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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______________ TO _____________
COMMISSION FILE NUMBER 000-19424
----------
EZCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-2540145
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
1901 CAPITAL PARKWAY
AUSTIN, TEXAS 78746
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(512) 314-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NA
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
APPLICABLE ONLY TO CORPORATE ISSUERS:
The only class of voting securities of the registrant issued and outstanding is
the Class B Voting Common Stock, par value $.01 per share, 100% of which is
owned by one record holder who is an affiliate of the registrant. There is no
trading market for the Class B Voting Common Stock.
As of December 31, 2002, 10,976,642 shares of the registrant's Class A
Non-voting Common Stock, par value $.01 per share and 1,190,057 shares of the
registrant's Class B Voting Common Stock, par value $.01 per share were
outstanding.
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EZCORP, INC.
INDEX TO FORM 10-Q
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31, 2002, December 31, 2001
and September 30, 2002 ............................................................ 1
Condensed Consolidated Statements of Operations for the Three Months Ended
December 31, 2002 and 2001 ........................................................ 2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 2002 and 2001 ........................................................ 3
Notes to Interim Condensed Consolidated Financial Statements ...................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..................... 15
Item 4. Controls and Procedures ........................................................ 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................................. 17
Item 6. Exhibits and Reports on Form 8-K ............................................... 17
SIGNATURE ......................................................................................... 18
CERTIFICATIONS .................................................................................... 19
EXHIBIT INDEX ..................................................................................... 21
PART I
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
December 31, December 31, September 30,
2002 2001 2002
------------ ------------ -------------
(In thousands)
Assets: (Unaudited)
Current assets:
Cash and cash equivalents $ 553 $ 359 $ 1,492
Pawn loans 46,714 47,254 49,248
Payroll advances 3,037 1,737 2,326
Pawn service charges receivable, net 9,543 9,561 8,819
Payroll advance service charges receivable, net 608 360 485
Inventory, net 33,686 32,395 32,097
Deferred tax asset 6,418 6,607 6,418
Federal income tax receivable -- -- 359
Prepaid expenses and other assets 2,486 2,027 1,898
--------- --------- ---------
Total current assets 103,045 100,300 103,142
Investment in unconsolidated affiliates 14,823 14,097 14,406
Property and equipment, net 30,442 40,882 32,190
Goodwill, net -- 11,529 11,148
Notes receivable from related parties 1,506 1,572 1,522
Deferred tax asset, non-current 1,948 -- --
Other assets, net 3,955 3,585 3,562
--------- --------- ---------
Total assets $ 155,719 $ 171,965 $ 165,970
========= ========= =========
Liabilities and stockholders' equity:
Current liabilities:
Current maturities of long-term debt $ -- $ 51,097 $ 2,936
Accounts payable and other accrued expenses 10,774 11,472 11,581
Restructuring reserve 18 118 34
Customer layaway deposits 1,733 579 2,166
Federal income taxes payable 862 -- --
--------- --------- ---------
Total current liabilities 13,387 63,266 16,717
Long-term debt, less current maturities 39,309 -- 39,309
Deferred tax liability -- 1,193 1,191
Deferred gains and other long-term liabilities 4,114 3,956 4,209
--------- --------- ---------
Total long-term liabilities 43,423 5,149 44,709
Commitments and contingencies -- -- --
Stockholders' equity:
Preferred Stock, par value $.01 per share; Authorized
5,000,000 shares; none issued and outstanding -- -- --
Class A Non-Voting Common Stock, par value $.01 per share;
Authorized 40,000,000 shares; 10,985,675 issued and
10,976,642 outstanding at December 31, 2002 and
September 30, 2002; 10,946,874 issued and 10,937,841
outstanding at December 31, 2001 110 109 110
Class B Voting Common Stock, convertible, par value $.01
per share; Authorized 1,198,990 shares; 1,190,057 issued
and outstanding 12 12 12
Additional paid-in capital 114,731 114,664 114,729
Accumulated deficit (15,275) (10,355) (9,523)
--------- --------- ---------
99,578 104,430 105,328
Treasury stock, at cost (9,033 shares) (35) (35) (35)
Receivable from stockholder (729) (729) (729)
Accumulated other comprehensive income (loss) 95 (116) (20)
--------- --------- ---------
Total stockholders' equity 98,909 103,550 104,544
--------- --------- ---------
Total liabilities and stockholders' equity $ 155,719 $ 171,965 $ 165,970
========= ========= =========
See Notes to Condensed Consolidated Financial Statements (unaudited).
