million in Fiscal 2000
based upon the potential uncertainties regarding the realization of certain
deferred tax assets.
43
<PAGE> 44
Substantially all of the Company's operating income was generated from domestic
operations during 1999 and 2000. At September 30, 1999 and 2000, the Company
has provided deferred income taxes on all undistributed earnings from its
foreign unconsolidated affiliate. Such earnings have been reinvested in foreign
operations except for dividends at September 30, 1999 and 2000 of approximately
$240,000 and $258,000, respectively. Furthermore, any taxes paid to foreign
governments on those earnings may be used in whole in part as credits against
the U.S. tax on any dividends distributed from such earnings.
NOTE K: RELATED PARTY TRANSACTIONS
Pursuant to the terms of a financial advisory services agreement, Morgan
Schiff, an affiliate of the general partner of the majority stockholder,
provides management consulting and investment banking services to the Company
for a $33,333 monthly retainer. These services include ongoing consultation
with respect to offerings by the Company of its securities, including, but not
limited to, the form, timing, and structure of such offerings. In addition to
the retainer, the affiliate earns fees from the Company for other business and
financial consulting services. In Fiscal 2000, Morgan Schiff waived these
consulting fees in July, August and September. In Fiscal 2000, Morgan Schiff
received $33,333 per month from October to June for its services as a financial
advisor and received expense reimbursements of $574,000. In Fiscal 1999, Morgan
Schiff received $33,333 per month for its services as a financial advisor and
received expense reimbursements of $412,000.
In 1994, the Company loaned the former President and Chief Executive Officer
and current director, Vincent Lambiase, $729,000 to purchase 50,000 shares of
Class A Non-voting Common Stock. The loan is shown as a reduction of
stockholders' equity in these financial statements. An agreement effective
August 15, 2000 between Mr. Lambiase and the Company modified the terms of the
loan. The maturity date was changed to the earlier of (a) the date that is ten
business days following the first day that the closing price for the Company's
stock is equal to or exceeds $10 per share, or (b) August 1, 2005.
Additionally, under the agreement, all accrued and unpaid interest due on the
loan is forgiven until the first day that the closing price for the Company's
stock is equal to or exceeds $6 per share. As of September 30, 2000, the amount
owed is approximately $729,000 plus accrued interest of approximately $52,500.
The Company records interest income on the loan. Any forgiveness of interest is
charged as compensation expense for Mr. Lambiase.
In October 1994, the Board of Directors approved agreements that provide
incentive compensation to the Chairman, Sterling Brinkley, and Mr. Lambiase,
based on growth in the share price of the Company's Class A Non-voting Common
Stock. Each executive was advanced $1.5 million evidenced by a recourse
promissory note, initially due in 2005 and bearing interest at the minimum rate
allowable for federal income tax purposes (ranging from 4.93% to 5.8% for
Fiscal 2000).
An agreement between Mr. Lambiase and the Company effective August 15, 2000
modified the terms of the $1.5 million loan from the Company by changing the
maturity date to August 15, 2001 and by providing for the forgiveness of
interest upon the repayment of the principal. The company is required to
reimburse Mr. Lambiase for the income tax consequences of any portion of the
interest forgiven.
Under the terms of Mr. Brinkley's $1.5 million loan, as amended, the loan
principal will be forgiven if, prior to October 1, 2005, a stock price target
of $28.25 is attained. The loan provides that upon Mr. Brinkley's death or
disability or certain changes in control the then remaining principal and
interest will be forgiven. Accrued interest is forgiven based upon continued
employment and the Company is required to reimburse Mr. Brinkley for the income
tax consequences of forgiveness of any portion of the debt. Through September
30, 2000, the stock price target had not been attained.
Under both the $1.5 million loans to Mr. Lambiase and Mr. Brinkley, charges to
operations consist of interest forgiveness and related income tax costs and
totaled approximately $306,000, $272,000 and $306,000 for the years ended
September 30, 1998, 1999, and 2000, respectively.
In February 2000, the Company loaned Mr. Rotunda $200,000. The principal and
interest of the loan are subject to forgiveness in equal increments over a
three-year period conditioned upon Mr. Rotunda's
44
<PAGE> 45
continued employment with the Company on February 24th of each year. The Company
is required to reimburse Mr. Rotunda for the income tax consequence of any
portion of the interest forgiven.
NOTE L: LEASES
The Company leases various facilities and certain equipment under operating
leases. Future minimum rentals due under noncancelable leases including stores
which were closed are as follows for each of the years ending September 30:
<TABLE>
<CAPTION>
Total
(In thousands)
-------------------------------
<S> <C>
2001 $ 6,103
2002 4,819
2003 3,419
2004 1,860
2005 760
Thereafter 713
--------
$ 17,674
========
</TABLE>
The Company subleases some of the above facilities. Future minimum rentals
expected under these subleases amount to $28,000 in 2001 and $8,000 in 2002.
Rent expense for the years ending September 30, 1998, 1999, and 2000 was $11.4
million, $13.0 million, and $13.6 million, respectively.
NOTE M: EMPLOYMENT AGREEMENTS
Pursuant to a settlement agreement dated February 4, 1998, the Company and its
founder and former President and Chief Executive Officer, Courtland L. Logue,
Jr., reached an out of court settlement to the lawsuit styled EZCORP, Inc. v.
Courtland L. Logue, Jr., in the 201st District Court of Travis County, Texas.
Under the terms of the settlement, which closed February 18, 1998, both the
Company and Mr. Logue released their claims against each other, including all
claims under Mr. Logue's employment agreement, and neither party admitted any
liability nor paid any cash consideration to the other.
The Company agreed to accelerate the release of contractual restrictions on the
transfer of Mr. Logue's 967,742 shares of common stock. The settlement released
191,548 shares immediately, and a like amount was released on October 29, 1998.
An additional 95,774 shares were released from restrictions on each of October
29, 1999 and October 29, 2000, with the remaining 40% of the shares to be
released in July 2001, as originally scheduled. As a result of this settlement,
on February 4, 1998, 285,417 shares of Mr. Logue's Class B Voting Common Stock
were converted to publicly traded Class A Non-voting Common Stock. The majority
holder of the Class B Voting Common Stock had previously approved and
implemented the conversion of Mr. Logue's other 682,325 shares from Class B
Common Stock to Class A Common Stock during the fiscal years ended September
30, 1996 and 1997. Also as a part of this settlement, Mr. Logue agreed to
assign 10,000 shares of his stock to the Company. The Company accounted for the
receipt of these shares as a capital transaction and has excluded the effect of
this transfer from net income. The Company and Mr. Logue also clarified the
scope of Mr. Logue's continuing non-competition agreement, negotiated a five
year limitation on Mr. Logue's financial investments in competing pawnshop
businesses and negotiated renewal options with respect to certain existing real
estate leases for store locations.
As President and Chief Executive Officer, Joseph L. Rotunda's annual
compensation includes a base salary of $400,000 and an annual bonus ranging
from 50% to 150% of his base salary dependent upon the attainment of Board
approved operating goals. In the event of a change of control, Mr. Rotunda is
entitled to receive a bonus payment equivalent to 200% of his annual
compensation, as well as the
45
<PAGE> 46
immediate vesting of all stock options. If Mr. Rotunda's employment is
terminated, other than for cause, he is entitled to receive a severance payment
equal to his annual compensation. As long as Mr. Rotunda's employment with the
Company continues, a $200,000 loan by the Company to Mr. Rotunda is subject to
forgiveness over a three-year period.
