================================================================================ 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 JUNE 30, 2005 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 June 30, 2005, 11,456,410 shares of the registrant's Class A Non-voting Common Stock, par value $.01 per share and 990,057 shares of the registrant's Class B Voting Common Stock, par value $.01 per share were outstanding. ================================================================================
EZCORP, INC. INDEX TO FORM 10-Q Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of June 30, 2005, June 30, 2004 and September 30, 2004 .................................................................................. 1 Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2005 and 2004 .............................................................. 2 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2005 and 2004 .................................................................................. 3 Notes to Interim Condensed Consolidated Financial Statements .............................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................................... 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................... 22 Item 4. Controls and Procedures .............................................................. 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................................................... 24 Item 4. Submission of Matters to a Vote of Security Holders ................................. 24 Item 6. Exhibits and Reports on Form 8-K .................................................... 24 SIGNATURE .............................................................................................. 25 EXHIBIT INDEX .......................................................................................... 26 CERTIFICATIONS
PART I ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets June 30, June 30, September 30, 2005 2004 2004 -------- -------- ------------- (In thousands) (Unaudited) Assets: Current assets: Cash and cash equivalents $ 1,972 $ 1,692 $ 2,506 Pawn loans 50,888 51,101 49,078 Payday loans, net 11,089 6,720 7,292 Pawn service charges receivable, net 9,020 8,557 8,679 Payday loan service charges receivable, net 2,244 1,336 1,474 Inventory, net 28,956 30,997 30,636 Deferred tax asset 9,711 8,163 9,711 Federal income taxes receivable - 253 - Note receivable from related party 1,500 - - Prepaid expenses and other assets 3,197 2,287 2,321 -------- -------- -------- Total current assets 118,577 111,106 111,697 Investment in unconsolidated affiliate 17,110 15,734 16,101 Property and equipment, net 26,147 25,222 25,846 Note receivable from related party - 1,500 1,500 Deferred tax asset, non-current 4,946 4,391 4,946 Other assets, net 4,205 4,102 4,232 -------- -------- -------- Total assets $170,985 $162,055 $164,322 ======== ======== ======== Liabilities and stockholders' equity: Current liabilities: Accounts payable and other accrued expenses $ 13,651 $ 11,465 $ 14,947 Customer layaway deposits 1,559 1,554 1,645 Federal income taxes payable 1,452 - 2,043 -------- -------- -------- Total current liabilities 16,662 13,019 18,635 Long-term debt 21,900 31,200 25,000 Deferred gains and other long-term liabilities 3,687 4,048 3,958 -------- -------- -------- Total long-term liabilities 25,587 35,248 28,958 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; 11,465,443 issued and 11,456,410 outstanding at June 30, 2005; 11,180,201 issued and 11,171,168 outstanding at June 30, 2004; 11,181,401 issued and 11,172,368 outstanding at September 30, 2004 115 112 112 Class B Voting Common Stock, convertible, par value $.01 per share; Authorized 1,198,990 shares; Issued 1,190,057; Outstanding 990,057 at June 30, 2005 and 1,190,057 at June 30, 2004 and September 30, 2004 10 12 12 Additional paid-in capital 116,932 116,680 116,683 Retained earnings (deficit) 11,009 (2,911) (38) Deferred compensation expense (391) (978) (832) -------- -------- -------- 127,675 112,915 115,937 Treasury stock - Class A, at cost (35) (35) (35) Accumulated other comprehensive income 1,096 908 827 -------- -------- -------- Total stockholders' equity 128,736 113,788 116,729 -------- -------- -------- Total liabilities and stockholders' equity $170,985 $162,055 $164,322 ======== ======== ======== See Notes to Interim Condensed Consolidated Financial Statements (unaudited). 1
Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- (In thousands, except per share amounts) Revenues: Sales $ 30,994 $ 30,782 $107,577 $102,711 Pawn service charges 14,722 13,835 46,073 43,875 Payday loan service charges 10,231 6,191 26,349 16,124 Other 303 333 977 1,034 -------- -------- -------- -------- Total revenues 56,250 51,141 180,976 163,744 Cost of goods sold 18,421 19,340 64,235 61,130 -------- -------- -------- -------- Net revenues 37,829 31,801 116,741 102,614 Operating expenses: Operations 23,693 21,830 70,384 64,382 Bad debt and other payday loan direct expenses 3,413 2,832 6,517 5,957 Administrative 5,506 4,614 17,169 16,854 Depreciation 2,041 1,840 5,965 5,579 Amortization 17 18 51 59 -------- -------- -------- -------- Total operating expenses 34,670 31,134 100,086 92,831 -------- -------- -------- -------- Operating income 3,159 667 16,655 9,783 Interest expense, net 302 332 916 1,153 Loss on sale/disposal of assets 36 - 79 - Equity in net income of unconsolidated affiliate (505) (430) (1,601) (1,291) -------- -------- -------- -------- Income before income taxes 3,326 765 17,261 9,921 Income tax expense 1,197 512 6,214 3,671 -------- -------- -------- -------- Net income $ 2,129 $ 253 $ 11,047 $ 6,250 ======== ======== ======== ======== Income per common share: Basic $ 0.17 $ 0.02 $ 0.89 $ 0.51 ======== ======== ======== ======== Assuming dilution $ 0.16 $ 0.02 $ 0.82 $ 0.48 ======== ======== ======== ======== Weighted average shares outstanding: Basic 12,443 12,275 12,403 12,221 Assuming dilution 13,434 13,221 13,507 13,138 See Notes to Interim Condensed Consolidated Financial Statements (unaudited). 2
Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended June 30, ----------------- 2005 2004 --------- --------- (In thousands) Operating Activities: Net income $ 11,047 $ 6,250 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,016 5,638 Payday loan loss provision 5,635 5,216 Impairment of receivable - 729 Net loss on sale or disposal of assets 79 - Deferred compensation expense 441 392 Income from investment in unconsolidated affiliate (1,601) (1,291) Changes in operating assets and liabilities: Service charges receivable, net (1,111) (168) Inventory 208 (141) Prepaid expenses, other current assets, and other assets, net (900) (364) Accounts payable and accrued expenses (1,230) 432 Customer layaway deposits (86) (238) Deferred gains and other long-term liabilities (271) (271) Federal income taxes (591) 75 --------- --------- Net cash provided by operating activities 17,636 16,259 Investing Activities: Pawn loans made (123,870) (126,365) Pawn loans repaid 69,892 69,809 Recovery of pawn loan principal through sale of forfeited collateral 53,640 52,309 Payday loans made (51,642) (36,357) Payday loans repaid 42,210 28,051 Additions to property and equipment (6,339) (5,431) Dividends from unconsolidated affiliate 861 681 --------- --------- Net cash used in investing activities (15,248) (17,303) Financing Activities: Proceeds from exercise of stock options 178 446 Debt issuance costs - (406) Net proceeds from (payments on) bank borrowings (3,100) 200 --------- --------- Net cash provided by (used in) financing activities (2,922) 240 --------- --------- Change in cash and cash equivalents (534) (804) Cash and cash equivalents at beginning of period 2,506 2,496 --------- --------- Cash and cash equivalents at end of period $ 1,972 $ 1,692 ========= ========= Non-cash Investing and Financing Activities: Pawn loans forfeited and transferred to inventory $ 52,168 $ 53,410 Foreign currency translation adjustment $ 269 $ 423 Issuance of common stock to 401(k) plan $ 72 $ 70 See Notes to Interim Condensed Consolidated Financial Statements (unaudited). 3
EZCORP, INC. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2005 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 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, 2004 ("Fiscal 2004"). The balance sheet at September 30, 2004 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. The Company's business is subject to seasonal variations, and operating results for the three-month and nine-month periods ended June 30, 2005 are not necessarily indicative of the results of operations for the full fiscal year. NOTE B: SIGNIFICANT ACCOUNTING POLICIES PAWN LOAN 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 collectible loans on several factors, including recent redemption rates, historical trends in redemption rates, and the amount of loans due in the following three months. Unexpected variations in any of these factors could increase or decrease the Company's estimate of collectible loans, affecting the Company's earnings and financial condition. PAYDAY LOAN REVENUE RECOGNITION: Payday loans 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 percentage of loans the Company deems to be collectible using the interest method. Accrued service charges related to defaulted loans are deducted from service charge revenue upon loan default, and increase service charge revenue upon subsequent collection. BAD DEBT AND OTHER PAYDAY LOAN DIRECT EXPENSES: The Company considers a loan defaulted if the loan has not been repaid or renewed by the maturity date. Although defaulted loans may be collected later, the Company charges defaulted loan principal to 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's payday loan net defaults, included in bad debt and other payday loan direct expenses, were $2.9 million and $5.5 million, representing 5.2% and 3.8% of loans made in the three-month and nine-month periods ended June 30, 2005 (the "Fiscal 2005 Third Quarter" and the "Fiscal 2005 Year-to-Date Period," respectively.) Excluding the benefit of a $0.9 million sale of older bad debt, net defaults for the nine-month period ended June 30, 2005 were $6.4 million, or 4.4% of loans made during the nine-month period. In the comparable 2004 periods (the "Fiscal 2004 Third Quarter" and the "Fiscal 2004 Year-to-Date Period"), payday loan net defaults were $2.3 million and $5.0 million, representing 6.6% and 5.6%, respectively, of loans made. ALLOWANCE FOR LOSSES ON PAYDAY LOANS: The Company also provides an allowance for losses on active payday loans and related service charges receivable, based on recent loan default experience and expected seasonal variations. Changes in the principal valuation allowance are charged to bad debt expense in the Company's statement of operations. Changes in the service charge receivable valuation allowance are charged to payday loan service charge revenue. 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 allowances or charge-offs on the principal portion of pawn loans. 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 allowance is based on recent shrinkage levels, the type and age of merchandise, and recent sales trends and margins. At June 30, 2005, June 30, 2004, and September 30, 2004, the valuation allowance deducted from the carrying value of inventory was 4