1
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
December 31,
------------------------
2002 2001
-------- --------
(In thousands, except per share amounts)
Revenues:
Sales $ 34,198 $ 37,159
Pawn service charges 15,634 15,213
Payroll advance service charges 3,077 1,921
Other 290 289
-------- --------
Total revenues 53,199 54,582
Cost of goods sold 21,320 23,170
-------- --------
Net revenues 31,879 31,412
Operating expenses:
Operations 21,444 20,599
Administrative 4,297 4,204
Depreciation and amortization 2,267 2,598
-------- --------
Total operating expenses 28,008 27,401
-------- --------
Operating income 3,871 4,011
Interest expense, net 657 1,742
Equity in net income of unconsolidated affiliate (302) (64)
Loss on sale of assets -- 155
-------- --------
Income before income taxes and cumulative effect of adopting a new accounting principle 3,516 2,178
Income tax expense 1,231 806
-------- --------
Income before cumulative effect of adopting a new accounting principle 2,285 1,372
Cumulative effect of adopting a new accounting principle, net of tax (8,037) --
-------- --------
Net income (loss) $ (5,752) $ 1,372
======== ========
Income (loss) per common share (basic):
Income before cumulative effect of adopting a new accounting principle $ 0.19 $ 0.11
Cumulative effect of adopting a new accounting principle, net of tax $ (0.66) $ --
-------- --------
Net income (loss) $ (0.47) $ 0.11
======== ========
Income (loss) per common share (assuming dilution):
Income before cumulative effect of adopting a new accounting principle $ 0.18 $ 0.11
Cumulative effect of adopting a new accounting principle, net of tax $ (0.65) $ --
-------- --------
Net income (loss) $ (0.47) $ 0.11
======== ========
Weighted average shares outstanding:
Basic 12,167 12,128
Assuming dilution 12,361 12,128
Pro forma amounts assuming the new accounting principle is applied
retroactively:
Net income $ 2,285 $ 1,538
Net income per diluted share $ 0.18 $ 0.13
See Notes to Condensed Consolidated Financial Statements (unaudited).
2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
December 31,
------------------------
2002 2001
-------- --------
(In thousands)
Operating Activities:
Net income (loss) $ (5,752) $ 1,372
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cumulative effect of adopting a new accounting principle 8,037 --
Depreciation and amortization 2,267 2,598
Net loss on sale or disposal of assets -- 155
Deferred compensation expense 2 2
Income from investment in unconsolidated affiliate (302) (64)
Changes in operating assets and liabilities:
Service charges receivable, net (847) (1,080)
Inventory (1,589) 1,836
Notes receivable from related parties 17 17
Prepaid expenses, other current assets, and other assets, net 2,061 (429)
Accounts payable and accrued expenses (763) 1,967
Restructuring reserve (16) (99)
Customer layaway deposits (433) (1,502)
Deferred gains and other long-term liabilities (95) (72)
Deferred taxes (3,139) 806
Federal income taxes 1,221 --
-------- --------
Net cash provided by operating activities 669 5,507
Investing Activities:
Pawn loans forfeited and transferred to inventory 20,460 19,201
Pawn loans made (45,441) (46,857)
Pawn loans repaid 27,515 27,546
-------- --------
Net (increase) decrease in pawn loans 2,534 (110)
Payroll advances (711) (487)
Additions to property, plant, and equipment (495) (174)
Proceeds from sale of assets -- 2,532
-------- --------
Net cash provided by investing activities 1,328 1,761
Financing Activities:
Net payments on bank borrowings (2,936) (9,095)
-------- --------
Net cash used in financing activities (2,936) (9,095)
-------- --------
Change in cash and cash equivalents (939) (1,827)
Cash and cash equivalents at beginning of period 1,492 2,186
-------- --------
Cash and cash equivalents at end of period $ 553 $ 359
======== ========
Non-cash Investing and Financing Activities:
Foreign currency translation adjustment $ 115 $ 221
Deferred gain on sale-leaseback $ -- $ 829
See Notes to Interim Condensed Consolidated Financial Statements (unaudited).
3
EZCORP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2002
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring entries) considered necessary for a fair presentation have
been included. The accompanying financial statements should be read with the
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2002.
The Company's business is subject to seasonal variations, and operating results
for the three-month period ended December 31, 2002 are not necessarily
indicative of the results of operations for the full fiscal year.
The balance sheet at September 30, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
NOTE B: ACCOUNTING PRINCIPLES AND PRACTICES
In order to state inventory at the lower of cost (specific identification) or
market (net realizable value), the Company provides an allowance for shrinkage
and excess, obsolete, or slow-moving inventory. The Company's inventory
allowance is based on the type and age of merchandise as well as recent sales
trends and margins. At December 31, 2002, December 31, 2001, and September 30,
2002, the valuation allowance deducted from the carrying value of inventory was
$2.2 million, $1.0 million, and $1.7 million, respectively.
Property and equipment is shown net of accumulated depreciation of $30.4
million, $40.9 million and $32.2 million at December 31, 2002, December 31,
2001, and September 30, 2002, respectively.
The Company's payroll advance bad debt expense, included in store operating
expense, was $0.9 million and $1.1 million, representing 5.6% and 9.5% of loans
made, in the Fiscal 2003 and 2002 Periods, respectively.
The provision for federal income taxes has been calculated based on the
Company's estimate of its effective tax rate for the full fiscal year.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets" October 1, 2002. Effective October
1, 2002, goodwill and other intangible assets having an indefinite useful life
are no longer subject to amortization but will be tested for impairment at least
annually. The effects of the adoption of this new accounting principle are
discussed in Note H.
Certain prior year balances have been reclassified to conform to the fiscal 2003
presentation.
4
NOTE C: EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
December 31,
-----------------------
2002 2001
-------- -------
(In thousands)
Numerator
Income before cumulative effect of adopting a new accounting principle $ 2,285 $ 1,372
Cumulative effect of adopting a new accounting principle, net of tax (8,037) --
-------- -------
Net income (loss) $ (5,752) $ 1,372
Denominator ======== =======
Denominator for basic earnings per share: weighted average shares 12,167 12,128
Effect of dilutive securities:
Warrants and options 194 --
-------- -------
Dilutive potential common shares 194 --
-------- -------
Denominator for diluted earnings per share: adjusted weighted average shares and
assumed conversions 12,361 12,128
======== =======
Basic earnings (loss) per share $ (0.47) $ 0.11
======== =======
Diluted earnings (loss) per share $ (0.47) $ 0.11
======== =======
The following table presents the weighted average shares subject to options
outstanding during the periods indicated. Anti-dilutive options have been
excluded from the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be anti-dilutive.