Vincent A. Lambiase was employed as the Company's President and Chief Executive
Officer pursuant to an employment agreement dated July 1, 1994. The employment
agreement had been extended through June 30, 2000 and provided for an annual
salary, a bonus, and a $1,500,000 loan and a $729,000 loan from the Company,
among other things. As of August 15, 2000, the Company entered into an
agreement with Mr. Lambiase whereby the parties mutually agreed to terminate
his employment with the Company. The terms of this agreement obligate the
Company to pay Mr. Lambiase a monthly salary of $37,500.00 through August 14,
2001. Beginning February 14, 2001, the monthly salary will be offset or reduced
by the amount of any other income earned by Mr. Lambiase. This agreement
further modified the terms and conditions of the $1.5 million and $729,000
loans. See Note K.
NOTE N: 401(k) PLAN
The Company sponsors a 401(k) Plan under which eligible employees of the
Company may contribute a maximum of 15% of their compensation within allowable
limits. To be eligible, an employee must be at least 21 years old and have been
employed by the Company for at least six months. The Company will match 25% of
each employee's contribution, up to 6% of their compensation, in the form of
the Company's Class A Non-voting Common Stock. Contribution expense related to
the plan for 1998, 1999 and 2000 was approximately $60,000, $72,000 and
$96,000, respectively.
NOTE O: 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 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.
NOTE P: STOCKHOLDERS' EQUITY
On July 27, 1998, the Board of Directors declared an annual $0.05 per share
cash dividend payable quarterly. The first quarterly dividend of $0.0125 per
share was paid on August 25, 1998 to stockholders of record on August 11, 1998.
The Company continued its quarterly payment of $0.0125 per share through the
quarter ended March 31, 2000.
46
<PAGE> 47
NOTE Q: QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------------------------------------------------
First Quarter(1) Second Quarter Third Quarter Fourth Quarter
----------------- -------------- ------------- --------------
(In thousands, except per share amounts)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 2000
Total revenues $ 53,940 $ 53,697 $ 42,238 $ 47,524
Net revenues 31,257 29,010 26,153 22,925
Restructuring expense -- -- -- (10,572)
Income (loss) before cumulative
effect of change in accounting
principle 1,263 (1,279) (2,150) (16,064)
Cumulative effect of change in
accounting principle (14,344) -- -- --
Net income (loss) (13,081) (1,279) (2,150) (16,064)
Per share amounts:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.10 $ (0.11) $ (0.18) $ (1.33)
Net income (loss) $ (1.09) $ (0.11) $ (0.18) $ (1.33)
Fiscal 1999
Total revenues $ 60,415 $ 60,083 $ 53,902 $ 57,569
Net revenues 31,393 28,982 28,520 29,250
Net income 2,379 2,151 469 486
Net income per share $ 0.20 $ 0.18 $ 0.04 $ 0.04
</TABLE>
(1) The numbers presented for the quarter ended December 31, 1999 have been
adjusted for the change in accounting principle as it was effective October 1,
1999.
Included in the fourth quarter of Fiscal 2000 is a restructuring charge of
$11.8 million for store closings, associated closing costs, asset impairment
and other restructuring charges (see Note C). Included in the $11.8 million is
the $10.6 million separately classified charge shown above and a $1.2 million
write-down of inventory that was charged to cost of goods sold.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure matters
with its independent certified public accountants to report under this Item 9.
47
<PAGE> 48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company as of December 1, 2000 were
as follows:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Sterling B. Brinkley(1) 48 Chairman of the Board of Directors
Joseph L. Rotunda(1)(3) 53 President, Chief Executive Officer, and Director
Daniel N. Tonissen(1)(3) 50 Senior Vice President, Chief Financial Officer,
Assistant Secretary, and Director
John E. Cay, III(4) 55 Director
Vincent A. Lambiase 60 Director
Mark C. Pickup(2)(4) 50 Director
Steve Price(2) 62 Director
Richard D. Sage(2)(4) 60 Director
Juanita M. Baldwin 40 Vice President Human Resources and Assistant Secretary
Robert F. Bloom 49 Senior Vice President of Operations
Daniel M. Chism 32 Controller and Secretary
J. Blair Powell 32 Vice President of Operations Administration
Tom B. Young 51 Chief Information Officer
</TABLE>
(1) Member of Executive Committee
(2) Member of Incentive Compensation Committee
(3) Member of Section 401(k) Plan Committee
(4) Member of Audit Committee
Mr. Brinkley has served as either Chairman of the Board or Chairman of the
Executive Committee of the Board of Directors of the Company since 1989. He
served as a Managing Director of Morgan Schiff & Co., Inc., an affiliate of Mr.
Phillip Cohen, from 1986 to 1990. See "Security Ownership of Certain Beneficial
Owners and Management." Mr. Brinkley has also served as Chairman of the Board or
Chairman of the Executive Committee of Crescent Jewelers, Inc., a 150-store
jewelry chain since 1988. In addition, since 1990, he has served as Chairman of
the Board or Chairman of the Executive Committee of Friedman's, Inc., and
Pietrafesa Corp., an apparel manufacturing business. In addition, Mr. Brinkley
is President and Chairman of the Board of MS Pawn Corporation, the general
partner of MS Pawn Limited Partnership. Morgan Schiff & Co., Inc., Crescent
Jewelers, Inc., and Pietrafesa Corp. are affiliates of the Company.
Mr. Rotunda has served as director, President, and Chief Executive Officer of
the Company since August 2000 following his initial employment with EZCorp as
director, President, and Chief Operating Officer in February 2000. From 1998 to
2000, he was Chief Operating Officer of G&K Services, Inc, a $500 million
provider of uniform and textile products based in Minneapolis MN. From 1991 to
1998 he progressed through several officer positions to ultimately become
Executive Vice President and Chief Operating Officer of Thorn Americas, Inc.
(d.b.a. Rent-A-Center, Remco, and U-Can Rent) as the company grew from 700 to
1400 stores. Rotunda began his career with Montgomery Ward, from 1969 through
1991, and held numerous positions including Territory Vice President and Vice
President of Customer Service and New Stores.
Mr. Tonissen has served as a director, Senior Vice President, Chief Financial
Officer, and Assistant Secretary of the Company since August 1994. Prior to
1994, he held senior level financial positions with La Salsa Holding Company,
Valley Grain Products, Inc., and Denny's, Inc.
48
<PAGE> 49
Mr. Cay has served as director of the Company since March 1997. He has served
as President and CEO of Palmer & Cay, Inc., a Savannah based insurance
brokerage and employee benefit consulting firm, since 1970. In February 1997,
he was elected to the board of directors of Friedman's, Inc. Since 1987, he has
also served as a director of First Union National Bank of Georgia. He is also a
director of Omni Insurance Group, an Atlanta based automobile insurance
company.
Mr. Lambiase has served as a director of the Company since 1994. Mr. Lambiase
also served as Chief Executive Officer of the Company from 1994 to August 2000
and as President of the Company from 1994 to February 2000. From 1991 to 1994,
he was a Vice President for Blockbuster Entertainment, Inc. From 1986 to 1991,
he was an associate of E.S. Jacobs & Company, a venture capital firm. From 1978
to 1985, he was CEO of Winchell's Donut House.
