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59
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, 1996
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
For the transition period from ______________ to
_____________
Commission File Number 0-19424
_______________________________
EZCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2540145
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1901 Capital Parkway
Austin, Texas 78746
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (512)
314-3400
____________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Class A Non-voting Common Stock The Nasdaq Stock Market
$.01 par value per share
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 two
record holders which are affiliates of the registrant.
There is no trading market for the Class B Voting Common
Stock.
As of December 2, 1996, 9,959,536 shares of the
registrant's Class A Non-Voting Common Stock, par value $.01
per share and 2,036,296 shares of the registrant's Class B
Voting Common Stock, par value $.01 per share were
outstanding.
EZCORP, INC.
YEAR ENDED SEPTEMBER 30, 1996
INDEX TO FORM 10-K
Item Page
No. No.
- ----- -----
INTRODUCTION
PART I.
1. Business 2
2. Property 13
3. Legal Proceedings 14
4. Submission of Matters to a Vote
of Security Holders 15
PART II.
5. Market for Registrant's Common Equity
and Related Stockholder Matters 16
6. Selected Financial Data 16
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 18
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 38
PART III.
10. Directors and Executive Officers
of the Registrant 38
11. Executive Compensation 39
12. Security Ownership of Certain
Beneficial Owners and Management 44
13. Certain Relationships and Related Party
Transactions 46
PART IV.
14. Financial Statement Schedules, Exhibits,
and Reports on Forms 8-K 47
SIGNATURES
PART I
Item 1. Business
EZCORP, Inc. (the "Company") is a Delaware corporation;
its principal executive offices are located at 1901 Capital
Parkway, Austin, Texas 78746, and its telephone number is
(512) 314-3400. As used herein, the Company includes 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 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 40% of the Company's revenues for the year
ended September 30, 1996 ("Fiscal 1996"). In Fiscal 1996,
approximately 78% of the loans made by the Company were
redeemed in full along with the payment of the pawn service
charge or were renewed or extended through the payment of
the pawn service charge. In most states in which the Company
operates, collateral is held one month with a sixty-day
extension period after which such collateral is forfeited
for resale.
As of December 2, 1996, the Company operated 248
locations: 149 in Texas, 24 in Colorado, 23 in Indiana, 14
in Alabama, 11 in Georgia, 9 in Oklahoma, 8 in Tennessee, 3
in Mississippi, 3 in Louisiana, 2 in North Carolina, 1 in
Arkansas, and 1 in Florida. The Company intends to expand,
at a modest rate, through the establishment or acquisition
of stores primarily in existing markets to form efficient
regional clusters. The Company intends to expand in states
with regulatory, competitive, and demographic
characteristics conducive to successful pawnshop operation.
The pawnshop industry in the United States is a large,
highly fragmented, and growing industry. The industry
consists of over 10,000 pawnshops owned primarily by
independent operators who own one to three locations.
Lending Activities
The Company is 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, 1996, the Company had approximately 520,000
loans outstanding, representing an aggregate principal
balance of $34.6 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 loan service charges of 20% per month or 240%
per annum. For Fiscal 1996, pawn service charges accounted
for approximately 40% of the Company's total revenues.
Collateral for the Company's pawn loans consists of
tangible personal property, generally jewelry, consumer
electronics, tools, firearms, 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 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 are numerous
and 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 of between 70% and 80%,
and in each of the Company's last three fiscal periods, it
achieved this 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 and any accrued pawn service charges become the
carrying cost of the forfeited collateral, which is recorded
as the Company's inventory. 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 loans made,
loans acquired, loans repaid, and loans forfeited for the
Company for the fiscal years ended September 30, 1994, 1995,
and 1996:
Fiscal Years Ended September 30,
1994 1995 1996
-------------------------------
(dollars in millions)
Loans made $187.1 $192.2 $151.4
Loans acquired 0.5 - -
Loans repaid (132.2) (137.9) (105.7)
Loans forfeited (45.6) (52.3) (50.8)
------ ------ ------
Net increase (decrease) in pawn
loans outstanding at
the end of the year $ 9.8 $ 2.0 $(5.1)
====== ====== ======
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
resale of the property for an amount less than the carrying
cost of the property. 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, firearms,
and musical instruments.
At the time a pawn transaction is entered into, 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 248 locations in operation as of
December 2, 1996, 149 were stores located in Texas.
Accordingly, Texas pawnshop laws have the greatest
application to the Company's operations. In Texas, pawnshop
operations are regulated by the State of Texas Office of
Consumer Credit Commissioner in accordance with Chapter 51
of the Texas Credit Code, commonly known as the Texas
Pawnshop Act (the "Pawnshop Act"). 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, 1995, and ending June 30, 1996,
and for the year beginning July 1, 1996, and ending June 30,
1997, are as follows:
Schedule of Applicable Loan Service Charges for Texas
Year Ending June 30, 1996 Year Ending June 30, 1997
Maximum Allowable Maximum Allowable
Annual Annual
Amount Financed Percentage Amount Financed Percentage
Per Pawn Loan Rate Per Pawn Loan Rate
- ----------------- ---------- --------------- ----------
$1 to $129 240% $1 to $132 240%
$130 to $430 180% $132.01 to $440 180%
$431 to $1,290 30% $440.01 to $1,320 30%
$1,291 to $10,750 12% $1,320.01 to $11,000 12%
Under Texas law, there is a ceiling on the maximum
allowable pawn loan. For the period July 1, 1995 through
June 30, 1996, the loan ceiling was $10,750. For the period
July 1, 1996 through June 30, 1997, the loan ceiling is
$11,000. The Company's average loan amount for Fiscal 1996
was approximately $67.
Retail Activities
Jewelry sales represent 50% to 80% of the Company's
merchandise sales with the remaining sales consisting
primarily of consumer electronics, tools, firearms, 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 1996, purchases from the general public
and from wholesale sources constituted approximately 7% of
the dollar value of inflows to inventory. During Fiscal
1996, $78 million of merchandise was added to inventory
through forfeited collateral. Of such amount, approximately
$51 million was from the principal amount of unredeemed pawn
loans, and $27 million was from accrued service charges. For
Fiscal 1996, retail activities accounted for approximately
60% of the Company's total revenues, but only 17% of the
Company's net revenue, after deducting cost of goods sold on
merchandise sales.
The Company utilizes market pricing and customer
purchasing decision studies to better define its retail
customer and that customer's buying habits. These studies
are facilitated by the Company's management information
systems which record all of the Company's retail and
inventory transactions. Regional merchandising managers
transfer inventory based on, among other things, margin and
inventory turnover within their region and between regions.
During Fiscal 1996, the Company continued to upgrade
merchandise presentation through 10 store remodels and
relocations which improved category merchandise displays and
utilized better retail signage.
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 through the Company's "EZ Layaway" program.
Through EZ Layaway, 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, 1996, the Company
had $2 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 has continued to refine the method of estimating
these reserves through further study and analysis of sales
trends, inventory aging, shrinkage, and losses on aged
inventory. Valuation allowances, including shrinkage
reserves, amounted to $7.9 million as of September 30, 1996.
At September 30, 1996, total inventory on hand was $35.8
million, after deducting an allowance for shrinkage and
valuation of inventory.
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 and merchandise sales are highest in the Company's
fiscal first quarter (October, November and December) due to
the holiday season.
Operations
General
The typical Company location is a free-standing
building or part of a retail strip center. Nearly all of the
Company's pawnshop locations have contiguous parking
facilities. 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 2,000 square feet of
retail space and approximately 4,000 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 manager reports to one of
approximately 27 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 four regional directors. The
regional directors report to the President of the Company.
Management Information Systems and Controls
The Company has a management information 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 electronic mail
network. The Company's communications network provides
access to each store from the corporate offices. During
Fiscal 1996, this network was upgraded to provide increased
server capacity for daily processing of store-level
information and to accommodate the Company's growth.
During Fiscal 1994, the Company completed the
development and initiated the roll-out of a new point-of-
sale (POS) system based on personal computing technology and
a UNIX operating system (UNIX is a registered trademark of
UNIX Systems Laboratories). All new stores are being
equipped with this system and the upgrade of existing
stores is 75% complete. This new system provides the Company
with a migration path for its POS software from a
proprietary environment to an industry standard hardware
platform. This new platform provides greater computing
power, larger disk capacity and the ability to run industry
standard third-party software in addition to the Company's
software. On an ongoing basis, the Company reviews and
modifies its information systems to meet the needs of the
business.
The Company has an internal audit staff of
approximately 15 employees to ensure that the Company's
policies and procedures are consistently followed. In
addition, the audit department carefully monitors, among
other things, the Company's perpetual inventory system,
lending practices and regulatory compliance.
Personnel
As of September 30, 1996, the Company employed
approximately 1,400 persons, including approximately 200
management and administrative personnel. 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 classroom training and
supervised on-the-job loan and sales training for new
employees.
Assistant managers receive additional training,
primarily on-the-job, focusing on product knowledge and
inventory management. Managers attend on-going management
skills and operations performance training. Regional
directors and area managers receive leadership training in
utilizing their human resources 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 the store managers for new
stores 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 30 days of the date
of hire. The licensing fee is $65.00 and encompasses a
review of the individual's personal background. Licenses are
renewed annually at a fee of $10.00; renewals also entail a
review of each individual's personal background.
Trade Name
The Company historically operated its pawnshops under
the "U-Pawn-It" and "EZ Pawn" names. In 1991, the Company
began converting stores to the "EZ Pawn" name. The Company
now operates virtually all of its pawnshops under the name
"EZ Pawn." The Company has registered the mark "E-Z Pawn"
with the United States Patent and Trademark Office.
Growth and Expansion
During Fiscal 1996, the Company established 11 stores.
The Company plans to continue its expansion, at a modest
rate, in existing markets and to enter new markets in other
states which have regulatory, demographic, and competitive
characteristics that are conducive to successful pawnshop
operations. The Company seeks to establish clusters of
stores in specific geographic regions depending upon
individual market demographics. In this manner, the Company
expects to achieve certain economies of scale relative to
its advertising, name recognition, and managerial and
administrative costs.
The 18 most recently established stores with twelve
full months of operating data, opened by the Company through
September 30, 1996, required an average gross investment
(including inventory, pawn loans and property, plant and
equipment) of approximately $400,000 per pawnshop during the
first twelve months of operation.
The Company's expansion program is dependent on several
variables, such as the availability of acceptable sites or
acquisition candidates and 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 requires 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 42 locations in Texas
counties having a population of less than 250,000. 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 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, which generally lend on an unsecured as
well as secured basis. 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, gun stores, discount
retail stores, consumer electronics stores, other pawnshops,
and other retailers of previously owned merchandise.
Competitive factors in the Company's retail operations
include the ability to provide the customer 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 248 locations as of December
2, 1996, 149 were in Texas. Accordingly, Texas pawnshop laws
have the greatest application to the Company's operations.
The laws of Colorado, Indiana, Alabama, Georgia, Oklahoma,
Tennessee, Mississippi, Louisiana, North Carolina, Arkansas,
and Florida also have application to the Company's pawnshop
operations in those states. At December 2, 1996, the
Company's pawnshops were located as follows: 149 in Texas,
24 in Colorado, 23 in Indiana, 14 in Alabama, 11 in Georgia,
9 in Oklahoma, 8 in Tennessee, 3 in Mississippi, 3 in
Louisiana, 2 in North Carolina, 1 in Arkansas, and 1 in
Florida. 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.
Texas Pawnshop Regulations
In Texas, pawnshops are governed by the Texas Pawnshop
Act and the Rules of Operation 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.
From July 1, 1995 to June 30, 1996, the loan ceiling was
$10,750. For the period July 1, 1996 through June 30, 1997,
the loan ceiling is $11,000. A table of the maximum
allowable pawn service charges under the Texas Pawnshop Act
for the various stratified loan amounts for July 1, 1995 to
June 30, 1997 is presented in "Lending Activities."
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) show that the
applicant has the financial responsibility, experience,
character, and general fitness to command the confidence of
the public in its operation; and (iv) show that the pawnshop
will be operated lawfully and fairly in accordance with the
Texas Pawnshop Act. Current applications to the Texas
Consumer Credit Commissioner inquire, among other things,
into the applicant's credit history and criminal record.
In addition, the Texas Pawnshop Act requires 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 has remained
unchanged for applications in counties of less than 250,000
population, with the Commissioner generally required by law
to process an application within 60 days of its receipt. In
counties having a population of 250,000 or more, a similar
timeframe for the license application approval process
exists where no public hearing has been held, 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 in
Texas counties having a population of 250,000 or more 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 things, 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 Consumer Credit Commissioner has also
promulgated Rules of Operation which regulate the day-to-day
management of the Company's pawnshops. Under the Pawnshop
Act and the Rules of Operation, a pawnbroker may not: 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
and similar weapons; or 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.
The Rules of Operation were amended effective October
1, 1994 to further provide that a pawnbroker must maintain
additional records relating to extensions of loans, records
of payments, written receipts, titled goods, lost or damaged
goods, and records of requests by crime victims for
assistance in determining whether stolen property might have
been pledged to the pawnbroker. In addition, the amended
rules require the filing with the Commissioner of a
description of systems and programs utilized in a
pawnbroker's electronic data processing system; the
utilization of approved safes for jewelry pledges; the
maintenance of general liability insurance of not less than
$500,000 per occurrence; and the maintenance of fire
insurance or other credible evidence of financial resources
of not less than two times the amount financed plus the
finance charge on open jewelry loans and not less than one
and one-half times the amount financed plus the finance
charge on all other loans. The Company does not believe that
compliance with the amended rules has materially impacted
the Company's operations. There can be no assurance,
however, that these amended rules will not have a material
adverse effect on the Company.
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.
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
provides for 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.
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.
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 thirty days. This annual rate
is in effect for the first 90 days of any pawn transaction
or extension or continuation thereof. The maximum allowable
charge for interest and service charges is reduced to 12.5%
for each thirty-day period thereafter. 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.
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; and (3) show that
the pawnshop will be operated lawfully and fairly within the
purpose of the Oklahoma Pawnshop Act.
Tennessee Pawnshop Regulations
In 1995, Tennessee passed an Act that amended Tennessee
Code, Title 45, relating to pawnbrokers. This Amendment
provides that pawnbrokers may charge interest of 2% a month,
plus service charge 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.
Tennessee law also 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 on 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 15 days after making their
report to local law enforcement agencies.