Three Months Ended
December 31
----------------------------
2002 2001
---------- -----------
Total options outstanding
Weighted average shares subject to options 1,961,383 1,472,375
Average exercise price per share $ 6.32 $ 7.67
Anti-dilutive options outstanding
Weighted average shares subject to options 933,618 1,472,375
Average exercise price per share $ 10.77 $ 7.67
NOTE D: INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company owns 13,276,666 common shares of Albemarle & Bond Holdings, plc
("A&B"), approximately 29% of A&B's total outstanding shares. The Company
accounts for its investment in A&B using the equity method. Since A&B's fiscal
year ends three months prior to the Company's fiscal year, the income reported
by the Company for its investment in A&B is on a three-month lag. The income
reported for the Company's three-month period ended December 31, 2002 represents
its percentage interest in the results of A&B's operations, using an estimate of
earnings for July 2002 through September 2002. The Company plans to reconcile
this amount during its quarter ending March 31, 2003 after A&B's mid-year
results have been reported to the public. The Company does not expect the actual
results to differ materially from this estimate.
NOTE E: 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.
5
NOTE F: COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss) and other revenues,
expenses, gains and losses that are excluded from net income (loss) but are
included as a component of total shareholders' equity. Comprehensive loss for
the three-month period ended December 31, 2002 was approximately $5.6 million,
and comprehensive income for the three-month period ended December 31, 2001 was
$1.6 million. The difference between comprehensive income and net income results
primarily from the effect of foreign currency translation adjustments in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." The accumulated balance of foreign currency activity
excluded from net income (loss) is presented in the Condensed Consolidated
Balance Sheets as "Accumulated other comprehensive income (loss)."
NOTE G: LONG-TERM DEBT
Effective October 30, 2002, the Company amended and restated its credit
agreement. The amendment extends the maturity date to March 31, 2005 and
provides for a $47.5 million revolving credit facility through March 3, 2003,
and $40 million thereafter. Advances under the credit agreement are secured by
all of the Company's assets. Availability of funds under the revolving credit
facility is based on loan and inventory balances. At the Company's option,
interest on the revolving credit facility will accrue at i) the Eurodollar rate
plus 250 to 325 basis points, depending on leverage ratio, or ii) the agent
bank's base rate ("Prime") plus 100 to 175 basis points, depending on leverage
ratio. The Company pays a commitment fee of 37.5 basis points on the unused
amount of the revolving facility. Terms of the agreement require, among other
things, that the Company meet certain financial covenants. In addition, payment
of dividends is prohibited and incurrence of additional debt is restricted.
Effective October 30, 2002, the Company further amended its credit agreement to
exclude the cumulative effect of adopting SFAS No. 142, described in Note H
below, from the calculation of its consolidated net worth covenant.
The Company has a $0.7 million letter of credit with the bank group as required
by an insurance policy.
NOTE H: CHANGE IN ACCOUNTING PRINCIPLE - GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets" October 1, 2002. Effective October
1, 2002, goodwill and other intangible assets having an indefinite useful life
are no longer subject to amortization but will be tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
the assets might be impaired. With the adoption of SFAS No. 142, the Company
ceased amortization of goodwill and pawn licenses, which will lower amortization
expense approximately $603,000 annually, beginning October 1, 2002. The Company
also ceased goodwill amortization related to its equity investment in A&B, which
will result in a $453,000 annual increase in "equity in net income of
unconsolidated affiliates." During the quarter ended December 31, 2002, the
Company completed impairment tests of its goodwill and pawn licenses, resulting
in no impairment of pawn licenses and an $8.0 million impairment charge for
goodwill, recorded as a cumulative effect of adopting a new accounting
principle. The Company's implied fair value of goodwill was $0 as a result of
the Company's allocation of enterprise value to all of the Company's assets and
liabilities. With the assistance of independent valuation specialists,
enterprise value was estimated based on discounted cash flows and market
capitalization. In accordance with SFAS No. 142, the Company also reassessed the
useful lives of intangible assets other than goodwill and pawn licenses,
resulting in no change.
6
The following table presents the results of the Company on a comparable basis as
if SFAS No. 142 had been effective for all periods presented.