Mr. Pickup has served as director of the Company since 1993. He served as
President and Co-Chief Executive Officer of Crescent Jewelers, Inc. from 1993 to
1995 and Chief Financial Officer of Crescent Jewelers, Inc. from 1992 until
1995. Since 1993, Mr. Pickup has also served as a director of Friedman's, Inc.
(and MS Jewelers Corporation, its predecessor). Prior to 1992, Mr. Pickup was a
partner in the firm of Ernst & Young LLP.
Mr. Price has served as director of the Company since September 1998. He has
served as President and CEO of JAMS/Endispute, a mediation and arbitration
firm, since 1997. From 1994 to 1997, he served as President and CEO of
Supercuts, a hair styling and product salon. From 1988 to 1994, he was a senior
vice president of Citibank.
Mr. Sage has served as director of the Company since July 1995. He was a
co-founder of AmeriHealth, Inc., which owned and managed hospitals. He served as
Treasurer of AmeriHealth, Inc. from April 1983 to October 1995 and was a member
of the board of directors of AmeriHealth, Inc. from April 1983 to December 1994.
Mr. Sage served from 1988 to 1993 as a Regional Vice President of HHL Financial
Services Company, which specializes in the collection of health care accounts
receivable. He was a member of the Board of Directors of Champion Healthcare
Corporation from January 1995 to August 1996. Since June 1993, he has been
associated with Sage Law Offices in Miami, Florida.
Ms. Baldwin has served as Assistant Secretary and Vice President Human
Resources of the Company since July 1999. From July 1998 to June 1999, she
served as a Consulting Human Resources Manager for the Company. As owner of
Baldwin Resources, a human resources consulting firm, Ms. Baldwin provided
director level human resources services to various software development and
Internet companies from 1996 to 1999. From 1994 to 1996, she was an associate
with the corporate human resources team of MaxServ Information Services, a
subsidiary of Sears.
Mr. Bloom has served as the Senior Vice President of Operations since June
2000. From January 1999 to May 2000, he served as the Metromedia Restaurant
Group Regional Vice President of Franchise Operations for the Family Steakhouse
division. Prior to 1999, he served as the Divisional Vice President for the
Rural Division of Metromedia Restaurant Group, Vice President and General
Manager for Thorn Leasing Concepts, and Vice President Operations
Administration for Thorn Americas, Inc.
Mr. Chism has served as Secretary of the Company since May 2000 and as
Controller since August 1999. From August 1999 to April 2000, Mr. Chism served
as Assistant Secretary of the Company. From 1996 to 1999, Mr. Chism served as
Audit Manager for Ernst & Young LLP, where he also served as an audit Senior and
audit staff member from 1991 to 1995. From 1995 to 1996, Mr. Chism served as a
Director of Internal Audit and a departmental Controller for VarTec Telecom,
Inc. Mr. Chism is a Certified Public Accountant licensed by the Texas State
Board of Public Accountancy.
Mr. Powell has served the Company as Vice President of Operations
Administration since August 2000. From 1994 to August 2000, Mr. Powell served
the Company in several capacities, including Divisional Vice President,
Director of Operations, and Regional Director of Operations. From 1992 to 1994
he served the Company as a multiunit field operator. Prior to his employment
with the Company, he served as a Branch Operations Manager for Lufkin Federal
Savings and Loan.
49
<PAGE> 50
Mr. Young has served as the Chief Information Officer of the Company since May
2000. From 1995 to 1999 he served as the Director of Retail Systems for Cracker
Barrel Old Country Stores. Prior to 1995 he served as Director of Systems and
Director of Telecommunications for Service Merchandise.
COMMITTEES OF THE BOARD
The Board of Directors held five meetings during the year ended September 30,
2000. The Board of Directors has appointed four committees: an Executive
Committee, an Audit Committee, a Compensation Committee, and a Section 401(k)
Plan Committee. The members of the Executive Committee for Fiscal 2000 were Mr.
Brinkley, Mr. Rotunda replacing Mr. Lambiase, and Mr. Tonissen. The Executive
Committee held four meetings, which all members attended. The members of the
Audit Committee for Fiscal 2000 were Mr. Pickup, Mr. Sage, and Mr. Cay. The
Audit Committee held four meetings which all members attended. The Compensation
Committee, comprised of Mr. Pickup and Mr. Price, held one meeting during Fiscal
2000 of which all members attended. The committee that administers the Section
401(k) Plan consists of Mr. Rotunda replacing Mr. Lambiase, and Mr. Tonissen and
held one meeting during Fiscal 2000 of which all members attended. All directors
attended at least 75% of the total number of meetings of the Board and of the
committees on which they serve.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
All officers and directors were timely throughout the fiscal year in filing all
reports required by Section 16(a) of the Exchange Act.
50
<PAGE> 51
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth compensation paid by the Company and its
subsidiaries for services during Fiscal 1998, Fiscal 1999 and Fiscal 2000 to
the Company's Chief Executive Officer, and to each of the Company's four most
highly compensated executive officers whose total annual compensation exceeded
$100,000 (such six persons collectively herein referred to as the "Named
Executive Officers").
<TABLE>
<CAPTION>
All Other
Annual Compensation Compensation
Name and Principal Position Year Salary Bonus Other
---- ------- ------- ------
($) ($) ($) ($)(1)(2)
------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
Sterling B. Brinkley 1998 325,000 183,993 79,259 --
Chairman of the Board(3) 1999 325,000 124,468 70,270 --
2000 282,502 83,720 78,528 2,311
Joseph L. Rotunda 1998 -- -- -- --
President & Chief Executive Officer(4) 1999 -- -- -- --
2000 208,654 -- 170,191 690
Vincent A. Lambiase 1998 450,000 149,193 184,218 4,224
Former President & Chief Executive Officer, 1999 450,000 135,538 159,413 3,600
Current director(5) 2000 450,000 154,783 576,294 2,370
Daniel N. Tonissen 1998 225,000 -- 21,483 3,216
Senior Vice President, Chief Financial 1999 239,423 -- 22,000 2,592
Officer and Assistant Secretary(6) 2000 240,000 -- 41,798 1,706
Harry Aureli 1998 -- -- -- --
President, EZJewelry Management(7) 1999 -- -- -- --
2000 134,539 2,165 164,680 439
Daniel M. Chism 1998 -- -- -- --
Controller and Secretary 1999 19,231 -- -- --
2000 125,000 8,712 -- 891
</TABLE>
(1) The Company's long-term compensation program for most senior officers does
not include long-term incentive payouts, stock options, SARs, or other forms
of compensation.
(2) This category includes the value of any insurance premiums paid on behalf of
the named executive.
(3) Mr. Brinkley's Other Annual Compensation includes $78,528 for payment of
taxes for Fiscal 2000.
(4) Mr. Rotunda's Other Annual Compensation includes $151,437 for relocation to
Austin, Texas.
(5) Mr. Lambiase's Other Annual Compensation includes $107,783 for payment of
taxes for Fiscal 2000, $411,923 of salary and tax accrual for Fiscal Year
2001 as discussed in Note Q, and $33,571 for auto allowance.
(6) Mr. Tonissen's Other Annual Compensation includes $26,761 for auto lease
payments.
(7) Mr. Aureli's Other Annual Compensation includes $53,199 for relocation to
Austin, Texas, $48,923 for severance and $54,632 for the forgiveness of a
note payable and taxes on the interest forgiven.