$1.9 million, $1.7 million, and $1.5 million (6.0%, 5.1%, and 4.8% of gross inventory), respectively. Changes in the inventory valuation allowance are recorded as cost of goods sold. VALUATION OF TANGIBLE LONG-LIVED ASSETS: The Company assesses tangible long-lived assets for potential impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that 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 the Fiscal 2005 or 2004 Year-to-Date Periods. 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 jurisdiction 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. In the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, a valuation allowance would be charged to the income tax provision in the period such determination were made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, a decrease to a valuation allowance would increase income in the period such determination was made. The Company evaluates the realizability of its deferred tax assets quarterly by assessing the need for a valuation allowance, if any. As of June 30, 2005, June 30, 2004 and September 30, 2004, the Company did not have a valuation allowance on its deferred tax assets. STOCK-BASED COMPENSATION: The Company accounts for its stock-based compensation plans in accordance with the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations ("APB 25"). Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure," encourages expensing the fair value of employee stock options, but allows an entity to continue to account for stock based compensation to employees under APB 25 with disclosures of the pro forma effect on net income had the fair value accounting provisions of SFAS No. 123 been adopted. The Company has calculated the fair value of options granted in these periods using the Black-Scholes option-pricing model and has determined the pro forma impact on net income. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. 5
The following table presents the pro forma effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based compensation: Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2005 2004 2005 2004 --------- --------- --------- --------- (In thousands, except per share amounts) Net income, as reported $ 2,129 $ 253 $ 11,047 $ 6,250 Add: stock-based employee compensation expense included in reported net income, net of related tax effects 95 95 286 255 Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (260) (223) (778) (644) --------- --------- --------- --------- Pro forma net income $ 1,964 $ 125 $ 10,555 $ 5,861 ========= ========= ========= ========= Earnings per share - basic: As reported $ 0.17 $ 0.02 $ 0.89 $ 0.51 Pro forma $ 0.16 $ 0.01 $ 0.85 $ 0.48 Earnings per share - assuming dilution: As reported $ 0.16 $ 0.02 $ 0.82 $ 0.48 Pro forma $ 0.15 $ 0.01 $ 0.78 $ 0.45 See Note I, "Common Stock, Warrants, and Options" and Note J, "Recent Pronouncements: Share-Based Payment - SFAS No. 123 (revised 2004)." PROPERTY AND EQUIPMENT: Property and equipment is shown net of accumulated depreciation of $65.2 million, $57.7 million and $59.3 million at June 30, 2005, June 30, 2004, and September 30, 2004, respectively. OPERATING LEASES: In a letter dated February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission expressed to the American Institute of Certified Public Accountants its interpretation of the rules for accounting for operating leases. In the quarter ended March 31, 2005, the Company performed a review of its lease accounting practices to ensure compliance with this letter. Consistent with industry practices, the Company historically recorded rent expense on a straight-line basis over the initial non-cancelable lease term. The Company has concluded that the calculation of straight-line rent should include lease renewal options that are reasonably assured, as defined in SFAS 98, "Accounting for Leases." As a result, the Company determined that rent expense was understated in previous periods by a cumulative amount of $0.3 million, which was recorded as operations expense in the quarter ended March 31, 2005. No prior periods were restated as the amount was not material to any quarterly or annual period or to the Company's financial position in any period. The adjustment did not affect historical or future net cash flows or the timing of payments under related leases. The Company also reassessed the depreciable lives of its leasehold improvements to be the shorter of their estimated useful life or the reasonably assured lease term at the inception of the lease. This resulted in no cumulative difference, but did result in a $0.1 million increase in current depreciation expense in the quarter ended March 31, 2005. RECLASSIFICATIONS: Certain prior year balances have been reclassified to conform to the Fiscal 2005 presentation. 6
NOTE C: EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2005 2004 2005 2004 ------- ------- ------- ------- (In thousands, except per share amounts) Numerator Numerator for basic and diluted earnings per share: net income $ 2,129 $ 253 $11,047 $ 6,250 ======= ======= ======= ======= Denominator Denominator for basic earnings per share: weighted average shares 12,443 12,275 12,403 12,221 Effect of dilutive securities: Options and warrants 854 866 973 860 Restricted common stock grants 137 80 131 57 ------- ------- ------- ------- Dilutive potential common shares 991 946 1,104 917 ------- ------- ------- ------- Denominator for diluted earnings per share: adjusted weighted average shares and assumed conversions 13,434 13,221 13,507 13,138 ======= ======= ======= ======= Basic earnings per share $ 0.17 $ 0.02 $ 0.89 $ 0.51 ======= ======= ======= ======= Diluted earnings per share $ 0.16 $ 0.02 $ 0.82 $ 0.48 ======= ======= ======= ======= The following table presents the weighted average shares subject to options outstanding during the periods indicated. Anti-dilutive options, warrants, and restricted stock grants 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 Nine Months Ended June 30, June 30, ------------------ ----------------- 2005 2004 2005 2004 ----------- ---------- ---------- ---------- Total options outstanding Weighted average shares subject to options 2,079,044 2,362,426 2,117,348 2,299,275 Average exercise price per share $ 6.99 $ 6.86 $ 6.89 $ 6.53 Anti-dilutive options outstanding Weighted average shares subject to options 167,000 320,982 108,595 1,018,901 Average exercise price per share $ 13.41 $ 13.42 $ 14.04 $ 11.01 NOTE D: INVESTMENT IN UNCONSOLIDATED AFFILIATE The Company owns 13,276,666 common shares of Albemarle & Bond Holdings, plc ("A&B"), or approximately 29% of the total outstanding shares. The investment is accounted for 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. In accordance with United Kingdom securities regulations, A&B files only semi-annual financial reports, for its fiscal periods ending December 31 and June 30. The Company estimates A&B's results of operations for the March 31 quarter for its financial statements. The income reported for the Company's Fiscal 2005 Year-to-Date Period represents its percentage interest in the results of A&B's operations from July 1, 2004 to March 31, 2005, as estimated. 7
Below is summarized financial information for A&B's most recently reported results (using average exchange rates for the periods indicated): Six Months Ended December 31, ----------------------------- 2004 2003 -------- -------- (In thousands) Turnover (gross revenues) $ 23,399 $ 19,726 Gross profit 16,243 13,164 Profit after tax (net income) 3,799 2,977 NOTE E: CONTINGENCIES From time to time, the Company is involved in litigation and regulatory matters arising from its normal business operations. Currently, the Company is a party in several matters, some of which involve claims for substantial amounts. While the ultimate outcome of these matters cannot be determined, after consultation with counsel, the Company believes the resolution of these matters will not have a material adverse effect on the Company's financial condition, results of operations, or liquidity. However, there can be no assurance as to the ultimate outcome of these matters or that other matters will not be asserted. NOTE F: COMPREHENSIVE INCOME Comprehensive income includes net income and other revenues, expenses, gains and losses that are excluded from net income but are included as a component of total stockholders' equity. Comprehensive income for the Fiscal 2005 Third Quarter was $2.0 million and comprehensive income for the Fiscal 2005 Year-to-Date Period was $11.3 million. For the comparable 2004 periods, comprehensive income was $0.4 million and $6.7 million, respectively. The difference between comprehensive income and net income results primarily from the effect of foreign currency translation adjustments determined in accordance with SFAS No. 52, "Foreign Currency Translation." The accumulated balance of foreign currency activity excluded from net income is presented as "Accumulated other comprehensive income" in the Condensed Consolidated Balance Sheets, and amounted to $1.1 million ($1.7 million, net of tax of $0.6 million) at June 30, 2005. NOTE G: LONG-TERM DEBT At June 30, 2005, the Company's credit agreement provided for a $40.0 million revolving credit facility with a maturity date of April 1, 2007. Advances are secured by the Company's assets. The Company may choose either a Eurodollar rate or the agent bank's base rate. Interest accrues at the Eurodollar rate plus 150 to 275 basis points or the agent bank's base rate plus 0 to 125 basis points, depending on the leverage ratio computed at the end of each quarter. At June 30, 2005, the effective rate was 5.23% based on the Company's leverage ratio. The Company also 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. Payment of dividends and additional debt are allowed but restricted. NOTE H: GOODWILL AND OTHER INTANGIBLE ASSETS The Company accounts for goodwill and other intangible assets in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Under the provisions of SFAS No. 142, goodwill and other intangible assets having indefinite lives are not subject to amortization but are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the assets might be impaired. At each balance sheet date presented above, the balance of pawn licenses - the only major class of indefinite lived intangible assets at each of these dates - was $1.5 million. 8