Mississippi Pawnshop Regulations
The Company's Mississippi operations are subject to the
Mississippi Pawnshop Act. The Mississippi Pawnshop Act
provides for regulation to be administered by the
Commissioner of Banking. 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.
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.
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 2%
per month interest, and a monthly fee not to exceed 20% for
the following: (1) title investigation, (2) handling,
appraisal and storage, (3) insuring a 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.
Florida Pawnshop Regulations
The applicable Florida statute provides for
registrations of pawnbrokers with the Florida Department of
Revenue. That agency has broad power to adopt rules and
regulations to effect the purposes of the statute, and to
impose fines for violation of the statute's registration
requirements. The law requires that the pawnbroker maintain
detailed records of all secondhand goods transactions, and
to deliver such records to the appropriate local law
enforcement agencies. The relevant statute does not
establish a maximum allowable rate of interest or service
charges.
The Company's Florida transactions take the form of buy-
sell agreements. The property placed with a pawnbroker is
subject to sale or disposal when the seller has not
repurchased the property from the pawnbroker and there has
been no payment on account made for a period of sixty days
after the sale. The applicable Florida statute provides
for registrations of pawnbrokers with the Florida Department
of Revenue. That agency has broad power to adopt rules and
regulations to effectuate the purposes of the statute, and
to impose fines for violation of the statute's registration
requirements. The law requires that the pawnbroker maintain
detailed records of all secondhand goods transactions, and
deliver such records to the appropriate local law
enforcement agencies. The relevant statute does not
establish a maximum allowable rate of interest or service
charges.
As of October 1, 1996, pawn transactions are subject to
a new set of Florida regulations codified in Chapter 539 of
the Florida Statutes. Under the new 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.
Starting October 1, 1996, pawn loans in Florida will
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 thirty 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.
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 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 gun and ammunition sales, each pawnshop
must comply with the regulations promulgated by the Federal
Bureau of Alcohol, Tobacco and Firearms (BATF) which require
each pawnshop dealing in guns 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 on February 28, 1994. The rules
basically require that all licensees, in either selling
inventoried or redeeming pawned firearms to those 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.
The Company complies with the Brady Handgun Violence
Prevention Act (the "Brady Act"), and rules the United
States Department of Treasury promulgated 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.
On September 13, 1994, the Violent Crime Control and
Law Enforcement Act of 1994 became effective upon signature
of the President. Among other provisions, the Act exempts
pawnbrokers from the provision of the Brady Act with respect
to the return of firearms to the person who originally
pawned them.
Item 2. Property
As of December 2, 1996, the Company owned the real
estate and buildings for 23 of its pawnshops and leased 225
of its operating pawnshop locations. Leased facilities are
generally leased 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 February 28, 1997 and February 28,
2008. All leases provide for specified periodic rental
payments. Most leases require the Company to maintain the
property and pay the cost of insurance and taxes. The
Company believes that termination of any particular lease
would not have a material adverse effect on the Company's
operations. Of the Company's leased pawnshop locations, five
are leased from affiliated entities in the ordinary course
of business. All of such leases provide for market rental
rates. 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 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 2, 1996:
Number of
Locations in
Area/Region Each Area
-------------- ------------
Texas:
Houston 58
San Antonio 17
South Texas 16
North and West Texas 13
Dallas 12
Central Texas 11
Austin Area 10
Laredo Area 7
Corpus Christi 5
---
Total Texas 149
Colorado:
Denver Area 16
Colorado Springs Area 6
Pueblo 2
---
Total Colorado 24
Indiana:
Indianapolis Area 12
Other Areas 11
---
Total Indiana 23
Alabama:
Birmingham Area 7
Montgomery 4
Mobile 2
Other Areas 1
---
Total Alabama 14
Georgia:
Atlanta Area 11
---
Total Georgia 11
Oklahoma:
Oklahoma City Area 4
Tulsa Area 3
Other Areas 2
---
Total Oklahoma 9
Tennessee:
Memphis 8
---
Total Tennessee 8
Mississippi:
Jackson 2
Other Areas 1
---
Total Mississippi 3
Louisiana:
New Orleans Area 2
Other Areas 1
---
Total Louisiana 3
North Carolina:
Raleigh-Durham Area 2
---
Total North Carolina 2
Arkansas:
West Helena 1
---
Total Arkansas 1
Florida:
Pensacola 1
---
Total Florida 1
---
Total Company 248
===
In addition to its store locations, the Company owns
its corporate offices and leases certain warehouse
facilities. In Fiscal 1992, the Company purchased a 27,400
square foot building in Austin, Texas for use as a corporate
office. The Company also leases approximately 8,100 square
feet in Austin, Texas for its Central Jewelry Processing
Center under a five-year lease agreement with one five-year
option to renew.
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.
On July 28, 1995, the Company terminated the Employment
Agreement of Courtland L. Logue, Jr. ("Mr. Logue"), the
Company's former Chairman and Chief Executive Officer, and
an owner of approximately 19% of the Company's outstanding
voting securities (Class B Voting Common Stock). Since Mr.
Logue's termination, the Company has had ongoing discussions
with him concerning certain equipment leases between Mr.
Logue and the Company, as well as the application of
provisions to Mr. Logue's Employment Agreement and Stock
Purchase Agreement with the Company. The Company believes
these agreements require, among other things, a $2.7 million
payment by Mr. Logue to the Company. On March 8, 1996, the
Company filed a lawsuit styled EZCORP, Inc. v. Courtland L.
Logue, Jr. in the 201st District Court of Travis County,
Texas in an effort to bring resolution to this dispute. Mr.
Logue has filed counter-claims relating to the Employment
Agreement and certain equipment leases and notes entered
into between Mr. Logue and the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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 2,
1996, there were 337 stockholders of record of the Company's
Class A Non-voting Common Stock. There is no trading market
for the Company's Class B Voting Common Stock ("Class B
Common Stock"), and as of December 2, 1996, such stock was
held by two stockholders of record.
The high and low per share last sale price for the
Company's Class A Common Stock for the past two fiscal
years, as reported by Nasdaq, were as follows:
High Low
---- ----
Fiscal 1995:
First quarter ended December 31, 1994 $13.75 $10.00
Second quarter ended March 31, 1995 11.75 7.50
Third quarter ended June 30, 1995 7.50 4.50
Fourth quarter ended September 30, 1995 6.88 4.50
Fiscal 1996:
First quarter ended December 31, 1995 $5.75 $4.25
Second quarter ended March 31, 1996 7.50 4.75
Third quarter ended June 30, 1996 7.00 5.75
Fourth quarter ended September 30, 1996 6.88 5.44
As of December 2, 1996, the Company's Class A Common
Stock closed at $7.50 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. There have been
no dividends declared on the Company's Common Stock during
the four most recent fiscal years.
The current policy of the Company's Board of Directors
is to retain any future earnings to provide funds for the
operation and expansion of the Company's business; however,
the Board of Directors will review the dividend policy
periodically to determine whether the declaration of
dividends is appropriate. In addition, the Company's bank
line of credit agreement prohibits the payment of dividends
without prior consent from the Company's lenders.
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 and Operating Data
The Company
Fiscal Years Ended September 30,
1992 1993 1994 1995 1996
------------------------------------
(Amounts in thousands, except per
share and store figures)
Operating Data:
Sales (1) $27,604 $63,791 $104,773 $115,220 $103,511
Pawn service charges 23,600 44,834 63,169 74,254 70,115
------ ------ ------- ------- -------
Total revenues (1) 51,204 108,625 167,942 189,474 173,626
Cost of goods sold (1) 19,636 48,179 88,256 113,227 88,953
------ ------- ------- ------- -------
Net revenues 31,568 60,446 79,686 76,247 84,673
Store operating expenses 21,340 40,485 58,181 74,417 58,969
Corporate administrative
expenses 5,060 8,433 12,668 15,406 10,712
Depreciation and
amortization 1,225 2,703 4,471 7,352 7,573
Interest expense (income) (629) (378) 1,512 3,059 1,884
------ ------ ------- ------- -------
Income (loss) before
income taxes 4,572 9,203 2,854 (23,987) 5,535
Income tax expense
(benefit) 1,667 3,095 1,065 (8,138) 1,992
------ ------ ------- ------- -------
Net income (loss) $ 2,905 $ 6,108 $ 1,789 $(15,849)$ 3,543
====== ====== ====== ======= =======
Earnings (loss) per common share:
Primary and fully diluted $0.33 $0.56 $0.15 $(1.32) $0.30
Cash dividends per common
share - - - - -
Weighted average common shares and
share equivalents:
Primary and fully
diluted 8,879 10,981 11,975 11,977 11,988
Stores operated at end
of period 127 186 234 261 246
September 30,
1992 1993 1994 1995 1996
--------------------------------------------
Balance Sheet Data:
Pawn loans $18,656 $27,961 $37,777 $39,782 $34,636
Inventory 20,174 39,127 63,070 41,575 35,834
Working capital 44,561 83,850 106,691 94,916 76,158
Total assets 76,945 137,314 173,989 164,588 140,366
Long-term debt, net 2,080 3,476 36,791 42,916 16,244
Stockholders' equity 69,238 123,935 125,086 109,375 112,991
- -------------------------------
(1)Sales from scrap and wholesale activities were
reclassified from cost of goods sold to sales in the
1992, 1993, 1994 and 1995 operating data.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussion in this section of this report contains
forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed in this section and those
discussed elsewhere in this report.
This discussion and analysis compares the results of
operations for the twelve month periods ending September 30,
1996, 1995, and 1994 (designated as "Fiscal 1996", "Fiscal
1995", and "Fiscal 1994"). The discussion should be read in
conjunction with, and is qualified in its entirety to, the
accompanying financial statements and related notes.
Summary Financial Data
Fiscal Years Ended September 30,
1994 1995 1996
-------------------------------
(Dollars in thousands,
except as indicated)
Net Revenues:
Sales (1) $104,773 $115,220 $103,511
Pawn service charges 63,169 74,254 70,115
------- ------- -------
Total revenues 167,942 189,474 173,626
Cost of sales (1) 88,256 113,227 88,953
------- ------- -------
Net revenues 79,686 76,247 84,673
Other Data:
Gross margin (1) 15.8% 1.7% 14.1%
Average annual
inventory turnover 1.6x 1.9x 2.3x
Average inventory per
location at year end $270 $159 $146
Average loan balance per
location at year end $161 $152 $141
Average pawn loan at
year end (whole dollars) $73 $70 $67
Average yield on loan
portfolio 197% 204% 209%
Redemption rate 74% 76% 78%
Expenses and income as a percentage
of total revenue (%) (1):
Store operating 34.6 39.3 33.9
Administrative 7.5 8.1 6.2
Depreciation and amortization 2.7 3.9 4.4
Interest 0.9 1.7 1.1
Income (loss) before
income taxes 1.7 (12.7) 3.2
Net income (loss) 1.1 (8.4) 2.0
Stores in operation:
Beginning of year 186 234 261
Acquired 6 - -
New openings 42 33 11
Sold, combined, or closed - (6) (26)
End of year 234 261 246
Average number of
locations during the year 210 248 254
___________________
(1)Sales from scrap and wholesale activities were
reclassified from cost of goods sold to sales in the
1994 and 1995 operating data.
Fiscal 1995 and 1994 Special Charges
To facilitate year to year comparisons, the following
table details the impact of the jewelry liquidation
commenced in the fourth Fiscal 1995 quarter, the pretax
special charges of $25.5 million for Fiscal 1995, and the
pretax special charge of $9.3 million for Fiscal 1994.
These special charges are more fully discussed below and in
Note N of the Notes to Consolidated Financial Statements.
Fiscal 1994 Fiscal 1995 Fiscal 1996
($ millions) ($ millions) ($ millions)
----------- ----------- -----------
Revenues
Merchandise sales $ 2.3 $ 8.9 $ 3.8
Pawn service charges (1.9) - -
----- ----- -----
Total revenue 0.4 8.9 3.8
Cost of goods sold 6.7 24.3 3.8
----- ----- -----
Net revenue (6.3) (15.4) -
Operating expenses
Operations 1.4 7.7 -
Administrative 1.6 2.5 -
Depreciation and amortization - - -
----- ----- -----
Total operating expenses 3.0 10.1 -
----- ----- -----
Operating income (loss) $ (9.3) $(25.5) $ -
===== ===== =====
During Fiscal 1996, the Company sold on a wholesale
basis or scrapped $3.8 million of jewelry which had been
identified as excess and written down to its net realizable
value during its fourth Fiscal 1995 quarter. These sales
and their related cost are included in "Merchandise Sales"
and "Cost of Goods Sold." Due to the earlier write-down,
these sales had no effect on income for Fiscal 1996.
In the fourth Fiscal 1995 quarter, the Company
identified and commenced the liquidation of approximately
$27 million in jewelry inventory which had accumulated
primarily as a result of a $20 million new jewelry program
undertaken in prior periods and as a result of past lending
practices, which have since been modified. During this
quarter the Company sold approximately $15.6 million of this
jewelry (included in "Cost of Goods Sold") for $8.9 million
(included in "Merchandise Sales"). Largely as a result of
this scrapping activity, the Company increased its valuation
reserve by $8.7 million (included in "Cost of Goods Sold").
In addition, the Company provided $7.7 million for the
closing and consolidating of thirty-two (32) stores
including the write-down of various tangible and intangible
assets (included in "Operations" expense) and provided $2.5
million for several legal matters (included in
"Administrative" expense).
In Fiscal 1994, a $4.9 million charge was made for
inventory valuation, consisting of $2.2 million in markdowns
on merchandise sold through a company-wide clearance sale
and a $2.7 million increase in the inventory valuation
reserve ($2.3 million included in "Merchandise Sales"; $6.7
million included in "Cost of Goods Sold"; and $0.6 million
included in "Operations" expense).
During Fiscal 1994, the Company implemented a newly-
developed computer software program to calculate accrued
pawn service charges on a loan-by-loan basis. Previously
this accrual was based on a store-by-store calculation using
pawn service charge collections, loan principal payments and
other information available to management. The difference
in these two methods amounted to a $1.9 million reduction in
accrued pawn service charges (included in "Pawn Service
Charges"). While it is impractical to assign this amount to
specific prior periods, management believes that most of the
difference is attributable to the Fiscal 1994 period.
The Fiscal 1994 special charge included $2.4 million
primarily for a pending wage and hour investigation and
organizational changes ($0.8 million in "Operations" expense
and $1.6 million in "Administrative" expense).