EMPLOYMENT AGREEMENTS
As President and Chief Executive Officer, Joseph L. Rotunda's annual
compensation includes a base salary of $400,000 and an annual bonus ranging
from 50% to 150% of his base salary dependent upon the attainment of Board
approved operating goals. In the event of a change of control, Mr. Rotunda is
entitled to receive a bonus payment equivalent to 200% of his annual
compensation, as well as immediate vesting of all stock options. If Mr.
Rotunda's employment is terminated, other than for cause, he is entitled to
receive a severance payment equal to his annual compensation. As long as Mr.
Rotunda's employment with the Company continues, a $200,000 loan by the Company
to Mr. Rotunda is subject to forgiveness over a three-year period.
51
<PAGE> 52
Vincent A. Lambiase was employed as the Company's President and Chief Executive
Officer pursuant to an employment agreement dated July 1, 1994. The employment
agreement had been extended through June 30, 2000 and provided for an annual
salary, a bonus, and a $1.5 million loan and a $729,000 loan from the Company,
among other things. As of August 15, 2000, the Company entered into an
agreement with Mr. Lambiase whereby the parties mutually agreed to terminate
his employment with the Company. The terms of this agreement obligate the
Company to pay Mr. Lambiase a monthly salary of $37,500 through August 14,
2001. Beginning February 14, 2001, the monthly salary will be offset or reduced
by the amount of any other income earned by Mr. Lambiase. This agreement
further modified the terms and conditions of the $1.5 million loan by extending
the term and forgiving interest. The $729,000 loan was also modified to change
the maturity date and provisions related to forgiveness and repayment of
interest.
INSIDER NOTES
In 1994, the Company loaned the former President and Chief Executive Officer
and current director, Vincent Lambiase, $729,000 to purchase 50,000 shares of
Class A Common Stock. The loan is shown as a reduction of
stockholders' equity in these financial statements. An agreement effective
August 15, 2000 between Mr. Lambiase and the Company modified the terms of the
loan. The maturity date was changed to the earlier of (a) the date that is ten
business days following the first day that the closing price for the Company's
stock is equal to or exceeds $10 per share, or (b) August 1, 2005.
Additionally, under the agreement, all accrued and unpaid interest due on the
loan is forgiven until the first day that the closing price for the Company's
stock is equal to or exceeds $6 per share. As of September 30, 2000, the amount
owed is approximately $729,000 plus accrued interest of approximately $52,500.
The Company records interest income on the loan. Any forgiveness of interest is
charged as compensation expense for Mr. Lambiase.
In October 1994, the Board of Directors approved agreements that provide
incentive compensation to the Chairman, Sterling Brinkley, and Mr. Lambiase,
based on growth in the share price of the Company's Class A Non-voting Common
Stock. Each executive was advanced $1.5 million evidenced by a recourse
promissory note, initially due in 2005 and bearing interest at the minimum rate
allowable for federal income tax purposes (ranging from 4.93% to 5.8% for
Fiscal 2000).
An agreement between Mr. Lambiase and the Company effective August 15, 2000
modified the terms of his $1.5 million loan from the Company by changing the
maturity date to August 15, 2001 and by providing for the forgiveness of
interest upon the repayment of the principal. The company is required to
reimburse Mr. Lambiase for the income tax consequences of any portion of the
interest forgiven.
Under the terms of Mr. Brinkley's $1.5 million loan, as amended, the loan
principal will be forgiven if, prior to October 1, 2005, a stock price target
of $28.25 is attained. The loan provides that upon Mr. Brinkley's death or
disability or certain changes in control the then remaining principal and
interest will be forgiven. Accrued interest is forgiven based upon continued
employment and the Company is required to reimburse Mr. Brinkley for the income
tax consequences of forgiveness of any portion of the debt. Through September
30, 2000, the stock price target had not been attained.
In February 2000, the Company loaned Mr. Rotunda $200,000. The principal and
interest of the loan are subject to forgiveness in equal increments over a
three-year period conditioned upon Mr. Rotunda's continued employment with the
Company on February 24th of each year. The Company is required to reimburse Mr.
Rotunda for the income tax consequence of any portion of the interest forgiven.
DIRECTOR COMPENSATION
Mr. Pickup receives $25,000 per annum as compensation for his service as a
director and Chairman of the Audit Committee, and Mr. Sage receives $12,000 per
annum as compensation for his board service. No other outside director receives
compensation from the Company.
52
<PAGE> 53
STOCK OPTIONS
On November 5, 1998, the Compensation Committee of the Board of Directors
approved the grant of the following options, exercisable at $10.00 per share,
and, except as provided below, vesting on October 6, 2008:
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B TRANCHE C
--------- --------- ---------
OPTIONS OPTIONS OPTIONS
--------- --------- ---------
<S> <C> <C> <C>
Sterling B. Brinkley 200,000 100,000 50,000
Vincent A. Lambiase 200,000 100,000 50,000
J. Jefferson Dean 83,350 41,650 25,000
Daniel N. Tonissen 50,000 25,000 25,000
</TABLE>
The following specified percentage of the options will vest prior to October 6,
2008 if the Company meets certain earnings per share ("EPS") targets described
below and maintains a certain debt to equity ratio.
<TABLE>
<CAPTION>
EARNINGS PER SHARE FOR FISCAL YEAR
-----------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Targeted EPS for Tranche A Options $ 0.85 $ 1.05 $ 1.30 $ 1.60 $ 2.00 $ 2.50 $ 3.10
Targeted EPS for Tranche B Options $ 0.85 $ 1.06 $ 1.43 $ 1.92 $ 2.46 $ 3.06 $ 3.66
Targeted EPS for Tranche C Options $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
</TABLE>
<TABLE>
<CAPTION>
PERCENT VESTED IF TARGETS MET FOR FISCAL YEAR
-----------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Applicable percentage 10% 10% 15% 15% 20% 20% 10%
Amount for Tranche A and Tranche B
Applicable percentage 100% 100% 100% 100% 100% 100% 100%
Amount for Tranche C
</TABLE>
In addition, with respect to Tranche A and Tranche B Options, to the extent
that the applicable EPS target is not met for a particular fiscal year, but the
EPS target is exceeded in the next following fiscal year, the excess may be
carried back to satisfy the shortfall in the immediately prior year. Once the
EPS target for the Tranche C Options is met, 100% of the Tranche C Options
vest, and no further Tranche C Options shall vest in any subsequent year in
which the EPS target is met. Finally, if any of the above-described options
fail to qualify as incentive options under the Internal Revenue Code, the
Company has agreed to pay a bonus to each Optionee at the time and in the
amount of any tax savings actually realized by the Company resulting therefrom.
The EPS targets set forth above do not represent the Company's projections,
forecasts or forward-looking statements concerning future performance. Instead,
they have been established through negotiations with the named executives to
identify appropriate incentives as part of a broad-based executive compensation
program. To the extent the EPS targets may be deemed forward-looking
statements, they are subject in their entirety to the safe-harbor provisions
set forth elsewhere in this report.