Three Months Ended
December 31,
--------------------------
2002 2001
--------- ---------
(In thousands)
Net income (loss) as reported $ (5,752) $ 1,372
Goodwill and pawn license amortization, net of tax -- 95
Amortization of goodwill related to A&B, net of tax -- 71
Cumulative effect of adopting a new accounting principle, net of tax 8,037 --
--------- ---------
Adjusted net income 2,285 1,538
Basic earnings (loss) per share:
Net income (loss) as reported $ (0.47) $ 0.11
Goodwill and pawn license amortization, net of tax -- 0.01
Amortization of goodwill related to A&B, net of tax -- 0.01
Cumulative effect of adopting a new accounting principle, net of tax 0.66 --
--------- ---------
Adjusted net income $ 0.19 $ 0.13
Diluted earnings (loss) per share:
Net income (loss) as reported $ (0.47) $ 0.11
Goodwill and pawn license amortization, net of tax -- 0.01
Amortization of goodwill related to A&B, net of tax -- 0.01
Cumulative effect of adopting a new accounting principle, net of tax 0.65 --
--------- ---------
Adjusted net income $ 0.18 $ 0.13
The following table presents the carrying amount for each major class of
indefinite-lived intangible asset at the specified dates:
December 31, December 31, September 30,
2002 2001 2002
------------ ------------ -------------
(In thousands)
Goodwill $ -- $11,529 $11,148
Pawn licenses 1,549 1,638 1,549
------ ------- -------
Total $1,549 $13,167 $12,697
====== ======= =======
The following table presents the gross carrying amount and accumulated
amortization for each major class of definite-lived intangible assets at the
specified dates:
December 31, 2002 December 31, 2001 September 30, 2002
Carrying Accumulated Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization Amount Amortization
--------- ------------ --------- ------------ -------- ------------
(In thousands)
License application
fees $ 742 $538 $ 737 $521 $ 742 $530
Real estate finders'
fees 554 220 557 183 554 210
Non-compete
agreements 388 204 388 185 388 199
------ ---- ------ ---- ------ ----
Total $1,684 $962 $1,682 $889 $1,684 $939
====== ==== ====== ==== ====== ====
7
Total amortization expense from definite lived intangible assets for the
three-month periods ended December 31, 2002 and 2001, and the year ended
September 30, 2002 was approximately $23,000, $23,000, and $72,000,
respectively. The following table presents the Company's estimate of
amortization expense for definite lived intangible assets for each of the five
succeeding fiscal years as of October 1, 2002 (in thousands):
Fiscal Year Amortization Expense
----------- --------------------
2003 $90
2004 77
2005 68
2006 67
2007 67
As acquisitions and dispositions occur in the future, amortization expense may
vary from these estimates.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this section of this report contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section and those discussed elsewhere in this report.
First Quarter Ended December 31, 2002 vs. First Quarter Ended December 31, 2001
The following table sets forth selected, unaudited, consolidated financial data
with respect to the Company for the three-month periods ended December 31, 2002
and 2001 ("Fiscal 2003 Period" and "Fiscal 2002 Period," respectively):
Three Months Ended % or
December 31,(a) Point
2002 2001 Change(b)
------- ------- ---------
(Dollars in thousands)
Net Revenues:
Sales $34,198 $37,159 (8.0)%
Pawn service charges 15,634 15,213 2.8%
Payroll advance service charges 3,077 1,921 60.2%
Other 290 289 0.3%
------- -------
Total revenues 53,199 54,582 (2.5)%
Cost of goods sold 21,320 23,170 (8.0)%
------- -------
Net revenues $31,879 $31,412 1.5%
======= =======
Other Data:
Gross margin 37.7% 37.6% 0.1 pts.
Average annual inventory turnover 2.5x 2.7x (0.2)x
Average inventory per location at quarter end $ 120 $ 114 5.3%
Average pawn loan balance per location at quarter end $ 167 $ 167 0%
Average yield on pawn loan portfolio 130% 128% 2 pts.
Redemption rate 75% 76% (1) pt.
Expenses as a Percent of Net Revenues:
Operating 67.3% 65.6% 1.7 pts.
Administrative 13.5% 13.4% 0.1 pts.
Depreciation and amortization 7.1% 8.3% (1.2) pts.
Interest, net 2.1% 5.5% (3.4) pts.
Locations in Operation:
Beginning of period 280 283
Acquired -- --
Established -- --
Sold, combined or closed -- --
------- -------
End of period 280 283
======= =======
Average locations in operation during the period 280 283
======= =======
- ----------
(a) In thousands, except percentages, inventory turnover and store count.
(b) In comparing the period differences between dollar amounts or per store
counts, a percentage change is used. In comparing the period differences
between two percentages, a percentage point (pt.) change is used.
9
GENERAL
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. While allowable service charges vary by state and
by amount of the loan, a majority of the Company's pawn loans are in amounts
that permit pawn service charges of 20% per month or 240% per annum. The
Company's average pawn loan amount has historically averaged between $70 and
$75. The allowable term of pawn loans also differs by state, but is typically 30
days with an automatic 60-day extension.
A secondary, but related, activity of the Company is the sale of merchandise.
The Company acquires inventory for its retail sales primarily through pawn loan
forfeitures and, to a lesser extent, through purchases from customers and
wholesale distributors. The realization of gross profit on sales of inventory
primarily depends on the Company's initial assessment of the property's resale
value. Improper assessment of the resale value of the collateral in the lending
function can result in reduced marketability of the property and the realization
of a lower margin. Typically, the Company's sales margins will be between 35%
and 45%.
The Company also offers unsecured payroll advances in most of its pawnshops. In
a limited number of locations, the Company makes payroll advances. In most
locations, the Company markets and services payroll advances made by County
Bank, a federally insured Delaware bank. After origination of the loans, the
Company may purchase an 85% participation in the loans made by County Bank and
marketed by the Company. The average payroll advance amount is just over $300
and the terms are generally less than 30 days, averaging about 15 days. The
service charge per $100 loaned is typically $18 for up to a 23-day period, but
varies in certain locations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon the Company's condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, inventory, allowance for losses on payroll advances,
long-lived and intangible assets, income taxes, contingencies and litigation.