Results of Operations
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 1996, pawn service charge revenue
decreased $4.2 million from Fiscal 1995 to $70.1 million. A
decline in same store pawn service charge revenue ($2.9
million) and the loss of pawn service charge revenue of the
32 closed stores ($3.6 million) were partially offset by new
stores not open the full 12 month period ($2.3 million).
The $2.9 million same store pawn service charge decline is
the net result of lower average loan balances in stores open
the full twelve month period ($4.6 million pawn service
charge revenue impact) offset by annualized yield
improvement on the pawn loan portfolio of five percentage
points to 209% ($1.7 million). At September 30, 1996, same
store pawn loan balances were 10% below September 30, 1995.
For Fiscal 1995, pawn service charge revenue increased
$11.1 million from Fiscal 1994 to $74.3 million. An
increase in same store pawn service charge revenue ($9.4
million) and pawn service charge revenue from newly
established stores ($1.7 million) resulted in the year over
year increase. Annualized yield on the pawn loan portfolio
increased to 204% in Fiscal 1995 from 197% in Fiscal 1994 as
a result of a managed shift in the loan portfolio to higher
yielding loans.
A secondary, but related, activity of the Company is
the sale of merchandise, primarily collateral forfeited from
its lending activity. For Fiscal 1996, merchandise sales
decreased approximately $11.7 million from Fiscal 1995 to
approximately $103.5 million. A decline in same store
merchandise sales ($3.5 million), merchandise sales of the
32 closed stores ($8.1 million), and the decrease in amount
of sales associated with the special inventory liquidation
discussed above ($5.1 million) were offset by new store
sales ($5.0 million). Same store sales for Fiscal 1996
declined two percent from Fiscal 1995 primarily as a result
of lower inventory levels per store ($146,000 in Fiscal 1996
compared to $159,000 in Fiscal 1995).
For Fiscal 1995, merchandise sales increased $10.4
million from Fiscal 1994 to $115.2 million. New store
sales ($12.4 million) and the effect of the special charges
discussed above ($6.5 million) were offset by the decline in
same store merchandise sales ($8.5 million). Same store
sales for Fiscal 1995 declined nine percent from Fiscal
1994. In Fiscal 1994, the Company sold a substantial amount
of new jewelry, and Federal legislation (the "Brady Bill")
increased demand for hand guns. These two activities and
higher inventory levels per store ($270,000 in Fiscal 1994
compared to $159,000 in Fiscal 1995) created a higher level
of sales in Fiscal 1994 compared to Fiscal 1995.
For Fiscal 1996, gross profits as a percentage of
merchandise sales increased 12 percentage points from Fiscal
1995 to 14%. Excluding the impact of the special charges
discussed above, gross profits as a percentage of
merchandise sales decreased two percentage points from
Fiscal 1995 to 15%. This decrease results from a decline in
margins on merchandise sales (six percentage points) offset
by the combined favorable effect of a reduction in inventory
shrinkage measured as a percentage of merchandise sales
(down three percentage points to approximately two percent)
and improved gross profit on the sale of scrap jewelry (one
percentage point). The lower merchandise sales margins
result primarily from management's strategy of pricing
merchandise based on, among other factors, merchandise age
since acquired and forfeited.
For Fiscal 1995, gross profits as a percentage of
merchandise sales decreased 14 percentage points from Fiscal
1994 to two percent. Excluding the impact of the special
charges discussed above, gross profits as a percentage of
merchandise sales decreased four percentage points from
Fiscal 1994 to 17%. This decrease results from a decline in
margins on merchandise sales (seven percentage points)
offset by the favorable effect of improved gross profit on
the sale of scrap jewelry (three percentage points). In
Fiscal 1994, the Company had a higher level of new
merchandise or merchandise purchased over the counter which
typically sold for a higher margin. Management believes
that sales of this purchased merchandise came at the expense
of the sales of forfeited collateral.
The Company's gross margin level (gross profit as a
percentage of merchandise sales) results from, among other
factors, the composition, quality and age of its inventory.
At September 30, 1996 and 1995 the Company's inventories
consisted of approximately 66% and 60% jewelry (e.g.,
ladies' and men's rings, chains, bracelets, etc.) and 34%
and 40% general merchandise (e.g., televisions, VCRs, tools,
sporting goods, musical instruments, firearms, etc.). At
September 30, 1996 and 1995, approximately 75% and 78% of
the jewelry inventory was less than twelve months old based
on the Company's date of acquisition (date of forfeiture for
collateral or date of purchase) as was approximately 87% and
86% of the general merchandise inventory.
In Fiscal 1996, operating and administrative expenses
as a percentage of total revenues decreased five and two
percentage points, respectively (two and one percentage
points, excluding the effect of the special charges
discussed above) from Fiscal 1995 to 34% and 6%. In Fiscal
1994, operating and administrative expenses as a percentage
of total revenues were 35% and 8%, respectively (34% and 7%
excluding the special charges). Both operating and
administrative expenses have declined relative to total
revenues as a result of the closure of under performing
stores and the Company's programs to reduce costs.
Depreciation and amortization expense increased year
over year from Fiscal 1994 to Fiscal 1996 largely as a
result of the higher level of depreciation on new stores
opened since September 30, 1993. In 1995, the Company
revised the estimated useful lives of leasehold improvements
resulting in increased depreciation expense of $1.2 million.
In Fiscal 1996, depreciation and amortization expense
increases were partially offset by the effect of stores that
were closed. Interest expense in Fiscal 1996 decreased to
$1.9 million from $3.1 million for Fiscal 1995 largely as a
result of decreased borrowings under the Company's bank line
of credit.
Income tax expense for Fiscal 1996 was $2.0 million
(36% of pretax income) compared to a tax benefit of $8.1
million for Fiscal 1995 resulting from the Fiscal 1995 net
operating loss.
Net income for Fiscal 1996 was $3.5 million compared to
a net loss $15.8 million for Fiscal 1995. The improvement
in net income results from the net year over year favorable
effect of the special charges discussed above, the favorable
operating impact of the store closings, and the favorable
impact of lower inventory shrinkage, operating and
administrative expenses, and interest expense. These
favorable factors were offset partially by the effect of
lower revenues and margins in Fiscal 1996.
Liquidity and Capital Resources
Net cash provided by operating activities for Fiscal
1996 was $22.1 million compared to $8.2 million provided in
Fiscal 1995 and $15.9 million used in Fiscal 1994. Improved
operating results and inventory reductions were the main
factors in the improved cash generation from operating
activities. A portion of the Fiscal 1996 operating cash
flow is the result of income tax refunds from the carryback
of the Company's Fiscal 1995 net operating loss and the
lower level of taxes payable resulting from the carryforward
of this net operating loss. In Fiscal 1996, the $22.1
million from operating activities, $1.3 million provided
from investing activities ($5.1 million decrease in
investments in pawn loans, $2.0 million from sale of assets,
and $5.8 million invested in property, plant and equipment),
and $3.2 million of the Company's beginning cash balances
were used to reduce total bank borrowings by $26.7 million.
In Fiscal 1996, the Company invested $5.8 million to
open 11 newly established stores, to remodel or relocate 10
existing stores, and to upgrade or replace existing
equipment and computer systems. The Company funded these
expenditures largely from cash flow provided by operating
activities. The Company plans to open approximately 10 to
15 new stores and remodel 5 to 10 stores in the next twelve
months. The Company anticipates that cash flow from
operations and funds available under its existing bank line
of credit should be adequate to fund these capital
expenditures and expected pawn loan growth during the coming
year. There can be no assurance, however, that the
Company's cash flow and line of credit will provide adequate
funds for these expenditures.
The Company's current revolving line of credit
agreement, which matures January 31, 1998, requires, among
other things, that the Company meet certain financial
covenants and provide the bank group a first lien security
interest in certain assets of the Company. Borrowings under
the line bear interest at the bank's Eurodollar rate plus
one and one-half percent. The amount which the Company can
borrow is based on a percentage of its inventory levels and
outstanding pawn loan balance, up to $50 million. At
September 30, 1996, the Company had $15 million outstanding
on the credit facility and additional borrowing capacity of
approximately $25 million.
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 and merchandise sales are highest in the Company's
fiscal first quarter (October, November and December) due to
the holiday season.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
Report of Independent Auditors 24
Consolidated Financial Statements:
Consolidated Balance Sheets as of
September 30, 1996 and 1995 25
Consolidated Statements of Operations
for each of the Three Years in the
Period Ended September 30, 1996 26
Consolidated Statements of Cash Flows
for each of the Three Years in the
Period Ended September 30, 1996 27
Consolidated Statements of Stockholders'
Equity for each of the Three Years in
the Period Ended September 30, 1996 28
Notes to Consolidated Financial Statements 29
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,
1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of
the three years in the period ended September 30, 1996. 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 based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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, 1996 and 1995, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted
accounting principles. 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.
ERNST & YOUNG LLP
Austin, Texas
November 14, 1996
Consolidated Balance Sheets
September 30,
1995 1996
----------------------
(Dollars in thousands)
Assets:
Current assets:
Cash and cash equivalents $ 4,593 $ 1,419
Pawn loans 39,782 34,636
Service charge receivable 11,452 10,262
Inventory, net 41,575 35,834
Deferred tax asset 2,422 2,140
Federal income tax recoverable 4,236 -
Prepaid expenses and other assets 3,153 2,998
------- -------
Total current assets 107,213 87,289
Property and equipment, net 36,596 34,266
Other assets:
Excess purchase price over net
assets acquired 13,574 13,099
Non compete agreements 517 368
Deferred tax asset 2,110 1,200
Notes receivable related parties 3,028 3,031
Other assets 1,550 1,113
------- -------
Total assets $164,588 $140,366
======= =======
Liabilities and Stockholders' Equity:
Current liabilities:
Current maturities of
long-term debt $ 171 $ 172
Accounts payable and other
accrued expenses 10,026 8,183
Customer layaway deposits 2,100 1,976
Federal income taxes payable - 800
------ ------
Total current liabilities 12,297 11,131
Long-term debt, less current
maturities 42,916 16,244
Stockholders' equity:
Preferred Stock, par value $.01 a share
- Authorized 5,000,000 shares; none
issued and outstanding - -
Class A Non-voting Common Stock,
par value $.01 a share 70 97
Authorized 40,000,000 shares;
6,967,867 issued and 6,958,834
outstanding in 1995
9,728,904 issued and 9,719,871
outstanding in 1996;
Class B Voting Common Stock,
convertible, par value $.01
a share 50 23
Authorized 5,137,163 shares in 1995
5,019,176 issued and outstanding in 1995
Authorized 2,274,969 shares in 1996
2,270,863 issued and outstanding in 1996
Additional paid-in capital 114,236 114,301
Retained earnings (deficit) (4,209) (666)
------- -------
110,147 113,755
Treasury stock (9,033 shares in
1995 and 1996) (35) (35)
Receivables from stockholders (737) (729)
------- -------
Total stockholders' equity 109,375 112,991
Commitments and contingencies
Total liabilities and stockholders'
equity $164,588 $140,366
======= =======
See notes to consolidated financial statements.
Consolidated Statements of Operations
Years Ended September 30,
1994 1995 1996
-----------------------------
(Dollars in thousands, except
as indicated)
Revenues:
Sales $104,773 $115,220 $103,511
Pawn service charges 63,169 74,254 70,115
------- ------- -------
Total revenues 167,942 189,474 173,626
Costs of goods sold 88,256 113,227 88,953
------- ------- -------
Net revenues 79,686 76,247 84,673
Operating expenses:
Operations 58,181 74,417 58,969
Administrative 12,668 15,406 10,712
Depreciation and
amortization 4,471 7,352 7,573
------ ------ ------
Total operating expenses 75,320 97,175 77,254
------ ------ ------
Operating income (loss) 4,366 (20,928) 7,419
Interest expense 1,512 3,059 1,884
Income (loss) before
income taxes 2,854 (23,987) 5,535
Income tax expense (benefit) 1,065 (8,138) 1,992
------- ------- -------
Net income (loss) $ 1,789 $(15,849) $ 3,543
======= ======= =======
Earnings (loss) per share $ 0.15 $ ( 1.32) $ 0.30
======= ======== ========
Weighted average shares 11,975 11,977 11,988
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended September 30,
1994 1995 1996
------------------------------
(Dollars in thousands)
Operating Activities:
Net income (loss) $1,789 $(15,849) $3,543
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and
amortization 4,471 7,425 7,573
Deferred income taxes (3,804) (139) -
Restructuring expenses - 7,664 -
Net gain/loss on sale
of assets - - (167)
Changes in operating assets
and liabilities:
Service charge receivable (1,037) (2,071) 1,190
Inventory (22,523) 21,495 5,741
Notes and accounts
receivable from
related parties 64 (153) (3)
Prepaid expenses and
other assets (1,537) (473) (55)
Accounts payable and
accrued expenses 2,372 2,243 (1,778)
Customer layaway deposits 267 88 (124)
Federal income taxes payable 3,307 (3,307) 800
Deferred tax asset - (4,532) 1,192
Income taxes recoverable 712 (4,236) 4,236
Net cash provided by ------ ------ ------
(used in) operating
activities (15,919) 8,155 22,148
Investing Activities:
Pawn loans forfeited and
transferred to inventory 45,562 52,297 50,805
Pawn loans made (187,090) (192,239) (151,437)
Pawn loans repaid 132,177 137,937 105,778
------- ------- -------
(9,351) (2,005) 5,146
Additions to property,
plant and equipment (15,107) (10,813) (5,836)
Issuance of notes receivable
to related parties - (3,000) -
Acquisition of businesses (1,455) - -
Proceeds from sale of assets - - 2,031
Net cash provided by
(used in) investing
activities (25,913) (15,818) 1,341
Financing Activities:
Proceeds from bank borrowings 41,674 15,500 5,000
Payments on bank borrowings (8,263) (9,518) (31,671)
Collections of stockholder
notes receivable 37 7 8
Increase in stockholder
notes receivable (729) - -
Sale of treasury stock 8 - -
Net cash provided by ------ ------- ------
(used in) financing
activities 32,727 5,989 (26,663)
Increase (decrease) in cash ------ ------- ------
and equivalents (9,105) (1,674) (3,174)
Cash and equivalents at
beginning of period 15,372 6,267 4,593
Cash and equivalents ------ ------ ------
at end of period $6,267 $4,593 $1,419
====== ====== ======
Cash paid during the periods for:
Interest $1,226 $2,974 $2,481
Income taxes $ 850 $4,076 $ -
Noncash investing and financing
activities:
Issuance of common stock to
401 (k) plan $ 46 $ 71 $ 65
See notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity
Add'l Retained Receivables
Paid in Earnings/ Treasury from
Common Stock Capital (Deficit) Stock Stockholders Total
------------------------------------------------------------
(Shares and dollars in thousands)
Balances at September 30, 1993
11,977 120 $ 114,119 $9,851 $(43) $(112) $123,935
Issuance of common stock to
401 (k) plan
4 46 46
Increase in stockholder's notes
(729) (729)
Sale of treasury stock 8 8
Reductions on stockholder notes 37 37
Net income 1,789 1,789
-------------------------------------------------------------
Balances at September 30, 1994
11,981 120 114,165 11,640 (35) (804) 125,086
Issuance of common stock to
401(k) plan 6 71 71
Reductions on stockholder notes
67 67
Net loss (15,849) (15,849)
------------------------------------------------------------
Balances at September 30, 1995
11,987 120 114,236 (4,209) (35) (737) 109,375
Issuance of common stock to
401(K) plan 12 65 65
Reductions on stockholder notes
8 8
Net income 3,543 3,543
------------------------------------------------------------
Balances at September 30, 1996
11,999 120 $114,301 $(666) $(35) $(729) $112,991
============================================================
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Note A - Summary of Accounting Policies
The following is a summary of significant accounting
policies of the Company.