53
<PAGE> 54
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of %of Total
Securities Options/
Underlying SARs Exercise Potential Realizable Value
Name Options/ Granted to or At Assumed Annual Rates of
SARs Employees Base Stock Price Appreciation for
Granted in Price Expiration Option Term (2)
(1) Fiscal Year ($/Sh) Date 5% 10%
---------- ----------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Sterling B. Brinkley
Chairman of the Board -- -- -- -- $ -- $ --
Joseph L. Rotunda
President & Chief Executive 50,000 20% 4.00 -- $120,689 $310,643
Officer 50,000 20% 10.00 -- $ -- $ --
50,000 20% 13.00 -- $ -- $ --
50,000 20% 15.00 -- $ -- $ --
Daniel N. Tonissen
Senior Vice President, Chief -- -- -- -- $ -- $ --
Financial Officer and
Assistant Secretary
Vincent A. Lambiase
Director -- -- -- -- $ -- $ --
Harry Aureli
President, EZJewelry 10,000 4% 4.0 -- $ 35,336 $ 79,961
Management
Daniel M. Chism
Controller and Secretary -- -- -- -- $ -- $ --
</TABLE>
(1) Stock options become exercisable in five equal installments beginning one
year after the date of grant.
(2) As suggested by the Securities and Exchange Commission's rules on executive
compensation disclosure, the Company projected the potential realizable value of
each grant of options or freestanding SARs, assuming that the market price of
the underlying security appreciates in value from the date of grant to the end
of the option or SAR term at annualized rates of 5% and 10%.
54
<PAGE> 55
AGGREGATE OPTIONS/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise of
stock options (or tandem SARs) and freestanding SARs in Fiscal 2000 and the
value of unexercised options and SARs held by each of the Named Executive
Officers at the end of the Company's last fiscal year.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
On Value Options/SARs at Options/SARs at
Exercise Realized FY-End (#) FY-End ($)(1)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
STERLING B. BRINKLEY
Chairman of the Board -- -- 125,000/225,000 0/0
JOSEPH L. ROTUNDA
President & Chief Executive Officer -- -- 0/200,000 0/0
DANIEL N. TONISSEN
Senior Vice President and Chief
Financial Officer and Assistant -- -- 36,313/118,000 0/0
Secretary
VINCENT A. LAMBIASE -- -- -- 0/0
Director
HARRY AURELI
President, EZJewelry Management -- -- 0/10,000 0/0
DANIEL M. CHISM
Controller and Secretary -- -- 2,000/8,000 0/0
</TABLE>
(1) Values stated are based upon the closing price of $1.250 per share of the
Company's Class A Non-voting Common Stock on The NASDAQ Stock Market on
September 30, 2000, the last trading day of the fiscal year.
COMPENSATION PURSUANT TO PLANS
STOCK INCENTIVE PLAN
The Company's Board of Directors and stockholders adopted the EZCORP, Inc. 1991
Long-Term Incentive Plan on June 6, 1991 (the "1991 Plan"). The 1991 Plan
provides for (i) the granting of stock options qualified under the Internal
Revenue Code of 1986, as amended (the "Code") section 422 (so-called "incentive
stock options") to purchase Class A Common Stock, (ii) the granting of stock
options not qualified under Code section 422 ("nonqualified stock options") to
purchase Class A Common Stock, (iii) the granting of stock appreciation rights
("SARs"), which give the holder the right to receive cash or Class A Common
Stock in an amount equal to the difference between the fair market value of a
share of Class A Common Stock on the date of exercise and the date of grant,
(iv) the granting of limited stock appreciation rights ("LSARs"), which give
the holder the right under limited circumstances to receive cash in an amount
equal to the difference between (a) the per-share price paid in an applicable
tender offer or exchange offer for the Company or fair market value of the
Class A Common Stock in the event of specified "change of control" events and
(b) the fair market value of the Class A Common Stock on the date of grant. The
1991 Plan permits the exercise price of the options to be paid either in cash,
by withholding from the shares to be delivered pursuant to the exercise of the
option that number of shares equal in value to the exercise price, or by the
delivery of already-owned Class A Common Stock.
55
<PAGE> 56
There are 1,800,000 shares of Class A Common Stock (subject to certain
adjustments) reserved under the Plan for issuance upon the exercise of options
and the settlement of SARs and LSARs. Adoption of the 1998 Plan, described
below, precluded any further grants under the 1991 Plan.
In general, the Committee had the discretion to establish the terms,
conditions, and restrictions to which options, SARs, and LSARs are subject. The
options, SARs, and LSARs are not transferable except by will and by the laws of
descent and distribution, and under other limited circumstances. The 1991 Plan
is intended to be qualified under Rule 16b-3 promulgated by the Securities and
Exchange Commission, which Rule generally exempts certain option grants and
certain stock or cash awards from the provisions of Section 16(b) under the
Securities Exchange Act of 1934.
Options granted under the 1991 Plan were granted at exercise prices equal to or
above the fair market value on the date of the grant. In October 1994, the
Board of Directors amended the Plan to provide accelerated vesting upon a
change in control of the Company. As of September 30, 2000, the Company had
193,813 active options outstanding to executives under the 1991 Plan at prices
ranging from $12.00 to $14.00. Of these options, 171,613 are vested and none
has been exercised.
On November 5, 1998, the Compensation Committee of the Board of Directors
approved the adoption of the EZCORP, Inc. 1998 Incentive Plan (the "1998
Plan"). The 1998 Plan permits grants of the same types of options, SARs and
LSARs as the 1991 Plan and provides for stock option awards of up to 1,275,000
of the Company's Class A Common Stock. In approving such plan, the Compensation
Committee resolved that no further options would be granted under any previous
plans.
These options vest at the end of 119 months, but are subject to early vesting
from November 5, 1999 to November 5, 2005 (10%, 10%, 15%, 15%, 20%, 20%, and
10%) if the Company meets certain earnings per share targets. See Notes to
Consolidated Financial Statements-Note H "Common Stock, Warrants and Options."
As of September 30, 2000, the Company had 722,000 active options outstanding to
executives (options granted less options canceled due to employee termination)
under the 1998 Plan at prices ranging from $4.00 to $15.00. Of these options,
6,400 are vested and none have been exercised.
401(k) PLAN
On June 6, 1991, the Company adopted the EZCORP, Inc. 401(k) Plan (the "401(k)
Plan"), a savings and profit sharing plan intended to qualify under Section
401(k) of the Code. Under the 401(k) Plan, employees of the Company and those
subsidiaries that adopt it may contribute up to 15% of their compensation (not
to exceed $10,000 in 2000) to the plan trust. The Company will match 25% of an
employee's contributions up to 6% of his compensation. Employer contributions
may be made in the form of or invested in Class A Common Stock. Contribution
expense related to the 401(k) Plan for 2000 was approximately $96,000. The
Company's contributions vest based on the employee's length of service with the
Company and its subsidiaries, with 20% of the total contributions vesting each
year once the employee has three years of service. On termination of
employment, an employee will receive all of his contributions and any vested
portion of the Company's contributions, as adjusted by any earnings and losses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The Company is controlled, indirectly, by Phillip Ean Cohen, through his
ownership of all of the issued and outstanding stock of MS Pawn Corporation,
the sole general partner of MS Pawn Limited Partnership ("MS Pawn") which owns
100% of the Class B Voting Common Stock of the Company.
56
<PAGE> 57
The table below sets forth information regarding the beneficial ownership of
the Company's Common Stock as of December 1, 1999 for (i) each of the Company's
current directors, (ii) each of the named executive officers, (iii) beneficial
owners known to the registrant to own more than five percent of any class of
the Company's voting securities, and (iv) all current officers and directors as
a group.