The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at the specified dates: June 30, 2005 June 30, 2004 September 30, 2004 ------------- ------------- ------------------ Carrying Accumulated Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization Amount Amortization -------- ------------ -------- ------------ -------- ------------ (In thousands) License application fees $ 345 $ (218) $ 345 $ (187) $ 345 $ (195) Real estate finders' fees 554 (289) 554 (271) 554 (277) Non-compete agreements 388 (253) 388 (233) 388 (238) -------- ------------ -------- ------------ -------- ------------ Total $ 1,287 $ (760) $ 1,287 $ (691) $ 1,287 $ (710) ======== ============ ======== ============ ======== ============ Total amortization expense from definite-lived intangible assets for the Fiscal 2005 Third Quarter and Fiscal 2005 Year-to-Date Period was approximately $17,000 and $51,000, respectively. In comparison, the amortization expense for the Fiscal 2004 Third Quarter and the Fiscal 2004 Year-to-Date Period was approximately $18,500 and $59,000, 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, 2004 (in thousands): Fiscal Year Amortization Expense - ----------- -------------------- 2005 $ 68 2006 67 2007 67 2008 66 2009 57 As acquisitions and dispositions occur in the future, amortization expense may vary from these estimates. NOTE I: COMMON STOCK, WARRANTS, AND OPTIONS The Company accounts for its stock-based compensation plans as described in Note B, "Significant Accounting Policies." On September 17, 2003, the Compensation Committee of the Board of Directors approved an award of 125,000 shares of restricted stock to the Chairman of the Board. The Company also agreed to reimburse the Chairman for the income tax consequences resulting from the award. The market value of the restricted stock on the award date was $0.8 million, which is being amortized over the two-year restriction period expiring September 17, 2005. During the Fiscal 2005 Third Quarter and the Fiscal 2005 Year-to-Date Period, $0.1 million and $0.3 million, respectively, of this cost was amortized to expense. During the Fiscal 2004 Third Quarter and the Fiscal 2004 Year-to-Date Period, $0.1 million and $0.3 million, respectively, of this cost was amortized to expense. In the quarter ended December 31, 2003, the Company also reimbursed $0.8 million for the Chairman's one-time taxes related to the award. The reimbursement was charged to administrative expense. On January 15, 2004, the Compensation Committee of the Board of Directors approved an award of 60,000 shares of restricted stock to the Company's Chief Executive Officer. The shares will vest no later than January 1, 2009, provided he remains continuously employed by the Company through the vesting date. The shares are subject to earlier vesting based on the occurrence of certain objectives. The Company also agreed to reimburse him for the income tax consequences resulting from the award. The market value of the restricted stock on the award date was $0.6 million, which is being amortized over a three-year period based on the Company's expectation that the earlier vesting objectives will be met. During the Fiscal 2005 Third Quarter and the Fiscal 2005 Year-to-Date Period, $0.05 million and $0.15 million, respectively, of this cost was amortized to expense. During the Fiscal 2004 Third Quarter and the Fiscal 2004 Year-to-Date Period, $0.05 million and $0.1 million, respectively, of this cost was amortized to expense. The Company expects to amortize an additional $0.05 million of stock compensation cost related to this award during the remaining three months of the fiscal year ending September 30, 2005. In the quarter ended March 31, 2004, the Company also reimbursed $0.3 million for the Chief Executive Officer's one-time taxes related to the award. The reimbursement was charged to administrative expense. 9
Stock option exercises resulted in the issuance of 18,600 shares of Class A Common Stock for total proceeds of approximately $38,000 during the Fiscal 2005 Third Quarter and 80,058 shares of Class A Common Stock for total proceeds of approximately $178,000 during the Fiscal 2005 Year-to-Date Period. Stock option exercises resulted in the issuance of 162,800 shares of Class A Common Stock for total proceeds of approximately $442,000 during the Fiscal 2004 Third Quarter and 164,600 shares of Class A Common Stock for total proceeds of approximately $446,000 during the Fiscal 2004 Year-to-Date Period. The Company issued 3,984 shares of Class A Common Stock during the Fiscal 2005 Year-to-Date Period and 8,737 shares of Class A Common Stock during the Fiscal 2004 Year-to-Date Period to the Company's 401(k) Plan and Trust representing the Company's match of employees' contributions. In accordance with conversion rights authorized by the Company's Certificate of Incorporation, the holder of the Company's Class B Voting Common Stock converted 200,000 shares of Class B Voting Common Stock to Class A Non-Voting Common Stock in a series of transactions in the quarter ended March 31, 2005. The 200,000 shares of Class A Non-Voting Common Stock issued as a result of the conversion were sold in open market transactions at the time of the related conversions. The 200,000 shares of Class B Voting Common Stock converted are held as treasury shares. The Company also holds 9,033 shares of Class A Non-voting Common Stock in treasury, the cost of which is included in the Condensed Consolidated Balance Sheets. NOTE J: RECENT PRONOUNCEMENTS: SHARE-BASED PAYMENT - SFAS NO. 123 (REVISED 2004) In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS No. 123R"). The statement revises SFAS No. 123 and supersedes APB 25, under which the Company currently accounts for its share-based payments to its employees. SFAS No. 123R will be effective for the Company beginning October 1, 2005, and will require the Company to recognize as expense the grant-date fair value of share-based payments made to employees. Pro forma disclosure will no longer be an alternative. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. SFAS No. 123R permits public companies to adopt its requirements using one of two methods: 1. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. 2. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. Management has not yet determined the transition method it intends to use or the impact that adoption of this pronouncement will have on its financial position or results of operations. 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion in this section of this report contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and those discussed elsewhere in this report. See "Risk Factors" on page 21 of this report. Third Quarter Ended June 30, 2005 vs. Third Quarter Ended June 30, 2004 The following table presents selected, unaudited, consolidated financial data with respect to the Company for the three-month periods ended June 30, 2005 and 2004 ("Fiscal 2005 Third Quarter" and "Fiscal 2004 Third Quarter," respectively): Three Months Ended % or June 30,(a) Point 2005 2004 Change(b) -------- -------- --------- Net revenues: Sales $ 30,994 $ 30,782 0.7% Pawn service charges 14,722 13,835 6.4% Payday loan service charges 10,231 6,191 65.3% Other 303 333 (9.0)% -------- -------- Total revenues 56,250 51,141 10.0% Cost of goods sold 18,421 19,340 (4.8)% -------- -------- Net revenues $ 37,829 $ 31,801 19.0% ======== ======== Other data: Gross margin 40.6% 37.2% 3.4 pts. Average annual inventory turnover 2.7x 2.6x 0.1 x Average inventory per pawn location at quarter-end $ 103 $ 111 (7.2)% Average pawn loan balance per pawn location at $ 182 $ 183 (0.5)% quarter-end Average yield on pawn loan portfolio 130% 119% 11 pts. Pawn loan redemption rate 78% 77% 1 pt. Average payday loan balance per location offering payday loans at quarter-end $ 35.1 $ 24.5 43.3% Payday loan net defaults 5.2% 6.6% (1.4)pts. Same store merchandise sales growth 1.0% 3.9% (2.9)pts. Same store pawn service charge growth 6.4% 1.6% 4.8 pts. Same store payday loan service charge growth 38.8% 90.1% (51.3)pts. Expenses and income as a percentage of net revenues (%): Operations 62.6 68.6 (6.0)pts. Bad debt and other payday loan direct expenses 9.0 8.9 0.1 pts. Administrative 14.6 14.5 0.1 pts. Depreciation and amortization 5.4 5.8 (0.4)pts. Interest expense, net 0.8 1.0 (0.2)pts. Income before income taxes 8.8 2.4 6.4 pts. Net income 5.6 0.8 4.8 pts. Stores in operation: Beginning of period 472 335 New openings 12 30 Sold, combined or closed 1 - -------- -------- End of period 483 365 ======== ======== Average number of stores during the period 477 351 Composition of ending stores: EZPAWN locations 280 280 EZMONEY payday loan locations adjoining EZPAWNs 144 69 EZMONEY payday loan locations - free standing 59 16 -------- -------- Total stores in operation 483 365 ======== ======== EZPAWN locations offering payday loans 112 188 Total locations offering payday loans, including call center 316 274 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. 11
Nine Months Ended June 30, 2005 vs. Nine Months Ended June 30, 2004 The following table presents selected, unaudited, consolidated financial data with respect to the Company for the nine-month periods ended June 30, 2005 and 2004 ("Fiscal 2005 Year-to-Date Period" and "Fiscal 2004 Year-to-Date Period," respectively): Nine Months Ended % or June 30,(a) Point 2005 2004 Change(b) --------- --------- --------- Net revenues: Sales $ 107,577 $ 102,711 4.7% Pawn service charges 46,073 43,875 5.0% Payday loan service charges 26,349 16,124 63.4% Other 977 1,034 (5.5)% --------- --------- Total revenues 180,976 163,744 10.5% Cost of goods sold 64,235 61,130 5.1% --------- --------- Net revenues $ 116,741 $ 102,614 13.8% ========= ========= Other data: Gross margin 40.3% 40.5% (0.2)pts. Average annual inventory turnover 2.9x 2.6x 0.3x Average inventory per pawn location at quarter-end $ 103 $ 111 (7.2)% Average pawn loan balance per pawn location at $ 182 $ 183 (0.5)% quarter-end Average yield on pawn loan portfolio 137% 128% 9pts. Pawn loan redemption rate 78% 77% 1pt. Average payday loan balance per location offering payday loans at quarter-end $ 35.1 $ 24.5 43.3% Payday loan net defaults 3.8% 5.6% (1.8)pts. Same store merchandise sales growth 1.5% 2.4% (0.9)pts. Same store pawn service charge growth 5.0% 0.7% 4.3pts. Same store payday loan service charge growth 38.2% 75.7% (37.5)pts. Expenses and income as a percentage of net revenues (%): Operations 60.3 62.7 (2.4)pts. Bad debt and other payday loan direct expenses 5.6 5.8 (0.2)pts. Administrative 14.7 16.4 (1.7)pts. Depreciation and amortization 5.2 5.5 (0.3)pts. Interest expense, net 0.8 1.1 (0.3)pts. Income before income taxes 14.8 9.7 5.1 pts. Net income 9.5 6.1 3.4 pts. Stores in operation: Beginning of period 405 284 New openings 79 81 Sold, combined or closed 1 - --------- --------- End of period 483 365 ========= ========= Average number of stores during the period 451 321 Composition of ending stores: EZPAWN locations 280 280 EZMONEY payday loan locations adjoining EZPAWNs 144 69 EZMONEY payday loan locations - free standing 59 16 --------- --------- Total stores in operation 483 365 ========= ========= EZPAWN locations offering payday loans 112 188 Total locations offering payday loans, including call 316 274 center 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. 12