Management bases its estimates on historical experience, observable trends, and
various other assumptions that are believed to be reasonable under the
circumstances. Management uses this information to make judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from the estimates under different
assumptions or conditions.
Management believes the following critical accounting policies represent the
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
REVENUE RECOGNITION: Pawn service charges are recorded using the interest method
for all pawn loans the Company deems to be collectible. The Company bases its
estimate of uncollectible loans on several factors, including recent redemption
rates, historical trends in redemption rates, and the amount of loans due in the
following three months. In the Fiscal 2003 Period, 95.4% ($14.9 million) of
recorded pawn service charge revenue was collected in cash while for the Fiscal
2002 Period, 93.6% ($14.2 million) of recorded pawn service charge revenue was
collected in cash.
Payroll advances and related service charges reported in the Company's
consolidated financial statements reflect only the Company's participation
interest in these loans. The Company accrues service charges on the loans the
Company deems to be collectible. Accrued service charges related to defaulted
loans are deducted from service charge revenue upon loan default, and increase
service charge revenue upon subsequent collection.
ALLOWANCE FOR LOSSES ON PAYROLL ADVANCES: Unlike pawn loans, payroll advances
are unsecured, and their profitability is highly dependent upon the Company's
ability to manage the default rate and collect defaulted loans. The Company
considers a loan defaulted if the loan has not been repaid or refinanced by the
maturity date. Although defaulted loans may be collected later, the Company
charges defaulted loans' principal to
10
bad debt upon default, leaving only active loans in the reported balance.
Subsequent collections of principal are recorded as a reduction of bad debt at
the time of collection.
The Company also provides an allowance for losses on active payroll advances and
related service charges receivable. This estimate is based largely on recent net
default rates and expected seasonal fluctuations in default rates. The accuracy
of the Company's allowance estimate is dependent upon several factors, including
its ability to predict future default rates based on historical trends and
expected future events. Actual loan losses could vary from those estimated due
to variance in any of these factors. Changes in the principal valuation
allowance are charged to bad debt expense. Changes in the service charge
receivable valuation allowance are charged to service charge revenue. Increased
defaults and credit losses may occur during a national or regional economic
downturn, or could occur for other reasons, resulting in the need to increase
the allowance. The Company believes it effectively manages these risks by using
a credit scoring system, closely monitoring the performance of the portfolio,
and participating in loans made by a bank using similar strategies.
INVENTORY: If a pawn loan is not repaid, the forfeited collateral (inventory) is
recorded at cost (pawn loan principal). The Company does not record loan loss
reserves or charge-offs on the principal portion of pawn loans. In order to
state inventory at the lower of cost or market (net realizable value), the
Company provides a reserve for shrinkage and excess, obsolete, or slow-moving
inventory. The Company's inventory reserve is based on the type and age of
merchandise as well as recent sales trends and margins. At December 31, 2002,
this reserve was approximately $2.2 million, or 6.1% of the gross inventory
balance compared to $1.0 million, or 3.0% at December 31, 2001. Changes in the
inventory reserve are recorded as cost of goods sold. The Company's inventory
reserve is dependent on its ability to predict future events based on historical
trends. Unexpected variations in sales margins, inventory turnover, or other
factors, including fluctuations in gold prices or new product offerings could
increase or decrease the Company's inventory reserves.
VALUATION OF TANGIBLE LONG-LIVED ASSETS: The Company assesses the impairment of
tangible long-lived assets whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors considered important
which could trigger an impairment review include the following: significant
underperformance relative to historical or projected future cash flows;
significant changes in the manner of use of the assets or the strategy for the
overall business; and significant negative industry trends. When management
determines that the carrying value of tangible long-lived assets may not be
recoverable, impairment is measured based on the excess of the assets' carrying
value over the estimated fair value. No impairment of tangible long-lived assets
has been recognized in Fiscal 2002 or 2003.
EFFECT OF ADOPTION OF NEW ACCOUNTING PRINCIPLE: The Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" October 1, 2002. Effective October 1, 2002, goodwill and other
intangible assets having an indefinite useful life are no longer subject to
amortization but will be tested for impairment annually, or more frequently if
events or changes in circumstances indicate that the assets might be impaired.
With the adoption of SFAS No. 142, the Company ceased amortization of goodwill
and pawn licenses, which will lower amortization expense approximately $603,000
annually, beginning October 1, 2002. The Company also ceased goodwill
amortization related to its equity investment in Albemarle &Bond Holdings plc
("A&B"), which will result in a $453,000 annual increase in "equity in net
income of unconsolidated affiliates." During the quarter ended December 31,
2002, the Company completed impairment tests of its goodwill and pawn licenses,
resulting in no impairment of pawn licenses and an $8.0 million, net of tax,
impairment charge for goodwill, recorded as a cumulative effect of adopting a
new accounting principle. In accordance with SFAS No. 142, the Company also
reassessed the useful lives of intangible assets other than goodwill and pawn
licenses, resulting in no change.
INCOME TAXES: The provision for federal income taxes has been calculated based
on the Company's estimate of its effective tax rate for the full fiscal year. As
part of the process of preparing the consolidated financial statements, the
Company is required to estimate income taxes in each of the jurisdictions in
which it operates. This process involves estimating the actual current tax
liability together with assessing temporary differences in recognition of income
for tax and accounting purposes. These differences result in deferred tax assets
and liabilities, which are included in the Company's consolidated balance sheet.