<TABLE>
<CAPTION>
Name and Address Class A Class B
of the Non-voting Voting
Beneficial Owners(a) Common Stock Common Stock
-------------------- ------------------------------- ------------------------- Voting
Number Percent Number Percent Percent
------------ --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
MS Pawn Limited Partnership(b)(g) 1,388,857(h) 11.48%(h) 1,194,131 100.00% 100%
MS Pawn Corporation
Phillip Ean Cohen
350 Park Avenue, 8th Floor
New York, New York 10022
Sterling B. Brinkley(c) 325,615 2.95% -- -- --
350 Park Avenue, 8th Floor
New York, New York 10022
Vincent A. Lambiase 63,150 0.58% -- -- --
1901 Capital Parkway
Austin, Texas 78746
Joseph L. Rotunda(d) 0 0.00% -- -- --
1901 Capital Parkway
Austin, TX 78746
Daniel N. Tonissen(e) 47,313 0.43% -- -- --
1901 Capital Parkway
Austin, Texas 78746
Harry Aureli 0 0.00% -- -- --
1901 Capital Parkway
Austin, Texas 78746
Daniel M. Chism(j) 2,000 0.02% -- -- --
1901 Capital Parkway
Austin, Texas 78746
Mark C. Pickup 2,600 0.02% -- -- --
6734 Corte Segunda
Martinez, California 94553
Richard D. Sage(i) 31 0.00% -- -- --
13636 Deering Bay Drive
Coral Gables, Florida 33158
John E. Cay, III 5,000 0.05% -- -- --
P.O. Box 847
Savannah, GA 31402
All officers and directors as a 463,209 4.18% -- -- --
group (eleven persons)(b)(f)
</TABLE>
--------------------------------------------------------------------------------
(a) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
Class B Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
57
<PAGE> 58
(b) MS Pawn Corporation is the general partner of MS Pawn and has the sole right
to vote its shares of Class B Common Stock and to direct their disposition. Mr.
Cohen is the sole stockholder of MS Pawn Corporation. See "Certain Relationships
and Related Transactions." Mr. Cohen also owns 189,341 shares of Class A common
stock directly.
(c) Includes options to acquire 125,000 shares of Class A Common Stock at $14.00
per share and warrants to acquire 1,191 shares of Class A Common Stock at $6.17
per share. Does not include options to acquire 350,000 shares of Class A Common
Stock at $10.00 per share, none of which are currently exercisable.
(d) Does not include options to acquire 200,000 shares of Class A Common Stock
at $2.00 per share, 50,000 shares of Class A Common Stock at $4.00, 50,000
shares of Class A Common Stock at $10.00, 50,000 shares of Class A Common Stock
at $13.00 or 50,000 shares of Class A Common Stock at $15.00, none of which are
currently exercisable.
(e) Includes options to acquire 24,313 shares of Class A Common Stock at $12.75
per share and 18,000 shares of Class A Common Stock at $12.00 per share. Does
not include options to acquire 100,000 shares of Class A Common Stock at $10.00
per share or 10,000 shares of Class A Common Stock at $2.00 per share, none of
which are currently exercisable.
(f) Includes options to acquire 186,813 shares of Class A Common Stock at prices
ranging from $10.00 to $14.00 per share and warrants to acquire 1,222 Class A
Common Stock shares at $6.17 per share.
(g) Includes warrants for 4,093 shares of Class A Common Stock and 4,074 shares
of Class B Common Stock held by MS Pawn and warrants for 1,292 shares of Class A
Common Stock held by Mr. Cohen.
(h) The number of shares and percentage reflect Class A Common Stock, together
with Class B Common Stock which is convertible to Class A Common Stock.
(i) Includes warrants to acquire 31 shares of Class A Common Stock at $6.17 per
share.
(j) Includes options to acquire 2,000 shares of Class A Common Stock at $10.00
per share. Does not include options to acquire 5,000 shares of Class A Common
Stock at $2.00 per share, none of which are currently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning the $729,000 loan from the Company to Mr. Lambiase,
the $1.5 million loans from the Company to each of Mr. Brinkley and Mr.
Lambiase, and the $200,000 loan from the Company to Mr. Rotunda, see "Executive
Compensation, Insider Notes."
The Company and Morgan Schiff & Co., Inc. ("Morgan Schiff"), whose sole
stockholder is Mr. Cohen, are parties to a Financial Advisory Agreement renewed
January 1, 2000, pursuant to which Morgan Schiff receives certain fees for its
provision of financial advisory services to the Company. These services
include, among other matters, ongoing consultation with respect to the business
and financial strategies of the Company. In Fiscal 2000, from October to June,
Morgan Schiff received $33,333 per month for its services as a financial
advisor and received expense reimbursements of $574,000. Morgan Schiff waived
the monthly advisory fee from July through September 2000. The Company
anticipates renewing this agreement in fiscal 2001.
58
<PAGE> 59
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of EZCORP, Inc. and
subsidiaries are included in Item 8:
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets as of September 30, 1999 and 2000
Consolidated Statements of Operations for each of the three years in the period
ended September 30, 2000
Consolidated Statements of Cash Flows for each of the three years in the period
ended September 30, 2000
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended September 30, 2000
Notes to Consolidated Financial Statements.
(2) The following Financial Statement Schedule is included herein:
Schedule II-Allowance for Valuation of Inventory
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore, have been omitted.
(3) Listing of Exhibits (included herein)
(b) Through the fourth quarter ended September 30, 2000, the Company has
not filed any reports on Form 8-K.
59
<PAGE> 60
EZCORP, INC. AND SUBSIDIARIES
SCHEDULE II-ALLOWANCE FOR VALUATION OF INVENTORY
(In millions)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------------------
Balance at Balance
Beginning Charged to Charged to at End
Description of Period Expense Other Accts Deductions of Period
----------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for valuation of inventory:
Year ended September 30, 1998 $ 6.9 $ 5.4 -- $ 5.5 $ 6.8
----- ----- ----- ----- -----
Year ended September 30, 1999 $ 6.8 $ 3.1 -- $ 1.6 $ 8.3
----- ----- ----- ----- -----
Year ended September 30, 2000 $ 8.3 $ 0.4 $ 1.2 $ 7.7 $ 2.2
----- ----- ----- ----- -----
</TABLE>
The Company does not determine its inventory valuation allowance by specific
inventory items; therefore, the amount charged to expense and $1.0 of the
deductions are based on estimates of the beginning inventory sold during the
period and the portion of the beginning inventory valuation allowance
attributable to the items sold. During the year ended September 30, 2000, the
$1.2 million charged to other accounts was recorded as cost of goods sold as
part of the Company's restructuring. Included in the $7.7 million deductions is
$6.7 million related to the change in method of accounting for pawn service
charge revenues effective October 1, 1999.
60
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EZCORP, Inc.