OVERVIEW The Company meets the short-term cash needs of the cash and credit constrained consumer by offering convenient, non-recourse loans secured by tangible personal property, commonly known as pawn loans, and short-term non-collateralized loans, often referred to as payday loans. The Company makes pawn loans in its 280 EZPAWN locations and offers payday loans in 112 of its EZPAWN locations, 203 EZMONEY Mono-line payday loan locations ("EZMONEY stores"), and through its Austin, Texas based call center. The Company earns pawn service charge revenue on its pawn loans. 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% annually. The Company's average pawn loan amount has historically averaged between $70 and $75, but varies depending on the valuation of each item pawned. The allowable term of pawn loans also differs by state, but is typically 30 days with a 60-day grace period. The Company earns payday loan service charge revenue on its payday loans. The Company markets and services payday loans made by County Bank of Rehoboth Beach ("County Bank"), a federally insured Delaware bank, in 256 locations and its call center. After origination of the loans, the Company may purchase a 90% participation in the loans made by County Bank and marketed by the Company. In 59 of its locations, the Company makes payday loans under state law. The average payday loan amount is approximately $405 and the terms are generally less than 30 days, averaging about 17 days. The service charge per $100 loaned is typically $18 for a 7 to 23-day period, but varies in certain locations. Effective July 15, 2005, 177 of the Company's Texas EZMONEY stores ceased marketing County Bank payday loans. These EZMONEY stores registered as a Credit Services Organization ("CSO") under Chapter 393 of the Texas Finance Code and now provide fee-based advice, services and assistance to customers in obtaining loans from an unaffiliated lender. The new CSO services include evaluating the customers' creditworthiness using the Company's underwriting criteria. Additionally, the Company's CSO services include issuing a letter of credit to the unaffiliated lender on behalf of the Company's eligible customers to assist them in obtaining a loan from the lender. In exchange for its CSO services, the Company charges a fee of 20% of the principal loan amount. The lender's approval or denial of loans to the customers is based on its independently defined underwriting criteria. If the customers default on the loan, the unaffiliated lender may make demand on the Company to pay under the letter of credit. The Company would then attempt collection of the customers' obligations to the Company on the letter of credit. The customers' letter of credit obligations include unpaid principal, interest, and fees for insufficient funds, if any. Operations are unchanged in all remaining stores. See "Risk Factors" discussed on page 21 of this Form 10-Q. In its 280 EZPAWN locations, the Company sells merchandise acquired primarily through pawn loan forfeitures and, to a lesser extent, through purchases of customer merchandise. The realization of gross profit on sales of inventory depends primarily on the Company's assessment of the property's resale value. Improper assessment of the resale value of the collateral in the lending or purchasing process can result in the realization of a lower margin or reduced marketability of the property. In the Fiscal 2005 Third Quarter, the Company realized a 65% increase in payday loan service charges while bad debt and other payday loan direct expense measured as a percent of payday loan service charges declined 13 percentage points to 33%. Gross profit from sales improved 10% primarily due to margin improvement. Pawn service charge revenues improved 6% primarily due to improved yields resulting from improved pawn loan redemptions and a statutory increase in pawn service charge rates in its Colorado market. The Company's net income improved to $2.1 million in the Fiscal 2005 Third Quarter from $0.3 million in the Fiscal 2004 Third Quarter. 13
RESULTS OF OPERATIONS Third Quarter Ended June 30, 2005 vs. Third Quarter Ended June 30, 2004 The following discussion compares the results of operations for the Fiscal 2005 Third Quarter to the Fiscal 2004 Third Quarter. The discussion should be read in conjunction with the accompanying financial statements and related notes. The Company's Fiscal 2005 Third Quarter pawn service charge revenue increased 6.4%, or $0.9 million from the Fiscal 2004 Third Quarter to $14.7 million. This increase was due to an eleven percentage point improvement in loan yields to 130%, offset by lower average loan balances during the Fiscal 2005 Third Quarter. The increase in loan yields was due to the Company's efforts to improve loan redemption rates and a statutory increase in pawn service charge rates in its twenty-four Colorado stores. The Company's average balance of pawn loans outstanding during the Fiscal 2005 Third Quarter was 2.3% lower and ending pawn loans outstanding were 0.4% lower than in the Fiscal 2004 Third Quarter. The Company believes the decrease in average pawn loan balance compared to the prior year period is due to tighter underwriting in its pawn lending operation. In the Fiscal 2005 Third Quarter, 91.2% ($13.4 million) of pawn service charge revenue was collected in cash, and 8.8% ($1.3 million) resulted from an increase in accrued pawn service charges receivable. In the comparable Fiscal 2004 Third Quarter, 94.7% ($13.1 million) of pawn service charge revenue was collected in cash and 5.3% ($0.7 million) resulted from an increase in accrued pawn service charges receivable. The accrual of pawn service charges is dependent on the Company's estimate of collectible loans in its portfolio at the end of each quarter. Consistent with prior year treatment, the Company decreased its estimate of collectible loans at June 30, 2005 in anticipation of lower loan redemptions following the summer lending season. Sales increased $0.2 million in the Fiscal 2005 Third Quarter compared to the Fiscal 2004 Third Quarter, to $31.0 million, due to an increase in same store sales. The table below summarizes the sales volume, gross profit, and gross margins on the Company's sales during the quarters presented: Quarter Ended June 30, ---------------------- 2005 2004 ---- ---- (Dollars in millions) Merchandise sales $ 26.1 $ 25.9 Jewelry scrapping sales 4.9 4.9 ------ ------ Total sales 31.0 30.8 Gross profit on merchandise sales $ 11.3 $ 10.3 Gross profit on jewelry scrapping sales 1.2 1.2 Gross margin on merchandise sales 43.4% 39.8% Gross margin on jewelry scrapping sales 25.5% 23.6% Overall gross margin on sales 40.6% 37.2% The Fiscal 2005 Third Quarter overall gross margin on sales increased 3.4 percentage points from the Fiscal 2004 Third Quarter to 40.6%. This resulted primarily from an improvement in margins on same store merchandise sales, combined with the effect of improved gross margins on jewelry scrapping sales. Margins on merchandise sales improved largely due to the $0.2 million reduction in the inventory valuation allowance during the Fiscal 2005 Third Quarter, compared to the $0.7 million increase in the allowance during the comparable 2004 quarter. The difference in inventory valuation allowance is due to the more effective liquidation of aged general merchandise in the Fiscal 2005 Third Quarter and the larger gross inventory balance in 2004. Changes in the inventory valuation allowance are recorded in cost of goods sold, directly impacting the Company's gross margins. Inventory shrinkage, also included in cost of goods sold, was 1.4% of merchandise sales in the Fiscal 2005 Third Quarter compared to 1.6% in the Fiscal 2004 Third Quarter. 14
Payday loan data are as follows: Quarter Ended June 30, ---------------------- 2005 2004 ---- ---- (Dollars in thousands) Service charge revenue $ 10,231 $ 6,191 Bad debt: Net defaults on loans (2,928) (2,297) Change in valuation allowance (259) (293) NSF fees collected and other related costs 44 31 -------- ------- Net bad debt (3,143) (2,559) Other direct transaction expenses (270) (273) Incremental expenses at EZMONEY stores (3,687) (999) Incremental depreciation and amortization at EZMONEY stores (218) (50) Collection and call center costs (included in administrative expense) (368) (213) -------- ------- Contribution to operating income $ 2,545 $ 2,097 ======== ======= Average payday loan balance outstanding during quarter $ 9,481 $ 5,752 Payday loan balance at end of quarter $ 11,089 $ 6,720 Average loan balance per participating location at end of quarter $ 35.1 $ 24.5 Participating locations at end of quarter, including call center 316 274 (whole numbers) Net default rate (defaults net of collections, measured as a percent of loans made) 5.2% 6.6% The Contribution to operating income presented above includes the effect of incremental operating expenses at EZMONEY stores. Shared costs at EZMONEY stores adjoining EZPAWN locations have been excluded from these figures. Payday loan service charge revenue increased from the Fiscal 2004 Third Quarter primarily due to higher average loan balances at existing stores and the addition of new EZMONEY stores. In the Fiscal 2005 Third Quarter, 93.4% ($9.5 million) of payday loan service charge revenue was collected in cash and 6.6% ($0.7 million) resulted from an increase in accrued payday loan service charges receivable. In the comparable Fiscal 2004 Third Quarter, 93.4% ($5.8 million) of payday loan service charge revenue was collected in cash, and 6.6% ($0.4 million) resulted from an increase in accrued payday loan service charges receivable. Although payday loan service charge revenue increased $4.0 million (65.3%), payday loan bad debt increased only $0.6 million (22.8%) in the Fiscal 2005 Third Quarter compared to the Fiscal 2004 Third Quarter. Net defaults were 5.2% of loans made, compared to 6.6% in the Fiscal 2004 Third Quarter. The Company provides a valuation allowance on payday loan principal and fees receivable. Due to the short-term nature of these loans, the Company uses recent net default rates and anticipated seasonal changes in the default rate as the basis for its valuation allowance. At June 30, 2005, the valuation allowance was $0.8 million, or 5.6% of the payday loan principal and fees receivable, compared to $0.6 million, or 7.2% of payday loan principal and fees receivable at June 30, 2004. The Company's incremental expenses at EZMONEY stores increased to $3.7 million in the Fiscal 2005 Third Quarter from $1.0 million in the comparable Fiscal 2004 Third Quarter. The increase relates primarily to expenses at the 118 new EZMONEY stores opened in the last twelve months, as well as a full quarter's operating expenses at the 30 stores opened during the Fiscal 2004 Third Quarter. Operations expense increased to $23.7 million in the Fiscal 2005 Third Quarter from $21.8 million in the Fiscal 2004 Third Quarter, representing a 6.0 percentage point increase when measured as a percentage of net revenue. The $1.9 million net increase was comprised of a $2.7 million increase in operations expense at EZMONEY stores, offset by a $0.8 million decrease in same store operating expense. A significant decrease in robbery losses, due to more secure safes in certain locations, caused the majority of the decrease in same-store operating expense. 15