Organization: The Company is primarily engaged in
establishing, acquiring, and operating pawnshops in the
southern United States. As of September 30, 1996, the
Company operated 246 locations in 12 states. The pawnshops
function as sources of customer credit and as specialty
retailers primarily of previously owned merchandise.
Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Pawn Loans and Income Recognition: Pawn loans ("loans") are
generally made on the pledge of tangible personal property
for one month with an automatic sixty-day grace period (the
"loan term"). Pawn service charges on loans are recorded
based on the interest method. If the loan is not repaid,
the forfeited collateral (inventory) is valued at the lower
of cost (principal plus accrued interest) or the fair value
of the property.
Cash and Cash Equivalents: For purposes of this statement,
the Company considers investments with maturities of ninety
days or less when purchased to be cash equivalents.
Inventory: Inventory is stated at the lower of cost
(specific identification) or market (net realizable value).
Inventory consists of merchandise acquired from forfeited
loans, merchandise purchased from customers, merchandise
acquired from the acquisition of other pawnshops, and new
merchandise purchased from vendors. The Company provides an
allowance for shrinkage and valuation based on management's
evaluation of the age, condition, and salability of the
merchandise. The valuation allowance deducted from the
carrying value of inventory amounted to $14,043,981 and
$7,948,661 at September 30, 1995 and 1996, respectively.
See Note N for explanation of year to year change.
Customer Layaway Deposits: Customer layaway deposits are
recorded as deferred revenue until the entire related sales
price has been collected.
Property and Equipment: Property and equipment are stated
at cost. Through September 30, 1994, provisions for
depreciation have been computed on a straight-line basis
using estimated useful lives of 30 years for buildings and 5
to 15 years for equipment and leasehold improvements.
Effective October 1, 1994, the Company revised its estimate
of the useful life of its leasehold improvements from 15
years to 10 years. As a result, 1995 amortization expense
increased by approximately $1,200,000, or $.07 per share on
an after tax basis. For federal income tax purposes, cost is
recovered using accelerated methods.
Intangible Assets: Intangible assets consist primarily of
excess purchase price over net assets acquired in
acquisitions. Excess cost over fair value of net assets
acquired (or goodwill) is amortized on a straight-line basis
over 20 to 40 years (the expected period of benefit). The
carrying value of goodwill is reviewed at the store level to
determine if the facts and circumstances suggest that it may
be impaired. If this review indicates that goodwill will
not be recoverable, as determined based on the undiscounted
cash flows of the entity over the remaining amortization
period, the Company's carrying value of the goodwill is
reduced by the estimated shortfall of cash flows.
Accumulated amortization of intangibles was $4,115,933 and
$6,301,921 at September 30, 1995 and 1996, respectively.
Earnings Per Common Share: Earnings per share calculations
assume exercise of all outstanding stock options and
warrants with appropriate adjustment to weighted average
shares outstanding using the treasury stock method of
calculation.
Advertising: Advertising costs are expensed as incurred.
Advertising expense was $5,172,913, $6,284,033 and
$2,700,663 for the fiscal years ended September 30, 1994,
1995 and 1996, respectively.
Income Taxes: The Company files a consolidated return with
its wholly owned subsidiaries. Deferred taxes are recorded
based on the liability method and result primarily from
differences in the timing of the recognition of certain
revenue and expense items for federal income tax purposes
and financial reporting purposes.
Stock-Based Compensation: In October 1995, the Financial
Accounting Standards Board issued FASB Statement No. 123,
"Accounting for Stock Based Compensation" which prescribes
accounting and reporting standards for all stock-based
compensation plans. The Company is required to adopt the
Statement for its fiscal year that begins October 1, 1996
and is presently evaluating the Statement. The Company has
yet to decide upon the alternatives provided in the
Statement.
Use of Estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Reclassifications: Certain prior year amounts have been
reclassified to conform with the current year presentation,
including presenting gross scrap and wholesale sales
proceeds in revenues rather than presenting the net amount
in cost of sales. These amounts were $6,800,000 and
$13,800,000 for the fiscal years ended September 30, 1994
and 1995, respectively. These classifications had no effect
on results of operations or retained earnings as previously
reported.
Note B - Acquisitions
The Company purchased the assets of 6 pawnshops during the
year ended September 30, 1994. The acquisitions have been
accounted for as purchases, and the assets and operations of
the acquired stores have been included in the accompanying
consolidated financial statements subsequent to the dates of
acquisition. The acquisition costs of these purchases was
approximately $1,445,000 and the excess of the total
acquisition costs over the fair values of net assets
acquired was approximately $202,000. Pro forma results have
not been presented for 1994 since they would approximate
actual results.
Note C - Property and Equipment
Major classifications of property and equipment were as
follows:
September 30,
1995 1996
---------------------
(Dollars in thousands)
Land $ 1,453 $ 1,351
Buildings and improvements 26,868 28,488
Furniture and equipment 18,933 20,673
-----------------
Total 47,254 50,512
Less - accumulated depreciation (10,658) (16,246)
-----------------
$36,596 $34,266
==================
Note D - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the
following:
September 30,
1995 1996
---------------------
(Dollars in thousands)
Trade accounts payable $ 2,267 $ 1,086
Accrued payroll and related expenses 1,494 2,113
Accrued interest payable 313 10
Other accrued expenses 5,952 4,974
--------------------
$10,026 $ 8,183
====================
Note E - Long-Term Debt
Long-term debt consisted of:
September 30,
1995 1996
----------------------
(Dollars in thousands)
Notes payable to individuals,
with interest at 10% to 13%,
payable in monthly installments
of $16,270 including interest,
maturing through June 2005 -
certain inventory, land, and
buildings pledged as collateral $ 753 $ 632
Note payable to bank with interest
at 9.25%, payable in monthly
installments of $9,204 including
interest, from May 1, 1996 until
June 1, 1997; thereafter, the
terms change annually until maturity
in April 2000; collateralized by
certain land and buildings 822 784
Note payable to bank under $50
million line of credit agreement
amended as of June 1996; interest
on used portion payable monthly at
prime rate or the bank's Eurodollar
rate plus 1.50% (6.98% at September
30, 1996); principal due January 1998 41,500 15,000
Junior subordinated note payable
to stockholder of acquired company,
with interest at 10% payable in monthly
installments of $4,206 including interest.
Note was paid in full December 1995. 12 -
-------------------
43,087 16,416
Less current maturities 171 172
--------------------
$42,916 $16,244
====================
The Company has a $50,000,000 secured revolving line of
credit with a bank of which $15,000,000 was outstanding as
of September 30, 1996. Credit availability is based upon a
percentage of inventory levels and outstanding pawn loans.
As of September 30, 1996, the additional borrowing capacity
was $25 million. Fees under the line of credit include an
annual $25,000 agent fee and a commitment fee equal to .35%
of the unused amount of the commitment. A facility fee of
$75,000 was paid relating to the June 24, 1996 amendment to
the agreement. Terms of the loan require, among other
things, that the Company meet certain financial covenants.
In addition, payment of dividends and incurrence of
additional debt is restricted.
Terms of the Company's other notes may also require, among
other things, that the Company meet certain financial
covenants.
Interest expense in the consolidated statements of
operations is shown net of interest income on investments in
the amount of $25,500, $211,821 and $293,628 for the years
ended September 30, 1994, 1995, and 1996, respectively.
Aggregate annual principal payment requirements on long-term
debt obligations for each of the following five years ending
September 30 are as follows: 1997 $171,794; 1998
$15,165,364; 1999 $163,882; 2000 $99,770; 2001 $83,512.
Note F - Common Stock and Warrants
The capital stock of the Company consists of two classes of
common stock designated as Class A and Class B. The rights,
preferences, and privileges of the Class A and Class B
Common Stock are similar except that each share of Class B
Common Stock has one vote and each share of Class A Common
Stock has no voting privileges. All Class A Common Stock is
publicly held. Holders of Class B Voting Common Stock may,
individually or as a class, convert some or all of their
shares into Class A Non-voting Common Stock. Class A Common
Stock becomes voting common stock upon the conversion of all
Class B Common Stock to Class A Common Stock. The Company is
required to reserve such number of authorized but unissued
shares of Class A Non-voting Common Stock as would be
issuable upon conversion of all outstanding shares of Class
B Voting Common Stock.
At September 30, 1996, warrants to purchase 23,559 shares of
Class A Non-voting Common Stock and 4,106 shares of Class B
Voting Common Stock at $6.17 per share were outstanding. The
warrants are exercisable through July 25, 2009.
The Company has an Incentive Stock Option Plan (the "Plan")
under which options to purchase Class A Non-voting Common
Stock may be granted to employees. Options granted under the
Plan are generally granted at exercise prices equal to or
greater than the fair market value on the date of grant. In
October 1994, the Board of Directors increased the number of
shares available under the Plan to 1,800,000 and amended the
Plan to provide accelerated vesting upon a change in control
of the Company.
As of September 30, 1996, the Company had 643,647 options
outstanding (options granted less options canceled due to
employee termination) at exercise prices ranging from $8.75
to $21.75. Of these options, 211,797 are vested and none
have been exercised. A summary of Plan activity for each of
the three fiscal years ended September 30, 1994, 1995, and
1996 follows:
Stock Option Plans
Number of Shares Price Range of Shares
Under Option Under Option
---------------- ---------------------
Outstanding at September 30, 1993
172,050 $21.75-$27.00
Granted 441,800 $13.00-$14.50
Canceled (66,900) $13.00-$26.75
Exercised 0 -
---------
Outstanding at September 30, 1994
546,950 $13.00-$27.00
Granted 402,969 $ 8.75-$12.50
Canceled (230,081) $10.38-$27.00
Exercised 0 -
---------
Outstanding at September 30, 1995
719,838 $8.75-$21.75
Granted 62,624 $ 8.75
Canceled (138,815) $ 8.75-$21.75
Exercised 0 -
---------
Outstanding at September 30, 1996
643,647 $8.75-$21.75
=========
Shares of reserved common stock at September 30, 1996, were
as follows:
Class A Class B
---------- --------
Stock option plan 1,800,000 -
Stock warrants 23,559 4,106
401(k) plan 25,054 -
Conversion of Class B
Voting Stock 2,274,969 -
--------- ------
4,123,582 4,106
========= ======
Note G - Income Taxes
The federal income tax provision consisted of:
Years Ended September 30,
1994 1995 1996
--------------------------------
(Dollars in thousands)
Current $5,100 $(3,660) $ 800
Deferred (4,035) (4,478) 1,192
--------------------------------
$1,065 $(8,138) $1,992
================================
A reconciliation of income taxes calculated at the statutory
rate and the provision for income taxes were as follows:
Years Ended September 30,
1994 1995 1996
--------------------------------
(Dollars in thousands)
Income taxes at the federal
statutory rate $ 971 $(8,295) $1,882
Effect of nondeductible
amortization of intangible
assets 27 27 27
Other 67 130 83
--------------------------------
$1,065 $(8,138) $1,992
================================
Income before income taxes on the statements of operations
differs from taxable income due to the following, which are
accounted for differently for financial statement purposes
than for federal income tax purposes and result in deferred
tax expense (benefit):
Years Ended September 30,
1994 1995 1996
---------------------------------
(Dollars in thousands)
Inventory basis $(4,286) $ (964) $ 105
Provision for store closings
and related charges - (3,615) (1,365)
Other 251 101 68
---------------------------------
$(4,035) $(4,478) $(1,192)
=================================
Significant components of the Company's deferred tax
liabilities and assets as of September 30, 1995 and 1996 are
as follows:
Years Ended September 30,
1995 1996
-------------------------
(Dollars in thousands)
Deferred tax liabilities:
Book over tax inventory basis $ 1,245 $ 695
Prepaid expenses 227 311
------------------
Total deferred tax liabilities 1,472 1,006
Deferred tax assets:
Book over tax depreciation 676 665
Inventory reserve 2,698 2,307
Amortization of non-competes 1,417 535
Accrued liabilities 922 762
Other, net 291 77
-------------------
Total deferred tax assets 6,004 4,346
Net deferred tax asset
(liability) $ 4,532 $ 3,340
===================
Note H - Related Party Transactions
Pursuant to the terms of a financial advisory services
agreement, an affiliate of the general partner of the
majority stockholder provides management consulting and
investment banking services to the Company for a specified
monthly retainer, which was $25,000 as of September 30,
1994. Effective October 1, 1994, this retainer was increased
to $33,333 per month. These services include ongoing
consultation with respect to offerings by the Company of its
securities, including, but not limited to, the form, timing,
and structure of such offerings. In addition to the
retainer, the affiliate earns fees from the Company for
other business and financial consulting services. Management
fees and expense reimbursements of $421,594, $557,210 and
$649,856 were paid to the affiliate in the years ended
September 30, 1994, 1995, and 1996, respectively.