December 28, 2000
By: /s/ Joseph L. Rotunda
----------------------
(Joseph L. Rotunda)
(President & Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Sterling B. Brinkley Chairman of the Board December 28, 2000
----------------------------------
Sterling B. Brinkley
/s/ Joseph L. Rotunda President, Chief Executive December 28, 2000
---------------------------------- Officer & Director
Joseph L. Rotunda (Principal Executive Officer)
/s/ Daniel N. Tonissen Senior Vice President, Chief December 28, 2000
---------------------------------- Financial Officer & Director
Daniel N. Tonissen (Principal Financial and
Accounting Officer)
/s/ John E. Cay, III Director December 28, 2000
----------------------------------
John E. Cay, III
/s/ Vincent A. Lambiase Director December 28, 2000
----------------------------------
Vincent A. Lambiase
/s/ Mark C. Pickup Director December 28, 2000
----------------------------------
Mark C. Pickup
/s/ Steve Price Director December 28, 2000
----------------------------------
Steve Price
/s/ Richard D. Sage Director December 28, 2000
----------------------------------
Richard D. Sage
</TABLE>
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER IF INCORPORATED BY
NUMBER DESCRIPTION FILED HEREIN REFERENCE TO
------- ----------- -------------- ---------------
<S> <C> <C> <C>
3.1 Amended and Restated Certificate of Exhibit 3.1 to the Registration
Incorporation of the Company Statement on Form S-1
effective August 23, 1991
(File No. 33-41317)
3.1A Certificate of Amendment to Exhibit 3.1A to the Registration
Certificate of Incorporation of Statement on Form S-1 effective
the Company July 15, 1996
(File No. 33-1317)
3.2 Bylaws of the Company. Exhibit 3.2 to the Registration
Statement on Form S-1 effective
August 23, 1991
(File No. 33-41317)
3.3 Amendment to the Bylaws. Exhibit 3.3 to Registrant's
Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994
(File No. 0-19424)
3.4 Amendment to the Certificate of Exhibit 3.4 to Registrant's
Incorporation of the Company. Annual Report on Form 10-K for the
year ended September 30, 1994
(File No. 0-19424)
3.5 Amendment to the Certificate of Exhibit 3.5 to Registrant's
Incorporation of the Company Annual Report on Form 10-K for the
year ended September 30, 1997
3.6 Amendment to the Certificate of Exhibit 3.6 to Registrant's
Incorporation of the Company Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998
4.1 Specimen of Class A Non-voting Exhibit 4.1 to the Registration
Common Stock certificate of the Statement on Form S-1 effective
Company. August 23, 1991
(File No. 33-41317)
10.2 omitted N/A
10.3 $5 million Revolving Credit Note - Exhibit 10.3 to Registrant's Annual
Franklin Federal Bancorp. Report on Form 10-K for the year ended
September 30, 1992
(File No. 0-19424)
10.4 omitted N/A
10.3 $5 million Revolving Credit Note - Exhibit 10.3 to Registrant's Annual
Franklin Federal Bancorp. Report on Form 10-K for the year ended
September 30, 1992
(File No. 0-19424)
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C> <C>
10.4 omitted N/A
10.5 Security Agreement executed by Exhibit 10.5 to Registrant's Annual
EZPAWN Texas, Inc. (substantially the same Report on Form 10-K for the year ended
agreement also was executed by EZPAWN September 30, 1992
Oklahoma, Inc.; EZPAWN Mississippi, Inc.; (File No. 0-19424)
EZPAWN Arkansas, Inc.; EZPAWN Colorado,
Inc.; EZPAWN Alabama, Inc.; EZPAWN
Tennessee, Inc.; and Houston Financial
Corporation).
10.6 Guaranty Agreement executed by Exhibit 10.6 to Registrant's Annual
EZPAWN Texas, Inc. (substantially the same Report on Form 10-K for the year ended
agreement also was executed by EZPAWN September 30, 1992
Oklahoma, Inc.; EZPAWN Mississippi, Inc.; (File No. 0-19424)
EZPAWN Arkansas, Inc.; EZPAWN Colorado,
Inc.; EZPAWN Alabama, Inc.; EZPAWN
Tennessee, Inc.; and Houston Financial
Corporation).
10.7 Loan Agreement between the Company, as Exhibit 10.7 to Registrant's Annual
Borrower, and Franklin Federal Bancorp, Report on Form 10-K for the year ended
FSB, as lender, dated April 30, 1993. September 30, 1993
(File No. 0-19424)
10.8 Omitted N/A
10.9 Omitted N/A
10.10 Letter agreement executed December Exhibit 10.10 to the Registration
20, 1990 between Morgan Schiff & Co., Statement on Form S-1 effective
Inc. ("Morgan Schiff") and the August 23, 1991
Company. (File No. 33-41317)
10.11 Stock Purchase Agreement be- Exhibit 10.11 to the Registration
tween the Company, Courtland L. Statement on Form S-1 effective
Logue, Jr., Courtland L. Logue, August 23, 1991
Sr., James D. McGee, M. Frances (File No. 33-41317)
Spears, Porter A. Stratton and
Steve A. Stratton dated as of
May 18, 1989.
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10.12 Capitalization and Subscription Exhibit 10.12 to the Registration
Agreement between MS Pawn Limited Statement on Form S-1 effective
Partnership ("MS Pawn") and the August 23, 1991
Company, dated as of July 25, 1989. (File No. 33-41317)
10.13 omitted N/A
10.14 Consulting Agreement between Exhibit 10.14 to Registrant's Annual
the Company and Courtland L. Logue, Report on Form 10-K for the year
Sr., dated February 15, 1993 ended September 30, 1993
(File No. 0-19424)
10.15 omitted N/A
10.16 Junior Subordinated Note due Exhibit 10.16 to Registration
1996 issued July 25, 1989 to Court- Statement on Form S-1 effective
land L. Logue, Sr. in the original August 23,1991
principal amount of $238,319.95. (File No. 33-41317)
10.17 omitted N/A
10.18 Warrant Certificate issued by the Exhibit 10.18 to the Registration
Company to MS Pawn on July 25, 1989. Statement on Form S-1 effective
August 23, 1991
(File No. 33-41317)
10.19 Amendment to the Stock Purchase Exhibit 10.19 to the Registration
Agreement dated as of June 19, 1989 Statement on Form S-1 effective
between the Company and the August 23, 1991
stockholders of the Predecessor (File No. 33-41317)
Company.
10.20 Second Amendment to Stock Pur- Exhibit 10.20 to the Registration
chase Agreement dated as of April 20, Statement on Form S-1 effective
1990 between the Company and the August 23, 1991
stockholders of the Predecessor (File No. 33-41317)
Company.
10.21 omitted N/A
10.22 omitted N/A
10.23 omitted N/A
10.24 omitted N/A
10.25 omitted N/A
10.27 omitted N/A
10.28 omitted N/A
10.29 omitted N/A
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10.30 omitted N/A
10.31 omitted N/A
10.32 omitted N/A
10.33 omitted N/A
10.34 omitted N/A
10.35 Stockholders' Agreement dated as Exhibit 10.35 to the Registration
of July 25, 1989 between the Com- Statement on Form S-1 effective
pany, MS Pawn and Courtland L. August 23, 1991
Logue, Jr. (File No. 33-41317)
10.36 Joinder Agreement to the Stock- Exhibit 10.36 to the Registration
holders' Agreement dated as of Statement on Form S-1 effective
May 1, 1991 between the Company August 23, 1991
MS Pawn, Mr. Kofnovec, Mr. Gary, (File No. 33-41317)
Mr. Ross and Ms. Berger.