Administrative expenses in the Fiscal 2005 Third Quarter were $5.5 million compared to $4.6 million in the Fiscal 2004 Third Quarter, an increase of 0.1 of a percentage point when measured as a percent of net revenue. The increase is due primarily to an increase in labor and benefit costs ($0.9 million) and an increase in payday loan collection and call center expenses ($0.2 million). Depreciation and amortization expense was $2.1 million in the Fiscal 2005 Third Quarter compared to $1.9 million in the comparable prior year period. The increase related primarily to a $0.1 million charge for depreciation of leasehold improvements related to a revised interpretation of the accounting rules for renewal options in operating leases. In the Fiscal 2005 Third Quarter, interest expense remained unchanged from the Fiscal 2004 Third Quarter at $0.3 million. This resulted from lower average debt balances offset by higher effective interest rates. At June 30, 2005, the Company's total debt was $21.9 million compared to $31.2 million at June 30, 2004. The decrease in the debt balance was funded primarily by cash flow from operations. The Fiscal 2005 Third Quarter income tax expense was $1.2 million (36.0% of pre-tax income) compared to $0.5 million (66.9% of pre-tax income) for the Fiscal 2004 Third Quarter. In the Fiscal 2004 Third Quarter, the Company increased its estimate of the effective tax rate for that full fiscal year from 34.5% to 37.0% due to non-deductible executive compensation and an increase in state income taxes. No corresponding adjustment in rates was made in the Fiscal 2005 Third Quarter. The one percentage point decrease in rates expected for the full fiscal year is due to the Company's expectation that all executive compensation will be fully deductible in Fiscal 2005. Operating income for the Fiscal 2005 Third Quarter increased $2.5 million from the Fiscal 2004 Third Quarter to $3.2 million, primarily due to the $1.1 million increase in gross profit from sales, the $0.9 million increase in pawn service charges, and the $0.4 million incremental contribution from payday loans, offset by the increase in administrative expense. After a $0.7 million increase in income taxes related to the increased earnings and other smaller items, net income improved to $2.1 million in the Fiscal 2005 Third Quarter from $0.3 million in the Fiscal 2004 Third Quarter. Nine Months Ended June 30, 2005 vs. Nine Months Ended June 30, 2004 The following discussion compares the results of operations for the Fiscal 2005 Year-to-Date Period to the Fiscal 2004 Year-to-Date Period. The discussion should be read in conjunction with the accompanying financial statements and related notes. The Company's Fiscal 2005 Year-to-Date Period pawn service charge revenue increased 5.0%, or $2.2 million from the Fiscal 2004 Year-to-Date Period to $46.1 million. This increase was due to a nine percentage point improvement in loan yields to 137%, offset by lower average loan balances during the Fiscal 2005 Year-to-Date Period. The increase in loan yields was due to the Company's efforts to improve loan redemption rates and an increase in pawn service charge rates in its twenty-four Colorado stores. The Company's average balance of pawn loans outstanding during the Fiscal 2005 Year-to-Date Period was 2.0% lower and ending pawn loans outstanding were 0.4% lower than in the Fiscal 2004 Year-to-Date Period. The Company believes the decrease in the pawn loan balance compared to the prior year period is due to tighter underwriting in its pawn lending operation. In the Fiscal 2005 Year-to-Date Period, 99.3% ($45.7 million) of recorded pawn service charge revenue was collected in cash and 0.7% ($0.4 million) resulted from an increase in accrued pawn service charges receivable. In the Fiscal 2004 Year-to-Date Period, 101.0% ($44.3 million) of recorded pawn service charge revenue was collected in cash offset by a $0.4 million decrease in accrued pawn service charges receivable. The accrual of pawn service charges is dependent on the Company's estimate of collectible loans in its portfolio at the end of each quarter. Consistent with prior year treatment, the Company decreased its estimate of collectible loans at June 30, 2005 in anticipation of lower loan redemptions during the summer lending season. Sales increased $4.9 million in the Fiscal 2005 Year-to-Date Period compared to the Fiscal 2004 Year-to-Date Period, to $107.6 million. The increase was due to a $3.6 million increase in jewelry scrapping sales and a $1.3 million increase in same store merchandise sales. The table below summarizes the sales volume, gross profit, and gross margins on the Company's sales during the periods presented: 16
Nine Months Ended June 30, -------------------------- 2005 2004 ---- ---- (Dollars in millions) Merchandise sales $ 91.4 $ 90.1 Jewelry scrapping sales 16.2 12.6 ------ ------ Total sales 107.6 102.7 Gross profit on merchandise sales $ 38.9 $ 38.1 Gross profit on jewelry scrapping sales 4.4 3.5 Gross margin on merchandise sales 42.5% 42.3% Gross margin on jewelry scrapping sales 27.5% 27.7% Overall gross margin on sales 40.3% 40.5% The Fiscal 2005 Year-to-Date Period overall gross margin on sales decreased 0.2 of a percentage point from the Fiscal 2004 Year-to-Date Period to 40.3%. Although margins on merchandise sales increased 0.2 of a percentage point, the overall gross margin decreased due to the disproportionate increase in jewelry scrapping, which realizes a lower margin than merchandise sales. Inventory shrinkage, included in cost of goods sold, was 1.5% of merchandise sales in the Fiscal 2005 Year-to-Date Period compared to 1.6% in the Fiscal 2004 Year-to-Date Period. Payday loan data are as follows: Nine Months Ended June 30, -------------------------- 2005 2004 ---- ---- (Dollars in thousands) Service charge revenue $ 26,349 $ 16,124 Bad debt: Net defaults on loans, excluding sale of older bad debt (6,375) (5,021) Change in valuation allowance (165) (295) Sale of older bad debt 905 - NSF fees collected and other related costs 130 100 -------- -------- Net bad debt (5,505) (5,216) Other direct transaction expenses (1,012) (741) Incremental expenses at EZMONEY stores (8,907) (1,655) Incremental depreciation and amortization at EZMONEY stores (461) (80) Collection and call center costs (included in administrative expense) (1,101) (590) -------- -------- Contribution to operating income $ 9,363 $ 7,842 ======== ======= Average payday loan balance outstanding during period $ 8,310 $ 5,061 Payday loan balance at end of period $ 11,089 $ 6,720 Average loan balance per participating location at end of period $ 35.1 $ 24.5 Participating locations at end of period, including call center 316 274 (whole numbers) Net default rate (defaults net of collections, measured as a percent of loans made) 3.8% 5.6% Net default rate, excluding sale of older bad debt 4.4% 5.6% The Contribution to operating income presented above includes the effect of incremental operating expenses at EZMONEY stores. Shared costs at EZMONEY stores adjoining EZPAWN locations have been excluded from these figures. Payday loan service charge revenue increased from the Fiscal 2004 Year-to-Date Period primarily due to higher average loan balances at existing stores and the addition of new EZMONEY stores. In the Fiscal 2005 Year-to-Date Period, 97.1% ($25.6 million) of recorded payday loan service charge revenue was collected in cash, and 2.9% ($0.8 million) resulted from an increase in accrued payday loan service charges receivable. In the comparable Fiscal 2004 17
Year-to-Date Period, 96.3% ($15.5 million) of recorded payday loan service charge revenue was collected in cash, and 3.7% ($0.6 million) was due to an increase in accrued payday loan service charges receivable. Although payday loan service charge revenues increased 63.4%, payday loan bad debt increased only 5.5% ($0.3 million) in the Fiscal 2005 Year-to-Date Period compared to the Fiscal 2004 Year-to-Date Period, resulting in net defaults of 3.8% of loans made. In December 2004, the Company sold its older payday loan bad debt to an outside agency for net proceeds of approximately $0.9 million, which is reflected in the net bad debt in the Fiscal 2005 Year-to-Date Period. Excluding this sale of older bad debt, the Company's payday loan net defaults improved to 4.4% for the Fiscal 2005 Year-to-Date Period, compared to 5.6% in the Fiscal 2004 Year-to-Date Period. The Company provides a valuation allowance on payday loan principal and fees receivable. Due to the short-term nature of these loans, the Company uses recent net default rates and anticipated seasonal changes in the default rate as the basis for its valuation allowance. At June 30, 2005, the valuation allowance was $0.8 million, or 5.6% of the payday loan principal and fees receivable, compared to $0.6 million, or 7.2% of payday loan principal and fees receivable at June 30, 2004. The Company's incremental expenses at EZMONEY stores increased to $8.9 million in the Fiscal 2005 Year-to-Date Period from $1.7 million in the comparable Fiscal 2004 Year-to-Date Period. The increase relates primarily to expenses at the 118 new EZMONEY stores opened in the last twelve months, as well as a full period's operating expenses at the 81 stores opened during the Fiscal 2004 Year-to-Date Period. Operations expense increased to $70.4 million in the Fiscal 2005 Year-to-Date Period from $64.4 million in the Fiscal 2004 Year-to-Date Period, representing a 2.4 percentage point decrease when measured as a percentage of net revenue. The $6.0 million net increase was comprised of a $7.3 million increase in operations expense at EZMONEY stores, offset by a $1.3 million decrease in same store operations expense. A significant decrease in robbery losses, due to more secure safes in certain locations, caused the majority of the decrease in same-store operating expense. Also included in operations expense in the Fiscal 2005 Year-to-Date Period is a $0.3 million charge for prior period rent related to a revised interpretation of the accounting rules for operating leases and the inclusion of optional renewal periods in the Company's calculation of rent expense. Administrative expenses in the Fiscal 2005 Year-to-Date Period were $17.2 million compared to $16.9 million in the Fiscal 2004 Year-to-Date Period, a 1.7 percentage point decrease when measured as a percent of net revenue. The increase is comprised primarily of additional administrative labor and benefits ($1.5 million), payday loan collection and call center costs ($0.5 million), and professional fees ($0.3 million) during the Fiscal 2005 Year-to-Date Period. Offsetting these increases is a $0.7 million valuation allowance placed on a note receivable from the Company's former Chief Executive Officer in the Fiscal 2004 Year-to-Date Period, with no corresponding amount in the Fiscal 2005 Third Quarter. Also offsetting the overall increase is a $1.1 million reduction in stock compensation related to restricted stock granted to the Company's Chief Executive and Chairman in the Fiscal 2004 Year-to-Date Period with no corresponding grants in the current year. Depreciation and amortization expense was $6.0 million in the Fiscal 2005 Year-to-Date Period compared to $5.6 million in the Fiscal 2004 Year-to-Date Period. The increase related primarily to an increase in depreciation of leasehold improvements related to a second-quarter revised interpretation of the accounting rules for renewal options in operating leases. In the Fiscal 2005 Year-to-Date Period, interest expense decreased to $0.9 million from $1.2 million in the Fiscal 2004 Year-to-Date Period, primarily due to lower average debt balances. At June 30, 2005, the Company's total debt was $21.9 million compared to $31.2 million at June 30, 2004. The decrease in the debt balance was funded primarily by cash flow from operations. The Fiscal 2005 Year-to-Date Period income tax expense was $6.2 million (36.0% of pre-tax income) compared to $3.7 million (37.0% of pre-tax income) for the Fiscal 2004 Year-to-Date Period. The decrease in effective tax rate between these periods is due to the Company's expectation that, unlike Fiscal 2004, all executive compensation will be fully deductible in Fiscal 2005. Operating income for the Fiscal 2005 Year-to-Date Period increased $6.9 million from the Fiscal 2004 Year-to-Date Period to $16.7 million, primarily due to the $2.2 million increase in pawn service charge revenue, the $1.8 million 18