The Company purchased an airplane from the former Chairman
of the Board for $113,000 in May 1994. At September 30,
1996, the Company's former Chairman of the Board owes the
Company at least $24,433 plus accrued interest of at least
$6,080. This amount may be increased subject to the
resolution of a dispute between the Company and the former
Chairman of the Board as to the crediting of a past payment
on the debt. Interest accrues at an annual rate of ten
percent. From July 1994 to August 1994, the Company loaned
the President and Chief Executive Officer $729,113 to
purchase 50,000 shares of Class A Non-voting Common Stock,
which is shown as a reduction of stockholders' equity in
these financial statements. Interest accrues annually at a
rate equal to the prime rate plus one half of one percent.
Interest is payable annually on December 31 of each year
until June 30, 1999. As of September 30, 1996, the amount
owed is $729,113 plus accrued interest of $48,048. The
Company records interest income on the loan and offsetting
compensation expense for the same amount as a bonus to the
President and Chief Executive Officer.
In October 1994, the Board of Directors approved agreements
which provide incentive compensation to the Chairman and the
Chief Executive Officer based on growth in the share price
of the Company's publicly traded common stock. Both
executives were advanced $1.5 million evidenced by a
recourse promissory note, due in 2004 and bearing interest
at the minimum rate allowable for federal income tax
purposes (ranging from 4.99% to 6.06% for 1996). Specified
percentages of loan principal will be forgiven each time the
closing price of the Company's Class A Common Stock exceeds
specified Stock Price Targets for at least ten consecutive
trading days. The Stock Price Targets range from $22.50 to
$62.50 per share and provide for complete forgiveness of
principal if the share price exceeds $32.50 per share within
five years or $62.50 per share within ten years. The Program
provides that Stock Price Targets will be adjusted
proportionately for certain capital transactions and that
the death or disability of the executive, or certain changes
in control, will result in forgiveness of the then remaining
principal and interest. Accrued interest is forgiven based
upon continued employment of the executive and the Company
is required to reimburse each executive for the income tax
consequences of this Program. Through September 30, 1996, no
Stock Price Targets have been attained; charges to
operations consist of interest forgiveness and related
income tax costs and totaled $307,815. Also see Note I -
Leases.
Note I - Leases
The Company leases various facilities and certain equipment
under operating leases. Certain buildings are leased from
the former Chairman of the Board of the Company, in the
ordinary course of business. Future minimum rentals due
under noncancelable leases including stores to be closed are
as follows for each of the years ending September 30:
Related Parties Other Total
----------------------------------
(Dollars in thousands)
1997 $ 284 $ 8,959 $ 9,243
1998 224 7,918 8,142
1999 140 6,280 6,420
2000 - 4,530 4,530
2001 - 3,348 3,348
Thereafter - 3,764 3,764
_______________________________
$ 648 $34,799 $35,447
===============================
Rent expense for the years was as follows:
Related Parties Total
-------------------------
(Dollars in thousands)
1994 $ 269 $7,352
1995 276 9,603
1996 245 9,722
In connection with the closing of 32 stores in the fourth
quarter of 1995, the Company recorded a provision for lease
terminations of $1.2 million.
Note J - Employment Agreement
The Company entered into a 20-year employment agreement with
the former Chairman of the Board, Courtland L. Logue, Jr.,
("Mr. Logue") for a minimum base salary of $300,000 which
was to expire in 2009. On July 28, 1995, the Company
terminated Mr. Logue's contract under terms of such
agreement. The Company has made demand that Mr. Logue pay
monies in connection with a performance right contained in
Section 5(o) of a stock purchase agreement between Mr. Logue
and a predecessor Company. The Company and Mr. Logue have
not yet resolved this issue. See Note L - "Contingencies."
Note K - 401(k) Plan
Effective October 1, 1991, the Company's Board of Directors
established a 401(k) Plan whereby eligible employees of the
Company may contribute a maximum of 15% of their
compensation within allowable limits. The Company will
match 25% of each employee's contribution, up to 6% of their
compensation, in the form of the Company's Class A Non-
voting Common Stock. Contribution expense related to the
plan for 1994, 1995 and 1996 was approximately $71,000,
$66,000 and $65,000, respectively.
Note L - Contingencies
From time to time, the Company is involved in litigation
relating to claims arising from its normal business
operations. Currently, the Company is a defendant in several
lawsuits. Some of these lawsuits involve claims for
substantial amounts. While the ultimate outcome of these
lawsuits cannot be ascertained, after consultation with
counsel, the Company believes the resolution of these suits
will not have a material adverse effect on the Company's
financial condition or results of operations. However,
there can be no assurance as to the ultimate outcome of
these matters.
On July 28, 1995, the Company terminated the Employment
Agreement of Courtland L. Logue, Jr. ("Mr. Logue"), the
Company's former Chairman and Chief Executive Officer, and
an owner of approximately 19% of the Company's outstanding
voting securities (Class B Voting Common Stock). Since Mr.
Logue's termination, the Company has had ongoing discussions
with him concerning certain equipment leases between Mr.
Logue and the Company, as well as the application of
provisions to Mr. Logue's Employment Agreement and Stock
Purchase Agreement with the Company. The Company believes
these agreements require, among other things, a $2.7 million
payment by Mr. Logue to the Company. On March 8, 1996, the
Company filed a lawsuit styled EZCORP, Inc. v. Courtland L.
Logue, Jr. in the 201st District Court of Travis County,
Texas in an effort to bring resolution to this dispute. Mr.
Logue has filed counter-claims relating to the Employment
Agreement and certain equipment leases and notes entered
into between Mr. Logue and the Company.
Note M - Quarterly Information (Unaudited)
Year Ended September 30, 1996
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------------------------------------------
(Dollars in thousands, except per share amounts)
Total revenues $51,433 $45,518 $38,129 $38,546
Net income 825 218 1,027 1,473
Net income per share
Primary and fully
diluted $0.07 $0.02 $0.09 $0.12
Year Ended September 30, 1995
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------------------------------------------
(Dollars in thousands, except per share amounts)
Total revenues $49,757 $43,239 $43,060 $53,418
Net income (loss) 841 (19) (777) (15,894)
Net income (loss) per share
Primary and fully
diluted $0.07 $(0.00) $(0.06) $(1.33)
Note N - Fiscal 1995 and Fiscal 1994 Special Charges
The Company recorded the following pre-tax charges in the
quarter ended September 30, 1995, which decreased income
before taxes for the year ended September 30, 1995 by $25.5
million:
Amount
--------------------
(Dollars in thousands)
Inventory valuation $ 8,740
Scrap jewelry liquidation 6,633
Provision for store closings 7,664
Other charges 2,469
--------
$ 25,506
========
During the fourth quarter ended September 30, 1995, the
Company identified and commenced the liquidation of
approximately $27 million in jewelry inventory which had
accumulated primarily as a result of a $20 million new
jewelry program undertaken in prior periods and as a result
of past lending practices. The Company sold or scrapped
$15.6 million of this jewelry (included in "Cost of Goods
Sold") and realized $8.9 million of cash (included in
"Merchandise Sales") in the fourth quarter of 1995. Largely
as a result of the scrapping activity, the Company increased
its valuation reserve by $8.7 million (included in "Cost of
Goods Sold"). The remaining jewelry was liquidated during
1996.
Also during the fourth quarter of 1995, management made the
decision to close or consolidate 32 of the Company's
underperforming stores. This action resulted in a $7.7
million provision. The provision included $2.3 million for
the write-down of various fixed assets to realizable value,
$3.9 million for the write-down of various intangible
assets, $1.2 million for future rent obligations, and $0.3
million for various other expenses. The provision was
included as part of "Operations" expense for classification
purposes. As of September 30, 1995, the 32 stores
identified for closing and consolidation had aggregate pawn
loans outstanding of $1.9 million. During Fiscal 1995, these
stores incurred an operating loss of $0.4 million on total
revenues of $13.4 million.
During 1996, the Company paid and charged against the
provision $1.1 million and made no adjustments to the
original amount of the provision. As of September 30, 1996,
the accrual for store closings was $0.4 million, principally
for estimated rent obligations.
Also in 1995, the Company provided $2.5 million principally
for several legal matters. This provision is included in
"Administrative" expense.
The Company recorded the following pre-tax charges in the
quarter ended September 30, 1994, which decreased income
before taxes for the year ended September 30, 1994 by $9.3
million:
Amount
---------------------
(Dollars in thousands)
Inventory valuation $ 4,900
Pawn service charge difference 1,900
Organization changes 1,300
Pending litigation and wage and
hour investigation 800
Other charges 400
--------
$ 9,300
========
In Fiscal 1994, a $4.9 million charge was made for inventory
valuation, consisting of $2.2 million in markdowns on
merchandise sold through a company-wide clearance sale and a
$2.7 million increase in the inventory valuation reserve
($2.4 million included in "Merchandise Sales"; $6.7 million
included in "Cost of Goods Sold"; and $0.6 million included
in "Operations" expense).
During Fiscal 1994, the Company implemented a newly-
developed computer software program to calculate accrued
pawn service charges on a loan-by-loan basis. Previously
this accrual was based on a store-by-store calculation using
pawn service charge collections, loan principal payments and
other information available to management. The difference
in these two methods amounted to a $1.9 million reduction in
accrued pawn service charges (included in "Pawn Service
Charges"). While it is impractical to assign this amount to
specific prior periods, management believes that most of the
difference is attributable to the Fiscal 1994 period.
The Fiscal 1994 special charge included $2.4 million
primarily for a pending wage and hour investigation and
organizational changes ($0.8 million in "Operations" expense
and $1.6 million in "Administrative" expense).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Company had no disagreements on accounting or
financial disclosure matters with its independent certified
public accountants to report under this Item 9.
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company as
of December 2, 1996 are as follows:
Name Age Title
Sterling B. Brinkley(1) 44 Chairman of the Board
of Directors
Vincent A. Lambiase(1) (3) 56 President, Chief
Executive Officer, and
Director
Daniel N. Tonissen(1) (3) 46 Senior Vice President,
Chief Financial Officer,
Assistant Secretary, and
Director
Steven R. Griessen 37 Vice President Development
J. Jefferson Dean (4) 30 Secretary and Director
Mark C. Pickup(2) (4) 46 Director
Richard D. Sage (2)(4) 56 Director
--------------------------
(1) Member of Executive Committee
(2) Member of Incentive Compensation Committee
(3) Member of Section 401(k) Plan Committee
(4) Member of Audit Committee
The Class B Stockholders intend to re-elect the above-
listed directors at the Annual Stockholders' Meeting on
March 5, 1997.
Mr. Brinkley has served as either Chairman of the Board
or Chairman of the Executive Committee of the Board of
Directors of the Company since 1989. He has served as a
Managing Director of Morgan Schiff & Co., Inc., an affiliate
of Mr. Phillip Cohen, from 1986 to 1990 and currently serves
as a consultant to Morgan Schiff & Co., Inc. See " Security
Ownership of Certain Beneficial Owners and Management." Mr.
Brinkley has also served as Chairman of the Board or
Chairman of the Executive Committee of Crescent Jewelers,
Inc., a 111-store jewelry chain since 1988. In addition,
since 1990, he has served as Chairman of the Board or
Chairman of the Executive Committee of Friedman's, Inc., a
321-store jewelry chain, and MS Pietrafesa, L.P., an apparel
manufacturing business. In addition, Mr. Brinkley is
President and Chairman of the Board of MS Pawn Corporation,
the general partner of MS Pawn Limited Partnership. Morgan
Schiff & Co., Inc., Crescent Jewelers, Inc., and MS
Pietrafesa, L.P. are affiliates of the Company.
Mr. Lambiase has served as a director, President, and
Chief Executive Officer of the Company since July 1994.
From 1991 to 1994, he was a Vice President for Blockbuster
Entertainment, Inc. From 1986 to 1991, he was an associate
of E.S. Jacobs & Company, a venture capital firm. From 1978
to 1985, he was CEO of Winchell's Donut House.
Mr. Tonissen has served as a director, Senior Vice
President, Chief Financial Officer, and Assistant Secretary
of the Company since August 1994. From 1992 to 1994, he was
Vice President and Chief Financial Officer of La Salsa
Holding Company, an operator and franchiser of restaurants.
From 1989 to 1991, he was Vice President and Chief Financial
Officer of Valley Grain Products, Inc.
Mr. Griessen has served as Vice President of
Development for the Company since November 1995. He
previously served as Director of Construction and Real
Estate from September 1994 to October 1995. From 1988 to
1994, he worked for Blockbuster Entertainment, Inc. as
Manager of Construction for the Central and Eastern United
States.
Mr. Dean has served as a director of the Company since
1992 and Secretary since 1995. From 1994 to present, Mr.
Dean has served as Director of Strategic Planning for the
Company. From 1990 to present, Mr. Dean has served as Vice
President Strategic Planning and as a director of MS
Pietrafesa, L.P., an apparel manufacturing business. In
addition, from 1991 to 1994, Mr. Dean served the Company as
Director of Financial Planning. From 1989 to 1990, Mr. Dean
served as an Associate of Morgan Schiff & Co., an affiliate
of Mr. Phillip Cohen (see "Security Ownership of Certain
Beneficial Owners and Management").
Mr. Pickup has served as a director of the Company
since 1993. He served as President and Co-Chief Executive
Officer of Crescent Jewelers, Inc. from 1993 to 1995 and
Chief Financial Officer of Crescent Jewelers, Inc. from 1992
until 1995. Since 1993, Mr. Pickup has also served as a
director of Friedman's, Inc. (and MS Jewelers Corporation,
its predecessor). From 1982 until 1992, Mr. Pickup was a
partner in the accounting firm of Ernst & Young, most
recently in the San Francisco office.
Mr. Sage has served as a director of the Company since
July 1995. He was a co-founder of AmeriHealth, Inc., which
owned and managed hospitals. He served as Treasurer of
AmeriHealth, Inc. from April 1983 to October 1995 and was a
member of the board of directors of AmeriHealth, Inc. from
April 1993 to December 1994. Mr. Sage served from June 1988
to June 1993 as a Regional Vice President of HHL Financial
Services Company, which specializes in the collection of
health care accounts receivable. He is presently a member of
the Board of Directors of Champion Healthcare Corporation.
Since June 1993, he has been associated with Sage Law
Offices in Miami, Florida.