10.37 Incentive Stock Option Plan. Exhibit 10.37 to the Registration
Statement on Form S-1 effective
August 23, 1991
(File No. 33-41317)
10.38 401(k) Plan. Exhibit 10.38 to the Registration
Statement on Form S-1 effective
August 23, 1991
(File No. 33-41317)
10.39 Section 125 Cafeteria Plan. Exhibit 10.39 to the Registration
Statement on Form S-1 effective
August 23, 1991
(File No. 33-41317)
10.40 Lease of 1970 Cessna 210K Aircraft Exhibit 10.40 to the Registration
between Courtland L. Logue, Jr. and Statement on Form S-1 effective
Transamerica Pawn Corporation, August 23, 1991
dated July 25, 1989. (File No. 33-41317)
10.41 omitted N/A
10.42 omitted N/A
10.43 omitted N/A
10.44 Lease of Cessna P210 Aircraft Exhibit 10.44 to the Registration
between Courtland L. Logue, Jr. Statement on Form S-1 effective
and Transamerica Pawn Corporation, August 23, 1991
dated December 29, 1989. (File No. 33-41317)
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10.45 Lease between Logue, Inc. and E-Z Exhibit 10.45 to the Registration
Corporation for real estate located Statement on Form S-1 effective
at 1166 Airport Boulevard, Austin, August 23, 1991
Texas, dated July 25, 1989. (File No. 33-41317)
10.46 Lease between Logue, Inc. and E-Z Exhibit 10.46 to the Registration
Corporation for real estate located Statement on Form S-1 effective
at 5415 North Lamar Boulevard, August 23, 1991
Austin, Texas, dated July 25, 1989 (File No. 33-41317)
10.47 Agreement of Lease between LDL Exhibit 10.47 to the Registration
Partnership and Logue-Drouin Statement on Form S-1 effective
Industries, Inc. for real property August 23, 1991
at 8540 Broadway Blvd., Houston, (File No. 33-41317)
Texas, dated May 3, 1988 and related
Assignment of Lease.
10.48 Lease Agreement between C Minus Exhibit 10.48 to the Registration
Corporation and Logue-Drouin Statement on Form S-1 effective
Industries, Inc. DBA E-Z Pawn #5 August 23, 1991
for real property located at 5209 (File No. 33-41317)
Cameron Road, Austin, Texas,
dated December 28, 1987.
10.49 Lease Agreement between Logue, Exhibit 10.49 to the Registration
Inc. and E-Z Corporation for real Statement on Form S-1 effective
property located at 901 E. 1st St., August 23, 1991
Austin, Texas, dated July 25, 1989. (File No. 33-41317)
10.50 Agreements between the Company Exhibit 10.50 to the Registration
and MS Pawn dated February 18, Statement on Form S-1 effective
1992 for the payment of $1.377 March 16, 1992
million of Series A Increasing Rate (File No. 33-45807)
Senior Subordinated Notes held by
MS Pawn.
10.51 Agreement Regarding Reservation Exhibit 10.51 to Registrant's
of Shares. Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993
(File No. 0-19424)
10.52 Omitted N/A
10.53 Omitted N/A
10.54 Omitted N/A
10.55 Omitted N/A
10.56 Omitted N/A
10.57 Omitted N/A
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10.58 Omitted N/A
10.59 Omitted N/A
10.60 Loan Agreement between Sterling B. Exhibit 10.60 to Registrant's Annual
Brinkley and the Company dated Report on Form 10-K for the year ended
October 7, 1994 (an identical document September 30, 1995
exists with respect to (File No. 0-19424)
Vincent A. Lambiase).
10.61 Promissory Note between Sterling Exhibit 10.61 to Registrant's Annual
B. Brinkley and the Company in the Report on Form 10-K for the year ended
original principal amount of September 30, 1995
$1,500,000 attached thereto (an (File No. 0-19424)
identical document exists with respect
to Vincent A. Lambiase).
10.62 July 1, 1994 Employment Agreement Exhibit 10.62 to Registrant's Annual
between the Company and Vincent Report on Form 10-K for the year
A. Lambiase and Promissory Note in ended September 30, 1995
the amount of $729,112.50 in (File No. 0-19424)
connection therewith.
10.63 EZCORP, Inc. Incentive Stock Option Exhibit 10.63 to Registrant's
Award Agreement, Employee Form Annual Report on Form 10-K
For the year ended September
30,1998
(File No.0-19424)
10.64 EZCORP, Inc. Incentive Stock Option Exhibit 10.64 to Registrant's
Award Agreement, Executive Form Annual Report on Form 10-K
for the year ended September
30, 1998
(File No. 0-19424)
10.71 Amended and restated Loan Agreement between Exhibit 10.71 to Registrant's
the Company, as Borrower, and Franklin Quarterly Report on Form 10-Q for the
Federal Bancorp, FSB, as Lender, dated quarter ended March 31, 1994
March 17, 1994. (File No. 0-19424)
10.72 First Amendment to Amended and Restated Form 10-Q for the quarter ended
Loan Agreement between the Company and December 31, 1994
First Interstate Bank of Texas, N.A. as (File No. 0-19424)
Agent, re: Revolving Credit Loan.
10.73 Second Amendment to Amended and Restated Form 10-Q for the quarter ended
Loan Agreement between the June 30, 1995
Company and First Interstate Bank of (File No. 0-19424)
Texas, N.A. as Agent, re: Revolving Credit
Loan.
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10.74 Third Amendment to Amended and Restated Loan Form 10-Q for the quarter ended June 30,
Agreement between the Company and Wells 1996
Fargo Bank (Texas), N.A. as Agent, re: (File No. 0-19424)
Revolving Credit Loan.
10.75 Fourth Amendment to Amended and Restated Form 10-Q for the quarter ended March
Loan Agreement between the Company and Wells 31, 1998
Fargo Bank (Texas), N.A. as Agent, re: (File No. 0-19424)
Revolving Credit Loan.
10.76 Fifth Amendment to Amended and Restated Loan Exhibit 10.76 to Registrant's Annual
Agreement between the Company and Wells Report on Form 10-K for the year ended
Fargo Bank (Texas), N.A. as Agent, re: September 30, 1998
Revolving Credit Loan. (File No, 0-19424)
10.77 Credit Agreement between the Company and Exhibit 10.77 to Registrant's Annual
Wells Fargo Bank (Texas), N.A., as Agent and Report on Form 10-K for the year ended
Issuing Bank, re: $110 million Revolving September 30, 1998
Credit Loan (File No. 0-19424)
10.78 First Amendment to Credit Agreement Between Exhibit 10.78 to Registrant's Annual
the Company and Wells Fargo Bank (Texas), Report on Form 10-K for the year
N.A., as Agent and Issuing Bank, re: $110 Ended September 30, 1999
million Revolving Credit Loan. (File No. 0-19424)
10.79 Second Amendment to Credit Agreement and Exhibit 10.79 to Registrant's Quarterly
Waiver between the Company and Wells Fargo Report on Form 10-Q for the quarter
Bank (Texas), N.A., as Agent and Issuing ended March 31, 2000
Bank, re: $85 million Revolving Credit Loan. (File No. 0-19424)
10.80 Limited Waiver between the Company and Wells Exhibit 10.80 to Registrant's Quarterly
Fargo Bank Texas, N.A., as Agent and Issuing Report on Form 10-Q for the quarter
Bank, re: $85 million Revolving Credit Loan. ended June 30, 2000
(File No. 0-19424)
10.81 Amended and Restated Credit Agreement N/A
between the Company and Wells Fargo Bank
Texas, N.A., as Agent and Issuing Bank, re:
$85 million Credit Facility.*
22.1 Subsidiaries of Registrant.* N/A
23.1 Consent of Ernst & Young LLP.* N/A
27 Financial Data Schedule* N/A
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*Filed herewith.