Management must then assess the likelihood that the deferred tax assets will be
recovered from future taxable income and, to the extent it believes that
recovery is not likely, it must establish a valuation allowance against the
deferred tax asset. An expense must be included within the tax provision in the
statement of operations for any increase in the valuation allowance for a given
period.
11
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities, and any valuation allowance
recorded against net deferred tax assets.
DISCLOSURE AND INTERNAL CONTROLS: Based on an assessment of the effectiveness of
the Company's disclosure controls and procedures, accounting policies, and the
underlying judgments and uncertainties affecting the application of those
policies and procedures, management believes that the Company's condensed
consolidated financial statements provide a meaningful and fair perspective of
the Company in all material respects. There have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation. Management
identified no significant deficiencies or material weaknesses in internal
controls. Other risk factors, such as those discussed elsewhere in this interim
report as well as changes in business strategies, could adversely impact the
consolidated financial position, results of operations, and cash flows in future
periods.
RESULTS OF OPERATIONS
The following discussion compares the results of operations for the three-month
period ended December 31, 2002 ("Fiscal 2003 Period") to the three-month period
ended December 31, 2001 ("Fiscal 2002 Period"). The discussion should be read in
conjunction with the accompanying financial statements and related notes.
The Company's Fiscal 2003 Period pawn service charge revenue increased 3%, or
$0.4 million from the Fiscal 2002 Period to $15.6 million. Approximately half of
the total increase was due to greater average loan balances during the quarter,
with the other half due to a two percentage point improvement in loan yields to
130% in the Fiscal 2003 Period. Variations in the annualized loan yield, as seen
between these periods, are due generally to changes in the level of loan
forfeitures and a mix shift between loans with different yields. The Company's
average balance of pawn loans outstanding during the Fiscal 2003 Period was 1%
higher and ending pawn loans outstanding were 1% lower than in the Fiscal 2002
Period.
Sales decreased $3.0 million in the Fiscal 2003 Period, when compared to the
Fiscal 2002 Period, to $34.2 million. The decrease was primarily due to lower
same store merchandise sales ($2.1 million) and a decrease in jewelry scrapping
sales ($0.8 million). Lower merchandise sales resulted primarily from a change
in the Company's layaway program. During the Fiscal 2002 Period, the Company
required that all layaway sales be paid in full by December 15 rather than the
normal ninety-day period. This increased financial sales in the Fiscal 2002
Period as layaway sales that would have typically been paid in the second
quarter were paid in full in the first quarter ended December 31, 2001. In
Fiscal 2003, the December 15 deadline was used for only layaways initiated prior
to November 3, reducing the acceleration of sales as was seen in the Fiscal 2002
Period. As a result, the Company anticipates that the second fiscal 2003
quarter, ending March 31, 2003, will benefit from greater layaway sale
completions than was seen in the second quarter of fiscal 2002.
12
Below is a summary of the comparable periods' sales and margins:
Quarter Ended December 31,
--------------------------
2002 2001
----- -----
(Dollars in millions)
Merchandise sales $31.5 $33.7
Jewelry scrapping sales 2.7 3.5
----- -----
Total sales 34.2 37.2
Gross profit on merchandise sales $12.9 $14.1
Gross profit (loss) on jewelry scrapping sales 0.0 (0.2)
Gross margin on merchandise sales 41.0% 41.8%
Gross margin on jewelry scrapping sales 1.0% (5.7)%
Overall gross margin 37.7% 37.6%
The Fiscal 2003 Period overall gross margins on sales increased 0.1 of a
percentage point from the Fiscal 2002 Period to 37.7% as a result of the
improved margin on jewelry scrapping. Margins on merchandise sales, excluding
jewelry scrapping, decreased 0.8 of a percentage point. An increase in the
inventory reserve, primarily on aging general merchandise, decreased the gross
margin on merchandise sales 1.9 percentage points compared to the Fiscal 2002
Period, offset by a 1.1 percentage point improvement in the gross margin on sold
merchandise. Inventory shrinkage, included in cost of goods sold, was 1.1% of
merchandise sales in the Fiscal 2003 Period compared to 0.9% in the Fiscal 2002
Period.
Payroll advance data are as follows:
Quarter Ended December 31,
--------------------------
2002 2001
---- ----
(Dollars in thousands)
Service charges revenue $ 3,077 $ 1,921
Bad debt (included in operating expense) (939) (1,059)
Other direct expenses (included in operating expense) (358) (157)
Collection costs (included in administrative expense) (143) (70)
------- -------
Contribution to operating income 1,637 635
Average payroll advance balance outstanding during quarter 2,501 1,452
Payroll advance loan balance at end of quarter 3,037 1,737
Average loan balance per participating location at end of quarter 13.3 8.5
Participating locations at end of quarter (whole numbers) 229 204
Net default rate (defaults net of collections, measured as a percent of
loans made) 5.6% 9.5%
The Contribution to operating income presented above is the incremental
contribution only and excludes other costs such as labor, rent, and other
overhead costs.
Payroll advance service charge revenue increased from the Fiscal 2002 Period
primarily due to higher average loan balances. Despite the higher average loan
balances, bad debt for the Fiscal 2003 Period was lower than the Fiscal 2002
Period due to an improvement in the net default rate. The maturing of the
product and a growth in the number of locations offering the loans increased the
loan balance, which includes only active loans as discussed in "Critical
Accounting Policies and Estimates" above.