Committees of the Board
The Board of Directors held nine meetings and acted by
unanimous consent on three other occasions during the year
ended September 30, 1996. The Board of Directors has
appointed four committees, an Executive Committee, an Audit
Committee, an Incentive Compensation Committee and a Section
401(k) Plan Committee. The members of the Executive
Committee for Fiscal 1996 were Mr. Brinkley, Mr. Lambiase
and Mr. Tonissen. The Executive Committee held four
meetings, which all members attended. The members of the
Audit Committee for Fiscal 1996 were Mr. Pickup, Mr. Sage,
Mr. Brinkley (until March 6, 1996) and Mr. Dean (non-
voting). The Audit Committee held five meetings which all
members attended. The Incentive Compensation Committee,
comprised of Mr. Pickup, Mr. Sage, and Mr. Dean (until March
6, 1996) held three meetings during Fiscal 1996 which all
members attended. The committee that administers the Section
401(k) Plan consists of Mr. Lambiase and Mr. Tonissen and
held one meeting during Fiscal 1996 which all of its members
attended. All directors attended more than 75% of the total
number of meetings of the Board and of the committees on
which they serve.
Compliance with Section 16(a) of the Exchange Act
All officers and directors were timely throughout the
fiscal year in filing all reports required by Section 16(a)
of the Exchange Act with the exception of Mr. Sage whose
Form 4 was filed 135 days late and whose Form 5 was filed 39
days late and Ms. Berger (a former officer) whose Form 5 was
filed one day late.
Item 11. Executive Compensation
Cash Compensation
The following table sets forth compensation paid by the
Company and its subsidiaries for services during Fiscal
1994, Fiscal 1995, and Fiscal 1996 to the Company's Chief
Executive Officer, and to each of the Company's four most
highly compensated executive officers whose total annual
compensation exceeded $100,000 (such four persons
collectively herein referred to as the "Named Executive
Officers").
All other
Name and Principal Annual Compensation Compensation
Position Year Salary($) Bonus($) Other($) ($)(1)(2)
- ----------------------------------------------------------------
Sterling B. Brinkley1994 200,000 - - -
Chairman of the
Board(3) 1995 298,397 62,400 58,883 -
1996 300,000 84,565 79,799 -
Vincent A. Lambiase 1994 87,500 - 42,625 -
President & Chief
Executive Officer(4)
1995 343,269 134,251 381,048 3,780
1996 350,000 149,611 211,878 3,780
Daniel N. Tonissen 1994 15,948
Senior Vice President,
Chief Financial 1995 152,024 116,250 1,674
Officer, and
Assistant
Secretary(5) 1996 155,000 40,474 1,674
Mark A. Stuart
Former Vice President
and 1995 125,198 73,168 1,436
Chief Marketing
Officer(6) 1996 119,904 783
John D. Woodward
Former Vice
President 1995 104,493 77,854 1,116
Human Resources(7)1996 134,537 837
Steven R. Griessen
Vice President
Development(8) 1996 115,000 1,080
J. Jefferson Dean
Secretary (9) 1996 100,000 1,080
- -------------------
(1) The Company's long-term compensation program for most
senior officers does not include long-term incentive
payouts, stock options, SARs, or other forms of
compensation
(2) This category includes the value of any insurance
premiums paid on behalf of the named executive.
(3) Mr. Brinkley's Other Annual Compensation includes
$79,799 for payment of taxes for Fiscal 1996.
(4) Mr. Lambiase's Other Annual Compensation includes
$104,182 for payment of taxes for Fiscal 1996.
(5) Mr. Tonissen's Other Annual Compensation includes
$20,000 for relocation expenses for Fiscal 1996.
(6) Mr. Stuart resigned effective March 1996.
(7) Mr. Woodward resigned effective March 1996.
(8) Mr. Griessen became Vice President Development on
November 29, 1995.
(9) Mr. Dean became Secretary on November 29, 1995.
Employment Agreements
Vincent A. Lambiase, President and Chief Executive
Officer of the Company, is employed pursuant to an
employment agreement with the Company. The agreement engages
Mr. Lambiase as Chief Executive Officer from July 1, 1994
through June 30, 1999. Commencing on July 1, 1999 and each
July 1 thereafter, this term is to be extended for an
additional year unless the Company or Mr. Lambiase gives
notice at least 30 days prior to any such July 1 date that
it or he does not wish to extend the agreement.
In addition to a minimum base salary of $350,000 (which
may be increased by the Board of Directors), the agreement
entitles Mr. Lambiase to receive a bonus of 75% or more of
his base compensation based upon objectives determined each
year by the Executive Committee of the Board of Directors.
The agreement also provides for a loan by the Company to Mr.
Lambiase of sufficient cash to purchase 50,000 shares of
Company stock. Mr. Lambiase purchased such stock at various
times between July 25, 1994 and August 11, 1994 at an
average price per share of $14.49. The Company loaned Mr.
Lambiase a total of $729,113 to purchase this stock.
Interest, charged at the prime rate plus one-half of one
percent, is payable annually on December 31 of each year
until the earlier of June 30, 1999, or one year after the
death or permanent disability of Mr. Lambiase or a default
in payment on the loan. The agreement also grants to Mr.
Lambiase the option to purchase, pursuant to the Company's
Long-Term Incentive Plan, 250,000 shares of the Class A Non-
voting stock of the Company.
On October 7, 1994, pursuant to an authorization by the
Board of Directors on October 1, 1994, the Company funded
loans of $1,500,000 to each of Mr. Lambiase and Mr. Sterling
B. Brinkley, Chairman of the Board of the Company. These
loans shall be partially or wholly forgiven during the ten-
year period between October 7, 1994 and October 7, 2004, to
the extent that the Company's stock price reaches the levels
set forth in the following tables. Table I applies during
the first five years of the ten-year term, and Table II
applies during the last five years.
TABLE I
PERCENTAGE OF ORIGINAL
PRINCIPAL AMOUNT OF
STOCK PRICE TARGET LOAN FORGIVEN
------------------ ----------------------
$22.50 10%
$25.00 25%
$27.50 50%
$30.00 75%
$32.50 100%
TABLE II
PERCENTAGE OF REMAINING
PRINCIPAL AMOUNT OF
STOCK PRICE TARGET LOAN FORGIVEN
------------------ -----------------------
$32.50 50%
$40.00 60%
$47.50 70%
$55.00 80%
$62.50 100%
The stock prices set forth above must average the above
amounts for ten consecutive trading days and are adjustable
for any stock split, recapitalization or other similar
event. In the event of any forgiveness, the Company shall
remit to applicable taxing authorities amounts sufficient to
satisfy the tax obligations of such person arising from the
forgiveness. The loans are also subject to forgiveness for
each person in the event that such person dies or becomes
disabled or in the event of a change in control of the
Company. The loans bear interest at the lowest rate
allowable under the Internal Revenue Code, which will
preclude consideration of the loan as a "below market loan"
for purposes of Section 7872 of the Internal Revenue Code.
Each person receives a bonus in an amount sufficient to pay
interest on the loans and taxes arising from the bonus.
The Company entered into an Employment Agreement with
Courtland L. Logue, Jr. (Mr. Logue), the Company's former
Chairman and Chief Executive Officer on July 25, 1989, which
was amended in September 1990 and in July 1994. On July 28,
1995, the Company terminated Mr. Logue's contract. The
Company has made demand that Mr. Logue pay monies in
connection with a performance right contained in Section
5(o) of a stock purchase agreement between Mr. Logue and a
predecessor Company, explained below. The Company and Mr.
Logue have not yet resolved this issue.
The Employment Agreement referred to above also
contains provisions prohibiting Mr. Logue from disclosing
any information at any time which is proprietary to the
Company, or from using such information in any manner which
would cause loss or damage to the Company. The Agreement
also provides that if it is breached by Mr. Logue, he is
required by the provisions of the Second Amendment to the
Stock Purchase Agreement, to pay the Company cash in the
amount of approximately $2.7 million as liquidated damages.
The Company has made a demand for such payment. In addition
to the provisions of the Employment Agreement, the Stock
Purchase Agreement executed by Mr. Logue in connection with
the acquisition by the Company of the stock of the
Predecessor, prohibits Mr. Logue from engaging in any
activity which is substantially in competition with or
detrimental to the business of the Company for a period of
twenty (20) years following the consummation of the
transaction. While it is unclear whether a court would
enforce all aspects of the non-competition agreement set
forth in the Stock Purchase Agreement in strict accordance
with its terms, the Company believes that the provisions of
the Employment Agreement and the requirement that Mr. Logue
pay liquidated damages for breach of such are enforceable.
The Company and Mr. Logue have not reached agreement on what
his current obligations are with respect to these
agreements. See "Legal Proceedings."
Outside directors receive between $12,000 and $25,000
per annum for their services on the Board and its committees
as well as the reimbursement of their out-of-pocket expenses
to attend Board and Committee meetings.
Aggregate Options/SAR Exercises in Last
Fiscal Year and FY-End Option/SAR Values
The following table sets forth certain information
concerning the exercise of stock options (or tandem SARs)
and freestanding SARs in Fiscal 1996 and the value of
unexercised options and SARs held by each of the Named
Executive Officers at the end of the Company's last fiscal
year.
Number of Securities Values of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End($)(1)
Shares acquired Value Exercisable/ Exercisable/
on Exercise (#) Realized ($) Unexercisable Unexercisable
Name
- -------------------------------------------------------------------
Sterling B. Brinkley
Chairman of the Board
- - 50,000/75,000 0/0
Vincent A. Lambiase
President & Chief Executive Officer
- - 100,000/150,000 0/0
Daniel N. Tonissen
Senior Vice President, Chief Financial
Officer, and Assistant Secretary
- - 4,863/19,450 0/0
John D. Woodward (2)
Former Vice President Human Resources
- - 7,086/28,343 0/0
Mark A. Stuart (2)
Former Vice President and Chief Marketing Officer
- - 5,588/22,350 0/0
Steven R. Griessen
Vice President Development
- - 4,000/16,000 0/0
J. Jefferson Dean
Secretary
- - - -
(1) Values stated are based upon the closing price of $6.50
per share of the Company's Class A Non-voting Common
Stock on The Nasdaq Stock Market on September 30, 1996,
the last trading day of the fiscal year.
(2) Options granted to Mr. Stuart and Mr. Woodward were
canceled following their resignations in March 1996.
Compensation Pursuant to Plans
Stock Incentive Plan
The Company's Board of Directors and stockholders
adopted the EZCORP, Inc. 1991 Long-Term Incentive Plan on
June 6, 1991 (the "Plan"). The Plan provides for (i) the
granting of stock options qualified under the Internal
Revenue Code of 1986, as amended (the "Code") section 422
(so-called "incentive stock options") to purchase Class A
Common Stock, (ii) the granting of stock options not
qualified under Code section 422 ("nonqualified stock
options") to purchase Class A Common Stock, (iii) the
granting of stock appreciation rights ("SARs"), which give
the holder the right to receive cash or Class A Common Stock
in an amount equal to the difference between the fair market
value of a share of Class A Common Stock on the date of
exercise and the date of grant, (iv) the granting of limited
stock appreciation rights ("LSARs"), which give the holder
the right under limited circumstances to receive cash in an
amount equal to the difference between (a) the per-share
price paid in an applicable tender offer or exchange offer
for the Company or fair market value of the Class A Common
Stock in the event of specified "change of control" events
and (b) the fair market value of the Class A Common Stock on
the date of grant. The Plan permits the exercise price of
the options to be paid either in cash, by withholding from
the shares to be delivered pursuant to the exercise of the
option that number of shares equal in value to the exercise
price, or by the delivery of already-owned Class A Common
Stock.
There are 1,800,000 shares of Class A Common Stock
(subject to certain adjustments) reserved under the Plan for
issuance upon the exercise of options and the settlement of
SARs and LSARs. Shares subject to an option, SAR, or LSAR
that is terminated or that expires will again be available
for grant under the Plan. Persons eligible to receive
options, SARs, and LSARs are all employees of the Company
selected by the Incentive Compensation Committee
("Committee") appointed by the Board of Directors to
administer the Plan. Non-employee directors are not eligible
to receive awards under the Plan.
In general, the Committee has the discretion to
establish the terms, conditions, and restrictions to which
options, SARs, and LSARs are subject. The options, SARs, and
LSARs are not transferable except by will and by the laws of
descent and distribution, and under other limited
circumstances. The Plan is intended to be qualified under
Rule 16b-3 promulgated by the Securities and Exchange
Commission, which Rule generally exempts certain option
grants and certain stock or cash awards from the provisions
of Section 16(b) under the Securities Exchange Act of 1934.
Options granted under the Plan are generally granted at
exercise prices equal to the fair market value on the date
of the grant. In October 1994, the Board of Directors
increased the number of shares available under the Plan to
1,800,000 and amended the Plan to provide accelerated
vesting upon a change in control of the Company.
As of September 30, 1996, the Company had 643,647
active options outstanding (options granted less options
canceled due to employee termination) at prices ranging from
$8.75 to $21.75. Of these options, 216,231 are vested and
none have been exercised. See Notes to Consolidated
Financial Statements - Note F "Common Stock and Warrants."
401(k) Plan
On June 6, 1991, the Company adopted the EZCORP, Inc.
401(k) Plan, a savings and profit sharing plan intended to
qualify under Section 401(k) of the Code. Under the plan,
employees of the Company and those subsidiaries that adopt
it may contribute up to 15% of their compensation (not to
exceed $9,500 in 1996) to the plan trust. The Company will
match 25% of an employee's contributions up to 6% of his
compensation. Employer contributions may be made in the form
of or invested in Class A Common Stock. Contribution expense
related to the plan for 1996 was approximately $65,000. The
Company's contributions vest based on the employee's length
of service with the Company and its subsidiaries, with 20%
of the total contributions vesting each year once the
employee has three years of service. On termination of
employment, an employee will receive all of his
contributions and any vested portion of the Company's
contributions, as adjusted by any earnings and losses.
Compensation Committee Interlocks and Insider Participation
For Fiscal 1996, the Company's Compensation Committee
was comprised of Messrs. Pickup, Sage and Dean (until March
6, 1996). Mr. Brinkley, during Fiscal 1996, served as a
director and an executive officer of the Company and MS
Pietrafesa, L.P. Mr. Dean, during Fiscal 1996, was an
executive officer and a director of MS Pietrafesa, L.P., and
was an executive officer and director of the Company. The
Company and MS Pietrafesa, L.P. are both controlled by
investment partnerships or a corporate general partner
controlled by Mr. Phillip E. Cohen. See "Security Ownership
of Certain Beneficial Owners and Management." Information
concerning certain transactions between certain of the above-
named persons and the Company is described elsewhere under
the caption "Certain Transactions," which disclosure is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Security Ownership of Management and Principal Stockholders
The Company is controlled, indirectly, by Phillip Ean
Cohen, through his ownership of all of the issued and
outstanding stock of MS Pawn Corporation, the sole general
partner of MS Pawn Limited Partnership ("MS Pawn") which
owns approximately 81% of the Class B Voting Common Stock of
the Company.