increase in sales gross profits, the $1.5 million greater contribution from payday loans, and the $1.3 million improvement in non-EZMONEY store operations expense. After a $2.5 million increase in income taxes related primarily to the Company's increased earnings, net income improved to $11.0 million in the Fiscal 2005 Year-to-Date Period from $6.3 million in the Fiscal 2004 Year-to-Date Period. LIQUIDITY AND CAPITAL RESOURCES In the Fiscal 2005 Year-to-Date Period, the Company's $17.6 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $21.6 million, offset by (ii) $4.0 million of changes in operating assets and liabilities, primarily accounts payable, accrued expenses, service charges receivable, prepaid expenses, and other current and non-current assets. In the Fiscal 2004 Year-to-Date Period, the Company's $16.3 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $16.9 million, offset by (ii) $0.6 million of changes in operating assets and liabilities. The Company's $15.2 million of investments during the Fiscal 2005 Year-to-Date Period were funded primarily by cash flow from operations. These investments consisted of $9.4 million of payday loans made net of repayments, $0.4 million of pawn loans made in excess of those repaid and recovered through the sale of forfeited collateral, and $6.3 million invested in property and equipment, offset by $0.9 million of dividends received from the Company's investment in Albemarle and Bond. The $3.1 million debt reduction during the Fiscal 2005 Year-to-Date Period was funded primarily by cash flow from operations. Below is a summary of the Company's cash needs to meet its future aggregate contractual obligations in the full fiscal years ending September 30: Payments due by Period ---------------------- Less than 1 More than 5 Contractual Obligations Total year 1-3 years 3-5 years years - ----------------------- ----- ---- --------- --------- ----- (In thousands) Long-term debt obligations $ 21,900 $ - $21,900 $ - $ - Interest on long-term debt obligations 3,034 1,214 1,820 - - Capital lease obligations - - - - - Operating lease obligations 106,991 14,941 27,167 21,216 43,667 Purchase obligations - - - - - Other long-term liabilities - - - --------- -------- ------- -------- -------- Total $ 131,925 $ 16,155 $50,887 $ 21,216 $ 43,667 ========= ======== ======= ======== ======== In the remaining three months of the fiscal year ending September 30, 2005, the Company also plans to open an additional 25 to 30 EZMONEY stores offering payday loans or fee-based credit services for an expected aggregate capital expenditure of approximately $0.8 million, plus the funding of working capital and start-up losses at these stores. While the Company anticipates that these new stores will increase future earnings, it expects they will have a negative effect on earnings and cash flow in their first year of operation. The Company anticipates a one-time cash inflow of approximately $9.7 million in July and August 2005 as it transitions 177 of its Texas EZMONEY stores from marketing payday loans for County Bank to operating as a Credit Services Organization, as described above. The Company previously purchased a 90% participation in the loans made by County Bank at these stores. As the County Bank loans are repaid, the Company will receive its pro rata share of amounts collected. At June 30, 2005, the Company's participation in the County Bank loans at these stores was $9.7 million. As a Credit Services Organization, these stores now provide fee-based advice, services and assistance to customers in obtaining loans from an unaffiliated lender, but will not participate in the loans made by the lender. The Company's $40.0 million credit agreement matures April 1, 2007. Under the terms of the agreement, the Company had the ability to borrow an additional $18.1 million at June 30, 2005. Advances are secured by the Company's assets. Terms of the agreement require, among other things, that the Company meet certain financial 19
covenants. Payment of dividends and additional debt are allowed but restricted. The amount of long-term debt obligations included in the table above is the balance outstanding on the Company's revolving credit agreement at June 30, 2005. The outstanding balance fluctuates based on cash needs and the interest rate varies in response to the Company's leverage ratio. For purposes of this table, the Company assumed the current outstanding balance and interest rate would be applicable through the maturity date of the credit agreement. The Company anticipates that cash flow from operations and availability under its revolving credit agreement will be adequate to fund its contractual obligations, planned store growth, capital expenditures, and working capital requirements during the coming year. 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. USE OF ESTIMATES AND ASSUMPTIONS 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 for interim financial information. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, 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, the allowance for losses on payday loans, 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 materially from the estimates under different assumptions or conditions. 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 interim 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 and the Company's Annual Report as well as changes in business strategies, could adversely impact the Company's consolidated financial position, results of operations, and cash flows in future periods. 20
RISK FACTORS Important risk factors that could cause results or events to differ from current expectations are described in the Company's Annual Report on Form 10-K for the year ended September 30, 2004, and are supplemented by the additional factors listed below. These factors are not intended to be an all-inclusive list of risks and uncertainties that may affect the operations, performance, development, results, or financial position of the business. -THE COMPANY IS REGISTERED IN TEXAS AS A CREDIT SERVICES ORGANIZATION ("CSO") IN 177 TEXAS EZMONEY STORES, AND AS A RESULT IS EXPOSED TO REGULATORY, LEGISLATIVE, AND LEGAL RISKS OR ACTIONS, AS WELL AS THE RISK THAT CUSTOMERS WILL NOT USE THE COMPANY'S CSO SERVICES, ANY OF WHICH COULD SIGNIFICANTLY IMPACT REVENUES AND EARNINGS. Effective July 15, 2005, 177 of the Company's Texas EZMONEY stores ceased marketing County Bank payday loans. These Texas EZMONEY stores now offer fee-based advice, services, and assistance to customers in obtaining loans from an unaffiliated lender. If the Company's customers do not utilize the new CSO services to the same extent they have historically utilized payday loans, the Company's revenues and earnings could decrease significantly. In addition, the Company is exposed to regulatory, legislative, and legal risks that could limit its ability to perform its CSO services, negatively impacting its revenues and earnings. -THE COMPANY'S CSO REVENUES ARE DEPENDENT UPON ITS ABILITY TO HELP CUSTOMERS OBTAIN LOANS FROM AN INDEPENDENT LENDER. THE COMPANY CURRENTLY HAS AN INTERIM AGREEMENT WITH THE INDEPENDENT LENDER DATED JULY 14, 2005. THE INTERIM AGREEMENT HAS A TERM OF 30 DAYS WITH PROVISIONS FOR AUTOMATIC 30-DAY RENEWALS UNLESS EITHER PARTY GIVES THE OTHER PARTY 15 DAYS NOTICE OF ITS INTENT NOT TO RENEW THE AGREEMENT. THE TERMINATION OF THE INTERIM AGREEMENT COULD MATERIALLY IMPACT THE COMPANY'S EXPECTED REVENUES AND EARNINGS. The Company and the lender are currently negotiating a longer-term, definitive agreement, and each party has expressed its interest in a longer-term agreement on substantially similar terms. If the Company is unsuccessful in finalizing the longer-term, definitive agreement on similar terms or reaching a similar agreement with another independent lender prior to a termination of the interim agreement, its ability to arrange loans for the Company's customers may be limited or eliminated, which could significantly decrease its expected revenues and earnings. Despite the short-term nature of the interim agreement, the lender has verbally committed to provide the Company sufficient notice and time to reach agreements with other lenders in the event the independent lender elects to cease its lending operations. -THE COMPANY FACES OTHER RISKS DISCUSSED UNDER QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK IN ITEM 3 OF THIS FORM 10-Q AND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2004. 21
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 also is exposed to regulatory and legislative risk in relation to its payday loans and CSO services. 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 jewelry scrapping 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. If interest rates average 50 basis points more during the remaining three months of the fiscal year ending September 30, 2005 than they did in the comparable period of 2004, the Company's interest expense during those three months would increase by approximately $27,000. This amount is determined by considering the impact of the hypothetical interest rates on the Company's variable-rate debt at June 30, 2005. 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 results of operations and financial position 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 weakening in the U.K. pound during the quarter ended March 31, 2005 (included in the Company's June 30, 2005 results on a three-month lag as described above) was approximately a $169,000 decrease to stockholders' equity. On June 30, 2005, the U.K. pound closed at 1.00 to 1.8048 U.S. dollars, a weakening from 1.8790 at March 31, 2005. 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, inventory turnover, average yields on loan portfolios, pawn redemption rates, payday loan default and collection rates, labor and employment matters, competition, operating risk, acquisition and expansion risk, new product risks, changes in the number of expected store openings, changes in expected returns from new stores, 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 (a) Evaluation of Disclosure Controls and Procedures. Within the 90 days prior to the date of this report and under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2005 ("Evaluation Date"). 22
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in Internal Controls There were no significant changes in the Company's internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. (c) Limitations on Controls The Company's management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure controls and procedures or internal controls will prevent all possible error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. 23
PART II ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is involved in litigation and regulatory matters arising from its normal business operations. Currently, the Company is a party in several matters, some of which involve claims for substantial amounts. While the ultimate outcome of these matters cannot be determined, after consultation with counsel, the Company believes the resolution of these matters will not have a material adverse effect on the Company's financial condition, results of operations, or liquidity. However, there can be no assurance as to the ultimate outcome of these matters or that other matters will not be asserted. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 10.92 First Amendment to Third Amended and Restated Credit Agreement between the Company and Wells Fargo Bank, N.A., as Agent and Issuing Bank, re: $40 million Credit Facility 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K - ------------------- Filing Date Item Reported Information Reported ------ ---- ------------- -------------------- 8-K 7/14/05 Item 8.01 - Other Press release announcing new product offering. Events 8-K 7/20/05 Item 2.02 - Results Quarterly earnings announcement and related of Operations and press release. Financial Condition 24
