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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
Item Page
No. No.
- ---- ----
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
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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:
Fiscal Years Ended September 30,
--------------------------------
1998 1999 2000
-------- -------- --------
(dollars in millions)
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)
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
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
----------------- ---------- ----------------- ----------
$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%
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:
Maximum Allowable
Amount Financed Annual Percentage
Per Pawn Loan Rate
----------------- -----------------
$1 to $150 240%
$151 to $250 180%
$251 to $500 120%
$501 to $1,000 60%
$1,001 to $25,000 36%
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.
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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
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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:
Amount Financed Maximum Allowable
Per Pawn Loan Charge
--------------- -----------------
$1 to $14.99 $1.00
For loans not more than 90 days:
Amount Financed Maximum Allowable
Per Pawn Loan Charge
--------------- -----------------
$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
Amount Financed Maximum Allowable
Per Pawn Loan Charge
------------------ -----------------
$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
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.
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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
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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.
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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:
Number of
Locations in
Area/Region Each Area
----------- ------------
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
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Number of
Locations in
Area/Region Each Area
----------- ------------
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
===
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.
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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.
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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:
High Low
------ ------
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
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.
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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
Fiscal Years Ended September 30
--------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per share and store figures)
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
September 30
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
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
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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.
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SUMMARY FINANCIAL DATA
Fiscal Years Ended September 30
-------------------------------------
1998 1999 2000
---------- ---------- ----------
(Pro forma) (Pro forma)
(Dollars in thousands, except as indicated)
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
- --------------
(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,
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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):
Fiscal Years Ended September 30,
--------------------------------
1998 1999 2000
-------- -------- --------
Total revenues $15,871 $18,461 $17,946
Operating loss (2,343) (2,379) (3,222)
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
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
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.
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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.
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26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
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
26
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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.
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28
CONSOLIDATED BALANCE SHEETS
September 30,
-----------------------
1999 2000
---------- ----------
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
========= =========
See notes to consolidated financial statements.
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29
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30,
------------------------------------
1998 1999 2000
---------- ---------- ----------
(In thousands, except per share amounts)
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)
See notes to consolidated financial statements.
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30
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30,
------------------------------------
1998 1999 2000
---------- ---------- ----------
(In thousands)
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 $ --
See notes to consolidated financial statements.
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31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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)
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 cu