The Company provides for a valuation allowance on both the principal and fees
receivable for payroll advances. Due to the short-term nature of these loans,
the Company uses recent net default rates and anticipated seasonal changes in
the rate as the basis for its valuation allowance, rather than reserving the
annual or quarterly rate. At December 31, 2002, the valuation allowance was 4.8%
of the payroll advance principal and fees receivable.
13
In the Fiscal 2003 Period, store operating expenses as a percent of net revenues
increased 1.7 percentage points to 67.3%. The Fiscal 2003 Period operating
expenses reflect a $0.5 million increase in rent from equipment and the
sale-leaseback of previously owned store locations, reduced $0.3 million by
lower labor related costs. Administrative expenses measured as a percentage of
net revenues increased 0.1 of a percentage point from the Fiscal 2002 Period to
13.5%. The increase is due primarily to higher professional fees and payroll
advance collection costs, offset somewhat by lower employment related costs
Depreciation and amortization expense, when measured as a percentage of net
revenue, decreased 1.2 percentage points in the Fiscal 2003 Period to 7.1%. This
improvement is primarily due to the reduction in depreciable assets through the
sale-leaseback of previously owned locations and adoption of SFAS No. 142, which
ceased amortization of goodwill and indefinite lived pawn licenses effective the
beginning of the Fiscal 2003 Period, as discussed in Critical Accounting
Policies and Estimates above.
In the Fiscal 2003 Period, interest expense decreased by $1.1 million to $0.7
million. Lower average debt balances and lower effective interest rates
contributed to the decrease. At December 31, 2002, the Company's total debt was
$39.3 million compared to $51.1 million at December 31, 2001.
The Fiscal 2003 Period income tax provision was $1.2 million (35% of pretax
income) compared to $0.8 million (37% of pretax income) for the Fiscal 2002
Period. The decrease in effective tax rate for the Fiscal 2003 Period compared
to the Fiscal 2002 Period is due to non-tax deductible items having a smaller
percentage impact on larger pre-tax earnings.
On October 1, 2002, the Company adopted SFAS No. 142 regarding goodwill and
other intangible assets. During the Fiscal 2003 Period, the Company completed
its transitional impairment tests, resulting in a non-cash $8.0 million
impairment charge for goodwill, recorded as a cumulative effect of adopting a
new accounting principle.
Operating income for the Fiscal 2003 Period decreased $0.1 million from the
Fiscal 2002 Period to $3.9 million. The $1.0 million greater contribution from
payroll advances and $0.4 million increase in pawn service charges were slightly
outweighed by $1.1 million lower gross profits on sales and $0.5 million
increased rent from equipment and the sale-leaseback of previously owned store
locations. After a $1.1 million decrease in interest expense and smaller changes
in other non-operating items, income before the cumulative effect of adopting a
new accounting principle improved to $2.3 million in the Fiscal 2003 Period from
$1.4 million in the Fiscal 2002 Period. After the cumulative effect of adopting
a new accounting principle, the Company reported a net loss of $5.8 million
compared to a net income of $1.4 million in the Fiscal 2002 Period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's $0.7 million cash flow from operations in the Fiscal 2003 Period
consisted of $4.3 million of earnings before depreciation, amortization, the
cumulative effect of adopting a new accounting principle, and other non-cash
items, offset by $3.6 million re-invested in net operating assets, primarily
inventory growth and the reduction of accounts payable. Net cash provided by
investing activities was $1.3 million for the Fiscal 2003 Period resulting from
a $2.5 million reduction in pawn loans, a $0.7 million increase in payroll
advance loans, and $0.5 million invested in property and equipment. During the
Fiscal 2003 Period, the Company reduced its outstanding debt by $2.9 million
with its cash flow from operating and investing activities and a $0.9 million
lower cash balance.
The Company anticipates that cash flow from operations and availability under
its revolving credit facility will be adequate to fund planned capital
expenditures, working capital requirements, and required debt payments during
the coming year. However, there can be no assurance that cash flow from
operating activities and funds available under its credit facility will be
adequate for these expenditures.
Effective October 30, 2002, the Company amended and restated its credit
agreement. The amendment extended the maturity date to March 31, 2005 and
provides for a $47.5 million revolving credit facility through March 3, 2003,
and $40 million thereafter. Availability of funds under the revolving credit
facility is tied to loan and inventory balances and advances are secured by the
Company's assets. Interest on the revolving credit facility is the Eurodollar
rate plus 250 to 325 basis points or the agent bank's base rate ("Prime") plus
100 to 175 basis points. Terms of the agreement require, among other things,
that the Company meet certain financial covenants and that no dividends be paid.
The Company believes that the financial covenants established in its credit
facility will be
14
achieved based upon the Company's current and anticipated performance. Effective
October 30, 2002, the Company amended the credit agreement to exclude the
cumulative effect of adopting SFAS No. 142 from the calculation of the
consolidated net worth covenant. At December 31, 2002, the Company had $39.3
million outstanding on the revolving credit facility.
SEASONALITY
Historically, service charge revenues are highest in the Company's first fiscal
quarter (October through December) due to improving loan redemption rates
coupled with a higher average loan balance following the summer lending season.
Sales generally are highest in the Company's first and second fiscal quarters
(October through March) due to the holiday season and the impact of tax refunds.