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: August 2, 2005 By: /s/ DAN N. TONISSEN ----------------------- (Signature) Dan N. Tonissen Senior Vice President, Chief Financial Officer & Director 25
EXHIBIT INDEX Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 10.92 First Amendment to Third Amended and Restated Credit Agreement between the Company and Wells Fargo Bank, N.A., as Agent and Issuing Bank, re: $40 million Credit Facility 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 26
EXHIBIT 10.92 FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT This FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 14, 2005 (this "Amendment"), is among EZCORP, INC., a Delaware corporation (the "Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent for itself and the other Lenders (the "Agent") and as the Issuing Bank, and the Lenders. RECITALS: A. The Borrower, the Agent, the Lenders and the Issuing Bank have previously entered into that certain Third Amended and Restated Credit Agreement dated as of April 8, 2004 (as the same has been amended, restated or modified from time to time, the "Agreement"). B. A new indirect subsidiary of the Borrower, EZMONEY Colorado, Inc., a Delaware corporation ("EZMONEY Colorado"), was created on March 21, 2005, and prior to the execution of this Amendment, EZMONEY Colorado has executed and delivered documents, agreements and instruments required pursuant to Section 8.10 of the Agreement in order to be a Guarantor under the Loan Documents. C. The Borrower has requested amendments to certain provisions of the Agreement that are impacted by its new credit services organization program as herein specifically provided. D. The Agent and the Lenders are willing to make such amendments on the terms and subject to the conditions and to the extent set forth below. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.1 Definitions. All capitalized terms not otherwise defined herein shall have the same meanings as in the Agreement, as amended hereby. ARTICLE II Amendments Section 2.1 Amendment to Section 1.1. Effective as of the date hereof, the following definitions in Section 1.1 of the Agreement are hereby amended and restated in their entirety to read as follows: "Senior Leverage Ratio" means, as of any Fiscal Quarter end, the ratio of (a) Senior Funded Debt, minus CSO LC Liabilities (to the extent included in Senior Funded Debt) to (b) EBITDA, in each case for such Fiscal Quarter and the prior three Fiscal Quarters. FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
"Total Leverage Ratio" means, as of any Fiscal Quarter end, the ratio of (a) Funded Debt, minus CSO LC Liabilities (to the extent included in Funded Debt) to (b) EBITDA, in each case for such Fiscal Quarter and the prior three Fiscal Quarters. Section 2.2 Addition to Section 1.1. Effective as of the date hereof, the following definitions are hereby added to Section 1.1 of the Agreement in alphabetical order to read in their entirety as follows: "CSO LC Issuer" means, with respect to any CSO LC, the Borrower or a Guarantor that issued such CSO LC. "CSO LC" means, any letter of credit issued by a CSO LC Issuer to an unaffiliated third party lender for the account of a borrower of a consumer loan in connection with the CSO Program. "CSO LC Disbursement" means a disbursement by a CSO LC Issuer to an unaffiliated third party lender in connection with a drawing under a CSO LC. "CSO LC Liabilities" means, at any time, the sum of that portion of the aggregate amounts available to be drawn of all outstanding CSO LCs equal to the principal amounts of the consumer notes supported by such CSO LCs. "CSO Program" means the credit services organization program implemented by the Borrower or any Guarantor in compliance with applicable provisions of law, including without limitation in those instances where Texas law is applicable, the Texas Finance Code and Sections 302 and 393 thereof. Section 2.3 Amendment to Section 2.1(b). Effective as of the date hereof, Section 2.1(b) of the Agreement is hereby amended and restated to read in its entirety as follows: (b) the sum of the outstanding Swing Loan Advances, the Letter of Credit Liabilities and the CSO LC Liabilities. Section 2.4 Amendment to Section 2.7(a). Effective as of the date hereof, clause (i) of Section 2.7(a) of the Agreement is hereby amended and restated in its entirety to read as follows: (i) which when added to the then outstanding Revolving Credit Loan Advances plus the outstanding Letter of Credit Liabilities plus the outstanding CSO LC Liabilities plus the outstanding Swing Loan Advances would exceed the Revolving Credit Commitments, and Section 2.5 Amendment to Section 2.9. Effective as of the date hereof, Section 2.9 of the Credit Agreement is amended by adding the phrase "or any CSO LC Liabilities" to the end of the last sentence therein. Section 2.6 Amendment to Section 2.11(a). Effective as of the date hereof, the references to "outstanding Letter of Credit Liabilities" in Section 2.11(a) of the Agreement are hereby deleted and the references to "outstanding Letter of Credit Liabilities and CSO LC Liabilities" are inserted in lieu thereof. FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - Page 2
Section 2.7 Amendment to Section 2.11(b). Effective as of the date hereof, the reference to the phrase "plus the Letter of Credit Liabilities" in Section 2.11(b) of the Agreement is hereby deleted and the reference to the phrase "plus the Letter of Credit Liabilities plus the CSO LC Liabilities" is inserted in lieu thereof. Section 2.8 Amendment to Section 3.1(a)(ii)(B). Effective as of the date hereof, Section 3.1(a)(ii)(B) of the Agreement is hereby amended and restated to read in its entirety as follows: (B) the sum of the outstanding Revolving Credit Loan Advances, CSO LC Liabilities and Swing Loan Advances Section 2.9 Amendment to Section 4.3. Effective as of the date hereof, the references to "the Letter of Credit Liabilities" in Section 4.3(a)(ii) and Section 4.3(b) of the Agreement are hereby deleted and the reference to "the Letter of Credit Liabilities plus CSO LC Liabilities" is inserted in each such subsection in lieu thereof. Section 2.10 Amendment to Section 8.1. Effective as of the date hereof, subsection (l) of Section 8.1 of the Agreement is hereby relettered "(m)" and a new Section 8.1(l) is added to the Agreement to read in its entirety as follows: Section 8.1(l) CSO Program Agreements. As soon as available and in any event within 30 days after the execution and delivery thereof, copies of each agreement between the Borrower or any Guarantor and an unaffiliated, third - - party lender in connection with any CSO Program and the contractual arrangement between the parties thereto in connection therewith; and Section 2.11 Amendment to Section 9.1. Effective as of the date hereof, the word "and" appearing at the end of Section 9.1(e) of the Agreement is hereby deleted, and the remaining provisions of such Section are hereby amended and restated to read in their entirety as follows: (f) Debt consisting of CSO LCs; and (g) Debt (other than Debt described in clauses (a) through and including (f) above) in an aggregate amount not to exceed $500,000.00 at any one time outstanding. Section 2.12 Amendment to Section 9.5. Effective as of the date hereof, (a) clause (g) of Section 9.5 of the Agreement is hereby amended by deleting the word "and" at the end thereof, (b) clause (h) of Section 9.5 of the Agreement is hereby amended by deleting the period at the end of such clause and inserting "; and" in lieu thereof and (c) a new clause (i) is hereby added to Section 9.5 of the Agreement to read in its entirety a follows: (i) any CSO LC Disbursements made by the CSO LC Issuer in connection with the CSO Program. FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - Page 3
Section 2.13 Amendment to Section 10.4. Effective as of the date hereof, the reference to the dollar amount "$8,000,000" in Section 10.4 of the Agreement is hereby deleted and the reference to the dollar amount "$10,000,000" is inserted in lieu thereof. Section 2.14 Amendment to Schedule 7.14. Effective as of the date hereof, all references to "Schedule 7.14" in the Agreement shall be deemed to mean the "Schedule 7.14" attached hereto as Schedule 7.14. Section 2.15 Amendment to Exhibit C. Effective as of the date hereof, all references to "Exhibit C" in the Agreement shall be deemed to be references to the "Exhibit C" attached hereto as Exhibit C. ARTICLE III Conditions Precedent Section 3.1 Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (a) Amendment. The Agent shall have received this Amendment executed by the Borrower, the Agent, the Issuing Bank and the Required Lenders and consented to by the Guarantors. (b) No Default. No Default shall have occurred and be continuing. (c) Representations and Warranties. All of the representations and warranties contained in Article VII of the Agreement and in the other Loan Documents shall be true and correct on and as of the date of this Amendment with the same force and effect as if such representations and warranties had been made on and as of such date, except to the extent such representations and warranties speak to a specific date. (d) Amendment Fee. The Borrower shall have paid to the Agent for the account of the Lenders executing this Amendment a nonrefundable amendment fee in the amount of $15,000 to be shared pro rata among the Lenders who have executed and delivered this Amendment on or before August 3, 2005. (e) CSO Program Agreements. The Agent shall have received copies of the agreements currently in existence as described in and as required by Section 8.1(l) of the Agreement, as amended by this Amendment. (f) Legal Opinions. The Agent shall have received favorable opinions of legal counsel to the Borrower and each Guarantor, satisfactory to the Agent, as to such matters as the Agent may reasonably request. (g) Additional Documentation. The Agent shall have received such additional approvals, opinions or documents as the Agent or its legal counsel may reasonably request. FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - Page 4
ARTICLE IV Ratifications, Representations and Warranties Section 4.1 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. The Borrower, the Lenders, the Issuing Bank and the Agent agree that the Agreement as amended hereby and the other Loan Documents shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. Section 4.2 Representations and Warranties. The Borrower hereby represents and warrants to the Lenders, the Agent and the Issuing Bank that (a) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the certificate of incorporation or bylaws of the Borrower, (b) the representations and warranties contained in the Agreement, and any other Loan Document are true and correct on and as of the date hereof as though made on and as of the date hereof (except for such representations and warranties as are limited by their express terms to a specific date), (c) effective upon the execution of this Amendment and the Loan Documents executed in connection herewith, no Default has occurred and is continuing, and (d) the Borrower is in full compliance with all covenants and agreements contained in the Agreement as amended hereby. ARTICLE V Miscellaneous Section 5.1 Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document including any Loan Document furnished in connection with this Amendment shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Lenders, the Agent or the Issuing Bank or any closing shall affect the representations and warranties or the right of the Lenders, the Agent or the Issuing Bank or the Agent to rely upon them. Section 5.2 Reference to Agreement. Each of the Loan Documents, including the Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement shall mean a reference to the Agreement as amended hereby. Section 5.3 Expenses of Agent. As provided in the Agreement, Borrower agrees to pay on demand all costs and expenses incurred by the Agent in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including without limitation the reasonable costs and fees of the Agent's legal counsel, and all costs and expenses incurred by the Agent in connection with the enforcement or preservation of any rights under the FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - Page 5