The table below sets forth information regarding the
beneficial ownership of the Company's Common Stock as of
December 2, 1996 for (i) each of the Company's current
directors, (ii) beneficial owners known to the registrant to
own more than five percent of any class of the Company's
voting securities, and (iii) all current officers and
directors as a group.
Class A Class B
Non-voting Voting
Name and Address Common Stock Common Stock Voting
of the Beneficial Owners
(1) Number Percent Number Percent Percent
- ---------------------------------------------------------------
MS Pawn Limited Partnership(2) (3)(9)(10)
1,845,570 15.89% 1,647,785 80.76% 80.76%
MS Pawn Corporation
Phillip Ean Cohen
280 Park Avenue, 26th Floor, East Bldg.
New York, New York 10017
Sterling B. Brinkley(3)(4)
76,191 0.76% 174,424 8.57% --
280 Park Avenue, 26th Floor, East Bldg.
New York, New York 10017
Vincent A. Lambiase(5) 163,150 1.62% -- -- --
1901 Capital Parkway
Austin, Texas 78746
Daniel N. Tonissen(6) 14,725 0.15% -- -- --
1901 Capital Parkway
Austin, Texas 78746
Steven R. Griessen(7) 12,000 0.12% -- -- --
1901 Capital Parkway
Austin, Texas 78746
J. Jefferson Dean(3) 10,634 0.11% 26,968 1.32% --
1901 Capital Parkway
Austin, Texas 78746
Mark C. Pickup 1,600 0.02% -- -- --
6734 Corte Segunda
Martinez, California 94553
Richard D. Sage 7,570 0.08% -- -- --
6100 S.W. 128th Street
Miami, Florida 33156
Courtland L. Logue, Jr.(10)
972,742 9.40% 392,617 19.28% 19.28%
3016 Hatley Drive
Austin, Texas 78746
All officers and directors as a group
(seven persons)(2)(3)(8)
285,686 2.82% 201,392 9.89% --
- -----------------------------------
(1) Except as indicated in the footnotes to this table, the
persons named in the table have sole voting and
investment power with respect to all shares of Class B
Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
(2) MS Pawn Corporation is the general partner of MS Pawn
and has the sole right to vote its shares of Class B
Common Stock and to direct their disposition. Mr. Cohen
is the sole stockholder of MS Pawn Corporation. See
"Certain Relationships and Related Transactions." Mr.
Cohen also owns 189,341 shares of Class A common stock
directly.
(3) Class B Common Stock shares owned by Messrs. Brinkley
and Dean are owned indirectly through ownership of
units of limited partnership interests in MS Pawn. The
number of Class A Common Stock shares shown includes
the pro rata portion of the 7,152 warrants that are
owned indirectly by each director through ownership of
units of limited partnership interests in MS Pawn. The
directors named have no right to vote or to direct the
disposition of these shares, and, consequently, these
shares are not included in the Voting Percentage
column.
(4) Includes options to acquire 50,000 shares of Class A
Common Stock at $14.00 per share.
(5) Includes options to acquire 100,000 shares of Class A
Common Stock at $13.00 per share.
(6) Includes options to acquire 9,725 shares of Class A
Common Stock at $12.75 per share.
(7) Includes options to acquire 8,000 shares of Class A
Common Stock at $12.50 per share.
(8) Includes options to acquire 167,725 shares of Class A
Common Stock at prices ranging from $12.50 to $14.00
per share and warrants to acquire 1,406 Class A Common
Stock shares at $6.17 per share.
(9) Includes warrants for 7,152 shares of Class A Common
Stock and 4,106 shares of Class B Common Stock held by
MS Pawn and warrants for 1,292 shares of Class A Common
Stock held by Mr. Cohen..
(10) The number of shares and percentage reflect Class B
Common Stock which is convertible to Class A Common
Stock.
In July 1996, MS Pawn Limited Partnership ("MS Pawn")
provided its limited partners the opportunity to withdraw
from MS Pawn. Pursuant to this arrangement, and in
accordance with Section 2(g) of Article Fourth of the
Company's Certificate of Incorporation, MS Pawn forced the
conversion of 2,748,313 shares of Class B Voting Common
Stock held by MS Pawn and Courtland L. Logue, Jr. to Class A
Non-Voting Common Stock and distributed shares of Class A
Non-Voting Common Stock to the limited partners who
withdrew.
Item 13. Certain Relationships and Related Transactions
In 1989, Courtland L. Logue, Jr., the Company's former
Chairman and Chief Executive Officer, borrowed $62,812 from
a subsidiary of the Company. Of this amount, the Company
believes that Mr. Logue owes at least $24,433 plus accrued
interest of at least $6,080 at September 30, 1996 subject to
the resolution of a dispute about whether a previous payment
should be credited toward the note. This debt accrues
interest at the rate of 10% per annum. If this dispute is
resolved in Mr. Logue's favor, the maximum amount Mr. Logue
owed on this Note in Fiscal 1996 would be $24,433 plus
accrued interest to May 22, 1995. The Company and Mr. Logue
have not reached an agreement as to what Mr. Logue's current
obligations are on this Note. Also, see "Executive
Compensation - Employment Agreements" for a discussion of
other payment demands the Company has made from Mr. Logue.
In connection with the Acquisition, the Company entered
into three separate lease agreements with Logue, Inc.
("LI"), which at the time was owned two-thirds by Mr. Logue
and one-third by Mr. Logue Sr. (the father of Mr. Logue),
and is currently owned entirely by Mr. Logue. The lease
agreements provide for the lease to the Company of land and
buildings used in the operation of three of the pawnshops
owned by the Company. Each lease provides for a ten-year
term, with an option to renew for a period of five years,
and requires the Company to pay, in addition to monthly
rental, all expenses of operating and maintaining the
buildings, as well as taxes and insurance on the buildings.
A fourth lease agreement between C Minus Corporation (a
Texas corporation wholly owned by Mr. Logue) and the
Predecessor was entered into on January 1, 1988 and provides
for a five-year term with an option to renew for a period of
five years; that renewal option was exercised effective
January 1, 1993. On an annualized basis, the aggregate
anticipated rentals (excluding taxes, insurance, maintenance
costs, etc.) accruing as a result of these leases: (1) to LI
will be approximately $156,000 for each of the first five
years of the leases; thereafter, rental rates, increase in
tandem with the Consumer Price Index published by the United
States Department of Commerce (the "CPI"); and (2) to C
Minus Corporation were approximately $42,000 for the first
year of the lease; thereafter, rental rates increase in
tandem with the CPI.
For information concerning the $729,113 loan from the
Company to Mr. Lambiase, and $1,500,000 loans from the
Company to each of Mr. Brinkley and Mr. Lambiase, see
"Executive Compensation - Employment Agreements."
The Company is the lessee under a lease agreement
through May 1998 for a pawnshop location in Houston, Texas
in which Mr. Logue has a 50% interest. On an annualized
basis, the Company pays $53,280 as lessee of this property,
of which Mr. Logue is entitled to receive $26,640. The
Company also paid $8,647 in lease payments in Fiscal 1996
for an automobile originally leased by Mr. Logue. The
Company has since returned the automobile at the expiration
of the lease term.
In 1986, a Predecessor of the Company borrowed $238,320
from Mr. Logue Sr., which loan bears interest at 10% per
annum. In Fiscal 1996, the Company paid $12,411 in principal
and $173 in interest to Mr. Logue Sr. with respect to this
obligation, which paid the note in full.
The Company and Morgan Schiff & Co., Inc. ("Morgan
Schiff"), whose sole stockholder is Mr. Cohen, are parties
to a Financial Advisory Agreement renewed January 1, 1996,
pursuant to which Morgan Schiff receives certain fees for
its provision of financial advisory services to the Company.
These services include, among other matters, ongoing
consultation with respect to the business and financial
strategies of the Company. In Fiscal 1996, Morgan Schiff
received $33,333 per month for its services as a financial
advisor and received expense reimbursements of $249,856. The
Company anticipates renewing this agreement in fiscal 1997.
PART IV
Item 14. Financial Statement Schedules, Exhibits, and
Reports on Form 8-K
(a)(1)The following consolidated financial statements of
EZCORP, Inc. and subsidiaries are included in Item 8:
Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of September 30, 1996
and 1995
Consolidated Statements of Operations for each of the
three years in the period ended
September 30, 1996
Consolidated Statements of Cash Flows for each of the
three years in the period ended
September 30, 1996
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended September
30, 1996
Notes to Consolidated Financial Statements.
(2)The following Financial Statement Schedule is
included herein:
Schedule VIII - Allowance for Valuation of Inventory
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore, have
been omitted.
(3)Listing of Exhibits (included herein)
(b) Through the fourth quarter ended September 30, 1996,
the Company has not filed any reports on Form 8-K.
EZCORP, INC. AND SUBSIDIARIES
Schedule VIII - Allowance for Valuation of Inventory
(Dollars in millions)
Balance at Additions Balance at
Beginning Charged to Charged to End of
Description of Period Expense Other Accts.Deductions Period
- ------------------------------------------------------------------------
Allowance for valuation of inventory:
Year ended September 30, 1994
$ 1.3 $ 4.5 - $ 0.8 $ 5.0
------ ------ ------ ------ ------
Year ended September 30, 1995
$ 5.0 $ 12.3 - $ 3.3 $ 14.0
------ ------ ------ ------ ------
Year ended September 30, 1996
$ 14.0 $ 5.4 - $ 11.5 $ 7.9
------ ------ ------ ------ ------
The Company does not determine its inventory valuation
allowance by specific inventory items; therefore, the
amount charged to expense and the deductions are based on
estimates of the beginning inventory sold during the period
and the portion of the beginning inventory valuation
allowance attributable to the items sold.
Listing of Exhibits
Page Number if Incorporated by
Number Description Filed herein Reference to
- ---------------------------------------------------------------------
3.1 Amended and Restated Certificate Exhibit 3.1 to the Registra-
of Incorporation of the Company. tion Statement on Form S-1
effective August 23, 1991
(File No. 33-41317)
3.1A Certificate of Amendment to Exhibit 3.1A to the Registra-
Certificate of Incorporation of tion Statement on Form S-1
the Company effective July 15, 1996
(File No. 33-41317)
3.2 Bylaws of the Company. Exhibit 3.2 to the Registration
Statement on Form S-1 effect-
ive August 23, 1991
(File No. 33-41317)
3.3 Amendment to the By-laws. Exhibit 3.3 to Registrant's
Quarterly Report on Form 10-
Q for the quarter ended June
30 1994 (File No.0-19424)
3.4 Amendment to the Certificate of Exhibit 3.4 to Registrant's
Incorporation of the Company. Quarterly Report on Form 10-
K for the year ended Septem-
ber 30, 1994 (File No. 0-19424)
4.1 Specimen of Class A Non-voting Exhibit 4.1 to the Registra-
Common Stock certificate of the tion Statement on Form S-1
Company. effective August 23, 1991
(File No. 33-41317)
10.1 Loan Agreement between the Exhibit 10.1 to Registrant's
Company and First Interstate Annual Report on Form 10-K
Bank of Texas, N.A., as Agent, re: for the year ended
$20 million Revolving Credit Loan September 30, 1992
convertible to $20 million Term (File No. 0-19424)
Loan.
10.2 $15 million Revolving Credit Note Exhibit 10.2 to Registrant's
-First Interstate Bank of Texas, Annual Report on Form 10-K
N.A. for the year ended September
30, 1992 (File No. 0-19424)
10.3 $5 million Revolving Credit Note - Exhibit 10.3 to Registrant's
Franklin Federal Bancorp. Annual Report on Form 10-K
for the year ended September
30, 1992 (File No. 0-19424)
10.4 Security Agreement executed by Exhibit 10.4 to Registrant's
the Company, re: $20 million Re- Annual Report on Form 10-K
volving Credit Loan. for the year ended
September 30, 1992
(File No. 0-19424)
10.5 Security Agreement executed by Exhibit 10.5 to Registrant's
EZPAWN Texas, Inc. (substan- Annual Report on Form 10-K
tially the same agreement also for the year ended
was executed by EZPAWN Okla- September 30, 1992
homa, Inc.; EZPAWN Mississippi, (File No. 0-19424)
Inc.; EZPAWN Arkansas, Inc.;
EZPAWN Colorado, Inc.;
EZPAWN Alabama, Inc.;
EZPAWN Tennessee, Inc.; and
Houston Financial Corporation).
10.6 Guaranty Agreement executed by Exhibit 10.6 to Registrant's
EZPAWN Texas, Inc. (substan- Annual Report on Form 10-K
tially the same agreement also for the year ended
was executed by EZPAWN Okla- September 30, 1992
homa, Inc.; EZPAWN Mississippi, (File No. 0-19424)
Inc.; EZPAWN Arkansas, Inc.;
EZPAWN Colorado, Inc.;
EZPAWN Alabama, Inc.;
EZPAWN Tennessee, Inc.; and
Houston Financial Corporation).
10.7 Loan Agreement between the Exhibit 10.7 to Registrant's
Company, as Borrower, and Annual Report on Form 10-K
Franklin Federal Bancorp, FSB, for the year ended September
as lender, dated April 30, 1993. 30, 1993 (File No. 0-19424)
10.8 omitted N/A
10.9 Loan Agreement between the Exhibit 10.9 to the Registra-
Company, as Guarantor, tion Statement on Form S-2
EZPAWN Texas, Inc. as Borrower, effective March 16, 1992
and Franklin Federal Bancorp, A (File No. 33-45807)
Federal Savings Bank, as Lender,
dated December 17, 1991.
10.10 Letter agreement executed December Exhibit 10.10 to the Registra-
20, 1990 between Morgan tion Statement on Form S-1
Schiff & Co., Inc. ("Morgan Schiff")effective August 23, 1991
and the Company. (File No. 33-41317)
10.11 Stock Purchase Agreement be- Exhibit 10.11 to the Registra-
tween the Company, Courtland L. tion Statement on Form S-1
Logue, Jr., Courtland L. Logue, effective August 23, 1991
Sr., James D. McGee, M. Frances (File No. 33-41317)
Spears, Porter A. Stratton and
Steve A. Stratton dated as of May
18, 1989.