Sales volume can be heavily influenced by the timing of decisions to scrap
excess jewelry inventory, which generally occurs during low jewelry sales
periods (May through October). The net effect of these factors is that net
revenues and net income typically are highest in the first and second fiscal
quarters. The Company's cash flow is greatest in its second fiscal quarter
primarily due to a high level of loan redemptions and sales in the income tax
refund season.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates, foreign currency exchange rates, and
gold prices. The Company does not use derivative financial instruments.
The Company's earnings and financial position may be affected by changes in gold
prices and the resulting impact on pawn lending and jewelry sales. The proceeds
of scrap sales and the Company's ability to liquidate excess jewelry inventory
at an acceptable margin are dependent upon gold prices. The impact on the
Company's financial position and results of operations of a hypothetical change
in gold prices cannot be reasonably estimated.
The Company's earnings are affected by changes in interest rates due to the
impact those changes have on its debt, all of which is variable-rate debt. Under
its amended and restated credit agreement dated October 30, 2002, the Company's
effective interest rate was reduced by approximately 300 basis points. If
interest rates average 300 basis points less during the remaining nine months of
the fiscal year ending September 30, 2003 than they did in the comparable period
of 2002, the Company's interest expense during those nine months would decrease
by approximately $1.0 million. This amount is determined by considering the
impact of the hypothetical interest rates on the Company's variable-rate debt at
December 31, 2002.
The Company's earnings and financial position are affected by foreign exchange
rate fluctuations related to the equity investment in A&B. A&B's functional
currency is the U.K. pound. The U.K. pound exchange rate can directly and
indirectly impact the Company's results of operations and financial position in
several ways. For example, a devalued pound could result in an economic
recession in the U.K., which in turn could impact A&B's and the Company's
results of operations and financial position. The impact on the Company's
financial position and results of operations of a hypothetical change in the
exchange rate between the U.S. dollar and the U.K. pound cannot be reasonably
estimated due to the interrelationship of operating results and exchange rates.
The translation adjustment representing the strengthening in the U.K. pound
during the quarter ended September 30, 2002 (included in the Company's December
31, 2002 results on a three-month lag as described above) was approximately
$115,000. On December 31, 2002, the U.K. pound closed at 1.00 to 1.6044 U.S.
dollars, a strengthening from 1.5614 at September 30, 2002. No assurance can be
given as to the future valuation of the U.K. pound and how further movements in
the pound could affect future earnings or the financial position of the Company.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical information provided herein are
forward-looking and may contain information about financial results, economic
conditions, trends and known uncertainties. The Company cautions the reader that
actual results could differ materially from those expected by the Company
depending on the outcome of certain factors, including without limitation (i)
fluctuations in the Company's inventory and loan balances,
15
inventory turnover, average yields on loan portfolios, redemption rates, labor
and employment matters, competition, operating risk, acquisition, and expansion
risk, liquidity, and capital requirements and the effect of government and
environmental regulations, and (ii) adverse changes in the market for the
Company's services. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligations to release publicly the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereon, including without limitation, changes in
the Company's business strategy or planned capital expenditures, or to reflect
the occurrence of unanticipated events.
ITEM 4. CONTROLS AND PROCEDURES
Our principal executive and financial officers have concluded, based on their
evaluation as of a date within 90 days before the filing of this interim report
on Form 10-Q, that our disclosure controls and procedures under Rule 13a-14 of
the Securities Exchange Act of 1934 are effective to ensure that information we
are required to disclose in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and include controls and procedures
designed to ensure that information we are required to disclose in such reports
is accumulated and communicated to management, including our principal executive
and financial officers, as appropriate to allow timely decisions regarding
required disclosure.
Subsequent to our evaluation, there were no significant changes in internal
controls or other factors that could significantly affect these internal
controls.
16
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising from its normal business operations. Currently, the Company is a
defendant in several lawsuits. Some of these lawsuits involve claims for
substantial amounts. While the ultimate outcome of these lawsuits cannot be
ascertained, after consultation with counsel, the Company believes the
resolution of these suits will not have a material adverse effect on the
Company's financial condition or results of operations. However, there can be no
assurance as to the ultimate outcome of these matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Incorporated by
Number Description Reference to
------ ----------- ------------
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
Filing Date Item Reported Information Reported
------ ---- ------------- --------------------
8-K 10/01/02 Item 5 - Other The extension of the maturity date of the
Company's credit facility to November 1, 2002.
8-K 10/31/02 Item 5 - Other The re-syndication of the Company's credit facility
and the extension of its maturity date to March 31,
2005.
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EZCORP, INC.
------------
(Registrant)
Date: February 11, 2003 By:/s/ DAN N. TONISSEN
----------------------
(Signature)
Dan N. Tonissen
Senior Vice President,
Chief Financial Officer &
Director
18
CERTIFICATIONS
I, Joseph L. Rotunda, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EZCORP, Inc. (the
"registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 11, 2003
/s/ Joseph L. Rotunda
-----------------------------
Joseph L. Rotunda
President, Chief Executive Officer
& Director
19
I, Dan N. Tonissen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EZCORP, Inc. (the
"registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 11, 2003
/s/ Dan N. Tonissen
-----------------------------
Dan N. Tonissen
Senior Vice President,
Chief Financial Officer &
Director
20
EXHIBIT INDEX
Exhibit
Number Description Incorporated by Reference to Page
- ------- ----------- ---------------------------- ----
99.1 Certification of Chief Executive Officer 22
99.2 Certification of Chief Financial Officer 23
21