Agreement or any other Loan Document, including without limitation the reasonable costs and fees of the Agent's legal counsel. Section 5.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 5.5 Applicable Law. This Amendment and all other Loan Documents executed pursuant hereto shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America. Section 5.6 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of the Lenders, the Agent, the Issuing Bank and the Borrower and their respective successors and assigns, except the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lenders and the Agent. Section 5.7 Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Signatures transmitted by facsimile, email or other electronic medium shall be effective as originals. Section 5.8 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section 5.9 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. [Remainder of Page Intentionally Left Blank] FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - Page 6
Executed as of the date first written above. BORROWER: EZCORP, INC. By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- AGENT, ISSUING BANK AND LENDERS: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent, Issuing Bank and a Lender By: ------------------------------------ Richard Gan Vice President GUARANTY BANK, as a Lender By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - SIGNATURE PAGE
The Guarantors hereby consent and agree to this Amendment and agree that the Guaranty shall remain in full force and effect and shall continue to (i) guarantee the Guaranteed Indebtedness (as defined in the Guaranty), and (ii) be the legal, valid and binding obligation of the Guarantors and enforceable against the Guarantors in accordance with its terms. In addition, the Guarantors hereby agree that each Subsidiary Security Agreement, the Contribution and Indemnification Agreement and each Real Property Security Document shall remain in full force and effect and shall continue to (i) secure the Obligations (as defined in the Loan Documents other than the Real Property Security Documents) and the Debt (as defined in the Real Property Security Documents), and (ii) be the legal, valid and binding obligation of the Guarantors and enforceable against the Guarantors and collateral in accordance with their respective terms. OBLIGATED PARTIES: ----------------- EZCORP INTERNATIONAL, INC. EZMONEY COLORADO, INC. EZMONEY HOLDINGS, INC. EZMONEY MANAGEMENT, INC. EZPAWN ALABAMA, INC. EZPAWN ARKANSAS, INC. EZPAWN COLORADO, INC. EZPAWN FLORIDA, INC. EZPAWN HOLDINGS, INC. EZPAWN INDIANA, INC. EZPAWN LOUISIANA, INC. EZPAWN NEVADA, INC. EZPAWN OKLAHOMA, INC. EZPAWN TENNESSEE, INC. PAYDAY LOAN MANAGEMENT, INC. TEXAS EZPAWN MANAGEMENT, INC. By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- TEXAS EZPAWN, L.P. By: Texas EZPAWN Management, Inc., its sole general partner By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - SIGNATURE PAGE
TEXAS PRA MANAGEMENT, L.P. By: EZMoney Management, Inc., its sole general partner By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- TEXAS EZMONEY, L.P. By: PAYDAY LOAN MANAGEMENT, INC., its sole general partner By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT - SIGNATURE PAGE
SCHEDULE 7.14 List of Subsidiaries Number of Shares or Type of Jurisdiction Federal Foreign Percent Corporate Name Entity of Entity Tax I.D. State I.D. Number Jurisdictions Interest - -------------- ------- ------------ -------- ----------------- ------------- --------- EZCORP, Inc. Corporation Delaware 74-2540145 2196789 TX EZCORP INTERNATIONAL, INC. Corporation Delaware 74-2874123 2870970 N/A 1,000 EZPAWN Alabama, Inc. Corporation Delaware 74-2643349 2307445 AL 1,000 EZPAWN Arkansas, Inc. Corporation Delaware 74-2629548 2292291 AR 1,000 EZPAWN Colorado, Inc. Corporation Delaware 74-2629549 CO - 2284741/ CO & TX 1,000 TX - 8700005692 EZPAWN Florida, Inc. Corporation Delaware 74-2655620 2313729 FL 1,000 EZPAWN Indiana, Inc. Corporation Delaware 74-2655624 2317132 IN 1,000 EZMoney Management, Inc. Corporation Delaware 74-2655625 2307447 TX 1,000 EZPAWN Louisiana, Inc. Corporation Delaware 74-2704187 2392318 LA 1,000 EZPAWN Nevada, Inc. Corporation Delaware 74-2672899 NV - 2328220/ NV & CA 1,000 CA - 2010557 EZPAWN Oklahoma, Inc. Corporation Delaware 74-2621073 2284738 OK 1,000 EZMoney Holdings, Inc. Corporation Delaware 74-2672902 2326107 N/A 1,000 EZPAWN Tennessee, Inc. Corporation Delaware 74-2641965 2302767 TN 1,000 EZPAWN Holdings, Inc. Corporation Delaware 74-2540146 2198785 MS 100 Texas EZPAWN Management, Inc. Corporation Delaware 74-2689697 2361958 TX 1,000 Texas EZPAWN L.P. Limited Texas 74-2689698 7127110 Partnership Texas PRA Management, L.P. Limited Texas 02-0596091 800081488 Partnership Texas EZMONEY, L.P. Limited Texas 83 - 0360848 800210635 Partnership Schedule 7.14
Number of Shares or Type of Jurisdiction Federal Foreign Percent Corporate Name Entity of Entity Tax I.D. State I.D. Number Jurisdictions Interest - -------------- ------- ------------ -------- ----------------- ------------- --------- Payday Loan Management, Inc. Corporation Delaware 83 - 0360843 800220645 TX 1,000 EZMONEY Colorado, Inc. Corporation Delaware 20 - 2531048 20051041748 CO 1,000 Schedule 7.14
EXHIBIT C ADVANCE REQUEST FORM TO: Wells Fargo Bank, National Association, as Agent 111 Congress Avenue, Suite 300 Austin, Texas 78701 Attention: Richard Gan Vice President Gentlemen: The undersigned is an officer of EZCORP, Inc. (the "Borrower"), and is authorized to make and deliver this certificate pursuant to that certain Third Amended and Restated Credit Agreement dated as of April 8, 2004, among the Borrower, Wells Fargo Bank, National Association, as Agent, as Issuing Bank, as Lender, and as Swing Lender, and the other Lenders named therein (as the same has been amended, restated, modified, or supplemented from time to time being referred to herein as the "Credit Agreement"). All terms defined in the Credit Agreement shall have the same meaning herein. In accordance with the Credit Agreement, the Borrower hereby (check whichever is applicable): ___ 1. Requests that the Swing Lender make a Swing Loan Advance under the Swing Loan in the amount set forth in item (I)(e) below on the date set forth in item (I)(f) below. ___ 2. Requests that the Lenders with a Revolving Credit Commitment make a Base Rate Advance under the Revolving Credit Loan in the amount set forth in item (I)(e) below on the date set forth in item (I)(f) below. ___ 3. Requests that the Lenders with a Revolving Credit Commitment make a Eurodollar Advance under the Revolving Credit Loan in the amount set forth in item (I)(e) below on the date set forth in item (I)(f) below with an Interest Period of: one month ------------------ two months ------------------ three months ------------------ six months ------------------ In connection with the foregoing and pursuant to the terms and provisions of the Credit Agreement, the undersigned hereby certifies to Agent and the Lenders that the following statements are true and correct: (i) The representations and warranties contained in Article VII of the Credit Agreement and in each of the other Loan Documents are true and correct in all material respects on and as of the date hereof with the same force and effect as if made on and as of such date except to the extent such representations and warranties speak to a specific date. (ii) No Default has occurred and is continuing or would result from the Advance requested hereunder. (iii) No Material Adverse Effect has occurred since the date of the most recent financial statements delivered to the Agent and the Lenders pursuant to Section 8.1 of the Credit Agreement. 1
(iv) The amount of the Revolving Credit Loan Advance requested hereunder, if any, when added to all outstanding Revolving Credit Loan Advances, Swing Loan Advances, Letter of Credit Liabilities and CSO LC Liabilities, will not exceed the Revolving Credit Commitments. (v) The amount of the Swing Loan Advance requested hereunder, if any, when added to all outstanding Swing Loan Advances, will not exceed the lesser of (x) the Swing Commitment, and (y) the Revolving Credit Commitments minus the sum of the outstanding Revolving Credit Loan Advances, the Letter of Credit Liabilities and the CSO LC Liabilities. (vii) All information supplied below is true, correct, and complete as of the date hereof. I. Advance Request Information for Revolving Credit Loans or Swing Loans (a) (1) Aggregate amount of Revolving Credit Commitments $____________ (2) Amount of Swing Commitment $____________ (b) (1) Outstanding principal amount of (A) Revolving Credit Loan Advances and (B) Swing Loan Advances $____________ (2) Outstanding Letter of Credit Liabilities $____________ (3) Outstanding CSO LC Liabilities $____________ (4) Line (b)(1)(A) and (B) plus Line (b)(2) plus Line (b)(3) $____________ (c) Net availability of credit under the Revolving Credit Commitment: (Line (a)(1) minus Line (b)(4)) $____________ (d) Net availability of credit under Swing Commitment (lesser of (1) Line (a)(2) minus Line (b)(1)(B), and (ii) Line (a)(1) minus Line (b)(4) $____________ (e) Amount of requested Revolving Credit Loan Advance or Swing Loan Advance $____________ (f) Date of requested Revolving Credit Loan Advance or Swing Loan Advance _______, 200___ BORROWER: EZCORP, INC. By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- Dated as of: -------------------------------------------- [insert date of requested Advance] 2
EXHIBIT 31.1 CERTIFICATION 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 2, 2005 /s/ Joseph L. Rotunda --------------------- Joseph L. Rotunda President, Chief Executive Officer & Director
EXHIBIT 31.2 CERTIFICATION 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 2, 2005 /s/ Dan N. Tonissen ------------------- Dan N. Tonissen Senior Vice President, Chief Financial Officer & Director
EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2005 (the "Report") by EZCORP, Inc. ("Registrant"), the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. Date: August 2, 2005 /s/ Joseph L. Rotunda --------------------- Joseph L. Rotunda President, Chief Executive Officer & Director
EXHIBIT 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2005 (the "Report") by EZCORP, Inc. ("Registrant"), the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. Date: August 2, 2005 /s/ Dan N. Tonissen ------------------- Dan N. Tonissen Senior Vice President, Chief Financial Officer & Director