10.12 Capitalization and Subscription Exhibit 10.12 to the Registra-
Agreement between MS Pawn tion Statement on Form S-1
Limited Partnership ("MS Pawn") effective August 23, 1991
and the Company, dated as of July (File No. 33-41317)
25, 1989.
10.13 omitted N/A
10.14 Consulting Agreement between Exhibit 10.14 to Registrant's
the Company and Courtland L. Annual Report on Form 10-K
Logue, Sr., dated February 15, 1993 for the year ended September
30, 1993 (File No.0-19424)
10.15 omitted N/A
10.16 Junior Subordinated Note due Exhibit 10.16 to Registra-
1996 issued July 25, 1989 to Court- tion Statement on Form S-1
land L. Logue, Sr. in the original effective August 23,1991
principal amount of $238,319.95. (File No. 33-41317)
10.17 omitted N/A
10.18 Warrant Certificate issued by the Exhibit 10.18 to the Registra-
Company to MS Pawn on July 25, tion Statement on Form S-1
1989. effective August 23, 1991
(File No. 33-41317)
10.19 Amendment to the Stock Purchase Exhibit 10.19 to the Registra-
Agreement dated as of June tion Statement on Form S-1
19, 1989 between the Company effective August 23, 1991
and the stockholders of the Prede- (File No. 33-41317)
cessor Company.
10.20 Second Amendment to Stock Pur- Exhibit 10.20 to the Registra-
chase Agreement dated as of April tion Statement on Form S-1
20, 1990 between the Company effective August 23, 1991
and the stockholders of the Prede- (File No. 33-41317)
cessor Company.
10.21 Employment Agreement of Court- Exhibit 10.21 to the Registra-
land L. Logue, Jr. dated July 25, tion Statement on Form S-1
1989. effective August 23, 1991
(File No. 33-41317)
10.22 Amendment to Employment Exhibit 10.22 to the Registra-
Agreement of Courtland L. Logue, tion Statement on Form S-1
Jr. dated September 1990. effective August 23, 1991
(File No. 33-41317)
10.23 Employment Agreement of Gary Exhibit 10.23 to Registrant's
S. Kofnovec dated April 1, 1993. Annual Report on Form 10-K
for the year ended September
30, 1993 (File No.0-19424)
10.24 omitted N/A
10.25 omitted N/A
10.27 omitted N/A
10.28 omitted N/A
10.29 omitted N/A
10.30 omitted N/A
10.31 omitted N/A
10.32 omitted N/A
10.33 omitted N/A
10.34 omitted N/A
10.35 Stockholders' Agreement dated as Exhibit 10.35 to the Registra-
of July 25, 1989 between the Com- tion Statement on Form S-1
pany, MS Pawn and Courtland L. effective August 23, 1991
Logue, Jr. (File No. 33-41317)
10.36 Joinder Agreement to the Stock- Exhibit 10.36 to the Registra-
holders' Agreement dated as of tion Statement on Form S-1
May 1, 1991 between the Com- effective August 23, 1991
pany, MS Pawn, Mr. Kofnovec, (File No. 33-41317)
Mr. Gary, Mr. Ross and Ms.
Berger.
10.37 Incentive Stock Option Plan. Exhibit 10.37 to the Registra-
tion Statement on Form S-1
effective August 23, 1991
(File No. 33-41317)
10.38 401(k) Plan. Exhibit 10.38 to the Registra-
tion Statement on Form S-1
effective August 23, 1991
(File No. 33-41317)
10.39 Section 125 Cafeteria Plan. Exhibit 10.39 to the Registra-
tion Statement on Form S-1
effective August 23, 1991
(File No. 33-41317)
10.40 Lease of 1970 Cessna 210K Air- Exhibit 10.40 to the Registra-
craft between Courtland L. Logue, tion Statement on Form S-1
Jr. and Transamerica Pawn Cor- effective August 23, 1991
poration, dated July 25, 1989. (File No. 33-41317)
10.41 omitted N/A
10.42 omitted N/A
10.43 omitted N/A
10.44 Lease of Cessna P210 Aircraft Exhibit 10.44 to the Registra-
between Courtland L. Logue, Jr. tion Statement on Form S-1
and Transamerica Pawn Corpo- effective August 23, 1991
ration, dated December 29, 1989. (File No. 33-41317)
10.45 Lease between Logue, Inc. and E-Z Exhibit 10.45 to the Registra-
Corporation for real estate located tion Statement on Form S-1
at 1166 Airport Boulevard, Austin, effective August 23, 1991
Texas, dated July 25, 1989. (File No. 33-41317)
10.46 Lease between Logue, Inc. and E-Z Exhibit 10.46 to the Registra-
Corporation for real estate located tion Statement on Form S-1
at 5415 North Lamar Boulevard, effective August 23, 1991
Austin, Texas, dated July 25, 1989 (File No. 33-41317)
10.47 Agreement of Lease between LDL Exhibit 10.47 to the Registra-
Partnership and Logue-Drouin tion Statement on Form S-1
Industries, Inc. for real property effective August 23, 1991
at 8540 Broadway Blvd., Houston, (File No. 33-41317)
Texas, dated May 3, 1988 and related
Assignment of Lease.
10.48 Lease Agreement between C Minus Exhibit 10.48 to the Registra-
Corporation and Logue-Drouin tion Statement on Form S-1
Industries, Inc. DBA E-Z Pawn #5 effective August 23, 1991
for real property located at 5209 (File No. 33-41317)
Cameron Road, Austin, Texas,
dated December 28, 1987.
10.49 Lease Agreement between Logue, Exhibit 10.49 to the Registra-
Inc. and E-Z Corporation for real tion Statement on Form S-1
property located at 901 E. 1st St., effective August 23, 1991
Austin, Texas, dated July 25, 1989. (File No. 33-41317)
10.50 Agreements between the Company Exhibit 10.50 to the Registra-
and MS Pawn dated February 18, tion Statement on Form S-1
1992 for the payment of $1.377 effective March 16, 1992
million of Series A Increasing Rate (File No. 33-45807)
Senior Subordinated Notes held by
MS Pawn.
10.51 Agreement Regarding Reservation Exhibit 10.51 to Registrant's
of Shares. Quarterly Report on Form 10-
Q for the quarter ended June
30, 1993 (File No.0-19424)
10.52 First Amendment to Loan Agreement Exhibit 10.52 to Registrant's
between the Company and First Quarterly Report on Form 10-
Interstate Bank of Texas, N.A. as Q for the quarter ended June
Agent, re: $20 million Revolving 30, 1993 (File No. 0-19424)
Credit Loan Convertible to $20
million Term Loan.
10.53 Second Amendment to Loan Agreement Exhibit 10.53 to Registrant's
between the Company and First Quarterly Report on Form 10-Q
Interstate Bank of Texas, N.A. as for the quarter ended June
Agent, re: $20 million Revolving 30, 1993 (File No. 0-19424)
Credit Loan Convertible to $20
million Term Loan.
10.54 Third Amendment to Loan Agreement Exhibit 10.54 to Registrant's
between the Company and First Quarterly Report on Form 10-Q
Interstate Bank of Texas, N.A. as for the quarter ended June
Agent, re: Increasing $40 million 30, 1993 (File No. 0-19424)
the Revolving Credit Loan
Convertible to $40 million Term Loan.
10.55 Fifth Amendment to Loan Agreement Exhibit 10.55 to Registrant's
between the Company and First Quarterly Report on Form 10-Q
Interstate Bank of Texas, N.A. as for the quarter ended March
Agent, re: $50 million Revolving 31, 1994 (file No. 0-19424)
Credit Loan.
10.56 Consent Waiver and Amendment to Exhibit 10.56 to Registrant's
loan agreement between the Company Annual Report on Form 10-K
and First Interstate Bank of Texas, for the year ended September
N.A. as Agent, re: $50 million 30,1995 (File No.0-19424)
Revolving Credit Loan.
10.57 Seventh Amendment to Loan Agreement Exhibit 10.57 to Registrant's
between the Company and First Annual Report on Form 10-K
Interstate Bank of Texas, N.A. as for the year ended September
Agent, re: $50 million Revolving 30,1995 (File No. 0-19424)
Credit Loan.
10.58 Amended and restated Loan Agreement Exhibit 10.58 to Registrant's
between the Company and First Annual Report on Form 10-K
Interstate Bank of Texas, N.A. for the yera ended September
as Agent, re: $75 million Revolving 30, 1995 (File No. 0-19424)
Credit Loan.
10.59 July 12, 1994 Amendment to Exhibit 10.59 to Registrant's
Employment Agreement between the Annual Report on Form 10-K
Company and Courtland L. Logue, Jr. for the year ended September
30, 1995 (File No.0-19424)
10.60 Loan Agreement between Sterling B. Exhibit 10.60 to Registrant's
Brinkley and the Company dated Annual Report on Form 10-K
October 7, 1994 (an identical for the year ended September
document exists with respect to 30, 1995 (File No. 0-19424)
Vincent A. Lambiase).
10.61 Promissory Note between Sterling Exhibit 10.61 to Registrant's
B. Brinkley and the Company in Annual Report on Form 10-K
the original principal amount of for the year ended September
$1,500,000 attached thereto (an 30, 1995 (File No. 0-19424)
identical document exists with
respect to Vincent A. Lambiase).
10.62 July 1, 1994 Employment Agreement Exhibit 10.62 to Registrant's
between the Company and Vincent Annual Report on Form 10-K
A. Lambiase and Promissory Note in for the year ended September
the amount of $729,112.50 in 30, 1995 (File No. 0-19424)
connection therewith.
10.71 Amended and restated Loan Agreement Exhibit 10.71 to Registrant's
between the Company, as Borrower, Quarterly Report on Form 10-
and Franklin Federal Bancorp, FSB, Q for the quarter ended March
as Lender, dated March 17, 1994. 31, 1994 (File No.0-19424)
10.72 First Amendment to Amended and Form 10-Q for the quarter ended
Restated Loan Agreement between December 31, 1994
the Company and First Interstate (File No. 0-19424)
Bank of Texas, N.A. as Agent,
re: Revolving Credit Loan.
10.73 Second Amendment to Amended and Form 10Q for the quarter ended
Restated Loan Agreement between June 30, 1995
the Company and First Interstate (File No. 0-19424)
Bank of Texas, N.A. as Agent,
re: Revolving Credit Loan.
10.74 Third Amendment to Amended and Form 10-Q for the quarter ended
Restated Loan Agreement between June 30, 1996
the Company and Wells Fargo Bank (File No. 0-19424)
(Texas), N.A. as Agent,
re: Revolving Credit Loan.
11.1 Statement regarding computation of N/A
per share earnings (loss).*
22.1 Subsidiaries of Registrant.* N/A
23.1 Consent of Ernst & Young LLP.* N/A
- ---------------------------
* Filed herewith.
Exhibit 11.1
STATEMENT REGARDING CALCULATION OF PER SHARE EARNINGS
Years Ended September 30,
1994 1995 1996
------------------------------
Primary and Fully Diluted:
Weighted average number of common
shares outstanding during the year
11,975,323 11,977,480 11,988,222
---------- ---------- ----------
Total shares 11,975,323 11,977,480 11,988,222
========== ========== ==========
Net income (loss) available to common
stockholders $1,788,920 $(15,849,307) $3,542,728
---------- ------------ ----------
Net income (loss) per common share
$ .15 $ (1.32)$ 0.30
========== ============ ===========
EZCORP, Inc.
Exhibit 22.1
Form 10-K for Fiscal Year Ended September 30, 1996
- ------------------------------------------------------------------
Subsidiaries of EZCORP, Inc.
1. EZPAWN Colorado, Inc.
2. EZPAWN Arkansas, Inc.
3. EZPAWN Mississippi, Inc. (1)
4. EZPAWN Oklahoma, Inc.
5. EZPAWN Tennessee, Inc. (2)
6. EZPAWN Alabama, Inc.
7. EZPAWN Kansas, Inc.
8. EZPAWN Missouri, Inc.
9. EZPAWN Florida, Inc.
10. EZPAWN Georgia, Inc.
11. EZPAWN Indiana, Inc.
12. EZPAWN North Carolina, Inc.
13. EZPAWN South Carolina, Inc.
14. EZPAWN Construction, Inc.
15. EZPAWN Kentucky, Inc.
16. EZPAWN Nevada, Inc.
17. EZPAWN Louisiana, Inc.
18. EZPAWN Holdings, Inc. (1)(3)
19. Texas EZPAWN Management, Inc. (3)
---------------------
(1) EZPAWN Mississippi, Inc.
merged with EZPAWN Holdings,
Inc. on January 1, 1995,
leaving EZPAWN Holdings, Inc.
as the surviving entity.
(2) EZ Car Sales, Inc. is a
subsidiary of EZPAWN
Tennessee, Inc.
(3) EZPAWN Texas, Inc. transferred
all its assets to Texas
EZPAWN, L.P., a Texas limited
partnership, of which EZPAWN
Holdings, Inc., formerly
EZPAWN Texas, Inc. is the
limited partner, and Texas
EZPAWN Management, Inc. is the
sole general partner and holds
a certificate of authority to
conduct business in Texas.
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-63078) pertaining to
the 1991 EZCORP, Inc. Stock Incentive Plan and the
Registration Statement (Form S-8 No. 33-63082) pertaining to
the EZCORP, Inc. 401(k) Plan of our report dated November
14, 1996 with respect to the consolidated financial
statements and schedule of EZCORP, Inc. and subsidiaries
included in the Form 10-K for the year ended September 30,
1996.
ERNST & YOUNG LLP
Austin, Texas
December 20, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EZCORP, Inc.
December 20, 1996 By: _______________________
(Vincent A. Lambiase)
(President & Chief
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
/s/ Sterling B. Brinkley Chairman of the Board December 20, 1996
of Directors
/s/ Vincent A. Lambiase President, Chief Executive December 20, 1996
Officer & Director
(Principal Executive Officer)
/s/ Daniel N. Tonissen Senior Vice President, December 20, 1996
Chief Financial Officer
& Director
(Principal Financial and
Accounting Officer)
/s/ Mark C. Pickup Director December 20, 1996
/s/ J. Jefferson Dean Secretary & Director December 20, 1996
/s/ Richard D. Sage Director December 20, 1996